Friday, January 31, 2014
Jose Carlos Laguna de Paz, University of Valladolid describes Understanding the limits of judicial review in European competition law.
ABSTRACT: This article aims to contribute to better understanding of the scope of judicial review in European competition law. It does so by exploring its boundaries and highlighting the different functions of judicial review and competition law enforcement. On the one hand, the European courts have to protect citizens’ rights. Fit for this purpose, Article 263 Treaty on the Functioning of the European Union (TFEU) provides a comprehensive way to review the law, the facts and their appraisal. However, on the other hand, courts are not competition authorities. This raises some limits for judicial review. First, courts are entitled to annul the Commission’s decision, but as a rule they cannot pronounce on the merits of the case. Second, courts can annul discretionary decisions when they do not conform with the legal framework, but cannot substitute their own discretion for that of the European Commission. Third, judicial review can eventually be limited to control whether the Commission made a manifest error in the assessment of complex and technical issues. Fourth, in spite of the unlimited jurisdiction (Article 261 TFEU), in fact courts give the European Commission significant leeway in the application of fines.
Bill Baer (DOJ) offer his Reflections on Antitrust Enforcement in the Obama Administration in a recent speech.
Efficient Competition Through Cheap Talk: Competing Auctions and Competitive Search Without Ex Ante Price Commitment
Kyungmin Kim, University of Iowa and Philipp Kircher, University of Pennsylvania discuss Efficient Competition Through Cheap Talk: Competing Auctions and Competitive Search Without Ex Ante Price Commitment.
ABSTRACT: We consider a frictional two-sided matching market in which one side uses public cheap-talk announcements so as to attract the other side. We show that if the first-price auction is adopted as the trading protocol, then cheap talk can be perfectly informative, and the resulting market outcome is efficient, constrained only by search frictions. We also show that the performance of an alternative trading protocol in the cheap-talk environment depends on the level of price dispersion generated by the protocol: If a trading protocol compresses (spreads) the distribution of prices relative to the first-price auction, then an efficient fully revealing equilibrium always (never) exists. Our results identify the settings in which cheap talk can serve as an efficient competitive instrument, in the sense that the central insights from the literature on competing auctions and competitive search continue to hold unaltered even without ex ante price commitment.
From Airtours to Ryanair: Is the More Economic Approach to EU Merger Law Really About More Economics?
Anne Witt, University of Leicester - School of Law asks From Airtours to Ryanair: Is the More Economic Approach to EU Merger Law Really About More Economics?
ABSTRACT: In 2002, the General Court famously annulled three merger prohibitions under the EC Merger Regulation because of serious errors of assessment. Amongst others, it held that the Commission had ignored economic theory. Consequently, the Commission announced radical changes to its approach to ensure that future assessments would be based on rigorous economic and econometric analysis. This contribution examines the changes introduced by the Commission’s ‘more economic approach’ to EU merger review. An analysis of the Commission’s merger guidelines and decisions reveals that the core of the new approach by no means lies in the use of econometric analyses and complex theories of microeconomics. Its essence rather lies in aligning the purpose of EU merger law with the consumer welfare aim of modern industrial economics. On the basis of this new legal objective, the Commission reinterpreted the substantive test of EU merger law as containing an unwritten consumer harm requirement and reconsidered the role of efficiency effects. The Commission’s new concept of harm is not entirely compatible with the case law of the Court of Justice, which continues to adhere to its ‘less economic’ concepts of the 1970s. Moreover, the Commission’s attempts to reconcile the two worlds have resulted in theories of harm that are ambiguous and therefore detrimental to legal certainty.
Thursday, January 30, 2014
Chris Jose, Herbert Smith Freehills Stephen P. King, Monash University - Department of Economics; Economic Regulation Authority of Western Australia (ERA), and Graeme Samuel, Monash University - Faculty of Business and Economics provide An Agenda for Australia's National Competition Policy Inquiry.
ABSTRACT: The recently elected Australian government has announced that it will carry out a ‘root and branch’ Review of Australia’s competition laws. What should such a Review cover? In this report, we consider the key areas that need to be covered by the Review. We highlight the key issues and, in some areas, present potential directions for reform. The aim of this report is to present an agenda – not to present the 'solutions’. The first step of any reform process is to outline the scope of inquiry. That is the aim of the current report. This report is divided into two parts. The first part looks at Australia’s core competition statute, the Competition and Consumer Act 2010, and considers the parts of this Act that should be considered by the Review and the areas that should be ‘outside scope’. We make this delineation on both practical and policy grounds. In particular, the Review should consider how the competition provisions of the Act, and its operation and administration, can best serve the objective of enhancing the welfare of Australians. The second part of this report considers areas outside the Competition and Consumer Act that impact on National Competition Policy objectives and which most urgently require attention. In particular, this part of the report focuses on the need for an integrated reform process of the type that emerged from the 1993 Hilmer report.
Francesc Trillas, Autonomous University of Barcelona - Department of Economics; University of Navarra - IESE Business School describes The Institutional Architecture of Regulation and Competition: Spain's 2012 Reform.
ABSTRACT: The decision to allocate a given number of governmental interventions in one or more agencies, for example, in the field of regulation and antitrust, raises important issues in organizational and institutional economics. The economics literature suggests that this decision should take into account horizontal and vertical incentive issues and should also take into account the risk of capture and the degree of optimal regulatory independence. More specifically, it should also consider the subtle complementarity and substitutability between competition policy and ex-ante regulation, and its relationship with the vertical chain of government. These issues are illustrated with the decision of the Spanish government to send a legislative proposal to Congress in early 2012 to merge the main network industry regulators wit the competition policy authority. The combination of the economic literature's insights with the specific characteristics of regulated sectors in Spain suggests the need for regulatory reform, but does not seem consistent neither with full integration nor with a homogeneous level of (lower than in the status quo) regulatory independence.
Thomas J. Horton (University of South Dakota) & Robert H. Lande (University of Baltimore) ask Should the Internet Exempt the Media Sector from the Antitrust Laws?
ABSTRACT: This article examines whether the "old media" and the "new media", including the Internet, should be considered to be within the same relevant market for antitrust purposes. To do this the article first demonstrates that proper antitrust consideration of the role of non-price competition necessitates that “news” and “journalism” be analyzed in two distinct ways. First, every part of the operations of a newspaper (or other type of media source), including its investigative reporting and local coverage, should be assessed separately. We present empirical evidence collected for this study which demonstrates that the old media continues to win the vast majority of journalism awards. This and other evidence shows that the quality and variety of a number of specific old media functions are often so much better they should be considered distinct markets for antitrust purposes. Second, the evidence shows that the totality of what newspapers (or other media sources) do should be analyzed as a whole. This is because newspapers constitute a valuable form of “one stop shopping” for a diverse array of bundled journalism. For both reasons newspapers often should continue to constitute separate markets for antitrust purposes. If antitrust decision makers accept arguments that the Internet should routinely be included within the same market as the traditional media, however, the media sector would become virtually exempt from the antitrust laws. This would be a prescription for disaster.
The Compatibility with Fundamental Rights of the EU Antitrust Enforcement System in Which the European Commission Acts Both as Investigator and as First-Instance Decision Maker
Wouter Wils (King's College London – The Dickson Poon School of Law; European Commission) offers aa provacative piece on The Compatibility with Fundamental Rights of the EU Antitrust Enforcement System in Which the European Commission Acts Both as Investigator and as First-Instance Decision Maker.
ABSTRACT: Following the Jussila and Menarini judgments, it is now entirely clear that Article 6 ECHR, as interpreted by the European Court of Human Rights, provides no grounds for abandoning the system in which the European Commission both investigates suspected infringements of the EU antitrust prohibitions and takes decisions finding such infringements and imposing fines. Article 6(1) ECHR requires however that the EU General Court, when reviewing European Commission decisions, exercises full jurisdiction. What is decisive is whether the General Court in fact exercises full jurisdiction, not any general statements which the Courts may make as to its powers. It is nevertheless also important that the General Court is seen to exercise full jurisdiction. For this reason, potentially misleading general statements should be avoided. A number of internal checks and balances and procedural guarantees apply to the European Commission's administrative procedure, and regularly show their usefulness. This however in no way reduces the need for a full review by the General Court, when requested by the undertakings concerned. Indeed, the internal checks and balances and procedural guarantees derive their full effectiveness precisely from the possibility of a subsequent full review by the General Court.
Wednesday, January 29, 2014
Emanuele Giovannetti, Anglia Ruskin University and Laura Magazzini, University of Verona offer Resale Price Maintenance: An Empirical Analysis of UK Firms' Compliance.
ABSTRACT: Empirical evidence on resale price maintenance (RPM) is scarce. This article provides novel empirical evidence based on a unique database of RPM complaints, lodged in the UK to the Office of Fair Trading (OFT) between 2007 and 2009. We describe the characteristics of the commodity being traded and of the relevant upstream and downstream firms and their sectors. We then present an econometric analysis to assess how the probability of compliance to the OFT request to withdraw the RPM can be affected by the specific features of the relevant economic context in which this restraint has taken place.
Cary A. Deck, University of Arkansas - Department of Economics, Erik O. Kimbrough, Simon Fraser University and Steeve Mongrain, Simon Fraser University (SFU) - Department of Economics describe Paying for Express Checkout: Competition and Price Discrimination in Multi-Server Queuing Systems.
ABSTRACT: We model competition between two firms selling identical goods to customers who arrive in the market stochastically. Shoppers choose where to purchase based upon both price and the time cost associated with waiting for service. One seller provides two separate queues, each with its own server, while the other seller has a single queue and server. We explore the market impact of the multi-server seller engaging in waiting cost based price discrimination by charging a premium for express checkout. Specifically, we analyze this situation computationally and through the use of controlled laboratory experiments. Somewhat surprisingly, we find that this form of price discrimination is harmful to sellers and beneficial to consumers. When the two-queue seller offers express checkout for impatient customers, the single queue seller focuses on the patient shoppers thereby driving down prices and profits while increasing consumer surplus.
Marc Moller, Department of Economics, University of Berne and Makoto Watanabe, VU University Amsterdam, Tinbergen Institute analyze Competition in the Presence of Individual Demand Uncertainty.
ABSTRACT: This paper sheds light on a recent empirical controversy about the effect of competition on price discrimination in airline markets (Borenstein and Rose (1994), Gerardi and Shapiro, (2009)). We introduce individual demand uncertainty into Hotelling’s model of horizontal product differentiation and show that in equilibrium, firms offer advance purchase discounts. Consumers trade-off an early (uninformed) purchase at a low price against a late (informed) purchase at a high price. Relative to a (multi-product) monopolist, competing firms offer larger discounts, leading to an intertemporal distribution of sales that is more skewed towards low prices. We show that whether competition has a positive or a negative effect on the Gini coefficient of price dispersion depends on the degree of product differentiation and the level of demand uncertainty.
Chrysovalantou Milliou, Athens University of Economics and Business and Apostolos Pavlou, Athens University of Economics and Business theorize about Upstream Mergers, Downstream Competition, and R&D Investments.
ABSTRACT: In this paper, we provide an explanation for why upstream firms merge, highlighting the role of R&D investments and their nature, as well as the role of downstream competition. We show that an upstream merger generates two distinct efficiency gains when downstream competition is not too strong and R&D investments are sufficiently generic: The merger increases R&D investments and decreases wholesale prices. We also show that upstream firms merge unless R&D investments are too specific and downstream competition is neither too weak nor too strong. When the merger materializes, the merger‐generated efficiencies pass on to consumers, and thus, consumers can be better off.
Tuesday, January 28, 2014
Effects of Physician-Directed Pharmaceutical Promotion on Prescription Behaviors: Longitudinal Evidence
Anusua Datta (Philadelphia University) and Dhaval M. Dave (Bentley University) provide Effects of Physician-Directed Pharmaceutical Promotion on Prescription Behaviors: Longitudinal Evidence.
ABSTRACT: Spending on prescription drugs (Rx) represents one of the fastest growing components of U.S. healthcare spending, and has coincided with an expansion of pharmaceutical promotional spending. Most (83%) of Rx promotion is directed at physicians in the form of visits by pharmaceutical representatives (known as detailing) and drug samples provided to physicians’ offices. Such promotion has come under increased public scrutiny, with critics contending that physician-directed promotion may play a role in raising healthcare costs and may unduly affect physicians’ prescribing habits towards more expensive, and possibly less cost-effective, drugs. In this study, we bring longitudinal evidence to bear upon the question of how detailing impacts physicians’ prescribing behaviors. Specifically, we examine prescriptions and promotion for a particular drug class based on a nationally-representative sample of 150,000 physicians spanning 24 months. The use of longitudinal physician-level data allows us to tackle some of the empirical concerns in the extant literature, virtually all of which has relied on aggregate national data. We estimate fixed-effects specifications that bypass stable unobserved physician-specific heterogeneity and address potential targeting bias. In addition, we also assess differential effects at both the extensive and intensive margins of prescribing behaviors, and differential effects across physician- and market-level characteristics, questions which have not been explored in prior work. The estimates suggest that detailing has a significant and positive effect on the number of new scripts written for the detailed drug, with an elasticity magnitude of 0.06. This effect is substantially smaller than those in the literature based on aggregate information, suggesting that most of the observed relationship between physician-directed promotion and drug sales is driven by selection bias. Qualitatively consistent with the literature, we find that detailing impacts selective brand-specific demand but does not have any substantial effects on class-level demand. Results also indicate that most of the detailing response may operate at the extensive margin; detailing affects the probability of prescribing the drug more than it affects the number of prescriptions conditional on any prescribing. We draw some implications from these estimates with respect to effects on healthcare costs and public health.
Dirk Bergemann(Cowles Foundation, Yale University) and Alessandro Bonatti (Sloan School of Management, MIT) are Selling Cookies.
ABSTRACT: We analyze data pricing and targeted advertising. Advertisers seek to tailor their spending to the value of each consumer. A monopolistic data provider sells cookies. informative signals about individual consumers' preferences. We characterize the set of consumers targeted by the advertisers and the optimal monopoly price of cookies. The ability to influence the composition of the targeted set provides incentives to lower prices. Thus, the price of data decreases with the reach of the database and increases with the fragmentation of data sales. We characterize the optimal policy for selling information and its implementation through nonlinear pricing of cookies.
Regulatory Versus Natural Endogenous Sunk Costs: Observational Equivalence In Rationalizing Lower Bounds On Industry Concentration
Pham Hoang Van (Associate Professor of Economics, Hankamer School of Business, Baylor University) and David D. VanHoose (Professor of Economics and Herman Lay Professor of Private Enterprise, Hankamer School of Business, Baylor University) URL: http://d.repec.org/n?u=RePEc:dpc:wpaper:1413&r=com observe Regulatory Versus Natural Endogenous Sunk Costs: Observational Equivalence In Rationalizing Lower Bounds On Industry Concentration.
ABSTRACT: We propose a theory of 'regulatory endogenous sunk costs'(RESC), in which a captured regulator raises minimum quality standards when market size increases in order to protect incumbent firms. Our RESC theory's predictions that market size is unrelated to industry concentration and positively related to product quality are observationally equivalent to those of Sutton's theory of `natural endogenous sunk costs' (NESC), in which incumbents increase quality investments to compete for a share of a growing market. The NESC theory suggests that, with higher entry costs, incumbents jockey for increased market shares by increasing quality investments. The RESC theory, however, predicts that product quality should be lower with higher entry costs. Entry costs and minimum quality standards each provide incumbents with protection from profit erosions that entry otherwise would produce. A key implication of our analysis is the possibility that some industries might be misclassified as natural oligopolies. We provide a few examples of candidate RESC industries.
Henry Smith (Harvard) has written on PROPERTY AS PLATFORM: COORDINATING STANDARDS FOR TECHNOLOGICAL INNOVATION.
ABSTRACT: This article examines the coordination of inputs to the development and use of technology as a problem in the theory of property. Recent misunderstanding of property, in terms of both the substance of its rights and the implications of its remedies, have presented property as an obstacle to—rather than as a platform for—rapidly evolving technology. This article will first present a framework for property that captures its role in organizations, intellectual property, as well as property law itself. An information-cost theory of property stresses modularity, standardization, and hybrid systems of private and common rights, which allow for separation of functions and specialization. Modularity and separation in property allow for specialization but also give rise to the potential for strategic behavior. Each specialist may only maximize locally, which can lead to social losses. To counteract this strategic behavior, a combination of boundary placement and interface rules can be used, as is commonly seen in common property systems and their variants. The article then applies this framework to Standard-Setting Organizations (SSOs) and shows that separation of the standardization function is yet another type of property separation and specialization. As with other dimensions of separation, strategic behavior becomes possible. But contrary to some widespread views, the tools of property do not simply cause the problem of opportunistic holdup in SSOs; property also provides some solutions, in this case through doctrines of equity that are aimed at counteracting opportunism in general.
Monday, January 27, 2014
We had a great blog symposium on the recent 141 page Bazaarvoice merger decision in which DOJ prevailed against the merging parties.
You can read the posts by linking below:
- Franco Castelli, Wachtell, Lipton, Rosen & Katz
- Michael Cohen, Paul Hastings
- Tom Dillickrath, BakerBotts
- Jim Fishkin, Dechert
- Bill Kolasky, Hughes Hubbard
- Pete Levitas, Arnold & Porter
- Sharis Pozen, Steve Sunshine, Joe Rancour and Kiran Bhat, Skadden
- Tim Muris & Christine Wilson, Kirkland & Ellis
Michael J. Mazzeo, Kellogg School of Management, Northwestern University, Jonathan Hillel Skadden, Arps, Slate, Meagher & Flom LLP and Samantha Zyontz Harvard University ask DO NPEs MATTER? NON-PRACTICING ENTITIES AND PATENT LITIGATION OUTCOMES.
ABSTRACT: It is widely argued that so-called “patent trolls” are corrupting the U.S. patent system and endangering technology innovation and commercialization at large. For example, a recent White House report argued that “trolls” hurt firms of all sizes and advocated for specific policies aimed at curtailing practices thought to be particularly harmful. Yet the existence and extent of any systematic effects of so-called “troll-like” behavior, and the implications of modern patent assertion practices by Non-Practicing Entities (“NPEs”), remains unclear. This article develops novel empirical evidence to inform the debate over NPEs on patent litigation. Specifically, we conduct a large-scale empirical analysis of more than 1,750 patent infringement cases decided by a judge or jury in U.S. district courts between 1995 and 2011. We focus on case outcomes, including findings of validity and infringement, and the distributions and values of resulting damage awards. We find some relatively small differences in terms of lower success rates and award values in cases where the patent holders are NPEs. Yet across the subset of cases in which damages are awarded to the patent holders, we find no significant differences in the distribution of awards between NPEs and practicing entities. Nonetheless, there are substantial differences in litigation behavior, success rates, and award values among types of NPEs (that is, universities, individuals, and Patent Assertion Entities (“PAEs”)). Moreover, we find evidence of certain NPEs engaging in strategic and rational patent acquisition, assertion, and settlement-licensing practices. We posit that these practices may reflect, or perhaps derive from, the economic separation of patent rights from their underlying technologies that is represented in NPE approaches to patent assertion.
Roger Brookes, Cravath discusses SSO RULES, STANDARDIZATION, AND SEP LICENSING: ECONOMIC QUESTIONS FROM THE TRENCHES.
ABSTRACT: Despite a widespread assumption that SEP-driven “holdup” in patent-dense standardized industries requires changes to SSO rules and governmental corrective intervention, the empirical record shows intensive investment, commercial success, and competitiveness throughout that most patent-dense of industries, cellular telephony. Existing rules have not resulted in economically unreasonably cumulative royalty levels, nor in “holdup” that has identifiably impeded the uptake of any new technology. The article offers hypotheses about the causes of this disconnect between theory and the real world, and cautions that inadequately considered changes imposed on SEP licensing systems may have unintended harmful results. Existing SSO patent licensing rules are the result of truly ex ante negotiations among industry participants of differing interests that must cooperate to create new value. A diverse sequence of investments is necessary for the creation of a commercially successful standard; the effect of any proposed change to SEP licensing rules on each class of necessary investor must be carefully considered. Rather than promising assured returns for all participants, standardization changes the nature and allocation of risk, potentially increasing the risk facing pre-standardization investors while decreasing the risks facing post-standardization investors. Even the mechanisms available to resolve disputes concerning SEP licensing can have substantive impact; the introduction of the possibility of antitrust remedies for violations of what began as contractual FRAND undertakings strongly changes bargaining power in license negotiations, and hence reduces incentives to invest in basic R&D. In studying all these issues, models built around the development and licensing of a single invention may have little relevance to industries characterized by portfolio licensing.