Antitrust & Competition Policy Blog

Foreign ownership and market power in banking: Evidence from a world sample

Manthos D. Delis, Finance Group and Centre for Banking, Money, and Institutions, Surrey Business School, University of Surrey, Guildford, and Sotirios Kokas, Department of Economics, University of Cyprus discuss Foreign ownership and market power in banking: Evidence from a world sample.

ABSTRACT: Our study puts special attention to the fact that R&D cooperations in the pharmaceutical industry are formed at different stages throughout the drug development process. We study if the timing to engage in R&D cooperations in the pharmaceutical industry has different impacts on the technology and product markets. Using a comprehensive dataset on the pharmaceutical industry, and estimating a heterogeneous treatment effects model (Heckman et al., 2006) our results show that R&D cooperations formed at the early stages increase the number of R&D projects and the number of drugs launched on the product market. Most interestingly, late stage R&D cooperations significantly reduce the number of drugs launched on the market, even though they increased firms’ activity in the technology markets. This result highlights the fact that firms re-optimize their drug development portfolio to avoid wasteful duplicatio! n and cannibalizing the sales of the jointly developed drug in R&D cooperations. Our study show that firms cooperating in late stage collaborations re-optimize their individual drug development portfolios, which significantly reduces the number of drugs offered on the market.

Optimal Compatibility in Systems Markets

Sang-Hyun Kim (University of East Anglia) and Jay Pil Choi (University of New South Wales) discuss Optimal Compatibility in Systems Markets.

ABSTRACT:  We analyze private and social incentives for standardization to ensure market-wide system compatibility in a two-dimensional spatial competition model. It is shown that there is a fundamental conflict of interest between consumers and producers over the standardization decision. Consumers prefer standardization with full compatibility because it offers more variety that confers better match with their ideal specifications. However, firms are likely to choose the minimum compatibility to maximize product differentiation and soften competition. This is in sharp contrast to the previous literature that shows the alignment of private and social incentives for compatibility. We also characterize the free-entry equilibria under the maximum and the minimum compatibility. With free entry, more firms enter without standardization, but the number of available system variety is less than the one under standardization.

Intellectual Property Experimentalism By Way Of Competition Law

Tim Wu (Columbia) explores Intellectual Property Experimentalism By Way Of Competition Law.

ABSTRACT: Competition law and Intellectual Property have divergent intellectual cultures–the former more pragmatic and experimentalist; the latter influenced by natural law and vested rights. "The US Supreme Court decision in Federal Trade Commission v. Actavis is an intellectual victory for the former approach, one that suggests that antitrust law can and should be used to introduce greater scrutiny of the specific consequences of intellectual property grants.

AAI 2014 ANNUAL CONFERENCE: THE INEFFICIENCIES OF EFFICIENCY National Press Club - Washington, D.C. – June 19, 2014

2014 Annual Conference:  The Inefficiencies of Efficiency

Date: Jun 19, 2014

Location: National Press Club, Washington D.C.

The conference will examine the concept of efficiency within antitrust analysis. We will consider the nature of this concept, its influence and its limits, including critiques and whether certain inefficiencies currently excluded from consideration should be netted out. CLE:

• Up to 5 CLE credits will be available.

Tuition:

• $450 early bird rate expires April 15. ($500 after April 15)
• $120 discounted rate for government employees, educators, public interest advocates and students.

All rates include admission to the conference sessions, food and beverages and course materials.

Sponsors:

• For group rates or to purchase a table, contact [email protected].

AAI 2014 ANNUAL CONFERENCE: THE INEFFICIENCIES OF EFFICIENCY National Press Club - Washington, D.C. – June 19, 2014

2014 Annual Conference:  The Inefficiencies of Efficiency

Date: Jun 19, 2014

Location: National Press Club, Washington D.C.

The conference will examine the concept of efficiency within antitrust analysis. We will consider the nature of this concept, its influence and its limits, including critiques and whether certain inefficiencies currently excluded from consideration should be netted out. CLE:

• Up to 5 CLE credits will be available.

Tuition:

• $450 early bird rate expires April 15. ($500 after April 15)
• $120 discounted rate for government employees, educators, public interest advocates and students.

All rates include admission to the conference sessions, food and beverages and course materials.

Sponsors:

• For group rates or to purchase a table, contact [email protected].

Whither Symmetry? Antitrust Analysis of Intellectual Property Rights at the FTC and DOJ

Josh Wright (FTC) and Judge Doug Ginsburg (DC Circuit) ask Whither Symmetry? Antitrust Analysis of Intellectual Property Rights at the FTC and DOJ.

ABSTRACT: In modern antitrust law, intellectual property rights (IPRs) are treated like all other forms of property. Beginning with the Department of Justice Antitrust Division’s repudiation of the “Nine No-No’s” for patent licensing more than thirty years ago, the US antitrust enforcement agencies and the courts have adhered to a largely symmetrical approach to antitrust enforcement involving all kinds of property. The principle of symmetry was made express in the 1995 Guidelines for the licensing of intellectual property, issued jointly by the Department of Justice and the Federal Trade Commission.

Consumer Welfare In Competition And Intellectual Property Law

Herb Hovenkamp (Iowa) explains Consumer Welfare In Competition And Intellectual Property Law.

ABSTRACT: Whether antitrust policy should pursue a goal of “general welfare” or “consumer welfare” has been debated for decades. The academic debate is much more varied than the case law, however, which has consistently adopted consumer welfare as a goal. While some practices such as mergers might produce greater gains in productive efficiency than losses in consumer welfare, identifying such situations would be extraordinarily difficult. First, these efficiencies would have to be “transaction specific,” meaning that they could not be attained by other means. Second, these would necessarily be gains that accrue at lower output levels than previous to the practice; otherwise there would be no consumer harm to balance. But most efficiency gains accrue at higher rather than lower output levels. Third, collusion facilitating practices spread welfare losses across an entire industry, while production gains typically accrue only to the participants in a merger or similar practice. Fourth, the reigning tradeoff models generally assume a market that was competitive prior to the practice and monopolized after. Most practices that facilitate the exercise of market power occur in markets that were noncompetitive to begin with.

Legal Remedies For Patent Infringement: From General Principles To FRAND Obligations For Standard Essential Patents

Richard Epstein (University of Chicago/NYU) and David Kappos (Cravath) advocate Legal Remedies For Patent Infringement: From General Principles To FRAND Obligations For Standard Essential Patents.

ABSTRACT: At present, the traditional informal mechanisms for setting FRAND rates for SEPs have come under extensive attack by the Federal Trade Commission and elsewhere, from those who believe more limited damages and less frequent injunctions offer the best path to resolving disputes over Standard Essential Patents. In this article we take issue with those conclusions. We begin with an explanation of how a damage system for ordinary contract disputes does not typically rely on the three standard measures—expectation, reliance, restitution—for resolution, but uses liquidated damage to deal with the scenario where a defendant seeks to "out its own agreements. We argue that the techniques that work generally in contract law offer strong confirmation of the traditional rules of damages and injunctions now under wide assault.

Who's Afraid of China's Trustbusters?

Today's Corporate Counsel has an article that asks Who's Afraid of China's Trustbusters?

Licensing Of Standard Essential Patents: Antitrust Intervention Is Not Big Enough A Fix

Eliana Garces (DG Competition) argues Licensing Of Standard Essential Patents: Antitrust Intervention Is Not Big Enough A Fix.

ABSTRACT: The recent antitrust interventions against patent holders issuing injunctions to assert standard essential patents have caused a stir and a debate on the role of antitrust enforcement in licensing negotiations. This piece argues that the way antitrust intervention is being framed allows regulators to restrict the behavior of the patent holder staying away from the issue of FRAND determination. Yet, uncertainty about the meaning of reasonableness and about what is and is not allowed under FRAND commitments lies behind most litigation activity surrounding SEPs. Without more clarity on what can or cannot be accepted under FRAND it is unlikely that substantial progress will be achieved in reducing costly litigation. Antitrust enforcement is ill placed to do the job. In the face of uncertainty about Courts’ ability to develop a consistent line across the globe, standard setting organizations have a role to play in shedding some light on fair licensing of SEPs.

Justifying Antitrust Intervention in ICT Sector Patent Disputes: How to Address the Hold-Up Problem

Kai Uwe Kuhn (Michigan) is Justifying Antitrust Intervention in ICT Sector Patent Disputes: How to Address the Hold-Up Problem.

ABSTRACT: The economic justification for any regulatory intervention in patent litigation, especially those for standard essential patents, comes from the view that hold-up of users of patents is endemic to some industries, especially ICT. The paper reviews these reasons why hold-up is more likely in ICT industries and discusses the type of evidence that is available. It discusses the strengths and limitations of competition policy instruments and notes that addressing the issue is far more appropriate under an abuse of dominance standard that allows for exploitative abuses to be addressed. It is finally explained that nevertheless the use of such an instrument has severe limitations and explores the question of how incentives of standard setting organizations can be improved to make commitments to FRAND licensing more meaningful.

Pay-for-Delay

Fiona Scott-Morton (Yale) discusses Pay for Delay.

ABSTRACT: This article lays out the economics of competition between branded and generic pharmaceuticals and its welfare consequences. I explain the logic behind so-called “pay-for-delay” or “reverse payments” in the context of the current IP environment where weak (probabilistic) patents are frequently granted by the PTO. The article goes on to relate the Supreme Court decision in Activis to these concepts. I argue that the “scope of a patent” is closely related to its probability of being valid. The Supreme Court dissenting opinion states that IP owners should be allowed to operate within the scope of the patent. For a very weak patent, that might be a very limited scope and bring the dissent into agreement with the majority opinion that a weak patent owner should not be allowed to create market power where the patent did not grant it. However, the dissenting opinion closes with a rejection of using the concept of probabilistic patents in legal analysis.

Foreign Direct Investment from China: Sense and Sensibility

Angela Huyue Zhang, King's College London – The Dickson Poon School of Law has an interesting paper on Foreign Direct Investment from China: Sense and Sensibility.

ABSTRACT: Inspired by psychological studies on human judgment, this article represents the first attempt to provide a systematic account of how various heuristics and cognitive biases can influence public perception as well as regulatory response to foreign direct investment. In particular, it catalogues the main social and cognitive mechanisms through which various well-organized interest groups can exploit public fear of foreign direct investment from China. By closely studying two cases — the U.S. Congress’ hostile response to CNOOC’s attempted acquisition of Unocal and the European Commission’s increased antitrust scrutiny of Chinese state-owned enterprises’ acquisitions in Europe — this article shows how fear of Chinese investment can lead to counterproductive regulatory response. Contrary to the popular perception that Chinese state-owned enterprises are mere puppets of the government, the article draws attention to the pervasive but neglected agency problems that have powered the surge of Chinese outward investment. It calls for more effortful thinking by western policymakers and cautions against extreme precautionary measures for investment from China. At the same time, however, it questions the wisdom of overseas investment by Chinese state-owned enterprises. Empire building incentives, exacerbated by weak corporate governance structures and the lack of financial disclosure, make it highly likely that state assets are squandered in overseas acquisitions.

Competition Authorities Support Grasshoppers: Competition Law as a Threat to Innovation

Sir Robin Jacob writes Competition Authorities Support Grasshoppers: Competition Law as a Threat to Innovation.

ABSTRACT: Aesop’s fable is of the ant and the grasshopper. In summer the ant works, gathering and storing food against the coming winter. The grasshopper laughs and sings, living only for the day. Innovators are the ants: using part of the income of today to build for the future. Thee grasshoppers are those who look only for profits for today and do not contribute to the future. Competition authorities are favouring grasshoppers, positively helping them sing in the summer (i.e. gather in profits now) and saying, “do not worry, sing away. When winter comes we will make the ants feed you.” The danger to innovation is all too obvious for those who can see: it pays to be a grasshopper rather than an ant better to be a copyist than an innovator.

The Relation between Inventory Investment and Price Dynamics in a Distributive Firm

Akiyuki Tonogi (Institute of Innovation Research, Hitotsubashi University) analyzes The Relation between Inventory Investment and Price Dynamics in a Distributive Firm.

ABSTRACT: In this paper, we examine the role of inventory in the price-setting behavior of a distributive firm. Empirically, we show the 5 empirical facts relating to pricing behavior and selling quantity of a certain consumer goods based on daily scanner data to examine the relation between store properties and pricing behavior. These results denote that price stickiness varies by the retailers’ characteristics. We consider that the hidden mechanism of price stickiness comes from the retailer’s policy for inventory investment. A partial equilibrium model of the retailer’s optimization behavior with inventory is constructed so as to replicate the five empirical facts. The results of the numerical experiments in the constructed model suggest that price change frequency depends on the retailer’s order cost, storage cost, and menu cost, not on the price elasticity of demand.

Pharmaceutical Regulation and Health Policy Objectives

Laura Birg, Georg-August-Universitat Gottingen has written on Pharmaceutical Regulation and Health Policy Objectives.

ABSTRACT: This paper analyzes a maximum price system and a reference price system in a vertical differentiation model with a brand-name drug and a generic. In particular, both instruments are compared with respect to their performance in reducing public expenditure, limiting financial exposure of patients, improving access to pharmaceuticals, and stimulating compe- tition. For identical regulatory prices, free pricing under the reference system tends to result in a higher price for the brand-name drug. For identical price reductions of the brand-name drug, the lower reimbursement amount under the reference price system results in lower health expenditure, but higher financial exposure of patients. Total welfare is higher under the maximum price system.

The Comcast-Time Warner Proposed Merger - CPI Special Issue

The Comcast-Time Warner Proposed Merger

1. Allen Grunes, Maurice Stucke, Apr 14, 2014

   The Beneficent Monopolist

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   Notwithstanding Comcast’s and TWC’s assertions, combining two monopolies does not yield better service, lower retail prices, more innovation, and greater choices for consumers. Allen P. Grunes (GeyerGorey LLP) & Maurice E. Stucke (Univ. of Tennessee College of Law)

   Tags:
   • Antitrust and Media
   • , Horizontal mergers
   • , Vertical mergers
2. Geoffrey Manne, Apr 14, 2014

   Beneficence is Beside the Point: The Antitrust Realities of the Comcast/Time Warner Cable Merger

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   Properly understood, the proposed Comcast/TWC merger presents no competitive concerns. Geoffrey Manne (International Center for Law and Economics)

   Tags:
   • Antitrust and Media
   • , Horizontal mergers
   • , Vertical mergers
3. Jarod Bona, Apr 14, 2014

   The Comcast-TWC Merger: Limit the Government’s Options

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   It would serve competition and antitrust if the antitrust agency didn’t have the option of the shiny, but dangerous, tool known as a conduct remedy. Jarod Bona (Bona Law PC)

   Tags:
   • Antitrust and Media
   • , Remedies
   • , Horizontal mergers
4. Jamillia Padua Ferris, Amanda Wait, Apr 14, 2014

   Analysis of Changes in Bargaining Power in DOJ/FCC Review of Comcast/Time Warner

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   The agencies likely will focus their reviews of potential anticompetitive effects on how the expansions of the pay television and broadband networks affect Comcast’s incentives in dealing with content providers. Jamillia Ferris & Amanda Wait (Hunton & Williams LLP)

   Tags:
   • Antitrust and Media
   • , Horizontal mergers
   • , Vertical mergers
5. Adam J. Miller, Apr 14, 2014

   Widgets All the Way Down

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   While most transactions are challenged because they are alleged to have unilateral or coordinated effects, whether this cable deal is challenged may turn on vertical issues. Adam J. Miller (Fredrikson & Byron)

   Tags:
   • Antitrust and Media
   • , Horizontal mergers
   • , Vertical mergers
6. Anant Raut, Apr 14, 2014

   Beyond Comcast-Time Warner Cable: The Fragmentation of the American Internet

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   The fate of Comcast-Time Warner Cable is almost an afterthought for web content creators, who are facing a much more existential threat. Anant Raut

   Tags:
   • Antitrust and Media
   • , Horizontal mergers
   • , Vertical mergers

Media Plurality Regulation—Antitrust Lessons

1. Martin Cave, Apr 14, 2014

   On the Relationship Between Media Plurality Legislation and Competition Law

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   At the level of measurement, and, particularly, in the choice of remedies, there are lessons to be learned from competition law which can be applied to the regulation of plurality. Martin Cave (Imperial College Business School & the U.K. Competition Commission)

   Tags:
   • Payments

Price Regulation and Parallel Imports of Pharmaceuticals

Kurt R. Brekke (Department of Economics, Norwegian School of Economics), Tor Helge Holmas (Uni Rokkan Centre) and Odd Rune Straume (Universidade do Minho - NIPE) address Price Regulation and Parallel Imports of Pharmaceuticals.

ABSTRACT: This paper studies the effects of price regulation and parallel imports in the onpatent pharmaceutical market. First, we develop a theory model in which a pharmacy negotiates producer prices with a brand-name firm and then sets retail prices. We show that the effects of price regulation crucially depend on whether the producer faces competition from parallel imports. While parallel imports improve the bargaining position of the pharmacy, price regulation counteracts this effect and may even be profitable for the producer. Second, we use a unique dataset with information on sales and prices at both producer and retail level for 165 substances over four years (2004-7). Exploiting exogenous variation in the regulated price caps, we show that stricter price regulation reduces competition from parallel imports. While the effect is clearly negative on producer profits for substances without parallel imports, the effect is not ! significant for substances with parallel imports. Finally, we show that stricter price regulation reduces total expenditures, but the effect is much stronger for substances with parallel import. Thus, our results suggest that price regulation may promote both static and dynamic efficiency in the presence of parallel imports.

Umbrella Effect: Damages Claimed by Customers of Non-cartelists Competitors

Dorothy Hansberry, Christina Hummer, Morvan Le Berre and Melanie Leclerc discuss Umbrella Effect: Damages Claimed by Customers of Non-cartelists Competitors.

ABSTRACT: With the swelling of private actions for competition law infringements in Europe, a new category of applicants has appeared: customers of non-cartelist suppliers who claim to have suffered harm from the effect of market-wide price increases resulting from cartels. In the United States, this type of action is already known and the judicial courts have adopted a pragmatic approach to deal with it. In Europe, the development of such actions seems compromised in several EU Member States due to the limitations of civil liability rules and in particular that of the causal link between the anticompetitive practice and the harm. However, a separate question has appeared regarding the relationship between these actions and the principle of effectiveness of EU law—a preliminary referral in the context of civil litigation following the elevator cartel case is currently pending before the European Court of Justice whose decision is expected in 2014.

Umbrella effects and the ubiquity of damage resulting from competition law violations

Frank Maier-Rigaud (NERA) has written on Umbrella effects and the ubiquity of damage resulting from competition law violations.

ABSTRACT: Competition law violations typically result in damage outside the vertical chain often considered the only relevant locus of analysis. A legal reduction of damages claims to the vertical chain is in part due to a narrow interpretation of the general tort principles of causality and foreseeability. A wider interpretation of these general tort principles is proposed that would be in line with the policy goal of full compensation for any individual harmed. It would allow claims to be regulated by the merits of the economic evidence presented, thereby rendering private enforcement in line with the more economic approach followed in the public enforcement of competition law.