Antitrust & Competition Policy Blog

What Antitrust Should Look Like In A World Of Low Entry Barriers

Jeffrey Dorfman describes What Antitrust Should Look Like In A World Of Low Entry Barriers.

The Strange Career of Independent Voting Trusts in U.S. Rail Mergers

Ruseell Pittman, DOJ explores The Strange Career of Independent Voting Trusts in U.S. Rail Mergers.

ABSTRACT: Voting trust arrangements have a long history at both the Interstate Commerce Commission and the Surface Transportation Board as devices to protect the incentives of acquiring firms and maintain the independence of acquiring and target firms during the pendency of regulatory investigation of the merger proposal. However, they are not without problems. The STB argued in 2001 that as Class I railroads have become fewer and larger, it may be difficult to find alternative purchasers for the target firm if the STB turns down the proposal. The Antitrust Division argued in 2016 that joint stock ownership creates anticompetitive and/or otherwise undesirable incentives, even if the independence of the voting trustee is complete. On the other hand, the functions served by voting trusts in railroad mergers are served by merger termination fees and other contractual “lockup” mechanisms in other parts of the economy, without the same incentive problems as voting t! rusts. Thus voting trusts may no longer serve a useful function in railroad merger deliberations.

Merger Activity in Industry Equilibrium

Theodosios DIMOPOULOS (University of Lausanne and Swiss Finance Institute) and Stefano SACCHETTO (Tepper School of Business, Carnegie Mellon University) discuss Merger Activity in Industry Equilibrium.

ABSTRACT: We study a dynamic industry-equilibrium model that features mergers, entry, and exit by heterogeneous firms. We show how different sources of synergies affect merger cyclicality. Improvements in marginal productivity between merging firms generate a procyclical motive for mergers, while reductions in fixed costs of production generate a countercyclical one. The presence of a merger market makes poorly performing firms less likely to exit the industry in recessions, and it increases the mean and variance of the cross-sectional distribution of firm-level productivities. Consistent with the empirical evidence, we show that announcement returns for large acquirers are lower than for small acquirers, despite large acquirers' higher Tobin's Q.

R&D investments fostering horizontal mergers

Petrakis, Emmanuel ; Moreno, Diego ; Manasakis, C. ; Cabolis, C. examine R&D investments fostering horizontal mergers.

ABSTRACT: We study a homogenous good triopoly in which firms first choose their cost-reducing R&D investments and consider alternative merger proposals, and then compete à la Cournot in the ensuing industry. We identify conditions under which both horizontal mergers and non integration are sustained by Coalition-Proof Nash equilibria (CPNE). These conditions involve the effectiveness of the R&D technology, as well as the distribution of the bargaining power between the acquirer and the acquiree, which determine the allocation of the incremental profits generated by the merger. We show that whether firms follow duplicative or complementary research paths, sustaining a merger generally requires a sufficiently effective R&D technology that creates endogenous cost asymmetries and renders the merger profitable, and a moderate distribution of bargaining power that allows to spread the benefits of the merger. We examine the welfare effects of mergers and obtain clear policy guidelines.

Vertical Restraints, the Sylvania Case, and China's Antitrust Enforcement

Zhiyong Liu, Indiana State University - Scott College of Business and Yue Qiao, Shandong University explore Vertical Restraints, the Sylvania Case, and China's Antitrust Enforcement.

ABSTRACT: In this article we offer an overview of the relevant economic theories of vertical restraints and the legal treatment toward them, and especially focus on the 1977 landmark case of Sylvania and its influence on China’s antitrust enforcement on vertical restraints. China’s competition policies, and particularly its antimonopoly law, do not instruct explicitly on the enforcement approach (per se versus rule of reason) toward vertical restraints. But from the review of China’s recent antitrust cases, we find that there is a division in the approaches taken by public versus private enforcement --- even though administrative enforcement is more inclined to applying per se prohibitions (or in some cases applying the EU-style prohibition-plus-exemption approach), it is apparent that rule of reason is the (increasingly) prevailing approach taken by the courts.

 

 

The As-Efficient-Competitor Test: Necessary or Sufficient to Establish an Abuse of Dominant Position?

Elisabeth de Ghellinck, Economics School of Louvain asks The As-Efficient-Competitor Test: Necessary or Sufficient to Establish an Abuse of Dominant Position?

ABSTRACT:  The As-Efficient-Competitor test alone is neither necessary nor sufficient to establish the abusive character of standardised retroactive rebate schemes. It is a powerful tool allowing to minimise the risk of making errors when reliable data are available. The estimation of the relative size of the foreclosed sales remains key to establish the anticompetitive foreclosure impact as, by nature, standardised retroactive rebates do not necessarily foreclose the market. Computing the effective prices provides a clear indication of the magnitude of the penalty imposed on the rival by the dominant firm.

Passive Participation in Anticompetitive Agreements

Lukas Solek, Schonherr Rechtstanwalte GmbH analyzes Passive Participation in Anticompetitive Agreements.

ABSTRACT: Contrary to the most criminal or quasi-criminal regimes, Art 101 TFEU does neither explicitly recognise the status of an instigator, accomplice, or a facilitator—as opposed to a perpetrator—nor does it postulate special requirements for their participation in anticompetitive agreements. The feature that these actors have in common is that they are not active on the market that is ought to be affected by the anticompetitive agreement, and hence their contributions are rather of a passive nature, compared to the active contributions of direct perpetrators. While it has been argued that the lack of an explicit provision on passive participants prevents the European Commission (‘Commission’) from instituting proceedings against them, the Court of Justice has recently confirmed that ‘mere’ facilitating of anticompetitive conduct by undertakings active on non-cartelised markets does not fall outside the ambit of Art 101 TFEU. Moreover, the Court stipulated that even a consultancy firm may be held liable for its participation in an anticompetitive agreement where it contributes to its operation, even though it is not active on the cartelised market.

The Application of European Competition Law in the Financial Services Sector

Thomas Franchoo, Niels Baeten and Jennifer Baker, all Linklaters explore The Application of European Competition Law in the Financial Services Sector.

ABSTRACT: State aid control is still dominated by the application of the Crisis Communications to government support granted to restructure or resolve failing financial institutions. Antitrust enforcement has focused in particular on card payments, with the Commission sending a new Statement of Objections to MasterCard in relation to its interchange fees. It has been a quiet year on the merger control scene—with the Commission mainly dealing with payment services and remedies being imposed in one case only (Worldline/Equens/PaySquare).

Effective European Antitrust: Does EC Merger Policy Generate Deterrence?

Joseph A. Clougherty, University of Illinois at Urbana-Champaign; Centre for Economic Policy Research (CEPR), Tomaso Duso, German Institute for Economic Research (DIW Berlin); Duesseldorf Institute for Competition Economics (DICE), Miyu Lee, Humboldt University of Berlin - School of Business and Economics and Jo Seldeslachts University of Amsterdam; Tinbergen Institute ask Effective European Antitrust: Does EC Merger Policy Generate Deterrence?

ABSTRACT: We estimate the deterrence effects of European Commission (EC) merger policy instruments over the 1990–2009 period. Our empirical results suggest phase‐1 remedies uniquely generate robust deterrence as — unlike phase‐1 withdrawals, phase‐2 remedies, and preventions — phase‐1 remedies lead to fewer merger notifications in subsequent years. Furthermore, the deterrence effects of phase‐1 remedies work best in high‐concentration industries, that is, industries where the Herfindahl Hirschman Index is above the 0.2 cut‐off level employed by the EC. Additionally, we find phase‐1 remedies do not deter clearly pro‐competitive mergers, but do deter potentially anti‐competitive mergers in high‐concentration industries.

Citizen Petitions: Long, Late-Filed, and At-Last Denied

Michael A. Carrier, Rutgers Law School and Carl J. Minniti III, Rutgers University, Newark, Rutgers Law School, Rutgers School of Law, Students have interesting new work on Citizen Petitions: Long, Late-Filed, and At-Last Denied.

ABSTRACT: The pharmaceutical industry is ground zero for many of the most challenging issues at the intersection of antitrust and intellectual property (IP) law. It also presents a complex regulatory regime that is ripe for anticompetitive behavior. It thus should not be a surprise that the industry has been subject to rigorous antitrust scrutiny in recent years. While settlements between brand and generic firms and “product hopping” from one version of a drug to another have received attention, one behavior has avoided serious scrutiny. Brand firms’ filing of citizen petitions with the U.S. Food and Drug Administration (FDA) has almost entirely slipped beneath the radar. While citizen petitions in theory could raise concerns that a drug is unsafe, in practice they bear a dangerous potential to extend brand monopolies by delaying approval of generics, at a potential cost of millions of dollars per day. This Article offers an empirical study of “505(q)” citizen petitions, which ask the FDA to take specific action against a pending generic application. It analyzes every 505(q) petition filed with the FDA between 2011 and 2015, documenting (1) the number of petitions each year, (2) who files the petitions, (3) the success rate of the petitions, (4) the petitions’ length, (5) whether petitions were filed in close proximity to the expiration of a patent or data exclusivity date, and (6) occasions in which the FDA approved generics on the same day it decided petitions. The study finds that brand firms file 92% of 505(q) petitions. And it concludes that the FDA grants an astonishingly low 8% of petitions, rejecting a full 92%. Why is the grant rate so low? We consider several reasons. First, in the past 5 years, the average length of petitions has more than doubled, and the FDA almost never grants petitions with a length above the mean. Second, 39% of petitions are filed within 6 months of the expiration of a patent or FDA exclusivity date, with almost all of these petitions denied. Third, the FDA resolved a number of petitions on the same day it approved the generic, likely delaying generic entry. These three settings result in grants of only 3%, 2%, and 0%, respectively. The Article concludes by offering examples of serial petitions, late-filed petitions, and a combination of petitions with other behavior such as product-hopping and settlements. In short, citizen petitions represent a hidden tool in brands’ toolkit of entry-delaying activity, and when used inappropriately force consumers to pay high drug prices while providing no offsetting safety benefit.

A Tale of Two Layers: Patents, Standardization, and the Internet

Jorge Contreras, University of Utah offers A Tale of Two Layers: Patents, Standardization, and the Internet.

ABSTRACT: vIn recent years, high-profile lawsuits involving standards-essential patents (SEPs) have made headlines in the United States, Europe, and Asia, leading to a heated public debate regarding the role and impact of patents covering key interoperability standards. Enforcement agencies around the world have investigated and prosecuted alleged violations of competition law and private licensing commitments in connection with SEPs. Yet, while the debate has focused broadly on standardization and patents in the information and communications technology (ICT) sector, commentators have paid little attention to differences among technology layers within ICT. This Article uses both existing and new empirical data to show that patent filing and assertion activity is substantially lower for Internet-related standards than for standards relating to telecommunications and other computing technologies. It analyzes historical and social factors that may have contributed to this divergence focusing on the two principal Internet standards bodies: the Internet Engineering Task Force (IETF) and the World Wide Web Consortium (W3C). It counters the dominant narrative that standards and SEPs are necessarily fraught with litigation and thereby necessitate radical systemic change. Instead, it shows that standards policies that de-emphasize patent monetization have led to lower levels of disputes and litigation. It concludes by placing recent discussions of patenting and standards within the broader context of openness in network technologies and urges both industry participants and policy makers to look to the success of Internet standardization in a patent-light environment when considering the adoption of new rules and policies.

Health Care Competition Law in the Shadow of State Action: Minimizing MACs

David Hyman, Georgetown Law and Bill Kovacic, GW Law and Kings College identify Health Care Competition Law in the Shadow of State Action: Minimizing MACs.

ABSTRACT:  How should we go about reconciling competition and consumer protection in health care, given the long shadow cast by the state action doctrine? We consider that issue, using a case study drawn from an obscure corner of the pharmaceutical reimbursement market to motivate and inform our analysis. We show how the balance between competition and consumer protection has been distorted by the political economy of health care regulation – compounded by the extension of the state action doctrine far past its defensible borders. If anything, considerations of political economy argue for much greater skepticism about the utility of regulation – and of the state action doctrine – in the health care space.

Intellectual Property, Antitrust, and the Rule of Law: Between Private Power and State Power

Ariel Katz, University of Toronto explores Intellectual Property, Antitrust, and the Rule of Law: Between Private Power and State Power.

ABSTRACT: This Article explores the rule of law aspects of the intersection between intellectual property and antitrust law. Contemporary discussions and debates on intellectual property (IP), antitrust, and the intersection between them are typically framed in economically oriented terms. This Article, however, shows that there is more law in law than just economics. It demonstrates how the rule of law has influenced the development of several IP doctrines, and the interface between IP and antitrust, in important, albeit not always acknowledged, ways. In particular, it addresses some limitations on IP rights, such as exhaustion and limitations on tying arrangements, are grounded in rule of law principles restricting the arbitrary exercise of legal power, rather than solely in considerations of economic efficiency. The historical development of IP law has reflected several tensions, both economic and political, that lie at the heart of the constitutional order of the modern state: the tension between the benefits of free competition and the recognition that some restraints on competition may be beneficial and justified; the concern that power, even when conferred in the public interest, can often be abused and arbitrarily applied to advance private interests; and the tension between freedom of contract and property and freedom of trade. This Article explores how rule of law considerations have allowed courts to mediate these tensions, both in their familiar public law aspects but also in their less conspicuous private law dimensions, and how, in particular, they have shaped the development of IP doctrine and its intersection with antitrust law and the common law.

Testing for Bias to Suppress Royalties for Standard-Essential Patents

Greg Sidak (Criteron Economics) is Testing for Bias to Suppress Royalties for Standard-Essential Patents.

ABSTRACT:The Institute of Electrical and Electronics Engineers (IEEE) is a standards-setting organization (SSO). In 2015, it ratified amendments to its patent policy to mandate that a reasonable and nondiscriminatory (RAND) royalty for a standard-essential patent (SEP)—more precisely, an Essential Patent Claim for an IEEE standard—exclude any value attributable to the standard, and to deny an SEP holder the right to seek an injunction against an unlicensed implementer until appellate review is exhausted. The amendments further say that the determination of a RAND royalty “should,” without limitation, (1) be derived from the value of the smallest salable compliant implementation of an IEEE standard that practices an SEP; (2) comport with a reasonable aggregate royalty burden of the relevant standard; and (3) disregard comparable license agreements obtained under the implicit or explicit threat of an injunction. Because the revisions place strict limitations on an SEP holder’s ability to enforce its patent rights against infringers, they truncate the upper range of the distribution of bilaterally negotiated RAND royalties and thus unambiguously reduce the compensation that the SEP holder may obtain for its technological contributions to the IEEE standards. The IEEE’s patent-policy revisions became effective in March 2015. The IEEE’s 2015 bylaw amendments are highly significant because each unambiguously reduces the compensation that an SEP holder can obtain for its technological contributions to the IEEE’s standards. Throughout the development of those bylaw amendments, sixteen companies submitted 680 comments on four drafts of the proposed amendments and two drafts of a supporting informational document that an ad hoc drafting committee of the IEEE released for public comment. The ad hoc committee responded to the suggested revisions in each comment, either accepting them and implementing them into the next draft, accepting them in principle, or rejecting them. I find a strong negative correlation between the comment submitter’s status as a firm initially opposed to the revisions (a group primarily consisting of net SEP licensors) and the ad hoc committee’s incorporation of the submitter’s proposed revision in the subsequently revised draft. The treatment of the comments by the ad hoc committee exhibits a statistically significant bias against the firms that opposed the bylaw amendments—primarily large SEP holders—and in favor of revisions designed to devalue SEPs.

Competition and Globalization in Developing Economies - Friday, October 28, 2016 from 8:30 AM to 6:30 PM

Competition and Globalization in Developing Economies

Concurrences Review + NYU School of Law

Friday, October 28, 2016 from 8:30 AM to 6:30 PM (EDT)

New York , United States

Event Details

8.30 – 8.45am

Welcome Remarks 

Trevor W. MORRISON | Dean, New York University School of Law

Introductory Remarks  

Eleanor M. FOX | Professor, New York University School of Law

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8.45 – 9.15am


Opening Keynote: The Place of Competition and Development in the Global Trade and Economic Architecture

Jonathan FRIED |  Ambassador and Permanent Representative of Canada, World Trade Organization, Geneva

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9.15 – 10.45am


Globalization and the Rise of Regionalism: TPP, ASEAN, COMESA, MINT and Coherence in the World   

Tembinkosi BONAKELE | Commissioner, South Africa Competition Commission, Pretoria

Gönenç GÜRKAYNAK | Managing Partner, ELIG, Attorneys-at-Law, Istanbul

R. Ian McEWIN | Managing Partner, Competition Consulting Asia, Singapore | Arndt-Corden Dept of Economics, ANU

Randolph W. TRITELL | Director, Office of International Affairs, FTC, Washington, DC

Moderator: Eleanor M. FOX | Professor, New York University School of Law

Coffee Break

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11.00am – 12.30pm


Pricing and Development Issues: Exploitation and Collusion

Dennis DAVIS | President, South African Competition Appeal Court, Cape Town

Assimakis KOMNINOS | Partner, White & Case, Brussels

Janusz ORDOVER | Senior Consultant, Compass Lexecon, New York

Alvaro RAMOS | Head Global Antitrust, Qualcomm, San Diego

Moderator: Harry FIRST | Professor, New York University School of Law

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12.30 – 1.30pm

Lunch Keynote  

Dennis DAVIS | President, South African Competition Appeal Court, Cape Town

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1.30 – 3.20pm


Mergers: Anatomy of a Clearance in Younger Jurisdictions 

Alejandro CASTAÑEDA SABIDO | Commissioner, COFECE, Mexico City

Sabine CHALMERS | Chief Legal & Corporate Affairs Officer, Anheuser-Busch InBev, New York

Vani CHETTY | Partner, Baker & McKenzie, Johannesburg

George LIPIMILE | Director, COMESA Competition Commission, Lusaka

Tembinkosi BONAKELE | Commissioner, South Africa Competition Commission, Pretoria

Jonathan NYSTROM | Executive Director, Ernst & Young, Washington, DC 

Moderator: Frédéric JENNY | Chairman, OECD Competition Committee, Paris

Coffee Break

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3.30 – 5.00pm


Innovation and Development: Licensing and Antitrust/IP Rules and Guidelines 

Jay JURATA | Partner, Orrick, Herrington & Sutcliffe, Washington, DC

Dina KALLAY | Director, Intellectual Property & Competition, Ericsson, Washington, DC

Christopher MEYERS | Associate General Counsel, Microsoft, Redmond 

Susan NING | Partner, King & Wood Mallesons, Beijing

Moderator: Daniel RUBINFELD | Professor, New York University School of Law

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5.00 – 6.30pm


Enforcers' Roundtable: What's under the Radar?

Tembinkosi BONAKELE | Commissioner, South Africa Competition Commission, Pretoria

Alejandro CASTAÑEDA SABIDO | Commissioner, COFECE, Mexico City

George LIPIMILE | Director, COMESA Competition Commission, Lusaka

Pablo TREVISÁN | Commissioner, Argentine Competition Commission, Buenos Aires 

Moderator: William E. KOVACIC | Non-Executive Director, Competition and Markets Authority, London

The Price and Variety Effects of Vertical Mergers

Awi Federgruen, Columbia Business School - Decision Risk and Operations and Ming Hu, University of Toronto - Rotman School of Management examine The Price and Variety Effects of Vertical Mergers.

ABSTRACT:  Vertical mergers within a multi-echelon market result in equilibrium price changes, for wholesalers and retailers, alike. They may also impact the product variety that is available to the consumer, i.e., the equilibrium product assortment sold in the market. In this paper, we consider the simultaneous price and variety effects of vertical mergers in a general two-echelon base model, in which an arbitrary number of firms compete at each echelon; each of the upstream suppliers offers one or multiple products to some or all of the retailers or directly to the end consumer. We assume linear price or two-part tariff contracts, with prices selected sequentially, in a sequence of oligopolistic price competitions: the process starts with the firms at the upper echelon, followed by simultaneous price selections by the retailers in the downstream echelon. To assess the impact on product variety, we employ a demand model with the characteristic that, depending on the selected retail prices, a smaller or larger subset of all potential products is sold in the market. For an arbitrary merger of a supplier with a group of retailers, we characterize the post-merger equilibrium behavior and show how the changes of all performance measures of interest, i.e., wholesale and retail price equilibria, product assortment, sales volumes, the firms' profit levels and consumer welfare, can be computed efficiently. When the merger is strictly vertical, i.e., involves a single retailer (organization) with whom the supplier deals on an exclusive basis, we prove that the merger results in a (weak) reduction of all equilibrium prices, along with a (weak) shrinkage of the product assortment.

Market power and media revenue allocation in professional sports: The case of formula one

Budzinski, Oliver; Müller-Kock, Anika focus on Market power and media revenue allocation in professional sports: The case of formula one.

ABSTRACT: Recent allegations from participants of the FIA Formula One World Championship (F1) suggest that the promoter of F1 (possibly together with the sports association) violates European competition law in two ways. First, it alleged-ly abuses its market power by deducting an inappropriate high share from the rev-enues of the collective sale of media rights in order to boost the profits of its pri-vate equity parent company (vertical allocation of media revenue). Second, it alleg-edly forms a cartel with selected top teams at the detriment of smaller teams by providing both unjustified extra payments to these teams and enforcing a heavily biased horizontal allocation of media revenues, benefitting the cartel teams. Pro-fessional sports championships typically receive common revenue, for instance, from trademark rights and marketing, but often also from the sale of broadcasting and other media rights. This common revenue needs to be allocated in two ways: (i) v! ertical allocation between the sports authority and the participants, and (ii) hor-izontal allocation among the participants. Different professional sports champion-ships employ vastly differing schemes for both types of allocation. In this paper, we present an empirical assessment whether the current antitrust allegations against F1 may be valid. We employ concentration measures from empirical economics, like the Hirshman-Herfindahl-Index (HHI), the concentration ratio and the standard de-viation in order to assess different allocation schemes from different commercial sports. With the help of these indices we show that the allocation scheme em-ployed in F1 considerably differs from such used in other professional sports championships. We find the empirical picture to be consistent with an anticompetitive interpretation of F1 media revenue structures and policies. We conclude that there is merit in starting an in-depth antitrust investigation of Formula One motor racing, w! hich would also represent an opportunity for the European Commission to cor-rect earlier mistakes.

Offering Energy Efficiency under Imperfect Competition and Consumer Inattention

Christian Tode is Offering Energy Efficiency under Imperfect Competition and Consumer Inattention.

ABSTRACT: Energy efficiency is considered to be a win-win situation for both the economy and the environment. Producing products and services at lower energy input and related input costs can contribute to climate change abatement and economic competitiveness. Actual implementation of energy efficiency falls short to expectations, though. For one thing, research suggests that consumer inattention is an underlying force for underinvestments. For another thing, energy supply markets are often characterized by imperfect competition. Do firms in the energy retail market have incentives to voluntarily introduce energy efficiency? Or should informational regulation inform inattentive consumers? In this article I show that consumer inattention and imperfect competition are the crucial drivers for firms' decisions to introduce or conceil energy efficiency to customers. I find two symmetric equilibria: One in which both firms introduce energy efficiency and one in which! both firms conceil energy efficiency. Equilibrium coordination depends on the distribution of consumers that are attentive to energy effienciency and consumers that are not. Further, mandatory disclosure laws are found to be weakly welfare increasing.

Unprofitable horizontal mergers, external effects, and welfare

Budzinski, Oliver and Kretschmer, Jurgen-Peter study Unprofitable horizontal mergers, external effects, and welfare.

ABSTRACT: Standard analysis of mergers in oligopolies along the lines of the popular Farrell-Shapiro-Framework (FSF) relies regarding its policy conclusions sensitively on the assumption that rational agents will only propose privately profitable mergers. If this assumption held, a positive external effect of a proposed merger would represent a sufficient condition to allow the merger. However, the empirical picture on mergers and acquisitions reveals a significant share of unprofitable mergers and economic theory, moreover, demonstrates that privately unprofitable mergers can be the result of rational action. Therefore, we drop this restrictive assumption and allow for unprofitable mergers to occur. This exerts a considerable impact on merger policy conclusions: while several insights of the original analysis are corroborated (f.i. efficiency defence), a positive external effect does not represent a sufficient condition for the allowance of a merger anymore. Apply! ing such a rule would cause a considerable amount of false decisions.

The Nash bargaining solution in vertical relations with linear input prices

Aghadadashli, Hamid ; Dertwinkel-Kalt, Markus ; Wey, Christian examine The Nash bargaining solution in vertical relations with linear input prices.

ABSTRACT: We re-examine the Nash bargaining solution when an upstream and a downstream firm bargain over a linear input price. We show that the profit sharing rule is given by a simple and instructive formula which depends on the parties' disagreement payoffs, the profit weights in the Nash-product and the elasticity of derived demand. A downstream firm's profit share increases in the equilibrium derived demand elasticity which in turn depends on the final goods' demand elasticity. Our simple formula generalizes to bargaining with N downstream firms when bilateral contracts are unobservable.