Antitrust & Competition Policy Blog

Speech: the continual evolution of competition law

Sir Peter Roth, provides a Speech: the continual evolution of competition law.

ABSTRACT: Since 2000, the principles of UK competition law have largely mirrored EU competition law. The EU courts have sometimes attracted criticism in the UK, and that has been an aspect of the Brexit debate. Looking at the history and evolution of EU competition law, this lecture shows how the EU courts have in reality functioned very much like common law courts in developing the antitrust provisions of broadly worded legislation, with world-wide influence. Further, certain particular features of the EU courts make them well placed to do so. Attention is drawn to the need to make competition law effectively applicable in practice by courts and businesses, and of the significance of choice as well as price in considering competition for the benefit of consumers. The lecture then looks ahead to the challenges facing competition law presented by very large companies in the high tech sectors, in particular through aggregation of data and enhanced network effects. Considering the tools of competition law available to address these challenges, it cautions against a fundamental overhaul, arguing that the concept of abuse of dominance has sufficient flexibility to deal with much of the conduct in these sectors that has anti-competitive effects but that the threshold and test for merger control may need reconsideration. Further, the UK statutory process and remedies of a market investigation, which can be confined to a single enterprise, has an important potential role through which UK competition law could make a distinct contribution.

 

Common Ownership and Executive Incentives: The Implausibility of Compensation As an Anticompetitive Mechanism

David I. Walker, Boston University School of Law addresses Common Ownership and Executive Incentives: The Implausibility of Compensation As an Anticompetitive Mechanism. Worth downloading!

ABSTRACT: Mutual funds, pension funds and other institutional investors are a growing presence in U.S. equity markets, and these investors frequently hold large stakes in shares of competing companies. Because these common owners might prefer to maximize the values of their portfolios of companies, rather than the value of individual companies in isolation, this new reality has lead to a concern that companies in concentrated industries with high degrees of common ownership might compete less vigorously with each other than they otherwise would. But what mechanism would link common ownership with reduced competition? Some commentators argue that one of the most plausible mechanisms is executive pay design. The idea is that executive pay at companies in concentrated industries with high common ownership may be designed to dampen the incentives of the companies’ managers to compete aggressively with peer firms. 

This essay challenges both the theoretical and empirical bases for this argument and contends that executive pay design is actually an implausible mechanism linking common ownership with reduced competition. For example, I show that, contrary to the claims of some commentators, the use of competition-enhancing executive relative performance evaluation as a compensation tool has increased dramatically in parallel with the increase in common ownership, exactly the opposite of what one would expect if common owners sought to dampen competition through pay design. 

Despite voicing skepticism regarding a possible association between common ownership and executive pay design, this essay also offers suggestions for improving empirical analyses going forward that should help to resolve the debate. If, however, as this essay argues, executive pay design is an implausible mechanism, this determination tends to undermine the broader claim that common ownership dampens inter-firm competition. 

The Constitutional Limits of EU Competition Law – United in Diversity

Christopher Townley, King's College London – The Dickson Poon School of Law; A Dickson Poon Transnational Law Institute and Alexander Turk, King's College London – The Dickson Poon School of Law have written on The Constitutional Limits of EU Competition Law – United in Diversity.

ABSTRACT: The allocation of legislative and executive competences in multi-level governance structures affects who controls norms. Over the last two decades we see a general trend in EU law, towards ‘flexibility, mixity and differentiation.’ Yet, many think that EU competition policy and enforcement marches to a different tune. Competence is rarely discussed there and, when it is, most assume that uniformity is desirable. 

This paper discusses the EU constitutional system as it relates to competition policy and enforcement. It investigates what choices the EU Treaties make about diversity. As with many constitutional arrangements, the EU Treaties sometimes leave space for others to decide. In these spaces we advocate answers, based on our understanding of the constitutional settlement between the EU and the Member States. This has major implications for, amongst others: the Commission’s power to relieve the Member States’ competition authorities (NCAs) of their competence to apply Articles 101 and 102 TFEU; the vires of EU merger control outside of the remit of Articles 101 and 102 TFEU; Commission efforts to make the NCAs more independent of political influence; and the resolution of conflicts between EU and national competition rules.

Antitrust Division Issues 2019 Annual Newsletter

Available here.

Civil Law Liability of Parent Companies for Infringements of EU Competition Law by Their Subsidiaries

Caroline Cauffman, Maastricht University Contemplates Civil Law Liability of Parent Companies for Infringements of EU Competition Law by Their Subsidiaries.

ABSTRACT: The article investigates the impact of the use of the concept ‘undertaking’ in the EU Antitrust Damages Directive on the civil law liability of parent companies for infringements of their subsidiaries and more general on other natural and legal persons forming part of the same undertaking. The research shows that the Directive and other rules of EU competition law leave room for an interpretation that allows Member States to maintain additional criteria for liability such as imputability, adequacy or culpability to prevent the transposition of the competition law theory of parent company liability into civil law. The way in which Member States have dealt with the issue of the civil law liability of parent companies when transposing the Antitrust Damages Directive differs. Some Member States explicitly introduced a system of parent company liability, others remain intentionally or unintentionally vague about the question. Ultimately, it will be up to the Court of Justice do decide whether the Antitrust damages directive read together with other rules of EU competition law requires Member States to transpose the competition law theory of parent company liability into civil law. To prevent parent companies from using subsidiaries to limit their competition law liability and to encourage them to ensure competition law compliance by their subsidiaries, the transposition into civil law of a slightly amended competition law theory of parent company liability appears desirable.

The Minimum and Maximum Limits of the Antitrust Private Damage Calculation

Enrique Sanjuan, University of Malaga - Facultad de Derecho describes The Minimum and Maximum Limits of the Antitrust Private Damage Calculation.

Abstract: This article is about one system (among several that we can use) of calculating the damages in antitrust cases of private claims. For that, I use the minimum quantity and the maximum profit with the linear interpolation system (LIS) and the critical loss analysis (CLA). This is an approach with the methods and the models that give us the Directive of Damages 2014/104/EU.

Conspiracy Against the Public: an Experiment on Collusion

Åshild A. Johnsen, Norwegian University of Life Sciences (NMBU) - School of Economics and Business and Ola Kvaloy, University of Stavanger offer Conspiracy Against the Public: an Experiment on Collusion.

ABSTRACT: We study to what extent collusive behavior is affected by the awareness of negative externalities. Theories of outcome-based social preferences suggest that negative externalities make collusion harder to sustain than predicted by standard economic theory, while sociological theories of social ties and intergroup comparisons suggest that bilateral cooperation can be strengthened if there exist outsiders that gain from cooperative break down. We investigate this in a laboratory experiment. Subjects play the infinitely repeated prisoner’s dilemma with and without a negative externality. The externality is implemented by letting subjects make a positive contribution to a public good if they choose to defect from cooperation, i.e. cooperation is collusive since the gains are at the expense of the public. We find that this negative externality increases collusive behavior. Subjects cooperate more if it hurts a third party.

Supplier Innovation in the Presence of Buyer Power

Zhiqi Chen, University - Department of Economics addresses Supplier Innovation in the Presence of Buyer Power.

ABSTRACT: This article analyzes the impact of retailer buyer power on a supplier's incentive to conduct innovation, with a focus on the supplier's investment in product variety and quality improvement. The analysis shows that an increase in buyer power, manifested through either a weakening of the supplier's bargaining position or a strengthening of a large retailer's bargaining power, leads to greater product variety and higher quality if the elasticity of demand is not too large. Increased buyer power, manifested through a strengthening of a large retailer's bargaining position, stimulates the supplier to invest more in quality improvement.

Underwriter Competition and Bargaining Power in the Corporate Bond Market

Manconi, Alberto (Tilburg University, Center For Economic Research); Neretina, Ekaterina (Tilburg University, Center For Economic Research); Renneboog, Luc (Tilburg University, Center For Economic Research) study Underwriter Competition and Bargaining Power in the Corporate Bond Market. Worth reading

Abstract: We develop a new measure of underwriter bargaining power and a novel empirical approach, based on underwriters’ comparative ability to place bonds. When an issuer has few “outside options” to take her bond to the market, the underwriter enjoys a stronger bargaining power over her. The key feature of our approach is that bargaining power varies for a given underwriter at a given point in time across different issuers, allowing us to separate the effects of bargaining power from those of reputation and certification with a fixed effects strategy. Using our measure, we document that powerful underwriters are able to extract rents at the expense of bond issuers. For issues with the highest underwriter bargaining power, fees and bond offering yields increase by a combined cost of USD 1.5 million, or about 7% of the average costs for the issuer. We rule out alternative mechanisms based on issuer-underwriter “loyalty”. Our findings suggest that lack of competition increases underwriter bargaining power, resulting in material costs for corporate bond issuers. Keywords: Bargaining power; corporate bonds; underwriting

Oligopolistic Competition and Economic Geography

Zhou, Haiwen discusses Oligopolistic Competition and Economic Geography

Abstract: This paper studies a general equilibrium model of economic geography in which firms engage in oligopolistic competition. This framework is conducive to analytic results. With increasing returns, oligopolistic competition leads to inter-industry trade between regions rather than intra-industry trade. The choice of appropriate technology is a channel of concentration of industries.

A new price test in geographic market definition – an application to german retail gasoline market

Bantle, Melissa (Helmut Schmidt University, Hamburg) and Muijs, Matthias (University of Hohenheim) offer A new price test in geographic market definition – an application to german retail gasoline market.

Abstract: Market delineation is a fundamental tool in modern antitrust analysis. However, the definition of re- levant markets can be very difficult in practice. This preliminary draft applies a new methodology combining a simple price correlation test with hierarchical clustering -a method known from machine learning- in order to analyze the competitive situation in the German retail gasoline market. Our analysis reveals two remarkable results: At first, there is a uniform pattern across stations of the same brand regarding their maximum daily prices which confirms the claim that prices are partly set centrally. But more importantly, price reactions are also influenced by regional or local market conditions as the price setting of gasoline stations is strongly affected by commuter routes.

Awards Dinners Wrap Up the Spring Meeting

Greetings from DC and the Spring Meeting.  This morning I was one of three people at the gym at 5am, which means that the European and Asian attendees were sleeping off the GCR and Concurrences dinners and after parties.  There were lots of awards and I will not list winners for best deal, best law firm or best soft law.  Instead, I will give awards for most fashionable.

For those who wonder why efficiencies arguments rarely win before the agencies or the courts, let me explain.  If you run for a half hour and burn 120 calories, that does not overcome the 900 calories you consumed in taking a coffee with cream and a big slice of cake after dinner.  To stay lean, stay away from the fried foods that are at every law firm happy hour and start the day with a protein rich Greek yogurt and antioxidant filled blackberries and blueberries.

Now, onto the awards.

Most fashionable enforcer (male) - To Han Li, Chief Executive and a Commissioner of the Competition Commission of Singapore.  Classic cut and well fit suit.  He is the Cary Grant of antitrust.

Most fashionable enforcer (female) - Christine Wilson, Commissioner, Federal Trade Commission.  She looked stunning in green. She also gave a moving speech about the importance of markets at the Concurrences dinner.

Most fashionable ex-enforcer (male) - John Pecman, Fasken.  John wore a jacket and no tie and looked happy and relaxed in the private sector.

Most fashionable ex-enforcer (female) - Maureen Ohlhausen, BakerBotts.  Maureen looked quite stylish.

Most fashionable professional economist - Cristina Caffarra, CRA.  She deserves a lifetime achievement award.  Her black and gold dress was amazing.

Most fashionable economics professor - Dennis Carlton, University of Chicago.  Dennis showed casual elegance.  He also won an award or his recent article Vertical Most-Favored-Nation Restraints and Credit Card No-Surcharge Rules (Journal of Law & Economics, with Ralph Winter).  

Most fashionable law firm partner - this was a very competitive category, probably the most so.  The tie goes to two Europeans: Kyriakos Fountoukakos  (Herbert Smith) and Ingrid Vandenborre (Skadden).  

Most fashionable law professor - Angela Zhang (張湖月) , HKU.  Angela wore all black and was a double award winner for her articles after winning a writing award last year as well.  This makes for a strong tenure file.

Most entertaining dinner companion - Kai-Uwe Kuhn, UEA and Brattle Group.  Kai-Uwe discussed antitrust, Wittgenstein, and any number of topics where his dry humor and great insights suggested that he really needs to host a 30 minute talk show on German television.

Most athletic - A tie for the 6am running duo of Jason Gudofsky (McCarthy Tétrault) and David Rosner (Goodmans) 

 

Market Power in the Dairy Alternative Beverage Industry in the United States

Yang, Tingyi; Dharmasena, Senarath describe Market Power in the Dairy Alternative Beverage Industry in the United States.

Abstract: Dairy alternative beverage market in the United States has been growing over the past decade. Although almond milk and soymilk are the fastest growing categories, there exist numerous other products such as coconut milk, rice milk, cashew nut milk, hazelnut milk, etc. There are well-known national brands as well as not-so-well-known private label and store brands that compete among dairy alternative beverages. These firms compete strategically for market share by differentiating their products by brand, price, advertising, promotion, positioning and merchandising. Using market level weekly purchase data from 2015 Nielsen scanner panel, price cost margins and market power of different brands is estimated assuming the presence of pure strategy Bertrand-Nash equilibrium in prices. Demand parameters are estimated using attribute space hedonic metric approach within the Barten synthetic demand model. Hedonic variables with regards to product attributes such as calorie, fat, protein, calcium and other nutrients are used to estimate demand elasticities using qualitative factor distances within the hedonic matrix of parameters associated with attributes. Preliminary analysis revealed own-price demand elasticities of soymilk, almond milk, and coconut milk at -1.13, -0.5, and 0.46. These are used to calculate price cost margins under various industry structures (such as in Nevo, 2000).

Mergers and Investments in New Products

Jullien, Bruno; Lefouili, Yassine address Mergers and Investments in New Products.

Abstract: We investigate the impact of a horizontal merger between two competitors on their incentives to develop new products. We show that a merger raises the incentives to innovate if and only if the merged entity's incremental gain from a second innovation is larger than the individual profit of an innovator when both firms innovate in the no-merger scenario. Applying this result to the Hotelling model, we find that a merger spurs innovation and can be beneficial to consumers if the degree of product differentiation is positive but not too high.

Do Research Joint Ventures Serve a Collusive Function?

Eric Helland, Claremont McKenna College - Robert Day School of Economics and Finance; RAND and Michelle Sovinsky, University of Mannheim ask Do Research Joint Ventures Serve a Collusive Function? Recommended

ABSTRACT: Every year thousands of firms are engaged in research joint ventures (RJV), where knowledge gained through R&D is shared among members. Many members are rivals leaving open the possibility that firms form RJVs to facilitate product collusion. We exploit variation in RJV formation generated by a policy change that affects the collusive benefits but not the research synergies of a RJV. Estimates from our RJV participation equation indicate participation is impacted by the policy change. The magnitude is significant with an average drop in the probability of joining of 30%. Our results are consistent with RJVs serving a collusive function.

Price Discrimination & Intellectual Property

Ben Depoorter, University of California Hastings College of Law; Ugent - CASLE; Stanford Law School Center for Internet & Society and Michael J. Meurer, Boston University - School of Law address Price Discrimination & Intellectual Property.

Abstract: This chapter reviews the law and economics literature on intellectual property law and price discrimination. We introduce legal scholars to the wide range of techniques used by intellectual property owners to practice price discrimination; in many cases the link between commercial practice and price discrimination may not be apparent to non-economists. We introduce economists to the many facets of intellectual property law that influence the profitability and practice of price discrimination. The law in this area has complex effects on customer sorting and arbitrage. Intellectual property law offers fertile ground for analysis of policies that facilitate or discourage price discrimination. We conjecture that new technologies are expanding the range of techniques used for price discrimination while inducing new wrinkles in intellectual property law regimes. We anticipate growing commentary on copyright and trademark liability of e-commerce platforms and how that connects to arbitrage and price discrimination. Further, we expect to see increasing discussion of the connection between intellectual property, privacy, and antitrust laws and the incentives to build and use databases and algorithms in support of price discrimination.

Competition Law Networks and the Challenge of Transparency

Imelda Maher, University College Dublin (UCD) - Sutherland School of Law discusses Competition Law Networks and the Challenge of Transparency. Recommended

ABSTRACT: Networks of competition agencies are now a central feature of international competition law enforcement and policy. The nature of these networks varies from little more than occasional talking shops, to arrangements for knowledge exchange and technical assistance, through to the European Competition Network which is a highly integrated and institutionalised network of agencies enforcing common rules. One question that emerges is how do these networks and transparency as a tool of good governance intersect? To what extent is there a need for balance between effectiveness and transparency? In order to shed light on the challenge of transparency for competition networks, this chapter draws on insights from the literature on transparency and competition networks.

The Synthesis between Labour Rights and Competition Law – A Quest for Fair Globalization

Durgambini Patel, University of Pune offers The Synthesis between Labour Rights and Competition Law – A Quest for Fair Globalization.

ABSTRACT: The protection and promotion of labour rights at the peak of globalization with digitalized economy needs altogether a different treatment, especially so with regards to a developing economy which has great challenges of dealing with poverty and concentration of wealth. It is a common understanding about law that a good law is the one which is able to accommodate exceptional conditions. Thus every law is all pervasive if it has general rule followed by exceptions. This analogy is very relevant with respect to various rights of the working class vis-a-vis the Competition Law also known as the Anti- trust law. 

The paper makes an attempt to examine the exceptions to the application of the competition law, rules and policies in the area of various activities of the labour/ employees recognized by law in regard to a workplace, with a view of protecting their rights and interest. The Competition Law promotes free competition in a liberalized economy and leaves all aspects to be determined by the market conditions. The globalization process has compelled all stakeholders to pass and implement Competition Law and frame an appropriate policy, any violation of this is viewed as direct attack on healthy practice of a globalized economy. The question here is should the working class be left to be governed by market forces in regard to their working conditions and denied the age old rights they have acquired after a great struggle which empowers them to negotiate terms and conditions of work or the statutory protection where provided for?

Demystifying Patent Holdup

Thomas F. Cotter, University of Minnesota Law School, Erik Hovenkamp, Harvard Law School; Yale Law School, and Norman Siebrasse, University of New Brunswick - Fredericton - Faculty of Law are Demystifying Patent Holdup.

ABSTRACT: Patent holdup can arise when circumstances enable a patent owner to extract a larger royalty ex post than it could have obtained in an arm's length transaction ex ante. While the concept of patent holdup is familiar to scholars and practitioners—particularly in the context of standard-essential patent (SEP) disputes—the economic details are frequently misunderstood. For example, the popular assumption that switching costs (those required to switch from the infringing technology to an alternative) necessarily contribute to holdup is false in general, and will tend to overstate the potential for extracting excessive royalties. On the other hand, some commentaries mistakenly presume that large fixed costs are an essential ingredient of patent holdup, which understates the scope of the problem.

In this article, we clarify and distinguish the most basic economic factors that contribute to patent holdup. This casts light on various points of confusion arising in many commentaries on the subject. Path dependence—which can act to inflate the value of a technology simply because it was adopted first—is a useful concept for understanding the problem. In particular, patent holdup can be viewed as opportunistic exploitation of path dependence effects serving to inflate the value of a patented technology (relative to the alternatives) after it is adopted. This clarifies that factors contributing to holdup are not static, but rather consist in changes in economic circumstances over time. By breaking down the problem into its most basic parts, our analysis provides a useful blueprint for applying patent holdup theory in complex cases.

Giving Competition in Medical Care and Health Insurance a Chance

Mark V. Pauly, University of Pennsylvania - Health Care Systems Department; National Bureau of Economic Research (NBER) argues for Giving Competition in Medical Care and Health Insurance a Chance.

ABSTRACT: This study summarizes what we know and do not know, in both economic theory and empirical practice, about the potential to more closely approximate competitive markets in healthcare and insurance in ways that will do more good than harm to the current dysfunctional system. The alternatives to competitive markets are, on the one hand, private markets where sellers of medical products and health insurance have market power, and, on the other hand, markets in which government both funds and controls production of such items. This study briefly discusses the economic ideal of competition and its current state in hospital, physician, pharmaceutical, and health insurance markets. It then considers circumstances in which more supply-side competition would or would not improve outcomes, identifies imperfect information as a key problem, and closes by discussing competition among health plans, systems, and networks. This research combines data, theory, and reasonable conjecture to focus on market-like improvements that are likely to do more good than harm.