Thursday, September 12, 2019
Assistant Attorney General Makan Delrahim Delivers Remarks at 46th Annual Fordham Competition Law Institute Conference on International Antitrust Law and Policy
Pricing by International Airline Alliances: A Retrospective Study Using Supplementary Foreign-Carrier Fare Data
Jan K. Brueckner, University of California, Irvine - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute) and Ethan Singer offer Pricing by International Airline Alliances: A Retrospective Study Using Supplementary Foreign-Carrier Fare Data.
ABSTRACT: This study provides further empirical evidence on pricing by international airline alliances. The paper covers a long sample period, which runs from 1997 to 2016, and it supplements the usual USDOT fare data with confidential fare data reported by the foreign alliance partners of US carriers. The empirical results for connecting service match earlier findings, with alliances charging lower fares than nonaligned carriers. The GTG results imply that, in the latter part of the sample period, granting antitrust immunity to two previously nonaligned carriers is equivalent to removing a competitor, with a consequent increase in fares (an effect seldom seen in previous work).
Chad Syverson analyzes Macroeconomics and Market Power: Context, Implications, and Open Questions.
ABSTRACT: This article assesses several aspects of recent macroeconomic market power research. These include the ways market power is defined and measured; the use of accounting data to estimate markups; the quantitative implications of theoretical connections among markups, prices, costs, scale elasticities, and profits; and conflicting evidence on whether greater market power has led to lower investment rates and a lower labor share of income. Throughout this discussion, I characterize the congruencies and incongruencies between macro evidence and micro views of market power and, when they do not perfectly overlap, explain the open questions that need to be answered to make the connection complete.
Wednesday, September 11, 2019
Third Party Rights and the State Aid Procedures Revisited by the European Courts: An Ever-Sounder State Aid Control
ABSTRACT: The role of the European Courts of Justice has been fundamental for the evolution and establishment of procedural rules for state aid control.
Since the beginning of 2018, the Court has rendered several judgements in the area of state aid focussing on considerations related to the procedures followed for the assessment of alleged state aid measures, and the protection of procedural rights. The Court’s attention seems to focus on the Commission’s analysis of the relevant elements of law and fact underlying the assessed measure, and on the way the procedural rules are applied. The Court has not departed from its previous approach but has built its considerations on well-established case law.
Patrick J. Dennis, University of Virginia - McIntire School of Commerce, Kristopher Gerardi, Federal Reserve Bank of Atlanta, and Carola Schenone, University of Virginia - McIntire School argue Common Ownership Does Not Have Anti-Competitive Effects in the Airline Industry.
ABSTRACT: Institutional investors often own significant equity in firms that compete in the same product market. These "common owners" may have an incentive to coordinate the actions of firms that would otherwise be competing rivals, leading to anti-competitive pricing. This paper uses data on airline ticket prices to test whether common owners induce anti-competitive pricing behavior. We find little evidence to support such a hypothesis, and show that the positive relationship between average ticket prices and a commonly used measure of common ownership previously documented in the literature is generated by the endogenous market share component, rather than the ownership component, of the measure.
Dennis W. Carlton, University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER), Mark A. Israel, Compass Lexecon, and Allan Shampine, Compass Lexecon offer Lessons from AT&T/Time Warner.
ABSTRACT: AT&T and Time Warner is the U.S. Department of Justice’s first vertical merger challenge in decades. The merging parties hired us initially to provide economic analyses of the antitrust issues raised by the merger and ultimately to assist with and testify in the litigation. There are three keys lessons that we draw from the outcome of the litigation for future antitrust practice. First, history matters, particularly the outcomes of similar integrations or integrations, both in predicting price effects and in testing merger simulation models proposed by economic experts. Second, one should be careful of simulation models of vertical transactions as they can be complicated and fragile. Third, the fact that the courts credited cost-saving efficiencies as credible, cognizable and relevant to the analysis of net harm is likely to be important for the analysis of future mergers, as the role of efficiencies in merger litigation remains an open question.
Douglas Silveira, Federal University of Juiz de Fora; Pontifical Catholic University of Rio de Janeiro (PUC-Rio), Silvinha Vasconcelos, Universidade Federal de Juiz de Fora - Department of Economics, Paula Bogossian, Joaquim Henriques Vianna Neto, Universidade Federal de Juiz de Fora are using Cartel Screening in the Brazilian Fuel Retail Market.
ABSTRACT: We aim to contribute to the challenges faced by the antitrust authorities in the identification process of anti-competitive market behavior. We propose two econometric models to select possible cases to be investigated: (i) The Markov-Switching GARCH (MSGARCH) Models; (ii) The Local Gaussian Correlation (LGC) approach. We compare both models. Our results indicate that the LGC model, based on the correlation of the resale price margin and the variability of prices, may provide a biased estimation of the likelihood that a market is practicing cartel. The MSGARCH model, based only on the log deviation of the gasoline sale price, showed a better accuracy in cartel detection.
Tuesday, September 10, 2019
Herb Hovenkamp, Penn discusses FRAND and Antitrust.
ABSTRACT: This paper considers when a patentee’s violation of a FRAND commitment also violates the antitrust laws. It warns against two extremes. First, is thinking that any violation of a FRAND obligation is an antitrust violation as well. FRAND obligations are contractual, and most breaches of contract do not violate antitrust law. The other extreme is thinking that, because a FRAND violation is a breach of contract, it cannot also be an antitrust violation.
Every antitrust case must consider the market environment in which conduct is to be evaluated. SSOs operated by multiple firms are joint ventures. Antitrust’s role is to evaluate how challenged restraints operate within the venture and condemn unreasonably anticompetitive practices. In her Qualcomm decision Judge Koh devoted considerable space to standard essential patents and FRAND commitments, but she addressed the antitrust refusal to deal and exclusion claims with little reference to standard setting or FRAND.
Breach of a FRAND commitment violates the antitrust laws when it causes competitive harm. For §1 of the Sherman Act, this requires an agreement that threatens to reduce market output. If the conduct is reasonably ancillary to other procompetitive activity, this requires an assessment of market power and anticompetitive effects. For §2 of the Sherman Act or §3 of the Clayton Act, it will require a showing of unreasonably exclusionary conduct by an actor with market power.
The antitrust issue of unilateral refusals to deal is too often confused with the essential facility doctrine. The essential facility doctrine is based on the idea that some assets are so essential to commerce that the owner has a duty to share them. By contrast, the refusal to deal rule is rooted in conduct – namely, a specific prior contractual obligation, reliance and path dependence, and subsequent repudiation. Many joint ventures involve a significant sunk investment in assets that are dedicated to the venture. If one firm can later extract itself and commandeer the relevant technology, it can leave the remaining firms at a significant competitive disadvantage, with the effect of transferring market share, reducing output, raising prices, and ultimately undermining the competitive promise of such ventures. This makes antitrust refusal to deal rules particularly important for collaborative networked industries.
While the essential facility doctrine is conducive to competitor passivity, the Aspen rule facilitates competitor investment. The idea that a facility is “essential” indicates that rivals need not bother to develop their own alternatives. Instead, they should seek a right to connect into the dominant firm’s facility. By contrast, the Aspen rule is based on a premise of voluntary commitment to invest jointly. If one firm later reneges on that commitment in a way that threatens to undermine it, those investment backed expectations are lost. The Aspen rule thus serves to protect the integrity of investment when noncompetitive outcomes are threatened.
The debate over “holdup” or “holdout” in the FRAND setting has occasional antitrust relevance. While holdout is a real problem, there is little empirical evidence that it occurs frequently in FRAND settings. Holdout occurs when implementers conspire to exclude patentees or suppress royalties. But standard essential patents are largely self-declared and, as it appears, significantly over declared. Further, “holdout” hypothesizes agreements to force patentees to accept infra-market royalties, but FRAND royalties are determined post-commitment by independent tribunals, and there is no evidence of systematic undercompensation.
One objection to finding antitrust liability when the defendant’s conduct has also violated its FRAND obligation is the threat of double liability. There is little basis in fact or law for this concern. Many federal antitrust violations violate various common law and statutory rules. The remedy in these cases is not to dismiss one or the other claim at the onset, but rather to avoid double counting of damages for the same harm.
Finally, while some object to using antitrust law to discipline firms for seeking injunctions on FRAND-encumbered patents, existing antitrust doctrine on the point is clear and sufficient: a firm has the right to seek relief in court unless its prospects are so poor that the lawsuit must be regarded as a “sham.” The antitrust question of injunctions on FRAND patents is thus quite fact-specific and depends on the extent to which the law is settled.
The Obligation for the Competition Authorities of the EU Member States to Apply EU Antitrust Law and the Facebook Decision of the Bundeskartellam
Wouter P. J. Wils, European Commission,describes The Obligation for the Competition Authorities of the EU Member States to Apply EU Antitrust Law and the Facebook Decision of the Bundeskartellam.
ABSTRACT: Article 3 of Regulation 1/2003 obliges the competition authorities of the EU Member States (national competition authorities or NCAs) to apply Articles 101 and 102 TFEU (EU antitrust law) whenever they apply national competition law to conduct falling within the scope of EU antitrust law. Moreover, the application of national competition law cannot lead to the prohibition of agreements or concerted practices that affect trade between Member States but are not prohibited by Article 101 TFEU. National competition authorities can however use national competition law to prohibit unilateral conduct that is not prohibited by Article 102 TFEU. This paper examines the content and rationale of these provisions of Article 3 of Regulation 1/2003, and the legal consequences in case of non-respect of these provisions, using as an example the Facebook Decision of 6 February 2019 of the German Federal Competition Authority (Bundeskartellamt).
Roman Inderst, Goethe University Frankfurt and Stefan Thomas, University of Tuebingen - Faculty of Law examine Price Pressure Indices, Innovation and Mergers Between Commonly Owned Firms.
ABSTRACT: The potentially anticompetitive effects of common ownership are being discussed controversially. While the US agencies still display reluctance, the Commission has already invoked common ownership has part of a theory of harm in Dow/DuPont and Bayer/Monsanto. In our paper we focus on how common ownership can bear on the application of price pressure indices in unilateral effects analysis of horizontal mergers between portfolio companies. We do not assess whether the underlying premise of common ownership to lead to an internalization of shareholders’ expectations of high overall market returns is convincing. Rather, we hypothesize such common shareholder influence. Our main conclusion is that common ownership should still not be considered a general circumstantial factor indicating competitive harm with respect to post-merger price increases or effects on innovation competition. Rather, it calls for case-by-case analysis.
ABSTRACT: The European Union (EU) formally changed its merger policy in 2004, moving from a dominance standard to one based on a significant impediment of effective competition, which appears more closely aligned with the U.S. substantial lessening of competition standard. We use data from both before and after this reform to explore whether EU policy has converged toward the U.S. standard. We start by identifying changes in the EU regime and detect a softer EU policy for unilateral effects. We model the outcomes of EU and U.S. investigations with logit models and use their predictions in decompositions and other exercises to show policy convergence for unilateral effects cases.
Monday, September 9, 2019
ABSTRACT: Understanding patient choice is vital in assessing the closeness of competition between hospitals. The standard technique used in the UK is to estimate substitution patterns based on historical general practitioner (GP) referrals. In this paper we compare the results of the ‘GP referral’ methodology to a demand estimation approach. Using patient-level data over a 3-year period (2012/13–2014/15) we apply both methodologies to every hypothetical merger between hospitals in England, for three specialties. We find a high degree of consistency between the two approaches, suggesting that GP referral analysis is a useful and reliable filter in merger cases. There are a small number of cases, however, in which the GP referral approach filters out potentially problematic mergers. This is particularly true for ‘borderline’ cases. Filtering should therefore be done with caution and in conjunction with additional evidence.
ABSTRACT: Is there a disconnect between what competition policy delivers and what citizens expect from it? Do governments view competition enforcement as an impediment to economic growth? Some policy-makers, at least, seem to think so. This was demonstrated in February’s Franco-German manifesto for a new industrial policy (one ‘fit for the 21st century’), which called for a revamp of the current competition rules.
Europe has undoubtedly achieved remarkable results for its citizens over the past few decades. It has delivered peace, universal healthcare and education, even economic prosperity. More recently, critics have emphasised that in relative terms Europe has not scored incredibly well in corporate success. In the United States and in China, the latter owes much to innovation, entrepreneurship, private investment and, of course, subsidies. But is competition policy the main culprit of this outcome?
ABSTRACT: Given its ability to process very large volumes of information and to identify patterns that would generally escape human observation, artificial intelligence (AI) is expected to have very significant impacts in the field of law. In particular, there are high hopes for the application of AI to law enforcement. This is also the case in the area of competition law,1 where algorithms can be used to develop cartel screening tools and to boost the functionality of the behavioural screens that have been developing in recent years.
Carlos Delvasto, Illinois College of Law; Pontificia Universidad Javeriana Cali asks How are Price Fixing Agreements Unfair?
ABSTRACT: The present article advances the understanding of antitrust law by providing some theoretical considerations and empirical results of what people view as unfair regarding price-fixing agreements. Specifically, two theories were tested: the dual entitlement and double effect doctrine. Building on these theories, five hypotheses were formulated. People's attitudes towards price fixing were obtained through experimental surveys on Amazon Mechanical Turk in the United States. The empirical results suggest that people view it as unfair when they feel that businesses rip them off through unequal transactions, such as price fixing and other forms of collusive behavior. But there is more to it than that. People's price-fixing attitudes vary depending on the circumstances, such as when a cost increasing event affects firms' profits and firms price fixed to recoup the loss suffered or when a third-party benefit from the price fixing. Moreover, results suggest that people’s intuitions about price fixing are not static and move whenever the social and moral context changes. The fact that people care about rules of fairness when encountering antitrust scenarios indicates that antitrust law is not built on solid ground, not because economics is not important but because it itself is incomplete. The present research contributes to filling the gap that exists between antitrust law and morality by studying what is wrong about price fixing.
Friday, September 6, 2019
Yong Chao, University of Louisville - College of Business - Department of Economics, Guofu Tan, University of Southern California - Department of Economics, Adam Chi Leung Wong, Lingnan University - Department of Economics identify Optimal Nonlinear Pricing by a Dominant Firm Under Competition.
ABSTRACT: We consider a nonlinear pricing problem faced by a dominant firm which competes with a capacity-constrained minor firm for a downstream buyer who may purchase the product from the firms under complete information. Specifically, we analyze a three-stage game in which the dominant firm offers a general tariff first and then the minor firm responds with a per-unit price, followed by the buyer choosing her purchases. By establishing an equivalence between the subgame perfect equilibrium of our asymmetric competition game and the optimal mechanism in a “virtual” principal-agent model, we characterize the dominant firm's optimal nonlinear tariff, which exhibits convexity and yet can display quantity discounts. Our analysis provides a rationale for nonlinear pricing under competition in the absence of private information: The dominant firm can use unchosen offers to constrain its rival’s possible deviations and extract more surplus from the buyer. Antitrust implications are also discussed.
Tim Wu, has a paper Tech Dominance and the Policeman at the Elbow.
ABSTRACT: One school of thought takes much of law and the legal system as essentially irrelevant to the process of technological evolution. This view takes as axiomatic that the rate technological change is always accelerating, that any firm or institution dependent on a given technology is therefore doomed to a rapid obsolescence. Law, at best, risks interfering with a natural progression toward a better technological future, hindering “the march of civilization.”
This paper discusses the historical role of antitrust investigation in changing the course of technological development by focusing on the example of the IBM litigation (1969 - 1984). While widely derided and seen as a failure, this essay challenges the conventional wisdom and suggests, with the benefit of decades of hindsight, that the IBM lawsuit and trial, despite never reaching a verdict, actually catalyzed numerous transformational developments key to the growth and innovation of the computing industries.
Pass-Through as an Economic Tool -- On Second Derivatives, Social Incidence, and Price Discrimination
Jeanine Miklós-Thal, University of Rochester - Simon Business School and Greg Shaffer, University of Rochester - Simon Business School address Pass-Through as an Economic Tool -- On Second Derivatives, Social Incidence, and Price Discrimination.
ABSTRACT: Weyl and Fabinger (2013) show that the social incidence of competition, and the output and welfare effects of third-degree price discrimination, can be analyzed by considering the hypothetical entrance of exogenous quantity into a market. The formulas they use for this purpose, however, are correct only for marginal changes in exogenous quantity starting at zero or if demand functions are linear. We show how using the correct formulas affects the social incidence of competition calculations and sheds new light on the output and welfare effects of third-degree price discrimination in oligopoly markets.
Thursday, September 5, 2019
The effective public enforcement of the prohibition of anti-competitive agreements: which factors influence the high percentage of annulments of Dutch cartel fines?
ABSTRACT: The Dutch enforcement of the European and Dutch cartel prohibition is characterized by high rates of litigation and successful litigation. Several studies have devoted attention to these phenomena, all unraveling parts of the puzzle as to how the occurrence of these percentages can be explained. The subject of this article, an analysis of the factors which influence the rate of successful litigation, is however missing in this body of literature. To begin with, a theoretical framework of possible influencing factors is designed on the basis of relevant academic literature. In order to evaluate whether the factors identified in the literature can explain the Dutch practice, an assessment is carried out using several means, including a further analysis of the Dutch cartel practice, interviews with involved stakeholders, and comparisons with other Member States and Dutch market supervisors. The article concludes that specific factors that are woven into the Dutch practice (including specific court, party, and case characteristics), in combination with the nature of competition law, influence the Dutch annulment rate.
How Does Online Streaming Affect Antitrust Remedies to Centralized Marketing? The Case of European Football Broadcasting Rights
Oliver Budzinski, Ilmenau University of Technology, Sophia Gaenssle, Ilmenau University of Technology, and Philipp Kunz-Kaltenhäuser, Ilmenau University of Technology ask How Does Online Streaming Affect Antitrust Remedies to Centralized Marketing? The Case of European Football Broadcasting Rights.
ABSTRACT: The collective sale of football broadcasting rights constitutes a cartel, which, in the European Union, is only allowed if it complies with a number of conditions and obligations, inter alia, partial unbundling and the no-single-buyer rule. These regulations were defined with traditional TV-markets in mind. However, the landscape of audiovisual broadcasting is quickly changing with online streaming services gaining popularity and relevance. This also alters the effects of the conditions and obligations for the centralized marketing arrangements. Partial unbundling may lead to increasing instead of decreasing prices for consumers. Moreover, the combination of partial unbundling and the no-single-buyer rule forces consumers into multiple subscriptions to several streaming services, which increases trans-action costs. Consequently, competition authorities need to rethink the conditions and obligations they impose on centralized marketing arrangements in football. We recommend restricting the exclusivity of (live-)broadcasting rights and mandate third-party access to program guide information to redesign the remedies.