This paper presents a broad retrospective evaluation of mergers and merger decisions in markets dominated by multisided digital platforms. First, we document almost 300 acquisitions carried out by three major tech companies—Amazon, Facebook, and Google—between 2008 and 2018. We cluster target companies on their area of economic activity providing suggestive evidence on the strategies behind these mergers. Second, we discuss the features of digital markets that create new challenges for competition policy. By using relevant case studies as illustrative examples, we discuss theories of harm that have been used or, alternatively, could have been formulated by authorities in these cases. Finally, we retrospectively examine two important merger cases, Facebook/Instagram and Google/Waze, providing a systematic assessment of the theories of harm considered by the UK competition authorities as well as evidence on the evolution of the market after the transactions were approved. We discuss whether the competition authority performed complete and careful analyses to foresee the competitive consequences of the investigated mergers and whether a more effective merger control regime can be achieved within the current legal framework.
Tuesday, August 18, 2020
Antitrust Law and Digital Markets: A Guide to the European Competition Law Experience in the Digital Economy
Antitrust Law and Digital Markets: A Guide to the European Competition Law Experience in the Digital Economy
Leading jurisdictions around the world are debating whether the nature of data-driven digital markets and the smart technologies that enable these markets require a re-thinking of how antitrust law applies to digital markets. There are many aspects to consider in this discussion, relating both to the analytical tools that competition law applies and to the way that anti-competitive behaviour is understood. This contribution provides an overview of the challenges that competition law faces in digital markets, including market definition, market power assessments, anti-competitive agreements, abuse of dominance and mergers. It analyses how European competition law has dealt with these challenges in the recent past and discusses what provisional conclusions some of the major European reports have arrived at in order to meet these challenges. It outlines those areas of competition law that require new answers, either by competition law practice, through soft law instruments or by legislators.
The Reception of Collective Actions in Europe: Reconstructing the Mental Process of a Legal Transplantation
The European collective action is probably one of the most exciting legal transplantation comparative law has seen. Collective litigation, which U.S. law did not inherit from common law but invented with the 1966 revision of class actions, has been among the most successful export products of American legal scholarship. Today in the European Union, seventeen out of twenty–eight Member States have adopted a special regime for collective actions. At the same time, collective actions are intrinsically linked to various extraneous components of the legal system; hence, their transplantation calls for a comprehensive adaptation. The need to rethink class actions has not only generated a heated debate in Europe about whether and how to introduce collective actions, but resulted in Europe’s making collective actions in its own image, producing something truly European: a model of collective actions à l’européenne.
This Article presents the process of developing the European collective action and its outcome. It represents the first attempt to give a trans-systemic account of European collective actions and to elucidate them in light of the peculiarities and idiosyncrasies of the mindset of European jurisprudence. Further, this Article gives an analytical presentation of the emerging European collective action model and demonstrates how it was shaped by Europe’s legal thinking and societal attitudes.
University of Melbourne - Department of Economics
We consider the effects of a merger combined with a divestiture that mixes and matches the assets of the two pre‐merger suppliers into one higher‐cost and one lower‐cost post‐merger supplier. Such mix‐and‐match transactions leave the number of suppliers in a market unchanged but, as we show, can be procompetitive or anticompetitive depending on whether buyers are powerful and on the extent of outside competition. A powerful buyer can benefit from a divestiture that creates a lower‐cost supplier, even if it causes the second‐lowest cost to increase. In contrast, a buyer without power is always harmed by a weakening of the competitive constraint on the lowest‐cost supplier.
Monday, August 17, 2020
Antitrust’s consumer welfare principle is accepted in some form by the entire Supreme Court and the majority of other writers. However, it means different things to different people. For example, some members of the Supreme Court can simultaneously acknowledge the antitrust consumer welfare principle even as they approve practices that result in immediate, obvious, and substantial consumer harm. At the same time, however, a properly defined consumer welfare principle is essential if antitrust is to achieve its statutory purpose, which is to pursue practices that injure competition. The wish to make antitrust a more general social justice statute is understandable: it permits people to obtain a result from the judiciary that they cannot get through legislation.
One thing antitrust enforcers and policy makers can do is agree that while antitrust should be guided by a consumer welfare principle, output rather than price should be the relevant variable. Higher output benefits not only consumers, but also workers and most of the smaller firms that are affected. The consumer welfare principle in antitrust is best understood as pursuing maximum output consistent with sustainable competition.
This week will mark the first week since the week of March 8, 2020 that I am wearing slacks rather than track pants/sweat pants every day of the week. While occasionally I have worn slacks, it has not been for five days straight. Luckily the pandemic has not meant stress eating for me, so I still fit into my slacks.
My Dean has prepared this video about what the College of Law has done to prepare for in person teaching.
We interview 379 European bank CEOs to identify their banks' main competitors. We then provide evidence on the drivers of bilateral bank competition, construct a novel competition measure at the locality level, and assess how well it explains variation in firms' credit constraints. We find that banks identify another bank as a main competitor in small-business lending when their branch networks overlap, when both are foreign owned or relationship oriented, or when the potential competitor has fewer hierarchical layers. Intense bilateral bank competition increases local credit constraints, especially for small firms, as competition may impede the formation of lending relationships.
The patent system fosters innovation by granting the right to exclude. Since a rightsholder can legally suppress competition and charge monopoly prices, a patent provides antitrust immunity. Even when firms allegedly abuse their exclusive rights through means such as furthering patent thickets, meritless infringement litigation, or breaching FRAND commitments, courts and federal agencies have often concluded that antitrust is ill-equipped to discipline patent practices. Without antitrust remedies, firms have banded together against rightsholders to negotiate for better terms. Their strategies have included boycotting abusive patentees as well as collectively negotiating against them. By using self-help remedies, they seek to pay fair rates for only the patents needed for their technology. This type of cooperation may ideally foster competition and innovation where patent abuses undermine both goals
The problem is, ironically, that combining against a monopolist is likely anticompetitive. Antitrust condemns collusion to drive down prices—here, licensing rates—even when done against a monopolist. This renders a troubling outcome where “Big Pharma,” “Big Tech,” and others can insulate their monopoly power using the very laws meant to condemn monopolies. While debate has emerged about patent abuses, an equally salient issue involves whether antitrust should condemn firms who collude against patent holders and monopolists.
Using empirical analysis and historical evidence, this Article argues that antitrust should allow firms to defend an antitrust claim by citing their rival’s market power. Our models show that powerful rightsholders do in fact harm competition and innovation in ways not meant to protect original technology. We then find that the benefits of collusion among smaller firms were advanced by the Sherman Act’s drafters whose comments are critical to shaping and understanding modern antitrust. Support even comes from the labor arena: Congress excluded workers from antitrust law — as labor unions were once considered a form of collusion — so that workers, with their own market power, could counterbalance their employers’ dominance with their own market power. As such, given the practical and theoretical difficulties of remedying anticompetitive abuses of patent rights under the antitrust laws, we assert that taking antitrust out of patent law would allow competition to flourish in dynamic markets while enhancing the patent system’s incentives to innovate.
Friday, August 14, 2020
Miller (2014, 2017) proposes an approach to the analysis of merger effects in markets involving procurement where one of the two product lines is discontinued. This note proves that, as presented in Miller (2014, 2017) and applied to a number of actual merger cases, eliminating one of the two product lines will not be more profitable than retaining both product lines from the merger, and therefore, applying this approach will likely overstate the anti-competitive effects of mergers.
Date Written: May 2020
In 1990, Egypt started in collaboration with the World Bank and International Monetary Fund structural economic reforms aiming at following the track of a market-oriented economy rather than its four-decade state-directed one. As a result, there was a need to reconsider the role of government in such an economic system; many questions were raised on the scope of government intervention and the mechanisms of such interventions. One of the most vital questions was how the government would be able to develop a competitive market where government-business policies are fair and just, access by new market players is not risky, exit from the market is not a source of distortion, and consumers rights of wide-located and diversified-based market products are maintained.
It seems that the final outcome of such a debate was the adoption of the Law No. 3 of 2005 on the Protection of Competition and the Prohibition of Antitrust Practices which first established The Competition Protection Authority known as The Egyptian Competition Authority “ECA” as an independent authority with financial autonomy.
Having said that, the political economy perspective of the competition law, governance, and policy is too extensive to be covered by one paper. Thus, this paper, after offering an overview of the Political Economy Constitutional Preferences and the Constitutional Framework of the Regulatory Agencies in Egypt, is mainly focusing on answering the following two questions:
1- What are the political economy circumstances in which the ECA evolved?
2- Where does the ECA stand from the financial autonomy?
Thursday, August 13, 2020
In order to respond to the COVID-19 pandemic it has been recognized universally that cooperation between competitors will be necessary. It is also recognized that some of the cooperation contemplated will infringe competition law. A number of techniques are available by which conduct that infringes competition law can escape prohibition. Two techniques used have been to issue guidance on how the competition authority understands the law to apply and to articulate how it will exercise its discretion when deciding to take enforcement action. The combination of these two techniques provides a degree of comfort. In the United Kingdom, the government has gone further by identifying necessary cooperation and excluding such cooperation from competition law on grounds of public policy, in one instance for those in the groceries supply chain. The use of an exclusion order means that there is political accountability for the consequences the decision to set aside competition law will have, both for competitors, others in the supply chain, and for different consumer groups. For parties to excluded agreements, there is certainty ex ante that the cooperation is immune from competition challenge. Avoiding the need to assess the compatibility of an agreement with competition law, rather than permission to engage in incompatible behaviour, can be seen as the real value of the public policy exclusion order granted in relation to groceries.
Antitrust & Corruption: Overruling Noerr Worth reading!
We live in a time when concerns about influence over the American political process by powerful private interests have reached an apogee, both on the left and the right. Among the laws originally intended to fight excessive private influence over republican institutions were the antitrust laws, whose sponsors were concerned not just with monopoly, but also its influence over legislatures and politicians. While no one would claim that the antitrust laws were meant to be comprehensive anti-corruption laws, there can be little question that they were passed with concerns about the political influence of powerful firms and industry cartels.
Since the 1960s, however, antitrust law’s scrutiny of corrupt and deceptive political practices has been sharply limited by the Noerr-Pennington doctrine, which provides immunity to antitrust liability for conduct that can be described as political or legal advocacy. The doctrine was created through apparent First Amendment avoidance, based on the premise that the Sherman Act could not have been intended to interfere with a right to petition government.
The Noerr decision, dating from 1961, was strained when it was decided and has not aged well. As an interpretation of the antitrust laws, it ignored Congressional concern with political mischief undertaken by conspiracy or monopoly. Its legitimacy has always rested on avoidance of the First Amendment, and while Noerr itself may have legitimately reflected such avoidance, the subsequent growth of a Noerr immunity has blown past any First Amendment-driven defense of its existence. For that reason, others have suggested a reformulation of the doctrine. The better answer is that, lacking constitutional or statutory foundation, Noerr should be overruled.
The First Amendment guarantees freedom of speech, assembly, and “to petition the government for a redress of grievances.” It therefore protects efforts to influence political debate as well as legitimate petitioning in the legislative, judicial or administrative processes. The First Amendment does not, however create a right to bribe government officials, deceive agencies, file false statements, or abuse government process through repeated filings designed only to injure a competitor. Nonetheless, each of these activities has, in some courts at least, been granted immunity under the overgrown Noerr immunity. It is an extra-constitutional outlier ripe for reexamination.
Overruling Noerr would not make political petitioning illegal. It would, instead, require defendants to rely on the First Amendment when seeking to defend what would otherwise be conduct that is illegal under the antitrust laws. Doctrinally, this is to force courts to address whether conduct in question is actually an antitrust violation, and if, so whether it is protected by the First Amendment or not, drawing on an established jurisprudence for some of the problems presented in the Noerr context.
This paper studies the relationship between competition and investment incentives in the Taiwanese hotel industry. Using detailed ﬁrm-level investment, revenue, and sales data, I estimate a discrete choice model for consumer demand, then incorporate these estimates into a dynamic model for investment and entry. This model is then used to evaluate the welfare eﬀects of competition policies. Counterfactual analysis shows that a 20% reduction in entry costs leads to more hotels and lower prices; however, investments decrease by 13%, and thus the overall average quality of hotels decreases. This indicates that consumers may not actually benefit from more competitive market structures.
Wednesday, August 12, 2020
Governments must anticipate today’s fast moving technologies to be effective. Blockchain potentially is the ideal tool to assist antitrust in enforcing regulation and fully exploiting its core principles—competition and consumer welfare. Blockchain offers antitrust an enormous opportunity and as any powerful tool it also has the capacity to harm as well as benefit if abused and left totally uncontrolled. Blockchain is not immune from the economic principle of trust. This chapter explores the delicate balance between regulation of and for blockchain.
Bargaining is all around us. Bargaining is how prices are set across a range of economic activities such as between licensors and licensees of intellectual property, employees and employers, content providers and distributors, health insurers and hospitals, and in many intermediate product markets. Recently, bargaining has played a central role in a number of high-profile antitrust matters. In 2018, the U.S. Department of Justice challenged AT&T’s acquisition of Time Warner — largely on the basis of a bargaining model. Also, in 2018, the U.S. Federal Trade Commission argued that Qualcomm’s market position in cellular chipsets allowed it to leverage higher royalty rates for its standard essential patents (“SEPs”), in violation of its commitment to license its SEPs on fair, reasonable, and non-discriminatory (“FRAND”) terms. In this article, we assess the value of economic bargaining models to predict outcomes for both horizontal and vertical mergers and for unilateral conduct. To that end, we first provide an overview of the economics of bargaining models and their primary features, including the vertical GUPPI variant. We then discuss these models in the context of recent antitrust cases and detail the uneven judicial adoption of bargaining models. Next, we examine whether the current judicial reticence is justified. We review a body of emerging scholarship that suggest some caution on the use of methodologies to predict harm based on bargaining models. This suggests that a healthy degree of judicial skepticism is warranted — whether coherently articulated in opinions or not. In conclusion, we offer some policy recommendations for the use of bargaining models, which we believe will lead to a more balanced approach regarding their use in antitrust matters.
Further regulation of digital platforms is on the horizon. Three types of solution are posited: more aggressive use of competition law, a new dedicated competition law instrument for the European Commission that allows swifter and more effective intervention, and a fresh regulator for systemically significant platforms. The debate contains two gaps. First, at a substantive level the role of other rules is downplayed (e.g. data protection & consumer laws). In other words, the Commission and most commentators wishing for greater regulation look to new tools rather than considering the potential of existing rules. Second, at an institutional level little is said about the impact that the policy proposals may have on other rules and other regulatory authorities. This paper addresses these two issues: it suggests that there are other regulatory options to competition law that should be explored and that investments should be made in facilitating cooperation among regulators to optimize the regulation of attention intermediaries.
Tuesday, August 11, 2020
Follow the Crowd or Follow the Trailblazer? The Differential Role of Firm Experience in Product Entry Decisions in the US Video Game Industry
Follow the Crowd or Follow the Trailblazer? The Differential Role of Firm Experience in Product Entry Decisions in the US Video Game Industry
Date Written: November 2019
Firms take cues from their external environment under uncertainty and imitate the actions of others. However, a firm’s own experience may either substitute for these external clues because the firm can evaluate uncertain situations more accurately, or it may complement them because the firm can act more successfully on the external cues. We argue that the type of external cues determines which of the two holds in the context of product entry decisions into market niches. If firms observe a large wave of entrants, own experience conveys more information than the imprecise signal of a mass of other firms. Conversely, if firms observe trailblazers, i.e., highly successful and influential products in a niche, own experience can help firms develop a strategy as a fast follower in a growing niche. We expect the supporting role of own experience in following trailblazers to be especially pronounced in niches that have not been discovered by a large mass of other firms. We study and test our hypotheses in the context of the US PC video game industry between 1991 and 2010 and find support for both the substitutive relationship between own experience and niche popularity and the complementary relationship of own experience and niche trailblazers. However, support for the complementary relationship is limited to less populated niches.
Amsterdam Centre for European Law and Governance Research Paper No. 2020-05
As a result of the global lockdown, countries around the globe are now facing multiple crises at the same time: a health crisis, a financial crisis, and a collapse in commodity prices, which all interact in complex ways. As a reaction governments and policymakers are providing unparalleled support to firms, financial markets, and households. The effectiveness of these policies is considered central to project worse consequences. In order to coordinate the economic response of the Member States and to mitigate the negative repercussions on the EU economy, the European Commission has adopted a Temporary Framework, which enables Member States to use the full flexibility foreseen under EU state aid rules to support the economy in the context of the COVID-19 outbreak.
However, in the current crisis the world economy and national economies are also shuttered in their micro-elements, at the demand side. As a result of the measures taken by governments to contain the virus, consumers have seen retail choices limited with hundreds of thousands of shops being required to close their doors, a situation that has exposed consumers to a floodgate of unfair, misleading or abusive business practices. Price gouging for essential consumer products coupled with unfair commercial practices have amplified forcing governments to take various measures, for example introducing price caps. Nevertheless, besides these unfair practices more indirect forms of consumer harm is taking place as a result of some of the current state aid measures that many policy makers may not have immediately realized and acted upon.
The current flexibility offered in the State Aid law Temporary Framework has been used by some governments also to tolerate non-compliance with consumer protection rules by undertakings. Such exceptions in fact lead to double burden for consumers. Once as consumers and purchasers of, for example, travel or transport services and second, as taxpayers financing the state aid.
Moreover, this may lead to a violation of EU law that lays down the obligation to take consumer protection requirements “into account in defining and implementing other Union policies and activities” (Article 12 TFEU), a principle also laid down in the EU Charter of Fundamental Rights (Article 38). This normative precedent creates a constitutional basis for considering the requirements of consumer protection in the whole body of EU competition law and policy including the Treaty’s state aid provisions.
The main question this article aims to answer is how state aid law and consumer protection rules interact in EU law and what lessons these interactions provide for managing the current economic crisis in a coordinated and balanced way that takes equal account of interests on the supply and demand side. While the interaction between consumer law and competition law has been subject to various legal and economic studies in the past, the relationship between state aid rules and consumer protection has not been studied so far.
This article fills this gap, by making three novel contributions. First, the article sets out the EU law framework that structures the analysis of how state aid rules and consumer protection interact. It analyses the goals of these two legal areas and how these goals complement or conflict. Second, by presenting two case studies (air transport and energy) it explains and illustrates the constituents of the interaction between these two legal fields and offers an illustration why these intersections should be analyzed in-depth. Third, the article offers policy recommendations that can be applied not only in the current crisis but also beyond, on the coordination and enforcement of these two policies and legal fields.
Impact of the COVID-19 Pandemic on European Antitrust. Mere Adaptations or Real Changes?
The European Commission and the competition authorities of the EU member states responded to the coronavirus crisis with assurances about sufficient flexibility of their instruments. They enabled temporary cooperation between competitors to ensure the supply of essential medical products and services. At the same time, they warned against any misuse of the crisis for overpricing or other monopolistic practices. However, the crisis has also intensified long-term pressures for a fundamental adaptation of European competition rules. The first challenge is represented by Chinese state-backed enterprises as potential acquirers of weakened European competitors. The second source of pressure is the increasingly dominant role of global online platforms. Their role as an irreplaceable infrastructure for management, communication, counselling and distance learning was reinforced in the coronavirus crisis. The Commission and other experts are already discussing appropriate responses. This paper maps the discussion on possible EU responses to these challenges and tries to show the strengths and weaknesses of the proposed solutions and on this basis to estimate the future development of EU antitrust in the post-coronavirus period.
Monday, August 10, 2020
Dynamic Oligopoly and Price Stickiness
How does market concentration affect the potency of monetary policy? The ubiquitous monopolistic-competition framework is silent on this issue. To tackle this question we build a model with heterogeneous oligopolistic sectors. In each sector, a finite number of firms play a Bertrand dynamic game with staggered price rigidity. Following an extensive Industrial Organization literature, we focus on Markov equilibria within each sector. Aggregating up, we study monetary shocks and provide a closed-form formula for the response of aggregate output, highlighting three measurable sufficient statistics: demand elasticities, market concentration, and markups. We calibrate our model to the empirical evidence on pass-through, and find that higher market concentration significantly amplifies the real effects of monetary policy. To separate the strategic effects of oligopoly from the effects this has on residual demand, we compare our model to one with monopolistic firms after modifying ! consumer preferences to ensure firms face comparable residual demands. Finally, the Phillips curve for our model displays inflation persistence and endogenous cost-push shocks.