The world has many problems, most prominently the climate crisis, but also, for instance, poverty, concerns about privacy in the digital world, the deplorable treatment of animals in factory farming and, at least in some parts of the world, a trend of increasing income inequality and social division. There is also widespread dissatisfaction with the speed at which governments and inter-governmental organisations adopt and implement regulation to address these problems.
Monday, May 24, 2021
Journal of Legal Analysis, Volume 13, Issue 1, 2021, Pages 1–42
We present a market-based compensation approach to antitrust litigation and other cases of price overcharges. Instead of lump-sum compensation, paid either directly or through coupons, defendants are required to lower their prices for a certain designated period, i.e. price-cap compensation (PCC). We show why previous criticism of PCC was misguided. And, in sharp contrast to the common view in the literature, implementing PCC may have many substantive and procedural advantages. Importantly, although PCC is implemented vis-à-vis direct purchasers only, it reconciles the U.S. and European Union legal approaches and solves the challenge of passed-on damages to indirect purchasers.
Platform ecosystems rely on economies of scale, data-driven economies of scope, high quality algorithmic systems, and strong network effects that typically promote winner-take-most markets. Some platform firms have grown rapidly and their merger and acquisition strategies have been very important factors in their growth. Big platforms’ market dominance has generated competition concerns that are difficult to assess with current merger policy tools. In this paper, we examine the acquisition strategies of the five major US firms—Google, Amazon, Facebook, Apple, and Microsoft—since their inception. We discuss the main merger and acquisition theories of harm that can restrict market competition and reduce consumer welfare. To address competition concerns of acquisitions in big platform ecosystems we develop a four step proposal that incorporates (1) a new ex-ante regulatory framework, (2) an update of the conditions under which the notification of mergers should be compulsory and the burden of proof should be reversed, (3) differential regulatory priorities in investigating horizontal versus vertical M&A, and (4) an update of competition enforcement tools to increase visibility into market data and trends.
This chapter highlights the potential anti-competitive risks raised by interlocking directorates between competitors. The anti-competitive effects stem both from the increased ability to collude enabled by interlocks, as well as the reduced incentive to compete fiercely on markets characterised with numerous social and corporate links. In addition, this chapter touches upon the questions of conflict of interest and problems of directors’ independence that are inherent when a board member sits on the boards of two competing companies. The main claim of this chapter is that there may be an enforcement gap around anti-competitive effects of interlocking directorates in Europe.
Sunday, May 23, 2021
Friday, May 21, 2021
Guidance on Collecting Societies’ Royalty Calculation Methods and Unfair and Excessive Pricing: Case C-372/19 SABAM
We consider strategic behavior in non-Coasean litigation: private disputes such that the court's judgment may influence the final allocation of rights even if transaction costs are zero. This occurs when the law prohibits otherwise-profitable efforts to contract around the court's judgment. This constraint arises in myriad contexts, including antitrust, labor law, unfair competition, and various types of public interest litigation. We show that non-Coasean disputes systematically create incentives for problematic rent-seeking behaviors: strategic investments intended to influence the outcome of litigation, and collusive ex ante settlements that enrich the parties at the public's expense. These problems arise because the parties generally have asymmetric stakes, and asymmetric stakes affect strategic behavior differently when litigation is non-Coasean. Our analysis has important normative implications concerning private settlements, and establishes a underlying economic connection between problematic settlements spanning a wide range of legal contexts.
Antitrust litigation often requires courts to consider challenges to vertical “control.” How does a firm injure competition by limiting the behavior of vertically related firms? Competitive injury includes harm to consumers, labor, or other suppliers from reduced output and higher margins.
Historically antitrust considers this issue by attempting to identify a market that is vertically related to the defendant, and then consider what portion of it is “foreclosed” by the vertical practice. There are better mechanisms for identifying competitive harm, including a more individualized look at how the practice injures the best placed firms or bears directly on a firm’s ability to reduce output and increase its price without losing so many sales that the price increase is unprofitable.
One important consequence of these new approaches is that the market share numbers that the antitrust case law traditionally attaches to foreclosure percentages are not particularly meaningful. The tying and exclusive dealing case law generally aggregates the market subject to foreclosure concerns and considers foreclosure as a percentage of an undifferentiated whole. In general, it proclaims minimum market foreclosure percentages in the range of 30% - 40% as a condition for illegality. When we focus more accurately on marginal effects and the possibility of raising rivals’ costs, however, these numbers are much less significant. For example, if the lowest cost firm in a market is subject to an exclusivity agreement, anticompetitive results, particularly RRC, could obtain even if the percentage of total sales is far less than 30%. By contrast, if only the least efficient firm or firms in a market were made subject to such an agreement, even aggregate foreclosure percentages higher than 40% might result in no competitive harm.
Thursday, May 20, 2021
This piece discusses the evolution of the concept of gun-jumping as a provision under Competition law of India. It provides a focused analysis of the way in which merger control provisions continue to mature in the Indian legal framework. The impact of the judicial pronouncements upon the codification process of actions that qualify as gun jumping with respect to aspects like the timeline, the documents, notices necessary to be presented and even the penalty schema. The constant amendments being a testament to the responsiveness of the Commission to the changing socio-political situation. The jurisprudential principles of Ronald Dworkin have been applied, so as to test the evolution thus far. It is also on the basis of these principles that the recommendations for future actions have been suggested by the authors keeping goals of competition law in consideration.
Cuong Hung Vuong and Edmond Baranes, (2021) ''Competitive effects of horizontal mergers with asymmetric firms'', Economics Bulletin, Vol. 0 No. 0 p.A66.
This paper aims at investigating the impacts of introducing cost asymmetry in horizontal merger analysis. In the absence of efficiency gains, previous literature states the negative competitive effects of a merger between symmetric firms. We go beyond the literature and show that the result is only likely to hold for a low level of asymmetry. In particular, we build a tractable model with three firms in which one of them has a different cost structure. After merging two symmetrical firms, the outsider always reduces (increases) price (investments), while the insiders choose the opposite strategies. In particular, if the outsider's cost is sufficiently low, the increase in its investment could outweigh the decreases in those of the merged entity, leading to higher total investments post-merger. Similarly, consumer surplus could be improved thanks to the decrease in the outsider's price.
While the real effects of bank competition is a classic topic in the finance literature, there has been relatively little research studying the effect it might have on local labor markets. In this paper, I utilize county level data and an exogenous shock to competition supplied by DOJ antitrust policies to look at the relationship between bank competition and local labor markets. Following this negative shock to competition, unemployment increases and wages decrease, but there is no aggregate employment effect. Industries that depend more on bank funding see an increase in employment following a negative shock to competition in the short run, but see a decrease in employment in the longer term. This is due to local banks taking a lower return on their loan portfolio to local businesses in the short run, while raising their loan rates in the long term. Once the type of industries present inside a county is taken into account, an employment effect can be documented in the aggregate. Overall, the evidence suggest that competition has a negative effect on employment outcomes, although there may be positive effects in the short run.
For the past twenty-five years, the U.S. Government has increasingly looked to antitrust—rather than regulation—to protect consumers in the Internet Ecosystem. There is a growing school of thought that an antitrust-only approach has failed and is ill-suited for the Internet Ecosystem. Reform advocates worry the giant Internet Platforms—primarily Apple, Facebook, Amazon and Google—have grown too large and too dominant under antitrust’s watch (or alleged lack thereof). The unbridled growth of big tech along with the high evidentiary requirements and slow pace of antitrust cases have some reformers looking for alternative forums for oversight—forums with a more anticipatory, immediate, and interventionalist perspective. This paper examines one such proposal by former Federal Communications Commission (“FCC”) Chairman Tom Wheeler and his co-authors Phil Verveer and Gene Kimmelman (hereinafter the “Wheeler Proposal”).
Dissatisfied with existing regulatory institutions like the FCC and Federal Trade Commission, along with the long-standing consumer welfare standard under antitrust law (which the authors summarily dismiss as a “conservative litmus test for judicial appointments”) the Wheeler Proposal calls for the creation of a new “Digital Platform Agency” or “DPA”—complete with its own novel governing statute. Central to the argument for the DPA is that with the combination of “Digital DNA” and “cooperative engagement” with the industry, this new DPA will somehow be different from existing regulatory agencies and thus fully capable of regulating dynamic markets with minimal intrusion. The reality is that the Wheeler Proposal’s desired new statutory framework would give the DPA broad and unchecked regulatory powers over the entire Internet Ecosystem—including both tech platforms and Internet Service Providers alike.
Wednesday, May 19, 2021
We are currently facing a new wave of healthcare mergers in the United States. More and more health insurers, such as Aetna, have started merging with powerful drug suppliers, such as CVS. What do these companies hope to achieve by merging? They want to increase their access to our health data. They want to know our individual biology, our medical history, our level of well-being; they want to know where we go, what we buy, how much we sleep; if we can resist sugar, junk food or nicotine; if we exercise and how often we exercise. In other words, they aim to shape our digital health ID. Why? On one hand, health insurers aim to reduce their risks and therefore their costs by improving our level of well-being. On the other, health insurers aim to reduce their costs by discriminating against us. Indeed, by allowing health insurers to gain access to consumers’ prescription history and health habits, these data driven mergers can create substantial barriers to entry for high-risk consumers who want to enter the health insurance services market. Can the U.S. antitrust enforcers address the harm that these mergers create? Specifically, reduced access to health insurance services for a specific segment of consumers? And, if so, how? This article identifies three potential ways in which the U.S. antitrust enforcers could address the harms that these mergers impose on high-risk consumers. First, the U.S. antitrust enforcers could contend that the vulnerable, high-risk consumers constitute a separate relevant market. Second, they could argue that the proposed merger’s negative impact on high-risk consumers should weigh more heavily than its positive impact on low-risk consumers, notwithstanding that the net effect of the merger should be assessed. Third, the U.S. antitrust enforcers may argue that these mergers facilitate a health insurer’s efforts to violate the Affordable Care Act and should, therefore, be prohibited. Thus, this article is the first to address the need for the U.S. antitrust enforcers and the courts to confront the harm that these data driven mergers pose to high-risk consumers. If not, they risk applying antitrust law in a way that further exacerbates the existing health disparities in the United States.
Open Banking in Brazil: A “Disruptive Step” Towards the Increasing of Competition in the National Financial Sector and Consumers’ Welfare?
We use data from the U.S. airline industry to test the hypothesis, consistent with the general equilibrium oligopoly model of Azar and Vives (forthcoming), that inter-industry common ownership should be associated with lower prices in product markets. We find that, as the model predicts, increases over time in intra-industry common ownership are associated with higher prices, while increases in inter-industry common ownership are associated with lower prices. We also find that common ownership by the "Big Three" (BlackRock, Vanguard and State Street) is associated with lower airline prices, while common ownership by shareholders other than the Big Three is associated with higher prices. The results highlight the limitations of partial equilibrium oligopoly theory in the context of common ownership, and the need to consider a general equilibrium perspective.
Tuesday, May 18, 2021
I study how ownership consolidation affects productivity and market power in both factor and product markets. I develop a model to separately identify markups, markdowns, and productivity using production and cost data. I use the model to examine the effects of consolidation in the Chinese cigarette manufacturing industry. I find that consolidation led to an increase in intermediate input price markdowns of 30%, but to only a slight drop in cigarette price markups. Although industry consolidation was defended as a means to spur productivity growth, I find that it actually lowered aggregate productivity.
Robert Lande, U Baltimore
Nascent Competitors and Antitrust Enforcement Regulation and Digital Platforms are excellent articles. Both raise timely and extremely important problems and analyze them rigorously. Sadly, neither offers practical solutions that courts often will utilize due to a Gordian knot of existing judicial precedent. The only way an effective solution could arise would be if courts undertake a textualist analysis of the Sherman Act and thereby adopt no-fault monopolization, holding that firms violate Section 2 regardless of whether they engaged in anticompetitive conduct.
The no-fault approach is also not permitted under current case law. However, the no-fault approach to Section 2 would be based upon a textualist or “fair meaning” approach to statutory interpretation, and no court has ever analyzed this issue using a textualist framework. Textualism, long pioneered by Justice Scalia, has been firmly embraced by Justices Kavanaugh, Gorsuch, and Barrett. It also has sometimes been undertaken by other members of the Court.
For the reasons provided in this piece, an optimist can hope that an increasingly textualist Court would reinterpret Section 2’s prohibition against firms that “monopolize, or attempt to monopolize” to constitute a no-fault approach to monopolization and attempted monopolization law.
An Anticlimactic Ending in the “Roadmap for an Antitrust Case Against Facebook”: An Antitrust Enforcement Action Against Facebook’s Long-Consummated Acquisitions Would be Unwise
Chris Renner (Davis Wright Tremaine)
ABSTRACT: The “Roadmap for an Antitrust Case Against Facebook” (the “Roadmap”) purports to explain how publicly available materials, sourced primarily from an investigation conducted by the UK Competition and Markets Authority (“CMA”), “might support a finding of liability in a monopolization case [against Facebook] here in the US.”2 Although the Roadmap alleges a range of anticompetitive conduct by Facebook, one of its main allegations is that Facebook’s acquisitions of what the authors describe as nascent or potential rivals — including Instagram and WhatsApp — had a causal connection to the acquisition or maintenance of monopoly power by Facebook. Similar charges were levied during a recent House Judiciary Antitrust Subcommittee hearing.
Monday, May 17, 2021
Date: May 27, 2021
Time: 12:00pm -2:00pm Eastern Standard Time
Join the conversation as a dozen of the world’s top scholars and regulators debate when and how platforms should be regulated. In cases where regulation is warranted, the goal is to ask what form that should take in order to do the most good.
Marshall Van Alstyne, Questrom Professor in Management, Professor, Information Systems, Boston University Questrom School of Business
Susan Athey, The Economics of Technology Professor, Stanford Graduate School of Business
Tembinkosi Bonakele, Commissioner, South African Competition Commission
Cristina Caffarra, Senior Consultant, Charles River Associates, Europe
Carmelo Cennamo, Professor of Strategy & Innovation, Copenhagen Business School
Jacques Crémer, Professor of Economics, Toulouse School of Economics
Andrei Hagiu, Dean’s Research Scholar, Associate Professor of Information Systems, Boston University Questrom School of Business
Marco Iansiti, David Sarnoff Professor of Business Administration, Harvard Business School
Michael Jacobides, Sir Donald Gordon Professor of Entrepreneurship and Innovation: Professor of Strategy and Entrepreneurship, London Business School
Geoffrey Parker, Professor of Engineering, Dartmouth Engineering
Fiona Scott-Morton, Theodore Nierenberg Professor of Economics, Yale University School of Management
Daniel Sokol, Huber C. Hurst Eminent Scholar Chair in Law, University of Florida Levin College of Law
David Teece, Thomas W. Tusher Professor in Global Business, Faculty Director, Tusher Center for The Management of Intellectual Capital, Berkeley Haas School of Business
We examine how search frictions affect merger outcomes. Exploiting firm connections in common bank networks (CBNs) as a channel for reducing search costs, we show that like-buys-like mergers are more probable between firms connected through a CBN. This effect is amplified if the connection has been recently formed or the network contains many plausible choices for merger partners. CBN-facilitated mergers exhibit higher synergy and lower post-merger cost of debt. We confirm that CBNs reduce search costs even after alternative explanations are considered. These findings highlight the importance of search in the process of redrawing firm boundaries.