Antitrust & Competition Policy Blog

ABA Antitrust Student Ambassador Program

The ABA has kicked off this year’s application process and welcomes applications for law students who are keenly interested in antitrust, privacy, data protection, and consumer protection law and policy. 

Law students interested in the Law Ambassador Program should apply here: https://americanbar.qualtrics.com/jfe/form/SV_6FqRbfMu0bu6lTg

Program information can be found here: https://www.americanbar.org/groups/antitrust_law/at-law-student-ambassador/

Antitrust Policy for the 2020s: Some Sensible Ways Forward

Antitrust Policy for the 2020s: Some Sensible Ways Forward

 

 

Lawrence J. White

New York University (NYU) - Leonard N. Stern School of Business, Department of Economics; Stern School of Business, New York University

Abstract

Antitrust policy in the U.S. has recently gained an unusual amount of media attention. There are critics who have argued that a major overhaul of antitrust policy is needed. This paper argues that instead there are some important but more modest changes that could go a long way toward significantly strengthening the role that antitrust can play in keeping the U.S. economy competitive, vibrant, and innovative.

Paying off the Competition: Market Power and Innovation Incentives

Paying off the Competition: Market Power and Innovation Incentives

 

Xuelin Li

University of South Carolina - Darla Moore School of Business

Andrew W. Lo

Massachusetts Institute of Technology (MIT) - Laboratory for Financial Engineering; Santa Fe Institute

Richard T. Thakor

University of Minnesota - Carlson School of Management; Massachusetts Institute of Technology (MIT) - Laboratory for Financial Engineering

Abstract

How does a firm’s market power in existing products affect its incentives to innovate? We explore this fundamental question using granular project-level and firm-level data from the pharmaceutical industry, focusing on a particular mechanism through which incumbent firms maintain their market power: “reverse payment” or “pay-for-delay” agreements to delay the market entry of competitors. We first show that when firms are unfettered in their use of “pay-for-delay” agreements, they reduce their innovation activities in response to the potential entry of direct competitors. We then examine a legal ruling that subjected these agreements to antitrust litigation, thereby reducing the incentive to enter them. After the ruling, incumbent firms increased their net innovation activities in response to competitive entry. These effects center on firms with products that are more directly affected by competition. However, at the product therapeutic area level, we find a reduction in innovation by new entrants after the ruling in response to increased competition. Overall, these results are consistent with firms having reduced incentives to innovate when they are able to maintain their market power, highlighting a specific channel through which this occurs.

Not from Concentrate: Collusion in Collaborative Industries

Not from Concentrate: Collusion in Collaborative Industries

 

 

Jordan M. Barry

University of San Diego School of Law

John William Hatfield

University of Texas at Austin

Scott Duke Kominers

Harvard University

Richard Lowery

University of Texas-Austin

 

Abstract

It is a core principle of antitrust law and theory that reduced market concentration lowers the risk of anticompetitive behavior. We demonstrate that this principle is fundamentally incomplete.

Traditional models assume that firms interact only as competitors. We examine and model “Collaborative Industries,” which afford rival firms opportunities to meaningfully collaborate. For example, in some industries, firms compete to win business, but then work together to complete production (e.g., through subcontracting). Firms in Collaborative Industries have powerful ways to reward or punish each other beyond raising or lowering the prices they offer to customers. These mechanisms create much greater scope for collusion than economic models conventionally recognize.

We show that Collaborative Industries can sustain anticompetitive collusive behavior no matter how unconcentrated the industry becomes. In some instances, lower market concentration makes collusion easier; smaller firms may be more dependent on collaboration with rivals and thus may be easier to punish if they undercut collusion. These results run directly counter to the conventional wisdom, gleaned from models of non-Collaborative Industries, that permeates antitrust law.

Herbert Hovenkamp as Antitrust Oracle: Appreciating the Overlooked Contributions of the New Harvard School

Herbert Hovenkamp as Antitrust Oracle: Appreciating the Overlooked Contributions of the New Harvard School

in HERBERT HOVENKAMP: THE DEAN OF AMERICAN ANTITRUST LAW, LIBER AMICORUM 3–24 (Nicholas Charbit & Sebastien Gachot eds., 2021).

 

Christopher S. Yoo

University of Pennsylvania Law School; University of Pennsylvania - Annenberg School for Communication; University of Pennsylvania - School of Engineering and Applied Science

 

Abstract

My colleague, Herbert Hovenkamp, is almost universally recognized as the most cited and the most authoritative US antitrust scholar. Among his many honors, his status as the senior author of the authoritative Areeda and Hovenkamp treatise makes him the unquestioned leader of the New Harvard School, which has long served as the bellwether for how courts are likely to resolve emerging issues in modern antitrust doctrine. Unfortunately, its defining tenets and its positions on emerging issues remain surprisingly obscure. My contribution to this festschrift explores the core commitments that distinguish the New Harvard School from other approaches to antitrust. It then explores Hovenkamp’s scholarship on key issues, including tying, the neo-Brandeisian/hipster antitrust movement, and digital platforms. A better understanding of Hovenkamp’s work and the New Harvard School should prove invaluable to anyone wishing to understand antitrust’s likely future.

Natural Oligopoly Responses, Repeated Games, and Coordinated Effects in Merger Analysis: A Perspective and Research Agenda

Natural Oligopoly Responses, Repeated Games, and Coordinated Effects in Merger Analysis: A Perspective and Research Agenda

Jonathan B. Baker

American University - Washington College of Law

Joseph Farrell

University of California, Berkeley - Department of Economics

Abstract

When the 1968 Merger Guidelines were drafted, both the economics and antitrust literatures addressed how competition could be softened when oligopolists anticipated the natural and predictable responses of their rivals to their competitive moves, such as price cuts or output expansion. But when economists developed new models of oligopoly behavior, and of coordinated effects in particular, the older ideas were dropped—until the 2010 Guidelines, when the older ideas were reincorporated along with the newer ones. Our article points out limitations of the workhorse repeated game model of oligopoly conduct for analyzing coordinated effects of mergers, and suggests ways to make that model more realistic. We also identify important research questions that are raised when attempting to account for oligopolists’ natural and predictable responses in evaluating the consequences of mergers, and suggest studying Stackelberg reactions as a way to make progress in doing so.

Millennials and the Take-Off of Craft Brands: Preference Formation in the U.S. Beer Industry

Millennials and the Take-Off of Craft Brands: Preference Formation in the U.S. Beer Industry

 

Bart Bronnenberg

Tilburg University; Centre for Economic Policy Research (CEPR)

Jean-Pierre Dubé

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Marketing Science Institute (MSI)

Joonhwi Joo

University of Texas at Dallas - Naveen Jindal School of Management

 

Abstract

We conduct an empirical case study of the U.S. beer industry to analyze the disruptive effects of locally-manufactured, craft brands on market structure, an increasingly common phenomenon in CPG industries typically attributed to the emerging generation of adult Millennial consumers. We document a generational share gap: Millennials buy more craft beer than earlier generations. We test between two competing mechanisms: (i) persistent generational differences in tastes and (ii) differences in past experiences, or, consumption capital. Our test exploits a novel database tracking the geographic differences in the diffusion of craft breweries across the U.S., dating back to the deregulation of home brewing in 1979 that initialized the launch of craft breweries. Using a structural model of demand with endogenous consumption capital stock formation, we find that heterogeneous consumption capital accounts for 85% of the generational share gap between Millennials and Baby Boomers, with the remainder explained by intrinsic generational differences in preferences. Through the lens of our model, we predict the beer market structure will continue to fragment over the next decade, over-turning a nearly century-old structure dominated by a small number of national brands brewing homogeneous lager beer. The attribution of the share gap to consumption capital and availability highlights how barriers to entry, such as regulation and high traditional marketing costs, sustained a concentrated market structure.

Fintech y BigTech: barreras a la entrada y a la innovación

FinTech y BigTech: barreras a la entrada y a la innovación. Estado de situación en América Latina
—
ESTEBAN MANUEL GRECO
MARÍA FERNANDA VIECENS
RESUMEN
El sector financiero a nivel global se encuentra inmerso en un proceso
de transformación, motivado por la incorporación de tecnologías digitales e innovaciones disruptivas que se manifiestan en nuevos productos, jugadores y
modelos de negocio. Este escenario ha obligado a los bancos –actores tradicionales– a replantear sus estrategias competitivas y a las autoridades regulatorias
a revisar el enfoque con el que fueron concebidas las normas preexistentes. El
objetivo de este artículo es identificar barreras que pudieran estar actuando
como límites al desarrollo de la innovación en el sector financiero en América
Latina y a la entrada de nuevos actores con potencial para generar inclusión financiera. Se documentan y analizan medidas e intervenciones que han llevado a
cabo diversas agencias de competencia de la región en años recientes, en muchos casos motivadas por las demandas que impone la innovación tecnológica,
por denuncias de jugadores entrantes o por investigaciones abiertas de oficio.

Platformizing the Economy? Building and Regulating Chinese Digital Platforms

Platformizing the Economy? Building and Regulating Chinese Digital Platforms

 

Scott McKnight

University of Toronto

Martin Kenney

University of California, Davis

Dan Breznitz

University of Toronto - Munk School of Global Affairs and Public Policy

 

Abstract

The online platform economy in China has grown to become one of the largest in the world, with several Chinese platform firms rivaling their American counterparts in size, revenue, and market capitalization. Their rise has challenged existing businesses and forced governments to find new ways to regulate the sector without stifling economic growth and innovation. In this paper, we present a structured explanation of the changes in governance of these private firms by the Chinese government as they grew from startups to powerful and indispensable actors in China’s political economy. We explore the relationship between the party-state and these platforms, as the former has pursued its core goals of economic growth, technological self-sufficiency, and maintenance of single-party rule. The interactions between the platform economy, the market power of the platform firms, and the Chinese government’s goals have led to changes in the governance of the Chinese platform economy.

Common Ownership and Entrepreneurship

Common Ownership and Entrepreneurship

 

Ofer Eldar

Duke University School of Law; Duke University - Fuqua School of Business; Duke Innovation & Entrepreneurship Initiative

Jillian Grennan

Duke University - Fuqua School of Business; Duke Innovation & Entrepreneurship Initiative

Abstract

We complement the literature on common ownership by presenting two new observations from entrepreneurial startups. First, given the increase in common ownership of startups by VC investors, inclusion of high-value startups in standard common ownership measures may actually increase aggregate measures of common ownership. Second, we suggest that even if public-firm common ownership leads to collusive inefficiency and higher prices in the short-term, it may also create opportunities for entry of innovative high-growth startups. Consistent with this, we document that entrepreneurial activity and common ownership of startups tends to be higher in industries with higher common ownership among public firms.

EU Merger Control between Law and Discretion: When Is An Impediment to Effective Competition Significant?

EU Merger Control between Law and Discretion: When Is An Impediment to Effective Competition Significant?

Pablo Ibáñez Colomo

London School of Economics - Law Department

Abstract

This paper considers the interpretation of the substantive test laid down in Article 2 of Regulation 139/2004. It focuses on horizontal mergers in the so-called ‘gap’ cases, which would not result in the creation or the strengthening of a (single or collective) dominant position. In its practice and soft law instruments, the Commission has construed Article 2 in such a way that virtually any transaction involving actual or potential competitors could lead to a finding of a significant impediment to effective competition. Under this approach, the substantive test would be fulfilled, in principle, in every horizontal merger. In CK Telecoms, the General Court crafted an alternative framework that is capable of meaningfully constraining administrative action and ensures that judicial review in EU merger control remains effective.

Startups should not be collateral damage in addressing Big Tech Acquisitions are a critical part of the startup ecosystem. Several bills in Congress would put that at risk

See the op-ed here.

A Buyer Power Theory of Exclusive Dealing and Exclusionary Bundling

A Buyer Power Theory of Exclusive Dealing and Exclusionary Bundling

 

Claire Chambolle

Ecole Polytechnique, Paris - Laboratoire d'Econometrie; National Institute for Agricultural Research (INRA)

Hugo Molina

French National Institute for Agriculture, Food and Environment (INRAE)

Abstract

We develop a unified theory of exclusive dealing and exclusionary bundling. In a framework with two competing manufacturers which supply their product(s) through a monopolist retailer, we show that buyer power restores the profitability of such practices involving inefficient exclusion. The mechanism underlying this exclusion is that the compensation required by the retailer to renounce selling the rival product erodes with its buyer power. Among others, we further show that our theory holds when the buyer power differs across manufacturers or when the retailer can strategically narrow (or expand) its product assortment.

Requiem for a Lightweight: How NCAA Continues to Distort Antitrust Doctrine

Requiem for a Lightweight: How NCAA Continues to Distort Antitrust Doctrine

 

Alan J. Meese

William & Mary Law School

Abstract

The Supreme Court speaks rarely about the meaning of the Sherman Act. When the Court does speak, its pronouncements have particular resonance and staying power among jurists, scholars and enforcers. NCAA v. Board of Regents of the University of Oklahoma was such a case. There the Court assessed agreements reducing the output and increasing the prices of televised college football games. After announcing that restraints imposed by sports leagues are exempt from per se condemnation, the Court went on to invalidate the challenged agreements under the Rule of Reason because they produced significant economic harm without offsetting benefits. In so doing the Justices also addressed restraints not before the Court, opining that members of the NCAA may collectively restrict the level of compensation that universities provide student athletes.

Announced almost four decades ago, NCAA and its rationale have exerted substantial influence on Sherman Act doctrine, enforcement policy and scholarly discourse well beyond the context of sports leagues. Later this term, in NCAA v. Alston, the Court will revisit the antitrust propriety of collective limitations on the compensation schools pay student athletes. There the Court will review the Ninth Circuit’s condemnation of NCAA regulations restricting the value of education-related benefits, such as post-graduation scholarships, that schools provide student athletes in addition to tuition, room, board and other costs of attendance.

While antitrust scholars and practitioners disagree about the merits of the Ninth Circuit’s decision, all hope the Court will clarify the extent to which the NCAA may limit student athlete compensation. This essay contends that Alston also presents the Court with an opportunity to address more fundamental questions. That is, the case offers the Court a chance to correct NCAA’s erroneous application of the per se standard and derivative errors the Court committed when conducting rule of reason analysis, errors that reverberate throughout Sherman Act jurisprudence.

In particular, the essay demonstrates that NCAA’s sports league exemption from the ordinary per se standard contradicts basic antitrust principles. Moreover, the rationale for the exemption turned partly on the Court’s (correct) assertion that some horizontal restraints can overcome market failures and enhance interbrand competition. Recognition of these potential benefits undermined the Court’s otherwise broad articulation of the per se rule that purportedly created the need for such an exemption in the first place.

Failure to condemn the restraints before it as unlawful per se also distorted the Court’s pronouncements regarding how to conduct rule of reason analysis. For instance, the requirements for establishing a prima facie case should depend upon the nature of redeeming virtues a restraint might produce. However, courts, agencies and scholars have read NCAA as holding that proof that a restraint produces prices exceeding the non-restraint baseline necessarily establishes such a case, even when the restraint may overcome a market failure. Moreover, lower courts, agencies and the Court itself have read NCAA as endorsing a “Quick Look” approach in some rule of reason cases, allowing plaintiffs to bypass any requirement to establish anticompetitive harm. Finally, the Court’s approach to rule of reason analysis lent credence to the dubious assumption that benefits produced by challenged restraints necessarily coexist with harms, bolstering the equally dubious less restrictive alternative test. Hopefully, the Court will take this opportunity in Alston to correct these errors and ensure a more coherent Section 1 jurisprudence that better reflects the teachings of modern economic theory.

Apple's Mounting App Store Woes

Apple's Mounting App Store Woes

Antitrust Magazine, 35(2), 2021

Roger D. Blair

University of Florida

Tirza Angerhofer

University of Florida - Warrington College of Business Administration - Department of Economics

Abstract

By making the App Store the only official channel for iPhone owners to buy apps, Apple has created the only market in which iPhone owners and app developers may transact their business. Apple exploits the bottleneck that it creates by imposing a 15 percent or 30 percent commission on transactions between iPhone owners and app developers. The array of Apple litigation elicited by this conduct may pose a case of first impression, since there does not appear to be a pigeonhole for Apple’s conduct. Apple neither buys nor sells third-party apps and therefore it does not exercise monopsony or monopoly power.

If plaintiffs frame their antitrust challenges correctly, a court will have to determine whether Apple’s conduct—use of its proprietary technology and threats aimed at both app developers and iPhone owners—offends Section 2 of the Sherman Act. If the court finds that Apple has violated Section 2 of the Sherman Act, then it must also decide who has suffered antitrust injury and who has standing to sue under Section 4 of the Clayton Act. We offer an economic analysis of these issues.

Bank Runs, Bank Competition and Opacity

Bank Runs, Bank Competition and Opacity

 

Toni Ahnert

Government of Canada - Bank of Canada; Centre for Economic Policy Research (CEPR); Systemic Risk Centre - LSE

David Martinez-Miera

Universidad Carlos III de Madrid - Department of Business Administration; Center for Economic Policy Research

Abstract

We model the opacity and deposit rate choices of banks that imperfectly compete for uninsured deposits, are subject to runs, and face a threat of entry. We show how shocks that increase bank competition or bank transparency increase deposit rates, costly withdrawals, and thus bank fragility. Therefore, perfect competition is not socially optimal. We also propose a theory of bank opacity. The cost of opacity is more withdrawals from a solvent bank, lowering bank profits. The benefit of opacity is to deter the entry of a competitor, increasing future bank profits. The excessive opacity of incumbent banks rationalizes transparency regulation.

Book Review of "Antitrust: Taking on Monopoly from the Gilded Age to the Digital Age" by Senator Amy Klobuchar

Book Review of "Antitrust: Taking on Monopoly from the Gilded Age to the Digital Age" by Senator Amy Klobuchar

 

Robert H. Lande

University of Baltimore - School of Law

Abstract

This is a review of Senator Amy Klobuchar's book, "Antitrust: Taking on Monopoly Power from the Gilded Age to the Digital Age."

The traditional approach of a new Chair of the Antitrust Subcommittee of the Senate Judiciary Committee is to hold hearings and write a report as the basis for proposals for new legislation and increased enforcement resources. By publishing Antitrust, Senator Amy Klobuchar is also undertaking to explain to Americans in an easy-to-understand but intellectually rigorous way what monopolies, mergers, and cartels have been doing to consumers and the economy, and then to offer solutions. Its challenging goal is to appeal to both antitrust cognoscenti and the general public. Antitrust accomplishes this task better than any other book I know.

Even before Antitrust appeared Senator Klobuchar was the foremost public advocate of tackling big tech and other monopolies and near monopolies with a forceful but achievable approach. This book both presents her case against them and carefully and pragmatically explains her solutions to the problems they create. Antitrust solidifies her place as the thoughtful and knowledgeable political leader of the anti-monopoly movement.

Amazon’s Flywheel, Streaming Wars, and Antitrust Battles

Amazon’s Flywheel, Streaming Wars, and Antitrust Battles

 

Barak Orbach

University of Arizona

Abstract

Low prices are one of the key benefits of competition although they periodically devastate less-efficient businesses. Criticism of low prices is a prerogative of the wealthy and the privileged. Grandiose proposals to reshape capitalism in a quick maneuver are the brainchildren of intellectuals with political ambitions. In our time, attacks on low prices and outlandish trustbusting ideas married with the blessing of a populist surge. This Article explores how this genre might affect the race for dominance in the video streaming sector, commonly known as the “streaming wars.” It explains why the populist thread of the present antitrust impulse jeopardizes the institutional capacity of the United States to reinvigorate antitrust enforcement.
Pioneered by Netflix in 2007, in the second decade of the 21st century, the video streaming industry became one of the most dynamic and most competitive sectors in the US economy. Streaming companies have invested hundreds of billions of dollars in streaming technologies and content. To compete and remain relevant, streaming platforms must keep their rates low and persistently expand their content libraries and offerings of live shows. This competition is not sustainable. It would inevitably lead to the exit of some or most rivals, heavy losses, consolidation, and integration. This trend is already here.
Amazon, arguably the world’s most powerful digital ecosystem, is one of the key players in the video streaming sector. Responding to the streaming wars, Amazon’s appetite for content has been growing persistently. But, while Amazon’s rivals sell video subscriptions, Amazon sells a membership plan whose benefits include access to the company’s streaming platform. In effect, Amazon’s video streaming arm is a perk designed to lure consumers to join its digital ecosystem and retain the loyalty of existing customers. The company’s participation in the streaming wars illuminates the challenges that Amazon’s business model presents for antitrust law and policy.
Amazon’s guiding principles are “customer obsession . . ., passion for invention, commitment to operational excellence, and long-term thinking.” Its flywheel architecture is the company’s most admired and most feared feature. Every element in Amazon’s ecosystem intends to drive growth momentum in other elements. Integrated efficiently, the elements have persistently accelerated the spinning of the flywheel building a seemingly unstoppable growth momentum. This organizational strategy defines Amazon’s identity and corporate culture. Its success has enormously benefitted American consumers but has also devastated numerous industries and contributed to the elimination of jobs. Alarmed by the company’s growth and impact, some Big Tech critics have concluded that Amazon’s low prices, customer service, and operational efficiency are nefarious, predatory, and exclusionary strategies. The simplicity and populist flavor of this thesis have popularized it among politicians and commentators. Against this background, this Article examines why the United States has failed so far to develop antitrust policies for the Digital Age. It shows that, historically, every generation of aspiring antitrust reformers—both progressive and conservative—has used a few insightful observations to attack or defend big business while largely neglecting the protection of competition. Among other things, this inquiry explains why aspiring trustbusters tend to be the preferred toy of antitrust offenders and their defenders.

Potential Competition in EU Law

Potential Competition in EU Law

 

 

Niamh Dunne

London School of Economics - Law Department

Abstract

Potential competition refers to the extent to which the activities of undertakings not yet present in a relevant market nonetheless provide a competitive constraint on the behaviour of incumbents in that market. Recent case-law of the EU Court of Justice dealing with pay-to-delay agreements in the pharmaceutical sector has considerably deepened our understanding of potential competition as a relevant concept under Articles 101 and 102 TFEU. This short article critically assesses the legal test emerging from the Generics and Lundbeck judgments and considers its applicability beyond the pay-to-delay context.

Merger with a Maverick Firm: Examining the Coordinated Effects of the AA/USAir Merger

Merger with a Maverick Firm: Examining the Coordinated Effects of the AA/USAir Merger

 

 

Soo Jin Kim

ShanghaiTech University - School of Entrepreneurship and Management

Yongjoon Park

University of Massachusetts Amherst; University of Maryland

Date Written: June 30, 2021

Abstract

This paper studies the coordinated effects of the merger between American Airlines and US
Airways by examining the extent to which the connecting prices of the nonmerging legacy carriers
(Delta and United) evolved when the merger eliminated Advantage Fares, a connecting flight price
discounting program offered by US Airways. In our empirical analysis, we find that postmerger
nonmerging legacy carriers substantially increased their connecting flight prices on routes where US Airways had a dominant position, and a similar pattern can be found for the merging carriers on
routes where nonmerging legacy carriers had a dominant position. We next conduct a theoretical
analysis in which we show that these empirical findings can be explained by the elimination of
maverick firms and how such elimination facilitates coordinated conduct among legacy carriers.
Finally, we note the potential importance of connecting services in merger analysis in the airline
industry.