Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Friday, November 8, 2019

The Herfindahl-Hirschman Index and the Distribution of Social Surplus

Yossi Spiegel, Tel Aviv University, Coller School of Management; discusses The Herfindahl-Hirschman Index and the Distribution of Social Surplus.

ABSTRACT: I show that in a broad range of oligopoly models where firms have (not necessarily identical) constant marginal cost, HHI is an increasing function of the ratio of producers' surplus and consumers' surplus and therefore reflects the division of surplus between firms' owners and consumers.

November 8, 2019 | Permalink | Comments (0)

THE CASE FOR LIMITING PRIVATE LITIGATION OF EXCESSIVE PRICING

Michal Gal, U Haifa makes THE CASE FOR LIMITING PRIVATE LITIGATION OF EXCESSIVE PRICING.

ABSTRACT: In the EU, private litigation of competition law violations is in its nascence. As this article shows, excessive pricing raises strong concerns for such litigation, for three reasons: (1) the inherent difficulty of defining what constitutes an unfair price; (2) additional challenges inherent to private excessive pricing litigation, such as the need to pinpoint when exactly a price becomes unfair; and (3) the institutional features of general courts in EU member states, which are ill-suited to the required tasks. We elaborate on these concerns, pointing to four specific challenges inherent to private litigation and to three instances where a lack of sufficient economic understanding could entrap general courts (a cost trap, a fairness trap, and a monopolistic competition trap). Together, these factors create a risk of error costs much higher than any experienced so far, which could potentially reduce welfare. The article suggests some measures that can be taken to ensure that welfare is served.

 

November 8, 2019 | Permalink | Comments (0)

Estimating Labor Market Power

José Azar, University of Navarra, IESE Business School; CEPR, Steven Berry, Yale University - Department of Economics; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation, and Ioana Elena Marinescu, University of Pennsylvania - School of Social Policy & Practice; National Bureau of Economic Research (NBER) are Estimating Labor Market Power.

ABSTRACT: How much power do employers have to suppress wages below marginal productivity? It depends on the firm-level labor supply elasticity. Leveraging data on job applications from the large job board CareerBuilder.com, we estimate the wage impact on workers' choice among differentiated jobs in the largest occupations. We use a nested logit model of worker's utility for applying to jobs with varying wages and characteristics, including distance from the potential worker's home. We account for the endogeneity of wages by using several different instrumental variable strategies. We find that failing to instrument results in implausibly low elasticities, whereas plausible instruments result in more elastic estimates. Still, the implied market-level labor supply elasticity is about 0.6, while the firm-level labor supply elasticity is about 5.8. This implies that workers produce about 17% more than their wage level, consistent with employers having significant market power even for the largest occupational labor markets.

November 8, 2019 | Permalink | Comments (0)

Thursday, November 7, 2019

Defining Geographic Markets from Probabilistic Clusters: A Machine Learning Algorithm Applied to Supermarket Scanner Data

Stephen Bruestle, Federal Maritime Commission, Luca Pappalardo, Institute of Information Science and Technologies (ISTI), Consiglio Nazionale delle Ricerche (CNR), and Riccardo Guidotti, Institute of Information Science and Technologies (ISTI), Consiglio Nazionale delle Ricerche (CNR) are Defining Geographic Markets from Probabilistic Clusters: A Machine Learning Algorithm Applied to Supermarket Scanner Data.

ABSTRACT: We propose that we estimate geographic markets in two steps. First, estimate clusters of transactions interchangeable in use. Second, estimate markets from these clusters. We argue that these clusters are subsets of markets. We draw on both antitrust cases and economic intuition. We model and estimate these clusters using techniques from machine learning and data science. WE model these clusters using Blei et al.’s (2003) Latent Dirichlet Allocation (LDA) model. And, we estimate this model using Griffiths and Steyvers’s (2004) Gibbs Sampling algorithm (Gibbs LDA). We apply these ideas to a real-world example. We use transaction-level scanner data from the largest supermarket franchise in Italy. We find fourteen clusters. We present strong evidence that LDA fits the data. This shows that these interchangeability clusters exist in the marketplace. Then, we compare Gibbs LDA clusters with clusters from the Elzinga-Hogarty (E-H) test. We find similar clusters. LDA has a few identifiable parameters. The E-H test has too many parameters for identification. Also, Gibbs LDA avoids the silent majority fallacy of the E-H test. Then, we estimate markets from the Gibbs LDA clusters. We use consumption overlap and price stationarity tests on the clusters. We find four grocery markets in Tuscany.

November 7, 2019 | Permalink | Comments (0)

International cooperation in merger control in Japan

Megumi Tahira and Koki Arai address International cooperation in merger control in Japan.

ABSTRACT: This article discusses international cooperation in merger control enforcement under competition law. It describes the framework of merger control in Japan, recent developments in international agreements, merger cases involving international cooperation and the relevant governing authorities’ standard process, including waiver considerations. This article offers three contributions. First, it comments on international cooperation in merger control, including the necessity of confidentiality waivers. Second, it provides basic information for assessing the appropriateness and transparency of merger control policies. Finally, it encourages cooperation between young and advanced competition authorities. The article’s deep understanding of merger activity is based on a detailed analysis of the Japan Fair Trade Commission’s guidelines for international cooperation in merger control.

November 7, 2019 | Permalink | Comments (0)

A Comparative Perspective to Competition Law Cases in the Ride-Sharing Industry: Reflections from Jurisdictions of Singapore, EU and India

Shubhalakshmi Bhattacharya, OP Jindal Global University, Jindal Global Law School (JGLS),  Ganesh Bhaskar Lata O.P. Jindal Global University Deepanshu Mohan OP Jindal Global University - Jindal Global Law School (JGLS) offer A Comparative Perspective to Competition Law Cases in the Ride-Sharing Industry: Reflections from Jurisdictions of Singapore, EU and India.

ABSTRACT: This study attempts to understand the effect and content of competition law jurisprudence engaged in the (digital) app based ride-sharing industry. The research undertakes a critical review of recent case laws law across three jurisdictions, adjudicated by competition regulatory authorities (in context to the ride sharing industrial sector).

These feature India, Singapore and the European Union, drawing a transnational contemporary perspective to how competition regulatory authorities view (competitive) disputes concerning economic agents within the digital economy landscape. As part of the review, one of the primary objectives is to understand the meaning of term “market definition“ and how competition regulatory authorities have delineated the relevant market with respect to this industry as part of the larger digital economic landscape, which is rapidly evolving.

Through the study, hurdles to delineating a relevant market were analysed from interpretations of recent case laws, further discussing why a common market definition has not been framed across jurisdictions, as well as within the same jurisdiction - as seen in the recent legal cases in India.

November 7, 2019 | Permalink | Comments (0)

Sherman's Missing 'Supplement': Prosecutorial Capacity, Agency Incentives, and the False Dawn of Antitrust Federalism

Daniel Rauch, Colorado Department of Law discusses Sherman's Missing 'Supplement': Prosecutorial Capacity, Agency Incentives, and the False Dawn of Antitrust Federalism.

ABSTRACT: When the Sherman Act passed in 1890, it was widely expected that it would operate primarily as a “supplement” to vigorous state-level antitrust enforcement of state antitrust statutes. This did not happen. Instead, confounding the predictions of Congress, the academy, and the trusts themselves, state antitrust enforcement overwhelmingly failed to take root in the years between 1890 and the First World War. To date, many scholars have noted this legal-historical anomaly. None, however, has rigorously or correctly explained what caused it. This Article does.

Using primary, historical, and empirical research, this Article establishes that the best explanation for the early failure of state antitrust enforcement was prosecutorial incapacity: state attorneys general and local prosecutors simply lacked the incentives and resources to prosecute antitrust cases. Along the way, the Article also offers a rigorous rejection of each main alternative explanation proposed for the early failure of state antitrust enforcement, including those based on doctrinal constraints, state-statutory texts, and contemporary politics. Finally, the Article closes by suggesting implications this historical insight might suggest for the cutting-edge issues facing today’s state antitrust enforcers, from local efforts to control healthcare costs to multistate actions against Silicon Valley behemoths like Apple and Amazon.

November 7, 2019 | Permalink | Comments (0)

Wednesday, November 6, 2019

Buyer Alliances in Vertically Related Markets

Hugo Molina, KU Leuven - Faculty of Business and Economics (FEB) writes on Buyer Alliances in Vertically Related Markets.

ABSTRACT: This article examines the formation of buyer alliances that negotiate wholesale prices with manufacturers on behalf of large retailers in the French food retail sector. Using pre- and post-alliances data on household purchases of bottled water, I develop a structural model of bilateral oligopoly to estimate changes in firms’ bargaining power in the vertical chain. Results provide evidence of a countervailing buyer power effect that reduces retail prices by roughly 7%. Exploring determinants of buyer power, I find that changes in firms’ bargaining ability play an important role in the countervailing force exerted by buyer alliances which, absent this effect, may harm retailers. 

November 6, 2019 | Permalink | Comments (0)

Commitments and Network Governance in EU Antitrust: Gasorba

Stavros Makris, European University Institute, Department of Law (LAW); SciencesPo - Sciences po Paris Law School and Alexandre Ruiz Feases, European University Institute - Department of Law (LAW); Tilburg Law and Economics Center (TILEC) describe Commitments and Network Governance in EU Antitrust: Gasorba.

ABSTRACT: To what extent can a national competition authority or a national court find a competition law infringement in a case already subjected to commitments of the European Commission? This is one of the questions that lie at the heart of the controversy in Gasorba. This case provided the ECJ with the opportunity to clarify the legal nature and effects of commitments in EU competition law. In this case note, we analyse the preliminary ruling of the ECJ and we argue that, apart from clarifying the legal nature of commitments, the ECJ strikes a dynamic balance between public and private enforcement. Moreover, far from undermining the principle of legal certainty and generating coordination failures, we claim that Gasorba allows for ‘modest experimentalism’ in EU antitrust enforcement and ‘regulatory conversations' between enforcers.

November 6, 2019 | Permalink | Comments (0)

Effective Public Enforcement of Cartels: Rates of Challenged and Annulled Cartel Fines in Ten European Member States

Annalies Outhuijse University of Groningen, Faculty of Law studies Effective Public Enforcement of Cartels: Rates of Challenged and Annulled Cartel Fines in Ten European Member States.

ABSTRACT: A substantial number of cartels in the European Union are detected and enforced by the national competition authorities (NCAs). The effectiveness of domestic enforcement has been subject to extensive review and debates, which have recently culminated and resulted in the proposal for the ECN+ Directive. The current discussions are mostly limited to the number of enforcement activities, the quantity of imposed fines, their height and deterrence. An empirical assessment of the court procedures in which those fines were challenged and the consequences thereof received minimal attention, despite its importance. The Dutch example, more in particular the difference between the fines as issued by the NCA and those remaining after court review, shows that the mere reference to the number of cases sanctioned paints a distorted picture and an analysis of the rates of litigation and successful litigation is indispensable for veraciously assessing the NCA’s effectiveness. In light thereof, this article analyses the frequency of (successful) litigation and the reasons for annulments in cases of cartel fines in 10 Member States (Belgium, Bulgaria, Croatia, Finland, France, Germany, Italy, the Netherlands, Sweden and the United Kingdom). Public policy makers, such as the European Commission, could benefit from this data gathered in order to analyze the effectiveness of the NCAs. Moreover, the analysis is valuable for future research, since the depiction of the trends and differences can form the basis for further research to explain the percentages, trends and developments – as the author is doing for the Netherlands.

November 6, 2019 | Permalink | Comments (0)

Generic Drugs, Used Textbooks, and the Limits of Liability for Product Improvements

Timothy J. Muris, George Mason University, Antonin Scalia Law School and Jonathan E. Nuechterlein, Sidley Austin LLP examine Generic Drugs, Used Textbooks, and the Limits of Liability for Product Improvements.

ABSTRACT: A key issue in "product-hopping" cases is how to reconcile society's interest in increased price competition with the need for continued pharmaceutical innovation, particularly where a new product formulation presents genuine therapeutic benefits. Some courts have proposed to weigh the acknowledged therapeutic value of a new pharmaceutical product against the monetary effects of suppressed generic competition. But the task of "weighing" such radically incommensurable social values lies well beyond the competence of generalist tribunals. Michael Carrier and Steve Shadowen have proposed to side-step this problem through what they call a "no business sense" test. Although this approach would avoid a direct comparison of therapeutic benefits and monetary harms, it would present intractable implementation problems of its own, and it asks the wrong conceptual question in any event. In the final analysis, developing and marketing a new formulation should not subject a manufacturer to antitrust liability if the formulation presents genuine therapeutic benefits for patients.

We underscore these points by comparing the pharmaceutical marketplace to the economically similar marketplace for college textbooks. That marketplace, too, features a "price disconnect," where the professors who assign textbooks do not pay for them, and the students who pay for textbooks do not choose them. Yet no one seriously proposes to subject publishers and authors to antitrust liability for conduct strikingly similar to pharmaceutical product-hopping: introducing new editions more often than they otherwise would allegedly in order to suppress competition from used booksellers. There is no principled reason for applying different rules to successful reformulations of existing pharmaceutical products.

November 6, 2019 | Permalink | Comments (0)

SEP Royalties: What Theory of Value and Distribution Should Courts Apply

Alexander Galetovic, Universidad Adolfo Ibáñez; Stanford University - The Hoover Institution on War, Revolution and Peace; University of Padua - CRIEP and Stephen Haber, Stanford University - Hoover Institution and Political Science theorize about SEP Royalties: What Theory of Value and Distribution Should Courts Apply.

ABSTRACT: Courts are often required to determine the royalty to which the owner of a FRAND-encumbered standard essential patent (SEP) is entitled. We argue that in adjudicating the value of SEPs, courts should do what they do in pricing other assets or the flows of income they produce: rely on information from the market about the value of comparable assets or their rental rates. In short, they should inquire about the observed royalty base and rate charged in the market by a SEP licensor to a different licensee, and make adjustments to account for differences in circumstance, such as the timing of the license.

The practical logic for doing so is straightforward: a royalty is simply the rental price of an asset created by investments in R&D. It is no different from other assets that courts value by inquiring about their market price, such as real estate, inventories, art collections, music catalogs, or personal business assets. The conceptual logic is also straightforward: the comparable method is based on price theory, the basic building block of microeconomics, which explains where value comes from and how it is distributed among factors of production, including intellectual property.

We argue that courts should not employ the “bottom up” and the “top down” techniques of royalty apportionment. Both are based on the theory of patent holdup and royalty stacking, which assumes that any observed royalty is the result of “excessive royalties” wrought by the additional monopoly power conferred by standardization through patent holdup and royalty stacking. This theory has been shown to be logically inconsistent and logically incomplete, and its predictions have been rejected by systematic empirical tests. Bottom up techniques cannot actually be operationalized. Top down techniques were invented in order to address this limitation, but employing them requires a court to reject the implications of price theory.

November 6, 2019 | Permalink | Comments (0)

Tuesday, November 5, 2019

Assistant Attorney General Makan Delrahim Delivers Remarks at the Procurement Collusion Strike Force Press Conference

See his remarks here.

November 5, 2019 | Permalink | Comments (0)

eputy Assistant Attorney General Richard A. Powers Delivers Remarks at the American Bar Association Public Contract Law Section's 2019 Procurement Symposium

See his remarks here.

November 5, 2019 | Permalink | Comments (0)

12nd Workshop on Industrial Organization & Economic Theory, TOI 12

We are pleased to announce the eleventh TOI workshop. This international symposium is organized every year by the Markets, Organizations and Regulation Group (MORe) at the Institute for Complex Engineering Systems in Chile. The meeting is oriented to Industrial Organization, Market Design, Organization Economics and related topics, gathering well renowned experts in such fields.  

 


Objetives

TOI was first born as an Industrial Organization and Antitrust conference, yet its focus has widen to include other interests from researchers at the MORe group. Year after year, through a cozy and stimulating environment, the TOI has gathered Chilean and international researchers, students and economists coming from the public, private and regulatory sectors. The purpose of the workshop is to encourage academic discussion about state of the art in IO, Economic Theory, Organization Economics, Market Design, and its policy and regulatory implications.

TOI provides a unique opportunity to hear and interact with prestigious leading economists in academia.

 


Structure of the Workshop

Ten to twelve papers will be presented at TOI this year. Each speaker has about 75 minutes to present his paper and answer questions and comments from the floor, in a lively environment. In order to encourage interaction, the conference will be held in Zapallar, a coastal town 170 kms northwest of Santiago. The audience will consist mainly of economists -from academic and regulatory related institutions- and postgraduate students.

 


General Information

  • Venue: Hotel Isla Seca, Zapallar, Chile 
  • Workshop dates: December 17 - 18, 2019 
  • Language: English
  • Information: info@toi.cl

 

 

Organizer

Sponsors

November 5, 2019 | Permalink | Comments (0)

The Application of General Principles of Law in a Competition Law Setting: A Glance at Contemporary Turkish Practice

Gönenç Gürkaynak, Çağlagül Koz, Selvi Naz Topaloğlu describe The Application of General Principles of Law in a Competition Law Setting: A Glance at Contemporary Turkish Practice.

ABSTRACT:

  • General principles of law have been a matter of substantial legal discussion especially with regards to applicability and function as a source of law in different fields of law.

  • Turkish Competition Board recognises general principles of law as a source of competition law in its investigations and in various other matters that come before it.

  • In this article, we will particularly focus on ne bis in idem and attorney client privilege and use these two principles as starting points for extrapolating to what extent general principles of law are applied as a source under Turkish competition law regime.

 

November 5, 2019 | Permalink | Comments (0)

Are Agreements to Address Climate Change Anticompetitive?

Herb Hovenkamp asks Are Agreements to Address Climate Change Anticompetitive?

ABSTRACT: On September 6, 2019, the Justice Department announced that it was investigating four automakers (Ford, Honda, BMW, and VW) to determine if they had violated the antitrust laws by agreeing with the state of California to adhere to higher standards for tailpipe emissions than those proposed by the Trump administration. This essay considers whether that agreement violates the antitrust laws.

Assuming that the right kind of agreement exists, a court would have to consider whether it qualifies for the “state action” exemption from the antitrust laws. The requirements for that exemption are that the conduct reflect a clearly articulated state policy, and that any private discretionary conduct be adequately supervised by a government actor. Both requirements appear to be met.

If a court did get to the antitrust merits, it would have to consider the antitrust law pertaining to standard setting. Agreements setting product standards are ubiquitous in our economy. While some standards are created by state or federal governments, others are developed and administered by private parties. Often standard setting is “cooperative,” in the sense that a government agency participates by proposing or enacting privately-created standards. Such agreements are usually lawful unless they either facilitate collusion or exclude other firms unreasonably. Here, no case can be made that the California agreement does either one.

Why would an antitrust enforcement agency conduct an investigation such as this? Many antitrust investigations are terminated without any enforcement action, but in most cases the agencies had at least a reasonable suspicion of an antitrust violation. Perhaps the Agency is aware of some facts that have not been made public, but for a high profile issue such as this one that seems unlikely. A more likely explanation is that this is an attempt to placate an Administration angered by California’s insistence on higher emission standards than the federal

November 5, 2019 | Permalink | Comments (0)

On the Consistency of the European Commission’s Remedies Practice

Benjamin Lörtscher, NERA Economic Consulting and Frank P. Maier-Rigaud, IESEG School of Management (LEM-CNRS), Department of Economics and Quantitative Methods; NERA Economic Consulting offer thoughts On the Consistency of the European Commission’s Remedies Practice.

ABSTRACT: The European Commission’s remedial practice displays important differences in the type of remedies accepted in merger versus antitrust cases. This paper provides a review of the Commission’s remedies practice over the last 14 years highlighting the differences and discussing the inconsistencies. In particular, it raises the question how the fact that “the very structure of the undertakings” does not typically have to be affected by remedies to address concerns raised in antitrust cases can be consistent with the analysis of mergers that is based on the idea that the risks to effective competition derive from changes in the structure of the market and therefore typically require structural remedies. 

November 5, 2019 | Permalink | Comments (0)

Are Agreements to Address Climate Change Anticompetitive?

Herb Hovenkamp asks Are Agreements to Address Climate Change Anticompetitive?

ABSTRACT: On September 6, 2019, the Justice Department announced that it was investigating four automakers (Ford, Honda, BMW, and VW) to determine if they had violated the antitrust laws by agreeing with the state of California to adhere to higher standards for tailpipe emissions than those proposed by the Trump administration. This essay considers whether that agreement violates the antitrust laws.

Assuming that the right kind of agreement exists, a court would have to consider whether it qualifies for the “state action” exemption from the antitrust laws. The requirements for that exemption are that the conduct reflect a clearly articulated state policy, and that any private discretionary conduct be adequately supervised by a government actor. Both requirements appear to be met.

If a court did get to the antitrust merits, it would have to consider the antitrust law pertaining to standard setting. Agreements setting product standards are ubiquitous in our economy. While some standards are created by state or federal governments, others are developed and administered by private parties. Often standard setting is “cooperative,” in the sense that a government agency participates by proposing or enacting privately-created standards. Such agreements are usually lawful unless they either facilitate collusion or exclude other firms unreasonably. Here, no case can be made that the California agreement does either one.

Why would an antitrust enforcement agency conduct an investigation such as this? Many antitrust investigations are terminated without any enforcement action, but in most cases the agencies had at least a reasonable suspicion of an antitrust violation. Perhaps the Agency is aware of some facts that have not been made public, but for a high profile issue such as this one that seems unlikely. A more likely explanation is that this is an attempt to placate an Administration angered by California’s insistence on higher emission standards than the federal

November 5, 2019 | Permalink | Comments (0)

Monday, November 4, 2019

Preventing the Curse of Bigness Through Conglomerate Merger Legislation

Robert H. Lande, University of Baltimore - School of Law Sandeep Vaheesan, Open Markets Institute suggest Preventing the Curse of Bigness Through Conglomerate Merger Legislation.

ABSTRACT:The antitrust laws, as they are presently interpreted, are incapable of blocking most of the very largest corporate mergers. They successfully blocked only 4 of the 61 largest finalized mergers and acquisitions (defined as the acquired firm being valued at more than $10 billion) that occurred between 2015 and 2018. The antitrust laws also would permit the first trillion-dollar corporation, Apple, to merge with the third largest corporation, Exxon/Mobil. In fact, today every U.S. corporation could merge until just 10 were left – so long as each owned only 10% of every relevant market. Even though the Congresses that enacted the anti-merger laws did so in part to limit the political power of corporations, today the federal antitrust agencies and courts interpret these laws only in terms of price and other consumer effects within discrete markets. Under current merger practice, the enhanced political power of corporations is irrelevant. However, from Senators Elizabeth Warren and Bernie Sanders on the left, to President Trump and many others on the right, there is a renewed interest in using antitrust to control corporate size, structure, and practices. There is popular desire both to prevent large mergers and to break up existing companies, such as Facebook and Google, that achieved their dominant positions in part due to acquisitions. In light of recent developments along most of the political spectrum, this Article proposes model conglomerate merger legislation suitable for our era. This legislation would target every merger that exceeds clearly specified asset thresholds. We are proposing a law that would block every merger in which both firms have assets exceeding $10 billion. This threshold would block approximately 15-25 of the largest mergers each year. This Article undertakes a legal, economic, and political analysis of conglomerate merger legislation. This demonstrates that our proposed legislation would: 1. Produce no significant losses in corporate efficiency; 2. Be clearer and more predictable than the existing anti-merger laws and thus would enhance the rule of law; and 3. Help prevent significant increases in corporate political power and other forms of non-economic power caused by the largest mergers.

November 4, 2019 | Permalink | Comments (0)