Antitrust & Competition Policy Blog

Discovering Cartels

Posted by D. Daniel Sokol

In Trinko, the U.S. called cartels the supreme evil of antitrust.  Yet, there is much to learn on this subject. A new working paper entitled Discovering Cartels: Uncovering Dynamic Interrelationships Between Criminal and Civil Antitrust Investigations by Vivek Ghosal of George Tech furthers our understanding of this critical issue.

ABSTRACT: This paper focuses on the genesis, taxonomy and timeline of U.S. criminal antitrust investigations, and uses time-series data on enforcement to examine the interrelationships between the various criminal enforcement variables as well as the linkages between criminal and civil enforcement. The key findings are: (1) there appears to be considerable dynamic interplay between the criminal variables. For example, an increase in grand jury investigations or criminal cases initiated or the number of individuals or firms convicted generates increases in most of these (endogenous) variables in future periods. A broad conclusion that can be drawn is that information unearthed during a given criminal investigation and prosecution often reveals information about other conspiracies leading to future investigations and prosecutions; (2) an increase in civil enforcement leads to future increases in the criminal cases and firms and individuals convicted. This suggests that information gleaned during civil investigations, such as mergers or monopolization cases, may reveal information about collusive behavior in markets leading to criminal investigations and prosecutions; and (3) criminal enforcement follows a counter-cyclical pattern with the number of criminal cases prosecuted increasing following an economic downturn. We relate this to the literature which points to cartel instability during economic downturns. Overall, our results point to complementarities in the investigative process within different facets of criminal investigations as well as between criminal and civil investigations.

Latin American Antitrust

Posted by D. Daniel Sokol

I am off to DC tomorrow for my presentations to the World Bank (Thursday) and the Inter-American Development Bank/OECD mini-conference on competition policy (Friday).  While in DC, I will will have a chance to meet up with George Mason Professor Todd Zywicki (and blogger on the Volokh Conspiracy).  This is a special treat for me because Todd just posted a working paper version of his book chapter for my forthcoming edited book on Latin American Antitrust Developments.  Todd and his co-author James Cooper of the FTC were part of the dynamic duo within the FTC Office of Policy Planning who brought us the important State Action Task Force Report.  Based on their experiences in competition advocacy in the US, they have a number of lessons to share with Latin American enforcers.  Given the larger role of the state in Latin America economies, these may be critical lessons.

“The U.S. Federal Trade Commission and Competition Advocacy: Lessons for Latin American Competition Policy”

ABSTRACT: Competition authorities have several tools at their disposal in crafting a competition policy. Most prominent are litigation and merger review. A less-recognized but often effective tool, however, is competition advocacy. Broadly, competition advocacy is using persuasion, rather than coercion, to convince government actors to pursue policies that further competition and consumer choice. Competition advocacy can be especially useful in attacking government-created regulatory barriers to competition and in cultivating a culture of competition to educate the public on the economic benefits of competition as the organizing principle of the economy. From a cost-benefit analysis, competition advocacy can often generate substantial pro-consumer outcomes at low marginal cost.

Fostering a vigorous competition advocacy program can be especially valuable in Latin American countries that historically have had heavily-regulated economies and a weak culture of competition. This article draws on the experience of the Competition Advocacy Program of the United States Federal Trade Commission during the past 30 years to provide lessons for Latin American competition authorities seeking to build competition advocacy programs. This article is a chapter in a book on Latin American antitrust law and explains how competition advocacy can be an important and fruitful element of a vigorous competition policy in these developing economies.

Supermarket Mergers: A UK Perspective

Posted by D. Daniel Sokol

I have posted a few times in the last few weeks on the US supermarket industry.  Excitement about supermarkets is not limited to the United States.  Reuters reports that WalMart, the UK's #2 supermarket may bid for the #3 player, Sainsbury.  See the story here.  Just recently, the British Competition Commission released an interim report on supermarket antitrust issues.  I don't know UK competition law well enough to place any bets on such a proposed merger going through, but in the US mergers that change the number of players from 4 to 3 generally do not present serious antitrust concerns.

Fines in military bid rigging case

Posted by Shubha Ghosh

This, from Dean Podgor at the White Collar Crime Blog:

http://lawprofessors.typepad.com/whitecollarcrime_blog/2007/02/more_military_r.html

How Much Collusion? A Meta-Analysis on Oligopoly Experiments

Posted by D. Daniel Sokol

Across the Atlantic, Christoph Engel of the Max Planck Institute for Collective Goods has just posted a paper on indexing collusion entitled "How Much Collusion? A Meta-Analysis on Oligopoly Experiments." 

ABSTRACT: Oligopoly has been among the first topics in the experimental economics. Over half a century, some 150 papers have been published. Each individual paper was interested in demonstrating one effect. But in order to do so, experimenters had to specify many more parameters. That way they have generated a huge body of evidence, untapped thus far. This meta-analysis makes this evidence available. More than 100 of the papers lend themselves to calculating an index of collusion. The data bank behind this paper covers some 500 different settings. The experimental results may be normalised as a percentage of the span between the Walrasian and the Pareto outcomes. The same way, results may be expressed as a percentage of the distance between the Nash and the Pareto outcomes. For each and every of the parameters, these two indices make it possible to answer two questions: how far is the market outcome away from the competitive equilibrium? And how good is the Nash prediction? Most importantly, however, the meta-analysis sheds light on how features of the experimental setting interact with each other. Most main effects and many interaction effects are indeed statistically significant.

Amending India's Competition Act

Posted by D. Daniel Sokol

With all the focus in recent years on China within the antitrust community, we often have overlooked India and its antitrust system. Given the history of India 's economic development and its increasing importance as a destination for FDI, it is critically important to start thinking about antitrust issues in India. A new paper by Aditya Bhattacharjea of the University of Delhi - Delhi School of Economics provies an excellent overview of the current state of Indian antitrust law.  His article is entitled "Amending India's Competition Act."

ABSTRACT: For nearly four years, the Indian government has been unable to bring into force the substantive provisions of the Competition Act passed by Parliament in December 2002. The implementation of the Act, and the appointment of the chairman and all but one of the ten members of the proposed Competition Commission of India (CCI), was stalled by a writ petition in the Indian Supreme Court which contended that the constitutional doctrine of separation of powers required that the CCI be headed by a judge chosen by the judiciary and not a bureaucrat chosen by the executive.

The Competition (Amendment) Bill, 2006, contains provisions designed to address the Supreme Court's concerns. It also proposes to make several other changes in sections of the Act dealing with anti-competitive practices. This paper offers a critical assessment of the Bill. Some proposed amendments are quite sensible, while others (notably a modified leniency programme for firms that provide information about their participation in a cartel) have been inadequately thought out. The amendments designed to placate the Supreme Court will also have some negative consequences. Several weaknesses in the original Act, pointed out by this author in an earlier paper, remain unaddressed. Finally, the scarcity of the kind of economic expertise required to interpret the Act's multifarious technical clauses also remains a matter of concern. Intensive capacity building and a reassessment of the Act itself are urgently required.

How Market Fragmentation Can Facilitate Collusion

Posted by D. Daniel Sokol

Kai-Uwe Kuhn of the University of Michigan, Department of Economics has a new working paper entitled, "How Market Fragmentation Can Facilitate Collusion."

ABSTRACT: When regulated markets are liberalized, economists always stress the benefits of fragmenting existing capacities among more firms. This is because oligopoly models typically imply that a larger number of firms generates stronger competition. I show in this paper that this intuition may fail under collusion. When individual firms are capacity constrained relative to total demand, the fragmentation of capacity facilitates collusion and increases the highest sustainable collusive price. This result can explain the finding in Sweeting (2005) that dramatic fragmentation of generation capacity in the English electricity industry led to increasing price cost margins.

Whole Foods to Acquire Wild Oats

Posted by D. Daniel Sokol

On the heels of a House subcommittee investigation on the supermarket industry (previously discussed on this blog) Whole Foods has announced the acquisition of competitor Wild Oats. I don’t foresee any significant antitrust problems in this merger. The two firms do not have a significant overlap in local geographic markets and even where they do, I suspect that the product market definition used to review the deal will be broader than "high end supermarkets that provide free samples and overcharge you on products readily available elsewhere" (hence the nickname “Whole Paycheck” for Whole Foods). This is a defensive move for Whole Foods, which is seeing its profitability erode as other players enter the higher end of the grocery market.

In light of the Congressional investigation by Congressman Kucinich, my own analysis on the supermarket industry is that it has become transformed in the last decade or so through increased consolidation and competition by retailers outside of traditional grocery stores. During this period, WalMart has become the largest supermarket in the United States. The United States has witnessed the rise of club stores (Sam’s Club, BJs, Costco), Dollar stores, and high end groceries (Whole Foods, Trader Joes). Traditional supermarkets are under attack from both value and premium stores. Increasingly, it seems as if the premium stores such as Whole Foods are under attack by everyone else, as other stores focus on higher end shoppers willing to pay higher premiums.

The Whole Foods/Wild Oats merger is not a long term fix for Whole Foods. The Wild Oats stores tend to be smaller than Whole Foods stores and many will need to be expanded and/or upgraded. In the short term, this may placate shareholders seeking greater revenues. However, Whole Foods needs to come up with a new strategy to address a highly competitive supermarket industry.

Inter-American Development Bank/OECD Workshop: Increasing Competition in Latin America and the Caribbean

Posted by D. Daniel Sokol

With over 100 plus antitrust regimes around the world and most fewer than 15 years old, issues of institutional capacity are at the forefront of effective antitrust enforcement. Scholarship to date has only begun to scratch the surface as to determining the most effective strategies to utilize scarce resources for antitrust. An upcoming conference co-sponsored by the Inter-American Development Bank’s Infrastructure and Financial Markets Division of the Private Enterprise and Financial Markets Subdepartment and the Organization for Economic Co-operation and Development (OECD) will provide an opportunity to reflect on these issues.

Increasing Competition in Latin America and the Caribbean

Date: Friday, March 2, 2007
Time: 10:30 a.m. - 2:00 p.m.
Place: Inter-American Development Bank
Conference Room CR-200 (Auditorium - Enrique Iglesias)
1300 New York Avenue, NW
Washington, DC 20577

Effective competition can promote better economic performance, open business opportunities to citizens and reduce costs of goods and services.  The mini-seminar will provide an overview connecting competition to superior economic performance.  It will then look into more details on the role of competition authorities, regulation and enforcement.  The OECD's new “Competition Assessment Toolkit” will offer a methodology for identifying constraints and developing alternative less restrictive policies that still achieve government objectives.  Academics from the University of Wisconsin will focus on how effective antitrust is essential to prevent monopolies and cartels from dominating economies and undermining growth.

Featured Speakers:

Sean Ennis is a Senior Economist in the Competition Division of the OECD where he leads the OECD's competition assessment project. He is responsible for work on competition and regulation and has run technical assistance activities related to competition law and policy in Southeast Europe.

Joe Phillips is Head of the Competition Division of the OECD. He is responsible for a growing program of support for the competition authorities of OECD member countries and, since 1990, a program of technical assistance in competition law and policy for developing and transition countries, including regional training centers in Seoul and Budapest.

D. Daniel Sokol is a William H. Hastie Fellow at the University of Wisconsin Law School. He is editing a book on Latin American antitrust. Sokol serves as one of the editors of the Antitrust Law and Competition Policy Prof Blog.

Kyle W. Stiegert is the Director of the Food System Research Group in the Agriculture and Applied Economics department in the School of Agriculture at the University of Wisconsin.

For additional information, please contact Liliana López (lilianal@iadb.org).

Papers can be downloaded below:

Agenda  Download agendafebrero_20.doc

Brief for Policy Officials Download oecd_competition_assessment_brief.pdf

Guidance  Download OECD_Competition_Assessment_Guidance.pdf

Institutional Options for Competition Assessment Download oecd_competition_assessment_institutional_options.pdf

Executive Overview: Integrating Competition Assessment into Regulatory Impact Analysis Download oecd_competition_assessment_integrating_into_ria.pdf

Relationship between Competition Policy and Economic Performance Download comp_econ_perf_8_feb_2007.pdf

Technical Assistance for Law and Economics: An Empirical Analysis in Antitrust/Competition Policy

BROOK GROUP APPLIES TO PREDATORY BUYING CASES

POSTED BY SHUBHA GHOSH

The Supreme Court ruled today that the Brooke Group standard applies to predatory buying cases, reversing the Ninth Cicuit in Weyerhaueser. 9-0. Commentary to follow. Here is the slip opinion:

Download 05-381.pdf