Antitrust & Competition Policy Blog

Consumer Surplus as the Appropriate Standard for Antitrust Enforcement

Posted by D. Daniel Sokol

A number of important articles have appeared in recent years that discuss the appropriate standard for antitrust enforcement.  In a new and interesting contribution, Russell Pittman of the Department of Justice argues for a consumer surplus standard rather than a total welfare standard in his paper Consumer Surplus as the Appropriate Standard for Antitrust Enforcement.  Download consumersurplus.doc

ABSTRACT: In antitrust enforcement as in cost-benefit analysis, neoclassical economics may be interpreted as arguing for the use of a “total welfare” standard whose implementation treats transfers as welfare-neutral. Several recent papers call for antitrust agencies to move in the direction of this version of a total welfare standard for enforcement. However, as Williamson (1968) noted, horizontal mergers typically result in transfers that may greatly exceed in magnitude any deadweight loss or efficiency gain, so that a decision to ignore transfers may be quite important.  I argue that such transfers are likely overall to be quite regressive, and thus that a consumer surplus standard rather than a total welfare standard may be appropriate for antitrust.  Two common arguments against this standard – that most mergers are in markets for intermediate goods, and that a consumer welfare standard implies a tolerance for monopsony – are examined and found wanting.  I argue in addition that, even if a total welfare standard is used, both the finance literature on merger outcomes and the structure of the U.S. enforcement agencies suggest that the use of a consumer surplus standard by the agencies is more likely to achieve that goal.

Time to Rethink Merger Policy?

Posted by D. Daniel Sokol

Jiordi Gual of the University of Navarra - IESE Business School asks some critical questions of current US and EU merger policy in his provacative paper Time to Rethink Merger Policy?

ABSTRACT: This paper provides a critical analysis of some of the key features of merger policy as understood and practiced in leading jurisdictions such as the European Community and the United States. It focuses first on a discussion of the gradual move of merger policy towards the examination of unilateral effects. The critical appraisal of this process is based on the practical and theoretical shortcomings of the economic models that underlie the growing prominence of unilateral effects as the key anticompetitive factor arising from a proposed merger. The paper stresses that even if unilateral effects were to lead to an increase in the conventional measures of anticompetitive performance (such as markups), it is not clear that this implies less competitive behavior for many of the most relevant industries in today's advanced economies. Finally, the paper also examines the relation between competition and welfare, and argues that even if competition does indeed diminish due to a merger, it is not a straightforward conclusion that this is not good in terms of economic welfare when the incentives to innovate and the dynamic welfare gains that arise from new products and production processes are taken fully into consideration.

An Anti-Monopoly Law for China – Scaling the Walls of Protectionist Government Restraints

Posted by D. Daniel Sokol

Government restraints are under-explored among US antitrust scholars.  I am finishing off a draft of an article on this issue myself but more on that at a later posting.  Eleanor Fox of NYU Law School, whose path-blazing work on international antitrust helped to promote this area of scholarship, recently uploaded a forthcoming essay for the Antitrust Law Journal titled An Anti-Monopoly Law for China – Scaling the Walls of Protectionist Government Restraints.  This is an essay worth reading because the implications of government restraints on competition extend far beyond China.

ABSTRACT: Most nations deal with abusive government restraints and abusive private restraints by different instruments of law. This essay demonstrates, however, the integral nature of public and private protectionist restraints. It provides examples of integrated analysis in the United States, the European Union, and the World Trade Organization. It argues that a Chinese effort to address administrative economic abuses in its competition law would be progressive and helpful to the Chinese economy, especially in the absence of a Chinese “Commerce Clause.” Also, it argues for fuller coverage of state-owned monopolies. SOEs and provincial and local protectionist restraints are among China's most significant obstacles to realizing the benefits of markets.

New Competition Law Center at George Washington University

Posted by D. Daniel Sokol

With Bill Kovacic leading the fight against anti-competitive conduct at the FTC as a Commissioner, George Washington University Law School has not been particularly active in antitrust scholarship in the last few years while Georgetown and George Mason law schools have hosted a number of excellent conferences.  However, thanks to George Washington Law alum and plaintiff's attorney Michael D. Hausfeld of Cohen, Milstein, Hausfeld & Toll, P.L.L.C., on July 10, 2007, a United States District Court judge granted a motion to award a portion of a class-action settlement in the case of Diamond Chemical Company, Inc. v. Akzo Nobel Chemicals B.V. and Atofina Chemicals, Inc, et al. to George Washington University Law School to endow a Center for Competition Law.  This is a a $5.1 million Cy Pres award.  See details in the press release here.  No director for the Center has yet been announced.  I wonder if this center will be as plaintiff friendly in its programming as the Institute for Consumer Antitrust Studies at the Loyola University Chicago School of Law run by Spencer Waller.  On Spencer, if you have not yet read his Thurman Arnold: A Biography (NYU Press, 2005), this would make for excellent summer reading.

Ninth Annual Sedona Conference on Antitrust Law & Litigation

Posted by D. Daniel Sokol

The excellent 9th Annual Sedona Conference on Antitrust Law and Litigation, to be held October 25-26 at the Sedona Hilton Resort & Spa. This annual retreat has become a high point on the antitrust community calendar -- a chance to engage in meaningful dialog with leading lawyers, judges and scholars. To maintain the quality of this unique experience, the organizers limit registration to 40 but strive for the widest possible diversity within that small group.   Details are below.

Download sedona20antitrust20conference20press20release.pdf

Antitrust Analysis of Sports Leagues

Posted by D. Daniel Sokol

With Barry Bonds approaching Hank Aaron's all time home run record in baseball, I thought this might be a good time to think about antitrust in sports more generally.  One recent contribution to the field is that of Gregory Penlar, a VP at economic consulting firm Lexecon.  His study is Antitrust Analysis of Sports Leagues: Part 1 - What is a Sports League and How are They Analyzed Under the Antitrust Laws.

ABSTRACT: This paper is the first of a four-part series on the antitrust analysis of sports leagues. It presents a brief history of the major North American sports leagues, discusses significant differences between leagues, reviews the cartel, joint venture, and natural monopoly theories of sports leagues, summarizes the antitrust laws (and their exemptions), discusses the steps involved in conducting per se and rule of reason analyses, and describes the types of economic evidence used to conduct an antitrust analysis of a sports league.

What to Do About Unilateral Refusals to License?

Posted by D. Daniel Sokol

Jeffrey K. MacKie-Mason, Arthur W. Burks Professor of Information and Computer Science at the University of Michigan, takes the position in his new working paper What to Do About Unilateral Refusals to License? that policy makers should take economics more seriously in how they think about antitrust/IP and the issue of unilateral refusals to license, particularly in statutory language.  I wonder if in part the problem is that some courts do not understand the complex economics of innovation.

ABSTRACT: There are well-known circumstances under which unilateral refusals to license will cause harm to competition, that is, will lower consumer welfare. However, when the strategy is profitable, refusals to license also increase the returns to intellectual property, and thus limitations on them will reduce the incentives for firms to invest in innovation. The optimal balance between innovation incentives and protection against static monopoly harm is not knowable to any reasonable degree of precision. Economists may be able to identify some special cases in which the desired rule is unambiguously knowable, but these cases will be few.

Given a policy or legal rule, economists can help interpret and apply the rule. Analysis of recent legal statements on the treatment of refusals to license shows that some of the current confusion and frustration in this area can be attributed to failure to formulate the rules in terms of the economic purposes of the underlying statutes. Some attempts to delineate a boundary between cases in which intellectual property protection is absolute and those in which antitrust restrictions may be imposed are based on logical or semantic distinctions that are not related to the economic issues. These attempts will fail to resolve the confusion.

Capacity Building Out of Fines Imposed in Antitrust Cases?

Posted by D. Daniel Sokol

Pradeep Mehta of CUTS reports on what one suggestion did to an otherwise sleepy meeting at the most recent UNCTAD Intergovernmental Group of Experts meeting:

Every year, UNCTAD deliberates on Competition Law and Policy under an Intergovernmental Group of Experts (IGE) platform. But, it is more often a conference of nearly 100 competition learners and practitioners. Other than that, many make long and formal speeches, from which one has to dig out expert knowledge. However, many sessions are focused on special topics, and those are really illuminating.

Usually these meetings are non-controversial, but at the one held in mid-July, the Czech Republic stirred up a storm, by proposing that a special fund for competition policy and law capacity-building be created out of fines imposed in antitrust cases to be deployed in poor countries.

The Czechs argued that the possibility of improving a company’s image in this manner could be attractive to competition offenders and would thus be beneficial for developing countries.

The UCP is expected to contribute significantly to poverty alleviation and increase the competitiveness of developing countries”, said the Czech delegate at the meeting. “The UPC would also have an educational effect, as the infringer could contribute to a fund designed to support competition systems in developing countries. The proposed UCP might also provide a basis for further discussions on links between the strengthening of competition and providing support to developing countries in finding practical solutions for their most pressing problems”.

The Zambian delegate supported it, but there were a few opponents, who raised some concerns, which included the USA.

The Turkish delegate said: “While the UCP might be a good way of raising funds for projects in developing countries, the opportunity to choose investment in developing countries rather than paying fines might become an incentive for violation and even encourage enterprises to engage in anti-competitive practices more often than they would have in the absence of such a programme”. However, Turkey will be willing to participate in the programme.

It was necessary to apply a number of caveats to the proposal from the viewpoint of its contribution to effective deterrence, whether it might distort investment incentives, and it aid policy implications. The Czech Republic might first test its implementation at the national level before it could be considered for application to other countries”, noted the US delegate associating his concerns with other similar views.

France expressed concerns regarding possible extraterritorial application of the law, the consequences relating to sanctioning mechanisms, institutional machinery and appeal procedures, and verification of use of the proceeds of the UCP.

The UK delegate had the last word, in wisely summarizing their views, that they did not have the opportunity to study the interesting proposal in detail, and that it should be a subject of broader consultations involving various relevant government agencies, such as finance, development and foreign affairs.

It was heard in the corridors that it was in fact the US, which had first suggested such a fund a few years ago. In US itself, quite often unclaimed fines are put into a trust account to pursue education and research on competition law issues.

Recent Evolutions in Antitrust Enforcement: A Comparative Perspective

Posted by D. Daniel Sokol

Alberto Heimler, Director of Research at the Italian Competition Authority and the Chairman of Working Party 2 on “Competition and Regulation,” of the Organization for Economic Co-operation and Development (OECD) always has something insightful to say about antitrust.  He recently provided his analysis on Recent Evolutions in Antitrust Enforcement: A Comparative Perspective at a conference celebrating the tenth anniversary of the Romanian Competition Council held in Bucharest, Romania.

Bundled Rebates as Exclusionary, Not Predatory

Posted by D. Daniel Sokol

Tim Brennan, back to the University of Maryland-Baltimore from a stint at the Canadian Competition Bureau has a thought provoking new working paper that proposes a new test to address rebate programs titled Bundled Rebates as Exclusionary, Not Predatory.

ABSTRACT: Prevailing tests for whether bundled rebate programs are anticompetitive, including the recent Antitrust Modernization Commission Recommendation 17, are based on whether some incremental or total price in the rebate program is less than some appropriate incremental cost. This test is based upon an error - that rebate programs, and exclusionary conduct more generally, should be treated like predation cases. Analyses supporting this perspective err in treating the buyers as end users rather than competing complement providers, as they are in all the leading U.S. and Canadian cases. Instead, rebate programs should be assessed on the basis of whether they raise the price of a complement, such as retailing or distribution.

This suggests a different two prong test: Does the rebate cover a competitively significant share of a complement market, and if so, what effect does the rebate have on the price rivals have to pay to obtain the complement? This test allows the use of merger guideline approaches, ignores (for the most part) cost-based comparisons, and does not require prior dominance in the primary market. In assessing this alternative approach, we look at when practices are exclusionary, compare rebates to explicit exclusive dealing, discuss distinguishing exclusionary from predatory rebates, assess the limits of "profit sacrifice" approaches in exclusion cases, and propose share-based remedies to recognize
vertical efficiencies.