Antitrust & Competition Policy Blog

Weyerhaeuser and the Search for Antitrust's Holy Grail

Posted by D. Daniel Sokol

Thom Lambert of the University of Missouri School of Law (ie, the guy with the office down the hall from mine) has just posted his newest paper Weyerhaeuser and the Search for Antitrust's Holy Grail .

ABSTRACT: A general definition of exclusionary conduct has become a sort of Holy Grail for antitrust scholars. At present, four proposed definitions appear most promising: (1) conduct that could exclude an equally efficient rival; (2) conduct that raises rivals' costs unjustifiably; (3) conduct that, on balance, impairs consumer welfare by creating market power without providing countervailing consumer benefits; and (4) conduct that makes no economic sense but for its exclusionary effect on rivals.

In Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 127 S. Ct. 1069 (2007), the U.S. Supreme Court implicitly weighed in on this debate over a generalized exclusionary conduct test. The issue before the Weyerhaeuser Court -- should the legal standards governing predatory pricing similarly apply in predatory bidding cases? -- appears on first glance to be rather narrow. In resolving that seemingly narrow issue, though, the Court seems implicitly to have rejected the second, third, and fourth definitions of exclusionary conduct (i.e., the raising rivals' costs approach, the consumer welfare effects test, and the no economic sense test). The Court's holding and reasoning are consistent with only the equally efficient rival approach.

This article asserts two primary claims, one descriptive and one normative. As a descriptive matter, the article asserts that the Supreme Court has implicitly rejected all the proposed exclusionary conduct definitions except for the equally efficient rival approach. As a normative matter, the article argues that this is a salutary development -- that the equally efficient rival test, while somewhat underdeterrent, is the best of the proposed generalized definitions.

Annual Report on JFTC Activities

Posted by D. Daniel Sokol

The Japanese Fair Trade Commission has published its review of its activities this past year.  See here.

Strong Spine, Weak Underbelly: The CFI Microsoft Decision

Posted by D. Daniel Sokol

Harry First of NYU Law School weighs in on the CFI decision with his piece titled Strong Spine, Weak Underbelly: The CFI Microsoft Decision.

Patents and Antitrust: Application to Adjacent Markets

Posted by D. Daniel Sokol

The impact of the intersection of antitrust and IP is an important one.  Between the AMC Report and the FTC'/DOJ latest report on this intersection, Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition, this is an issue at the forefront of antitrusdt policy.  Adding to this debate are Nicholas Economides of the Stern School of Business, NYU and William N. Herbert of Calvo & Clark LLP with their paper Patents and Antitrust: Application to Adjacent Markets.

ABSTRACT: We examine the intersection of patents and antitrust where a patent holder uses the monopoly power it possesses in the market for a patented product to exclude competitors in an adjacent market and attempt to monopolize or monopolize the adjacent market. The present scheme for awarding patents cannot judge when the issuance of a patent will lead to the appropriate balance between innovation and efficiency. Where a patent holder's invention uses an interface with adjacent products, the patent holder may be tempted to extend its patent monopoly into adjacent markets that depend upon the interface with the patented invention. Economic theory suggests that it is inappropriate to immunize a patent holder from antitrust liability when it attempts to extend its patent monopoly into adjacent markets, because it could decrease consumer surplus. Courts have expressed their reluctance to scrutinize a patent holder's innovations and design changes, because of the potential benefits of the innovations and their reluctance to second-guess the marketplace.

However, applying traditional antitrust principles, courts have found that monopolists could be liable for unlawfully extending their monopoly positions into adjacent markets in the areas of computer peripherals and software applications; aftermarkets for replacement parts, service and maintenance of durable goods; design changes to medical devices; and changes in drug formulas. While the patent laws provide a spur to innovation by granting limited monopoly rights, the antitrust laws curb the excessive reach of these monopoly rights by acting as a check on excessive expansion of the scope of the patent grant.

Are Bank Mergers Efficiency Enhancing?

Posted by D. Daniel Sokol

John Ashton of Norwich Business School and the ESRC Centre for Competition Policy, University of East Anglia and Khac Pham of the ESRC Centre for Competition Policy, University of East Anglia have a new working paper that analyzes banking mergers in the UK titled Efficiency and Price Effects of Horizontal Bank Mergers.

ABSTRACT: This study provides an empirical assessment of the efficiency and interest rate changes occurring during 61 UK retail bank mergers. Key findings of the work include the general efficiency enhancing influence of UK bank mergers and the limited effect of merger on retail interest rates. Furthermore, different banking products appear to be influenced differently by mergers. It is proposed that future assessments of bank competition and mergers require an accommodation of different types of bank customer.

Uruguayan Law of Promotion and Defense of Competition Enacted

Posted by D. Daniel Sokol

I missed it earlier this summer but Uruguay has entered the club of Latin American countries with a complete and systematic competition law. Uruguay's Parliament enacted Law Number 18,159, "Law of Promotion and Defense of Competition", on July 10, 2007. The competition law covers: substantial issues (definitions, prohibition of anticompetitive practices and abuse of dominant position, merger control and sanctions), powers and competence of the competition authority and general rules for the proceedings.

The law repeals previous rules (articles 13, 14 and 15 of the Law 17.243 of 2000 and articles 157 and 158 of the Law 17.296 of 2001) which were not enforced effectively.

Hat tip to Juan David Gutierrez Rodriguez.

The Future of US Federal Antitrust Enforcement

Posted by D. Daniel Sokol

What does the future hold for antitrust in the US? James Langenfeld of LECG and Daniel Shulman of Gray Plant Mooty give prediction a shot in The Future of US Federal Antitrust Enforcement: Learning from Past and Current Influences, which appears in the fall issue of the Sedona Conference Journal.

Hovenkamp on The Harvard and Chicago Schools and the Dominant Firm

Posted by D. Daniel Sokol

When Herb Hovenkamp writes, we should all take notice.  His latest piece is The Harvard and Chicago Schools and the Dominant Firm.

ABSTRACT: The Chicago School has produced many significant contributions to the antitrust literature of the last half century. Thanks in part to Chicago School efforts today we have an antitrust policy that is more rigorously economic, less concerned with protecting noneconomic values that are impossible to identify and weigh, and more confident that markets will correct themselves without government intervention. This Chicago School revolution came at the expense of the Harvard structural school, which flourished from the 1930s through the 1950s. That school rested on a fairly rigid theory of Cournot oligopoly, exaggerated notions about barriers and impediments to entry, and a belief that certain types of anticompetitive conduct were more-or-less inevitable given a particular market structure. However, the chastised Harvard School that emerged in the late 1970s in the writings of Phillip E. Areeda and a converted Donald F. Turner were much less ambitious about the goals of antitrust, more concerned with conduct as such, and significantly more skeptical about the benefits of aggressive judicial intervention.

This story of a victorious Chicago School and a humbled and disciplined Harvard School is incomplete, however. The antitrust case law reveals something quite different. On most of the important issues this chastised Harvard School has captured antitrust decision making in the courts, and largely in the enforcement agencies. This paper explores these differences, focusing mainly on dominant firm practices.

Canadian Law and Economics

Posted by D. Daniel Sokol

Tomorrow Shubha and I will both be at the annual meeting for the Canadian Law and Economics Association annual meeting.  There will be an excellent group of people from around the world with whom to discuss antitrust and related issues.  I will be presenting my working paper Why is this Chapter Different from All the Others? An Examination of Why Countries Enter into Non-Enforceable Competition Policy Chapters in Free Trade Agreements.  I have a slide of Moses parting the Red Sea for those that didn't get the Passover reference in the title.

An Antitrust Analysis of Google’s Proposed Acquisition of DoubleClick

Posted by D. Daniel Sokol

Robert Hahn of Brookings and Hal Singer of Criterion Economics have a new working paper out titled An Antitrust Analysis of Google’s Proposed Acquisition of DoubleClick.

ABSTRACT: By serving as a key revenue source for online content providers, online advertising has been instrumental in the development of innovative websites. Continued innovation among content providers, however, depends critically on the competitive provision of online advertising. Suppliers of online advertising provide three primary inputs—(1) advertiser tools, (2) intermediation services, and (3) publisher tools. Certain suppliers such as Google provide a platform that combines the inputs into one integrated service. In this paper, we focus on the overlapping products sold to advertisers by Google and DoubleClick—namely, the supply of advertiser tools. Because the supply of advertiser tools is highly concentrated, Google's proposed acquisition of DoubleClick raises important questions for antitrust authorities. Proponents of this acquisition argue that Google and DoubleClick do not compete—that is, buyers of search-based or contextual-based advertising (the two advertising channels in which Google participates) do not perceive graphic-based advertising (the advertising channel in which DoubleClick participates) to be substitutes. Thus, they conclude that the proposed acquisition would not lead to higher prices.

In this paper, we examine economic evidence and legal precedent to help identify the relevant antitrust product market for Google's proposed acquisition of DoubleClick. According to the Federal Trade Commission and Department of Justice Horizontal Merger Guidelines, product markets are defined by the response of buyers to relative changes in prices. To inform how buyers—in this case, online advertisers—would respond to relative changes in price across the three online advertising channels (search, contextual, and display), we analyze the results of a survey of online retailers. The survey suggests that (1) a significant share of online advertisers would substitute among the three channels in response to relative changes in prices, and (2) a significant share of DoubleClick customers would turn to Google before any other supplier in response to an increase in the price of DoubleClick's advertiser tools. In particular, the survey indicates that a combined Google-DoubleClick would likely have a greater incentive to increase the price of DoubleClick's advertiser tools relative to a stand-alone DoubleClick offering.