Antitrust & Competition Policy Blog

Is the EU Insurance Block Exemption Regulation Still Relevant?

Posted by D. Daniel Sokol

Peter Crowther (Dewey LeBeouf) asks, Is the EU Insurance Block Exemption Regulation Still Relevant?

ABSTRACT: On April 17, 2008, the European Commission launched a public consultation on the Insurance Block Exemption Regulation (Regulation 358/2003).

The ultimate purpose of the consultation is to determine whether there remain sufficient grounds to maintain a block exemption from the application of Article 81(1) EC of certain types of agreements in the insurance sector, on the BER's expiry on March 31, 2010. The Commission has invited comments on its Consultation Paper by July 17, 2008, after which the Commission will draft a report to be submitted to the European Parliament and Council before March 2009.

Based on the Commission's current stance, those companies which currently benefit from the BER and wish to see it or some alternative form of guidance remain in place will need to provide clear and convincing arguments for its retention.

Observations on the Commission’s Evanston Remedy: When Is Divestiture, or Any Remedy, Not Appropriate for a Consummated Anticompetitive Merger?

Posted by D. Daniel Sokol

Mark Botti (Akin Gump) provides his thoughts on Observations on the Commission’s Evanston Remedy: When Is Divestiture, or Any Remedy, Not Appropriate for a Consummated Anticompetitive Merger?

ABSTRACT: On April 28, 2008, the U.S. Federal Trade Commission issued its final order, specifying the remedy for the antitrust violation it determined Evanston Northwestern Healthcare Corporation and Highland Park Hospital committed in 2000 when ENHC acquired Highland Park. The Commission had already decided on August 6, 2007, that it would forego a structural remedy (i.e., divestiture) in favor of a conduct remedy.

The April order established the specific terms of the remedial conduct order. Perhaps more importantly, it is the most recent decision from an enforcement agency regarding remedies for consummated anticompetitive mergers and stakes out a position significantly different from prior indications.

Standard-Setting Policies and the Rule of Reason: When Does the Shield Become a Sword?

Posted by D. Daniel Sokol

Jennifer Driscoll (Mayer Brown) asks about Standard-Setting Policies and the Rule of Reason: When Does the Shield Become a Sword?

ABSTRACT: The rewards and pitfalls of standard setting conjure images of the legend of Damocles. From afar, the benefits of a “collaborative standard-setting process [that] enable[s] industry participants to share knowledge and develop a best-of-breed product or process” (Barnett, 2006) appear enormously attractive.

The widespread acceptance of a standard that promotes product interoperability “may expand the availability of a technology and ancillary products and services by enabling more firms to rapidly enter and serve the market,” thus “impart[ing] pro-competitive benefits to markets and their participants, both producers and consumers, by capitalizing on the ‘network effects’ at play in an advanced industrial economy” (Carvill & Khoja, 2003).

Despite these substantial rewards, the specter of patent holdup looms as an ever-present threat.

Comments on the CFI's Recent Ruling in Deutsche Telekom v. European Commission

Posted by D. Daniel Sokol

Bernard Amory & Alexandre Verheyden (Jones Day) provide some Comments on the CFI's Recent Ruling in Deutsche Telekom v. European Commission.

ABSTRACT: This brief paper discusses the implications on the test for price squeeze arising from the Deutsche Telekom ruling of the European Court of First Instance (CFI) of April 10, 2008. Price squeeze is a relatively novel form of abuse. In many respects, it is a concept that is still evolving, and various issues remain open, such as the need for a finding of dual dominance both at the retail and wholesale level, and the scope of the service or the size of the market affected.

The CFI ruling provides some clarity on the issues of (i) price squeeze as a stand-alone ground for abuse and (ii) the relevance of the two tests (hypothetical competitor and reasonably efficient competitor) proposed by the Commission in support of a price squeeze allegation. Our comments will focus on these two points. However, we submit that this judgment raises a number of new questions.

Elves or Trolls? The Role of Non-Practicing Patent Owners in the Innovation Economy

Posted by D. Daniel Sokol

Damien Geradin, Howrey LLP, Tilburg University - Tilburg Law and Economics Center (TILEC), Anne Layne-Farrar, LECG and A. Jorge Padilla, LECG, have a new and interesting paper Elves or Trolls? The Role of Non-Practicing Patent Owners in the Innovation Economy.

ABSTRACT: Firm structure and the degree of vertical integration lie at the core of a key intellectual property concern currently under debate: "patent trolls." While court opinions and competition agency decisions have focused on "non-practicing" patent holders as the source of anticompetitive exclusion and hold up problems, this view of upstream specialists is far too narrow. In fact, patents in the hands of non-practicing entities can increase competition, lower downstream prices, and enhance consumer choice. We explain why and argue for more business-model-neutral policy when it comes to patent licensing. Clearly, patents are a complex subject that cannot be portrayed as either all good or all bad; tradeoffs will always be involved. Without a better understanding of the many complicated effects of patents in high technology markets, we run the very real risk of misguided policy decisions.

Competition vs. Regulation in Mobile Telecommunications

Posted by D. Daniel Sokol

Johan Stennek, Research Institute of Industrial Economics (IFN), Centre for Economic Policy Research (CEPR) and Thomas Tangeraas, Research Institute of Industrial Economics (IFN) compare Competition vs. Regulation in Mobile Telecommunications.

ABSTRACT: This paper questions whether competition can replace sector-specific regulation of mobile telecommunications. We show that the monopolistic outcome prevails independently of market concentration when access prices are determined in bilateral negotiations. A light-handed regulatory policy can induce effective competition. Call prices are close to the marginal cost if the networks are sufficiently close substitutes. Neither demand nor cost information is required. A unique and symmetric call price equilibrium exists under symmetric access prices, provided that call demand is sufficiently inelastic. Existence encompasses the case of many networks and high network substitutability.

Retail Competition and the Dynamics of Consumer Demand for Tied Goods

Posted by D. Daniel Sokol

Wesley R. Hartmann, Stanford University - Graduate School of Business and Harikesh Nair, Stanford University - Graduate School of Business bring us Retail Competition and the Dynamics of Consumer Demand for Tied Goods. 

ABSTRACT:  We empirically investigate the demand for tied goods sold through competing retail channels. Tied good pricing strategies commonly involve a low price on the initial purchase (i.e. the primary good) to drive adoption, and a substantial markup on aftermarket goods to capture value. However, if the goods are sold through downstream channels, retail market power and a misalignment of incentives could distort the relative prices of primary and aftermarket goods. To evaluate whether retail competition is strong enough to prevent such distortions, we explore the commonly noted example of razors and blades, which are sold through drug, grocery, mass merchandising, and club stores. We specify a forward-looking demand model that incorporates dynamics arising from the tied good nature of the products and the stockpiling and durability aspects of razors and blades. Furthermore, we allow intertemporal substitution in the purchase of both razors and blades to occur across channels as well as time. This modeling feature enables a novel approach to measuring retail competition in single category demand analyses. Our estimates indicate that there is substantial cross-channel substitution in razors, but some retail market power in blades. However, the channel with the most market power in blades, club stores, specializes in high volume customers that would adopt a razor even if blade prices are higher. This suggests that the manufacturer can achieve its desired level of razor adoption without vertical restraints, though blade sales may be slightly reduced by double marginalization.

Compulsory Access to Intellectual Property and Network Facilities

Posted by D. Daniel Sokol

Estelle Derclaye, University of Nottingham - School of Law, has posted a paper on Compulsory Access to Intellectual Property and Network Facilities. 

ABSTRACT:  One of the questions that this Congress addresses concerns an important relationship between competition law and intellectual property rights, namely the refusal to licence an intellectual property right such as a patent, trade mark, design or copyright and the correlative power of the competition authorities and courts to order compulsory access to such intellectual property. Such refusals are prohibited only if the undertaking abuses a dominant position. This report analyses how Belgian law tackles this question. As Belgian law is very sparse on the topic, to the extent possible, the report will make comparisons with the solutions adopted concerning the corresponding relationship between competition law and tangible property. To this effect, the report first sets out the Belgian legal framework (section 1), then reviews the case law relating to refusals to licence (section 2) and finally to refusals to supply and buy (section 3). In light of this analysis, the report then provides answers to the questions asked by the International Rapporteur (section 4) after which a conclusion is drawn.

Market Definition and Unilateral Competitive Effects in Online Retail Markets

Posted by D. Daniel Sokol

Michael R. Baye of the Kelly School of Business at Indiana University (currently head of BE at the FTC) has a great piece on Market Definition and Unilateral Competitive Effects in Online Retail Markets in the latest issue of the Journal of Competition Law and Economics.

ABSTRACT: Although the basic principles used to define a relevant market or to analyze unilateral competitive effects in traditional retail settings also apply in online retail markets, several features of the online environment add complexities to the analysis. This paper examines some of the results in the economics and marketing literatures that can influence market definition and competitive effects analysis in online retail settings. I argue that a failure to account properly for certain aspects of online markets can lead to erroneous definitions of the relevant market and, more importantly, erroneous conclusions regarding the unilateral competitive effects of horizontal mergers.

Early Commitments Help Patent Pool Formation

Posted by D. Daniel Sokol

François Lévêque (professor of law and economics at the Ecole des mines de Paris) and Yann Ménière (research fellow at Cerna, Ecole Nationale des mines de Paris) address IP-Antitrust issues in their paper Early Commitments Help Patent Pool Formation.

ABSTRACT:  This paper explores in what circumstances patent owners can be expected to join unilaterally a patent pool. We develop a simple model in which owners of patents reading on a standard grant licences to competing manufacturers. Manufacturers must sink a fixed cost to enter the market for standard compliant products, and are thus exposed to hold up when royalties are set after their entry. We show that the formation of non-cooperative patent pools nearly always fails if it takes place once manufacturers have incurred fixed costs - as is usually the case. By contrast, allowing the formation of patent pools ex ante facilitates the emergence of stable non-cooperative patent pools. Such ex ante pools yield lower prices and higher licensing profits than ex post patent pools would. We discuss the policy implications of these results concerning the credibility of licensing commitments required by standard setting bodies.