Antitrust & Competition Policy Blog

Downstream merger and welfare in a bilateral oligopoly

Posted by D. Daniel Sokol

George Symeonidis (University of Essex - Economics) writes on Downstream merger and welfare in a bilateral oligopoly.

ABSTRACT: I analyse the effects of a downstream merger in a differentiated oligopoly when there is bargaining between downstream firms and upstream agents (firms or unions). Bargaining outcomes can be observable or unobservable by rivals. When competition is in quantities, upstream agents are independent and bargaining is over a uniform input price, a merger between downstream firms may raise consumer surplus and overall welfare. However, when competition is in prices or the upstream agents are not independent or bargaining is over a two-part tariff or bargaining covers both the input price and the level of output, the standard welfare results are restored: a downstream merger always reduces consumer surplus and overall welfare.

Competition And Access Regulation In The Telecommunications Industry With Multiple Networks

Posted by D. Daniel Sokol

Yan Liu and GuangâZhen Sun (Monash - Econ) explore Competition And Access Regulation In The Telecommunications Industry With Multiple Networks.

ABSTRACT: We develop a framework, extending the conventional duopoly model by replacing the Hotelling line with a simplex in highâ€dimension spaces, to study the competition and access regulation of multiple networks. We first characterize the competitive equilibrium when the substitutabilities of the networks are not too high, or the access charges are nearly costâ€based. We then analyse how the equilibrium market shares respond to marginal variations in the access charges under various regimes of access regulation, and thereby examine the efficiency implications of such regulation regimes. In particular, we analyze the asymmetric scenario in which some networks are incumbent and some are entrants. It is shown that some existing results of the duopoly do not extend to a multiâ€firm setting, largely because regulation of multiple networks is structurally far richer.

Ashcroft v. Iqbal: Taking Twombly a Step Further

Posted by D. Daniel Sokol

Caroline Mitchell & David Wallach (Jones Day) explain Ashcroft v. Iqbal: Taking Twombly a Step Further.

ABSTRACT: On May 18, 2009, in a 5-to-4 decision, the Supreme Court decided Ashcroft v. Iqbal and continued a trend of toughening federal pleading standards that started with Bell Atlantic Corp. v. Twombly. Until Iqbal,Twombly’s effect had been relatively modest because courts tended to distinguish it, often finding that its teachings applied only to antitrust cases or similar types of cases. In Iqbal, the Supreme Court rejected these attempts to circumscribe holding unequivocally that the pleading standard announced by Twombly applies to all civil actions in federal court.

This development will make it considerably more difficult for plaintiffs armed only with vague factual allegations to launch expensive litigation. At the same time, however, the advent of this new pleading standard complicates the calculus for plaintiffs and defendants alike at the pleading stage of civil cases in federal courts. These complications result in part from the difficult questions that Iqbal and Twombly left unanswered about how properly to apply the new federal pleadings standard. As a result, it may not be possible to definitively assess Iqbal’s impact until the Courts of Appeals have answered some of these questions. What is immediately clear after Iqbal, however, is that district courts have significantly more discretion to manage cases at the pleading stage, and that some cases which would have previously continued to discovery will now end with the pleadings.

The Competition Policy in China: Past, Present and Future

Posted by D. Daniel Sokol

Wu Hanhong of Renmin University's School of Economics explores The Competition Policy in China: Past, Present and Future.

ABSTRACT: The fundamental and in‐depth change in the economic system has been the transition from a planning economy system to a market economy system since the reform and opening‐up policy was implemented in China in 1978. It is well known that competition is the essential feature of a market economy. Without competition, a market economy will be out of the question. However, in the realistic market competition process, there is a great variety of practices of unfair competition and anti‐competitive practices, because some undertakings in market competition, in order to maximize their profits, are bound to fight against and elbow out their competitors by various means, to strive for a monopoly and obtain economic gains. If such undertakings’ acts are left to themselves and no effective measures have been taken to control and cease them, market competition and the functions of market mechanism will be impaired, economic vigor will be killed, technological innovations and technological advances hindered, and consumers’ interests damaged. The market mechanism per se cannot solve those “market failures” mentioned above, which has to be rectified through the government’s “visible hand” to keep market economy in healthy operation, and this is the very purpose of a competition policy.

Forks in the Road: Challenges Facing the ACCC's Immunity Policy for Cartel Conduct (Part 2)

Posted by D. Daniel Sokol

Caron Beaton-Wells (University of Melbourne Law School) has posted the follow up Forks in the Road: Challenges Facing the ACCC's Immunity Policy for Cartel Conduct (Part 2).

ABSTRACT: For the ACCC there are "forks in the road" in deciding how to deal with the interaction between its highly acclaimed Immunity Policy for Cartel Conduct and (1) the criminalisation of serious cartel conduct; (2) the rise in private enforcement and damages claims in relation to cartel conduct; (3) the increased significance of cartel case settlement or, in the criminal context, plea negotiation; and (4) the potential strategy of offering alternative financial rewards for cartel information. In relation to each of these, this article (published in two parts) explores the issues involved; the ACCC’s current proposals for dealing with them (to the extent any such proposals exist); overseas models for tackling the issues; and the way forward in meeting the challenges and/or harnessing the opportunities presented. Part 1 published in the previous issue, dealt with criminalisation and private enforcement. Part 2 of the article deals with settlements and alternative rewards.

Beyond 'Essential Facilities': Innovation, Intellectual Property and Competition Policy Across the Atlantic

Posted by D. Daniel Sokol

Ariel Katz (Toronto - Law) explores Beyond 'Essential Facilities': Innovation, Intellectual Property and Competition Policy Across the Atlantic.

ABSTRACT: In September 2007, the Court of First Instance (CFI) affirmed the European Commission's 2004 decision finding that Microsoft has abused its dominant position by refusing to supply interoperability information to its competitors, and affirmed that in addition to the imposition of a fine, forcing Microsoft to disclose such information is an appropriate remedy even if this information is protected by intellectual property rights. In this decision the CFI continued a line drawn in several previous decisions, which found that a refusal to license intellectual property may amount to an abuse of a dominant position in violation of the EU competition law, and that a duty to license such intellectual property may be an appropriate remedy. Doctrinally, these decisions developed and implemented the “Essential Facility Doctrine”. Although controversial in the EU itself, these decisions seem to be even more controversial in the eyes of many American antitrust scholars and commentators. Generally, these decisions have been seen as undercutting the very basic principle underlying IP rights: the right to exclude others. Thus, in response to the decision in the Microsoft case, the US Assistant Attorney General for Antitrust has taken the unusual step of issuing a same-day press release criticizing the decision of the CFI, expressing the concern that “the standard applied ... by the CFI, rather than helping consumers, may have the unfortunate consequence of harming consumers by chilling innovation and discouraging competition.” For many critics, on both sides of the Atlantic, the decisions signal an unhealthy European appetite for interventionist regulation, disrespect for property rights in general and IP rights in particular or at least a short-sighted approach with respect to the harmful long-term effects of such decisions on innovation. Under this account, these decisions reflect serious divergence, perhaps a chasm, between the EU and the US. According to this view, the US supposedly protects IP rights more vigorously, does not exhibit the same regulatory appetite as the EU, and embraces a better long-term pro-IP and pro-innovation approach. Even commentators who approve of applying the essential facilities doctrine to intellectual property in appropriate cases share the view that on this point the EU and the US clearly diverge.

While these commentators have correctly identified a doctrinal difference in the way the essential facility doctrine is applied on both sides of the Atlantic, this proposed research will argue that this perceived divergence between the two jurisdictions is quite simplistic. It overlooks various other facets of convergence and divergence, the understanding of which is equally no less important in evaluating how each of the jurisdictions effectively treats the interface between competition law and intellectual property. For example, the focus on essential facility doctrine ignores the fact that in many of the cases applying the doctrine, the IP rights covered subject matter that would not be protected by IP rights in the US in the first place. Naturally, this complicates attempts to determine which jurisdiction protects intellectual property rights more strongly. I will demonstrate how US copyright law, more radically than any other copyright system in the world, has traditionally incorporated pro-competition, pro-innovation and pro-compatibility rules that address many of the concerns which EU law sporadically attempts to address by applying the essential facilities doctrine. Thus, for example, the Fair Use defense and its wide and flexible application in the US, the way US courts have applied the distinction between ideas, facts, and expressions, or applied the merger doctrine, all reflect a systematic attempt by US copyright law to prevent the abuse of copyrights to stifle competition and innovation. Moreover, I will suggest that these unique features of US copyright law, together with the prevalence of private antitrust litigation in the US, and coupled with the IP misuse doctrine, represent much more profound divergence, which made the US simultaneously both less “respectful” to IP owners’ interests, more aggressive in applying antitrust to IP-related conduct, but also more conducive to innovation.

Generally, the proposed research will aim to advance two main arguments: a general and a specific one. The general argument will maintain that apprehension of the substantive rules in the areas of IP law and competition law (i.e., the rules defining IP rights and the grounds for competition law liability) is a necessary condition for a meaningful analysis of the cross-Atlantic differences with regard to innovation, intellectual property, and competition policy but not a sufficient one. In addition to understanding the substantive rules and how they respond to each other, it is also crucial to understand how they work within a larger legal and institutional matrix. In order to fully understand and evaluate each jurisdiction’s rules and performance, it is also important to grasp how the substantive IP and antitrust rules interact with other procedural and evidentiary rules, how they frame and are framed by the available remedies, and how they are situated within other aspects of institutional design, such as the division of rule-making authority between state and federal courts in the US, or between member states and EU institutions in Europe. Therefore, focusing on one substantive rule, how the essential facility doctrine is applied in the two jurisdictions, is likely to reveal only a partial aspect of the relevant divergences and convergences. As a result, policy recommendations based on such limited analyses risk being misguided. The proposed research will contribute to the debate by highlighting various other aspects which comprise the larger matrix in order to move beyond essential facilities and towards better understanding of the two jurisdictions and their respective strengths and weaknesses.

The specific argument, perhaps a more contentious one, posits that examining these larger matrices may reveal that overall, driven by pro-innovation and pro-competition impetus, the US system has tended to circumscribe IP rights (at least copyright) more closely and to subject them to competition law scrutiny more aggressively than the EU. Contrary to frequently held views, I will suggest that this is one of the factors that have made the US more conducive to innovation. In essence and despite appearances to the contrary, the US has followed the principle of "less is more". If this observation is correct, its insights may be useful for the EU (and other countries such as Canada) in choosing the optimal rules relating to the IP/competition interface. It may also be useful for the US in evaluating whether it is interested in adhering to or moving away from its historical course.

Competition Laws and Policies in China and Hong Kong: A Tale of Two Regulatory Journeys

Posted by D. Daniel Sokol

Grace Li, University of Technology, Sydney and Angus Young, University of Technology, Sydney have published Competition Laws and Policies in China and Hong Kong: A Tale of Two Regulatory Journeys.

ABSTRACT: Competition law is generally enacted to control and influence certain business conduct deemed harmful to the smooth functioning of a competitive market. This is usually a by product of deregulation and opening up of markets to competition, as market forces alone might not be able to ensure allocative efficiency and competitive pricing is achieved. From the experiences in many European countries, the laws tend to emphasize on regulating post privatised state industries, as well as large private companies exploiting their market power to maximise profits at the expense of consumers (Maher, 2004). Much of the economic arguments for competition law are quite straightforward, the policy rationale for governmental intervention is to prevent the exploitation of market power of large companies and to promote competition (Corones, 2004). The political arguments however, are more complex where vested interests between stakeholders come into conflict. So the legislation could be a product of political compromises with "carve outs" to exclude certain sectors and companies. Thereby, making competition law a piece of economically sub optimal, and technically complex to enforce piece of legislation. After 14 years of debate, a new Anti-Monopoly Law (AML) in the Peoples' Republic of China (PRC) was enacted on the 30th August 2007 and took effect on the 1st August 2008. The new AML is a milestone in Chinese pro competition policy and law. Supposedly this law would drastically alter the manner in which businesses (both domestic and foreign) operate in China and, in turn, considerable benefits would flow onto the Chinese public through increased economic efficiency, lower prices and the introduction of innovative goods and services. Yet there is a "catch", whilst the laws appear, at least in general, consistent with international competition law regimes like those in Australia, United Kingdom and the European Union, there are some significant challenges to the successful operation and implementation of the Chinese AML. In comparison, Hong Kong (HK), as a special administrative region of China, about 2000km away from Beijing, presents a different political and competition environment. Nevertheless, both economies are striving to achieve sustainable economic growth in a globally competitive market place. After a decade of discussions, HK's journey in enacting competitive has yet to realize. Under pressure from various stakeholders, the HK government has put out a details proposal on competitive law for public consultation in May this year. Even though the proposal is aimed at enhancing economic efficiency and promoting sustainable competition, there are some issues in the detailed proposal that are causes for concern. The motivation of this paper is to retrace some of the key arguments and factors leading to the enactment of competition law in PRC and the debates advocating such law in HK, so as to anticipate some of the problems associated with implementation. It also interesting to analyse the regulatory journeys of one country under two different administrations, where one is a modern economy under quasi-democratic government, the other is a developing one, labelled as a "market economy with socialist characteristics" under a centralised socialist government. Part two of this paper begins with a brief introduction to the PRC AML legislative background, substantive provisions of the AML and the areas of uncertainty in regulation and enforcement of the AML. Part three devolves into the debates in enacting competition law in HK, which to date has yet to become law. Despite the detailed proposal transplanting many ideas from the laws of other modern economies, they are some provisions that are either weak or continues to safeguard the interest of monopolies in selective sectors. This article shall conclude with some insights from the trials and tribulations of the new PRC law and HK's drawn out policy dithering.

Spatial Differentiation and Vertical Contracts in Retail Markets for Gasoline

Posted by D. Daniel Sokol

Jean-francois Houde, University of Wisconsin - Madison - Department of Economics analyzes Spatial Differentiation and Vertical Contracts in Retail Markets for Gasoline.

ABSTRACT: This paper studies an empirical model of spatial competition and evaluates the impact of vertical relations on prices and consumer welfare. The main feature of my approach is to specify commuting paths as the "locations" of consumers in a Hotelling-style model. As a result spatial differentation depends in an intuitive way on the structure of the road network and the direction of traffic flows. The model is estimated using panel data on the Quebec City gasoline market, and used to quantify markups and simulate two important counter-factual policies: elimination of vertical integration, and wholesale price discrimination ban.

Canada's Draft Abuse of Dominance Guidelines: A Comparative Look

Posted by D. Daniel Sokol

Lilla Csorgo, Competition Bureau, Canada explains Canada's Draft Abuse of Dominance Guidelines: A Comparative Look.

ABSTRACT: The last year has been ripe with antitrust authorities issuing (and withdrawing) guidance on their approach to evaluating practices of abuse of dominance. Canada's Competition Bureau is no exception with its January 2009 release of revised guidelines on the abuse of dominance provisions (sections 78 and 79 of the Competition Act) for public consultation. These guidelines differ in some important respects not only with the Bureau's 2001 version of these guidelines, but also with the European Commission's December 2008 guidance on abusive exclusionary conduct by dominant undertakings, and the US Department of Justice's 2008 paper on single-firm conduct under section 2 of the Sherman Act (withdrawn May 2009). This paper identifies the differences in enforcement approaches adopted or suggested by these various antitrust agencies and, where differences are sharp, explores the possible causes of these differences. Canada is revealed to be somewhat of an outlier in regard to certain issues, including: not adopting the use of a price-cost test for non-predatory price conduct, taking a firm position on an approach to market definition in abuse cases, and, at least relative to the US and Canada's stated 2001 position on the issue, adopting a distinctive approach to joint dominance.

A Proceduralist’s Perspective on Court Access After Twombly

Posted by D. Daniel Sokol

Robert Bone (Boston University School of Law) explains A Proceduralist’s Perspective on Court Access After Twombly.

ABSTRACT: Many judges, lawyers, and academics worry that the federal courts are in serious trouble, plagued by high litigation costs, huge delays and case backlogs, and unacceptable risks of frivolous litigation. These complaints are not new; they began in a strong way about three decades ago and have remained intense ever since. Whether the situation is as serious as the critics claim—and there are certainly those who believe the concerns are overblown—the widely shared perception that there are problems has led to major changes in federal civil procedure over the past three decades.

The Supreme Court’s recent decision in Bell Atlantic Corp. v. Twombly is one of the most controversial developments along these lines. Twombly was a nationwide antitrust class action brought under Section 1 of the Sherman Act alleging an anti-competitive conspiracy among the four largest telecommunications companies in the United States. The Court held that the plaintiffs failed to allege sufficient facts to support a plausible inference of agreement and that as a result the district judge properly dismissed the complaint. On a more general level, the decision increases the pleading burden and in so doing makes it more difficult for plaintiffs to gain access to federal courts.

I have written about Twombly in a published article, and this short commentary draws on the analysis I develop there. I will first briefly explain the decision’s impact and then sketch the outlines of a policy critique.

Call for Papers - Milan September 15-16 2009 Conference

Posted by D. Daniel Sokol

The Department of Economics of the University of Milan and INTERTIC organize the International Conference on Competition Policy and Property Rights, with the

III STACKELBERG LECTURE by:

 Prof Sir John VICKERS (Oxford University)

on "Competition Policy and Property Rights"

Hospital Markets and the Effect of Competition on Quality

Posted by D. Daniel Sokol

Alfons Palangkaraya (Melbourne Institute of Applied Economic and Social Research, University of Melbourne) and Jongsay Yong (Melbourne Institute of Applied Economic and Social Research, University of Melbourne) analyze Hospital Markets and the Effect of Competition on Quality.

ABSTRACT: This paper investigates the effects of competition on hospital quality. It proposes to extend the Elzinga-Hogarty quantity flow approach of defining markets by first determining the trading cluster to which each hospital belongs and then delineating markets using patient flow information. After defining hospital markets and computing measures of competition, this paper examines the effect of competition on hospital quality using hospital administration data from the state of Victoria, Australia. We approximate quality using two indicators, namely mortality within 30 days of discharge and unplanned readmission within 28 days of discharge. For each quality indicator, a random intercept logit model is estimated. Two main findings are reported. First, the boundaries of markets and hence the degree of competition depend on the nature of the medical services provided. Second, competition is found to have a mixed effect on qual! ity of hospital care–increasing the number of private hospitals appears to lower quality, while increasing the number of public hospitals has the opposite effect. The intensity of competition, on the other hand, does not appear to have a statistically significant effect on quality.

Assessing the Quality of Competition Policy: The Case of Horizontal Merger Enforcement

Posted by D. Daniel Sokol

Bill Kovacic (FTC Commissioner) has written the new and interesting Assessing the Quality of Competition Policy: The Case of Horizontal Merger Enforcement.  I read it yesterday and encourage everyone to do the same.

Download Kovacic.final

ABSTRACT: This article suggests how a jurisdiction might best go about evaluating the quality of its competition policy system. It urges that competition agencies and collateral institutions strive to improve the ability to measure the economic effects of merger control and to verify the consequences of different approaches to enforcement. The article uses merger control in the United States as its main illustration, but the article’s observations apply to other areas of competition policy oversight, as well. The article seeks to encourage the recent trend within the global competition policy community of accepting a norm that focuses greater attention on the evaluation of the economic effects of enforcement decisions—especially by developing better quantitative measures of actual economic effects—and the assessment of the processes by which competition agencies examine individual transactions.

Forks in the Road: Challenges Facing the ACCC's Immunity Policy for Cartel Conduct (Part 1)

Posted by D. Daniel Sokol

Caron Beaton-Wells (University of Melbourne Law School) has posted Forks in the Road: Challenges Facing the ACCC's Immunity Policy for Cartel Conduct (Part 1).

ABSTRACT: For the ACCC there are “forks in the road” in deciding how to deal with the interaction between its highly acclaimed Immunity Policy for Cartel Conduct and (1) the criminalisation of serious cartel conduct; (2) the rise in private enforcement and damages claims in relation to cartel conduct; (3) the increased significance of cartel case settlement or, in the criminal context, plea negotiation; and (4) the potential strategy of offering alternative financial rewards for cartel information. In relation to each of these, this article (published in two parts) explores the issues involved; the ACCC’s current proposals for dealing with them (to the extent any such proposals exist); overseas models for tackling the issues; and the way forward in meeting the challenges and/or harnessing the opportunities presented. Part 1 deals with criminalisation and private enforcement. Part 2 of the article will deal with settlements and alternative rewards.

Who Are You Calling Irrational? Marginal Costs, Variable Costs, and the Pricing Practices of Firms

Posted by D. Daniel Sokol

Russ Pittman (DOJ) asks and explains, Who Are You Calling Irrational? Marginal Costs, Variable Costs, and the Pricing Practices of Firms.

ABSTRACT: Economists sometimes decry the persistence with which firms set prices above marginal cost and thus, according to the economists, fail to maximize profits. But it is the economists who have it wrong – first, because variable accounting costs are not always a good proxy for marginal economic costs, but more importantly because in an industry with U-shaped cost curves, a firm at a long-run sustainable equilibrium faces increasing marginal costs – i.e., a rising shadow price on some constrained input – i.e., in general, acost of capital. A corollary is that in such an industry the equilibrium mark-up over variable cost varies directly with capital intensity.

Federal Statutory Exemptions from Antitrust Law

Posted by D. Daniel Sokol

Federal Statutory Exemptions from Antitrust Law

Currently more than twenty statutory antitrust exemptions exist, scattered throughout the U.S. Code, which touch upon widely differing aspects of commerce. Now, for the first time, this monograph comprehensively surveys the diverse array of statutes currently in force that modify or limit federal antitrust law, and analyzes their costs and benefits. Lawyers and economists familiar with some of these laws might be surprised by the extent of some of them or the variety of the subjects they affect. Federal Statutory Exemptions from Antitrust Law presents an analysis of the statutory exemption practice and its effects on the economy and public welfare.

When Low is No Good: Predatory Pricing and the History of Antitrust Economics (Part I)

Posted by D. Daniel Sokol

Nicola Giocoli of the Department of Economics, University of Pisa has a piece on When Low is No Good: Predatory Pricing and the History of Antitrust Economics (Part I).

ABSTRACT:

The history of predatory pricing law and economics is peculiar on account of the seemingly inescapable contradiction between the legal habit of condemning a business practice on account of its possible unfair and inefficient effects and the necessity of providing an economic rationale for the condemnation without undermining the essence of competition itself. The apparently rock-solid equation “low price = good price” makes such a rationale neither immediate nor easy to find – and predatory pricing such an interesting issue from the viewpoint of historians of economics. How to circumvent the equation has been the challenge for several of the most brilliant minds of postwar microeconomics, as well as for outstanding law scholars. It is a fascinating story, with deep implications for at least two major historiographic issues: first, the evolution of neoclassical economics, as embodied in one of its most important branches, industrial organization; second, the relationship between the formal results of theoretical economics and their policy implications, in a particular their applicability for courtroom litigation.

This is the first in a pair of papers dedicated to this story. The division between the two works is strictly chronological: the present paper covers the period from the 1950s to about 1980, that is to say, until the verge of the game-theoretic revolution in industrial organization; the other will focus on the period 1980–2000, covering the above-mentioned revolution and its relationship with a couple of remarkable Supreme Court’s decisions on predatory pricing. The main thesis of the two works is that the traditional dichotomy between alternative legal standards, those based on “stories” and those based on “rules”, may prove useful in interpreting the evolution of economists’ thought about predatory pricing and, more generally, in explaining under what conditions a theoretical statement may have an effective policy impact, especially in courtrooms.

Vertical Restraints Conference This September in Brussels

Posted by D. Daniel Sokol

Download FEB-IEJE 2nd Competition Day - Vertical Restraints and Distribution Agreements - 30 September 2009

PROGRAMME

08:30 – 09:00 Registration & Welcome Coffee
09:00 – 09:10 Introductory Remarks

Charles GHEUR
Advisor, FEB

Nicolas PETIT
University of Liege (ULg), Howrey LLP

I. SESSION I – OVERVIEW OF THE CURRENT REGIME AND AREAS FOR REFORM
CHAIRMAN
Prof. Jacques BOURGEOIS
University of Gent, WilmerHale

09:10 – 09:50 Regulation 2790/1999 and the Guidelines on Vertical Restraints – A Practitioner’s Experience
Frank WIJCKMANS
Partner, Contrast – European & Business Law

09:50 – 10:30 The Commission’s Review of Regulation 2790/1999 – An Overview of DG COMP’s Drafts
Lucas PEEPERKORN
European Commission, DG COMP

10:30 – 10:50 Coffee break

10:50 – 11:30 An Economic Review of the Current Regime and of the Commission’s Drafts
Prof. Thibaut VERGÉ
CREST, Paris

11:30 – 12:00 The Future of the Car Block Exemption Regulation
Etienne KAIRIS and Emmerik VAN PARYS
Loyens & Loeff

12:00 – 12:30 Questions & Answers

12:30 – 13:45 Lunch break

II. SESSION II – A CRITICAL REVIEW OF THE COMMISSION’S PROPOSED CHANGES
CHAIRMAN

Prof. Jean‐François BELLIS
University of Brussels, Van Bael & Bellis

13:45 – 14:15 The 30 % Market Share Threshold
Alexandre VANDENCASTEELE
Partner, Ashurst

14:15 – 14:45 Resale Price Maintenance
Paul LUGARD
Competition Counsel, Philips International

14:45 – 15:15 Buyer‐Related Vertical Restraints (Upfront Payments, Slotting Allowances, Access Payment Fees, Category Management, etc.)

John RATLIFF
Partner, WilmerHale

15:15 – 15:45 Roundtable discussion

Kylie STURTZ
Legal Director, Competition & Compliance, Anheuser‐Busch InBev

Philippe MARCHANDISE
In‐house Counsel, Total

Els STEEN
Corporate Legal Affairs Manager, Delhaize Group

Chris VERLEYE
In‐house Counsel, Johnson & Johnson
15:45 – 16:00 Coffee break

III. SESSION III – ONLINE DISTRIBUTION

16:00 – 17:00 Roundtable discussion
Cristina CAFFARRA
Vice‐President, CRA International

Julia HOLTZ
Senior Competition Counsel, Google

Andres FONT GALARZA
Partner, Mayer Brown

17:00 End of the conference

Can the State Infringe the Competition Laws When Sourcing Goods or Hiring Services in the Market?

Posted by D. Daniel Sokol

Francisco Marcos of Instituto de Empresa Business School (and a judge of the Tribunal de Defensa de la Competencia de la Comunidad de Madrid) asks Can the State Infringe the Competition Laws When Sourcing Goods or Hiring Services in the Market?

ABSTRACT: The application of antitrust law to State actors is a controversial issue in competition laws worldwide. The resolution commented in this paper analyzes an specific case regarding the sourcing of pharmaceuticals and other medical products by health regional authorities in Castilla-La Mancha. In its resolution the Spanish National Competition Commission (NCC) makes some relevant assertions on the application of antitrust prohibitions to State actions.

Although the principles inspiring the final decision by the NCC could broadly be shared, the resolution makes some problematic contentions, particularly regarding EU competition Law. Additionally, the resolution makes a mistaken description of the factual background of the anticompetitive conducts investigated, blurring an adequate understanding of the behaviour of the regional health service, the council of the professional associations, the professional associations and the pharmacies of Castilla-La Mancha, and that affects the final modest outcome (condemnation without sanction).

Finally, the inappropriate construction of the anticompetitive conducts contained in the resolution gives way to a radical, but erroneous, dissenting opinion, expressing a view drastically opposed to the majority resolution, questioning the application of antitrust laws to regional health authorities in Castilla-La Mancha when they resort to the market to source their medical products needs.

This Comment claims an alternative construction of the anticompetitive conducts examined by the resolution, providing different evaluation of the conducts of the regional health service, the council of the professional associations, the professional associations and the pharmacies of Castilla-La Mancha. Moreover, following the wrong path taken by the resolution and the dissenting opinion, this Comment will tackle the general antitrust law framework in which state powers’ actions and decisions should be analyzed - specifically, when rendering social and health related services - reviewing the recent European case law on this topic.

"The Need to Close the 'Take Advantage' Gap in the Regulation of Unilateral Anti-Competitive Conduct

Posted by D. Daniel Sokol

Arlen Duke, Melbourne Law School writes on The Need to Close the 'Take Advantage' Gap in the Regulation of Unilateral Anti-Competitive Conduct.

ABSTRACT: This article proposes that s 46 of the Trade Practices Act be amended so that a firm 'takes advantage' of its market power not only where that power gives the firm the ability to engage in anti-competitive conduct but also where it gives the firm the motivation to do so. Amending the provision in this manner would close a gap that currently exists in the regulation of unilateral anti-competitive conduct that allows firms with market power to protect or strengthen that power by engaging in conduct they would have the ability to engage in even if they did not possess market power.

Does Competition Among Medicare Advantage Plans Matter?: An Empirical Analysis of the Effects of Local Competition in a Regulated Environment

Posted by D. Daniel Sokol

Abe Dunn  (DOJ) asks, Does Competition Among Medicare Advantage Plans Matter?: An Empirical Analysis of the Effects of Local Competition in a Regulated Environment.

ABSTRACT: The regulatory oversight of the private Medicare Advantage (MA) program makes the role of competition in this market unclear. This paper empirically examines the impact of competition by measuring the effects of changes in market structure on enrollment. The study examines competition in local geographic markets using county-level enrollment data from 2001-07. I find that an increase in the number of competitors results in an increase in the number of enrollees served - consistent with competition motivating firms to provide more generous benefits. Competition also results in an increase in product proliferation, which highlights a dimension of competition not previously examined. Overall, the results are similar to what one might expect in an unregulated environment, suggesting that there are benefits from competition that are not realized by regulation alone.

Competition in the Postal Sector

Posted by D. Daniel Sokol

One of my pet issues is competition in the postal sector.  I have a forthcoming article in the BYU Law Review that looks at comparative corporate governance and competition policy of state owned enterprises.  I use the postal sector as an example of the potential for bad corporate management and possible anti-competitive harm.

I should forward the current draft to the GAO, which released a report which points to the USPS as a financial high risk for the US.  Not once does the report mention the word competition and not once does the GAO think to recommend an end to the postal monopoly as a way to have the market force the USPS to become more efficient.  The USPS still operates under a soft budget constraint and no doubt would be bailed out no matter how many years of deficit it would face. 

Twombly, After Two Years: The Procedural Revolution in Antitrust That Wasn’t

Posted by D. Daniel Sokol

Richard Epstein (U. Chicago Law and the man who taught me Contracts) explains Twombly, After Two Years: The Procedural Revolution in Antitrust That Wasn’t.

ABSTRACT: Without question, Bell Atlantic v. Twombly ranks as one of the most controversial decisions of the United States Supreme Court in recent years. Its importance stems from the simple reason that it lies at the crossroads of antitrust and civil procedure, with vast potential implications for both fields. As a matter of antitrust law it raised the possibility that a large number of complex cases would be dismissed prior to discovery. As a matter of civil procedure, the decision offers the most systematic examination of the pleadings standards in federal cases since the bellwether case of Conley v. Gibson, decided one-half century earlier. Neither of these revolutions will come to pass. On the substantive side, only cases for which there are strong theoretical reasons to doubt the plaintiff’s case will be dismissed under Twombly. On the procedural side, Twombly will not be read to undo the usual rules of notice pleading except in rare cases. It will amount to a subtle but useful recalibration of existing doctrine. It will not become, nor should it become, a transformative case.

To establish these claims, I shall proceed as follows. Part II examines compares the rule in Conley with the rule in Twombly in light of their very different factual patterns. Part III then looks at subsequent decisions under Twombly, first in the Supreme Court, where there are no new antitrust cases, and then in the lower federal courts, where the decision has been subject to extensive discussion both in the general law and in the antitrust area. These cases show an incremental movement in the law that will in general follow the older practice of using the pleadings for notice purposes, and discovery for fact finding purposes.

Why Prices Rise Faster Than They Fall

Posted by D. Daniel Sokol

Sheldon Kimmel (DOJ) answers Why Prices Rise Faster Than They Fall .

ABSTRACT: For decades the fact that input price hikes are passed on faster than input price cuts was thought to be well explained by the assumption that competitive firms fully pass on all input price changes, so they can't price asymmetrically, so asymmetric pricing behavior is limited to oligopolies, firms that do all sorts of bizarre things (finding yet another one being no big deal). However, Peltzman found no effect of concentration on such asymmetric pricing, raising the puzzle of why competitive industries generally price asymmetrically. This paper solves that puzzle.

The Noerr-Pennington Doctrine

Posted by D. Daniel Sokol

The Noerr-Pennington Doctrine

Another in the ABA Section of Antitrust Law Monograph series, this book focuses on public policy issues that arise from the antitrust treatment of efforts to petition government or influence government toward anticompetitive action, including petitioning efforts that are themselves collective or anticompetitive. This book expands and updates information that was presented originally in the Section's 1993 monograph on the same subject. This volume will be a valuable addition to the debate over how the antitrust laws should be applied to collective and unilateral efforts to influence government action for allegedly anticompetitive ends, as well as a valuable resource in applying the Noerr-Pennington doctrine. Chapter Listing Chapter I The Noerr-Pennington Doctrine Defined Chapter II The Sources Of The Noerr-Pennington Doctrine Chapter III The Basis Of The Noerr-Pennington Doctrine: Statutory Construction Versus The First Amendment. Chapter IV What Encompasses Petitioning? Chapter V What Do We Mean By Government? Chapter VI What Do We Mean By Generally Immune? The Exceptions To The Immunity Chapter VII The Practical Side Of Noerr-Pennington

Microsoft - Yahoo Search Deal

Posted by D. Daniel Sokol

By now everyone has heard about the Microsoft-Yahoo 10 year search partnership.  This looks like a very good strategic move for both companies, which face the Google juggernaut.

One web site worth visiting that provides lots of good information is here.

The Economics of Antitrust Class Certification

Posted by D. Daniel Sokol

Paul A. Johnson, Bates White, LLC explains The Economics of Antitrust Class Certification.

ABSTRACT: With recent changes in case law requiring district courts to make deeper inquiries at the class certification stage, a systematic treatment of the economics of class certification is particularly relevant. This article offers an economic interpretation of the legal concept of common impact as it is used in antitrust class certification matters. It interprets the predominance requirement central to Rule 23(b)(3) as requiring that the only economically significant factors are common factors. These economic factors may or may not be related to the alleged conduct; thus, common impact should be investigated with respect to factors related to the alleged conduct ("conduct factors") as well as to other economic determinants ("non-conduct factors"). With an economic framework established, this article proceeds to examine empirical testing of common impact by describing three types of empirical tests that are likely to be applicable in a wide variety of antitrust class certification matters. Each type of test focuses on differences in prices paid by putative class members.

Imperfect Quality Information in a Quality-Competitive Hospital Market

Posted by D. Daniel Sokol

Hugh Gravelle (National Primary Care Research and Development Centre, Centre for Health Economics, University of York) and Peter Sivey (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne) investigate Imperfect Quality Information in a Quality-Competitive Hospital Market.

ABSTRACT: We examine the implications of policies to improve information about the qualities of profit seeking duopoly hospitals which face the same regulated price and compete on quality. We show that if the hospital costs of quality are similar then better information increases the quality of both hospitals. However if the costs are sufficiently different improved information will reduce the quality of both hospitals.

A Fundamental Power Price Model with Oligopolistic Competition Representation

Posted by D. Daniel Sokol

Miguel Vazquez, Universidad Pontificia Comillas and Julian Barquan, Pontifical University Comillas of Madrid describe A Fundamental Power Price Model with Oligopolistic Competition Representation.

ABSTRACT: Most popular approaches for modeling electricity prices rely at present on microeconomics rationale. They aim to study the interaction between decisions of agents in the market, and usually represent the impact of uncertainty in such decisions in a simplified way. The usual methodology of microeconomics models is the study of the interaction between the profit-maximization problems faced by each of the firms. On the other hand, there is a growing literature that describes the power price dynamics from the financial standpoint, through the statement of a more or less complex stochastic process. However, this theoretical framework is based on the assumption of perfect competition, and therefore the stochastic process may not capture important features of price dynamics. In this paper, we suggest a mixed approach, in the sense that the price is thought of as the composition of a long-term component, where the strategic behavior is represented, and a short-term source of uncertainty that agents cannot take into account when deciding their strategies. The complex distributional implications of the oligopolistic behavior of market players are then given by the long-term-component dynamics, whereas the short-term component captures the uncertainty related to the operation of power systems. In addition, this modeling approach allows for a direct description of the long-term volatility of power markets, which is usually hard to estimate through statistical models.

The Overcharge as a Measure for Antitrust Damages

Posted by D. Daniel Sokol

Martijn A. Han, University of Amsterdam - Amsterdam Center for Law & Economics, Maarten Pieter Schinkel, University of Amsterdam - Amsterdam Center for Law & Economics, and Jan Tuinstra, University of Amsterdam - Department of Quantitative Economics have an important and interesting new paper out on The Overcharge as a Measure for Antitrust
Damages.

ABSTRACT: Victims of antitrust violations can recover damages in court. Yet, the quantification of antitrust damages and to whom they accrue is often complex. An illegal price increase somewhere in the chain of production percolates through to the other layers in a ripple of partial pass-ons. The resulting reductions in
sales and input demands lead to additional harm to both downstream (in)direct purchasers and upstream suppliers. Nevertheless, U.S. civil antitrust litigation is almost exclusively concerned with direct purchaser claims for (treble) damages calculated on the basis of the overcharge. Similar best practice rules are emerging in Europe. In this paper, we show that there is no structural relationship between the direct purchaser overcharge and the true harm inflicted by an antitrust violation on all of the direct and indirect purchasers and sellers in the chain of production.