Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Monday, March 20, 2017

CALL FOR PAPERS: Developing a Benefit-Cost Framework for Data Policy

 

CALL FOR PAPERS: Developing a Benefit-Cost Framework for Data Policy Sponsored by the Program on Economics & Privacy at George Mason University Antonin Scalia Law School with the Future of Privacy Forum

Data flows are central to an increasingly large share of the economy. A wide array of products and business models—from the sharing economy and artificial intelligence to autonomous vehicles and embedded medical devices—rely on personal data. Consequently, privacy regulation leaves a large economic footprint. As with any regulatory enterprise, the key to sound data policy is striking a balance between competing interests and norms that leaves consumers better off.

Addressing “privacy” increasingly involves discussions of ethics, philosophy, and psychology along with law, economics, and technology. Finding an approach to future privacy concerns that supports the benefits of technology without compromising individual rights is an increasingly complex challenge. Not only is technology continuously advancing, but individual attitudes, expectations, and participation vary greatly. New ideas and approaches to privacy must be identified and developed at the same pace and with the same focus as the technologies they address.

The Program on Economics & Privacy (PEP) at George Mason University’s Antonin Scalia Law School and the Future of Privacy Forum are seeking papers to explore the development of a benefit-cost framework in privacy policy. Scholars from an interdisciplinary background, including economics, law, public policy, business and marketing, are encouraged to submit abstracts for consideration.

Selected submissions will be presented at the Fifth Annual Public Policy Symposium on the Law & Economics of Privacy and Data Security Policy, on June 8, 2017, at the Antonin Scalia Law School, and published in a special symposium issue of the Journal of Law, Economics & Policy.

For more information, and to read a listing of topics of special interest, please visit the PEP website HERE.

To be considered, please send an abstract outlining your proposed paper to papersubmissions@fpf.org by April 15, 2017. Selections will be announced by May 1, 2017. Selected authors will be expected to have completed a discussion draft by June 1, 2017, to circulate to conference participants. Final papers will be due on September 1, 2017.

March 20, 2017 | Permalink | Comments (0)

From Private Ordering to Public Law: The Legal Frameworks Governing Standards-Essential Patents

Jorge Contreras, Utah describes From Private Ordering to Public Law: The Legal Frameworks Governing Standards-Essential Patents.

ABSTRACT:  Technical standard setting, though conducted largely through private organizations, possesses many attributes of a public function. By and large, SDO policies operate effectively to enable competitors to collaborate to develop standards that produce network effects and yield significant social welfare gains. At times, however, internal policing and enforcement mechanisms may not be sufficient to curb abusive behavior by SDO participants, particularly behavior that tends to diminish the value of patent-related commitments made by participants. In these cases, the intervention of public law principles may be appropriate. But while public law regimes such as antitrust and competition law may offer effective means for addressing the most egregious abuses of these commitments, it may be preferable for public agencies to promote legal measures assuring the enforceability of these private commitments on their own terms. Legal support for the enforcement such commitments, and the avoidance of new legal duties, should result in more adaptable and predictable mechanisms for ensuring the continued effective operation of private standardization systems, while the public character of standard setting should continue to be recognized when applicable legal rules call for consideration of the public interest.

March 20, 2017 | Permalink | Comments (0)

Friday, March 17, 2017

Injunctive Relief in FRAND Disputes in the EU – Intellectual Property and Competition Law at the Remedies Stage

Pierre Larouche, Tilburg Law and Economics Center (TILEC); College of Europe - Bruges; Tilburg University - Tilburg Law School; Center on Regulation in Europe (CERRE) and Nicolo Zingales, University of Sussex Law School; Tilburg Law and Economics Center (TILEC); Tilburg University - Tilburg Institute for Law, Technology, and Society (TILT); Stanford University - Stanford Law School Center for Internet and Society address Injunctive Relief in FRAND Disputes in the EU – Intellectual Property and Competition Law at the Remedies Stage.

ABSTRACT: In dealing with applications for injunctive relief by the holders of FRAND-encumbered SEPs in the course of protracted licensing negotiations, any legal system faces the challenge of reaching the proper balance between predictability for stakeholders and differentiation between possible scenarios (tough negotiations, holdup, holdout or exclusion). In the EU, that challenge fell to be addressed first under the various national laws concerning remedies for intellectual property violations, as partially harmonized by Directive 2004/48. The outcome was not optimal. After German courts introduced competition law in the equation in Orange Book, the European Commission felt compelled to intervene with a different approach in Motorola and Samsung, leading to a reference to the CJEU in Huawei v ZTE. That ruling sets out an elaborate choreography that SEP holder and implementer must respect, in order to avoid breaching Article 102 TFEU or avert injunctive relief, respectively. Huawei represents a satisfactory compromise in practice, but its theoretical foundation in competition law is not solid. Subsequent case-law has unmoored Huawei from competition law and is turning it into a stand-alone lex specialis for injunctions in FRAND cases. In the longer run, legislative intervention might be preferable to de facto harmonization via competition law.

March 17, 2017 | Permalink | Comments (0)

Market Power and Welfare in Asymmetric Divisible Good Auctions

Carolina Manzano, Universitat Rovira Virgili and Xavier Vives, University of Navarra - IESE Business School; Universitat Pompeu Fabra (UPF); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research) address Market Power and Welfare in Asymmetric Divisible Good Auctions.

ABSTRACT: We analyze a divisible good uniform-price auction that features two groups each with a finite number of identical bidders. Equilibrium is unique, and the relative market power of a group increases with the precision of its private information but declines with its transaction costs. In line with empirical evidence, we find that an increase in transaction costs and/or a decrease in the precision of a bidding group.s information induces a strategic response from the other group, which thereafter attenuates its response to both private information and prices. A “stronger” bidding group - which has more precise private information, faces lower transaction costs, and is more oligopsonistic - has more market power and so will behave competitively only if it receives a higher per capita subsidy rate. When the strong group values the asset no less than the weak group, the expected dead-weight loss increases with the quantity auctioned and also with the degree of payoff asymmetries. Market power and the dead-weight loss may be negatively associated.

March 17, 2017 | Permalink | Comments (0)

Collusion and Efficiency in Horizontal Mergers: Evidence from Geographic Overlap

Douglas J. Fairhurst, Washington State University and Ryan Williams, University of Arizona - Department of Finance analyze Collusion and Efficiency in Horizontal Mergers: Evidence from Geographic Overlap.

ABSTRACT: We explore the sources of gains in horizontal mergers by exploiting heterogeneity in the overlap between the merging firms’ geographic footprints. We calculate the geographic overlap between the bidder, target, and their rivals to identify variation in the competitive impact of horizontal mergers. We document negative rival stock price reactions for “expansion” mergers when the bidder acquires a target with a different geographic footprint, indicating that these mergers are on average for efficiency reasons. Conversely, we detect significantly positive rival reactions for “concentrating” mergers when the bidder and target operating in similar geographic regions. Finally, we use data on state Attorneys General (AGs) to provide staggered, state-level variation in the political environment. We show that bidders avoid “concentrating” mergers in the presence of Democratic AGs, thereby supporting the argument that horizontal mergers that increase local industry concentration are likely to be anti-competitive, as well as documenting the significant role of state-level AGs in the M&A regulatory process.

March 17, 2017 | Permalink | Comments (0)

Thursday, March 16, 2017

Antitrust Treatment of Nonprofits: Should Hospitals Receive Special Care?

Cory Capps, Bates White, Dennis W. Carlton, University of Chicago, and Guy David, Wharton ask Antitrust Treatment of Nonprofits: Should Hospitals Receive Special Care?

Abstract: Nonprofit hospitals receive favorable tax treatment in exchange for providing socially beneficial activities. Extending this rationale would suggest that, insofar as suppression of competition would allow nonprofits to cross-subsidize care for needy populations, nonprofit hospital mergers should be evaluated differently than mergers of for-profit hospitals. However, this rationale rests upon the premise that nonprofit hospitals with greater market power provide more care to the needy. In this paper, we develop a theoretical model showing that the welfare implications of an antitrust policy that favors nonprofit hospitals depends on the link between market power and charity care provision. To test the link, we use three measures of charity care--two dollar-denominated and one based on service volume--to study charity care provision by for-profit and non-profit hospitals under different competition conditions. Using detailed California data from 2001 to 2011, we find no evidence that nonprofit hospitals are more likely than for-profit hospitals to provide more charity care, or to offer more unprofitable services, when competition falls. Overall, while some courts have given deference to defendants' nonprofit status, our study finds no empirical evidence that such hospitals provide greater charity care as they have greater market power.

March 16, 2017 | Permalink | Comments (0)

A Proposal to Limit the Anti-Competitive Power of Institutional Investors

Eric A. Posner, University of Chicago - Law School, Fiona M. Scott Morton, Yale School of Management; National Bureau of Economic Research (NBER), and E. Glen Weyl, Microsoft Research; Yale University controversially offer A Proposal to Limit the Anti-Competitive Power of Institutional Investors.

ABSTRACT: Recent scholarship has shown that institutional investors may cause softer competition among product market rivals because of their significant ownership stakes in competing firms in concentrated industries. However, while calls for litigation against them under Section 7 of the Clayton Act are understandable, private or indiscriminate government litigation could also cause significant disruption to equity markets because of its inherent unpredictability and would fail to eliminate most of the harms from common ownership. To minimize this disruption while achieving competitive conditions in oligopolistic markets, the Department of Justice and the Federal Trade Commission should take the lead by adopting a public enforcement policy of the Clayton Act against institutional investors. Investors in firms in well-defined oligopolistic industries would benefit from a safe harbor from government enforcement of the Clayton Act if they either limit their holdings of an industry to a small stake (no more than 1% of the total size of the industry) or hold the shares of only a single “effective firm” per industry. Free-standing index funds that commit to pure passivity would not be limited in size. Using simulations based on empirical evidence, we show that under broad assumptions this policy would generate large competitive gains while having minimal negative effects on diversification and other values. The policy would also improve corporate governance by institutional investors.

March 16, 2017 | Permalink | Comments (0)

Parity Clauses and Competition Law in Digital Marketplaces: The Case of Online Hotel Booking

Margherita Colangelo describes Parity Clauses and Competition Law in Digital Marketplaces: The Case of Online Hotel Booking.

ABSTRACT: One of the key concerns of competition authorities is the use by online platforms of some forms of Most Favoured Nation (MFN) clauses (also known as parity clauses), together with the adoption of the agency model. From recent investigations by several Member States on online travel agencies (OTAs) there emerges a general view in the EU that agreements including MFN clauses in their wide form violate competition law, whereas there is no unanimous approach to the narrow version of the same clauses. The application of Article 101 TFEU to these cases and the use of commitments decisions by many NCAs raise controversial questions.

March 16, 2017 | Permalink | Comments (0)

Lundbeck v Commission: Reverse Payment Patent Settlements as Restrictions of Competition by Object

ABSTRACT:  The General Court upheld the Commission's finding that Lundbeck and generic producers of citalopram were at least potential competitors, that the reverse payment patent settlements at issue restricted competition by object, and that the Commission was not required to examine the situation that would have arisen had the agreements not been concluded.

March 16, 2017 | Permalink | Comments (0)

Wednesday, March 15, 2017

Passive Participation in Anticompetitive Agreements

Lukas Solek has written on Passive Participation in Anticompetitive Agreements.

ABSTRACT: Contrary to the most criminal or quasi-criminal regimes,1 Art 101 TFEU does neither explicitly recognise the status of an instigator, accomplice, or a facilitator—as opposed to a perpetrator—nor does it postulate special requirements for their participation in anticompetitive agreements.2 The feature that these actors have in common is that they are not active on the market that is ought to be affected by the anticompetitive agreement, and hence their contributions are rather of a passive nature, compared to the active contributions of direct perpetrators. While it has been argued that the lack of an explicit provision on passive participants prevents the European Commission (‘Commission’) from instituting proceedings against them,3 the Court of Justice has recently confirmed that ‘mere’ facilitating of anticompetitive conduct by undertakings active on non-cartelised markets does not fall outside the ambit of Art 101 TFEU. Moreover, the Court stipulated that even a consultancy firm...

March 15, 2017 | Permalink | Comments (0)

Going Digital: How Online Competition Changed Market Definition and Swayed Competition Analysis in Fnac/Darty

Simon Genevaz and Jérôme Vidal explore Going Digital: How Online Competition Changed Market Definition and Swayed Competition Analysis in Fnac/Darty.

ABSTRACT: On 27 July 2016, the French Competition Authority cleared Fnac's acquisition of its rival consumer electronics retailer Darty. The clearance was subject to a limited number of divestiture commitments (six stores), an admittedly leaner remedy than early observers may have expected. Online competition played a key role in the assessment of the transaction, a 3-to-2 merger in nationwide retail chains. In fact, the Fnac/Darty decision may be among the first in Europe to find that online and physical retailing are sufficiently substitutable to form a single product market.3 Evidently, including online retailers in the relevant market greatly contributed to mitigating the merger's anticompetitive effects and accepting relatively narrow remedies.

March 15, 2017 | Permalink | Comments (0)

Ex Post Merger Evaluation: How Does it Help Ex Ante?

Daniel Hosken, Nathan Miller and Matthew Weinberg ask Ex Post Merger Evaluation: How Does it Help Ex Ante?

ABSTRACT: Economists have long understood that mergers can diminish competition. Mergers in concentrated markets can facilitate either tacit or explicit collusion by removing a competitor. The merger of competing firms selling differentiated products also can create a unilateral incentive to increase price. This happens when some of the sales that would have been lost as the result of a price increase by the acquiring firm pre-merger are now recaptured by the acquired firm post-merger. While these possibilities provide an economic rationale for merger enforcement, mergers may occur for many other reasons that could improve how markets function—they may reduce firms’ costs or improve corporate governance by disciplining bad management.

March 15, 2017 | Permalink | Comments (0)

The Law and Economics of Pass-On in Price Fixing Cases

Cento Veljanovski, Case Associates; Institute of Economic Affairs discusses The Law and Economics of Pass-On in Price Fixing Cases.

ABSTRACT: Sainsbury’s v. MasterCard establishes the pass-on “defence” in English/UK law. The Competition Appeal Tribunal set out a two-part test which it erroneously distinguished from the economists’ notion of pass-on. It then went on the develop key elements of legal test for pass-on in price fixing cases. This article critically assesses the Tribunal’s judgment within a law and economics framework. It provides a rounded interpretation of pass-on as both a defence and offence, the different evidentiary standards and principles used, and the potential for inconsistency which could see defendants liable to claims more than the overcharges.

March 15, 2017 | Permalink | Comments (0)

Tuesday, March 14, 2017

IP Privateering in the Markets for Desktop and Mobile Operating Systems

Daniel L. Rubinfeld, University of California at Berkeley - School of Law; National Bureau of Economic Research (NBER); NYU Law School IP offers Privateering in the Markets for Desktop and Mobile Operating Systems.

ABSTRACT: Utilizing a privateering competitive strategy, firms sponsor the assertion of IP claims by third parties (patent assertion entities and others), with the ultimate objective the raising of rival competitors’ costs. This paper tells the privateering story with respect to both desktop and mobile operating systems competition. It begins with Microsoft’s funding of litigation against Linux – a threat to Microsoft’s desktop operating system monopoly and continues to a analysis of recent competition in the smartphone space. The paper raises potential competitive concerns and related antitrust and IP enforcement issues.

 

March 14, 2017 | Permalink | Comments (0)

Market Definition

Serge Moresi, Charles River Associates (CRA), Steven C. Salop, Georgetown University Law Center, and John Woodbury, Charles River Associates (CRA) describe Market Definition.

ABSTRACT: We explain the “hypothetical monopolist test” that has become the standard methodology for identifying relevant antitrust markets in merger cases, and discuss two approaches to implementing the test. We then focus on the implementation of the test when firms offer multiple products or services, either inside or outside the candidate market, and discuss the “hypothetical cartel test” introduced in the 2010 U.S. Merger Guidelines.

 

March 14, 2017 | Permalink | Comments (0)

The Unexpected Consequences of Asymmetric Competition. An Application to Big Pharma

Micael Castanheira, Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); Centre for Economic Policy Research (CEPR), Maria Angeles de Frutos, Universidad Carlos III de Madrid - Department of Economics, Carmine Ornaghi, University of Southampton - Division of Economics, and Georges Siotis, Universidad Carlos III de Madrid - Department of Economics; Centre for Economic Policy Research (CEPR) offer The Unexpected Consequences of Asymmetric Competition. An Application to Big Pharma.

ABSTRACT: This paper shows that a pro-competitive shock leading to a steep price drop in one market segment may benefit substitute products. Consumers move away from the cheaper product and demand for the substitutes increases, possibly leading to a drop in consumer surplus. The channel leading to this outcome is non-price competition: the competitive shock on thefirst set of products decreases the firms' ability to invest in promotion, which cripples their ability to lure consumers. To assess the empirical relevance of these findings, we study the effects of generic entry into the pharmaceutical industry by exploiting a large product-level dataset for the US covering the period 1994Q1 to 2003Q4. We find strong empirical support for the model's theoretical predictions. Our estimates rationalize a surprising finding, namely that a molecule that loses patent protection (the originator drug plus its generic competitors) typically experiences a drop in the quantity market share-despite being sold at a fraction of the original price.

 

March 14, 2017 | Permalink | Comments (0)

Collective Rights Organizations: A Guide to Benefits, Costs and Antitrust Safeguards

Richard Gilbert, University of California, Berkeley analyzes Collective Rights Organizations: A Guide to Benefits, Costs and Antitrust Safeguards.

ABSTRACT: Collective rights organizations (CROs) are patent pools, copyright collectives and cross-licensing arrangements that coordinate the licensing of intellectual property rights. CROs can have efficiency benefits by reducing transaction costs, eliminating royalty stacking and resolving conflicting claims by rights owners. However, CROs also can have potential antitrust risks by raising prices, excluding competition for technology rights or downstream products, shielding weak patents and reducing incentives for innovation. The availability of independent licensing mitigates but does not eliminate the risk of anticompetitive practices by a collective rights organization. Antitrust enforcers should be vigilant about collective rights organizations that may harm competition while also respecting the large benefits that these institutions can create for consumers.

 

March 14, 2017 | Permalink | Comments (0)

Monday, March 13, 2017

The Antitrust Jurisprudence of Neil Gorsuch

John Newman, U. Memphis provides an analysis of The Antitrust Jurisprudence of Neil Gorsuch.

ABSTRACT: In January 2017, President Donald Trump nominated Judge Neil M. Gorsuch to serve on the U.S. Supreme Court. Like Justice Stevens before him, Gorsuch’s primary area of expertise is antitrust law. Like Stevens, Gorsuch both practiced and taught in the area before joining the bench. As a Tenth Circuit judge, Gorsuch penned multiple substantive antitrust opinions.

Given Gorsuch’s unique antitrust expertise, examination of those opinions can shed unique light on his judicial proclivities. This essay provides the first in-depth prescriptive and descriptive analysis of Gorsuch’s antitrust jurisprudence. While it reveals (perhaps unsurprisingly) a great deal of sophistication vis-à-vis antitrust doctrine, it also identifies several areas for improvement.

This essay explains that as a Tenth Circuit judge, Gorsuch effectively expanded upon — even rewrote — existing precedent, including Justice Scalia’s memorable opinion for the majority in Trinko. For normative force, Gorsuch’s antitrust jurisprudence at times rests upon logical fallacies and an unduly one-sided error-cost framework. This essay critiques that reasoning. In response, it offers prescriptive suggestions for jurists deciding future antitrust cases, with an eye toward producing a more transparent, coherent, efficient, and welfare-maximizing body of antitrust law.

March 13, 2017 | Permalink | Comments (0)

The Use of Quantitative Economic Techniques in EU Merger Control

Thomas Buettner, Giulio Federico Chief Economist Team, DG Competition, European Commission; Barcelona Graduate School of Economics (Barcelona GSE), and Szabolcs Lorincz European Commission, DG Competition, Chief Economist's Team explain The Use of Quantitative Economic Techniques in EU Merger Control.

ABSTRACT: The European Commission's Directorate General for Competition often relies on quantitative economic analysis in its review of complex mergers. This analysis is typically developed during in-depth investigations (so-called Phase II reviews). There is a range of economic techniques that can be applied to the competitive assessment of mergers. The choice of the relevant economic methodology depends on the features of the market at hand, on the key questions raised by the merger, and on the availability of suitable data. Quantitative economic methods applied by the Commission to the assessment of mergers are often one of two broad types: merger simulation techniques and direct estimation methods. Merger simulations seek to approximate the effects of a merger on the main competitive variable of interest (typically price) through an internally coherent assumed model of competition in the industry which takes account of important observed or measured market features (such as substitution patterns and margins).

Direct estimation methods, on the other hand, seek to study the impact of past events in the markets at hand, using historical data. For example, direct estimation techniques can be used to measure the impact of past entry events (typically involving one or both of the merging parties) or past mergers. The insights from the direct estimation of past competitive events’ impact can then be used to make inferences on the possible effects of the merger at hand.

In this article we review the Commission’s recent application of these two families of quantitative economic methods in merger control.

March 13, 2017 | Permalink | Comments (0)

Anonymity, Autonomy, and the Collection of Personal Data: Measuring the Privacy Impact of Google's 2012 Privacy Policy Change

James C. Cooper, George Mason University - Antonin Scalia Law School has a fascinating new paper on Faculty Anonymity, Autonomy, and the Collection of Personal Data: Measuring the Privacy Impact of Google's 2012 Privacy Policy Change.

ABSTRACT: One of the most vexing problems in privacy policy is identifying consumer harm from unwanted observation; because it is highly subjective and is likely to vary greatly throughout the population, it doesn’t lend itself to easy measurement. Yet, these types of situations increasingly are the focal point of privacy policy discussions. The primary approach to attempt to quantify subjective harms has been to measure consumers’ willingness to exchange personal data for money in an experimental setting. This study takes a different tack, using field data to measure actual consumer response to a real-world reduction in the anonymity of online search. In March 2012, Google began to combine user information across platforms. To the extent that Google’s policy change reduced the anonymity associated with Google search, it may have reduced incentives to search sensitive or topics. Using a difference-in-difference estimator with top non-sensitive search terms as the control group, the results suggest that there was a small and short-term reduction in the Google Trends scores for sensitive search. There is no measured difference in reaction between high- and low-privacy demand states. Overall, the results indicate that any consumer welfare loss from Google’s policy change was small, and likely swamped by the demand-increasing impact of customization made possible from the cross-platform data sharing. That there is no measurable long-term substitution out of sensitive search may reflect the privacy advantages of searching for sensitive information on Google versus seeking the same information in an interpersonal setting. These findings suggest that privacy policy changes that are publicized should be treated like ordinary price changes — causing marginal consumers to exit and reducing consumer surplus for those who remain — not opportunities for regulatory intervention.

March 13, 2017 | Permalink | Comments (0)