Trustbusters’ crackdown on big tech: An analysis of competition policy and antitrust enforcement efficacy as reflected in the securities market

The Competition and Regulation European Summer School and Conference (CRESSE) is an informal network of academics and professionals with an interest in competition policy and sectoral regulation. It was initiated by Yannis Katsoulacos (Athens University of Economics and Business) in 2005 and has since grown to become an important event in the competition and regulation annual conferences calendar, with the continuous support of Massimo Motta (European University Institute, Florence), Patrick Rey (University of Toulouse) and David Ulph (University of St. Andrews). The objective is to provide a forum in which the latest research in the areas of competition and regulation is presented and discussed. CRESSE Conference themes have been ‘Abuses of Dominance’ (2006), ‘Competition and Regulation in Network Industries’ (2007), ‘Competition Policy: Procedures, Institutions, IPR's’ (2008) and ‘Advances in the Analysis of Competition Policy’ (2009). Presentations in the two-day annual Conference include 3–5 invited papers and a limited number (typically 25%–30%) of papers selected from those submitted following a call in the major IO journals. The annual CRESSE Conference is held in early July in Greece, the institution responsible for its organization being the Athens University of Economics and Business. CRESSE also organizes an annual summer school in which visiting faculty from a large number of European and U.S. universities provide high quality training to practitioners of competition policy and sectoral regulation who wish to be up to date with new economic literature and recent legal developments. It is also active in disseminating research in the areas of competition policy and regulation and in contributing, through the organization of special policy sessions and round tables, to public debates on specific policy issues. The annual CRESSE Conference typically has two keynote lectures (the Jean-Jacques Laffont Lecture and the CRESSE Conference Policy Lecture), two round table (policy-related) discussions and a series of parallel and plenary sessions in which the latest research findings are presented. The third annual CRESSE Conference took place on July 4-5, 2008, and the title, Competition Policy: Procedures, Institutions, IPR's, embraced two broad but rather distinct themes: How competition policy should be applied in highly innovative industries Assessing the impact of the processes and procedures used by competition authorities on the effectiveness of competition policy. Competition Policy and IPR's was a timely theme in the light of recent debates in many fast-growing and innovation-driven industries. While the classic trade-off between ex ante incentives to invest in R&D and the ex post efficient diffusion of innovation has been extensively studied, the importance of continuing improvements and the number of technology components now involved in any major project (the so-called ‘patent thicket’ problem) has called for new forms of cooperation. This raises many competition issues regarding, for example, the dynamics of innovation efforts and the adequate balance between protecting past investment and promoting future advances, which relates to the coverage of licensing agreements and the acceptability of restrictive clauses, but also concerns the scope for coordination and price discussions in multilateral negotiations, or the design and operational organization of standard-setting organizations which include participants with quite different interests (pure innovators versus integrated industry participants, platform developers versus content providers and users, and so forth). The invited lectures, roundtables and presentations offered a good overview of recent empirical studies and conceptual advances, as well as of the challenges ahead of us. Procedures and Institutions was chosen as a theme because as competition policy has moved towards an economics/effects based approach, economists have increasingly become centrally involved in the implementation of competition policy, with leading academic industrial economists being appointed as directors and/or chief economists in competition agencies across Europe. This has led economists to reflect on and critically evaluate the practices operated by either their own agencies or others with which they came in contact. So, in addition to the long-standing contribution of economics to examining the welfare effects of various practices employed by firms, there is an emerging literature which subjects the procedures and institutions used to implement competition policy to a similarly rigorous scrutiny. We wanted to reflect this emerging literature in the 2008 Conference. Consistent with the two broad themes of the 2008 CRESSE Conference: The Jean-Jacques Laffont Lecture was presented by Professor Richard Schmalensee (MIT) on the topic ‘Standard-Setting, Competition and Innovation’1 while Professor William Kovacic (Chairman, Federal Trade Commission, U.S.A.) delivered the CRESSE Conference Policy Lecture on the theme ‘Rating the Competition Agencies: What Is Good Performance?’ In addition, there was a Special Lecture by Frederic Jenny (ESSEC Business School, Paris, and Judge at the Cour de Cassation) entitled ‘Judicial Review of Competition Authorities' Decisions in Europe.’ The two round-table discussions were on ‘Competition Policies and IPR's' and on ‘Competition Policy: Institutions and Procedures.’ This special issue offers a selection of the lectures and papers that were presented at the 2008 CRESSE Conference. Two of the papers published here address the theme of Competition and IPR's. Richard Schmalensee offers an insightful exploration of the competition issues triggered by the operations of standard-setting organizations (SSO's). He first discusses the incentives to adopt a standard and suggests that private and social interests are largely aligned when industry participants are in symmetric positions. He then distinguishes between innovation specialists and integrated industry participants, and studies the respective roles of formal ex ante competition and joint determination of licensing fees in solving royalty-stacking problems. David Encaoua and Yassine Lefoulli examine the implications for patenting and licensing activity when patent offices issue weak patents that can be the subject of litigation. They generalise some recent analysis by allowing for innovations of any size and for the possibility that not all downstream firms will choose to pay for a licence. They determine conditions under which, when the equilibrium two-part tariff for licences is in place, firms will or will not choose to litigate. In addition, they show that licensing revenue may not over-compensate the patent holder. Finally, they show that welfare can be enhanced by policies that make litigation a more attractive option thus reducing the license revenue extracted by the patent holder. The remaining papers are concerned with various aspects of the theme of Procedures and Institutions. The paper by Frank Verboven and Theon van Dijk provides a framework for computing cartel damages when the customers of the cartels are not final users but rather industrial players active in a downstream market. The price overcharge raises the customers' costs, but they will usually pass through part of this cost increase to their own customers, which will impact their output. To evaluate the relative importance of the three effects, the authors consider several variants of downstream competition and argue in favour of an adjusted passing-on defence, taking into account the change in output. They also apply their approach to the European vitamin cartel, and show finally that output changes also play a critical role in the assessment of social harm. The paper by Sylvain Bourjade, Patrick Rey and Paul Seabright studies the role of private actions in enforcing competition law in a framework where plaintiffs, who pursue their own interest, may have information of a breach of the law and may also settle out of court. The paper first shows that screening liable from non-liable defendants requires strict rules on admissible evidence. It also argues that, in order to enhance antitrust enforcement, increasing damages is better than reducing the cost of initiating suits. It also stresses the merit of introducing a system of compensation for defendants found non-liable. The paper by Yannis Katsoulacos and David Ulph examines an issue that has been much debated by both lawyers and economists – whether competition authorities should use a Per Se standard or an Effects-Based approach when deciding whether to allow or disallow actions that come before them. The authors develop a general framework that addresses this issue rigorously. They obtain a precise condition for determining when an effects based approach has lower decision error cost than a per se standard, and this is when the quality of the effects-based rule (a measure of its propensity for making Type I and Type II errors (false acquittals and false convictions respectively) is greater than the strength of the presumption of legality (or illegality), which in turn depends on the relative frequency of harmful/benign actions in the base population and the relative harm/benefit of such actions. They also examine the deterrent effects of the choice of legal standard on the decision of firms as to whether or not to take action, and show that compared to a per se rule, an effects-based standard will deter too many actions when on average they are benign but too few actions when they are on average harmful. Finally, they show that once deterrence effects are recognised, there are also welfare losses arising from certain procedural features of competition authorities' decision making practices such as delays in decision-making and low coverage rates the fact that only a fraction of cases may come to the attention of the competition authority. In a closely related paper, Lars Sørgard explores the question of what the optimal coverage rate for a competition authority to employ is when tackling mergers (though in fact the analysis applies far more widely). He considers the broad class of cases where the social harm and private profit arising from mergers are not positively correlated, and shows that if the competition authority can commit to a coverage rate before firms have made the decision to merge, then, at an interior optimum, the competition authority will be trading off two competing considerations. A higher coverage rate will have the positive deterrent effect of dissuading some marginal mergers which would necessarily have been harmful had they occurred. On the other hand, because of the inevitable decision errors, a higher coverage rate will have the negative enforcement effect of disallowing a number of actions which on average would have been beneficial. He also shows that welfare is higher when competition authorities commit in advance to the coverage rate.

Competition Policy Analysis - An Integrated Approach.- Strategic Behaviour of Incumbents - Rationality, Welfare and Competition Policy.- Fighting Predation.- Conclusions.- Annex.

This volume contains a selection of papers that were presented at the CRESSE Conferences held in Chania, Crete, from July 6th to 8th, 2012, and in Corfu from July 5th to 7th, 2013. The chapters address current policy issues in competition and regulation. The book contains contributions at the frontier of competition economics and regulation and provides perspectives on recent research findings in the field. Written by experts in their respective fields, the book brings together current thinking on market forces at play in imperfectly competitive industries, how firms use anti-competitive practices to their advantage and how competition policy and regulation can address market failures. It provides an in-depth analysis of various ongoing debates and offers fresh insights in terms of conceptual understanding, empirical findings and policy implications. The book contributes to our understanding of imperfectly competitive markets, anti-competitive practices and competition policy and regulation.

Competition law and policy enforcement is increasing becoming transnational, demanding for enhanced cooperation among competition agencies. This paper examines the adequacy of cooperation between the COMESA Competition Commission (CCC) and the Competition Authority of Kenya (CAK) in the Kansai-Plascon Paints and Sadolin Paints merger analysis and the Kenyan Paint sector cartel case. It further analyses whether the merger generated a conducive market for cross-border cartel conduct in the sector. The paper adopts a case study approach in analyzing the interconnection between the merger and the cartel conduct in the Kenyan paint sector. The findings indicate that there was adequate cooperation between CCC and CAK at the point of evaluating the merger. Nonetheless, there was no explicit formal cooperation during the cartel case even though the cartel parties had cross-border business operations. Additionally, the merger did not create conducive market environment for the cartel conduct in the sector. The paper recommends that African competition agencies explore and appreciate the importance of cooperation in cross-border cartel investigations. The competition agencies need to appreciate the significance of better cooperation, particularly on procedural and substantive matters. Further, competition agencies should hold more cross-border cartel-specific fora. Competition agencies need to re-evaluate the adequacy of their activities towards handling cross-border cartels, while being cognizant of double jeopardy. Lastly, positive comity should be embraced by continental, regional, and national competition agencies.

1. Interest Rates and Budget Deficits: A study of the advanced economies 2. World Trade after the Uruguay Round: Prospects and policy options for the twenty-first century 3. The Flow Analysis of Labour Markets 4. Inflation and Unemployment: Contributions to a new macroeconomic approach 5. Macroeconomic Dimensions of Public Finance: Essays in honour of Vito Tanzi 6. Fiscal Policy and Economic Reforms: Essays in honour of Vito Tanzi 7. Competition Policy in the Global Economy: Modalities for co-operation 8. Working in the Macro Economy: A study of the US labour market 9. How Does Privatization Work? 10. The Economics and Politics of International Trade: Freedom and Trade: Volume II 11. The Legal and Moral Aspects of International Trade: Freedom and Trade: Volume III 12. Capital Markets and Corporate Governance in Japan, Germany and the United States: Organizational response to market inefficiencies 13. Competition and Trade Policies: Coherence or Conflict 14. Rice: The primary commodity 15. Trade, Theory and Econometrics: Essays in honour of John S. Chipman 16. Who Benefits from Privitisation? 17. Towards a Fair Global Labour Market: Avoiding the New Slave Trade 18. Models of Futures Markets 19. Venture Capital Investment: An agency analysis of UK practice 20. Macroeconomic Forecasting: A sociological approach 21. Multimedia and Regional Economic Restructuring 22. The New Industrial Geography: Regions, regulation and institutions 23. The Employment Impact of Innovation: Evidence and Policy 24. International Health Care Reform: A legal, economic and political analysis 25. Competition Policy Analysis

The Record of Weak U.S. Merger Enforcement in Big Tech

Contents: Introduction Yannis Katsoulacos and Joseph Harrington PART I: COMPETITION POLICY AND RELATED ISSUES 1. Switching Costs and Network Effects in Competition Policy Jacques Cremer and Gary Biglaiser 2. Corporate Leniency with Private Information: An Exploratory Example Joseph Harrington 3. The Economics of Pending Patents Johannes Koenen and Martin Peitz 4. Testing for the Presence of a Maverick in the French Audit Industry Marc Ivaldi, Sebastian Mitraille and Catherine Muller 5. Optimal Decisions in Two Stage Bundling Xeni Dassiou and Dionysius Glycopantis 6. Competition Policy and Firm's Damages Panagiotis N. Fotis 7. Social-Welfare-Enhancing Collusion and Trade George Deltas, Alberto Salvo and Helder Vasconcelos PART II: ON-LINE SEARCH, ADVERTISING AND TWO-SIDED MARKETS 8. A Note on Vertical Search Engines Foreclosure Emanuele Tarantino 9. Issues in On-line Advertising and Competition Policy: A Two-sided Market Perspective Emilio Calvano and Bruno Jullien 10. Assessing Unilateral Merger Effects in a Two-Sided Market: An Application to the Dutch Daily Newspaper Market Lapo Filistrucchi, Tobias J. Klein and Thomas Michielsen 11. Leadership in Multi-sided Markets and the Dominance in Online Advertising Federico Etro PART III: REGULATION 12. Bargaining and Collusion in a Regulatory Model Raffaele Fiocco and Mario Gilli 13. Investment and the Strategic Role of Capital Structure in Regulated Industries: Theory and Evidence Carlo Cambini, Laura Rondi and Yossi Spiegel 14. Rethinking Regulatory Capture Per J. Agrell and Axel Gautier 15. Can Structural Models be Useful to Understand the Electricity Wholesale Markets? An Application to Spain Vitor Marques, Adelino Fortunato and Isabel Soares PART IV: FINANCIAL REGULATION 16. Rebuilding International Financial Regulation and Basel III Kern Alexander 17. The Shock of the Old: The First Financial Crisis of the 21st Century Geoffrey Wood 18. Fixing Finance: Are We There Yet? Thomas F. Huertas

Competition policy is a complex policy field which requires knowledge of competition law and economics as well as familiarity with the framework of policy and the agencies of enforcement. There is a large amount of literature dealing with the law and economics but surprisingly little work which provides an overall assessment of policy. Unfortunately, discussion of competition policy is therefore segregated into rather insular sub-specialisms. This article presents an outline of the main elements of policy but also seeks to cover new ground by presenting a distinctively “political economy” analysis of competition policy. It argues that competition policy is simultaneously a growing area of legal regulation, a core component of economic policy, and a mode of balancing public and private power in contemporary liberal democracy.

1. Introduction Michael Faure and Guangdong Xu Part I: Regulation as a Tool of Economic Growth 2. Financial Repression, Economic Distortion and China's Growth Miracle Guangdong Xu 3. Affordable Housing in China: Can inclusionary zoning regulation work? Wenjing Li and Binwei Gui 4. Legal Regulation of China's Securities Markets: Recent improvements and competing advantages Tianshu Zhou Part II: Economic Analysis of Competition Policy 5. An Empirical Approach of Regulation on China's Pension Investment Jiye Hu 6. New Developments in China's Competition Policy against Monopolistic/Collusive Agreements Xinzhu Zhang and Vanessa Yanhua Zhang 7. Enforcing Antitrust Law in China: Is decentralization desirable? Roger Van den Bergh and Jingyuan Ma 8. Using Economics to Improve Professional Regulation Niels J. Philipsen 9. A Legal-Economic Analysis of the WTO's Agreement on Safeguards: China's policy choice on the trade safeguard mechanism Jie Hong Part III: Environmental Policy 10. Analysis of Policy Considerations for Developing Countries' Accession to GPA Xiaoping Zhang 11. Hybrid Emissions Trading Systems: What about efficiency? Stefan E. Weishaar and Fitsum G. Tiche 12. Designing and Implementing an Emissions Trading Market in China: The case of Tianjin Hao Zhang 13. Environmental Liability in China: Recent developments and case studies in an ex-post analysis Michael Faure and Weiqiang Hu 14. Economic Analysis of Chinese Regime on Marine Environmental Liability Hui Wang 15. Comparative and Concluding Remarks Michael Faure and Guangdong Xu

A Market Process Analysis of Competition Policy in Latin America

Introduction to the special issue on advances in the analysis of competition policy and regulation

Introduction to the special issue on advances in the analysis of competition policy and regulation

Introduction to the special section on advances in the analysis of competition policy and regulation

The analysis presented in this article suggests that the Digital Markets Act (DMA) would be a game-changer for the digital economy. From a legal perspective, the DMA should be regarded as a sector-specific, ‘ex ante’ regulation, i.e., a ‘lex specialis’ in relation to the general EU competition law, which relies on ‘ex post’ enforcement. The DMA restricts self-interested behaviour by ‘big tech’ and grants smaller competitors affirmative competitive rights, even where there is no anticompetitive behaviour by big tech under general EU competition law. By its terms, the DMA is aimed at ensuring ‘contestable and fair digital markets’, irrespective of consumer welfare. To achieve this objective, it will impose generic obligations on big tech that resemble remedies previously employed by the Commission in specific antitrust enforcement measures or that address antitrust complaints that the Commission is currently investigating. Unlike conventional EU competition law, despite the DMA’s stated purpose, its main effect is not protection of European internet users (although they may benefit indirectly), but the protection of smaller European competitors against US ‘big tech’. These smaller competitors would no longer need to resort to the current system of ex post enforcement against abuse of monopoly power, which is believed to be insufficiently equipped to deal with digital monopoly power. Antitrust proceedings take a long time (five years or more is no exception), and in the meantime the competitive harm can increase. In many cases, the DMAwould make reliance on this slow, ex post enforcement program unnecessary. Instead, it would enable ‘ex ante’ enforcement actions to ensure competitive markets under the threat of very large fines. Due to its far-reaching terms, the DMA would likely require changes to the business models of big tech. The DMA restates Adam Smith’s famous quip ‘[i]t is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest’. For the digital economy, the saying would be rewritten as: ‘It is not from the regard for their own interest of the gatekeepers that we expect our dinner, but from their benevolence’. Mandatory ‘big tech benevolence’ may well benefit ‘business users’, i.e., people or companies that use platforms to provide goods or services to internet users. Changes in big tech’s business models prompted by the DMA, however, might also affect free internet services. In any event, the DMAwould give rise to significant changes and friction in the operation of the digital economy, which may result in frequent disputes and enforcement actions.

The enforcement of competition policy regarding public procurements is a priority for all competition Authorities in the world. In this contribution we show how several instruments (advocacy, investigations of suspect cases of bid rigging and of abuses of dominant position) have been employed in Italy for dealing with this task. Since the establishment of the Italian Competition Authority in 1990, we have witnessed a change in the emphasis of its policy. In the first period, the prevalent attention was devoted to the goal of preserving sufficiently competitive entry conditions as, in the last period, fighting bid rigging became an important matter of concern. For this goal to be successful, it must be enforced up to the point to induce a modification of the perception of firms (regarding the probability of an antitrust intervention) and, ultimately, of their own incentives. Recent activity seems to be in line with this awareness.