Anticompetitive Actions Research Articles

The regulatory challenge to branding: An interpretation of UK competition authority investigations 1950–2007

Branding is a necessary and important business tool. This study, however, examines whether branding can constitute an anticompetitive act. While most markets and firms do not undertake anticompetitive actions, being identified as such can result in a wide range of negative outcomes. To explore this low-frequency yet high-risk outcome, this study assesses how branding has been perceived to be anticompetitive by the UK competition authorities. This assessment is undertaken by examination of all UK competition law regulatory decisions undertaken over the period 1950–2007 by the UK competition authorities. From this assessment, it is observed that branding can facilitate excessive pricing, requires vertical restraints, and can lead to consumer confusion; all potentially anticompetitive acts. The competition regulatory decisions focused on branding issues are demonstrably different from regulatory decisions without branding concerns and involve larger, often manufacturing, firms, which operate in more concentrated markets. It is concluded that comprehension of competition law needs to be disseminated more widely amongst marketing communities and greater reference to business and marketing theory should be made by competition law agencies to assist the comprehension of marketing techniques such as branding.

A Dangerous Call to Create Crisis Cartels: Notes to Supreme Court Judgment of January 20, 2010

Situations of economic crisis do not justify an exemption to the prohibition of anticompetitive agreements. There is neither a special rule for the agricultural sector that would provide a broad antitrust exemption aside from the common agricultural policy (CAP). The primacy of CAP goals does not mean that the agricultural sector is exempted from the application of competition rules. Only the European Commission and common market organizations’ regulations may, in justified cases, establish limitations to free competition rules. The Supreme Court Judgment of 20 January 2010 makes a mistaken reading of EU case law and introduces a dangerous precedent regarding anticompetitive actions by agricultural producers. The judicial creation of a specific antitrust exemption for the storage of olive oil by producers (to raise its sale prices) violates competition law.

Physician collective bargaining.

Current antitrust enforcement policy unduly restricts physician collaboration, especially among small physician practices. Among other matters, current enforcement policy has hindered the ability of physicians to implement efficient healthcare delivery innovations, such as the acquisition and implementation of health information technology (HIT). Furthermore, the Federal Trade Commission and Department of Justice have unevenly enforced the antitrust laws, thereby fostering an increasingly severe imbalance in the healthcare market in which dominant health insurers enjoy the benefit of largely unfettered consolidation at the cost of both consumers and providers. This article traces the history of antitrust enforcement in healthcare, describe the current marketplace, and suggest the problems that must be addressed to restore balance to the healthcare market and help to ensure an innovative and efficient healthcare system capable of meeting the demands of the 21st century. Specifically, the writer explains how innovative physician collaborations have been improperly stifled by the policies of the federal antitrust enforcement agencies, and recommend that these policies be relaxed to permit physicians more latitude to bargain collectively with health insurers in conjunction with procompetitive clinical integration efforts. The article also explains how the unbridled consolidation of the health insurance industry has resulted in higher premiums to consumers and lower compensation to physicians, and recommends that further consolidation be prohibited. Finally, the writer discusses how health insurers with market power are improperly undermining the physician-patient relationship, and recommend federal antitrust enforcement agencies take appropriate steps to protect patients and their physicians from this anticompetitive conduct. The article also suggests such steps will require changes in three areas: (1) health insurers must be prohibited from engaging in anticompetitive activity; (2) the continuing improper consolidation of the health insurance industry must be curtailed; and (3) the physician community must be permitted to undertake the collaborative activity necessary for the establishment of a transparent, coordinated, and efficient delivery system.

The Revolution in Health Care Antitrust: New Methods and Provocative Implications

In recent years, federal courts have permitted hospital consolidations and other potentially anticompetitive actions by accepting hospitals' claims that they compete in expansive geographic markets. Recent events, including two actions by the U.S. Federal Trade Commission, suggest that antitrust is undergoing a sea change, thanks in part to new methods for defining geographic markets. This article reviews the recent history of hospital antitrust, describes the methods used to define markets, and illustrates the new methods by considering two consolidations recently proposed by a New York regulatory agency. The new methods for defining geographic markets rely on estimates from conditional choice models using patient-level hospitalization data. These estimates are the raw material for computations of price effects derived from a theoretical model of hospital pricing in a managed care environment. Applying these methods to two proposed consolidations in New York shows that one of the mergers would likely raise prices by a substantial amount without the promise of offsetting efficiencies but that the other would not have this effect. New methods for geographic market definition may fundamentally alter how courts will evaluate antitrust challenges. Although additional research is necessary to refine the predictions of these new methods, consolidating hospitals, as well as any other hospitals engaging in potentially anticompetitive conduct, can no longer anticipate a friendly reception in the courtroom.

The Price of Abuse: Intel and the European Commission Decision

The May 13, 2009 decision by the European Commission ('EC') holding that Intel violated Article 82 of the Treaty of Rome and should be fined a record amount and prohibited from engaging in certain conduct, set off a predictable four part chorus of denunciations: 1. Intel did nothing wrong and was just competing hard; 2. Intel’s discounts were good for consumers; 3. The entire matter is just another example of Europeans protecting their own against a more efficient U. S. company; and 4. Even if Intel did engage in anticompetitive activity, the fine was much too large. These assertions will be addressed in turn.

Diminishing Enforcement: Negative Effects for Deterrence of Mistaken Settlements and Misguided Competition Promotion and Advocacy

Competition policy is conceived to preserve and promote free market competition. It can be fleshed out through a mix of tools that are used to further consumer and social welfare through preserving and promoting the efficient functioning of markets. In different countries, courts, administrative authorities and governments themselves play different roles in the execution of competition policy and in the fulfilment of its goals.On the one hand, competition policy uses prohibitions of anticompetitive actions and merger control as a legal instrument to fight or prevent market restraints by private agents. Public and private competition law enforcement leading to sanctions and/or actions for damages (i.e. the 'regular' enforcement of competition law) is the main manifestation of competition policy.However, relatively recent developments have increased the number of tools in the shed of competition law enforcement. It has gone past 'regular' enforcement and currently also foresees settlements as a tool to introduce flexibility in the prosecution of competition violations. Settlements are conceived as procedural devices in public antitrust enforcement that provide a shortcut to allow for the speedy conclusion of inquiries and administrative proceedings in those cases that would be costly and inefficient to pursue. If properly used, recourse to settlements may allow competition authorities to save costs and resources in pursuing risky proceedings with an uncertain outcome. From that perspective, the effects of antitrust settlements may seem socially valuable. However, an often overlooked effect is that settlements may also dilute the deterrent effect of 'regular' enforcement. A similar reasoning or discussion underlies the objectives and operation of leniency programs (another of the relatively recent tools for competition enforcement, at least in most EU member States), although several striking differences exist between leniency and competition settlements.On the other hand, softer new tools have also been developed. Under the headings of competition promotion and competition advocacy a variable set of instruments are created for competition authorities to create and spread the culture of free market competition in areas that have traditionally been exempted from market forces or competition. Advocacy is mainly targeted towards anticompetitive governmental regulations, whilst promotion is aimed at easing and favouring the rooting of competition policy in sectors that for whatever reason have suffered entry barriers and anticompetitive restrictions in the past.This article criticizes certain uses, mistaken or misguided, of settlements, advocacy and promotion. These are two very different settings in which the deterrent feature of competition authorities' enforcement actions may suffer a deathly blow. Paradoxically, if wrongly used, both may endanger the deterrent principle upon which competition law and policy are built. The basic point of departure is that the new tools might be diminishing the effectiveness of 'regular' competition law enforcement-which shall not be left in the shed to rust.

THE DETERMINATION OF ANTITRUST LIABILITY IN UNITED STATES v. MICROSOFT: THE EMPIRICAL EVIDENCE THE DEPARTMENT OF JUSTICE USED TO PROVE ITS CASE

This paper considers the empirical evidence used by the Department of Justice in the U.S. v. Microsoft antitrust case to prove that Microsoft engaged in exclusionary (and anticompetitive) actions in the browser market as part of its efforts to maintain its dominance of the personal computer operating system market. This evidence deserves special consideration because the District Court made the unusual decision to rely on the empirical evidence presented by the Department of Justice rather than the empirical evidence presented by Microsoft. This decision was unusual because Microsoft's evidence had a strong presumption of validity as it was based on data that Microsoft collected and used in the ordinary course of its business. Furthermore, no market participants used the Department of Justice-sponsored data in any meaningful way. Although it is impossible to determine with any certainty why the District Court ruled the way it did, I conclude that there were two driving forces in the court's decision. The Department of Justice identified serious flaws in Microsoft's data, making it unreliable for the purposes for which Microsoft was using it in the trial. The Department of Justice was also able to show that no such flaws affected the data it sponsored and indeed, on many points, that data was more consistent with the testimony of Microsoft executives than the data sponsored by Microsoft.

Contesting Anticompetitive Actions Taken in the Name of the State: State Action Immunity and Health Care Markets

The so-called state action doctrine is a judicially created formula for resolving conflicts between federal antitrust policy and state policies that seem to authorize conduct that antitrust law would prohibit. Against the background of recent commentaries by the federal antitrust agencies, this article reviews the doctrine and discusses its application in the health care sector, focusing on the ability of states to immunize anticompetitive actions by state licensing and regulatory boards, hospital medical staffs, and public hospitals, as well as anticompetitive mergers and agreements. Although states are free, as sovereign governments, to restrict competition, the state action doctrine requires that "the state itself" make the decision to do so. Partly on the basis of problems in the political environment, the article criticizes courts for using a mere "foreseeability" test to decide whether a state legislature sufficiently authorized competitors to act in contravention of clear federal policy: "Few things are more foreseeable than that a trade or profession empowered to regulate itself will produce anticompetitive regulations."

Hit and Miss: Leverage, Sacrifice, and Refusal to Deal in the Supreme Court Decision in Trinko

Under the rules of the Telecommunications Act of 1996, incumbent local exchange carriers, including Verizon, were obligated to lease parts of their local telecommunications network to any firm at cost plus a profit prices which could combine them at will, add retailing services and sell local telecommunication service as a rival to the incumbent. AT&T, an entrant in local telecommunications, leased parts of Verizon's network. Trinko, a local telecommunications services customer of AT&T, sued Verizon alleging various anti-competitive actions of Verizon against AT&T, including that Verizon raised the costs of AT&T, its downstream retail rival. The Supreme Court held that Trinko's complaint failed to state a claim under Section 2 of the Sherman Act, and dismissed the complaint. I argue that Verizon had two monopolies in local telecommunications: a monopoly of the local telecommunications network, as well as a monopoly in retail services. The 1996 Act allowed for competition in retail services and also imposed cost-based pricing on leases of Verizon's network. Verizon, unable to increase the lease price on its network, reverted to raising-rivals-costs strategies against its retail competitors. Thus, Verizon used its monopoly of the network infrastructure to disadvantage entrants in retail. In doing so, Verizon lost short term profits that it would have earned from leasing its network to entrants, since the 1996 Act had set the lease price at cost plus reasonable profit. Thus, Verizon is liable if the principle is applied. According to the sacrifice principle, a defendant is liable if its conduct involves a sacrifice of short-term profits or goodwill that makes sense only insofar as it helps the defendant maintain or obtain monopoly power.

Differentiated Duopoly under Vertical Relationships with Communication Costs

Platform sharing across manufacturers has recently become common practice in the automobile industry. Its important objective is to reduce procurement costs by taking advantage of the commonality of components, but this often reduces the degree of product differentiation. We investigate this trade-off through analyzing a model that incorporates manufacturer-supplier relationships with communication costs into a standard differentiated duopoly model, and find an interesting inverse relationship between the advantage of platform sharing and the costs for manufacturers to communicate with their potential suppliers. The result suggests that the information-technology revolution could be a reason for the recent prevalence of platform sharing in the automobile industry, and predicts that similar phenomena would prevail in various other industries as the IT revolution makes further progress. We then consider an extension of our model that incorporates an option for the manufacturers to jointly establish a B2B electronic marketplace in order to reduce their communication costs, and explore its welfare implications. Although the joint establishment of an e-marketplace could be viewed as an anticompetitive activity, we find that in our framework it increases welfare.

In re Cardizem & Valley Drug Co.: The Hatch-Waxman Act, Anticompetitive Action, and Regulatory Reform

In re Cardizem & Valley Drug Co.: The Hatch-Waxman Act, Anticompetitive Action, and Regulatory Reform

Antitrust policy and price collusion : public agencies vs delegation

SummaryThis paper investigates the effectiveness of antitrust policy in fighting horizontal collusion under different regimes of policy implementation. We consider two regimes: a public agency regime, where an antitrust authority is in charge of competition policy, and a “delegation” regime, where the policy is chosen by consumers. In both regimes the policy is implemented under discretion. The analysis shows that delegation dominates, both in case of complete and imperfect information about production costs, the public agency regime because consumers credibly start off an higher level of investigation activity than the public agency. This result implies that the public agency will fight the cases involving “relevant” anti-competitive activities, while consumers will act also against “minor” violations. The combination of the two regimes yields an higher welfare than having only a public agency in charge of competition policy, because consumers can partially relax the agency's limited resources constraint.

Forging the European Cartel Offence: The Supranational Regulation of Business Conspiracy

AbstractThe discussion in this paper examines the emergence of what may now be fairly described as the ‘European cartel offence’: that species of infringement of Article 81 of the EC Treaty, increasingly referred to as ‘hard core cartel’ activity, connoting real delinquency which justifies the imposition of severe penal sanctions. This development is significant not just as a matter of more explicit regulation within the field of competition law, but also as part of a wider context of vilification and criminalisation of certain well-established forms of cartel behaviour. As national systems (such as that in Britain) have introduced new criminal offences in relation to cartels, it is illuminating to consider and compare the evolution of the supranational ‘European cartel offence’. Having its basis in the infringement of Article 81 of the EC Treaty, the offence is necessarily one of collusion, being an agreement or concertation for anti-competitive purposes. As such, the more specific nature of the ‘offence’ has been established incrementally, very much as the product of argument presented in appeals relating to issues of evidence and penalties. It has been necessary to consider whether the offence resides in the planning or the implementation of anti-competitive activity, or both, and whether it comprises specific acts or a continuing pattern of behaviour. The mature version of the ‘offence’, worked out in the jurisprudence of the European Commission and the Community Courts, is based on the organising concept of ‘the cartel as a whole’. This process of forging a ‘European cartel offence’ provides an instructive lesson in the legal construction of criminality and the resort to a form of organisational responsibility. It also points to the emergence of a bifurcated system of both individual and corporate liability in this context.

Incentives for Anticompetitive Behavior by Public Enterprises

We examine the competitive behavior of a public enterprise that does not seek solely to maximize its profit. We find that despite a reduced focus on profit, a public enterprise may have stronger incentives to pursue anticompetitive activities than does a private, profit-maximizing firm. These activities include setting prices below marginal cost, raising the operating costs of existing rivals, erecting entry barriers to preclude the operation of new competitors, and circumventing regulations designed to foster competition.

New Directions in Australian Air Transport

he events of September 11 2001 and the Ansett collapse a few days later have had a major impact on the Australian air transport markets. In this paper, we examine the immediate and longer-term competitive outcomes associated with these developments, and review the policy issues that arise. We focus on the markets in which air services are provided domestically within Australia (‘domestic market’) and on any significant detrimental effects of recent events on the process of competition in the domestic market that may provide justification for increased regulation. This may take several forms, including imposition of airline specific regulation, and/or adjustments to general legislation guarding against anti-competitive activity — for instance, section 46 of the Trade Practices Act, which relates to the taking advantage of substantial market power. We also comment on the lack of desirability of industry-specific regulation. Our view of the case for adjustment to section 46 differs from that of the Australian Competition and Consumer Commission (ACCC). Developments in airport pricing and slot allocation, while also important, are beyond the scope of this paper. For a review of recent developments see Fels (2001) and for a discussion of policy options see Productivity Commission (2001a) as well as some discussion within Productivity Commission (1998).

Structural Separation in Telecommunications: A Review of Some Issues

n recent years, competition authorities and telecommunications regulators have indicated an increasing willingness to consider structural separation and divestiture of the local loop as a means of countering what is viewed as serious anti-competitive activity by incumbent operators. The issue of structural separation has gained some prominence in the aftermath of the competition reforms that followed the National Competition Policy Report by the Independent Committee of Inquiry (1993) chaired by Professor Fred Hilmer. The report questioned the exemption of public monopolies from competition laws and favoured structural separation of incumbents as a way of introducing competition in monopoly markets of state-owned utilities. A major plank of the implementation of liberalisation policies in major markets such as energy, transport and telecommunications, has been the tendency to favour the provision of access to essential infrastructure facilities owned by incumbents as a way of achieving competition in the supply of final products. This has meant that incumbent, vertically-integrated operators supply services or facilities as inputs to the production of final services by competitors with which they compete directly with the incumbent. Consequently, by their ownership of essential facilities which they supply to competitors, incumbent operators are in a powerful position in the market and have a considerable incentive to use their market power to frustrate competition. Regulation of the behaviour of incumbents, therefore, is essential for effective competition. Reliance on access regulation alone to promote competition and prevent abuses of market power by incumbents requires extensive intervention and oversight by regulators. This arises from the fact that access regulation does not alter the incentives for uncompetitive behaviour by incumbents. Supplementation of access regulation with structural separation, on the other hand, would remove or greatly reduce the incentives for uncompetitive behaviour such as the denial of access to essential facilities and would be more likely to produce desirable outcomes without the need for extensive involvement of regulators. Because of its desirable effects, structural separation has been implemented as part of the access arrangements in several industries including electricity, gas, rail and airports. In contrast, telecommunications liberalisation has not included structural separation. Steven Dounoukos is a Lawyer and Angus Henderson is a Partner specialising in telecommunications at corporate, communications and technology law firm, Gilbert + Tobin.

The Attack on Antitrust Policy and Consumer Welfare: A Response to Crandall and Winston

In their paper “The Effect of Antitrust Policy on Consumer Welfare,” Robert Crandall and Clifford Winston advance an argument that others have previously made – namely, that antitrust policy in the United States is, on balance, welfare reducing. While past arguments have typically been ideological in nature or at most anecdotal in their support, Crandall and Winston (hereafter, CW) purport to provide empirical evidence: “This paper synthesizes the available scholarly evidence regarding the effect of antitrust policy on consumer prices and in deterring anti-competitive behavior.” They conclude that deadweight loss is small, the extent of anticompetitive activity is “quite limited,” and it is the market rather than antitrust which is responsible for “spurring competition and curbing anti-competitive abuses.” Providing empirical evidence on the question of the effects of antitrust policy is a commendable objective. Along with many other observers, this author has long noted the absence of systematic evidence or even many good case studies that establish the effects. This is in sharp contrast, for example, to regulation and deregulation, whose effects are often and well studied in economics. In the case of regulation, however, the effects are usually both broad and deep, so that empirical work can discern the incremental effect of policy. Much antitrust, in contrast, works at the margins of conduct, often presents difficult counterfactuals, and in any case has effects easily swamped by other forces impinging upon the firm or industry. For these reasons, modeling and data adequate to the task of assessing antitrust policy have been hard to develop. Crandall and Winston have not developed new modeling techniques or data. Instead, what they offer as “empirical evidence” is a review of selectively chosen examples of the application of antitrust, which they criticize for reasons both relevant and irrelevant to their point, and are ultimately inconclusive anyway, together with statistical work that appears to show the ineffectiveness of antitrust but in reality is based on a flawed model and data incapable of discerning any effect. This comment is intended to highlight these aspects of the CW attack on antitrust policy and consumer welfare.

Competition Law for State-Owned Enterprises

State-owned enterprises (SOEs), also known as public enterprises, are owned by governments rather than by private investors. SOEs compete directly with private, profit-maximizing enterprises in many important markets. SOEs can have strong incentives to engage in anticompetitive activities that serve to expand the scale and scope of their operations. Competition law for SOEs, however, is a body of jurisprudence to which U.S. courts and legislators have made little direct contribution. In contrast, the European Commission's Deutsche Post decision in 2001 is an important step in the development of a competition law for SOEs. In this article, we develop a theoretical framework that explains why SOEs might engage in anticompetitive behavior. We propose a legal standard to analyze such behavior, and we argue that this standard should be more stringent than the legal standard applied to private firms. We begin in Part II by examining the EC's decision in the Deutsche Post case. The EC correctly found that pricing below long-run average-incremental cost (LRAIC) is inappropriate for both profit-maximizing firms and SOEs. However, a higher price floor may be appropriate for SOEs. The arguments in Parts III through V explain why. Part II also reviews standard multiproduct cost concepts, including LRAIC. Part III examines the objectives of an SOE and the prices it will set when it pursues the identified objectives and faces no pricing restriction other than the restrictions imposed by competition in non-reserved markets. We identify conditions under which an SOE will choose to set prices below marginal production costs, even though such prices generally are considered to be predatory, and thus anticompetitive. In addition, we discuss the methods that an SOE might employ to relax a binding prohibition against below-cost pricing. We examine an SOE's incentives to raise the costs of existing rivals and to erect barriers to keep potential rivals from entering relevant markets. Finally, we examine the implications of an SOE's being able to achieve cost advantages in a non-reserved market by virtue of its statutory monopoly in a reserved market. These advantages can result from economies of scope between the reserved market and the non-reserved market-economies of scope that the SOE's rivals are denied the opportunity to achieve. Part IV explains why SOEs may have greater ability than private firms to act anticompetitively. This enhanced ability arises in part from the expanded powers and special privileges that often are extended to SOEs. These powers and privileges can help to ensure that an SOE, unlike its private competitors, does not need to recoup the costs of its anticompetitive behavior by subsequently raising prices in non-reserved markets. Part V presents a framework for assessing the drawbacks to using the SOE's LRAIC as the standard for determining whether the SOE's prices in non-reserved markets are anticompetitive. Although this standard is appropriate for evaluating allegations of predatory pricing by private firms, we argue that it generally is not appropriate for SOEs. The price floor for an SOE typically should exceed the SOE's LRAIC. The extent to which the price floor should exceed the SOE's LRAIC depends upon a number of factors that we identify. We also explain why it is that, even though certain common benchmarks may constitute reasonable price floors in some circumstances, different price floors may be more appropriate in other circumstances. We articulate case-specific guidelines that explain the extent to which price floors should be raised above the SOE's LRAIC.

Collusion in the Brazilian steel sector: A new industrial economy approach

The Brazilian Law of Competition Defense does not have a special system of collusion proofs to be adopted by the Antitrust Authority. The usual procedure consists in analyzing the structure and conduct characteristics of anticompetitive actions. Nevertheless, this method presents remarkable restrictions, such as the supposition of a causal relationship between structure, conduct and performance variables. The objective of this paper is to present a complementary methodological instrument for the detection of collusion that can contribute towards obtaining indirect evidence. For this purpose, we apply the results of a model of strategic choices of capacity in a Brazilian steel segment, recently condemned by collusion. The test shows that it is possible to proceed by using an auxiliary path that verifies collusive results and not only those related to market power, even when the information about the firms are difficult to obtain.

The Economics of the Microsoft Case

This paper explains the economics of Microsoft's anticompetitive actions, both the goal of suppressing Schumpeterian competition and the methods of denying widespread distribution to innovative new technologies. An understanding of the economics of the industry supports the logic of the government's antitrust case against Microsoft. Competition in the short run is limited by the network effects surrounding products like Microsoft Windows. Competition in the long run is far more feasible, but not automatic. The purpose of Microsoft's anticompetitive actions was to prevent widespread distribution of innovative technologies whose market success would have fostered long run competition. With that analysis in hand, this paper examines the effects of Microsoft's anticompetitive acts on the industry to determine whether and how the suppression was harmful to users of computers.