Enforcement Of Antitrust Laws Research Articles

Antitrust and Vertical Integration in “New Economy” Industries with Application to Broadband Access

Whether the firms that supply Internet hardware and software should face restrictions on the use of their property is an important and controversial policy issue. Advocates of “net neutrality”—including President Obama and the current FCC majority—believe that owners of broadband distribution systems (hardware used to distribute Internet and video services) and producers of certain “must-have” video content should be subject to prophylactic regulation that transcends present-day antitrust law enforcement. In the economic terms that are used in debates on competition policy, the concern is with vertical integration that may give firms both the opportunity (through denial of access or price discrimination) and incentive (increased profit) to restrict competition. This paper’s central point is that virtually every production process in the economy is vertically integrated, and economics predicts changes in the extent of vertical integration—that is, changes in the boundaries of the firm—in response to changes in relative prices, technology, or institutions. Both vertical integration and changes in the extent of vertical integration are benign characteristics of efficient, dynamic, competitive markets. While there is no shortage of theoretical models in which vertical integration may be harmful, most such models have restrictive assumptions and ambiguous welfare predictions—even when market power is assumed to be present. Empirical evidence that vertical integration or vertical restraints are harmful is weak, compared to evidence that vertical integration is beneficial—again, even in cases where market power appears to be present. Thus, it is reasonable to conclude that prophylactic regulation is not necessary, and may well reduce welfare. Sound policy is to wait for ex post evidence of harm to justify interventions in specific cases. Net neutrality, recently enacted by the FCC but subject to judicial review, is an unfortunate idea.

Quo Vadis Antitrust Remedies

The effectiveness of any competition authorities' enforcement depends as much on the actual implementation of the adopted decisions as on the investigation of the infringements and the finding of liability. Once liability has been established, re-establishing the conditions for effective competition is the ultimate objective of competition law and remedies are the means to achieve this goal. Remedies, and their proper design, are therefore a key aspect in enforcing competition policy and allowing markets to develop to their fullest potential.In order to ensure effective enforcement, the issue of remedies has to be addressed from the very beginning of any case. This also encompasses the question whether antitrust law enforcement is indeed the best approach to tackle the problem identified in the market. It is therefore of crucial importance to take a holistic approach to the problem identified and to consider the advantages or disadvantages of a legislative or regulatory approach to the problem at hand. Of particular relevance in this context is the question within what time frame competition law can effectively bring relief.

Maintaining New Markets: Explaining Antitrust Enforcement in Central and Eastern Europe

While others have examined the implementation and/or the stringency of enforcement of antitrust laws in post-socialist economies, this paper is the first study that attempts to explain the patterns of antitrust enforcement activity across post-socialist countries using economic and political variables. Using a panel of ten European post-socialist countries over periods ranging from 4 to 11 years, we find a number of significant factors associated with enforcement in these countries. For example, our results suggest that countries characterized by more unionization and less corruption tend to engage in greater antitrust enforcement of all types. Countries more successful in privatizing have filed fewer cases, while more affluent or developed countries investigate fewer cases of all types, consistent with an income-shifting motivation for antitrust. In general, countries have tended to increase their enforcement efforts over time.

The new horizontal merger guidelines

AbstractAs a presidential candidate, Barack Obama was critical of the Bush administration's weak enforcement of antitrust laws. So now the Obama administration has released new horizontal merger guidelines. How do they differ from the old guidelines? And what impact will they have?. © 2011 Wiley Periodicals, Inc.

ACOs and the Enforcement of Fraud, Abuse, and Antitrust Laws

Hospitals and physicians eagerly await regulations for accountable care organizations (ACOs), which can share in Medicare's savings if they furnish efficient, high-quality care. But many worry that in creating ACOs they risk violating fraud, abuse, and antitrust laws.

THE ANTITRUST CONSUMER WELFARE PARADOX

“Consumer welfare” is the only articulated goal of antitrust law in the United States. It became the governing standard following the 1978 publication of Robert Bork's The Antitrust Paradox. The consumer welfare standard has been instrumental to the implementation and enforcement of antitrust laws. Courts believe they understand this standard, although they do not bother to analyze it. Scholars hold various views about the desirable interpretations of the standard and they selectively use random judicial statements to substantiate opposite views. This article introduces the antitrust consumer welfare paradox: it shows that, under all present interpretations of the term “consumer welfare,” there are several sets of circumstances in which the application of antitrust laws may hurt consumers and reduce total social welfare. This article shows that, when Bork used the term “consumer welfare,” he obscured basic concepts in economics. This article clarifies that the antitrust methodology permits only surplus analysis and does not accommodate welfare analysis. It explains the conceptual differences between the terms “surplus” and “welfare” and the relevant implications. This article further explains the differences between two other competing standards—“consumer surplus” and “total surplus”—that presently serve as proposed interpretations for the term “consumer welfare.” Each interpretation has some limitations and the necessary analytical progress calls first for conceptual clarity. This article argues that whatever good ends the “consumer welfare” phrase may have once served, antitrust law should now lay it to rest.

Antitrust and Vertical Integration in ‘New Economy’ Industries with Application to Broadband Access

Whether the firms that supply Internet hardware and software should face restrictions on the use of their property is an important and controversial policy issue. Advocates of “net neutrality” – including President Obama and the current FCC majority – believe that owners of broadband distribution systems (hardware used to distribute Internet and video services) and producers of certain “must-have” video content should be subject to prophylactic regulation transcending present-day antitrust law enforcement. Their objective is to protect the free and open culture of the Internet from efforts to foreclose or limit competition in the provision of content, including online video services, which they see as potential competition to older video distribution methods.In the economic terms used in debates on competition policy, the concern is with vertical integration which may give firms both the opportunity (through denial of access or price discrimination) and incentive (increased profit) to restrict competition. Antitrust laws already provide tools to deal with such concerns, as illustrated by the antitrust breakup of the old Bell System, designed to remedy precisely these offenses. But, except in merger cases, antitrust usually is an ex post remedy. Do “new economy” industries have characteristics that make vertical integration so potentially pernicious that ex ante regulation is justified? Or do “new economy” industries on the contrary exhibit features that make ex ante regulation futile or even dangerous?The air in Washington is alive with contending voices taking sides on these issues. I engage the debate first by attempting to deconstruct the terms “vertical integration” and “new economy;” which turn out to be surprisingly elusive concepts. I briefly review theoretical and empirical work on vertical integration as it relates to antitrust policy, especially in “new economy” industries. I assume that the policy objective is to promote welfare. My goal is to identify circumstances in which vertical integration creates suspicion of adverse welfare effects sufficient to justify prophylactic (ex ante) regulation.The paper’s central point is that virtually every production process in the economy is in part vertically integrated, and economics predicts changes in the extent of vertical integration – that is, changes in the boundaries of the firm – in response to changes in relative prices, technology, or institutions. Both vertical integration and changes in the extent of vertical integration are benign characteristics of efficient, dynamic, competitive markets.While there is no shortage of theoretical models in which vertical integration may be harmful, most such modes have restrictive assumptions and ambiguous welfare predictions – even when market power is assumed to be present. Empirical evidence that vertical integration or vertical restraints are harmful is weak, compared to evidence that vertical integration is beneficial – again, even in cases where market power appears to be present. Thus, it is reasonable to conclude that prophylactic regulation is not necessary, and may well reduce welfare. Sound policy is to wait for ex post evidence of harm to justify interventions in specific cases. Net neutrality is an unfortunate idea.

The EU/US Cooperation in the Field of Antitrust Law Enforcement – Some Challenges to Future Cooperation

Today, undertakings frequently operate in an international environment where cross-border arrangements are common. As a result, it is easier for them to circumvent national competition laws by taking advantage of differences between countries. Consequently, this has increased the risk of cross-border anti-competitive conduct. In order to cooperate better and lessen differences in the application of their competition laws, the European Union and the United States have concluded different agreements and understandings between them. This paper aims to examine how these agreements and understandings have worked in practice and to define the main problems in the application of the EU and US antitrust rules in situations, which might also have an impact on the territory of the other contracting party. In addition, it intends to outline the main challenges for a functioning cooperation, particularly in light of the intention of the European Commission to foster private enforcement of the antitrust rules.

European Antitrust Policy 1957–2004: An Analysis of Commission Decisions

This paper provides a survey of European antitrust law enforcement since its foundation in the Treaty of Rome of 1957 up to and including 2004. We present a complete overview and statistical analysis of all 538 formal Commission decisions under Articles 81, 82, and 86 of the European Community Treaty. We report a range of summary statistics concerning report route, investigation duration, length of the decision, decision type, imposed fines, number of parties, sector classification, nationality, and Commissioner and Director General responsible. The statistics are linked to changes in legislation and administrative implementation, thereby providing an historical overview that summarizes the Commission’s work in the area of antitrust. One or more appeals were filed with respect to 161 of the 538 decisions. We estimate the determinants of the size of the imposed fine and probability of appeal when an infringement has been found.

Incomplete antitrust laws and private actions for damages

Our purpose in this paper is to identify some of the implications that derive from the incompleteness of antitrust laws. Since with regard to certain anticompetitive conduct, the law remains substantially incomplete up to the first relevant court judgment, in terms of policy it is worth concentrating on stand-alone claimants who, not relying on earlier judgments, face very high evidentiary requirements, while generating large positive (information) externalities for potential follow-on claimants. The paper is structured as follows. In Sect. 2, we introduce the notion of incompleteness of the laws and address the process of production of evidence in antitrust lawsuits. Sect. 3 provides a survey of EU national case law and our summary of the results puts emphasis on incomplete laws, evidentiary requirements and stand-alone lawsuits. Sect. 4 presents a framework model to distinguish the decision-making processes for stand-alone and follow-on claimants in the presence of incomplete antitrust laws. In Sect. 5 we introduce a vector autoregressive model that we test with reference to the US antitrust law enforcement regime. Sect. 6 discusses some policy options and concludes the paper.

Public vs. Private Enforcement of Antitrust Law in Unilateral Conduct Cases - The Interaction Between the Economic Review of the Prohibition of Abuses of Dominant Positions and Private Enforcement

The present paper analyzes the interaction between the economic review of the probition of abuses of a dominant position (Article 82 EC) on the one hand and the efforts to enhance private enforcement of competition law through private damage claims on the other hand. The paper argues that effective enforcement requires that exactly those cases should be selected for decision which cause the type of negative welfare effects that Article 82 EC seeks to prevent. The author finds that public enforcers seek to repress unilateral business strategies causing harm to competition as protected by Article 82 EC. Private plaintiffs, by contrast, are motivated by the prospect of gaining damage awards which depends on their individual harm. The paper distinguishes several groups of private plaintiffs. For each, it is asked whether there is a correlation between individual harm and harm to competition. As it turns out, there is a divergence in the incentives of public enforcers as compared to certain potential private enforcers. In cases where there is harm to competition but no or only little individual harm there is concern for an under-deterrence through private enforcement. On the other hand, there are cases where private parties have an incentive to go to court even though there is no or little harm to competition. This might result in an over-deterrence. The paper concludes by discussing the consequences for reaching an optimum level of enforcement and the influence of a more economic understanding of Article 82 EC. A widely similar version of this paper has been published in: Mackenrodt, Mark-Oliver/Conde Gallego, Beatriz/Enchelmaier, Stefan (eds), Abuse of Dominant Position: New Interpretation, New Enforcement Mechanism? Springer 2008.

The consequences of the US DOJ’s antitrust activities: A macroeconomic perspective

Do the antitrust law enforcement activities of the US Department of Justice act as exogenous “technology shocks” or as “markup shocks” limiting market power and promoting economic growth? We analyze annual time series data from 1947 to 2003 on three measures of federal antitrust intervention: the ratio of the Antitrust Division’s budgetary expenditures to GDP as well as the numbers of civil and criminal antitrust cases instituted. We find that changes in the levels of these policy variables act like negative technology shocks and that the negative effects are transitory; antitrust policy generates no subsequent offsetting increases in productivity.

Public choice theory and antitrust policy

We survey the pioneering contributions of Robert Tollison to the theory and practice of antitrust law enforcement. Inspired by his period of service during Ronald Reagan’s first administration as Director of the Federal Trade Commission’s Bureau of Economics, Tollison was the first scholar to apply public choice reasoning to the question why antitrust frequently fails to achieve its stated goal of protecting consumers against unwarranted exercises of market power. In supplying evidence that the outcomes of antitrust processes are shaped more by special interests than by the public’s interest, he was instrumental in launching a wholly new research program.

Antitrust and the Future of the Connected World Under Obama

This paper aims to serve as a preliminary background for computer lawyers considering some of the issues involved when networked communications, information and computer systems and related intellectual property are considered in an antitrust context. The box of antitrust, with its constrained view of the world and inability to understand the world as it has changed in a hundred years apart from time-tested and outdated thinking embedded in decades of US antitrust cases, is constrained by ossified competition law, intellectual property and economic thinking despite the vast changes in our world since the introduction of the Internet. During its thirty year dormancy (according to some), antitrust leaned away from enforcement and toward strong intellectual property rights, withstanding a variety of challenges as the world moved from the written to the digital word, from information limits to unlimited information, from old to new technologies, from delayed to immediate communications. We are now at a crossroads in antitrust and competition law enforcement. Apart from per se offenses like horizontal price fixing and bid rigging, for which damage is certain, industry-wide and economy-wide studies are essential if we are not to upset our currently efficient systems in favor of some new unknown. For many reasons, antitrust change under Obama provides an opportunity for a better and more comprehensive vision of the interfaces involved in the Internet, computer systems and competition. The systems and issues discussed above warrant consideration of new perspectives and renewed understanding of the ways in which antitrust laws affect innovation and markets.

European Antitrust Policy 1957-2004: An Analysis of Commission Decisions

This paper provides a survey of European antitrust law enforcement since its foundation in the Treaty of Rome of 1957 up to and including 2004. We present a complete overview and statistical analysis of all 538 formal Commission decisions under Articles 81, 82 and 86 of the European Community Treaty. We report a range of summary statistics concerning report route, investigation duration, length of the decision, decision type, imposed fines, number of parties, sector classification, nationality and Commissioner and Director General responsible. The statistics are linked to changes in legislation and administrative implementation, thereby providing a historical overview that summarizes the Commission's work in the area of antitrust. We estimate the determinants of the size of the imposed fine in case of an infringement. Against 166 of 538 decisions one or more appeals were lodged. We estimate the determinants of probability that a finding of an infringement is appealed against.

The effects of mergers with dynamic capacity accumulation

The U.S. antitrust law enforcement agencies often base their assessment of mergers on a model with asymmetric costs. However, in many near-homogeneous product industries there is evidence that cost differences are minor and capacity differences seem a more reasonable explanation of firm heterogeneity. Based on simulations from a dynamic model of capacity accumulation, I find that mergers are welfare-reducing and that their long-run effects are worse than their short-run effects. If instead the simulated data is fit to an asymmetric costs model, the long-run welfare-reducing effects of mergers will be systematically underestimated, which can give rise to misguided antitrust policies.

Are Antitrust Fines Friendly to Competition? An Endogenous Coalition Formation Approach to Collusive Cartels

Few doubts are cast on the common opinion by which stricter enforcement of antitrust laws definitely makes market structure more competitive and prices lower. In this paper we challenge this presumption of effectiveness and show that the introduction of an antitrust fine may drive firms from partial cartels to a monopolistic cartel. Moreover, introducing uncertainty on market demand, we show that the socially optimal competition policy can call for a finite or even zero antitrust penalty even if there are no enforcement costs. We first show our results in a Cournot industry with five symmetric firms and a specific rule of cartel formation. Then we extend the analysis to the case of N symmetric firms and a generic rule of coalition formation. Finally, we consider the case of asymmetric firms and show that our results still hold for an industry populated by one Stackelberg leader and two followers.

On the rationale of leniency programs: a game-theoretical analysis

In order to enhance the enforcement of Antitrust Law, leniency policies were introduced in nearly all industrialized countries. These programs aim at deterring and eliminating cartels. In this paper we analyze the rationale of the current European and German leniency regulation. We challenge the contemporary view that the standard leniency privilege is incentive-compatible with respect to its aim to enhance competition. Instead, we argue for it to be used as a preemptive strike against competitors under circumstances where cartels become unstable. This implies a tightening of markets in subsequent periods and, thus, a potential reduction in competition intensity. Given strategic reasoning by agents, the principal witness may assure an economically privileged position in the future. This consequence might not be intended by the bonus regulations. Nevertheless if the leniency policies lead to more competition in the market the results should be welcomed by the national cartel offices. We give anecdotal evidence of the German cement case and base our arguments on a game-theoretical model.

A Class Action Model for Antitrust Damages Litigation in the European Union

This article reviews the legal and economic structure of the class action litigation model in the United States, as set forth by rule 23 of US civil procedure, exploring the requirements for obtaining class certification and maintaining a class action. I analyse a number of critical issues and inefficiencies connected to the adoption of class action as a tool for adjudicating controversies. The article, then, takes into consideration the issue of private antitrust litigation in the European Union, at the moment still underdeveloped. A Green Paper recently published by the EU Commission includes proposals for the adoption of private antitrust damages litigation in the EU, but, even suggesting the possible adoption of a collective action model, never mentions class action as a viable solution. I consider some of the questions raised by the EU Commission in the Green Paper. Relying on the fact that US courts have repeatedly stated that antitrust controversies are suitable for class action treatment, I consider whether the US model of class action litigation might provide, although in an amended version, a satisfactory answer to the problematic issues raised by the Green Paper and represent an efficient tool for the private enforcement of antitrust law in the European Union.

Public vs. Private Enforcement of Antitrust Law: A Survey

There are two basic approaches to deterring socially harmful behavior: with the threat of litigation by private parties or with enforcement by public agencies. Both approaches are used in most countries, but in varying degrees. Private litigation is common in the United States and (to a lesser extent) the United Kingdom and other common law jurisdictions. In contrast, the civil law countries, such as those of continental Europe, have far less private litigation, and rely more on enforcement by public agencies. The difference between the two systems is notable in many areas of law, but it is particularly prominent in the enforcement of antitrust law. The present paper surveys the general economic issues regarding public vs. private enforcement and the (relatively scarce) economic literature that pertains to it. The analysis is pertinent to the 2005 proposal by the European Commission to facilitate private antitrust litigation in the EU by changing the procedural rules and some substantive law.