Antitrust and the More Economic Approach

Course outline and readings are avaialble at this link:

Antitrust and the More Economic Approach


Seminar 1 notes (concepts of competition)

Just a follow-up on the discussion on the first seminar – feel free to supply comments.

The point I think I wanted to get out of the Mueller paper is that there seem to be two ways of reading the impact of mergers. The present approach, which is what underpins the contemporary approach is to ask if the merger risks leading to a reduction in output as a result of the merged entity having enough market power to be able to do this. A merger that creates a monopoly is a paradigmatic example of this.

What Mueller appears to suggest is that most of the economic evidence shows that many mergers fail to yield the efficient outcomes that economic theory predicts. On the contrary, they tend to be inefficient. This explains why he suggests that mergers are prima facie blocked unless the parties can convince the regulator of an efficient outcome. The difficulty I see with this approach is that the inefficiency results not from market power but from the unhappy results of the merger. Then this is not an antitrust issue as such, because while there is an inefficiency, but not the result of an anticompetitive act. Hence, this is a very different reading of competition law intervention.



US Federal Competition Policy Expanded: North Carolina State Board of Dental Examiners v FTC

The quiet life of incumbents is often shattered by new paradigms – Uber’s controversial challenge to the taxi businesses of many countries is a colorful example of the synergy of technology and entrepreneurship doing battle with a rentier establishment. In the case at hand, the FTC saw something similar in a market for the vain: teeth-whitening services being offered by non-dentists at a price lower than the same services offered by dentists. The latter, using the State Board (the majority of which is made up of dentists), issued warnings to these pesky new entrants stating that the unlicensed practice of dentistry (including whitening of teeth) was a crime. Faced with such a potentially steep entry barrier, the new entrants abandoned the market. Is the conduct of the State Board an unfair method of competition under Section 5 of the Federal Trade Commission Act?

The answer to this question is more of constitutional law than antitrust. The anticompetitive effects are clear; the justification for this restriction on the basis of risks to health if teeth whitening was performed by non-dentists was not even pleaded on the facts; contrariwise, as the majority reports, complains to the State Board were based on the lower prices of the new entrants. Indeed it wasn’t even clear if it was true that the unlicensed practice of teeth whitening services was indeed a crime because the legislation did not include this service. And yet, in the world’s freest market, where under Federal Law the antitrust rules are compared to the Magna Carta, State laws may restrict competition, and there’s nothing (much) the Federal government can do about it. However, and this is the vital point which this judgment (North Carolina State Board of Dental Examiners v FTC) sheds light upon, such restrictions must be the result of state action for there to be antitrust immunity.

In briefest outline, this immunity (so-called Parker immunity after the seminal judgment) applies if the actor that restricts competition is either (1) the State acting in its sovereign capacity or (2) a private party, and then in this case only if (a) the restraint of competition is clearly articulated State policy and (b) that this policy is actively supervised by the State.

The State Board claimed that they benefited from immunity under the first limb of this doctrine because the Board had been created by the State. The bone of contention was how far this Board, created by the State (here under the Dental Practice Act) but populated by practicing dentists, merited immunity under that first limb.  In the view of the majority, they did not: ‘A non-sovereign actor controlled by active market participants’ has to satisfy the second limb of the test and in this case it failed to do so because there was no active State supervision when the Board took the view that teeth whitening fell within its competences and that it was thus appropriate to send letters ordering non-dentists to stop offering teeth whitening services.

It follows that companies like Pro-Teeth Whitening might now re-open in Charlotte, North Carolina where it operated before the Board’s actions.

(1) The widening scope of Federal Competition Policy

The three dissenting Justices considered that more deference to State policies was warranted. Beneath the technical debates on whether the majority approach is consistent with precedent one gets a sense that the dissenting Justices are worried about departing from the original division of powers, so that the main bone of contention is about the constitutional balance being fixed rather than fluid. Thus the dissenters open by noting that State Dental Boards were always organized thus even before the Sherman Act. To Europeans this is a bit odd, because we know that we can use the TFEU precisely to challenge age-old practices. In Consorzio Industrie Fiammiferi the competition rules were used to challenge a 1923 Royal decree, for instance. To Europeans, competition law (and internal market law) applied to state conduct is a powerful crowbar to force states to rethink age-old restrictive practices. Of course some think this leads to neo-liberal oblivion, to others it shows we’ve got the most free market constitution in the world.

(2) Rules and Standards

The dissent felt, rightly, that the approach of the majority was also problematic because it would yield implementation problems. The rule-based approach supported by the dissent is easy to apply (Is the Board created by the State? If yes immunity) is a lot easier to apply to any case that may arise than the test of the majority (is the Board ‘controlled by active market participants, who possess singularly strong private interests’ such that there is a ‘structural risk of market participants’ confusing their own interests with the State’s policy goals’? If yes then immunity must satisfy the second limb of the Parker immunity doctrine). Is this a sufficiently strong argument to lead one to support the dissent’s view that the standard is unwieldy?  I am optimistic that Federal courts will be able to find a way of testing how far the composition of the agency is sufficiently remote from the commercial interests the agency regulates.  Moreover, even if we agree with the dissenting justices that ‘regulatory capture can occur in many ways’ is it not preferable to have a test that tries to challenge more of those occurrences, rather than fewer of them?

In oral argument, many of the Justices were troubled by the tension: surely the best way of regulating a profession is to ask professionals what to do (an example that was used is neurosurgery: surely nobody wants bureaucrats deciding on the best practices for neurosurgery).  But this is to misread the debate. The FTC was not claiming that a regulatory board composed of self-interested experts is illegal. It is merely saying that if a State creates such a regulator, it has to actively supervise it and so the State has a duty to be the competition advocate and to ask the regulator to justify restrictive policies.
(3) Procedural Public Interest

North Carolina may still try and ban non-dentists by more direct involvement with the Board. As the majority said, if State can make a claim that an anticompetitive policy is the State’s own choice, then this suffices for antitrust immunity. No substantive test is needed to measure how far the harm caused by an anticompetitive market compares to the benefits of state regulation.  The public interest, to recall Harm Schepel’s important paper (’Delegation of Regulatory Powers to Private Parties under EC-Competition Law: Towards a Procedural Public Interest Test’. (2002) 39(1) Common Market Law Review 31) is defined procedurally rather than substantively. Why so?

Perhaps doing this kind of comparison between consumer interests and producer interests is invidious (but isn’t cost-benefit analysis now so widespread?).

Perhaps States value what little residual sovereignty they still have over economic policy (spare a thought for Greece).

Or perhaps it all boils down to this: as the majority noted, if North Carolina wants to ban cheap teeth whitening services it may do so in a way that falls under Parker immunity. It will be for voters to then decide if this was the right policy choice.  If so, here is a nice exam question: ‘Democracy can, and should, determine how free markets are. Discuss.’

(This posting also appeared at I thank the editors of that fine blog for the invitation to comment on this judgment.)

OMT’s Inevitable Legality?

Two sets of considerations on the Advocate General’s Opinion delivered on 14 January 2015 in Case C-62/14, Gauweiler et al v Deutscher Bundestag.
1. Inevitable legality

The first starts from the premise that there are certain cases when a court cannot but give one kind of answer. This can be grounded in cynicism: judges may tolerate condemnation by the Financial Times when they wreck actuarial practices (Test Achats) or Daily Mail headlines when they extend rights (pick your case); but judges won’t render a judgment that causes real havoc, which may well follow if they were to rule on OMT’s illegality. Or you can ground it on the basis that the court cannot damage the entire architecture of the legal system upon which it rests. The first judicial instinct has to be self-preservation. Much like in Pringle then the court in OMT cannot but say: yes this stuff is legal. So, reasoning backwards from the premise that this is the answer, here is how one can read the four planks of the Opinion:

(a) An odd preliminary ruling request (paragraphs 30 to 69)
Paragraph 49 is an exercise in diplomacy, a quick translation is: this national court wants the ECJ’s view even if it tells me that it can disregard what the ECJ says. But the ECJ can’t not hear the case because this would be too risky. So you wriggle out of the logical conclusion that this is not a proper request and you say we ‘trust the national court… to accept [our] answer as decisive.’ (paragraph 67)
(b) Admissibility (paragraphs 70-91)
How can you challenge a press release? Recall, OMT was announced but not implemented. But again, you cannot risk not hearing this case so it has to be admissible. Thus, in this context you say that ‘public communication’ is important for the implementation of monetary policy.’ (paragraph 73) and this is proven by the impact that the announcement still has today (paragraph 84, last sentence). Therefore public communication is an instrument of monetary policy (paragrah 86) and so we can review its legality.
(c) Is OMT really monetary policy? (paragraphs 92-202)
Monetary policy is conducted by a set of instruments that lead to price stability. However the conventional instruments may be impaired by exogenous factors. In this case, the AG says that the ECB can use ‘unconventional’ monetary policy measures to ensure that the conventional monetary instruments work. Under three conditions: (1) the instrument must aim to deliver price stability; (2) it takes the form of an instrument in the Treaties; (3) it must comply with fiscal discipline. But (to use antitrust jargon) ancillary measures are also allowed: ‘isolated economic policy aspects’ taken by the ECB are OK if they support the economic policy measures & are subordinate to the ECB’s objective. (paragraph 132)
But, having said that, OMT can only be described as monetary policy if there is ‘functional distance’ between it and the ESM’s financial assistance programmes (150). This gives something to the opponents by making the formalistic dividing line between monetary and economic policy look tidier: the ECB is not bond-buying to supplement the rescue package.
Moreover, when a specific OMT policy is implemented the ECB will have to establish the reasons for using unconventional monetary policy & a template for what is needed is fixed at paragraph 167. This is so that a court can test the proportionality of the measure at stake. I may be missing something but then if proportionality is only to be assessed later, why do we have an examination of it now starting at para 170? Perhaps this is just to help everyone understand how the test is to be done. One quick reading of this discussion is this: yes OMT means that the ECB is taking a risk, but it has to show it is a calculated risk without at the same time making financial markets fearful of the policy’s success. Thus the OMT purchases cannot give the ECB preferred creditor status, and there can be no ex ante limit to purchases, otherwise the ECB is factually unable to do ‘whatever it takes’ to save the Euro.
(d) Is OMT a bail-out of a member State? (paragraphs 204 to 262)
As with Pringle, there is plenty of wriggle room even when a Treaty Article seems very tightly drawn: the ECB can buy bonds on secondary markets provided there are safeguards to ensure it stays within the rules. Here again something for the objectors: the timing of the purchase must be such that it looks like a price in the secondary market has been fixed. Yes, buying these bonds will trigger interests of investors in the primary market – but is this not a good thing?
Bottom line: the ECJ has to hear the case and cannot dismiss it on procedural grounds; the ECJ has to say OMT is lawful but it can give something to the objectors by tidying up the procedures by which the ECB exercises its powers.
2. Beyond OMT
There are obviously many big issues at play in the case, let me focus on one: does it really make sense to challenge the legality of the ECB’s measures? Given that the courts have to support these initiatives lest the entire edifice crumbles, it is not as if they can really offer a counterpoint to whatever it is that critics think is lacking when the ECB tries to rescue the financial system. The best you can hope for are some procedural safeguards, as proposed here, which maintain the effectiveness of the proposed programme while trying to put some limits which cannot however frustrate the thrust of the policy.
I am not saying that the ECB should receive a blank cheque, rather that we don’t need litigation to deter the ECB from taking steps that are ultra vires. The ECB is ‘deterred’ by the way the economy responds to its signals. Juxtaposing to this kind of output legitimacy some sort of input legitimacy based on the domestic constitutional settlement in one or more Member States does not strike me as the correct dialectic that moves anyone, markets or citizens, forward. This beautifully written Opinion adds further nuance to national and European constitutional law discourse, but its market impact (see Switzerland’s reaction) is as much a signal as the ECB’s press release. Who is it that wants courts to act as signalmen to markets?

Competition Law Courses at EUI

This website holds a record of the seminar courses that I have taught at the EUI since joining in 2010. It is work in progress but I hope it serves as a resource for those interested in teaching competition law.

So far I have taught the following courses:

Fall 2010: Competition Law and Economics Through Case Studies

Spring 2011: State Aid Law and Policy

Fall 2011: Procedures and Procedural Justice in the EU

Spring 2012: The US Supreme Court and Antitrust

Fall 2012: Competition Law Intersections

Spring 2013: Heterodox Law and Economics

Fall 2013: EU Competition Policy and Law

Spring 2014: Economic Analysis of Law

Fall 2014: Regulating for Competition

Fall 2018: Antitrust and the More Economic Approach