Competition Law and Economics 2010

Overview

Contemporary competition law analysis rests on insights gained from economics.  During the past fifteen years the EU Commission has sought to inject a ‘more economics oriented approach’ to its enforcement of competition law. The aim of this course is to consider the integration of law and economics in the development of competition law norms in the EU. The first set of seminars will introduce a set of case studies where we can explore the use of economics in shaping our understanding of the relevant legal doctrines. These case studies will draw upon the three key fields of EU competition law: the regulation of anti-competitive agreements; abuse of dominance; and merger control. In this way the course serves as a reminder/introduction to the key issues that competition law addresses as well as an introduction to the role economics plays in this field. The last set of seminars will take stock of what we have observed and consider questions like: is the use of economics legitimate? What role for the courts in an era where Commission decisions are grounded in economics? Is the right sort of economic analysis used?

 

Teaching method

For each seminar students will receive a reading list and a set of discussion questions. Students will be required to read the relevant case, plus the economics-based literature in advance of each seminar, and to come to each seminar ready to discuss the readings. However, no prior knowledge of economics is required.

 

Readings

If the material set is available in a journal that is accessible electronically then I will not post this on line, but you will have to search for it yourself. The reason for this is that by searching you familiarize yourself also with the contents of the journal and you may find other interesting articles than if I spoon fed you PDF files. However, PDF copies will be made available whenever an item on the reading list is not available electronically, for example book chapters.

 

Aims and Objectives

This is the first time I run a course at EUI, having taught on exam-based LLMs before. I have tried to deliver a course that is deliberately not like an LLM course, but one that is designed to cater to your current studies as researchers. Thus the course is less a primer on competition law and more a discussion of issues and literature. The aims thus are as follows:

 

  • To give you some familiarity with the economics-based approach to competition law, its methods and implications
  • To stimulate debate on the specific applications as well as to the legitimacy of the approaches taken
  • To give you the opportunity to discuss, critically, the readings set and identify strengths and weaknesses in the literature.

 

Syllabus

This is an indicative list of topics – we can tweak this list if students have specific topics of interest they wish to consider.

 

Seminar 1: Key concepts and the role of efficiency in competition decisions

Seminar 2: Market definition: role and methods

Seminar 3: Abuse of Dominance: Predatory Pricing

Seminar 4: Abuse of Dominance: Rebates

Seminar 5: Unilateral effects in merger control

Seminar 6: Evaluating EU and US merger regulation

Seminar 7: Rule design, decision theory and competition law

Seminar 8: Behavioural economics and competition law

Seminar 9: Economics and the decision making process

Seminar 10: Critics of the Economics-based approach

 

 

Seminar 1 (7 October 2010): Key concepts and the role of efficiency in competition decisions

 

Overview

I will lead this session with a brief overview of some basic economic concepts and some history about the integration of economics in competition law. This will be based roughly around Ch.3 of Monti EC Competition Law (Cambridge, 2007). This will be followed by a discussion of the case studies below.

 

Please prepare by reflecting on the two case studies both from a legal and an economic perspective, using what you know about EU competition law (or the competition/antitrust laws of any other jurisdiction that you may be familiar with), and also from what you consider to be an appropriate economic perspective. If you consider other kinds of considerations should be relevant, be prepared to explain what these are and how you would defend their use.

 

Reading

 

Renckens ‘Welfare Standards, Substantive Tests, and Efficiency Considerations in Merger Policy: Defining the Efficency Defense’ (2007) 3(2) Journal of Competition Law and Economics 149

 

For Discussion

 

Case 1: Company A has a 60% share of the market for calamine, a compound extracted from rocks that is used to make a lotion to soothe irritated skin and is particularly in demand among the elderly. Company B has a 40% share of the same market. There are no imports from outside the jurisdictions of both companies. The two companies wish to merge, and they believe that this merger will be beneficial because both of them will be able to share each other’s know how. It has been estimated that the effect of such sharing will be to reduce the production costs of the merged entity by half.  The merger has a Community Dimension and the EC Commission has determined that the merger risks creating a dominant position which would substantially impede effective competition. The parties believe that the Commission cannot ignore the efficiencies promised by this merger.

 

Discuss the Commission’s assessment and the parties’ position.

 

You may want to refer to:  Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings [2004] OJ C31/5 (esp. paras. 76-88)

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52004XC0205(02):EN:NOT

 

Case 2: Company X is one of the world’s six leading pharmaceutical companies. It has recently developed a new drug which is in high demand and is supplied via various national health schemes. Company X has a network of contracts with distributors in all the Member States, each of these contracts forbids the active and passive sale of the drug into other Member States. The result is that there is no parallel trade. The Commission considers that this is an egregious infringement of Article 101 TFEU (but will only impose a financial penalty on Company X and not its co-contractors), while the parties contend that the restriction is necessary to allow it to recoup its investment and ensure the future supply of new and improved drugs.

 

Discuss the Commission’s assessment and the parties’ positions.

 

You may want to refer to: Guidelines on the application of Article 81(3) of the Treaty [2004] OJ C101/97

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52004XC0427(07):EN:NOT

 

The example is based on a spate of recent case law, which includes Joined Cases C‑501/06 P, C-513/06 P, C-515/06 P and C‑519/06 P GlaxoSmithKline Services Unlimited v Commission judgment of 6 October 2009.

 

 

 

For further discussion

 

  1. Does it make sense for the Commission to design an efficiency defence that operates in the same way for Article 101 TFEU and the EC Merger Regulation? Should we also consider efficiencies with the same standard in Article 102 TFEU cases?

 

 

  1. Can you think of a better way of designing an efficiency defence or, as is sometimes put, of integrating efficiencies into the analysis of a competition law issue?

 

 

  1. What is wrong with the test proposed by Williamson in 1968, that if a merger increases productive efficiencies by  factor of 5, and decreases allocative efficiencies by a factor of 3, that the merger should be allowed because the overall level of efficiency is increased? (Williamson: Economies as an Antitrust Defense (1968) 58(5) American Economic Review 1372).

 

 

  1. ‘If we cannot integrate efficiencies into the analysis of a competition law issue, this means that we have failed to design appropriate legal standards.’ Do you agree?

 

 

Seminar 2 (14 October 2010): Market Definition: role and methods

 

Overview

 

Many cases are won or lost on market definition. Historically the Commission’s approach was quite weak, but since 1990, with the coming into force of the EC Merger Regulation, the Commission has become more rigorous in delineating markets, and its practice was crystallized in the Notice on market Definition in 1997. Some tinkering with the Notice was mooted by DG Competition in its Discussion Paper on Exclusionary Abuses in 2005, but nothing materialized in the Guidance Paper that followed in 2008.

 

The aim of this seminar is to consider the strengths and weaknesses of the processes set out in the 1997 Notice, helped by a couple of case studies that come from UK competition law. (Where, roughly, the same principles as those that appear in the Commission Notice are applied). I selected these cases because they deal with services offered to final consumers, where market definition is more tricky than when dealing with intermediate goods.

 

A brief note on the UK institutions in the case studies: for abuse of dominance and agreements, public enforcement is exclusively with the Office of Fair Trading (OFT). It applies both EU and UK competition law (the two sets of rules are very similar in wording and the application is also very close). Appeals against the decision of the OFT are to a specialist court, the Competition Appeals Tribunal. Further appeals from that court are to the Court of Appeal and then the Supreme Court. For mergers, phase 1 analysis is for the OFT. If the OFT is worried about the merger, this is referred to the Competition Commission (CC) for a closer study and a final decision. Appeals against CC decisions follow the same path as appeals against OFT decisions.

 

Reading

 

EC Commission Notice on Market Definition [1997] OJ C372/5

 

One of

 

Camesasca and van den Bergh ‘Achilles Uncovered: revisiting the European Commission’s 1997 market definition notice’ (2002) 47 Antitrust Bulletin 143

 

Baker ‘Market definition: An Analytical Overview’ (2007) 74 Antitrust Law Journal 129

 

 

Case study 1: ME Burgess JJBurgess and SJ Burgess (trading as JJ Burgess & Sons) v OFT [2005] CAT 25. This is a judgment of the Competition Appeals Tribunal. It is available from the CAT’s website. http://www.catribunal.org.uk/

 

Understand the facts from the opening few paragraphs, then study the following passages: paragraphs 87-96 (the OFT’s determination of the relevant market); 141-159 (submissions to the CAT); 166-173 (summary of the law); 174-180 (geographic market for funeral directing services); 187-245 (geographic market for crematoria services according to the CAT).

 

Case study 2: Sportech plc/Vernons, decision of the Competition Commission. There is a large bundle of documents that can be obtained here

http://www.competition-commission.org.uk/inquiries/ref2007/sportech/index.htm

 

For today we focus on market definition, see Chapter 5 of the Commission’s 11 October 2007 report, at this link

http://www.competition-commission.org.uk/rep_pub/reports/2007/fulltext/533.pdf

 

 

 

 

 

 

For Discussion

 

1. Why might market definition analysis differ between the following scenarios: (a) the Commission is investigating the likely effects of a merger; (b) the Commission is investigating the ongoing abuse of a dominant position; (c) the Commission is investigating a price fixing cartel.

 

 

2. Why was market definition important in resolving Burgess? Was market definition as important in the football pools case?

 

 

3. In Burgess, do you prefer the analysis of the OFT or that of the CAT? And why?

 

 

4. Discuss the range of evidence used by the Competition Commission in determining the relevant market in the football pools merger.

 

 

5. Explain how the SSNIP test operates. What are the advantages and disadvantages of this test? Can the SSNIP test operate only for defining product markets or can it also be used to define geographical markets?

 

 

6. What else, in addition to the SSNIP test, is used by the Commission to define the relevant product market according to the guidelines?

 

 

7. Define demand and supply substitutability. What is the relationship between supply substitutability and entry barriers?

 

 

8. In Case T-177/04 the CFI said: “Substitutability must therefore be looked at not only from the supply side but also from the demand side, which remains, in principle, the most effective assessment criterion.” [99] How can this conclusion be justified or challenged?

 

 

9. What is the ‘cellophane fallacy’ and what ways are there to avoid committing it?

 

 

10. From an economic perspective, do you agree that the guidelines are to be welcomed?

 

 

11. The Guidelines are a ‘soft law’ instrument. While one might evaluate them positively with an economist’s eye, from a legal perspective, are there any concerns about the import of economic concepts in this way?

 

 

 

 

Seminar 3 (21 October 2010): Abuse of dominance: predatory pricing

 

Overview

The next two seminars consider the application of Art 102 TFEU (ex Art 86 EEC, ex Art 82 EC), which prohibits the abuse of a dominant position. From an economics-perspective the use of this provision by the Commission and the Courts has been poor, according to most commentators.

 

In 2003 or so moves were afoot within DG Competition to rethink its approach to this provision. Main reason for change are the need for international prestige and (related) the wish to set global standards for abuse. However, in rethinking its approach some factors militated against change: (i) the Commission won (and still so far wins) all its abuse cases (with one minor failure in Continental Can), any change may impair its enforcement success; (ii) the case law of the ECJ ratified the Commission’s interpretation of the law, and while there is no system of precedent, it would be risky to change the law unless one rewrote the Article, however nobody thought of doing so during the many revisions of the Treaty; (iii) for all the criticisms there is a good amount of legal certainty in the case law.

 

While the EU was pondering how to tackle this issue, the US and Canadian agencies also began public consultations, and the issue was also discussed in the International Competition Network. Almost all of these initiatives have been controversial: the US Department of Justice Published its Report in 2008, but the Federal Trade Commission refused to ratify it, and then the Obama Administration rescinded it. The ICN talks have revealed very different visions globally over how to address dominant firm conduct. The EU document, the Guidance Paper on the Commission’s Enforcement Priorities (2008), has also been savaged by commentators.

 

The Guidance Paper is an odd document. It is not a legislative text but while on the one hand it sets out the law as it is, on the other it makes certain alterations to the way the Commission may analyse certain abuses. The hope is that the new analytical approaches will be read by the courts as being inherent in the case law or allowed because of the Commission’s wide margin of appreciation when addressing complex factual and economic scenarios.

 

In the first seminar we look at the law relating to predatory pricing and then at the economic analysis of the same practice as a means of testing how far the two approaches are aligned or apart. One of the readings is a paper prepared at the request of DG Competition by a group of eminent European economists. The idea behind this seminar is to debate whether reform was needed and, based on the economic analysis, what this reform might imply. In the seminar next week we turn to the actual reform.

 

 

Reading

 

Case T‑340/03 France Télécom v Commission [2007] ECR II‑107 (focus on the discussion of the substantive law, from para 73 onwards. Focus on market definition, dominance, price alignment, predatory plan, recoupment. But feel free to raise other issues that arise in the case.

 

Then see the debate on the recoupment between the ECJ and the AG in Case C‑202/07 P France Télécom v Commission [2009] ECR I‑2369. The relevant paras are 103-113 of the ECJ, and around para 68-77 for the AG.

 

One of

Church and Ware Industrial Organization A Strategic Approach (2002) ch.21

This book is available for download on-line at: http://homepages.ucalgary.ca/~jrchurch/page4/page4.html

 

Economic Advisory Group on Competition Policy An economic approach to Article 82 (2005)

http://ec.europa.eu/competition/antitrust/art82/index.html

 

For Discussion

 

1. Explain what legal requirements are necessary and sufficient to reach a finding of predatory pricing under EU Law.  Then examine how far this legal test matches with the economic analysis of such a practice.

 

 

2. From the economic analysis suggested by the EAGCP and/or Church and Ware, how would you frame an inquiry into predatory pricing in the France telecom case? What additional information would you require before reaching a finding of predation?

 

 

3. What are the justifications given by the ECJ for rejecting a recoupment requirement? Is the concept of intention a proxy for recoupment? Do you prefer the AG’s approach?

 

 

4. Do you agree with the suggestion in the EAGCP report that a dominance inquiry is unnecessary? Does it make sense from an economic perspective to test predatory pricing cases without first establishing the predator’s dominance?

 

 

5. Most people agree that the US Supreme Court’s skepticism over the existence of predatory pricing (that such schemes are rarely tried and rarely successful) is wrong, but is predatory pricing simply too difficult to establish if we are truly committed to an economics-based approach? (If you can read French you might like to look at Glaxo, Cour d’appel de Paris judgment of 8 April 2008 and see what lessons may be drawn from the French Competition Authority’s failure to persuade the court). http://www.autoritedelaconcurrence.fr/doc/ca07d09_glaxo.pdf

 

 

6. Is there any value (economic or not) in the approach of the ECJ to predatory pricing?

 

 

7. Is there (should there be) a meeting competition defence in EU competition law?

 

 

8. The EAGCP paper distinguishes between form-based and effects-based approaches to the abuse doctrine. Is the distinction a helpful one? Is it right to see it as a matter of either form or effects? Is the EU’s approach truly form based?

 

 

9. How useful is the threefold classification of exclusion in the EAGCP paper?

 

 

10. Consider also the way the Court deals with the definition of the relevant market and the concept of dominance.

 

 

11. The CFI at times speaks of abuse by ‘object’. This appears to introduce the object/effect distinction in Article 101 TFEU. Does this make any sense?

 

 

 

 

 

 

 

 

 

 

Seminar 4 (28 October 2010): Abuse of dominance: rebates

 

Overview

This seminar picks up from the previous one and considers the Guidance Paper on Article 82; in particular we look at what was wrong with the case law on rebates and how the paper tries to fix it. It is an open secret that the Guidance Paper only really reforms the rules in this field, leaving the approach in other types of abuse pretty much untouched (in part because of pending cases). We also try and think more broadly about the reform of abuse standards.

 

Reading

Case T-203/01 Michelin v Commission [2003] ECR II-4071

 

Motta ‘Michelin II – The treatment of rebates’ in Lyons (ed) Cases in European Competition Policy: the Economic Analysis (2009) (PDF file available on the course website)

 

Guidance Paper on Article 82 [2009] OJ C45/13. Look at parts I,II, and III, and then at the specific sections for predatory pricing and rebates

 

One from

 

DOJ Report Competition and Monopoly: Single Firm Conduct under Section 2 of the Sherman Act (2008) Chapters 1 and 3 (http://www.justice.gov/atr/public/reports/236681.htm)

 

Werden ‘Identifying Exclusionary Conduct under Section 2: The No Economic Sense Test’ (2006) 73 Antitrust Law Journal 413

 

Vickers ‘Abuse of Market Power’ (2005) 115 The Economic Journal F244-F261

 

Hylton ‘The Law and Economics of Monopolization Standards’ (2009) Boston Univ. School of Law Working Paper No. 08-18

 

 

For Discussion

 

1. Explain on what basis the commercial practices of Michelin were abusive. In other words, why was the firm condemned? Whose interests did it interfere with?

 

2. What does the judgment tell us about the standards for establishing abuse?

 

3. Do you find Motta’s critique convincing or is there something in the Michelin judgment that you consider makes sense (from an economic or another perspective)?

 

4. In what way does the Guidance Paper alter the way the Commission will analyse rebate cases? To what extent has the Commission designed a standard that is both workable and acceptable from an economics perspective?

 

5. Returning to the topic covered last week, how does the Guidance Paper deal with predatory pricing? Is it an improvement of the current law?

 

6. What is the legal status of the Guidance Paper? What is the Commission’s intention in issuing it?

 

7. Do you consider it helpful to attempt to generalize tests for abuse along the lines of those discussed by Werden, Vickers and the DOJ? (Consider the three major tests: the no-economic-sense test, the sacrifice test, and the consumer harm test.)

 

 

 

 

Seminar 5: Unilateral Effects in Mergers

 

Overview

 

Mergers between competitors (horizontal mergers) may create or strengthen a dominant position. The rationale for blocking these mergers is obvious: if dominance is a position of economic power that allows the firm to harm economic welfare, then any transaction that causes such power is economically undesirable (subject to any efficiencies, see seminar 1). Mergers in oligopoly markets may also raise concerns: (i) the merger allows for a collusive outcome (collective dominance), an issue which has been addressed in the Airtours and Sony/BMG cases; (ii) the merger gives the merged entity the power to raise prices even though it does not become dominant (unilateral effects). This seminar focuses on the latter.

 

In 2004 the EC Merger Regulation was reformed to cater for unilateral effects. Originally the 1989 ECMR regulated mergers which strengthened or created a dominant position and which caused a substantial lessening of competition. Now the ECMR also applies only if the latter condition is satisfied, that is if the merger is likely to substantially impede effective competition. However, quite what this means is unclear. The EU’s guidelines did not specifically explain how this new test was to be applied.

 

In 2010 the US agencies rewrote the merger guidelines to explain how they propose to identify unilateral effects. While there have not yet been many unilateral effects cases, and while I am not sure that this is really such a new class of case that could not be dealt with under the dominance test, we now have an important statement in the US Guidelines on how to deal with these kinds of scenarios.

 

The aim of this seminar is to first look at the economic model and how this is implemented in the Guidelines and how it might apply in some EU cases.

 

 

Reading

 

Section 6 of the US Department of Justice/Federal Trade Commission Horizontal Merger Guidelines (19 August 2010). Available at: http://www.justice.gov/atr/public/guidelines/hmg-2010.html

 

Shapiro ‘The 2010 Horizontal Merger Guidelines: From Hedgehog to Fox in Forty Years’ (2010). Forthcoming in Antitrust Law Journal, but available on SSRN. (easiest access is by googling the title)

 

Case study: Case COMP/M.3916, T-Mobile Austria/Tele Ring Commission decision of 26 April 2004 (available from: http://ec.europa.eu/competition/mergers/cases/). You can search by case number.  You can skim the decision, the key issues to look for are the evidence used to establish an anti-competitive risk.

 

 

Further reading (I will lead with a presentation of the key points in the papers below, but feel free to look through one or both of them):

 

Budzinski and Ruhmer ‘Merger Simulation in Competition Policy: A Survey’ (2009) 6(2) Journal of Competition Law and Economics 277

 

Levy ‘The EU’s SIEC test five years on: has it made a difference?’ (2010) 6(1) European Competition Journal 211

 

J.J. Simons and M.B. Coate ‘Upward Pressure on Price Analysis: Issues and Implications for Merger Policy’ (2010) 6(2) European Competition Journal 377

 

Further reading for enthusiasts

 

The key paper setting out the UPP framework: Farrell and Shapiro ‘Antitrust Evaluation of Horizontal Mergers: An Economic Alternative to Market Definition’ 15 February 2010 (available on SSRN)

 

An interesting response is Epstein and Rubinfeld ‘Understanding UPP’ (2010) 10(1) The BE Journal of Theoretical Economics, Article 21 (PDF available on the course pages shortly)

 

 

 

 

For Discussion

 

1. Explain the UPP test. First explain to what kinds of mergers it may apply, then explain how the test might predict a likely anticompetitive effect, and then explain how the test might address possible efficiencies.

 

 

2. Consider how the UPP test might be applied in the T-Mobile merger case.

 

 

3. In contrast to applying a UPP test, how did the Commission analyse the anticompetitive risks posed by the merger in T-Mobile?

 

4. Do you agree with the proposition that the SIEC test made a difference to the outcome of the T-Mobile merger?

 

 

5. Does it make sense to do away with market definition in merger cases? In all such cases? Are there other methodologies that can be used to test whether a merger might have anticompetitive effects?

 

 

6. What sort of impact would you have expected the SEIC test to have in EU merger laws? What sort of impact has it had?

 

 

Seminar 6 (11 November 2010): Evaluating Merger Control Rules

 

Overview

In the last decade or so there has been an increased interest in evaluating the performance of competition authorities. In part this is motivated by a state’s interest in knowing whether its agencies are working well, in part this is also the result of OECD peer reviews (eg the 2005 report on EU competition policy (http://www.oecd.org/dataoecd/7/41/35908641.pdf)  and other international networks of competition agencies and rankings of competition agencies by some lobbies. An interesting first attempt was a 1999 Federal Trade Commission study on divestitures in merger cases, which did lead to modifications in merger policy.

 

In the EU, a single case study was commissioned by DG Competition in 2006: LEAR ‘Ex Post Review of Merger Control Decisions’.

(Available here: http://ec.europa.eu/competition/mergers/studies_reports/lear.pdf).

 

Rather more interesting is the 2005 Merger Remedies Study written by DG Competition (available here: http://ec.europa.eu/competition/mergers/studies_reports/remedies_study.pdf).

 

Ex post study of merger rules is particularly interesting because one can test the agency’s predictions of the market. It would be less easy to study ex post the application of Article 102.

 

The readings for this seminar are divided into two lists. List one has three readings that carry out empirical studies of the effectiveness of merger policies. You can skip most of the algebra and look at the methods used more generally and also study the results.  List two has readings that look more generally at how/why one should examine the performance of agencies.

 

The aim of the seminar is to consider first the various methodologies that are proposed, second to think about the kinds of benchmarks by which one would evaluate merger policy outputs, and third whether and how far the economic analysis adds anything of value to designing policy.

 

 

Reading: at least one from each list

 

List 1

 

Bergman et al ‘Comparing Merger Policies in the EU and US’ (2010) Review of Industrial Organization

 

Duso et al ‘The Political Economy of European merger Control: Evidence Using Stock market Data’ (2007) 50 Journal of Law and Economics 455

 

Duso et al ‘An Empirical Assessment of the 2004 EU Merger Policy Reform GSEY Discussion Paper No. 337 (available on line here: http://www.sfbtr15.de/uploads/media/337.pdf)

 

List 2

 

Bergman ‘Quis Custodiet Ipsos Custodes? Or Measuring and Evaluating the Effectiveness of Competition Enforcement’ (2008) 156 De Economist 387 (This is in English, and the whole issue is devoted to ex post analysis)

 

Carlton ‘Why We Need To measure the Effect of Merger Policy and How to Do It’ (2009) 5(1) Competition Policy International

 

Kovacic ‘Assessing the Quality of Competition Policy: The Case of Horizontal Merger Enforcement’ (2009) Competition Policy International

 

 

 

 

 

For Discussion

 

1. How persuaded are you that stock market data could be valuable in analyzing mergers? Duso et al (2007) use it to study mergers ex post; what about using such information ex ante to decide which mergers to allow and which mergers to block?

 

2. What do the readings in List 1 try to achieve?

 

(a) Duso et al (2007) seem to find some errors in some cases in their sample: how to they show what the errors were, and what is the reason for their errors? Given their conclusions, how far does an economic analysis help in supporting those conclusions? Could the same results have been reached in other ways?

 

(b) Bergman et al (2010) have a comparative law approach. Again, what method do they use to evaluate the two jurisdictions, and how far could those results have been reached with more conventional comparative law tools?

 

(c) Duso et al (2010) use the following criteria to evaluate merger policy: 1) legal certainty; 2) frequency and determinants of type I and type II errors; 3) rent-reversion achieved by different merger policy tools; and 4) deterrence of anticompetitive mergers. Are these any good? How does the EU score on these criteria?

 

3. What sort of methods can be used to judge the effectiveness of competition policy? Is there an ideal method you would recommend?

 

4. Is it worth trying to evaluate the effectiveness of merger policy at all?

 

5. Do any of the readings suggest the need for any particular reform of substantive law or procedures in the EU or US systems?

 

6. Some of the papers test for the protectionism of an agency. This is an issue people like to debate esp when foreigners block mergers occurring abroad (eg the GE/Honeywell merger in the US blocked by the EU). How can protectionism be tested?

 

 

Seminar 7 (18 November): Decision Theory and Antitrust

 

This seminar discussion is based around item 1 on the reading list, which re-introduces the topic of decision theory. (There was an earlier exchange in the 1970s (see further reading list) and both of those earlier papers are worth revisiting).  As you will see this is not an economic theory that is designed to resolve a particular legal question, but about how to design rules, allocate burdens of proof and so on.

 

I want to try and link item 1 with a not dissimilar approach to competition law, first formulated by Frank Easterbrook in 1984, and revisited recently in a symposium in honour of the article (items 3 et seq of the list). A similar theme was touched by Christiansen and Kerber (item 2 on the list).

 

In large part the debate in this seminar can be traced back to an old legal discussion of the difference between rules and standards: the legal certainty and inflexibility of rules, versus the flexibility but legal uncertainty of standards. (For a recent paper by a major legal theorist on this issue see: Waldron ‘Vagueness and the Guidance of Action’ http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1699963.)

The rule/standard distinction ties in neatly with the US antitrust distinction between ‘per se illegality’ and the ‘rule of reason’.  This dichotomy exists mostly in cases of restrictive agreements, prohibited by Section 1 of the Sherman Act. The trend throughout the history of the Sherman Act has been one of reducing the scope for per se illegality and increasing the scope of examining each agreement on the merits (i.e. a rule of reason analysis). One of the latest manifestations of this is the Leegin case, to which we return in seminar 9.

 

Decision theory is about this dichotomy but it also encompasses a wider range of tools to design legal rules. Think for example about the topics covered in previous seminars and consider how far decision theory might explain certain approaches, or might help formulate improved standards.

 

Reading

 

Item 1, plus one other from the list below

(Note that the Journal of Competition Law and Economics is available also via WestLaw)

 

Beckner and Salop ‘Decision Theory and Antitrust Rules’ (1999) 67 Antitrust Law Journal 41

 

Christiansen and Kerber ‘Competition Law with Optimally Differentiated Rules’ (2006) 2 Journal of Competition Law and Economics 215

 

Easterbrook ‘The Limits of Antitrust’ (1984) 63 Texas Law Review 1

 

Markovits ‘The Limits to Simplifying Antitrust: A Reply to Professor Easterbrook’ (1984) 63 Texas Law Review 41

 

McChesney ‘Easterbrook on Errors’ (2010) 6(1) Journal of Competition Law and Economics 11

 

Cass ‘Competition in antitrust regulation.’ (2010) 6(1) Journal of Competition Law and Economics 119

 

Markovits ‘The Limits of Simplifying the Application of US antitrust law’ (2010) 6(1) Journal of Competition Law and Economics 51

 

Further Reading

 

Horowitz ‘Decision Theory and Antitrust’ (1976-77) 52 Indiana Law Journal 713

 

Brodely ‘The Possibilities and Limits of Decision Theory and Antitrust: A Reply to Professor Horowitz’ (1976-77) 52 Indiana Law Journal 735

 

 

For Discussion

 

1. What is decision theory? And what is the objective of using this theory to antitrust? Is it about getting the economically right decision in a case? Or is it about accepting wrong decisions?

 

 

2. Do you think it is appropriate to design a rule knowing that it is under or over inclusive?

 

 

3. Is decision theory in its very nature more likely to lead to rules that under enforce the law? Is this a problem?

 

 

4. Does decision theory help in designing enforcement priorities? Or does it only help in designing discrete rules for types of anticompetitive acts?

 

 

5. Is there scope, in competition law, for rules of per se legality? Do such rules fit within a decision-theoretical framework? How else might you justify them?

 

 

6. Is the UPP test (seminar 5) a test that is consistent with a decision theoretical model?

 

 

7. How would you design an abuse standard for Art 102 TFEU (for either predatory pricing or rebates, or a general test) using decision theory?

 

 

8. Is a full economic analysis of the costs and benefits ever likely to be a satisfactory way of resolving competition law disputes (e.g. considering efficiencies in mergers or abuse cases, as well as considering their restrictive effects)? In the context of US law, for example, it is often said that when a practice is to be assessed under the rule of reason, that is the same thing as saying that it is lawful. The reason is that the costs of litigation often are so high that nobody challenges those who deploy the practice. Might a similar concern arise when we are dealing with merger control, or with a more active public enforcement regime (like the EU?)

 

 

 

 

 

Seminar 8: (25 November) Behavioural economics and competition law

 

Overview

 

It is often said that competition agencies should rely on mainstream economics. One of the difficulties with this (which we have noted before) is deciding what this is. This seminar is concerned with reflecting upon the possible value of behavioural economics (BE) for the development of antitrust law. The literature is still in its infancy and at a recent conference in Paris someone noted that it is still unclear what specific policy recommendation could emerge from BE. This is the question we consider in this seminar.

 

Some notes on the readings:

 

Stucke and Reeves (2010) is the most enthusiastic paper I have found. (You can skip/skim section II which is more about the mainstream paradigm).

Bennett et al (including Liz Hurley but I don’t think she has made a career move from film to OFT!) (201) are agnostic but see the possibilities. Note that the Office of Fair Trading where the authors work has competence to apply the competition rules and also many of the consumer protection statutes, and that the two sides of the work are closely integrated.)

Waterson (2003) is probably not intended to be a piece on BE but I think the insights fit within that paradigm.

Armstrong et al (2010) looks at whether BE can be applied also to firms (most of the other papers apply it to consumers). This paper is mostly just a review of the literature.

Rose (2010) s a judge in the UK Tribunal and does not really say too much but has a couple of examples where she thinks BE could make a difference.

Salinger (2010) is skeptical both about the insights of BE and also about any possible relevance to competition law.

 

 

Tor and Rinner (2010) look specifically at whether BE teaches us that resale price maintenance is used in an efficiency enhancing manner, finding that it is not so used then policy recommendations are made.

Petit and Neyrinck (2010) is an odd piece which I think misreads many issues but we can debate their positions.

Panel discussion in Concurrences. This is an overview consisting of several short presentations.

 

Reading

 

I suggest you start with Stucke and Reeves and/or Bennet and then pick others if you are interested.

 

Stucke and Reeves ‘Behavioural Antitrust’ University of Tennessee Legal Studies Research Paper Series (Research Paper #106, April 2010)

 

Bennett et al ‘What does Behavioral Economics Mean for Competition Policy?’ (2010) 6(1) Competition Policy International 111

 

Waterson ‘The role of consumers in competition and competition policy’ (2003) 21 International Journal of Industrial Organization 129

 

Armstrong and Huck ‘Behavioral Economics as Applied to Firms: A Primer’ (2010) 6(1) Competition Policy International 3

 

Rose ‘The Role of Behavioral Economics in Competition Law: A Judicial Perspective’ (2010) 6(1) Competition Policy International 103

 

Salinger ‘Behavioral Economics, Consumer Protection and Antitrust’ (2010) 6(1) Competition Policy International 65

 

Tor and Rinner ‘Behavioral Antitrust: A New Approach to the Rule of reason After Leegin’ (2010) http://ssrn.com/abstract=1522948

 

Petit and Neyrinck Behavioral Economics and Abuse of Dominance: A Proposed Alternative Reading of the Article 102 TFEU Case-Law (GCLC Working Paper 02/10)

 

Panel discussion (available online at the course website). It is in Feb 2010 Concurrences which you can get from the EUI library website.

 

For Discussion

 

Please draw up one example where you think BE could make a difference: explain the law as is and then explain how you think BE could have an effect on the application of the law. We use these examples as a basis for discussion.

 

1. Identify the key insights that behavioral economics brings to microeconomics. What assumptions made by standard microeconomics are challenged? Is behavioral economics a stand alone theory of economic behavior?

 

2. Does behavioural economics only apply to analyse those who are protected by competition law (e.g. consumers) or does it also provide insights into the behaviour of those subject to the rules (e.g. companies).

 

3. What methods are used by BE to prove their insights?

 

4. If, as many authors agree, BE is more concerned about the demand side of the market than the supply side, does this mean that BE insights are best left to consumer protection legislation?

 

5. Developing the question above, is there an appropriate manner to distinguish between competition law and consumer law?

 

6. Do BE scholars suggest that there should be more competition law enforcement?

 

7. Does BE require alternative legal tools to examine (a) whether certain practices are anticompetitive; (b) what remedies to impose?

 

 

 

 

 

 

Seminar 9 (2 December): Economics and the decision making process

 

Overview

 

We now switch from substance to procedure. The first paper (Neven, who is now DG COMP’s Chief Economist) is a survey of the market for economic analysis in the first part, and then moves to consider how procedures affect results. The latter point is pretty obvious, but he brings economic tools to gauge this.

 

The case studies look to how courts deal with cases that involve economics. The merger case study reflects on current debates about the nature of judicial review, the two papers are short analyses by two judges at the European Courts. The Leegin case study looks to how courts decide when to overrule precedent on the basis of economic evidence.

 

 

Reading

 

Neven ‘Competition Economics and Antitrust in Europe’ (2006) Economic Policy 741

 

 

Case study: either (a) mergers: judicial review; or (b) overruling: Leegin.

Pick a selection from either list.

 

(a) mergers

 

Case C-12/03 P Tetra Laval [2005] ECR I-987, paras 37-51. See also the substantive assessment of the merger.

 

Case C-413/06 P Impala [2008] ECR I-4951, paras 44-53

 

Forwood  ‘The Commission’s “More Economic Approach” – Implications for the role of the EU Courts (2009) available at: http://www.eui.eu/Documents/RSCAS/Research/Competition/2009/2009-COMPETITION-Forwood.pdf

 

Whal ‘Standard of review: Comprehensive or Limited?’ (2009) available at:

http://www.eui.eu/Documents/RSCAS/Research/Competition/2009/2009-COMPETITION-Wahl.pdf

 

(b) overruling Leegin

 

Oral arguments of 26 march 2007 (esp pp.7-9)

http://www.supremecourt.gov/oral_arguments/argument_transcripts/06-480.pdf

 

Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007),

http://www.supremecourt.gov/opinions/06pdf/06-480.pdf

 

 

 

For Discussion

 

  1. What, according to Neven, are the principal reasons that create the potential for an inappropriate use of economics by the European Commission?  Do you think a similar set of criticisms can be made about the British system? (hint, look in outline at how mergers are processed in the British system).

 

  1. What procedural safeguards should be put into place when constructing a national competition authority?

 

 

  1. After reading the Neven paper, might one suggest that competition law enforcement would be better without such a heavy reliance on economics?

 

  1. Explain the standard of review set by the European Court of Justice in cases where the Commission’s economic analysis is called into question. Do you consider that the standards set by the Court are appropriate? If not, what is the appropriate standard?

 

  1. Does the Court set up a presumption that mergers are pro-competitive?

 

  1. What procedures could be introduced to facilitate proper judicial oversight of Commissin decisions when economic analysis is used?

 

  1. In Leegin, does the majority judgment persuade you that the Supreme Court took due account of all relevant economic theories? How, if at all, does it address Justice Breyer’s concern that some economists have concerns about RPM?

 

  1. Why does Justice Breyer say this: ‘But antitrust law cannot, and should not, precisely replicate economists’ (sometimes conflicting) views.’?

 

 

Seminar 10: Critics of the Economics-based approach

 

Overview

 

In the 1980s the major criticism of the economic approach to competition law in the United States was encapsulated by professors Fox and others by the phrase: efficiency is justice. Their concern was that this approach misconstrued the original intention of antitrust legislation and that it failed to consider wider values that the rules protected. The concern is also often voiced that there is not enough antitrust enforcement as a result of conservative judgments of the Supreme Court and that these have taken too literally the position suggested by Easterbrook in 1984 in the ‘Limits of Antitrust’ paper. In this seminar we look at a range of European critiques of the ‘more economics oriented approach.’ I think the old continent’s criticisms are somewhat different in nature, but for you to evaluate how compelling you find them.

 

 

Reading

 

Select from the list

 

Pera ‘Changing Views of Competition, Economic Analysis and EC Antitrust Law’ (2008) 4(1) European Competition Journal 127

 

Budsinski ‘Monoculture versus diversity in competition economics’ (2008) 32 Cambridge Journal of Economics 295

 

Kerber ‘Should competition law promote efficiency? Some reflections of an economist on the normative foundations of competition law’ in Drexl, Idot and Monéger (eds) Economic Theory and Competition Law (2009)

 

Lianos ‘Lost in Translation? Towards a Theory of Economic Transplants’ (2009) Current Legal Problems 346

 

 

(Electronic copies of Lianos and Kerber will be available from Monday on the website for this course)

 

For Discussion

 

This seminar is designed to wrap up the course so feel free to bring up any of your own criticisms of the economics-based approach. I realize we touched on Leegin very superficially last time so feel free to bring up further issues from that case if you wish.

 

 

  1. Is the use of economics in competition law helpful? Might we be better off with less economic analysis thus avoiding very technical analysis?

 

  1. Is economics in antitrust law able to make both a positive and a normative contribution? (That is can it tell us both how markets work and how they should work?).  Should it be just making a ‘positive’ contribution?

 

  1. Is the emphasis on consumer/economic welfare misguided?

 

  1. Is the law capable of assimilating economic insights successfully in the field of competition law?

 

 

 

 

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