Archive for October 2012
Case T-111/08, Mastercard. A priceless Art. 101(3) assessment
A while ago we wrote a post on The Slow Death of Article 101(3) TFEU, where we said that in recent European Commission, practice, only once the challenged agreeement was not deemed to be a restriction by “object”, and that only in that case the Commission had carried out a serious Article 101(3) assessment. This was the Mastercard Interchange fees case, and last May the General Court rendered its Judgment on it (btw, we have no interest whatsoever on this case).
Over time we have realized that the longer and more serious a post is, the less you guys read it (and this one will be quite lenghty). So, of the many complex and interesting issues raised by this case, we will only comment on a general point regarding the Court’s assessment of the interchange fee arrangements under Art. 101(3). Given that almost no Decision or Judgment delves into 101(3) analyses these days, the General Court’s assessment is priceless for anyone interested in exploring how this key provision is to be interpreted. In this sense, it’s surprising that the Judgment hasn’t received more attention.
I confess that I undertook the reading of the Judgment with a clear confirmation bias: I was looking for evidence that would support my point that it’s incredibly difficult to successfully argue that a given agreement can benefit from the legal exemption provided by 101(3). To my (positive) surprise, I found out that despite applying the “manifest error of assessment” standard of review, the General Court actually did carry out an assessment of the evidence put forward by Mastercard which is well more detailed than what I expected (see paragraphs 207-237). Right or wrong, it was acceptably thorough, specific, and even revealed that the Court had managed to understand the so-called Baxter model put forward by the applicants.
The Court’s application of the first condition of Article 101(3) nonetheless raises some interesting and debatable issues that relate to the fundamentals of Art.101(3), which are partly discussed below. I take responsibility for the opinions below, but I have taken a free ride benefitted from educative discussions with two of my favorite legal minds: Luis Ortiz (who has authored the best study on how Art. 101(3) is to be applied) and Eric Gippini (whose great Friday Slot interview is available here) (to make sure, they don’t necessarily agree with the views developed below)
Click here if you’re interested in reading more (spoiler alter: dense stuff ahead)
GCLC Annual Conference – 8 and 9 November
Back from HK where I had a great time. Will report on this later in the week.
As I am currently working on a paper for the forthcoming GCLC Annual Conference, I just realised we had not advertised this event on the blog.
So here we go. On 8 and 9 November, the GCLC will hold its Eighth Annual Conference. This 2012 edition is entitled “Competition law in times of economic crisis: In need for adjustment?” More information on the programme can be found here.
As usual, working groups have drafted reports which will be commented upon – inter alia – by Commission officials.
This undoubtedly will be a promising event. Unfortunately, I had to breach ethical rule n°3; “do not take speaking slots at conferences that you organize”. The explanation? Most of the persons we contacted to draft the paper on industrial policy and competition law – including my learned co-blogger – turned our invitation down. So I ended up filling this slot. But this is a great honour, and am very happy to do this.
PS: Alfonso and I have just decided that will be no more Chuck Norris jokes on this blog :(.
Anticompetitive (?) alumni networks, and more on credit rating agencies
[We were a bit inactive this week; Nico is at a conference in Hong Kong (lucky b…) and I had an important deadline to meet. We have some long and substantive geeky boring posts on the pipeline that we intended to post this week (on the MasterCard Judgment, on recent cartel case law and on Google), but have been unable to think/write them through properly. In the meanwhile, here’s an “easy” post to finish the week off]
A few days ago the Financial Times featured a piece (click here for a podcast) discussing a recent report from the Competition Commission (“CC”) that concludes that the alumni networks of the “Big 4” auditing firms (who have a practical joint monopoly over the auditing of publicly traded companies; 99% of the FTSE 100 according to the report) stiffle competition in the business.
According to the CC, 60% of audit committee chairs and 66% of Chief Financial Officers in FTSE 100 companies had previously worked for the Big Four firms. The report states that “it is possible that this familiarity will make them more favourably disposed to the appointment of a Big Four rather than a non-Big-Four firm” and that “it could make them less aware of the quality and experience of the non-Big-Four firms”, thus raising barriers to entry.
The Financial Times’ piece takes a different view. It argues that “alumni networks are not a problem at all – in fact they are a thoroughly good thing. Think about it. If you have worked somewhere, you know what it is like. You know exactly how hard people work, how straight they are, how often they screw up and, above all, whether they are charging a fair price for what they do (…) So an honest thumbs-up from a current employee means quite a lot. But one from a former one means even more. When you leave a company, it is human nature to pretend that the move was a success. That may mean bigging up the new place and littling down (to coin a useful new phrase) the old one. If, in the case of the big four, the alumni are prepared to spend huge amounts of their current employer’s cash on their ex-employer’s services, that suggests that the market is working rather nicely“.
So, is this an unavoidable fact of life or a market failure calling for intervention? Any views?
The truth is that this issue is not confined to the audit world. For good or for bad, there’s a lot of this, for instance, in investment banking, and even in the legal -academic and professional- world too (although the inferior level of concentration in the legal world certainly mitigates the issue to the extent that, if anything, it would be a de minimis concern).
What could actually call for intervention (if true) are the findings in this most interesting report “Bank ratings: what determines their quality” It argues that “rating agencies assign more positive ratings to large banks and to those institutions more likely to provide the rating agency with additional securities rating business (as indicated by private structured credit origination activity). These competitive distortions are economically significant and contribute to perpetuate the existence of ‘too-big-to-fail’ banks”. If interested on finding what could be the legal grounds for antitrust intervention in this sector, you really should read Prof. Petit’s award-winning piece on Credit Rating Agencies, the Sovereign Debt Crisis and Competition Law.
Have a great weekend!
7th Junior Competition Conference – Call for speakers
In our last post we stated that one of our goals for the future is to contribute to increasing the visibility of young lawyers. Here’s a way to start:
We would like to draw your attention to the Seventh Junior Competition Conference. The editors of the Competition Law Journal have informed us that the Conference will take place on Friday 25 January 2013 and will be dedicated to reform of the system of private enforcement in the UK; for further details please click here.
If you would like to speak at the conference, please contact Vian Quitaz – vjquitaz@hotmail.com – with an expression of interest and a short outline of your proposed topic.
A separate announcement will be made in due course for those interested in attending the Conference.
The editors of the Journal look forward to hearing from you!
And speaking of younger generations, we recommend you take a look at this: Tournament of Jokes: Generational Tension in Large Law Firms
Chillin’Competition turns 3
It’s Chillin’Competition’s birthday today.
It was on 20 October 2009 that Nicolas announced announced to the world that this blog was up and running. We’re thrilled about how this project has progressed since then. As of today, Chillin’Competition has had 368,000 visits and features 639 posts (!) 376 of you are suscribed to it through our homepage, and the LinkedIn group has 817 members.
But we can do much better. You guys are pretty sophisticated and heterogeneous readers, and it’s quite a challenge to provide you with ideas that most of you might find insightful or funny or cheeky or just a bit different from the tons of antitrust-related news that you get everyday. Actually, voicing out opinions in public every single day is in general risky, for as the wise aphorism states “it’s better to be silent and be thought a fool than to speak out and remove all doubt”… The past few months have moreover been particularly busy on our side (as anything liable of getting worse, this will too), and whereas our sector provides plenty of stuff that is interesting or absurd (the kind of material that we like here), we may sometimes lack the time to identify it and process it quickly, for which we apologize in advance. We are quite aware that we don’t operate under public service obligations, but we aspire to do better; if it’s not too much to ask for, we’d love to have more feedback from you on what it is that we can improve.
In the past year we started the quite successful “Friday Slot” section and we provided you with some food for thought (notably endives). In the coming months we’ll bring some other new sections which we hope will improve the quality of the blog. We also intend to bring the blog closer to international enforcers and in-house lawyers and to enhance the visibility of younger associates. We should also organize the Chillin’Competition conference soon (which we have been announcing for almost the 3 years this has been alive…).
We aspire not to take this stuff too seriously and to keep having fun while we do it.
Thanks so much!
Nicolas & Alfonso
On antitrust and hotels
We have discussed about hotels in previous posts (notably when I shamelessly unconsciously advertise my parents’ hotel (pictured above); you see? it just happened again!) (btw, top floor third window from the left is the room where I grew up). A couple of months ago I published a short piece on Competition law in the hotel sector in the industry’s magazine in Spain in which I highlighted (in, let’s admit it, a rather simple way), some of the interesting competition law issues that may arise in this sector; here are a couple:
OFT’s investigation on price-match guarantees
I’m following with interest the OFT’s investigation on price-match guarantees in the hotel sector (again, out of personal geeky interest, nothing professional). As you may know, in July the OFT addressed a statement of objections to Expedia, Booking and InterContinental Hotels challenging agreements that are said to restrict online travel agency’s ability to discount the price of room-only accomodation. The OFT considers that “the alleged infringements (…) could limit price competition between online travel agents and increase barriers to entry and expansion for online travel agents that may seek to gain market share by offering discounts to consumers“. It notes that it “limited the scope of its investigation to a small number of major companies, with a view to achieving a swift and effective outcome. However, the investigation is likely to have wider implications as the alleged practices are potentially widespread in the industry“.
Keep an eye open, because this is a case which may contribute to altering how we think about agency agreements and price matching guarantees. In the meanwhile, the OFT has published a most interesting report on “price match” or “lowest price” guarantees that makes a good read (that is, if you really have nothing else to do..).
A candidate to the worst antitrust development prize
In April 2011 we wrote a post announcing that there was an ongoing investigation that could yield a strong candidate for the Worst Antitrust Development Prize. Last week our forecast materialized. The Spanish competition authority (CNC) imposed a 150,000 euro fine on the Confederation of Spanish Industries, and an individual fine of 50,000 euro fine on the President of its Tourism Committee, a well known Spanish and former President of F.C. Barcelona (for full disclosure, my firm has no interest in this case, but I do know the person who was sanctioned).
The sanctions have been imposed because this person told the press at an industry fair that he thought there was a margin for hotels in certain cities of Spain to increase rates. No more. Admittedly, the fact that this personal opinion was accompanied by an inconvenient joke -“if there’d be someone from the competition agency here I’d be sanctioned“- may not have helped much… Later on, he was asked by a newspaper whether hotel rates would increase in the course of 2011. He responsed that rates had gone down 20% since 2007 and that a 6-7% increase could be reasonable, but that different hotel owners had different views.
If you ask me, such a statement can very hardly have led to any sort of collusion. There are thousands of hotels in Spain and hundreds of relevant markets evolving under different conditions, so this had nothing to do with setting a focal point to facilitate tacit collusion. Nonetheless, just as I feared on my previous post, the CNC decided to resort to competition authority’s favorite shortcut: the “object label”:
According to the CNC’s decision, one only needs to verify the content, author and diffusion of the statement. It explains that “it is not necessary to examine additional factors, such as the context in which the conduct takes place, the intention, the degree of furtherance, or the relevant market”. This paragraph alone makes this decision a good candidate to the “worst antitrust development prize”.
And, but the way, this “collective recommendation” was until now unknown to most hotels in Spain. The CNC has just ensured that everyone hears about it thus multiplying any potential effects. Now, in light of its new practice of sanctioning public authorities contributing to private breaches of the competition rules: should the CNC sanction itself for having acted as the loudspeaker and propagator for this alleged invitation to collude? 😉
Merging competition authorities and sector regulators; a good idea?
The Spanish Government has just sent to Congress a draft law that proposes the creation of the National Competition and Markets Comisión (Comisión Nacional de la Competencia y los Mercados). The Spanish Association for the Defence of Competition has just posted a link to the text of the draft law on its webpage ( thanks to Antonio Creus and Luis Ortiz for the pointer!).
The first draft of this law was not very well received (this is an understatement) by the current competition authority nor by the telecomm, energy and postal regulators, which issued fairly critical reports (available here). That first draft also raised falgs in Brussels, to the extent that the Euopean Commission publicly manifested its concern that the envisaged authority would lack the necessary independence (see pages 22-23 of this document). The proposal -which will most certainly materialize soon- does however raise interesting questions worth exploring.
Let’s leave aside the more practical issues as well as those purely national in order to focus on the big picture. Until now, the Member States of the European Union had generally opted for guaranteeing the competitiveness of certain network markets by resorting to dual institutional models featuring (i) an independent competition authority in charge of, well, you know, all the stuff that competition authorities do; and (ii) independent sector regulators entrusted with ex ante regulatory tasks. The dual model certainly has overall been decently effective, even though it has not always yielded perfect results; in some occassions, has led to contradicory decisions and legal uncertainty.
The preamble of the Spanish draft law states that the time is ripe to break apart with the prevailing institutional architecture. Looking at other States of the EU it observes two incipient trends whereby multiple specific/sector regulators are either (a) folded into one sole multi-market regulator (which allegedly takes advantage of economies of scale, minimizes the risk of regulatory capture and ensures a consistent approach to the regulation of network industries; this is the case of the German Bundesnetzagentu)or (b) merged with the competition authority. To my knowledge, the only example of the latter “trend” has been that of the NMa in the Netherlands.
I haven’t yet analyzed this new draft in detail but, whereas I don’t exclude that it might possibly be a good idea, I confess that I’m a bit concerned about this new institutional framework. Aside from the fact that it compels us to update our textbook on EU and Spanish competition law (excuses for postponing it seem to be over..damn!), my main concern -already voiced out in a previous post-is that blurring the frontiers between the applicable standards, attitudes and instruments used under competition law (a sanctioning system with criminal features) and those characterizing sector regulation risks affecting the way competition law is enforced, and could result in a lowering of standards.
We believe this is an interesting debate, and are willing to “market test” these institutional mergers by opening up this floor to anyone with strong views on these issues (pseudonyms are accepted). If that’s your case, please drop us a line at nicolas.petit@ulg.ac.be or alfonso.lamadrid@garrigues.com
And, by the way, I can’t miss the opportunity to do some additional advertising on the seminar on competition and regulation in network industries that I will be coordinating in Madrid in February, and in which we will cover all this stuff in depth.
On how to find the perfect couple (2012 Nobel Prize in Economics)
As announced yesterday by the Swedish academy, the recipients of the 2012 Nobel Prize in Economics are Angela Merkel and the German Government Al Roth and Lloyd Shapley.
Their research has mainly focused on the stable allocation of resources in markets where prices are inexistent. They focused on two-sided markets where monetary exchanges would be inappropriate (i.e. patients-kidney donors or the two individuals in a marriage) and figured out the way to strike non improvable (stable) matches.
As we wait for Nico to come up with a Chuck Norris joke on this, we can point you to Al Roth’s blog . In yesterday’s entry he said that his daily post could be delayed, and on Sunday Roth had written a post on the correlation between national chocolate consumption and per-capita Nobel prizes (Belgium is the exception that confirms the rule) 😉 (there is, however, a correlation which seems even stronger than the chocolate one: if you’re a US citizen, a Harvard Professor, and your research is on game theory then it’s pretty clear that you’ll get a Nobel sooner or later!).
We could also recommend you to read Shapley’s seminal paper on Long term competition (a game theoretic approach) (if you do, please tell us what it says, because we can’t really read equations!).
Now, since you probably won’t read neither Roth’s blog nor Shapley’s 1992 paper, and since the only think in this post that caught your attention was that they figured out the best way to find the perfect match in marriage, that’s where we will focus on:
In a 1962 paper Shapley and Gale assumed a market in which men propose to women (a debatable assumption as it is a bit male-chauvinist and also leaves out people who wish to stay single, gay and bisexual people and a bunch of other “real life stuff”), in which each individual has views about what their ideal couple should be like, but in which those views do not lead to perfect matching [otherwise a bunch of us would be matched to Monica Bellucci or Bar Refaeli, and that can’t work; or could it?? (note to my girlfriend: this is only a joke mandated by our editorial line; don’t worry)]. Shapley and Gale stood up for the proposition that an stable result could only be attained if women applied a “deferred acceptance” strategy. This would work as follows:
First, men would propose to their favorite woman. This means that Monica and Bar (which is how Nico and I call them in private) would have multiple choices but that other women would have less or zero choice, which (even if certainly acceptable by some of us) is unfortunately not stable. Instead of accepting their favorite “candidate”, they argue that women should “pocket” the strongest offer without accepting it and reject all others. Rejected men would then make a second proposal, which would allow women to stick to their previous pick or to replace it by one of the new candidates. Shapley and Gale proved that, if repeated enough times [1st round Monica Bellucci, 2nd round Bar Refaeli… 1456th million round Snowwhite’s evil stepmother –with two notable exceptions-] the algorithm will lead to stable non-improvable matches.
Sure this doesn’t seem to “match” the real world and, although intellectually interesting, its practical application seemed doubtful (and discouraging!). But Roth figured out that Shapley’s algorithm could have enormous practical applications on students-schools, patient-donors, and doctors-hospitals. A great example where the intelectual beauty of economics results in very practical solutions to real problems that truly affect peoples lives. In sum, a very deserved prize.
Nobel Prize to the EU?
The Nobel jury got it wrong last week.
France and Germany never waged war at each other again for fear of Chuck Norris intervention. That’s as simple as that.
Correlation is not causation.
News from the Court
This was an unusual week at the European Courts. First, as we anticipated some time ago, the ECJ was partially renovated. The Member States have reappointed Judges Arabadjiev, Arestis, Berger, Bonichot, Fernlund, Jarasiunas, Levits, Malenovsky, Prechal and Von Danwitz as well as Advocate Generals Bot and Mengozzi.
The new faces at the ECJ will be Judge Da Cruz Villaça (replacing Cunha Rodrigues), Judge Vadja(replacing Schiemann), and AG Wathelet (replacing Masák). Nils Wahl (one of the good competition experts in Luxembourg) will have to remain at the General Court for a short period before swearing in as Advocate General (apparently the candidate proposed by Sweden to replace Judge Wahl was vetoed by the ‘Art. 255 Committee’).
The ECJ also held elections for President (Judge Skouris was re-elected), Vice President(Judge Lenaerts will be the first VicePresident in the history of the Court) and Presidents of Chambers (winners are: Tizzano; Silva de Lapuerta, Ilešič, Bay Larsen, and von Danwitz),
Here’s a video of the speeches pronounced that day at the Court (if you watch it, that means you’ve plenty of free time; we’re just saying 😉 ] Our highlight (as if we had watched the whole thing..) is Judge Schiemann’s great and very funny farewell speech (starting in minute 31.20).
By the way, our next Friday Slot interview will feature a member of the General Court. We’re sure you’ll love that one.
Have a great weekend!
Chillin'Competition 