Author Archive
Behavioral Economics, Liberal Paternalism and Possible Antitrust Implications
In relation to Alfonso’s earlier post regarding behavioral economics, I was amazed to learn today that Cass Sunstein (Harvard Law School) and Richard Thaler (University of Chicago Booth School of Business) had been ranked by Foreign Policy in 7th position amongst the “100 Global Thinkers” of 2009. Sunstein and Thaller are well-known for their book entitled Nudge: Improving Decisions About Health, Wealth, and Happiness in which they challenge the pervasive neo-classical rationality assumptions and describe men as irrational, uninformed and rash.
The upshot of this is that individuals’ free decisions cannot – as predicted by neoclassical theory – lead to optimality. Hence Sunstein and Thaller consider that, whilst freedom of choice must be preserved, a certain sense of government direction (labelled “liberal paternalism“) is required to achieve optimal economic outcomes.
Thinking of potential antitrust law consequences, Sunstein and Thaller’s argument brings support to the strong remedies occasionally applied by agencies to resolve competition concerns. Whilst simple remedies removing antitrust offenses – think, for instance, of the arguably ineffective WMP unbundling requirement imposed on Microsoft by the Commission – might be in practice inappropriate to re-establish a competitive state of play (because customers do not bother to test alternative media players), more intrusive remedies forcing customers to make a choice – think for instance, of a must carry, ballot- screen remedy – might actually prove more efficient.
(Image possibly subject to copyrights: source here)
2009 Worst Antitrust Law Development Prize
The end of the year is approaching fast. I copy, again, our call for suggestions re. the worst 2009 development in antitrust law. To date, I have received several submissions, and I would like to thank those of you who referred cases and quotes. For those who have not yet sent me an email, please note that I commit to treat confidentially all referred items and will under no circumstance disclose the identity of referrers.
With the awards season coming to a close, it is perfect timing to introduce the prize for the worst antitrust law development of the year. For the first time this year, this prize will reward a ruling, article, speech, career-move, research issue, policy initiative, or any other thing that has been undertaken, said or written that is stupid, infamous, crazy.
The prize will be awarded by the end of December 2009. Please refer to me anything that could qualify for it. I will keep all the info absolutely confidential, and will set up a jury of lawyers to award the prize (Alfonso and myself will be part of it). If you’d like to join, please let me know.
To give you an example: in 2005, a Dutch judge stated in 2005 that the Commission had exclusive competence to exempt an agreement under Article 81(3) EC (Rechtbank Zwolle-Lelystad, 4 April 2005, case n° 106345 / KG ZA 05-92, Walstock / Polar Electro). Surely, a strong candidate for this prize, had it been awarded in 2005.
Slides of the GCLC Lunch Talk on Airlines Mergers
I attach below the slides presented by Daniel Boeshertz (DG COMP) on the recent enforcement trends in the Commission’s review of airlines mergers.
GCLC – Boeshertz – Recent Trends in the Commission’s Review of Airlines Mergers (26 11 09)
Next Commissioner for Competition
Jean Quatremer, on his excellent blog Les Coulisses de Bruxelles, report that Joaquín Almunia stands first in the race for the Competition portfolio in the next Commission. J. Almunia currently holds the portfolio of European Commissioner for Economic and Monetary Affairs. His résumé can be found here. N. Kroes will certainly be reappointed as Commissioner in charge of trade policy.
No doubt my co-blogger Alfonso, a Spanish citizen, will comment on this should Almunia’s appointment be confirmed.
Lost in Prioritization?
A quick personal thought. On face value, the current prioritization policy followed by the Commission is slightly confusing. Earlier in the year, the Commission adopted a guidance communication on enforcement priorities under Article 82 EC, which does not cover exploitative abuses, thereby sending the signal that such types of abuses are not really a prime candidate for Article 82 EC enforcement. In line with this, the Commission announced yesterday that it dropped its investigation in the Qualcomm case.
I find it quite problematic to reconcile this prioritization trend with the annoucement, on 19 November, that the Commission sent a Statement of Objections to Standard and Poor’s for alleged unfair pricing for the use of International Securities Identification Numbers (ISINs)…
A plausible explanatory factor: in the field of Article 82 EC, prioritization is currently made on a sectoral basis. Under this interpretation, the Standard and Poor’s case illustrates, in the aftermath of the financial crisis, that the Commission arguably intends to closely scrutinize financial services. This is consistent with the recent announcement of the opening of formal proceedings against Thomson Reuters concerning use of Reuters Instrument Codes.
(Image possibly subject to copyrights. Source here)
Commission closes Formal Proceedings against Qualcomm
Confirming my speculations a few weeks ago, the Commission announced today that it would not invest any further resources in investigating the Qualcomm case.
I paste hereafter the press release in full (MEMO/09/516 Date: 24/11/2009)
“The European Commission has decided to close formal antitrust proceedings against Qualcomm Incorporated, a US chipset manufacturer, concerning an alleged breach of EC Treaty rules on abuse of a dominant market position (Article 82). The investigation was opened on 1 st October 2007 (see MEMO/07/389 ).
The European Commission is committed to fight against illegal behaviour by dominant companies in key innovative sectors like telecoms and IT when an abuse of their market power would deny consumers the benefits of competition and choice.
The Qualcomm case has raised important issues about the pricing of technology after its adoption as part of an industry standard. In practice, such assessments may be very complex, and any antitrust enforcer has to be careful about overturning commercial agreements.
The Commission has investigated whether the royalties that Qualcomm has been charging since its patented technology became part of Europe’s 3G standard are unreasonably high.
The Commission committed time and resources to this investigation in order to assess a complex body of evidence, but has not as yet reached formal conclusions.
All complainants have now withdrawn or indicated their intention to withdraw their complaints, and the Commission has therefore to decide where best to focus its resources and priorities. In view of this, the Commission does not consider it appropriate to invest further resources in this case”.
See here, here and here for more.
(Image possibly subject to copyrights: source here)
On the Negative Side-Effects of Economies of Scale
The mainstream theory goes like this: scale effects, or scale economies, are a source of productive efficiency. In increasing output, firms active in sectors with high fixed costs (FC) manage to lower average total costs (ATC). This is because FC can be spread over a larger quantity of output. When firms with high fixed costs produce a lot, the share of the FC that bears on each produced unit (the average fixed cost, AFC) decreases, and in turn, so does the ATC .
Now, besides this, achieving economies of scale may have adverse, long-run, side-effects on productive efficiency. Because the fixed resources are more intensively used – think of a truck, a network, an engine, that is intensively solicited to deliver greater output – a number of new costs might in turn be incurred as a result of the decision to increase production scale. The truck, network, engine might suffer technical damage, dysfunction, require more maintenance, etc. as a result of its increased use. It may have to be replaced more rapidly. There are also opportunity costs arising from the decision to use existing capacity to produce more.
What is relatively interesting is that scholars often talk of economies of scale as something plainly positive. The negative side-effects of economies of scale might however be significant. I am not cognizant of any literature on this (and have not done the research yet), but would welcome references on this.
(Image possibly subject to copyrights. Source here)
New Blog
Welcome!
4th international competition conference – Friday, 27 November 2009 – Brussels
The Brussels Bar, Dutch Speaking Section is proud to announce the fourth edition of its International Competition Conference. This year’s conference will be held on 27 November 2009 and once again brings together an exceptional group of speakers and panelists. The morning session will be devoted to the current and future law on distribution agency and licensing agreements. During the afternoon, various workshops will discuss topical enforcement issues.
Tracking Prosecutorial Bias – Evidence from MyTravel vs. Commission?
In MyTravel vs. Commission, the CFI provides a good account of the past decisional process within DG COMP.
In the late days of the Commission’s administrative review of the Airtours/FirstChoice transaction, Airtours (now MyTravel) submitted a new commitments proposal to the Merger Task Force (“MTF”). The CFI’s MyTravel vs. Commission ruling contains evidence that the MTF had prepared a briefing note for the competition Commissioner entitled “defensive points“. The purpose of this note was to debunk the late remedy proposal submitted by Airtours. Here is the relevant § of the CFI’s ruling:
“§114: a note setting out lines to take headed ‘Defensive Points – Offer of Undertakings’ prepared by the MTF for the attention of the Member of the Commission responsible for competition matters intended to enable him to put forward arguments relating in particular to the assessment of the substance of the commitments submitted on 15 September 1999“.
From a legal standpoint, the harsh title of this briefing note is quite surprising. Pursuant to the Merger Regulation, the Commission is supposed to objectively assess whether the proposed commitments will remove competition concerns, not to defend itself against a proposed remedy package.
In reality, this kind of vindicative language illustrates the unnamed adversarial nature of merger proceedings in the days of the MTF. In the Airtours case, which led subsequently to the harsh, notorious, annulment of the Commission’s decision by the CFI, it seems that the Commission had a preferred, pre-determined, bias position against the proposed merger, which it thus sought to “defend”. Since then, the MTF has been dissolved.
On a related issue: I was not aware that the Airtours saga had given rise to litigation before the CFI and ECJ in relation to the access of private parties to some of the Commission’s internal documents. Following the Airtours judgment, the Commission apparently established a working group comprising officials of the DG COMP and the legal service in order to consider whether it was appropriate to bring an appeal against that judgment and to assess the implications of that judgment on the procedures for the control of concentrations or in other areas. MyTravel sought to obtain access to the documents of this working group as well as other documents. The Commission decided to grant access to several of those documents, but refused to grant access to others (or to certain parts of the requested documents). The Commission’s decisions were challenged before the CFI, which annuled them in part only (T-403/05). This ruling is now being challenged before the ECJ (C-506/08 P).
(Image possibly subject to copyrights. Source here)
Chillin'Competition 
