Chillin'Competition

We’re quite frustrated at the attitude of some Member States with regard to judicial appointments, which, to put it mildly, is disgraceful

First, because in spite of having been urged by the Court to confirm whether they would maintain or replace their judges, many Member States have remained totally inactive, thus effectively hampering the Court from planning its activities for the upcoming months. Second, because they fail to realize that continuity is a positive thing at an institution of this sort. Third, because they have found it impossible to agree on an increase in the number of judges and continue to lose time fighting as kids over who gets to nominate more judges. Fourth, because they fail to grasp the relevance of the Courts and of their members, and therefore take appointments lightly (hence the rejections of several unsuitable candidates proposed by Malta, Bulgaria, Sweden and Greece by the 255 Committee, which are shameful not for the individuals concerned, but for whoever nominates them).

We’ve said it before, but WE’LL SAY IT LOUDER NOW: WHY ON EARTH CANNOT MEMBER STATES FOLLOW THE EXAMPLE OF, E.G.,THE NETHERLANDS, THE UK, SLOVENIA OR CROATIA AND START SELECTING CANDIDATES PURSUANT TO OPEN MERITS-BASED FRAND COMPETITIONS?

Despite intense media coverage, little has filtered on the content of the EU Google investigation.

That said, the fragments that leaked in the press led me to draw a puzzling analogy: would the ongoing EU Google case be a rerun of the Microsoft tying cases (2004 and 2009)?

Take a look: in Microsoft, the Redmond giant was accused of using its dominant facility – Windows OS for PC – to preferentially distribute related softwares – WMP and IE – and exclude rivals from those later markets. And this strategy could work effectively because consumers are lazy animals often satisfied with default or automatic settings. For various reasons – which included barriers to searching, choosing, and installing a competing software which could stem from a lack of technical skills or simply because of hassle costs – the Commission explained that users only rarely looked for better alternatives. This phenonemon had been labelled “end-users’ inertia“. For more on this, see my paper with my assistant N. Neyrinck.

Now,  the search discrimination allegations levied against Google look strikingly similar. To frame them simply: Google seems accused of using its dominant facility – its well-known search engine – to preferentially display links to related services – Google maps, Google News, Gmail, Google Finance, Youtube, etc. – and exclude rivals from those markets. Interestingly, a key aspect of the theory of harm seems based on the fact that users disproportionately click on the first links displayed by Google’s search engine, and only rarely click on links that rank lower (see chart below). In other words, search users are also lazy creatures who fail to compare the full range of alternatives displayed on the screen. A study found on the web suggests that 94% of users click on a first page result and less than 6% actually click to the second page and selecting a result displayed there.

But, there’s a key, critical difference between the two cases. In so far as the Microsoft case is concerned, offering pre-installed related softwares was a natural business strategy for MSFT. After all, the OS and related sofwares – which came for free BTW – are complements. The pre-installation of such softwares enriched the functionality of the OS, which was in the consumers’ best  interest. This argument, which has been made time and time again ties in with the traditional shoe&laces/car&radio metaphors. But what is more is that in the browser case, the pre-installation was a necessary evil. Absent a readily available Internet browser, consumers indeed could not access the Internet and in turn download competing software. Now, some may counterargue that the problem stemmed from the fact that the pre-installed softwares were Microsoft’s own products. But how could it be any different? Given the number of complementary softwares running on an OS, and the myriad of alternatives for each software, it would be all to weird, and possibly unworkable, to enjoin dominant software companies to pre-install competing products on their own motion: how to select them? in what range? on what terms?

In the Google case, however, the preferential ranking of Google’s related services is NO natural business strategy. Rather, the allegation concocted by the complainants, and possibly endorsed by the Commission, is that Google artificially fiddles with its algorithm to display links to its own related services on top of search results pages. In the “but for” search engine world – i.e. absent algorithm manipulation – Google’s related services would not systematically over-rank competing services (yet consumers would still enjoy links to complementary services).  Contrary to Microsoft, there is here no clear objective, natural justification to what Google is allegedly doing. This, in my opinion, makes the Google case different from, and possibly a tad bit stronger than, the Microsoft case.

PS: With this background, I feel a sense of compassion for Microsoft’s lawyers.  Since 2004 and 2009, they must be in real trouble,  trying to understand how, and to what extent, complementary softwares can be pre-installed on Windows.

There’s competition policy everywhere (Alfonso was there before BTW).

Last Saturday, at the Grain d’Orge – in passing, the best blues music bar of Brussels – I was confronted with a real-life example of a deadweight loss.

Orval, the famous brewery that produces the eponym Trappist beer is currently reducing, and in some cases has stopped, supplying  domestic Belgian retailers (i.e. bars and other retail channels).

The explainer: Trappist beers are a very trendy export product. They now sell at comparatively higher prices in big metropolis like New York, Hong Kong, etc. Orval, which is reported to have fixed short-term capacity, has therefore decided to prioritize supplies towards high price, export markets, and to limit quantities sold in Belgium. Belgian bars and restaurants, whose reservation price still remains superior to Orval’s costs, are thus excluded from consumption as in the textbook model of monopoly pricing.

Interestingly, it seems that some quantities of Orval can be sourced on a secondary market, where bars with surplus resell to other bars.

Is this refusal to supply akin to unlawful abuse? Undeniably, a funny question, which could be an exam topic for my LL.M students. Market definition on such a highly differentiated product market is not straigthforward. And whilst this type of refusal to supply does not seem to fall within the good old ‘essential facilities‘ doctrine, it has exploitative effects which in theory are caught under Article 102 TFEU.

I’ll give you a sneak peek into how the editorial process of this blog works:

I frankly wasn’t planning on posting anything on the blog for the rest of the rather busy week. But then I  attended a conference, and an idea spurred to mind: why not write a post on how a few -not all-competition conferences (topics and speakers) are starting to make us feel inside a time loop, sort of like in the Groundhog day movie…

Maybe not, I thought later; perhaps some of the usual suspects frequent speakers in the conference market wouldn’t like it (there are categories among these: (i) those who never refuse invitations out of politeness -which I find laudable- and who are also tired of speaking always about the same stuff, however convenient; and (ii) those who pay for speaking slots -which I understand less- and who wouldn’t appreciate the comment). Moreover, we had also bragged about how we would do something different announced our own conference and have not yet arranged it, so it’s probably wise not to write on this. So, as you see, I’m not.   😉

But now Gianni de Stefano (from Latham and antitrustitalia) sends us a GCR piece titled: “Spain fines antitrust complainant” joking that we should write about it. And he’s right, we could not let this pass by without a post…

You see, I don’t want to write too much Spain-related stuff, and so a few days ago I resisted the temptation of writing anything about prioritization and allocation of resources when the CNC sanctioned 5 distributors of Magic cards with 7,000 euros (one party received a 148 euro fine, another a 748 euro fine; the highest fine was 3,424 euros). I won’t comment on this either (as if it was necessary…). But this silence exhausted my self-restraint capacity.

So let’s focus on yesterday’s news. What happened is the following: the association of canned fish producers [yes, those responsible for the death of the sole responsible of Spain’s victory in the 2010 World Cup:  Octopus Paul –evidence of the murder available here-] lodged a complaint against mussels producers alleging that the latter had entered into price-fixing agreements. The CNC sanctioned mussels producers with 1.7 million. So far so good (except for mussels producers). The fact of the matter is that within the framework of the investigation the CNC discovered that the complainants had themselves decided to react to the cartel by agreeing on a collective boycott. And now the complainants have received a 2.1 million fine.  Once again, no comment. [Query: could you complain about a cartel and ask for leniency regarding another reprisal cartel?]

Actually, there’s one comment. If the accusations are true there is nothing to object to the CNC’s decision. But I have been involved in a few other cases where the complainants were also the instigators of the agreements complained of, but they weren’t sanctioned. Curiously enough, in all of these cases the complainants were not companies, but individuals, labor unions or public bodies. There is probably a reason for this: sanctioning companies has the political advantage that when they get pi.. crossed they don’t do this…

P.S. The food sector has given us so much food for jokes thought that the European Commission’s statement that there are no particular competition problems (after having set up a task force, drafted this report, and done all this) was a surprise to us.

(The post below will perhaps be a bit more controversial than the stuff we usually publish here. I nonetheless bet that its title will draw some additional readers to it: insults -particular when linked to politics- are always good marketing tools!  Please note that these are simply some Sunday afternoon ruminations that aren’t that well though through; they are rather “thoughts in progress”. Would be happy to further distill/refine them through public discussion, so feedback will be appreciated).

In The Revolt of the Masses,  Ortega y Gasset wrote a phrase that I often quote:

“Aligning oneself with the left, as with the right, is only one of the numberless ways open to man of being an imbecile: both are forms of moral hemiplegia.”.

This quote has in the past got me into trouble long discussions. There can certainly be some nuances to be made to it (some issues traditionally defended by the left, or by the right, -extremisms aside- are certainly worth aligning with; the quote rather refers to all accross the board uncritical alignments), but, frankly, I think Ortega had a point.

Another great writer -Orwell-  said that “to see what is in front of one’s nose needs a constant struggle”. Undertaking such exercise from a pre-defined right or left perspective makes things easier, for you know in advance about what stance to take on most issues. On the contrary, assessing all issues objectively and on their merits (to end up agreeing sometimes with the left, sometimes with the right, and often benefiting from a mixture of the two) is complex, tiring and some would say perhaps unfeasible.

Now, considering that you probably – and rightly- don’t give a damn about our views on politics, you might legitimately ask why on earth I’m telling you all this. Well, because I think that the expansion and consolidation of antitrust laws accross the world can actually contribute to mitigating political imbecility through the promotion -even if implicit- of sensible centrist attitudes (actually, I’m not sure I think it, but it’s an interesting thesis anyway). Let me try to explain what I mean, and please tell me what you think:

The widespread adoption of antitrust rules implies a recognition that (i) freedom of enterprise and free competition is positive; and (ii) for such freedom to be real market forces and excessive market power need to be effectively supervised and corrected through public intervention. This crucial paradox -to limit some sorts of freedom for the sake of freedom itself- might sound obvious to you (after all the laws themselves are “those wise restraints that make men free“), but it has not been a feature of the economic policies pursued in many places around the globe. As a matter of principle, the recognition of the need to strike a balance between the two principles outlined above through the very enactment of antitrust rules (unless purely cosmetic) around the world constitutes a giant step towards the construction of centrist economic policies.

The enactment of antitrust rules also obliges public authorities in many jurisdictions to make complex economic decisions (notably on when to intervene and when not to). To be sure, these decisions may certainly be (and often are) infused by different ideologies, and instrumentalized to pursue non-centrist political agendas. However,  as experience, precedents, inter-relations and peer pressure consolidate, it will (I hope) become increasingly harder for decision-makers to  adopt decisions on the basis of elements other than objective ecomomic and legal knowlegde. That, to me, would be sensible centrist economic policy too.

The underlying assumption that smart public intervention might not only restrict but also actually promote economic freedom could hopefully be extended to other economic domains. For instance, it would be nice if some (not only in developing countries, think of the Tea Party movement) who identify themselves as pro-individual freedom (a principle with which I agree) would realize that for freedom to be real (and not confined to a few) public intervention is required in order to provide effective and equal opportunities to actually exercise it.

I was positively surprised to see that I may not be sole one thinking this way. A recent editorial in The Economist (which I would very much suggest you read; available here) not only called for “radical centrist policies” (what the piece also referred to as “true progressivism”) to combat growing inequalities, but also attributed antitrust a primary role in the pursuance of a centrist agenda. (“The priority should be a Rooseveltian attack on monopolies and vested interests, be they state-owned enterprises in China or big banks on Wall Street. The emerging world, in particular, needs to introduce greater transparency in government contracts and effective anti-trust law“).

Btw, I have the feeling (no evidence though) that The Economist drew inspiration for some these ideas from a recent and truly great book: Why nations fail  -which I’m trying to read when work allows-. This book also contains compelling arguments about why the promotion of competition through the application of antitrust rules is one of the most effective ways to contribute to the development of any given nation.