Chillin'Competition

Preliminary observations: 1.  The author of this blog hates sweeping, unsupported, antitrust law statements. 2. In the, past, the author of this blog has made a lot of work on rebates under Article 82 EC.

The mainstream  scholarship on rebates often contends, without ever bringing quantitative evidence to this effect, that rebates, which are the essence of competition, significantly lower prices to customers. They ought therefore to be deemed pro-competitive. In turn, the recent scholarship argues, without much nuance, that the decision-making practice of competition authorities and, in particular, of the European Commission, would be overly restrictive. The case-law under Article 82 EC would allegedly chill competition in prohibiting a significant number of dominant firms’ pro-competitive rebates. A related assertion is that rebates are arguably pervasive. However, no robust evidence is ever given in support of the view that most industrial sectors have recourse to rebates.

Against this background, I recommend the reading of Matthew A. Edwards’s  refreshing “The Law, Marketing and Behavioral Economics of Consumer Rebates”, (2007) Vol 12:2, Stanford Journal of Law, Business & Finance, 362.  Whilst conceding methodological and informational problems, Edwards’ paper seeks to provide hard facts, and references,  in support of the contention that rebates are pervasive, and overall entail significant price concessions to consumers. A few excerpts:

“During the past two decades, consumer rebates have become a major marketing method. Although exact figures are difficult to ascertain, estimates of total rebate offer volume now range from $4 to $10 billion per year. According to oneconsulting firm, over 80% of consumers participated in rebate offers in 2004,redeeming over five billion rebates worth more than $3 billion. The prevalence of rebates within the consumer electronics and high-tech products markets is particularly pronounced—one recent industry study indicated that 25% of all computer hardware product purchases, and almost 50% of personal computer sales included rebate offers”.

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)

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)

Welcome!

A. Ramos, T. Mohan and F. Carloni (Howrey LLP)’s paper on vertical mergers has just been accepted for publication in the GCLC WP Series. Their paper discusses the Commission’s practice in applying the 2008 guidelines on non-horizontal mergers. It focuses on two cases on which, to date, there has been only little literature, i.e. Nokia/Navteq and Tom Tom/TeleAtlas.

Please note that the GCLC welcomes submissions for publications into the WP series. Papers should be sent directly to me. Publication in the WP series in no way prevents later publication in a regular competition law journal. On the contrary, publishers generally appreciate when a paper undergoes some empirical testing through a WP, prior, publication.

Volume X of ‘Derecho de la competencia europeo y español‘ is already out (volume IX was also published a few weeks ago). This edition, edited by Luis Ortiz and Eulalia Sanfrutos, includes contributions in English, French and Spanish on different aspects of both EC and Spanish competition law. No review because my objectivity is severely compromised: there are several good friends amongst the authors and I am the co-author of a contribution on the new Chinese Anti-Monopoly law (there’s always a ‘black sheep’ who doesn’t stick to the book’s title). This is the table of contents:

– Problemas prácticos derivados de las nuevas facultades de investigación de la Comisión Nacional de la Competencia / Carmen M. Cerdá Martínez-Pujalte
– La confidencialidad de las comunicaciones entre abogado y cliente: un intento de definición válido para el ordenamiento jurídico español / Violeta Tomás Gutiérrez
– Will the new Commission leniency and fining policy appeal to multi-jurisdictional lenency applicants? / Luis Ortiz Blanco, María Muñoz de Juan and Ángel Givaja
– An offer you can´t refuse? An analysis of EC cartel settlement / Mark English
– Foreign consumers and private antitrust litigation / Charlotte Leskinen
– Competencia y comercialización de derechos de televisión: ¿y si la intervención de las autoridades de competencia fuese el único problema? / Pablo Ibáñez Colomo
– Les mesures structurelles à la lumière du Règlament 1/2003 et du Règlament 139/2004: analyse comparative / Franz Stenitzer
– La regulación de la recuperación de las ayudas de Estado españolas y sus carencias: ¿un exceso de confianza en la autonomía procesal? / Pedro Cruz Yábar
– Defensa de la competencia “Made in China” / Alfonso Lamadrid de Pablo y Napoleón Ruiz García