Archive for the ‘Subversive Thoughts’ Category
Antitrust and political imbecility
(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.
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.
More on Karate Competition Law
In the light of the current thresholds governing the grant of IP rights, we could have claimed a copyright for the term “Karate Competition Law” coined by Nicolas. Judging by the number of times that I’ve heard it since that post was published, I’m sure we (meaning him) would have made much more money than the …let me check… $ 10.33 that we made in July via advertising [P.S. this post was written in August and saved for a busy week].
Why did this come to mind? Because I just came accross the US Federal Trade Commission’s elegant formulation of what “karate competition law” is. In its Intel Complaint (for our previous and rather simple post on it, see here), the FTC asserted that:
“where a respondent that has monopoly power engages in a course of conduct tending to cripple rivals or prevent would-be rivals from constraining its exercise of that power, and where such conduct cumulatively or individually has anticompetitive effects or has a tendency to lead to such effects, that course of conduct falls within the scope of Section 5″.
Section 5 has been the primary tool to which US authorities have resorted in their attempts to fill in the perceived gaps of the Sherman Act. Some argue that there’s no EU competition law equivalent to Section 5 of the FTC Act. However, I’m not so sure that we need any equivalent instrument. Whether one likes it or not, as thing currently stand– and obviously leaving aside the dominance/monopoly threshold- I don’t think that the reference in Section 5 to “unfair methods of competition” or the above-quoted passage of the Intel Complaint encompasses much more than the wording of Article 102. “such abuse may, in particular, consist of (…) b) limiting production, markets or technical development to the prejudice of consumers” .
The General Court’s interpretations of this provision in Microsoft, Astra Zeneca Judgments appears to endorse this wide view of Art. 102.b) [arguably previous Judgments from the ECJ such as AKZO, Compagnie Maritime Belge or even Tetra Pak also opted for a quite wide construction of Art. 102]. Interestingly, whereas the case-law and precedents are endorsing a wide view of the protective scope of Art. 102, the effects of the effects-based approach on practical enforcement push in the opposite direction. Self regulation, I guess.
PS. With this I’m not criticizing the use of Section 5 by the FTC. I, for one, am a fan of the FTC’s theory in the Ethyl (Du Pont de Nemours) case, in which the FTC prosecuted unilateral practices by non-dominant firms that were used to facilitate parallel pricing. What I’m saying (and I use the first person here because Nicolas might disagree) is that European judges seem to have construed wider “standard provisions”. For instance, even the situation at issue in Ethyl could have been approached under Art. 102 under the Irish Sugar notion of individual abuses of a collectively dominant position.
SMP
During the WE, I read Pascal Lamy’s excellent note entitled “The Future of Europe in the New Global Economy“.
There are dozens of good points in this note.
In particular, I really liked Lamy’s rebuttal of the argument that European high salaries are the cause of our competitiveness deficit.
As he rightly argues, “when we look at salaries, we have to set them against worker productivity“. And on this, there is still a profound gap between the EU and other trade blocks like China and India.
Lamy, however, makes a more surprising point. He contends that in the global trade arena, EU firms should strive for what he calls “non-price competitiveness“.
So far, so good… But in his own words, non-price competitiveness covers:
“those characteristics that cause a product to stand out positively among its competitors, regardless of price. In particular, it comprises know-how, quality and innovation, which allow a company to sell the same products as its competitors but at twice the price“.
And Lamy further adds, that non-price competitiveness has this good that it:
“shields manufacturers from having to worry about fluctuating global prices and competitor attacks“.
In my own professional language, I call this “market power“.
So here’s a nut to crack: can market power be the way forward for the EU in terms of achieving a comparative advantage on the international trade scene?
Politically incorrect: the political process through an antitrust lens
Since I joined Chillin’Competition almost 2 years ago I always had the intention to write a couple of long and well thought out posts on antitrust and politics. One would attempt to apply antitrust principles and rules to political markets (one day we should also try to do that with the legal market too!), and the other would ideally explore the political content of antitrust in different jurisdictions. Undertaking such exercises would have the virtue of linking two of my preferred subjects, and -I’m pretty sure- would also yield some interesting results. However, I never found the time to develop these ideas and, since it is unlikely that I will find it soon, I’ve decided to hastily sketch what I had in mind without developing it further despite the obvious risk of sounding obvious. Let’s start with one question: what can antitrust tell us about the dynamics of political systems?
If you compare the “political market” to any traditional market (at the end of the day, parties/firms compete for the favor of voters/consumers), you will inevitably arrive to the conclusion that it would be an ideal market for antitrust enforcement. Think about it, the political systems in most developed countries are duopolies (the U.S. is a clear example or partisan parity with shifting temporary monopolies), oligopolies (also with temporary and assailable monopolies) and even permanent monopolies.
These concentrated market structures with transient or permanent monopolies can give rise to several concerns which are familiar to any antitrust lawyer. Political parties (be it the one in government or the one in government in combination with other major parties) unilaterally or collectively act to protect an individual or collective dominant position. Most often this is done by deciding to implement certain electoral rules that foreclose entry or growth by third parties.
Public choice theory has dealt ad nauseam with the issue of self-interested lawmakers (i.e. the foxes guarding the henhouse). That’s what this is about too. Political parties are the ones in charge of adopting the rules that govern the functioning of the political market (how parties are financed, how electoral regimes work -i.e. how parties are rewarded-, how third-party entry in the political market can take place, etc.) and other related markets (such as media-related ones). These situations are not strangers to antitrust analysis; just think of well-known EU competition law cases concerning regulatory professional bodies such as Wouters or Piau. The main difference between those precedents and the situation at issue in political markets is that the consequences of the latter are much more significant and potentially harmful.
The idea of applying antitrust principles to examine the political process is by no means original. Some well-known scholars have already done it in the past, generally in relation to gerrymandering practices (see, among others, Issacharoff´s Gerrymandering and Political Cartels or the great amicus curiae that Einer Elhauge submitted to the U.S. Supreme Court, also in a gerrymandering case (available here).
To be sure, political parties are exempt from the application of antitrust rules, and there might be good reasons for this. However, in view of current enforcement trends that have extended antitrust liability to collective bargaining agreements by workers’ unions and even to governmental bodies -see here for a Spanish precedent-, one can’t help wonder whether political parties are really shielded from the potential application of antitrust rules.
[This may sound subversive, but, we’ve consistently proposed to extend the reach of the antitrust rules to those who appeared to be exempt from them…. remember our post suggesting an antitrust challenge to God? ] 😉
In any event, even if antitrust standards aren’t applicable, they are useful to help us realize -regardless of whatever political beliefes one may have- about legal but undue practices carried out by incumbents with the aim of thwarting political competition. I’m sure most of you can quickly come up with a good bunch of examples…
Competition Plagiarism?
A few weeks ago we posted a story about the “competition pills” that the Spanish Competition Authority (CNC) is distributing (see here). We remarked the “originality” of this promotional campaign. Yesterday, one of our readers (thanks, Luca!) posted a comment in which he questions such originality; the comment reads as follows:
“This is scandalous!! Plagiarism!!
They’ve copied the idea, the packaging, the leaflet, the design – literally, everything except the color, red instead of deep blue – from a record by Spiritualized of 1997 – “Ladies and Gentlemen, we’re floating in space”.
Am I the only one old enough to remember this masterpiece?
Still I’d be curious to know who’s the psychedelic case handler at the CNC who came up with the idea”.
Since our readers’ wishes are our commands, we are launching a quest to find the musically literate CNC official/s who came up with this idea, and we want to interview her/him/them here (about music, copyright and the promotion of competition).
The customary beer tasting reward applies to whoever gives us any information that may help us in our quest.
On competition and blogs
Competition seems to be moving moving to the blog arena.
Some of you may recall that a while ago we discussed the case of a Spanish professor who had been sued for accusing a Promusicae of anticompetitive behavior (see here). We are glad to report that the blogger has won the case, thereby establishing a good precedent to shield Nico and myself from possible similar attacks 😉
Another interesting blog-related development has taken in the U.S. In the context of a high-profile patent infringement case between Google and Oracle, district court judge Alsup has ordered these companies to diclose the identity of bloggers, journalists and consultants that they pay for favorable opinions or consultancy work (for more, see here or here).
This decision has been triggered by the revelation that Florian Müller a well-known IP blogger (from the blog FOSS Patents) had been hired by Oracle shortly after the trial begun.
This unprecedented move should cast light upon the problem related to the lack of transparency surrounding blog content. As the influence of certain blogs grows, it is necessary to start thinking whether the ethical rules governing traditional journalism should also apply in this area. It has certainly led Nicolas and myself to reflect on the way we want to do things.
In our case, we don’t pretend to be impartial informers. We are simply two young professionals who voice out subjective opinions in public to entertain and/or to spur some hopefully interesting debates. We see Chillin’Competition more like a diary than like a newspaper story or an academic paper, and therefore don’t feel under the pressure of being always perfectly informed, accurate, exhaustive and objective about what we write. Of course we try to do our best and to be as technically rigurous as possible, but we’re not afraid of posting first thoughts on some topics, even if our views may evolve afterwards (remember our disclaimer?) 🙂
The small dimension of the competition law community makes it practically unfeasible to continuously disclose personal links. We often know quite well, or are friends with, in-house counsel, external counsel, Commission officials, clerks or Judges involved in all sides of the cases on which we comment here. Disclosing friendship or other informal ties with the people involved in the cases on which we comment would be tremendously burdensome (and it would look a bit weird too…). As said above, we don’t pretend to be always objective. In fact, we generally try to be subjective, but we develop our reasons and we expose them to public criticism. For the time being, our policy is to indicate only the cases in which we are personally involved. Also, where we have written about a case and have later become involved in it, we have also publicly stated it. However, we are, as always, open to comments and suggestions on how to better do what we do.
Blogging law is getting increasingly complicated. Nico: we need a lawyer.
Fine and Punishment
In the article that kept me working during my otherwise summer holidays last year Luis Ortiz Blanco and myself wrote for the Fordham Conference held last September [the final version is published here; a draft version is available for free here] we quoted one of our “Friday Slotters”, Ian Forrester, (actually, he was the one who proposed “The Friday Slot” as a name for the section) saying that competition fines imposed by the Commission “exceed fines imposed by the public authority in any democracy of which I am aware for any offence“.
Some evolution is apparently taking place in this regard. Look, for instance, at the $3 billion fine that GlaxoSmithkline has agreed to pay for promoting its best-selling antidepressants for unapproved uses and failing to report safety data. Take a look also at this very interesting graph, which points out at the largest corporate fines and settlements in the past seven years, and also presents the fine as a percentage of the yearly income of the sanctioned companies.
During a Paris-Brussels train trip last night I read an interesting piece on The Economist that deals precisely with the recent increment in corporate fines using international cartel fines (which reportedly “rose by a factor of one thousand between the 1990s and 2000s”) as the main example.
The Economist‘s piece draws on economic research to justify the conclusion that “to deter bad behavior fines need to rise”.
You may recall that our guest Benoît Durand dealt with this same issue some posts ago and came to a contrary conclusion: that deterrence would be better served by envisaging individual sanctions (fines, disqualification and/or prison penalties) for the executives directly involved in cartel meetings. We haven´t really thought this through, but we’re not big fans of prison penalties, nor would we favor the imposition of disproportionate individual fines. A well designed disqualification sanction, however, would appear to us as a reasonable measure. Any views?
Do Fast Moving Markets require Fast (and Furious) Competition Authorities?
In support of his aggressive move against Google on 25 May 2012, Commissioner Almunia declared:
“I believe that these fast-moving markets would particularly benefit from a quick resolution of the competition issues identified. Restoring competition swiftly to the benefit of users at an early stage is always preferable to lengthy proceedings, although these sometimes become indispensable to competition enforcement“.
Later in June, he again said:
“I strongly believe that users and competitors would greatly benefit from a quick resolution of the case; it is always better to restore competition swiftly in fast-moving markets, provided of course that the companies concerned are ready to seriously address and solve the problems at stake“.
Commissioner Almunia, and his advisers, must have read Judge R. Posner who warned 10 years ago that:
“Antitrust litigation moves very slowly relative to the new economy. Law time is not real time. The law is committed to principles of due process that limit the scope for summary proceedings, and the fact that litigation is conducted by lawyers before tribunals that are not technically trained or experienced inevitably slows the process.
The mismatch between law time and new-economy real time is troubling in two respects. First, an antitrust case involving a new-economy firm may drag on for so long relative to the changing conditions of the industry as to become irrelevant, ineffectual. That was a problem even in the old economy. One recalls for example that by the time the monopolization case against Alcoa completed its journey through the courts, Alcoa had lost its monopoly for reasons unrelated to the litigation; as a result, the decree finally entered against Alcoa offered little more than nominal relief (the divestiture of Alcoa’s Canadian subsidiary). This type of problem is likely to be more frequent in the new economy.
Second, even if the case is not obsoleted by passage of time, its pendency may cast a pall over parties to and affected by the litigation, making investment riskier and complicating business planning“.
Does this call for novel enforcement tactics, with increased recourse to settlements and interim measures?
Or, in evidentiary words, does this require doing away with “cogent evidence” in exchange for “serious doubts“? I have my own doubts.
And Posner too. As he, very humbly, recognizes: “This problem will be extremely difficult to solve; indeed, I cannot even glimpse the solution“.
If God Posner cannot find it, we are indeed all doomed.
Chillin'Competition 