Search engine
This is not a post about Google.
I had not noticed this earlier, but DG COMP has a new search engine for antitrust, merger and State aid cases. It looks very user friendly and will be undeniably of great help to most competition law practitioners and academics. A welcome initiative.
Outcome discrimination
A Microsoft-related post to compensate for the disappearance of the post uploaded earlier.
Recital 13 of Regulation 1/2003 provides that:
“Commitment decisions are not appropriate in cases where the Commission intends to impose a fine“. The ratio of this rule has to do with the fact that commitments only have corrective effects for the future. Unlike fines, they fail entirely to punish past anticompetitive conduct – behavior that has actually caused harmful effects – and are thus inappropriate in case of lasting competition law infringement.
Think of Microsoft II where the Commission accepted commitments. Take a breath. Now think of Microsoft I: same type of alleged anticompetitive conduct, same company, but in this case a staggering 497 million € fine (for two infringements though). My question: can in such situations the Commission’s discretion over the outcome of a case be challenged on grounds of unlawful discrimination? Although I doubt it, I find the point quite interesting (I allude to it in my last concurrences paper).
Windows
This is not a post on Microsoft.
In a move to make their films available early through various channels (DVD, VoD, etc.), movie distributors – big fishes like Disney – have sought to reduce the x-months exclusivity enjoyed by theatres over the first release of movies (the so called theatrical “window”).
Historically, movie distributors had been reluctant to do this, because the release of movies on a wide number of physical (DVDs) or digital (Internet) formats rang the opening hour of piracy. Moreover, the theatres’ temporal monopoly over the distribution of movies led to fat prices for consumers, and thus appreciable margins for the movie distributors (which normally receive a % on each ticket sold).
Movie distributors are manifestly changing their minds. A plausible explanation of this is that distributors increasingly perceive the theatrical window’s lenghty exclusivity as a key explanation for movie piracy. In addition, in times of crisis, consumers may prefer to stay home to watch movies, so the revenue generated by theatrical distribution decreases as compared to other formats. Think, for a second, to the situation of a budget-constrained family man. To him, watching a movie home is akin to a fixed cost. It is incurred once (renting the DVD) and can be spread over the various members of the family. By constrast, watching a movie in a cinema is a variable cost, which increases with the number of family members brought to the theatre.
So much for the theory. Why a post on this issue? On the occasion of the release of “Alice in Wonderland“, cinema chains have tried to undermine the distributors’ attempts to shrink the theatrical exclusivity window. To this end, they have engaged into the most brazen form of anticompetitive conduct: boycott. In the UK, it has for instance been reported that the three big cinema chains – Odeon, Vue and Cineworld – initially threatened to boycott Alice in Wonderland. The same has also happened, and may still be happening, in a number of European countries (Belgium, the Netherlands).
Under EU competition law standards, such boycott practices may be challenged on two possible grounds. First, they constitute a refusal to purchase movie distributors’ services (or they entail the termination of long lasting commercial relationships) and may thus be tantamount to an unlawful abuse pursuant to Article 102 TFEU (or its national equivalent). Assuming – I sound like an economist – that the theatres hold a dominant position (individual or collective), the interesting issue lies in the fact that theatres do not try to harm competition on a secondary upstream market as in classical “essential facility” cases (where upstream, or downstream, foreclosure is the concern). As a result, the Magill/IMS/Microsoft case-law which requires the elimination of competition on a secondary market should thus not apply to cinema chains practices. Yet, I am tempted to argue that there could nonetheless an abuse pursuant to Article 102 TFUE. In coercing distributors to maintain the current release windows through boycott, theatres artificially forestall the early entry of alternative viewing modes on the market. This in turn is prejudicial to “consumer welfare” in the meaning of competition law since it limits consumer choice and impedes the development of new markets. The increased emphasis of “consumer welfare” under Article 102 TFUE brings support to this interpretation.
Second, such practices may be tantamount to an infringement of Article 101 TFUE (or the national equivalent), provided the cinema chains have jointly decided to boycott movie distributors – again I sound like an economist. EU competition law has a strong enforcement record against collective boycotts. Back in 1974, the Commission held in Papiers peints de Belgique that “collective boycott is amongst the most egregious violations of competition rules”.
Apologies for the long post, but I find the issue fascinating. Thanks to T. Hennen for the pointer.
(Image possibly subject to copyrights: source here)
43rd Lunch Talk of the GCLC – 18 March
The 43rd Lunch Talk of the GCLC will be devoted to The Commission’s Proposed Best Practices in Antitrust Proceedings. We are delighted to have Luiz Ortiz Blanco (Garrigues) and Carles Esteva Mosso (DG COMP), to discuss the Commission’s text. The lunch talk will take place on 18 March at the Hilton Hotel in Brussels (38 Boulevard de Waterloo).
See hereafter for registration form.
Competition Law and Sport (II) – Football: State aids and salary caps
Last Wednesday UEFA published an interesting report which provides thorough and useful information about the financial status of European football clubs. A quick look at the report reveals at least a couple of issues that bear a strong relationship with competition law:
Firstly, UEFA’s report advocates the need for “financial fair play” (in essence: more transparency and financial responsibility) in order to address a problem highlighted in Platini’s foreword: “[t]he many clubs across Europe that continue to operate on a sustainable basis (…) are finding it increasingly hard to coexist and compete with clubs that incur costs and transfer fees beyond their means and report losses year-after-year”.
According to the report, most European football clubs face recurrent losses. The most important leagues, both on the sporting level and economically wise, are the ones with the greater aggregated debt: Premier League Clubs have a net debt of approximately 4000 million euros, followed by Spanish First Division Clubs with a debt of nearly 1000 million.
The inevitable question is: how do clubs operate in spite of such losses? In many instances shareholder’s contributions do the job, but in many other situations clubs subsist thanks to public intervention, which in some cases could qualify as State aid. In the sports sector, as in any other, State aid can appear under multiple guises (e.g. direct subsidization; sponsorship under non-market conditions; non-collection of tax or social security debts; aid for the construction of sports infrastructure; etc). One would expect the European Commission to intervene increasingly more in this sector or, alternatively, to lay down specific rules for the assessment of State aid in the world of sports.
Secondly, the report insists on the fact that the financial perspectives of European clubs presage an even worse future. The report seems to blame the constant increase in player’s salaries, which amount to more than 60% of clubs’ expenses, a proportion that is steadily rising. It is on the basis of this and similar data that UEFA has for some time been proposing to establish a salary cap in European football. The compatibility of a salary cap with EU competition law is unclear. In fact, it was listed as one of the “main pending and undecided issues” in Annex I to the White Paper on Sport: sport and EU competition rules.
All the above seems to confirm something I mentioned on a previous post: the world of sports will be an important and growing source of interesting and complex competition-related issues in the very near future.
Conference announcement
The University of Louvain organizes a conference on international antitrust litigation in March. See here for more.
Google Books Settlement- It’s the search market, stupid!
As in most instances, this snowclone is a bit of an oversimplification: to be sure, the GBS brings to the fore extremely interesting issues such as those related to copyright law, privacy, or the function and limits of the class action mechanism, which are unrelated to the competitive impact of the GBS on the search market. However, also like in most instances, it helps us not lose sight of the important stuff. Indeed, the antitrust objections to the settlement raised by the DOJ other than those dealing with the search market (fundamentally those related to the ASA’s pricing system) seem to me somehow weak (see first comment to this post below).
As Gary Reback –one of the most prominent leaders of the opposition to the settlement- noted in a blog post last week: “at bottom, the Google Book Settlement is not really about books. It’s really about search, the most important technology in the new economy”. The transcript of the fairness hearing held last week conveys the impression that the DOJ shares the same main concern.
I’m no expert on the GBS and wouldn’t dare to comment on all of its aspects here. However, some of the issues raised in Reback’s post caught my attention.
Reback’s post points out that the search market, allegedly dominated by Google (how do you define the search market? Note, for instance, that on the fairness hearing AT&T claimed to be Google’s competitor because of its Yellow Pages), is “difficult to enter because of powerful network effects and scale characteristics” . He then insists on how access to books covered by the settlement would grant Google a tremendous competitive advantage. The said advantage would stem from the fact that Google would be improving its ability to support “obscure” or “tail queries” by virtue of its “exclusive” (?) access to in-copyright books whose authors are unidentified (that’s what some have labeled as the “orphan works monopoly”, a term that not only assumes that there exists a market for “orphan works” and that competitors would be barred from accessing to such works, but which also, by putting together the words orphans and monopoly, adds a bit of Dickensonian dramatism to the debate). Read the rest of this entry »
Drawing Inferences from S&D Law
Many thanks for your answers. Some readers got it right, others not. To be fair, the question was poorly formulated, and many alternative explanations could apply.
Scott Summer from the Money Illusion provides the answer, and comes back on the question:
I teach at an institution that is well above average, and here is what I have found. Almost every single student comes into EC101 knowing the impact of supply and demand shocks. Tell them a frost hits the Florida orange crop, and they can explain what happens to the price of oranges. Tell them millions of Chinese start buying cars and they can tell you what happens to the price of oil.I also find that almost no student comes into my class knowing how to interpret price and quantity data. And what is worse, they leave the course equally ignorant. I often ask the following question to upper level econ or MBA students who have already taken principles:Question: A survey shows that on average 100 people go to the movies when the price is $6 and 300 people go when the price is $9. Does this violate the laws of supply and demand?Very, very few can answer this question, especially if you ask for an explanation. Even worse, I think there is a perception that there is something ‘tricky’ about this question, something unfair. In fact, it is as easy a question as you could imagine. It’s basic S&D. It’s merely asking students what happens when the demand for movies shifts. I cannot imagine a less tricky question, or a more straightforward application of the laws of supply and demand. In the evening hours the demand for movies shifts right. Price rises. Quantity supplied responds. What’s so hard about that? And yet almost no student can get it right. Our students enter EC101 knowing one of the two things they need to know about S&D, and they leave knowing one of the two things they need to know about S&D. Maybe instead of having them memorize mind-numbing lists of “5 factors that shift supply,” and “5 factors that shift demand,” we should just tell them to read something that will explain what economics is all about, something that portrays economists as detectives trying to solve the identification problem, something like Freakonomics.
(Image possibly subject to copyrights: source here)
Basic but Tricky Econ. Question
Question: A survey shows that on average 100 people go to the movies when the price is $6 and 300 people go when the price is $9. Does this violate the laws of supply and demand?
Any idea?
