Excessive prices or excessive price controls?

Do European competition authorities sanction firms that allegedly exploit their consumers by setting excessive prices? Should they do so, in any case? In a recent discussion paper, TILEC professor Damien Geradin discusses this peculiar area of competition law. First of all, excessive pricing is an antitrust offence only in a limited number of jurisdictions. Second, Article 82(a) EC and equivalent national provisions allowing competition authorities and courts to control excessive prices charged by dominant firms have been enforced only infrequently compared to the bulk of the case-law on abuses of dominance. Clearly, competition authorities have focused their attention on exclusionary pricing measures seeking to foreclose competitors rather than on exploitative practices. This is in line with a growing consensus that competition authorities are ill-suited to carry out price controls, a task which is better left to sector-specific regulators. Damien Geradin argues that controlling prices should indeed be limited to exceptional circumstances. Moreover, where such circumstances justify them, given the inherent risks of costly mistakes and unintended adverse effects, price controls should be based on a sound economic analysis of market characteristics and carried out with the utmost caution.

Urgent need for patent reform?

Is patent reform a fad? Do firms really misuse the patent system? Those were some of the questions addressed by a panel of distinguished researchers during a conference on "patent policy and innovation" organized by TILEC and the University of Bologna, Italy, this November. The speakers (Alfonso Gambardella (Bocconi), Richard Gilbert (Berkeley), John Golden (Texas Law), Dietmar Harhoff (Munich), Gerard Llobet (CEMFI, Madrid), Klaus Schmidt (Munich), Richard Schmalensee (MIT), and Damien Geradin (TILEC)) discussed the evidence showing that the increase in the numbers of patent applications and granted patents is associated to a decrease in their "quality" and caused by firms strategically using the system to generate royalty revenues. Reforming the system to discourage such gaming may be desirable and involve a change in the fee structure or the expansion of the possibilities for opposing strategic patent applications. The problem seems particularly acute in those cases where multiple patented technologies are needed for the production of a new good or technological standard. The risk then is that the royalties for those complementary inputs be set too high. Whether this royalty stacking risk is high and requires public intervention was a matter for debate.

A single European market for gambling services?

Can EU Member States justify the restrictions to competition on the market for gambling services? Since 2006 the European Commission has opened infringement procedures against twelve member states (including France, Germany and The Netherlands), arguing that state-run monopolies violate basic internal market principles. It is established case law of the European Court of Justice that public interest concerns (such as the prevention of crime and gambling addiction) can justify restrictions, but it is also clear that restrictions have to be suitable to achieve national policy aims, as well as proportionate and consistent. A recent Tilburg conference addressed the question whether member states can prove that their policies satisfy these criteria. It made clear that, in Europe, there is little hard evidence on the relation between gambling activity, crime and problem gambling, and that some member states regulate more addictive forms of gambling less strictly than less dangerous ones. The dispute between the Commission and the member states is therefore likely to continue. On this issue of on-going concern, see the recent discussion paper by Eric van Damme. In addition, a book on its legal aspects was published in 2006; another one, focusing on the economic aspects, is forthcoming.

Evaluation of the effects of Dutch deregulation policies

Should policy-makers stop pushing for the introduction of market-based incentives in those sectors formerly dominated by public firms and pause for reflection? In the Netherlands, successive governments have introduced regulatory reforms in various markets with the aim of increasing competition intensity and thereby social welfare. These microeconomic policies have recently come under attack. Among others, the Socialist Party (SP) and the labor unions have called for a "time out". In May, the Dutch parliament asked for a formal evaluation of past policies and the minister of economic affairs agreed to it. Presently, the extent to which those policies have succeeded in enhancing efficiency, accessibility, quality and affordability of services, and their overall impact on welfare and employment are under investigation. An external committee was set up to supervise this research and guarantee its objectivity. TILEC Director Eric van Damme was appointed as one of its members. See Kamerstukken Tweede Kamer 24036, nr. 337.

Are merger remedies effective and proportional?

More and more merger proposals are cleared under the condition that the merging parties sell some of their assets to a competitor. What do competition authorities exactly get from this? How does it affect the incentives for firms to propose mergers in the first place? This issue was the topic of a recent TILEC seminar. Helder Vasconcelos (University of Porto) presented a model of merger control with conditional clearance. Although structural remedies create new merger opportunities to firms, when insisting on them to clear a merger the antitrust authority tends to over-fix the competition problem (i.e., to go beyond the return to the level of competition that existed prior to the transaction), which may discourage firms to propose more efficient mergers. Alessandro Tajana (Johnson & Johnson and TILEC) analyzed the evolving practice of the European Commission in this respect. According to him, the available evidence suggests that it has a clear preference for the sale of whole business units over other possible remedies. Along the way, the proportionality requirement present in the relevant Council regulation has been lost. Thus, a risk exists that the Commission be tempted to use mergers as an opportunity to redistribute capital among firms in the industry.