With its White Paper on damage actions for breach of the EC antitrust rules, the European Commission is pushing for national jurisdictions fully to compensate victims of competition law violations. In order for this to be practical, the harm resulting from abusive practices must be apportionable between the various affected economic agents. This is not an easy task, for an increase in the price of an upstream input is typically passed onto downstream customers by the direct purchasers. In a recent discussion paper, TILEC members Jan Boone and Wieland Müller show that in typical cases, the distribution of harm from price-fixing can be recovered from the data which are usually available to antitrust authorities. They develop a general model without making specific assumptions regarding demand, costs, or the mode of competition. Explicit formulas and regression specifications that can be used to estimate the relevant terms in practice are provided. Importantly, the authors illustrate how basic intuition from the tax incidence literature, well-known to practitioners, carries over to antitrust cases. Although much more work is needed in this difficult area, the paper goes a long way toward providing simple guidance to market participants and courts alike.
Nov 30, 2008
Can we apportion harm from price-fixing?
With its White Paper on damage actions for breach of the EC antitrust rules, the European Commission is pushing for national jurisdictions fully to compensate victims of competition law violations. In order for this to be practical, the harm resulting from abusive practices must be apportionable between the various affected economic agents. This is not an easy task, for an increase in the price of an upstream input is typically passed onto downstream customers by the direct purchasers. In a recent discussion paper, TILEC members Jan Boone and Wieland Müller show that in typical cases, the distribution of harm from price-fixing can be recovered from the data which are usually available to antitrust authorities. They develop a general model without making specific assumptions regarding demand, costs, or the mode of competition. Explicit formulas and regression specifications that can be used to estimate the relevant terms in practice are provided. Importantly, the authors illustrate how basic intuition from the tax incidence literature, well-known to practitioners, carries over to antitrust cases. Although much more work is needed in this difficult area, the paper goes a long way toward providing simple guidance to market participants and courts alike.
Coming conference on patent reforms
On March 26 and 27 2009, TILEC will host a conference on patent reforms in Hotel Krasnapolsky, Amsterdam. The main topics of the conference will be: patents and innovation; trivial patents, the laxity of patent offices; IP Licensing in the context of standard-setting organizations; IP enforcement; abuse of patents; and the problem of uncertainty in patent law. The conference intends to foster discussion on the links between patents, innovation and competition policy among lawyers, economists and practitioners. Speakers include: the Rt. Hon. Lord Justice Jacob (UK Court of Appeal); Prof. J. Pagenberg (Bardehle Pagenberg); Mr. R. Buttrick (Senior Vice-President, Philips Intellectual Property & Standards); Prof. J.L.R.A. Huydecoper (advocate-general to the Dutch Supreme Court); Prof. P. Véron (Robert Schuman University and Véron & Associés Avocats); Mr. G.R.B. van Peursem (Vice-President, District Court of The Hague); Prof. H. Shelansky (U.C. Berkely School of Law); Prof. V. Denicolo (University of Bologna); Prof. D. Harhoff (University of Munich); Prof. S. Kieff (University of Washington and Stanford University); Prof. W.A. Hoyng (TILEC and Howrey); Prof. D. Geradin (TILEC and Howrey). Further details will follow shortly and can be found here. Be sure to block the date in your calendar.
Nov 28, 2008
Do we need the Dutch grey market for stocks?
When-issued trading concerns transactions in securities that have not yet been issued. Those often take place in a so-called 'grey market', in which all contracts are conditional on the issuance of the security. In a recent TILEC discussion paper, TILEC member Luc Renneboog and co-author Christophe Spaenjers (Tilburg University) investigate the Dutch 'phantom market' for when-issued shares prior to stock splits and initial public offerings (IPO), using a unique, hand-collected dataset. They find that market makers are more likely to set up a when-issued market
after a stock split announcement when the number of expected transactions is large and the expected costs are low. On the basis of when-issued and regular share closing prices, they calculate that when-issued securities trade at a small but economically significant premium (of on average about 0.60%) over the regular shares during a limited period before the effective date of the stock split (after correcting for the time value of money). This when-issued premium disappears in the last days prior to the stock split. In the case of when-issued trading in the run-up to an IPO, the prices paid in the grey market are in line with the first day closing prices. Overall, those results confirm that pre-issuance trades are highly informative.
after a stock split announcement when the number of expected transactions is large and the expected costs are low. On the basis of when-issued and regular share closing prices, they calculate that when-issued securities trade at a small but economically significant premium (of on average about 0.60%) over the regular shares during a limited period before the effective date of the stock split (after correcting for the time value of money). This when-issued premium disappears in the last days prior to the stock split. In the case of when-issued trading in the run-up to an IPO, the prices paid in the grey market are in line with the first day closing prices. Overall, those results confirm that pre-issuance trades are highly informative.
IIPC workshop winners grant 2007
The IIPC (Innovation, Intellectual Property and Competition policy) Workshop is coming up shortly. Coming December 15, the papers written by the 2007 IIPC competition winners will be presented. One of these papers is "Federalism, substantive preemption, and limits on antitrust: an application to patent holdup", by Bruce H. Kobayashi and Joshua D. Wright (George Mason University). This paper examines whether considerations similar to the considerations in Credit Suisse v. Billing suggest restraint when applying the antitrust laws to conduct (in particular patent hold-up of members of standard-setting organizations) that is normally regulated by state and other federal laws. In Credit Suisse v. Billing, the Court held that the securities law implicitly precludes the application of the antitrust laws to the conduct alleged in that case. The Court considered several factors, including the availability and competence of other laws to regulate unwanted behaviour, and the potential that application of the antitrust laws would result in "unusually serious mistakes." While some have suggested that this conduct illustrates a gap in the current enforcement of antitrust laws, their analysis finds that such conduct would be better evaluated under the federal patent laws and state contract laws. Registration to the workshop is still open!
Should firms be allowed to invest in their competitors?
On 31 October 2008, TILEC held a seminar on the competitive effects of cross-ownership, the situation in which firms hold passive stakes in rivals operating on the same market. This feature is common in industries such as the automobile or airline industry but has failed to attract the attention of competition policy practitioners so far. Yossi Spiegel (Tel-Aviv University) explained that the incentives for firms to collude generally depend (in a complex way) on the whole set of partial cross-ownerships in an industry. Interestingly, when competitors are not identical, an increase in cross-participations may or may not increase the likelihood of tacit collusion, depending on the presence and behavior of an industry maverick, which calls for a differential treatment of such firms. Although passive investments may cause anticompetitive effects, antitrust authorities and courts in most of the Western world have adopted a rather lenient approach towards them (when the problem is acknowledged at all). David Gilo (Tel-Aviv University) presented a range of transactions that potentially affect competition but remain unchallenged under current regulation in the US and the EU. He then explored the desirability of applying merger rules to assess those transactions.
First NZa/TILEC course on competition and regulation in healthcare
On 20 and 21 November, Jan Boone, Wolf Sauter, Misja Mikkers, Marcel Canoy and Leigh Hancher gave the first high-level course within the framework of the NZa/TILEC cooperation. Fifteen participants - all staff members of NZa - took part in a full two-day programme. The first day started with a class-room experiment on lemons. Students learnt how markets can 'disappear' due to lack of information on product quality. After that, the Dutch Healthcare system was the topic of discussion. The current system was described, after which special attention was given to the pros and cons of competition, regulation, auctions and state provision. On the second day, the focus of attention moved to mergers in the healthcare sector. After an introductory lecture explaining the theory of mergers, participants were asked to prepare presentations in small groups on the hospital merger case Hilversum and Gooi-Noord to act as either defendants or applicants. These presentations were consequently put before a 'court', that ruled on the basis of these presentations. This first two-day course will be followed by a more advanced, two-day course on 4 and 5 December. In this course, again taught by a team of senior TILEC researchers, additional attention will be given to regulating market power, and the role of the regulator in the healthcare sector.
Nov 27, 2008
Damien Geradin reaches top position on SSRN
TILEC is proud to announce that in the download ranking of the Social Science Research Network (SSRN), Damien Geradin now takes the 15th position of law authors in the world, and the 1st in Europe. With an impressive amount of 51 papers, Damien reaches a large audience on a wide variety of competition law issues, such as excessive pricing, remedies, the link between competition law and sector-specific regulation, and innovation and competition law.
In his latest paper on loyalty rebates, Damien proposes a test to separate pro-competitive from anti-competitive loyalty rebates. First, he identifies various areas of consensus on the assessment of rebates, such as the fact that rebates are generally pro-competitive and should hence not be assessed under per-se rules, and that the assessment of rebates should focus on foreclosure. Then, he analyses the so-called 'suction effect test', as proposed by the Commission in its 2005 Discussion Paper on Art. 82 for all-unit rebates, using numerical examples. This test requires competition authorities to identify the contestable share of customers demand, in order to calculate the suction effect of the loyalty rebate on the sales in the market. The suction effect test is criticised for being uncertain, impracticable, and likely to lead to serious mistakes, in a large part due to the difficulties of determining the contestable part of customer's demand. In conclusion, Damien proposes - as an alternative approach - to apply the classic predation test over all units sold by the dominant firm in order to assess rebates.
In his latest paper on loyalty rebates, Damien proposes a test to separate pro-competitive from anti-competitive loyalty rebates. First, he identifies various areas of consensus on the assessment of rebates, such as the fact that rebates are generally pro-competitive and should hence not be assessed under per-se rules, and that the assessment of rebates should focus on foreclosure. Then, he analyses the so-called 'suction effect test', as proposed by the Commission in its 2005 Discussion Paper on Art. 82 for all-unit rebates, using numerical examples. This test requires competition authorities to identify the contestable share of customers demand, in order to calculate the suction effect of the loyalty rebate on the sales in the market. The suction effect test is criticised for being uncertain, impracticable, and likely to lead to serious mistakes, in a large part due to the difficulties of determining the contestable part of customer's demand. In conclusion, Damien proposes - as an alternative approach - to apply the classic predation test over all units sold by the dominant firm in order to assess rebates.