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.

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.

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.

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.

The proposed patient mobility directive; something left to desire?

In a recent TILEC discussion paper, TILEC member Wolf Sauter (NZA, TILEC) discusses the European Commission's proposal for a Directive on the application of patients' rights in cross-border healthcare, against the background of an overview of the preceding patient mobility case law of the European Court of Justice. The author finds that the proposal is not a full codification of the case law as it leaves out certain guarantees developed by the Court. The Court had accepted public interest justifications for prior authorisation requirements with respect to hospital treatment, and focused on developing substantive and procedural guarantees of patients' rights. In its proposal, the Commission takes a different approach, by both requiring Member States to actually demonstrate the need for a prior authorisation regime, and at the same time showing that in most cases this is unlikely to be warranted. Because the case law-based criteria for "undue delay" would no longer be used to determine when authorisations must be granted, there will be no clear EU standard to apply if any authorisation requirements survive. New in the proposal are the patients' rights to accountability and transparency, which apply to all patients in each Member State. This represents a first step from negative integration (liberalisation) to positive integration (harmonisation).

Panogiotis Delimatsis, new TILEC member

In August 2008, we welcomed Panagiotis Delimatsis, our newly appointed Assistant Professor for International Trade Law. Panagiotis holds the first position created under the new tenure-track regime of the Faculty of Law of Tilburg University. The creation of this position was made possible through the additional financing granted by the Central Board of the University for the period 2007-2011. It is the second of two TILEC-instigated appointments relating to international trade, together with that of Amrita Ray Chaudhuri at the Faculty of Economics and Business Administration. Panagiotis previously held positions with the World Trade Institute, the WTO Appellate Body Secretariat, the United Nations Conference on Trade and Development (UNCTAD), the International Centre for Sports Studies in Neuchatel and the University of Bern. He has considerable expertise in the regulation of international trade, trade in services in particular, as well as EC law. His main research interests include regulatory diversity in services, regulatory reform and principles of good governance in the services domain, and the effects of domestic regulatory structures on factor mobility. Panagiotis is the author of "International Trade in Services and Domestic Regulations - Necessity, Transparency, and Regulatory Diversity" (International Economic Law Series, Oxford University Press, 2007).

On the way to a pan-European energy market?

Last month, the European Commission proposed a third legislative package for the energy sector. Further integration of the European energy markets is one of the main objectives. An Agency for the Cooperation of National Energy Regulators (ACER), with binding decision powers, would be created to facilitate cross-border energy flows. The second Energy Economics Policy Seminar, jointly organized by TILEC, the Dutch competition authority (NMa), the Netherlands Bureau for Economic Policy Analysis (CPB), and the Dutch Ministry for Economic Affairs in The Hague last month, discussed the remaining
obstacles on the way towards integration. Boaz Moselle (The Brattle Group) argued that the third liberalisation package does not go far enough, as full unbundling of the high-voltage transmission network is not imposed, and the ACER will not have sufficient powers. Mette Bjørndal (Norwegian School of Economics and Business Administration, Bergen) talked about the difficulties of setting up an integrated energy market when the physical aspects of the network are not fully taken into account during the market design phase. She further showed that different congestion mechanisms can create large externalities for other networks and that the incentives of the different network operators are therefore not aligned.

TILEC's new organization

TILEC has grown considerably since it was established in 2002. Growth requires change, which is why since 1 September 2008, TILEC operates according to a new administrative structure. The most prominent change is the creation of a new position of academic manager, filled by Ilse van der Haar. Ilse has concurrently taken up a position as assistant professor in the department of European and International Public Law at Tilburg University, where she specialises in competition law and electronic communications regulation. The two founding directors of the institute, Pierre Larouche (law) and Eric van Damme (economics) have stepped away from day-to-day
management, and now concentrate on the strategic, long-term aspects of TILEC. The day-to-day management tasks have been taken over by the academic manager. Outside parties that would like to contact TILEC for general information on our members and their research, on-going cooperation opportunities, sponsoring or any other matters are kindly requested to contact Ilse via email (ilse.vanderhaar@uvt.nl) or phone (+31 134663648). We thank you in advance for your cooperation.

From cost efficiency to the promotion of investment

In the last two decades, the central focus for network industry regulators has been to reduce tariffs for end-users by stimulating cost savings in former monopoly utilities. After the harvest of low-hanging fruits, further efficiency savings and tariff reductions are becoming harder and harder to achieve. At the same time, many networks dating from the 60s and 70s need replacing, while they are expected to serve new purposes such as providing access to decentralized production. All these challenges require a regulatory framework that is forward-looking and provides incentives for innovation and investment. On 3 December 2008, TILEC organizes the workshop "Energy regulation going forward: from cost efficiency to innovation and investment". Four prominent speakers will discuss the issue. Gert Brunekreeft (Bremen) will look at the link between regulation and the timing of investments by a monopolist. Per Agrell (Louvain) will present the effects of regulatory competition on
transmission network investments. Michael Pollitt, (Cambridge) will draw lessons from telecommunications regulation. Jos Blommaert (Essent NV) will communicate a market participant's view on how to implement a new regulatory framework. The event will take place at Tilburg University. Attendance is free but registration is required.

What to conclude from the European Microsoft case?

The judgment of the European Court of First Instance (CFI) in the Microsoft case led to the closing of a 10-year mammoth case. Its sheer size raises the question whether there are any lessons transcending this complex story. In a recent TILEC discussion paper, Pierre Larouche shows that, while the broad criticism levelled by some antitrust commentators is unjustified, the CFI at times opens more issues than it solves with its judgment, in particular as regards the relationship between competition policy and innovation. It seems clear that the CFI intended to issue a judgment from which it would be difficult to appeal. Contrary to a common criticism, the CFI did not display excessive deference towards the Commission decision but instead extended the stricter standard of judicial review recently defined for merger cases to abuse cases. In the first part of the case, dealing with interoperability information, the CFI did not follow the adventurous legal approach of the Commission but instead recast the case into existing case law. In the second part of the case on tying, the CFI supplied the Commission reasoning with a legal underpinning, but did not question whether the Commission remedy was appropriate.

Innovation, intellectual property and competition policy (IIPC)

On 15 December 2008, TILEC will organize a workshop in Tilburg where the winners of the TILEC IIPC grant competition 2007 will present the results of their research. The workshop will begin with a keynote speech by Vincenzo Denicolò (University of Bologna) on IP licensing. Then, the research projects selected last year will be presented by each winning team and discussed by TILEC members. The winners of the TILEC IIPC grant 2007 were (in alphabetical order): Scott Baker (University of North Carolina at Chapel Hill) & Claudio Mezzetti (University of Warwick), Bruce Kobayashi & Joshua D. Wright (both of George Mason University), and Michael Ward (University of Texas at Arlington). Attendance is free but registration is required. For the complete programme and registration, please click here. TILEC also announces the IIPC grant competition 2008, providing funding for up to three scientists (or teams of scientists), in the amount of EUR 15,000 each, to conduct legal and economic research on the interplay between innovation, intellectual property rights and competition policy. View the full call for proposals here.

Do banks increase their risk-taking when deposit insurance is introduced?

Banks' risk-taking behavior is at the core of the discussions about the current financial turmoil. The regulatory obligations to which banks are subject is known to have a great influence on their behavior but what about pieces of legislation that primarily concern their depositors? In a recent discussion paper, TILEC member María Fabiana Penas and co-author Vasso P. Ioannidou (Tilburg University) study the effect of the introduction of a generous deposit insurance system on banks' risk-taking behavior. Using detailed credit registry data from Bolivia, a
country which introduced a deposit insurance system in 2001, they compare the risk-taking behavior of banks before and after the change. They find that in the post-deposit insurance period, banks were more likely to initiate riskier loans (i.e., loans with worse ratings at origination). These loans carried higher interest rates and were associated with worse ex-post performance. The authors' results also suggest that this increase in risk-taking was due to the drop in market discipline from large depositors, and that differences between large (too-big-to-fail) and small banks diminished in the post-deposit insurance period.

Why do poor cases find their way to trial?

Given the costs involved, litigation seems to be a particularly inefficient outcome of pretrial bargaining. Existing models are based upon the assumption that the plaintiff is less informed than the defendant about the strength of her case. They counterfactually predict that only strong cases find their way to court, where the plaintiff's success rate should be very high. In a recent TILEC discussion paper, TILEC member Jun Zhou shows that litigation can be the outcome of rational behavior by a litigant and her attorney. Indeed, if the attorney has more information than his client about the characteristics of the suit, then the client is led to use litigation as a way of extracting information. Counterintuitively, litigation occurs only when the plaintiff is pessimistic about her prospects at trial, for that is the way for her to make sure that the attorney will not represent the case as weak and spend many more billable hours on bargaining. The plaintiff is more likely to sue if litigation is riskier and less likely to do so if she receives third-party litigation financing. The paper was awarded a 2008 Young Economist Award by the European Economic Association.

Shareholder mobility in five European countries

How do ownership structures develop over time, and how do these structures relate to law? These questions have been addressed in a recent TILEC DP by Christoph Van der Elst (TILEC). Van der Elst analysed the data of a large sample of companies in five European countries and concludes that ownership concentration has decreased at a moderate pace over the last 8 years in France, Italy and Belgium, but has increased in Spain and the UK.
Despite the finding that ownership is increasingly dispersed in the former countries, the fact remains that the great majority of companies in continental Europe continue to have one controlling shareholder. Families and non-financial companies make up the largest shareholders in the European continental countries. Investment policies differ significantly between the different shareholder classes as well between different countries. Furhter, companies are increasingly confronted with the presence of foreign shareholders. Given the development of the investor protection rights, the results partly confirm the work of La Porta, Lopez de Silanes, Shleifer and Vishny (LLSV), who have argued that ownership concentration is a substitute for weak investor protection. However, Van der Elst emphasises that ownership has many other features and "law" cannot explain all ownership characteristics.

How to integrate European electricity markets?

The integration of national electricity markets is an important policy goal of both national governments and the European Commission. Integration is believed to improve competition as well as create additional trade benefits. Despite many improvements in interconnection, markets are still poorly linked to one another. On 9 October 2008, TILEC will organize a half-day Energy Economics Policy Seminar devoted to this topic, in cooperation with the Netherlands Bureau for Economic Policy Analysis (CPB), the Dutch Ministry of Economic Affairs, and the Dutch Competition Authority (NMa). The event will take place in The Hague and will feature two energy experts. Mette Bjørndahl (Norwegian School of Economics and Business Administration) will talk about the lessons learned in the integrated Scandinavian electricity market and discuss the benefits of, and incentives for, close co-operation between the different network operators.
Boaz Moselle (The Brattle Group) will talk about incentives for regional integration and the interrelation between market power and cross-border transmission capacity. Lessons from international experiences will be drawn. After both lectures, discussants will kickoff the discussion with the public. Attendance is free but registration is required.

Shall we pretend we are altruistic?

Standard economic models often postulate that agents are
of the egoistic, materialistic type. However, there is ample evidence that human beings tend to behave in ways which may at first look seem altruistic. Are they really, or do they instead arise from a regard for the individual advantages that may be attached to them? TILEC researcher Sigrid Suetens has recently been awarded a Dutch Science Foundation (NWO) Veni grant of € 208.000 for her research on 'The (limited) rationality of altruism out of self-interest'. This research project looks into the altruistic behavior of people and the rationality of it. In a series of laboratory experiments, Sigrid will examine to what extent altruistic behavior is selfless or stems from self-interest and, when it stems from self-interest, whether it is based on rational calculations or rather follows a certain rule-of-thumb. Sigrid's research has so far focused on the application of experimental techniques to market behavior or behavior in so-called social dilemmas, where individual incentives conflict with what is preferable for the group as a whole.

Services of general economic interest: opening up Pandora's box

Over the past ten years, the topic of services of general economic interest (SGEI) has given rise to ample debate at the European level. This has most recently resulted in the adoption of a Protocol to the Lisbon Treaty, and a proposed amendment of the EC Treaty extending the legislative powers of the European Parliament and the Council to the sphere of SGEI. In a recent TILEC DP, which is now published in the European Law Review, Wolf Sauter (TILEC, Dutch Healthcare Authority) discusses the concept of SGEI against the background of a fundamental tension between the Member States' wish to obtain a broad public service exception on the one hand, and the European Commission seeking to avoid opening a Pandora's box that could threaten the application of market freedoms and competition rules on the other. Special attention is given to position of universal service obligations as a key element of SGEI. In his paper, Sauter proposes a structured test for creating future SGEI. Market failure arguments will be key in defining the legitimate, necessary scope of future SGEI, so as to attain the relevant public interest objectives. By extension, the road to liberalisation and market based-provision of remaining services is opened.

Third Roundtable of the Economic Impact Group

What is the optimal remedy for contractual breach in European Contract Law? Do we need a duty of good faith in European Contract Law and what is the optimal design for such rule? What are the limits of non-contractual liability? These were the main topics discussed at
the Third Roundtable of the Economic Impact Group (EIG) of the CoPECL network. After Brussels and Barcelona, this third meeting of the group took place on 23 June in Venice. There, Filomena Chirico, Gerrit de Geest and Pierre Larouche presented their thoughts on the abovementioned topics and collected reactions and input from the law and economics experts composing the EIG. The work of the EIG, coordinated by TILEC, as well as the CoPECL project itself, are currently being finalised and in the coming weeks recommendations based on EIG's economic analysis will be supplied to the groups drafting the Common Frame of Reference for European Contract Law. The final results will form the basis for the revision of the existing EC legislation by the EU institutions and will be proposed as a model law for EC and national law-makers.

Elves or Trolls?

Firm structure and the degree of vertical integration lie at the core of a key intellectual property concern currently under debate: the existence of "patent trolls" (those patent holders that prey upon manufacturers and other downstream firms by charging "supracompetitive" rates for their patents). In a recent TILEC discussion paper Damien Geradin (TILEC) and co-authors Anne Layne-Farrar and Jorge Padilla (both with LECG) argue that while court opinions and competition agency decisions have focused on "non-practicing" patent holders as the source of anticompetitive exclusion and hold-up problems, this view of upstream specialists is far too
narrow. In fact, patents in the hands of non-practicing entities can increase competition, lower downstream prices, and enhance consumer choice. The authors explain why and argue for more business-model-neutral policy when it comes to patent licensing. Clearly, patents are a complex subject that cannot be portrayed as either all good or all bad; tradeoffs will always be involved. Without a better understanding of the many complicated effects of patents in high technology markets, policy-makers run the very real risk of misguided decisions.

Should we encourage damage actions by victims of antitrust violations?

On 20 June 2008, TILEC organized a workshop on the issue of private enforcement of competition law. Indeed, the European Commission has now issued its long-awaited white paper on
antitrust damages and the wisdom, as well as the modalities, of the suggested facilitation of victims' access to compensation is much debated. Eddy de Smijter (European Commission) explained the policy choices advocated by the Commission. Jeroen Kortmann (University of Amsterdam) provided the audience with a tort-law perspective on the subject and showed how problematic some aspects of the proposal could be, given the myriads of legal solutions in force in the various Members-States. Turning to the more specific issue of the assessment of damages, Frank Verboven (KU Leuven) insisted on the so-called output effect (the welfare loss associated to those units which should have been sold absent the infringement), which seems problematic to estimate. Jan Tuinstra (University of Amsterdam) stressed the complications introduced by the presence of several layers of intermediate purchasers or suppliers. Wieland Müller (TILEC) suggested a general framework for the determination and practical estimation of the total harm to downstream firms and final consumers caused by e.g. price fixing upstream.

Do institutional shareholders take their investor role seriously?

As institutional investors are the largest shareholders in most listed UK firms, one expects them to monitor the firms they invest in. However, there is mounting evidence suggesting that they do not perform any monitoring. In a recent TILEC discussion paper, Luc Renneboog (TILEC) and co-authors Marc Goergen (University of Sheffield) and Chendi Zhang (University of Warwick) provide a new test on whether UK institutional investors engage in monitoring. The test consists of an event study on directors' trades. If institutional shareholders act as monitors, their monitoring activities will convey new information about a firm's future value to other
outside shareholders and reduce the informational asymmetry between the managers and the market. As a result, directors' trades will convey less information to the market when institutional investors own large share blocks, and the stock price reaction will be weaker. However, the results show that the presence of institutional shareholders in the ownership structure does not have a significant impact on the stock price reaction to directors' trades. Thus, the shareholder monitoring aspect of the UK corporate governance model seems to fail, although some recent developments have put more pressure on institutional shareholders to take a more active stance.

Catherine Schaumans, new TILEC member

Following the recent TILEC-Dutch Healthcare Authority (NZa) agreement to foster research on competition and regulation in health care markets, TILEC will soon welcome a new member, in the person of Catherine Schaumans, newly-recruited assistant professor in economics. Catherine recently defended her dissertation at KU Leuven under the supervision of Frank Verboven and Hans Degryse. Her research has focused on the impact of entry regulation on the market for pharmacists, on supply-induced demand for health care and on the strategic interaction between general practitioners and specialists associated to the introduction of mandatory referral (or 'gatekeeping') schemes. As of September, Catherine will strenghten the research group on healthcare, which was already reinforced by the addition of Marcel Canoy (economics) and Wolf Sauter (law) earlier in the Spring. A twin position to Catherine's has been created at the Faculty of Law and the vacancy has already been advertised. All those researchers will be involved in the project sponsored by NZa, in which it will invest € 800.000 over the period 2008-2011, while Tilburg University will contribute research time and facilities for over € 1 million. TILEC member Jan Boone is the overall director of the new research program.

Are rules on proof an obstacle to a modern anti-cartel policy?

 A recent TILEC discussion paper by Laura Parret (TILEC) presents an original perspective on a classical legal theme, namely rules on proof. Such rules might be perceived by some economists as formalistic, or overly complicated. However, the paper argues that they are necessary to ensure the protection of higher principles, such as the presumption of innocence and proportionality. In addition, the case is made that the importance of such rules has increased since the promotion of a more economic approach to competition law. At the same time, lawyers should also avoid being too formalistic: there is no pressing need for a "right" standard of proof to be defined, contrary to what some lawyers are claiming after ECJ judgments such as Tetra
Laval. Lawyers should accept that the current standard is workable and sufficient as a basis, at least in cartel cases. Decision-makers can handle flexible and differentiated rules, and should be trusted to do so. However, it is essential for authorities and courts to adequately motivate their decisions, to be accountable both to the companies concerned and to the general public, and not in the least to allow for efficient judicial review. A revised version of the paper is forthcoming in the European Competition Journal.

Is market monitoring sufficient to prevent financial crises?

The most recent literature on crises points out that financial fragility in the banking and/or corporate sector is at the root of the financial crises in emerging markets. In a recent TILEC discussion paper, María Fabiana Penas (TILEC) and Günseli Tümer-Alkan (Tilburg University) study how Turkish shareholders reacted to changes in banks' measures of financial fragility during the years prior to the 2000/2001 crisis, and how the quality and timeliness of disclosure affected market reaction. They find that improvements in disclosure requirements brought about in 1999 increased the informativeness of accounting statements and that audited statements that showed larger reporting lags were not informative, pointing to the need for improving their timeliness. They also find that shareholders reacted negatively to financial fragility indicators, such as increases in maturity mismatches, currency mismatches, and non-performing loans, showing concerns about the impact on future profits. Therefore, there is evidence that market monitoring took place in the years prior to 2001. However, given the magnitude of the crisis that subsequently unfolded, the study suggests that the finding that securities prices react to financial fragility indicators should not be taken as a guarantee of banks' safety and soundness.

TILEC researchers come CLEEN

Amrita Ray Chaudhuri, Filomena Chirico and Alan Littler will represent TILEC at a workshop held at the University of East Anglia from 11 to 13 June 2008, organized within the CLEEN framework. CLEEN, the Competition Law and Economics European Network, was established in 2007 as a network of research institutions dealing with competition policy from a legal and economic perspective. The first academic meeting of the network was held in Bonn in December 2007 at the initiative of the Max-Planck Institute for research on collective goods. This meeting will be the second event under the banner of CLEEN, and will be hosted by the Center for Competition Policy (CCP) of the University of East Anglia in Norwich. On this occasion, the meeting will be especially targeted at young researchers. The workshop will give them a possibility to present a sample of their recent research, as well as receive valuable comments from an interdisciplinary and international audience, two qualities that TILEC is proud to be associated with.

Do exclusivity contracts hamper product innovation?

Contractual relationships at various levels in the production chain, although often efficient, may at times be used for anti-competitive purposes. In particular, exclusivity clauses have long been regarded with suspicion because of their direct exclusionary effects. Over the past decades, economists and lawyers have come to a better understanding of the possibilities for dominant firms to use such arrangements so as artificially to maintain their position. Recent pieces have suggested that intense competition among downstream buyers may be enough to prevent dominant upstream firms to seize them. In a recent TILEC discussion paper, Cédric Argenton (TILEC) revisits the main theory of harm (the so-called "naked exclusion" story) in the case when the efficient competitor is not a firm producing at a lower cost but one bringing an innovative, higher-quality product to the market. Contrary to the case of process innovation, when retailers intensely compete with one another, the incumbent firm is always able to exclude the innovative firm. Therefore, intense competition at the retail level is no guarantee that exclusivity contracts are harmless. Competition policy enforcers need to pay more attention than ever to the exact characteristics of the upstream market.

Does competition really serve consumers?

Increased competition is thought to lead to more choice and lower prices for consumers. However, if consumers are not ready for, or not capable of, exercising their choice, competition might hurt them. One issue is consumer confusion, possibly resulting from market liberalization. This issue is especially important in healthcare, energy, and financial markets, where offerings tend to be relatively complex. Another issue concerns hidden costs for consumers. Do markets supply adequate protection to consumers, or should policy-makers intervene to protect them? What is the optimal type of policy intervention? Which public authorities (for instance, competition authority or consumer authority) and which private authorities (for instance, consumers' unions, firm's mediators) should take care of which tasks and responsibilities? Mark Armstrong (UCL), Peter Kooreman (Tilburg University and Netspar), Marije Hulshof and Dirk Janssen (Netherlands Consumer Authority) will present their views on these issues during a half-day workshop organized in The Hague on 2 June 2008 by the Netherlands Bureau for Economic Policy Analysis (CPB), the Dutch Ministry for economic affairs, CentER and TILEC. Attendance is free but registration is required.

Is there a link between trade policy and competition policy?

Successive rounds of international trade negotiations have reduced trade barriers worldwide consistently over the past few decades. Simultaneously, the total volume of mergers worldwide has been growing at an enormous rate (42% per year over the period 1980-1999, according to the UN's World Development Report.) Has trade liberalization played an active role in encouraging those mergers? In a recent discussion paper, Amrita Ray Chaudhuri (TILEC) uses a dynamic dominant-firm model to examine this question. Domestic and cross-border mergers and demergers are allowed for. When firms are myopic and the dominant firm has a sufficiently high pre-merger capital share in any one country, trade liberalization causes the industry to become significantly more concentrated. When firms are forward-looking, this anti-competitive effect of
trade liberalization is mitigated. Tariff reduction from a prohibitive to a non-prohibitive level aligns merger patterns across countries and initiates merger (or demerger) waves simultaneously across countries, provided all firms are equally forward-looking. These results, thus, highlight the importance of taking into consideration existing industry structure and firms' discount rates whilst formulating competition policy in the face of trade liberalization.

TILEC 2007 report available

TILEC's annual report for 2007 is now available on the TILEC website. Last year turned out to be a good year for TILEC. With a new budget plan and a second TILEC Agreement signed by the two parent faculties, each of these covering the five-year period 2007-2011, a stable framework for the future was established. Substantial additional funding was provided by the Executive Board of Tilburg University, which allowed TILEC to support the hiring of new researchers in its core research areas. With a membership of over 50, about equally divided between the Faculty of Law and the Faculty of Economics and Business Administration (with roughly two-thirds of the researchers working in the research line 'Institutions, Competition and Regulation' and one-third in 'Law and Finance'), TILEC has now reached the critical size that allows for fruitful interactions. Its coming challenge is to further deepen the interdisciplinary cooperation between legal scholars and economists in the fields covered by its research programme. The annual report describes the institutional efforts exerted to that purpose and also contains a summary of recent research findings.

TILEC workshop on private enforcement of competition law

The European Commission has issued its long-awaited white paper on antitrust damages on 2 April 2008. On 20 June 2008, TILEC will organise a half-day workshop on this topical issue of private enforcement in the context of competition law. The workshop will be divided into two parts. The first part will deal with the legal and policy aspects of the discussion. Eddy de Smijter (European Commission) will focus on the policy developments behind the white paper, and Jeroen Kortmann (University of Amsterdam) will provide the audience with a tort-law perspective on antitrust damages. The second part of the workshop will deal with the more specific issue of the assessment of total damages and the distribution thereof. Here, three sets of speakers of economics will present their work: Wieland Müller and Jan Boone (both TILEC), Theon van Dijk (Lexonomics) and Frank Verboven (KU Leuven), and Maarten Pieter Schinkel, Jan Tuinstra and Martijn Han (all University of Amsterdam). The workshop will take place at Tilburg University, from 12:00 to 17:00. Registration is free and is possible until 13 June 2008. More information on the workshop can be found at the TILEC website.

Is the retailing sector plagued with competition problems?

Retailing is concentrated in many countries. A national supermarket chain can easily represent 25% of the turnover of many manufacturers. Should we be concerned about this situation? On 18 April 2008, TILEC devoted a seminar to this issue. Jeanine Miklòs-Thal (University of Mannheim) presented her work (joint with P. Rey and T. Vergé) on slotting allowances (fees that suppliers pay retailers so as to gain access to shelf space). In her model rival retailers, endowed with all the bargaining power, offer contracts to a manufacturer. Contracts that allow for a fixed fee and exclusivity provisions (in addition to specifying the unit price) are not sufficient to achieve monopolization of the industry. Richer arrangements (including, e.g., slotting allowances) are required to that effect. The policy implications are however ambiguous, if only because slotting fees are not strictly necessary to achieve this outcome. Pieter Kuipers (Unilever) addressed the problems raised by the recent development of 'private labels' (retailer's brands). As a result of this trend, retailers now combine the roles of customer of branded goods as well as competitor, with the risk of compromising their function as efficient gatekeepers to final consumers.

Quality of the legal system and financial contracting

Does the legal system really matters for economic outcomes? In a recent TILEC discussion paper, Marco da Rin (TILEC) and co-authors Laura Bottazzi (Bologna) and Thomas Hellmann (British Columbia) focus on the venture capital market and develop a theory and empirical test of the ways the legal system affects the relationship between venture capitalists and entrepreneurs. When some actions on both sides are not fully contractible, in a legal system where investors are generally more protected the optimal contract calls for them to give more informal support to entrepreneurs and to receive more downside protection (instruments such as debt or preferred equity). Those predictions are tested on a hand-collected sample of capital venture deals in 17 European countries and clearly supported. The results hold for legal origin, using the common interpretation that the Anglo-Saxon common law system is better for investors than systems based on civil law. They also hold for two widely used index measures of the quality of the legal system: the rule of law and the degree of procedural complexity. The paper is forthcoming in the Journal of Financial Intermediation.

Microjustice as a solution for the poor?

In developing countries, many people do not have effective access to justice to protect their rights. Taking the cue from microfinance, Maurits Barendrecht (TILEC and Intervict) and Patricia van Nispen (International Legal Alliances) introduce the concept of 'Microjustice' in their TILEC discussion paper as an approach to tackle this issue. As a starting point, people with limited resources pay relatively more for services than wealthier people, since they often purchase small amounts of services. For the authors, this implies that current first-world approaches to the provision of justice need to be adapted to large markets with low-budget consumers. If this can be achieved, there should be a viable and effective market for justice for poorer persons. The authors point to a large untapped potential for innovation in current justice systems. They explore which principles may be used to develop innovative legal services for those with limited resources, and give examples of what 'Microjustice' might look like. What is needed in particular are new forms of delivery of neutral interventions, by trustworthy and independent decision makers, who have the necessary incentives to be transparent, induce cooperation between their clients, and serve clients at the low end of the market.

Renewed efforts on research about health care markets

The Dutch healthcare authority (NZa) and TILEC recently announced their agreement to cooperate in research about competition and regulation in health care markets. In the context of this agreement, two part-time professors, Marcel Canoy (economics) and Wolf Sauter (law), were appointed at Tilburg University as of 1 March, 2008. The agreement is the outcome of a competitive tendering process among university research groups that was initiated by NZa in the Spring of 2007. In a joint effort with Tranzo, the research institute of Tilburg University that focuses on transformation processes in the health care sector, TILEC submitted the best bid! The cooperation with NZa will allow TILEC to strengthen its research group on health care markets. During the period 2008-2011, the NZa will invest €800.000 in the project, while Tilburg University will contribute research time and facilities for over €1 million. TILEC members Leigh
Hancher (law) and Jan Boone (economics) will be the directors of the new research program. Details can be found here.

Keynote speakers at the coming conference on 'Market Governance and Innovation'

On Monday, 14 April 2008, TILEC organizes a large-scale conference devoted to the theme of 'Market Governance and Innovation'. This day-long event will take place at Tilburg University and will feature four sessions entitled 'Managing Innovation', 'Competition and Innovation', 'Financing Innovation', and 'Regulating Innovation?'. The last session is a high-level panel of regulators and academics. Five prominent speakers have agreed to deliver the main addresses in the first three invited sessions.

The secret of the pyramids

Many firms are controlled by other firms, whose shares are themselves mainly held by other entities or individuals. Who uses such pyramidal structures? What for? Those were some of the questions addressed in a recent TILEC seminar. Douglas de Jong (University of Iowa) and co-authors managed to track the ownership structure of all firms listed on the French main market from 1997 to 2003. 56% of those companies are controlled by upstream firms, which is a larger proportion than thought. Preliminary work does not seem to support the hypothesis that pyramids are used so as to force minority shareholders to participate in the internal funding of business groups, while there is limited evidence that they are used to introduce a wedge between control rights and cash flow rights. Christoph van der Elst (Tilburg University) performs a comparison of the shareholding of operating companies listed in five European countries in 1999 and 2007.
Over the period, about a third of them were delisted. Contrary to a commonly held opinion, there is no general decrease in the control rights of the largest blockholders: that depends on the country and the concentration measure chosen.

Towards efficient contract rules in Europe?

What would be the economic impact of a harmonized contract law for the entire Europe? While many researchers around the continent are drafting common rules to be submitted to the European Commission as part of the 'common principles of European contract law' or CoPECL project, the Economic Impact Group (EIG) is working on providing insights about their economic consequences. The EIG, led by TILEC members Filomena Chirico, Pierre Larouche and Eric Van Damme and composed of highly qualified economists and lawyers, was convened for its second roundtable on 17 December 2007. The event was hosted by the University Pompeu Fabra in Barcelona. Draft papers on the economic analysis of certain rules of European contract law were presented and discussed by the participants. The rules discussed on this occasion concerned performance and breach of contract, measure of damages, consumer contracts, long-term contracts and insurance contracts. The boundary between contractual and extra-contractual obligations was also touched upon. The EIG will meet again in June 2008 and continue exploring the economic implications of the proposed rules.

Dealing with exclusive dealing

How should competition authorities treat exclusive dealing contracts? On 18 January 2008, TILEC organized a seminar on this topic. Paul Lugard, Head of Antitrust at Philips, gave a critical summary of the current legal framework, which has been shaped in recent years by several cases involving rebates rather than exclusivity clauses in their purest form. In his view, while the Community courts' case law has shown signs of a less rigid approach, the European Commission in its 2005 Discussion Paper about the application of article 82 missed an opportunity for suggesting a fully-structured consumer welfare test. Instead, the proposed approach resorts even more to proxies for anti-competitive foreclosure, potentially giving rise to numerous errors. David Spector (Paris School of Economics) presented his recent work extending the main theory of harm under exclusivity contracts (the so-called "naked exclusion" story) to the (typical) case where the potential victim is present at the contracting stage. It is shown possible for a firm to use exclusivity contracts in order to deprive a rival of the minimum viable size, exclude it from the market, and enjoy increased market power but such eviction is less likely than inefficient entry deterrence.

Two TILEC researchers honored with prestigious grants

Two active TILEC researchers were recently awarded prestigious competitive grants. Jan Boone won a Dutch Science Foundation (NWO) Vici grant of € 1,250,000 for his research project on the health care system. Vici grants are given to senior researchers who have shown that they have the ability successfully to develop their own innovative lines of research and to build a research group. Jan's research aims at identifying the costs and benefits of intensifying competition in health care markets. Although more intense competition forces providers and insurers to yield higher quality at a lower price, the question is whether one can have too much competition. Bert Willems was granted a two-year Marie Curie fellowship by the European Commission for his research project about investments in electricity markets. Such grants are meant to improve the career perspectives of young researchers by broadening their scientific and generic skills. Bert will study how generator firms make their investment decisions in a competitive electricity market and whether governments should regulate the security of supply. TILEC is very proud of those achievements and extends its warmest congratulations to the winners!

Will Dutch windmills bring stormy weather to electricity markets?

A new seminar series on energy economics was launched on 14 February 2008 in The Hague. TILEC created this discussion platform for Dutch energy economists together with the Dutch national competition authority (Nma), the Dutch Ministry for Economic Affairs, and the Netherlands Bureau for Economic Policy Analysis (CPB) in order to bridge the gap between policy-makers and academics. The first meeting focused on the large-scale introduction of wind energy in a future low carbon-intensive economy and featured  Karsten Neuhoff (Cambridge University) and Xander van Tilburg (Energy Research Center of the Netherlands). Karsten Neuhoff explained that, due to the stochastic nature of wind output, future electricity prices will be more volatile. As a result, the future energy system will rely less on large-scale base-load power plants and more on flexible peak-load power plants. If incumbent generators have market power, the price volatility will increase even further, with insufficient investments in wind energy as a result. This will force the competition authorities to think again about the alternative strategies to address market power in the electricity sector. The speakers' presentations can be found on TILEC's website. To receive an invitation for future seminars in the series, please send your contact information to the TILEC secretariat.

Registration open for the TILEC conference on "Market Governance and Innovation"

On 14 April 2008, TILEC will celebrate its fifth anniversary with a conference held in Tilburg on the theme of 'Market Governance and Innovation'. The attractive programme is now finalized. Andrew McLaughlin (Google Inc.) will open the day with a talk about managing an innovative firm in the web of national and international regulations. Then, a morning session on 'Competition and Innovation' will focus on the interplay between innovation, intellectual property law and competition policy. Suzanne Scotchmer (Berkeley) and Gustavo Ghidini (Milan and LUISS, Rome) will be the key speakers. An afternoon session on 'Financing Innovation' will study the reciprocal relationship between innovation and financial markets. Mike Wright (Nottingham) and Bill Megginson (Oklahoma) will be the key speakers. The day will be closed with a distinguished
panel of academics, regulators and business community representatives discussing the possible need for 'Regulating Innovation?'. Catherine Waddams (East Anglia), Chris Fonteijn (OPTA, the Dutch telecommunications regulator); Hendrik Jan de Ru (Free University Amsterdam), Cecilio Madeiro (European Commission), Mindert Mulder (NZa, the Dutch regulator for the health care sector) have already confirmed their participation. Attendance is free but registration is requested: please click here.

How do innovations find their way to final consumers?

On 15 February 2008, TILEC held a seminar on innovators' access to the market. Lars Persson (Research Institute of Industrial Economics, Stockholm) reported about a model in which an innovator has to decide whether (s)he wants to sell (or license) its business idea to the incumbent firms, or venture into production and enter the final good market. The intuition according to which the entrepreneur will enter when his or her idea is really good is proved wrong: sales are more likely when the innovation is more drastic. Policies that aim at stimulating the entry of small entrepreneurs may be counterproductive, as they may then give innovators the incentive to develop products of lower value. Damien Geradin (TILEC) addressed the various legal and economic issues surrounding two forms of patent bundling. The first relates to the creation of patent portfolios, which are a helpful way to solve transaction costs and other inefficiencies when patents essential to a standard are held by many different firms. The second, which has been ignored so far in academic circles, relates to the situation where patent holders license bundles. Although those practices may generate efficiencies, they can also be problematic under current competition laws.

The financial impact of merger control

Does merger control make any difference? In the recent years, researchers have been struggling with identifying the effects of competition policy on economic outcomes. In a recent discussion paper, Elena Carletti (CFS, Wharton and TILEC), Philipp Hartmann (ECB and CEPR) and Steven Ongena (TILEC and CEPR) provide some surprising evidence. Working with a unique dataset of legislative changes in industrial countries, they identify events that strengthen the control of mergers and acquisitions, analyze their impact on banks and non-financial firms, and explain the different reactions observed by the various regulatory characteristics of the banking sector. Covering nineteen countries for the period from 1987 to 2004, they find that more competition-oriented merger control increases the stock prices of banks and decreases the stock prices of non-financial firms. A major determinant of the positive bank returns is the degree of opaqueness that characterizes the institutional setup for supervisory bank merger reviews: the less transparent are the supervisory reviews, the higher the valuation gains of banks in anticipation of changes in the control of concentrations. These results show the importance of sector characteristics and of the interplay between different regulations in explaining the effects of a particular legislative change.

Innovative research on competition and intellectual property

Last Fall, TILEC issued a call for research proposals on 'the interplay between innovation, intellectual property and competition policy.' The goal of this competition was to bring together scholars in the fields of law and of economics to generate new, scientific, policy-relevant findings on this issue. The selection committee comprised Vicenzo Denicolo (Bologna), Damien Geradin (Tilburg), and Greg Sidak (Georgetown). It received 31 quality applications from all but one continent and ranked them in accordance with the criteria set forth in the call for proposals. Last month, it announced that the projects submitted by (in no specific order) Michael Ward (Texas at Arlington), Scott Baker (North Carolina at Chapel Hill) and Claudio
Mezzetti (Warwick), and Bruce Kobayashi and Joshua D. Wright (both of George Mason) would be each awarded a EUR 15,000 grant. On 15 December 2008, TILEC will organize a workshop in Tilburg, where the preliminary results of those projects will be presented and discussed. This competition was part of a research programme on competition law, intellectual property law and innovation sponsored by Qualcomm Inc. at TILEC. Innovation will be at the core of the conference organized by TILEC on 14 April 2008 to celebrate its fifth anniversary.

Is competition in the banking sector welcome?

Few will disagree with the statement that banks are important for economic growth and welfare, but what about banking competition? Is it good or bad? Furthermore, what do we know about the intensity of banking competition? Does deregulation, or the creation of a single European market, increase or decrease that intensity? These questions were discussed at a workshop that TILEC organized together with the Netherlands Bureau for Economic Policy Analysis (CPB) and the Dutch Ministry of Economic Affairs on 31 January 2008. The speakers were Michel van Leuvensteijn (CPB), Nicola Cetorelli (Federal Reserve, New York) and Arnoud Boot (ACLE, University of Amsterdam). The main lessons that emerged from the workshop are that banking competition is good but that, in contrast to the US, the intensity of banking competition in the Euro
area seems to be decreasing. Taken together, this does not bode well for Europe. Additional details can be found here.