In this issue:
In the Spring 2013 issue of Competition Policy International we present a Symposium on Vertical Restraints, a Colloquium on Antitrust and Regulation, and a pair of articles on the use of economic evidence in private litigation in China. Our Classic for this issue is Lee Benham’s “The Effects of Advertising and the Price of Eyeglasses.” See below for a sneak-peak into each section – We hope you delve into the papers and enjoy this lively and thought-provoking debate among antitrust experts.
Letter From the Editor
The group of articles that make up our Spring 2013 issue take a candid approach to some of the complex problems that antitrust practitioners and scholars have faced and still face today.
Colloquium on Antitrust and Regulation
Antitrust Enforcement And Sectoral Regulation: The Competition Policy Benefits Of Concurrent Enforcement In The Communications Sector
In this article, Jonathan Baker discusses how concurrent jurisdiction may help protect competition using as an example the US communication industry. He suggests that capture is a threat when the regulated industry can manage information and consequently shape an agencies point of view. Nevertheless, when looking at the FCC, Baker notes that it has been better positioned to deal with fast-moving markets than an antitrust agency would have been, taking a more expansive view of potential and future competition.”
William Stallings discusses some of the recent enforcement actions in the electricity sector, a highly regulated sector, where government has played an important role in enforcing competition policy. The recent New York Capacity cases involving a power generator and its financial services firm, includes the use of a derivative agreement to bypass merger regulation and restrain trade. As Stalling notes, this is an example of a novel liability theory used by the Antitrust Division of the USDOJ and of disgorgement as an appropriate remedy in enforcement actions for these types of industries.
A Symposium on Vertical Restraints
For A Rigorous Effects-Based Analysis Of Vertical Restraints Adopted By Dominant Firms: A Comparison Of EU And Brazilian Competition Law
Damien Geradin and Caio Mario da Silva Pereira Neto’s paper compares the European and Brazilian experience on the use of guidance documents for the analysis of vertical restraints. According to the authors, while Europe has made headway in writing guidelines that clearly incorporate modern economic methods to the analysis, the continued use of formalistic approaches by Courts may lower the bar for these types of analysis. In the case of Brazil, while the law does leave enough flexibility for the use of these methods, the authority has tended not to rely on quantitative methods but has instead used qualitative information to make determinations. This, they consider, leads to uncertainty.
Seth Sacher questions the need for the drafting of formal guidance on vertical restraints as suggested by Geradin and Pereira Neto. His focus is mostly on explaining the complexity involved in analyzing vertical restraints and noting that it is important for authorities to flexibly use economic analysis when these types of conducts are involved.
Paulo Furquim de Azevedo, while praising Geradin and Pereira Neto’s paper’s contribution to the analysis of vertical restraints in a developed and emerging jurisdiction (the EU and Brazil), notes some of the more practical problems that may arise with their reliance on a rigorous effects-based analysis, using an important Brazilian case on exclusive dealings to make his point.
David S. Evans discusses the pro and anticompetitive uses of vertical restraints in multi-sided platforms. His paper notes that vertical restraints can assist in creating value, for example, by aiding in demand consolidation in a single platform or by ensuring a greater supply of liquidity to platform participants. Evans goes on to describe how certain types of restraints can lead to procompetitive benefits or instead be used in an anticompetitive fashion, for example, by preventing a platform from attaining enough demand (critical mass) on one side.
Vinicius Marques de Carvalho, Marcos Paulo Verissimo, and Paulo Burnier da Silveira’s paper argues for an administrable standard to analyze vertical restraints. They consider that the discussion of whether these types of conducts ought to be reviewed under a rule of reason or per se approach is mostly academic and not helpful for authorities. They note that competition analyses will always make some sort of rule of reason approach. What may radically change is how to weigh the presumption of legality, or illegality, of a particular conduct. Based on a recent 2013 RPM case by CADE, they suggest that these conducts should be considered presumably illegal and that the burden of proof about their likely efficiencies be shifted to the defendants.
Current Cases and Issues
Ernesto Estrada and Samuel Vazquez’s paper describes the use of screens by the Mexican antitrust authority to uncover bid rigging in medicine procurement, arguably one of the most important cases to date. Estrada and Vazquez describe the methods used to uncover this conspiracy using publicly available data for insulin and saline solutions.
Dennis Lu and Guofu Tan look at the evolution of private antitrust litigation in China, describing both the legal standards and the economic evidence that courts seem to require based on three private action cases taken under the law. An interesting conclusion of theirs is that while plaintiffs do not seem to rely on economics, courts seem perfectly capable of understanding these concepts.
I Can See Clearly Now: Lee Benham, Eyeglasses, And The Empirical Analysis Of Advertising And The Effects Of Professional Regulation
Our classic this time is Lee Benham’s empirical analysis on the effects of advertising restrictions in the prices of eyeglasses. Kobayashi and Muris provide a context in which this article was written and note its continued importance over the 40 years since its publication. As the authors note, the results challenged conventional economic wisdom and provided empirical evidence that addressed two important theoretical controversies: the pro-competitive versus anticompetitive effects of advertising, and the public versus private interest theories of the regulation of licensed occupations. It also heralded an era of antitrust analysis based on empirical foundations”it is a must read for any antitrust practitioner.
The impact of advertising on prices has long been a matter of dispute. It has been argued that the persuasive aspects and the product differentiation effects of advertising tend to raise the prices of products to consumers. On the other hand, by providing consumers with information about products and alternatives in the market, allowing them to economize on search and to locate low-priced sellers more readily, advertising may tend to lower prices to consumers.