David Evans and Richard Schmalensee
This chapter provides a survey of the economics literature on multisided platforms with particular focus on competition policy issues, including market definition, mergers, monopolization, and coordinated behavior. It provides a survey of the general industrial organization theory of multisided platforms and then considers various issues concerning the application of antitrust analysis to multisided platform businesses. It shows that it is not possible to know whether standard economic models, often relied on for antitrust analysis, apply to multisided platforms without explicitly considering the existence of multiple customer groups with interdependent demand. It summarizes many theoretical and empirical papers that demonstrate that a number of results for single-sided firms, which are the focus of much of the applied antitrust economics literature, do not apply directly to multisided platforms.
D. Daniel Sokol and Rosa Abrantes-Metz
Both theoretical and empirical work in a number of different fields, including economics, accounting, finance, organizational theory, and sociology provides important insights indicating that a firm is not merely a single entity in its actions. Rather, a firm is made up of a number of various components, each of which has its own incentives that shape firm behavior. This chapter reviews both the antitrust and the non-antitrust literatures on compliance and corporate governance to provide a clearer picture of the extant literature and the theoretical and empirical gaps within the antitrust literature to better inform antitrust policy on detecting cartels. This chapter explores the scholarship both within and outside of antitrust to better understand internal detection of wrongdoing and improved compliance in the antitrust cartel context.
Keith N. Hylton
Since China has modeled its antitrust regime on that of the EU, there are essentially two antitrust regime types: the United States and the EU. This chapter is a brief comparative study of the two regimes. I focus on three categories in which fundamental differences are observed: enforcement, legal standards, and procedure. Within each of the three categories, I narrow the focus to a specific illustrative feature. With respect to enforcement, the EU imposes gain-based penalties, while the United States imposes harm-based penalties. In predation law, the United States has a marginal cost standard and the EU has an average cost standard. With respect to procedure, the United States is a common law system, while the EU’s procedure is closer to the civil law system in its allocation of power between the courts and the enforcement agency. These differences have profound implications for the welfare consequences of global antitrust enforcement.
Daniel L. Rubinfield
Antitrust litigation has been experiencing a growth spurt in the past several decades as the result of expanding public enforcement worldwide, active private enforcement in the United States, and initial forays into private enforcement in other areas of the world. Given the large costs to the parties flowing from antitrust trials, it is not surprising that a vast majority of both private and public enforcement actions are resolved through settlement. This essay sketches out the conceptual framework underlying the settlement-trial decision. It also describes some of the empirical evidence on the settlement of both public and private antitrust cases and in the process offers commentary on a number of important policy issues.
Daniel Spulber and Christopher Yoo
Network industries, including the Internet, have shown significant growth, substantial competition, and rapid innovation. This chapter examines antitrust policy towards network industries. The discussion considers the policy implications of various concepts in the economics of networks: natural monopoly, network economic effects, vertical exclusion, and dynamic efficiency. The analysis finds that antitrust policymakers should not presume that network industries are more subject to monopolization than other industries. Deregulation and the strength of competition in network industries have removed justifications for structural separation as a remedy. Also, the chapter argues that deregulation and competition have effectively eliminated support for application of the essential facilities doctrine. Antitrust policy in network industries should be guided by considerations of dynamic efficiency.
R. Preston McAfee, Michael Williams, and Kenneth Hendricks
This chapter surveys the theoretical and empirical literature on bid rigging in auctions. In particular, it reviews the theory and practice of bidding rings in one-shot auctions and in repeated auctions. The main theme is how the type of auction, whether it is first-price or second-price, sealed bid or oral, affects the incentive of bidders to collude and the way in which they collude.
Roger D. Blair and Jessica S. Haynes
This chapter explores Major League Baseball (MLB)'s antitrust exemption and its current relevance, starting by presenting a brief overview of the antitrust laws in the United States. Next, MLB's anomalous antitrust exemption and its vulnerability to Congressional action are explained, and it is argued that the antitrust exemption is largely irrelevant today. The anticompetitive pooling of broadcast rights is covered by the Sports Broadcasting Act, which shields such pooling from the antitrust laws. The exemption had an enormous financial impact for over fifty years as it protected and preserved MLB's monopsonistic reserve system, which meant that the club owners obtained nearly the entire surplus generated by the business of baseball. The agreements on other labor issues, namely player drafts, age restrictions, and roster size, are considered. There is still an extremely good reason for MLB to jealously guard its antitrust exemption.
Roger D. Blair and Christina DePasquale
This chapter examines the antitrust implications of bilateral monopoly. Section 16.2 presents the economic model of bilateral monopoly. This section compares monopoly, monopsony, and bilateral monopoly. In particular, it focuses on price, output, and social welfare. Section 16.3 examines some complications for antitrust policy. In particular, unlawful monopoly may lead to monopsony and unlawful monopsony may lead to monopoly. This has serious implications for antitrust policy in Section 1 Sherman Act cases and Section 7 Clayton Act cases, which are examined in section 16.4. The chapter closes with some concluding remarks in section 16.5.
Michael Mazzeo and Ryan McDevitt
Business strategy is fundamentally about firm decision-making. Antitrust policy and enforcement, in turn, evaluate the decisions made by firms and the market outcomes that result. To the extent that firms’ decisions will be scrutinized ex post, managers must understand how antitrust concerns might constrain their actions and, thus, suggest alternative optimal decisions. Owing to this importance, most business strategy courses broach the subject of antitrust, and managers frequently confer with antitrust attorneys when making important strategic decisions. Correspondingly, it is also useful for the antitrust community to understand how firms use the concepts and frameworks of business strategy to make the decisions that they will be evaluating. Business strategy maintains a holistic orientation, drawing on traditional functional areas such as operations, finance, accounting, and marketing to inform the firm’s overarching direction.
Dennis Carlton, Mark Israel, and Mary Coleman
Merger analysis has generally developed with a focus on mergers among sellers and whether a merger will create or enhance seller market power. The issue of buyer power, however, can be important in many merger cases. First, some mergers will combine two significant purchasers of a product or service. In such cases, the competitive analysis of the merger for those products or services assesses (1) whether the merger creates or enhances buyer power sufficiently to raise competitive concerns, and (2) whether competitive concerns are offset due to efficiencies resulting from the combination. Second, some seller mergers involve markets where customers have some level of buyer power. In such cases, part of the competitive assessment of the merger may be to determine whether the presence of buyer power will constrain the potential exercise of seller market power following the proposed merger. This chapter addresses both issues.
Jay Pil Choi and Heiko Gerlach
This chapter provides a selective review of economic theory and experimental evidence on cartels and collusion. In particular, it highlights the role of incentives in collusion and cartel formation and identifies conditions that are conducive to collusive behavior. It then discusses enforcement against collusion with a particular focus on the recent work on leniency programs and cartel screening. Finally, we look at experimental evidence on cartel formation and the effects of competition policy.
Margaret Levenstein and Valerie Suslow
Cartels occur in a wide range of products and industries and engage in a range of behaviors in their efforts to increase profits. This chapter discusses the variety of techniques that cartels use to set prices. They may agree to a minimum price, target prices, or specific increases (or even decreases). The timing of price announcements may be intentionally manipulated to disguise collusive activity. Cartels engage in specific behaviors that facilitate monitoring of one another’s pricing. Successful collusion thus requires extensive communication, both via private and public signals. The most important determinant of cartel breakup is effective antitrust policy. Theory suggests that cartels break up as a result of cheating by member firms tempted by short-term profits, but empirical analysis rarely finds cheating that destroys cartels. Neither cartel breakup nor cartel formation appears highly correlated with the business cycle.
This article explains how syndicate relationships in certain market structures have implications for competition policy. It studies the legal position of private equity club deals and shows how they should be treated under the current European Competition Law framework. It first describes private equity and club deals and then studies the elements and structure of club deals within modern European Union law framework.
Compatibility standards create consumer benefits by enabling components to interoperate and allowing suppliers of compatible components to achieve efficiencies from scale and network effects. Quality and safety standards inform consumers and can prevent the sale of shoddy or potentially hazardous products. However, standards can impose costs in some situations by limiting consumer choice. Furthermore, the activity of standard setting often involves cooperation among competitors and may facilitate the exercise of market power. This chapter surveys competition issues raised by the development of industry standards, whether accomplished through a formal standard-setting committee structure or by the activities of a single sponsor. A particular focus is on the implications for competition and consumer welfare when products that implement a standard may infringe proprietary intellectual property rights.
Fred McChesney, William Shughart, and Michael Reksulak
Antitrust (competition) policy in the United States and Europe commonly is seen as well intentioned in the abstract, but flawed in practice. This chapter applies public choice reasoning to explain why laws ostensibly designed to protect consumers against the abuses of unfettered market power often fail to achieve that objective. Recognizing that the antitrust law enforcement agencies and the courts are peopled by rational, self-interested actors, the chapter summarizes the theory and abundant evidence suggesting that antitrust is no different than other forms of economic regulation and, thus, is influenced by special interest groups, which exert pressure through the legislative committees that oversee the law-enforcement bureaus. Exploring how the competition policy process actually operates undermines the untenable assumption that antitrust is designed to protect the public’s interest.
Kevin Murphy, Robert Topel, and Edward Snyder
This chapter deals with a broad class of quasi-exclusive, vertical agreements that we refer to as “quantity commitment discounts” (QCDs), though they are often referred to as “loyalty discounts,” as they appear to exchange price concessions for a buyer’s loyalty to a particular brand. As the discussion in section 5.2 indicates, law and policy have not evolved to yield clear standards for judging QCDs. Section 5.3 covers the basic economics of QCDs. Section 5.4 evaluates the circumstances when QCDs may cause harm to competition. We demonstrate that QCD agreements that would arise absent an ability or intent to exclude rivals might nevertheless do so, and might also cause ancillary harm to competition. Section 5.5 assesses the various means of testing for potential harm, discussing interpretations of the so-called attribution test and its flaws as well as other indicators of potential harm.
Continental Drift in the Treatment of Dominant Firms: Article 102 TFEU in Contrast to Section 2 Sherman Act
Maarten Pieter Schinkel and Pierre LaRocuhe
This chapter compares the concepts of monopolization and abuse of dominance as in Section 2 of the Sherman Act and Article 102 of the TFEU, respectively. After identifying a number of distinctive features in wording and interpretation—including the special responsibility of the dominant firm, competition of the merits, and protection of the competitive process—the chapter discusses three lines of argument to explain these differences. The first builds on ordoliberalism, with its concern for the absence of market power and for the resilience of competitive markets, which influenced EU competition law from the very beginning. The second line of argument derives from the observation that public competition law enforcement is fallible, which self-enforcement could remedy. The third argument explains some of these differences via innovation, whereby Article 102 would reflect a European perspective on innovation. We subsequently return to the underutilized EU category of exploitative abuses and argue that economic techniques developed in the context of damages litigation could open it up for future enforcement in a way that would be in line with ordoliberal principles, properly understood.
Janusz Ordover and Jith Jayaratne
Coordinated effects analysis focuses on the impact of mergers on the potential for tacit collusion, which is not necessarily deterred through antitrust enforcement by the application of laws against explicit collusion. This chapter briefly reviews the pertinent portions of the literature on tacit collusion and shows how its learning is applied or can be applied in the assessment of horizontal mergers. It then quickly reviews several merger cases that were scrutinized through the lens of coordinated interactions and comments on the types of evidence that may be probative to the outcome of the review process. Some progress towards the quantification of the risk of coordinated effects is being made linking the increase in incentives for coordination to the potential changes in the benefits from coordination resulting from a merger.
Various economic theories can justify exemption from antitrust law. This survey describes most of these theories. While offering only a limited critique, the chapter does point up the questionable association of specific exemptions with specific economic theories. Because most of the theories require very specialized facts that are unlikely to exist in large, dynamic economies, economic analysis is unlikely to justify most exemptions as an optimal strategy to achieve a legitimate policy goal. Smaller economies and one’s going through change to a market-oriented model may have more reason to rely on exemptions from general competition for the period of transition.
Roger D. Blair and Christine Durrance
Section 4 of the Clayton Act provides a private right of action for victims of antitrust violations. In cases where the individual injury is too small to be worth pursuing, the individual injuries may be aggregated and pursued in a class action. This chapter discusses the economic rationale for antitrust class actions, deterrence, and victim compensation. Class actions require common proof of impact and damages, which is difficult to prove, and some recent changes in precedent have provided additional barriers. The chapter presents the economic model of litigation, and reveals why most disputes settle. It also considers the special case of coupons in class actions and the implications of the 2005 Class Action Fairness Act.