Here is an updated version of my Primer in Antitrust Law and Policy, released under a Creative Commons Attribution Only (i.e., CC-BY) license. As always, comments and suggestions are welcome.
David Friedman notes that:
There is no antitrust law in WoW, which makes it a good place to observe collusive behavior by sellers. My wife, who spends more time in the auction house buying ad selling than I do, has observed both an attempt to corner a market and an attempt, at least partly successful, to form a cartel—a cartel she was invited to join. Her refusal was met by a threat to drive her out of the market by underselling her. The organizer of the cartel had apparently not read Aaron Director’s analysis, reflected in McGee’s classic article on the myth of predatory pricing; it had not occurred to him that if he was selling, at an artificially low price, ten times as many gems as the interloper, he was also losing money ten times as fast. It took only a few days for him to discover the flaw in the strategy and abandon it.For a dose of reality regarding cartels, any of John Connor’s recent articles will do.
This is truly remarkable. NIN’s album
Ghosts I-IV is ranked the best selling MP3 album of 2008 on Amazon’s MP3 store. Take a moment and think about that. NIN fans could have gone to any file sharing network to download the entire CC-BY-NC-SA album legally. Many did, and thousands will continue to do so. So why would fans bother buying files that were identical to the ones on the file sharing networks? One explanation is the convenience and ease of use of NIN and Amazon’s MP3 stores. But another is that fans understood that purchasing MP3s would directly support the music and career of a musician they liked. The next time someone tries to convince you that releasing music under CC will cannibalize digital sales, remember that Ghosts I-IV broke that rule, and point them here.We’ve discussed a similar, albeit much less radical experiment by Radiohead in an earlier post.
According to the band, 800,000 transactions generated $1.6 million in sales revenue in the first week of the album’s availability, despite the fact that the 36-song version of the album is widely available on torrent sites.
I am very much looking forward to the ABA 2009 Antitrust Intellectual Property Conference in my new hometown Berkeley, where I will be on a panel about different approaches toward “forced access” to IP in the US and in the EU. My remarks will focus on the exciting contributions that infrastructure theory has made to our understanding of what properly constitutes an essential facility.
UPDATE: Here’s the link to the registration page.
Here are some initial reactions to the Commission Guidance to Article 82 in no particular order.
The Commission may also pursue predatory practices by dominant undertakings on secondary markets on which they are not yet dominant. … While the dominant firm does not need to predate to protect its dominant position in the market protected by legal monopoly, it may use the profits gained in the monopoly market to cross-subsidize its activities in another market and thereby threaten to eliminate effective competition in that other market.This seems to say that a firm that is lawfully dominant in the market for product A could be liable under Art. 82 for using its profits to subsidize predatory pricing in the market for product B, in which it is not (yet) dominant and where A and B are unrelated.
where regulation compatible with Community law already imposes an obligation to supply on the dominant undertaking and it is clear, from the considerations underlying such regulation, that the necessary balancing of incentives has already been made by the public authority when imposing such an obligation to supply. This could also be the case where the upstream market position of the dominant undertaking has been developed under the protection of special or exclusive rights or has been financed by state resources. In such specific cases there is no reason for the Commission to deviate from its general enforcement standard and it may show likely anticompetitive foreclosure without considering whether the above three cumulative circumstances are present.
The Commission Guidance is clearly a response to the DOJ’s recent report on single firm conduct. Time to check the FTC’s website.
Here’s a set of slides discussing horizontal agreements under U.S. law. Eventually, this set will grow to encompass the EU and other jurisdictions.
I recently updated my slides on Antitrust and IP law and the ever popular Microsoft cheat sheet. Note that the slides are now available under a Creative Commons attribution only license (aka cc-BY), which is a more permissive license than the prior attribution-only, non-commercial license. We are, in fact, in the process of relicensing this entire blog under cc-BY, mainly because we got lots of questions whether using our stuff in presentations is commercial or non-commercial use. We don’t think it is, but the new license should put an end to any concerns.
Head over to Truth on the Market for the latest.
Ever since Socrates demolished Gorgias to lasting effect, the universalism vs. relativism debate has had a prominent place in moral theory, in law, and (with some delay) in the natural sciences, too. In stark contrast, much of modern price theory proceeds in a strictly Platonic fashion. The rational actor is an abstraction liberated from the contraints of time and place, so is the firm and the idea of the market itself. The perfectly competitive market with its infinite number of atomistic buyers and sellers, each reacting to aggregated forces outside of their control but to which they each unwittingly contribute, trading perfectly homogenous goods in exchange for an ideal currency with constant marginal value, exists in a parallel universe of ideal forms. We observe its various more or less imperfect instantiations in the real world. The closer the real world approximates the ideal, the better. The implication is that basic economic laws are universal, and that there are thus objective normative criteria by which to judge economic systems, irrespective of their time and place. That belief in economics as a process for discovering universal laws of human action, either through mathematical formalization (”nature obeys mathematics”) or through the observation of a quasi-evolutionary process in which those real-world economies survive that better approximate the ideal, is a driving intellectual force behind the neo-conservative faith in the power of free markets, unlocking human potential everywhere.
The real world, however, does not reflect this hopeful (or plainly ideological) Platonism. As Max Weber pointed out, economic institutions and the theories reflecting them, are largely the product of political history, religion, and geography. For example, French and to a somewhat lesser extent German competition law still clearly reflect the administrative tradition, which has a longer history in centralized France than in decentralized Germany, where an expert government bureaucracy ensures that capitalistic enterprise remains alinged with the public good. Given the a priori embeddedness of the market in the broader body politic, the market never comes into view as a fully separate, autonomous system. As a result, there is no real need for a theory of the market as a self-regulating and self-stabilizing process, which is the defining feature of the perfect competition model. The perfect competition model describes, above all, a stable dynamic, a process moving towards equilibrium without any outside intervention. It is the theoretical justification for laissez faire, for why governments can, in fact, afford to leave businesses (and, not coincidentally, the rich) alone. The perfect competition model is expressly designed to explain why ideal free markets simply cannot spiral out of control.
In France and Germany, the market has always been (at least in part) a tool to be deployed by the state in furtherance of public good (however determined). The market is not an end in itself, as it contains no universal truth about human affairs, or at least no truth that, normatively, the body politic should necessarily encourage or embrace. Rather, the ends of the market process are expressly defined in political, not economic terms, and they include competing values beyond productive efficiency, such as predictable growth, limited inflation, and full employment. (Obviously, having those goals is one thing, achieving them is quite a different matter.) Similarly, competition as a key ingredient of the market process is “managed competition,” as opposed to unlimited competition in a hypothetical natural state. The same is true for property in rivalrous goods, another necessary ingredient of the market process. Property in critical sociatal infrastructure such as transportation, energy, and telecommunication, has never been an entirely private affair, irrespective of who created, planned, or financed the infrastructure, which is reflected both in the constitutional definitions of property (e.g., in Germany) and, in practice, in the still significant state ownership of such industries.
In other words, economic institutions and the building blocks of economic theory reflect in significant part the political structure of the society of which the economic system is a part. In the history of philosophy, countless Platonisms have turned out to be little more than theoretical universalizations of unquestioned contingent beliefs. Antitrust economics would greatly benefit from a more explicit historic and comparative perspective. Competition law certainly has.
One of the undercurrents driving the movement that led to Obama’s landslide victory is that people have finally started to reject en masse a public policy that by and large conceived of them only in the most limited, reductionist, and anemic way possible: as private, rational actors, pursuing primarily their own (usually material) advantage. Yesterday, people asserted their roles as citoyens, as political beings concerned not only with themselves but also with the public good. One of the hallmarks of Obama’s campaign was to ask people to do something, to get involved. Not just to contribute financially, but to reach out, organize house parties, call battleground states, take time off for poll watch, all of which meant doing things together with others, i.e., organizing. The message of change thus implies a belief in the possibility of politically meaningful choice, a notion that has been conspicuously absent for a long time, and which is categorically different from consumer choice. How will this re-assertion of the person over the individual play out in the legal world and the antitrust world in particular? I expect a gradual re-evaluation of how the legal system and economic scholarship relate to each other. The normative principle of law is justice. That of economics is efficiency. Taking rights seriously requires that judges and lawyers adopt an internal point of view and put justice first. Of course, this is not to deny that the legal system should import efficiency considerations here and there. For market regulation and marketplace design rules such as antitrust, efficiency is indeed the right default choice. Fortunately, over a wide range of issues, efficiency and justice are not in conflict with one another. It is, however, meant as a reminder that the legal system is fundamentally independent from economics. Normatively, the legal system belongs to a different domain, and in a democracy the legal system does not take orders from the economic system. The latter may very well constrain or enable actions of the former, but factual obstacles are very much unlike normative constraints.
[I]f you can take a number a statistics and you can either halve it or double it and it’s still shocking then you can use it.
This great feature by the Canadian Broadcasting Corporation examines the (many) apparent and (few, but serious) real tensions between creating a commons of publicly available works and rewarding artists and how copyrights and patents have morphed from a necessary evil (circa 1787) to “tangible property plus.” Happy Halloween!
In today’s NYT, David Brooks writes:
Roughly speaking, there are four steps to every decision. First, you perceive a situation. Then you think of possible courses of action. Then you calculate which course is in your best interest. Then you take the action.At least when it comes to most individual decisions (i.e., not those that go through an institutional, deliberative process) he’s got it exactly backwards. First we act, then we make up justifications. Or minds are marvelously attuned near real-time revisionists. Hegel got it right:
The owl of Minerva spreads its wings only with the falling of the dusk.
I am very much looking forward to teaching International Antitrust Law at U.C. Berkeley in Spring 2009. Here is the course announcement.
Modern antitrust law is global antitrust law. Driven by economic globalization and trade liberalization, antitrust laws have proliferated around the globe. At the same time, antitrust as a discipline has imported neoclassical price theory as its core analytical framework. The result is a vibrant, multi-faceted discipline, organized around a common core of analytical principles, yet reflective of the different cultural, political, and legal contexts in which government enforcement and litigation ultimately take place. In this course, we will focus on the common economic grammar of virtually all modern antitrust regimes as well as on their distinctive differences. Having a firm grasp of both is critical for building a modern, global antitrust case. Specifically, we will focus on:To streamline the preparation and dissemination of materials, I am planning on using Google Docs. I am also toying with the idea of making updates to Wikipedia part of my course assignments.Using recent cases as a basis for discussion, we will cover topics such as extraterritoriality (e.g., Empagran), institutional design (why does the U.S. have two agencies that enforce the antitrust laws, not to mention the States?), and the economics of mergers, exclusion, and innovation. We will focus specifically on the U.S., the European Union, and China. Many of our cases will involve high-technology firms that deal in tangible and intangible goods and services (e.g., Microsoft, Google, Oracle, Apple, etc.). Along the way, we will discuss legal and cultural aspects of globalization and various flavors of capitalism, and analyze the different functions that antitrust laws play in large (e.g., the U.S.) and small (e.g., Israel), rich and poor economies. The textbook for the course is: E. Elhauge & D. Geradin, Global Antitrust Law and Economics, Foundation Press (2007).
- Cross-border mergers and joint ventures
- Monopolization and abuse of dominance
- Global cartels
UPDATE (10/28/08): Here is a draft syllabus, which is still a work in progress. Any suggestions are welcome.
In its decision in In re Cipro, the Federal Circuit presents us with what John Ralston Saul calls the “hypnotic clarity of false choices.” Either any “analysis of patent validity is [in]appropriate in the absence of fraud or sham litigation.” Or we have to embark on some form of probabilistic ex ante analysis of patent claims every time a patent holder with market power wants to exclude a competing infringer. That dichotomy makes the preemption theory, i.e., no antitrust claim within the zone of exclusion, unless fraud/sham, more plausible than it is. Or, at least, it makes it look principled and less messy. But antitrust deals with quantitative problems all the time, in fact, the shift from per se categories to rule of reason concepts as the default reflects the willingness of courts to deal with complexity, context, and shades of gray. Consider the general evolution of the rule of reason from a muddled, unweighted multi-factor test in Chicago Board of Trade to a mixture of procedural and substantive criteria, aimed at sorting cases into buckets of (1) lawfulness (e.g., no market power), (2) illegality (e.g., no rebuttal to a plausible theory of harm) and (3) those in which a true balancing of the positive and negative effects cannot be avoided, using the minimum amount of information required to make each such choice. In practice, (1) and (2) have become much more significant than (3). So why is it that we approach the issue of patent validity in the context of an antitrust claim as if the only choice was between patent formalism on the one hand and the IP equivalent of Chicago Board of Trade on the other? A more fruitful inquiry would be one into identifying easily observable proxies for validity and invalidity the presence (or absence) of which would then shift the burdens of persuasion. For example, a successful domestic defense of the validity of the patent in question is certainly a reasonable proxy for validity, raising the bar for those calling the “zone of exclusion” shield in question. Depending on substantive patent standards, a successful defense of the patent abroad may also serve as a proxy for validity. Conversely, reverse payments that greatly exceed the expected profits of the generic challenger may justify a higher burden of persuasion to be placed on the defendant. As always in a rule of reason inquiry, context matters. But to retreat into formalism just because in some sub-set of cases an antitrust trial will have to include a full-fledged patent trial seems unwarranted.
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