The Global Competition Law Centre Working Papers Series -PDF Free Download

The Global Competition Law Centre Working Papers Series

2020 | 7 views | 64 Pages | 615.19 KB

The Global Competition Law Centre Working Papers Series ... The virus gets out of control and ... concludes with recommended modifications to the World Trade ...

Limiting Anti Competitive Government Interventions That Benefit
Special Interests
D Daniel Sokol
I Introduction
In his bestseller The Andromeda Strain Michael Crichton tells the story of a virus that
the government tries to use as an ultimate weapon The virus gets out of control and
needs to be restrained In antitrust there is a similar government created problem that of
antitrust immunities where government immunizes a monopolist from antitrust
regulation The action that government immunizes spreads its bad effects both
domestically and globally Paradoxically the cure antitrust is not allowed to treat the
virus monopoly power because the government has already rendered the virus immune
from this sort of treatment
When government regulates it may either intentionally or unintentionally generate
restraints that reduce competition public restraints Public restraints allow a business
to cloak its action in government authority and to immunize it from antitrust 1 Private
businesses may misuse the government s grant of antitrust immunity to facilitate behavior
that benefits businesses at consumers expense One way is by obtaining government
grants of immunity from antitrust scrutiny A recent series of Supreme Court decisions
has made this situation worse by limiting the reach of antitrust in favor of sector
regulation 2 This is true even though the Supreme Court refers to antitrust as the Magna
Carta of free enterprise 3 Yet the choice of sector regulation over antitrust may have
Assistant Professor University of Florida Levin College of Law I wish to thank Peter Carstensen Dan
Crane Mark Fenster Susan Franck David Gerber Tom Ginsburg Jeff Harrison Christine Klein Phil
Marsden Bill Page Juan Perea Barak Richman Ilya Somin Maurice Stucke Ed Swaine Phil Weiser
and Todd Zywicki for their comments I also would like to thank the staff and editors of the George
Mason Law review for their excellent work All errors remain mine
Timothy J Muris Principles for a Successful Competition Agency 72 U CHI L REV 165 170 2005
Protecting competition by focusing solely on private restraints is like trying to stop the water flow at
a fork in a stream by blocking only one channel A system that sends private price fixers to jail but
makes government regulation to fix prices legal has not completely addressed the competitive
problem It has simply dictated the form that the problem will take
Credit Suisse Sec USA v Billing 551 U S 264 279 84 2007 noting antitrust must defer to a
sector regulator enforcing a broad regulatory scheme in the SEC context Verizon Commc ns v Law
Offices of Curtis V Trinko 540 U S 398 412 2004 One factor of particular importance is the
existence of a regulatory structure designed to deter and remedy anticompetitive harm Where such a
structure exists the additional benefit to competition provided by antitrust enforcement will tend to be
small U S Postal Serv v Flamingo Indus 540 U S 736 748 2004 holding antitrust liability
does not apply to the U S Postal Service Pac Bell Tel Co v LinkLine Commc ns No 07 512 slip
op at 9 U S Feb 25 2009 affirming lack of duty to deal when there is a regulatory scheme in
U S v Topco Assocs 405 U S 596 610 1972
deleterious effects to consumers For example a country s banking or
telecommunications incumbent may be able to influence the legislature to create a
statutory monopoly This government created monopoly immunizes the company from
antitrust law even though it can abuse its monopoly position in the market to hurt
consumers This behavior in turn produces significant negative externalities that may
worsen the very problems that antitrust law now forced to take a backseat to other
government regulatory schemes was intended to address Worse because the relationship
between anti competitive regulation and antitrust pervades the regulatory schemes of
numerous countries the international externalities generated by public restraints and
barriers to entry for foreign firms that such restraints create make this a problem with
global implications 4
This Article offers a new contribution to the extensive literature on the globalization of
antitrust The present Article focuses both on the processes of creating public restraints
as well as upon the negative impacts of these restraints Government can exempt a
company from antitrust regulation which allows the firm unbridled discretion to
monopolize and harm consumers Much of the literature focuses on the globalization of
private anti competitive conduct by business across jurisdictions 5 The focus of this
Article the issue of government intervention in the economy and its competitive impacts
has taken on renewed importance as the global financial crisis has led countries to
provide various benefits to favored companies which may distort competition Distorting
competition may keep the world in recession longer as countries may retaliate with new
distortions of their own creating a downward spiral for the global economy Thus local
solutions may cause international problems and require international resolutions
This Article does not suggest that all public restraints are inherently bad There are some
cases in which public restraints positive effects may outweigh their costs Some limited
immunities help markets to function or have a social purpose that has a minimal effect on
competition Where the societal benefit of reduced information costs may not be reached
without government intervention restraints that create incentives for private investment
to reduce information costs may be necessary Public restraints may allow for these
businesses to be compensated at a level in which the private return matches the societal
return For example public restraints may create mechanisms for the exchange of
information such as standard setting 6
Matthias Busse Jose Luis Groizard Foreign Direct Investment Regulations and Growth World
Bank Policy Research Working Paper No 3882 2006 concluding that excessive government
regulation may restrict foreign direct investment
D Daniel Sokol Monopolists Without Borders The Institutional Challenge of International Antitrust
in a Global Gilded Age 4 BERKELEY BUS L J 37 41 n 1 2007 offering a general literature review
on international antitrust
Mark A Lemley Intellectual Property Rights and Standard Setting Organizations 90 CAL L REV
1889 1937 2002 stating that standard setting may promote interoperability across products and
platforms of different firms However firms can abuse the standard setting process when they exclude
competitors or block innovations of rivals HERBERT HOVENKAMP MARK D JANIS MARK LEMLEY
LAW 35 4 35 8 2003 It may be that some public restraints are neutral when it comes to
competitive effects This article addresses only those restraints that have anti competitive effects
On the other hand current public restraints which are overly broad and force economies
to become less competitive hurt consumers Therefore this Article addresses only those
public restraints that are anti competitive Some public restraints appeal to a distributive
agenda to reduce the societal strains that increased efficiency and globalization may
cause While globalization and increased trade are globally welfare enhancing 7 there are
winners and losers in globalization 8 Public restraints that respond to globalization but
that protect only special interests at the expense of society are targets of the current
This Article also includes a novel analysis of immunities to antitrust as a critical subset of
anti competitive public restraints It addresses the important domestic and international
institutional dynamics of how to reduce such anti competitive immunities It then
provides a theoretical framework to identify potential domestic and international
institutional responses to public restraints and the costs and benefits of these responses
The institutional framework developed in this Article proposes both substantive policies
and institutional structures that can undertake these policies The framework builds on
both new institutional economics and international organization literatures while
recognizing the difficult limitations in design and capacity that existing institutions face
No existing institution effectively addresses public restraints Therefore the Article
concludes with recommended modifications to the World Trade Organization
WTO specifically the creation of a specialized antitrust panel that would bring
together antitrust and trade analyses as the best solution in an imperfect world to
address anti competitive public restraints
Part I of this Article explores the causes and effects of public restraints Part II analyzes
the potential institutional choices to address public restraints In Part III this Article
undertakes a case study of the current inadequacies of existing institutional solutions to
the problem of government restraints Part III then suggests a set of reforms to correct for
the existing institutional shortcomings The Conclusion suggests that a modified WTO is
the least bad alternative to address international antitrust public restraints
II The Problem of Public Restraints
A Types of Public Restraints
Public restraints can be distinguished from situations in which a business may have
achieved a monopoly position through as the Supreme Court states growth or
development as a consequence of a superior product business acumen or historic
Jeffrey Sachs Andrew Warner Economic Reform and the Process of Global Integration 1
BROOKINGS PAPERS ON ECON ACTIVITY 1 2 3 1995 Sebastian Edwards Openness Productivity
and Growth What Do We Really Know 108 ECON J 383 396 1998 Jeffrey Frankel David
Romer Does Trade Cause Growth 89 AMER ECON REV 379 380 81 1999 Romain Wacziarg
Karen Horn Welch Trade Liberalization and Growth New Evidence 22 WORLD BANK ECON REV
187 187 90 2008
See e g Dani Rodrik Francisco Rodriguez Trade Policy and Economic Growth A Skeptic s Guide
to the Cross national Evidence 15 MACROECONOMICS ANN 261 317 18 Benjamin Bernanke Kenneth S
Rogoff eds 2000
accident 9 What distinguishes a monopoly position via anti competitive public restraints
from one that emerges from business acumen is the use of government power to
monopolize through the creation of barriers to reduce competition Public restraints may
have important ramifications on economic growth and development by raising the cost of
capital and placing barriers to business entry and exit 10 Such anti competitive public
restraints may impact international entry into a domestic market 11 Public restraints harm
consumers because they ultimately pay for the cost of protection through higher taxes
and or prices to subsidize the public restraints
Public restraints may have a more significant impact in situations in which the business
aided by such restraints has substantial market power independent of the restraint 12
Market power in conjunction with public restraints allows for far reaching negative
effects on consumers in two ways First an industry immunized from antitrust law
coverage may act anti competitively in its own sector where it can restrict output refuse
to deal with competitors and raise prices without any concern for antitrust ramifications
Such support allows businesses with a monopoly to exercise their monopoly power to
pursue aggressive predation strategies 13 Second a public restraint that allows for a sector
to be immunized from antitrust scrutiny can create distortions in other sectors of the
economy 14 An immunity creates the possibility of cross subsidization from the
immunized product or service to one in which there is competition For example if a
postal service provider has a monopoly because of legislation such as the U S Postal
Service there is the potential for the provider to anti competitively cross subsidize into
next day delivery services where there is competition from other firms 15
Government distorts the competitive process through public restraints which create de
facto subsidies to firms Subsidies reduce budgetary constraints on firms And this
reduces the incentive for firms to maximize their efficiency since government serves to
Verizon Commc ns v Law Offices of Curtis V Trinko 540 U S 398 407 2004
The more severe the public restraint the greater the potential benefit of a particular interest group to
use government to create such a restraint Gordon Tullock The Welfare Costs of Tariffs Monopolies
and Theft 5 W ECON J 224 1967
Raghuram Rajan Luigi Zingales The Great Reversals The Politics of Financial Development in the
20th Century 69 J FIN ECON 5 20 2003 Simeon Djankov et al The Regulation of Entry 117 Q J
ECON 1 35 2002
Pietro Crocioni Can State Aid Policy Become More Economic Friendly 29 WORLD COMPETITION 89
R Shyam Khemani U N Conf on Trade Dev UNCTAD Application of Competition Law
Exemption and Exclusions at 5 Doc No UNCTAD DITC CLP Misc 25 2002 available at
http www unctad org EN docs ditcclpmisc25 en pdf
Rick Geddes Pricing by State Owned Enterprises The Case of Postal Services 29 MANAGERIAL
DECISION ECON 575 576 2008 providing empirical evidence of anti competitive cross subsidization
by the U S Postal Service D Daniel Sokol Express Delivery and the Postal Sector in the Context of
Public Sector Anti Competitive Practices 23 NW J INT L L BUS 353 353 54 2003 offering
cross country case studies of potential anti competitive cross subsidization
protect them from competition 16 Antitrust enforcers or private litigants may have
difficulty in imputing these subsidies into cost tests that would determine the true cost
associated with exclusionary conduct such as predation 17
Immunities from antitrust privilege other forms of regulation over antitrust and cause
competitive distortions which may have international effects Anti competitive public
restraints can have international effects in one of two ways First anti competitive
practices may be exported to other countries through spillover effects from inadequate
domestic remedies 18 In these situations the full cost of anti competitive behavior by
companies is not felt in their home jurisdictions For example a government may
immunize an export cartel that fixes prices abroad but not at home from antitrust
scrutiny 19 Such practices only negatively affect non domestic consumers The lack of
sufficient international coordination on public restraints that create spillover effects in
other jurisdictions limits what any one country can do to counteract such effects Indeed
this is analogous to the creation of a national antitrust law under the Sherman Act because
of the inability of state antitrust statutes to reach anti competitive conduct that spilled
over across states
Second public restraints limit opportunities for foreign businesses to compete because
public restraints create barriers to entry These government imposed entry barriers limit
the market s effectiveness in reducing inefficient businesses market power Competition
stimulates increases efficiency and productivity 20 By limiting the threat of entry public
restraints reduce market dynamism 21 As most markets around the world are highly
Explicit aid may include direct financial injections through loans or subsidies to firms Indirect support
may include preferential tax treatment or other forms of compensation Marc Hansen Anne van
Ysendyck Susanne Zuhlke The Coming of Age of EC State Aid Law A Review of the Principal
Developments in 2002 and 2003 4 EUR COMPETITION L REV 202 202 2004
D Daniel Sokol Comparative Corporate Governance and Competition Policy 2009 BYU L REV
forthcoming 2009
The international market access dynamic is similar to the basic problem of federalism and restraints of
trade across states RICHARD A POSNER ANTITRUST LAW 281 2d ed 2001 A situation in which the
benefits of government action are concentrated in one state and the costs in other states is a recipe for
irresponsible state action This is a genuine downside of federalism The federal government is
less subject to take over by a faction Max Stearns A Beautiful Mind A Game Theoretical Analysis
of the Dormant Commerce Clause Doctrine 45 WM MARY L REV 1 8 9 2004 arguing the role of
the dormant Commerce Clause within U S jurisprudence has been to limit the power of individual
states in the absence of direct federal legislation
D Daniel Sokol What Do We Really Know About Export Cartels and What is the Appropriate
Solution 4 J COMPETITION L ECON 967 967 68 974 2008 providing a review of the empirical
literature on export cartels
Jonathan B Baker Beyond Schumpeter vs Arrow How Antitrust Fosters Innovation 74 ANTITRUST
L J 575 577 587 2007 Patrick Van Cayseele Market Structure and Innovation A Survey 146 DE
ECONOMIST 391 393 1998 Stephen J Nickell Competition and Corporate Performance 104 J POL
ECON 724 741 1996 John Vickers Concepts of Competition 47 OXFORD ECON PAPERS 1 1 4
This situation may impact both static and dynamic efficiencies OECD Regulating Market Activities in
the Public Sector 7 OECD J COMPETITION L POL Y 21 33 2005
concentrated foreign entry is often the primary source of potential competition 22 As a
result of such entry barriers incumbent firms have fewer incentives to undertake risks
that may produce innovation and economic growth
One example of the importance of lower entry barriers can be found in the U S
Department of Justice s DOJ analysis on the competitive effects of the
Whirlpool Maytag merger I do not address the merits of the DOJ approach which has
come under criticism 23 Rather I use this merger to illustrate that the DOJ premised its
2006 unconditional approval of the Whirlpool acquisition of Maytag in part on the ability
of foreign brands to enter the U S market should the merged entity attempt to raise
prices 24 DOJ s belief was that foreign competition could discipline any price increases
even though the combined company would control two thirds of all washers and dryers
produced for sale in the United States 25 Had there been high barriers to foreign entry
international competition would not have been a factor in the market and the proposed
merger may have reduced competition
Because of the cost of information different jurisdictions may not be aware of the global
nature of an anti competitive harm caused by public restraints Each jurisdiction will not
feel the entire effect of the world wide harm only the harm that occurs in its own
country There may not be enough of a basis to bring a successful antitrust claim based on
anti competitive conduct because in a limited sense domestic antitrust as opposed to a
broader competition policy lacks the appropriate tools An antitrust agency s
enforcement authority stops at its nation s border but the problems are transnational The
lack of effective domestic antitrust tools to remedy such conduct may lead to a gap in
enforcement When spillover effects or entry barriers affect international antitrust it may
be difficult for domestic institutions to provide an adequate remedy Moreover it is not
just an information problem that leads to under enforcement The jurisdiction does not
capture the full benefits of enforcement this is why there is an externality in the first
place Countries may have no incentive either because of political capture by local
monopolists or because of a country s industrial policy
B The Difficulty of Quantifying the Impact of Public Restraints
Most of international trade liberalization involves dismantling international public
restraints Much of this total trade gain that is specific to the reduction of antitrust related
public restraints is not easily quantified Generally regulatory barriers are more costly
problems of highly concentrated markets in small economies Todd Mitton Institutions and
Concentration 86 J DEV ECON 367 368 2008 finding higher firm level concentration in countries
with higher entry costs for new entrants and in countries with weaker antitrust policy
Jonathan B Baker Carl Shapiro Detecting and Reversing the Decline in Horizontal Merger
Enforcement 22 ANTITRUST 29 30 2008
Press Release Dep t of Justice Antitrust Div Statement on the Closing of Its Investigation of
Whirlpool s Acquisition of Maytag 06 187 Mar 29 2006 available at
http www usdoj gov atr public press releases 2006 215326 htm
Elizabeth Armington Eric Emch Ken Heyer The Year in Review Economics at the Antitrust
Division 2005 2006 29 REV INDUST ORG 305 312 2006
than tariff and other at the border barriers 26 Unlike tariffs behind the border
regulatory barriers raise the cost to foreign suppliers through expenditures that cannot be
transferred to another party Moreover as noted above the costs of regulatory barriers are
difficult to quantify 27 However empirical work positively associates robust competition
at the country level with growth Antitrust seems to have a statistically significant
relationship to such growth 28 Given that the removal of government restraints generally
has improved aggregate global welfare it stands to reason that the removal of antitrust
related restraints may yield significant economic benefits to consumers around the world
Some empirical studies provide a glimpse of the extent of the antitrust related public
restraints problem through specific sector studies 29 In one such study the Organisation
for Economic Co operation and Development OECD measured the prevalence of its
member countries public restraints These restraints included state control scope of
public enterprise sector size of public enterprise sector direct control over business
enterprise use of command and control regulation price controls barriers to
competition legal barriers antitrust exemptions and barriers to trade and investment
ownership barriers discriminatory procedures regulatory barriers tariffs 30 Overall the
study found that there is less of an impact of such public restraints in OECD countries
currently than in previous years However significant regulations that restrict
competition remain in effect in nearly all OECD countries 31 Another study found that
discriminatory government treatment reduced growth rates by as much as 10 percent over
a three year period 32 And a study by Djankov et al found that government barriers make
entry more difficult 33 Building upon this work Fisman and Sarria Allende found that
countries that heavily regulate entry through public restraints in sectors with low natural
Alan O Sykes Regulatory Protectionism and the Law of International Trade 66 U CHI L REV 1 7
A country can use a tariff to raise the entry cost for foreign goods The information needed to measure
the effect of this tariff for a given country is relatively easy to obtain To do so one collects
information on the amount of a product that enters the market and the tariff rate placed on such
products Regulatory barriers work differently The difficulty in estimating the cost of antitrust public
restraints makes it more difficult for consumers and politicians to grasp the costs of government
created economic distortions
Aydin Hayri Mark Dutz Does More Intense Competition Lead to Higher Growth 1 World Bank
Policy Research Working Paper No 2320 1999
STRATEGY AND PRACTICE passim 1999 Arturo Galindo Alejandro Micco Do State Owned Banks
Promote Growth Cross Country Evidence from Manufacturing Industries 84 ECON LETTERS 371
371 376 2004 Paola Sapienza The Effects of Government Ownership on Bank Lending 72 J FIN
ECON 357 358 59 2004
Paul Conway et al Product Market Regulation in OECD Countries 1998 to 2003 8 Org for Econ
Co operation and Dev Working Paper No 419 2005
Id at 32 There is a lack of similar empirical measures on public restraints in a developing world
Joel S Hellman Geraint Jones Daniel Kaufmann Far From Home Do Foreign Investors Import
Higher Standards of Governance in Transition Economies 14 World Bank Institute Policy Research
Working Paper No 2444 2000
Djankov et al supra note 11 at 3 4
barriers to entry experience a high concentration of large firms 34 Higher concentration
increases the possibility of monopolization
C Causes of Public Restraints
Regulations themselves cause public restraints by allowing or even requiring anti
competitive behavior As other forms of regulation may preempt antitrust implicitly or
explicitly this anti competitive behavior is immune from prosecution under antitrust
laws Moreover overly broad or just badly decided judicial decisions may increase the
scope of public restraints Thus the sector regulator the legislature and the judiciary can
each cause and perpetuate public restraints 35
Public choice theory and its application of economic rational choice theory to politics
clarifies how anti competitive public restraints come into being 36 Public choice explains
that regulation is often a product of rent seeking manipulating the regulatory
environment for personal gain by interest groups 37 Consequently laws and regulations
will tend to benefit small well organized interest groups rather than society overall
Interest groups mis use government to create immunities from antitrust This rentseeking
behavior by interest groups redistributes resources away from their efficient use to use by
other actors 38 Rent seeking thus limits the opportunities for growth by a country 39
1 Legislative Immunities
The legislative failure that strengthens the position of interest groups over that of
the general population explains why many antitrust immunities come into being 40 In a
Raymond Fisman Virginia Sarria Allende Regulation of Entry and the Distortion of Industrial
Organization 4 Nat l Bureau of Econ Research Working Paper No 10929 2004
Deborah Platt Majoris Hot Topics in EU Antitrust Law What Every Multinational Needs to Know 13
GEO MASON L REV 1175 passim 2007 providing examples of such restraints
William N Eskridge Jr Philip P Frickey Legislation Scholarship and Pedagogy in the Post Legal
Process Era 48 U PITT L REV 691 703 1987 The legislature is a political battlefield most of its
activity is no more purposive than the expedient accommodation of special interest pressures See
also Daniel A Farber Philip P Frickey The Jurisprudence of Public Choice 65 TEX L REV 873
874 75 1987 DENNIS C MUELLER PUBLIC CHOICE III passim 3d ed 2003 reviewing recent
literature in public choice theory Public restraints are not caused merely by public choice problems
There are also situations where a majority of the electorate may choose bad economic policies such as
with price controls However as an empirically untested observation it seems that public choice
explanations account for more of antitrust public restraints especially regarding immunities and so
this article focuses on political malfunctions due to public choice concerns in antitrust law and policy
FOUNDATIONS OF CONSTITUTIONAL DEMOCRACY 9 1962 George J Stigler The Theory of Economic
Regulation 2 BELL J ECON MGMT SCI 3 3 1971 MUELLER supra note 36 passim
141 48 1965
Kevin M Murphy Andrei Shleifer Robert W Vishny Why Is Rent Seeking So Costly to Growth
83 AMER ECON REV 409 409 1993
Sam Peltzman Toward a More General Theory of Regulation 19 J L ECON 211 212 1976 A
common though not universal conclusion has become that as between the two main contending
interests in regulatory processes the producer interest tends to prevail over the consumer interest
world of interest groups antitrust agencies may be less politically powerful than other
interest groups that shape regulation Antitrust does not have a well organized and
powerful constituency with which to push for pro competitive change 41 Unlike specific
policies that benefit a particular industry or other interests e g labor the benefits of
antitrust are diffuse Increased welfare affects each consumer whether a business or
individual only marginally though the aggregate societal consequences may be
There are many examples of how the public choice dynamic works in legislation
that negatively impacts or limits antitrust The passage of the Robinson Patman Act 42
for example can be explained in large part as a public choice story 43 The Act s purpose
was to protect competitors 44 The Act had its origins in the work of the United States
Wholesale Grocers Association which proposed the precursor to the Act at its 1935
annual meeting 45 The initial title of the Act reflected the particular interest group that
sought protection Wholesale Grocer s Protection Act 46 In particular the Act was an
attempt by politically well organized smaller retailers to reduce the ability of the A P
grocery chain to use its scale advantage to extract better terms from suppliers than its
smaller competitors through price discrimination or buyer power 47
Explicit and implicit immunities to antitrust may be included in the initial antitrust
law and regulations of a country s antitrust system for public choice reasons Restrictions
on the ability of an antitrust agency to act because of immunities in the antitrust law or
other laws that provide sole jurisdiction to sector regulators set up the parameters for
antitrust in a given market This limits the ability of antitrust agencies to police against
market distorting behavior that the government creates or facilitates One such case of a
direct exemption is Singapore s Competition Act of 2004 The Act s prohibitions against
anti competitive conduct do not apply to the government any statutory body or person
This of course assumes that antitrust s purpose is pro competitive in nature and that competition means
efficiency enhancing The current state of antitrust in the U S for example is based on a Chicago
School approach William H Page The Chicago School and the Evolution of Antitrust
Characterization Antitrust Injury and Evidentiary Sufficiency 75 VA L REV 1221 1228 43 1989
explaining the emergence of the Chicago School However U S antitrust went through periods of
populist driven enforcement See Richard Hofstadter What Happened to the Antitrust Movement in
15 U S C 13 limiting price discrimination
But see Jerrold Van Cise Religion and Antitrust 23 ANTITRUST BULL 455 480 81 1978 arguing
that Robinson Patman reduced arbitrariness in prices by forcing producers and distributors to
rationalize their pricing policies
3rd ed 1990
DISCRIMINATION 10 2nd ed 1979
Margaret M Zwisler Volvo Trucks v Reader Simco Judicial Activism at the Supreme Court 20
ANTITRUST 40 41 2006
Joel B Dirlam Alfred E Kahn Antitrust Law and the Big Buyer Another Look at the A P Case 60
J POL ECON 118 118 19 1952 analyzing the buyer power of A P The effect of Robinson
Patman in its early years 1936 1959 also primarily impacted the food sector with 87 percent of FTC
orders regarding unlawful brokerage dealing with food products CORWIN D EDWARDS THE PRICE
acting on behalf of the government 48 Moreover the Act creates a number of sector
exclusions such as for postal rail and cargo services 49 In other areas competition
oversight of sector specific businesses has been exempted e g telecoms media and
energy Given the political power of some of the state owned enterprises in Singapore
via the government holding company Temasek Holding Pte which as a sovereign
wealth fund also bought a stake in Merrill Lynch in late 2008 and the problems of
public choice in regulation such exemptions have the potential for significant anti
competitive effect 50 In countries that are far less open to competition such as China a
similar pattern is emerging Article 7 of the new Chinese Anti Monopoly Law51 creates
immunities from antitrust for state owned enterprises in strategic sectors which include
such economic drivers as aviation banking electricity oil railroads and
telecommunications 52
The political process may after adopting an antitrust law add various immunities
from antitrust coverage for favored industries and sectors for reasons of public choice
The U S experience in which immunities have had significant staying power
exemplifies how difficult it is to get a domestic legislature to rein in these exemptions 53
A statutorily embedded system of immunities makes remedying such conduct difficult
because favored interest groups will lobby hard to keep those immunities 54 Indeed such
preferences strengthen existing interest groups and can even create additional interest
groups with a vested interest in the continued regulatory creep of such immunity 55
The history of the Soft Drink Interbrand Competition Act of 1980 provides an
example of a rent seeking immunity enacted after passage of an antitrust law The Act
authorized the elimination of intrabrand competition of soft drinks within a bottler s
territory 56 The Act was a legislative response to FTC litigation against soft drink bottlers
in which the use of exclusive territories by bottlers was found to be anti competitive In
the FTC case bottlers limited intrabrand competition in service territories 57 As a
Competition Act 2004 Bill No 22 2004 at 33 4 Singapore
Id 5 7 Third Schedule
Among Temasek s holdings are critical players in the Singaporean economy such as Singapore
Airlines Singapore Telecommunications DBS Bank and hotelier Raffles Holdings
Anti Monopoly Law promulgated by the Standing Comm Nat l People s Cong Aug 30 2007
effective Aug 1 2008
Eleanor M Fox An Anti Monopoly Law for China Scaling the Walls of Government Restraints 75
ANTITRUST L J 173 173 2008 providing an analysis of antitrust public restraints in China
A number of the U S exemptions trace back to the 1930s and some even earlier such as the Anti Hog
Cholera Serum and Hog Cholera Virus Act 7 U S C 852 2008
MUELLER supra note 36 at 353
John Cubbin David Currie Regulatory Creep and Regulatory Withdrawal Why Regulatory
Withdrawal is Feasible and Necessary UTIL WK May 2002 at 2 More generally there is a
prevalent view that regulatory creep is inevitable that regulators will be unwilling to let go and indeed
will be inclined to increase over time the range and scope of what they control
For a detailed description of the politics involved in the enactment of this legislation see AM
IMMUNITIES AND EXEMPTIONS passim 2005 available at
http govinfo library unt edu amc public studies fr28902 immunities exemptions pdf 050715 AAI p
In re Coca Cola Co 91 F T C 517 passim 1978
response to the FTC decision which declared the bottlers exclusive franchise
arrangements illegal special interests worked to pass national legislation to use
government to shield this conduct through the Act 58
The legislature is not the only institution that suffers from public choice concerns
It is endemic to all institutions 59 However unlike other institutions like the judiciary the
legislature has the ability to significantly reduce its public choice problems through the
creation of sunset provisions that would cause immunities from antitrust to expire at a
certain set date 60 With sunset provisions political factions would need to revisit the
political debate to justify the continuation of immunities via the legislative process This
would increase accountability and most probably reduce the number of immunities
because the true costs of such legislation would be exposed 61
2 Judicial Immunities
The judiciary may create public restraints and immunize anti competitive
behavior through case law 62 A brief review of the U S experience illustrates how
judicially created immunities can be created and expanded in scope over time 63 For
example the state action exemption is a judicially created exemption to antitrust scrutiny
arising from the 1943 case of Parker v Brown 64 In Parker a raisin producer attempted
The period after the passage of the Act witnessed a flurry of Department of Justice investigations and
convictions of price fixing by bottlers Not surprisingly the Act facilitated this collusion H AROLD
Trade Commission Bureau of Economics ed 1999
This includes antitrust agencies David J Gerber Transatlantic Economic Governance The Domains
CONTINUITY AMID DISCORD 81 93 Mark Pollack Greg Shaffer eds 2005 The assumption that
antitrust officials are strongly influenced by political considerations is encouraged by US antitrust
history Donald I Baker Antitrust and Politics at the Justice Department 9 J L POL 291 291
1993 Antitrust and politics are inevitably intertwined not only in the United States but in any
country having an effective antitrust program However as noted later in this article antitrust
agencies are less prone to public choice concerns that sector regulators or the legislature
Such a proposal has support across the scholarly political divide For a leftist critique of antitrust
Oct 24 2005
George K Yin Temporary Effect Legislation Political Accountability and Fiscal Restraint 84
N Y U L Rev 174 192 94 2009
The complexity of the economics of antitrust may overwhelm the judiciary
These issues are of course tied into federalism State action concerns are not unique to the United
States EU case law shows deference to Member States and their decision making See Richard
Wainwright Andr Bouquet State Intervention and Action in EC Competition Law in ANNUAL
POLICY 551 Barry Hawk ed 2004 Case C 198 01 Consorzio Industrie Fiammiferi CIF v Autorit
Garante della Concorrenza e del Mercato 2003 E C R 1 8055 Fernando Castillo de la Torre State
Action Defence in EC Competition Law 28 WORLD COMPETITION 407 430 2005
317 U S 341 350 51 1943 involving discrimination within a federal system where 90 percent of
raisins were shipped out of state In this case local politics favored anticompetitive conduct that
imposed cost on non voting out of staters
to enjoin enforcement of a mandatory California program that controlled the marketing
and sale of agricultural products 65 The effect of Parker was to shield anti competitive
state laws and their private party beneficiaries that fall within the state action exemption
In California Retail Liquor Dealers Association v Midcal Aluminum Inc 66 the Supreme
Court created a two pronged test for a private party to determine what accounts for
permissible state supervision and exemption from antitrust scrutiny 67 Under this two
pronged test a party must show that its conduct in question is 1 clearly articulated and
affirmatively expressed as state policy and 2 actively supervised by the state itself 68
In the twenty five years since Midcal the scope of the state action exemption has grown
As part of a more general push to combat public restraints the FTC recently
undertook a comprehensive study of the state action exemption through a State Action
Task Force 69 The State Action Task Force Report concluded that over time courts have
weakened limitations on the doctrine Both the clear articulation and active
supervision requirements have been the subject of varied and controversial
interpretation sometimes resulting in unwarranted expansions of the exemption 70 The
criteria for active supervision remain unclear Because of its opaqueness the active
supervision requirement has not adequately limited exemptions under the state action
doctrine 71 There is also some lack of clarity as to the clear articulation prong One set
of cases particularly those that have reached the Supreme Court has interpreted the
clear articulation prong to allow states broadly to displace competition as a result of a
445 U S 97 1980
Id at 105 06
Id at 105 internal quotation marks purposely omitted
2003 available at http www ftc gov os 2003 09 stateactionreport pdf The Task Force never
questioned whether there should be any state action exemption merely how to better limit the
exemption The State Action Task Force recommendations suggest a concern that public restraints on
trade can serve anti competitive ends and need to be circumscribed Because the state action doctrine
rests upon federalism actions of the state and its actors are shielded There is no reason why state
action needs to rest on federalism grounds The federal government could choose to directly regulate
these issues and take away discretion from the states The recommendations of the State Action Task
Force beg a larger question Instead of examining the limitations of an exemption that has anti
competitive result why not abolish the exemption The answer would suggest that public choice
concerns limit the FTC s ability to eliminate this or other exemptions Public choice significantly
circumscribes the ability of an established competition system such as that of the United States from
acting against immunities One can understand why in countries with a more recent transition to
liberalization and new antitrust agencies the possibility of overcoming immunities is much greater
See John T Delacourt Todd J Zywicki The FTC and State Action Evolving Views on the Proper
Role of Government 72 ANTITRUST L J 1075 passim 2005 arguing that public choice thinking has
not created a more systematic framework to address state action cases
The State Action Task Force recommends that active supervision be narrowly defined Active
supervision would entail three requirements 1 The development of an adequate factual record
including notice and an opportunity for critics of the policy to be heard 2 a written decision on the
merits and 3 a specific assessment both qualitative and quantitative of how the private action
comports with the substantive standards established by the state ZYWICKI supra note 70
legislative grant of general corporate powers 72 The Supreme Court expanded what
constitutes clear articulation In Town of Hallie v City of Eau Claire 73 the Supreme
Court held that the clear articulation test was satisfied when the anti competitive
conduct was the foreseeable result of a state statute This foreseeable result standard
has led courts to allow significant anti competitive behavior to be shielded through clear
articulation by either a general state authority or through a broad regulatory regime 74
3 Indirect Immunities Regulatory Creep of Sector Regulators
Sector regulation may create an explicit75 or implicit76 immunity from antitrust
This mechanism of public restraints is different from legislative public restraints because
in sector regulation regulators create restraints through administrative law The extent of
sector regulation and the decision making of sector regulators define the parameters for
business regulation Thus a sector regulator that sets high barriers to entry affects the
competitiveness of a market and the ability of antitrust to function as a policy tool to
correct market failures 77
Countries may choose sector regulator oversight over antitrust for reasons of
public choice Sector regulation may be more open to manipulation and capture by
interest groups resulting in the creation of more public restraints Because in some cases
sector regulators may have preceded antitrust agencies there may be a sense among some
sector regulators of a turf war over control of regulation in that sector Sector regulators
may see an antitrust agency as a potential threat for funding and prestige This threat of
competing regulators may cause a sector administrator to seek greater control and more
power and funding over its regulated industry 78 Such sector regulators might take steps
to limit the role that an antitrust agency might take in that particular sector
Id at 26 34 Clear articulation rests on whether the State as sovereign clearly intends to displace
competition in a particular field with a regulatory structure S Motor Carriers Rate Conference Inc
v United States 471 U S 48 64 1985 Darren Bush Mission Creep Antitrust Exemptions and
Immunities as Applied to Deregulated Industries 2006 UTAH L REV 761 767 2006 noting that
some recent cases at the district court level apply a less broad foreseeability standard
471 U S 34 1985
Some district court level cases take an alternative view on foreseeability See e g Capital City Cab
Serv v Susquehanna Area Reg l Airport Auth 470 F Supp 2d 462 468 M D Pa 2006
See e g Keogh v Chicago Nw Ry 260 U S 156 1922 Gordon v N Y Stock Exch 422 U S
ICN supra note 75 at 5
Jonathan Bendor Serge Taylor Roland van Gaalen Bureaucratic Expertise versus Legislative
Authority A Model of Deception and Monitoring in Budgeting 79 AM POL SCI REV 1041 passim
Some sector regulation historically has served a market replacement rather than
market facilitation function 79 Sector regulators therefore still may focus on industry
concerns rather than on the competitive process as a means of improving societal
welfare Additionally because sector regulators focus on a specific industry as repeat
players they are more prone than antitrust agencies to capture by those in a particular
industry with a vested interest in sector outcomes This repeat play of actors within a
narrow band of interests may make sector regulators easier to capture than antitrust
enforcers since the latter s oversight exposes them to many industries and interest
groups while the former must deal with the focused attentions of the same interest groups
over and over Particularly in the developing world the low pay of sector regulators
increases the likelihood of capture 80 In addition to direct pressure from industry groups
sector regulators may be prone to specific pressure from legislators interested in that sector
further exacerbating the problem of capture 81
Sector regulation also may be prone to manipulation by companies that attempt to
game the regulatory system Such gaming may occur when because of concurrent sector
and antitrust regulation anti competitive behavior may result from regulatory schemes
that allow for subsidies from a regulated market sector regulator to an unregulated
market antitrust Anti competitive cross subsidization allows monopoly firms in the
regulated sector to raise the cost of rivals from the unregulated sector or to price below
marginal cost for a sustained period to drive out competitors 82 In this regard regulated
firms may benefit from cross subsidies because inputs of the regulated network may be
used to compete in the unregulated sector whereas the cost is allocated to the regulated
The example of telecommunications services in Taiwan suggests how a regulated
firm can game the regulatory system for anti competitive ends through public restraints
In 1999 the Taiwanese state owned telecommunication incumbent Chunghwa Telecom
introduced a service that allowed users to have call answer and call transfer voice mail
collect call capacity and information management 83 It branded this service 099
service At the time Chunghwa held a government designated monopoly i e an
antitrust immunity in fixed telephony but competed against five companies in mobile
telephony Pricing of 099 was almost half the cost of competitor services 84 This was not
GOVERN passim Cambridge University Press 2006
See Todd J Zywicki Dir Office of Policy Planning FTC How Should Competition Policy
Transform Itself Designing the New Competition Policy Address at the Competition Policy Research
Center Fair Trade Commission of Japan Inaugural Symposium 4 Nov 20 2003 available at
http www ftc gov speeches other 031120zywickijapanspeech pdf Mariana Mota Prado The
Challenges and Risks of Creating Independent Regulatory Agencies A Cautionary Tale from Brazil
41 VAND J TRANSNAT L L 435 passim 2008

Related Books



PLACEMENT BROCHURE. Innovative, Integrated, Entrepreneurs CMTR PHILOSOPHY EDUCATION AT CMTR 4To make students understand the social, economic, political, technological and ecological environment of global competition. 4To facilitate students in becoming effective leaders with an eye on results and potential to transform organization. 4To inculcate values of sincerity, loyalty, empathy with a ...

Continue Reading...
COURSE TITLE The Rise of Emerging Markets and Global ...

COURSE TITLE The Rise of Emerging Markets and Global ...

COURSE TITLE – The Rise of Emerging Markets and Global Competition LANGUAGE: English LECTURERS Markovi? Dušan, Assistant Professor University of Belgrade - Faculty of Economics Veljko Mijuškovi?, Assistant Professor

Continue Reading...
Basic Business Statistics (13th Edition) PDF

Basic Business Statistics (13th Edition) PDF

Communication Today (13th Edition) International Business: The Challenge of Global Competition, 13th Edition Multinational Business Finance (13th Edition) (Pearson Series in Finance) College Mathematics for Business, Economics, Life Sciences, and Social Sciences (13th Edition) Business Mathematics (13th Edition) Entity-Relationship Approach ...

Continue Reading...
Full PDF Already Complete Beyond The Myths Of ...

Full PDF Already Complete Beyond The Myths Of ...

Test IOS Apps With UI Automation: Bug Hunting Made Easy La Voz De Tu Alma Spanish Edition International Business The Challenge Of Global Competition W CESIM Access Card The Secrets Of The FBI Successful Property Letting How To Make Money In BuytoLet Authentic Food Quest Peru A Guide To Eat Your Way Authentically Through Lima And Cusco English ...

Continue Reading...
APICS Certified Supply Chain Professional (CSCP)

APICS Certified Supply Chain Professional (CSCP)

APICS Certified Supply Chain Professional (CSCP) With the APICS CSCP program you can take your career and organization in a new and exciting direction. Shape your future, align your goals, and distinguish yourself from the competition. In this challenging global marketplace, only the well-trained, well-educated professionals will be

Continue Reading...
Introduction to Information Systems 16th edition by George ...

Introduction to Information Systems 16th edition by George ...

1. When an organization uses information technology to develop products, services and capabilities in order to gain a strategic advantage over competitive forces in the global marketplace, it is using information systems in a strategic role. True False 2. Competition is a negative characteristic in business that can require significant resources to

Continue Reading...
transforming natural resources into industrial advantage ...

transforming natural resources into industrial advantage ...

se competition, as well as pollution caused by rare earth mining and processing, led to mine closures in the US and other countries. As a result, Chinese producers took over the world market. By 2005, their share of global production had reached 95%. China assumed this dominant position just as world REE demand was increa-

Continue Reading...
Risk and Regulation Monthly

Risk and Regulation Monthly

November 2018. At the international level, the G7 working group on stablecoins published a report investigating the impact of global stablecoins. The report outlines the risks global stablecoins pose to financial stability, monetary policy and competition, and recommends that regulators continue efforts to

Continue Reading...
Faisceau -July 05 (9)

Faisceau -July 05 (9)

2. SCHUMAN, Michael H., The Small-Mart Revolution : How Local Businesses are beating the Global Competition, Berrett-Koehler Publishers, San Francicco, 2006, 285 pages. 3. HAMMEL, Laury & Gun DENHART, Growing Local Value : How to Build Business Partnerships That Strengthen you Community, Berrett-Koehler Publishers, San Francicco, 2007, 176 ...

Continue Reading...
Going Local - Municipal Association of Victoria

Going Local - Municipal Association of Victoria

from Wall Street to Main Street. One of his previous books, The Small Mart Revolution: How Local Businesses Are Beating the Global Competition (Berrett-Koehler, 2006), received as bronze prize from the Independent Publishers Association for best business book of 2006. A prolific speaker, Shuman has given an average of more than one invited

Continue Reading...
Growing the Wabash County Economy from the Inside Out

Growing the Wabash County Economy from the Inside Out

The Small-Mart Revolution: How Local Businesses Are Beating the Global Competition (Berrett-Koehler, 2006). For comments on this paper or to conduct similar analysis of another community, contact Michael H. Shuman by phone (202-669-1220), e-mail ([email protected] H), or mail (2203 Quinton Rd., Silver Spring, MD 20910). Wabash County Illinois

Continue Reading...