Letter from the Editor – Spring 2013

Jul 28, 2013

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. They consider antitrust’s relationship with regulation and the relative risks of capture between these two public policies; the usefulness of guidance documents for antitrust authorities, particularly when faced with relatively complex conducts to assess harm—namely, vertical restraints; and experiences with price screens in Mexico and the use of economic evidence in private antitrust cases in China.

Our colloquium on antitrust regulation presents two articles that look at the difficult interplay between antitrust and sectoral agencies’ concurring mandates. In his article 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 agency’s 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.”

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 US DOJ and of disgorgement as an appropriate remedy in enforcement actions for these types of industries.

This issue also presents a group of articles centering on the use of guidance doc- uments for the analysis of vertical restraints. Geradin and Pereira Neto’s paper compares the European and Brazilian experience in this area. According to the authors, while Europe has made headway in writing guidelines that clearly incorporate modern eco- nomic 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.

Two different papers comment on Geradin and Pereira Neto: Sacher and Azeve- do. Azevedo, while praising the paper’s contribution to the analysis of vertical restraints in a developed and emerging jurisdiction (the E.U. 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. Sacher, on the other hand, 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 use economic analysis flexibly when these types of conducts are involved.

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.

Carvalho, Verissimo, and 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.

As is our custom, we include a couple of papers that look at current issues and cases. We start with a paper that 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. Our other article is by Lu and Tan who 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.

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 the 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 wis- dom 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.

Elisa V. Mariscal, President and Editor-in-Chief

Competition Policy International, Boston, MA, U.S.A.