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Your Weekly Digest | Issue 244

Valur Thrainsson
7 min read

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Here below, you find the most recent and relevant competition and anti-trust news, blogs and journal publications over the last week.

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Washington’s judgment on tech giants already ‘written,’ top Lina Khan aide tells Israeli newspaper | POLITICO
Shaoul Sussman spoke to the publication months before joining the agency as an attorney adviser to new Chair Lina Khan.
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South Korea fines Google $177 million for hampering mobile OS competition | ZDNet

The Korea Fair Trade Commission said Google used its dominant market position to restrict competing operating systems from entering the market.

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Google abused the dominant position of its Android operating system in India, using its "huge financial muscle" to illegally hurt competitors, the country's antitrust authority found in a report on its two-year probe seen by Reuters. Read more.
Acting Assistant Attorney General Richard A. Powers of the Justice Department’s Antitrust Division issued the following statement today after the Federal Trade Commission (FTC) voted to withdraw from the 2020 Vertical Merger Guidelines, which had been issued jointly with, and remain in place at, the Department of Justice. Read more.
C.D. Howe Institute’s Competition Policy Council’s recommendations for the next Canadian federal government for Canadian competition law reforms. Read more.
A picture of “astonishing diversity and total underdevelopment”. Thus spoke a 2004 Report that surveyed competition damages actions across the EU at the time. It took ten years from there to adopt …  Read more.
As most readers are likely aware of, on 10 September 2021 Judge Yvonne Gonzalez Rogers (“YGR”) issued her Rule 52 Order after trial on the merits in Epic Games, Inc. v Apple Inc. Based on the trial… Read more.
Last week, the German Federal Court of Justice published its April 2021 judgment in Trucks II. The German Court – always good for a surprise – was overall less favourable to the claimant. In particular, it emphasised the role of economic party opinions and regression analysis, especially in relation to the factual presumption of price... Read more. 
In a recent blog on Chillin’Competition, Maurits Dolmans names me as one of “a few economists” who warn against the perverse incentives of permitting competitors to make agreements in exemption of the cartel prohibition. But all economists know as first principle that incentives matter! Read more.
FTC report reveals Big Tech's acquisition loopholes

Chairwoman Lina Khan is calling for Big Tech watchdogs to shut down these workarounds in the future.

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The antitrust enforcement Agencies’ 2020 Vertical Merger Guidelines (VMGs) introduce a nontechnical application of bargaining theory into the competitive assessment of vertical acquisitions. This bargaining theory has much in common with the theory of unilateral effects that is applied to horizontal mergers. The VMGs focus on post-merger price increases requires consideration of a vertical merger’s role in eliminating double marginalization (EDM). The problem occurs when two bargaining firms both have market power but are unable to coordinate their output. Assessing EDM bundles two themes that Ronald Coase developed in his two most well-known articles: “The Nature of the Firm” and “The Problem of Social Cost”. The first argued that the boundaries of a firm are determined by the firm’s continuous search to minimize costs. The second argued that two traders in a well-functioning market will achieve the joint-maximizing solution. Anti-interventionists rely heavily on Coasean arguments that unless high transaction costs get in the way firms will bargain to joint maximizing results. If that is true, then double marginalization will rarely provide a defense to a vertical merger. The law of vertical mergers deals largely with firms that transact with one another routinely, in legally enforceable buy-sell relationships. In a well-functioning vertical market durable double marginalization should be rare. Read more.
Serge MoresiSteven C. Salop 
This article explains the inherent loss of an indirect competitor and reduction in competition when a vertical merger raises input foreclosure concerns. We then calculate a measure of the effective increase in the HHI measure of concentration for the downstream market, and we refer to this “proxy” measure as the “dHHI.” We derive the dHHI measure by comparing the pricing incentives and associated upward pricing pressure (“UPP”) that are involved in two alternative types of acquisitions: (1) vertical mergers that raise unilateral input foreclosure concerns (and the associated vertical GUPPI measures); and (2) horizontal acquisitions of partial ownership interests among competitors that raise unilateral effects concerns (and the associated modified GUPPI and modified HHI measures). This dHHI measure can be a useful tool for vertical merger analysis. Read more.
In theory, vertical mergers can have both procompetitive and anticompetitive effects. Many early empirical studies found benefits for vertical relationships; but the seminal surveys of this literature are now over a decade old. We review the empirical evidence from the last decade on vertical integration—as well as that in two frequently cited surveys from the mid-2000s. Taken as a whole, the empirical evidence as to the change in welfare that is due to vertical mergers is decidedly mixed, and should certainly not be used as a basis for a presumption that most vertical mergers are procompetitive or harmless. Read more.
Carl Shapiro
This article offers a practical guide to analyzing vertical mergers using the general approach to input foreclosure and raising rivals’ costs that is described in the 2020 Vertical Merger Guidelines that were issued by the U.S. Department of Justice and the Federal Trade Commission. The step-by-step analysis described here draws lessons from how that theory of harm played out in the lone vertical merger case that has been litigated by the antitrust agencies in recent decades: the 2018 challenge by the Department of Justice to the merger between AT&T and Time Warner. I testified in court as the DOJ’s economic expert in that case. I explain here how to quantify the increase in rivals’ costs and the elimination of double marginalization that are caused by a vertical merger and how to evaluate their net effect on downstream customers. I also explain how this economic analysis fits into the three-step burden-shifting approach that the courts apply to mergers under Section 7 of the Clayton Act. Based on my experience in the AT&T/Time Warner case, I identify a number of shortcomings of the 2020 Vertical Merger Guidelines. Read more.
  • The scope of design protection affects pricing of automotive spare parts in Europe
  • Design protection increases prices of identical spare parts by 5–8% on average
  • The price effect of design protection differs substantially by carmaker
  • There are large deviations from the law-of-one-price for identical spare parts
  • The fragmentation of design protection explains price deviations across countries
Markus Reisinger and Hans Zenger
This paper provides a full characterization of the price effects of horizontal mergers in the Cournot model with heterogeneous firms and constant returns to scale. We show that the price change brought about by a merger only depends on the smaller merging firm's share and the number of firms, but is independent of the distribution of shares among other firms. Price effects are determined by factors that are either directly observable by competition authorities or can be bounded under relatively mild assumptions on demand curvature or pass-through. Estimates based on concentration measures can instead be seriously misleading. We also provide closed-form solutions for calibration that approximate merger effects on the basis of simple pre-merger parameters. Read more.
 
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Kind regards, Valur Þráinsson, Founder of CompetitionFeed.com. Email: valur@competitionfeed.com
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