2008 TILEC retreat coming up

Next Friday TILEC-ers will retreat again to exchange views on their research projects and on the organisation of the Center. This year the topics covered will include legal and economic aspects of health care regulation, services of general economic interest, compensation for victims of crimes, renewable energy certificates and the GATS.

This year, the retreat will take place in Goirle, at the Cultureel Centrum Jan van Besouw and most TILEC members will be present. If conditions are favourable (i.e. wireless Internet is available), we will blog live from there, to capture immediately the highlights of the meeting.

Hot summer

Summer is going to be hot for Google and Yahoo, after the American DoJ has begun issuing "civil subpoenas" to gather additional information about their announced co-operation.

Co-operating with a competitor, especially if you are a dominant company, may certainly get you in trouble if you do not have a good story.

I wonder whether the two companies are in talks with the European Commission too. Not showing due awareness and respect for the European impact (and for the European authorities) may end up generating a second Microsoft-like monster.

Will Autumn bring answers?

Price fixing in basic industries

Just read that the Belgian Competition Authority has raided a number of companies in the chocolate industry. As you can easly imagine, my first reaction has been to ask a member of the Authority if I could join the raid next time.

In a different market. A (female) lawyer practicing in Brussels recently pointed out that most likely there is a cartel in the stokings market: prices for tights are more than double the price you find in other countries in Europe (I can directly testify for Italy and the Netherlands). A quick survey among colleagues seems to confirm the observation. A new dawn raid for the Belgian Authority in basic industries?

Opening hours

In Belgium, a year and half ago, a governmental urgent decree was necessary to allow hair dressers to be open on possibly their most profitable day, i.e. 31 December (which happened to be a Sunday).

In Italy, cleverer hair dresser regulation (and tradition) has chosen Monday as day off. However there may be something of a "cultural revolution" going on, as the Italian press called it. The Italian Competition Authority has stated (sorry, Italian only) that legislation limiting shop opening hours is restraining competition by reducing the possibilities of shop owners to diversify their marketing strategies.

The statement came as a reaction to the Rome city regulation liberalising opening hours during holidays, but only on 1 November and 8 December, thus excluding Easter Monday (and Ferragosto, for that matter). The Competition Authority has now called for complete liberalisation.

While someone may be already dreaming of American-style 24/7 shopping (very unlikely, I would venture) and fierce competition in services for consumers, it must be said that a number of other obstacles remain, such as, in particular, very high labour cost for over-time work.

Yet, maybe this kind of liberalisation will contribute to a shift from the "imported" practice of spending Sundays in the new big shopping malls, back to the good old Italian habit of strolling along shopping streets.

IPRs at TILEC

An interesting seminar last Friday at TILEC with two speakers on the topic of Intellectual Property and Competition Law (Dean Williamson and Ioannis Lianos). Dean's focus (pdf) was on uncertain boundaries of IPRs as source of problems, while Ioannis questioned (pdf again) altogether the parallel between Intellectual Property and Property.

We got a lot of food for thought and the discussion continued also after the seminar, a sign that the debate is "hot" despite hundreds of people (quoting Dean) have been discussing the subject already.

An unexpected twist: a remark to Ioannis' presentation sparked a spin-off discussion on the relationship between competition and sector specific regulation. Ioannis argued in favour of a comprehensive regulatory scheme for IPRs that includes also competition/access concerns. In turn, that would imply a more limited room for ex-post intervention by competition authorities, since this could end up jeopardising the objectives of regulation. (More in the paper)

This is an interesting view, especially when put in the broader competition/regulation debate, beyond IPRs, for example for the revision of electronic communication regulation or the net neutrality debate.

Discussion to be continued.

A final note: TILEC anniversary conference coming up on 14 April!

Short and Sweet

I am not sure for how long this will be accessible online, but there is a very nice editorial on The Economist concerning criminal enforcement of competition law. Not groundbreaking but quite a nice summary from a law and economics perspective. Maybe for next year's Business Law and Economics course.

"Well-dressed thieves. Why the threat of prison is necessary to deter cartels"

The sin but not the sinner

End of exam session, time to report a few "pearls of wisdom" found in student papers.

Logical
Answer: A breach is efficient when one of the parties is inefficient.

Research sponsored by Microsoft?
Statement: Contrary to competition, economics thinks that the best market structure is monopoly.

Think out of the (X)-box
Strategies: a good strategy for videogame makers is one-way compatibility: the videogame is compatible with the console. Alternatively, they can use two-way compatibility: also the console is compatible with the videogame.

News from the US

A couple of interesting articles in the New York Times.

After years of an (arguably ideological) do-nothing approach, something is moving in US antitrust enforcement, albeit only at State level. The New York State attorney general is running an investigation in the Intel case. He is reported stating:
“Protecting fair and open competition in the microprocessor market is critical to New York, the United States and the world.”
Let's wait and see where this will lead.

At the same time, Paul Krugman is praising Europe and its approach to competition:
"What’s behind Europe’s comeback? It’s a complicated story, probably involving a combination of deregulation (which has expanded job opportunities) and smart regulation. One of the keys to Europe’s broadband success is that unlike U.S. regulators, many European governments have promoted competition, preventing phone and cable companies from monopolizing broadband access."

Christmas cartel

Danish competition authorities have accused the country's Christmas tree growers' association of attempting to fix prices.

End of the year

At the end, the idea of blogging from the network conference venue in Bonn did not work. Anyway, the meeting was very interesting, well attended and with a lot of debate.

Lawyers and economists did discuss together competition and regulatory issues and, after the unavoidable skirmishes and an invitation to economists to "take responsibility for decisions", the dialogue was fruitful for all.

The topics discussed varied a lot, from mergers between not-for-profit firms (to be treated more leniently by regulators?) to private enforcement of competition law (impossible to find an agreement) to the long lost soul of article 82 (found in the Archives of the 1950s negotiations around the text of the Treaty of Rome, by a researcher from the University of East Anglia).
Of course, our work on Net Neutrality was presented too.

It is not possible to report here on all papers presented there. Maybe in future posts, the authors will like to give some details.

*************************
In the meantime, another TILEC event has taken place, i.e. the second roundtable of the "Economic Impact Group" of the CoPECL network. The aim of the group is the economic analysis of the forthcoming "European Contract Law", currently in the making. The meeting was held in Barcelona and scholars from a number of Universities in Europe were present to discuss whether the rules chosen by comparative lawyers to constitute "European" contract law are sound according to economic analysis.

A website with more info will see the light very soon.

*************************
To all: Happy Christmas and a great 2008!

Workshop

Tomorrow and on Friday, a big bunch of TILEC members will participate to a Workshop on the Law and Economics of Competititon Policy, organised by the Max Planck Institute for Research on collective goods in Bonn, Germany (the programme in a pdf here).

My idea is to blog from there, whenever interesting points arise during the discussion. Let's see if and how it works out.

Competition and competitors

At the time the merger GE/Honeywell was blocked by the Commission, a slogan started to circulate: we Americans protect competition, you Europeans protect competitors.
A few years later, the European Commission finds that Microsoft infringed article 82, the CFI upholds the decision and some people try to recycle that slogan once again.

But something in the air has changed.
Immediately after the judgment, not less than the Economist ("Brussels rules OK") depicted European regulators as the ones playing a role in the global economy, while Uncle Sam stays at the window.

Now, discussing the Intel issue, also the NYT has contrasted the dismissive behaviour of the FTC towards big companies with the actions of European, Japanese and Korean authorities.

Is it not time for a new slogan?

Finally public

That "famous" Net Neutrality paper of ours, the one I mentioned in a couple of previous posts, is finally public. "Network Neutrality in the EU" is now an official TILEC Discussion Paper (number 2007/030) and is also available on SSRN http://ssrn.com/abstract=1018326.

Meanwhile, we managed to present it again at the IvIR (Instituut voor InformatieRecht) in Amsterdam and at the Conference of the Canadian Association of Law and Economics in Toronto.

International Gambling Conference in Tilburg

On 15 November 2007 the third international colloquium of Tilburg University will be hosted, with the title ‘The Regulation of Gambling and the Role of Crime and Addiction’. Speakers include François Trucy of the French General Assembly and Erik Vagnhammar of DG Internal Market.

For information and the registration procedure, please see http://www.tilburguniversity.nl/tilec/events/folder2007.pdf .

Live from the TILEC Retreat

TILEC members gathered today in Oisterwijk to hold their annual retreat.

Topics discussed ranged from predatory pricing to market manipulation to competition of competition laws.

Besides the academic value of the presentations, some interesting soundbites:

I could survive sweeping generalisation with an audience of only economists.

Let's assume away the problem.

Unmodelled things? Irrelevant.

If you can't make your point in one hour, you cannot make it in one hour and half.

First reactions to Microsoft

After more than 3 years, the CFI has finally ruled on the Commission's Microsoft decision.

While waiting for the next TILEC Club Med's to discuss the judgment more in detail, some TILEC comments are already available: preliminary remarks have been given by TILEC's co-director Pierre Larouche to Het Financieele Dagblad and in the original (pdf) English version.

Besides, I'd like to link also to the Commissioner's comments.

Club Med after holidays

Interesting Club Med this week on the treatment of Resale Price Maintenance (RPM) clauses. The US upreme Court in Leegin (pdf) has reversed a century-old rule treating RPM as illegal per se and has ruled that it must be now judged according to the so-called rule of reason.

The Court was split 5-4, along the (by now) familiar ideological line drawn by the recent appointment of the two new judges.

Our group, too, was split on the evaluation of the judgment. To mention just a few points that came up in the discussion: (*)

1. Civil law uneasiness: some in the group expressed their uneasiness with such an important decision being taken with almost half of the Court openly against it. McCormick was quoted: "The practice of keeping judicial argument over right and wrong behind closed doors [exists and is defended] so that the courts eventual judgment shall contribute rather to faith in the relative certainty of the law than to the revelation of its relative uncertainty."

2. On the substance of the case: economic theory is not conclusive on the welfare effects of RPM. Economic evidence is tiny and only a few empirical studies have been conducted, with divergent results. There is however a very clear risk of RPM: it can profitably be used to facilitate and reinforce horizontal cartels. All this seems to support the position that an outright per se illegality is inappropriate.

3. The new rule of reason approach is likely to produce very high costs for companies and for the legal system. RPM is likely to be often anticompetitive, hence for those cases the new rule is a net increase in the judicial costs. Moreover, the often prohibitive costs of lawsuits may discourage complaints against anticompetitive RPM clauses. In other words, while the risk of false positives is drastically reduced, the risk of false negatives seems now significant.

4. There was a certain consensus in the group that a statutory (as opposed to judicial) change from per se to rule of reason, could have provided a more satisfactory (and perhaps cost-saving) solution. A statute could have lifted the ban while at the same time filling the "void" with a (rebuttable) presumption of illegality above a certain market share, safe harbours for firms without market power, a transitory period to adjust to the new approach. A similar outcome can be achieved also by court decisions, but, probably, at much higher cost.

(*) This is just an informal summary and is not meant to represent the official views of the group

Still discussing Net Neutrality

Even if the paper mentioned in the previous post is not ready yet for publication, we have already given a few presentations about the European perspective on the network neutrality debate.

First came the Workshop on Commons Theory for Young Scholars, organised jointly by the Max Planck Institute for research on collective goods in Bonn and by the Center for Internet and Society of Stanford University. At the Workshop, Network Neutrality has been the most discussed issue of application of Commons Theory (perhaps also thanks to the presence of Larry Lessig and Tim Wu) and the participants were very interested in the peculiarities that make the European context different from the American one.

The following venue was the Symposium Netneutraliteit in The Hague, of which a report (unfortunately only in Dutch) is available here (note the nice picture at the end of the page) and another one here. An interesting point was made on the connection between Net Neutrality and ISPs liability for the content they carry: when there is no 'neutrality' and ISPs exercise control on traffic, they incur in liability. Would ISPs really want this?

Further presentations were made at the College of Europe in Bruges at the Third ELEA Symposium (European Law and Economic Analysis) and then at the Dutch Competition Authority (NMA).

Lessons learned: the topic is very technical and requires an introduction; what the problem is with network neutrality may not be so clear, hence further introduction is needed; the presentation tends to be quite long; we should hurry up with finishing the paper.

A final note: even if I cannot post the paper yet, I can show a nice picture of the authors:

Network neutrality takes off at TILEC

The network neutrality debate is regaining momentum in the US after the FCC has decided to investigate the development of broadband Internet (pdf).
Since a couple of years already, big names of the Telecom and Cyber legal world have been kept busy with the issue whether network operators should be allowed to discriminate, one way or another, among packets of data. An interesting example of the debate is the blog-style echange of opinions between a supporter and an opponent of net neutrality regulation. A group of heavyweight economists has also intervened, by signing a brief position paper opposing regulation on the matter.

Should intelligence (hence control) shift from the edges of the network to its core? Who should build the infrastructure for next-generation Internet? What will the Internet of the future look like: more as a global public network or as a bunch of privately-owned ones more or less interconnected with each other?

Leaving aside those fundamental questions for a moment, we might want to consider also a few more down to earth issues: how to make sure that market power over a bottleneck facility does not lead to abuses? How should regulators intervene (if at all) to make sure that innovation is not stifled? How to prevent that access to valuable content or applications gets blocked because of commercial (or other) reasons? Is it possible to offer prioritised services to real-time applications (online games) without making access to non-real-time ones a painful experience?

After the TILEC report (pdf) of last year on the economics of net neutrality, and after Milton Mueller's visit in February, a TILEC trio (Pierre Larouche, Ilse vd Haar and myself) is currently working on the possible European answer to some of the questions above: whether net neutrality is an actual issue to begin with, whether and in what the discussion differs from the American one, what tools already exist to help tackling the identified problems.

In a short while, we should be able to post our paper here and on SSRN.

EFTA and Gambling

Shortly after the decision of the European Court of Justice in Placanica, the EFTA Court gave its decision in Case E-1/06 on March 14^th. In considering the legality of the Norwegian legislation in question, the EFTA Court interprets particular aspects of the case-law of the ECJ in considerable detail.

The case arose out challenges to the Norwegian Act No 90 of 29 August 2003 Relating to Amendments to the Gaming and Lottery Legislation which sought to grant an exclusive right for the operation of gaming machines to the state-owned gambling operator, Norsk Tipping. Gaming machines in Norway have been subject to a licensing regime whereby they are operated by private operators on behalf of humanitarian and socially beneficial organisations, whom receive a proportion of the revenue. Since all parties agreed that the legislation amounted to a restriction to the free movement of services and the freedom of establishment, the case concentrates upon the justifications used to uphold the restrictive measures.

Among the objectives of the legislation was that of limiting the reduction in revenue which would result from the envisaged reduction in the number of gambling machines. Having recalled standing case-law to the effect that the financing of good causes cannot amount to an objective justification to a restriction on the free movement of services (para. 36), the Court noted that the introduction of the monopoly was primarily for reducing the risk of gambling addiction (para. 37). An exclusive right system would allow for this while limiting the consequent reduction in revenues. Since this limitation exercise was an ancillary objective, the overall legitimacy of the legislation remained intact (para. 40) as the restriction was justifiable on the grounds of reducing addiction and crime.

In considering whether the restrictions were consistent and suitable for the purpose (para. 42-46) the Court highlighted the need to consider the particular characteristics of the form of gambling in question, and in light of the legislation in question, the degree of addictiveness. Given the prevalence of gambling addiction in Norway which results from slot machines the Court felt that this form of gambling was not comparable with other forms offered by Norsk Tipping. Consequently, the marketing and development of other forms of gambling by the state body was deemed irrelevant for the assessment of this gambling machine specific legislation. The ECJ has yet to make a distinction in its case-law between the differing characteristics of different forms of gambling, and how this could affect the consistency, and thus proportionality of restrictions.

In assessing the necessity of the restriction the Court considered the test to be whether the introduction of the monopoly would lead to ‘a more effective achievement of the aims set than other less restrictive measures.’ (para. 49). However this part of the proportionality test relates to whether a less restrictive but equally effective provision could be used to achieve the legislative objective. By assessing this on the basis of a more effective achievement of the objectives, the Court would appear to alter the criterion by which the national measure is to be assessed. Arguably, the assessment used rests upon the effectiveness of the measure and not its restrictiveness and nor that of any alternatives.