Ronald Coase famously exposed the limitations of economic analyses that rely upon assumptions of frictionless markets. He highlighted the importance of including transaction costs in economic analyses and issued a challenge to economists to think seriously about how transaction costs affect economic systems. Harold Demsetz, extended Coase’s analysis to show how these costs alter the way firms price and market their products. Demsetz’s analysis underscored that the costs of providing a market sometimes exceed the benefits of creating one in the first place and examined conditions where transaction costs imply that zero amounts of explicit market pricing will be efficient. This article extends Demsetz’s insights with respect to non-linear pricing contracts that seem not to “price” key side effects of the economic exchange. In particular, we analyze the welfare and output effects of two examples of such contracts that are commonly used by firms that are frequently subject to antitrust scrutiny: metered pricing; and loyalty discounts. The analysis demonstrates how a firm’s choice to set prices for its products are influenced by transaction and information costs and examines whether changes in output that are caused by the use of these non-linear pricing schemes are positively correlated with changes in total and consumer welfare. The article then discusses conditions under which measuring output effects can reliably differentiate between welfare-increasing and welfare-reducing uses of non-linear pricing.

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It is always an appropriate time to reevaluate, reexamine, and question the optimal scope and shape of our antitrust institutions. For example, the United States is peculiar in having two distinct antitrust enforcement agencies. More peculiar still, the agencies have both common and unique functions. For example, both the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ) review mergers pursuant to Section 7 of the Clayton Act and enforce Sections 1 and 2 of the Sherman Act through civil actions. At the same time, the Division alone is responsible for criminal enforcement of the Sherman Act, and the FTC alone enforces the Clayton Act provisions that prohibit tying and unfair methods of competition. Layered atop the peculiar dual jurisdiction of the FTC and DOJ at the federal level is a remarkably complex and decentralized system of competition enforcement authority distributed among myriad federal sectoral regulators, state attorneys general, and private litigants.This article asks whether the current distribution of competition functions in the U.S. can be improved by some reorganization or other reform. We answer in the affirmative and propose several changes — perhaps the most significant being consolidating the competition functions of the FTC into the Antitrust Division. We also propose stripping the Federal Communications Commission of authority independently to review mergers, as the Congress did with regard to the Department of Transportation in view of its similarly poor performance reviewing airline mergers. Our more general proposals regarding the authority of sectoral regulators over competition should not be overlooked, however; it would do much good and has little or no downside.

The Australian Competition & Consumer Commission (ACCC) released its Digital Platform Services Inquiry, Interim Report No. 5 (Regulatory Reform) in September 2022. In December 2022, the Australian Treasury requested comments on the report. The ACCC Report recommends, inter alia, several far-reaching regulatory proposals focused on competition policy—namely, placing “targeted obligations” on a wide range of conduct by “Designated Digital Platforms.” The recommended “targeted obligations” would cover conduct including self-preferencing, tying, exclusive agreements, use of defaults, platform design, interoperability, data portability, “unfair” terms of service, and price parity clauses. The Global Antitrust Institute's submission addresses the broader policy question of what the proper justification should be for implementing new competition regulations. In doing so, the comment highlights the emerging economic literature on the impact of the EU’s GDPR, which illustrates that competition regulations can be multi-faceted and place real burdens on market participants. Further, the comment addresses specific practices that the report targets for reform—that is, self-preferencing, the use of pre-installed software and defaults, and interoperability. We find that the report tends to be more concerned with the welfare of rivals than consumers.

The Global Antitrust Institute (“GAI”) submits this comment to the U.S. Federal Trade Commission (“FTC”) on the FTC’s Notice of Proposed Rulemaking (“NPRM”) on noncompete agreements (“NCAs”) in employment contracts, which promulgates a Non-Compete Clause Rule that would ban virtually all NCAs. There is no reliable support in either economic theory or empirics for the proposed categorical ban on NCAs—even if such a ban were limited to NCAs involving low-wage workers. The theories and evidence for NCA effects fall far short of meeting the Supreme Court’s standard that a practice be “always or almost always” anticompetitive to merit per se treatment. Applying the more flexible rule of reason approach to the facts of particular cases—as is appropriate for vertical restraints such as NCAs—is more likely to deliver benefits to both workers and consumers, on net and in the aggregate. The NPRM’s preliminary computations of the potential benefits of a ban to the contrary are deeply flawed, relying on a problematic out-of-sample forecast based on estimates from a single empirical study. Importantly, any sweeping ban on NCAs would likely have unintended consequences, hurting both workers and consumers.

The European Commission's recent draft Notice describes the use of supply-side substitution factors in defining relevant markets for the application of competition law. Expanding a defined market to include goods not substitutable on the demand side, based on the competitive strength of a broad swath of swing producers, would necessarily expand the set of relevant consumers to include groups who may have different purchasing options and vulnerability to harm. The Note states the EC will do so only if the consumer groups face a homogeneous competitive environment—a very restrictive condition. If this condition is not met, the EC will nonetheless take account of the competitive strength of swing producers in its competitive assessment, but according to principles left unstated. The procedure described in the Notice is problematic, or at best unclear. This comment by the Global Antitrust Institute recommends that the EC treat swing producers as participants in a relevant market if they can profitably swing production into the market quickly and without significant sunk costs, but that such supply-side factors should not be applied to the definition of a relevant market itself. Insofar as market definition (and identification of market participants) serves to "facilitate and structure" the EC's competitive assessment, ignoring swing producers as market participants would incorrectly evaluate their competitive strengths as zero, while at the same time falsely inflating the competitive strengths of the undertaking(s) and other current producers, with the potential of overstating the case for competitive harm.

The GAI filed this Comment with the Canadian Competition Bureau in response to the Bureau's request for public feedback on draft Guidance on Wage-Fixing and No-Poaching Agreements. Such agreements will be subject to a new statute (subsection 45(1.1), Canadian Competition Act) taking effect June 23, 2023, prohibiting such agreements as per se offenses and making violations subject to criminal remedies. The GAI's Comment commends the Bureau for seeking public comment prior to implementation and generally concurs with the basic approach taken by the Bureau. To further refine and improve the Bureau's approach, the Comment identifies potential ambiguities in the Guidance. Ambiguity complicates compliance, since businesses are likely to avoid even procompetitive or competitively neutral conduct potentially exposed to challenge. Avoidance of lawful conduct by business firms due to uncertainty regarding applicable legal standards may inhibit competition and ultimately reduce economic performance and innovation. Per se condemnation and criminal remedies should be reserved for conduct always or almost always anticompetitive and lacking plausible procompetitive rationale. The GAI therefore asks the Bureau to take particular care in defining the types of agreements that may be subject to the new law. Principal areas of focus involve (1) transition provisions; (2) the scope of an exemption for agreements between "affiliates"; (3) the definition of what constitutes an "employment relationship,” a key term defining the scope of the new law; (4) the line between permissible information sharing and impermissible coordinated conduct, and (5) the proper interpretation of the "Ancillary Restraints Defense" that will be applicable.

China's revised Anti-Monopoly Law (AML) went into effect in August 2022. In November, the Supreme People's Court (SPC) requested comments on its draft provisions for applying the AML in civil disputes. The Global Antitrust Institute's comment discusses the importance of the AML's newly expressed goal of promoting innovation, the burden-shifting framework implicit in much of the Law, the SPC's draft implementation of a such a burden-shifting framework, and implications of the framework for determining concerted conduct and dominant market position. We take particular note of the implications for patent disputes, internet platforms, and resale price maintenance.

The Global Antitrust Institute (“GAI”) respectfully submits this Comment to the U.S. Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) in connection with their Request for Information on Merger Enforcement (“Merger RFI”). The GAI welcomes the opportunity to provide input on the proposed changes to the Horizontal Merger Guidelines (“HMGs”) based upon its extensive experience and expertise in antitrust law and economics. This particular GAI Comment focuses on Section 14 of the Merger RFI, in which the Agencies pose two questions that go to the heart of the treatment of efficiencies in merger review. First, the Agencies suggest (Merger RFI 14.a) that efficiencies may have no proper role whatsoever in merger review. Second, in case consideration of efficiencies is appropriate, the Agencies ask (Merger RFI 14.c) what degree of certainty should be applied to efficiencies evidence to establish cognizability, and in particular to establish merger-specificity. This Comment explains how efficiencies are integral to an accurate assessment of the competitive effects of a horizontal merger, and that efficiencies evidence should in principle be accorded equal consideration to other factors.

This Comment focuses on Section 7: Potential and Nascent Competition of the Department of Justice and Federal Trade Commission's January 18, 2022, Request for Information on Merger Enforcement. Despite information and uncertainty problems with assessing potential and nascent competition, the agencies may still address theories of harm involving potential and nascent competitors. This Comment reviews potential guidance that would facilitate the examination of potential/nascent competition cases by the agencies and courts. In particular, what are the characteristics that agencies and courts should look for in the “nature” of the acquired and acquiring firms? First, there should be greater clarity as to meaning of the terms potential competition and nascent competition—as the law and economics treat these concepts quite differently. Second, the counterfactual exercise involved in potential/nascent competition cases should differ from a standard merger review. Third, analysis of several considerations, including the uniqueness of the acquired assets and business, the innovation pipelines, recent acquisitions by the merging parties, and capabilities, could better forecast the likely competitive environment. This Comment addresses that the strength and quality of the evidence about potential/nascent competition in a relevant market should determine the level of scrutiny of an acquisition.

Demands for major antitrust reform are coming from all directions: politicians, industrial organization (IO) economists, and antitrust lawyers. While the political, legal, and economic debates vary in important ways, they all boil down to a single question: Do we need a “New” Sherman Act? Progressive IO economists argue that a “crisis” of competition in markets—evidenced by increasing levels of aggregate industry concentration—has resulted in systematic market power across the economy, and that a crisis of institutional credibility in the courts has biased antitrust law in favor of defendants. However, as this Article illustrates, the economic and empirical evidence support neither proffer. Rather than reform based on upon evidence of market failure or a failure of antitrust institutions, Progressive IO economists call for reform based upon the nirvana fallacy—a comparison of the today’s institutions with an imaginary set of perfect institutions guided by omniscient and well-intending economists. But economics is not on the agenda of current proposals for antitrust reform and calls for a “New” Sherman Act threaten to upend the long-standing partnership between law and economics on which the consumer welfare standard is predicated. Without such a partnership, antitrust institutions will struggle to achieve their objective of promoting competition on behalf of Americans.

We submit this comment in response to the request of the U.S. Department of Justice, U.S. Patent and Trademark Office, and National Institute of Standards and Technology to comment on the proposed Draft Policy Statement (DPS) on Licensing Negotiations and Remedies for Standards-Essential Patents Subject to F/RAND Commitments (December 6, 2021). The DPS proposes an entirely new and apparently self-defeating meaning of the term “good-faith negotiations,” one which would tend to undermine the functioning of good-faith negotiations as traditionally understood for the licensing of F/RAND-encumbered SEPs. As we discuss, the DPS appears to propose an antitrust policy that would fundamentally distort negotiations over F/RAND-encumbered SEP licensing in ways that would tend to chill incentives to innovate and lessen dynamic competition to the detriment of both consumers of final goods and of growth in the broader economy.

This comment addresses Accountable Tech’s Petition asking the Federal Trade Commission (FTC) to initiate a rulemaking to prohibit tailored advertising (TA) as an unfair method of competition (UMC). We make five main points that cast serious doubt on the wisdom and viability of such a rulemaking. First, as a threshold matter, there are reasons to doubt that Congress has given the FTC the power to promulgate rules under its UMC authority. Second, the FTC can reach any use of TA that harms competition under its current authority. Third, given that a per se condemnation of TA would represent such a monumental departure from Sherman Act precedent, there are serious doubts that such an interpretation of the Commission’s UMC power would withstand judicial scrutiny under Chevron. Fourth, TA provides consumer benefits in terms of access to free content and services that far exceed the costs in lost privacy. Finally, any rule that would limit TA will have to pass First Amendment scrutiny.

The rise of large firms in the digital economy, including Amazon, Apple, Facebook, and Google, has rekindled the debate about monopolization law. There are proposals to make finding liability easier against alleged digital monopolists by relaxing substantive standards; to flip burdens of proof; and to overturn broad swaths of existing Supreme Court precedent, and even to condemn a law review article. Frank Easterbrook’s seminal 1984 article, The Limits of Antitrust, theorizes that Type I error costs are greater than Type II error costs in the antitrust context, a proposition that has been woven deeply into antitrust law by the Supreme Court. We consider the implications of this assumption on the standard of proof. We find that, taking variants of the Easterbrook assumption as given, the optimal standard of proof is stronger than the preponderance of the evidence standard. Our conclusion is robust to how one specifies the preponderance of the evidence standard and stands in stark contrast to contemporary proposals to reduce or eliminate the burden of proof facing antitrust plaintiffs in digital markets.

President Trump’s Executive Order on Preventing Online Censorship is the latest in a series of proposals aimed at independent agencies, chiefly the Federal Communications Commission (FCC) and Federal Trade Commission (FTC), that seek to police how tech companies operate their social media platforms. These measures suffer from fatal defects. They run against the weight of First Amendment law and, our focus, beyond the limits of FTC Section 5 authority. We briefly summarize the scope of that authority before analyzing the Executive Order against the backdrop of the First Amendment and Section 5; concluding it would be illegal and imprudent to enforce. We conclude with suggestions for how the FTC should handle the position it finds itself in—facing an Executive Order to consider and study unlawful enforcement actions that not only undermine its independence, but also shift its attention away from its primary mission of consumer protection toward policing free speech.

In the last couple of years, the United States Department of Justice (“DOJ”) and several European countries have reversed previous interventionist decisions and limited the role of antitrust in the resolution of disputes concerning Standard Essential Patent (“SEPs”). These jurisdictions recognize the need to protect intellectual property rights (“IPRs”) by making available injunctions against infringers. Courts have realized that hold-up by a patent holder demanding excessive royalties is not a widespread problem and that patent implementers may hold-out against paying any royalties whilst they continue to practice a patent. They have accordingly adopted new standards for granting injunctions in disputes involving SEPs with the goal of increasing efficiency and legal certainty. We discuss this shift and its implications for competition policy and innovation.