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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. IP AND ANTITRUST AN ANALYSIS OF ANTITRUST PRINCIPLES APPLIED TO INTELLECTUAL PROPERTY. 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. MICHAL GAL COMPETITION POLICY FOR SMALL MARKET ECONOMIES 8 9 2003 analyzing the unique. 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, See e g DAVID M NEWBERY PRIVATIZATION RESTRUCTURING AND REGULATION OF NETWORK. INDUSTRIES 1 1999 ROBERT BALDWIN MARTIN CAVE UNDERSTANDING REGULATION THEORY. 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. See e g JAMES M BUCHANAN GORDON TULLOCK THE CALCULUS OF CONSENT LOGICAL. 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. MANCUR OLSON THE LOGIC OF COLLECTIVE ACTION PUBLIC GOODS AND THE THEORY OF GROUPS. 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. significant, 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. THE PARANOID STYLE IN AMERICAN POLITICS AND OTHER ESSAYS 188 195 96 1966. 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, F M SCHERER DAVID ROSS INDUSTRIAL MARKET STRUCTURE AND ECONOMIC PERFORMANCE 516.
3rd ed 1990, EARL W KINTNER A ROBINSON PATMAN PRIMER A GUIDE TO THE LAW AGAINST PRICE. 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. DISCRIMINATION LAW A REVIEW OF EXPERIENCE 74 1959, 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. ANTITRUST INST COMMENTS OF THE AMERICAN ANTITRUST INSTITUTE W ORKING GROUP ON. IMMUNITIES AND EXEMPTIONS passim 2005 available at. http govinfo library unt edu amc public studies fr28902 immunities exemptions pdf 050715 AAI p. df See also A B A FEDERAL STATUTORY EXEMPTIONS FROM ANTITRUST LAW 2007. 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. S ALTZMAN R OY LEVY J OHN C H ILKEAT T RANSFORMATION AND CONTINUITY T HE U S. C ARBONATED SOFT DRINK B OTTLING INDUSTRY AND ANTITRUST P OLICY S INCE 1980 139 Federal. Trade Commission Bureau of Economics ed 1999, This includes antitrust agencies David J Gerber Transatlantic Economic Governance The Domains. and Dimensions of Competition Law in THE FUTURE OF TRANSATLANTIC ECONOMIC RELATIONS. 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. immunities see DARREN BUSH GREGORY K LEONARD STEPHEN ROSS A FRAMEWORK FOR. POLICYMAKERS TO ANALYZE PROPOSED AND EXISTING ANTITRUST IMMUNITIES AND EXEMPTIONS. 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. PROCEEDINGS OF THE FORDHAM CORPORATE LAW INSTITUTE INTERNATIONAL ANTITRUST LAW. 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.
T ODD J ZYWICKI FTC REPORT OF THE S TATE ACTION T ASK FORCE Office of Policy Planning ed. 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 the appendices in INT L C OMPETITION NETWORK ICN ANTITRUST ENFORCEMENT IN. REGULATED SECTORS W ORKING GROUP SUBGROUP 3 INTERRELATIONS B ETWEEN ANTITRUST. AND REGULATORY A UTHORITIES REPORT TO THE T HIRD ICN ANNUAL CONFERENCE 2004. 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, WILLIAM A NISKANEN BUREAUCRACY AND REPRESENTATIVE GOVERNMENT 195 223 1971. 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. See e g EKATERINA M ARKOVA LIBERALIZATION AND REGULATION OF THE. T ELECOMMUNICATIONS SECTOR IN T RANSITION COUNTRIES T HE CASE OF RUSSIA 2009. JAMES BARTH GERARD CAPRIO ROSS LEVINE RETHINKING BANK REGULATION TILL ANGELS. 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, See e g W ORLD B ANK TELECOMMUNICATIONS REGULATION H ANDBOOK MODULE 5 17 23. ORGANISATION FOR ECONOMIC CO OPERATION AND D EVELOPMENT ABUSE OF D OMINANCE IN.

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