Symposium
Last updated on Apr 04, 2013
Section 2 Symposium
May 4-7, 2009
We’re very pleased to be able to kick off Truth on the Market’s symposium on Section 2 and the Section 2 Report. We’ve put together a lineup that includes current and former agency representatives, economists, practicing lawyers, and academics in the hopes of creating an environment conductive to a productive discussion of not only the actual content and policy recommendations of the Section 2 Report and the current controversies surrounding the Report, but also the process of the hearings themselves and where our panelists think that the critical Section 2 debates are headed in the future.
When the Section 2 hearings kicked off in June 2006, Chairman Majoras noted the importance of finding consensus on the issues surrounding monopolization enforcement:
Unilateral or “single-firm” conduct, however, still vexes. Even though we can find some respectable measure of consensus around principles that should apply, we find a range of opinions from knowledgeable people about how to apply those principles to enforcement in the market. The question of the proper test that our agencies should apply to conduct of a single firm with market power now has dominated antitrust debate for several years….
The Chairman articulated the process that she had in mind for how the hearings would elicit the information and analysis necessary to move the ball forward on the these critical issues that began with increasing our understanding of the relevant business practices and their competitive consequences and then moved toward mapping that increased understanding into improvements in antitrust law:
We want the panels to discuss the conduct from the market perspective from the ground up, that is, examine why and when firms engage in it, how they do it, and what effects it produces for the firm, for other firms (customers and competitors), and for consumers. We should look at whether firms in competitive markets engage in the same conduct and, if so, examine why they do it. We want these discussions, to the extent possible, to include knowledgeable business people or at least their advisors. From these discussions, we then should endeavor to develop signposts for when the conduct may harm competition and when it typically does not. From these signposts, it would be beneficial to draw some guiding principles. Only then should we turn to examining the current state of the law as it has been applied to such conduct and then to determining what workable legal rules can be applied to the specific conduct at issue for the panel. Perhaps at that point, we may examine what we have learned about workable legal rules for individual types of conduct and determine whether we can pull those together into a broader test or set of rules. Even if these hearings do not produce consensus on a universal test or set of tests, I am optimistic that they can identify relative consensus on a number of principles and on how to approach a significant fraction of the single-firm conduct we encounter.
Likewise, Tom Barnett in his opening remarks was clear about the rationale for the hearings from the DOJ perspective:
The Antitrust Division is co-sponsoring these hearings to help advance our own thinking about unilateral conduct and better inform our judgment about when it is appropriate for the United States to bring enforcement actions under Section 2 of the Sherman Act. Antitrust experts continue to advance the understanding of the different ways that firms unilaterally can–and cannot–harm competition. The Antitrust Division tries to incorporate the latest scholarship and economic thinking into its enforcement decisions, and these hearings will help us meet that goal by providing a forum for experts to review the literature, the business practices, and the law and to speak directly to each other and to us. A number of prominent practitioners and economists have committed to participate in these hearings, and the Antitrust Division is grateful to them for agreeing to share their insights. We are also seeking the views of the business community, consumer groups, and business historians. Those views are significant to our understanding of the real-world implications of various business practices and their potential impact on competition. Improving the legal system helps us all, and I commend those who contribute through either written submissions or panel participation for rendering a valuable public service.
A second reason for these hearings is to advance the development of the law, particularly by articulating points of consensus. Developing the law–or, more accurately, influencing the development of the law–in ways that help competition is an important goal for the Antitrust Division. Courts routinely rely on the Antitrust Division’s views when construing the antitrust laws.
With all of the well known debate over the Section 2 Report, some of which we have covered here at TOTM (see, e.g. here, here , here and here), the new incoming administration, and what looks like a sea change in monopolization enforcement at the agencies, we thought it an appropriate time to take a retrospective look at the Section 2 Report process and outcomes relative to the stated goals above, the substantive content of the Report itself, and the important questions moving forward.
To provide informative commentary on these issues, we’ve invited some of the most prominent and insightful commentators on Section 2 (including many who were involved in the Section 2 hearings themselves) to comment on various aspects of the Section 2 Report. Today, posts will focus on various perspectives on the Report, process, and outcomes. Tuesday we will turn to the the Report’s analysis of the the appropriate general standard of exclusionary conduct under Section 2. On Wednesday, our panelists will tackle some of the specific issues in the Report, including tying, predatory pricing, remedies, exclusive dealing, etc.
We would like to thank all of our participants and commenters for an outstanding symposium. This was a truly impressive collection of commentaries on Section 2 and the Section 2 Report, and it should stand for some time as a useful, interesting and provocative collective statement on the issues. For easy reference, you can access the complete collection of posts here or by clicking on the “section 2 symposium” category on the left side of this page.
We would also like to announce that the symposium will appear in collected form in Global Competition Policy, so be on the lookout for another opportunity to engage with these commentaries there.
Once again, thanks to everyone who participated!
In This Symposium
Section 2 Symposium: Tad Lipsky on Framing the Debate
When the Justice Department issued its Unilateral Conduct Report last September, it became an instant sensation not primarily because of its content, but because of a strident public critique issued by three FTC Commissioners, including now-Chairman Leibowitz. The three (Harbour, Leibowitz and Rosch, hereinafter “HLR”) accused the Antitrust Division of placing “a thumb on the ... Section 2 Symposium: Tad Lipsky on Framing the Debate
Section 2 Symposium: Michael Salinger on Framing the Debate
Given the embarrassing outcome of the FTC/DOJ single-firm conduct hearings, it is worth revisiting what the organizers of the hearings were attempting to accomplish. The Federal Register notice announcing the hearings provides some key insights. It read, in part: The Agencies expect to focus on legal doctrines and jurisprudence, economic research, and business and consumer ... Section 2 Symposium: Michael Salinger on Framing the Debate
Section 2 Symposium: Dan Crane on Framing the Debate
I must confess that my basic reaction to the Section 2 report was disappointment. It’s not that I find much fault with the report itself–a few quibbles yes, but generally I find it quite satisfactory–but that after all of the time and effort put into the joint hearings by the FTC, the FTC wasn’t able ... Section 2 Symposium: Dan Crane on Framing the Debate
Section 2 Symposium: Alden Abbott on the View from Within the FTC
Much ink has been spilled concerning the policy split revealed by the Justice Department’s September 2008 Report on Single Firm Conduct (“SFC”) and the Federal Trade Commission’s swift and rather critical rejoinder (issued by three of the four FTC Commissioners). (By “SFC” I refer to actions taken by a “dominant” firm or by an actual ... Section 2 Symposium: Alden Abbott on the View from Within the FTC
Section 2 Symposium: David Evans–An Economist’s View
The treatment of unilateral conduct remains an intellectual and policy mess as we finish out the first decade of the 21st century. There were signs of hope a few years ago. The European Commission embarked on an effort to adopt an effects-based approach to unilateral conduct and to move away from the analytically-empty, object-based approach ... Section 2 Symposium: David Evans–An Economist’s View
Section 2 Symposium: Keith Hylton–An Economist’s View
The “error cost” or “decision theory” approach to Section 2 legal standards emphasizes the probabilities and costs of errors in monopolization decisions. Two types of error, and two associated types of cost are examined. One type of error is that of a false acquittal, or false negative. The other type of error is that of ... Section 2 Symposium: Keith Hylton–An Economist’s View
Section 2 Symposium: Howard Marvel–An Economist’s View
In the wake of Bork and Posner, and Baxter and the Reagan Revolution, a consensus emerged that big could be bad, but the harm that dominant firms could do needed to be demonstrated, not simply assumed in consequence of their sheer size. Moreover, the demonstration required harm to competition. The consensus held through the Clinton ... Section 2 Symposium: Howard Marvel–An Economist’s View
Section 2 Symposium: Thom Lambert on Defining and Identifying Exclusionary Conduct
There’s a fundamental problem with Section 2 of the Sherman Act: nobody really knows what it means. More specifically, we don’t have a very precise definition for “exclusionary conduct,” the second element of a Section 2 claim. The classic definition from the Supreme Court’s Grinnell decision — “the willful acquisition or maintenance of [monopoly] power ... Section 2 Symposium: Thom Lambert on Defining and Identifying Exclusionary Conduct
Section 2 Symposium: Bill Kolasky on a Stepwise Rule of Reason for Exclusionary Conduct
The most controversial part of the Justice Department’s Single Firm Conduct Report is the Department’s proposed use of what it terms a “substantial disproportionality” test for exclusionary conduct. Under this test, the Justice Department would bring a case only if the harm to consumers and competition caused by a dominant or near-dominant firm’s conduct is ... Section 2 Symposium: Bill Kolasky on a Stepwise Rule of Reason for Exclusionary Conduct
Section 2 Symposium: Michael Salinger on Error Costs and the Case for Conduct-Specific Standards
The source of much of the disagreement between the Antitrust Division and the FTC is based on chapter 3, which discusses general standards for Section 2 liability. A major portion of chapter 3 concerns whether there is a unifying principle underlying appropriate doctrine for all behavior challenged under Section 2. A substantial portion of the ... Section 2 Symposium: Michael Salinger on Error Costs and the Case for Conduct-Specific Standards
Section 2 Symposium: Bill Page on Microsoft and the DOJ’s General Standards of Exclusion
The DOJ’s § 2 Report offers two recommendations under the heading of “General Standards for Exclusionary Conduct.” First, for evaluating alleged acts of exclusion, the Report endorses the burden-shifting framework of the D.C. Circuit’s 2001 Microsoft decision. Second, after canvassing various standards of anticompetitive effect, the Report settles on the “disproportionality test,” under which “conduct ... Section 2 Symposium: Bill Page on Microsoft and the DOJ’s General Standards of Exclusion
Section 2 Symposium: Bruce Kobayashi on Are Administrable Bright Line Rules Underutilized in Section 2 Analyses?
One of the most important changes in the antitrust laws over the past 40 years has been the diminished reliance of rules of per se illegality in favor of a rule of reason analysis. With the Court’s recent rulings in Leegin (eliminating per se rule for minimum RPM) and Independent Ink (eliminating the per se ... Section 2 Symposium: Bruce Kobayashi on Are Administrable Bright Line Rules Underutilized in Section 2 Analyses?
Section 2 Symposium: Bruce Kobayashi on Predatory Pricing and the Relevant Measure of Cost
Dimming the Court’s Brooke Group Bright Line Administrable Rule? As noted in my earlier post, the Supreme Court’s Brooke Group rule is held out as the primary example of an administrable bright line rule aimed at controlling the costs of type I error. In practice, the Brooke Group above cost rule is not as bright ... Section 2 Symposium: Bruce Kobayashi on Predatory Pricing and the Relevant Measure of Cost
Section 2 Symposium: Herbert Hovenkamp on Predatory Pricing and Bundled Discounts
The baseline for testing predatory pricing in the Section 2 Report is average avoidable cost (AAC), together with recoupment as a structural test (Report, p. 65). The AAC test or reasonably close variations, such as average variable cost or short-run marginal cost, seems about right. However, differences among them can become very technical and fine. ... Section 2 Symposium: Herbert Hovenkamp on Predatory Pricing and Bundled Discounts
Section 2 Symposium: Thom Lambert on The DOJ-FTC Divide on Bundled Discounts
A bundled discount occurs when a seller offers to sell a collection of different goods for a lower price than the aggregate price for which it would sell the constituent products individually. Such discounts pose different competitive risks than single-product discounts because, as I explained in this post, they may have an exclusionary effect even ... Section 2 Symposium: Thom Lambert on The DOJ-FTC Divide on Bundled Discounts
Section 2 Symposium: Dan Crane on Buyer-Instigated Bundled Discounts
Bundled discounts have been one of the hottest monopolization topics of the last decade. Much of the trouble began with the Third Circuit’s en banc decision in LePage’s v. 3M, which reversed an earlier 2-1 panel decision which in turn had overturned a plaintiff’s jury verdict largely based on 3M’s bundled discounts. After the Solicitor ... Section 2 Symposium: Dan Crane on Buyer-Instigated Bundled Discounts
Section 2 Symposium: Howard Marvel on Safe Harbors for Short Term Exclusive Dealing Contracts
Exclusive dealing prevents the bait-and-switch behavior by dealers who convert customers drawn by one brand to the products of its rivals. Despite the red flag of “exclusive” in its title, the practice is ordinarily uncontroversial, indeed innocuous. Automobile manufacturers often pay incentives to encourage dealers to deal exclusively in their vehicles. Business format franchising ensures ... Section 2 Symposium: Howard Marvel on Safe Harbors for Short Term Exclusive Dealing Contracts
Section 2 Symposium: Tim Brennan on Predation, Exclusion, and Complement Market Monopolization
As evidenced by this on-line symposium, the handling of cases under the rubrics “monopolization,” “single firm conduct”, or “abuse of dominance” continues to be debated by the competition policy community. This debate, as evidenced by the Antitrust Division’s Sept. 2008 single firm conduct report and the FTC responses, is not restricted within the U.S. The ... Section 2 Symposium: Tim Brennan on Predation, Exclusion, and Complement Market Monopolization
Section 2 Symposium: Josh Wright on An Evidence Based Approach to Exclusive Dealing and Loyalty Discounts
The primary anticompetitive concern with exclusive dealing contracts is that a monopolist might be able to utilize exclusivity to fortify its market position, raise rivals’ costs of distribution, and ultimately harm consumers. The unifying economic logic of these anticompetitive models of exclusivity is that the potential entrant (or current rival) must attract a sufficient mass ... Section 2 Symposium: Josh Wright on An Evidence Based Approach to Exclusive Dealing and Loyalty Discounts
Section 2 Symposium: Bill Kolasky on Proving Market Power
The market power section of the Department’s Single Firm Conduct report is one of the strongest sections of the report. It provides an exceptionally clear discussion of the market power element under Section 2. It recognizes, in particular, that a violation of Section 2 requires more than mere market power, but rather a finding of ... Section 2 Symposium: Bill Kolasky on Proving Market Power
Section 2 Symposium: Herbert Hovenkamp on Patents and Exclusionary Practices
One interesting aspect of the DOJ Report on Section 2 is the scant, episodic treatment of IP issues. The Report rejects the presumption of market power for patent ties (p. 81); has a very brief discussion of refusal to license patented parts in which it properly rejects the reasoning of the Ninth Circuit’s Kodak decision ... Section 2 Symposium: Herbert Hovenkamp on Patents and Exclusionary Practices
Section 2 Symposium: Tim Brennan on the Relationship Between Regulation and Antitrust
When I first started working in antitrust at the Justice Department over thirty years ago—there’s a hard reality to accept—the Antitrust Division was then embroiled in an effort to reform the regulation of oil pipelines. The argument on this now obscure issue was that effective prevention of the exercise of market power by natural monopoly ... Section 2 Symposium: Tim Brennan on the Relationship Between Regulation and Antitrust
Section 2 Symposium: Bill Page on Microsoft’s ‘Forward-Looking’ Monopolization Remedy
The DOJ’s Section 2 Report speaks in general terms about the costs and benefits of various remedies for monopolization. It prefers “prohibitory” remedies, but holds open the possibility of “additional relief,” including “affirmative-obligation remedies. The Report specifically mentions the protocol-licensing requirement of the Microsoft final judgments (§ III.E, entered in November 2002) as an example ... Section 2 Symposium: Bill Page on Microsoft’s ‘Forward-Looking’ Monopolization Remedy
Section 2 Symposium: Alden Abbott on the International Perspective
As I indicated in my prior blog entry, U.S. competition policy vis-à-vis single firm conduct (“SFC”) is best viewed not in isolation, but, rather, in the context of other jurisdictions’ SFC enforcement philosophies, and efforts to promote greater SFC policy convergence worldwide. Given the proliferation of competition law regimes, firms that do business in multiple ... Section 2 Symposium: Alden Abbott on the International Perspective
Section 2 Symposium: David Evans on ‘Tying as Antitrust’s Greatest Intellectual Embarrassment’
I’d like to propose a contest for the greatest intellectual embarrassment of antitrust. Let me name the first contestant—tying, which some of you know has been one of my favorite for years. Here’s why. First, there is no persuasive theoretical or empirical evidence that tying is a business practice that is likely to harm consumers. ... Section 2 Symposium: David Evans on ‘Tying as Antitrust’s Greatest Intellectual Embarrassment’
Section 2 Symposium: Wrap Up
We would like to thank all of our participants and commenters for an outstanding symposium. This was a truly impressive collection of commentaries on Section 2 and the Section 2 Report, and it should stand for some time as a useful, interesting and provocative collective statement on the issues. For easy reference, you can access the ... Section 2 Symposium: Wrap Up
Coda: Varney withdraws Section 2 Report
I guess it comes as little surprise that Christine Varney has withdrawn the Section 2 Report. The comments made in the statement withdrawing the Report indicate . . . well, that Varney isn’t convinced by reading this blog, among other things. Coming on the heels of our Section 2 Symposium, the news is jarring, although ... Coda: Varney withdraws Section 2 Report