Latest news

April 2013

Market Definition in Two-sided Markets
Is free-to-air TV competing with Pay-TV? Does MasterCard compete with American Express? Do antitrust authorities correctly address these questions in their decisions? In a recent Discussion Paper, TILEC members Lapo Filistrucchi, Damien Geradin and Eric van Damme try to address these issues. Drawing from the economics of two-sided markets, they provide suggestions for the definition of the relevant market in cases involving two-sided platforms, such as media outlets, online intermediaries, payment cards companies and auction houses. They also discuss when a one-sided approach may be harmless and when instead it can potentially lead to a wrong decision. They then observe that the current practice of market definition in two-sided markets is only in part consistent with the above suggestions. In their opinion, divergence between their suggestions and practice is due to the failure to fully incorporate the lessons from the economic theory of two-sided markets, to the desire to be consistent with previous practice and to the higher data requirements and the higher complexity of empirical analysis in cases involving two-sided platforms. In particular, competition authorities have failed to recognize the crucial difference between two-sided transaction and non-transaction markets and have been misled by the traditional argument that where there is no price, there is no market.

Optimal Health Insurance Coverage
Does the Market Choose Optimal Health Insurance Coverage? In a recent Discussion Paper, TILEC member Jan Boone addresses this question. He starts from the observation that consumers, when buying health insurance, do not know the exact value of each treatment that they buy coverage for. This leads them to overvalue some treatments and undervalue others. The author shows that the insurance market cannot correct these mistakes. This causes research labs to overinvest in treatments that hardly add value compared to current best practice. The government can stimulate R&D in breakthrough treatments by excluding treatments with low value added from health insurance coverage. If the country is rich enough such a government intervention in a private health insurance market raises welfare.

Competition Law and Personal Data
With the advent of the Internet, and the development of new business models, a fast growing number of companies increasingly hold large amounts of personal data about their employees and their customers. Although the volume, but also the quality of the personal data acquired are key competitive differentiators in the Internet economy, the acquisition of large volumes of data by “first mover” providers may, however, raise barriers to entry and thus deprive users from the benefits of competition. Against this background, TILEC Member Damien Geradin together with Co-author Monica Kuschewsky discuss in a recent Discussion Paper the limits placed by EU competition law on the acquisition and processing of personal data. While there is a plethora of literature on the data privacy challenges created by the Internet and these new business models, this paper explores the interface between personal data and competition law. It analyses the extent to which certain practices aiming at collecting data or at depriving access to such data to competitors can be anticompetitive and constitute a breach of EU competition rules, and also whether EU competition law could be used to force dominant companies to share their data with competitors so as to stimulate competition on one or several markets.

Workshop on Competition and Regulation of Media and Telecommunications
As part of the series of events for its 10th Anniversary, TILEC will host its 3rd Workshop on “Competition Policy and Regulation in Media and Telecommunications: Bridging Law and Economics” on 23 and 24 May 2013 in Tilburg. The goal of the workshop is to bring together EU and US academics working on media and communication-related issues and to foster interdisciplinary interaction between economists and lawyers. The workshop will feature sessions on such topics as “Media regulation”, “Internet regulation”, “Offline and online media bias”, “Media pluralism”, “Online search” and “Social media, online news and news aggregators”. Among keynote speakers Joel Waldfogel (University of Minnesota) will talk about whether quality of music has declined following the appearance of Internet and the loss in revenues of music majors, Shane Greenstein will discuss whether Wikipedia is biased, Christopher Yoo (University of Pennsylvania) will discuss whether the link between modularity theory and Internet Policy and Lorna Woods (City University, London) will present the implications of the Article 10 ECHR case law on positive obligations regarding a pluralist media for universal service and access to the Internet. The program and more details about the conference are available on the workshop website. If you wish to participate, please register before 8 May.

Workshop on Economic Governance and Organizations
Celebrating the 10th anniversary of TILEC, TILEC is organizing on 6-7 June 2013 an international workshop on Economic Governance and Organizations. The workshop will assemble scholars studying the structure and commonalities of organizations that mitigate economic governance problems. The set-up is highly interdisciplinary and offers a mix of theoretical, conceptual, empirical, and experimental work coming from law, economics, management, and political science. The speakers, including Luis Garicano (LSE), Henry Smith (Harvard University), Henry Hansmann (Yale University) and Guido Tabellini (Bocconi University), will address important questions ranging from the emergence of the corporate form and cooperatives to the role of property rights and relational knowledge transfer. The program and more details about the conference are available on the workshop website. If you wish to participate, please register before 17 May.

March 2013

The Evolution of the Uncorporation
Uncorporations, which are business forms that combine the best of partnership and corporate law, are attracting increasing attention. In a recent Discussion Paper, TILEC members Joe McCahery and Erik Vermeulen, together with co-author Priyanka Priydershini, examine the evolution of uncorporations in the US and around the world and explain the benefits deriving from the design of uncorporate business forms. The authors explain first the rise of uncorporate business forms, arguing that the growth in non-listed business forms has been shaped by a mixture of learning and professional advice arising from the company law review process, as well as the indirect influence of overseas business forms. Turning to the governance and features of uncorporations, it is argued that uncorporations offer a set of new and more efficient structures which improve the governance of closely held companies, give investors and stakeholders more legal certainty, thereby creating new opportunities for both entrepreneurs and investors. Finally, after comparing the main differences between the partnership-type and corporate-type corporations, the authors conclude that an international Model Act would be consistent with lower transaction and information costs and could help to encourage cooperation between firms situated in different jurisdiction.

Antitrust and Congestion Management in Energy Markets
Can competition policy law be used to achieve wider policy objectives than protecting competition? In a recent Discussion Paper, TILEC member Bert Willems addresses this question in the context of the Swedish reform of November 2011 which abolished the uniform national electricity price and introduced separate price zones. This was the result of an antitrust settlement between the Commission and the Swedish network operator, which was accused of discriminating between domestic and export electricity transmission services and segmenting the internal market. The author shows how the Commission uses competition law enforcement to foster market integration in the energy sector. He finds that, even though the Commission’s action under competition rules was contrived and lacked economic depth, the commitment package provides an economically sound, long-term solution to network access and congestion management in Sweden. Such a quick and far-reaching change of Swedish congestion management could not have been achieved by Swedish policymakers or enforcement of the EU sector-specific regulation.

Equity in Access to Health Care
Increasing health care costs put pressure on health systems, requiring cost containment measures, usually involving several forms of rationing. In the last decade, patients challenge these decisions concerning resource allocation in health care and the limitations of coverage, and they increasingly rely on rights-based litigation. As courts are willing to engage in rights-based review of health care, rights-based litigation can have an impact on equality and equity in health and health care. Within this framework TILEC member Eva Foldes examines in a recent Discussion Paper, the role of the rights-based review in addressing inequities in access to health care at the public-private intersection. Focusing on the case of Hungary, the paper presents first an overview of the Hungarian health care system. It then analyzes the scope and content of the right to health by discussing the constitutional protection of health rights and the right to health care guaranteed within the public health system. Further to that, the paper reviews the main mechanisms of rights enforcement in health care and concludes with a discussion of the role of health rights enforcement in promoting equity in access to health care.

Relaxing Competition through Speculation
The trade in commodity derivatives is widespread and trading volumes often surpass that of the underlying commodities. Ideally derivatives markets improve market efficiency as they allow firms to manage risk and facilitate price discovery by aggregating information across market participants. However, in a recent Discussion Paper, TILEC member Bert Willems shows that allowing for derivatives trade increases spot market volatility and harms competition, when dominant producers trade futures and options contracts and make price-contingent supply offers in the spot market. Using game theory, he shows that each producer will sell a forward contract and buy a portfolio of call options with a range of strike prices. With this strategy, the net-amount of the producer’s contractual obligations decrease in response to raising spot prices. Although this strategy is risky, it is profitable, as it commits the producer to produce more when prices are low and less when prices are high. This induces its competitors to raise their prices. The anti-competitive effect of strategic derivative trade diminishes with more demand uncertainty. Hence, option contracts should be traded well-ahead of delivery. Increased demand variation has a similar effect, which can be achieved by requiring that option contracts or offers to the spot market must be valid for several subsequent delivery periods instead of just one period.

Revision of Medical Devices Regulation; The Legal Challenges
On 29 January 2013 TILEC held a symposium called 'Revision of Medical Devices Regulation; The Legal Challenges'. The one-day conference was organized in co-operation with Lexxion Publishers, Eucomed and AXON Science Based Lawyers. The event focused on the European Commission’s proposals for the long-awaited revision of the European regulatory framework on medical devices. Published on 26 September 2012, the proposals are expected to result in a major overhaul of the present European legal framework and produce at the same time new legal challenges for supervisory authorities. Topics discussed at the conference included key elements of the new Regulations and the impact of the proposed changes, interface between current and future EU medical devices law and the proposed General Data Protection Regulation, new regulatory tasks for national inspectorates and/or supervisory bodies, role of post market surveillance in enhancing safety of medical devices and lessons from the UK and the Netherlands on procurement and Health Technology Assessment. The conference brought together participants from supervisory bodies, academia, legal practice, health professionals and the industry. The conference proceedings will be published in a special edition of the European Journal of Risk Regulation (EJRR) dedicated to medical devices.

January 2013

The benefit of regulation strengthening victim precaution
Should the state intervene with regulation that forces victims to take precautions? TILEC member Ben Vollaard addresses this question in a recent Discussion Paper and provides evidence for a beneficial welfare impact of a crime policy that is targeted at strengthening victim precaution. Regulation made application of the electronic engine immobilizer, a simple and low-cost anti-theft device, mandatory for all new cars sold within the European Union as of 1998. The author exploits the regulation as source of exogenous variation in use of the device by year of manufacture of cars. Based on detailed data at the level of car models, he finds that uniform application of the security device reduced the probability of car theft by an estimated 50 percent on average in the Netherlands during 1995-2008, accounting for both the protective effect on cars with the device and the displacement effect on cars without the device. The costs per prevented theft equal approximately 1,500 Euro, a fraction of the social benefits of a prevented car theft.

An effects-based analysis of vertical restraints under EU and Brazilian competion law
For several decades, vertical restraints have been a subject of debate among lawyers and economists, and views as to how such restraints should be assessed have fluctuated. In recent years, however, a consensus has emerged that vertical restraints should be assessed pursuant to an effects-based analysis balancing their pro- and anti-competitive effects. In a recent DiscussionPaper TILEC member Damien Geradin and co-author Caio Mario da Silva Pereira Neto (São Paulo) review the practice of EU and Brazilian competition authorities and courts, discussing which legal tests allow this balancing of pro- and anti-competitive effects take place in a coherent and rigorous manner. It is argued that although the European Commission has recently opted for an effects-based approach to vertical restraints, EU courts are still reluctant to follow such a methodology preferring instead to continue to apply formalistic rules. The situation is different in Brazil where, although there has been a consensus that vertical restraints had to be analysed under an effects-based approach, the analysis has been based on balancing tests relying on qualitative criteria and intuitive reasoning, thus leading to inconsistency and uncertainty. In that respect, it is argued that the Brazilian system would greatly benefit from the adoption of guidelines, which, like the European Commission Guidance Paper, would offer a clear legal and economic methodology to implement an effects-based approach to vertical restraints.