Riassunto Markets, Regulations and Law

Examples of Regulation in Monopolies

Not regulated monopolist: in pricing output of a given quality, its route to profit maximization is clear, raise prices up to where any further increase will reduce demand so much as to lower profits. When quality is a choice variable, it will either under-supply or over-supply quality; the monopolist chooses the quality level with an eye to the preference of the consumer that at the price charged, is on the margin of buying or not the product.

Rate of return regulation: consumers are likely to benefit chiefly because price of output of a given quality is controlled; in addition, the quality of output may rise if rate of return encourages capital intensity.

Price-Cap regulation in action: the regulated firm with a given price cap will be able to make extra profits by degrading the quality of the service, this is a means of evading the price cap. Where the quality of service can be differentiated across customers, the solution is to offer them a choice of tiered levels of service, and to

pay compensation for failure to deliver these as due to individual customers. Where the quality attribute is public, the solution is to incorporate quality measurements into the price-cap formula.

ANTITRUST ANALYSIS OF TWO-SIDED MARKET

Multi-side markets are platforms that bring together two or more groups of consumers, which need each other, but cannot capture the value from their mutual attraction on their own. They rely on the platform to facilitate the value-creating interactions between them. In platforms' business models, the value is created by the users, not by the supplier of the service. EU Commission suggests online platforms facilitate interactions; have big data aggregation capacities; can shape new markets and disrupt traditional ones; they rely on information technology as the means to achieve all of the above.

Two indirect externalities: usage externalities, membership externalities asymmetrical prices may be charged to the users. Platforms match users with different needs.

compare to offline village markets,search costs are reduced. Digital technologies, instead, exhibit increasing returns to scale as the number of consumer increases. The appreciation of standard regulatory principles to multi-sided markets is likely to lead to perverse results. Factors that may promote competition are capacity constraints, heterogenous presences among users, multi-homing possibilities. Online multi-sided platforms pose a challenge for competition policy analysis, the regulator should consider that:

1. The demands by the different groups of participants served by multi-sided platforms are interdependent, since that if a group of participants decreases, then the other groups will have less participants to interact with. So, the regulatory policy shouldn't consider only one group of participants, but the overall platform;
2. The platform is sometimes free to one group of participants and earn profits from the other groups of participants they charge;
3. Platforms introduce

constant incremental innovations and are subject to disruptive innovation. Regulation needs to consider the fact that dynamic competition may see the rise of new products and services very different from the current ones.

Traditional antitrust analysis assesses market power by checking if a firm can increase prices profitability. This does not apply to online attention business; these platforms do not compete on price, but on quality of the content and services provided. So, regulators need to assess the extent to which a lower provision of quality would divert attention to other online platforms. Intermediaries in the attention markets are called attention brokers, they make two key price setting decisions: set the price for the "honey" and their advertising rates. The broker needs to maximize its profits from advertising, but without degrading to much the product.

COMPETITION AND REGULATION: US APPROACH AFTER TRINKO

Competition is the best regulator: firms have the strongest

incentives to give customers what they want in terms of price and quality of service when they are in competition; firms also have a strong incentive to gain a temporary advantage over their rivals through innovation and development of new services; competition encourages firms to price whatever services they produce more efficiently.

However, the role of antitrust in policing regulated industries appears to be changing, since a cluster of US Supreme Court decisions have altered the relationship between antitrust and regulation, placing antitrust law in a subordinate relationship that requires it to defer not just to regulatory decisions but perhaps even to the silence of regulatory agencies in their areas of expertise.

Curtis Trinko was an AT&T customer but received service on-line owned by Verizon, which AT&T was permitted to use for a fee under the anti-monopoly Telecommunications Act. Trinko claimed that Verizon discriminated against AT&T customers by providing them worse

service than it provided to its own customers. He claimed that this violated both the Telecommunications Act and the Sherman Anti-Trust Act, which prohibits monopolies from aggressively defending their monopoly position in the market. A federal district court ruled that Trinko had no grounds to sue because he was not a direct customer of Verizon. A 2nd Circuit Court of Appeals, however, reinstated the charges leveled under the Sherman Act.

Question: When a company fails to meet its duty to share its network with competitors under the Telecommunications Act, can it be sued under the Sherman Act?

Conclusion: No. In a unanimous opinion delivered, the Court held that the complaint alleging breach of Verizon's Telecommunication Act duties to share its network with competitors did not state a claim under the Sherman Act. The Court reasoned that the act did not alter antitrust law or add new claims and that Verizon did not violate preexisting antitrust standards. The justices declined to add a

newclaim by making an exception to the rule that businesses need not aid competitors.

TO SUM UP: According to US Supreme Court in Trinko, the hope of gaining a competitive advantage stimulates innovation. The opportunity to charge monopoly prices, at least for a short period, is what attracts business acumen in the first place; it induces risk taking that produces innovation and economic growth. To safeguard the incentive to innovate, the possession of monopoly power will not be found unlawful unless it is accompanied by an element of anticompetitive conduct. In other words, not only monopoly is no evil; it is, rather, prize waiting for a winner. In the post-Trinko era, cases raising refusal to deal claims have only survived where there has been a change in behavior by the dominant firm in an unregulated market (like in the Aspen Skiing case).

Critics: Absolute antitrust deference to regulatory agencies makes little sense as a matter either of economics or experience. Economic theory teaches

that antitrust courts are better equipped than regulators to assure efficient outcomes in many circumstances. And as history has shown, relying on regulatory oversight alone without the backdrop of antitrust law would leave both temporal and substantive gaps in enforcement, which competitors could exploit to the detriment of consumers. The actual regulatory structure that exists to promote competition can create gaming opportunities for competitors bent on achieving anticompetitive goals.

In Aspen Skiing, what the defendant refused to provide to its competitor was a product that it already sold at retail; in the present case, by contrast, the services allegedly withheld are not otherwise marketed or available to the public. The sharing obligation imposed by the 1996 Act created something brand new. The possession of monopoly power, and the charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system. The opportunity to charge monopoly prices is what

Attracts business sharpness, it induces risk taking that produces innovation and economic growth. To safeguard the incentive to innovate, the possession of monopoly power will not be found unlawful unless it is accompanied by an element of anticompetitive conduct.

MARGIN SQUEEZE

Price squeezing constitutes one of the most acute differences between EU and US competition law.

EU APPROACH: Price squeeze abuses is analogized to the refusal to deal. Instead of refusing to supply, a dominant undertaking may charge a price for the product on the upstream market which, compared to the price it charges on the downstream market, does not allow even an equally efficient competitor to trade profitably in the downstream market on a lasting basis.

In margin squeeze cases the benchmark which the Commission will generally try to determine the costs of an equally efficient competitor, that is to say the long-run average incremental cost of the downstream division of the integrated dominant undertaking. The abuse

Occurs when the difference between the retail prices charged by a dominant undertaking and the wholesale prices it charges its competitors for comparable services, is negative or insufficient to cover the product-specific costs to the dominant operator of providing its own retail services in the downstream market.

By adopting the test of the "as efficient competitor", the Commission considers that the incumbent itself would have been unable to offer its own retail services without incurring a loss if it had to pay the requisite wholesale access price to its competitors: if wholesale prices are higher than retail charges, competitors are prevented from offering retail access services at a competitive price unless they can find additional efficiency gains elsewhere.

To sum up, margin squeeze as a stand-alone abuse requirement are:

• Presence of a vertically integrated firm
• Unfairness of the spread between the two vertically related prices
• The levels of the wholesale and retail prices

are irrelevant. If margin squeeze is a form of refusal to supply, the conditions to satisfy are those established in Bronner, i.e.: the refusal relates to a product or service that is objectively necessary to be able to compete effectively on a downstream market; and, the refusal is likely to lead to the elimination of effective competition on the downstream market, and to cause consumer harm. In certain cases, it may be clear that imposing an obligation to supply is not capable of having negative effects on the input owner's and/or other operators' incentives to invest and innovate upstream. This is likely to occur in two cases: where regulation compatible with EU law already imposes an obligation to supply on the dominant undertaking and it is clear that the necessary balancing of incentives has already been made by the public authority when imposing such an obligation to supply; where the upstream market position of the dominant firm has been developed under the protection of

ral conduct: (1) when the conduct is exclusionary and (2) when the conduct is predatory. Exclusionary conduct refers to actions taken by a dominant firm to exclude or limit competition in a particular market. This can include practices such as exclusive dealing agreements, tying arrangements, or refusal to deal with competitors. Predatory conduct, on the other hand, involves actions taken by a dominant firm to drive competitors out of the market through aggressive pricing or other anti-competitive tactics. In the United States, the approach to antitrust enforcement is focused on protecting consumer welfare and promoting competition. The goal is to ensure that consumers have access to a variety of choices and that competition is not unduly restricted. As such, the focus is on the effects of a firm's conduct on competition and consumers, rather than on the firm's market power alone. When evaluating exclusionary conduct, US courts consider factors such as the firm's market share, the existence of barriers to entry, and the impact on competition. If the conduct is found to have anti-competitive effects and lacks any legitimate business justification, the firm may be found liable under antitrust laws. Similarly, when evaluating predatory conduct, US courts consider factors such as the firm's pricing behavior, its intent to harm competition, and the impact on consumers. If the conduct is found to be predatory and lacks any legitimate business justification, the firm may be found liable under antitrust laws. It is important to note that the US approach to antitrust enforcement is based on a case-by-case analysis, taking into account the specific facts and circumstances of each case. This allows for flexibility in addressing different types of anti-competitive conduct and adapting to changing market conditions. Overall, the US approach to antitrust enforcement aims to promote competition, protect consumer welfare, and ensure a level playing field for all market participants. By targeting exclusionary and predatory conduct, the goal is to foster innovation, lower prices, and enhance consumer choice in the marketplace.