CRESSE SYMPOSIUM ON COMPETITION POLICY: PROCEDURES, INSTITUTIONS, INTELLECTUAL PROPERTY RIGHTS INTRODUCTION
The Competition and Regulation European Summer School and Conference (CRESSE) is an informal network of academics and professionals with an interest in competition policy and sectoral regulation. It was initiated by Yannis Katsoulacos (Athens University of Economics and Business) in 2005 and has since grown to become an important event in the competition and regulation annual conferences calendar, with the continuous support of Massimo Motta (European University Institute, Florence), Patrick Rey (University of Toulouse) and David Ulph (University of St. Andrews). The objective is to provide a forum in which the latest research in the areas of competition and regulation is presented and discussed. CRESSE Conference themes have been ‘Abuses of Dominance’ (2006), ‘Competition and Regulation in Network Industries’ (2007), ‘Competition Policy: Procedures, Institutions, IPR's’ (2008) and ‘Advances in the Analysis of Competition Policy’ (2009). Presentations in the two-day annual Conference include 3–5 invited papers and a limited number (typically 25%–30%) of papers selected from those submitted following a call in the major IO journals. The annual CRESSE Conference is held in early July in Greece, the institution responsible for its organization being the Athens University of Economics and Business. CRESSE also organizes an annual summer school in which visiting faculty from a large number of European and U.S. universities provide high quality training to practitioners of competition policy and sectoral regulation who wish to be up to date with new economic literature and recent legal developments. It is also active in disseminating research in the areas of competition policy and regulation and in contributing, through the organization of special policy sessions and round tables, to public debates on specific policy issues. The annual CRESSE Conference typically has two keynote lectures (the Jean-Jacques Laffont Lecture and the CRESSE Conference Policy Lecture), two round table (policy-related) discussions and a series of parallel and plenary sessions in which the latest research findings are presented. The third annual CRESSE Conference took place on July 4-5, 2008, and the title, Competition Policy: Procedures, Institutions, IPR's, embraced two broad but rather distinct themes: How competition policy should be applied in highly innovative industries Assessing the impact of the processes and procedures used by competition authorities on the effectiveness of competition policy. Competition Policy and IPR's was a timely theme in the light of recent debates in many fast-growing and innovation-driven industries. While the classic trade-off between ex ante incentives to invest in R&D and the ex post efficient diffusion of innovation has been extensively studied, the importance of continuing improvements and the number of technology components now involved in any major project (the so-called ‘patent thicket’ problem) has called for new forms of cooperation. This raises many competition issues regarding, for example, the dynamics of innovation efforts and the adequate balance between protecting past investment and promoting future advances, which relates to the coverage of licensing agreements and the acceptability of restrictive clauses, but also concerns the scope for coordination and price discussions in multilateral negotiations, or the design and operational organization of standard-setting organizations which include participants with quite different interests (pure innovators versus integrated industry participants, platform developers versus content providers and users, and so forth). The invited lectures, roundtables and presentations offered a good overview of recent empirical studies and conceptual advances, as well as of the challenges ahead of us. Procedures and Institutions was chosen as a theme because as competition policy has moved towards an economics/effects based approach, economists have increasingly become centrally involved in the implementation of competition policy, with leading academic industrial economists being appointed as directors and/or chief economists in competition agencies across Europe. This has led economists to reflect on and critically evaluate the practices operated by either their own agencies or others with which they came in contact. So, in addition to the long-standing contribution of economics to examining the welfare effects of various practices employed by firms, there is an emerging literature which subjects the procedures and institutions used to implement competition policy to a similarly rigorous scrutiny. We wanted to reflect this emerging literature in the 2008 Conference. Consistent with the two broad themes of the 2008 CRESSE Conference: The Jean-Jacques Laffont Lecture was presented by Professor Richard Schmalensee (MIT) on the topic ‘Standard-Setting, Competition and Innovation’1 while Professor William Kovacic (Chairman, Federal Trade Commission, U.S.A.) delivered the CRESSE Conference Policy Lecture on the theme ‘Rating the Competition Agencies: What Is Good Performance?’ In addition, there was a Special Lecture by Frederic Jenny (ESSEC Business School, Paris, and Judge at the Cour de Cassation) entitled ‘Judicial Review of Competition Authorities' Decisions in Europe.’ The two round-table discussions were on ‘Competition Policies and IPR's' and on ‘Competition Policy: Institutions and Procedures.’ This special issue offers a selection of the lectures and papers that were presented at the 2008 CRESSE Conference. Two of the papers published here address the theme of Competition and IPR's. Richard Schmalensee offers an insightful exploration of the competition issues triggered by the operations of standard-setting organizations (SSO's). He first discusses the incentives to adopt a standard and suggests that private and social interests are largely aligned when industry participants are in symmetric positions. He then distinguishes between innovation specialists and integrated industry participants, and studies the respective roles of formal ex ante competition and joint determination of licensing fees in solving royalty-stacking problems. David Encaoua and Yassine Lefoulli examine the implications for patenting and licensing activity when patent offices issue weak patents that can be the subject of litigation. They generalise some recent analysis by allowing for innovations of any size and for the possibility that not all downstream firms will choose to pay for a licence. They determine conditions under which, when the equilibrium two-part tariff for licences is in place, firms will or will not choose to litigate. In addition, they show that licensing revenue may not over-compensate the patent holder. Finally, they show that welfare can be enhanced by policies that make litigation a more attractive option thus reducing the license revenue extracted by the patent holder. The remaining papers are concerned with various aspects of the theme of Procedures and Institutions. The paper by Frank Verboven and Theon van Dijk provides a framework for computing cartel damages when the customers of the cartels are not final users but rather industrial players active in a downstream market. The price overcharge raises the customers' costs, but they will usually pass through part of this cost increase to their own customers, which will impact their output. To evaluate the relative importance of the three effects, the authors consider several variants of downstream competition and argue in favour of an adjusted passing-on defence, taking into account the change in output. They also apply their approach to the European vitamin cartel, and show finally that output changes also play a critical role in the assessment of social harm. The paper by Sylvain Bourjade, Patrick Rey and Paul Seabright studies the role of private actions in enforcing competition law in a framework where plaintiffs, who pursue their own interest, may have information of a breach of the law and may also settle out of court. The paper first shows that screening liable from non-liable defendants requires strict rules on admissible evidence. It also argues that, in order to enhance antitrust enforcement, increasing damages is better than reducing the cost of initiating suits. It also stresses the merit of introducing a system of compensation for defendants found non-liable. The paper by Yannis Katsoulacos and David Ulph examines an issue that has been much debated by both lawyers and economists – whether competition authorities should use a Per Se standard or an Effects-Based approach when deciding whether to allow or disallow actions that come before them. The authors develop a general framework that addresses this issue rigorously. They obtain a precise condition for determining when an effects based approach has lower decision error cost than a per se standard, and this is when the quality of the effects-based rule (a measure of its propensity for making Type I and Type II errors (false acquittals and false convictions respectively) is greater than the strength of the presumption of legality (or illegality), which in turn depends on the relative frequency of harmful/benign actions in the base population and the relative harm/benefit of such actions. They also examine the deterrent effects of the choice of legal standard on the decision of firms as to whether or not to take action, and show that compared to a per se rule, an effects-based standard will deter too many actions when on average they are benign but too few actions when they are on average harmful. Finally, they show that once deterrence effects are recognised, there are also welfare losses arising from certain procedural features of competition authorities' decision making practices such as delays in decision-making and low coverage rates the fact that only a fraction of cases may come to the attention of the competition authority. In a closely related paper, Lars Sørgard explores the question of what the optimal coverage rate for a competition authority to employ is when tackling mergers (though in fact the analysis applies far more widely). He considers the broad class of cases where the social harm and private profit arising from mergers are not positively correlated, and shows that if the competition authority can commit to a coverage rate before firms have made the decision to merge, then, at an interior optimum, the competition authority will be trading off two competing considerations. A higher coverage rate will have the positive deterrent effect of dissuading some marginal mergers which would necessarily have been harmful had they occurred. On the other hand, because of the inevitable decision errors, a higher coverage rate will have the negative enforcement effect of disallowing a number of actions which on average would have been beneficial. He also shows that welfare is higher when competition authorities commit in advance to the coverage rate.
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