Economics in Competition Law and Practice, The Role of (LAWS0309)

The objective of this course, organised by the Centre for Law, Economics and Society at UCL, is to introduce the economic theories that underlie competition law.

It will also introduce the methods that are used to assess whether business practices are nefarious, benign, or healthy as well as to examine the methods and procedures devised by regulatory authorities and courts in order to evaluate and use this economic evidence.

The course will have a strong practical component as it will examine through case studies the interaction of lawyers and economists in the implementation of competition law.

The teaching method is by two-hour seminars, conducted as part lecture and part discussion. Students will therefore be required to read material in advance and come to seminars prepared to participate in class discussion.

The course consists of three parts:
1.    The first part involves an introduction to microeconomics, game theory and industrial organization theory. It provides a basic introduction to the economics of markets including how firms maximise profits, the theory of demand, the role of costs, perfect competition, monopoly and oligopoly.

2.    The second part involves the application of economics to competition policy. It includes the analysis of market power, market definition, cartels and other coordinated behaviour, unilateral conduct including predatory and exclusionary practices, horizontal and vertical mergers. This is done by looking to specific cases and proceeding to in depth case studies of the way economic evidence was presented to the courts or competition authorities and the way the latter assessed it.

3.    The final part will engage with the epistemological and methodological challenges of integrating economic (and statistical) evidence in competition law, but also all other areas of law. We will reflect on the procedures and internal organization developed by competition authorities and courts in order to make increasing use of economic evidence in the resolution of disputes. We will also reflect on best practices on the engagement of experts and expert evidence in legal adjudication, focusing particularly on economics (including econometrics) and statistics.
The course is designed to provide students with a deep understanding of how economics is applied to competition policy as well as practical tools for applying this to cases.

Module Syllabus

Introduction to the Economics of Competition Policy
Dimensions of competition—price, quality, innovation; types of competition – static vs. dynamic; economic objectives of competition law; demand and supply; the role of economics in competition policy; the use of the error-cost framework to derive competition uses.

Firms and Profit Maximisation
Demand, costs, profit maximisation; monopoly and the measurement of market power; the Lerner (price-cost margin) index and its application to the analysis of market power; static versus dynamic analysis and implications for identifying anticompetitive practices.

Demand, Supply and Welfare
Supply, demand and the notion of equilibrium; the use of the demand and supply framework to predict changes in prices and output (comparative statics); consumer surplus and social welfare.

Oligopoly and Game Theory
Role of oligopolies in economy; introduction to game theory; static games: Cournot and Bertrand models of oligopoly; dynamic games; applications of game theory in competition policy.

Cartels and Other Coordinated Practices
The economic theory of collusion; tacit collusion and information exchanges; facilitating factors for cartels; detecting and discouraging cartels; estimation of damages and assessment of fines for cartels.

Market Definition
Background on case law and economics; demand and supply substitution; hypothetical monopolist test; critical loss analysis; factors that enhance or reduce market power; dominant firm with competitive fringe model.

Horizontal Mergers
Legal and economic framework; unilateral effects: diversion ratios, pricing pressure indices and merger simulation; coordinated effects; analysis of efficiencies and remedies.

Pricing Strategies and the Competitive Process
Competition, innovation and welfare; excessive pricing, price discrimination; limit pricing; predatory pricing.

Exclusive Dealing and Loyalty Rebates
Exclusive dealing and loyalty rebates as part of the competitive process; anticompetitive exclusive dealing; efficiency justifications.

Tying and Refusal to Supply
Procompetitive tying, bundling and bundled discounts; anticompetitive tying, bundling and bundled discounts; refusal to supply and intellectual property.

Non-horizontal Mergers
Foreclosure incentives and single-monopoly profit theorem; ability to foreclose; vertical integration, complementary products and mergers.

Economic Evidence and Adjudication
Expert evidence (including expert evidence techniques, e.g. hot-tubbing), case management procedures, internal organization of competition authorities, best practices for the submission and assessment of economic evidence.

Recommended Materials

•    Niels, G., Jenkins, H., and Kavanagh, J. (2016). Economics for Competition Lawyers. 2nd ed. (Oxford University Press)

Module reading lists and other module materials will be provided via online module pages, available at the beginning of term once students have enrolled.

Preliminery Reading

•    Lianos, I. (2009). ‘Judging’ Economists: Economics Expertise in Competition Law Litigation – A European View. In: Lianos, I. and Kokkoris, I. ed. New Challenges in EC Competition Law Enforcement. (Kluwer). Also available at SSRN: http://ssrn.com/abstract=1468502 or http://dx.doi.org/10.2139/ssrn.1468502

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