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Staff Working Papers on Section 2 Posted on Federal Trade Commission Web Site

– Staff associated with the recent Federal Trade Commission/Department of Justice Hearings on Section 2 of the Sherman Act: Single-Firm Conduct as Related to Competition, have prepared a series of working papers, covering several of the topics addressed by the hearings. The working papers have been posted on the Commission’s Section 2 Web site, www.ftc.gov/os/sectiontwohearings/index.shtm.

One working paper, by William F. Adkinson, Jr., Karen L. Grimm, and Christopher N. Bryan, Enforcement of Section 2 of the Sherman Act, Theory and Practice, includes a survey of all electronically published Section 2 cases during a seven-and-a-half-year period. In addition, it presents a discussion of the benefits and costs of pursuing clear rules and an analysis of the false positives/false negatives debate.

The second, entitled General Standards for Exclusionary Conduct, by Karen L. Grimm, evaluates various frameworks that have been proposed for analyzing single-firm conduct: the Microsoft rule-of-reason approach and its “disproportionality” variant; the no-economic-sense and profit-sacrifice tests; the equally-efficient-competitor test; and the impairing-rivals’-efficiency-test. The paper discusses the strengths and weaknesses of each approach.

A third paper, Monopoly Power: Use, Proof, and Relationship to Anticompetitive Effects in Section 2 Cases, by Thomas J. Klotz, examines the meaning of monopoly power and the challenges posed in defining markets in Section 2 contexts. It pays particular attention to the “Cellophane Fallacy” – the possibility that markets may be defined too broadly if substitutes are identified after market power has been exercised – and addresses the role of inferences based on competitive effects.

Finally, a paper by Patricia Schultheiss and William E. Cohen, Cheap Exclusion: Role and Limits, looks at the legal and policy issues raised by using Section 2 to challenge deceptive conduct and other similar practices collectively known as “cheap exclusion.” The paper summarizes policy considerations for and against Section 2 challenges to these practices and proposes principles for determining when application of Section 2 is most appropriate.

The working papers express the views of the authors and of the staff of the Policy Studies unit, which managed the FTC’s involvement in the joint hearings. The papers do not necessarily reflect the views of the Commission or of any individual commissioner. (The staff contact for these papers is William E. Cohen, 202-326-2110.)

FTC Publishes Notice on Proposed Rule Regarding Depository Institution Disclosure Requirements

– The Commission has approved the publication of a Federal Register notice seeking comments on proposed disclosure requirements for depository institutions that lack federal deposit insurance. The Federal Deposit Insurance Corporation Improvement Act, as amended by the Financial Services Regulatory Relief Act, requires those institutions to make disclosures to consumers about the lack of federal deposit insurance. The proposed rule would codify such requirements in the Commission’s regulations. The notice of proposed rulemaking can be found on the Commission’s Web site as a link to this press release, and will be published soon in the Federal Register.

Written comments must be received on or before April 22, 2009. Comments should refer to: “Supplemental Proposed Rule for FDICIA Disclosures, Matter R411014,” and should be sent to FTC/Office of the Secretary, Room H-159 (Annex A), 600 Pennsylvania Ave., N.W., Washington, DC 20580. The Federal Register notice contains detailed information about how to submit comments via e-mail. The Commission vote approving publication of the Federal Register notice was 4-0. (FTC File No. R411014; the staff contact is Hampton Newsome, Bureau of Consumer Protection, 202-326-2889.)

FTC Extends Public Comment Period Related to Endorsement Guides Review

– The Commission has extended the current public comment period related to proposed revisions of its Guides Concerning the Use of Endorsements and Testimonials in Advertising (Endorsement Guides) until March 2, 2009. In a Federal Register notice published on November 28, 2008, the Commission requested public comments by January 30, 2009 on proposed revisions to the Guide provisions addressing, among other things, consumer endorsements and disclosure of material connections between advertisers and endorsers. Based on several requests received, the Commission extended the current public comment period for 31 days, until March 2, 2009.

The Commission vote the extension was 4-0. Information about how comments may be submitted can be found in the November 2008 Federal Register notice at http://www.ftc.gov/os/2008/11/P034520endorsementguides.pdf. (FTC File No. P034520; the staff contact is Shira D. Modell, Bureau of Consumer Protection, 202-326-3116; see press release dated November 21, 2008, at http://www.ftc.gov/opa/2008/11/endorsements.shtm.)

Copies of the documents mentioned in this release are available from the FTC’s Web site at http://www.ftc.gov and from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. Call toll-free: 1-877-FTC-HELP.

(FYI 2.2009.wpd)