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Antitrust Authority

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									Commissioner’s Decision in Regard to Agreement between Mifal Hapayis and Soldiers Welfare Association

Antitrust Authority
Decision on Denial of Exemption from the Requirement of Court Approval of Restrictive Arrangement between Mifal Hapayis and Soldiers Welfare Association *** 2. The Arrangement Agreement between Mifal Hapayis and the Soldiers Welfare Association [. . .] In the agreement, the Soldiers Welfare Association undertakes to cooperate and assist in advertising and encouraging the marketing of Mifal Hapayis products in various ways [. . .]. The Soldiers Welfare Association also undertakes during the term of the agreement not to conduct lotteries, wagering, or other games of chance; not to engage or cooperate, in any manner whatsoever, with parties involved in conducting lotteries other than Mifal Hapayis; and in any other activity related to lotteries or games of chance – all of which directly or via others [. . .]. In return for meeting said undertakings, the Soldiers Welfare Association is entitled to an annual payment from Mifal Hapayis during the term of the agreement. The term of the agreement is five years with the option of a five-year extension with the parties’ consent [. . .]. *** Agreement between Mifal Hapayis and Magen David Adom)(MDA) The agreement at issue in my Decision is but one link in a chain of actions that is meant to cement – or at least has the outcome of cementing –Mifal Hapayis’ monopoly position in the markets of its operations. This is the second agreement in which Mifal Hapayis seeks to “buy” the consent of another entity that conducts or is entitled to conduct lotteries not to compete with Mifal Hapayis and that conditions the continuation of said payment on maintaining the state of non-competition. Such an agreement, as we explain below, is one of the hard-core phenomena that antitrust laws seek to prevent and offer protection against. *** [. . .] The combination of both agreements that Mifal Hapayis wishes to execute points to the overall purpose or intended outcome of terminating competition in Israel’s lottery industry – of stifling this competition by constructing a tough and abusive cartel arrangement between parties that operate in the market, as opposed to a regulatory decision that is manifested in an arrangement in which all restrictive elements are lawful. *** 3. The Antitrust Authority Must Exempt the Agreement from the Requirement of Approval of Cartel A cartel is illegal unless it receives ab initio immunity or a permit from the antitrust regulation system. The General Director has limited power to issue immunity but may issue it in only for restrictive arrangements that, s/he is convinced, “restrain business competition insignificantly.” This expression refers to the restraint of business
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Commissioner’s Decision in Regard to Agreement between Mifal Hapayis and Soldiers Welfare Association

competition at large, and not the restraint of competition between two specific businesses (one that makes the arrangement a cartel): “[. . .] The restraint of reference in Section 14 of the Law is a restraint of business competition at large and not necessarily the restraint of business competition between the parties to the arrangement or between them and a person who is not a party to the arrangement, as in the wording of Section 2(a) of the Law. It follows that the business competition of reference in Section 14 of the Law shall be examined at the broad level of competition in the entire market, and not only at the level of relations between the parties to the arrangement themselves (or between them and a third party).” Insofar as the cartel passes the threshold test of insignificant anti-competitive effect, the General Director may invoke considerations that are in the public welfare (beyond the competitive considerations that s/he weighs in the threshold test) in deciding whether to accept the application for immunity: “The General Director’s power is discretionary, and said discretion does not exhaust itself in determining that the arrangement does not established only an insignificant restraint to competition. Within the framework of this discretion, the General Director is also entitled to weigh the utilities originating in the arrangement and its contribution to the public welfare.” One of the most important considerations that the General Director should weigh when deciding about whether to absolve parties to a restrictive arrangement from the requirement of Court approval is whether the restraint qualifies as one that is ancillary to the principal restraint. If the General Director finds that the restraint is “naked” (i.e., not ancillary), the probability of its receiving immunity is scanty. The restraint in the case at hand is a naked one of the worst kind: payment for an undertaking not to compete, where both the payment and the non-competition undertaking lie at the core of the transaction. Unlike an ordinary transfer of money from Mifal Hapayis to subventioned entities, the transfer of funds in this case is made in return for the disappearance of actual or potential competition. These stipulations are anticompetitive through and through. They are naked restraints of the worst kind. The distinction between naked restraints and ancillary ones differentiates between restraints that harm and that benefit the public welfare: “The most useful classification scheme for antitrust analysis segregates so-called ‘naked’ and ‘ancillary’ agreements. This all-important classification largely determines the course of subsequent legal evaluation of any restraint. Although not all naked restraints are unlawful, the presumption against them is very strong, and most are condemned either as illegal ‘per se’ or else with only a truncated inquiry into power and effects” (P. Areeda and H. Hovenkamp, Antitrust Law (Volume XI, 1998), § 1904; emphasis added). An ancillary restraint is one that is essential for the fulfillment of an arrangement that has public utility and is not meant merely to mitigate competition: “To say that a restraint is ancillary is to conclude that it is an essential or at least important part of some arrangement that has potentially

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Commissioner’s Decision in Regard to Agreement between Mifal Hapayis and Soldiers Welfare Association

redeeming virtues” (P. Areeda and H. Hovenkamp, Antitrust Law (Volume XI, 1998), § 1904). Thus, an ancillary restraint is perceived as a necessary evil that allows an arrangement that is beneficial to the public to be executed – an arrangement that has what Areeda and Hovenkamp call “potentially redeeming virtues.” Not every ancillary restraint is lawful; the door is open only to those restraints that cause less harm to the public in their anti-competitive effect than the benefit to the public of the arrangement to which they are ancillary. A naked restraint is one that is not ancillary. It allows no balancing of utility and harm to the public because it provides none of the former. It is unnecessary for the performance of the arrangement and, usually, it cannot endure. Even worse is a restraint that is naked per se and is ancillary to an arrangement that itself has no redeeming virtues whatsoever. To be precise, the restraint in the case at hand is not meant to allow Mifal Hapayis to forward money to MDA or the Soldiers Welfare Association; after all, it is for the purpose of transferring funds to various entities that Mifal Hapayis exists. The payment at issue here is meant to prevent competition and has no redeeming virtue of its own. As such, it must not be allowed. The reason for disallowing naked restraints is that the brunt of the damage that they cause is borne by the public: they are anti-competitive acts that externalize their nefarious effects to the public. A transaction under market conditions would always price the restraint at less than its true cost, thereby making the restraint inefficient. The earnings of a monopolist such as Mifal Hapayis will always exceed those of any competitor who operates under terms of perfect competition. Accordingly, there will always be a price at which the restrained party will be willing to accept a restraint in return for payment, and at which the side benefiting from the restraint will be willing to make said payment because its monopolistic gains from the restraint will exceed this sum. Since the parties to the transaction do not take into consideration the damage that the transaction inflicts on the rest of the public, these transactions will take place even though their overall utility is negative. Therefore, anti-competitive restraints are installed at a price, notwithstanding the harm they cause the public. Thus, it is the public that suffers from the damage that originates in restraints that impart or amplify monopoly power. The fact that the parties to the arrangement are habituated to this damage is of no utility whatsoever. The reckoning that the Court should perform is one of harm and utility to the public. In this sense, there is nothing advantageous about the parties’ consent: every cartel arrangement is amenable to its participants, and every cartel arrangement is at the public’s expense and is forbidden by law (with certain exceptions as are determined in the law). Since significant externalization takes place in the implementation of anti-competitive restraints, these restraints become a “coin of the realm” and not the property of the restrained party. The restrained party cannot make “payments” in this coin and agree to restrain itself in return for some benefit, be it pecuniary or in terms of obligations on the part of the other side. It is due to this externalization – making a restraint into a “coin of the realm” and not a “currency in circulation” – that the state should intervene to preclude restraints except in cases where the restraint is not a “means of payment” but rather a crucial part of some mechanism that has positive value per se, i.e., where the restraint is ancillary.

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Commissioner’s Decision in Regard to Agreement between Mifal Hapayis and Soldiers Welfare Association

The very discussion of approving a naked restraint that is harmful to the public, such as that in the case at hand, subjects the public to a cost that comes with no benefit. The public pays the price of the lengthy judicial proceeding that has to take place in order to examine the competitive effect of useless restraints of these kinds. The U.S. Supreme Court Justice (and President) Taft stressed this point exactly 100 years ago: “It is true that there are some cases in which the courts, mistaking, as we conceive, the proper limits of the relaxation of the rules for determining the unreasonableness of restraints of trade, have set sail on a sea of doubt, and have assumed the power to say, in respect to contracts which have no other purpose and no other consideration on either side than the mutual restraint of the parties, how much restraint of competition is in the public interest, and how much is not. The manifest danger in the administration of justice according to so shifting, vague, and intermediate a standard would seem to be a strong reason against adopting it” (United States v. Addyston Pipe and Steel Co., 85 F. 271, 283–284 (6th Cir., 1898), emphasis added). When the issue concerns a payment for refraining from competition, these remarks are also well stated today. 4. *** Games of chance and lotteries have been taking place since time immemorial and are a natural human inclination. It is the way of legislators to allow them under certain restrictions. In Israel, too, lotteries and games of chance have always been part of the scene. The legislator, perceiving the desired balance between the human need for lotteries and games of chance, on the one hand, and the need to protect the public welfare from the risk of abuse of these games, on the other hand, established a mechanism that controls the conduct of lotteries and games of chance in order to channel this area of activity to circumstances that will not evoke concern about the public’s welfare. The purpose of this mechanism is to control the identity of those who conduct the lotteries and the suitability and fairness of the games that they offer, thereby minimizing the fear of harm to the public welfare. Thus, alongside the general legal proscription of betting, gambling, and lotteries, exceptions to this proscription are alive and well. *** From the economic standpoint, as we explain below, the regulation of the lottery industry creates an entry barrier to this market. In this respect, the competition laws do not absent themselves from the field. On the contrary: even when the competitors’ identity is circumscribed and limited by licensing, thereby creating a high entry barrier that makes it hard for potential competitors to penetrate and operate in this market, under these very circumstances one discovers the true importance of safeguarding each competitor’s existence and independence in accordance with the needs that the conditions of the relevant market generate. In such a market, one may find special significance in the existence of each actual or potential competitor and, especially, of competitors whose barriers to entry are relatively low (e.g., those who are licensed to play on this field, even if they are not active in it at a given point in time). The Relevant Industry

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Commissioner’s Decision in Regard to Agreement between Mifal Hapayis and Soldiers Welfare Association

4.1 Description and Characteristics of the Market (a) Defining the Relevant Market The lottery industry is divided into several markets in which interchangeability is low. The main differentiation is between commercial lotteries and non-commercial ones. The difference between them has to do with the purpose of the lottery and its proceeds. Whereas the proceeds of non-commercial lottery ventures are usually pledged to the advancement of social goals, commercial lotteries are meant to promote the sale of a certain product and usually constitute an integral part of the advertising campaign for said product. Naturally, consumers who play commercial lotteries buy the lottery ticket only in a manner that is ancillary to the main purpose; accordingly, these lotteries tend to be random. In contrast, consumers who play noncommercial lotteries buy their lottery ticket as a product in itself. The degree of interchangeability between commercial and non-commercial lotteries is low enough that the two types of lotteries may be considered products in separate markets [. . .]. The lottery arena is divided into two fields: periodic lotteries and immediate lotteries. First, we elucidate several important parameters that typify these fields. (i) Share and distribution of prizes When they choose which game to take part in, lottery consumers attribute importance, inter alia, to three characteristics that relate to the share of prizes in the game: the grand prize, the likelihood of winning a prize of some kind, and the nature of the prize (in goods or in cash). Among these characteristics, consumers seem to perceive the size of the first prize as the most important. For example, when the first prize in the Toto game becomes so large as to verge on the first prize in the Lotto game, the market share of Toto relative to that of Lotto increases perceptibly during the week at issue. (ii) Nature of the prize (first prize and other prizes) An in-cash prize gives the winner more latitude than an in-kind prize (one that is awarded in the form of a product). Therefore, an in-kind prize is usually worth less to a participant in a lottery than the market value of the product. The Ministry of Finance’s permits usually determine which prizes should be in cash and which should be in kind. The permits that Mifal Hapayis holds do not require it to give any prize in kind. In contrast, the permits to MDA and the Soldiers Welfare Association require them to give some of their prizes (and, in the case of MDA, all prizes) in kind and not in cash. This is another factor that affects the relevant market shares. (iii) Tastes of consumer groups that play lotteries The lottery organizations also differ in their public goals. Mifal Hapayis used to focus mainly on education and community activities; MDA pledged its lottery proceeds to activities in the field of medical services; the Soldiers Welfare Association acts on behalf of the wellbeing of soldiers in the Israel Defence Forces; and the Council for Regulation of Gambling in Sports favors the promotion of domestic sports. It is hard to identify a purpose that gives one competitor an edge over another, but clearly the lottery organizations try to appeal to a public that views the buying of a lottery ticket partly as an act of philanthropy. Therefore, these organizations emphasize the worthiness of their goals and invest major sums of money in advertising their goals and the outcomes of their operations. Obviously, the larger the prizes are, the smaller the proportion of this component.

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Commissioner’s Decision in Regard to Agreement between Mifal Hapayis and Soldiers Welfare Association

(iv) Lapse of time from participation in the lottery to the possibility of winning a prize Different amounts of time that lapse between participation in the lottery and the possibility of winning a prize respond to the different needs of lottery consumers. Immediate lotteries are typified by very short periods of time (usually, immediate) between participation and the possibility of winning. Typically they offer smaller prizes and more prizes than periodic lotteries offer. A lottery in which the winners are picked at once, or almost at once, meets a specific need (that of people who are uninterested in deferring their gratification in this regard). Furthermore, due to the immediacy of winning in these lotteries, winners strongly tend to reinvest their winnings in additional games of chance; this may whet demand for the game at issue. Some immediate lotteries also include an element of participation in a periodic lottery (usually as a “Stage 2”) that offers a larger jackpot. The players who operate in this market are Mifal Hapayis, the Soldiers Welfare Association (until March 1998), and MDA (until 1990). In periodic lotteries, the draw is held at a central location. The winnings (especially the first prize) tend to be larger than those in immediate lotteries. Most periodic lotteries are weekly or, in certain cases, less frequent. Two players operate in this market today: Mifal Hapayis and the Council for Regulation of Gambling in Sports. The lotteries in this category include Lotto (a weekly lottery of Mifal Hapayis), Toto (run by the Council on a weekly basis) and Mifal Hapayis’ subscriber lottery, known as Payis Hazak (a combination of weekly and monthly draws). The more frequent the lotteries are, the more appealing they are to their participants. Furthermore, technological improvements that make it possible to gather information from participants quickly in periodic lotteries have also made it possible to shorten the time between participation and the possibility of winning a prize. (Recently, Mifal Hapayis was given permission to carry out two Lotto draws per week, thereby making Lotto a biweekly game.) The dividing line between these two kinds of lotteries is blurry. As we have seen, some immediate lotteries have a weekly component. Furthermore, technological developments – including online communication between the central lottery site and the locations that distributes lottery cards – have brought about high-frequency periodic games of chance that allow participants to win very shortly after they buy their tickets. These technological improvements have made it possible to hold lotteries so frequently as to increase the interchangeability of marginal demand between immediate and periodic lotteries. Today, the Israeli market has one product of this type, Mifal Hapayis‘ “Chance” lottery, in which draws take place three times a day and the jackpot is set as a proportion of the sums wagered. Only Mifal Hapayis has the technological equipment that one needs to perform a periodic lottery on a daily basis (or even more frequently); therefore, only Mifal Hapayis can offer a periodic lottery that is interchangeable with an immediate one. *** Both of the agreements that Mifal Hapayis concluded – with the Soldiers Welfare Association and with MDA, respectively – will, if approved, deny these organizations the right to compete in these markets. The Association and MDA used to be active in the market of immediate lotteries and once integrated a periodic lottery into their immediate lotteries. The Association and MDA are potential competitors in these

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Commissioner’s Decision in Regard to Agreement between Mifal Hapayis and Soldiers Welfare Association

markets; indeed, until recently the Association had a presence in the market of immediate lotteries. In any event, the Soldiers Welfare Association and MDA present Mifal Hapayis with a competitive threat that is strong enough to justify the considerable effort that Mifal Hapayis is making in our case to obliterate them as such. By taking the actions that it is taking, Mifal Hapayis demonstrates the importance that it attributes – and therefore, the importance that should be attributed – to the possibility of competition with its operations on the part of these two entities, inasmuch as they are the only license holders in this field, which – as we will see presently – has especially high entry barriers. Furthermore, as we show below, the Soldiers Welfare Association presents a significant competitive threat to Mifal Hapayis. (b) Entry barriers (i) Regulatory entry barrier – licensing The key that opens the door to the lottery industry is held by the Ministry of Finance. The written and unwritten history of the matter shows that in regard to commercial lotteries general permits were issued and were renewed from time to time. In the field of non-commercial lotteries, however, the Ministry of Finance has been stingy in the issue of permits. The number of rivals in this field is minuscule and is not expected to grow. For many years, only the Soldiers Welfare Association, MDA, Mifal Hapayis, and Sportoto (the Council for Regulation of Gambling in Sports) have been given permits for the conduct of lotteries and games of chance. *** (ii) Distribution and sales system An entity that wishes to become an effective competitor in the lottery industry needs a reliable and extensive distribution system that will allow it convenient access to consumers […]. *** (iii) Lottery form collection system The lottery market requires an organized system for the quick and reliable collection, photocopying, and checking of an enormous number of forms. The need to establish such a system raises the entry barrier. The difficulty is even greater than it sounds because elaborate – and expensive – computer and communication technology gives its possessor a perceptible competitive edge. Elaborate equipment can shorten the time between participation in the lottery and the possibility of winning a prize and makes it possible to conduct periodic lotteries as frequently as several times each day. The trouble is that these elaborate systems are very expensive and involve considerable scale economies that themselves constitute an entrance barrier to competition because they greatly inflate the cost that a new competitor incurs when it attempts to break in. Naturally, a new competitor has a smaller market share at first, and unless special circumstances are present (e.g., operating synergy with some other area of activity) it will not enjoy scale economies. (iv) Advertising, marketing, and sales promotion Advertising, marketing, and sales promotion are “resource-guzzlers” that raise the entry barriers to the lottery industry. Advertising alerts the public to the nature of the

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Commissioner’s Decision in Regard to Agreement between Mifal Hapayis and Soldiers Welfare Association

lottery being conducted and the size of the first prize, and it builds a reputation for the lottery among the relevant consumer population. *** Advertising expenses are acknowledged as an entry barrier in various contexts of modern commerce, but in the context of lotteries they is reflected in a special way because lotteries vary by nature […] Unlike other products, a lottery changes every day, week, or month. Therefore, it requires very hefty advertising expenses. *** Advertising is especially important in the market of immediate lotteries. This market is typified by diversity of players, new twists on games in their diverse formats, and frequently changing prizes. Accordingly, the operator must invest large sums in advertising these products in order to advise the consumer public both of the fact that a new game is being launched, its underlying rules, and its jackpot. Apart from the necessity of advertising a specific lottery, one needs to advertise the brand itself and its operating characteristics, the existence of regular places to buy lottery tickets with which customers should be familiar, and the wide dispersion of points of sale. The operator needs a skillful local distribution system that also has sales motivation, the ability to apply regular control and supervision, and the critical mass of advertising that is required for the creation of the image of a serious and reputable business. An operator who has all of these gains a significant edge over its rivals, especially new ones. Against this background of high entry barriers to the industry and dominant players who wield considerable market power, one needs all the more to be very cautious before heaping new entry barriers onto this market and making arrangements that strengthen existing competitors in it. It is for this reason that Chief Justice [President of the Supreme Court] [Aharon] Barak said, noting the menace that competition faces when an existing dominant player is strengthened and entry barriers to the market are raised: “The General Director’s authority and vested powers are meant not only to prevent domination of a given industry per se but also to prevent the strengthening of existing domination where it may have a significant anti-competitive effect. It is possible, for example, that a given merger would not cause concentration in the relevant industry to increase significantly – because it was severe even before the merger – but a perceptible anti-competitive effect would occur due to the existence and creation of significant entry barriers to new competitors: barriers that would be created by the strengthening, and not necessarily the creation, of the dominant market power.” (c) Players in the Lottery Industry

Mifal Hapayis is a public corporation established in 1951 per government resolution as a limited liability company that has no share equity […]. It is the dominant player in the lottery industry generally and in lotteries that are unrelated to the outcome of sports events specifically […].

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Commissioner’s Decision in Regard to Agreement between Mifal Hapayis and Soldiers Welfare Association

The Council for Regulation of Gambling in Sports (Sportoto) is a statutory corporation established under the Regulation of Gambling in Sports Law (1968) […]. The Council is the dominant company in sports gambling in Israel […]. The Soldiers Welfare Association is a registered nonprofit association that was established for the purpose of raising funds and donations on behalf of the Israel Defence Forces in various respects and providing miscellaneous services. The Association is Israel’s first and longest-tenured lottery enterprise […]. *** MDA – Red Magen David for Israel, Ltd. – was established in 1930. The purposes of its endeavors relate to the provision of miscellaneous medical services […]; it is one of the longest-tenured players in the lottery industry […]. *** 4.2 Concluding Remarks to this Chapter The lottery market has various high entry barriers. It is a very concentrated market that is typified by considerable market power in the hands of its dominant players, especially Mifal Hapayis. The high regulatory barrier, grounded in the Penal Law and the Regulation of Gambling in Sports Law, creates a rampart against any prospective player in this market. Activity in the market is reserved solely for the few players who hold licenses to operate in it. This regulatory entry barrier is augmented by significant natural barriers, including a large initial financial investment and ample revolving capital that activity in this field entails. The agreement between MDA and Mifal Hapayis drives out of the market one of only two competitors who are able to operate in it. The agreement between the Soldiers Welfare Association and Mifal Hapayis eliminates the other and more significant competitor. These agreements, if approved, will leave the lottery market (except for its sports-related segment) with only one player: a 100 percent monopolist in the relevant market, which is exerting itself strenuously to become one. This will deal a severe blow to the market, to competition, and, when all is said and done, to the consumers of lottery services. Against this background, I categorically reject the erroneous and misleading argument that the agreement at issue in the applications has no potential anticompetitive effect and should be of no interest whatsoever to the system that oversees the antitrust laws. Furthermore, the grave harm to competition is inflicted without any utility whatsoever. The payment at issue in the agreement is meant to stifle competition, something that the Israeli legislator categorically ruled out as a course of action among competitors. The restraints built into the agreement are naked and abusive, and I cannot – and am altogether unwilling to – absolve those who wish to execute these restraints of the duty to turn to the Court and attain its approval therefore. 5. The Implicit Anticompetitive Effect of the Agreement The restrictive arrangement (cartel) that we are facing harms competition at three separate levels. The first is the level of government, by creating a disincentive to lowering the principal entry barrier to the lottery industry, i.e., a permit from the Ministry of Finance. The second is the level of potential competition, by deterring potential competitors from entering the lottery industry. The third is the level of

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Commissioner’s Decision in Regard to Agreement between Mifal Hapayis and Soldiers Welfare Association

specific competitors: driving out of the market two of only four competitors who have established a presence in this barrier-ridden industry. 5.1 The Government Level As we said before, the most significant entry barrier to Israel’s lottery industry is licensing. One may not compete in this market without a license from the Minister of Finance. This is a two-tiered entry barrier: obtaining the permit allows the potential competitor to cross the first hurdle, a high one, on the path to market entry, whereas the terms of the permit determine how able the competitor will be to compete successfully. The regulator in this field, the Ministry of Finance, is of course entitled to make policy in these fields as best it understands. However, the application of statutory authority is one thing and agreements among private entities are another. Statutory authority and private players do not stand in each other’s shoes. An agreement in which all restrictive provisions are determined by law is immune from the burden of the Antitrust Law, but the application of said authority itself is subject to a great and vast sea of administrative rules that determine how an administrative authority may act. It is a long-standing doctrine that administrative authority is an empty vessel except where it acts for the public’s welfare. An agreement among private parties, which is not immune to the law and is not fettered by administrative rules as to how said power may be invoked, is another matter altogether. Fortifying a regulatory barrier by means of an agreement between private parties is no less harmful to competition just because it would be immune to the antitrust laws if it were accomplished by regulatory fiat. On the contrary: the existence of a regulatory authority merely reinforces the reasoning behind the preclusion of arrangements between parties that are ostensibly meant to apply a government policy while lacking lawful authority to do this and without being subject to the limitations that the law imposes on the party that wields this authority. Under such circumstances, the need to preclude anticompetitive agreements such as these is merely amplified. *** 5.2 The Potential Competition Level It was observed long ago that not only actual competitors but also potential competitors exert considerable influence on competition in a given market: “Evaluating the intensity of competition in an economic industry cannot be limited to the testing of concentration only. Another factor that affects the extent of competition in an industry, one that may be no less influential than concentration, is the terms of entry to the industry, i.e., how easily new competitors may enter the industry” (Appeal 2/94, Tnuva Cooperative Center for Marketing of Agricultural Produce in Israel, Ltd., v. General Director, Antitrust (Vol. B), at 159, 186). The lottery industry does not have impermeable natural entry barriers. We admit that the financial entry barriers are high but the hurdle that they create can be vaulted. There are several appropriate distribution systems that are associated with retail points of sale (grocery stores, kiosks, newsstands), as are used to distribute cigarettes, newspapers, and certain food products. The entry barrier that pertains to advertising and reputation may be crossed by a sizable investment of money. The regulatory barriers, in turn, are matters of policy; both common sense and life experience prove

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Commissioner’s Decision in Regard to Agreement between Mifal Hapayis and Soldiers Welfare Association

that policies change now and then. A different regulatory policy than the one practiced today is not out of the question, and once the policy changes, the number of competitors in the field will change. The problem is that the more power Mifal Hapayis amasses as the leading player in the lottery market and the more market power it gains, the higher the entry barrier to future competition will be. The importance of potential competition lies not only in the possibility of the fulfillment of the potential, i.e., that the potential competitor will become an actual one. Potential competition is also immensely important because its very existence may restrain a dominant player’s market power. A monopolist that is afraid of potential competition applies greater restraint in exploiting its market power, because if it applies its market power extensively (to limit production and raise prices, above all), it may induce the potential competitor to enter the market. The less likely this event is, the less restraint the monopolist will impose on itself. By piling up entry barriers and deterring potential competitors, Mifal Hapayis amplifies its market power and, under the circumstances of the case at hand, its ability to charge more for participation in lotteries that are less attractive. 5.3 The Specific-Competitor Level The anti-competitive effect at this level pertains directly to the existing competitors who operate against the harsh background of a market that is highly concentrated to begin with. The very fact of the concentration of the lottery industry indicates the immense importance of the independence of the few long-standing and experienced competitors in the market [. . .]. * * * In view of the foregoing, I have decided not to absolve Mifal Hapayis and the Soldiers Welfare Association of the requirement of obtaining approval of the Antitrust Court for the agreement that they have concluded [. . .].

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