Thursday, January 17, 2008
Giving the German Cartel Office the Power of Divestiture - The Conformity of the Reform with Constitutional Law
Posted by D. Daniel Sokol
Christoph Engel of the Max Planck Institute for Research on Collective Goods has suggested some reforms of German competition policy in his paper Giving the German Cartel Office the Power of Divestiture - The Conformity of the Reform with Constitutional Law.
ABSTRACT: Triggered by the concentration process in the electricity and gas markets, the land of Hesse proposes to give the German cartel office power to divest dominant firms or oligopolies if this is necessary to restore competition. The paper shows that the reform would be in line with constitutional law, and with freedom of property in particular. Depending on how divestiture is brought about, it would interfere with this basic freedom. It would however not amount to taking. In practice, the main effect would be through bargaining between the divested company and the cartel office. This poses problems under rule of law, but these problems are not insurmountable. The main justification for the reform is the almost total failure of interventions to combat the abuse of dominant positions. In the US, divestiture has not always been successful. But close scrutiny of the American experiences demonstrates that the tool is sufficiently effective to meet the constitutional standard. If divestiture is brought about by forcing the firm to sell entities or assets, the necessary compensation comes from the price it receives from the buyer.