Monday, November 3, 2014
Globalisation has not only affected the world economy as a whole but also the way competition policy works - the increase of cross-border business activities has brought a new international dimension to many competition cases and the number of competition agencies worldwide skyrocketed (from 20 in 1990 to 120 in 2013).
This increases the complexity of co-operation in multi-jurisdictional cases and can sometimes lead to inconsistent decisions and unchallenged illegal conduct.
With trends of international business activities increasing in the future, and young competition authorities becoming more active, it is expected that effective co-operation becomes even more complicated.
To overcome potential failures, new and enhanced methods of competition law co-operation should be explored.
This paper presents evidence of the increase in complexity of cross-border co operation in competition law and discusses future challenges and policy options for the effective and consistent enforcement of competition.
This document was first presented at the May 2014 Council Meeting at Ministerial Level in the framework of the OECD Initiative on New Approaches to Economic Challenges (NAEC).
At the time this report was prepared, an update of the 1995 Recommendation on co-operation between member countries on anticompetitive practices (the 1995 Recommendation) was being considered by the OECD Competition Committee.
Given the committee's work and the results from this report on challenges of international co-operation, the OECD Council adopted in September 2014 the 2014 Recommendation on international co-operation on competition Investigations and proceedings.
OECD Recommendation concerning International Co-operation on Competition Investigations and Proceedings
OECD Recommendation concerning International Co-operation on Competition Investigations and Proceedings
On 16 September 2014, the OECD Council adopted a Recommendation that calls for governments to foster their competition laws and practices so as to promote further international co-operation among competition authorities and to reduce the harm arising from anticompetitive practices and from mergers with anticompetitive effects.
The 2014 Recommendation concerning International Co-operation on Competition Investigations and Proceedings replaces the former 1995 OECD Council Recommendation and is a step forward in the fight against anticompetitive practices.
Rationale for the Recommendation
International co-operation between competition authorities has been at the core of the OECD agenda for many years. A first recommendation adopted in 1967 and a series of revisions had led to a 1995 OECD Recommendation on International Co-operation which has greatly contributed to shaping the current framework for international enforcement co-operation.
However, trends in globalisation, technological advances and the increasing number of companies conducting business worldwide have brought international enforcement co-operation back on the policy agenda.
In 2013, a survey carried out by the OECD and the International Competition Network showed that very few jurisdictions co-operated with other jurisdictions in competition law enforcement (especially due to legal and/or practical limitations to co-operation). Given that there are over 120 countries with competition laws and effective authorities enforcing them, multi-jurisdictional cases tend to keep growing and competition authorities increasingly face situations where the effective enforcement of domestic competition laws depends on co-operation with other enforcers.
Effective and efficient co-operation among authorities has become thus key to achieving competition enforcement to the benefit of consumers, businesses and taxpayers in general. OECD Governments consider the 2014 Recommendation as an essential instrument to help OECD and non-OECD countries foster enforcement co-operation with other jurisdictions and deter anticompetitive practices and mergers with possible anticompetitive effects.
Innovative solutions for international co-operation
The 2014 Recommendation contains two sections that offer enforcers new and particularly innovative solutions:
Other sections in the Recommendation address the following issues:
See the full text of the recommendation in English and Français (pdf).
Jason Allen, Bank of Canada, Robert Clark, HEC Montreal and Jean-Francois Houde, Wharton discuss The Effect of Mergers in Search Markets: Evidence from the Canadian Mortgage Industry.
ABSTRACT: We examine the relationship between concentration and price dispersion using variation induced by a merger in the Canadian mortgage market. Since interest rates are determined through a search and negotiation process, consolidation weakens consumers' bargaining positions. We use reduced-form techniques to estimate the mergers' distributional impact, and show that competition benefits only consumers at the bottom and middle of the transaction price distribution, and that mergers reduce the dispersion of prices. We illustrate that these effects can be explained by the presence of search frictions, and that the average effect of mergers on rates underestimates the increase in market power.
Sunday, November 2, 2014
On Halloween Day, Harry First (NYU Law) gave the University of Florida Heath endowed antitrust lecture. He spoke about his new book (with Andy Gavil) The Microsoft Antitrust Cases: Competition Policy for the Twenty-first Century. The book is really worth a read. Harry and Andy break new ground in terms of our understanding of the various government and private Microsoft cases. I encourage everyone interested in antitrust to read this book. Commenting on Harry's talk were Andy Gavil (Howard), Tom Arthur (Emory) and Murat Mungan (FSU). All gave good comments. That evening Harry came to my house for Shabbat dinner and trick or treating with my family. Harry did not dress up but got to witness what diversion ratios look like in practice with the secondary market of candy trading among girls. Harry was a hit on campus and with my family. My two year old cried this weekend when she found out that Harry returned to New York. It was a double shock for her. On Thursday evening, Tom Arthur's wife went out to dinner with my wife and kids and everyone had a great time. All my girls loved her and we have promised the girls a trip to Atlanta to see her, the acquarium and Coca Cola museum.
Friday, October 31, 2014
Timothy J. Tardiff, Advanced Analytical Consulting Group asks REREGULATION OR BETTER DEREGULATION?: ECONOMIC EVALUATION OF RECENT FCC COMPETITION ACTIONS.
ABSTRACT: In 1999, 2005, and 2007 the Federal Communications Commission (FCC) established approaches for relaxing pricing restrictions for incumbent local exchange carriers (ILECs) if competition in the relevant market is deemed to be sufficient. In the 1999 decision, the FCC established a mechanism by which ILECs could apply for increased pricing flexibility for special access (high-capacity) services in metropolitan statistical areas (MSA) in which bright-line triggers had been satisfied. Such relief was granted in the majority of MSAs. Next, the FCC established a process by which ILECs could obtain forbearance from certain unbundling obligations, and approved requests for forbearance in Omaha, Nebraska and Anchorage, Alaska in 2005 and 2007. The FCC also granted forbearance from price regulation for the highest-capacity services (enterprise services) for the large majority of ILECs. In two recent decisions in 2010 and 2012, the FCC has denied forbearance requests and suspended further grants of special access price flexibility primarily on the grounds that the then-current mechanisms had not performed as anticipated. In their place, the FCC has proposed and implemented processes similar to the Department of Justice and Federal Trade Commission's Merger Guidelines. This article describes the essential elements of the 2010 and 2012 decisions as well as the bright-line mechanisms previously relied on, outlines a framework for determining whether competition is sufficient in a telecommunications market, and uses this framework to evaluate the FCC's new directions.
Benjamin Rene Kern, University of Marburg, Ralf Dewenter, University of the Federal Armed Forces Hamburg - Department of Economics, and Wolfgang Kerber, Philipps University Marburg - School of Business Administration and Economics offer an Empirical Analysis of the Assessment of Innovation Effects in U.S. Merger Cases.
ABSTRACT: In this empirical study all mergers that have been challenged by the U.S. antitrust agencies FTC and DOJ between 1995 and 2008 were analyzed in regard to the question to what extent and how the agencies assessed the innovation effects of mergers. Theoretical background is the still open question how negative effects of mergers on innovation should be taken into account in merger policy. Although we can show in our study that in one third of all challenged mergers also innovation concerns were raised, the results also point to a still existing large degree of uneasiness and inconsistencies of the agencies in regard to the assessment of innovation effects. A particularly interesting result is that - despite the wide-spread rejection of the "innovation market approach" in the antitrust debate - the agencies used more an innovation-specific assessment approach that includes also innovation in the market definition than the pure traditional product market concept. Additionally, we also found significant differences between the assessment approaches of the FTC and the DOJ.
Dominic Coey, Bradley Larsen, and Kane Sweeney explore The Bidder Exclusion Effect.
ABSTRACT: We introduce a simple and robust approach to answering two key questions in empirical auction analysis: discriminating between models of entry and quantifying the revenue gains from improving auction design. The approach builds on Bulow and Klemperer (1996), connecting their theoretical results to empirical work. It applies in a broad range of information settings and auction formats without requiring instruments or estimation of a complex structural model. We demonstrate the approach using US timber and used-car auction data.
Thursday, October 30, 2014
Klaus Sylvester Friesenbichler, Austrian Institute of Economic Research, Michael Boheim, Austrian Institute of Economic Research (WIFO); Vienna University of Economics and Business Administration - Department of Economics and Daphne Laster, Austrian Institute of Economic Research (WIFO) offer Market Competition in Transition Economies: A Literature Review.
ABSTRACT: This paper provides a survey of the effects of market competition in the transition economies of Eastern Europe and Central Asia. The pivotal element of the transition was inter-firm competition, which replaced economic planning as the method to identify demand. Pro-competitive policies that facilitated the transition are discussed, including international trade, attracting foreign direct investment and firm entry. Research topics with respect to competition changed as the transition advanced. The focus shifted from churn and macroeconomic shock-management in the initial phases toward firm entry, privatisation and restructuring of incumbents. In the later phases of transition, differentials in aggregate economic performance became obvious, pointing at institutional differences and their interplay with transitions. These are equally reflected by the degree of competition of the business environment. Also the methods changed with the evolution of the research agenda. Early case studies were displaced by large-scale, cross-country econometric studies as survey data became increasingly available.
Jeffrey Church, University of Calgary - Economics and Andrew Wilkins, U Calgary School of Public Policy explain Wireless Competition in Canada: Damn the Torpedoes! The Triumph of Politics over Economics.
ABSTRACT: Last year featured a high stakes battle between two mighty protagonists. On one side, allegedly representing the interests of all Canadians, the federal government. On the other side, Bell, Rogers and Telus. The issue at stake: What institutions should govern the allocation of resources in the provision of wireless services? Should the outcomes — prices, quality, availability, and other terms of service — be determined by the market? Or should the government intervene? The answer to these questions should depend on the extent of competition and the ability of wireless providers to exercise inefficient market power — raise prices above their long run average cost of providing services. Do Bell, Rogers and Telus exercise substantial inefficient market power?
The accumulated wisdom of market economies is that state intervention inevitably is very costly, given asymmetries of information, uncertainty, and political pressure. At the very least the onus on those demanding and proposing government action is to provide robust evidence of the substantial exercise of inefficient market power. This paper is a contribution to the ongoing debate regarding the existence and extent of market power in the provision of wireless services in Canada.
The conventional wisdom that competition in wireless services was insufficient was challenged by our earlier School of Public Policy paper. In that study we demonstrated that the Canadian wireless sector was sufficiently competitive. The evidentiary record we developed was not consistent with a robust finding of a substantial exercise of inefficient market power; policy efforts to create and sustain more competition were unlikely to be successful without ongoing subsidization; and to the extent those efforts were successful, they would likely to lead to an inefficient allocation of scarce resources, with the benefits of additional competition less than its costs.
The federal government’s standard bearer in this debate has been the Competition Bureau. The Competition Bureau has made submissions and commissioned expert evidence in regulatory proceedings that conclude that there is market power in the provision of wireless services in Canada and there are substantial benefits to enhancing competition.
This follow-up paper is a critical assessment of the Competition Bureau’s submissions and the expert evidence on which it is based. We remain unconvinced that market power is a problem in wireless services or that additional competition in wireless services is efficient. As explained at length in this paper, the expert evidence prepared for the Competition Bureau on both points is simply insufficient to warrant regulation and subsidization of competition. The evidence with respect to market power is inconsistent with substantiality and it is not robust. The expert evidence does not address whether entry is efficient. Instead it provides only an estimate of the competitive benefits of a fourth national entrant — not its costs — and it does not assess the financial viability of a fourth national competitor. The assessment of the competitive benefits of entry are unreliable, attributable to both the methodologies used by the expert and the assumptions required to implement its simulation methodology. The lack of fit between outcomes derived from the model and calibrated parameters with observed values indicate that the concerns over the specification and assumptions in implementing the model are well-founded. Its inaccuracies pre-entry cast considerable doubt on its use to accurately forecast the effect of a fourth national entrant.
Given the absence of compelling evidence demonstrating the substantial exercise of inefficient market power, the evidence that more than three carriers likely raises concerns regarding financial viability without ongoing subsidization, and the evidence that additional entry is inefficient, one wonders how long the federal government and its agencies will continue the failed policy of attempting to “enhance competition” in wireless markets. What will be the final cost to Canadians of an economically vacuous commitment to the proposition that competition is measured by the number of competitors?
Marek Martyniszyn, Queen's University Belfast - School of Law asks Leniency (Amnesty) Plus: A Building Block or a Trojan Horse?
ABSTRACT: Leniency (amnesty) plus is one of the tools used in the fight against anticompetitive agreements. It allows a cartelist who did not manage to secure complete immunity under general leniency, to secure an additional reduction of sanctions in exchange for cooperation with the authorities with respect to operation of another prohibited agreement on an unrelated market. The instrument was developed in the US and, in recent years, it was introduced in a number of jurisdictions. This article contextualises the operation of and rationale behind leniency plus, forewarning about its potential procollusive effects and the possibility of its strategic (mis)use by cartelists. It discusses theoretical, moral, and systemic (deterrence-related) problems surrounding this tool. It also provides a comparison of leniency plus in ten jurisdictions, identifying common design flaws. This piece argues that leniency plus tends to be a problematic and poorly transplanted US legal innovation. Policy-makers considering its introduction should analyse it in light of institutional limits and local realities. Some of the regimes which already introduced it would be better off abandoning it.
Adrian J. Proctor, TACIT COLLUSION INDICATORS IN MERGER CONTROL UNDER VARIED FOCAL POINTS.
ABSTRACT: This article discusses how different focal points in a market can lead to different collusive agreements and how merger analysis can identify markets that may be vulnerable to these potential agreements. Focal points based on customer allocation and geographic markets are considered with recent U.K. examples of this type of analysis. The focal point that firms are using for coordination can affect both the transparency required to maintain coordination and how targeted or effective any punishment for deviation can be.
Wednesday, October 29, 2014
Catarina Moura Pinto Marvao, SITE (Stockholm School of Economics); Trinity College Dublin explores The EU Leniency Programme and Recidivism.
ABSTRACT: The EU Leniency Programme (LP) aims to encourage the dissolution of existing cartels and the deterrence of future cartels, through spontaneous reporting and/or significant cooperation by cartel members during an investigation. However, the European Commission guidelines are rather vague in terms of the factors that influence the granting and scale of fine reductions. As expected, the results shown that the first reporting or cooperating firm receives generous fine reductions. More importantly, there is some evidence that firms can "learn how to play the leniency game", either learning how to cheat or how to report, as the reductions given to multiple offenders (and their cartel partners) are substantially higher. These results have an ambiguous impact on firms' incentives and major implications for policy making.
Koos Borkent, Authority for Consumers and Markets, Peter Paul Hillebrink, Authority for Consumers and Markets, Marinus Imthorn, Authority for Consumers and Markets, Bastiaan Overvest, Independent, Gulbahar Tezel, Independent, Tako Vermeulen, Authority for Consumers and Markets, and Rob Wessels, Authority for Consumers and Markets identify Barriers to Entry into the Dutch Retail Banking Sector.
ABSTRACT: The Authority for Consumers & Markets has conducted a study into entry barriers of the Dutch retail banking sector. The entry of new players or even merely the threat thereof will increase competition in the Dutch banking sector. This is important because the Dutch retail banking sector has become less competitive since the financial crisis. ACM does the following nine recommendations to the Dutch Minister of Finance and the Dutch Cabinet to lower entry barriers for new players.
1. Advocate for the improvement of the European resolution mechanism.
2. In addition to a more effective European resolution mechanism, advocate for a European deposit-guarantee scheme.
3. At the national and European level, strive for simplicity in laws and regulations.
4. Evaluate the Dutch system for obtaining a banking licence.
5. Strive for prudential laws and regulations that are geared to the risks a bank engenders to the financial stability and the real economy.
6. Develop a less stringent supervisory regime for credit unions.
7. Minimise the uncertainty about the law and regulations in the mortgage market.
8. Provide banks with maximum latitude in informing consumers in a factual manner about the guarantee scheme for savings.
9. Take measures to reduce consumer inertia in the market for current accounts.
Ariel Ezrachi (Oxford) and Maurice Stucke (Tennessee) describe The Curious Case of Competition and Quality.
ABSTRACT: Alongside the consideration of price, competition authorities recognize that quality can be as, if not more, important in some markets. But as competition authorities also recognize, identifying the dimensions of competition important to many consumers is difficult. Even when these dimensions of quality are identified, measuring them represents additional challenges.
To circumvent these challenges, competition authorities rely on several heuristics when assessing a merger’s, cartel’s or monopolistic restraint’s impact on quality. Often the heuristics work well for the competition authorities.
Our paper, however, identifies several scenarios where these heuristics break down, when competition and quality are not positively correlated, and when an increase in competition can actually reduce consumer welfare. We also identify two necessary, but not sufficient, conditions that are common to every scenario.
With these two conditions in mind, we provided instances when an increase in competition will not increase quality (when one would expect it should). We also provide instances when an increase in competition will lead to quality degradation.
The ABA has published the Transportation Antitrust Handbook.
BOOK ABSTRACT: A thorough understanding of antitrust issues is critical to the counseling of clients in the transportation industries. The Transportation Antitrust Handbook explores the important intersection between antitrust law and the transportation industries with a focus on the motor, rail, airline, and ocean shipping sectors. The handbook provides in-depth coverage of antitrust enforcement in the United States and globally. It addresses, in particular, the evolving role of industry-specific regulators (such as the DOT and FAA) in enforcing the antitrust laws.
Written by practitioners in the transportation industries for the antitrust and transportation communities, the Transportation Antitrust Handbook is a must-have reference for counsel active in these industries.
Tuesday, October 28, 2014
Roger Blair (University of Florida - Economics) and D. Daniel Sokol (University of Florida - Law) have a paper on Quality Enhancing Merger Efficiencies.
ABSTRACT: The appropriate role of merger efficiencies remains unresolved in US antitrust law and policy. The Patient Protection and Affordable Care Act (ACA) has led to a significant shift in health care delivery. The ACA promises that increased integration and a shift from quantity of performance through increased competition will create a system in which quality will go up and prices will go down. Increasingly, due to the economic trends that respond to the ACA, including considerable consolidation both horizontally and vertically, it is imperative that the antitrust agencies provide an economically sound and administrable legal approach to efficiency enhancing mergers. In this regard, horizontal hospital mergers present particularly challenges for antitrust. Most hospital merger cases focus on cost based efficiencies, as does most of the academic empirical literature. Yet, government policy seems out of synch with quality analysis. This essay proceeds as follows. First, it provides a discussion of the welfare effects on quality and its implications for antitrust analysis. In the next part, the article explores quality analysis both in the 2010 Horizontal Merger Guidelines and in antitrust case law. In doing so, the essay identifies areas both of clarity and ambiguity regarding quality enhancing efficiencies policy. In the subsequent part, the essay draws parallels to an efficiency analysis of quality under rule of reason analysis, in which the essay offers examples of resale price maintenance and tying of franchising contracts. Thereafter, in the next part, the essay addresses how agencies and courts should treat quality efficiencies in mergers. In doing so, the essay draws upon the existing academic literature in empirical industrial organization economics and public health on measurements of what is hospital quality in a consolidating healthcare marketplace. In its concluding section, the essay advocates a more robust use of quality measurements as a guiding principle of merger law and policy that is flexible enough for case by case analysis and that will provide for ease of adminstrability and outcomes more in line with sound economic analysis than the current system.
The Judgment of the EU General Court in Intel and the So-Called 'More Economic Approach' to Abuse of Dominance
Wouter Wils (Kings College and European Commission) has a new paper on The Judgment of the EU General Court in Intel and the So-Called 'More Economic Approach' to Abuse of Dominance.
ABSTRACT: This paper discusses the judgment of the EU General Court of 12 June 2014 in the Intel case. It argues that the EU case-law on the use of exclusivity rebate systems by undertakings occupying a dominant position is economically sound, and that the criticism directed at this case-law is ill-founded.
|In This Issue|
Implementing the FRAND Commitment Janusz Ordover and Allan Shampine examine the economic goals of FRAND terms for licensing standard essential patents and how FRAND commitments should be enforced to achieve those goals and avoid anticompetitive effects.
The Effects Of Competition Policy: Merger Approval, Entry Barrier Removal, Antitrust Enforcement Compared
Svetlana B. Avdasheva (National Research University Higher School) and Dina V. Tsytsulina (National Research University Higher School) examine The Effects Of Competition Policy: Merger Approval, Entry Barrier Removal, Antitrust Enforcement Compared.
ABSTRACT: There is little evidence on the comparative effectiveness of different competition policy measures, especially in transition economies. This research represents the effort to expand the financial event study method for the assessment of different competition policy measures: merger control, antitrust investigations on abuse of dominance, and changes of import tariffs in the Russian ferrous and non-ferrous metals markets from 2007 to 2012. According to the reaction of financial market, mergers between Russian metal producers restrict competition and reduce consumer welfare. Antitrust investigations have a positive effect on stock prices of buyers of metal and no significant impact on the market valuation of target of investigation. Changes in import tariffs have a positive significant impact on the company stock prices. The sign of each effect allows the comparison of different measures of competition policy.
Olga Gorelkina (Max Planck Institute for Research on Collective Goods) explores Precluding Collusion in the Vickrey Auction.
ABSTRACT: This paper studies collusion in one-shot auctions, where a buyer can bribe his competitors into lowering their bids. We modify the single-unit Vickrey auction to incite deviations from the designated-winner scenario and thus undermine collusion. The construction of mechanism does not require the knowledge of colluders’ identities or distributions of valuations, in which sense it is entirely detail-free.