Tuesday, July 6, 2021

Cartels and Fines

Cartels and Fines

Research Handbook on Cartels, Peter Whelan (ed) (Edward Elgar Publishing, Forthcoming)

Florian Smuda

University of Applied Sciences Koblenz

Abstract

This chapter deals with cartel fines as sanctions to deter cartelization. The concept of cartel fines as a deterrent is based on the premise that a potential cartelist will refrain from joining a cartel if the expected fine will exceed or at least offset any cartel gains. Based on a simple formal framework it is shown that the optimal deterrent fine level – expressed as a fraction of the value of cartel affected sales – is approximated by the cartel overcharge rate divided by the probability of detection. Using a dataset that contains undertaking specific data for all cartel cases decided by the European Commission between 2007 and 2020, it is then analyzed to what extent the existing fining policy fulfills optimal deterrence. By comparing the imposed fines with optimal deterrent fines under different settings for the overcharge and detection rate, the simulation results reveal a noticeable deterrence gap. Accordingly, several alternative and complementing measures suggested in the law and economics literature are compiled with structural remedies being assessed as a particular promising approach to foster deterrence.

July 6, 2021 | Permalink | Comments (0)

Monday, July 5, 2021

Competition Law Enforcement and Regulation for Digital Platforms and Ecosystems: Understanding the Issues, Facing the Challenges and Moving Forward

Competition Law Enforcement and Regulation for Digital Platforms and Ecosystems: Understanding the Issues, Facing the Challenges and Moving Forward

Frederic Jenny

ESSEC Business School

Abstract

Competition authorities are under severe political pressure to intervene quickly against the digital behemoth for a variety of reasons. Various expert reports have suggested that traditional antitrust or competition law enforcement and merger control are inadequate or insufficient to deal with competition issues in the digital sector. This paper explores the competition issues raised by digital platforms and ecosystems, the extent to which these issues can be dealt with by competition law and whether regulation could be a complement or a substitute to competition law enforcement. The paper is divided into three sections. In the first section we look at the economics of digital platforms and ecosystems and their business models. In the second part, we analyze the main challenges faced by competition authorities when they apply their traditional analytical tools to antitrust or merger control cases in the digital sector. The third part compares the EU Digital Market Act proposal to regulate Gatekeeper platforms and the UK proposal to establish an enforceable code of conduct to govern the behaviour of platforms funded by digital advertising that are designated as having strategic market status (SMS). We conclude with a research agenda to help competition authorities avoid the risks of inadvertently giving in to the political pressure of economic populism or ideology or issuing misguided decisions which may be ineffective or, even worse, restrict competition or innovation in the digital sector.

July 5, 2021 | Permalink | Comments (0)

Thursday, July 1, 2021

Horizontal mergers and supplier power

Horizontal mergers and supplier power

Joe Perkins

Compass Lexecon

Shiva Shekhar

University of Passau

Abstract

Supplier power, such as the ability of branded goods suppliers to dictate terms to retailers, is an important feature of many markets. We show that supplier power can counteract the effects of downstream mergers on consumer prices where there are two-part contracts. This is because greater market power allows suppliers to set contracts that internalise partially the impact of the merger on downstream prices. Post-merger, the supplier reduces the per-unit price at which it supplies the merged downstream firms, with the aim of maintaining total industry profitability. We modify the standard upward pricing pressure (UPP) formula to account for the supplier's response to a horizontal merger in the downstream market while preserving much of the simplicity of the standard approach.

July 1, 2021 | Permalink | Comments (0)