Competition Agencies Research Articles

Dynamic Efficiencies in Merger Analysis

This document (of 293 pages) comprises the proceedings of a roundtable on held by the OECD's Competition Committee in June 2007. It consists of an executive summary and background paper by the Secretariat, as well as 13 delegation submissions and a summary of the oral discussion. Generally speaking, efficiencies are synergies that enable firms to improve their performance, whether in terms of cost, quality, service, or in the variety of products or services they offer. Some efficiencies are static and some are dynamic, but all of them are good for the welfare of society. Merging companies sometimes argue that even though their proposed union will increase market concentration, any harm stemming from a lessening of competition will be more than offset by the efficiencies that the merger would generate. This roundtable explored some of the thorny issues that competition agencies confront when presented with arguments about dynamic efficiencies.Despite growing interest in efficiencies since the 1970s among competition authorities and courts, there has been a persistent reluctance to incorporate efficiencies in merger analysis. That reluctance is even greater with respect to dynamic efficiencies than it is with respect to static ones. The reason is that even in a static analysis, determining whether a merger is likely to lead to efficiencies and how they will compare with any anti-competitive effects the merger is expected to cause is quite difficult. Making the leap to predicting a merger's dynamic effects is much harder still because those effects will occur - if at all - over several time periods and may be more abstract in nature.Nevertheless, a growing body of commentators is asserting that enforcement agencies should pay more attention to dynamic efficiencies and less attention to short-run price effects, especially in markets where consumers have more to gain through innovation than through lower prices on existing products. Both the desirability and the difficulty of placing more emphasis on dynamic efficiencies in merger reviews are addressed.

An Empirical Evaluation of Long Term Advisors and Short Term Interventions in Technical Assistance and Capacity Building

Technical assistance to improve the capacity of regulatory agencies around the world remains a key priority for international aid efforts. Technical assistance is critical to younger antitrust agencies because more effective agencies can protect consumers against anti-competitive conduct. Beginning in the 1990s, the rapid adoption of antitrust laws and development of agencies to interpret and enforce these laws has transformed the competitive landscape in many countries. Indeed, more than half of the countries with an antitrust legal framework enacted antitrust laws in the past 15 years. Many of the newer antitrust agencies are not as effective as they need to be to improve the well being of consumers and protect against anti-competitive conduct. Consequently, donors have assigned a significant amount of time and financial resources to technical assistance to raise the capacity and effectiveness of these younger agencies. However, quantitative analysis of the impact of this technical assistance remains limited at best. In a previous paper, we undertook a general analysis of antitrust technical assistance. In this paper we focus on what appears to be a particularly important part of technical assistance and capacity building - the use of long term advisors (LTA) and short term interventions (STI). In 2005, the International Competition Network conducted a survey of antitrust agencies that received LTA and STI services from a wide array of donor agencies. We first perform a descriptive assessment of the survey data. We find LTAs to be more effective than STIs in preparing the agency for tackling work they could not have undertaken previously and in confronting cartels. Most LTA and STI services arrived directly from developed world antitrust agencies and lawyers were superior to economists for STI work while economists tend to perform best as LTAs. In a more general empirical framework, we model the effectiveness of LTA and STI interventions using key survey questions about the initial preparation phase, the ability of the interventions to improve internal tactical qualities of the agency, and the ability of the interventions to improve the agency in its strategic mission. We estimate a three equation seemingly unrelated regression system designed to tease out the factors that led to a successful preparation of tactical and strategic technical assistance. The most important findings are related to two structural features of recipient antitrust agencies. Our most prominent finding is that recipient agencies absorb LTA and STI services best when the agency head has a rank of minister or higher and/or when agencies had prosecutorial discretion. At the heart of these agency features is the relative power position of the agency in the domestic political and economic structure. Those agencies with a strong power base seem well positioned to receive the current formatted technical assistance involving LTAs and STIs. Donors should focus on modifying the technical assistance to agencies with less power and should push for stronger agency autonomy and authority. A second prominent finding was that bilateral donor relationships did remarkably better in helping the agencies with their strategic mission. Perhaps bilateral LTA and STI perform better because of a better understanding of the political and economic realities these agencies face or because these donors provide aid through developed world competition agencies. Our suggestion is that multilateral donor agencies work hard to overcome deficiencies that their organizational structure presents to recipient agencies. Overall, our analysis of technical assistance efforts in one field of complex regulation (antitrust) may prove relevant to policies of how to make assistance more effective across regulatory fields.

Does Legal Tradition Affect Competition Policy Performance?

During the early 1990's, in the early days of the worldwide competition policy boom, Spencer Waller and Joshua Newberg argued that difficulties inherent in grafting common law concepts—such as antitrust—onto non common law traditions would undermine the administration of competition law in non common law tradition countries. Recent independent survey data on the performance of competition programs in 102 nations shows deplorable differences in performance, lending some weight to the Waller-Newberg thesis. This article tests whether differences in legal tradition contributes to the observed variance in competition agency performance. A careful understanding of the influence of legal tradition and other factors underscoring the relevance, shortcomings and problems of competition policy performance are useful for determining whether competition programs should be at all reproduced elsewhere, whether they should be modified prior to adoption or whether they should be adopted verbatim. Familiarity with performance factors is also useful both for program administration and program sequencing. Comparative examinations of competition programs enable decision-makers to properly allocate resources and to address policy issues. The estimated model is a two-stage least-squares cross-section analysis between competition policy performance and various control variables, including the presence of a common law tradition. Limitations on the availability of control and instrumental variables, reduces the data set from 102 to 82 nations. Succinctly, after accounting for other explanatory variables such as gross domestic product per capita, foreign direct investment, imports, physical size, the level of corruption, and national experience with a modern antitrust law, one can attribute statistical significance to historical legal tradition as established by the Waller-Newberg hypothesis.

Competition Law and Policy in the European Union

Competition policy played a central role in the development of the EU and its institutions. The European Commission, supported by the European courts, developed the framework for competition policy in Europe. This framework has been built since the Treaty of Rome in 1957 on a foundation of promoting market opening while strengthening the institutions of the European Community. The competition policy of the European Community is now in transition toward a basis in market-centered economic considerations, as well as on application through the now-extensive network of nationallevel authorities. The “modernisation” reforms of the enforcement process became effective in May 2004, along with changes in the control of mergers, and the Commission has been considering revisions to its policies about other topics, notably abuse of dominance and state aid. As the Member States adapt their substantive rules to those of the Community, the roles of the European Commission, the national competition agencies and the courts are changing. Co-ordination of enforcement among many agencies in the European Community, particularly concerning applications for leniency as part of cartel investigations, is increasingly important. The Commission moved to strengthen its capacity for economic analysis and to correct weaknesses in its decision process that had been revealed in critical court decisions. The challenge to this system, well adapted for administrative application, is to produce results that are convincing to the courts while maintaining policy consistency in a system of decentralised enforcement. This report served as the basis for a peer review in the Competition Committee in 2005.

THE PROHIBITION OF THE PROPOSED SPRINGER-PROSIEBENSAT.1 MERGER: HOW MUCH ECONOMICS IN GERMAN MERGER CONTROL?

We review the Bundeskartellamt (Federal Cartel Office Germany) decision on the proposed merger between Springer and ProSiebenSat.1 from an economic point of view. In doing so, it is not our goal to analyze whether the controversial decision by the Bundeskartellamt has been correct or flawed from a legal point of view. Instead, we analyze whether the economic reasoning in the decision document reflects state-of-the-art economic theory on conglomerate mergers. Regarding such types of mergers, anticompetitive effects either do not occur regularly or are more often than not overcompensated by efficiency gains, so that a standard welfare perspective demands reluctance concerning antitrust interventions. This is particularly true if two-sided markets, like media markets, are involved. However, anticompetitive conglomerate mergers are not impossible, in particular in neighboring markets where there is some relationship between the products of the merging companies. In line with the more-economic approach in European merger control, a particular thorough line of argumentation, backed with particularly convincing economic evidence, is necessary to justify a prohibition of a conglomerate merger from an economic point of view. Against this background, we do not find the reasoning of the Bundeskartellamt entirely convincing and sufficiently strong to justify a prohibition of the proposed combination from an economic perspective. The reasons are that (i) the Bundeskartellamt fails to continuously consider consumer and customer welfare as the relevant standards, (ii) positive efficiency and welfare effects of cross-media strategies are neglected, (iii) in contrast, the competition agency sometimes appears to view profitability of post-merger strategy options to be per se anticompetitive (efficiency offence), (iv) the incontestability of the relevant markets is not sufficiently substantiated, (v) inconsistencies occur regarding the symmetry of the TV advertising market duopoly versus the unique role of the Bild-Zeitung and (vi) the employment of modern economic instruments appears to be underdeveloped. Thus, we conclude that the Bundeskartellamt has not embraced the European more-economic approach in the analyzed decision. However, one can discuss whether economic effects are overcompensated in this case by concerns about a reduction in diversity of opinion and threats to free speech. Similar to the Bundeskartellamt, we do not consider these concerns in our analysis.

The Contribution of Bilateral Trade or Competition Agreements to Competition Law Enforcement Cooperation between Canada and Costa Rica

Chapter XI of the Canada-Costa Rica Free Trade Agreement contains provisions relating to competition law enforcement cooperation between these two countries. This Chapter includes terms covering inter alia the following cooperative concepts: comity, consultations, conflict avoidance, confidentiality, information exchange and technical assistance. The effectiveness of these provisions can be evaluated by considering the following conflicting hypotheses: (1) competition arrangements in bilateral trade arrangements do not create significant value added over and above the spontaneous co-operation that evolves between competition agencies, and that agreements initiated and negotiated directly by competition agencies are likely to be more effective, especially in terms of achieving the objectives of the agencies; or (2) that because international competition cooperation is likely to involve trade, there is value added in putting competition cooperation agreements into trade agreements and that this is likely to assist the evolution of natural cooperation including follow-on inter agency agreements.

National Champion versus Foreign Takeover

We analyze an oligopolistic market where a domestic and a foreign firm are engaged in a takeover battle for a domestic competitor. Any merger or acquisition (M&A) must be approved by a welfare maximizing domestic competition agency which may or may not be prone to “economic patriotism”. A patriotic government does not (fully) count wealth of domestic shareholders as relevant producer surplus if this wealth has been generated by selling a domestic firm abroad. We show that globalization (decreasing transport costs) has a different impact on the equilibrium ownership structure of that industry, depending on the type of government. With an unbiased competition agency we find that the foreign takeover is more likely to occur the higher the level of trade openness is. However, when the domestic government is biased we find that globalization reinforces the case for promoting national champions. This may explain why some countries have recently spent considerable effort to deter foreign attempts to acquire domestic firms.

Why should National Competition Authorities be Independent and how should they be Accountable?

Should regulatory agencies be independent from the government? Or should they be a department of a given sector ministry? More broadly, should they be independent from the executive, legislative and judicial branches, or be part of one of these branches? These are important questions that come up not only when new Member States join the European Union, but also when major reforms are contemplated. We will state the reasons why national competition agencies (NCAs), the institutions in charge of enforcing competition rules in a given country, should have a substantial degree of independence. They should be entrusted with a clear mandate and their decisions should be guided solely by technical criteria expressed in their charter, free from political or interest group pressures. This institutional arrangement, based on a well-designed organisation, with talented personnel and with a competent board, guarantees the best contribution to enhanced consumer welfare and innovation. But independence in a democratic society means accountability. These are two sides of the same coin that should go hand-in-hand. To this extent, internal and external checks and balances need to be designed towards ensuring independence, while making the institution responsible for its actions and decisions. One major element of accountability is performance criteria. How is the board entrusted with a given mandate going to be assessed? Although a central point in running any organisation, this has seldom been the object of a contract between society (or the minister in charge) and the board steering the institution. Other important institutional aspects are the relationships between the agency and the government, parliament and other regulators. Since antitrust decisions are law enforcement, in some countries decisions are taken only by June 2007 European Competition Journal 17

Interface between the competition authority and the sector regulators: the emerging issues

This paper analyses the interface issues between the competition authority and the sector-specific regulatory agencies in the infrastructure sectors in India. Based on the international best practices, it brings out the need to establish a synergic, harmonious, and working-level relationship between these agencies in view of their mutually reinforcing roles, and argues that such a relationship is necessary to provide for regulatory clarity and certainty, discourage fora shopping, and reduce transaction costs. Literature review of the international practices suggests that the mechanisms to provide for coordination between sector regulators and competition agencies range from the integration of all the regulatory functions in one agency to formal agreements for cooperation between the agencies and informal interaction through consultations. This paper also makes a set of recommendations that would further strengthen the relationship between the sector regulators and the competition authority in India.

European Competition Policy in International Markets

Changes in the institutional, technological and economic environment raise new challenges to the European competition policy. In this context, it is timely for European authorities to appraise the external dimension of the European competition policy as well as its articulation with current internal reforms. Globalisation can increase the costs of monitoring and seriously reduce the ability of European authorities to tackle cross-border anti-competitive conducts. In addition, conflicts are exacerbated by industrial policy motivations. As it is unlikely that the sole application of the territoriality and extraterritoriality principles to competition rules could yield an optimal international competition system, globalisation calls for higher levels and types of cooperation. Given that bilateral cooperation and especially the implementation of comity principles could be of no value when laws or interests are sources of international conflicts, three main paths could be therefore encouraged: The continuous harmonization of rules through the joint action of OECD and ICN; the higher cooperation in the confidential information exchange; the establishment of global anti-trust institutions. Although WTO is legitimate in judging questions related market access and entry barriers, it is less equipped to assess international hard core cartels or M&A reviews. As a substitute for WTO, a multilevel system, like the EU system, could be promoted. For political and pragmatic reasons, it could be composed in a first step of a hard core of countries like the EU, Japan and the U.S. It could be associated with the creation of an international Court of Justice for competition. In addition to these external reforms, some internal reforms could be required. Competition authorities have to develop further competition advocacy to give a higher priority to competition issues in other EU policies and national regulation. A parallel and complementary reform could consist in making the European competition agency independent from State Members' interference.

Technical Assistance for Law & Economics: An Empirical Analysis in Antitrust/Competition Policy

In the past 15 years, the world has witnessed the large scale introduction of antitrust/competition policy as an instrument of market-facilitating government policy. Building the capacity of young antitrust institutions in the developing world and in transition economies is a means to improving the capacity of these agencies to police against anti-competitive conduct. Many countries have augmented their development of competition agencies with technical assistance (TA) support. Determining how best to design TA programs to interact with nascent and financially constrained competition agencies is a difficult and complex matter. The objective of this study is to assess the impacts of the TA-agency partnership. This chapter focuses specifically on factors that lead to improved effectiveness of TA. In a field that has been lacking for empirical evaluation, we use a unique dataset of responses from 38 competition agencies that have received technical assistance from the period 1996-2003. Our empirical analysis demonstrates that issues of timing and absorptive capacity of particular forms of technical assistance within a larger political economy consideration maximize the impact and effectiveness of technical assistance provided to competition agencies.

Of Brands and Barriers: Branding in Competition Law Merger Analysis

Brands have long been recognised as a form of property that is worth protecting both at common law and in trademark legislation. The economic effect of brands is said to help consumers identify quality goods when there would otherwise be information problems in markets. It is apparent too that brands can have enormous value to companies that own them. Yet the use of brands has articulate detractors some of whom have spawned veritable political movements. Some degree of suspicion about brands also seems to be reflected in the practice of competition regulators. The questions that this paper seeks an answer to are, firstly, what role might brands play in a competition agency’s or a court’s approach to a merger under competition law? The second, and naturally arising, question asks: is this approach right? The concern is whether competition law enforcers adequately appreciate the nature of the underlying policy and economic tensions between the form and effect of intellectual property inhering in brands and the policy behind competition law. Failure to do so may have harmful consequences for markets. Recourse will be had to the literature in both economics and law in an endeavour to cast light on these and on intermediate questions of brands’ purported market power, how brands compete in markets, and the interaction between competition law and trademark law. It is outside the scope of the paper to consider how brands would affect the analysis of cases involving the misuse of market power. However to the degree that the analysis is similar to that for mergers, this paper may also cast some light on such analyses.

Behavioural Remedies in EC Merger Control - Scope and Limitations

Behavioural remedies provide the competition agency with flexibility and reversibility which are not usually found in structural remedies. On the other hand, behavioural remedies tend to generate uncertainty and costs, casting doubt upon their usefulness and reflecting their alleged inferiority. The following article explores the scope and limitations of behavioural remedies and questions whether they are used adequately in light of their potential role in conditional clearances of merger transactions. The discussion first focuses on the characteristics, benefits and drawbacks associated with behavioural remedies. It then moves on to consider which incentives may affect the negotiation of remedies and how the risk of “under-fixing” influences the competition agency’s position when assessing proposed commitments. Following this theoretical debate, the discussion shifts to the European merger regime and reviews the way in which the European Commission and Courts have shaped the scope of behavioural remedies. The range of behavioural remedies accepted by the European Commissions and their effectiveness are also considered together with the mechanisms used to facilitate their monitoring and enforcement. The article concludes with a discussion of the likelihood of behavioural remedies being used more prevalently in the future and the factors that could influence such direction.

The Economic Effects of Competition Policy: Cross-Country Evidence Using Four New Indicators

This paper introduces a number of indicators on various aspects of competition laws and competition agencies in order to make competition policies comparable. It contains an indicator concerned with the objectives and the instruments of competition laws, a second indicator evaluating to what degree an economic - as opposed to a legal - approach to competition policy has been chosen. Based on the assumption that it is not the content of the law alone but also the structures erected in order to implement the law, it further presents an indicator reflecting the formal independence of competition agencies and a fourth one reflecting their factual independence. These four indicators are used to estimate the effects of competition policies on economic growth. It turns out that all four variables contribute to explaining differences in total factor productivity. Yet, their impact is not particularly robust to the inclusion of indicators for the general quality of institutions.

Barriers to Entry

A debate among economists over how to define barriers to entry began nearly 50 years ago and has never been resolved. This is somewhat surprising, given how important entry barriers are to so many facets of competition policy, such as market concentration, merger analysis and the abuse of dominance. The Competition Committee addressed the ways in which various competition agencies have chosen to define the term, as well as the reasons why many agencies have chosen not to define it at all. In fact, a majority of agencies do not believe that good competition policy requires a precise definition of barriers to entry. Instead, they focus on how various types of barriers affect the likelihood, timing, and extent of entry, and how to go about the difficult task of assessing entry conditions. The roundtable discussion therefore delved into those subjects, as well, and examined a number of illustrative competition law cases. This document (of 316 pages) comprises the proceedings of a roundtable on barriers to entry held by the OECD's Competition Committee in October 2005. It consists of an executive summary and background paper by the Secretariat, as well as 24 delegation submissions and a summary of the oral discussion.

Internationale Wettbewerbspolitik im institutionellen Wandel / International Competition Policy and Institutional Change

Zusammenfassung Wettbewerbspolitik erhält im Zuge der Globalisierung eine internationale Dimension. Doch die politischen Gestaltungs- und Sanktionierungsrechte für die Beurteilung von wettbewerbspolitisch bedenklichen Fällen sind nicht eindeutig zugeordnet, sobald diese grenzüberschreitend wirken. In Anlehnung an die Theorie des institutionellen Wandels von North spielen bei der Entstehung und Anpassung von Institutionen neben geänderten relativen Preisen opportunistische Akteure und die Komplementarität von Institutionen eine Rolle. Rückkopplungsprozesse können institutionellen Wandel pfadabhängig machen. So erklärt sich, warum Vorschläge für neue Institutionen der internationalen Wettbewerbspolitik wie ein Weltkartellamt oder eine Angliederung im Rahmen der WTO nicht zustande kommen, bestehende Ansätze wie das International Competition Network aber ein Schritt in diese Richtung sein können.

Abuse of Dominance Enforcement under Latin American Competition Laws

The spread of competition laws in Latin America has been accompanied, as in Central and Eastern Europe, by warnings against over-enforcement, and in particular against enforcement of provisions against the of a dominant position in a market that may discourage legitimate, pro-competitive actions and strategies. We examine all instances of competition agency findings of abuse of dominance for eight Latin American countries over the period 2001-2003. We find a) that there have been relatively few such rulings in most countries, b) that roughly half of such rulings have been in traditionally regulated industries, which suggests that the number of rulings may fall as sectoral regulatory agencies gain more capability and experience, c) that many rulings have arguably targeted government-imposed restrictions on competition as well as privately imposed restrictions, and d) that a majority of rulings have attacked exclusionary rather than exploitative abuses.

Implementation of the International Competition Network’s Recommended Practices for Merger Review: Final Survey Report on Practices IV-VII

The International Competition Network has adopted thirteen Recommended Practices for Merger Notification and Review Procedures. The purpose of these non-binding Recommended Practices is to facilitate convergence among competition agencies around best merger review practices. To assess and promote progress in this regard, the Merger Streamlining Group commissioned two surveys of competition agencies and private law firms in all ICN member jurisdictions. The first, carried out in 2003, found very mixed levels of compliance with the ICN’s initial three Recommended Practices. In 2004 a second survey was undertaken to measure implementation of the ICN’s next four Recommended Practices relating to Review Periods, Requirements for Initial Notification, Transparency and Review of Merger Control Provisions. This article reports on the 2004 survey, which found that achieving implementation continues to be a significant challenge notwithstanding the momentum arising from the unanimous adoption of the Recommended Practices. The analysis points to numerous opportunities for ICN members to bridge the gap between adoption and implementation.

Competition Policy Works: The Effect of Competition Policy on the Intensity of Competition - An International Cross-Country Comparison

This paper explores the relationship between competition policy, experience of the application of competition policy, the intensity of local competition and the standard of living. Perception data from the World Economic Forum is used to measure the intensity of local competition. Richer and larger countries in general introduce competition policy earlier than smaller and poorer countries, and industrialized countries earlier than Latin American, African, transition and Asian countries, in this order. A regression analysis for a sample of 101 countries reveals that experience and overall government effectiveness explain a substantial part of the perception of the effectiveness of antitrust policy. During the first years of (new) competition legislation the effectiveness of application improves rapidly, whereas very old competition agencies make little further improvement of their application performance after a certain time. The effectiveness of antitrust policy has a significant influence on the intensity of local competition. The size of the economy also has a significant impact on the intensity of local competition, whereas external protection does not. These results indicate that competition legislation and experience of the application of competition legislation have a large impact on the level of competition in an economy, whereas the influence of external protection is not clear. In countries with a high intensity of local competition the standard of living is higher than in countries with a low intensity of local competition.

Competition Advocacy

Competition advocacy is especially critical for developing countries as their economic policies are undergoing fundamental market driven changes. Prerequisites for effective competition advocacy by a competition agency include a significant degree of independence from political influence, sufficient resource to support both its enforcement and advocacy functions, and credibility as an effective and impartial advocate for competition. Opportunities for competition advocacy are numerous: privatization; legislation, government policy and regulatory reform. The Second Latin American Competition Forum, jointly sponsored by the OECD and the Interamerican Development Bank (Washington 14-15 June 2004) discussed the...