Competition Agencies Research Articles

Erosion or innovation?

Looking at competition agencies world wide, we can see the emergence of a new trend, with more and more agencies merging with others and creating new combinations. Competition agencies are consequently moving away from being single-function bodies and instead becoming multifunctional authorities housing antitrust and regulatory functions under one roof. Competition literature has so far devoted little attention to the institutional design of such organizations and the implementation of their policy goals. The focus has been on substantive matters of competition law, rather than on governance aspects and optimal design. This article analyzes the merger on 1 April 2013 of the Netherlands Competition Authority (NMa), the Independent Post and Telecommunications Authority (OPTA) and the Consumer Authority (CA) in the newly created Netherlands Authority for Consumers and Markets (ACM). This Dutch case is used to illustrate how a bundling of tasks can be translated into an institutional strategy and to examine the implementation issues arising. Which factors matter when deciding to combine a series of functions under one roof? By taking an inside look at this case, we can learn lessons for other jurisdictions. The article examines the subject from a legal, political science, and public administration perspective.

Who gets state aid in Croatia?

The Annual Report on State Aid for 2012 , prepared by the Croatian Competition Agency (AZTN), is undergoing a parliamentary procedure. According to the Report, a slight nominal decline in state aid has been observed since the beginning of the economic crisis. Nevertheless, the share of aid in GDP continues to exceed several times the shares reported in 2012 by the EU 27 Member States, and, as shown by its structure, the aid continues to be targeted on enterprises in difficulties.

Reconstructing the International Cartel Enforcement Framework: Theoretical Possibilities and Pragmatic Alternatives

This paper will argue that, considering the massive growth of international cartels, competition agencies need to rethink the way that they investigate and enforce their antitrust laws. In particular, it will argue that there should be a type of global network that provides a legislative framework for common leniency applicants and the free flow of information sharing. Unfortunately, the current legal barriers to information sharing and the distinctive issues faced by developing competition agencies suggest that a Global Competition Network (GCN) is unlikely. Therefore, a pragmatic alternative to creating a GCN would be to create Regional Competition Networks (RCN) with a global forum to discuss international cartel investigations and policy.

Asymmetric Complements in a Vertically Differentiated Market: Competition or Integration?

We study the effects of integration of asymmetric complements when they are vertically differentiated. While confirming the standard effects of integration, namely the internalization of the double marginalization externality and the reduction of competition, we point out a new positive quality effect, due to an increase in the average quality of the goods on sale. We also characterize the conditions under which integration turns out to be optimal for both firms' and consumers. We thus provide valuable directions for competition agencies when considering the joint ownership in vertically differentiated markets.

Payments and Participation: The Incentives to Join Cooperative Standard Setting Efforts

Formal, cooperative standard setting continues to grow in importance for the global economy. And as standards become more pervasive, the stakes rise for all participants. It is not surprising then that many standards are covered by intellectual property rights, that battles over the licensing of those rights have reached a fevered pitch in several industries, and that competition agencies around the globe are seriously weighing whether and how to intervene in the standard setting process. One suggestion for such an intervention is the imposition of a licensing cap, referred to as the incremental value rule. We evaluate this proposal and find that even in contexts where this rule is efficient from an ex‐post point of view, it induces important distortions in the decisions of firms to innovate and participate in standard setting organizations (SSO). Such a rule reduces the R&D investment that a firm makes in relevant technologies and lowers the probability that it will join the SSO. We characterize a variation of the incremental value rule for defining fair, reasonable, and nondiscriminatory that accounts for both investment and participation incentives.

Measuring unilateral effects in partial horizontal acquisitions

Recent years have witnessed an increased interest, by competition agencies, in assessing the competitive effects of partial acquisitions. We propose an empirical structural methodology to examine quantitatively the unilateral impact of partial horizontal acquisitions. The acquisitions may be direct or indirect, and may or may not correspond to control. The proposed methodology simulates the effects on prices, market shares, firm profits and consumer welfare. It can deal with differentiated product industries and nest full mergers as a special case. We provide an empirical application to several acquisitions in the wet shaving industry.

The Effects of Mergers on Sellers, Customers, and Competitors in Russia's Ferrous and Non-Ferrous Metal Industries: The Application of Financial Event Study

Russian producers are large participants in both domestic and international markets of ferrous and non-ferrous metals. Their market power is limited on the world market due to the presence of competitors, while in Russia most of them have achieved an “almost monopolistic” position strengthened by a high market share as a result protection from import tariffs. During 1999-2011 numerous mergers in these industries were completed and approved by the Federal Antitrust Service – Russia’s competition agency. The key problem of merger analysis in Russia’s ferrous and non-ferrous metal industries is the trade-off between a (possible) weakening of competition in domestic markets and achieving competitive advantages in international markets. Most merger deals were approved only together with precisely developed merger remedies aimed at preventing dominance abuse. However, it is still unknown whether the weakening of competition and the abuse of dominance on the domestic market as the result of a merger indeed lead to harmful consequences. Using the financial event study method developed by Eckbo and Wier (1985), this paper empirically verifies the significance of anticompetitive effects of mergers in the domestic ferrous and non-ferrous metal markets. I find that, according to the financial market, mergers between Russian metal producers restrict competition and reduce consumer gains.

The market for bigness: economic power and competition agencies’ duty to curtail it

In its early days antitrust policy was motivated largely by public fears regarding economic power, the excess influence owners of large businesses might exert over political and commercial markets. Over time, antitrust enforcement has come to focus exclusively on market power, the ability to raise prices or reduce output in narrowly defined product markets. This article calls for a return to the wisdom of days past, less for the populist reasons then articulated, and more due to the ‘influence effect’, the scale and scope economies in procuring political influence and their detrimental effects on democracy. After delving into the market and political effects created by big business, the recent financial crises and Too-BigTo-Fail (TBTF) dynamic are discussed. The main problem, it is argued, is not potential business failures and resulting bailouts, but the influence TBTF institutions exert ‘while business is going well’. Preventing excess economic power and TBTF firms is a task originally entrusted to antitrust agencies, and this article calls for reaffirming this obligation. There are practical difficulties and political risks inherent in combating economic power, and these are discussed. In the end, such difficulties are very real and require careful formulation of enforcement strategy, but antitrust agencies should not shy away from the task.

How to Facilitate Damage Claims? Private Enforcement of Competition Rules in Croatia – Domestic and EU Law Perspective

Ever since the Croatian Competition Agency started functioning in 1997, public enforcement of competition law has been the norm. Civil actions for breaches of competition law have been the exception in Croatia. The existing legislation in the area of competition law makes no effort to incentivise private enforcement. There are no specific rules in the Competition Act 2009 dedicated to civil actions, except a single provision that assigns jurisdiction over damages claims to commercial courts. General tort law is applicable in order to prove damages. A number of issues arise here mostly due to the complexity of competition cases. These issues were described in the European Commission’s White Paper on Damages Actions for Breach of EC Antitrust Rules (2008). The level of uncertainty as regards the outcome of the claim is high. It seems that special rules need to be adopted in Croatia in order to improve the position of the injured side. The paper deals with a number of procedural and substantive law issues relevant to the facilitation of civil proceedings for antitrust damages. A domestic law perspective is applied taking into account recent developments in EU competition law and policy.

Market Definition Analysis in Latin America with Applications to Internet-Based Industries

There has been a surge of recent antitrust cases involving Internet-based industries around the world, including in Latin America. These types of industries present special challenges for authorities, as their analysis requires an understanding of the fast-paced, innovative, and multi-sided nature of these businesses. In this paper we present methods and techniques for market definition and power analysis which emphasize the need to focus on competitive constraints rather than structural or functional characteristics of products and services — a particularly relevant issue in Internet-based industries. We next explore whether the legal frameworks of Argentina, Brazil and Mexico can accommodate this type of analyses. Our focus then shifts to how competition takes place in Internet-based industries; we describe how firms vie for consumer attention and provide this attention to advertisers and developers using the concept of “attention rivalry”. Taking this theoretical back-ground into account we pose the question of whether the three largest Latin American economies have the tools, legal ability and expertise to undertake these types of complex analyses. We use cases to illustrate where they have done so, and review the most relevant work they have undertaken in Internet-based industries since 2000. In our view, nothing prevents competition agencies in these countries from conducting the correct economic analyses.

A Self-Crippled Regulator Unable to Protect Competition: The Contracting Authorities in the Spanish Public Procurement System

On a functional basis, contracting authorities possess a twofold public-private nature. As State prominent parts, mostly Administrations, they are public bodies, holding prerogatives and acting as Regulators to ensure that the contracting activity complies with public contracting laws and procedures. But by appealing to the market to purchase goods and services, those authorities are also economic operators and act as any firm. It is in this very concept of clients or customers of an economic activity that they are bound up to fulfil Competition law requirements.The overlap of Regulation and Antitrust Law over a particular market usually poses the problem of choosing one or the other to tackle anticompetitive behaviours. This is a race for hooking the prey. Both are entitled to intervene, since they have among their objectives the protection of competition on the sectorial market, but operate at different levels (ex ante/ex post).The current Spanish Public Procurement law forsakes the contracting authorities to fight bid rigging and wipe colluders out of the procedure. This task is legally assigned to national and regional competition watchdogs.This paper aims at proposing feasible means for the contracting authority to tackle collusion alongside the tender process. These means should contribute to avoid bid rigging or, if failed, help the Competition agency to prove the anti competitive behaviour. A breakthrough in this way is the 2012 Proposal of Directive on Public Procurement, since it entitles the public body to expel those candidates with sound evidences of rigging before or during the contracting procedure. This formula seems to bring the solution back to Public Procurement, but favours errors Type I and Type II (false positives and negatives).Draft as of 09/June/2013 to be presented at the Conference PUBLIC PROCUREMENT: GLOBAL REVOLUTION VI, University of Nottingham-UK, 24-25/June/2013.Please do not quote without authors’ permissionComments welcome at antominho@hotmail.com; pvalcarcel@uvigo.es

Management, Market Power, and Antitrust—Procter & Gamble and the U.S. Laundry Detergent Industry

There are three interrelated sources of market power in consumer goods industries—horizontal competition, vertical competition, and sustained management superiority. The important role of vertical competition is poorly represented in the Horizontal Merger Guidelines and that of management is ignored. Longer term, a firm's success as a horizontal and vertical competitor is largely determined by the competence of its management relative to that of its present and potential competitors. The competition agencies must begin to measure the relative management competence of the firms in an industry under investigation for, as the laundry detergent industry demonstrates, the maintenance of supracompetitive returns, the ease of entry, and other outcomes are largely a function of the firms' relative management competence. The article traces how the fortunes of Procter & Gamble and its laundry detergents have ebbed and flowed with the performance of its management from the FTC's investigation of the laundry detergent industry (1973–80) to the present. It also asks what antitrust should do about a firm that had honestly earned its high margins and dominance but whose brands performed no better than far cheaper private label counterparts.

Government Organization/Reorganization: Why Who Does What Matters

Antitrust law has been adopted by 120 jurisdictions worldwide. In more than half of these jurisdictions, the agency charged with enforcing antitrust law also has other responsibilities. The assignment of multiple regulatory tasks can affect the performance of a competition agency in complex and subtle ways. We present a framework for analyzing the consequences of creating public bodies with complex policy portfolios. Using examples from across the administrative state, we analyze the forces that shape the content of an agency’s policy duties, and how the portfolio of assigned duties affects the way an agency approaches its assigned tasks, and its performance of those tasks. We apply this framework to the U.S. Federal Trade Commission, whose diversified policy portfolio includes antitrust, consumer protection, and data protection/privacy.

Delegation and varieties of capitalism: Explaining the independence of national competition agencies in the European Union

This article aims to explain why, despite the fact that all national competition authorities (NCAs) in EU member states enforce the same law, relevant differences exist in the degree of independence that these agencies enjoy. The author advances an original theoretical framework according to which the decision on the independence of NCAs depends on the structure of the economic system of a country. In particular, it is hypothesized that the means by which firms operate in the national market affects the tendency of national legislators to delegate more or less independence to the NCA. The statistical analysis carried out shows that both countries with low and high levels of employer density tend to have less independent competition authorities than those of other countries. On the one hand, the findings support the argument, advanced by varieties-of-capitalism scholars, that liberal market economies and coordinated market economies achieve greater efficiency than mixed market economies. On the other, the expectation that all institutional choices should be coherent with the firms’ coordination method is not confirmed.

CONTEMPORARY TRENDS AND TOOLKIT OF COMPETITION ADVOCACY

The article summarizes international experience on contemporary forms of competition advocacy as part of competition policy, determines the major world trends of competition advocacy. A modern competition advocacy toolkit to competitive agencies and methods of evaluating the competition advocacy effectiveness are worked out.

Evolution of Cartel Practice in Croatia

This paper analyses the development of cartel enforcement practice in Croatia since the first Competition Act was adopted in 1995, i.e. since the Competition Agency was established in 1997. Until 2009 only five decisions have been adopted which deal with the issue of cartel arrangements between competitors. The facts of these cases are presented and main legal issues discussed. The authors point out to three underlying characteristics of the ten-year enforcement practice: (a) all cartel cases concerned explicit collusion; (b) in all cartel cases there was an association of undertakings that promoted collusion and/or helped to enforce the cartel; (c) undertakings gave self-incriminating statements in the proceedings before the Competition Agency. On the basis of these characteristics the authors conclude that the fight against cartels in Croatia is still in its infancy. Some awaited legislation changes (introduction of leniency, competence of the Competition Agency to decide on fines) should make cartel enforcement more viable in the future.

The Approximation of Croatian State Aids Policy to the European Union Standards

The purpose of this paper is to analyze Croatian state aids policy and its transformation with respect to the negotiations with the European Union. The analysis is based upon collected data on public expenditure designated to the state aids measures. The paper also discusses present negotiating positions on state aid and competition policy of both parties with respect to the European Union positive regulation. The authors also analyze the approximation of positive Croatian regulation to the Union's regulation assessing the compliance of Croatian laws to the European standards. This analysis is based upon comparative method. Since the letter of a law does not give a clear insight to its application, the authors also research the practice of Croatian Competition Agency in approving or assessing specific state aids in the form of selective measures undertaken by Croatian Government and local authorities. The conclusion is that Croatian state aids policy is yet to be approximated to the European policy. This conclusion is not aiming to the amount of granted state aids in absolute terms since the Republic of Croatia has shown serious constraints and more fiscal discipline than some Member States over the past years. Croatian state aids policy has to change structurally.

Competition Policy and Poverty Reduction: A Holistic Approach

This paper examines the role of competition law and policy as tools for poverty reduction and development. The authors put forward five related principles, building upon the important work on related issues that has been done by the OECD, the International Competition Network (ICN), UNCTAD and civil society organizations such as CUTS in recent years, in addition to the earlier work done on these topics in the WTO Working Group on the Interaction between Trade and Competition Policy when that body was active from 1997 through 2003. Together, these principles comprise the holistic approach to competition law and policy which is referenced in the title of the paper: * First, the focus of policy makers in using competition policy as tool for poverty reduction should be on approaches that are relatively easy to implement but have a trackrecord of being effective and economically sound. * Second, for competition policy reforms and legislation to be successful, public acceptance and support is critical and must be an essential focus of related initiatives. * Third, to serve as an effective tool of poverty reduction, competition policy needs to address the needs of the citizens of poorer societies in their capacities as producers (and, therefore, as users of extensive input goods and services, including public infrastructure), in addition to their capacities as final consumers/households. * Fourth, it is posited that competition policy is more than just what competition agencies do and includes the full spectrum of measures that governments employ to enhance competition and improve the performance of markets. * Fifth, in order to address the challenges posed by the changing landscape of competition policy worldwide, new forms of international co-operation may need to be considered. The paper then develops the application of these principles with respect to five specific areas in which competition policy can contribute to poverty reduction, namely: (i) the reform of public and business infrastructure sectors, particularly in the context of developing and transition economies; (ii) the complementary roles of competition law enforcement and market liberalization in public procurement markets; (iii) various related dimensions of competition policy as they relate to public health objectives; (iv) the addressing of possible monopsonistic practices in international supply chains that may affect the ability of developing country producers to reap gains from participation in international markets; and (v) measures to address the enduring problem of international cartels which, despite an impressive record of prosecutions by developed jurisdiction competition agencies over the past decade, continue to impose substantial costs on developing economies. The paper concludes with some observations regarding the future of international cooperation in the competition policy sphere.

The Implications of Behavioral Antitrust

Behavioral economics is now mainstream. It is also timely. The financial crisis raised important issues of market failure, weak regulation, moral hazard, and our lack of understanding about how many markets actually operate. As behavioral economics (with its more realistic assumptions of human behavior) goes mainstream in academia and the business world, one expects lawyers and economists to bring the current economic thinking to the competition agencies. How should the competition agencies respond? This paper examines how competition authorities can consider the implications of behavioral economics on four levels: first as a gap filler, i.e., to help explain “real world” evidence that neoclassical economic theory cannot explain; second to assess critically the assumptions of specific antitrust policies, such as merger review and cartel prosecutions; third to revisit three fundamental antitrust questions, namely what is competition, what are the goals of competition law, and what should be the legal standards to promote those goals; and fourth, to assess how behavioral economics will affect the degree of convergence/divergence of competition law among the over 100 jurisdictions with competition laws today.

Measuring Unilateral Effects in Partial Acquisitions

Recent years have witnessed an increased interest, by competition agencies, in assessing the competitive effects of partial acquisitions. We propose an empirical structural methodology to examine quantitatively the unilateral impact of partial acquisitions involving pure financial interests and/or effective corporate control on prices, market shares,firm profits and consumer welfare. The proposed methodology can deal with differentiated products industries, with both direct and indirect partial ownership interests and nests full mergers (100% financial and control acquisitions) as a special case. We provide an empirical application to several acquisitions in the wet shaving industry.