Mergers Commission Research Articles

The lives and death of the MMC

Dan Goyder (Linklaters & Paines; former MMC Deputy Chairman and Visiting Professor, King’s College, University of London) reviews the history of the Monopolies and Mergers Commission from its beginnings in 1948 until its replacement on 1 April 1999 by the European-law inspired, Competition Commission. Article published in Amicus Curiae - Journal of the Institute of Advanced Legal Studies and its Society for Advanced Legal Studies. The Journal is produced by the Society for Advanced Legal Studies at the Institute of Advanced Legal Studies, University of London.

Reporting on responsible drinking: a study of the major UK pub‐owning companies

For much of the 20th century, brewers owned the majority of British public houses. In 1989, the Monopoly and Mergers Commission brought about the dissolution of the brewers' estates, and two types of pub‐owning companies emerged. One employed managers, and the other leased their outlets to individual operators. In the present climate of opposition to excessive drinking, their approach to retailing is being brought into question, with public demands for a responsible approach. This article examines the different responses of the major firms within the industry.

The Three Lives of Herbert Hart

Herbert Lionel Adolphus Hart (1907-1992) had a very successful public life. In the three decades that followed his election to the Chair of Jurisprudence at Oxford in 1951, he led a jurisprudential revolution in the English speaking world.1 He was 'for English speaking jurists the focal figure', 'the single most influential jurist not only in this country, but also in many other parts of the Western World', who 'raised the Lazarus of English-speaking legal and political philosophy from the pallet on which it had languished for the best part of a century'.2 On graduating from New College, Oxford in 1929 with a First in 'Greats' (classics, ancient history and philosophy) (ch two of A Life), Hart established a successful career at the Chancery Bar in the 1930s (ch three), and became a senior member of MI5's counter-espionage division in the Second World War (ch five). Following the War, he taught Philosophy at New College (ch six), before becoming Professor of Jurisprudence, and a professorial fellow of University College in 1952 (ch seven).3 He visited Harvard in 1956/7 (ch eight), served on the Monopolies and Mergers Commission from 1966 to 1972, and produced the Hart Report on Oxford University's relations with its junior members (ch eleven). After resigning from his Chair in 1968, Hart worked on the Bentham Project at University College London. He was Principal of Brasenose College from 1973 to 1978 (ch twelve). He combined this with being married to another Oxford academic, Jenifer,4 and fathering four children, Joanna (1942), Adam (1944), Charles (1948) and Jacob (1959). In A Life of H. L. A. Hart, Professor Nicola Lacey has sought to provide an intellectual biography of Hart, rather than an extended analysis of his scholarly

Practitioner perspectives on the seasoned equity offering process in the UK

Institutional practices around the time of equity offers by listed firms have recently been the subject of scrutiny by UK regulatory authorities including the former Monopolies and Mergers Commission. Moreover, several published studies indicate that managers in both Britain and the US continue to make extensive use of the equity issue methods that cause the most harm to shareholders' wealth. To investigate how and why firms decide between alternative offering methods, this paper reports the results of 11 interviews conducted with various parties involved in the share issue process in the UK, including industrial firms, accountants and advisers, as well as a questionnaire sent to the senior management of companies with recent experience of making share offers. The results indicate: (i) that the decision is contingent on the combined impact of a range of factors, particularly input from advisers and (ii) that a case can be made for re-examining the stringency of the UK's pre-emption guidelines.

The role of UK competition agencies in the regulation and deregulation of utility service industries: reflections of a former regulator

During my time as Director General of OFWAT, my relations with the Office of Fair Trading and the Monopolies and Mergers Commission (MMC), now the Competition Commission (CC), primarily covered: – Appeals to MMC/CC against price determinations where the relationship was of primary jurisdiction and appeal body. – Merger cases involving OFT (where water: mergers were a compulsory reference) and where practical considerations were significant in the administration of the law, including, in one case, EU merger law. – Competition Act cases (none in my time as regulator). We needed to be clear about how concurrent powers would work. It was important to issue early guidelines so that suppliers and potential suppliers should know where they stood.

An illustration of variable precision rough sets model: an analysis of the findings of the UK Monopolies and Mergers Commission

This paper introduces a new technique in the investigation of limited-dependent variable models. This paper illustrates that variable precision rough set theory (VPRS), allied with the use of a modern method of classification, or discretisation of data, can out-perform the more standard approaches that are employed in economics, such as a probit model. These approaches and certain inductive decision tree methods are compared (through a Monte Carlo simulation approach) in the analysis of the decisions reached by the UK Monopolies and Mergers Committee. We show that, particularly in small samples, the VPRS model can improve on more traditional models, both in-sample, and particularly in out-of-sample prediction. A similar improvement in out-of-sample prediction over the decision tree methods is also shown. Scope and purpose The Monopolies and Mergers Commission (MMC) in the UK evaluates whether a given firm, or set of firms is behaving in a manner that is considered to be against the public interest, that is anti-competitive. The interpretation and prediction of the decisions made by the MMC is of importance to firm's possible future investment plans. Through the construction of decision rules using the variable precision rough sets (VPRS) model this interoperation and prediction is able to be undertaken. The importance of the concomitant variables in the decisions made is shown through a ‘leave n out’ Monte Carlo simulation approach. At the technical level this study illustrates one of the first applications of VPRS in an economic environment.

Juridification, Codification and Sanction in UK Competition Law

The Competition Act 1998 radically reforms United Kingdom (UK) competition law displacing discretionary political action with more juridical norms based on the European Community (EC) competition rules. Such alignment is not required under EC law but in fact has occurred in most Member States1 and in all those countries seeking to join the EC in the near future.2 The basis of British competition law has shifted from a control of abuse system to a prohibition system. Under the control of abuse system everything was legal until expressly declared illegal. No penalties were imposed and decisions ultimately could be taken at the political level by the Secretary of State. Under the new prohibition system introduced by the Act breach of either of the two prohibitions on restrictive agreements and abuse of dominance may lead to the imposition of substantial fines in a manner similar to that found under EC law. This reform can properly be seen as a seismic shift in the regulation of competition within the UK leading to a juridification and codification of competition policy backed by a system of sanctions. This article argues that this process of juridification has redefined the role of the Office of Fair Trading (OFT) and created a very powerful regulator in its Director General. Codification takes the form of the Act itself supplemented by guidelines and for the first time a system of precedent through the now juridified successor of the Monopolies and Mergers Commission (MMC) the Competition Commission (CC). While codification facilitates and emphasises compliance, the Act also introduces strong investigative powers and sanctions. Finally, the article concludes that soft harmonisation with EC norms does not lead to complete harmony between the two systems of rules nor should it. In fact, there is continuing strength in the diversity that remains, leading to a greater bedding down of the system into the domestic legal order thus ensuring its acceptance and effectiveness, one where there is recognition that uniformity of legal norms across legal orders is little more than a fiction and that there are aspects of the EC system which can be improved on.

Effectiveness and effects of attempts to regulate the UK petrol industry

This paper evaluates the impact that investigation and regulation of the UK petrol industry has had on the profitability of the companies. Using a gross margin for petrol, we estimate a series of variable parameter autoregressive processes. The results demonstrate that the 1979 Monopolies and Mergers Commission investigation into the industry, caused a long-term decline in profit margins in the industry, despite the fact that no recommendations or undertakings were made. This cannot, however, be said for subsequent investigations.

Reviews

Tony Verheijen (ed.), Civil service systems in Central and Eastern EuropeSteve Leach and David Wilson, Local political leadership G.W JonesSteve Wilks, In the public interest: competition policy and the Monopolies and Mergers Commission

Regulation of the Petrol Industry in the UK: Issues and Evidence

The petrol industry has been investigated twice by the Monopolies and Mergers Commission in the last 20 years. On both occasions the MMC found that the conduct of the companies was not against the public interest. These findings were based on the perceived stable relationship between oil and petrol prices. This paper develops a model of petrol price using a co-integration approach, concluding that one must question the findings of the MMC.

Monopoly in the UK: What determines whether the MMC finds against the investigated firms?

This paper draws on data from 73 UK Monopolies and Mergers Commission reports on monopoly between 1973 and 1995. It shows that there is a roughly two in three chance that the Commission will come to an adverse conclusion against the investigated firms in a given case. 75–80% of decisions can be explained purely in terms of the market share of the leading firm and knowledge of the broad nature of the alleged anti‐competitive practice. An adverse finding is most likely in cases involving exclusive dealing, and least likely where other vertical restraints are involved.

Pricing calls to mobiles: analysis of the UK Monopolies & Mergers Commission Reports on mobile termination charges

The UK Monopolies and Mergers Commission (MMC) nine-month inquiry into fixed-to-mobile termination charges provides an exhaustive analysis of competitive and cost factors in mobile telephony. Its recommendations are discussed and compared with those of the telecommunications regulator, OFTEL, which referred the mobile operators to the MMC after failure to agree a further reduction in charges in early 1998. The MMC, following the same general statutory duty required of OFTEL, to promote competition under the Telecommunications Act 1984, provided a radically different analysis and disagreed with most of OFTEL's specific proposals suggesting that some were anti-competitive. As telecommunications regulators are increasingly required to implement pro-competitive regulation, the MMC's reports show that the evolving approach of sectoral regulators contains some significant flaws.

Beer and the Tie: Did Divestiture of Brewer‐owned Public Houses Lead to Higher Beer Prices?

In 1989, the United Kingdom Monopolies and Mergers Commission (MMC) recommended measures that eventually led brewers to divest themselves of 14,000 public houses. The MMC claimed that their recommendations would lower retail prices and increase consumer choice. Since that time, however, retail prices have risen. This paper contains an econometric analysis of the transition period. The analysis is based on a model of the relationship between retail price and retail-organisational form that emphasises how exclusive-dealing clauses and strategic factors interact. In 1989, in an important decision, the United Kingdom Monopolies and Mergers Commission (MMC) recommended measures that eventually led brewers to divest themselves of 14,000 public houses. The MMC claimed that their recommendations would lower retail prices and increase consumer choice. There is considerable doubt, however, that their objectives were achieved. Indeed, since the time that the recommendations were implemented, retail prices have risen. It is not clear, however, if prices would have increased in the absence of divestiture. One goal of my research is to provide an answer to this question. The MMC's recommendations created an exceptional opportunity to assess the effects that different contractual arrangements have on retail prices. Indeed, one would like to investigate this relationship ceteris paribus. Unfortunately, however, the choice of vertical-market structure is normally endogenous, and it is impossible to condition on all of the factors that affect the contracting decision. In the UK beer industry, in contrast, the Government ordered changes in the type and terms of the contracts under which national brewers could operate their licensed premises. Increased separation between brewer and publican, therefore, was not due to changes in economic conditions. Moreover, some premises - the 'free' houses that were not owned by a brewer - were not affected by the Beer Orders. The existence of a control group facilitates the analysis by strengthening the conclusions that one can draw. In recent years, economists have moved away from simple theories of vertical

An empirical analysis of the effects of the Monopolies and Mergers Commission Beer Orders (1989) on the UK brewing industry

The aim of this paper is to analyse the structural changes in the UK brewing industry, resulting from the Monopolies and Mergers Commission's (MMC) Beer Orders, 1989. Our discussion is supported by an empirical analysis of the effects of these recommendations on the demand for beer in the UK. The empirical results indicate no significant change in the national market following the recent government interventation.

The pricing of estate agency and conveyancing services in Scotland

This paper is concerned with an econometric investigation of possible monopoly pricing by solicitor estate agents in Scotland who have significant market shares in local housing markets there and who use Solicitors' Property Centres (SPCs) to advertise properties for sale. The exclusion of nonsolicitor estate agents from SPCs and the relationship between non-solicitor and solicitor estate agents was the subject of a recent Monopolies and Mergers Commission Inquiry. As an applied economic problem, the researchers sought to overcome fundamental data and practical difficulties to build a robust model of combined estate agency and conveyancing fee determination. The study concluded that SPC market share appears to be positively related to combined fee levels, house price appears to be the main determinant of combined fees (though not the only determinant), and, the relationship between SPC market share and combined fee levels found at a Scottish level has plausible regional variations. More research needs to be done to reinforce understanding of the fundamentals of these complex markets and more work is required to locate estate agency and conveyancing markets within the wider analysis of local housing markets.

Meeting 10 February 1995at the Monopolies and Mergers Commission in honour of S. Vajdaon. Duality in Practice

Meeting 10 February 1995at the Monopolies and Mergers Commission in honour of S. Vajdaon. Duality in Practice

The Monopolies and Mergers Commission's Investigation of the U.K. Music Market

The purpose of this Communication is to pass on information about two recent reports by the Monopolies and Mergers Commission (MMC), the U.K. government body that investigates monopoly and makes recommendations on action to be taken where monopoly (more than 25 per cent of the market) exists. These reports, The Supply of Recorded Music (1994) and Performing Rights (1996), between them cover practically every economic aspect of the music business in Britain. They are invaluable to researchers because they provide a wealth of institutional description and data, some of which would be difficult (or even impossible) to obtain elsewhere. They are written with exemplary clarity and are accessible to non-economists; as many of the Commissioners are economists, however, the questions addressed in the reports are essentially economic ones. The music business consists of the composition and live performance of music of all kinds (classical, contemporary, jazz, rock, pop etc), music publishing, and the production of sound recording. Sound recording has many facets to it: the production and sale of records (CDs, vinyl, tapes); the making of sound tracks for use in films and broadcasting; music videos which accompany pop record releases; and the very widespread use of recorded music in almost every place where people congregate. One of the things that welds together a host of very different types of music-making in the U.K. is that there is quite a lot of overlap in the production of sound recording between "classical" performers and pop and film music. Another is that the major record companies deal with a wide variety of music. A third factor is that the same problem of collecting due payments for the performance of live and recorded music faces everyone in the industry from composers through to record companies. That has become an exceedingly complex business in its own right and that is the subject of Performing Rights (see later). By contrast, The

Selective Distribution, Refusal to Sell and the Monopolies and Mergers Commission

Refusal to sell to ‘unauthorised’ dealers is an integral part of a selective distribution system. Under such a system manufacturers authorise only those dealers meeting their specific requirements. Where the market involved is ‘reasonably competitive’ it is widely recognised that manufacturers, dealers and consumers can gain. The British Monopolies and Mergers Commission (MMC) has been criticised for its interpretation of what constitutes a ‘reasonably competitive’ market. In a recent report into the supply of fine fragrances the issue was again central to its findings that the selective distribution system was not against the public interest. The European Commission has also recently granted exemption from Article 85 for the distribution system operated by the leading firms. We argue that the MMCs analysis of competition was again flawed in this case and that the danger to the consumer and new entrants is compounded by the Europe–wide exemption.

THE ROLE OF THE MONOPOLIES AND MERGERS COMMISSION IN PUBLIC SECTOR REGULATION

The Monopolies and Mergers Commission (MMC) investigates and reports on the activities of private and public sector bodies under Section 11 of the Competition Act (1980). These inquiries are distinct from other MMC work in being essentially efficiency audits. The privatisation programme has led to a reduction in the number of bodies falling within the scope of Section 11, but the MMC has been given new duties in relation to privatised firms. The paper surveys the MMC's output under Section 11 references and considers the new issues which are emerging under the privatisation legislation.

Sub-Merged Identities: Familiar and Unfamiliar Histories

I was prompted to write this paper by the recent debate over the merger of the Institute of British Geographers with the Royal Geographical Society. For historians of geography, what was especially striking about the debate such as it was were the divergent meanings placed on the proposed administrative union, and especially the way in which the history of geography its institutions and ideas became something of a battleground (or perhaps just a playground) for the protagonists. I concede that there is a danger of blowing this up out of proportion it might well be argued that the merger itself was a relatively insignificant, rather parochial event in the history of our discipline. Yet looking at what it threw up might help us to reflect further on the notion of a 'geographical tradition'. Perhaps it was the bureaucratic, corporate associations of the language of 'merger' (which provoked talk of 'takeovers' and 'buyouts' if not 'sellouts' in some quarters) that led one past President of the RGS to describe the new relationship between the two societies as a marriage rather than a merger. It was characterized as something less calculating and more intimate than an administrative connection; a union to be consummated, as it were, rather than approved by some academic equivalent of the Monopolies and Mergers Commission. His successor at the RGS describes the IBG as 'our sister society', which seems a rather safer (though no less pregnant) image. Meanwhile, the outgoing IBG President trumped them both by portraying the event as a reconciliation between faithful parent and an unruly child, separated in 1933 by some sort of tragic family breakdown.' What on earth is going on in this rush for familial metaphorics? So much reference to (hetero)sexual imagery to union and consummation as well as to the bonds of blood across the generations. How reassuring is it to portray this meeting of minds or rather bodies, and august ones at that as a replaying of some elemental family trauma brought o an end through the counselling skills of the Joint Working Party? Others might have their own readings especially those who have read their Freud but what is surely striking here is not just the account of our present condition ('Just Married') but the recasting of its history in terms of kinship, lineage and descent. Sir Crispin Tickell describes the 'marriage' in true diplomatic fashion as 'a bringing together of two societies with honourable and distinct traditions'.2 It