Sector-specific Regulation Research Articles

Competition Policy and Sector-Specific Regulation in the Financial Sector

Reforms of financial regulation after the crisis of 2007-2009 raise the question of what is the relation between financial regulators and competition authorities. Should competition authorities play a role in financial regulation? Should they co-operate with financial regulators? Or should they keep at a distance? The paper gives an overview over some of the issues that are involved in the discussion. Drawing on the experience of the network industries, the first part of the paper discusses the relation between competition authorities and sector-specific regulators more generally. Whereas competition policy involves the application of legal norms involving prohibitions that are formulated in abstract terms, sector-specific regulation involves authorities actually prescribing desired modes of behavior. The ongoing nature of relations makes regulators more prone to capture than competition authorities. In the financial sector, the potential for capture is particularly great because everyone is tempted by the idea that banks should fund their pet projects. Following an overview over the evolution of regulation and competition in the financial industry, the paper discusses various issues that are relevant for competition policy: Technological and regulatory barriers to entry, distortions of competition by explicit or implicit government guarantees, distortions of competition by bailouts making for artificial barriers to exit. Guarantees and bailouts in particular pose special challenges for merger control and for state aid control.

Antitrust Scrutiny of Excessive Prices in the Pharmaceutical Sector: A Comparative Study of the Italian and UK Experiences

Excessive pricing has generally been seen as a problem to be addressed through sector-specific regulation rather than through antitrust intervention. Literature on the issue is divided between scholars calling for an interventionist approach and those supporting a non-interventionist approach on the basis of conflicting rationales. However, recent cases have called attention to the imposition of excessive prices in the pharmaceutical sector. The Aspen and the Flynn cases, in particular, constitute emblematic examples of such practice in the field of off-patent drugs. The analysis of the investigations conducted by national competition authorities in these cases provides some important insights into the controversial issues of ascertaining when antitrust intervention can be considered justified and of determining which methodology may be properly adopted in order to assess whether a drug price is unfairly high.

SEKTÖREL DÜZENLEMELER VE DAVRANIŞSAL İKTİSAT: 149 SAYILI KARARIN DÜŞÜNDÜRDÜKLERİ

This paper emphasizes that designing sector specific regulations, based on the rational individual assumption, may not establish a competitive environment and it has a potential to create social opportunity cost. Based on the behavioral economics literature, the paper provides a systematic critique on the regulation of ICTA in respect of the Decision numbered 149, which entered into force in 2009 and was abolished in 2016. The primary conclusion of the paper suggests that the regulation does not reflect the real purchasing behavior of the consumers. The second conclusion indicates that while designing the regulation, possible exploitative behavior of the regulated undertaking, through using the biases of consumers, are ignored.

SEKTÖREL DÜZENLEMELER VE DAVRANIŞSAL İKTİSAT: 149 SAYILI KARARIN DÜŞÜNDÜRDÜKLERİ

Bu çalışma, tüketicilerin rasyonel davrandığı varsayımıyla tasarlanan sektörel düzenlemelerin, kendisinden beklenen rekabetçi yapıyı sağlama fonksiyonunu yerine getirmeyebileceğini ve toplum için fırsat maliyetleri yaratabileceğini vurgulamaktadır. Çalışma bu vurguyu, BTK’nın 2009 yılında yürürlüğe girip 2016 yılında yürürlüğü sonlanan ve kamuoyunda “149 sayılı Karar” olarak bilinen düzenlemesi üzerinden, davranışsal iktisat literatürüne dayalı sistematik eleştiriler sunarak yapmaktadır. Çalışmanın vardığı sonuçlardan ilki, söz konusu düzenlemenin tüketicilerin satın alma davranışlarını yansıtmadığına işaret etmektedir. İkincisi ise, düzenlemeye tabi olan işletmecinin, tüketicilerin yanlılıklarını kullanarak, düzenlemeyi kendi lehine çevirebileceğinin gözden kaçırıldığını göstermektedir.

Path Dependencies versus Efficiencies in Regulation: Evidence from 'Old' and 'New' Broadband Markets in the EU

This paper examines the determinants of sector-specific regulation imposed on broadband markets related both to efficiency objectives of regulators and to those of narrowly defined interest groups. We test hypotheses derived from the normative and positive theoretical literature employing recent panel data on 27 European Union member states taking into account endogeneity of the underlying regulation and market structure variables. Our empirical specification employs three different estimators based on instrumental variables in order to identify causal effects. We find evidence supporting both regulators pursuing normative objectives and inefficiencies related to regulatory path dependence, bureaucracy goals and an inadequate consideration of competition from mobile broadband networks. Our results call for adjustments in the institutional design of the decision making process under the current European Union regulatory framework.

Standardization for the Digital Economy - The Issue of Interoperability and Access Under Competition Law

This article discusses several aspects of the Digital Economy. Firstly, the Intellectual Property landscape of the soon to come Internet of Things is drawn up, discussed and scrutinized, and the current issue whether non-personal digital data should become a property right, in-itself, is analysed. Secondly, in light of the IP landscape, “pictured” in the first part of the article, the current standardisation efforts for the Digital Economy are discussed, e.g. what are the challenges, and how much should be standardized and how lenient should competition authorities treat pre-standard consortia. Thirdly, current and future competition law issues for the Digital Economy are identified, and lastly the unworkable dichotomy between personal data, non-personal data is criticized. The paper conclude that general competition law may not be readily available for accessing generic (personal or non-personal) Data, except for the situation where the Data set is indispensable to access an industry or a relevant market; while sector specific regulations seem to emerge as a tool for accessing Data held by competitors, third parties and possibly competing ecosystems. However, the main issue under general competition law in the Data industry, at its current stage of development, is to create a levelled playing field by trying to facilitate the implementation of Internet of Things; thus, competition authorities should be cautious about the current consortia driven standard-setting movement in the Digital Economy, when the technology being standardized is not infrastructure type, but rather of upper layer substitute data interoperability technical solutions.

Broadband for All: Policies for a Connected Society

Intelligent networks, smart appliances, the Internet of things – whatever it is called, the future that many envision will require a robust Internet, and everyone, or nearly everyone, will need to be connected to it. This paper explores three questions that are foundational to the achievement of this vision of a connected society: (1) How to determine the minimum Internet connection speed compatible with effective participation by citizens in a connected economy? (2) What policy choices influence the availability of broadband networks? (3) What policy choices influence the adoption of broadband by citizens where broadband networks are available? How to determine the minimum speed of Internet connection compatible with effective participation by citizens in a connected economy? Many households are able to obtain very fast Internet connections, often up to 100 Mbps or even faster, and the number of households with access to such a service is increasing. These very fast download speeds, however, are well in excess of what is minimally required for households to participate in a connected economy. It is not necessary that every household has superfast Internet, only that they have a sufficiently fast Internet connection. First, one must determine the services that are necessary for households to participate in a connected economy, and then one must determine the download speed and upload speed that are sufficient for that participation. This paper considers the available information on services and download and upload speeds. While the required minimum standard might be available to most households in developed countries, it is likely not available to all households. What policy choices influence the availability of broadband networks? Cambini and Jiang (2009, pages 560-562) identify three broad policy approaches to broadband deployment. The first, exemplified by the US, features platform competition and a deregulatory approach to FTTP networks, which are not subject to mandatory unbundling requirements. A second approach, exemplified by East Asian nations such as South Korea and Japan, features strong policy intervention and direction from the state to promote FTTP deployment and adoption. A third approach is found in the EU where unbundling of fixed networks figures very prominently. At a broad level, these approaches reflect differing patterns of political and economic institutions among the U. S., the EU, and East Asia. The accumulating empirical evidence shows a sharp divergence, as between North America and Europe, in terms of broadband network availability, adoption and performance. This suggests that the relatively restrained wholesale policies in North America, compared to Europe, have led to more successful broadband outcomes. Where policies of facilities-based competition reach their limits, this paper explores options for extending broadband service. A bidding process to extend service to underserved or unserved areas, or a reverse auction, will hold down the cost of extending service. The cost of such a service extension can be funded, preferably, from general tax revenues, or, if that is not possible, from a broad-based telecommunications revenue charge. This would provide the required funds in the least distortionary and most efficient manner. What policy choices influence the adoption of broadband by citizens where broadband networks are available? Even where policies are encouraging the construction of broadband networks, the vision of a connected society cannot be achieved without the wide adoption of broadband by citizens. Indeed, in telecommunications markets with advanced platform competition across cable, wireline, wireless and satellite infrastructures, encouraging adoption represents a major opportunity to generate additional socio-economic benefits. Recent studies highlight supply-side, socio-economic characteristics – such as age, education, and income – as primary factors that limit broadband adoption (Landry and Lacroix, 2014). Addressing such issues is typically beyond the mandate and skill set of a sector-specific regulator and calls forth the need for broader governmental action (via school system, skills training, etc) Sector-specific regulators can, however, use their tool box of skills and remedies to increase adoption by maintaining a robust commitment to facilities-based competition. Empirical research has shown that broadband adoption is greater in countries with facilities-based competition (Crandall et al., 2013).

Competition policy for health care provision in Norway

Competition policy has played a very limited role for health care provision in Norway. The main reason is that Norway has a National Health Service (NHS) with extensive public provision and a wide set of sector-specific regulations that limit the scope for competition. However, the last two decades, several reforms have deregulated health care provision and opened up for provider competition along some dimensions. For specialised care, the government has introduced patient choice and (partly) activity (DRG) based funding, but also corporatised public hospitals and allowed for more private provision. For primary care, a reform changed the payment scheme to capitation and (a higher share of) fee-for-service, inducing almost all GPs on fixed salary contracts to become self-employed. While these reforms have the potential for generating competition in the Norwegian NHS, the empirical evidence is quite limited and the findings are mixed. We identify a set of possible caveats that may weaken the incentives for provider competition – such as the partial implementation of DRG pricing, the dual purchaser–provider role of regional health authorities, and the extensive consolidation of public hospitals – and argue that there is great scope for competition policy measures that could stimulate provider competition within the Norwegian NHS.

Rail Mergers Across the Channel: The European Commission Conditionally Clears the SNCF Acquisition of Eurostar International Limited

By the decision handed down in the case SNCF Mobilites/EIL the European Commission has conditionally approved the SNCF Mobilites acquisition of Eurostar International Limited. The decision is worth being read as it gives an insight into the creative proactive approach that the Commission may take in fashioning remedies for problematic mergers in the network industries in support of the sector specific regulation.

UK: The Concurrent Enforcement by Regulators of Competition Law and Sector-Specific Regulation: Table 1:

The UK has a unique model where competition law is enforced concurrently by the Competition and Markets Authority (CMA) and the sector regulators. A major reform was implemented by the Enterprise and Regulatory Reform Act 2013, extending concurrent powers to the financial services sector and the National Health Service. The reform led to more enforcement activity as well as to greater contacts, seemingly more information flows, greater understanding, and perhaps more trust between the agencies.

The Internet, User Autonomy and EU Law

This chapter examines the Internet’s origins and development as a ‘freedom-enhancing’ tool, alongside the contemporaneous evolution of EU law and regulation governing private economic power. The concept linking these two streams of discussion is that of ‘user autonomy’, which is implicated by the Internet’s affordances for individuals, and which, it is argued, should also be the legal and regulatory framework’s goal when governing Internet matters. However, the trends influencing EU law and regulation from the 1980s, especially neoliberalism, have resulted in these frameworks - competition law, sector-specific regulation, data protection and fundamental rights - not being well-equipped to advance user autonomy in the Internet sphere.

EU Competition Law in the Regulated Network Industries

This piece considers the interface between EU competition law and the regulation of network industries. The two have been transformed as a result of their interactions. It is difficult to make sense of contemporary EU competition law without taking into account the consequences that the liberalisation process has had on it. Similarly, regulation sees EU competition law as a model and an aspiration. In this sense, the two disciplines can be said to be mutually compatible. In spite of the compatibility between EU competition law and sector-specific regulation, there is tension between them. The objectives of the two are not identical. Regulation is conceived to undermine the position of the incumbent and to introduce fragmentation. EU competition law, on the other hand, seeks to preserve the competitive constraints to which firms are subject. As a consequence of this tension, the substantive standards in EU competition law may vary to accommodate the features and demands of network industries. Finally, it appears that EU competition law and sector-specific regulation have a complementary relationship. Sectoral regimes often lack the tools to achieve their objectives. The substantive scope of regulation may be limited, or the range of measures insufficient to address all concerns. EU competition law is a versatile instrument that can remedy some of these gaps. It has proved to be an effective tool to preserve fragmentation in liberalised markets and to manage technological change.

The regulation of competition in the National Health Service (NHS): what difference has the Health and Social Care Act 2012 made?

This article examines the impact of the Health and Social Care Act 2012 on the regulation of competition in the English National Health Service (NHS), by focussing on the change it marked from a system of sector-specific regulation to one which is clearly based in competition law. It has been suggested that the Act and its associated reforms would significantly alter accountability in the NHS, and would change decisions from the remit of public policy to that of the law. To assess the impact the Act has had in practice, the article compares the interpretation of the rules regarding competition in the NHS by the regulators of competition immediately before, and following, the passing of the Act. It argues that, whilst the reforms have the potential significantly to alter the way competition in the NHS is regulated, the impact of the reforms in this area is limited by the development of systems within the NHS to manage and resolve issues internally where possible.

European Union competition law in the digital era

Abstract What is the role of European competition policy in the digital economy? Even if it cannot deal with all perceived issues in digital markets, competition law enforcement is the appropriate tool to remedy distortions to competition caused by market power, without the introduction of pervasive ex-ante sector-specific regulation being required. Whilst some of the proposals for reform of the European competition law legal framework recently brought may have some merit in principle, the current regime appears to be suitable and sufficiently flexible to allow the Commission to intervene effectively and remedy competitive distortions in digital markets.

Exploitative Prices in European Competition Law

Undertakings may restrict competition cooperating with their competitors (collusion) or interfering with their ability to compete (exclusion). The main concern about collusive and exclusionary practices is that they enable firms to profitably raise prices over their marginal costs; i.e. they create market power. In European competition law it has been considered that, under certain circumstances, practices which, without reinforcing it, represent a mere exercise of the (substantial) market power already enjoyed by the dominant firm, should be prohibited as well. Among these so-called “exploitative practices”, the most obvious example would be the direct imposition of excessively high prices. This chapter discusses whether purely exploitative prices (i.e., prices aimed at the mere exploitation of the buyers without exclusionary object or effects) should be included in the prohibition of unfair prices as an abuse of dominant position or, on the contrary, an exclusionary effect is also required. The vagueness of the case law of the European Court of Justice has enabled the coexistence of divergent interpretations and, accordingly, very different standards. The assumption of a price control function by a competition authority, and the subsequent prohibition of purely exploitative prices, are not supported by the main legal theories on competition law, and, according to mainstream economics, may impair the efficiency of markets. In addition, neither the definition of unfair prices nor the test employed to determine their existence necessarily include exploitative prices. On the contrary, both of them suggest that an unfair price has to be a supra-monopoly price, whose object and effects would be exclusionary rather than purely exploitative. Purely exploitative prices are just maximizing-profit prices (i.e. monopoly prices), and, as long as they are inherent to the possession of a dominant position should not be regulated, apart from the case when dominance has been achieved through the market being a true natural monopoly or through state-granted monopoly rights; even then, the task of regulating the prices of monopolists – or removing such a legislative privileges – should be done ex ante and left to government or sector-specific regulators.

When competition law meets telecom regulation: the Chinese context

The liberalized telecom sector propagates a dynamic ecosystem mixed prominently with three forces: the market mechanism, sector-specific regulation and competition rules. While the tension between the market force and sector-specific regulation has been well studied, the conflicts between sector-specific regulation and competition rules have attracted less attention in particular in China. The 2012 China Telecom/China Unicom case indicates that such conflicts are not moot issues any more. This leads to a question whether it is better to let the two instruments compete or complement. The comparative study on the different practices of the EU and the US suggests that China may better apply the US case-by-case approach, i.e. to evaluate whether antitrust intervention can bring added value to effective competition. Subsequently, a substantive analysis based on the US approach arrives at a conclusion that the EU outcome is nonetheless better suited for the Chinese context, namely to establish the supremacy of competition rules over sector-specific regulation and to allow the former to intervene in the latter whenever necessary.

Reshaping market, competition and regulation in EU utility liberalization: A perspective from telecom

Liberalization in utility sectors faces two legal challenges, namely institutional conflicts between the market mechanism and sector-specific regulation, and conflicts between sector-specific regulation and competition law. The former has long been dealt with by academia and legislation, but the latter attracts comparatively less attention. Recent EU antitrust enforcement in the telecom sector demonstrates acute conflicts between SSR and competition law. While the inclusion of EU competition law in the TFEU establishes its supremacy over telecom regulation, it is worth investigating whether the Commission, using its antitrust power, has encroached on Member States’ competence over telecom regulation. The article finds that the Commission has over-stretched competition rules for regulatory or political purposes, without bringing prominent added value to effective competition when compared with sector-specific regulation. It is suggested to mitigate conflicts through an amended coordination mechanism based on the current Article 7 Procedure.

How EU sector-specific regulations and competition affect migration from old to new communications infrastructure: recent evidence from EU27 member states

In a time of rapidly increasing global digitalization, providers of communications networks find themselves confronted with huge growth in broadband-intense demand and hence must address the need to expand high-performance fiber optic networks. However, since deployment of fiber access networks is subject to high risk for operators, a core question faced by regulatory institutions is how to optimally design the regulatory framework to incentivize investment. This work employs recent EU27 panel data and examines the role of regulatory policies and competition controlling for relevant supply and demand side factors and the investment dynamics. The results indicate that relevant forms of previous broadband access regulation have a negative impact on investment in new fiber infrastructure. Furthermore, infrastructure-based competition from mobile operators and the replacement effect stemming from the incumbents’ existing infrastructure exert a negative impact on investment incentives. Finally, there is clear evidence of adjustment costs underlying the fiber deployment process.

Discovering the Miracle of Large Numbers of Antitrust Investigations in Russia: The Role of Competition Authority Incentives

Many antitrust investigations in Russia continue to present a challenge for the assessment of competition policy and international enforcement ratings. On the one hand, many infringement decisions may be interpreted as an indicator of high enforcement efforts in the context of rigid competition restrictions and the significant related harm to social welfare. On the other hand, many investigations proceed under poor legal and economic standards; therefore, the impact of decisions and remedies on competition is questionable. In fact, large number of investigations may indicate the ineffectiveness of antitrust enforcement. The article explains the possible effects of antitrust enforcement in Russia. Using a unique dataset of the appeals of infringement decisions from 2008-2012, we classify the investigated cases according to their potential impact on competition. A case-level analysis reveals that the majority of cases would never be investigated under an appropriate understanding of the goals of antitrust enforcement, restrictions on competition and basic cost-benefit assessments of agency activity. There are diverse explanations for the distorted structure of enforcement, including the incompleteness and imperfection of sector-specific regulations, rules concerning citizen complaints against the executive authorities and the incentives of competition authorities. Our analysis shows that competition agencies tend to pay more attention to the investigation of cases, which requires less input and, at the same time, results in infringement decisions with a lower probability of being annulled.

When Competition Law Meets Telecom Regulation: The Chinese Context

The liberalized telecom sector is intertwined with market force, sector-specific regulation and competition rules. While the conflict between market force and sector-specific regulation has been well studied, the conflict between sector-specific regulation and competition rules has attracted less attention in particular in China. The recent Chinese Telecom/China Unicom case, though not a successful antitrust intervention, suggests that the conflict between the two instruments has become tangible. This leads to a question whether it is better to let the two compete or complement. After carrying out a comparative study on the dramatically opposite practices of the EU and the US, this article chooses the US means and nevertheless follows the EU ends. Based on an evaluation whether antitrust intervention can bring added value to effective competition in the Chinese telecom sector, it proposes to establish the supremacy of competition rules and to allow competition rules to intervene into regulated matters.