Whenever fuel prices increase markedly, accusations of anti-competitive conduct are
almost sure to follow. Indeed, when automotive fuel prices scaled new highs during 2008,
this was greeted with waves of protest around the world. Portugal was no exception,
with the Automobile Club of Portugal (‘the ACP’) declaring itself ‘convinced’ as to the
anti-competitive nature of the price movements. Significantly, the Portuguese Autoridade
da Concorrência (‘the Authority’) responded by initiating an in-depth investigation of the
sector. In turn, this prompted the ACP to follow up on its claims with a legal opinion that
set out its concerns in more formal terms.
In this Brief, we use this episode to illustrate how economic analysis can help to
distinguish between spurious and legitimate competition concerns. In particular, we
examine the usefulness of formal econometric techniques, as deployed by the Authority,
in testing competing claims.
RBB Briefs provide
an economic analysis or commentary on important developments
in competition law in
Europe, whether at an EC level or the level of national competition
authorities. Briefs are usually published every two months and
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EThe Nokia/NAVTEQ and TomTom/Tele Atlas vertical mergers were considered by the European Commission at the same time as the publication of the Commission's new
Guidelines on non-horizontal mergers (the Guidelines 1), providing an early test of the application of the new regime. The Commission's main concern was the likelihood of
total and partial vertical input foreclosure. Eventually both mergers were cleared without remedies following phase II investigations.
Unlike horizontal mergers, vertical mergers do not combine firms that compete at the same level of the supply chain and so are far less likely to restrict competition. In certain circumstances, however, harmful effects may occur. This Brief considers some of the key issues arising in the analysis of total and partial input foreclosure, with particular reference to the Nokia/NAVTEQ merger. We explain the new terminology adopted by the Commission which distinguishes between 'foreclosure' and 'anticompetitive foreclosure' and highlight the theory and evidence that the Commission is likely to consider in future cases where input foreclosure is a concern.
Economic analysis has a clearly established role in the assessment of alleged infringements of Article 81 EC. It is central, for example, in establishing whether a vertical agreement results in foreclosure, or in estimating the damage suffered by a customer of a cartel. However, economics has typically played a less prominent role in establishing whether a cartel infringement has occurred. But that situation is now changing, spurred by the increased tendency of the European authorities to pursue Article 81 cases against horizontal agreements, such as information exchanges, which fall short of the classic cartel infringement.
This Brief explores the role that economics can play in cases where information sharing is alleged to infringe Article 81. We comment in particular on the "Catch-22" that now stands in the way of enforcement officials who seek to avoid economic analysis by claiming that a restriction is anti-competitive "by object".
After a Phase II inquiry, the Dutch competition authority NMa cleared on 28 August
2008 the acquisition of Gouden Gids, a Dutch on-line and print directory owned by Truvo,
by European Directories, publisher of rival on-line and print directory De Telefoongids.1
The transaction led to the integration of the directory activities of De Telefoongids and
Gouden Gids. De Telefoongids and Gouden Gids were the only two national, door-to-door
distributed directories in the Netherlands…
Private actions for cartel damages have become an increasingly common feature in
Europe. This Brief discusses, in light of the EC Commission’s White Paper on private
actions, the role that damages claims can play in protecting competition and consumer
interests in horizontal cartel cases.…
In September 2008 the Competition Commission (CC) accepted price control
undertakings following the merger of Arqiva and National Grid Wireless (NGW), which
had been cleared subject to undertakings by the CC in March 2008. The merger was cleared even though it was a merger to monopoly in the supply to
broadcasters of managed transmission services (MTS). Whilst such findings would
normally result in prohibition or a structural remedy, the CC accepted a package of
behavioural remedies addressing the effects of the substantial lessening of competition
(SLC) rather than the SLC per se. This was motivated.…
In January 2008, the UK Competition Commission cleared the completed acquisition of
Gamestation Limited (Gamestation) by GAME Group PLC (GAME), creating the largest
retailer of video games in the UK through the combination of the only two national
specialist retailers.1 The merger was approved unconditionally by the Commission, albeit
with two of the panel members expressing a dissenting opinion. This Brief examines the
source of the differences of opinion amongst the panel members and in so doing highlights
two important considerations for the practical assessment of horizontal mergers,
…
In March 2008, the European Commission cleared Google’s proposed acquisition of DoubleClick, a leading online advertising technology company. Despite the absence of any horizontal overlap between the parties, the merger was the subject of a large amount of public attention (focused on issues related to privacy as well as to competition) and faced significant opposition from third party complainants.
Interestingly, although most of the concerns put forward to the Commission were
based on exclusionary theories, some complainants suggested that the new entity
would be able to raise prices unilaterally even in the absence of foreclosure. Whilst the notion of a non-horizontal merger…
For a market to be described in economic terms as “two-sided” two conditions must
hold. First, the product at the centre of the analysis is a “platform” that allows or
facilitates the interaction of two distinct groups of customers. Second, the benefit that
customers in one group derive from the interaction is larger the greater the number
of customers on the other side of the platform (the platform creates indirect network
externalities). Examples of markets with two-sided features include the media…
The UK Enterprise Act introduced the market investigation, a new instrument that allows the Competition Commission (CC) to analyse markets in which there is “an absence of effective competition” and, where applicable, to implement remedies. The market investigation powers have been trumpeted as a device that will enable the competition authorities to fix problems and benefit consumers in areas that could not easily be reached by the mainstream competition laws against abuse of dominance and restrictive agreements.
This Brief takes a critical look at the CC’s market investigation into banking in Northern Ireland. We assess whether…
In February 2007, the UK Competition Commission (hereafter, the “CC”) cleared the acquisition of Adsteam Marine Ltd. (“Adsteam”) by Svitzer-Wijsmuller A/S (“Svitzer”). Each of the two parties was the sole supplier of harbour towage services in a number of UK ports and after the merger the new entity would have accounted for around 90% of such services in the UK. The CC concluded that no substantial lessening of competition would arise post-merger except in the port of Liverpool, the only UK port …
Almost exactly 3 years after issuing its horizontal merger guidelines, the European Commission published draft guidelines on the assessment of non-horizontal mergers (i.e. vertical mergers and conglomerate mergers). As the draft guidelines acknowledge, by virtue of bringing together complementary rather than substitutable products, nonhorizontal mergers – whether vertical or conglomerate – give rise to substantial scope for cost and price efficiencies and are ...
The Tomra Article 82 Decision is the first to have been issued since DG COMP’s
much-debated Discussion Paper on Article 82 was published in December 2005. A recent article in the DG COMP Newsletter by
members of the Commission case team states that the decision marks an important step
towards the envisaged reform of Article 82 enforcement. In this Brief we consider the
Commission’s approach to Tomra’s rollback rebates and assess the implications for the
brave new world of effects-based analysis. ...
Under the European regulatory framework governing
electronic communications established in July 2003 national regulatory
authorities (NRAs) can impose regulatory obligations on telecoms
operators ‘only where the [relevant] markets are considered not
to be effectively competitive as a result of such undertakings
being in a position [of significant market power (SMP)] equivalent
to dominance within the meaning of Article
82 of the EC Treaty’. In other words, the hurdles that must be cleared before
regulatory intervention can occur are defined explicitly to meet general competition
law standards ...
It is widely recognised that diversion ratios can provide a useful
tool when analysing the unilateral effects of a merger. [...] In principle,
a reliable diversion ratio approach dispenses with any need to measure
the relevant market because it measures directly the extent of the
competitive constraints that disappear due to the merger. However,
there are many pitfalls in using diversion ratios to make predictions
of the impact of a merger on competition. ...
In February 2004, the European Commission issued its guidelines on the
assessment
of horizontal mergers. Those guidelines set out the analytical approach
that the
Commission is meant to apply when assessing mergers involving firms that
are actual
or potential competitors on the same relevant market. The guidelines
explain that a
horizontal merger may significantly impede effective competition by eliminating
an
important competitive constraint on one or more firms (“non coordinated
effects”)
or by changing ...
On 31 May 2005, the Court of Rotterdam in the Netherlands
annulled a decision by the NMa, the Dutch competition authority,
concerning the proposed merger between electricity companies Nuon
and Reliant1 After a detailed inquiry, the NMa had cleared the
merger conditional on a structural remedy whereby the merged entity
was required to auction a part of its electricity generation capacity
to third parties for a period of five years...
This Brief explores some economic and policy issues
raised by tying and bundling in the
context of abuse of dominance investigations, focusing in particular
on the role that third
party complaints play in the analysis. Interest in the treatment
of this subject under
European competition law has recently been renewed by the Commission’s
decision in the Article 82 case against Microsoft.
This Brief discusses the EC Commission Notice
on Article 81(3) exemptions. The Notice describes a framework
for the economic analysis of how an agreement that is held
to restrict competition may nevertheless be lawful because
it meets the four efficiency defence criteria of Article
81(3). The Notice seeks to follow the approach taken on
efficiencies in horizontal mergers, but as we explain in
the Brief, there are several difficulties in extending
this framework from mergers to the assessment of vertical
and horizontal agreements.
This Brief analyses the Commission’s decision to clear GE’s
acquisition of Instrumentarium, the medical equipment supplier,
subject to undertakings. RBB acted as economic experts to GE on
this merger. The case is interesting on a number of levels. It
is the first EC Merger Regulation decision to contain a detailed
and explicit analysis of unilateral effects, reflecting the framework
laid down in the EC’s horizontal merger guidelines. The decision
also reveals the very substantial influence that the Chief Economist’s
office is having on the greater use of quantitative methods in
merger analysis.
In the last six months the CFI has issued two long-awaited
judgments on dominant firm
pricing behaviour. In both cases – Michelin II and British Airways (BA) – the
CFI has upheld
the Commission’s earlier finding that these firms had pursued price and
rebate schemes
that amounted to an abuse of a dominant position.
These judgments come at a critical time, because the
Commission’s policy in this area
has come under intense criticism in recent years, and DG COMP has committed
to a
review of policy that may lead to the publication of enforcement guidelines
providing a
more coherent economic approach to the analysis of Article 82 cases.2 However,
by
endorsing the formalistic approach that the Commission has taken, the CFI has
almost
certainly hindered the prospects for much-needed reform in this area.
This Brief
examines some of the economic issues behind the two cases.
The Commission’s new Notice on Horizontal Mergers
highlights the importance of unilateral
effects analysis in evaluating mergers in differentiated product markets. In
industries
where the products supplied by firms are differentiated, market shares can
either over- or
understate the significance of the competitive constraint that each party poses
on the
other, and a more sophisticated analysis is needed. Reflecting that need, there
has been
a recent upsurge in interest in the potential role of merger simulation models
in EC merger
control. Proponents of these models often claim that they result in a robust
prediction of
the ultimate impact of differentiated product mergers – that they allow
the analysis to go "straight to the answer", rather than becoming
distracted by unproductive
debates on
market definition and purely structural factors.
This Brief takes a critical look at simulation models.
Can they deliver on such promises?
Or is their contribution a more limited addition to the range of analytical
techniques that
can usefully be applied in merger assessment?
It is generally accepted that market shares alone provide
an incomplete basis for competitive assessment, especially
in differentiated product settings where they can potentially
either understate or overstate the likely competitive
impact of a merger. Moreover, any assessment of the likely
impact of a merger must also include consideration of
supply-side as well as demand-side responses, since these
can provide just as important a source of competitive
constraint on attempts to raise price post-merger.
This Brief illustrates these points with reference to
the investigations undertaken by three separate competition
authorities into mergers in the cruise industry.
In March 2003 the OFT decided that Genzyme
had infringed the UK Competition Act’s Chapter II prohibition
(the UK analogue of EC Article 82) by bundling its product with associated
home care services, and by imposing a margin squeeze on competing firms.
Based on the case law and the OFT’s published guidelines, this
decision might appear at first glance to be a straightforward case
of dominant firm abuse. But a closer analysis of the economic issues
raises some interesting and as yet unanswered questions about the nature
of dominant firms’ obligations under competition law.
In light of the increasing reliance on ever more sophisticated
theories of anti-competitive effects in all areas of competition
law, this
Brief discusses how the relevance of economic theories should be
evaluated in the practical application of competition rules. Assessing
the relevance of a theory to the actual operation of a market is
critical because with the right assumptions it is possible to build
a theoretical model to support almost any view of the world. It is
therefore important that any theory of competitive harm is carefully
assessed and that its underlying assumptions and predictions are
consistent with observed industry behaviour. By way of illustration,
we explore how the NMa recently considered and rejected a theoretical
model of the operation of the market for motor fuel retailing in
the Netherlands.
In July this year a new European
regime for the regulation of electronic communications will
come into force. It will harmonise the framework to
be used for telecommunications regulation throughout
the EC, whilst leaving national
regulatory authorities (NRAs) free to deal with
the different domestic circumstances each faces.
This Brief considers the new regime and discusses the
issues and factors that NRAs and regulated firms will
need to consider in shaping how the discretion of the
NRAs is to be used within the new framework.
In December 2002, the EC Commission
announced a series of reforms designed to improve the assessment
of mergers. As far as horizontal mergers are concerned,
substantial changes are largely covered in the Draft
Notice on the Appraisal of Horizontal Mergers that
accompanied the reforms. In Brief
7 we assess the Draft Notice and its implications.
RBB Brief 6 analyses the effect that switching costs have
on the appraisal of mergers:. Too often, the existence
of switching costs is cited as a reason for prohibiting
mergers at lower levels of market concentration than
would normally be justified. The real impact of switching
costs, however, is rather more complex, and can lead
to surprising results...
RBB Brief 5 discusses the controversial
issue of excess pricing as an abuse in the context of the
UK Competition Act case involving Napp Pharmaceuticals
RBB Brief 4 describes how the Dutch
Competition Authority assessed (and approved)
Heineken's exclusive beer supply agreements under the new
rules for vertical restraints.
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