RBB Economics - Publications

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

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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 are made available at no cost. If you wish to be added to our mailing list, please click the link below.

RBB Brief 22 - (Fore)closing the Gap: The Commission’s Draft Non-Horizontal Merger Guidelines

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 …

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RBB Brief 22 - (Fore)closing the Gap: The Commission’s Draft Non-Horizontal Merger Guidelines

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).1 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 ...

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RBB Brief 22 - (Fore)closing the Gap: The Commission’s Draft Non-Horizontal Merger Guidelines

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. ...

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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 ...

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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. ...

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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 ...

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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...

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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.

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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.

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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.

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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.

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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?

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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.

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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.

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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.

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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.

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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.

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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...

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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

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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.