RBB publications

Brief 55: Automatic Harm to Competition? Pricing algorithms and coordination 12.02.18

In a recent speech, EU Commissioner Vestager expressed the following concerns regarding the use of pricing algorithms.

“ I think we need to make it very clear that companies can’t escape responsibility for collusion by hiding behind a computer program.”

Other competition agencies have echoed similar concerns for the risks that pricing algorithms pose for collusion. The topic has also featured in a recent OECD roundtable and in a number of academic papers. This Brief assesses the impact of different categories of pricing algorithms, identifies their links with coordination concerns, and evaluates some possible competition law enforcement responses. Pricing algorithms do raise some interesting issues, but the worst case scenarios for collusion have been overplayed, and some of the calls for increased intervention reveal a worrying gap in the understanding of the economics of oligopolistic markets.

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Brief 54: An innovative leap into the theoretical abyss: Dow/DuPont and the Commission’s novel theory of harm 05.07.17

In March 2017, the European Commission approved the proposed merger between chemical companies Dow and DuPont, subject to undertakings. The Commission applied an innovation theory of harm that is based on a much broader and more speculative concern than in other recent mergers (e.g. Pfizer/Hospira); namely, that the parties would find it profitable to reduce overall R&D investments post-merger causing a reduction in the number of innovative pesticide products in the future. This Brief explains why this theory of harm marks a departure from previous “innovation” cases. It also responds to the recently published paper by Chief Economist Tommaso Valletti and his colleagues, which claims, on the basis of a theoretical model, that horizontal mergers can be expected to reduce innovation incentives as a result of a standard unilateral effect.

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Brief 53: Passing judgment on passing-on 29.03.17

The harm suffered by a firm as a result of a competition law infringement that increases its purchase costs may be reduced if it can pass on some or all of this overcharge to its own customers. At the same time, such passing-on will lead to harm, and provide the basis for claims, further down the supply chain. In this Brief we offer an economic perspective on passing-on, highlighting in particular some of the issues raised by the UK Competition Appeal Tribunal’s Judgment on the damages claim brought by supermarket retailer Sainsbury’s against payment card scheme operator MasterCard. In doing so, we have drawn on insight and analysis from the Study on the Passing-On of Overcharges recently co-authored by RBB for the European Commission.

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Brief 52: Estimating post-merger price effects in bidding markets: lessons from GE/Alstom 21.06.16

In September 2015, the European Commission cleared General Electric’s proposed acquisition of Alstom’s power generation business, subject to undertakings, after a Phase II investigation. The transaction reduced the number of major suppliers of heavy duty gas turbines from four to three. As part of its assessment, the Commission estimated the likely price impact of the proposed transaction, taking into account the bidding nature of competition.

In this Brief, we examine the intuition behind the techniques used by the Commission, which we expect it to employ when evaluating future transactions involving bidding markets. Whilst less simplistic, these techniques suffer from similar drawbacks to the price pressure tests which the Commission and other authorities around the world are increasingly employing.

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