2012 Conference Review – Second Session, Room 2

(review by Gyozo Pinter, CCP PhD Student)

Niamh Dunne (University of Cambridge)

In her presentation, Niamh criticises the Commission’s current practice of discounting regulated firms’ fines for breaching competition law.

She starts off by introducing the problematic nature of such cases. Competition law applies to firms that are regulated as well, to an extent they enjoy freedom of carrying out competitive conducts. Therefore, a breach of competition law can be established even if the conduct of the firm was required by regulation, as long as some possibility of independent action remained. From a legal perspective, when the Commission assesses a conduct it may find only two things: there was a breach of law or there was no breach of law, and within this framework the restricted freedom of the firm is not considered at all.   Appreciating the effect of regulation on the firms’ conduct in these cases (where “State Action defence” can be used) the Commission discounts the fine to an extent that it seems appropriate. So in the cases concerned, the Commission finds a breach, calculates the fine, and then discounts it by some percentage. The fact that regulation lowers the culpability of the firm and the severity of the offence is currently not appreciated. Meanwhile, the fines (due to such circumstances) were discounted significantly, for example in the Bananas cartel case by 60%, which suggests that the Commission understands that the firms just had a marginal playing field.

According to Niamh this shows, that the “one size fits all” solution is not appropriate, and the current practice of assessing this factor only at the last stage of the procedure is not satisfactory. This is because – having established that a firm breached competition law – the fine is only one negative consequence it has to face. Others, such as simply the legal finding of illegality, monetary fines (to a proper extent), a possible criminal prosecution, follow-on private actions and recidivism which might be an aggravating factor in subsequent competition proceedings are not addressed at all.   

 In the next step she analyses some alternative approaches, namely   regulated conduct immunity and regulatory gaming as a substantive competition law abuse which however seem also problematic. Therefore, she suggests a third one: integration of the regulatory assessment within liability and gravity assessment.

Ultimately, Niamh made three recommendations, which at least partially (except for the legal finding of illegality) remedies the problems of the current regime:

  1. The core competition law analysis should include the issue when the State Action defence is rejected, but regulation is likely to affect the firm or the market.
  2. The Commission should assess such circumstances substantially and consider the firms’ reduced culpability. From a procedural aspect this means that the question is addressed in the liability stage, and the basic amount of the fine should be calculated accordingly.
  3. In extreme cases where the discount exceeds 50% the Commission should justify on what basis does it establish the firms’ liability.

Known Unknowns – The total impact of competition law enforcement

Péter Ormosi (Norwich Business School and ESRC Centre for Competition Policy)

 In his presentation Péter undertakes to improve the currently used impact assessment methods for competition policy in respect of mergers.

He sets the scene with a set of questions: what kinds of mergers are the most harmful, and why is that they do not happen? The reason for this is that they are deterred by competition policy. A merger can be deterred for two reasons:

  1. two high expected legal fees,
  2. anticipated Competition Authority decision

This means that the most anticompetitive mergers are not even proposed to the competition authority. Still, currently most impact assessments do not take into account the deterrence effect. There have been some limited attempts to quantify the magnitude of the deterrence effect, however these were based on simple “headcounts” ignoring the fact that possibly the worst cases are deterred and, therefore, resulting in the underestimation of the issue.

Péter aims to show the full picture: the deterred and undeterred cases altogether, thereby portraying the full impact of the merger control regime. He uses the cases where the Competition Authority intervened as a sample (the “known” part) of the total population. In the next step he analyses what can be inferred of the total population (observed+deterred cases). Then he defines the position of the cases where the Competition Authority intervened in the total population. This is followed by an attempt to describe the total population by a functional form. Lastly, he analyses what can be established about the “unknown” part of the total population according to the information about the “known” part.

 Péter concludes that his way of assessing the issue is still not a fully developed cost-benefit analysis of the merger enforcement, but gives guidance about how the “unknown” benefits look like, thereby allows a better approximation of the total impact. This ultimately enhances the credibility of impact assessments as well.

An interesting note, which reflects the significance of the research, is that for example Crandall and Winston (2003, JEP) argue that cartel enforcement is practically ineffective, however considering the deterred cases as well, this probably cannot be claimed. 

Diminishing Enforcement: Negative Effects for Deterrence of Mistaken Settlements and Misguided Competition Promotion and Advocacy

 Francisco Marcos (IE Law School)

 In his presentation, Francisco argues that certain ways of using some recently available tools of competition law enforcement (settlements, leniency, competition promotion and advocacy) can result in more harm then benefit. This is because they can endanger the effectiveness of “regular” competition law enforcement, by reducing its deterrence effect, which is currently not taken into account.

Francisco acknowledges that these new tools can be beneficial: a bigger variety of possibilities may lead to better enforcement. However, this variety implies the need of focusing on the cross-effects between them.

His starting point is that the main tool of competition policy is a set of rules against some uni-or multilateral anticompetitive practices, which is generally called as ‘core’ competition or antitrust law. The main value behind these rules is their deterrence effect: through the sanctions of breaching those rules, they eliminate firms’ incentives of pursuing such anticompetitive practices.

A major problem with these rules is that their enforcement is problematic. Being aware of low detection rates and insufficient abilities for gathering evidence firms are no longer deterred. Leniency and settlements are aimed at solving this problem by incentivising firms to come forward with their evidence and to cooperate with the competition authority.

However, leniency programs are turned out to be most successful where the competition authority had a history of high detection rates and fines. While leniency enhances general deterrence and destabilizes cartels, it lowers specific deterrence as a cartel participant knows that it has an option of getting out the cartel with low (or no) fine by reporting it to the competition agency.

Then he moves on to settlements. The competition authority has weaker and stronger cases. Pursuing weak cases may not be efficient: because of its limited resources the authority should favour cases where success is more likely. Settling the case can be beneficial as it provides help when dealing with weak cases (in this respect leniency and settlements are quite similar: they both help the competition authority to save resources). However, there is always a trade-off with settlements: the firms under scrutiny are only willing to help the competition authority if they get some benefits in return (lower fines etc.). Knowing that the sanctions can be lowered by settling, however, ultimately reduces the deterrence. Accordingly, Francisco makes the following recommendation in respect of the settlement policy:

  1. it should be rejected in clear-cut and serious infringements
  2. it should only be applied for cases where the benefits exceed the negative effect arising out of loss of deterrence
  3. a case should not be settle at a too early or a too late stage
  4. third parties’ opinion should be taken into account
  5. settlement policy and practice should be as transparent and public as possible.

In terms of competition promotion and advocacy, Francisco agrees that competition authorities were successful in promoting competition in several markets. However, he argues that such tools should be avoided when regular competition law enforcement is possible: if there is a breach of competition law, political considerations should not lead the authority to abandon enforcement.

A key argument he makes is that while the competition authorities have considerable discretion to choose between different tools, as the authority’s enforcement reputation and fining history gives the basis of effective settlements, and competition promotion and advocacy, regular competition law should enjoy priority.

Furthermore, Francisco mentions the Spanish example, and argues that introducing too many tools, too fast leads to insufficient outcomes.

About CCP
The Centre for Competition Policy (CCP) conducts interdisciplinary research into competition policy and regulation.

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