‘The Incidence of Fines on Cartel Dynamic Pricing’

Friday 27th November sees the long-awaited return of our delightful former colleague Anna Rita Bennato (Oxford Brookes University) who will be presenting ‘The Incidence of Fines on Cartel Dynamic Pricing‘, which she has co-researched with Franco Mariuzzo (ECO and CCP). An abstract for her seminar can be found below.

Abstract

With Regulation 1/2003 the European Commission D-G for Competition has introduced administrative fines on corporation turnover to punish any breach of Article 101 and 102 of the Treaty. To confine obvious adverse effects of a too harsh punishment fines have been limited to a thirty per cent cap of the undertaking’s worldwide turnover (Guidelines 2006/C 210/02). However, the assessment of the gravity is made on a case-by-case basis for all types of infringement. As a general rule, fines are calculated as a proportion of the value of sales.

In this paper we study the distortion in pricing that stems from the application of fines on turnover in an environment where cartels choose their optimal pricing under uncertainty and business cycles. Our model shows how in a dynamic setting fines may resemble the effect of an ad-valorem taxation. The effect of fines on prices varies depending on the position on the cycle (expected demand growing or falling).

We test our model using 328 weekly data on the Joint Executive Committee (JEC) and the econometric methodology suggested by Borenstein and Shepard (1996). While JEC was a legal cartel, in a counterfactual exercise we simulate the effect of the cartel being detected and fined on turnover.

 

Anna’s presentation takes place from 13:00-14:00 in the Thomas Paine Study Centre, Room 1.03. 

‘Competition Law as Transnational Law’

The CCP seminar series continues on Friday 24th October with the marvellous Imelda Maher (University College Dublin) presenting her paper entitled ‘Competition Law as Transnational Law‘. Imelda is a prolific author in the fields of EU Law and Competition Policy and, in 2006, was inaugurated to the Sutherland Chair of European Law at UCD.  An abstract for her paper can be found below.

Abstract

The aim of this paper is to being to explore trends in competition law.  In this preliminary phase of the project, I am taking two ideas: transnational law and territoriality – and reflecting on them in the context of competition law.  I have chosen these two concepts as, in my mind at least, they are closely inter-related in this particular field.  The reason for this conceptual inter-linkage is a practical phenomenon which is that despite the undoubted globalisation of trade and the ongoing growth of multinational firms, competition law – the key legal mechanism to ensure that markets operate as freely as possible to ensure consumer and hence general welfare – is strictly territorial in nature.  National Competition Agencies – even the most powerful ones like the US Department of Justice and the EU Commission, have limited capacity to enforce their own laws extraterritorially even though so much of the market activity that in particular the Commission looks at is transnational in nature.  So, I suppose the title to some extent recognises that competition law is territoriality bounded in nature and yet strives to be or maybe perhaps should be (but is most unlikely to be) transnational in scope.

This preliminary paper is divided into four sections:  first, I will outline what I mean by transnational law.  Then I will explore the extent to which competition law is territoriality bounded (drawing on a recently published paper in Handl, Zekoll and Zumbansen, Beyond Territoriality: Transnational Legal Authority in an Age of Globalization (2012)).  The third section is a first attempt to bring these two ideas together and reflect on how competition law moves beyond its territoriality before concluding.

The seminar will take place from 13:00-14:00 in the Thomas Paine Study Centre, Room 1.03.

Live comments from the CCP Summer Conference 2014 – Session 2

Session 2: Experience to Date – US and EU:

Fabienne Ilzkovitz and Adriaan Dierx (DG COMP, European Commission, Brussels) considered three interrelated policy tools needed to deal with problem markets: sector screening identifies markets which are not functioning ideally, market studies determine the problems these markets face, and in-depth sector inquiries define appropriate policy remedies. They highlighted DGCOMP’s increasing use of such tools and the need to prioritise based on both ex ante and ex post assessment due to resource limitations by describing an example of the three tools being used in turn. The DG Comp’s own 2007 Single Market Review first identified economically important sectors, then examined indicators of market performance, such as the degree of competition and the sector’s openness to investment and innovation. This sector screen showed that the Food and Beverages market was performing poorly. This, combined with the sector’s importance, led to market studies which revealed potentially unfair trading practices in the retail supply chain for food which meant that the response of retail prices to changes in agricultural prices was asymmetric. The in-depth sector inquiry suggested that the strong bargaining power of food retailers relative to food producers was an important driver of this. A High Level Forum was established to order to design policy to improve the food supply chain. A Food Task Group in DG Comp cooperates with national competition authorities in order to aid them in improving their own policy around food. These remedies were suggested directly by the sector inquiry. They argue that intervening in problem markets is an important objective for policymakers and this framework provides an effective mechanism for designing policy.

CCP Session 2 - Adriaan  CCP Session 2- FabiennE

 

William E. Kovacic (George Washington University and Competition and Markets Authority) presented his personal perspective on defining problem markets and focused in particular on the preeminent problem market of the US petroleum products sector. Petroleum is a sector which, aside from being close to many Americans’ hearts, has featured in US antitrust courtrooms more than any other, with some “big” cases thought, erroneously, to be able to fix the sector’s problems. Although petroleum is subject to divergent consumer expectations, William focused on the wide-ranging “regulatory policy archipelago”: the coexistence of antitrust and competition policy with many other policy needs and the fact that these are subject to complex inter-agency coordination. In response to issues such as the hazard of acting on the basis of political pressure and agencies’ inability to fulfil impossible expectations, it was suggested that seeing competition law and policy as a limited solution may be a distraction, and that the focus should be on identifying and understanding larger policy interrelationships and defining the role of the competition authorities.

CCP Session 2 - Bill

Policy Briefing – ‘Mergers after cartels: How markets react to cartel breakdown’

Policy Briefing of CCP Working Paper 14-1:

Davies S, Ormosi P and Graffenberger M, ‘Mergers after cartels: How markets react to cartel breakdown‘ (Available to download from Working Papers 2014 on the CCP website).

BACKGROUND

  • Anti-cartel enforcement is widely heralded as the single most important part of antitrust activity. But there have been only a few studies analysing how markets react to the elimination of cartels.

METHODOLOGY

  • The authors approach cartel detection from a dynamic perspective by analysing what happens in markets in the years after a competition authority has detected a cartel. At issue is whether markets revert to competitive behaviour or whether firms find alternative ways of reinstating collusive equilibria (short of cartelisation) in the longer run.

  • Data was collected on mergers, acquisitions and joint ventures between firms involved in those cartels for which the European Commission issued decision documents between 1990 and 2012. The useable sample is 84 cartels that were detected between 1984 and 2009.

  • Three questions are posed:

1. Was there more intense merger activity amongst the former cartelists in the years immediately following breakdown?

2. Were certain types of cartel more likely than others to be followed by merger?

3. Is there evidence that the competition authority intervened in those proposed mergers which were most likely to raise potential anti-competitive concerns, or is there evidence of deterrence of such mergers?

  • The authors employ a novel application of survival analysis.

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‘The US Supreme Court’s Actavis judgment on reverse payment settlements – should Europe head the same way?’

The CCP’s Autumn seminar series continues this Friday with the inimitable Sven Gallasch (CCP and LAW) presenting his research entitled ‘The US Supreme Court’s Actavis judgment on reverse payment settlements – should Europe head the same way?‘. An abstract for his seminar can be found below.

Abstract

The US Federal Trade Commission has fought against reverse payment settlements in the US pharmaceutical sector for over a decade. On June 17 of this year, the FTC won a probably decisive battle in front of the US Supreme Court. The Court sided with the FTC in finding that reverse payment settlements should be put under antitrust scrutiny and also set out the relevant test to be applied by the lower courts.

Europe however is trailing behind the US authorities and jurisprudence with regards to reverse payment settlements. On the very same day of the Supreme Court’s decision, the European Commission issued its very first decision concerning reverse payment settlements against Lundbeck and a number of generic companies, without having set out its approach to this kind of settlement in public.

I therefore discuss the possibility of applying the US Supreme Court’s Actavis rule, or at least the underlying rationale, in the European context. Informed by this decision, I have developed a legal test that takes the peculiarities of the European pharmaceutical sector into consideration and avoids the most controversial issue – namely the assessment of patent validity by the European Commission.

The seminar takes place from 13:00-14:00 in the Thomas Paine Study Centre, Room 1.4.

CCP Seminar: An EC perspective on Markets, Competition and Consumer Behaviour

This week, the Centre is delighted to welcome Jacqueline Minor (Head of the European Commission’s Representation in the UK) as our guest speaker at this week’s CCP seminar. Jacqueline will be discussing some of her recent experiences as an official in her presentation, entitled ‘An EC perspective on Markets, Competition and Consumer Behaviour‘. A short abstract for her seminar can be found below.

Abstract

The talk will address the role of consumer policy in a modern market economy and will consider the interaction between competition and consumer policy.

What evidence should policy makers assemble in order to determine whether intervention is necessary and if so, what form it should take?  How can behavioural economics improve the design of policy measures?

To what extent are consumer and competition policy complimentary and mutually reinforcing?  (eg in relation to public enforcement and remedies, redress and the organisation of public authorities)

In particular, what if anything, should be done to ensure that newly liberalised markets function optimally at retail level?