Costs and benefits of measuring the costs and benefits

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Costs and benefits ofmeasuring the costs and
benefits

• Measuring the economic effects of competition
  law enforcement
• Dr Gunnar Niels, Director

October 18th 2007
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Overview

• why measure the effects
• what are we trying to measure
• cartels versus mergers and practices
• policy conclusions

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Why measure the effects?

• public proliferation of competition policy
• 2.5 billion in Commission cartel fines in 2007
• 497m fine on third-largest company in the world
• 80 competition regimes globally
• qualititative consumer-champion justification
  has limits
• wider trend to require quantitative CBAs from
  regulators
• legitimacy of policy
• better policy

Source http//ec.europa.eu/comm/competition and
http//www.internationalcompetitionnetwork.org
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What are we trying to measure?The benefits

• Of competition?
• competition policy ? competition!
• liberalisation, advocacy are key policies here

The benefits

• Of competition law?
• counterfactual no competition law

• Of competition authority?
• counterfactual no competition authority, but
  with law
• can show benefits of private litigation too

Of specific interventions?
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What if there were no competition authority?
Cases picked up by private litigation
Cases not picked up by private litigation
B2B disputes under Articles 81 and 82
Most cartels
Most mergers
Some cartels and mergers in B2B markets
Follow-on cartel damages?
Cases in B2C markets under Articles 81 and 82
Source Oxera (2004), Costs and benefits of
market regulators, report for Dutch Ministry of
Economic Affairs, October.
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Benefits of cartel enforcement

• rough order of magnitude can be sufficient
• 34 cartel bust-ups justify entire DG Comp annual
  budget

http//ec.europa.eu/comm/competition
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Cartel benefits policy implications

• little need for sophisticated analysis (eg,
  deterrent effects)
• prioritisation go for large markets
• elevators top four sales alone 20 billion/year
• Dutch shrimp cartel 30m market, 19 price
  increase, redistribution benefit 5m, dead weight
  benefit 330k
• implications for legitimacy of policy
• can DG Comp do what it likes outside cartel
  enforcement?
• should DG Comp only go after cartels?

Source Company websites, and Oxera (2004),
Costs and benefits of market regulators,
report for Dutch Ministry of Economic Affairs,
October.
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Mergers and practices not so simple

• very few unambiguous cases
• mergers
• positive effects less clear, so less harm from
  blocking?
• practices
• almost always both pro- and anti-competitive
  effects
• is the authority always right?
• even after decision is upheld at appeal stages?

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Mergers and practices ex ante v ex post
Ex ante policy approach
Problem for ex post measurement
Element of judgment preference for type 1 v type
2 errors
Circularity intervention itself assumed beneficial
Circularity (same model used) resource priority
Solid economic analysis eg, empirical models
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Circularity and priority

• OFT evaluation of predation case (2005)
• NPV of initial consumer gain and later monopoly
  rents
• but assumes success of predation and recoupment
• is precisely what is controversial about
  predation cases
• study by NMa staff on evaluation of merger cases
  (2006)
• merger simulation approach
• net annual welfare gain 100m
• is there a case for undertaking this analysis ex
  ante?

OFT (2005), Positive impact An initial
evaluation of the effect of the competition
enforcement work conducted by the OFT,
December. Postema, B., Goppelsroeder, M., van
Bergeijk, P. (2006), Cost and benefits of merger
control An applied game theoretic perspective,
KYKLOS, 59, 8598.
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Policy conclusions

• be clear about objectives
• be clear about the counterfactual
• go after the large markets
• avoid unnecessary sophistication

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www.oxera.com

• Contact
• Gunnar Niels
• 44 (0) 1865 253004
• Gunnar.Niels_at_oxera.com