Economy, Legislation and Competition An interdisciplinary approach - PowerPoint PPT Presentation

Economy, Legislation and Competition – An interdisciplinary approach Bucharest, 22 April 2013

Prologue: imagine that...  A plaintiff (bakery) sues milling companies for a cartel increasing the price of flour  The defenders claim that the price increase is due to the increase in the price of cereals  The evidence brought in Court looks like the following slides The example is freely inspired by the European Commission’s Draft Guidance Paper The example is freely inspired by the European Commission’s Draft Guidance Paper on quantifying harm in actions for damages : on quantifying harm in actions for damages : ( http://ec.europa.eu/competition/consultations/2011_actions_damages/draft_guidance_paper_en.pdf ) ( http://ec.europa.eu/competition/consultations/2011_actions_damages/draft_guidance_paper_en.pdf )

Prologue 1. The plaintiff  The price of flour has increased due to the cartel, according to the following “interpolation” analysis

Prologue 2. The defendant  The price of flour has increased due to increase in the price of cereals, according to the following statistical correlation

Prologue 3. The expert  The price of flour has increased both due to the cartel and to the increase in the price of cereals, according to the following “simple regression” analysis

Prologue % market share % SSNIP Dominant position horizontal vs. vertical effects

Prologue Law Facts Evidence Legal qualification Decision

Summary Introduction  Competition law and the judge: friends or foes? What the law says  EU Competition Law: in particular, cartels and abuse of dominant position  Private enforcement of cartels and abuses: key issues How competition law is applied: law vs. economics  Law vs. economics: what a judge does in a competition law case Economics in a Law Court: legal vs. economic analysis  Economic facts and tools in legal analysis  Example: quantitative analysis and legal decisions Conclusion  Is competition law anything “new”?

What the law says EU competition law In particular: cartels and abuse of a dominant position

EU Competition Law Antitrust  Article 101 TFEU: anti-competitive agreements, including cartels  Article 102 TFEU: abuse of dominant position  Procedural regulation 1/2003 Concentrations  Merger Regulation 139/2004 State aid  Article 107 TFEU  Article 108 TFEU and procedural regulation 659/99 Special and exclusive rights and services of general economic interest  Article 106 TFEU

EU Competition Law Art. 101(1) TFUE: anti-competitive agreements (cartels) The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which: (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development, or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

EU Competition Law Art. 101(2) TFEU: consequences Any agreements or decisions prohibited pursuant to this Article shall be automatically void Art. 101(3) TFEU: derogations The provisions of paragraph 1 may, however, be declared inapplicable in the case of: -any agreement or category of agreements between undertakings, -any decision or category of decisions by associations of undertakings, -any concerted practice or category of concerted practices, -which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not: (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; (b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.

EU Competition Law Article 102 TFEU (abuse of a dominant position) Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States. Such abuse may, in particular, consist in: (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

How the law is applied Law vs. economics

Competition Law in practice What competition law is about  Two basic categories of anticompetitive behaviour  Multi-lateral practices (cartels)  Unilateral practices (abuse of dominant position) Antitrust is all about “ combating two of the most innate proclivities in human nature – bullying and ganging up – when such conduct harms competition ” [R. M. Steuer, University of Pennsylvania Journal of Business Law 2/2012]  Two main types of anticompetitive practices  Exploitation: e.g. raising prices  Exclusion: e.g. foreclosing markets to competitors

Competition Law in practice What a (competition law) judge does 1. Establishes (the existence of) a possible infringement 2. Evaluates the available evidence 3. Establishes the consequences of an infringement 4. Quantifies damages

Competition Law in practice 1. Establishing a possible infringement  Underpinning notions  Undertaking and economic activity  Market definition and market power  Agreement (cartel) and dominant position  Distortion of (workable/effective) competition and effect on trade between Member States  Anticompetitive practices (typical instances)  Fixing market conditions (purchase or selling prices, quantities or other trading conditions)  Restricting markets and market sharing  Discrimination and tying/bundling

Competition Law in practice 2. Evaluating available evidence  Normal rules apply, but  Infringements by object vs. infringements by effect:  Article 101(1) TFEU: “[ ...] shall be prohibited [...] all agreements [...] which have as their object or effect the prevention, restriction or distortion of competition within the internal market [... ]”  Infringement by object:  Facts (evidence) + legal qualification + decision  Sufficient that the behaviour has a potential anticompetitive impact  Infringement by effect:  Facts (evidence) + (economic) effect-based analysis + legal qualification + decision  Need for in-depth economic analysis

Competition Law in practice 3. Establishing the consequences of an infringement  Fines and remedies: administrative authority and courts  Damages: civil courts 4. Quantifying antitrust damages  “Traditional” civil law analysis  Violation of law + damage + causal relationship + quantum (measure)  Irrelevance of the “object vs. effect” distinction: need for an in-depth analysis of the effects of any anticompetitive practice

Competition Law in practice Focus on the “counterfactual scenario”  What is likely to have happened without the infringement?  E.g. how prices would have evolved without a cartel? What would the fair price of a wholesale input from a vertical-integrated (dominant) operator be ?  Complex evaluation, based on:  Economic data (“variables” : market share, cost, profits, prices, etc.) and  Assumptions (based on different methods and techniques)

Economics in a Law Court Legal vs. economic analysis: is competition law anything different?

Economics in a Law Court Differentiating facts from arguments Economic data (facts) Evidence  E.g. prices, costs, etc. (direct evidence)  Evidence-based analysis: are these facts true or false? Likely or unlikely? Economic arguments (legal) analysis  E.g. likely effects of the behaviour (cartel) on prices (circumstantial evidence)  Arguments-based analysis: are these arguments well-founded (evaluation of the assumptions) and conclusive (is there an alternative explanation of these facts?)

Economics in a Law Court Areas of economic analysis (examples)  Market definition  What is the relevant market? Product vs. geographical market: the SSNIP test  Market power  Is there any market power/dominance? How is the market power measured?  Are the undertakings concerned exercising such market power?  Anticompetitive effects  What are the effects of a cartel?  What are the effects of a margin squeeze?