Convincing Policymakers and Garnering
Greater Support for Competition Reforms
Frederic Jenny
Professor of Economics, ESSEC Business School
Chair OECD Competition Committee
Issues to be discussed
1) Competition Advocacy
2) Evaluation as a Competition Advocacy Tool
3) A growing demand for Evaluation
4) Different Tools of Evaluation
5) Methodological Difficulties of Evaluation
6) Examples of Evaluation Studies Showing the Benefit of Competition
7) Methodological Difficulties of Evaluations
8) Practical Difficulties of Evaluations
9) Building a Competition Culture: Dialogue with Policy makers
Competition Advocacy
In 2002 the International Competition Network published a report on Advocacy
and Competition Policy, which built on earlier work and defined Competition
Advocacy as:
“Competition Advocacy refers to those activities conducted by the competition
authority related to the promotion of a competitive environment for
economic activities by means of non-enforcement mechanisms, mainly
through its relationships with other governmental entities and by increasing
public awareness of the benefits of competition.”
Building a competition culture
In any country, the building of a competition culture is a complex and long
process. Undertaking this process is necessary, however, if countries are to
reap the benefits of open and competitive market systems.
Having an appropriately designed competition law is a first step but in many
countries the enforcement of the law is unsatisfactory due to a faulty institutional
design of the competition authority, lack of experience of competition law
enforcers or insufficient resources.
Effective enforcement of the law is not a sufficient condition to create a
competitive market system.
Ex ante compliance with the law by economic actors is even more important than
ex post elimination of anticompetitive behaviors by the competition authority.
The degree of ex ante compliance with the law will depend on a number of
factors: knowledge of the law, deterrence of the law enforcement system,
understanding of the value of competitive markets, social responsibility of firms,
rationality of business decisions etc.
.
4
Building a competition culture
The ability of a competition law system to deliver its expected benefits in a country
will also depend on the broader economic environment in which it operates. Its
performance will depend on the robustness of the legal environment of business as
well as on the degree of political consensus on the value of competition and on
whether the industrial policy, trade policy or deregulation policy, etc. make it possible
for the competition mechanism to expand to all markets or limit its scope.
Thus competition authorities have two very different functions: a competition law
enforcement function and a competition advocacy function with the general public,
consumers, the business community, government , academia , the press etc., to
ensure the existence of an environment favorable to market competition.
One of the most important questions faced by competition authorities is how to be
more effective in advocating for competition and building a competition culture. This
question raises complex technical issues and institutional issues
5
Competition Policy System
Liberalisation of International Trade
International Competition
Consumer Policy
Rule of Law
Elimination of
Corruption
Property Laws
Competition Law
Institutional Design of the Authority
Relationship with courts
Competition Advocacy
Privatization
(Inefficient SOEs)
Industrial Policy
Sectoral Regulation
Link with sectoral regulators
and industrial policy makers
Promotion of
a competition
culture
Deregulation
(Assessment of
transitory conditions)
6
Issues to be discussed
1) Competition Advocacy
2) Evaluation as a Competition Advocacy Tool
3) A growing demand for Evaluation
4) Different Tools of Evaluation
5) Methodological Difficulties of Evaluation
6) Examples of Evaluation Studies Showing the Benefit of Competition
7) Methodological Difficulties of Evaluations
8) Practical Difficulties of Evaluations
9) Building a Competition Culture: Dialogue with Policy makers
Evaluation as an Advocacy Tool
As we have seen in the cases mentioned so far, by letting the public know the
consumer benefits from competition law enforcement, the KFTC was able to
receive public support for the competition law and policy and raise
awareness among companies about anti-competitive practices.
In each case, the effects of law enforcement were traced and analysed through
surveys and comparisons of market prices before and after the law violations.
Changes in prices were also analysed chronologically for a certain period after the
corrective measures were taken against the law-violating practices.
The results of analyses were made public through press releases and media
coverage, which contributed to increasing support from citizens for the
competition policies. The case of graphite electrodes, in particular, served as a
motive for concluding various bilateral cooperation agreements for international
cooperation.
Korean contribution, OECD Competition Committee Roundtable on Evaluation of the Actions and
Resources of the Competition Authorities, 2005
Issues to be discussed
1) Competition Advocacy
2) Evaluation as a Competition Advocacy Tool
3) A Growing Demand for Evaluation
4) Different Tools of Evaluation
5) Methodological Difficulties of Evaluation
6) Examples of Evaluation Studies Showing the Benefit of Competition
7) Methodological Difficulties of Evaluations
8) Practical Difficulties of Evaluations
9) Building a Competition Culture: Dialogue with Policy makers
A Growing Demand to Assess the Effectiveness
of Competition Policy
There are growing demands from outside competition agencies to develop
and apply measures to test the effectiveness of competition policy. In an
increasing number of jurisdictions, legislatures and other public bodies are
initiating projects to evaluate the effects of competition policy programs or to
analyse the efficiency of competition agency organisation and procedures.
(…) It is also apparent, however, that we are witnessing an increase in
external demands for the measurement of competition policy systems
and the quality of operations of individual competition agencies.
(…) For competition agencies (and for other public bodies), it is becoming
increasingly evident that legislatures will not be satisfied with general,
undocumented assurances that the enactment and implementation of
competition laws deliver good results for society. Korea’s intervention
during the Roundtable provides one example of how an agency can use ex
post evaluation of effects (in Korea’s case, the effects of enforcement against
cartels) to show how the implementation of a competition law can improve the
well-being of consumers.
OECD Competition Committee Roundtable on Evaluation of the Actions and Resources of the
Competition Authorities, 2005
Fancy Theoretical Model Is Not Enough
11
Having a Good Story to Tell:
Exploitatice Practices
13
Issues to be discussed
1) Competition Advocacy
2) Evaluation as a Competition Advocacy Tool
3) A growing demand for Evaluation
4) Different Tools of Evaluation
5) Methodological Difficulties of Evaluation
6) Examples of Evaluation Studies Showing the Benefit of Competition
7) Methodological Difficulties of Evaluations
8) Practical Difficulties of Evaluations
9) Building a Competition Culture: Dialogue with Policy makers
Different Tools of Evaluation
Analytically it seems that most evaluation methods fall into one of three broad
categories.
First, competition enforcement at one authority can be bench-marked
against other similar authorities, or compared over time.
Second, the effectiveness of competition enforcement can be measured by
evaluating the quality of individual decisions or of decisions in general.
Third, competition enforcement can be evaluated by studying the impact of
regulatory interventions on the functioning of the market.
In its efforts to evaluate the effectiveness and efficiency of its enforcement, the
Swedish Competition Authority has used methods from all three categories.
US contribution, OECD Competition Committee Roundtable on Evaluation of the Actions and
Resources of the Competition Authorities, 2005
Assessing the Impact of Competition Policy
Ultimately, what is most interesting is the effect of competition policy (law
as well as enforcement) on the efficiency of the economy at large and its
ability to increase consumer welfare. There are two principal ways to
address such an issue. One can be labelled a top-down strategy and he other
a bottom-up strategy.
A top-down strategy would look at the whole of the economy and then try
to infer the benefits that accrue from competition law and enforcement,
for instance by comparing markets or countries which are subject to different
forms of competition rules, or by comparing the same country over time, in
order to identify the effect of policy reforms.
A bottom-up strategy would look at individual cases, and then estimating
the effect of all decisions.
Swedish contribution, OECD Competition Committee Roundtable on Evaluation of the Actions
and Resources of the Competition Authorities, 2005
Sectoral Studies
Sectoral studies can provide informative perspectives
competition policy affects economic performance.
on
how
Sectoral studies provide opportunities for a competition agency to evaluate
how the application of its various policy instruments (notably, the prosecution of
cases and the pursuit of advocacy measures) has affected the performance of
the sectors.
Compared to the examination of specific interventions, a sectoral study
permits the evaluation team to examine broader trends within the sector
and attempt to relate the competition authority’s interventions over time to
developments in the sector.
OECD Competition Committee Roundtable on Evaluation of the Actions and Resources of the
Competition Authorities, 2005
Methodology of Evaluation of antitrust legislative
instruments: Use of Survey Methods in the EU
The survey methods used when gathering information from stakeholders have
been mainly questionnaires and interviews. We have either sent the
questionnaires directly to interested parties that we have identified ourselves or we
have launched the questionnaires at the Commission web-site (or used the
combination of both ways).
In each review process, relevant empirical information has also been provided by
our experience with the enforcement of the rules and as a result of complaints we
have received from customers or consumers concerning the types of business
practices that we were reviewing.
Second, in addition to empirical data collection, a major part of the exercise has
consisted of a review and analysis of relevant economic and legal theories. We
have also carried out comparisons of policies and practices in different jurisdictions.
The competition authorities of the EU Member States and of some third countries
have also provided information on their practices.
EU contribution, OECD Competition Committee Roundtable on Evaluation of the Actions and
Resources of the Competition Authorities, 2005
Methodology of Evaluation of Antitrust Legislative
Instruments and Policy Programmes in the EU
(…) Our experience is that interviews and questionnaires give a wide enough
representation of views and information existing in the market for the
purposes of revision proposals. Particularly in the interviews, we have tried to
have a wide geographic and/or sector coverage for the samples we have made.
With the publication of the evaluation reports and invitations to the interested
parties to comment in writing and in public hearings, we have sought to get
further feed-back from the interested parties.
Sometimes we have explicitly asked to comment on the results of our fact finding,
particularly if the interested parties felt that the geographic or sector sample was not
representative.
We have also commissioned external economic and statistical studies to
complement our own fact finding.
EU contribution, OECD Competition Committee Roundtable on Evaluation of the Actions and
Resources of the Competition Authorities, 2005
Hearings and Workshops as Evaluation Tools
Hearings and workshops also can be powerful policy development tools.
They allow the Agencies to bring together experts from business, government,
law, and academia to engage in in-depth analyses of competition issues, including
support for and criticism of the Agencies’ previous actions and views. The
following are several examples of how the Agencies have deployed these
tools to help evaluate the effectiveness of their enforcement programs:
In 2002, the DOJ and FTC held joint hearings entitled Competition and Intellectual
Property Law and Policy in the Knowledge-Based Economy.
In October 2003, the FTC issued a report, To Promote Innovation: The Proper
Balance of Competition and Patent Law and Policy,
The FTC held a workshop on health care competition in 2002, and in 2003, the
DOJ and FTC held 27 days of joint hearings to examine the state of the health
care marketplace and the role of competition, antitrust, and consumer protection
in providing high-quality, cost-effective health care
US contribution, OECD Competition Committee Roundtable on Evaluation of the Actions and
Resources of the Competition Authorities, 2005
Issues to be discussed
1) Competition Advocacy
2) Evaluation as a Competition Advocacy Tool
3) A growing demand for Evaluation
4) Different Tools of Evaluation
5) Examples of Evaluation Studies Showing the Benefit of Competition
6) Methodological Difficulties of Evaluations
7) Practical Difficulties of Evaluations
8) Building a Competition Culture: Dialogue with Policy makers
Study Demonstrating the Benefits of Introducing
Competition in a Number of Sectors
In 2004 the Department of Trade and Industry published a study it had
commissioned from academics at the University of East Anglia1 which
assessed the benefits resulting from the introduction of competition in a
number of sectors where previously competition had been muted.
Using a case study approach, the research evaluated policies promoting
sectoral liberalisations and deregulation, in addition to competition
interventions by the OFT and the Competition Commission. These
interventions and policy changes were assessed against the policy objectives
of removing market imperfections and thereby reducing prices for consumers.
The report found that the introduction of competition can sometimes lead
to substantial reductions in price. For both international telephone calls,
which were deregulated in the UK, and European economy airfares, which
were affected by the liberalisation of the sector across the European Union,
average price was more than halved within a decade of the intervention.
British contribution, OECD Competition Committee Roundtable on Evaluation of the Actions
and Resources of the Competition Authorities, 2005
Study Demonstrating the Benefits of Introducing
Competition in a Number of Sectors
2.1 DTI Study: The Benefits of Competition
Prices of new cars fell by around ten per cent following an investigation
by the Competition Commission and in the market for replica football shirts,
prices fell on average by 15 per cent following the OFT’s intervention on price
fixing. In the latter case, the report found that the outcome vindicated the
changes to the competition regime brought about by the introduction of the
Competition Act 1998. However, in two of the sectors examined (book
sellers and retail opticians) the results were not conclusive.
The report also illustrates that introducing competition into a market can
promote innovation, for example the new business model introduced by
budget airlines. Assessing innovation ex-ante is unpredictable, but the
benefits derived highlight that introducing competition can have wider benefits
than simply lowering prices.
Overall, the study found little conclusive evidence of any harmful side
effects as a consequence of the policy intervention and showed, in
general, that the competition policies had been a success.
British contribution, OECD Competition Committee Roundtable on Evaluation of the Actions
and Resources of the Competition Authorities, 2005
The PwC Economics Report on Ex-Post
Evaluation of Mergers in the UK
PwC were asked to carry out an ex-post evaluation of mergers occurring
between 1990 and 2002, which following consideration by the OFT, had
been referred by the Secretary of State for Trade and Industry to the CC
and subsequently cleared by the CC.
The PwC study aimed to determine the actual impact on competition of cleared
mergers, set against the CC’s expectation that the mergers would not lead to a
substantial lessening of competition. More specifically the key areas under
examination were:
• whether the CC was correct in its beliefs that mergers would not impede
competition;
• when mergers were not anti-competitive, whether this was for the reasons
indicated by the CC in its rationales for clearance; and
• when there was a lessening of competition, how markets responded.
And more generally the study aimed to elucidate how markets adjust to
significant increases in concentration
British contribution, OECD Competition Committee Roundtable on Evaluation of the Actions
and Resources of the Competition Authorities, 2005
The PwC Economics Report on Ex-Post
Evaluation of Mergers in the UK
PwC’s approach was to conduct in-depth interviews with different market
participants (buyers, competitors, new entrants, third parties and the
merged parties themselves). Buyers eventually constituted the largest group of
interviewees because they were felt to be in the best position to interpret whether
markets were working well, and because buyer power was among the reasons
most frequently cited by the CC for clearing mergers. The interviews sought to
ascertain participants’ views on market developments both immediately following
the mergers and in the longer run, in terms of key indicators of competition
(prices; market structure and definition; technology; and changes in buyers’
behaviours), rather than asking them whether they felt the CC got it right.
These views were compared to a detailed evaluation of the factors that the CC’s
own reports cited as being critical in its decision to clear the merger. If, for
example, the CC had noted low barriers to entry as an important source of
competitive constraint, PwC would assess whether substantial entry had
occurred.
Thus the evaluation of each case actually contained many separate assessments
of how accurately the CC’s analysis was borne out by subsequent market
developments.
British contribution, OECD Competition Committee Roundtable on Evaluation of the Actions and
Resources of the Competition Authorities, 2005
Issues to be discussed
1) Competition Advocacy
2) Evaluation as a Competition Advocacy Tool
3) A growing demand for Evaluation
4) Different Tools of Evaluation
5) Examples of Evaluation Studies Showing the Benefit of Competition
6) Methodological Difficulties of Evaluations
1) Building a Competition Culture: Dialogue with Policy makers
Methodological Difficulties with Top-Down and
Bottom-up Evaluations
There are, of course, grave methodological problems with both approaches.
The problem with a top-down strategy is to isolate the effect of
competition policy from other factors that influence welfare and
economic growth.
The problem with a bottom-up strategy is that the most important effect
of competition policy is that it serves to make market actors abstain from
anti-competitive actions in the first place. If competition rules and
enforcement is effective, firms will not enter into cartel agreements or attempt
to abuse dominant positions, and they may not even try to get approval for anticompetitive mergers.
Swedish contribution, OECD Competition Committee Roundtable on Evaluation of the Actions
and Resources of the Competition Authorities, 2005
Methodological Difficulties of Competition
Evaluations
Considerable work remains to be done to refine the methodologies used
to evaluate the effectiveness of completed competition policy
interventions.
(…)Perhaps the greatest difficulty posed to date is to devise analytical models
that permit the evaluation team to draw confident conclusions about how the
competition agency’s intervention, as opposed to other factors, affected
economic performance.
Even when the evaluation team has devised a sound analytical model, the
process of collecting and analysing data can be time consuming and
involve nontrivial costs. Despite methodological difficulties, competition
agencies have made informative efforts to link specific interventions to changes
in the economic environment.
,
OECD Competition Committee Roundtable on Evaluation of the Actions and Resources of the
Competition Authorities, 2005
Methodological difficulties Encountered in the EU
Merger Remedies Study
The principal methodological difficulties encountered can be summarised as
follows
1. Comparison of actual market developments with counter-factual scenarios
of what would have happened without the remedy or without the merger. Our
response to this challenge: construction of the most likely scenarios with the help of
the interviewed experts.
2. Objectivity of replies in interviews. Our response to this challenge:
comparisons of replies of different interviewees concerning the same remedy and
verification/double-checking with data from other sources.
3. Availability of quantitative data. Our response to this challenge: in relation to a
number of remedies, additional fact-finding efforts were made, in particular via
questionnaires sent out to companies to collect quantitative data.
EU contribution, OECD Competition Committee Roundtable on Evaluation of the Actions and
Resources of the Competition Authorities, 2005
Issues to be discussed
1) Competition Advocacy
2) Evaluation as a Competition Advocacy Tool
3) A growing demand for Evaluation
4) Different Tools of Evaluation
5) Examples of Evaluation Studies Showing the Benefit of Competition
6) Methodological Difficulties of Evaluations
7) Building a Competition Culture: Dialogue with Policy Makers
Economic Rationality and
Political Rationality Aligned
The UK Government recognises the importance of developing policy
based on detailed evidence and the necessity of conducting full
evaluation of a policy’s impact after it has come into effect.
This is reflected in the Modernising Government White Paper (1999)
commitments to ensure that all policies are subject to ex-ante appraisal and expost evaluation in an explicit effort to ensure that genuinely evidencebased
policies are created.
Evaluation is particularly important as it allows the success of the policy to be
assessed, any unintended consequences of the policy to be observed, and
provides evidence and information to support any changes necessary to
ensure the policy comes closer to meeting its objectives.
British contribution, OECD Competition Committee Roundtable on Evaluation of the Actions
and Resources of the Competition Authorities, 2005
Reasons for the Economic Perspective and
the Political perspective Not to Be Aligned
Reasons for which politicians may not support an effective competition regime
1) They may be mostly interested in macro-policies ( employment, productivity,
growth, innovation etc….) and consider a competition regime as a
secondary determinant of macro-economic performance ( as opposed to
trade policy, industrial policy, the rule of law etc…..)
2) They may have different discount rates than economists and favor policies
having short term, domestic and regional benefits such as industrial policiy
or government interventions in market mechanisms ( due to concern for
their reelection) rather than policies having long term benefits ( like
competition policy) and short run costs.
3) They may care about the welfare of the constituency they represent rather
than the overall welfare ( and therefore they may be captured by specific
groups)
Reasons for the Economic Perspective and
the Political perspective Not to Be Aligned
Reasons for which politicians may not support an effective competition regime
4) They may weigh differently consumer surplus and producer surplus
5) They may not understand economics
6) They may not trust economic analysis
Conclusion
1) After twenty years of rapid development of competition law throughout the
world , there is a growing need for independent evaluations of the
effectiveness of competition policy systems to make the case for competition
both in developing countries and in developed countries ( ex OECD
evaluation program)
2) A number of possible focuses for such evaluations (impact of specific actions
by competition authorities, effectiveness of pro market reforms in some
sectors, contribution of competition policy to growth, productivity etc…)
3) Different instruments to evaluate the impact of competition law or policy
(econometric models, comparisons with a benchmark sector or period,
surveys, peer review etc…..).
Conclusion
4) Methodological difficulties due to the difficulty of sorting out the influence
numerous determinants of competition and of market performances and to
the difficulty of gathering good and relevant data should not be under
estimated and should be explicitly acknowledeged
5) Benefits of such evaluation are 1) to help competition authorities know how
to do a better job, 2) to make the case for competition with policy makers if
their incentives are aligned with the incentives of competition authorities, 3)
to establish a convincing case with the public ( Australian experience)