-competition policy is the responsibility of the Secretary of State for Business Innovation and Skills SOSBIS:
There is an increase in pi arguments during crises and in emerging economies
<> COCOO MUST FOCUS ON DEVELOPING COUNTRIES AND CRISES
public interest can be:
- general= WPI (e.g. ‘legitimate public interest’, ‘overriding public interest’, weighting the ‘public benefits’) or
- specific = SPI : refer to a certain sector or industry (e.g. ‘security of supply’, ‘stable provision of energy’), media (‘plurality of the media’), finance (‘prudential rules’, ‘stability of the financial system’) and defence (‘national security’, ‘national defence’).
DIFF:
- economic goals (e.g. ‘protection of small and medium enterprises’, ‘international competitiveness of domestic firms’, ‘economic development of non-metropolitan areas’)
- non ec. goals (e.g. social ‘protection of employment’, ‘public health’ or the ‘protection of environment’).
The majority of OECD Members competition authorities delegate the task (of PI grounds) to government (eg. SOS)….public interest intervention (PII) in mergers is exceptional, and limited to 17 sectors.
The increased interconnection of the global economy has led to more cross-border mergers. The potential for conflicting decisions on the same merger in different countries is magnified when public interest considerations come into play, because Public interest clauses are jurisdiction specific…here, co-ordination among cmas of different countries is critical
- mergers that cause competitive harm can proceed
- that mergers that do not raise competition concerns cannot proceed
https://www.regulation.org.uk/competition-public_interest_cases.html
There are four pis where the sos can issue an ‘Intervention Notice‘ IN – to decide, rather than the CMA. They are:
- National and public security, including defence
- Media plurality and broadcasting standards, that is the need for:
- accurate presentation of news;
- the free expression of opinion in newspapers,
- plurality of newspaper editorial views,
- plurality of media ownership,
- high varied and high quality broadcasting, and
- media owners to be committed to attaining high broadcasting standards
- Financial services.
- Businesses with a role in public health emergencies
National Security – and Infrastructure
There have been a small number of National Security INs leading to a significant (phase 2) merger investigations. The first was the 2019 reference of the acquisition of Cobham – a defence/aerospace company – by Advent, an American private equity firm. the takeover was approved after Advent gave time-limited assurances. it was cleared because cobham would have faced administration if it had not found a rescuer.
The Conservatives included the following commitment in their 2017 Manifesto:
We shall protect our critical national infrastructure. We will ensure that foreign ownership of companies controlling important infrastructure does not undermine British security or essential services. We have already strengthened ministerial scrutiny and control in respect of civil nuclear power and will take a similarly approach across other sectors, such as telecoms, defence and energy.
Relevant enterprises are defined as enterprises engaged in :
- military or dual-use goods that are subject to export control,
- computer processing units, and
- quantum technology.
the EU was planning similar legislation in the form of a ‘screening framework’ to address mounting concern about a surge of Chinese investment in the EU – often aimed at acquiring technology – and the lack of similar access for EU companies in China.
President Trump blocked the 2018 takeover of microchip maker Qualcom by Singapore based Broadcom on the advice of CFIUS – the Committee on Foreign Investment in the US. CFIUS argued that Broadcom would cut long term investment in favour of short term profits, thus damaging a key US industry. There was however more than a hint of protectionism in the decision.
Media Plurality & Broadcasting Standards
sos cannot intervene to block a merger on competition grounds – this decision is still taken by the European Commission or the CMA – but can decide whether the merger is against the pi
21st Century Fox (owned by the Murdochs) attempted to acquire 100% of Sky. The CMA suggested remedies, including the sale of Sky News, to clear it.
National Champions & Other Significant Companies
outside the above areas, neither the Government nor the CMA can block a takeover of a ‘national champion’ other than on competition grounds.
But Ministers do come under pressure to “do something” to protect jobs and investment (such as investment in R&D) when significant UK companies might be bought by large overseas “predators”.
of specific companies, or the creation of national champions and their protection
from competitors and foreign acquirers.ip is to correct market failures. cp is to prevent anticomps.
many government ip interventions do not interfere with cp
However, the creation of “national champions”, is at odds with cp eg mcr , as governments bend it , to further ip
<> cocoo will destroy national champions… countries suck
CLCP CONTROLS
1. Merger Control , mcr, prevent firms gaining map by acquiring control of competitors.
Smaller mergers are exempt from scrutiny….But mergers that create a company with a combined market share of more than 25% are allowed only if the market remains competitive and/or it is relatively easy for new firms to enter the market.
lower thresholds may be appropriate in the tech sector.
2. Market Investigations
CMA identifies [anticomps = an adverse effect on competition (AEC)]. If so, the CMA can impose behavioural conditions or force companies to sell part of their business….eg CMA required BAA plc to dispose of Gatwick and Stansted Airports, thus increasing competition in the South-East of England.
3. Economic Regulators, are a substitute for competition, where companies have substantial map….for instance in the utility industries where companies often have a natural monopoly in supplying energy, water etc. via wires and pipes which are expensive to duplicate. These companies may only operate if licensed to do so by the regulator, which will impose strict limits on prices or quality and range of products, or customer service
4. Companies are guilty of adp, if the CMA can show :
(a) that they are dominant in their market, and
(b) that they have taken steps to eliminate the limited competition that remains by unfair means, such as:
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- Price discrimination – offering price reductions and volume discounts to those customers who may be tempted to leave you for a competitor.
- Tying – such as tying one product to the sale of another, being restrictive of consumer choice and depriving competitors of outlets.
- Refusal to supply a facility that is essential for all businesses attempting to compete – The most obvious essential facilities are in the transport industry: docks, bus stations & airports.
- Predation: predatory pricing – the practice of dropping prices of a product so much that smaller competitors fall out of business; or e.g. running new bus services at frequent intervals so as to force a new competitor out of the market.
Successful investigations are rare, but here are some examples:
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- The EC fined Microsoft €497 million for including its Windows Media Player within the Microsoft Windows platform.
- the EC is investigating Google for abusing its dominant position in the internet search market.
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5. It is illegal to enter into agreements which prevent, restrict or distort competition, unless permitted by cmas… Franchise and similar agreements are OK, but other agreements not to compete are usually prohibited. Price fixing agreements (cartels) are particularly deprecated, especially when they are secret, and executives who enter into such agreements are guilty of a criminal offence and can be jailed. The CMA offers very lenient treatment to the first member of a cartel which comes forward to ‘blow the whistle’ (although they may not remain protected from third-party damages claims).
In 2015, the American authorities sought to force Apple to pay compensation of $400m to 23 million consumers, for conspiring with publishers to raise e-book prices and thwart the growth of Amazon’s Kindle offering.
Secret US Justice Department filming of members of the international Lysine Cartel may be found on YouTube.
POLICIES
The hypothetical monopolist test seeks to identify the smallest range of goods or services which a hypothetical monopolist could impose a profitable significant increase in price. …Having identified such a market, the authority can then decide whether the company’s share of that market is high enough to cause concern.
example: the market for iron ore could certainly be monopolised, for there are no substitutes. So the CMA would block a merger which created a company which controlled, say 75% of that market.
But it would be hard to monopolise the market for, say, English apples because customers would respond to a price rise by switching to other apples or other fruit. A merger in that sector would be allowed.
Competition analysts look at the price, quality, range, service combination (PQRS).
No direct communication, or anticomp intent, between firms is necessary. This is known as tacit collusion.
Effects-based v. Form-based Decision Making
two approaches to decision-making ( on whether a particular activity is illegal):
A. The form-based DECISIONS:
requires the regulator to do no more than to look at the behaviour of a company and decide whether it is inherently or intrinsically (PER SE) illegal. Secret price fixing cartels clearly fall into this category. But this approach does generally require there to be clear threshold criteria for illegality, and these can be hard to define.
it is based on assuming illegality….but….one big attraction of this approach is speed of operation, allowing ex ante (before the event, or prohibitive) action, rather than relying on ex post (after the event) action which allows maybe irreparable damage to be done before time-consuming analysis begins (often impeded by information asymmetry) and eventual decision and punishment.
Germans favour form-based decision-making thus they use stricter merger control laws.
B. THE ‘effects based’ or ‘economics based’ DECISIONS. The Americans, in contrast prefer to avoid the assumption of illegality, so follow an effects based approach.
What about mergers which reduce choice?
UK competition policy does not protect against mergers which reduce consumer choice (and hence reduce total welfare) unless they also reduce rivalry.
examples: Imagine a town in which a mainstream supermarket is competing with a (somewhat down-market) discounter (a sort of local Aldi or Lidl) – or with a local upmarket rival along the lines of Waitrose. Is there any objection to the Aldi/Lidl/Waitrose store being acquired by Tesco or Sainsbury’s – a more direct competitor to the existing mainstream supermarket? The answer, in UK law, is an emphatic “no” as the net result is a clear increase in rivalry now that the two stores are competing head to head. But the inhabitants of the town are unlikely to see it the same way, for their breadth of choice has clearly been reduced….Alternatively, what if the Aldi/Lidl/Waitrose business were to be acquired by a clothes retailer? Again, although customers clearly now have much less choice, the merger of a clothes store and a food store does not reduce competition and so the merger would be allowed.
Consumer Welfare or Rivalry?
In principle, it is open to competition authorities to choose one of three slightly different tests when deciding whether to intervene in a market or merger.
a rivalry test: Does the merger result in a substantial loss of competition?…They are not required to prove that a substantial loss of rivalry will lead to harm to consumers. Preferred by the germans: They are thus rather more likely to object to AOD, to preserve SMEs.
b. The ‘outcome test’ [=consumer welfare test]: Do the benefits (of the merger) outweight the likely detrimental effects (increased prices, lower quality products/services etc.) to the consumer? .
c. The total consumer welfare test: do the benefits (of a merger) to the industry, outweight the likely detriment to the consumer?…higher prices are permissible if they were offset by higher company profits.
*the consumer welfare test is inappropriate to assess:
-dominant companies, such as the internet giants, because consumers clearly benefit from free access to very innovative products… but are we suffering serious detriment in other ways?.
-Intermediary companies (do not supply the final consumer but to manufacturers, retailers etc), because a pure consumer welfare test might permit most mergers between them
What about protecting competitors?
CL provide no protection for competitors, [such as smaller firms] unless the possible infringers (larger firms) are abusing their dominant position (ADP).
why?:
because CP should not Penalise Success. PLUS, competitors’ complaints (about potential mergers) can be a good sign of intense competition. eg. some of the mobile phone companies are objecting to the proposed Orange/TMobile merger on the grounds that it will slow down the pace of uk innovation (a form of ADP)
the penalisation of success by CL, is large companies’ most frequent cry, eg. Tesco, They had grown their share of the UK grocery sales to 26%, when CMA held that there should be a presumption against further expansion in towns etc. where they would end up with more than 60% of the local market. Tesco appealed (to CAT) on the basis of a possible ‘cap on growth’
however, aggressive behaviour to cut the throats of newcomers, ARE remedied by the CMA without even finding evidence of ‘abuse.
Buyer Power – BUP
A company (or small number of companies) has strong BUP, if can resist price rises that would otherwise be imposed by a supplier (or suppliers) with MAP.
large supermarket chains, have sufficient BUP to impose tough deals on suppliers.
BUP is a good thing, as long as the benefits are passed on to the consumer ….Unfortunately, however, companies with significant bup, lack significant map when selling their products. They therefore make large profits by buying at prices lower, and selling at prices higher, than would be possible in a truly competitive market.
The use of Econometrics = to model companies behaviour, as evidence of behaviours and correlations….BUT, correlation does not prove causality…. This limits the use of econometrics.
National Champions
there is a need to balance between:
(a) those who want to create ‘national champion’ businesses by encouraging firms to merge, and
(b) cmas: resist mergers which substantially reduce domestic competition. But they do sometimes protect nationally important UK companies from being taken over by foreign ‘predators’ on PI grounds
An interesting 2018 case was the proposed merger between Siemens’ and Alstom’s railway businesses. EC duly prohibited it, on 2019 – but the companies, backed by Chancellor Merkel and President Macron, argued that we needed a ‘European champion’ to compete with China… But these Presidents were wrong, because the argument that it is sufficient for two firms to merge to become more competitive in the international markets, is fallacious. Siemens and Alstom are already leading firms in the international markets, and as such already benefit from important economies of scale and scope. There is no evidence that such merger would rise significant efficiency gains; and although it would increase their profits, the merged firm would have been less competitive in international markets and harm its customers, such as train operators and rail infrastructure managers, which will likely have to pay higher prices and enjoy less innovation and quality, and ultimately final consumers.
CLCP does not prevent the formation of national or European champions, as long as a merger brings about sufficiently strong synergies and complementarities between the merging parties. Indeed, EC usually prohibits mergers only when the predicted anti-competitive effects for buyers and consumers are significant, with unlikely (compensatory) efficiency gains.
Price Matching
Many customers would not use Expedia, Booking.com and similar websites unless they promise that they offer rooms etc. at the same price (or lower) than if you book direct with the hotel, or via another website.
But these Most Favoured Customer (MFC) agreements (between expedia…and the hotels) are anti-competitive as they deter competition between websites and/or between websites and the hotels. Such agreements have been ruled illegal as cartel. Unfortunately, the result has been unilateral promises that the vendor will match a lower price offered by a competitor. The obvious highly anti-competitive result is that no-one bothers to compete with the person making the promise, thus ensuring that the customer is denied shopping around. This could be ADP, but is not because companies making these promises are not dominant in their market.
<> cocoo will destroy expedia etc
The MFC is analog to: Most Favoured Nation (MFN) clauses in agreements between nations, whereby one country is prohibited from offering lower tariffs to other countries.
Does Competition Inhibit Cooperation?
‘yes’. The trouble is that pi cooperation can very quickly morph into standardization, which leads to less competition and less innovation etc. examples.
- Airlines do not cooperate when there is travel disruption. Passengers can suffer very badly as a result. I am not sure why they do not cooperate more effectively at such times.
- A bid to standardise the ramps used to help disabled passengers board different types of train failed because one company thought this anti-competitive. As a result, much time can be lost at stations served by more than one train company as platform staff struggle to find the right equipment .
- Supermarkets are not allowed to collaborate to increase the price of alcohol, for instance, despite the health benefits likely to accrue from such a policy.
- The CMA announced that no enforcement action would be taken against businesses cooperating to reduce damage to consumers and others during the COVID-19 pandemic.