Competition Law in Transition: Trends and Challenges

Transcription

1 Competition Law in Transition: Trends and Challenges Merger Control: defending a problematic merger Paula Ramada London Economics Dubrovnik, June 2011

2 Outline of the talk Merger enforcement trends UK and EC A more economic approach to merger control Example a merger in a media market 2

3 Merger control old and new Main elements of merger control Market definition Market shares Competitive constraints t Unilateral effects Co ordinated effects Efficienciesi i Remedies 3

4 New guidelines in UK Market definition receives less weight, seen as one of a range of tools Competitive constraints considered most important and the majorfocus of the investigationeffort effort Substantial lessening of competition (SLC) the essence of the test remains unchanged Approach to remedies behavioural remedies are considered less effective than structural remedies but case by case assessment predominates 4

5 Main elements EU A more economic approach to merger control Significant impediment to effective competition (SIEC) convergence with the Anglo Saxon prohibition test of Substantial Lessening of Competition Consideration of both coordinated and unilateral effects Unilateral effects require large market shares, direct competition between merging parties and low substitution with alternative suppliers Unilateral effects can be assessed through merger simulation techniques Coordinated effects occur if the merger facilitates implicit collusion; contrary to unilateral effects, this is more likely to occur in homogeneous product markets Coordinated effects are assessed on a basis similar to the 3 Airtours criteria market transparency; availability of a retaliatory mechanism; absence of countervailing forces + existence of maverick firms Efficiencies given a greater role as a countervailing factor (merger with significant efficiencies may be allowed even in the presence of dominance) But, must be specific to the merger, verifiable, and benefit consumers Burden of proof lies with the merging firms Efficiency gains must be compared to welfare costs of reduced competition Assessment through simulation model 5

6 A more economic approach to merger control More reliance on economic models and quantitative techniques to analyse effects and to design enforcement rules Gradual shift from per se to rule of reason approaches Emphasis on protecting consumers, rather than protecting competition or protecting certain market structures Does it deliver greater legal certainty? Does it deliver improved decision making? Economic models and quantitative techniques can give a range of results not necessarily more legal certainty Type I error (not prohibit a welfare reducing merger) less likely with the introduction of the unilateral l effects But, more likely due to the standard of proof required for coordinated effects Type II error (prohibit a welfare enhancing merger) more likely due to high standard of proof for efficiencies Possible increase in costs of merger control process 6

7 A more economic approach to merger control techniques Merger simulation is a very important element of the more economic approach Significant data requirements Wide ranging modelling choices Particularly sensitive to demand estimation approaches (e.g. multi level budgeting; logittype models; conjoint analysis) Quantified welfare losses to be compared to efficiency gains Price pressure indices Measure merged firm s incentive to increase price above pre merger levels To provide a screen if index low, merger should be allowed Data requirements are not insignificant diversion ratios, gross profit margins, and efficiencies Estimation via short cuts is unreliable 7

8 Defending a problematic merger Bigger role for merger efficiencies but very high standard of proof need to prove their existence, quantify them, show that they are specific to the merger and that they will benefit consumers; they haveto be quantifiably largerthan negative effects Coordinated effects face a high standard of proof and the underlying economics is particularly complex; worth looking for good arguments to defend that tacit collusion would not be facilitated by the merger Search for close substitutes to the products of the merging firms Argue for new entry potential or for expansion by competitors into supply of close substitutes On the other hand It is probably less worth spending resources on market definition and trying to argue that the affected market is large this will not be given a huge weight by the authorities 8

9 Case study media merger in Hungary In a two sided market the merged firm can increase prices to one side while keeping or even lowering prices to the other (e.g. increase prices to advertisers and leave prices for consumers unchanged). If the objective of merger enforcement is to protect consumers, authorities may be unconcerned by an increase in prices to advertisers. Price elasticity and elasticity to content may be high regardless of role of competitors seller will sell more at lower prices / better content and will thus be more valuable to advertisers; there is much less incentive to increase prices than in other types of markets Merger impact assessed through SIEC test significant impediment to effective competition Effective competition should deliver choice, valued content, reasonable prices (to readers) Media market mergers more likely to affect choice than either prices or valued content In the end, decision was made on the basis of loss of media plurality rather than on competition economics arguments 9

10 Case study media merger in Hungary In a two sided market merged firm has less incentive to raise prices Jointly owned platforms do not necessarily prefer to set higher prices to either side of the market Advertisers willingness to pay for advertising in a given newspaper is a function of the number and characteristics of its readers Platform owner can manipulate content and prices to readers to deliver an audience of a certain value to advertisers Readers often pay less than the cost per reader because of their value to advertisers; Lower prices bring more readers but marginal readers have decreasing value to advertisers; the platform sets a price such that the loss per additional reader is compensated by their value to advertisers If two jointly owned platforms simultaneously lower prices to readers they will each attract more readers but fewer of these will come from the other platform. These additional readers are more valuable to advertisers than when only one platform reduces prices. So a co ordinated decrease in prices is more likely to be profit enhancing than an independent reduction so that a merged entity may choose to lower prices when separately owned firms would not 10