Transcript Folie 1 - unitn.it

Evolutionary economics: an alternative
approach to competition policy the case of automobile distribution
Simonetta Vezzoso
University of Trento, Italy
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additional arguments for
anti-competitive effects
of vertical restraints?
evolutionary approaches
to competition
additional arguments for
positive effects of vertical
restraints?
2
ABOUT THE NOTION OF VERTICAL ARRANGEMENTS AND RESTRAINTS
sale
PRODUCERS
limited number of
dealers
only approved dealers
sale price
CONDITIONS
buying
DEALERS
competiting
products
actual sources
of supply
purchase price
price
resale
territory
customers
sale to other dealers
etc.
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THEORETICAL ANALYSIS OF
VERTICAL RESTRAINTS
„OLD“ HARVARD SCHOOL
CHICAGO SCHOOL
efficiencies
„MODERN“ ECONOMIC
ANALYSIS
Chicago
TCE
Agency
market power
„new“ Harvard
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„economic approach“
aim of enhancing
consumer welfare
efficient allocation
of resources
GUIDELINES
recognition of
efficiencies of
vertical restraints
vertical restraints possibly
anticompetitive only if market power
BER 2790/1999
exemption up to
30% market share
core restrictions
not exempted
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MOTOR VEHICLE SECTOR
BER 123/85
BER 1475/95
cars less of a
„special good“
Report
closing-off of new
distribution techniques
differences among
sale prices in
member States
BER 1400/2002
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BER 1400/2002
exemption depending on
market share threshold
core restrictions
stricter than
BER 2790/1999
no cumulation of exclusive and
selective distribution
link between sales and service broken
reinforcement of multi-branding
more protection of dealers‘ economic
independence
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neoclassical
theories of
competition
APPRAISAL OF
THE NEW POLICY
evolutionary
theories of
competition
INNOVATION OF
DISTRIBUTION
FORMATS
- innovation and learning
hardly taken into account
innovation and learning occupy
a central position
- focus on price competition and the
efficient allocation of resources
- focus on competition
as a discovery,
innovation process
NEED FOR A DIFFERENT
THEORETICAL FRAMEWORK ?
SUITABLE THEORETICAL
FRAMEWORK ?
ADDITIONAL ARGUMENTS?
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evolutionary approaches
to competition
Schumpeter/
Neo-Schumpeterian
competition
Hayekian and Austrian
Resource literature
new products
new services
new technologies
motor of economic
development
changes
new organizations
from within the economic system
unexpected, unforeseable
market imperfections as part of competition
market processes
evolutionary processes of variation and selection
importance of
variation
biological evolution theories
influences
behaviouralist organization theory
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subjective
Schumpeter/
Neo-Schumpeterian
knowledge
dispersed (local)
Hayekian and Austrian
difficult to communicate
Resource literature
individual
knowledge problem
system
competition as
discovery procedure
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competition as a process
evolution of the economic system
depending (also) on competition
key insights
about competition
creativity and heterogeneity of economic agents
as a key to diversity
subjectivity and dispersion of knowledge
trial, error and discovery for knowledge‘s
growth
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GENERAL PERSPECTIVE ON MARKET
PROCESSES OVER SEVERAL MARKET STAGES
evolutionary variation
and selection processes
in vertically linked markets
P
P
P
P
selection
h1
D
h2
D
h4
variation
h3
D
D
gatekeeper
selection
Consumers
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P
P
D
D
h1
P
D
h2
h3
P
D
h4
variation
selection
Consumers
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P
selection
h1
P
h2
P
h3
P
h4
variation
D
D
D
D
Consumers
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P
P
P
P
division of
labour
D
D
D
matter of
discovery
D
organizational
innovations
Consumers
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P
D
P
D
P
D
P
D
Consumers
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evolutionary
theoretical
framework
New perspective
vertical restraints are part of these very complex
and mutually interdependent processes of
experimentation on different markets in the vertical chain
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firms as bundles
of resources
complementarities among resources
decisive for competitive advantage
Schumpeter/
Neo-Schumpeterian
Hayekian and Austrian
competition
strategies
Resource literature
- resource diversification
- resources combinations
- resources protection
- imitation of successful
resources
firm‘s growth
depending on its
own capabilities
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EVOLUTIONARY ARGUMENTS FOR ASSESSING VERTICAL RESTRAINTS/1
Subjectivism, Heterogeneity, and Local Knowledge
 All firms within the vertical chain have subjective, fallible, and often
local or tacit knowledge
– this is neglected in neoclassical analyses of vertical restraints
• Heterogeneous and local knowledge:
– retailers might have superior knowledge compared to manufacturers
– vertical restraints (e.g., selective distribution systems) may restrict
retailer's freedom to make its own decisions on the basis of its specific
knowledge
• Consequence, e.g.:
– "Protection of the freedom" of the dealers can lead to a more efficient
distribution
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EVOLUTIONARY ARGUMENTS FOR ASSESSING VERTICAL RESTRAINTS/2
Freedom to Experiment and Variety
• Vertical restraints can restrict the freedom to experiment and reduce
the amount of variety that is being generated and tested
• Vertical restraints reduce the independent sources of innovation
• Independent variation and selection processes on the producer and
retailer level may lead to more generation of knowledge than in
the case of (partial) vertical integration
– several independent variation and selection processes within the vertical
chain might improve the quality of the experimentation process
– smaller bundles of hypotheses that are tested in the market improve the
quality of the selection process
• Consequences, e.g.:
– intrabrand competition as an experimental process can be
important, even if interbrand competition is effective
– less vertical restraints might lead to positive innovation effects, and might
also alleviate market entry
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EVOLUTIONARY ARGUMENTS FOR ASSESSING VERTICAL RESTRAINTS/3
Communication Costs
• Communication costs can be very high:
– knowledge difficult to articulate and communicate
– limited capability to absorb
• Advantages of vertical restraints:
– e.g., long-term exclusivities, may help establishing a climate
supportive to a fruitful communication (reduces cognitive
distance)
– leading to improved division of labor between firms contributing
heterogeneous knowledge-bases
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EVOLUTIONARY ARGUMENTS FOR ASSESSING VERTICAL RESTRAINTS/4
Complementarity and Vertical Leadership
•
Interdependencies / complementarities between activities and competences
can justify vertical restraints aiming at ex-ante qualitative coordination
– vertical arrangements as means for discovering new complementarities and
synergies
•
Systemic character of innovations can justify vertical restraints
– innovation of complex products might require simultaneous innovations of many
components
– necessary: system (or vertical) leadership for the coordination of innovations
– vertical restraints as a means by which the "hub“ exercises its coordinating role
– alternative option: modularization through defining of interfaces ("interconnection
knowledge"), within which independent experimentation is possible
•
Competition for vertical leadership
– vertical restraints should not allow the vertical leader to perpetuate its power by
• unduly restricting the other party‘s freedom to experiment
• making entry more difficult
– ensuring that competition for vertical leadership remains possible
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competition as
evolutionary variation
and selection processes
in vertically linked markets
evolutionary
perspective
firms as a bundles
of resources
(capabilities,
heterogeneous
knowledge)
evolutionary arguments
concerning vertical restraints
new policy in the
car sector
positive effects of the
newer rules on
evolutionary competition?
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unbundling of sale
and repair services
retailers heterogeneous in regard
to their knowledge and skills
better if they found by themselves if
outsourcing is an efficient choice
also because of similarities
of knowledge and skills
vertical rivarly between dealers
and retailers
lowering of entry barriers
into the retail market
new firms need not offer
simultaneously distribution
and repair services
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more protection of dealers‘ economic
independence
step to a long-term development ?
really independent
dealers of emerge
that can develop their own
innovative distribution formats
and test them
on the market ?
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MORE
OPEN
QUESTIONS
e.g.
Is the new policy
sufficient to break up the
traditional distribution
structures?
no cumulation of exclusive and
selective distribution
should selective
distribution
be prohibited ?
retailers free to sell
the products the way
they think more appropriate ?
important for the producer to
choose whom to sell his items
also because of possible
synergies between resources/
competences
important that other,
independent dealers emerge
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Evolutionary arguments against
vertical restraints
limitation of the freedom to decide
on one's subjective, local knowledge
freedom to experiment restricted
Evolutionary arguments in
favour of vertical restraints:
improved communication between
firms with heterogeneous knowledge-bases
ex-ante qualitative coordination
of interdependent / complementary
activities and resources
less variety generated and tested
restriction of competition for vertical
leadership
better coordination of innovations in the
case of systemic innovations
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Problems of Regulating Vertical Restraints
from an Evolutionary Perspective
•
Knowledge problems of competition authorities:
–
–
–
•
lack of specific information and foreseeability of market processes
very difficult to decide correctly in single competition cases
consequence: "per-se rules" are better than a "rule of reason",
but which increasingly is the tendency in EU competition law
Knowledge problems of firms in regard to vertical restraints:
–
positive efficiency effects of new vertical restraints due to
organizational innovations cannot be predicted ex-ante
•
–
rule of reason under Art. 81 (3) is difficult to apply
But: 30% market share as "safe harbour" in Block Exemption
Regulation allows for free experimentation
•
no need to substantiate efficiency benefits ex-ante or ex-post
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CONCLUSIONS
evolutionary theories should complement
neoclassical competition theories
possible to identify additional
arguments in favour of vertical restraints
from an evolutionary perspective
possible to identify additional arguments
against vertical restraints from an
evolutionary perspective
more research needs to be done!
also, better understanding of
how evolutionary competition
works (i.e. conditions, etc.)
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EXAMPLES OF POSSIBLE
RESEARCH TOPICS
how much diversity/heterogeneity
among actors do we need for
evolutionary competition to work?
is the „relevant market“ notion still
important in an evolutionary context?
does resale price maintenance
negatively affect evolutionary
competition at the retail level?
how important is price flexibility to
provide retailers with innovation incentives?
do vertical restraints distort
vertical competition?
how do we combine the governance (efficiency)
and the competence perspectives on vertical arrangements for
the purposes of competition policy?
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