Transcript Merger Review in Italy Substantive and Procedural Rules

Competition Policy in difficult
economic times
Trento, November 13, 2009
Alessandra Tonazzi
International Affairs
Italian Competition Authority
The views expressed herein are those of the
author and should not be attributed to the
Italian Competition Authority
Layout
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Competitive markets promote economic
growth: the benefits of competition
The economic crisis
Challenges to competition policy
Competition policy responses
The benefits of competition
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The benefits of competition and its contribution
to growth have been recognized in years of
economic prosperity
Until the recent economic crisis we have
witnessed a decade or more of confidence in
the ability of competitive markets to deliver
positive outcomes to consumers and the
economy
The benefits of competition
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Processes of privatization and liberalization
have taken place in many countries
Competition laws have been introduced in
transition and developing economies
In 1990 there where about 14 functioning
antitrust authorities in the world…
…by the end of the decade the number has
grown to more than 100
The benefits of competition
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Competition policy has an important role to play in
improving the productivity and therefore the growth
prospects of an economy
Effective competition provides significant benefits for
consumers through lower prices and better quality
goods and services.
When markets work well, firms thrive by meeting
consumers’ needs better and more effectively than their
competitors, through innovation, increased productivity
and a lower cost base.
The benefits of competition
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Competition provides strong incentives for firms to be
more efficient than their rivals, reduce their costs and
innovate, thereby helping raise productivity growth
across the economy.
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Effective competition provides significant benefits for
consumers through greater choice, lower prices, and
better quality goods and services.
The benefits of competition
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Economists agree that competition policy has
an important role to play in improving the
productivity of an economy, regardless of
the position of that economy in the
business cycle.
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Empirical evidence supports the proposition
that competition is beneficial for the economy.
A number of studies have quantified the
gains of pro-competitive deregulation.
The benefits of competition
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In one study, the Australian Productivity
Commission found that the pro-competitive
reforms to infrastructure in the early 1990s led
to price changes that boosted Australia’s gross
domestic product by 2.5 per cent, and the
average household’s income by A$7000 per
annum.
The benefits of competition
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The European Commission has found that the
liberalization of the European telecoms markets from
1998 has brought more competition to the markets,
and in turn brought major benefits to consumers in the
form of lower prices and better services.
The
introduction
of
competition
in
the
telecommunication markets led to an average
decrease of 45% percent of the price businesses paid
for international calls between 1998 and 2003.
(Commission Communication European Electronic Communications
Regulation and Markets 2003)
The benefits of competition
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Over the same period, the increased
liberalization of the European aviation market
increased flight frequency by 78% and lowered
the cost of non-sale fares by 66%.
If trade between EU Member States was
eliminated average productivity would fall by
13% (Commission Communication, European
Competitiveness Report, 2008).
The benefits of competition
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Even in time of economic prosperity
introducing competitive markets sometimes
proved difficult
Short term costs vs long term benefits
Costs are concentrated (lobbies) and benefits
are diffused (and disorganized)
The economic crisis has worsened these
factors
The economic crisis
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Banking origins of the crisis
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Macroeconomic framework between 2001
and 2005: abundance of liquidity and low
interest rates
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Changes in banking sector: major
financial innovations, acquisitions of
investment banks by traditional banks,
expansion of offered financial services
The crisis: financial markets
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Development of new financial
instruments
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Financialization of traditional bank loans
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“originate to distribute model”:
securization of bank loans and
transformation into tradable assets
The crisis: financial markets
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Degeneration of the key features of financial
markets
Legislative and regulatory changes relaxing
supervision on financial instruments
Drastic rise in sub-prime mortgages and other
high risk loans
The explosion of the crisis: increase in default
rates rapidly expanding throughout global
markets
The expansion of the crisis
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From financial to industrial crisis
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Need for Government intervention in
order to stabilize markets
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Bailouts and government supported
consolidations
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Massive state-aid measures
The situation after the financial
crisis
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In 2009 most economies have faced recession
Many firms face financial distress
Financial markets still shaken and credit
crunch
High levels of unemployment
Tight budgets due to the many State
interventions into the economy
Challenges for competition policy
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As the crisis has spread into and
deepened in the real economy mergers
and antitrust policy have come under
pressure
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Principles of competitive markets have been
put in question
Challenges for competition policy
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Not only trust in financial markets but also in
markets in general has been shaken
Competition delivers its best market outcomes
when it drives improved efficiency through new
entry of efficient firms and exit of inefficient
firms
but this takes time…. while short term
objectives might prevail
Challenges for competition policy
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Pressures to permit mergers that are
manifestly anticompetitive in order to save
troubled firms or create “national champions”
Pressures to permit “crisis or recession cartels”
Pressures to relax European Union rules on
state aid
The response of competition
agencies
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Competition agencies have been aware of the
changed general context
But they have resisted to these pressures and
stand firm on the importance of maintaining the
competition rules and a policy of robust
competition enforcement
The crisis has not undermined the principle
that competition brings prosperity
Lessons from the Great Depression
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Suspension of antitrust enforcement (NIRA
1930’s)
Studies show that this contributed in deepening
the crisis and delaying recovery (University of
California – Cole and Ohanianm, J. Pol. Econ.)
The return to vigorous enforcement was a
cornerstone of the New Deal
Challenges for competition policy
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A well established competition regime should
not require a lot of adjustment to cope with
the challenges of the crisis
Urgent situations: processes may need to be
streamlined and timelines adjusted
Competition policy should focus on sectors
that affect household expenditure to the
greatest effect
Reinforced efforts against cartels
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Cartels are arguably the most harmful type of
competition infringement
It would be unwise ton relax rules on cartels or
pursue cartels less vigorously
Any co-operation between firms should satisfy
the criteria laid out in Article 81 (3)
Arguments related to the economic crisis would
not justify cartels
…and abuses of dominant position
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The other focus of enforcement action under
antitrust rules is against unilateral conduct
such as abuse of dominance
Targeting an enforcement action against those
infringement that cause the most harm to
consumers
Commission December 2008 adopted
Guidance on enforcement priorities into
exclusionary abuses
Mergers and the crisis
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In assessing mergers that occur against the backdrop
of the financial and economic crisis agencies have to
maintain effective scrutiny under the competition tests
laid out in merger regulation
The purpose of the tests is to ensure that consumer
welfare is preserved
Short term: financial stability
Mid- to long term: competitive market structures
Mergers and the crisis
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Merger rules in general are an appropriate and
sufficiently flexible tool for merger control
enforcement in times of crisis
Nationalization
Remedies
Rescue mergers: failing firm defense
Competition advocacy
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In a situation where confidence in markets
may have decreased and where there is a
greater chance of government intervention
competition advocacy will have a greater role
in ensuring that States measures take on
board competition principles and do not create
disproportionate restrictions of competition,
which will harm the economy and make things
worse for consumers