Transcript Khemani-Presentation

MiCRA
CALCULATING ANTITRUST FINES & DAMAGES
THEORETICAL UNDERPINNINGS & PRACTICAL
APPROACHES
Presentation to
Commissioners Malaysia Competition Commission
by
Rughvir (Shyam) Khemani, PhD (LSE)
Microeconomic Consulting and Research Associates
(www.micradc.com) and
Former Advisor, Competition Policy
The World Bank Group, Washington D.C., USA
Kuala Lampur, Malaysia, 8-9 June 2013
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MiCRA
Effective Administration of Competition
Law and Policy
 The effective administration of competition law and policy
requires balancing of
EnforcementFostering Compliance
 Enforcement-> Investigation, Prosecution, Adjudication,
Judgment, Imposition of Fines & Penalties
 Compliance-> Research & Policy Analysis, Market Studies,
Publications & Speeches, Meetings with Stakeholders,
Advocacy
 Effective enforcement (including appropriate levels of fines
and sanctions) ->Compliance
 Compliance->Lowers administrative & enforcement costs,
legal and economic uncertainty….
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MiCRA
Definitions
Fine—“a sum imposed as punishment for an offense”
Penalty—“the suffering in person, rights, or property that is
annexed by law or judicial decision to the commission of a
crime or public offense”
Sanctions—“the detriment, loss of reward, or coercive
intervention annexed to a violation of a law as a means of
enforcing the law”
Damages—“compensation in money imposed by law for loss
or injury”
Remedies—“the legal means to recover a right or to prevent
or obtain redress for a wrong/something that corrects or
counteracts”
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MiCRA
Powers to Impose Fines and Other
Remedial Measures
Section 35 MyCC can apply Interim Measures
Section 61 MyCC can impose penalties:
Corporate body fine of >5 million ringgit for initial
offense; >10 million ringgit for 2nd & subsequent offense(s)
Non-corporate person(s) >1 million ringgit and/or
imprisonment of 5 years; 2nd and subsequent offense(s) >
2 million ringgit, and/or 5 years
imprisonment
Section 62:Compounding of offences
MyCC can impose fines on enterprises up to 10% of world-wide
turnover
Section 64: Rights of private action (by persons directly/indirectly
affected)
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MiCRA
Characteristics of Illegal Price-fixing
1. Higher prices
2. Lower variance
3. Price increases gradually to
prevent detection
4. Price falls after detection, with
lag to reduce estimate of damages
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MiCRA
Example of Price-fixing: Level and Variance
Source: Abrantes-Metz, Froeb, Geweke and Taylor
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MiCRA
Empirical Estimates of Cartel Pricing
Regression meta-analysis concludes that increase in price
due to cartel is between 20% and 30%
Source: Connor 2005
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MiCRA
Case Study: European Cement
BACKGROUND: MiCRA retained by participant in
collapsed cartel to appeal penalty based on agency’s
estimate of price effect of cartel
ISSUE: Can fall in price after cartel collapse serve as
estimate of effect of cartel on prices?
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MiCRA
European Cement
Laspeyres Price Indices for Selected Cements, 2000-2003
1.200
Price Index
1.000
0.800
0.600
0.400
0.200
Agreement Area
0.000
2000
2001
Year
2002
2003
•Price falls by almost 50% with collapse of cartel
•Implies cartel raised prices by € 30/ton
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MiCRA
European Cement
 Cartel agreement was to maintain assigned market
shares.
 Assigned shares based on capacity
 Induces massive excess capacity
 Prices collapse with collapse of conspiracy to
unsustainably low levels
 Fall in price with collapse of conspiracy overstates
price effect of conspiracy
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MiCRA
Compare to Margins in Other Countries
Cement Industry Variable Margins
1992 – 2001
European
Year
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Weighted Average
Variable Margin
.584
.588
.598
.585
.596
.593
.629
.649
.666
.672
.615
United States
Variable Margin
.539
.535
.582
.582
.608
.610
.625
.626
.622
.622
.601
• Implies prices 3.5% higher due to cartel
• Approximately € 2.11/ton
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MiCRA
Assessing Damages
 Assessing size of ‘consumer harm’ arising from
anticompetitive conduct influences size of fine to be
imposed
 Key issue in commercial disputes estimate compensation
 General approach: compare actual outcomes(prices) with
what would have been absent anticompetitive conduct
(‘but for’ analysis)
 Econometric analysis controlling for main factors affecting
prices viz., changes in costs, demand and customer
mix….’before and after’ study of market and firm pricingoutput behavior….
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MiCRA
Vitamin Case
Vitamins
1999: Hoffmann-La Roche and other firms pled guilty
to operating a world-wide cartel over previous decade for
main vitamins (especially vitamins A & E)
Investigations & prosecutions in EU and other
jurisdictions
Documents indicate price levels and changes pre-post
cartel period, gradual, systematic price increases and
rapid steep decreases post US investigation..
Differentials facilitated estimates of ‘over-charge’
US fine $500 million; EC fine euros 462 million
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MiCRA
GOOGLE On-line Mapping
 2012 France’s Commercial Tribunal of Paris (CTP) found
Google abused its dominant position  fined euros
500,000.
 Relevant market: “online mapping allowing for the
geolocalisation of sales points on company websites”
 CTP held Google dominant (de facto monopoly) in France
in search engine market.
 Allowed for dominance in connected online mapping
market free
 Disadvantaged Bottin, a French company offering online
mapping for annual subscription fee
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MiCRA
GOOGLE online mapping-continued
Free’ service did not allow for covering of costs e.g.
acquiring geographic/aerial rights necessary for
mapping charged by 3rd parties
 Google pricing strategy exclusionary, drove all
competitors (e.g. Maporama) out of the market
 Google strategy maximized its advertising revenue to
detriment of competitors that needed to charge fees
for online mapping service
 CTP rejected Google defense:
 Predatory pricing conditions as per EC guidelines not
proven
 Google was sacrificing short-term profits….and other
arguments…..
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MiCRA
Polypropylene Carpet
 Polypropylene carpet low grade floor covering used
in low-income houses/offices
 Mid-1990s US DoJ investigated alleged price collusion:
firms’ prices which had previously increased declined
rapidly
 Econometric analysis and actual prices preinvestigation > post-investigation prices
 During alleged cartel period, cost declines of principal
inputs not passed thru’ rapidly suggesting collusion;
but cost increases post investigation also not passed
thru rapidly
 Parties argued this as evidence of competitive
pressures-fear of losing market share….
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MiCRA
Polypropylene Carpet--continued
 In ‘oligopolistic’ markets, prices tend to increase when
costs increase but tend to be ‘sticky’ downward when
costs decline
 Case settled before adjudication, empirical analysis,
evidentiary issues unresolved
Some Complexities:
 Econometric analysis data intensive, require wellspecified models, inclusion of all relevant variables
 ‘But for’ analysis needs to consider ‘structural changes’
between pre-post anti-competitive periods
 ‘Pass thru’ calculations: final vs. intermediate
purchasers, inter-connected markets….
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MiCRA
Pass-Through Rate
Direct and indirect purchasers
 Illinois
Brick in US vs. EU approach
Theory: Pass-through rate depends on
 Competition
– oligopoly – monopoly
 Firm-specific vs. industry-wide cost increase
 Shape of demand curve
 Slope of marginal cost curve
 Conduct parameter
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MiCRA
Pass-Through Rate
Under competition, pass-through rate depends on the
supply elasticity and demand elasticity
Price
Infinitely elastic supply curve
Price
PT = 1
Upward-sloping supply curve
PT < 1
∆P < ∆C
∆P = ∆C
Quantity
Quantity
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MiCRA
Pass-Through Rate
Under monopoly, pass-through rate depends on the
convexity of the demand curve
Price
Constant elasticity demand curve
Price
Linear demand curve
∆P = 2∆C
PT = 1/2
PT = 2
∆P = 1/2∆C
∆P
∆C
∆C
MR
Quantity
Quantity
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MiCRA
Implementation Issues
 Optimal penalties
 Theory: harm divided by probability of detection
 Financial penalties vs. jail time
 Level of fines: cost recovery + punitive + deterrent
 Fines: Too low license fee to commit infractions?
 Proportionate, deterrent
 Factors to consider: Magnitude of price differentials,
profits earned, time duration of anticompetitive
conduct, size of market affected, nature and type of
customers (individual consumers vs. business firms,
income group, etc.), nature of product (staple vs.
other), importance in budget/cost…..
 Amnesty-Leniency
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