Transcript English Version - Gambia Competition and Consumer Protection

Operationalizing Competition Policy
Through Law Enforcement
Markus H. Meier
Assistant Director
African Competition Forum
March 25, 2013
Session Overview
• Goals of Competition Law
• Ways to Promote Competition
• Modes of Competition Law Analysis
• How to Learn About Cases
• Major Categories of Violations
• Role of Economics
Goals of Competition Law
• Promoting economic efficiency and
consumer welfare.
• Diffusing economic power.
• Promoting “fair” competition and protecting
small businesses.
• Other social policy goals?
How do enforce the competition law
when the goals conflict?
Purpose of Competition Law
• Prevent business practices that restrain
competition (unreasonably).
• For the benefit of consumers (customers,
buyers):
– Lower prices
– Better quality products and services
– Increased choice, selection, convenience, and
innovation
Ways to Promote Competition
1. Enforcing the law.
2. Providing guidance to government,
industry, and consumers.
3. Conducting research and preparing
studies.
4. Engaging in competition advocacy.
5. Participating in international activities.
Two Modes of Competition Analysis
1. “Rule of Reason” – requires showing that
the business practice under investigation
causes actual or likely harm to competition.
2. “Per se rule” – certain business practices
are presumed to harm competition.
What is the practical significance of this
distinction, if any, for investigations?
The Rule of Reason
• Evaluates business practices case-by-case.
• Is typically very fact intensive.
• Requires an analysis of the practice’s
competitive effect in a relevant market.
• Takes into account the purposes and any
justifications offered for the practice.
The Per Se Rule
• Proof that the prohibited conduct occurred is
sufficient to establish a violation.
• Thus no need to:
– consider whether price is reasonable
– prove market power or effects
– assess efficiency justifications
• Reasons for adopting a per se rule:
– deters business practices known to pose competitive
harm in most cases
– gives businesses certainty about legal status of
certain practices
Major Categories of Violation
1. Agreements in Restraint of Trade
2. Monopolization
3. Mergers and Acquisitions
Tying Competition Law Together:
“The Monopoly Problem”
1. A monopolist creates artificial scarcity of its
product by producing less and selling it at a
higher price than if it faced competition.
2. In competitive markets rivals would see this as
an opportunity to make more sales by increasing
their production and charging a lower price.
3. Firms, by entering agreements that restrain trade
or by merging may be able to collectively
exercise monopoly power, thereby doing the
same harm to competition as a monopolist.
How to Learn About Possible Cases
1. Complaints from consumers and competitors.
2. Articles in papers, magazines, trade press.
3. Inquiries from other government agencies.
4. Internal case generation projects.
5. Information learned from other investigations
or agency studies or hearings.
6. Pre-merger filings and similar requirements.
7. Leniency programs (for criminal cases).
Grounded in Economics
• “Competition” – Where the number of firms selling
similar products is sufficiently large, and each individual
firm’s share of sales is sufficiently small, such that no firm is
able to influence appreciably the product’s price by varying
the quantity of output it sells.
• “Markets” – A group of products that significantly
constrain each other’s pricing, when viewed from the
demand side (consumers) and supply side (producers).
• “Monopoly” or “Market Power” – The ability of a
firm, or a group of firms acting together, to raise price above
the competitive level without losing so many sales so
rapidly that the price increase is unprofitable.
Some Economic Theories Used
in Competition Law Analysis
• Microeconomics and Price Theory
• Structure-Conduct-Performance Paradigm
• Transaction Costs Analysis
• Game Theory
Some Lessons from Economics
for Sound Competition Analysis
• Over time, and absent significant entry barriers, firms grow
to the size where they can operate efficiently.
• What is efficient, however, may change over time with
developments in technology, manufacturing, distribution,
marketing, and management practices.
• Fewer firms does not necessarily mean less competition.
• Having said this, there are few products for which the
minimum efficient scale or scope of a firm’s operation does
not leave room for several competing firms.
• Whenever a firm competes it intends to take business from
its rivals, and the greater the relative differences in
efficiency, the greater the likely exclusion.