Competition and Markets Authority ‘Regulation and Competition – A Review of the Evidence’ (2020)

It is well established that effective competition is a key mechanism for improving outcomes for consumers. There is a concern that regulation can have the effect of stifling competition, and thereby deprive customers of these benefits, for example through raising barriers to entry. At the same time, different forms of regulation have an important role to play in supporting competition, for example by providing the legal and economic frameworks within which competition takes place. It is therefore important to take into account the benefits as well as the costs when considering the impact of regulation. The purpose of this report, available here, is to summarise existing evidence about the impact of regulation on competition, both in terms of the academic research and the way in which regulation is designed and implemented in practice. It does so as follows: Section 2 introduces the topic. Competition and regulation are sometimes portrayed as mutually exclusive; for instance, either you have competition policy to…

Niamh Dunne ‘Dispensing with Indispensability’ (2020) Journal of Competition Law & Economics 16(1) 74

‘Indispensability’ is the central concept underpinning the treatment of refusal to deal claims under EU competition law. Firms can normally refuse to share their infrastructure with would-be competitors, to supply an input, or to licence their intellectual property. Where the requested access is, however, deemed indispensable to effective competition in an adjacent market—an exceptional circumstance—dominant undertakings may find their default market freedom constrained, the rationale being that control of such an essential facility renders any refusal to deal disproportionately harmful. However, the conventional wisdom that instances of refusal to deal constitute an abuse only in the presence of indispensability has been challenged from multiple directions. This article, available here, surveys the departures from the orthodoxy that can be found in the jurisprudence. Section II introduces refusal to supply as an antitrust theory of harm. It has long been acknowledged that Article 102 TFEU may, in certain instances, proscribe refusals to contract with rivals by dominant undertakings. Yet refusal to deal…

Alec Burnside and Adam Kidane ‘Common Ownership: A EU Perspective’ (2020) Journal of Antitrust Enforcement 8 456

This article, available here, examines common ownership through a European lens. The article considers whether the theory of harm flowing from common ownership is sufficiently robust to provide a basis for enforcement, and (if so) whether current European Union competition law tools could be used to that end. The authors argue that it is premature to draw any conclusions as to whether common ownership concerns justify competition enforcement. In any event, levels of common ownership seem to be lower in Europe than in the US, so it is unclear whether intervention would be justified in the EU even if it were in the US. Until a better understanding of the underlying facts and a broad academic consensus emerge, reform prescriptions that have been advanced will remain a solution in search of a problem. Section II describes the common ownership theory of harm. The authors begin by distinguishing between cross-shareholding and common ownership. Cross-ownership arises where one firm acquires a non-controlling…

Einer Elhauge ‘How Horizontal Shareholding Harms Our Economy—And Why Antitrust Law Can Fix It’ (2020) 10 Harvard Business Law Review 10(2) 207

This article, available here, argues that new economic proofs and empirical evidence show that horizontal shareholding in concentrated markets often has anticompetitive effect. The piece also develops new legal theories for tackling the problem of horizontal shareholding. When horizontal shareholding has anticompetitive effects, it is illegal not only under Clayton Act §7, but also under Sherman Act §1. Anticompetitive horizontal shareholding also constitutes an illegal agreement or concerted practice under EU Treaty Article 101, as well as an abuse of collective dominance under Article 102. Part I describes how new proofs and empirical evidence have confirmed that high levels of horizontal shareholding in concentrated product markets can have anticompetitive effects, even when each individual horizontal shareholder has a minority stake. The last few years have seen a deluge of studies – involving economic modelling and empirical research – demonstrating how overlapping horizontal shareholding can lead to anticompetitive effect, even when each individual horizontal shareholder has a minority stake and without…

Anna Tzanaki ‘Varieties and Mechanisms of Common Ownership: A Calibration Exercise for Competition Policy’ (forthcoming)

Minority shareholdings have been on the regulatory agenda of competition authorities for some time. Recent empirical studies, however, draw attention to a new, thought provoking theory of harm: common ownership by institutional investors holding small, parallel equity positions in several competing firms within concentrated industries. The European Commission has already made use of the common ownership theory in its merger enforcement practice, while the US antitrust agencies have proposed amending their merger control reporting thresholds to account for aggregate institutional holdings. This paper, available here, reviews common ownership from the perspective of merger control. It starts with a novel distinction between two types of common ownership – ‘concentrated’, which broadly fits within existing concepts in merger control; and ‘diffuse’, which broadly encompasses the instances of common ownership that avoid merger scrutiny in jurisdictions that rely on control-based thresholds. It is this latter form of common ownership that preoccupies the contemporary debate, and falls through the gaps of competition law. The…

Karen Geurts and Johannes Van Biesebroeck ‘Employment Growth following Takeovers’ (2019) The Rand Journal of Economics 50(4) 916

This paper, available here, takes a sample of takeovers in Belgium over five years, and estimates their impact on employment growth. It finds that the average merger temporarily reduces employment of the combined entity by −1.4%. However, long-term effects are markedly different. Mergers likely to be motivated by acquiring or defending market power show a stronger and permanent employment reduction of −14%, whereas those motivated by efficiency gains lead to employment expansions of +10%. Section I sets the scene. Existing research provides a range of estimates for the employment effects of mergers, with no consensus having emerged about the predominant effect of mergers on employment. Studies that find a negative effect outnumber those that find a positive effect, but all come with caveats. At the same time, the literature has long noted the potential for efficiency gains from mergers. Acquirers often argue that reduced variable costs can offset market power and lead to lower prices, which in turn can raise…

Nicholas Levy ‘Judicial review of merger decisions: An overview of EU and national case law’ (2019) Concurrences Special Issue Mergers Judicial Review

When the European Merger Control Regulation (EMCR) was adopted, there was uncertainty about whether the EU Courts would act as an effective check on the Commission’s enforcement, and exert discipline on its decisions in the same way as U.S. courts discipline the U.S. federal agencies’ determinations of whether mergers should be allowed to proceed. There was also uncertainty as to the scope for timely judicial review. History has proven the sceptics wrong. The EU Courts have played a highly significant role in shaping the law and holding the Commission to account. Although the EU Courts have recognised that judicial deference is embedded in the EU system of merger control, they have nevertheless been ready to subject Commission decisions to careful and comprehensive review. The courts have also protected merging companies’ rights of defence, striking down decisions that have been insufficiently substantiated or based on findings inadequately presented to the merging parties during the administrative process. The EU Courts have also…

Frank Maier-Rigaud and Benjamin Loertscher ‘Structural v Behavioural Remedies’ (2020) CPI Chronicle April

Both antitrust and merger investigations at the EU level regularly conclude with the European Commission (“Commission”) accepting or imposing remedies. Despite the theories of harm underlying antitrust and merger investigations often being similar, if not identical, remedies in these two areas of competition law vary substantially. The predominance of behavioural remedies in antitrust cases stands in contrast to structural remedies relied upon in most merger investigations. This is surprising and begs the question of what are the factors driving the Commission’s remedies practice – which is the question that this paper, available here, seeks to address. Section II provides some background on the application of remedies under EU law. Under merger control, commitments accepted by the Commission “should be proportionate to the competition problem and entirely eliminate it.” Similarly, in antitrust enforcement the Commission can “impose any […] remedies which are proportionate to the infringement committed and necessary to bring the infringement effectively to an end”. The broadest classification for…

Chris Pike and Pedro Caro de Sousa ‘How Soon Is Now: How to Deal with Uncertainty as regards Potential Competition in Merger Control’ Competition Law and Policy Debate (forthcoming)

While a short time frame of analysis can help build confidence in the conclusions reached on the likely effects of a transaction within that time frame, it misses potential harms and benefits related to longer-term potential competition. To correct this analytical deficiency requires the use of a longer time frame of analysis. However, with a longer time frame comes greater uncertainty on both probabilities and the magnitude of outcomes. Such prospective assessments often imply the balancing of probabilities by decision-makers, which are subject to substantive, evidentiary and practical constraints. In cases involving potential competition, this uncertainty is further heightened, to the point where meeting evidentiary standards designed for a short time frame analysis can become near impossible. This paper, available here, explores avenues to deal with uncertainty under merger control, and advances two proposals. First, one should ensure that the substantive standards for clearing and prohibiting a merger reflect not only the probability but also the potential magnitude of anti-…

Giulio Federico, Fiona Scott Morton and Carl Shapiro ‘Antitrust and Innovation: Welcoming and Protecting Disruption’ in Innovation Policy and the Economy (eds. Josh Lerner and Scott Stern, NBER), Vol. 20, Chapter 4, 125

This paper, available here, focuses on the impact of competition policy on innovation. Disruptive firms drive a significant amount of innovation. By making its offer to customers attractive in a new way, a disruptive firm can destroy a great deal of incumbent profit while creating a large amount of consumer surplus. The resulting churn in products and market shares, as new products enter and old ones exit, and as newer business methods and business models supplant older ones, are typical of a healthy competitive process. If that competitive process is slowed or biased by mergers or by exclusionary conduct, innovation is lessened and consumers are harmed. Competition policy seeks to protect the competitive process by which disruptive firms challenge the status quo, despite the biggest firms being some of the most impressive innovators in many industries experiencing rapid technological change. Innovation is best promoted when market leaders are allowed to exploit their competitive advantages while also facing pressure to perform…