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Title :Essays in the Economics of Competition Law Enforcement
Creator :Metsiou, Eleni Ch.
Contributor :Katsoulakos, Ioannis (Επιβλέπων καθηγητής)
Athens University of Economics and Business, Department of Economics (Degree granting institution)
Type :Text
Extent :126p.
Language :en
Abstract :In recent years it is widely recognized that competition is one of the main driving forces of economic development and growth. The direct effect of efficient competition is that it lowers prices and increases the quality of products and services. However, there is also an indirect effect that appears in highly competitive environments when firms, trying to escape from the effects of intense competition on their profits, promote innovation to produce new modernized products and more efficient production plans. This is called the “escape competition effect” and is probably the most important reason why efficient competition is so important for continuing growth.Recognizing the importance of competition for consumers’ wellbeing, businesses, dynamic markets and growth, in the light of worldwide economy changes, economists and policy makers have realized the need of antitrust enforcement modernization and the formation of an optimal antitrust policy.Recent economic literature has shed light on many dimensions of enforcement, such as:(i) Substantive Standards: Consumer Surplus vs. Total Welfare Standards(ii) Assessment procedures or Legal Standards: Per-Se Rules vs. Effects Based (or Rule-of-Reason) procedures(iii) Issues regarding the existence of Legal Uncertainty in antitrust enforcement(iv) Policies on Sanctions(v) Leniency Policies and Settlements. This dissertation contributes to the literature on Competition Policy Enforcement examining a number of the above mentioned dimensions: Firstly – and mainly – the starting point of antitrust enforcement procedures, the substantive standards [dimension (i) above], and secondly the effects of the Legal Uncertainty on penalties and welfare outcomes under different substantive standards [by combining dimensions (i) and (iii) above]. A “substantive standard” is the threshold rule that is used by Competition Authorities in order to appraise firms’ practices and determines the weight that should be given to the (positive and negative) effects of an action on different groups (consumers, producers, rivals, retailers etc)that interact in the market. There are two main substantive standards:I. the Consumer Surplus standard, where the Authorities investigate the changes in the price of a product and the quality and quantity that affect consumers as a result of a potentially anti-competitive action and II. The Total Welfare standard, where the Authorities, apart from the above effects, also consider the effects of the action under investigation on firms’ profits.The substantive standards that are adopted by Competition Authorities and the basic arguments that have been analyzed in the literature in favor of the one standard or the other are extensively presented in Chapter 1 which serves as introductory review note. Large economies,like USA and Europe, have adopted a Consumer Surplus standard, while smaller economies, like Canada and Australia, give great consideration on issues regarding the competitiveness of national firms and have adopted standards that can be considered as at least approaching a Total Welfare standard. Theoretical literature regarding the two standards have evolved around three main sets of arguments including (a) distributional considerations, (b) dynamic issues and (c)issues emerging from the interaction between firms and Competition Authorities. Moreover, in the same chapter, we present a brief literature review on the importance of Legal Uncertainty in Competition Policy enforcement, which is also examined in the context of this thesis. Legal Uncertainty exists, when an agent, while deciding whether or not to take an action, does not know for sure how this action will be treated by the relevant enforcement Authority, should it come under investigation, i.e. whether or not it will be deemed legal (and be allowed) or illegal (and bedis allowed and penalized). The first objective of this dissertation is to build on the literature that has developed,trying to answer the question: If we accept that the ultimate objective of antitrust is economic(total) welfare maximization, which is the proper substantive standard to achieve this goal? This question emerges due to the interaction of firms and Competition Authorities [point (c) above]. The idea was first introduced by Lyons (2002) who argued that it might be optimal in terms of total welfare maximization for the Competition Authorities to adopt a stricter standard, as the Consumer Surplus standard. According to his model firms, choosing between mutually exclusive mergers and knowing that the standard adopted is the Consumer Surplus standard, might be induced to choose the merger that is more welfare enhancing although less profitable, since the threshold will be higher under a Consumer Surplus standard. Since Lyons, a number of papershave discussed or further pursued this issue. However, all the discussion has been conducted in the context of mergers.The contribution of current work is to generalize the analysis to the case where firms can choose between mutually exclusive actions of any type (e.g. tying and bundling arrangements,rebate schemes, exclusive contracts, vertical restraints) which will entail both market power raising effects as well as potentially significant efficiency effects. We define the environments under which the Lyons’ argument (called Lyons’ effect throughout our work) holds and, more importantly in terms of policy implications, we examine how this range of environments changes according to extant market power, size of efficiency effects, and the differences between the mutually exclusive actions in terms of their price-cost margin raising effects and marginal cost efficiency effects. The analytical framework and the results are presented and analyzed in Chapter 2.In Chapter 3 we also consider the effect of taking into account changes in other firms’profits. We discuss first the proper way to consider other firms’ profits since different groups of firms can be differently affected by an anticompetitive action and are differently treated by each substantive standard in theory and in practice. We note that in practice Competition Authorities treat customers as consumers, often by paying attention mostly to the welfare changes of intermediate firms (resellers). Also in practice Competition Authorities do not care about the harm or benefit of rival firms even under a Total Welfare standard. By taking account of other firms’ profits in our analysis we find that there are two necessary conditions that must hold in order for the Consumer Surplus standard to be superior to the Total Welfare standard when firms can choose between two mutually exclusive actions.The second objective of the current work is to investigate and compare the results in terms of penalties imposed and welfare outcomes under these two different substantive standards in the presence of legal uncertainty. Our analysis and results on this issue are presented in Chapter 4. The issue of legal uncertainty has attracted attention in recent years for two main reasons. The first has to do with the fact that certain enforcement procedures are preferred as being superior because they are regarded to generate lower levels of legal uncertainty. The second reason is that many authors argue that no penalties should be imposed unless there is certainty under the Law. However, in practice, we have seen that record fines have been imposed on antitrust cases that cannot be characterized as per se illegal. Our results show the implications of three different possible information structures (of no, partial and complete legal uncertainty) on optimal penalties and welfare outcomes under the Consumer Surplus standard and the Total Welfare standard and contrast the results obtained. Chapter 4 provides a summary of our basic results and concluding remarks.
Subject :Competition
Escape competition effect
Substantive Standards
Competition Policy Enforcement
Antitrust enforcement procedures
Coverage :Competition Authorities
Date :29-02-2016
Licence :

File: Metsiou_2016.pdf

Type: application/pdf