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Competition and Regulation in Agriculture: Monopsony Buying and Joint Selling

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Joint activity by agro-food producers can have a number of beneficial effects. Farmer cooperatives, for example, have the potential to serve pro-competitive purposes and to increase efficiency. Joint activity can nonetheless generate significant harm to consumers when it focuses on price-or quantity-setting and there is relatively little competition from close substitutes. In these cases, the joint activity can constitute cartel behaviour. At times, governments are partially responsible, despite the harm to consumers from the high prices that result from limiting production. Buyer power is a common concern. It can generate harm to consumers, but this is unlikely unless the buyer also has market power as a seller. Some standards set by producers can result in limiting output. In such cases, standards setting may serve anti-competitive purposes and merit review by a competition authority. Competition authorities have a beneficial role to play in the agro-food sector. There are three common areas of activity: prosecuting bid-rigging among buyers, challenging anticompetitive mergers and advocating against over-inclusive selling co-operatives, and potentially prosecuting price-fixing by producers. Elimination of competition law exemptions for the agro-food sector would increase the role of markets and generally benefit consumers. This document comprises proceedings in the original languages of a Roundtable on Monopsony Buying and Joint Selling in Agriculture which was held by Working Party N°2 of the Competition Committee in June 2004.

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Structural Reform in the Rail Industry

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Over the last 25 years the rail sector in virtually all OECD countries has undergone significant reform. These reforms were usually driven by inefficiency and poor performance within the rail sector and long-term loss of market share to other transport modes. The appropriate role for structural reform in the rail industry depends on the particular form of competition/regulation that is being pursued. Promoting competition within the rail sector through mandated access to the track and associated infrastructure raises many new and important regulatory issues. In a regime of regulated access to the track infrastructure, vertical integration is a key issue. It will often be difficult to control anti-competitive behaviour by the integrated firm. Vertical separation has the potential to enhance the resulting level of competition. Many countries have sought to promote competition for the market in the rail sector. Such competitive tendering may change but not eliminate the need for regulation. Competition enforcement issues vary across jurisdictions based largely on the modes of railway competition that are present. Despite the wide range of experience, the appropriate role of vertical separation in the overall reform of the rail industry is not yet clear. Governance and subsidy mechanisms need further examination. This document comprises proceedings in the original languages of a Roundtable on Competition in the Rail Industry, which was held by Working Party N°2 of the Competition Committee in February 2005.

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Evaluation of the Actions and Resources of the Competition Authorities

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In an increasing number of jurisdictions, public bodies are initiating projects to evaluate the effects of competition policy programs or to analyse the efficiency of competition agency organisation and procedures. Evaluation should be a routine ingredient of the competition agency’s annual agenda and should be incorporated into the formulation of budgets and operational plans. Over the past decade competition agencies have responded to their own awareness of the importance of ex post evaluation and external demands for performance measurement by devoting increasing attention to analysing the effectiveness of existing institutional arrangements and initiatives. Useful insights can be derived from a variety of evaluation methods, using resources within and external to the competition authority. One of the most fruitful areas of evaluation to date has been the field of merger control. Evaluations of existing institutional arrangements, including organisation, management methods and operational procedures, have proven useful in identifying areas for improvement and motivating adjustments. The organisation assessment and development framework shows promise as a means for competition authorities to improve the quality of their institutional arrangements. Considerable work remains to be done to refine the methodologies used to evaluate the effectiveness of completed competition policy. This document comprises proceedings in the original languages of a Roundtable on the Evaluation of the Actions and Resources of Competition Authorities which was held by the Competition Committee in June 2005.

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Enhancing Beneficial Competition in the Health Professions

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Restrictions on entry into the health professions serve the important purpose of protecting consumers from unqualified health care practitioners. However, some times the restrictions go too far. The limits on entry to a profession govern the qualifications and skills of practitioners as well as, occasionally, the quantity and geographic locations of practices. These limits may be excessive, overly restricting competition and raising healthcare costs. Para-professionals and alternative professionals are often unduly restricted in both the types of work that they can perform and in their freedom to operate in an autonomous or semi-autonomous environment. Sometimes these restrictions are created by the professionals with whom the paraprofessionals would partially compete. Health related products, such as eyeglasses, contact lenses, hearing aids, non-prescription drugs and dentures, are sometimes made unavailable unless consumers have first undergone tests that are not directly related to the provision of the product or unless they purchase products from specific suppliers. Professional associations often introduce rules that govern the commercial behaviour of members but do not protect consumers. Rather, such restrictions raise prices to consumers and increase profits for providers. Health professional associations often seek to co-ordinate or suggest fees for their members. Such coordination typically has the effect of raising prices rather than protecting consumers from price abuses. This document comprises proceedings in the original languages of a Roundtable on Competition in the Health Sector: Enhancing Beneficial Competition in the Health Professions, which was held by Working Party N°2 of the Competition Committee in October 2004.

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Generic Pharmaceuticals

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Practices that may harm competition in the pharmaceutical sector have emerged as important and controversial issues in recent years. The Committee examined the nature of competition between generic and branded products in the pharmaceutical sector, as well as the effects on competition of agreements to delay the entry of generics on the market. The discussion showed that the pharmaceutical sector is highly regulated, driven by R&D, and very dependent on patent protection. It also revealed that regulation of pharmaceutical prices and other factors has mixed effects, solving or mitigating some problems while creating or worsening others. One lesson was that competition authorities should be involved not only in competition

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Predatory Foreclosure

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Competition law and policy on predatory foreclosure should be used to protect competition, not to protect competitors. There is no consensus on the best cost benchmark to use in predatory pricing cases, or even on whether an ideal measure exists. Although the average avoidable cost test is gaining support among scholars and practitioners, several delegates expressed a preference for maintaining enough flexibility to tailor the cost measure used to the facts of each case. A dominant firm’s price may be considered predatory in some jurisdictions even if it is above all measures of the firm’s own cost. On the other hand, below-cost pricing – even by dominant firms – is not always predatory. Competition authorities should take into account any legitimate business justifications offered by alleged predators. The “meeting competition” defence is recognised in many jurisdictions, but its rationale is not entirely sound and it can be difficult to apply in the presence of non-price competition. Several lessons about law enforcement methods against predation may be learned from recent cases brought against airlines. Not all predatory behaviour involves pricing strategies. Companies may also use “cheap exclusion” tactics to eliminate and deter competition.

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Abuse of Dominance in Regulated Sectors -- Session III

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The phrase, “abuse of dominance in regulated sectors,” is both obvious and contradictory. Some might say that abuse can only be expected in sectors that have been singled out to be regulated. Others might say that if a sector were effectively regulated, then abuse cannot occur. But legal and institutional frameworks are not so tightly built, allowing at least the questions to be raised whether there is an overlap so that some conduct can be dealt with both as a regulatory matter and an antitrust matter, as well as whether there may be gaps between the implementation of the two approaches. Institutional structures may create a gap in which competition authorities find themselves deciding whether and how to address exploitative or exclusionary conduct by enterprises in dominant positions and, more rarely, by other parts of government. Where these gaps are in regulated sectors that are economically or politically important, such as telecommunications, electricity, and transport, competition authorities can be under intense pressure to solve market problems.

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Regulating Market Activities by the Public Sector

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In a number of countries, the public sector carries out a wide range of commercial activities, notably as a result of pressures on government budgets and extensive public sector reforms since the 1980s. These activities have come under closer scrutiny as governments are more concerned about competitive distortions, since these activities can benefit from advantages unavailable to private competitors. Public sector firms may enjoy financial advantages (tax benefits, lower-cost financing) over their private competitors. Public sector providers also may be able to engage in anticompetitive practices because they are de facto or de jure exempt from competition law. In addition, public sector providers may benefit from subsidies for meeting public service obligations which they can use to cross-subsidise their competitive activities. Finally, public sector providers may derive advantages from lax public procurement rules. The Roundtable discussed the competitive neutrality problem and solutions implemented through wide-ranging competition law provisions. This document comprises proceedings in the original languages of a Roundtable on Market Activities which was held by the competition Committee in June 2004.

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Roundtable on Bringing Competition Into Regulated Sectors -- Session I

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This paper summarises the set of policies which governments might pursue in order to promote competition in those sectors which are or were subject to government regulation. In other words, the subject matter of this paper is “competition policy” in the broadest sense (as opposed to competition law), and its application to regulated industries. It is intended that this paper will act as a framework for thinking about competition policy, and/or a guide for developing competition-oriented reforms. Given the enormous breadth of the field of competition policy, this paper inevitably only touches on many key ideas and policies. The OECD has published many documents which discuss in more detail many of the issues which are raised here.

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Intellectual Property Rights

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Competition policy and intellectual property (IP) policy are interdependent and affect each other in important ways. Competition agencies should not become involved in the IP-granting process itself, but they can undertake a variety of measures to promote a greater consideration of competition issues by IP agencies. When evaluating licensing arrangements, it is advisable for competition authorities to determine whether the parties’ relationships are vertical or horizontal. When evaluating grant-back obligations, it is advisable for competition authorities to distinguish between severable and non-severable improvements. Patent pools, like most licensing arrangements, are usually beneficial to competition. They may, however, occasionally reduce or eliminate it. When evaluating patent pools, it is advisable for competition authorities to determine whether the pooled technologies are complementary and essential. The nature of the biotechnology industry creates unusual challenges for IP agencies, which have been criticised for issuing biotechnology patents too freely. Too many patents, in turn, may lead to the unnecessary creation of market power and a slowdown in innovation. The nature of the biotechnology industry also presents competition agencies with substantial challenges and implies that an extra measure of caution may be warranted when contemplating intervention. This document comprises proceedings in the original languages of a Roundtable on Intellectual Property Rights which was held by the Competition Committee in June 2004.

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