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The Concept ofPotential Competition

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This paper discusses the concept of potential competition as an important pro-competitive factor. While potential competition is inevitably subject to significant uncertainty, where it does exist, the paper suggests treating potential competition with a parity of esteem with respect to actual competition. The paper considers the benefits of extending the timeframe used to evaluate potential competition and reviews the tools that are available to assess it. It suggests such tools may be helpfully placed within a specific framework to enable assessment under the different and greater uncertainty that exists over potential competitive constraints. These tools include many that are already widely used, such as the additional weight placed on credible contemporaneous internal documents, progress against regulatory checkpoints, understanding of business models and of competition to innovate. Similarly, on the counterfactual it suggests following existing best practices such as pro-actively exploring alternative counterfactuals. Other suggestions involve the use of what in some jurisdictions might be newer tools – valuation analysis, forward-looking consumer surveys, spillover analysis of non-overlapping products in adjacent markets, and the development of specialist progress-to-market expertise. The paper also highlights existing trends by competition agencies to advocate for a change in existing decision-making frameworks to effectively protect against the loss of potential competition. In this respect, the paper suggests that there might be a case for using different thresholds for potential competition from those that are used when the concern is over the possible loss of an actual constraint.

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Competition Enforcement and Regulatory Alternatives

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Economic regulation and competition policy are largely interdependent instruments of economic policy. However, they differ in aims and methods . t may be said that both competition policy and economic regulation seek to achieve the benefits from workable competition, but go about it differently – with competition law seeking to strengthen the workings of markets by prohibiting certain forms of anticompetitive behaviour, while economic regulation entails the imposition of public constraints on business behaviour to address ‘market failures’. However, the goals of competition policy and economic regulation are not necessarily aligned. Sometimes, economic regulations protect and promote competition; at other times, regulations limit competition for the sake of achieving other valuable public goals (Shelanski, 2019, p. 1923[3]). Regulation can have the effect of stifling competition, and thereby deprive customers of its benefits, for example by raising barriers to entry. But regulation can also play an important role in supporting competition, for example by providing the legal and economic frameworks within which competition takes place. Utimately, competition law and economic regulation are distinct but overlapping, largely complementary but occasionally in conflict. The purpose of this Background Note is to explore this relationship from the angle of competition enforcement. In particular, this note will explore the role that regulation can play in competition enforcement – by constraining or influencing it –, and how regulation can both substitute and complement competition enforcement in practice.

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Data Portability, Interoperability andDigital Platform Competition

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This paper describes the role that data portability and interoperability measures can play in promoting competition both within and among digital platforms. In particular, these measures can address consumer lock-in, promote unbundling, and enable multi-homing. However, they will not be effective in every market, and in some cases may unintentionally hamper competition. The implementation of portability and interoperability measures with regards to digital platforms is still limited in some cases, and at its early stages in others. However, these limited experiences point to some lessons learned. In particular, the objective of portability and interoperability measures matters. When implemented with objectives other than competition (such as data protection), these measures may not have procompetitive impacts unless designed with market dynamics in mind. Further, these measures may have unintended consequences if they create new entry barriers or entrench incumbent technologies. In addition, implementation mechanisms will be determinative of the effectiveness of these measures; for example, competition authority or independent third party oversight may be needed to set interoperability standards and adjudicate disputes. Looking forward, the competition concerns motivating data portability and interoperability may be observed in a growing array of sectors, ranging from automobiles to finance. Promoting competition in the design of these measures, or proposing their implementation in order to encourage competition, may therefore be of increasing importance for the competition policy community.

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Abuse of Dominance in Digital Markets

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Digital markets pose fundamental challenges for abuse of dominance enforcement. The raport explores these challenges, and set out some strategies that authorities can consider in their casework. On the one hand, digital markets may be more likely to manifest the kind of harm that abuse of dominance laws were designed to prevent. If competition authorities are unable to apply these prohibitions to digital business models, it may lead to questions about the broader relevance of abuse of dominance as a competition enforcement tool. As a result, some have called for more extensive enforcement in this area. On the other hand, the analysis of this harm can be potentially complex, and give rise to the risk of error (resulting in either over- or under-enforcement). Aggressive enforcement that is not founded in economic theories of harm, or which does not address the risk of over-enforcement, may end up harming the consumers it was meant to protect, and undermine support for competition enforcement more generally. To balance these risks, it seems that both (1) an openness to abuse of dominance theories of harm, and (2) great care in selecting which cases to bring, are needed. Different jurisdictions make different assessments of where the balance of under- and over-enforcement risks lies. These assessments cannot be separated from the underlying legislative, historical, and philosophical context of competition law in each jurisdiction. They may also be updated in response to ex-post assessments of past interventions, evidence about trends in market power. However, there are areas of convergence in terms of the need for effects-based analysis in most cases, and the need to avoid action that creates disincentives for innovation. At the same time, there are cases in which alternative competition policy tools could be either more justified, more timely, or more resource-efficient. Going forward, competition authorities seeking to address abuses of dominance in digital markets would benefit from deeper international co-operation, given the international scope of many digital firms. In addition, there remain significant opportunities for the development of new methodologies that help authorities assess the unique circumstances in digital markets, and identify clearer conditions in which harm will emerge

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Start-ups, Killer Acquisitions and Merger Control

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Start-up or nascent firms play a vital role in competitive markets, but traditionally, their relevance to merger control has been limited to providing evidence that a relevant market was likely to become increasingly competitive. Recent empirical work has shown that in some cases the acquisition of a nascent firm has triggered the loss of not only a competitive constraint, but also a product (as when a retail acquisition results in a store closure). Such cases have been labelled ‘killer acquisitions’. Killer acquisitions are therefore a theory of harm, which is a particular variation on the more general ‘loss of potential competition through acquisition of a nascent firm’ theory of harm. The risk that a loss of potential competition can harm consumers is well established, and research, ex-post assessment and case-law continue to identify new examples of such cases involving nascent firms. We see no reason why these risks should be ignored, nor that such concerns are likely to be confined to specific industries. The necessary conditions for a killer acquisition are however more specific than for a ‘loss of a nascent competitor’ and hence are likely to be rarer. Whether an agency chooses to go beyond meeting the evidentiary threshold required to substantiate the simpler potential competitor theory of harm will likely depend on whether the additional harm from a product withdrawal, over and above the loss of price and quality competition constraints, would affect either the weighing of harm against possible efficiencies, or the expected harm posed by a transaction. It may also reflect a decision to investigate such acquisitions as exclusionary strategies via ex-post investigation where necessary. We explore the extent to which nascent acquisitions can be investigated and challenged when necessary under existing merger control frameworks. We identify the need to conduct an in-depth counterfactual analysis, to consider new investigative tools, and to ensure that any claimed efficiencies are tied to the specific transaction in question. However, while the framework can, should, and is already being flexed, we suggest that an important shift in merger policy is required in this area. Such a shift might be facilitated through the explicit adoption of an expected harm test to remove a systematic bias against challenging mergers, through changes to notification processes, and by clarifying and hence placing a greater weight on the value of potential competition. We also see considerable merit in legislating to reverse the burden of proof in some circumstances, for example by creating a rebuttable presumption of anticompetitive effects for nascent acquisitions by dominant incumbents, either in general, or where the acquisition increases the risk of competitive harm, for example that there were a reasonable (25-30%) prospect of harm.

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Lines of Business Restrictions – Background note

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Line of business restrictions (LOBRs) are antitrust remedies or regulatory restrictions that limit the activities that a firm can undertake. They include separation restrictions ranging from structural to behavioural separation (accounting, functional or legal). However, there are also alternative behavioural restrictions such as mandating access, non-discrimination obligations and mandatory standards on portability and interoperability. LOBRs are used to address concerns that competition is likely to be prevented, restricted or distorted in a number of different ways. These include concerns that dominance is leveraged to exclude rivals in another downstream market, for example through discriminatory self-preferencing (equivalent to margin squeeze) or refusal-to-deal. The risk of such exclusionary abuses also arises from mergers that might make such conduct likely. Each type of LOBR has enjoyed success in certain circumstances; the challenge is therefore identifying the right LOBR for the specific problem. For example, if the theory of harm is that access is being denied to an essential facility, and a loss of competition as a result of such an explicit refusal-to-deal is established, then the solution will need to focus on allowing access, and applying a duty-to-deal. Hence, the appropriate LOBR might include mandatory access on FRAND terms, or structural separation to achieve the same access. In contrast, if the regulatory or antitrust concern is not that the firm refuses-to-deal, but that it deals on terms that foreclose through raising rival costs or predation (via some form of margin squeeze, or equivalently a merger leading to margin squeeze), then the solution (were one required) would not focus on mandating access. Instead, the response might be a non-discrimination obligation (without necessarily imposing a duty-to-deal on FRAND terms) or to mandate standards for portability and interoperability. Notably, in the case of digital platforms, it would appear that refusal-to-deal is not driving the concerns (thus far), and so imposing a duty-to-deal seems unlikely to be the right answer. Instead, the concerns appear to relate to foreclosure through self-preferencing that raises rivals’ costs, meaning that non-discrimination obligations are the more likely LOBR. Moreover, digital platforms are not natural monopolies in which competition cannot take place. Therefore, the approach should not be to write off the possibility of competition in platform markets and focus solely on preserving the possibility of competition downstream (or upstream) markets (as in regulated infrastructure monopolies). Instead, behavioural LOBRs including standards for portability and interoperability could facilitate competition within these markets (and thereby begin to resolve the foreclosure risk in downstream markets). However, it may nevertheless be sensible to reinforce these with further LOBRs, for example non-discrimination obligations, in these downstream (upstream) markets to preserve competition while competition in these ‘core’ markets is strengthened.

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Criminalisation of cartels and bid rigging conspiracies: a focus on custodial sentences

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Notwithstanding the increased adoption of criminal sanctions, there is no international consensus on criminalisation of cartels, and in particular on custodial sentences against individuals. This paper aims at providing guidance on the benefits and challenges of criminal enforcement, focussing on custodial sentences.
It describes the economic deterrence theory and the retribution theory that have emerged in the criminalisation debate and summarises the main concerns raised in relation to each theory. It offers an overview of criminalisation trends across jurisdictions, and it identifies the key institutional and procedural questions to be carefully assessed when a jurisdiction considers the criminalisation of cartels. It also discusses the benefits and main challenges for international co-operation between jurisdictions that pursue criminal enforcement and those that focus on administrative/civil enforcement, and the effects of criminalisation on leniency programmes. A case can be made in favour of criminalisation of antitrust enforcement against cartels and bid rigging offences, in particular in favour of custodial sentences against individuals, to complement sanctions against companies. However, not all enforcement regimes are currently built for successful criminalisation. The paper concludes that jurisdictions should gradually build institutions before introducing criminalisation, and that each jurisdiction should determine the right mix of sanctions, depending – among other factors – on social norms, the existing legal framework, resources of competition agencies and the relationship between the competition agency and prosecution authorities. The introduction of criminal enforcement also requires significant advocacy efforts directed at key institutional stakeholders and the general public.

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Digital Disruption in Banking and its Impacton Competition

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The report, by Professor Xavier Vives (IESE Business School) surveys technological disruption in banking, examining its impact on competition and its potential to increase efficiency and customer welfare. It analyzes the possible strategies of the players involved—incumbents and FinTech and BigTech firms—and the role of regulation. The industry is facing radical transformation and restructuring, as well as a move toward a customer-centric platform-based model. Competition will increase as new players enter the industry, but the long-term impact is more open. Regulation will decisively influence to what extent BigTech will enter the industry and who the dominant players will be. The challenge for regulators will be to keep a level playing field that strikes the right balance between fostering innovation and preserving financial stability. Consumer protection concerns rise to the forefront. This is a revised version of the paper prepared for an OECD Competition Committee roundtable held on 5 June 2019.

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Merger Control in Dynamic Markets

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The competition dynamics observed in rapidly-evolving sectors, such as high-technology, consumer services and online retail, is challenging the role of competition authorities in merger control, where enforcement decisions depend on an effects-based analysis of the likely future effects of the merger. As these sectors are typically characterised by high entry and exit rates, as well as innovation that continuously disrupts existing business models, it is increasingly harder for authorities to predict how markets will evolve in order to support merger decisions. This is made worse by the fact that many of the merger tools currently available tend to focus on the recent-past or current state of the market, instead of looking forward at how the market might evolve post-merger. This paper discusses the role of merger control in dynamic markets and identifies the main practical proposals that have been made to adapt the different stages of the review process to take into account market dynamics over time: (1) the competitive assessment of the merger, (2) the analysis of efficiency effects and (3) the design of remedies.

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Competition Concerns in Labour Markets

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A recent fall in the labour share of income in some countries has stirred a debate on monopsony and the market power of employers to reduce workers’ wages or working conditions below competitive levels. The debate focused attention on the role that competition agencies may have to help ensure efficient labour input markets. This paper sets out the economic drivers and effects of employer monopsony power in labour markets. It analyses when the exercise of monopsony power by employers may infringe competition law and identifies the cases where competition enforcement can effectively address monopsony power in such markets. The paper also looks at how monopsony power is exercised in digital markets, examining how the intermediation power of some big platforms may negatively affect wages and working conditions of self-employed platform workers. The paper finds that, whilst competition law enforcement has been so far limited, it may have an increased role to play in labour input markets, particularly in addressing anticompetitive agreements that artificially creates monopsony power, abuses of monopsony power and merger transactions leading to increased buyer power on the labour demand side. The paper looks at some practical and analytical challenges to the application of the traditional tools of competition enforcement analysis in these markets. It then discusses ways to overcome such challenges and proposed adjustments to these tools suggested in the recent literature, as well as competition advocacy solutions to address monopsony power in these markets. Opfølgende analyse fra 2020.

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