TILEC – TILBURG LAW AND ECONOMICS CENTER

Convergence and Divergence in Competition Law

Filomena Chirico

Norwich, 12 June 2008

TILEC – TILBURG LAW AND ECONOMICS CENTER

Outline

• General Theoretical Background

• Positive analysis

> Convergence in competition policies

> Divergence in competition policies

• Mechanisms of convergence

• Impact of divergence on welfare

• Advantages of divergence

• Obstacles to spontaneous convergence

• Optimal amount of convergence

TILEC – TILBURG LAW AND ECONOMICS CENTER

General Theoretical background

• Case for convergence

> Externalities

> Transaction costs

> Asymmetric Information

> Economies of scale

• Case for divergence

> Costs of harmonisation and uncertainty of success

> Local preferences

> Benefits of Experimentation

TILEC – TILBURG LAW AND ECONOMICS CENTER

Convergence in competition policies

• Introduction of competition laws

• Use of economics as foundation of antitrust

• Enforcement Priorities

• Actual solutions

• Strategies

> Leniency

> Private enforcement

TILEC – TILBURG LAW AND ECONOMICS CENTER

Mechanisms of convergence

• Extraterritorial application of competition law

• Free trade agreements

> Source of market contestability

> Antitrust clause attached

• International agreements on a global competition order not successful

> Maybe overinclusive

> High costs of reaching the agreement

TILEC – TILBURG LAW AND ECONOMICS CENTER

Divergence in competition policies

• Goals of competition law

> Innovation & Welfare

> Fair competition

> Protection of SMEs

> Promoting the healthy development of the socialist market economy

• Strength of competition policy vis-à-vis other national regulations

• Standards for evaluation

> Consumer welfare Your consumers or mine?

• Divergent solutions to certain issues

TILEC – TILBURG LAW AND ECONOMICS CENTER

Areas of EU/US divergence

• Excessive pricing

• Predatory pricing

• Refusal to deal

• Loyalty and volume-based discounts

• Vertical territorial restraints and RPM

• Vertical and conglomerate mergers

• Choice of remedies

• Pursuit of dynamic efficiency

TILEC – TILBURG LAW AND ECONOMICS CENTER

Impact of divergence

• Consumer welfare

> Export cartels

> Protectionist market foreclosure

• Firms

> Increase in costs of compliance

> Refrain from trade (how serious?)

• Regulatory costs

> Multiple interventions

> Spillovers onto other jurisdictions

> Risk of overenforcement

TILEC – TILBURG LAW AND ECONOMICS CENTER

Advantages of divergence

• Local policy preferences

> Maybe not achieved because of external effects

• Experimentation with enforcement

> Economics is no panacea

• Remedies targeted to the local situation

TILEC – TILBURG LAW AND ECONOMICS CENTER

Obstacles to spontaneous convergence

• Externalities

• Lack of coordination

• Standards battle: Twiddeldum and Twiddeldee

• Non competition goals trumping antitrust policy

• Capture of national/local authorities

TILEC – TILBURG LAW AND ECONOMICS CENTER

Optimal level of convergence

• “Use the view from the top to inform the solutions from the bottom”

• Total harmonisation / centralisation may be undesirable

> Certainly for the enforcement

• Optimal convergence seems higher in competition policy than other legal areas if welfare is the goal

> Some room for regulatory competition or emulation

• Issues where convergence (coordination) is desirable:

> Domestic and International Competition policy to focus on efficiency and welfare

> Common case allocation mechanism

> Dispute resolution body

TILEC – TILBURG LAW AND ECONOMICS CENTER

Optimal level of convergence

• Room for divergence

> Other goals to be tackled by other regulatory tools than competition policy

> Actual enforcement procedures

• Development of best practices and regulatory emulation

> Experimentation with solutions

> Remedies

• Can be locally tailored but beware of spillovers