St. Martin Conference 2010 - RECENT TRENDS AND DEVELOPMENTS IN COMPETITION LAW AND POLICY

1. St. Martin Conference 2010 -RECENT TRENDS AND DEVELOPMENTS IN COMPETITION LAW AND POLICY Dr. Arndt Christiansen Bundeskartellamt Economic Issues (G3) Economic analysis in German competition law enforcement Brno, 12 November 2010

2. Outline • Economic analysis in competition law enforcement • The German cement cartel case • The Bundeskartellamt’s “Best practices for expert economic opinions” from October 2010 • Summary

3. Economic analysis in competition law enforcement • Economic analysis is integral part of effective and sound competition law enforcement by the Bundeskartellamt. • Economic Issues (G3) as part of the General Policy Division • Two prominent exemplary areas: • Merger control • Market delineation • Collective dominance / oligopoly • (Hard core) cartel investigations • Identifying/measuring anti-competitive (price-)effects of the alleged infringement • relevant in public enforcement (estimation of “additional proceeds”) and private enforcement (damage calculation)

4. Expert economic opinions • Another important “input channel” of economic analysis: expert opinions (mostly) submitted by parties • A total of 36 such opinions in 20 cases since (July) 2007 • Steeply rising number in recent years (figure for the year 2007 only since July)

5. The German cement cartel case – Background • Only some highlights of the long and complex proceedings • Offense: Quota cartel / market sharing + cornering of mavericks • Decisive role of economic analysis in the estimation of the “additional proceeds” • Legal Background: Until 2005 level of fines in Germany linked to “additional proceeds” of the offence • former Section 81 (2) ARC (in effect until 2005)“[…] the administrative offence may be punished […] up to three times the additional proceeds obtained as a result of the violation […]. The amount of the additional proceeds may be estimated.” • Economist appointed as “expert of the court”

6. The German cement cartel case –Procedural milestones • 7/2002: dawn raids • Leniency application by one company • 2002/2003: administrative fines imposed by the Bundeskartellamt • A total of 660 Mio. € fines; based on estimated overcharge / price effect of 10 €/t.) • Most companies appealed • 2004-2008: interim procedure / preparation of writ of prosecution (incl. further plausibility checks of estimated price effect)

7. The German cement cartel case –Procedural milestones • 12/2008 - 6/2009: main trial before the Higher Regional Court (HRC) in Düsseldorf (36 days of oral hearings) • Appointment of ESMT / Prof. Roeller as “expert of the court” (supported by Bundeskartellamt) • Extensive debate on methodology upfront (based on expert’s proposals) • Adjudication / instruction of expert mandate in 2/2009 • Discussion of data and results in court in 4/2009 and in 5/2009 • Alternative estimations based on expert’s dataset submitted by the Bundeskartellamt in 5/2009 • Judgment: fines 330 Mio. € (HRC amply followed its appointed expert)

8. The market reality to be explained

9. Choice of methodology for estimating the “additional proceeds”

10. Model specification and results by court-appointed expert

11. One of several controversial issues: Does “price war” matter, and how? Price war Pre-price war Post-price war

12. Alternative estimations by the Bundeskartellamt

13. The German cement cartel case:Some conclusions • Analysis by the court-appointed expert (for the most part) in line with standards / best practices, i.a. • Analysis relevant to the issue at hand • Unbiased discussion of methodological issues • Choice of well-established methodology • Transparency of assumptions • Provision of complete data and program codes ( replicability) • Reduction of fines mainly result of interpretation of economic analysis by the HRC • Strong (“powerful”) position of the appointed expert • Strong impact of the in dubio pro reo principle

14. The Bundeskartellamt’s “Best practices for expert economic opinions” • Reflection of • our experience with received expert opinions, • in particular in the cement cartel case, and • international developments • Aims: • statement of minimum quality requirements • procedural fairness and efficiency • Drafted by G3 but decisive role of Decision Divisions • Published on 20 October 2010; available online at http://www.bundeskartellamt.de/wEnglisch/download/pdf/ Merkblaetter/Bekanntmachung_Standards_Englisch_final.pdf

15. Structure of the “Best practices” I. Principles • General principals (sec. I.1) • Standards for theoretical/conceptual analyses (sec. I.2) • Standards for empirical analyses (sec. I.3) II. Procedural steps (sec. II)

16. General principals • Relevance to the case in question • Completeness: Opinion must contain all the information necessary to understand and replicate results. • Transparency: i.a. disclosure of assumptions • Consistency: avoidance or at least explanation of inconsistencies in assumptions or results • Language: German as official language but English acceptable after consultation of the Decision Division • Non-technical summary; non-confidential version • Bibliography and reference list • Preference for established theories and methods

17. Standards for theoretical/conceptual and empirical analyses • Standards for theoretical/conceptual analyses • Choice of model • Relationship to the competition issue in question • Robustness • Standards for empirical analyses • Methodology • Selection and processing of data • Presentation of results • Robustness

18. Procedural steps • Procedural steps • Contacts before submission • Timing of submission • Completeness • Decisive role of competent Decision Division • Application with respect to the case in question • Further development in the light of future experience

19. Summary • Economic analysis is integral part of effective and sound competition law enforcement by the Bundeskartellamt • The German cartel case until 2009 as a promising example • Economic studies welcome but necessity of (minimum) quality standards / best practices • Publication of Bundeskartellamt’s “Best practices” on 20 October 2010 • Guidance not only for economic experts but also for lawyers/ judges to assess probative value of economic arguments and empirical analysis properly

20. St. Martin Conference 2010 -RECENT TRENDS AND DEVELOPMENTS IN COMPETITION LAW AND POLICY Dr. Arndt Christiansen Bundeskartellamt Economic Issues (G3) Economic analysis in German competition law enforcement Brno, 12 November 2010