An introduction to Competition Policy and Law

1. An introduction to Competition Policy and Law Study Tour for Russian Member Universities of the Vi Network, 12th - 16th APRIL 2010 Carl Buik, Senior Advisor Competition and Consumer Policies Branch, UNCTAD 13 April 2010

2. Competition policy A broad definition: The full range of government policies that influence competition in domestic markets. This could include polices relating to tariffs, industry subsides, the operation of government owned businesses, the regulation of natural monopolies, the behaviour or privately owned businesses, infrastructure development, regional development etc

3. Competition policy A narrow definition: The design, effective implementation and enforcement of competition law

4. Competition law The general objective of a competition law: • to eliminate or minimise restrictive business practices that hinder or prevent businesses from competing freely in a domestic market • examples might include collusive tendering, resale price maintenance or abuse of dominant position

5. Competition law The second level objectives of a competition law: • to clearly define what conduct is unlawful • to provide an effective mechanism for investigating potential contraventions and examining applications for exemptions • to provide a fair and competent process for determining contraventions and applications for exemptions • to provide for effective redress for those adversely affected by unlawful anticompetitive conduct • to provide effective sanctions against firms and individuals found to be in contravention of the law

6. Discussion point Why does any country need a competition policy and law?

7. Behaviour vs structure Behaviour • The rivalrous behaviour will often impact on other firms but it is only when it negatively impacts on the process of competition that competition law intervenes • Some behaviour by firms is assumed to always negatively impact on competition and is always unlawful, for example collusive bidding Prohibitions on this type of conduct are usually drafted as per se provisions • Some behaviour by firms may only have a negative impact on competition in certain market situations and therefore should not be assumed anticompetitive, for example agreements between supplier and its business customers Prohibitions on this type of conduct are usually drafted as rule of reason provisions

8. Conduct vs structure Behaviour • Per se offences: no defence once proved • rule of reason provisions: the adverse effects of the restriction on competition are weighed against the likely public benefits

9. Conduct vs structure Structure • The structure of a market can negate, impede or facilitate the process of competition. • Many competition laws regulate mergers between firms to lessen the development of market structures conducive to anti competitive behaviour. • Outside of mergers provisions within a competition law, regulation of market structure issues is more often dealt with by other components of competition policy

10. Categorising market place behaviour for competition law analysis • Horizontal conduct; that is conduct between firms at the same functional level. For example agreements between manufacturers or between wholesalers or between retailers. • Vertical conduct; that is conduct between firms at different functional levels. For example between a manufacture and a wholesaler or between a wholesaler and a retailer • Unilateral conduct; that is conduct by a dominant firm • Mergers; that is the acquisition of ownership or control of one firm by another

11. Horizontal Restraints Agreements between unrelated firms who would otherwise be competing in the same market Examples include: • Agreements on prices or outputs • Collusive tendering • Market sharing

12. Horizontal Restraints Most horizontal restraints are subject to a per se prohibition because they directly affect competition between firms who would otherwise be in competition with each other.

13. Vertical Restraints • Most vertical restraints have minimal effect on the process of competition and may even be pro competitive • The rule of reason is applied so that only restraints that have a significant effect on the process of competition are caught. The exact approach differs between national laws; • Important to consider the costs of compliance

14. Abuse of Dominance • Core concept of dominance is similar in most competition laws; • Differences in definition of thresholds; • Differences in thresholds to trigger investigations; • Differences in approach to what constitute legitimate business and abuse of dominance or unlawful monopolisation.

15. Exemptions and exceptions: • Sovereign acts of states; • Labour markets (trade unions); • Regulated industries; • Defence industries (in some countries);

16. Exemptions and exceptions: • Small and medium sized enterprises; • Research and development (R&D) ventures; • Specific distribution agreements; • Export cartels and joint ventures for export.

17. Some limitations of competition law: • Doesn’t seek to change the structure of the market; • Monopolies may continue to earn monopoly profits; • Applies to domestic markets only, not to foreign markets; • The benefits may not be realised if the application of the law is not close to universal; • Must not be in conflict with other economic policies affecting competition.

18. Regulation of natural monopolies Defining a natural monopoly: “When a single firm can always produce the output needed to satisfy demand at a lower cost than any two or more firms” ‘

19. Regulation of natural monopolies • Reliance on competition law • Rate-or-return regulation • Price cap regulation • Access regulation • Vertical separation • Price monitoring

20. The role of economists in competition policy and law • Measuring and analysing historic market activities to evaluate the effects of firm behaviour, market structure and government policies; • Forecasting effects of firm behaviour, market structure and government policies; • Explaining the above to firms, competition authorities, the media and courts.

21. UNCTAD areas of work: • Promote role for competition policy in the development of the business sector; • Assist developing countries in reaping the benefits of trade and investment liberalisation; • Formulate and enforce effective competition law and policies; • Build consensus and best practices and international standards in enforcement.

22. Useful references • UNCTAD Model Law on Competition http://www.unctad.org/en/docs/tdrbpconf5d7.en.pdf • International Competition Network http://www.internationalcompetitionnetwork.org/ • Federal Antimonopoly Service of the Russian Federation http://fas.gov.ru/english/ • Global Competition Review: The European Antitrust Review 2009http://www.globalcompetitionreview.com/reviews/10/sections/42/chapters/471/russian-competition-law-overview-recent-developments/(a subscription site);