Competition Policy for the New Era: Insights from the BRICS Countries 2017947314, 9780198810674, 9780192538703

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C O M P E T I T I O N P O L I C Y F O R  T H E N E W  E R A

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Competition Policy for the New Era Insights from the BRICS Countries Edited by

T E M B I N KO S I B O N A K E L E E L E A N O R  M  F OX and L I B E RT Y  M N C U B E

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1 Great Clarendon Street, Oxford, OX2 6DP, United Kingdom Oxford University Press is a department of the University of Oxford. It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide. Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries © The Editors and Several Contributors 2017 The moral rights of the authors‌have been asserted First Edition published in 2017 Impression: 1 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, by licence or under terms agreed with the appropriate reprographics rights organization. Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this work in any other form and you must impose this same condition on any acquirer Crown copyright material is reproduced under Class Licence Number C01P0000148 with the permission of OPSI and the Queen’s Printer for Scotland Published in the United States of America by Oxford University Press 198 Madison Avenue, New York, NY 10016, United States of America British Library Cataloguing in Publication Data Data available Library of Congress Control Number: 2017947314 ISBN 978–​0–​19–​881067–​4 Printed and bound by CPI Group (UK) Ltd, Croydon, CR0 4YY Links to third party websites are provided by Oxford in good faith and for information only. Oxford disclaims any responsibility for the materials contained in any third party website referenced in this work.

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Foreword The economic and political context in which this book is published demands a reconsideration of the traditional goals of Competition Law pioneered as they have through the Chicago School of Economics during the 1980s, followed thereafter by adherence to the Washington Consensus of the 1990s. The present form of economic globalization which has created massive political instability throughout the world and unprecedented levels of inequality has prompted legitimate popular anger and frustration at economic systems which deliver only for the few and disregard the developmental needs of the many. This context poses significant challenges for Competition Law and policy. There is a primary challenge to eschew a narrow vision for Competition Law and policy and rather focus on all conduct that is likely to prevent, lessen, or reduce competition by promotion or facilitation of increased prices, the creation of barriers to entry, or the raising of rivals’ costs. But new challenges also abound beyond traditional competition concerns. For developing countries, in particular, the invitation generated by this book is to conceive of a competition policy which addresses a range of historical practices and legacies which have undermined the developmental opportunities of numerous countries, while simultaneously enhancing the ability of these countries to compete in a global economy and promote a sustainable development agenda. These challenges demand the cessation of an almost slavish adherence to US antitrust law, where a myopic vision has been shaped by the effects of Chicago economics, as well as recent EU jurisprudence, which is increasingly constrained by the influences on the other side of the Atlantic. It is for this reason that this new book is so timely. Through the sustained analysis of the chapters contained therein, competition jurists and policy makers will find a creative and alternative competition discourse which can be employed to shape competition law for the demands of the twenty-​first century in general and the challenges of inequality and development in particular. It will doubtless serve to inspire those who formulate policy, those who adjudicate upon policy, and those who teach law and policy to the next generations of competition policy makers and lawyers to lift their intellectual gaze. DM Davis Judge President Competition Appeals Court, South Africa

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About the Editors Tembinkosi Bonakele has been the Commissioner of the South African Competi­ tion Commission since 2013. Mr Bonakele joined the Commission in 2004 and occupied various positions in the Commission’s core divisions. He was appointed Deputy Commissioner in 2008, and prior to that worked as head of mergers, head of compliance, and senior legal counsel respectively. Mr Bonakele’s accomplishments at the Commission include establishing the Cartels division. He has worked on all of the Commission’s major cases over the past thirteen years, including the bread and flour and construction bid-​rigging cartel cases, Telkom, Sasol, and SAB abuse of dominance cases. He has also worked on a number of high-​profile mergers, including the Walmart/​Massmart and the SABMiller/​AB Inbev transactions. He has been involved in negotiating most of the Commission’s ground-​breaking settlements and helped develop the Commission’s Corporate Leniency Policy, as well as the Construction Fast Track Settlement Policy. Mr Bonakele is an admitted attorney and previously practised with Cheadle Thompson and Haysom in Johannesburg largely in the areas of labour law, regulation, and health and safety. He has also spent a year working in corporate finance and antitrust groups at Clifford Chance, New York office. He is a fellow of the University of Johannesburg’s Centre for Competition, Regulation and Economic Development and Board Member of the University of Stellenbosch’s Centre for Competition Law and Economics. He has published widely in academic journals and writes for newspapers and business magazines on competition matters. He holds a BJuris and an LLB from the University of Fort Hare and an MBA from Gordon Institute of Business Science, University of Pretoria. Mr Bonakele currently serves as the Chairperson of the African Competition Forum and is a member of the International Competition Network Steering Group. He is a recipient of the Black Management Forums’s Black Excellency Award and is a regular speaker at international competition policy conferences. Eleanor M Fox is the Walter J Derenberg Professor of Trade Regulation at New York University School of Law, where she teaches antitrust, EU law, international and comparative competition policy, and torts. She was a partner at the New York law firm Simpson Thacher & Bartlett. She served as a member of the International Competition Policy Advisory Committee to the Attorney General and the Assistant Attorney General for Antitrust of the US Department of Justice (1997–​2000) (President Clinton) and as a Commissioner on President Carter’s National Commission for the Review of Antitrust Laws and Procedures (1978–​9). Professor Fox is a member of the Board of Directors of the Lawyers’ Committee for Civil Rights under Law. She is a frequent visitor and lecturer at the Competition Directorate of the European Commission. She has advised numerous younger antitrust jurisdictions, including South Africa, Indonesia, Egypt, Kenya, Tanzania, The Gambia, Russia and the Central and Eastern European nations, and the common

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market COMESA. She received an honorary doctorate degree from the University of Paris-​Dauphine in 2009. She was awarded an inaugural Lifetime Achievement award in 2011 by the Global Competition Review for ‘substantial, lasting and transformational impact on competition policy and practice’. She received the inaugural award for outstanding contributions to the Competition Law community in 2015 by ASCOLA, the world network of academic law and economic competition experts. Her books include a US antitrust casebook (West), a co-​authored EU law casebook (West), and a book on the design of Competition Law institutions with Michael Trebilcock (Oxford University Press). Liberty Mncube is the Chief Economist at the South African Competition Commission (appointed in January 2014) and an Honorary Professor of Economics with the Department of Economics at the University of Stellenbosch (appointed in January 2016). As Chief Economist, he advises the Competition Commission on competition regulation and policy issues. He regularly submits written testimony before the Competition Tribunal and gives expert economic testimony before the Competition Tribunal. Prior to joining the Commission (September 2007), he was a Researcher at the Development Policy Research Unit, University of Cape Town. Professor Mncube received a PhD in Economics (Industrial Organization) from the University of KwaZulu-​Natal and he was a visiting PhD student at the Barcelona Graduate School of Economics. He received an MSc in Economics from the University of York. Professor Mncube has published widely on competition policy and economics in leading local and international journals, including: the Journal of Competition Law and Economics; the Journal of Industry, Competition and Trade; Agrekon; Studies in Economics and Econometrics; and the South African Journal of Economic and Management Sciences.

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Acknowledgements The editors would like to thank Nandisile Mokoena, Khanyisa Ntshangase, Mastish Taddese Terefe, Johan Holmquist, and Junjie Yan for their editorial assistance. We are grateful for their advice, support, and helpful comments. This edited volume benefitted greatly from their help. We would like to thank Judge Dennis Davis for his kind words of encouragement. Many thanks are due to the numerous staff at Oxford University Press who have provided excellent support at all stages of this project. We are especially indebted to Imogen Hill, Alex Flach, Emma Taylor, Megan Betts, Jo Wojtkowski, Lakshmishree, and Dipak for their advice and encouragement, for keeping us on track, and reminding us of the deadlines during the editing, typesetting, and production stages. We are also grateful for assistance provided by Sophie Rosinke. Finally, we wish to thank our families for their continued support, encouragement, and patience. We are grateful to all those who have supported us.

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Contents List of Tables List of Figures

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Introduction Tembinkosi Bonakele, Eleanor M Fox, and Liberty Mncube

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1. Towards a Broader View of Competition Policy Joseph E Stiglitz

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2. Outsider Antitrust: ‘Making Markets Work for People’ as a Post-​Millennium Development Goal Eleanor M Fox 3. The Case for a BRICS Competition Agenda Tembinkosi Bonakele 4. Global Governance of Antitrust and the Need for a BRICS Joint Research Platform in Competition Law and Policy Ioannis Lianos

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5. BRICS and the Global Competition Law Project Alexey Yurievich Ivanov

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6. Successes and Challenges in the Fight against Cartels Joseph E Harrington, Jr

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7. The Economics of Antitrust Sanctioning: A Review with Recommendations for Improving Current Sanctioning Regimes Yannis Katsoulacos and Eleni Metsiou

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8. Remedies in BRICS Countries: Are There Lessons from and for Competition Economics? Svetlana Avdasheva and Tatiana Radchenko

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9. Crafting Creative Competition Remedies in South Africa Liberty Mncube, Thulani Mandiriza, and Michelle Viljoen 10. Public Interest Issues in Cross-​Border Mergers: Is There a Role for Competition Authorities? Yongama Njisane and Hardin Ratshisusu 11. Barriers to Entry and Implications for Competition Policy Simon Roberts

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12. Some Key Issues Concerning Further Development of China’s Anti-​Monopoly Law Wang Xianlin

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13. Excessive Pricing Regulation in China, South Africa, and Other BRICS Member States Richard Murgatroyd, Yan Yu, and Innes Barnardt

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14. Guidelines as a Tool to Promote Competition Enforcement in Brazil Márcio de Oliveira Junior and Paulo Burnier da Silveira

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Bibliography Index

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List of Tables 4.1.  Google investigations by BRICS competition authorities 9.1.  Sub-​sectors supported through APCF funding 9.2.  Local versus direct imports as a percentage of total value procured 10.1.  FDI CAGR for the G20 countries for the period 2010 to 2014

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List of Figures 3.1.  The total number of cross-​border cartels discovered 8.1.  Steel prices in Russia, 2008–​13, USD per metric ton 8.2.  Potassium chloride prices in Russia, 2010–​14, thousand USD per metric ton 10.1. G20 member countries according to the institution framework designed to consider public interest in FDI transactions 13.1.  Market prices and quantities under perfect competition 13.2.  Market prices and quantities under monopoly 13.3.  Propylene and polypropylene supply chain in South Africa

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Introduction Tembinkosi Bonakele, Eleanor M Fox, and Liberty Mncube

I. Introduction This book presents a new stage in the contributions of the BRICS countries to the development of Competition Law and policy. The BRICS countries are Brazil, Russia, India, China, and South Africa. These five countries, located on three continents, have significant influence in their respective regions and in the world. The changing global environment means greater political and economic role for the BRICS and other emerging countries. BRICS countries are expected to contribute nearly half of all global gross domestic product growth by 2020. For more than a century, the path of Competition Law has been defined by the developed and industrialized countries of the world. Much later, developing countries and emerging economies came on the scene. They experience many of the old competition problems, but they also experience new problems, and experience even the old problems differently. Where are the fora to talk about Competition Law and policy fit for developing and emerging economies? The BRICS countries’ competition authorities have come together in, thus far, four major competition conferences. The last of the four was held in Durban, South Africa in November 2015. A major effort of the meeting was to highlight common problems and perspectives of the BRICS countries and developing countries in general, and to develop an agenda for exploring these cutting-​edge problems and propose solutions. Participants wrote papers and developed them into articles. This book collects those articles as well as other relevant scholarship on the plight and opportunities for developing countries in the current national, regional, and world environments. The contributors in this book are well-​known academic and practising economists and lawyers from both developed and developing countries. The chapters begin with a brief introduction of the topic, followed by a critical discussion and a conclusion. Accordingly, each chapter is organized around a central argument made by its author(s) in relation to the issue or case study discussed. These arguments made in each chapter are thoughtful, precise, and very different from each other. Each chapter is written to be a valuable freestanding contribution to our collective wisdom. The set of case studies as a whole helps to build a collection of different perspectives on competition policy. Introduction. Tembinkosi Bonakele, Eleanor M Fox, and Liberty Mncube. © Tembinkosi Bonakele, Eleanor M Fox, and Liberty Mncube, 2017. Published 2017 by Oxford University Press.

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II.  Institutional Design Over the last few years, BRICS countries have introduced and/​or tightened existing legislation. For example, the new Brazilian Competition Law (Law No 12.529/​ 2011), which came into effect on 29 May 2012, brought about wide-​ranging institutional changes to the previous regime and centralized the enforcement capabilities of the Brazilian Competition Law agencies under the Administrative Council for Economic Defence (CADE). The CADE consists of three institutions:  the Administrative Tribunal, the Superintendence General, and the Department of Economic Studies. The Administrative Tribunal is the main decision-​making body, providing final and binding administrative decisions on both merger and prohibited conduct cases. The Superintendence General is the investigative body responsible for investigating prohibited conduct, granting clearance on less complex merger transactions, and challenging transactions deemed harmful to competition before the Administrative Tribunal. The Department of Economic Studies (DES) is responsible for the economic analysis of mergers and prohibited conduct cases. The DES provides non-​binding economic opinions and prepares economic studies for the Administrative Tribunal. The Russian Competition Law regime has been amended several times. This culminated in the introduction of legislative amendments in 2013 which gave impetus to the functioning of the Federal Antimonopoly Service (FAS). The development of Competition Law in Russia has been effected through legislative reforms by way of ‘anti-​monopoly packages’. The first anti-​monopoly package consisted of Federal Law No 135-​FZ ‘On Protection of Competition’ and the Code of Administrative Offences. This anti-​monopoly package was adopted between 2006 and 2007. The second anti-​monopoly package was adopted in 2009 and focused on cartel enforcement. The third package was adopted in 2012 and introduced amendments to Federal Law No 135-​FZ ‘On Protection of Competition’ and the Code of the Russian Federation on Administrative Violations, as well as some other legislative Acts of the Russian Federation. Broadly, these amendments introduced direct administrative liability in the form of turnover fines for cartel agreements and the cartel leniency programme. The FAS is the federal executive body responsible for the enforcement of the Russian Federal Law on Competition (Competition Law). It is responsible for cartel prohibitions under the Competition Law and the Code of Administrative Offences. In addition, the FAS is responsible for the enforcement of the abuse of dominance provisions and merger control and most of the procedural issues are regulated by the decrees and guidelines of the FAS. The Ministry of Internal Affairs and its divisions under the Criminal Code and the Code of Criminal Procedure conduct criminal prosecutions. The decisions of and the remedies imposed by the FAS are subject to judicial review through the Arbitrazh Courts, which are a branch of the State Commercial Court in Russia. In India, the Competition Act adopted in 2012 repealed the earlier Competition Law regimes and established the Competition Commission India (CCI) as a statutory

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authority to enforce the Competition Act in that country. The CCI is made up of a Chairperson and six members who are supported by a Secretariat, responsible for day-​ to-​day operations, headed by the Secretary. The office of the Director General conducts investigations in respect of contraventions of the Competition Act and merger control. The Competition Act empowers the CCI to levy penalties for contraventions and establishes regulations in relation to the enforcement of Competition Law in India. The Chinese Antimonopoly Law (AML) came into effect in August 2008. The AML applies to all economic activity within China and foreign activity that will lead to exclusion and restriction of competition in the domestic market. The Ministry of Commerce (MOFCOM), the State Administration of Industry and Commerce (SAIC), and the National Development and Reform Commission (NDRC) are all responsible for the enforcement of Competition Law in China. The MOFCOM is responsible for domestic and international commerce, including the approval of foreign direct investment in China. As such, the MOFCOM is responsible for merger review and assists Chinese firms with cases in other jurisdictions and international cooperation. The SAIC is responsible for supervising monopoly agreements and abuse of dominance conduct, in addition to company and trademark registrations. The NDRC is primarily responsible for state economic planning, including industrial policy. It also administers Pricing Law, which includes provisions against price fixing, price discrimination, false or misleading pricing, and general cartel conduct. Lastly, the NDRC is also responsible for dealing with abuse of dominance conduct, particularly as it relates to pricing. Lastly, in South Africa, the Competition Act of 1998 (as amended) provides the legislative framework for the enforcement of Competition Law. The Competition Act is enforced through three institutions, namely, the Competition Commission (Commission), the Competition Tribunal (Tribunal), and the Competition Appeal Court (CAC). The Commission is the investigative and executive body with the responsibility of investigating mergers and prohibited conduct (both horizontal and vertical restrictive practices). The Commission is also responsible for merger control and has the power to approve, with or without conditions, or to prohibit small and intermediate mergers. In respect of large mergers, the Commission makes recommendations to the Tribunal. The Tribunal, on the other hand, is the adjudicative body that rules on cases referred to it by the Commission or individual complainants. The Tribunal is the first-​instance decision-​maker on large mergers, prohibited restrictive practices, and abuse of dominance cases. The Tribunal also adjudicates on appeals or reviews of the Commission’s decisions on small and intermediate mergers and exemption applications. The CAC adjudicates on appeals and reviews of the decisions of the Tribunal.

III. Conclusion This book provides a number of viewpoints of what Competition Law and policy mean, both in theory and practice in a BRICS country context, using insightful case studies.

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1 Towards a Broader View of Competition Policy Joseph E Stiglitz*

I.  Brief History of Competition Policy (Antitrust) Competition policy (antitrust) began in the United States as a political agenda, to limit the market and political power of trusts (monopolies and oligopolies). Of course, long before that, economists had recognized that competition was necessary if the market economy was to achieve efficient outcomes,1 and that firms on their own strive to limit competition. As Adam Smith put it: ‘People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.’2 Market power has, of course, distributive effects as well. The monopolist’s rents come at the expense of consumers: As monopolies raise their prices, their profits increase, while the well-​being of consumers and workers decreases. An increase in market power is associated with an increase in inequality. *  University Professor, Columbia University. This a revised draft of a lecture originally presented at the Fourth BRICS International Competition Conference in Durban, November 2015. I am indebted to Laurence Wilse-Samson for helpful comments on an earlier draft, to Steven Salop and Michael Cragg for discussions over the years on the broader issues of antitrust, and to Eleanor Fox for extremely helpful comments on an earlier version. I am also thankful for research and editorial assistance from Matthieu Teachout and Debarati Ghosh. Financial support to the Ford Foundation Inequality Project at Roosevelt Institute and Columbia University is gratefully acknowledged. 1  Although it was not until the 1950s, with the work of Arrow and Debreu, that the efficiency of competitive markets was established (K J Arrow and G Debreu, ‘Existence of an Equilibrium for a Competitive Economy’ (1954) 22 Econometrica 290). An essential assumption was that every firm and household was a price taker, ie was so small that nothing that it did could affect market prices. In the real world, there are few instances in which this is true. Agriculture is one—​but then there is massive government intervention, because markets on their own lead to high volatility in prices and farmers typically couldn’t manage the risks well on their own, and the economy, on its own, didn’t develop the institutions and markets to help individuals do so. And even in agriculture, there is heavy concentration in marketing. Some sectors are characterized by monopolistic competition—​many firms, but still, each faces a downward sloping demand curve. (See E Chamberlain, The Theory of Monopolistic Competition (Harvard University Press 1933); A Dixit and J E Stiglitz, ‘Monopolistic Competition and Optimum Product Diversity’ (1977) 67(3) American Economic Review 308; J E Stiglitz, ‘Technological Change, Sunk Costs, and Competition’ (1987) 3 Brookings Papers on Economic Activity 947 (hereafter Stiglitz, ‘Technological Change’).) Antitrust typically has not taken an active role in such sectors. 2  A Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (W Strahan and T Cadell 1776) (hereafter Smith, The Wealth of Nations). Towards a Broader View of Competition Policy. Joseph E. Stiglitz. © Joseph E. Stiglitz, 2017. Published 2017 by Oxford University Press.

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This is even more the case for monopsony power, that is, when a firm has market power over its ‘suppliers’. This is especially so when a firm has market power in a labour market (eg in a company town). It is costly for workers to move, and thus a monopsonist can lower wages significantly below the competitive level without losing all or even a significant fraction of his workers. Workers sometimes try to band together to provide some balance of power. Historically, employers have often countered through physical violence. When that is frowned upon, they turn to political action—​to try to ban unions (as a ‘conspiracy in restraint of trade’). Adam Smith talked about these efforts of workers for collective action, the attempt by employers to suppress such efforts, and how appropriate government regulation of the market—​as we would put it today, writing the right rules of the game in the right way3—​can improve matters: Masters are always and everywhere in a sort of tacit, but constant and uniform, combination, not to raise the wages of labour above their actual rate . . . Masters, too, sometimes enter into particular combinations to sink the wages of labour even below this rate. These are always conducted with the utmost silence and secrecy.4

When workers combine, ‘the masters . . . never cease to call aloud for the assistance of the civil magistrate, and the rigorous execution of those laws which have been enacted with so much severity against the combination of servants, labourers, and journeymen’.5 ‘When the regulation, therefore, is in support of the workman, it is always just and equitable; but it is sometimes otherwise when in favour of the masters.’6 Thus, from the earliest days of capitalism, there has been a political battle over the rules of the game—​with employers seeking to make it more difficult for workers to engage in collective bargaining/​unionization, but with firms resisting efforts to restrain themselves and their anticompetitive behaviour. All of this makes it clear that politics and economics cannot be separated. The early ‘trust-​busters’ were concerned about the agglomeration of economic power; but they were also concerned about the associated agglomeration of political power. An agglomeration of economic power almost inevitably results in an agglomeration of political power—​which can and typically does reinforce the agglomeration of economic power.

A. The Chicago School In the United States (and elsewhere), courts have been captured by a particular view of the economy, sometimes referred to as the Chicago School (named after the University of Chicago, where many of its prominent members taught). The Chicago School postulates that markets are naturally competitive. In this view, there was in fact relatively little need for government to intervene to ensure competition. The 3  See J E Stiglitz (with N Abernathy, A Hersh, S Holmberg, and M Konczal), Rewriting the Rules of the American Economy: An Agenda for Growth and Shared Prosperity (W W Norton 2015). 4 Smith, The Wealth of Nations (n 3) ch 8. 5 Ibid ch 8. 6  Ibid ch 10 (emphasis added).

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consequences of the Chicago School were broader: Competition policy shifted to a narrow economic focus, away from the broader societal consequences of concentrations of power. And within economics, doctrines that markets were naturally competitive and efficient meant a strong presumption that any observed behaviour, as strange as it might seem, was really efficiency enhancing and supportive of competition. The attractiveness of this shift from the perspective of the judiciary was perhaps understandable: They were given a well-​defined question to examine. Was there evidence, in a particular market, of market power? Was there evidence that firms were acting in an anticompetitive way, unfairly using their market power? Over time, as the influence of the Chicago School grew, so did the presumption that markets were competitive. Even when there was some evidence that there were actions which were anticompetitive, courts looked for offsetting efficiency-​ enhancing benefits.7 While in the United States, there was a ‘rule of reason’ in balancing the efficiency and anticompetitive effects, there increasingly developed a presumption that firms’ actions are efficiency-​enhancing. Similarly, in assessing whether a firm was engaged in predatory behaviour, there developed a presumption that it was not: After all, firms were rational, entry barriers were low, and so even if a firm was successful in driving out competitors, there would be new entrants. Thus, no rational firm would engage in selling below costs to drive out others; ergo, predation did not exist. Courts held this view even when there was overwhelming evidence that firms were engaged in loss-​making activities in order to establish a more dominant position in the future.8 There was also the presumption that distribution does not matter. This presumption is reflected in the use of a total welfare standard, where adverse impacts on consumers could be set against positive benefits to the corporate sector.9 Such a perspective is particularly perverse both from an economic and moral point of view in South Africa and other emerging markets. Equally importantly, these perspectives are also increasingly out of sync with developments in modern economics.

B. Developments in modern economics Modern economic theory (including advances associated with information asymmetries and game theory) has rejected all of the central tenets of Chicago School theory. In particular: 7  The competition framework of different countries has evolved differently. Not surprisingly, the Chicago School had less influence in many countries, such as South Africa and the European Union, than it did in the United States. Eleanor Fox notes that: ‘The European Union competition law, for example, rejects the Chicago School free market assumptions and privileges openness of markets and access to them by firms without power.’ See E Fox, ‘The Efficiency Paradox’ in R Pitofsky (ed), How Chicago School Overshot the Mark: The Effect of Conservative Economic Analysis on US Antitrust (Oxford University Press 2008); and E Fox, ‘Monopolization and Abuse of Dominance: Why Europe Is Different’ (2014) 59 Antitrust Bulletin 152. 8  Notice that even if firms did so irrationally, with the costs of predation exceeding the benefits, there can be significant anticompetitive effects, eg in discouraging entry. 9  As Eleanor Fox has pointed out, ‘the US mantra IS that distribution does not matter, but perhaps surprisingly uses a consumer welfare standard and does not consider it distributive. The animus is against distribution to small business’.

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• Even competitive markets are not, in general, efficient. As Greenwald and Stiglitz explain,10 Adam Smith’s invisible hand is invisible because it is not there. This is true whenever there are imperfections of information and risk markets, or endogenous knowledge (innovation)—​that is, always. • Markets are not, in general, competitive: Even small deviations from perfect competition and perfect information matter.11 Recent advances have shown that there is a wide range of mechanisms by which market power is acquired, maintained, and enhanced. • Inequality matters. Recent studies12 have shown that distribution does matter for economic performance. Moreover, the Second Welfare Theorem (suggesting that issues of efficiency and distribution can be separated, so that economics should only focus on efficiency) does not in general hold.13 In addition, there is increasing evidence that significant parts of inequality are a result of market power.14 The fact that there are so many instances of anticompetitive behaviour means that the key issue now is selectivity, identifying the most important abuses to prosecute.

II.  New Presumptions The most important implication of this new view is that it changes presumptions. Under the old presumptions, those challenging a seemingly anticompetitive practice had a heavy burden to show that it could not be or was not likely to be or might not be in reality efficiency-​enhancing, in which case intervening in the natural workings of the market would lead to a decrease in welfare. Under the new view, there is a much stronger presumption that firms are engaged in some form of exploitive activity—​trying to garner for themselves profits at the expense of rivals or consumers. More successful firms, then, may not be those who are more able to produce products that consumers love and to do so at lower costs; but rather firms that are better 10 B Greenwald and J E Stiglitz, ‘Externalities in Economics with Imperfect Information and Incomplete Markets’ (1986) 101 Quarterly Journal of Economics 264. 11  P A Diamond, ‘A Model of Price Adjustment’ (1971) 3(2) Journal of Economic Theory 168; M Rothschild and J E Stiglitz, ‘Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information’ (1976) 90(4) Quarterly Journal of Economics 629; Stiglitz, ‘Technological Change’ (n 2). 12  OECD, ‘Focus on Inequality and Growth’ (December 2014), available at accessed 3 July 2017; J Ostry, A Berg, and C G Tsangarides, ‘Redistribution, Inequality, and Growth’, IMF Staff Discussion Note (February 2014), available at accessed 3 July 2017; J E Stiglitz, The Price of Inequality: How Today’s Divided Society Endangers Our Future (W W Norton 2012). 13  See eg J E Stiglitz, ‘Information and the Change in the Paradigm in Economics’, abbreviated version of Nobel lecture, (2002) 92 American Economic Review 501. 14  See eg J Furman and P Orszag, ‘A Firm-​Level Perspective on the Role of Rents in the Rise in Inequality’, October, presentation at ‘A Just Society’, Centennial Event in Honor of Joseph Stiglitz, forthcoming in Festschrift (Columbia University Press 2015).

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able to create and exploit market power, including taking advantage of consumers. In this view, for instance, Microsoft15 may have been so successful only to a limited extent because of its technological innovations; more important were its business innovations, which created new barriers to entry and allowed it to entrench its power and fend off emerging competition that threatened its monopoly.16 Akerlof and Shiller17 describe the success of firms based on ‘phishing for phools’ and, elsewhere,18 I have described how globalization opened up a global market place of fools that American financial firms could exploit. This kind of ‘competition’ can be even more distorting than monopoly, because of the efforts/​practices aimed at increasing market power, with consequences that go well beyond simply raising prices.19 The intent of these practices is to create entry barriers and to foreclose and reduce competition; the effect is often to stifle innovation and to enhance the ability of the monopolist to exploit its customers and suppliers.20 Competition should be viewed as a process. Open competitive markets provide opportunity. The standard approach undervalues the value of freedom to participate in markets. It typically pays short shrift to the broader societal cost, by which the allegedly efficiency-​inducing practices can tie up distribution and routes to market, creating entry barriers and reducing opportunity. All of this implies that competition authorities should focus not just on mergers that reduce competition, or explicit agreements that lead to cartel or cartel-​like behaviour or other plain vanilla antitrust violations, but rather on any conduct that is likely to prevent, lessen, or distort competition, for instance by: (a) facilitating raising prices (eg by changing elasticities of demand for those setting prices—​eg vertical restraints);21 (b) creating entry barriers; or (c) raising rivals’ costs.22 Such conduct should be proscribed even if there might be some ‘public good’ justification. Use should be made of a public interest test, not just in mergers, but in conduct.

15  Remarkably, the court alleging that Microsoft used leverage in operating systems (OS) to get dominance in an applications market, browsers, failed. In the interest of full disclosure, I served as an expert witness against Microsoft in antitrust actions undertaken in the United States, Europe, Korea, and Canada. 16  See below for a brief description of some of these business practices. 17  G A Akerlof and R J Shiller, Phishing for Phools: The Economics of Manipulation and Deception (Princeton University Press 2015). 18  J E Stiglitz, Freefall: America, Free Markets, and the Sinking of the Global Economy (W W Norton 2010) (hereafter Stiglitz, Freefall ). 19  See P Rey and J E Stiglitz, ‘Vertical Restraints and Producers’ Competition’ (1988) 32 European Economic Review 568 (hereafter Rey and Stiglitz, ‘Vertical Restraints’); P Rey and J E Stiglitz, ‘The Role of Exclusive Territories in Producers’ Competition’ (1995) 26 Rand Journal of Economics 451 (hereafter Rey and Stiglitz, ‘Exclusive Territories’). 20  Indeed, Stiglitz showed that in the presence of imperfect information, the major market distortions associated with monopoly were those connected with enhancing its ability to extract rents out of its customers. See J E Stiglitz, ‘Monopoly, Non-​Linear Pricing and Imperfect Information: The Insurance Market’ (1977) 44 Review of Economic Studies 430. Reprinted in Selected Works of Joseph E. Stiglitz, vol I: Information and Economic Analysis (Oxford University Press 2009). 21  Rey and Stiglitz, ‘Vertical Restraints’ (n 20); Rey and Stiglitz, ‘Exclusive Territories’ (n 20). 22  T G Krattenmaker and S C Salop, ‘Competition and Cooperation in the Market for Exclusionary Rights’ (1986) 76 American Economic Review 113; S C Salop and D T Scheffman, ‘Raising Rivals’ Costs’ (1983) 73 American Economic Review 271.

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More generally, competition policy should be concerned not just with the existence of competition, but with the nature of competition. It should work to ensure a competitive market place with reasonable ease of entry. In reality, the market itself creates some barriers to entry (eg in access to credit or technology). Competition authorities should be concerned about any practice that augments these natural barriers, thus increasing the market power that would, in any case, exist. Moreover, there should be a simple test of whether there is market power—​the ability to raise prices or lower wages or impose anticompetitive constraints.

III.  New Issues Within More Standard Framework Among the important abuses of market power today are several that are markedly different from those of the past.23 In particular, there are several instances of monopsony power (eg Amazon, Walmart), where a common test for acceptable behaviour, whether consumers are advantaged, may fail to provide an accurate assessment of the consequences of the policy for societal well-​being. In the short run, these monopsonists may advantage consumers, driving down the prices they pay and passing on a fraction of those gains. Of course, these gains are at the expense of producers. The gains to consumers are less than the losses of producers. This is a general implication of the fact that market power is distorting, lowering societal welfare. In the long run, matters may be even worse. Thus, as Amazon drove down what authors received, there was, in effect, a transfer of resources from the creators of intellectual property to the merchants. While intellectual property is designed to encourage such creative activity, the impact of Amazon has been just the opposite. Network externalities also present a new set of issues. (In such networks, the benefits that one member of the network has from being in the network depend on who else is in the network. A phone network is valuable if and only if there are people on the network that I want to talk to.) Network externalities may arise in an increasingly large number of sectors, such as personal computer operating systems, airline reservation systems, and financial networks. When they exist, they generate new sources of market power, market power that is sustained and enhanced by contract restrictions, such as those that restrict the ability of those participating in the network to pass on charges imposed on them to end-​users of the network. For instance, credit card companies charged merchants large fees (called interchange fees, typically 1 to 3 per cent of the value of the transactions), but did not allow merchants to pass on those charges to those who used the credit card—​or even to tell their customers how much they were paying in interchange fees. Thus, credit card users had no incentives to use a more efficient payments mechanism. The abuse of this market power 23  See Council of Economic Advisers, ‘Benefits of Competition and Indicators of Market Power’ (April 2016), available at accessed 3 July 2017, for an insightful discussion of the increases in market power in the United States, the potential adverse effects, including on inequality, and the new issues confronting antitrust and antitrust enforcement in the United States.

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has generated for banks and airline reservation systems billions of dollars in profits, led to inefficiency in choices (eg of payments mechanisms), and stifled innovation. Of particular concern is the attempt by members of the Chicago School and others to defend the abuses of this market power by their usual argument that markets are naturally competitive and efficient, in this case using the theory of two-​sided markets. In that theory, the network operator may lower the price of some participants in the network to induce more to participate, enhancing the value of the network to others. Credit and debit card companies use this argument to justify, for instance, the exorbitant charges imposed on merchants, even when there is no analysis of (a) whether there really exist network externalities on both sides of the market, and (b) whether these network externalities could possibly justify or explain the charges imposed. The contract restrictions are defended as efficiency-​enhancing—​ although I have never seen a persuasive argument that this is so.24 The increasing importance of network externalities, at least in certain industries, implies, to the contrary, that we should be increasingly concerned about abuses of market power: Firms will take advantage of the often inherent market power that results, attempting to amplify and extend its magnitude, durability, and scope. There are other reasons that competition authorities should be increasingly on guard: As we move to a knowledge economy, fixed, sunk costs become relatively more important, and even small such costs can serve as a large barrier to entry, enabling an incumbent to sustain large profits without the threat of entry (in the knowledge that should there be entry, competition will drive down prices to the point where the entrant will lose money).25 While it may be impossible to eradicate this natural barrier to entry, competition authorities should do what they can to make sure that incumbents do not amplify and extend their market power.

24  In the interests of full disclosure: I have served as an expert witness in several cases (both credit card and airline reservation systems) where these issues have been litigated. For a court ruling that came down strongly with views consistent with those expressed here, see the case against American Express, where the US District Court ruled that the company violated antitrust laws (see accessed 3 July 2017). The Appellate Court reversed the decision (see ‘DoJ Loses American Express Appeal on Multi-​sided Grounds’, Global Competition Review, by Pallavi Guniganti, 27 September 2016), and as at the time of this writing, the Justice Department has not decided on its response. The Appellate Court’s decision showed clearly (in my judgment) the difficulties courts have in dealing with anticompetitive actions in the new digital economy. The court’s decision raised the bar for plaintiffs; if it is sustained, it will force them to address whether a market is a two-​sided market, and if it is, to incorporate consumer benefit as an offset to producer harm. It did not itself address the key question of competition among platforms. Other ongoing cases in allegedly two-​sided markets (including against American Express) were already addressing all three issues. There has also been a settlement in cases against Visa and Mastercard. In the United States, the Durbin Amendment to Dodd-​Frank curtailed the abuses of debit card companies. European and Australian regulatory authorities have also taken actions attempting to limit the restrictive practices. Distributors have also often used similar contract restrictions to enhance their natural market power. 25  See Stiglitz, ‘Technological Change’ (n 2); P Dasgupta and J E Stiglitz, ‘Potential Competition, Actual Competition and Economic Welfare’ (1988) 32 European Economic Review 569–​ 77; J E Stiglitz and B Greenwald, Creating a Learning Society: A New Approach to Growth, Development, and Social Progress (Columbia University Press 2014) .

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Similarly, there is a worry that as we move to a service sector economy, many services are local in nature, with reputation for quality an especially important factor in choices. Imperfect information concerning quality can result in important barriers to competition. (More generally, we often underestimate the importance of the non-​ traded component in the goods we buy. Even if they are tradeable goods, they have to be delivered to the consumer and serviced; the fraction of the lifetime value added arising from these services as a fraction of the total expenditure on the product may be large.) It will be important to understand the ways in which firms in this sector maintain and enhance their market power, and to develop effective remedies.

A. New technique for exercising market power even when naturally acquired Antitrust has focused on preventing the creation of market power through mergers and anticompetitive practices, and the abuse of market power, however created. But, as the contractual arrangements used by the airline reservation systems and the credit and debit card systems illustrate, there has been innovation in creating, maintaining, and enhancing market power. Moreover, antitrust authorities will have to be increasingly aware of and innovative in responding to these ‘innovations’. Microsoft’s use of Fear, Uncertainty, and Doubt (FUD), threats of lack of interoperability, and bundling of its browser with its operating system—​effectively pricing the browser at zero—​illustrate advances in anticompetitive practices. The market power created through the use of these anticompetitive practices has persisted,26 presenting antitrust authorities with still another challenge—​how best to reverse market power once created, especially when it has been created through anticompetitive practices. These issues are likely to become even more important as we move to a knowledge-​ based economy, with intellectual property rights (IPR) playing an increasingly important role. IPR gives firms monopoly power over their knowledge, and changes in IPR have provided corporations with increasing market power. Still, as the example of Microsoft illustrates, even when firms legitimately acquire market power through IPR, they do not have free licence to abuse that market power through the use of anticompetitive practices. Antitrust authorities should be sensitive to attempts by those in the corporate sector who amplify their market power through changes in our system of IPR. IPR is supposed to balance the dynamic benefits of innovation with the static costs of monopoly and restrictions in the use of knowledge.27 In fact, many in the corporate sector are arguing for strengthening IPR in ways which cannot be defended in 26  The court’s rulings on Microsoft’s rampant anticompetitive practices have been remarkably narrow. The Department of Justice did not win its FUD, bundling, or zero price/​predatory pricing counts. The DoJ did not appeal the zero pricing loss in the District Court. It lost in the Appellate Court on the claim that bundling was per se illegal, and the DoJ opted not to retry that part of the case under a rule of reason. 27 J E Stiglitz, ‘The Economic Foundations of Intellectual Property’ (2008) 57 Duke Law Journal 1693.

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any appropriate balancing of the benefits of innovative incentives versus the costs of monopoly. An obvious example is the extension of the life of copyright. There is no evidence of any innovative benefit of recent extensions (to seventy years beyond the death of the author). Historically, antitrust authorities have been sensitive to the power of patents to create, amplify, and increase the duration of market power. They forced AT&T to put its patents into a pool, accessible by others. One of the proposals put forward to curb Microsoft’s monopoly power was to limit the life of its patents. It was argued that these actions not only increase competition, but also innovation.28 The most egregious abuses perhaps occur in the drug industry, especially in trade agreements. For instance, Big Pharma has attempted to get provisions that allow it to ‘evergreen’ its patents and to advantage itself at the expense of generics—​often obtaining benefits that it could not have obtained in open public debate. (Data exclusivity is an example of one of the mechanisms by which they have attempted to extend the effective life of their patents.) Some of the practices—​such as paying off generic firms not to enter—​have already been attacked by antitrust authorities; but again, the industry has shown enormous ingenuity in creating market power, often in subtle ways, again often with the assistance of trade ministries. The United States, for instance, has pushed for restrictions on the use of formularies, one way of encouraging competition among drugs with similar benefits. Even worse was the provision in the United States establishing a drug benefit for the elderly (called Medicare Part D), which restricted the ability of the US government to bargain with the drug companies over price. The voice of antitrust authorities needs to be heard more loudly in response to proposed provisions in trade agreements and public legislation.

B. New approaches to antitrust Over the years, antitrust authorities have developed a set of approaches to establishing antitrust violations. Having such regular procedures provides clarity to firms and seemingly reduces the burden on the judiciary. Plaintiffs alleging an antitrust violation, for instance, have to define a market in which the firm engaged in the alleged market abuse has a critical share. The presumption is that in the absence of a large market share (in some relevant market), it would be impossible for any firm to engage in anticompetitive abuses. But increasingly, it is being recognized that this standard approach may be inadequate for dealing with some of the important anticompetitive abuses today; for instance, when the relevant market is affected by market-​imposed constraints. In the absence of these constraints, for instance, American Express, it might be argued, would not have market power in the credit card market; but with the anticompetitive constraints (eg that its merchants cannot use the price system, passing on some 28 J Furman and J E Stiglitz, ‘U.S.  versus Microsoft, Declaration as Part of the Tunney Act Proceeding’, commissioned by the Computer & Communications Industry Association (28 January 2002) (hereafter Furman and Stiglitz, ‘U.S. versus Microsoft’).

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or all of the costs of different payment systems to its customers), it has enormous market power. That is, it has the ability to raise its price above the competitive level by a significant amount, with a small loss of usage. Indeed, even a firm with a very small market share (like Discover) has market power.29 I would argue that the lesson of these recent examples is that the key issue is actually simpler than that entailed in the standard approach: It is simply whether the firm, with its contract restrictions, has the power to raise prices—​and whether it has the power to effectively force firms to agree to anticompetitive contract provisions. The question then is how did it get that market power and is it sustainable. In some cases, that market power resulted from a simple contract restriction, which amplified some natural market power; the prohibition of that contract might, in such circumstances, significantly enhance competition in the market place.

IV.  Broadening the Antitrust Agenda We began this chapter by explaining how the antitrust agenda had been narrowed from a broader concern about power to a more narrow focus on certain ‘illegitimate’ ways of creating market power and certain abuses of market power, once obtained. In this section, I want to argue that rather than narrowing the remit of competition policy, we should be broadening it to reflect not only new risks associated with market power, but a broader realization of the limitations on the natural forces for competition and the broader uses to which competition policy may be put.

A. New risks associated with market power There are in fact at least four new risks associated with market power, risks that were beyond anything conceivable to the progressives of the era in which antitrust legislation was first passed.

1. Using market power to induce individuals to give up rights of privacy Some Internet firms provide small discounts to individuals who agree to turn over their data to the firm. It is not clear that the individuals in doing so fully recognize the risks to themselves. Besides, there are societal consequences that go beyond the individual: Putting broad databases together can result in those who control such data having power over individuals, and that power could be abused. There has long been a concern about government intrusion into privacy on precisely such grounds. However, any private sector firm having such data could sell or be forced to turn over 29  The underlying theory is called the theory of insistence. The Appellate Court in the decision referred to in n 26 seems to have rejected the general theory of insistence, which had been supported by the District Court. This is likely to remain an unsettled area for years, unless legislation is passed to clarify that if a firm has the power to raise prices significantly without losing significant sales, it has market power.

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that data to the government. While there is no sure way of preventing abuses, not allowing firms to bribe their customers into turning over their data may be helpful. In any case, the collection of such data can give the Internet firm a distinct advantage over rivals, and act as a barrier to entry. Thus, while what is at stake is more than the remit of standard competition authorities, there can be competition effects.30

2. Using market power to induce individuals to give up rights to use the public legal system for dispute resolution This is another example where firms with market power use that market power to enhance their market power; and/​or firms are taking advantage of ill-​informed consumers to get an advantage over their consumers. Firms with market power can exploit their customers, eg with switch and bait techniques or not performing as promised; but when the customer seeks redress, he is forced to use private arbitration. Dispute adjudication is a basic public function. There are certain basic rights that individuals should not be able to give up, even for a price. The previous section illustrated one set, rights to privacy. It has long been recognized that an individual should not be allowed either to sell his vote or himself. So too, I believe, for the use of fair courts. By now, there is ample evidence on the lack of fairness of private arbitration.

3. Too-​big-​to-​fail banks These represent a quite different kind of risk of ‘bigness’ than those on which the trust-​busters were focused. Too-​big-​to-​fail banks have an incentive to engage in excessive risk taking because they know the government will rescue them. In fact, their plight gives them political power—​and it was the abuse of political power with which the progressives were concerned. But the too-​big-​to-​fail banks have proved their political power in another way: It has been virtually impossible to curb their power. As I pointed out,31 there was a rough political balance in the United States, between 350 million Americans and ten banks, such that some legislation curbing the worst excesses was passed, but clearly, far less than the vast majority of Americans thought was desirable or necessary.

4. Inadequate competition in the market place of ideas The last illustrates well the limitations of current approaches, where the effect of media concentration is simply measured by market power in often narrowly defined advertising markets. Mergers across media (between television stations

30  Of particular concern is that these Internet providers may already have market power; and they are using that market power to get agreements to transfer information to them, thus enhancing their market power. And this is especially of concern in societies where there is great inequality and large fractions of the population may not be well educated. 31 Stiglitz, Freefall (n 19).

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and newspapers) leading to markedly reduced access to different views have been allowed to go forth, simply because there is competition in the ‘relevant’ market for advertising.

B. Competition policy can and should be broadened further Until recently, the competitive equilibrium model was the benchmark model used by economists. It was argued, especially by economists from the Chicago School, that competition was the natural state towards which the economy tended, and deviations from this benchmark were limited. It was these limited deviations that were the subject of competition policy. Since the economy tended towards the competitive ideal on its own, only unnatural actions—​like cartels—​should be of concern. But today, there is a growing consensus that the real world entails extensive departures from this competitive benchmark model, with limitations of competition playing a key role in labour, capital, and most product markets. Indeed, there is a growing view that one cannot understand the functioning of most economies today without understanding these pervasive limitations in competition; a new benchmark model is emerging, one in which departures from competition are the norm rather than the exception. In this world, antitrust authorities seek not to restore the economy to some perfect competition ideal, but simply seek to prevent excessive and abusive concentrations of market power and the use of anticompetitive practices, particularly when they extend, augment, and deepen market power. Within most countries, monopoly and monopsony power play an important role in explaining inequality; the growth in monopoly and monopsony power can play an important role in explaining the growth in inequality; and policies aimed at reducing market power can accordingly play some role in the reduction of inequality.32 The extent to which inequality reduction should be an explicit objective of competition policy remains a subject of debate.33 However, in its very nature of checking abuses of power, competition policy is about reducing inequalities in some fundamental sense.34

V. Globalization The nature and intensity of competition depends on who is in the game. Many have argued with the growth of globalization, there are more firms competing in 32  J E Stiglitz, ‘New Theoretical Perspectives on the Distribution of Income and Wealth Among Individuals: Parts I–​IV’, NBER Working Papers 21189–​92 (May 2015); J E Stiglitz (with N Abernathy, A Hersh, S Holmberg, and M Konczal), Rewriting the Rules of the American Economy: An Agenda for Growth and Shared Prosperity (W W Norton May 2015), available at accessed 3 July 2017. 33  See J B Baker and S C Salop, ‘Antitrust, Competition Policy, and Inequality’ mimeo (Georgetown University Law Center 2015). 34  See also E Fox, ‘Making Markets Work for the People’, paper presented to BRICS Competition Conference, Durban (November 2015), published in proceedings in 2016.

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any marketplace, and, therefore, there is a stronger presumption in favour of competition (that is, that markets are in fact competitive, so long as trade barriers are kept low). Earlier, we explained that, in fact, even in the case of traded goods, there is often a large non-​tradable component, associated with delivery and servicing. Hence, local market power can still matter. Developing countries face an inherent and historic asymmetry of power. There is a broad philosophical issue: What does ‘fair’ competition mean, in the context of a developing and emerging market, where small local firms have to compete with foreign behemoths? Is it fair to limit oneself to ensuring that the behemoth does not engage in certain exclusionary practices? Is it true that even some of its competitive advantage arises out of monopsony power in some third market (as described earlier)? New approaches to development focus on ‘helping infant economies grow’,35 recognizing the externalities generated by new firms and industries, eg in the manufacturing sector, which in turn imply that a ‘free’ market solution will not lead to (adequate) development. This provides a legitimate argument for protection—​ tilting the balance towards domestic firms by, for instance, maintaining a stable, real competitive exchange rate. But it is also an argument for more aggressive enforcement for antitrust. Antitrust policy, like any other policy arena, entails a balancing act, the risks of under and over enforcement. How that balance should play out depends on the circumstances of each individual country. Thus, just like there should not be a single intellectual property regime for all countries,36 there should not be a single competition policy for all countries. Just as there should be a development-​oriented trade regime and a development-​oriented intellectual property regime, there should be a developmentally oriented competition regime and antitrust policy. This is especially so because colonialism and imperialism were based on an asymmetry of political power; and the colonial/​imperial countries used that power to entrench themselves economically and to disempower and exploit the countries that they subjugated. In economics, there are often large hysteresis effects: Power, once established, extends and amplifies itself. The ex-​colonial powers were not content to rely simply on market forces to extend and amplify their market power. They embedded within the rules governing the post-​colonial era measures that helped perpetuate these imbalances. Thus, escalating tariffs within the Word Trade Organization (WTO) rules-​based system had the effect of leaving the developing countries to continue exporting low value-​added raw materials, and ensuring that the higher value-​added activities occurred in the more developed countries.37 35  B Greenwald and J E Stiglitz, ‘Helping Infant Economies Grow: Foundations of  Trade Policies for Developing Countries’ (2006) 96 American Economic Review 141 (hereafter Greenwald and Stiglitz, ‘Helping Infant Economies Grow’); Stiglitz and Greenwald, Creating a Learning Society (n 25). 36  J E Stiglitz, Making Globalization Work (W W Norton 2006) and references cited therein; and M Cimoli, D Dosi, K E Maskus et al, Intellectual Property Rights: Legal and Economic Challenges for Development (Oxford University Press 2014). 37  See A Charlton and J E Stiglitz, Fair Trade for All (Oxford University Press 2005).

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Competition policy has an important role to play in undoing these historical legacies, enhancing the ability of developing and emerging countries to compete and promote development more broadly. In international trade agreements—​ironically, sometimes under the guise of provisions labelled ‘competition’—​developed countries, including both the United States and those in the European Union, have attempted to restrict the ability of developing countries to compete. For instance, they have argued that domestic content regulations are anticompetitive. In other fora, at the International Monetary Fund (IMF) and the World Bank, the advanced countries have discouraged developing countries from using industrial policies (including active exchange rate management) to become more competitive, in spite of the theory and evidence that such policies, when well managed, can be very effective.38 Without industrial policy supporting the development of capabilities and learning by doing and helping firms overcome barriers to entry (such as finance), countries will have low levels of domestic rivalry. Under such circumstances, trade opening can increase the disadvantages of domestic firms and thus decrease effective competition. The fact that the elimination of formal trade barriers does not create a level playing field has finally been recognized in the aid-​for-​trade movement. Without aid for trade, removing tariffs and other ‘artificial’ trade barriers actually disadvantages developing countries. But the earlier literature on aid-​ for-​trade did not recognize its full implications for the extent of competition within the country.39 At the same time, domestic policies need to be wary of supporting national champions. Dominant firms in many developing countries try to use the ‘national champion’ argument to give them freedom to suppress competition at home and use and abuse their market power.

VI.  Market Power, Inequality, and Development While market power has long been front and centre in competition policy, recent advances have, as we have noted, provided new arguments for the importance of attacking it. It leads to inequality, and inequality leads to poorer economic performance, including lower growth and more instability. 38  See eg Greenwald and Stiglitz, ‘Helping Infant Economies Grow’; and Stiglitz and Greenwald, Creating a Learning Society (n 25). More recently, the World Bank has changed its position, and has been actively promoting industrial policies. See J E Stiglitz and Y V Lin, The Industrial Policy Revolution I:  The Role of Government beyond Ideology (Palgrave Macmillan 2014); and J Y Lin, ‘Industrial Policy Revisited: A New Structural Economics Perspective’ (2014) 22(HS01) Revue d’économie du développement 70. 39  See A Charlton and J E Stiglitz, ‘Aid for Trade’ (2006) 5 International Journal of Development Issues 41; A Charlton and J E Stiglitz, ‘Aid for Trade’, Keynote Address, Annual World Bank Conference on Development Economics 2007, in F Bourguignon and B Pleskovic (eds), Rethinking Infrastructure for Development (World Bank 2008); A Charlton and J E Stiglitz, ‘The Right to Trade: Rethinking the Aid for Trade Agenda’ in Mohammad A Razzaque and Dirk Willem te Velde (eds), Assessing Aid for Trade: Effectiveness, Current Issues and Future Directions (Commonwealth Secretariat 2013) 386.

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Market power is often associated with creating barriers to entry, and inequality means fewer people have resources to enter markets. These problems can be particularly serious when foreign firms have market power. For them the resulting profits mean that resources are redistributed out of country—​ depriving the country of needed foreign exchange and undermining demand for domestic non-​traded goods, making it more difficult for the country to achieve a competitive market in these goods (including more difficult to achieve economies of scale).

VII.  Broadening the Menu of Possible Antitrust Policies Earlier sections of this chapter have emphasized the importance of broadening the scope of competition policy from the narrow remit to which the Chicago School attempted to condemn it. This section argues that there is, in fact, a broad menu of antitrust policies that competition authorities should employ.40 Earlier, we referred to the ‘public interest test’. Within that, there can and should be explicit reference to some of the concerns raised in this chapter: inequality, development, and the marketplace for ideas. We also referred to the necessity of changing presumptions. Of course, those who are engaged in anticompetitive practices, or who believe that markets are naturally competitive, have worked to weaken antitrust enforcement. Therefore, there is a need to increase and focus agency enforcement, with increased antitrust agency budgets. There should be prosecutorial discretion to prioritize cases that benefit less advantaged consumers and to design remedies to benefit less advantaged consumers.41 Moreover, under the influence of ‘Chicago economics’, there has been a hesitancy to take strong actions. This is seen most clearly in the Microsoft case, where the initial actions failed even to curtail the company from engaging in anticompetitive practices, and subsequent actions did little to curtail the market power that had already been established. There is a need for a rebalance towards more interventionist 40  This section has benefitted particularly from Baker and Salop (n 33). A refrain of much of my policy work in development over the past twenty years has been that there was a need for ‘broader goals, more instruments’ than had been suggested by the Washington Consensus, itself largely based on neo-​liberal/​Chicago School economic perspectives. See J E Stiglitz, ‘More Instruments and Broader Goals: Moving Toward the Post-​Washington Consensus’ in G Kochendorfer-​Lucius and B Pleskovic (eds), Development Issues in the 21st Century (German Foundation for International Development 1999) 11–​39; J E Stiglitz, ‘The Economics behind Law in a Market Economy: Alternatives to the Neoliberal Orthodoxy’ in J E Stiglitz and D Kennedy (eds), Law and Economic Development with Chinese Characteristics: Institutions for the 21st Century (Oxford University Press 2013a); J E Stiglitz, ‘Creating the Institutional Foundations for a Market Economy’ in ibid; J E Stiglitz, ‘The State, the Market, and Development’, WIDER Working Paper 1/​2016 (February 2016), originally presented at a conference celebrating WIDER’s 30th anniversary (18 September 2015); and various chapters in ibid for a discussion of the relationship between Chicago School economics and the evolution of doctrines related to law and economics. 41  Thus, under current US law, the Federal Trade Commission (FTC) could conclude that monopoly pricing or price discrimination targeting less advantaged consumers violates the FTC Act.

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antitrust and regulatory actions and standards. For instance, one of the proposed actions in the Microsoft case was to limit the term of its intellectual property. While such an action would have both stimulated innovation and curbed market power, this and similarly strong actions were rejected.42 Another example of how antitrust authorities could take stronger actions to promote competition is recognizing excessive pricing by dominant firms as an antitrust offence. EU Competition Law recognizes excessive pricing by a dominant firm as an abuse of dominance (as exploitative conduct). However, there have been very few cases.43 The US Sherman Act is narrower. A monopolist with legitimately obtained and maintained monopoly power is permitted to charge high prices. A ‘conduct element’ is required, such as an agreement or an act of exclusion. (Interestingly, the United States sets prices through antitrust in at least one area—​rates for music publishing rights.) The US and other competition authorities could and should adopt the EU approach.44 Any jurisdiction will, of course, worry about the dangers and costs of under-​versus over-​enforcement. But in setting the rules, account should be taken of economies’ different characteristics and histories. Because of sunk costs, history matters. But when that history is coloured by colonialism and oppression, that history cannot be ignored. There is an obligation on competition authorities to take a more proactive stance in rectifying these imbalances. Among the differences in circumstances facing different economies is size: Smaller economies may face greater problems of entrenched dominant firms. By the same token, natural entry barriers at earlier stages of development imply greater costs associated with exclusionary behaviour, with effects that may be more persistent, outweighing risks of a ‘chilling effect’ of stronger antitrust enforcement. I would argue that there is a broad role of government to actively encourage competition, recognizing that competition does not simply and naturally arise in the absence of cartels, contrary to the Chicago School presumptions noted earlier. The industrial policies referred to earlier are one important instrument for encouraging entry and competition. A public option is another relevant one, at least for some sectors, where the government provides an alternative to the private sector, thereby checking the extent to which it can engage in exploitation. Therefore, the public option in health insurance in the United States might have played an important role in breaking anticompetitive behaviours that were hard to prosecute under existing laws. A public option in annuities might have led to more competitive insurance markets; and the public option in student loans has led to access at a more competitive rate. A public option in the market for conventional mortgages would almost surely bring down the cost of borrowing. Competition authorities should recognize too that strong competition policy encourages entry. Microsoft’s predatory actions have almost surely had a chilling 42  See Furman and Stiglitz, ‘U.S. versus Microsoft’ (n 29). 43  Somewhat disturbing, my understanding is that a recent decision by the Competition Appeal Court in South Africa may make a finding of excessive pricing difficult. 44  To implement this standard in the United States, legislation would be needed.

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effect on entry in that sector; had there been more confidence that antitrust authorities would have taken actions against those actions, there might have been more entry.

A. Competition and public interest Earlier, I argued that public interest should be the overriding concern of competition policy. However, this broad mandate may be difficult to incorporate easily within a rules-​based competition framework, and the burden imposed on competition policy must take into account the existence of other instruments. One principle, though, seems clear: Mandates on domestic firms (like lending to underserved communities or participation of historically disadvantage persons) should be imposed on foreign firms, even if it is more difficult for them to fulfil such a mandate. No country should sign trade or investment agreements that make this difficult or impossible.

VIII.  Global Perspectives Competition (when firms are active across borders) is a global public good. As in so many areas within global economics, there is a need for more global cooperation. Globalization implies that what happens in one jurisdiction has effects on those living in others. There is a need for collective action—​which is not the same thing as saying that there is the need for the same rules, and especially if those rules are written by the developed countries. There should be cooperation in international enforcement—​in the arena of mergers and cartels, as well as conduct.45 The hypocrisy of almost studiously ignoring export cartels (like oil and potash)—​which the international community has done—​needs to be addressed. What is clear, though, is that there is a need for a broader regulatory environment for multinationals, including taxation.46 Competition policy should be seen as part of establishing this broader global cooperative framework. Unfortunately, competition policy is increasingly seen as a weapon of national economic policy. Moreover, there are economic as well as political reasons for being easier on domestic firms that engage in anticompetitive practices. Some of the profits they glean are at the expense of citizens and firms in foreign countries. Their exclusionary practices may benefit domestic employment at the expense of foreign employment; and some of the increased profits will rebound to the benefit of the government.

45  This does not, however, mean that there should be the same policies in all countries, as noted earlier. 46  The failure of the UN conference on Finance for Development (in Addis Abba, July 2015) to establish even the beginnings of such a framework within the United Nations highlights the difficulties. The advanced countries are used to making the rules by themselves, for the benefit of themselves.

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Thus, it is perhaps not a surprise that the United States is now accusing Europe of unfairly using competition policy against American firms. The US government is more susceptible to pressure from US firms, and it may well be that the US government sees not only political but economic benefits arising from the success of American firms, even if that success is partially based on anticompetitive practices (or practices of avoiding taxes within Europe). Conversely, Europe worries that companies like Google and Facebook will not only open up the possibility of the misuse of the information that they are gathering, eg by some governmental body, but that these firms will also use their privileged access to information to entrench themselves.

A. BRICS cooperation Cooperation among BRICS can be an important step in creating that global framework. These countries are working together to understand better and create ‘a developmentally oriented competition regime’, one of the objectives of which is promoting ‘inclusive growth’. This developmentally oriented competition regime must be based on the recognition that many of the central economic doctrines that have dominated Western competition policy have been discredited, or at least have more limited reach than previously realized. Cooperation among the BRICS competition authorities can be helpful in sharing insights, and perhaps with more explicit cooperation, in ensuring more competition in areas where in the past competition has been limited. Implementing this broader agenda that I have laid out here will not be easy. On the contrary, non-​implementation of this broader agenda risks losing important opportunities for promoting inclusive development.

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2 Outsider Antitrust ‘Making Markets Work for People’ as a Post-​Millennium Development Goal Eleanor M Fox*

I. Introduction In its Declaration on the Right to Development in 1986, the UN General Assembly called for nations to ‘guarantee the meaningful participation of all in development and in the fair distribution of its benefits’.1 In the run up to 2000, the United Nations promulgated the eight millennium development goals to be achieved in all or part by 2015. The goals ranged from eradicating extreme poverty and hunger to achieving universal primary education to ensuring environmental sustainability. The means for achieving the goals were predominantly identified in terms of money that would flow from the richer to the poorer nations, such as providing funds and forgiving debts. 2015 has come and gone. Progress was made. But the critical problem of severe poverty persists and the gap between rich and poor widens.2 In 2015, the United Nations took stock of the gains and the persisting problems, and it announced post-​2015 sustainable development goals (SDGs). There are seventeen SDGs. This chapter contributes to the sustainable development literature from an under-​appreciated window—​markets. It includes control of abusive acts of powerful businesses and states that block the path to markets. The chapter argues that empowerment to engage in markets, as well as the human benefits of affordable *  Walter J Derenberg is Professor of Trade Regulation, New York University School of Law. The author thanks Johan Holmquist for his excellent research assistance. This chapter is based on papers prepared for the OECD Global Forum (2015), UNCTAD Competition Branch, Intergovernmental Experts Conference (2015), and the 4th BRICS International Competition Conference (2015). 1  Quoted in the synthesis report of the Secretary-​General on the post-​2015 sustainable development agenda, ‘The Road to Dignity by 2030: Ending Poverty, Transforming All Lives and Protecting the Planet’ (2014) UN Doc A/​69/​700, 3 (hereafter Secretary-​General’s Report), available at accessed 23 June 2017. 2  ‘Poverty Rates’, The Economist (London, 23 May 2015), available at accessed 24 February 2017. Outsider Antitrust: ‘Making Markets Work for People’ as a Post-Millennium Development Goal. Eleanor M Fox. © Eleanor M Fox, 2017. Published 2017 by Oxford University Press.

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necessities that functioning markets bring, should be a notional eighteenth sustainable development goal. Indeed, empowerment to engage in markets can be more important than development aid because, by its very nature, it eliminates dependency. This chapter first describes the few market-​related SDGs and the modesty with which they are presented. Second, it highlights and partly critiques common approaches to how competition policy should relate to the SDGs, namely: (1) pleading ‘not my problem’; (2) urging wide antitrust exemptions so as not to tread on SDGs; and (3) offering as antitrust’s sole contribution enforcement against fixing prices of the necessities of life. Third, the chapter articulates a robust view of the relationship of Competition Law and policy to the SDGs. It argues that, in terms of helping the less well-​off population, competition and markets are critical. Their value is commonly underplayed and ignored or even blamed for the degradation of the human condition. The exploitative side of markets obscures their human side. The SDGs text misses the critical contribution that markets, properly harnessed, can make for the poorer population and for those without connections to wealth and power. It is against this background that this chapter presents an empowerment-​by-​ market thesis.

II.  The SDGs The SDGs are summarized in an integrated set of six essential elements and seventeen goals. I include here the stated elements and goals most relevant to markets. The essential elements include ‘dignity: to end poverty and fight inequality’, ‘prosperity: to grow a strong, inclusive and transformative economy’ not falling below the poverty line, and commitments on health, planet and the ecosystem, partnerships, and global solidarity, and justice and peaceful societies.3 Goal 1 is to end poverty in all its forms. It includes access to basic services, including microfinance. Goal 2 would end hunger and promote sustainable agriculture, including having access to markets and ending export subsidies and other trade distortions. Goal 8 would promote inclusive and sustainable economic growth, including job growth and entrepreneurship and growth of small enterprises, and increasing aid for trade support for developing countries. Goal 9 would build resilient infrastructure, promote sustainable industrialization, and foster innovation, including integration of small enterprises into value chains and markets. Goal 17 would strengthen the means of implementation and enhance the global partnership for sustainable development by mobilizing and sharing knowledge, expertise, technology, and financial resources by debt relief, and by developed countries fulfilling their assistance commitments. While some of the goals nod towards markets, and I have stressed those aspects above, the bulk of them entail targets to be reached by financial contributions from developed states. The goals do not identify markets as 3  Secretary-​General’s Report (n 1) 16–​19.

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a source of dignity, empowerment, and sustainable personal and economic development, nor do they identify freeing up markets as a way to reach the goals.4 They should.

III.  The UN Mandate and the Competition Secretariat Note All branches of the United Nations are urged to include the SDGs in their agendas in some meaningful way. Ideally, the progressive agendas would nudge each Member State to ply its oars for the good of the whole in making our world ‘The World We Want’.5 Given the mandate of the United Nations, the branch on Competition and Consumers responded with a Note of the UNCTAD Secretariat (‘the Note’) on how the discipline of Competition Law and policy should integrate the SDGs and work towards the goal of promoting sustainable and inclusive growth.6 The Note explains the role of competition in providing more and better goods and services and thus promoting consumer welfare. For enforcement, it calls for prioritizing the sectors that matter the most to poorer people and the economy, and it calls for competition advocacy to tear down barriers to entry and market participation, especially for the benefit of poorer people and economic development. However, the Note falls into a trap.7 It accepts too readily a popular notion that Competition Law and efficiency trample upon the human values we care about. It choreographs antitrust to back away from its own centre stage to make room for the SDGs, without a finer-​tuned look at the relationship. This is not the only approach to the challenge of bringing antitrust into harmony with the SDGs. I have noted above a second response, which I call the silo perspective, namely, the ‘not my problem’ problem.8 There is a third perspective, and it is the course I urge. The Secretariat Note provides a useful point of departure. I would first agree with the Note’s stress on the critical importance of anti-​cartel law, which lowers prices, and with the need to prioritize pro-​poor enforcement and advocacy. 4  Exceptions are the subgoals to end export trade distortions, and to include small enterprises in value chains. These are important, but seem buried in larger equity goals. See Goals 2.b and 9.3, UNGA Res 70/​1  ‘Transforming Our World:  The 2030 Agenda for Sustainable Development’ (25 September 2015) UN Doc A/​RES/​70/​1, 16, 20, available at accessed 23 June 2017. 5  This is an expressive motto of the SDGs. See accessed 8 July 2017. 6  UN Conference on Trade and Competition, ‘The Role of Competition Policy in Promoting Sustainable and Inclusive Growth—​Note by the UNCTAD Secretariat’ (27 April 2015)  UN Doc TD/​ RPB/​ CONF.8/​ 6 (hereafter Secretariat Note), available at accessed 23 June 2017. 7  The trap in fact goes far beyond the Secretariat Note. It stems from the belief that markets are the problem, not a solution. See text to n 22. 8  See M K Ohlhausen, ‘What Are We Talking about When We Talk about Antitrust?’ (remarks at the Concurrences Review Dinner, New York, 22 September 2016), available at accessed 23 June 2017.

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But then I would take two different tacks. The first I will call global. This is a call to recognize the power of markets to empower people without economic power and a call for putting markets (Making Markets Work for the People)9 on the SDG agenda. Making markets work for the people may, in some jurisdictions, involve resetting the equilibrium of antitrust to recognize it as outsider law, not insider law. The second critique addresses proposed exemptions from antitrust law in the name of the SDGs, and the proposed expansion of antitrust to protect the environment and small business, and to achieve fairness. This chapter challenges the need for exemptions. It argues that the claim of antitrust’s conflict with other important values is overblown; that more often the various values we pursue point in the same direction. Moreover, sacrificing antitrust is not costless. The chapter highlights the qualities of competition and markets that go far towards building a framework for sustainable inclusive development.10

IV.  Making Markets Work for the People Competition Law and policy (also called antitrust) help the people in two ways. One way has been much discussed in OECD11 and UNCTAD12 fora,13 particularly when developed country officials are asked: How do competition systems help the poor? One answer is commonly given: Antitrust enforcement lowers prices of goods and services, and competition authorities can and should prioritize cases with a view to targeting goods and services needed by the poorer population. Priorities should include challenging bid rigs that exploit the state as buyer, especially in view of the fact that the poorer population depends disproportionately on services supplied by the state. When the prices of state-​procured goods rise, fewer of these goods and

9  See also the calls to action by CUTS, the Consumers Unity and Trust Society. For example, Pradeep S Mehta, ‘The Role of Competition Policy in Promoting Sustainable & Inclusive Growth & Development’ (presentation at the 7th UN Conference to Review the UN Set on Competition Policy, Geneva, 6 July 2015), available at accessed 23 June 2017. 10  Inclusive development implies an environment hospitable to bringing all people into the economic mainstream. It implies removing obstacles facing people without power to engage in the economic enterprise. It suggests that we should not be satisfied with ‘enough’ firms in the market to, in theory, bring prices down to cost (eg four or five typically established players), but that we should be vigilant to remove handicaps that keep outsiders down or out. Hospitality towards entry of outsiders is an efficient and pro-​growth path. See F M Scherer, ‘Antitrust, Efficiency and Progress’ (1987) 62 NYU L Rev 998, 1012; M E Porter, ‘Interview, Innovation, Rivalry and Competitive Advantage’ (1990–​91) 5 Antitrust 5, 7; D Waked, ‘Competition or Concentration? Old Debate with New Implications for Antitrust Enforcement in Developing Countries’ (Law & Development Colloquium, New York University School of Law, February 2017) 10–​15 and authorities collected in nn 75–​6, while also citing authorities correlating concentration with innovation, and integrating the two perspectives (MS on file with author). 11  The Organization for Economic Cooperation and Development. 12  The UN Conference on Trade and Competition. 13  See OECD, ‘Policy Roundtable—​Competition and Poverty Reduction 2013’ DAF/​COMP/​ GF12 (4 October 2013), available at accessed 23 June 2017.

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services (highways, transportation, health care, schools, children’s lunches, housing) are available. The OECD typically launches discussion projects and its members are invited to make written submissions for discussion at plenary meetings. The OECD has conducted such a project on Competition Law and poverty. Numerous competition authorities submitted responses, and those submissions, along with the OECD Secretariat Note accompanying them, are rich in detail on the above points, namely, lowering prices of necessities and prioritization.14 This is a commendable body of work, and the policy recommendations should be adopted. But the answer—​enforces the law against cartels that involve necessities of life—​is incomplete. The larger contribution of competition appears on a much larger canvas that has been overlooked. Competition is about markets, and markets enable the people to participate in the economic enterprise. Markets take people out from under the thumb of cronyistic and autocratic states. The freedom to participate in the economic enterprise, and not to be swept aside by privilege and power, is not only a personal freedom that enhances dignity, but a source of livelihood that lifts people out of poverty by empowering them.15 We may take lessons from political philosophers and economic observers as diverse as Amartya Sen,16 Friedrich von Hayek,17 and Hernando de Soto.18 Consider the farmers in Benin who must live in a market-​compromised world. They are forced to accept overpriced fertilizers (auspices of the notorious Canadian potash cartel).19 If they could buy their inputs at a competitive price, they could produce a substantial crop and even sell their product for export. Similarly for cotton: If the farmers could produce and sell their product in markets undistorted by the subsidies lavished on Western agribusiness, they could sell their crop at a price that covered their costs. Similarly again, if budding entrepreneurs, though poor and unconnected to sources of power, could enter basic markets free of excessive, incumbent-​protecting regulations, they could be a part of the economic enterprise rather than supplicants to it. This freedom and opportunity to enter and rise in the mainstream of economic life empowers people and builds dignity, and reciprocally serves the people as buyers. Not incidentally, as elaborated by Paul Collier in The Bottom Billion20 and before him by Hernando de Soto in The 14 Ibid. 15  See M S Gal, ‘The Social Contract: Should We Recalibrate Competition Law to Limit Inequality?’ in I Lianos and D M B Gerard (eds), Competition Policy: Between Equity and Efficiency (Cambridge University Press forthcoming 2017) (identifying growing inequality as a breach of our social contract, noting the ways in which Competition Law does and does not tend to advance equality values, and suggesting methodologies for bringing Competition Law closer to equality goals). 16  A Sen, Development as Freedom (Oxford University Press 1999). 17  F A von Hayek, The Road to Serfdom (first published 1944, University of Chicago Press 1967). 18 H de Soto, The Other Path:  The Economic Answer to Terrorism (first published 1989, Basic Books 2002). 19  See F Jenny, ‘Potash Cartels and Double Standards’, Financial Times (London, 30 August 2010), available at accessed 24 February 2017. 20  P Collier, The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done about It (Oxford University Press 2007).

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Other Path,21 this freedom is a steam valve and a safety valve; it wards off societal disaffection that seduces young people into gangs of violence and that produces dysfunctional societies. The competition family knows the value of markets. However, a critical mass of devoted individuals who despair of the poverty trap and the inequality gap distrusts markets. They see markets as the enemy that helps the rich to exploit the poor, characterizing free markets as the fuel that produces Bernie Madoffs and economic crises. They count markets as the problem.22 This is not surprising in a world in which we see extreme exploitation of people in need of food and medicines, and an antitrust community that says: Not my problem.23 Antitrust may be seen as complicit with insiders who get rich on market failures that antitrust ignores. Antitrust needs a reset, and the dialogue on the SDGs needs an infusion of understanding the virtues of open markets to ordinary people in achieving the dignity and empowerment goals of  The World We Want. The competition agencies and tribunals, on their end, must create a consciousness of making markets work for people without power. At its birth, antitrust was a discipline and tool for the outsider;24 for people without power. It has been seduced by beautiful, elegant, but unfitting economic assumptions.25 An SDG-​friendly antitrust would revive antitrust as outsider law, not insider law, and, with the broader advocacy policy that surrounds it, would tear down barriers, empowering people to help themselves.26 In this environment, markets, with antitrust as enabler, can be one of the most powerful tools to lift people out of poverty and reduce severe, persistent inequalities that are symptoms of poverty without mobility.

21  De Soto (n 18). 22  This is the sentiment of Oxfam’s Briefing Paper No 178, ‘Working for the Few’ (2014), available at accessed 23 August 2017. The Briefing Paper also presents many valuable statistics and observations. But see, for reliance on the market as the solution, International Fund for Agricultural Development, ‘Promoting Market Access for the Rural Poor in Order to Achieve the Millennium Development Goals—​Discussion Paper’ (2003), available at accessed 23 June 2017. 23  See H First, ‘Excessive Pricing as an Antitrust Violation’ (February 2017)  (draft on file with author). 24  E Fox, ‘The Modernization of Antitrust: A New Equilibrium’ (1981) 66 Cornell L Rev 1140. 25  P Krugman, ‘How Did Economists Get It So Wrong?’ The New York Times Magazine (6 September 2009) 36; J Brodley, ‘Post-​Chicago Economics and Workable Legal Policy’ (1995) 63 Antitrust LJ 683; J Stiglitz, ‘Towards a Broader View of Competition Policy’, Chapter 1 in this volume. See also J B Baker, ‘Taking the Error Out of “Error Cost” Analysis: What’s Wrong with Antitrust’s Right?’ (2015) 80 Antitrust LJ 1; E Fox, ‘The Efficiency Paradox’, in Robert Pitofsky (ed), How the Chicago School Overshot the Mark: The Effect of Conservative Economic Analysis on U.S. Antitrust (Oxford University Press 2008) 77; Gal (n 15). cf G Kolko, The Triumph of Conservatism: A Reinterpretation of American History, 1900–​ 1916 (first published 1963, Free Press 1977). 26  What does outsider-​friendly antitrust entail? It does not entail protecting inefficient firms from competition. The answer is fact-​sensitive. It can best be appreciated in the context of facts. In my essay ‘The Efficiency Paradox’ (n 25), I presented four cases that, I argued, the court resolved by incorporating incumbent-​friendly presumptions into its analysis. If the court had resolved each dilemma in the other direction, it would have expressed an outsider-​friendly antitrust.

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V.  Integrating Competition Law and Policy with the SDGS Once we understand the critical importance of outsider-​friendly antitrust to counter poverty, promote dignity, and nurture inclusive development, the claim of conflict between antitrust and SDGs takes a different complexion. Human values are at stake when we suppress markets or stand by while dominant firms do so. In this section, I address proposals for antitrust exemptions and compromises in the name of SDGs, which might be largely wrong-​headed. The UNCTAD Secretariat Note suggests that, to bring Competition Law into sympathy with the SDGs, fairness should be a major ingredient of Competition Law and policy, and exemptions from antitrust law should expand. For example, it proposes that exemptions should be granted ‘for agreements that promote economic progress, environmental protection and green technologies’.27 I will show that exemptions are not needed for economic progress, because economic progress is an efficiency concept embedded in competition analysis, and that applications of Competition Law seldom conflict with environmental and other SDG values. This section is, in other words, about compromise of antitrust principles to achieve notionally higher goals that help the poor. There are three perspectives on whether and how SDG goals require compromise of antitrust principles. Option 1 commands the support of much of the antitrust bar in the two most prominent jurisdictions (the United States and the European Union). The Secretariat Note adopts Option 2. I shall argue for Option 3. The options are as follows: • Under Option 1, antitrust law is conceptualized as ‘efficiency’ or ‘consumer welfare’ law: It promotes aggregate efficiency or (more honestly, and much more modestly) would step in only to protect consumer surplus from erosion by non-​efficiency justified conduct.28 Supporters of this option argue that the SDGs are about equity and non-​efficiency goals. Embracing non-​efficiency considerations undermines efficiency. Furthermore, it opens the door to unbridled discretion of officials and jurists, inviting politics and cronyism and further undermining efficiency. Antitrust policy makers should not be seduced into compromises with amorphous notions of equity. Moreover (advocates continue), economic disciplines can be used to solve problems of environmental protection (for example) more efficiently than can antitrust exceptions, as in cap-​and-​trade pollution permits. • According to supporters of Option 2, the SDGs are higher goals or values than efficient markets, and antitrust should give way flexibly, as needed, to serve them. • According to Option 3, open markets and access to markets are critically important tools for efficiency, opportunity, mobility, and economic well-​being, 27  Secretariat Note (n 6) 1.

28  See Fox, ‘The Efficiency Paradox’ (n 25).

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and for advancing most of the SDG agenda. It is rarely necessary to sacrifice the market goals in order to facilitate SDG goals, and indeed, in view of the value of markets and access to them in aiding and empowering the poorer population, one should be reluctant to sacrifice markets to advance goals best addressed by other means. I have outlined the tenets of Option 1 in the paragraphs above. I shall focus next on Option 2 and its implications. In doing so, first, I explore the use of exemptions to accommodate antitrust to the SDGs. Second, I explore antitrust flexibility to include fairness, and I explore the claim that ‘unfairness’ should be incorporated as a dimension of anti-​competitiveness. Third, I treat the agriculture sector, which is highlighted in the SDGs and the Note, given its place at the epicentre of global poverty. Fourth, I consider other public interests.

A. Exemptions A semantic confusion has produced a distorted view of conflicts between antitrust law and the SDGs and thus of the need for more exemptions from antitrust. There is a threshold issue. A semantic problem has crept into the law that creates an appearance of conflict between antitrust and economic progress where none exists. The problem stems from the wording and structure of the Competition Law of the European Union, which has been duplicated in the law of many jurisdictions. The wording of the relevant European Treaty article, now TFEU29 Article 101(1), is so broad that, as a first step, the competition prohibition catches all agreements that ‘distort competition’ broadly conceived. Under Article 101(3), Article 101(1) may be declared inapplicable to agreements that promote economic progress where consumers get a fair share of the benefits. Article 101(3) has commonly been referred to as an ‘exemption’ from antitrust, but it is more precisely a mode for completing the analysis of whether the agreement is good or bad for competition and consumers. Since 2004, when the European Union devolved powers of enforcement of the Treaty’s Competition Law to the Member States, a European Commission ‘exemption’ for Article-​101(3)-​compliant agreements has no longer been necessary or even available; but the vocabulary of ‘exemption’ persists. Perhaps this terminology will live on because history runs deep; Article 101 has had a powerful impact on the world. Many nations have copied its language. This requires an alertness to distinguishing an Article 101(3) exemption (which simply allows agreements that are good for consumers) from an endorsement of anticompetitive, consumer-​harming agreements for the sake of non-​market goals. This means that we do not need an exemption from antitrust law for agreements that promote economic progress, because antitrust law does not prohibit such agreements. We turn, then, to possible exemptions to advance non-​market goals. 29  Consolidated Version of the Treaty on the Functioning of the European Union [2012] OJ C326/​1.

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An antitrust exemption is needed when an agreement or conduct harms competition (including efficiency and innovation), but society wants to endorse it anyway to serve a higher value such as health, the environment, or easing the plight of farmers. When one analyses carefully to determine whether an agreement is anticompetitive, one finds very little conflict between antitrust and (other) social goals. However, let us suppose that an agreement is anticompetitive and the claim is made that the agreement is nonetheless ‘good’ because it will protect the environment. The inquiry in these paragraphs is whether the agreement will really protect the environment, and whether the sacrifice-​competition tack is the best tool to address the environmental problem. We consider two cases. The first is the EU case, CECED.30 The washing machine manufacturers decide that cheaper washing machines are environmentally unsound and the manufacturers agree not to market the cheaper machines. This is a cartel. It is an agreement among competitors to take low-​priced machines off the market. It would cause the price of washing machines to rise. Even the price of the higher-​end machines would probably rise, reflecting the new market power of the collaborators (because they gain market power when they act together). Is the price-​effect a tolerable by-​product of environmental protection? Are we confident that the washing machine manufacturers correctly identified, and took off the market, only environment-​harming machines? Are we worried that, given their interest in profits, the manufacturers might have overstated the category of ‘environmentally unsound’ machines? Does the price-​level cut made by the manufacturers directly correspond with the environmental harm? In this case, like so many others, there was an alternative course to protect the environment. Manufacturers could have promoted their environment-​friendly machines to consumers as a feature consumers may want and be willing to pay for. Also, they—​and environmentalists—​could have sought legislation that would raise washing machine standards. In this competition case, exceptionally, the European Commission exempted the agreement from antitrust. However, CECED is an old and weak precedent and not a signal that the Commission would approve such competitors’ agreement again. The second example is the Chicken of Tomorrow. The Chicken of Tomorrow was an industry-​wide agreement of Dutch suppliers and supermarkets to improve animal welfare and the environment by agreeing to minimum standards for raising chickens—​slower breeding (more breeding days), less crowded barns, and more dark hours. The supermarket parties agreed to completely replace all chicken in their 30  The Commission exempted the agreement in CECED. CECED (Case IV F 1/​36.718) Commission Decision 2000/​475/​EC [2000] OJ L187/​47. This is an older case and, since its issue, the Commission has been unsympathetic to the claim that non-​competition goals are relevant in the Article 101(3) analysis. See eg Commission, ‘A Pro-​Active Competition Policy for a Competitive Europe’ (Communication) COM (2004) 293 final, para 3.1 (indicating a ‘stronger emphasis on economic analysis’, which ‘shifts the focus firmly to the economic effects of firm behaviour or of government measures’).

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bins with the higher-​priced product. The Dutch competition authority investigated how much consumers were willing to pay for more animal welfare. It treated the agreement as exemptible if consumers sufficiently valued the gains in animal welfare. It found that consumers did value animal welfare, but not sufficiently to pay the increased costs, and it denied an exemption.31 Had consumers been willing to pay for the increased costs of the Chicken of Tomorrow, presumably the national competition authority would have granted an exemption. (Compatibility with EU law would have remained an issue.) This agreement, too, was a cartel. It predictably would raise prices—​probably above the incremental costs of the enhanced animal welfare, capturing cartel-​ power profits that would probably become available by the cutback in output. Presumably, environmentally conscious chicken breeders could win the loyalty of environmentalists/​consumers by advertising the chicken-​welfare virtues of their methods—​as many breeders do now. If consumers want to pay for better treatment of the chickens they ultimately eat, they can do so without an industry agreement. Nevertheless, the breeders and sellers could force the higher standards on unwilling buyers if they combined—​which surely must have been a reason for the agreement. Is the sellers’ agreement a useful and effective way to set good national standards? Should we tolerate the sellers’ conduct in shutting out suppliers of cheaper chickens to poorer consumers? I would answer no. Legislation regulating barnyards in the interests of animal welfare would have more legitimacy, and probably broader coverage, if they were adopted by the people rather than by conflicted market players.32 The Chicken of Tomorrow and CECED are cautionary tales. They suggest caution in relaxing antitrust to save the animals and the environment. Relaxing antitrust is seldom an efficient tool to achieve social goals, while cartels are efficient tools for raising prices. But what if exemptions are necessary to protect the welfare of those people who are least well off or those who have no bargaining power against powerful business? The agricultural industry is an example, which I consider below after a discussion of ‘fairness’. 31  The Dutch competition authority’s (Authority for Consumers and Markets) analysis is available in English at accessed 25 February 2017. See also J P van der Veer, ‘Valuing Sustainability? The ACM’s Analysis of “Chicken of Tomorrow” under Art. 101(3)’, Kluwer Competition Law Blog (18 February 2015), available at accessed 25 February 2015. 32  The antitrust objection is not to the industry’s discussing best practices or even agreeing to best practices. The antitrust objection is to the rivals’ agreement not to deal in the lower-​priced product. From a public policy point of view, the industry is not best placed to make the trade-​off between more animal welfare and lower prices, nor to enforce this result by agreement. The competitors have a conflict of interest. For a US case disallowing a competitor self-​help agreement to take ‘pirated’ fabric and clothing designs off the market, see Fashion Originators Guild v FTC, 312 US 457 (1941). See also FTC v Superior Court Trial Lawyers Association, 493 US 441 (1990).

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B. Fairness: Fair competition; fair bargaining Should competition laws embrace a principle of fair competition, and would extension of the scope of competition laws to prohibit unfair competition increase the compatibility of antitrust with the SDGs in a helpful way? The concept of fair competition is often at odds with the hard competition valued by the competition laws. First, we must define terms, for ‘fair competition’ is an ambiguous phrase. If fair competition means that efficient firms must pull their punches so as not to harm their higher-​costs rivals, fairness to competitors injures consumers. The disruptive competition of UBER and Airbnb is overwhelmingly perceived as unfair by taxi drivers and hotels, respectively, yet UBER, Airbnb, and their likenesses are among the greatest contributors to dynamic competition that helps non-​elite buyers and even workers looking for jobs.33 It is neither necessary nor desirable to embrace an amorphous rule of fairness in order to bring antitrust into sympathy with the SDGs. However, there are facets of fairness that map onto efficiency and thus instances of no need to relax antitrust to achieve both goals. An example is, as suggested above, an antitrust perspective that gives regard to competition on the merits by people without power (eg disallowing use of leverage by dominant firms to close opportunities of outsiders to contest the market). Application of this outsider principle can facilitate efficient inclusive development and thus promote the goals of the SDGs.34 The fact that ‘fairness’ can have meanings that are 180 degrees apart signals the danger in proposing generally that fair competition should be a goal of Competition Law.

1. Unfair bargaining Unfair bargaining is a specific form of unfairness, usually associated with exploitation of buyers or sellers. In developing countries, markets often work poorly, and both suppliers and buyers may be exploited. Massive disparities in bargaining power that predictably result in exploitation may go to the heart of the SDGs, particularly when prices are so high that the poorer people cannot afford the necessities of life. Most countries follow the European model of Competition Law against excessive pricing. Yet competition authorities typically do not want to become price regulators; they are trying to free the market, not control it; and there is much debate on the appropriate trigger for an excessive pricing violation. When are prices ‘excessive’? 33  Disparities in coverage of regulation can be unfair. This problem should be addressed by better regulation and deregulation. 34  An aspect of this approach was taken by the South African Competition Tribunal. See Nationwide Poles v Sasol (Oil) Pty Ltd 72/​CR/​Dec03 (31 March 2005) (condemning unjustified price discrimination by a dominant firm that squeezed a small firm out of the market). But this holding was reversed by the Competition Appeal Court. Sasol Oil (Pty) Ltd v Nationwide Poles cc 49/​CAC/​April05 (13 December 2005) (holding that the statutory text did not support the finding of a violation; the favoured (big) buyers competed against one another and the disfavoured firm did not prove harm to competition).

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If prices are excessive, it can also be said that sellers have ‘too much’ bargaining power or that sellers are unfairly using their bargaining power; hence the title of this subsection. But despite the language of fairness, we should note that monopoly pricing is quintessential market harm, not just an ‘unfairness’ harm. High price signals low output, which signals too few resources flowing into the market; thus allocative inefficiency. Therefore, efficiency and fairness coincide. South Africa is one of the prominent jurisdictions working out the standards for when a price is excessive and should be condemned by Competition Law. When multinational producers of HIV/​AIDS drugs sold them in South Africa at the height of the AIDS crisis for a prohibitive price per pill that none but the very rich could afford, a public interest NGO sued the pharmaceutical producers under the South African Competition Law. Eventually, they won their case by default when the firms refused to open their books for inspection. The pharmaceutical firms settled the case by agreeing to license generic producers.35 Also in South Africa, Mittal, the supra-​dominant post-​statal steel producer, persisted in selling steel in the domestic market at more than import parity (foreign import price, including the large transportation cost) to its many South African customers that needed steel as an input, while selling the steel for export at the much lower world price. The high domestic price threatened to cripple the competiveness of a large swath of South African businesses. A South African customer sued. The Competition Tribunal found an abuse of dominance based largely on the skeletal case sketched above plus the availability of a self-​executing remedy—​prohibiting Mittal from segregating sales for export from sales for the domestic market. This ingenious relief would have meant that more of the domestically produced steel would naturally be available for the domestic market and the greater domestic supply would push prices down. By this simple template, the Tribunal avoided the quagmire of determining Mittal’s cost and its margin of price above cost. It thus identified a manageable formula for applying the excessive pricing law; simplicity being especially welcome in developing countries where scarcity of resources is an enemy of enforcement. The Competition Appeal Court reversed and remanded, finding the skeletal case insufficient to meet the letter of the South African law.36 We might nonetheless regard the Tribunal’s formulation as an inspiration and possible guide to solving challenges in this important area where fairness meets efficiency. In contrast, US antitrust does not have an excessive pricing provision. It would leave price levels to contract law and the discipline of the market. Excessive pricing prohibitions are typically treated derogatorily as instruments of wealth distribution, and as inefficient.37 For systems of antitrust that insist on allocative goals only and insist that distributive goals undermine efficient allocations,38 the reach of antitrust 35 The Hazel Tau case, as recounted in OECD (Competition Committee), ‘Generic Pharmaceuticals—​Note by South Africa’ DAF/​COMP/​WD68 (5 June 2014), section 2.1, available at accessed 25 June 2017. 36  Harmony Gold Mining Company Ltd v Mittal Steel Corp 13/​CR/​Feb04 (27 March 2007), revd, 70/​ CAC/​Apr07 (29 May 2009). 37  But see First (n 23). 38  This hypothesis has been deeply undermined, see nn 43–​4.

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to fairness in bargaining is seen as just one more point of conflict between antitrust and the SDGs.

C. Agriculture Agriculture is a critical sector. In many of the poorest developing countries, more than 70 per cent of the population live in rural areas and depend on agriculture for their livelihood, and most of this agrarian population lives in deep poverty. If the SDGs are to be addressed, the plight of the small-​hold farmers must be on the agenda.39 Agriculture is a prime example of atomized suppliers and concentrated buyers, with huge vertically integrated multinational agribusiness. The disparate bargaining power and thus extreme vulnerability of small farmers, often in a politicized atmosphere populated by vested interests, is addressed in many jurisdictions by antitrust exemptions. While the market problems are daunting, the European Union provides an example of a prudent approach that marries efficiency and fairness. Rules specify the conditions under which farmers may sell jointly and may jointly set prices within a space exempt from antitrust prohibitions. The conditions for exemption specify that, to gain the benefit of the exemption, the farmers must be cooperating in integrated organizations. They may integrate in many ways; for example, by sharing equipment and storage facilities, procuring inputs jointly, sharing transportation facilities, jointly distributing their product, and jointly assuring quality control. The integrated activities are expected to yield efficiencies. To guard against creation of market power, the volumes marketed by each cooperative may not exceed certain thresholds, thus guaranteeing competition among the cooperatives.40 This is an example of an exemption that need not be called an exemption because collaborations within the conditions specified do not undermine competition. The rules steer transactions onto a competitive path. There are sufficient groups of farmers to wage effective competition with one another. The rules are clear, and they give certainty to the farmers as to what they can and cannot do. The cooperative groupings are integrated joint ventures, which produce efficiencies. The competition among the cooperating groups tends to assure competitive outcomes for consumers. The EU rules are not exemptions to protect inefficient farmers from competition,41 which would be an entirely different story. While the agriculture sector is often invoked as a demonstration of needed exemptions, as it is in the Secretariat Note, it may be more constructively invoked as a piece of a positive enforcement agenda. We may ask: What can antitrust law do 39  See K Annan and S Dryden, ‘Food and the Transformation of Africa:  Getting Smallholders Connected’, Foreign Affairs (November/​December 2015) 124. 40  See A Italianer, ‘Co-​operating to Compete: The New Agriculture Antitrust Guidelines’ (speech at the Conference on Antitrust Guidelines in the Agricultural Sector, Brussels, 4 March 2015), available at accessed 25 June 2017. 41 See J D Gutiérrez-​Rodríguez, ‘Agricultural Exceptions to Competition Law’ (2010) 6 Rev Derecho Competencia Bogota 173.

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to protect the agricultural sector from restraints that harm competition in ways that exemplify the SDG concerns? A list quickly emerges: (1) Antitrust can protect the farmers from world input cartels, such as the fertilizer cartel. But there is a hitch. The practical problem is that the farmers in poor countries with under-​resourced agencies are generally powerless to protect themselves by antitrust action against the colluding multinational firms, and there is no world antitrust regime to help them even against these admittedly most heinous restraints. (2) Antitrust can protect the farmers from monopsonistic strategies that abusively exploit patent rights and prevent low-​cost efficient use of seeds, a strategy once attributed to Monsanto by the US Department of Justice, which dropped charges.42 Moreover, the US agencies would protect only Americans, not the larger masses of American firms’ victims in developing countries. (3) Antitrust can protect farmers from mergers that significantly increase buying power, as in Bayer’s proposed acquisition of Monsanto.43 However, for these mega-​mergers that create buying power abroad, Western enforcers typically find no harm to their own consumers, or no harm that cannot be cured by a spin-​off; and harm to the upstream suppliers abroad is ‘not their problem’. Thus, the authorities around the world typically approve mergers that further squeeze even efficient farmers, and the harmed nations and their peoples have no practical power to defend their markets. The right result, for fairness and efficiency, does not require a bending of antitrust. It requires regard for a poor and powerless constituency that is hurt by antitrust harms. Some would say it requires altruism (allowing victims abroad the right to invoke the predator’s law). Altruism is good, but rare. However, a remedy for these antitrust harms does not even require altruism. A holistic pro-​market solution is efficient for the world.44 Yet there is no world antitrust law to protect the vulnerable small suppliers from buying-​power-​creating mergers, and none is on the horizon. Can we not try harder to embrace the efficient market solutions that advance the SDGs?

42  See P C Carstensen, ‘The Mixed Record of the Obama Administration in Food Competition Policy Leaves Many Unresolved Issues: “Talking the Talk, But Not Walking the Walk” ’ (2016) 1 Concurrences Review 15, paras 24–​8; T Philpott, ‘DOJ Mysteriously Quits Monsanto Antitrust Investigation’, Mother Jones (1 December 2012), available at accessed 25 February 2017. 43  See eg J Kennedy, ‘Former DOJ Officials Warn against Bayer-​Monsanto Merger’, Law 360 (3 August 2016), available at accessed 25 February 2017. See, for an example of buying power squeezing farmers in the West African cocoa market, M D Wilcox and P C Abbott, ‘Market Power and Structural Adjustment:  The Case of West African Cocoa Market Liberalisation’ (American Agricultural Economics Association Annual Meeting, Denver, 1–​4 August 2004), available at accessed 25 June 2017. For another, more recent example of concern about increased power in global food chains, see eg I Lianos, D Katalevsky, and A Ivanov, ‘The Global Seed Market, Competition Law and Intellectual Property Rights: Untying the Gordian Knot’ (2016) 2 Concurrences Review 62. 44  See E Fox and J A Ordover, ‘The Harmonization of Competition and Trade Law—​the Case for Modest Linkages of Law and Limits to Parochial State Action’ (1995) 19 World Competition 5.

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D. Public interest: Jobs and SMEs I have reflected on several public interests in the discussion of exemptions. I add here the interest of workers in jobs and the interest of small suppliers in markets. Many jurisdictions allow or mandate consideration of public interest in merger laws. Whether such laws are wise is vigorously debated, but they exist. Antitrust laws of many jurisdictions would never have been enacted without public interest clauses. I observe here two lessons from South Africa, whose antitrust law requires consideration of public interests. First, many mergers entail large layoffs, and a number of South African merger decrees require that the merging parties to provide or fund job retraining for the individuals laid off.45 The merger has imposed a cost on the society (and indeed a society in which half the young people are jobless), and the merging parties are simply asked to pay a part of the cost they created—​ameliorating the plight of vulnerable individuals and helping them to help themselves. Second, displacement of small suppliers may be a looming issue, as it was in South Africa’s Walmart/​Massmart merger. The Tribunal and Appeal Court cleared the merger subject to conditions. The conditionality did not require quotas or buy-​ national agreements, but required Walmart to provide and stakeholders to administer a large fund for capacity building of the small suppliers. The mandated capacity building entailed training people and transferring knowledge with a view to grooming the small suppliers to join a global value chain.46 Both examples from South African merger jurisprudence are market-​friendly links to the SDGs. Other public interests are incorporated by a variety of jurisdictions; not always in market-​friendly ways and not always for SDG-​friendly ends. Those moves and measures are beyond the scope of this chapter, except as readers may regard the chapter as part of the call to consider market-​friendly routes.

VI.  A Return to Options 1 And 3: Against Technocratic Silos We return here to Option 1 (‘not my problem’) and its tension with Option 3 (adopt outsider antitrust, which may solve the problem in market-​friendly ways). This chapter contests the notion of antitrust as a technocratic silo that admits no notion of fairness or better distribution of wealth and opportunity. I have already argued for outsider antitrust. I do not argue that antitrust so constructed will suddenly lift a billion people out of poverty. But outsider antitrust does mean that markets hold great potential to empower people with no resources or connections, that market (competition) policy can help ease their way, that antitrust law can control perverse uses of economic power that obstruct their way, and that, in fact, to accomplish these ends, there is no good substitute for markets.

45  See eg Metropolitan Holdings Ltd v Momentum Group Ltd 41/​LM/​Jul10 (9 December 2010, Competition Tribunal). 46  In re SACCAWU and Massmart Holdings Ltd 110/​CAC/​Jul11 (9 October 2012, Competition Appeal Court).

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In these paragraphs I  have spoken of poverty, equity, inclusiveness, reducing inequality, and forging tighter links between antitrust and the SDGs. Supporters of Option 1 object: Antitrust is about efficiency and SDGs are about equality. The two do not meet. We cannot pursue equality without diminishing efficiency.47 We will end up protecting competitors, not competition, and making us all worse off. This notion passed as common wisdom for at least forty years: Equity undermines efficiency. The bible was Arthur Okun’s book entitled Equality and Efficiency: The Big Trade-​Off, published in 1975. The hypothesized trade-​off has been deeply undermined, if not proved wrong, by contemporary scholarship, emanating from the IMF and the World Bank.48 Especially in developing countries where masses of the population have been artificially excluded from mainstream economic life, it may be necessary to do equity to gain efficiency. There is no efficiency without equity.49 Moreover, as time goes on, it becomes increasingly clear that the immutable science that underlays Chicago School economics is neither immutable nor science.50 It was based on presumptions that favour incumbents and others who are well enabled. Outsider antitrust would shift presumptions and perspective. It would privilege market entry and inclusion over freedom for firms with economic power. The outsider presumption (protect the market path of outsiders) is surely equally efficient in terms of production and invention in the world.51 It is likely to be more efficient in terms of the promise of development in developing countries—​drawing more effectively on the countries’ human capital. Antitrust can nod towards equity and inclusion, and efficiently so. Markets, safeguarded by outsider antitrust, are an engine for the SDGs.

VII. Conclusion Markets empower people to help themselves. Markets and access to markets stand side by side with food, health, shelter, education, environment, infrastructure, and institutions as critical tools to combat the world’s greatest economic deprivations. Making markets work for people without power is an inherent SDG.

47  See A Rand, Atlas Shrugged (Random House 1957) (contradictions do not exist; equity undermines efficiency). 48  See A G Berg and J D Ostry, ‘Equality and Efficiency: Is There a Trade-​Off between the Two Or Do They Go Hand in Hand?’ (2011) 48(3) Finance & Development, available at accessed 24 February 2017. See also F Cingano, ‘Trends in Income Inequality and Its Impact on Economic Growth’ (2014) OECD Social, Employment and Migration Working Paper No 163, available at accessed 25 February 2017. 49  See S Levy and M Walton (eds), No Growth without Equity: Inequality, Interests, and Competition in Mexico (The World Bank and Palgrave MacMillan 2009). 50  See R Pitofsky (ed), How Chicago School Overshot the Mark: The Effect of Conservative Economic Analysis on U.S. Antitrust (Oxford University Press 2008) (collecting essays by numerous experts from a range of political policy perspectives uncovering the intrinsic biases of Chicago School economics). 51  See text to n 10.

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3 The Case for a BRICS Competition Agenda Tembinkosi Bonakele*

I. Introduction Competition authorities from the BRICS countries have been holding conferences once every two years since 2009. There are also many meetings in between conferences, and a Memorandum of Understanding (MoU) was signed. There are questions though about the relevance of this network. After all, the world is not short of regional and international antitrust organizations. They include: • the International Competition Network (ICN), a network of international competition authorities with more than 130 members; • the Organisation for Economic Cooperation and Development Competition Committee (OECD) which among other things hosts a global forum with virtually all the world authorities in attendance representing their governments; and • the UN Conference on Trade and Development (UNCTAD), which hosts an annual meeting of antitrust and consumer policy experts representing their governments. In other words, there are both agency and government global platforms to share experiences on policy and execution. In addition, there is a plethora of regional organizations in every key region of the world. What does this network of BRICS competition authorities then add to the existing regional and international antitrust organizations? What should be on its agenda? This chapter seeks to answer this question from an insider’s point of view. There have been many discussions among the BRICS competition authorities on the question. Admittedly, this chapter avoids an academic polemic to the question and takes a pragmatic approach based on the experience so far, as well as discussions and decisions that have been made regarding the future. Precisely because the future is only a prediction, it should be understood that the role of international organizations, particularly new ones such as BRICS, undergoes constant evolution. As the world enters a new geopolitical phase, characterized by the rise in nationalism and denunciation of globalization, there *  Commissioner, Competition Commission of South Africa. The Case for a BRICS Competition Agenda. Tembinkosi Bonakele. © Tembinkosi Bonakele, 2017. Published 2017 by Oxford University Press.

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are prospects and possible reorganization of global relations and alliances. At the same time, questions are being asked about global governance and globalization. Accordingly, it is very difficult to predict the future. Nevertheless, the basic rationale for the creation of BRICS should endure for a long time. To answer this question, we first trace the history of the BRICS competition conferences and their outcomes, the outcomes of various bilateral and multilateral engagements among members, and lastly point to the way forward for cooperation. However, it is necessary that we put BRICS competition policies in the context of the fast developing area of competition laws and agencies that enforce them.

II.  The Growth of Competition Laws It is now widely recognized that Competition Law has existed in some form for centuries. It is futile to pin it down to one civilization because the conclusion is likely to be biased. Some civilizations did not have their laws written, and many suffered from the paucity of interest in their civilization and their laws in the modern era. However, it is fair to assume that many civilizations would have frowned upon certain conduct that we would call anticompetitive today. The dishonesty involved in price collusion probably made even traditional societies take a dim view of cartels and their nefarious activities. We accordingly should assume that in all societies where there is trade, there will always be those who want to cheat the system of trade, and invariably these will quickly identify their common interests and start coordinating. Therefore, it is safe to assume some form of competition awareness is as old as trade itself.1 We see records of competition laws from at least 50 bc. The early records trace back to the efforts of Roman legislators to control price fluctuations and unfair trade practices. Some believe that the English common law doctrine of restraint of trade is regarded as a precursor to modern Competition Law. However, Tsarist Russia passed laws against cartels, and so did the Canadians one year before the widely acknowledged pioneering Sherman Act of the United States. There is no doubt though that US antitrust statutes had considerable influence on the development of German, Japanese, and later EU competition laws after the Second World War, and by extension on all modern competition laws. Hand in hand with globalization in the modern age, there has been the increased adoption and continued growth of competition laws throughout the world. According to a 2016 joint report by the African Competition Forum (ACF) and the World Bank, the number of jurisdictions with competition laws in Africa alone has tripled in fifteen years. More particularly, the number of jurisdictions with a Competition Law grew from thirteen in 2000 (twelve countries and one regional bloc) to thirty-​two in 2015 (twenty-​seven countries and five regional blocs). Importantly, competition 1  In his seminal 1776 work, An Inquiry into the Nature and Causes of the Wealth of Nations (W Strahan and T Cadell 1776), Adam Smith already declared: ‘People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in conspiracy against the public, or in some contrivance to raise prices.’

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authorities are now implementing these laws in twenty-​five jurisdictions (including two regional blocs).2 The UNCTAD reports that its efforts to help developing countries to write and enforce competition laws have been very fruitful over the past thirty-​five years, with around 110 countries now having some form of policy to protect competition.3 The ICN reports that its membership is now above 132 members from 120 jurisdictions, up from just fourteen in 2001 when it was founded. Therefore, there is no doubt that competition laws are a near universal feature.

A. Purposes of competition policies Countries adopting or developing competition laws in the modern age frequently cite economic development as the purpose of the law. The assumption, which is based on established economic theory, is that optimum competition in product, capital, or labour markets leads to increased consumer welfare and results in economic growth. The basic purpose of competition laws and policies is to allow markets to work more efficiently for the benefit of consumers and to drive sustainable economic growth.4 However, many developing countries also add to this traditional efficiency role some development and equity objectives to their statutes. For an example, when assessing mergers, competition authorities in South Africa go beyond the substantial lessening of competition test to include the public interest test.5 The World Bank/​ACF report finds that even though African competition policies share similar goals towards efficient markets in theory and practice, they include unique goals in each country and may even seek to address non-​traditional factors that prevail in respective jurisdictions. Some jurisdictions in Africa include other goals, such as those related to equity, in their law. For example, in Botswana and Cameroon, citizen empowerment is also included as an objective. The Chinese Anti-​Monopoly Law (2015) identifies among its objectives not only ‘protecting fair competition in the market’ and ‘the interests of consumers’, but also ‘promoting the healthy development of the socialist market economy’, protecting the ‘lawful business operations’ of undertakings in industries ‘controlled by the State-​owned economy and concerning the lifeline of national economy and national security’. In India, the Competition Act permits the Competition Commission of India (CCI) 2  ‘Unlocking Africa’s Potential through Vigorous Competition Policy’, a joint report by the ACF and the World Bank (2016). 3 ‘Bespoke Competition Policy for Developing Countries—​2015 Research Proposal by Dovile Venskutonyte and Maarten Pieter Schinkel’ (University of Amsterdam) (hereafter Venskutonyte and Schinkel Research Proposal). 4 M Kitzmuller and M M Licetti, ‘Competition Policy:  Encouraging Thriving Markets for Development’, World Bank (11 November 2012), available at accessed 11 April 2017. 5  The Competition Act No 89 of 1998 (as amended) provides for the consideration of the public interest issues and lists these as the impact of the merger on employment, small and medium enterprises, industrial sector or region, and historically disadvantaged individuals.

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to take into account a merger’s ‘relative advantage, by way of the contribution to the economic development’.6 Even though there may be tensions at times between these objectives, the aspirations of these laws are not misplaced. They respond to their context as all laws do and should. The expression of unique objectives for the establishment of competition policy in the developing economies mentioned above may appear of little significance on paper. However, in many countries, competition laws would not exist if they did not address those objectives. This is the case in South Africa, where a post-​ apartheid competition policy needed to take into account that the playing field was not level and competition had to contribute to the elimination of apartheid vestiges in the economy. Even discounting South Africa’s special circumstances, developing countries generally should ensure that competition laws respond to their development and market conditions. In fact, the very role of competition in development is sometimes questioned, which is even more of a reason why competition policy must respond to developmental challenges, lest it becomes irrelevant. Singh, in his essay on ‘Competition and Competition Policy in Emerging Markets’,7 states that ‘the relationship between competition and economic development is controversial, both in economic theory and in relation to empirical evidence. Economic orthodoxy posits a monotonic positive relationship between the two variables and therefore suggests that the greater intensity of competition the better the economic performance. However, modern economic analysis seriously qualifies that conclusion’. According to Singh, the World Bank acknowledged in a 1993 report on the East Asian miracle that the countries in this region did not have optimum competition in product, capital, or labour markets, but rather strived to achieve an optimal degree of cooperation and competition. For example, the Japanese and Koreans implemented selective import controls, fostered close relationships between government, business, and finance, and discouraged foreign investment while importing technology from abroad by other means. The experience of China, which in recent times had one of fastest growth rates in the world, is also consistent with the East Asian story. The Chinese market was able to register fast growth despite its segmented product markets and highly imperfect capital and labour markets.8 Similarly, Venskutonyte and Schinkel posit as follows: Competition theory was developed in Western countries under assumptions that do not necessarily all fit the developing world. There are ambiguities in both theory and empirical evidence on what level of competition is needed in different stages of development and what kind of competition policy would best fit underdeveloped economies and institutions.9

Even in the European Union, the unique mandate of competition authorities and courts over state aid is the reflection of that region’s fairly unique regional integration agenda. Nobody questions this. It bears emphasis that at the heart of competition 6 Ibid. 7  A Singh, ‘Competition and Competition Policy in Emerging Markets’ in P Arestis, J S L McCombie, and R Vickerman (eds), Growth and Economic Development: Essays in Honour of A. P. Thirlwall (Edward Elgar 2006). 8 Ibid 101. 9  See Venskutonyte and Schinkel Research Proposal (n 3).

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policy are efficiency concerns, but much of what is missed often are market imperfections in different parts of the world that need to be fixed, sometimes but not always with competition policy. Often, competition authorities are the most credible institutions to objectively assess when to intervene in markets, and widening their array of interventions tools is not necessarily a bad thing.

III.  BRICS as a Global Political and Economic Force BRICS is an economic and political grouping of five of the world’s emerging economies, namely, Brazil, Russia, India, China, and South Africa. The purpose of BRICS is to, among other things, advocate for reforms in international governance to give a greater voice of emerging and developing economies. BRICS began with just a name, coined by Jim O’Neill of Goldman Sachs, as a term for emerging financial powers. The influence of these emerging states in global finance and their potential as a source of greater global power drew the countries to begin meeting on the sidelines of the UN General Assembly in 2006, during the G8 Summit in 2008, and to begin annual BRICS summits in 2009. In 2010, South Africa became a member of BRICS. According to the 2012 BRICS report, ‘[t]‌ogether the BRICS account for more than 40% of the global population, nearly 30% of the land mass, and a share in world GDP (in PPP terms) that increased from 16% in 2000 to nearly 25% in 2010 and is expected to rise significantly in the near future’. By itself, Brazil represents an economy larger than the United Kingdom, while Russia and India are comparable to Canada and Australia. China is the second largest economy in the world.10 Even though South Africa is tiny compared to its counterparts, its inclusion in BRICS makes sense in view of its clout in Africa, which is poised for an unprecedented economic take-​off. It is one of the largest and is the most advanced economy in the continent. Accordingly, each of these five countries, located on three continents, have significant influence in their respective regions and in the world. BRICS countries share the characteristics of emerging markets—​big populations (whether viewed as a country or region), big markets, big economies, higher growth prospects (in some) and face serious socio-​economic problems—​poverty, inequality, and unemployment. Schaefer and Poffenbarger opine that the weakness of the Western order created both certainty and opportunity for these emerging powers.11 Each of the BRICS members sat on what they felt was a turning point for their development and status in the international system, and yet these economic and power gains were influenced by a global economy that was regulated largely from Washington. In their words, ‘The United States must recognise that the BRICS is a response to US foreign policy’.12 BRICS politically represents a challenge to unipolarism. 10 See accessed 27 June 2017. 11  M E Schaefer and J G Poffenbarger, The Formation of the BRICS and Its Implication for the United States: Emerging Together (Springer 2014). 12 Ibid.

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IV.  What is The BRICS Competition Agenda? Ultimately, the BRICS competition network seeks to represent the interests of its members in the global Competition Law discourse and create a platform for these members to share experiences and tackle common problems. Naturally, given the similarity of these economies from a human development point of view, it can be expected that their experience and perspectives will turn to represent developing countries’ experiences at varying degrees, concerned not just with the efficiency of the economy, but with equity too. Members of the network come with full awareness that each member country faces factors that unify the interests of BRICS members and others that have the potential to separate those interests. However, the members agree that there are sufficient areas of common interest within BRICS to establish a common agenda and to justify collaboration within the group. At the opening of the third BRICS Competition Conference in India in 2013, the then Indian Prime Minister, Manmohan Singh, reiterated the BRICS competition network’s ideals and stated that the Competition Law enforcement regime could not operate in isolation. Moreover, he said, competition policy had to be shaped and transformed by existing socio-​economic policy. He suggested that ‘the BRICS countries can entertain many possibilities of newer forms of economic and political co-​ordination. We also face common challenges . . .’. But can the BRICS competition agenda succeed? I argue that the answer to that question depends largely on what that agenda actually is. Is it made up of lofty ideals and distant expectations or does it consist of objectives that are specific, measurable, and relevant to a genuine common interest? To put it as Io Lo and Hiscock13 do: ‘What expectations and objectives can be turned into an agenda?’ From the above, it is clear that BRICS’ historic mission is to be the voice of emerging economies and the developing world. Therefore, its approaches must advance the interests of this constituency, which are aligned to the interests of the individual BRICS members. It other words, the power of BRICS is to strengthen developing countries to push for an alternative global agenda through a fairly cohesive institutional framework not dissimilar to the OECD. It is for this reason that these countries should be and are the most significant group to place poverty and inequality on the global agenda. This is consistent with their common political agenda for a more just world order. The only issue is whether Competition Law has any role to play in this agenda. In other words, is Competition Law value neutral, or can a more progressive agenda be pursued through it? This question in part is answered above. South Africa’s Minister of Economic Development answered this question at the opening of the Fourth BRICS Competition Network Conference in Durban, South Africa, 2015: ‘Increasingly, citizens require their governments to show how policy promotes human development

13  V Io Lo and M Hiscock (eds), The Rise of the BRICS in the Global Political Economy: Changing Paradigms? (Edward Elgar 2014).

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goals. Competition policy too is under scrutiny. Not only should it tackle entrenched economic power and provide opportunity for new entrants, it must also clearly, not just implicitly, demonstrate benefits for a state’s industrial and consumer objectives.’14 Citizens in developing countries demand that competition policy does not just deliver efficiency, but development. This belief has been further entrenched by the rise in narrow nationalism in the United States and Europe, signified by the rise of nationalist parties and politicians taking advantage of the dissatisfaction with globalization. The message is clear—​globalization has predominantly worked for the few. Much as this dissatisfaction will be expressed differently in emerging economies, it is, however, in the minds of policy thinkers. Thus, the question arises: Can competition law tame globalization? Put differently, can liberalized markets work for the broader society? This, I submit, preoccupies developing country policy makers more than those in developed countries.15 In 2016, heads of competition authorities of the BRICS countries signed a multilateral MoU. This is in addition to bilateral MoUs between members.16 The signing was done during the Commission’s Annual Conference in Cape Town in October 2016.

A. The future of the BRICS Competition Network The future survival and continued relevance of BRICS as a political and economic alliance is key to the future of the BRICS Competition Network. It is the cooperation between BRICS fostered by their political principals that has been the major force for the advancement in technical areas. The most advanced area of cooperation has been the establishment of the BRICS Bank, which will primarily fund infrastructure projects in developing countries. There is also talk at a political level to create a BRICS-​based rating agency. The institutionalization of cooperation such as creation of the BRICS bank will make the entire BRICS project sustainable. The competition area is likely to continue operating as a network that pursues matters of common interest. This is due to the localized nature of competition enforcement, which is contained in domestic laws in almost all countries, with the notable exception of some regional authorities such as in the European Union. Although there would be sharing of ideas and experiences on the laws and policies, there has been no talk of harmonization at all. So what are likely to be the areas of cooperation within BRICS in the near future? At the Indian Competition Conference in 2013, I called for the BRICS competition authorities to take their cooperation beyond the bi-​annual conference and develop a programme of action.

14  South African Minister of Economic Development, Ebrahim Patel, November 2015. 15  See also the speech by Tembinkosi Bonakele, Commisioner of the Competiiton Commission of South Africa, available at , at the opening of the Fourth BRICS Competition Conference on 10 November 2015. 16  For an example, in 2016, the Competition Commission of South Africa entered into MoUs with the Russian FAIS and Brazilian CADE, both aimed at encouraging bilateral cooperation. These agreements build on the BRICS cooperation and address very specific issues on a bilateral basis.

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Figure 3.1  The total number of cross-​border cartels discovered Source:  The Private International Cartels (PIC) Data Set:  Guide and Summary Statistics, 1990–​2013. John M Connor, Professor Emeritus, Purdue University, W Lafayette.

Based on many discussions since then within and about the BRICS Competition Network, the following are proposed areas for future cooperation:

1. Technical working groups Technical cooperation within the BRICS Competition Network pre-​dates the signing of the MoU between the heads of authorities, so the MoU will enhance such cooperation. Already, working groups have been established in pharmaceuticals, sensitive markets, and global value chains, among others. The working groups will maximize peer learning through sharing experiences and conducting research in these areas. This cooperation will include cooperation on cases as well as holding of workshops and seminars. This area has a huge potential to also develop capacity for teams working in these areas.

2. Enforcement There are cases with striking similarities within BRICS. For instance, at the presentation by heads of BRICS authorities at the 2015 BRICS Conference in South Africa, it turned out that almost all the BRICS countries have had to deal with cartels in the cement market. Similarly, many BRICS countries have dealt with or are currently dealing with the Google unilateral conduct cases, as well as restrictive practices in the auto aftermarkets for repairs, servicing, and supply of parts. South Africa and the Russian Federation have a bilateral cooperation in this area to bring the Russian experience to bear in solving the problem in South Africa. The effective eradication of international cartels depends on the organized and coordinated effort of competition agencies across borders. Deputy Head of the FAS Russia, Andrey Tsarikovskiy, points out that since 1990, the total number of cross-​border cartels discovered in the world has increased significantly, as demonstrated in Figure 3.1.17 17  Cape Town, 6 October 2016.

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The antitrust cases against Google serve as an example of the massive potential for global coordination among agencies with common interests. Google has been alleged, in the United States, to favour its own specialized search engines above competing specialized search engines—​such as those for flights or for shopping—​giving Google a significant advantage over competitors in a given search. In the European Union, Google was charged with abusing its dominance in shopping comparison web searches by favouring its Google search engine and Android smartphone platforms over search results offered by rivals. The allegations in the US and European markets were largely similar, but the responses of their respective competition authorities varied greatly. In the United States, Google was found to have been ‘aggressive’, but not to have violated United States antitrust laws. The European Union, on the other hand, not only found Google guilty, but imposed a record fine of €2.4 billion. Some BRICS countries, notably India, Russia, and Brazil, have each opened a similar case, with different outcomes. The Google cases are a portent of things to come. However, the approaches to them are varied and too inward looking. BRICS authorities should be jointly looking at these cases. Digital markets are pervasive and they have no borders. However, they are also incredibly complex and respondents are very large multinational companies. A coordinated approach among BRICS competition agencies—​ as far as practicable—​would yield far more effective remedies than the fragmented and inconsistent approaches we have witnessed to date.

3. Research and deepening perspectives BRICS competition authorities recognize that in order to deepen perspectives in Competition Law and bring developing country experiences to the fore, much work needs to be done beyond the authorities themselves. It is for this reason that I am in support of a research network of competition academics and those based elsewhere but interested in exploring the role of Competition Law in developing countries. Academics from almost all BRICS members and the United Kingdom are working together on the project. They develop their own research agenda, and decide how they would collaborate. The authorities are very important sources of information and support for these academics. Nevertheless, the idea is that they should conduct independent and credible research that meets the highest standards. This important work has already begun, and the group has identified areas such as the global food value chains and fertilizer as areas of research. Such research will be invaluable to the developing country authorities beyond BRICS. Most importantly, such will take place within the context of laws that sometimes allow for the social implications of cases to be taken into account. For these studies to be effective, they will, necessarily, need to grapple with the impact of competition policy in poverty addressing inequality, poverty, and unemployment, a topic often frowned upon by Chicago School purists.

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4. Global mergers There is much to be gained from coordinating international merger assessments and the remedies that flow from them. The borderless nature of modern economic activity means that competition enforcement can no longer have an inward focus. Moreover, a growing number of mergers that are handled by competition authorities have an international dimension to them. In the absence of a global antitrust regulator, most of the merger reviews are based on national markets, with little or no consideration of the impact of global concentration on consumers, suppliers, government regulations, and power dynamics between states (especially in developing countries) and multinationals. Many of the multinationals have become so big that they far eclipse the gross domestic product of developing countries. How can these states impose regulations on these multinationals? The developing country is at a huge disadvantage: The multinational has resources, experts, and access, and is in a superior bargaining position given the often small size of the developing economy market. Although merger regulation is probably the most successful area of international cooperation among competition agencies, the cooperation is often between large antitrust jurisdictions. The BRICS competition authorities in this area can fill a huge gap. In 2009, Philip H Howard of Michigan State University18 observed that the seed industry had undergone tremendous consolidation in the previous forty years. Since the commercialization of transgenic crops in the mid-​1990s, the sale of seeds has become dominated globally by Monsanto, DuPont and Syngenta. In addition, the largest firms are increasingly networked through agreements to cross-​license transgenic seed traits . . . These corporations entered the industry by acquiring numerous smaller seed companies, and merging with large competitors.

He further warned then that ‘this trend is associated with impacts that constrain the opportunities for renewable agriculture, such as reductions in seed lines and a declining prevalence of seed saving’. The evolution of the global seed industry is of specific and common interest to the BRICS competition network given the centrality of agriculture for the sustenance of communities in developing economies. This reality can have a different bearing on the outcome of mergers or other competitive activities in developing economies than it would in developed markets. Lianos reports as follows:19 The competition authorities in the US and Europe were, so far, mostly supportive to this trend of economic concentration, which took different forms, such as corporate mergers, joint research enterprises and patent pools created by the leading global seed companies. This policy approach is primarily based on the theory that such concentration will increase innovation (probably espousing the Schumpeterian argument about innovation in this sector 6), 18  R Neff (ed), Visualising Consolidation in the Global Food Industry: 1996–​2008 (John Wiley & Sons 2014). 19  I Lianos, D Katalevsky, and A Ivanov, ‘The Global Seed Market, Competition Law and Intellectual Property Rights: Untying the Gordian Knot’ (2016) 2 Concurrences Review 62–​80.

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while not much attention is paid to the consequences such concentration may entail for the operation of the global food value chain as a whole, the power relations between the seed companies and other economic actors down the chain, as well as the incentive and ability of these other economic actors to innovate.20

Accordingly, the BRICS competition network should be working more closely in this and other similar markets when confronted with mergers. These should also benefit from the research platforms created as discussed above.

B. Establishing the relevance of competition policy in poverty reduction Traditional competition policy tends to focus on enhancing consumer welfare from a price and quality perspective. The reduction of poverty is often seen as ancillary to this objective, not as a direct target for competition enforcement. However, there is a growing recognition that the link between competition policy and poverty needs to be explored. The OECD in 2013 held a roundtable discussion on the link between competition and poverty reduction. The OECD report, which emanated from the discussion, concluded that ‘growth and lower prices alone will not necessarily eradicate poverty, however, because skewed income distributions may still leave some people in poverty’.21 However, the discussion, its findings, and the shared experience among OECD countries was an important step towards recognizing the link between competition policy and poverty. The OECD discussion revealed the stark differences between the general approach of developed economies to the question of poverty and competition policy. The OECD report indicates the following: Delegates and panellists from developed countries noted that absolute poverty is hardly a problem there and relative poverty is addressed by social policies. Competition laws and competition policies were initially introduced to break up major cartels, and have usually been in force for decades. They are primarily seen as instruments to protect consumers from market distortions created or maintained by producers, and to reduce barriers to entry. Competition policies spur growth and raise material living standards, but their impact on the income or employment of the poor is a second order consideration. Moreover, competition authorities in developed countries usually have teams of economists and legal specialists, they are often independent from government, and have sufficient legal powers to pursue offenders. This institutional framework has helped to bring about a ‘competition culture’ in developed countries. By contrast, delegates from competition authorities in some developing countries explained that they have few highly-​trained legal and economic experts and their powers to intervene are often weak. The overarching policy priority in developing countries is development: raising significant proportions of their populations out of absolute poverty and enabling more substantial proportions of their populations to have access to basic necessities such as clean water, education, and medical treatment. Widespread poverty among small producers as well as consumers exists side-​by-​side with small numbers of very wealthy 20 Ibid. 21 ‘OECD Policy Roundtable:  Competition and Poverty Reduction’ (2013), available at accessed 16 August 2017.

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landowners and industrialists. In such a context, the political credibility of the competition policy authorities depends to a large extent on how they are seen as contributing to poverty reduction and employment creation. It would be risky for them to state that their only target is combating harm to competition by producers, and that the impact of their efforts on poverty or inequality is irrelevant. They also often operate in an environment of comparatively large, industry-​dominating firms that have solid political support. Markets may be small, the informal sector is important, and the poorest of the poor live outside the market system. In these circumstances, advocacy is often the most useful, or even only, instrument for the competition policy authorities to influence government decisions and educate the public.22

Gathering data on the extent to which competition policy affects poverty levels in a country is the first step in establishing the link. A 2016 World Bank study23 measured the impact of effective competition enforcement on the poor in South Africa. The report notes that competition policy plays a critical role in the alleviation of poverty. It found that the dismantling of cartels in wheat, maize, poultry, and pharmaceuticals (goods that amount to over 15 per cent of the consumption basket of the poor in South Africa) has resulted in a reduction in prices for consumers, thereby reducing the national poverty rate by 0.4 percentage points in South Africa. As a result of the Competition Commission of South Africa’s interventions, more than 202,000 individuals were made better off and lifted above the poverty line through lower prices that followed the actions taken against these cartels. The report further found that the intervention has increased the disposable incomes of the poor by 1.6 per cent. The OECD report and the World Bank report reveal that there is still much to explore in this area. For instance, one of the lingering questions posed in the discussion was whether competition policy can be drafted and implemented to be ‘pro-​poor’. The BRICS competition agencies are best placed to contribute to this discourse.

C. Increasing the number of practitioners from emerging markets Earlier, I suggested that the development of theoretical perspectives on competition policy in developing markets needs to form part of the BRICS competition network agenda. This objective goes hand in glove with my final proposal for the BRICS competition agenda: that the network should contribute more specialists and practitioners to the growing body of specialist competition practitioners. This would cement the influence of developmental economics in the mainstream discipline and ensure its evolution. Established models already exist for competition agencies to play a greater role in contributing knowledge to the field. These include the following: • establishing training partnerships with local academia; • contributing new research on competition trends in emerging markets; 22  Ibid 7, para 6. 23  World Bank, ‘South Africa Economic Update, February 2016: Promoting Faster Growth and Poverty Alleviation through Competition’ (2 February 2016).

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• broadening the pool of consultants and specialists through briefings and referrals; and • actively building internal expertise through mentorship, staff exchanges, secondments, and other means. Without a deliberate attempt on the ground to develop experts and practitioners from emerging economies, these markets will remain subjected to traditional competition economics. The latter has already shown itself to be unsuited to many developing market circumstances. In addition, exporting expertise is simply expensive!

V. Conclusion The world has seen the emergence of various regional and competition groupings. It can be expected that these may compete with each other, but the market is big enough for all of them. In many ways, they have limited competition, because the markets are segmented. The role that has been played by the ICN, OECD, and UNCTAD has been both distinct and impressive, but there is a big underserved market, particularly in view of the need to interrogate, more specifically the role of markets in the challenging social environments of developing countries. There is also scope for development of an entire cadre of academics and practitioners devoted to studying the application of competition laws in developing and emerging economies. Often, these will be forced by both policy and context to grapple with both efficiency and equity considerations in applying Competition Law. That is the distinct role of the BRICS competition network.

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4 Global Governance of Antitrust and the Need for a BRICS Joint Research Platform in Competition Law and Policy Ioannis Lianos*

I. Introduction While at the end of the 1970s only nine jurisdictions had Competition Law, and only six of them had a competition authority in place, more than 120 jurisdictions around the world have adopted and effectively implemented Competition Law.1 At the same time, we witness an increase in the activity of new competition authorities, in the area of merger control, but also beyond.2 The more authorities are involved in reviewing global merger transactions or are investigating global cartels, the more the complexity of bilateral cooperation increases. It is frequent that more than a dozen competition authorities around the world will review the same transaction. As a recent OECD report indicates: The Co-​operation Complexity Index for merger deals has increased by about 23 times from 1995 to 2011 . . . The index can also be calculated for cartel enforcement, as a function of the number of authorities involved and the number of investigations with an international element. For international cartel investigations, the Co-​operation Complexity Index has increased by about 53 times between 1990–​1994 and 2007–​2011.3

This proliferation of national competition laws sets important challenges for the global governance of antitrust, by which concept we refer to the management of the risks generated by the increased interconnectedness of cross-​border enforcement of Competition Law. An important risk involves the costs of * Professor of Global Competition Law and Policy, Director, Centre for Law, Economics and Society, UCL Faculty of Laws; Leading Researcher, Skolkovo-​HSE Institute for Law and Development (Moscow). The author would like to thank Matt Strader for efficient research assistance and Riccardo Savona-​Siemens for helpful editorial assistance. The usual disclaimer applies. 1  OECD, ‘Challenges of International Co-​operation in Competition Law Enforcement’ (2014), available at accessed 6 March 2017 (hereafter OECD, ‘Challenges of International Co-​operation’). 2 Ibid. 3 Ibid 28. Global Governance of Antitrust and the Need for a BRICS Joint Research Platform in Competition Law and Policy. Ioannis Lianos. © Ioannis Lianos, 2017. Published 2017 by Oxford University Press.

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‘cross-​jurisdictional disagreement’ which, it is alleged, may create particularly complex situations for international businesses.4 These disagreements may also impact on the effectiveness of Competition Law enforcement, as it is increasingly more difficult for Competition Law regimes to impose remedies that take into account the negative externalities imposed by the specific anticompetitive conduct, not only to their own consumers, but also to the consumers of other jurisdictions. For instance, a global merger may affect the market of a handful of jurisdictions, each having the possibility to block it, in case, of course, it has a sufficient size to affect the incentives of the merging firms. As no jurisdiction controls more than 20 per cent of the global GDP, it looks likely that if one jurisdiction takes a decision based on its domestic concerns, this may potentially produce important externalities to the consumers of the other jurisdictions. It is also clear that decisions to block or clear a merger are not ‘symmetrical’. For a global merger to go through, it needs the agreement of more than four or five jurisdictions, while for a global merger to be blocked, the opposition of a significant jurisdiction in terms of global GDP may be sufficient. In this sense, the stricter substantive standard usually prevails.5 As is also recognized by a recent OECD report, while ‘[f ]‌ rom 1990 to 2011 . . . the complexity of co-​operation has increased 20 times or more, the legal mechanisms for co-​operation have hardly evolved’.6 This gap in the global governance of Competition Law has led many to argue for a strategy of incremental policy convergence, augmented by the elaboration of a number of global institutional mechanisms to enhance cooperation among various jurisdictions in the area of Competition Law.7 It is clear that further international cooperation should be promoted, but one needs to understand the practical limits of cooperation in the context of an increasingly more complex institutional environment and conflicting approaches in matters of economic policy, including Competition Law. It is also important to assess more critically the ‘policy convergence’ claim, as it might not be practically achievable and theoretically appealing to strive for greater policy convergence in the area of Competition Law. A critical analysis of the factors pushing for a greater diversification of Competition Law regimes is therefore needed before exploring the possibilities for global governance of antitrust to tame the negative effects of such diversification and complexity. The first part of the chapter critically explores the claim for ‘policy convergence’ in this area and concludes that this is practically unachievable and normatively contestable. Furthermore, the chapter argues that the concept and mechanisms of ‘policy convergence’ should be replaced by a different conceptual framework for the global governance of Competition Law that emphasizes the establishment of higher levels

4 Ibid 39. 5 Ibid 43. 6 Ibid 53. 7  See, for instance, E Perez Motta, ‘Competition Policy and Trade in the Global Economy: Towards an Integrated Approach’, The E15 Initiative (World Economic Forum 2016), available at accessed 6 March 2017 (hereafter Perez Motta, ‘Competition Policy and Trade’); OECD, ‘Challenges of International Co-​operation’ (n 1).

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of trust between the different competition authorities, but also between the authorities and the people (or their stakeholders). The second part of the chapter explores the role of BRICS in the establishment of an architecture of global governance in this area so that it corresponds better to the dynamics of systemic transformation of the Competition Law enterprise and the challenges posed by expanding global interdependence in this area. I argue for a more intensive cooperation between BRICS jurisdictions in the area of Competition Law and policy, the first step of that process being the recent establishment of a BRICS Joint Research Platform. I consider that such cooperation may not only serve the interests of the BRICS jurisdictions by enhancing the quality of their Competition Law enforcement, but that it will also constitute a significant contribution to a more inclusive and participation-​centred model for the global governance of Competition Law and policy.

II.  Global Governance of Competition Law Does Not Mean Global Policy Convergence of Competition Law Recent discussions over the need for architecture of global governance in Competition Law and policy have turned around the need to achieve policy convergence. Moreover, this has led to the conceptualization of various mechanisms that may be put in place so as to promote international cooperation between competition authorities with the aim of reducing the occurrence of conflicting outcomes when more than one Competition Law authority is investigating the same Competition Law case. The ‘heterogeneity’ of competition laws is seen as a source of large costs for companies active in multiple foreign markets, as well as for the Competition Law authorities, which are obliged to run multiple parallel investigations. Although the narrative of policy convergence has been a factor driving international cooperation in the area of Competition Law, the assumptions on which it relies and its normative implications have not been examined in depth. It is usually assumed that globalization of economic activity provides the legal irritant for the development of Competition Law regimes worldwide with the aim of regulating the negative externalities of global capitalism, in particular the exercise of market power in transnational markets. From this perspective, the adoption of competition laws in various jurisdictions obeys similar principles of development, thus implying that once the various Competition Law regimes reach a similar level of maturity, they will tend to converge, as they will have to respond to a similar set of external stimuli (the ‘absolutist view’).8 8  For such claim, see G Priest, ‘Competition Law in Developing Nations: The Absolutist View’ in D Sokol, T Cheng, and I Lianos (eds), Competition Law and Development (Stanford University Press 2013) 79 (advancing the view that there is an optimal competition law based on a set of competition law principles for which there is widespread agreement and that despite the different economic and cultural settings, the competition laws of all nations should in principle be identical. Any deviation from this optimal competition law model should be adequately explained and accounted for).

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I consider that such proposition is neither descriptively accurate nor normatively appealing. First, various Competition Law regimes around the world emanate from similar sources and represent to a certain extent a modified version of the original model developed in the United States during the late nineteenth and early twentieth centuries. However, a closer look at the global diffusion of Competition Law, in particular in the last three decades, indicates that the different trajectories pursued by each Competition Law regime establish complex relations of path dependence that cannot be accounted for by the ‘absolutist view’. I explore an alternative theoretical framework, policy diffusion, which challenges the simple assumptions of the ‘policy convergence’ model and enables us to set the conceptual foundations of the global governance of Competition Law on firmer theoretical and empirical ground. Second, I explore the conceptual fuzziness of ‘policy convergence’ and the implicit normative assumptions made as to the desirable ‘convergence point’. This leads me to underscore the profound incompatibility between the claims for ‘policy convergence’ and the multi-​polar foundations of the global economy, as well as to the legal pluralism of the international legal order. I conclude this part by arguing for a different conception of global governance in this area, which would aim to enhance trust between competition authorities, but also between competition authorities and the people (their stakeholders) at a transnational level.

A. The global diffusion of Competition Law Policy diffusion has been defined as ‘the process whereby policy choices in one unit are influenced by policy choices in other units’.9 Policy transfer consists in a form of policy diffusion and sometimes it is considered as a related concept.10 ‘Diffusion’ has been described as ‘any process where prior adoption of a trait or practice in a population alters the probability of adoption for remaining non-​adopters’.11 By emphasizing the interdependence of the policy choices effectuated by states, diffusion theory assumes that the outcome for each actor (here a state) depends on the choices of all other actors with which they share some form of interdependence (eg trade related, spatial interdependence, cultural, communicational). Although a product of interdependence, diffusion does not lead to similar outcomes across jurisdictions. The diffusion of Competition Law in different political settings and legal traditions illustrates its great malleability and the operation of various background factors.

9  E Graham, C Shipan, and C Volden, ‘The Diffusion of Policy Diffusion Research’ (2013) 43(3) British Journal of Political Science 673. 10  M Maggetti and F Gilardi, ‘Problems (and Solutions) in the Measurement of Policy Diffusion Mechanisms’ (2016) 36(1) Journal of Public Policy 87, 90 (hereafter Maggetti and Gilardi, ‘Problems (and Solutions)’) (noting that there is ‘significant overlap’ between policy transfer and policy diffusion). 11  D Strang, ‘Adding Social Structure to Diffusion Models—​an Event History Framework’ (1991) 19(3) Sociological Methods and Research 324; T Heinz, ‘Mechanism-​Based Thinking on Policy Diffusion’ (2011) Freie Universität Berlin KFG Working Paper No 34 (hereafter Heinz, ‘Mechanism-​ Based Thinking’); F Dobbin, B Simmons, and G Garrett, ‘The Global Diffusion of Public Policies: Social Construction, Coercion, Competition, or Learning?’ (2007) 33 Annual Review of Sociology 449 (hereafter Dobbin et al, ‘Global Diffusion of Public Policies’).

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One should therefore distinguish diffusion from convergence, as the former concept presupposes the existence of interdependence, while convergence may be caused by interdependence, but also by different common factors, such as the fact that the specific units may react to similar, independent pressures (eg globalization).12 The diffusion of Competition Law, from the United States, where it was first conceptualized as a distinct legal field at the end of the nineteenth century, in different political settings and legal traditions illustrates its great normative appeal and its conceptual flexibility, as pretty much the same conceptual framework has been used in the various jurisdictions adopting Competition Law. Despite this common core, the adoption and effective implementation of Competition Law has been nevertheless characterized by a great degree of variability among jurisdictions. This is notwithstanding the considerable role played by international actors aiming to generate different mechanisms of policy convergence (substantive and/​or procedural): the ICN, UNCTAD, OECD, the European Union, and other regional integration models, and the influence of common background factors, such as the globalization of markets, the professionalization of economic advice, and the development of technocratic Competition Law enforcement. This diversity is not only reflected in the adoption of different models of Competition Law across various jurisdictions, but also in the way in which this area of law has been effectively implemented. The implementation of Competition Law varies of course within each jurisdiction through time and often depends on the specific institutions in place and their capabilities, but also the policy area in which it is intervening (eg energy, telecommunications, health-​care services, etc). There might also be some dissonance between the intended enforcement of Competition Law, as this is proclaimed in the foundational texts, guidelines, legislation, and constitutional (or other) provisions that have put it in place in each jurisdiction, and its day-​to-​day operation in the specific jurisdiction. Among the factors explaining the diversity of Competition Law systems in various jurisdictions, the most important ones consist in the patterns of diffusion (ie the mechanisms of interdependence that lead to the adoption and implementation of a specific policy by another state). In addition, more general background factors affect the interdependence among jurisdictions. These include: the interaction of politics with transnational expert communities; the relations between government and global or transnational business; the important role of state capitalism and state-​owned enterprises (SOEs) in global trade; the role of other societal groups (eg consumers, labour unions) that are transnationally organized; and the role of domestic struggles of power and influence when these reproduce relatively common (from a cultural perspective) political/​ideological or expertise-​related struggles (‘the internationalization of palace wars’13). Policy diffusion should be understood broadly as consisting of adoption and implementation. Adoption refers to the formal introduction of the Competition Law regime into the legal system. Implementation may be conceptualized as referring 12  Maggetti and Gilardi, ‘Problems (and Solutions)’ (n 10). 13  Y Dezalay and B Garth, The Internationalization of Palace Wars (University of Chicago Press 2002).

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to the stages after the decisional point of adoption. Moreover, it must be understood as referring to the ‘depth of adoption’, the direct practical experience with Competition Law indicated, among others, by the frequency of its use, its scope, the quality of competition assessment, its role in the specific polity, and its institutionalization and permanence within a specific organizational structure, enduring through elections and changes in government. The process of implementation of the Competition Law regime into a specific organizational and institutional context is prolonged and has several phases. It should not be excluded that the transplantation of the Competition Law in political and legal systems that do not present functional equivalents to the system where the transplant originated may produce completely different outcomes, leading to situations of diffusion without convergence. Diffusion may be vertical, horizontal, or both. Vertical diffusion operates through higher levels of governance, for example through the influence of international organizations or the federal level, when exploring intra-​state processes of diffusion. The most important of the former are international organizations (OECD, UNCTAD), international networks (ICN), and regional economic integration organizations (eg the European Union). Conversely, horizontal diffusion involves interconnectedness of governments when elites communicate and interact, exchanging ideas, solutions, and experiences. Focusing on the diffusion as a product of interdependence rather than on the process of policy convergence enables us to explore the reasons Competition Law has been diffused across many jurisdictions. It also enables us to assess the influence of the process of diffusion to its substantive and procedural framework, in comparison to the original model of the Sherman Act and US antitrust law in general. One should understand that there are different patterns of diffusion, indicating the existence of various trajectories of this original ‘model’ and the operation of various forms of interdependence between the various units of analysis (in our case Competition Law systems). Diffusion literature has put forward the following typology of mechanisms (patterns) of diffusion:14 • learning resulting from internal (eg the characteristics of public administration, legal and constitutional frameworks, administrative culture) or external (eg transnational institutional linkages, government decisional interdependence, epistemic communities) sources; • externalities, providing incentives altering the cost-​benefit ratios of domestic actors, such as competition among governments for resources (leading them to adopt and implement similar ‘successful’ policy innovations),15 coercion (when the diffusion of the specific policy innovation results from the use of 14  Heinz, ‘Mechanism-​Based Thinking’ (n 11). F de Francesco, Transnational Policy Innovation: The OECD and the Diffusion of Regulatory Impact Analysis (ECPR Press 2013); Dobbin et  al, ‘Global Diffusion of Public Policies’ (n 11). 15  Maggetti and Gilardi, ‘Problems (and Solutions)’ (n 10) 90 (noting that ‘success can be related to (a) the goals that the policy is designed to achieve, (b) the challenges of its implementation and/​or (c) its political support’).

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material or economic power, including asymmetric bargaining imposing conditionality for these reforms, or binding legal norms adopted by supranational institutions), and contractualization (when diffusion results from some form of symmetric bargaining between states, or ‘soft’ international organization influence); • socialization among networks of experts and/​or administrative elites that develop shared understandings and beliefs due to their continuous interaction; and • emulation indicating the ‘desire (or need) of domestic actors to conform to internationally widespread norms’ in order to ‘increase the legitimacy of policy choices’.16 Some recent studies have focused on the micro-​foundations of trans-​border policy diffusion, advancing the importance of the electorate in pushing for the adoption of ‘successful’ policy innovations developed elsewhere (the voter information model or the democratic foundations of diffusion).17 These various patterns of diffusion alter the incentives of domestic actors and may lead to different policy outcomes, even if the ‘original’ policy design diffused is the same. Various diffusion mechanisms may work in parallel and lead to a complex trajectory, eventually establishing path-​dependencies that affect the evolution of the policy transferred in the specific jurisdiction. The role of domestic actors and their participation in the emergence of Competition Law norms and the diffusion, more generally, of Competition Law should not be ignored. Focusing on diffusion, rather than the existence, or not, of convergence presents several advantages. First, it avoids the conceptual narrowness of convergence, which views the specific policy, in this case Competition Law, from the perspective of the actors affected, focusing on the outcomes of the policy process, and largely ignoring the policy process itself. Diffusion theory enables the researcher to move beyond the analysis of the outcomes of the policy process. It provides important clues as to why policies spread in some jurisdictions, and not in others, and as to the extent to which the pattern of diffusion may affect the content of the policies diffused. Second, diffusion may be ‘operationalized’ with the help of indicators linked to specific patterns of diffusion, thus offering to the researcher the opportunity to measure policy diffusion. Finally, it highlights the various forms of interdependence linking the various policy actors, rather than insisting on their common or divergent reaction to common factors affecting them. This narrows down the scope of analysis to an element that is intrinsically linked to the governance of the interactions between actors, rather than the more esoteric study of the way in which these different actors experience the impact of the common background factors affecting them. It also explains 16  Heinz, ‘Mechanism-​Based Thinking’ (n 11). To the difference of learning, which is related to the ‘objective consequences’ of a policy, emulation puts emphasis on the ‘symbolic and socially constructed characteristics of policies’, regardless of whether or not the policies ‘work’ in the specific jurisdiction. In other words, the material consequences of adopting and implementing a specific policy ‘carry less weight than the pressure to conform to a norm within a given peer group’: Maggetti and Gilardi, ‘Problems (and Solutions)’ (n 10) 91. 17  K Linos, The Democratic Foundations of Policy Diffusion (Oxford University Press 2013).

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why expecting policy convergence once the various Competition Law regimes have attained a level of maturity may be profoundly misguided.

B. The futile call for global policy convergence Although ‘policy convergence’ is the talk of the day among antitrust enforcers at a global level, the concept is still in search of a definition. David Gerber explains that ‘[t]‌he term convergence necessarily refers to a process of movement towards a centre’, the so-​called ‘convergence point’.18 The discussion over Competition Law convergence at a global scale seems to indicate the process by which the characteristics of individual Competition Law systems increasingly resemble some set of ‘characteristics’ representing the convergence point or ‘model’. For Gerber, this convergence point in global antitrust is currently the ‘economics-​based model’ of Competition Law, as this has developed in the United States. This model relies on the proposition that ‘economics should be the basis for competition law norms’.19 I would even further claim that this model should not be characterized as ‘economics-​based’, but as ‘Neoclassical Price Theory economics-​based’ or ‘NPT-​based’, as the economic knowledge inspiring this model emanates from the Neoclassical Price Theory approach and ignores to a great extent other, richer to our point of view, traditions in economics. The choice of the specific ‘convergence point’, an idealized, and for that reason largely partial, view of the US model, may be explained by historical reasons. US antitrust law grandfathered Competition Law statutes in other nations by economic ones in view of the importance of the United States in the global economy, as well as by politico-​ideological ones as the current version of neo-​liberalism characterizing the design and structures of the global economy has been very much a product of the US hegemony in the world. The idea that the US system is more ‘advanced’ and ‘sophisticated’ than that of other nations relies on various distinguishing elements of the US model. The significant experience was collected through a more than a century old, mostly private, Competition Law enforcement. Therefore, the presence in the United States of a significant community of Competition Law scholars, economists, and lawyers is highly influential on a global scale. This is partly because of the greater internationalization of higher education in the United States, the prevalence of US-​based law firms in global antitrust enforcement, and the important role of global economic consultancies, most of which are based or constitute spin-​offs of US-​based firms. There is a presence in the United States of multinational enterprises that frame their contractual or other arrangements and business practices to comply with US antitrust standards and which are less keen on accepting additional compliance costs resulting from other Competition Law regimes. 18  D Gerber, ‘Global Competition Law Convergence: Potential Roles for Economics’ in T Eisenberg and G Ramello (eds), Comparative Law and Economics (Edward Elgar 2016) 207 (hereafter Gerber, ‘Global Competition Law Convergence’). 19 Ibid 213.

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During the last two decades, EU Competition Law has also gained considerable influence in framing the global Competition Law ‘model’, or ‘convergence point’. The administrative nature of EU Competition Law enforcement has influenced the way in which most nations have organized their Competition Law enforcement systems and legal culture (as civil law systems are prevalent), but also more generally in view of their enforcement capabilities (as their court system remains relatively underdeveloped). Most countries seem to follow with some degree of differentiation the institutional design of the EU model. EU law doctrines have also exercised a considerable influence in framing the substantive law standards in various areas, as EU Competition Law has itself entered into a process of ‘modernization’ according to the precepts of the US-​inspired ‘NPT-​based model’. This generated a considerable number of normative texts and guidelines, inspired by the most recent economic analysis and setting clear principles for Competition Law enforcement in various areas. These have proven a considerable source of inspiration for many Competition Law authorities around the world. Although they manifest as products ‘made in the EU’, their intellectual underpinnings originate for the most part on the other side of the Atlantic and emanate from the US model of neoliberalism, and not that developed in Freiburg by the so-​called ordo-​liberal version of neo-​liberalism. This becomes clear if one looks to the areas of EU law that are usually put forward as exportable products. These do not usually include areas of EU law where the ordo-​liberal model has exercised some influence and which seem less compatible with the NPT-​based model of Competition Law serving as the point of convergence. As its name indicates, the NPT-​based model of Competition Law largely relies on economic concepts, methods, and overall narratives. Perceived as forming a ‘naturalist order’, pre-​existing any intervention by the state,20 global markets are supposed to be free and stay so, state intervention being limited only in the confined (by neoclassical price theory) situations of market failure.21 In these cases, the technology of economic efficiency, developed by economists, will provide the necessary direction and, if performed well, will produce similar results to those expected by free markets.22 These two principles, free markets and economic efficiency, are 20  See, however, B Harcourt, The Illusion of Free Markets: Punishment and the Myth of Natural Order (Harvard University Press 2012), criticizing ‘the “illusion” of “free markets” perceived as a natural order that pre-​exists regulation’. 21  A market failure is a general term describing situations in which market outcomes are not Pareto efficient. Pareto efficiency, also referred to as allocative efficiency, occurs when resources are so allocated that it is not possible to make anyone better off without making someone else worse off, or stated otherwise, where (scarce) resources are used to produce the mix of goods and services which is most valued by society. This is a very abstract concept, which is grounded on the theoretical construct of general equilibrium, which looks at the economy in its entirety, that is, where all markets are considered together. In practice, though, the case against monopoly (as the archetypal example of market failure due to market power) is based on partial equilibrium analysis, which looks at only one market at a time, characterized by its demand and supply curves. To focus on a single market rests on the assumption that the levels of income and the prices of both substitute and complement products are fixed. 22  Indeed, according to the neoliberal view of the state, markets constitute a site of ‘veridiction-​ falsification’ for governmental practice, based on the assumption that ‘inasmuch as prices are determined in accordance with the natural mechanisms of the market they constitute a standard of truth which enables us to discern which governmental practices are correct and which are erroneous’:

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interchangeable, the core of economic theory being based on the idea that free markets are efficient.23 To the extent that Competition Law adheres to the goal of economic efficiency, its intervention will be considered adequate when artificial barriers, either public or private, impede free markets to produce their full potential. Cartels constitute the quintessential example of a private barrier to the free operation of a market, a free market being considered as one in which each economic operator determines independently the policy which he intends to adopt. State restrictions may also restrict economic efficiency, in particular if they originate from rent-​seeking and regulatory capture. The call for ‘policy convergence’ in Competition Law may thus be understood as seeking to develop Competition Law regimes that promote free markets and economic efficiency, while at the same time striving to develop a (global) regime that reduces regulatory barriers emanating from regulatory divergence. Regulatory divergence has implications for businesses interested in foreign markets expansion. It may create obstacles to international trade owing to cultural differences (eg prior beliefs over the costs of type I or type II errors, market-​based and individualist values as opposed to more collective values), but also because of different regulatory methods, procedures, and traditions. Hence the claim for policy convergence in this context may be considered as a functional equivalent to greater economic integration, whose aim is also to erode barriers to trade with the removal of regulatory impediments and the convergence towards unified or, at least, compatible regulatory standards. This is, of course, a desirable objective from the point of view of the economic actors subject to regulation, as the cost of complying with one (similar) set of legal norms is evidently lower than that of having to comply with different legal norms. Removing regulatory differences may promote the process of ‘international economic integration’,24 an ideal to which the concept of ‘policy convergence’ alludes. ‘Policy convergence’ aims to reproduce the results of ‘economic integration’, regulatory sameness, or similarity with the consequent limitation of barriers to trade. However, this should be done without imitating the institutional mechanisms of ‘economic integration’. The latter are thought of as being relatively heavy in the sense that they require some intense transnational institution-​building

M Foucault, The Birth of Biopolitics: Lectures at the Collège de France 1978–​1979 (Palgrave Macmillan 2008) 32. State intervention should therefore be evaluated from the viewpoint of market principles. 23  Economics relies on free markets, real or fictitious, in order to develop evaluation criteria: see the seminal works of A Cournot (tr), Researches on the Mathematical Principles of the Theory of Wealth (Macmillan & Co 1897) and A Marshall, Principles of Economics (8th edn, Macmillan & Co 1890). 24  On the emergence of the theory of international economic integration, see F Machlup, Thought on Economic Integration (Macmillan Press 1977), noting that economists in the interwar era employed the negative noun of ‘disintegration’ of the world economy, probably as a consequence of the national protectionist legislation that followed the economic crisis of 1929. The positive noun of ‘integration’ was first employed after the Second World War in order to provide a conceptual vehicle for the efforts of ‘integration of the Western European economy’, the substance of which ‘would be the formation of a single large market within which quantitative restrictions on the movements of goods, monetary barriers to the flow of payments and, eventually, all tariffs are permanently swept away’: ibid 11, referring to Paul Hoffmann’s official pronouncement to the Council of the Organisation of European Economic Co-​operation on 31 October 1949.

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(eg putting in place institutions ensuring negative and/​or positive integration), and politically risky, as these institutions may escape the authority of the sovereign state. One may understand this strategy as a follow-​up of functionalist theories, which were the first to break away ‘from the traditional link between authority and a definite territory by ascribing authority to activities based in areas of agreement’.25 States exercise several functions (activities), some of which require action at the international level. This transfer initiates the process of integration, which is driven by the continuous pursuit of these functions, in the context of an international institution (or informal network) created to that effect. According to functionalism, ‘[e]‌very function is left to generate others gradually; in every case the appropriate authority is left to grow and develop out of actual performance’.26 The functionalist approach and the concept of integration are profoundly interlinked: Without the functionalist emphasis on the existence of separate functions, where authority can be transferred, there can be no integration, in the sense that political scientists give to this term. Neo-​functionalism’s starting point is social differentiation. Society is carved in various specialized and autonomous sectors, operating independently but gradually in more intensive cooperation with each other, as a consequence of the spill-​over effect. Technocratic economic issues are perceived separately from contentious political or social ones. At the same time, they are profoundly interlinked within the same continuum. According to Haas, the initiator of the theory, ‘the supranational style stresses the indirect penetration of the political by way of economic because the “purely” economic decisions always acquire political significance in the minds of the participants’.27 At the same time, ‘the measure of political success inherent in economic integration lies in the demands, expectations and loyalties of the political actors affected by the process, which do not logically and necessarily follow from statistical indices of economic success’.28 It is clear in neo-​functionalist theory that a ‘purely’ economic scheme ‘does not by itself answer the basic political question whether the unified economy meets with the satisfaction of people active within it’.29 The political and economic dimensions of integration are profoundly interlinked. However, the social actors that influence the decision-​making at these supranational settings may be different from those participating in domestic political processes. The main actors in the process of integration are experts operating independently from their national political constituents, although they are at the same time checked by ‘equally prescient national actors’.30 Their aim is to promote, first, sectoral economic integration and, following ‘spill-​over’, other forms of integration. The process of decision-​making is incremental.31 25  W Mattli, The Logic of Regional Integration:  Europe and Beyond (Cambridge University Press 1999) 21. 26  D Mitrany, A Working Peace System (Quadrangle Books 1966). 27  E Haas, ‘Technocracy, Pluralism and the New Europe’ in J Nye (ed), International Regionalism: A Reader (Little, Brown and Co 1968) 152. 28  E Haas, The Uniting of Europe (Stanford University Press 1958) 13. 29 Ibid 284. 30  E Haas, ‘The Study of Regional Integration: Reflections on the Joy and Anguish of Pretheorizing’ (1970) 24 International Organization 607. 31 Ibid.

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The concept of integration relies on ‘authority-​legitimacy transfer or sharing’ in different areas.32 As ‘institutionalization’ constitute(s) an indicator for authority and legitimacy,33 the formation of common institutions reveals that a higher degree of integration has been achieved. Building global institutions may, however, be an impossible task, although one may expect that a higher intensity of business transactions producing multi-​jurisdictional effects could over time make this option a more realistic possibility. In contrast, ‘policy convergence’ does not require any ‘authority-​ legitimacy transfer or sharing’, but simply relies on the independent and voluntary decision of a number of states to converge towards the same regulatory model/​convergence point.34 This is usually managed by members of national bureaucracies working together in the context of formal and informal ‘government networks’.35 Although the process is different, the sought effect is the same as that sought by ‘integration’. The latter is perceived as a process, encompassing ‘measures designed to abolish discrimination between economic units belonging to different national states’, as well as a state of affairs, represented by ‘the absence of various forms of discrimination between national economies’.36 The concept of ‘policy convergence’ as it has been conceived in the debate over the global governance of Competition Law seems to adhere to the same aim, albeit using different means. This refers to the voluntary decision to move to the desired end-​point without this being done through cooperation, integration, or more generally ‘authority-​legitimacy transfer or sharing’ in the area of Competition Law. The concept of ‘policy convergence’ is put forward as an essential aim for the global governance of antitrust. In addition, a number of strategies and mechanisms have been suggested in order to achieve this objective. This entails going from the impossible dream of elaborating a global supranational authority applying One Competition Law, to the collective cross-​fertilization among various competition 32 Ibid 633. 33 Ibid. 34  Gerber, ‘Global Competition Law Convergence’ (n 18) 208 considers that such decisions should be ‘neither the subject of an obligation (created by agreement or otherwise) nor subject to coercive pressures from external sources’. By doing so, he only takes into account emulation as the main mechanism of diffusion if one is to focus on ‘policy convergence’. We do not agree with this narrow definition of convergence for the simple reason that the incentives driving policy convergence may be broader than the emulation process of policy diffusion. It may certainly cover socialization, externalities, and learning. In our view even externalities flowing from coercion should be included, as it is quite difficult to distinguish situations in which the presumed coercee acquiesces after her/​his incentives have been altered, in some way, by the coercer. Robert Nozick, ‘Coercion’ in S Morgenbesser, P Suppes, and M White (eds), Philosophy, Science, and Method: Essays in Honor of Ernest Nagel (St Martin’s Press 1969) 441–​5, offers a broad definition of coercion that includes any alteration of the coercee’s costs and benefits to acting, coercion finally operating through the will of the coercee. If one takes such definition of coercion, how would this be distinguishable from the situation in which the state found ‘coerced’ has merely made the choice of adopting and implementing Competition Law as a result of the pattern of diffusion of other externalities or socialization? 35  A-​M Slaughter, A New World Order: Government Networks and the Disaggregated State (Princeton University Press 2004). 36  B Balassa, The Theory of Economic Integration (George Allen & Unwin Ltd 1961) 1. For a more ‘outcome-​oriented’ definition, see J Tinbergen, International Economic Integration (Elsevier 1954) 95, defining integration as ‘the creation of the most desirable structure of international economy, removing artificial hindrances to the optimal operation and introducing deliberately all desirable elements of co-​ ordination or unification’.

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authorities. This has been done through specific networks of informal interactions, passing by the elaboration of bilateral or regional dispute resolution and appeal mechanisms.37 The claim for policy convergence relies on the conceptual linkage made between Competition Law and international trade and the idea that ‘there is a risk that Competition Law enforcement can itself be employed as a tool of discrimination or market exclusion, contrary to the values it is intended to promote’.38 Policy convergence in the area of Competition Law is thus promoted as a way to erode inter-​jurisdictional trade barriers, a reason that looks at first sight extraneous to considerations of effective Competition Law enforcement. Policy convergence is often an aim explicitly pursued by trade agreements, in particular the deeper forms of international economic integration. One may note the importance of ‘regulatory convergence’ and ‘regulatory compatibility’ in the negotiations for the Trans-​ Pacific Partnership and the ongoing Transatlantic Trade and Investment Partnership (TTIP) negotiations between the European Commission and the United States.39 Each of these mega-​trade agreements include in addition to the traditional in trade agreements market access rules, regulatory ‘behind the border’ issues involving FDI, intellectual property rights, and labour standards, as well as competition rules. Horizontal provisions usually accompany these on ‘regulatory compatibility’ and ‘regulatory convergence’.40 For instance, the EU/​Canada Comprehensive Trade and Economic Agreement will include ‘horizontal’ regulatory cooperation provisions in order to ‘prevent and eliminate unnecessary barriers to trade and investment’, ‘regulatory compatibility, recognition of equivalence, and convergence’, including ‘(b)uilding trust, deepening mutual understanding of regulatory governance’ and ‘reducing unnecessary differences in regulation’, among other similar objectives.41 Similar provisions are in the process of being included in the TTIP, currently negotiated between the European Union and the United States. The EU Negotiators Mandate calls for ‘enhanced cooperation between regulators’ and ‘regulatory compatibility’.42 A section on Regulatory Policy Instruments provides for some 37  For an overview of the various proposals, see Motta, ‘Competition Policy and Trade’ (n 7). 38 Ibid 6. 39  Further examples of these ‘deep’ mega-​trade agreements include the EU–​Korea FTA, the US–​ Korea FTA, and the EU–​Singapore FTA. One may also cite the Australia–​New Zealand regulatory cooperation and the US–​Canada Regulatory Cooperation Council, which was created in 2011 by the US President and the Canadian Prime Minister, thus not resulting from an international trade agreement. It aims at better alignment in regulation, enhancing mutual recognition of regulatory practices, and establishing new effective regulations in specific sectors. It is composed of high-​level representatives of regulatory oversight bodies, as well as senior representatives from the international trade departments, but other regulatory agencies are also involved. 40  S Krstic, ‘Regulatory Cooperation to Remove Non-​Tariff Barriers to Trade in Products:  Key Challenges and Opportunities for the Canada–​EU Comprehensive Trade Agreement (CETA)’ (2012) 39(1) Legal issues of Economic Integration 3; B Hoekman, ‘Fostering Transatlantic Regulatory Cooperation and Gradual Multilateralization’ (2015) 18 Journal of International Economic Law 609. 41  EU–​Canada Comprehensive Economic and Trade Agreement (CETA) formally proposed by the European Commission for adoption by the Council of the EU in July 2016, Chapter 26 on Regulatory Cooperation, available at accessed 6 March 2017. 42  See the current EU proposals on Regulatory Cooperation, available at accessed 6 March 2017.

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harmonization of ‘analytical tools’ such as Impact Assessments. It is envisaged that a bilateral cooperation mechanism will support regulatory cooperation with the aim to ‘seek increased compatibility between their respective regulatory frameworks’. This will include information and regulatory exchanges ‘led by the regulators and competent authorities at central level responsible for the regulatory acts concerned’. A specific provision on the promotion of ‘International Regulatory Cooperation’ stipulates the following: The Parties agree to cooperate between themselves, and with third countries, with a view to strengthening, developing and promoting the implementation of international instruments inter alia by presenting joint initiatives, proposals and approaches in international bodies or fora, especially in areas where regulatory exchanges have been initiated or concluded pursuant to this Chapter and in areas covered by [specific or sectoral provisions—​to be identified] of this Agreement

and reaffirm their intention to implement within their respective domestic systems those international instruments they have contributed to, as provided for in those international instruments.43

The Competition Law provisions of the draft TTIP agreement exclude talk of convergence as such. However, one of the purposes of 1991 EU/​US cooperation agreement in this area was to ‘lessen the possibility or impact of differences between the Parties in the application of their competition laws’.44 The relatively new process in TTIP is the addition of consultation provisions and the possibility of adopting best practices. It should be borne in mind that the EU–​US cooperation in Competition Law is quite advanced. For instance, the Administrative Arrangements on Attendance (AAA)45 enables reciprocal attendance at certain stages of the procedures in individual cases and the 2011 EU/​US Best Practices on Cooperation in Merger Investigations. Furthermore, the AAA provides rules on the coordination on timing issues, exchange of information/​collection and evaluation of evidence, and joint EU/​US interviews of the companies concerned, as well as the establishment of key points for direct contacts between enforcers and cooperation in the remedial process.46 The idea is that once regulatory systems develop some form of ‘convergence’, based, for instance, on a common reliance on similar sources of scientific expertise and similar regulatory processes, as well as international cooperation in order to promote a common interpretation and understanding of that expert body of knowledge, the reasons for regulatory diversity erode. One may think of the view that 43  See accessed 6 March 2017. 44  Agreement between the Government of the United States of America and the Commission of the European Communities regarding the application of their competition laws, [1995] OJ L95/​47, Art 1(1). 45  See accessed 28 June 2017. 46  See accessed 28 June 2017.

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similar inputs of expert knowledge, with some degree of regulatory cooperation and regulatory process convergence, will lead to similar regulatory outputs. However, it is clear that such an approach aims to kick-​start the process of inter-​state regulatory cooperation in order to reduce ‘unnecessary differences’ in regulation and achieve ‘regulatory compatibility’. However, as with the narrow view of economic integration, the main difficulty with this conceptualization of ‘policy convergence’ is that it does not accommodate the need for regulatory pluralism and diversity. This might better represent the preferences of the various political communities connected through the nexus of global markets (and global supply chains). By focusing on the demands of specific stakeholders, businesses eager to expand their activities in global markets, the narrow definition of ‘policy convergence’ as the process through which the convergence point of the NPT-​based model of Competition Law will be achieved may face a similar legitimacy crisis as that recently entered into by the neo-​functionalist integration model. Indeed, one may not necessarily view institutional choices from a welfare perspective, in the sense that a particular institution produces superior welfare effects than another one, but also from a participatory perspective, regarding the quality and extent of participation in the decision-​making processes at issue.47 One needs to take into account the interests of all parties affected. Despite the frequent pleas of competition policy makers around the world and global business for convergence, the process of convergence remains highly contentious.48 From a descriptive perspective, convergence has been a dream-​never-​come-​true. The recourse to economic analysis and the role of economics in enhancing policy convergence in this area has been duly highlighted.49 Certainly, many Competition Law regimes make use of economic methodologies and policy frameworks put in place by the ‘global profession’ of economics.50 Various soft law texts, guidelines, and best practices published by competition authorities aim to elevate economics’ driven, evidence-​based decision-​making at the rank of best practice on a global scale.51 However, expecting the same economic inputs to produce similar legal outputs would be ignoring the importance of legal process in the assessment and reliance on evidence, as well as the complex interaction between economic and legal 47  N Komesar, Imperfect Alternatives:  Choosing Institutions in Law, Economics and Public Policy (University of Chicago Press 1997) (hereafter Komesar, Imperfect Alternatives). 48  See, inter alia, T Cheng, ‘Convergence and Its Discontents: A Reconsideration of the Merits of Convergence of Global Competition Law’ (2012) 12(2) Chicago Journal of International Law 433. 49  Gerber, ‘Global Competition Law Convergence’ (n 18) 226–​34. 50  M Fourcade, ‘The Construction of a Global Profession: The Transnationalization of Economics’ (2006) 112 American Journal of Sociology 145. 51  See D G Comp, ‘Best Practices, Submission of Economic Evidence’ (2010), available at accessed 28 June 2017; Bundeskartellamt, ‘Best Practices for Expert Economic Opinion’, available at accessed 28 June 2017; European Commission, ‘Practical Guide on Quantifying Harm in Actions for Damages Based on Breaches of Article 101 or 102 of the Treaty on the Functioning of the European Union’ (2013), available at accessed 6 March 2017.

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concepts. An interesting feature of economic transplants is that their interpretation is not always a function of the exact meaning of the concept in economics. In that sense, they share a common characteristic with the concept of ‘legal transplants’.52 The economic transplant takes a different form as soon as it is translated into the legal context. Its content evolves separately from in its original setting, economics, as it evolves in congruence with the context of its host language, the specific legal system, and some would also claim, is heavily influenced by the politics and the culture of the specific jurisdiction to which it is introduced. Indeed, as some authors put it, ‘the law today not only interprets the social impacts of science’, but also ‘constructs’ the very environment in which scientific discourse comes to have ‘meaning, utility, and force’.53 For this reason, EU Competition Law has moved towards the integration of economic analysis in the development of its standards of adjudication, in particular for horizontal and vertical contractual restraints. In addition, the European Union largely relies on the same economics as those relied upon by the US antitrust agencies and courts. However, there are still significant differences with regard to some types of practices, such as vertical resale price maintenance. This is unequivocally condemned in EU Competition Law, but assessed under the more lenient rule of reason in US antitrust law.54 There has been a considerable effort over the last two decades to build international institutions that would not only carry the message of policy convergence. However, those institutions should also put in place policy convergence building tools. These include training and capacity building programmes, a set of best practices for competition authorities, an intense production of expert consensus reports, and conferences and global symposia bringing together competition officials and a selected group of academics and representatives of the ‘stakeholders’. The latter should include global corporations, global law firms, and economic consultancies. This effort followed the failure of the Doha Round to establish a global institutional architecture for competition policy in the context of the WTO, a project mainly supported by the European Union.55 For reasons that will become evident in the next section, the United States has opposed the WTO option56 and suggested 52  On the concept of ‘economic transplant’, see I Lianos, ‘ “Lost in Translation”? Towards a Theory of Economic Transplants’ (2009) 62 Current Legal Problems 346. 53  S Jasanoff, Science at the Bar (Harvard University Press 1997) 16. 54 Cf Leegin Creative Leather Prods, Inc v PSKS, Inc, 551 US 877, 877 [2007] with Article 4(a) of Commission Regulation (EU) No 330/​2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices [2010] L102/​1 and Commission Notice—​Guidelines Vertical Restraints [2010] OJ C130/​1, paras 48 and 223. 55  Competition policy formed part of the so-​called Doha Development Agenda launched in 2001, and initiated by the WTO Ministerial Meeting in Singapore in 1996. For a discussion of this initiative and the need to re-​launch the WTO option, see R Anderson and A C Muller, ‘Competition Law/​ Policy and the Multilateral Trading System: A Possible Agenda for the Future’ (Competition Policy, September 2015) E15 Expert Group on Competition Policy and the Trade System, available at accessed 6 March 2017; see also S Evenett, ‘Five Hypotheses Concerning the Fate of the Singapore Issues in the Doha Round’ (2007) 23 Oxford Review of Economic Policy 392. 56  See J Klein, ‘A Note of Caution with Respect to a WTO Agenda on Competition Policy’ (Remarks to the Royal Institute of International Affairs, 18 November 1996), available at accessed 6 March 2017.

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instead a light institutional option, confined in the area of Competition Law and not linked with the broader trade issues covered by the WTO, with the establishment of a global network of competition authorities, which later became the ICN.57 Of course, other important players pre-​existed the resurgence of the global competition policy discussion in the mid-​1990s with the Doha Development Agenda. These include the OECD, a club of developed economies that has recently moved in integrating emergent economies (in particular in South America with the inclusion of Chile in 2010). The OECD has adopted a strategy of ‘inclusive growth’ that has the potential to bring within the Competition Law remit issues, such as inequality, that were until then considered as not directly related to the considerations normally driving the work of competition authorities.58 Initially, the champion of a New International Economic Order in the 1970s and 1980s,59 and for this reason relatively marginalized in the discussion, UNCTAD has recently re-​calibrated its action to more ‘mainstream’ Competition Law positions. In addition, UNCTAD always geared towards the defence of the interests of developing countries, and tasks of capacity building and technical assistance.60 Its new function in this emerging global Competition Law institutional framework is apparently to serve as an ‘efficient middleman between technical assistance donors and the youngest competition agencies that are most in need of improving their technical staff, investigation methodologies, and procedures’, to the direction, of course, of the NPT-​based model of Competition Law.61 There is a wide intervention and high visibility of these international platforms and undeniably the excellent work they have accomplished so far in terms of knowledge dissemination. However, the facilitation of the conversation with the development of a common language among competition authorities and the establishment of various links between competition authorities globally is crucial. Nevertheless, various factors limit their potential to generate ‘policy convergence’. First, it is clear that there are still important differences between Competition Law systems on the way in which the various common concepts, frameworks, and tools generated by these international institutions and networks will be implemented in practice (as noted by Frederic Jenny, who has played a significant role in the global discussion on Competition Law since the mid-​1990s in his capacity as the Chair of the WTO Competition and Trade Working Group and as the head of the Competition Policy Committee at the OECD, with regard to substantive convergence in merger control). However, this is notwithstanding the important progress made in the generation of substantive convergence. ‘The convergence of 57  For a discussion, see D Gerber, Global Competition: Law, Markets and Globalization (Oxford University Press 2010) 105. 58 See ‘OECD Strategy on Development’, available at accessed 6 March 2017. 59  For a discussion, see I Lianos, ‘The Contribution of the United Nations to the Emergence of Global Antitrust Law’ (2007) 15 Tulane Journal of International & Comparative Law 415. 60  See ‘UNCTAD Perspective on Competition Law and Policy 2013’, available at accessed 6 March 2017 (arguing that competition policy should be suited to their development needs and economic situation). 61  Motta, ‘Competition Policy and Trade’ (n 7).

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national merger control regimes across the world, if desirable, is unlikely to lead to the complete homogeneity of merger control regimes’ and ‘the convergence of merger control regimes cannot guarantee that there will be no conflicts or divergence of results’.62 Second, we have witnessed over the last two decades the emergence of new Competition Law regimes of global significance, in view of the importance of the economy of these states for global trade, such as BRICS, Mexico, and Turkey. Some of these regimes have been, and to a certain degree still are, closely related to the EU and also the US Competition Law models. But as they mature, these ‘new’ Competition Law systems tend to develop independently from their ‘parent’ jurisdictions and to engage in some soul-​searching highlighting the specificities of their economies, institutional capabilities, and cultural baggage. It is inevitable that, once the initial steps of implementing the model have passed, the emerging Competition Law communities of these jurisdictions will aim to produce knowledge that will represent the interests of their constituents, or stakeholders, and to project that globally, in their effort to shape globalization according to their national interests and the demands of their political economy. Hence, the phase of initial convergence to the original ‘model’ may be followed by a phase of divergence, once the economic, legal, and political cultural specificities start kicking in. Third, the global economy has substantially changed. For instance, the global share of the United States and the European Union dwindled from 60 per cent in 2003 to approximately 45 per cent in 2013 at the same time as the BRICS witnessed their share tripling during this period. Despite the recent drop in the growth rates of the BRICS economies, some economists predict that growth in emergent economies, in particular BRICS, will considerably increase their share of the global economy.63 A recent OECD report explains as follows: In 1995, the US, EU and Japan accounted for about two thirds of world GDP—​and about 95% of the GDP of countries with competition law. Consequently, co-​operation among just these three jurisdictions would have covered almost all significant international antitrust matters. In 2014, that same trilateral co-​operation would cover less than half of world GDP. By 2030, on reasonable projections, those three economies will account for only 35% of world GDP. Beyond 2030, at least five jurisdictions would have to co-​operate to reach the proportion of world GDP which could be achieved with just trilateral co-​operation in 1995. Of course to reach 95% of those covered by competition law, one would need to include probably a hundred jurisdictions.64

This renders compliance to Competition Law a much trickier exercise. An undertaking entering into transnational activities, for instance, mergers and acquisitions (M&A), will need even more now to proactively consider the Competition Law regimes of the most important economies globally. This enhances the leverage of the 62  F Jenny, ‘Substantive Convergence in Merger Control: An Assessment’ (2015) 1 Revue des Droits de la Concurrence 21. 63 M Spence, The Next Convergence:  The Future of Economic Growth in a Multispeed World (Picador 2012). 64  OECD, ‘Challenges of International Co-​operation’ (n 1) 50–​1.

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competition authorities of the BRICS in the global governance of Competition Law and policy in comparison to their position ten years ago. Fourth, one of the most important jurisdictions in the world in terms of political and economic significance, China, is conspicuously absent from the main fora advancing the global discussion in Competition Law and policy, namely, the ICN and the OECD. This has obviously affected the legitimacy in terms of representativeness and the clout of the work accomplished in these fora on a global scale. It is increasingly clear that ICN and the OECD mainly represent the views of an important, but no longer dominant, part of the global Competition Law community. Fifth, it becomes clear that the ideological consensus emerging out of the roaring mid-​1990s to early 2000s that formed the basis for the emergence of the global order for Competition Law and policy during this period is increasingly under intense scrutiny and eventually contestation. In many of the core/​model jurisdictions, there is an increasing concern over the lack of competition that the sole focus of antitrust laws on economic efficiency has led to and its impact on the rise of inequalities.65 It becomes clear that the soft international architecture put in place in the area of Competition Law and policy has trouble coping with this multi-​polar reality. One may regret the absence of a ‘view from the top’.66 Policy convergence being an important and legitimate demand from business, it is clear that the array of interests participating in the discussion over the governance of global antitrust is fairly limited. Moreover, little effort has been made to rethink the adequacy of the NPT-​ based model of antitrust put forward by these global institutions and networks in view of the lessons of the global economic crisis and the important changes brought in by the ‘fourth industrial revolution’ and the rising significance of new centres of power globally. It is important that the quest for ‘policy convergence’ does not lead to the impoverishment of the debate over global Competition Law. This could be done by excluding different points of view, which challenge the dominant NPT-​ based model. In addition, this stifling of debate could be done by artificially narrowing down the debate (for instance, by excluding from the discussion themes that may generate disagreements, such as the role of inclusive growth or inequality considerations in Competition Law enforcement) so as to generate more policy convergence. It is also crucial that the current architecture of global governance in this area represents the role and weight of all significant global players, in particular the BRICS economies. One cannot dissemble policy convergence in the area of Competition Law from the political and social structure underpinning the global economy, and the ability of the sociological categories (eg small and medium 65  See, for instance, the Council of Economic Advisors’ Brief to the US President (April 2016), available at accessed 6 March 2017, followed by the launch of a new initiative of the US President to promote competition, available at accessed 6 March 2017. 66  See the suggestions of E Fox, ‘Antitrust without Borders: From Roots to Codes to Networks’, Antitrust without Borders (November 2015), available at accessed 6 March 2017.

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undertakings, consumers, employees, governments) whose interests are affected to participate in the decision-​making process.67 Hence, there is a need to re-​embed the discussion on the global governance of Competition Law to the multi-​polar dimension of the global marketplace and the pluralistic nature of global governance as well as the international legal order.

C. Re-​embedding the discussion on the global governance of Competition Law to the multi-​polar global economy and global legal pluralism Any debate about the legal framework for global economic competition is dependent on the broader perceptions of the global marketplace, global governance, and international legal order and of the specific variety of capitalism these underpin.68 The original Havana Charter establishing the WTO, and including a chapter on Competition Law,69 provides some early glimpses of an international law approach to the governance of Competition Law—​as does the UN Economic and Social Council (ECOSOC) Ad hoc Committee on the drafting of an international code for restrictive business practices in the early 1950s, which also failed because of lack of support from the United States, the latter preferring a gradual convergence of national laws on this issue.70 One may also add to these efforts of international law-​ driven global convergence of Competition Law the proposal of a Draft International Antitrust Code (DIAC), prepared by an ‘International Antitrust Working Group’, a unique initiative of a group of antitrust scholars to pave the way towards international enforcement of free and open markets.71 The Group’s recommendations have inspired the European Commission’s proposals leading to the inclusion of competition as one of the Singapore matters to be negotiated in Doha. However, these efforts failed again. Some proposals made to integrate ‘cosmopolitan’ principles in 67  On the importance of the concept of embeddedness in understanding the (global) economy, and in particular the starting point that economic actions are ‘embedded in concrete, ongoing systems of social relations’, see M Granovetter, ‘Economic Action and Social Structure: The Problem of Embeddedness’ (1985) 91 American Journal of Sociology 481, 482–​3. 68  See B Jessop, ‘The Complexities of Competition and Competitiveness: Challenges for Competition Law and Economic Governance in Variegated Capitalism’ in M W Dowdle, J Gillespie, and I Maher (eds), Asian Capitalism and the Regulation of Competition: Towards a Regulatory Geography of Global Competition Law (Cambridge University Press 2013) 96. 69  Chapter V of the Havana Charter of 1948 expressed a concern for the restrictive effect of some business practices without, however, adopting the more active approach proposed by the United States and the United Kingdom in their 1945 Proposals for Expansion of World Trade and Employment. However, the proposals never took effect, the US Department of State publicly withdrew its request for ratification by the US Congress. 70  UN Economic and Social Council (ECOSOC), Off Rec, 16th Sess, Supp No II, UN Doc No E/​2380 (1953). For a detailed analysis, see S Timberg, ‘Restrictive Business Practices: Comparative Legislation and the Problems that Lie Ahead’ (1953) 2 American Journal of Comparative Law 445, 463; D Furnish, ‘A Transnational Approach to Restrictive Business Practices’ (1970) 4 International Lawyer 317, 327. 71  Draft International Antitrust Code as a GATT-​MTO-​Plurilateral Trade Agreement (International Antitrust Code Working Group Proposed Draft 1993), published and released 10 July 1993, 64 Antitrust & Trade Reg Rep (BNA) No 1628 (19 August 1993) (Special Supp).

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national Competition Law enforcement may also be considered as animated by similar principles.72 Despite its great theoretical appeal, it is unclear how such an internationalist framework may be achievable at this stage of the development of the global antitrust law enterprise. However, it becomes important to recognize that the development of global markets is intrinsically linked to the existence of a set of international or transnational legal norms that support them. These may emanate from traditional international law norms, resulting from international treaties or international customary law, negotiated or accepted by the states. Alternatively, they may emanate from a body of transnational commercial law which in a significant part constitutes an archetype of global law without a state and has moved from the state of ‘an amorphous and flexible soft law to an established system of law with codified legal rules’.73 Various linkages are in operation, between states and state-​sponsored global institutions, between private actors operating across national borders, and between state actors and private actors. Although ordered by well-​accepted legal principles and methodologies, this global legal ‘field’74 is, of course, characterized by a significant degree of diversification and a pluralistic legal order.75 As the keywords of diversity of linkages and legal pluralism portray the current status of the governance of global markets, it should not be a surprise that the global governance of antitrust should also be theorized through similar lenses. The multi-​ polar nature of the global economy calls for a multi-​polar setting in the global governance of Competition Law. The emergence of various centres of Competition Law decision-​making globally should not be perceived as a curse, a mere nuisance in the necessary drive towards policy convergence, but as an expression of the pluralism of the global legal order regulating global markets and of the changing constellation of power in the global economy. Eventually, legal pluralism and multi-​polarity will inevitably constitute the essential features of the global governance of antitrust. The legal pluralism and multi-​polarity characterizing global markets calls for a framework that seeks to engage the various interests affected by the emergence of global antitrust in the emerging global field of Competition Law. Prioritizing the demands of global business for policy convergence, without any analysis of the way in which other interests may be affected by the process, is a recipe for a legitimacy disaster that the nascent framework of global governance in the antitrust field may not afford, in view of the recent rise of populism and mistrust of the elites. However, accepting legal pluralism and multi-​polarity does not mean that one needs to sacrifice efficiency concerns. It is important to acknowledge that the quality and extent 72  E Fox, ‘Antitrust and Regulatory Federalism: Races Up, Down, and Sideways’ (2000) 75 New York University Law Review 1781, 1801. 73  R Michaels, ‘The True Lex Mercatoria: Law beyond the State’ (2007) 14(2) Indiana Journal of Global Legal Studies 447. 74  As explained earlier, the concept of ‘field’ used here has a sociological connotation and does not refer to a specific area of law or discipline. 75 On ‘transnational legal pluralism’, see P Zumbansen, ‘Defining the Space of Transnational Law: Legal Theory, Global Governance, and Legal Pluralism’ (2012) 21(2) Transnational Law and Contemporary Problems 305.

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of participation may be a proxy for the efficiency of the specific institutional process. Neil Komesar notably advanced a ‘participation-​centred’ approach seeking to avoid the fallacy of one-​sided interest group analysis. This aims to account for all affected groups in various dimensions and to examine how the distribution of benefits and costs of action would affect the ability of different groups to get what they want via the different institutions.76 From this perspective, both the over-​representation of minority and also majority interests might lead to unsatisfactory results. According to this theory, it is important to focus on the factors determining a group’s marginal cost of participation. An affected group or interest participates in a given issue when its benefits (the group’s average per capita stakes) exceed their costs. In Komesar’s ‘participation-​centred’ model, ‘information costs’ and ‘organization costs’ determine a group’s participation costs. ‘Information costs’ refers to the costs of learning the law and procedures applicable, as well as the costs for the specific institution to gather information. The organization costs facing a group are the costs to be incurred by the members who want to take action, and want other members to contribute. Organization costs increase with group size. The size of each member’s individual stake—​how much she stands to gain from winning—​also affects her inclination to organize her fellow members. It follows that organization costs rise as individual stakes decrease. Institutional processes can be biased in two ways. The first is a ‘minority bias’, which happens when a small group with high individual stakes (eg multinationals) convinces an institution to enact its preferred policy and by doing so inflicts a greater cost on a large group with lower individual stakes (eg consumers) than the benefit it obtains.77 The second is ‘majoritarian bias’, which happens when a large group with low individual stakes prevails and thereby inflicts a greater cost on a small, high-​ stakes group than the benefit it obtains.78 Once a dispute has been identified, the goal of comparative institutional analysis would thus be to find the institution least likely to develop a minority or majoritarian bias, that is, the institution where the group with the highest total stake is most likely to win. If we follow this theoretical framework, the choice of an adequate institutional arrangement for the global governance of antitrust may require a fine balancing exercise between minority interests. These comprise global corporations that have high stakes in view of the existence of more than 100 competition laws with which they are expected to comply. Furthermore, it includes majority interests, such as consumers, that may benefit from multilateral Competition Law enforcement (in the form of additional deterrence). Nevertheless, it is also true that the marginal benefit provided by the enforcement of an additional Competition Law may be minimal and in any case decline at some deterrence point, or even lead to consumer harm. The latter can happen if this additional Competition Law enforcement stifles innovation and thus affects long-​term consumer benefits (over-​enforcement risks). Because of its design and the prevalent role it provides to the US and EU Competition Law, the institutional setting of ‘policy convergence’ may suffer 76 Komesar, Imperfect Alternatives (n 47) 8.

77 Ibid 55.

78 Ibid 77.

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from a minority bias, as it may not accommodate the interests of large groups. These small and medium undertakings in the Global South seek access to global markets and global value chains in order to upgrade their economic potential. In addition, farmers may see their profits squeezed by powerful buyers established in the Global North or consumers of the emergent and developing economies that may suffer from export cartels, increasing global concentration in various product markets and powerful global monopolies. At the same time, subjecting multinational corporations to the scrutiny of an extensive network of competition authorities that apply different standards and principles in assessing their practices may be a source of majoritarian bias and lead to inefficiency. As none of these solutions preserves us from majoritarian and minoritarian biases, it becomes important to think of alternative institutional settings, which will provide a balanced and vigorous engagement by a broad spectrum of affected interests in the decision-​making process. This participation-​centred process may provide the exploratory tool needed in order to allow for cross-​institutional comparisons by enabling us to understand the capabilities of an institution to bring out the diversity of interests affected by global Competition Law enforcement and engage the various stakeholders in a balanced way. Each affected group should have access to the decision-​making process and a voice for the process to be judged legitimate. At the same time, the representation of various interests will provide the chosen institution with a more complete base of information from which to make decisions, thus enhancing its accountability. Now the discussion turns to the architecture of the global governance of Competition Law. It is clear that individual countries, in particular jurisdictions with a low externalities Competition Law enforcement potential, because of the small size of their market, will incur difficulties in having their voices heard. This is certain in the current context, where only a few jurisdictions may take decisions and impose remedies on global corporations. In addition, this is likely to occur in the event of a regime of policy convergence engineered by the existing international institutions involved in this area that mostly represent the interests and views about economic development of the United States, the European Union, and a few other industrialized economies. Some affected interests/​groups seem also excluded from consideration by the existing institutional setting (eg employees, farmers, small and medium undertakings), the latter being essentially consumer-​focused. It may not be possible to design international institutions that may achieve the representation and participation of all interests. A second best would be to constitute a global deliberative space in which the interests of the emergent and developing countries, which form now the majority of the states having Competition Law systems, as well as those of all affected interests from global Competition Law enforcement, will be adequately represented. This global deliberative space will aim to be more inclusive and transparent than the current one, in which global corporations, transnational law firms, and economic consultancies seem to be over-​represented. Moreover, this seeks to guarantee the access of a diversity of affected interests to information and expertise that would enable them to assess their positioning with regard to the various proposals made.

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The BRICS ‘club’ is becoming one of the most important platforms for establishing a multi-​polar, and inclusive, global governance, along with other inter-​ governmental settings, such as the G20. Most importantly, it seems natural that it should play an important role in the effort to constitute this global deliberative space in Competition Law and policy. This ‘participation-​centred’ approach breaks with the realist perspective of global policy convergence engineered by powerful coalitions of the willing and their followers. It also differs from the cosmopolitan view in the sense that it recognizes the difficulties of a larger community to preserve individual autonomy. The reason is that significant increases in the number of jurisdictions of Competition Law and the increasing complexity of the area (in view of the rise of the economics-​based NPT-​model of Competition Law) alter the dynamics of participation and reduce the likelihood of adequate representation of the various affected interests. It remains also different from an ‘internationalist’ approach that would engage only with states and would ignore various other affected interests that may not have gained influence in the domestic political arena to make their concerns adequately represented. From a participation-​centred perspective, global governance will not seek policy convergence for its own sake, but will aim to promote greater levels of trust among the various states, but also other actors involved in this ‘field’, namely, competition authorities and national bureaucracies, businesses, consumers, and other interests.

D. Global governance as promoting total trust Contrary to those calling for policy convergence as such (which is, as we previously highlighted, linked to the view that regulatory diversity constitutes a problem that needs to be tackled by global governance), in view of its effects on global markets, we argue that it may negate any space for legal pluralism and regulatory diversity. Conversely, if the objective is regulatory convergence or compatibility, the different governance arrangements that may emerge are provisional steps towards the ineluctable endgame of the convergence point of the NPT-​based Competition Law model. We do not consider that global governance means engineering policy convergence, but argue, on the contrary, that this concept should be carefully distinguished from that of policy convergence. Our starting point is that the usual rationale for organizing a global governance regime is to manage tensions between different legal systems. This is not necessarily to unify legal systems into a single indistinguishable one, although this might also be considered an option among others. The frictions between the various systems of Competition Law that interact with each other when dealing with conduct-​ producing effects in a foreign jurisdiction generate negative policy externalities. These externalities may take different forms as the following stylized examples show. First, an agreement or a merger between two undertakings in the home state (where the undertakings are situated) may affect the consumers of the host state (where the products are sold). By implementing its Competition Law extraterritorially, and prohibiting the agreement or merger, the host state may protect its consumers, but it may also affect the objectives pursued by the home state. This agreement or merger

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might produce efficiency gains for its economy, or promote another policy objective that is not considered by the Competition Law of the host state and is on balance positive from a public policy perspective. Second, the home state may not implement its Competition Law against an anticompetitive conduct that exclusively aims at a foreign market (eg export cartel), that of the host state, which may be unable to get hold of the evidence and may not dispose of adequate competition assessment or remedial capabilities to tackle this anticompetitive practice. Third, one may imagine that Competition Law enforcement by a variety of jurisdictions may lead to overlaps and unnecessary duplication, thus raising the costs of compliance for business and limiting the occurrence of beneficial global economy transactions. Fourth, certain economically powerful states may finish by establishing global standards for the enforcement of Competition Law, as due to the sheer size and significance of their market, it will be impossible for businesses to ignore them, without taking in due consideration the policy preferences of other less powerful states. It is theoretically possible for each state to adopt unilateral measures in order to mitigate the negative policy externalities. This could be done by actively implementing negative and positive comity principles, that is, by refraining from using its competition enforcement authority when this may be more important for the foreign nation than the exercise of authority would be for the specific state.79 It could also be achieved by adopting a cosmopolitan standard that internalizes policy preferences and interests foreign to its domestic policy calculus.80 Despite the appeal these options may exercise, their implementation in the current political and economic context seems impractical. This is in view of the clear accountability and legitimacy lines of competition authorities which report to national governments and national parliaments, and not to supranational constituencies. First, it is not clear what these supranational constituencies represent.Second, there are important costs in integrating concerns and policy choices which lie outside the clear boundaries of the domestic legal system (eg information gathering and processing costs, risks of misinterpretation due to the lack of expertise about the foreign legal system). In these instances, cooperation with the foreign jurisdiction would be a more effective option in order to deal with these negative policy externalities. The presence of negative policy externalities between different jurisdictions may lead to the need for some form of governance mechanism in order to mitigate the risk of these occurring.81 The risk of negative externalities becomes even more significant the more transnational organization of production through global supply 79 See US Timberlane Lumber Co v Bank of America, 549 F2d 597, 614 (9th Cir 1976). 80  Testimony of E Fox (before the Antitrust Modernization Commission Hearing on International Issues, Washington DC, 15 February 2006), available at accessed 6 March 2017. 81  The existence of positive policy externalities, that is when a state implements its competition law statute and by doing so produces positive effects to the economy or the market of a foreign jurisdiction, does not necessarily call for the establishment of a governance mechanism. Policies that confer benefits on foreign groups in order to promote domestic policies are often of little interest for international agreements, regimes, or transnational cooperation.

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chains takes hold in the global economy. This governance mechanism may take different forms, from a centralizing harmonization option to a regime of complete inter-​jurisdictional competition enabling forum shopping. Contrary to what is advanced by those focusing on the unidimensional objective of policy convergence, we argue that the establishment of a global governance architecture should not seek to enhance regulatory sameness or convergence, but to enhance the building of increased levels of ‘institutional-​based’ trust (or ‘system trust’) between ‘actors’ interacting across national boundaries. One could identify two categories of trust relationships of relevance to our framework. First, one should enhance trust between different national regulators that interact as they try to resolve the conflicts arising out of the extraterritorial application of their national regulatory standards in cases of transnational dimension (‘trust between governments’). Second, there should be trust between private actors (business, consumers, citizens) and the institutions that regulate their interactions (‘trust in government’). This is a particularly important factor if one pays attention to the necessary legitimacy that national regulators (eg competition authorities) should enjoy in the performance of their tasks. Achieving policy convergence may harm the legitimacy of competition authorities if their constituents are critically disposed to the ‘economics-​base model’ of antitrust that serves as the convergence point. Therefore, one should aim to achieve increased levels of both trust between governments and trust in government (‘total trust’). Actors are not only states, but also entities operating inside the black box of the state. These include the various sociological groups, consumers, the general public, small and medium undertakings, and shareholders of multinational companies whose interests are usually taken into account by Competition Law. These actors operate within a specific (social) environment that can be characterized by relations of competition, cooperation, and coopetition. Actors do not behave or decide as atoms outside the social context. Their action is, instead, embedded in concrete, ongoing systems of social relations, in some instances, transnational ones. They dispose of the power to interact with other public or private actors across jurisdictions. This theory does not neglect the concept of the state, which is still present, as the interference of national boundaries defines the interactions between actors that are of interest for the existence of transnational policy negative externalities and therefore the need for global governance architecture. Interactions between actors within the boundaries of a state are excluded from consideration. We turn now to the concept of ‘trust’. The term is employed in economics, organization theory, and sociological literature in different ways.82 One could define trust 82  See N Luhmann, Trust and Power (John Wiley 1979) (hereafter Luhmann, Trust and Power) for a discussion of trust from the point of view of systems theory; J Coleman, Foundations of Social Theory (Harvard University Press 1990) for a discussion of trust from a rational theory perspective; O E Williamson, ‘Calculativeness, Trust, and Economic Organization’ [1993] Journal of Law and Economics 453 for an economic perspective on trust. For sociological accounts of trust, see R Hardin, Trust (Russel Sage 1998); R Kramer and T Tyler (eds), Trust in Organizations (Sage 1996); B Barber, The Logic and Limits of Trust (Rutgers University Press 1983); for the role of trust in international relations, see A Kydd, Trust and Mistrust in International Relations (Princeton University Press 2005) (hereafter Kydd, Trust and Mistrust).

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as ‘an attitude involving a willingness to place the fate of one’s interests under the control of others’.83 Repeated interaction forms the primary basis for trust. Andrew Kydd explains as follows: Trust is a belief that the other side prefers mutual cooperation to exploiting one’s own cooperation, while mistrust is a belief that the other side prefers exploiting one’s cooperation to returning it. In other words, to be trustworthy, with respect to a certain person in a certain context, is to prefer to return their cooperation rather than exploit them . . . Cooperation between two actors will be possible if the level of trust each has for the other exceeds some threshold specific to the situation and the actors.84

Increasing the intensity (level) of trust refers ‘to the amount of discretion trustors grant trustees over their interests’.85 Indeed, ‘cooperation is possible when the level of trust for the other exceeds a minimum trust threshold for each party’, which ‘will depend on the party’s own tolerance for the risk of exploitation by the other side’.86 Consequently, ‘to trust someone . . . is to believe it relatively likely that they would prefer to reciprocate cooperation. To mistrust someone is to think it is relatively likely that they prefer to defect even if they think one will cooperate’.87 The function of trust is to reduce uncertainty and complexity in social communication systems as ‘it allows for specific (rather than arbitrary) assumptions about other social actors’ future behaviour’.88 It could thus be seen as a communicative medium reducing complexity.89 Trust can take different forms, namely, ‘personal trust’ and ‘system trust’. According to Luhmann, personal trust is likely to develop when individual actors have frequent interactions and become thus familiar with each other’s personal preferences and interests and thus indifferent to the institutional arrangements. Conversely, he describes ‘system trust’ as relying on institutions to generate trust, rather than on personal interaction. Institutional-​based trust constitutes a more ‘advanced stage of trust production’90 as its function is to generate trust on a massive scale. However, trust also produces risk, particularly if there is limited available information about the future behaviour of the trustee. Risk is an unavoidable feature of trust because trust can be disappointed. For example, an offer of cooperation may be exploited by free riding, or may not be reciprocated. There are thus two inter-​related conditions for trust, namely, risk and interdependence between the actors. In order to minimize the risk of defect, actors may develop various strategies. An alternative to trust, to reduce complexity and uncertainty, is the exercise of interaction power. Power influences ‘the selection of actions in the face of other possibilities’.91 Power may not exclude risk, but it may reduce it considerably: ‘A social actor who considers using power usually can refer to “authoritative” and 83  A Hoffmann, ‘A Conceptualization of Trust in International Relations’ (2002) 8(3) European Journal of International Relations 375, 376. 84 Kydd, Trust and Mistrust (n 82) 6. 85 Ibid 377. 86 Ibid. 87 Ibid. 88 R Bachmann, ‘Trust, Power and Control in Trans-​ Organizational Relations’ (2001) 22 Organization Studies 337, also available at accessed 6 March 2017, 8 (hereafter Bachmann, ‘Trust, Power and Control’). 89 Luhmann, Trust and Power (n 82) 42–​3. 90  Bachmann, ‘Trust, Power and Control’ (n 88) 12. 91 Luhmann, Trust and Power (n 82) 112.

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“allocative” resources, which can be deemed likely to find recognition by the subordinate actor’92 and thus affect its incentives to act. Hegemonic power by one state, or the fight for hegemony, has been a feature of many historical periods in human history.93 If powerful actors have few constraints on the exercise of their power, our capacity for trust in them is limited. Power is treated here as a relational construct, which connotes the degree of dependence of the actors on one another. Actors are frequently found in situations where they have to decide if they would base their interaction/​communication mostly on trust or on power and the proportions of trust and power which should govern their relationship. However, trust and power should not be exclusively viewed as alternatives. It is possible that power appears in a ‘de-​personalized’ form as ‘system power’. System power can take the form of law, organization, or a hierarchy which can develop shared meanings among the social actors and can thus ‘mass-​produce’ trust. Standards of expertise are the main sources of ‘system trust’. They are integrated in organizational routines that may take the form of institutions (formal or informal). Therefore, institutions are the central precondition rather than an alternative to ‘system trust’. The constitution of trust ultimately relies on the existence of strong institutions. As institutional-​ based or system trust is a condition for the efficient production of a high level of trust, the ‘trans-​organizational relations can be reconstructed as being controlled by the patterns of trust and/​or power mechanisms’.94 It follows from this analysis that trust is a concept that takes significance in situations of uncertainty over the preferences or behaviour of interdependent actors in a specific social system. Its function is to reduce uncertainty and thus to induce welfare-​enhancing cooperation between them. However, trust produces also risks when cooperation will be exploited or not returned. This will provoke mistrust that could potentially prevent welfare-​enhancing activity from happening. Power or hegemonic control would be the other side of the coin. It is an alternative to trust and contributes to maintaining control and avoiding the slippery slope to a Hobbesian state of anarchy. The establishment of informal or formal institutions constitutes another available option in order to mitigate the risk of distrust by creating ‘system trust’. Institutions will generate trust as long as their constituents believe that they are effective in preventing situations of distrust. In addition, institutions may also require the invention of a common vocabulary that will facilitate communication between the actors, or the existence of a regime of sanctions for instances of mistrust or of a hierarchy that will exercise control over the action of the actors and will ensure that they are trustworthy (‘system power’). In the sphere of international and transnational economy regulation, trust can be considered as an objective concept describing a relationship between regulatory systems underpinned by a relationship between public and private actors. The starting point is that when states interact, they have incomplete information about 92  Bachmann, ‘Trust, Power and Control’ (n 88) 16. 93  See the analysis of different models of international relations and trust in Kydd, Trust and Mistrust (n 82). 94  Bachmann, ‘Trust, Power and Control’ (n 88) 24.

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the preferences and objectives of their counterparts, as well as their pay-​offs and domestic pressures that are not evident to the counter-​party. As it is also the case for individual relations, social networks shape relations between states. Actions are embedded in concrete, ongoing systems of social relations. Consequently, the behaviour of the actors is driven not only by a pure interest calculation (calculative trust), but also by social norms and formal and informal institutions that support the specific relationship. An important source of trust in this context would be the long history of interaction between these actors and their collective memory. Geographic proximity, common language, shared values, and preferences facilitate interaction and thus build a certain level of ‘personal trust’ between the different actors. The social network provides a source of information, but at the same time, it constitutes a mechanism that grants importance to ‘reputational sanctions’.95 Reputation helps to determine whether an actor would risk cooperating with another one.96 To the extent that all actors are connected in a web of relations, even if there is no personal interaction, there is some assurance that the victim of a trust violation can take action to rectify the situation. However, the development of mutual dependence between exchange partners may have ambivalent results as it may promote trust, but may also foster opportunistic behaviour (mistrust). The network of social relations to which all actors belong not only provides a source of information about trustworthiness, but also the opportunity for each actor to contribute to the reputation of another one, should other actors choose to provide information about a possible lack of trustworthiness. This reputational cost is particularly effective in closed social systems with membership, as is the case for instance of the European Union, or BRICS. However, there is a point where ‘personal trust’ is not sufficient to promote welfare-​ enhancing cooperation. The reason is that the more complex the relationship and its environment becomes, the more uncertainty is generated over the future actions of the actors. As actors attempt to deal with uncertainty and the risk of mistrust, they may find it necessary either to exercise hegemonic power, if they have the capacity to do so (interaction power), or to elaborate institutions that will control occurrences of distrust. Institutions will make it their function to generate ‘system trust’. They build on an existing level of trust, which is a necessary precondition for their existence. The reputation mechanism is one dimension of the story. Institutions will act as social networks implementing informal or formal mechanisms to address mistrust. These trust-​building tools could take different forms, including extensive communication and information exchange, joint work, monitoring, norms of exclusion in the case of closed groups, or credible commitments, such as the delegation of important tasks, for instance, the investigation of anticompetitive conduct producing transnational effects, to the competition authority of the partner state.

95  A Guzman, How International Law Works: A Rational Choice Theory (Oxford University Press 2008) 33. 96  On the value of reputation in international law, see ibid 71–​117.

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This brief sketch of a new theoretical framework based on the concept of trust may serve as a blueprint for a new model of global governance in the area of antitrust, based on multi-​polarity and legal pluralism. We believe that because of their economic and political significance, the BRICS jurisdictions are able to take a leading role in moving the discussion away from the sterile and counter-​productive insistence on policy convergence and towards the generation of total trust.

III.  The Role of BRICS in the Global Governance of Competition Law The globalization of economic activity, particularly with the advent of the digital economy and the internationalization of IP rights, has enabled global players to maintain the competitive advantage conferred by IP rights in their commercial activities across the globe. Globalization has increased the likelihood of collision between Competition Law regimes, as various competition authorities grapple with transnational anticompetitive conduct involving these global platforms. The role of BRICS competition authorities in the new geopolitics of Competition Law enforcement is particularly significant and will continue to grow, once their relatively more recent Competition Law regimes mature. From laggards and mainly followers of the trends set by the US and EU Competition Law models, BRICS Competition Law regimes are increasingly finding a voice of their own and may eventually become trendsetters in global antitrust. From this perspective, the recent investigations against Google’s alleged anticompetitive activities in mobile and search markets provide an illustration of the increasingly important role of BRICS in global Competition Law enforcement. This practical significance of their enforcement action withstanding, BRICS have so far stayed mute with regard to the direction in which the global governance of Competition Law should move. The main proposal on this crucial issue of interest to the global economy is being prepared in the established formal fora of ICN and OECD, with contributions from UNCTAD and the World Bank.97 The latter are dominated by the United States and the European Union, as well as in more informal fora put in place by some global economic players, for instance the E15 Initiative supported by the World Economic Forum.98 It is clear that this constellation of established players in the global governance of antitrust game cannot be representative of the interests of BRICS countries, and more so of the emergent and developing jurisdictions that have now come to form the majority of Competition Law enforcers worldwide. Once this fact is recognized, it becomes essential to rethink the role of BRICS. This is not just as a club of significant, from the point of view of Competition Law, enforcement jurisdictions, but also 97  See, for instance, the recent event organized by the World Bank in June 2015 on ‘Promoting Effective Competition Policies for Shared Prosperity and Inclusive Growth’, available at accessed 28 June 2017. 98  See accessed 28 June 2017.

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a major participant in the efforts to imagine a global architecture for Competition Law enforcement, and a trendsetter in the area of Competition Law and policy. For this reason, we propose the constitution of the BRICS Joint Research Platform that will be entrusted with the following tasks: • establish a common knowledge-​base for Competition Law enforcement in these jurisdictions reflecting the specificities of their economies, social and institutional structures, culture, and vision for the role of Competition Law, in the form of global competition authorities/​an academia partnership; • increase trust between the various BRICS competition authorities by providing them with a platform to exchange information and cooperate in the investigation of economic sectors of global importance, eventually initiating joint Competition Law enforcement action; • represent the interests and vision of the BRICS jurisdictions with regard to the global architecture of Competition Law enforcement. These should also enable the construction of alternative narratives to the current mainstream NPT-​based model, which we think may not, in many cases, fit well the particular challenges to which BRICS jurisdictions, but also emergent and developing countries, are subject.

A. The Google cases as a moment in the emergence of a truly global antitrust agenda: BRICS as a protagonist Google’s contractual (and other) practices with regard to its search engine and Android, an off-​the-​shelf Operating system (OS) that original equipment manufacturers (OEMs) can freely install on a cell phone or other computing devices, have been at the centre of the enforcement attention of various competition authorities around the world, including BRICS authorities. In 2012, the Ministry of Commerce of the People’s Republic of China (MOFCOM) announced its conditional approval of the $12.5 billion buy-​out of Motorola by Google.99 The European Commission100 and the US antitrust authorities101 also approved the merger. However, it is of interest that MOFCOM’s decision addressed a number of issues relating to the interaction between Google and the OEMs of smartphones regarding the licensing of the Android system. The Chinese merger regulator insisted that Android should be licensed on free-​of-​charge terms and be kept as open-​source software. In addition, the regulator indicated that all OEMs should be treated in a fair and non-​discriminatory manner. However, this 99 See accessed 28 June 2017. 100  Case No COMP/​M.6381 Google/​Motorola Mobility (13 February 2012), available at accessed 6 March 2017. 101  See accessed 28 June 2017.

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obligation only applied to the OEMs who had agreed not to differentiate or derive from the Android platform and did not apply to Google providing, licensing, or distributing of any products or services relating to the Android platform. In addition, the regulator advised that Google should continue to fulfil the FRAND commitment it had taken in licensing the patents obtained from Motorola Mobility. However, some of these conditions did not reflect the core business reason of the merger transaction, which was to provide Google Motorola’s valuable patent portfolio for its ongoing competitive struggles (defensive patenting) against Apple, which is vertically integrated in the smartphones market and Microsoft. The latter had just acquired Nokia, an OEM, and had for this reason access to Nokia’s patents. The decision seemed not to take into account the fact that Google’s business model does not rely on royalty payments, as its main revenues come from advertising from its search engine and its strategy is to promote the use of Android by as many OEMs as possible.102 The concerns expressed by the Chinese merger regulator with regard to the openness of the Android platform and the FRAND commitment may thus be understood by its will to protect the position of smartphone/​hardware manufacturers (some of the most important ones globally being based in China) from a possible exercise by Google of its bargaining power, with regard either to exploitation of its FRAND commitment or to charging excessive licensing rates.103 Google also faced Competition Law investigations by the Competition Commission of India. One investigation focused on Google’s termination of two companies’ AdWords accounts. Audney and Albion were two ‘remote tech support’ (RTS) companies that advertised on Google’s search results page through Google AdWords. RTS firms offer tech support from a remote location (often by ghosting into the customer’s computer to fix problems). Audney and Albion offered these services outside India. Google terminated both companies’ AdWords accounts because it allegedly found they were violating Google’s user safety policies. Audney and Albion counter-​attacked by alleging an abuse of dominance. The CCI issued prima facie findings against Google, asking the DG to investigate. At the time of writing, the DG Report is yet to be issued. The other investigation is much broader. Based on two complaints (by a consumer organization and a matrimonial services website), the CCI issued prima facie findings against Google and referred the matter to the DG. The DG investigated for more than three years and issued its Report in August 2015. The Report was leaked to the press and there has been wide, publicly available coverage of the DG’s claims and the case in general. The Report alleges various infringements regarding: • Google Search, because of the prominent display of Google’s in-​built services (eg news, images, maps, etc) on the search results page; 102  This is a very different business model from that of Apple, BlackBerry, and Microsoft, which are all integrated hardware-​software businesses. Indeed, Google sold Motorola’s mobile phone operations to Lenovo in 2014, thus taking again its role as the neutral broker of operating systems to OEMs. 103 For an analysis of this decision, see Y Qiang, ‘China’s Stance on the Google/​ Motorola Merger: Implications for Competition in Intellectual Property-​Intensive Sectors’ (2016) 33 Computer Law & Security Review 103.

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• advertising (AdWords), as Google does not provide advertisers with sufficient information, allows bidding on competitors’ trademarks, provides preferential treatment of Google ads, and includes restrictions in the AdWords Application Programming Interface (API) on moving data between different advertising platforms; • the fact that Google has entered into exclusivity agreements with browsers for search services, and with websites for search and ad services; and • the fact that Google is ‘scraping’ snippets and images from websites on the search results page.104 Google has also faced antitrust action in Brazil. Buscapé, a price comparison website, brought a private action against Google. It alleged that Google manipulates its search service, controlling 95 per cent of the market by allowing only Google Shopping to display images of the searched merchandise. This is not permitted for Buscapé and other competitors, as Google embezzles and usurps the database of reviews—​clients’ evaluations of the purchases gathered along more than ten years by Buscapé and other competing price comparison websites. This practice artificially includes Google Shopping in the first ranks of the organic search results, whenever a consumer conducts a query for the purchase of products in Google Search, thus harming the other competing websites. Google was granted summary judgment against the company. The court found that ‘there are several search services at the disposal of the consumers who are looking for products, and at the disposal of the merchants intending to attract consumers [i.e., Bing, Yahoo, Ask]. Google’s leadership in the internet search segment in Brazil cannot be mistaken with a monopoly of that activity’. The Brazilian court concluded that Buscapé ‘does not need and is not dependent on Google Search to [be found by consumers]’ as the users may access its website, and those of other competing price comparison websites, without passing through Google. The court also held that Google Shopping is not a shopping comparison site like Buscapé, ‘but just a thematic search option within the generic search made available by Google Search’, thus refusing to consider vertical search as a separate product. Furthermore, the court also noted that ‘nothing prevents [Google], in the conduction of its profit corporate business, from developing and using a tool (algorithmic formula) that returns results to a user query in Google search in a display order dictated by Google’s quality and relevance criteria’.105 Although this summary judgment ended the private action against Google, Brazil’s competition prosecutor CADE opened a series of investigations into Google after receiving complaints from Microsoft and other companies in October 2013. Although as a result of a global agreement with Google, in April 2016 Microsoft agreed to stop pursuing antitrust complaints against Google Inc in 104  Presentation by K Singh Chandhiok, 22 April 2016, HSE Skolkovo Institute for Law and Development conference on ‘The Hidden Side of the Moon: Google’s BRICS Competition Law Cases and the Role of BRICS in the Emergence of Global Competition Law Norms Regarding Unilateral Conduct’. 105  See accessed 28 June 2017.

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Europe and other parts of the world.106 CADE continues its probe into Google’s practices,107 exploring whether Google unfairly scrapes the content from rival websites, discourages their advertisers, and favours its own product listings in search results.108 In 2015, the Russian Federal Antimonopoly Service (FAS) adopted a decision finding Google ‘guilty of abusing its dominant position’ and requesting Google to make changes in the requirements it puts on its hardware partners.109 This decision has been recently confirmed on appeal.110 The FAS found that Google was dominant in view of the ubiquity of Google Play in Android-​operating system mobile phones. Google did not enjoy a dominant position in General search in view of the strong position of the local incumbent Yandex in PC search. Yet, its power in the rapidly expanding and strategic mobile search market was quite pre-​ eminent. The main concern in the FAS decision was the leveraging of Google’s dominant position in mobile search to PC search, and the marginalization of the local incumbent. The Russian FAS found that Google has abused this dominant position by imposing the mandatory acquisition of the entire Google Mobile Services (GMS) suite (which includes Google Search and Chrome) as a condition for obtaining Google Play. This resulted in bundling apps from GMS with the Google Play store. In addition, Google had committed an abuse by requiring the mandatory setting/​pre-​ installation of Google Search as a default search engine in all search entry points in respect of the general web search. Finally, Google committed an abuse by requiring the advantageous placement of Google app icons on the first screen of a mobile device, thus offering them preferential treatment by prohibiting the pre-​installation of competing to GMS applications and services (such as third-​party ‘store’ and third-​party ‘search’) on any other of its devices running other versions of Android (Android forks). The implementation of this prohibition was also secured by a remuneration payable by Google. The decision of the FAS is based on some empirical evidence indicating that the majority of users of mobile devices consider availability of an app store a mandatory condition for the purchase of such device. Furthermore, the decision was based on the finding that there are no devices in the Russian market without pre-​installed Google Play, except for a number of devices with a negligible market share. Therefore, availability of Google Play was actually considered a necessary requirement for the production and sale of a competitive mobile device. The FAS concluded that Google’s practice of bundling the Google Play app store, in relation to which Google enjoys a dominant market position, with the other GMS applications where it usually faces competition, without any technological reasons 106 See accessed 28 June 2017. 107  See accessed 28 June 2017. 108 See accessed 28 June 2017. 109  Translated decision of FAS (on file with the author). 110  Translated judgment of the Court of Appeal (on file with the author).

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Table 4.1  Google investigations by BRICS competition authorities Countries

Vertical search

Brazil

X (price comparison)

China India Russia

OS Devices

Mobile search

AdWords/​ AdSense

X X

X X

for this, restricts access of undertakings competing with Google to several markets where the GMS applications and services are circulating, and subsequently may result in squeezing such undertakings out of such markets.. The FAS also considered that pre-​installation was the most effective promotion channel for mobile applications and provides for the widest coverage and frequency of use of applications on mobile devices, in view of the passive behaviour of users. This is because it was found that end-​users usually do not change pre-​installed applications and services and do not download similar applications independently. The FAS adopted a cease and desist order and imposed a fine calculated based on Google’s turnover in the Russian Federation. For a summary table of these cases, see Table 4.1. What is quite interesting with these Google investigations is that the BRICS competition authorities have acted as trendsetters, rather than as followers piggybacking on the enforcement activity of the US and/​or EU competition authorities. Indeed, while the US FTC did not touch upon Android in its 2013 settlement with Google,111 in April 2016 it expressed concerns that Google unfairly used Android’s strength in the mobile computing market to prioritize its own services over those of competitors.112 In April 2016, the European Commission announced that it sent a statement of objections to Google. In the statement, the European Commission takes the preliminary view that the company has, in breach of EU antitrust rules, ‘abused its dominant position’ by imposing restrictions on Android device manufacturers and mobile network operators. In contrast with the situation in the Russian market, Google disposes of a significant share in the PC search market. The Commission’s statement of objections indicates that Google is dominant in view of the quasi-​monopoly position of Google Play in Android OS, Google Search dominance in Android OS, and the fact that GMS is dominant in Android OS. With this difference aside, the European Commission found the contractual tying of Google Play with other apps in GMS problematic. Furthermore, the European Commission found that the anti-​fragmentation clause renders an OEM unable to produce some 111 See accessed 28 June 2017. 112  See accessed 28 June 2017.

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devices with GMS on the ‘standardized Google version of Android’ and some without it on another version of Android, thus limiting competition from Android forks (a maintenance of monopoly, rather than a pre-​leveraging narrative as in the Russian case). Although South Korea’s Fair Trade Commission dropped a two-​year investigation into Android in 2013 confirming that Google’s Android business model did not infringe Competition Law, it has recently been reported that it reopened its investigation on the matter.113 In July 2016, the European Commission also filed a third antitrust charge against Google with regard to its AdSense advertising business, which with AdWords formed the bulk of Google’s $75 billion revenue in 2015. One could not help but notice that many of the cases brought by the EU, US, and South Korean competition authorities are on similar grounds to those investigated by the BRICS authorities, which in this case took the initiative and played an active role in reframing the anticompetitive effects narrative. The future will show if the positions adopted in BRICS jurisdictions will be compatible with those of the EU, US, and South Korean competition watchdogs.

B. Promoting pluralism in global antitrust discourses: The need for a BRICS Joint Research Platform The area of Competition Law has increasingly been a theme for BRICS cooperation, in particular since the joint declaration of the heads of BRICS governments in Ufa in 2015.114 In 2014, the HSE-​Skolkovo Institute for Law and Development in collaboration with FAS Russia and the Centre for Law, Economics and Society at University College London (UCL) Faculty of Laws established an annual forum in St Petersburg with the aim of promoting an academic-​competition authority knowledge platform between BRICS authorities and a number of BRICS and foreign academics in Competition Law and policy. In June 2016, the BRICS authorities signed a memorandum of cooperation which established an Institutional Partnership between BRICS jurisdictions through a general framework for multilateral cooperation. The Memorandum of Understanding (MoU) was signed on 19 May 2016 and will remain in effect for a period of four years. It aims to promote and strengthen the cooperation in Competition Law and policy of the parties through exchanges of information and best practices, as well as through capacity-​building activities. For instance, this would take the form of exchanging policies, laws, rules, and information on legislative changes and enforcement activities. This could also take the form of the organization of joint studies for the purpose of providing common knowledge on competition issues, and the organization of international conferences, seminars, and other relevant events on competition issues. These include the BRICS International Competition Conference held once every two years, and 113  See accessed 28 June 2017. 114  For more on the political process of cooperation in competition law among BRICS, see Chapter 5, ‘BRICS and the Global Competition Law Project’ (this volume).

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the cooperation and coordination between BRICS jurisdictions of investigations and enforcement proceedings regarding Competition Law enforcement. A Liaison Committee consisting of one representative from each BRICS jurisdiction will ensure adequate communications and consultations among the parties. A  fairly interesting provision in the MoU is the establishment of working groups to conduct joint studies on matters of common interest, such working groups being proposed by a party through the Liaison Committee. Each party is free to make its own decision whether or not to participate in a working group, in view of its needs, available resources, and other considerations. A provision guarantees the confidentiality of information exchanges between the BRICS competition authorities, although they are not required to communicate such information if their domestic law prohibits this, or if such communications would be incompatible with the interests of that party. The MoU also includes a clause on the settlement of disputes arising out of the interpretation, application, or implementation of the MoU, which should be settled amicably through consultation or negotiation between the parties. These new developments indicate that BRICS jurisdictions are increasingly taking a more proactive approach in collaborating in the area of global antitrust for matters that concern their own jurisdiction and may affect their economy. Within the context of the HSE Skolkovo Institute of Law and Development and the Centre for Law, Economics and Society at UCL, we have been contemplating the elaboration of a proper competition authorities-​academia partnership. This may cover more areas than the global food value chain, which has been the first project initiated having a BRICS dimension from its inception. For instance, much work may be undertaken with regard to the regulation of competition in digital markets, the pharmaceutical industry, the interaction between Competition Law and intellectual property, and the competition policy implications of big data and artificial intelligence. We envisage the establishment of inter-​disciplinary cross-​BRICS teams which may provide high value, independent academic comment geared towards the situation of the BRICS economies and societies. These teams will be open to academics from other jurisdictions, from different fields (law, economics, finance), with the aim of enhancing the global visibility of the research produced and the highest quality in terms of research methodologies and content. Such public-​academic partnership may provide the first step in more systematic, long-​term research cooperation between BRICS in the area of Competition Law and policy. We consider that the work of these interdisciplinary teams, operating as autonomous academic networks, may be structured within a BRICS Joint Research Platform in Competition Law and policy. These teams will carry out research in order to provide independent scientific advice and support to policy adopted by BRICS jurisdictions from world-​leading researchers, and will also channel the research work accomplished by the various inter-​disciplinary groups to the BRICS competition authorities and the global community of scholars in Competition Law. This independent, evidence-​based scientific and technical support could be provided throughout the whole policy cycle, while flexibly responding to new policy demands. It could also constitute one of the few, BRICS-​created, institutions within the BRICS international system, in addition to the Contingency

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Reserve Arrangement and the New Development Bank. The BRICS Joint Research Platform will contribute to the overall objectives of the BRICS Competition Law authorities with its long-​standing scientific expertise, modelling capacity, foresight studies, knowledge management, training activities, work on best practices, infrastructure, and e-​infrastructures. We envisage developing a web-​based interactive platform for the different research projects undertaken in the context of the Joint Research Platform. Common BRICS research seminars and training sessions open to the staff of BRICS competition authorities and other officials with BRICS-​based and international experts may also be organized. Eventually, the benefits of the development of this BRICS Competition Law and policy forum may be quite important for the BRICS competition authorities and more generally the BRICS countries’ societies. The Joint Research Centre will constitute a source of independent and ground-​breaking empirically driven research providing the necessary analysis and market intelligence. This will enable BRICS competition authorities to develop a bird’s eye long-​term view on important Competition Law questions and issues that may arise in the future, which is essential for the development of evidence-​based policy. It may economize on the resources of the BRICS competition authorities by enabling them to receive academic advice from a pool of leading BRICS researchers and selected international experts. Such research capabilities may not currently exist for all areas of Competition Law enforcement. The BRICS Joint Research Platform in Competition Law and policy may also provide an invaluable resource for independent academic comment. In case research capabilities are already present, the existence of the BRICS Competition Law and policy forum will free some in-​house research teams of the BRICS competition authorities from these tasks, thus enabling them to focus on immediate priorities and pending case work. The ambition of the BRICS Joint Research Platform is to produce knowledge on Competition Law enforcement that would be useful for both the academic community and the world of practice. It should seek to actively involve these communities in our various research projects. Moreover, it should also promote the interaction and dialogue between them through the organization of conferences and other events, as well as the promotion of specific research projects and the organization of joint training and knowledge-​sharing activities by BRICS and international experts for the benefit of Competition Law officials, representatives of business, consumer associations, and other stakeholders. Indeed, the interaction of competition authorities with academia is a prevalent practice among many Competition Law authorities around the world and international organizations involved in competition policy. For instance, UNCTAD has established a Research Partnership Platform with a number of academic institutions around the world participating in it. The ICN relies on non-​governmental advisors coming from academia in the work undertaken in its various working groups. However, these efforts to involve academia are not systematic and do not proceed with a clear strategic perspective, unlike the one we are suggesting the BRICS authorities to adopt with the establishment of the BRICS Joint Research Platform in Competition Law and Policy. We consider that the specific situation of the BRICS supports a more proactive approach than that followed

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by the other international players in global Competition Law and policy, so as to reflect their real weight in the discussion over the governance of global Competition Law. Furthermore, we consider that, for this reason, the BRICS Joint Research Platform should be perceived as a truly global institution, involving BRICS and non-​BRICS experts who would be working on a specific research agenda promoted by the BRICS authorities. More than just gaining valuable expertise, the Joint Research Platform will aim to provide an academic voice for the concerns expressed by the BRICS societies. The current debate in global Competition Law and policy is inevitably influenced by the agenda of the two main jurisdictions in terms of Competition Law enforcement experience, academic research capabilities, economic development, and market size, namely, the European Union and the United States. It is true that in recent years the Competition Law regimes of the BRICS jurisdictions attracted more attention from academia and other stakeholders. However, this effort is still nascent and as sketched above has not yet been systematic. The aim of the Joint BRICS Competition Law and Policy Platform will be to provide the first systematic effort to establish a genuine BRICS-​oriented agenda and provide information on the BRICS countries’ models in Competition Law and policy. It might also provide an opportunity to our research community to explore the possibility of the emergence of a BRICS Competition Law and policy model, in view of the importance the various BRICS countries placed on the objectives of development and growth. Starting from concrete economic sectors and developing an academic dialogue among many various academic teams from BRICS, the BRICS Joint Research Platform for Competition Law and Policy will enable BRICS to develop incrementally a more general approach and strategy with regard to global Competition Law and policy issues. It also goes without saying that such initiative will enhance the quality of research in Competition Law and policy performed in BRICS and will generate fruitful academic cooperation between researchers coming from different disciplines and BRICS countries. In parallel to the BRICS Joint Research Platform in Competition Law and Policy, we consider that collaborative initiatives focusing on the exchange of information may develop between the various BRICS competition authorities. We consider that initiatives such as the BRICS Joint Research Platform may enhance trust among BRICS Competition Law authorities so that they can envisage the development of a closer cooperation in the future, in particular by promoting common positions on the emerging global governance of Competition Law and policy. However, more than just representing the voice and interests of BRICS jurisdictions, the BRICS Joint Research Platform should be perceived as a tool to promote alternative models for Competition Law, inspired by the experience of the BRICS jurisdictions and other emerging economies or developing countries. Put simply, the BRICS Joint Research Platform could serve as a gateway for under-​represented interests to contribute to the discussion on the future architecture of the global governance of antitrust. It may also provide the opportunity to engage in a critical discussion over the concepts, methodologies, and tools of Competition Law, away from the ‘policy convergence’ fetishism that has so far impeded new jurisdictions adopting Competition

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Law in exploring the potential offered by their own legal culture, but also the variety of sources of wisdom, and not just NPT, that may eventually contribute to framing a Competition Law and policy that benefits from a high degree of legitimacy as it reflects the concerns of their societies. Global governance in the antitrust field can only but gain from legal pluralism and additional spaces of experimentation.

C. A roadmap for the BRICS Joint Research Platform: The missing discussions As explained in the section above, the dual aim followed by the BRICS Joint Research Platform in Competition Law and Policy will be: • to enhance trust between different BRICS competition authorities by promoting their cooperation and assisting them in developing a common knowledge base, methodologies, and tools that fit their specific needs and aspirations; and • to offer a global voice for the BRICS in the current discussion over the global governance of Competition Law and policy. In order to gain the support of the global community, particularly the great majority of emergent and developing economies that form the bulk of jurisdictions implementing Competition Law, the voice of BRICS in the antitrust field has to be distinctive and true to the concerns of the citizens of these countries. The quest for ‘policy convergence’ has often led to the exclusion of a number of issues/​topics which the BRICS and other emerging economies may consider important. These have often been relegated to other fields of law (where no such effort of policy convergence has taken place) or, in the worst case scenario, they have been ignored altogether. In the world of ‘policy convergence’, legal pluralism remains suspect and should eventually be banned. I take a different perspective and consider that for Competition Law regimes to become effective and endure through time, it is crucial that they should enjoy a high degree of legitimacy, including acceptance by their citizenry. This process of internal (rather than external through peer-​acceptance by other competition authorities and international organizations) legitimacy building may set limits to procedural or substantive policy convergence. The work undertaken in the context of the proposed BRICS Joint Research Platform will be a matter for open discussion between the BRICS competition authorities and their stakeholders. But tentatively I suggest the following roadmap as the starting point for such discussion.

1. Broadening the vision of Competition Law: Global value chains and transnational production The dominance of NPT theory in modern antitrust has led to the exclusion of other sources of wisdom such as political economy or economic sociology from the work of competition authorities. The rigour of NPT and its relatively narrow perspective, which is based on methodological individualism, is considered as a better basis in order to ensure policy convergence, assisted by the use of a common vocabulary and

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calibrated research methods. Social action and the ensuing order are perceived as generated by objective economic interests of the individual actor, the latter behaving in an instrumental (rational) way in order to maximize some welfare function. This is also how the activity of social organizations is perceived because of coordinated individual action. What is absent from such analysis is the role that social relations and social institutions play in the economy. The latter is considered as distinct configurations of interests and social relations. Work in political economy and economic sociology may provide the bigger picture we need in order to understand the full dimension of competitive interactions. To give an example, we consider that competition authorities should engage with the concept of global value chains (and/​ or global value networks) and the important work accomplished so far. In the last two decades, we have witnessed the emergence of a ‘new economy’ driven by the important technological changes over the last twenty years and the emergence of a new kind of infrastructure technology, the Internet. As sociologist Manuel Castells noted, this economy is global in nature, not just international: A global economy is a historically new reality, distinct from a world economy. A world economy, that is an economy in which capital accumulation proceeds throughout the world, has existed in the West at least since the sixteenth century . . . A global economy is something different: it is an economy with the capacity to work as a unit in real time on a planetary scale.115

As noted by Kevin Sobel-​Read: The paradigm of the world political economy has shifted dramatically over the past 20 years. Legal scholarship, however, lags significantly behind. Existing legal scholarship is calibrated to an outdated model that suggests that multinational corporations—​either individually or through one-​to-​one supplier relationships—​create, manufacture, and sell a given product. But in today’s world, in what have been termed ‘global value chains,’ the research, design, production, and retail of most products take place through coordinated chain components that stretch systemically across multiple—​from a few to a few thousand—​firms.116

These global value chains (GVCs) are characterized by their ‘systemic, coordination-​ driven nature’. This is because they rely on various systems of transnational governance and different sorts of linkages, some traditional such as contract law, others novel and relying on corporate law, property law, or some more informal mechanisms.117 For instance, ‘global value chains are becoming a primary conduit for the transfer of intellectual property globally’, as ‘[t]‌he creators of intellectual products are relying less on traditional intellectual property regimes to enable them to limit access to their material, and more on a combination of contractual rights and technological protections’.118 GVCs are prevalent in the global economy. As a recent joint OECD, WTO, and World Bank report indicates, ‘[b]‌etween 30% and 60% of G20 countries’ exports 115  M Castells, The Information Age: Economy, Society and Culture—​The Rise of the Network Society (Wiley 1996) 92. 116  K Sobel-​Read, ‘Global Value Chains: A Framework for Analysis’ (2014) 5 Transnational Legal Theory 364 (hereafter Sobel-​Read, ‘Global Value Chains: Framework’). 117 Ibid 365. 118 Ibid 392.

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consist of intermediate inputs traded within GVCs’.119 Kevin Sobel-​Read further argues that ‘[t]he most important paradigm for understanding the global economy, and the political and social relationships that both guide it and stem from it, is no longer the template of the market but rather the role of global value chains’. In addition, he contends that corporate action, in the form of GVCs, is not only driving but is also defining, and therefore creating, the market.120 Indeed, economic production is increasingly structured around GVCs. This permits the simultaneous and coordinated transnational production and distribution of a very large array of products that each stage of the supply chain has to manage effectively, without this involving vertical integration by ownership.121 The development of technology has made supply chain management more effective and less expensive, enabling companies to achieve higher quality at a lower production cost. One may also trace the development of value chains in the expansion of national and international regulations regarding consumer protection, food safety and quality, and technical standardization. These supply chains start from the factors of production and other input needed for the manufacture of a good and end up with distribution of the end product to the final consumer. Firms find it crucial to enter into long-​term agreements with partners in other segments of a value chain in order to create the necessary relation of trust that is required by the importance of relation-​specific investments that need to be undertaken in setting the supply chain management. This may lead to disintermediation and vertical integration, but also to deconcentration through the constitution of networks or supply alliances that are managed by supply chain councils. These various forms of supply chain management share the common characteristic that they are all ultimate and consumer-​ oriented as any segment of the chain directs its efforts towards meeting the needs of the next member of the chain. The perception being perpetuated is that all segments of the chain do not constitute separate islands of activity, but essential ingredients for the formation of the total value of the chain. For instance, brand-​building takes the wider perspective, that of the whole value chain, leading to the elaboration of labels and standards to which the various segments of the chain abide. With some exceptions, GVCs have not been explored systematically by Competition Law scholars.122 The concept offers an important analytical potential. The most obvious one relates to the transnational dimension it brings forward, 119  OECD, WTO, and World Bank Group, ‘Global Value Chains; Challenges, Opportunities, and Implications for Policy’ (WTO and World Bank 2014), available at accessed 6 March 2017, 13. See also UNCTAD, ‘World Investment Report 2013’, available at accessed 6 March 2017. 120  Sobel-​Read, ‘Global value Chains: Framework’ (n 116) 367. 121  K de Backer and S Miroudot, ‘Mapping Global Value Chains, European Central Bank’, Working Paper Series No 1677 (2014). 122  See I Lianos and C Lombardi, ‘Superior Bargaining Power and the Global Food Value Chain: The Wuthering Heights of Holistic Competition Law?’ (2016) 1 Concurrences 22; D Gerber, ‘Competition Law and Global Supply Chains’ (2016), available at accessed 6 March 2017 (hereafter Gerber, ‘Competition Law and Global Supply’); I Lianos, ‘Global Value Chains and Competition Law’, CLES Research Paper Series No 3/​2017 (forthcoming 2017).

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calling for a ‘transnational coordination’ between ‘destination states’ and ‘producer states’, this coordination being pursued at global, regional, or bilateral levels.123 A deeper impact could be the re-​conceptualization of the way in which Competition Law deals with vertical integration or quasi-​integration. Traditionally, the relationship between the different levels of a vertical supply chain has been thought as complementary. In addition, competition authorities rarely see any reason to intervene, unless one of the segments disposes of considerable market power and engages in acts of exclusion by, for instance, raising the costs of its rivals upstream or downstream. This approach tends to ignore the allocation of the revenues engendered by the supply chain between the various partners (what some have called ‘vertical competition’)124 as an issue external to the exclusive focus of Competition Law on economic efficiency. In contrast, the GVC approach recognizes that issues relating to the distribution of the total surplus value of the chain also take a prominent role in the relation between the various economic actors participating in the supply chain, particularly supply chain management. Even if it is flexible, supply chain management crystallizes more easily their position (and share). By dissecting the chain-​wide coordination of various economic activities, the GVC approach also better describes the systemic nature of GVCs, each part of the chain affecting the others. The GVC approach provides a theoretical framework enabling us to understand how the global division and integration of labour in the world economy has evolved over time. More importantly, the GVC approach indicates how the distribution of awards, from the total surplus value, is allocated between the various segments of the chain.125 The starting point for the development of this framework was the growing importance of new global corporations, such as buyers (eg big retail) constituting ‘buyer-​driven global commodity chains’. These powerful lead firms are usually located in the industrialized countries and interact with economically less powerful suppliers present in the developing countries. The GVC approach is contrary to traditional NPT analysis, but more in vogue with transaction cost economics (TCE) and economics of organization. Most importantly, the GVC approach enables competition authorities to focus not only on issues of horizontal market power and concentration at each segment of the chain, but also to engage with the vertical links between the various actors with the aim of understanding how and whether ‘lead’

123  Gerber, ‘Competition Law and Global Supply’ (n 122) 24–​6. 124  R Steiner, ‘Intrabrand Competition: Stepchild of Antitrust’ (1991) 36 Antitrust Bulletin 155. See also Sobel-​Read, ‘Global Value Chains: Framework’ (n 116) 384, noting that: ‘One consequence of these evolving strategies is that competition in the global marketplace is becoming increasingly vertical rather than horizontal. In other words, the most effective path for a clothing supplier in Reebok’s value chain is often not to switch to a slightly better contract with a competing brand such as Adidas but instead to advance to higher value-​added work within its existing value chain for Reebok. Such work can include the performance of additional activities (e.g. assembly in addition to cutting) or the performance of current activities for a more profitable market (e.g. cutting high-​performance cotton rather than standard cotton)’ (emphasis added). 125  On the GVC framework and its predecessor Global Commodity Chains, see G Gereffi and M Korzienewicz (eds), Commodity Chains and Global Capitalism (Praeger 1994); R Kaplinsky and M Morris, ‘A Handbook for Value Chain Research’ (2002), available at accessed 6 March 2017.

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actors can capture value. Their focus is on the distribution of the value generated by the chain, rather than the maximization of the surplus (efficiency) as such. GVC’s ‘holistic view’ of global industries centres on the governance of the value chain, that is, how some actors can shape the distribution of profits and risks in the chain. Taking a political economy perspective, the GVC approach explores the way in which economic actors may maintain or improve (‘upgrade’) their position in the GVC. ‘Economic upgrading’ is defined as ‘the process by which economic actors—​firms and workers—​move from low-​value to relatively high-​value activities in GVC’.126 Concerns over global competitiveness, employment, investment in quality competition, and long-​term consumer interest may weigh in the decision of competition authorities to explore the dynamics of GVCs and the way in which issues of distribution may be included in Competition Law assessment. A typology of GVC governance structures was elaborated with the aim of describing and explaining the driving forces for the constitution of GVCs. According to Gary Gereffi and others, there are ‘three key determinants of value chain governance patterns: complexity of transactions; codifiability of information; and capability of suppliers’.127 Their framework is broader than the framework often employed by TCE in order to explain the prevalence of certain forms of organization (hierarchy versus the market system). This is because the latter focuses only on the determinants of asset specificity and the frequency of the transactions as the driving forces for organizational choice.128 The GVC framework draws inspiration from the resource-​based or competences-​ based view of the firm.129 According to the GVC framework, firms are path-​ dependent entities characterized by heterogeneous competence bases and operating under conditions of genuine uncertainty. Firms’ existence is justified by the development of productive competencies and learning for a specific cognitive community that forms the firm’s core. Contrary to what TCE predicts, firms will not necessarily develop specific capabilities and learning in order to engage in certain value activities such as economies of scale and the frequency of transactions. The rationale is that they may be unable to develop the capabilities which are necessary for them to participate in certain value chain activities. Therefore, they will be obliged to appeal to external resources.130 Contrary to the contract theory of the firm, pioneered by TCE, the competence-​based view of the firm inquires into the sources of the competitive advantage and the path-​dependent process of accumulation of such capabilities. 126  G Gereffi, ‘Global Value Chains in a Post-​Washington Consensus World’ (2014) 21 Review of International Political Economy 9, 18. 127  G Gereffi, J Humphrey, and T Sturgeon, ‘The Governance of Global Value Chains’ (2005) 12 Review of International Political Economy 78, 84 (hereafter Gereffi et al, ‘Governance of Global Value Chains’). 128  In a nutshell, the more there is asset specificity and the interaction is long-​term, the more it is justifiable to invest resources in order to build a hierarchy form of organization. 129  Gereffi et al, ‘Governance of Global Value Chains’ (n 127) 81. 130  The competence or resource-​bases view of the firm draws on work by E Penrose, The Theory of the Growth of the Firm (Oxford University Press 1959). See, more generally, G Hodgson, ‘Evolutionary and Competence-​Based Theories of the Firm’ (1998) 25 Journal of Economic Studies 25.

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Various forms of organization of GVCs highlight the importance of conducting a careful analysis of the power relations along the supply chain. The aim for the latter is to unveil value extraction bottlenecks affecting the distribution of the total surplus value. The traditional NPT framework which mainly focuses on horizontal competition and its effects on consumers or total welfare and assesses the competitive interactions between firms within a specific relevant market cannot undertake this analysis. In contrast, the GVC perspective has a distributive focus. The former may be particularly helpful if one aims to understand real business strategies, and how the design of the value chain may determine who profits from the collective innovation and other surplus value generated. Furthermore, the GVC perspective facilitates inter-​country distribution of the total surplus value, in the case of transnational networks. However, if one takes a political economy perspective, and more broadly the impact of value extraction bottlenecks on the competitive process, the latter concept could be intrinsically related to an evolutionary perspective on economic change. We consider that such an approach is particularly helpful for understanding the challenges transnational production raises for Competition Law enforcement. This is particularly the case in the context of GVCs affecting developing or emergent economies.131 This is a topic that has attracted some attention in view of the necessity to promote a political economy framework that will enable local firms to participate in GVCs and thus to capture value, or to ‘upgrade’ existing capabilities and to create ‘domestic’ added value.

2. Responding to new challenges: A Competition Law for the fourth industrial revolution We live during a period of important technological changes, whose impact on economic production and employment, but also the society at large, is not fully comprehended. Like many areas of law, Competition Law comprises of a conceptual toolkit that needs constant updating in order to be implemented in increasingly complex areas of economic activity. In view of the rapid pace of technological advances, law is usually lagging behind. This increases the risk that it may be ineffectual in fulfilling its aims. Similar to many other public authorities, Competition Law enforcers are ill-​prepared to deal with the challenges of the so-​called ‘fourth industrial revolution’.132 We live in a period of convergence of physical, biological, and digital worlds as a result of the recent transformations of industrial production and the dislocation of boundaries between markets. Therefore, one may find that, for instance, the traditional market definition concept based on the principle of cross-​price elasticity between products, from the consumer’s point of view, may fail to describe

131  See, for instance, R Kaplinsky, ‘Competitions Policy and the Global Coffee and Cocoa Value Chains, Paper Prepared for the United Nations Conference for Trade and Development’, Institute of Development Studies, Sussex, Brighton (2004), available at accessed 6 March 2017. 132  K Schwab, The Fourth Industrial Revolution (World Economic Forum 2016).

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the complex competitive interactions of firms constituting a ‘strategic group’,133 disposing of similar resources, and serving the same customers’ needs.134 Therefore, this places constraints on each firm’s action, even if their products do not overlap in the same relevant market. Some may go as far as defining markets as ‘tangible cliques of producers watching each other . . . Pressure from the buyer side creates a mirror in which the producers see themselves, not consumers’.135 How could one proceed to market delineation in a world in which personalization of production means that consumers become the designers of the individually customized products they will consume? It could be the products being produced by 3-​D printing and robots, produced by firms competing mainly on the market for personal information which will serve as the raw material on which personalized production will take place. Various approaches are chosen depending on the type of competition/​tournament taking place in the specific ‘field’.136 Competition can be for the market, as well as take place in the market.137 Platform or system competition characterizes many competitive interactions in the network economy. Looking to the IT sector, in particular, it is undeniable that the development of the World Wide Web has profoundly transformed the global economy. This accentuates transnational commercial activity, first with the dazzling growth of e-​and m-​commerce, and second with the rapid development of global digital platforms, which now constitute the largest in terms of capitalization corporations in the world. The expansion of the more rapid broadband connections, until then merely used by business, to consumers, which were until then connected to the Internet using much slower dial-​up modems, has contributed to this development. The increased use of the Internet, the more intensive use of e-​mail technologies, and the growth of online advertising activity and subsequently the development of Web 2.0 technologies, allowing users to participate in the creation, editing, and distribution of content online, were among the factors explaining the phenomenal increase of the economic significance of electronic commerce and digital platforms globally. The widespread use of smartphones or the development of tablet computers has led to the transition from browsers to apps. This further increases the opportunities for growth of e-​commerce and of the various digital platforms 133  According to M E Porter, Competitive Strategy: Techniques for Analysing Industries and Competitors (Free Press 1980) 129, ‘strategic groups’ constitute a ‘group of firms in an industry following the same or similar strategy along the strategic dimensions’, the firms within a ‘strategic group’ competing more intensely with each other than with firms outside this core group. See also R Reger and A-​S Huff, ‘Strategic Groups: A Cognitive Perspective’ (1993) 14(2) Strategic Management Journal 103 (emphasizing the need to take into account psycho-​sociological factors influencing managers’ cognitive perception about their competitors). 134  M Bergen and M Peteraf, ‘Competitor Identification and Competitor Analysis: A Broad-​Based Managerial Approach’ (2002) 23 Managerial and Decision Economics 157. 135  H White, ‘Where Do Markets Come From?’ (1981) 87 American Journal of Sociology 517. 136  On the concept of ‘field’ and its possible contribution to address complex competitive interactions, see P Bourdieu, ‘Principles of an Economic Anthropology’ in P Bourdieu, The Social Structures of the Economy (Cambridge Polity Press 2005) 193; N Fligstein and D Mcadam, ‘Toward a General Theory of Strategic Action Fields’ (2001) 29 Sociological Theory 1. 137  P Geroski, ‘Competition in Markets and Competition for Markets’ (2003) 3 Journal of Industry, Competition and Trade 151.

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that emerged. Worldwide mobile broadband subscriptions have quadrupled in the past five years, to over 3.5 billion in 2015. Social networking technologies enable social platforms, such as Facebook, or microblogging platforms, such as Twitter, to emerge as additional e-​and m-​commerce sites and platforms, taking advantage of interpersonal connections to provide targeted advertising or promotion of products (social commerce). Big data analytics and the massive collection of personal data may further help in tracking with detail the behaviour of consumers (their digital identity), when navigating the Internet, and help companies predict the kinds of products and services in which consumers may be interested. These tracking technologies, such as barcodes, smart cards, and Radio Frequency Identification devices, are embedded in the various objects. These devices collect data about products and consumers without any human intervention and feed this information into computer systems, thus enabling supply chains to monitor where their products are at all times and consumers’ purchases. Major global companies, including distributors such as Walmart and branded goods suppliers, such as Gillette, Procter & Gamble, Coca-​Cola, Unilever, and Johnson & Johnson, support the Auto-​ID Labs. Moreover, research entities are working on the integration of tracking and communication technologies into business-​to-​business exchanges and on the architecture of the Internet of Things, which will significantly affect the way in which supply chains operate by, for instance, enabling higher in-​transit visibility and significantly cutting down logistics. Physical devices will get direct Internet connectivity, including thermostats, refrigerators, and cars . . . One cannot help but notice the strategic position of digital platforms, which often act as gatekeepers for the Internet as they enable direct interactions between groups of users. The significant amount of IP rights they hold over technology enable lead companies to control global digital value chains, extracting an important share of the total surplus value generated. These companies benefit from ‘network effects’, the value of their services increasing with the number of users, which contributes significantly to digital value creation, notably through data accumulation. These multi-​sided platforms rely on a great variety of business models (fee-​for-​content revenue models, advertising-​supported revenue models, fee for transaction or fee-​for-​service revenue models), sometimes combining many of the above. Firms operating in each of the layers of a digital value chain face an important dilemma. They want to maximize their market power, but they are also hurt if firms operating in other parts of the chain do so as well. Their strategy is to increase competition in other parts of the chain by promoting entry and fragmenting supply, while maintaining their monopoly position in their segment of the chain and cooperating with monopolized segments, thus sharing between them the profits arising out of the activities of the chain. Competition authorities should realize that intervention at one segment of the vertical value chain might lead to adverse unintended consequences at other parts of the chain. Therefore, this makes it necessary to internalize the complexity of the digital value chain as an integral part of the overall business model and its organizational structure, and avoid any

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localized silo-​based competition assessment of a particular segment. As explained in the previous section, interfering with the distribution of value across the various segments of the chain may be justified by the fact that firms enjoying network effects may discourage innovation. This may eventually affect consumers as the lead firms extract most value brought in, and affect the value of the entire value chain. Competition Law enforcement may thus aim to limit the rents extracted to promote innovation across the value chain for the benefit of consumers or more broadly of the economy. Digital value chains rely on multi-​sided platforms that provide a medium through which one set of platform customers delivers value to another set of platform customers. Platforms tend to develop business models that take advantage of these interdependencies of demand between the various groups of customers. Setting the pricing level overall and the pricing structure for each side of the platform becomes an important decision as one side of the platform subsidizes the other. This peculiar market architecture characterizes many different forms of platform, namely, online advertising platforms, search engines, marketplaces, social networks, mobile ecosystems, fintech, etc. The economic geography of these digital platforms indicates that many of them are present outside the United States and in BRICS countries. This is particularly important for BRICS competition authorities to study digital value chains more thoroughly and the interactions between software and hardware companies in this context, including issues relating to the allocation of the total surplus value of the digital chain. Similar studies should be performed in other economic areas affected by the fourth industrial revolution, such as the pharma-​industry, biotechnology, artificial intelligence, robotics, agritech, etc. Advances in communication technologies may also change the dynamics of collusion. Information on prices, but also future pricing trends, may be posted on websites, making price signalling easier. Firm representatives may communicate through ‘facially anonymous’ blogs and chat rooms or webcasts, enabling instant and less traceable communication than ‘old-​fashioned’ press conferences, conference meetings in ‘smoke-​filled rooms’, etc.138 Price fixing through algorithms may replace more classic forms of collusion. This may render detection more difficult for competition authorities which are simultaneously subject to more extensive due process requirements as a result of the extension of human/​fundamental rights protection for corporate defendants. Additionally, one needs to take into account the variety of industrialization strategies chosen and the important role of the state in the emergence of new technologies and innovation in general. Indeed, many important technological advances in various areas of the economy have relied on state funding of research and development and State investment in the further development and commercialization of technologies.139 138  L Kaplow, Competition Policy and Price Fixing (Harvard University Press 2013) 437. 139  M Mazzucato, The Entrepreneurial State (Anthem 2013) (hereafter Mazzucato, The Entrepreneurial State).

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3. Balancing economic development and fair competition: Addressing inequality and the role of Competition Law The rise of inequality and relative as well as absolute poverty in Western societies during the last three decades has been well documented. Yet, the post-​Second World War consensus among growth theorists was that income inequality is a driving force behind income growth, both within and between nations. This led to the perception that there is an efficiency-​equality trade-​off. This consensus has been more recently subject to increased criticism. There is empirical evidence from several cross-​country studies showing how inequality has slowed down national growth rates and may be an impediment to growth.140 More importantly, sharp inequalities of income or wealth may produce negative consequences by establishing some form of path dependence affecting growth. In addition, these inequalities affect personal development, starting with the ‘unequal prenatal development of the foetus’, ‘unequal early childhood development’, and investments by parents, including educational opportunities’. Moreover, these inequalities lead to ‘unequal returns to human capital because of discrimination at one end and use of parental connections in the job market at the other end’.141 This ‘inter-​generational transmission of inequality’ may lead to ‘genetic inequalities’.142 The growing levels of inequality lead to political capture. This creates a vicious cycle where elites influence policy making and regulations to the benefit of their interests. This often results in policies that are detrimental to the interests of the many, which in turn makes inequality worse and reinforces the power of elites still further. This may be cause for major distrust in government and a surge in populism. Many causes explain this rise in poverty and inequality. One may consider that this is owing to globalization of production, the erosion of collective bargaining systems, the continued drop in real wage values, tax evasion, or unfair tax systems. Nevertheless, more importantly for our purposes, there has been the recent focus on market power as a source of inefficiency and inequality. According to Joseph Stiglitz, ‘today’s markets are characterized by the persistence of high monopoly profits’.143 Stiglitz does not accept Joseph Schumpeter’s view that monopolists would only be temporary and argues that today’s markets are characterized by the persistence of 140  See, for instance, A G Berg and J D Ostry, ‘Inequality and Unsustainable Growth: Two Sides of the Same Coin?’, IMF Staff Discussion Note (8 April 2011), available at accessed 6 March 2017 (finding that countries with high inequality experience shortened growth spells); E Dabla-​Norris, K Kochhar, N Suphaphiphat et al, ‘Causes and Consequences of Income Inequality: A Global Perspective’, IMF Staff Discussion Paper (June 2015), available at accessed 6 March 2017 (finding that income distribution matters for growth). 141  R Kanbur and J Stiglitz, ‘Wealth and Income Distribution: New Theories Needed for a New Era’ (18 August 2015), available at accessed 6 March 2017. 142  See P Menchik, ‘Inter-​Generational Transmission of Inequality: An Empirical Study of Wealth Mobility’ (1979) 46(184) Economica New Series, Special Issue on the Economics of Inheritance 349. 143  J E Stiglitz, ‘Monopoly’s New Era’ (13 May 2016), available at accessed 6 March 2017.

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high monopoly profits. A recent report of the Council of Economic Advisers to the White House published in April 2016 tracks the rise of the concentration of various industries in the United States, noting that the ‘majority of industries have seen increases in the revenue share enjoyed by the 50 largest firms between 1997 and 2012’.144 Important developments in the global economy have shifted the structure of various industries towards rising levels of concentration. This is confirmed by the large waves of mergers, acquisitions, and takeovers, following the liberalization of markets and the retreat of state monopolies in various economic sectors. Other factors include the growing importance of financial capital with the recent ‘rise of distorporation’, major industrial empires being controlled by master limited partnerships (MLP) managed by a few global big-​equity companies and institutional investors.145 This is further compounded by the global expansion of intellectual property rights and the need for extensive levels of cooperation between global competitors through cross-​licensing arrangements or patent pools, the development of the Internet, and the importance of network effects and platform competition. Consequently, these have led to unprecedented levels of corporate consolidation on a global scale. Increasing levels of market concentration have become the rule rather than the exception in various sectors of the American and European industries, in crucial, from a social welfare perspective, sectors such as agriculture, retailing, automobiles, banking, and a number of manufacturing industries.146 The upstream agriculture supply industries provide an interesting example of this concentration trend.147 These high concentration levels may affect consumers and industries in BRICS and other emergent economies. Therefore, this builds the case for a more active approach from BRICS towards these industries and a concern over global concentration and distorporation. Traditionally, the analysis of market power, and the corresponding trade-​offs outlined above, do not explicitly deal with distributional issues. The desire to correct for the inefficiency caused by lost (marginal) transactions—​the deadweight loss—​rather than the implicit wealth transfer from consumers to producers motivate the case against monopoly over (infra-​marginal) transactions. Moreover, reliance on firms’ profitability as a guide for enforcement is problematic in light of the difficulty to tell whether high profits are the results of superior efficiency/​quality, or the outcome of anticompetitive entry and expansion barriers. 144  White House CEA, ‘Benefits of Competition and Indicators of Market Power’ (April 2016), available at accessed 6 March 2017. 145  The Economist, ‘Rise of the Distorporation’ (26 October 2013). A recent study has also raised the related issue of horizontal shareholdings, a small group of institutions having acquired large shareholdings in horizontal competitors throughout various economic sectors, causing them to compete less vigorously with each other: E Elhauge, ‘Horizontal Shareholding’ (2016) 109 Harvard Law Review 1267. 146  For a number of examples drawing on the US markets, see B Linn, Cornered: The New Monopoly Capitalism and the Economics of Destruction (Wiley 2010). 147  I Lianos, D Katalevsky, and A Ivanov, ‘The Global Seed Market, Competition Law and Intellectual Property Rights: Untying the Gordian Knot’ (2016) 2 Concurrences Review 62–​80.

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Nevertheless, tackling market power in order to improve consumer surplus is good for inequality given that lower prices (or, better still, higher quality/​price ratios) improve the purchasing power of disposable income. Moreover, where high profits are siphoned off by corporate elites (ie rather than returned to dispersed shareholders), the concern might be that the resulting concentration of income (and, over time, accumulated wealth) is deployed to lobby against redistribution fiscal policies aimed at ameliorating economic inequality. From a macro-​economic perspective, the concern may be that high profits induced by anticompetitive entry and expansion barriers are not reinvested. The resulting low levels of corporate investments would not only reduce aggregate demand, but also suppress productivity growth, which would ultimately place constraints on wage growth.148 Hence, under these circumstances, tough antitrust enforcement ought to be welcome from a distributional perspective as well. A recent paper of the OECD on ‘Market Power and Wealth Distribution’ has attracted attention, as it shows a substantial impact of market power on wealth inequality.149 According to the study that relies in terms of methodology on some work previously completed by Comanor and Smiley in 1975,150 market power may account for a substantial amount of wealth inequality. The report indicates that the increased margins charged to customers as a result of market power will disproportionately harm the poor. The latter will pay more for goods without receiving a counter-​balancing share of increased profits as they are not usually shareholders. On the contrary, the wealthy benefit more from higher profits owing to their generally higher ownership of the stream of corporate profits and capital gains. This study only explored eight developed jurisdictions, thus showcasing the need for equivalent studies to be performed in the context of BRICS and emergent/​developing countries. But is there a case for equality beyond a possible negative effect of inequality on growth and efficiency? Can Competition Law integrate ‘equality’ concerns, without these necessarily being related to economic efficiency? And if this is done, how could this be integrated in Competition Law assessment and what would be its limiting principles, as Competition Law may not have the means, or it may not be desirable, to go after any form of inequality, in particular if this results from ‘business acumen’ and ‘competition on the merits’? Michael Walzer’s concept of ‘complex equality’ may provide a useful limiting principle.151 It is important to intervene in situations of pervasive inequality, which not only affects wealth, income, and social status, but more generally the equality of moral status and mutual respect, as well as the equal 148  The Economist, ‘Too Much of a Good Thing—​Profits Are Too High. America Needs a Giant Dose of Competition’ (26 May 2016), available at accessed 6 March 2017. 149  OECD, ‘Inequality: A Hidden Cost of Market Power’, DAF/​COMP(2015)10 (16 February 2017), available at accessed 6 March 2017. 150  W Comanor and R Smiley, ‘Monopoly and the Distribution of Wealth’ (1975) 89 Quarterly Journal of Economics 177. 151  M Walzer, Spheres of Justice: In Defense of Pluralism and Equality (Basic Books 1984).

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participation in global politics, as citizens of the world having an equal say for decisions affecting the future of mankind. In his recent book entitled, Inequality: What Can Be Done?, Tony Atkinson suggests that: ‘Public policy should aim at a proper balance of power among stakeholders, and to this end should a) introduce an explicitly distributional dimension into competition policy . . .’.152 This proposal raises a number of questions with regard to the way in which Competition Law may square with inequality concerns. First, is the distributional dimension already taken into account in Competition Law? Moreover, if yes, is a ‘proper’ balance of power among stakeholders achieved? Who should define this ‘proper’ balance of power? Second, are the concepts and instruments of Competition Law ready for a more pronounced distributional dimension? What would be the concepts and instruments one needs to develop and the reforms one needs to bring to modern Competition Law enforcement so as to make it more compatible with distributive justice? Third, how will a more proactive distributive justice agenda in Competition Law square with the global governance of antitrust and the fact that consumers are mostly found in developed countries (rather than developing ones) and that many of the actions taken by competition authorities may be thought of as focusing only on certain parts of the population with higher than average revenue? Fourth, is the lack of competition one of the causes of the inequality currently observed in developed countries, such as the United States and the European Union? Fifth, it seems that the growing financialization of the economy has played some role in exacerbating inequalities. As a CEPR blog report recently noted: The financial sector has seen a moderate increase in its share of the workforce and a dramatic increase in pay per worker (between 1978 and 2000, wages rose 73.7% in the financial sector but rose just 12.0% in the private sector more generally). These two factors have allowed finance to capture a growing share of wages and made it so most Americans are unable to share in the economy’s gains.153

If this is true, has the lack of active Competition Law enforcement with regard to the financial sector for decades played a role? Are the existing Competition Law tools sufficient, or not, to take into account the growing importance of overlapping financial investor ownership? What can be done to remedy this problem, in case of course this is something one considers a priority? We consider that the BRICS countries may play a significant role in pushing for the integration of the inequality dimension in the agenda of competition authorities and in engaging in a reflection on Competition Law’s eventual contribution in this highly contentious area, which has been ignored by the mainstream NPT approach.154 152  T Atkinson, Inequality: What Can Be Done? (Harvard University Press 2015). 153  See accessed 6 March 2017. 154  The Second Fundamental Theorem of Welfare economics implies that if a particular state of the economy is judged to be desirable, it may be achieved through lump-​sum transfers, hence separating efficiency from distributive justice. Following the Kaldor-​Hicks criterion of efficiency, economic policy recommendations should be determined by efficiency, distribution remaining a problem for the political realm (the separability thesis).

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4. Enhancing the participation of forgotten stakeholders in the global discussion The NPT-​based model for Competition Law has developed alongside the focus put on consumer welfare, which became the totemic goal allegedly pursued by most Competition Law regimes around the world.155 Consumer welfare may take different dimensions and meanings, but it remains an essential concept in Competition Law analysis, enabling a rigorous assessment of the competitive effects of a specific conduct on an important class of protected interests by legislation. Yet, despite its central position in Competition Law assessment, the concept of consumer welfare may not provide an adequate protection to the interests of other important stakeholders that may also be affected by alleged restrictions of competition. For instance, countries exporting agricultural commodities may not find it in their interest to implement consumer-​welfare-​focused Competition Law statutes, but would find it preferable, from the viewpoint of their interests, to offer a sufficient high level of protection for their producers against abuses of dominant positions by global buyers and processor companies. Moving beyond consumers should not nevertheless lead to the inclusion of any sort of consideration in competition assessment. But it may, however, open a door to a different form of economics that would look at all the costs of the economy, and not only those relating to higher prices or the effect on innovation. All material and symbolic costs relating to the specific economic activity should be analysed, depending of course on the availability of adequate tools to take them into account (for instance, unemployment, consumption of medicines, sustainable development, etc). Bringing in additional stakeholders may provide a missing dimension of great political importance to the discussion. For example, it is clear that farmers’ interests are affected by the high pace of concentration of the factors of production, processing, and retail markets. Faced with a reality of decreasing revenues, small farmers are pressed to produce even more agricultural commodities in order to earn short-​term income in an attempt to meet daily expenses. Consequently, this leads to oversupply and the vicious circle of further depression of prices, sometimes even below the average cost of production. This has particularly devastating consequences in the developing world and emerging economies, as most of their active population is employed in farming. However, these effects are not being alleviated through a high level of state subsidies, as is the case in Europe, for instance. Major developed countries’ competition authorities are unable to control excessive buyer power because of the remoteness of the effects of such power on their consumers. According to the effects doctrine, developing jurisdictions, in which the majority of impoverished farmers are located, should be able to tackle the anticompetitive effect of these 155  For a critical discussion of this concept, see I Lianos, ‘Some Reflections on the Questions of the Goals of EU Competition Law’ in I Lianos and D Geradin (eds), Handbook on European Competition Law: Substantive Aspects (Edward Elgar 2013); see also B Orbach, ‘The Antitrust Consumer Welfare Paradox’ (2011) 7 Journal of Competition Law & Economics 133, 134, who ‘chronicles how academic confusion and thoughtless judicial borrowing led to the rise of a label that 30 years later has no clear meaning’.

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practices, in collaboration with the jurisdictions in which the dominant agribusiness buyers are domiciled.156 This may also alter the decision procedure and decision criteria employed in order to assess anticompetitive practices. For instance, some competition authorities consider sustainability benefits when assessing an otherwise anticompetitive agreement.157 This may include ‘animal welfare’, leading the authority to accept that an agreement that may raise consumer prices but at the same time enhance animal welfare can be justified if the gains in sustainability offsets the price increase resulting from the agreement.158 Some claim that such trade-​off is impossible in view of the incommensurability problem, the benefits and costs being of different kinds, or in other words, qualitatively different. Commensuration is indeed ‘the expression or measurement of characteristics normally represented by different units according to a common metric’,159 that being utility, price, efficiency, and competition. However, the trade-​offs involved between static and dynamic efficiency (actual and future consumers), or those between price and quality, or even between the different individual consumers of the group of consumers affected by the specific restrictive conduct in the ‘relevant market’, may equally be described as conducive to the incommensurability problem.160 Balancing various social values is also an exercise routinely undertaken by 156  O de Schutter, ‘Addressing Concentration in Food Supply Chains’, Briefing Note 03 (2010) 6, available at accessed 6 March 2017. 157  On 23 December 2015, the Dutch Minister of Economic Affairs published a Draft Policy Rule on competition and sustainability for consultation. This Draft Policy Rule provides guidelines on the assessment of whether agreements relating to sustainability are exempted from the prohibition of cartels. The Rules replace the previous rules on competition and sustainability adopted in 2014. See ‘Vision Document of the ACM on Competition and Sustainability’, available at accessed 6 March 2017. 158  The Dutch competition authority (ACM) took into consideration sustainability concerns in agreements involving supermarkets, poultry farmers, and broiler meat processors concerning the selling of chicken meat produced under animal-​welfare-​friendly conditions in a decision adopted in 2015. In particular, the agreement looked to replace the regular chicken with the Chicken of Tomorrow, a chicken raised in a more animal-​friendly manner. In examining the benefits of these agreements, the ACM explored if the measures concerned were valued by consumers and found that the improvements came at a cost higher than the consumers were willing to pay. The ACM concluded that the potential advantages did not outweigh the reduction in consumer choice and potential price increases. See accessed 28 June 2017. Similar sustainability concerns were taken into account with regard to agreements between energy producers to close down coal-​fired plants. See accessed 28 June 2017. One may make similar arguments with regard to an agreement between undertakings to limit the alcohol content of their drinks so as to reduce binge-​drinking. For a discussion of the theoretical framework for such an approach, inspired by the capabilities approach of A Sen and M Nussbaum, see R Claassen and A Gerbrandy, ‘Rethinking European Competition Law: From a Consumer Welfare to a Capability Approach’ (2016) 12(1) Utrecht Law Review 1. 159  W Nelson Espeland and M Stevens, ‘Commensuration as a Social Process’ (1998) 24 Annual Review of Sociology 313, 315 (hereafter Nelson Espeland and Stevens, ‘Commensuration as Social Process’). 160  See the excellent analysis by R Haw Allensworth, ‘The Commensurability Myth in Antitrust’ (2016) 69(1) Vanderbilt Law Review 1.

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constitutional and administrative courts. These exercises sometimes involve issues of greater complexity than the more confined type of economic balancing needed in the context of a Competition Law dispute.161 The alleged incommensurability problem also ignores that commensuration is a social process, by essence deeply political.162 Comparison is excluded between the values thought as incommensurables. However, the choice of finding that values are incommensurable might also indicate that each of these values relies on justifications characterized by different logics, or different ‘orders of worth’.163 In this case, other decision procedures than balancing may be more appropriate, such as lexicographic (or lexical) ordering (so that certain values may take priority with regard to other values without, however, this leading to the suppression of the second ordered value), trumping (some values trumping others), combinations of trumping with balancing, etc. The ability to administer these various decision procedures and their proper design so as to limit substantive errors and procedural costs provides fertile ground for research that may be undertaken by the BRICS competition authorities in the context of the BRICS Joint Research Platform.

5. Reconnecting antitrust with ‘real’ markets, politics, and culture The BRICS Joint Research Platform will aim to expand the knowledge base of Competition Law by integrating the insights of different disciplines shedding light on the way in which markets really function and their interaction with politics and culture in general. This would require, for instance, more work on behavioural economics, economic sociology, and political economy. In a seminal contribution published in 1955, Herbert Simon noted that an individual might not choose his most preferred alternative, but one that is sufficiently satisficing according to his preferences.164 Simon advanced the bounded rationality theory as a challenge to both the descriptive accounts of how individuals (and firms) behave, but also to the normative account of how individuals (and firms) ought to behave. His objective was to ‘replace the global rationality of economic man with a kind of rational behaviour that is compatible with the access to information and the computational capacities that are actually possessed by organisms, including man, in the kinds of environments in which such organisms exist’.165 Simon indicated that the work undertaken by psychologists on choice and learning could be a valuable source of wisdom for economics, although he did not have high hopes about this either. In the absence of usable psychological work, he advanced the view that common experience may be a valuable source in order to understand the ‘gross 161 Ibid. 162  Nelson Espeland and Stevens, ‘Commensuration as Social Process’ (n 159). 163  L Boltanski and L Thévenot, On Justification: Economies of Worth (Princeton University Press 2006), arguing that justifications fall into six main logics: civic (Rousseau), market (Adam Smith), industrial (Saint-​Simon), domestic (Bossuet), inspiration (Augustine), and fame (Hobbes). Of particular interest for our purposes is the distinction made between the civic, market, and industrial logics. 164  H Simon, ‘A Behavioral Model of Rational Choice’ (1955) 69 Quarterly Journal of Economics 99. 165 Ibid.

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characteristics of human choice’. Furthermore, Simon suggested some modifications to the rationality principle so that it corresponds better to observed behaviour processes in humans. This would, for instance, take into account the cost of gathering information for an individual to make a choice, the process being iterative, or the fact that individuals often make a partial ordering of pay-​offs, instead of making a complete ordering by constructing a scale of pay-​offs. The more context-​dependent view of rationality put forward by Simon broke with the conceptualization of individuals by rational choice theory as well-​programmed automatons. It also explained the discrepancies observed between the Rational Choice Theory model and reality. Following the footprints of Simon, a new shift took place in the late 1970s with the work of psychologists Daniel Kahneman and Amos Tversky, who attracted greater attention to psychology in contemporary economic theory.166 The psychological trend that transpires in many recent economic movements, such as behavioural law and economics, experimental economics and neuro-​economics, transforms economics into a sort of cognitive science, where economic behaviour is reconceived based on ‘psychological facts’ discovered with the method of experimental introspection. The psychological experiments showed that individuals discount hyperbolically as some consequences of choice (rewards) are delayed. In addition, individuals prefer rewards that arrive sooner rather than later, thus discounting the value of later rewards. They also demonstrated that the same individual may have inconsistent inter-​temporal choices as he may express a preference for option A instead of B, but after a lapse of time prefer B instead of A. More importantly, Kahneman’s and Tversky’s research showed that human behaviour may be described as the outcome of two different cognitive systems/​processes of choice, which inhabit every individual.167 In what was called System 1, the individual operates automatically and quickly, with little or no effort and no sense of voluntary control. Decisions are reached through intuition, emotional and affective elements playing an important role in decision-​making, which relies on heuristics. In System 2, the individual allocates attention to effortful mental activities, including complex computations. System 2 is mobilized when a question arises for which System 1 does not offer an answer or when an event is detected that violates the model of the world that System 1 maintains. Most importantly, the division of labour between System 1 and System 2 is highly efficient as it minimizes effort and optimizes performance. Processing power biases of individuals may push them to a choice overload, where the multiplication of the options offered to consumers may lead to suboptimal choice in the sense that consumers may follow rules of thumbs; for instance, imitating what other consumers do rather than making their own decisions in order to satisfy their preferences. Tversky and Kahneman also advanced a theory explaining decision-​making under conditions of risk. They argued that most people violate all the axioms of expected utility theory. Their prospect theory is based on psychophysical models and presents 166 For an overview, see D Kahneman, ‘A Psychological Perspective on Economics’ (2003) 93 American Economic Review 162. 167  D Kahneman, Thinking, Fast and Slow (Allen Lane 2011).

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a different account, and a more accurate prediction, of how people really behave.168 However, Kahneman and Tversky were careful not to challenge the normative foundations of Rational Choice Theory and its axiomatic view of individual behaviour. In summary, Kahneman and Tversky found that people’s attitudes towards risks concerning gains may be quite different from their attitudes towards risks concerning losses. Loss aversion and endowment effect imply that selling prices should be higher than buying prices as the minimal compensation people demand to give up a good is often several times larger than the maximum amount they are willing to pay for a commensurate entitlement.169 They also distinguished between different phases of decision-​making. During the editing/​framing phase of decision-​making, they observed the influence of framing effects as choosing an option may be affected by the order or manner in which it is presented to a decision-​maker and choice can be affected by trivial manipulations in the construction of available options. During the evaluation phase in decision-​making, the status quo serves as an operative reference point and hence has a value function, while a different function, the weighing function, measures the impact of the probability of an event on the desirability of a prospect. They advanced the idea that this psycho-​scientific framework should be adopted as a basis for investigating individual (economic) behaviour. Initially, work accomplished by behavioural scientists with anthropologists attempted to explore how preferences were formed through the interaction of an individual with the environment in which its action was set. Research on the foundations of human sociality found that preferences were not exogenous but that they are shaped by the economic and social interactions of everyday life. Therefore, this questions the foundations of marginal and ordinal utility theory which take preferences as a given and a fixed norm that influences decision-​making.170 Adopting an approach that would have analysed preferences as an exogenous factor could have tarnished the pretention of economics to make accurate predictions as to the effects of economic behaviour. The mainstream behavioural economics programme thus took care of not challenging the fundamental assumption of a fixed universal benchmark of full rationality as a normative criterion for making decisions. However, it improved the empirical realism of economic models by describing instances in which an individual’s behaviour violates the principles of full rationality. In essence, 168  D Kahneman and A Tversky, ‘Prospect Theory: An Analysis of Decision under Risk’ (1979) 47 Econometrica 263. 169  The loss aversion biases include endowment biases (consumers value something more once they have owned it more than before they own it). 170 J Henrich, R Boyd, S Bowles, and H Gintis, Foundations of Human Sociality:  Economic Experiments and Ethnographic Evidence from Fifteen Small-​Scale Societies (Oxford University Press 2014) 46, noting that ‘the institutions that define feasible actions may also alter beliefs about consequences of actions and the evaluation of these consequences. For example, a market-​oriented society may develop distinct cognitive capacities and habits. The fact that almost everything has a price in market-​oriented societies provides a cognitive simplification not available to people in societies where money plays a lesser role: namely, allowing the aggregation of disparate objects using a monetary standard as in “$50 of groceries”. To take another example, extensive market interactions may accustom individuals to the idea that interactions with strangers may be mutually beneficial. By contrast, those who do not customarily deal with strangers in mutually advantageous ways may be more likely to treat anonymous interactions as hostile or threatening, or as occasions for the opportunistic pursuit of self-​interest.’

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behavioural economics attempted to draw a map of bounded rationality by exploring the systematic biases that people show in their day-​to-​day behaviour in relation to choices a fully rational agent would have made in similar circumstances. For instance, people may make choices that could satisfy their immediate (hot) preferences (eg smoking a cigarette), which they would have changed had they behaved as if they were fully rational agents (cold preferences). A possible avenue for research will be to abandon the rational choice perspective as a normative criterion and explore the role of culture and social norms in influencing preferences, thus accounting more accurately for the real behaviour of consumers in various settings. Limits in the cognitive capacities of consumers lead them to boundedly rational choices, or as economist Dan Ariely puts it, they act as ‘predictably irrational’.171 People tend to make judgments about the likelihood of an event, based on how easily this event comes to mind (the availability heuristic). Hence, this indicates that prior exposure to a number of events may influence an individual’s subsequent judgments.172 Similarity of an event/​product may also serve as a cognitive short cut in decision-​making, which explains, for instance, why the package of a generic (store) brand (private label) looks similar to that of an established national brand in order to influence consumers’ choice (the representativeness heuristic).173 Ariely advances the concept of ‘zero-​price effect’. The latter suggests that the usual cost-​benefit analysis cannot account for the psychological effect of a free good, consumers perceiving it as intrinsically more valuable than a reduction of the price of the same product from £0.15 to £0.01, because of the ‘affect heuristic’ associating free goods with a good feeling, which surfaces automatically when making decisions under System 1.174 Decisions in risky or uncertain situations are often influenced by anticipatory feelings and emotions experienced in the moment of decision-​making.175 Humans are also averse to change and exhibit a status quo bias, the formation of a habit making it difficult to disengage, unless the incentive to do so is strong. However, this may indicate that higher prices may not be enough for consumers to switch their existing suppliers, procrastination and inertia eventually limiting their ability to exercise an active choice.176 Of particular interest is also the fact that humans often attach more importance to present events than future events, discounting future benefits for actual benefits. Therefore, discounting is non-​linear and its rate may vary over time. Time inconsistency bias may also manifest itself by the impossibility to predict accurately our preferences in the future.177 Preferences are also context-​dependent, 171  D Ariely, Predictably Rational (Harper Collins 2008). 172  A Tversky and D Kahneman, ‘Judgment under Uncertainty: Heuristics and Biases’ (1974) 185 Science (New Series) 1124. 173  D Kahneman and A Tversky, ‘Subjective Probability: A Judgment of Representativeness’ (1972) 3 Cognitive Psychology 430. 174  K Shampanier, N Mazar, and D Ariely, ‘Zero as a Special Price: The True Value of Free Products’ (2007) 26 Marketing Science 742. 175  The risk as feelings model of decision-​making: G Loewenstein, ‘Emotions in Economic Theory and Economic Behaviour’ (2000) 90 American Economic Review 426. 176 D Kahneman and A Tversky, ‘The Psychology of Preference’ (1982) 246(1) Scientific American 160. 177 OFT1224, ‘What Does Behavioural Economics Mean for Competition Policy?’ (March 2010) 6: ‘The time inconsistency biases include: projection bias (consumers expect that they will feel

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the framing of the choice exercising an important influence over the decision of consumers.178 Consumers do not make decisions in isolation in order to satisfy their given preferences, but also embedded in social environments, which inevitably influence, one might even say construct, their preferences.179 Because of these broader social preferences that often frame individual ones, people show that they prefer fairness and reciprocity over inequality and pursuing one’s own self-​interest.180 It is not only monetary incentives that count, but also people’s perception of self, in other words, their social identity.181 Preferences are influenced by social roles, and more broadly social norms, which vary across cultures and contexts. Preferences may even follow choice. Instead of guiding it, the order of preferences mainly aims to rationalize/​justify actions after the fact. The behavioural economics approach challenges the theory of revealed preferences as it cannot be assumed that consumers’ choice on the marketplace represents their ‘true preferences’. The latter is defined as the preferences that a fully rational individual would have had, with all the relevant factual information and the unlimited cognitive abilities to evaluate it through a careful cost-​benefit analysis. The welfare analysis in Competition Law works within a revealed preferences paradigm, when relevant and reliable data on actual purchases are available. In this case, the use of quantitative methods (econometrics) enables competition authorities to estimate the elasticities of demand, in particular the cross-​price elasticity of demand, which measures the sensitivity of demand for one category of products to the price of another category. However, such data are not often available or not specific enough to estimate the cross-​price elasticities of demand for the product(s) in question, in which case properly designed survey methods will measure preferences over hypothetical products and alternatives. In this case, the preferences will be stated as opposed to revealed preferences. Discrete choice survey methods attempt to mimic the situation of choice faced by the consumer in the real world, but it is a proxy really for revealed preferences, assuming that the survey is well designed, the process was conducted to assure objectivity, and that a representative sample of consumers to be surveyed has been selected. However, behavioural economics may question the link between preferences (revealed or stated) and welfare, which forms the basis for the welfare analysis performed in Competition Law. One may not go as far as challenging the assumptions of methodological individualism

the same tomorrow as they do today); over optimism (consumers over estimate how much they will use a good, or underestimate how much it will cost them); and hyperbolic discount biases (consumers value today disproportionately greater than tomorrow.’ 178 D Kahneman and A Tversky, ‘Choices, Values and Frames’ (1984) 39(4) American Psychologist 341. 179 S Lichtenstein and P Slovic (eds), The Construction of Preference (Cambridge University Press 2006). 180  E Fehr and S Gächter, ‘Fairness and Retaliation:  The Economics of Reciprocity’ (2000) 14 Journal of Economic Perspectives 159. 181  G A Akerlof and R Kranton, Identity Economics (Princeton University Press 2010).

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altogether, assuming that this is the dominant approach in economics,182 but it certainly becomes important to acknowledge the crucial role of social structures in framing preferences. This calls for a more extensive analysis of culture and social norms of the BRICS societies. This also raises interesting questions regarding the existence of ‘authentic’, extant preferences, which Competition Law should be deemed to protect. However, these can also be considered as previously constructed preferences that may have ‘stabilized over time, with repeated exposure to sufficiently similar stimuli so that now they are retrieved from memory rather than constructed ad-​hoc when consumers face a similar (even if not identical) choice’.183 The choice construction may partly depend on the consumer’s more abstract values and partly on the context of the specific choice and the options to be evaluated.184 The rise of behavioural economics not only impacts on the demand side through the analysis of consumer biases, but may also influence how the supply side of the market is analysed, firms often acting to exacerbate and exploit consumer biases at every stage in the decision-​making process.185 The role of political institutions in the emergence of markets needs also to be highlighted, market building constituting an important task ensured by the state, in particular in emerging economies.186 The state plays an important role in stabilizing markets, often called by incumbents eager to enjoy stability and limit disruptive competition. One needs to move beyond simplistic oppositions between state capitalism and private enterprise capitalism. These ignore the permeable role of the state in the making and development of markets, and its contribution to the innovative effort of private corporations,187 and engage with the various development paths chosen by the various states and the role of Competition Law in each specific context. Competition Law should take into account this complex environment, even more so as the division of functions between politics and the economy is not as clear cut in emergent and developing countries as it is in the United States and the European Union, and social institutions, including the state, play an important role in shaping the economic sphere.

182  For a different perspective, see G Hodgson, ‘Meanings of Methodological Individualism’ (2007) 14 Journal of Economic Methodology 211. 183  A Tor, ‘Justifying Antitrust: Prediction, Efficiency, and Welfare’ (2016), available at accessed 6 March 2017, 70. 184  The arguments criticizing reliance on preferences as indicators of welfare have been older than the behavioural economics challenge. See, for instance, A Lerner, ‘The Economics and Politics of Consumer Sovereignty’ (1972) 62(1) American Economic Review 258: ‘[I]‌confess I still find a similar rising of my hackles when I hear people’s preferences dismissed as not genuine, because influenced or even created by advertising, and somebody else telling them what they “really want”. In a rich society like ours, only a very tiny part of what people want is determined by their physical and chemical makeup. Almost all needs and desires are built on observation and imitation.’ 185 See OFT1224, ‘What Does Behavioural Economics Mean for Competition Policy?’ (March 2010). 186  See N Fligstein, ‘Markets as Politics:  A Political-​Cultural Approach to Market Institutions’ (1996) 61 American Sociological Review 656. 187  See Mazzucato, The Entrepreneurial State (n 139).

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The role of culture and of the different varieties of capitalism in Competition Law is also a rapidly expanding area of research.188 But more generally, we should be able to critically engage with new work in economics challenging the NPT framework and suggesting different theoretical frameworks in order to understand the way in which ‘real competition’ works in the global marketplace.189 In addition, there should be critical engagement on the impact of path-​dependent lack of ‘real competition’ on the development and growth trajectories of emerging and developing countries.190

6. Renegotiating the boundaries of the ‘regulatory’ sciences of Competition Law The integration of scientific knowledge, in particular economics, in the decision-​ making process in the area of Competition Law, since the 1970s, has been a major step in the transformation of modern Competition Law to some form of technocratic enterprise.191 This is not, of course, a unique development, as many other areas of social regulation, starting with environmental regulation, have seen a similar pattern. In her seminal work on science advisors, Sheilla Jasanoff has noted how the expansion of the role of technical experts with the constitution of specific regulatory institutions led to an isolation of the scientific and political decision-​making and the positivistic value-​fact separation.192 It has also led to the emergence of a ‘regulatory science (science used in policy making)’ or ‘mandated science’, which presents distinct characteristics from ‘science in a research setting’ (or ordinary science).193 Regulatory science includes ‘a component of knowledge production’, as does ordinary science, but also a ‘substantial component of knowledge synthesis’. This includes ‘secondary activities, such as evaluation, screening, and meta-​analysis’.194 ‘Regulatory science’ is largely ‘predictive’, as it feeds decision-​making, the latter being constrained by time and resources, in contrast to an ordinary science-​ setting where a long process of peer reviewing assures a gate-​keeping function.195 Regulatory science also obeys at different standards of validity than ordinary science, as these are the products of ‘uneasy bargains’196 between the scientific experts, in

188  See, for instance, I Lianos and D Sokol (eds), The Global Limits of Competition Law (Stanford University Press 2012) Part V; M Dowdle, J Gillepsie, and I Maher (eds), Asian Capitalism and the Regulation of Competition (Cambridge University Press 2013). 189  A Shaikh, Capitalism: Competition, Conflict, Crises (Oxford University Press 2016). 190 C Salomão Filho, Monopolies and Underdevelopment:  From Colonial Past to Global Reality (Edward Elgar 2015). 191  D Crane, ‘Technocracy and Antitrust’ (2008) 86 Texas Law Review 1159. 192  S Jasanoff, The Fifth Branch: Science Advisers as Policy Makers (Harvard University Press 1990) 17 (hereafter Jasanoff, The Fifth Branch). 193  L Salter, Mandated Science (Kluwer 1988). 194 Jasanoff, The Fifth Branch (n 192) 77. 195 Ibid 78. 196  W Davies, ‘Economic Advice as a Vocation: Symbioses of Scientific and Political Authority’ (2011) 62 British Journal of Sociology 304.

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our case economists, and the other actors in the Competition Law process (judges, lawyers, interest groups).197 Because of the volume of cases, more mature Competition Law legal systems, such as the United States and the European Union, exercise an important influence on the type of economic expertise usually presented in competition cases and the methods of assessing such expertise. More recent Competition Law systems attempt to emulate these processes and often transplant institutional and evidence law innovations developed in the United States and the European Union, such as the position of chief economist, specialized courts in the area of Competition Law, the hot tub procedure for examining party experts, etc. However, despite these common trends, the way in which economics is integrated in each system of Competition Law depends on the specific evidence ecosystem and more generally legal culture. While not focusing on the competition economics field, Marion Fourcade’s excellent comparative cultural sociology analysis of the dialectic relationship between culture and economics in the United States, France, and the United Kingdom provides a useful account of the linkages between institutions and economic analysis and in particular the impact of national constellations and various institutional logics on the development of economic theory and methodology.198 One needs to take into account the institutional specificities, but also more generally the availability of sufficient economic expertise in these jurisdictions in order to rework the boundaries between regulatory science (for instance, economics) and the legal system. For instance, more work needs to be done on the way in which competition authorities and the judiciary in emergent and developing economics deal with economic (and other technical) experts and the impact of the use of economic evidence on the margin of discretion of competition authorities and the standards of judicial review.199 It is also possible that the local market for economic expertise has been foreclosed by the litigation tactics of (global) corporations which proceed by hiring the best experts in order to limit their availability for the competition authorities or private litigants. One may also note more complex entanglements between economic expertise and the corporate world. Some global corporations integrate in their litigation strategy the systematic commissioning of articles to academics, thus further reducing the available options for getting unbiased scientific advice.200 Such 197  On the analysis of the social construction of the standards of validity of econometrics used in the context of competition law enforcement, see I Lianos and C Genakos, ‘Econometric Evidence in EU Competition Law: An Empirical and Theoretical Analysis’, CLES Research Paper Series No 06/​12 (2013). 198  M Fourcade, Economists and Societies (Princeton University Press 2009). 199  See, for instance, S Avdasheva, Y Katsoulacos, S Golovanova, and D Tsytsulina, ‘Economic Analysis in Competition Law Enforcement in Russia: Empirical Evidence Based on Data of Judicial Reviews’ in F Jenny and Y Katsoulacos (eds), Competition Law Enforcement in the BRICS and in Developing Countries (Springer 2016); T Bonakele, ‘The Nature and Use of Economic Evidence in Competition Enforcement (with Special Emphasis to the Case of South Africa)’ in ibid. 200  See, for instance, the recent allegations made against Google’s funding of academic research: Wall Street Journal, ‘Paying Professors:  Inside Google’s Academic Influence Campaign’ (14 July 2017), available at .

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foreclosure may prove to be a profitable strategy in emergent and developing jurisdictions where specialized economic expertise in the area of Competition Law is not often in sufficient supply. The establishment of the BRICS Joint Research Platform will provide BRICS competition authorities and also other emergent and developing jurisdictions with a pool of unbiased academic experts from around the world. These experts would be able to draw on resources for their industry studies, investigations, and horizontal topics of interest. The Platform will also engage with empirical work on the use of economics and other sources of evidence by competition authorities and courts in the BRICS jurisdictions and will aim to suggest institutional reforms and innovations that will enhance the quality of decision-​making in these jurisdictions. The Platform should also facilitate the use of big data analytics, socio-​metric techniques, and advanced social network analysis, which will enable BRICS competition authorities to widen their perspective and respond to their broader array of tasks.

IV. Conclusion More than a decade elapsed after the failure of the most recent efforts to establish a global governance of Competition Law in the context of the WTO. Following the elaboration of the current flexible network-​form of governance at the centre of which sits the ICN, there is a clear understanding that the current institutional setting cannot tackle the externalities generated by more than 120 Competition Law regimes that can potentially regulate parts of the global economy. This raises important concerns for global businesses that need to comply with multiple, and often incompatible, standards. The call for policy convergence aims to mitigate these concerns, while enabling established Competition Law regimes, such as that of the United States and Europe, to influence the convergence point and more generally to take ownership of the process. This state of affairs can first be criticized for not considering the different patterns of diffusion of Competition Law and consequently the variety of Competition Law systems emerging out of the original US antitrust law model. Expecting convergence towards the US model, as it is now implemented, or towards an idealized economics NPT-​based model, seems naive at best and normatively contestable. Indeed, the call for convergence mainly emanates from global business which, understandably, is not keen to incur the costs of overlapping jurisdiction by different Competition Law systems. However, one needs to take a broader perspective and engage with other affected interests, which are often not represented in the debate on the global governance of Competition Law. I put forward a ‘participation-​centred’ approach that would seek to avoid both majority and minority bias. The ultimate objective is not policy convergence as such, but increasing levels of total trust between competition authorities and between competition authorities and their stakeholders. There is lack of participation in this global deliberative space of emergent and developing economies and the inability of various affected interests to be considered. Moreover, the weight in the decision-​making

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process of the two most mature Competition Law regimes, namely, the United States and the European Union, favours a greater involvement of BRICS in the discussion over the architecture of the global governance of Competition Law. I suggest the establishment of a BRICS Joint Research Platform which, in addition to its task to improve the quality of decision-​making within BRICS, will also serve as an alternative forum in the global deliberative space in the area of Competition Law. Its distinctive role will be to represent the views of BRICS jurisdictions, but also to serve as a knowledge platform, contributing innovative ideas elaborated with the requisite academic robustness to the global deliberative space in Competition Law. This chapter provides some initial thoughts on the themes/​directions that the BRICS Joint Research Platform may choose to follow.

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5 BRICS and the Global Competition Law Project Alexey Yurievich Ivanov*

I.  Context: The Imperialist, The Universalist, and the Internationalist in Between The competition authorities of BRICS signed a Memorandum of Understanding (MoU) in Saint Petersburg on 19 May 2016. By signing the MoU, competition authorities promised to strengthen cooperation in the field of Competition Law and policy based on the principles of mutual trust and respect, in order to promote long-​ term sustainable and accelerated development of the BRICS economies. The MoU announces that its main purpose is ‘to set up an institutional partnership between the parties’. In my view, this timely initiative provides new hope for the global Competition Law project that has apparently lost its momentum in recent times while struggling to find a way through the complicated geopolitical realms. Any debate about the legal framework for global economic competition is dependent on the broader perceptions of the global marketplace and the international legal order. Some years ago, the American Enterprise Institute organized a representative scholarly conference as ‘the first attempt to examine the dilemmas of global antitrust enforcement, and practical steps for addressing them, in a rigorous and systematic fashion’.1 After summarizing the participants’ positions, Richard Epstein and Michael Greve came to an interesting conclusion. ‘The disagreement, rather, is rooted in questions of political economy and, in particular, differences of opinion about the extent to which international institutions, given the political forces that operate on them, are likely to get the rules “right”.’2 *  Director at the HSE-​Skolkovo Institute for Law and Development in Moscow, Russia. 1  C DeMuth, ‘Foreword’ in Richard A Epstein and Michael S Greve (eds), Competition Laws in Conflict: Antitrust Jurisdiction in the Global Economy (AEI Press 2004) ix (hereafter Epstein and Greve, Competition Laws in Conflict). 2 R A  Epstein and M S Greve, ‘Postscript:  In Defense of Small Steps’ in Epstein and Greve, Competition Laws in Conflict (n 1) 340. BRICS and the Global Competition Law Project. Alexey Yurievich Ivanov. © Alexey Yurievich Ivanov, 2017. Published 2017 by Oxford University Press.

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These ‘roots’ of global antitrust governance residing within the domain of international politics are making it necessary to look at the development of the global Competition Law project through the wider lens of the development of the international legal order. The convenient threefold division of the leading perceptions of the world order are well established by Hedley Bull in his already classic book entitled, The Anarchical Society: A Study of Order in World Politics.3 Bull identifies ‘three competing traditions of thought. They include the Hobbesian or realist tradition, which views international politics as a stake of war; the Kantian or Universalist tradition, which sees at work in international politics as potential community of mankind; and the Grotian or internationalist tradition, which views international politics as taking place within an international society’.4 The global governance of antitrust has already pronounced itself through all these modes of the international legal order. However, it seems that it is still in search of its optimal self-​realization. In Hedley Bull’s paradigm, ‘the Hobbesian prescription of international conduct is that the state is free to pursue its goals in relation to other states without moral or legal restrictions of any kind. According to this view, ideas of morality and law are valid only in the context of a society, but international life is beyond the bounds of any society’.5 Charles Parker reminds us that, in early modernity, ‘[t]‌he trading structures that moved merchandise over long distances were closely interconnected with the expansion of empires’.6 ‘Consequently, international commerce was not simply the working of supply and demand in a free market. Rather, imperial regimes sought to influence the conditions of trade for their benefit.’7 The use of imperium could take the form of not only direct military intervention, but also of trade war or other forms of aggressive protectionism. This broad understanding of imperium, which accepts ‘a stake of war’ as a method of maximizing a nation’s wealth, also fits into the model of the Hobbesian world order. In general, a stake of war requires a kind of protective umbrella (a sovereign state or an alliance of states) on the one hand, and exclusionary self-​centred behaviour towards those who are not covered by the protective umbrella on the other. This characteristic feature of the Hobbesian perception of the world order makes imperium the most important force and ultimate regulator of global economic relations. Under the Hobbesian approach, Lenin’s notion that ‘politics is a concentrated expression of economy’8 and von

3  H Bull, The Anarchical Society: A Study of Order in World Politics (Columbia University Press 1977) (hereafter Bull, The Anarchical Society). 4 Ibid 24. 5 Ibid 25. 6  C Parker, Global Interactions in the Early Modern Age: 1400–​1800 (Cambridge University Press 2010) 69–​70. 7 Ibid 70. 8  Ленин В.И. Eще раз о профсоюзах, о текущем моменте и об ошибках товарищей Троцкого и Бухарина/​Ленин В. И., Полное собрание соч., 5 изд., т. 42, М. [1970], с. 278 (V

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Clausewitz’s view that ‘war is merely the continuation of politics by other means’9 both ring true. The global marketplace could perfectly coincide with this type of international legal order. In many senses, the globalization of trade and investment was, according to Charles Parker, a result of imperial Hobbesian projects. In the middle of the nineteenth century, Karl Marx and Friedrich Engels already asserted that, ‘[m]‌odern industry has established the world-​market’,10 and by the second half of the nineteenth century, ‘the bourgeoisie has . . . given a cosmopolitan character to production and consumption in every country’.11 Moreover, the level of market globalization in terms of the free movement of goods, finances, and services was in many senses higher before the First World War than it was in 2000.12 Meanwhile, the Hobbesian perception still has important implications for the economic arena, and particularly for the global Competition Law development agenda. In this sphere, the Hobbesian approach supports the status quo of the ‘global Competition Law regime based solely on the principles of sovereignty’.13 This sovereignty-​focused Hobbesian vision of global competition subordinated Competition Law to national trade policy and created a perception of using ‘antitrust as just another tool to advance national interests’.14 Quite logically, in 1918 in the United States (one of the few countries with established competition laws at the time), Congress passed the Webb-​Pomerene Act, which ‘allows American companies to collude in foreign markets’.15 Congressman Webb explained its enactment in the following way: ‘I would keep [the American manufacturer] within the provisions of the Sherman antitrust law wherever the American flag flies but outside I would turn him loose.’16 The core element of the jurisdiction-​based regime for global Competition Law is so-​called jurisdiction unilateralism17—​an extraterritorial application of competition laws by those states that are economically and politically able to do so. Jurisdiction unilateralism is currently widely supported in the United States as a primary method of dealing with the global dimension of economic competition. It Lenin, ‘Again on Unions, Current Moment and Errors of Comrades Trotcky and Buharin’ in V Lenin, Full Collection of Works, vol 42 (5th edn, Izdatelstvo Politicheskoi Literatury 1970) 278 (in Russian). 9  C von Clausewitz, On War, Book 1, ch 1, para 24 (translated by J J Graham 1874, repr 1909), the Project Gutenberg e-​Book, Release Date: 25 February 2006 [EBook #1946], available at accessed 27 February 2017. 10  K Marx and F Engels, The Communist Manifesto (English edn of 1888), the Project Gutenberg e-​Book, Release Date: 25 January 2005 [EBook #61], available at accessed 27 February 2017. 11 Ibid. 12  R Findlay and K H O’Rouke, Power and Plenty: Trade, War, and the World Economy in the Second Millennium (Princeton University Press 2007) 500. 13  D Gerber, Global Competition: Law, Markets, and Globalization (Oxford University Press 2010) 74 (hereafter Gerber, Global Competition). 14  C Ryngaert, Jurisdiction over Antitrust Violations in International Law (Intersentia 2008) 145. 15  E Meltin, A J Batts, and J R Martin, ‘The Webb-​Pomerene Act: A Relic that Has Outlived Its Usefulness’ [2006] Antitrust Review of the Americas 84. 16  53 Con Rec 13701 (1916). 17  See Gerber, Global Competition (n 13) 63–​74.

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is based on ‘the US assertion of an unprecedented power to enforce its antitrust laws extraterritorially, coupled with its subsequent practice of moderating that jurisdiction through comity (again, through standards of its own design)’.18 This moderating comity is currently perceived in the United States as a major way of developing global Competition Law. Such comity could be seen as an element of the rules of prudence or expediency characteristic of the Hobbesian approach, and is largely driven by the motive to make the global marketplace more comfortable for imperial businesses going global.19 Beyond this, as former Chairman of the US Federal Trade Commission Robert Pitofsky puts it, development of global Competition Law ‘through negotiations and agreement about core principles is simply not likely to occur’.20 Ernst-​ Ulrich Petersmann is a former legal advisor for the GATT, WTO, and the German Ministry of Economic Affairs, and the Chairman of the International Trade Law Committee of the International Law Association. He noted that ‘[t]‌he opposition by US antitrust authorities towards WTO negotiations on international competition rules, for instance, appears to be largely motivated by bureaucratic self-​interests in protecting the autonomy of US antitrust authorities’,21 which basically represents some scent of the Hobbesian approach to the world order. At the same time, this Hobbesian approach to global competition creates a clash of Competition Law jurisdictions of the most developed countries, which have the economic and political power to pursue their interests in this ‘stake-​of-​ war’ framework. Eleanor Fox expressed this jurisdictional clash in the following way: ‘Aggressive extraterritorial law may intrude upon another nation’s prerogatives. If the latter nation is likewise industrialized, it is likely to fight back, perhaps by trade war or retaliation.’22 The second important implication of the Hobbesian interpretations of global economic competition is that unilateral jurisdictional extraterritoriality became ‘a tool of mature economies that possess sufficient power over outsiders to command obedience. Less developed and developing countries lack the requisite power to reach and discipline offshore actors that harm them’.23 Eleanor Fox provides the example of the Union Pacific/​Southern Pacific merger.24 This merger, which was completed in 1995, was clearly detrimental for Mexican consumers and shippers, who were left at the mercy of a new monopoly and had to bear monopoly charges on both southbound and northbound traffic. However, the Surface Transportation Board (the US authority that has the right to approve and exempt railroad mergers

18  E T Swaine, ‘Against Principled Antitrust’ (2003) 43 Va J Int’l L 999. 19  R Pitofsky, ‘Antitrust Cooperation, Global Trade, and US Competition Policy’ in C A Jones and M Matsushita (eds), Competition Policy in the Global Trading System (Kluwer Law International 2002) 54. 20 Ibid 58. 21 E-​ U Petersmann, ‘From “Negative” to “Positive” Integration in the WTO:  Time for “Mainstreaming Human Rights” into WTO Law?’ (2000) 37 Common Market Law Review 1373 (hereafter Petersmann, ‘From “Negative” to “Positive” Integration in the WTO’). 22  E Fox, ‘Global Markets, National Law, and the Regulation of Business: A View from the Top’ (2001) 75 St John’s L Rev 385. 23  See ibid 387–​8. 24 Ibid.

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in the ‘public interest’) ‘was not concerned about the impact of the merger on foreigners’ despite the relevant request from the Mexican Competition Commission.25 These cases demonstrate that the Hobbesian interpretation of the world order still underlines many important policy decisions and economic choices. It cannot be excluded from the calculus of the global competitive process. Yet the aforementioned factors have made the demand for a new global competition regime, based on more inclusive and less power-​centred principles, a strong factor of change. Moreover, according to the rules of dialectical development, the Hobbesian approach has been counterbalanced by its antithesis—​the Universalist or Kantian perception of the world order. The dominant theme of the Kantian approach is ‘the relationship among all men in the community of mankind—​which exists potentially, even if it does not exist actually, and which when it comes into being will sweep the system of states into limbo’.26 This Universalist approach is referred to as Kantian for convenience because his understanding of the Perpetual Peace 27 and a ‘wider community of the people on the earth’28 stylistically and methodologically fits the contemporary political and legal agenda. However, the idea of the world as a community of mankind is one of the oldest notions in human history driven by the universal sense of peace and justice.

II.  Development in the Aftermath of War, Hot and Cold A. Post Second World War The Universalist approach got a new powerful impulse after the World Wars. Thereupon the ‘Kantian or universalist interpretations have been fed by a striving to transcend the states system so as to escape the conflict and disorder that have accompanied it in this [twentieth] century’.29 This move allowed global Competition Law’s agenda to be reconsidered. ‘The idea of an international community with shared responsibility for protecting global competition was now haunted by the obvious lack of any sense of international community during the preceding 15 years.’30 The United States became the primary moving force behind the establishment and proliferation of this perception of the world order. It was very important for the time because of the tremendous significance of the United States in the post-​war world. G John Ikenberry notes that: ‘No state in history has been so well positioned after a major war to shape international order as the US was in 1945. It emerged from the most violent and destructive war in history as the most powerful state the world had ever seen.’31 25 Ibid 388. 26  See Bull, The Anarchical Society (n 3) 25. 27  I Kant, ‘Perpetual Peace: A Philosophical Essay’ in W Hastie (ed and translator), Kant’s Principles of Politics: Including His Essay on Perpetual Peace. A Contribution to Political Science (T&T Clark 1891) 331–46. 28 Ibid 103. 29  See Bull, The Anarchical Society (n 3) 38. 30  See Gerber, Global Competition (n 13) 38–​9. 31  G J Ikenberry, Liberal Leviathan: The Origins, Crisis, and Transformation of the American World Order (Princeton University Press 2011) 162.

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The American post-​war policy and vision of the world included some Kantian, progressive aspirations. According to Ikenberry, ‘officials in the Roosevelt and Truman administrations shared the view that the order they were devising was ultimately universal in scope’.32 ‘More generally, American officials understood that a liberal international order would provide a framework for progressive change. There was an implicit sense that American-​led order, Westernization, economic integration, and political development were all compatible and connected, together yielding a one-​world global system that advanced the life conditions of everyone.’33 This model of the ‘one-​world global system’ perfectly fits the Kantian approach, as it is established by Hedley Bull—​‘international politics, considered from this perspective, is not a purely distributive or zero-​sum game, as the Hobbesians maintain, but a purely cooperative or non-​zero-​sum game’.34 The Kantian interpretation of the world order gave new life to the idea of global Competition Law. This idea was implemented in a large-​scale project led by the United States to create a stable legal and institutional framework for the global economy. Following a US proposal,35 the Economic and Social Council of the United Nations called an International Conference on Trade and Employment in 1946 for the purpose of promoting the expansion of the production, exchange, and consumption of goods. The conference, which met in Havana on 21 November 1947 and ended on 24 March 1948, drew up the Havana Charter for an International Trade Organization (ITO)36 to be submitted to the governments represented there. John Braithwaite and Peter Drahos point out that, considering the provisions of the Havana Charter, ‘the ITO would have become an international regulator of restrictive business practices in the same way that the GATT was to become an international regulator of industry protection’.37 This model of global Competition Law has some very universalist characteristics. First, it is based on the idea that it is necessary to establish the rule of law on a global level to achieve common goals for all mankind. Therefore, this was a serious move away from the Hobbesian perception of the world order. Second, it has an important development dimension to it that focuses on the facilitation of equal and open access to the markets, products, and productive facilities needed for economic prosperity and development, particularly for developing countries.

32 Ibid 190. 33 Ibid 191. 34  See Bull, The Anarchical Society (n 3) 38. 35  In its proposal, the United States insists that, according to the logic of the dichotomy between the Kantian and Hobbesian traditions, ‘the fundamental choice is whether countries will struggle against each other for wealth and power, or work together for security and mutual advantage’ (see US Department of State, Proposals for Consideration by an International Conference on Trade and Employment 1–​2 (6 December 1945)). 36  UN Conference on Trade and Employment held at Havana, Cuba from 21 November 1947 to 24 March 1948 Final Act and Related Documents, available at accessed 27 February 2017. 37  J Braithwaite and P Drahos, Global Business Regulation (Cambridge University Press 2000) 187.

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The Charter was signed by fifty-​three countries in March 1948. On 28 April 1949, US President Truman submitted the Charter to Congress for approval, but Congress did not ratify it. David Gerber explains Congress’ denial of the Havana global competition project using geopolitical factors—​growing tensions between two blocs and the escalation of the Cold War.38 In 1949, Mao Zedong’s Communist Party came into power in China, and a year later the Korean War started and McCarthyism spread around America like a virus. In such a political context, ‘there seemed to be little justification for the US to accept the constraints on its political power and economic opportunities that an international organization might impose’.39 The Hobbesian approach was on the rise once again.

B. Post Cold War and the ‘End of History’ Another force behind the move towards the Kantian approach to the world order was faith in open and free markets as a Universalist notion. The end of the Cold War, along with the established Washington consensus that the wealth of nations will result from trade and investment liberalization, privatization, and deregulation,40 changed the perceived nature of the global marketplace and opened doors for new opportunities, one of which ‘lies in the area of Competition Law’.41 David Gerber remarks that, ‘the disintegration of the Soviet Union in 1991 made global competition again possible’.42 The idea of a free and open global market as a Universalist approach became extremely powerful in the 1980s in the United States and Great Britain. This overriding faith in the magic of the free market shows some of the same characteristic features as the Kantian approach. ‘Within the community of all mankind, on the universalist view, the interests of all men are one and the same.’43 Milton Friedman echoes this notion, saying that ‘the operation of the free market is so essential, not only to promote productive efficiency, but even more to foster harmony and peace among the people of the world’.44 Richard Posner supports the idea with the following statement: ‘I do think the minimum state as defined by the economic analysis of market failure is the state that works best to achieve the common goals of most people in the world.’45

38  See Gerber, Global Competition (n 13) 46. 39 Ibid. 40  R Geiger, ‘The Development of the World Economy and Competition Law’ in R Zach and A Heinmann (eds), The Development of Competition Law:  Global Perspectives (Edward Elgar 2010) 235, 238. 41  E Fox, ‘Toward World Antitrust and Market Access’ (1997) 91 Am J Int’l L 1. 42 Gerber, Global Competition (n 13) 77. 43  See Bull, The Anarchical Society (n 3) 38. 44  ‘Free to Choose: Vol. 1: The Power of the Market: The Pencil Story’ (1980), available at accessed 27 February 2017 (hereafter ‘Free to Choose’). 45  R Posner, ‘Law and Economics Is Moral’ in R P Malloy and J Evensky (eds), Adam Smith and the Philosophy of Law and Economics (Kluwer Academic Publishers 1994) 170 (hereafter Posner, ‘Law and Economics Is Moral’).

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This perception of a harmonic and peaceful world order united by the universal understanding of human nature and human needs is in stark contrast to the vision of ‘a world of far-​flung and often hostile nations’.46 The rise of this new perception provided the momentum for institutional and legal changes. As Jon Hanson and Ronald Chen framed it, ‘In brief, what changed was the meta script,47 which forms the ideas, concepts and conclusions comprising the first and “highest” level of the law’.48 In the 1980s, both Thatcher and Reagan ‘embraced and made famous a version of what would become the modern (post-​Keynesian) summary meta script: markets are good; regulation bad’.49 This switch to deregulatory policy could be just one episode in a long line of policy shifts and transformations, which are usually cyclical in nature and tend to switch places every so often. But ‘[t]‌he way the Cold War ended, with the triumph of the US and the liberal model, bolstered the credence of the privatization and deregulation ideas prominent in the US and emboldened many (generally US-​supported) international organizations to drop Cold-​War-​style “impartiality” and push for liberal, capitalist change’.50 This remarkable coincidence of the policy shift in the United States towards the ‘small state’ paradigm and the collapse of the social model of the ‘big state’ did promote an overriding faith in the rationality of the free market. It also even led some commentators to predict that ‘[w]‌hat we may be witnessing is not just the end of the Cold War, or the passing of a particular period of post-​war history, but the end of history as such: that is, the end point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government’.51 At about the same time, the end of history in the evolution of American antitrust law was pronounced after it successfully survived the Crisis in Antitrust.52 As Herbert Hovenkamp summarized it: ‘After decades of debate, today we enjoy more consensus about the goals of the antitrust laws than at any time in the last half century.’53

46  R A Epstein and M S Greve, ‘Introduction: The Intractable Problem of Antitrust Jurisdiction’ in R A Epstein and M S Greve (eds), Competition Laws in Conflict: Antitrust Jurisdiction in the Global Economy (AEI Press 2004) 26 (hereafter Epstein and Greve, ‘Introduction’). 47  J Hanson and R Chen, ‘The Illusion of Law: The Legitimating Schemas of Modern Policy and Corporate Law’ (2004) 103 Mich L Rev 4, 10 (hereafter Hanson and Chen, ‘The Illusion of Law’). 48 Ibid 6. 49 Ibid 11. 50  D D Avant, M Finnemore, and S K Sell, ‘Who Governs the Globe?’ in D D Avant and M Finnemore (eds), Who Governs the Globe? (Cambridge University Press 2010) 1–10. 51  F Fukuyama, ‘The End of History?’ The National Interest (summer 1989) 3 (hereafter Fukuyama, ‘The End of History?’). 52  The crisis in antitrust was a provocative title of the article written by R H Bork and W S Bowman, Jr and published first in Fortune Magazine in August 1964 and then reproduced in 1965 in Columbia Law Review as a part of the initiated scholarly debate. See ‘The Goals of Antitrust: A Dialogue on Policy’ (1965) 65 Colum L Rev 363. The ideas first expressed in this article later elaborated by Robert Bork in his famous book The Antitrust Paradox: A Policy at War with Itself (Basic Books 1978) triggered the so-​ called American conservative antitrust revolution. 53  H Hovenkamp, The Antitrust Enterprise: Principle and Execution (Harvard University Press 2008) 1 (hereafter Hovenkamp, The Antitrust Enterprise).

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According to Fukuyama: The end of history will be a very sad time. The struggle for recognition, the willingness to risk one’s life for a purely abstract goal, the worldwide ideological struggle that called forth daring, courage, imagination, and idealism, will be replaced by economic calculation, the endless solving of technical problems, environmental concerns, and the satisfaction of sophisticated consumer demands.54

When Daniel Crane announced the end of history in antitrust law, he almost seemed to be paraphrasing Francis Fukuyama: There have been times in American history when antitrust was a magisterial pursuit that stirred the public imagination, exposed visceral ideological impulses, and shaped perspectives on adjacent matters, like labour policy, securities regulation, and taxation. Presidents invoked antitrust in inaugural and State of the Union addresses. Both major political parties devoted entire planks of their quadrennial platforms to it, and muckraking journalists made their careers on it. For better or worse, antitrust was a populist and democratic enterprise. Since the Chicago School revolution in the 1970s, federal antitrust enforcement has become considerably less democratic and more technocratic. It has become increasingly separated from popular politics, insulated from direct democratic pressures, delegated to industrial-​ policy specialists, and compartmentalized as a regulatory discipline. Presidents no longer pay attention to it, the major political parties’ platforms no longer mention it, and the public does not follow it.55

As any end of history in the evolution of thought, this one, according to Crane, was also marked with ‘consensus on antitrust goals, resolution of the most divisive ideological questions, and the absence of a need to balance the interests of identified groups’.56 This technocratic shift was widely supported by scholars. For example, Epstein and Greve assert that, ‘to a greater extent than other regulatory regimes, antitrust law is informed—​at least in the US—​by a well-​understood, well-​developed economic theory that sets its initial presumption in favour of competition and against monopoly’.57 As with Fukuyama’s whole-​scale end of history, the end of history in antitrust also ended up with the same single purpose—​‘the satisfaction of sophisticated consumer demands’. The US Supreme Court’s landmark decision in Reiter v Sonotone made it clear that ‘the Congress designed the Sherman Act as a “consumer welfare prescription” ’,58 and cited Robert Bork’s book entitled, The Antitrust Paradox: The Policy at War with Itself. In their statement about the objectives of Competition Law and policy, the US representatives at the OECD Global Forum on Competition asserted that: ‘The modern consensus is that the objective of antitrust policy is to maximize consumer 54  See Fukuyama, ‘The End of History?’ (n 51) 18. 55  D A Crane, ‘Technocracy and Antitrust’ (2008) 86 Texas Law Review 1159. 57  Epstein and Greve, ‘Introduction’ (n 46) 1. 58  Reiter v Sonotone Corp, 442 US 330, 343 (1979).

56 Ibid.

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welfare and promote economic efficiency through the optimal allocation of resources in a competitive market context.’59

C. Consensus and the Binding Therein Consumer demands indeed became a central element of the new Universalist vision of the world. Consumer primacy is at the core of the neo-​liberal ideology that arose in the late twentieth century. This ideology embraced a certain portion of populist rhetoric, putting the needs of consumers as the broader public at the centre of its creed. The notion of ‘Free to Choose’ became a quintessential expression of the benefits that this new vision was supposed to give to people. There is an established opinion that, after the conservative revolution in American antitrust, the discourse then shifted from political debates towards almost scientific technicality and precision. However, Robert Bork and Ward Bowman’s landmark article entitled, ‘The Crisis in Antitrust’ (1964) was actually a political manifesto rather than a technocratic argument. They indeed start their article by calling for public attention: ‘Anti-​free-​market forces now have the upper hand and are steadily broadening and consolidating their victory. The continued acceptance and expansion of their doctrine, which today constitutes antitrust’s growing edge, threaten within the foreseeable future to destroy the antitrust laws as guarantors of a competitive economy.’60 They then assert the importance of antitrust as not ‘merely a set of economic prescriptions applicable to a sector of the economy’.61 They insist that antitrust ‘is much more than that; it is also an expression of a social philosophy, an educative force, and a political symbol of extraordinary potency’.62 In addition, in classical political manifesto style, they warn that, ‘[i]‌ts capture by the opponents of the free market is thus likely to have effects far beyond the confines of antitrust itself ’.63 Bork and Bowman end their manifesto with an identification of the malicious social forces and their victims: ‘The crisis in antitrust, therefore, seems finally traceable to widespread economic misconceptions that create the opportunity for groups with political power to extract rewards from customers that they cannot command in the market place.’64 Answers to Bork and Bowman’s critique were also given in the form of political debate. Moreover, they were themselves accused of promoting populist ideas close to those that were traditionally associated with the critique of market economy and competitive markets. In the same issue of the Columbia Law Review of 1965, Columbia University professors Harlan M Blake and William K Jones responded to Bork and Bowman’s 59  The Objectives of Competition Law and Policy, and the Optimal Design of a Competition Agency (Organisation for Economic Cooperation and Development 2003), available at accessed 27 February 2017. 60  R H Bork and W S Bowman, Jr, ‘The Crisis in Antitrust’ (1965) 65 Columbia Law Review 364. 61 Ibid. 62 Ibid. 63 Ibid. 64 Ibid 376.

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‘attack on antitrust’.65 First, they warned that this ‘attack is of deep significance’.66 It ‘lends intellectual support to those who periodically seek to persuade Congress to weaken the antitrust laws—​laws that for 75 years have provided the chief bulwark against economic and political forces which historically lead first to a monopolized and then to a socialized economy’.67 Then, they assert that ‘[a]‌ntitrust has always had many enemies’,68 and named them: ‘Marxists and other socialists’, for whom ‘antitrust has always been anathema’.69 ‘The planners’, who, ‘like socialists, focus on the shortcomings of the competitive system’;70 ‘business leaders, particularly in large corporations, who share some of the views of planners’;71 and finally, ‘the small businessmen’, for whom ‘the essence of the competitive system is the individual competitor, who must be preserved at all costs against the inroads of his rivals’.72 As we can see, all of these enemies of antitrust more or less fit the broad category of ‘opponents of the free market’. But Blake and Jones concluded that: ‘The “new critics” of antitrust, including Professors Bork and Bowman, pursue the course of some older adversaries and purport to fight under the banner of competition.’73 However, the power of appeal to consumer demands turned out to be a very powerful political argument, which finally gave support to this controversial ideological shift. As Jon Hanson noted, ‘[p]‌erhaps the most compelling reason offered for preferring markets to regulation is the idea that the former sets people free, while the latter coerces them’.74 The temptation of the freedom to choose became a powerful instrument in both politics and regulatory reform. The consumer primacy idea has a Universalist nature. It is based on the perceived similarity of human nature and basic human needs and desires. Homo Economicus, a rational actor, who bases his choices on a perception of his own personal ‘utility function’, became a major character in economic considerations. The Universalist nature of this ideology, at the same time, has implications for the development of the global Competition Law project. Consider that Milton Friedman made the assertion that ‘the operation of the free market . . . foster[s]‌harmony and peace among the people of the world’.75 The populist part of the neo-​liberal agenda is to focus on consumer welfare, and triggered a broader question—​why is it that Competition Law calculus does not include the consumer welfare of other nations? In a similar fashion, Richard Posner sees a free and open market as something that ‘works best to achieve the common goals of most people in the world’.76 It is quite consistent with the Universalist faith recognizing consumers’ interests as coming from human nature and the global market, but not political domain.

65  H M Blake and W K Jones, ‘In Defense of Antitrust’ (1965) 65 Columbia Law Review 377. 66 Ibid. 67 Ibid. 68 Ibid. 69 Ibid. 70 Ibid 378. 71 Ibid 379. 72 Ibid 380. 73 Ibid 381. 74  See Hanson and Chen, ‘The Illusion of Law’ (n 47) 99. 75  ‘Free to Choose’ (n 44). 76  Posner, ‘Law and Economics Is Moral’ (n 45) 170.

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From this point of view, Eleanor Fox quite logically insists that ‘[a]‌vision of human rights that includes human economic welfare, in addition to the neoclassical economic view of aggregate economic welfare, is therefore necessary’.77 According to David Gerber, global Competition Law should respond ‘to people’s needs everywhere’.78 Chris Noonan insists that ‘[t]‌he process [towards global Competition Law] should start by building a consensus among states that the long-​ term interests of all states would be advanced if international Competition Law had the overall objective of maximizing global consumer welfare’.79 This global consumer welfare prescription is based on the ideological paradigm promoted as a part of the liberalization project, but also has a normative background. The International Covenant on Economic, Social and Cultural Rights,80 which is a part of the universal regime of human rights protection, recognizes most consumer demands as an essential element of human dignity. The incorporation of these important human rights into the UN Corpus Juris of universal human rights protection provides a number of efficient legal mechanisms for their implementation in national law enforcement. ‘The dynamic functions of human rights and fundamental citizen rights have prompted many courts (notably in Europe) to adopt functional and teleological interpretations that have progressively extended individual freedoms across frontiers and beyond traditionally more narrow interpretations.’81 Moreover, according to the Preamble to the Covenant, adopted by the United Nations: ‘Recognizing that, in accordance with the Universal Declaration of Human Rights, the ideal of free human beings enjoying freedom from fear and want can only be achieved if conditions are created whereby everyone may enjoy his economic, social and cultural rights, as well as his civil and political rights.’ As we can see, Milton Friedman’s rhetoric about freedom perfectly fits the underlying idea of this universal human rights international treaty. However, this promising idea for the development of the global Competition Law project did not produce any substantial result. One of the reasons for this is a large number of inconsistencies in this neo-​liberal universal faith.

III.  Fallacy of Consumer Primacy The idea of maximizing consumer welfare as a core element of the harmonious and scientifically proven Competition Law calculus eventually showed some flaws, including those that initially accompanied the rise of this idea. 77  E Fox, ‘Globalization and Human Rights: Looking Out for the Welfare of the Worst Off’ (2002) 35 New York University Journal of International Law and Politics 202. 78  See Gerber, Global Competition (n 13) vii. 79  C Noonan, The Emerging Principles of International Competition Law (Oxford University Press 2008) 561. 80 International Covenant on Economic, Social and Cultural Rights (opened for signature 16 December 1966, entered into force 3 January 1976) 993 UNTS 3. 81  See Petersmann, ‘From “Negative” to “Positive” Integration in the WTO’ (n 21) 1376.

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As noted earlier, the debate on the feasibility and rationality of maximizing consumer welfare in the global antitrust regulation was characterized by the notion of the ‘end of history’. But, once again, it was accompanied by a strong doubt in the consistency of the ‘exclusively economic approach to antitrust questions’82 that had been established. Already in 1987, Joseph F Brodley warned that: In recent years efficiency advocates have gained ascendancy, powerfully assisted by the perception that efficiency analysis in antitrust is scientific and rigorous, as contrasted with the softer values of a more inclusive approach that would encompass non-​economic values. As a result, legal opinions and academic writings abound with discussions of economic efficiency and the related concept of consumer welfare. But while these terms are much used in antitrust writing, they are little analyzed. The startling result is that efficiency and consumer welfare have become the dominant terms of antitrust discourse without any clear consensus as to what they exactly mean.83

In the last few years, a number of articles have been published expressing doubt that the debates on the goals of antitrust had ended and that a consensus had really been achieved.84 Sometimes the character of the debate itself demonstrates the inconsistency of the underlying economic for antitrust. For instance, Barak Orbach ‘chronicles how academic confusion and thoughtless judicial borrowing led to the rise of a label that 30 years later has no clear meaning’.85 Then following Robert Bork’s pattern, he introduces the antitrust consumer welfare paradox, which means ‘that, under all present interpretations of the term “consumer welfare,” there are several sets of circumstances in which the application of antitrust laws may hurt consumers and reduce total social welfare’.86 It is plain to see that the starting point of his analysis is the understanding that ‘all antitrust lawyers and economists know that the stated instrumental goal of antitrust laws is “consumer welfare” ’.87 At the same time, John Kirkwood and Robert Lande while advocating in their article that the fundamental goal of antitrust law is to protect consumers, not to increase efficiency, start their analysis with the assertion that, ‘[t]‌he conventional wisdom in the antitrust community today is that the antitrust laws were passed to promote economic efficiency’.88

82  R Pitofsky, ‘The Political Content of Antitrust’ (1979) 127 University of Pennsylvania Law Review 1051. 83  J F Brodley, ‘The Economic Goals of Antitrust: Efficiency, Consumer Welfare, and Technological Progress’ (1987) 62 New York University Law Review 1020. 84  For a description of some of these policy debates, see A Devlin, ‘Antitrust in an Era of Market Failure’ (2010) 33 Harvard Journal of Law and Public Policy 557; and A Devlin and B Peixoto, ‘Reformulating Antitrust Rules to Safeguard Societal Wealth’ (2008) 13 Stanford Journal of Law, Business and Finance 225. 85  B Y Orbach, ‘The Antitrust Consumer Welfare Paradox’ (2010) 7 Journal of Competition Law and Economics 134. 86 Ibid. 87 Ibid 133. 88  J B Kirkwood and R H Lande, ‘The Fundamental Goal of Antitrust: Protecting Consumers, Not Increasing Efficiency’ (2008) 84 Notre Dame Law Review 192.

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Another remarkable example is a debate between Einer Elhauge and Harry First. In his article entitled, ‘Tying, Bundled Discounts, and the Death of The Single Monopoly Profit Theory’, Einer Elhauge asserted that, ‘antitrust law clearly protects’ consumer welfare when this principle is in conflict with the total welfare maximization principle. ‘The Supreme Court has never embraced a total welfare standard, but has repeatedly stated that “Congress designed the Sherman Act as a ‘consumer welfare prescription’ ” ’.89 In his critique of this article, Harry First notes: The truth is that when we look at any of the proposed goals for antitrust, we can find something missing . . . I think that the lack of consensus on the ‘ultimate metric’ in antitrust (to use Professor Elhauge’s words) not only reflects gaps in each argument, it reflects a weakness in the initial argument that there is an ultimate metric. Or, to return to the earlier debate over antitrust’s goals, the lack of consensus casts doubt on whether there is a single goal against which antitrust law can be measured, as opposed to a complex set of goals against which competitive practices must be judged. To put it another way, there is no single policy prescription.90

Neil Komestar provided a very interesting insight into the problem of having the realization of consumer primacy as a real and efficient goal. In an article written from the perspective of a non-​antitrust scholar (an outsider), Komestar explored the fact that, in truth, the interests of consumers are barely represented within the antitrust enforcement process. He explains that: There is certainly a very large group that is unlikely to take an active role in the antitrust regulatory process: consumers. When an observed market practice is subjected to the scrutiny of antitrust administrative agencies, consumers are unlikely to be directly represented. This is the classic problem of the dormancy of large dispersed interests whose members have low per capita stakes.91

As a result of their economic study, Robert Crandall and Clifford Winston indeed ‘find little empirical evidence that past interventions have provided much direct benefit to consumers’.92 These debates depict a certain illusion surrounding the idea of consumer primacy in American antitrust law. The notion that is perceived as the established one does not have any particular meaning—​neither in the global context because focus is mostly on the welfare of citizens rather than consumers as human beings, nor in the national context, because it has not produced a consistent analytical framework. 89  E Elhauge, ‘Tying, Bundled Discounts, and the Death of the Single Monopoly Profit Theory’ (2009) 123 Harvard Law Review 436. 90  H First, ‘No Single Monopoly Profit, No Single Policy Prescription?’ (2009) 5 Competition Policy International 202. 91  N Komesar, ‘Stranger in a Strange Land: An Outsider’s View of Antitrust and the Courts’ (2010) 41 Loyola University Chicago Law Journal 447. 92  R W Crandall and C M Winston, ‘Does Antitrust Policy Improve Consumer Welfare? Assessing the Evidence’ (2003) 17 Journal of Economic Perspectives 4, available at accessed 27 February 2017.

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IV.  A Broader View: Enter BRICS The development of the global governance of antitrust has allowed us to see that the dichotomy of the Hobbesian and Kantian worldviews operates according to the dialectical principles of the development of ideas—​being almost constantly in transition and reaching the apogees only for very short periods of time. But questions that are still to be answered are whether the global Competition Law project could be successful and how to achieve that. In short, the key to success is to embrace the peculiarities of globalization in its current phase and, most importantly, to design a global governance with full attention to these peculiarities and especially for the global framework. Global Competition Law should not simply be a carbon copy of national competition laws designed as if the global order is an expanded national one. Nor should it be a special tool for promoting short-​term national interests (inverse national competition law). Therefore, global governance in this sphere shall follow the logic of the internationalist tradition. According to Hedley Bull’s paradigm, the ‘internationalist tradition stands between the realist and universalist tradition’.93 This perception admits the necessity of having certain global rules and society above sovereigns. As Bull frames it, ‘[a]‌s against the view of the Hobbesians, states in the Grotian [internationalist] view are bound not only by rules of prudence or expediency but also by imperatives of morality and law’.94 The world did not become universally ruled, and neither did it end up in a permanent ‘state of war’ without rules and principles. The global order is still in search of its new balance with the international legal system working in its traditional old-​ school mode of checks and balances, being neither dominated by the sole imperium, nor by any Universalist faith. Diversity and horizontal relations are the keywords of the current status of global governance. In this sense, the BRICS alliance is becoming one of the most important platforms for establishing diverse and inclusive global governance based on the internationalist principles of limited rules and coordination. The development of the BRICS regional cooperation in the sphere of Competition Law and policy perfectly fits the logic of the internationalist tradition which attracts increasing numbers of supporters across the globe in the unsettled times of modern economic and political turmoil. Eleanor Fox, for instance, notes that ‘[a]‌s the new millennium proceeds, multilateral agreement seems more remote, and networking solutions seem more practical and attractive’.95 She asserts that ‘[t]oday, we are searching for horizontal solutions’.96 93  See Bull, The Anarchical Society (n 3) 26. 94 Ibid 27. 95 E Fox, ‘Antitrust without Borders:  From Roots to Codes to Networks’, Antitrust without Borders (November 2015), available at accessed 27 February 2017. 96 Ibid 8.

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The first BRICS summit took place in 2009 in Yekaterinburg, Russia, where the countries’ leaders agreed that the club ‘must create the conditions for a fairer world order’.97 Eight BRICS summits have taken place so far. The eighth summit was just hosted by India during its chairmanship in 2016. Starting essentially with economic issues of mutual interest, the agenda of BRICS meetings has considerably widened over the years to encompass topical global issues. As the Indian Prime Minister Narenda Modi puts it: ‘BRICS acts as a vital pillar of hope for this world full of political, safety related and economic challenges.’98 BRICS cooperation has two pillars:  consultation on issues of mutual interest through meetings of leaders as well as of ministers of finance, trade, health, science and technology, education, agriculture, communication, labour, etc; and practical cooperation in a number of areas through meetings of different working groups. The Indian External Affairs Minister said India’s emphasis was ‘on institution building, implementation of previous commitments flowing from the past Summits, and exploring synergies among the existing mechanisms’.99 At the BRICS summit in Ufa, Russia, in 2015, the political leaders issued a joint declaration, among others, stating that they ‘strive to facilitate market inter-​ linkages, robust growth and an inclusive and open world economy characterized by efficient resource distribution, free movement of capital, labour and goods, and fair and efficiently regulated competition’.100 In addition, more precisely the countries’ leaders have agreed to ‘continue the joint efforts aimed at improving competition policy and enforcement’.101 The Ufa Declaration has accepted the global challenge for the BRICS club to consider the interests of the developing world in its policy measures. ‘[A]‌s important emerging markets and developing countries, BRICS is faced with many similar problems and challenges in terms of economic development and fair competition.’ As a result, BRICS leaders have acknowledged the ‘significance to strengthen the coordination and cooperation among the BRICS competition agencies’. For this, they attached ‘great importance towards developing a mechanism preferably through a joint MoU among the BRICS countries to study the issues of competition with a special focus on socially important economic sectors’. The proposed mechanism according to the Ufa Declaration shall facilitate cooperation in Competition Law and enforcement. 97 G Bryanski and G Faulconbridge, ‘UPDATE 6-​ BRIC Demands More Clout, Steers Clear of Dollar Talk’, Reuters (16 June 2009), available at accessed 27 February 2017. 98 BRICS India 2016, available at accessed 27 February 2017. 99  ‘India to Host 8th BRICS Summit in Goa’, The Hindu (22 March 2016), available at accessed 27 February 2017. 100 VII BRICS Summit Ufa Declaration (Ufa, the Russian Federation, 9 July 2015), available at accessed 27 February 2017. 101 Ibid.

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In the meantime, BRICS competition authorities have started a process of cooperation within the Competition Law and policy domain with some informal consultations and also the first BRICS antitrust conference held in Kazan, Russia, 2009. This conference became a prominent forum for the BRICS competition authorities where they could meet every two years in the different BRICS countries and discuss ways of potential cooperation. In 2011, the conference was hosted by China, then in 2013 by India, and last year by South Africa. In 2017, it will be hosted by Brazil, and then by Russia once again. Additional to this conference covering mostly the political dimension of the cooperation, the HSE-​Skolkovo Institute for Law and Development in collaboration with Federal Antimonopoly Service of Russia (FAS) has established an annual forum in Saint Petersburg. The Institute is targeted more for an academic and expert community interested in the development of BRICS antitrust. The two first Competition Law fora held in June 2015 and May 2016 were also supported by the Centre for Law, Economics and Society at the UCL Faculty of Law contributing to the initiative with its international expertise and academic network. On the sidelines of the last conference in Saint Petersburg, the BRICS authorities signed a MoU, which put in place an institutional partnership between BRICS jurisdictions through a general framework for multilateral cooperation. The MoU was signed on 19 May 2016. It was established to remain in effect for a period of four years. It aims at promoting and strengthening the cooperation in Competition Law and policy of the parties through exchanges of information and best practices, as well as through capacity-​building activities. For instance, this would take the form of exchanging policies, laws, rules, and information on legislative changes and enforcement activities. In addition, this would take form of the organization of joint studies for providing common knowledge on competition issues. Furthermore, it includes the organization of international conferences, seminars, and other relevant events on competition issues, and the cooperation and coordination between BRICS jurisdictions of investigations and enforcement proceedings regarding Competition Law enforcement. A  liaison committee, consisting of one representative of each BRICS jurisdiction, will ensure adequate communications and consultations among the parties. The MoU also establishes an instrument for daily cooperation between the competition authorities—​permanent working groups to conduct joint studies on matters of common interest. On 27 September 2016, Moscow was set to host an inaugural meeting of the BRICS Liaison Committee, as well as a newly established working group for the food sector. These working groups are prototypes for a joint enforcement mechanism to be established by the countries. It is not yet clear what the configuration of this joint enforcement mechanism will look like, but its first vision is going to be elaborated within the established cooperative framework. This experimentalist spirit is clearly a unique feature of this cooperation—​all the participants of the BRICS club are willing to engage in a fruitful and open discussion without any dogmatism or ‘ego game’ which accompanies most of the established international fora these days.

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Although BRICS is an acronym that stands for a group of quite diverse economies as well as jurisdictions, still one thing unites these countries—​a high degree of experimentalism and institutional flexibility. After the end of the Cold War, during which the boundaries of the world were clearly defined alongside the two main blocs and a group of freshly decolonized nations—​the new post-​Cold War era is less definitive. The collective West still epitomizes the most powerful entity in terms of both an economic and a political sense of global countries’ ‘club’. Yet it struggles to keep its traditional institutions working, and is not launching any efficient transformation, partly owing to the established path dependence and also owing to a lack of experimentalist perspective. In this context, those countries with a long history of cultural, political, and economic prosperity before different reasons, including wars and political turmoil, caused them to get off their successful developmental tracks, could now look for new forms of both institution building and mutual cooperation based on equal partnership and trust. Some of these countries, namely, Brazil, Russia, India, China, and South Africa, have decided to start a new global club—​the BRICS. What is common for the BRICS jurisdictions is that they are all in transition. All are in desperate search for a solution allowing them to shortcut the developmental track. This experimentalist energy and creativity, being the main characteristics of the club, are extremely important for the current phase of global economic development. It is not only an institutional structure of the global order that is in transition now, but also the very nature of the global marketplace. An important characteristic of the current state of global development is the significance of knowledge and other intangible assets.

V.  BRICS and Global Networks Along with geopolitical changes, another important well-​documented shift is the World Wide Web’s transformative impact on the global marketplace by virtue of new communicative and information technologies. This transformation changed the perception of the global marketplace, allowing some commentators to say that ‘the Web-​enabled playing field’ rendered the world flat.102 Indeed, the world did not literally become flat, but it has substantially transformed. The World Bank gives a reasonably straightforward answer to the question ‘Where is the wealth of nations?’,103 pointing to knowledge and information—​about 80 per cent of global wealth consists of intangible capital.104 An almost conventional wisdom of our times is that ‘[t]‌he physical spaces of markets, competitive behaviour and monopolization have been disrupted by new 102  T Friedman, The World Is Flat: A Brief History of the Twenty-​first Century (Farrar, Straus and Giroux 2005) 176. 103  Where is the Wealth of Nations? Measuring Capital for the 21st Century (International Bank for Reconstruction and Development/​World Bank 2006). 104  Ibid 20, 28.

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forms of competitive behaviour found in virtual reality’105 and other domains of the so-​called ‘new economy’. However, the implications of this understanding are quite diverse. This centrality of knowledge for economic development also creates new areas of tension, which are concentrated in the sphere where Competition Law and other regulatory regimes addressing issues of innovation and development, like intellectual property or privacy laws, interact. The ‘network’ is a very important notion for understanding global competition. In this context, it is important to consider this notion from two perspectives—​in the economic sense, as a ‘market subject to economies of scale in consumption’,106 and in a more technical sense, as a complex interconnected social system.107 The network is becoming the most important mode of organizing the marketplace, not only in information industries, but also in the production and exchange of commodities. And it is not only consumers who are becoming increasingly dependent on this form of market organization; the tendency among producers is to ‘sell less and less into the perfectly competitive markets of economic theory, and more and more into the global value chains which are regulated by predominantly external global firms’.108 Global value chains create network effects on both sides. They snap up the most efficient production facilities in local areas and thus block opportunities for the development of alternative businesses. ‘The barriers to entry for developing country producers to being integrated into global value chains are high, since most value chains are subject both to a variety of codified standards and to direct inspection by buyers.’109 The global expansion of networks is driven by technological transformations, which allow more benefits to be reaped through the economy of scale. As Lawrence Summers puts it: Support for international trade becomes that much more important—​because it enables us to take better advantage of the new economies of scale; it allows networks to be larger; and it allows more value to reside in those networks. In that sense, it is perhaps only a slight exaggeration to say that the importance of comparative advantage is yesterday’s economics—​while today’s economics is the importance of global scale.110

105  G Minda, ‘Antitrust Regulability and the New Digital Economy: A Proposal for Integrating “Hard” and “Soft” Regulation’ (2001) 46 Antitrust Bulletin 441. 106  See Hovenkamp, The Antitrust Enterprise (n 53) 277. 107  See D Easley and J Kleinberg, Networks, Crowds, and Markets: Reasoning about a Highly Connected World (Cambridge University Press 2010) 543–​5. Complete preprint online at accessed 27 February 2017. 108  R Kaplinsky, Globalization, Poverty and Inequality:  Between a Rock and a Hard Place (Polity 2005) 122. 109  P Knorringa and J Meyer-​Stamer, ‘Local Development, Global Value Chains and Latecomer Development’ in J Haar and J Meyer-​Stamer (eds), Small Firms, Global Markets: Competitive Challenges in New Economy (Palgrave Macmillan 2008) 30 (hereafter Knorriga and Meyer-​ Stamer, ‘Local Development’). 110 L H Summers, ‘ “The New Wealth of Nations” Remarks by Treasury Secretary Lawrence H. Summers at Hambrecht & Quist Technology Conference San Francisco, CA’ (US Department of

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As a result, ‘[a]‌ccess to global markets nowadays often is controlled by a limited number of gatekeepers, namely global buyers that act as the spider-​in-​the-​web of global value chains’.111 These global value chains are organized through ‘flexible accumulation and geographical restructuring of production’112 and by virtue of demand for their recognizable brands. In economic literature, there is a view that global value chains ‘can be viewed as a “regime” . . . characterized by a substantive element (principles, rights and obligations, and rules) and a procedural element (producers for decision making, organizations, institutions)’.113 The structure of these global production and exchange networks is quite diverse, but it is based on certain common principles which permit the establishment of a legal and policy approach to regulating economic competition within the framework of such global networks. The end-​goal is to facilitate the openness of these networks and a better realization of innovative human potential throughout the world. The open nature even of information networks (considering the extensive development of transformative technologies in this sphere) is not taken for granted.114 Other social and economic networks, which have a significant impact on the marketplace, are also very susceptible to limited access and exclusionary practices. Special attitudes towards networks, either in the sphere of information production or production of commodities, should be at the centre of a successful global Competition Law project. The key focus of this global competition policy should be facilitation of openness among global networks through the reduction of the manipulative and exclusionary potential of networks. In his recent address at the plenary session of the Saint Petersburg International Economic Forum, the Russian President noted that this tension is only going to increase and requires some new forms of cooperative efforts: The world’s leading economies are looking for sources of growth, and they are looking to capitalise on the enormous existing and growing potential of digital and industrial technologies, robotics, energy, biotechnology, medicine, and other fields . . . [T]‌here is impending restructuring of entire industries, the devaluation of many facilities and assets . . . [C]ompetition will escalate in both traditional and emerging markets. In fact, even today we can see attempts to secure or even monopolise the benefits of next generation technologies. This, I think, is the motive behind the creation of restricted areas with regulatory barriers to reduce the the Treasury, 10 May 2000), available at accessed 29 June 2017. 111  Knorriga and Meyer-​Stamer, ‘Local Development’ (n 109) 28. 112  A S Bhalla and F Lapeyre, Poverty and Exclusion in a Global World (Macmillan Press 1999) 169. 113  K von Moltke and O Kuik, Global Product Chains: Northern Consumers, Southern Producers, and Sustainability (UN Environmental Programme 1998) 30. 114 See H Ungerer, ‘Access Issues under EU Regulation and Antitrust Law:  The Case of Telecommunications and Internet Markets’ in C A Jones and M Matsushita (eds), Competition Policy in the Global Trading System (Kluwer Law International 2002) (‘In the course of investigation, the Commission identified for the first time the hierarchical market power structure and the effect of network externalities in the Internet to substantial detail—​a finding quite contrary to the beliefs that the Internet is by nature a highly distributed structure’); see also J Zittrain, The Future of Internet and How to Stop It (Yale University Press 2008) 34.

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cross-​flow of breakthrough technologies to other regions of the world with fairly tight control over cooperation chains for maximum gain from technological advances. However, the scale of technological, economic problems and the objective situation we are in—​their scale and nature suggest that we can develop effectively only together, by building cooperation.115

The BRICS ‘club’ has the potential for making the global marketplace both fairer and more equal. Indeed, it has an ability to promote a form of competition that encourages a broader dissemination of knowledge and advanced technologies. At the same time, it eliminates barriers imposed on the global flows of innovation by both the global technological monopolies and the cartel-​like technological joint ventures burgeoning within their ‘walled gardens’ at the expense of the excluded consumers and entrepreneurs around the world.

115  ‘Plenary Session of St Petersburg International Economic Forum’, President of Russia (17 June 2016), available at accessed 27 February 2017.

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6 Successes and Challenges in the Fight against Cartels Joseph E Harrington, Jr*

I. Introduction No modern development in antitrust law is more striking than the global acceptance of a norm that condemns cartels as the market’s most dangerous competitive vice . . . [but] is modern antitrust cartel enforcement attaining its deterrence goals? William Kovacic1

During the last twenty-​five years, we have witnessed a sea of change in the crusade against cartels. Many countries that did not have competition laws adopted them and, most critically, have actively enforced them. At the same time, competition authorities have had more instruments at their disposal to discover and prosecute cartels—​in particular, leniency programmes to lure cartel members to be cooperating witnesses—​and to penalize cartels once convicted, with a rise in corporate fines and the criminalization of price fixing and bid rigging. There are many reasons to believe that the environment is far less hospitable to firms forming and operating a cartel. Nevertheless, there is still the question for which we have yet to get an answer: Are there fewer cartels? Has the expansion of laws prohibiting collusion and the intensification of enforcement actually reduced the presence of cartels in the global economy? The purpose of this chapter is to put forth some concerns emanating from the lack of an answer, suggest some policies while we wait for an answer, and encourage competition authorities to work with academic scholars to find an answer.

II.  A Critical Examination of Enforcement Trends In some jurisdictions, such as the United States and the European Union, government fines have increased tremendously in the last two decades. Prior to 1995, the *  Patrick T Harker Professor, Department of Business Economics & Public Policy, The Wharton School, University of Pennsylvania, Philadelphia, PA 19104, [email protected]. 1  OECD Policy Roundtable (2013) 247–​8. Successes and Challenges in the Fight against Cartels. Joseph E. Harrington, Jr. © Joseph E. Harrington, Jr, 2017. Published 2017 by Oxford University Press.

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Antitrust Division of the US Department of Justice (DOJ) had not levied even a single fine exceeding US$10 million for a Sherman Act Section 1 violation. With the revision of the US Sentencing Guidelines in the early 1990s, the upper bound on fines was raised and the DOJ has taken advantage of it to aggressively impose significantly higher fines. As of January 2016, 129 companies have been fined more than US$10 million and more than twenty-​five companies have seen fines exceeding US$100 million. (These higher fines reflect both larger cartels as well as a higher fining rate.) The increase has been even more striking in the European Union. Reflecting both higher fines and more convictions, the total amount of fines increased almost five-​fold between 1995 to 2004 and 2005 to 2014. At the same time, it is not clear that financial penalties in the form of government fines (and customer damages in jurisdictions such as the United States) are sufficient to deter cartel formation. At a cursory level, it is obvious that they are insufficient because many cartels keep mushrooming. It does not help that fines are often not designed to deter. In the European Union and many other jurisdictions, fines are tied to the amount of revenue involved (typically, with a maximum of 10 per cent of annual sales). While in any particular cartel case this could prove to be a large number, the failure to link the financial penalty to the incremental profit from collusion makes it more by accident than design if fines actually make collusion unprofitable in expectation.2 Furthermore, fines remain at low levels in some jurisdictions so that conviction for collusion is more of a ‘cost of doing business’ than a deterrent; perhaps no different from government fees and taxes that must be paid to operate any business (in this case, the business is a cartel). For example, the maximum penalty in Chile is around US$25 million per defendant. By way of comparison, a recently convicted cartel in the wholesale chicken market involved annual sales to the order of US$1 billion. In sum, it is not at all clear that financial penalties, whether government fines or customer damages, are currently sufficient to deter the mushrooming of many cartels. Turning to the people who are colluding, an important development in penalization is the expansion of criminalization. The DOJ has been putting price fixers behind bars for years and has been doing so at an ever-​increasing rate with ever-​more severe penalties. In the United States, the fraction of individuals involved in a convicted cartel that went to jail rose from 37 per cent during 1990 to 1999 to around 70 per cent since 2010, and the average sentence rose from eight months in the 1990s to where it is now two years (averaged over 2010 to 2015). Owing to legislation in 2004, the maximum sentence now stands at ten years and recently the DOJ succeeded in convincing the court to impose a five-​year sentence for a high-​level executive in a domestic shipping cartel. An enhanced emphasis on individual penalties is slowly starting to spread internationally as there are now twelve countries for which a conviction for price fixing (or at least bid rigging, as in the case of Germany) can land a company employee in 2  For an examination of this issue, see Y Katsoulacos, E Motchenkova, and D Ulph, ‘Penalizing Cartels: The Case for Basing Penalties on Price Overcharge’ (2015) 42 International Journal of Industrial Organization 80.

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jail. Although many more countries have put incarceration on the table as a penalty, the reality is that the United States is the only place that routinely imprisons those implicated in unlawful cartels. Incarceration is a legitimate concern for those who collude in the United States, but it does not appear to be that serious a threat in almost all of the rest of the world. The most significant policy innovation has clearly been leniency programmes. Once the DOJ revised its leniency programme in 1993 and subsequently experienced a steady flow of cartelists coming to the door for amnesty, the rest of the world was quick to adopt their own leniency programmes. The European Union followed suit in 1996 and today more than sixty countries and regional economic organizations have them. Many leniency programmes have proven very active, including those in the United States, the European Union, Brazil, and South Africa. But that is not universally the case. Leniency applications have been rare events in Estonia, Israel, Latvia, Lithuania, Poland, and Turkey,3 and it took several years before Chile received its first application. The leniency programme has been moribund in some places and, as argued later, it is not a panacea in those places where it has proven vibrant. There are clearly encouraging signs in the fight against cartels, namely, many leniency applications and many convictions. At the same time, there are some discouraging signs because of many leniency applications and many convictions. Even in the United States, which has been the most aggressive enforcer for the longest time, there is no obvious time trend in the caseload of the DOJ. It seems to be as busy as ever. If enforcement is working in terms of deterrence, then the number of leniency applications and cases ought to start falling. I am unaware of that being the case in any country or region. Cartels continue to be discovered on a regular basis and we have recently witnessed some of the largest cartels ever, such as those in auto parts, LIBOR, and foreign exchange. Cartels keep operating in the United States in spite of aggressive enforcement, high government fines, serious prison sentences, and aggressive private litigation with its threat of treble customer damages. Given that cartels keep operating in such an environment, what does this portend for jurisdictions with low corporate fines, an absence of private litigation, and no incarceration? While the intensified enforcement of competition laws has led to more cartels being discovered and shut down, there is no compelling evidence (yet) of significant deterrence of cartel formation. We do not directly observe which firms would have formed a cartel in the old regime but are now deterred from doing so, nor do we know the fraction of cartels we are now catching. Underscoring the latter point, and contrary to an oft-​stated claim, we do not know how many cartels go undiscovered. In a background paper for the Global Forum on Competition, the OECD Secretariat stated: ‘Cartel studies generally conclude that only about 10 to 30% of all such conspiracies are discovered and punished.’4 An Amicus Curiae Brief submitted to the US Seventh Circuit Court refers to ‘estimates suggesting that more 3  OECD Policy Roundtable (2013). 4  Background paper for ‘Serial Offenders: Why Some Industries Seem Prone to Endemic Collusion’, Global Forum Competition (October 2015) 17.

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than two-​thirds of conspiratorial activity goes undetected and unpunished’.5 These unwarranted claims are owing to misinterpreting the estimated probability of a cartel’s death to be an estimate of the probability of a cartel’s discovery.6 The fact is that we have no idea how many cartels are undiscovered. In spite of the successes in enforcement, there is no compelling evidence that there are fewer cartels. It is an issue of first-​order importance to assess whether there are fewer cartels and whether policies designed to fight cartels are actually working to reduce the cartel rate. Typically, the enforcement of laws prohibiting collusion is described as comprising three stages: (1) detection of cartels; (2) prosecution and conviction of cartels; and (3) penalization of convicted cartels. To that I would add: (4) evaluation of enforcement policies. For example, the determination of the extent to which a leniency programme lowers the cartel rate is no easy task, but it is too important a task to ignore by virtue of its difficulty. Evaluation of policy is well suited for collaboration between practitioners in competition authorities and scholars in universities and think tanks. The former bring institutional knowledge and data, and the latter bring the theoretical and empirical methods to extract crucial information from that data.

III.  More Aggressive Policies to Detect and Shut Down Cartels Given that there is uncertainty as to whether enforcement is deterring cartels, it is then prudent to intensify efforts to shut down active cartels. If by chance they are not being deterred, then they must be disabled. While leniency programmes are clearly valuable in aiding discovery and prosecution, I will here express some concerns about over-​reliance on them by competition authorities. I will also recommend the implementation of two other detection methods, namely, screening and whistle-​blower rewards. Many accolades have been bestowed on leniency programmes and deservedly so. Leniency programmes have been instrumental in prosecuting cartels—​what is better than having a cartel member cooperate?—​and one can point to specific cartels that were discovered through a leniency application. Although my remarks will largely be critical, that is only because many competition authorities have tended to focus exclusively on the virtues of such programmes, while not giving due attention to some potential concerns. One issue that has been raised in some quarters is that leniency programmes may be largely used by dying cartels. I first heard this concern voiced in June 2006 by European Commission (EC) official Olivier Guersent at the Eleventh Annual EU Competition Law and Policy Workshop in Florence. Subsequent research 5  ‘Amicus Curiae Brief of Economists and Professors in Support of Appellant’s Petition for Rehearing En Banc’, Motorola Motorola Mobility LLC v AU Optronics, No 14-​8003, 2014 WL 1243797 (7th Cir 27 March 2014) 4. 6  This claim is proven in J E Harrington, Jr and Y Wei, ‘What Can the Duration of Discovered Cartels Tell Us about the Duration of All Cartels?’ (University of Pennsylvania, The Wharton School, December 2015) (Economic Journal, forthcoming).

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found that only 13 out of 110 EC cases with a leniency awardee over 1996 to 2012 involved applications before the death of the cartel.7 That a dying cartel would be more inclined to apply for leniency makes perfectly good sense. If firms are able to collude effectively, then applying for leniency means the loss of future collusive profits. However, if the cartel has collapsed, there is no cost in terms of foregone future profits; the objective at that point in time is to minimize the expected penalty. With collusion having ended, a leniency application becomes quite compelling. The social value to receiving a leniency application from a dead cartel is that it enhances the chances of levying penalties on the other firms. If firms recognize this possibility when considering the formation of a cartel, they may be deterred by the prospect of a higher likelihood of paying penalties in the event of collapse. Still, if leniency programmes are largely used by dying cartels, then they are less effective than perhaps hoped for in destabilizing well-​functioning cartels.8 It is then an open question whether leniency programmes largely serve to increase the conviction of dead cartels or whether they are also proficient at discovering active cartels and shutting them down. The concern has also been raised that there may be over-​reliance on leniency programmes and this could reduce the effectiveness of enforcement. While less than half of DOJ cases in 2000 had a leniency applicant, it exceeded 75 per cent by 2010.9 US Senator Bill Blumenthal expressed a concern of over-​reliance when speaking to Assistant Attorney General William Baer: My concern is that most of the cases that are brought today are . . . generated exclusively from firms that decided to come forward and seek a leniency application . . . I’m worried that the success of the leniency program combined with budget constraints that your Division faces will, in effect, give you incentives to pursue only the companies that come forward . . . [A]‌s I know from personal experience, some of the most egregious and harmful of the cartels may have nobody coming forward.—​US Senate Hearing on ‘Cartel Prosecution: Stopping Price Fixers and Protecting Consumers’—​14 November 2013.

A deleterious effect of a competition authority’s caseload being dominated by leniency cases is that it crowds out cases discovered and prosecuted through traditional non-​leniency means. Possible detrimental side effects of a leniency programme are explored in a theoretical analysis by Harrington and Chang.10 Two findings are worth highlighting. First, a leniency programme can make the environment less 7  D L Gärtner and J Zhou, ‘Delays in Leniency Application: Is There Really a Race to the Enforcer’s Door?’ Governance and the Efficiency of Economic Systems, Discussion Paper No 395 (November 2012); private correspondence with Jun Zhou. 8  Although if a leniency programme reduces the expected value of colluding because of the higher expected penalties, it can make internal collapse more likely as shown eg in J E Harrington, Jr, ‘Optimal Corporate Leniency Programs’ (2008a) 56 Journal of Industrial Economics 246; and Z Chen and P Rey, ‘On the Design of Leniency Programs’ (2013) 56 Journal of Law and Economics 957. 9  US General Accountability Office, ‘Criminal Cartel Enforcement: Stakeholder Views on Impact on 2004 Antitrust Reform Are Mixed, But Support Whistleblower Protection’, GAO-​11-​619, July 2011 (hereafter US GAO Report). 10  J E Harrington, Jr and M-​H Chang, ‘When Should We Expect a Corporate Leniency Program to Result in Fewer Cartels?’ (2015) 28 Journal of Law and Economics 417.

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hospitable for relatively unstable cartels, while making it more hospitable for relatively stable cartels. In their model, leniency is only used by dying cartels. Thus, when a cartel internally collapses, firms anticipate racing for leniency. As only one cartel member receives it, they expect to have higher penalties because of the presence of a leniency programme. This effect serves to deter relatively unstable cartels from forming (or forming but having shorter duration) because firms recognize that collapse within a few years is likely and foresee having to pay penalties at that time. That effect on marginally stable cartels is good for enforcement. However, relatively stable cartels do not expect imminent collapse. Therefore, they are more concerned with discovery through non-​leniency means such as a customer complaint. If a focus on handling leniency cases crowds out non-​leniency enforcement, then the chances of being caught and convicted without a leniency applicant could actually go down. This effect manifests itself in a higher average duration for relatively stable cartels when there is a leniency programme. This theoretical finding resonates with a recent statement by António Gomes, President of the Portuguese Competition Authority, on European Competition Day in Athens (10 April 2014):  ‘Cartels which have already become unstable . . . are more likely to lead to a leniency application. On the other hand, cartels whose members are successful in maintaining stable collusion rules for several years . . . are more difficult to be detected through leniency programmes.’ A second result found by Harrington and Chang is that it is possible for a leniency programme to actually cause more cartels (and, at the same time, generate many leniency applications). Although there may be fewer marginally stable cartels, the longer duration of the more stable cartels can be of sufficient magnitude so as to raise the fraction of industries cartelized at any moment in time. Fortunately, it is shown that one can avoid having a leniency programme raise the cartel rate by setting penalties sufficiently high and having leniency cases handled expeditiously so that the resources of a competition authority are not strained and non-​leniency enforcement is not crowded out. To be clear, the main takeaway from the analysis by Harrington and Chang is not that leniency programmes are counter-​productive. Instead, Harrington and Chang’s analysis indicates the following: • The number of leniency applications is not a good measure of success (though can be an encouraging sign). • It is unclear that leniency programmes are effective at shutting down active cartels. • Competition authorities should not exclusively rely on leniency programmes for detection. Following up on the last point, let me discuss other methods of detection which some competition authorities have deployed and others should adopt. One of these detection methods is screening, which is the use of market data—​specifically, prices and quantities—​to identify suspected episodes of collusion. Screening could involve looking for a sudden change in firm behaviour (‘structural break’) that could be

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owing to cartel birth or death, or looking for patterns in prices and market shares that are more consistent with collusion than competition (‘collusive markers’). Screening has been performed with some success by competition authorities in Brazil, Chile, Mexico, the Netherlands, South Africa, and South Korea. Private companies have also entered the game. Motivated by having been a victim of several input supplier cartels, Deutsche Bahn recently formed a Cartel Detection Unit comprising lawyers and economists. I believe screening is a very promising avenue for cartel detection. As I have previously written about it, I will not elaborate upon it further here.11 A programme of offering rewards to whistle-​blowers is a natural extension of leniency programmes. While a leniency programme provides an incentive for those actively involved in a cartel to come forward and assist the government, a whistle-​ blower programme provides rewards to those who are (typically) not involved in a cartel and report suspected collusion to the government. The most common source of whistle-​blowers are employees of a colluding firm who are not themselves engaged in the illicit activity, but inadvertently uncover evidence of collusion. Sales representatives (and other employees) of cartel members may become suspicious because, for example, some employees express a lack of concern for competitors’ reactions or seem to possess information about competitors’ intentions. In the carbonless paper cartel:12 A Sappi employee admits that he had very strong suspicions that two fellow employees had been to meetings with competitors. They would come back from trade association meetings with a very definite view on the price increases that were to be implemented and . . . were relatively unconcerned by competitor reactions.

In the fine arts auction houses cartel,13 some of [Sotheby’s] personnel commented that they had a ‘feeling’ that the introduction of the fixed vendor’s commission structure may have arisen out of some sort of understanding with Christie’s. Employees of Sappi and Sotheby’s had information of value to the competition authorities, but lacked the incentive to report their concerns. Indeed, there is a strong incentive not to do so because whistle-​blowers can be punished by their employer. Offering lucrative financial rewards can offset that disincentive to report and provide a competition authority with critical information. Although leniency programmes are ubiquitous, whistle-​blower programmes are rare, with only four countries at present having them. South Korea was the pioneer with the launching of its programme in 2005 and is also the most generous, with rewards up to 1 billion Korean Won. The other countries are the United Kingdom 11  The interested reader is referred to J E Harrington, Jr, ‘Behavioral Screening and the Detection of Cartels’ in C D Ehlermann and I Atanasiu (eds), European Competition Law Annual 2006: Enforcement of Prohibition of Cartels (Hart 2007); and ‘Detecting Cartels’ in P Buccirossi (ed), Handbook of Antitrust Economics (MIT Press 2008b); and to the slides for ‘Behavioural Screening’ at Pre-​BRICS International Competition Conference, Durban (November 2015), available at accessed 29 June 2017. 12 Official Journal of the European Union, L115/​1, 21.4.2004, Case COMP/​E-​1/​36.212—​ Carbonless paper, Decision of 20 December 2001. 13  Commission of the European Communities, 30.10.2002, Case COMP/​E-​2/​37.784—​Fine Art Auction Houses.

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starting in 2008 (with rewards of up to £100,000), Hungary since 2010 (with a reward of at least 1 per cent of the government fine, up to a maximum of 50 million forints), and most recently Taiwan in 2015. These monetary values strike me as inadequate for a company employee to risk his or her job or perhaps career. In the case of the US False Claims Act, whistle-​blowers who uncover fraud against the US government (most commonly, Medicare fraud) can receive 15 to 30 per cent of the government’s recovery. That is the magnitude of compensation that is needed to incentivize employees to report unlawful collusion. Rather surprisingly, the DOJ has expressed opposition to whistle-​blower rewards because ‘jurors may not believe a witness who stands to benefit financially from successful enforcement action against those he implicated’.14 This concern seems misplaced for several reasons. First, rewards are paid only on conviction and the evidentiary standards associated with a Sherman Act Section 1 violation are high (which, if not known to whistle-​blowers, could be explained to them at the time of their reporting). Second, a very small percentage of DOJ cases go to trial—​most are settled with a guilty plea—​so jurors are unlikely to ever hear the witness. (Although admittedly the prospect of a defendant’s attorney discrediting a whistle-​blower on the stand could reduce the likelihood of obtaining a guilty plea.) Third, if there is indeed a cartel, an investigation initiated by a whistle-​blower is likely to induce a leniency application. This last point leads to the following recommendation: The competition authority should invite the whistle-​blower’s company to apply for leniency.

IV.  Concluding Remarks In spite of the concerns raised here, it seems beyond dispute that the world is a less accepting place for collusion. However, that is not a reason to conclude that we are winning the fight against cartels. Cartels continue to form and competition authorities typically find their resources stretched with a heavy caseload. To what extent cartel formation is substantively being deterred is an open question. To what extent there are fewer cartels now than five or ten or twenty years ago is similarly an open question. While these are highly challenging questions, they are not unanswerable. What they require is the dedicated attention of practitioners and scholars. Until that is done, we will not know if competition authorities are best viewed as the Red Queen from Alice in Wonderland, who runs fast to stay in the same place, or are instead the Pied Piper of Hamelin, leading all the rats to drown in the river.

14  US GAO Report (n 9) 39.

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7 The Economics of Antitrust Sanctioning A Review with Recommendations for Improving Current Sanctioning Regimes Yannis Katsoulacos* and Eleni Metsiou**

I. Introduction The imposition of sanctions is regarded as the most important ex ante intervention instrument that competition authorities can use on antitrust and, more specifically, cartel violations.1 Empirical evidence (reviewed below) suggests that cartels are still very active throughout the world and pervasive in a variety of markets. Furthermore, evidence suggests that the fraction of total cartel activity in the BRICS and developing countries has increased significantly in the last fifteen years or so. Therefore, for these countries, designing effective sanctioning regimes is of paramount importance. The current chapter concentrates on sanctioning methods as a part of the public enforcement of Competition Law on cartel cases.2 There is a distinction between public enforcement sanctioning and private damage actions as these serve primarily different purposes. Public enforcement focuses on the detection and investigation of cartels. The objective is to bring cartel activity to an end and impose sanctions for infringements, which aims to punish and to deter future violations. On the other hand, private damages focus on compensating those who have suffered harm. This research has been co-​financed by the EU (European Social Fund (ESF)) and Greek national funds through the Operational Program ‘Education and Lifelong Learning’ of the National Strategic Reference Framework (NSRF), Research Funding Program: Thalis—​Athens University of Economics and Business, ‘New Methods in the Analysis of Market Competition:  Oligopoly, Networks and Regulation’ (Thalis-​ONERG). *  Professor, Department of Economics, Athens University of Economics and Business, 76 Patission str., 104 34, Athens, Greece, [email protected]. **  Department of Economics, Athens University of Economics and Business, [email protected]. 1  Other important ex ante instruments of competition law enforcement in the area of cartels are the prohibition of facilitating practices (which increase viability of cartels) and the use of merger policy (to reduce the likelihood of cartels emerging after mergers). Ex post measures include the improvement of detection and prosecution rates, the adoption of measures to keep industries competitive after prosecution (prevent recidivism), and the application of leniency policies. 2  The theory of sanctioning on dominant firm abuses is still undeveloped. The Economics of Antitrust Sanctioning: A Review with Recommendations for Improving Current Sanctioning Regimes. Yannis Katsoulacos and Eleni Metsiou. © Yannis Katsoulacos and Eleni Metsiou, 2017. Published 2017 by Oxford University Press.

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Therefore, the two methods are complementary, but each can contribute to the objectives of the other. Public enforcement can facilitate and stimulate private damage actions and these can contribute to deterrence and provide incentives to customers to discover and report price fixers. There is a variety of different types of sanctions with different emphasis placed on each type over time and in different countries. The main types of sanctions in public enforcement are:

• • • •

financial (or monetary) penalties on corporations; financial penalties on managers involved in price fixing; criminal sanctions imprisonment of individuals involved in price fixing; and debarment of individuals involved in price fixing, from further employment in a position from which they could again violate antitrust laws.

In this chapter, we first present the empirical evidence from the recent literature on cartel violations. The overall conclusion from the empirical evidence is that, despite the increased enforcement policies, cartels are still very active in the United States, the European Union, and other jurisdictions, especially the BRICS and developing countries. We then discuss traditional economic theory that concentrates on deterrence and on how large penalties must be in order to deter collusion. Finally, we discuss why current sanctioning policies are ineffective and we provide three proposals on making current sanctioning schemes more effective.

II.  Some Empirical Evidence on Cartel Activity and Penalties Calculations by Levenstein and Suslow3 show that ‘from 1992–​2010, there were approximately 700 Department of Justice (DoJ) cartel convictions or over 36 per year’, while only in 2013 in the United States there were fifty new criminal cases, most of which regarded price fixing.4 In the European Union (Commission) between 1990 and 2014, 113 cartel cases were decided, ninety-​three between the years 2000 and 2014 (or seven cartels per year in the more recent period). In addition, 554 undertakings were involved in the cartels of the more recent period.5 The situation in the European Union is much closer to that of the United States if one accounts for cases in Member States. One of the latest synopses on the evidence on cartel activity and penalties in different countries was presented recently by Connor,6 who based his study on a sample 3  M C Levenstein and V Y Suslow, ‘Cartels and Collusion—​Empirical Evidence’, Ross School of Business Research Paper No 1182 (2012), available at accessed 25 February 2017. 4  M C Levenstein and V Y Suslow, ‘Price Fixing Hits Home: An Empirical Study of Price Fixing Conspiracies in the US’ (2014) 48 Review of Industrial Organization 361. 5  Data from DGCOMP site. 6 J Connor, presentation ‘EU Cartel Penalties:  Severity and Recovery:  With International Comparisons’ in the Conference ‘Looking beyond the Direct Effects of the Work of Competition Authorities: Deterrence and Macroeconomic Impact’, Brussels (17–​18 September 2015), available at

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of 1,057 cartels investigated or penalized from 1990 until August 2015. According to Connor, cartel numbers in North America investigations seem to have peaked during 1995 to 2005, but are rising elsewhere. Between 1990 and 2015, there were 190 international cartels fined in the United States and 181 in the European Union. There were 905 international cartels fined over the same period worldwide, with the US and EU worldwide share falling from about 40 per cent in the period from 1990 to 2004 to about 23 per cent thereafter. This indicates a significant increase in other jurisdictions, such as those of the BRICS and developing countries. Connor’s estimate of total damages (taking into account both overcharge and deadweight loss) reached US$2.6 trillion worldwide. Regarding the fines that were imposed, according to the Connor database the fines and private settlements as of 2015 amounted to $153 billion and one-​third of this relates to damage recoveries. According to data from DGCOMP in the European Union, fines imposed have increased significantly in recent years. They accounted on average for €42 million per cartel in the 1990s and €290 million per cartel in the last ten years. As Connor7 also states, after 1999, fines in the European Union exceed fines imposed by the DoJ. Particularly after the 2006 revision of penalty policy, there was a substantial increase in the maximum percentage of affected commerce that can be used as a basis for estimating monetary penalties to 30 per cent (although the maximum rate must not exceed 10 per cent of global sales).8 After 2008, there has been some decline in EU fines owing to the financial crisis. In addition, from 2010 to 2014, the prosecution of cartels resulted in over €8.93 and $5.14 billion in criminal fines and penalties in the European Union and the United States respectively, and more than 270 years of jail time in the United States.9 Connor10 also presents some evidence on the severity of monetary penalties. By severity, we mean the ratio of penalties to affected sales. According to Connor’s database, average severity worldwide has been about 20 per cent; in the United States (and Canada), it has been about 17 per cent, and in the EU Commission decisions, it has been about 12 per cent (although in Member States it has been 30 per cent), rising to about 15 per cent in the period 2005 to 2009.11 Connor also calculates the recovery ratio which is measured by the ratio of all penalties, including private action compensations to total damages. The recovery accessed 6 July 2017 (hereafter Connor presentation ‘EU Cartel Penalties’). 7 Ibid. 8  EU Guidelines (2006/​C 210/​02) on the method of setting fines imposed pursuant to Article 23(2) (a) of Regulation No 1/​2003 [2006] Official Journal of the European Union. 9  M Boyer and R Kotchoni, ‘How Much Do Cartels Overcharge? (The “Working Paper” Version)’, TSE Working Paper No 14-​462 (2014) (hereafter Boyer and Kotchoni, ‘How Much Do Cartels Overcharge?’). 10  Connor presentation ‘EU Cartel Penalties’ (n 6). 11  Findings in the European Union must be adjusted even further downwards using the Bruegel’s database of decisions on seventy-​three cartels in the 2001 to 2012 period: total fines €18.4 billion and affected sales €209 billion (about 9 per cent severity). See M Marinielo, ‘Do European Fines Deter Price Fixing?’ (VOX CEPR’s Policy Portal, 22 September 2013), available at accessed 26 February 2017.

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ratio is everywhere less than 100 per cent; it is highest in the United States (close to 90 per cent—​but falling after 2000) and is close to (a little less than) 50 per cent in EU Commission decisions.12 Another very significant piece of evidence regarding cartel activity concerns the phenomenon of recidivism—​evidence that cartels remain profitable and re-​form after being convicted. According to Connor, the phenomenon is ‘rampant’ and in his sample there are ‘at least 70 companies with 10 or more violations, some of which are overlapping and so may not meet the start/​stop/​start legal definition of recidivism’. However, Connor defines recidivism as the case when a given firm is being involved in more than one cartel even though the cartel may not be in the same industry and may be contemporaneous. A different definition of recidivism is concerned with cartels that, having been detected and prosecuted, re-​emerge at a later stage, something completely different to recidivism in Connor’s sense. Specifically, Connor’s empirical results cannot be used in order to establish whether or not the phenomenon of cartel re-​emergence recidivism in that latter sense is a serious one. The overall conclusion from the empirical evidence presented above is that cartels are still very active in the United States, the European Union, and other countries and pervasive in a wide variety of markets, despite the increased enforcement. As Harrington notes: ‘Cartels are still forming, in spite of the well-​reported successes of leniency programmes, the significant increase in government fines and the continued intensive use of incarceration by the US DoJ.’13

III.  How Can We Achieve Deterrence? In order to examine what the above evidence shows for the enforcement of competition policy regarding sanctioning regimes, we need to consider first what the objective of enforcement is and how we can, in theory, achieve this objective. Concerning the objective, the traditional economic theory viewpoint concentrates on just deterrence. As proposed by Becker,14 optimal penalties should be set in order to deter inefficient offences. In the context of Competition Law enforcement, assuming a consumer welfare substantive standard and actions that are always harmful in the sense that they reduce consumer welfare, such as horizontal hard-​core cartels, in order to obtain efficient deterrence, fines should be based on an estimate of expected illegal gains from the collusive activity. Recent literature has extended the original approach based on Becker15 and Landes16 and has determined the minimum penalty required to achieve deterrence 12  In the Bruegel database, for the European Union, it is estimated that total additional profits were lower than fines in 43 to 81 per cent of the cases, depending on estimate of additional profit. 13  J J Harrington, ‘Comment on “Antitrust Sanctions” ’ (2010) 6 Competition Policy International Journal 41 (hereafter Harrington, ‘Comment on “Antitrust Sanctions” ’). 14  G S Becker, ‘Crime and Punishment: An Economic Approach’ (1968) 76 Journal of Political Economy 169. 15 Ibid. 16  W M Landes, ‘Optimal Sanctions for Antitrust Violations’ (1983) 50 University of Chicago Law Review 652.

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under a variety of circumstances. Specifically, assuming that in cases in which we are interested, there are no efficiency gains, if we denote the incremental profit per period due to collusion by π , the probability of detection and conviction in a period by β, and the penalty by F , then according to the original argument for deterrence, it is required:

βF > π (1)

If the penalty is a multiple of the incremental profit from collusion, then F = ψπ and so deterrence requires that:

ψ>

1 β (2)

or, a minimum penalty rate on profits equal to (1 / β). Thus, given that the value of β according to a series of studies has been estimated to be somewhere between about 0.1 and 0.25, the minimum penalty rate on incremental profit must be about 5 (or even more since the values of β above 0.15 are likely to be overestimates, as this is the probability of conviction conditional on being caught). However, in most cases, the penalty is calculated using a revenue-​base (R), where R is the ‘affected-​commerce’. Given this, if:

F = ϕR (3)

Then, assuming that the ‘but-​for’ is the competitive situation, deterrence requires that:

ϕ>

θ / (1 / θ) β (4)

where θ is the ‘overcharge’ (the proportional excess of the collusive price above the competitive price).17 Note that, given β = 0.2, the penalty rate on affected commerce must be about 65 per cent if the overcharge is 15 per cent, and it must be about 143 per cent if the overcharge is 40 per cent. If, as will usually be true, the counterfactual is not competitive, then, as Boyer and Kotchoni18 show, expression (4) overestimates the penalty rate that will achieve deterrence by a factor that is higher the higher is the ‘but-​for’ price-​cost margin. If, 17  See also Y Katsoulacos and D Ulph, ‘Antitrust Penalties and the Implications of Empirical Evidence on Cartel Overcharges’ (2013) 123 Economic Journal 558 (hereafter Katsoulacos and Ulph, C 0 0 ‘Antitrust Penalties’). θ = p − p , where pC denotes the price with collusion and p the price at the 0 C 0 p π and π ( p − p ) θ , where Q C competitive equilibrium. According to (1)  and (3) ϕ = = = C C βR R p Q 1+ θ denotes the output with collusion. 18  Boyer and Kotchoni, ‘How Much Do Cartels Overcharge?’ (n 9).

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for example, the ‘but-​for’ excess of price above marginal cost is 20 per cent, then the overestimate factor is as high as 3, that is the revenue penalty rate that would achieve deterrence with β = 0.2 would be about 20 per cent. Τhere are a number of other considerations when measuring the optimal level of penalty. One is that in practice the amount of penalty is calculated considering the documented duration of the cartel. Harrington19 shows that, taking duration into account, the penalty rate on profits can be overstated by a factor that can be close to 3. Another consideration is that, as Buccirossi and Spagnolo20 had originally noted, ‘it is not necessary to make collusion unprofitable in order to deter cartel formation: it is sufficient to make collusion unstable’. Thus, instead of focusing on the participation constraint, we could focus on the incentive compatibility constraint. Harrington21 does this, also taking into account that the fine increases with duration. He shows that this ‘significantly lowers the maximum penalty multiple necessary to deter collusion’ (from the value of 5 mentioned above to a value closer to 2). Finally, Katsoulacos and Ulph22 consider that infringements may be convicted after they come to a ‘natural ’ end. With this adjustment, they show that the maximum rate on revenue of 30 per cent adopted by the European Union in 2006 is not unreasonably low. What the above review shows is that, under reasonable assumptions, if penalties were based on profits, then a penalty rate of 5 suggested by the US Guidelines23 as the maximum (although it has never been used) cannot be considered as low and is probably excessive. If, as is true by far in most cases in practice, penalties are based on revenue, then the rate needed to achieve deterrence depends on the overcharge. Connor and Lande24 consider their estimates of overcharge and conclude that actual penalty rates are lower than what is needed for deterrence (see also Bulotova and Connor25). Other authors (such as Allain et al,26 and Boyer and Kotchoni27) suggest that overcharges are much lower than indicated by Connor and Lande and argue that penalty rates are sufficiently high or indeed they may be excessive.

19  Harrington, ‘Comment on “Antitrust Sanctions” ’ (n 13). 20  P Buccirossi and G Spagnolo, ‘Optimal Fines in the Era of Whistleblowers: Should Price Fixers Still Go To Prison?’ in V Goshal and J Stennek (eds), The Political Economy of Antitrust (Emerald Group Publishing 2007) (hereafter Buccirossi and Spagnolo, ‘Optimal Fines’). 21  J J Harrington, ‘Penalties and the Deterrence of Unlawful Collusion’ (2014) 124 Economics Letters 33. 22  Katsoulacos and Ulph, ‘Antitrust Penalties’ (n 17). 23  See B A Howell, ‘Sentencing of Antitrust Offenders: What Does the Data Show?’, available at accessed 26 February 2017. 24  J M Connor and R H Lande, ‘Cartels as Rational Business Strategy:  Crime Pays’ (2012) 34 Cardozo Law Review 427 (hereafter Connor and Lande, ‘Cartels as Rational Business Strategy’). 25 Y V Bulotova and J M Connor, ‘Cartel Overcharges; Survey and Meta-​Analysis’ (2006) 24 International Journal of Industrial Organization 1109. 26  M-​L Allain, M Boyer, R Kotchoni, and J-​P Ponssard, ‘The Determination of Optimal Fines in Cartel Cases: The Myth of Underdeterrence’, CIRANO Discussion Paper 2011s-​34 (2011), available at accessed 26 February 2017. 27  Boyer and Kotchoni, ‘How Much Do Cartels Overcharge?’ (n 9).

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Notwithstanding the above results, as hinted already and as Harrington notes, ‘that there is under-​deterrence of collusion would seem to be a point that no reasonable person could dispute’.28 This under-​deterrence may be the result of managers making mistakes, or being myopic or over-​confident (‘that they will pull off the perfect crime’), but also, especially, recidivism implies that illegal collusion remains profitable and a sensible managerial decision (see, for more on this, section IV below). Furthermore, most commentators would argue that corporate monetary penalties cannot be raised to a level sufficient to deter collusion. This could well imply doubling or tripling these penalties in the United States and the European Union and, from even current experience, this would violate the legal ‘proportionality criterion’29—​so penalties would be reduced at the stage of appeal. Ginsburg and Wright have made this argument most forcefully.30 In his comment on this contribution, Harrington31 agrees with this argument. He points out that: ‘Realistically our best guesstimates . . . suggest that to push corporate financial penalties to a level that would make collusion unprofitable either exceeds the capacity of many firms to pay or would cause deleterious effects on post-​cartel competition by causing some firms to exit or weaken them financially.’ We would add to this point that the exit of some firms could increase the likelihood of recidivism. Although there may still be room for increasing corporate penalties in many jurisdictions, the point is that such penalties by themselves ‘are unlikely to adequately deter collusion in light of realistic probabilities for discovering and convicting cartels’.32 In concluding this part of the review, it is finally worth summarizing some points relating to the question of whether current sanctioning could be leading to over-​deterrence. To the extent that there is a divergence of incentives between shareholders and managers/​employees, there is a need for firms to monitor, detect, and prevent crimes committed by their agents. Therefore, the imposition of corporate monetary fines may lead to excessive socially inefficient investments in monitoring and prevention. However, there is no evidence that this is what is happening in practice. Also, to the extent that there are decision errors, there could be over-​deterrence if firms avoided welfare-​enhancing activities because of the fear of wrongful conviction (eg in the form of forming research joint ventures (RJVs) or non-​collusive vertical restraints). However, Type I errors are very small with cartel investigations and when jail sentences are a part of a sanctioning scheme, these are limited to naked horizontal price fixing, bid rigging, and market division.33

28  Harrington, ‘Comment on “Antitrust Sanctions” ’ (n 13) 42. 29  Proportionality criterion is a general criterion which covers several concepts of law. The proportionality criterion aims to balance the restriction imposed by a corrective measure to the severity of the prohibited act. 30  D H Ginsburg and J D Wright, ‘Antitrust Sanctions’ (2010) 6 Competition Policy International 3 (hereafter Ginsburg and Wright, ‘Antitrust Sanctions’). 31  Harrington, ‘Comment on “Antitrust Sanctions” ’ (n 13) 43. 32 Ibid. 33  Ginsburg and Wright, ‘Antitrust Sanctions’ (n 30).

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Having reviewed the recent literature on the deterrence effects of antitrust fines and the optimal level of fines imposed, the main question remains: Are current sanctioning policies effective? Given that first-​best fines are not feasible and sanctioning policies are necessarily second-​best, the main issue is to choose the ‘best’ among these policies. Or, to put it another way, we must ask whether current sanctioning policies are not as effective as they could be, if so, why, and what can we do to make them more effective? Recent economic literature examines the effectiveness of sanctioning policies (and of various other enforcement tools). Given that we consider second-​best policies towards cartels, that is, we assume that some cartels will always form, the assessment of effectiveness needs to be considered: • the effectiveness in deterrence (the deterrence effect of a sanctioning regime); • the effectiveness in maintaining the prices of cartels that are not deterred as low as possible (the pure price effect of a sanctioning regime); and • the effectiveness in minimizing other (non-​ price) potential distortions of sanctioning. In the following sections, we point to three reasons why current sanctioning policies are ineffective and we make some proposals to enhance the efficiency of sanctioning regimes.

IV.  Three Reasons Why Current Sanctioning Policy is Ineffective We can find three reasons why current sanctioning policy is ineffective, namely: • current sanctioning schemes are misdirected towards corporations rather than individuals; • monetary sanctioning designs are inefficient as they are based on the wrong penalty base; and • currently, we do not adequately exploit complementarities with other enforcement instruments. We discuss each of these reasons below.

A. Current sanctioning schemes are misdirected Ginsburg and Wright34 suggest that current fining policies place too much emphasis on monetary penalties on corporations rather than on sanctioning the individuals who are responsible for the illegal price fixing. Therefore, according to their analysis, it is not just infeasible to increase corporate monetary fines to the point where they achieve deterrence for the reasons mentioned above; it is also the wrong policy in the sense that 34 Ibid 5.

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increasing corporate fines further will not have the desirable deterrence effects—​as such, fines do not affect the individuals who are responsible for price fixing. According to Ginsburg and Wright, ‘the individuals responsible for the cartel activity, whether they are engaged in, complicit with, or negligent in preventing the price-​fixing scheme, should be given a sufficient disincentive to discourage them from engaging in that activity’.35 The disincentive could be in the form of financial penalties levied on the individuals, jail sentences, and debarment. As pointed out by the authors, the US Antitrust Division believes that ‘individual accountability through the imposition of jail sentences is the single greatest deterrent’ to cartel activity. A survey done for the UK OFT confirms that criminal penalties are the penalties of greatest concern to business people. Still, while in the United States jail sentences for antitrust offences are common and a significant part of sanctioning schemes, this is not the case in many countries and even now these do not play a significant role in the European Union. Ginsburg and Wright argue for de-​emphasizing monetary fines and, instead, placing much more emphasis on criminal sanctions and—​the unique twist of their argument—​on debarment. Ginsburg and Wright point to the United Kingdom, Australia, Sweden, and South Africa as countries where debarment has been authorized as a sanction for price fixing and propose to ‘debar individuals responsible for price-​fixing from further employment in a position from which they could again violate or negligently enable their subordinates to violate the antitrust laws’.36 We agree that there is currently in most jurisdictions an imbalance in the use of different sanction types in favour of corporate monetary fines and that individual penalties should be given much greater weight than at present—​with increased emphasis on debarment, especially where jail sentences are already a common feature of sanctioning schemes (as in the United States). However, we also agree with Harrington37 that putting greater emphasis on debarment should not imply reducing jail sentences or not further increasing corporate monetary fines. In relation to this, two points need to be stressed: • While debarment may be particularly attractive for those jurisdictions where jail sentences are not politically viable, there are serious questions concerning the efficacy of debarment.38 This may explain why in countries where debarment is authorized (eg the United Kingdom), it is not used much. • Putting additional weight on individual sanctions need not imply that corporate fines should not be further raised—​there is no empirical evidence showing that ‘corporate governance is so ineffective that senior managers are not influenced or affected by what matters to shareholders’ and the latter certainly care about the magnitude of monetary fines.39 So, monetary penalties should 35 Ibid. 36 Ibid 6. 37  Harrington, ‘Comment on “Antitrust Sanctions” ’ (n 13). 38  Ibid 45–​6. The debarment may not be severe enough (as jail sentences), might not be practically implemented, and could also be undone by the corporation, if the shareholders compensate managers for the risks of price fixing. 39 Ibid 47.

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be considered as complementary to other sanctions (such as imprisonment or debarment).

B. Inefficient design of penalty structures (wrong penalty bases) Recent economic literature40 also shows that the currently employed designs of monetary penalty structures may be improved. As already noted, according to the traditional economic view, to obtain efficient deterrence of hard-​core cartels, fines should be based on an estimate of illegal gains. On the contrary, current fining policies typically base fines on affected commerce, ie on revenue in the relevant market, and they often impose caps to maximum applicable fines in terms of a percentage of overall turnover. In particular, according to the current sentencing Guidelines, in the United States, fines are based on illegal sales and illegal gains; in the European Union, fines are mainly based on turnover and only in some cases (eg the United Kingdom) fines on damages (which is closer to fines on overcharges) are proposed as a supplement to fines based on turnover. Therefore, turnover is the dominant penalty base. Ease of implementation is sometimes used to justify the base of turnover. However, is the use of turnover (or profits) as the base for setting fines justified on social welfare grounds? And if it is not—​and the use of this base may imply potentially large welfare costs—​could it still be justified on implementation grounds? Recent economic literature concentrates on comparisons of the following types of alternative penalty structures (or penalty bases): • penalties on revenues (turnover): FR ( p ) = ϕR ( p ) • penalties on illegal gains: Fπ ( p ) = ψπ( p ) • fixed penalties: F ( p ) = f pC − p N C , p is the price pN under collusion, p N is the ‘but-​for’ level (or Nash level), Q N is the competitive output, and η is the penalty rate in an overcharge-​based penalty regime.

• penalties on overcharges: F0 ( p ) = ηθQ N , where θ =

A number of papers have examined the implications for cartel activity of alternative fining structures, including by Connor and Lande,41 Harrington,42 Buccirossi and 40  eg V Bageri, Y Katsoulacos, and G Spagnolo, ‘The Distortive Effects of Antitrust Fines Based on Revenue’ (2013) 123 Economic Journal 545 (hereafter Bageri et al, ‘Distortive Effects’); Y Katsoulacos, E Motchenkova, and D Ulph, ‘Penalizing Cartels: The Case for Basing Penalties on Price Overcharge’ (2015) 42 International Journal of Industrial Organization 70 (hereafter Katsoulacos et al, ‘Penalizing Cartels’). 41  J M Connor and R H Lande, ‘The Size of Cartel Overcharges: Implications for U.S. and E.U. Fining Policies’ (2006) 51(4) Antitrust Bulletin 983 (hereafter Connor and Lande, ‘The Size of Cartel Overcharges’); as well as Connor and Lande, ‘Cartels as Rational Business Strategy’ (n 24). 42  J Harrington, ‘Optimal Cartel Pricing in the Presence of an Antitrust Authority’ (2005) 46 International Economic Review 145.

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Spagnolo,43 Houba and others,44 Bageri and others,45 Katsoulacos and Ulph,46 and Katsoulacos and others.47 Two main effects are examined in this literature: • Cartels that are not deterred and are formed may adjust their pricing strategy in response to different penalty structures. Therefore, some penalty structures may result in higher cartel prices (and a consequent loss in consumer welfare). This is a negative ‘pure price effect’ that is a result of the fines imposed. With the currently employed penalty structures, tougher penalties may well raise cartel prices, rather than lower them.48 • The extent of cartel deterrence (and hence the number of cartels that form) is influenced by different penalty structures. This is owing to penalty structures affecting differently the stability of cartels—​the incentives of cartel members to continue to cooperate. This is what we call the ‘deterrence effect’. It is clear that the overall effect on prices and welfare of a penalty structure depends both on its pure price effect and on its deterrence effect, where the latter depends on its degree of ‘toughness’. For example, a profit-​based penalty, even if inferior in terms of its pure price effect, if it is very tough relative to an overcharge-​based regime and thus will deter many more cartels forming and hence may lead to lower overall prices and superior welfare effects on average. Taking both of these effects into account, one can derive implications of the alternative penalty structures for the overall/​average cartel overcharge, consumer surplus, and total welfare. These implications can then be used as an input to deriving policy recommendations. However, in order to analyse and to compare the impact of the alternative penalty structures on deterrence, it is very important to deal with the serious issue of ensuring equivalence in the ‘toughness’ of the various structures—​after all, with sufficient toughness, all structures can deter cartels completely. One way of doing this is to assume that penalty rates in alternative structures are adjusted to ensure deterrence equivalence (ie regimes are equally tough in the sense that the fraction of cartels deterred is exactly the same across all regimes). However, this may result in violation of the legal principle of proportionality in penalties imposed, as deterrence equivalence concentrates on penalty rates neglecting the fact that the penalty bases are very different. An alternative notion of equal toughness is that of penalty revenue equivalence, which requires that on average the size of the penalty actually paid by 43  Buccirossi and Spagnolo, ‘Optimal Fines’ (n 20). 44  H Houba, E Motchenkova, and Q Wen, ‘Antitrust Enforcement with Price-​Dependent Fines and Detection Probabilities’ (2010) 3 Economics Bulletin 2017; H Houba, E Motchenkova, and Q Wen, ‘Competitive Prices as Optimal Cartel Prices’ (2012) 114 Economics Letters 39 (hereafter Houba et al, ‘Competitive Prices’). 45  Bageri et al, ‘Distortive Effects’ (n 40). 46  Katsoulacos and Ulph, ‘Antitrust Penalties’ (n 17). 47  Katsoulacos et al, ‘Penalizing Cartels’ (n 40). 48  See eg Connor and Lande, ‘The Size of Cartel Overcharges’ (n 41); Katsoulacos and Ulph, ‘Antitrust Penalties’ (n 17).

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a cartel that is detected and penalized should be the same whatever penalty base is used. There are two reasons to consider penalty revenue equivalence: • competition authorities and courts are not just interested in deterrence, but also care about proportionality; and • since penalties with different bases are compared, it is not enough to compare the rates at which the penalties are imposed, but we should also take into account the difference in the size of the bases by requiring that the absolute amount of penalty revenue raised is the same. Given deterrence, we can see49 that for formed stable cartels, the overcharge-​based structure outperforms the other regimes in that it leads cartel members to set prices lower than the monopoly prices. Fixed penalties and profit-​based structures lead to prices equal to the monopoly price. In addition, revenue-​based structures are the most distortionary in leading to prices above the monopoly level. Moreover, revenue-​based structures—​which are the structures most commonly used—​can generate additional distortions. As Bageri and others50 show, two other distortions are caused by revenue-​based penalties. The first distortion is that, when total turnover is used either as a base for the fine or for a cap, there may be biases against more diversified firms. The second distortion appears because firms forming cartels at the end of a long value chain, with a low profit/​revenue ratio, expect larger fines relative to collusive profits than firms that have a larger profit/​revenue ratio. Empirically based simulations suggest that the deadweight losses produced by these distortions can be large. Independently of how one deals with ‘toughness equivalence’, the prediction, when account is taken of deterrence effects, is that the overcharge-​based penalty regime outperforms all the other regimes in terms of average prices, consumer surplus, and total welfare.51 Thus, the conclusion is that the current emphasis on revenue-​based (and in some cases profit-​based) regimes is unjustified, on welfare economics grounds, after accounting for both pure price effects and deterrence effects of alternative penalty regimes on cartels. Penalties that target the overcharge are in some sense optimal, since they target what is the ultimate source of harm. While there is no support from welfare economics for the currently widely utilized fining structures, could it be that differences in the implementation of the four key penalty structures justify current practice? Are implementation difficulties—​in terms of getting the necessary data and making the necessary estimates—​important enough to outweigh the likely welfare losses from the use of revenue-​based regimes? One thing that should be noted is that developments in economics and econometrics make it possible to estimate overcharges from a cartel infringement with reasonable precision or confidence, as regularly done in the assessment of damages.52 49  Katsoulacos et al, ‘Penalizing Cartels’ (n 40). 50  Bageri et al, ‘Distortive Effects’ (n 40). 51  Katsoulacos et al, ‘Penalizing Cartels’ (n 40). 52  See eg the extensive review by J A Brander and T W Ross, ‘Estimating Damages from Price-​Fixing’ (2006) 3 Canadian Class Action Review 335.

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Even though the assessment of an overcharge base for calculating penalties is not the same as the assessment of damages, there are, nevertheless, common aspects in the assessment methodologies. However, for estimating an overcharge-​based penalty, we also need to know the output in the competitive counterfactual, which is what makes implementation of such a penalty more difficult. Katsoulacos and others53 propose an alternative hybrid penalty regime in which revenue is still used as a base, but which makes the penalty rate increasing in the overcharge. This hybrid regime has the welfare advantages of an overcharge-​based penalty regime.54 Thus, even after taking into account additional costs in implementation and institutional inertia, it is difficult to avoid the conclusion that it is probably time to start reconsidering the policies currently utilized for calculating cartel fines.

C. Inadequately exploiting the complementarities between different intervention instruments A recent article by Katsoulacos and others,55 using a model of cartel birth and death inspired by Harrington and Chang,56 shows the strong complementarities that exist between different intervention instruments. The article also examines in detail the interaction between and the impact on welfare of these instruments. The effectiveness of sanctioning increases significantly with the effectiveness of interventions related to detecting/​prosecuting cartels and to interventions for preventing recidivism. Therefore, a proactive anti-​cartel enforcement policy that aims to provide regular screens of the markets with higher probability of cartel formation, followed up by dawn raids, could make sanctioning much more effective and have substantial welfare benefits, by increasing detection rates. Of particular importance are interventions that aim to prevent recidivism. Both the literature and the competition authorities have not directed enough attention to this type of intervention. Largely, the literature overlooks the issue of how cartels behave after conviction. For example, Motta and Polo,57 Rey,58 and Katsoulacos and others59 assume that cartels are re-​established with probability 1 due to profit

53  Y Katsoulacos, E Motchenkova, and D Ulph, ‘Revenue-​Based Penalties Could Work after All’ (2016b) working paper, available at accessed 26 February 2017 (hereafter Katsoulacos et al, ‘Revenue-​Based Penalties’). 54  See also section V on concluding remarks below. 55 Y Katsoulacos, E Motchenkova, and D Ulph, ‘Measuring the Effectiveness of Anti-​Cartel Interventions:  A Conceptual Framework’ (2016a), available at accessed 26 February 2017. 56  J Harrington and M-​H Chang, ‘Modeling the Birth and Death of Cartels with an Application to Evaluating Antitrust Policy’ (2009) 7(6) Journal of the European Economic Association 1400. 57  M Motta and M Polo, ‘Leniency Programs and Cartel Prosecution’ (2003) 21 International Journal of Industrial Organization 347. 58  P Rey, ‘Towards a Theory of Competition Policy’ in M Dewatripont, L Hansen, and S Turnovsky (eds), Advances in Economics and Econometrics:  Theory and Applications (Cambridge University Press 2003). 59  Katsoulacos et al, ‘Penalizing Cartels’ (n 40).

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maximization behaviour after conviction. Harrington60 assumes that cartels stop after detection and conviction (without adequately motivating why). Houba and others61 introduced a probability γ (0 < γ < 1) that a cartel is stopped after conviction. However, all of these situations do not reflect what we observe in practice: Cartels may stop just after detection, but are then reborn in the future. Empirical evidence on this issue is mixed. Davies and Ormosi62 cite evidence that cartels re-​emerge in industries in which a competition authority had previously prosecuted a cartel. The evidence reviewed by Werden and others63 suggests that it is not a serious phenomenon in the United States, but there is no clear indication about its evidence in other countries. As indicated in section II, Connor64 argues that ‘recidivism is rampant’.65 Ormosi66 fits a capture-​recapture model to a data set of European firms involved in prosecuted cartels. He shows that in the year after prosecution, 75 per cent of prosecuted firms are no longer likely to be caught in collusive activity, but that this figure drops to 10 per cent in the long run. Competition authorities, through heightened levels of monitoring of markets in which firms have been convicted, can increase the probability that cartels stop after conviction and reduce the probability that they re-​emerge in the future.

V.  Concluding Remarks—​Some Proposals Designing effective sanctioning regimes is extremely important in the Competition Authority’s efforts to fight cartel activity and, as noted above, this is particularly so in the recent decades in the BRICS and developing countries. The analysis on the three reasons why current sanctioning policies are not effective immediately leads us to an equivalent number of proposals to enhance the efficiency of sanctioning regimes. Specifically, as we show, there is currently in most jurisdictions an imbalance in the use of different sanction types in favour of corporate monetary fines. By improving the targeting of sanctioning or mix of sanctioning methods, we may increase the effectiveness of sanctioning regimes in deterrence. So, the first proposal is that individual penalties should be given much greater weight than at present—​with increased emphasis on debarment, especially where jail sentences are already a 60  J Harrington, ‘Cartel Pricing Dynamics in the Presence of an Antitrust Authority’ (2004) 35 RAND Journal of Economics 651; Harrington, ‘Optimal Cartel Pricing’ (n 41). 61  Houba et al, ‘Competitive Prices’ (n 44). 62  S Davies and P Ormosi, ‘Assessing Competition Policy: Methodologies, Gaps and Agenda for Future Research’, CCP Working Paper 10-​19 (2010), available at accessed 26 February 2017. 63  G J Werden, S D Hammond, and B A Barnett, ‘Recidivism Eliminated: Cartel Enforcement in the United States Since 1999’ [2011] CPI Antitrust Chronicle, available at accessed 26 February 2017. 64  Connor presentation ‘EU Cartel Penalties’ (n 6). 65  However, Connor uses a somehow different definition of recidivism—​see section II above. 66  P L Ormosi, ‘A Tip of the Iceberg? The Probability of Catching Cartels’ (2014) 29 Journal of Applied Econometrics 549.

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common feature of sanctioning schemes (as in the United States) or, as an alternative, where jail sentences cannot be used. However, putting greater emphasis on debarment should not imply reducing jail sentences or not further increasing corporate monetary fines. The second proposal is to improve the overall welfare impact of sanctioning policies by adopting penalty structures in which the overcharge is an integral part of the monetary penalty regime. While overcharge-​based penalty structures are welfare superior, they are the most demanding in terms of their implementation. In particular, in order for an overcharge-​based penalty to be implemented, so that it has the desirable properties above, it is necessary that we estimate the overcharge—​which, given how often this is required in damages cases, cannot be considered a major implementation problem and also the output in the competitive counterfactual. The latter makes implementation more problematic and difficult. It is therefore important to investigate whether other regimes and, specifically, the revenue-​based regimes currently employed, which are easier to implement, could be adapted so that they generate the same welfare outcomes as the overcharge-​based regimes. Katsoulacos and others67 employ the model developed by Katsoulacos and others68 to propose an alternative design that could significantly improve the effectiveness in terms of welfare of the currently employed monetary penalties that are based on revenue and are not as difficult to implement as the overcharge-​based regimes. Specifically, they show that by implementing the revenue-​based structures with penalty rates that depend on the gravity of the offence69 through the price overcharge will improve the performance of the revenue-​based penalties—​achieving a reduction in cartel prices and an increase in welfare. Indeed, the proper design of the variable revenue penalty rate will achieve the same welfare as the overcharge-​based penalties described by Katsoulacos and others.70 They derive the optimal design of the variable revenue penalty rate, calibrate it with policy-​relevant parameter values, and illustrate policy implications graphically. A clear policy recommendation that emerges from Katsoulacos and others71 is therefore that in case competition authorities cannot switch to a penalty structure that uses the price overcharge as the base on which the penalty is imposed, they should at least try to implement the existing revenue-​based penalties with penalty rates that are overcharge-​based. Intuitively, overcharge-​based penalty rates can target directly the price-​setting incentives of the cartel and can thus mitigate the welfare distortions caused by using the revenue as a penalty base.

67  Katsoulacos et al, ‘Revenue-​Based Penalties’ (n 53). 68  Katsoulacos et al, ‘Penalizing Cartels’ (n 40). 69  Taking into account the gravity of offence has been the case in EU sentencing guidelines in the past (see Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation No 1/​2003 (2006/​C 210/​02)). 70  Katsoulacos et al, ‘Penalizing Cartels’ (n 40). 71  Katsoulacos et al, ‘Revenue-​Based Penalties’ (n 53).

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The third proposal for more effective sanctioning policies is to exploit, to a greater extent, the complementarities between different intervention instruments. As noted above, the effectiveness of sanctioning increases significantly with the effectiveness of interventions related to detecting and prosecuting cartels and to interventions for preventing recidivism. Therefore, rather than setting still higher fines, competition authorities should place more emphasis on devoting resources towards increasing the detection rate of cartels and preventing recidivism.

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8 Remedies in BRICS Countries Are There Lessons from and for Competition Economics? Svetlana Avdasheva* and Tatiana Radchenko**

I. Introduction During the Fourth International BRICS Conference in Durban in 2015, the Head of the Federal Antimonopoly Service of the Russian Federation, Igor Artemyev, put forward an initiative for BRICS competition authorities to collectively bargain with transnational corporations in order to prevent unfair practices in the domestic market.1 The proposal at great part relies on the extensive experience in application of behavioural (conduct) remedies by the Russian competition authority. In Russia, conduct remedies are applied not only in the framework of merger approval, but also as part of settlements. This results from investigation of Competition Law infringements (especially abuse of dominance), and recently as part of ex ante compliance with Competition Law requirements. Competition authorities in other BRICS countries also apply conduct remedies. Remedies issued by the Chinese National Development and Reform Commission (NDRC) to chip manufacturer Qualcomm complemented the record fine for abuse of dominance in 2015. The Competition Commission of South Africa applies conduct remedies for both domestic and international companies. The literature on Competition Law and Economics lacks deep assessment of complex effects of conduct remedies. Empirical evidence on the topic is also limited. The immediate and short-​term impact of conduct remedies is often positive and acknowledged not only by the target group for protection, but also by the international expert community. In 2014, the World Bank and the International Competition Network (ICN) honourably mentioned Russian competition Support from the Basic Research Program of the National Research University Higher School of Economics is gratefully acknowledged. *  National Research University Higher School of Economics. **  Analytical Center under the Government of the Russian Federation, Russian Academy of National Economy and Public Administration and Moscow Lomonosov University. 1  I Artemyev, Head of the Federal Antimonopoly Service of Russian Federation, Fourth International BRICS Conference, Durban (12 November 2015). Remedies in BRICS Countries: Are There Lessons from and for Competition Economics? Svetlana Avdasheva and Tatiana Radchenko. © Svetlana Avdasheva and Tatiana Radchenko, 2017. Published 2017 by Oxford University Press.

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authority for developing non-​discriminatory access conditions (a kind of conduct remedy) for the purchase of potassium chloride, an input for fertilizers, in the contest of the competition advocacy initiatives organized by them.2 In South Africa, effects of remedies applied in the framework of the Hazel Tau and Others v GlaxoSmithKlein and Boehringer case at the beginning of the 2000s are among the best examples of public intervention in the field of health-​care policy worldwide.3 However, many effects of the remedies are not easily observable, especially those of a long-​term nature. One important issue is the interaction between the design of remedy conditions, structure of the markets affected, and expected effects of the remedies. The objective of this chapter is to summarize and explain the experience of remedy application in BRICS competition policy, with special attention to less observable effects, considering the evidence collected on remedies and the implications of Competition Law and Economics with regard to remedies assessment. The chapter is structured as follows: Section II provides a review of the relatively scarce research of conduct remedies in Competition Law and Economics and explains the differences in conduct remedies in developed and BRICS countries. Section III summarizes evidence of the immediate desirable effect of remedies in BRICS countries, and also discusses their negative side effects. Section IV concludes the chapter.

II.  Remedies in BRICS Vis-​À-​Vis Developed Countries: What are They? A. Conduct (behavioural) vs structural remedies under merger vs abuse-​of-​dominance investigations Remedies themselves are not new in competition policy. However, in most jurisdictions with extensive experience of antitrust and competition enforcement, competition authorities apply conduct remedies in exceptional circumstances and prefer to apply structural remedies, particularly divestiture, as a condition for merger clearance.4 Statistical analysis of 234 merger remedy cases in seven developed European countries shows that not only the European Commission but also competition authorities in the Member States prefer to apply structural remedies in contrast to conduct ones. Conduct remedies such as access remedies are mostly used in the network and infrastructure industries where structural remedies are not 2  ‘Winners Announced: 2014 Competition Advocacy Contest’, available at accessed 1 May 2015. 3  Competition Commission of South Africa, ‘South Africa’s experience in the Pharmaceuticals Industry’, prepared for the 2015 UNCTAD Round Table on ‘The Role of Competition in the Pharmaceutical Sector and Its Benefits for Consumers’, available at accessed 1 July 2015 (hereafter Competition Commission of South Africa 2015); R Beall and R Kuhn, ‘Trends in Compulsory Licensing of Pharmaceuticals since the Doha Declaration: A Database Analysis’ (2012) 9(1) PLoS Med e1001154 (hereafter Beall and Kuhn, ‘Trends in Compulsory Licensing’). 4  S Davies and B Lyons, Mergers and Merger Remedies in the European Union: Assessing the Consequences for Competition (Elward Edgar 2007).

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possible.5 Generally, remedies are conditions for merger clearance, in spite of the fact that sometimes their content partially overlaps with the rules of sector-​specific regulation. Competition agencies in transition and emerging market economies apply conduct remedies relatively often. The Ministry of Commerce of the People’s Republic of China cleared mergers of Seagate/​Samsung, Glencore/​Xstrata, Marubeni/​Gavilon, Baxter/​Gambro, MediaTek/​MStar, Western Digital/​Hitachi, Uralkali/​ Silvinite,6 and many others under the set of remedies. NDRC also applies conduct remedies as part of infringement decisions on the abuse of dominance. The South African competition authority uses conduct remedies as a condition for merger clearance7 and as part of infringement decisions on abuse of dominance. Specifically, the Competition Commission developed conduct remedies under investigations of excessive price by Mittal Steel South Africa (2007) and Sasol Polymers (2014). Russian competition agency, the Federal Antitrust Service (FAS), applies conduct remedies not only as a condition for merger clearance, or a follow-​up of infringement decision of abuse of dominance, but also as part of settlements and broad competition compliance programmes. Remedies may be voluntary or compulsory. The most extensive voluntary remedies are applied in the form of commercial policies, which companies elaborate by themselves and present to competition authority for approval. Important examples are commercial (or marketing) policies developed by the largest oil companies devoted to the wholesale market of motor fuel or by large suppliers of potash fertilizer, caustic soda, and other industrial inputs. In addition, since 2015, the Russian competition authority has legally obtained a power to develop non-​discriminatory access conditions against the dominant company with a share exceeding 70 per cent in the domestic market. Named examples of conduct remedies are company-​specific. Even oil companies in Russia, in spite of similarities, develop slightly different rules of pricing and contracting in their commercial policies. Remedies take the form of individual decisions as well as specific rules for the target sector. Large exporting companies with a share in domestic markets close to 100 per cent follow an individualized set of rules. In Russia, after the extensive discussion on the rules of dealerships in the car market, the FAS together with business associations representing auto-​companies refined the Code of Conduct for 5  T Hoehn, ‘Structure versus Conduct—​A Comparison of the National Merger Remedies Practice in Seven European Countries’ (2010) 17(1) International Journal of the Economics of Business 9. 6  S E Seah, ‘China Continues to Demonstrate Its Merger Control Prowess’ (2013), available at accessed 25 October 2013; S Baxter, F Depoortere, I Vandenborre, and A L Foster, ‘MOFCOM Lifts Hold-​ Separate Remedies for the First Time’ (Skadden, Arps, State, Meagher & Flom LLP and affiliates 2015), available at accessed 26 October 2015; Freshfields Bruckhaus Deringer, ‘China’s MOFCOM Continues to Intervene in Global Mergers’ (2013), available at accessed 24 October 2013; ‘China Merger Review: A New Gauntlet for Global M&A’, available at accessed 8 March 2017. 7  G Robb and A Ngwenya, ‘Theory and Practice in the Use of Merger Remedies: Considering South African Experience’ (2011) 1(4) Journal of Economic and Financial Sciences: Special Issue 203.

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automakers and their dealers (in 2013).8 The rules of the Code of Conduct are similar to those applied in individual remedies. Another example is the Code of Conduct for pharmaceutical companies.9 Conduct remedies may include price and non-​price conditions. Price conditions prescribe principles of pricing, including price caps and rules of price variation for groups of counterparties. Prices of international markets (spot price or price of competitors, etc) and/​or export contracts are used as price ceilings for domestic customers. The percentage of possible rebates and surcharges can also be prescribed. Non-​price conditions may include minimum quantity restructions for the sales in the domestic market (rationing of output), rules for customer selection, and procedures of contract enforcement, such as conflict resolution and order of supply and payments. In other words, the content of remedies at least partially overlaps with Competition Law provisions, setting limits on excessive prices, price discrimination, refusal to supply, etc. At the same time, remedies contain very precise rules, similar to sector-​ specific regulations.

B. Targets of remedies Remedies are applied in concentrated markets with high entry barriers. Many companies under remedies are in a ‘nearly monopoly’ position, being not only one of the largest suppliers in domestic markets, but also large in international markets. The following are examples: • Glencore in non-​ferrous metal markets in China; • Uralkali in the market for basic fertilizers in Russia, as well as in China; • Qualcomm in China, as well as international markets of broadband chips; • RUSAL as ‘near monopoly’ in the Russian market for primary aluminium, as well as one of the largest suppliers worldwide; and • Mittal Steel South Africa and Sasol Polymers in relevant markets for metals and chemical products respectively in South Africa and worldwide. In Russia, competition authorities apply remedies also for participants in an oligopoly market, for instance, the three largest oil companies (LUKOil, Rosfent, and Gazpromnetf   ). Across types of products, targets for remedies can be classified into two overlapping groups. The first group concerns crucial inputs for domestic manufacturing or agriculture—​including basic chemical products, aluminium, steel, and patents. The second group covers socially sensitive markets. These are pharmaceuticals and relevant intellectual property rights (IPR) in many BRICS countries, and motor fuel in Russia. Virtually all the companies under remedies participate in international as well as domestic markets. This fact is important in the sense that it might explain the 8  ‘Code of Conduct’ for automakers and their dealers, available at accessed 1 December 2015. 9  ‘Code of Conduct’ for pharmaceutical companies, available at accessed 1 May 2015.

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goals of remedies and project possible effects of remedies. In Russia, most targets are domestic export-​oriented producers (including vertically integrated oil companies, ferrous and non-​ferrous metals, fertilizers, and chemical products suppliers). In China, typical remedy targets are international companies. Examples of remedies in South Africa are aimed at both types of companies.

C. Objectives of remedies The usual objective of remedy is to prevent abuse of a dominant position in the form of excessive price and discrimination, including prevention of such issues after mergers (price discrimination in commodity markets, discrimination in terms of access to IPR, discrimination in other dimensions of contract terms). Benchmarks for assessing price and non-​price terms of supply in the domestic market are the similar contracts of target companies abroad. BRICS markets face negative welfare implications of discrimination in a way that is unusual for developed jurisdictions such as the United States and European Union. While the European Union strives to prevent discrimination between different markets within Member States, in BRICS, a large part of discrimination as an offence occurs in favour of customers abroad vis-​à-​vis domestic custom. There is insufficient discussion surrounding the impact of alleged discrimination on welfare in BRICS countries. Two examples are worth mentioning. The first relates to discrimination of customers in the domestic market by large multinationals. Market power in the domestic market combined with competition in export target markets within the model of third-​degree price discrimination predicts higher prices in home BRICS markets. Higher sticky prices in domestic markets are at the centre of several antitrust investigations in BRICS, including markets of steel (in Russia and South Africa) and chemicals (in South Africa). In these markets, price remedies following investigations are devoted precisely to this issue. In spite of the practical importance of the issues of discrimination for markets in BRICS, Competition Law and Economics pay little attention to it. There is no systematic evidence as to whether or not discrimination is in place. Researchers do not have access to data for advanced effect analysis and competition authorities are not really obliged to carry out ex-​post analysis. For the commodity markets, there is indirect evidence that large mergers by export-​oriented companies reduce the surplus of industrial customers in the home country (based on the financial event studies method for Russia10). There is also evidence indicating that commodity prices in home markets are higher than export prices if the domestic markets are highly concentrated.11 However, this evidence is too scarce to assess the policy of remedies and develop policy implications. 10  S Avdasheva and D Tsytsulina, ‘The Effects of M&As in Highly Concentrated Domestic vis-​a-​vis Export Markets: By the Example of Russian Metal Industries’ (2015) 34(C) Research in International Business and Finance 368. 11 S Avdasheva, ‘Models of Monopoly in the Quarter-​ Century Development of Russian Competition Policy: Understanding Competition Analysis in the Abuse of Dominance Investigations’ in F Jenny and Y S Katsoulacos (eds), Competition Law Enforcement in the BRICS and in Developing Countries: Legal and Economic Aspects (Springer 2016).

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The second is an issue of discrimination of companies from BRICS countries in the markets of IPR. There is also little systematic evidence on the issue. Discussions concentrate on the different interests in protection of IPR in the South and North (following the tradition that starts from Chin and Grossman12 and Deardorff 13). In the political discourse, people mix the issues of distributional effects of IPR protection between the North and South with the issues of discriminatory access to IPR for the participants from BRICS countries. Evidence on both issues is important to assess the objectives of relevant remedies. If one believes that third-​degree price discrimination in input markets and unequal access to property rights happen and they are anticompetitive, and for some specific reasons, they happen more often in countries like BRICS, remedies should be assessed as part of the competition policy. Otherwise, relevant remedies can be considered as mostly protective measures, and should be assessed in the framework of industrial policy. Intuition suggests that both types of reasoning have influences, and usually remedies in BRICS deal with both competition and industrial policy goals.

III.  Effects of Remedies: Intended and Unintended Effects of remedies on the companies and relevant and adjacent markets are important regardless of whether we consider them as part of competition or industrial policy. However, assessing the effects from two different perspectives requires different benchmarks. We should ask whether remedies are effective in comparison with alternative competition policies and alternative industrial policy measures. However, the first question is about the existence, sign, and scope of the effects of remedies. The effects can be classified in different ways. The first is the division between immediate effects and side effects. Immediate effects are those directly prescribed by the remedies—​on price, rules of distributors’ selection, and allocation of output between domestic and export markets. Side effects are the impacts of remedies on the incentives and performance of the participants in relevant and adjacent markets, on the interaction of market participants with competition authorities, etc. Both types of effects cannot be identified completely, but generally side effects are less observable, at least in the short run. Furthermore, effects may be split into impact on organization and performance of market and organization and performance of competition policy. On the side of markets, remedies can affect not only prices, but also comparative advantages of different forms of vertical organization and contractual practice. On the side of competition policy, monitoring compliance of remedy is very different from investigation of restriction of competition or competition advocacy. The complexity of the responsibilities of competition authorities inevitably affects their performance.

12  J C Chin and G M Grossman, ‘Intellectual Property Rights and North–​South Trade’, NBER Working Paper 2769 (1988). 13  A V Deardorff, ‘Welfare Effects of Global Patent Protection’ (1992) 59(233) Economica 35.

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There is a lack of evidence not only on side effects, but also on immediate (primary) effects of remedies. This is true not only in BRICS, but also in developed countries. A limited number of studies on antitrust law and economics analyses the effectiveness of conduct remedies in terms of competition promotion because conduct remedies in the framework of antitrust and Competition Law enforcement in the most developed countries are significant. The only cases extensively discussed were the conduct remedies imposed by the European Commission and the US courts on Microsoft.14 Another important exception is the study on direct effects of remedies in pharmaceutical markets, such as compulsory licensing.15 In order to fill this gap, the next section summarizes (though not exhaustively) the observed and possible effects of conduct remedies applied in BRICS.

A. Observed effects of remedies on prices 1. Compulsory licensing and price discounts Among different types of remedies, there is evidence of the effects of compulsory licensing of pharmaceuticals. The welfare impact of competition and prices in pharmaceutical markets is extremely large, and it goes far beyond pure monetary dimensions. In socially sensitive markets of pharmaceuticals, usually not competition authorities, but sector regulators are responsible for making health and social policies, negotiating with companies, and issuing decisions of compulsory licensing. Compulsory licensing has short-​term and long-​term effects. Short-​term effects occur in the framework of negotiations between responsible authorities and international companies, which provide price discounts in exchange for softening the conditions of remedies.16 Compulsory licensing also provides a long-​term impact owing to the entry of licensees and generic producers in relevant markets.17 Assessments of the effects of compulsory licensing as a remedy are mainly positive and inspiring. Immediate effects of remedies on prices applied in commodity markets (mainly input produced by monopolies in domestic markets) in Russia are also positive for customers (first of all, downstream industries). We can see this by comparing the price dynamics on two commodities produced by the sellers with a market share near 100 per cent in the domestic market. The first is cold rolled grained steel (a kind of electric steel) and the second is potassium chloride (a type of fertilizer, that serves also as a component to produce complex fertilizers). In both markets, extremely high concentrations occurred after the mergers. The mergers resulted in important synergies that allow the international competitiveness of the products supplied to 14  D S Evans, A L Nichols, and R Schmalensee, ‘United States v. Microsoft: did Consumers Win?’ (2005) 1(3) Journal of Competition Law and Economics 497; C Ahlborn and D S Evans, ‘The Microsoft Judgment and Its Implications for Competition Policy Towards Dominant Firms in Europe’ (2009) 75(3) Antitrust Law Journal 887. 15  Beall and Kuhn, ‘Trends in Compulsory Licensing’ (n 3). 16  Beall and Kuhn, ‘Trends in Compulsory Licensing’ (n 3). 17  Competition Commission of South Africa 2015 (n 3).

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be enhanced. At the same time, in the absence of competition in domestic markets, sellers tend to increase prices for domestic customers, according to the third-​degree price discrimination model. Remedies are applied in both cases: a cap on the price increase for the producer of electric steel (in per cents), and the ‘most-​favoured nation clause’ for the domestic customer for the producer of potassium chloride (the domestic price is not higher than the average export price).18 Figures 8.1 and 8.2 compare the price dynamics on two commodities with the dynamics of the relevant benchmarks of world price after the mergers, which occurred in 2006 (electric steel) and 2010 (potassium chloride). There is an upward trend of relative prices in the domestic market (domestic/​export price ratio) after merger in both markets, especially when prices in international markets go down. However, there are margins which still favour customers abroad for electric steel and domestic buyers for potassium chloride. The example shows why Russian competition policy considers price remedies for large producers as useful and important tools to support domestic buyers of input.

B. Possible side effects of remedies In contrast to positive observed effects of remedies, possible side effects are rarely observable because they are intangible impacts on the incentives of market 18  Two years later, remedy conditions were slightly modified for potassium chloride; now remedies cover all the groups of domestic customers and require ‘non-​discriminatory conditions’, which are equal prices for all of them.

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participants, efficiencies, total social welfare, and end-​consumers. In most cases, we can only suspect possible negative externalities of remedies by reviewing relevant findings of research in Transaction Cost Economies, Industrial Organization, and Theory of Regulation. Nonetheless, a review allows us at least to make conclusions on the features of market structure, which increase the probability of negative externalities of conduct remedies.

1. Limits on contractual precautions and rise of regulatory state Among different theories, Transaction Cost Economics (TCE) pays special attention to the expected effects of remedies on companies and contracts among companies. Joskow stresses that the governance model appropriate for a specific transaction predicts both the enforceability of remedies and their impact on business practice and performance.19 Hybrid governance results in so-​called fundamental transformation,20 when ex ante there is competition in the market, and bilateral interdependence appears after specific investments are made. In the framework of hybrid governance structures, the possibility of remedies undermines effective contractual arrangement, because the potential risk of calling for antitrust intervention replaces contractual precautions, thus increasing the difficulties in enforcing complex mutual obligations. Therefore, this is especially true for conduct remedies on

19  P Joskow, ‘Transaction Cost Economics. Antitrust Rules, and Remedies’ (2002) 18(1) Journal of Law, Economics, and Organization 95. 20  O E Williamson, Markets and Hierarchies (Free Press 1975).

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the rules of contracting with counterparties, such as extended commercial policies or marketing practices implemented in Russia. Substitution of contractual precautions and negotiations by control of compliance can change the behaviour of the target group for protection. Remedies by definition redistribute surplus towards the target group for protection from the sellers that follow remedies. The latter can seek additional advantages under negotiations on remedies, and also under implementation of remedies. In countries like Russia, rules of administrative enforcement of Competition Law21 stimulate the target group to closely monitor the compliance of contract terms with remedies. This might be important not only for incentives within the companies of a target group, but also for organization of competition policy. In general, the risk of distortions in the incentives is higher when the target group consists of larger companies. Distortions in incentives cause a higher expected harm when specific investments play a higher role in the value chain.

2. Facilitating collusion in the international markets A specific type of price remedy—​the price cap using the export price as a benchmark—​facilitates collusion in the international market. The effects are identical to the impact of the multi-​market interaction of suppliers on the incentive to collude.22 Consider a company that participates in an international collusion and sells under the cap of export price in the domestic market. To decide whether or not to deviate from the collusive price, the seller compares the present value of profit under collusion with the present value of profit under deviation from collusion. Conduct remedies decrease the present value of profit after deviation because they induce the seller that deviates to decrease the price in the domestic market simultaneously. The magnitude of this effect increases when the cap on domestic price is set as the lowest price of export contract (a type of price remedy that was applied in Russia in the market for potassium chloride), and when the share of revenue from domestic sales increases. This effect would arise every time remedy establishes a cap on the price of the participant in a concentrated market by using the price of the same company as a benchmark, but in another market. There is evidence, though indirect and weak, that this rule incentivizes companies to collude in the market that provides the benchmark price. Commercial policies of Russian vertical integrated oil companies (which are extensive and complex remedies) contain a price formula for the wholesale prices of motor fuel that uses three indicators as benchmarks. One of them is the price of petroleum products in domestic (Saint Petersburg) commodity exchange. The same large Russian oil companies bid in the exchange. In 21  S Avdasheva and P Kryuchkova, ‘The “Reactive” Model of Antitrust Enforcement: When Private Interests Dictate Enforcement Actions—​the Russian Case’ (2015) 43(C) International Review of Law and Economics 200. 22  B D Bernheim and M D Whinston, ‘Multimarket Contact and Collusive Behaviour’ (1990) 21(1) Rand Journal of Economics 1.

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autumn 2014, the FAS opened an investigation on price manipulation through ‘imitative bidding’ in the petrol commodity exchange against Rosneft, Lukoil, and Bashneft, suspecting them of collusion aimed at a price increase in the Russian wholesale market for motor fuel. The main incentive for alleged collusion could be the influence on the benchmark price. The potential negative externality of a price cap as a remedy is more likely if a seller under remedy participates also in a highly concentrated market that is a source of the benchmark indicator.

3. Corporate governance implications Conduct remedies impose restrictions on marketing and pricing decisions, which are specific for every market. However, the effects for the design of corporate governance and the corporate management system could be rather similar. The role of compliance with the imposed remedies increases, while the role of discretionary managerial decisions decreases. In the systems of executive management and corporate governance, specialized units responsible for compliance are developed. In the system of managerial promotion, the advantages of skills in compliance increase in comparison with the skills in marketing and management themselves. We can expect a higher ratio of CEOs and members in the board of directors and executive boards with the experience in competition authorities or with the experience as legal experts. The expected way of changing the structure of managerial and governance units is strictly opposite to that observed in the industries under deregulation.23 For example, among Russian companies, which are subjects of remedies, sellers of potassium chloride have developed a very extensive system of Competition Law compliance. The position of ‘antitrust compliance officer’ was introduced. The compliance officer and his staff refined the internal competition legislation compliance policy, and specialized training for the companies’ staff was organized. The Antitrust Compliance Unit is subordinated to the audit committee of the board of directors and to the company’s legal department. It is difficult to expect that marketing considerations will be seriously considered in the activity of the unit. Large sellers of electric steel that are under conduct remedies also increase the representation of people with competition policy expertise in the company management. Probably coincidentally, one of the recently (2012) appointed members of the collective executive board has extensive experience in the advisory council of the FAS. In all Russian oil companies, lawyers with the experience of competition legislation enforcement obtain promotions, including promotion in the units organized specifically for antitrust law compliance. Expansion of the share of executives specialized in law compliance, and their promotions within the companies at the expense of executives concentrating on marketing and contracting, may change the priorities of companies’ operational 23  E Helland and M Sykuta, ‘Regulation and the Evolution of Corporate Boards:  Monitoring, Advising or Window Dressing’ (2004) 47(1) Journal of Law and Economics 167.

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and strategic management in favour of compliance of competition rules and at the expense of marketing and contracting objectives. In turn, this can limit the ability of a company’s executive to make efficient business decisions in the future. The magnitude of this effect seems to increase with the complexity of conduct remedies and penalties for non-​compliance.

4. Implications for managerial adaptation to changes on the markets Conduct remedies reduce the flexibility of the company and company performance in the markets under demand and supply shocks. Normally, marketing and price strategies of companies respond to changes in demand and competition conditions. Conduct remedies may limit the ability to respond. Even formal compliance with ‘best price guarantee’ requirements becomes difficult when the exchange rate of domestic currency increases because it requires instantaneous review of prices for domestic customers. However, the most serious consequence may be the limitations on searching for new customers abroad and applying price discount strategies. A price cut in export becomes unprofitable because conduct remedy requires a relevant adjustment of the domestic price. In the market with high demand fluctuations, conduct remedies may limit price competitiveness of the companies under remedies, at least in the short run. This effect is more intense if the company has a higher domestic market share.

5. Implications for the organization of competition policy Application of conduct remedies in competition policy as a substitute for traditional antitrust enforcement means replacing competition protection for sector-​specific regulation. There is a risk of evolution of competition policy towards industrial policy or regulation even in developed market economies.24 We expect this risk to be higher in transition countries with an embedded tradition of state intervention in the market. In addition to the necessity to bear the cost of monitoring compliance, this replacement changes the incentives of competition authorities. It promotes involvement in the conflicts between suppliers and buyers along the value chain and increases the importance of remedial obligations for redistribution of profits in the chain. The incentives of large companies to capture competition authority also increase. Let us be reminded that, traditionally, literature considers industry-​neutrality of antitrust as the important advantage that protects resistance of the authority to regulatory capture.25 Development of conduct remedies works in the opposite direction. 24  P C Carstensen, ‘Remedies for Monopolization from Standard Oil to Microsoft and Intel: The Changing Nature of Monopoly Law from Elimination of Market Power to Regulation of Its Use’ (2011) 85(3) Southern California Law Review 815. 25  P L Joskow and N L Rose, ‘The Effects of Economic Regulation’ in R Schmalensee and R D Willig (eds), Handbook of Industrial Organization, vol 2 (Elsevier 1989).

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To sum up, the immediate objectives and main observed effects of remedies are connected with the redistribution of surplus towards the target group for protection. At the same time, the side effects of remedies may have negative impact on efficiency through different channels. When applying remedies, the balancing of positive immediate and negative side effects is important, even if the latter are not easily observable and identifiable.

IV.  Concluding Remarks and Policy Implications Conduct remedies in BRICS countries extensively deal with the issues of discrimination of domestic market participants vis-​à-​vis customers abroad. Unequal, unfair, and inefficient access to IPR is a regular issue in international discourse. At the same time, the problem of discrimination is broader. BRICS remedies deal with this problem in a different market of inputs for domestic producers, and not only as part of merger clearance, but also as part of decisions after abuse-​of-​dominance investigations (in Russia, China, and South Africa), and also as part of extensive compliance programmes for large market participants (in Russia). Interdependece between the relevant domestic market and the global market of the commodity is an important factor of remedy application. The primary objectives of remedies are often not competition promotion, but the protection of domestic customers (including domestic producers). More importantly, decisions based on the customer-​promotion approach can decrease total welfare in the long run. The observed immediate effects of remedies are often positive. However, large-​scale externalities of remedies on internal organization, corporate governance, motivation inside the companies, incentives of competition in relevant markets, production efficiencies, and also opportunism and rent-​seeking in the bargaining with counterparties may occur. There are several implications from the research in Industrial Organization, Competition Law and Economics, Contract Theory and Transaction Cost Economics. This research predicts that the negative effects of remedies are less probable when the adjacent international market is more competitive, the share of revenue of the market participant derived from the relevant domestic market is lower, the adjacent domestic market is more competitive, and the bargaining power of counterparties in the relevant market is lower. The latter means that not only structure and organization of the market but also organization of domestic competition policy (first of all, control for non-​compliance with remedies) matters. Finally, the negative effects of remedies are less probable when there is little gap between excessively detailed specified rules of remedies and uncertainty and business opportunities in the relevant market. These factors should be considered when planning remedies are imposed either individually in every BRICS countries or collectively.

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9 Crafting Creative Competition Remedies in South Africa Liberty Mncube,* Thulani Mandiriza,** and Michelle Viljoen***

I. Introduction This chapter evaluates whether the remedies imposed in the Walmart/​Massmart merger and the Pioneer Foods consent order are contributing to the goals of Competition Law. In South Africa, the general purpose of Competition Law, to ‘promote and maintain competition’, is supplemented by six goals. The first of these is to promote efficiency, adaptability, and development of the economy. The second is to promote competitive prices and choices for consumers. The third is to promote employment. The fourth is to expand opportunities for participation in world markets. The fifth is to ensure that small and medium-​sized enterprises (SMEs) have an equitable opportunity to participate in the economy. The sixth goal is to promote greater spread of ownership, in particular to increase the ownership stakes of historically disadvantaged persons.1 The drafters of the Competition Act captured the political motivations of the law, which include a focus on equity, distribution, and efficiency in the Preamble. The

* Honorary Professor of Economics, Department of Economics, University of Stellenbosch and Chief Economist, Competition Commission South Africa. ** Principal Economist, Competition Commission South Africa. *** Principal Economist, Competition Commission South Africa. 1  The political motivations of the Competition Act which include a focus on equity and distribution, as well as efficiency, are captured in the Preamble. The Preamble rightly characterizes the problem that Competition Law seeks to address in South Africa. It acknowledges that past practices, including apartheid, led to excessive concentration of ownership and control, inadequate restraints on anticompetitive trade practices, and unjust restrictions on full and free participation in the economy. The Preamble, correctly, states that ‘the economy must be open to greater ownership by a greater number of South Africans’, capturing concerns about equity and justice and, rightly, describes restrictions on free competition as ‘unjust’ rather than ‘inefficient’. In this way, the Preamble connects economic efficiency with equity, and correctly points out that credible Competition Law and institutions to administer the law are necessary for a functioning economy, and that ‘an efficient, competitive economic environment, balancing the interests of workers, owners and consumers and focussed on development, will benefit all South Africans’.

Crafting Creative Competition Remedies in South Africa. Liberty Mncube, Thulani Mandiriza, and Michelle Viljoen. © Liberty Mncube, Thulani Mandiriza, and Michelle Viljoen, 2017. Published 2017 by Oxford University Press.

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Preamble rightly characterizes the problem that Competition Law seeks to address in South Africa. It acknowledges that past practices, including apartheid, led to excessive concentration of ownership and control, inadequate restraints on anticompetitive trade practices, and unjust restrictions on full and free participation in the economy. The Preamble, correctly, states that ‘the economy must be open to greater ownership by a greater number of South Africans’, capturing concerns about equity and justice. Furthermore, it rightly describes restrictions on free competition as ‘unjust’ rather than ‘inefficient’. In this way, the Preamble connects economic efficiency with equity. The Walmart/​Massmart merger is selected because it provides an example of how the South African competition authorities have incorporated public interest factors in merger enforcement. These public interest factors include consideration of employment, the ability of small businesses or those owned by previously disadvantaged individuals to compete, international competitiveness of domestic firms, and the impact of a merger on an industrial sector or region. On the contrary, the Pioneer Foods consent order2 illustrates how South African competition authorities have crafted creative remedies to restore competition and respond to the goals of Competition Law, such as empowerment of historically disadvantaged individuals, employment, and concern for SMEs. We first discuss the Pioneer Foods consent order and thereafter discuss the Walmart/​Massmart merger.

II.  The Pioneer Foods Consent Order Competition policy remedies are interventions that aim to restore competition in the market. To achieve this, remedies end anticompetitive conduct, disgorge illicit profits, and/​or compensate those who have suffered as a result of anticompetitive conduct. In addition, remedies strive to incentivize companies to minimize the recurrence of anticompetitive conduct and to restore the market to conditions that would exist in the absence of anticompetitive conduct. The Competition Act provides that if the Commission and a respondent ‘agree on the terms of an appropriate order’, the Tribunal may confirm the agreement as a consent order.3 An ‘appropriate’ consent order is one which is ‘suitable in the sense that it is an agreement that suits the contending interests of the Commission, as the proxy of the public interest, and the respondent, and in that sense, can be appropriate as between themselves’.4 The Competition Act does not provide an exhaustive 2  Competition Commission v Pioneer Foods (Pty) Ltd (10/​CR/​Mar10, 15/​CR/​Feb07) [2010] ZACT 9 (3 February 2010). 3  Under South African Competition Law, the Commission investigates complaints and mergers, the Tribunal reviews large mergers and adjudicates complaints, and the Competition Appeal Court reviews the decisions of the Tribunal. A consent order is therefore a settlement agreement reached between the Commission and respondents in a given case and generally after the Commission has completed an investigation. The Tribunal must confirm a consent order in order for it to be legally enforceable. 4  Competition Commission and South African Airways (Pty) Ltd (final) (18/​CR/​Mar01) [2005] ZACT 50 (28 July 2005).

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list of the types of orders the Tribunal may make. Therefore, the principle of appropriateness constitutes an important limit to the Commission’s discretion in imposing remedies.5 The Tribunal must be satisfied in confirming a consent and settlement agreement. Remedies agreed by the Commission and a respondent cannot exceed the limits of what is appropriate and suitable. The Commission’s discretion in crafting remedies is very broad, allowing it to address various aims and objectives of the Act subject to the appropriateness test. Essentially, the appropriateness test is an objective test and is thus justifiable.6 In December 2006, the Commission received information regarding an alleged bread cartel active in the Western Cape Province. The Commission initiated a complaint against Premier, Tiger Brands, Foodcorp, and Pioneer Foods, all of which had allegedly been involved in the cartel. The four companies are the largest in many food product markets and are vertically integrated into flour and bread production. Premier applied for leniency in terms of the Commission’s corporate leniency policy, and admitted its involvement in various bread and milling cartels operating in South Africa. Premier’s admissions were corroborated in a leniency application from Tiger Brands in which the latter also admitted to its involvement. Subsequently, Foodcorp also admitted to cartel conduct and settled the bread case with the Commission. In February 2010, after contested proceedings, the Tribunal ruled that Pioneer Foods had engaged in fixing the price of bread products in Western Cape Province and nationally. A fine of R196 million was imposed on the company. Following this, Pioneer Foods approached the Commission with the intention of settling all cases in which it was a respondent that had been referred to the Tribunal for adjudication or that were currently under investigation by the Commission.

A. Settlement agreement The settlement agreement reached between the Commission and Pioneer Foods had the purpose of enhancing and restoring competition in the relevant markets. Pioneer Foods undertook to desist from conduct that infringes or may infringe on the Competition Act and continue compliance programmes to prevent future infringements, as well as cooperate with the Commission in its prosecution of other firms. Further, Pioneer Foods agreed to pay a fine of R500 million to the National Revenue Fund, of which R250 million was allocated to the establishment of the Agro-​Processing Competitiveness Fund (APCF). The APCF sought to address the structure of the affected markets by facilitating entry and expansion in the agro-​ processing value chain, particularly of SMEs owned by historically disadvantaged South Africans. 5 T Bonakele and L Mncube, ‘Designing Appropriate Remedies for Competition Law Enforcement: The Pioneer Foods Settlement Agreement’ (2012) 8 Journal of Competition Law and Economics 447 (hereafter Bonakele and Mncube, ‘Designing Appropriate Remedies’). 6 Ibid.

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Pioneer Foods also agreed to decrease the prices of certain products for an agreed period of time so as to reduce its gross profit by R160 million. Although the South African bread-​baking industry is characterized by low exogenous entry barriers, the existence of the cartel in the flour market undermined the ability of independent bakers to enter and expand within the industry. This condition was intended to compensate consumers for the previously higher fixed prices, as well as mitigate the effects of Pioneer Foods’s admitted anticompetitive conduct on prices in the relevant markets. The latter would be achieved by stimulating more intense rivalries in the market, while enabling smaller non-​vertically integrated participants to enter and expand in the bread market. To avoid unintended predatory outcomes, the price reductions were targeted at those products with sufficiently high gross margins. Finally, Pioneer Foods agreed to increase its approved capital expenditure by R150 million with the aim of increasing the company’s output for certain product lines, as well as contributing to job creation.

B. Impact of the discount remedy A discount remedy is an agreement between a competition authority and a firm that the firm will sell to all buyers at a given discount whether or not they were harmed by that firm’s conduct. The discount can be specified as either a particular amount or a percentage. To our knowledge, the Pioneer Foods discount remedy was the first of its kind in South Africa or elsewhere. However, coupon remedies and cash payments have been widely used in the United States in several antitrust lawsuits involving price fixing.7 A possible explanation of why discount remedies are seldom used in competition enforcement may be the assumption that private actions provide adequate monetary relief, with no additional benefit derived from discount remedies. For instance, a customer harmed through cartel conduct may, under some circumstances, recover damages through private litigation and/​or settlement. However, the adequacy of such private actions is dubious, especially in South Africa, where private enforcement of Competition Law is weak and underdeveloped.8 Perhaps a more serious concern is whether the Commission has the authority to conclude discount remedies. While the Commission can use its discretion in crafting appropriate remedies for Competition Law contraventions, such discretion has its limits. During the Tribunal process of confirming the Pioneer Foods settlement agreement, the National Treasury Department (hereafter National Treasury) 7  In the United States, coupon discount remedies have been widely used in many antitrust lawsuits involving price fixing. For example, in 1994, passengers who had travelled on major US airlines between January 1988 and June 1992 received coupons with a total face value of approximately $400 million (see also A M Polinsky and D L Rubinfeld, ‘The Deadweight Loss of Coupon Remedies for Price Overcharges’ (2008) 56(2) Journal Industrial Economics 402). 8  To the best of our knowledge, there have been very few private Competition Law damages claims in South Africa, one of which was the Nationwide Airlines and Comair civil claim in the High Court for damages arising out of the abuse of dominance by South African Airways.

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made an application to intervene.9 It submitted that the only monetary sanction contemplated by the Competition Act is an administrative penalty which is payable exclusively to the National Revenue Fund. The National Treasury’s constitutional and statutory duty is to ensure that monies are properly transferred to and from the National Revenue Fund. It argued that the Commission could not use its discretionary powers for a purpose not expressly authorized by the Competition Act, however laudable the intention. Furthermore, the National Treasury suggested that a discount remedy is arguably an attempt to siphon money away from the National Revenue Fund. The Pioneer Foods price reduction commitment was essentially a discount remedy. It forced the company to offer a discount on the competitive price for all consumers for selected products. The price reduction was intended to benefit end-​ consumers that had been subjected to anticompetitive prices over the cartel period, as well as increase price competition in the markets for flour and bread products. Given the sensitive commercial nature of the information relating to Pioneer Foods’s pricing, the duration and expected average price reductions for the selected products were confidential and not divulged to the other market participants.10 The remedy set minimum price reduction levels for each product and the length of the implementation period to ensure the price discount had a meaningful effect.11 Where a product’s existing gross profit was below a confidential minimum, prices were not further reduced so as to avoid predatory outcomes. During the discount period, Tiger Brands maintained its prices for standard white bread and brown bread, while Premier Foods slightly reduced its prices. Foodcorp increased its prices for standard brown bread, while maintaining its standard white bread prices. Once the discount remedy period had passed, Pioneer Foods and its rivals increased their prices.12 The discount remedy provided an opportunity to amend the anticompetitive environment created by the long-​running bread and flour cartels that could not be adequately addressed by administrative penalties alone.13 The remedy sought to constrain Pioneer Foods, disgorge some of its profits to the benefit of affected consumers, compensate consumers, and improve the competitive dynamics of the relevant markets.

C. Impact of the APCF Since the establishment of the APCF, funding to the value of R201,425,701 (87 per cent of the R231 million allocated to direct investment) has been approved to 9 A  party that has a direct and substantial interest in the confirmation proceedings of the Competition Tribunal can accordingly be joined as a party to the confirmation proceedings. 10  The duration was for six months. 11  The price of standard white and brown loaves of bread was to be reduced by an average minimum of 30 cents. This price reduction was to be in addition to any other promotional discount to retailers. The price of flour was to be reduced by an average minimum of R350 per ton. 12  L Mncube, ‘The South African Wheat Flour Cartel: Overcharges at the Mill’ (2014) 14 Journal of Industry, Competition and Trade 509. 13  Bonakele and Mncube, ‘Designing Appropriate Remedies’ (n 5).

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thirty-​four enterprises (see Table 9.1). Of the enterprises funded, ten are start-​up companies and twenty-​four are existing enterprises which qualified for funding to expand their business operations. In terms of job creation, more than 2,401 jobs have been created through APCF loan finance. The Fund has crowded-​in co-​funding from various third parties, including contributions by the enterprise owners themselves, as well as the commercial banks, which have contributed to the financing of two businesses. The largest co-​financier is the Industrial Development Corporation, which has approved funding to the value of R223,885,641. The value of co-​funding from both the IDC and third parties brings the total value of funding approved to R498,284,342 for qualifying enterprises. Twelve of the enterprises supported are active in those subsectors which were cartelized by Pioneer conduct, specifically poultry, animal feed, and the flour milling and bread industries. The remaining twenty-​two firms are active in other agro-​ processing activities, including the beverages sector.

III.  The Walmart/​Massmart  Merger In September 2010, Walmart announced its intention to acquire a controlling interest in Massmart through the acquisition of 51 per cent of the target firm’s ordinary share capital. Massmart is a wholesaler and retailer of general merchandise, liquor, home improvement equipment, and basic food in South Africa. Conversely, Walmart is the largest retailer in the world in terms of scale and size of its operations—​it has over 11,500 retail outlets in twenty-​eight countries and annual revenue of US$482.1 billion.14 In early 2011, the Commission finalized its investigation and recommended that the Tribunal approve the merger without conditions. The Tribunal concurred with the Commission in its finding that the merger did not raise competition concerns as Walmart did not compete with Massmart in South Africa. During the Tribunal proceedings, several government departments and organized labour raised concerns relating to the impact of the merger on domestic Massmart suppliers, specifically the threat of import-​substitution and the knock-​on effects on employment and output. The Tribunal acknowledged that the transaction raised public interest concerns related to employment and the potential displacement of local small businesses.15 In May 2011, the Tribunal ordered that the merger be approved subject to the following conditions: • The merged entity must ensure that there are no retrenchments, based on the merged entity’s operational requirements in South Africa, for a period of two years from the effective date of the transaction. 14 Walmart, ‘Walmart Reports Q4 Adjusted EPS of $1.49, Fiscal Year 2016 Adjusted EPS of $4.50’ (2016), available at accessed 12 May 2016. 15  In the South African context, mergers are evaluated in a two-​stage inquiry: competition analysis and public interest. Remedies can be imposed on both competition and public interest concerns.

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Table 9.1  Sub-​sectors supported through APCF funding Sectors affected by Pioneer’s conduct Sub-​sector

Animal feed

Other agro-​processing sectors

Start-​up

1

Biscuits, cake, and maize snack manufacturers

2

Soya and gluten free products

–​

Milling (flour and maize) Pasta and pastry producer Chicken producer Sub-​total

–​ 1 –​ 4

Source: Industrial Development Corporation.

Expansion

–​ 2 2 2 1 1 8

Total number of enterprises 1 4 2 2 2 1 12

Sub-​sector

Start-​up

Expansion

Total number of enterprises

Brewery and wine producer

3

1

4

Sweet manufacturer

–​

4

4

Oil manufacturer

1

–​

1

Cherry pepper processor

1

–​

1

Fruit canning

–​

1

1

Soya flour producer

–​

1

1

Bee and honey producer

–​

1

1

Tea and juice producers

–​

4

4

Milk producer

1

1

2

Mushroom producer

–​

1

1

Mango producer

–​

1

1

Sorghum malt producer

–​

1

1

Sub-​total

6

16

22

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• When employment opportunities become available, the merged entity must give preference to the re-​employment of the 503 employees that were retrenched during June 2010.16 • The merged entity must honour existing labour agreements. • The merged entity must establish a programme aimed exclusively at the development of local South African suppliers, including SMEs, funded in a fixed amount of R100 million. The interveners were not satisfied by the Tribunal conditions and sought a review application at the Competition Appeal Court (CAC).17 Of particular interest was the development fund, which was subject to much debate at the CAC. The merging parties argued that conditions should be restricted to local small and medium-​sized suppliers and their effective participation in the merged entity’s global and domestic value chains. Large South African-​owned enterprises should be excluded from the programme. Furthermore, the programme could not be expected to encompass all of the merged entity’s small and medium-​sized suppliers, since this would be extremely expensive both in terms of financial and managerial resources, hence constitutes an imposition of unreasonable conditions. The impact of globalization on value chains was found to be both positive and negative. The merging parties noted that in some countries, deepening globalization had a negative impact on domestic producers which are unable to compete with imports and experience either a loss of market share or are forced into low technology/​low wage niches in their value chains in order to remain competitive. In other cases—​where China, Korea, Taiwan, and Singapore are notable examples—​ globalization has contributed to rapid growth in both output and employment. The government departments and organized labour argued that from a public policy perspective, it is important to minimize ‘the downside risk of loss of employment, from domestic producers facing new competition from Wal-​Mart’s global supply chain and seizing fully the upside potential from full integration of local producers into Wal-​Mart’s global supply chain’. They further argued that the recipients of the fund should not be limited to SMEs or businesses owned by historically disadvantaged persons, although a focus upon such business may be given greater emphasis. Recipients should be producers of goods that might not reasonably be locally procured, or that could be supplied into the merged entity’s global supply chain. Given the different proposed approaches to the development fund, the CAC had to make a determination based on the public interest provisions captured in terms of section 12(A)(3) of the Competition Act.18 The CAC noted that: 16  The Commission has monitored the merged entity’s compliance with the employment-​related conditions. As at October 2014, 411 of the 503 retrenched employees had been reinstated. Of the outstanding employees, seven had retired, ten were deceased, and the merged entity made reasonable efforts to contact the remaining employees. 17  For a discussion of the Walmart/​Massmart merger, see also H First and E Fox, ‘Philadelphia National Bank, Globalization, and the Public Interest’ (2015) 80 Antitrust Law Journal 803. 18  These include: a particular industrial sector or region; employment; the ability of small businesses, or firms controlled or owned by historically disadvantaged persons, to become competitive; and the ability of national industries to compete in international markets.

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. . . the introduction of a public interest provision raises the question of the relationship between industrial policy and Competition Law. This relationship informs much of the present dispute. However, it is a debate which is not restricted to South Africa, in that, in many jurisdictions, a perceived failure of free markets and a reconsideration of government intervention into the economy has, within this specific context, among others, highlighted a ‘great ideological divide’ within the competition regulatory community.

The CAC further noted that: . . . in our view, section 12A(3) should not be seen as a substitute for or even a significant component of a comprehensive policy designed by the State to deal with the challenges which globalisation in general and global value chains in particular pose for the domestic economy . . . that both the Ministers and the union have raised many legitimate concerns of a fundamental and systematic nature cannot be gainsaid. But Competition Law is not the mechanism to respond comprehensively thereto, save where s 12 A(3) so provides.19

The CAC made its ruling on the outstanding matter of the scope and nature of the fund. Accordingly, the CAC noted that the merger had ‘shone a light upon the perils and challenges posed to a developing country by global value chains’. However, the purpose of the competition authorities and any condition that may be imposed is ‘to minimise the risks that flowed directly from the transaction and not to replace government’s prerogative of formulating and developing comprehensive economic policies’.20 In its final judgement on 9 October 2012, the CAC upheld the Tribunal’s order with the exception of the development fund, which was altered to address the concerns raised by the intervenors and merging parties. The condition culminated in the establishment of a Supplier Development Fund (SDF) by Massmart. The SDF is intended to respond to the threat of loss of employment and sales by local suppliers, including SMEs, because of their potential displacement by way of imported goods, as well as paving the way for the integration of SMEs into Walmart’s global value chain. The SDF provides financial assistance and skills development to new and existing suppliers so that they may benefit from improved market access and capacity development. The Fund was set at R240 million to be financed by Massmart over a five-​year period. This amount excluded the R40 million that had already been allocated by Massmart.21 The CAC emphasized that ‘the quantum is not the sole touchstone; integration of local SMMEs into the global value chain of Walmart is the core objective’.22

19  Paragraph 14 of the judgement. 20  Minister of Economic Development and Others v Competition Tribunal and Others, South African Commercial, Catering and Allied Workers Union (SACCAWU) v Walmart Stores Inc (110/​CAC/​Jun11, 111/​CAC/​Jul11) [2012] ZACAC 6 (9 March 2012), p 13. 21  Following the Tribunal’s decision in May 2011, the merged entity initiated the development of a Massmart supply development fund. The focus of the initiative was on support for small enterprises from disadvantaged communities. At the time of the hearing before the CAC, the fund had committed R40.4 million to four substantial projects and two small training and auditing projects had already been initiated. 22  Minister of Economic Development and Others v Competition Tribunal and Others (n 24) p 13.

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The CAC further ordered that the results should be reported to the Commission on a semi-​annual basis, and the Commission should identify relevant benchmarks against which to assess whether Massmart was promoting the core objectives of the Fund.

A. Assessing the impact of the SDF The Ezemvelo Direct Farm programme was designed to assist small to medium-​sized farmers to enter Massmart’s fresh produce and dry consumer goods supply chain. The programme is targeted at historically disadvantaged farmers who are new suppliers to Massmart, and who were unlikely to have access to the formal fresh produce supply chain owing to their size, location, and trading history. The support offered includes input loans, technical and logistical support, basic financial management skills, and food safety training. As at December 2015, financial support to the value of over R14.6 million had been provided to farming projects. At the programme’s peak, 164 smallholder farmers were linked to the Massmart supply chain. Total sales to Massmart and other retailers totalled R13.1  million, with Massmart accounting for 62 per cent (or R8.1 million). More than 700 smallholder farmers have received training since the start of the programme. The Manufacturing SMMEs programme broadly focuses on enterprises in the building materials, processed foods, clothing and textiles, and general merchandise categories. Since 2012, close to R50 million has been disbursed to 3,423 manufacturing SMMEs, of which 12 are black-​owned and 17 are women-​owned. Over R162 million in sales to Massmart have been realized and 1,421 jobs were created. The clothing and textiles cluster has provided the best investment return based on total procurement. Of the manufacturing enterprises supported, five are import substitution projects; products in this regard include plumbers’ tape, nails, cooking gel, plastic pot plants, and noodles. In addition, the Developing Wine Brands programme, which is housed within the Manufacturing SMMEs programme, was established to assist emerging black-​owned and black-​empowered wine brands with market access by supplying their wines through Massmart liquor chains. Since the programme was launched in 2012, Massmart has disbursed R1,900,730 to ten wine brands, representing twenty wines which received marketing and distribution support, and a further four wine brands which received marketing support only. Sales over the period totalled R2,700,684, of which R2,571,981 was procured by Massmart. Two brands have been introduced into Walmart stores in the United States, China, and Brazil.

23  Of the thirty-​four enterprises supported, seven have either graduated from the programme (ie no longer require SDF support) or have been removed from the SDF project list due to proving commercially unviable. The specifics are as follows: bricks cluster—​one discontinued; general merchandise—​ three graduated and one discontinued; processed food—​two graduated.

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Table 9.2  Local versus direct imports as a percentage of total value procured Product category

2010

2011

2012

2013

Domestic purchases

Direct imports

Domestic purchases

Direct imports

Domestic purchases

Direct imports

Domestic purchases

Food

99.9%

0.1%

99.9%

0.1%

99.9%

0.1%

99.9%

Liquor

99.7%

0.3%

99.6%

0.4%

99.5%

0.5%

General merchandise

92.1%

7.9%

90.5%

9.5%

90.4%

9.6%

Cellular

100%

0.0%

100%

0.0%

100%

All products

96.5%

3.5%

95.7%

4.3%

95.8%

Source: Calculated by the Competition Commission from information sourced from Massmart.

2014 Direct imports

Domestic purchases

Direct imports

0.1%

99.9%

0.1%

99.3%

0.7%

99.7%

0.3%

89.6%

10.4%

90.6%

9.4%

0.0%

100%

0.0%

100%

0.0%

4.2%

95.3%

4.7%

95.8%

4.2%

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B. Impact on suppliers and imports Table 9.2 shows that post-​merger products purchased from domestic suppliers still occupy the largest portion (in excess of 90 per cent) of Massmart’s total procurement value. With regard to the impact on suppliers and competitors, it appears that Massmart’s existing suppliers have not been adversely affected by the entry of Walmart. Specifically, suppliers have been subjected to neither stricter contract and compliance terms nor threats from direct imports. In fact, some suppliers have benefitted because of the merger through exposure to regional and international markets, improved service levels, and continued store expansion, which has knock-​on effects for smaller independent traders.

IV. Conclusion The Pioneer Foods consent order demonstrates that remedies designed to address the negative impact of anticompetitive conduct can also contribute to the objectives of the Competition Act, while the Walmart/​Massmart merger demonstrates how Competition Law can accommodate public interests by focusing on the factors enumerated in the Competition Act. Regardless of the appropriateness or success of the remedial actions in the Pioneer Foods consent order or Walmart/​Massmart merger, we have no doubt that what makes South Africa an interesting case study is that the pursuit of distributive justice is permissible if not compelled by Competition Law and its unique responsiveness to issues of distributional equity and fairness.

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10 Public Interest Issues in Cross-​Border Mergers Is There a Role for Competition Authorities? Yongama Njisane* and Hardin Ratshisusu**

I. Introduction With the proliferation of competition authorities globally, competition enforcement is on the rise. One of the increasingly contested areas is how countries consider cross-​border mergers. In some countries, there are laws such as those that consider foreign direct investment (FDI), in respect of which mergers are considered, and in others, it is the sole responsibility of competition authorities to consider these. There have been some cases where tensions began to emerge between Competition Law and FDI. Developed countries such as the United States, Canada, and Australia have separated the assessment of the domestic impact of cross-​border mergers between foreign investment regulations, administered by the state. These regulations focus on the public interest and competition laws administered by competition regulators. Recent decisions on cross-​border mergers in Canada (eg BHP Billiton/​Potash), the United States (eg Tangshan/​Encore), and Australia (eg GrainCorp/​ADM) are prime examples which demonstrate the tension between public interest and competition considerations in merger control, in that a merger would be approved by the competition authorities, but overturned by the state. Developing countries such as South Africa, on the contrary, have merger control regimes which are only administered by competition authorities, with the state having no decision-​making role in the process. Hartzenberg argues that FDI plays a critical role of promoting and sustaining economic growth, particularly in developing economies.1 It is within this environment that the balancing act between attracting FDI as a source of capital and   Principal Economist, Competition Commission of South Africa.   Deputy Commissioner, Competition Commission of South Africa. 1  T Hartzenberg, ‘Perspectives on Trade, Investment and Competition Policy in South Africa’, South African Institute of International Affairs—​Occasional Paper No 111 (2012), available at accessed 3 July 2017. *

**

Public Interest Issues in Cross-Border Mergers: Is There a Role for Competition Authorities? Yongama Njisane and Hardin Ratshisusu. © Yongama Njisane and Hardin Ratshisusu, 2017. Published 2017 by Oxford University Press.

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protecting, among others, national interests is required. One of the key considerations in the determination of this balancing act is the manner in which FDI mergers are reviewed, specifically the framework under which public interest considerations are evaluated. This chapter uses case studies to evaluate which approach achieves optimal outcomes that foster competition and are also in the public interest in the domestic economies affected by cross-​border mergers. Specifically, the chapter seeks to evaluate the regulatory framework in South Africa and those observed in a few select Group of 20 (G20) member countries to determine the most appropriate framework that assists in striking a balance between FDI attraction and public interest. The chapter finds that the consideration of public interest in FDI transactions in the G20 member countries is broadly categorized as follows: an agency of government purely focused on public interest; direct ministerial involvement; and competition authorities. This review framework is of critical importance, as it underlies the extent to which the consideration of public interest may add a degree of risk in respect of FDI transactions. The chapter establishes that in those jurisdictions where the consideration of public interest vests with institutions other than the competition authorities, there is significant criticism regarding the susceptibility of the lobbying process and transparency, as well as lack of an economic evidence-​based review mechanism. The chapter concludes that the South African experience has shown that allowing competition regulators to also consider public interest in mergers, by linking the public interest goals and those of competition, results in a process that is more transparent and yields more effective outcomes. The chapter is structured as follows: Section I outlines an introduction. Section II provides a brief background on trends in FDI in selected countries, an overview of South Africa’s competition policy and its historical context in relation to the public interest, and the regulatory landscape in respect of inward FDI flows in South Africa. Section III provides a summation of some of the key cases illustrating South Africa’s approach to public interest in cross-​border mergers. Section IV provides a comparative analysis of the regulatory framework and approach adopted in other selected jurisdictions. Section V provides a critical analysis of the application of FDI and competition laws in the selected countries. Section VI concludes the chapter.

II. Background A. Competition policy as a tool for economic development The connection between competition policy interventions and broader developmental outcomes (distributional and socio-​economic effects) is sometimes not easy to discern, particularly as the developmental imperative of competition policy is not always defined explicitly. Atkinson, in his seminal work on inequality, proposes that public policy must, inter alia, explicitly introduce a distributional dimension into

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competition policy.2 Recent developments in economic literature have explored various other ways in which competition enforcement can and does contribute towards inclusive economic growth and development. It is generally accepted that competition policy primarily seeks to encourage free market conditions, by ensuring equal opportunities for all business to stimulate economic efficiency and protect consumers. Du Plessis and others state that competition policy has benefits in that it enhances productivity and ensures that resources are allocated efficiently and that this ultimately improves consumer welfare.3 These outcomes (ie increased productivity and efficient allocation of resources) are central to the achievement and success of any industrial and economic development framework. Brooks also argues that competition in product markets widens choices, lowers prices, and increases production efficiency, and ultimately contributes to an economy’s growth and development.4 Joekes and Evans argue that competition policy creates an enabling environment that can assist an economy to meet its developmental objectives.5 Furthermore, Davies and Thiemann also find that a solid competition policy framework contributes towards the realization of sustainable development objectives, such as poverty alleviation (eg by lowering prices and increasing consumer choice) and economic growth through creating firm rivalry and stimulating productivity.6 The World Bank Group concurs with this view and argues that the promotion of domestic competition between firms can help spur faster growth and poverty alleviation.7 Du Plessis and others state that most markets in developing countries are highly concentrated, characterized by high levels of barriers to entry and dominated by state-​owned monopolies.8 As such, the inadequacies faced by developing countries are, in fact, indicative of a need for the implementation of an appropriate competition policy regime. It is important for developing countries to

2  A Atkinson, Inequality: What Can Be Done? (Harvard University Press 2015). 3  L du Plessis, J Lurie, and A van Buuren, ‘Competition Legislation and Policy—​Is It Necessary in a Developing Economy?’, paper presented at the Fifth Annual Conference on Competition Law, Economics, and Policy at the Nelson Mandela Institute on 4 and 5 October 2011 (University of Witwatersrand 2011), available at accessed 24 April 2016. 4 D H Brooks, ‘Industrial and Competition Policy:  Conflict or Complementarity’, Asian Development Bank Institute, Research Policy Brief No 24 (2007), available at accessed 3 March 2016. 5  S Joekes and P Evans, Competition and Development: The Power of Competitive Markets (International Development Research Centre 2008). 6  J Davies and A Thiemann, ‘Competition Law and Policy:  Drivers of Economic Growth and Development’, OECD Coherence for Development (2015), available at accessed 29 June 2016. 7  The World Bank Group, ‘South Africa Economic Update: Promoting Faster Growth and Poverty Alleviation through Competition’ (World Bank, 2 February 2016) 31, available at accessed 10 March 2016. 8  Du Plessis et al, ‘Competition Legislation and Policy (n 3).

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Table 10.1  FDI CAGR for the G20 countries for the period 2010 to 2014 Canada

Indonesia

South Africa

China (Hong Kong)

Japan

17.35

13.16

11.95

9.99

9.85

Australia

Turkey

Brazil

India

Italy

9.22

7.53

6.54

5.85

5.69

United Kingdom

China (Taiwan)

China

France

China (Macao)

5.21

3.31

2.87

2.27

1.85

South Korea

Mexico

Argentina

Russian Federation

United States

1.04

–​3.31

–​12.60

–​16.53

–​17.35

Saudi Arabia

Germany

EU1

–​27.65

–​59.13

1 Due to the lack of data, the European Union’s CAGR could not be estimated. Source: UNCTAD Statistics.

have a competition policy regime which is designed to consider their unique levels of development as well as their long-​term objectives for sustainable economic growth.9 In essence, the role of competition policy in encouraging and fostering economic development is a significant consideration, particularly in the context of emerging economies. The distributional dimensions and socio-​economic effects of an appropriately designed and responsive competition framework can significantly contribute towards the realization of broader economic development objectives.

B. FDI Trends in the G20 Countries Table 10.1 shows the compounded annual growth rates (CAGR) of FDI flows for the G20 countries during the period 2010 to 2014.10 The top three countries that achieved the highest FDI growth over the period 2010 to 2014 are Canada, Indonesia, and South Africa at approximately 17.4, 13.2, and 12.0 per cent, respectively. The majority of the member countries achieved CAGRs ranging from 1 to 10 per cent, while others such as Mexico, Argentina, 9  See A Singh and R Dhumale, ‘Competition Policy, Development and Developing Countries’, TRADE Working Paper No 7 (South Centre, November 1999), available at accessed 17 August 2017; S Roberts, ‘Competition Policy, Competitive Rivalry and a Developmental State in South Africa’ in O Edigheji (ed), Constructing a Democratic Developmental State in South Africa: Potentials and Challenges (HSRC Press 2010) ch 11; and M Adam and S Alder, ‘Abuse of Dominance and Its Effects on Economic Development’ (published as part of the UN Conference on Trade and Development, 2008) 571, available at accessed 15 April 2016. 10  The data used to calculate the estimated CAGRs was obtained from the UN Conference on Trade and Development Foreign Direct Investment database, available at accessed 27 August 2016.

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Russia, the United States, Saudi Arabia, and Germany (which experienced a significant decline from 2012 to 2014) realized negative growth rates.11

C. South Africa’s historical context, the public interest, and FDI South Africa’s historical political past had a significant bearing on the design of the FDI regulatory regime, competition policy, and public interest considerations. Owing to its pariah status as a result of economic sanctions during the apartheid years (the period 1948 to 1994), South Africa attracted low FDI. The advent of democracy in South Africa brought about, among others, the need to re-​shape and re-​integrate the South African economy into the global economy. Furthermore, there was also the task of integrating the black majority into the formal economy after decades of marginalization. Many policy instruments, including competition policy, were drafted with the aim of restoring a society deeply divided along racial and economic lines. There was recognition that competition policy and law had to work in unison with other economic development policy instruments to achieve these objectives.12 In this regard, it was necessary that the Competition Act be crafted in a manner that allowed it to perform the traditional functions of promoting and maintaining competition while making provision for the special needs of a developing state. As a result, the concept of the public interest is woven into and features prominently in various parts of the Competition Act. For example, the preamble of the Competition Act recognizes the injustices of the South African political history and in this regard the Competition Act states that its objectives include, inter alia, providing all South Africans with equal opportunity to participate in the economy and regulating the transfer of economic ownership in keeping with the public interest. Staples and Masamba note that Competition Law performs a dual role in South Africa.13 First, Competition Law aims to stimulate competition and achieve market efficiency. Second, Competition Law also aims to be an instrument of economic transformation to deal with the historically concentrated and exclusive economic structure, as well as to encourage broad-​based economic growth. Ultimately and contrary to some of the jurisdictions to be discussed further in the chapter, South Africa adopted an approach that combined, in merger control, competition considerations and public interest issues. This approach was based on the view that competition authorities were best placed to balance these two seemingly ‘competing’ interests.

11  We note that Japan’s CAGR was calculated from 2012 to 2014 due to the nature of the data available. 12  Department of Trade and Industry, Proposed Guidelines for Competition Policy—​A Framework for Competition, Competitiveness and Development (DTI 1997). 13 J Staples and M Masamba, ‘Fourteen Years Later:  An Assessment of the Realisation of the Objectives of the Competition Act 89 of 1998’ (2012) 5, available at accessed 25 May 2016.

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D. The FDI regulatory landscape in South Africa South Africa’s regulatory landscape in respect of cross-​border investment has, to date, been regulated bilaterally between sovereign states through bilateral investment treaties (BITs). Although South Africa recognizes the importance of FDI in the development of the economy, it is noteworthy that there has, to date, been no all-​encompassing single piece of legislation that governs FDI. The South African Institute of International Affairs (SAIIA) notes that while no formal regulatory policy exists in respect of outward FDI, South Africa’s FDI regulatory regime is encapsulated in the Foreign Investor Bill (FIB), which focuses on inward FDI and investor protection.14 Apart from the FBI, South Africa does not differentiate between foreign and domestic investors because of the application of the ‘national treatment’ principle.15 As such, FDI (along with other qualifying transactions) falls under the purview of the competition authorities and sector-​specific regulations governing foreign entry and ownership in strategic sectors.16 The most recent regulatory and/​or legislative amendment is the draft Promotion and Protection of Investment Bill, which is still going through a public consultation process. The Bill seeks to promote and protect investment in a manner that is consistent with the public interest, and bring a balance between the rights and obligations of investors. It is currently not clear which organ of state will be tasked with the enforcement of the Bill once it is ratified, or whether the competition authorities will continue to evaluate FDI in the context of the merger control process currently in place.

III. A Comparative Assessment of the Public Interest Considerations (In Fdi Transactions) By the G20 Member Countries Studies have shown that FDI regulatory regimes across the world are unique and different in their make-​up, taking into account distinctive goals and priorities of the various countries.17 One commonality between the different jurisdictions is the fact that FDI reviews continue to present complex issues for regulators and business alike. Gotts provides a concise summation of the FDI regulatory framework in the United States and other developed countries and notes some of the challenges that arise because of their institutional design, particularly the interface between those institutions tasked with protecting the public interest and competition authorities.18 14  See South African Institute of International Affairs, ‘BRICS FDI: A Preliminary View’, Policy Briefing No 63 (2013), available at accessed 6 July 2017. 15  This principle is essentially premised on the view that foreign investors would receive the same treatment as domestic investors. 16  Some of the sectors deemed as strategic in South Africa include the financial (banking and insurance), mining, broadcasting and telecommunications, and transport. 17  B A Facey (ed), The Foreign Investment Regulation Review (2nd edn, Law Business Research 2014). 18  I K Gotts, ‘Caveat Emptor: Transaction Parties Need to Consider Foreign Investment Laws as Part of Pre-​Deal Planning’, Annual Proceedings of the Forty-​first Fordham Competition Law Institute Conference on International Antitrust and Policy (2015), available at , accessed on 16 February 2017 (hereafter Gotts, ‘Caveat Emptor’).

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Most countries fall into group II, in which direct government participation is through a designated minister or committee of government. These countries include Japan (Ministry of Finance), India (Foreign Investment Promotion Board, Cabinet Committee on Investments), Italy (Council of Ministers), the United States (Committee on Foreign Investment in the United States), South Korea (Ministry of Knowledge Economy), Russia (Governmental Commission), Germany (Federal Ministry for Economic Affairs and Energy), and France (Ministry of Economy). The only countries that combine public interest considerations with competition evaluation are in group III, namely, South Africa (Competition Commission) and China (Ministry of Commerce and National Development and Reform Commission). Nevertheless, it is noteworthy that the competition authority in China reports directly to the Ministry of Commerce. Therefore, it is not a regulator independent of government. In group IV, these jurisdictions combine government involvement (either through ministers or regulatory agencies) with processes by competition authorities. These countries include Canada (through the Investment Division of Industry Canada and the Cultural Sector Investment Review), Australia (Foreign Investment Review Board), and the United Kingdom (Secretary of State). The ensuing discussion uses case studies (from South Africa and contrasts these with the approaches followed in some of the G20 member countries) to illustrate the benefits and disadvantages of the various approaches adopted by these countries.

A. South  Africa The approach of the South African competition authorities in incorporating and balancing public interest considerations has been placed in the spotlight as a result of two merger transactions, namely, Walmart/​Massmart and Kansai/​Freeworld. For the sake of brevity, we only discuss the Walmart/​Massmart merger, but there is similarity in the issues that arose in the two merger transactions. In February 2011, the Commission finalized its investigation of the acquisition of a 51 per cent share in Massmart by Walmart. It found that the merger was not likely to lead to a substantial prevention or lessening of competition. The Commission also considered various public interest issues arising from the merger, including employment, the effect on a particular industrial sector or region, and small business suppliers. On employment, the Commission considered the potential casualization of labour by the merged entity, as had been observed in other jurisdictions.19 The Commission found that these concerns were not merger-​specific and that the merged entity would be constrained by South African labour laws. Most importantly, the Commission concluded that the merger would not result in significant changes on employment. With regard to the impact of the merger on a particular industry or region, the Commission acknowledged the following:

19  The concern was raised by the South African Commercial, Catering and Allied Workers Union (SACCAWU) and the Food and Allied Workers Union (FAWU).

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• Massmart likely had sufficient funds such that it could reduce margins, thereby driving wholesale and retail competitors out of the market. • Massmart had significant buyer power, which could enable it to source large volumes from suppliers at discounted rates compared to competitors. • The Massmart merger could result in increased concentration through the erection of wholesale and retail stores in remote areas. In considering these concerns, the Commission found that cutting margins would potentially have a net welfare gain, in that consumers could benefit from possible price wars between Massmart and its competitors. Furthermore, the establishment of wholesale and retail outlets in remote areas could result in employment creation, and may provide some relief to small businesses in that they need not travel to urban areas to purchase stock. However, the Commission did concede that the customers may bypass small businesses and buy directly from the merged entity. On small businesses, the Commission found that Walmart, by committing to continue sourcing products locally, would benefit suppliers in South Africa. Furthermore, Massmart had indicated that it did not intend on reducing the number of local small, medium, and micro enterprises (SMME) suppliers. Massmart suppliers were also able to supply these products to other local independent retailers or wholesalers. Based on these considerations, the Commission found that the merger was unlikely to result in any negative impact on the public interest. On 31 May 2011, the Tribunal conditionally approved the merger. It found that the merger raised public interest concerns related to employment and the potential displacement of small businesses in markets underserved by large retailers. The merging parties offered various undertakings to remedy the identified public interest harm. One of these was the establishment of a R100 million programme aimed exclusively at the development of local South African suppliers, including SMMEs. In addition, the merged entity would establish a training programme to train local South African suppliers on how to do business with the merged entity and Walmart. The Tribunal’s decision was appealed by organized labour20 and government departments21 (the intervenors) before the Competition Appeal Court (CAC). The basis of the appeal was on employment and that local procurement had not been adequately dealt with through the proposed remedies. Government was also apprehensive that the merged entity would tend towards import-​substitution post-​merger and that this would compromise the sustainability and participation of SMMEs in productive sector activities. The knock-​on effect would be an adverse impact on domestic employment and a reduction in output in sectors which economic policy is aimed at developing, both of which would affect broader economic development goals. These concerns were stated to be plausible 20 SACCAWU. 21  Namely, the Department of Trade and Industry, the Economic Development Department, and the Department of Agriculture, Forestry, and Fisheries, along with the South African Small, Medium, and Micro Enterprise Forum.

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given that the global purchasing power of Walmart enabled it to source and distribute products globally at low prices. The CAC directed that separate economic studies be commissioned to determine ‘the most appropriate means together with the mechanism by which local South African suppliers may be empowered to respond to the challenges posed by the merger and thus benefit thereby’.22 The studies submitted by the merging parties and intervenors in the proceedings concurred that the most appropriate mechanism through which to empower local suppliers to participate in the Massmart supply chain was through a supplier development fund (SDF). The CAC ordered that the SDF should be designed to respond to the threat of loss of employment and sales by local suppliers, including SMMEs, through their potential displacement by way of imported goods. The CAC ordered that a maximum amount of R200 million be allocated by Massmart over a five-​year period. This amount was over and above the R40 million already allocated by Massmart.23 While this figure differed from the merging parties’ and intervenors’ proposed capitalizations amounts,24 the CAC importantly noted that ‘the quantum is not the sole touchstone; integration of local SMMEs into the global value chain of Walmart is the core objective’.25 There are two key lessons that arise from this case which demonstrate the beneficial outcomes of combining the consideration of public interest factors with the merger review process by competition authorities rather than separate bodies or institutions. First, combining the review of these issues under a single institution (the competition authorities) provides for a more streamlined and focused process of review, which is beneficial to both private parties and the regulators. Second, the consideration of the public interest in merger proceedings before the competition authorities is a process that is based on economic evidence rather than popular and biased views. Where appropriate, competition authorities will also consider the impact on competition in the context of the impact on small businesses (as was the case in this merger) and the ability of South African firms to become globally competitive.

B. Other G20 member countries The case studies from some of the G20 member countries demonstrate how they have dealt with public interest considerations in FDI transactions. 22  SACCAWU v Massmart Holdings Ltd, Competition Appeal Court, Case Nos 111/​ CAC/​ Jul11 and 110/​ CAC/​ Jun11, available at , accessed 10 February 2017. 23  Following the Tribunal’s Decision in May 2011, the merged entity initiated the development of a Massmart supply development fund. The focus of the initiative was on support for small enterprises from disadvantaged communities. At the time of the hearing before the CAC, the fund had committed R40.4 million to four substantial projects and two small training and auditing projects had already been initiated. 24  The merging parties proposed R100 million, while the state proposed R500 million to R2 billion over a five-​to ten-​year period. 25  SACCAWU v Massmart Holdings Ltd (n 22).

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Australia falls into group IV and the manner in which it has structured and applied its public interest provisions has generated controversy and criticism. The Archer Daniels Midland/​Graincorp merger is a prime example of the difficulties raised by the manner in which Australia incorporates the consideration of the public interest in FDI transactions. This 2013 transaction involved Archer Daniels Midland Company (ADM), an American global food-​processing and commodities-​trading corporation, and Graincorp Limited (Graincorp), an Australian agribusiness whose core business is the storage of grain and related commodities. Upon review, the Australian Competition and Consumer Commission concluded that the merger was unlikely to harm competition in the grain sector, as the merged entity would continue to face competition from a number of players in the relevant market.26 However, the Foreign Investment Review Board (FIRB), citing particularly high levels of stakeholder and community concerns regarding the transaction, prohibited the acquisition in its entirety. The FIRB, through the Treasurer, stated that the Australian grains industry was an important export industry that had been transitioning through a significant deregulation process. The Treasurer noted that although the market had experienced entry and new infrastructure that had been constructed, the pace of growth in competition had been sluggish. As such, the Treasurer concluded that it was not the time for a 100 per cent foreign acquisition of a key Australian business. The prohibition prompted a record drop in the shares of Graincorp, closing 22 per cent lower and causing a slide in the local currency.27 Similarly, Canada, which also falls into group IV, has also been criticized about the manner in which it incorporates public interest considerations in its FDI review processes. The China National Offshore Oil Company and Nexen Inc, and Petroliam National Berhad and Progress Energy Resources Corp mergers are instructive in this regard. These two acquisitions are of great interest because following their clearance by the competition authorities in December 2012, the Canadian Prime Minister indicated that any further foreign state control of Canadian oil sands would not be of benefit to Canada and that any allowance of further ownership would happen under ‘exceptional circumstances’. The criticism levelled against this approach, as is generally the case in most of these cases, was that there was no clear definition of what constitutes ‘exceptional circumstances’. The United States falls into group II in terms of which there is direct government participation through a designated minister or committee. The US experience is also illustrative of the challenges associated with the structural separation of public interest and competition consideration in the FDI review process. The Tangshan Caofeidian Investment Corporation/​Emcore merger involving a Chinese entity, Tangshan Caofeidian Investment Corporation, and Emcore Corporation (Emcore), 26  Australian Competition and Consumer Commission, ‘ACCC to Not Oppose Archer Daniels Midland Acquisition of Graincorp’, Media Release (27 June 2013), available at accessed 4 November 2015. 27  J Scott and E Behrmann, ‘ADM’s $2 Billion GrainCorp Bid Blocked by Australia’, Bloomberg Business (29 November 2013), available at accessed 4 November 2013.

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a US company which offers a broad portfolio of compound semiconductor-​based products for the telecom, broadband, broadcast, defence, and homeland security, among others, is instructive. The two parties agreed to a joint venture under which Emcore would sell a 60 per cent interest in its fibre optics business, including its telecommunications, enterprise, cable television, fibre-​to-​the-​premises, and video transport business line to Tangshan. Notwithstanding the clearance of the transaction by the competition authorities, the Committee on Foreign Investment in the United States (CFIUS), which conducts classified investigations of transaction on national security grounds, expressed ‘certain regulatory concerns’.28 In response to the concerns by the CFIUS, the parties stated that they were willing to explore alternative means of cooperation that would address the concerns.29 The Bain Capital/​Huawei Technologies/​3COM is another transaction which involved Huawei, a Chinese multinational operating in telecommunications equipment and network services, and Bain Capital, a Boston-​based alternative investment firm specializing in private equity, venture capital, credit products, and absolute return investments acquiring 3COM. The parties made a submission to the CFIUS. The transaction would see Bain own 83.5 per cent of 3COM and occupy eight of the new company’s eleven board seats. Huawei would acquire a minority interest of 16.5 per cent and have three seats on the board.30 3COM is a provider of secure, converged voice and data networking solutions. The competition authorities cleared the transaction. However, owing to 3COM’s dealings with the US government, security concerns were raised. The CFIUS proposed that 3COM should abandon the transactions out of security concerns. The concern in Washington was that Huawei would be able to alter the electronic equipment and computer software sold to the US military in a way that could make it less than 100 per cent effective. The parties abandoned the transaction once it became clear that it would not be approved by the CFIUS as originally structured.31

C. Analysis of the various country approaches The reviewed cases show that although arguments have been made that public interest should not be considered in merger control and most especially in the context of FDI (the argument in this regard being that public interest obligations will have 28  S Kirchgaessner, ‘US Blocks China Fibre Optics Deal over Security’, Financial Times (30 June 2015), available at accessed 4 November 2015. 29 Emcore, ‘EMCORE and Tangshan Caofeidian Investment Corporation Pursue Alternative Means of Cooperation to Address Regulatory Concerns’, Investor News (2010), available at accessed 4 July 2017. 30  See accessed 4 July 2017. 31  S R Weisman, ‘Sale of 3COM to Huawei Is Derailed by U.S. Security Concerns’, New York Times (21 February 2008), available at accessed 4 November 2015.

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a negative impact on FDI), it would seem that jurisdictions in both the developed and developing world do incorporate such considerations. The key differential is the manner in which public interest considerations are incorporated. It appears that most developed economies separate the consideration of public interest from the merger control process and that this is limited to cross-​border mergers only. As is commonly known, South Africa does not make such a distinction. This gives rise to the question about which framework is best placed to produce optimal outcomes that foster competition and attract FDI, and is also in the public interest in the domestic economies affected by cross-​border mergers. The main criticism emanating from the consideration of public interest in the other G20 member countries reviewed in this chapter is the fact that there is no transparency or clarity regarding the definition of the public interest and the manner in which the consideration of such public interest is conducted. Gotts, for example, notes that the definition of ‘national security’ or ‘national interests’ is not always clearly defined and may change as different concerns arise.32 The author further notes that another criticism of the approach adopted in some of these countries is (that the process is) prone to political interference. This criticism is crucial because in order to attract and maintain FDI, it is important that the regulatory terrain is clear and gives rise to certainty. First and Fox indicate that the key principles that must guide the consideration of public interest in competition proceedings, inter alia, include clear articulation of public interest goals, transparency of process, and quantification of costs and benefits.33 Proponents of incorporating the public interest in competition processes argue that vesting public interest considerations with competition authorities is a better placed approach because it has the virtue of entrusting the issue to regulators who understand and appreciate the value of competition. The Walmart/​Massmart merger provides a concise picture of the manner in which the South African competition authorities have sought to incorporate public interest considerations in cross-​border mergers. Fox and First provide an interesting summation of the manner in which the South African competition authorities have incorporated public interest in the assessment of cross-​border mergers.34 This summation is largely drawn from the Walmart/​Massmart merger, which is a seminal case in this regard. First and Fox note the following: The Wal-​Mart/​Massmart case demonstrates the difficulties of incorporating public interest factors into merger enforcement, but it also shows that Competition Law can accommodate interests beyond a narrowly conceived version of consumer welfare and need not leave those interests to be considered elsewhere. South Africa’s Competition Law decision makers tried to keep their pubic interest concerns focused on the factors enumerated in the Competition Act. They insisted on concrete evidence of the public interest harms so that they could weigh 32  Gotts, ‘Caveat Emptor’ (n 18). 33  H First and E Fox, ‘Philadelphia National Bank, Globalization, and the Public Interest’ (2015) 80 Antitrust Law Journal 803. 34 Ibid.

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these harms against consumer welfare benefits. They brought into a judicial process what might otherwise have been solely an exercise in political bargaining, giving representation to other government ministries and to labour interests, and requiring them to present their arguments—​and even their bargaining—​in a more transparent way than would otherwise have occurred. They even came up with a competition-​advancing remedy to deal with legitimate concerns over imports, outsourcing, and jobs.35

This chapter notes challenges in consideration of cross-​border merger particularly when there are ‘public interest’ issues arising. The balancing act achieved between public interest and pro-​competitive outcomes expected from these transactions (for those transactions that are deemed not to be anticompetitive) is an important consideration that is crucial for any economy. The achievement of consumer welfare benefits, stemming from a competitive process in markets, attracting and sustaining FDI, and the protection of the public interest cumulatively serve to benefit domestic economies and ultimately contribute towards the realization of economic development goals. Where competition authorities have limited regulatory authority on cross-​border mergers (thus, when government or government agencies review the ‘public interest’ issues) such as in the United States, Australia, and Canada, the process and outcomes have been less transparent and sometimes difficult to reconcile with the broad competition regulation principles.

IV. Conclusion This comparative analysis has shown different approaches in how developed countries consider public interest issues in cross-​border mergers. It appears that there is a lack of transparency in how public interest is considered in these countries, particularly in Canada, Australia, and the United States. The South African case study shows that where competition regulators are involved in the consideration of public interest, the process is much more transparent and yields outcomes that are more effective by linking the public interest goals and those of competition. In reality, governments in most of the developed world are increasingly intensifying the regulations of cross-​border mergers. Granted, this may be necessary, yet the manner in which most of these governments are going about this begs many questions.

35 Ibid 346.

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11 Barriers to Entry and Implications for Competition Policy Simon Roberts*

I. Introduction The way the economy works in terms of microeconomic outcomes is the product of many small decisions and some big ones. There are also ‘non-​decisions’, where the established trajectory continues because no decisions are taken to change its direction. This chapter draws on a series of studies of barriers to entry to markets in South Africa. Furthermore, the chapter seeks to consider the nature and significance of the range of often mutually reinforcing microeconomic factors which stack up to block greater participation in the economy by people as entrepreneurs/​producers. Taken together, they warn against the temptation to look for a ‘silver bullet’ and instead highlight the need for concerted action across different fronts to alter the economic landscape. For example, finance is often highlighted as the main block to new businesses and, indeed, the sunk investments required to get commercially viable enterprises off the ground mean finance obviously matters. However, providing development finance without addressing the other barriers to effective entry is likely to be a waste of money. It is evident that major changes are needed in the trajectory of the South African economy. The existing structure of ownership and control excludes the majority and provides ammunition for those who argue that in reality the only way to gain access to wealth is through corruption and rent-​seeking. Competition Law has broken up cartels and achieved lower prices for consumers, but it has largely not opened up markets to smaller firms such that they have the possibility to become effective competitive rivals. While the high levels of inequality, poverty, and unemployment clearly require actions which extend far beyond the scope of this chapter, there are important debates about competition and inequality. Meaningful access to economic opportunities * Professor of Economics and Director of the Centre for Competition, Regulation and Economic Development at the University of Johannesburg.

Barriers to Entry and Implications for Competition Policy. Simon Roberts. © Simon Roberts, 2017. Published 2017 by Oxford University Press.

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through reducing barriers and proactively supporting rivals can play an important part in changing the structure of the economy. The structure of the economy and barriers to entry and growth are relevant to inequality.1 A  lack of competition means entrenched incumbent interests can continue to earn high profits with low levels of investment and little effort and innovation. Dominant firms may be able to entrench their positions and the supra-​ competitive rents being earned, creating long-​term problems in the performance of the economic system.2 Baker and Salop3 have argued that a more permissive stance to dominant firms (specifically in the United States) has increased the prevalence of market power and its exertion, with the returns going largely to the wealthy. A productive and inclusive economy means that effort, innovation, and creativity are rewarded. Put differently, competition is fair. Performance competition means competing on offerings to consumers based on production capabilities rather than ‘handicap competition’, where firms seek to undermine their rivals.4 Improved production capabilities result in increased productivity, and improved quality and design of better products. However, along with persistent and extremely high levels of concentration, South Africa has had poor productivity performance over the past two decades.5 Competition law and policy is about setting the rules for the market economy and the rules can be changed in order to shift the balance in favour of different outcomes, such as constructively opening up markets. It is not simply limited to enforcement against egregious offences such as hard-​core cartels that can be compared to racketeering or fraud. It also does not mean arbitrary actions against companies. The issue is whether the current rules mean the economy rewards effort, innovation, and creativity. In economies with higher levels of concentration and less robust competitive self-​righting mechanisms (such as higher barriers to entry), stronger policies may be required towards abuse of dominance.6 The balancing of the probability and costs of over and under enforcement (Type 1 and Type 2 errors) implies that different stances should be adopted across countries because of their different characteristics.7 1  See D C North, J J Wallis, and B Weingast, Violence and Social Orders (Cambridge University Press 2009) on elements of creating ‘open access orders’; D Acemoglu and J Robinson, Why Nations Fail (Random House 2012) on inclusive instead of extractive growth; and J E Stiglitz, The Great Divide: Unequal Societies and What We Can Do about Them (W W Norton 2015) on the need for more and better regulation of banks and monopolies. Of course, there are many contributors to inequality, including inherited wealth, which is of great relevance in South Africa (see A Orthofer, ‘Wealth Inequality in South Africa: Evidence from Survey and Tax Data’, REDI 3x3 Working Paper 2016/​15). 2  P Geroski and A Jacquemin, ‘Dominant Firms and Their Alleged Decline’ (1984) 2(1) International Journal of Industrial Organisation 1, 22. 3  J Baker and S Salop, ‘Antitrust, Competition Policy, and Inequality’, Working Paper 41 (2015), available at accessed 5 July 2017. 4  D Gerber, Global Competition: Law, Markets and Globalisation (Oxford University Press 2010). 5  See also P Aghion, M Braun, and J W Fedderke, ‘Competition and Productivity Growth in South Africa’ (2008) 16 Economics of Transition 741. 6  J Vickers, ‘Competition Law and Economics: A Mid-​Atlantic Viewpoint’ (2007) 3(1) European Competition Journal 1; P Brusick and S Evenett, ‘Should Developing Countries Worry about Abuse of Dominance?’ (2008) 269 Wisconsin Law Review 274. 7  D Evans, ‘Why Different Jurisdictions Do Not (and Should Not) Adopt the Same Antitrust Rules’ (2009) 10(1) Chicago Journal of International Law 188.

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The competitive market mechanism should be evaluated in terms of its accomplishments in promoting individual freedoms (to produce, develop productive capabilities, and make autonomous choices), as opposed to the conventional framework of welfarist assessment.8 Sen distinguished the ‘opportunity aspect’ relating to the range of choice, and the ‘process aspect’ which includes decisional autonomy not restricted by interference from others.9 Each of these is directly relevant for the choices made regarding competition provisions. With direct reference to Competition Law, Atkinson argued that competition policy should explicitly take distribution into account, both for fairness considerations and because it will mean a more dynamic economy.10 Baker and Salop adopt a similar position.11 They recommend a rebalancing of the standards used to judge dominance and its abuse, and that inequality be a goal of antitrust. In assessing barriers to entry, the studies drawn on here generally considered commercial businesses which do have the product and service offerings necessary to be competitive, but which face barriers in being able to effectively compete. The rivals’ offerings need not be identical to the incumbent. Indeed, one of the important values of opening markets to competition is to enable entrepreneurs who are in touch with the preferences of important groups of consumers to bring to market products and services customized to these preferences. For example, in supermarkets the new rival, Fruit & Veg City, recognized the gap and provided an offering which emphasized seasonal local produce at substantially lower prices without the uniformity of appearance and packaging being adopted in the main supermarket chains. The studies cover telecommunications, banking, airlines, supermarkets, agro-​ processing, liquid fuels, renewable energy, and beer.12 In some studies, there was a focus on entry at a particular market level or segment, while others, such as telecommunications and agro-​processing, reviewed developments more broadly across the sector. The relevant competition cases in each area were reviewed as part of the studies.

8  A Sen, ‘Markets and Freedoms:  Achievements and Limitations of the Market Mechanism in Promoting Individual Freedoms’ (1993) 45(4) Oxford Economic Papers 519. 9 Ibid. 10  A Atkinson, Inequality: What Can Be Done? (Harvard University Press 2015). 11 J Baker and S Salop, ‘Antitrust, Competition Policy, and Inequality’, Working Paper 41 (2015), available at accessed 23 August 2017. 12 The majority of the studies were supported with funding from the National Treasury and included firm-​level studies of entry experiences (Capitec, Fruit & Veg City, Soweto Gold, low-​cost airlines) and sector studies of telecoms and agro-​processing (see ). CCRED has also undertaken studies of liquid fuels, mobile money, and renewable energy (A Paelo, G Robb, and T Vilakazi, ‘Study on Barriers to Entry in Liquid Fuel Distribution in South Africa’, CCRED Working Paper 2014/​13; G Robb and T Vilakazi, ‘Mobile Payments Markets in Kenya, Tanzania and Zimbabwe: A Comparative Study of Competitive Dynamics and Outcomes’ (2016) 17 African Journal of Information and Communication 9; G Montmasson-​ Clair, ‘Commissioning Renewable Energy: A Review of South Africa’s Regulatory and Procurement Experience’ (2014) 7 Journal of Economics and Financial Sciences, Special Issue; and G Montmasson-​ Clair and R das Nair, ‘The Importance of Effective Economic Regulation for inclusive Growth: Lessons from South Africa’s Renewable Energy Programmes’, CCRED Working Paper 2015/​10), which are drawn on here.

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The different types of barriers to entry and growth are considered in sections II and III, drawing from the studies. Section IV then considers evidence on the gains from competition and how important entry barriers are, before section V considers what can be done to address these obstacles and change the path of the South African economy. Perhaps unsurprisingly, the insights emphasize the need to make improvements across a number of areas which together will make a big difference, but individually will likely have little impact. While entrenched incumbents are the broad picture that emerges, there are important examples of entry and growth, some of which have been covered in the studies. Others include the impact of Sephaku’s entry in cement, truly a case of an African industrialist (Dangote of Nigeria is the major investor) and one which has, combined with the ending of a cartel, reduced cement prices by a substantial proportion making housing provision more affordable (as discussed in section IV).

II.  Routes to Market, Consumer Awareness, and Switching Costs What constitutes entry barriers remains a contested area in economics. From the point of view of outcomes, we are interested in situations where an incumbent is able to make supra-​competitive returns (with possibly very large efficiency losses for the economy) unthreatened by likely entry.13 This differs from some authors who define barriers as costs incurred by an entrant which were not incurred by the incumbent.14 This allows for substantial advantages to the incumbent where it was able to recoup its investment costs, while the prospective rival incurring the same costs is likely not to do so, and therefore is deterred, including because of possible strategic behaviour by the incumbent. Sunk costs are typically considered as barriers as these are costs which cannot be recouped if entry fails. Some sunk costs are exogenous, incurred owing to the nature of the product and the set-​up costs required to produce at minimum efficient scale. The incumbent influences other sunk costs such as the level of spending on advertising. Our studies highlighted that, in practice, there are a range of barriers to entry relating to the ability to reach consumers which are not well appreciated. These barriers are because manufacturing of the good or supply of the service is often only the first step. It is critical that the business must be able to distribute and retail to consumers where many obstacles may exist. Studies of consumer behaviour have highlighted the importance of perceptions and brand awareness, as well as the (in)convenience in switching.15 The behaviour 13  R Gilbert, ‘Mobility Barriers and the Value of Incumbency’ in R Schmalensee and R Willig (eds), Handbook of Industrial Organisation (North Holland 1989). 14  D Carlton and J Perloff, Modern Industrial Organisation (Harper Collins 2004); G Stigler, The Organisation of Industry (Richard D Irwin 1968). 15  J Mehta (ed), Behavioural Economics in Competition and Consumer Policy (University of East Anglia, Centre for Competition Policy 2013).

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of consumers provides the justification for advertising, which can be a very large and sunk cost which needs to be incurred in order to enter effectively, building the necessary brand awareness. Consumer inertia is substantial, including owing to information asymmetries and convenience. Recognizing the knock-​on effect this implies in terms of weaker competition (and the potential exploitation by incumbents) is to realize the potential benefits from proactive interventions. The costs associated with packaging, promotions, and display are related to consumer behaviour and advertising. We consider insights from the studies relating to barriers in retail and distribution, and network industries.

A. Retail and distribution Supermarkets and distribution arrangements quite literally shape the routes to market for products. For supermarkets themselves, there are also questions of entry barriers. The study of supermarkets16 highlighted the importance of location in appealing to consumers. Transport costs and time can be reinforced by habit and convenience. This means consumers gravitate to shopping malls. In South Africa, exclusive leases have blocked rival supermarkets, as well as grocers, bakeries, and butcheries, from shopping malls. Such leases are a straightforward block to entrants in accessing potential markets and mean they have to look at alternative and inferior locations. The justification for exclusive leases is that they support investment in shopping malls as they ensure an anchor tenant. This applies in some locations and for a period, but not to support the ubiquitous practice for durations that last decades. It is also not clear that it justifies outright exclusivity as opposed to long-​term leases for prime space in a given mall. National supermarket chains command advertising space and seek to channel footfall through promotions even while the price of the supermarket ‘basket’ is not necessarily cheaper. Moreover, lower prices of promotional products (or ‘loss-​ leaders’) may be outweighed by the other items a consumer purchases once having been attracted to the store. For producers of consumer goods such as food products, the costs of packaging, advertising, and display can be very large and are important for establishing brand awareness. For agro-​processing companies, the ability to access the major supermarkets is an important consideration.17 There are a number of practices which make it difficult for smaller brands to establish a presence, including category management practices of supermarkets where the organization of a set of products in the supermarket is handed over to a lead supplier. For example, in milling products the smaller rivals struggled to get space on shelves and the ‘gondola ends’, the special 16  R das Nair and C Dube, ‘Competition, Barriers to Entry and Inclusive Growth: Case Study on Fruit n Veg City’, CCRED Working Paper 2015/​9 (hereafter Das Nair and Dube, ‘Case Study on Fruit n Veg City’). 17  P M Ncube, T Nkhonjera, T Paremoer et  al, ‘Competition, Barriers to Entry and Inclusive Growth: Agro-​Processing’, Project Report (2016) (hereafter Ncube et al, ‘Agro-​Processing’).

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displays at the end of rows which have much greater visibility and are exclusive to one supplier.18 One of the most important aspects of the support to smaller suppliers agreed as part of the Walmart/​Massmart merger has been the shelf-​placement of these products to ensure consumer awareness. The example of beer, as a consumer product, highlighted the advertising and promotional costs required to establish a brand. In addition, it also highlights the scale economies associated with advertising expenditure which does not necessarily increase proportionate to sales, but is necessary at low sales to establish the product in the market.19 Beer also has to be in fridges/​coolers in taverns and bars, on draught (on the bar top), for consumers to buy it. The same applies to other products, such as cool drinks, as well as more broadly to display space in outlets. Exclusive arrangements typically in place mean that small rivals are shut out from a large number of outlets. In some countries, competition enforcement has addressed this. However, the South African Act requires demonstrating a substantial lessening or prevention of competition which has been interpreted as showing that there would have been lower prices and higher quantity supplied in the market in the absence of the conduct. Small rivals often cannot prove their product would be cheaper and there would be more supply to the market as a whole, while large firms claim their conduct aids the efficiency and lowers costs in their own supply chain. It is notable that mergers have addressed the participation of small local suppliers in value chains in at least three major transactions, but under public interest rather than competition concerns, for example, Walmart/​Massmart, Coca-​Cola/​ SABMiller, and AB-​InBev/​SABMiller.

B. Network industries and utilities Network effects mean there are natural first-​mover advantages as consumers value the number of members a network has. This is reinforced where investment is required in the extension of network infrastructure such as ATMs and branches in banking and mobile phone masts in telecommunications. Regulation to ensure inter-​operability and the terms on which this happens is critical for the prevalence of effective competition in such industries. Banking services require people being able to obtain cash and make payments. The study of Capitec’s entry20 found branches and an ATM network remain critical in South Africa. However, allowing cash-​back at point-​of-​sale (supermarket tills), as has been possible for a number of years, means an ATM network can be bypassed, while mobile payments opens up opportunities to use more cost-​effective solutions and points the way to substantially cheaper ‘branchless banking’ models.

18  These are also paid for by the supplier. 19  C Matumba and P Mondliwa, ‘Barriers to Entry for Black Industrialists: The Case of Soweto Gold’s Entry into Beer’, CCRED Working Paper 2015/​11 (2015). 20  T Makhaya and N Nhundu, ‘Competition, Barriers to Entry and Inclusive Growth: Capitec Case Study’, CCRED Working Paper 2015/​12 (2015) (hereafter Makhaya and Nhundu, ‘Capitec Case Study’).

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In banking, switching costs are also significant and consumers do not readily switch to rivals even where they may be offering cheaper prices and better products and services. Consumers find it difficult to compare bank charges and services across banks, and banks spend large amounts on advertising their brand simply to establish and maintain their reputation. However, in Capitec’s case, it is notable that the company first attracted customers to micro-​loans, while customers retained their own bank account if they were already banked. Customers were only converted to also use banking services once becoming familiar with Capitec through the loans. The very long time it took Capitec to be an effective rival is also significant, with very little progress from 2001 up to around 2008, before the take-​off thereafter. In many respects, it appears to be the exception that proves the rule. It had a banking licence from its parent while other potential entrants have had their licence applications turned down. It also benefitted from the reputation of its main owner. Moreover, it had a base of micro-​ loan clients. Even with all of these advantages, it struggled to gain a foothold and took around ten years to make a meaningful competitive impact. There are also substantial network effects and switching obstacles in telecommunications. This is reinforced by large promotions and advertising expenditures which arguably obscure rather than assist in understanding the range of options of offer. Network operators can make the switching process difficult, which can compound customer inertia in mobile telecommunications, even while number portability has been enforced. This has been compounded by a range of strategies targeted at contract customers, in which Cell C’s share is much smaller than in prepaid, despite MTN and Vodacom’s prices being substantially higher in contract customers.21 There are a range of strategies such as on-​net discounts which firms can use to lock in the network effects operating in telecoms. In electricity supply, access to market has been an important obstacle for renewable energy independent power producers who require access to the grid to be able to sell the power generated.22 There have been concerns around Eskom’s incentives to undermine independent generators, which led independent power producers to seek guarantees from the National Treasury. These concerns appear to have been borne out over time. Control over critical marketing and distribution infrastructure has also been a concern, excluding smaller grain traders and undermining smaller millers’ ability to compete. A few large traders dominate South African markets, one of which has been found to have abused its dominance in silos to benefit its trading.23 The way in which the silos and the futures exchange (SAFEX) operate means that substantial deposits are required to be able to trade (reportedly of R1 million for accessing silos). 21  R Hawthorne, P Mondliwa, T Paremoer, and G Robb, ‘Competition Barriers to Entry and Inclusive Growth: Telecommunications Sector Study’, CCRED Working Paper 2016/​2 (2016) (hereafter Hawthorne et al, ‘Telecommunications Sector Study’). 22  G Montmasson-​Clair and R das Nair, ‘The Importance of Effective Economic Regulation for Inclusive Growth: Lessons from South Africa’s Renewable Energy Programmes’, CCRED Working Paper 2015/​10. 23  Ncube et al, ‘Agro-​Processing’ (n 17).

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The existence of critical infrastructure and facilities, along with network effects, are rationales for regulation to ensure competition. However, regulation can itself be a barrier, such as where onerous licensing conditions block entry. In banking, applications for licences from major supermarkets and telecommunications firms appear to have been turned down. Similarly, banking regulations have prevented the growth of mobile money transfer by mobile network operators. Ineffective regulation has also played an important part. This is where some potential improvements can be made quite quickly, such as in the area of telecommunications, as we discuss below.

III.  Scale Economies, Learning Effects, Time to Build Footprint, Reach Scale, and Patient Capital Required Economies of scale and scope apply where there are fixed costs (and common costs in the case of multi-​product firms), being costs which do not increase proportionately with output. The larger the scale of operation, the lower the average fixed costs. Strictly speaking, these may not be entry barriers as a firm can enter at a size which reaches minimum efficient scale if it can raise the finance to do so. However, financial market imperfections mean that entrants who are potentially efficient competitors are unlikely to raise the capital required for large-​scale entry at the outset. These imperfections impact mostly where there are potential competitors with a strong proposed offering, not yet proven, and yet little finance of their own. A proportion of the costs is likely also to be sunk; meaning they cannot be recovered if the firm exits. Scale and scope effects further mean that strategies can be employed by incumbents to undermine the rival’s access to segments of market demand such as to ensure the rival operates at below installed capacity, so raising its average costs. This can prevent a potentially efficient competitor from becoming an effective competitor in practice. The smaller rival is challenged under the Competition Law tests in South Africa to demonstrate what would have been the case. Larger rivals, such as entrants from an adjacent market, are better placed to be able to show what might be. However, the record is that coordination (whether explicit or tacit) has been widespread, meaning that it is precisely the smaller maverick firms which may be required to bring effective competitive rivalry. Economies of scale have been highlighted as important across the studies. These effects are obviously very large in mobile telecommunications and retail banking. In supermarkets, there are large-​scale effects in distribution, in particular, the investment in distribution centres. It is estimated that supermarkets can obtain cost savings of up to 10 per cent from suppliers in the form of distribution allowances, warehousing allowances, and pallet discounts when goods are sold to a supermarket’s distribution centre rather than direct store deliveries. Independents have been able to overcome this to an extent through buying groups, while fresh produce markets also play an important role.

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In manufacturing activities such as dairy, poultry, and beer, there are economies of scale in processing and packaging facilities. In poultry, these effects are greatest in breeding and abattoirs, which mean independent broiler producers may be subject to market power at different levels of the value chain. In dairy production, the processing of value-​added products necessary to diversify away from being reliant only on commodity milk production requires larger-​scale investments (in powdered milk, yoghurts, and cheese). Scale effects are smallest in airlines. Interestingly, it is also in this sector that the most overt anticompetitive strategies have been sanctioned under the Competition Law. It is important to appreciate that building competitive capabilities is more than simply attaining minimum efficient scale and also involves a learning-​by-​doing process. This refers to the range of internal practices and knowledge which need to be developed to operate efficiently. It is also necessary to take into account the building of external relationships for supply, such as building a distribution and retail footprint. As with economies of scale and scope, these are not barriers in their own right, but reinforce existing advantages of incumbents and provide opportunities for them to undermine entrants. For example, in poultry, the systems and flow of production (from breeding stock at great-​grandparent, grandparent, and parent levels, through to broilers) means it takes three years or more to become competitive. This is reflected in the experience of an entrant (GFC), which was already vertically integrated into the production of the main components of feed. The incremental building of capabilities by Soweto Gold highlights a similar need for ‘patient’ finance to support the growth of brewing, packaging, and distribution over a number of years. Therefore, industrial policies and long-​term development finance are required to support the development of productive capabilities. The experience of Capitec suggests the time period in banking is more in the order of a decade.24 Similarly, while we talk of Fruit & Veg City as an entrant, it is important to remember it started in the early 1990s and took close to a decade before it could make a significant impact, and only then began moving to the supermarket format in the form of Food Lovers Market.25

A. Vertical integration Vertical integration is another reality which is emphasized in a number of these case studies. An entrant at just one level of the supply chain is reliant on their integrated rivals for key inputs and/​or key markets. Again, this provides incumbents with a potential lever over entrants and smaller rivals to undermine them. Alternatively, the rival has to enter simultaneously at the different levels as a vertically integrated operator, significantly increasing the entry costs. 24  Makhaya and Nhundu, ‘Capitec Case Study’ (n 20). 25  Das Nair and Dube, ‘Case Study on Fruit n Veg City’ (n 16).

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In poultry, the successful entrants have been those operating in feed and/​or the supply of breeding stock which then move downstream into broiler production. Competition cases have addressed restrictive vertical arrangements where these have undermined rivals.26 However, it is notable that, while vertical integration provides a possible anticompetitive lever, full vertical integration in poultry does not appear necessary for efficient production as a more competitive market has seen vertical disintegration of some companies and a focus on core competencies. In telecommunications, the failure to implement local loop unbundling meanS rivals to Telkom in delivering fixed line services, such as ‘value-​added network services’ (VANS), have been dependent on the incumbent and main rival.27 The slow-​ moving Telkom has undermined entrepreneurial activity across a range of these services. Long-​running competition cases have slowly unlocked parts of these activities. Similarly, Eskom’s integration has, as noted above, proved a major obstacle to independent power suppliers. While there may be good arguments in theory for integration, in practice, it has undermined investment in alternative sources of generation. A state-​owned transmission and distribution system could act in the public interest to support upstream investment in the generation of renewable energy. Vertical integration into distribution and restrictive practices at retail level has been highlighted above as being a potential obstacle to rivals in beverage supply.

IV.  What are the Gains from Competition and How Important are the Barriers? In the studies undertaken here, the success of some entrants points to the magnitude of the effects through simple ‘before and after’ assessment. The impact of entry indicates what is at stake if entrants are blocked or undermined, as well as pointing to the much greater benefits that could have been realized if entry had been earlier and wider in reach. The impact assessments of cartels around the world have typically found mark-​ ups of 15 to 25 percent over what a competitive price would be.28 Higher mark-​ups have been found in several South African studies.29 However, this does not consider the effects on quality and variety, nor does it place any value on the benefits to the economy of wider participation in terms of production. It is worth remembering that the point of a cartel from the perspective of its members is to behave like a monopoly (or a dominant firm with substantial market 26  Such as the settlement of the case against Astral. 27  Hawthorne et al, ‘Telecommunications Sector Study’ (n 21). 28  See the papers by Connor, which draw together studies from around the world. 29  J Khumalo, J Mashiane, and S Roberts, ‘Harm and Overcharge in the South African Precast Concrete Products Cartel’ (2014) 10(3) Journal of Competition Law and Economics 621 (hereafter Khumalo et al, ‘Harm and Overcharge’); L Mncube, ‘Strategic Entry Deterrence: Pioneer Foods and the Bread Cartel’ (2013) 9 Journal of Competition Law and Economics 654; L Mncube, ‘The South African Wheat Flour Cartel: Overcharges at the Mill’ (2014) 14 Journal of Industry Competition and Trade 509.

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power). Several of our studies have considered where dominant incumbents have substantial unilateral market power, while others have found that entry barriers have shielded a small group of ‘insiders’, who tacitly coordinate or at least do not vigorously compete with each other. The studies suggest similar orders of magnitude of benefits from competition from entrants to the benefits from cartels being ended. In other words, increased competition from entrants means substantially better prices for customers, as the benefit of the entrant is felt in the lower prices and better service that results from the incumbent(s). In services (banking, telecoms) which are at the core of economic activity, the benefits brought by more effective competition from entrants imply very wide-​ranging effects on economic participation. Moreover, while changes to bring more competition have brought improvements, the point is that these could have been earlier and bigger. Even apparent success stories such as firms with the advantages of Capitec and FVC took a substantial period (around a decade or more) to get to the market presence where they had a material impact. The experiences also point to the much wider impacts which could be realized. Capitec’s existence as an effective rival has realized major savings for consumers as average bank charges on the lowest priced bank account came down by around 40 per cent in nominal terms from 2010 to 2014, with an estimated annual saving of close to R20 billion in 2014 when compared against 2010.30 It has also stimulated the extension of services to the previously unbanked and, as such, increased financial inclusion. Similarly, in telecommunications, both in mobile and fixed line services, the greater competition in recent years highlights just how damaging the blocking of entrants has been. South Africa’s broadband has been poor and expensive and is becoming more so relative to our peers. The reduction in mobile call termination rates through enabling Cell C to be a more effective competitor induced the two lead MNOs to reduce rates. This led to blended average retail prices for Vodacom and MTN more than halving from 2010 to 2015 as lower call termination rates meant network effects were reduced and Cell C could compete more effectively.31 This realized a consumer saving estimated to total R47 billion from 2010 to 2015, just for the subscribers of Vodacom and MTN. There has also been a strong response in terms of much greater telecoms usage. Again, the effect of changes to ensure that the small rival could be a more effective competitor is felt in the response induced from the incumbents. The impact of FVC is more difficult to quantify. However, it is evident that it provided a cheaper basket of products and a wider range of choice. Each person who elected to shop at FVC was obtaining lower priced food than they would otherwise have done (including because they were now able to conveniently source fresh produce which may have previously been perceived to be of lower quality). There have been large benefits also in the response from the major chains. FVC is reported to

30  Makhaya and Nhundu, ‘Capitec Case Study’ (n 20), Figure 13. 31  Hawthorne et al, ‘Telecommunications Sector Study’ (n 21).

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have been able to sell fresh fruit and vegetables at 20 to 25 per cent lower prices than the national chains owing to direct procurement from the municipal markets and cost containment measures. The implication is greater demand and market opportunities for farmers. In agro-​processing, Lethabo Milling undercut the main maize meal brands by 35 per cent when it first entered, although it is not clear if this price effect will be sustained. The entry in poultry of CBH after a competition case ensured it could bring in a new breed (effectively being an entrant at that level of the value chain) led to around R1 billion of consumer savings per annum relative to the previous years, as margins were reduced, implying a previous mark-​up of around 7 per cent. In airlines, the entry of rival carriers were found by the competition authorities and the courts to have brought savings to consumers. These entrants had been undermined by SAA’s anticompetitive conduct. In liquid fuels, rivalry from independent traders has seen discounting on diesel prices at the pump as well as for commercial customers such as road hauliers. In beverages, rivalry in beer has been very limited, as entrants have largely failed to break into the mainstream market. In soft drinks, the potential competitive significance of smaller independent producers was recognized in the public interest remedies in the Coca-​Cola/​SABMiller merger. The Renewable Energy Independent Power Producers Programme brought about significant learning over time and lower prices for power to be supplied by these generators. It appears that while the ending of cartels in concrete pipes32 and cement33 brought lower prices, entrants had a further substantial impact. In the case of cement, the estimate of cartel mark-​ups ranges from 7.5 to 9.7 percent, based on data from 2008 to 2012, with the cartel ending with the dawn raid towards the end of 2009. Nominal producer prices increased negligibly over 2013. However, the entry of Sephaku cement and commercial production coming on-​stream in the first half of 2014 saw prices fall in real terms by a further 10 per cent from January 2014 to June 2016. This suggests the mark-​ups under the cartel when compared to effectively competitive levels where firms are investing in improved facilities may be closer to 20 per cent.34 The impacts of entry on market prices and outcomes highlight that the value of support to entrants and smaller rivals is much greater than the revenues earned by these firms. This is not just the case in terms of price. There can also be a huge impact in terms of different business models, products, and services being introduced by

32  Khumalo et al, ‘Harm and Overcharge’ (n 29). 33 H Govinda, J Khumalo, and S Mkhwanazi, ‘Estimating the Benefits of Anti-​ Cartel Interventions: The Case of the South African Cement Cartel’ in F Jenny and Y Katsoulacos (eds), Competition Law Enforcement in the BRICS and in Developing Countries (Springer 2016). 34  The producer price index for ordinary and extended cement fell from 106.7 in January 2014 to 100.9 in June 2016, while the index for all building and construction (used as a deflator) increased from 110.7 to 115.9 over the same period. It is likely that the entry of Sephaku saw lower prices (below long-​term levels) as an entry strategy, but not that these would be sustained for two-​and-​a-​half years.

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entrants. This is a further argument for development finance for entrants, which takes greater risks than would be commercially justified. The importance of nurturing more effective competition has been recognized in actions in other countries also. For example, the United Kingdom is working to support ‘challenger banks’ to bring greater rivalry to the ‘big four’ established banks in that country.35 This includes proactive measures to enable easier switching by consumers. The interventions illustrate the value of providing independent information on the comparability of offerings (such as price comparison websites for bank charges) and regulating for switching, with penalties if firms are obstructive.

V.  What Can Be Done, By Whom? A critical insight is that interventions need to be on a number of fronts as they are mutually reinforcing. Just as the barriers have a cumulative effect, so addressing one area in isolation will make little difference. This is perhaps most evident in the area of finance, long highlighted as an obstacle to entrants. Our analysis indicates that providing development finance to firms without considering the challenges such as routes to market will mean the companies are set up to fail and the funding provided will be lost. A broad raft of complementary measures is therefore required to open up access to markets. There are a number of rules which determine how markets work. The rules are in the form of national economic regulation (such as of banking, telecommunications, and energy), the Competition Act, and local regulations such as governing urban planning. These can tip the balance in favour of one side or the other. Incumbents have a natural advantage in shaping the rules in their favour through influencing the terms of the debate and more direct lobbying. Note, this is not about more or less regulation, but different regulation. In some cases, regulations blocking entry can be removed, in others, proactive regulation for competition may be required given market failures and intrinsic obstacles. For example, it is necessary to ensure entrants have access to essential facilities and to enable consumer switching on a timely and efficient basis.

A. Supermarkets and routes to market The area of retail, and supermarkets, in particular, is so important that it warrants a special focus. Supermarkets are the route to market for a wide range of suppliers. The Competition Commission’s market inquiry (underway in 2016 and 2017) is an important opportunity to address the range of issues. In terms of opening up supermarket rivalry, addressing exclusive leases is critical. This can be through the market inquiry resulting in legally enforceable undertakings

35  See accessed 5 July 2017.

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by incumbent supermarkets to either not enter into leases with exclusivity clauses, or mandate the reduction of the duration and scope of the clauses in instances where such leases have already been entered into. In other countries, measures have largely been put in place under the competition regime. In the United Kingdom, the Competition Commission made an order to this effect in its Groceries Market Investigation Order of 2010 following recommendations for an investigation from the former Office of Fair Trading.36 In Australia, following the inquiry by the Australian Competition and Consumer Commission, the major supermarket chains, a wholesaler, and other retailers voluntarily provided court-​enforceable undertakings which phased out exclusive lease provisions over a number of years.37 Urban planning by municipalities can have a major impact in ensuring open and flexible retail space and a mix of formats, as well as tackling exclusivity directly through planning policies. In other countries, such as Australia and the United Kingdom, urban development has played a key role in opening up markets in retail to wider participation and ensuring competition to incumbents. This requires municipalities to play a role in opening up markets, possibly under guidance from national government and the competition authorities. The contribution of fresh produce markets in providing market opportunities to both farmers and retailers needs to be fully appreciated. They are an alternative to the private distribution arrangements of the national chains which would otherwise have even greater power as the route to consumers for farmers. Indeed, the example of FVC and the potential for further expansion of independent retailers indicates that support should be provided to fresh produce markets to expand their position, recognizing the spin-​off economic benefits. In simple terms, rivalry from FVC has meant significantly lower prices to consumers and a greater range of options for suppliers. In more expansive terms, local sourcing targets could be agreed with retailers, with a focus on small and medium manufacturing businesses, learning the lessons from the Massmart Supplier Development Fund. The playing field for smaller players and new entrants can be somewhat levelled by mandating or facilitating voluntary codes of conduct between producers, wholesalers, and retailers. From the perspective of small and medium suppliers, such codes of conduct serve to protect them against possible abuse of market power of large supermarkets. This is similar to what has been done in the United Kingdom, through its Groceries Supply Code of Practice. This stipulates that retailers are required to comply with the Groceries Market Investigation Order of the former Office of Fair Trading. The Code is enforced in the United Kingdom by an independent Groceries Code Adjudicator, set up specifically to oversee the relationship between supermarkets and their suppliers and housed within the former OFT. 36 See accessed 5 July 2017. 37  See accessed 5 July 2017.

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In Ireland, plans to institute a mandatory Code of Conduct in the grocery sector, to be overseen by the Department of Enterprise, Trade and Employment, led to regulations in 2016.38 In Spain, a new Act focusing on measures to improve the functioning of the food chain was promulgated in 2013. The Act uses a mixed model of regulation and self-​regulation (through voluntary codes of conduct) to govern commercial relations between the agents in the food chain.

B. Reorienting government support The system of incentives for investment by smaller businesses does not appear to be working well. Many firms interviewed in the studies reported that accessing the incentives was time-​consuming and cumbersome. The firms thus tended to access incentives using consultants for the investments they would be making in any case. The incentives did not change their decision. There are also obvious linkages between development finance and government incentives which need to be strengthened. There are a number of factors related to the effectiveness of incentives and the way in which they impact on competition. Some of the issues are simply to do with the complexity of the programmes and the challenges faced by small firms in accessing them. In addition, the lessons from the case studies are that a deliberate emphasis should be placed on supporting competitive rivalry and, where large incumbents benefit most from incentives, on clear, monitored conditions which take competition concerns into account. Improving transparency and reducing complexity can also aid in monitoring incentives linked to such conditions. Second, there is a very important role for local government which may often be overlooked. The access to infrastructure and physical space is a critical aspect of being able to supply goods and services and reach consumers. In the case of telecommunications, metros can open up ducts and poles to lower the costs of rivals putting in fibre cables. In retail, the configuration of retail space and planning requirements is potentially a strong lever to ensure that large incumbents cannot lock out smaller rivals. Fresh produce markets have also played an important role in the growth of independent chains and in ensuring they can source from diversified farmers.

C. Development finance, venture capital, and patient capital Financing entry and expansion is a critical part of the puzzle. In particular, the barriers identified above point to the need for ‘patient capital’ given the time to build the scale and reach required to be competitive. The studies also raised the issue of financing rivals at different levels of a value chain.

38 Statutory Instrument No 35 of 2016, Consumer Protection Act 2007 (Grocery Goods Undertakings) Regulations 2016.

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The ability to take a long-​term view is already an important characteristic of the Industrial Development Corporation (IDC), although more can be done in terms of the IDC’s understanding of market and industry-​specific dynamics and the requirements of smaller businesses. As with the allocation of incentives, it is easier to lend for investments by incumbents which would likely have been made anyway. A bigger change can be made in providing finance for riskier investments. In this regard, it must be borne in mind that increasing competitive rivalry has gains which go far beyond the returns to the entrant. The impact on market prices and dynamism affects customers of all the firms. This suggests support for entrants is warranted where there is a substantial risk involved. The question is how this can be financed, and how the applications can be evaluated. On the first, the experience with the funds from the Pioneer Foods competition settlement is a possible model which can be developed. Penalties from competition cases could be channelled into a development finance fund for rivals and entrants, especially black industrialists. This is in line with the objectives of the Competition Act in opening up the economy to participation by all. In terms of the second question on the evaluation and criteria to be followed, it is important to assess the potential for firms to be effective competitors, with the offering, scale, and expertise required. The point is to provide the long-​term finance for the necessary learning and capability development. There is also learning in the evaluation and monitoring involved for providing finance. Therefore, finance should not be provided to just one or two entrants, but to those who meet the criteria. This should be done in the recognition that some will inevitably fail, but it is not possible at the outset to predict which, and the contestation between rivals is part of the process. In addition, it must always be borne in mind that finance without the complementary measures to deal with the range of barriers to entry and growth will not be an effective intervention.

D. Regulating for competitive rivalry The regulatory provisions in network industries such as telecommunications and banking should be changed to favour rivals. In mobile telecommunications, regulations can allow for services-​based competition by Mobile Virtual Network Operators, while ensuring a fair return on the infrastructure investments of the MNOs. Spectrum allocation can be made through transparent auction processes set up to encourage entrants, while raising funds for the firms. Local regulations at the municipality level can open up basic facilities such as poles and ducts throughout towns and cities to those wishing to cable. In energy, including electricity and gas, the historic bias has been to the major incumbents on the promise that they would invest and ensure security of supply. This bias has come at a substantial cost. Independent traders and suppliers have been blocked from pipelines and port facilities. In electricity generation, rivals have not necessarily had access to the grid on an equal footing.

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E. Amendments to the Competition Act A country’s competition regime can be understood as an ‘economic constitution’ of a country, as it is the high level framework for markets.39 The South African Competition Act embodies a number of trade-​offs which are the result of negotiation of the legislation in the National Economic Development and Labour Council (NEDLAC). The most important of these is the inclusion of public interest conditions in mergers, while the abuse of dominance provisions is weaker than, for example, in Europe. The big business negotiating team perceived this as an exchange—​a concession being made on the one hand (in mergers) to achieve their main objective on the other (weak abuse of dominance provisions).40 The alternatives for the abuse of dominance provisions are clear. The European approach, followed by most of the world, is to have an overarching prohibition of abuse of a dominant position with a non-​exhaustive specification of different types of conduct which might constitute an abuse. The EU Guidance on Enforcement Priorities for abuse of dominance sets out steps in determining whether the undertaking(s) are dominant and whether the conduct represents an abuse. The undertaking is entitled to compete ‘on the merits’, but has a special responsibility not to allow its conduct to impair genuine undistorted competition. Individual competitors are not protected, but rather the competitive process, and dominant undertakings are burdened with additional responsibilities in this regard. On the grounds that this would create uncertainty for dominant firms as investors, the South African Act watered this down. The Act specifies particular and discrete forms of conduct which constitute an abuse of dominance and has a catch-​all provision for which there is no penalty for a first offence. Moreover, as the Act allows for an efficiency defence by the dominant firm, the Competition Commission will generally have to prove that the conduct had the effect of substantially lessening competition such as to outweigh any claimed efficiency rationales. Countries such as Japan and South Korea adopted particular approaches to competition in line with their industrial policies. The objectives of the South Korean Fair Trade Commission (KFTC) are to encourage free and fair competition, prevent the concentration of economic power, and thereby promote ‘balanced development’. This is because the early stages of rapid industrialization were viewed as ‘unbalanced’, requiring an active competition policy addressed at dominant firms in that country. The mandate of the KFTC therefore includes evaluating ‘unreasonable’ practices and ‘unjustifiable’ restrictions on competition.41 The difference in the approach adopted in these countries is well explained by Kyu-​Uck Lee,42 who observes the following regarding Competition Law and policy in Korea: 39  D Gerber, Global Competition: Law, Markets and Globalisation (Oxford University Press 2010). 40  See S Roberts, ‘Competition Policy, Competitive Rivalry and a Developmental State in South Africa’ in O Edigheji (ed), Constructing a Democratic Developmental State in South Africa: Potentials and Challenges (HSRC Press 2010). 41  E Fox, ‘We Protect Competition, You Protect Competitors’ (2003) 26(2) World Competition 149. 42 A Kyu-​ Uck Lee, ‘ “Fairness” Interpretation of Competition Policy with Special Reference to Korea’s Laws’ in The Symposium in Commemoration of the 50th Anniversary of the Founding of the

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Competition is the basic rule of the game in the economy. Nevertheless, if the outcome of competition is to be accepted by the society at large, the process of competition itself must not only be free but also conform to a social norm, explicit or implicit. In other words, it must also be fair. Otherwise, the freedom to compete loses its intrinsic value. Fair competition must go in tandem with free competition. These two concepts embody one and the same value. This may be the reason that competition laws of several countries such as Korea and Japan clearly specify ‘fair and free competition’ as their crown objective . . . [I]‌n a developing economy where, incipiently, economic power is not fairly distributed, competition policy must play the dual role of raising the power, within reasonable bounds, of underprivileged economic agents to become viable participants in the process of competition on the one hand, and of establishing the rules of fair and free competition on the other. If these two objectives are not met, unfettered competition will simply help a handful of privileged big firms to monopolize domestic markets that are usually protected through import restrictions. This will then give rise to public dissatisfaction since the game itself has not been played in a socially acceptable, fair manner.

The choices can be simply framed as follows. • Does the law address harm to the competitive process or just the effect (interpreted as outcomes) of competition? The South African law provides for effects-​based tests, while harm to the competitive process implies valuing participation and the intensity of actual and potential competition in its own right. The latter approach implies that wording such as the lessening, prevention, and distortion of competition would be used. The South African Act effectively privileges as complainants large rivals (likely to be multinational firms) who are able to demonstrate a significant effect. Potentially efficient smaller firms have little, if any, chance of demonstrating a significant effect. The participation of this class of rivals has no merit in itself (owing to, for example, bringing different choices to consumers) and, by their nature, they will probably grow incrementally and are likely to enter through targeting a market or consumer segment and hence not impacting across the market. They will also not achieve cost efficiencies until they reach minimum efficient scale. As potentially efficient competitors, the effects are speculative. • Do anticompetitive effects have to be substantial? In examining the (possible) anticompetitive effect, is it specified as ‘substantial’? This has been interpreted as requiring demonstration that prices would be lower and quantities supplied would be higher without the conduct.43 Or, are the effects also understood in qualitative terms such as the range of choices on offer to consumers, and whether competition has been distorted in blocking rivals without due justification? In many other countries, the test is not subject to the additional hurdle of substantial, meaning simply an implied test of materiality (or at least non-​trivial). Fair Trade Commission in Japan, Competition Policy for the 21st Century (KFTC 1997), as cited in E Fox, ‘What Is Harm to Competition? Exclusionary Practices and Anticompetitive Effect’ (2002) 70 Antitrust Law Journal 411 (emphasis added). 43  See the Competition Appeal Court decision in SAB case (Case 129/​CAC/​Apr14), paras 50 and 60.

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It should be noted that an approach that adopts the restriction, prevention, or distortion of competition as a standard does not mean efficiency-​enhancing restrictive arrangements are outlawed. Rather, arrangements that undermine the competitive process have to be justified. The difference this makes is perhaps most evident in considering issues such as exclusive supermarket leases in shopping malls and distribution and display arrangements (for soft drinks and beer). These arrangements can distort competition by completely blocking rival retailers from shopping malls, and rival suppliers from display in small outlets. However, the South African Competition Commission would have to show that the anticompetitive effect is substantial. In other countries, the ‘prevention, restriction, or distortion of competition’ test means the onus is on the firms to prove the duration and the nature of exclusivity that is required for the efficiencies claimed. The impact has been that in a number of jurisdictions, including Europe, Chile, Mexico, and Singapore, the Competition Law has opened up fridge/​ cooler space to rivals in soft drinks and beer, and exclusive arrangements regarding retail space and land have been curtailed. The introduction of the market inquiry provisions in South Africa do provide for assessing the prevention, restriction, or distortion of competition, but there are no binding actions or sanctions that result from inquiries. Follow-​through by other branches of government with relevant powers is critical. For example, urban planning can impact on supermarket location and rivalry.

VI. Conclusions The South African economy has been characterized by widely observed high levels of concentration and low productivity. The dynamism that should come from entrants and smaller challengers with different business models and improved products and services has been lacking. Unfortunately, the studies highlight that when big decisions have been made regarding regulation, they have generally gone along with the interests of the large incumbent(s). This has sometimes been linked to a black economic empowerment (BEE) ‘quid pro quo’, where the state continues to protect the incumbent in exchange for more black suppliers or shareholding. This in fact reinforces the dominant firm’s or firms’ power, as it is entrenched as the gateway to opportunities. Other interventions to open up markets have been piecemeal and unsurprisingly have had little impact. In addition to the effects of scale and network economies, the studies highlighted the importance of routes to market and consumer behaviour. Retail and distribution arrangements, including supermarkets, play a critical role in the ability of suppliers to access customers. Coupled with consumer inertia, this means new entrants and smaller firms have to incur high costs to build brand awareness and market presence no matter how good their products are. Vertical integration compounds the challenges facing entrants, while regulation of sectors such as telecommunications has not assisted rivals seeking to enter at one level and being dependent on incumbents for network services.

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To open up access to the South African economy, three main areas need to be dealt with. First, the ex ante ‘rules of the game’ in the form of economic regulation need to favour entrants and ensure incumbents can be effectively challenged. For example, steps taken in liquid fuels should be built on to enable independent suppliers access to key facilities. In telecommunications, the allocation of spectrum should take fostering greater rivalry into account, while local governments can open up ducts and poles to rival providers. In finance, regulations to support mobile money and branchless banking will widen opportunities. Measures also include soft regulation, such as codes of conduct for supermarket chains. Second, more effective ex post enforcement against anticompetitive conduct which excludes smaller rivals is required. This would be aided by amendment of the Competition Act to ensure that the competition process is protected and the ability of smaller participants and black industrialists to enter and grow can be given weight in decisions. Third, there is a range of proactive enabling measures which can support rivals. This includes making funds available for risky investments in the form of entrants. Such a development finance facility could be based on competition penalties. Development finance should also consider the different levels of the value chain.44 Complementary measures can be taken at local government level to configure space and open up critical infrastructure to rivals. Lastly, it is notable that, in several markets, entrants have come from elsewhere on the continent (such as Sephaku/​Dangote in cement and Choppies in supermarkets). The potential for African industrialists to be part of a more dynamic economy, including the greater competitive rivalry which can come from regional integration, should not be forgotten.

44  The Industrial Development Corporation in South Africa has begun to do this.

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12 Some Key Issues Concerning Further Development of China’s Anti-​Monopoly Law Wang Xianlin*

I. Introduction Since China initiated market-​oriented economic reforms in the late 1970s, its economy has developed rapidly and it now ranks as the second largest in the world. In this process, market mechanisms have always played an important and irreplaceable role, though also resulting in some negative effects. Among those, monopolization has increasingly drawn attention. In order to ensure normal market competition mechanisms and to provide a legal basis for the government to regulate monopolies, China, after more than ten years of preparations and debates, ultimately passed the Anti-​Monopoly Law (AML) on 31 August 2007, which took effect on 1 August 2008. The Law refers to the EU and US competition laws in its basic structure, although it also includes distinctly Chinese characteristics and diverse policy objectives. Since the AML was enforced more than eight years ago, important achievements have occurred, as well as challenges for further development. At present, some urgent issues need to be solved quickly. The following four aspects are basic and important.

II.  Taking Monopoly Industries as a Breakthrough to Further Promote the Implementation of China’s AML In order to make substantive progress, the AML urgently needs to find a suitable industry or area as a breakthrough. Given the current problems, the focus of public attention and the modelling effects that may be generated leave no doubt that the

*   Distinguished Professor and Executive Vice Dean, KoGuan Law School, Shanghai Jiao Tong University, Director of the Center for Competition Law and Policy, member of the Expert Advisory Group of the Anti-​Monopoly Commission of the State Council, and President of Competition Law Association of Shanghai Law Society.

Some Key Issues Concerning Further Development of China’s Anti-monopoly Law. WANG Xianlin. © WANG Xianlin, 2017. Published 2017 by Oxford University Press.

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state-​monopoly industries may be the breakthrough for further implementation of the AML. First, the position and role of state-​monopoly industries in China’s national economy suggests the significance of enforcing the law there. It is generally believed that monopoly can be categorized into market monopoly (pure economic monopoly), natural monopoly, and administrative monopoly. Monopoly industries can also be categorized into pure economic monopoly industries, natural monopoly industries, and administrative monopoly industries.1 However, state monopolies mainly exist in natural monopoly industries and administrative monopoly industries, and generally do not include pure economic monopoly industries. According to the mainstream view, China’s current monopoly industries are mainly those that rely on special government policies or proprietary technologies to dominate the production and operation, such as petroleum, tobacco, salt, telecommunications, finance, heating, water, gas, power, aviation, and railways.2 They occupy a high proportion in the national economy. Currently, revenues of all monopoly industries are estimated to account for 40 per cent of GDP.3 Most monopoly industries are viewed as the ‘infrastructure’ of the national economy, and are closely related to people’s livelihood, playing an essential role in supporting economic development. The effective enforcement of anti-​monopoly law in these industries would break the monopolies by introducing and maintaining competition mechanisms. It can also play a significant role in promoting economic growth, improving people’s livelihood, solving unfair income distribution, and enhancing China’s competitiveness. Second, the chapter explores whether and how to apply anti-​monopoly law in monopoly industries has attracted a great deal of attention owing to the characteristics of monopoly industries in China. As compared with monopoly industries in other countries, China’s monopoly industries have a set of distinctive characteristics: • The formation of China’s monopoly industries was not because of the concentration of production resulting from competition, but because of state ownership and the exclusive rights granted by the governments. • State monopolies in China are all closely connected to some government departments.4 • China’s monopoly industries are highly concentrated, with only a few enterprises in one industry (in some cases only one enterprise, eg the railway industries).5

1  P Shengwen, Analysis of Income Distribution in Monopoly Industries and Research on Regulatory Reform (China Social Sciences Press 2009) 51. 2  L Xinmin, ‘Negative Impacts of High-​income in Monopoly Industries and Proposal for Solutions’ (2006) China Economic Weekly 44. 3  Q Yudong (ed), Report on Reform of Monopoly Industries (Economic Management Press 2011) 1. 4  They are not the results of market competition, but of the structural separation of a certain government entity or implementing monopoly based on government powers, such as petroleum, petrochemical, power, telecommunications, etc. 5  Even foreign capital investments in such industries, such as petroleum, are not intended for competition, but to share the monopoly profits.

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• China’s monopoly industries have formed allies, collectively enjoying high wages and high benefits caused by monopoly profits. This means that they are comfortable with the status quo, and have no sense of competition pressure.6 These features indicate that China’s monopoly industries are closely integrated into the country’s political and economic systems. Moreover, whether AML is applicable in this area is a very sensitive issue. In recent years, unfair distribution, large income gaps, and other issues have raised considerable public concerns in China. There is a saying in China that employees in industries such as banking, securities, insurance, power, telecommunications, tobacco, petroleum, and petrochemicals, even janitors, are well paid. In addition, there are significant gaps between the actual efficiency of China’s monopoly industries and their potential efficiency. For instance, the production efficiency of PetroChina and Sinopec was only 1/​23 of ExxonMobil, although their labour costs were about three times higher. Furthermore, the capital profit margin of China’s power and telecommunications enterprises was only one-​fifth to one-​twentieth of that of counterparts in other countries of the world, but the weighted price of electricity in China was 4.52 times higher than that in developed countries.7 Although Article 7 of the AML accepts the legal monopoly of these industry-​specific operators, it also clearly emphasizes that their monopolistic conduct is subject to surveillance. However, many people still consider that these industries as a whole are exempted from the AML, leading to the phenomena that large state-​owned companies (SOEs) believe that it is justified for them not to notify their concentrations. Therefore, the effective implementation of the AML in monopoly industries would advocate the understanding of the basic requirements of AML and establish its proper authority. Moreover, it can also become an important part of China’s reform of monopoly industries, effectively promoting the ‘incumbent reform’ of such industries. Third, the intensity of enforcing the AML in monopoly industries will become the indicator of the overall effectiveness of competition enforcement. Since AML is a fundamental component of the market economy, it should be universally implemented in all areas of economic activity. Relatively speaking, competition enforcement in monopoly industries (as opposed to competitive areas) would be the most meaningful and influential, and can better demonstrate its deterrent effects. The strict enforcement of the AML by the Chinese competition agencies in, for example, the rice noodle, tableware, paper, cement, and other competitive industries was indeed important, and the subsequent penalties for price-​fixing and market division were worthy of praise. However, the effective enforcement of the AML in monopoly industries—​such as salt and telecommunications—​could better highlight its meaningfulness and value, thus making it more worthy of recognition and encouragement. This can be witnessed by the public attention on and expectations 6  H Wei, ‘On the Characteristics of China’s Monopoly Industries’ (2003) Economist 6. 7  See the special reports on the annual sessions of the NPC and CPPCC, ‘To Abandon Monopoly and Gain Market Efficiency’, Wen Hui Bao, Shanghai (12 March 2012) 3.

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of the civil litigations against telecommunications operators in China, as well as the recent investigation by the National Development and Reform Commission on the monopolistic conducts of China Telecom and China Unicom. To some extent, the burden of proof of the plaintiff is reduced in cases involving the abuse of market dominance by utility enterprises and operators with exclusive rights, which will certainly improve private enforcement in monopoly industries.8 Public enforcement, whether it is the investigation of monopoly agreements and abuse of market dominance, or merger control, also needs to be further strengthened, in order to assuage public concerns that China’s anti-​monopoly enforcement deals only with minor cases rather than major ones. In short, both administrative and civil antitrust enforcement should, in the near future, focus on prominent monopolistic conducts in typical monopoly industries. This will definitely lead to a breakthrough in enhancing the enforcement of the AML. In recent years, administrations for industry and commerce in some provinces (such as Guangdong, Inner Mongolia, and Liaoning) have made good attempts in this regard, and are expected to make greater achievements.

III.  Properly Handling the Coordination Between Industrial Policy and Competition Policy In almost all countries of market economy, governments use both industrial policy and competition policy as important tools to overcome market failures and intervene in the economy. In some of these countries, governments play a leading role in the economy. An important factor in the economic development of some countries such as Japan and South Korea was that the governments actively promoted an industrial policy. Competition policy and industrial policy are closely linked as they share the common intrinsic properties to correct market failure. Therefore, there are overlaps between them in terms of policy targets and scope of application. This might also lead to conflicts in reality. In some countries, the conflict between competition policy and industrial policy resulted in serious economic consequences, ultimately leading to a financial crisis. Directly related to the micro-​foundation of national macroeconomic policy, the healthy and stable development of a macro-​economy, and the competitiveness of the national economy, as well as the coordination between competition policy and industrial policy, is of great strategic significance. In the past, China attached great importance to industrial policy in promoting economic development, and paid insufficient attention to competition policy and did not make adequate use of it. The lessons from the development of many countries and regions suggest that the role of industrial policy is limited and confined to a certain stage, and its excessive use may inevitably lead to negative effects, such as 8  See Article 9 of the Provisions of the Supreme People’s Court on Some Issues concerning the Application of Law in Civil Disputes Cases Arising from Monopolistic Conducts.

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unsustainable economic development and even economic collapse. Therefore, in the end, the sustained, healthy, and harmonious development of the market economy must be supported by competition policy, which directly reflects the fundamental requirements of the market mechanism. As is the case in other countries of the world, increasingly more people in China realize that competition is a driving force behind industrial development and innovation. Accordingly, China has entered a stage of coexistence and concurrent development of competition policy and industrial policy. Moreover, under the context that China is purported to deepen market reform and to implement rule of law comprehensively, the question of how to make full use of the encouragement and security function of competition policy has become an issue worthy of in-​depth study. It is probably an important breakthrough point and institutional guarantee in China’s economic development under the new equilibrium to attach great importance to competition policy and let it fully play its role. Compared with industrial policy and other types of economic policy, competition policy should be more fundamental and set as the top priority. With the aim of allowing the market to play the decisive role in allocating resources and letting the government play its functions better, competition policy will increasingly play a fundamental and prioritized part in China’s economic policy system. In the further implementation of the AML, it is necessary to properly coordinate the relationship between competition policy and industrial policy from the perspective of institutional arrangements. AML is at the heart of competition policy, and serves as the most important legal basis for the coordination between competition policy and industrial policy. In general, the exemption system, such as exemption for monopoly agreements9 and exemption for concentrations,10 is related to the coordination with industrial policy. Although the AML has been enforced for more than seven years, there are still relatively few cases involving exemptions, and the related provisions are not operating well. The key is to examine the implementation and effectiveness of the exemption systems from the perspective of industrial policy. In addition, when industrial policy leads to the elimination or restriction of competition, the policy itself shall be evaluated by the AML. Industrial policy is part of national public policy, and strictly speaking, is an action under the public law. Industrial policy is usually formulated by the governmental agencies, and therefore closely linked to administrative monopoly in a common sense. In general, when it comes to administrative monopoly, the role of anti-​monopoly law is limited. Whether or not the AML regulates industrial policy by itself and eliminates or restricts competition remains controversial. Overall, a number of AML provisions leave proper space for the development and implementation of industrial policy. However, the coordination between competition policy and industrial policy still needs to be further clarified from many perspectives. Among the major issues, the following aspects are essential. First, the coordination must be based on the market mechanism as the foundation and principle. Both competition policy and industrial policy are rooted in the 9  See AML Art 15.

10  See AML Art 28.

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fertile soil of the market economy and the aim to rectify market failure. Industrial policy should be viewed as a means of protecting market mechanisms rather than one of damaging it. It should also set its focus on establishing market order, providing market information, and maintaining economic security. The predominant goal of industrial policy should be to create a proper environment for competition. Second, the exemptions, if any, should be reasonably defined and appropriately implemented. The exemptions should mainly concern industries or areas that are of great significance in maintaining China’s overall economic and public interests, as well as anticompetitive conducts that have an insignificant impact on the market or that are beneficial to overall social welfare. The scope of every exemption should be determined by authorized agencies in accordance with legal procedures based on the current development status of the national economy, rather than by government or administration officials at their free will. Third, a rational allocation of common jurisdiction between competition agencies and regulatory authorities should focus on two factors: • letting regulatory authorities take full advantage of its specialties in dealing with competition issues within their respective industry; and • allowing the immediate response of the competition agencies in order to ensure the compliance of competition policy by regulatory authorities. Fourth, the coordination function of the Anti-​Monopoly Commission of the State Council should be fully exploited. The Commission may issue guidelines on principles for dealing with various problems, and optimize the administrative coordination mechanisms between anti-​monopoly enforcement authorities and industry regulatory authorities by resolving jurisdictional disputes through dealing with specific cases.

IV.  Promoting the Coordinated Development of Anti-​ Monopoly and Intellectual Property Rights Protection How to understand and deal with the complex relationship between AML and intellectual property rights remains a challenging problem. For a long time, there were different views among China’s legal research circles and government agencies on how to deal with the exercise of intellectual property rights. In the legislative process, some people thought that AML should not deal with issues related to intellectual property rights, or should clarify that intellectual property rights should be excluded from the application of the AML owing to the legal monopoly rights inherent to intellectual property rights. By contrast, others supported that the AML should apply in the area of intellectual property rights, and make specific provisions to strongly restrict the exercise of intellectual property rights. Now, the principles of this issue have been resolved by the AML, of which Article 55 stipulates: This Law does not govern the conduct of business operators to exercise their intellectual property rights under laws and relevant administrative regulations on intellectual property

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rights; however, business operators’ conduct to eliminate or restrict market competition by abusing their intellectual property rights shall be governed by this Law.

Therefore, the AML establishes not only the basic legal system for anti-​monopoly, but also the basic principle of applying AML in the area of intellectual property rights. However, as for how to correctly understand and apply this article to ensure the correct enforcement of AML in the field of intellectual property rights, there are still many specific issues to be addressed. The competition laws of many countries share the common characteristics of containing only general principles and uncertain rules. In reality, however, competition issues are complicated and law enforcement authorities need to undertake case-​by-​case analyses according to the specific conditions—​rather than relying on general provisions—​to develop legal norms that are not only universally applicable, but also operable and appropriate in specific cases. In some countries and regions, legal uncertainties are clarified partly by the enforcement of competition agencies and courts in specific cases, partly by semi-​legally binding documents, such as regulations, recommendations, and/​or guidelines, that are formed based on enforcement experience. The enforcement of AML when intellectual property rights are involved is usually especially complex and sensitive. Both the protection of intellectual property rights (in order to stimulate innovation) and the enforcement of AML (in order to maintain competition) are important policy choices of modern countries. In certain cases, the existence and exercise of intellectual property rights as lawful monopolies are excluded from the application of anti-​monopoly law. In this context, such restriction of competition should be deemed as a necessary compromise of establishing and implementing the intellectual property rights system, and thus it should be tolerated in the AML. However, intellectual property rights may be abused to eliminate or restrict competition, which is contrary to the basic purposes of the establishment and implementation of the intellectual property system, and thus will not be tolerated by anti-​monopoly law. This requires a good grasp of the ‘degree’ of anti-​monopoly enforcement in the field of intellectual property rights. In China, the application of the AML in the field of intellectual property rights is also faced with the need to strike a reasonable balance between encouraging innovation and maintaining competition. In particular, the AML has not been enforced for a long time and there is an obvious lack of experience in enforcement. The application of AML in the field of intellectual property rights is also a brand new subject. In addition, Article 55 of the AML is too general, without a clear and specific definition of conducts that can be regarded as the legitimate, and conducts that should be regarded as illegal monopolistic conducts to abuse intellectual property rights to eliminate or restrict competition. Such general provisions can provide guidance for neither law enforcement authorities nor enterprises. Thus, guidelines for the anti-​monopoly regulation of the abuse of intellectual property rights need to be developed as soon as possible to solve this problem. Although China has already started work in this area, there are still many controversies and difficulties in the treatment of specific issues. For example, ‘safe harbours’, refusal to license, essential

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facilities, and standard-​essential patents have caused intensive discussion and debate both nationally and internationally for many years.11 More issues that are similar will certainly emerge in the future when more detailed and specific guidelines are incorporated into the process. This needs to be handled properly.

V.  The Cultivation and Development of China’s Competition Culture The enforcement of AML is not only an institutional problem, but also a cultural one. An ideal result of the enforcement of AML is that both business operators and governments can abide by the law automatically, thus turning the law on paper into law in action. This, of course, requires the support of appropriate administrative and judicial enforcement. Moreover, it is also necessary to cultivate and develop a culture of competition throughout the whole society. China’s traditional culture pays scant attention to competition, but puts more emphasis on ‘harmony’ and ‘coordination’, which usually leads to no cultural or moral aversion to conducts violating the AML from the business operators’ side, and no conscious responsibility to maintain competition from the government’s side. While foreign operators usually form monopoly agreements (or cartels) in a secretive manner, operators in China often do so in public. Although some genuine industrial monopolies shun their status of monopoly, certain enterprises—​which cannot be considered monopolies—​have announced that they were a ‘monopoly’ or claim their market share as the biggest in China. The government also puts more emphasis on industrial policy when developing the economy, rather than competition policy, and even practises some form of anticompetitive policies. Of course, this situation and the long-​term absence of AML or loose enforcement of such law reinforce each other. In general, competition culture refers to the consensus and atmosphere of maintaining competitive mechanisms, and respecting competition rules in the whole of society. The nurture and development of competition culture involves many aspects, such as the perception of consumers, the conduct of business operators, and functions of the government, which all directly or indirectly influence the formation of a competition culture. Among them, the business operators and the government should bear primary responsibilities in the formation of a competition culture. Operators must take the initiative to cope with the pressure of competition in the free market and accept the consequences, focus on the building of their competitive capacity, and avoid the tendency of seeking help or protection from the authorities, and should not engage in anticompetitive conduct. The government should take the lead in respecting the rules of competition, rather than—​intentionally or unintentionally—​creating an unfair competition environment. Therefore, vibrant competition culture and AML need to be advocated. The advocacy of AML plays an important role in raising awareness among business operators, as well as the general public. In many countries and regions, AML 11  See the State Administration for Industry and Commerce’s development of the Provisions on the Prohibition of Intellectual Property Rights to Eliminate or Restrict Competition.

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enforcement authorities attach great importance to the use of a variety of media to popularize AML. The authorities in some countries, such as Singapore, have even made cartoons to depict the basic functions of AML and broadcast them on television. Such measures could be effective. In recent years, China’s enforcement authorities have also placed emphasis on the popularization of AML knowledge through the publication of brochures, the organization of contests, and reports on typical cases. Naturally, a strong and impartial AML enforcement can by itself exert important warning and educational functions, and serve as one of the important ways to nurture and develop a competition culture. Competition advocacy is still a relatively new concept in China. It refers to activities conducted by the competition authorities related to the promotion of a competitive environment by means of non-​enforcement mechanisms.12 These activities mainly fall into two categories. First, it covers activities undertaken by the competition authorities towards other public entities in charge of law making, policy making, or regulation, in order to influence the regulatory framework and its implementation in a competition-​friendly way. Second, it also includes activities by competition authorities aimed at raising the awareness of all members of the society about the benefits of competition and the role of competition policy. For example, competition agencies may file legislative proposals that promote competition to the legislative bodies; they may also propose the cancellation (or modification) of regulatory measures that unreasonably restrict competition to regulatory bodies; and they can publish guidelines to guide corporate conduct. International experience shows that competition advocacy is conducive to law enforcement. In transitional and developing countries, competition authorities should give priority to advocacy over enforcement activities during the period when AML is just being formulated or initially implemented.13 In this regard, a Chinese scholar has conducted a special study, concluding that AML enforcement focuses on private restrictions of competition, whereas competition advocacy focuses on the risk of competition restriction resulting from government intervention.14 The study examines the institutional choices of competition advocacy in various countries. Based on successful international experience and the actual needs in China, it identifies the key factors in establishing the competition advocacy system in this country for the purpose of forming a variety of advocacy tools. These include introducing the legislative priority consultation system, to promote the relaxation of market entry regulation, to gradually reduce the scope of exemptions from the AML, to improve the competition assessment of regulation, and to help enterprises build their compliance system. It is noteworthy that the Several Opinions of the CPC Central Committee and the State Council on Deepening the Reform of Systems and Mechanisms to Accelerate the Implementation of Innovation-​driven Development Strategies of 13 March 2015 clearly formulated a need to break local protection, to clean up and repeal rules and practices that impede a unified national market, 12  International Competition Network (ICN), Advocacy and Competition Policy (ICN 2002) i. 13 Ibid iii. 14  Z Zhanjiang, ‘Competition Advocacy Research’ (2010) Chinese Journal of Law 5.

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to correct local governments’ improper subsidies or use of administrative power to restrict or eliminate competition, and to explore the implementation of fair competition review.15 Such measures will surely play an important role in encouraging competition advocacy and competition review. In short, there is still a long way to go for China’s AML. The joint efforts of all the interested parties, from public enforcement to private enforcement, from institutions to culture, and from the governments to private parties, will determine the course and destination of AML in China.

15  See the website of the Chinese government:  accessed 5 April 2015.

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13 Excessive Pricing Regulation in China, South Africa, and Other BRICS Member States Richard Murgatroyd,* Yan Yu,** and Innes Barnardt***

I. Introduction Excessive pricing generally refers to a supplier charging a price for a good or service that is substantially above the level that would prevail under conditions of effective competition. In this regard, excessive pricing provisions, which seek to directly address instances of consumer exploitation by means of high prices, can be contrasted with more commonly applied provisions against exclusionary abuses of dominance, which seek to prohibit suppliers from engaging in exclusionary conduct that may, in turn, lead to high prices, and consequently customer harm. In this chapter, we first discuss whether and how excessive pricing concerns are dealt with under Competition Law across BRICS (Brazil, Russia, India, China, and South Africa) jurisdictions, and compare this with the stance adopted in more developed economies (and competition jurisdictions) such as the European Union, the United Kingdom, and the United States. As set out in more detail in section II below, excessive pricing cases are a far more common feature of regimes outside of Europe and the United States, and Competition Law is more likely to be used as an industrial policy tool in these development-​oriented jurisdictions. In section III, we provide an overview of the economic principles underpinning excessive pricing. In this regard, although economic theory provides a clear explanation for why one might be concerned about excessive pricing, the analytical framework used to assess whether prices are actually excessive in practice is relatively underdeveloped, and potentially open to a high degree of subjectivity. Nevertheless, these issues have not prevented agencies in jurisdictions such as China, Russia, and South Africa from actively pursuing numerous excessive pricing cases. We review a selection of these cases from China and South Africa in section IV.

*

Partner, RBB Economics LLP. Senior Associate, RBB Economics LLP.

***

**

Principal, RBB Economics LLP.

Excessive Pricing Regulation in China, South Africa, and Other BRICS Member States. Richard Murgatroyd, Yan Yu, and Innes Barnardt. © Richard Murgatroyd, Yan Yu, and Innes Barnardt, 2017. Published 2017 by Oxford University Press.

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Finally, in section V we offer some observations on the approaches adopted in the cases discussed in section IV, and their implications for excessive pricing enforcement going forward.

II.  Approaches to Enforcement The treatment of excessive pricing abuses varies significantly across jurisdictions. For instance, in the United States, there are no provisions under Competition Law through which a firm could be found guilty of excessive pricing, while the same is true of Australia. The apparent motivation for this is the belief that Competition Law should be concerned with ensuring the effectiveness of the competitive process, and that if an unimpeded competitive process does not result in desirable outcomes, this should be a matter for sectoral regulation.1 The position in the European Union is more nuanced in that, while Article 102(a) of the Treaty on the Functioning of the European Union (TFEU) incorporates the language of excessive pricing in prohibiting a dominant firm from ‘directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions’, this provision has seldom been applied historically.2 There have been signs of the European Commission and other national authorities in Europe adopting a more active stance in the enforcement of excessive pricing.3 However, the focus has mostly remained on markets that could be plausible candidates for regulation, that is, industries that are, by their very nature, predisposed towards having a single supplier, irrespective of the market circumstances in the particular jurisdiction in question.4 The hesitancy of US and EU authorities to engage in excessive pricing investigations, and the limited nature of those investigations that have been pursued, can be contrasted with approaches to excessive pricing in other jurisdictions such as China, Russia, and South Africa, which have been far more interventionist. For example, in China there have been investigations into excessive pricing in industries such as construction materials and telecommunication devices, while in South Africa the two most high-​profile excessive pricing cases have focused on steel and propylene. Similarly, in Russia, the Federal Antimonopoly Service (FAS) has investigated excessive pricing issues in industries ranging from fertilizers to steel products. 1  Federal Trade Commission and Department of Justice, ‘Submission to the OECD Working Party No 2 on Competition and Regulation’ (2001), available at accessed 1 March 2016. 2  D S Evans and A J Padilla, ‘Excessive Prices: Using Economics to Define Administrable Legal Rules’ (2005) 1(1) Journal of Competition law and Economics 97 (hereafter Evans and Padilla, ‘Excessive Prices’). 3  See eg the United Kingdom’s Competition and Markets Authority (CMA) investigation into Pfizer’s and Flynn Pharma’s alleged excessive pricing of anti-​epilepsy drugs, and the European Commission’s investigation into allegedly excessive prices charged by Gazprom in Central and Eastern European countries. 4  A good example is the European Commission’s 2011 investigation into Standard & Poor’s (S&P).

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Notably, many of these industries are ones in which, in other countries, competition may be found to be extremely healthy, and are thus not intrinsically predisposed to having a single supplier. The fact that such industries have been the subject of excessive pricing scrutiny in the above countries may potentially be a consequence of factors specific to the country in question, including a historical lack of openness and the gradual development of a market economy. Such scrutiny is also consistent with the common observation that Competition Law is more extensively used to play a broader role in industrial policy in these countries.

III.  Economic Framework Excessive pricing, in economic terms, is where a dominant firm exercises its market power by unilaterally raising prices to levels that may be considered significantly in excess of competitive levels, either directly, or indirectly by restricting output.5 This naturally leads to the direct exploitation of consumers, to whom the price of the product or service in question is higher than it would have been under competitive conditions. Concerns over excessive pricing are well grounded in economic theory. Indeed, by way of comparison, economics tells us that, in a perfectly competitive market, the market price and corresponding level of output will be determined according to where the market supply or marginal cost curve intersects with the demand curve. This is illustrated in Figure 13.1, which indicates that under perfect competition, the market price will be PC and the level of output QC. However, under conditions of monopoly, the market price and corresponding level of output will be determined by where the supply or marginal cost curve intersects with the monopolist’s marginal revenue curve, which in turn results in a higher market price PM and lower market output QM (see Figure 13.2). This is because, unlike firms active in a perfectly competitive market, it is apparent to a firm with market power that an expansion in output will place downwards pressure on prices, which in turn makes the firm relatively less inclined to expand output. Under this situation, those customers that continue to purchase the good or service in question naturally pay a higher price. Nevertheless, notably there is also a group of customers that would have purchased at the competitive price level, but do not purchase at all at the higher monopoly price. The net utility that this latter group of customers would have gained from purchasing the product/​service in question, had it been priced at the competitive level, is what is commonly termed ‘deadweight loss’. While this analysis involves only a static assessment, and does not consider the dynamic incentives for firms to invest, it nevertheless illustrates that economics provides a clear line of reasoning as to why competition authorities might be concerned 5  Output may in turn be restricted indirectly if the dominant firm deliberately under-​invests in capacity. S Bishop and M Walker, The Economics of EC Competition Law (3rd edn, Thomson Reuters 2010) (hereafter Bishop and Walker, Competition Law).

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232 Price

Marginal Cost

PC

Demand QC

Quantity

Figure 13.1  Market prices and quantities under perfect competition

Price

PM

PC

Marginal Cost Marginal Revenue Demand QM

QC

Quantity

Figure 13.2  Market prices and quantities under monopoly

about excessive pricing. However, the process of establishing whether prices are excessive in practice is far more complex. This is evident from the way in which various competition regimes have sought to capture excessive pricing under Competition Law. For instance, Section 8 of the South African Competition Act (No 89 of 1998) defines an excessive price as one that bears no reasonable relation to, and is higher than, the ‘economic value’ of the good or service in question.6 This is 6  Reference to the South African Competition Act is available at accessed 6 July 2017.

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then further expounded in the Harmony/​Mittal judgment, where economic value is defined as the price that would prevail under long-​term competitive equilibrium, with conditions of free entry and exit.7 This is similar to the wording used in Article 6 of the Russian Federal Law ‘On Protection of Competition’, which explains that an excessive price (termed a ‘monopolistically high price’) is one that ‘exceeds the price formed under competitive conditions’.8 In contrast, Article 17(1) of the AML of the People’s Republic of China defines excessive pricing as a situation in which goods are sold at ‘unfairly high’ prices, language that is similar to that used in Article 102(a) of the TFEU.9 Each of these definitions of excessive pricing may resonate with the underlying economic motivations for authorities’ concern with excessive pricing. However, they provide little insight into how to determine whether a given price for a given product/​service at a given point in time is excessive. Indeed, while the actual price charged will typically be easy to observe, the same is unfortunately not true of the hypothetical competitive price and, accordingly, the authority must attempt to estimate it. The process of estimating a competitive price level is rendered particularly complex by the fact that, in the real world, few markets could adhere to either the text-​ book perfect competition paradigm (see Figure 13.1), or indeed the true monopoly paradigm (see Figure 13.2). This means that costs, which are often readily observable and would suitably approximate the competitive price level under a situation of perfect competition, are unlikely in practice to serve as reliable indicators of what prices in a particular market would be under competitive conditions. In our view, any investigation into whether the price of a particular product or service is excessive should at the very least start with a detailed assessment of the prevailing competitive conditions of the market in question. This is done in order to determine whether those conditions are likely to be consistent with a situation in which excessive pricing could, at least in principle, arise. For example, if barriers to entry to the market in question are low, then it is highly implausible that a firm would be able to profitably sustain prices substantially in excess of competitive levels. Similarly, the existence of strong buyers or suppliers can be expected to guard against prices being materially increased above competitive levels. Nevertheless, we acknowledge that such an assessment is best suited to differentiating between cases where excessive pricing is unlikely, and those instances that merit further investigation, and is not suitable to positively demonstrate the existence of excessive pricing. Hence in many cases an assessment will still need to be conducted in order to establish what the competitive price level for (or the ‘economic value’ of ) the product or service in question is likely to be, and whether any

7  Mittal Steel South Africa Ltd and Others v Harmony Gold Mining Co Ltd and Another (70/​CAC/​ Apr07) [2009] ZACAC 1 (29 May 2009) (hereafter Mittal Steel SA v Harmony Gold & Other). 8  On Protection of Competition (Endorsed by Federal Council 14 July 2016) No 135 Russian Federal Law (hereafter RFL Competition). 9  Anti-​Monopoly Law of the People’s Republic of China 2007, 102(a) (hereafter AML China).

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difference between the actual price charged and the notional competitive price is sufficient to constitute excessive pricing. As explained above, the competitive price level may be thought of as the price that would prevail under long-​term competitive equilibrium, but this, in and of itself, provides little guidance as to how the competitive price level should be estimated. This has led to the development of various benchmarks against which to compare the actual price, which can broadly be grouped into two categories. The first is to seek to directly estimate the competitive price level through the use of comparators, which may include (but are not limited to) the price of the relevant product or service in other geographic markets, in the same geographic market but offered to different customers, or cost metrics such as production costs. However, as Bishop and Walker note, comparators will only be valid to the extent to which the alternative markets/​transactions identified are suitably comparable to the market in question, an issue which is, in practice, often likely to render a comparator-​based approach inappropriate as a means of examining excessive pricing.10 As set out in Motta and De Streel, an alternative approach is to attempt to infer whether an excessive price is being charged. This is done by identifying whether the firm in question is able to earn ‘excess’ profits, ie profits in excess of what a firm must be able to earn for it to remain in business in the long term (referred to by economists as ‘normal’ profits).11 This approach is not subject to the same criticisms as a comparator-​based approach, but it possesses its own complexities and potential drawbacks. For instance, as Motta and De Streel themselves point out, defining the maximum level of acceptable profitability, above which profits (and hence prices) can be deemed excessive, is a very subjective (and potentially arbitrary) exercise.12 Moreover, determining the level of profitability of the firm in question is likely to be complicated by numerous difficulties in calculating the true economic cost of production, which will typically require various assumptions concerning, for example, the allocation of common costs to different business activities. Both approaches also face the common problem that even if a difference between either actual prices and a relevant comparator, or between actual profits and normal profits is found to exist, the question of whether the difference is sufficiently large to constitute excessive pricing is one that is inherently highly subjective. Bearing in mind these various difficulties in determining whether or not a given price is excessive, we now turn to how excessive pricing provisions have been enforced in different jurisdictions in recent years, with a specific focus on China and South Africa.

10  Bishop and Walker, Competition Law (n 5) 239–​44. 11  M Motta and A de Streel, ‘Exploitative and Exclusionary Excessive Prices in EU Law’, paper presented at the Eighth Annual European Union Competition Workshop in Florence (2003), available at

accessed 1 March 2016 (hereafter Motta and De Streel, ‘Prices in EU Law’). 12  Motta and De Streel, ‘Prices in EU Law’ (n 11).

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IV.  Enforcement Trends A. South  Africa In South Africa, there have been two prominent excessive pricing cases, namely, Harmony/​Mittal13 and Sasol Polymers.14 These cases were first assessed by the South African Competition Commission (the Commission), and subsequently referred to the South African Competition Tribunal (the Tribunal).15 Notably, both cases were also appealed from the Tribunal to the Competition Appeal Court (CAC).

1. Harmony/​Mittal Harmony Gold (‘Harmony’) brought the first major excessive pricing complaint in South Africa against Mittal Steel (‘Mittal’) in 2002.16 In its complaint, Harmony alleged that Mittal was engaging in excessive pricing in respect of its flat steel products sold domestically. At the time, it was argued that Mittal possessed an essentially uncontested and incontestable position in the supply of flat steel in South Africa, and that it was abusing its dominant position by using export sales to withhold supply from the domestic market. This was claimed to have had the effect of allowing Mittal to maintain the domestic price of flat steel at an import parity level (ie the cost of landing imports of flat steel from overseas markets into South Africa), even though, at the same time, it was exporting the same product at significantly lower prices. On appeal from the Tribunal, the CAC ruled in paragraph 32 of its decision that an actual comparison of two prices (one putative and one actual) is required to establish the existence of an excessive price. In order to perform this test, the CAC explained that it would first be necessary to determine the economic value of the good in question, which according to the CAC is the price that would prevail under long-​term competitive equilibrium, including normal profits and abstracting from any firm-​specific cost advantages. The second step, which the CAC acknowledged involves a clear value judgment, is then to assess whether the actual price charged bears any reasonable relation to this notional competitive price, taking into account any relevant market circumstances. The CAC’s judgment is thus consistent with the position that we have set out in section III. This is because an examination of market conditions and market structure, while having the potential to rule out instances of excessive pricing, cannot be used to make a positive finding of the existence of excessive pricing. It also confirms 13  Mittal Steel SA v Harmony Gold & Other (n 7). 14  Sasol Chemical Industries Ltd v Competition Commission (131/​CAC/​Jun14) [2015] ZACAC 4; 2015 (5) SA 471 (CAC) (17 June 2015) (hereafter Sasol v Competition Commission). 15  The Commission opted not to refer Harmony/​Mittal to the Tribunal, and as such this matter was referred to Tribunal by Harmony itself. 16  Mittal Steel SA v Harmony Gold & Other (n 7).

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Sasol Polymers Purified propylene

Purified propylene

Safripol

Sasol Polymers

Polypropylene

Polypropylene

Plastics Converters

Figure 13.3  Propylene and polypropylene supply chain in South Africa Source: Compiled by the authors from the Tribunal and CAC Sasol Polymers decisions.

that, in order to reach such a finding, it is necessary to construct a credible estimate of the competitive price level, against which prevailing prices can then be compared.

2. Sasol Polymers Sasol is a South African firm that produces a diverse range of chemical products and liquid fuels. A relatively unique aspect to Sasol’s business is that it engages in the conversion of coal and/​or gas to liquid fuel. As part of this conversion process, Sasol Synfuels, one of Sasol’s subsidiaries, also produces feedstock propylene, which it supplies, in turn, to Sasol Polymers, which uses this feedstock to produce purified propylene (P). P is then supplied by Sasol Polymers both internally, and to a third party called Safripol, as in input in the production of polypropylene (PP). Sasol Polymers and Safripol, in turn, supply PP to plastics converters, which convert PP into a range of plastic products. This supply chain is illustrated in Figure 13.3. The Commission’s case against Sasol, referred to the Tribunal in August 2010, was that it had charged an excessive price for both purified propylene and polypropylene.17 The Commission’s reasoning was that, as a consequence of Sasol’s particular production process, its cost of feedstock propylene was lower than it would have been had it been sourced from a third party, while despite this Sasol Polymers was charging prices for P and PP based on an import parity methodology. The Commission also emphasized that Sasol was previously owned by the South African government, and that it was the government that had invested in the technology required to convert coal to liquid fuel. On this basis, the Commission argued that Sasol’s cost advantage in obtaining feedstock propylene was not the result of 17  Sasol v Competition Commission (n 14).

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legitimate competitive behaviour. This raises the possibility that the Commission may not have viewed Sasol’s price as excessive if it had found that Sasol itself had incurred some risk and innovated in order to acquire the relevant technology. The Tribunal proceeded to apply the steps set out in Harmony/​Mittal for evaluating whether or not the prices set by Sasol for P and PP were excessive.18 Its primary consideration was therefore to arrive at an estimate of the economic value of the product in question. In effect, this means that the Tribunal was required to envision a long-​term competitive counterfactual, and then evaluate what price would have resulted under this counterfactual. However, the nature of the appropriate counterfactual was complicated by Sasol’s cost structure, and in particular, the issue of whether the specific cost advantage that Sasol was alleged to enjoy by virtue of being a coal to fuel converter (and possessing the relevant technology) should also apply under the relevant counterfactual. In other words, when one hypothesizes as to the existence of a putatively competitive market structure, should Sasol’s notional competitors be assumed to enjoy the same cost advantage that it does, or should they be assumed to face the higher costs associated with a ‘normal’ propylene producer? According to paragraph 34 of the CAC decision, the Tribunal ultimately found that this cost advantage should not be disregarded in the counterfactual, since it found that it did not arise as the result of innovation or risk-​taking on Sasol’s part. The notional competitive prices of P and PP relied on by the Tribunal in reaching its decision were therefore based on Sasol’s cost of feedstock propylene (and its other relevant costs) plus a risk-​adjusted normal margin. On this basis, the Tribunal found that Sasol had engaged in excessive pricing in contravention of the excessive pricing provisions in the South African Competition Act. However, it is evident from the above that the Tribunal’s finding would have been materially different had it found that Sasol’s cost advantage could be disregarded from the relevant counterfactual. This is, in our view, inherently a question of policy, which clearly requires a value judgment, particularly since it appears to be common cause that Sasol had made subsequent investments to its production process after its state support had ended.19 This serves to highlight that specifying the nature of the relevant ‘competitive’ counterfactual may, in many cases, be beset by questions that, owing to their normative nature, economics cannot definitively answer. This is exacerbated by the fact that, in real-​world markets, it is often unreasonable to expect long-​term equilibrium prices to approach cost (plus some reasonable margin). Moreover, firms active in the same market do not always face the same cost structures, and can thus reasonably be expected to exhibit different levels of profitability. Extrapolating from the costs of a single firm is therefore unlikely to be a reliable method to attempt to identify ‘economic value’, or, for the same reason, a ‘counterfactual’ cost structure. 18  Mittal Steel SA v Harmony Gold & Other (n 7). 19  This is likely to be a relevant factor in most instances since government involvement can range from relatively small industrial policy incentive schemes to complete ownership of the firm in question.

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On appeal from the Tribunal, the CAC appears to have dismissed the discussion of whether or not Sasol’s special cost advantage was relevant to the excessive pricing assessment. Instead, the CAC found in paragraph 109 of its decision that the counterfactual competitive price should be calculated based on the price at which Sasol Polymers purchased feedstock propylene from Sasol Synfuels. Adopting this approach led to a finding that, contrary to the Tribunal’s decision, Sasol had not engaged in excessive pricing. While the CAC’s decision is commendable in that it seeks to abstract from one issue that is inherently subjective (for the reasons explained above), in our view it nevertheless replaces one value judgment with another. This is because Sasol Synfuels and Sasol Polymers form part of the same economic entity. This means that, in principle, Sasol would be able to set the transfer price between its Synfuels subsidiary and its Polymers subsidiary at an entirely arbitrary level without affecting Sasol’s overall profitability. The Commission was not granted leave to appeal the CAC decision to the Constitutional Court.

B. China Article 17 of the AML prohibits a dominant firm from selling commodities at unfairly high prices.20 The agency responsible for investigating such conduct (along with other abuses of dominance) is the National Development and Reform Commission (NDRC), although such conduct can also be challenged in front of the Chinese courts. Despite being widely discussed in China, there have been relatively few excessive pricing matters before the NDRC or the courts since the enactment of the AML. It remains to be seen whether the trend of gradually removing price controls from various industries in China since 2015 may give rise to a more active role for the NDRC in investigating excessive pricing conduct. Below, we briefly discuss the most prominent excessive pricing investigations that have already taken place in China.

1. Huawei/​InterDigital In December 2011, Huawei filed two complaints against InterDigital before the Shenzhen Intermediate People’s Court in China (the Shenzhen Court). The company alleged that InterDigital had abused its dominance by engaging in certain forms of conduct in relation to the licensing of its patents, and through its failure to negotiate on fair, reasonable, and non-​discriminatory (FRAND) terms with regard to several standard essential patents (SEPs) for 2G, 3G, and 4G telecommunication technologies.21 InterDigital appealed the lower court’s ruling that it had abused its dominance to the Guangdong Higher People’s Court in October 2013. The Guangdong Higher 20  AML China (n 9). 21 Decision of the Guangdong Higher Court (Huawei v InterDigital) (Judgment in Chinese) (2014), available at accessed 1 March 2016 (hereafter Huawei v InterDigital ).

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Court upheld the first-​instance decision by the Shenzhen Intermediate Court and ruled that InterDigital had engaged in excessive pricing by charging licensing fees to Huawei for essential 2G, 3G, and 4G patents on terms deemed not to be FRAND. It also found that InterDigital had sought to tie the licensing of essential patents with non-​essential patents and had engaged in various other forms of potentially exclusionary conduct. To conclude that the royalties sought by InterDigital from Huawei were not FRAND, the Guangdong Higher Court referred to the approach adopted by the Shenzhen Court, which compared the licence fees that InterDigital charged other mobile device suppliers, including Apple and Samsung, with the royalty rates that InterDigital sought from Huawei. Despite being a small player in the mobile devices market, it was found that the fees that Huawei was charged substantially exceeded the royalties that InterDigital was seeking from these other suppliers. InterDigital claimed that licence fees paid by Apple, Samsung, and other suppliers were not comparable to those charged to Huawei, since the former were fixed, while the fees paid by Huawei varied with volume. However, while the Guangdong Higher Court acknowledged this issue, it concluded that the comparator adopted by the Shenzhen Court was reasonable, particularly given that InterDigital failed to provide sufficient information to support its case. As a remedy, the lower court set a maximum licence fee at 0.019 per cent of the actual sales price of each Huawei product making use of the relevant InterDigital patent. However, it is unclear from the publicized decision to what extent this constituted a reduction in the original fee. InterDigital filed a retrial request to the Supreme People’s Court (marking the first time that the highest court in China has been required to deliberate on an antitrust case involving excessive pricing), with the hearing having taken place in 2015, although the final decision is still pending.

2. River sand In 2013, two river sand suppliers in Shaoguan Guangdong, which accounted for 75 per cent of the market share in the Quijiang District, were found to have engaged in excessive pricing by the Guangdong Price Bureau (GPB).22 The GPB also found that the two firms had deliberately stockpiled river sand in order to restrict the supply available to customers and to force up prices. It was determined by the GPB, following consultations with the NDRC, that the two firms had raised prices for river sand by percentages that materially exceeded changes in production costs (ie a 54.5 per cent increase in prices versus a 20 per cent increase in production costs). The Bureau also compared the prices charged by the two firms with the prices charged for river sand in other geographies, and identified that their prices were materially higher. As such, it appears that the general approach adopted in this case is consistent with a comparator-​based analysis. However, it is difficult to opine on the validity of 22  Guangdong Price Bureau press release (in Chinese) (2013) .

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these comparators since there is limited information available on the exact methodology undertaken by the authority. The wider applicability of the approach followed by the Chinese authorities in this instance also appears to be complicated by the fact that the investigation related to two separate firms, while excessive pricing concerns generally relate to a single dominant firm. As part of the remedy imposed, the GPB ordered the offending firms to process and sell the stockpiled river sand (around 200,000 cubic metres) to end-​customers within six months. The river sand was sold at a price not exceeding RMB70 per cubic metre. However, the GPB did not seek to impose any remedy on pricing applicable further into the future. Indeed, it was simply noted that the GBP (and its subdivisions in local offices) would enhance its price supervision activities in respect of the supply of river sand in the province.23

3. Qualcomm Another landmark case in China is the NDRC’s investigation of Qualcomm’s alleged anticompetitive conduct.24 Notably, the NDRC did not adopt any benchmark against which to compare Qualcomm’s royalty rates, and did not seek to establish what a competitive royalty rate would be. Instead, it considered that Qualcomm charged unreasonable royalties based on the following factors: • Qualcomm had refused to provide customers with a list of all patents included in its comprehensive licensing package, which resulted in customers being charged for patents that had already expired; • Qualcomm had forced customers to grant it free licences for their own patents, while refusing to lower the royalties for its patents; and • the royalty rate had been applied to the total net wholesale price of the mobile devices concerned. Such a focus on the fairness of the negotiation process is clearly at odds with the economic framework set out in section III, and is likely to be subject to considerations that are clearly subjective and non-​economic in nature.

V.  Observations and Policy Implications It is understandable that regimes with a strong development agenda and a history of highly concentrated markets would be inclined to continue with the strict 23  The Guangdong Price Bureau imposed a fine of RMB 527,950, which represents 2 per cent of both parties’ total sales revenue in the previous year. 24  NDRC Administrative Sanction Decision No 1 (in Chinese) (2015), available at accessed 1 March 2016; NDRC press release summarizing its decision (in Chinese) (2015), available at accessed 1 March 2016.

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enforcement of excessive pricing provisions, and potentially even become more interventionist. However, the above discussion illustrates that this is unlikely to be an easy task, and that there are numerous difficulties associated with applying excessive pricing provisions in practice. In particular, in order to deter firms from engaging in excessive pricing, mere ad hoc sanctions imposed on specific dominant firms are highly unlikely to be effective. This is because, as is evident from the discussion above, none of the approaches to assessing excessive pricing in the examples provided above is likely to be suitable for application that is more general. For instance, apart from river sand, examples from China chiefly concern the licensing of SEPs, which are unlikely to provide reliable insights into excessive pricing thresholds more broadly. This is the case because the economic framework applicable to SEP licensing is specific to the field of intellectual property, and diverges significantly from the economic framework set out in the literature and case law of excessive pricing more generally. As an illustration of this, Huawei/​InterDigital required the authorities to consider various ancillary actions on the part of InterDigital, such as the tying of non-​essential patents with essential patents, and to consider that licence fees were structured differently in respect of different licensees.25 Similarly, Qualcomm was concerned chiefly with the fairness of the negotiation process by means of which licensing terms were agreed instead of a comparison of an actual and a notional price level. For the same reason, it is also likely to be very difficult to properly apply the principles established in South African jurisprudence more broadly. For instance, attempts to adhere to the two-​step test laid down in Harmony/​Mittal in Sasol Polymers resulted in a series of subjective value judgments, not only in assessing whether the difference between the actual price charged and the notional competitive price was unreasonable, but also in arriving at a notional competitive benchmark price in the first place.26 Specifically, the decision whether or not to consider Sasol’s unique cost advantage in establishing the notional competitive price is clearly dependent on policy considerations. In our view, there is a need for a rigorous analytical framework for evaluating excessive pricing complaints in order to ensure the consistency of decision-​making and adherence to economic principles, as well as to provide appropriate guidance to firms as to how to set prices to avoid falling foul of the relevant antitrust provisions. Indeed, it should be borne in mind that one of the key roles of Competition Law is to deter anticompetitive conduct from occurring in the first place, and not just to provide a means of imposing punitive measures on firms that have engaged in such conduct. However, the normative questions inherent in evaluating excessive pricing mean that establishing such a framework is extremely difficult. This means, in turn, that in the absence of clear guidance (or at least safe harbours), the continuation of certain 25  Huawei v InterDigital (n 21).

26  Sasol v Competition Commission (n 14).

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authorities’ aggressive stance to excessive pricing poses a material risk of chilling business activity. This is because, as illustrated by Evans and Padilla, sanctions imposed on a firm for excessive pricing not only affect the incentives of that firm to invest and expand on an ex post basis. They also influence the ex ante decisions of other firms which, by virtue of the absence of a coherent regulatory framework, cannot determine with any degree of certainty whether they themselves face the risk of sanction for excessive pricing.27 To avoid such deleterious effects, we are of the view that excessive pricing investigations should be limited to markets that are obvious candidates for regulation and meet certain pre-​established screening conditions. These conditions should include the existence of high and non-​transitory barriers to entry (that cannot reasonably be eliminated), the existence of current or past exclusive or special rights (ie the dominant firm has not reached its position largely or entirely as a consequence of its own innovation or investment), and clear evidence of prices materially exceeding total costs. In addition, there must be a limited prospect for intervention to have material chilling effects on investment or innovation, and a material prospect that the conduct at issue is stifling investment and innovation in adjacent markets.28 Better still would be to use Competition Law tools to identify markets that adhere to these conditions, and then, if further investigation reveals that there is a very strong prospect of excessive pricing having occurred, transparently subjecting these markets to direct regulation that will allow for meaningful and ongoing engagement with all industry stakeholders.

27  Evans and Padilla, ‘Excessive Prices’ (n 2). 28  Examples in this regard include those set out in Motta and De Streel, ‘Prices in EU Law’ (n 11) and Evans and Padilla, ‘Excessive Prices’ (n 2).

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14 Guidelines as a Tool to Promote Competition Enforcement in Brazil Márcio de Oliveira Junior* and Paulo Burnier da Silveira**

I. Introduction This chapter highlights the efforts of the Brazilian Competition Authority (Administrative Council for Economic Defense—​CADE being its Portuguese acronym) in its current agenda of issuing guidelines as a tool to promote competition enforcement in Brazil. As a new Competition Law entered into force in May 2012, several relevant competition topics have been discussed in Brazil. The use of guidelines is thus an instrument to shed light on key aspects of CADE’s understanding of the new Brazilian legislation, concerning both substance and procedural issues. Once simple example is gun jumping, which did not exist in the former legislation since it was based on an ex post merger control system. This chapter will address CADE’s guidelines and conclude by confirming its importance to competition enforcement.1

II.  The Use of Guidelines in Brazil: Cade’s Recent Experience In recent years, CADE has issued a few new competition guidelines, namely, for compliance programmes, leniency agreements, settlement agreements, and gun jumping. In addition, the former Merger Horizontal Guidelines have been replaced, and at least one other guideline is in the pipeline for merger remedies.

* Márcio de Oliveira Junior was Commissioner and Acting President at CADE. He holds a PhD in Economics and a BA in both Economics and Law. He is also an Advisor to the Brazilian Senate. He is currently a Visiting Scholar at UCL Faculty of Laws. ** Paulo Burnier da Silveira is Commissioner at CADE and Associate Law Professor at the University of Brasilia (UnB). He holds a PhD in Law from the University of Paris II and the University of São Paulo, an LLM from the Catholic University of Lisbon, and a BA from the Catholic University of Rio de Janeiro. 1 All of them are available at accessed 6 July 2017.

Guidelines as a Tool to Promote Competition Enforcement in Brazil. Márcio de Oliveira Junior and Paulo Burnier da Silveira. © Márcio de Oliveira Junior and Paulo Burnier da Silveira, 2017. Published 2017 by Oxford University Press.

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A. Guidelines on Competition Compliance Programs In a scenario where the prominence and activities of economic agents have increased substantially, CADE is performing its role of promoting competition enforcement and warning the private entities about the need to implement practices that do not infringe the Competition Law. In that sense, the Brazilian competition authority published the Guidelines on Competition Compliance Programs2 in February 2016. CADE elaborated the guidelines with contributions and comments from civil society to ensure their clarity, effectiveness, and commitment to the presenting reality. When issuing these guidelines, CADE’s focus was to exercise its preventive function, hindering companies, organizations, and individuals from violating the Competition Law. The guidelines provide a set of non-​binding directives for the private entities regarding compliance programmes, presenting its definition, measures for its implementation and the benefits of its adoption, considering the specific needs, and particular antitrust risks faced by each company. Notwithstanding, besides allowing the companies to prevent infringements to antitrust legislation or to detect them more quickly, the adoption of a compliance programme is also considered by CADE as an attenuating factor when assessing the amount to be paid as pecuniary contributions in case of violations of Competition Law. Furthermore, the document was nominated for the Antitrust Writing Awards 2016, competing on the Best Soft Law category with renowned competition authorities from other jurisdictions, such as Canada, Hong Kong, South Africa, and the United Kingdom.3

B. Guidelines on leniency agreements CADE launched the Guidelines on Antitrust Leniency Program4 in June 2016, in both English and Portuguese versions. The document encompasses CADE’s experience with leniency agreements consolidated over the past fifteen years and is aligned with international best practices. The guidelines provide a framework for future negotiations from the institutional perspective, being utilized by public-​sector employees, attorneys, and society in general as a reference in proceedings involving leniency. In that sense, the document presents consequences of non-​compliance with the Competition Law. It is also an effort from CADE to provide transparency, predictability, and legal certainty to companies willing to proactively cooperate. The directives are divided into four main sections, based on frequent questions received by CADE: 2  The Guidelines on Competition Compliance Programs are available at accessed 23 February 2017. 3  The Antitrust Writing Award is promoted by the French publication Concurrence. The award aims to promote and develop competition culture and awareness. 4  The Guidelines on Antitrust Leniency Program is available at accessed 23 February 2017.

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• important aspects for the negotiation of leniency agreements in Brazil; • cooperation with governmental bodies apart from CADE; • the warranties related to the confidentiality of documents during the negotiation phase and after the conclusion of the agreement; and • the incentives for execution of leniency plus agreements.

C. Guidelines on settlement agreements In Brazil, the negotiation of settlements related to investigations of anticompetitive conduct is concluded with the signature of a Cease and Desist Agreement (‘TCC’ being its Portuguese acronym). The Cease and Desist Agreement is executed between CADE and the companies or individuals investigated for infringements of the economic order, under the condition to collaborate with the investigations regarding a violation of Competition Law. In order to clarify the parameter used by CADE in the negotiation of these settlements, the authority published the Guidelines on Cease and Desist Agreements for Cartel Cases5 in May 2016. The guidelines provide an institutional framework for these negotiations and are intended to be used as a reference for public-​sector employees, attorneys, and the society in general regarding the procedures to negotiate these agreements. As a result of the launching of the document, it is expected that there will be more transparency, predictability, and celerity in the negotiations of this relevant activity of competition policy.

D. Guidelines on gun jumping The implementation of notifiable mergers prior to CADE’s final decision—​activity known as gun jumping—​is a practice forbidden by Article 88, paragraph 3, of the Brazilian Competition Law. CADE’s Internal Regulation (RICADE being its Portuguese acronym) has also determined these provisions. The penalties for the infringement of these provisions may include the nullity of the transaction and fines which range from BRL 60,000 to BRL 60 million. In order to better orientate merging parties for complying with the referred legal provisions, CADE published the Guidelines for Analysis of Previous Consummation of Merger Transactions6 in May 2015. The document set some parameters on which merging companies may rely while negotiating and evaluating merger transactions, preventing adverse merger transaction costs and facilitating the lawful integration of their economic activities. The directives were elaborated based on CADE’s 5  The Guidelines on Cease and Desist Agreements for Cartel Cases are available, in their Portuguese version, at accessed 23 February 2017. 6  The Guidelines for the Analysis of Previous Consummation of Merger Transactions is available at accessed 23 February 2017.

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experience with the enactment of the current Competition Law, which entered into force on May 2012 (Law No 12.529/​2011) and on studies of compared law. The document is divided into three sections, as follows: • definition of gun jumping and examples of activities which can lead to this practice, as exchange of information between companies involved in merger transactions, and definition of contractual terms, among other actions that might take place before and during the transaction; and • guidelines for companies, providing specific procedures that companies should adopt to mitigate the risk of incurring gun jumping; and • penalties for non-​compliance with the law. In this sense, the guidelines are relevant features that would be adopted as a reference by economic agents in their negotiations and merger assessments, considering the particularities of each company and case.

E. New Horizontal Merger Guidelines CADE published the Horizontal Merger Guidelines7—​or simply ‘Guideline H’—​ in April 2016. These new guidelines replaced the first guides on this matter issued in 2001, which were developed by CADE in partnership with the former Secretariat of Economic Law (of the Ministry of Justice) and the Secretariat for Economic Monitoring (of the Ministry of Finance). The New Merger Horizontal Guidelines are in line with the Brazilian Competition Law. The guidelines introduced a pre-​merger review system in Brazil from 2016. In addition, the document is in line with the world’s best antitrust practices. The guidelines refer exclusively to the transactions that involve the economic integration between competitors’ companies or potential competitors. Its main purpose is to provide transparency regarding CADE’s evaluation of horizontal mergers, to guide CADE’s staff in the adoption of the best competition practices available, when evaluating mergers and acquisitions with horizontal effects, and to assist the economic agents to better understand the procedures and criteria employed by CADE when assessing mergers.

F. Draft Guidelines on Merger Remedies The Draft Guidelines on Merger Remedies aim to present how CADE designs and implements remedies in transactions that raise competition concerns. The document is still in its draft version and its final version is expected to be released in 2017. When published, it will ensure more transparency on both procedural and

7  The Horizontal Merger Guidelines are available, in their Portuguese version, at accessed 23 February 2017.

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substance aspects of designing and implementation remedies in complex mergers, for instance, promoting the use of monitoring trustees.

III. Conclusion We have highlighted the efforts that the CADE has devoted to issue competition guidelines. The main purpose of the chapter was to shed light on CADE’s understanding of key aspects of competition enforcement. In this sense, these instruments send clear messages to the private sector on what to expect regarding CADE’s assessments of competition issues and how to comply with Competition Law. The Brazilian experience indicates that these guidelines are often perceived well by the local competition community. This is confirmed by their draft versions, through which public consultations were made and people gave their input. This reflects the enforcer’s perspective, and enables greater predictability in the application of the competition legislation.

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Index abuse of dominance, 2, 3, 6, 19, 33, 82, 160, 162, 164, 172, 188, 200, 215 access to essential facilities, 211 agreement, 2, 3, 8, 12, 14, 17, 19–​30, 36, 44, 47, 52, 53, 61–​4, 66, 69–​70, 74, 75, 83, 92–​250 definition of, 62, 65, 147, 157, 191, 195, 197, 225, 233, 246 generally, 9–​241 investigation into, 86, 230, 233 market participation, 24 market share, 12, 13, 84, 142, 166, 171, 180, 226, 239 switching costs, 202, 205 barriers to entry, 8, 9, 17, 18, 24, 48–​252 buyer power, 103, 193 case law, 241 consumer surplus, 28, 101, 154, 155 evaluating, 156, 191, 215, 237, 241, 245, 246, 257 exclusionary behaviour, 19 foreclosure, 113 regulations, 3, 17, 26, 47, 63, 92, 99, 163, 185, 190, 198, 206, 211, 213–​25 cartel detection, 98, 139, 141–​142 administrative penalties, 177 cartel conduct, 3, 175, 176 corporate leniency policy, 175 criminal penalties, 152 detection of, 139, 142 deterring, 139 economic analysis, 2–​121 effective competition, 17, 34, 49, 63, 80, 204, 209, 211, 229 impact of, 9–​209 stability of, 154 Competition Act, 40–​237 enactment of, 238, 246 mergers, 2–​215 Competition Appeal Court, 3, 19, 32, 33, 36, 174, 180, 193, 194, 216, 235 appeals, 3 reviews, 3, 47, 83, 112, 174, 190 Competition Commission, 192–​235 competition law, 117 prescription, 116, 123–​28 Competition theory, 41 economies of scale and scope, 206, 207 perfect competition, 15, 231–​3 price elasticity, 95, 109 supply and demand, 116

Competition Tribunal, 3–​235 concept of, 32–​189 exemptions, 23–​227 dominance, 2–​238 deadweight loss, 100–​231 effective Competition, 17, 34, 49, 63, 80, 204, 209, 211, 229 economic activity, 3–​221 economic value, 127–​237 economies of scale, 18–​207 effects doctrine, 103 efficiencies, 34, 217 entry, 6–​242 excessive pricing, 19–​242 exclusionary conduct, 229, 239 exemptions, 23–​227 Competition Tribunal, 3–​235 intellectual property, 63, 241 public interest, 8–​224 expansion, 25–​231 barriers to, 8–​242 exploitative conduct, 19 mergers, 2–​247 foreclosure, 113 downstream, 93, 166, 208 upstream, 35, 93, 100, 208 globalisation, 181, 200, 215 of competition law, 219, 230, 241, 244, 245 and enforcement, 86, 87, 130, 131 gun jumping, 243–​6 horizontal mergers, 246 entry, 6–​242 expansion, 25–​231 market concentration, 100 market shares, 142 information, 6–​246 competition, tribunal, 3–​235 investment, fair return on, 20–​237, 214 restricted, 12, 134, 180, 181, 201, 231 joint venture, 34, 135, 150, 196 legal, doctrine of, 39, 244–​5 competition authorities, 1–​244 legislation, 55, 60, 64, 103, 137, 170, 190, 215, 243, 244, 247 leniency, 244–​5 liability, 2

270

270 marginal cost, 72, 149, 231, 232 market concentration, 100 market definition, 95 market division, 150, 221 market entry, 37, 227 market power, 93–​231 market shares, 142 markets, 7–​242 measurement of, 54, 104 measuring, 149 merger control, 2–​243 mergers, 118, 144, 161–​247 monopolistic competition, 4 and restrictive, 208 non-​efficiency considerations, 28 oligopolies, 4 pharmaceuticals, 45–​166 perfect competition, 15, 231–​3 policy competition, 233 predatory behavior, 6 predatory pricing, 11 prescription, 116, 123–​8 price, 136–​242

Index price control, 238 price discrimination, 3, 18, 32, 163–5 private damage, 144–​5 public interest, 8–​224 rebates, 163 referrals, 50 refusal to supply, 163 relevant market, 12, 15, 95, 96, 104, 153, 163, 166, 172, 175, 176, 177, 235 reviews, 3, 47, 83, 112, 174, 190 rights, 126–​242 state, the, 18, 76, 119, 185 state owned, 40, 55, 187, 208, 221 supply and demand, 116 tying and bundling, 11, 84, 85, 128, 208, 241 undertakings, 40, 70, 73, 74, 76, 85, 104, 145, 193, 211–​13 vertical integration, 92, 93, 207, 208, 217 warrant, 139, 211, 214, 245

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