Monday, 31 October 2016

RBB Economics conference - the big keynote issues

I spent Thursday at the latest RBB Economics Australian competition conference in Sydney - my first, RBB's sixth. It's a pretty impressive bit of marketing - free to attendees, but featuring a first class line of speakers on well chosen topics: two keynotes; a session on issues in merger control; a session how to use teams of economists in competition agencies; and one on new developments in Australian competition law (which we may well have to think about, too, if we eventually follow where the Aussies have gone with treating abuses of monopoly power and addressing "concerted practices").

The first keynote speaker was Rod Sims, chair of the ACCC (media release here, full speech here) who tackled the issue that many markets appear to begetting more concentrated (some have suggested, because of soft-headed competition authority oversight of mergers). His speech covered three points: "is Australia’s economy getting more concentrated, and does this matter?" (arguably somewhat more, but maybe it's not the end of the world); "the often put view that we need not be concerned with industries becoming heavily concentrated, and with monopolies and their behaviour" (absolutely wrong, with too many people, including the Australian Consumer Tribunal, forgetting "the conventional wisdom that monopolies will charge more and produce or give less"); and "some questions...we all need to ponder", including why off-beat research suggesting monopolies aren't as bad as you think gets the airtime it does, whether the onus of proof of no competitive harm should be shifted to the merging parties when post-merger concentration would be high, and how competition authorities should approach the situation "where large incumbent firms acquire promising start-ups".

On that, Sims said that "It is a challenging task to predict and assess the impact such acquisitions may have on competition in dynamic markets. It is even more challenging to establish that there is likely to be a substantial lessening of competition on the basis of the removal of one potential competitor", which is a politely formal way of saying you've got Buckley's chance of knowing whether two guys in a garage would have been the Next Big Thing.

Second up was Zhi Jiang Chen, vice director general of China's National Development and Reform Commission, who talked about the "new economic era" of the internet and multi-sided platforms and the implications for merger and competition policy - a world where, he said, monopolistic competition is even more prevalent than before, based often on non-price elements of companies' products (particularly technical innovation).

He reckoned there were three implications for traditional competition enforcement in this new world. One, unless it's especially egregious and obvious, it's getting harder to tell what is pro- and what is anti-competitive behaviour, which he said would lead you to be more careful about interventions because of the increased risk of false positives and their potential adverse impact on innovation; it would also lead you to look especially hard at barriers to innovation, rather than at barriers to access more generally. Two, agencies need to be realistic about how businesses recover their (sometimes very large) expenditures on innovation and R&D through their pricing, and not be too hasty to see (say) predatory pricing where it's isn't actually happening. Three, market share is becoming even less of a guide to market power, as product cycles have shortened and incumbents have been displaced faster: the market-disrupting competitor may be invisible today but can appear in the marketplace at any time..

It seemed to me that Chen was putting a pretty good case together for taking a "contestability" approach to competition issues, relying more on tomorrow's Schumpeterian competition to dispatch today's incumbents and relying less on worries about today's market structure. So I asked him was that indeed what he meant, and, if it was, did Rod Sims go along with it?

Chen said, yes, that was exactly what he meant to say, though he added an important qualification, saying that there could be new, and different kinds of abuse of market power in the internet economy. Sims said that contestability was all well and good, but you can't assume that it will change everything. In some sectors, technologically disruptive new entrants might well have the power to challenge the current incumbent set-up, but in other sectors they might not. He said, for example, that people have been talking about disruptive change arriving any day now in the financial sector, but it hadn't yet materialised to any great extent (although there is an interesting set of issues just beginning to pop up with Apply Pay's deployment in Australia).

All up, an excellent start to the day, and I'll report on the other sessions when I've got half a mo.

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