Friday, 4 November 2016

Rumours of my conversion have been greatly exaggerated

I got some funny comments at last night's LEANZ section 36 debate, along the lines that I'd suddenly gone weird and soft about competition law enforcement.

Eh?

Moi?

Haven't I been banging on about more effective legislation to patrol abuse of market power? About how competition authorities may be getting too lenient on mergers? On throwing the book at criminal hard core cartels?

Puhleez!

I tracked down where people had got the idea from. This:


So you can see why people would look at this and think at first glance that the headline represented my view.

It doesn't. Never has. Never will.

The headline is actually the headline from a recent post, 'Is no competition policy the best competition policy?', on Paul Walker's Anti-Dismal blog. The headline is his. I'm only in the first paragraph because Paul started his piece with a reference to a post I did about getting the best out of competition agency economists, and went on from there with his own views about the desirability or otherwise (mainly otherwise) of competition law.

As for Paul's arguments? Nah (mostly). The odd point has some validity - yes, overzealous competition enforcement could interfere with the very competition it's meant to promote, which  is (for example) one of the reasons people point to the potential "chilling effects" of the likes of section 36 of our Commerce Act on big companies' willingness to be tough competitors.

But for the most part it's off beam. You don't want mergers leading to very large firms wielding monopoly power (giving less, charging more). You don't want cartels forming, persisting, or going unpunished when rumbled: they're a rort and a distortion, and in the worst cases akin to fraud. You don't want the competitive auction process sidelined by bid rigging. You don't want companies carving up markets into exclusive sales territories. You don't want big companies foreclosing the opportunity for new entrants to compete. And to make all that happen, you need effective competition law and enforcement. No hanging judges, no slaps with a wet bus ticket, but good middle of the road rules, effectively monitored.

Right. That clear enough for everyone? Jolly good.

Carry on.

2 comments:

  1. You miss the point. You don't want "very large firms wielding monopoly power (giving less, charging more). You don't want cartels forming, persisting, or going unpunished when rumbled: they're a rort and a distortion, and in the worst cases akin to fraud. You don't want the competitive auction process sidelined by bid rigging. You don't want companies carving up markets into exclusive sales territories. You don't want big companies foreclosing the opportunity for new entrants to compete." But is competition policy the way to achieve the goal? Or is it a weapon for firms to use to prevent entry, maintain cartels, remain "big" etc? The case against Microsoft did nothing for consumers but did cause the diversion of a lot of resources within Microsoft to fight the case rather than use them to innovate. It helped, however, Microsoft's less efficient competitors. Competition policy may be the problems rather than the answer. As Frederic Sautet put it, "At the end of the day, the problem assumed by competition law is only exacerbated by regulation, while economics shows that the entrepreneurial process solves it. So while there may be situations where competition law may seem warranted, in fact there is no crime at the crime scene. While competition law aims to protect consumers, the danger is that it may affect the self-correcting properties of the market system — an outcome worse than the disease it tries to cure". As Robert W. Crandall and Clifford Winston write with regard to the empirical record of competition policy, "In this paper, we argue that the current empirical record of antitrust enforcement is weak". So one can see problems with both the theory and practice of competition policy.

    ReplyDelete
  2. Thanks for the comment, but no, I don't believe I've missed the point, not if the point is that competition law has no overall net benefit nor if it is the point that goes further again and argues it has a net negative effect and actually retards or impedes competition, rather than promoting it, which seems to be the proposition in "Competition policy may be the problem rather than the answer".

    I see your point, I think, perfectly clearly. And I think it's wrong. I very much doubt whether the competition you (or Frederic) rely on to solve all problems will take place without the necessary institutional infrastructure to allow the competition to take place on fair terms, or indeed at all.

    What I do totally fail to see is the logic in the statement that competition policy may be "a weapon for firms to use to prevent entry, maintain cartels, remain "big" etc". Eh?

    I'm not going to defend every exercise of competition enforcement: agencies are human and make mistakes of both Type 1 and Type 2 kinds. But I'm not even sure that the Microsoft proceedings had the net adverse effect you claim. Opinion was split at the time, and I don't think there's such an obvious consensus that it did nothing for consumers: Microsoft had been doing its level best to reduce customer access to non-Microsoft products. It did show that agencies need to be careful about interventions in sectors where there is dynamic technological change and incumbents can be bowled by the Next Big Thing. But that case also showed that Microsoft may have gone too far in blocking the emergence of competition, to consumers' detriment.

    And sorry, while I remember Frederic from his time at the Commission, and he was a pleasant and bright colleague, he can't with a straight face say that always and everywhere there is "no crime at the crime scene". There are the shady meetings on the edge of industry shows, there are the one-use throw-away mobile phones, there are the maps with the world carved up. They're crimes.

    ReplyDelete