Tuesday, 24 September 2019


Last weekend we had the 30th annual workshop of the Competition Law and Policy Institute of New Zealand, and to mark the CLPINZ anniversary we went back to Christchurch where it had all started (on August 11-12, 1990). We even had two of the original attendees (John Land and Alan Lear). Back then the inaugural workshop had spent a fair deal of its time on s36, abuse of market power - plus ├ža change, eh? Thirty years on we're almost on the cusp of junking our ineffective s36 and going the Aussie route, but we're not quite there yet.

The keynote speaker via video link was David Evans, chairman of Global Economics Group and co-author (with Richard Schmalensee) of the excellent Matchmakers: the New Economics of Multisided Platforms, which is a very good guide to two (or more) sided platforms. His topic was "The role of market definition in assessing anti-competitive harm in Ohio v. American Express", and his conclusion was that the US Supreme Court got it right in finding for Amex.

It was a top-notch presentation, but not everyone was convinced by the conclusion. I hadn't been, either, when I first encountered the Amex case. Amex was trying to defend the practice of "anti steering": shops who accepted Amex cards were contractually prevented from suggesting that customers taking out their Amex cards should or could use competitor cards like Mastercard and Visa (which were cheaper for the shop to accept). As blatant an anti-competitive contractual provision as you could find, you might think, and initially I thought so, too. But I changed my mind ('Two sides to the story') and I'm now with Evans.

From discussions at the workshop, however, some of my colleagues think it's a mistaken ruling, and let's not forget the court itself had split 5 - 4. One attendee sent me 'Why credit-card rules are anticompetitive', and you can find the formal economics here. And there are others who think that between Amex and the AT&T / Time Warner merger, the US Supreme Court has lost the pro-competitive plot: see for example 'Policy Failure: The Role of "Economics" in AT&T - Time Warner and American Express'.

I won't reprise the whole workshop: copies of the presentations will be going up on the website for members (you are a member, aren't you). I'd particularly recommend Professor Martin Richardson's paper on 'The role of lay members in court', which has a lot of useful stuff on what makes for a good expert economist witness. In the interim, if you're desperate for Evans' paper, you can find a version here.

Assorted takeaway thoughts:

- Chris Whelan from RBB Economics presented on 'Cutting edge tools in economics' and mentioned the upward pricing pressure arithmetic of vertical mergers, bargaining theory, machine learning, and an application of regression to separating "buy" trades from "sell" trades in financial markets (an issue that arose in an Aussie case alleging manipulation of short-term interest rates). On that occasion the regression approach was misapplied and fell over, and that's fair enough, but in my discussant paper I argued that regression is still the go-to workhorse tool for a great deal of empirical work outside competition cases, and there's a lot of scope to use it more than it has been (I was pleased to see interesting regressions pop up in the Commerce Commission's petrol market study)

- from the Fair Trading Act session on making unsubstantiated representations, I have to confess I didn't know that you had to be able to justify any advertising claims you make at the time you make them. Even if they're subsequently challenged and found to be true, you're at risk. I noticed that all the early prosecutions were about manufacturing (heat pumps, steel mesh, water filters): happenstance maybe, but it left me wondering about enforcement in the 70% of the economy that's made up of services

- cartel criminalisation goes live in New Zealand in 2021. The Commerce (Criminalisation of Cartels) Amendment Act 2019 does not distinguish between 'hard core' and other cartels, though a lot of us would hope that criminal sanctions would only apply to the more egregious ones. I learned from the presentation by Gilbert & Tobin's Elizabeth Avery that in Australia there's a mechanism (an understanding between the ACCC and the Commonwealth Director for Public Prosecutions) for sorting the worst from the less bad. I presume - hope? - that we'll do something similar

- in the electricity sector, there's a plausible scenario that we're going to need a big expansion of generation capacity to cope with the likes of cars moving from petrol to electric power. But I'm left wondering whether we can get our infrastructural and regulatory acts together to enable it to happen. And while we're on electricity, what's happened to the retail electricity pricing review?

- I'm now persuaded (rather belatedly) that prohibiting the Commerce Commission from accepting behavioural undertakings in the context of a merger makes little or no sense. Sarah Keene at Russell McVeagh has been arguing this for yonks, and did again at the workshop, and no doubt others have been pushing the barrow too, and I think it's correct. The Commission might well end up using the power sparingly, but it's better than not having the option at all

Christchurch itself was an eye-opener: there are more swathes of the CBD than I'd expected that are still vacant lots. A lot of reconstruction has already been done, and a good deal more work is underway, but there's still an awful lot left, as the cathedral in particular reminds us.

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