Abstract
We contribute to the debate on the optimal structure of Competition Authorities (CAs), a debate of particular relevance in younger developing country jurisdictions. We propose a model of a reputation-maximizing CA in which reputation is increasing with enforcement success. This predicts that generalist CAs will focus on decisions in activities with low probability of annulment and low investigation and litigation costs and that this could be detrimental to welfare (relative to the more balanced activity portfolio of specialist CAs). We use a data set of appealed decisions of the Russian CA to provide an empirical support for the model’s assumptions and predictions.
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Notes
With a degree of independence that varies quite a lot between countries—see (Jenny 2016, Section 4).
See for an extensive discussion of these assumptions and of empirical evidence, as well as for a review of related theoretical work, Schinkel et al. (2014) and Katsoulacos (2017).
That of the Dutch Authority (ACM).
A review of which CAs have, in the last 15 years or so, been structured for a more generalist and which for a more specialist structure is given in Jenny (2016).
The debate on institutional design and the review by Jenny (2016) extends to issues of the goals of CAs and of the organization of antitrust institutions more generally. Here our focus is more narrow: We are concerned with the institutional structure purely in terms of whether this is specialist or a generalist one.
Jenny (2016) points to Korea, Australia, Finland, Iceland and Japan. See pages 15–17.
We note that issues concerning “Unfair competition has increasingly been a focus of antitrust agencies around the world, a trend that raises difficult questions …”, see Wong-Ervin et al. (2017).
Often as exploitative abuses—see also below.
Incentives may also be influenced by direct political involvement in the CA’s decisions, an issue that we do not consider here.
When the criteria are welfarist, sometimes the term “impact assessment” in used; see, for example, the UK Competition and Market Authority’s (CMA’s) “Impact Assessment 2015–2016”.
The model is a simplified version of the model developed in Katsoulacos (2017).
Overall utility is given by adding utility from enforcement in all activities.
A more general utility function is used in Katsoulacos (2017), in which utility depends on both reputational concerns and welfare impact concerns of enforcement. Utility function (1) can be thought of as most appropriate for cases where CAs do not operate under welfarist performance criteria. We consider this as a suitable modeling choice here given our primary objective, which, as noted above, is to examine the question of whether non-welfarist performance criteria (often used to assess CAs) and, hence, non-welfarist CA objectives, especially in developing countries, are consistent with the CAs’ institutional structure.
This is certainly the case for the two broad class of activities that we examine empirically below for FAS: Proper Antitrust (PA) and Non-Proper Antitrust (NPA) cases, which are defined in detail below.
E.g., because of deadlines that are imposed by law that require the CA to reach decisions within a certain period once a case is filed. Alternatively, we can plausibly think of \(c_{k} \underline{D}_{k} \;\) as the budget over which the division k in the CA is given direct responsibility (so the assumption is that each division has some but not complete autonomy in the way the overall budget is divided).
So the dataset consists of appealed infringement decisions made by FAS. To understand the large scale of enforcement it should be mentioned that FAS is today the largest CA in the world with about 3000 employees. We comment below (Sect. 4.4.6) on the apparent inconsistency of using for the empirical analysis appealed infringement decisions while the model's predictions concern the decisions of the Competition Authority.
One could think of NPAs as representing excessive enforcement against what EU competition law calls “exploitative abuse”.
By quality here we essentially mean “enforcement success”: the probability that decisions are not annulled.
Commercial court, in Russian terms.
Depending on the specification of the estimated model and remembering that the dependent variable is the natural logarithm of months.
For which reputation is increasing in enforcement success.
Section 4.3 above and remarks below.
That is, the probability that an infringement decision is appealed times the probability that an appealed decision is annulled.
What we establish is that the conditional probability of annulment is higher for PA than for NPA decisions.
Even though the welfare impact of this may be negative (Proposition 3).
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Support from the Basic Research Program of the National Research University Higher School of Economics and from the Research Program DRASI II of the Athens University of Economics and Business is gratefully acknowledged.
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We are grateful for the comments and suggestions from the participants at the 2nd WCCE Conference in St Petersburg (15–17 June 2017) and at the 12th CRESSE Conference (30 June–2nd July 2017) and, particularly, from Paulo Furquin de Azevedo, Boris Begovic, Frederic Jenny, Louis Kaplow, Martin Peitz, Maarten Pieter Schinkel, and David Ulph. Also, we are grateful for the many constructive comments from Tom Ross and two referees. Of course, all errors and ambiguities remain our sole responsibility.
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Avdasheva, S., Golovanova, S. & Katsoulacos, Y. Optimal Institutional Structure of Competition Authorities Under Reputation Maximization: A Model and Empirical Evidence from the Case of Russia. Rev Ind Organ 54, 251–282 (2019). https://doi.org/10.1007/s11151-018-9640-1
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DOI: https://doi.org/10.1007/s11151-018-9640-1