Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

What drives academic writings in competition law and economics?

with 4 comments

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Are academic writings in competition law and economics driven by the (pecuniary) interest of commentators? Wouter Wils raised this important question in his instant classic on the Intel judgment. He speculated that the popularity of the so-called ‘more economic approach’ might be driven by an attempt of practitioners and practice-oriented academics to feed their own business and to re-shape the law in a manner that is advantageous to their (generally large and powerful) clients – and at the expense of smaller businesses and consumers. This intuition has recently been explored by Jan Broulik in a working paper. He comes to the conclusion that, indeed, it is plausible that scholarly commentators are driven by self-interest.

This question is relevant outside the narrow area of competition law. It should be discussed more often (and more openly), just as it is done in the US (see here for a recent example, from which I took the picture above). It is the sort of issue that may be widely acknowledged but rarely ever finds its way in articles and/or conferences. In this sense, the effort of the two authors is valuable and should be commended.

As any first attempt to explore an issue, these two papers raise a number of questions, which I hope will be explored in future work. Here are some thoughts.

The premise of the two articles

One key question relates to the premise on which the articles are based. If one reads them carefully, it appears that their central thesis rests on the idea that their preferred approach to the interpretation and enforcement of EU competition law is the only reasonable one. The prima facie prohibition of exclusivity agreements, Wils argues, is ‘legally but also economically sound, whereas the alternative so-called “more economic approach” is unsound and not fit for the purpose of interpreting Article 102 TFEU’. Similarly, Broulik claims that advocates of a case-by-case analysis of certain practices favour the ‘supra-optimal’ use of economics.

These substantive positions are reasonable and defensible. More controversial, however, is the conclusion that the authors draw from them. The two papers appear to suggest that, since their approach is the only reasonable one, advocates of alternative approaches must be driven by spurious motivations. But is it really the case that no reasonable and impartial person would favour the case-by-case analysis of some practices? Is it axiomatic that bright-line rules provide the optimal approach to the interpretation and enforcement of EU competition law? I am not sure many readers will find these claims particularly persuasive.

I like to think of myself as a reasonable and impartial person, and I do not agree that a rule-based approach makes sense in relation to certain (in fact, most) practices. And I believe that other people can reach this same conclusion without being driven by spurious motivations. For instance, I also like to think of the judges at the ECJ as reasonable and impartial, and they have in several occasions refused to adopt a rule-based approach when expressly invited to do so. In judgments like Delimitis, Coditel II, Post Danmark I and Deutsche Telekom, just to name a few milestones, they took the view that a case-by-case approach was appropriate.

In a different vein, I note a certain tendency by the two authors to equate ‘case-by-case’ and ‘fully-fledged economic analysis’. I believe it is dangerous to conflate the two, as it may obscure the discussion. The case-by-case analysis need not resort to full-scale balancing. It can – it should – be structured around a series of administrable proxies that give a sense of the likely effects of a practice. Just think of usual factors like market shares, the coverage of the practice or its duration.

The importance of the administrability of standards (and thus the need to rely on proxies and to avoid full-scale balancing) has always been acknowledged by economists with a solid grasp of the law (like Jorge Padilla) and even by the most Chicagoan of Chicagoans (like Frank Easterbrook and Richard Posner). In fact, those who argue in favour of a ‘fully-fledged economic analysis’ are, I guess, a small minority.

What is in the mind of an academic?

Another aspect that is worth exploring systematically in future work relates to the way academics think. The authors model only imperfectly the incentives of academics – who they are and what drives their activities. If this modelling is to be done rigorously, it is necessary to take into account that academics – typically talented students – willingly forego lucrative careers because they place more value on independence of thought and on freedom to work on whatever they find interesting.

In this sense, it is also necessary to take into account that a successful academic career – and, in the same vein, respect among academic peers – depends on work that has little or nothing to do with consulting. In fact, consulting work is more likely than not to be a distraction and a hindrance.

I would have been interested to see in one of the papers an attempt to match the theoretical intuitions of the authors with an empirical analysis of the work of leading academic lawyers and economists. Does the actual work of individual academics support their tentative conclusions?

It should be possible to address this question. The substance of academic work could be classified in accordance with certain criteria. As I write this, I think of some of the leaders of the profession in Europe (e.g. Ariel Ezrachi, Ioannis Lianos, Giorgio Monti) and I do not believe their work supports the proposition that academic research is generally – not even on average – pro-big business or anti-intervention.

What is the contribution of the pieces?

I was left thinking, after reading the two pieces, whether they had an important point to make after all. One possibility is to interpret the two articles as claiming that academic research in competition law and economics should be presumptively distrusted as it might be driven by the pecuniary interests of the authors. If that is the case, I am not sure that casting pre-emptive doubts over all research work on the basis of mere speculation counts as a meaningful contribution to our understanding of any phenomenon, whether simple or complex.

Another possibility is that the authors intend to highlight the fact that some research by some academics is specifically prepared to serve the interests of a particular client. If that is the point, it is one that we all knew before the two papers came out. I guess the real question is not whether this happens – because it does and it is not a secret – but whether it is a problem in the first place. That, I think, is a most important debate that it is worth having.

My own impression is that it is always preferable to play the ball, not the man. For instance, I do not believe that the idea of patent hold-up should be rejected simply because it might have originated in research funded by Intel. It should be taken seriously, and its validity tested theoretically and empirically, as many have done in the past few years. As Judge Forrester pointed out at the end of our conference back in November, we get closer to the truth by engaging with conflicting (and sometimes biased) ideas, not by summarily dismissing them.

Written by Pablo Ibanez Colomo

23 January 2017 at 11:35 am

Posted in Uncategorized

4 Responses

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  1. First of all, for anyone working on competition it is obviously difficult to deny the proposition that incentives matter. (Or to accept that proposition but to exclude academics and/or public authorities.)

    That said, economics as a science works better as a theory of how groups behave – or how the average person behaves – than as a theory of how a given individual behaves. “Incentives matter” is more useful as a statement about the competition tribe than as a statement about a given academic.

    As a statement of economics, “incentives matter” is always going to be a statement about changes relative to a counterfactual without consulting work. All else equal, consulting work will result in academics taking more pro-business views than they otherwise would. That is not the same as saying that all academics who do consulting work only ever say things that benefit their clients.

    As a statement about groups of people rather than about individuals, “incentives matter” is a useful thing to point out when you accept that the volume of weight on each side of a given debate sometimes matters. For example, I (shamefully) still haven’t gotten around to reading AG Wahl’s Intel opinion, or any analysis of it other than a few blog posts. So my tentative opinion will be based on a casual, unscientific impression of the weight of opinion that favours it or criticises it. And when I take into account that “incentives matter”, my impression will be different. Such a starting point would lead me to downweight the opinions of academics who do paid work for Intel or companies in a similar position as Intel, which probably would cause me to be more critical about the opinion. And while in theory that will become irrelevant once I finally read it, realistically the expectations you have going into an opinion or judgement will affect your assessment, particularly on first reading.

    Finally, I would like to note for the record that I’ve always found “incentives matter” to be a relatively weak theory of (regulatory) capture. In my experience, capture is less about incentives and more about groupthink, about adopting the modes of reasoning and the perspectives of the people that you deal with on a daily basis. But that is an approach that my psychologist brethren are better equipped to pursue than me.

    martinned

    23 January 2017 at 5:54 pm

  2. Pablo,
    I think there are some goods arguments, going in the same direction of yours, in C. Ahlborn, A.J. Padilla, From Fairness to Welfare, in Ehlermann, Marquis (eds), European Competition Law Annual 2007: A Reformed Approach to Article 82 EC (2008 Hart), p.83.

    Luca

    25 January 2017 at 10:38 am

  3. I agree Pablo. It’s a cheap shot to say that consultants and academics are habitually biased in favour of who pays them. In my experience, clients may well choose experts who have published ideas that are sympathetic to their case, so the causation may well be the other way. If there is a corpus of sympathetic literature, what is a client expected to do? Ignore it? Experts owe obligations to the court and being an expert is not a one-shot game. If they loose credibility and persuasiveness, they lose their livelihood. So the best experts may rule themselves out of consideration by virtue of their honesty with the client; others may espouse arguments in which they believe. There are, of course, dud experts (as there are dud lawyers), but natural selection takes over, and they go off to find more sympathetic jurisdictions. The standard of economic evidence has never been higher.

    The worrying point, though is less “rules” versus “economic approach”, which I think is a false distinction, but how we manage complex litigation involving economic thinking and theories, and occasionally data. Already competition proceedings are among the most complex, long-lasting and expensive examples of litigation, which either clog up the courts and tribunals or scare litigants away, as well as creating significant deadweight losses. The higher courts should be obliged to offer guidance (ie some version of “rules”) albeit in extreme situations rules which are capable of modification, but with a strong presumption they will be followed. In other words, each case should not be regarded as open season to apply whatever theory is in vogue, and Intel is a good example of this. But this would be strengthened by some guidance from the economist community to arrive at consensus (albeit possibly inevitably temporary as the paradigm changes). In crime we do not ask if theft can be justified by reference to the diminishing marginal utility of money to the rich person and the welfare enhancing role of the informal redistribution. We have a rule about stealing. The failure to arrive at an anti-trust consensus on some quite fundamental issues leads me (sometimes!) to think that the piecemeal adversarial litigation anti-trust model is not apt and a more dispassionate, inquiry is needed to examine key business practices in order to lay down an agreed taxonomy which can be applied in future thus contributing to certainty. And in this endeavour we might learn something from business history, of how companies adapted to, suppressed or beat competition in the past. There are some excellent studies but they are ignored as useful evidence of how corporate organisms behave in certain situations.

    I am not sure we can go on as we are as the courts are already exhibiting an impatience which probably favours competition agencies and defendants, for the wrong reason. Also, agencies and governments are looking at ways of tightening up the right to appeal or review as a reaction to the costs and delays in the present situation.

    Tom Sharpe QC

    25 January 2017 at 4:16 pm


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