Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Archive for the ‘The Economist Corner’ Category

Economics in competition law

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Nicolas’ post from yesterday was somewhat of a declaration of lawove to economics. However, as the post noted, in my personal case this love is not at all unconditional.

Nico’s post stated that the “reptilian reflex of dismissing economics as a source of legal uncertainty is misguided“, but acknowledged that “on this point Alfonso has more nuanced views that he will develop here“.

So, here they are.

Those “more nuanced views” have been recently developed in a couple of pieces co-written by Luis Ortiz Blanco and by myself (one was presented at Fordham’s Annual Conference and the other at a GCLC Annual Conference, and both are about to be published as part of the proceedings of these two events). In these papers we argue that the growing influence of economics in competition law enforcement has brought about many positive consequences, but that we should be mindful of letting the about pendulum swing too far. We submit that there is a limit to the concessions that a legal regime can make without renouncing its nature, and that effects-based legality tests might approach decision-making to economic divination to the prejudice of legal certainty.

I’m conscious that these thoughts may not appear be shared by the mainstream (I don’t expect them to make me the most popular guy if I go to Place Lux for a drink tonight). Nevertheless, I do tend to think that there is a silent large minority/majority that supports these ideas. In fact, a very prominent European Commission official read outloud the following paragraphs from one of our papers at a conference held two or three months ago (by the way: he said he liked them, not that he endorsed them), and invited the attendants to reflect on them:

(If interested, click here to continue reading)

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Written by Alfonso Lamadrid

1 March 2012 at 2:18 pm

The Economist Corner (1) – When State aid rules get seriously wrong…

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Unlike many lawyers who keep on bashing the use of economics in competition proceedings, Alfonso and I love antitrust economics. The reptilian reflex of dismissing economics as a source of legal uncertainty is misguided (although on this point Alfonso has more nuanced views that he will develop here). As explained by J. Sims, the introduction of economics in competition law, and the ensuing flexibility of competition analysis does not necessarily mean that legal certainty is degraded. Antitrust economics help channeling discussion in competition proceedings. It has helped define more accurate theories of harm (the boundaries of infringements) and the requirements necessary for them to fly (the conditions of infringements). And those concerned that opening the gates to antitrust economics means accepting the Trojan horse of small, Chicago-like, antitrust policy should think of a minute to how economists have helped enlarging the scope of competition law in the past decades. Examples of such expansions abound, with doctrines such as collective dominance, below-dominance unilateral effects, raising rivals’ costs, etc.

With this background, and to help our lawyer-friends feel more at ease with economics, we have decided to create a new, bi-monthly column on this blog, called “The Economist Corner”. Our first invited blogger for this column is Benoît Durand from RBB Economics. It would take too long to go through Benoît’s full biography, but as most of the guys we like here, Benoît has a wealth of experiences, having worked as an official in COMP and at the UK Competition Commission, and being the author of a Phd. in Economics from Boston College. More importantly, Benoît is a fun person to have a beer with – we did a natural experiment of this 2 weeks ago – and a huge rugby fan.

For his first column, Benoît has decided to focus on State aid in the Banking sector. As with our posts, this post reflects Benoît’s own, personal opinions,  which cannot be attributed to the firm he works for. We hope you’ll enjoy the reading.

When the financial crisis hit the banking sector in 2008, some European governments had to step in to rescue banks in order to avoid a financial meltdown.  For example, Gordon Brown, the UK prime minister, announced in October 2008 that the government would inject capital in some of the major banks, Lloyds TSB, Royal Bank of Scotland and HBOS.  Little did he know that these capital injections violated state aid rules, which meant that in return for being saved from bankruptcy, the banks had to severe a limb to satisfy Brussels.

The European Commission enforcement of State aid rules is based on the view that government rescue distorts competition.  That is, the public capital injection gave the recipient banks an unfair competitive advantage, and in return for this advantage, the bailed out banks had to be penalised so as to restore the level playing field.

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Written by Nicolas Petit

29 February 2012 at 8:44 pm