Antitrust around the world: An empirical analysis of the scope of competition laws and their effects

Antitrust Law Journal

Volumn 74, Issue 2, 2007, Pages 271-341

  Hylton, Keith N ^a   Deng, Fei ^b  

^a BOSTON UNIVERSITY   (United States)

^b NERA ECONOMIC CONSULTING   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 34548057539     PISSN: 00036056     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Conference Paper

References (118)

1. Arnold C. Harberger, Monopoly and Resource Allocation, 44 AM. ECON. REV. 77 (1954).
2. George J. Stigler, The Economic Effects of the Antitrust Laws, 9J.L. & ECON. 225 (1966).
3. Richard A. Posner, A Statistical Study of Antitrust Enforcement, 13 J.L. & ECON. 365 (1970).
4. For a single volume that contains many empirical studies of antitrust, see THE CAUSES AND CONSEQUENCES OF ANTITRUST: THE PUBLIC-CHOICE PERSPECTIVE (Fred S. McChesney & William F. Shugart II eds., 1995). In 2003, the Journal of Economic Perspectives published a debate on the effectiveness of antitrust law.
5. See Jonathan B. Baker, The Case for Antitrust Enforcement, 17 J. ECON. PERSP., Fall 2003, at 27;
6. Robert W. Crandall & Clifford Winston, Does Antitrust Policy Improve Consumer Welfare? Assessing the Evidence, 17 J. ECON. PERSP., Fall 2003, at 3. For additional commentary on the Journal of Economic Perspectives debate,
7. see GREGORY J. WERDEN, THE EFFECT OF ANTITRUST POLICY ON CONSUMER WELFARE: WHAT CRANDALL AND WINSTON OVERLOOK (AEI-Brookings Joint Center for Regulatory Studies ed., Apr. 2004), available at http://aei.brookings.org/admin/authorpdfs/page.php? id=933. The most recent empirical studies attempt to assess the impact of competition law using data from a broad sample of countries.
8. See Bernard Hoekman & Hiau Looi Kee, Imports, Entry and Competition Law as Market Disciplines (CEPR Discussion Paper No. 3777, Feb. 2003), available at http://ssrn.com/abstract=392682);
9. Michael Krakowski, Competition Policy Works: The Effect of Competition Policy on the Intensity of Competition - An International Cross-Country Comparison (HWWA Discussion Paper No. 332, Sept. 2005), available at http://ssrn.com/abstract=854908;
10. Stefan Voigt, The Economic Effects of Competition Policy-Cross-Country Evidence Using Four New Indicators (Sept. 2006), available at http://ssrn.com/abstract=925794. For region-specific empirical studies,
11. see Russell W. Pittman, Abuse-of-Dominance Provisions of Central and Eastern European Competition Laws: Have Fears of Over-Enforcement Been Borne Out? 27 WORLD COMPETITION 245 (2004);
12. Maria Coppola Tineo & Russell W. Pittman, Abuse of Dominance Enforcement Under Latin American Competition Laws (Mar. 2006), available athttp://ssrn.com/abstract=888186.
13. Keith N. Hylton, Sean Miller, & Nicola Leiter, Antitrust Around the World Database, Boston University Law School (Aug. 2006) (on file with authors).
14. We have examined the entire sample rather than a subset consisting of the richest countries, developing countries, or some other subdivision. Although it would be worthwhile to examine the effects of competition law in some special set of countries (e.g., developing countries), such a study is beyond the scope of this article.
15. See, e.g., DENNIS C. MUELLER, PUBLIC CHOICE II 320-27 (1989).
16. WORLD ECONOMIC FORUM, GLOBAL COMPETITIVENESS REPORT 2004 at 506;
17. WORLD ECONOMIC FORUM, GLOBAL COMPETITIVENESS REPORT 2003 at 623. The competition intensity measure is based on a survey of a large sample of business leaders and entrepreneurs. See http://www.weforum.org/en/initiatives/gcp/index.htm. The competition intensity survey measure is defined as follows: Intensity of Local Competition: Competition in the local market is 1 = limited in most industries and price cutting is rare; 7 = intense in most industries as market leadership changes over time.
18. For a description of PPP, see infra text accompanying notes 51-52.
19. For example, suppose a country's WEF competition intensity score is 4, and suppose the Scope Index for that country is 15. If the country moved 10 places up on the Scope Index (from 15 to 25), its competition intensity score would increase, all else held the same, from 4 to 4.2. For further discussion, see infra text accompanying notes 50-51.
20. In defense of the subjective measure, we argue that perception is probably accurate in most cases and may be just as important as the "real" level of competition intensity. Perception, rather than reality, will drive the strategies adopted by firms.
21. For another study that attempts to assess the impact of competition law on an objective measure and fails to find a statistically significant impact, see Hoekman & Kee, supra note 4. Voigt also uses objective measures and finds mixed results for his competition law variables.
22. See Voight, supra note 4.
23. Harberger, supra note 1;
24. Stigler, supra note 2;
25. Posner, supra note 3. Among these articles, George Stigler's article is the only one to make international comparisons, though it is limited to the United States and England. In addition to these early studies, we would include in this category other empirical assessments that focus on evidence from the United States alone.
26. See, e.g., Crandall & Winston, supra note 4, at 17-20 (examining industry price-cost margins and the effects of merger enforcement).
27. See Mikyung Yun et al., Competition, Competitiveness and Development: Lessons from Developing Countries, UNITED NATIONS CONFERENCE ON DEVELOPMENT AND TRADE 259-330 (2005), available at http://www.unctad.org/en/docs/ ditcclp20041_en.pdf;
28. Hoekman & Kee, supra note 4.
29. Krakowski, supra note 4;
30. Voigt, supra note 4.
31. Our study builds on the approach in Michael W. Nicholson, Quantifying Antitrust Regimes (FTC Bureau of Economics Working Paper No. 267, Feb. 2004), available at http://ssrn.com/abstract=531124. Nicholson, however, uses a much smaller sample than we use.
32. For discussion of one possible bias in survey measures, see infra text accompanying notes 57-58.
33. See Appendix, Table A4.
34. Nicholson, supra note 16.
35. Id.
36. Brooke Group, Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 240-42 (1993);
37. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 595-98 (1986).
38. See, e.g., Case T-83/91 Tetra Pak Int'l SA v. Commission, 1994 E.C.R. 11-755, 4 C.M.L.R. 726 (1997), aff'd, C-333/94, 1996 E.C.R. 1-5951, 4 C.M.L.R. 662 (1997);
39. Case C-62/86, AKZO Chemie BV v. Commission, 1991 E.C.R. 1-3359;
40. see also John Vickers, Abuse of Market Power, 115 ECON. J. F244, F248 (June 2005).
41. See Appendix, Index Definitions.
42. For examples, see id.
43. For examples, see id.
44. For the individual country templates, we used the following values: mandatory = 3, voluntary =1, premerger = 2, postmerger = 1. With these values, mandatory-premerger = 5, mandatory-postmerger = 4, voluntary-premerger = 3, and voluntary-postmerger = 2. For computing the index measuring the scope of the law, we reduced each of these scores by one, so that the ranking of merger notification regimes increases by one-digit increments from 0 (no requirements) to 4 (mandatory-premerger).
45. See, e.g., Wouter P.J. Wils, The Modernization of the Enforcement of Articles 81 and 82 EC: A Legal and Economic Analysis of the Commission's Proposal for a New Council Regulation Replacing Regulation No. 17, 24 FORDHAM INT'L L.J. 1655, 1656 (2001).
46. See, e.g., William M. Hannay, Transnational Competition Law Aspects of Mergers and Acquisitions, 20 NW. J. INT'L L. & BUS. 287, 291 (2000).
47. CLIFFORD A. JONES, PRIVATE ENFORCEMENT OF ANTITRUST LAW IN THE EU, UK AND USA 46 (1999).
48. Council Regulation 1/2003 of December 16, 2002, Regarding the Implementation of Competition Rules Laid Down in Articles 81 and 82 of the EC Treaty, art. 3(2), 2003 O.J. (L 1) 1, 8.
49. Id.
50. See Wils, supra note 27.
51. See Appendix Table A2 for an example of templates for Belgium based on national law and on EU law.
52. See Appendix Table A6 for a list of the countries within each region.
53. One possibility is that the relatively poor countries have competition laws "on the books" but devote few resources to their enforcement. But the law-making process is itself costly, given that scarce legislative capacity devoted to drafting competition laws could instead be invested in other laws that might have a more immediate effect on social welfare (e.g., increasing the supply of mosquito nets). Even if the competition laws are rarely enforced in relatively poor countries, they may have a substantial effect on incentives if the penalties associated with violations are high.
54. The Dominance Scores were computed by summing all of the points in each country's template for the various types of conduct that are prohibited under the dominance section. For example, in the case of New Zealand (Table A1), the Dominance score is 4.
55. The list of practices included under the topic Restrictive Trade Practices is as follows: price fixing, tying, market division, output restraints, market sharing, eliminating competitors, bid rigging, and supply refusal. See Appendix Table Al.
56. Some commentators have urged precisely this policy for developing countries, especially Latin America. See Malcolm B. Coate et al., Antitrust in Latin America: Regulating Government and Business, 24 U. MIAMI INTER-AM. L. REV. 37, 81 (1992).
57. RICHARD A. POSNER, ANTITRUST LAW: AN ECONOMIC PERSPECTIVE 214-16 (1976).
58. P.T. BAUER, REALITY AND RHETORIC: STUDIES IN THE ECONOMICS OF DEVELOPMENT 27-35 (1984). More recently, the risk that interventionist laws could retard development has been raised in the context of competition laws adopted by transition economies.
59. See Paul E. Godek, A Chicago-School Approach to Antitrust in Developing Nations, 43 ANTITRUST BULL. 261 (1992);
60. William E. Kovacic, Institutional Foundations for Economic Legal Reform in Transition Economies: The Case of Competition Policy and Antitrust Enforcement, 77 CHI.-KENT L. REV. 276 (2001);
61. Armando E. Rodriguez Sc Malcolm B. Coate, Limits to Antitrust Policy for Reforming Economies, 18 HOUS. J. INT'L L. 311 (1996).
62. The list of restrictive trade practices includes tying, which complicates our argument a bit. Although tying was traditionally viewed by U.S. courts as a practice that could not be justified on consumer welfare grounds, see, e.g., Standard Oil Co. of California v. United States (Standard Stations), 337 U.S. 293, 305-06 (1949) (holding that tying agreements serve hardly any purpose beyond the suppression of competition), the law now is recognizing that there are efficiency defenses for tying.
63. See Mikyung Yun et al., supra note 14;
64. Hoekman & Kee, supra note 4.
65. Krakowski, supra note 4;
66. Voigt, supra note 4.
67. Perhaps the closest study to this one is Voigt, supra note 4. Voigt uses a sophisticated survey measure of competition law. The surveys were completed by competition authorities in many countries. One question generated by Voigt's approach is whether a sample heavily weighted with survey evidence from competition authorities might bias the regression results. If competition authorities tend to exist only in the countries that are relatively competitive, a regression analysis that shows that competition law (as described by authorities) tends to improve some objective measure may suffer from sample selection bias. Rather than relying on evidence directly from authorities, our study attempts to code information from all of the competition statutes around the world. Another fairly close study in terms of methodology is Krakowski, supra note 4. The Krakowski study relies on the World Economic Forum's survey measures of the intensity of local competition and for the effectiveness of antitrust policy. He finds that the perceived effectiveness of antitrust policy is associated positively with the perceived intensity of competition. In this study, we have avoided using survey measures as both dependent and independent variables, for reasons explained in the text accompanying notes 54-56.
68. Abba P. Lerner, The Concept of Monopoly and the Measurement of Monopoly Power, 1 REV. ECON. STUD. 157, 157-75 (1934).
69. See, e.g., MICHAEL D. INTRILIGATOR, MATHEMATICAL OPTIMIZATION AND ECONOMIC THEORY 207-09 (1971).
70. Estimating the years separately yields results similar to those reported in the table. Also, including dummy variables for regions does not change the results. We do not consider the sample to have sufficient variation (especially in the Scope Index) to make a fixed effects regression useful at this stage. As the sample is expanded, fixed effects regressions should look more promising.
71. Specifically, Peru would move from 46th place to 36th place based on the 2003 WEF's Competition Intensity survey results.
72. As the American experience suggests, a competition law may have been in effect for many years, and yet the law may have changed substantially over that period. Competition laws in particular are almost always in a process of revision. The Age of Competition Law variable in our regressions measures the age of the statute from the enactment date of its key parts. For example, the U.S. competition law's age is measured from 1890, the enactment year of the Sherman Act. No effort has been made to incorporate significant changes, such as the enactment of additional legislation (e.g., the 1914 Clayton Act).
73. See Krakowski, supra note 4, which discusses learning curve effects. If learning effects dampen as the time increases, then the marginal impact of an additional year after having a law for ten years is smaller than that of the additional year after having a law for five years.
74. Recall that the Cournot competition model introduced at the start of this discussion pointed to three determinants of competition intensity: the demand shift parameter, the cost parameter, and the number of firms. GDP per capita probably impacts at least two of these parameters because a wealthier economy will attract more firms and also generate a greater demand for goods. The positive estimate for GDP per capita suggests that the market-expanding effect of increasing national wealth is greater than the demandenhancing effect.
75. Of course, the core of the problem here is that there are no good objective proxies that would allow us to assess competitive intensity across countries. An alternative to using PPP is to use the GDP deflator multiplied by the Purchasing Power Parity index. For this approach see Helmut Ziegelschmidt et al., Product Market Competition and Economic Performance in Australia (OECD Working Paper No. 451, Oct. 2005), available at http://ideas.repec.Org/j/K20.html. The GDP deflator is often used to measure relative prices over time within an economy. However, as most publicly available GDP deflator series do not use common base periods, it is unclear that additional accuracy could be gained by using this approach instead of the direct comparison of PPPs.
76. Rafael La Porta et ai., The Quality of Government, 15 J.L. ECON. & ORG. 222 (1999).
77. Id.
78. MCCHESNEY & SHUGART, supra note 4, at 255-70.
79. On the problems generated by using instruments that are weak explanatory variables for the endogenous variables, see John Bound et al., Problems with Instrumental Variables Estimation when the Correlation Between the Instruments and the Endogenous Explanatory Variables Is Weak, 90 J. AM. STAT. ASS'N 443 (1995).
80. See Statutes of New Zealand, New Zealand Parliamentary Council Office, available at http://www.legislation.govt.nz/browse_vw.asp? content-set=pal_statutes.
81. Competition Act, at 795.
82. Id. at 795.
83. The new merger notification guidelines implemented by Council Regulation 139/2004 give undertakings the ability to request exemption from notification requirements. However, because a formal request must be submitted and approved in order to gain exemption, the new notification guidelines are encoded as requiring mandatory pre-merger notification.
84. EC Competition Law, at 97.
85. Id. at 283.
86. Id. at 97.
87. For example, "This Act shall also apply to all economic activities of [foreign companies], if their actions have a substantial effect on the market of Bosnia and Herzegovina ...." The Act on Competition, art. 2 (2005) (Bosn. & Herz.), available at http://www.bihkonk.gov.ba/en/laws/ low_on_competition_new.pdf [hereinafter Bosnia Competition Act].
88. For example, "[T] he [competition council] may require ... the separation or divestiture of the merged undertakings or assets ... in order to restore effective competition." Act LVII of 1996 on the Prohibition of Unfair and Restrictive Market Practices, art. 31 (2005) (Hung.), available at http://www.gvh.hu/data/pdf/jogi_hatter_mj_tpvt_2005nov1_a.pdf [hereinafter Hungary Competition Act].
89. For example, "Any person who is aggrieved in consequence of any [prohibited practice] shall have a right of action under this subsection for relief ...." Competition Act § 6 (2002) (Ir.), available at http://www.tca.ie/.
90. For example, "A market participant who deliberately or by carelessness violates the provisions ... of this Law shall cover the losses which ... have been caused to another market participant or party to a contract." Competition Law, § 21 (2001) (Lat.), available at http://www.competition.lv/uploaded_files/ENG/E_likumKpdf.
91. For example, "Persons who participate in a case shall have the right: to familiarize themselves with the materials of the case ... ; to provide evidence, to submit applications, verbal and written explanations ..." Law of Ukraine on the Protection of Economic Competition, arts. 39-40 (2001) (Ukr.), available at http://www.globalcompetitionforum.org/regions/ europe/Ukraine/LEGISLATION.pdf.
92. The scoring in this area breaks from a basic dummy variable scheme in order to preserve accurate ordering of the relative severity of different Merger Notification regimes. Under this scoring scheme, a Mandatory Pre-Merger regime receives a 5, a Mandatory Post-Merger regime receives a 4, a Voluntary Pre-Merger regime receives a 3, a Voluntary Post-Merger regime receives a 2, a Voluntary regime that makes no mention of a time requirement is assumed to be "Post-Merger" and therefore receives a 2, and a regime that makes no mention of a notification requirement receives a 0. For construction of the Scope Index, each score was reduced by 1.
93. For example, "[A]ny person or enterprise, who or which proposes to enter into a combination, may, at his or its option, give notice to the commission ... disclosing the details of the proposed combination[.]" The Competition Act, art. 6(2) (2002) (India), available at http://www.competition-commission-india.nic.in/Act/competition_act2002.pdf.
94. For example, "Where a merger is proposed each of the undertakings involved must notify the Commission of the proposal in the prescribed manner." Competition Act, No. 92, art. 44(1) (2003) (Namib.), available at http://www.globalcompetitionforum.org/regions/africa/Namibia/ACT511.pdf [hereinafter Namibia Competition Act].
95. For example, "A business operator shall not carry out a business merger ... unless the Commission's consent is obtained." Competition Act, B.E. 2542, § 26 (1999) (Thail.), available at http://www. globalcompetitionforum.org/regions/asia/Bangkok/Bankok%20Act.pdf.
96. For example, "A party to a [regulated] merger shall notify the Commission of the proposed merger within 30 days of the conclusion of the merger agreement between the merging parties; or the acquisition by any one of the parties to that merger of a controlling interest in another." Zimbabwe Amended Competition Act, art. 12 (2001) (Zimb.), available at http://www.globalcompetitionforum.org/regions/africa/Zimbabwe/ Competition%20Amendment%20Act.pdf.
97. For example, "A concentration which creates or strengthens a dominant position in the affected markets ... shall be declared [illegal]." Law to Provide for the Control of Concentrations between Enterprises for the Purposes of Protection of Effective Competition, No. 22(1), art. 10 (1999) (Cyprus), available at http://www.competition.gov.cy/competition/ competition.nsf/All/5790CF902F3E4AA5C2256F01003CF9A7/$file/concentration. pdf?OpenElement [hereinafter Cyprus Competition Law].
98. For example, "The Authority may refuse to approve a merger or acquisition if it is satisfied that the merger or acquisition would substantially lessen competition in Jersey or any part of Jersey." Competition (Jersey) Law 2005, art. 22(4), available at http://www.jcra.je/pdf/051101%20Competition-Jersey-Law - 2005.pdf.
99. For example, "[A decision to make a certain practice illegal] may not be applied to ... concentrations that contribute to the improvement of production or distribution of goods and services or the promotion of technical or economic progress [while] allowing consumers a fair share of the resulting benefit ...." Bosnia Competition Act, art. 7.
100. For example, "The Commission shall declare a concentration as compatible or incompatible with the requirements of the competitive market after taking into account ... the interests of intermediate and final consumers ...." Cyprus Competition Law, art. 12.
101. For example, "The Commission may base its determination of a proposed merger on any criteria which it considers relevant [including] the extent to which the proposed merger would be likely to affect the ability of small undertakings, in particular small undertakings owned or controlled by historically disadvantaged persons, to gain access to or to be competitive in any market[.]" Namibia Competition Act, art. 47(2)(f).
102. For example, "[The Commission may consider] any benefits likely to be derived from the proposed merger relating to research and development, technical efficiency, increased production, efficient distribution of goods or provision of services and access to markets." Id. art. 47(2)(h).
103. For example, "It shall be prohibited ... to limit production, distribution or technical development to the prejudice of consumers[.]" Hungary Competition Act, art. 21.
104. For example, "It shall be prohibited to abuse a dominant position ...." Id.
105. For example, "It shall be prohibited ... to set unfair purchase or selling prices ...." Id.
106. For example, "It shall be prohibited ... in the case of transactions which are equivalent in terms of their value or character to discriminate, without justification, against trading parties including in relation to the application of prices, periods of payment, [etc.]" Id.
107. For example, "[Illegal acts include] any agreement, decision, or concerted practice which ... involves a practice of minimum resale price maintenance[.]" Namibia Competition Act, art. 23(3) (d).
108. For example, "[A dominant Enterprise] is prohibited from abusing this Dominant Position in order to prevent, limit, or weaken competition including ... [performing an] activity or action which leads to setting barriers of entry of other Enterprises to the market ...." The Competition Law, No. 33, art. 6(b) (2004) (Jordan), available at http://www. internationalcompetitionnetwork.org/media/archive0611/mergerjordanlaw.pdf.
109. For example, "The Commission may ... grant an exemption for [an] agreement [if] ... the agreement results or is likely to result in benefits to the public [such as] by contributing to greater efficiency in production or distribution; by promoting technical or economic progress [etc.]" The Fair Competition Act, art. 12 (2003) (Tanz.), available at http://www.parliament.go.tz/Polis/PAMS/Docs/8-2003-2003.pdf.
110. For example, " [Agreements involving] the direct or indirect fixing of purchase or selling prices or other business terms and conditions [are prohibited.]" Hungary Competition Act, art. 11.
111. For example, "[M]aking the conclusion of contracts subject to the acceptance of obligations which, by their nature or according to commercial usage do not belong to the subject of such contracts [is prohibited.]" Id.
112. For example, "Prohibited are all agreements between economic subjects, associations and concerted practices relating to ... the division of markets or sources of supply of goods and services[.]" Bosnia Competition Act, art. 4(c).
113. For example, "Agreements or concerted practices [relating to] the limitation or control of production, distribution, technical development or investment [are prohibited.]" Hungary Competition Act, art. 21.
114. For example, "Agreements or concerted practices [relating to] the allocation of markets, exclusion from sales, or restriction of the choice of marketing possibilities [are prohibited.]" Id.
115. For example, "Agreements or concerted practices between undertakings ... which have as their object or potential or actual effect the prevention, restriction, or distortion of competition, shall be prohibited." Id.
116. For example, "[T] he collusion of competitors during the bidding process [is prohibited]." Id. art. 21.
117. For example, "[C]oncerted refusals to supply goods or services to potential purchasers [are prohibited.]" Malawi Competition and Fair Trading Bill, § 33(3) (f) (1998) (Malawi), available at http://r0.unctad.org/en/subsites/cpolicy/Laws/malawi.pdf.
118. See supra note 25.