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Competition

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									Competition

Capability statement
Competition                                                                                          2


The fundamentals of competition law are economic in nature: What is the market within which a
firm competes? Does a company enjoy market power? How do particular business practices or
agreements affect competition? Will a merger lead to higher or lower prices?
Economics provides a powerful toolkit for understanding the mechanisms of competition, but
ultimately these questions are empirical ones. Careful analysis of market data within the right
conceptual framework can provide robust answers and be decisive in competition cases.
Authorities now increasingly expect claims by parties to be backed up by proper statistical tests.
DotEcon has advised leading companies, providing economic analysis in cases before UK and
European competition bodies. We have explored new aspects of competition policy for both the
European Commission and national competition authorities. Our expertise in industrial
economics, game theory and quantitative methods is backed up with practical experience of
abuse cases and mergers across many different industries. We provide advice on the full range of
competition matters that is rigorous and insightful, yet always relevant to our clients’ needs.

The economics of competition

Co-operative relationships lie behind many modern business models. However, competition
law limits the agreements that firms can enter into. At what point does a legitimate business
practice cross the line and become an anti-competitive agreement? A particular form of
agreement might be beneficial in one industry, yet detrimental in another. Economic
analysis is vital to understanding whether agreements distort competition or are simply
providing an efficient mechanism for parties to work together.
When does a firm have market power? Assessing dominance involves understanding the
competitive constraints faced by firms. Customer behaviour is central in determining the
nature of rivalry. Econometric analysis and advanced survey techniques can explore the
motivations of customers in choosing between alternative suppliers. These techniques can
provide robust evidence about how competition actually works in a particular market.
Increasingly, we may need to look beyond immediate competition on price amongst the
current set of suppliers and consider the role of entry, expansion and innovation in shaping
dynamic industries.
Economic analysis is critical in answering difficult hypothetical questions about the impact of
mergers on competition. Increasingly, competition authorities are analysing contentious
mergers through a combination of econometric techniques to understand demand and cost
conditions with game-theoretic models to understand how incentives to compete might be
changed.

DotEcon experience
We have worked on the full scope of competition cases involving vertical and horizontal
agreements, mergers and acquisitions, and the alleged abuse of a dominant position. Our
expertise includes:

   •   Market definition: The assessment of demand side substitutability between products
       and services and the estimation of demand elasticities. We are experienced in survey
       design and customer data analysis, including techniques such as conjoint analysis. We
Competition                                                                                     3


       have worked extensively in innovation-intensive sectors (such as telecoms) where
       supply-side substitutability can be important for market definition.

   •   Assessment of market power: Competition works differently in different industries and
       the identification of market power is ultimately an empirical matter. We are
       experienced in deploying a wide range of quantitative techniques, including
       profitability and financial analysis, and interpreting soft evidence in order to
       understand the competitive constraints on firms’ behaviour.

   •   Identifying abuse of a dominant position: Abuse may take many forms, including refusal
       to deal, tying, discriminatory or predatory pricing, price squeezing or raising rival’s
       costs. In many cases, for example with selective discounts and quantity-based pricing,
       the overall impact on consumers may be difficult to assess and there may be efficiency
       defences. We have worked with clients to understand the effects of particular
       behaviours, deploying a full range of economic tools including game-theoretic
       modelling and econometric analysis, but always informed by careful scrutiny of how
       real-world business processes work.

   •   Design of remedies and undertakings: Where a potential competition problem has been
       identified, obligations are often imposed to remedy the problem. We have assisted in
       the design of such remedies by analysing the incentive effects of rules and obligations.
       We have undertaken cost-benefit analyses of interventions.

   •   Merger analysis: We have assisted parties both defending and objecting to mergers. In
       some sectors with tipping point effects (such as media) assessing the impacts of
       mergers may be highly contentious. Whether a merger benefits or harms consumers,
       can only be determined on a careful empirical analysis, especially of demand and cost
       conditions. We can deploy econometric analysis and merger simulation techniques to
       aid such assessments.

We have advised clients in European and UK competition inquiries, and provided support in
the judicial review of decisions by the Courts. Our staff has provided expert reports to many
courts, including the UK Competition Appeal Tribunal and the EC Court of First Instance. For
example, we have supported:

   •   MBNA Europe Bank Limited in the market investigation by the UK Competition
       Commission into Payment Protection Insurance services. We advised on market
       definition, the nature of competition, and pricing and profitability analysis;

   •   Thomson Directories in the UK Competition Commission market study on Classified
       Directory Advertising Services. We conducted analysis of the lifetime profitability of
       Thomson in this highly concentrated sector. We help our client understand the
       special features of how competition works in this unusual two-sided market;

   •   MasterCard International in proceedings regarding interchange fees – payments made
       between the banks of the merchant and the buyer involved in a transaction – before
       the UK Office of Fair Trading, and MasterCard in its appeal of the OFT decision before
       the Competition Appeal Tribunal, which resulted in the OFT’s decision to be set aside.
       We have supported MasterCard in similar proceedings regarding the setting of cross-
       border interchange fees before the European Commission, Poland, Germany, South
       Africa and New Zealand;
Competition                                                                                     4


   •   The Independent Music Publishers and Labels Association (Impala) in its appeal of the EC
       decision to clear a joint venture between the recorded music businesses of Sony and
       Bertelsmann Media Group before the Court of First Instance. We assessed the
       robustness and validity of the Commission’s analysis of market conditions. The appeal
       ended with the Court annulling the Commission’s decision to clear the proposed
       concentration;

   •   A UK mobile operator, in the Competition Commission’s calls to mobiles inquiry (and
       appeal to the Competition Appeal Tribunal), involving the charges levied by mobile
       operators for termination of calls on their networks. This involved establishing an
       appropriate competitive benchmark, assessing competitive constraints on the setting
       of termination charges, and analysing potential remedies; and

   •   We supported Octagon Motorsports Limited in the Competition Commission
       proceedings assessing the impact of Octagon taking over the management of the
       Silverstone circuit from the British Racing Drivers Club, identifying the markets that
       might be affected and assessing the competitive implications of the proposed
       transaction, resulting in clearance of the merger.

   •   We have prepared submissions to competition authorities for clients or interested
       parties in many high-profile merger cases, including Macquarie/NGN, various
       European radio mergers, a European satellite and cable merger, Kirch/BSkyB,
       Vodafone/Mannesmann, AOL/Time-Warner and France Telecom/Equant.

We have advised clients on the practical implications of competition law provisions for their
business, and the measures that would assist in ensuring compliance. For example, we have
assisted the BBC in setting specific DTT multiplex access charges to ensure they complied
with its Fair Trading Commitments.
We have undertaken many high-profile research projects for competition authorities such as:

   •   Holdings of minority interests in competitors for the UK OFT: This developed an
       economic framework for the assessment of minority interests held in competitors -
       including partial share ownerships, interlocking directorships, loans and certain
       financial derivative holdings (such as Contracts for Differences).

   •   Evaluation of retail pharmacies market study for UK OFT: This assessed the impact of the
       OFT’s 2003 market study on the retail pharmacies market and the effects of the
       Government's decision in 2005 to relax the 'control of entry' regulations in response to
       the study's recommendations. We reviewed the impact on access, prices, choice and
       quality of service in the market and the monetary impact on businesses and taxpayers.

   •   Competition in markets with commission rates for the UK OFT: This developed a
       framework for the assessment the competition impact of commission rates and
       analysed their use in residential sales estate agency, stock brokerage, financial
       advisory services, on-line auctions and temporary and contract employment services;

   •   Merger policy in declining industries for the European Commission: This considered
       whether declining industries warrant additional considerations in the assessment of
       proposed mergers. It provided indicators for identifying decline, benefits of mergers
       in such industries and a toolkit for competition practitioners.
Competition                                                                                                    5


   •   Commercial Use of Public Information for the UK OFT. We undertook two studies to feed
       into a UK OFT Market Study in which we reviewed the operations of the main public
       sector information holders in the UK and the extent to which they compete in
       downstream markets. We assessed the economic value and potential detriment that
       may be being caused by their behaviour;

   •   Bidding markets for the UK OFT: Our research report for the UK OFT provides a practical
       guide to key implications of auction theory for the assessment of competition in
       bidding markets, and on how to distinguish which underlying assumptions should be
       used to model bidding competition; and

   •   Public procurement practice for the UK OFT: We undertook a study for the UK OFT on
       the impact of public procurement practices on competition. Our report provides a
       framework for assessing the impact of procurement practices on competition in
       particular markets. It also develops a screening approach that can help in identifying
       sectors where further analysis of the impact of procurement practices might be
       justified.


We provide advice to national competition authorities around the globe on developments in
competition economics. For example, as part of an EC funded project, we have provided
advice to the Croatian Competition Agency (CCA). We have run seminars on the approach to
assessing competition complaints in network sectors and the tests to be applied for the
assessment of abuses of market power and anti-competitive behaviour.

DotEcon client services
We can provide the following services to clients:

   •   advice on the likely reaction of competition authorities to business strategies or
       proposed acquisitions prior to their implementation;

   •   support to merging parties or parties accused of anti-competitive behaviour in
       proceedings before competition authorities;

   •   assistance to complainants in competition proceedings;

   •   support to competition authorities in the assessment of arguments made by parties;
       and

   •   research and public policy recommendations for competition policy design.


Should you wish to discuss any of the competition policy services we offer, please email
competition@dotecon.com.

Should you wish to receive any of our other capability statements (for a complete list see www.dotecon.com),
please email info@dotecon.com.

								
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