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