5th International Competition workshop
Seoul, September 3, 2008
The role of Economics in European
Competition Enforcement and Policy
Damien Neven, Chief Economist*
DG COMP, European Commission
*The views expressed are those of the author and do not necessarily reflect those of DG COMP or the
European Commission
1
Introduction

Still 15 years ago, explicit economic analysis in
enforcement decisions was quite rudimentary

Since then, there has been a significant shift towards
economic analysis

By now, the annual turnover of economic
consultancies makes up 15% of the fees earned in
antitrust cases

Objective of enforcement has become more focused

What are the effects on consumers ?
2
3
Outline
1.
Risk of being captured by an accountable bunch of pseudoscientists ?
2.
Economics helps in evaluating effects and designing
structured rules – law and economics of enforcement
3.
Economics help in understanding market dynamics and
building evidence
4.
Ideology is more of a concern for the former
5.
The question with the latter is not how much economics but
how to make the best us of it in actual cases
4
Law and economics

Per se vs structured rules of reasons

Business experience and empirical evidence identify
empirical regularities which support presumptions
and help designing structured rules of reasons

For instance, systematic evidence on resale price
maintenance support the Supreme Court’s reversal of
per se illegality

Non horizontal merger guidelines
5
"The theory of economics does not furnish a
body of settled conclusions immediately
applicable to policy. It is a method, rather
than a doctrine. An apparatus of the mind,
a technique of thinking, which helps its
possessors to draw correct conclusions."
Sir John (not Vickers - Keynes)
6
Investigating effects
Spell out a logically consistent theory of
consumer harm
Validate that theory empirically
1.
2.
–
–
3.
Check the realism of the underlying assumptions
(ex-ante validation)
Check whether observed market outcomes are
consistent with the predictions of the theory (expost validation)
Identify alternative pro-competitive motivations
for the practice (validate ex-ante and ex-post)
7
Investigating effects (ii)





Use of established theory, extensions, ad hoc
developments
Develop testable hypothesis
Evidence should be (i) scientifically valid, (ii)
open to scrutiny (iii) directly relevant (tied to
the facts)
Daubert test of scientific evidence : can the
theory be tested, peer review, rate of error,
wide acceptance
No perfect test – reference to simplifying
assumptions and data limitations should not be
sufficient to dismiss evidence
8
Investigating effects (iii)

What if several pieces of evidence meet all criteria and
provide conflicting conclusions ?
–
Not appropriate to ignore results as cancelling each other
–
Evidence is consistent with several hypothesis
–
Valuable insights despite apparent contradictions

Above all, need for a convincing explanation

Effects based analysis does not have to be overly
dense in technical economic reasoning

Consistent set of facts and different pieces of
evidence
9
Conclusion



The EU is in a better position to take advantage of
economic analysis than the US
And abuse of it…
Institutional response
–
–


Role of the CET
Interaction with economic consultants
More R&D – identify regularities
Guidelines
10