by Kevin Coates | Nov 8, 2009 | Economics
What follows are some initial thoughts on how behavioural economics might affect antitrust and regulation. They are not particularly advanced, but some points of the points raised I have not seen elsewhere (even when I remember to search for “behavioral economics” and not just “behavioural economics”). Wikipedia has a good general introduction to behavioural economics, and the European Commission has also published a short overview for the press. (Disclosure: the European Commission is my employer, even though I am on secondment to NYU at the moment. I was not involved in the preparation of that document. All opinions are my own, etc…) There is understandable reluctance by economists to transpose conclusions about the behaviour of individuals to the behaviour of firms: arguably much of the analysis carried out by firms before they decide on a strategy is precisely to widen the bounds of their rationality, avoiding the conceptual limits of individuals. This sidesteps the question, though, of what the implications of behavioural economics should be when an antitrust analysis depends on consumer behaviour. The Microsoft bundling cases in the US and the EU depended in part on how consumers would react to the bundling into Windows of Internet Explorer and Media Player. Given that behavioural economics suggests that consumers are influenced by “defaults” to a greater extent than traditional (rational market) economics would predict, then the negative effects of the bundling on consumer welfare would be greater than that which traditional economics would suggest. Other biases also might be relevant: availability bias – where individuals are disproportionately influenced by highly visible or memorable factors – might suggest that incumbency...
by Kevin Coates | Oct 27, 2009 | Competition, Regulation
(The third part of a general lecture on competition law, state aid and regulation, separated into three posts: Part 1, Part 2, Part 3.) Competition Enforcement in the Financial Crisis What should we make of State aid control? Is it a consistent part of a competition law system? Although it is often difficult to enforce, I think the answer is yes. There is already some recognition of its value in the – far too weak – WTO rules on subsidies, but until State aid laws are seen as important parts of domestic competition laws, I do not think that we are going to see significant multilateral enforcement mechanisms (which is a shame). If you want a consistent system of competition law, however, State aid control should be included to control national and sub-national State aid, and not just aid which has cross-border effects. At first sight, the US Commerce Clause would appear to provide a constitutional basis for that here,(“The central rationale for the rule against discrimination is to prohibit state or municipal laws whose object is local economic protectionism, laws that would excite those jealousies and retaliatory measures the Constitution was designed to prevent”; Toomer v. Witsell, 334 U. S. 385, 403–404 (1948)} but I know very little about US constitutional law so more informed minds may differ.) The present financial crisis has shown the value of the EU’s State aid rules. When he spoke here in September, Professor Jenny gave a number of examples of involvement of the EU competition rules in the financial crisis. The European Commission, as a competition authority, has been deeply involved in...
by Kevin Coates | Oct 27, 2009 | Competition, Regulation
(The second part of a general lecture on competition law, state aid and regulation, separated into three posts: Part 1, Part 2, Part 3.) The Competition Rules and State Action For a US antitrust lawyer, discussion of the competition rules does not extend to State (or state) action. For the drafters of the EC Treaty, however, it would have been obvious that State action would need to be covered. Looking at the different Member States, it would have been very clear that it is not just laws prohibiting trade, or actions of companies that could distort competition on the market. State owned companies were common – in some Member States they still are (even before the nationalisations caused by the financial crisis); state granted monopolies were also common. So completing the single market meant completing the competition rules with control on state action, control being exercised through Articles 86 – which imposes limits on the state’s ability to grant special or exclusive rights – and Article 87 – which imposes limits on the state’s ability to grant aid to individual companies or sectors. From the description of the system of the Treaty above, you can see that these rules aimed at the States have a dual origin – they are part of completing the single market (for example, state monopolies could effectively prevent free movement of goods and services), and they are part of the competition rules (for example, state aid could undermine productive efficiency, and incentives to invest and innovate). No other jurisdiction had, or has, comparable rules – the anti-subsidy provisions of the WTO are a shadow...
by Kevin Coates | Oct 27, 2009 | Competition, Regulation
As part of Professor Eleanor Fox’s comparative EU/US competition law LLM class at NYU, she asked if I would give a lecture on state aid and regulation issues and how they relate to the competition rules. Here is the text of the lecture, separated into three posts: this is Part 1; Part 2; Part 3) Competition law, State aid, and Regulation One of the difficulties about studying the law is that there is never a good place to start. No individual law or rule exists in isolation; if you learn about one rule, you will understand a little; if you learn about more rules you will understand a little more about that first rule. Professor Dworkin’s idealised judge, Hercules, has a perfect knowledge of all rules, and only with that knowledge can the judge form a complete understanding of any individual rule. Fortunately, real life standards are a little lower, but it is useful to think about how any one rule fits into the overall system of laws; this is particularly useful when comparing US and EU competition law, as the EU system of “competition law” is rather different to that in the US. Rather than focused exclusively on company behaviour, the EU system looks at state action as well. The objective is, however, the same. Creating a Single Market When the drafters of the Treaties sat down in the 1950s, they had a specific object in mind – to create a single economic area out of the then six separate national economies (now 27 national economies). One of the major reasons to integrate the economies of the Member...
by Kevin Coates | Sep 8, 2009 | Competition, Regulation
That is what real revolutions are like. The old stuff gets broken faster than the new stuff is put in its place. Clay Shirky, Newspapers and Thinking the Unthinkable, March 2009 Different people draw different conclusions about law-making from this type of problem. For some, we cannot reasonably hope to understand the consequences of law or regulation in a fast-moving world, so we should avoid trying. (Though those who argue that we be slow to apply the antitrust rules in these areas, may also be the same people who argue for the introduction of software patents. What’s sauce for the goose is often not sauce for the gander.) At the 2009 Fordham antitrust conference, John Fingleton, the CEO of the UK’s Office of Fair Trading, asked the Commission’s Chief Economist, Damien Neven, whether there was a danger in drawing conclusions about innovative changes to markets on the basis of the marginal evidence that would be all that would be available. The context was a debate about the application of the antitrust laws to vertical restraints that affect online trading: should we be more concerned than we currently are about limitations on online commerce. Leaving aside the specific question for the moment, the real problem with a simple “stay out of it” line, is that it takes the status quo – both in terms of law and markets – as the default state. That might be fine if breaking the status quo were easy. I suspect it’s not: We must bear in mind, then, that there is nothing more difficult and dangerous, or more doubtful of success, than an attempt...