The role of economics in competition law enforcement: lessons from South Africa

Transcription

1 The role of economics in competition law enforcement: lessons from South Africa Policy Session Constraints and Opportunities to expanding the Role of Economics in Competition Law Enforcement Rhodes, Greece 01 July 2016 Cresse 2016 Liberty Mncube Chief Economist Competition Commission South Africa 1

2 General remarks Focus is on a more complete [but not necessarily complex] analysis of markets and on how the behaviour of firms in markets is likely to affect competition Reliance on economic concepts, reasoning and evidence for decision making Economics plays a role in determining which facts are important in a particular case, and which ones are not Economic reasoning shapes framing legal rules 2

3 Are Courts and Tribunals understanding the role of economics in competition law enforcement in South Africa? Giulio Federico, SAA II: ABUSE OF DOMINANCE IN THE SOUTH AFRICAN SKIES, published by the Journal of Competition Law& Economics in 2013 The Tribunal s and the CAC s judgments in SAA II, taken together, provide an example of an abuse of dominance case that is steeped in an economic analysis of the effects of the conduct of the dominant firm, and that does not simply rely on a formalistic approach. The empirical analysis of foreclosure that characterizes SAA II is rarelyfound in casesof exclusionaryabuse, and itshowsthatdecisionsof thiskind can be rested on an extensive evaluation of actual effects (subject to the availability of the relevantdata). ThejudgmentsagainstSAA takenbythetribunal in 2010, and bythecac in 2011, are aclearexampleof theuseof arigorouseffects-basedapproachtotheevaluationof exclusionary conduct by a dominant firm. 3

4 Are Courts and Tribunals understanding the role of economics in competition law enforcement in South Africa? Claudio Calcagno & Mike Walker, EXCESSIVE PRICING: TOWARDS CLARITY AND ECONOMIC COHERENCE, Journal of Competition Law& Economics, 2010, 6(4), In this article, we describe the case and explain why the judgment by the Competition Appeal Court is sound from an economic perspective and why it sets an important precedent in this area of competition law. The CAC instead proposed an economic analysis based on a clear need to compare prices with a theoretical competitive price. Importantly, the CAC provided a coherent definition of the competitive price: the price that would prevail in long-run equilibrium with free entry and exit. The CAC s ruling is economically coherent and in line with what most economists would consider a reasonable approach to the messy and difficult business of assessing whether a firm is charging excessive prices. 4

5 Are Courts and Tribunals understanding the role of economics in competition law enforcement in South Africa? O Donoghue and Padilla (2013) in their book, The law and economics of article 102, point out that, In Mittal, a recent case involving the pricing of steel products, the CAC of South Africa interpreted economic value as the notional price of the good or service under assumed conditions of long run competitive equilibrium and concluded that this equilibrium arises when there is free entry and free exit. Assuming value in this way seems correct as a matter of economics. 5

6 But what type economic analysis is undertaken? Economic analysis is used throughout the cases (and of course in policy). Used it in both competition enforcement and merger cases (e.g., market definition, price effects in mergers, exclusionary effects in dominance cases) Ex post analysisof cases and policy issues Both theory and quantitative work the simpler the better 6

7 But what type economic analysis is undertaken? Economic analysis is carried without sophisticated theory and quantitative work (where possible theory and quantitative work complements the qualitative evidence) Thisshould notbeasurprise: Not all cases lend themselves to empirical work Gooddataisnotalwayseasilyavailableandthisdoesnotdiminishthevalueofeconomic work One needs: people with background and experience; reliable data; time to 'clean' data, choose appropriate model and do sensitivity test While a good understanding of theory is needed and references to formal models may sometimes help: (i) focus on main issues of complex reality; (ii) identify evidence needed to confirm/dismiss theories of harm. But: One should check the robustness of analysis and respect academic standards Askthequestion, Dothefactsof thecasefitthemodel/theory? Itisverydifficult to produce new modelsandthere are time constraints The economic analysis it should be should be in plain language not math so that the lawyers and judges can understand main insights; 7

8 Are there lessons on the type economic analysis undertaken? Economic analysis (theory or quantitative) should be in line with internal documents, customer views and other qualitative evidence Be it theory or econometrics, one needs to avoid the temptation to do sophisticated things if unnecessary Neither a theoretical model, nor an econometric one will 'resolve' the case by itself; they should be reliable, give robust results and complement the qualitative evidence New and sophisticated tools may be exciting (and good to 'push frontiers' further), but often they are not worth the agency's resources Also, the set of tools used depends on the knowledge (and number) of staff: training matters! 8

9 What is the role of economic experts? In recent Sasol case, the CAC [at para 178] notes [in relation to the role of economic experts] that: Throughout this judgment I have raised questions of expert evidence and specifically the role of an expert in these proceedings. This important question is not only a feature of this case but, unfortunately, has raised itself in numerous appeal records which have been presented to this Court over the past fifteen years. Regrettably this Court must now draw attention to the inability of the Tribunal to exercise discipline over proceedings in order to in order to ensure that economic experts provide evidence on economic questions, leaving points of legal interpretation to the Tribunal and to this Court, after submissions by the extremely qualified lawyers who represent the parties have been presented. 9

10 What is the role of economic experts? The Appeal Court has now issued guidelines for experts who present economic evidence before the Tribunal [at para 181] i. Expert evidence presented to the Court should be, and should be seen to be, the independent product of the expert uninfluenced as to form or content by the exigencies of litigation ii. An expert witness should provide independent assistance to the court by way of objective unbiased opinion in relation to matters within his expertise iii. An expert witness should state the facts or assumption upon which his opinion is based. He should not omit to consider material facts which could detract from his concluded opinion iv. An expert witness should make it clear when a particular quotation or issue falls outside his expertise v. If an expert s opinion is not properly researched because he considers that insufficient data is available, then this must be stated with an indication that the opinion is no more than a provisional one 10