The Australian Competition Tribunal plays a central role in the Australian regulatory system. Three of the Tribunal’s recent decisions are examined and found to have significant errors. It is argued on the basis of the economics of the institutional design that these errors are inevitable in a system where regulatory decisions are based on vague standards. It is concluded that the quality of regulation would be improved by a shift to a regulatory system that relied less on such vague standards and more on prescriptive, explicit rules.
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ErrorDesignEconomicsCompetition.pdf
16 Dec2009
The ACCC Merger Guidelines: A reader's manual
The ACCC Merger Guidelines: A reader’s manual
Henry Ergas,' Eric Kodjo Ralph† and Alex Robson‡
The Merger Guidelines released in March 2008 by the ACCC provide a guide to the analytical approach the ACCC intends to adopt to assessing mergers for the purposes of s50 of the Trade Practices Act. The new guidelines do a relatively good job in listing the factors that the contemporary economic literature identifies as potentially characterising mergers that reduce competition and harm consumer welfare. However, unlike the earlier guidelines, they rarely explain the mechanism connecting the factors to the harm, and the conditions that need to be met for that harm to occur. This article provides a ‘user’s guide’ to the guidelines that explains the reasoning that underpins the guidelines’ assertions, and draws attention to the assumptions on which those assertions rest. We also provide an economic assessment of the guidelines and recommend a simpler criterion by which the ACCC should judge mergers.
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ergas_ralph_robson_1.pdf
Henry Ergas,' Eric Kodjo Ralph† and Alex Robson‡
The Merger Guidelines released in March 2008 by the ACCC provide a guide to the analytical approach the ACCC intends to adopt to assessing mergers for the purposes of s50 of the Trade Practices Act. The new guidelines do a relatively good job in listing the factors that the contemporary economic literature identifies as potentially characterising mergers that reduce competition and harm consumer welfare. However, unlike the earlier guidelines, they rarely explain the mechanism connecting the factors to the harm, and the conditions that need to be met for that harm to occur. This article provides a ‘user’s guide’ to the guidelines that explains the reasoning that underpins the guidelines’ assertions, and draws attention to the assumptions on which those assertions rest. We also provide an economic assessment of the guidelines and recommend a simpler criterion by which the ACCC should judge mergers.
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ergas_ralph_robson_1.pdf
10 Sep2009
In Defence of Cost Benefit Analysis
In this paper for "Agenda" (Volume 16, Number 4) Henry compares cost-benefit analysis (CBA) to multi-criteria analysis (MCA). Henry reviews the nature of the two approaches and considers the criticisms that have been made of CBA. He concludes that these criticisms largely lack merit, and that even to the extent to which they are meritorious, they provide no justification for relying on MCA. He concludes by expressing his concerns about the growing role of MCA in Australian project appraisal, which is symptomatic of a broader move away from sound policy evaluation.
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In_Defence_of_Cost-Benefit_Analysis.pdf
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In_Defence_of_Cost-Benefit_Analysis.pdf
23 Dec2008
Setting access prices:A critique of the ACCC’s approach in 268
Third-party access regimes, which impose on an incumbent an obligation to provide third parties with access to designated services and facilities at regulated terms and conditions, have become widespread in Australian 266 industries since the Hilmer Report (Independent Committee of Inquiry into Competition Policy in Australia 1993) and the subsequent implementation of National Competition Policy in 1995. Click the link below for the full article.
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setting_access_prices_ergas_dec08.pdf
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setting_access_prices_ergas_dec08.pdf
11 Aug2008
Fearless watchdog or his master's voice
The Australian Competition and Consumer Commission will lose its reputation for independence if it keeps coming up with politically convenient schemes for the 264, warns Henry Ergas
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Fearless_watchdog_or_his_master_s_voice_1.pdf
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Fearless_watchdog_or_his_master_s_voice_1.pdf
26 Feb2008
More on the ACCC Draft Merger Guidelines
Joshua Gans has replied to my comments on the ACCC draft merger guidelines on his blog site . While my comments touched on several aspects of the draft guidelines, Gans only deals with one, which is the guidelines’ emphasis on vertical mergers. In my comments, I suggested that this emphasis was difficult to understand, as vertical mergers rarely raise competition issues (and more often promote efficiency).
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More_on_the_ACCC_Draft_Merger_Guidelines.pdf
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More_on_the_ACCC_Draft_Merger_Guidelines.pdf
12 Feb2008
The ACCC’s Draft Merger Guidelines: Still a Work In Progress (One Hopes)
The ACCC’s draft new Merger Guidelines (“the Guidelines”) are long overdue and, even if for that reason alone, should be welcomed. The Commission’s previous Guidelines, issued in 1999, were the culmination of a lengthy process of elaboration, and represent a substantial and enduring intellectual achievement. But the theory and practice of merger analysis has moved on considerably since then. Updated Guidelines were badly needed if clear guidance was to be provided about the Commission’s approach to analysing mergers.
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The_ACCC_s_Draft_Merger_Guidelines.pdf
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The_ACCC_s_Draft_Merger_Guidelines.pdf
31 Jan2008
Should the States Be Paid to Do the Right Thing?
Competition policy payments are back in favour, with the Rudd 264, the States and even the Business Council all embracing the idea that States should be paid for undertaking reforms. But even if competition payments were a good idea in the 1990s, do they make sense now? The answer is that they do not.
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ShouldTheStatesBePaidtoDotheRightThing.pdf
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ShouldTheStatesBePaidtoDotheRightThing.pdf
04 Jan2008
Time to reform the Trade Practices Act
Reports that the 264 is considering revising the Trade Practices Act so as to strengthen the “Birdsville amendments” (which seek to prohibit “predatory” pricing by large businesses) are deeply concerning.
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TimeToReformTheTradePracticesAct.pdf
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TimeToReformTheTradePracticesAct.pdf
11 Jun2003
Doubts about Dawson
The Report of the Dawson Committee has generally been well received by trade practices practitioners. The reasons for that favourable reception are well known and I do not intend to repeat them. What I do intend to do is to raise some concerns about several of the Report’s main recommendations. I want to focus specifically on the recommendations with respect to the per se provisions, the merger provisions, authorisation, collective bargaining and section 46.
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Doubts_on_Dawson_HE_01.06.03.pdf
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Doubts_on_Dawson_HE_01.06.03.pdf
11 Jun2003
The Economics of Exclusive Distribution
The issue of exclusive dealing and its economic impacts has received extensive attention in a number of recent cases, including Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd1, Australian Competition and Consumer Commission v Australian Safeway Stores Pty Limited (No 2)2 and Melway Publishing Pty Ltd v Robert Hicks Pty Ltd.3 Moreover, concern about exclusive dealing remains high on the public policy agenda, and is especially significant in respect of small business.
The economics of exclusive dealing are complex and have been an area of substantial research in recent years. A specific area of analysis has been that of exclusive distribution – that is, situations in which a manufacturer requires dealers to only distribute products bearing its brand, or products that it approves or specifies. Given the prominence of these issues, it seems timely to seek to summarise and set out in more accessible terms the main findings of that research. That is the objective of this paper.
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economics_of_exclusive_distribution_HE_june_2003.pdf
The economics of exclusive dealing are complex and have been an area of substantial research in recent years. A specific area of analysis has been that of exclusive distribution – that is, situations in which a manufacturer requires dealers to only distribute products bearing its brand, or products that it approves or specifies. Given the prominence of these issues, it seems timely to seek to summarise and set out in more accessible terms the main findings of that research. That is the objective of this paper.
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economics_of_exclusive_distribution_HE_june_2003.pdf
13 Jan2000
Cluster markets: what they are and how to test for them
Although markets are usually defined in terms of opportunities for demand and supply-side substitution, there are numerous instances in which competition centres on the sale of packages of items which are economically distinct but in some sense complementary. Subject to certain conditions being met, the package involved can be viewed as constituting the relevant market, which is then conventionally referred to as a "cluster market".
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papers-ergas-cluster.PDF
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papers-ergas-cluster.PDF
13 Jan2000
New models of foreclosure: should antitrust authorities be concerned?
Recent models which claim to provide examples of profitable foreclosure—when a firm weakens competition by reducing its access to customers or inputs—have led to calls for more aggressive antitrust activity by courts and regulators. However, we show that the alleged anticompetitive behavior of these models is either typical of competition, or simply implausible. In addition, even if foreclosure occurs, it is almost always confined to the short run, and its efficiency consequences are commonly ambiguous. As a result, the new literature on foreclosure provides little impetus for intervention by poorly informed regulators.
In most of the models examined, the 'foreclosing' firm earns profits equal to its cost advantage as is typical of Bertrand competition, or makes profits because it was an early investor/innovator. Such profits can hardly be considered anticompetitive, and in any case can rarely be maintained beyond the short run. In addition, in many of these models vertical coordination increases efficiency, so even if foreclosure occurs, overall efficiency could improve. In the remaining models foreclosure obtains because the incumbent, but not entrants, can coordinate buyers. Only allowing incumbents this privilege is implausible, except perhaps in the short term
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papers-ralph-foreclosure.pdf
In most of the models examined, the 'foreclosing' firm earns profits equal to its cost advantage as is typical of Bertrand competition, or makes profits because it was an early investor/innovator. Such profits can hardly be considered anticompetitive, and in any case can rarely be maintained beyond the short run. In addition, in many of these models vertical coordination increases efficiency, so even if foreclosure occurs, overall efficiency could improve. In the remaining models foreclosure obtains because the incumbent, but not entrants, can coordinate buyers. Only allowing incumbents this privilege is implausible, except perhaps in the short term
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papers-ralph-foreclosure.pdf
13 Jan2000
Should s.36 of the Commerce Act be amended to include an effects test
Let me say at the outset that I am very pleased to comment on this paper. It deals with an important issue in a thoughtful and thought-provoking way. Having said that, I believe that it is seriously flawed. My purpose here is to set those flaws out. In essence, the paper proposes that s36 be modified through an “effects test” – that is, a test that assesses whether the conduct alleged to be in breach will have the effect or likely effect of substantially lessening competition. The authors recognise that it is not easy to define or identify anti-competitive effects. They also acknowledge that there is a concern that the resulting uncertainty might deter firms from engaging in actions that while they harm competitors do not harm competition. So as to address these concerns, the authors propose that the effects test be given a particular definition, set out at some length in their paper.
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papers-ergas-commerce-apr98.pdf
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papers-ergas-commerce-apr98.pdf
13 Jan2000
Are the ACCC's merger guidelines too strict?
The Industry Commission's Information Paper on Merger Regulation (henceforth referred to simply as 'the Information Paper' contains numerous errors of fact, law and analysis. My goal here is not to examine these in detail (a task already well accomplished by Warwick Anderson, Tim Grimwade, Jill Walker and Luke Woodward in a forthcoming paper in the Competition and Consumer Law Journal) but rather to explore some of the central themes in the Industry Commission's Paper.
A review by Henry Ergas of the Industry Commission's information paper on merger regulation. Competition and Consumer Law Journal.
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papers-ergas-ACCCmerg.PDF
A review by Henry Ergas of the Industry Commission's information paper on merger regulation. Competition and Consumer Law Journal.
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papers-ergas-ACCCmerg.PDF