PwC Competition Notes

August 2007

Competition Notes is a publication from PwC's Economics practice. Each edition analyses the latest issues in the field by our top competition practitioners. The articles, whilst grappling with controversial topics, are accessible to lawyers, business people and fellow economists alike through the practical jargon-free thinking that characterises PwC's Economics practice.

This latest edition of Competition Notes focuses on Article 82.

In March 2007 The European Commission was reviewing its policy in this area and had so far produced a Staff Discussion Paper on the appropriate approach to exclusionaryabuses, that has attracted much commentary to date.

Article 1 focuses on Excessive Pricing

Article 2 looks at Margin Squeeze Abuse.

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Summer 2005's edition of Competition Notes contains two articles.

1. Market Economy Investor Principle. This article focuses on the most important considerations and challenges when applying the Market Economy Investor Principle (MEIP).

2. The Altmark Criteria - Here we argue that the Altmark criteria and the application of Article 86 (2), insofar as their respective requirements overlap, require further detailed guidance to improve the quality and certainty of their application, learning lessons from the regulation of utilities.

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Spring 2005's edition of Competition Notes discusses two areas:

1. Buyer Power in Post-merger Markets - PwC was commissioned by the OFT, The Competition Commission (CC) The Department of Trade and Industry (DTI) to undertake a study of how competition had developed in markets where the CC had cleared a major merger. The study examined whether the merger had led to a short-run increase in price, and if so, how long it took for the market to self-correct, and the form of self-correction.

2. The Efficiency Defence and Merger Simulation - This article reviews some of the issues that arise in practice of the EC merger regulation on both sides of the Atlantic.

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1. Damages in Competition Cases. The opportunity and risk of competition-related litigation is one of the most significant developments in EU competition law. The present trend is for damage claims to be made across a wider set of competition issues than the typical cartel case. We focus on the challenges in quantifying the size of damages in such litigation, identifying the pitfalls of some common approaches and commenting on the difficulties, going further than previous analyses.

2. The Relevant Product – making a good start in market definition. Before we can define the relevant market, we need to define the relevant product. This note takes a brief look at some of the issues that arise. Two main themes emerge. The first is that the choice of the relevant product will depend upon the competition issue that is being explored. The second is that the relevant product cannot be determined without first obtaining a thorough understanding of what it is that customers are actually consuming. One important conclusion is that, for more complex products, using the narrowest definition of the relevant product can lead to serious errors.

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This edition of Competition Notes discusses three areas:

1. The Economics of profitability assessment - Our first article is a review of the Office of Fair Trading’s discussion paper on the assessment of profitability in competition policy analysis. We find that significant practical challenges remain for the implementation of the recommended truncated IRR approach.

2. Mergers subject to divestiture commitments: The trustee experience - The European Commission regularly clears a merger subject to Commitments whereby a business has to be divested. We summarise our experience as monitoring trustees, highlighting the advisory role of a trustee and the need to balance various interests.

3. Consumer benefits and competition: A tension in UK competition policy? With the Competition Act 1998 and Enterprise Act 2002, UK competition policy has shifted towards the objective of improving consumer welfare by means of increased competition. However, it is not always clear that the former results from the latter. We discuss this potential contradiction and offer some examples of the problems faced by the OFT.

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The first edition of Competition Notes looks at three topics:

Conjoint Analysis
A powerful technique using survey data to establish price elasticities, resolve market definition issues and inform on the potential success of new products. We provide a brief description of the technique and its use.

Rivalry:
A new concept in UK Competition Law? The OFT and Competition Commission have both issued guidelines on how they will interpret and apply the UK Enterprise Act. A key new concept is “rivalry”. We explore the implications of this in a short article.

Mobile Inquiry – profitability issues. We examine the approaches of both Oftel and the Competition Commission to the issue of profitability, in the context of the recent inquiry into the mobile telephony sector.

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