Since the adoption of the Anti-Monopoly law in 2007, the Chinese competition authorities have stepped up enforcement of mergers and anti-competitive practices. The Chinese Ministry of Commerce has relied heavily on behavioural remedies in merger cases (as opposed to the more efficient structural remedies favoured by the European Commission). Furthermore, merger policy has been used to protect domestic industries from competition. In contrast, Chinese fines for cartels have shown no foreign bias, and if anything have been too low.
Horizontal acquisitions affect prices through two channels: by eliminating competition between the firms involved, and by changing the incentives for collusion in the affected industry. This column summarises recent research that quantifies these two effects using a new methodology – one that accounts for the difference between financial interests and corporate control. A study of the disposable-razor industry shows that small firms have the greatest incentive to undercut pricing agreements. After acquisitions, acquiring firms have greater incentives to collude, whereas other firms in the industry are more likely to defect.
Cartel fines imposed by the European Commission routinely reach hundreds of millions of euro, having increased since the new 2006 fining policy. This column argues that they are still below their optimal level and come too slowly. Fines were often lower than the additional cartel profits and imposed 10 to 20 years after making the law-breaking decision was made – sometimes after the responsible managers had retired. To speed investigations, the Commission should Increase resources dedicated to inquiries; fines should also be raised.
What are the competitive effects of bundling? This columns presents the results of an empirical study of the market for office productivity software in the 1990s. Counterfactual simulations suggest that the introduction of a bundled office suite increases consumer welfare – provided that preferences for word processors and spreadsheet programs are positively correlated, and that competitors do not exit the market.
Bank competition policy seeks to balance efficiency with incentives to take risk. This calls for an intermediate degree of competition. This column argues that although the traditional policy tools are rules on entry/exit and the consolidation of banks, the Crisis showed that a focus on market structure alone is misplaced. There are other, newer ways in which competition policy can support financial stability: dealing with too-big-to fail and other structural issues in banking, as well as facilitating crisis management.
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Adelman, 28 October 2013