Recent developments in EU competition policy: An economic perspective

Transcription

1 Recent developments in EU competition policy: An economic perspective Tommaso Valletti London, 19th March 2018 Disclaimer: The views expressed in this article are personal, and do not necessarily represent those of DG Competition or of the European Commission.

2 Brief history of CET Post of Chief Economist created in 2003, to reinforce economic capabilities of DG Competition and provide independent economic perspective (Monti) Fixed 3-year mandate Remit of the CE Scrutiny ( check-and-balance, independent advice to the Competition Commissioner) Support (economic analysis in individual cases) Balance between two functions Relative shift towards support function as size of the CET has increased over time (from < 8 to 30) 2

3 CET work allocation across instruments 70% 60% 50% 40% 30% Mergers Antitrust State Aid 20% 10% 0% Sept Dec (16 months)

4 Patent analysis in a recent merger case (Dow/Du Pont) Patent analysis carried out to assess the innovative strength of firms Sample: all patents for the period Methodology: Patent citations as indicator of the importance/quality of R&D: Significant heterogeneity in citations Important to calculate weighted patent shares Patents as indicator of closeness of innovation competition: Look at the importance of cross-citations Look at characteristics of research projects corresponding to the best quality patents (review of internal documents) 4

5 Theory question: Investments and mergers You typically hear: Inverted U Arrow vs Schumpeter But It s not about mergers! Two effects (absent efficiencies): -Innovation diversion (-) -Product market competition (-/+) Federico, Langus and Valletti (2017, 2018)

6 Deutsche Börse/LSE (1) Proposed transaction would have brought together two of the main clearing houses for derivatives in Europe Customers require vertical stack/bundle of "trading", "clearing" and "settlement" of derivative transactions Deutsche Börse supplied these services only as an integrated stack/bundle ("captive sales" of clearing services only) LSE supplied clearing services to third parties in the "merchant market" (via LCH SA and LCH Ltd). Should the transaction be assessed as a vertical merger or as a horizontal merger? 6

7 Deutsche Börse/LSE (2) U1 U2 Vertical or horizontal? U1 U2 1) Vertical demerger [p?] D1 D2 2) Horizontal merger p[!] D1 D2 3) Vertical (re)merger [p?] U1 U2 U1 U2 D1 D2 D1 D2 Main effect arises from horizontal combination of U1 with U2. Assessed as horizontal competition in a "bundle-to-bundle" 7 market in DB/LSE

8 Query Links to standalone specialised search services Specialized search results AdWords ("paid search") Generic search results 8

9 Google's specialised product search On top of organic search product results and paid product ads Froogle Specialised search engine Product Universal Special product query channel on main page Google Shopping From 2013 CSS with special product display channel Search filter, also ranks CSS lower 9

10 Competitors not visible Google Shopping on the top 10

11 Evidence 1: Traffic data Generic search traffic from Google to CSSs Panda introduction 11

12 Evidence 2: Google's experiment Does the display of the Shopping Unit reduce CSS traffic? Outcome variable: clicks on CSS Treatment: Shopping Unit displayed or not 12

13 The conduct: favouring The Decision does not object to Google applying certain relevance standards but to the fact that Google's CSS is not subject to same standards as rivals What: Google Shopping is favoured compared to competitors in terms of: Positioning (prominent placement in Google's general search results, rivals demoted) Display (graphical appearance) How: As regards positioning: Generic search algorithms prone to demote CSS Google Shopping not subject to the generic search algorithm Instead Google Shopping is placed always at the top As regards display: Rich graphical features only applicable to Google Shopping Rich format display increases click-through rates 13

14 Baseband chipsets (BCs) process all cellular communications functions in smartphones and tablets Both voice and data transmission BCs incorporate different technologies, e.g. 4G (LTE), 3G (UMTS), 2G (GSM) Qualcomm 14

15 Qualcomm's dominance Qualcomm held a dominant position in the market for LTE baseband chipsets at least in the time period based on particular on: very high worldwide market shares (typically > 90%) barriers to entry and expansion, including: R&D expenditure required Qualcomm's network of pass-through rights to third parties' IP Qualcomm's brand and established business relationships 15

16 The conduct In 2011, Qualcomm and Apple signed an agreement according to which Qualcomm committed to grant significant payments to Apple These payments were conditional on Apple exclusively sourcing baseband chipsets for its "iphone" and "ipad" devices from Qualcomm In 2013, the agreement was amended and extended to the end of

17 Abuse Qualcomm's payment are exclusivity payments Presumption of anti-competitive effects During the administrative proceedings, Qualcomm submitted, on the basis of supporting evidence, that its conduct was not capable of restricting competition and, in particular, of producing the alleged foreclosure effects Decision Analyses potential anti-competitive effects Rebuts Qualcomm's arguments (both on price-cost AEC test and alleged efficiencies) 17

18 Potential effects Amounts paid on condition of exclusivity were significant Exclusivity condition: Qualcomm's payments reduced Apple's incentives to switch to rivals confirmed by a broad range of contemporaneous evidence Apple gave serious consideration to switch in part to Intel Apple is a key customer for baseband chipset suppliers accounts for a significant share of LTE chipset demand leading smartphone manufacturer which can influence other customers' and manufacturers' procurement and design choices by foreclosing Apple's demand, Qualcomm's conduct had an effect on the LTE baseband chipset market as a whole ("Divide et impera") 18

19 Hipster antitrust? US Council of Economic Advisers (2016) "Benefits of Competition and Indicators of Market Power" - Concentration increase in key industries (~services, ) - Increase in return on invested capital, especially from 2005 for the 90 th percentile of firms - Decreasing entry, stagnating entry rates ( ) - Decreasing labour market dynamism - Increasing M&A activity 19