The role of economics and economists within the ACCC

2nd ATE Symposium15 December 2014

Dr Graeme Woodbridge

Specialist Economic Adviser

ACCC

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Economic analysis is extremely important toACCC decision-making

Correct application of economic frameworks is essential to investigations of competition (anti-trust) matters: Clearance of mergers Investigation and prosecution of anti-competitive conduct Authorising anti-competitive conduct

Recognising this, the ACCC: employs economists in its investigation teams has a dedicated unit of economists with experience in competition

matters draws on expertise of external (independent) economists

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Role of economists within the ACCC

Commissioners make judgements using available advice and information

Part of that advice is advice from economists on the likely effects of the conduct in question

“Give me a one-handed economist!” Harry S Truman

Same conduct in different circumstances can have vastly different effects on competition and economic welfare

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A highly stylised example

Complainant (Firm Y)

Firm X dominates the market I can’t get any traction with customers Customers tell me the rebates Firm X offers makes it too costly for

them to buy from anyone else I can disrupt Firm X’s dominance if I can just get a foothold in the

market Consumers will be the winners

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A highly stylised example

Firm X

Customer rebates are vital to the efficient operation of my business They provide me with predictable sales They allow me to reduce costs by producing large volumes Without the loyalty rebates I would have to pass on higher costs to my

customers Consumers will be the losers

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A highly stylised example

Customer

If I buy from Firm Y I will lose my rebates from Firm X It is only commercial for me to buy from Firm Y if he/she can supply all

I need – but he/she can’t I rely too much on Firm X Please don’t tell Firm X I talked to you

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Reliance on anti-trust economic knowledge and literature

1. Economic models providing insight into the causes and effects of firm behaviour

Under what circumstances (market structure, product characteristics, production technology, etc.) are particular types of conduct likely to be efficient (pro-competitive) or anti-competitive

Economic models analysing two-sided markets has been particularly valuable

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Reliance on anti-trust economic knowledge and literature

2. Reviews drawing out lessons from theoretical literature

Particularly valuable if synthesise major ‘lessons’ from the literature and relate to questions the ACCC must address [e.g. Stephen King, “Collective Bargaining by Business: Economic and Legal Implications”, NSW Law Journal, 2013]

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Reliance on anti-trust economic knowledge and literature

3. Empirical approaches and techniques to predict or assess the likely effects of conduct

Empirical analysis of market outcomes with and without the conduct

(e.g. effects of airline alliances on air fares)

Empirical modelling of the likely effects of conduct

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Reliance on anti-trust economic knowledge and literature

4. Ex post empirical assessment of anti-trust decisions or events

Extremely valuable but quite rare

[e.g. Allen, J. Clark, R and J-F Houde “The Effect of Mergers in Search Markets: Evidence from the Canadian Mortgage Industry, American Economic Review, 2013]

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Does the ownership structure matter for the welfare effects of a merger?

Milk Processor A - co-operative owned by dairy farmers

Milk Processor B – privately owned

Export market

What is the likely impact on welfare if A buys B?

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