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DRAFT Economics in Chinese merger control David Stallibrass ACLE | 20 th May 2011 Personal views of author. Does not represent opinion or position of any.

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Presentation on theme: "DRAFT Economics in Chinese merger control David Stallibrass ACLE | 20 th May 2011 Personal views of author. Does not represent opinion or position of any."— Presentation transcript:

1 DRAFT Economics in Chinese merger control David Stallibrass ACLE | 20 th May 2011 Personal views of author. Does not represent opinion or position of any institutions to which he is affiliated.

2 DRAFT Objective of paper  To set the role of economics in Chinese merger control in an institutional context  Content of the statute  Institutional structure  Amount of data / evidence  Revealed preference from cases  Understanding of differences in role important for sensible analysis 2

3 DRAFT Caveats  Looking at it from afar – taking the statute and decisions at face value  Looking at mergers that caused problems – only one side of the coin  THIS IS A FIRST DRAFT! Tell me where I’m wrong 3

4 DRAFT Contents  Institutional setting  Purpose of the AML  Who makes the decisions  Importance of precedent  Availability of data  The role of economics  Revealed preference from cases  Suggestions for the future? 4

5 DRAFT Institutional setting  Four key features of merger enforcement regimes that effect the use of economics 5 ChinaUK Purpose of lawMulti-dimensionalSingle objective Who makes the decisions Political. Sometimes multi-agency Technocratic, independent Importance of precedent n/aThreat of review forces consistency Availability of dataPatchyReasonably good

6 DRAFT Contents  Institutional setting  Purpose of the AML  Who makes the decisions  Importance of precedent  Availability of data  The role of economics  Revealed preference from cases  Suggestions for the future? 6

7 DRAFT Purpose of AML – the statute  Article 1: “the purpose of  preventing and restraining monopolistic conduct,  protecting fair competition in the market,  enhancing economic efficiency,  safeguarding the interests of consumers and social public interest,  [and] promoting the healthy development of the socialist market economy” 7 AML as translated by DLA Piper (2008)

8 DRAFT Purpose of AML – the statute  Article 4: “central government to promulgate and implement “competition rules which  accord with the socialist market economy,  perfects macro-control,  and advances a unified, open, competitive and orderly market system.” 8 AML as translated by DLA Piper (2008)

9 DRAFT Purpose of AML – between the lines?  Relatively clearly implied by articles in the statute  Geographic market integration  Reform of State Owned Enterprises  Speculated by commentators  Building national champions  Constraint on intellectual property law 9 For example: Bush, Bo (2011)

10 DRAFT The substantive test – the statute  Article 27 – factors considered 1.The market share in the relevant market... and their ability to control the market; 2.The degree of concentration in the relevant market; 3.The effect of the proposed concentration over market entry and the advancement of technology; 4.The effect of the proposed concentration over consumers and other related undertakings; 5.The effect of the proposed concentration over the development of the national economy; and 6.Other factors 10 AML as appears in Farmer (2010)

11 DRAFT Consumer impact Other firms Innovation Macro control Socialist market economy Social public interest Regional integration Comparison with the UK 11 Modern Markets, Confident Consumers. DTI (2009). Enterprise Act, 2002, Chinese AML.. Is merger in defined area of “public interest” Balancing assessment of competition, efficiency, and “public interest Impact on consumers (competition, efficiency, failing firm) + National Security

12 DRAFT Contents  Institutional setting  Purpose of the AML  Who makes the decisions  Importance of precedence  Availability of data  The role of economics  Revealed preference from cases  Suggestions for the future? 12

13 DRAFT A member of the Anti Monopoly Enforcement Authority, and sits on or under the State Council Decision making body 13 MOFCOM “political” leadership NDRC Ministry of Industry and Information Technology Anti Monopoly Bureau Case team Emch (2011, forthcoming), Yee Wah Chin (2010) Economic, policy, legal support etc. Trade associations Third parties, competitors, etc

14 DRAFT Decision making body 14 Independent, Technical Political Specialist court General court Independent specialist administrative body Technical section of government department Policy section of government department Political leadership of government departments

15 DRAFT Contents  Institutional setting  Purpose of the AML  Who makes the decisions  Importance of precedent  Availability of data  The role of economics  Revealed preference from cases  Suggestions for the future? 15

16 DRAFT Importance of precedence  The more a precedent-based legal system is involved, the more important is precedent  Courts as decision makers in US  Active appeal courts in UK and EU  Substantially effects decision making process  Due process & transparency  Repeatable decision rules, precedence 16

17 DRAFT Importance of precedence  Role of law (and courts) in PRC is much less than it is in some other jurisdictions  Less appeals  Shorter decisions  Less need to create repeatable decision rules  Reduced role of precedent  Though clearly PRC institutions effective at setting expectations that are acted upon  Perhaps just a less formal process Clarke (2006, 2007)

18 DRAFT Contents  Institutional setting  Purpose of the AML  Who makes the decisions  Importance of precedent  Availability of data  The role of economics  Revealed preference from cases  Suggestions for the future? 18

19 DRAFT Evidence – hard data  Reduced availability of hard data  Less reliable national statistics  Very limited local data  Shorter data series  Less transparent filed accounts (particular for SOEs)  Very diverse geographic regions  A developing and transitional economy – in a state of change 19

20 DRAFT Evidence – soft data  Greater reliance on normative opinions  Other companies  Other arms of government ...but parties likely to be less sophisticated  Few consumer voice organisations (state of flux?)  Business community perhaps not so well informed / confident  But trade associations may have closer government relations 20 Emch (2011, forthcoming), Zhang, Chang (2008)

21 DRAFT Contents  Institutional setting  Purpose of the AML  Who makes the decisions  Importance of precedence  Availability of data  The role of economics  Revealed preference from cases  Suggestions for the future? 21

22 DRAFT The role of economics - UK 22 UK Objective function Single objective Decision making body Technocratic, independent Importance of precedent Threat of review forced consistency Availability of data Reasonably good  Quantify competing effects  Create repeatable decision principles  Clear focus on consumer impact  Decisive element of decision making

23 DRAFT The role of economics - PRC 23 China Objective function Multi- dimensional Decision making body Political, sometimes multi-agency Importance of precedent n/a Availability of data Patchy  Sometimes “traditional” horizontal effects  Sometimes prospective impact on non-consumer elements of concern  Informing remedy negotiations  Integrated part of broader argument

24 DRAFT Contents  Institutional setting  Purpose of the AML  Who makes the decisions  Importance of precedence  Availability of data  The role of economics  Revealed preference from cases  Suggestions for the future? 24

25 DRAFT Caveat ...this is where it gets a bit speculative... 25

26 DRAFT Cases - summary Features considered Nature of remedy Role of economics Anheuser-Bursch / Inbev BrandsSemi- structural Prospective, dynamic Coca-Cola / HuiyanBrands, foreclosure None – blocked Prospective, dynamic, vertical General Motors / Delphi ForeclosureBehaviouralProspective, dynamic, vertical Novartis / AlconHorizontal incl. collusion BehaviouralProspective, horizontal Mitsubishi Rayon / Lucite HorizontalStructuralHorizontal effect on current competition Pfizer / WyethHorizontalStructuralHorizontal effect on current competition Panasonic / SanyoHorizontalStructuralHorizontal effect on current competition 26 A: PRC B: TRA D

27 DRAFT Analysis A – Wider PRC interests  Focus in some cases is on the future – economic analysis could focus there too  Impact on development of brands and technology  Less trust that competition will necessarily producing desired future outcomes  Probably requires close integration with legal team  “Econ advice” less of a standalone product?  Assistance in remedy design? 27

28 DRAFT Analysis B – Traditional economics in a different market  Reduced data makes (already problematic) analysis of relative market shares even more difficult  Suggests modern Upward Pricing Pressure approaches may be more suitable  Evidence on rivalry between firms may be easier to collect on a case-by-case basis? 28

29 DRAFT Conclusion 29  The objective of the AML is more complex than the objective of A101/102.  The test is more complex.  The decision making body is more political.  There is less evidence. The comparative advantage of economics as a decision making principle against a vaguer approach of compromise and argument is reduced

30 DRAFT 1: prospective analysis with less trust in current competition solving future problems 2: adapt traditional analysis for PRC data and market conditions 3: less separation between legal, economic, and political argument and compromise Conclusion 30 To understand the role of economics, need to understand its role in the argument and compromise

31 DRAFT Contact details    Skype: david.stallibrass 31


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