Economic analysis in German competition law enforcement St. Martin Conference 2010 - RECENT TRENDS AND DEVELOPMENTS IN COMPETITION LAW AND POLICY Economic analysis in German competition law enforcement Brno, 12 November 2010 Dr. Arndt Christiansen Bundeskartellamt Economic Issues (G3)

Outline Economic analysis in competition law enforcement The German cement cartel case The Bundeskartellamt’s “Best practices for expert economic opinions” from October 2010 Summary

Economic analysis in competition law enforcement Economic analysis is integral part of effective and sound competition law enforcement by the Bundeskartellamt. Economic Issues (G3) as part of the General Policy Division Two prominent exemplary areas: Merger control Market delineation Collective dominance / oligopoly (Hard core) cartel investigations Identifying/measuring anti-competitive (price-)effects of the alleged infringement relevant in public enforcement (estimation of “additional proceeds”) and private enforcement (damage calculation)

Expert economic opinions Another important “input channel” of economic analysis: expert opinions (mostly) submitted by parties A total of 36 such opinions in 20 cases since (July) 2007 Steeply rising number in recent years (figure for the year 2007 only since July)

The German cement cartel case – Background Only some highlights of the long and complex proceedings Offense: Quota cartel / market sharing + cornering of mavericks Decisive role of economic analysis in the estimation of the “additional proceeds” Legal Background: Until 2005 level of fines in Germany linked to “additional proceeds” of the offence former Section 81 (2) ARC (in effect until 2005) “[…] the administrative offence may be punished […] up to three times the additional proceeds obtained as a result of the violation […]. The amount of the additional proceeds may be estimated.” Economist appointed as “expert of the court”

The German cement cartel case –Procedural milestones 7/2002: dawn raids Leniency application by one company 2002/2003: administrative fines imposed by the Bundeskartellamt A total of 660 Mio. € fines; based on estimated overcharge / price effect of 10 €/t.) Most companies appealed 2004-2008: interim procedure / preparation of writ of prosecution (incl. further plausibility checks of estimated price effect)

The German cement cartel case –Procedural milestones 12/2008 - 6/2009: main trial before the Higher Regional Court (HRC) in Düsseldorf (36 days of oral hearings) Appointment of ESMT / Prof. Roeller as “expert of the court” (supported by Bundeskartellamt) Extensive debate on methodology upfront (based on expert’s proposals) Adjudication / instruction of expert mandate in 2/2009 Discussion of data and results in court in 4/2009 and in 5/2009 Alternative estimations based on expert’s dataset submitted by the Bundeskartellamt in 5/2009 Judgment: fines 330 Mio. € (HRC amply followed its appointed expert)

The market reality to be explained 8

Choice of methodology for estimating the “additional proceeds”

Model specification and results by court-appointed expert

One of several controversial issues: Does “price war” matter, and how? Pre-price war Post-price war

Alternative estimations by the Bundeskartellamt

The German cement cartel case: Some conclusions Analysis by the court-appointed expert (for the most part) in line with standards / best practices, i.a. Analysis relevant to the issue at hand Unbiased discussion of methodological issues Choice of well-established methodology Transparency of assumptions Provision of complete data and program codes ( replicability) Reduction of fines mainly result of interpretation of economic analysis by the HRC Strong (“powerful”) position of the appointed expert Strong impact of the in dubio pro reo principle

The Bundeskartellamt’s “Best practices for expert economic opinions” Reflection of our experience with received expert opinions, in particular in the cement cartel case, and international developments Aims: statement of minimum quality requirements procedural fairness and efficiency Drafted by G3 but decisive role of Decision Divisions Published on 20 October 2010; available online at http://www.bundeskartellamt.de/wEnglisch/download/pdf/ Merkblaetter/Bekanntmachung_Standards_Englisch_final.pdf

Structure of the “Best practices” I. Principles General principals (sec. I.1) Standards for theoretical/conceptual analyses (sec. I.2) Standards for empirical analyses (sec. I.3) II. Procedural steps (sec. II)

General principals Relevance to the case in question Completeness: Opinion must contain all the information necessary to understand and replicate results. Transparency: i.a. disclosure of assumptions Consistency: avoidance or at least explanation of inconsistencies in assumptions or results Language: German as official language but English acceptable after consultation of the Decision Division Non-technical summary; non-confidential version Bibliography and reference list Preference for established theories and methods

Standards for theoretical/conceptual and empirical analyses Standards for theoretical/conceptual analyses Choice of model Relationship to the competition issue in question Robustness Standards for empirical analyses Methodology Selection and processing of data Presentation of results

Procedural steps Procedural steps Contacts before submission Timing of submission Completeness Decisive role of competent Decision Division Application with respect to the case in question Further development in the light of future experience

Summary Economic analysis is integral part of effective and sound competition law enforcement by the Bundeskartellamt The German cartel case until 2009 as a promising example Economic studies welcome but necessity of (minimum) quality standards / best practices Publication of Bundeskartellamt’s “Best practices” on 20 October 2010 Guidance not only for economic experts but also for lawyers/ judges to assess probative value of economic arguments and empirical analysis properly

Economic analysis in German competition law enforcement St. Martin Conference 2010 - RECENT TRENDS AND DEVELOPMENTS IN COMPETITION LAW AND POLICY Economic analysis in German competition law enforcement Brno, 12 November 2010 Dr. Arndt Christiansen Bundeskartellamt Economic Issues (G3)