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.
Apr 01, 2015
DRAFT
Economics in Chinese merger control
David Stallibrass
ACLE | 20th May 2011
Personal views of author. Does not represent opinion or position of any institutions to which he is affiliated.
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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
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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
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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?
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Institutional setting
Four key features of merger enforcement regimes that effect the use of economics
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China UK
Purpose of law Multi-dimensional Single objective
Who makes the decisions
Political. Sometimes multi-agency
Technocratic, independent
Importance of precedent
n/a Threat of review forces consistency
Availability of data
Patchy Reasonably good
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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?
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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”
7AML as translated by DLA Piper (2008)
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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.”
8AML as translated by DLA Piper (2008)
DRAFTDRAFTPurpose 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
9For example: Bush, Bo (2011)
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The substantive test – the statute
Article 27 – factors considered1. 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 10AML as appears in Farmer (2010)
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Comparison with the UK
11Modern 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
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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?
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A member of the Anti Monopoly Enforcement Authority, and sits on or under
the State Council
Decision making body
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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
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Decision making body
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Independent,Technical
Political
Specialist court Genera
l court
Independent specialist
administrative body Technical
section of government department
Policy section of government
department
Political leadership of government departments
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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?
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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
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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...17Clarke (2006, 2007)
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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?
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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
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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 20Emch (2011, forthcoming), Zhang, Chang (2008)
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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?
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The role of economics - UK
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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
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The role of economics - PRC
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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
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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?
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Caveat
...this is where it gets a bit speculative...
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Cases - summary
Features considered
Nature of remedy
Role of economics
Anheuser-Bursch / Inbev
Brands Semi-structural
Prospective, dynamic
Coca-Cola / Huiyan
Brands, foreclosure
None – blocked
Prospective, dynamic, vertical
General Motors / Delphi
Foreclosure Behavioural Prospective, dynamic, vertical
Novartis / Alcon Horizontal incl. collusion
Behavioural Prospective, horizontal
Mitsubishi Rayon / Lucite
Horizontal Structural Horizontal effect on current competition
Pfizer / Wyeth Horizontal Structural Horizontal effect on current competition
Panasonic / Sanyo
Horizontal Structural Horizontal effect on current competition 26
A: PRC
B: TRA
D
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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?
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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?
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Conclusion
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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
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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
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To understand the role of economics, need to understand its role in the
argument and compromise