Dr. Arndt ChristiansenBundeskartellamt

Economic Issues (G3)

St. Martin Conference 2010 -RECENT TRENDS AND DEVELOPMENTS IN COMPETITION

LAW AND POLICY

Economic analysis in German competition law enforcement

Brno, 12 November 2010

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

2

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)

Economic analysis in competition law enforcement

3

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)

2007 2008 2009 201002468101214161820

Year

Num

ber

of

opin

ions

4

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 – Background

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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

6

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 German cement cartel case –Procedural milestones

7

The market reality to be explained

8

Choice of methodology for estimating the “additional proceeds”

9

Model specification and results by court-appointed expert

10

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

Pre-price warPrice war

Post-price war

11

Alternative estimations by the Bundeskartellamt

-6

-4

-2

0

2

4

6

45

50

55

60

65

70

92 94 96 98 00 02 04 06 08

Residual Actual Fitted

-4

-2

0

2

4

6

48

52

56

60

64

68

92 94 96 98 00 02 04 06 08

Residual Actual Fitted

12

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 German cement cartel case:Some conclusions

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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

The Bundeskartellamt’s “Best practices for expert economic opinions”

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I. Principles

1. General principals (sec. I.1)

2. Standards for theoretical/conceptual analyses (sec. I.2)

3. Standards for empirical analyses (sec. I.3)

II. Procedural steps (sec. II)

Structure of the “Best practices”

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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

General principals

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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 Robustness

Standards for theoretical/conceptual and empirical analyses

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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

Procedural steps

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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

Summary

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Dr. Arndt ChristiansenBundeskartellamt

Economic Issues (G3)

St. Martin Conference 2010 -RECENT TRENDS AND DEVELOPMENTS IN COMPETITION

LAW AND POLICY

Economic analysis in German competition law enforcement

Brno, 12 November 2010