Economic analysis: an essential tool for effective competition - - PowerPoint PPT Presentation

Gregor Langus Member of the Chief Competition Economist Team European Commission

Economic analysis: an essential tool for effective competition policy

Conference on Institution Building of the Competition Authorities in South- East Europe – Belgrade, June 2016

Disclaimer

• The views expressed in this presentation are

personal, and do not necessarily represent those

• f DG Competition or of the European

Commission…

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The two problems of effective enforcement

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Identification Independence Conduct Effects Positive Negative Net effect Competition authority Government Parties Complainants Public

The two legs of competition economics – telling a credible and testable story

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Conduct Effects Positive Negative Net effect

Theory:

• Identify the main issues of

an otherwise too complex reality.

• Identify the pro- and anti-

competitive effects (against a likely counterfactual). Empirics / Econometrics:

• Provide empirical content to

relations identified in theory.

• Allows for the balancing of

effects.

Circumstances Facts

Economic analysis at the EC

5 Potential problems Candidate theories

• f harm (stories)

Complaints Own investigation

• Econ. lit.

Quick facts Assumptions and caveats Required evidence Assess evidence Surviving theory of harm (story) Write that story Read economic literature Decision Bring the theory, empirics (facts) together Do econometrics Quick and dirty

EC Example: econometrics – horizontal merger

Two low cost airlines - merger Change in fare on entry route compared to Change in fare on benchmark route(s) "Difference-in-Differences" "Controlling for other factors"

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Economics in young agencies

Get well-trained economists. Integrate them with the case team. Own modelling is typically not necessary. Often it is enough to study the literature to identify possible theories of harm – and caveats.

• Spell out assumptions. Explain what the counterfactual is. Check that the

narrative is consistent with the incentives of the relevant firms.

• Do the facts of the case fit the model/theory? Use of high-power econometrics
• ften not needed.
• Write a complete story and include caveats – all in plain language.

Econometrics is resource-intensive – proceed cautiously.

• Start early, issue clear and detailed data requests, engage with parties,

customers and complainants.

• Even simple econometrics must be executed and interpreted carefully.

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