Enactment of the New Antimonopoly Enactment of the New Antimonopoly - - PowerPoint PPT Presentation

ACLE Strategic Firm ACLE Strategic Firm-Authority Interaction March Authority Interaction March 16, 2007 16, 2007

Enactment of the New Antimonopoly Enactment of the New Antimonopoly Law in Russia (2006): Law in Russia (2006): Firms Firms-

• Legislator Strategic I nteraction?

Legislator Strategic I nteraction?

Svetlana Avdasheva, Higher School of Svetlana Avdasheva, Higher School of Economics, Economics, Andrei Shastitko, Moscow State Andrei Shastitko, Moscow State Univeristy Univeristy

ACLE Strategic Firm ACLE Strategic Firm-Authority Interaction March Authority Interaction March 16, 2007 16, 2007

New law “On protection of New law “On protection of competition” in Russia (2006) competition” in Russia (2006)

• Previously in force:

Previously in force:

– – Law “On competition and restriction of Law “On competition and restriction of monopolistic activities in commodity markets” monopolistic activities in commodity markets” (1991) (1991) – – Law “On protection of competition in the Law “On protection of competition in the markets for financial services” (1999) markets for financial services” (1999)

• Were criticized as a sources of relatively low

Were criticized as a sources of relatively low efficiency of Russian antitrust policy efficiency of Russian antitrust policy

• Now are replaced by the law “On protection

Now are replaced by the law “On protection

• f competition”
• f competition”

ACLE Strategic Firm ACLE Strategic Firm-Authority Interaction March Authority Interaction March 16, 2007 16, 2007

Objective (s) of the paper Objective (s) of the paper

• To explain the specificity of firms

To explain the specificity of firms-

• legislator

legislator strategic interactions within the weak strategic interactions within the weak institutional environment on the example of institutional environment on the example of the new Russian law “On protection of the new Russian law “On protection of competition” enactment competition” enactment

• To discover the main source of threats for

To discover the main source of threats for the future development of antitrust law in the future development of antitrust law in Russia: is that big business or legislator? Russia: is that big business or legislator?

• To assess the results of firms

To assess the results of firms-

• legislator

legislator strategic interaction in the specific context strategic interaction in the specific context

ACLE Strategic Firm ACLE Strategic Firm-Authority Interaction March Authority Interaction March 16, 2007 16, 2007

Plan of the paper Plan of the paper

1. 1.

Antitrust legislation in Russia: main points of criticism Antitrust legislation in Russia: main points of criticism

2. 2.

Context of the enactment of the new antimonopoly Context of the enactment of the new antimonopoly law law

3. 3.

Changes in the legal rules: role of strategic interaction Changes in the legal rules: role of strategic interaction and threats for future antitrust policy on the example and threats for future antitrust policy on the example

• f
• f
• General features of legal rules in the new law

General features of legal rules in the new law

• Rules on collusion, concerted practice and

Rules on collusion, concerted practice and collective dominance collective dominance

• Rules on dominance

Rules on dominance

• Rules on economic concentration control

Rules on economic concentration control

• Rules on sanctions and penalties

Rules on sanctions and penalties

4. 4.

Conclusions Conclusions

ACLE Strategic Firm ACLE Strategic Firm-Authority Interaction March Authority Interaction March 16, 2007 16, 2007

Antitrust legislation in Russia: main Antitrust legislation in Russia: main points of criticism points of criticism

• It is impossible to impose penalties

It is impossible to impose penalties sufficient to make illegal behavior sufficient to make illegal behavior unprofitable unprofitable

• The reasons to defend restrictions of

The reasons to defend restrictions of competition are too broad (positive competition are too broad (positive-

• socio

socio-

• economic effect)

economic effect)

• There is excessive ex

There is excessive ex-

• ante control of

ante control of mergers mergers

• The activity of antitrust authority is shifted

The activity of antitrust authority is shifted towards ex towards ex-

• ante control of mergers

ante control of mergers

ACLE Strategic Firm ACLE Strategic Firm-Authority Interaction March Authority Interaction March 16, 2007 16, 2007

Political environment of the new Political environment of the new law enactment law enactment

• On the one hand:

On the one hand:

– – Criticism towards legal base of antitrust Criticism towards legal base of antitrust regulation in Russia during last decade regulation in Russia during last decade – – New Russian antitrust authority Federal New Russian antitrust authority Federal Antimonopoly Service Antimonopoly Service – – Increasing efforts to improve the reputation of Increasing efforts to improve the reputation of antitrust policy antitrust policy

• On the other hand:

On the other hand:

– – Growing skepticism towards competition and the Growing skepticism towards competition and the role of antitrust in Russia (actual and potential) role of antitrust in Russia (actual and potential)

ACLE Strategic Firm ACLE Strategic Firm-Authority Interaction March Authority Interaction March 16, 2007 16, 2007

I nstitutional environment of the I nstitutional environment of the new law enactment new law enactment

Passive role of courts and excessive requirements

Passive role of courts and excessive requirements to antitrust legislation: to antitrust legislation:

– – To prove illegal actions it is necessary to have the precise To prove illegal actions it is necessary to have the precise description in the law description in the law – – Empirical evidence is hardly acceptable (if it is acceptable Empirical evidence is hardly acceptable (if it is acceptable at all) at all)

Many norms presented in the law are not applicable

Many norms presented in the law are not applicable at all: at all:

– – Norms on criminal penalties on violator of antitrust rules Norms on criminal penalties on violator of antitrust rules – – Norms on civil suits on violator of antitrust rules Norms on civil suits on violator of antitrust rules

Extensive discussions on the content of the new

Extensive discussions on the content of the new

• law. Legislator and antitrust authorities tried to
• law. Legislator and antitrust authorities tried to

react strategically on the strategic behavior of react strategically on the strategic behavior of business… but with what success? business… but with what success?

ACLE Strategic Firm ACLE Strategic Firm-Authority Interaction March Authority Interaction March 16, 2007 16, 2007

Strategic interaction of legislator Strategic interaction of legislator and antitrust authority: general and antitrust authority: general design of antitrust rules design of antitrust rules

Legislator: attempts to transplant rules from European

Legislator: attempts to transplant rules from European (EC and German) antitrust legislation (EC and German) antitrust legislation

Business: requirement to precise rules (motivation: in

Business: requirement to precise rules (motivation: in

• rder to exclude discretion of antitrust authority);
• rder to exclude discretion of antitrust authority);

attempts to exclude network industries from the attempts to exclude network industries from the authority of antitrust legislation authority of antitrust legislation

Outcome:

Outcome:

– – Tendency to give “complete description” of the evidence of the Tendency to give “complete description” of the evidence of the infringements infringements – – Eventually gives the way to type I and type II errors in Eventually gives the way to type I and type II errors in antitrust legislation enforcement antitrust legislation enforcement – – There is no There is no sectoral sectoral exemptions in the law, but special exemptions in the law, but special exemptions are possible due to special Decrees of Russian exemptions are possible due to special Decrees of Russian Government Government – – Institutional environment to enforce antitrust rules is still we Institutional environment to enforce antitrust rules is still weak ak

ACLE Strategic Firm ACLE Strategic Firm-Authority Interaction March Authority Interaction March 16, 2007 16, 2007

Strategic interaction of legislator and Strategic interaction of legislator and antitrust authority: rules on collusion, antitrust authority: rules on collusion, concerted practice and collective concerted practice and collective dominance dominance

Legislator: Legislator:

Concerted practice is not a collusion

Concerted practice is not a collusion

Introduction of a doctrine on collective dominance

Introduction of a doctrine on collective dominance

Prohibition of coordination

Prohibition of coordination Firms: Firms:

Very negative reaction but there is no alternative

Very negative reaction but there is no alternative suggestions suggestions Outcome: rules on concerted practice, collusion and Outcome: rules on concerted practice, collusion and collective dominance remain almost the same collective dominance remain almost the same during the process of discussions during the process of discussions

ACLE Strategic Firm ACLE Strategic Firm-Authority Interaction March Authority Interaction March 16, 2007 16, 2007

Strategic interaction of legislator and Strategic interaction of legislator and antitrust authority: rules on dominance antitrust authority: rules on dominance

Environment: Environment: There are problems to identify and prove dominance on the market There are problems to identify and prove dominance on the market, , including market boundaries and structural features including market boundaries and structural features There is intention of Federal Antitrust Service to develop tools There is intention of Federal Antitrust Service to develop tools able able to influence on big companies to influence on big companies Legislator: Legislator:

• Russian Government obtained a discretion to prescribe market

Russian Government obtained a discretion to prescribe market share that implies unilateral dominance on selected market share that implies unilateral dominance on selected market Firms: Firms:

• Very negative reaction but there is no alternative suggestions

Very negative reaction but there is no alternative suggestions Outcome: rule that Outcome: rule that any any market share may imply dominance under market share may imply dominance under Decree of Russian Government is included in the law. Decree of Russian Government is included in the law. Possible threat: Antimonopoly policy can be considered more as Possible threat: Antimonopoly policy can be considered more as ad ad hoc hoc regulation than policy based on economic reasoning regulation than policy based on economic reasoning

ACLE Strategic Firm ACLE Strategic Firm-Authority Interaction March Authority Interaction March 16, 2007 16, 2007

Strategic interaction of legislator and Strategic interaction of legislator and antitrust authority: rules on ex ante antitrust authority: rules on ex ante merger control merger control

Business: Rules and procedures of merger control before 2006 Business: Rules and procedures of merger control before 2006 create excessive administrative burden and should be replaced create excessive administrative burden and should be replaced by notification procedure only without any authority to give or by notification procedure only without any authority to give or not to give permission for merger not to give permission for merger Legislator: Legislator:

• Boundary of firm to be an object of ex ante control is adjusted

Boundary of firm to be an object of ex ante control is adjusted (now it is on about the same level as in US) (now it is on about the same level as in US)

• The very concept of economic concentration is adjusted

The very concept of economic concentration is adjusted considerably basing on the notion of redistribution of control considerably basing on the notion of redistribution of control

• Redistribution of shares within holding company groups are

Redistribution of shares within holding company groups are removed from the procedure of removed from the procedure of ex ex-

• ante

ante merger control merger control Outcome: Outcome:

• Regulation of

Regulation of ex ex-

• ante

ante economic concentration control is economic concentration control is modernized that allow to improve the effectiveness of antitrust modernized that allow to improve the effectiveness of antitrust

• In contrast to 22,000

In contrast to 22,000-

• 23,000 deals recently FAS expects to

23,000 deals recently FAS expects to analyze only about 400 deals each year analyze only about 400 deals each year

ACLE Strategic Firm ACLE Strategic Firm-Authority Interaction March Authority Interaction March 16, 2007 16, 2007

Strategic interaction of legislator and Strategic interaction of legislator and antitrust authority: rules sanctions and antitrust authority: rules sanctions and penalties penalties

Legislator: Legislator: To increase administrative sanctions for violation of To increase administrative sanctions for violation of antitrust law: antitrust law:

Up to 0,25

Up to 0,25-

• 2% of turnover

2% of turnover – – for the abuse of dominance for the abuse of dominance

Up to 0,5

Up to 0,5-

• 4% of turnover

4% of turnover – – for the cartels and collusion for the cartels and collusion

The same tendency for other infringements of law

The same tendency for other infringements of law Business community (presented in Business community (presented in Duma Duma RF): RF):

Till now the amendments to Russian Code of

Till now the amendments to Russian Code of Administrative Violations are not approved. Administrative Violations are not approved. Outcome: Outcome:

Under existing rules and procedures on remedies all

Under existing rules and procedures on remedies all

• ther changes and amendments of antitrust legislation
• ther changes and amendments of antitrust legislation

could provide minor impact could provide minor impact

ACLE Strategic Firm ACLE Strategic Firm-Authority Interaction March Authority Interaction March 16, 2007 16, 2007

Results of the firm Results of the firm-

• legislator strategic

legislator strategic interaction: new legal base of interaction: new legal base of antitrust policy in Russia antitrust policy in Russia

• New law tries to introduce new rules able to improve the

New law tries to introduce new rules able to improve the antitrust legislation and enforcement antitrust legislation and enforcement

• In the weak institutional environment efforts to improve rules

In the weak institutional environment efforts to improve rules describing illegal behavior could be inefficient describing illegal behavior could be inefficient

• Therefore, strategic reaction on threats created by new law

Therefore, strategic reaction on threats created by new law for potential violators could be aimed at not to reject or for potential violators could be aimed at not to reject or change new rules but to keep institutional environment weak change new rules but to keep institutional environment weak

• “Strategic reaction” on the business action is potentially

“Strategic reaction” on the business action is potentially harmful for Russian antitrust legislation and can lead to harmful for Russian antitrust legislation and can lead to deterioration of antimonopoly legislation deterioration of antimonopoly legislation

• It seems that in the framework of strategic interactions firms

It seems that in the framework of strategic interactions firms do not oppose not only to rules which can lead to type I do not oppose not only to rules which can lead to type I errors (illegal behavior is considered as legal) but also to rul errors (illegal behavior is considered as legal) but also to rules es which bring type II errors (legal behavior is considered as which bring type II errors (legal behavior is considered as illegal). One explanation is to diminish the value of antitrust illegal). One explanation is to diminish the value of antitrust authority reputation. authority reputation.