CONTEMPORARY ISSUES IN COMPETITION LAW AND

ADVOCATING FOR GOOD POLICYAHMED QADIR

Presentation to the NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY

12 May 2016

Competition is rivalry between firms to gain more customers

Competitors want to give better deals to customer so that they buy from them and increase their profits

To give better deals, firms try to make better products and services, and, hence, introduce innovation. Innovation means better technology and more people who can operate it. As a result, more jobs are created.

Firms will also try not to over-price their product from the fear of losing customers to competition. They try to find ways to minimise costs by introducing new techniques for efficiency.

Structure of the presentation

■ Seeing how competition policies have taken hold around the world, and what impact globalisation has had on competition law and its enforcement

■ Recognising the key issues in contemporary competition policy vis-à-vis economic growth policies and disruptive innovation

■ Analysing mergers and acquisitions and how have they are altering the relationship between business and consumers and the implications of this for society

■ The impact of the sharing economy and related regulatory challenges

Life can only be understood backwards; but it must be lived forwards.Soren Kierkegaard

“The Harvard historian Niall Ferguson, whohas…written a book, Civilization: TheWest and the Rest, puts things inhistorical context: ‘For 500 years the Westpatented SIX KILLER APPLICATIONS that set it apart.The first to download them was Japan. Over the lastcentury, one Asian country after another hasdownloaded these killer apps — competition, modernscience, the rule of law and private property rights,modern medicine, the consumer society and the workethic. Those six things are the secret sauce ofWestern civilization.’”Fareed Zakaria, “Are America's Best Days Behind Us?” TIME, 3 March 2011

Competition & Competitiveness: Burning Issue for Economic Development!

Competition & Competitiveness: Burning Issue for Running organisations!Harvard Business Review: October 2015

Worldwide Spread of Competition Law

■ 1900

■ 1960Note: EU introduced antitrust law in 1957

Worldwide Spread of Competition Law

The shipping container

■ Invented in 1956, the single most

important reason for the growth of global trade, “making the world smaller and the world economy bigger.”

■ THE ECONOMIST explains: Why have containers boosted trade so much?, 21 MAY 2013

■ 1980

Worldwide Spread of Competition Law

■ 1990

Worldwide Spread of Competition Law

2000

Worldwide Spread of Competition Law

■ 2010

Worldwide Spread of Competition Law

Comparative Competition Policies

■ Europe has lagged behind U.S. in competition regulation, but is catching up

■ EU today has complete set of competition policies, however enforcement is different– Attention paid to market domination by former state-run

enterprises– Concern with price discrimination across borders– Strong inclination to protect small business

■ nations have moved to adopt their own competition policies, e.g., ASEAN made it a requirement by 2015

Globalisation and Competition Policy■ Rapid has created challenges for competition enforcement.

Consider this:

– Should a government mergers, or joint ventures, even if they reduce competition, if they enhance the ability of domestic businesses to compete internationally?

– Should a country government move to monopolies, if the global marketplace for the products offered is highly competitive?

– Should regulators try to enforce competition laws against companies if they operate subsidiaries within their borders?

– What can governments take to create a level playing field, so that corporations operate under a common set of competition rules and regulations wherever they do business?

■ anti-competitive practices that restrict or otherwise

distort international trade remain across nations

■ risk of covert, such as export cartels

and are replacing official trade restrictions, and creating new challenges to the cross-border flow of goods and services.

Globalisation and Competition Policy

Competition law Enforcement and National Competitiveness■ Regulators have when goal of competitive market conflicts with goal

of strong economy, relative to other countries

■ Since mid-1980s U.S. has permitted activities among firms where appropriate to their in the global economy

– The 1984 National Co-operative Research Act (NCRA) sought to balance co-operative R&D with competition by instructing the courts to use a “rule of reason”

■ European regulators have similarly permitted aimed at improving the competitiveness of their industries

■ Regulators have also rules governing joint production agreements to permit economies of scale

Enforcing competition Law against Foreign Firms■ In recent years, regulators have been more to address

possible violations of competition law by foreign companies– e.g., Requiring merged Swiss drug companies Sandoz and

Ciba-Geigy to divest product lines in the U.S. to avoid being a monopoly

■ European regulators have become more in enforcement against U.S. companies– e.g., – European court in 2005 upheld EU’s veto of General

Electric’s acquisition of Honeywell; Google (DG COMP 2015), Facebook (France 2015)

Harmonisation

■ Harmonisation is process being used to co-ordinate laws and enforcement of competition policies across countries. Much of the

work has focused on harmonisation

■ Several bilateral treaties are in place– has worked to co-ordinate antitrust enforcement– United Nations Conference on Trade and Development ( ) also

looks at competition issues– EU and U.S. now jointly review global mergers

■ Despite these efforts, of common standards creates a problem for cross-border mergers

Key competition Issue - Innovation

■ In early days of antitrust law, regulators promoted competition in order to provide and keep

down

■ Today, in the fast-paced economy, regulators have increasingly promoted competition to foster

■ Innovation is the central arena in which competition plays out. [It] is the hot issue for the foreseeable future.”

Key competition Issue - Monopoly

■ Does of an industry or a market by one or a few large corporations necessarily violate competition laws?

■ Should the biggest firms in each industry be up?

■ The courts have found that per se is not – If a company dominates the market because it offers a

superior product or service, has invented something unique, or even because it is just lucky, that is not against the law

– If, however, a firm uses its market dominance to commerce, compete , or consumers, then it may be found guilty of violating competition laws

Top 20 Global Companies 2015 (Pricewaterhousecoopers)

Key Competition Issue –Tech Industry■ Economy has from when competition laws were crafted in

the late 19th and early 20th century

■ We are now in the : primary currency is

; Land, labour, capital

■ Some argue that the basic principles of competition law are not applicable today – Monopolies in high-tech businesses are inherently unstable with

low barriers to entry and dynamic technological change constantly changing basis of competition

– Courts are struggling to resolve ways competition laws apply to high tech industries

“The Revolution Will Be Digitized”

“Income is one of the defining issues of our time. It affects all of us, the world over. The debate over its sudden acceleration has raged for years, with politicians, academics and activists alike helpless to stop its steady growth despite countless speeches, statistical analyses, a few meagre protests, and the occasional documentary. Still, questions remain: why? And why now?

The Panama Papers provide a compelling answer to these questions: , .” John Doe, the person behind the Panama Papers leak (April-May 2016)

Inequality - Thomas Piketty

■ Piketty, who teaches at the Paris School of Economics, has spent nearly two decades studying

.

Piketty's argument in four bullet points

■ The of is rising in all developed countries.

■ Absent extraordinary interventions, we should expect that to .

■ If it continues, the future will look like the 19th century, where have predominantly their wealth rather than for it.

■ The best solution would be a to .

Capital in the 21st Century

■ The provocative argument … that market capitalism, including the kind of welfare state capitalism practiced in continental Europe, will eventually lead to an economy

by those to be into a position

of

■ Piketty argues that this is how the economy of early 20th

century Europe worked, that the of inherited wealth was destroyed only by the devastation of two world wars, and that in the 21st Century the United States and Canada will suffer from the same affliction.

Three Different Types of Corporate Mergers

Forces Driving Mergers in the 1990s and 2000s

■ change

– Major companies jockeyed for position in rapidly evolving technologies

■ Changes in environment

– Examples include telecommunications deregulation, health care industry

■– Companies found they needed to be big to operate on the global stage

■ price appreciation

– Bull market in late 1990s gave some companies the means to purchase others

Large Mergers continue…Source: CAPITAL

CONFIDENCE BAROMETER, ERNST AND YOUNG, 2015

In 2015…

$5000

000000

000

Global activity in mergers and acquisitions, of which…!

In 2015…

$2.5000000000000

…Value of mergers and acquisitions in the United States!

Consequences of Corporate Mergers■ Which stakeholders will be and which will be by

wave(s) of corporate mergers?

■ Mergers bring to the firm, like economies of scale and access to new technologies but sometimes, however, they undermine responsibility to some stakeholder groups– Examples include employees losing their jobs and

communities negatively impacted by companies moving out (TATA Steel winding up in the U.K.?)

■ can lose if the merger is not well thought out or acquisition was overpriced (e.g., HP-COMPAQ 2001)

Challenges to Merger process

■ At the same time, global mega-mergers have become , but typically remain subject to the

of of , thus creating potential to cross-border investments.

■ Additionally, concerns have arisen that countries might be using competition policy to domestic firms over foreign ones, as evidenced by the recent controversies surrounding the enforcement of China’s Anti-Monopoly Law.

Competition concerns of Too many mergers and acquisitions?■ Several indicators suggest that competition may actually

be in many sectors and…

■ There are in industry-specific measures of concentration

■ 8th Annual Brussels Conference, July 2016: The bigger picture discussion points include– Are dealmakers really overreaching? – Are regulators over-zealous, even on minor matters? – 4-to-3s - new line in the sand?

Too much of a good thingProfits are too high. America needs a giant dose of competition, economist, 26 March 2016

■ “Profits have in most rich countries over the past ten years but the increase has been for firms. Coupled with an increasing concentration of ownership, this means the fruits of economic growth are being . …two-thirds of Americans, … have come to believe that the economy “unfairly favours powerful interests”... It means that when Hillary Clinton and Bernie Sanders … say that the economy is “ ”, they have a point.”

Since 2008 American firms have engaged in one of the largest rounds of mergers in their country’s history, worth $ . Unlike earlier acquisitions aimed at building global empires, these mergers were largely aimed at consolidating in America, allowing the merged companies to increase their market shares and cut their costs.

The companies in question usually of planning to pass the savings they make this way on to their customers…profits in America will rise by a further 10% or so.

Too much of a good thingProfits are too high. America needs a giant dose of competition, economist, 26 March 2016

Why this Increase in Market Power?■ The causes underlying a possible decrease in competition

and corresponding increase in market power are .

■ Explanations include associated with scale, increases in merger and acquisition activity, firms’

existing or potential competitors either or through , and to

entry (e.g., occupational licensing that reduced the entry of new firms into a variety of markets)

Profits?

■ Although essential, how high is ?

■ High profits could mean companies easily getting more by of than by providing

to consumers– In the U.S., cable tv has become a monopoly in

many parts accompanied by price hikes in the last five years (at 2x inflation rate)

– It’s still the same product and service!

Common ownership (?)

■ of institutional shareholders i.e., BlackRock, Capital Group.

■ They prefer businesses with “ .” (Warren Buffett’s term)

■ Ownership of 10-20% of most American companies, including direct competitors.

■ They do for strategic decisions e.g., pricing, investment in new capacity, etc.

■ This could ! (In Pakistan, Mobilink-Telenor-Warid)

Concentration is contagious

■ As firms become “powerful” on the supply chain

(suppliers customers) also up to themselves.

– Google leads search for airlines and hotels. Expedia responded by buying two main rivals.

– Hotels are also consolidating because of online travel sites to cater to multiple price points

Concentration ≠ collusion

■ Other factors at play might include that keep

competitors out, , and protecting .

– Business spending on lobbying doubled over the period as incumbents sought to shape regulations in ways that suited them. (Alphabet is now among the biggest lobbyists of any firm, spending $ in 2015.)

– The rising importance of , particularly patents, has meant that an ability to manage industry regulators and the challenges of litigation is more valuable than ever.

Shift in competition

■ Competition may be decreasing at the level of large corporations…

■ But is increasing at the level of the individual

Changing nature of economic activity■ “ ”

– an umbrella term encompassing different types of economic activities, somewhat , though all of them dependent on that bring together providers of different goods and services and users, and where is an essential input as standard and more intrusive regulation is often absent.

– You can now be part of the service delivery supply if you want to be.

– Do you have any assets? Earn money from them!

■ How are “individuals,” as compared to firms, regulated?

Online platforms and internet-based economic activity■ New internet businesses are dusty old

industries. The current wave includes (hire cars), (accommodation) and (labour

services).

■ there have been others in the past twenty years. has bankrupted postal services. put a rocket under telephone companies. has transformed information and advertising.

What is…the sharing economy?

■ Sharing economies involve of production, transaction (mostly spot transactions) and consumption.

■ They may be regarded as examples of “disruptive innovations” they with traditional ways of producing, distributing, and consuming goods and services, through the use of technological innovations (smartphones, digital content, and online distribution)

■ The new forms of production and of (mostly) spot transactions cause problems in definitions of ‘markets vs. firms.’

■ These forms of organising economic activity may arise to minimise associated transaction costs

How do the new wave of internet businesses into regulatory structures that were designed for a bricks-and-mortar world?

Badly!(very badly)

three regulatory challenges…

■… when dealing with internet businesses in the sharing economy

1. How do we protect consumer interests?

2. How do we avoid vested interests using regulation to stop entry and competition?

3. How do we prepare for future competition issues?

Shift in perspective

■ Some recent, popular books espouse avoiding competition, and acquiring monopoly power.

the tenets of competitive strategy and calls for a from competing to creating

and hence making the . C.2005

Competition Is for Losers■ If you want to create and capture

lasting value,

, writes Peter Thiel

■ Wall Street Journal http://www.wsj.com/articles/peter-thiel-competition-is-for-losers-1410535536

Strengthening the regulatory regime■ Effective regulation is to making markets work for

people and promoting health, safety and fairness.

■ In the last 15 years, amount of regulation e.g., anti-money laundering, banks and consumer financial protection, securities market, telecommunications, electronic media…

■ Competition regulation (enforcement) balanced with (compliance)

Important!

■ Promoting competition extends the of competition law.

■ Consumers and employees would benefit from by government to promote

competition in industries showing increase in concentration and the digital economy and other technologically dynamic sectors!

■ But…how much is intervention?

Growing nature of today’s challenges■ development, issues, statistics

■ Important to encourage economic activity by burden of compliance

■ Can regulators work …? Should they?

■ ’ in Pakistan! (Jointly) advocating for good policy and strengthening the regulatory state.

■ Questions? Comments?