Archives For competition advocacy

On November 1st and 2nd, Cofece, the Mexican Competition Agency, hosted an International Competition Network (ICN) workshop on competition advocacy, featuring presentations from government agency officials, think tanks, and international organizations.  The workshop highlighted the excellent work that the ICN has done in supporting efforts to curb the most serious source of harm to the competitive process worldwide:  government enactment of anticompetitive regulatory schemes and guidance, often at the behest of well-connected, cronyist rent-seeking businesses that seek to protect their privileges by imposing costs on rivals.

The ICN describes the goal of its Advocacy Working Group in the following terms:

The mission of the Advocacy Working Group (AWG) is to undertake projects, to develop practical tools and guidance, and to facilitate experience-sharing among ICN member agencies, in order to improve the effectiveness of ICN members in advocating the dissemination of competition principles and to promote the development of a competition culture within society. Advocacy reinforces the value of competition by educating citizens, businesses and policy-makers. In addition to supporting the efforts of competition agencies in tackling private anti-competitive behaviour, advocacy is an important tool in addressing public restrictions to competition. Competition advocacy in this context refers to those activities conducted by the competition agency, that are related to the promotion of a competitive environment by means of non-enforcement mechanisms, mainly through its relationships with other governmental entities and by increasing public awareness in regard to the benefits of competition.  

At the Cofece workshop, I moderated a panel on “stakeholder engagement in the advocacy process,” featuring presentations by representatives of Cofece, the Japan Fair Trade Commission, and the Organization for Economic Cooperation and Development.  As I emphasized in my panel presentation:

Developing an appropriate competition advocacy strategy is key to successful interventions.  Public officials should be mindful of the relative importance of particular advocacy targets, as well as matter-specific political constraints and competing stakeholder interests.  In particular, a competition authority may greatly benefit by identifying and motivating stakeholders who are directly affected by the competitive restraints that are targeted by advocacy interventions.  The active support of such stakeholders may be key to the success of an advocacy initiative.  More generally, by reaching out to business and consumer stakeholders, a competition authority may build alliances that will strengthen its long-term ability to be effective in promoting a pro-competition agenda. 

The U.S. Federal Trade Commission, the FTC, has developed a well-thought-out approach to building strong relationships with stakeholders.  The FTC holds public publicized workshops highlighting emerging policy issues, in which NGAs and civil society representatives with expertise are invited to participate.  Its personnel (and, in particular, its head) speak before a variety of audiences to inform them of what the FTC is doing and of the opportunities for advocacy filings.  It reaches out to civil society groups and the general public through the media, utilizing the Internet and other sources of public information dissemination.  It is willing to hold informal non-public meetings with NGAs and civil society representatives to hear their candid views and concerns off the record.  It carries out major studies (often following up on information gathered at workshops and from non-government sources) in addition to making advocacy filings.  It interacts closely with substantive FTC enforcers and economists to obtain “leads” that may inform future advocacy projects and to suggest possible lines for substantive investigations, based on the input it has received.  It communicates with other competition authorities on advocacy strategies.  Other competition authorities may wish to note the FTC’s approach in organizing their own advocacy programs.  

Competition authorities would also benefit from consulting the ICN Market Studies Good Practice Handbook, last released in updated form at the April 2016 ICN 15th Annual Conference.  This discussion of the role of stakeholders, though presented in the context of market studies, provides insights that are broadly applicable more generally to the competition advocacy process.  As the Handbook explains, stakeholders are any individuals, groups of individuals, or organizations that have an interest in a particular market or that can be affected by market conditions.  The Handbook explains the crucial inputs that stakeholders can provide a competition authority and how engaging with stakeholders can influence the authority’s reputation.  The Handbook emphasizes that a stakeholder engagement strategy can be used to determine whether particular stakeholders will be influential, supportive, or unsupportive to a particular endeavor; to consider the input expected from the various stakeholders and plan for soliciting and using this input; and to describing how and when the authority will seek to engage stakeholders.  The Handbook provides a long list of categories of stakeholders and suggests ways of reaching out to stakeholders, including through public consultations, open seminars, workshops, and roundtables.  Next, the Handbook presents tactics for engaging with stakeholders.  The Handbook closes by summarizing key good practices, including publicly soliciting broad voluntary stakeholder engagement, developing a stakeholder engagement strategy early in a particular process, and reviewing and updating the engagement strategy as necessary throughout a particular competition authority undertaking.

In sum, properly conducted advocacy initiatives, along with investigations of hard core cartels, are among the highest-valued uses of limited competition agency resources.  To the extent advocacy succeeds in unraveling government-imposed impediments to effective competition, it pays long-run dividends in terms of enhanced consumer welfare, greater economic efficiency, and more robust economic growth.  Let us hope that governments around the world (including, of course, the United States Government) keep this in mind in making resource commitments and setting priorities for their competition agencies.

The ICN’s 14 Annual Conference, held in Sydney, Australia, from April 28th through May 1st, as usual, provided a forum for highlighting the work of ICN working groups on cartels, mergers, unilateral conduct, agency effectiveness, and advocacy.  The Conference approved multiple working group products, including a guidance document on investigative process that reflects key investigative tools and procedural fairness principles; a new chapter for the ICN Anti-Cartel Enforcement Manual on the relationship between competition agencies and public procurement bodies; a practical guide to international cooperation in mergers; a workbook chapter on tying and bundling (more on this in a future Truth on the Market commentary); and a report on developing an effective competition culture.  Efforts to promote greater openness and procedural due process in competition agency investigations (a U.S. Government priority) – and to reduce transaction costs and unnecessary burdens in merger reviews – continue to make slow but steady progress.  The host Australian agency’s “special project,” a report based on a survey of how agencies treat vertical restraints in online commerce, fortunately was descriptive, not normative, and hopefully will not prompt follow-up initiatives.  (There is no sound reason to believe that vertical restraints of any kind should be given high enforcement priority.)

Most significant from a consumer welfare standard, however, were the signs that competition advocacy is being given a higher profile within the ICN.  Competition advocacy seeks to dismantle, or prevent the creation of new, government regulations that harm the competitive process, such as rules that create barriers to entry or other inefficiencies that have a disparate impact on differently-situated firms.  The harm stemming from such distortions (described as “anticompetitive market distortions” or “ACMDs” in the recent literature) swamps the effects of purely private restraints, and merits the highest priority from public officials who seek to promote consumer welfare.  In the plenary event on the Conference’s closing day (moderated by former UK Office of Fair Trading head John Fingleton), the leaders of the competition agencies of France, Mexico, and Singapore, joined by an Italian Competition Commissioner, addressed the theme of “credible advocacy,” specifically, means by which competition agencies can highlight the harm from government impediments to competition.  Representatives of the World Bank and OECD participated in the Sydney Conference discussions of competition advocacy, reflecting a growing interest in this topic by international economic institutions.  The newly approved ICN report on developing a competition culture pointed the way toward promoting greater public acceptance of procompetitive policies – a prerequisite for the broad-scale dismantling of existing (and blocking of newly proposed) ACMDs.

Notably, in a follow-up breakout session on advocacy toward policymakers, former Mexican competition chief (and head of the ICN Executive Steering Committee) Eduardo Perez Motta cited the example of his agency’s convincing the Mexican Commerce Ministry not to adopt new non-tariff barriers that would have effectively blocked steel imports – a result that would have imposed major harm on both Mexican businesses that utilize steel inputs and many ultimate consumers.  (The proposed steel restraint, a prime example of an ACMD, represented a manifestation of crony capitalism – a growing problem in industrialized economies, including the United States.)  This example vividly demonstrates that competition agencies may occasionally prove successful in the fight to curb ACMDs (and crony capitalism in general), if they have sufficient political influence and are given the correct tools to spot and highlight for the public the costs of such harmful government restraints.

A powerful way to build public support against ACMDs is to highlight their costs.  Scholars from Babson College (Shanker Singham and Srinivasa Rangan), Northeastern University (Robert Bradley), and I have developed a metric that seeks to estimate the negative effects of ACMDs on national productivity.  Our paper, which presents quantitative estimates on how various institutional factors affect productivity, draws upon existing indices of economic liberty, including the World Economic Forum Global Competitiveness Index, the Fraser Index, and the Heritage Foundation Index of Economic Freedom.  We will present this paper at a World Bank-OECD Conference on Competition Policy, Shared Prosperity and Inclusive Growth, to be held next month at World Bank Headquarters in Washington, D.C.  (Hopefully this will lead to annual joint World Bank-OECD conferences exploring this topic.)  Stay tuned for additional information on ongoing efforts by the ICN and other international economic institutions to bolster competition advocacy – and for more details on my co-authored paper.

I thank Truth on the Market (and especially Geoff Manne) for adding me as a regular TOTM blogger, writing on antitrust, IP, and regulatory policy. I am a newly minted Senior Legal Fellow at the Heritage Foundation, and alumnus of BlackBerry and the Federal Trade Commission.

Representatives of over 100 competition agencies from around the globe, joined by “non-governmental advisors” (NGAs) from think tanks, universities and the private sector, gathered in Marrakech two weeks ago for the 13th Annual Conference of the International Competition Network (ICN).

The ICN, founded in 2001, seeks to promote “soft convergence” in competition law and policy by releasing non-binding (but highly influential) recommended “best practices,” holding teleseminars and workshops, and disseminating educational and training materials for use by governments.  ICN members produce their output through flexible project-oriented and results-based working groups, dealing with mergers, unilateral conduct, cartels, competition advocacy, and agency effectiveness (how to improve agency performance).  (I have been involved in ICN work since 2006, as a U.S. Federal Trade Commission representative and an NGA.  The term “competition” is generally employed in lieu of “antitrust” in most foreign jurisdictions.)

The Marrakech Conference yielded two new sets of recommended practices, focused on competition assessment and predatory pricing.  (I will have more to say on predatory pricing in my next blog post.)  To the extent they are eventually implemented in the U.S., the competition assessment recommendations could lower the burden of government-imposed regulatory restrictions to the benefit of American consumers and American competitiveness.

As then FTC Chairman Tim Muris observed in 2003, in highlighting the importance of combating government-imposed competitive restraints,

[a]ttempting to protect competition by focusing solely on private restraints is like trying to stop the flow of water at a fork in a stream by blocking only one of the channels.  Unless you block both channels, you are not likely to even slow, much less stop, the flow. Eventually, all the water will flow toward the unblocked channel.

Indeed, anticompetitive government regulations that restrict entry, protect state-sponsored firms, and otherwise dampen the competitive process are legion, and widely viewed as imposing far greater harm to consumer welfare than the purely private restraints traditionally condemned by antitrust. Because they operate openly and are backed by the enforcement power of government, public restraints, unlike private restraints, cannot be undermined by market forces, and thus are far more likely to have sweeping and harmful long-term effects.

The FTC and other competition agencies have employed “competition advocacy” to argue against particular anticompetitive government restrictions, but those efforts historically have been limited in number, scope, and effectiveness.  Despite the huge potential welfare benefits from lifting anticompetitive restrictions, those restraints typically are the fruits of successful lobbying by private beneficiaries of competitive distortions, or by “public interest” groups that trust rule by government fiat over market forces.  Moreover, consumers at large are generally ill-informed about regulatory harms and the costs to organize in favor of reform efforts are prohibitive.

Recently, however, international organizations, including the OECD, UNCTAD, and the World Bank, have stepped forward to highlight the costs of public sector regulatory restraints and to help competition agencies spot and advocate against different sorts of restrictions.  Building on these initiatives (and in particular the OECD’s Competition Assessment Toolkit), the ICN’s Advocacy Working Group drafted Recommended Practices on Competition Assessment (RPCA) that the ICN adopted and released as a new consensus product in Marrakech.

The RPCA apply broadly to proposed and existing legislation, regulations, and policies that may restrict competition.  Recognizing that government competition agencies differ greatly in their capacities and ability to influence other government bodies, the RPCA note that competition assessments can take many forms, ranging from recommendations drawn from application of general economic theory to resource-intensive competition impact assessments, with many variations in between.  The RPCA stress that they are intended to provide guidance, not require particular assessments, and that government entities other than competition agencies can carry out valuable assessment work.

The RPCA provide a comprehensive “soup to nuts” template for agencies tasked with assessments, comprising both process-related and substantive elements:

  • A competition assessment should identify an existing or proposed policy that may unduly restrict competition and evaluate its likely impact on competition;
  • Competition agencies should advocate for a policymaking environment that promotes consideration of competition principles (including delineation of legal authority and openness to outside sources of advice);
  • A transparent process should be used to conduct assessments;
  • Agencies should focus assessments on types of restrictions that pose the greatest threat to competition, and design selection criteria (which are described) to prioritize competition assessment among other advocacy activities;
  • Agencies should consider institutional arrangements and relationships with policymakers in building assessment programs (practical advice designed to enhance the political viability of assessments);
  • Agencies should consider whether a competitive restriction is reasonably related to the goals of the policy under review and whether the policy goal could be achieved without harming competition or in a less restrictive manner;
  • A competition assessment should start by identifying and considering the goals and objectives of the policy in question and review prior work in the area;
  • Agencies should consider how a policy’s restrictions are likely to influence the market structure and behavior of firms and customers in the market or neighboring markets;
  • Once a restraint and its possible competitive effects have been identified, agencies should evaluate the likely competitive effects on the basis of sound economic theory, and, where feasible, on empirical evidence;
  • Agencies should carefully consider the form of competition assessment most appropriate for a particular situation (i.e., agencies should be free to issue a formal or informal opinion with flexibility as to the manner of delivery);
  • Agencies should seek to deliver a competition assessment in a timely fashion; and,
  • Agencies should engage with interested third parties (e.g., policy organizations and domestic peer agencies) to promote policymakers’ consideration of an assessment.

The RPCA shine particularly bright in providing a concise yet nuanced evaluation of the sorts of restraints that are most likely to undermine the competitive process, including a cogent discussion of barriers to entry, exit, or expansion within a market; of policies that control how firms are allowed to compete in a market; of policies that shield firms from competitive pressure; and of policies that control the choices available to consumers.  The RPCA also highlight the value of attempting, where feasible, to derive quantitative welfare estimates of the costs of particular restrictions, based on a neutral metric and other tools of economic analysis.  Over the next year further work will be done on cataloguing existing case studies that contain welfare estimates and on the derivation of a metric.

The RPCA are no short-term panacea, but rather a practical manifesto for long-run regulatory reform.  They shed a useful spotlight on categories of economically harmful regulations that occur in a wide range of countries – not just in historically state-dominated economies.  Rent-seeking is ubiquitous, and regulations too often reflect wealth-destructive competitive limitations masquerading in public interest dress in all sorts of jurisdictions, including the United States.  Given the recent rapid rise in U.S. regulatory activity, the identification of U.S. federal and state government rules that undermine competition surely will remain a target-rich zone for competition advocates.

Let’s hope that, over time, when the political tides yield greater support for economic liberty, the lessons of Marrakech will point the way to repealing welfare-destructive regulatory impositions across the globe.