Evidence, Inference and Enforcement of Competition Laws

1. Evidence, Inference and Enforcement of Competition Laws Dr. Andrew Simpson Assistant Professor (Law) Faculty of Business Hong Kong Polytechnic University

2. Outline: • Necessity of Market Definition • Guidance from agencies is necessarily general • Kinds of evidence used by agencies and courts overseas • Direct evidence is surprisingly rare • Inference and Opinion play a large part • Look for corroboration between different kinds of evidence

3. The “market” is fundamental:

4. For example, the AML:

5. What should you aim to prove: “[T]he greatest prospects for success lie in proposing a market that is widely recognised by the industry itself and is reflected in industry attitudes and practices that may be established through the evidence” (Beaton-Wells, 2003)

6. How to define “the market”? • Market “dimensions” • Product • Geographical • +Functional +Temporal • For example: • the passenger cars market in China; • the automotive entertainment and communications market in China • the market for carbonated soft-drinks in China • Refer to Guidelines… • But how much help do Guidelines really provide?

7. MofCOM Guidelines • Demand and supply substitution analyses • “Evidence showing consumers shift …to purchasing other products due to a change of the products’ price or change of other competitive factors” (Art. 8(1)) • Price variance – substitutable products share the same trend in price changes over time (Art. 8(3)) • Evidence of purchasers buying in new geographical areas (Art. 9(1)) • Products’ transportation costs, transportability (Art. 9(2)) • Trade barriers (Art. 9(4)) • “Hypothetical monopolist test” (Art. 10, 11)  Evidence of actual conduct of suppliers and consumers is highly relevant…

8. Two problems: • Guidelines are necessarily quite general • In practice, what real-world evidence is helpful to agencies and courts? • How helpful/reliable is such evidence? • A large measure of inference is needed • Correct inference to draw from “facts” is a matter of opinion • Need to find different kinds of evidence that reinforce the same conclusion

9. EC Market Definition Notice

10. EC Market Definition Notice

11. EC Market Definition Notice

12. Direct evidence is relatively rare…

13. Common forms of evidence:

14. Common forms of evidence:

15. Common forms of evidence:

16. Industry behaviour – price setting • Does Firm A set its prices/discounts having regard to Firms B, C, D…? • E.g. TPC v Nicholas Enterprises (1979) • But: Firms always monitor industry pricing to some extent – it’s not conclusive • Is there evidence that Firm B’s pricing significantly constrains Firm A’s pricing?

17. Industry behaviour – marketing • If different products are advertised together, that might be evidence that they compete in the same market. • Advertising to city / province • Advertising alcoholic beverages / wines • Advertisements offering to price-match • Comparative advertising • Campaign timing – response to a rival?

18. Customers’ purchasing behaviour • What decision criteria and process do downstream customers go through? • What range of suppliers do customers consider in practise? • Advertisers negotiate rates with newspapers in own city? Province? Nationally? • Advertisers negotiate rates with newspapers? Other print media? Broadcasters? Sports venues? • What suppliers participate in tenders, quotes? • Confidentialityissue…

19. Executives’ testimony • Facts in issue; opinions on market • Exec. might testify that a price increase would cause the firm to lose a lot of sales. • However: • Can the exec point to actual past experience confirming that? • Was that experience caused by supply-side change? (or exogenous shock) • Is this testimony corroborated by business records? • E.g. Aut 6 case

20. Business records (1/3) • Reflect actual business operation (not created for the present proceeding) • Obtainable by search, subpoena, discovery – or voluntarily exhibited. • E.g: correspondence/emails, marketing plans, business plans • Often given more weight than statements made in the witness-box.

21. Business records contd. (2/3) • Authorship • line staff – okay for proving behaviour • management – to prove firm’s views • Boral case • Language • ‘market’, ‘dominant’ etc. are used in business sense, not legal sense • Baidu case

22. Business records contd. (3/3) • Status • ‘Draft’ or ‘Final’ form? (Superleaguecase) • Discussing facts/behaviour? • Or merely plans/policies? • Context - for what purpose what the document prepared? • To brief the Board? • To attract sponsors? (Superleague case)

23. Expert Opinion • Agencies employ skilled competition economists • Courts sometimes are assisted by economists as expert witnesses • USA v Oracle (2004) – Govt. alleged Oracle’s acquisition of PeopleSoft would infringe Clayton Act s 7. • A “battle of the experts” • Court preferred Oracle’s experts over Govt’s • Court examined empirical bases for experts’ opinions

24. Econometric analyses • Simplest form is “price correlation analysis” • Examines whether prices of two products move in parallel over time, to statistically significant degree • If prices of two products track each other, consumers may regard them as substitutes (e.g. Nestle/Perriercase, 1992) • Causality problem – do prices track each other because of competition – or does each correlate to some third factor?

25. References: • Veljanovski, C. “Quantitative Economic Techniques in EC Merger Control” Competition Law Year Book (2004) • Baker, J.B. and Bresnahan, T.F. “Economic Evidence in Antitrust: Defining Markets and Measuring Market Power” Stanford Law School Working Paper No. 328 (2006). • Beaton-Wells, C. “Proof of a market for the purposes of the Trade Practices Act 1974 (Cth)” (2003) 31 ABLR 113, 171. • Beaton-Wells, C. “ Customer Testimony and Other Evidence in Australian Antitrust Assessments – Searching for the Oracle” (2005) 33 ABLR 448.

26. Thank you for your attention.