Ann-Sophie Dupont DG Competition European Commission Kiev, March 2016 Economic analysis in DG COMP

Competition economics at the EC  Increasing role of economic analysis in EU competition enforcement since 1990s  Creation of the office of the chief economist in 2003  Most important economic analysis at DG Competition done at the Chief Economist Team  About 30 economists/econometricians with PhD 2

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Role of the Chief Competition Economist  Economic advice for case enforcement and policy initiatives independent guidance on methodological issues of economics and econometrics in the application of EU competition rules contributes to individual competition cases (in particular ones involving complex economic issues and quantitative analysis), to the development of general policy instruments, as well as assisting with cases pending before the Community Courts.  Development of economic expertise in the DG focus for economic debate within DG COMP, in liaison with other Commission services and with the academic world organises training sessions and gives advice on studies of a general economic nature, as well as on market monitoring coordinates the activities of the Economic Advisory Group on Competition Policy (EAGCP) 4

Economic Advisory Group on Competition Policy  discussion forum on competition policy matters  academics  recognised reputation in the field of industrial organisation  different fields of research  different research centres in Europe  proposed by the Chief Economist and nominated by the Commissioner  Purpose: support DG Competition to improve the economic reasoning in competition policy analysis 5

Opinions of the EAGCP Hardcore restrictions under the Block Exemption Regulation on vertical agreements: An economic view, by the Vertical Restraints subgroup, September EU Rescue & Restructuring Aid Guidelines, by the State Aid sub-group, February 2008 Non-Horizontal Mergers Guidelines: Ten Principles, by the merger sub-group. August 2006 Draft Community Framework for State Aid R&D&I by the State aid sub-group, July 2006 Services of General Economic Interest" by the State aid sub-group, June 2006 "An economic approach to Article 82" Explanatory note by the antitrust sub-group, July

Competition economics at the EC  Deeply involved in  mergers (around 60% of our resources)  antitrust (i.e. agreements and abuse)  state aids  Little involvement in cartels, because:  cases decided on hard evidence  no quantitative analysis necessary for determination of fines 7

Market Definition Competitive Assessment EfficienciesRemedies CET Work on Mergers

Theory of Harm Evidence To Collect Assessment Of Submissions Scrutiny CET Work on Antitrust

Integration with case teams Economic evidence (theory or quantitative) should be in line with internal documents, customer views and other qualitative evidence Economists should be tightly integrated into the rest of the investigation (CET members are effectively seconded to case team), with a two-way flow of information (case-teams to help economists understand salient features of the case) Attend key internal and external (i.e. State of Play) meetings Involved in qualitative evidence-gathering (drafting of questionnaires to market participants, calls with market participants, identification and review of key internal documents) 10

Econometrics is resource-intensive For econometrics, one needs: people with background and experience; reliable data; time to 'clean' data, choose appropriate model and do sensitivity test Example: CET did a demand-estimation model in a mobile merger case: "cleaning" data occupied two (experienced) team members during several months; model not fully reliable, not used in the final decision Start gathering complex data more than 2 months before notification; add 1 month Phase 1, and 1.5 months of work in Phase 2 (plus refinements after Parties' reply to S.O.): easily 6 months of work! 11

Economic analysis in state aid 12

13 When is a measure state aid Various instruments used for giving aid, e.g. Grants Tax exemptions Soft loans State guarantees Repayable advances Capital injections Hybrid instruments Central assessment concept: MEIP (Market Economy Investor Principle) 13

When is a measure state aid? Example 1 Funding amount - Private involvement? Assessment of expected returns of investment (IRR – Internal Rate of Return): based on business plans Enough for a private investor?  comparison with the cost of capital Example 2 Loan (rate and maturity) Benchmark rate = base rate + risk margin + fee

15 Compatibility assessment of state aid Striking a (good) balance between Benefits of state aid (objective/effectiveness) Costs of state aid (distortions) Bear in mind: enforcement and compliance costs Architecture of state aid rules: block exemptions vs. more substantive analysis of individual cases (rules based)

"Common principles" In order to be compatible, state aid must satisfy the following criteria: 1.Contribution to a well-defined objective of common interest 2.Need for state intervention 3.Appropriateness of the aid measure 4.Incentive effect 5.Proportionality of the aid 6.Avoidance of undue negative effects 7.Transparency of aid (If applicable: ex post evaluation for certain larger aid schemes)

17 Ex post evaluation of aid schemes Methodological Guidance Paper - to provide guidance to Member States as to how to evaluate the impact of their subsidy programmes Commission Staff Working Document ( ) Care to be devoted to the design of the aid scheme to make sure that one is able to identify effects afterwards

Counterfactual analysis… What would have happened without economics in DG COMP? 18