Session 8: Remedies in Competition Policy Mergers and Unilateral Conduct Fifth Annual African Consumer Protection Dialogue Conference Livingstone, Zambia

Overview Goals and Principles of Remedial Action Taxonomy of Remedies Choosing and Designing a Remedy –Structural Remedies –Behavioural Remedies Implementation and Monitoring

Goals and Principles of Remedies Remedies seek to restore or maintain effective competition while permitting the realisation of merger efficiencies and/or avoiding the risks of chilling efficient conduct and incentives to innovate Preferred remedy will be the one that accomplishes remedial goals while minimizing cost of remedy design and administration General principles –Effectiveness –Enforceability –Proportionality –Burden and costs –Transparency and consistency Remedies should be considered early in the investigation!

Remedies Universe Broadly speaking, can distinguish between structural and behavioural remedies Structural remedies –One-off remedies that intend to restore the competitive structure of the market –E.g. horizontal / vertical divestiture, divestiture of IPRs Behavioural (conduct) remedies –(Normally) On-going remedies that are designed to modify or constrain the behaviour of the relevant firm(s) –E.g. prohibitory conduct remedies, affirmative conduct remedies, monetary penalties An effective remedial package may contain both structural and behavioural elements

Choosing a Remedy Structural remedies generally preferred –Pros Can rapidly eliminate market power and restore competition, maintaining dynamic rivalry In mergers: structural solution to a structural problem Fix it and forget it: relatively clean cut solution – does not require on-going monitoring, enforcement and/or cooperation of the parties –Cons Often significant up-front remedy design costs, particularly in unilateral conduct cases Can involve monitoring costs Can destroy efficiencies But sometimes behavioural remedies may have advantages –Pros Can preserve efficiencies that would be lost through divestiture Less distortionary where competitive harm is expected to be short-lived –Cons Up-front administration costs and on-going monitoring costs often high Uncertain effects on firms’ incentives

Remedy Choice & Design: Structural Aim –restore competition lost as a result of the merger by either creating a new source of effective competition or strengthening an existing source of competition through disposal of a business, assets or technologies Design questions –What is the appropriate divestiture package? In particular, is the package sufficient to enable the purchaser to be a viable competitor in the long run? Stand-alone package or collection of assets? “Crown jewel” provisions? –Is there a suitable purchaser? In particular, is the purchaser likely to be capable of utilising the assets effectively? What are the merger parties incentives in suggesting a purchaser? –Is there an effective divestiture process? Will the competitive capability of the package deteriorate significantly prior to completion of divestment?

Remedy Choice & Design: Behavioural Aim –Restore the loss of competition through enabling measures (e.g. lower barriers to entry); or, as a last resort –Mitigate the harm to consumers by controlling outcomes (e.g. price caps) Design questions –Can we specify the required behaviour? –Can the parties circumvent the remedy? –Can we avoid creating market distortions? –Can we monitor and enforce the remedy effectively and efficiently? Where possible, desirable to use behavioural remedies that facilitate competition, rather than controlling outcomes, for example improving information to buyers, reducing switching costs and opening up tender processes.

Implementation and Monitoring Define the remedial objectives and develop a clear plan to achieve them –Remedies must be clear enough so that the firm(s), its rivals, customers and suppliers and the administering agency all whether the remedy has been adhered to Consult early with the firms in question and other relevant parties –Anticipate likely responses and side effects! Assess administrability –NB: consider on-going administration requirements Monitor compliance –Consider use of independent and appropriately qualified third parties –Communicate remedy and involve market participants if possible Allow for flexibility –Allows for changes in circumstances –For example, via appeal / arbitration