1. Centre for Market and Public Organisation Are more experienced experts tougher? Do investigated companies manipulate data? Evidence from competition law. Ludivine Garside, Paul Grout & Anna Zalewska 12th April 2007

2. April 2007 RES Within-tenure experience effects and During-investigation incentives - Evidence from Competition Law Introduction 2Garside, Grout & Zalewska Tenure / Experience effects on investigators? Experience/distrust Meisner & Kassin (L&HumBeh 2002) Handberg & Tate (AmJPol Science 1991) Judicial decisions in non-competition context Ashenfelter, Eisenberg & Schwab (JLS 1995) Ichino, Polo & Rettore (EER 2003) Incentives for investigated firms to modify their behaviour prior to the verdict? Research questions

3. April 2007 RES Within-tenure experience effects and During-investigation incentives - Evidence from Competition Law Introduction 3Garside, Grout & Zalewska Why competition law? Economic based example Heterogeneity Cohorts Unambiguous outcome Separate causes Profitability Good/Bad?

4. April 2007 RES Within-tenure experience effects and During-investigation incentives - Evidence from Competition Law Introduction 4Garside, Grout & Zalewska Why profitability time-series? can be allocated to pre- and during-investigation periods. quantifiable for successive discrete periods scope for manipulation over a short period of time

5. April 2007 RES Within-tenure experience effects and During-investigation incentives - Evidence from Competition Law Data 5Garside, Grout & Zalewska referred to the Competition Commission (C.C.), formerly Monopolies & Mergers Commission (MMC) for “possible abuse of a monopoly situation” published between 1970 – 2003 annual HCA ROCE reported and publicly disclosed, reference activity only 431 company observations (85 cases) Profitability: 122 company observations (43 cases) Data

6. April 2007 RES Within-tenure experience effects and During-investigation incentives - Evidence from Competition Law Data 6Garside, Grout & Zalewska Market share by deciles

7. April 2007 RES Within-tenure experience effects and During-investigation incentives - Evidence from Competition Law Data 7Garside, Grout & Zalewska Profitability by deciles

8. April 2007 RES Within-tenure experience effects and During-investigation incentives - Evidence from Competition Law Data 8Garside, Grout & Zalewska Within-tenure experience by deciles

9. April 2007 RES Within-tenure experience effects and During-investigation incentives - Evidence from Competition Law Data 9Garside, Grout & Zalewska Profitability time-series

10. April 2007 RES Within-tenure experience effects and During-investigation incentives - Evidence from Competition Law Approach 10Garside, Grout & Zalewska Does experience matter? Probit regression, 431 firm-level observations, dependent variable = actual adverse findings (1 if yes, 0 otherwise) Are during-investigation profitability levels lower? OLS regressions, six-year window, 121 observations dependent variable = current profitability Use predicted and actual adverse findings Independent cases, but correlated observations at case-level Methodology

11. April 2007 RES Within-tenure experience effects and During-investigation incentives - Evidence from Competition Law Extras - Estimation 11Garside, Grout & Zalewska CC verdicts Pseudo R20.186 Constant-0.586 (0.502) Chair experience3.179** (1.326) Gender ratio3.330 ** (1.543) Market share0.820* (0.446) Climate-1.204 (0.998) Two anti-competitive conducts0.956*** (0.355) Repeated investigation-0.700* (0.425)

12. April 2007 RES Within-tenure experience effects and During-investigation incentives - Evidence from Competition Law Extras - Estimation 12Garside, Grout & Zalewska Marginal effects dy/dxmean Chair experience1.1620.147 Gender ratio1.2170.138 Market share0.3000.202 Climate-0.4400.236 Two anti-competitive conducts0.3330.455 Repeated investigation-0.2620.339 Predicted value = 0.662

13. April 2007 RES Within-tenure experience effects and During-investigation incentives - Evidence from Competition Law Results 13Garside, Grout & Zalewska Firm-specific variables significant, at least, at 10% level More than one anti-competitive conduct: 1% significance Repeated investigation has negative impact on verdict. Experience and gender have strong positive impact on verdict. Control for type of anti-competitive conduct, two most experienced chairpersons, early career background of chairperson. Holds at case level Role of profitability, interaction with monopoly pricing Does experience matter?

14. April 2007 RES Within-tenure experience effects and During-investigation incentives - Evidence from Competition Law Extras - Estimation 14Garside, Grout & Zalewska Profitability transitions Dependent variableProfitabilityDifference in profitability Adjusted R 2 0.690.09 Constant 0.1850.119 (0.134)(0.084) Lagged profitability 0.854*** (0.061) Macro growth 0.0130.014 (0.013)(0.015) Predicted finding -0.127-0.113 (0.164)(0.126) Within-investigation -0.140** -0.150** (0.065) (0.070)

15. April 2007 RES Within-tenure experience effects and During-investigation incentives - Evidence from Competition Law Results 15Garside, Grout & Zalewska Start of investigation has negative impact on profitability (5% significance) Control for type of anti-competitive conduct Firm-specific effects Vary definition of adverse findings variable Is during-investigation profitability lower?

16. April 2007 RES Within-tenure experience effects and During-investigation incentives - Evidence from Competition Law Conclusion 16Garside, Grout & Zalewska Does experience matter? Experience matters in an economic environment Experience makes experts tougher Reject self-selecting Small hint of career concerns Updating – maybe too much weight on prior Gender may also matter Are during-investigation profitability levels lower? Model equilibrium where expect falls in profitability data. UK Competition Commission data shows significant differences in reported profitability within- and pre- investigation. Conclusion