Netherlands pensionland

On October 5, together with Netspar, TILEC organised a meeting on the future of Dutch pension funds in a European context. Directive 2003/41/EC creates the possibility of pan-European pension funds and countries like Ireland and Luxemburg are actively trying to attract these funds. At the same time, Dutch pension funds seem to be in a good starting position to take advantage of the opening up of the market; after all they manage Euro 35.000 for every Dutch citizen. Yet, there are also expansion barriers and limits to competition: employees and firms don't have freedom of choice; pension funds have exclusive rights, but are restricted to a specific sector and face line of business restrictions. Experiences in other countries (UK, Sweden) show that reforming the sector should be carefully thought through. The October 5 meeting made an inventory of the various issues, with emphasis on unbundling and good governance. The liberalisation of the pension sector links the two research lines of TILEC (competition policy and financial markets) and will be an important theme in our future research, to be pursued in cooperation with Netspar.

Activities TILEC in the area of communications law reform

With the European Commission's proposals for changes to the European regulatory framework for electronic communications now on the table, TILEC researchers are very active in the policy and scientific discussions now taking place. Already at the beginning of the year, TILEC presented an extensive contribution to the Commission's call for input. This fall, Pierre Larouche and Maartje de Visser are working on a more fundamental contribution on the relationship between the Commission, the national regulatory authorities and the national courts. The work was presented at a ThinkTel workshop in Brussels on 20 September and at a conference organized by WIK and others in Wroclaw on 19 and 20 October, and will be available as a TILEC DP soon. It will be published on the TILEC website. TILEC members will also be participating in the ENCORE Symposium on the Future of Telecoms Regulation on 2 and 3 November. Alexandre de Streel, a TILEC visitor in 2005, defended a thesis on key aspects of that reform (supervised by Jacques Ziller, Massimo Motta and Pierre Larouche) at the European University Institute on 17 October. Earlier this fall, TILEC held a seminar on network neutrality featuring Prof. Greg Sidak from Georgetown University. Filomena Chirico is presenting her paper on the economic rationale for Internet regulation as part of a session on the state of the art in Internet governance research at the First Annual Symposium of the Global Internet Governance Academic Network (GigaNet) on 29 October in Athens.

How (not) to measure competition

Jan Boone is currently working on the project "How (not) to measure competition". In a paper co-authored with Jan van Ours and Henry van der Wiel (CPB), three measures of competition are considered. Two of these (concentration and price cost margin) are well-known, but may be misleading: more intense competition can lead to higher industry concentration and higher average price cost margins. In such cases, these measures incorrectly suggest that competition diminished, while actually it increased. The third measure is new and does not have these problems. It is based on the elasticity of profits with respect to cost: by what percentage do firms' profits fall in response to a 1% increase in costs. If this elasticity is high, competition is intense: firms are punished more harshly for a loss in efficiency. It turns out that, on average this elasticity is around 7 for Dutch industries. However, there is quite a bit of variance: in some industries it is bigger than 20, in others it is close to 0. In general, it is higher in manufacturing than in services. The paper also shows that under certain conditions there is no correlation between the traditional measures of competition and the elasticity that is estimated. For further information you may contact Jan Boone.

Credit registries reduce competition between banks

Private credit registries are an increasingly common way for banks to share information about borrowers - and a helpful tool for reducing losses on unprofitable borrowers. Jan Bouckaert (of the University of Antwerp) and Hans Degryse show that they also reduce competition between banks and raise the cost of credit for good borrowers who have suffered bad luck. The disclosure of information is often presented as a solution to prevent bad borrowers from making markets function properly. But as this study shows, that is not the only story: banks disclose information about their borrowers' repayment history to reduce entry into their market niche. Credit information exchange between banks, common in all Western countries, often occurs through public and private credit bureaus. While the former are mainly organized on reciprocal basis around the central bank, the private registries are initiated voluntarily. More than 50% of these do not require lenders or others to provide data to get access. An important reason why incumbent banks voluntarily disclose their borrowers' repayment history is to reduce the extent of entry by new competitors. Disclosure of repayment histories prevents entry into the segment of good borrowers with bad luck whose repayment histories are pooled with unprofitable borrowers. As a result the incumbent enjoys monopoly rents on these good borrowers with bad luck, increasing its overall profits. While information disclosure is helpful to the banking industry to reduce the losses on unprofitable borrowers, it also dampens banking competition by locking in good borrowers with bad luck. 'Entry and Strategic Information Display in Credit Markets' by Jan Bouckaert and Hans Degryse is published in the July 2006 issue of the Economic Journal.

Job openings at TILEC

TILEC, in cooperation with the CentER for Economic Research is offering a Tenure-Track Assistant Professor in Economics, with a focus on "Industrial Organization, Trade and Competitiveness". We are looking for an expert who will strengthen our group working on "institutions, competition policy and economic regulation" by adding an international trade dimension. In addition we also want to strengthen our group with a legal expert that is specialised in international trade law, global competition policy and economic regulation. More details of this second position will be given in the next TILEC newsletter.

Inaugural lecture Damien Geradin

Prof. D. Geradin will give his inaugural lecture 'Twenty years of liberalization of network industries in Europe: Where do we go now?' on the 3rd of November at 4.15 pm in the Auditorium of Tilburg University. Damien, who holds the chair in Competition Law and Economics at TILEC, was appointed as the first University professor of Tilburg University in 2005, in the framework of an incentive scheme aimed to attract international top level academics. Damien is also affiliated with the College of Europe at Brugge, he is a visiting professor at Harvard University, and Director of the Global Competition Law Center, an internationally respected think tank in the area of antitrust law and economic regulation. He has acted as an advisor to the European Commission and the Worldbank and is also affiliated to the international law firm Howrey at Brussels. In his inaugural lecture, he argues that the liberalization of network industries has been a long and complex process which is not entirely completed yet. The EU Member States have a fundamental responsibility in making liberalization work by correctly transposing EU directives, creating functioning independent regulatory authorities and refraining from protectionist behaviour. Unless Member States take their responsibility, liberalization will remain a theoretical construct at least in some network industries.