Regulation and investment in infrastructures in network industries

How can regulation be designed to foster investment in major infrastructure projects now outstanding in network industries, such as the upgrade to Next Generation Networks in telecoms? Economists, engineers and policymakers are busy with this issue. In a recent discussion paper, Pierre Larouche provides a
critical legal contribution to the debate. When the focus of regulation moves away from increasing efficiency on a constant-asset basis ("fat trimming") to ensuring that assets are correctly replaced and upgraded over time, weaknesses in institutional design come to the fore. As regards substance, if structural solutions -that is, separation- are not retained, behavioural regulation must be reviewed (including regulatory holidays). Here the ex ante/ex post distinction obscures the debate. The appropriate standard should be that investors are not subjected to more risk than with comparable investments elsewhere. An ex ante statement of the conditions under which ex post intervention will take place might well be the best option. Secondly, as regards institutions, the need for EC-level coordination can be overstated: some measure of divergence is also useful to gather empirical information. In any event, regulation is likely to be fairly granular, even within a single Member State.

The end of the Microsoft antitrust cases?

On 22 October, Microsoft announced that it would take the steps required to comply fully with the March 2004 decision of the European Commission, that it would not appeal the September 2007 decision of the Court of First Instance, and that it would "continue to work closely with the Commission and the industry to ensure a flourishing and competitive environment for information technology in Europe and around the world." In the US case, most of the historic Microsoft Antitrust Consent Decree will expire on 12 November. It is therefore an appropriate time to assess the two cases against Microsoft in the light of rapidly evolving markets, refinements in economic theories of technological innovation, and the increasing challenges of operating a global business under multiple antitrust regimes. The Searle Center at Northwestern University School of Law organizes a conference on 15 and 16 November in which several distinguished academics and practitioners will present their views on the topic. TILEC will be represented by Pierre Larouche, who will participate in a panel on "Microsoft, The European Court of First Instance and Beyond". For more details on the conference, please visit the website of Northwestern School of Law.

TILEC seminar on health care

On 26 October, TILEC devoted its monthly seminar to the issue of health care. Catherine Schaumans (KU Leuven) presented her work on the structural estimation of an entry model for physicians in Belgium. Its objective is to analyze the nature of the interaction between general practitioners and specialists. On the one hand, GPs and specialists could compete for the same set of patients; on the other hand, through the referral process, they may be used a complementary inputs in the production of health care, thus mutually benefiting from one another's presence. Which effect dominates is of importance in order to assess the market impact of mandatory referral schemes (gate-keeping), in place or under study in many countries. Wolf Sauter (Dutch Health Care Authority, NZa, and TILEC) discussed the scope for applying the EU framework for services of general economic interest (SGEI) to the market for curative health care (see TILEC DP 2007-029). Although many issues are not settled in the existing case law, the SGEI regime might provide a useful regime for those hospital services that cannot at present be subjected to full market-based provision- while solidarity-based state provision is not an option, or is no longer desirable.

Loans to small- and medium-sized firms: an empirical analysis

What determines the interest rate on loans granted to small- and medium-sized enterprises (SMEs)? Over the past decades, credit scoring technologies have tremendously developed but bankers often rely on their experience and distrust the blind use of quantitative information. Thus, the decisions to grant a loan and the financial conditions attached to it are taken on the basis of a mixture of statistical methods ("rules") and subjective judgments ("discretion"). In a recent TILEC discussion paper, Geraldo Cerqueiro, Hans Degryse and Steven Ongena, from Tilburg University, estimate a model of the determinants of interest rates to SMEs in the US and Belgium. Unexplained deviations from a very predictive linear loan-pricing model are
interpreted as evidence of the banks' discretionary use of market power in the loan rate-setting process. From the analysis, it emerges that "discretion" plays a large role if (i) loans are small and uncollateralized; (ii) firms are small, risky and difficult to monitor; (iii) firms' owners are older, and (iv) the banking market where the firm operates is large and highly concentrated. Overall, the costs banks face in searching information and borrowers' difficulty to switch lenders seem to be the main sources of market power in the credit market.

Grants for research on competition, intellectual property and innovation

Within the framework of its cooperation with US-based firm Qualcomm, TILEC sponsors a grant competition to provide funding for legal and economic research on the interplay between innovation, intellectual property and competition policy. See the call for proposals. Up to three scientists (or teams) will be provided with 15,000 euros each to generate new, policy-relevant findings. The results will be presented at a workshop on the issue, which will take place in Tilburg next Fall. The recent Microsoft judgment by the European Court of First Instance once again underlined the need for progress in this area. Indeed, legal doctrine traditionally puts
forward intellectual property rights as the just reward for the efforts of an inventor. A more sophisticated view, influenced by economics, presents them as devices designed to foster the production of useful information. At the same time, in competition law, intellectual property rights are usually viewed with suspicion, given that they can give rise to monopolies, with the risk of abusive conduct. With innovation now being on top of the policy agenda, those traditional views have to be re-assessed. The grant competition is meant to kick-start this process.