A recent TILEC discussion paper by Laura Parret (TILEC) presents an original perspective on a classical legal theme, namely rules on proof. Such rules might be perceived by some economists as formalistic, or overly complicated. However, the paper argues that they are necessary to ensure the protection of higher principles, such as the presumption of innocence and proportionality. In addition, the case is made that the importance of such rules has increased since the promotion of a more economic approach to competition law. At the same time, lawyers should also avoid being too formalistic: there is no pressing need for a "right" standard of proof to be defined, contrary to what some lawyers are claiming after ECJ judgments such as Tetra
Laval. Lawyers should accept that the current standard is workable and sufficient as a basis, at least in cartel cases. Decision-makers can handle flexible and differentiated rules, and should be trusted to do so. However, it is essential for authorities and courts to adequately motivate their decisions, to be accountable both to the companies concerned and to the general public, and not in the least to allow for efficient judicial review. A revised version of the paper is forthcoming in the European Competition Journal.
Is market monitoring sufficient to prevent financial crises?
The most recent literature on crises points out that financial fragility in the banking and/or corporate sector is at the root of the financial crises in emerging markets. In a recent TILEC discussion paper, María Fabiana Penas (TILEC) and Günseli Tümer-Alkan (Tilburg University) study how Turkish shareholders reacted to changes in banks' measures of financial fragility during the years prior to the 2000/2001 crisis, and how the quality and timeliness of disclosure affected market reaction. They find that improvements in disclosure requirements brought about in 1999 increased the informativeness of accounting statements and that audited statements that showed larger reporting lags were not informative, pointing to the need for improving their timeliness. They also find that shareholders reacted negatively to financial fragility indicators, such as increases in maturity mismatches, currency mismatches, and non-performing loans, showing concerns about the impact on future profits. Therefore, there is evidence that market monitoring took place in the years prior to 2001. However, given the magnitude of the crisis that subsequently unfolded, the study suggests that the finding that securities prices react to financial fragility indicators should not be taken as a guarantee of banks' safety and soundness.
TILEC researchers come CLEEN
Amrita Ray Chaudhuri, Filomena Chirico and Alan Littler will represent TILEC at a workshop held at the University of East Anglia from 11 to 13 June 2008, organized within the CLEEN framework. CLEEN, the Competition Law and Economics European Network, was established in 2007 as a network of research institutions dealing with competition policy from a legal and economic perspective. The first academic meeting of the network was held in Bonn in December 2007 at the initiative of the Max-Planck Institute for research on collective goods. This meeting will be the second event under the banner of CLEEN, and will be hosted by the Center for Competition Policy (CCP) of the University of East Anglia in Norwich. On this occasion, the meeting will be especially targeted at young researchers. The workshop will give them a possibility to present a sample of their recent research, as well as receive valuable comments from an interdisciplinary and international audience, two qualities that TILEC is proud to be associated with.
Do exclusivity contracts hamper product innovation?
Contractual relationships at various levels in the production chain, although often efficient, may at times be used for anti-competitive purposes. In particular, exclusivity clauses have long been regarded with suspicion because of their direct exclusionary effects. Over the past decades, economists and lawyers have come to a better understanding of the possibilities for dominant firms to use such arrangements so as artificially to maintain their position. Recent pieces have suggested that intense competition among downstream buyers may be enough to prevent dominant upstream firms to seize them. In a recent TILEC discussion paper, Cédric Argenton (TILEC) revisits the main theory of harm (the so-called "naked exclusion" story) in the case when the efficient competitor is not a firm producing at a lower cost but one bringing an innovative, higher-quality product to the market. Contrary to the case of process innovation, when retailers intensely compete with one another, the incumbent firm is always able to exclude the innovative firm. Therefore, intense competition at the retail level is no guarantee that exclusivity contracts are harmless. Competition policy enforcers need to pay more attention than ever to the exact characteristics of the upstream market.
Does competition really serve consumers?
Increased competition is thought to lead to more choice and lower prices for consumers. However, if consumers are not ready for, or not capable of, exercising their choice, competition might hurt them. One issue is consumer confusion, possibly resulting from market liberalization. This issue is especially important in healthcare, energy, and financial markets, where offerings tend to be relatively complex. Another issue concerns hidden costs for consumers. Do markets supply adequate protection to consumers, or should policy-makers intervene to protect them? What is the optimal type of policy intervention? Which public authorities (for instance, competition authority or consumer authority) and which private authorities (for instance, consumers' unions, firm's mediators) should take care of which tasks and responsibilities? Mark Armstrong (UCL), Peter Kooreman (Tilburg University and Netspar), Marije Hulshof and Dirk Janssen (Netherlands Consumer Authority) will present their views on these issues during a half-day workshop organized in The Hague on 2 June 2008 by the Netherlands Bureau for Economic Policy Analysis (CPB), the Dutch Ministry for economic affairs, CentER and TILEC. Attendance is free but registration is required.