TILEC 2008 report available

TILEC's annual report for 2008 is now available on the TILEC website. The year 2008 turned out to be another successful year for TILEC. At the beginning of the year, TILEC signed a four-year cooperation with the Dutch healthcare regulator NZA to conduct research on competition in healthcare markets. The position of TILEC in the area of energy markets was strengthened further: the research contract with Essent was extended, and TILEC participates actively in the UNECOM network that investigates ownership unbundling of energy networks. A new project that started in 2008 concerns the economics of crime, sponsored by the Dutch Policy Academy and executed by Ben Vollaard. 2008 was filled with research activities: TILEC's fifth anniversary was celebrated with a high-level conference on 'Market Governance and Innovation'. Multiple workshops were organised in 2008 on various topics, such as 'the private enforcement of competition law', 'the future of regulation in energy markets', and 'innovation, intellectual property and competition policy'. Prestigious research grants were received, such as the VENI grant of Sigrid Suetens, and the Open NWO grant of Natalia Fiedziuk. TILEC's continuous challenge is to deepen the interdisciplinary cooperation between legal scholars and economists within its research programme.

Does policing help in reducing crime rates?

Those studies trying to assess the impact of policing on crime which are based on police-recorded crime figures often report a negative effect of police on property crime but no effect of police on violent crime. In a recent TILEC discussion paper, TILEC member Ben Vollaard and co-author Joseph Hamed (Dept for Innovation, Universities and Skills, UK) provide evidence that measurement error in recorded crime statistics in the UK results in underestimation of
the effect of police on violent crime. They do not find a similar estimation bias for the effect of police on property crime. Changes in the way the police record violent incidents rather than changes in reporting behavior of the public are shown to be the underlying cause of the estimation bias. This type of measurement error in police-recorded crime has been found in many countries, including the US. To address the classical chicken-and-egg problem in the relation between police and crime, the authors model the police funding formula which is used to distribute police resources across police force areas in England and Wales. By using the difference between actual police levels and police levels predicted by the funding formula, they can identify the real effect of police on crime.

Can exclusionary long-term contracts be justified?

In spite of the Chicago school arguments, it is well known that in certain cases an incumbent firm may use exclusivity contracts so as to monopolize an industry or deter entry. Such an anticompetitive practice could be tolerated if it were associated with sufficiently large efficiency gains, e.g. insuring buyers against price volatility, a rationale that is often invoked to justify long-term contracts in the energy sector. In a recent TILEC discussion paper, TILEC members Cédric Argenton and Bert Willems study the trade-off between the positive effects (risk sharing) and the negative effects (exclusion) of exclusivity contracts. The authors revisit one of the main 'theories of harm' under risk-aversion and show that although exclusivity contracts induce optimal risk-sharing, they can be used not only to deter the entry of a more efficient rival on the product market, but also to crowd out financial investors willing to insure buyers at competitive rates. They further show that in a world without financial investors, purely financial bilateral instruments, such as forward contracts, achieve optimal risk sharing without distorting product market outcomes. Thus, they argue there is no room for an insurance defense of exclusivity contracts.

Energy investment; a balancing exercise

Investments in energy infrastructure are essential for the creation of the European internal energy market. However, these investments are quite costly and often require support of the State, in particular in the form of State aid.
Paradoxically, State aid is, in principle, prohibited by European competition law unless it contributes to clearly defined objectives of common interest, such as environmental protection or security of supply. State aid must therefore be notified to the Commission in order to be assessed for exemption from the State aid prohibition. The need to balance different objectives in the State aid assessment leaves Member States with great uncertainty about how to design their State aid measures to get Commission's clearance. In her recent discussion paper, TILEC member Natalia Fiedziuk tries to clarify the approach of the European Commission to State funding of energy infrastructure, and in particular what significance it attaches to different objectives of the European energy policy in the final decision making. One of the conclusions of the paper is that the leniency of the European Commission vis-à-vis State funding of energy infrastructure will depend on the extent the infrastructural project delivers priority objectives of common interest set in the European energy policy.

What is competition law protecting?

The subject of the objectives of competition law receives increasing attention. The interest in this topic by economists, as well as legal and political developments in Europe, are two factors that certainly play a role. It is probably fair to say that most lawyers tend to focus on the law as it stands - or as it has evolved over time in legislation and jurisprudence - rather than stepping back and questioning what the law is actually aiming to achieve. This standard now seems to be changing in competition law. In a recent TILEC discussion paper, TILEC member Laura Parret (Belgian Competition Council) presents some new perspectives in the discussion on the objectives of competition law. She analyses the current situation critically and demonstrates the multiple goals or objectives that exist. Parret explores the origins of the present focus on consumers in competition policy, and attempts to broaden the horizon of the debate by including more general EU developments. Parret argues that there is a need for a public debate on the objectives of the system of European competition law, a debate that should not merely be theoretical: objectives have a fundamental impact on the law and policy.