The Effects of Environmental Policy on the Performance of Environmental RIVs

Much of the potential impact of environmental policy is though to come from the incentives it gives firms to develop and introduce new environmental products and processes. Almost all the literature on this issue has focused on the impact of environmental policy on the amount environmental R&D that firms undertake, assuming that such R&D is undertaken independently or non-cooperatively. It is now widely recognized that there are considerable potential benefits from having firms undertake R&D cooperatively through research joint ventures (RJVs). In this paper we analyze the impact of environmental policy on the performance of environmental RJVs and underage an explicit welfare comparison of this performance against the counterfactual of a non-cooperative equilibrium. The framework we adopt is that developed by Katsoulacos and Ulph (1998) which identifies three stages in the innovative process -- research design, R&D; information sharing -- and endogenises each of these inter-related decisions in both the cooperative and non-cooperative equilibria. The case we examine is that in which governments cannot commit to environmental policy, so all these decisions have to taken anticipating the environmental policy that will finally be imposed. We show that RJVs are welfare enhancing when the levels of environmental damage caused by pollution are low. In this case RJVs fully share information and internalize the associated externality. However when the level of damage is high, it turns out that firms anticipate tougher environmental policy when they share information then when they do not, and so do not share information. This distorts the RJV's R&D decisions in ways that make the non-cooperative equilibrium welfare enhancing.

Measuring the effectiveness of anti-cartel interventions : a conceptual framework

This paper develops a model of the birth and death of cartels in the presence of enforcement activities by a Competition Authority (CA). We distinguish three sets of interventions: (a) detecting, prosecuting and penalising cartels; (b) actions that aim to stop cartel activity in the short-term, immediately following successful prosecution; (c) actions that aim to prevent the re-emergence of prosecuted cartels in the longer term. The last two intervention activities have not been analysed in the existing literature. In addition we take account of the structure and toughness of penalties. In this framework the enforcement activity of a CA causes industries in which cartels form to oscillate between periods of competitive pricing and periods of cartel pricing. We determine the impact of CA activity on deterred, impeded, and suffered harm. We derive measures of both the total and the marginal effects on welfare resulting from competition authority interventions and show how these break down into measures of the Direct Effect of interventions (i.e. the effect due to cartel activity being impeded) and two Indirect/Behavioural Effects – on Deterrence and Pricing. Finally, we calibrate the model and estimate the fraction of the harm that CAs remove as well as the magnitude of total and marginal welfare effects of anti-cartel interventions.Publisher PD

Legal standards and economic analysis in antitrust enforcement: an empirical investigation for the case of Greece

The purpose of this paper is to explain the choice of legal standards of the Hellenic Competition Authority (HCC) concerning antitrust enforcement and the impact of this on the judicial review of the decisions reached. This paper is based on the methodology presented in a paper by Katsoulacos Y., S. Avdasheva, and S. Golovaneva (2019), which measures empirically the extent of economic analysis used and the legal standards (LSs) adopted by Competition Authorities (CAs). The methodology is applied to the appealed investigations of the HCC. In contrast to the theoretical analyses, systematic empirical assessments of LSs have been very limited. There are case studies based on particular decisions or meta-analysis of a group of decisions, but there is no statistical representation of the legal standards applied by competition authorities. The absence of empirical measurement and statistics on legal standards limits our ability to answer important questions. Thus, it makes any international comparisons of LSs applied in different jurisdictions and judgments on the role of economic analysis speculative. Further, it impedes the analysis of the evolution of LSs over time and explaining the factors that drive this evolution. Both issues are important for the identification of the deviation of legal standards actually applied in competition cases from their optimal level. For the purposes of this paper we collected and analysed a dataset of antitrust infringement decisions reached by the HCC, between 1997-2017, which were appealed to Courts for annulment. Our main objectives have been to use this dataset to examine to what extent economic analysis and evidence is used in the decisions of the HCC and how it evolves over time. Also, we examine how changes in the extent of economic analysis or variations in LSs, for any given conduct, is related to (how it affects) the probability that decisions on that conduct are annulled in appellate courts, as well as the effect of movements in LSs – from per se toward effects-based – on litigation costs and the duration of litigation. We show that on average, economic analysis still plays a very modest role in the investigations, as HCC applies close to per se legal standards even when assessing conducts for which effects-based LSs would be more suitable. There is no discernible evolution toward a more effect-based approach during the period 1995-2017. Further, the choice of LSs for specific conducts can create considerable legal uncertainty for firms about how these conducts will be assessed by the HCC. Overall, our empirical findings indicate low quality of enforcement. Our results are consistent with recent arguments, according to which, the higher disputability of decisions as a result of increasing the extent of economic analysis under effects-based LSs, increases the annulment rates of decisions under appeal

An economic approach to parallel imports effects and competition policy

Parallel imports have been treated very differently in different countries. In the EU, competition law's very strong (per se) prohibition of restrictions to parallel imports (PI) can be justified by traditional "public interest" concerns related to the EU's objective to promote free trade and market integration. At the opposite extreme, we have had Russia’s Per Se prohibitions of PI, which can be potentially justified by the country's industrial policy objectives of protecting its domestic industries. While there is no evidence of a shift in policy by the European Commission (EC) and the EU, there is evidence of a shift in policy in Russia away from the per se prohibition of PI and a recognition that "in some cases" PI should be considered legal. We consider this shift in Russian policy as a shift in the right direction, while we consider unjustified the continuation of EC policy of per se prohibition of restrictions to PI. Our analysis points towards a middle ground in which any question of whether restrictions of PI must be prohibited or not should be the subject of rule-of-reason investigations of the specific economic facts of each case and what these imply for welfare (and, specifically, consumer welfare)

Penalizing cartels—a spectrum of regimes

There has been much discussion by both academics and policymakers of the most appropriate way of penalizing cartels taking account of both the effects of different penalty regimes on welfare as well as various implementation considerations such as ease/cost of implementation and transparency/legal certainty. Consequently there now exists a range of proposed penalty regimes—including two put forward by ourselves. While these can all seem like very distinct regimes, in this article we show that they can usefully be thought of as lying along a spectrum, inter-connected by the idea of trying to penalize cartels in relation to the damage they cause. They differ in their informational requirements, and in particular whether some key factors needed to calculate the penalty are case-specific or an average across a wide range of cases. Subtle differences in what information is required and how it is used can sometimes cause significant changes in either the welfare or implementation properties of regimes. This new perspective may provide a helpful way of organizing the discussion about the pros and cons of the different proposals.PostprintPeer reviewe

Penalizing cartels : the case for basing penalties on the price overcharge

Yannis Katsoulacos acknowledges that this research has been co-financed by the European Union (European Social Fund – ESF) and Greek national funds through the Operational Program "Education and Lifelong Learning" of the National Strategic Reference Framework (NSRF) - Research Funding Program: ARISTEIA – CoLEG.In this paper we set out the welfare economics based case for imposing cartel penalties on the cartel overcharge rather than on the more conventional bases of revenue or profits (illegal gains). To do this we undertake a systematic comparison of a penalty based on the cartel overcharge with three other penalty regimes: fixed penalties; penalties based on revenue, and penalties based on profits. Our analysis is the first to compare these regimes in terms of their impact on both (i) the prices charged by those cartels that do form; and (ii) the number of stable cartels that form (deterrence). We show that the class of penalties based on profits is identical to the class of fixed penalties in all welfare-relevant respects. For the other three types of penalty we show that, for those cartels that do form, penalties based on the overcharge produce lower prices than those based on profit)while penalties based on revenue produce the highest prices. Further, in conjunction with the above result, our analysis of cartel stability (and thus deterrence), shows that penalties based on the overcharge out-perform those based on profits, which in turn out-perform those based on revenue in terms of their impact on each of the following welfare criteria: (a) average overcharge; (b) average consumer surplus; (c) average total welfare.PostprintPeer reviewe

Combining cartel penalties and private damage actions : the impact on cartel prices

In many countries antitrust enforcement by Competition Authorities through prosecution and the imposition of penalties is complemented in price-fixing cases by private damage actions, which should affect both cartel deterrence and the prices set by those cartels that do form. We show that the impact of combining penalties and damages on cartel prices is not clearcut, and depends on both the nature of the penalty regime and the way that damages are calculated. We demonstrate this by focusing on two ways of calculating damages that have been advocated in practice and two different forms of the widely used revenue-based penalty regime. When the simple form of revenue-based penalties is in force, the standard method of calculating damages worsens its harmful pricing effects, whereas the proposed alternative method of calculating damages can overturn them. When a more sophisticated form of revenue-based penalties is in operation, imposing damages will improve its beneficial pricing effects under both methods of damage calculation, but the alternative method is more effective. In all cases combining penalties and damages improves deterrence.PostprintPeer reviewe

Penalising on the basis of the severity of the offence : a sophisticated revenue-based cartel penalty

We propose a new penalty regime for cartels in which the penalty base is the revenue of the cartel but the penalty rate increases in a systematic and transparent way with the cartel overcharge. The proposed regime formalises how revenue can be used as the base while taking into account the severity of the offence. We show that this regime has better welfare properties than the simple revenue-based regime under which the penalty rate is fixed, while having relatively low levels of implementation costs and uncertainty. We conclude that the proposed penalty regime deserves serious consideration by Competition Authorities.PostprintPeer reviewe

Public and private antitrust enforcement for cartels : should there be a common approach to sanctioning based on the overcharge rate?

We review recent theoretical literature pointing to the ineffectiveness, in terms of welfare impact, of currently applied sanctioning regimes for cartels by Competition Authorities (CAs). We then provide a comparison of the regimes taking also into account criteria related to ease of implementation and transparency. We argue the case for switching to a penalty regime, in which the penalty base continues to be the currently dominant penalty base of cartel revenue but in which, in contrast to current practice, the penalty rate is based on the rate commonly estimated in order to calculate damages in private damage claims, that is, the overcharge rate.Publisher PDFPeer reviewe