Discrepancies Between Markets and Regulators: an Analysis of the First ten Years of EU Merger Control

This paper gathers evidence on apparent discrepancies between EU decisions and stock market's anticipations of the anti-competitive consequences of particular mergers. We consider a sample of about 100 mergers, which include all phase II cases, and explore some of the factors that may account for such discrepancies. Overall, we find a low frequency of type I discrepancies, i.e. relatively few instances where the Commission has prohibited a merger that the market had anticipated as being pro-competitive. By contrast, we observe a high frequency of type II discrepancies, i.e. relatively numerous instances where the Commission failed to block or to impose remedies on mergers that the market had anticipated to be anti-competitive. We argue that type II discrepancies could be associated with the scope of the dominance concept, the lack of an explicit efficiency defence or the political economy of merger control, such that the Commission has not pursued the objective that it has been assigned. By contrast, type I discrepancies can only be associated with the political economy of merger control. Considering the pattern of discrepancies (across countries, across incentives to influence the Commission and over time), some preliminary observations reveal that competitors may play an important role in favour of anti-competitive deals but surprisingly not against pro-competitive mergers, that discrepancies are more frequent in phase I and possibly when large countries are involved.International Economics; Anti trust; Mergers

Bank Performance in Transition Economies

This paper examines the performance of 515 banks in 16 transition economies for the years 1994 - 99 based on their public financial accounts. We first examine lending behaviour and probability distribution of bank profitability to determine whether these banks exhibit behaviour and performance associated with excessive risk-taking. While we do not find evidence of excessive risk taking on average where there is significant progress in banking and related enterprise reforms, there may be a minority of poorly capitalised banks that do take excessive risks, particularly where progress in reform is less advanced. The paper then estimates cost and revenue functions based on a model of banks as multi-product firms. The results indicate that banks' performance differs significantly depending on the reform environment, as well as the competitive conditions, in which they operate. Banks with high market shares have higher costs and achieve lower margins on their loan and deposit activities. Where there has been significant progress in banking and related enterprise reforms, banks are making comfortable margins on loans and appear to be offering competitive margins on deposits, though they are still achieving overall negative returns on equity. By contrast, when substantial reforms have not been undertaken, banks have been sustaining high negative returns on loans, largely at the expense of depositors; in effect they have been able to appropriate much of the tax that inflation levies on nominal deposits, and have been using this revenue to prop up their weak loan portfolios. Overall interest margins are declining over time but are substantially higher in low reform environments. The results indicate that an appropriate policy and regulatory framework may be a necessary condition for significant progress to be madebanking; cost functions; revenue functions; transition

How Should "Protection" be Evaluated in Art. III GATT Disputes ?

This paper considers the economic analysis protection in Art. III GATT disputes. We first observe that the appropriate measure of protection and the level of protection that is acceptable have hardly been discussed in the case law and that panels tend to presume that a strong substitution between domestic and foreign products always lead to substantial protection. Next, we consider a stylised model of trade and find that the ability to raise price is a robust measure of protection and that protection falls significantly (for a given barrier) with the degree of product differentiation but also with the degree of rivalry. We also observe that the effects of non-tariff barriers on import values in ambiguous so that imports are not a robust measure of protection. Our findings suggest that the distinction drawn in the case law between "like" and "directly competitive and substitutable" products is not helpful. Finally, we suggest a method to evaluate protection in trade disputes which is inspired by the definition of the relevant market in antitrust.protection; GATT; market definition

European Industrial Policy: The Airbus Case

industrial policy; airframe industry; calibration

Bank Performance in Transition Economies

This paper examines the performance of 515 banks in 16 transition economies for the years 1994 – 99 based on their public financial accounts. We first examine lending behaviour and probability distribution of bank profitability to determine whether these banks exhibit behaviour and performance associated with excessive risk-taking. While we do not find evidence of excessive risk taking on average where there is significant progress in banking and related enterprise reforms, there may be a minority of poorly capitalised banks that do take excessive risks, particularly where progress in reform is less advanced. The paper then estimates cost and revenue functions based on a model of banks as multi-product firms. The results indicate that banks' performance differs significantly depending on the reform environment, as well as the competitive conditions, in which they operate. Banks with high market shares have higher costs and achieve lower margins on their loan and deposit activities. Where there has been significant progress in banking and related enterprise reforms, banks are making comfortable margins on loans and appear to be offering competitive margins on deposits, though they are still achieving overall negative returns on equity. By contrast, when substantial reforms have not been undertaken, banks have been sustaining high negative returns on loans, largely at the expense of depositors; in effect they have been able to appropriate much of the tax that inflation levies on nominal deposits, and have been using this revenue to prop up their weak loan portfolios. Overall interest margins are declining over time but are substantially higher in low reform environments. The results indicate that an appropriate policy and regulatory framework may be a necessary condition for significant progress to be made.http://deepblue.lib.umich.edu/bitstream/2027.42/39890/3/wp505.pd

The Scope of Conflict in International Merger Control

In this paper, we analyse the scope for conflict between national merger control agencies which assert jurisdictions simultaneously. We consider a positive model of merger control in which market definition and the analysis of dominance are both explicitly specified. We find that conflict in international merger control is less likely to occur when economic integration is high. Hence, "globalisation" should alleviate rather than exacerbate conflict. In addition, we observe that conflict is less likely to arise between countries of different size and for extreme policy rules (very lenient or very strict) towards dominance.international antitrust; merger control; extra-territoriality

The Competitive Impact of the UBS-SBC Merger

This short paper reviews the recent anti-trust analysis of banking mergers as well as recent decisions by the Department of Justice and the Bundeskartellamt (in the last few months). We analyse the proposed merger between UBS and SBC in light of this evidence and focus on the domestic retail banking. Three conclusions stand out : - There is overwhelming evidence that the relevant market for some products is local. In particular, the market for loans to small and medium size enterprises should be considered as a local market and this has consistently been the practice of both the US and German authorities. - Barriers to entry in retail banking are significant so that high concentration should be a source of concern. This concern is reflected in recent decisions on bank mergers by the Department of Justice. By the standards of the US practice, the concentration resulting from the UBS-SBC merger would be simply unacceptable and by a wide margin. - Divestiture is the most common remedy in banking and it seems to be effective. Given the concentration entailed by the proposed merger, nothing less than a the full divestiture of one retail network seems adequate.UBS-SBC merger; concentration; barriers to entry; local markets

Bank Performance in Transition Economies

This paper examines the performance of 515 banks in 16 transition economies for the years 1994 – 99 based on their public financial accounts. We first examine lending behaviour and probability distribution of bank profitability to determine whether these banks exhibit behaviour and performance associated with excessive risk-taking. While we do not find evidence of excessive risk taking on average where there is significant progress in banking and related enterprise reforms, there may be a minority of poorly capitalised banks that do take excessive risks, particularly where progress in reform is less advanced. The paper then estimates cost and revenue functions based on a model of banks as multi-product firms. The results indicate that banks' performance differs significantly depending on the reform environment, as well as the competitive conditions, in which they operate. Banks with high market shares have higher costs and achieve lower margins on their loan and deposit activities. Where there has been significant progress in banking and related enterprise reforms, banks are making comfortable margins on loans and appear to be offering competitive margins on deposits, though they are still achieving overall negative returns on equity. By contrast, when substantial reforms have not been undertaken, banks have been sustaining high negative returns on loans, largely at the expense of depositors; in effect they have been able to appropriate much of the tax that inflation levies on nominal deposits, and have been using this revenue to prop up their weak loan portfolios. Overall interest margins are declining over time but are substantially higher in low reform environments. The results indicate that an appropriate policy and regulatory framework may be a necessary condition for significant progress to be made.banking, cost functions, revenue functions, transition

Competition Policy in Switzerland

This paper provides a critical review of competition policy in Switzerland. We analyse the legal statute, the institutional arrangements for its implementation and the case law since 1985.competition policy, Switzerland; political economy

Consumer Surplus vs. Welfare Standard in a Political Economy Model of Merger Control

This paper considers merger control in a common agency framework where firms and their competitors can influence the antitrust agency and where transparency - while making lobbying less effective - also implies real resource costs. We examine the performance of two alternative standards that can be assigned to the antitrust agency in the presence of these regulatory failures. We find that under a welfare standard, lobbying leads to the clearance of relatively inefficient mergers that decrease welfare (i.e. there is a type II error). By contrast, under a consumer surplus standard the agency will ban relatively efficient mergers that would increase welfare (i.e. there is a type I error). Lobbying actually reduces the extent to which this occurs, albeit at a cost in terms of real resources. We also find that a consumer surplus standard is more attractive when mergers are large, when increasing the size of a merger greatly enhances industry profits, when there is little transparency, and when co-ordination costs amongst competitors are low.political economy; merger control; institution design