Abstract
This article contributes to the discussion of the implications of different objectives pursued by the competition authorities (CAs) for their optimal structure in terms of whether one or more functions (or activities) should be assigned to them. Different areas of enforcement activity that can be assigned to CAs may differ in the extent to which they contribute to welfare-enhancing or reputation-enhancing objectives. In their recent paper, Avdasheva et al. (Rev Ind Organ 54:251–282, 2019) showed that when the CAs are reputation-maximizing, it may then be optimal to have activities undertaken by specialist authorities, each specializing in one activity. In this article, we generalize the utility function of the CAs, allowing also the welfare impact of the decisions made to influence their utility, and show that if the CAs are welfare maximizers, then all the activities should be undertaken by one generalist authority.
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Notes
With a degree of independence that varies quite a lot between countries—see Jenny (2016), Sect. 4.
See for an extensive discussion of these assumptions and of empirical evidence, as well as for a review of related theoretical work, Schinkel et al. (2015) and Katsoulacos (2017). For further justification see also below.
That of the Dutch Authority (ACM). For the UK’s agency (CMA), this is, however, an important performance indicator.
A review of which CAs have, in the last 15 years or so, gone for a more generalist and which have gone for a more specialist structure is given in Jenny (2016). Most agencies in Europe and North America are “mildly” generalist, having both responsibilities for consumer law and consumer protection. In some cases, as in Australia, in the BRICS and other developing countries, the agencies have now many more responsibilities including for sectoral regulation and/or for procurement law and unfair trade practices (e.g., in Russia). See also for more details, Avdasheva et al. (2019).
The debate on institutional design and the review by Jenny (2016) extends to issues of the goals of CAs and of the organization of antitrust institutions more generally. Here, our focus is narrower: we are concerned with the institutional structure purely in terms of whether this is a specialist or a generalist one.
The welfare benefits of competition law enforcement can be measured by the impact on consumer welfare of infringmeent decisions taken by CAs that are not annulled, and this is an important part of the perforrmance assessment of some CAs for a long time, as for example, for the case of CMA (and of the OFT before)—the UK agency, or for ACM (Holland) or for the Australian agency (all generalist agencies). Welfare will of course also be influenced by deterrence and advocacy measures taken by the agency. However, we need to formulate the utility function in terms of variables that have a measurable impact on utility. Non-annulled infringement decisions constitute the primary measurable variable affecting the agency’s performance indicators (utility) when the latter depend on consumer welfare. It is not possible to identify the impact on welfare and hence on the performance of the agency of its measures to improve deterrence or on advocacy.
To be more explicit, we assume that this degree of freedom is unavoidable even though the principal (the government) finally has to decide on the structure of the agency (generalist or specialist). As a referee noted, we abstract from the issues that would be raised by a principal—agent approach under imperfect information, as in Dixit (2002), but our approach is effective in allowing us to skip these issues and to show that the optimal CA structure depends on the motivation of the authority.
In these cases, explicit assessment (performance) criteria are set that focus on the consumer welfare impact of decisions. We fully recognize that such welfare focused objectives will often not be obtained (see also our review of a number of authorities in Avdasheva et al. 2019), as recognized in particular by Buchanan’s (Buchanan and Tullock, 1962) public-choice theory, and at best they require strong institutional design and incentives.
E.g., because of deadlines imposed by law that require the CA to reach decisions within a certain period once a case is filed. Alternatively, we can plausibly think of \(c_{k} \underline{D}_{k} \;\) as the budget over which the division k in the CA is given direct responsibility (so the assumption is that each division has some but not complete autonomy in the way the overall budget is divided).
Of course, a number of other factors influence whether it is optimal to use a generalist or a specialist CA. For example, the incorporation of fixed costs in the model would provide an added benefit to a more generalist agency—to the extent that having one agency rather than several specialist agencies would save on overall fixed costs. This factor has been noted and discussed before in the literature, including in Avdasheva et al. (2019) and in Jenny (2016). So the effect of this factor is already well understood and thus in our model we assume it away, as indeed also some other factors mentioned in the literature, in order to focus on the effect of different agency objectives, a factor which was hitherto unexplored.
References
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Acknowledgements
We are grateful for research assistance to Galateia Makri and Eleni Metsiou and for the comments and suggestions on a previous version of the paper presented at the 13th CRESSE Conference (July 2018) and, particularly, from Paulo Furquin de Azevedo, Boris Begovic, Frederic Jenny, Louis Kaplow, Martin Peitz, Maarten Pieter Schinkel, and David Ulph also for the comments of the three referees. Of course, all errors and ambiguities remain our sole responsibility. We are also grateful for financial support from the Hellenic Foundation for Research and Innovation (H.F.R.I.) under the “1st Call for H.F.R.I. Research Projects to support Faculty Members & Researchers and the Procurement of High-cost research equipment grant” (Project Number: 1314; 2020–2023).
Funding
This study was funded by the Hellenic Foundation for Research and Innovation (H.F.R.I.), Project number 1314; 2020-2023.
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Katsoulacos, Y., Bageri, V. Objectives and the Optimal Structure of Competition Authorities Revisited. J Ind Compet Trade 22, 69–81 (2022). https://doi.org/10.1007/s10842-021-00370-8
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DOI: https://doi.org/10.1007/s10842-021-00370-8