Abstract
We describe three interesting cases that the UK Competition and Markets Authority (CMA) has dealt with over the past year: first, we discuss the merger of two online food ordering platforms—Just Eat and Hungryhouse—which required an assessment of competition in the presence of indirect network effects. Second, we discuss the vertical merger of a grocery retailer and wholesaler—Tesco and Booker—which posed the challenge of how to assess a firm’s incentives to foreclose its rivals when there are thousands of local markets. Finally, we discuss Open Banking, which lies at the heart of the package of remedies that came out of the CMA’s market investigation into personal banking, and sought to tackle issues of low customer engagement.
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Notes
For a full description of the CMA’s duties, see its website at https://www.gov.uk/government/organisations/competition-and-markets-authority.
See CMA (2017a).
The CMA looked at different measures of multi-homing of consumers, using survey evidence of searches on both platforms for the consumer’s last order, the Parties’ data on consumers using both platforms in the previous 6 months, and comScore data on cross-visiting of the Parties’ websites and apps. The estimated levels of multi-homing were similar for all these different definitions and datasets.
Economic theory also provided arguments in support of the CMA’s conclusion, given the high degree of multi-homing by restaurants between the Parties and the moderate strength of indirect network effects, see Sun and Tze (2007).
A rigorous econometric analysis would require estimating the two equations for Just Eat and Hungryhouse simultaneously, as the error terms are likely to be correlated. However, in all our cases, we face a trade-off between tractability and precision. In the institutional environment that we work in, there are clear benefits to using simple models, given the limited time and resources available. Based on these considerations, and following the standard practice in CMA cases, we have estimated the two equations separately.
See CMA (2017c).
Tesco was already largely vertically integrated into wholesaling pre-merger, sourcing most of its wholesale needs directly from producers; therefore the merged firm was unlikely to have an ability to foreclose competing wholesalers.
The CMA also considered theories of harm that are related to the exercise of buyer power by the merging firms, as well as standard horizontal theories of harm for a small number of areas where the Parties were direct competitors; this article focuses on the CMA’s assessment of local vertical foreclosure theories of harm.
Cases where the CMA used the GUPPI methodology include Shell/Rontec, Saint-Gobain/Build Center, Edmundson/Electric Center, Rexel/Wilts, Cineworld/City Screen, and Original Bowling/Bowlplex.
This is a ‘weighted share of shops’ approach’; full details are provided in Appendix C of the Tesco/Booker final report https://assets.publishing.service.gov.uk/media/5a3a7d9ae5274a73593a0cc7/appendices_and_glossary_tesco_booker_final_report.pdf.
Specifically, a vGUPPI of 5% means that the merged firm would have the same incentive to raise the input price to the targeted downstream rival as the upstream merging firm would have pre-merger if its marginal cost of supplying inputs to that firm increased by an amount equal to 5% of the input price. Translating this upward pricing pressure index into a corresponding increase in the input price requires information about the cost pass-through rate of the upstream merging firm. For a more detailed discussion of the interpretation of pricing pressure measures see Farrell and Shapiro (2010).
See CMA (2018).
The CMA’s investigation covered both competition for personal current accounts (PCAs) and banking services to small and medium-size enterprises (SMEs). For brevity, this article focuses on PCAs.
CMA (2016).
FinTech firms could access transaction data only if customers shared their online banking credentials.
The Second Payment Services Directive.
For example, in Canada, Mexico, Australia, New Zealand, Japan, Singapore, Israel, and Kenya.
References
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Acknowledgements
The views that are expressed in this article are those of the authors and do not necessarily reflect those of the CMA. We thank Siobhan Dennehy, Chris Doyle, Bill Roberts, Robert Ryan, and Tom Smith for helpful comments.
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Basso, A., Bon, J., Tasker, B. et al. Recent Developments at the CMA: 2017–2018. Rev Ind Organ 53, 615–635 (2018). https://doi.org/10.1007/s11151-018-9668-2
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DOI: https://doi.org/10.1007/s11151-018-9668-2