Agenda in focus
Agenda in focus

The latest long reads and in-depth articles

Since 2005, our monthly publication Agenda (now Agenda in focus) has brought you the latest thinking from Oxera: engaging and relevant insights underpinned by economics as it applies to business, markets, law and regulation. The articles dig deeper into current developments and new insights in economics, supported by contributions from our network of external guest authors. Find out more by exploring our latest articles and extensive archive on this page.

Destination unknown: airport regulation in the wake of COVID-19

The COVID-19 pandemic has had a severe impact on public health, and significant and far-reaching effects across most sectors of the economy. Given the current global travel restrictions, with most of the world’s population living in countries with some form of travel ban or restriction, aviation has been one of the most dramatically affected sectors. What long-term effects will this have on the sector, and what are the implications for economic regulation?

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Retail payments: a changing European landscape

The landscape for retail payments in Europe is going through a period of considerable upheaval due to technological developments and entry by new providers, supported by regulatory changes. What exactly are these changes, and what are their implications for the competitive dynamics and market outcomes in retail payments?

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Taking Britain to net zero: Ofgem’s decarbonisation action plan

On 3 February Ofgem, the energy regulator for Great Britain, published its decarbonisation action plan to support the UK in achieving net zero carbon emissions by 2050. Outlining Ofgem’s role in facilitating decarbonisation, the plan lists the trade-offs faced and nine actions that the regulator will take. We look at what the plan says and its implications

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Consumer protection in the online economy

The Netherlands Authority for Consumers and Markets (Autoriteit Consument en Markt, ACM) has recently published guidelines for online firms and other interested parties, indicating its view on which online business practices are allowed within the boundaries of consumer protection laws— and which are not. Annemieke Tuinstra, Senior Economist in ACM’s Chief Economist Team, discusses the economic and psychological concepts behind the guidelines

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Home advantage? Who wins in multi-sided platform competition?

What do Google, Mastercard and Amazon have in common with early auction houses or the traditional village matchmaker? One answer is that they are all multi-sided platforms (MSPs). Much has been done in the last decade to try to understand the economics of such platforms. Yet current research is still uncovering new findings about pricing, multi-homing and the competitive dynamics of platforms—some of which can seem counterintuitive

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Are competition appeals taking too long?

The UK Competition and Markets Authority (CMA) has asked the government for additional powers to investigate firms and intervene more quickly in markets. At the same time, it wants to limit the scope for affected parties to appeal its decisions. Mark Friend, Partner and head of the London antitrust group at Allen & Overy LLP, considers whether the CMA’s arguments for reform are convincing and supported by the evidence from previous cases

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How could ownership affect performance?

In the decade since the global financial crisis, Western Europe has seen increased calls for changes in the ownership of essential service assets. For example, during the UK’s 2019 general election, the Labour Party campaigned for the nationalisation of key strategic industries such as energy, water and telecoms. We ask how ownership can affect operational incentives and outcomes, and explore the implications for current ownership models and independent regulation

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Consumer vulnerability: making sense of this new ground for regulatory intervention

In February 2019, the UK Competition and Markets Authority (CMA) published a major study on consumer vulnerability, which puts vulnerability firmly on the agenda of regulators and firms. Peter Andrews, Oxera Senior Adviser, considers what is driving this focus on vulnerability, what its implications are, and the principles under which the concept of vulnerability would lead to intervention

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Investing, insurance or gambling?

The distinction between investment, insurance and gambling is an essential one for policymakers and regulators. At the most basic level it is easy to see the differences between these products. But is it possible to extend the theoretical distinctions to more complex products and so give consumers clearer guidance? Fod Barnes, Senior Adviser at the UK Payment Systems Regulator, and previously a Senior Adviser at Oxera, explores the issues

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Regulation and policy in Italy: don’t throw away the baby with the bath water!

The Italian water sector is undergoing a period of significant change. The sector does not require radical intervention in its ownership structure to improve investment levels and quality standards, but rather a package of measures to improve the management model and enhance independent regulation. How can tariff regulation be extended nationwide, and how can existing industry fragmentation be overcome?

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Digital platform regulation: What are the proposals across Europe?

Calls to ‘do something’ about tech giants are getting louder. Some suggest that breaking them up is the best way to go, but such strong intervention is absent from the most developed regulatory proposals seen so far. Taking into account recent prominent reports from (or for) the European Commission and several national competition authorities, what are the main proposals on the table, and are they plausible?

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Conduct risk management—high five?

Financial services providers around Europe are subject to clear expectations from regulators regarding conduct risk (or ‘the risk of misconduct’ that can cause poor consumer outcomes or undermine market stability or competition). What are these expectations, and how can providers meet them? In our experience, managing conduct risk requires a new toolkit based on behavioural economics, business model analysis, machine learning, competition economics, and good governance.

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What are firms for? Redefining corporate purpose

What should be the purpose of a firm? To maximise profits or shareholder value, or to pursue wider societal objectives? Professor Julian Franks of London Business School, and Oxera Partner, discusses the roles of trust and implicit contracts in redefining corporate purpose. He looks at changes that may be required in regulated utilities, with a focus on water

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Political control of state-owned utilities in the UK

The UK Labour Party’s proposal to nationalise core utilities has renewed debate about whether nationalisation is a good or a bad thing. Tim Tutton, Associate at the Centre for Competition Policy (University of East Anglia, UK), takes a different approach. Focusing on the issue of political control, he explores whether lessons can be learned—from both the nationalised era and the privatised era—and how any future (potential) nationalisations might be made to work more effectively than in the past

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Unbundling: what’s the impact on equity research?

The EU’s second Markets in Financial Instruments Directive (MiFID II), introduced in January 2018, requires brokers to charge separate fees for trade execution and for research, thereby ‘unbundling’ them. Since these rules came into force, there have been concerns about their impact on the provision of research and, more generally, the development of capital markets. What market failures does the unbundling rule intend to address, and what are its potential unintended consequences?

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Risky business: political uncertainty and the cost of capital for regulated firms

Statements by politicians about nationalising or intervening in the functioning of regulated industries have attracted substantial media attention in recent times, leading to an increase in political and regulatory risk for regulated industries. A case study focusing on National Grid, the energy transmission company in the UK, suggests that increased political and regulatory risk can affect the valuation of regulated utilities through a combination of lower expected cash flows and a higher cost of capital

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State aid spotlight on tax: the General Court’s judgments on Fiat and Starbucks

In 2015, the European Commission ordered Starbucks and Fiat to each pay €20m–€30m in the Netherlands and Luxembourg, respectively, as their tax arrangements were found to constitute illegal state aid. On 24 September 2019, the General Court upheld the Commission’s Fiat decision, but annulled the Starbucks decision. What were the key economic issues in these cases, and what are the implications of the judgments?

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Labour markets: a blind spot for merger control?

Recent months have seen increased discussion of merger control in Europe. One central question is whether the impact on labour markets should be examined directly, or indirectly in terms of product market concentration. We shed light on the main arguments in this debate, and discuss some of the challenges that would be faced by competition authorities if they were to consider labour markets concentration in their merger assessments

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EU broadband: co-investing in a faster future

Rolling out very high-capacity networks (VHCNs) across Europe to deal with ever-increasing broadband demands is challenging. To incentivise investment, the European Commission has introduced new conditions relating to co-investment agreements, including a promise (subject to certain conditions) not to regulate SMP operators that enter into an investment agreement with at least one other operator. Peter Culham, Senior Adviser, Felipe Flórez Duncan, Partner, and Michael Weekes, Senior Consultant, ask: is it enough to unlock investment in VHCNs?

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Letter from the editor

Dear reader,  Since launching Agenda as a monthly publication in 2005, it has been our ambition to provide you with engaging and relevant insights underpinned by economics as it applies to business, markets, law and regulation.

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Blinded by the sun: the future of renewables disputes

The deployment of renewable energy technologies looks set to continue to grow. However, it can be challenging to integrate these technologies into existing policy frameworks and energy systems. Renewables have also been prone to legal disputes, as illustrated by recent cases brought against the Spanish government. As such disputes become more commonplace, a range of economic, financial and public policy issues will need to be examined

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New kid (needed) on the block? Vertical Block Exemption Regulation in the digital age

The recent rise of ecommerce has triggered debate around vertical agreements between suppliers and distributors/retailers. Against this backdrop, is the European Commission’s current Vertical Block Exemption Regulation (VBER) still fit for purpose, or should it be revised? Do its Guidelines on Vertical Restraints (VGL) also need to change? Drawing on Oxera’s response to the Commission’s 2019 consultation, we discuss a few areas where revision and further guidance might be welcome

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Water sector draft determinations: a stocktake

Ofwat’s July 2019 draft determinations for water companies in England and Wales signal that the regulator is toughening its stance on allowed returns, cost efficiency and performance incentives. Credit rating agencies have provided their own thoughts on what this means for the sector. We go under the bonnet to explore the detail

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Sharing is caring: supporting the roll-out of 5G networks

Early 5G services are being launched in major towns and cities around the world, providing enhanced mobile broadband services to users. However, further investment in new network infrastructure will be required to support widespread deployment of 5G and take full advantage of the technology’s transformational capabilities. Given the significant costs involved, network sharing agreements may be increasingly important. Will this greater industry collaboration have an impact on head-to-head competition? If so, how should this tension be assessed?

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The benefits of sharing, or sharing the benefits? Cartels and efficiencies in Hong Kong

Is a market-sharing agreement always an infringement of competition law, or could it be justified on the basis that it generates efficiencies? What analysis and evidence is required to answer this question? These were the questions facing the Hong Kong Competition Tribunal in only the second enforcement action brought before it. We look at the economic analysis that was instrumental in helping the Tribunal to decide the case

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How do non-poaching agreements distort competition?

Agreements between firms not to hire each other’s workers have recently come under the radar of competition authorities, particularly in the USA. However, there is a question about whether labour markets come within the remit of competition authorities, and whether it is their role to intervene. If it is, how can tools developed in competition economics help in such cases?

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Will tech giants take over payments?

The Chinese payments industry has recently experienced significant disruptions from technology companies Alipay and WeChat. Although consumer preferences and the regulatory environment have played an important part in the success of Alipay and WeChat Pay in China, many factors are also applicable in the European context. With technology companies now evaluating opportunities in the European payments market (most recently, Facebook’s Libra), what can the Chinese example tell us about its likely evolution?

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Lifting the weight of state aid from project finance

In the EU, support provided by the state to finance projects operating in competitive markets typically needs to comply with state aid rules. However, there may be challenges in structuring project financing from the state in a way that is compliant with these rules. What are the fundamental elements to consider when assessing whether the funding confers an economic advantage on the recipient? What alternative financing structures could be considered?

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A flood of interest: Flood Re makes its mark

Flood Re, a pioneering flood insurance levy scheme in the UK, is celebrating its third birthday. Since its launch in April 2016, the scheme has helped over 200,000 households, and is now increasingly looking at how it can help the market to transition to ensure that Flood Re is no longer needed by 2039. Aidan Kerr, Director of Operations at Flood Re, explains the scheme’s history and underlying social purpose

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Common ownership and market entry

Investors’ holdings in multiple firms give rise to what is known as ‘common ownership’. Are the strategic decisions of competing firms affected by the presence of common ownership? Albert Banal-Estañol of Universitat Pompeu Fabra, Barcelona GSE and City University of London, and Melissa Newham and Jo Seldeslachts of DIW Berlin and KU Leuven, provide evidence on the impact that common ownership has on market entry, one of the most important strategic decisions that firms make, in US pharmaceutical markets

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Gas markets, regulation and politics: implications of the energy transition

Until recently, gas was seen in Europe as a complement to renewable energy—i.e. a cleaner (albeit costlier) alternative to coal. Since 2017, opinions have been changing, primarily as a result of stronger evidence on the pace of climate change. Nonetheless, as Sir Philip Lowe, Oxera Senior Adviser, explains, gas will continue to have an important role—albeit this is contingent on future innovation and the roll-out of gas investment, both of which in turn depend on politics and market regulation

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Fairness and competition in online markets: friends or foes?

Fairness is emerging as an increasingly important policy goal across sectors. We set out a framework for assessing fairness concerns, and examine the relationship between the aims of competition policy and fairness in current debates. Do the European Commission’s platform-to-business initiative and reputation systems for sharing platforms lead to fairer processes? And do online price differentiation and negotiations between platforms and content creators lead to fair outcomes? What is the role of competition in all of this?

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Fair ground: a practical framework for assessing fairness

Regulators are increasingly looking to firms to ensure that their practices are ‘fair’ in terms of the process followed (e.g. the type of data used) and the outcomes delivered (e.g. which consumers pay more). So, how can boards and senior managers satisfy themselves that practices are indeed fair and in line with their firm’s principles and risk appetite? We present Oxera’s practical framework, which has been used as a tool by senior decision-makers in financial services firms

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Stock-ing up: the design of equity trading markets in Europe

Equity markets, where investors buy and sell shares, are crucial to the European economy. Regulatory change has opened up competition, leading to more choice and lower trading fees, but also fragmentation and risks to price formation. There is an ongoing debate about the provision of market data services that often overlooks the links between market data services, trading and price formation. How is equity trading functioning from a market design and an end-investor perspective?

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A challenging initial assessment for the water companies in England and Wales

On 31 January, Ofwat published its Initial Assessment of Plans as part of the current water sector price control review in England & Wales. Ofwat categorised three companies’ business plans as ‘fast track’, meaning their proposals over 2020–25 are ready to implement. Four companies’ plans were categorised as needing significant scrutiny and substantial rework, and the remaining companies’ plans were categorised as ‘slow track’, needing to undertake further work on their plans. What are the cost-efficiency and finance aspects of this initial assessment?

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Death of an old star…evolution of a new one?

‘Superstar firms’ are increasingly dominating markets. Network effects may consolidate the position of these firms, but they can also help new entrants to undermine them. In some markets, network effects will both dampen competition ‘within’ the market and spur competition ‘for’ the market. Francesca Arduini, Oxera Analyst, argues that we can employ the framework of evolutionary game theory to derive four key policy insights into this topic

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Dealing with digital dominance: insights from Germany

The German government is looking at how competition law can better address abuse of dominance in digital markets. As part of this, an academic study has recommended giving authorities powers to intervene earlier and in additional settings where large platforms or valuable datasets are involved. How can these proposed reforms improve market outcomes while limiting the scope for unintended consequences?

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Increased market power: a global problem that needs solving?

The idea that there has been a widespread reduction in competition across many industries has been widely discussed in recent years by academics, policymakers and the media. But what does the empirical evidence actually say, and what are potential causes and policy options? The Oxera Economics Council met to discuss this topic in November 2018

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Competition between airports in Europe soars… but where next for regulation?

Where airports do not face effective competition, it may be necessary to introduce economic regulation to protect passengers’ interests. Regulation can help to ensure fair prices, sufficient investment, high-quality service, and efficient costs. At the same time, it is important that regulatory interventions are targeted at areas where competition will not deliver the desired outcomes. With increasing competition between airports, what tools are available to help policymakers decide whether regulation is required?

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Why we need to consider holistic consumer outcomes

As government policy, regulation and competition law all aim to make a positive difference for consumers, it is crucial to have a common understanding of what constitutes a consumer benefit. To date, consumer outcomes have been considered mainly in terms of price, quantity, quality, innovation and choice. However, Tim Hogg, Oxera Consultant, argues that advances in technology mean that authorities should consider an additional set of holistic consumer outcomes, including relationships, fairness, truth, and privacy

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It’s what you know about who you know: market power in digital platforms

In the digital services market, platform operators compete for the attention of consumers. However, there are increasing concerns about their degree of market power, which can be difficult to assess using the traditional tools of competition and regulation. As calls for further regulation increase, authorities must ensure that their interventions do not lead to unintended consequences, such as reducing the gains that such platforms bring to society

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Pass it on: the draft EU guidelines on pass-on and volume effects

On 5 July 2018 the European Commission published draft guidelines to help national courts estimate the share of overcharges ‘passed on’ to indirect purchasers and final consumers of goods affected by a cartel. The guidelines also cover estimation of volume effects, which are the natural counterpart to pass-on. How helpful are these draft guidelines, and how could they potentially be improved?

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The threat of common ownership: real or imagined?

Common ownership—the simultaneous ownership of equity of two competing companies by the same investor—has been rising steadily. This trend has been largely triggered by increasing institutional investor participation, including index funds owned by asset managers such as Vanguard and BlackRock. However, as highlighted by Oxera Partner, Professor Julian Franks, and Oxera Associate, Professor Vikrant Vig, the rise has been accompanied by an important debate on the potential anticompetitive effects of common ownership

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Funda-mentals of Article 102: a dominant platform, but no abuse

In March 2018 the Court of Amsterdam issued a verdict in a long-running abuse of dominance case involving funda, the largest property website in the Netherlands. The Court found funda to be dominant, but did not consider the company’s discriminatory listing of rival estate agents to be distortive of competition. Dr Gunnar Niels, Partner at Oxera and court expert in the case, describes how this makes for an interesting comparison with Google Shopping and other competition cases involving online platforms

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Nuclear in the UK’s energy mix? The core question

Choosing the right energy mix is a hot topic for many countries around the world. In the UK, for example, the government appears committed to supporting new nuclear capacity; however, sceptics point to the declining cost of renewables as a reason why this commitment may be misplaced. What is the economic case for new nuclear capacity, given the objectives of security of supply, affordability, and decarbonisation?

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AT&T–Time Warner: ‘Humans and Econs’ in merger assessment

In June 2018, the US District Court issued its decision to clear the proposed merger of AT&T and Time Warner, following an in-depth investigation and subsequent lawsuit by the Department of Justice (DOJ)—making this the first vertical merger to go to trial in the USA in 40 years. Oxera Partner, Maurice De Valois Turk, discusses the economics underlying the DOJ’s main theory of harm and why did it not convince the court

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No Withdrawal Agreement? What happens next?

During October 2018, the UK and the EU are hoping to have agreed on the basis for the UK to withdraw from the Union, with the Agreement to be ratified by EU institutions and the UK Parliament before the UK leaves on 29 March 2019. What happens if the UK leaves with no deal in place?

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Consumer data in online markets

Businesses increasingly use consumer data to offer better and more targeted digital products and services. Many of these new business models rely on data to facilitate transactions and generate revenues in a way that was not previously possible. Access to personal data has understandably raised concerns about privacy. Based on a study commissioned by Which?, we investigate the delicate balance between privacy and the value of digital services

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Putting the genie back in the bottle—deposit return schemes on plastics

In March 2018 the UK government announced a plan to introduce a deposit return scheme for plastic, glass and metal drinks containers in England. Aimed at curbing pollution by stimulating recycling, the scheme will be consulted on later this year, and will bring England into line with many other EU countries that already have such schemes. From a traditional and a behavioural economics perspective, what conditions are necessary in order for these schemes to achieve the intended policy objectives?

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The Heathrow third runway: what next?

Given the approval of the UK government’s National Airports Policy Statement on 5 June 2018, observers may think that the last remaining major obstacles have been removed and the bulldozers are ready to roll in to clear the site for the third runway at Heathrow. But in truth, as Mike Toms, Oxera Director, explains, there are still many hoops to jump through before the project gets off the ground

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Sharing too much? Information exchange in the digital economy

Is an excess of information hurting competition? Although there are some well-established, economically founded principles for assessing the exchange of information between competitors, the general increase in information availability in the digital economy presents new challenges. We revisit the economic principles that can be used to understand the likely effects, both beneficial and malign, of information sharing, and how competition authorities could react to these trends

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Battle in the trenches? The future of ultrafast broadband roll-out in the UK

The UK government is finalising its review into the future of telecoms infrastructure, which has included a call for evidence on market and policy models to support the necessary investment. Simon Pilsbury, Regulation Director at TalkTalk Group, one of the UK’s largest broadband providers, looks at the policy agenda that the government and Ofcom should adopt in order to stimulate ultrafast broadband investment across the UK. This follows an Agenda article in April 2018 on the same topic from BT’s perspective

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Four-ever? Competition remedies in the audit market

This article was nominated for the 2019 Antitrust Writing Awards. In light of recent accounting scandals, there are widespread calls for the UK competition authority to re-examine the audit market. Yet spending a substantial amount of resources on a market...

Mind the vGUPPI! A new approach to vertical mergers in local markets

Recent transactions involving the merging of wholesale and retail activities (most notably the Tesco/Booker merger and the Co-op/Nisa merger) have led the UK Competition and Markets Authority (CMA) to introduce a new framework for assessing vertical mergers. What is the framework of analysis of these cases, and how can the vGUPPI tool be used in the context of grocery mergers?

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The curious case of the valueless valuation—the Signia Wealth v Vector Trustees ruling

On 8 May, the High Court in London issued a judgment on the Signia Wealth v Vector Trustees Limited case. Mr Justice Marcus Smith determined that the fair value of the 49% stake in Signia Wealth owned by Ms Nathalie Dauriac (represented by Vector Trustees Limited) was £790k—in sharp contrast to the £21m claimed by Ms Dauriac. This valuation decision provides an important precedent on the choice of the appropriate valuation method and the importance of taking into account relevant contractual terms in the valuation exercise

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Discrimination or differentiation? Price discrimination as an abuse of dominance

When does price discrimination by a dominant firm amount to an abuse? Is the mere existence of a price difference sufficient? A recent ruling by the Court of Justice of the European Union (CJEU) provides some guidance on these questions, highlighting the ability to distort competition as a key criterion for a finding of abuse. Taking an economic perspective, we look at the CJEU’s approach and consider the implications for other cases of discrimination more broadly

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Regulation 2018: ‘back to basics’

The UK is experiencing a backlash against the liberal orthodoxy of utility regulation of ten years ago, which was based on privatisation, competition and deregulation. A recent Agenda article on the legitimacy of sectoral regulation in the UK asked ‘Is it policy, ownership, industry structure, governance, financing or regulation that is driving the problem?’ Martin Cave, Visiting Professor, London School of Economics, provides his perspective

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A promise of protection: a behavioural experiment into pension decisions

How does the presence of consumer protection affect decisions at retirement? Oxera undertook a behavioural experiment for the UK Financial Services Compensation Scheme (FSCS) to understand the role of FSCS protection—in both how consumers select their retirement income products, and whether they choose to obtain financial advice. This revealed how people behave in a realistic environment, providing insight into actual consumer behaviour and the importance of the FSCS in their decision-making

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By object or by effect: revisiting pharmaceutical patent settlements after paroxetine

Are patent settlement agreements in the pharmaceutical sector an infringement of competition law by object? Could they be an infringement by effect? The March 2018 judgment of the UK Competition Appeal Tribunal (CAT) on the paroxetine case, which referred these key questions to the Court of Justice of the European Union (CJEU), sheds some light on the matter. What can we learn about both the judgment and the questions in light of the growing economic literature on patent settlements?

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How best to create an enduring framework for investment in world-class broadband connectivity in the UK?

The Future Telecoms Infrastructure Review by the UK Department for Culture, Media and Sport (DCMS) is investigating ‘what longer term changes could be made to market structures and policy frameworks to encourage investment’, and is aiming to reach initial conclusions in the summer. In the spirit of open and constructive debate, Emily Clark, Chief Economist at BT Group, sets out BT’s emerging thinking on what UK policymakers can do to support investment in ultrafast broadband networks across the UK

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Legitimacy and renationalisation: where next for utility regulation?

UK regulated utilities are facing the tightest scrutiny that they have experienced in years. A tit-for-tat battle between the two main political parties in proposing changes to address public concerns has culminated in the Labour Party proposing renationalisation and the Conservative Party greater regulatory supervision. So what is the regulatory outlook for customers, companies and their investors in the context of the renationalisation agenda and other recent developments?

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The Google case: shop till you drop (off the screen)

In 2017 the European Commission imposed a record €2.4bn fine on Google for abusing its dominant position in online search by giving preferential treatment to its own comparison shopping service. Such complex cases of leveraging of market power also arise in other digital markets, and raise several questions. How should competition authorities weigh benefits to consumers against harm to competition and competitors? How can competition concerns be remedied without affecting incentives to innovate?

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The X factor: what is the productivity target for German gas utilities?

The German federal network agency (Bundesnetzagentur, BNetzA) has determined the preliminary productivity factor X (Xgen) for gas networks in Germany—as in RPI - X (or CPI - X). The Xgen ensures that gains from technological progress and changes in input prices are passed on to final network customers via lower prices for network services. How was the Xgen determined? Why does it matter? And what lessons can be drawn?

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Quid pro quo? What factors influence IPO allocations to investors?

Investment banks face potential conflicts of interest when conducting initial public offerings (IPOs) of shares, as they provide services for both issuing firms and buy-side investors. Tim Jenkinson and Howard Jones of the Saïd Business School, University of Oxford, and Felix Suntheim of the UK Financial Conduct Authority (FCA), use data gathered as part of the FCA’s market study into investment and corporate banking to shed light on the extent to which conflicts of interest drive allocation decisions

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How did cats get the cream of the Internet?

Cat videos have won the Internet—Grumpy Cat, Nyan Cat and Keyboard Cat fill our social media feeds. Why do people create these videos? What motivates them, and how does the cat video market work? Equally, why do we watch videos of cats rather than watching perceived higher-quality content such as opera or learning a language online?

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To mothball or not to mothball?

The current power generation shift from carbon-intensive energy sources towards carbon-neutral, intermittent sources such as wind and solar continues to be a priority throughout the EU. This transition has consequences for the efficient design of power markets. Jan Bouckaert, Oxera Associate and Professor of Economics at the University of Antwerp, and Geert Van Moer, PhD Fellow of the Flanders Research Foundation, and University of Antwerp, discuss recent research on the implications for investments in conventional power plants

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The impact of state aid on competition: an economic framework for the European Commission

In December 2017 the European Commission published Oxera’s ex post assessment of the impact of state aid on competition, a study that could have significant implications for future state aid control. We first developed an economic framework that the Commission can use in state aid assessments to evaluate the competitive effects of the aid. We then applied the framework in four case studies, providing insights into the main drivers of the impact of aid on competition

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How do you solve a problem like a merger?

There are growing concerns about large corporations dominating markets and economies, and calls on competition authorities to take a tougher stance on mergers and acquisitions. Are these concerns any different from those about large trusts a century ago, and those about conglomerates in the 1960s and 1970s? Does merger control require radical reform? Dr Gunnar Niels, Oxera Partner, shares some views

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No free rides? Platform bans in light of the Coty case

Are there good reasons for manufacturers to prevent retailers from distributing their products through third-party online platforms? On 6 December 2017, the European Court of Justice delivered a ruling on Coty, finding that, under certain conditions, manufacturers of luxury brands can restrict sales through particular online channels without raising competition concerns. What is the economic case for and against such restrictions, and is the Court’s judgment consistent with the economics?

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Ofwat’s PR19 methodology: what’s changed?

On 13 December 2017, Ofwat published its final methodology for how it will set prices for water companies in England and Wales from April 2020. This follows a consultation paper issued in July. In the final methodology, many of the policy decisions remain the same. However, Ofwat has now provided an initial view on the cost of capital. We look at this and other changes in its approach

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Vertical contracts and their effects on the passing-on of overcharges

The passing-on of overcharges is a recurrent theme in competition law infringement cases. As purchasers further down the value chain are often affected by overcharges, contracts between direct and indirect purchasers are an important driver of this passing-on, and therefore the quantification of damages claims. Professor Markus Reisinger of the Frankfurt School of Finance & Management sets out how different forms of vertical contracts—and vertical restraints in general—affect who absorbs harm from antitrust infringements

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Moonshots and market failures: the economics of space

A variety of new and old companies are looking to invest in space applications. From space tourism to on-demand meteor showers for that special occasion, entrepreneurs and investors are trying to understand the economics of space. Investing in space technology is costly and uncertain, but has the potential to generate large economic gains, such as those enabled by GPS technologies, satellite photography and earth observation. What could possibly go wrong? Let’s explore that final frontier…

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De-stressing distressed investments: portfolio returns in restructuring aid cases

In the EU, state intervention to assist firms in financial difficulty is often justified by demonstrating that the aid is compatible based on the European Commission’s Rescue and Restructuring Aid Guidelines. However, these Guidelines impose restrictions on firms’ activities, which can tie the hands of the beneficiary, limiting the options to ensure a return to financial viability. But can state intervention be justified on commercial grounds by focusing on the state’s overall portfolio of assets?

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The science of misbehaving: Richard Thaler wins the Nobel Prize

Richard Thaler has been awarded the 2017 Nobel Prize for his contributions to behavioural economics. His work on mental accounting, self-control and ‘nudging’ are stand-out achievements. Thaler’s work from the late 1970s to the present day reflects a combination of collaboration and determination, and has affected government and regulatory policy around the world

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A ‘new normal’: airport competition in Europe

The European aviation sector has evolved rapidly in recent years, with low-cost carriers (LCCs) and super connectors flourishing in particular. What effect do these changes have on competition between airports and on the competitive landscape in which they operate, and what do they tell us about a ‘new normal’ for European airports?

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Moore’s Law or Murphy’s Law? Intel and the reform of the EU abuse of dominance rules

On 6 September 2017, the Court of Justice of the European Union (CJEU) published its widely anticipated judgment on the Intel case. It set aside an earlier General Court ruling that upheld the European Commission’s previous €1.06bn fine on Intel for abuse of dominance in the chip market. The judgment confirms the importance of analysing economic effects in cases involving exclusivity rebates to customers

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It’s a tough one: Ofwat’s PR19 methodology

In July 2017, Ofwat, the economic regulator of the water industry in England and Wales, published its eagerly awaited consultation on the methodology for the 2019 price review of the sector (PR19). The key message? Across virtually all areas, things will be tougher for companies than at the previous review

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Goodbye tension, hello pension! Metrics to help consumers choose the best deals

In July 2017, Oxera and CESS published the results of an experiment to identify the effectiveness of different summary cost metrics (information about total costs) in aiding consumer selection of income drawdown pension products. The study, commissioned by the UK Financial Conduct Authority (FCA), shines some light on how consumers respond to cost metrics and how, in this case, simplicity is not necessarily the most effective approach

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Cities in crisis? How the UK Bus Services Act can improve health and the economy

Across the UK, large towns and cities are suffering from deteriorating air quality and chronic levels of traffic congestion, which affect public health as well as the economy. Robert Montgomery, former Managing Director of UK Bus at Stagecoach Group plc, and Matthew Shepherd, Oxera, explore how public transport can provide a solution to these problems, and consider the role of bus partnerships

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Brexit: the implications for UK ports

What are the implications for ports and logistics companies of different scenarios for the future EU–UK customs agreements? Oxera Partner, Andrew Meaney, highlights the urgent need for a policy framework within which industry and civil services can develop solutions that fit both EU- and UK-based importers and exporters of goods

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Hidden talent: the economic benefits of social mobility

Social mobility: social justice or economic imperative? Even modest increases in social mobility in the UK could yield significant improvements in productivity, according to pro-bono research conducted by Oxera on behalf of the Sutton Trust. Our findings on the impact of social mobility on productivity are set out here 

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EU Directive on antitrust damages: paradise lost for cartels in Belgium?

The 2014 EU Directive on Private Enforcement aims to make it easier for parties affected by antitrust breaches to demonstrate the harm suffered. The Directive required member states to implement the new enforcement regime by the end of 2016 and on 12 June 2017 Belgium transposed it into Belgian law. Dr Christian Huveneers, Assessor at the Belgian Competition Authority and Oxera Associate, discusses the implications

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Excessive pricing: excessively ignored in competition law?

Competition authorities have historically pursued very few cases against excessive pricing. This seems to be changing. In the past 12 months, the rules on abuse of dominance have been invoked to tackle high prices in a range of markets, including pharmaceuticals, musical works, and patents. Together with increased political calls for fairness to consumers, does this mean a revival of excessive pricing in competition law?

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When algorithms set prices: winners and losers

The digital revolution has led to a significant growth in companies’ ability to capture, store and analyse data about their customers, competitors and the wider world. Increasingly, companies are using this information to develop algorithms that set prices for them. But how might the automation of pricing through algorithms affect competitive outcomes in markets, and result in different consumers being charged different amounts for the same good or service?

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Parity agreements and theories of harm in the hotel booking sector: a ‘no-show’?

On 6 April 2017, the European Commission and ten national competition authorities published a joint report on the online hotel booking sector. The report’s primary focus was the impact on prices and commission rates of the removal of parity or ‘most-favoured-nation’ (MFN) clauses in European countries. The results were not as conclusive as some economists and lawyers expected. Why might this be, and what’s next for MFN clauses?

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Brexit: implications for the banking sector

The ease of international transfers is a central element of the EU banking system. So how is the UK’s forthcoming exit from the EU likely to affect investors, employees and customers of banks? Oxera Partner, Dr Luis Correia da Silva, looks at the areas that are likely to be affected and the scale of the impact

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The European mobile mergers controversy

As the European mobile market continues to experience high growth in customer usage of data services, but at best stagnation of revenues, how should mobile mergers be analysed? Marc Lebourges, Europe and Economics Regulation Director at Orange, follows his 2014 Agenda article by looking at these developments and the current situation for mobile operators. The article responds to the February 2017  Agenda article, ‘Mergers and innovation: fewer players, more ideas?’

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Behavioural remedies: the CMA’s approach to the Mastercard–VocaLink merger

11 April 2017 saw the UK Competition and Markets Authority (CMA) clear Mastercard’s acquisition of VocaLink, the formerly bank-owned company that runs a large part of the payment infrastructure in the UK. This was one of the few cases in the UK that has received Phase 1 clearance with non-structural undertakings. This article gives an overview of the CMA decision and some of the lessons from it

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Class actions: the end of the road for mobility scooters

In 2016 Dorothy Gibson made legal history by being the first representative to bring an action for competition damages under the UK’s new ‘opt-out’ collective proceedings regime. What can that case, which was ultimately withdrawn in May 2017, tell us about the economic and legal issues that will be central to these new class actions in the future?

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Using conjoint analysis in merger cases: a competition practitioner’s perspective

If applied correctly, conjoint analysis can be a powerful tool in merger cases, as it can overcome the artificial nature of hypothetical ‘what-if’ questions. The Netherlands Authority for Consumers and Markets (ACM) has used this survey technique in six merger cases to date. Marinus Imthorn, Ron Kemp and Ivo Nobel of the ACM illustrate how it can be used effectively to estimate customer behaviour, and share some lessons from their experience

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Shrinkflation! A bite missing?

While the price of a Toblerone bar has not changed in recent years, its size has—between 2009 and 2010, a standard bar became 30g lighter (from 200g to 170g), and by 2016 it had shrunk to 150g. What factors lead a firm to pass on a cost shock by changing the size of a product rather than its price? And what effect does this have on consumers and inflation statistics?

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The policy of truth? Deception in markets and in public policy

Political manipulation of voters is nothing new. However, ‘post-truth’ politics arguably takes matters to a new level. Behavioural economics has developed a framework for examining how people can be deceived in markets and whether the market corrects for this. So how might behavioural economics and ‘post-truth’ be regarded as two sides of the same coin? We examine ways in which people can be manipulated through deception—and the potential remedies

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Small number, big impact: the productivity factor for energy networks in Germany

The German Federal Network Agency (Bundesnetzagentur, BNetzA) is currently determining the general productivity factor (Xgen) for all electricity and gas networks in Germany. This factor is intended to reflect the productivity gains that an efficient network operator would be expected to achieve as a result of technological progress or cheaper inputs. In a project for Germany’s utility association, BDEW, Oxera used advanced methods to calculate a general productivity factor for German energy networks of around 0% 

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Should we be cross about cross-subsidies? Experience from the financial services sector

Cross-subsidies, where one group of consumers pays a higher amount so that the price paid by another group can be reduced, are common in many markets. But the practice may raise concerns about whether firms are exploiting those consumers who pay more, and can lead to calls for competition authorities or regulators to intervene. How might we assess whether cross-subsidies represent a problem? We look at examples from the consumer credit sector

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Return to sender: the General Court’s judgment on UPS/TNT

The EU General Court has aned the European Commission’s decision to block the UPS/TNT parcels merger. The Court was concerned that the parties were not given access to the final version of the Commission’s econometric model. This case highlights the importance of transparency in relation to economic evidence—not only from the merging parties, but also from the competition authorities

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Time to choose: retail market opening in the water sector

One of the biggest shake-ups in the English water sector will take place on 1 April 2017, when non-domestic customers—including businesses and public sector organisations—will be able to choose their retail supplier. But is the sector prepared? Will market opening be a ‘big bang’ or a slow-burner? And will companies play by the rules?

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Reforming executive pay: taking the long view

Executive compensation is an issue that all companies need to take seriously. The ‘extortionate’ levels of executive pay, seemingly disconnected from performance, have led to public distrust of business. Indeed, Donald Trump’s victory in the USA and the UK’s Brexit vote were, in part, protests by ordinary people against an out-of-touch elite. Alex Edmans, Professor of Finance at London Business School and Oxera Associate, considers how companies might redesign their compensation strategies not only to increase public trust, but also to create long-term value for shareholders

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Mergers and innovation: fewer players, more ideas?

Is market consolidation detrimental to innovation? Conversely, do mergers create benefits to society by increasing innovation that brings better outcomes for consumers? While merger assessment has historically focused on static price and cost effects, regulators are increasingly being asked to consider whether a transaction will create the right incentives for product development and innovation over a longer time horizon. The Oxera Economics Council met to discuss this topic in November 2016

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Assessing state aid in the beautiful game

As the old saying goes: ‘football is a funny old game’. Indeed, some characteristics of football clubs create specific challenges when applying the standard state aid frameworks to assess whether measures constitute aid and whether any aid is in line with state aid rules.

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Energy scarcity: arrivederci?

Italy is expected to introduce a capacity market, given its increasing risk of retirement of flexible generation capacity and a consequent reduction in security of supply. Simona Benedettini, Regulatory and Competition Specialist, and Giordano Colarullo, General Manager, both at Utilitalia, the Italian utilities federation, look at the Italian electricity capacity mechanism and whether capacity markets are compatible with the European single market

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The future of merger control: hard Brexit, difficult questions?

The UK’s withdrawal from the EU raises complex issues of policy in many areas of public life. Merger review is no exception, with both EU and UK merger policy being affected. How should the UK’s competition authorities respond to increased demands on their resources in the short-to-medium term? What would be the long-term consequences of applying non-competition considerations in merger review?

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To be fair: what does economic justice look like?

What is meant by economic (or distributive) justice has far-reaching implications for economic policies and their outcomes. However, in policymaking the interpretation is often implicit, with limited awareness and discussion of alternative concepts or their merits and drawbacks. What are these key concepts of economic justice, and what is their role in competition policy, regulation and regional state aid?

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How systemically important are insurers? Empirical evidence and policy implications

Due to concerns about insurance companies posing systemic risk during financial crises, some of the largest global insurers have been classified as systemically important, alongside the banking sector, and are subject to additional prudential regulation. But how systemically important are they, and what is the appropriate regulatory approach? Professor Dr Christoph Kaserer, Technische Universität München and Oxera Associate, and Christian Klein, Technische Universität München, have explored these issues and identified important policy implications for the insurance sector

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Summoning the energy: consumers and competition

If energy consumers say they are happy, and there are several suppliers in the market, then the market is functioning well—right? Not necessarily. Identifying the existence and scope of behavioural biases allows for a better understanding of the drivers of competitive market indicators. How can behavioural economics influence competition in retail energy markets, and how can hypothesised biases be tested? We consider the topic with Australian markets as a case study

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Efficient, abusive, or both? Ways to evaluate unilateral conduct

Efficiency arguments play a role in abuse of dominance investigations, but often only implicitly and at the end of the process. Established quantitative techniques can help to make efficiency analysis more integral in abuse cases. Such techniques are often considered by regulators when concluding regulatory settlements. Can competition authorities use them too?

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Green signal for the Northern rail franchise: assessing mergers in passenger rail

The UK Competition and Markets Authority (CMA) has completed its first in-depth (Phase 2) rail franchise case in over ten years—one of the largest it has ever dealt with. The investigation into the award of the Northern rail franchise to Arriva examined more than 1,000 local overlaps between Arriva’s bus services and Northern’s rail services, and over 150 rail–rail overlaps. Ultimately remedies were required on only three overlaps. What are the main insights?

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Expert evidence: golden tips

Economists are increasingly used as experts in arbitration and court proceedings around the world. But how can tribunals and courts best deal with complex expert evidence, and how can litigating parties use experts most effectively? Sir Bernard Eder of Essex Court Chambers, former High Court judge in the UK, and now an arbitrator and International Judge at the Singapore International Commercial Court (SICC), shares his ‘golden tips’

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Financial resilience: demonstrating long-term viability for utilities

Company failure can impose costs on customers as well as society more broadly. To mitigate this, regulators have in recent years subjected companies’ business models to increased scrutiny to enable a broader set of stakeholders to assess risks to financial viability. Stress-testing has been embedded in the banking sector and is increasingly being used elsewhere—such as in the UK water sector

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Contract theory in regulation: the in-betweener of risks and incentives

On 10 October 2016, Oliver Hart and Bengt Holmström were awarded the Nobel Prize in Economic Sciences for ‘their contributions to contract theory’. Their research has helped to define how contracts enable cooperation between parties with potentially conflicting incentives. Applications of this work can be found in many areas of society and policy, from employment contracts to corporate finance and governance. What has been its effect on regulation?

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The CAPEX factor—part 2: giving stakeholders a voice

In the March 2016 issue of Agenda , ‘The CAPEX factor—part 1’ considered ways in which regulators might deal with uncertainty when determining capital allowances at periodic reviews. In this second article we consider another recent trend in regulation—the enlarged role of customers and other stakeholders in the regulatory process—and its implications for the regulation of CAPEX

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The latest intel from Luxembourg: an Advocate General prefers effects analysis in abuse cases

Over the last 15 years, the pendulum of abuse of dominance cases in EU competition law has been swinging between form-based and effects-based approaches. At a time when the former seemed to have gained prominence, the Opinion of Advocate General Wahl in the Intel case, delivered on 20 October 2016, expressed a strong preference for the latter. Where is the debate on abuse of dominance heading?

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An era of negotiation: news publishers and online intermediaries

In September, the European Commission granted news publishers a new right that recognises their role in the creation of press content. But will this increase the remuneration they receive from online intermediaries and aggregators (such as social media companies and search engines) in negotiations over the publication of short news snippets on these sites? What can economics tell us about the dynamic surrounding these negotiations, and the likely success of the proposed regulations?

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The economics of peer-to-peer lending

Lending to consumers and businesses through peer-to-peer (P2P) lending platforms has grown considerably in recent years, and this innovative form of finance has become an established element of the financial sector in the UK. But for the industry to continue to grow, and for it to reach a ‘mass market’ of investors, the economics need to be well understood. So what does P2P lending offer to borrowers and investors, and what are the risks?

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Bail-in or bailout? State aid to banks under the Single Resolution Mechanism

Various European banks and other credit institutions are facing a challenging economic and commercial environment. This has brought the issue of state aid back to the fore. If these institutions do require state support, it is critical that this complies with both the European Bank Recovery and Resolution Directive (BRRD) and EU state aid rules. What exactly are these rules, and how can banks and their respective authorities demonstrate that support is compliant?

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Boding well for bidding analysis

In recent years, bidding data analysis has become a key part of merger assessment in Europe. It has been instrumental in merger decisions across sectors—from energy to complex manufacturing to life sciences. What kinds of analysis are conducted in these cases?

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New rules for good regulation

How has regulation changed in the last six years? Oxera Director, Mike Toms, looks back at recent regulatory developments, and considers how his advice to company executives might now have a different focus in terms of markets, customers and regulators

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The case of Apple, and the state aid spotlight on multinationals’ tax affairs

On 30 August 2016, the European Commission handed down its largest-ever adverse state aid decision against the tax rulings of a single multinational, requiring Apple to repay €13bn of aid plus interest. The decision follows state aid investigations of the corporate tax affairs of a number of other well-known companies, and will have far-reaching implications for multinationals that currently have, or plan to have, operations in the EU

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Unsportsmanlike conduct? Incentives and penalties for doping

Controversy around doping was rife in the run-up to the 2016 Olympics and Paralympics. Insights from the economics literature on optimal punishment mechanisms show how penalties can be set so as to deter doping—at both the individual athlete and team level. The credibility and consistency of penalties are key to effective deterrence

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On schedule: do TV programming clashes matter?

To what extent do scheduling clashes between the BBC (the UK’s main public service broadcaster) and ITV (its main commercial rival) harm ITV’s audience figures? An Oxera study has found that, contrary to conventional wisdom, head-to-head clashes of weekend primetime entertainment shows do not seem to affect ITV’s audience figures. However, clashes between crime dramas do have an impact

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How can consumers be persuaded to shop around?

In June 2016, Oxera and the Nuffield Centre for Experimental Social Sciences (CESS) published the results of an experiment testing the effectiveness of different ‘prompts’ in encouraging consumers to shop around. The study, commissioned by the UK Financial Conduct Authority (FCA), found that personalised messages were the most effective in stimulating product comparisons, while generic messaging appealing to social norms also had a significant impact

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The debate about blockchain: unclear and unsettled?

Post-trading—the clearing and settlement of securities and money after a trade—has always been considered the dull but necessary part of ‘trading and post-trading’. This is about to change. Blockchain technology offers a new way of creating, exchanging and transferring ownership of financial assets, and has captured the attention of the post-trading community in the financial services industry. What is the potential impact of blockchain technology on securities post-trading activities?

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Putting a price on ideas: how can intellectual property be valued?

How much is a new technology worth? What level of royalties could it generate? How much could a start-up sell for? The increasing use of intellectual property (IP) rights in today’s businesses has increased the importance of IP valuation in various contexts. We look at ways of valuing a new technology in a commercial context, such as the sale of a start-up

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Zero rating: free access to content, but at what price?

As the net neutrality debate rolls on, new areas of concern are being highlighted. One prominent topic is zero rating, whereby part of a user’s data consumption is not counted towards their monthly data allowance. Despite some countries banning specific cases of zero rating, little work appears to have been done so far to assess the economic effects of these offers. What are the important considerations for such an assessment?

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Brexit: implications for the energy market

The outcome of the UK’s EU referendum on 23 June 2016 had an immediate effect on the financial markets in the EU and beyond. However, exchange rate effects aside, it is arguable whether it has had any significant impact on the prices of energy commodities. We look at the main features of current UK electricity market policy, before examining two potential consequences of Brexit on the sector

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Venturing further: water retail consolidation in England

The water sector in England is reshaping itself ahead of the non-household retail market opening in early 2017. There has already been some consolidation among existing players, and a number of others have signalled that they intend to enter the sector. What can be learned from these developments, and what can be expected going forward?

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Bargaining over slices of cloud: should IP interconnection markets be regulated?

EU ‘net neutrality’ regulations prevent Internet service providers (ISPs) from blocking or degrading consumers’ access to online content and application providers (CAPs). However, the rules are mostly silent on the wholesale relationship between ISPs (such as Orange or BT) and CAPs (such as Netflix) in upstream IP interconnection markets—who should pay whom, how much, and on what basis. What are the economic issues involved in this relationship, and what are their implications for policymaking?

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Brexit: implications for state aid rules

EU state aid rules play an important role in many member states. The UK has recently seen heated debates relating to the closure of steelworks and the construction of nuclear plants, where political and business decisions are in part shaped by state aid rules. What would happen in the case of Brexit?

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Brexit: implications for competition enforcement in the UK

Competition law may be one of the legal areas most strongly affected if the UK leaves the EU. This would be due to changes in the relationship between the UK and EU competition authorities, potential inconsistencies in the findings or approach of those authorities, and the potential migration of some types of work away from London and into one of the remaining EU member states

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Energy market investigation: what next for the GB retail energy market?

The UK Competition and Markets Authority (CMA) has conducted a two-year investigation of competition in the GB energy market, and concluded that low customer engagement and weak consumer responses to market signals have an adverse effect on competition. We review the CMA’s findings in light of analysis carried out during the investigation, and look ahead to the likely effect of some of the remedies proposed by the CMA

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No backstop? Recovery and resolution of central counterparties

Recent international regulations have strengthened the role of central counterparty clearing houses (CCPs) in the financial system. This has increased concerns that problems in their operations could cause significant disruptions in the capital markets, and that CCPs have become ‘too big to fail’. Similar concerns in the banking sector led to the development of recovery and resolution frameworks to prevent the use of public money in stress scenarios. But should the same apply to CCPs?

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Brexit: implications for the transport sector

What would be the impact on transport if the UK voted to leave the EU? Given the UK’s geographic position, sea and air transport provide important links to the rest of the EU and further afield. As Brexit would be likely to affect the cost of transporting passengers and goods between the UK and other countries, these industries and the economic activity that they support would also be materially affected. Meanwhile, the removal of EU rail legislation could enable significant changes in industry structure

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Joining the crowd? Crowdfunding from an investor perspective

Technological developments have encouraged the growth of many forms of ‘disintermediation’, whereby intermediaries that bring together consumers with producers are replaced by Internet-based marketplaces or platforms. Crowdfunding, which connects investors and fundraisers, is a rapidly growing example of this. So far, discussion has focused on the implications of crowdfunding for companies raising finance, but as crowdfunding investment reaches the mass market, there is a need to understand the phenomenon from the investor’s perspective as well

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Odds on? What was the probability of Leicester City’s 2016 success?

What were the odds of Leicester City’s triumph in the 2015/16 English Premier League football season? Whether the club will be able to sustain its success will depend on its risk appetite, luck, the wage bill it will need to maintain and, perhaps most importantly, the impact of UEFA’s Financial Fair Play (FFP) rules on the competitive dynamics of club football. These issues are explored in the first of a series of Agenda articles on football, finance and economics

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The strange case of water regulation in Italy

Lorenzo Bardelli of the Independent Regulatory Authority for Electricity Gas and Water  (AEEGSI) discusses how regulation in the Italian water sector is changing, including the initial challenges and recent initiatives. A new regulatory framework sets out cost reimbursement through tariffs, contractual quality incentives, and a standard agreement for concessions. AEEGSI will continue to promote regulatory initiatives that deliver a more stable, predictable and accountable water sector

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Setting the efficiency for NHS Trusts: has Monitor got the balance right?

As sector regulator for health services in England, Monitor is responsible for designing effective incentive mechanisms for NHS management to promote the interests of patients. To that end, it is tasked with setting prices for a range of healthcare services that reflect efficient costs. As part of the 2016/17 national tariffs, a sector-wide efficiency factor of 2% has been proposed. Here we explore the methodology underpinning the efficiency factor and compare it with approaches and frameworks considered by utility regulators

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Behavioural toppings for the sugar tax

George Osborne, UK Chancellor of the Exchequer, recently announced a sugar levy on the soft drinks industry. A tax may discourage the consumption of sugary drinks by making them more expensive, but there are questions over how responsive consumers will be. The way in which the tax is presented will be important, as will be the introduction of complementary measures. Behavioural economics, and precedent from elsewhere, offer insights into effective policy design

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Why vertical restraints? New evidence from a business survey

The European Commission’s e-commerce inquiry and various investigations by national competition authorities have brought vertical restraints under the spotlight again. It is widely acknowledged that, while these practices can have anti-competitive effects, they can also bring consumer benefits. A recent Oxera report, commissioned by the UK Competition and Markets Authority, presents primary evidence on the business rationale for such practices

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Thoughts on UK economic regulation, 2016

Martin Cave, Visiting Professor, Imperial College Business School, presents his views on the state of UK economic regulation. In doing so, he focuses on three core issues: regulatory independence, competition, and innovation. How can regulators assert their independence; what forms of competition are most promising in different sectors; and what does digitalisation mean for networks?

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Electricity network regulation in Italy moves towards a new paradigm

In December 2015, the Italian Regulatory Authority for Electricity Gas and Water (AEEGSI) adopted its final decision on the fifth electricity transmission and distribution price control review. Andrea Oglietti, Director, and Marco Delpero, Deputy Director, of AEEGSI Directorate for Infrastructures describe the main features of the new Italian electricity network regulation for the period 2016–23

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Does size matter? Competition and regulation in small jurisdictions

It is difficult to conduct competition and regulatory policy well, but the economic benefits can be substantial. This is particularly likely to be the case in small jurisdictions. Based on Oxera’s review of the competition and regulatory framework in Jersey, what are the challenges faced by authorities in applying regulatory and competition policy, and how might these be resolved?

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Changing trains? Assessing options for greater on-rail competition

What is the economic impact of introducing greater on-rail competition? A regular theme in transport markets concerns how to balance (in the same network) tendering for socially necessary services, and the benefits of competition where services are commercially viable. In December 2015, Oxera and consultancy, Arup, addressed this question for the GB Office of Rail and Road (ORR) in the context of the GB passenger intercity rail market

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Water company mergers: further developments in the pipeline?

The water industry in England and Wales is unique in being subject to a ‘special merger regime’. Recently the UK government has sought to bring this regime more into line with the general merger regime that applies in other sectors in the UK. Meanwhile, the UK Competition and Markets Authority (CMA) has undertaken an inquiry into the Pennon acquisition of Bournemouth Water. What are the implications of these developments for the scope for water company mergers?

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You can’t put a value on friendship. Or can you?

What are the economic impacts of befriending people? In December 2015 Oxera completed a pro bono project for the St Vincent de Paul Society (SVP), which looked at the economic impacts arising from befriending. While it was not possible to robustly quantify all of these impacts, our analysis nonetheless suggested that society benefits by approximately £3 for every £1 spent by the SVP

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Going with the stream: a new chapter for the music industry

Streaming music at home, at work, or ‘on the go’ has become the norm for many consumers in the last few years. Several companies now offer ad-supported or subscription services in most countries. What are the differences between these streaming services, and how have they affected legal and illegal music downloads?

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Foreign exchange trading: is it time to say goodbye to ‘Last Look’?

Since 2013, the foreign exchange (FX) market has been the subject of regulatory investigations resulting in more than US$10bn in fines globally. ‘Last Look’, a feature of some electronic FX venues, has been under increasing regulatory scrutiny amidst concerns around the impact on end-users of FX trading markets. Oxera Associate, Álvaro Cartea, discusses his recent academic work in this area carried out with colleagues Sebastian Jaimungal and Jamie Walton

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Not mutually exclusive? Assessing competition impacts in an appraisal framework

Textbook economics tells us that competition has benefits for users—lower prices, better quality of service, and greater quantity of output. However, economic appraisals are often silent on the impact of assessed policies or projects on market competition and outcomes. How can the effects of changes in market structure and the level of competition be assessed in appraisals in the transport sector?

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A fair share? The economics of the sharing economy

Do you want to travel to dinner in a limousine tomorrow? Stay in an apartment with disabled access in Paris? Invest a small amount in a high-risk start-up? The potential benefits of online sharing platforms for consumers are appealing, but some policymakers have questioned whether there is a level playing field with incumbent suppliers, and how far regulation should apply to these new entrants. The Oxera Economics Council met to discuss the topic in November 2015

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The CMA’s determinations for Bristol Water: an appealing process?

In October 2015, the UK Competition and Markets Authority (CMA) published its price determination for Bristol Water, which had objected to the industry regulator, Ofwat’s, previous conclusions on a number of issues. While the CMA’s price profile is closer to that of Ofwat than to the price profile sought by the company, the devil lies in the detail. The determination has a number of potential implications for the future approach to regulation

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UK productivity and the diffusion machine

In the UK—and several other major economies—productivity growth has fallen below its long-term trend. One likely culprit is an increasing gap between the most productive firms and the rest. Patrick Nolan, Principal Advisor, New Zealand Productivity Commission, discusses whether the problem is a slowing of the pace at which innovation spreads throughout the economy or, as the OECD puts it, a ‘breakdown of the diffusion machine’. He also asks how the diffusion of innovation might be encouraged

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The ‘damage to the economy’ test under French competition law: opportunity or burden?

The French competition authority, Autorité de la Concurrence, has published a study (‘the Study’) about a requirement in French competition law for the effects of an anticompetitive practice to be taken into account in the determination of fines. This legal provision differs from European competition law, as it promotes an effects-based approach to fines. The requirement could be a useful tool for ensuring that punishments are proportionate, but is the Authority making the most of it?

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Helping to analyse consumer decisions: Deaton’s AIDS model in market analysis

On 12 October 2015, Angus Deaton was awarded the Nobel Prize in Economic Sciences ‘for his analysis of consumption, poverty and welfare’. Deaton’s unique contribution lies in his argument that welfare-promoting, poverty-reducing economic policy must begin with individual consumption choices. His Almost Ideal Demand System (AIDS) model, which monitors aggregated consumer behaviour to assess market demand, has influenced both academia and policymakers

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Wishful thinking? Bus franchising and the Tyne and Wear QCS

The UK Transport Act 2000 gave GB local authorities the power to move to a franchised bus network under a quality contract scheme (QCS). The North East Combined Authority (NECA) has looked to use this power, with two (separate) Oxera teams providing advice to bus operators, Stagecoach and Arriva, on the economics of the proposal throughout its development. This article reflects on the experience in light of the current bus policy debate, with next year’s Buses Bill set to include bus franchising powers as part of the government’s devolution agenda

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The Post Danmark II judgment: effects analysis in abuse of dominance cases

On 6 October 2015 the European Court of Justice (ECJ) issued its long-awaited ruling in the Post Danmark II abuse of dominance case. The ruling sheds light on how rebates offered by dominant companies should be assessed in terms of their form and effects. While ruling out the as-efficient competitor test as a necessary condition for finding an abuse, the ECJ leaves room for an analysis of effects on competition in the assessment of rebates

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Piping down? Gassled tariff reductions and the price of regulatory risk

In June 2013, the Norwegian Ministry of Petroleum and Energy (MPE) reduced the tariffs for access to Gassled’s offshore gas transport infrastructure located primarily on the Norwegian continental shelf (NCS). As in other cases where similar actions have been implemented, there is often a price to pay for greater regulatory risk. What are the implications of the MPE’s tariff decision, upheld by the Oslo District Court, for future investment on the NCS?

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Electricity distribution: the CMA decides

On 29 September 2015, the UK Competition and Markets Authority (CMA) published its final determinations on two appeals against elements of the 2015–23 electricity distribution price control review (RIIO-ED1) by Ofgem, the GB energy regulator. One appeal argued that Ofgem had been too stringent in setting allowed revenues; the other that it had been too generous to the distribution network operators (DNOs). What were the CMA’s findings, and what are the implications of its decisions for these appeals?

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Staying ahead of the game: measuring maritime competitiveness

Ensuring the success of domestic companies that are competing in an increasingly globalised environment is often a key priority for governments and policymakers. But how can the competitiveness of a nation be assessed within a particular industry in order to identify and prioritise policy responses? Oxera has developed a framework to answer this question in the context of the UK maritime sector

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State aid practice under challenge? Implications of landmark court judgments

Is standard state aid practice under challenge? National courts in the EU are playing an ever more significant role in the application of state aid law, with litigation on state aid issues increasing considerably in recent years. Landmark court judgments raise important questions about the role of EU national courts in this area, and about the assessment of aid recovery. These judgments have potential consequences for every state aid decision

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CfDs: the (strike) price is right?

The results of the first UK auctions for contracts for differences (CfDs) for low-carbon electricity generators were published in February 2015, and demonstrated that competition between low-carbon generation technologies can reduce costs to consumers, or at least result in lower costs than official estimates. While prospective project developers await confirmation of future CfD allocation rounds, we consider the implications of recent auctions for onshore and offshore wind costs

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The Thames Tideway Tunnel: returns underwater?

Ofwat, the economic regulator of the water industry in England and Wales, has awarded the project licence for the Thames Tideway Tunnel (TTT), a planned £4.2bn ‘super sewer’ in London. The project’s low headline weighted average cost of capital (WACC) figure of 2.497% has attracted attention from several quarters. But what lies behind this figure, and what lessons can be learned for other regulated sectors and projects?

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The future of water upstream?

The issue of competition in upstream activities of the UK water sector has been debated for some time now. With new provisions outlined in the Water Act 2014, the practicalities of designing a regulatory regime that makes competition viable and delivers benefits to customers require careful thought. What should the upstream access pricing regime look like, and what are the implications for the regulatory capital value (RCV)?

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Airports, regulators and governments: making big projects happen

How can we ensure that large infrastructure projects go ahead in a world where private investors, governments, regulators, users and local residents may all have different priorities? Drawing on more than 30 years’ experience in the airports sector, Mike Toms, Oxera Non-executive Director, formerly Planning Director of BAA plc, and now a director of Birmingham International Airport Ltd, proposes a checklist for governments to consider when approving such projects

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En route to French transport liberalisation: the coach market

Passenger transport markets in Europe have been, and continue to be, liberalised across jurisdictions and sectors. Since July 2015, passenger coach operators in France have been allowed to operate without regulation on longer routes (over 100km). For shorter routes, ARAFER, the French regulator for rail and roads, will test whether the coach service is likely to threaten the viability of the public rail service offered by SNCF on the same route. What changes could this reform bring, and how might the economic test be applied?

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Can effective communication empower consumers?

The UK Financial Conduct Authority’s (FCA) smarter consumer communications initiative places product disclosure at the centre of the Authority’s efforts to ensure consumer protection and facilitate competition. The FCA recognises that poorly designed regulatory disclosure material that does not present information in a clear and accessible way can hinder consumers’ ability to make informed decisions. But what is good disclosure practice, and how can behavioural insights be used to improve disclosure?

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New powers for telecoms and media regulators? Part 1: the rise of oligopolists

Continued M&A activity in the fixed and mobile telecoms sector is creating more concentrated oligopolistic market structures that may pose problems for regulators trying to impose remedies on the basis of joint dominance findings. In addition, vertical integration between network operators and content providers, and the growth of communications bundles including premium TV content, are creating new challenges for regulators and antitrust enforcers. Is the European telecoms regulatory framework fit to deal with these challenges?

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Unscripted drama: vertical issues raised in European pay-TV mergers

A number of European mergers in the telecoms sector, including Liberty Global/Corelio/W&W/De Vijver Media and Liberty Global/Discovery/All3Media , have led to the convergence of traditional pay-TV and Internet service providers with TV channel providers and content producers. What vertical competition issues have these transactions raised with respect to the creation and distribution of content by production houses and channel providers?

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Index-linked bonds 2.0: introducing CPI-linked securities

The first ever CPI-linked bond in June 2015 heralds a milestone in UK capital markets. It follows calls for the Office for National Statistics (ONS) to make the consumer price index (CPI) the UK’s headline measure of inflation, and for regulators to cease using the retail price index (RPI) in setting charges for utilities. What does this imply for the future of index-linked gilts, and how might it affect RPI - X regulation?

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Behavioural economics and financial market regulation: practical policy, rigorous methods

Behavioural economics helps us to understand how consumers make choices and why they make choices that are not in their best interests. This allows firms and regulators to diagnose behavioural problems in markets and to design and test solutions. Stefan Hunt and Darragh Kelly, of the Behavioural Economics and Data Science Unit at the UK Financial Conduct Authority (FCA), discuss how the FCA is using innovative methods to build real evidence on consumer behaviour into policymaking and make financial regulation more effective

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Turning down the volume: estimating cost of capital in the presence of noise

Equity beta is a key input in cost of capital determination. As estimates of beta can be significantly influenced by ‘noise’ in the data, sophisticated ways of dealing with this are valuable in areas such as regulation and litigation. This article outlines an effective beta estimation technique for such data, and also looks at more generalised techniques, such as the Kalman filter, that can be applied in such situations

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The General Election 2015: what next for UK infrastructure?

On 8 May 2015, the UK woke up to a Conservative majority government—an outcome that flew in the face of opinion polls taken in the weeks and months before the General Election. Now that the dust has started to settle, what are the potential implications of this result for the UK energy, water, transport and communications sectors?

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A beautiful mind: the Nash legacy

John Nash, who died last month, changed the world of academia forever. His work in theoretical mathematics, bargaining theory and development of the Nash equilibrium has had a huge impact on a wide range of fields, including political science, international relations, philosophy and economics. Practitioners such as Oxera owe Nash a huge debt. Many of the theories about how firms interact, and how markets work, come directly from his work on game theory

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Integrated Transmission Planning and Regulation: what choice of tender model?

Competitive allocation mechanisms in the energy market are designed to reveal private information held by the participants, and crystallise the economic value of that information through the bidding process. However, the costs incurred by participants may sometimes outweigh this value. What factors determine whether allowing competing developers to bid for the right to deliver onshore transmission projects is likely to benefit electricity consumers, and what might such a mechanism look like?

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Concurrent competition powers for UK economic regulators

What is ‘concurrency’? Jon Stern, City University, London, sets out the concepts of formal and informal concurrency, which show the degree of cooperation between sectoral economic regulators and competition agencies in the UK and elsewhere. He surveys the arguments for and against formal concurrency, and considers its outlook under the arrangements established in the UK Enterprise and Regulatory Reform Act 2013 (ERRA13)

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Mergers in the NHS: a time for choosing?

Political rhetoric in the UK suggests that competition between healthcare providers benefits patients in a similar way to consumers in other sectors of the economy. However, the structure and organisation of the National Health Service (NHS) mean that there are significant differences between healthcare providers and suppliers in other sectors. This has important implications for how competition policy should be conducted in this sector

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Homo economicus and Homo sapiens: the CMA experience of behavioural economics

Behavioural economics has been popping up everywhere—from the UK Prime Minister’s ‘nudge unit’ to (extremely serious) academic courses at our most ancient universities. Regulators and competition authorities are also getting in on the act. But is behavioural economics actually of any real use? David Currie, Chairman of the UK’s Competition and Markets Authority (CMA), sets out his experience so far

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The Cloud, or a silver lining? Differentiated pricing in online markets

On 6 May 2015, the European Commission announced its Digital Single Market (DSM) strategy and associated e-commerce sector inquiry. One major issue concerns the pricing practices of online suppliers—in particular, charging different prices in different member states. Economics has much to say on the merits and risks of differential pricing online and, ahead of the Commission’s announcement, the Oxera Economics Council met to discuss this topic from a competition policy and regulatory standpoint

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Dealing with doping: a question of the benchmark (revisited)

Originally published in July 2008. 2015 commentary by Oxera After a number of years of the Tour de France being marred by doping scandals, this year’s doping incidents suggest that the stakes involved are so high that for some it continues to be worthwhile to illegally boost their performance, despite the risks involved. What is the case for and against a more accurate drug-testing regime, and how can this be related to performance comparisons in general?

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Which WACC when? A cost of capital puzzle (revisited)

Originally published in September 2005. 2015 commentary by Oxera Real or nominal? Pre-tax or post-tax? (Or even vanilla?) The number of ‘flavours’ for calculating the weighted average cost of capital is sometimes bewildering. It is often assumed that they all reach more or less the same conclusion, but is this always the case? Contrary to common belief among practitioners, different styles of calculation have a material impact on the value of cash flow to investors

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Living with price regulation: how do the best companies do it? (revisited)

Originally published in January 2010. 2015 commentary by Mike Toms It is now increasingly common for sectoral regulators to review periodically their organisation and process for determining price controls. But with regulation being the biggest single determinant of profitability in most regulated industries, shouldn’t companies also think hard about their management of the regulatory process? Mike Toms, Non-executive Director of Oxera, and former Planning and Regulation Director of BAA, gives his views on how regulated companies should organise themselves to respond to the regulatory process

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Reform of Article 82: where the link between dominance and effects breaks down (revisited)

Originally published in May 2005. 2015 commentary by Oxera The reform of Article 82 is high on the EU competition policy agenda. Many commentators are of the view that abuse of dominance cases should move away from the current form-based approach to an effects-based approach. This article explores one of the fundamental shortcomings of the current approach—the use of dominance determinations as a shortcut to infer anticompetitive effects

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The net neutrality debate: the end of the world (wide web) as we know it? (revisited)

Originally published in September 2006. 2015 commentary by Oxera Do regulators need to impose constraints on the pricing structure of Internet service providers to foster competition, investment and innovation? For content providers such as Yahoo! and Amazon, the answer is yes; for infrastructure and Internet service providers such as AT&T and Deutsche Telekom, the answer is no. This article reviews the economic underpinnings of both sides of the ‘net neutrality’ debate, and asks: does Europe need net neutrality regulation?

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Behavioural economics, competition and remedy design (revisited)

Originally published in November 2010. 2015 commentary by Oxera Marketers know that people’s perceptions and decision-making abilities can be manipulated by external influences, and behavioural economics has also sought to take such issues on board. However, only more recently have policymakers begun to examine closely what behavioural economics means for biases in consumer behaviour, how these can lead to competition problems, and how remedies can be designed to help markets work better

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Profitability analysis and competition policy (revisited)

Originally published in April 2005. 2015 commentary by Oxera Professor Paul Geroski, Chairman of the UK Competition Commission, explains why profitability analysis is of importance to competition policy. He discusses various applications of what is, in essence, backward-looking profitability analysis to mergers and market investigations, and then explores the scope for using forward-looking profitability analysis in merger investigations

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Menu regulation: is it here to stay? (revisited)

Originally published in January 2008. 2015 commentary by Oxera Menu regulation is an innovative system in which companies are presented with a choice of regulatory contracts. Within its current methodology consultation, Ofwat, the England & Wales water regulator, is considering the introduction of menu regulation in the sector, meaning that there will be three sectors in the UK in which it will be applied: water, gas distribution and electricity distribution. What are the challenges of this new regulatory approach?

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Pass-on in regulated industries: what’s in the RAB?

The number of cartel findings across Europe in markets that provide inputs (e.g. power transformers, plastic pipes and cement) to regulated industries is on the increase, as is the number of cartel damages claims brought by regulated companies. How does economic regulation affect pass-on? Are there situations where, despite incentive regulation, pass-on is more than zero?

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Aiming high in setting the WACC: framework or guesswork?

What is the role of the weighted average cost of capital (WACC) for regulators in promoting the right level of investment by the industry? Regulators around the world have often chosen to ‘err on the side of caution’—in other words, to choose a high estimate when setting the WACC, in order to offset perceived risks of underinvestment. What are the reasons behind this approach, and is it likely to achieve its intended outcome?

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Oligopolies in electronic communications: more concentration, more regulation?

The consolidation trend in fixed and mobile telecoms is leading to more concentrated oligopolistic markets with fewer, larger operators. In February 2015, BEREC (the Body of European Regulators for Electronic Communications) ran a workshop to discuss the implications of this trend for regulation. Based on Oxera’s contribution to the workshop, we discuss when ex ante regulation of oligopolies in the electronic communications sector might be required

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Is the end nigh for RPI?

A new independent review of consumer price statistics in the UK has recommended that the Office for National Statistics (ONS) should aim to make a variant of the consumer price index (CPIH) the UK’s headline measure of inflation, and that regulators should refrain from using the Retail Prices Index (RPI) to set regulated charges during a price control. How have regulators dealt with inflation in recent price controls, and what are the possible implications of the Johnson review?

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Too much or not enough? Transport and cities

Cities have both benefits (such as more productive workers) and costs (such as congestion and increased pollution) relative to smaller settlements. What is the role of a city’s transport networks in ensuring that the potential benefits of the city are enhanced, while the costs are minimised? And how can planning and funding help with the development of efficient transport networks?

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You’re worth it! The economics of life valuation

How much should we spend on safety? Trading off safety against other factors is a difficult task, and politicians have looked to economists for help. The result is the ‘value of a statistical life’ (VSL), where income and other factors are measured to estimate society’s loss from a single death. But how has this economic measurement come about, how and why do the resulting values vary, and what are the implications for public policy?

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Competition and exercising consumer choice in online markets

Online markets have become one of the hottest issues in competition enforcement in recent years. Indeed, they play a big part in the UK Competition and Markets Authority’s (CMA) strategic goals. So how should competition authorities assess and address potential anticompetitive restraints in these markets? Dr Philip Marsden, one of the CMA’s Inquiry Chairs, discusses this much-debated topic and suggests a re-focus on exercising consumer choice

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How to pay for advice and distribution in financial services?

The question of commission payments to financial intermediaries has recently come to public attention, as EU policymakers discuss the issue in the context of the Insurance Mediation Directive (IMD2, a new set of rules for the European insurance sector) and the Markets in Financial Instruments Directive (MiFID, which aims to harmonise rules for investment services). What are the economics of commission payments, and what has been the experience of countries where specific regulations have been introduced?

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Pension reforms in the UK: what can be learned from other countries?

Reforms in the UK pensions market announced by the Chancellor of the Exchequer, George Osborne, in the 2014 Budget are set to remove many of the restrictions on what people can do with their defined-contribution (DC) pension funds on retirement. Concerns have been raised about the likely impact of the reforms on the stability of retirement incomes for pensioners. What can comparative research from other countries tell us about the likely effects?

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In a fluid state? Competition policy in the water sector

The Water Act 2014 paves the way for a number of market reforms in the England and Wales water sector. In addition to new sector-specific rules that will accompany these changes, water companies must comply with general competition law. What do recent competition cases in the sector say about the issues that might emerge in future?

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What makes an ‘unfair burden’? Funding social outcomes in competitive markets

National monopolies in Europe once provided services across their countries as a public service, sometimes on a non-commercial basis. However, where these monopolies now face competition, European law allows national authorities to require the costs of some non-commercial services to be shared with industry operators, but only if the costs are an ‘unfair burden’. But what is an unfair burden, and can a burden to provide these services ever be ‘fair’?

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When tax attacks! Corporate tax arrangements under EU state aid scrutiny

In 2014 the European Commission began in-depth state aid investigations into the corporate tax affairs of well-known multinational companies, including Amazon and Starbucks. If the Commission concludes that these arrangements constitute illegal state aid, its decisions could have far-reaching implications for European companies and their tax authorities. Why are these tax arrangements under investigation, and what are the potential repercussions?

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Destination unknown? The future of the aviation industry

The landscape of passenger aviation has transformed since the dawn of the industry 100 years ago. While it is clear that the sector will continue to change, it is less clear how it will do so. Oxera and PA Consulting have considered some of the issues affecting passenger aviation and how the industry is likely to evolve over the next 20 years, and have developed four future scenarios

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Empirical analysis of buyer power

Assessing buyer power has long been essential in analysing supplier mergers. However, it is often qualitative and does not isolate the marginal effect of buyer power on final prices from the effect of other factors such as the size of the transaction and supplier heterogeneity. Dr Walter Beckert, Oxera Associate and Senior Lecturer at Birkbeck, University of London, discusses an empirical methodology to differentiate these effects, and hence estimate the impact of buyer power on final prices charged by suppliers

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Unreliable evidence? How (not) to use statistical significance tests

Did a particular cartel cause prices to rise? Was a particular policy intervention effective? Is firm A more efficient than firm B? Quantitative economics, especially statistical analysis, is increasingly used in litigation and regulatory determinations, and to evaluate policy interventions. While statistics can test the reliability and extent of uncertainty of any analysis, these are not objective measures of right and wrong. How should, and shouldn’t, statistics be used in decision-making?

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2014: a regulation odyssey

With the latest set of price control determinations for GB electricity distribution companies, NATS (en route services), England and Wales water companies, and (separately) Scottish Water due before the end of 2014, the current UK regulatory cycle is drawing to a close. What trends have emerged from the latest round of determinations, and what do they mean for regulators, companies and their customers?

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Most-favoured-nation clauses: falling out of favour?

Competition authorities across the globe are investigating most-favoured-nation (MFN) clauses in distribution contracts in industries as diverse as hotel bookings, books and insurance. Such clauses guarantee to a distributor that no other distributor will receive a better deal. Although there is concern that they may restrict competition and harm consumers, MFNs can also deliver benefits. How should competition authorities strike a balance?

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Deep impact: assessing wider economic impacts in transport appraisal

Wider economic impacts (WEIs) in transport demonstrate the additional benefits to the economy from particular projects, and form part of an assessment of the total value for money provided by new transport schemes. While estimating WEIs is important, various approaches are available and estimation is not always straightforward. What are the different methodologies that can be used to quantify these effects, and what are their relative advantages and disadvantages?

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Out of the (banking) frying pan and into the (CCP) fire?

How to deal with financial institutions that are ‘too big to fail’ has been at the heart of the debate on financial services regulation since the most recent crisis. But could the growing importance of central counterparties (CCPs) in financial transactions be creating a new set of such institutions? Understanding the economics of these institutions is vital for exploring whether regulation is actually making the financial system safer

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A Connected Continent? Eliminating excessive roaming charges in the EU

EU policymakers have long been concerned with the cost of international roaming services within the EU, and the European Commission considers that unjustified roaming charges pose a significant barrier to the EU single market. Its Connected Continent package of reforms aims to address this by eliminating such charges within the EU—but are the proposed changes likely to be effective, or will further modifications be needed?

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In praise of the economics of regulation

On 13 October 2014, the Royal Swedish Academy awarded the Nobel Prize in Economic Sciences to Jean Tirole ‘for his analysis of market power and regulation’. Tirole made a significant impact in demonstrating how economics theory can be applied to the world of regulation. Here we provide an overview of his contribution

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The charity league: state aid investigations in European club football

The European Commission is becoming increasingly interested in investigating whether European football clubs are accessing state aid, and whether this funding is compliant with state aid rules. A judgment in the UK courts in June 2014 relates to whether Coventry City Council’s assistance to the stadium of Coventry City Football Club meets the market economy operator (MEO) test

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Too much information? The economics of privacy

New technologies are increasing the amount of personal information that is collected from users, especially on the Internet. Consumers often happily provide information in exchange for services, but also express rising concerns over privacy. How much privacy is good, and who should be paying for personal information? Economic insights into consumer behaviour and the costs and benefits of sharing personal information can inform the ongoing debate on privacy

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A new approach to conduct risk? The example of soft commissions

The UK Financial Conduct Authority (FCA) has called for the unbundling of research from dealing commissions, which are paid from investment funds to brokers. The debate about these commissions raises wider questions about the FCA’s approach to the management of conduct risk, and its strategic objective of ensuring that markets function well

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Is ESMA becoming a price regulator?

MiFID II, the updated rule book for European financial markets, will require trading platforms to make pre- and post-trade market data available on a ‘reasonable commercial basis’. The European Commission has invited the European Securities and Markets Authority (ESMA) to advise on what this means. With some fund management and brokerage firms arguing that current prices for market data services are high and should be regulated, will ESMA decide to become a price regulator?

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CfD auctions, bidding strategies, and insights from auction theory

The aim of electricity market reform (EMR) in Great Britain is to bring forward investment in low-carbon generation, through the use of long-term contracts for differences (CfDs). These CfDs will be allocated to generators via ‘auctions’, with the process beginning in December 2014. What are the features of the planned auctions, and what can auction theory tell us about their potential challenges and opportunities?

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From sports bras to cigarettes: economic analysis of anticompetitive agreements

Following the Cartes Bancaires judgment in September 2014, anticompetitive agreements are once again at the forefront of the competition policy debate. Agreements between firms that operate at different levels of the supply chain are a normal part of business, but some of these ‘vertical agreements’ are anticompetitive and certain types are assessed under European competition law in terms of their object rather than their effects. What role is there for economics in such cases?

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The net neutrality debate

Policymakers in Europe and the USA have recently made important proposals in the area of net neutrality that affect end-users, operators and providers, but these have sparked controversy. Marc Lebourges, Europe and Economics Regulation Director at Orange, explains the basis of this controversy and explores the insights that economic analysis can provide. He then presents the implications of the debate for network operators such as Orange

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Is the ride right? Transportation network companies and taxicabs

Taxi operators in major cities across the world are facing competition from entrants with a new business model: the ability for consumers to book drivers via smartphone applications, who use their private cars to carry passengers. In August 2014, Berlin became the latest city to ban Uber, a smartphone-powered transportation company, under threat of a large fine. Against strong opposition from taxi operators, how should policymakers react?

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Almost a reform: the new German support scheme for renewable electricity

After protracted negotiations with the European Commission and an intense national debate, the German renewable energy law has come into force (EEG 2014). It comes at a time when the German large-scale transition to renewable electricity production (the Energiewende ) is beset by rising costs and fading popular support. What are the principal features of the EEG 2014?

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Retail competition in water: next steps

The Water Act 2014 provides the legislative framework for the introduction in April 2017 of non-household water retail competition in England. To start preparing for the new competitive market arrangements, OpenWater held a series of industry workshops. What issues were raised at the workshops, and what are the next steps for the industry?

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What does it cost to clear securities? Benchmarking of financial centres

For some time, financial regulators across the world have been looking at the appropriate market structure for securities trading and post-trading services. An international comparison of the costs of these services can provide powerful insights into the performance of different market structures. This article provides such an assessment, taking the perspective of an Australian investor, to inform the ongoing debate about the role of competition in the provision of clearing services

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‘Financial fair play’ or an ‘oligopoleague’ of football clubs?

Do the new provisions in the ‘Financial Fair Play’ Regulation (FFPR) introduced by the Union of European Football Associations (UEFA) increase competition in the football industry? Or do they create an ‘oligopoleague’ of football clubs and ‘chill’ competition? Nicolas Petit, Professor at the University of Liège, Belgium, and Director of the Liège Competition and Innovation Institute, reviews the new rules and discusses what they mean for competition in the market for competitive football

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A bus(e) of dominance: the Arriva v Luton case

In January 2014, the High Court in London handed down a judgment in an abuse of dominance case between Luton Airport and bus operator, Arriva. Luton Airport was found to have abused its dominant position by excluding Arriva from accessing the bus station at the airport. The judgment provides useful insight into the economic and legal principles applying to access agreements in this type of case

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Competitive assessment in French mergers: from screening to remedies

In order to understand the impact of a merger, competition authorities and regulators first need to define the local market and assess how the merging firms compete. In this article, we look specifically at how the French Competition Authority identifies credible competitors to the merging parties’ businesses, and how it screens out areas that are unlikely to raise anticompetitive issues. We also consider the way in which it assesses local competitive constraints in areas where anticompetitive effects could arise

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King Coal dethroned: the decline and fall of the British coal industry

The decline of the British coal-mining industry is the stuff of economic history textbooks. For a century, the industry has been contracting, and coalfields have gradually disappeared from the industrial map of Britain. The pace of decay accelerated after 1945—at the end of the war, the industry employed some 330,000 miners, and now it employs fewer than 2,000. Director at Oxera, Mike Toms, discusses his experience of the changes

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Harmonising consumer protection in the EU: is it desirable?

In September 2013, the European Commission issued a proposal to promote a single digital market across Europe, including harmonising consumer protection. But is this desirable at the EU level, and is it suitable for all member states—and should the proposal be assessed at a national level? Given the increasing focus of policymakers and regulators on consumer welfare, the issues raised in this article are potentially also relevant to ongoing regulatory reform initiatives in the energy sector

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A taxing question: the proposed financial transaction tax and public finances

What are the possible consequences of the European Commission’s proposed financial transaction tax (FTT) for the public finances of European governments? An Oxera report assessing the potential macroeconomic impacts of the proposed FTT found a significant risk that the imposition of the tax would actually worsen public finances, as it has a negative impact on other tax revenues from the economy, and increases the cost of funding government debt

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Regulated third-party access in heat markets: how to organise access conditions

In the May 2014 issue of Agenda , Harri-Pekka Korhonen, Head of Heat Policies and Regulation at Fortum Corporation, discussed EU policy, stakeholder expectations and the overall rationale for promoting competition in district heat (DH) markets. He now considers the appropriate definition and scope of heat market design, and how competitive conditions can be enhanced, and summarises key findings from recent Swedish and German surveys on third-party access (TPA) considerations in heat networks

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Regulated third-party access in heat markets: policy and stakeholder expectations

Heat markets across Europe are legislated and regulated in a wide variety of ways. EU energy legislation provides limited guidance on preferred market rules. Instead, developments in district heat (DH) are driven mainly by national policy and regulation, with country-specific historical and political foundations. In the first of two articles, Harri-Pekka Korhonen, Head of Heat Policies and Regulation at Fortum Corporation, discusses the potential for encouraging competition in heat markets

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Adding up the add-ons: the FCA’s first market investigation

The UK’s Financial Conduct Authority (FCA) has published provisional findings from its first market study, focusing on add-ons in general (i.e. non-life) insurance. The study draws heavily on insights from behavioural economics and provides new empirical evidence on consumer behaviour and market outcomes for a range of insurance products. The analysis raises some questions about the benefits (or not) of add-ons, and the under- or overprovision of insurance

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‘Money-go-round’: insights into the economics and regulation of payment systems

In the last decade, the payment services sector has seen considerable technological change and has been subject to much regulatory reform and intervention. The European Commission has recently proposed revisions to the Payment Services Directive, which was initially adopted in 2009, to improve the functioning of the European market for payment services. In the UK, a sector regulator for payment systems is being established. Moreover, a number of high-profile competition investigations into payment service providers have taken place

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A time for sharing? Within-period performance-sharing in the UK

In March 2014, the Water Industry Commission for Scotland (WICS) published its draft determination for Scottish Water’s charge caps over 2015–21. The draft reflects a number of new regulatory developments, including the introduction of within-period performance-sharing between Scottish Water and customers. Such arrangements are also starting to emerge in other regulated sectors in the UK, but what are their possible implications?

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Making connections: mobile consolidation and European Commission remedies

Consolidation in the telecoms sector is driven by the convergence of network technologies and changing market dynamics. Merger remedies (when required) should safeguard consumer interests and allow industry evolution to adapt to these trends in the medium to long term. These two objectives are not mutually exclusive, and an evolving innovative industry will benefit consumers. What are some of the motivations underlying recent European Commission mobile merger remedies in this context?

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Running out of power? Commission moderates state aid reforms for energy

The European Commission’s revised Environmental and Energy Aid Guidelines have had a rocky start, fostered by an intense consultation process with member states. The new rules suggest that renewable energy sources should become ‘grid-competitive’ between 2020 and 2030, with current subsidies eventually being phased out. In the shorter term, member states will retain substantial discretion as to their energy policy, a discretion that is particularly valued in the context of Germany’s ‘Energiewende’

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Something for nothing? Returns in low-asset industries

The framework for regulating infrastructure is well established, and is designed to provide returns to investors in physical assets. However, market investigations and, potentially, regulation can also arise in other markets where assets are few in number. This article considers whether, and why, a different framework could be more appropriate in such markets

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Who calls the shots? Minority shareholdings in merger control

Competition authorities across the world are increasingly presented with cases involving partial acquisitions and minority shareholdings. Some jurisdictions, including the UK and Germany, can already address these under their merger rules, but the European Commission cannot, and it is consulting on closing this potential ‘enforcement gap’. What are the differences between minority shareholdings and full mergers from a competition perspective? Is Ryanair/Aer Lingus a typical case?

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Goodfellas? The European Commission investigates pay-TV film deals

DG Competition’s latest probe into the pay-TV industry considers whether contractual terms between major US film studios and Europe’s leading pay-TV providers prevent cross-border competition between broadcasters. What is the current impact of these clauses from the perspectives of consumers, pay-TV operators and content producers, and what are the economic concepts in which these issues can be framed?

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Turbulence ahead? The new state aid guidelines for aviation

The European Commission has recently introduced new guidelines, due to become enforceable by the end of March 2014, on how member states can support airports and airlines in line with EU state aid rules. These guidelines have far-reaching implications for the financing of airport infrastructure, as well as how airports reach agreements with airlines. What does all this mean for the aviation sector?

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Bust that trust: a new era?

In the UK, the Leader of the Opposition has called for reform of ‘broken markets’, and market share caps for current accounts and small business lending, enforced by the new Competition and Markets Authority. Does this usher in a new era of ‘trust-busting’ competition authorities? We comment from an economic and public policy (but non-political) perspective

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The regulatory asset base and regulatory commitment

The regulatory asset base (RAB) is a key aspect of infrastructure industry regulation in the UK and elsewhere. Jon Stern, Honorary Visiting Professor at City University, London, argues that the most important feature of the RAB is the process by which it is reassessed and revised, and that this provides considerable evidence on the consistency and transparency of regulatory regimes

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Best practice for price-controlled companies: business plans and bidding

In 2010, Oxera Non-executive Director, Mike Toms, wrote a series of Agenda articles setting out principles for best practice for regulated companies in price reviews, based on his long experience and observations as a regulation executive. Since then, he believes that companies have become better organised and regulators more sophisticated. New issues have arisen, and excellent examples of best practice have emerged—but also new mistakes. He now asks: how should these guiding principles be revised and expanded?

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Passing game: the ongoing debate about pass-on in damages actions

The passing-on defence is routinely invoked in cartel damages actions in Europe: customers of the cartel may see their claim reduced, to the extent that they have passed the cartel overcharge on to their own customers. However, there is still much debate about how the passing-on defence applies in various jurisdictions, and how to quantify pass-on

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Marketing of football broadcasting rights: is competition off-side?

In June 2014 the world’s eyes will be on the FIFA World Cup in Brazil, but competition authorities are paying close attention to the way football broadcast rights are being marketed. Dr Christian Huveneers, Oxera Associate and assessor at the Belgian Competition Authority, discusses the economics of sports broadcast rights, how competition concerns can arise, and how they can be dealt with

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Competition law and patient choice in the NHS: help or hindrance?

Mergers between National Health Service (NHS) Foundation Trusts have recently been brought fully into the competition assessment process that applies to the mainstream economy. But the outcomes from the first major cases have been contentious. Oxera Senior Adviser, Fod Barnes, asks whether the process has exposed significant differences between the dynamics of service provision in the NHS and how the rest of the economy behaves, and/or an inability of health service stakeholders and competition authorities to communicate in a common language

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Throwing good money after bad? EU rescue and restructuring aid guidelines

As part of its state aid modernisation initiative, the European Commission is revising its guidelines for rescue and restructuring (R&R) aid. Oxera’s 2009 report on restructuring aid provided evidence on the indicators and impact of financial difficulty, to inform the Commission’s decision criteria. The Commission’s proposed revisions to the guidelines now emphasise a role for objective economic analysis—such as financial ratios and counterfactual economic scenarios—in assessing whether to allow R&R aid

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The EU Emissions Trading Scheme: what are the options for reform?

The EU Emissions Trading Scheme (EU ETS) is the central pillar in the EU’s approach to limiting carbon emissions, but its recent performance is argued to have been poor. With an urgent need to address the climate change challenge, we take stock of the current debate around EU ETS reform. How is the scheme supposed to work, what are its problems and how might they be remedied?

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How secure is the nest egg? Risk and return for private pension schemes

Private pension schemes remain in the spotlight, as governments look for ways to ensure that people save enough for old age. Decisions about the distant future need to be taken at a relatively early stage in a person’s working life, and there is considerable risk in saving over such a long time. What are the main risks that can reduce returns from private pension schemes, which ones can be mitigated through scheme design, and at what cost?

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The sooner the better? Economic benefits of early intervention on homelessness

Does the social benefit of intervention in the lives of homeless people outweigh the costs, and how large is the net benefit of intervening earlier rather than later? Oxera recently explored these issues through a cost–benefit analysis of interventions by Centrepoint, one of the largest UK charities specialising in addressing youth homelessness. The report informs decision-making in homelessness policy, particularly as it affects young people

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Snowball effects: competition in markets with network externalities

Social networking sites such as Facebook and LinkedIn benefit from network effects: the more users they have, the more likely others are to join them. Does this mean the end for effective competition (a concern in competition inquiries into Google and Microsoft)? Economic theory, and the intense rivalry among smartphone and game console makers to appeal to Christmas shoppers, suggest the answer is no

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The Fourth European Railway Package: does one size fit all?

In January 2013, the European Commission proposed measures that it hopes will bring Europe one step closer to a single European rail market. However, due to major differences in market circumstances across countries, these measures will have different implications for the various stakeholders. What are the consequences for stakeholders, and does one size really fit all?

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Independent economic regulation: a tale of two paradoxes

The regulated sectors are central to the UK economy, so the government is naturally interested in how they are regulated. However, the independence of regulators is vital for the achievement of public policy goals, including consumer protection, competition and investment. Cathryn Ross, Chief Executive of Ofwat, the economic regulator of the water industry in England and Wales, analyses this relationship between government and regulators and asks how economic regulation might best be used for the benefit of the UK economy and society

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What is the future of financeability tests?

‘Up in smoke, down the drain’, the August 2013 article in Agenda ’s series on the cost of capital, considered how regulators measure and remunerate risk in the price control. One of the tools that helps them to do this is the ‘financeability duty’. What is this duty, and how has its application changed over time?

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Using the ‘hot tub’: how concurrent expert evidence can help courts

Australian courts and agencies have been acknowledged as having the most experience with the ‘hot tub’ method, in which experts give their evidence concurrently—although international interest is developing, for example in the USA, Canada and the UK. Justice Steven Rares of the Federal Court of Australia and the Supreme Court of the Australian Capital Territory explains some of the history of expert evidence; the purposes and technique of concurrent evidence; and the technique’s virtues

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Bad medicine? An effects-based approach to ‘pay-for-delay’ agreements

In July 2013, the European Commission, for the first time, fined pharmaceutical companies for settling a patent dispute via what it terms as ‘pay-for-delay’ agreements. Under these deals, generics producers agree to delay launching their (less-expensive) drug in exchange for a payment from the branded company. The Commission has treated the agreements as illegal per se—but do deals of this type necessarily harm consumers?

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The economist as outsider

Can economists look at the world from the perspective of an outsider: detached, disengaged, objective? Diane Coyle, Enlightenment Economics, discusses why the answer is ‘no’. Unlike Camus’  Outsider , economists are right at the heart of the societies they study. Change is needed, in terms of economists’ methodologies and approaches to policy applications

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What are the merits of appeals on the merits?

Consulting on the future of regulatory and competition appeals, the UK government is proposing substantial reforms, including a move away from appeals on the merits towards a judicial review standard. Oxera’s response to the consultation, summarised here, sets out why such a move may be unappealing

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Energy market reform in Germany: what can we expect?

In recent years, the German government has set ambitious targets for energy efficiency and reductions in greenhouse gas emissions, centred on its renewable energy law (EEG). Dr Michael Kraus, head of Oxera’s new Berlin office, argues that the feed-in tariff regime is over-supportive and economically inefficient, and that it has considerably increased costs for electricity customers. He sets out the drivers of German energy market reform and the rationale behind the principal options.

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Hide and seek: the effective use of cartel screens

Hardcore cartels seek to increase profits at the expense of their consumers by deviating from competitive behaviour, while avoiding detection and punishment. Econometric screens, if designed well, can be a useful tool in detecting such deviations from competitive patterns, and can thereby help to improve cartel enforcement. Moreover, they can reduce the extent to which cartels are able to covertly restrict competition

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Aussie rules: the Oxera Trading and Post-trading Monitor

Over the past two decades, the competitive structures of stock markets across the world have undergone considerable change. In many new markets, new trading platforms compete with national stock exchanges, and in most European markets investors and traders can choose from several competing central counterparties (CCPs) for the clearing of equity transactions. Oxera has updated its analysis of the costs of trading and post-trading services, with a focus on Australia

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Behavioural economics: making choices at the individual and firm level

The interdisciplinary field of behavioural economics studies the impact of psychological factors on economic decision-making. It contributes significantly to our understanding of how real people make choices, and shows us that there is a difference between choices made by individuals and those made by the ‘homo economicus’. Annemieke Tuinstra-Karel at the Netherlands Authority for Consumers and Markets (ACM) discusses latest developments in the field, and looks at the results of recent studies by ACM and Oxera

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At a crossroads: the future of the strategic road network

In July 2013, the UK Department for Transport published its command paper for the road network in England. The paper outlined a number of important reforms to the governance of the network and the role of the Highways Agency. What are these reforms, and what might they mean for the future structure of the industry? Is there the potential for introducing independent economic regulation in the roads sector, similar to that in the utilities sector?

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Ofwat’s final methodology: now for implementation

Ofwat, the economic regulator of the water industry in England and Wales, has published its final methodology and business plan expectations for the 2014 price review. It is now over to the water companies to complete their business plans for submission in December. Here we give an overview of Ofwat’s main decisions and some of the issues that companies will need to tackle in preparing the business plans.

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Up in flames, down the drain: accounting for risk in regulated networks

All companies face risk, and it is generally understood that increasing risk will increase a company’s required returns. The third in our series of articles on the weighted average cost of capital (WACC) considers the risk faced by regulated utilities and how it is addressed by regulators. Ultimately, when it comes to quantifying risk, judgement is just as important as technical skills. In that spirit, put down your calculator and enjoy the read!

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Passenger power!

Passengers may spend a large proportion of their time and money on rail transport, but they are not always involved in decisions about the railways or kept informed about developments. Anthony Smith, Chief Executive of Passenger Focus, argues that rail passengers must be given a greater voice in the priorities for the railways.

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The Water Bill: a turning point?

In June 2013, the UK government published the Water Bill, outlining its plans for the water sector in England and Wales. It proposes a number of reforms of the sector in areas such as competition, resilience and water resource availability. What are the key provisions of the Bill, and how might they affect the future of the UK water industry?

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The clock starts now: customer choice in the retail water market

What might the future retail water sector look like in England once competition is introduced in the non-household market in 2017? Alan Sutherland, Chief Executive, Water Industry Commission for Scotland, and Sonia Brown, Chief Regulation Officer, Ofwat, make the case that competition will lead to improved services that are administered effectively and efficiently, while tailored packages would enable a more sustainable use of precious water resources and improved resilience.

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The EU draft Damages Actions Directive: another rebuttable presumption to rebut?

In June 2013 the European Commission made another push towards promoting private actions for damages under competition law, through the publication of a ‘Practical Guide’ on quantifying damages and a draft Directive. The latter includes a new rebuttable presumption that a cartel has caused harm, citing economic evidence in support. Does this make sense from an economic and policy perspective?

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Price pressure analysis in UK merger control: a retrospective

On April 1st 2014 the successor authority to the UK Office of Fair Trading (OFT) and the Competition Commission, the Competition and Markets Authority, takes up the reins of UK merger control (among other responsibilities). 2014 also marks a decade of the use of price pressure analysis by the UK authorities in their scrutiny of mergers. In view of these landmarks, OFT Chief Economist Chris Walters takes stock of the use of these techniques over the last ten years.

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Behavioural economics and its impact on competition policy: a practical assessment

The rise of behavioural economics has caused much debate in academia and among policy-makers. A new study for the Netherlands Authority for Consumers and Markets explores the implications for competition policy. Although there is no need for major rewrites of competition law and economics textbooks, behavioural economics will form an important part of the competition policy toolkit, and will be relevant in a small but significant number of competition cases.

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Squeezed and damaged: follow-on damages actions in margin squeeze cases

In recent years, European competition authorities and courts have ruled on a number of margin squeeze cases. In some of these, the victims of abuse (usually competitors in the downstream market) have brought follow-on damages claims. This topic is covered in the European Commission’s new practical guide on quantifying damages. What are the economic questions surrounding the quantification of damages from margin squeezes?

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How many mobile network providers do we need?

The 4G spectrum auction in the UK has resulted in four mobile network operators being able to compete with new high-speed services. Is this enough? Bruce Lyons, Professor of Economics at the University of East Anglia and Deputy Director of the ESRC Centre for Competition Policy, discusses how recent research on the speed of uptake of mobile phones casts interesting light on the answer.

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The Thatcher privatisation legacy: an insider’s view

In May’s Agenda, Mike Toms looked back on the huge—and, in some respects, unintentional—consequences of Margaret Thatcher’s mission of privatisation. Graham Mather was an influential figure in Thatcher’s inner circle, first as Head of Policy at the Institute of Directors, then as Director General of the Institute of Economic Affairs, and latterly as a Member of the European Parliament. He shares his personal perspective on why and how the privatisation programme emerged and grew.

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Insuring the insurers: are caravan dealers riskier than insurance brokers?

A recent consultation by the UK Financial Services Authority (now the Financial Conduct Authority) on the Financial Services Compensation Scheme asked whether levies imposed on financial services firms could be made more reflective of the risks that the different types of firm pose to consumers. Can the type of business or distribution model of such a firm indicate the likelihood that the Scheme will be required to compensate its customers?

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Light touch or right touch? An international review of airport regulation

A recent review by Oxera compared the economic regulatory regimes at seven international airports, looking at their incentives for investment and financing, the extent to which they promote consumers’ interests and competition, and the regulatory burden. What were the main findings, and what are the implications of the Civil Aviation Authority’s subsequent proposals for the future regulation of Heathrow, Gatwick and Stansted—three of the airports reviewed?

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The Thatcher privatisation legacy: not quite what she planned?

On April 8th 2013, Baroness Margaret Thatcher (UK Prime Minister 1979–1990) died. Recent obituaries and commentaries have focused on the Falklands War and on her role in breaking the trade unions. However, her greatest and most lasting legacy may have been her programme of privatisation of state-owned industries. Now that the mourning has subsided, Oxera Non-executive Director, Mike Toms, asks whether this programme delivered the changes and the benefits she envisaged.

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‘Equality’ in insurance pricing: the effect of the gender ban

Due to a European Court of Justice ruling in 2011, all insurance products are now priced the same for men and women. Oxera studies had previously considered how this ruling might affect consumers, but what actually happened in practice? Are restrictions on risk-based pricing useful for achieving public policy objectives, or are they just a crude and drastic form of price regulation? What other approaches are there to achieving desired outcomes in insurance markets?

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Debt in depth: the cost of debt in regulatory determinations

The February 2013 Agenda article, ‘What WACC for a crisis?’, considered the regulatory assumptions for equity returns set by regulators. The series continues by looking at the cost of debt, a key component of the allowed WACC. Regulators tend to adopt a wide range of approaches that often result in a departure from the actual rate paid by companies on their debt, depending on the desired incentive and risk properties of the approach.

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The age of the train

The GB passenger rail sector is ranked highly among those of EU Member States, and is set to improve further. Current projections suggest that, in the 2020s, Britain’s railways may be returning money to taxpayers, and that net government subsidy could decrease to zero. In such a scenario, how would the industry be organised, and what would need to change from its current structure?

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Why is the economy stalling, and what can be done?

The UK economy remains in the doldrums, with few signs of the long-awaited recovery. Current austerity measures in the UK and key export markets in the EU may well make matters worse in the next few years. Chris Riley, Oxera Associate and former Senior Economist at the UK Treasury, discusses whether changes in macroeconomic policy might help, including one idea floated recently by the incoming Governor of the Bank of England.

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Flat screens, raised prices: pursuing the global LCD cartel

The investigations into a cartel in liquid crystal displays have grown significantly since the start of the first investigation in 2006. They have so far led to fines of millions of dollars across jurisdictions, criminal convictions of top executives, private damages actions and representative class actions. From an economics perspective, the case involves equally diverse issues, and highlights the need for careful consideration of sophisticated economic approaches when assessing the magnitude of damages.

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Expand or die? Competition law and export pricing of commodities

In a market for commodities where local production competes against foreign imports, what would one expect the ‘competitive’ price to be? While the answer depends on several factors, the simple example of a mine/factory demonstrates that deviations from the predicted theoretical competitive market outcome do not necessarily indicate an abuse of market power.

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A brave new world? Implications of state aid modernisation

Current reforms to state aid rules could lead to a number of far-reaching changes, with the European Commission focusing on those cases that represent the most pressing threats to the internal market. For cases that pose fewer concerns, Member States would have an increased role in ensuring that aid is in line with the Commission’s regulations. How this will play out in practice depends on whether there are sufficient incentives for compliance.

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Competition law enforcement in times of crisis

Since the start of the current economic crisis, there have been calls on competition authorities to take a step back in their enforcement activity. How should authorities respond to these calls? Professor René Smits, Netherlands Competition Authority and University of Amsterdam, addresses this question and provides recent examples of how ‘crisis cartels’ have been dealt with in the Netherlands and elsewhere.

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Getting the outcome right for water customers

One of the key changes recently introduced by Ofwat to how it regulates UK water companies is the move to outcomes-based regulation. While this may appear to pose some challenges for the industry, it can also be an opportunity to build on experience, deliver what customers want and value, and, potentially, gain greater rewards than in the past. What are the practical implications of this new form of regulation for the water industry?

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What WACC for a crisis?

Five years have passed since the trouble in the US subprime mortgage market and the subsequent financial crisis. Most utility regulators have made at least one price control determination during this period, and now is a good time to review these determinations and draw out any general themes. In the first of a series of articles on the subject, we look at the elements of the allowed return, focusing on the risk-free rate and the equity risk premium.

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Structural reform in the EU banking sector

The High-level Expert Group on reforming the structure of the EU banking sector presented its final report in October 2012. The Group’s work, under the leadership of Erkki Liikanen, Governor of the Bank of Finland, has since remained in the limelight, with its recommendations and their underlying argumentation generating great interest. Dr Hanna Westman, who assisted Erkki Liikanen in his role as chair of the Group, discusses the report’s conclusions.

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EU electricity markets: one of a kind?

The EU and its Member States are committed to decarbonisation, security of energy supply, and affordability. A step change in policies appears necessary in order to encourage the investments required to meet these objectives. The economic factors associated with creating a stable investment environment include encouraging efficient price formation, investment incentives, and mitigating the adverse impacts of unintended consequences of electricity sector reforms.

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The EU electricity target model: the devil is in the details?

Creating an EU internal energy market requires both ‘software’ and ‘hardware’ solutions—ie, rules to allow trade across borders, and financing models to increase the physical capacity of interconnections. The EU target model defines a number of market design elements for this purpose, raising the question of whether the design options chosen will necessarily improve market efficiency, or could risk hindering it. We look at two examples: the management and pricing of congestions, and investment in interconnectors.

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Partial acquisition: lessons from hospital merger assessment in South Africa

Life Healthcare Group, a national private hospital provider in South Africa, has increased its stake in Joint Medical Holdings, a private hospital group in Durban, from 49% to 70%. Despite the concern of the South African Competition Commission that the merger would result in a combined market share of over 45% in the Durban area, it was unconditionally cleared by the Competition Tribunal in 2012. What arguments did the parties put forward?

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RIP RPI?

Did the UK Office for National Statistics avoid the political challenge from pensioners and bond-holders of moving to a lower measure of inflation when it published its decision not to change RPI? Or has it empowered those using the price indices to choose the most appropriate measure for their situation by offering an alternative in the form of RPIJ? What was wrong with RPI anyway, and what is RPIJ?

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The Energy Bill: a recipe for risk reduction?

The recently published Energy Bill and Gas Generation Strategy are intended to facilitate significant investment in UK energy generation. Although the proposals contain positive developments, they also highlight the current tensions facing energy policy-makers, and the problems that this can cause in making credible policy commitments. We examine progress and threats to a stable investment environment.

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A Caribbean twist: utility regulation in small-island jurisdictions

The Turks and Caicos Islands government asked Oxera for advice on developing a new framework for electricity regulation. The Oxera study found that regulation should be tailored to the specific geography, population, skill sets and fuel distribution channels faced by small jurisdictions. Moreover, given resource constraints, it needs to focus on the most important issues. The findings are highly relevant for regulators in other small-island jurisdictions.

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Dutch lessons: defined-ambition pensions in the Netherlands

On November 22nd 2012, the UK Department for Work and Pensions published ‘Reinvigorating Workplace Pensions’, in which it proposes the introduction of a new category of pensions in the UK market: defined-ambition (DA) pensions. Dr Thurstan Robinson, AEGON Global Pensions, and Erik Schouten, AEGON Adfis, take a closer look at DA pensions, and examine the Dutch experience of introducing them.

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Latest developments in English cartel enforcement and litigation

Regulatory, procedural and substantive trends are creating opportunities and potential hazards for claimants seeking damages arising from antitrust infringements. Scott Campbell, Partner, and Tristan Feunteun, Solicitor, at Stewarts Law LLP discuss how these developments are opening up new areas and mechanisms for cartel damages claims before the English courts.

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Chuffing hell: is the British model of rail franchising dead?

The recent cancellation of the InterCity West Coast rail franchise competition by the UK Department for Transport might imply a radical rethink, and raises fundamental questions about the ‘British model’ of running railways. However, while there may be some economic deficiencies in the current approach, there are plenty of lessons from incentive regulation that can be implemented within the current arrangements.

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Electricity sector reform: is the system operator always the answer?

Reforms to the UK electricity sector are currently being discussed. Tim Tutton, Adjunct Professor in the Energy Futures Lab at Imperial College, looks at why the role of the System Operator is apparently so important for reform in the sector in the UK—in respect of not only the wholesale electricity market but also electricity networks—and considers some of the issues arising from this expanded role.

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Does the cloud have a silver lining? The Internet’s effect on the creative sector

The Internet has been altering the way we create, distribute and consume creative content. This has led to some proponents of the Internet claiming that the creative sector is ‘booming’, while parts of the sector itself claim to be ‘devastated’ because of the side effects of the Internet. One topical issue where policy choices are likely to shape market outcomes in the creative sector is the licensing of cloud services, which is explored here.

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Behavioural problem, behavioural solution: the case of extended warranties

Consumers do not always behave fully rationally. In some cases their purchasing behaviour can be a contributing factor to concerns about competition and poor market outcomes. Can interventions that help to inform consumers and influence their behaviour be more appropriate than more structural interventions in these cases? The extended warranties market is one example where access to information has been improved in order to resolve a competition authority’s concerns.

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‘Financing’ outside the box: non-bank lending for businesses

What alternatives to traditional bank lending do small and medium-sized businesses have? Tim Breedon, former chief executive of Legal & General plc, chaired a non-bank lending taskforce that examined this question. The taskforce’s recommendations, which range from new forms of access to capital markets, to improvements in supply chain financing, were presented to the UK Department for Business, Innovation and Skills in March 2012, and are expected to be followed with government announcements later this year.

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High-frequency trading: towards capital market efficiency, or a step too far?

The growth in high-frequency trading has been a significant development in equity markets, with regulators and governments under pressure to ‘do something’ about it, notwithstanding the diversity of views on whether this growth is good or bad for investors. What is the likely impact of some of the proposals that have been put forward to control HFT, and how will these interventions actually affect the market place, if at all?

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What’s driving damages? The 2 Travel v Cardiff Bus competition law ruling

The UK Competition Appeal Tribunal recently issued a judgment in a follow-on competition law damages action between 2 Travel and Cardiff Bus. The latter had previously been found to have abused its dominant position, leading 2 Travel to claim £50m in damages. The decision, which awarded £33,818.79 in lost profits and £60,000 in exemplary damages, provides important precedent on how courts use facts and economic evidence in determining the amount of lost profit.

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Sold to the slyest bidder: optimism bias, strategy and overbidding

Overbidding has received increasing media attention over the past few months. In the UK, controversy surrounds the Department for Transport’s decision to award the InterCity West Coast rail franchise to FirstGroup ahead of the incumbent. Further afield, the new Brisbane Airport Link has been unable to meet its forecast traffic numbers. What can drive overbidding? What are its implications for bidders, procurers and end-users, and how can it be overcome?

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Spectrum auctions and trading: dealing with competition problems on airwaves

The auctions for 4G spectrum are currently taking place in a number of countries. Many regulators are agreed that auctions in which mobile operators bid for spectrum are an effective way of allocating this economically valuable resource. However, stakeholders are split on how exactly the auction should be conducted and regulated, whether spectrum should be reserved for smaller entrants, and how far spectrum trading should be allowed in the aftermath of the auction.

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Out of the dark: the role of information disclosure regulation in New Zealand

New Zealand was among the first countries to implement wide-ranging microeconomic reforms to improve the performance of infrastructure-intensive industries, and light-handed regulation was chosen as the preferred regulatory tool. Although other forms of economic regulation now exist, light-handed regulation is still important. Tobias Maugg, economist at the Commerce Commission, New Zealand’s main economic regulator and competition agency, explains how this form of regulation is used in airports and electricity distribution networks.

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The case of South Staffordshire/Cambridge: is clearer water emerging?

In May 2012, the UK Competition Commission cleared a water merger without requiring any undertakings: the first time this has happened in the history of the privatised water sector. Building on previous analysis, the CC changed its approach to valuing the detriments to regulation of the water sector caused by mergers. Along with proposed changes to the merger regime being put forward in the Draft Water Bill, this case should provide clearer guidance to those considering acquisitions in the sector.

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Presuming too much? The UK consultation on private actions in competition law

The European Commission and various Member States would like to see more competition law cases in court. The UK government recently set out a number of proposals to improve on the current regime. Based on Oxera’s response to the consultation, we discuss two aspects of the reforms: the plan to make the Competition Appeal Tribunal a major venue for competition actions, and the introduction of a rebuttable cartel overcharge presumption.

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Not a powerful comparison: purchasing power parity in OECD telecoms reviews

Purchasing power parity indices are intended to make measures of GDP and per-capita income comparable between countries. However, sometimes such indices are used to compare prices of individual items or specific sectors—for example, in reviews of telecommunications services by the OECD. Dr Adriaan ten Kate, independent economist based in Mexico, explains why this approach is spurious.

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Financial regulation: protecting consumers from poor value?

Financial regulation is topical, partly due to what it could or perhaps should have done to stop banks feeding asset price bubbles. Peter Andrews, Head of Research and Economic Analysis, Financial Services Authority, does not discuss these controversies, but describes the government’s plan for better protecting financial consumers. He shows that successive statutes have imposed progressively greater requirements for economic analysis, argues that these improve financial regulation, and outlines how the latest requirements can help make the new Financial Conduct Authority successful.

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Stormy waters in the eurozone: how the debt crisis could dampen corporates

The eurozone crisis has re-intensified over the past few months, following a steady stream of negative news. Given the uncertainty about how recent events will unfold, what are the implications for the cost of raising finance for companies operating in the hardest-hit countries? As regulators face a delicate balancing act of ensuring that the regulated companies can continue to raise finance while minimising the impact on consumers, we also explore the options open to regulators.

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Taxing financial transactions: who pays the bill?

The European Commission has proposed a tax on financial transactions, but its potential economic impact is still uncertain and subject to debate. We contribute to this debate by considering how the proposed tax might be expected to affect the EU economy, and where the burden of the tax would lie.

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Global–local: European telecoms regulation in the 2020s

In January 2012, Richard Feasey, Public Policy Director at Vodafone, wrote for Agenda about the failure of European telecoms policy-makers to understand the challenges they and the industry face today, and claimed that critics of the current arrangements had yet to propose a coherent alternative. He now outlines such an alternative and discusses some of the issues that will need to be tackled.

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Growth and fairness: private sector-led challenges to anti-competitive behaviour

The UK government is consulting on proposals to reform the regime for private actions under competition law, including a right of opt-out collective action, an increased role for the Competition Appeal Tribunal, and a focus on alternative dispute resolution. Based on international comparators, Iain Mansfield, UK Department for Business, Innovation and Skills, considers the potential economic impact of the proposals, contrasts them with a regime in which redress is facilitated primarily by the public competition authorities, and discusses the role of non-monetary remedies such as injunctive relief.

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Don’t run before you can walk: EU banking reform and the need for economic analysis

In February 2012, European Commissioner, Michel Barnier, appointed a ‘High-level Expert Group’ to make recommendations on reforms to the structure of the EU banking sector to strengthen financial stability and market functioning. Dr Luis Correia da Silva, Oxera Managing Director, discusses how there is as yet a lack of fundamental economic analysis to inform such recommendations, in terms of both whether structural reform is required and what shape it might take.

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Oxera and economics consultancy: A retrospective

Economic regulation, and the role that it created for economics consultancies such as Oxera, has changed considerably since the first UK privatisations in the 1980s. Professor Colin Mayer, one of Oxera’s founding Directors, looks back at 30 years of economics consultancy and Oxera’s place within it, and asks what lessons the past can teach us about future economic policy.

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UK airports policy: What won’t happen and what should

The UK is facing an increasingly urgent demand for more airport capacity, and the alternatives being discussed by government are all up against serious opposition. Mike Toms, Oxera Non-executive Director, formerly Planning Director of BAA plc, and now a director of Birmingham International Airport Limited, assesses the options available. He concludes that the prospects for a new runway anywhere are extremely uncertain, but that shorter-term incremental measures that make better use of existing infrastructure offer significant opportunities that could be exploited.

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Where is the market? Air cargo and the first principles of market definition

In prosecuting a price-fixing agreement among airlines (one of several such cases around the world), the New Zealand Commerce Commission faced a jurisdictional challenge centred around whether there is a market for inbound air cargo services ‘in New Zealand’. Dr Gunnar Niels, Oxera Director, explains why, after a trial involving five economic experts in a ‘hot tub’ debating the geographic aspects of market definition, the High Court ruled in favour of the Commission.

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Ofgem’s anti-competitive practice

Energy suppliers are currently subject to a licence condition that limits the differences in the tariffs that they can charge to their ‘in-area’ customers compared with their ‘out-of-area’ customers. Ofgem, the GB energy regulator, is minded to retain this licence condition, claiming that it has helped customers. However, Stephen Littlechild, Emeritus Professor, University of Birmingham, and Fellow, Judge Business School, University of Cambridge, argues that the condition is anti-competitive and has made things worse rather than better.

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A road to…somewhere: Reforming England’s road strategy

UK Prime Minister, David Cameron, has recently called for more private investment in England’s strategic road network. However, private investment is just one part of an ongoing movement towards reform of the road network, which encompasses wider strategic and governance issues. What does such a reform involve, and what options are available for road funding?

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Does Ofgem have a future?

Tim Tutton, Adjunct Professor in the Energy Futures Lab at Imperial College, suggests that the future role of Ofgem, the energy regulator for Great Britain, could be a lot less exciting than either its own past or that of its predecessor bodies, Offer and Ofgas.

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How to regulate next-generation access (if at all)?

European telecoms regulators have, for some time, been faced with the question of how next generation access (NGA) networks should be regulated. Based on Oxera’s recent work for the Commission for Communications Regulation in Ireland, we provide insights into whether NGA networks warrant regulatory pricing obligations similar to those imposed on legacy access inputs, and, where price regulation is considered appropriate, on designing these remedies such that they are fit for purpose, given market developments.

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Share and share alike? Unilateral effects analysis in minority shareholdings

When a large company decides to acquire the majority of a rival’s shares, it may well attract the attention of competition authorities. For minority acquisitions, however, the implications for competition are not straightforward. How can unilateral effects tests, which are increasingly applied as standard in merger investigations, be adjusted to the special case of passive minority acquisitions?

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Economics in managerial decision-making: the case of patent licensing

Strategic decision-making always takes place under uncertainty—not least when it comes to patent licensing. Luckily, clever use of economics can provide a small but decisive edge. Dr Pekka Sääskilahti, Director of Economics, Nokia Corporation, discusses some (alleged) best practices in using economics to support managerial decision-making in patent licensing, with a focus on the telecommunications industry.

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Safe as houses? The implications of the Mortgage Market Review

After three years and four consultation papers, the UK Financial Services Authority is nearing the end of its Mortgage Market Review, with a final policy statement and rules expected in summer 2012. Paul Smee, Director General at the Council of Mortgage Lenders (CML), reflects on the CML’s analysis of the proposals, concluding that the new regime is likely to tighten access to mortgage finance overall, increasing consumer protection but potentially at the expense of access to finance for some creditworthy borrowers.

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Steady flow: evolution not revolution in the Water White Paper?

After four years of consultation, the UK government has published its Water White Paper. This proposes changes to the water resources and abstractions regime, and measures to increase competition in the sector—both shorter-term measures, and intentions that the government has left open for the longer term. Will the proposals solve water resource problems in the medium to longer term, particularly in the south-east of England, where hosepipe bans have just been announced?

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Could ‘fair compensation’ be fairer to all? Finding an alternative to copyright levies

The majority of EU countries have a system of copyright levies on blank media and devices with storage capacity, such as MP3 players, mobile phones and recordable DVD players. Yet the rationale for, and implementation of, these regimes have been subject to a series of legal disputes and economic criticism in recent years, and some countries, including Spain, Finland and the Netherlands, have begun to look for change. Could an alternative system be less distortionary while still adequately compensating rights holders?

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Passing judgment on crisis state aid control: the ING MEIP case

In a landmark judgment, the General Court ruled in March 2012 that the European Commission had overstated the state aid received by Dutch bank, ING Groep NV, during the financial crisis by up to €2 billion, and, as such, ING may be relieved from certain remedies imposed by the Commission. What was the Court’s reasoning, and does it have a bearing on the support given to other banks in recent years?

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Ofgem’s Procrustean bed

As part of its retail market review, Ofgem, the energy regulator for Great Britain, has proposed to limit the number of standard energy tariffs available and to set the standing charge itself. Stephen Littlechild, Emeritus Professor, University of Birmingham, and Fellow, Judge Business School, University of Cambridge, examines whether these proposals will help consumers in practice.

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Not in my kitchen: the economics of HS2

HS2, a high-speed rail link between London and Birmingham, has been given approval by the UK Secretary of State for Transport, despite ongoing debate about the value for money (VfM) of the project. Why might one go ahead with a project that appears to have lower VfM than that of strategic alternatives? What further evidence would make the case more compelling?

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No smoke without fire? The Tobacco appeals

In 2010 the UK Office of Fair Trading fined two tobacco manufacturers and a number of major UK retailers for anti-competitive agreements relating to the retail prices of cigarettes. One manufacturer and five retailers appealed against the OFT’s Decision. In December 2011 they won their case. What was the economic theory of harm at the heart of the case, and why did the Competition Appeal Tribunal rule against the OFT?

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What’s wrong with directors’ pay?

When compared with the depressed national economic situation, it is perhaps not surprising that the large bonuses paid to directors and other executives of public companies are hotly debated in the UK press. Jonathan Hutchings, Principal at remuneration advisers New Bridge Street, examines the current state of affairs regarding executive pay and incentives in the UK. He discusses some of the reasons behind the current situation, and suggests some ways to improve the pay-setting process.

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Under examination: the OFT’s study into the private healthcare market

Following a study into privately funded healthcare services in the UK, in December 2011 the Office of Fair Trading provisionally referred the market to the Competition Commission for a full market inquiry. A wide range of techniques are available for defining markets in the private healthcare sector, but which of them should be applied in future competition analysis in the UK?

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Quantity and quality in economic assessments under competition law

How can competition authorities make the most of the available information within a given timeframe? Alexander Italianer, Director-General at the European Commission Directorate General for Competition, discusses the possibilities and limitations of incorporating economic analysis in competition law decisions. He describes how economics was used in three recent merger cases, and looks at some of the issues that the parties involved in such cases should bear in mind.

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Nice to nasty: the changing outlook for European telecoms regulation

The economic environment for the European telecommunications industry has changed considerably since the financial crisis hit, but its regulators appear to be living in the Golden Age of robust industry growth and falling prices for consumers. Richard Feasey, Public Policy Director at Vodafone, asks where European regulation needs to change and suggests options for a new approach to telecommunications regulation that is more suited to the current and future challenges.

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All go for NetCo? How a co-investment model could boost NGA roll-out

The European Commission’s ‘Digital Agenda for Europe’ envisages substantial new investments in telecoms assets, particularly next-generation access infrastructures. Telecoms regulation has thus far focused on outcomes, rather than investments. Based on Oxera’s recent report for Vodafone, we explore whether there is an economic case for a model where several operators co-invest in fibre access infrastructure.

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Gender and insurance: impact on EU consumers of a ban on the use of gender

According to a recent European Court of Justice ruling, by the end of 2012 all insurance products will need to be priced the same for men and women. Previous Oxera studies have shown that the ruling could have unintended market consequences. But how might this affect consumers across Europe in terms of prices and demand for insurance products? Is there evidence to quantify the potential impact?

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Renewables target: is the answer blowing in the wind?

Offshore wind has the potential to meet 70% of the UK’s renewable electricity target, but has high costs compared with other renewables technologies such as onshore wind. In light of concerns about rising energy bills and the costs of decarbonisation, as well as the challenges from wind relating to security of supply, what policy action would need to be taken to enable offshore wind to maximise its potential?

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Unreasonable profit? A new framework for services of general economic interest

The European Commission has powers to control the compensation granted for the provision of services of general economic interest (SGEI), where Member States intervene in markets to deliver social objectives such as universal service. From 2012 the Commission will implement reforms of the state aid rules used to carry out this control. A new, stricter set of principles is proposed for large-scale commercial activities in SGEI. How will these principles, such as the concept of ‘reasonable profit’, operate in practice?

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Valuing water in England and Wales in the medium and long term

How can the value of water as a resource be included in the Ofwat regulatory framework? Jon Stern and Jonathan Mirrlees-Black, Centre for Competition and Regulatory Policy, City University London, recommend that, for the medium term, companies be required to set a bulk supply tariff price—ie, a resource price for the forward price for new water—a ‘price to beat’. They argue that, if possible, this price should include a water scarcity element, at least for investment appraisal purposes, and also discuss the implications for water network service price caps.

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The Thomas Cook/Co-op travel agency joint venture: cleared for take-off

In August 2011 a joint venture between travel agency, Thomas Cook, and the travel businesses of The Co-operative Group and Midlands Co-operative Society was cleared unconditionally by the UK Competition Commission. Six months earlier this high-profile case had been subject to the first ‘fast track’ merger reference by the Office of Fair Trading, having started life at the European Commission.

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Competing with ‘free’? The damages of music piracy

There is considerable debate about the economic implications of online music piracy, and controversial arguments have been put forward on both sides (by claimants such as record labels, and defendants such as hosts of pirate sites). What are the mechanisms through which piracy affects different music industry stakeholders, and how can one identify the counterfactual—ie, the stakeholders’ performance in the absence of online copyright infringements?

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Crime doesn’t (always) pay: what determines the level of fines?

The hefty fines imposed by the European Commission on cartels in recent years have grabbed the headlines, raising awareness of competition law among business communities and the general public. How do the Commission and other competition authorities determine the level of a fine? Is there any economic basis for these fines, and can companies actually afford them?

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A common interest, different solutions: commonality in collective actions

Group litigation—also known as a class action or representative action—allows small claimants to group together in order to ensure better access to justice. Vincent Smith of Sheppard + Smith LLP uses two recent high-profile cases to explore the differences between the US and English approaches to group litigation. He also considers the role for expert economic advice, and how this might change under legislation currently being considered by the UK government and the European Commission.

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No safe harbours: competition issues in ports and port services

Current competition questions in the ports sector cover competition between ports, and between transport modes, countervailing buyer power and essential facilities. Drawing on an OECD roundtable on competition in ports and port services, for which Oxera was asked to provide a background paper, we examine these issues in the context of anti-competitive practices, mergers and acquisitions, and privatisation and regulatory reform in the sector.

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How might alternative ownership models benefit economic growth and stability?

In ‘A Long-Term Focus for Corporate Britain’, Vince Cable, UK Secretary of State for Business, Innovation and Skills, asks: ‘is there more to be done to secure the growth we need?’ While recent policy debates in this area remain largely in the context of the shareholder model, what do alternative ownership models have to offer? Can diversity in ownership models, and a broader view of a firm’s economic value, benefit economic growth and stability?

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A Sky-high damages claim: assessing the harm from a loss of customers

Commercial litigation can require significant input from independent experts. Those experts must bring relevant experience to the courtroom, but experience does not obviate the need to base opinions on robust and clearly substantiated evidence. The recent BSkyB/EDS litigation, involving a £700m damages claim, highlights how experts can best influence outcomes.

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Uncertainty and long-term projections: a framework for postal sector demand

Academics at the University of Toulouse, in partnership with Frank Rodriguez, Oxera Associate, and Soterios Soteri, Head of Economic Forecasting at Royal Mail Group, have developed a framework for long-term projections of demand in situations with changing market conditions (where uncertainty is particularly likely). An example is given from the UK postal sector, but the framework could also be considered relevant to other industries that use long-term projections of demand.

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Private labels: a useful ingredient in the food industry?

What effect do private labels have on the food supply chain? Dr Frank Bunte, Wageningen University, the Netherlands, sets out the main findings of a report for the European Commission on the increase in the number of private labels. The report found high levels of innovation in the European food supply chain, with new product introductions (under both industrial brands and private labels) continuing to rise in most European countries.

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The electricity White Paper: towards a stable investment environment?

The electricity White Paper provides further thinking from the UK Department of Energy and Climate Change (DECC) on how it aims to introduce a system of long-term contracts to promote low-carbon investment and provide security of supply. This article considers the major developments in DECC’s thinking, and highlights some of the risks and further details that are still to be determined.

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The cost of supporting banks: lower than expected?

Financial services regulation is undergoing a major overhaul, with specific focus on banks that are perceived to be ‘too big’ or ‘too systemically important’ to fail. The argument is that such institutions have benefited from implicit state support, which in turn is seen to have created incentives for excessive risk-taking and distortions of competition. Nevertheless, quantification of the scale of the underlying problem and the effectiveness of related policy proposals remains limited to date.

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No-fly zone? A curious case of alleged predation by a new entrant

Following the entry of UK airline, Flybe, onto a domestic air route that put it in competition with Air Southwest (ASW), the UK Office of Fair Trading (OFT) launched an investigation into whether the entry represented an abuse of a dominant position by Flybe. The OFT’s theory of harm was that Flybe might be attempting to eliminate ASW from all routes, thus benefiting Flybe’s other routes operating from a nearby regional airport. After a 17-month investigation, the OFT concluded that Flybe had not breached competition law.

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Merging the merger authorities

No two countries are the same when it comes to the institutional design of their regulatory and competition authorities. The UK government is considering merging its two highly rated competition bodies, the Office of Fair Trading and the Competition Commission. Oxera’s response to the government’s consultation on the matter is provided below.

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Who is really regulating us?

Introducing competition into regulated parts of the economy, or, where this is not possible, trying to mimic the competitive outcome, has been the dominant policy for utilities and infrastructure over the past 40 years. Fod Barnes and Mike Toms argue, however, that recognising when we have reached the end of this road towards more competition may be the key to getting the future of utilities and infrastructure right.

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Renewable energy: low appetite for investment in low-carbon technologies?

Significant investment in low-carbon electricity generation will be required over the next decade to achieve the UK government’s carbon-reduction targets, with a large share expected to be funded by the private sector. The risk (and expected return) associated with an investment in low-carbon technologies, which tend to be capital-intensive, is highly dependent on the technology’s maturity and future government policy. A clear and credible government policy could reduce the discount rate associated with targeted technologies by 2–3% in the next decade, thereby encouraging further investment.

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Unilateral effects analysis and market definition: substitutes in merger cases?

A number of simple tests to assess the effect of a merger on the pricing behaviour of the merging firms have become increasingly popular among competition authorities in Europe and North America. This direct approach to measuring unilateral effects has been proposed by some as an alternative to traditional market definition. A recent meeting of the Oxera Economics Council discussed the merits and limitations of the approach.

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Fares fair? The economics of setting ticket prices

Regulated rail fares in Great Britain are set to rise by 3% in real terms for each of the next three years, while the entire approach to fares setting is about to be subject to formal review. There are important economic issues surrounding these changes, such as the empirical evidence on how passengers respond to fare changes, and the types of fares regulation that might be introduced.

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It’s not that complicated really: truisms about economists

At the recent book launch of Economics for Competition Lawyers, Nicholas Green QC of Brick Court Chambers was asked to share his views and experiences of working with economists as court experts. This resulted in ‘Green’s five truisms about economics and economists’, which are shared here with the Agenda readership, along with his reaction to the book.

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Out of tune: is there an economic case for copyright levies?

Copyright levies, charged on sales of hardware and media that can be used for private copying, have been under scrutiny for some time. A recent Oxera report for Nokia explores the economic rationale for copyright levies and presents the main findings of a quantitative analysis of their economic effects. Are there other, economically more efficient ways to remunerate the creative community?

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Water retail market savings: the experience in Scotland

It is now three years since the retail market for water and sewerage services in Scotland was opened up to competition for non-household customers. Alan D.A. Sutherland, Chief Executive of the Water Industry Commission for Scotland, outlines the background to the separation of retail and wholesale activities, the savings made, and the scope for continuing improvement. He also examines the opportunities for investors, and the further benefits to Scottish customers, were England and Wales to adopt a similar model.

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Consumer decision-making in complex markets: Ofgem’s Retail Market Review

In November 2010, Ofgem, the energy regulator for Great Britain, announced a review of the retail energy markets. Four months later, the results were published, with initial proposals for market reform, including policies to simplify domestic energy tariffs and force integrated generators, which both generate and supply power, to auction up to 20% of their annual generated volumes. Stefan Bojanowski, project manager of the Review, expands on some of the findings and the proposals on tariff simplification.

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Energy supply: when can increased regulation promote competition?

Ofgem’s Retail Market Review has raised further concern about the functioning of the energy supply market since its Supply Probe in 2008, and has proposed a further set of interventions intended to protect consumers. This apparent shift in approach away from competition-based intervention and towards consumer protection policy is examined here as an accompaniment to Ofgem’s account of the Review published in this month’s Agenda. The similarities and tensions between the two approaches are drawn out, together with some of the risks that could warrant further investigation.

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The economist on trial: can judges rely on the evidence?

Economics for Competition Lawyers (Oxford University Press) is a new book by Oxera economists, explaining from first principles the economic concepts that underpin competition policy. It also seeks to contribute to the debate about how economic evidence, and economic experts, can be most useful in competition cases before courts, a topic explored in this article.

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Auditors and the financial crisis: beyond the status quo

The financial crisis has brought renewed attention to the audit market, which is dominated globally by the ‘Big Four’ accountancy firms. According to European Commissioner, Michel Barnier, ‘the status quo is no longer an option for the world of auditing.’ In the UK, a House of Lords Committee has called for a wide-ranging competition inquiry. What is the economic evidence for a competition problem in the audit market, and what are the proposed solutions?

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Price versus volume: decarbonising the electricity industry

Tim Tutton, of the Exeter University Energy Policy Group, examines aspects of the government’s December 2010 consultation on electricity market reform—notably, its proposals to achieve decarbonisation of the electricity industry through long-term feed-in tariff contracts for low-carbon power. He argues that government-run price subsidies (whether determined administratively or by auctions) will be less efficient than putting an emissions reduction obligation on electricity suppliers.

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Private damages claims: questions relating to the passing-on defence

Recent developments in European and national competition law are leading to a clarification of the circumstances under which damages can be claimed. A particularly important question is whether defendants can argue that the damages involved had already been passed on by the claimants to consumers. Mario Siragusa, Partner at Cleary Gottlieb Steen & Hamilton LLP, Rome, examines the current situation.

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Gender and insurance: unintended consequences of unisex insurance pricing

The European Court of Justice has ruled that the opt-out from the EU Gender Directive, which allows the use of gender as a risk factor in insurance pricing, contravenes the European Charter. What are the economic implications of a requirement for unisex insurance premiums and benefits? In particular, how effective is the rule in achieving gender-neutral insurance prices, and does it have any potential unintended market consequences?

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Happiness is…? Are you happy, and should policy-makers care?

How happy are you? Is this a question you can give a meaningful response to? There is a growing trend among governments and international organisations to measure well-being. What insights can such data provide about what makes people happy, and how happiness determines their behaviour, and can such analysis help to improve policy decisions and appraisal?

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Ex post merger review: what is it and why do we need it?

Is merger policy effective, and how can governments know whether they can rely on the established analytical tools to help them make the right enforcement decisions? Daniel Hosken, an economist at the US Federal Trade Commission, considers how quantitative and qualitative ex post merger review can be used to test the current methods.

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Damages and customer portfolio valuation: a case on paper

The Court of Session in Edinburgh recently awarded damages in a commercial dispute between two paper manufacturers. Not only is this one of the rare damages cases to progress all the way to trial, but the judgment also contains an extensive discussion of the financial and economic methods used, and the way in which courts can use quantitative evidence when assessing damages.

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The infrastructure for success: economics in long-term business planning

Infrastructure investment enjoys significant political support globally, even in this ‘age of austerity’. What is the economic rationale for this, and how do recent decisions about infrastructure spending compare with historical levels of investment? Here we analyse the trends and characteristics of infrastructure investment by looking at a long time horizon in a range of world economies.

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Rules of engagement: involving customers in UK regulatory settlements

There is a growing body of opinion in the UK that sectoral regulators should involve consumers more fully in their price control reviews, with a view to improving both the effectiveness and the legitimacy of their decisions. While the objectives of consumer engagement are fairly uncontroversial, less attention has been paid to the precise institutional arrangements that are necessary to deliver them, or the possible repercussions on the regulators' independence. Peter Bucks, Oxera Associate, explores some of these difficulties.

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Patent pools in pharmaceuticals: a drop in the ocean?

UNITAID, an international drug-purchasing organisation, recently launched a patent pool to facilitate cheaper drugs for HIV-related illnesses. Rupert Booth, Oxera Senior Adviser, considers whether such patent pools have a wider role in making more productive use of intellectual property in the pharmaceutical sector, and identifies some of the problems that arise in their use.

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When less is more: reducing regulatory judgement

The need for judgement is a key feature of many regulatory regimes; if a significant amount is required, this can increase regulatory risk, and therefore also the financing costs to the companies concerned. We examine how regulatory judgement can be reduced in one aspect of RPI – X regulation—the efficiency assessment—and investigate how better decisions can be made with less information, reducing both the regulatory burden and the requirement for maintaining independent comparators in an industry.

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Behavioural economics in the European Commission: past, present and future

At the European level, behavioural economics is increasingly being integrated into consumer and competition policy, in areas ranging from the terms of consumer contracts to the design of remedies in competition cases. Emanuele Ciriolo, economist in charge of behavioural economics in the European Commission Directorate General for Health and Consumers, discusses this topic and presents some new findings from the Commission’s first behavioural study on biases in consumer decision-making in retail investment services.

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Restricting competition: land agreements at shopping centres and airports

Competition is good; monopoly is bad. Does this received wisdom hold for retail outlets at shopping centres and airports? The unique circumstances of these shopping venues mean that agreements that lessen competition—such as restrictive covenants in some land agreements—might nevertheless be economically beneficial, and should not necessarily be considered anti-competitive.

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Being patient: what delays access to new drugs in Europe?

On average, the first citizen to access a new drug in Belgium will wait 13 months longer for it than someone prescribed the same drug in Germany or the UK, despite an EU-wide licensing process. This suggests that country-specific drug regulation—the ‘fourth hurdle’ faced by drug manufacturers—may go a long way to explaining launch delay across Europe.

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Cutting edge or blunt instrument? Using economics to analyse crime

Can economics be used to analyse crime and, if so, how? Drawing on the literature of the economics of crime, we explore the problems inherent in calculating the effectiveness of policies designed to reduce crime, and set out some potential solutions. We also show how modern policy evaluation techniques were used to assess the impact of an anti-knife crime initiative in London.

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Choosing an inflation index: RPI, CPI and regulated utilities

The choice of inflation index is important in a number of public policy contexts, including inflation targeting, indexation of social security benefits, and regulation of utilities. Tim Tutton, Senior Adviser at Oxera, discusses the relative merits of the different measures of consumer price inflation used in the UK (the Retail Prices Index and the Consumer Prices Index), and asks what effects they might have in their different applications and on utility price controls.

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Mergers: can competition authorities agree to disagree?

Jacques Steenbergen and Alexis Walckiers, respectively Director General and Chief Economist of the Belgian Competition Authority, argue for a common approach to merger review by competition authorities. Even when similar methods are used, however, competition authorities may not always reach the same conclusions on the likely effects of a merger in their jurisdiction. The authors conclude that different views about the effects of a proposed concentration should not prevent competition authorities from seeking an agreement on desirable remedies.

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Insurance guarantee schemes: challenges for cross-border insurance

In 2011, the European Commission is likely to introduce a Directive requiring all Member States to have a national insurance guarantee scheme that covers life and non-life insurance and that is structured around the home-state principle. Arno Wicki and Brian Hunt of Zurich Financial Services examine the Commission’s proposals from the perspective of a pan-European insurance group.

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Forecasting the future or crystal ball gazing? Assessing mortgage applications

The financial crisis has led regulators and policy-makers around the world to review the regulations surrounding mortgage lending. In the UK, it has also led to a more fundamental appraisal of the regulatory philosophy followed since the creation of the Financial Services Authority (FSA); namely, that intervention in financial markets should be principles- and risk-based. What are the limits of the FSA’s ‘responsible lending proposals’ and its new approach to financial regulation?

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Behavioural economics, competition and remedy design

Marketers know that people’s perceptions and decision-making abilities can be manipulated by external influences, and behavioural economics has also sought to take such issues on board. However, only more recently have policy-makers begun to examine closely what behavioural economics means for biases in consumer behaviour, how these can lead to competition problems, and how remedies can be designed to help markets work better.

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Regulation: if it ain’t broke, why fix it?

As part of its ‘future price limits’ project, Ofwat, the economic regulator for the water and sewerage sector in England and Wales, is considering how its approach to regulation might need to change going forward. Cathryn Ross, Director of Markets and Economics at Ofwat, discusses the challenges facing the sector, whether the current regime is capable of meeting these challenges, and future options for reform.

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Do small savings in travel time matter?

In October, we looked at the importance of connectivity in appraising transport schemes. Another element that is relevant in such appraisals is how time savings are treated. It has been suggested that aggregating lots of small time savings to road users resulting from road improvement schemes makes little sense when they might not be noticed by the beneficiaries, or get swallowed up by travel time unreliability. Oxera Associate, Chris Riley, argues that, when it comes to time savings, size does not really matter.

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Correctly labelled? The economic benefits of retailer own-brands

Grocery retailers play an important role in our shopping patterns, with grocery sales representing around half of all retail sales in the EU. A significant proportion of these sales are supplied by large grocery retailers, some of which sell goods under their own-brand labels. Various government, regulatory and industry organisations have expressed both positive and negative views about the impacts of own-brands—here we explore some of the issues around them, and attempt to correct some common misconceptions.

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Towards better electricity trading and transmission arrangements

The UK is facing the significant challenge of integrating into its electricity market up to 30% of electricity from intermittent wind generation, much of it located far from demand centres. Richard Green, Oxera Associate and Professor of Energy Economics at the University of Birmingham, argues that the current trading arrangements are not fit for purpose in terms of providing efficient outcomes in such a market environment. The market design implemented in the north-eastern United States is likely to be more suitable.

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Taking stock: the Bristol Water inquiry

In August 2010, the UK Competition Commission published its final determinations of the prices that Bristol Water can charge its customers over the 2010–15 period. We take stock of what the Commission has said, and explore what the findings might mean for the sector going forward.

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To Timbuktu, and back again: why transport connectivity is important

The term ‘connectivity’ is often talked about in transport, but what is it and how should it be used in appraising new transport schemes? In particular, the benefits associated with connectivity can be significant, to the point of even altering the outcome of an appraisal, thus helping to determine the socially optimal level of investment in transport schemes.

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The use of gender in insurance pricing: unfair discrimination?

Why do men and women often pay different prices for their insurance policies? In light of the ongoing debate at national and EU level about gender discrimination, here we look at why gender is currently used as a rating factor in insurance pricing, and what impact a potential ban on using gender in this way would have on insurers and consumers.

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Cartel ‘follow on’ damages claims: a principled and practical approach

Damages actions against cartels that have been discovered by the European Commission and other competition authorities are on the rise in courts across Europe. Rob Murray, Partner at Crowell & Moring and head of its European Recovery practice, discusses why businesses should consider making such claims as a matter of principle (and possibly of fiduciary duty). He also sets out practical solutions to the perceived obstacles to making cartel damages claims.

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When is a bank capital injection state aid? Insights from the Helaba judgment

The market economy investor principle (MEIP) is a test for determining the existence of state aid. When the state expands a bank’s core capital, as has occurred in several instances in recent years, the question arises as to whether it is providing state aid or merely acting in the manner of a private investor. Taking the recent case of the German bank Helaba, how has the General Court interpreted the state contribution made to the bank, and what lessons does this yield for the MEIP?

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Why do I care about forecasts if they are always wrong?

Economic forecasts play an important role in many industries, informing investment plans and government policy, among other things. However, the way these forecasts are produced often receives less attention than the forecasts themselves. A case study of the GB rail passenger industry, based on a recent Oxera study, illustrates what happens when the numbers change.

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Taking stock of the OFT’s approach in supermarket mergers

In 2008 the UK Office of Fair Trading (OFT) accepted undertakings from the Co-op for it to sell more than 120 supermarket stores rather than have its acquisition of Somerfield referred to the Competition Commission for further investigation. Tim Geer, OFT Case Officer, explains how the OFT assessed this case and how its approach to supermarket mergers has been honed.

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UK asset management: a changing industry

The UK asset management is undergoing considerable changes, not least as a result of the recent financial crisis. Jonathan Lipkin, Head of Research at the Investment Management Association, discusses some of the main trends and implications, focusing on ownership, market structure and product development.

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Meeting the financeability challenge in energy networks

How can the considerable investment required in energy networks be delivered at an efficient cost to current and future consumers? This article, based on Oxera research for the Energy Networks Association, considers the financing of this investment—specifically the reforms of the financeability framework proposed by Ofgem, the GB energy regulator.

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New partnership: public and private financing for asset investment

How can an operational and efficient public sector be maintained in the face of significant spending cuts? George Lynn, Chair of the Asset Finance Division, Finance & Leasing Association, and CFO of Angel Trains Group Ltd, explains how the leasing of assets and effective asset management can be one solution in terms of efficiency savings and risk-sharing.

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Improving public sector efficiency: the £6 billion question

What is meant by efficiency savings in the public sector, and how, in light of the UK government’s announced £6 billion cuts to public spending, can benchmarking approaches be used to identify where and how these efficiency savings might be made? As an illustrative example, benchmarking techniques are applied to secondary school data to identify inefficiencies and measure the potential for savings.

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Strong nerves needed? The economics of gas storage investment

The UK government has traditionally relied primarily on market mechanisms to deliver the appropriate mix of gas infrastructure. This means that gas storage investors face the full commercial risk of their projects and need to consider carefully the business case for their investments. This article sets out an approach to understanding the implications of different market scenarios for storage value.

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Switching bundles: the impact of bundling on switching costs and competition

As the prevalence of bundled sales increases in the telecoms, broadcasting and other sectors, is it necessarily the case that the growth in bundles of services will lead to higher switching costs, lower rates of switching and a greater likelihood of competition concerns? Given recent evidence in the pay-TV and financial services sectors, what are the implications of behavioural economics for regulators considering these issues?

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Economic evidence and the quantification of damages in competition cases in Spain

Recent court decisions offer new perspectives on private antitrust litigation in Spain. Although case law is currently limited, the variety of cases highlights the possibilities of private enforcement both as substitute and complement to public enforcement. Juan Delgado, Chief Economist at the Spanish competition authority (Comisión Nacional de la Competencia), and Eduardo Pérez Asenjo of the Chief Economist Team, present an overview of private enforcement cases in Spain, focusing on the methodology used to quantify damages and the role of competition authorities in this process.

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Best-practice principles in regulation: part 2—the regulators

In the January 2010 issue of Agenda, Mike Toms, Non-executive Director of Oxera, proposed a number of guiding principles for the effective management of regulation by regulated utilities. These were based on his experience as both the Regulation Director of a large company and an adviser to regulated companies. Agenda readers challenged him to do the same for regulators, taking account of his experience of their work, and advice given to them from time to time. The temptation proved irresistible, and what follows is a personal view of the principles of best practice for regulators.

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What does it cost to trade, clear and settle?

Over recent years there has been a proliferation in trading venues and central clearing counterparties through which equities can be traded and cleared. However, there has been little analysis of the costs of the different channels for trading and post-trading. Based on an active broker’s trading profile and venue pricing schedules, what are the relative proportions of trading and post-trading costs across the different channels in the UK?

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Best of both worlds? Innovative approaches to modelling merger price rises

The use of merger price rise analysis in the assessment of unilateral effects of mergers features prominently in the ongoing merger guidelines consultations in the USA and UK. While sophisticated tools such as merger simulation have had limited influence on merger decisions, simpler approaches such as indicative price rise tests have been used extensively in a number of recent cases, but rely heavily on assumptions. Can other techniques strike a balance between the two?

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Who’s overcompensated and who’s not? Implementing state aid regulation in practice

Compensation for providing socially necessary public services (or services of general economic interest) has been the subject of much legal debate. While the landmark Altmark judgment from the General Court in Luxembourg emphasises the need for providers of public services to be efficient, there is ambiguity as regards the definition of efficiency. How can performance assessment measures be applied to resolve compensation debates?

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A judge’s perspective on the role of economic analysis in damages actions

As competition cases, including damages claims, are increasingly brought before courts (rather than competition authorities) in EU Member States, a pertinent question that arises is what sort of economic evidence is suitable and acceptable in such proceedings? Frédéric Jenny, an experienced competition economist-turned-judge (at the Cour de Cassation—the French Supreme Court), gives a first-hand take on this complex issue.

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Best practices on the submission of economic evidence and data collection

EU competition policy increasingly relies on empirical economic evidence. Earlier this year, DG Competition published guidance on best practices for the submission of economic evidence, as part of its effort to enhance transparency and predictability in antitrust proceedings. Two of its authors—Damien Neven, Chief Economist, and Raphael de Coninck, Economist, DG Competition—explain the main features of this guidance.

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The new European energy framework: a plan for the future

The role of energy regulation in Europe is undergoing radical change—not least as a result of the Third Energy Package, which aims to fill the holes in cross-border regulation. Lord Mogg, Chairman of the European Regulators’ Group for Electricity and Gas, explains how regulators will be facing up to the challenge of tackling the divergent objectives of climate change, consumer protection, and security of supply.

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