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Summary of discussion An increasingly economic approach to German competition law?

The experts quickly reached a consensus that an economics-based approach to German competition law was no longer hypothetical, but had been under way for some time: applying such an approach was therefore no longer a question of ‘whether’ to do so, but ‘how’.

The greater emphasis on effects-based approaches and economic analysis is already reflected in the eighth amendment to the Gesetz gegen Wettbewerbsbeschränkungen (GWB) in the ‘significant impediment to effective competition’ (SIEC) test. It is widely acknowledged that an effects-based economic theory of harm needs to be established, and that any quantification of damages will be based on this. Indeed, the Bundeskartellamt (German Federal Cartel Office) has added a Data Collection and Econometrics division to its General Policy department, and has issued standards for economic expert reports to meet in order to ensure objective evaluation of facts. The experts described how German cartel legislation had been influenced by experience from the USA and, later, the ordoliberalism of the Freiburg School led by economist, Walter Eucken, and lawyer, Franz Böhm.

The application of competition law can never be driven purely by economic analysis. The crossover between legal and economic analysis, alongside freedom of competition and consumer welfare, was, for example, the subject of debate between Professor von Weizsäcker and the lawyer, Jürgen Basedow, in the 1980s. The experts also referred to continuing limits of the economisation of law enshrined in the German legal system. Legally binding decisions are frequently made in the Oberlandesgericht Düsseldorf and the Federal Court (Bundesgerichtshof), which—unlike the Bundeskartellamt—do not have specific economics divisions. German courts often need to decide between the expert economic reports of the complainants and defendants, which in itself requires economics expertise.

If this dilemma leads to the need for a third expert report, its commissioning and its scope are limited by the restrictive charging scale. It was also clear from the discussion that more economics does not imply more incomprehensible expert reports filled with econometrics and formulae. With sufficient data, econometrics can offer useful insights, but the whole point of using economic experts is because they ask the right questions. The duty of economic advisers is to explain their work in plain terms to lawyers, regulators and judges—an effective economist is one who communicates clearly in their testimony and expert report.

Is there a paradigm shift in the conflicting objectives of cost efficiency and investment incentives in network regulation?

Experts

  • Helmut Fuß, Vorsitzender der Beschlusskammer 9 Netzentgelte Gas, Bundesnetzagentur

  • Marcus Weinkopf, Leiter Entgeltregulierung, Deutsche Telekom AG

  • Marcus Söhrich, Bereichsleiter Netzerlöse, Assetmanagement und Controlling, Open Grid Europe GmbH

  • Dr. Michael Kraus, Associate Director, Oxera

Experts

  • Andreas Mundt, Präsident des Bundeskartellamts

  • Prof. Dr. Carl Christian von Weizsäcker, Senior Research Fellow, Max Planck-Institut für Gemeinschaftsgüter

  • Dr. Thomas Jestaedt, Kartellanwalt, Kanzlei Jones Day

  • Christopher Rother, Bereichsleiter Regulierungs-, Wettbewerbs- und Kartellrecht, Deutsche Bahn AG

  • Dr. Gunnar Niels, Director, Oxera

The experts agreed that Germany needs an effective network industry, and that this requires a suitable framework, especially given the ‘Energiewende’ and the broadband roll-out. However, the experts also agreed that the current framework needed to be adjusted in a number of ways.

Opinion was divided, however, about whether sufficient or excessive capital costs should be seen as the easy part of these challenges, and whether a system was needed that could minimise the operating costs of the network transparently and efficiently. The experts’ view was that the current network regulation was backward-looking, and still fixated on the efficiency possibilities and cost-saving potential of the 1998–2005 market structure. However, today’s market structures require considerable investments due to the Energiewende, the benefits of which the public won’t see for decades. There was therefore a plea for forward-looking incentives and a regulatory framework that was conflict-free and stable over the long term. However, at the moment there does not appear to be social and political consensus for either.

The current equity market situation, with a base rate of 0%, does not offer any guidance. In telecoms, the experts recognised the necessity for incentives and reliability in the roll-out of broadband infrastructure, which will be fully commercially viable and able to generate cash flows in five to ten years’ time at the earliest. There was a plea here for a balance to be struck between competition in infrastructure and services. It was argued that Germany had had the same nominal price level for local access lines for the last decade, despite continued inflation. While this might be expected with the technological progress in electronic hardware, it is surprising for old technology like copper wires. In telecomms, experts recognised the risk of a redistribution that benefited non-network business models and increased price competition in the broadband market.

Furthermore, it was argued that, from a theoretical perspective, incentives against inefficiency and in favour of investment co-exist in any regulatory regime, and that the regulatory parameters for efficiency and investment are independent of each other. In ascending order, cost-plus, incentive-based and yardstick regulatory regimes all aim to improve efficiency, but none is either particularly good or particularly bad for investment. Conflicts of objectives arise when technical errors are made in implementing the regime. Experts mentioned the operating costs in investment budgets that were overlooked in the Anreizregulierungsverordnung (ARegV), and the regulatory efficiency comparisons that are often based on negotiations between the stakeholders, despite scientific claims.

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