This presentation by Miguel de la Mano, Executive Vice President at Compass Lexicon, was made during the Workshop on market studies selection and prioritisation of sectors and industries held on 9 March 2017 at the OECD Headquarters. More papers and presentations on the topic can be found out at http://www.oecd.org/daf/competition/market-studies-workshop-on-selection-prioritisation-of-sectors-industries.htm

1. Miguel de la Mano
9 March 2017
OECD MARKET STUDIES WORKSHOP
Why conduct market studies?

2. COMPASS LEXECON 1
 In June 2015 the OECD Secretariat conducted a questionnaire
(“Questionnaire”) on Market Studies
– Responses encompass 59 jurisdictions.
 The vast majority of surveyed authorities indicated that they resort
to market studies for multiple purposes.
 OECD classified the goals of market studies in four major groups:
pre-enforcement, advocacy, information gathering, and ex-post
assessment.
 This classification reveals that market investigations is a
regulatory swiss-knife.
 A swiss-knife cannot cut very deep.
WHY AUTHORITIES CONDUCT MARKET STUDIES

3. COMPASS LEXECON 2
MULTIPLE GOALS
Goal Description % of
CA
Pre-
enforcement
When a market/sector is not functioning well for consumers, but more investigation
needed to deciding whether to initiate enforcement action
70%
Pre-
enforcement
To support or provide evidence for enforcement action 47%
Advocacy When a market/sector is not working well for consumers but there is no suspicion of a
violation of competition law
72%
Advocacy In preparation for intervention in the legislative process (i.e. modify or abolish laws or
regulations that affect competition)
57%
Advocacy To support and provide evidence for competition advocacy initiatives 65%
Information
gathering
To assess the state of competition in a market/sector, even if no specific competition
problem has been identified
67%
Information
gathering
To enhance knowledge of a sector or a market 60%
Ex-post
assessment
For an ex –post assessment on the impact of the introduction, modification or elimination
of a governmental policy, law or regulation on a market.
53%

4. COMPASS LEXECON 3
 OECD questionnaire: competition law enforcement interventions and recommendations to governments
for changes to laws, regulations or public policies are the primary outcomes expected from market
studies.
PERCEIVED BENEFITS ?
1) BETTER ENFORCEMENT, 2) BETTER REGULATION

5. COMPASS LEXECON 4
 25% of respondents to an ICN survey said that government is required to respond to their
recommendations, 14% said that businesses are under a legal obligation to act upon recommendations.
 On a scale from 1 (not often) to 6 (very often), most respondents found that their recommendation was
implemented at a level of 3 to 4 (72%)
ACTUAL IMPACT?
IMPLEMENTATION OF RECOMMENDATIONS

6. COMPASS LEXECON 5
IF MARKETS FAIL… COMPETITION FAILS
Market Power
Economies of scale
Network effects.
etc
Information asymmetries
Externalities
Public Goods
Consumer biases
Bounded rationality
Transaction costs
Agency problems
Regulatory Failure
Political objectives:
Redistribution, efficiency, liberty,
social cohesion, stability
Legal framework,
property rights
Institutional design

7. COMPASS LEXECON 6
IF MARKETS FAIL… COMPETITION FAILS
Cement
Incumbent Taxis
sugary drinks
vaccines
Household electricity
Personal current accounts
Auditing services
Pharmacies
Regulatory Failure
Political objectives:
Redistribution, efficiency, liberty,
social cohesion, stability
Legal framework,
property rights
Institutional design
Health Care
Credit rating agencies

8. COMPASS LEXECON 7
 Unclear or unprecise objectives of market studies / market investigations
undermine their effectiveness.
 One goal-one instrument principle.
 If the source of the market failure is not identified and well understood it will be
difficult to design an appropriate remedy and limit or address the risks of
unintended consequences.
 If several market failures overlap (or even reinforce each other) the remedy
package must contain elements that address each market failure separately but
takes into account the overall impact
 Prioritisation, investigation or diagnostic tools and remedy
design/implementation must take into account exogenous factors and trade-offs.
 Multiple goals across jurisdictions limit the emergence of best practices and
international convergence

9. COMPASS LEXECON 8
 In the last decade there were several investigations and reviews of the provision of personal and SME banking
– OFT
– CMA
– The Netherlands
– The European Commission
– Ireland
EXAMPLE:
RETAIL BANKING INVESTIGATIONS - FINDINGS & RECOMMENDATIONS
 The OFT (2010): Consumer inertia; Limited information on SME; Barriers to entry to
deposits and mortgages segments
 The CMA (2014): Information asymmetry between lenders regarding SME; consumer
inertia
 The Netherlands (2014): switching costs, lack of account number portability,
regulatory barriers to entry.
 The EU (2007): data sharing issues/negative data, product tying, customer inertia,
access to clearing platforms.
 Ireland (2005): barriers to switching PCAs
 Increase effectiveness
of switching service
 Ease regulations for
credit unions
 Enhance coverage
and scope of the
Deposit Guarantee
Scheme
The Netherlands The EU
 Ensure credit data
sharing partial sharing
and non-discrimination
 Review credit data
sharing
 Steps to decreasing
switching costs an
increase customer
mobility
 Lower capital and
liquidity requirements
to entrants.
 Share SME credit data
with challenging
lenders
 Enhance c/a
transaction data
comparability
 Enhance scope and
sharing of SME credit
data (BoE)
The OFT
 Require banks to
share data on SME
with Credit Reference
Agencies
 Require banks to loan
price and eligibility
indicators on websites
The CMA
 Introduce a switching
code
 Require banks to
provide 12-month
account records (free
of charge)
 Promote interest rate
awareness and prices
charged by non-banks
Ireland

10. COMPASS LEXECON 9
The focus of the recommendations in the UK, Netherlands, EU and
Ireland:
–Decrease barriers to customer switching.
–Increase scope of gathered and exchanged credit data between
lenders, especially SME.
Customer inertia is an important barrier to competition
–However, for example, the CMA did not consider this to be a
sufficiently strong rationale for proposing an intrusive structural
remedy.
And yet, progress has been modest
RETAIL BANKING INVESTIGATIONS: SUMMARY

11. COMPASS LEXECON 10|

12. COMPASS LEXECON 11|

13. COMPASS LEXECON 12
• The (contingent) taxpayer support to date that benefitted the EU banking
sector amounts to 40% of EU GDP (€5.1 trillion in parliamentary committed
aid measures) and undermined the solidity of several MS' public finances.
• As a result of their TBTF status, certain banks have an implicit government
guarantee. Bond investors are willing to lend them money at lower interest
rates than their smaller competitors.
• This is why large banks could pay up to 4% points less for funding than small
banks in the wake of the financial crisis, giving them a huge competitive
advantage. This made them even larger…
AND WHAT ABOUT TBTF AND RELATED COMPETITIVE DISTORTIONS?

14. COMPASS LEXECON 13|

15. COMPASS LEXECON 14
IN GENERAL TERMS...
Market investigations and market studies are instruments that
operates alongside other regulatory mechanisms and
competition enforcement.
Allows the authorities to assess whether competition is
working well in a given sector or market
• focus on the functioning of the market as a whole rather
than on a single aspect of it or the particular conduct of
firms within it
• its overarching framework allows the investigation to
consider different types of market failure and how they
interact.
11 January 2012 Slide 14

16. COMPASS LEXECON 15
Make markets work better:
- Better regulation:
- Corrective regulation (generally ex-ante) to address
different types of market failures
- Market design (theory of second best)
- Better competition enforcement
- Correct for market power (abuse of dominance, cartels,
vertical restraints, mergers)
YES, MAKE MARKETS WORK BETTER…BUT HOW?

17. COMPASS LEXECON 16
• Exploitation of excess market power harms consumers but benefits the firms
engaging in that conduct
• Other market failures, if not corrected, lead to inefficiencies that harm both
consumers and firms (e.g. adverse selection can unravel a market)
• Investigation tools
• UK regime: the identification of anti-competitive features in a market investigation
or the imposition of remedies does not mean that market participants are
suspected of having infringed the law.
• EU regime: DG Comp is focused on enforcement. Market inquiry is expected to
lead to antitrust cases
• Efficiency vs redistribution (or public interest)
TRADE-OFFS

18. COMPASS LEXECON 17
OBJECTIVE: BETTER REGULATION BETTER ENFORCEMENT
WHO? Sectoral regulator Competition authority
FOCUS? All Market Failures Market power
GOAL? Efficiency, Equality, Access, Social
cohesion, plurality etc
Consumer (or total) welfare (i.e.
allocative, productive and dynamic
efficiency)
TYPE OF INVESTIGATION? Cooperative Adversarial
INFO GATHERING TOOLS? Public consultation, Call for interest Dawn raids, RFIs (fines)
REMEDY POWERS? Structural remedies, Behavioural (
monitoring), Recommendations?
(ex-ante)
Fines, Cease and desist
(ex-post)
EX-POST Evaluations? Continuous evaluation and
adjustments. Trade-offs between
goals explicit.
Prices, quality, concentration
metrics…

19. COMPASS LEXECON 18
• Single Market Strategy: a regulatory initiative on a market information tool, which enables it to collect
information from selected market players. The aim is to improve the Commission’s ability to monitor
and enforce Single Market law.
• Example: discrimination of services recipients by service providers based on their residence/nationality
(Art. 20 para. 2 Services Directive). In these cases, it could be difficult for the Commission to obtain the
necessary information from the Member State, because the Member State itself might not be able to
gather the information (e.g. on pricing algorithms) from the company. On the other hand, the
Commission also aims at obtaining information from market players in order to properly design future
Single Market policies, e.g. to assess the effects of the Collaborative Economy.
• Most likely, the Commission will refer to Art. 114 or 337 TFEU as possible legal basis for the Single
Market information tool.
• Similar tools already exist in other policy fields: In State Aid, the Commission has the power to directly
gather information from sources other than Member States, if this is limited to a formal investigation
procedure that has been identified as being ineffective and the Member.
SINGLE MARKET INFORMATION TOOL