Are more experienced experts tougher? Evidence from competition law.

Ludivine Garside, Paul Grout & Anna Zalewska

2 March 2006

Centre for Market and Public Organisation

March 2006 Garside, Grout & Zalewska 2

Outline

• Motivation

• Data

• Results

March 2006 Garside, Grout & Zalewska 3

Why might experience matter?1. Experience – updating: Meisner & Kassin

(L&HumBeh 2002) – Handberg & Tate (AmJPol Science 1991)

2. Judges life tenure (Supreme Court: Stras Minnesota LR 2006)

3. Public officials generally – economic decisions

4. Other factors (Ashenfelter et al JLS 1995; Ichino et al EER 2003)

March 2006 Garside, Grout & Zalewska 4

How might if work?

1. Heterogeneous priors/confirmatory bias/correlated tenure: Rabin & Schrag (QJE 1999)

2. Experience – updating

3. Career concerns

March 2006 Garside, Grout & Zalewska 5

Why Competition law

• excellent framework for this purpose

• lots of data to condition on and clear theory of how it should work

• unique detailed data set

March 2006 Garside, Grout & Zalewska 6

• 239 merger references• 113 market investigation references• 32 public sector references• 14 licence modifications• 11 anti-competitive references• 6 general references• 7 airport (quinquennial)• 3 monopoly & public sector• 1 broadcasting• 1 restrictive labour practices• 1 unclassified

UK IAbuse regime (as opposed to prohibition regime) – “restraints of trade in principle

acceptable, unless they can be argued to be detrimental to the common good”

428 references to the Competition Commission (1970-2003)

March 2006 Garside, Grout & Zalewska 7

UK II

• Preliminary investigation (Office of Fair Trading, OFT)• Reference to Competition Commission by OFT• Investigators appointed from amongst “Reporting” panel

members• Investigation report submitted to Secretary of State

– identification of the relevant market(s)

– conclusions as to adverse effect on competition or detrimental effects on customers

– recommendations as to possible remedies

• Investigation report published

March 2006 Garside, Grout & Zalewska 8

UK III

1973 to Feb 2000:

Fair Trading Act 1973 (c. 41)

prior to 1973:

Monopolies & Restrictive Practices (Inquiry & Control) Act 1948

&Restrictive Trade Practices Act 1956

&Monopolies & Mergers Act 1965

• by Director General of Fair Tradingor

• by Secretary of State

• by Secretary of State

References made

March 2006 Garside, Grout & Zalewska 9

Data I

Investigations:

• referred to the Competition Commission (C.C.),formerly Monopolies & Mergers Commission (MMC)

• for “possible abuse of a monopoly situation”

• published between 1970 - 2003

March 2006 Garside, Grout & Zalewska 10

Data II

• Investigation level:

– 431 company observations,

– 85 cases

– 122 company observations with profitability, (1970-1996)

(1970-2003)

March 2006 Garside, Grout & Zalewska 11

market share of investigated firm

0.63% 2.25% 3.74% 5.91%9.68%

14.52%20.85%

29.04%

40.98%

74.21%

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

1 2 3 4 5 6 7 8 9 10

Data III

March 2006 Garside, Grout & Zalewska 12

Data IV

profitability

-15.56%

9.03% 15.31% 17.63% 20.92% 27.16% 33.89%46.54%

62.43%

158.72%

-0.5

0

0.5

1

1.5

2

March 2006 Garside, Grout & Zalewska 13

Data V

chair max experience

0.3

6.0 7.49.9 11.2

15.017.6

21.827.3

46.8

0.0

10.0

20.0

30.0

40.0

50.0

1 2 3 4 5 6 7 8 9 10

March 2006 Garside, Grout & Zalewska 14

Data VI

Variable Mean

Chair experience 14.7 0 54Gender ratio 13.8% 0% 50%Market share of investigated firm 20.2% 0.1% 100%Climate 2.4 0 6Profitability 37.6% -94.4% 368.7%C3 / 3 (within dataset) 15.2% 2.8% 32.1%C3 / 3 (all UK industry) 12.6% 0.65% 33.33%

Range

March 2006 Garside, Grout & Zalewska 15

Firm level Case level

Least experienced 0.55 0.51

Second least experienced 0.45 0.69

Second most experienced 0.71 0.74

Most experienced 0.78 0.78

Least experienced 0.47 0.59

Mid experienced 0.62 0.68

Most experienced 0.78 0.80

March 2006 Garside, Grout & Zalewska 16

Approach

• Probit

• Independent cases

• Firm-level observations cannot be treated as independent

• Use robust standard error estimates to account for intra-cluster correlation (at case level and at chairman level)

March 2006

Pseudo R2 0.186 0.244 0.1866 0.248 0.189 0.209 0.184 0.189

Constant -0.586(0.502)

-0.492(0.563)

-0.591(0.510)

-1.475***(0.544)

-0.508(0.510)

0.074(0.644)

-0.381(0.462)

-0.929(0.579)

Chair experience 3.179**(1.326)

3.309*(0.010)

3.114**(1.374)

3.186**(1.305)

3.431**(1.623)

2.869**(1.231)

Gender ratio 3.330 **(1.543)

3.582**(1.638)

3.311**(1.591)

3.252**(1.522)

3.468**(1.632)

2.796*(1.649)

3.345**(1.533)

3.267**(1.543)

Market share 0.820*(0.446)

0.996**(0.497)

0.838*(0.486)

1.230***(0.470)

0.799*(0.462)

0.773*(0.455)

0.753*(0.451)

0.840*(0.443)

Climate -1.204(0.998)

-1.847*(0.945)

-1.226(0.985)

-1.820**(0.904)

-1.432(1.013)

-1.016(1.006)

-1.162(0.993)

-1.223(1.000)

Two anti-competitive conducts

0.956***(0.355)

0.996**(0.441)

0.958***(0.341)

0.969***(0.339)

0.936**(0.370)

1.036***(0.344)

1.000***(0.358)

0.926***(0.355)

Repeated investigation -0.700*(0.425)

-0.732(0.127)

-0.703*(0.427)

-0.678*(0.412)

-0.687(0.427)

-0.692*(0.419)

-0.717*(0.425)

-0.714*(0.426)

Concentration ratio(3 firms)

-1.554(0.196)

Minimum efficient size 0.006(0.100)

Market share volatility 0.189(0.189)

Dummy 1990 0.031(0.393)

Dummy 1980 1.151***(0.362)

Dummy Labour -0.181(0.481)

Wogrex -6.285(4.259)

(Chair experience)2 9.120**(4.125)

(Chair experience)1/2 2.277***(0.874)

Full company data set

March 2006

Pseudo R2 0.247 0.302 0.302 0.245 0.249

Constant -0.419 (0.719) -0.394 (0.734) -1.7551**(0.788)

-0.172 (0.7016) -0.828 (0.770)

Chair experience 3.806***(1.424)

3.822***

(1.421)

4.730***

(1.394)

Gender ratio 3.987***(1.418)

4.007***

(1.466)

3.726***

(1.393)

4.014***(1.424)

3.898***(1.417)

Market share of investigated firm 1.126**(0.508)

1.113**

(0.520)

1.428***

(0.526)

1.090**(0.511)

1.125**(0.509)

Climate -1.900**(-0.870)

-1.888**

(0.918)

-2.179***

(0.789)

-1.883**(0.877)

-1.920**(0.868)

Two anti-competitive conducts 1.586***(0.498)

1.594***

(0.525)

1.278**

(0.506)

1.650***(0.497)

1.552***(0.501)

Repeated investigation -0.751* (0.437) -0.755* (0.448) -0.580 (0.412) -0.780* (0.436) -0.757* (0.435)

Monopoly pricing -0.543 (0.514) -0.548 (0.521) -0.420 (0.502) -0.565 (0.521) -0.517 (0.514)

Discriminatory pricing -0.796 (0.699) -0.809 (0.643) -0.431 (0.643) -0.787 (0.703) -0.825 (0.697)

Collusive pricing -0.266 (0.650) -0.294 (0.709) 0.365 (0.643) -0.330 (0.647) -0.258 (0.648)

Predatory pricing 1.015 (0.120) 1.012 (0.649) 1.065 (0.672) 1.074 (0.663) 0.981 (0.643)

Vertical integration 0.198 (0.631) 0.1775 (0.668) 0.328 (0.602) 0.205 (0.635) 0.165 (0.624)

Tie in sales -0.082 (0.725) -0.093 (0.728) -0.052 (0.723) -0.087 (0.720) -0.101 (0.725)

Exclusive purchasing -0.570 (0.709) -0.582 (0.709) -0.165 (0.617) -0.563 (0.718) -0.582 (0.704)

Resale price maintenance -0.693 (0.594) -0.696 (0.584) -0.708 (0.553) -0.634 (0.593) -0.717 (0.597)

Dummy 1990 -0.031(0.437)

Dummy 1980 1.255***

(0.363)

(Chair experience)2 10.593**(4.302)

(Chair experience)1/2 2.759***(0.978)

March 2006

Pseudo R2 0.242 0.249 0.243 0.277 0.280 0.281

Constant -1.727**(0.717)

-.1956**(0.776)

-1.730**(0.719)

-1.423(0.893)

-1.646*(0.976)

-1.286(0.914)

Chair experience 5.377**(2.234)

5.666**(2.238)

5.448**(2.275)

5.317**(2.523)

5.627**(2.570)

5.258**(2.558)

Gender ratio 3.996**(1.625)

4.027**(1.646)

4.063**(1.655)

3.981**(1.757)

3.961**(1.767)

4.173**(1.778)

Market share of the biggest investigated firm

2.421***(0.864)

2.436***(0.863)

2.405***(0.869)

3.066***(1.044)

3.059***(1.040)

3.000***(1.055)

Climate -0.705(0.977)

-0.875(1.008)

-0.600(1.090)

-0.920(1.068)

-1.019(1.086)

-0.563(1.196)

Two anti-competitive conducts

1.582***(0.532)

1.591***(0.542)

1.574***(0.531)

2.279***(0.718)

2.217***(0.719)

2.350***(0.734)

Repeated investigation -0.500(0.413)

-0.548(0.421)

-0.482(0.420)

-0.625(0.443)

-0.638(0.444)

-0.617(0.443)

Dummy 1980 0.326(0.398)

0.257(0.424)

Dummy 1990 -0.083(0.386)

-0.295(0.443)

Monopoly pricing -0.809(0.555)

-0.787(0.559)

-0.851(0.561)

Discriminatory pricing -0.940(0.621)

-0.859(0.640)

-1.054(0.643)

Collusive pricing -0.309(0.641)

-0.220(0.665)

-0.517(0.716)

Vertical integration -0.726(0.641)

-0.722(0.643)

-0.871(0.676)

Tie in sales -0.596(0.637)

-0.591(0.632)

-.734(0.676)

Exclusive purchasing -0.560(0.580)

0.257(0.424)

-0.632(0.595)

Case data set

March 2006 Garside, Grout & Zalewska 20

dy/dx X

Chair experience 1.162**(0.514)

0.147

Gender ratio 1.217**(0.547)

0.138

Market share 0.300*(0.171)

0.202

Climate -0.440(0.366)

0.236

Two anti-competitive conducts 0.333***(0.111)

0.455

Repeated investigation -0.262(0.162)

0.339

Predicted value = 0.662

March 2006

Pseudo R2 0.211 0.277 R2 0.217 R2 0.397

Constant -0.507(0.517)

-0.685(0.750)

0.332**(0.165)

0.464*(0.263)

Chair experience 3.386**(1.543)

5.224**(2.105)

0.955**(0.427)

1.558**(0.638)

Gender ratio 3.406**(1.531)

4.088***(1.405)

1.035*(0.522)

0.823(0.562)

Market share 0.858*(0.472)

1.154**(0.502)

0.245*(0.145)

0.030(0.154)

Climate -1.444(0.908)

-2.099***(0.807)

-0.351(0.354)

-0.327(0.318)

Two anti-competitive conducts 1.001***(0.342)

1.301**(0.522)

0.275***(0.096)

0.259**(0.119)

Repeated investigation -0.672(0.416)

-0.557(0.434)

-0.237(0.149)

-0.290*(0.158)

Dummy J. Le Quesne -0.824(0.658)

-1.273**(0.648)

All chairmen dummies

Dummy A.Roskill -0.025(0.429)

-0.020(0.573)

Monopoly pricing insignificant

Discriminatory pricing insignificant

Collusive pricing insignificant

Predatory pricing insignificant

Vertical integration insignificant

Tie in sales insignificant

Exclusive purchasing insignificant

Resale price maintenance insignificant

Full data set

March 2006

Pseudo R2 0.187 0.166 0.253 0.236

Constant -0.220(1.789)

-0.389(1.737)

-3.211(2.279)

-3.240(2.260)

Chair experience 3.284**(1.473)

3.519**(1.567)

Gender ratio 3.267**(1.545)

3.171**(1.506)

4.508***(1.422)

4.308***(1.468)

Market share of investigated firm 0.828*(0.446)

0.792*(0..464)

1.096**(0.513)

1.133**(0.522)

Climate -1.212(1.002)

-1.253(0.997)

-1.910**(0.853)

-1.994**(0.889)

Two anti-competitive conducts 0.939**(0.372)

1.016***(0.375)

0.904(0.564)

0.928*(0.556)

Repeated investigation -0.712*(0.422)

-0.833**(0.422)

-0.710*(0.432)

-0.858**(0.428)

Age -0.006(0.028)

0.005(0.025)

0.0329(0.0382)

0.041(0.037)

Monopoly pricing 0.210(0.717)

0.344(0.734)

Discriminatory pricing 0.793(0.666)

0.888(0.669)

Collusive pricing 0.344(0.716)

0.223(0.726)

Predatory pricing 1.977***(0.700)

2.229***(0.696)

Vertical integration 1.161*(0.699)

1.173(0.718)

Tie in sales 0.685(0.612)

0.701(0.642)

Exclusive purchasing 0.194(0.622)

0.121(0.674)

Resale price maintenance -0.136(0.654)

0.041(0.037)

March 2006

No of observations 431 431 431 431

Pseudo R2 0.207 0.290 0.179 0.244

Constant -0.432(0.507)

-0.817(0.665)

0.147(0.398)

-0.209(0.697)

Chair experience 3.743***(1.326)

6.591***(1.939)

Gender ratio 3.097**(1.600)

3.674***(1.360)

2.858*(1.515)

3.116**(1.421)

Market share of investigated firm 0.707(0.450)

0.848(0.521)

0.708(0.467)

0.972*(0.520)

Climate -1.254(0.989)

-1.850**(0.787)

-1.272(0.964)

-1.900**(0.869)

Two anti-competitive conducts 1.076***(0.353)

1.147**(0.545)

1.104***(0.354)

0.913*(0.495)

Repeated investigation -0.788*(0.436)

-0.814**(0.402)

-0.944**(0.450)

-1.018**(0.409)

Monopoly pricing -0.084(0.658)

0.301(0.679)

Discriminatory pricing 0.605(0.628)

0.828(0.664)

Collusive pricing 0.179(0.635)

0.232(0.663)

Predatory pricing 1.622*(0.922)

1.934(0.805)

Vertical integration 0.991(0.634)

0.965(0.677)

Tie in sales 0.000(0.647)

0.336(0.625)

Exclusive purchasing 0.133(0.577)

0.385(0.589)

Resale price maintenance -0.824(0.681)

0.068(0.579)

CC chairman -0.536(0.377)

-1.154**(0.472)

-0.431(0.373)

-0.647*(0.360)

March 2006

No of observations 85 85 431 431

Pseudo R2 0.242 0.277 0.186 0.247

Constant -1.727***

(0.717)-1.424**(0.647)

-0.586(0.539)

-0.419(0.730)

Chair experience5.377***(2.234)

5.317**(2.133)

3.179***(1.163)

3.806***(1.224)

Gender ratio3.996**(1.625)

3.981**(1.905)

3.330**(1.485)

3.987***(1.510)

Market share2.421***(0.864)

3.066***(0.800)

0.820*(0.464)

1.126**(0.508)

Climate-0.705(0.977)

-0.920(1.106)

-1.204(1.025)

-1.900**(0.925)

Two anti-competitive conducts1.582***(0.532)

2.279***(0.603)

0.956**(0.394)

1.586***(0.568)

Repeated investigation-0.500(0.413)

-0.625(0.496)

-0.700*(0.418)

-0.751(0.473)

Monopoly pricing-0.809*(0.468)

-0.543(0.464)

Discriminatory pricing-0.940(0.695)

-0.796(0.683)

Collusive pricing-0.309(0.563)

-0.266(0.636)

Predatory pricing1.015*(0.590)

Vertical integration-0.726*(0.426)

0.198(0.465)

Tie in sales-0.596(0.390)

-0.082(0.682)

Exclusive purchasing-0.559(0.494)

-0.570(0.726)

Resale price maintenance-0.693(0.524)

Clustered by chairman

March 2006

Pseudo R2 0.197 0.286 0.325 0.286

Constant -0.556(0.501)

0.294(0.672)

-1.473**(0.738)

-0.375(0.729)

Chair experience 3.802***(1.434)

7.338***(2.151)

7.486***(2.148)

7.332***(2.154)

Gender ratio 3.591**(1.645)

5.135***(1.417)

4.774***(1.422)

5.096***(1.447)

Market share 0.855*(0.441)

0.951*(0.513)

1.252**(0.518)

0.991*(0.531)

Climate -1.314(1.006)

-1.982**(0.847)

-2.217***(0.772)

-2.028**(0.853)

Two anti-competitive conducts 1.018***(0.351)

1.729***(0.494)

1.459***(0.503)

1.708***(0.516)

Repeated investigation -0.615(0.409)

-0.572(0.413)

-0.450(0.398)

-0.556(0.416)

Legal background -0.360(0.310)

-1.018**(0.471)

-0.826*(0.473)

-1.033**(0.472)

Monopoly pricing insignificant insignificant

Discriminatory pricing insignificant insignificant

Collusive pricing insignificant insignificant

Predatory pricing insignificant insignificant

Vertical integration insignificant insignificant

Tie in sales insignificant insignificant

Exclusive purchasing insignificant insignificant

Resale price maintenance -1.761**(0.791)

-1.580**(0.733)

-1.767**(0.787)

Dummy 1980 1.075***(0.361)

Dummy 1990 0.101(0.422)

March 2006

No of observations 431 431 431 85 81 no DK 81 no DK 381 no DK

Pseudo R2 0.189 0.211 0.327 0.175 0.243 0.286 0.290

Constant -0.042(0.429)

-0.501(0.528)

-0.587(0.658)

-0.727(0.478)

-1.746**0.717)

-1.505*(0.898)

-0.708(0.689)

Chair experience3.104**(1.425)

3.314***(1.214)

7.536***(2.029)

3.948**(1.570)

5.593**(2.265)

5.600**(2.575)

7.678***(2.068)

Gender ratio2.232*(1.343)

3.376**(1.357)

3.311*(1.699)

3.245*(1.835)

3.213**(1.488)

Market share0.491

(0.479)0.762

(0.481)0.975*(0.502)

1.674***(0.636)

2.466***(0.864)

3.158***(1.045)

1.060**(0.511)

Climate-1.374*(0.744)

-1.144(0.958)

-1.763**(0.761)

-0.959(0.830)

-0.746(0.982)

-0.943(1.072)

-1.854**(0.750)

Two anti-competitive conducts

0.655*(0.348)

0.875**(0.411)

1.337***(0.476)

1.196***(0.366)

1.603***(0.536)

2.332***(0.723)

1.358***(0.481)

Repeated investigation-0.622(0.391)

-0.717*(0.416)

-0.358(0.409)

-0.274(0.381)

-0.510(0.421)

-0.596(0.452)

-0.394(0.427)

Monopoly pricing Insignificant Insignificant Insignificant

Discriminatory pricing-0.821(0.617)

-1.138*0.653)

-0.722(0.665)

Collusive pricing Insignificant Insignificant Insignificant

Predatory pricing1.191**(0.536)

1.284**(0.564)

Vertical integration Insignificant Insignificant Insignificant

Tie in sales Insignificant Insignificant Insignificant

Exclusive purchasing Insignificant Insignificant Insignificant

Resale price maintenance

-1.253*(0.669)

-1.123(0.721)

Dummy D. Kingsmill2.013**(0.927)

1.434***(0.418)

2.036***(0.621)

Legal background-1.140***

(0.415)-1.126***

(0.421)

Gender

March 2006 Garside, Grout & Zalewska 27

Pseudo R2 0.325 0.330 0.332 0.334 0.352 0.372

Constant -1.329**(0.601)

-1.417**(0.562)

-1.540***(0.567)

-1.405**(0.601)

-1.401**(0.604)

-1.367**(0.622)

Chair experience 3.079**(1.468)

3.358**(1.345)

2.647*(1.583)

3.651***(1.421)

4.453***(1.296)

4.860***(1.356)

Gender ratio 3.629*(1.862)

3.252*(1.823)

4.268**(1.881)

3.702**(1.884)

3.577*(1.866)

3.956**(1.807)

Market share 1.992***(0.742)

1.946***(0.753)

2.112***(0.741)

1.909**(0.758)

2.300***(0.825)

2.278***(0.851)

Climate -1.689(1.272)

-1.887(1.280)

-0.397(0.1.243)

-2.243*(1.337)

-2.852**(1.371)

-2.822**(1.400)

Two anti-competitive conducts 1.578***(0.375)

1.493***(0.419)

1.974***(0.544)

1.572***(0.388)

1.620***(0.357)

1.687***(0.367)

Repeated investigation -1.446**(0.574)

-1.520***(0.589)

-1.138*(0.662)

-1.295**(0.590)

-1.295**(0.589)

-1.323**(0.589)

Dummy 1980 0.320(0.380)

Dummy 1990 -1.005*(0.523)

ROCE 0.359*(0.217)

0.479**(0.230)

0.075(0.278)

Monopoly pricing -0.706**(0.349)

-1.251***(0.428)

ROCE x Monopoly pricing 1.146**(0.479)