competition law conference may 2016 triage for mfns
TRANSCRIPT
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HoustonKemp.com
Triage for MFNs
How to efficiently assess whether MFNs are
likely to lessen competition
Dr Luke Wainscoat
Senior Economist, HoustonKemp
21 May 2016
Competition Law Conference, Sydney
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MFN
MFNMFN
MFN
MFNMFN
MFN
2
Triage for MFNs
Safe harbour test
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HoustonKemp.com
MFN
MFNMFN
MFN
MFNMFN
MFN
3
Triage for MFNs
Theory of harm
Safe harbour test
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MFN
MFNMFN
MFN
MFNMFN
MFN
4
Triage for MFNs
Assessment of benefits
Theory of harm
Safe harbour test
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HoustonKemp.com
MFN
MFNMFN
MFN
MFNMFN
MFN
5
Triage for MFNs
Empirical
analysis
Assessment of benefits
Theory of harm
Safe harbour test
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Step 1: Safe harbours
6
Market power
Market coverage
Type of MFN
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Step 2: Is there a coherent theory of harm?
• Theory of harm that is consistent with
› the facts and circumstances of the case
› economic theory
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Soften
competitionFacilitate
collusionExclude
rivals
Main theories of harm
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HoustonKemp.com
HRS provided marketing services to hotels
8
Anna
Retail price
HRS
Christofer DerykBrunhilde
$90
$105
Hotel costs
Fee
HRS
Profit$100
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HRS competed with Booking.com and others
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Retail price
$100
$90
$105
HRS Booking.com
Hotel costs
Fee
Profit
HRS Booking
Anna Christofer DerykBrunhilde
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HRS suffers reduced traffic if it increases its fee
10
Retail price
$100
$90
$110
HRS
Hotel costs
Fee
Profit$105
HRS Booking
Anna Christofer DerykBrunhilde
Booking.com
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HoustonKemp.com
MFN allows HRS to increase price without losing volume
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Retail price
$100
$90
HRS
Hotel costs
Fee
Profit
$110
$105
HRS Booking
Anna Christofer DerykBrunhilde
Booking.com
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Step 3: Are there likely to be substantial benefits?
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• Benefits need to be consistent with
› the facts and circumstances of the case
› economic theory
Retail MFNs Traditional MFNs
Reduce free-riding on platform Reduce hold-up problem
Increase competition on quality
of service
Reduce delays in contracting
Reduce transaction costs
Main benefits
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Step 4: Empirical assessment of net effects
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Natural
experiments
Hypothesis
testingModelling
exercises
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Gas pipelines in the United States
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Collusion: probability of MFN falls with more buyers
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Number of buyers
Pro
ba
bili
ty o
f M
FN
ad
op
tio
n
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Efficient contracting: probability of MFN rises with more buyers
16
Number of buyers
Pro
ba
bili
ty o
f M
FN
ad
op
tio
n
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Pattern of MFNs inconsistent with facilitating collusion theory of harm
Number of buyers
Pro
ba
bili
ty o
f M
FN
ad
op
tio
n
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