Competition Policy

Central European University A Program for University Teachers, Advanced Ph.D. Students, Researchers and Professionals in the Social Sciences and Humanities Summer University

since 19-09-2003 you are visitor no.

download course description (Word doc, 42 kB)

Competition Policy in the Transition:
Theory, Implementation, and Challenges

9 July – 27 July 2001

Course director:

Todor Gradev, Catholic University of Leuven

Resource persons:

Alf Vanags, Queen Mary University of London and University of Latvia

Jonathan Haskel, Queen Mary University of London

Jozef Konings, Catholic University of Leuven

Maria Vagliasindi, EBRD, London

Patrick Paul Walsh, Trinity College Dublin

Yelena Kalyuzhnova, University of Reading

Ciara Whelan, Department of Economics, University College Dublin

Julian Lee, Centre for Global Energy Studies

Paul Belleflamme, Department of Economics of Queen Mary, University of London

Course objectives

The objective of this course is to equip the participants with the economic tools needed for a critical appraisal of the welfare effects of competition, competition legislation, and alternative competition policy decisions. It aims to support lecturers in competition policy, as well as independent competition analysts in their work to deliver the economic expertise necessary for the growing political debate, legal disputes, and administrative decision-making processes concerning market power and antitrust, mergers and acquisitions, state subsidisation, etc. that are now underway in all transition countries.

The course is conceived as a blend of positive and normative analysis of competition. It is planned as a comprehensive coverage of the theory of competition, but it will also have a strong public policy ingredient. It will acquaint the participants with the latest conceptual thinking in the field, and will draw inferences for policy implementation. The crux of the analytical approach to each aspect of the theory will be its use for the formulation of welfare enhancing competition policy. At the same time, the assessment of competition policies and legislation will be centred on two kinds of effects: the workings of competition to increase market efficiency, and the contribution of competition to social welfare.

The course will comprise six ‘core’ modules of teaching and discussions, and will conclude with an interactive simulation game of imaginary competition adjudication. After a brief introductory revision of the basic concepts of oligopoly theory, the first module will set up the subsequent discussion by addressing the known facts about the interactions of competition and efficiency. The next four modules will take up issues that are subject of a hot debate both in the theoretical concepts involved and in their inferences for public policy design. These include, among others, the permissible levels of market power and market concentration, the role of the market as a selection mechanism, and the controversies of international trade and domestic competition. A special module will be dedicated to the competition policy of the European Union, the philosophy of its evolution, and competition-related problems of the EU enlargement. The concluding simulated competition adjudication will make participants explore the practical applicability of the theory they will have learned.

Target audience

The course is aimed at two groups of professionals: academics and competition practitioners. The economics of competition is increasingly finding its way into university curricula all across CEE and FSU: either as a stand-alone course, or as a growing ‘competition’ component in a variety of related courses, such as applied microeconomics, industrial organisation, law and economics, regulation, etc. Therefore, the course is primarily intended to assist young university lecturers, assistant professors, advanced postgraduate students and other scholars who are teaching or planning to teach such subjects at their home universities and institutes.

Competition practitioners in governmental agencies and private consultancy firms are usually economists and lawyers; this course is planned for the economists among them. While lawyers are also welcome to apply, they will be expected to have acquired some extra background in economics as well.

Course level

The course will be offered at a good upper-intermediate level. The only economics prerequisite is intermediate microeconomics, roughly at the level of the popular textbook of Hal Varian "Intermediate Microeconomics" (W.W.Norton & Co.), which has been translated in several transition countries. Previous exposure of the candidates to industrial economics will be an advantage. Condensed refresher of the relevant economic theory needed for this course will be included in the preliminary reader that will be distributed to successful applicants.

As for the mathematical prerequisites, to fully appreciate the course candidates should know at least the rudiments of multivariate calculus. Ideally, but not necessarily, some acquaintance with non-cooperative game theory would also be desirable. However, this course will rely more on narration and intuition, rather than mathematical rigour. Game-theoretical concepts will be introduced gently by the instructors, wherever needed. Nobody should be discouraged to apply for lack of mathematical sophistication, because in its core the course is planned to be intelligible for all participants with basic knowledge of intermediate microeconomics. In particular, participation of competition practitioners with down-to-earth experience in competition policy in the transition countries will be most welcome.

Provisional Course Syllabus

Introductory Session: Review of oligopoly theory

Jonathan Haskel, Todor Gradev

Concepts to be revised in this module include, but are not limited to:

	Cournot vs. Bertrand with homogeneous & differentiated products
	Stackelberg and sequential games, first mover advantages
	Explicit and tacit collusion, sustainability of cartels
	Nash equilibrium in infinite horizon games, credibility and reputation
	Welfare effects of different market structures

Module I: Competition and efficiency: the Western experience

Jonathan Haskel, Paul Walsh

Concepts:

	Competition, productive efficiency, X-inefficiency
	Competition and allocative efficiency
	Mechanism design: competition and incentives
	Disciplining effects of potential competition
	Competition and ownership

Policy issues:

	What are the major ingredients of an effective regulatory regime for maintaining a healthy level of product market competition?
	What evidence from Western Europe can support the link between pro-competitive firm restructuring and a rise in productivity and profitability? What policies have facilitated such rise?
	How have UK privatisations in the 1980’s affected the competitiveness in their respective industries? What have been the effects on social welfare? Which effect dominated: that of privatisation, or of competition?

Module II: Market power vilified and exonerated

Jonathan Haskel, Jozef Konings, Todor Gradev

Concepts:

	Market power, profit maximisation, and effective competition
	Models of collusive behaviour
	Definition of the relevant market in competition analysis
	The use of demand elasticities for detection of market power
	The tension between market power and economies of scale
	Market power and the incentives to innovate

Policy issues:

	What are the sustainable levels of market power from a social welfare perspective?
	Is inherited market power in vertically integrated markets in transition always indicative of distorted competition?
	Do consumers benefit when public monopolies are sold to strategic private & foreign investors?
	Does market power enable firms to engage in research and development?

Моdule III: The changing market structures in transition

Paul Walsh, Todor Gradev

Concepts:

	Structure-conduct-performance hypothesis (Bain-Sylos & extensions)
	Competition in markets with horizontal & vertical product differentiation
	Competition in markets with large sunk costs
	The evolution of market concentration (Sutton approach)
	Measurement of market concentration & coefficients of product differentiation

Policy issues:

	What are the consequences of the fragmentation of many markets in the first decade of transition? Do they differ across sectors and across countries? Have some markets become more concentrated?
	What types of product differentiation tend to dominate in different sectors of the economy and why? Is this amenable to policy influences?
	Should competition policy depend on the size of a market? What are the interactions of market size, the amount of set-up costs needed to enter a market, and the intensity of advertising?
	How can quantitative techniques be used to assist efficient competition policy implementation? How can they help to determine market structures and degrees of market power?

Module IV: Market selection in transition, barriers to market entry and exit

Jozef Konings, Maria Vagliasindi

Concepts:

	Competition and efficiency of the market selection process
	Innocent vs. strategic barriers to entry
	Models of entry deterrence
	Sunk costs as barriers to entry and exit
	Bankruptcy procedures as a barrier to exit in transition
	Firm and job turnover in the process of market selection

Policy issues:

	What evidence from CEE or elsewhere supports a correlation between high firm and labour mobility and successful industrial regeneration? What policies have been implemented there?
	What are the most important barriers to market entry in transition that can be addressed by competition policy?
	How to regulate markets where incumbents enjoy absolute cost advantages?
	Which entry barriers are likely to be erected or supported by market incumbents and should be scrutinised by competition authorities?
	How to detect strategic barriers to entry? How do firms signal their intentions? What is the role of advertising as an entry deterrent?
	What policies can ease the barriers to exit, and at the same time mitigate the process of job destruction?

Module V: The interaction of infrastructure regulation, competition and trade policies in transition

Alf Vanags, Yelena Kalyuzhnova, Maria Vagliasindi

Concepts:

	Competition policy as a backbone of infrastructure regulation in transition
	Foreign trade: extension or alternative to domestic competition?
	Custom tariffs and preferential trade agreements: distortion of competition or welfare enhancement?
	Trade in international oligopolistic markets: strategic interactions, exploiting the comparative advantage, or succumbing to the regulatory inertia?
	Competitive and regulatory considerations in inter-regional and intra-regional trade policies

Policy issues:

	What is the optimal balance between infrastructure regulation, competition and trade liberalisation in transition? How is this balance affected by the size of the domestic market and the inherited bottlenecks in infrastructure?
	Can trade protectionism avoid being exploited by vested interests? Can it be countered by competitive regulation of the infrastructure?
	What have been the effects of trade diversion in the years of transition on domestic product market competition? What are the effects of competition on intra-regional trade?
	Do strategic trade policies – e.g., import tariffs, export subsidies – serve the same role as strategic entry deterrence to a market?
	How will the adoption of the aquis by candidate countries and their approximation to EU affect their trade with other countries in the region?
	Is there a conflict between the competition and trade policies of the European Union with respect to the countries in transition?

Module VI: EU competition policy and the challenges of enlargement

Resource persons: Yelena Kalyuzhnova, Alf Vanags

Concepts:

	"Agreements between undertakings" and "concerted practices" in Article 81 of the EC Treaty: the EU treatment of explicit and tacit collusion
	"Abuse of dominant position" in Article 82 of the EC Treaty: the EU treatment of market power
	"Vertical restraints" in EU competition policy
	The regulation of mergers and state aid in EU competition law

Policy issues:

Can the EU policy of "state aid" be reconciled with traditions of explicit and implicit subsidisation in the candidate countries?
Will the post-entry exposure of CEE firms to the internal market competition of the EU be more beneficial, or more detrimental for them?
Can the current trend of decentralising the law enforcement in EU competition policy meet with the desire of applicant countries for speedy approximation?

Concluding Session: Simulation game of competition adjudication

Various resource persons

This module will reinforce the theoretical knowledge acquired in the course by asking participants to apply it to real-life case studies of anticompetitive practices or abuse of market power. The cases will be selected from the published decisions of the Competition Directorate of the European Commission and judgements of the European Court of Justice, and will be rephrased to emphasise the economic issues at stake and sharpen the possibilities for a debate. Participants will be divided in small groups and "hired" as economic consultants to present arguments on behalf of the interested parties. The concluding workshop will simulate a court hearing with the resource persons acting as a jury.

CEU Non-Discrimination Policy Statement

Central European University does not discriminate on the basis of--including, but not limited to--race, color, national and ethnic origin, religion, gender or sexual orientation in administering its educational policies, admissions policies, scholarship and loan programs, and athletic and other school-administered programs.

[ Home ] [ Mission ] [ Courses in 2004 ] [ Eligibility and Funding ] [ How to apply ] [ Latest news ] [ Academic resources ] [ FAQ ] [ Contact Us ] [ Previous Years ] [ Accommodation ]