In Auckland on 10 September (just under two weeks away) the Law and Economics Association of New Zealand (LEANZ) is putting on a special event with the ComCom’s top competition economist (Lilla Csorgo) and top competition lawyer (David Blacktop) talking about the new guidelines.

Details from the mailout below:

Topic:            New Mergers and Acquisitions and Authorisation Guidelines

 Speakers:       David Blacktop, Principal Counsel, Competition, Commerce Commission

Lilla Csorgo, Chief Economist, Competition, Commerce Commission

 Venue:             Russell McVeagh, Level 30, Vero Centre, 48 Shortland St, Auckland

Time:               5.15 pm for 5.30 pm start, followed by refreshments

RSVP:              email:  kate@covec.co.nz or phone: (09) 916 2015

This is a special event in addition to the regular LEANZ Auckland seminar series.

New Mergers and Acquisitions and Authorisations Guidelines

The Commerce Commission has recently published new Mergers and Acquisitions Guidelines and Authorisation Guidelines, more than ten years since the last version of one of these guidelines was published. This talk will explain the changes included in the new guidelines.

We find that decisions involving the evaluation of complex economic evidence are significantly more likely to be appealed, and decisions of judges trained in basic economics are significantly less likely to be appealed than are decisions by their untrained counterparts. Our analysis supports the hypothesis that some antitrust cases are too complicated for generalist judges.

One of the authors has an interesting and detailed (for a blog post) discussion here. It’s certainly a worthwhile topic for investigation, since the decisions in these cases can be extremely expensive for the parties involved. If there is enough evidence, does it point to the need for specialist judges in this field?

My initial reaction to this was a worry that by vertically integrating to compete against Apple, this might discourage non-integrated phone makers (such as Sony, Samsung and HTC) from using Android. The argument being that by virtue of the vertical integration, Motorola would have an advantage over other phone manufacturers who use Android (e.g. closer hardware/software integration ala the Apple model).

However, signs point to this being a patent play in response to RIM, Microsoft et al buying up the Nortell patents (which Google has complained to the Antitrust authorities about). The worry being that threats of legal action or patent fees will make Android costly to install on phones.  By acquiring Motorolo’s IP this gives Google something to fight back with (i.e. the ability to threaten to counter-sue).

So hopefully Motoroloa continues to be run as a separate company competing against Sony/Samsung/HTC etc., while Google’s control of Motorola’s patents gives these companies some more legal certainty.

For more reading check out Chris Keal’s piece at the NBR and a pretty detailed piece at the WSJ

UPDATE: A neat info-graphic which shows “who is suing who” in the smartphone wars (HT: @d7street and the NBR article already linked)

Originally, the article was a little different.  It was a direct attack on the paternalism implicit in the policy making associated with the anti-drug crusade and the policy target of minimising harm.  Fundamentally, this is a critique of what the Law Commission has done – they are an independent body that should critique how the law differs from the target of policy (which they do well IMO) AND critique where policy differs from its practical aim (something they haven’t done).  Often the implementation of laws differs from policy because the policy is bad!

The last three paragraphs from this far more libertarian style article were:

However, why as a society are we determined to stop people hurting themselves?  Part of life is learning to take responsibility when your own choices and actions hurt you – having a government act in a paternalistic way to stop this, and make it harder for people to learn about individual responsibility, seems dangerous to me.

Even if we do have sufficiently little faith in our fellow man, and believe that the government should act like our parents, is this type of policy intervention equivalent to good parenting?  A good parent will set some boundaries, but also give a child the opportunity to learn from their mistakes, and will be there to help if things go wrong – only a bad parent would focus only on potential harm and ignore any benefit to the child when setting boundaries.  In this sense, even the most paternalistic people must agree that solely focusing on harms from any action is a poor way to ensure that we have the happiest society possible.

Ultimately, I’m of the opinion that a truly civilised society must be based on compassion, not control – it should be based on people’s happiness and freedom, not the desire of some policy wonks to create their ideal world.

Comments and criticism of this view welcome.

Update: Relevant points from Eric Crampton (Uni of Canterbury/Offsetting Behaviour) and Luke Malpass (Centre for Independent Studies).

Now, it was pointed out to me that an open source alternative, “Open Office” is compatible with MS Office, and has most all of the same functionality. There would have to be some retraining, however, to ensure that everyone could use it correctly.

It was put to me that my organisation could save quite substantial sums (even after the cost of retraining for its use) from changing to this alternative, and that there would be very few costs to the change.

I searched for reasons why this person was wrong:

• We work collaboratively with a lot of other organisations, and need to be using the same software. But apparently they are completely compatible.
• The support that microsoft offers means it is much safer to use MS office. I can’t recall the response, but apparently this isn’t a big deal.
• People just won’t retrain and will insist on using MS Office because it is what we know. My friend scoffed with contempt.

Why do we all pay so much to use Microsoft intellectual property? I have my suspicions why, but would like to hear from others.

Now I am going to defend it.

Say that we have a situation where firms in the economy are all oligopolies, and all set prices as their “‘choice”. When demand was rising these firms increased prices, and furthermore managed to implicitly collude to some degree (tacit collusion).

Now, when demand falls, each firm still has their “high” price but their output declines markedly. These firms realise that they each face a “relatively elastic” demand curve – such that they can cut the price they charge and the increase in revenue they experience will dwarf any increase in costs from having to produce more (especially as they will have capacity for this extra production, given that they were previously producing at an even higher level). So it is in the individual firms interest to decrease prices!

However, the firms in the industry realise that this incentive also holds for all the other firms. As a result, they know that if everyone acted on this incentive the demand that a specific firm faces would decline (as the price of substitutes would fall) and overall they would EARN LESS than if the whole industry kept prices up.

So we have a prisoner’s dillema, if the firms can co-operate and keep prices up they are all better off. However, there is the incentive for an individual firm to “deviate” by cutting prices.

As a result, we could be in a situation where, given the history of competition, firms in these industries are still “tacitly colluding”, and are thereby holding up prices in the face of falling demand.

When the Bank then tells people that prices are unfair, they increase the elasticity of the demand curve near the current price by even more – as people value “fairness” and they inform the consumer that things are unfair – this increases the incentive to deviate. Also, by doing so they make the firms feel bad – which further increases the incentive to deviate.

Once one firm has deviated, the collusion is likely to collapse like a pack of cards – as a result it may only take a small push by the RBNZ to get us from the collusive equilibrium to another equilibrium with lower prices and higher output.

This is my defense of the speech against the railing criticism I raised yesterday.

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The Commerce Commission is concerned about the monopoly position that the manufacturers have but, recognising the convenience of a single contractor, recommends that the schools use a tender process to ensure value for the parents. The problem with this suggestion is that the school’s incentives are not aligned with the parents’ incentives. Schools place a higher weight on the revenue received by the school, while the parents place a high weight on having low priced uniforms.

What I don’t understand is why the schools choose to raise revenues by selling monopoly rights to their uniforms. Surely the school and the parents both want high quality, well funded schooling and are natural allies here. The parents also want cheap uniforms, but neither of them have an incentive to pass surplus to the clothing manufacturer. The obvious solution would be for the parents to pay the school the money that it would have received from the most ‘generous’ clothing manufacturer, and for the school to then award the clothing contract to the cheapest manufacturer. That way the school would be no worse off, the parents would be better off and they would not have passed surplus on to the manufacturer.

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On the one hand I’m sure that crusaders against the use of market power to extract rents will be excited that the world’s most famous spy has joined their ranks. On the other hand, I’m not sure you need a particularly devious plan to get a tin-pot dictator to sell you some water rights. I’m also not sure that MI6 is in the business of enforcing Western anti-trust laws in South America. If they are though, agnitio should be looking over his shoulder cos they’ll be here soon!

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What is particularly interesting is that they are including Fixed to mobile (FTM) as well as Mobile to mobile (MTM) in this investigation. This is interesting because they already investigated FTM back in 2004 (see the ridiculous amount of submissions that occur ed during that investigation here). So pretty much everything is on the plate this time round. It will be interesting to see what happens:)

Agnitio