Research

The main areas of research in the Regulation and Competition section are:

• Consumer policy
• Competition (concentration, market delineation, cartels, abuse of economic power)
• Media
• Network sectors
• Regulation
• Professional services
• Self-regulation

Consumer policy

The free market is not an end in itself, it is a means to increase welfare – particularly that of the consumer. To maximise the benefits obtained from competition, it is important that the consumer knows as much as possible about the market – that is, that it be transparent – and that the switching costs be as low as possible. If the consumer is properly able to assess a product's value for money, competing suppliers will be encouraged to offer them the best deals. Conversely, it is important to know when consumers do not have access to enough information about the product or if they are locked in because the effort or cost involved in switching to another supplier are too high. The Regulation and Competition section carries out many research projects concerning the transparency of quality and the consequences of intransparency, as well as the role of switching costs and consumer protection. For example, we have looked at "naming and shaming", at quality transparency in experience goods and at switching costs as part of a competition, deregulation and legislative quality (MDW) project.

Competition

Dutch and European competition laws forbid certain types of anticompetitive behaviour. In the Netherlands, competition policy and regulation are becoming more economic in nature. This means that assessments of anticompetitive behaviour are increasingly considering its actual economic effects rather than simply its legal form. The Regulation and Competition section regularly carries out work in this area on behalf of the Netherlands Competition Authority (NMa), lawyers or individual companies carrying out self-assessments. The key topics covered are as follows.

Delineating the relevant market. The relevant market is a primary criterion upon which issues in competition law are assessed. Market delineation is primarily an economic activity. We delineate markets by looking at the relationship between price changes, sales and profits for particular groups of products in a particular geographical area, using the SSNIP test. The Regulation and Competition section has carried out a number of such delineations, of both geographical and product markets, some of them confidential.

Assessing agreements between companies in the light of the ban on cartels (Article 6 of the Dutch Competition Act or Article 81 of the EU Treaty). This general prohibition makes no distinction between horizontal agreements and vertical ones, although these are clearly different. Horizontal agreements are those between competitors, whereas vertical agreements are those made between suppliers and buyers who work together to bring a product to market. That distinction is drawn elsewhere, however (in Regulation 2790/1999), by providing a group exemption for vertical agreements. Since May 1st 2004, companies themselves have to check that they are complying with the rules by means of self-assessment. The Regulation and Competition section is well-practised in the evaluation of both horizontal and vertical agreements. Thanks to our experience with cost-benefit analyses and valuation studies, as well as our general knowledge of industrial organisation, we are also skilled in calculating the damage caused to third parties by cartel agreements.

Assessing mergers and takeovers in the light of requirements under national and European legislation (Article 34 of the Dutch Competition Act and European Commission Regulation no.802/2004). A merger or takeover may create or reinforce a position of economic dominance which, under certain circumstances, could lead to anticompetitive behaviour on the part of the new company. Again, companies themselves have to check that they are complying with the rules since May 1st 2004.

Investigating whether or not certain behaviour can be defined as abuse of a position of economic dominance (Article 24 of the Dutch Competition Act or Article 82 of the EU Treaty). Such behaviour might include the overpricing or underpricing of goods, or offering loyalty discounts. This aspect of the competition legislation is generally applied very rarely in an economic way, so there lies a huge challenge to achieve more effect-based assessment of behaviour.

Assessing government support for private companies in the light of Articles 87 and 88 of the EU Treaty, which forbid such activities if they might distort competition or unfavourably affect free trade between the member states.

Investigating problems arising when government agencies enter the market – specifically, competition-related problems which can arise when government bodies are active in a market at the same time as enjoying financial or other benefits not shared by the private enterprises operating in it, or the problems which come about when the government grants private companies a privileged position in exercising certain obligations which they can then turn to their advantage in other markets. The Regulation and Competition section has considerable experience in charting such problems.

Media

The media economy embraces a broad spectrum of outlets, from books and newspapers to television, radio and the Internet. The Regulation and Competition section has carried out a number of research projects in this field, some of them confidential. One example is a study into the workings of the market for school textbooks and academic books, and the role played in it by horizontal and vertical agreements. There has also been extensive research into copyright, covering both its economic significance and its possible disruption of the free market in such sectors as games and music. There is often a close link between media and advertising. The section has also conducted research into the economic importance of advertising. Moreover, the Culture and Economics study has looked in depth at the economic significance of certain media.

Network sectors

Network sectors include gas, electricity, water supply, sewage, telephony, cable distribution, television, radio, postal services, rail and other public transport systems, airports and refuse collection. What all these have in common is that providers use infrastructures to supply their products and services. In many cases these are physical networks – water mains, cables, rails and so on – but they can also be systems consisting of so-called "hubs" at which movements originate or terminate, or through which they are routed or at which conversion takes place. Bus stations, sewage works and post boxes are all hubs, but so too are broadcasting or mobile telephony transmitters. From an economic point of view, network sectors are interesting because control of the infrastructure is often associated with market power. That may be derived from the economic and technological nature of the production structure (are there economies of scale associated with the network?), or it can be the result of existing legislation. For these reasons, research by the Regulation and Competition section often focuses upon the regulation of network access or charges, or whether it is desirable to split the network from the rest of the business column.

Regulation

An unregulated private monopolist can set any price it wishes. In so doing, it will consider only its own profit and value as a company – which is its duty to the shareholders – not what is best for society. One possible response to this by government or a regulator is to impose so-called "rate-of-return regulation". This quite simply forbids the monopolist from making excess profits. In deciding how much regulation to apply, such factors as the weighted average costs of capital (WACC) and the capital asset pricing model (CAPM) need to be considered. Another possibility is the introduction of price regulation in the form of price ceilings, price caps or CPI-x regulation. In its pure form, this completely ignores companies' internal cost structures, capital investments, reasonable rate of return on capital and so on, instead concentrating solely upon the prices charged. These may be adjusted annually in line with inflation, as recorded in the consumer price index (CPI), but in real terms have to fall annually by a fixed percentage, "x". If and when new entrants to the market create true national competition, price regulation should become unnecessary. But if new entrants merely create a regionally divided market, then it is conceivable that even the competition at the regional boundaries is imperfect and so price regulation needs to be retained. In that case, benchmark competition may be the natural successor to a price ceiling. In recent years, the Regulation and Competition section has conducted much research into the best ways of regulating network sectors such as gas, electricity and postal services, as well as non-network sectors like the market for the disposal of dead cattle.

Professional services

Despite the nam – liberal professions – the markets for professional services actually are not that free. In most cases, it is mired in government and/or self-regulation. What does that mean for the extent of competition in these markets? In recent years, the Regulation and Competition section has conducted a number of studies examining the effects of government regulation and self-regulation upon the markets for legal liberal professions. One example is an economic analysis of the so-called domain monopoly enjoyed by lawyers and civil-law notaries. We also study the results of freeing markets by removing legal barriers to entry and introducing greater transparency. The professions in question here are estate agents, patent agents, notaries and translators and interpreters.

Self-regulation

Well-known tools of self-regulation include certification, covenants, arbitration and codes of conduct. Self-regulation means that groups in society assume some of the responsibility for developing, implementing and/or maintaining the rules by which they are governed – if need be, within a statutory framework (conditioned self-regulation). The Regulation and Competition section possesses considerable knowledge of these methods, having inventoried 22 of them in a series of studies. The methods were described in detail and a framework for cost-benefit analyses was established to allow the choice between self-regulation and government regulation to be made. A road map has also been created that shows its users which self-regulatory tool is the most appropriate for the particular problem at hand by asking a number of questions (is regulation needed? is self-regulation an option? if so, which self-regulatory tool is the most suitable). Click here to see the full road map (in Dutch).