Newsletter

in this issue.....

CCP: The First Five Yearsand Beyond

Director’s Letter page 1

CCP celebrates fifthanniversary and

renewed ESRC funding Leanne Denmark

page 1

Scandal: Cartels, crimeand the politics of

getting away with it inthe Media

Heather Savignypage 2

Catch me if you can:why complianceprogrammes are

unlikely to protect firmsfrom hefty cartel fines

Andreas Stephanpage 3

Promises, PromisesMorten Hviid

page 4

New research casts lighton Payments Protection

Insurance JudgementJohn Ashton

page 5

Private enforcementdoes exist - new

empirical evidence fromGermany

Sebastian Peyerpage 6

CCP Contact Details:

Tel: +44 (0) 1603 593715 Web: www.uea.ac.uk/ccp

An ESRC Research Centre

CCP celebrates fifth anniversary and renewed ESRC funding

CCP celebrated its fifth anniversary and arenewed funding grant of £4.5 million fromthe ESRC with a visit from US Federal TradeCommissioner, William E Kovacic, whodelivered an inspirational lecture entitled“The International Competition Networkand its Relationship to Academic ResearchInstitutions”.

Professor Kovacic, the E K GubinProfessor of Contracts Law at George

Leanne Denmark, CCP Communications Coordinator

CCP: The First Five Years and Beyond

competition litigation in Germany - themost complete and comprehensive datasetof its kind.

CCP welcomes two new faculty members,Dr Stephen Greasley, a Lecturer in the Schoolof Political, Social and International Studiesand Dr Subhasish Chowdhury, Lecturer inEconomics. Oles Andriychuk also joined theCentre in September as a post doctoralfellow, following completion of his thesis atthe European University Institute on thetheory of dialectical antitrust and itsapplication to sports broadcasting; andLeanne Denmark began her role asCommunications Coordinator, bringingexperience of media, research and humanresources. I am grateful to Leanne for herwork as editorial executive, and to MichaelHarker who has taken over editorship of thisnewsletter. We also welcome several PhDstudents, including ESRC or Universitystudentships: Tim Burnett (Economics), HenryAllen (Political Science), and Sven Gallaschand Ali Massadeh (Law); and we aredelighted to be supporting two masters'students following the LLM in InternationalCompetition Law and Policy. We will beadvertising at least two PhD studentshipsnext year, and welcome enquiries. This alllays the basis for continuing the uniqueinterdisciplinary research in competition andregulation policy at CCP for the next fiveyears and beyond. Please visit our website atwww.uea.ac.uk/ccp to follow ourprogress and events in the months ahead,and get in touch with any comments orquestions.

Welcome to this edition of the CCPnewsletter, where we are celebrating ourfifth birthday and renewed ESRC fundingfor 2009-2014. Our celebration included avisit from US Federal Trade CommissionerWilliam Kovacic, who spent the day at thecentre to deliver a lecture (see below) andhear about our current research projects.

This newsletter illustrates the range ofrecent CCP research. From a politicalscience perspective, Heather Savignypresents some of the preliminary results ofher empirical analysis of the media'scoverage of cartel prosecutions. AndreasStephan continues the theme of cartels,discussing firm compliance programmes andtheir interaction with leniency policies in theUS and EU. As Morten Hviid observes, therecession means consumers are increasinglyseeking out good offers from firms and, inorder to persuade consumers to purchase,firms are offering best price guarantees.Although this may seem to be good from aconsumer perspective, the practice mayreduce incentives on firms to competevigorously. Also from a consumerperspective, John Ashton analyses theCompetition Commission's recent ban onthe bundling of loans and paymentprotection insurance by banks. From hisresearch, it appears many consumers do notfully appreciate the costs of the bundledinsurance product and this would appear tolend weight to the Commission's decision.Finally one of the centre's PhD students,Sebastian Peyer, highlights some of hisfindings from his empirical study of

Director’s Letter Catherine Waddams

Issue Number 18

November 2009Editor: Leanne Denmark

Academic Editor: Michael Harker

Professor Kovacic and Centre DirectorCatherine Waddams

1

Newsletter 18 29/10/09 15:39 Page 1

2

Scandal: Cartels, crimeand the politics ofgetting away with it inthe mediaHeather Savigny, Senior Lecturer in PoliticalScience.

The Conservative MP Peter Viggers claimed £1600 fora duck-house and former MP Ian Gibson claimed£80,000 in mortgage payments for his daughter's flat.These acts are among several which have generatedpages of newspaper coverage and moral outrage,bringing our entire political system into question. Yet

Washington University and one of the most powerfulactors in US antitrust policy as Chairman of the FTC in2008-9, spoke to a lively audience. He also attendedresearch presentations on six of the Centre's currentprojects and met with leading researchers during hisvisit on 12th October.

Professor Kovacic said: “In only five years, CCP hasestablished itself as one of the world's foremostinstitutions for research and teaching in competitionpolicy. Among its many strengths the Centre's facultyembodies a genuine integration of the disciplines ofeconomics, law and political science and it is noaccident that the Centre has attracted superbgraduate students from around the world”.

Centre director Catherine Waddams added: “It wasa great honour to welcome back Bill as one of theleading authorities in competition policy; he hasprovided tremendous support for our work. CCP isnow well known on the international stage and this isthe crucial building block for the development ofcritical young researchers with high aspirations toinform and implement tomorrow's policies”.

CCP was awarded its renewed funding from theEconomic and Social Research Council at thebeginning of September, to continue its work for atleast another five years. The Centre will be exploringfive broad themes; consumers' role in making market'swork, how institutions that support competition policydevelop, the regulation of marker power, theappropriate approach to mergers, and agreementsbetween firms and tacit collusion.

“The Centre's contribution to research andinstruction have significance well beyond theboundaries of the UK and European Union”, ProfessorKovacic added, “It's work is helping jurisdictionsworldwide build the human capital and base ofknowledge that support the development of acompetition system and those of us who work in thisfield are much the better for it”.

the amounts involved in these scandals pale intoinsignificance against the extra £270 million recentlypaid in higher prices by shoppers due to the fixing ofhigher prices for dairy products. While the MPs'expenses scandal has attracted prolonged mediaattention on newspaper front pages and hasgenerated moral outrage in the media, the samecannot be said in respect of the coverage of theinvestigation into price fixing by Tesco and Morrisons.The behaviour of MPs in wrongly claiming expenseshas been presented as illegal, shocking and againstthe public interest. Firms colluding either as cartels orin cases of price fixing are also engaging in illegalbehaviour which is against public interest. Yet farfrom being publicly discussed as illegal andaccompanied by moral outrage, these 'white collar'crimes are presented much less vehemently than thebehaviour of our elected representatives, or those whocommit 'heinous blue collar' crimes, like benefit fraud.As we see MPs deselected as a consequence of theexpenses scandal, it becomes clear that the media playa powerful role not only in shaping public life, but alsoin defining the parameters of what is politicallylegitimate.

So why is it that this kind of moral outrage is muchless likely to follow in cases of cartels and collusion?My research aims to address this question and explorethe ways in which the media frames responses tocartel and price fixing prosecutions. This isunderpinned by a series of questions. In whoseinterests is this coverage constructed? Does thisbenefit businesses at the expense of the effectiveimplementation of legislation? Does this subsequentlyimpact upon the ways in which markets may operate?For example, if businesses perceive they will get areasonably 'easy ride' in the media and this in turn isunlikely to prevent customers purchasing from them,might this incentivise firms to collude or fix pricesgiven that the benefits of so doing may exceed thecosts?

The empirical part of my research is a content anddiscourse analysis of cartel and price fixingprosecutions, which aims to establish the nature ofpress coverage since the criminalisation of this activity.Content analysis is used to establish what the natureof the coverage is. From here, discourse analysis isemployed to reflect upon whose interests arerepresented, and the implications this may have forconsumers. If the purpose of competition policy is topromote and enhance competition and make marketswork for consumers, how well is consumer welfarebeing served in the public arena? Preliminary findingssuggest that despite the potential for consumerinterest being jeopardised, and despite the neoliberalemphasis upon consumer empowerment as aconsequence of markets, the default position withinthe media is to privilege the role of business, which inturn implies that consumers are empowered only tothe extent that business (and the media - notably alsoa business) wants them to be.

Newsletter 18 29/10/09 15:39 Page 2

3

Catch me if you can: whycompliance programmes areunlikely to protect firms fromhefty cartel fines1

Andreas Stephan, Lecturer in Law

Cartel practices including price fixing, market sharing,bid rigging and output restriction need involve littlemore than an exchange of emails or the odd telephonecall, motivated by the promise of higher profits throughless competition. Cartels are considered the most seriousbreaches of competition law and are increasinglyattracting fines in Europe close to the maximum of 10per cent of an undertaking's worldwide turnover in allits operations. It is thought that the threat of largecorporate fines is a strong incentive for firms to 'keeptheir ship in order' by maintaining effective internalcompliance programmes. The danger to firms isintensified by the use of leniency programmes bycompetition authorities, which provide immunity to thefirst firm to self-report an infringement, leaving the othercompanies involved exposed to steep pecuniarypenalties. For example in the Passenger Fuel Surchargescase (2007), Virgin received immunity from fines in theUK and the US (this extended to immunity from criminalprosecution for its employees). By contrast, BritishAirways were fined £121 million by the Office of FairTrading (OFT), $300 million by the US Department ofJustice, and four of its employees are currently pendingtrial under the UK's criminal cartel offence.2

We know little about the proliferation of competitionlaw compliance programmes in Europe. However, apublication on compliance by the American BarAssociation (ABA) provides a snapshot of antitrustcompliance programmes in the US.3 Competition lawcompliance programmes ostensibly protect firms byreducing the scope for future infringements throughtraining, and uncovering potential current infringementsthrough the periodic auditing of company activities. It isthought that the support of senior management isfundamental to a successful compliance programme.Compliance programmes may be ineffective atprotecting firms from hefty cartel fines. There is littledoubt that the employees responsible for hardcorecartels generally know what they are doing is illegal, butchoose to do it anyway in pursuit of collusive profits.This is epitomised by the Lysine cartel meetings filmed bythe FBI in the 1990s in which executives mockedcompetition officials and their customers: “ourcustomers are our enemies”.4 Emails uncovered in anumber of UK cases also indicate very deliberatebreaches of the law. Empirically, there are a number ofadditional characteristics common to hardcore cartels,which raise questions as to how effective complianceprogrammes can be.

First, cartelists go to great lengths to disguise their

collusive activities and avoid detection by competitionauthorities and compliance audits. These include:staggered price announcements or bids to give theimpression of genuine competition; communicatingthrough private email accounts and unregistered mobilephones using encrypted messages; avoiding any contactthrough secretaries or other administrative staff; andavoiding the use of documents at meetings ordestroying them immediately afterwards. These effortshave been so effective, that in a number of cases theEuropean Commission could not be entirely sure thatthe infringement had ceased when delivering itsdecision.

Secondly, most cartels are coordinated by individualsholding senior managerial positions, making it difficultfor firms to deal with such breaches of competition lawsinternally. Table 1 provides an approximate breakdownof the positions held by the individuals involved in 40international cartels. This includes both the individualsdirectly involved in the cartels' operation and thoseexecutives who allowed collusive practices to occur.

Table 1: The executives responsible for collusion

Thirdly, compliance efforts provide no mitigation offines in the US and the EU, even where an effectivecompliance programme is in place. Since 2004, theUnited States Sentencing Guidelines have excludedmitigation for compliance efforts, where 'high-levelpersonnel' (those with price setting authority)participated in the infringement. This has been stronglycriticised by the ABA for discouraging firms fromstrengthening compliance programmes. In Europe, theCommission has the discretion to award mitigation, butso far has chosen not to. In the UK, the OFT did providea 10 per cent discount for compliance efforts in twoearly cases under Competition Act 1998. However, morerecent guidance on compliance appears to indicate ashift in line with fining practice in the US and on theCommunity level.

In jurisdictions where fines are the only sanctionimposed on cartels, compliance programmes may simplyhighlight how the corporation as a whole bears the riskof breaches of competition law by individual employees.In EU Competition Law, for example, it is not unusual forfines to be imposed ten years or more after the cartelwas instigated. If compliance programmes are to

Marketing/Sales

Subsidiary/Business Unit

Group CEO/GM

Local/Regional

0 5 10 15 20

Newsletter 18 29/10/09 15:39 Page 3

4

Promises, Promises!Morten Hviid, Professor of Competition Law

The recession means more people are worrying aboutmissing good offers. Maybe there is a better priceelsewhere or maybe the firm you are consideringusing today will drop its price tomorrow? Searchingtakes time and for those of us who are not naturalbargain hunters, this is not an enjoyable way to spendit. Having spent all that time searching, it would bepretty annoying if you missed a better deal.

The price guarantee can solve these anxieties. Whatif a firm, concerned that customers are searchingrather than buying, could offer peace of mind byguaranteeing that there is no better deal available?And if one did emerge, the promise would offer somesort of compensation, maybe a straight refund of thedifference or even an extra 50% of that pricedifference?

Such a promise could be more or less generousdepending on who (e.g. local firms, all firms or on-linedeals) and what (all products, selected products, notspecial offers) it covered. It could be vague (“neverknowingly undersold”) or specific (e.g. related to aproduct or rival). Firms face a trade-off here. Too manyrestrictions and the costs of making use of theguarantee may mean that it is not worthwhile or not

believed by the consumer. Too few and rivals might(deliberately or not) choose strategies which maymake the guarantee back-fire. For example, a rivalcould slash its price below their avoidable costs,hoping the customers would go to the firm with thegenerous price promise and demand an even lower(and to that firm likely loss making) price. No firmwould then offer a price promise without choosingappropriate restrictions, such as limiting the promiseto particular firms [e.g. local, within a specific radius,non-web based], certain products [e.g. similar,available], or a particular period [e.g. today, within aweek, a month]. Work undertaken with MariaArbatskaya and Greg Shaffer1 demonstrates how therestrictions are chosen carefully to reduce the potentialdownsides.

Even with these restrictions, price promises mayappear wholly beneficial to consumers and this is true,if the main concern is relative prices over price level.However, extensive literature has shown how pricepromises can deliver higher prices by reducingincentives which firms have to compete.

Price promises that relate to rivals' prices (best priceguarantees, price matching or beating guarantees)provide an automatic and immediate response to pricecutting by any rival. This response negates anybusiness stealing effect of the rival's behaviour. A pricepromise therefore reduces the incentive of others tolower their price. Price promises that relate to a firmsown future prices punishes any future pricereductions. A single firm adopting a guaranteecovering both own and rivals' prices could thenremove any incentive on anyone in the industry tolower prices today or tomorrow! This is so even if thecurrent prices are as high as the monopoly level.Worryingly, even if such guarantees could supportexploitative prices, such single firm adoption is unlikelyto be caught by current competition law.2

communicate a credible threat to individual cartelists, acombination of imprisonment, and immunity to the firstwhistle-blower, will be essential.

The increasing number of jurisdictions adoptingcriminal penalties should strengthen the effectiveness ofcompliance programmes, provided those penalties areregularly invoked in cartel cases. Moreover, none of thefactors outlined in this article should render competitionlaw compliance programmes redundant. They serve animportant educational role, helping avert less seriousbreaches of competition law by employees, and thosecommitted out of ignorance. They also harden attitudestowards cartel practices in the long run by creating andstrengthening a culture of compliance within thebusiness community. The decision by British Airways topromote one of the four employees pending trial forprice fixing in the UK, for example, may suggest thatcartel offences are not currently taken as seriously asother forms of white collar crime.5

1 This article is based on a CCP working paper by the same author: A Stephan, 'Hear no evil, see no

evil: Why Antitrust Compliance Programmes may be Ineffective at Preventing Cartels' CCP Working

Paper 09-09 (available on the CCP website www.uea.ac.uk/ccp).2 OFT Press Release, 'British Airways to pay record £121.5m penalty in price fixing investigation' (1

August 2007) 113/07; 'BA price-fixing inquiry: phone conversations under scrutiny' (23 June 2006)

The Guardian, London.3 ABA, Antitrust Compliance: Perspectives and Resources for Corporate Counselors (ABA Publishing,

Chicago 2005)4 James Randall, then President of Archer Daniels Midland. 'Videotapes Take Star Role at Archer

Daniels Trial' (4 August 1998) The New York Times, New York; JM Connor, 'Our Customers are Our

Enemies: The Lysine Cartel of 1992-1995' (2001) Review of Industrial Organisation 18, pp.5-21.5 'BA sales chief on price-fixing charge to join the board' (28 November 2008) Financial Times, London

CCP Annual conference:

Vertical RestraintsCCP 6th annual conference

17-18th June 2010

Vertical Restraints remain an active area both in terms of academic research and policy relevance, with recent advances in theoretical

and empirical understanding, where there is close interaction between economists and lawyers. The conference looks broadly at

Vertical Restraints, particularly how improved economic understanding can be translated into enforcement reality.

More information regarding this event will be on our website, www.uea.ac.uk/ccp early next year.

Alternatively contact Stu White, Centre Manager, on + 44 (0) 1603 591624 or s.white2@uea.ac.uk

1 Arbatskaya, M., M. Hviid and G. Shaffer, , 2004, On the Incidence and Variety of Low-Price

Guarantees: A Case Study. Journal of Law and Economics XLVII, 307-3322 Morten Hviid and Greg Shaffer, 2009, “Matching Own Prices, Rivals' Prices, or Both”, Forthcoming in

Journal of Industrial Economics [see also CCP Working Paper 08-26]

Newsletter 18 29/10/09 15:39 Page 4

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New Research Casts light onPayments Protection InsuranceJudgement

John K Ashton, Senior Lecturer in Regulation,Norwich Business School and Robert Hudson, Newcastle University BusinessSchool

On 7 September 2009, Barclays bank appealed one ofthe remedies forwarded by the CompetitionCommission from the Payments Protection Insuranceinvestigation published in January. Specifically, Barclaysis challenging the restriction on the point of sale ban,prohibiting the sale of payment protection insurancewith loan or credit products at the time of sale and upto seven days afterwards.1

The magnitude of this Competition Commissionremedy was substantial and far reaching. First,payments protection insurance which is used to coverrepayments on personal credit which may arise fromunemployment and/or sickness is very large. TheCompetition Commission reported that gross writtenpremiums for £3.8bn were paid for paymentprotection insurance in 2007. Indeed, banksinternationally are increasingly reliant on the feeincome provided by products such as these, as profitsfrom traditional banking functions have declined inthe last decade.

Secondly, the wider movement towards bothproducing and selling banking and insurance productsjointly was a major aim of financial de-regulationmovement of the 1980s and 1990s. This allowed'bancassurance' and universal banking models offinancial services production and distribution to arisein the European Union and latterly in the UnitedStates. By banning the joint distribution of loan andinsurance products, the Competition Commission'sdecision provides a rare retreat from the movementtowards the joint distribution of financial services. Thismay also reflect the more critical assessments offinancial deregulation which have arisen in recentyears.

Acknowledging the major implications of thisCompetition Commission investigation of paymentprotection insurance and the subsequent appeal, it isimportant to question whether the point of sale banjustified. Recent research from CCP casts light on thisissue by examining two related research questions.

• Is payment protection insurance used to cross-subsidise lending?

• Have all banks acted to the detriment of customersor have the actions of a few banks lead to aprohibition across this entire sector?

These questions were investigated using boththeoretical and empirical approaches. Initially atheoretical model of the joint provision of creditinsurance and unsecured lending was developed. Theprinciples underlying the model included:

• Cross subsides may flow between the pricing of aprimary good, here an unsecured personal loan, andan add-on good, the payment protection insurance.• Customers with weaker decision making abilitiesmay be exploited by the joint pricing of loans andpayment protection insurance. This process can occurif they consider only the price of the loan whenpurchasing a loan and insurance product. Moreinformed customers will make purchase decisionsbased on all cost information.

The model provided three predictions. First, the jointpricing of unsecured loans and payments protectioninsurance by profit maximising banks will occur andleads to a cross subsidy from less to more informedconsumers. Second, it is the joint sale of credit withinsurance, rather than variation in the customers'decision making abilities that drives this result.Therefore an emphasis on improving financialeducation whilst always welcome will not amend thissituation. Lastly, in the case of banks which do notprofit maximise, such as mutually owned buildingsocieties, cross subsidies between these paymentprotection insurance and credit do not necessarilyarise.

The empirical examination tested these predictionsusing monthly UK data on the personal unsecuredlending market. The data included the costs of 211different loan products with and without paymentprotection insurance offered by 85 different suppliers.The unsecured personal loans were of £5000 to berepaid over three years.

Employing parametric and non-parametric tests, it isreported that the cross-subsidy of unsecured personalloans from payments protection insurance isstatistically significant. Secondly, building societies areless likely to set proportionately higher paymentprotection insurance premiums. This indicates not allbanks have acted to the detriment of customers to thesame degree.

A further and striking finding from this empiricalresearch was the degree of variation in the relativecosts of loans and payment protection insurance. For

Newsletter 18 29/10/09 15:39 Page 5

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personal unsecured £5000 loans, the averagedifference between the highest and lowest cost was£190 or around 3 per cent of the relevant three yearcost. The average difference between the highest andlowest associated payment protection insurance costswas £142 or 21 per cent of the total three year cost.This indicates a far higher level of dispersion forpayment protection insurance costs relative to thevariation in the unsecured personal loan costs. This isconsistent with a far more competitive loan marketrelative to the payment protection insurance market.

Table 1: Average Total costs of Unsecured PersonalLoans and Payment Protection Insurance for £5000borrowed and to be repaid over three years.

Similar level of dispersion are also present whenconsidering individual firms providing joint unsecuredpersonal loans and payment protection insurance.Within Table 1, a truncated sample of firms providingthese joint products is reported. The table considersthe average costs for £5000 unsecured personal loansrepaid over three years and associated paymentprotection insurance. Further the costs of paymentprotection insurance as a percentage of total loan andinsurance costs are also reported. It is clear thatsubstantial variation exists between firms in the pricingof these loans and deposits and clearly not all firmsbehave uniformly in this market.

Private enforcementdoes exist - newempirical evidence fromGermanySebastian Peyer, PhD student

Discussing ways to improve private enforcement of theantitrust laws in Europe is en vogue. In contrast to theUS, where the very early laws against monopoliesalready permitted victims to pursue their rightsprivately, the focus in Europe has long been on publicagencies enforcing the antitrust prohibitions. Over thelast decade, policy interest in Europe has turnedtowards private enforcement of the competition laws.

In summary, this research lends support to theCompetition Commission's ban on the joint selling ofloans with payment protection insurance. In particular,it shows that profit maximising banks cross-subsidiseunsecured loans using overpriced payment protectioninsurance. This can have a negative impact onconsumers who obtain loans with payment protectioninsurance product bundles, yet consider only the loancost when making this decision. It is also clear that notall firms have priced loans and payment protectioninsurance in a similar manner.

As with all academic work, reservations do exist.Initially within all assessments of payment protectioninsurance premiums, it is important to remember thepremium will also reflect expected payout on thepolicy. A firm with a more risky clientele, more likely todefault on their repayments, is justified in charginghigher premiums. Similarly all unemploymentinsurance is influenced by economic cycles and willhave lower levels of payout in periods of economicgrowth. Lastly, it is important to remember thatdespite widespread public, regulatory and mediacriticism, payment protection insurance can still be auseful insurance product. Protecting people from theadverse financial consequences of unexpected eventsis, and will remain important, for both individuals andsociety. To ensure this may be achieved, through othermeans if necessary, should remain an important policyconsideration.

1 In clarification, Barclays is also appealing the market definition employed in this enquiry, and is

supported by the Lloyds Banking Group in this appeal. The Competition Commission also banned the

use of single premium payment protection policies and demands greater provision of information for

the sale of payment protection insurance. These further remedies are not challenged in the appeal. All

the Competition Commission Remedies will come into force during 2010. The appeal is to be heard by

the Competition Appeal Tribunal and is expected to report in the next two months.

Coventry BS

Saffron Walden BS

Skipton Building Society

Bank of Ireland

American Express

Newcastle BS

Nationwide BS

CVC Capital Partners

HBOS

Discover

General Electric

British Gas

Bank of Scotland

The Funding Corporation

Britannia

Capital One Bank

AverageTotal loancost (£)

5697

5502

5502

5756

5673

5671

5710

5737

5887

5671

5554

5548

5893

5685

5980

6361

AverageTotal

insurancecost (£)

511

551

551

592

590

586

597

1022

1067

1043

1033

1044

1126

1090

1154

1291

Insurancecost of

total cost (%)

8.2

9.1

9.1

9.3

9.4

9.4

9.5

15.1

15.3

15.5

15.7

15.8

16

16.1

16.2

16.9

Newsletter 18 29/10/09 15:39 Page 6

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Within just a few years civil claims have mostly beenaccepted as an additional enforcement mode on EClevel and in the Member States.

If properly devised, private antitrust actions haveseveral advantages. Private enforcement utilises thesuperior knowledge of market participants to detectand convict culprits. It can add to the scarce resourcesof the public enforcer if violators are condemned incourt. Minor cases that are not taken up by thecompetition agency can be pursued privately. Thus,private antitrust enhances the deterrence effect ofcompetition law enforcement and, in the case ofdamages actions, helps the victim to recover losses.An additional, although hardly measurable, effect isthe increasing awareness of competition law.

The late awakening of policy makers in Europe hasbeen followed by a good deal of activity to call upprivate enforcement from its presumed state ofhibernation. Those efforts culminated in thepublication of the European Commission's GreenPaper of 2005 and White Paper of 2008 analysingprobable obstacles to private antitrust damagesactions for the breach of EC competition law andviable policy options to overcome those impediments.1

The Papers were underpinned by two studies which,although not primarily aimed at empirical research,attempted to shed some light on the state of privateantitrust enforcement in the Member States.2 Despitethese time-consuming and costly efforts little is knownabout private antitrust litigation in Europe.3

Nevertheless, it is commonly characterised as beingunderdeveloped. Due to a lack of data in Europe thesuggestions in the Green and White Paper often referto the US experience - an approach that has its pitfallsbecause of the unique procedural setup in the US. Ingeneral, the debate and the well-intended policyproposals suffer from a lack of real-world data onprivate enforcement of both EC and national antitrustrules. Information from civil law jurisdictions isespecially in short supply. The two major studies onEuropean private enforcement that also undertook,inter alia, empirical research did not find muchevidence for EC damages litigation let alone successfulcases. Furthermore, these reports did not attempt togather data about private enforcement of nationalcompetition laws.4

A new empirical study into private antitrustenforcement in Germany offers some insights into themagnitude and nature of private competition lawactions from 2005 to 2007. Initially based on decisionsGerman civil court notified to the German FederalCartel Office, I subsequently revised and extended thedatabase to collect all German private antitrust cases.Among other things, the study contains informationabout the court, parties, industry in which thelitigation took place, remedies and their outcome, and

alleged illegal behaviour. The data collection focusedon core competition law claims; that are actions forthe violation of Art 81 and 82 and the Germanequivalents.

In setting up the database several obstacles had tobe overcome, mostly due to missing or incompleteinformation. I have uncovered most litigated Germancases in the observation period, however, the realnumber is presumably higher due to unreported cases,non-existing information about settlements, andpotential reporting backlogs. A considerable numberof cases were excluded since I could not clearlyestablish the nature of the competition law claim.5

Despite those precautions the study revealed asurprisingly high level of private litigation for theinfringement of competition law: between 2005 and2007, 439 private antitrust cases were concludedbefore German courts. Compared with publicenforcement activity those 439 antitrust casesrepresent a significant share in the overall enforcementscheme. Counting completed investigations of theFederal Cartel Office and civil actions, private claimsaccount for more than 40 per cent of all competitionlaw cases.6 However, in contrast to the litigated cases,which almost exclusively ended with a court decision,most investigations of the Federal Cartel Office weredropped or settled. The Office concluded only 22inquiries with a fine or prohibition during theobservation period.

Figure 1: Private and public antitrust cases in Germanyfrom 2005 to 2007

Figure 1 shows the ratio and development ofcompleted public investigations and private claimsdistributed over the three years of the study. Weobserve a drop of both public and private cases. Thereasons for this decline are obscure. It is somewhatcounterintuitive because the German legislatorintroduced measures to strengthen antitrust (damages)

350

300

250

200

150

100

50

0

318

183161 153

95

135

200720062005

Continuation ofcontact/delivery

Private cases

Public cases

Public and private cases 2005 to 2007

Primarily sought remidies in % of total

3.9 % of totalConclusion of

contact/delivery 9.8

Damages 11.4

Other injunctions 13.9

Interim relief 13.0

Other 13.0

Unjust enrichment 9.1

Voidness 22.8

Newsletter 18 29/10/09 15:39 Page 7

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actions in 2005. Maybe those measures, intended tofacilitate private claims, prompted defendants to settleearlier or the development of private cases is, to someextent, dependent on the decreasing number of publicinvestigations.

Private antitrust enforcement is often viewed merelyas actions for damages. The White Paper proposals,for instance, focus exclusively on compensatoryactions. In contrast, the data from Germany showsthat private antitrust cases are far more spread out asillustrated in Figure 2. Plaintiffs pursue competitionlaw violations using the full range of court imposedcivil law remedies such as restitution claims,injunctions, interim relief, and void requests. Damagesare pursued in 11.4 per cent of all primarily soughtremedies. Claimants asked more often for injunctionsin which the defendant was requested to stop arefusal to deal and continue or conclude a contract.Interim remedies, which normally require thedefendant to do something or refrain from certainbehaviour without granting a decision on the merits ofthe case, were also somewhat more popular thancompensatory claims. In a lot of cases partiesrequested the judge to declare a contract void. Mostof those claims were brought forward by the initialdefendant; that means that the alleged violation ofantitrust was used as a defence (counterclaim) against,for instance, payment claims. The variety of appliedremedies poses the question whether policy makersare right to focus on damages actions. We couldinterpret the results either way. Yes, it is right to focuson damages actions because there are not that many.No, it is wrong because plaintiffs prefer other, maybeless costly, remedies. In any case, before implementingmeasure to solely strengthen private damages actionsthose issues need to be addressed.

Figure 2: Primarily sought remedies in antitrustlitigation in Germany from 2005 to 2007

The current discussion about private enforcement ofantitrust laws focuses on the application of ECantitrust rules. In Germany, the vast majority of claimsare based on the infringement of national competitionlaw. About three quarters of the cases primarily citedprohibitions of the Act Against Restraints ofCompetition. Most German antitrust rules resembleEC competition law. The Act Against Restraints ofCompetition provides prohibitions of vertical andhorizontal constraints as well as abuse of dominancesimilar to Art 81 and 82 of the Treaty. However, inaddition to that, German law also prohibits the abuseof an economically strong position waiving thedominance pre-requisite in certain circumstances. Inthat respect national provisions are broader than EClaw. Whether or not this specific German characteristicprompts potential victims to sue for the breach ofGerman rather than EC law cannot be said on thebasis of the available data. It raises the question,though, whether we need more European law to beapplied or, assuming that the German equivalents aresufficiently similar, competition law is enforced inequal measures through national provisions.Some preliminary conclusions may be drawn from thedata. First, we know little about antitrust litigation inthe Member States. Before devising and amendingnational laws, we should scrutinise the nature ofprivate enforcement of the competition laws. Second,the assumption that private enforcement isunderdeveloped does not hold true for Germany.Admittedly, we observe fewer applications of the ECantitrust rules and not that many damage claims as,for instance, in the US. However, the question iswhether we need more enforcement of EC rules toeffectively preserve competition and welfare if thesame can be achieved with private enforcement ofsimilar national competition law rules. Third, it is alsoimportant to ask why claimants do not ask fordamages more often. More empirical work is definitelyneeded to understand the true nature of privateantitrust enforcement in general, and in civil lawjurisdictions in particular.

1 European Commission, “Green Paper - Damages Actions for Breach of the EC Antitrust Rules”

(Brussels 19 December 2005); European Commission, “White Paper on Damages Actions for Breach of

the EC Antitrust Rules” (Brussels 02 April 2008).2 Denis Waelbroeck, Donald Slater, Gil Even-Shoshan, “Study on the Conditions for the Claims of

Damages in Case of Infringement of EC Competition Rules - Comparative Report” (Brussels 31 August

2004) (Ashurst Study); Andrea Renda, John Peysner, Alan J. Riley, Barry J. Rodger; Roger J. Van den

Bergh, Sonja Keske et al., "Making Antitrust Damages Actions More Effective in the EU: Welfare

Impact and Potential Scenarios” Final Report for the European Commission (Brussels, Rome, Rotterdam

30 March 2008).3 See for the UK though: Barry J. Rodger, "Competition Law Litigation in the UK Courts" (2006) 27(5)

European Competition Law Review 241; Barry J. Rodger, "Private Enforcement of Competition Law,

the Hidden Story: Competition Litigation Settlements in the United Kingdom, 2000-2005" (2008)

29(2) European Competition Law Review 96. 4 The European courts do not have jurisdiction over private legal actions for the breach of Art 81 and

82 or national competition law. Those proceedings takes place before the courts of the Member

States.5 It may also balance for potential double-counting issues.6 Without decisions of the European Commission and the competition authorities of the Federal

States.

350

300

250

200

150

100

50

0

318

183161 153

95

135

200720062005

Continuation ofcontact/delivery

Private cases

Public cases

Public and private cases 2005 to 2007

Primarily sought remidies in % of total

3.9 % of totalConclusion of

contact/delivery 9.8

Damages 11.4

Other injunctions 13.9

Interim relief 13.0

Other 13.0

Unjust enrichment 9.1

Voidness 22.80.0 5.0 10.0 15.0 20.0 25.0

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