Reflections on the International Competition Network (ICN) at 15: Steady Progress and Major Long-Term Challenges

COMMENTARY Economic and Property Rights

Reflections on the International Competition Network (ICN) at 15: Steady Progress and Major Long-Term Challenges

May 18, 2016 7 min read
COMMENTARY BY

Former Deputy Director, Meese Center

Alden Abbott served as Deputy Director of Edwin Meese III Center for Legal and Judicial Studies at The Heritage Foundation.

Introduction

In my role as a “non-governmental advisor” (NGA), I was privileged to attend and participate actively in the 15th Annual ICN Conference, held in Singapore from April 26-29.  (I have blogged previously on ICN annual conferences and policy initiatives, see here, here, and here.)  As a virtual network of national competition law agencies (“national competition authorities,” or NCAs, such as the U.S. Federal Trade Commission (FTC) and the U.S. Justice Department’s Antitrust Division (DOJ)) and expert NGAs from around the world, the ICN supports convergence toward consensus-based “best practices” in competition law enforcement and policy:

The ICN is unique as it is the only international body devoted exclusively to competition law enforcement and its members represent national and multinational competition authorities. Members produce work products through their involvement in flexible project-oriented and results-based working groups. Working group members work together largely by Internet, telephone, teleseminars and webinars.
Annual conferences and workshops provide opportunities to discuss working group projects and their implications for enforcement. The ICN does not exercise any rule-making function. Where the ICN reaches consensus on recommendations, or “best practices”, arising from the projects, individual competition authorities decide whether and how to implement the recommendations, through unilateral, bilateral or multilateral arrangements, as appropriate.

Since its founding in 2001, the ICN has evolved from a small club of fifteen agencies and a few NGAs (mainly from North America and Europe) to a robust organization comprising over 130 NCAs and numerous NGAs from around the world (although admittedly the majority of NGAs continue to come from developed countries).  Due to its lack of a centralized bureaucracy and the absence of top-down control by national governments, the ICN has been able to tackle concrete issues in a pragmatic and incremental fashion, drawing upon the insights of leading scholars as well as former and current NCA heads.

Summary Assessment of ICN Achievements

As the ICN turns fifteen, a bit of stock-taking is in order.  Here are some of my observations, based upon my decade-long involvement with the ICN:

  1. The ICN has significantly promoted the reduction of transactions costs involved in merger filings, through its recommended practices for merger notification and review procedures. This tangible benefit has gained importance with the proliferation of merger filing requirements around the world.  Although many regimes have yet to fully adopt the recommended practices, their influence has grown steadily.  Furthermore, the ICN’s Merger Working Group has leveraged this success to promote greater cooperation among NCAs in merger evaluation and a greater acceptance of economics-based merger analysis principles – factors which may also be expected to reduce transactions and error costs.

  2. The ICN’s Cartel Working Group has done an impressive job in promoting cooperation among NCAs in the detection, investigation, and prosecution of international cartels. Hard core cartel agreements involve the one type of business arrangement that unequivocally diminishes economic welfare, and therefore merits condemnation.  ICN work products related to cartel enforcement, including detection, punishment, investigative techniques, and information sharing (supplemented by hands-on workshops), continue to raise the quality of anti-cartel cooperation and new agency involvement in cartel enforcement.  Future challenges for this Working Group include the strengthening of corporate compliance programs worldwide to deter cartel activity, and dealing with private enforcement as a supplement to public anti-cartel efforts (European Union nations and other jurisdictions are beginning to introduce private competition law enforcement).

  3. The ICN has developed taped training modules and related documentary resources, centered on case-specific hypotheticals and economic analysis, that may over time raise the quality of substantive antitrust analyses carried out by NCAs, especially new and inexperienced ones. Although the influence of these materials may only be gradually felt over time, and cannot be quantified, discussion at the Singapore Conference suggests that they are being consulted more frequently.  These materials ideally will help reduce error costs in enforcement by dissuading enforcers from adopting economically irrational approaches to case analysis (although the materials cannot, of course, guarantee against the possible interjection of non-economic policy factors and extraneous political considerations in the assessment of particular matters).

  4. The ICN’s Working Group on Agency Effectiveness holds real promise for enhancement of the quality and efficiency of NCA decision-making. In particular, the Working Group’s recently developed ICN Guidance on Investigative Process provides useful guidance on investigative transparency and due process that, if followed, would help reduce widespread concerns about lack of procedural fairness in competition investigations, particularly those carried out by inexperienced NCAs.  Nevertheless, it must be recognized that calls for increased attention to due process in such investigations, by DOJ, the FTC, and corporate representatives, have met with limited success at best.  This may partly reflect the different view of due process found in civil law systems, which rely on inquisitorial proceedings guided by government officials rather than the common law adversary process.  It may also reflect concerns about having the nature of agency decision-making exposed to too much “sunshine,” particularly in young NCAs that have limited resources and inexperienced staff.  Improvements in procedural fairness thus may be expected to proceed slowly.  Even recognizing this, however, the Agency Effectiveness Group is engaging proactively in such issues as strategic planning and prioritization that could lead to improved substantive NCA outcomes from an economic welfare point of view, quite apart from due process issues.

  5. The ICN’s Advocacy Working Group (AWG) is expanding its efforts to enable NCAs to better assess the anticompetitive potential of government laws and regulations. This AWG has over the years produced excellent and succinct sets of Recommended Practices on Competition Assessment, centered on identifying features of proposed regulations and laws that prevent competitive forces from operating effectively, such as barriers to entry by new businesses.  The Working Group has also done valuable work on inculcating public support for procompetitive government policies (featuring release of a “competition culture” report in 2015).  Recently, the AWG has also worked closely with other multinational organizations involved in promoting international economic cooperation and development, including in particular the World Bank and the Organization for Economic Cooperation and Development (OECD).  The AWG has adapted analysis from the OECD’s Competition Assessment Toolkit (methodologies for identifying anticompetitive government actions) in its recommended practices and has involved OECD Competition Committee experts in its work.  Moreover, for several years now the World Bank has held one-day programs immediately preceding the ICN Annual Conference, which have highlighted how regulations and legislation that undermine competition greatly reduce economic growth potential in developing countries.  Starting in 2015, the World Bank and ICN AWG cooperated in launching annual “competition advocacy contests” in which NCAs compete in presenting case studies on how their successful public advocacy initiatives have enhanced competition and raised economic welfare within their jurisdictions.   The Working Group has also launched a web-based “Benefits Platform,” which “seeks to provide ICN members with knowledge, strategies and arguments for explaining the benefits of competition to support their competition advocacy efforts with government and non-government stakeholders, as well as in the evaluation of competition interventions.”  All told, among all of the ICN’s initiatives, the AWG’s projects hold out the greatest potential for enhancing economic welfare, since government interference in competitive processes tend to be far more serious, distortive, and long-lasting than mere private restraints.  (In a related vein, Shanker Singham and I have authored a Heritage Foundation essay on how procompetitive regulatory reform can advance both economic freedom and prosperity.)  The greatest limitation on the utility of AWG guidance is, of course, political opposition to regulatory reform from private rent seekers and their government allies.

  6. The ICN’s Unilateral Conduct Working Group (UCWG) has done solid and generally sound work on state-created monopolies and predatory pricing, and on the assessment of dominance/substantial market power, and is turning now to a broader policy initiative. In particular, the UCWG merits praise for recommending that competition analysis not treat state-owned enterprises more favorably than their private competitors (although the feasibility of true “neutrality” analysis may be questioned given the array of implicit benefits that state-supported enterprises may enjoy).  The UCWG is now developing a potentially ambitious “workbook” on the general analysis of unilateral conduct, which holds out both promise and risk.  Unilateral conduct analysis is particularly prone to high error costs, because procompetitive and anticompetitive conduct often look the same.  Given that fact, and the importance of aggressive unilateral initiatives to a vibrant competitive process, there is good reason to err on the side of caution in evaluating the competitive ramifications of unilateral conduct.  DOJ’s 2008 Report on Single-Firm Conduct Under Section 2 of the Sherman Act presents an excellent template for unilateral conduct analysis, which could profitably be adopted by the UCWG.  Regrettably, however, there are those who believe that unilateral conduct analysis should rely heavily on sophisticated theoretical models of potential competitive harm.  Such models typically ignore the problem of decision theory and error costs (see here), and threaten to condemn particular instances (if not broad categories) of single firm business initiatives that are welfare-enhancing.  What’s worse, such condemnations have the tendency to chill efficient unilateral actions by other firms, which fear that the efficiencies underlying their actions would be misunderstood or ignored by competition law enforcers.  The members of the UCWG should keep these considerations in mind in drafting the workbook, and rely on decision theory and error cost analysis in deriving their recommendations.

Conclusion

In sum, the ICN has done a commendable job in promoting sensible procedural and substantive principles in competition law analysis around the world.  Although its achievements inevitably have been and will continue to be constrained by the differences among national legal regimes (particularly the civil law and common law divide) and political limitations that individual NCAs face, there is every reason to believe that it has enhanced overall economic welfare through its efforts.  Accordingly, continued support for the ICN by the United States antitrust agencies and American antitrust scholars is clearly warranted.  It is to be hoped that active participants in ICN initiatives will continue to rely on sound economic analysis as their lodestar – and, in particular, that UCWG members will employ appropriate caution and a decision-theoretic template in developing future recommendations.

This piece first appeared in Truth on the Market.