Conformity With International Recommendations on Merger Reviews

1
Conformity With International Recommendations on
Merger Reviews

• Simon J. Evenett and Alexander Hijzen

2
Questions asked and context

• What factors, if any, determine the degree of
  comformity of competition agencies with four
  recommended practices of the International
  Competition Network?
• Corporate restructuring is often in the form of
  MA that affects many nations markets, but
  merger review typically considers
  intra-jurisdictional effects.
• Reluctance by many competition practitioners and
  officials to pool sovereignty and to accept
  binding minimum standards. e.g. WTO debate.
• Role of soft law initiatives to promote
  cooperation and convergence to best practices
  (ICN)

3
Reminder of insights from economic literature

• Sections 2 and 3 of the paper.
• On effects of mergers in open economies.
• Role of international trade.
• On effects of uncoordinated, independently
  implemented national merger reviews
  (multi-jurisdictional merger enforcement).
• Importance of the case-by-case assumption.
• Sub-optimality of uncoordinated merger reviews
  easy to establish in principle empirics are
  rare.

4
Potential international measures on merger
enforcement

• What is not happening
• Pooling of sovereignty (joint decision-making).
• Acceptance of common standards (little
  harmonisation outside of EU).
• Acceptance of minimum standards.

• What is happening
• Agreement on non-binding best practices and
  desire to converge to them.
• Promoting of inter-agency cooperation.
• Competition provisions in regional trade
  agreements.

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International Competition Network

• Established in 2001 by 14 competition agencies.
• Now has 90 members.
• Competition agencies are members, not
  governmentsimplications of this.
• Three reasons why ICN was established.
• Decision-making at the ICN.
• Mergers Working Group.
• Agreement of 8 Guiding Principles and 13
  Recommended Practices.

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Survey of conformity with four ICN Recommended
Practices

• Four practices concerned length of time for a
  merger to be reviewed, requirements for initial
  notification, transparency of merger reviews, and
  review of merger control provisions.
• Conducted in 2004 by renowned competition
  practitioners.
• Commissioned by Merger Streamlining Group.
• Asked agencies and private experts to respond.
• For our purposes contained 25 questions that
  could be coded.

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The data

• Survey responses from agencies or persons in 56
  jurisdictions are available.
• Responses are no conformity, partial conformity,
  and full conformity.
• 121 no responses or not applicable responses,
  yielding a sample of 1279 responses to 25
  questions.
• Any biases in who responded to the survey?

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Twelve hypotheses on the degree of conformity

• Legal Institutional
• Identity of survey respondent.
• Membership of ICNs Mergers Working Group.
• Initial membership of ICN.
• Independence of agency.
• Age of merger regime.
• In EUs or USs orbit
• Common legal heritage with EU or US

• Economics Politics
• Size of national economy.
• Agency resources.
• More foreign firms buying domestic rivals (inward
  MA).
• Excess of foreign purchases of domestic firms.
• Openness to imports.

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Data and Estimation

• Data on independent variables taken from
  traditional sources for institutional variables
  and from World Bank and UNCTAD for the
  economic/political factors.
• Probit estimation of a jurisdictions response to
  a given question.
• Include question-specific effects.
• Lots of robustness checks (see paper).
• Parameters estimated for initial members of ICN
  and later joiners differ markedly.

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Which hypotheses are not rejected in the sample
for Initial ICN members?

• Legal Institutional
• Identity of survey respondent.
• Membership of ICNs Mergers Working Group.
• Initial membership of ICN.
• (Independence of agency)
• Age of merger regime.
• In EUs or USs orbit
• Common legal heritage with EU or US

• Economics Politics
• Size of national economy.
• Agency resources.
• More foreign firms buying domestic rivals (inward
  MA).
• Excess of foreign purchases of domestic firms.
• Openness to imports.

11
Which hypotheses are not rejected in the sample
for latter ICN members?

• Legal Institutional
• Identity of survey respondent.
• Membership of ICNs Mergers Working Group.
• Initial membership of ICN.
• (Independence of agency)
• Age of merger regime.
• In EUs or USs orbit
• Common legal heritage with EU or US

• Economics Politics
• Size of national economy.
• Agency resources.
• More foreign firms buying domestic rivals (inward
  MA).
• Excess of foreign purchases of domestic firms.
• Openness to imports.

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Summary of findings

• Conformity is higher in jurisdictions where there
  is more inward MAmore scrutiny by international
  competition community.
• Factors determining conformity differ markedly
  between initial ICN members and latter joiners.
• Nationalistic pressure from politicains seems to
  matter, but in different ways.
• Agency resources constrain conformity in
  non-founding ICN members (many developing
  countries.)
• Caveats.

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Significance of findings

• For Policy
• Agency resources and politics constrain
  conformity in developing countries.
• Soft law is not for free.
• How far can the ICN-led process of convergence
  go?
• Relative merits of soft versus hard law.

• For Research
• Greater attention to economic factors in analyses
  of soft law.
• Assess changes in conformity over time.
• Evaluate compliance with OECD Recommendations.
• Effects of soft law merger rules on corporate
  restructuring.