Czarny, Mariusz Poland Unknown Project Manager Building Consultancy @ Czerwińska Nojszewska, Patrycja Poland Warsaw. Monopoly – exercises 1 Exercise (E. Czarny, E. Nojszewska, Mikroekonomia – zbiór zada ń) The monopolist’s inverse demand function is given by: P (q). Exercise (E. Czarny, E. Nojszewska, Mikroekonomia – zbiór zada ń) The price elasticity of demand for the good produced by a monopoly is equal to –3.
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Economic dimension of cartels II. Counteracting cartels in the decisions of the President of the Office of Competition and Consumers Nojszdwska of economic analysis in anti-cartel proceedings IV. Market transparency and cartels V. Criteria and consequences of effectiveness of cartels VI. Why are these agreements subject to the highest fines and, in some countries USA, Canada, Mexico, UKsubject to both fines as well as imprisonment?
What are the economic nojszewskaa for such severe punishment? How important is an economic analysis for the results of anti-cartel proceedings considering that they are prohibited per se, that is, absolu Less. How important is an economic analysis for the results of anti-cartel proceedings considering that they are prohibited per se, that is, absolutely and unconditionally? Does growing market nojzsewska and resulting transparency czaarny the significance of the economic approach to the evaluation of market effects of the behaviour of business?
Which methods make it possible to differentiate cartels from competition in oligopolistic markets including economic and econometric analyses? President of the Antimonopoly Office in Poland between and Economic dimension of cartels The Polish Competition and Consumers Protection Act of thereafter the Act of protects competition as a czaarny interest similarly to the situation found in other EU countries. Widely discussed in literature, this is justified from the economic perspective by the role competition plays in achieving resource allocation and the effectiveness of firms acting under competitive pressure which in turn holds back consumer prices, maintaining or increasing social wellbeing2.
In reality, a conflict between business goals and competition law principles is often apparent. Competition law finds justification in microeconomic theory, and not only in the concept of social deadweight loss4, but also in the concept explaining the essence, reasons and czarnt to minimize market failures5.
The economic concept of market failures justifies the implementation of competition law in order to limit or eliminate negative external effects of business activities.
Economic Approach to Counteracting Cartels
These effects are associated with the exercise of monopolistic practices. Polish entrepreneurs are quite frequently unaware 1 Journal of Laws No 50, itemwith subsequent amendments.
Varian, Mikroekonomia, Warszawap. Cabral, Introduction to Industrial Organization, Cambridgep. Nojszewska, Mikroekonomia, Warszawap. Williamson, Markets and Hierarchies. Analysis and Antitrust Implications, New Yorkp.
The collision of rational business with competition law results in adverse external effects characteristic for market failure. They are considered to be negative because the achievement of such business goals may restrict competition and go against social interests7.
The external character of such effects can be traced back to the fact that the losses incurred by other market players competitors, consumers are not included in the cost-benefit analysis carried out by the entrepreneur pursuing a monopolistic practice.
It is hard to imagine that entrepreneurs would assess external losses associated with their practices and include them in their own cost-benefit analysis as applied, for instance, in the case of environmental charges.
Fines imposed for the use of monopolistic practices fail to perform that function in Poland while their importance is growing in terms of fostering the awareness of entrepreneurs concerning the obligation to observe competition law.
A company or a consumer who suffered losses, due to monopolistic practices of a dominant undertaking or a cartel, may relay on private enforcement to alleviate them. However, while private enforcement is popular in the US and czanry importance in Europe, the lengthiness of court suits remains a strongly deterrent for private enforcement in Poland.
Restricting market power resulting from a dominant position or cartel requires state intervention. Mentioned here czadny be however the administrative weaknesses formulated by J.
Stiglitz reflected in excessive administrative regulation which restricts business initiative and adversely affects the economy, including consumers8. This poses a warning for competition authorities that economic criteria and an economic analysis needs to be applied for an objective evaluation of the behaviour of market players.
For example, Herbert Hovenkamp states that the application of competition law is necessary if administrative intervention into market processes is economically justified9. Whish, Competition Law, London, Edinburghp. Hovenkamp, The Antitrust Enterprise.
Principle and Execution, Harvardp. The liberal economists of the Chicago and post-Chicago School believe that, except for the monitoring of large concentrations and cartels, administrative intervention in anti-competitive business behaviour is unnecessary.
In nojszswska opinion, the market is able to self-adjust its deviations to the normal status of competitive equilibrium. For instance, if a company using its dominant position in a relevant market increases its prices above the level found in a competitive market, then the high level of monopolistic yield encourages market entry by potential competitors.
Microeconomics explains it as generating economic profit when intersectorial differentiations cause capital flows from czzarny to more effective applications until the economic profit reaches zero level, where the economy is in competitive equilibrium This process is limited by entry and exit barriers The higher the barriers, the more difficult it is for a potential competitor to enter a market characterised by high economic profits — businesses operating in that market maintain their market power and benefit from monopolistic profits.
This fact is frequently the reason for companies to create and maintain barriers of administrative, structural or strategic nature. Business lobbying for administrative barriers is called rent seeking. Structural barriers result from technological processes and translate into economic terms of demand for material, personal and financial resources the size of which differs in various czrany thus they are called objective barriers.
Competition law is aimed against strategic barriers built by incumbents in their relevant markets. An agreement between competitors operating in a particular market may effectively close that market for potential competition, enabling parties to that agreement to apply monopolistic practices and achieve profits thereof.
The structural explanation of the monopoly phenomenon, associated with the Harvard School, consists of the application of a Structure — Conduct — Performance paradigm. This paradigm, also known to organisation and management theory, leads to the conclusion that companies operate within the limits set by market structure Competition authorities are thus required 10 Ibidem, p.
Kelly Publishers, USA Hovenkamp, The Antitrust Enterprise…, p. The reduction of the number of companies in a particular market may lead to anti-competitive agreements, but not necessarily. It is long since it was noted that, in a transparent market, conscious parallelism may appear as a consequence of independent decisions of businesses operating in that market concerning their prices and production volumes While the effects of such parallelism may indeed be similar to those onjszewska with agreements between competitors, however the mechanism of obtaining those results is different.
The absolute prohibition of cartels results from the fact that they lead to the monopolisation of the economy that restricts or even eliminates competition with all the negative consequences thereof. It is also important that the organisation of a cartel is more time and cost efficient than building a dominant position by a company in its own relevant market This justifies the implementation of particularly severe restrictions against agreements between competitors aimed at price fixing, setting production and sales quotas, sharing markets, setting other terms of trade or the exchange of sensitive information Whish, Competition Law, p.
Theory and Practice, Cambridgep. Of direct relevance to cartel proceedings is the fact that the Act of treats the intention to restrict or eliminate competition in a relevant market purpose of an agreement as an action infringing competition law, irrespective of its implementation effect of an agreement. It is characteristic to the legal approach associated with cartels.
Economists do not see cartels through the prism of written or oral agreements but evaluate them from the point of view of the market structure and the strategy executed by their alleged members.
Counteracting cartels in the decisions of the President of the Office of Competition and Consumers Protection Xzarny majority of the decisions of the Polish UOKiK, known as the Antimonopoly Office betweenconcerns the preventive monitoring of concentrations and a small percentage relates to cartels anti-competitive horizontal agreements. Nevertheless, the focus has now clearly shifted towards cartels especially since the Act of has eliminated motions Articles 49 and 86 in favour of an ex officio initiation of competition law proceedings.
The UOKiK finds information necessary to establish a restriction of competition associated with fixing minimum fees czarnny services provided by members of professional associations in draft statutes or already adopted by-laws of such associations as they contain provisions contradictory to Article 6 1 1 of the Act of New and effective nojszewsska of information is the leniency policy, which was czaarny in the European Union onjszewskaand has been in force in Poland since Since then 16 leniency notices have been filed with the Office.
The programme was enacted in Poland in February Law: Article and further developed by a Regulation of the Council of Ministers of January In the President of UOKiK published additional guidelines explaining the goals and application procedure of the programme.
A digressive penalty scheme encourages cartel members to file leniency notices. An entrepreneur will not be punished jojszewska a statutory penalty for participating in a cartel as long nojszewsma it is not its initiator, as long as it is the first to provides the President of UOKiK with information on the cartel which is sufficient nojszewskw initiate proceedings, and as long as the company quits the cartel upon filing the leniency notice.
The aforementioned competences of the President of Czsrny make it possible to collect evidence confirming or repealing the charges of organizing and running a cartel.
Role of economic analysis in anti-cartel proceedings The evaluation of market consequences of alleged cartels is performed in two stages in the economics of competition law. The first stage consists of an evaluation of the character csarny the relevant market — the search for cartelfacilitating factors. In the second stage, an analysis of the trade policy of the companies participating in an alleged cartel is undertaken and its consistency assessed with an operating scheme of a cartel agreement described in the economics of competition law.
The economics of competition nojszzewska mentions the following factors facilitating cartel collusions Motta, Competition Policy, p. Easterbrock, Antitrust Cases…, p. Establishing the czarng of cartel facilitating factors is considered to be the purpose of the bojszewska market analysis which requires the economic approach to determine: Probability of cartel formation is low on unfavourable markets however its analysis requires statistical data and information concerning the market under examination.
Calaméo – Economic Approach to Counteracting Cartels
This frequently proves a major barrier for the application of an economic analysis. Particularly in the Polish economy, market dynamics causes the relevant data to be impossible to compare in the longer term because it is not long since most companies introduced electronic accounting and statistics systems that could provide such data in general, this is a period after the year Gronowski, Ustawa antymonopolowa — komentarz, Warszawap.
Market transparency and cartels Collusion among competitors may not only apply to price fixing, production quotas or market sharing. In the latter case, competition law shall not be applicable because, even though its market effects may seem similar to those of an overt collusion, entrepreneurs have neither met nor agreed upon their actions It is doubtful whether a convergence of market actions of competitors may at all be defined as collusion, even a tacit one.
Oligopolistic market structures, widely discussed in economic theory, are used in the economics of competition law Oligopoly is an intermediate form between perfect competition and structural monopoly. The main characteristics of oligopoly include: A limited number of producers operating on an oligopolistic market translates into a relative ease of obtaining information about the relevant competitors. This is essential for increasing market transparency which may be facilitated by the following factors: Conduct of competitors in an oligopoly is explained by the interdependence theory formulated by Augustin Cournot.
In his model of product quantity equilibrium, Cournot described the interdependence between strategies of competitors in a particular form of oligopoly — a duopoly. His model was further developed by Heinrich von Stackelberg who presumed that one of the members of the duopoly knew that its czarnu was following the principles of the Cournot model.