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Friday, 15 October 2010

Farewell to the Competition Commission?

In its so-called bonfire of the quangos yesterday, the government and the Business Secretary, Vince Cable, made it clear that they are planning to merge the Office of Fair Trading (OFT) and the Competition Commission (CC). A consultation paper on this plan will be published early in 2011. The announcement itself was surrounded by farce, as the Cabinet Office website crashed under the volume of business and the proposed OFT/CC merger does not obviously meet the criteria set out by the Cabinet Secretary, Francis Maude. It is not obviously going to save money, or large amounts of it, and this is certainly an area where we would not want to see a return to ministerial decision making. There are a number of tricky issues and they can be examined by dividing the CC's functions into three: mergers, market investigations and other activities.

On mergers, the complaint seems to be that the CC takes a long time to make decisions. Folding the CC into the OFT will not remove the need for in-depth examinations of difficult cases. What it means is that the OFT will have to create an equivalent to the Phase II procedure that is operated by the European Commission. Although the OFT will undoubtedly do its best, this cannot be a fresh look at a problem by a new set of eyes, there will always be a suspicion of confirmation bias here, as there is with the European Commission. In order to investigate difficult cases properly, the OFT will need more resources, not matter what sort of approach they take. One danger is that the pressure will be on the OFT to decide cases and there will be greater incentive to accept undertakings to solve the problems, rather than go for a prohibition and we might end up with a position like that in the EU, where there have been only two prohibition decisions since 2001 (by contrast the CC came up with nine in the last five years).

Although market investigations have not worked as originally envisaged, I doubt whether the merger of the two bodies will improve matters. There is again the issue of confirmation bias – now the OFT will do an in-depth investigation of an area where it has decided that there is a problem. As regards timing, it is tempting to say, "Do you want it done right or quickly?" If you are going to investigate complex industries with multiple parties involved, this is going to take some time. Delays do not all emanate from the public authorities – I'm sure not all companies perceive it as in their interest to have a market inquiry decided quickly. There is another point on market investigations: the OFT has the power to apply Article 101 and 102 TFEU and the Chapter I and II prohibitions, which the CC has never had. Presumably evidence could come to light in a market investigation by the OFT which could set it off on an investigation under these provisions as well. This is yet another incentive for companies to be, let us say, careful in relation to the information that they provide.

Finally, the CC has a number of other activities that it undertakes, albeit intermittently. Although I can see the jurisdiction for Energy Code Appeals going to the CAT, it would seem difficult to dump all the regulatory inquiries on the OFT, not least because it has no expertise in this area. It would be odd because the OFT is seen as roughly at the same level as the other regulators, such as Ofgem, rather than a reviewing body.

Even odder is that outside assessments of the CC's decision making are very positive about it. It has begun to lose decisions in front of the CAT but these are often on remedial issues, rather than the substance of the decision. Nor can you any longer claim an accountability problem – both the CC and the OFT are more open in their operations than most government departments! In any event, all the functions that the CC carries out will have to continue, albeit in a different form. So here is a change that doesn't obviously save money, won't lead to an improvement in the quality of decisions and doesn't make the system more accountable. That doesn't meant that the system can't be improved but, as they say in Birmingham when offering directions, "If I were you, I wouldn't start from here."

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