The article was first published in Viðskiptablaðið on Wednesday, 21 February 2024.
The Competition Authority recently published food of its calculated benefits from its interventions in recent years. The assessment's findings indicate that the calculated benefits amounted to around 10-17 billion. kr. on average per year during 2013-2022, which corresponds to around 18-30 hidden contributions to the supervision during the period or 0.3-0.51% of Gross Domestic Product (hereinafter GDP).
In the public discussion of the assessment, criticism has been raised about the methodology used and its reliability, the comparison with GDP is considered illogical, and it is argued that the assessment should show how the organisation's work affects GDP.
It is right to welcome that an assessment of the benefits of competition law and competition policy is receiving public attention and discussion. The publication of an assessment of this kind is part of the Competition Authority's advocacy role, but in publishing it, the Authority is following the example of a number of its sister authorities in Europe and elsewhere. The National Audit Office has also encouraged this type of work in a recent performance audit of the Authority.
With this in mind, the following addresses several points from the aforementioned discussion and simultaneously corrects a misunderstanding on which the discussion appears, at least in part, to be based.
The OECD guidelines are reliable.
The Competition Authority's analysis states that the assumptions and methodology applied are based on the OECD guidelines published by the organisation in 2014 under the title „Guide for helping competition authorities assess the expected impact of their activities. In public discussion, it has been noted that the OECD guidelines have not been approved by the member states and are, in fact, a working document by staff. It is worth noting here that the guidelines are published publicly and they clearly state that they have been compiled by the OECD's Competition Division. Furthermore, at the outset, it is stated that they are issued under the responsibility of the OECD Secretary-General. Most reports from the OECD's Competition Division are published with this caveat, without diminishing their reliability.
However, when OECD staff working papers are published, they are marked as such, for example in the case of the Economics Department. ( „Economics Department Working Papers“ ) where it is made clear that the opinions are those of the authors.
The criticism that the OECD guidelines are a working document by staff is therefore based on a misunderstanding.
Methodology and calculations
According to OECD methodology, the impact of competition enforcement is the benefit to firms' customers, consumers and other businesses, have from the interventions of the Competition Authority, and arises because the Competition Authority's intervention is considered to have prevented harm that they would otherwise have suffered due to a lack of competition. As previously stated, the analysis is based on the OECD guidelines, taking into account their application by other competition authorities, primarily the competition department of the European Commission. It should also be noted that, according to information on the OECD website, around 15 competition authorities have adopted this methodology for assessing the impact of competition enforcement.
The OECD guidelines state that by applying such an assessment, it is possible to estimate, in a simple and concise manner, the expected benefits of competition authorities' interventions over the relevant period. The methodology, assumptions and calculations were then reviewed by an independent expert.
This approach has been criticised, with the argument being made, for instance, that the focus should rather be on the impact of the interventions on the so-called deadweight loss, and that a change in this is the true macroeconomic benefit of the interventions. This position holds that the negative impact of the intervention on the businesses that allegedly engaged in the stopped conduct should be taken into account—for example, the price increase they miss out on—but this is not done in the Competition Authority's assessment. This approach would lead to an overestimation of the macroeconomic benefits.
It should be emphasised here that this is not a comprehensive assessment of the macroeconomic benefits of competition law and competition enforcement. The OECD guidelines consider the benefits that a company's customers, consumers and other businesses derive from interventions by the competition authority. There is a general consensus among Western countries that competition law and competition authorities bring about positive macroeconomic benefits. In this context, publications from the OECD's Competition Division from 2014, for example, may be cited, Factsheet on how competition policy affects macro-economic outcomes , which discusses, among other things, the positive effects of competition on various economic indicators. In this context, it is also important to bear in mind that the aforementioned OECD criteria are not intended to assess the deterrent effect of competition law or competition policy, nor other positive effects of competition, e.g. increased operational efficiency, reduced waste and better corporate governance, innovation and progress in business, macroeconomic efficiency, faster recovery during a crisis, reduced inequality and lower unemployment.
As for the fact that no account is taken of the loss suffered by those companies that would have benefited from cost savings or additional revenue due to the practice being stopped, then companies that engage in illegal collusion or abuse of a dominant position have no right to profit at the expense of customers or the public. When investigating whether, for example, the conduct of a dominant undertaking constitutes an infringement or whether a merger is likely to distort competition, the undertaking in question can always provide appropriate justification and calculations of the benefits it claims will result from the relevant action. If the company in question can prove that efficiencies or other benefits will in fact result from e.g. a merger, and that competition will be sufficient post-merger so that the benefits are also passed on to consumers, this can have a significant impact on the Competition Authority's assessment.d. mergers and that competition will be sufficient after the merger, so that the benefits are also passed on to consumers, can have a significant impact on the Competition Authority's assessment and lead to a merger that would otherwise have been considered illegal being approved. Similar considerations apply when assessing the legality of co-operation between undertakings and the conduct of dominant undertakings. The key issue under competition law in Iceland and neighbouring countries is therefore whether the benefit only serves the relevant company and its owners, or whether it also benefits society as a whole.
The criticism directed at the methodology appears, with reference to the above, to be aimed primarily at the OECD's approach and the legislation under which the Competition Authority operates, rather than at the Authority's assessment as such.
Comparison with gross domestic product
In the Competition Authority's analysis, the calculated benefit is published as a percentage of GDP, but the government's target, as set out in the financial plan (most recently in the 2024-2028 financial plan), is to calculate the benefit arising from the Competition Authority's decisions over the past. 10 years amount to 0.51% of GDP, but this target has remained unchanged since 2018. The financial plan also states that „The calculated benefit of decisions by the Competition Authority will be calculated regularly in accordance with the OECD methodology.“
It has been noted in the discussion that the benefit assessment is presented as a proportion of GDP and that the assessment is intended to show how the institution's activities affect GDP. The Competition Authority does not consider this to be a valid criticism. It is common for various figures to be presented as a percentage of GDP, as gross domestic product is a concept widely used for scaling various types of statistical information. As previously stated, it is generally recognised that competition law and competition authorities bring about positive macroeconomic benefits, but as also stated, the aim is not to comprehensively assess the macroeconomic benefits or the impact on GDP using the OECD methodology.
Conclusion
The criticism that has been raised regarding the Competition Authority's assessment of the benefits of its interventions does not change the main conclusions of the assessment, namely that the calculated benefits, in accordance with the methodology proposed by the OECD, amounted to approximately 10-17 billion. kr. on average per year during 2013-2022, corresponding to around 0.3-0.5% of GDP or 18-30 hidden contributions to the institution over the period. However, the assessment is not without its critics.
The Competition Authority intends to update its benefits assessment regularly and publish it as part of its ongoing information on the Authority's work. In doing so, the Authority will monitor the implementation of similar benefit assessments in other countries and take into account the views expressed in the discussion of these matters in this country.
Atli Rúnar Kristinsson is an economist at the Competition Authority.
Valur Þráinsson is the chief economist at the Competition Authority.
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