Category Archives: Latin America

15 June 2020
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Latin America

On the use of quantitative methods in Brazil’s merger control

Quantitative Methods and Mergers Effects in Competition Policy: The Brazilian Case

Camila C. Pires-Alves, Marcos Puccioni de Oliveira Lyra, Marina Maria Gutierrez Bonfatti. World Competition (2019)

Abstract

The article aims to discuss the use of quantitative methods in quantifying merger effects as evidence, taking the particularities of the Brazilian experience and considering both technical, institutional and policy issues. Therefore, the article investigates evolution and patterns in the Brazilian institutional framework and jurisprudence in terms of technical aspects and adequacy of implementation, policy issues regarding the acceptance within the administrative tribunal and the main challenges imposed. The information collected considered all the merger cases, as far as we know, in which quantitative methods were applied by Administrative Council of Economic Defense (CADE) in order to measure, estimate or imply the merger’s potential anticompetitive effect on prices. Among the conclusions we find that the models are employed in few complex cases and mostly to sustain some restriction by the authority. We also note that the authority seems concerned about sensibility analysis, in some cases revealed by the combination of the use of different methods and/or competitive models.

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14 March 2017
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Latin America

Lock them up: A quick look at Chile’s new antitrust regulation

By Benjamin Gomez*

So it took a bit longer than originally predicted on my previous contribution to DWA [1], but it came as tough as expected. I am referring to the new amendments to Decree Law 211 – the antitrust statute in Chile – which entered into force by Law 20.945 on August 30th, 2016, bringing unprecedented punishments for cartels and an overall strict regulation of other relevant antitrust issues. In an effort to be critical yet pragmatic, I will keep the informal tone that has been encouraged by the founders of this blog.

We need to begin with the big shocker of this new law: the reinstatement of criminalization for an anticompetitive conduct. Prison time for cartels is no novelty; until 2003, Chilean Antitrust legislation contemplated up to 5 years of prison for these anticompetitive conducts (although no one was ever sentenced) [2]. But the new statute raises the criminal bar and now contemplates up to 10 years of prison time for individuals. Just to give a better idea, this is the same prison time that could potentially apply to a rape or murder case. Although it is difficult to imagine any high-society Chilean billionaire (as has been the tone for most recent cartel cases in the country) doing any effective jail time it is still a big deal, the fact that this new sanction is out there will definitely make the big players think twice.

Still on the cartel trail, we can see once again (as the previous amendments back in 2008) a significant increase in economic fines, this time doubling up the cap from USD $25 million to USD $50 million approximately. In addition, a new predominant criteria was inserted to determine the amount of the fine. The Antitrust Tribunal (Tribunal de Defensa de la Libre Competencia – TDLC) shall calculate and apply first 30% of the gains for each of the colluding parties during the breaching period, or alternatively up to twice the economic benefit gained by such party. Only if those benefits cannot be determined, the TDLC can apply other factors to freely decide on the amount of the fine, with the aforementioned USD $50 million cap.

All of these measures seem to be directly inspired by the Sherman Act, one of the main federal antitrust statutes in the United States, and maybe the harshest from a comparative perspective. The Sherman Act imposes criminal penalties of up to $100 million for a corporation and $1 million for an individual, along with up to 10 years in prison. Under federal law, the maximum fine may be increased to twice the amount the conspirators gained from the illegal acts or twice the money lost by the victims of the crime, if either of those amounts is over $100 million [3]. The new law already equalized the US on the jail time aspect, and if a new double-up is made by the Chilean Congress on economic penalties, Decree Law 211 will then be among the toughest antitrust regulations in the planet.

The Sherman Act imposes an exponential increase of fines, aimed at some of the world’s largest corporations, and that is a factor to be considered. To continue doubling-up the fines in Chile would lead to a potential punishment-victim disproportion. Furthermore, it is difficult to imagine a scenario where the Chilean criminal system would end up imposing effective imprisonment as the general rule, both from a logistics and cultural standpoint. On the other hand I understand that this has become a necessary effort to fight the growing recklessness by the major economic groups engaging in high-impact collusive agreements. Just as the year 2016 came to a close, the Chilean media exposed a cartel on the baby diaper market carried out by the same companies involved in the “Toilet Paper Cartel”, CMPC and Kimberly-Clark. Yes, you read correctly: a “Diaper Cartel” that systematically coordinated to increase prices between 2002 and 2009 (as if an agreement to fix prices of toilet paper was not outrageous enough!).

Moving past cartels, another interesting amendment to Decree Law 211 is the now mandatory control of all mergers and concentration operations. Just recently, the new thresholds were set by the National Antitrust Prosecutor of Chile (Fiscalia Nacional Economica – FNE) by means of Resolution 667 dated November 24, 2016, requiring all potential mergers where combined national sales by the intended merging parties are equal to or higher than USD $70 million approx. for the previous commercial year or at least USD $11 million approx. separately considered, to have prior antitrust clearance by the FNE. The effects of this new amendment will need to be assessed in time, but it is definitely positive to have the FNE thresholds already in place early in the game.

Finally worth mentioning, the new statute brings some positive novelties by imposing restrictions to different actors involved in the antitrust universe. For company board members, there will be interlocking restrictions in place, while members of the TDLC shall now have exclusive dedication to their role. This last one always puzzled me; how some members of such tribunal were acting as active law firm partners and gave advice to private parties on antitrust matters. Incompatibility and ethics must go both ways, and this is definitely a smart move to improve the current statute and prevent conflicts of interest.

All things considered, the new amendments to DL 211 come just in time to tackle the cartel explosion going on in Chile, which has reached new levels of shameless anticompetitive conducts –involving public health basic goods such as toilet paper and diapers – and is giving no signs of stopping. Higher fines and harsher punishments are seen with welcoming eyes by both government and the public, but at the same time there must be some serious consideration of how legislation is going to move forward and how convenient will it be to continue imitating some of the Sherman Act’s criteria for determining punishments by the TDLC. For now, locking up the bad guys seems to be a move in the right direction.

* Attorney at Law, Pontificia Universidad Católica de Chile

LL.M, University of California, Berkeley, School of Law

[1] https://developingworldantitrust.com/2016/01/18/the-chain-reaction-of-the-poultry-cartel-in-chile.

[2] Idem.

[3] https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/antitrust-laws.

 

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19 October 2016
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Latin America

Competition law in Guatemala: An instrument for solving current national problems -corruption in processes of public procurement-

By Luis Pablo Cóbar Benard*

Guatemala, October 17 2016

At some point it can become difficult to write a decent article, without taking the risk to sound boring, especially if it is a subject that has been widely addressed in its most important aspects. Such is the case of the status of the approval of the Competition Law in Guatemala and the corresponding Initiative 5074, which has been widely studied and criticized, both positively and negatively, so it’s not worth adding anything more in that matter. However, it does not mean that there is nothing important to share, especially because as the Competition Law Institute[1], we have remained active around this topic, and because certainly there are other important aspects related to the Competition Act, which have been unnoticed, so it’s time to talk about them with an open mind and vision.

As I mentioned on a previous article, just over a month after the submission of the initiative 5074 to the Legislature, by the Ministry of Economy, nothing relevant had happened, other than some academic events and a few opinion and academic articles that have been published. Thus, once the disaster was consummated without anything left to do, at least at the level of Ministry of Economy, the IDC co-organized and participated actively in two major forums on competition law, organized by the Spanish Chamber of Commerce, the Guatemalan-German Chamber of Commerce and Konrad Adenauer Foundation. Thanks to their efforts and the excellent network of contacts and friends around the Competition Law community that we have built for over nine years, we accomplished the participation of Dr. José María Marín Quemada (Chairman of the National Commission of Competition and Markets in Spain) and of our dear friend -of the real coffee Republic- Juan David Gutierrez, who shared his knowledge, experience, cases and invaluable recommendations. It is worth mentioning that we met Juan David when he invited us to participate as bloggers on LaLibreCompetencia.com, and we never imagined having the pleasure of meeting in person, or even, to have him in Guatemala as our guest for an important event and become new friends.

Representatives of the IDC participated as well in the process of public hearings that took place on August 3rd 2016 invited by the Commission of Economy and Foreign Trade of Congress. On that date, we presented our technical approach regarding the Competition Act No. 5074. At this point, it is difficult to predict how the final draft of the Act will look like once the Congress approves it, so we must wait and continue generating more information, analysis, reviews and debate as much as we can to increase awareness.

Achieving this space for the IDC was a success by itself, beyond what happens next and what the Congress will decide with the feedback provided. Why? Long before the creation of the IDC in early 2015, we began to work -within our practice as an independent Law Firm-, researching on economics, competition law, creating contacts outside Guatemala, conducting small workshops, and joining efforts with the authorities of the Ministry of Economy at that time[2] and business chambers. We saw the opportunity to be pioneers in a different branch of law[3], as disruptive innovators.

We knew it was hard work: opening a breach in an unexplored market, in a political complicated context and with the vision of having an important role on what happened last August 3rd. Looking back, we know we have taken the right path. We have been witnesses and protagonists in almost everything that has happened on this subject.

Over the time, we got interest in creating an academic institution devoted entirely to the study, dissemination, discussion, etc., of Competition Law in all its manifestations, which could stand out from any other that has existed so far. It was so, that in early 2015 we decided to carry out the plan and founded the Competition Law Institute. Right now, we are working to celebrate the entry of new members with fresh ideas, who will join the effort and share our passion for competition law.

During his recent visit to our country, Juan David, made two specific recommendations: (i) overcome the discussion on the content of the Competition Act; and (ii) make the authorities and everyone in general, understand the competition law, as an instrument to solve some of the major problems that Guatemala faces as a country.

There is a current concern surrounding corruption in public institutions that is tangible, and the flaws in the procurement processes at all levels in the ministries of the Executive, Congress, Judicial Branch, municipalities, autonomous institutions, etc. are well known. More sensitive cases of collusion in bidding processes could refer to: purchase of medicines (The Guatemalan Institute of Social Security and the Ministry of Public Health and Social Assistance); roads and infrastructure (Ministry of Communications, Infrastructure and Housing); and products and services of various kinds in municipalities and other entities. Some of these cases have cost human lives. Nobody is focusing on how to solve the problem and the current legal framework does not seem to offer any solution in the short, medium and long term. I mean the Competition Law as a tool to combat corruption in public procurement processes!

For more clarity, we look at the road that Mexico has walked to combat collusion in public procurement processes. During the Latin American and Caribbean Forum on Competition, held in April 2016 in Mexico City, representatives from COFECE mentioned their progress in this struggle, as well as aspects of modernization that have been developed. Mexico implemented a number of changes following the recommendations of the OECD, which included in-depth evaluation of laws and procurement practices at all levels of government as well as reducing the risk of manipulation by the effective design of procurement processes and detection of collusive practices during the bidding process.

The recommendations go through the implementation of six major guidelines: know the markets; genuinely maximizing of the number of bidders; use of clear requirements and avoid predictability; reduce communication between suppliers; establish clear criteria for awarding contracts; training staff on the risks of bid rigging. If the staff does not understand the importance of their good work, all the effort would be almost like throwing away resources.

In Guatemala, the legal framework on public procurement contained in the Government Procurement Law and its Regulations (Decree No. 57-92) and the new Regulation contained in Government Agreement No. 122-2016 should be revised deeply. The last amendment to the Law on Government Procurement, by Decree No. 9-2015, adds nothing significant, rather than imposing a maximum fine of Q.25,000.00 (equivalent to USD.3,250.00), which is ridiculous if we take into account the economic benefits that cheating bidders could obtain. Therefore, it makes sense to criminalize at least the collusive practices in public procurement processes, because in addition to the restrictive effect on competition, they are also defrauding the economic interests of the State.

Prices affected by collusion can damage a public institution as well as the economy. According to data from six economic studies in Mexican markets[4], the presence of cartels and collusive arrangements can raise prices of certain products to over 30% of its real value. That is, if public institutions are victims of collusive arrangements for any product or service, they could be paying a third more of what they should. To have an approximation on the amount of wasted resources caused by these practices it should be calculated from the moment they began and forward. Can you imagine what it could be done with all those wasted resources? Do you realize that competition is more than ethereal economic concepts and sophisticated terminology?

Honestly, it’s time to open our eyes, and get interested in what is happening with the approval of the Competition Act, because it goes far beyond a group of opportunistic lawyers and economists as it has been said, or some economic sectors who seek to perpetuate their privileges at the expense of our pockets; it goes beyond mediocrity or lack of commitment from some public officials. This has to do with saving lives and prevent disasters. It is our duty to see what is going on and demand that things must be done well. The Competition Law is wide and is related to many aspects of our work and daily life, and could well be part of the solution that many are seeking to solve important problems of our Nation, as long as we are willing to give it a try and take away the ideological veil from our eyes, minds and lips. It is time to get ready to compete and stand by our capacity and creativity.

We have always used football (soccer) as an analogy to explain the process of economic competition and the role of the competition authority in the markets, which always works wonderfully to capture public attention. We often use photographs of the very famous retired referee Pierluigi Collina as an example of the thoroughness that the authority in competition should have, with eyes almost out of their sockets, showing yellow and red cards right and left!

Taking advantage of the footballing analogy to conclude the article, the most beautiful sport in the world, as described by Luis Omar Tapia in the kickoff of every game, the famous writer Eduardo Galeano[5] comes to my mind. In his excellent book “Soccer in Sun and Shadow” where he describes masterfully poetic and daring, the intricacies of the sport, and referring to the language of doctors of soccer reads: As we said on Sunday recent past and so we affirm today, with head erect without mincing words, because we have always called a spade a spade and continue to denounce the truth even if it hurts many, no matter who falls and what it costs… 

*Co-founder of the Competition Law Institute in Guatemala

[1] IDC, From now on.

[2] Former Director of Promotion and Competition Department at Ministry of Economy. In late 2006 and early 2007, we had generated the contact between Director Edgar Reyes -RIP-, and us -Marcos Palma and Luis Pablo Cóbar-, whom he had established a very positive dynamic work that continued until he passed away in 2012.

[3]Always maintained a dual purpose, on the one hand, the intention to do our work for the country, without representing particular interests of any kind. On the other hand, the plan has always been to develop an area of legal practice on competition law with leadership from the academic point of view.

[4] Combat against collusion in public procurement processes in Mexico. CFE OECD 2015

[5] Writer born in Montevideo Uruguay in 1940, author of several books, translated into more than twenty languages and profuse journalistic work. Among his major works: Open Veins of Latin America, Vagamundo, The song of us, The Book of Embraces, among others.

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6 May 2016
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Latin America

Ten Years of the Competition Superintendence – Past, Present, and Future

By Marlene Tobar*

Competition law enforcement in El Salvador started ten years ago, an ideal moment to assess the work of the Competition Superintendence, the authority in charge of its implementation since January 2006.

In these first years, the institution has carried out a healthy oversight of markets promoting undistorted competition, strictly following the legal framework and proving its independence from political forces[1]. In addition, the authority has taken a leading position in the region. It has been awarded twice at the World Bank’s Competition Advocacy Contest, it is the only authority in Central America that has enjoined a merger (the acquisition of Digicel by Claro in the telecommunications market), and it has given a strong push to the design of a regional competition law through its work in the RECAC[2] (the Central American network of competition authorities).

In the law enforcement area, it conducted investigations in markets that have spillover effects in the economy such as the energy industry, the wheat flour market (carrying out dawn-raids), the distribution of sugar (imposing a fine on Dizucar, the dominant wholesale distributor that is owned by the local sugar mills), and the telecommunications industry, among others.

The institution acknowledged the role that public sector intervention plays and allocated substantial resources to identify restrictions to competition arising from regulations. For that purpose, the authority pointed toward the need of improving regulations to promote more openness to trade regarding products of social importance such as rice and sugar. The Competition Superintendence has also pushed for reforms to the law that creates a legal cartel in the production of sugar. Another important policy change promoted has been the amendment of the system under which radio-electric spectrum concessions are granted in the telecommunications industry. The recommendations are aimed at promoting competition in the allocation of this input (competition for the market) in a context of upcoming expiration dates to current grants in the broadcasting market and the still uncertain process of digital technology adoption in the country.[3] Recently, the authority issued a statement regarding a decision by the Supreme Court’s Constitutional Bench[4] on the alleged unconstitutionality of certain provisions of the Telecommunications Law. The Court stated that the national congress should not close the door on any advisory intervention of the Competition Superintendence during the hearings on the issue.[5]

The Competition Superintendence has decided a total of 14 cases of anticompetitive behavior, analyzed 16 merger transactions, carried out 23 market studies, issued 128 opinions, signed 36 MoU’s, and implemented a wide-ranging program of diffusion and promotion of the country’s competition law. The authority has imposed $15.1 million USD in fines (93% of which correspond to anticompetitive behavior decisions). In other words, it is quantitatively and qualitatively clear that the authority has sought to cover all sources of restrictions to competition.

Nonetheless, the main topic to reflect upon is the ability of having a real impact on efficiency and consumer welfare (objectives that the authority has to pursue by law), which are to be understood as indirect means to achieve higher living standards for society.

At the moment, such ability is hindered by the lack of support from the legislative, executive, and judiciary branches evidenced by (at least) two facts: first, the Supreme Court’s Administrative Bench’s judicial backlog regarding the review of the Competition Superintendence’s decisions on anticompetitive behavior. From the total of fines imposed by the authority ($15.1 million USD), more than 90% have been challenged by the punished firms, with 27 ongoing proceedings before the Administrative Court and 1 before the Constitutional Court. Currently, there are $9.1 million USD of overdue payments in fines. On its part, the Administrative Court has temporarily enjoined some of the payments and other precautionary measures, a part of which have been certified to the National Prosecutor[6].

Second, the authority has found scant support from other government institutions in the implementation of policy recommendations and inter-institutional dialogues have been rare at best (or non-existent in many cases). The first element hinders the ability to correct the punished anticompetitive behavior and hampers the deterrent effect of the fines; and the lack of support from other government entities reduces the likelihood that competition policy can spur economic and social growth.

All that said, it is important to look at the future and set the direction of competition policy in El Salvador. In his speech in the event commemorating the tenth year anniversary of the institution, the superintendent stated that he would seek for the institution to have a greater impact in key variables of the economy (development, poverty, and inequality) with the purpose of contributing to its “democratization”.

In order to do that, in addition to tackling the problems mentioned above, the authority will have to aim its competition enforcement activities toward solving the real problems faced by the country. As a consequence, there are more than a few considerations to be made. Some of the main issues to be analyzed are if the current legal framework is adjusted to the nation’s objectives; if the use of neoclassic economic theory is an adequate basis for the analysis of competitive restrictions (as the international community advises as best practices); determining the objectives that competition policy has to pursue in order to effectively contribute to the country’s development; to define the term of economic efficiency that will be pursued, among others. This analysis will have to be made taking into consideration El Salvador’s particular traits and variables that determine the dynamics of competition in its national markets.[7]

*The author is the head of the department in El Salvador’s competition authority that is in charge of the merger review proceedings, market studies, and opinions regarding law proposals and rules of tendering in public procurement.

[1] The law entered into force under a right-wing government. Under the current left-wing government the authority imposed a fine in the amount of $759,924 USD to Alba Petróleos for failing to report mergers. This firm is partly owned by ENEPASA, an association of municipalities governed by majors from the political party that controls the executive branch. Even so, the president re-elected the superintendent, Francisco Díaz, for a second term, setting a precedent in the region.

[2] Composed of the competition authorities from Costa Rica, El Salvador, Honduras, Nicaragua, Panama, and the Dominican Republic. Representatives of the Guatemalan government attend the meetings in an observer capacity since Guatemala has no competition law to this date.

[3] Currently, the Congress is evaluating the best way to implement the amendments ordered by the Constitutional Court regarding the design of an alternate mechanism for the auctions of radio-electric spectrum.

[4] Decision of the Constitutional Court on the accumulated unconstitutionality proceedings with references 65-2012 and 36-2014. In El Salvador, the Supreme Court of Justice is divided into separate sub-courts according to a subject-matter criterion.

[5] Clarification issued by the Constitutional Court on December 16, 2015, regarding its decision on the accumulated unconstitutionality proceedings with references 65-2012 and 36-2014.

[6] One such example is the order enjoining the anticompetitive behavior for which DIZUCAR (the wholesale distributor owned by El Salvador’s sugar mills) was punished.

[7] Gal, M., et al. (ed.) (2015). The Economic Characteristics of Developing Jurisdictions, Their Implications for Competition Law”. Edward Elgar, Northampton, United States.

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10 February 2016
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Latin America

Telecommunications Industry, Market Failures, and Government Intervention in El Salvador

By Carmen Ortiz*

In October of 2015, an incumbent in the Salvadoran telecommunications industry, Telefonica, affirmed that the country is the most underdeveloped in terms of telecommunications in Latin America[i]. The government responded with an effusive denial[ii]. It supports the current framework of allocation of Radio Electric Spectrum (RES) by auctions that reward the highest price. The controversy brings up considerations from a public law and competition policy perspectives regarding the impact that the sector regulation, Ley de Telecomunicaciones (LT), has on the conditions of competition in the market for broadband services.

The regulation’s objectives are the promotion of access to telecommunications for all sectors of the population, the protection of the rights of the users, operators, and service providers, the development of a competitive telecommunications market and the rational and efficient use of RES. RES[iii] is a scarce public resource fundamental for essential sectors such as telecommunications and for services such as mobile and wireless broadband. The reason for the regulation of RES is its scarcity and the fact that competing uses of the same frequencies result in chaos[iv]. Barriers to entry through the hoarding of RES are a type of business strategy[v].

The controversy points out market failures in terms of missing markets for the provision of full national coverage of broadband services. Three operators, Telefonica, Claro, and Tigo, offer 3G and/or 4G only in restricted areas close to the main cities. Digicel does not offer 3G, nevertheless, is the only one with national coverage for 4G services. The fact that the frequencies assigned for mobile telecommunications have all been licensed to incumbents[vi] and that no entry has occurred in the last 10 years indicate that the lack of RES is a barrier to entry.

SIGET, the regulator responsible for the management of RES, orders public auctions upon requests of licenses for its use. Licenses have a 20-year term and are adjudicated to the highest bidder. From a public policy and competition policy point of view, the legal framework is fundamentally flawed: it bans an evaluation for the appropriateness of issuing licenses of RES according to its rational and efficient use.

“Effective policy must recognize competition issues in the downstream market for wireless services”[vii]. Superintendencia de Competencia, the national competition authority, performed a substantial analysis on the topic and issued recommendations to SIGET on how to promote and protect competition through the management of RES[viii], for example, by performing auctions exclusively for entrants. Unfortunately, its recommendations are not binding for the regulator.

An analysis from a public law perspective can identify if the regulation favors certain players at the detriment of others and if competition and consumer welfare are neglected. The question to be answered is how the LT protects or neglects the interests of the players involved.

Starting with incumbents, who in majority have colluded in the past[ix], they would prefer to maintain the status quo and close the market than to confront pressures of an entrant. The price for closing the market can be paid through an auction, even if overbidding is necessary. The LT permits this strategy and facilitates foreclosure. On the contrary, potential entrants are negatively affected. They might not posses at once the economic resources necessary to win an auction against motivated incumbents and to invest on sunk costs to enter the market. Being implicitly excluded from a positive outcome in the auction and from the downstream market means they are losers. Moreover, the LT gives them incentives to abstain from participating in auctions.

The SC is obstructed from protecting and promoting competition to achieve economic efficiency and consumer welfare because its opinions and recommendations on the efficient management of RES are not binding for SIGET. SC could even be demotivated to continue spending resources in performing analysis and recommendations on a topic that has a dead end with the regulator. The SIGET is unable to achieve its own objectives because the LT inhibits it from evaluating the efficiency and rationality in allocating RES. New market failures cannot be prevented or corrected. The central government, receiving millions of dollars to be paid in the auctions, supports emphatically the higher bidder-winner design and fails to acknowledge the new market failures faced in the industry. Favored with additional income, it has no intentions to reform the legal framework. Finally, consumers, the most important of all, are deprived from wider choices and from the benefits of vigorous competition, innovation, lower prices, and ample access to broadband benefits in wider geographical areas. Hence, consumers are losers.

From a competition law and public law perspective, an efficient management of RES and a national broadband planning for the long term should be a priority in developing countries. The state is responsible for these and its responsibility cannot be circumvented by the economic gains resulting from a higher bidder-winner auction design. Auctions for licenses of RES are a way of efficient allocation and encouragement of investment. For this, the regulator should make efforts to remove the legal obstacles that obstruct its responsibilities. Then, evaluate the existence of market failures, the conditions of competition in the market (with the support of the competition authority), the legitimate needs of RES of the incumbents and the asymmetries between incumbents and entrants. The ideal outcome of an auction and its design should be based on a case-specific analysis. The design of auctions of RES must have as objectives attracting entrants, preventing collusion and promoting competition both in the auctions and in the downstream markets[x]. Regulations that inflexibly favor the higher bidder-winner may hinder competition, obstruct economic efficiency, economic growth and neglect consumer welfare. Such design does not guarantee that the winner could give the most efficient use of RES. Aiming for the highest price does not imply success in public policy nor economic efficiency in benefit of consumer’s welfare.

*LLM in International Competition Law and Policy, University of Glasgow, School of Law, Scotland, United Kingdom. Candidate for the LLM in Law and Economics, University of Utrecht, Netherlands. Head of the Mergers Control Unit in Superintendencia de Competencia, El Salvador, from January 2012 to August 2015.

References

[i] See recent declarations on local newspapers, available at: http://www.laprensagrafica.com/2015/10/15/el-salvador-el-pais-mas-atrasado-en-telecomunicaciones-de-latinoamerica

[ii] See, Government of El Salvador’s official webpage, available at:

http://www.presidencia.gob.sv/el-salvador-en-primeros-lugares-de-latinoamerica-en-crecimiento-de-acceso-a-telefonia-roberto-lorenzana/

[iii] Radio waves or hertzian waves: Electromagnetic waves of frequencies arbitrarily lower than 3 000 GHz, propagated in space without artificial guide. See the Radio Regulations Articles, International Telecommunication Union (ITU) Library & Archives, Edition of 2012, pg. 7, available at: http://www.itu.int/dms_pub/itu-s/oth/02/02/S02020000244501PDFE.PDF

[iv] Ozanich G.W., Hsu, C., Park, (2004). H. 3-G wireless auctions as an economic barrier to entry: the western European Experience, Telematics and Informatics 21, pg. 227. Available at: https://www.researchgate.net/profile/Han_Park/publication/223696166_3-G_wireless_auctions_as_an_economic_barrier_to_entry_the_western_european_experience/links/00463536b910a89e98000000.pdf

[v] Porter, M., (1984). Competitive Strategy: Techniques for Analyzing Industries and Competitors. Free Press, NY., pg. 13-14.

[vi] According to the Cuadro Nacional de Atribucion de Frequencias (Table of national assignation of frequencies), see at: http://www.siget.gob.sv/attachments/2213_CNAF%202004%20y%20modificaciones%20al%202014.pdf

[vii] See, Cramton, P., Kwerel, E., Rosston, G., Skrzypacz, A. (2011). “Using Spectrum Auctions to Enhance Competition in Wireless Services”, The Journal of Law and Economics, Vol. 54, pg. 168, available at: https://web.stanford.edu/~skrz/spectrum-auctions-and-competition.pdf

[viii] See the opinion issued by the Competition Authority of El Salvador, 11/10, 2013, pg. 11, available at: http://www.sc.gob.sv/uploads/SC-043-S-LP-R-2013_111013_1340.pdf and the decisions SC-016-S/C/R/2011 and SC-013-S/C/R-2012

[ix] See Superintendencia de Competencia decision on collusion: SC-017-O/PS/R-2010/RES:19-12-2011

[x] Klemperer, P. (2001).”How (Not) to Run Auctions: the European 3G Telecom Auctions”, November 2001, available at: http://dx.doi.org/10.2139/ssrn.297907, pg. 3

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18 January 2016
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Latin America

The Chain Reaction of the Poultry Cartel in Chile

By Benjamin Gomez*

On the last decade, Chile has witnessed an explosion in its cartel history. Strangely enough, while the latest Antitrust reforms have aimed to higher sanctions and invasive investigation methods, and the public scrutiny has increased as more information becomes available, the major corporations seem to have assumed the risk of taking a go at it anyway. This sense of invincibility and recklessness has given way to some of the most outrageous cartels, involving public health (raising the prices of medicine in the “Pharmacy Cartel” [1]) and even daily life hygiene (see the recent “Toilet Paper Cartel” [2]).

But there is another recent case which has been considered as Chile’s biggest cartel in terms of economic impact and duration, affecting the most basic of commodities. The latest episode of this story was released to the media when on January the 6th, 2016, the National Antitrust Prosecutor of Chile (Fiscalia Nacional Economica – FNE) filed a claim against the three major supermarket companies of the country, Walmart, Cencosud, and SMU, for coordinating a cartel in the market of fresh poultry sale to end consumers, where they reach a combined market share of over 90%.

However, this is nothing but a shrapnel deriving from a previous cartel case, commonly known in Chile as the “Poultry Cartel”, articulated by the three major poultry producers of the country, Agrosuper, Ariztia, and Don Pollo, who combined have an 80% of the total national market share, with poultry being the highest consumed meat per-capita. In its investigation, the FNE determined that the cartel rested on the permanent exchange of sensitive and strategic information which was very detailed in regards to the operations of the three companies involved. All of this under the wing of APA, the trade association which was in charge of monitoring the agreement. [3]

The evidence of the second cartel planned by the supermarket companies came during the investigation of the main Poultry Cartel formed by the producers. It was a flawless strategy for the FNE to actually wait for the first case to be discussed and resolved by the Antitrust Tribunal (Tribunal de Defensa de la Libre Competencia – TDLC), and later upheld by the Supreme Court of Chile, and only then file its second claim on the secondary colluded market. Indeed, on October 30th, 2015, the Supreme Court found that “a cartel existed among the defendants, it was coordinated by APA, and affected one element of competition since it allocated market quotas among its members and limited the production of meat destined to local consumption” and therefore imposed maximum legal fines as provided by law for cartel conduct to Agrosuper and Ariztia (US$23.3 million each approximately); and of US$9.3 million to Don Pollo. [4] This historic ruling also confirmed the TDLC’s initial decision ordering the dissolution of the APA, turning the spotlight on trade associations and guilds in all markets.

It is truly a vertical chain reaction, where one cartel in a specific relevant market gives way to another cartel in a different industry. Yet, the accused supermarket companies could not prevent this storm coming their way, as their files and computers had already been seized for the initial Poultry Cartel investigation; their fate was already written. With the existence and illegality of the first cartel already established by the country’s highest court, we can already guess what future awaits for the supermarkets.

The new accusation is a serious one: instead of calling it out, the supermarkets took advantage of the existing price fixing agreements from the main Poultry Cartel, and coordinated with those producers to monitor the agreed prices in the three main supermarket chains – and in other smaller competitors as well – in order to set a minimum sale price for fresh poultry products to final consumers. It is an interesting case of two cartels operating and cooperating simultaneously, something completely new and outrageous in the local Antitrust scene, or what we could call a “same-product / multi-market cartel”.

But the chain reaction does not end with this new prosecution by the FNE. This aggressive revelation of Chilean cartels to the public is raising again the question among the media and politicians of what actions can possibly be taken to prevent the most serious Antitrust conduct to keep taking place. The conversation is heading towards reinstating imprisonment as a sanction. Until 2003, Chilean Antitrust legislation contemplated up to 5 years of prison for these anticompetitive conducts (although no one was ever sentenced). Michelle Bachelet’s government has taken action in the middle of the storm, and passed a bill on October of 2015 – to be approved by Congress – not only to reinstate prison time for cartels, but increasing its duration to twice as high, going to up to 10 years for the most serious cases.

The government’s proposal also makes other amendments to Decree Law 211 – the Antitrust statute in Chile – by giving more incentives to use the current leniency program, increasing economic sanctions, and incorporating the prohibition to hold a position in public office for the term of 5 years as a new punishment. This is a clear sign that in almost a decade since its creation, the statute has failed to be dissuasive enough, having to be amended each time a high-impact cartel is revealed. This already happened with the Pharmacies Cartel – which generated the first major amendments back in 2008, which raised fines and created the current leniency program – and now another case is raising the punishment bar once again.

I have pondered in the past on the evolving nature of Antitrust as the only legal field governed by common law in a strongly civil law-based system as Chile [5], but it is still interesting to raise the question: Is this flexibility of the statute a positive aspect, allowing the law to keep adapting to the times and to new anticompetitive conducts? Or is it instead a sign of weakness, proving it is more a reactive statute than a dissuasive one? Whatever the conclusions may be, the legal changes are already on their way as the aforementioned bill has already been unanimously approved in its first discussion stage at Congress last November – something quite rare for the divided Chilean legislature – and is expected to be passed definitely in the terms proposed by the government early this year.

* Attorney at Law, Pontificia Universidad Católica de Chile
LL.M., University of California, Berkeley, School of Law

[1] http://www.concurrences.com/Bulletin/News-Issues/September-2012/The-Supreme-Court-of-Chile-upholds?ordre_suivant=date_redac&onglet=1&lang=fr

[2] http://www.economist.com/news/americas/21679517-new-breed-competition-regulator-takes-cartels-toilet-paper-tangle

[3] http://www.fne.gob.cl/english/2015/10/29/chilean-supreme-court-upholds-fines-for-collusion-against-agrosuper-ariztia-and-don-pollo-and-hardens-sanction-against-the-trade-association/

[4] Idem.

[5] http://www.concurrences.com/Bulletin/News-Issues/September-2012/The-Supreme-Court-of-Chile-upholds?ordre_suivant=date_redac&onglet=1&lang=fr

28 December 2015
1 Comment
Latin America

How Does Competition Policy in Venezuela Look Like?

By Francisco Beneke*

Venezuela is a country with a high level of state intervention in the economy. Comparatively speaking, it has one of the highest yearly average investment rates in Latin America in the period between 1992 and 2012.[1] However, a big portion comes from the public sector, on average around 45 percent.[2]

The high level of government involvement in the economy is latent not only in its high share of investment but also in the widespread use of price controls. Venezuela has a Fair Prices Law that gives The Superintendencia Nacional para la Defensa de los Derechos Socioeconómicos the power to regulate the price of goods and services of any product in any stage of the production chain according to their strategic importance and benefit to the population (Art. 11, number 3).[3] The authority has issued several decrees with maximum prices for a wide array of products in the food, hygiene products, and services markets.[4]

In a country where state intervention is so pervasive the question arises: what is the role of competition policy?

One could think that, under such circumstances, competition policy would certainly take a back seat in the priorities list of policy makers. However, there are some reasons to believe that this is not the case. In November 2014, Venezuela’s president, Nicolás Maduro, issued with delegated powers from the national congress a new antimonopoly law. The statute was envisioned to serve as a tool in the fight against the so-called economic war.[5] For those who follow news about this South American nation, it is not uncommon to hear about empty aisles in supermarkets or how expensive the dollar is in black markets. Venezuela’s government has attributed this current predicament to a concerted action from its opposition and the private sector to destabilize the country and generate discontent in the population. This is what in the rhetoric of the government constitutes the economic war.

How has the new Superintendencia Antimonopolio handled itself in this scenario? To answer the question, a first approximation can be reached by looking into the authority’s enforcement activity and that of its predecessor. The use of the economic war term in Venezuela can be dated as far back as 2010 when Hugo Chávez declared war against the country’s largest corporate group[6] and it is still used today by Nicolás Maduro to accuse the private sector as the culprit of the current economic crisis. From 2010 to this date, there has only been one decision that found a firm guilty of monopolization.[7] There were no decisions punishing cartels and the rest of the cases where there was some finding of liability were regarding unfair business practices. Thus, the Superintendencia Antimonopolio’s (and its predecessor’s) contribution in the economic war has to be found in areas other than its enforcement practice.

To keep track of the Superintendencia Antimonopolio’s activity, one could survey its media and external relations communications. Starting with the authority’s webpage, upon access, a message appears stating that the economy should not be used as a war weapon and lists some countries such as Nicaragua and Chile, apparently for currently sharing or having shared at some point the same situation. This could signal alignment with the central government given the use of the same rhetoric to describe the economic crisis. However, one has to bear in mind that the Superintendencia Antimonopolio was created as an institution designed to fight in this so-called economic war. As a consequence, the use of the term comes as no surprise.

The authority’s twitter account tells a part of the story. After the results of December the 6th’s parliamentary elections evidenced an overwhelming defeat of the ruling party, the authority focused its social media efforts to transmit messages of comfort and encouragement to the revolution (term used to refer to the current government’s political agenda). It tweeted on how Hugo Chavez’s ideals were more alive than ever and that the people should walk with their heads straight. Amidst all these support messages, it was hard to find any communication of the authority’s activities regarding competition advocacy or law enforcement.

To answer the question of how competition policy looks like in Venezuela, at a first glance, it does not appear to be either an independent one from the central government or an active one in law enforcement. This post is a short one and has only aimed to provide a first approximation. Part of the answer also lays in taking a closer look at the 2014 law or simply waiting for more developments since one year of life could be construed as a short period of time in institutional years. With the promise of future posts on the matter, it will be interesting to see how the Superintendencia Antimonopolio works under the new political scenario created by this December’s elections.

*Co-editor, Developing World Antitrust

[1] Data from the World Bank Development Indicators, available at http://data.worldbank.org/indicator/NE.GDI.FTOT.ZS. Table for Latin America available upon request.

[2] Constructed from data on gross fixed capital formation, total and private sector, from the World Bank Development Indicators, available at http://data.worldbank.org/indicator. Disaggregated data for private investment was only available for the years 1997-2010. The tables for Latin America and calculations are available upon request.

[3] Leyes contra la Guerra económica (Laws against the economic war), p. 3, available at http://www.minci.gob.ve/wp-content/uploads/2015/02/Ley-contra-la-guerra-econ%C3%B3mica.pdf

[4] Http://www.superintendenciadepreciosjustos.gob.ve/?q=precios-justos.

[5]Leyes contra la Guerra económica, available at http://www.minci.gob.ve/wp-content/uploads/2015/02/Ley-contra-la-guerra-econ%C3%B3mica.pdf.

[6] ABC (Spain): “Chávez declara la guerra a la «burguesía»” http://www.abc.es/20100603/internacional-iberoamerica/chavez-guerra-burguesia-201006030413.html.

[7] Decision N° SPPLC/0043-2013 of December 23, 2013, available at http://www.procompetencia.gob.ve/images/resoluciones/cotecnica.pdf.

7 July 2015
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Latin America

The Adoption of Modern Competition Policies in Latin America – Part II: South America

By Francisco Beneke*

(Last updated on 5 June 2017)

As announced last week, the data for the Latin-South American countries is presented in part II.

The criteria for setting a starting date of modern competition policy is transcribed from the last post: “The starting date is counted from when a competition authority started to exist, who is in charge of enforcing an antitrust law applicable on an economy-wide basis, as opposed to sectoral regulation of competition. Exclusively criminal liability statutes are excluded since experience has shown they were seldom enforced and, therefore, cannot be counted as a policy apt to deter anticompetitive behavior. For the same reasons, in some cases I do not start counting from the year of the country’s first economy-wide competition law if they were either not enforced or done so in procedures without the expectation of a dissuasive penalty. More details will be presented as each country is analyzed.”

  1. Colombia

Colombia has a law that dates back to 1959, but according to the OECD Peer Review of 2009 the regulations that accompanied the law “were insufficient to implement the law effectively, and it was seldom enforced for the purpose of preserving competition” (OECD (2009, p. 12)).[1] The history of the Superintendencia de Industria y Comercio reported on its website confirms this tendency towards favoring price regulation before de 1990s.[2] There are no online sources for case law prior to 2000. Since I do not have the bibliographical resources to confirm a scarce or null application of the 1959 law in its first decades, the date of 1992 in the OECD peer review is presented as the starting date of modern competition policy in Colombia.

  1. Venezuela

Venezuela’s first competition law was enacted towards the end of 1991, came into force in January 1992, and the authority in charge of enforcing it started operations in April 1992.[3] This latter date is taken as the start of modern competition policy in Venezuela

  1. Ecuador

Up until the end of 2011, Ecuador lacked an economy-wide competition law. The Ley Orgánica de Regulación y Control del Poder de Mercado was enacted in September 2011 and came into force the next month. However, the Superintendencia de Control del Poder de Mercado’s president was ratified by congress on September 2012.[4] The first procedure of law enforcement that can be found in the authority’s website has a 2012 reference.[5] Thus, modern competition policy in Ecuador started towards the end of 2012.

  1. Peru

Peru’s first competition law dates back to November 1991.[6] The institution in charge of the law’s enforcement is the Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual, was created in November 1992,[7] and started operations in March 1993 (OECD (2004, p. 13)).[8]

  1. Brazil

Brazil is one of the cases where it is more complicated to find a starting date for modern competition policy. There are some provisions that date back to 1951, aiming to reform the law on economic crimes (CUTS (2006, p. 550)).[9] Nonetheless, the OECD traces back the origin of modern competition policy to the 1994 law (OECD (2010a p. 9))[10]. There appears to be a consensus that the previous 1990 law was largely ineffectual. In the Conselho Administrativo de Defesa Econômica’s (CADE) website there are cases that date back to complaints filed in 1988. However, with very few exceptions that this researcher could find, the vast majority of cases were decided after 1994. This is in accordance to CUTS’s report on Brazil where it is stated that most of CADE’s decisions relate to old procedures, where no violations were found due to lack of information (CUTS (2006, p. 551))[11]. Thus, Brazil’s modern competition policy’s starting year is set as 1994.

  1. Bolivia 

Modern competition policy started in April 2008.[12] In this case, the date is counted from the enactment of the law because the powers to enforce it were conferred to an already existing authority.

  1. Chile

The first competition law was enacted in 1959.[13] However, in the words of the current Fiscal Nacional Económico, it was not until 1973, with the Decreto 211 that a law created a proper competition law system.[14] The FNE has an online record of decisions that date back to 1974. According to the OECD, the period of 1959 to 1973 saw very little activity in competition policy, and the majority of decisions were recommendations to prevent future violations (OECD (2010b, p. 9)).[15] The CUTS report on Chile largely agrees with these, arguing that in the period prior to the 1973 law the main focus was on price controls (CUTS (2006, p. 564))[16]. Therefore, 1973 is set as the starting year of modern competition policy in Chile.

  1. Argentina 

Argentina has a history of outlawing anticompetitive behavior that goes all the way back to the laws of 1923 and 1946. These statutes were of criminal nature and in the period of 1933 to 1980 a total of four cases resulted in sanctions (OECD (2006, p. 8)).[17] According to the OECD, modern competition law in Argentina started with the 1980 law, although it was also seldom enforced until the mid-1990s when the pace quickened (Id., p. 9). According to the Argentinian competition authority itself (Comisión Nacional de Defensa de la Competencia (CNDC)), it had relevant activity only since 1997.[18] The CNDC attributes this to two main reasons: First, before the 1990s the Argentinian economy followed mostly a central planning model; and second, in the 1970s and 1980s the government actively incentivized price-fixing behavior.[19] In light of all this, the starting date of modern competition policy in Argentina is set to 1997.

  1. Paraguay

Paraguay’s first competition law was enacted in 2013, which created the Comisión Nacional de Defensa de la Competencia. All members of the board of directors were appointed in 2015 and the Investigations Director in September of 2016.[20] According to a newspaper article, there are some investigations under way but it is not possible to confirm this because there is no available website for the Comisión. The Asociación Paraguaya de Estudio sobre Defensa de la Competencia has kindly provided information on merger control activity as well as a starting date of operations of the authority––June 2016.

  1. Uruguay

The first competition law was enacted in 2000, but the authority in charge of enforcing it was designated until February 2001 (Bergara (2003, p. 79)).[21] This authority was the pre-existing Dirección General de Comercio. Setting the aforementioned date as the start of modern competition policy in Uruguay is troublesome for one reason. Penalties in this first law appear to not have been dissuasive. According to article 157 of the Law 17.296, the fines for violations ranged from 500 to 20.000 Unidades Reajustables (UR).[22] To have a general idea, in December 2000, this was equivalent to a range between 8.086 USD and 323.451 USD.[23] In contrast, the current law’s ceiling for fines is the highest of either 20.000.000 UR, 10% of annual revenue of the firm, or the equivalent to three times the damages of the conduct when they can be measured.[24] Therefore, the date for Uruguay is set as that when the current competition authority commenced operations, which is March 2009.[25]

As it can be seen, the date from which the start of modern competition policy can be counted is not 100 % clear in many cases. Some judgment calls had to be made according to the criteria presented at the beginning of both posts. Even if there could be some disagreement regarding the dates set here, the sources and argumentation have been made explicit so that they can be a useful input for anyone interested in the subject.

To conclude, the research shows that the time frames in which competition policies were adopted in Latin America are significantly diverse. In the two extremes we have Chile with a modern regime since 1973, and Paraguay, Guatemala, the Dominican Republic, and Haiti as part of the ever-smaller club of countries that still lack an operating competition policy. In between, we have the 1990s’ wave that coincided with a period of economic liberalization in the region and the second wave of adoptions in the first decade of the 21st century.

The table below summarizes the information for the South American countries.

Country Starting date of modern competition policy
Colombia 1992
Venezuela 1992
Ecuador End of 2012
Peru 1993
Brazil 1994
Bolivia 2008
Chile 1973
Argentina 1997
Paraguay 2016
Uruguay 2009

*Co-editor, Developing World Antitrust

[1] Colombia – Peer Review of Competition Law and Policy. OECD, 2009. Available at http://www.oecd.org/daf/competition/44110853.pdf

[2] Http://www.sic.gov.co/drupal/historia.

[3] Http://www.lcuc.cl/documentos_down/mapa/venezuela.pdf.

[4] http://issuu.com/scpm2013/docs/plantilla_enero2?e=7566755/4091848

[5] http://www.scpm.gob.ec/wp-content/uploads/2014/12/Resolu_24ene.pdf

[6] http://www.indecopi.gob.pe/0/modulos/JER/JER_Interna.aspx?ARE=0&PFL=2&JER=88

[7] http://www.indecopi.gob.pe/0/modulos/JER/JER_Interna.aspx?ARE=0&PFL=0&JER=600

[8] Peru – Peer Review of Competition Law and Policy. OECD, 2004. Available at http://www.oecd.org/daf/competition/34728182.pdf

[9] http://competitionregimes.com/pdf/Book/Americas/104-Brazil.pdf

[10] Brazil – Peer Review of Competition Law and Policy. OECD, 2010. Available at http://www.oecd.org/daf/competition/45154362.pdf

[11] http://competitionregimes.com/pdf/Book/Americas/104-Brazil.pdf

[12] Decreto Supremo 29519 of April 16, 2008.

[13] http://www.lcuc.cl/documentos_down/mapa/chile.pdf

[14] http://www.fne.gob.cl/wp-content/uploads/2011/05/OTRO_0001_2010.pdf

[15] Chile – Peer Review Competition Law and Policy. OECD, 2010. Available at http://www.oecd.org/chile/47951548.pdf

[16] http://competitionregimes.com/pdf/Book/Americas/106-Chile.pdf

[17] Argentina – Peer Review of Competition Law and Policy. OECD, 2006. Available at http://www.oecd.org/daf/competition/Argentina-CompetitionLawPolicy.pdf

[18] http://www.cndc.gov.ar/memorias/memoria97/memoria3.htm

[19] Id.

[20] http://www.presidencia.gov.py/archivos/documentos/DECRETO5990_t5q051l7.pdf.

[21]https://books.google.de/books?id=esb5agSJfkkC&pg=PA79&lpg=PA79&dq=Decreto+Reglamentario+86+del+2001+Uruguay&source=bl&ots=01dx9KDZU5&sig=y5Xv-sVqsGv6KwJk0yWhluI6GVA&hl=es&sa=X&ved=0CDIQ6AEwA2oVChMI4YWUo96WxgIVRdksCh0MmQaE#v=onepage&q=Decreto%20Reglamentario%2086%20del%202001%20Uruguay&f=false

[22] http://www.parlamento.gub.uy/leyes/AccesoTextoLey.asp?Ley=17296&Anchor=

[23] UR values can be found here http://www.impo.com.uy/bancodatos/ur.htm and the historic of exchange rates here http://www.cambio.com.uy/index.php?op=Default&Date=200012&blogId=1

[24] Article 17 of the law 18.159. http://www.parlamento.gub.uy/leyes/AccesoTextoLey.asp?Ley=18159&Anchor=

[25] http://competencia.mef.gub.uy/innovaportal/file/1439/1/2010_03_22_memoria_2009.pdf

Tagged
29 June 2015
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Latin America

The Adoption of Modern Competition Policies in Latin America – Part I: North and Central America and the Caribbean

By Francisco Beneke*

(Last updated on 12 April 2017)

Competition policy, as we now know it, is a relatively recent phenomenon in some Latin American countries, not so new in others, and non-existent in an ever smaller group. The issue of antiquity is illustrative of the context in which enforcement authorities and the courts interact with each other. It can affect the degree to which they are influenced by older regimes and also tell us something about the path of institutional strengthening that every authority undergoes. In other words, one would expect that long-standing competition authorities face different challenges than their younger counterparts.

Because the post was turning into a lengthy document, I will divide it in two parts. Part I deals with North and Central America and the Caribbean, and part II will present the information corresponding to South America. The latter will be published in one-week time.

The year in which I consider that a modern competition policy began in each Latin American country is presented. The starting date is counted from when a competition authority started to exist, who is in charge of enforcing an antitrust law applicable on an economy-wide basis, as opposed to sectoral regulation of competition. Exclusively criminal liability statutes are excluded since experience has shown they were seldom enforced and, therefore, cannot be counted as a policy apt to deter anticompetitive behavior. For the same reasons, in some cases I do not start counting from the year of the country’s first economy-wide competition law if they were either not enforced or done so in procedures without the expectation of a dissuasive penalty. More details will be presented as each country is analyzed.

  1. Mexico

Mexico’s first competition law entered into force in June 1993, and created the Comisión Federal de Competencia.[1] It is hard to find the exact month when the institution started to operate. According to the first annual report, merger control activity and the prosecution of anticompetitive behavior started during the second half of 1993.[2] Therefore, that year is set as the starting date of modern competition policy in Mexico.

  1. Guatemala

Guatemala is one of two countries in Latin America that still does not have an economy-wide competition law.

  1. El Salvador

El Salvador’s first competition law entered into force in January of 2006, date in which the antitrust authority, Superintendencia de Competencia, started to operate.[3]

  1. Honduras

Honduras’s first competition law entered into force in February 2006 but it was not until December of that year that the Comisión para la Defensa y Promoción de la Competencia started to operate.[4]

  1. Nicaragua 

Nicaragua’s first competition law came into force in June 2007, but it was not until March 2009 that the first authorities were elected and started to hire the authority’s first team of professionals.[5] Therefore, the latter date is set as the beginning of competition policy in Nicaragua.

  1. Costa Rica

According to the OECD peer review of competition policy in Costa Rica, the Comisión para Promover la Competencia started to function in 1996 (OECD (2014, p. 7)).[6] However, the same report states that the first cases decided by the authority date back to 1995 (Id., p. 28 & 34). The authority’s website shows the same information of a cartel and an abuse of dominance case that were resolved in 1995.[7] It appears that the OECD 1996 date may have been a mistake and that the real year in which the antitrust law began to be enforced was 1995.

  1. Panama

Panama’s first competition law was enacted in February of 1996, but according to the OECD peer review, the antitrust authority received its first endowment in 1997 (OECD (2010a, p. 57)).[8] Indeed, 1997 is the first year in which the Comisión de Libre Competencia y Asuntos del Consumidor reports activity.[9]

  1. Dominican Republic

The Dominican Republic’s first law was enacted in 2008 but the authority was only able to start its enforcing tasks in January 2017 because that was the date when its Executive Director was chosen.  [10]

  1. Haiti

Haiti is the other one of the two Latin American countries that does not have a competition law.

The table below presents a summary of the information.

Country Starting date of modern competition policy
Mexico Ca. June, 1993
Guatemala No competition law enacted
El Salvador January, 2006
Honduras December, 2006
Nicaragua March, 2009
Costa Rica Ca. January, 1995
Panama Ca. January, 1997
Dominican Republic January, 2017
Haiti No competition law enacted

To conclude, it is worth noting that Mexico’s policy is the oldest from the countries under analysis. In Central America one can distinguish two waves of adoption of competition policy, with Costa Rica and Panama as the pioneers. The rest of Central America caught up some 11 to 14 years later with the exception of Guatemala, who under the Association Agreement with the European Union has the obligation to pass a competition law by the end of November of 2016. The two sovereign Latin-Caribbean states lack competition policies as well, though the Dominican Republic is just a few steps away.

*Co-editor, Developing World Antitrust

[1] Http://189.206.114.203/index-cfc.php?Itemid=617.

[2]Http://189.206.114.203/images/stories/Publicaciones/Informesanuales/completos/informe9394completo.pdf.

[3] Http://www.sc.gob.sv/pages.php?Id=8&Id_menu=102010.

[4] Https://www.cdpc.hn/sites/default/files/Privado/Memorias/memoria%25202006.pdf.

[5] Http://www.procompetencianic.org/info/2012/InformeEjecutivo2009.pdf.

[6] Http://www.oecd.org/daf/competition/CostaRica-PeerReview2014esp.pdf.

[7] Http://www.coprocom.go.cr/que_hacemos/sanciones.html.

[8] Http://www.oecd.org/daf/competition/46587096.pdf.

[9] Http://www.acodeco.gob.pa/acodeco/view.php?arbol=4&sec=19&pagi=0.

[10] Https://www.diariolibre.com/economia/nueva-directora-ejecutiva-viene-a-darle-validez-a-pro-competencia-CG5932567.

Tagged
6 March 2015
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Latin America

Uber: Competition between platforms, innovation and economic policy in Colombia

By Victor Ayalde Lemos*

The relationship between law and the digital economy has been widely discussed. Low barriers to entry and costs, an important characteristic of the digital economy, enable market participants to offer free or very cheap products. The latter means that competitive differentiation is no longer patent through price differences, but through innovation and other added values that can be offered.

The aforementioned is just a manifestation of the undeniable premise that the digital economy evolves faster than the interpretation and application of the law. This situation generates an incentive for legislators and regulatory authorities to issue new regulations or amend the existing ones in order to include the new business models. Such is the case of one of the most obvious platforms: the Internet.[1]

I consider that the intervention in the economy by legislative and regulatory bodies should be minimal. Indeed, there is evidence that regulation on digital affairs tends to be ineffective (SOPA, PIPA, Ley Lleras, Hadopi, Sinde, among others) given the fact that problems are due to mainly the lack of adaptability of incumbent market suppliers. The answer to these problems has been a mix of enforcement (to a limited extend), but mostly from the acknowledgment of firms that they must adapt to the current trends and compete through innovative competition (Itunes, Netflix, HBOgo and other on demand content services).

In regulated markets, some incumbents use, the old argument, that new businesses infringe upon the current legal framework and thus they should be banned from any economic activity. Some countries have been, willingly or unwillingly, accomplices of this undesirable behavior, which of course can represent the breach of international treaties and principles such as national treatment and most favored nation.

From an economic policy view, it could have harmful effects: discouraging investment and undermine the exercise of consumers’ fundamental right of free choices of quality products. In this context, the Uber case becomes relevant, as it will send a message regarding the path that Colombia has chosen as a business forum in a globalized and digital economy.

Professors Fox and First, from NYU law school, have considered Uber as a technology platform-app, which can have an important impact on this market globally[2]. And is under this premise that I believe that the anticompetitive effects of Uber should be assed. Otherwise, it would mean that Tappsi and Easytaxi are ground transportation companies, and that apps such as Domicilios Bogotá[3] are restaurants, and Metrocuadrado[4] is a real estate company. Consequently, it is clear that, on one side, we have the market of technology platforms and, on the other side, there are transportation services associated with these platforms. The latter is just one end of the platform that uses it as means to provide its services to the clientele that also is deciding on which platform to use to acquire the services.

Bearing the latter in mind, we now shall analyze the antitrust and unfair competition accusation against Uber, summarized as follows: (i) an alleged price fixing arrangement; (ii) excessive pricing; and (iii) unfair competition for violating the general prohibition in which all participants in the market must always respect the principle of good faith in commerce and other regulations. In order to make the right approximation to the matter, I would invite readers to approach inter and intraplatform competition in the same manner as inter and intrabrand competition.

First, lets address the price fixing allegations. In my view, this is an intra-platform problem. Uber price is calculated based on the number of users demanding the service and the suppliers at a given time. The platform price is devised so as to increase and decrease under the free play of supply and demand. Therefore, price surges offer an incentive for drivers to join the platform. All this, of course, adjusted to the traveled distance and time as it occurs in the case of taxis where there is also a fixed factor that is multiplied by the number of traveled meters. In this sense, price is set according to an algorithm vertically determined by Uber which responds to supply and demand criteria, and has the necessary elements that serve to promote competition between platforms.

Besides all of the above, it is important to understand that antitrust law embraces the idea that any vertical restriction is relevant only if it represents an abuse of dominant position. In this case, there is no such position because Uber drivers are free to associate to any platform and offer their services directly by using the commercialization channels described before. Users can freely choose between Uber, Tappsi, Easytaxi or any other transportation mode they deem convenient. Thus, both suppliers and consumers are price-takers and in this way, neither can determine price.

This takes us to the second restriction: excessive pricing. This problem is being generated by the wrong interpretation of the current legislation, blocking Uber´s access to the national market. Determining that Uber is a transportation undertaking and thus unable to render its services without a license, generates a shortage in the market, which affects all the vehicles that want to associate to multiple platforms and the users that have to choose between them.

Additionally, it is important to consider that regulated taxi fares are not protecting users. Instead, they are generating a shortage in the provision of the service and a prejudice to consumers welfare because they can´t simply get around them – this cost is much higher as users who cannot transport themselves have to sacrifice satisfaction of other necessities as well. If we allow various platforms to operate, and taxis develop their own platforms and associate to them, competition between those markets can increase in an exponential way, contently leading to a competitive market price.

Finally, in relation to unfair competition allegations, it is important to understand that these supposed restrictions are the result of the wrong interpretation of the transportation law that rules in Colombia. First they are applying transportation regulation to an app, which is a platform that acts as a meeting point between supply and demand. And also, in regard to Colombian Regulations there is no such violation as Uber associated vehicles are licensed under special transportation services pursuant to Decree 147 of 2001.

It is then clear that the Uber case is a transcendental one. The way this case is handled will set the path that will label Colombia into one of two categories. The first one, as a country ready to be included in the global economy, where the fundamental principles of an economic model are respected without discrimination or undue restrictions on market agents – such us unlawful application of regulations -, which seeks to attract new and innovative business models in support of its economic development policy. Or, a country that is hostile to the above, in which old monopolist business models are allowed to maintain their rights under the abuse of law, generating interpretations that will aim to maintain a status-quo that in my opinion, is absolutely detrimental for both suppliers and consumers.

This is an invitation for legislators and regulatory authorities. We can´t keep regulating industries without necessity, and if we do it, we must follow the proportionality and rationality principles, without forgetting the legal and economic nature of those industries. Likewise it is an invitation to the incumbent economic agents who are confronting competition, to face it with new market strategies – innovation and added value – and not by legal actions, and for consumers, to maintain and raise their voice in order to require their constitutional rights to the freedom of choice and freedom of circulation.

[1] The Federal Communications Commission has long debated weather to include the Internet as a telecommunication service or information service. One or another would enable regulatory agencies to intervene to a greater or lesser extend on this platform.

[2]http://www.slate.com/blogs/moneybox/2015/01/13/uber_competition_can_a_global_taxi_alliance_put_other_ride_apps_on_the_map.html

[3] Online Delivery Directory.

[4] Listing Service similar to Craigslist.

*Associate, Esguerra Barrera Arriaga
LLM in Global Business Law (NYU-NUS)

Note from the editors: a spanish version of this post was originally published in Lalibrecompetencia.com. This blog entry comes as part of our collaboration agreement with Lalibrecompetencia. You can also check out the presentation of this post on the February Monthly Meeting of the Center for Competition Law Studies

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