Good practice in merger surveys

Friday, April, 2011

Competition specialists will have noticed that the two national competition authorities (NCAs) in the UK – the Office of Fair Trading (OFT) and the Competition Commission (CC) – have been publishing joint statements and initiatives recently.  This is probably the prelude to their merger into a single organisation.  Both are ranked in the highest echelon of NCA ratings worldwide and it is fair to expect that the new body would be highly regarded internationally.

In Ireland, there is a similar plan to merge the Competition Authority and the National Consumer Agency – one of the many radical recommendations made in the McCarthy Report (2009).  The proposal makes perfect sense and should be implemented as a matter of priority: the new authority would incorporate both supply-side and demand-side reforms, both of which are fundamental to the effective functioning of goods and services markets across the economy and ultimately to the restoration of Ireland’s competitiveness.

The CC and the OFT have just produced a guidance document on good practice in merger surveys (5 April 2011, available here).  The new document will be of interest to competition lawyers and economists and to market research organisations.  The initiative is a good example of effective competition policy – coordinated dialogue between NCAs and practitioners to inform good practice and help ensure that the correct decisions are made.

Empirical evidence is everything in competition studies, not least in merger reviews, and good survey data can sometimes represent the most important evidence in terms of NCAs’ decisions as to whether or not to approve a proposed transaction.  Survey data can inform market definition and competitive effects, including the closeness of competition between merging parties, barriers to entry and barriers to expansion, which can be the key issues in challenging cases (unilateral effects).  Sometimes the most compelling evidence is the simplest and well-designed and cogent survey data can be especially compelling.

According to the joint CC-OFT document, in order to be given the “greatest evidential weight”, consumer survey results should:

  • test clearly-stated hypotheses – in which the specific hypotheses to be tested should be set down before data collection;
  • be representative of the relevant consumer population – the survey should document how the sample reflects the population with regard to characteristics (e.g. age, socio-economic features, purchasing methods – depending on the market(s) under consideration);
  • deploy sound social research methods – the survey questionnaire should not influence consumers to give particular answers, ‘piloting’ of the survey questionnaire is advisable and responses to survey questions should be clearly set out; and
  • be reported in full, with supporting data available to allow key results to be replicated and tested – this should ideally include all the anonymous responses to the survey.

These survey design methods are reflective of good scientific practice more generally and the joint CC-OFT should be helpful to practitioners in Ireland and other countries as well as the UK.

Of course the duty to good practice in competition work works both ways: just as there should be an expectation for the merging parties and their advisers to show their design methods and results; so also should there be an openness on the part of NCAs to share their analyses and assessments with the parties and their advisers.  This sharing of information and meeting of minds helps in the merger review process and mitigates the risk of errors in merger decisions.

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