This presentation by Fabienne Ilzkovitz, Professor at the Université Libre de Bruxelles was made during the discussion “Assessing and Communicating the Benefits of Competition Interventions” held at the 75th meeting of the OECD Working Party No. 2 on Competition and Regulation on 12 June 2023. More papers and presentations on the topic can be found out at oe.cd/acbci. This presentation was uploaded with the author’s consent.

1. 1
Economic evaluation of the Macroeconomic
effects of Competition Policy
Fabienne Ilzkovitz
Professor, Solvay Brussels School of Economics and Management,
ULB
OECD Roundtable on
Assessment and Communication of the Benefits of Competition Interventions
Paris, 12 June 2023

2. 1.Definition, scope and objectives of evaluation
2.The customer savings approach
▪Definition
▪My takeaway
▪Strengths and limitations
3.The macro-modelling approach
▪Analytical framework: strengths and limitations
▪Mark-up shock applied to macro-model
▪Approach used to integrate the deterrent effects of
competition policy interventions
▪Illustration: main results
4.Conclusions and areas for further research
2
Contents

3. Economic evaluation of competition policy =
Economic effects of competition policy enforcement and its underlying
regulatory framework, as well as other activities of competition authorities
(CA)
▪ Competition policy enforcement = antitrust and cartel enforcement,
merger control (and State aid control at the EU level)
▪ Competition policy enforcement = output of CAs ( from competition)
▪ Ex-ante (to predict) and ex-post (retrospective) assessments of the
impact of competition policy enforcement 3
1. Definition, scope and objectives of evaluation
Direct and indirect
(deterrence) effects
on competition
Mark-ups
Business dynamism
Management quality
Innovation
Costs/Prices
Productivity
Growth/Employment
Competition Policy
Enforcement
Competition Policy
laws and institutions

4. 4
1. Definition, scope and objectives of evaluation
What to evaluate in the area of competition policy?
Activities
Impact on
Mergers Cartels Agreements
and abuse of
dominant
positions
Advocacy/
international
cooperation
Markets
Sector
Macro-
economic
impact
Blue = extensive evaluation activities; Yellow = some evaluation
activities; Red = a few or no evaluation activities

5. What?
Why?
Individual
decisions
Regulations/
policies
Sector
functioning
Macroeconomic
impact
Improve
enforcement
  
Improve
competition
policy rules
 
Setting
priorities
 
Legitimacy/
advocacy
   
Transparency/
accountability
   
5
1. Definition, scope and objectives of evaluation

6. Definition and method
Bottom-up approach to calculate the direct estimated customer benefits by
competition policy interventions during a given period of time
My takeaway
▪ Broad agreement with the OECD guiding principles.
▪ Keep the methodology simple and stable.
▪ Be transparent regarding the methodology and assumptions.
▪ Use case-specific information where possible.
▪ Calculate the assessment regularly (preferably on a yearly basis).
▪ Provide range of results based on robust assumptions and provide results by
instrument (if possible, in light of confidentiality concerns)
▪ Be cautious when interpreting results and making international comparisons.
6
2. The Customer savings approach
Avoided
price
Size of the
affected
market
Expected
duration of
the effect
Customer
savings

7. Strengths
▪ Relatively limited data requirements
▪ Useful for getting an idea of order of magnitude of the direct benefits of
competition policy interventions
▪ Useful for advocacy purposes
Limitations
Underestimates the benefits of competition policy interventions as various
effects of these interventions are not taken into account:
▪ Indirect effects of the transmission of the reduction in prices to the whole
economy
▪ Deterrent effects
▪ Non-price effects (innovation, quality and variety of products offered,
sustainability,…)
7
2. The Customer savings approach

8. Analytical framework
8
3. The macro-modelling approach
Strength of Competition Policy
Macroeconomic Effects:
(GDP, employment...)
Enforcement:
Merger, Antitrust and Cartel Decisions
Competition Policy
Laws and Institutions
Microeconomic Effects of
Competition Policy on Competition
on Relevant Market
1. Direct Effects
2. Deterrence Effects
↓ Prices
↓ Mark-ups

9. Strengths
1. Reinforce the micro-foundations of a macroeconomic assessment of
EU competition policy by making a link between the competition policy
interventions and mark-up shocks
2. Propose a method to integrate the deterrent effects of competition policy
3. Allows to measure indirect effects of competition policy interventions
(lower prices stimulate demand, which in turn leads to higher investment,
productivity and employment and ultimately is reflected in an increase in
GDP)
Limitations
1. Harder to model the chain of events following competition policy
interventions in the medium to long term than to look at the impact of a
specific decision in a given market.
2. Analysis based on a number of assumptions (direct price effects,
deterrent effects)
3. Analysis based on one transmission channel of the effects of
competition policy (effects of a decrease in mark-up) but ignores others
(business dynamism, innovation) 9
3. The macro- modelling approach

10. Mark-up shocks
▪ Permanent mark-up shock applied to a Dynamic Stochastic General
Equilibrium model, the QUEST model and associated with the direct
and deterrent effects of competition policy interventions made by the
European Commission.
▪ The permanent markup shock describes the decline in mark-up
(associated with the observed competition policy interventions of the
European Commission over 2012-2021), if the European Commission
would continue its competition policy interventions at the same pace into
a foreseeable future (comparison with the counterfactual of no further
interventions).
▪ Size of shock is similar to that used in studies aimed at assessing the
impact of competition friendly structural reforms in the EU (1.5 pp.)
10
3. The macro-modelling approach
Calibrated mark-up
level
Decrease in mark-up
due to CP
interventions in pp. in
the baseline.
Decrease in mark-up
due to CP
interventions in % in
the baseline.
13.56% 1.17 pp. 8.6%

11. Deterrent effects of competition policy (CP) interventions
▪Deterrence is modelled as a diffusion of information about CP
interventions:
‒ Competition authorities send an external signal () to market players
depending on the economic importance of the detected competition
law infringements.
‒ Interactions in the market, in particular via legal counsels and law
firms, stimulate the propagation of the deterrent effects of the signal.
‒ Deterrent effects of a CP intervention are primarily felt in the sector
directly affected by the intervention.
‒ The mere existence of a competition authority can have deterrent effects
on the behaviour of market players.
11
3. The macro- modelling approach

12. ▪ The external signal or detection activity is estimated by the size of
the markets directly affected by CP interventions over gross output in
the corresponding sector, using the customer savings database of EC
competition policy interventions over the period 2012-2021, i.e. σ =
(mkt/GO4)
12
3. The macro-modelling approach
0
0.1
0.2
0.3
0.4
0.5
0.6
0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09 0.1 0.2 0.3 0.4 1
Mergers Cartels AT101 AT102
mkt/GO4

13. ▪ The diffusion of the signal is modeled by the Bass model which assumes
that there is a positive (non-linear) relation between detection activity ()
and deterrence (ω): for small cases, the marginal effect of an increase in
detection activity is increasing while for large cases it is decreasing.
▪ According to this model, deterrent effects of a given intervention (depend
on:
▪ the initial level of deterrence in the market, which can be associated with
the reputation of the competition authority;
▪ the sensitivity of market players to the external signal (depending on the
detection activity) sent by the competition authority;
▪ the strength of the internal interactions between market players.
▪ In the baseline scenario, the parameters of the model are calibrated to
ensure that the deterrence multipliers (mktD/mkt) are consistent with survey
results:
▪ 10 for mergers and Art.102
▪ 20 for cartels and Art.101 13
3. The macro-modelling approach

14. 3. The macro-modelling approach
14
Deterrence = f(detection)
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
0.00 0.02 0.04 0.06 0.08 0.10
 = mkt/GO4
Baseline
Poor
reputation
Very good
reputation
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
0.00 0.02 0.04 0.06 0.08 0.10
Baseline
Little
interaction
Much
interactions
Illustration: Bass model simulations describing the deterrent effects
associated with merger decisions
ω ω
 = mkt/GO4

15. Illustration: Main macroeconomic results
15
3. The macro-modelling approach
Effects after 1 Y 5 Y 10 Y 50 Y
GDP 0.33 0.56 0.75 1.08
GDP deflator -0.24 -0.32 -0.44 -0.70
Employment 0.26 0.40 0.48 0.48
Labour
productivity 0.07 0.16 0.27 0.60
Consumption 0.33 0.48 0.66 0.96
Investment 0.52 1.09 1.33 1.71

16. ▪ Important to have a better knowledge of the overall effects of
competition policy interventions, especially for advocacy reasons.
▪ Customer savings approach is useful to get an order of magnitude
of the direct effects of CP interventions:
‒Keep the methodology simple, stable and transparent.
‒Increase the number of competition authorities making these
calculations
▪ Macro simulations allow to overcome some of the limitations of the
customer savings approach but based on a number of
assumptions.
▪ Need to improve the knowledge of the deterrent effects in
particular by updating the results of surveys on these effects.
▪ Consider measuring non-price effects by introducing other
transmission channels than mark-ups in macroeconomic
simulations.
16
4.Conclusions and areas for further research

17. Ilzkovitz F. and Dierx A. (2020), “Ex-post evaluation of Competition
Policy: the EU experience”, Wolters Kluwer,
https://law-store.wolterskluwer.com/s/product/ex-post-economic-
evaluation-of-competition-policy-eu-experience/01t0f00000NeT2eAAF
European Commission (2023), “ Modelling the macroeconomic impact of
competition policy: 2022 update and further developments”, forthcoming,
https://competition-policy.ec.europa.eu/publications/ex-post-economic-
evaluations_en
Dierx A., Ilzkovitz F., Pataracchia B. and Pericoli F. (2023), “Modelling the
diffusion of the deterrent effects”, Journal of Competition Law and
Economics,
https://doi.org/10.1093/joclec/nhad004
17
Main references