This presentation by John DAVIES, Member, Competition Appeal Tribunal UK, was made during the discussion “Out-of-Market Efficiencies in Competition Enforcement” held at the 141st meeting of the OECD Competition Committee on 6 December 2023. More papers and presentations on the topic can be found out at oe.cd/omee. This presentation was uploaded with the author’s consent.

1. OUT OF MARKET EFFICIENCIES
SLIDES ILLUSTRATING OECD BACKGROUND PAPER
John Davies
The author is a Member of the Competition Appeal Tribunal in the UK and an independent consultant. These are
personal views, not to be attributed to the Competition Appeal Tribunal or any other organisation. As a consultant, I have
advised numerous claimants and defendants in proceedings potentially involving out-of-market efficiency claims; of most
relevance, I was instructed as a testifying expert by UK retailers seeking damages from Mastercard for interchange fees.

2. OUT OF MARKET EFFICIENCIES – OVERVIEW OF
PRESENTATION
• Why should it matter?
• Approaches in practice and how differences often arise from different goals
• The role of market definition
• Pros and cons of considering OOM efficiencies and proposals for change
• An environmental exception?
• Some personal observations

3. • Efficiency benefits in mergers and agreements will often affect multiple markets,
so if overlaps are limited, the Authority’s approach to OOM benefits will matter.
• Mergers and agreements, especially, can shift balance of pricing and costs
between one activity and another – creating winners and losers
• An Authority open to OOM claims might accept the merger/conduct (or at least
soften remedies). One that rules them out would not.
• In practice, possibly not so much difference:
• Efficiency claims of any kind are very rarely accepted.
• Generally, authorities will seek the best of both worlds: remedies preserving
the efficiencies while resolving the competition concerns.
WHY SHOULD IT MATTER?

4. EXAMPLE 1
Two airlines merge, creating synergies overall but competition
problems on some routes
Overlap routes
Cheaper fuel

5. • “We are clear, however, that a merger the effect of which “may be substantially
to lessen competition” is not saved because, on some ultimate reckoning of
social or economic debits and credits, it may be deemed beneficial.”
• “When assessing [efficiency claims], the Agencies will not credit vague or
speculative claims, nor will they credit benefits outside the relevant market.”
• “Negative effects on consumers in one geographic market or product market
cannot normally be balanced against and compensated by positive effects for
consumers in another unrelated geographic market or product market. However,
where two markets are related, efficiencies achieved on separate markets can be
taken into account provided that the group of consumers affected by the
restriction and benefiting from the efficiency gains are substantially the same”
APPROACHES IN PRACTICE (CON)
United States v. Phila. Nat’l Bank, 374 U.S. 321 (1963)
US Draft Merger Guidelines 2023
EU Guidelines on exempting horizontal agreements from the Article 101 prohibition, 2004 initially

6. • [Even if an SLC is found, Commission can authorize a merger if] “the proposed acquisition
would result, or be likely to result, in a benefit to the public, and that benefit would
outweigh the detriment to the public that result, or be likely to result, from the
proposed acquisition (the net public benefit limb).”
• “The Act allows relevant customer benefits to be taken into account.These benefits
are defined as being lower prices, higher quality or greater choice of goods or
services in any market in the UK […].”
• “The Competition Commission may prohibit a concentration or authorise it subject
to conditions and obligations if the investigation indicates that the concentration […]
(b) does not improve the conditions of competition in another market such that the
harmful effects of the dominant position can be outweighed.”
APPROACHES IN PRACTICE (PRO)
Australia, Competition and Consumer Act 2010 (updated 2017)
UK Merger Guidelines
Cartel Law, Switzerland

7. The Committee recently discussed goals: e.g.‘protect competition’ vs ‘maximise
total welfare’ vs ‘maximise consumer welfare’
• Jurisdictions focused on protecting competition itself (as all are to some extent)
will generally be least open to an OOM claim trading off competitive harm to
some people against benefits to others.
• Jurisdictions oriented towards ‘total welfare’ (Australia, Canada for now) may be
the most open – but reluctance even then to sacrifice competition for gains.
• But maximising ‘consumer welfare’ is also compatible with accepting OOM
efficiencies: only OOM consumer benefits would count.
DIFFERENT POLICIES TOWARDS OOM EFFICIENCIES
MAY REFLECT DIFFERENT GOALS

8. EXAMPLE 2:
A payment card platform imposes/facilitates an agreement that results
in cardholders receiving benefits and merchants ‘paying’ when a credit
card is used.
Platform
Issuer
bank
Acquirer
bank
Cardholders Merchants
Increased
discount on
payment
received
Payments
Cardholder
benefits
Interchange fee

9. • If ‘Out of Market’ claims are ruled out (or harder than in-market), precise
market definition boundary will matter.
• Market definition (based on substitution) determines whose welfare can be
considered, for example along the dimensions of:
• Consumers of different products
• Consumers / citizens of different geographic regions
• Consumers / citizens active at different times
• Inappropriate use of the analytical technique? General trend is to use market
definition when a useful tool, not to create ‘bright line’ boundaries. Plus, some
concerns that markets are defined more narrowly now than before.
• Maybe causation is the other way? Were differences between Amex in US
Supreme Court and Mastercard in ECJ really driven by market definition?
MARKET DEFINITION CAN BECOME DETERMINATIVE

10. Pro: If someone (consumer, citizen) would benefit from some anti-competitive
practice, why not take that into account?
Con:
oProtecting competition as a value in itself, prioritising ‘do no harm’.
oA ‘slippery slope’ to monopolisation (or at least ‘duopolisation’)?
oPractical aspects: difficulty of measurement…
o…possibly resulting in mergers/conduct being approved that should not have
been, in the face of vigorous argument.
PROS AND CONS OF CONSIDERING OOM CLAIMS

11. In US especially, some suggestions from academics for agencies to consider OOM
claims, for exampleYun (2022) proposes exemptions:
• For economies of scope in production (when the markets are inextricably
linked).
• When the in-market and OOM product are complements in demand (often, the
consumers will be ‘substantially the same’).
• In multi-sided markets to avoid distorting market definition.
• In vertical supply chains
However, US agency practice moving the other way, removing existing limited
discretion in 2023 MGs.
In Europe (including UK) debate is mainly about sustainability exemptions.
PROPOSALS FOR CHANGE

12. EXAMPLE 3:
An environmental agreement that raises prices for consumers of
the products but reduces emissions to the benefit of all citizens.
Competitors agreeing to use more
expensive technology reducing CO2
emissions
Higher product
prices
Lower CO2
emissions
Consumers of the
affected product
Everyone

13. EC Guidance 2023 confirms that even for sustainability agreements, OOM claims
can be considered only if harmed consumers are fully compensated.
CMA 2023 has similar general approach but may:
“exempt [climate change] agreements if the ‘fair share to consumers’ condition can
be satisfied taking into account the totality of the benefits to all UK consumers
arising from the agreement, rather than apportioning those benefits between
consumers within the market affected by the agreement and those in other markets.”
Some competition authorities within the EU also draw distinction, compatible with
Article 101 guidance.
A SPECIFIC EXEMPTION TO CONSIDER CERTAIN
ENVIRONMENTAL BENEFITS FROM AGREEMENTS?
Guidelines on the applicability of Article 101 of theTreaty on the Functioning of the European
Union to horizontal co-operation agreements (2023/C 259/01)
CMA draft Sustainable Agreements guidelines (2023)

14. • In principle, no difference. Pros and cons of being open to OOM efficiency claims
are much the same, different emphases. Some tweaks:
Pros of considering OOM environmental benefits:
• externalities, ethical ‘producer pays’ arguments
Cons:
• Should competition authorities determine when to go beyond existing
environmental standards? Democratic legitimacy? Loss of competition focus?
• Practical concern about complexity of analysis: measuring and trading-off
environmental harm reductions against e.g. pricing harm. Also ‘greenwashing’
concerns.
ARE (ANY) ENVIRONMENTAL BENEFITS DIFFERENT?

15. • Would being open to accepting OOM claims really make much difference? I
suspect not, because in practice all competition authorities assign primary
importance to protecting competition. And few efficiency claims are accepted.
• Some suggestions:
• Any more open approach to accepting OOM claims should consider claims arising
from supply side complements (interdependence) and demand side complements
(customers substantially the same).
• Reword to avoid dependence on a ‘market’ boundary? If impossible, consider an
exception for two-sided markets.
• Debate on ‘sustainability’ exemption seems theoretical. Do anti-competitive
agreements generate important environmental benefits? Let’s get some evidence.
• Make more use of existing measures of benefits and environmental expertise from
other public bodies when evaluating OOM (or in-market) efficiency gains?
A FEW PERSONAL OBSERVATIONS