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© Oxera Out-of-market efficiencies
Out-of-market efficiencies
—
Roundtable OECD
Dr Nicole Rosenboom
© Oxera Out-of-market efficiencies
How to quantify and weigh non-monetary out-of-market efficiencies?
2
See also Baarsma, B. and Rosenboom, N. (2015), ‘A veritable tower of Babel: on the confusion between the legal and economic interpretations of
Article 101 (3) of the Treaty on the Functioning of the European Union’, European Competition Journal, 11:2-3, pp. 402–425.
Quantifying out-
of-market
benefits
Based on
revealed
preferences
Based on stated
preferences
Surrogate market
approach
Contingent
valuation
Conjoint
survey
Market value
approach
Hedonic
pricing method
Travel cost
method
Damages
cost method
Abatement
cost method
Social cost
(‘true price’)
Willingness
to pay
2023
© Oxera Out-of-market efficiencies
Category 3: Collective benefits
How is this linked to benefits acknowledged in the EC guidelines?
3
Category 1: Individual use value benefits
Category 2: Individual non-use value benefits
Category 1: Individual use value benefits
Category 2: Individual non-use value benefits
4. Contingent
valuation
5. Conjoint
survey
3. Hedonic
pricing method
1. Damages cost
method
2. Abatement
cost method
© Oxera Out-of-market efficiencies
Weighting consumer benefits versus out-of-market benefits
27/11/2023 4
© Oxera Out-of-market efficiencies
2023 5
Case study: Quantifying out-of-
market benefits and the fair share
to consumers
© Oxera Out-of-market efficiencies
Case study: Quantifying out-of-market benefits and the fair share to
consumers
D
P
H
E
Petrol
Diesel
Hybrid
Electric
D D
D D P P
D D
P P
P P
D D P P
H H
D D P P
Company 1 Company 2 Company 3
D D
E E
E E E E
E E
E P
P P
D D P P
H H
D D P P
Company 1 Company 2 Company 3
D D
E E
E E E E
E E
E E
E E
D D E P
H H
D D P P
Company 1 Company 2 Company 3
E E
• A group of online grocery delivery companies each operate a fleet of
delivery vehicles of different ages using different fuels
• They want to agree that over a period of time they will each phase out
vehicles running on diesel and petrol vehicles, which are older than 8
years. This will reduce the carbon emissions of each fleet.
• It will cause the price of delivery to increase because each company will
have to invest in replacement vehicles in the short term.
Key:
Agreement to phase out diesel and petrol vehicles over time:
© Oxera Out-of-market efficiencies
Case study: Quantifying out-of-market benefits and the fair share to
consumers
Step 1: Identify baseline emissions
• Based on number and type of vehicles
(petrol, diesel, hybrid, electric) and their
respective emission levels.
Step 2: Define abatement measures and
determine emission reductions
• Estimate the amount of emission reduction
that each company will achieve by
implementing the phase out measures over
the course of 5 years.
• Calculate impact by comparing the emissions
of the replaced vehicles with the emissions of
the new vehicles.
Company 1 Company 2 Company 3
88,000 101,000 90,000
Combined total: 280,000
Baseline CO2 tonnes per year:
Company 1 Company 2 Company 3
253,000 356,000 152,000
Combined total: 762,000
CO2 tonnes reduced compared to baseline
over the course of 5 years:
D
P H
E
Petrol: 14
Diesel: 12
Hybrid: 9
Electric: 3
Emissions per vehicle type per year (tonnes/CO2):
• Apply it to the companies’ fleets to
establish a baseline against which
emission reductions can be measured.
© Oxera Out-of-market efficiencies
Case study: Quantifying out-of-market benefits and the fair share to
consumers
Step 3: Calculate the environmental benefits
• Quantify the environmental benefits of
saved emissions in monetary terms.
• Multiply the emission reductions
achieved by the abatement cost value
of carbon.
Step 4: Apportion the benefits (EU approach only)
• Apportion the environmental benefits between
consumers of the online grocery services
(inside the relevant market) and the rest of UK
consumers (the wider group of customers who
also benefit from the agreement that are
outside of the relevant market.
Carbon values
(£ per tonne/CO2)
Emission
reduction
Monetary benefit
(£ million)
Year 1 245 96,078 £23.5
Year 2 248 117,031 £29.0
Year 3 252 160,725 £40.5
Year 4 256 183,441 £47.0
Year 5 260 204,394 £53.1
Total £193.2
Benefit to entire UK:
£193.2m
15% of UK households
use online grocery
delivery services
Benefit to online
grocery shoppers:
£193.2 x 15% =
£29m
Uses the Government’s
abatement cost
valuation of carbon
© Oxera Out-of-market efficiencies
Case study: Quantifying out-of-market benefits and the fair share to
consumers
Step 6: Compare benefits and negative
effects of the agreement
• Compare the calculated environmental
benefits (from step 3 & 4) with the
estimated consumer cost impact (from
step 5) to examine whether consumers
receive a fair share
Step 5: Estimate the cost and associated price
rise of the measures
• Calculate the costs associated with
implementing the abatement measures.
• This includes the expenses related to
acquiring and operating the replacement
vehicles.
• Estimate the associated price rise to
consumers
• Assume one-off 1% price rise in the first year
Households that use online grocery
delivery services
4.23m
Average yearly grocery delivery spend £3,600
Price rise 1%
Increased cost per household per year £36
Total cost increase £36 x 4.23m =
£152.3m
© Oxera Out-of-market efficiencies
Will consumers receive a fair share?
Benefits to
consumers
+
Negative effects
of the agreement
–
Applying a legal framework that
accepts out-of-market efficiencies
Benefits to entire UK: £193.2m
Without out-of-market efficiencies Benefits to consumers in the
relevant market: £29m

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Out-of-Market Efficiencies in Competition Enforcement – ROSENBOOM – December 2023 OECD discussion

  • 1. © Oxera Out-of-market efficiencies Out-of-market efficiencies — Roundtable OECD Dr Nicole Rosenboom
  • 2. © Oxera Out-of-market efficiencies How to quantify and weigh non-monetary out-of-market efficiencies? 2 See also Baarsma, B. and Rosenboom, N. (2015), ‘A veritable tower of Babel: on the confusion between the legal and economic interpretations of Article 101 (3) of the Treaty on the Functioning of the European Union’, European Competition Journal, 11:2-3, pp. 402–425. Quantifying out- of-market benefits Based on revealed preferences Based on stated preferences Surrogate market approach Contingent valuation Conjoint survey Market value approach Hedonic pricing method Travel cost method Damages cost method Abatement cost method Social cost (‘true price’) Willingness to pay 2023
  • 3. © Oxera Out-of-market efficiencies Category 3: Collective benefits How is this linked to benefits acknowledged in the EC guidelines? 3 Category 1: Individual use value benefits Category 2: Individual non-use value benefits Category 1: Individual use value benefits Category 2: Individual non-use value benefits 4. Contingent valuation 5. Conjoint survey 3. Hedonic pricing method 1. Damages cost method 2. Abatement cost method
  • 4. © Oxera Out-of-market efficiencies Weighting consumer benefits versus out-of-market benefits 27/11/2023 4
  • 5. © Oxera Out-of-market efficiencies 2023 5 Case study: Quantifying out-of- market benefits and the fair share to consumers
  • 6. © Oxera Out-of-market efficiencies Case study: Quantifying out-of-market benefits and the fair share to consumers D P H E Petrol Diesel Hybrid Electric D D D D P P D D P P P P D D P P H H D D P P Company 1 Company 2 Company 3 D D E E E E E E E E E P P P D D P P H H D D P P Company 1 Company 2 Company 3 D D E E E E E E E E E E E E D D E P H H D D P P Company 1 Company 2 Company 3 E E • A group of online grocery delivery companies each operate a fleet of delivery vehicles of different ages using different fuels • They want to agree that over a period of time they will each phase out vehicles running on diesel and petrol vehicles, which are older than 8 years. This will reduce the carbon emissions of each fleet. • It will cause the price of delivery to increase because each company will have to invest in replacement vehicles in the short term. Key: Agreement to phase out diesel and petrol vehicles over time:
  • 7. © Oxera Out-of-market efficiencies Case study: Quantifying out-of-market benefits and the fair share to consumers Step 1: Identify baseline emissions • Based on number and type of vehicles (petrol, diesel, hybrid, electric) and their respective emission levels. Step 2: Define abatement measures and determine emission reductions • Estimate the amount of emission reduction that each company will achieve by implementing the phase out measures over the course of 5 years. • Calculate impact by comparing the emissions of the replaced vehicles with the emissions of the new vehicles. Company 1 Company 2 Company 3 88,000 101,000 90,000 Combined total: 280,000 Baseline CO2 tonnes per year: Company 1 Company 2 Company 3 253,000 356,000 152,000 Combined total: 762,000 CO2 tonnes reduced compared to baseline over the course of 5 years: D P H E Petrol: 14 Diesel: 12 Hybrid: 9 Electric: 3 Emissions per vehicle type per year (tonnes/CO2): • Apply it to the companies’ fleets to establish a baseline against which emission reductions can be measured.
  • 8. © Oxera Out-of-market efficiencies Case study: Quantifying out-of-market benefits and the fair share to consumers Step 3: Calculate the environmental benefits • Quantify the environmental benefits of saved emissions in monetary terms. • Multiply the emission reductions achieved by the abatement cost value of carbon. Step 4: Apportion the benefits (EU approach only) • Apportion the environmental benefits between consumers of the online grocery services (inside the relevant market) and the rest of UK consumers (the wider group of customers who also benefit from the agreement that are outside of the relevant market. Carbon values (£ per tonne/CO2) Emission reduction Monetary benefit (£ million) Year 1 245 96,078 £23.5 Year 2 248 117,031 £29.0 Year 3 252 160,725 £40.5 Year 4 256 183,441 £47.0 Year 5 260 204,394 £53.1 Total £193.2 Benefit to entire UK: £193.2m 15% of UK households use online grocery delivery services Benefit to online grocery shoppers: £193.2 x 15% = £29m Uses the Government’s abatement cost valuation of carbon
  • 9. © Oxera Out-of-market efficiencies Case study: Quantifying out-of-market benefits and the fair share to consumers Step 6: Compare benefits and negative effects of the agreement • Compare the calculated environmental benefits (from step 3 & 4) with the estimated consumer cost impact (from step 5) to examine whether consumers receive a fair share Step 5: Estimate the cost and associated price rise of the measures • Calculate the costs associated with implementing the abatement measures. • This includes the expenses related to acquiring and operating the replacement vehicles. • Estimate the associated price rise to consumers • Assume one-off 1% price rise in the first year Households that use online grocery delivery services 4.23m Average yearly grocery delivery spend £3,600 Price rise 1% Increased cost per household per year £36 Total cost increase £36 x 4.23m = £152.3m
  • 10. © Oxera Out-of-market efficiencies Will consumers receive a fair share? Benefits to consumers + Negative effects of the agreement – Applying a legal framework that accepts out-of-market efficiencies Benefits to entire UK: £193.2m Without out-of-market efficiencies Benefits to consumers in the relevant market: £29m