This presentation by José Maria Marín-Quemada, Chairman Comisión Nacional de los Mercados y la Competencia, Spain, was made during the discussion on " Cartels: The estimation of harm in public enforcement actions " held at the 2017 Latin American and Caribbean Competition Forum (4-5 April 2017 – Managua, Nicaragua). More papers and presentations can be found at oe.cd/laccf.

1. José María Marín Quemada
Chairman of the CNMC (Spain)
presidencia@cnmc.es
Latin American and Caribbean Competition Forum, 4 - 5 April 2017 • Managua, Nicaragua
Competition fines, harm
and illicit gains

2. Problems with the judicial review of
competition fines in Spain
2
• One of the most serious problems faced by the CNMC has been the
divergent interpretation on fines that appeared in the judgments of the
National Court since March 2013.
• Disagreements on articles 63 and 64 of the Competition Act (Act 15/2007):
• Supreme Court’s judgment (29 January 2015):
 In agreement with the National Court: the maximum of 10% should be interpreted
as an upper limit, not a cap.
 In agreement with the CNMC: “total turnover” should be understood as… total
turnover.
 Discard de Fining guidelines (2009)
CNMC (Fining guidelines, 2009) National Court
Cap or levelling threshold to the fines: 10% of total
turnover of the company in the year previos to the fine
Fines set according to different criteria, among which
the size of the market turnover affected by the
infringement was especially relevant
10% is the upper limit of a range of fines (reserved for
the worst possible infringements)
Applicable to the turnover of the market affected by
the infringement on the year previous to the fine

3. A new fining methodology for the
Spanish Competition Authority
• Consequences of the Supreme Court’s judgment:
 Significant reduction in uncertainty.
 Sufficient leeway to impose fines that are both proportional and
deterrent.
 The new fining methodology diverges from the one applied by the
European Commission and most of the National Competition Authorities
(except the BKartA)
• A new CNMC’s fining methodology in three steps:
1) The fining criteria about the infringement in general are considered to set
an initial fining rate (% of total turnover).
2) The fining criteria about the individual firms’ behavior are added next: total
fining rate (% of total turnover) and fine (in €).
3) A proportionality cap is applied to avoid over deterrence:
3
Proportionality cap = Potential illicit gains x Proportionality factor

4. 4
Fines, harm and illicit gains
• Main criteria considered by the CNMC in steps 1 and 2 when setting fines
(article 64.1 of the Competition Act):
 Dimension and characteristics of the affected market
 Market share of the responsible undertaking(s)
 Scope and duration of the infringement
 Illicit profits obtained from the infringement
 Effects of the infringement on the rights and legitimate interests of consumers or on
other economic operators
• So harm is not the only nor the most important criterion considered by the
CNMC
• On the contrary, illicit profits are considered in steps 1-2 but also -and
crucially- in step 3 to estimate the proportionality cap
Reference to the harm produced by the anticompetitive conduct, but
usually only considered in a very general and qualitative way (difficult to
estimate)

5. 5
The estimation of illicit profits (I)
∆𝜋𝜋 = 𝑓𝑓 𝑆𝑆; 𝑚𝑚, 𝑘𝑘, 𝜀𝜀 = 𝑘𝑘
1 + 𝑚𝑚 1 − 𝜀𝜀𝜀𝜀 − 𝜀𝜀𝜀𝜀
(1 + 𝑚𝑚)(1 + 𝑘𝑘)(1 − 𝜀𝜀𝜀𝜀)
𝑆𝑆
Where:
- 𝑆𝑆 is the total turnover in the affected market (in €) Known
- m is the competitive mark-up (% over marginal costs)
- 𝑘𝑘 is the cartel overcharge (%)
- 𝜀𝜀 is the price elasticity of demand in absolute value
• Methodology based mainly on the work by Buccirossi and Spagnolo
(2007)* regarding optimal deterrent fines (frequently used)
• The illicit profits (∆π) are the difference between the profit obtained by
the cartel members (πM) and the profit they would have obtained in a
competitive environment (π)
Requires
estimating
* Buccirossi, P. and Spagnolo, G. (2007), “Optimal Fines in the Era of Whistleblowers: Should Price Fixers still
go to Prison?”, in The Political Economy of Antitrust (V. Goshal and J. Stennek eds., Elsevier 2007).

6. 6
Competitive mark-up
(m)
Cartel overcharge (k)
Price elasticity of
demand (ε)
General
information
- Negative correlation
with illegal profits
- Data usually not
available
- Proxies: operating
margin of the firm or the
industry of a period
before the formation of
the cartel (Bank of
Spain)
- Positive correlation
with illegal profits
- In infringements by
object or per se, data
frequently not available
- 10% (below Boyer
and Kotchoni’s
estimate of 13.7% *)
- Negative correlation
with illegal profits
- Difficult to estimate,
usually not available
- In theory between 0
and infinite.
- From 0 to 2
Reference
values in the
literature
5 to 20% 5% to 30% 0 to 2
The estimation of illicit profits (II)
* Boyer, M., and Kotchoni, R. (2015), “How much do cartels overcharge?”, Review of Industrial
Organization, Vol. 47(2).