This presentation by Chris Pike, OECD Competition Division, was made during the discussion “Competition for-the-market” held at the 18th meeting of the OECD Global Forum on Competition on 6 December 2019. More papers and presentations on the topic can be found at oe.cd/cmkt.

1. COMPETITION FOR-THE-MARKET
Chris Pike
Competition Expert, OECD
Global Forum on Competition
Paris
6 December 2019

2. Competition for-the-market: When products have characteristics that
lead firms to compete to be the supplier of a whole market of products or
services, rather than for market share.
1. Natural monopoly
– Based on the productive technology generating large economies of scale
2. Publicly funded monopoly
– Where the good would otherwise not be provided, and the government as sole
purchaser selects to purchase exclusively
3. Legally protected monopoly
– Products which lack close substitutes, and which enjoy the benefit of barriers to
entry in the form of protected property rights.
4. Platform monopoly
– Products which lack close substitutes, and which enjoy the benefit of
barriers to entry in the form of direct or indirect network effects.
While competition-in-the-market may not be possible, concessions
are a key tool for driving at least some competition in categories 1 & 2
4 types of competition for-the-market

3. Advocacy Challenges
Use
competitive
incentives?
Yes In-the-market
For-the-
market
No
Direct
provision
Privatize
(& regulate?)
Decisions: Regulate?
(Regulated?)
Concession
Before offering a concession consider,
and do not underestimate the difficulty & cost of:
• Can you write a sufficiently complete contract specification?
• Can you enforce the contract? (eg if concessionaire tries to renegotiate)
?

4. • Are the bidding requirements sufficient to ensure the winner can provide the
service?
• Are the bidding requirements light enough that they permit a sufficient variety
of bidders?
• Should you divide the contract into lots or award a single contract?
• Do you put caps on the number of lots that can be awarded to a single bidder?
• How do you overcome incumbency advantages (e.g. asymmetric information)?
• How much transparency, and at what stage? - risk of facilitating bid-rigging?
• Do you allow joint bidding? And when?
• Does the entity offering the concession have incentives aligned with taxpayers
and users on whose behalf they work?
• What fall-back options are available in the event of contract default?
• Is it possible to use a continuous auction?
– Grant a concession that requires the winner to self-assess the value of the concession, and
to pay a tax on that self-assessed price.
– Include in the contract that the concessionaire must release the concessionary contract
to any bidder that pays the self-assessed price.
Concession design

5. • Market definition: Is a concession a relevant market?
– Seller (govt.) can’t switch, buyers (users) might, but often cannot.
– If the concession is the relevant market then market definition is of
little value.
• Clustering markets:
– It might make sense to cluster the markets that are defined if the
same set of firms might credibly bid (but this requires competitive
assessment)
• Change of control: Is the concession an undertaking, the award
of which constitutes a change of control?
– E.g. would the concessionaire generate and retain revenue, while
taking decisions on the employment of assets to deliver the service,
for which it would bear part of the commercial risk?
– We should be very sceptical of suggestions that the seller of a
concessionary right can retain complete control of the
concessionaire offers.
Enforcement in concessionary markets

6. • Competitive assessment: Analytical tools to assess
strength of potential competition:
– Past bidders: Participation, Win/loss, Winner/runner-
up, Margin or Probit analysis.
– New bidders: Need to assess the strength of new bidders
• Risks of;
– anticompetitive remedies, e.g. prohibiting participation
– exclusion - e.g. via predatory bidding
– exploitation despite the opportunity to prevent it
through the terms of the contract?
– collusion, see OECD guidance on detecting bid-rigging
Enforcement in concessionary markets (2)

7. Thank you for your attention!
Chris Pike
chris.pike@oecd.org
7
http://www.oecd.org/competition/globalfo
rum/competition-for-the-market.htm