HoustonKemp.com

Triage for MFNs

How to efficiently assess whether MFNs are

likely to lessen competition

Dr Luke Wainscoat

Senior Economist, HoustonKemp

21 May 2016

Competition Law Conference, Sydney

HoustonKemp.com

MFN

MFNMFN

MFN

MFNMFN

MFN

2

Triage for MFNs

Safe harbour test

HoustonKemp.com

MFN

MFNMFN

MFN

MFNMFN

MFN

3

Triage for MFNs

Theory of harm

Safe harbour test

HoustonKemp.com

MFN

MFNMFN

MFN

MFNMFN

MFN

4

Triage for MFNs

Assessment of benefits

Theory of harm

Safe harbour test

HoustonKemp.com

MFN

MFNMFN

MFN

MFNMFN

MFN

5

Triage for MFNs

Empirical

analysis

Assessment of benefits

Theory of harm

Safe harbour test

HoustonKemp.com

Step 1: Safe harbours

6

Market power

Market coverage

Type of MFN

HoustonKemp.com

Step 2: Is there a coherent theory of harm?

• Theory of harm that is consistent with

› the facts and circumstances of the case

› economic theory

7

Soften

competitionFacilitate

collusionExclude

rivals

Main theories of harm

HoustonKemp.com

HRS provided marketing services to hotels

8

Anna

Retail price

HRS

Christofer DerykBrunhilde

$90

$105

Hotel costs

Fee

HRS

Profit$100

HoustonKemp.com

HRS competed with Booking.com and others

9

Retail price

$100

$90

$105

HRS Booking.com

Hotel costs

Fee

Profit

HRS Booking

Anna Christofer DerykBrunhilde

HoustonKemp.com

HRS suffers reduced traffic if it increases its fee

10

Retail price

$100

$90

$110

HRS

Hotel costs

Fee

Profit$105

HRS Booking

Anna Christofer DerykBrunhilde

Booking.com

HoustonKemp.com

MFN allows HRS to increase price without losing volume

11

Retail price

$100

$90

HRS

Hotel costs

Fee

Profit

$110

$105

HRS Booking

Anna Christofer DerykBrunhilde

Booking.com

HoustonKemp.com

Step 3: Are there likely to be substantial benefits?

12

• Benefits need to be consistent with

› the facts and circumstances of the case

› economic theory

Retail MFNs Traditional MFNs

Reduce free-riding on platform Reduce hold-up problem

Increase competition on quality

of service

Reduce delays in contracting

Reduce transaction costs

Main benefits

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Step 4: Empirical assessment of net effects

13

Natural

experiments

Hypothesis

testingModelling

exercises

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Gas pipelines in the United States

14

HoustonKemp.com

Collusion: probability of MFN falls with more buyers

15

Number of buyers

Pro

ba

bili

ty o

f M

FN

ad

op

tio

n

HoustonKemp.com

Efficient contracting: probability of MFN rises with more buyers

16

Number of buyers

Pro

ba

bili

ty o

f M

FN

ad

op

tio

n

HoustonKemp.com 17

Pattern of MFNs inconsistent with facilitating collusion theory of harm

Number of buyers

Pro

ba

bili

ty o

f M

FN

ad

op

tio

n

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