the sixth annual african dialogue consumer protection conference

Financial Issues: Competition Case Study

Case Selection

The Sixth Annual African Dialogue Consumer Protection Conference

Lilongwe, MalawiSeptember 2014

Charles Harwood U.S. Federal Trade Commission

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Case Study:A Merger of Money Wire

Transfer Companies

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The acquiring firm is a wire remittance or money-transfer company called HurryMoney (Pty) Ltd. HurryMoney is based in Kenya and provides wire transfer services in Kenya, Rwanda, Somalia, Tanzania, and Uganda. It is currently the third largest provider in the region.

The target firm is TimelyCash (Pty) Ltd, a wire remittance company that began operating in Rwanda, and expanded its operations to Tanzania, Uganda and the western region of Kenya. It is the fourth largest provider in this region.

HurryMoney and TimelyCash primarily offer person-to-person money transfers and household utility payments to individuals through a network of local agents and local financial institutions.

Tangled WiresFacts 1/3

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Tangled WiresExhibit A

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HurryMoney operates 156 outlets scattered throughout all five counties. It takes a 10% commission from each transfer. HurryMoney also charges a conversion fee for currency changes from the Kenyan Shilling.

TimelyCash owns a total 128 outlets throughout four countries. The rate

to send any denomination is a fate fee of $2076 Rwandan Franc (~$3 USD) or the equivalent amount in each country. There are no additional charges for converting currencies. Additionally, the TimelyCash collaborated with Tigo, a regional mobile company, to offer peer-to-peer transfers via mobile phones and the internet at the same flat rate.

The merging parties signed a definitive purchase agreement. They will notify the appropriate competition authorities that require or request a merger filing.


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The parties submit merger notification filings with the appropriate competition authorities in the overlapping countries and provided the following rationale for the transaction: HurryMoney wants to increase its presence within its core countries to remain

competitive with large wire transfer companies and low cost remittance services offered by banks.

The proposed transaction will increase the number of regional outlets that provide cheap and rapid wire remittances for many individuals.

The TimelyCash business will allow HurryMoney to expand into the online and mobile remittance platforms.

Many banks are abandoning their low-cost remittance services which will allow HurryMoney and TimelyCash to capture additional business from former bank customers.


A complaint arrives on your desk.

What do you do now?

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Steps in Conducting an Investigation

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STEP1. Develop a theory of the case

2. Identify sources of information

3. Interview witnesses

4. Requests documents and data

5. Organize and assess the evidence

6. Determine whether there is a law violation

GOAL

To find the facts necessary to support or reject a conclusion that the competition law has been, or is being, violated.

Step 1Develop a Theory of the Case

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● Review the complaint (or merger filing) and all public information

● Identify possible legal theories of a violation

● List elements of proof and facts needed to establish each theory of violation (i.e., create proof chart)

● Think about the likely economic harm to competition

● Consider possible business justifications and defenses

● Think about possible remedies

● Prepare an investigation plan, including a timeline

Is there a violation of the competition law?

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The Law

Elements of Proof

Facts

Investigative Techniques for Finding the Facts

The Law: Major Theories of a Violation

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● Anticompetitive agreements─ Horizontal agreements

◦ Per se or presumptive illegal◦ Rule of reason

─ Vertical agreements

● Abuse of a dominant position─ Exclusionary conduct─ Exploitive conduct*

● Anticompetitive mergers and acquisitions─ Unilateral effects─ Coordinated effects

CREATE OR MAINTAIN MARKET POWER

* An exercise of market power, but does not create or maintain market power.

Example: Abuse of a Dominant Position

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Element of ProofFacts

1. Dominant position (SMP) ???

2. Conduct that may harm competition???

3. No legitimate business justification ???

4. Anticompetitive effects ???

Identify Factual Issues in Your Case

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● What factual issues are relevant in determining whether there is a violation?

─ Use your antitrust experience and understanding of the industry to identify the key factual issues

─ Brainstorm with investigative team and colleagues

─ Discuss past relevant cases worked on or read about

─ Use logic and common sense

─ Apply economic theories

Focus on the Most Important Factual Issues

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● Depending on the most important factual issues in the case, you may need to start your investigation by gathering different types of information from different sources

─ Example: Is the main issue whether the merging firms’ products compete in the same market? Or whether they are particularly close substitutes in that market?

◦ If so, focus on gathering information about what products consumers view as meaningful substitutes.

─ Example: Is the main issue whether entry might occur if the merged firm raised prices post-merger?

◦ If so, focus on gathering information about the timeliness, likelihood and sufficiency of entry.

Step 1Develop a Theory of the Case

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● Focused investigation: The working theory of the case will suggest additional information to look for during the investigation.

● Relevance: Evidence is relevant only when it is viewed from the standpoint of the theory.

● Coherent investigation: Without a working legal theory, there cannot be a coherent investigation.

● Flexibility: The working theory can change during the course of the investigation.

Step 2Identify Potential Sources of Information

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● Witnesses (customers, suppliers, competitors, trade associations, industry experts, etc.)

● Documents and data

● Government sources

● Public documents

● Related investigations (internal and other agencies)

● Others

Step 3Interview Witnesses

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● Main purpose: To learn facts needed to prove or to disprove the elements of the legal theory under investigation.

● Interviews may also be used –─ to help understand the industry and business practice under investigation─ to get an explanation of things that are unclear in documents─ to test the validity of information provided from other sources─ to assess the credibility of witnesses─ to identify other sources of information─ to find out what defenses may be raised

Step 3Types of Witnesses to Interview

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● Complainant/Informant

● Competitors

● Customers

● Suppliers, Distributors, Retailers

● Government Agencies

● Business/Trade Associations

● Industry Experts, Analysts, Academics

● Target/Respondent

Note: Each provides a different perspective and has different incentives to tell the truth about facts about the market and the likely impact of the conduct or merger.

Step 4Request Documents and Data

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● Main purpose: To learn facts needed to prove or to disprove the elements of the legal theory under investigation.

● Methods for obtaining documents and data:

─ Voluntary requests (letters, telephone interviews)

◦ Pros: get documents quickly and maintain good relationship

◦ Cons: may get only cherry picked documents or none at all

─ Compulsory requests (subpoenas, civil investigative demands, Second Requests)

◦ Pros: court can force production of documents; more likely to get all relevant documents (especially if certification required)

◦ Cons: may cause relationship to deteriorate, especially with third parties

Step 4Sources of Documents and Data

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● Complainant/Informant

● Competitors

● Customers

● Suppliers, Distributors, Retailers

● Government Agencies

● Business/Trade Associations

● Industry Experts, Analysts, Academics

● Target/Respondent

Step 4Types of Documents and Data to Request

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● The contract or agreement at issue.

● Company formation documents.

● Company organizational charts.

● Company financial reports.

● Business, marketing, and strategic plans.

● Customer, supplier, and competitor lists.

● Sales, pricing, and production data.

● Records of meetings.

● Other

Step 4Reviewing Document and Data

Submissions

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● Check for completeness and compliance.

● Review for:

─ Facts that prove or disprove the theory of the case.

─ Background information about the industry, companies, competitors, suppliers, and customers.

─ Things that are not clear and require follow-up questioning of a witness.

─ Other potential sources of relevant information (i.e., other documents and data, and other witnesses)

● Organize documents by date, issue, witness.

Step 5Organize and Assess the Evidence

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● Organize the investigation file

─ Correspondence

─ Documents and documents requests

─ Interview reports

─ Witness files

─ Memoranda, legal research, and notes

● Develop a case chronology

● Continuously update the investigational plan and proof chart

Proof Chart

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ELEMENT EVIDENCE SOURCE1. Dominant Position (SMP)

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2. Conduct that may harm competition●●●

3. Justifications & defenses●●

4. Overall harm to competition & consumers

Step 5Assessing the Evidence

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● Is there evidence to establish each element of proof?

● Is the evidence legally sufficient under the rules of evidence or standards of the decision-making authority?

● How strong is the evidence?─ Sufficiency of the evidence

─ Credibility of the witnesses─ Consistency and completeness of the story

● The investigation process should continue until there is sufficient evidence to confidently support or reject the theory of the case.

Step 6Determine Whether there is a Law

Violation

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● Does the “story” of the case satisfy the following:

─ It is about people who have reasons for how they act.

─ It accounts for all of the “facts beyond change.”

─ It consists of admissible evidence, told by credible witnesses, and supported by the documents and data.

─ It includes all the elements of proof of a legally cognizable violation of the law

─ It makes economic sense and common sense

The Investigative Process

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Develop a Theory

Request Documents

Analyze the Evidence Identify Sources

Interview Witnesses

Violation/No Violation

The Investigation Plan

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● What is an investigation plan?

─ Outlines the parts of the investigation and how it will proceed

─ No set format, but usually a detailed outline or narrative document

─ A “living document” (i.e., updated as the investigation proceeds)

The Investigation Plan

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● What are the benefits of an investigation plan?

─ Provides roadmap for staff to follow in developing the case and presenting it to the decision makers

─ Allows managers to better understand and oversee the investigation

─ Facilitates continuity, efficiency and predictability

The Parts of the Investigation Plan

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● Introduction

─ A synopsis of the complaint and a “story” of the case

─ A brief overview of the planned investigation

● Legal theory or theories

─ What is the conduct being investigated and how might it violate the law?

─ How are consumers harmed?

─ What are the legal elements?


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● Evidence (relevant facts)

─ What are the facts learned to date?

─ What additional information is needed to satisfy the legal elements?

─ What are the sources for the needed information?

─ What are the best methods for obtaining the needed information?

─ What are the evidentiary standards required by the decision maker?


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● Arguments and defenses

─ What legal and economics arguments might be raised?

─ What evidence might support/rebut those arguments?

● Possible remedies

─ What remedies will address the harm?

─ What evidence is needed to determine the appropriate remedy?

● Estimate the time and resources needed

● Investigation timeline