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The Role and Measurement of Quality in Competition Analysis 2013 The OECD Competition Committee discussed the role and measurement of quality in competition analysis in June 2013. This document contains an executive summary of that debate and the documents from the meeting: an analytical note by the OECD staff and written submissions: Australia, Canada, Chile, the European Union, Indonesia, Japan, Mexico, Portugal, United Kingdom, Ukraine, United States and BIAC. A note by Theodore Voorhees Jr. as well as a detailed summary of the discussion are also included. Competition policy is just as concerned with quality as it is with prices. While the importance of quality is undisputed and issues about quality are mentioned pervasively in competition agency guidelines and court decisions, there is no widely-agreed framework for analysing it which often renders its treatment superficial. There are a number of reasons why in practice, courts and competition authorities rarely analyse quality effects as rigorously as they analyse price effects. First, quality is a subjective concept and therefore much harder to define and measure than prices. In addition, microeconomic theory offers little help in predicting how changes in the level of competition in a market will affect quality and it is usually up to empirical analysis to determine how quality will change in response to varying degrees of competition in the context of particular markets. Given difficulties in terms of the evaluation of quality factors, particularly in quantitative assessment, competition agencies end up using qualitative tools such as customer surveys and interviews, to assess quality where necessary. While experience with the implementation of quantitative econometric techniques is rather limited, they may become more readily applicable and widely used in the future. At the level of competition enforcement, the role and use of quality is well established as a factor in defining the boundaries of the relevant market as well as in assessing the legality of horizontal and vertical restraints. In contrast, the role of quality effects in merger controls, and in particular, trading off between quality and price effects, remains to be one of the most vexatious – and still unresolved – issues. Vertical Restraints for On-line Sales (2013) Competition in Hospital Services (2012) Market Definition (2012) Competition and Regulation in Auditing and Related Professions (2009) Unclassified DAF/COMP(2013)17 Organisation de Coopération et de Développement Économiques Organisation for Economic Co-operation and Development 28-Oct-2013 ___________________________________________________________________________________________ English, French DIRECTORATE FOR FINANCIAL AND ENTERPRISE AFFAIRS COMPETITION COMMITTEE Unclassified DAF/COMP(2013)17 THE ROLE AND MEASUREMENT OF QUALITY IN COMPETITION ANALYSIS JT03347406 English, French English, Complete document available on OLIS in its original format This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. DAF/COMP(2013)17 FOREWORD This document comprises proceedings in the original languages of a roundtable on the role and measurement of quality in competition analysis held by the Competition Committee in June 2013. It is published under the responsibility of the Secretary General of the OECD to bring information on this topic to the attention of a wider audience. This compilation is one of a series of publications entitled "Competition Policy Roundtables". PRÉFACE Ce document rassemble la documentation dans la langue d'origine dans laquelle elle a été soumise, relative à une table ronde sur le rôle et la mesure de la qualité dans le cadre de l’analyse de la concurrence qui s'est tenue en juin 2013 dans le cadre du Comité de la concurrence. Il est publié sous la responsabilité du Secrétaire général de l'OCDE, afin de porter à la connaissance d'un large public les éléments d'information qui ont été réunis à cette occasion. Cette compilation fait partie de la série intitulée "Les tables rondes sur la politique de la concurrence". Visit our Internet Site -- Consultez notre site Internet http://www.oecd.org/daf/competition/ 2 DAF/COMP(2013)17 TABLE OF CONTENTS EXECUTIVE SUMMARY .......................................................................................................................... 5 BACKGROUND NOTE .............................................................................................................................. 11 CONTRIBUTIONS BY DELEGATIONS Australia.............................................................................................................................................. 43 Canada ................................................................................................................................................ 59 Chile ................................................................................................................................................... 67 European Union .................................................................................................................................. 77 Indonesia ............................................................................................................................................ 85 Japan ................................................................................................................................................... 89 Mexico ................................................................................................................................................ 95 Portugal ............................................................................................................................................. 101 United Kingdom ............................................................................................................................... 103 Ukraine ............................................................................................................................................. 115 United States ..................................................................................................................................... 119 BIAC ................................................................................................................................................. 127 EXPERT CONTRIBUTIONS By Theodore Voorhees, Jr. - The Role and Measurement of Quality Factors in Competition Analysis – The Incomplete Case of How Vertical Price Restraints are Handled under the Rule of Reason in United States Litigation .................................................. 145 SUMMARY OF DISCUSSION ................................................................................................................ 157 *** SYNTHÈSE ................................................................................................................................................ 169 NOTE DE RÉFÉRENCE ............................................................................................................................ 175 COMPTE RENDU DE LA DISCUSSION ................................................................................................ 211 3 DAF/COMP(2013)17 4 DAF/COMP(2013)17 EXECUTIVE SUMMARY By the Secretariat * (1) The level of quality that a product offers to consumers is a fundamental aspect of competition in many markets. Quality represents perhaps the key non-price consideration that determines whether consumers will purchase a product. Moreover, quality considerations frequently drive innovation within a market, thereby improving dynamic efficiency. Yet there are difficulties in terms of measuring quality attributes accurately, as well as in determining the impact of quality factors within the broader competition context. Thus, while most competition authorities would acknowledge the potentially key role of quality within competition enforcement, few agencies have as yet succeeded in incorporating systematically the assessment of quality within their competition analytical processes. Product quality, alongside price, is a key determination of competition in many if not most markets. The extent to which quality competition exists within a particular market may depend upon the extent to which goods are homogeneous, or, alternatively, upon the price sensitivity of consumers. At least in principle, a decrease in product quality (where price is not adequately adjusted) can be as harmful to consumer welfare as an increase in price (where quality is not adequately adjusted). In addition, business efforts to increase product quality are linked to innovation and thus to economic growth more generally. However, while most competition experts would agree upon the importance of quality as a competition consideration in theory, in practice it has proven rather difficult to account for quality attributes within conventional competition analysis. Quality was thus described in one Roundtable contribution as an “important but somewhat elusive topic.”1 This apt description reflects both a general consensus that quality considerations ought to be incorporated in any comprehensive analysis of market competition, as well as the practical reality that few competition agencies have developed an effective means by which to do so systematically to date. (2) While the importance of quality is
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