1. Background of the Study
The century-old history of competition law enforcement is in fact the gradual evolvement from adoption of the per se illegal rule to use of the rule of reason. This has been mainly the result of the growing understanding of business behavior through the study of economics. Through economic approaches, acts originally regarded anti-competitive were sometimes found to carry elements that could promote competition. Hence, economic theories are indispensable instruments in discerning competitive conduct from anti-competitive conduct on the market. Actually, competition law is the field of law most closely related to economic theories, especially the ones in industrial economics. US Judge R Bork, a renowned competition law specialist, once commented that "competition law is a law but it is also a collective result of continuing development of economic theories." However, the path the "economist" went on to become the competition law authority was not as smooth as imagined.
Take the competition law enforcement experiences of the United States for example. The Antitrust Division of the Department of Justice (DOJ) hired its first "economist" in 1936. In comparison, the Federal Trade Commission (FTC), established in 1914, did not have its first Ph.D. in economics in its Bureau of Competition until as late as the 1970s. Moreover, prior to 1983, the "economists" in both agencies all worked under lawyers. Their reports had to be examined by their colleagues with a background in law before the reports could be presented to the chief for final review and decision. They were unable to report directly to the chief. Judge Posner therefore described that "economists as handmaidens to the lawyers, and rather neglected ones at that," and the lawyers for a long period also considered the economists as "case killers" because the economists did not know law and often used terminology and talked about concepts that the lawyers could not understand.
However, things began to change after Donald F. Turner took office as the director of the Antitrust Division of the DOJ in 1965. Turner not only had a background in law but also a Ph.D. in economics, He created the position of Special Economic Assistant to the Director. Professor O. Williamson, the recipient of 2009 Nobel Prize in Economic Sciences, was the second special assistant of the Antitrust Division. During his service at the Division, he completed the 1968 Merger Guidelines which were entirely drafted based on economic views. With the appointment of J. Miller after Ronald Reagan became the president in 1981, the USFTC finally had a Ph.D. holder as the chairperson. At the same time, the USDOJ also created the position of a deputy attorney general to be in charge of economic analysis. After years of interaction, the lawyers no longer rejected the applications of economists and economic analysis of legal cases became just part of the routine. Today, there is at least one economist participating in every civil investigation launched by the US competition law authority.
The same thing also happened with the Federal Supreme Court. For a long time, the significance of economic analysis was downplayed. It was not until the 1960s, as a result of the advocacy of renowned law scholars such as P. Areeda, R. Bork, W. Bowman, and R. Posner, did the Supreme Court begin to adopt economic theories as instruments for quantity analysis in antitrust cases. A number of old views held by the Supreme Court were also systematically revised. For instance, the 1977 GTE Sylvania Inc. case in which the conventional view of non-price vertical restriction being "per se illegal" was overthrown was. The Supreme Court ruled that "scientific conclusions are subject to perpetual revision." Meanwhile, studies conducted by the four aforementioned scholars also showed that in the four previous decades the ratio of the Supreme Court's references to economic theories had risen from 30% to 70%. Due to the introduction of economic analysis, the likelihood for the nine Supreme Court justices to achieve consensus on antitrust cases (decided by more than two-third of the nine votes-) had also increased from 25% to 85%. As a consequence of the progress over a long period of time, the competition law authorities in most major countries have created their internal economic analysis units with the purpose of strengthening the role of economic analysis in handling their cases.
Looking back on the competition law enforcement experiences of Chinese Taipei, we realize that the significance of economic analysis had been overlooked since the official launched of the FTL. The FTC finally took the organizational restructure of the Executive Yuan as an opportunity and transformed the original Statistics Office into the "Information and Economic Analysis Office" to be responsible for economic analysis in related cases. The experiences of other countries can provide important references for the FTC's establishment of its economic analysis system. This is also the motive behind this study.
2. Methodology and Process of the Study
This study is divided into three main categories: the creation of economic analysis units in the competition law authorities in Chinese Taipei and other countries, the outlined description of economic analysis data sources and instruments, and the analysis and assessment of important cases.
Literature review and empirical analysis normally applied in social studies are adopted by this study. The former is employed to sort out and analyze information from international competition law organizations and major countries, related papers published in prestigious international journals and dedicated publications, as well as cases the FTC has processed, the experience accumulated thereof, and the corresponding handling measures. The latter, empirical analysis, is used chiefly to examine the creation of economic analysis units, establishment of databases, and well-known cases processed in major countries. The results are compared with the FTC's installation of the economic analysis unit after organizational restructure and the corresponding database, and application of economic analysis instruments in cases involving violations of the FTL. Hopefully, a comprehensive understanding of both domestic and foreign theories and practical experience can be established.
The paper is divided into six chapters. Chapter 1 is the introduction in which the outline of the motives behind this study is provided. Chapter 2 describes the creation of economic analysis units in the competition law authorities of major countries, including the organization, staff, work content, and operations. Since the quality of economic analysis results is closely related to the sources and application of related data, Chapter 3 focuses on the sources of data commonly applied in economic analysis, the limitations encountered in case classification and the solutions to likely problems. In Chapter 4, horizontal merger cases are cited as examples to illustrate the role of economic analysis in cases involving competition law. Chapter 5 reviews the FTC's application of economic analysis in related cases and the future role of the Information and Economic Analysis Office and proposes corresponding suggestions established from the examination of the experience in different countries. Chapter 6 is the conclusions and suggestions regarding the economic analysis system, data acquisition, and economic analysis instruments to be references for the FTC in future efforts.
3. Main Suggestions
Competition law authorities need to establish an economic analysis system to perfect its economic analysis capacity in antitrust cases. To be able to conduct comprehensive economic analysis, extensive collection of information to build a complete database is crucial. Therefore, in this paper, each of the three major topics, namely economic analysis system, data acquisition and economic analysis instruments, is given an outlined description separately. The following are the conclusions on these three topics and the corresponding suggestions:
1. Establishment of the economic analysis system
(1) After improving its competition law over the years, the competition law authority in each major country has created an internal economic analysis unit with the purpose of strengthening the role of economic analysis in related cases. In Chinese Taipei, the FTC has also taken the opportunity of government organization restructure and transformed the Statistics Office into the Information and Economic Analysis Office to be responsible for economic analysis. Since its creation in Oct. 2010, the Information and Economic Analysis Office Preparation Team, composed of five FTC senior staff members appointed by FTC Chairman Wu, has fulfilled its function and the blueprint and regulations for the economic analysis work are taking shape. The suggestions with regard to human resources, operational interaction and initial work directions cover human resources deployment, role definition, experience transfer, personnel training, administrative procedures, and knowledge sharing – all targeted at the core issues encountered after the creation of the Information and Economic Analysis Office. They are comprehensive and to the point and the FTC ought to adopt all of them.
(2) A sound economic system will be a solid foundation for economic analysis of antitrust cases and also a good start for economic analysis work. The quality of economic analysis depends on the perfection of the economic analysis system, competent antitrust specialists, and sufficient funds. Both the UK and the US started to perform economic analysis in as early as the 1930s. As a result, they not only have set up designated economic analysis units but also possess an abundance of antitrust economic analysis specialists. They have built up impressive accumulations of economic analysis theories and practices, documentation and precedents. Although the FTC falls behind these countries in human resources and funds, the Information and Economic Analysis Office created in 2012 will play as the first step in establishment of an economic analysis system. However, antitrust economic analysis takes time to perfect. In addition, since the cultivation of human resources is also important, it is therefore suggested that aside from continuing the effort to improve the economic analysis system, the FTC should also focus on the training of antitrust specialists and acquisition of funds in the future. In other words, equal efforts should be made to improve the system, human resources and funds simultaneously to enhance the economic analysis work.
2. Database establishment
Collecting data and setting up a database is rather tedious and complicated work, not to mention the difficulty in gathering sufficient and reliable data. Today, on top of the typical data collection problems of incomplete observed values, errors, and data consolidation and interpretation, the industrial database the FTC set up in 1993 is still plagued by inconsistent or crude product categorization, lack of market matrix estimates, difficulty in acquisition of latest price information, lack of access to case background updates, and inaccuracy of case information collected for economic analysis. Being aware that successful economic analysis depends on complete industrial data, the FTC has taken its first step in establishment of industrial data by presenting the mid-range (2012~2017) "Industrial Data Consolidation and Development Plan" to the Executive Yuan for approval. Despite its limited human resources and funds, in the long run, perhaps the FTC can copy the incentive system practiced in the US and design incentive measures to encourage concerned parties to provide reliable and complete information for economic analysis and to engage in debates with each other while the FTC serves as the arbitrator. For the time being, the FTC can increase its data acquisition through database integration or by purchasing. Meanwhile, FTC Chairman Wu has given his instruction for the development of the online pre-merger notification and concerted action application filing system, which should include the basic information and the product (service) production and marketing data of the participating enterprises, information on the market structure of horizontal competition, and the information on the upstream and downstream businesses. In the future, when concerted action applications and pre-merger notifications are filed, the applicants will be requested to provide electronic files so that the data can be stored in the FTC's digital database directly to save labor cost. There are also three further options, that is, "cooperation with industrial competent authorities and database linking to access frequently needed data," "development of interfaces for access to data files required for administrative purposes or purchases of authorization to access industrial data needed in individual cases," and "standardization of data formats and storing procedure to make data access more flexible." These can be adopted for database perfection.
3. Economic analysis
(1) The economic analysis methods, such as cross elasticity, critical loss analysis and upward pricing pressure, referred to in this paper are mainly quantitative tools. In fact, the methods applied in economic analysis can be economic reasoning, graphic presentation, mathematical inference, or a combination of two or all three. There is no conclusion on which is a better approach. Even prestigious economists have had different arguments. R. Coase and Stephen Chang believe that economic problems should be dealt with through intuitive thinking and reasoning and mathematical applications are unnecessary. On the other hand, J. Stigler and R. Lucas are convinced that economic papers without mathematical applications cannot be accepted in the economic circle. Perhaps, before starting to analyze an antitrust case, the FTC can first establish a thorough understanding of the target question, fully study the industry and market structure, the hypotheses to be established as well as the restrictions and application approaches of the economic analysis instruments, and consolidate and put them to use. At the same time, the FTC can adopt the economic analysis methods employed in advanced countries, abide by international competition rules, and perfect the approaches when related techniques and experience are mature enough to become a formulator of international regulations.
(2) Economics and law foverlap in two ways. One is the use of laws to regulate economic affairs and the other is the use of economic analysis to examine the design of law. The latter is the so-called "law and economics," which is in fact "a thinking approach adopted to establish the possible results of human reasoning, decision-making process and response and thus to design the law accordingly." In 2011, the FTC conducted sixteen sessions of the course entitled "the Fair Trade Law and Economic Analysis" so that its staff members will be trained to become capable of performing economic analysis in antitrust cases. Arrangements were also made to drill the trainees with actual cases. Improvement of staff abilities for economic analysis in antitrust cases is therefore expected. However, with rapid changes in the economic and the industrial environments and emergence of new industries such as e-commerce and hi-tech businesses, the economic thinking involved has grown in complexity and the balance in economic analysis has also become more and more difficult to maintain. This is not only a challenge law and economics scholars currently face but also an area calling for particular attention when the FTC performs economic analysis in antitrust cases.
(3) The significance of economic analysis in competition law lies in concept, not in use of quantitative models. It is perplexing that the voice of economists is so feeble in the realm of competition law in Chinese Taipei. Perhaps "economists" should ask themselves why. Instead of applying textbook theories without giving a second thought, they should really understand clearly which economic theories could be applied in antitrust cases. Meanwhile, overuse of quantitative models could only limit the possibility of decision makers' acceptance of economic analysis results. We have learned from history that "courts are a tough audience for complicated economic theory." Therefore, putting complicated economic theories in language intelligible to all is perhaps a more practical approach.
(4) Finally, what we would like to say is all knowledge has its boundaries, whether natural sciences or social sciences. With natural sciences where precision is a prerequisite, even the validity of Newton's law of universal gravitation could be reduced if the time dimension was taken into consideration and that of Einstein's relativism would be overturned if dimensions other than time were included for calculation. Similarly, with social sciences, justice seems to a borderline in legal analysis and economics of course has it analytical limit – efficiency. Yet beyond efficiency, there are still cultural constraints, civil participation, political philosophies, and ethics to be taken into account. Hence, when performing economic analysis in antitrust cases, the boundaries should be established and regarded as part of the argument. Conclusions or decisions should not be reached solely based on economic analysis. All policies and decisions must be made based on the related facts as well as the analytic results.