Media Briefings

EXPERIENCE MAKES YOU TOUGHER: Evidence from Competition Commission decision-making

  • Published Date: May 2013


The chances of a company being found guilty of abuse of a monopoly position by the UK’s Competition Commission increase enormously if the chair of the investigating panel has undertaken a large number of previous investigations in the Commission. That is the central finding of research by Professor Paul Grout and colleagues, published in the May 2013 issue of the Economic Journal.

Their analysis of all companies investigated for such behaviour between 1970 and 2003 shows that in a typical case, replacing an inexperienced chair with one of average experience increases the chances of the company being found guilty by approximately 30%. ‘Guilty’ means that the Commission panel found that the company’s actions had operated against the public interest.

Indeed, the researchers find, there has never been a case in the Competition Commission (or the Monopolies and Mergers Commission, as it was known prior to 1999) where the chair has conducted more than 21 previous investigations and the company has not been found guilty.

The study also finds that the age of the chair, the experience of the supporting panel and the procedures by which chairs are allocated to cases all have no effect on the probability of a guilty finding. The implication seems to be that it is simply experience within and exposure to the institution that leads to the strong change in attitudes.

Professor Grout comments on the implications:

‘Although the fact that simply changing the experience of a chair has a significant impact on the outcome may (with some justification) be viewed as extremely unfair by the companies, it is not obvious that it is all bad.

‘HM Revenue and Customs fails to find all tax dodgers. Similarly, it is reasonable to assume that the Office of Fair Trading and the Competition Commission fail to find and eliminate all cases of abuse by large firms.

‘In such circumstances, a system that could be seen as potentially ‘overly’ harsh on those it catches may have a beneficial deterrent effect and could lead to less abuse overall.’

The implications of the study may stretch well beyond competition policy. One of the primary reasons that the researchers focus on decisions of the Competition Commission, as opposed to other institutions, is that there is a simple numerical measure – guilty or not guilty – that can be used for statistical analysis. But there is no obvious reason to suppose that the experience effects they detect are unique to that institution.

The results suggest that at the top management level of any institution, the building up of experience and increasing exposure can lead to changing perceptions. In the case of the Competition Commission, experience – and the associated exposure to the institution – appears to make management tougher, but in other institutions the impacts may be different.

While retaining a degree of caution, the authors suggest other possibilities that this may raise. For example, enforced institutional changes at senior management levels, such as quotas for female board members, could bring about real changes in the perceptions of senior management as their experience in the new environment increases.

The aim of this particular study is not merely to identify and analyse the consequences of the effect of experience on decisions, but to see whether the effect can be simply explained, either as a result of different characteristics of chairs or from a possible allocation of certain types of chair to specific cases.

The characteristics of chairs could matter if they affect both how much experience chairs build up and the tendency to find companies guilty. For example, ‘tougher’ chairs may choose to stay longer. This would lead to a finding that, on average, the more experienced chairs are tougher, since only the tougher ones gain more experience. But the researchers show that the relationship between toughness and experience cannot be explained by individual characteristics.

Another possibility is that the Competition Commission may choose to allocate specific cases (most probably those where it is thought that companies are more likely to have done something wrong) to chairs that are more experienced. This would provide a simple explanation for a positive relationship between experience and guilty findings. But again, the researchers find that this does not explain the effect.

ENDS

Notes for editors: ‘Does Experience Make You Tougher? Evidence from Competition Law’ by Ludivine Garside, Paul Grout and Anna Zalewska is published in the May 2013 issue of the Economic Journal.

Ludivine Garside and Paul Grout are at the Centre for Market and Public Organisation (CMPO) at the University of Bristol. Anna Zalewska is at the University of Bath and CMPO.

For further information: contact Paul Grout via email: P.A.Grout@bristol.ac.uk; or Romesh Vaitilingam on +44-7768-661095 (email: romesh@vaitilingam.com; Twitter: @econromesh).