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K.J. Cseres
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Integrate or separate
K.J. Cseres
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April 2013
© K.J. Cseres
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Integrate or Separate
Abstract
Over the past years several EU Member States decided to integrate their competition
authorities with their consumer protection agencies. Most recently, the Netherlands
Authority for Consumers and Markets (ACM) has merged the Netherlands
Competition Authority (NMa) with the Dutch Consumer Authority (CA) and the
Netherlands Independent Post and Telecommunications Authority (OPTA) as from
1st April 2013. On the contrary, some other Member States separate the enforcement
of competition law and consumer law. The United Kingdom will abolish the Office of
Fair Trading (OFT) and merge its competition and national enforcement functions
with the also abolished Competition Commission to form a new Competition and
Markets Authority (CMA). The OFT’s consumer law enforcement roles are handed to
the National Trading Standards Board which will coordinate consumer law
enforcement with local and regional government’s trading standards departments.
The CMA will retain consumer enforcement powers for some purposes and have
responsibility for national oversight of the effective functioning of markets. These
institutional changes are the results of political decisions, based mainly on budgetary
concerns. National governments justified these institutional mergers by arguing that
consolidated agencies can increase the efficiency and effectiveness of competition
oversight and market regulation, enhance the importance of consumer and
competition affairs in society, ensure corporate responsibility with regard to
consumer interests and streamline administration. Similarly, the separation of
institutions was justified by the reduction of complexity in the enforcement
landscape, strengthening the effectiveness of law enforcement and achieving more
cost-efficient delivery of consumer advice, representation and enforcement.
These institutional and procedural changes seem to be experimental rather than
programmatic and are instituted without investigating their impact on law
enforcement. This paper discusses three different institutional models for separating
or integrating the public enforcement of competition law and consumer protection
and analyses the synergies and the drawbacks emerging from allocating enforcement
powers in one or two public agencies. The aim of the paper is to assess how the
allocation of enforcement powers affect law enforcement and map those normative
criteria that have to be assessed when the allocation of regulatory powers is decided
on. The paper analyses the likely consequences of a certain institutional arrangement
for procedural norms such as the proportionality of remedies and the time of
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Introduction
In 2011 the Dutch Minister of Economic Affairs has decided to merge the
Netherlands Competition Authority (NMa) with the Dutch Consumer Authority (CA)
and the Netherlands Independent Post and Telecommunications Authority (OPTA)
into a new administrative authority named the Netherlands Authority for
Consumers and Markets (ACM). 1 The Dutch Ministry argued that this institutional
change will increase the efficiency and effectiveness of competition oversight and
market regulation, as a consolidated authority is able to anticipate market
developments in a flexible and integrated manner, and make better use of its
consolidated knowledge and expertise. Another anticipated benefit of the merger is
cost savings. 2
This is a remarkable development in the light of the fact that in 2007 when the
Dutch Consumer Authority was established the Dutch government has opted for a
separate new agency. The Dutch government argued that even though the
Netherlands Competition Authority (NMa) was a general supervisory authority, it
was unfit to enforce consumer protection laws as the NMa pursues a different
perspective, namely to maintain well-functioning markets which makes workable
competition possible and which guarantees an optimal allocation of resources
(Memorie van Toelichting, 2005).
Similar institutional reorganizations are taking place in several EU Member
States Denmark, 3 Finland, 4 Ireland 5 and the United Kingdom. 6 These institutional
1The consolidation of these three existing authorities will be realized through two separate
bills: the ‘bill on ACM Establishment Act was submitted to the Dutch Parliament and the
Second Chamber has accepted it by 2 October, the First Chamber has finally accepted it in
February 2013. The substantive bill planned to be passed before 2014.
Kamerstukken II, 2011-2012, 31 490, nr. 69. Kamerstukken 2011-2012, 33 186 nr. 2 Regels
omtrent de instelling van de Autoriteit Consument en Markt (Instellingswet Autoriteit
Consument en Markt); Wetsvoorstel stroomlijning markttoezicht ACM, juni 2012
2 The ACM’s three departments which focus on consumers, regulation and competition will
be complemented by a central legal department, an office of the chief economist, and the
corporate affairs department which will be responsible for (inter)national strategy and
communication and support staff. The new authority will be run by a collegial board,
consisting of three members. It will focus on three main themes: consumer protection,
industry-specific regulation, and competition oversight. With a collegial board, the coherence
between these three themes will be safeguarded. The substantive bill will amend legislation,
simplify procedures, and streamline powers.
3 In Denmark, the Danish Competition Authority and the Danish Consumer Agency merged
into the Danish Competition and Consumer Authority in 2010. The overall objective of the
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changes are the results of political decisions, based mainly on budgetary concerns.
The institutional and procedural changes seem to be experimental rather than
programmatic and are instituted without investigating their impact on law
enforcement. Law enforcement is a fundamental and necessary function of effective
regulation a clear vision on how allocation of enforcement powers affect law
enforcement and which criteria are essential in these decisions is missing.
Political scientists have long underlined the significance of institutional
design on government performance (Wilks, 1999). It is now also well recognized in
the competition law community that institutions are a critical and underappreciated
driver of public policy that interacts in many subtle ways with substantive rules and
decisions (Crane, 2011, p. xi). The interaction of institutional design of competition
law enforcement with substantive rules and policy making is also widely discussed
and researched in both national and international competition law communities
(ICN, 2009; OECD, 2008; Fox, 2010; Fox and Trebilcock, 2012; Hyman and Kovacic,
2012).
The basic idea that institutions matter for economic development is based on
the assumption (North, 1995) that institutional frameworks create incentives for
merger was to take advantage of the synergies between the two areas of competition and
consumer policy. OECD, Annual report on competition policy developments in Denmark
DAF/COMP/AR(2011)3
4 In Finland, the Ministry of Employment and the Economy (the Ministry) announced in
March 2012 that it will merge the Finnish Competition Authority and the Finnish Consumer
Agency. The new Finnish Competition and Consumer Authority began operating on 1st
January 2013. The purpose of the merger is to enhance the importance of consumer and
competition affairs in society and to streamline administration. The purpose of the new
agency will be to ensure a healthy and functioning market where enterprises and other
players act responsibly and with regard to consumer interests.
5 Ireland, in its 2005 report the Consumer Strategy Group considered the integration of
consumer and competition policy within one agency. Eventually, the Irish government
decided to establish a separate agency, the National Consumer agency in 2007. However, in
2008 the Government announced in that the Competition Authority will be
amalgamated with the National Consumer Agency. In 2011 autumn the Minister for
Jobs, Enterprise and Innovation announced that the Board of National Consumer Agency is to
be dismantled. This comes as permission has been granted to draft the Consumer and
Competition Bill which is to merge the Agency with the Competition Authority. Bill to merge
Competition Authority and Consumer Agency gets go-ahead,
http://www.publicaffairsireland.com/news/772-bill-to-merge-competition-authority-and-
consumer-agency-gets-go-ahead Consumer Strategy Group, “Making Consumers Count: A
New Direction for Irish Consumers”
(Dublin, Department of Enterprise, Trade and Employment, 2005).
6 In the UK the coalition government is planning to amalgamate the Office of Fair Trading
and the Competition Commission into a new single body, the proposed Competition and
Markets Authority (CMA).J. given at the Law Society Competition Section Annual
Conference. http://www.oft.gov.uk/news-and-updates/speeches/2011/1011
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behaviour, leading to different outcomes. North defines institutions as the rules that
determine the behavior of individuals and organizations. He distinguishes between
formal rules such as laws and regulations and informal rules such as constraints on
behavior derived from culture, tradition, custom and attitudes. Formal rules and
informal constraints are interdependent and in constant interaction (North, 1995).
Lawyers would not tend to think of institutions as the rules of the game but
understand institutions to mean those bodies (formal and informal) that are charged
by a society with making, administering, enforcing or adjudicating its laws or
policies (Trebilcock and Prado, 2009). This paper will use institutional design to mean
organizational design and to denote the systems, structures, processes, and
procedures of law enforcement and application and policy advocacy (Fox, 2010).
The paper discusses one specific aspect of institutional design: the allocation
of enforcement powers for the public enforcement of competition law and consumer
protection. It distinguishes three different institutional models, which represent
different ways for combining or separating public enforcement responsibilities.
Accordingly, the paper examines the mechanisms through which competition law
and consumer law are enforced and it analyses the synergies and the conflicts of
allocating enforcement powers in one or two agencies.
The goal of the paper is to map the normative criteria of institutional design
that should be considered when the allocation of enforcement powers to
administrative authorities is decided on. The paper analyses how the allocation of
enforcement powers affect law enforcement. It assesses the likely consequences of a
certain institutional arrangement for procedural norms such as the proportionality of
remedies, the time of intervention and for institutional performance norms such as
expertise, administrative efficiency, independence and accountability. This analysis
is conducted against the backdrop of the regulatory state in EU law and policy and
it extends to examine the impact of EU law and policy on the Member States’
institutional design as well as the EU’s constraining effects on institutional path
dependence.
The paper has five sections. Section 1 briefly discusses the existing literature
and the relevance of institutional design for law enforcement. It also sets out the EU
law and broader international framework of institutional designs. Section 2 describes
the economic, legal and political developments that accompanied the emergence of
different institutional models for competition law and consumer protection
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enforcement. This section includes a brief discussion of how the forms and theories
of regulation developed alongside these developments. Section 2 also discusses how
EU law and policy developed from the traditionally safeguarded procedural
autonomy and institutional neutrality towards some basic forms of EU standards in
these legal areas. Section 3 describes three institutional models in the EU Member
States for the enforcement of competition law and consumer protection and the
current changes that are taking place in these models. This brief overview illustrates
the relevance of alternative institutional designs for law enforcement. Section 4
discusses a basic set of criteria against which the alternative allocation of regulatory
powers can be evaluated and assesses the advantages and the drawbacks of
integration. The paper closes with conclusions.
The relevance of institutions has already been emphasized by Stiglitz, who argued
that stages of development indicates how far an economy has advanced to generate
institutions necessary for well-functioning market economy and the capability of
economy’s institutional apparatus to generate wealth for its citizens (Stiglitz 2002). In
the economics literature it was first the late nineteenth century institutional
economics that stressed the evolutionary nature of law and economy and discussed
the social, economic and political institutions that govern everyday life. It extended
the discussion to the formal and informal institutions which control social interaction
and shape individual behaviour so that negotiation and coordination costs are
reduced (Medema and Mercuro and Samuels 2000). Later new institutional
economics 7 has developed as a movement within the social sciences, especially
economics and political science and united the theoretical and empirical research
examining the role of institutions in furthering or preventing economic growth
(Klein 2000). It includes work in transaction costs, political economy, property rights,
hierarchy and organization, and public choice. Most scholars view the work of
Ronald Coase as a central inspiration for the field (Coase 1937; Coase 1960). Coase’s
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8 The economic relevance of legal institutional arrangements lies in the presence of non-
negligible transaction costs. The reduction of these costs as well as the maximisation of
efficiency through alternative institutional arrangements has been a relevant contribution by
Coase to public policy regarding institutional design. Transactions costs theory provides
insights to both the costs and benefits of integrating or separating the enforcement of
consumer law and competition law in one organisation as well as the costs of internal
organisation such as information flows, incentives, monitoring and performance evaluation.
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expertise, transparency, accountability, and the rule of law (First and Fox and Hemli,
2012).
This paper will discuss these normative values by addressing the
institutional varieties of law enforcement in the context of the increased
Europeanization of economic regulation. While the process of convergence in the
field of substantive rules is well-advanced, similar convergence and harmonization
of institutions has not taken place in the EU. This is a challenge in the multi-level
governance system of EU law enforcement (Cafaggi, Micklitz, 2009) where similar
substantive rules have to be implemented through diverging procedural rules and
institutional arrangements. This decentralized enforcement framework is query to
the coherent and uniform application of EU law, which is a puzzle across various
fields of EU law. 9 While, it has been long recognized by the EU Courts that the
Member States’ national procedural autonomy finds its correlative duty to provide,
in accordance with the principle of sincere cooperation, an adequate procedural
framework for the enforcement of EU rights, the divergences of national procedures
and institutions are still substantial. The full effectiveness of EU law, effective judicial
protection 10 and effective law administration may be at risk by an enforcement
system where Member States may apply divergent procedures, may impose a variety
of sanctions and remedies and operate in various institutional settings. In EU
competition law, for example, it has been questioned whether consistent policy
enforcement and the effective functioning of the European Competition Network
requires a certain degree of harmonization of procedures, resources, experiences and
independence of the NCAs (Cengiz 2009; Gauer 2001; Frédéric 2001). The next section
will first, map the economic developments that lead to complex market failures in
and 13 of the ECHR as well as in Article 47 of the Charter of fundamental rights of the
European Union and which has now been reaffirmed in Article 19(1) TEU.
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the liberalized and newly emerging markets affecting both the demand and supply
side and second, the legal developments in EU law that affect the traditional EU law
principles of national procedural autonomy and institutional neutrality. Both these
developments have put the institutional design of administrative authorities on the
political and legal agenda of national governments and the EU institutions.
2.1. Market failures at the intersection of competition law and consumer protection
As Gersen has noted, “[f]rom the perspective of institutional design, the optimal
bureaucratic structure depends on the ends to be achieved.” (Gersen, 2010).
Competition law and consumer protection share the common goal of providing
consumers with access to a range of competitively priced goods and services in
markets free of unfair and deceptive practices. Despite their common goal
competition law and consumer protection have developed in most jurisdictions as
two separate fields of law and policy with their particular enforcement mechanisms
and institutional framework. While both legal fields strive for well-functioning
markets they address different market failures respectively on the supply or demand
side and apply different enforcement tools in different enforcement environment
(Cseres, 2007).
As economies develop the relevance of market-wide problems is growing and
market failures come from wider range of sources. A “separated” approach does not
suffice any longer to assess risks and remedy the full range of detriments in the
marketplace. Market regulation and supervision is being challenged by the
emergence of new markets and new technologies, especially in utility markets where
previously the state had a monopoly. Traditionally utility markets were regulated
and it was believed that utilities can be the best distributed through a monopoly. The
shortcomings of this approach have formed the basic tenet of neo-liberal public
policy to reduce the role of the state in regulating markets. The post-regulatory state
(Scott, 2004) introduced competition into markets previously dominated by state
monopolies and respond better to consumer needs in terms of cost effectiveness,
lower consumer prices, higher quality, wider range of choices. The liberalisation and
(de)regulation of markets in the network industries was dominated by focusing on
the supply side. The legislative tools primarily targeted a competitive market
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consumer benefits. 11 Many consumer related failures were not well anticipated and
the amount of unfair trade practices, unfair contract terms, complex pricing practices
resulted in significant consumer detriment and high degree of consumer inertia
(Giulietti and Waddams and Waterson, 2005) (Wilson and Waddams, 2005). 12
In many sectors a growing number of market wide problems emerged where
both competition law and consumer law issues are present. Complex market failures
take a compound form of abuse of a dominant position and unfair trade practices.
The traditional divide between consumer protection and competition law became
hazy. Competition authorities and sector regulatory agencies have to investigate
cases, where a mix of competition and consumer protection issues arise. Imperfect
information-based market power may harm consumers by imposing excessive
(unfair) prices or other unfair trading conditions and thus distort consumers'
otherwise welfare maximising choice (Vickers, 2003). This is especially so in markets
of non-homogeneous, complex products such as financial services, where thus
consumer behaviour can often create significant barriers to entry (Waterson, 2003).
Sellers may exploit consumers’ lack of knowledge about their rights or their inability
to understand standard contract terms, complex goods, to conduct direct
comparisons and to monitor service delivery. The potential role of bundling as a
strategic response to consumers’ imperfect rationality has already been recognized in
two important articles by Thaler and Craswell (Thaler, 1985; Craswell, 1982), 13 and
11 For example, evaluations and new proposals in the EU indicate that the regulatory
framework was insufficient to enable consumers to reap the full benefit of the liberalisation
process. In many countries liberalisation has led to mixed results. While it improved
competition for large users and provided better prices and new products and services at the
same time it also resulted in much consumer harm. Report on energy sector inquiry
SEC(2006)1724, 10 January 2007, Brussels 13th Report on the Implementation of the
Telecommunications Regulatory Package – 2007, Final report 2007 (COM(2008)153) - 19
March 2008
The Network Industries in the 21st Century: Regulating for Growth and Competition in the
Internal Market, European Government Business Relations Council, Brussels, 5 March 2007;
Telecoms: Consumers have more choice but full potential of EU's internal market remains
unexploited, 29 March, 2007, IP/07/435
12 While it is usually correct to assume that consumers change their behaviour and allegiance
in response to price changes, this only holds if the market supplied the necessary information,
which businesses and consumers need to behave rationally and conclude efficient
transactions. Consumers facing significant information problems will make less rational
decisions. If demand is inelastic and switching costs are high or unfair trade or abusive
practices prevent them acting in their best interest they will not be able to enjoy the
advantages of a competitive market.
13 Thaler’s seminal article shows how mental accounting (by consumers), and specifically the
framing and coding of multiple gains and losses, can lead sellers to adopt a bundling strategy.
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Craswell, working at the intersection of competition law and consumer protection law,
identifies the viability of misperception-driven bundling in competitive markets.
14 In contrast to the bundling and tying in the competition law literature - strategies used by a
seller with market power in market A trying to leverage its market power into market B -
bundling in response to consumer misperception may occur in intensely competitive markets.
His analysis demonstrates that such competitive bundling can be either welfare enhancing or
welfare reducing. When bundling exacerbates the adverse effects of consumer misperception,
regulation designed to discourage bundling may be desirable. Bar-Gill suggests several
"unbundling policies" that can protect consumers and increase welfare in markets where
bundling is undesirable.
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Vugt, 2011). As a result, the Commission implemented a stricter policy which limited
the Member States’ procedural autonomy and obliged them to comply with the
principles of sincere cooperation, non-discrimination and effectiveness (de Moor-van
Vugt, 2011). 15 The CJEU’s judgment in Greek Maize opened the way for the
Commission to lay down obligations for the Member States in consequent Directives
and Regulations that concerned subsidies in order to take appropriate measures in
case of infringements of EU law. 16 De Moor-van Vugt demonstrates that the same
pattern of Europeanizing national enforcement models has been followed by the EU
in several other sectors such as agriculture, environmental law, financial services and
sector regulations such as telecomm and energy (de Moor-van Vugt, 2011, p.72).
At the same time, the accession of 10 new Member States in 2004 has opened
the discourse on enforcement and it made the relevance of enforcement for the
effective working of EU rules manifest (Nicolaides 2003). This enlargement round
formed a significant challenge for the EU’s multi-level governance system with
regard to law enforcement. During the accession process procedural diversity among
Member States became visible in many fields of EU law such as competition law and
consumer law. While previously issues of enforcement and institutional structures
were regarded to rest in the exclusive competence of the Member States according to
the EU principles of procedural autonomy and institutional neutrality, enlargement
has pushed crucial questions of enforcement and institutional choice to the forefront
of the EU agenda (Cseres, 2010).
15 Since the CJEU’s judgment in C-68/88 Greek Maize the Member States are required by
Article 4 (3) TFEU to take all measures necessary to guarantee the application and
effectiveness of EU law. While the Member States remain free to choose the appropriate
enforcement tools, they must ensure that infringements of EU law are penalized under
conditions, both procedural and substantive ones, which are analogous to those applicable to
infringements of national law of a similar nature and importance and which, in any event,
make the penalty effective, proportionate and dissuasive. Case 68/88 Commission v Hellenic
Republic, Judgment of the Court of 21 September 1989, I-2965, paras 23-24
16 Council Regulation (Euratom, EC) No 2185/96 of 11 November 1996 concerning on-the-
spot checks and inspections carried out by the Commission in order to protect the European
Communities' financial interests against fraud and other irregularities When this proved
insufficient to stop fraud in the Member States the Commission began to support the setting
up of national associations to protect economic interests of the EU and invited these
associations to conferences to discuss the barriers of effective enforcement and for the
exchange of information. At the same time, the Commission revised EU legislation and
obliged the Member States to issue administrative sanctions in cases of infringements.
Infringements had to be notified to an EU database and Member States had to annually report
their enforcement efforts. As a final move, the EU set up an EU agency, OLAF for monitoring
Member States’ enforcement. Regulation 1260/1999 laying down general provisions on the
Structural Funds OJ 1999L 161
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3.1. Institutional designs for the enforcement of competition law and consumer
law in the EU Member States
There is presently a wide diversity of institutional designs for the enforcement of
competition law and consumer law. The institutional arrangements of national
17Case C-439/08, Vlaamse federatie van verenigingen van Brood- en Banketbakkers, Ijsbereiders en
Chocoladebewerkers (VEBIC) VZW, judgment of 7 December 2010. Vna clyenebreugel argues
that the Court considers itself directly competent to determine the institutional design of
national competition authorities. While an institutional assimilation approach enhances the
uniform application image of EU competition law across the Member States, it also raises
fundamental questions of legitimacy.
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18The Act on Trade (Act CLXIV of 2005 on Trade) introduced rules that are intended to
influence the conduct of large retailers, which have significant market power, since it
prohibits traders having significant market power from abusive conducts vis-á-vis suppliers.
Based on the substantive provisions of the Act on Trade, the GVH supervises traders having
significant market power with regard to abuses. In these cases, the GVH proceeds pursuant to
the procedural and other provisions concerning the abuse of a dominant position of the
Competition Act.
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Authority (HFSA) was also given the competence to enforce the provisions on unfair
commercial practices in the financial sector. Finally, the GVH is enforcing provisions
on unfair commercial practices in those cases where the distortion of competition can
be established. 19 The three enforcement agencies delineate their competences on the
basis of the requirement of material distortion of competition. 20
While the GVH investigates cases on the basis of examining whether
consumer detriment leads to indirect consumer harm and thus distorts competition,
the NCPA concentrates on consumer protection issues as its first and foremost
priority and the HFSA integrates the enforcement against unfair commercial
practices into its sectoral regulatory practice (Balogh, Cseres, 2012).
agencies.(http://www.pszaf.hu/data/cms2355459/egyuttmuk_megall_PSZF_GVH_120716.
pdf)
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interpretation of the provisions of the Act on Unfair Commercial Practices for the
sake of uniform application.
There are, however, other cooperation agreements between the three agencies
concerning other legislation and the agencies also set their own enforcement
priorities based on the basis of their traditional enforcement tasks. Consequently,
priority setting with regard to the enforcement of the Unfair Commercial Practices
Act may differ.
Furthermore, enforcement of the UCPD can differ greatly among the three
authorities due to the fact that the three agencies are entitled to impose different
sanctions upon establishing the infringement of the Act on Unfair Commercial
Practices. Moreover, the processes of the three agencies also differ in length, and the
agencies have different financial and other means to enforce the provisions of the
UCPD.
This brief overview of the latest changes in the partially integrated model of
consumer and competition law enforcement demonstrates that even highly
harmonized substantive laws can lead to a wide diversity of national practices due to
the different procedures and sanctions but also due to very different institutional
arrangements of enforcing the same piece of law. In such an institutional setting
enhanced cooperation is crucial to ensure the uniform interpretation of the
provisions on unfair commercial practices in the interest of the consumers.
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22 Contribution from United Kingdom, OECD Global Competition Forum, The Interface
between competition and Consumer Policies, DAF/COMP/GF/WD(2008)18, p.5
23 Joining up competition and consumer policy, The OFT’ approach to building an integrated
agency, December 2009, p.7; Contribution from United Kingdom, OECD Global Competition
Forum, The Interface between competition and Consumer Policies,
DAF/COMP/GF/WD(2008)18, p.6
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some questions were raised about how such a problem could be defined. It has been
argued during the consultation that the CMA's consumer enforcement role should go
wider than this and that consumer and competition policy should be joined up across
the regime, ensuring it delivers effective consumer protection which helps create the
conditions for economic growth (OFT, 2011).
Consumer advice, education and advocacy will be brought together under a
single, well-recognised brand like Citizens Advice. This may have advantages as
long as appropriate mechanisms for accountability and coordination are put in place
to ensure that these functions support the delivery of national policy objectives and
can respond effectively to emerging challenges. However, transferring consumer
Market Studies to Citizens Advice and thus divorcing consumer Market Studies from
markets-based thinking may result in inappropriate or unduly burdensome
interventions, increasing costs for businesses and consumers. This existing UK
consumer protection body will work under the guidance of the new National
Trading Standards Board, which commenced operations in 2012. Together, their
expanded responsibility remit will include consumer codes and the enforcement of
consumer law at national (as well as local) level. The consultation of the UK
government voiced that TSS lacked the experience, the resources and quite possibly
the will to take on difficult national cases against well-funded opponents
(Freshfields, 2012).
The following section will map and analyze the criteria that are relevant
when institutional design of administrative agencies is determined. These criteria can
be used in order to assess the likely of the above described institutional changes on
law enforcement.
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some overlaps between competition and consumer policies,22 February, 2008, p.2-3
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elaborating on both competition and consumer aspects was issued. 25 The UK’s OFT
reported that looking at how consumers actually behave, rather than making
economic assumptions about ‘rational consumers’, promote more effective remedies.
A policy mistake that illustrates this point was the opening-up of directory enquiry
services to competition, which traditional economic theory had predicted would
deliver consumer benefits, and led instead to confusion and a plethora of services
that consumers found harder to use and compare. 26
Second, in recent years in both competition law and consumer law the focus
has been on how enforcement can be improved in order to effectively discipline firms.
In both areas the methods of detection and control, forms of sanctions and remedies
are being explored in order to increase deterrence and achieve compliance. The
target of both sets of rules is to modify corporate behaviour and policy and to impose
such an impact on business that will prevent future violations of the law. Effective
deterrence requires that undertakings that might otherwise engage in illegal
activities perceive a reasonable probability of being detected, as well as a sufficiently
severe punishment when indeed they are (Baker, 2001). The question is whether the
threat of the potential punishment is sufficiently large to assure compliance with the
legal rules and behaviour within the boundaries set by the law. In both competition
law and consumer law enforcement the effectiveness of administrative fines proves
to be limited. Corporate fines are not capable of efficiently deterring either cartels,
other anti-competitive practices or anti-consumer behaviour.
While in competition law there are economic studies that show that fines
based on a percentage of sales concerned are substantially less than the estimated
benefits related to the average infringement (Connor and Bolotova, 2005; Wils, 2005),
the effectiveness of fines has not been extensively examined in consumer law. It can,
however, be reasonably argued that the low level of fines for consumer law
violations are often seen as a fee to stay on the market. In both areas a drawback of
these sanctions is that they affect the corporation and not the private individuals,
25 Contribution from Poland, OECD Global Competition Forum, The Interface between
competition and Consumer Policies, DAF/COMP/GF/WD(2008)13, p.4
26 Joining up competition and consumer policy, The OFT’ approach to building an integrated
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which can be both higher and lower management, who decide on the undertakings’
business strategy including possible anti-competitive and anti-consumer acts. 27
Integrated agencies reported positive results by studying remedies and
sanctions in a joint approach. For example, the US FTC reports show that experience
with remedies, like restitution and disgorgement in fraudulent sales to consumers,
provided the foundation for the use of similar remedies in competition law. Similarly,
the FTC’s health care antitrust policy benefited from what the agency learned when
enforcing the laws concerning advertising and marketing practices (Muris, 2002).
Poland has acknowledged the synergy between competition policy and consumer
protection policy by pointing to the transfer of solutions, which proved to be useful
in one area to the other. The Polish Competition Act, on the basis of which the Polish
Office of Competition and Consumer Protection has been operating since April 2007,
provides for, inter alia, imposition of financial penalties on the undertakings who
apply practices infringing collective consumer interests amounting to 10% of their
income from the previous year. 28
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pending the outcome of the case. One important type of provisional remedy is a
temporary order that “freezes” a defendant’s assets to ensure that there will be funds
available at the conclusion of the case to satisfy the judgment. An asset freeze places
a temporary hold on the assets of the defendant, pending the outcome of the case.
This protective tool greatly increases the likelihood of collecting on any money
judgment that is ultimately issued for return to consumer.
In sum, remedies and sanctions provide a strong case for closer cooperation
between competition law and consumer law enforcement. While it is not a conclusive
point on bringing the two enforcement tasks together they do present one of the
main arguments to consider an integrated agency.
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K.J. Cseres
scoreboard uses the indicators of malfunctioning of prices, satisfaction, switching, safety and
consumer complaints. Furthermore, the Commission has engaged in EU Sweep under
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Regulation 2006/2004 joint EU investigation and enforcement action to check for compliance
with consumer laws on a particular market in order to see where consumer rights are being
compromised or denied Communication on harmonized methodology for classifying and
reporting consumer complaints and enquiries, 2009
33 See for example Contribution from Hungary, Financial sector inquiries – a Hungarian
example illustrating some overlaps between competition and consumer policies,22 February,
2008, p.2-3; Contribution from United Kingdom, OECD Global Competition Forum, The
Interface between competition and Consumer Policies, DAF/COMP/GF/WD(2008)18,
34 Joining up competition and consumer policy, The OFT’ approach to building an integrated
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K.J. Cseres
some overlaps between competition and consumer policies,22 February, 2008, p.2-3
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inconsistencies in the policies creating adverse spill-over effects in the other area
(OECD, 2008). Furthermore, performance of the authorities can be improved by
improved levels of independence and accountability as has been recently argued in a
CERRE report (Hanberry, Larouche, Reindl, 2012). The following two sections will
deal with these two core concepts and their relationship with integrating or
separating competition law and consumer law enforcement.
4.5.1. Independence
It has been argued that an administrative authority might be captured by its
consumer agenda without proper appreciation of costs of regulation or it might be
captured by the regulated firms and industry (OECD, 2008). However, agencies have
to be insulated not only from market parties but also from the executive and
legislative powers in a given jurisdiction.
The independence of regulatory agencies has been traditionally justified, by
the technical complexity of the regulated markets and thus the need for expert
decision making. An agency should be insulated from short-term political pressures
in order to adopt public policies based on expertise - i.e. to bring expertise-driven
independent decision-making to the administrative state. It was believed to yield
better public policy over the long term (Barkow, 2010). Accordingly, the concept of
independence builds on the regulator’s legal and functional separation from market
parties and its independence from the legislative and executive powers.
While in the US the concept of independence traditionally implied the US
President’s limited interference in the operation of independent agencies and the
need for expert decision making (Landis, 1938), in the EU the concept has been less
clear-cut and developed mostly at national level independently from EU law
requirements (Hanretty, Larouche, Reindl, 2012). EU law has traditionally focused on
independence from market players 36 and the Courts established this as a core
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K.J. Cseres
37 Case C-202/88, France v. Commission [1991] ECR I-1223 paras. 51-52; Case C-18/88, RTT v.
GB-Inno-BM [1991] ECR I-5973 at para. 25-26. Case C-82/07, Comisión del Mercado de las
Telecomunicaciones [2008] ECR I-1265
38 Article 35 of the Directive 2009/72 on electricity compels Member States to make the
regulatory authority “functionally independent from any other public or private entity” and
give it the autonomy to decide “independently of any public body” Article 39 of the Directive
2009/73 for gas formulates the same obligation. , In electronic communications, Directive
2009/140 adds a provision to the Framework Directive (Article 3(3a)), stating that “national
regulatory authorities responsible for ex-ante market regulation or for the resolution of
disputes between undertakings”… “shall act independently and shall not seek or take
instructions from any other body in relation to the exercise of these tasks assigned to them
under national law implementing Community law.” The Directive says in its Preamble that
the independence of the national regulatory authorities should be strengthened in order to
ensure a more effective application of the regulatory framework and to increase their
authority and the predictability of their decisions. To this end, express provision should be
made in national law to ensure that, in the exercise of its tasks, a national regulatory authority
responsible for ex-ante market regulation or for resolution of disputes between undertakings
is protected against external intervention or political pressure liable to jeopardise its
independent assessment of matters coming before it. “
39 Case C-518/07, European Commission v Federal Republic of Germany, Judgment of the
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Integrate or Separate
sure these concerns of political independence will be sufficiently dealt with by the
Minister of Economic Affairs. 40
In the US political independence has somewhat overshadowed the question
of agency capture and the goal to protect the diffuse interest of the general public or
a vulnerable segment of the public. Agency capture concerns the desire to protect an
agency from one-sided political pressure from the well-financed industry interests
that the agency regulates. Barkow argues that the value of institutional design
mechanisms such as guaranteed agency funding, substantive expertise requirements
and revolving door limits, relationships with other agencies and the states, and an
agency’s ability to independently gather and disseminate information and represent
itself in court have received less attention in discussions of agency independence,
however they proved to be critically important for insulating agencies from one-
sided interest group pressure. She illustrates her argument with the institutional
design of the Consumer Products Safety Commission (CPSC) in the context of the
Consumer Products Safety Act and shows how procedural mechanisms that were
designed to help consumers ended up benefitting the industry instead (Barkow,
2010). The CPSC was a de iure independent agency with all the traditional insulating
designs, but it has fallen far short of its statutory mandate due to chronical
underfunding and understaffing. The procedural rights that aimed at benefitting
consumers and creating better policy became hijacked by well-financed and well-
organized industry representatives (Barkow, 2010).
Accordingly, the allocation of regulatory powers and the question of how
much responsibility a single agency should be given as opposed to splitting
functions among agencies has to take critical account of agency capture. Concerns
about agency capture may dictate to have agencies with broad jurisdictions to make
them more likely to resist pressure from any one interest group. However, giving a
single agency conflicting responsibilities that require the agency to further the goals
of industry at the same time that it is responsible for a general public-interest mission
should be avoided. In that case, there is a significant risk that industry pressure and a
focus on short-term economic concerns that are easily monitored will trump the
long-term effects on the public that are harder to assess (Barkow, 2010).
Consequently, shared enforcement responsibility has a real potential to achieve some
degree of agency independence and thus independence from the legislative and
40 http://www.eerstekamer.nl/nieuws/20130205/behandeling_instellingswet
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K.J. Cseres
executive power may also become a more fundamental issue with the integration of
authorities. For example, the new Dutch ACM will be more independent than the
Dutch Consumer Authority used to be. 41
However, it is difficult to defend institutional independence without some
form of accountability (Trebilcock and Iacobuci, 2010). Public accountability
mechanisms for general agency functioning including personnel and budgetary
decisions, periodic reviews of appropriateness of legislative mandate and agency
effectiveness have been high on the legal and political agenda in the EU but also in
international law and politics. Against the backdrop of globalization and the rise of
EU and international systems of governance fundamental questions of accountability
and legitimacy of these international and also national governance systems were
raised.
4.6. Accountability
Integrating the competition and consumer law enforcement powers under one roof
may improve the public accountability of the agency. It has been argued that wider
visibility to community increasing public awareness of both policies and explaining
the linkage between them can enhance public acceptance of competition policy and
can raise political priority and support of the administration for consumer protection
(OECD, 2008) Competition policy reaches out economy-wide and the individual
actions and decisions of competition authorities are of broad interest to the business,
legal and academic communities, as they are seen as precedents that may be
extended beyond the firms and industries directly affected. As a result, the conduct
of competition authorities is subject to reasonably effective monitoring. In contrast,
consumer policy is at times highly-industry specific and additionally involves many
decisions that individually, have quite low stakes in absolute, economy-wide, terms.
Accordingly, relatively few social actors have the incentive or ability to cautiously
monitor decision-making by consumer agencies. This absence of effective monitoring
can lead to regulatory failure, with the agency at issue being captured either by the
ideology of consumer protection – without a proper appreciation of the costs
regulation imposes – or by the regulated firms, which have an interest in using
consumer protection to create barriers to entry. These risks are likely to be smaller in
an agency that also has the competition policy functions, both because of the internal
41
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Integrate or Separate
culture of such an entity and because of the close scrutiny that entity will naturally
attract (OECD, 2008).
Accountability has been extensively discussed through developing
frameworks of analysis, typologies of mechanisms, categorising its goals and
analysing its institutions and mode of organisation (Black, 2012). Accountability is a
mechanisms which involves informing, explaining and justifying conduct with
(Hanretty, Larouche, Reindl, 2012).
One can distinguish various forms of accountability such as accountability to
politicians, accountability to the market, accountability to the judiciary, and
accountability towards relevant peer groups such as networks of sectoral regulators,
or the European Commission.
With the changing role of the state from market monopolist to market
supervisor, the institutional framework of market regulation has also changed. The
regulatory state is characterized by the a shift from the direct provision of public
services to the privatization and marketization of public services and the rise of non-
majoritarian regulatory bodies (Baldwin and Cave and Lodge, 2011). Scott argues
that the most fundamental feature of the regulatory state governance is the
fragmentation of responsibility to oversee the provision of public services and thus
the dilemma how to give sufficient autonomy to the decentralized actors to achieve
their tasks while maintaining adequate control of them (Scott, 2000). The emergence
of the regulatory state thus sharpened and extended accountability mechanisms to
actors previously immune. When public authorities were set up with the double task
of guaranteeing well-functioning markets and protecting the individual interests of
market participant, the legal mandates of the market supervisors explicitly required
the promotion of consumer interests. The neo-liberal model of accountability has
importantly been built on market mechanisms and thus so-called “downwards
accountability” structures (Elcock, 1997), where agencies are held account to lower
level institutions or groups, their stakeholders such as consumers or the public at
large. However, when the mechanisms through which institutional design can
provide accountability the criticism of downwards accountability has to be
considered. Mechanisms that improve participation, openness, transparency, equal
access and deliberation may at the same time weaken the effectiveness and
credibility of the agencies’ regulatory action (Majone, 1994, Magetti, 2010) because
these procedures increase transaction costs. Moreover, only powerful interest groups
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K.J. Cseres
may be capable to influence the regulatory process excluding and not consumers or
consumer groups (Olson, 1971).
Black has argued that engagement by ‘civil society’ through consumer panels
and advisory bodies in regulatory processes is usually much weaker than that of
business, however to the extent it exists, it is usually stronger at the ‘input’ stages of
policy processes (through consultation) than at other stages. She argues that the
development of consumer panels, like in the UK, which are embedded within
regulatory structures is good example of a form of accountability which is sitting
between the visible, formal processes of consultation prior to decisions, and ex post
reviews of performance. The engagement of consumers or other individuals in the
regulatory process and in calling the regulator to account has the potential to be
considerably enhanced through the operation of consumer panels and external
sectoral bodies, but only if their accountability capacity is adequate. This means that
they possess appropriate personnel, technical expertise, financial resources, and
access to information and research, they are able to respond quickly to changing
events, their members need to have adequate negotiating and advocacy skills, and
their personal authority and institutional position has to be such that they are
respected by consumers, regulators and industry alike (Black, 2012).
An integrated agency housing consumer law and (behavioural) economics
experts could thus be a valuable source of information for regulators as to what
consumer interests are on significant but highly technical issues which can have both
national and international dimensions. The accountability capacity of such a
“consumer voice” is better guaranteed within an integrated administrative agency
while its importance in providing legitimacy to the regulatory process, and
reassurance to consumers that their interests were being effectively represented and
taken into account.
Accountability to the national public and the strengthening of consumer-
citizens’ involvement and active participation in regulatory and decision-making
processes is today a central aspect of regulatory governance (Davies, 2011; Cseres
and Schrauwen, 2012; Jovanic, 2012). It has been argued that effective consumer
involvement improves the democratic accountability of the regulator as it builds
trust and confidence, widens the range of information on which decisions can be
based and leads to a better quality of decision making (Black, 2012).
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Conclusions
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K.J. Cseres
compromise between different objectives. They may avoid regulatory capture more
easily. Nevertheless, this paper finds that integration of policymaking and
enforcement can take place through separate agencies and separation can exist
within an integrated agency. Still, the institutional changes taking place in Hungary
and the UK demonstrate that institutional constituencies of long-established and
effective models of integrated agencies cannot be separated without carefully
considering how inter-agency structures will be able to effectively enforce the same
rules.
While it is critical that institutional arrangements comply with fundamental
procedural and institutional norms guaranteeing basic values of a national
administrative law system such as due process, independence, public accountability
or stakeholder participation, other factors such as administrative efficiency and
credibility, administrative law legacies, constituencies and the socio-political context
of institutions as well as its relationships or concurrencies with other institutions will
be decisive. Moreover, the basic norms receive new interpretation and dimension
along the various institutional changes and models such as accountability to the
public and in the form of consumer-citizen participation.
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