Does within-tenure experience make you tougher? Evidence from competition law.

Ludivine Garside, Paul Grout & Anna Zalewska

Public Organisation Conference 12th June 2008

Centre for Market and Public Organisation

2

• Motivation

• Data

• Results

3

Motivation

• There are many situations where attitudes, perceptions, skills, etc., are responsive to past experience and changing social and workplace environments.

• May be tempered or fostered by market forces.

• Where market forces, or their analogues, are more muted then ‘within-tenure’ experience could potentially have far greater and varied impact (life-tenure of judges). Public officials have weak external competitive forces

• Judicial discretion v rules

4

• Literature on judgements in legal and investigative arenas (De Paulo and Pfeifer (1986) Meissner and Kassin (2002), Kassin and Tong (1999) and Porter, Woodworth and Birt (2000)).

Conclusions:• Experience and training do not improve the ability to

make the right judgement. • Experience has a significant impact on the confidence

that the subject has in his/her personal judgement• Experience increases the likelihood of the subject

responding deceit as opposed to truth in experiments.

5

What and why?

• This study looks if there are within-tenure experience effects on the ‘judges’ and ‘investigators’:

– direct economic relevance – based on real world legal cases rather than

experiments– use economic factors to deal with the

heterogeneity of cases - these economic factors give an additional ‘test’

6

• Public interest test (not defined - large element of discretion – problem of quality of decision –claim not matter ).

• Panel both conducted the investigation and made the judgement

• Track the decisions and experience of individual subjects - separate out cohort effects, individual effects, and age from within-tenure experience - identify off individual change in experience.

• Unambiguous decision• Legal process was virtually identical throughout

the period• Chairperson of the investigative panel was

extremely influential in the process

Unique data set

7

• Davies et al. (1998, 1999)

• Ashenfelter et al (1995)

• Besley and Ghatak (2005)

• Prendergast (2007)

• Econ/Gender literature

8

Choice of chairman of investigating panel:

• Chairman of investigation chosen almost exclusively from Commission Chair or Deputy Chairs

• Conflict of interest

• Balanced load

• Exception would be if a fundamental case arises

• Experience and complex cases

9

Data

• Investigations for “possible abuse of a monopoly situation”, published between 1970 - 2003

• Investigation level:

– 431 company observations,

– 85 cases

– 122 company observations with profitability, (1970-1996)

10

market share of investigated firm

0.63% 2.25% 3.74% 5.91%9.68%

14.52%20.85%

29.04%

40.98%

74.21%

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

1 2 3 4 5 6 7 8 9 10

11

profitability

-15.56%

9.03% 15.31% 17.63% 20.92% 27.16% 33.89%46.54%

62.43%

158.72%

-0.5

0

0.5

1

1.5

2

12

chair max experience

0.3

6.0 7.49.9 11.2

15.017.6

21.827.3

46.8

0.0

10.0

20.0

30.0

40.0

50.0

1 2 3 4 5 6 7 8 9 10

13

Variable Mean

Chair experience 14.7 0 54Gender ratio 13.8% 0% 50%Market share of investigated firm 20.2% 0.1% 100%Climate 2.4 0 6Profitability 37.6% -94.4% 368.7%ONS C3 / 3 (within dataset) 15.2% 2.8% 32.1%ONS C3 / 3 (all UK industry) 12.6% 0.65% 33.33%

Range

14

Firm level Case level

Least experienced 0.55 0.51

Second least experienced 0.45 0.69

Second most experienced 0.71 0.74

Most experienced 0.78 0.78

Least experienced 0.47 0.59

Mid experienced 0.62 0.68

Most experienced 0.78 0.80

15

Approach

• Probit

• Independent cases

• Firm-level observations cannot be treated as independent – need to account for intra-cluster correlation (at case level and at chairman level)

16

Pseudo R2 0.186 0.244 0.1866 0.248 0.189 0.209 0.184 0.189

Constant -0.586(0.502)

-0.492(0.563)

-0.591(0.510)

-1.475***(0.544)

-0.508(0.510)

0.074(0.644)

-0.381(0.462)

-0.929(0.579)

Chair experience 3.179**(1.326)

3.309*(0.010)

3.114**(1.374)

3.186**(1.305)

3.431**(1.623)

2.869**(1.231)

Gender ratio 3.330 **(1.543)

3.582**(1.638)

3.311**(1.591)

3.252**(1.522)

3.468**(1.632)

2.796*(1.649)

3.345**(1.533)

3.267**(1.543)

Market share 0.820*(0.446)

0.996**(0.497)

0.838*(0.486)

1.230***(0.470)

0.799*(0.462)

0.773*(0.455)

0.753*(0.451)

0.840*(0.443)

Climate -1.204(0.998)

-1.847*(0.945)

-1.226(0.985)

-1.820**(0.904)

-1.432(1.013)

-1.016(1.006)

-1.162(0.993)

-1.223(1.000)

Two anti-competitive conducts

0.956***(0.355)

0.996**(0.441)

0.958***(0.341)

0.969***(0.339)

0.936**(0.370)

1.036***(0.344)

1.000***(0.358)

0.926***(0.355)

Repeated investigation -0.700*(0.425)

-0.732(0.127)

-0.703*(0.427)

-0.678*(0.412)

-0.687(0.427)

-0.692*(0.419)

-0.717*(0.425)

-0.714*(0.426)

Concentration ratio(3 firms)

-1.554(0.196)

Minimum efficient size 0.006(0.100)

Market share volatility 0.189(0.189)

Dummy 1990 0.031(0.393)

Dummy 1980 1.151***(0.362)

Dummy Labour -0.181(0.481)

Wogrex -6.285(4.259)

(Chair experience)2 9.120**(4.125)

(Chair experience)1/2 2.277***(0.874)

Full company data set

17

Pseudo R2 0.247 0.302 0.302 0.245 0.249

Constant -0.419 (0.719) -0.394 (0.734) -1.7551**(0.788)

-0.172 (0.7016) -0.828 (0.770)

Chair experience 3.806***(1.424)

3.822***

(1.421)

4.730***

(1.394)

Gender ratio 3.987***(1.418)

4.007***

(1.466)

3.726***

(1.393)

4.014***(1.424)

3.898***(1.417)

Market share of investigated firm 1.126**(0.508)

1.113**

(0.520)

1.428***

(0.526)

1.090**(0.511)

1.125**(0.509)

Climate -1.900**(-0.870)

-1.888**

(0.918)

-2.179***

(0.789)

-1.883**(0.877)

-1.920**(0.868)

Two anti-competitive conducts 1.586***(0.498)

1.594***

(0.525)

1.278**

(0.506)

1.650***(0.497)

1.552***(0.501)

Repeated investigation -0.751* (0.437) -0.755* (0.448) -0.580 (0.412) -0.780* (0.436) -0.757* (0.435)

Monopoly pricing -0.543 (0.514) -0.548 (0.521) -0.420 (0.502) -0.565 (0.521) -0.517 (0.514)

Discriminatory pricing -0.796 (0.699) -0.809 (0.643) -0.431 (0.643) -0.787 (0.703) -0.825 (0.697)

Collusive pricing -0.266 (0.650) -0.294 (0.709) 0.365 (0.643) -0.330 (0.647) -0.258 (0.648)

Predatory pricing 1.015 (0.120) 1.012 (0.649) 1.065 (0.672) 1.074 (0.663) 0.981 (0.643)

Vertical integration 0.198 (0.631) 0.1775 (0.668) 0.328 (0.602) 0.205 (0.635) 0.165 (0.624)

Tie in sales -0.082 (0.725) -0.093 (0.728) -0.052 (0.723) -0.087 (0.720) -0.101 (0.725)

Exclusive purchasing -0.570 (0.709) -0.582 (0.709) -0.165 (0.617) -0.563 (0.718) -0.582 (0.704)

Resale price maintenance -0.693 (0.594) -0.696 (0.584) -0.708 (0.553) -0.634 (0.593) -0.717 (0.597)

Dummy 1990 -0.031(0.437)

Dummy 1980 1.255***

(0.363)

(Chair experience)2 10.593**(4.302)

(Chair experience)1/2 2.759***(0.978)

18

Pseudo R2 0.242 0.249 0.243 0.277 0.280 0.281

Constant -1.727**(0.717)

-.1956**(0.776)

-1.730**(0.719)

-1.423(0.893)

-1.646*(0.976)

-1.286(0.914)

Chair experience 5.377**(2.234)

5.666**(2.238)

5.448**(2.275)

5.317**(2.523)

5.627**(2.570)

5.258**(2.558)

Gender ratio 3.996**(1.625)

4.027**(1.646)

4.063**(1.655)

3.981**(1.757)

3.961**(1.767)

4.173**(1.778)

Market share of the biggest investigated firm

2.421***(0.864)

2.436***(0.863)

2.405***(0.869)

3.066***(1.044)

3.059***(1.040)

3.000***(1.055)

Climate -0.705(0.977)

-0.875(1.008)

-0.600(1.090)

-0.920(1.068)

-1.019(1.086)

-0.563(1.196)

Two anti-competitive conducts

1.582***(0.532)

1.591***(0.542)

1.574***(0.531)

2.279***(0.718)

2.217***(0.719)

2.350***(0.734)

Repeated investigation -0.500(0.413)

-0.548(0.421)

-0.482(0.420)

-0.625(0.443)

-0.638(0.444)

-0.617(0.443)

Dummy 1980 0.326(0.398)

0.257(0.424)

Dummy 1990 -0.083(0.386)

-0.295(0.443)

Monopoly pricing -0.809(0.555)

-0.787(0.559)

-0.851(0.561)

Discriminatory pricing -0.940(0.621)

-0.859(0.640)

-1.054(0.643)

Collusive pricing -0.309(0.641)

-0.220(0.665)

-0.517(0.716)

Vertical integration -0.726(0.641)

-0.722(0.643)

-0.871(0.676)

Tie in sales -0.596(0.637)

-0.591(0.632)

-.734(0.676)

Exclusive purchasing -0.560(0.580)

0.257(0.424)

-0.632(0.595)

Case data set

19

dy/dx mean

Chair experience 1.162 0.147

Gender ratio 1.217 0.138

Market share 0.300 0.202

Climate -0.440 0.236

Two anti-competitive conducts 0.333 0.455

Repeated investigation -0.262 0.339

Predicted value = 0.66

20

Pseudo R2 0.187 0.166 0.253 0.236

Constant -0.220(1.789)

-0.389(1.737)

-3.211(2.279)

-3.240(2.260)

Chair experience 3.284**(1.473)

3.519**(1.567)

Gender ratio 3.267**(1.545)

3.171**(1.506)

4.508***(1.422)

4.308***(1.468)

Market share of investigated firm 0.828*(0.446)

0.792*(0..464)

1.096**(0.513)

1.133**(0.522)

Climate -1.212(1.002)

-1.253(0.997)

-1.910**(0.853)

-1.994**(0.889)

Two anti-competitive conducts 0.939**(0.372)

1.016***(0.375)

0.904(0.564)

0.928*(0.556)

Repeated investigation -0.712*(0.422)

-0.833**(0.422)

-0.710*(0.432)

-0.858**(0.428)

Age -0.006(0.028)

0.005(0.025)

0.0329(0.0382)

0.041(0.037)

Monopoly pricing 0.210(0.717)

0.344(0.734)

Discriminatory pricing 0.793(0.666)

0.888(0.669)

Collusive pricing 0.344(0.716)

0.223(0.726)

Predatory pricing 1.977***(0.700)

2.229***(0.696)

Vertical integration 1.161*(0.699)

1.173(0.718)

Tie in sales 0.685(0.612)

0.701(0.642)

Exclusive purchasing 0.194(0.622)

0.121(0.674)

Resale price maintenance -0.136(0.654)

0.041(0.037)

21

Pseudo R2 0.197 0.286 0.325 0.286

Constant -0.556(0.501)

0.294(0.672)

-1.473**(0.738)

-0.375(0.729)

Chair experience 3.802***(1.434)

7.338***(2.151)

7.486***(2.148)

7.332***(2.154)

Gender ratio 3.591**(1.645)

5.135***(1.417)

4.774***(1.422)

5.096***(1.447)

Market share 0.855*(0.441)

0.951*(0.513)

1.252**(0.518)

0.991*(0.531)

Climate -1.314(1.006)

-1.982**(0.847)

-2.217***(0.772)

-2.028**(0.853)

Two anti-competitive conducts 1.018***(0.351)

1.729***(0.494)

1.459***(0.503)

1.708***(0.516)

Repeated investigation -0.615(0.409)

-0.572(0.413)

-0.450(0.398)

-0.556(0.416)

Legal background -0.360(0.310)

-1.018**(0.471)

-0.826*(0.473)

-1.033**(0.472)

Monopoly pricing insignificant insignificant

Discriminatory pricing insignificant insignificant

Collusive pricing insignificant insignificant

Predatory pricing insignificant insignificant

Vertical integration insignificant insignificant

Tie in sales insignificant insignificant

Exclusive purchasing insignificant insignificant

Resale price maintenance -1.761**(0.791)

-1.580**(0.733)

-1.767**(0.787)

Dummy 1980 1.075***(0.361)

Dummy 1990 0.101(0.422)

22

No of observations 431 431 431 85 81 no DK 81 no DK 381 no DK

Pseudo R2 0.189 0.211 0.327 0.175 0.243 0.286 0.290

Constant -0.042(0.429)

-0.501(0.528)

-0.587(0.658)

-0.727(0.478)

-1.746**0.717)

-1.505*(0.898)

-0.708(0.689)

Chair experience3.104**(1.425)

3.314***(1.214)

7.536***(2.029)

3.948**(1.570)

5.593**(2.265)

5.600**(2.575)

7.678***(2.068)

Gender ratio2.232*(1.343)

3.376**(1.357)

3.311*(1.699)

3.245*(1.835)

3.213**(1.488)

Market share0.491

(0.479)0.762

(0.481)0.975*(0.502)

1.674***(0.636)

2.466***(0.864)

3.158***(1.045)

1.060**(0.511)

Climate-1.374*(0.744)

-1.144(0.958)

-1.763**(0.761)

-0.959(0.830)

-0.746(0.982)

-0.943(1.072)

-1.854**(0.750)

Two anti-competitive conducts

0.655*(0.348)

0.875**(0.411)

1.337***(0.476)

1.196***(0.366)

1.603***(0.536)

2.332***(0.723)

1.358***(0.481)

Repeated investigation-0.622(0.391)

-0.717*(0.416)

-0.358(0.409)

-0.274(0.381)

-0.510(0.421)

-0.596(0.452)

-0.394(0.427)

Monopoly pricing Insignificant Insignificant Insignificant

Discriminatory pricing-0.821(0.617)

-1.138*0.653)

-0.722(0.665)

Collusive pricing Insignificant Insignificant Insignificant

Predatory pricing1.191**(0.536)

1.284**(0.564)

Vertical integration Insignificant Insignificant Insignificant

Tie in sales Insignificant Insignificant Insignificant

Exclusive purchasing Insignificant Insignificant Insignificant

Resale price maintenance

-1.253*(0.669)

-1.123(0.721)

Dummy D. Kingsmill2.013**(0.927)

1.434***(0.418)

2.036***(0.621)

Legal background-1.140***

(0.415)-1.126***

(0.421)

Gender

23

Pseudo R2 0.325 0.330 0.332 0.334 0.352 0.372

Constant -1.329**(0.601)

-1.417**(0.562)

-1.540***(0.567)

-1.405**(0.601)

-1.401**(0.604)

-1.367**(0.622)

Chair experience 3.079**(1.468)

3.358**(1.345)

2.647*(1.583)

3.651***(1.421)

4.453***(1.296)

4.860***(1.356)

Gender ratio 3.629*(1.862)

3.252*(1.823)

4.268**(1.881)

3.702**(1.884)

3.577*(1.866)

3.956**(1.807)

Market share 1.992***(0.742)

1.946***(0.753)

2.112***(0.741)

1.909**(0.758)

2.300***(0.825)

2.278***(0.851)

Climate -1.689(1.272)

-1.887(1.280)

-0.397(0.1.243)

-2.243*(1.337)

-2.852**(1.371)

-2.822**(1.400)

Two anti-competitive conducts 1.578***(0.375)

1.493***(0.419)

1.974***(0.544)

1.572***(0.388)

1.620***(0.357)

1.687***(0.367)

Repeated investigation -1.446**(0.574)

-1.520***(0.589)

-1.138*(0.662)

-1.295**(0.590)

-1.295**(0.589)

-1.323**(0.589)

Dummy 1980 0.320(0.380)

Dummy 1990 -1.005*(0.523)

ROCE 0.359*(0.217)

0.479**(0.230)

0.075(0.278)

Monopoly pricing -0.706**(0.349)

-1.251***(0.428)

ROCE x Monopoly pricing 1.146**(0.479)

24

Pseudo R2 0.211 0.277 R2 0.217 R2 0.397

Constant -0.507(0.517)

-0.685(0.750)

0.332**(0.165)

0.464*(0.263)

Chair experience 3.386**(1.543)

5.224**(2.105)

0.955**(0.427)

1.558**(0.638)

Gender ratio 3.406**(1.531)

4.088***(1.405)

1.035*(0.522)

0.823(0.562)

Market share 0.858*(0.472)

1.154**(0.502)

0.245*(0.145)

0.030(0.154)

Climate -1.444(0.908)

-2.099***(0.807)

-0.351(0.354)

-0.327(0.318)

Two anti-competitive conducts 1.001***(0.342)

1.301**(0.522)

0.275***(0.096)

0.259**(0.119)

Repeated investigation -0.672(0.416)

-0.557(0.434)

-0.237(0.149)

-0.290*(0.158)

Dummy J. Le Quesne -0.824(0.658)

-1.273**(0.648)

All chairmen dummies

Dummy A.Roskill -0.025(0.429)

-0.020(0.573)

Monopoly pricing insignificant

Discriminatory pricing insignificant

Collusive pricing insignificant

Predatory pricing insignificant

Vertical integration insignificant

Tie in sales insignificant

Exclusive purchasing insignificant

Resale price maintenance insignificant

Full data set

25

No of observations 85 85 431 431

Pseudo R2 0.242 0.277 0.186 0.247

Constant -1.727***

(0.717)-1.424**(0.647)

-0.586(0.539)

-0.419(0.730)

Chair experience5.377***(2.234)

5.317**(2.133)

3.179***(1.163)

3.806***(1.224)

Gender ratio3.996**(1.625)

3.981**(1.905)

3.330**(1.485)

3.987***(1.510)

Market share2.421***(0.864)

3.066***(0.800)

0.820*(0.464)

1.126**(0.508)

Climate-0.705(0.977)

-0.920(1.106)

-1.204(1.025)

-1.900**(0.925)

Two anti-competitive conducts1.582***(0.532)

2.279***(0.603)

0.956**(0.394)

1.586***(0.568)

Repeated investigation-0.500(0.413)

-0.625(0.496)

-0.700*(0.418)

-0.751(0.473)

Monopoly pricing-0.809*(0.468)

-0.543(0.464)

Discriminatory pricing-0.940(0.695)

-0.796(0.683)

Collusive pricing-0.309(0.563)

-0.266(0.636)

Predatory pricing1.015*(0.590)

Vertical integration-0.726*(0.426)

0.198(0.465)

Tie in sales-0.596(0.390)

-0.082(0.682)

Exclusive purchasing-0.559(0.494)

-0.570(0.726)

Resale price maintenance-0.693(0.524)

Clustered by chairman

26

No of observations 431 431 431 431

Pseudo R2 0.207 0.290 0.179 0.244

Constant -0.432(0.507)

-0.817(0.665)

0.147(0.398)

-0.209(0.697)

Chair experience 3.743***(1.326)

6.591***(1.939)

Gender ratio 3.097**(1.600)

3.674***(1.360)

2.858*(1.515)

3.116**(1.421)

Market share of investigated firm 0.707(0.450)

0.848(0.521)

0.708(0.467)

0.972*(0.520)

Climate -1.254(0.989)

-1.850**(0.787)

-1.272(0.964)

-1.900**(0.869)

Two anti-competitive conducts 1.076***(0.353)

1.147**(0.545)

1.104***(0.354)

0.913*(0.495)

Repeated investigation -0.788*(0.436)

-0.814**(0.402)

-0.944**(0.450)

-1.018**(0.409)

Monopoly pricing -0.084(0.658)

0.301(0.679)

Discriminatory pricing 0.605(0.628)

0.828(0.664)

Collusive pricing 0.179(0.635)

0.232(0.663)

Predatory pricing 1.622*(0.922)

1.934(0.805)

Vertical integration 0.991(0.634)

0.965(0.677)

Tie in sales 0.000(0.647)

0.336(0.625)

Exclusive purchasing 0.133(0.577)

0.385(0.589)

Resale price maintenance -0.824(0.681)

0.068(0.579)

CC chairman -0.536(0.377)

-1.154**(0.472)

-0.431(0.373)

-0.647*(0.360)

27

Conclusions

• Reject ‘sample selection’

• Small hint of career concerns

• Gender may also matter

• Within-tenure experience matters

• Implications for ‘precedent/rules’ v ‘reason’

• Beneficial or not?

28

Predicted Probabilities by case

0

0.2

0.4

0.6

0.8

1

1.2

0

0.0

7

0.1

4

0.2

1

0.2

8

0.3

5

0.4

2

0.4

9

0.5

6

0.6

3

0.7

0.7

7

0.8

4

0.9

1

0.9

8

experience

pre

dic

ted

pro

ba

s

Supermarkets, Cm 4842

Domestic Electrical WhiteGoods, Cm 3676

Primary Batteries, HC 1(1974/75)

Matches and DisposableLighters, Cm 1854

Roadside Advertising, HC365 (1980-81)