As recent economic studies have clearly indicated, one of the main sources of competition concerns of many jurisdictions around the world is the impact of high levels of aggregate concentration in their markets, that is, when a small group of economic entities controls a large part of the economic activity in the economy through holdings in many markets (hereinafter, "conglomerates"). High aggregate concentration levels are common in small economies. For example, in Hong Kong, the largest 16 conglomerates control 84% of the country's GDP and in Singapore, this figure is almost 50%. However, this phenomenon is not unique to small economies, as large jurisdictions may also suffer from similar problems. Some well-known examples include the Chaebols in Korea, the Keiretsu in Japan and the Business Houses in India. Conglomerates such as these are often also referred to as "business groups".
High levels of aggregate concentration can significantly affect competition and welfare. On the one hand, conglomerates can strengthen competitive pressures. Their substantial resources and varied experience, as well as their economies of scale and scope, often enable them to enter markets more readily than other firms, especially when barriers to entry are high. Moreover, their vast financial means and diversified holdings portfolios enable their business units to tap into a large pool of retained earnings, thereby enabling them to take more risk in product development or with entry into new markets. Where governments or market institutions do not function well, conglomerates may allow firms to overcome such obstacles.
On the other hand, high levels of aggregate concentration raise significant competitive concerns. Aggregate concentration may increase the frequency of oligopolistic coordination within and across markets. Given their current and potential multi-market contact, conglomerates are often likely to create a reciprocal status-quo, thereby not entering each other's market or not engaging in aggressive competition in markets in which they potentially compete. Conglomerates may also create strong deterrence for entry or expansion by competitors. These effects, in turn, may lead to stagnation or poor utilization of resources, which negatively affect growth and welfare. Another major concern is one of political economy: given their size and economic impact, large conglomerates may attempt to translate their economic power into political power in order to create, protect and entrench their privileged positions.
Objectives of this research project
This research seeks to analyze the tools that different jurisdictions around the world apply to regulate high levels of aggregate concentration, with a particular focus on competition law tools. The analysis will be done with a view of proposing ways in which competition authorities should address aggregate concentration issues and identifying the limitations of competition law tools for addressing such issues.
We aim to conduct a survey of the competition authorities of a wide range of jurisdictions, which will help us identify which jurisdictions have particular problems with aggregate concentration and how their competition laws have responded to these problems. Emphasis will be placed on how various competition laws regulate and address aggregate concentration problems using rules on restrictive agreements, merger control rules, rules pertaining to joint ventures, and rules on unfair pricing and abuse of substantial bargaining positions. We will also survey the relevant economic literature and case studies to identify the main competition problems presented by high aggregate concentration levels and the prevalence of conglomerates. After the initial research and survey, we will collate the results to construct an overall picture of the prevalence of aggregate concentration problems across jurisdictions and how different jurisdictions have dealt with these problems. We will then propose ways which we think are most appropriate for competition law or other policy tools to address aggregate concentration problems.
||Survey the relevant economic literature and case studies to identify the main competition problems presented by high aggregate concentration levels and the prevalence of conglomerates.|
||Survey of competition authorities to identify which jurisdictions have particular problems with aggregate concentration and how their competition laws have responded.|
||Analysis of results.|
||Proposition of methods for competition law or other policy tools to address aggregate concentration problems.|
Current Phase of Implementation
The project has been completed.
Prof. Michal Gal
University of Haifa Faculty of Law
Prof. Thomas Cheng
University of Hong Kong Faculty of Law
Competition and Consumer Policies Branch (CCPB)