The Framework for Assessing Costs and Benefits
The Commission's framework for assessing costs and benefits is consistent with international best practice. Nevertheless, five issues have been raised with officials relating to the way that costs and benefits are assessed by the Commission when it is considering authorisation applications. Four of those issues relate to the Commission's policies and practices. The fifth issue is whether the Act should specifically require the Commission to consider international competitiveness benefits. We have not drawn any conclusions on any of these five issues. Rather, the intention is to seek views from stakeholders on those matters and form views prior to reporting to the Government.
O: The assessment of costs and benefits
The Commission assesses efficiency gains and losses by defining a factual and counterfactual, comparing the outcomes and attributing the difference to the merger. The factual and counterfactual are both forward-looking hypothetical situations. The factual is the situation with the merger. The counterfactual is the situation without the merger. We ask for submissions on the way that the Commission goes about this analysis.
P: The treatment of international competitiveness claims
The authorisation process requires the Commission to assess whether proposed mergers or practices will or will be likely to result in a benefit to the public that would outweigh the anticompetitive detriment. International competitiveness can sometimes be a significant issue. The question we ask in this section of the discussion document is whether the public benefit test is sufficiently broad to take international competitiveness claims into consideration and give them sufficient weighting.
Q: The balance between quantified and intangible benefits and detriments
The Commission has been quantifying costs and benefits to the extent feasible over the last 15 years. The issue is whether there is an over-emphasis on quantification at the expense of costs and benefits that are difficult to quantify. This is a crucial issue because dynamic efficiency is the largest contributor to economic growth and yet dynamic effects are the most difficult to quantify. We are seeking views on whether the existing approach is sufficiently flexible.
R: Timeframes over which costs and benefits are assessed
The Commission's time horizon for assessing costs and benefits is usually 2-5 years. However, most of the impacts on innovation are unlikely to occur until much later. Trying to assess impacts beyond a 2-5 year period is likely to be speculative and, therefore, impractical. We ask whether the existing approach to timeframes raises any issues.
S: Market definition issues
The Commission defines markets by testing buyer and seller reactions to a small but significant non-transitory increase in price (SSNIP) in a hypothetical exercise which assumes the creation of a total monopoly. The Commission also applies a reality check to the analysis by applying the market definition appearing in the Act, i.e. to include other goods and services that, as a matter of fact and commercial common sense are substitutable for them. We are seeking views on whether this approach is working well.
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