Kirchner 2004 Competition

8/13/2019 Kirchner 2004 Competition

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Christian Kirchner, Berlin

Competition policy vs. regulation: Administration vs. judiciary

1. Introduction

The relationship between competition policy and regulation has notalways been clear. Conventional wisdom tends to regard both activities as non-competing and thus complementary. But in certain phases o deregulation andtransormation o ormer state monopolies into competitive mar!ets rivalrybetween competition policy and regulation is evident. "n practice the conlictbetween competition policy and regulation oten arises as one betweencompetition authorities and sector speciic regulatory authorities.

"n order to better understand the comple# interdependence andsubstitution processes between competition policy and regulation it appears tobe useul to analyse their relationship - ater a irst review o the problem in anindustrial organisation ramewor! - in a new institutional economics perspective.

Competition policy will be understood here as the application andenorcement o competition law by competition authorities and law courts.$egulation will be understood as sector speciic regulation enorced byregulatory authorities and law courts. %hereas competition policy constitutes abranch o economic policy applicable to all sectors regulation concerns speciic

industries.

The act that administration plays a more prominent role in case o regu-lation and that the judiciary is more decisive when it comes to the applicationand enorcement o competition law, will be ta!en into account. But conclusionson the proper relationship between competition policy and regulation cannot bederived the solely on ground o dierent enorcement mechanisms.

2. Competition policy and regulation as non-competing institutionaldevices: the complementarity hypothesis

&.' "ntroductory $emar!s

The widely accepted traditional view that competition policy and regula-tion are complementary, non-competing devices may serve as a starting pointo the discussion (complementarityhypothesis). Both types o economic policyare directed towards inluencing given mar!et processes. But within this broadcommon ramewor! they are pursuing dierent goals and ought to solve dier-ent problems i.


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"n order to better understand the relationship between competition policyand regulation it has to clariied which solutions are oered by both institutionaldevices and which goals are to be attained.

*uch an analysis should start with our widely accepted positions whichappear to be convincing at irst sight but which have later on to be criticallyevaluated:(') Competition in mar!ets or goods and services produces positive welare

eects or a society and is an important actor in order to base theorganisation o society on the undament o individual reedom.

(&) " competition is e#clusively being let to mar!et orces competition maybe endangered by activities aimed at creating or strengthening mar!etpower (restrictive business practices).

(+) Competition policy has to protect reedom o competition by deining andenorcing such constraints which prevent such restrictive business prac-tices.

() "n mar!ets where competition does not produce the positive welareeects - mentioned in (') - industry should be regulated.

osition () - widely accepted beore the deregulation movement ii- maybe ormulated dierently: $egulation is needed in certain cases o mar!etailures li!e natural monopolies where competition policy is ineasible.

"n order to outline this - conventional - approach competition,competition policy and regulation have irst to be placed into the ramewor! o

a traditional industrial organisation analysis.

&.+ Competition

Competition in a mar!et means that mar!et participants as customershave the choice between dierent suppliers and as suppliers the choicebetween dierent customers. The essence of competition is rivalryiii. $ivalry onone side o the mar!et means reedom o choice on the other side. Thuscompetition may be regarded as an instrument which simultaneously createsreedom and chec!s power, i.e.market power.

&. /ilemma structures o competitive mar!ets

The relationship between mar!et participants - either suppliers orcustomers - may be characterised as a prisoners dilemma iv. *uch mar!etparticipants which gain mar!et power can escape this prisoners dilemma totallyor to a certain degree. 0ar!et power may be the result o productive eiciency1but so long as entry barriers are low or non-e#istent this type o mar!et powermay be contested in a process o dynamic competition. "n the absence o supe-

rior productive eiciency mar!et power may be the result o collusive activities,

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which restrain competition, e.g. engaging in price i#ing, mar!et allocation, ab-sorbing other competitors by means o a merger etc. (restrictive businesspractices). The result or mar!et participants on the other side o the mar!et isless reedom o choice and thus a deterioration o mar!et conditions.

&.2 Competition policy

Competition policy may be regarded as that part o economic policywhich aims at protecting the reedom o choice in mar!ets by preventingactivities which endanger this reedom (restrictive business practices). *uchactivities may be collusive activities mentioned or activities by competitors withdominant mar!et power which oreclose the mar!et by raising entry barriers.

The goal of competition policy is to !eep mar!ets ree rom restrictivepractices, i.e. to protect reedom o competition against certain activities whichare supposed to have negative eects v.

The underlying assumption o competition policy deined in this way isthat in the absence o such restrictive practices eective competition willproduce positive economic eects, i.e. it will lead to an eicient use o scarceresources (allocative eiciency) vi, thus serving the general welare. And it willserve the purpose o protecting individual liberty as well.

&.3 "nherent limitations o competition policy

Competition policy as such cannot create competition. "t can only preventor limit the eects o certain activities which are restricting reedom o com-petition. Competition as such is a dynamic search process which is dependenton various institutional prere4uisites li!e private property and freedom of con-tract vii. "n the absence o such institutional devices there cannot be anymeaningul competition policy.

There are certain limits to the eectiveness o competition policy. Theassumption - that in the absence o restrictive business practices competitionwill produce positive welare eects - may not be satisied because o the

e#istence o public goods, e#ternalities or so-called natural monopolies. Theseimperections o mar!ets, oten reerred to as mar!et ineiciencies or mar!etailures viii. Competition in such cases is said to be ineasible or technological ormar!et reasons i#.

&.5 The argument or regulation o natural monopolies

"n the case o a natural monopoly - deines as subadditivity o the costunction over the relevant range o output # - the arguments goes that the

eiciency goal cannot be attained by competition between two or more irms in

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the mar!et #i. Costs will be lower i only a single supplier e#ists #ii. Thus,according to conventional wisdom mar!ets, in which natural monopolies e#ist,should be subject to regulationin order to protect consumers and to attain thegoal o allocative eiciency #iii.

&.6 Conse4uences or the relationship between competition policy and regu-lation

According to this conventional wisdom competition policyand regulationare institutional devices which are not conlicting. They are applicable indierent settings and thus are complementary. There are mar!ets, in whichcompetition policy will lead to satisactory results, and other mar!ets, whichneed regulation in order to attain the eiciency goal.

The goals to be attained by both institutional devices are overlapping butnot identical. %hereas many authors argue that competition policy should servea broad catalogue o objectives #ivothers ocus on the eiciency goal #v. 7tenthe eiciency goal is being combined with the consumer protection goal #vi. "ncase o regulation most authors stress the eiciency goal #vii, but goals li!econsumer protection are being brought into play as well #viii.

" this - simple - analysis o competition policy and regulation is true theollowing hypothesismay be ormulated: Competition policy and regulation arealternative and complementary institutional devices which do not compete.

The answer to the 4uestion whether competition policy or regulation isthe ade4uate institutional device in order to deal with issues o imperectcompetition can 8 according to conventional wisdom - simply be derived roman analysis o mar!et imperections in a given mar!et. %hen the given mar!etturns out to be a natural monopoly, the argument goes that regulation is the -only - easible solution. "n case o public goods mar!ets are assumed not tounction properly so that political decisions on supply o these goods appears tobe necessary. $egulation is supposed to bere4uired. "n case o e#ternalities in-stitutional devices li!e property rights and9or civil liability should be applied. "nall other cases competition policy supposedly will produce satisactory results.

The complementarity hypothesis, which has served in the nited *tateso America as a justiication or regulation o a number o industries, and whichin ;ermany has been legitimising the so-called e#ceptions rom ;erman lawagainst restraints o competition #i#, rests upon a 4uestionable methodologicalundament. This undament has been challenged since the early '


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3. Competition policy and regulation as competing institutionaldevices

Competition policy and regulation may be competing institutional devicesin situations where regulation is being cut bac! or abolished as such(deregulation) and where ormer state monopolies are transormed intocompetitive mar!ets (transformation of state monopolies).

/eregulation may be understood as a move rom regulation tocompetition policy. The essence o a normative theory o deregulation may beunderstood as the message that competition policy is the superior institutionaldevice or the given mar!ets compared to regulation.

Transormation o state monopolies is a dynamic process where in theinitial stage most authors agree that (some sort o) regulation is necessary inorder to open up mar!ets##i. %hether, when and how in later stages o theprocess regulation should be replaced by competition policy is being discussedin chapter 3.

" there are relevant cases in which competition policy and regulation areviable alternative institutional solutions the choice between both options is anissue which need to be based on economic theory more elaborated than thesimple approaches being introduced in the introductory sections. "t is irst nec-essary to clariy the methodological approach.

4. Methodological approach.' A new institutional economics approach to competition policy

"n a new institutional economics perspective competition policymay beunderstood as the design o an institutional framework (competition law)together with the enforcement of such legal rules ##ii.

Competition law in an institutional perspective is providing generallyapplicable rules which unction as constraints or competitors when they ta!e

decisions on strategies on how to maintain or improve their position in a mar!et.Certain options 8 e.g. agreements to i# prices, allocate mar!ets, abusedominant mar!et power 8 are prohibited. *uch prohibition means thatcompetition law provides sanctions or these activities. *uch sanctions areperceived by the addressees as prices or these activities. Thus competition lawhas the eect o aprice systemor certain activities which supposedly producenegative eects or the unctioning o mar!ets.

"n an institutional perspective a distinction betweenpublic ordering andprivate ordering is relevant. The lawma!er is responsible or public ordering

which provides an institutional ramewor! or private actors, which engage in

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mar!et transactions organising their business and contracting with others.(private ordering). Both the lawma!er (or the lawma!ers) and private actors aresupposed to act rationally in their own interest. $ationality is not perect, but isbounded. "normation is assumed to be systematically incomplete. Transaction

costs are positive ##iii. ublic ordering thus may be understood as a learning pro-cess in which lawma!ers design institutional devices by ma!ing use o the thene#isting inormation in a world o positive transaction costs.

Actors in the legislature, in administrative enorcement agencies and inlaw courts are being regarded as sel-interested rational actors, whoserationality is bounded and whose inormation is systematically imperect. Theiractivities are interdependent, so that each group o actors may inluencecompetition policy but is dependent on reactions rom other players. 7necharacteristic eature o competition policy in practice is its ocus on law-ma!ingand law-enorcement. >norcement o legal rules o competition law ta!es placein an interplay between the competition authority and law courts when the latterones have to ind whether a decision o the competition authority o how toapply competition law in a concrete case is correct in the legal sense. Butcompetition law may also be enorced by law courts without the intervention othe competition authority when law courts have to hear cases brought orwardby such actors who claim that they have been harmed by unlawul activitieswhich are not in accordance with e#isting competition law. Both enorcementdevices are more or less controlled by the judiciary. The role o administrativeauthorities is to pic! such cases which are deemed to be important or theapplication and development o competition policy. These authorities enjoy a

right o initiative which due to their resources they can utilise in order toinvestigate is a powerul instrument. ?evertheless, the law courts have the lastword, unless the lawma!er - ater court decisions, which are supposedly not inline with the lawma!ers objectives - intervenes.

Competition policy in this new institutional economics perspective may beunderstood as a game between lawma!ers, administrators, law courts andprivate actors. All actors in this game are understood to pursue their owninterest1 they act in a world o incomplete inormation and positive transactioncosts. Their rationally is bounded.

According to the institutional economics-approach there is no pre-deinedpublic interest ##iv. ?either administrative authorities nor law courts are assumedto pursue such a public interest but persons acting on behal o these authoritiespursue their own objectives. 7n the other hand they are not ree to pursue anyobjective subjectively perceived as advantageous or themselves. They areacting as agents or citi@ens (who are the principals)1 their activities aremonitored and controlled by given political devices which deine their responsi-bility and accountability vis--vis the principals. Because o the in-built wea!-nesses o e#isting governance structures there is a systematic deviance romthe objectives actually pursued by the agents and those o the principals. This is

true or political actors - e.g. at the level o lawma!ing - and especially on the

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level o administrative authorities. "n case o competition law, where applicationo legal rules is being enorced by law courts, also the judges o these courtsmay be viewed as agents acting on behal o the citi@ens as principals. Theeedbac! between the interests o the principals and the activities o law courts,

i.e. judges, is more complicated than that between lawma!ers, member o ad-ministrative authorities and the citi@ens. This is due to the act that one o theessential elements in a legal system is the independence o the judiciary. Theeedbac! between judges and the interests o citi@ens thus cannot be one odirect accountability but is being determined by the methods o applying the lawin concrete cases. "n case law systems the relevant methodological tools deinethe binding orce o precedents and the rules on distinguishing in act and inlaw. "n systems o statutory law the relevant methodological tools are themethods o interpretation which have to be used by law courts.

%hereas administrators tend to legitimise their activities by stressing thatthey pursue positive goals - li!e allocative eiciency and9or protection oconsumers interests - lawma!ers tend to justiy their activities asserting thatthey are serving the public good (;emeinwohl, bonum commune). /ue to theirconstitutionally protected independence law courts enjoy more discretionarypower vis--vis the citi@ens as principals. "n a system o statutory law they arebound by given statutory law (positive law). But statutory law is open tointerpretation. Thus methods o interpretation are o utmost importance. "n com-petition law where economic rationale and terminology is being transerred romeconomic theory - industrial organisation - into legal terminology those whointerpret statutory competition law tend to develop legal theories on competition

law which are connected to economic theory but which are to a certain degreeautonomous. "n order to deend this autonomy it ma!es sense or law courts notto translate economic objectives directly into legal concepts. This may be one othe reasons why in legal theory - even in the case o competition law 8allocative eiciency as the ultimate goal o competition law is rather beingregarded with suspicion. aw courts rather tend to put competition law into thegeneral legal ramewor! thus being able to bring in other values li!e reedomo contract or social justice.

An institutional approach necessarily ma!es a clear cut distinctionbetween a positive and a normative approach. %hereas the ormer one

analyses the given eect o alternative institutional arrangements and9or thecreation and change o such institutional arrangements, the latter one producesarguments or choosing between competing institutional solutions.

This institutional economics-approach may be applied to regulation aswell. 0ost elements o the institutional approach are the same whether appliedto competition policy or regulation. But there are some speciic eatures o an in -stitutional economics-approach to regulation which have to be discussed below.

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.& $egulation in a new institutional economics perspective

Applying the new institutional economics-approach to regulation meansat irst a clear distinction between a positive theory of regulation - which

e#plains why and how e#isting regulatory structures have been developed ##vand how the e#isting regulatory instruments wor! in practice ##vi8 and a nor-mative theory of regulation which discusses the justiication o regulation ##vii

and9or the merits o competing regulatory regimes and9or the rationale o achoice between regulation and application o competition law ##viii.

As argueed above the assumption o sel-interested (bounded) rationalbehaviour is combined with that o systematically incomplete inormation andpositive transaction costs. As in competition policy there is no pre-deined publicinterest in a new institutional economics-approach.

$egulation in an institutional economics perspective might be seen as anactivity in which lawma!ers, administrators and - to a certain degree - judgesare engaged in public control of business activities. 0ar!et orces are totally orat least to a certain degree replaced by an administrative decision process.

awma!ers, administrators and judges - as agents - have to justiy their 8costly 8 activities vis--vis the citi@ens, i.e. the principals, in the light o apositive balance between social beneits and social costs. *uch a calculationhas to ta!e into account the cost o regulation as well. " regulation which isbeing justiied by e#isting mar!et ailures the problem arises that one cannot

compare the e#isting mar!et imperections with perect mar!ets. *uch perectmar!ets would be a good benchmar!1 but they do not e#ist. *uch a comparisonthus would lead to a nirvana approach. And it has to ta!e into account that thereare imperections in state activities as well which may produce high - oteninvisible - costs. A cost-beneit analysis o pros and cons o regulation in aspeciic mar!et has to weigh beneits and costs not just in a static model buthas to ta!e into account the impact o regulation on innovation as a driving orceo uture beneits as well. "t has to be remembered, that all the relevantdecisions - at the level o lawma!ing, administration, and application o law bylaw courts - ta!e place in a world o systematically incomplete inormation.

*uch an institutional economics-approach to regulation is ar away romconventional welare economics approaches to regulation ocussing oneiciency implications o regulation and sometimes conusing the positive andthe normative approach. 7n the other side an institutional economics-approachcannot be reduced to a simple positive analysis o the relevant actors oe#isting regulatory structures. A normative analysis o alternative institutionaldevices is necessary in which regulation and competition policy are analysed ina comparative setting. This type o normative comparative institutional approachthen may serve as a basis or choosing between competition policy and regula-tion in given mar!et situations.

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5. Competition policy and regulation in a deregulation process

A deregulation process can be understood as an attempt to replace(sector speciic) regulation by the application o general rules o competition

law. "n some cases that process just leads to a mitigation o e#isting regulation.

/eregulation then means a change in the institutional ramewor! or agiven industry. The players in the mar!et are conronted with a dierent set orules and with dierent enorcement procedures.

As has been mentioned deregulation may be justiied in the light odeiciencies o e#isting regulation. The positive theory of regulation##i# hasormulated many o these arguments which then have been turned into politicalactivities.

But a deregulation process may be driven by legal changes outside thereach o the national lawma!er and regulator. "n the case o regulated industriesin 0ember *tates o the >uropean nion which had been e#empted romnational competition law the competition law o the >uropean Community doesnot contain such e#emptions and is pre-empting national competition law whenrestrictive practices aect the trade between 0ember *tates (Art. 6' par. ' >C).%hile more and more mar!ets have thus been covered by Communitycompetition law rather than by national law, e#isting national regulation whichwas compatible with national competition law was not in accordance with>uropean competition law. This legal change orced the 0ember *tates to

drastically adjust national regulation to the new supranational legal ramewor!or to abandon regulation as such and replace it by the application o generalcompetition law.

" a 0ember *tate has opted or deregulation national and >uropeancompetition law may both be applicable to the deregulated industry. >uropeancompetition law is conined to transactions which are o >uropean concern, i.e.which aect trade between 0ember *tates, whereas national competition lawremains applicable to purely national cases. $eplacement o (national)regulation thus is a complicated process. The relevant actors in the ield opublic ordering are lawma!ers, competition authorities and the judiciary on the

national and the >uropean level. %hereas at the national level law courts play adecisive role in the enorcement o competition law, at the >uropean level it hasbeen the Commission which had played the decisive role in enorcingcompetition law in the past. This has been due to the speciic structure o Art.6' >C. This article contains two tests. According to paragraph ' certainrestrictions o competitions are being prohibited whereas according toparagraph + the provisions o paragraph ' may be declared inapplicable undercertain conditions (e#emptions). The power to grant e#emptions has beenvested in the Commission between '#emptions under thevery broad and vague wording o Art. 6' par + >C have rarely been challenged

by the aected mar!et participants beore the law courts. This means that a

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change rom (national) regulation to the parallel application o national and>uropean competition law cannot be understood as a substitution oadministrative procedures by legal procedures - administration vs. judiciary - butrather as a comple# process in which national administrative procedures are

replaced by national legal procedures and by >uropean administrative proce-dures. Transactions which aect trade between 0ember *tates and which arecovered by >uropean competition law are in most cases the more relevant andimportant one. Thus it may be argued that more a less one type oadministration is being replaced by another. But then it is necessary to ma!e aclear distinction between administrative procedures o regulatory authorities andadministrative procedures by the >C competition authorities. %hereas theormer ones ocus on e# ante regulatory devices the latter concentrate oncritical cases e# post. %hereas the ormer one cover all transactions o theindustry at sta!e, the latter one is a selective approach. 7ne may regard theadministrative procedures o the >C Commission as 4uasi-legal procedures.

Ater 0ay ', &== the picture may by changed to a certain degreebecause $egulation ?o. '5 o '


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regulated. Thus regulated access appears to be indispensable or transormingormer state monopolies into competitive mar!ets. *tate ownership andmonopoly thus are being abolished but not state inluence as such. Accessregulation is replacing the state inluence being e#ercised via state ownership.

$egulation comes into play because the introduction o competition onproduct mar!ets can only be achieved by regulatory devices. *uch regulatorydevices are 4uite similar to an instrument in competition law, the access to so-called essential acilities (essential acilities doctrine) ###i. /espite this act thosewho are planning and realising the transormation are concentrating onregulation. The argument is, that competition law may be strong enough tocontrol mar!et power - and may be bottlenec!s - in e#isting mar!ets, but isineasible in a situation where the mar!et as such (i.e. the product mar!et) hasto be created. urthermore regulation provides the necessary e#-ante-instruments whereas competition policy is an e#-post-mechanism.

%hereas the case or regulation in access marketsseems to be o nomajor concern ###ii there is a second ield where regulation or competition policyare viable alternatives: "n downstream marketsthe ormer monopolists enjoys amonopoly in the irst stage ater the abolishment o the legal monopoly and theintroduction o competition by means o access regulation. 0ar!et power o theowner o the networ! could be controlled by sector speciic regulation or bymeans o competition policy. At irst glance one is inclined to argue that it ismore eective to protect the new entrants, which are gaining access todownstream mar!ets via access regulation, by means o regulation than by

means o competition law.

But it has to be ta!en into account, that access regulation is ocussing onbottlenec!s which are networ! speciic eatures whereas mar!et power indownstream mar!ets no longer is a networ! speciic problem when the accessproblem is being solved ###iii. The choice between competition policy andregulation or dealing with problems o downstream mar!ets seems to waterdown to a problem which device is supposed to be more eective. This simpledeinition o the problem may be challenged i the dynamic process otransorming state monopolies into competitive mar!ets ###ivis being analysed inmore detail.

Transormation o state monopolies into competitive mar!ets is adynamic processwhich ta!es place in a number o distinct stages. "n the irststage, when access regulation opens up downstream mar!ets to new entrants,the position o the ormer monopolist will be contested by competitors whichhave to rely undamentally on conditions or entry into downstream mar!etsgranted by access regulation. " the conditions o such regulation prove to beavourable new entrants have an opportunity to establish themselves in thedownstream mar!ets. But here they are conronted with competition rom theormer monopolist. Dis position may be wea!ened by the act that a ormer

monopolist normally - having been organised as a branch o public

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administration or as a state-owned company - is not it or competition, thatorganisational structures and labour conditions are disadvantageous or thenew role o a competitor in a mar!et competing with new entrants. 7n the otherhand there may be economies o scale, positive eects o vertical integration on

the side o the ormer monopolist which may not easily being matched by thenew competitors. "n such an environment it is decisive whether or not the ormermonopolist may drive the new competitors out o the mar!et or whether he him-sel cannot survive in that mar!et due to the comparative disadvantagesmentioned. "n such a situation it ma!es a dierence whether downstreammar!ets are under a regime o sector-speciic regulation or general competitionlaw.

*ector-speciic regulation o downstream mar!ets is eective insoar asthe regulatory authority can simultaneously employ instruments o accessregulation and control o mar!et power in downstream mar!ets. "t has theopportunity to use these instruments in a way that new entrants cannot bedriven out o the mar!et. This advantage o double regulation - i.e. o accessand downstream mar!ets - may turn into a disadvantage i institutional aspectsare brought into play. "n a regime o sector-speciic regulation the regulatoryauthority 8 in charge o access regulation 8 is tempted to protect the new en-trants merely on the ground o improving competition on downstream mar!ets.Access regulation and protection o new competitors in downstream mar!etsare two devices in order to guarantee the success o the transormationprocess. *uch a concept may be helpul in the irst stage o transormation1 butit becomes more and more critical in later stages. By concentrating on

competition on downstream mar!ets 8 and neglecting potential competition onthe level o networ!s - a vicious circle may threaten the dynamic evolution ocompetition in the overall mar!et development. Competition on downstreammar!ets depends to a certain degree on conditions o mar!et access. The moreavourable these conditions are, the less incentive the new entrants have toinvest into inrastructure which would enable them to compete in the level o thenetwor! as well. *uch entrants are totally dependant on access regulation andon protection on the downstream mar!et as well. The regulatory authority hasan incentive to protect the new entrants on those downstream mar!ets in ordernot to endanger the transormation process. The overall incentive to invest intoinnovations at the networ! level are being reduced. The potential o introducing

competition at the networ! level thus cannot be tested in practice. Theregulatory authority may have an incentive to engage in this static approach oregulation because it thus may protect its own position over a long period otime. *o long as competition is conined to downstream mar!ets and access tothese mar!ets depends on access regulation regulatory authorities enjoy a verystrong position. ?ew entrants on the other side are dependent on the doubleregulation mentioned above. They can only survive in such an institutionalramewor! i regulation is being guaranteed or a long period o time. >ven theormer monopolist may be interested in such a regulatory deadloc! i inaccordance with the capture theory the relation between the regulatory authority

and the addressee o regulation can be EimprovedF.

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The 4uestion then arises whether and how such a regulatory deadloc!may be prevented or inished. The relationship between competition policy andregulation may play a major role here. " regulation is being conined to

problems o networ! speciic mar!et power all problems o mar!et power indownstream mar!ets should be handled by competition authorities applying thetools o general competition law i the access problem is being handledeectively by sector-speciic regulation. " investment in inrastructure leads tothe erosion o bottlenec!s sector-speciic regulation can be abandoned here aswell. nder such institutional constraints new entrants could no longer hope thattheir mar!et position 8 based on regulated access 8 would be protected againstcompetition o the ormer monopolist merely on the ground o !eeping them inthe mar!ets. They would be conronted with an institutional ramewor! which iscommon in other mar!ets as well. Thus there would be strong incentives toenorce the own mar!et position by turning rom pure intranet-competition to ami# o intranet-competition and competition between networ!s thus leading to acompetition in downstream mar!ets which is based on inrastructure. *uch aregulatory approach which combines sector-speciic regulation and the step-by-step introduction o competition policy depends on some modiications o theregulatory approach o access regulation. *uch regulation should ta!e intoaccount the incentives or engaging not only in competition in downstreammar!ets as such but the incentives to engage in investments or orming aninrastructure basis or such competition as well.

". Concluding remar#s

The relationship between competition policy and regulation turns out toconstitute a highly comple# problem. The process o deregulation - replacingregulation by competition policy - poses a much more complicated problem thannormally e#pected. "n a process o transorming state monopolies intocompetitive mar!ets the initial introduction o sector-speciic regulation mayeasily result in a regulatory deadloc! which can only be prevented or inished iprudent regulatory devices are being combined with the early introduction ocompetition policy in downstream mar!ets.

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i

Kahn (1970), p. 2; Scherer/Ross (1990), p. 8; Car!on/"ero## (2000), pp. 732, 782.ii Kahn (1970), pp. 3, 11; Scherer/Ross (1990), pp. 7, 8.iiiS!i$er (1987), p. 531.i% &o'ann, Schane (2000), pp. 35 * 38, 241 * 246.% +iece (1980), p. 8.%i Car!on/"ero## (2000), p. 732; Kerer (2003), pp. 310 * 314.%ii

Kerer (2003), pp. 301, 302.%iii Car!on/"ero## (2000), p. 783; Kaser'ann/-ao (1995), pp. 9, 12.i Kaser'an/-ao(1995), p. 441. er$/schirhar! (1988), p. 51.iKahn (1970), pp. 11 an 123*4; er$/schirhar! (1988), p. 21.ii Kahn (1970), p. 11; Sia, Sper (1998), p. 20, iroe (1988), pp. 19 * 20.iii Kahn (1970), p. 11; reer (1982), p. 15; Sia, Sper (1998), p. 20.i% Sch'i! (2001), pp. 28 * 32; her'ann, aa!i (es.) 1998, pp. i * ii; see aso !he orin$ papers

on co'pe!i!ion poic oec!i%es in !he her'ann, aa!i (es.) (1998) enn (1998); Cas!e:aa(1998);

es (1998); ornac

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Kirchner 2004 Competition