The Impact of Competition Policy Enforcement on the Functioning of EU Energy Markets.

AuthorDuso, Tomaso

Competition policy enforcement in the EU energy sectors has been very active during the last decades. Since 2002, the European Commission (EC) has increasingly exercised the full range of enforcement tools at its disposal, including merger control, antitrust legislation, and state aid control. For example, since 2003 a significantly higher share of the merger cases in gas and electricity have received an in-depth investigation, thus indicating an increased level of merger scrutiny (ICF and DIW Berlin, 2015). Given this high level of activity, competition policy decisions may well have shaped the overall development of the EU gas and electricity markets. Indeed, some commentators argue that energy markets have been taken out of the domain of sector-specific regulation and put under the auspices of competition policy (Hellwig, 2008).

To shed light on whether and how competition policy has influenced European gas and electricity markets, this study examines its enforcement's impact on three crucial market outcomes: competition, investment, and productivity. Furthermore, given that regulation in energy markets has historically played an important role, we investigate if and how the degree of regulation influences this impact. Our analysis, thus, identifies the broad impact of different competition policy instruments and looks at the interaction between competition policy enforcement and energy market regulation. Given their importance, both types of policies can be expected to affect market outcomes, yet little is known about their interdependencies. (1)

To assess this research question, we create a novel dataset that merges several sources of information. First, we create a complete map of competition policy enforcement at both the EC and the member state levels. We match these unique data with OECD data on regulation, firm-level data from the Bureau van Dijk's Amadeus/Osiris database, as well as data from the World Bank, OECD, and the European Commission.

Our results suggest that the EC's merger policy has a positive and robust impact on the level of competition, investment, and productivity. This impact, however, only shows up in low-regulated countries and sectors. Other competition policy decisions, such as EC state aid and anti-trust interventions, as well as all individual member state policy variables, do not have a consistent effect on the working of energy markets. We discuss a potential rationale for these findings: by affecting competition intensity, competition policy impacts firms' incentives to invest and, ultimately, their productivity.

The remainder of the paper is as follows. Section 2 presents the data, section 3 details the model specifications and section 4 explains and discusses the results; section 5 concludes. Appendix A gives details of data construction and estimation of outcome variables, whereas Appendix B provides two examples of competition interventions in European energy markets.


The analysis is based on data on competition policy enforcement as well as measures on regulation and market outcomes. In this section, we describe the data sources and the main variables used in the study.

2.1 Competition policy enforcement data

EC competition cases and policy enforcement data

To quantify the EC's activities, a detailed dataset on their enforcement in energy markets between 2005 and 2012 was created. For this purpose, we downloaded all the EC's official decisions in energy markets (NACE code D35) from its website. We used the decision date as the criterion for the selection and included all cases where the Commission's decision was made between January 1, 2005, and December 31, 2012. There were 200 merger decisions, 17 antitrust decisions (16 abuses and 1 cartel), and 203 state aid decisions concerning energy markets during the relevant sample period.

We then allocated these decisions to countries in order to match the main level of analysis proposed in this study, i.e. the member state/year unit of observation. In state aid cases and in most of the antitrust cases, only one country is involved. Therefore, these cases are supposed to only affect that specific national market and are easily allocated to the particular member state involved. Mergers, on the other hand, are often more complex. In most cases handled by the EC, the market definition includes several countries. If the market definition was broader than national, we allocated the case to all member states involved in that decision. If the market definition was EU-wide, all EU countries in our sample are considered to be affected by the decision. If the market definition was left open, we allocated the case to the countries of origin of the merging firms.

Variables measuring the number of mergers and state aid cases are used as key control variables to capture the level of activity since they could have themselves an impact on market outcomes (Clougherty and Seldeslachts, 2013). For example, a large energy merger such as GDF's acquisition of Suez in 2006 might have had an impact on investment in the relevant markets (Argentesi et al., 2017). (2) Figures 1a and 1b show the evolution of the merger and state aid cases in box- and whisker plots; mergers are considerably more frequent than state aid cases. We define then an EC merger intervention as follows: all merger remedies, plus merger withdrawals during phase 2. (3) In the case of state aid, we define an intervention as the decision to initiate a formal investigation; EC officials agreed that this is the best (albeit imperfect) indicator of intervention in this area. In the case of mergers and state aid, the measures of intensity of competition policy enforcement used in the regressions are then defined as the ratio between the number of interventions and the number of notified cases, as this ratio gives an indication of how often the EC intervenes per notified case (see Clougherty and Seldeslachts, 2013, for a rationale). Figure 1c illustrates that the Commission intervened in a sizeable fraction of energy mergers, whereas state aid programs, on the other hand, are not so frequently so investigated (see Figure 1d).

For abuses and cartels, we simply use the number of opened cases as a measure of enforcement, as of course these anti-trust cases are not first notified to the EC before being investigated. From Figure 1e, one can observe that few cartel and abuse cases were opened during the sample period. Table 1 defines all these and subsequent variables, while Table 2 summarizes the indicators of activity and EC competition policy enforcement.

National competition cases and policy enforcement data

Constructing measures of national competition policy enforcement was a more significant challenge and we see the collection of these data as an important contribution of the current study. Since no clear source of data is available, we created a questionnaire that was sent to all national competition authorities (NCAs) in the EU. (4) Based on this information, we constructed measures of national competition policy enforcement in a similar fashion as for the EC, with the exception that there are no state aid control cases at the national level. On the other hand, we obtained usable data on national cartel fines. (5) Table 3 shows the descriptive statistics for these variables.

The dynamics of national competition cases and policy enforcement variables are also represented through box and whiskers plots (Figure 2). Although not visible in these figures, there is some variation in merger notifications at the country level. While some large member states--particularly Germany and Italy--average more than 30 energy mergers per year, some smaller member states have very little or no activity. This holds also true for cartels and dominance cases, where Germany and Poland show most activity.

In terms of enforcement, although national competition policy enforcement is rather low on average (the country/year observations are zero up to the 75th percentile), there is some variation across countries and time (see Figures 2b and 2c).

2.2 Regulation

Apart from competition enforcement, regulation is the other important policy dimension in our study. The OECD Indicators from the Product Market Regulation project, specifically the indicators of regulation in energy, transport, and communication (ETCR), are used as measures of intensity of regulation. (6) This is the most comprehensive, accurate, and widely used database to measure the effect of regulation on market outcomes (e.g. Alesina et al., 2005; Duso and Seldeslachts, 2011; Bourles et al., 2013). It must be noted though that, while being the most complete database on regulation, it still does not include all relevant dimensions. For example, it cannot capture the recent trends of several member states to incentivize investments in new grids through several support schemes.

Figure 3 shows box plots of the regulation indicator over the 2005-2012 period. On average, regulatory pressure has decreased over the years. At the same time, the regulatory environment in markets varies across Europe. For example, energy markets are more liberalized in Germany, Spain and the UK than in Estonia, Greece and Poland.

In our analysis, we distinguish between high and low regulation countries by splitting the sample at the median of regulatory intensity for each member state and year. This has the advantage of providing us with subsamples of equal size. We will separately analyze the effect of competition policy in the sub-samples of high- vs. low- regulated countries/periods. We choose to use sub-samples based on this dichotomous definition of high- vs. low-regulation rather than interactions between competition policy enforcement and the continuous regulatory indexes to better exploit the rather limited variation in the data. While the second option would allow a precise fine-tuning of the interaction...

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