3 Structural vs behavioural
remedies
According to Motta (2004)5 the
main difference between structural
and behavioural remedies
are their treatment of property
rights. Structural remedies modify
the allocation of property rights
whereas behavioural remedies set
constraints on how property rights
are exercised. Behavioural remedies
would include price controls,
compulsory licensing and
agreements, non-discriminatory
agreements, and retrenchment
constraints. Structural approaches
usually involve the divestiture of
assets. Both remedies have advantages and disadvantages. For
instance structural remedies are
more efficient and effective as
they typically require only one
intervention. They are capable of
reducing market power rapidly
whilst invigorating other competitors
leading to long run procompetitive
effects. The downside
of structural remedies is that it is
often difficult to prudently divide
a firm into separate entities. Even
if firms were easily divisible, allocating
capital and labour is difficult.
There is also a risk of investment
duplication and the loss of
economies of scale arising from
divestiture. Furthermore structural
remedies are initially disruptive
leading to initial inefficiencies
hence are typically controversial.
Behavioural remedies on the other
hand, require constant monitoring
and compliance provisions.
This is because they are tailored to
merging firms and their respective
market circumstances. As market
circumstances change, particularly
in technology and network
industries, behavioural remedies
can be more flexible and reversible.
However they do not address
market power and concentration
issues directly thereby eliciting
continual oversight and intervention
by authorities. Continual information
gathering and monitoring
would effectively mean that
authorities act like regulators. The
South African Competition Tribunal
has reiterated its earlier position
in the recent Walmart6 case
that it does not want to intrude
on the territory of other regulators:
“As an early decision showed,
the Tribunal considered that it
ought to show deference to other
regulators when it tread upon
territory outside its expertise. 7”
As mentioned before, only 2.3%
of mergers in South Africa in the
2007/08 year were conditionally
approved. Between 2005/06
and 2008/09, 59% of the 34
conditional mergers utilised behavioural
remedies. This differs
from the EU where the majority
of remedies take on a structural
approach. Of the 96 merger remedies
between 1996 and 2000 in
the EU, 80% were structural. Lately
the European Commission has
adopted a more mixed approach
utilising both structural and behavioural
remedies. In the US,
Crandall (2001) has found that
30% of the 336 remedies were
structural.8 He also found that
some of the structural remedies
were counter-productive in which
some of the economies of scale
and efficiencies were sacrificed.
This lowered the cost savings that
would have translated into lower
prices for consumers. Thus careful
consideration is imperative for
the selection of remedies bearing
in mind that structural conditions
should be imposed where it
is deemed absolutely necessary.
As can be seen in Table 1, the nature
of the societal or anti-competitive
effect elicits the use of different types of remedies. Where
the anti-competitive effect means
the removal of an effective competitor
and any other kind of anticompetitive
outcome, structural
remedies tend to be more commonly
used. Where the merger
means that collusion or coordinated
effects are likely to take effect,
then both structural and behavioural
remedies appear to be
used the same number of times.
There has only been one instance
where a synthesis of both structural
and behavioural remedies
has occurred during this period.
Where concerns have been that
mergers would result in high entry
barriers and high market concentrations,
behavioural remedies
have been used. Although this is
the case market concentration
is often reduced by divestiture, a
structural approach. Lastly foreclosure
concerns and employment
issues have mostly elicited
the use of behavioural remedies.