Category: Economics for Business: Ch 21

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Ticket resales – is it time to introduce a price cap?

Following the controversary over the sale of tickets for popular live events such as Taylor Swift’s Eras tour and the Oasis Live ’25 Tour, the government launched a consultation exercise in January 2025 on the resale of tickets. Titled, ‘putting fans first’, the exercise sought the views of individuals and organisations on a range of policy proposals. One of these was the implementation of a cap on the resale price of tickets.

The government is not only considering whether to implement a cap but also the level at which it might be set. The following question was included in the consultation exercise.

What is the maximum uplift that you think should be applied if ticket resales were to be subject to a price cap? Please state the reason for your selection.
 • no uplift at all
 • 10% or less
 • between 10 and 20%
 • between 20 and 30%
 • other – please state

Some platforms such as Twickets and Ticketswap already cap resale prices on their platforms at between 5 and 10 per cent above the face value of the ticket. They are, therefore, less likely to be affected by any new price regulation unless the ‘no uplift at all’ option is chosen. On other platforms, such as Viagogo and Stubhub, resellers are free to list tickets at whatever price they choose. This is often referred to as the uncapped market, and tickets for the Oasis tour with a face value of £150 were listed on these websites for £14 000. The implementation of a price cap is likely to have a big impact on this part of the resale market. The chief executive of StubHub stated in June 2025 that the business would probably have to exit the UK if a cap was introduced.

Although many fans dislike the uncapped secondary ticketing market, most economists take a more positive view. They see them as a way of facilitating mutually beneficial trade and helping to reallocate tickets to those with the highest willingness to pay. This reduces levels of allocative inefficiency/deadweight welfare loss in the market.

Economists also tend to argue against the use of price controls in competitive markets because of their negative impact on supply. If price controls reduce the available returns to sellers, they have an incentive to do something else with their time/resources i.e. switch to supplying other goods and services in markets not subject to price controls. This reduces supply in the regulated market and so could have a negative impact on consumer surplus.

What are the issues with the secondary market?

Given the benefits outlined by economists of having an uncapped secondary ticketing, why is the government considering the implementation of a price cap? One potential issue of having an uncapped secondary ticketing market is that developments in technology make it easier for professional resellers to buy very large quantities of tickets. This makes it increasingly difficult for fans who want to attend the event from being able to purchase a ticket.

Reports also suggest that professional resellers use illegal methods to both mass purchase and resell tickets. For example, to overcome any limits on sales imposed by the sellers in the primary market, some use automated software, fake IDs and multiple credit cards. Two people convicted of fraudulent trading in 2024 were found to have bought 47 000 tickets over a 212-year period, using 127 names and 187 different e-mail addresses.

Some resellers have also acted in ways that do not comply with consumer law when advertising tickets for sale. For example, not providing information such as the ticket number and other details about where the seat is located i.e. the block/area and row.

These rent seeking activities by professional resellers could outweigh the positive impact of uncapped secondary market on allocative efficiency.

Implementing a resale price cap would reduce the incentives for professional resellers to purchase large quantities of tickets and engage in these rent-seeking activities. However, in the consultation document the government recognises that the implementation of a resale price cap would be a ‘significant and complex intervention’.

An important implementation issue

To calculate the resale price cap for any live event, the original price of the ticket in the primary market needs to be known. This raises an interesting question – should the cap apply to the initial face value of the ticket or the total price the customer pays?

The face value of the ticket may only represent a proportion of the actual cost of buying a ticket because of the widespread use of drip pricing. This is the practice of applying additional fees as the consumer proceeds through the online purchasing process. These fees can sometimes add around 25 per cent and more to the price of a ticket. In the consultation document, the government suggested that the cap should apply to the face value of the ticket plus all compulsory fees.

One issue raised in the response to the consultation by the Competition and Markets Authority is that these fees are not always made clear by sellers in the primary market in a clear and transparent way. Therefore, for the policy to be effective, primary market sellers would have to make information on both ticket prices and any fees clearly and easily available. Recent changes to the law that prohibit drip pricing might help to address this issue.

The potential impact of a resale price cap on fraud

To avoid the price cap, there is a danger that increasing numbers of buyers and sellers stop using capped secondary ticket platforms, where activity is easier to observe/regulate, and switch to other non-specialist platforms where detection of illegal behaviour and enforcement of consumer law is more difficult. Examples of non-specialist platforms where sales might increasingly take place include Facebook Marketplace, Instagram Shop, X (formerly Twitter) and internet forums. With lower levels of consumer protection and the greater difficulty of detecting illegal behaviour, sales via these non-specialist platforms are more vulnerable to scams and fraud.

When referring to the impact of a resale price cap, the chief executive of StubHub argued that:

It will have a massive negative impact on consumers. It’s not like the demand is going to go away, it’s just going to move somewhere else, and that somewhere else is going to be the black market [where] consumers aren’t protected.

To test the hypothesis that price controls lead to greater incidences of fraud, one study used polling data to compare ticket fraud rates in the UK with Victoria, Australia and Ireland. In 2009, the state government of Victoria made it illegal for tickets to be resold for more than 10 per cent of their face, while the Irish government introduced the Sale of Ticket Act in 2021 that prohibited the resale of tickets above their original price. The study found that the proportion of respondents who reported being victims of ticket fraud over the previous two years was around four times higher in Victoria and Ireland than the UK. The most common sales channel where consumers experienced ticket fraud in all three countries were social media platforms.

Another example of the potential impact of the price cap in Ireland on fraud relates to the first ever regular-season NFL game that is being played in Dublin on 28 September 2025 between the Pittsburgh Steelers and the Minnesota Vikings. The online bank, Revolut, reported an 80 per cent increase in the number of ticket scams when tickets for this game went on sale.

In response to the consultation exercise, the Competition and Markets Authority backed the implementation of a resale price. It will be interesting to see if the government goes through with the measure in the next few months.

Consultation

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Questions

  1. Why might event organisers set ticket prices below the market clearing rate? Illustrate the impact of setting prices below market clearing rates on consumer, producer and total surplus in the primary market for tickets.
  2. Using a demand and supply diagram, explain how the uncapped secondary ticket market could reduce deadweight welfare loss. Discuss any assumptions you have made about the allocation of tickets among potential buyers in the primary market (i.e. sorting).
  3. Is it possible for professional resellers to continue making a profit if tickets are sold at market clearing rates in the primary market? Explain your answer.
  4. Under what circumstances would a maximum price set below the market clearing rate in a competitive market have a negative impact on consumer surplus? Draw a diagram to illustrate your answer.
  5. Using examples, explain what is meant by ‘rent seeking’ in economic theory.
    Outline some of the recent updates to the law on pricing information that businesses must show customers.
  6. What policies, other than a resale price cap, could the government introduce to try to address some of the issues with the ticketing market for live events?
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Low UK business investment: the problem of high minimum expected rates of return

The UK’s poor record on productivity since the 2008 financial crisis is well documented, not least in this blog series. Output per worker has flatlined over the 17 years since the crisis. As was noted in the blog, The UK’s poor productivity record, low UK productivity is caused by a number of factors, including the lack of investment in training, the poor motivation of many workers and the feeling of being overworked, short-termism among politicians and management, and generally poor management practices.

One of the most significant issues identified by analysts and commentators is the lack of investment in physical capital, both by private companies and by the government in infrastructure. Gross fixed capital formation (a measure of investment) has been much lower in the UK compared to international competitors.

From Figure 1 it can be observed that, since the mid-1990s, the UK has consistently had lower investment as a percentage of GDP compared to other significant developed market economies. The cumulative effect of this gap has contributed to lower productivity and lower economic growth.

Interestingly, since the financial crisis, UK firms have had high profitability and associated high cash holdings. This suggests that firms have had a lot of financial resources to reinvest. However, data from the OECD suggests that reinvestment rates in the UK, typically 40–50% of profit, are much lower than in many other OECD countries. In the USA the rate is 50%, in Germany 60–70% and in Japan 70%+. There is much greater emphasis in the UK on returning funds to shareholders through dividends and share buybacks. However, the reinvestment of much of this cash within firms could have gone some way to addressing the UK’s investment gap – but, it hasn’t been done.

Analysis by the OECD suggest that, while the cost of financing investment has declined since the financial crisis, the gap between this and the hurdle rate used to appraise investments has widened. Between 2010 and 2021 the difference nearly doubled to 4%. This increase in the hurdle rate can be related to increases in the expected rate of return by UK companies and their investors.

In this blog we will analyse (re)investment decisions by firms, discussing how increases in the expected rate of return in the UK raise the hurdle rate used to appraise investments. This reduces the incentive to engage in long-term investment. We also discuss policy prescriptions to improve reinvestment rates in the UK.

Investment and the expected rate of return

Investment involves the commitment of funds today to reap rewards in the future. This includes spending on tangible and intangible resources to improve the productive capacity of firms. Firms must decide whether the commitment of funds is worthwhile. To do so, economic theory suggests that they need to consider the compensation required by their provider of finance – namely, investors.

What rewards do investors require to keep their funds invested with the firm?

When conducting investment appraisal, firms compare the estimated rate of return from an investment with the minimum return investors are prepared to receive (termed the ‘expected return’). Normally this is expressed as a percentage of the initial outlay. Firms have to offer returns to investors which are equal to or greater than the minimum expected return – the return that is sufficient to keep funds invested in the firm. Therefore, returns above this minimum expected level are termed ‘excess returns’.

When firms conduct appraisals of potential investments, be it in tangible or intangible capital, they need to take into account the fact that net benefits, expressed as cash flows, will accrue over the life of the investment, not all at once. To do this, they use discounted cash flow (DCF) analysis. This converts future values of the net benefits to their present value. This is expressed as follows:

Where:
NPV = Net present value (discounted net cash flows);
K = Capital outlay (incurred at the present time);
C = Net cash flows (occur through the life of the investment project);
r = Minimum expected rate of return.

In this scenario, the investment involves an initial cash outlay (K), followed in subsequent periods by net cash inflows each period over the life of the investment, which in this case is 25 years. All the cash flows are discounted back to the present so that they can be compared at the same point in time.

The discount rate (r) used in appraisals to determine the present value of net cash flows is determined by the minimum expected return demanded by investors. If at that hurdle rate there are positive net cash flows (+NPV), the investment is worthwhile and should be pursued. Conversely, if at that hurdle rate there are negative net cash flows (–NPV), the investment is not worthwhile and should not be pursued.

According to economic theory, if a firm cannot find any investment projects that produce a positive NPV, and therefore satisfy the minimum expected return, it should return funds to shareholders through dividends or share buybacks so that they can invest the finance more productively.

Firm-level data from the OECD suggest that UK firms have had higher profits and this has been associated with increased cash holdings. But, due to the higher hurdle rate, less investment is perceived to be viable and thus firms distribute more of their profits through dividends and share buybacks. These payouts represent lost potential investment and cumulatively produce a significant dent in the potential output of the UK economy.

Why are expected rates of return higher in the UK?

This higher minimum rate of expected return can be explained by factors influencing its determinants; opportunity cost and risk/uncertainty.

Higher opportunity cost.  Opportunity cost relates to the rate of return offered by alternatives. Investors and, by implication firms, will have to consider the rate of return offered by alternative investment opportunities. Typically, investors have focused on interest rates as a measure of opportunity cost. Higher interest rates raise the opportunity cost of an investment and increase the minimum expected rate of return (and vice versa with lower interest rates).

However, it is not interest rates that have increased the opportunity cost, and hence the minimum expected rate of return associated with investment, in the UK since the financial crisis. For most of the period since 2008, interest rates have been extremely low, sitting at below 1%, only rising significantly during the post-pandemic inflationary surge in 2022. This indicates that this source of opportunity cost for the commitment of business investment has been extremely low.

However, there may be alternative sources of opportunity cost which are pushing up the expected rate of return. UK investors are not restricted to investing in the UK and can move their funds between international markets determined by the rate of return offered. The following table illustrates the returns (in terms of percentage stock market index gain) from investing in a sample of UK, US, French and German stock markets between August 2010 and August 2025.

When expressed in sterling, returns offered by UK-listed companies are lower across the whole period and in most of the five-yearly sub-periods. Indeed, the annual equivalent rate of return (AER) for the FTSE 100 index across the whole period is less than half that of the S&P 500. The index offered a paltry annual return of 2.57% between 2015 and 2020, while the US index offered a return of 16.48%. Both the French and German indices offered higher rates of return, in the latter part of the period particularly. This represents a higher opportunity cost for UK investors and may have increased their expectations about the return they require for UK investments.

Greater perceived risk/uncertainty.  Expected rates of return are also determined by perceptions of risk and uncertainty – the compensation investors need to bear the perceived risk associated with an investment. Investors are risk averse. They demand higher expected return as compensation for higher perceived risk. Higher levels of risk aversion increase the expected rate of return and related investment hurdle rates.

There has been much discussion of increased uncertainty and risk aversion among global investors and firms (see the blogs Rising global uncertainty and its effects, World Uncertainty Index, The Chancellor’s fiscal dilemma and Investment set to fall as business is baffled by Trump). The COVID-19 pandemic, inflation shocks, the war in Ukraine, events across the Middle East and the trade policies adopted by the USA in 2025 have combined to produce a very uncertain business environment.

While these have been relatively recent factors influencing world-wide business uncertainty, perceptions of risk and uncertainty concerning the UK economy seem to be longer established. To measure policy-related economic uncertainty in the UK, Baker, Bloom and Davis at www.PolicyUncertainty.com construct an index based on the content analysis of newspaper articles mentioning terms reflecting policy uncertainty.

Figure 2 illustrates the monthly index from 1998 to July 2025. The series is normalised to standard deviation 1 prior to 2011 and then summed across papers, by month. Then, the series is normalised to mean 100 prior to 2011.

Some of the notable spikes in uncertainty in the UK since 2008 have been labelled. Beginning with the global financial crisis, investors and firms became much more uncertain. This was exacerbated by a series of economic shocks that hit the economy, one of which, the narrow vote to leave the European Union in 2016, was specific to the UK. This led to political turmoil and protracted negotiations over the terms of the trade deal after the UK left. This uncertainty has been exacerbated recently by the series of global shocks highlighted above and also the budget uncertainty of Liz Truss’s short-lived premiership and now the growing pressure to reduce government borrowing.

While spikes in uncertainty occurred before the financial crises, the average level of uncertainty, as measured by the index, has been much higher since the crisis. From 1998 to 2008, the average value was 89. Since 2008, the average value has been 163. Since the Brexit vote, the average value has been 185. This indicates a much higher perception of risk and uncertainty over the past 15 year and this translates into higher minimum expected return as compensation. Consequently, this makes many long-term investment projects less viable because of higher hurdle rates. This produces less productive investment in capital, contributing significantly to lower productivity.

Policy proposals

There has been much debate in the UK about promoting greater long-term investment. Reforms have been proposed to improve public participation in long-term investment through the stock market. To boost investment, this would require the investing public to be prepared to accept lower expected returns for a given level of risk or accept higher risk for a given level of returns.

Evidence suggests that the appetite for this may be very low. UK savers tend to favour less risky and more liquid cash deposits. It may be difficult to encourage them to accept higher levels of risk. In any case, even if they did, many may invest outside the UK where the risk-return trade-off is more favourable.

Over the past 10 years, policy uncertainty has played a significant role in deterring investment. So, if there is greater continuity, this may then promote higher levels of investment.

The Labour government has proposed policies which aim to share or reduce the risk/uncertainty around long-term investment for UK businesses. For instance, a National Wealth Fund (NWF) has been established to finance strategic investment in areas such as clean energy, gigafactories and carbon capture. Unfortunately, the Fund is financed by borrowing through financial markets and the amount expected to be committed over the life of the current Parliament is only £29 billion, assuming that private capital matches public commitments in the ratio expected. It is questionable whether the Fund’s commitment will be sufficient to attract private capital.

Alternatively, Invest 2035 is a proposal to create a stable, long-term policy environment for business investment. It aims to establish an Industrial Strategy Council for policy continuity and to tackle issues like improving infrastructure, reducing energy costs and addressing skills gaps. Unfortunately, even if there is some attempt at domestic policy stability, the benefits may be more than offset by perceptions around global uncertainty, which may mean that UK investors’ minimum expected rates of return remain high and long-term investment low for the foreseeable future.

Articles

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Questions

  1. Use the marginal efficiency of capital framework to illustrate the ‘lost’ investment spending in the UK due to the investment hurdle rate being higher than the cost of capital.
  2. Explain the arbitrage process which produces the differences in valuations of UK securities and foreign ones due to differences in the expected rate of return.
  3. Sketch an indifference curve for a risk-averse investor, treating expected return and risk as two characteristics of a financial instrument.
  4. How does higher uncertainty affect the slope of an indifference curve for such an investor? How does this affect their investment hurdle rate?
  5. Analyse the extent to which the proposed polices can reduce the investment hurdle rate for UK companies and encourage greater levels of investment.
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The European Commission’s latest battle with Apple – The interoperability obligation of the Digital Markets Act

The Digital Markets Act (DMA) outlines a new regulatory approach that the European Commission (EC) is taking to address concerns over the lack of competition in digital platform markets. The DMA complements existing European Union competition law and officially came into force on 1st November 2022.

In the first stage of this new regulatory approach, the EC identified ten core platform services (CPS). Examples include search engines, online social networking services, video sharing services, cloud computing services, web browsers and operating systems. These services act as important gateways for large numbers of businesses and consumers to interact with one another. They also have some important economic characteristics, such as large economies of scale and very strong network effects.

The next stage of the regulatory process was to assess which of the large established businesses should be designated as ‘gatekeepers’ of these CPS. To be judged as a gatekeeper, a business had to meet three qualitative criteria. Using quantitative thresholds as a guide to see if these qualitative criteria had been met, the following six companies were designated as gatekeepers by the EC in September 2023: Alphabet (Google’s parent company), Amazon, Apple, ByteDance (owner of TikTok), Meta (owner of Facebook) and Microsoft. Individual companies can be gatekeeper for more than one CPS. For example, Apple was judged to be a gatekeeper for both web browsers (Safari) and operating systems (iOS and iPadOS).

Rules and compliance

Once a business has been designated as a gatekeeper for one or more CPS, the DMA imposes a set of rules on its future conduct. Some of these rules refer to conduct that the business must follow, while others refer to types of behaviour that are prohibited. The EC sometimes refer to these rules as a list of “do’s” and “don’ts”.

One of the rules refers to interoperability. This is the degree to which different (a) software, (b) devices and (c) other applications can work seamlessly together (i.e. share functionality/data) without requiring any actions by the user (i.e. how compatible they are with one another).

For example, consider the degree of interoperability between the operating system of a gatekeeper, such as Apple, and other hardware/software services. One of the requirements of the DMA is for the gatekeeper to provide the same degree of interoperability for the hardware/software services provided by rival businesses as they do for similar hardware/software services they supply. This is sometimes referred to as the interoperability obligation.

Once a business is designated as a gatekeeper, it has 6 months to submit a compliance report to the EC that demonstrates how it is meeting the rules set out in the DMA. This should include descriptions of any changes the company has had to make to its conduct to meet the new requirements. Further compliance reports must then be submitted on an annual basis.

If, after assessing a compliance report, the EC suspects that a gatekeeper is still acting in ways that do not comply with the DMA, then it can launch either a non-compliance or specification procedure.

The case of Apple

Apple submitted its first compliance report on 7 March 2024. It was far less extensive than those completed by other designated gatekeepers and adopted a very different tone: it directly challenged the EC’s view that the DMA rules would have a positive impact on consumer welfare.

In September 2024, the EC launched its first two specification proceedings that focused on Apple’s compliance with the interoperability obligation.

The first of these proceedings opened a formal discussion with Apple over the interoperability between the iPhone operating system (iOS) and connected devices such as smartwatches and headphones. The proceeding identified nine features that gave the iOS greater functional compatibility with connected devices produced by Apple than with those made by other businesses. For example:

  • Only users of connected devices produced by Apple can (a) receive iOS notifications that contain images or other attachments and (b) select the iOS notifications they want to appear on the device.
  • Only users of Apple’s wireless headphones have intelligent audio switching functionality that allows them to switch automatically to the device playing the most relevant audio.
  • The Airdrop function, which enables users to share files wirelessly between devices, only works if they are both produced by Apple.
  • Only connected devices made by Apple have the functionality for high-bandwidth data transfer from an iPhone without having to rely on network or cellular connection. This is useful for gaming and AI services.

The second specification proceeding focused on the process developed by Apple to deal with requests from other businesses that wanted to develop hardware or software services that are compatible with the iOS.

On 18th December 2024, the EC informed Apple of its preliminary specification decisions and opened a consultation exercise with other interested parties about the suitability of its proposals. Once this process was completed, the EC informed Apple of its final specification decisions on 19 March 2025.

The EC’s decisions

The first decision included a set of measures that Apple must take to improve the interoperability of connected devices produced by other businesses with the iOS. The EC stated that:

The interoperability solutions for third parties will have to be equally effective to those available to Apple and must not require more cumbersome system setting or additional user friction.

The second decision outlined measures that Apple had to take to improve the process of dealing with requests for greater compatibility with the iOS. For example, it should provide outside businesses with more (a) access to technical documentation, (b) predictable timelines for the reviews and (c) timely updates.

Apple argued that being forced to introduce these measures will (a) create significant additional costs, (b) limit its ability to develop products that work seamlessly with one another and (c) lead to its having to share sensitive customer information with its rivals.

On 30th May 2025, Apple filed an appeal against the EC’s specification decisions to the General Court of the European Union. It will be interesting to see what judgment is made on this case by the General Court and the implications this has for the enforcement of the DMA.

Video

Articles

Questions

  1. Identifying core platform services is similar to defining relevant markets in standard competition policy but takes a more legalistic approach. Discuss some of the problems of defining a relevant market for a digital platform.
  2. Outline the three qualitative criteria and the quantitative thresholds that are used by the EC to designate a digital platform as a gatekeeper of a core platform service.
  3. Find an example of a digital platform that met the quantitative thresholds but did not meet the qualitative criteria and so was not designated as a gatekeeper.
  4. Find an example of a digital platform that did not meet the quantitative thresholds but did meet the qualitative criteria and so was designated as a gatekeeper.
  5. Interoperability is a type of conduct that is sometimes referred to as self-preferencing: i.e. behaviour by a digital platform that gives its own products/services preferential treatment over those provided by other firms that use the same platform. What other types of conduct are possible examples of self-preferencing?
  6. What is the difference between a non-compliance procedure and a specification procedure? Find some recent examples of non-compliance procedures that have been undertaken by the EC to enforce the DMA.
  7. What are the potential advantages and disadvantages for consumer welfare of the specification decisions made by the EC?
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Competition policy – the evolving approach towards firms that misuse market power

The enforcement of Article 102 of the Treaty on the Functioning of the European Union (TFEU) by the European Commission (EC) tends to focus on exclusionary abuses by firms with significant market power. Exclusionary abuses are actions that limit or prevent competition, as opposed to exploitative abuses that directly harm the consumer, such as charging high prices.

The treatment of exclusionary abuses has evolved over time. Initially, the approach towards enforcement was form-based (i.e. the nature of the abuses), but this changed when the EC produced new guidelines in 2009 which signalled a move to a more effects-based approach.

The EC plans to produce a new set of guidelines in 2025 and published a draft version in August 2024 as part of the consultation process with businesses and other stakeholders. These draft guidelines indicate a partial shift back to a form-based approach. Any moves in this direction made by the EC are likely to influence both national-level competition authorities and the courts.

The form-based approach to policy enforcement

A form-based approach to the enforcement of Article 102 assumes that certain types of business conduct are inherently anti-competitive except in very exceptional circumstances. In other words, there is a presumption that the characteristics or form of the behaviour mean that it must have a negative impact on competition and consumer welfare in virtually all real-world cases.

With a form-based approach to enforcement there is no requirement for the authorities to carry out detailed case-specific analyses of business conduct as part of an investigation. This had been the approach adopted by the EC before 2009. It is possible, however, that the same form of business conduct could have anti-competitive effects in some market situations but pro-competitive effects in others. The EC was criticised for not making enough allowance for the chances of this happening.

The effects-based approach to policy enforcement

In response to this criticism the European Union published a new set of guidelines in 2009 which signalled that the enforcement of Article 102 was moving to a more effects-based approach. The effects-based approach uses economic analysis to assess the impact of a dominant firm’s conduct on a case-by-case basis. Context-specific evidence is examined by the competition authorities to see if the behaviour effectively excludes rival businesses from the market that are just as efficient as the dominant firm.

The use of economics in this effects-based approach gradually increased over time. Initially, the analysis was predominately based on theoretical arguments, but increasingly cases included sophisticated analysis of market-specific evidence using econometric models and market simulations. This, however, led to the following issues.

  • The increasing use of complex economic analysis makes it more difficult to meet the evidentiary standards of the courts and prove a case. As the effects-based approach places a greater burden on the competition authorities to meet these evidentiary standards (i.e. provide evidence of case-specific anti-competitive effects of the conduct) it disproportionality affects their ability to prove cases.
  • Businesses with significant market power are more likely to make large profits and so have access to greater resources than government-funded competition authorities. Therefore, they will be able to employ more economic consultants with the relevant technical expertise to (a) carry out the analysis and (b) communicate the findings effectively in a court case

This led to concerns that the competition authorities were losing cases where there was strong evidence of exclusionary conduct by the dominant firm.

In response to these concerns, the EC announced in 2023 that it would be revising its 2009 guidelines to improve enforcement of Article 102.

The draft guidelines

The draft guidelines published in August 2024 split different types of potentially anti-competitive conduct by dominant firms into three categories.

The first category includes types of conduct where there is a strong presumption of anti-competitive effects: i.e. the sole purpose of the business behaviour is to restrict competition. These types of conduct are referred to as a ‘naked restriction’ and the documentation provides the following three examples:

  • making payments to customers (typically other businesses) on the condition that they cancel or postpone the launch of a product that uses inputs produced by the dominant firm’s rivals;
  • threatening to withdraw discounts offered to suppliers unless they agree to supply the dominant firm’s product in place of a similar product produced by a rival firm;
  • actively dismantling infrastructure used by a rival firm.

The guidelines indicate a form-based approach will be taken when investigating these types of conduct as the EC will not have to provide any case-specific evidence of anti-competitive effects. A business under investigation can challenge the presumption of anti-competitive effects with appropriate evidence, but the guidelines make it clear that this would only succeed in exceptional circumstances. In other words, it is highly unlikely that the conduct could ever be justified on pro-competitive grounds.

The second category of anti-competitive conduct includes actions that are also presumed to have a negative impact on competition. The presumption, however, is not as strong as with naked restrictions, so firms have a better chance of proving pro-competitive effects.

There is a form-based element towards this second category of conduct as the EC will not have to provide any initial case specific evidence of anti-competitive effects. But, if a business under investigation does submit evidence to challenge the presumption of anti-competitive effects, the EC must demonstrate that (a) it has fully assessed this evidence and (b) the evidence is insufficient to prove that the conduct does have pro-competitive effects. As part of this process, the EC can provide its own case-specific evidence. Therefore, for this second category of conduct, the initial burden of proof effectively shifts from the competition authority to the firm under investigation, making it more of a form-based approach. However, if the firm uses relevant evidence to appeal its case, the burden shifts back to the competition authority and becomes a more effects-based approach.

The third category includes types of conduct where the EC must initially provide case-specific evidence that it reduces competition. For this category of conduct, the approach towards enforcement remains the same as in the 2009 guidelines and an effects-based approach is adopted.

It will be interesting to see the extent to which the final guidelines (a) follow the approach outlined in the draft guidance and (b) influence the enforcement of Article 102 by the EC and other national-level competition authorities.

Articles

Questions

  1. What exactly does it mean if a firm has ‘significant’ market power?
  2. What methods do competitions authorities use to assess whether a firm has a dominant market position?
  3. Explain the difference between conduct by dominant firm that is (a) an exploitative abuse of its market power and (b) an exclusionary abuse of its market power.
  4. Explain why a form-based approach towards the enforcement of competition policy is more likely to lead to Type 1 errors (false positives), whereas an effects-based approach is more likely to lead to Type 2 errors (false negatives).
  5. Provide some examples of exclusionary abuses that are not considered to be naked restrictions.
  6. Competition policy guidance documents commonly refer to ‘competition on the merits’. What is the precise meaning of this term?
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A four-day week – a solution to sluggish productivity growth? (Updated)

In a blog from March 2023 (reproduced below), we saw how there has been growing pressure around the world for employers to move to a four-day week. Increasing numbers of companies have adopted the model of 80% of the hours for 100% of the pay.

As we see below, the model adopted has varied across companies, depending on what was seen as most suitable for them. Some give everyone Friday off; others let staff choose which day to have off; others let staff work 80% of the hours on a flexible basis. Firms adopting the model have generally found that productivity and revenue have increased, as has employee well-being. To date, over 200 employers in the UK, employing more than 5000 people, have adopted a permanent four-day week.

This concept of 100-80-100, namely 100% of pay for 80% of hours, but 100% of output, has been trialled in several countries. In Germany, after trials over 2024, 73% of the companies involved plan to continue with the new model, with the remaining 27% either making minor tweaks or yet to decide. Generally hourly productivity rose, and in many cases total output also rose. As the fourth article below states:

The primary causal factor for this intriguing revelation was simple – efficiency became the priority. Reports from the trial showed that the frequency and duration of meetings was reduced by 60%, which makes sense to anyone who works in an office – many meetings could have been a simple email. 25% of companies tested introduced new digitised ways of managing their workflow to optimise efficiency.

Original post

In two previous posts, one at the end of 2019 and one in July 2021, we looked at moves around the world to introduce a four-day working week, with no increase in hours on the days worked and no reduction in weekly pay. Firms would gain if increased worker energy and motivation resulted in a gain in output. They would also gain if fewer hours resulted in lower costs.

Workers would be likely to gain from less stress and burnout and a better work–life balance. What is more, firms’ and workers’ carbon footprint could be reduced as less time was spent at work and in commuting.

If the same output could be produced with fewer hours worked, this would represent an increase in labour productivity measured in output per hour.

The UK’s poor productivity record since 2008

Since the financial crisis of 2007–8, the growth in UK productivity has been sluggish. This is illustrated in the chart, which looks at the production industries: i.e. it excludes services, where average productivity growth tends to be slower. The chart has been updated to 2024 Q2 – the latest data available. (Click here for a PowerPoint of the chart.)

Prior to the crisis, from 1998 to 2006, UK productivity in the production industries grew at an annual rate of 6.9%. From 2007 to the start of the pandemic in 2020, the average annual productivity growth rate in these industries was a mere 0.2%.

It grew rapidly for a short time at the start of the pandemic, but this was because many businesses temporarily shut down or went to part-time working, and many of these temporary job cuts were low-wage/low productivity jobs. If you take services, the effect was even stronger as sectors such as hospitality, leisure and retail were particularly affected and labour productivity in these sectors tends to be low. As industries opened up and took on more workers, so average productivity rapidly fell back. Since then productivity has flatlined.

If you project the average productivity growth rate from 1998 to 2007 of 6.9% forwards (see grey dashed line), then by 2024 Q3, output per hour in the production industries would have been 3.26 times higher than it actually was: a gap of 226%. This is a huge productivity gap.

Productivity in the UK is lower than in many other competitor countries. According to the ONS, output per hour in the UK in 2021 was $59.14 in the UK. This compares with an average of $64.93 for the G7 countries, $66.75 in France, £68.30 in Germany, $74.84 in the USA, $84.46 in Norway and $128.21 in Ireland. It is lower, however, in Italy ($54.59), Canada ($53.97) and Japan ($47.28).

As we saw in the blog, The UK’s poor productivity record, low UK productivity is caused by a number of factors, not least the lack of investment in physical capital, both by private companies and in public infrastructure, and the lack of investment in training. Other factors include short-termist attitudes of both politicians and management and generally poor management practices. But one cause is the poor motivation of many workers and the feeling of being overworked. One solution to this is the four-day week.

Latest evidence on the four-day week

Results have just been released of a pilot programme involving 61 companies and non-profit organisations in the UK and nearly 3000 workers. They took part in a six-month trial of a four-day week, with no increase in hours on the days worked and no loss in pay for employees – in other words, 100% of the pay for 80% of the time. The trial was a success, with 91% of organisations planning to continue with the four-day week and a further 4% leaning towards doing so.

The model adopted varied across companies, depending on what was seen as most suitable for them. Some gave everyone Friday off; others let staff choose which day to have off; others let staff work 80% of the hours on a flexible basis.

There was little difference in outcomes across different types of businesses. Compared with the same period last year, revenues rose by an average of 35%; sick days fell by two-thirds and 57% fewer staff left the firms. There were significant increases in well-being, with 39% saying they were less stressed, 40% that they were sleeping better; 75% that they had reduced levels of burnout and 54% that it was easier to achieve a good work–life balance. There were also positive environmental outcomes, with average commuting time falling by half an hour per week.

There is growing pressure around the world for employers to move to a four-day week and this pilot provides evidence that it significantly increases productivity and well-being.

Additional articles

Original set of articles

Questions

  1. What are the possible advantages of moving to a four-day week?
  2. What are the possible disadvantages of moving to a four-day week?
  3. What types of companies or organisations are (a) most likely, (b) least likely to gain from a four-day week?
  4. Why has the UK’s productivity growth been lower than that of many of its major competitors?
  5. Why, if you use a log scale on the vertical axis, is a constant rate of growth shown as a straight line? What would a constant rate of growth line look like if you used a normal arithmetical scale for the vertical axis?
  6. Find out what is meant by the ‘fourth industrial revolution’. Does this hold out the hope of significant productivity improvements in the near future? (See, for example, last link above.)