Can Mergers Distort Competition? Anticompetitive Conduct and Unearned Advantage

          My third book, Regulating Mergers and Acquisitions of U.S. Electric Utilities: Industry Concentration and Corporate Complication, will be published by Edward Elgar Publishing in October 2020. You can pre-order the book here or at most online bookstores. Here is the Summary of Contents. From February 2020 through March 2021, each of my monthly essays digests a book chapter. This month’s essay digests Chapter 6. Prior months’ digests are available here.

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            Mergers change market structures; market structures affect seller conduct. To protect competition on the merits, we must ask this question: Will a proposed merger weaken market structures, allowing the merged company to act anticompetitively or exploit unearned advantages?


Anticompetitive conduct

            Aggressive, pro-competitive conduct becomes unlawful, anticompetitive conduct when the seller acts to weaken competition rather than win the competition. Pro-competitive behavior yields competition on the merits. Anticompetitive behavior undermines competition on the merits. The incentive and opportunity to behave anticompetitively is especially strong when the merged company, directly or through affiliates, sells services in two distinct markets: one where it has a state-protected monopoly and one where it does not. It can exploit its market power in the former to undermine competition in the latter.

            Anticompetitive conduct can take at least four forms. Refusing to deal means denying competitors access to key inputs controlled by the merged company. A prominent example is transmission—essential for generation competition but not economically or practically duplicable by the generation competitors. If the merged company controls an upstream input and also competes with its wholesale customer in a downstream market, the company might also price squeeze—overcharge the wholesale customer for the upstream input, then underprice the customer in the downstream market. With tying, the merged company forces a customer who needs the company’s monopoly product (e.g., transmission access) to also buy the company’s competitive product (e.g. generation), thereby cutting out all generation competitors. Then there is cross-subsidizing: the merged company underprices its competitive product by overcharging for its monopoly product, thus abusing customers and competitors—a real two-fer.


Testimony, Papers, and Presentations

Surrebuttal Testimony of Scott Hempling on Behalf of Baltimore Washington Construction and Public Employees Laborers' District Council in the matter of an Application of Potomac Electric Power Company for Authority to Implement a Formal Multiyear Rate Plan for Electric Distribution Service in the District of Columbia
Hempling testimony to D.C. PSC (Feb. 2020)
Direct testimony before the Public Service Commission of Wisconsin in the Joint Application of Wisconsin Electric Power Company and Wisconsin Gas LLC, for Authority to Adjust Electric, Natural Gas, and Steam Rates
A layperson’s introduction to regulation created by Scott Hempling in support of The British Columbia Utilities Commission's inquiry into whether utility regulation should extend to utilities owned by indigenous nations.
This tesimony relates to the modification of rates, charges, and tariffs for retail electric service in Oklahoma.

Books by Hempling

Regulating Public Utility Performance

“[A] comprehensive regulatory treatise …. In all respects, it merits comparison with Kahn and Phillips."

Regulating Public Utility Performance:  The Law of Market Structure, Pricing and Jurisdiction

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Preside or Lead

Preside or Lead?
The Attributes and Actions of Effective Regulators

Now Available on Kindle

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Hempling Appearances

Energy Bar Association
Panel on Practice Principles for New Regulatory Lawyers

UDC Law School Panel
Is the Exelon Takeover of Pepco in the Public Interest?

Nigeria Electricity Regulatory Commission
3rd Judges’ Seminar

Telecom Forum
Asamblea Plenaria REGULATEL

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I highly recommend Scott Hempling. I have known him since 2003, since he was a consultant for the Hawaii Public Utilities Commission on various important and cutting-edge policy regulatory matters in Hawaii, through his time as the Executive Director at the National Regulatory Research Institute. His expertise, knowledge, and experience in all regulatory and energy matters is unmatched, and he would be a highly valuable resource and asset in any such endeavor.
— Carlito P. Caliboso, former Chairman, Hawaii Public Utilities Commission