Can care homes survive with privately funded residents cross-subsidising those who are state funded?

February 2, 2017

(by Morten Hviid) Care homes often take a mix of privately funded and state funded residents. Recent research by a leading provider of market information about the care home sector, LaingBuisson, assesses that the average fee per resident with a local authority (LA) assisted place fell short of what it costs care homes to provide the care by £104 p.w.. They also argue that the shortfall is picked up by private fee payers who are thereby providing a cross-subsidy. They refer to this as a hidden “care tax”.  The existence of this cross-subsidy is nothing new. The predecessor of the Competition and Markets Authority, the OFT, found the same in a report from 2005.  However, the size of the cross-subsidy is notable.  Even without assessing the strength of the new research, which is not publicly available, several aspects of this news story are worth pondering further.  Should LAs use any buyer power they might have when negotiating prices?  What are the consequences for the care market from the cross-subsidy?  Why are care homes willing to accept below cost prices?  These questions have added current importance because the CMA is undertaking a Market Study into the care home market. Read the rest of this entry »


Flight Centre: Australian High Court finds agent competed with principal and breached cartel laws

January 9, 2017

(by Julie Clarke[1]) On 14 December 2016, Australia’s highest court (the High Court) determined, by majority, that Flight Centre, a travel agent, competed with airlines for the supply of airline tickets and that, as a result, its attempts to induce the airlines to lower their direct-to-public ticket sales constituted unlawful price fixing. Flight Centre markets itself as offering a ‘Lowest Airfare Guarantee’. In attempting to induce the airlines not to discount tickets sold direct to the public, it was found to be in competition with the airlines and therefore subject to a per se prohibition rather than a full effects analysis. The treatment of travel agents and other similar arrangements falls into somewhat of a grey area in Competition Law.  Are the agents competing horizontally with their suppliers in selling to consumers, or are they better seen as vertically related retailers, or even as de facto employees?  This is important because horizontal cartels are almost universally per se illegal, often with criminal sanctions, vertical price fixing (e.g. RPM) has a much more mixed and nuanced legal position, and employees are completely exempt (a firm is free to set prices that all its salesforce must implement). In Europe, genuine ‘agency agreements’ fall outside the scope of Article 101 TFEU, even though they may contain clauses that can produce anticompetitive effects, such as minimum pricing.[2] This blog analyses the significance of recent developments under Australian Competition Law. Read the rest of this entry »


Leniency in the Civil Aviation Authority’s Price Fixing Case: Will a Ringleader Ever Be Refused Immunity?

December 22, 2016

(by Andreas Stephan) On 20 December 2016, the UK’s Civil Aviation Authority (CCA) found that East Midlands International Airport Ltd (EMIA) and Prestige Parking had breached competition law, by agreeing that Prestige would not sell its car parking services at below a minimum price that was linked to the price of EMIA’s own parking services. No fine was imposed in the case because Prestige Parking is no longer trading and EMIA received immunity in return for revealing the arrangement to the Competition and Markets Authority (CMA), under its leniency programme. We do not yet have the full decision, but the Press Release states, in relation to the minimum pricing that, “EMIA imposed this requirement as a condition of allowing Prestige to access facilities at the airport…”. This appears to suggest EMIA was awarded immunity despite instigating the arrangement. Read the rest of this entry »


BT Separation: The end of a beautiful relationship?

December 14, 2016

(by Richard Cadman) Earlier this year Ofcom, the UK’s regulator for electronic communications markets, proposed that BT’s Openreach division should become a legally separate company within the BT Group, but this has been resisted by the company. In response, Ofcom have referred their proposal to the European Commission to force through the changes. Its proposal follows from its Strategic Review of Digital Communications (DCR) launched in March 2015. In that review it concluded that, although the current “functional separation” model worked well in deterring operational discrimination by BT against retail competitors that relied on its network, BT was still able to make strategic discrimination choices by designing the network to suit its own purposes. Ofcom was also concerned about the lack of fibre based broadband to residential customers. This blog argues that OfCom’s approach is unlikely to achieve anything more than BT’s own proposals. Read the rest of this entry »


General Court’s pay for delay judgment in Lundbeck – some guidance, but worries remain

September 14, 2016

(by Sven Gallasch) On 8 September, the General Court handed down its eagerly awaited decision in Lundbeck – the first ever European judgment concerning so-called pay for delay settlements. The Commission’s decision in this case was heavily criticised by practitioners as well as academics like myself for taking the view that agreements in question would constitute a ‘restriction by object’. In a previous blog I argued that the Commission might have pushed it too far by finding this kind of agreement an object restriction, especially in the light of the Court of Justice’s decision in Groupement des Cartes Bancaires, where it was held that such restrictions should be interpreted ‘restrictively’. It is therefore perhaps surprising that the General Court has rejected every one of the 10 arguments (by my count) put forward by Lundbeck, and has upheld the Commission’s decision in its entirety – even the level of the fine. Read the rest of this entry »


Why have Mylan launched a generic EpiPen?

August 30, 2016

(by Farasat Bokhari) In a new development surrounding the controversy of price hikes of Mylan’s lifesaving drug EpiPen, the manufacturer announced that it will introduce a generic version, and sell the new drug at half the price of its branded version. Mylan has increased the price of its EpiPen injections from about $100 in 2009 to over $600 this year and will sell the generic at $300, and has come under scrutiny and strong criticism from public and government officials alike.  Mylan are not alone in increasing drug prices in recent times. For instance, Martin Shkreli increased the price of Daraprim by 5000 percent in 2015. However, that was to do with a hit-and-run opportunity that arose out of its orphan drug status, and the speed with which a rival generic could gain approval to enter the market (see my earlier post, ‘The Economics of a $750 Pill’).

Leaving aside the issue that the generic is still three times more expensive than the original 2009 price, this announcement has left some puzzling over why, or rather how, such a move makes any sense.  To paraphrase the incredulity expressed by Richard Quest of CNN, why would anyone pay $600 for a drug when the exact same product by the same company is also available for $300?  How does Mylan stand to gain anything from this move? Read the rest of this entry »


We need to quantify deterrence when evaluating Competition Authorities: a response to Bruce Lyons’s Blog Post

August 19, 2016

(by Steve Davies) The time has come for us to stop ducking out of the big deterrence issue in competition policy – more precisely, the measurement thereof. This blog has been provoked by Bruce Lyons’s excellent recent blog, in which he argues that the performance target placed on the CMA by government may have serious adverse consequences for the Authority’s incentives to undertake those investigations which generate relatively small measurable direct benefits, but potentially very large, unquantified, deterrent effects. Read the rest of this entry »