Abuse of Dominance Alice Pham - PowerPoint Presentation

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Abuse of Dominance

Alice Pham31 October 2014

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Content

IntroductionDefinition of relevant markets

Analysis of market power

Abusive practices

Efficiency defenses

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1. Introduction

What is ‘abuse of dominance’/’abuse of dominant position’?“Abuse” of a dominant position occurs where

the

dominant enterprise

, either

individually or together with

other undertakings

,

exploits

its dominant position in

the

relevant market

or

excludes competitors

and

harms

the competition process

. (ASEAN Regional Guidelines, §3.3.1.2)

“Abuse of a dominant position occurs when

a dominant firm in a market

, or

a dominant group of firms

, engages in

conduct

that is intended to eliminate or discipline a competitor or to deter future entry by new competitors, with the result that

competition is prevented or lessened substantially

” (Competition Bureau, Canada,

www.competitionbureau.gc.ca

)

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1. Introduction

What do Competition Authorities look at when assessing a possible abuse of dominance?

What is the market of goods/services of the case?

=

Defining the relevant market in which firms operate!

What is the market position of the firm in focus?

=

Assessing the market power of the firms!

What is the business practice in focus?

=

Assessing the abuse!

Does the business practice harm competition?

=

Assessing the effects on competition!

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1. Introduction

Dominant position in a market

Definition of the relevant market?

Is there a dominant position in the relevant market?

Business practice by the dominant firm

Exploitative abuse?

Exclusionary abuse?

What are the effects of this business practice on competition?

Is the business practice preventing or lessening competition substantially?

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2. Definition of relevant markets

Relevant markets in the Draft Competition Law of Myanmar

“

Relevant Market

means Goods or Services which are regarded as interchangeable or substitutable by the consumer, by reason of the Goods' characteristics, their prices and their intended use, and which are supplied in a geographic area by the Undertakings concerned, in which the conditions of competition are sufficiently homogeneous and which can be distinguished from neighbouring areas because the conditions of competition are appreciably different in those areas.

” (Draft Competition Law of Myanmar, §2(p))



Main approach: Define the relevant product market first using

demand substitution,

then define the geographic market

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2. Definition of relevant market

For the determination of substitution

in defining relevant product market, the draft law refers to:

Characteristics

Use purpose

Price

of goods or services

For defining the relevant geographic market, note:

Sufficiently homogeneous (similar) competitive conditions within one geographic area

Appreciably different from neighbouring areas



Considering other business establishments that supply the relevant product(s) within the area or in neighbouring areas, transportation costs or costs of service provision,

barrier(s) to market entry,

etc

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2. Definition of relevant markets

Barriers to market entry:Technical or technological mattersFinancial matters

Administrative decisions by State administrative bodies

Laws and regulations

Tariff and non-tariff barriers

Consumer practices

Others

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3. Analysis of Market Power

Dominant position

Definition by the European Court of Justice

A position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it

the power to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers

.

Definition in the ASEAN Regional Guidelines

“Dominant position” refers to a situation of market power,

where an

undertaking, either individually or together with

other undertakings

, is in a position to

unilaterally affect the

competition parameters

in the relevant market

for a good(s) or service(s

), e.g

., able to profitably sustain prices above competitive levels

or

to

restrict output or quality below competitive levels.

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3. Analysis of Market Power

Market power

‘Market

Power means the substantial degree of market position that an Undertaking has in a given Relevant Market as a result of various factors, including

its high market share and that of its competitors

; its ability to make pricing and other

decisions largely independently from the competitive forces in the Relevant Market

; and any

barriers to entry to competitors

into the Relevant Market of this paragraph

.’ (Draft Competition Law of Myanmar, §2(o))

‘Market power is the ability of a firm to raise prices above its marginal cost.’

(Massimo Motta, Competition Policy, Theory and Practice, Cambridge, 2004)

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3. Analysis of Market Power

Note:

abuse of dominance

or

abuse of monopoly position:



different terms for the same

The ability of a firm to raise price above some competitive level – the benchmark price – in a profitable way

Market power is a continuum, at some point dominance

Since the lowest possible price a firm can profitably charge is the price which equal the marginal cost of production (firms have zero fixed costs), market power is usually defined as the difference between the prices charged by firm and its marginal cost of production.

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3. Analysis of Market Power

Indicators of market power:

Market

shares

Concentration

Ratio

Product differentiation

Barriers to entry and potential competition

Barriers to exit

Buyers‘ and suppliers‘ power

Financial power

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3. Analysis of Market Power

Market shares

General measurement:

value and volume

absolute and relative

‘

Market share means a percentage or a portion of the Relevant Market

’ (Draft Competition Law of Myanmar, §2(s))

‘

Market share’

refers to the quantity or value of the

relevant products

or services sold or purchased by one or

more undertakings

in the relevant market, as a percentage of the

total quantity

or value of those products or services in the

relevant market

. (ASEAN Regional Guidelines, §3.2.3.1)

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3. Analysis of Market Power

Market shares

Market shares > 50%

 strong indication for dominance

Market shares > 40%

 relevant and significant if taking into account:

- changes in the absolute level over time

- level relative to the nearest competitor

- presence of other factors

Market shares between 30 and 40%

 fall below level of assumption and more evidence (substantial disparities in market shares, significant barriers to entry, etc.) would be required

Market shares < 30%

 normally no dominance except exceptional conditions

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4. Abusive Practices

Standard categorization of different types of abuse:

Exclusionary

practices

Price-related

conduct

Predatory

pricing

Price discrimination

Fidelity rebates and similar practices

Margin squeeze and

cross-

subsidisation

non-price related

conduct

Discrimination

Refusal to supply

long-term exclusive dealing

Exploitative

practices

Price-related

conduct

Excessive pricing

non-price related

conduct

Tying and bundling

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4. Abusive Practices

Exclusionary practices

price related

conduct

Predatory Pricing

Predatory Pricing is in essence the setting of prices by a dominant firm at a level which has, as its commercial rationale, the

elimination

of

or serious

weakening of a competitor rather than the generation of profits.

Price discrimination

Price discrimination involves the treatment of like cases differently or giving the same treatment to cases that are in fact different.

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4. Abusive Practices

Exclusionary practices

price related

conduct

Fidelity rebates and similar practices

Special financial rebates or discounts granted by dominant firms in return for securing all or an

increased

proportion of the business of customers may are abusive in the lack of objective justification.

Margin squeeze

A vertically integrated firm, which is dominant on the upstream-market,

favours

its own downstream operations against downstream competitors by charging the latter input prices at a level which leaves them a insufficient margin.

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4. Abusive Practices

Exclusionary

practices

non-price related

conduct

Discrimination

Discrimination (in other aspects

than prices) is the

treatment of like cases differently or giving the same treatment to cases that are in fact different (e.g

. nationality

).

Refusal to supply

A dominant firm refuses access to the product market on which it is dominant and thereby restricts or prevents competition on another market, normally a market which it has also an interest but its market position is considerably weaker

.

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4. Abusive Practices

Exclusionary practices

non-price related

conduct

Long-term exclusive dealing

Entry by a dominant firm into long-term exclusive contracts may constitute an abuse because of making other parties dependent on the dominant firm, reducing competition from its existing competitors and deterring new entrants.

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4. Abusive Practices

Exploitative practices

price related

conduct

Excessive pricing

Excessive pricing by a dominant firm can be abusive as it will achieve larger profits than it would earn in a more competitive environment.

non-price related

conduct

Tying and bundling

Tying or bundling occurs, where a dominant firm compels customers

buying

one product

to also acquire

another

completely

distinct product.

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4. Abusive Practices

Abusive Practices according to

the Draft Competition Law of Myanmar

§17. Without

any reasonable objective justification, an Undertaking, which has market power in any Relevant Market, shall not conduct any of the following activities that could affect the Myanmar market:

selling

Goods or providing Services at a price which is lower than the production cost, with the object or effect of driving its competitors out of the market

;

(



Predatory pricing)

selling

Goods or providing Services at an unfairly high

price;

(



Exploitative pricing)

buying

Goods or Services at an unfairly low price;

(

 Exploitative pricing)

refusing

to supply, or altering the quality of, Goods or Services that it supplies, or limiting access to the market to competing Goods, or hindering the development of science and technology

;

(



Refusal to supply)

imposing

different trading conditions to third party Undertakings being in similar conditions, or imposing similar trading conditions to third party Undertakings being in different conditions

;

(

 Non-price Discrimination)

imposing

unfair rules on other Undertakings when entering into a contract for Goods and Services, or coercing the other Undertaking to accept liabilities which are not directly related to such agreement

;

(

 Unfair trading conditions)

blocking

new entrants into the market by any means

.

(



Market foreclosure)

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5. Efficiency Defenses

Efficiency defenses (“legitimate business reasons“), examples:

Cost minimization (economies of scale)

Economies of scale

T

ransaction costs

Internalization of external effects

→

No exemptions or efficiency

defenses allowed

in

the Draft Competition Law of Myanmar

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Abuse of Dominance

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Thank you for your attention!

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