31 October 2014 C ontent Introduction Definition of relevant markets Analysis of market power Abusive practices Efficiency defenses 1 Introduction What is abuse of dominanceabuse of dominant position ID: 916562
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Slide1
Abuse of Dominance
Alice Pham31 October 2014
Slide2Content
IntroductionDefinition of relevant markets
Analysis of market power
Abusive practices
Efficiency defenses
Slide31. 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
)
Slide41. 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!
Slide51. 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?
Slide62. 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
Slide72. 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
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
Slide93. 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.
Slide103. 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)
Slide113. 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.
Slide123. 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
Slide133. 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)
Slide143. 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
Slide154. 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
Slide164. 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.
Slide174. 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.
Slide184. 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
.
Slide194. 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.
Slide204. 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.
Slide214. 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)
Slide225. 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
Slide23Abuse of Dominance
Slide24Thank you for your attention!
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