-KK Sharma -Chairman ,KK Sharma Law Offices - ex
Description: -KK Sharma -Chairman ,KK Sharma Law Offices - ex DG, CCI 29.10.2014 WS for Govt. Officials Nay Pi Daw, Myanmar Understanding Relevant Markets(RM) Understanding RM Defining Relevant Markets SSNIP Test, etc Determining Market
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slide1. -KK Sharma -Chairman ,KK Sharma Law Offices - ex DG, CCI 29.10.2014 WS for Govt. Officials Nay Pi Daw, Myanmar Understanding Relevant Markets(RM)<br>
slide2. Understanding RM Defining Relevant Markets
SSNIP Test, etc
Determining Market Power-Concentration Indices
Consumer Welfare-Criteria
Case study<br>
slide3. Why Define RM Defining the Relevant Market is a central and often critical role in the application of competition law
Crucial for assessing market power
Provides a context within which competitive effects can be analyzed.<br>
slide4. How to Define RM Identifies those products and services which are close substitutes to the products or services offered by the parties under investigation and therefore provide an effective competitive constraint.
Identifies the competitors of the undertakings involved that are capable of constraining their behavior in the market.<br>
slide5. Benefits Key Benefits
Focuses attention of the regulator and interested parties on the main competitive constraints which exists between products and regions
Enables calculation of market shares and market concentration<br>
slide6. Dimensions of RM-I Relevant market has two dimensions: the product market and the geographic market.
The product market dimension considers those products that provide an effective competitive constraint on those products produced by the parties under investigation.
The geographic market dimension considers the competitive constraints that sources located in one region pose for those firms located in the same region as<br>
slide7. Dimensions of RM-II the enterprises under investigation.
In a nutshell, the relevant market consists of products which are considered to be substitutes by consumers within a geographic area.<br>
slide8. Tests for Defining RM- SSNIP-I The Hypothetical Monopolist Test is the standard approach to defining the relevant market
First officially recognized in the 1982 US horizontal merger guidelines issued jointly by the Department of Justice and Federal Trade Commission
The test is also known as the Small but Significant Non-transitory Increase in Price (SSNIP) Test<br>
slide9. Tests for Defining RM- SSNIP-II The test first assumes a small (5-10%) rise in the price of the product under investigation (focal product) e.g.shoes
Thereafter the question is whether the price increase would cause the consumers of the focal product (shoes) to shift to another product (eg. Sandals) or buy the focal product from another area, to such an extend that the price rise is unprofitable.<br>
slide10. Tests for Defining RM- SSNIP-III If the consumers of shoes, start buying sandals for a 5-10% rise in the price of shoes, shoes and sandals form part of the same relevant market.
Similarly, if the consumers start buying shoes from another geographic area for a 5-10% rise in the price of shoes in one geographic area, then both the geographic areas form part of the same relevant market<br>
slide11. Common fallacies in SSNIP Test-I The SSNIP test represents only “one possible” approach to defining the relevant market.
Differences in physical characteristics imply separate relevant.
Differences in price levels imply separate relevant markets.
Definition of the relevant market is independent of the particular competition concern.<br>
slide12. Common fallacies in SSNIP Test-II Cellophane Fallacy”- If the product in question is already priced supra-competitively, a 5-10% rise in the price of the product would cause consumers to shift to another product. However, it does not imply that the relevant product market would constitute both products.<br>
slide13. Other common tests for RM Price Correlation Analysis: Works on the principle that if products are in the same market, their prices should move together.
Shock Analysis: This analysis is based on looking at evidence relating to past events in the market that offer actual examples of substitution between two products. (Example: How the launch of a new product affected the demand for another product)<br>
slide14. Market Definition in Mergers-I Essential to assess market power of an enterprise and thus the anti-competitive effects caused by a combination.
Several techniques used to assess market power.
The Herfindahl-Hirschmann Index (HHI)- Based on the total number and size of firms in an industry.- Computed as sum of all firms in industry.
Unconcentrated- HHI < 1000
Moderately Concentrated- HHI between 1000 & 1800
Concentrated- HHI >1800<br>
slide15. Market Definition in Mergers-II Post-merger the HHI is again calculated- and HHI is taken.
∆ HHI < 100 – Unlikely to have adverse competitive effects
∆ HHI between 100 and points= More likely to raise competition concerns<br>
slide16. Market Definition in Mergers-III Concentration Ratio (CR)- Combined Market share of a given number of large firms.
Higher the CR- Greater the potential for market power.<br>
slide17. Case Study-I In the Lombard Club judgement (T-259/02)- General Court noted- In Article 101 cases, relevant market definition serves to determine effect on competition while in Article 102 cases, it serves to determine dominant position.
“Definition of relevant market of essential significance to determine product substitutability”- Europemballage corp and Continental Can Co Inc v. Commission [1973] ECR 215, Para. 32<br>
slide18. Case Study-II The concept of the relevant market in fact implies that there can be effective competition between all the products forming part of the same market insofar as a specific use of such products is concerned- Hoffman-La Roche & Co AG v. EC Commission [1979] ECR 461, para 28<br>
slide19. Market Definition in Mergers For the purposes of investigating the dominant position, it is essential that the product market should be defined comprising the totality of the products with respect to their characteristics.....- Nederlandsche Banden- Industrie Michelin v. Commission [1983] ECR 3461, para.37, Birtish Airways v. Commission [2003] ECR II-5917, para 91<br>
slide20. KK SHARMA LAW OFFICES, NEW DELHI
CONTACT
+91-11-26491137
E: globalhq@kkslawoffices.com
kksharma@kkslawffices.com<br>
slide2. Understanding RM Defining Relevant Markets
SSNIP Test, etc
Determining Market Power-Concentration Indices
Consumer Welfare-Criteria
Case study<br>
slide3. Why Define RM Defining the Relevant Market is a central and often critical role in the application of competition law
Crucial for assessing market power
Provides a context within which competitive effects can be analyzed.<br>
slide4. How to Define RM Identifies those products and services which are close substitutes to the products or services offered by the parties under investigation and therefore provide an effective competitive constraint.
Identifies the competitors of the undertakings involved that are capable of constraining their behavior in the market.<br>
slide5. Benefits Key Benefits
Focuses attention of the regulator and interested parties on the main competitive constraints which exists between products and regions
Enables calculation of market shares and market concentration<br>
slide6. Dimensions of RM-I Relevant market has two dimensions: the product market and the geographic market.
The product market dimension considers those products that provide an effective competitive constraint on those products produced by the parties under investigation.
The geographic market dimension considers the competitive constraints that sources located in one region pose for those firms located in the same region as<br>
slide7. Dimensions of RM-II the enterprises under investigation.
In a nutshell, the relevant market consists of products which are considered to be substitutes by consumers within a geographic area.<br>
slide8. Tests for Defining RM- SSNIP-I The Hypothetical Monopolist Test is the standard approach to defining the relevant market
First officially recognized in the 1982 US horizontal merger guidelines issued jointly by the Department of Justice and Federal Trade Commission
The test is also known as the Small but Significant Non-transitory Increase in Price (SSNIP) Test<br>
slide9. Tests for Defining RM- SSNIP-II The test first assumes a small (5-10%) rise in the price of the product under investigation (focal product) e.g.shoes
Thereafter the question is whether the price increase would cause the consumers of the focal product (shoes) to shift to another product (eg. Sandals) or buy the focal product from another area, to such an extend that the price rise is unprofitable.<br>
slide10. Tests for Defining RM- SSNIP-III If the consumers of shoes, start buying sandals for a 5-10% rise in the price of shoes, shoes and sandals form part of the same relevant market.
Similarly, if the consumers start buying shoes from another geographic area for a 5-10% rise in the price of shoes in one geographic area, then both the geographic areas form part of the same relevant market<br>
slide11. Common fallacies in SSNIP Test-I The SSNIP test represents only “one possible” approach to defining the relevant market.
Differences in physical characteristics imply separate relevant.
Differences in price levels imply separate relevant markets.
Definition of the relevant market is independent of the particular competition concern.<br>
slide12. Common fallacies in SSNIP Test-II Cellophane Fallacy”- If the product in question is already priced supra-competitively, a 5-10% rise in the price of the product would cause consumers to shift to another product. However, it does not imply that the relevant product market would constitute both products.<br>
slide13. Other common tests for RM Price Correlation Analysis: Works on the principle that if products are in the same market, their prices should move together.
Shock Analysis: This analysis is based on looking at evidence relating to past events in the market that offer actual examples of substitution between two products. (Example: How the launch of a new product affected the demand for another product)<br>
slide14. Market Definition in Mergers-I Essential to assess market power of an enterprise and thus the anti-competitive effects caused by a combination.
Several techniques used to assess market power.
The Herfindahl-Hirschmann Index (HHI)- Based on the total number and size of firms in an industry.- Computed as sum of all firms in industry.
Unconcentrated- HHI < 1000
Moderately Concentrated- HHI between 1000 & 1800
Concentrated- HHI >1800<br>
slide15. Market Definition in Mergers-II Post-merger the HHI is again calculated- and HHI is taken.
∆ HHI < 100 – Unlikely to have adverse competitive effects
∆ HHI between 100 and points= More likely to raise competition concerns<br>
slide16. Market Definition in Mergers-III Concentration Ratio (CR)- Combined Market share of a given number of large firms.
Higher the CR- Greater the potential for market power.<br>
slide17. Case Study-I In the Lombard Club judgement (T-259/02)- General Court noted- In Article 101 cases, relevant market definition serves to determine effect on competition while in Article 102 cases, it serves to determine dominant position.
“Definition of relevant market of essential significance to determine product substitutability”- Europemballage corp and Continental Can Co Inc v. Commission [1973] ECR 215, Para. 32<br>
slide18. Case Study-II The concept of the relevant market in fact implies that there can be effective competition between all the products forming part of the same market insofar as a specific use of such products is concerned- Hoffman-La Roche & Co AG v. EC Commission [1979] ECR 461, para 28<br>
slide19. Market Definition in Mergers For the purposes of investigating the dominant position, it is essential that the product market should be defined comprising the totality of the products with respect to their characteristics.....- Nederlandsche Banden- Industrie Michelin v. Commission [1983] ECR 3461, para.37, Birtish Airways v. Commission [2003] ECR II-5917, para 91<br>
slide20. KK SHARMA LAW OFFICES, NEW DELHI
CONTACT
+91-11-26491137
E: globalhq@kkslawoffices.com
kksharma@kkslawffices.com<br>