Transcript Intro to Competition Analysis

GREETINGS
TO
PARTICIPANTS AT THE
NATIONAL TRAINING
WORKSHOP
ON
COMPETITION POLICY
AND LAW
ADDIS ABABA
12-16 MAY 2008
1
RELEVANT MARKET
Dr. S. CHAKRAVARTHY
(Profession : Civil Servant)
Formerly, Member, Monopolies and Restrictive Trade
Practices Commission, Member, High Level Committee on
Competition Policy and Law And Member of Committee for
Drafting the Law.
Presently, Adviser/Consultant
Competition Policy and Law
HYDERABAD, INDIA
Copyright - Dr. S. Chakravarthy
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RELEVANT MARKET –
A DEFINITION
‘RELEVANT MARKET’ REFERS TO THE LINE OF
COMMERCE IN WHICH COMPETITION HAS BEEN
RESTRAINED AND TO THE GEOGRAPHIC AREA
INVOLVED, DEFINED TO INCLUDE ALL
REASONABLY SUBSTITUTABLE PRODUCTS OR
SERVICES, AND ALL NEARBY COMPETITORS, TO
WHICH CONSUMERS COULD TURN IN THE NEAR
TERM IF THE RESTRAINT OR ABUSE RAISED
PRICES BY A NOT INSIGNIFICANT AMOUNT.
Copyright - Dr. S. Chakravarthy
3
IN SIMPLE TERMS
RELEVANT MARKET IDENTIFIES
1. THE PARTICULAR PRODUCT/SERVICE OR
CLASS OF PRODUCTS PRODUCED OR
SERVICES RENDERED BY ENTERPRISES.
2. THE GEOGRAPHIC AREA.
3. ENTERPRISES THAT COMPETE TO SUPPLY THOSE
PRODUCTS OR SERVICES.
Copyright - Dr. S. Chakravarthy
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RM = RPM + RGM
RELEVANT MARKET (RM) HAS
TWO DIMENSIONS, NAMELY,
* RELEVANT PRODUCT MARKET(RPM)
* RELEVANT GEOGRAPHIC
MARKET(RGM)
Copyright - Dr. S. Chakravarthy
5
PRODUCT MARKET
INTERCHANGEABILITY OR SUBSTITUTABILITY OF
GOODS/SERVICES BY CONSUMERS/PURCHASERS
1. DEMAND
SUBSTITUTABILITY
–
SUBSTITUTES
CONSUMER WOULD SWITCH TO IF PRICE OF PRODUCT
INCREASES
2. SUPPLY SUBSTITUTABILITY – SUBSTITUTES
PRODUCERS WOULD SWITCH TO PRODUCE
EXISTING FACILITIES IF CONSUMERS WANT
Copyright - Dr. S. Chakravarthy
WITH
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3 ELEMENTS PIN PRODUCT
MARKET
1. PRICE INCREASE
2. REACTION OF PURCHASERS
3. SMALLEST SIZE REQUIREMENT
Copyright - Dr. S. Chakravarthy
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PRICE INCREASE
• PURCHASERS SHIFT FOR SUBSTITUTES WHEN
THE PRICE INCREASES
• PRICE INCREASE MUST BE
1. NON – TRANSITORY
2. SMALL BUT SIGNIFICANT
CAKE BAKERS – BUTTER VS. MARGARINE
Copyright - Dr. S. Chakravarthy
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REACTION OF PURCHASERS
• PURCHASERS GENERALLY REACT TO PRICE INCREASES
RATIONALLY
IF PRICE OF BUTTER INCREASES OVER A REASONABLE
LENGTH OF TIME, CAKE BAKERS WILL SWITCH TO
MARGARINE
(IN THE EVENT, B & M ARE RELEVANT PRODUCTS)
IF PRICE INCREASE IS TRANSITORY, CAKE BAKERS WILL
CONTINUE WITH BUTTER
(IN THE EVENT, B & M ARE NOT RELEVANT PRODUCTS)
Copyright - Dr. S. Chakravarthy
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SMALLEST SIZE REQUIREMENT
• MARKET
TO
BE
THE
SMALLEST
COLLECTION OF GOODS/SERVICES FOR
WHICH THE PURCHASER REACTION HOLDS
• PRODUCTS SHOULD NOT BE CONSIDERED
AS SUBSTITUTES MERELY BECAUSE OF
PRICE INCREASE
• SUBSTITUTABILITY SHOULD HAVE DIRECT
NEXUS WITH PRICE INCREASE
Copyright - Dr. S. Chakravarthy
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FACTORS GERMANE TO
RELEVANT PRODUCT MARKET
• PHYSICAL CHARACTERISTICS OR END-USE OF
GOODS;
• PRICE OF GOODS OR SERVICE;
• CONSUMER PREFERENCES;
• EXCLUSION OF IN-HOUSE PRODUCTION;
• EXISTENCE OF SPECIALISED PRODUCERS;
• CLASSIFICATION OF INDUSTRIAL PRODUCTS
Copyright - Dr. S. Chakravarthy
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DEMAND ELASTICITY
• DEMAND ELASTICITY =
PERCENTAGE CHANGE IN QUANTITY
DEMANDED BY PERCENTAGE CHANGE IN
THE PRICE OF THE PRODUCT
CROSS ELASTICITY OF DEMAND OF A
PRODUCT IN RELATION TO PRICES OF
OTHER PRODUCTS
Copyright - Dr. S. Chakravarthy
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ECONOMIC AGENTS TO CONTACT
•
•
•
•
•
•
•
•
PURCHASERS OF THE PRODUCT
PURCHASERS OF SIMILAR PRODUCTS
SELLERS OF THE PRODUCT
SELLERS OF THE SAME PRODUCT IN ANOTHER
REGION
SELLERS OF SIMILAR PRODUCTS
ASSOCIATION OF PURCHASERS OR SELLERS OF
THE PRODUCT
WHOLESALERS/RETAILERS OF THE PRODUCT
AND SIMILAR PRODUCTS
STATISTICAL BUREAUS FOR THE PRODUCT
Copyright - Dr. S. Chakravarthy
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SOME USEFUL QUESTIONS TO
PURCHASERS
1. WHO ARE YOUR CURRENT SUPPLIERS?
2. WHO HAVE BEEN YOUR SUPPLIERS IN THE PAST?
3. WHY DID YOU SWITCH SUPPLIERS? (IF ANSWERS
TO ITEMS 1 AND 2 TWO ARE DIFFERENT)
4. WHO ELSE HAVE YOU CONSIDERED AS
SUPPLIERS?
5. WHY HAVE YOU NOT BOUGHT FROM THEM?
6. WHAT IS IMPORTANT WHEN YOU DECIDE FROM
WHICH SUPPLIER TO BUY? WHY?
7. IS THERE A SUBSTITUTE FOR THE PRODUCT THAT
YOU ARE USING?
8. WHAT IS NECESSARY TO SUBSTITUTE THE
PRODUCT YOU ARE PRESENTLY USING?
Copyright - Dr. S. Chakravarthy
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SOME USEFUL QUESTIONS TO
SELLERS
1. WHO ARE YOUR COMPETITORS?
2. WHAT NEEDS TO BE DONE BY YOU TO CONVINCE
PURCHASERS TO BUY FROM YOU? (TIMELY
DELIVERY, ADVERTISE, SUPERIOR TECHNICAL
SERVICE).
3. WHAT NEEDS TO BE DONE BY YOU TO CONVINCE
PURCHASERS TO SWITCH FROM BUYING FROM
ONE OF YOUR COMPETITORS TO BUYING FROM
YOU (DISCOUNT IN PRICE)
4. IS THERE ANY TYPE OF PURCHASERS WHO TEND
TO BUY FROM YOU RATHER THAN FROM YOUR
COMPETITOR?
5. IF SO WHY DO THEY PREFER YOU?
Copyright - Dr. S. Chakravarthy
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RELEVANT GEOGRAPHIC
MARKET (RGM)
• GEOGRAPHICAL
DIMENSION
INVOLVES
IDENTIFICATION OF GEOGRAPHICAL AREA WITHIN
WHICH COMPETITION TAKES PLACE
• RGM
MAY
BE
INTERNATIONAL
LOCAL,
NATIONAL
OR
• GEOGRAPHICAL DIMENSION INCLUDES
–
–
–
–
CONSUMPTION AND SHIPMENT PATTERNS
TRANSPORTATION COST
PERISHABILITY OF GOODS
BARRIERS BETWEEN ADJOINING GEOGRAPHIC AREAS
Copyright - Dr. S. Chakravarthy
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FACTORS GERMANE TO RELEVANT
GEOGRAPHIC MARKET
–
–
–
–
–
–
–
–
REGULATORY TRADE BARRIERS;
LOCAL SPECIFICATION REQUIREMENTS;
NATIONAL PROCUREMENT POLICIES;
ADEQUATE DISTRIBUTION FACILITIES;
TRANSPORT COSTS;
LANGUAGE;
CONSUMER PREFERENCES;
NEED FOR SECURE OR REGULAR SUPPLIES OR
RAPID AFTER-SALES SERVICES.
Copyright - Dr. S. Chakravarthy
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BARRIERS TO MARKET ENTRY
1.
2.
3.
4.
5.
6.
ADMINISTRATIVE DECISION BY STATE AGENCIES
LEGAL PROVISIONS RELATING TO
MANUFACTURING AND DELIVERY
LEGAL PROFESSIONAL STANDARDS
TRADE POLICY (TARIFFS, QUOTAS,
ANTI-DUMPING MEASURES ETC)
FINANCIAL BARRIERS
BARRIERS RELATING TO IPRs, TECHNOLOGY
ETC
Copyright - Dr. S. Chakravarthy
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TWO MODELS
MODEL 1
DEMAND SIDE SUBSTITUTION
MARKET DEFINITION
MODEL 2
DEMAND SIDE SUBSTITUTION
AND
SUPPLY SIDE SUBSTITUTION
SUPPLY SIDE SUBSTITUTION
AND ENTRY BARRIERS
MARKET DEFINITION
ASSESSMENT OF COMPETITION
ENTRY BARRIERS
ASSESSMENT OF COMPETITION
MODEL 2 IS ADVISED
Copyright - Dr. S. Chakravarthy
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BOEING-McDONNELL DOUGLAS
MERGER CASE
• BOTH BOEING AND McDONNELL DOUGLAS
ARE COMPANIES IN US
• BOTH MANUFACTURE JET AIR CRAFTS
• BOEING ACQUIRED McDONNELL DOUGLAS
• EUROPEAN UNION PROTESTED THE
MERGER THOUGH IT WAS NOT IN ITS SOIL
• AIRBUS INDUSTRIE, AN EUROPEAN
CONSORTIUM IS THE ONLY OTHER
MANUFACTURER
• CONCEPT OF RELEVANT MARKET WAS
INVOKED
Copyright - Dr. S. Chakravarthy
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FINALE
• COMPETITION AUTHORITY NEEDS TO
DETERMINE RELEVANT MARKET
• IT SHOULD HAVE REGARD TO RPM AND
RGM
• INVESTIGATION IS CRITICAL TO THE
DETERMINATION
• GOOD
INVESTIGATION
INVOLVES
IDENTIFICATION OF IMPORTANT ECONOMIC
AGENTS AND POSING APPROPRIATE
QUESTIONS
Copyright - Dr. S. Chakravarthy
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THANK YOU
FOR YOUR
KIND ATTENTION
Copyright - Dr. S. Chakravarthy
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