Transcript Competition Policy and Law

Competition Policy and Law
Presentation to Study Tour for Russian
Member Universities of the Virtual
Institute Network
26 March 2009
Main topics
• What do Competition Authorities do?
• What is Abuse of Dominance?
• A Case Study
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What do Competition Authorities
do?
• Enforce a competition law
–
–
–
–
Mergers
Agreements among competitors (horizontal)
Agreements between suppliers & buyers (vertical)
Abuse of dominance or monopolization
• Advocate for government policies that are more
pro-competitive
• Some also enforce consumer protection laws,
and advocate for more pro-consumer
government policies
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Objectives
•
•
•
•
•
Often unclear
Vary from jurisdiction to jurisdiction
Consumer welfare v. total welfare
Static efficiency v. dynamic efficiency
Distribution, eg SMEs, price
discrimination, historically disadvantaged
persons
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Decisions by competition
authorities
• Criteria based on objectives
• "Independent" - decisions in individual cases are
not indicated by politicians
• But - always policy direction set by politicians
• Some systems have appeal of individual
decisions to politicians
• Independent 2 - "All" systems have appeal of
individual decisions to courts
• Limited by ability to get and analyze facts
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Economics Review
(Competition law is composed of economics
concepts adjusted to be administrable)
• Markets
• Market power
• Substantial & durable market power
• Barriers to entry & barriers to expansion
• Coordination & collusion
• Principal - agent problems (hidden action,
hidden knowledge)
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Diagram 1: Supply Curve
Price
Supply
Quantity
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Diagram 2: Demand Curve
Price
Demand
Quantity
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Diagram 3: Supply & Demand
Price
Supply
Demand
Quantity
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Diagram 4: Supply & Demand with
Market Power
Price
Supply
Demand
Quantity
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Diagram 5: Vertical restraints
(hidden action, hidden knowledge)
Brand owner ("manufacturer")
Price
Territory
Customer
Other brands
Retailer
Retailer
Retailer
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Main topics
• What do Competition Authorities do?
• What is Abuse of Dominance?
• A Case Study
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Abuse of dominance
• Is the firm dominant?
• Is the conduct an abuse?
• Is there a remedy?
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Three standards
• Russian Federation Art. 5 & Art. 10
• European Union Art. 82
• US Sherman Act §2
• Of course, there are other standards
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Russian Federation
• Federal Law № 135-FZ of July 26, 2006 «On Protection
of Competition»
• Article 5 defines dominant position
• One or more economic entities can "have a decisive
impact on the general conditions" of the market, or can
exclude or prevent the entry of other economic entities
onto the market.
• Market share presumptions
• Article 10 defines and prohibits abuses of dominance
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Russia – Dominance
• Presumed dominant if market share > 50%
(but rebuttable)
• Presumed not dominant if market share <
50% (but FAS can show dominance using
stability of market shares, barriers to entry,
or other characteristics specific to the
commodity market)
• Cannot be found dominant if market share
< 35% (with exceptions related to financial
firms and collective dominance).
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Russia - Abuses
• Actions or inaction of an economic entity
occupying a dominant position, which result or
can result in prevention, restriction or elimination
of competition and (or) infringement of the
interests of other persons are prohibited,
including:
– establish and maintain a monopolistically high or
monopolistically low price for a commodity
{COMMENT: " monopolistically low price" is defined in
Art. 7 and seems to be intended to be an analog to
"predatory pricing," but is much broader than usual}
– withdrawal of a commodity from circulation, if it
causes price to rise
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Russia – abuses cont’d
• imposing on a counterparty terms which are unprofitable to the latter
or are economically or technologically unjustified and/or not required
by law
• unjustified (economically or technologically) cutting off production or
supply
• refusal to contract that is unjustified (economically or
technologically)
• charging different prices that is unjustified (economically or
technologically)
• unjustified high or low pricing of a financial service by a financial
organization
• creating discriminatory conditions
• creating barriers to entry or barriers to exit
• violation of the procedure of pricing established by statutory legal
acts {COMMENT: aimed at firms subject to economic regulation}
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Russia – abuses defense
• Items 4, 8 & 9 can be justified under
Article 13. Art. 13 tells us that they can be
justified if the actions (inactions) do not
eliminate competition, are no more
restrictive than necessary of competition,
and promote economic progress and
Russian competitiveness and consumers
share in the benefits.
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European Union Art. 82
"Any abuse by one or more undertakings of a dominant position within
the common market or in a substantial part of it shall be prohibited
as incompatible with the common market in so far as it may affect
trade between Member States.
Such abuse may, in particular, consist in:
(a) directly or indirectly imposing unfair purchase or selling prices
or other unfair trading conditions;
(b) limiting production, markets or technical development to the
prejudice of consumers;
(c) applying dissimilar conditions to equivalent transactions with
other trading parties, thereby placing them at a competitive
disadvantage;
(d) making the conclusion of contracts subject to acceptance by the
other parties of supplementary obligations which, by their nature
or according to commercial usage, have no connection with the
subject of such contracts."
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EU
• Dominance not defined in Treaty, but in
case law.
• Dominance must be in reference to a
market.
• Market share is the most important
indicator but not determinative.
• Therefore market definition is essential.
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EU
• Market shares:
Unlikely
dominant
0%
30%
Dominant
50–70%
100%
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EU (recent guidelines)
• Dominance means substantial market
power over a period of time. If can
profitably maintain prices above the
competitive level for a significant period of
time, then generally dominant.
• Indicators: market shares (firm & rivals),
entry and expansion by rivals,
countervailing buyer power.
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Sherman Act section 2
• “Every person who shall monopolize, or
attempt to monopolize, or combine or
conspire with any other person or persons,
to monopolize any part of the trade or
commerce among the several States, or
with foreign nations, shall be deemed
guilty of a felony…”
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US
• A common law system, so law is court decisions. Good
reference: American Bar Association, Antitrust Law
Developments.
• “Monopolization” ≠ “abuse of dominance"
– Monopolization requires more market power than dominance
requires.
– The conduct focus is on exclusion. Exploitation is not illegal.
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US
• Market share is a starting point for
determining if monopoly power
>70% almost always supports inference,
but rebuttable
<50% almost never find monopoly
• Other evidence is very important
– Barriers to entry - most important
– Barriers to rivals' expansion - also important
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US standard on exclusive
dealing agreements:
• The concern is that it may be an improper
means of maintaining a monopoly.
1. Must have monopoly power.
2. The exclusionary conduct must have an anticompetitive effect.
3. Even if both conditions are met, then the
monopolist still retains a defense of business
justification.
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Main topics
• What do Competition Authorities do?
• What is Abuse of Dominance?
• A Case Study
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