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Competition Policy and Law

Competition Policy and Law. Presentation to Study Tour for University of West Indies - Virtual Institute Network 13 May 2009. Main topics. Why do we have competition law & policy? What is “abuse of dominance”? A Case Study. Historical Origins. Two origins Conspiracy law

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Competition Policy and Law

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  1. Competition Policy and Law Presentation to Study Tour for University of West Indies - Virtual Institute Network13 May 2009

  2. Main topics • Why do we have competition law & policy? • What is “abuse of dominance”? • A Case Study

  3. Historical Origins • Two origins • Conspiracy law • Economics/business law • Adam Smith (1723-1790)

  4. Questions • How do conspiracies raise prices? What can buyers do about them? Governments/law? • What about non-compete clauses when selling a business? • What about exclusive territories for bakeries/pharmacies?

  5. Since Adam…. • Ordoliberals in Europe • Reform movements in US • Sherman Act 1890 • Interwar, Depression, post-War • 1970s • 1980s - now

  6. Competition and… • International trade • Intellectual property rights (IPRs) • Regulation (of partly regulated utilities) • Ports • Public procurement • Concessions

  7. Today • Competition Law • Cartels • Mergers • Dominance abuse • Vertical agreements • Competition Policy • Advocacy

  8. Economics (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)

  9. Price Supply Demand Quantity Diagram 4: Supply & Demand with Market Power

  10. Brand owner ("manufacturer") Price Territory Customer Other brands Retailer Retailer Retailer Diagram 5: Vertical restraints (hidden action, hidden knowledge)

  11. Main topics • Why do we have competition law & policy? • What is “abuse of dominance”? • A Case Study

  12. Abuse of dominance • Is the firm dominant? • Is the conduct an abuse? • Is there a remedy?

  13. Three standards • Russian Federation Art. 5 & Art. 10 • European Union Art. 82 • US Sherman Act §2 • Of course, there are other standards

  14. 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."

  15. 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.

  16. Unlikely dominant Dominant 0% 30% 50–70% 100% EU • Market shares:

  17. 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.

  18. 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…”

  19. 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.

  20. 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

  21. 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 anti-competitive effect. 3. Even if both conditions are met, then the monopolist still retains a defense of business justification.

  22. Main topics • What do Competition Authorities do? • What is “abuse of dominance”? • A Case Study - United States v Dentsply International, Inc.

  23. Manufacturers Dealers Dental Laboratories Dentists

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