Substantial Market Power & Countervailing Buyer Power

1. Substantial MarketPower& CountervailingBuyerPower México, D.F. June 2009 Álvaro R. Sánchez González This is a personal opinion, does not necessarily reflect VAyBA’s position.

2. Content 1. Substantial Market Power (SMP). • Article 13, section I, of the Federal Law of Economic Competition (FLEC) . 2. Countervailing Buyer Power (CBP) . 3. CBP in other jurisdictions. 4. FLEC. Some procedures. • Relative Monopolistic Practices (RMP). • Declarations (DC). • Concentrations (CNT). 5. Final Comments. 6. References.

3. 1. Substantialmarketpower • Article 13. The following shall be considered to determine whether an economic agent possesses substantial power in the relevant market: I. The agent's share of said market and his capability unilaterally to establish prices or restrict supply therein without competitive agents being actually or potentially capable of counteracting said power. • And thebuyer?

4. 2. Countervailingbuyerpower(cbp) • CBP: a seller cannot acquire or freely exert its market power given the restrictions that its buyers can establish.

5. 3. CBP in other jurisdictions • EU. Article 14.- An undertaking shall be deemed to have significant market power if, either individually or jointly with others, it enjoys a position equivalent to dominance, that is to say a position of economic strength affording it the power to behave to an appreciable extent independently of competitors, customers and ultimately consumers. Directive 2002/21/CE of the European Parliament and of the Council on 7 March2002 on a common regulatory framework for electronic communications networks and services. • EU. • Market power: By ‘increased market power’ is meant the ability of one or more firms to profitably increase prices, reduce output, choice or quality of goods and services, diminish innovation, or otherwise influence parameters of competition. • PCC: Countervailing buyer power in this context should be understood as the bargaining strength that the buyer has vis-à-vis the seller in commercial negotiations due to its size, its commercial significance to the seller and its ability to switch to alternative suppliers. Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings (2004).

6. Canada • Market power: Market power of sellers means the ability of a single firm or group of firms to profitably maintain prices above the competitive level for a significant period of time. • PCC: In determining whether a merger is likely to result in a material price increase, the Bureau assesses whether one or more buyers have a countervailing ability to constrain an exercise of market power.When credible options are available to buyers, buyer concentration can prevent a price increase and make it difficult for sellers to exercise market power. Competition Bureau. Merger Enforcement Guidelines (2004). • Australia. • Market power: The most obvious and direct manifestation of an increase in market power is the ability of one or more firms to profitably raise prices post-merger for a sustained period. • PCC: Countervailing power, however, exists when the specific characteristics of a buyer—such as its size, its commercial significance to suppliers or the manner in which it purchases from suppliers—provide the buyer with additional negotiating leverage. In some cases, a buyer may have countervailing power because they have market power Australian Competition and Consumer Comission. Merger Guidelines (2008).

7. 4.FLEC. Some procedures • RMP: • Article 10.- If existence of any of the circumstances provided for in articles 11, 12 and 13, hereof is evidenced, the acts, contracts, agreements, procedures or combinations the purpose or effect of which is or may be to unduly displace other agents from, or substantially preclude their access to, the market, or to create exclusive advantages in favor of one or several persons are considered to be relative monopolistic practices in the following cases: (…)

8. 4. Cont. • DC: • Article 33 bis.- When legal or regulatory provisions expressly provide that a resolution must be issued on matters regarding effective competition, the existence of substantial power in the relevant market or other analogous matters, the Commission shall issue the relevant resolution on its own initiative, at the request of the respective authority, or upon request of the affected party. In the case of article 7 hereof, the Commission may only issue a resolution at the request of the President. In all cases the following procedure must be observed: • In the case of a request submitted by a party or by the relevant authority, the petitioner must submit the information that allows for the determination of the relevant market and substantial power under the terms of articles 12 and 13 hereof, and also provide the grounds for the need for a resolution to be issued. The Regulations hereof shall establish the requirements to be met in submitting requests;

9. 4. Cont. • CNT: • Article 17.- In the Commission's investigation of concentrations, it shall consider as an indication that an act of the nature described above has taken place, that any such act or attempt: • I. Confers or may confer to the merging or acquiring party or to the economic agent resulting from such concentration the power unilaterally to fix prices or substantially to restrict the supply or provision of the relevant market without competing agents being actually or potentially capable of counteracting such power; • II.-Has or may have as purpose the undue displacement of other economic agents or the preclusion of their access to the relevant market; and • III.- Has the purpose or effect of facilitating substantially the engagement, by the participants in said act or attempt, in the monopolistic practices referred to in Chapter Second hereof.

10. 4. CONT. • Article 18.- In order to determine whether a concentration may be disputed or sanctioned hereunder, the Commission must give consideration to the following: (…) • II.- Identification of the economic agents that supply the market concerned, analysis of their power in said relevant market in terms of article 13 hereof, and the degree of concentration therein; • III.- The effects of the concentration in the relevant market with respect to all other competitors and those demanding the goods or services, as well as in other relating markets and economic agents;

11. 5.Final Comments • Is it reasonable to apply the CBP concept in the SMP’s economic analysis? (Art. 13, FLEC) Yes • Within the framework of the FLEC, is it viable to apply the CBP concept in the SMP’s economic analysis? (Art.13) Yes • Suggestion: ? i) Issue a guide for the analysis; or ii) Issue a Plenary Criterion; or iii) Modify the Code of Regulations of the FLEC; or iv) Modify the FLEC; or v) Apply on case by case basis.

12. 6. References • Concentrations Precedents . CFC:* • CNT-19-98. Guinness / Grand Metropolitan • CNT-85-99. Romo Hermanas / Tequila Herradura / Comercializadora Herradura / Destilados de Agave / Corporación de Servicios Herradura • CNT-97-2003. Controladora Comercial Mexicana / Gigantes / Tiendas Soriana / Sinergia de Autoservicios • CNT-41-2005. Johnson Control / Delphi Corporation / Empresas Ca-Le de Tlaxcala • CNT-83-2005. Thomson Displays Mexicana / Eagle Corporation / Thomson / Videocon International • CNT-75-2007. Grupo Kuo / Grupo Herdez *Information available in the Federal Competition Commission’s web sit.e • European Cases: • Hutchinson 3G (H3G) vs. Ofcom (2005) • Mobilkom, T Mobile, One y H3G vs. Telecommunications Control Commission (Austria) (2007) • National Telecommunications and Post Commission of Greece vs. On Telecoms S.A (2008)

13. Bibliography: • DIRECTIVE 2002/21/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 7 March 2002 on a common regulatory framework for electronic communications networks and services (Framework Directive). Information Available on: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2002:108:0033:0050:EN:PDF • Synder, Christopher M (2005) ‘Contribution to the New Palgrave Dictionary’. Information Available on:http://www.dartmouth.edu/~csnyder/countervail01.pdf • Binmore, Ken and Harbord, David. (2005) ‘Bargaining over fixed-to-mobile termination rates in the shadow of the regulator’, College of Europe. The global competition law centre working paper series. Information Available on:http://www.coleurop.be/content/gclc/documents/GCLC%20WP%2005-05.pdf • College of Europe. (2006) “Call Terminator 3: the ongoing debate in mobile telephony”, Oxera. Information Available on:http://www.coleurop.be/content/gclc/documents/GCLC%20WP%2005-05.pdf • Cave, Martin; Stumpf, Ulrich and Valletti, Tommaso (2006) ‘A Review of certain markets included in the Commission's Recommendation on Relevant Markets subject to ex ante Regulation’, An independent report Information Available on: http://ec.europa.eu/information_society/policy/ecomm/doc/info_centre/studies_ext_consult/review_experts/review_regulation.pdf • De la Mano, Miguel (2007) ‘The concept of dominance: new wine in old bottles’, FTC/DOJ Hearings on single-firm conduct. Information Available on: http://ftc.gov/os/sectiontwohearings/docs/0703DelaMano.pdf • Organisation for Economic Co-operation and Development (2007) ‘Glossary of Statistical Terms’, OCDE. Definición dentro del contexto de monopolio bilateral. Information Available on: http://stats.oecd.org/glossary/download.asp • Organisation for Economic Co-operation and Development (2007) ‘Glossary of Statistical Terms’. Definición dentro del contexto de concentración de los compradores. Information Available on: http://stats.oecd.org/glossary/download.asp • ICN Special Program for Kyoto Annual Conference. (2008) Report on Abuse of Superior Bargaining Position. Prepared by Task Force for Abuse of Superior Bargaining Position. Information Available on: http://www.internationalcompetitionnetwork.org/media/library/unilateral_conduct/ASBP_1.pdf

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