We ttb e we rb skom m issio n
C om m ission d e la c o nc urre nc e
C om m issione d e lla c onc orre nza
Vertical restraints, abuse of dominance and
mega mergers in sectors of relevance to
developing countries
Patrick Krauskopf
Swiss Competition Authority
80A
Effingerstrasse 27, 3003 Bern
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We ttb e we rb skom m issio n
C om m ission d e la c o nc urre nc e
C om m issione d e lla c onc orre nza
Vertical restrictions
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Definition
The three main kinds of restrictions
Why are restrictions used instead of vertical integration
Economic analysis
Desirable or undesirable effects of vertical restrictions
Consumer: price discrimination
Doctrines/Theories and legal framework, some examples
USA
Europe
Switzerland
Vertical restrictions in developing countries
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Vertical restrictions
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Definition
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The three main kinds of restrictions
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2.
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Resale price maintenance
Exclusive dealing
Exclusive territory or territorial market restrictions
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1.
2.
3.
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Why are restrictions used instead of vertical integration?
Vertical restrictions can be useful in solving problems of distribution:
Double monopoly markup
Some distributors may free ride (on other distributors)
Some manufacturers may free ride (on other manufacturers)
Each of these problems may be resolved with vertical restrictions
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Desirable or Undesirable effects of vertical restrictions
1. Vertical restraints are no longer regarded as per se suspicious or per
se pro-competitive
2. Analysis should concentrate on the impact on the market rather than
the form of the agreement
3. Vertical restrictions can be used for other anticompetitive purposes
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Consumer: price discrimination
1. Partitioning effect
2. Parallel trade
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Doctrines/Theories and legal framework
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USA
1. Section 1 of the Sherman Act
2. GTE Sylvania
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Europe
1. Article 81 Treaty of Amsterdam
2. block exemption
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Switzerland
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Vertical restrictions in developing countries
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Dominance
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Definition
Methodology: Proving cases concerning the abuse of
market dominance
A. Market definition: two basic dimensions
1. Product
2. Geography
B. Market share
C. Market structure
Types of abuse of dominance
Doctrines/Theories and legal framework
USA
Europe
Dominance in developing countries
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Dominance
Definition
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In this concept there are two elements
1. A dominant position
2. Market power
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In general competition laws or regulations prohibit
1. To obtain dominance by means other than superior ability to
serve consumer needs, and/or
2. To abuse of a dominant position
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Methodology: Proving cases concerning the abuse of market dominance
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Market definition: two basic dimensions
1. Product
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I. Substitutability
a. Demand side
b. Supply side
II. Barriers to entry
a. Sunk cost
b. Government erect statutory or regulated barriers
c. Strategic behaviour – to discourage entry
2. Geography
Market share
Market structure
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Types of abuse of dominance
1) Requiring Firms to Deal Exclusively with a Dominant Firm
2) Tying
3) Predation
4) Price discrimination and intellectual property rights
5) Refusal to deal
6) Price levels
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Doctrines/Theories and legal framework
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Europe
Article 82 Treaty of Amsterdam
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USA
Section 2 Sherman Act
Interpretation: Chicago School
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Dominance in developing countries
Economic efficiency or promoting small business
to let a company expand and strengthen its position on the national
market?
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Merger
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Definition
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Why institute a merger control?
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Merger in developing countries: Merger and FDI
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Merger
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Definition
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Why institute a merger control?
1. With smaller markets merger control is unnecessary
2. Having a “national champion” even abusing a monopoly position
domestically might allow it to be competitive abroad in third
markets.
Two objections can be made to these views:
1. it is often the case that monopolies enjoy their “monopoly rent”
without becoming more competitive abroad, at the expense of
domestic consumers and eventually of the development of the
economy as a whole.
2. if the local market is open to competition from imports or FDI, the
world market might be relevant for the merger-control test, and the
single domestic supplier might anyway be authorized to merge.
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Merger in developing countries: Merger and FDI
WIR 2000 suggests that:
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the financial resources provided through M&As do not always add
to the capital stock.
FDI through M&As is less likely to transfer new or better
technologies or skills than Greenfield FDI, at least at the time of
entry.
FDI through M&As does not generate employment
FDI through M&As can increase concentration and lead to anticompetitive results.
Two last comments:
The most important policy concern is competition policy.
The report WIR 2000 concludes: "Competition policy can no
longer be pursued effectively through national action alone”. Seite
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