JKU Dissertation Colloquium Economics [3DVWLKS; 239.005]
Linz, 23th January 2012
Markus LINDNER
COLLECTIVE DOMINANCE BASED ON MARKET
SHARING UNDER ARTICLE 102 FEU TREATY
THE GAP IN LAW ENFORCEMENT
ABSTRACT

The Gap in Industrial Economics


Classes of Vertical Restriction:


Industrial Economics has not yet provided a comprehensive
identification strategy for distinguishing general classes of models of
collective dominance from models of competition.
The paper will provide classes of vertical restrictions to identify collective
dominance via “Interdependence by Market Sharing (IbMS)” from
competition.
The Gap in Law Enforcement:

The paper will additionally provide the answer to the question if an law
enforcement gap in applying Article 102 FEU Treaty regarding the
determination of collective dominance does exists.
CHAPTER A

CHAPTER A: The Prevailing Literature on Collective Dominance: Is this the
whole story
 “Interdependence by Market Sharing (IbMS)”: IbMS constitutes a
collective dominance option that has its coordinated equilibrium based
on market sharing. E.g. the firms accept the customers of its
competitors thereby avoiding fierce competition.
 “Interdependence by Price Level (IbPL)”: IbPL constitutes a collective
dominance option that has its coordinated equilibrium based on price
level. The basic idea of IbPL is that the firms are aware that any attempt
to gain market shares by undercutting the prevailing price level would
end up by lower price level for all market participants without any
change of market shares thereby accepting the prevailing price level.
 The Gap in Law Enforcement: Misleading legal reasoning has neglected
IbMS as a collective dominance option under Article 102 FEU Treaty
CHAPTER B

CHAPTER B: The Theory of Interdependence by Market Sharing [IbMS]



Consensus: The first segment refers to find the consensus for the
coordinated equilibrium of customer division. This approach is based on
a model to determine critical switching costs under the vertical
restriction category EPA tied to conglomerate product to balance price
discrimination between customer groups with switching costs for each
period of time that are influenced by the firms.
Internal Stability (Collective Entity): The second segment refers to
collective entity that covers the internal stability of the coordinated
equilibrium to divide customers.
External Stability (Dominance of Collective Entity - Foreclosure): The
third segment refers to foreclosure effect of the collective entity that
covers the external stability of the coordinated equilibrium vis-à-vis
outside competition.
CHAPTER C

CHAPTER C: An Empirical Evidence of IbMS


Relevant Market: The first part will demonstrate that market delineation
by SSNIP-INDIRECT (indirect determination of profitable SSNIP based on
demand estimation) is not applicable to determine relevant markets
under price discrimination.
IbMS-EPA: The second part represents the empirical validation of IbMS
and follows the same organizational structure introduced in chapter B.
The coordinated equilibrium to divide customers is based on the class of
vertical restriction by tying Exclusive Purchasing Agreement (EPA) with a
conglomerate product thereby enforcing switching costs and price
discrimination between tied and free customer group and giving insights
on consumer harm (price discrimination and excessive pricing) by
applying this kind of tying contracts beyond the determination of
collective dominance.
CHAPTER C

CONSENSUS: EPA tied to conglomerate product (customer division)

Influenced Variables:


Price of tied customer group (Price Discrimination)
Switching Costs (ccs)
Tied Tank
t0
trtlt
tN
Switch
New Tank
t0
ctied customer group(t) > cfree customer group(t)
csccritical=qt tpdexp (ptied – pfree) – cnt (trtlt/ttltnt + (1+i)^trtlt – 1)
tN
CHAPTER C

CONSENSUS:
Critical Switching Costs
3,000
2,000
1,000
0
-1,000
-2,000
-3,000
-4,000
-5,000
-6,000
-7,000
0
1
2
3
4
5
6
7
8
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40
Undertaking 1
Undertaking 2
Undertaking 3
Undertaking 4
Undertaking 5
Csc
CHAPTER C

INTERNAL STABILITY: Collective Entity

Monitoring Deviation from Customer Division:



Monitoring tying contract termination
Monitoring breach of tying contract by supply through undertakings
Deterrence/Punishment:



Apply Arbitral Tribunal of trade association
Termination of cooperation contracts
Punishment in multimarket contact
CHAPTER C

EXTERNAL STABILITY: Foreclosure

Monitoring Deviation from Customer Division:



Monitoring tying contract termination
Monitoring breach of tying contract by supply through competitors
Deterrence/Punishment:


Apply Act against Unfair Practices
Punishment in multimarket contact
CHAPTER D

CHAPTER D: The Gap in Law Enforcement: Are IbMS Cases rare?



Industry 1: The first industry is based on the category EPA tied to a
conglomerate product, similar to the case in chapter C.
Industry 2: The second industry is also based on the category EPA tied
to a conglomerate product. The difference to the previous two cases is
the interaction between the two collective dominance options IbMS-EPA
and IbPL.
Industry 3: The third industry is based on the category EPA – Radius
Clause.
CHAPTER E

CHAPTER E: Competition Policy Recommendation


IbPL vs IbMS: Chapter E will provide the recommendation to distinguish
between the two collective dominance options IbPL and IbMS under
Article 102 FEU Treaty.
Abolishment of Collective Dominance: Chapter E will provide the
recommendation to prohibit the categories (i) EPA tied to conglomerate
product and (ii) EPA – radius clause that have per se negative effects on
effective competition.
OUTLINE
CHAPTER A:
The Prevailing Literature on Collective Dominance: Is this the whole story?
CHAPTER B:
The Theory of Interdependence by Market Sharing [IbMS]
CHAPTER C:
An Empirical Evidence of IbMS
CHAPTER D:
The Gap in Law Enforcement: Are IbMS Cases rare?
CHAPTER E:
Competition Policy Recommendation
END OF PRESENTATION III