Case study regulation on exclusive dealing in japan
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OECD-Korea Regional Centre for Competition Regional Antitrust Workshop on Abuse of Dominance. Case Study Regulation on Exclusive Dealing in Japan. Tsuyoshi OKUMURA Japan Fair Trade Commission. 11 October, 2006. Table of contents. 1. Backgrounds of the case against Intel KK (IJKK)

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Case Study Regulation on Exclusive Dealing in Japan

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Case study regulation on exclusive dealing in japan

OECD-Korea Regional Centre for Competition

Regional Antitrust Workshop on Abuse of Dominance

Case StudyRegulation on Exclusive Dealing in Japan

Tsuyoshi OKUMURA

Japan Fair Trade Commission

11 October, 2006


Table of contents

Table of contents

1. Backgrounds of the case against Intel KK (IJKK)

(1) Products concerned

(2) Related Entrepreneurs

(3) Situation of the CPU market in Japan

2. IJKK’s conducts and results

3. Application of the law

4. Elimination measures


1 products

CPUs concerned =“X86 series of CPU”

(one of CPUs using especially for Personal computer (PC))

Manufacturers of “X86 series of CPU” for PC manufacturers (OEMs) in the world

Intel Corporation

Advanced Micro Devices,Inc. (AMD)

Transmeta Corporation (Transmeta)

(1) Products


2 entrepreneurs

(2) Entrepreneurs

Intel Kabushiki Kaisha (IJKK)

  • Japanese corporation selling CPUs

    made by Intel Corporation

    (fully owned subsidiary

    of the Intel Corporation)


Competitors of ijkk

Competitors of IJKK

AMD Japan

  • Japanese corporation. It sells CPUs made by

    the Advanced Micro Devices,Inc.

    (fully owned subsidiary of the Advanced Micro Devices,Inc.)

    Transmeta

  • American corporation. It sells CPUs directly to Japanese OEMs, after it receives orders from Transmeta Kabushiki Kaisha(Japanese corporation,fully owned subsidiary of Transmeta).


Distribution channel of cpus

I J K K

Japanese OEMs

Distributors,

Outlet store etc

AMD Japan

Transmeta

Distribution channel of CPUs


3 situation of the cpu market

(3) Situation of the CPU market

Market share of IJKK and its competitors in 2002

IJKK approx.76%

IJKK’s competitorsapprox.24%

(sales volume in 2002)

IJKK’s competitors

 ・AMD Japan and Transmeta


Strength of ijkk in the cpu market

Strength of IJKK in the CPU market

Supplier side

  • Large selection of CPUs

  • Stable supply of CPUs to OEMs

    Product side

  • Popularity of “Intel” over consumers


Intel inside program

Intel inside program


Background

Background

  • PC manufactures needed to buy CPUs at advantageous term due to fierce competition in the PC market.

  • Japan AMD began to sell CPUs that were equal to Intel’s CPUs on the performance side, but prices were cheaper than Intel’s CPUs.

    Japanese OEMs had shifted gradually from Intel’s CPU to AMD’s CPU.


Background1

Background

  • AMD CPU’s share in Japan

  • IJKK was concerned continuous increase of AMD CPU share


2 ijkk s conducts and results

2. IJKK’s conducts and results

Conducts of IJKK

  • To get back the lost share:

      → Improve MSS (Market Segment Share) * for

    each Japanese OEMs

    * “MSS” is the ratio of the CPU manufactured and sold by Intel’s CPUs’ in the volume of CPUs to be incorporated into the PCs which manufactured and sold by a Japanese OEM.


Case study regulation on exclusive dealing in japan

Tools to accomplish maximizing MSS

  • Rebate

    Paid corresponding to purchase amount of CPUs from IJKK

  • MDF (Market Development Fund)

    Fund for promoting sales of Intel’s CPU


Exclusive dealing

Exclusive dealing

  • IJKK started to engage in exclusive dealings to 5 major OEMs ※ in around May 2002.

    ※ The total sales volume of IJKK, AMD Japan, and Transmeta to the 5 Japanese OEMs was approx 77% of the total domestic CPU sales volume


Exclusive dealing1

Exclusive dealing

  • By making commitments to provide the 5 OEMs with rebates and/or MDF, respectively, on condition that:

    (a) the Japanese OEMs make MSS at 100% and refrain from adopting competitors’ CPUs.

    (b) The Japanese OEMs make MSS at 90%, and put the ratio of competitors’ CPUs in the volume of CPUs to be incorporated into the PCs manufactured and sold by them down to 10%.

    (c) The Japanese OEMs refrain from adopting competitors’ CPUs to be incorporated into PCs in more than one groups of PCs with comparatively large amount of production volume to others


Exclusive dealing2

Exclusive dealing

  • Example

Commitment

Condition

Result

MSS = 100%

Competitors

Rebate and/or MDF

MSS = XY %

(100 - XY) %

Excluded


Market effect of ijkk s exclusive conducts

Market Effect of IJKK’s Exclusive Conducts

Share of IJKK’s competitors

(Sales volume)

Dropped by 13% in a year


3 application of the law in the decision

3. Application of the law in the decision

Section 3 of the Antimonopoly Act

“No entrepreneur shall effect private monopolization or unreasonable restraint of trade.”

The definition of “private monopolization” in the Antimonopoly Act

The term "private monopolization" as used in this Act shall mean such business activities, by which any entrepreneur, individually or by combination or conspiracy with other entrepreneurs, or by in any other manner, excludes or controls the business activities of other entrepreneurs, thereby causing, contrary to the public interest, a substantial restraint of competition in any particular field of trade.

(para 5, Section 2).


Substantial restraint of competition

“Substantial restraint of competition”

  • A situation in which competition itself has significantly lessened and thereby a specific firm or firms can control the market by determining freely, to some extent, prices, qualities, volumes, and various other terms on its or their own volition

    (December 9, 1953, Tokyo High Court)


Could ijkk control the market

Could IJKK control the market?

  • IJKK had Approx. 76% share in 2002

  • OEMs could not continue to produce their all groups of PCs without using Intel’s CPUs.

  • IJKK, by itself, could decide CPU’s price level, amount of rebate, and fund.

  • In 2002, before IJKK started to engage in exclusive dealings, IJKK was already in a dominant position in the CPU market in Japan.


Violation

Violation?

  • Just being in a dominant position should not be regulated by a law.

  • However, when a dominant company engages in exclusive dealing, the conduct should be regulated.

  • IJKK, which was in a dominant position, conducted exclusive dealings in the CPU market in Japan, and share of its competitors were decreased.

  • As a result, IJKK’s position in the market was empowered and made itself control prices etc. much easier than before.


4 elimination measures

4. Elimination measures

Contents of the elimination measure

  • To cease and desist the exclusive conducts

  • To notify its termination of its violation to all OEMs, which have traded CPUs with IJKK.

  • To introduce a regular auditing system

  • To file a report to the JFTC on actual measures taken by IJKK


Thank you for your kind attention

Thank you for your kind attention!


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