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The Modernization of Article 82 : an Economic Perspective

ASOCIACIÓN ESPAÑOLA PARA LA DEFENSA DE LA COMPETENCIA Madrid 16 February 2006. The Modernization of Article 82 : an Economic Perspective. Dr Valérie RABASSA* Chief Economist Office DG COMPETITION EUROPEAN COMMISSION

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The Modernization of Article 82 : an Economic Perspective

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  1. ASOCIACIÓN ESPAÑOLA PARA LA DEFENSA DE LA COMPETENCIAMadrid 16 February 2006 The Modernization of Article 82 : an Economic Perspective Dr Valérie RABASSA* Chief Economist Office DG COMPETITION EUROPEAN COMMISSION *The views expressed are those of the author and do not necessarily reflect those of DG COMP or the European Commission

  2. Outline • Article 82 : current review and • Discussion paper : general framework • Predation, loyalty rebates and bundling/tying under the draft Article 82 guidance paper • An example

  3. Article 82 : current review • Case law under Article 82 may be fragmented • Lack of general and systematic approach • Guidelines could address this shortage by providing a framework for analysis • Time schedule • DG Competition invites all interested parties to make comments on the discussion paper • public consultation starting 19 December 2005, ending 31 March 2006 • expected final guidance paper: End 2006 • Internal working group, ECN, EAGCP

  4. Discussion paper : general framework • Emphasis on effect-based analysis (rather than form-based) • Approach to market definition / dominance • Exclusionary practices  predation  single branding and rebates  tying & bundling  refusal to deal  after markets • Efficiencies

  5. General framework for the analysis of market definition and dominance • Market definition : SSNIP test • “Cellophane fallacy” • Dominance as significant market power

  6. General framework for analysis of exclusionary practices (1) Effect-based analysis • By exclusionary abuses are meant behaviours by dominant firms which are likely to have a foreclosure effect on the market, i.e. which are likely to completely or partially deny profitable expansion in or access to a market to actual or potential competitors and which ultimately harm consumers

  7. General framework for analysis of exclusionary practices (2) • An over-arching test • Case by case check of consumer harm • the “as-efficient competitor” test or price-costs test

  8. Predatory pricing analysis under the discussion paper • AKZO rule still basic framework • Below AVC/AAC rebuttable presumption of abuse • Between AVC and ATC need to prove strategy of foreclosure (“intent”) • No separate requirement to prove recoupment beyond dominance • except perhaps in specific cases (e.g. collective dominance)

  9. Loyalty rebates analysis under the discussion paper • Retroactive • loyalty enhancing effect : increase with the target and the rebate percentage • suction effect close to the threshold : the higher the threshold and the rebate percentage • Benchmark • abusive likely if discounted price < ATC • no profit sacrifice test • Market distorting foreclose effect likely high if : • substantial coverage (tied market share) or selectivity (if affected buyers are particular important for rivals) • uncertainty (to minimise the risk of not obtaining the rebate) • Efficiencies objective justification

  10. Bundling/tying analysis under the discussion paper • Dominance • Market distorting foreclose effect Step I Among others, analysis of the : • number of customers that buy both products • economies of scale, network externalities, learning effects in the tied market • product differentiation • rivals replication of the bundle Step II • does incremental revenue cover long run incremental costs of including each product in the bundle ? • Efficiencies objective justification

  11. An example(1) : a pure bundling analysis • Market A and Market B : A = computer B = monitor • Market A is monopolized by firm 1 • Market B is potentially served by firm 1 and Firm 2; Firm 1 Firm 2 A B1 B2

  12. An example(2) Pure bundling • Dominance in the tying market ? • Two step analysis • does tying have an exclusionary effect in the tied market ? • effect of foreclosure on the final consumer – price-cost test ? • Efficiencies objective justification ?

  13. An example(3) Pure bundling • Dominance in the tying market √ • Does tying have an exclusionary effect in the tied market ? Among others, analysis of : • demand-link between the tying good and the tied good √ • if independence in consumption between the tying and the tied good  necessary pre-commitment • similar consumer tastes regarding the tying good √ • high entry barriers √, scale economies √, network effects in the tied market • low level of product differentiation in the tied market √ • no credible counter-strategies of the rival firms √ • lack of buyer power √

  14. An example(4) • Reservation value for good A : θA = 5 • Unit costs for good A : CA = 2 • B1 is produced by firm 1 at price PB1 = 4 • B2 is produced by firm 2 at price PB2 = 3

  15. An exemple(5) Bundling test • Consumer harms ? • p A + p B1 > p A+B1 5 4 6 = (p A + p B1 - (θA – CA )) • test under a bundling assessment • incremental price < long run incremental costs 1 = (6 – 5) 4 • Efficiencies : no • Consumer harms more likely

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