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PANEL II. Criteria Used to Assess The Durability of Market Power. Durability of Dominance and Identifying Entry Barriers and Competitive Effects in Practice. Presented through a not-so-scenic tour of Jersey, Channel Islands.

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panel ii

Criteria Used to Assess The Durability of Market Power

durability of dominance and identifying entry barriers and competitive effects in practice

Durability of Dominance and Identifying Entry Barriers and Competitive Effects in Practice

Presented through a not-so-scenic tour of Jersey, Channel Islands

ICN Unilateral Conduct Workshop, Panel II, Washington DCMarch 23, 2009


-Assume the presence of a dominant firm making monopoly profits

Classic Economic Theory: Entry restores effective competition

Key Question:Will it happen in practice?


The Costs of Entry (I)


Access to Labor/Expertise


  • Capital Investments
  • Sunk Costs?

Access to Capital

the costs of entry ii
The Costs of Entry (II)
  • Potential bottlenecks
  • Supply Chain
  • Access to Markets




Legal Considerations

Potentially, Sector Regulation

National Laws



  • Network Effects?
  • Legacy of State ownership?
  • Vertical Integration?
  • Reputation of incumbents?


  • Barriers to Switching?
  • Search Costs?
  • Preferences?

Ultimately: Will New Competition Restore a Competitive Market?


For the Potential New Entrant:

Is there a profitable business case?

For the Competition Law Enforcement Agency:

Entry timely, likely, sufficient?

Other market factors relevant?

Is dominance entrenched?

panel ii speakers
Panel II Speakers
  • Dr. Simon Roberts
    • Chief Economist and Manager, Policy and Research Division, Competition Commission South Africa
  • Jacques Steenbergen
    • Director General, Belgian Competition Authority
  • Ronald A. Stern
    • Vice President & Senior Competition Counsel, General Electric Company
  • Charles Webb
    • Executive Director, Jersey Competition Regulatory Authority
durability of dominance jacques steenbergen director general

Durability of dominanceJacques Steenbergendirector general

ICN Unilateral conduct workshop – Panel II

Washington DC, March 23, 2009

Belgian Competition Authority Directorate General

durability of dominance an ambiguous issue
Durability of dominance: an ambiguous issue
  • Durability is a specific concern in case it increases the risk of abuse:
    • Exclusionary practices
    • Exploitative abuses
    • Discrimination
  • Durability is also a specific concern when it is the result and/or evidence of abusive practices that aimed at the strengthening of a dominant position
  • Durability of dominance makes abuses more serious and exclusionary abuses are in turn likely to enhance durability: it is an element of assessment/evidence

Belgian Competition Authority Directorate General

durability of dominance an ambiguous issue 2
Durability of dominance: an ambiguous issue (2)

But durability is as such not a constitutive element of an infringement of the rules of competition, just as dominance does as such not constitute an infringement

Because of an ambiguous attitude to dominance, we inevitably also have an ambiguous attitude to its durability

And we can not exclude that durability mainly points to consistent competitive success

It must be assessed in the context of the assessment of dominance and abuse

Belgian Competition Authority Directorate General

assessment of durability
Assessment of durability
  • Assessment of dominance: see best practices
  • Assessment of durability: mainly assessment of barriers to entry (see presentation of Chuck Webb)
  • Assessment of the causes of durability: only relevant to the extent that:
    • Durability is a specific concern
    • The causes need to be addressed as such regardless of the specificities of the unilateral conduct case: evaluation of the regulatory environment and state action

Belgian Competition Authority Directorate General

durability of dominance and liberalization the case of incumbents
Durability of dominance and liberalization: the case of incumbents
  • The (former) monopolists can only lose market share: are they (still) dominant?
  • Sunk costs and written-of investments
  • The technology timeline
  • Price squeezes: caught between consumer welfare and competitor protection?
  • The unilateral conduct equivalent of sticky pricing?

(See further the presentation of Simon Roberts)

Belgian Competition Authority Directorate General

icn unilateral conduct workshop

ICN Unilateral Conduct Workshop

“Assessing Whether A Firm is Dominant – The Role of Other Market Criteria”

Ronald A. Stern

Vice President & Senior Competition Counsel

General Electric Company

March 23, 2009

icn workshop other market criteria
ICN Workshop Other Market Criteria

Engines for Large Regional Jets (70-90+ Passengers)

“Prior to the transaction, GE was already

dominant in this market.”

icn workshop other market criteria1
ICN Workshop Other Market Criteria
  • How Does the Relevant Market Operate?
  • Powerful Buyer – Aircraft manufacturer
  • Winner-take-all Bidding – 1 engine selected
  • Pricing “Locked-In” by contract for the life of the aircraft program

Key Issue – Were there credible bidders when

the engine supplier was selected?

icn workshop other market criteria3
ICN Workshop Other Market Criteria
  • Existence of Credible Bidders
  • Multiple engine firms competed for large regional jet opportunities – GE or CFM; RR; SPW or PW
  • RR and PW each had a track record of success in commercial aircraft engines generally and in adjacent markets (small regional jets; 100-120 seat large commercial aircraft)
  • SPW JV won one of the large regional jet engine competitions

Dominance/substantial market power

unlikely despite extremely large market share

icn workshop other market criteria4
ICN Workshop Other Market Criteria
  • What Has Happened Since 2001?
  • PW continued to invest in innovative geared fan technology
  • Snecma continued to pursue regional jet engine opportunities separate from PW
  • Three new large regional jet programs launched:
    • China Regional Jet (ARJ121) – GE engine
    • Russian Regional Jet (SSJ100) – Snecma/Saturn JV engine
    • Mitsubishi Regional Jet (MRJ) – PW geared fan engine
icn workshop other market criteria5
ICN Workshop Other Market Criteria
  • Growing Market Share Approaching 100% May
  • Not Equal Dominance/Substantial Market Power
  • Examine how the relevant market works
  • Assess “other factors” such as (1) powerful buyers, (2) bidding/winner-take-all contracts, (3) rivals’ success in adjacent markets, and (4) ongoing innovation by rivals
  • Focus on whether there is evidence of a high decree of sustained pricing power – the RP’s definition of Dominance/Substantial Market Power
dominance durability and state created monopolies

Dominance, durability and ‘state-created monopolies’

ICN Unilateral Conduct Workshop

Simon Roberts



Durability of dominance is important in dominance assessment, and we are concerned with whether a firm’s dominant position is entrenched, and why

Dangers of over-enforcement and chilling effects? - matters greatly how dominance was established

A firm’s dominant position may be entrenched because of previous/ongoing state support, even though firm’s inefficiency and/or exercise of market power may mean there are some fringe competitors

Dominant firm may have the power, incentive to engage in anti-competitive conduct to undermine effective competitive rivalry

In many countries this is a big issue for competition authorities, compounded by relatively small markets, scale and scope effects, access to upstream markets/vertical integration etc.


what should we be considering in state created monopoly
What should we be considering in ‘state-created monopoly’?


But state support is much wider:

Subsidies, finance

Rights to infrastructure, inputs etc

Past regulatory provisions, licencing (such as marketing boards and legal cartels, where there may have been regional allocations)

Not-regulated today (i.e. not talking here of regulated natural monopolies)


Where the advantage bestowed is not transitory

Relates to other considerations such as entry barriers, economies of scale/scope etc


illustrative examples
Illustrative Examples

1. Grain Silos

Owned by former cooperatives which had received high levels of state support and subsidies, now private companies, providing wide-range of services and also engaged in trading of grain

Large investments required to build silos (although alternatives being used: silo bags)

High local transport costs for grain

Silo firms had set conditions linking farmers’ storage of grain to their own trading operations

2. Airlines (domestic flights)

National carrier still state-owned with government capital injections, after failed privatisation, facing rivalry in local market in ‘full service’ and ‘low cost’ airlines

Inducements to travel agents relating to sales/quotes of its flights over rivals

Dominance? - Low cost and ‘full service’; time sensitive travel (corporate market)?


examples cont
Examples cont.

3. Industrial chemicals – fertilizer manufacture

Country’s major chemicals company; state-owned until 1990

Continued to receive state support (incentives, infrastructure) advantageous access to inputs (natural gas pipeline supply)

Pricing main fertilizer chemicals against an imported alternative fertilizer; alleged exclusionary actions against downstream blenders/distributors/importers

4. Beer

Incumbent brewer with c95% of market

Not state-owned but historically very close links with state

Entry barriers may appear low (scale economies etc), but issues of branding, distribution etc

Various alleged exclusionary/restrictive conditions on distribution and retail outlets


  • Avoid over enforcement / false positives – wrongly finding abusive conduct
    • this depends on the hurdle of dominance and on the criteria for finding abuse
  • Under enforcement is much more likely in countries with small markets, given scale economies etc;
    • higher levels of state support in the past and present further reinforces this
    • State support is one factor in ‘comprehensive consideration of factors affecting competitive conditions in the market under investigation‘
  • Defining dominance is first step in effective enforcement against anti-competitive conduct by firms with entrenched dominance, especially state-created monopolies


panel ii1

Criteria Used to Assess The Durability of Market Power


Webcast will resume at 4:35 PM