the interface between competition policy, trade, investment and development geneva, 23 july 2007

UNCTAUNCTADD

The interface between competition The interface between competition policy, trade, investment and policy, trade, investment and

developmentdevelopmentGeneva, 23 July 2007Geneva, 23 July 2007

Abuse of Market PowerAbuse of Market Power

Presentation by:Presentation by:Ursula FerrariUrsula Ferrari

Consultant – Competition and Consumer Policies Branch/Consultant – Competition and Consumer Policies Branch/Division on International Trade in Goods, Services and Division on International Trade in Goods, Services and

CommoditiesCommodities

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Ursula Ferrari 2/14Geneva, 23 July 2007

Overview and objective of Overview and objective of presentationpresentation

• DifferentiateDifferentiate between legal and illegal between legal and illegal use of market poweruse of market power

• DetermineDetermine when abuse of market when abuse of market dominance occursdominance occurs

• DescribeDescribe how different restrictive how different restrictive practices can be used by dominant firms to practices can be used by dominant firms to lessen competitionlessen competition

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The Abuse of Dominance The Abuse of Dominance

• Dominance vs. Market Power?Dominance vs. Market Power?

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Definition of Dominant position in Competition Definition of Dominant position in Competition Law:Law:

• “…“…a position of a position of economic strengtheconomic strength enjoyed enjoyed by an undertaking, which enables it to by an undertaking, which enables it to

prevent effective competition being prevent effective competition being maintained on the relevant market by giving maintained on the relevant market by giving

it the power to behave to an appreciable it the power to behave to an appreciable extent extent independently of its competitors, its of its competitors, its customers and ultimately of the consumers.” customers and ultimately of the consumers.”

(Source: EC jurisprudence, (Source: EC jurisprudence, Case-27/76 Case-27/76 United Brands v. United Brands v. CommissionCommission, para. 65), para. 65)

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A dominant position in a given A dominant position in a given

market is not in itself an market is not in itself an offenceoffence

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Natural MonopoliesNatural Monopolies

IN SOME MARKETS, THERE MAY ONLY IN SOME MARKETS, THERE MAY ONLY BE ROOM FOR:BE ROOM FOR:

ONE EFFICIENT ENTERPRISEONE EFFICIENT ENTERPRISE

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Abuse is:Abuse is:

- Using a dominant position to - Using a dominant position to lessen lessen competition in a marketcompetition in a market or to or to

prevent other firms from entering prevent other firms from entering the marketthe market

PROHIBITEDPROHIBITED by competition lawby competition law

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Establishing Abuse of Market DominanceEstablishing Abuse of Market Dominance

Three steps:Three steps:

1)1) Market definitionMarket definition

2)2) Market dominanceMarket dominance

3)3) Abuse of dominant market powerAbuse of dominant market power

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1) Market Definition:1) Market Definition:

Establishing the relevant market:Establishing the relevant market:

Broad:Broad: Interest of the challenged Interest of the challenged firmfirm

Narrow:Narrow: Interest of the competition Interest of the competition authorityauthority

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2) Market dominance:2) Market dominance:Indicators used to establish whether or not an Indicators used to establish whether or not an

enterprise controls the marketenterprise controls the market

• Market sharesMarket shares• Vigour of competition from smaller enterprises in the Vigour of competition from smaller enterprises in the

marketmarket• Extent of countervailing power from customersExtent of countervailing power from customers• Nature and height of barriers to entryNature and height of barriers to entry• Strength of import competitionStrength of import competition• Obstacles to direct foreign investmentObstacles to direct foreign investment

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3) Abuse of dominant market 3) Abuse of dominant market power:power:

Restrictive practices used by dominant firmsRestrictive practices used by dominant firms

Predatory pricing (or conduct)Predatory pricing (or conduct)Single branding and rebatesSingle branding and rebatesTie-in sales and bundling Tie-in sales and bundling Price discriminationPrice discriminationRefusal to deal or supplyRefusal to deal or supply

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A HIGH DEGREE OF MARKET CONTROL A HIGH DEGREE OF MARKET CONTROL CANNOT EXIST UNLESS:CANNOT EXIST UNLESS:

There are relatively There are relatively high barriers to high barriers to entry by new firmsentry by new firms

There are There are low levels of import low levels of import competition and countervailing power competition and countervailing power from customersfrom customers

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ConclusionConclusionThe aim of Competition is :The aim of Competition is :

• To ensure market access to all potential To ensure market access to all potential competitors in order to ensure consumer welfare competitors in order to ensure consumer welfare in the form of the best prices, quality, innovation in the form of the best prices, quality, innovation and choice, and to ensure an efficient allocation of and choice, and to ensure an efficient allocation of resourcesresources. .

• To improve the trade related aspects such as To improve the trade related aspects such as liberalized trade and competitiveness on the liberalized trade and competitiveness on the global market. global market.

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Closing remarks:Closing remarks:• Important documents:Important documents:

- UNCTAD Model Law (2007)UNCTAD Model Law (2007)- UN Set of Principles and Rules on Competition UN Set of Principles and Rules on Competition

(2000)(2000)- UN Guidelines on Consumer Protection (2001)UN Guidelines on Consumer Protection (2001)- Manual on the formulation and application of Manual on the formulation and application of

competition law (2004)competition law (2004)Available at:Available at:

www.unctad.org/competitionwww.unctad.org/competition

the interface between competition policy, trade, investment and development geneva, 23 july 2007

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