JKU Dissertation Colloquium Economics [3DVWLKS; 239.005]

Linz, 23th January 2012Markus LINDNER

COLLECTIVE DOMINANCE BASED ON MARKET SHARING UNDER ARTICLE 102 FEU TREATY

THE GAP IN LAW ENFORCEMENT

ABSTRACT

The Gap in Industrial Economics Industrial Economics has not yet provided a comprehensive

identification strategy for distinguishing general classes of models of collective dominance from models of competition.

Classes of Vertical Restriction: 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)

Switch

Tied Tank

New Tank

t0 tN

t0 tN

trtlt

csccritical=qt tpdexp (ptied – pfree) – cnt (trtlt/ttltnt + (1+i)^trtlt – 1)

ctied customer group(t) > cfree customer group(t)

CHAPTER C

CONSENSUS:

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

-7,000

-6,000

-5,000

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

Critical Switching Costs

Undertaking 1Undertaking 2Undertaking 3Undertaking 4Undertaking 5Csc

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