MARKET POWER IN COMPETITION CASES

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MARKET POWER IN COMPETITION CASES

• John Vickers
• Oxford University
• BIICL conference on Reform of Article 82
• 24 February 2006

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Market power debates

• 25 years ago
• Landes and Posner, Harvard Law Review 1981
• Their constructive critics
• 1982 US Merger Guidelines
• Now
• Dominance in the Article 82 review
• Courts, economists, DG Competition

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Plan of remarks

• Key points from the Harvard Law Review debate
• The weighted market share approach
• The law and the economists on market power in
  the assessment of abuse
• Dominance in the Commissions paper
• Empirical methods ? perhaps the greatest area of
  advance ? beyond my scope today

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Landes and Posner on market power

• Market power as ability profitably to price
  substantially above marginal cost
• Measured by mark-up (Lerner index)
• Single-product dominant firm example
• Mark-up inversely related to own-price
  elasticity. Can also be expressed in terms of
• market share
• industry elasticity of demand
• elasticity of supply from competitive fringe

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Landes and Posner on market power

• Market share is never the whole market power
  story
• Whether intervention makes sense depends on
  market size and the alleged abuse as well as
  market power measure
• Discussion of market definition, etc.
• Suggestion that courts would welcome the
  assistance that the economic approach provides,
  and that it would not create an unacceptable
  discontinuity with conventional legal thinking
  about market power

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Some points made in response

• Need for dynamic approach ? only persistent
  market power is of concern, hence focus on
  exclusionary abuse (Schmalensee, HLR 1982)
• Need to extend beyond single-firm dominant firm
  analysis (thus Ordover et al on oligopoly)
• Still too much emphasis on market shares need
  also to weigh evidence on conduct and persistent
  profits (Schmalensee)

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The weighted market share approach

• Traditional (indirect) approach to market power
  assessment has market definition and shares as
  first step (cf direct econometric methods)
• But substitutability is a question of degree
• Dangers of the zero-one approach
• Does there exist a method of weighting product
  revenues that yields mark-up expressions related
  to weighted market shares for the general and
  real case of differentiated products and
  multi-product firms?
• Theoretical work in progress

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Economists and the law ? a contrast?

• On the assessment of dominance compare
• CFI in GE v Commission (92-280) with
• The EAGCP report An economic approach to
  Article 82
• Market share analysis central to the former
• While the latter might be taken to suggest that
  dominance analysis is relegated

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EAGCP on the place of dominance

• the economic approach implies that there is no
  need to establish a preliminary and separate
  assessment of dominance. Rather, the emphasis is
  on the establishment of a verifiable and
  consistent account of significant competitive
  harm, since such an anti-competitive effect is
  what really matters and is already proof of
  dominance
• A lapse into abuse ergo dominance? No
• The call is to integrate dominance analysis into
  effects-based abuse assessment
• But preliminary dominance assessment still useful

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Dominance in the Commissions paper

• Rather conventional given the nature of the
  review of Article 82 policy
• Why the discussion of collective dominance, now
  that ECMR reform has freed dominance from its
  former dual task?
• Right that market power may derive from several
  factors which, taken separately, are not
  necessarily determinative
• But then

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Paragraph 31

• It is very likely that very high market shares,
  which have been held for some time, indicate a
  dominant position. This would be the case where
  an undertaking holds 50 or more of the market,
  provided that rivals hold a much smaller share of
  the market. In the case of lower market shares,
  dominance is more likely to be found in the
  market share range of 40 to 50 than below 40,
  although also undertakings with market shares
  below 40 could be considered to be in a dominant
  position. However, undertakings with market
  shares of no more than 25 are not likely
  toenjoy a (single) dominant position on the
  market concerned.
• Too market-sharist?
• Too close to being a sufficient condition for
  dominance?
• Why suggest possible dominance at such low shares?

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Need for disciplined dominance analysis

• Dominance is an economic finding with legal and
  commercial consequences, not a jurisdictional
  hurdle
• Effects-based policy towards abuse is needed
  together with a complementary disciplined
  approach to dominance assessment
• Commission should reflect further and harder on
  this
• No discontinuity the courts can embrace
  disciplined economic approaches as European law
  on market power evolves

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MARKET POWER IN COMPETITION CASES

• john.vickers_at_economics.ox.ac.uk