Abuse of Dominance: Designing remedial measures

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Abuse of Dominance Designing remedial measures

• Jennifer Skilbeck
• 13th January 2006
• for VCAD

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Remedies in Vietnamese Competition Law

• Remedies may be divided into 4 categories
• Interim measures (Article 61)
• Final measures such as fines, penalties and
  Declarations (Article 117(23))
• Compulsory licensing
• Restructuring (Article 117(3))

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1. Interim measures

• Stop now provisions, eg
• Do not raise prices,
• continue supply
• These are kept in place until the question has
  been fully resolved by the competition
  authorities.

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2. Fines penalties

• A number of fines and penalties are set out in
  the Law (Article 117). These are self
  explanatory
• These provisions are useful as deterrents
• It is believed in the UK that the threat of being
  denied directorships of companies is a very
  significant deterrent

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Declarations

• This term is used to refer to any decision
  addressed to an organisation by a regulatory
  authority or court, eg
• the organisation must not charge X a higher
  price than Y, or
• X may not withhold supplies from Y

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The use of Declarations

• A finding of fact will generally be sufficient,
  without a Declaration
• If the firm continues to act unlawfully, then
  penalties and specific Declarations may follow.

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Declarations following undertakings

• Undertakings (eg to continue supply) may be
  obtained to settle a matter. Then a company acts
  unlawfully if it breaches its undertakings, and
  Declarations may follow

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Declarations that pose difficulties

• Declarations that require supervision by the
  courts eg complex access issues (telecoms)
• Declarations that require cost or price
  calculations (these calculations are usually
  carried out by specialist regulators and then
  challenged in the courts)

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3. Compulsory licensing

• Politically controversial
• Difficult to fix a fair royalty
• Can sometimes be avoided by controlling prices of
  the owner of the intellectual property under
  abuse of dominance provisions
• May be able to obtain supplies under the
  essential facilities doctrine

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4. Industry restructuring

• Organisations may be broken up
• Into different functional parts of the business
  (vertical separation), or
• Into smaller similar units (horizontal
  separation), or
• Access to a monopolists assets may be given to
  other businesses.
• The UK probably has more experience of these
  remedies than any other jurisdiction

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4(1) Vertical separation UK Gas

• British Gas (privately owned) was separated into
  a pipelines business providing the infrastructure
  (Transco), and a retail business selling to
  customers (British Gas).
• The retail business was then opened to
  competition.
• Companies buy gas under long term contracts and
  compete to sell to customers.
• Only one gas is carried through the pipes and
  competition is financial only

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4(2) Vertical separation UK postal services

• The publicly owned postal service was separated
  into counter services (The Post Office) and
  delivery (The Royal Mail)
• Both services are now open to competition
• It is expected that post will still be delivered
  by Royal Mail as a contractor to all postal
  services

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Ensuring the supply is provided by the network
owner

• Failure by the owners of the gas and postal
  networks to supply access to competitors would be
  an abuse of a dominant position
• If others enter the market (possibly postal
  delivery) then the present supplier may no longer
  be dominant

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4(2) Horizontal separation UK breweries

• The few main breweries owned large numbers of
  bars in which only their own beers were available
• They were obliged to sell a large number of their
  outlets
• In addition they had to provide a guest beer
  brewed by another brewery in every bar

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4(2) Horizontal separation UK water industry

• The water industry (publicly owned) was separated
  into geographical sections and each sold to the
  private sector
• Mergers and takeovers are permitted subject to
  the merger rules, which helps to encourage
  efficiency.

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3. Access arrangements telecoms and broadcasting

• The privatised telecoms company is required to
  give access to its network to other telephone
  companies for landline calls and broadband
• Television companies are required to outsource
  25 of their programmes to independent programme
  makers

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The typical results

• Increased efficiency and lower prices
• And a failure
• The railways were separated into one private
  company to run the network (the track) and
  several others to run the trains.
• Safety expenditure was reduced by the network
  company to an unacceptable level and the network
  (only) was returned to public ownership.

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Supervisory issues

• In most cases monopoly issues remain
• Most of these industries have a specific Regulator

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Some regulatory tasks

• Access
• The price at which access is given in telecoms
  must be negotiated
• Physical access terms must be agreed for the
  competitors to link physically to the telecoms
  supplier

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Price control one supplier only (UK airports)

• A price formula is based on the retail price
  index (RPI)
• Costs, revenues and a fair return on capital are
  calculated by the regulator for a 5 year period
• A price formula of RPIx is calculated (eg RPI1,
  RPI-2)
• The company then has an incentive to reduce costs
  throughout the period to increase profits
• The efficiencies lead to a lower price formula
  for the next 5 years

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Price control many suppliers (UK water)

• There are many water suppliers, each dominant
  in its area
• Costs are calculated for each company and a
  relative index is calculated, ranked by
  efficiency, taking account of differing cost
  conditions
• Prices for each are fixed combining actual costs
  and those achieved by the most efficient
  companies and fixed for five years

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Price controls objectives

• Ensure some element of competition
• Provide an incentive to increase profits through
  efficiencies
• Return the benefits of those efficiencies to the
  consumers in the next period

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Competition through licensing

• The right to run a utility may be sold by tender
• Competitions may be held every few years,
  depending on the levels of investment the
  licensee must make
• Examples (UK) railways, oil rights,
  broadcasting, motorway service stations

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Licensing advantages

• Provides government revenue
• Licenses can be sold on the basis of specified
  prices to consumers
• Little regulation required
• BUT
• Low incentive on licensee to invest in safety
  (railways, water)

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Finally

• Privatisation and competition (even if
  artificial) has led to great benefits to
  consumers in the UK
• Pricing etc issues are increasingly complex to
  provide appropriate incentives
• Main difficulty encouraging investment,
  specially in safety

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Thank You

• For more information
• www.monckton.com
• and
• jskilbeck_at_monckton.com