Comparative analyses of the relevant market: Concept and Application - - PowerPoint PPT Presentation

Miroljub Labus Comparative analyses of the relevant market: Concept and Application

KOPAONIK BUSINESS FORUM 2008 March 4-6, 2008 „Transition, catching up with the EU and related topics“

Content

Based on the lessons learnt from the case of horizontal merger between “Primer C & C market” (2xC) the following issues will be addressed:

1. The state of competition 2. How to test dominant position of a market player 3. Testing substantial lessening of competition 4. Implementation of the regulation on protecting competition, and proposals for its improvements

State of competition: Transition Achievements

EBRD: Transition Report

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50

Tenderi Aukcije Firme Cene Trgovina Konkurencija Banke HoV Infrastruktura

2004 2005 2006 2007

• No overall progress in transition in the past two years
• The only positive exception is related to a small improvement in the case of

competition policy Progress in 2oo7

State of competition: Assessment

1. Institutions:

• exist
• Law on protection competition is in force
• The Commission for protecting competition (CfPC) has been created

2. Political support:

• Exist

3. Human resources:

• do not exist
• CfPC has 9 staffs, while the UK CC has 650 (250 economists)

4. Implementing capacity:

• does not exist
• The Government’s Decree concerning the relevant market in general has only 6

articles, while the UK CC’s methodology on the relevant market particularly related to retail trade has 267 pages

5. Public resistance:

• does not exist
• There is a dissatisfaction due to discriminatory implementation of the law
• Merkator/Rodić and Primer C/C market cases

6. Public awareness:

• exist
• With a totally ignorance about the regulation
• Lessening competition ≠ Abuse of a dominant position
• Interfering of political arguments into a professional debate

Dominant position? Two tests concerning horizontal mergers

Test of a dominant position Test of a substantial lessening of competition Relevant market Market power Competitors Innovation Consumers’ benefits Barriers to entry

Dominant position? Definition of the relevant market

• 1. Main criteria: Demand and/or supply

substitutability

• US – demand substitution matters only
• EU – mostly demand substitution
• RS – both demand and supply substitution matter
• 2. Test of a hypothetical monopolist
• 3. Unbroken chain of substitution

Dominant position? What is the key factor for determining the relevant retail market in Belgrade?

• Basket of goods or retail formats: Consumers preferences or

supply substitutability

• The CfPC position:
• Supply substitutability – Relation between competitors matters only
• Following the EU practise large super-markets and hyper-markets

comprise the relevant market in the 2xC case

• Contrary to that, grocery stores were additionally included in the

relevant market in the similar Merkator/Rodić case

• Our position:
• Demand substitutability is the key factor – Consumers preferences

matter in this case

• It is inappropriate to separate traditional retail from the modern one
• n the supply side in today’s Serbia
• All self-service retail formats and grocery stores comprise the

relevant market in Belgrade

• Position of open markets and specialized stores is ambiguous

A B D

X Y

C

Dominant position? The smallest relevant market:Unbroken chain of substitutability

One-stop shopping missions Convenience shopping missions Grocery stores Supermarkets

Dominant position?

Overlapping of retail formats in Belgrade

Source: Strategic Marketing Research

Source: The UK CC

Dominant position?

Overlapping of retail formats in UK

Convenience shopping missions One-stop shopping missions Supermarkets Grocery stores

Belgrade UK

Dominant position?

Serbia and UK

One-stop shopping missions Convenience shopping missions Convenience shopping missions One-stop shopping missions

Table 2: Substitutability between shopping trips to supermarkets, grocery stores and other retail stores Variables Coefficients Standard errors t-statistics C 5.884 0.315 18.693 Grocery stores (0.291) 0.036 (8.178) Other stores 0.114 0.037 3.061 Car possession 0.149 0.252 0.591* Cross-effects: One-stop shopping missions (4.259) Convenience shopping missions 0.052 R2 0.109 DW statistics 1.368 F-statistics 39.670

• Not significant at 5% level of probability
• Source: Author calculation, Strategic Marketing Research: Shopping missions in Belgrade, December,

2007

Dominant position?

An econometric test

Dominant position? Shares of Delta group in the relevant market in Belgrade

• Republics Statistical Office

– 32%-34% All retail trade establishments

• Strategic Marketing Research

– 29% All market participants – 39% Supermarkets and grocery stores

• Commission for Protecting Competition

– 35% Supermarkets and grocery stores – 70% Supermarkets only

Delta shares in the relevant market of daily consumer goods in Belgrade 0% 10% 20% 30% 40%

Y04QI Y05QI Y06QI Y07QI

Substantial lessening of competition? A declining trend of Delta’s market shares

Substantial lessening of competition? Delta follows the European trend of retail modernization

Modern and traditional retail in Delta Group

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% QIY05 Q4Y05 Q3Y06 Q3Y07 Up to 400 From 400 to 1000 Over 1000

Substantial lessening of competition? Fall of relative prices

240 280 320 360 400 440 480 05M07 06M01 06M07 07M01 07M07 Delta Group prices adjusted for inflation Weighted average for 20 commodities

Substantial lessening of competition? Increasing number of shoppers trips

20000 30000 40000 50000 60000 70000 2006M07 2007M01 2007M07

PEKABETA

40000 80000 120000 160000 200000 2006M07 2007M01 2007M07

MAXI

60000 80000 100000 120000 140000 160000 180000 200000 2006M07 2007M01 2007M07

CMARKET

4000 8000 12000 16000 20000 24000 2006M07 2007M01 2007M07

TEMPO

Shoppers trips to outlets of Delta group

Conclusions

• The relevant retail market in Belgrade

– Delta is the leader – There is no substantial lessening of competition after merging 2xC

• Regulation amending

– Additional measures and sanctions as envisaged are acceptable – The final criteria for horizontal merger should be net benefits for consumers – CfPC should have full authority to collect all necessary information

• Adjustment in the procedure

– Adopt a two-stage procedure in the decision making process in the CfPC as in the EC case

• Methodology for defining the relevant market in typical

sectors should be developed before implementation of the law

• Improve human resources and administrative capacity of the

CfPC

• Provide more legal certainties

Comments are welcome

• ffice@belox.rs

www.belox.rs