DEFINITION OF THE RELEVANT MARKET

Transcription

1 DEFINITION OF THE RELEVANT MARKET

2 European Studies in Law and Economics Series 1. Group Litigation in European Competition Law. A Law and Economics Perspective, Sonja E. Keske 2. Behavioural Economics in Consumer Policy, Hanneke Luth 3. Ex-Post Liability Rules in Modern Patent Law, Rosa Castro Bernieri 4. Competition and Innovation in the EU Regulation of Pharmaceuticals: The Case of Parallel Trade, Claudia Desogus 5. The Law and Economics of Organ Procurement, Fırat Bilgel 6. Law and Economics in the RIA World. Improving the use of economic analysis in public policy and legislation, Andrea Renda 7. Regulatory Competition in European Corporate and Capital Market Law, Lars Hornuf 8. Economic Criteria for Criminalization: Optimizing Enforcement in Case of Environmental Violations, Katarina Svatikova 9. Definition of the Relevant Market. (Lack of) Harmony between Industrial Economics and Competition Law, Hila Nevo 10. Patents as Protection of Traditional Medical Knowledge? A Law and Economics Analysis, Petra Ebermann 11. Rethinking the New York Convention. A Law and Economics Approach, Shen Wei 12. Towards a Better Assessment of Pain and Suffering Damages for Personal Injuries. A Proposal Based on Quality Adjusted Life Years, Vaia Karapanou 13. Comparative Analysis of Merger Control Policy. Lessons for China, Jingyuan Ma 14. Does Law Matter for Economic Growth? A Re-examination of the Legal Origin Hypothesis, Guangdong Xu 15. Committed to Reform? Pragmatic Antitrust Enforcement in Electricity Markets, Małgorzata Sadowska 16. Civil Liability of Securities Underwriters. Enforcing the Gatekeeping Function, Olia Skripova

3 DEFINITION OF THE RELEVANT MARKET (Lack of) Harmony between Industrial Economics and Competition Law Hila Nevo Cambridge Antwerp Portland

4 Intersentia Ltd Sheraton House Castle Park Cambridge CB3 0AX United Kingdom Tel.: Distribution for the UK: NBN International Airport Business Centre, 10 Thornbury Road Plymouth, PL6 7 PP United Kingdom Tel.: Fax: orders@nbninternational.com Distribution for Austria: Neuer Wissenschaftlicher Verlag Argentinierstraße 42/ Wien Austria Tel.: office@nwv.at Distribution for the USA and Canada: International Specialized Book Services 920 NE 58th Ave. Suite 300 Portland, OR USA Tel.: (toll free) info@isbs.com Distribution for other countries: Intersentia Publishing nv Groenstraat Mortsel Belgium Tel.: mail@intersentia.be Definition of the Relevant Market. (Lack of) Harmony between Industrial Economics and Competition Law Hila Nevo 2015 Intersentia Cambridge Antwerp Portland ISBN D/2015/7849/2 NUR 820 British Library Cataloguing in Publication Data. A catalogue record for this book is available from the British Library. No part of this book may be reproduced in any form, by print, photoprint, microfilm or any other means, without written permission from the publisher.

5 CONTENTS List of Tables and Figures xi Chapter 1. Introduction The Increasing Role of Economics in EU Competition Policy The Economics of Market Definition Structure of the Book Chapter 2. Market Power Introduction Economic Foundations of Competition Law Analysis Perfect Competition Monopoly Competition in the Real World The Assessment of Market Power The Exercise of Market Power Leads to Lower Output The Increase in Price Leads to an Increase in Profitability Market Power is Exercised Relative to the Outcome under Perfect Competition Indicators of Market Power The Persistent Structure-Conduct-Performance Paradigm Ascendancy of the Structural Analysis Chapter 3. Market Definition Introduction What Qualifies for an Antitrust Market? The Concept of a Market in Economic and Legal Practice Antitrust Markets versus Economic and Strategic Markets The Emergence of the Relevant Market Definition Methodology Antitrust Market Delineation in the EC Theory and Practice Introduction The Commission s Notice on the Definition of the Relevant Market Intersentia v

6 Definition of the Relevant Market A Preliminary Comment on the Legal Status of the Notice Principles of Market Definition The Notice s Theoretical Framework The Notice s Pitfalls Potential Difficulties in the Application of the SSNIP Test The Application of the SSNIP Test to Monopolisation Cases: The Cellophane Fallacy Market Definition in High-Technology Markets Chapter 4. Quantitative Techniques Introduction Shock Analysis Implementing Shock Analysis Kimberly-Clark/Scott Procter & Gamble/VP Schickedanz Similarity of Price Level Employing Price Differences in Competition Law Analysis Price Correlation Analysis Shortcomings of Price Correlation Analysis Causality Supply Responses of Competing Firms Spurious Correlation Delayed Response Benchmarking Employing Price Correlations in Competition Law Analysis Granger Causality Test and Cointegration Analysis The Use of Granger Causality and Cointegration Analysis in Competition Law Analysis Trade Flows Elzinga-Hogarty Test Shortcomings of the Elzinga-Hogarty Test Determination of the LIFO and LOFI Thresholds Interpretation of the Results Transport Cost Tests The Use of Shipment Tests in Competition Law Analysis Nestlé/Perrier Saint-Gobain/Wacker-Chemie/NOM Barloworld Coatings/Midas Paints Demand Analysis The Choice of Demand Model The Identification Problem vi Intersentia

7 Contents The Importance of Price Elasticities in Competition Law Analysis Own-Price Elasticity of Demand Critical Elasticity Cross-Price Elasticity of Demand Potential Pitfalls in the Application of Cross-Price Elasticity Additional Subtleties in the Application of Demand Elasticities The Appropriate Time Interval for Measuring Demand Elasticities Problems with Measuring Price-Cost Margins The Reverse Cellophane Fallacy Further Adjustments to the Analysis The Use of Demand Elasticities in Competition Law Analysis Kimberly-Clark/Scott Procter & Gamble/VP Schickedanz Bumble Bee/Connor Brands Critical Loss Analysis Calculating the Critical Loss Estimating the Price-Cost Margin Estimating the Actual Sales Loss Focusing Critical Loss: Advantages versus Potential Pitfalls The Use of Critical Loss in Competition Law Analysis FTC v. Tenet Healthcare SunGard/Comdisco Wild Oats/Whole Foods Critical Loss in the EU Diversion Ratios Potential Pitfalls in the Application of Diversion Ratios The Application of Diversion Ratios in Competition Law Analysis Vail Ski/Ralston Resorts Price Concentration Analysis Analytical Issues of Implementation Price-Concentration Analysis and Market Definition Implementing Price Concentrations in Competition Law Analysis Staples/Office Depot Praxair/Liquid Carbonic Corporation Intersentia vii

8 Definition of the Relevant Market Bidding Studies Bidding Studies and Market Power Analysis The Application of Bidding Studies in Competition Law Analysis Philips/Agilent General Electric/Instrumentarium A Simulation Approach to Mergers Technicalities of Merger Simulation Implementing Merger Simulation in Competition Law Analysis Volvo/Scania Chapter 5. Cases Introduction United Brands Facts and Judgement Assessment of the Court Decision Nestlé/Perrier Facts and Judgement Demand Considerations Supply Considerations Assessment of the Commission Decision Procter & Gamble/VP Schickedanz (II) Facts and Judgement Assessment of the Commission Decision Kimberly-Clark/Scott Facts and Judgement Assessment of the Commission Decision Carnival Corporation/P&O Princess Facts and Judgement Assessment of the Commission Decision Blackstone/Acetex Facts and Judgement Assessment of the Commission Decision Chapter 6. Conclusions A General Overview Is the European Commission s Practice Sufficiently Guided by Sound Economic Theory? viii Intersentia

9 Contents 6.3. Do Decisions in Real-Life Cases under European Competition Law Utilise all Relevant Empirical Measures? An Outlook into the Future of Market Definition References Intersentia ix

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11 LIST OF TABLES AND FIGURES TABLES Table 1. Effect of a Hypothetical Price Increase Table 2. Trade Flow between South-African Provinces Table 3. Effect of a Hypothetical Price Rise on Profits Table 4. Effect of a Hypothetical Price Rise When Elasticity Is Low Table 5. Effect of a Hypothetical Price Rise When Costs are High Table 6. Bath Tissue Demand Elasticities Table 6. Critical Loss Calculations for Different Margins and Price Rises Table 8. Simulated Post-Merger Price Increases Table 9. Results of Price Correlation Analysis Table 10. Response of Average Tampon and Towel Prices to the Launch of Always Table 11. Towels and Tampons Market Share Table 12. Average Maximum Distance for Viable Transportation Table 13. Transnational Flow Exports/Imports of Toilet Tissue Table 14. Price Comparison of Average UK and European Retail Prices Table 15. Acetic Acid Imports into Western Europe FIGURES Figure 1. Steps Required for Robust Quantitative Analysis Figure 2. Perfect Competition in an Industry Figure 3. Firm-Specific Curves under Perfect Competition Figure 4. Monopoly Figure 5. The Adverse Relationship between Price and Quantity Demanded Figure 6. Derivation of the Residual Demand Curve Figure 7. Price Changes of Two Products over Time Figure 8. Stationary and Non-Stationary Price Series Figure 9. Price-Concentration Results Figure 10. Alternative Market Definitions in Nestlé/Perrier Figure 11. Comparison of Acetic Acid Price Trends across Regions Intersentia xi

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