UNCTAD The interface between competition policy, trade, investment and development Geneva, 23 July 2007 Abuse of Market Power Presentation by: Ursula Ferrari Consultant – Competition and Consumer Policies Branch/ Division on International Trade in Goods, Services and Commodities

UNCTAD 2/14 Geneva, 23 July 2007 Ursula Ferrari Overview and objective of presentation Differentiate between legal and illegal use of market power Differentiate between legal and illegal use of market power Determine when abuse of market dominance occurs Determine when abuse of market dominance occurs Describe how different restrictive practices can be used by dominant firms to lessen competition Describe how different restrictive practices can be used by dominant firms to lessen competition

UNCTAD 3/14 Geneva, 23 July 2007 Ursula Ferrari The Abuse of Dominance Dominance vs. Market Power? Dominance vs. Market Power?

UNCTAD 4/14 Geneva, 23 July 2007 Ursula Ferrari Definition of Dominant position in Competition Law: “…a position of economic strength enjoyed by an undertaking, which enables it to prevent effective competition being maintained on the relevant market by giving it the power to behave to an appreciable extent of its competitors, its customers and ultimately of the consumers.” “…a position of economic strength enjoyed by an undertaking, which enables it to prevent effective competition being maintained on the relevant market by giving it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of the consumers.” (Source: EC jurisprudence, Case-27/76 United Brands v. Commission, para. 65)

UNCTAD 5/14 Geneva, 23 July 2007 Ursula Ferrari A dominant position in a given market is not in itself an offence

UNCTAD 6/14 Geneva, 23 July 2007 Ursula Ferrari Natural Monopolies IN SOME MARKETS, THERE MAY ONLY BE ROOM FOR: ONE EFFICIENT ENTERPRISE

UNCTAD 7/14 Geneva, 23 July 2007 Ursula Ferrari Abuse is: - Using a dominant position to lessen competition in a market or to prevent other firms from entering the market PROHIBITED by competition law

UNCTAD 8/14 Geneva, 23 July 2007 Ursula Ferrari Establishing Abuse of Market Dominance Three steps: 1) Market definition 2) Market dominance 3) Abuse of dominant market power

UNCTAD 9/14 Geneva, 23 July 2007 Ursula Ferrari 1) Market Definition: Establishing the relevant market: Broad: Interest of the challenged firm Narrow: Interest of the competition authority

UNCTAD 10/14 Geneva, 23 July 2007 Ursula Ferrari 2) Market dominance: Indicators used to establish whether or not an enterprise controls the market Market shares Market shares Vigour of competition from smaller enterprises in the market Vigour of competition from smaller enterprises in the market Extent of countervailing power from customers Extent of countervailing power from customers Nature and height of barriers to entry Nature and height of barriers to entry Strength of import competition Strength of import competition Obstacles to direct foreign investment Obstacles to direct foreign investment

UNCTAD 11/14 Geneva, 23 July 2007 Ursula Ferrari 3) Abuse of dominant market power: Restrictive practices used by dominant firms  Predatory pricing (or conduct)  Single branding and rebates  Tie-in sales and bundling  Price discrimination  Refusal to deal or supply

UNCTAD 12/14 Geneva, 23 July 2007 Ursula Ferrari A HIGH DEGREE OF MARKET CONTROL CANNOT EXIST UNLESS:  There are relatively high barriers to entry by new firms  There are low levels of import competition and countervailing power from customers

UNCTAD 13/14 Geneva, 23 July 2007 Ursula Ferrari Conclusion The aim of Competition is : To ensure market access to all potential competitors in order to ensure consumer welfare in the form of the best prices, quality, innovation and choice, and to ensure an efficient allocation of resources. To ensure market access to all potential competitors in order to ensure consumer welfare in the form of the best prices, quality, innovation and choice, and to ensure an efficient allocation of resources. To improve the trade related aspects such as liberalized trade and competitiveness on the global market. To improve the trade related aspects such as liberalized trade and competitiveness on the global market.

UNCTAD 14/14 Geneva, 23 July 2007 Ursula Ferrari Closing remarks: Important documents: Important documents: - UNCTAD Model Law (2007) - UN Set of Principles and Rules on Competition (2000) - UN Guidelines on Consumer Protection (2001) - Manual on the formulation and application of competition law (2004) Available at: