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56 A Gap in the Enforcement of Article 82 The Discussion Paper acknowledges the significance of differentiation (more than the Guidance paper does) and states that the importance of market shares may be qualified by an analysis of the degree of product differentiation in the market. When products are differentiated the competitive constraint that they impose on each other is likely to differ even where they form part of the same relevant market. As the Commission adds in the Discussion Paper: Substitutability is a question of degree. In assessing the competitive constraint imposed by rivals, it must therefore be taken into account what is the degree of substitutability of their products with those offered by the allegedly dominant undertaking. It may be that a rival with 10 per cent market share imposes a greater competitive constraint on an undertaking with 50 per cent market share than another rival supplying 20 per cent of the market. This may for instance be the case where the undertaking with the lower market share and the allegedly dominant undertaking both sell premium branded products whereas the rival with the larger market share sells a bargain brand. 40 What should be taken into account in differentiated product markets where firms produce substitute products is the diversion ratio, 41 which will indicate the diversion of sales from the products of one firm to those of the other firm, in case of anti-competitive conduct by that firm. This diversion ratio is calculated by looking at customers’ choices if they switch away from a firm that adopts the anti-competitive conduct (eg increases its price). If the products are differentiated, so that products sold by different participants in the market are not perfect substitutes for one another, an anti-competitive conduct by the second biggest firm in a market with differentiated products may diminish competition by enabling it to profit by this conduct, without at the same time incurring substantial switching of customers from its products to its rivals’ products. In addition, the degree of profitability of the adoption of anti-competitive conduct will depend on the elasticity of the product involved. If the product is highly elastic then the adoption of anti-competitive conduct will divert sales to substitute products and therefore significantly affect profits. Such a result will of course depend on the extent to which substitute products exist and can be offered to consumers. If the firms producing substitute products face capacity constraints such as significant costs or time 40 § 33. 41 The closeness of substitution between products does not only depend on the degree of differentiation of these products, but also on factors such as capacity constraints and barriers to entry and expansion.
The Gap in the Application of Article 82 57 constraints, or where entry into the market of new players with substitute products is difficult, then the adoption of anti-competitive conduct by the incumbent firm is likely to be very profitable. In the presence of capacity constraints we can envisage a homogenous market where the non-dominant firm will adopt abusive conduct, and the rivals will not be able to mitigate the impact of the non-dominant firm’s conduct. So not only the dominant firm but the other incumbents as well may be unable to countervail the anti-competitive conduct of the non-dominant firm. Such conduct in markets which are characterized by general capacity constraints will lead to the same anti-competitive outcomes as the conduct of non-dominant firms in differentiated markets in the absence of capacity constraints. The analysis herein will mainly focus on differentiated markets, since in homogenous markets characterized by capacity constraints, in the absence of significant barriers to entry, entrants may mitigate the anti-competitive impact of abusive conduct of non-dominant firms. In contrast, such entry may not fully mitigate non-dominant firms’ abusive conduct in differentiated markets. We should emphasize, though, that the implications of the analysis herein apply in both abovementioned situations. The anti-competitive conduct of non-dominant firms in both these market situations needs to be addressed by the authorities. Similarly, in the presence of significant switching costs (eg inconvenience, monetary costs, administrative hurdles or a lack of information about the products of alternative suppliers), even in homogeneous markets, the customers will not likely switch to other rivals, bestowing thus the nondominant firm with market power and with the ability to adopt anticompetitive conduct. Where customers face difficulties in switching between suppliers, whether because of the monetary costs, administrative hurdles or inconvenience, competition can be affected due to a reduction in the rivalry between firms. Switching costs allow firms potentially to charge high prices to customers that are unlikely to switch. Firms may engage in practices that increase switching costs, for example, by not releasing information needed for a switch to be feasible or by not doing so in a timely fashion, endorsing loyalty cards. The implication of differentiation in the firms’ products is focusing on the limited customer switching that this product differentiation induces. Differentiation in the products induces inertia in customers. Thus, in the analysis throughout this book we will refer to the issue of differentiated products as a precondition for anti-competitive conduct of non-dominant firms, but we will be also incorporating the possibility and the induced implications of significant customer inertia for non-dominant firms’ anti-competitive conduct due to factors other than the differentiated nature of the product. This inertia arises due to switching costs that customers may face.
Page 1 and 2:
Introduction The Treaty of Rome 195
Page 3 and 4:
Introduction 3 tion of this concept
Page 5 and 6: CHAPTER 1 Objectives of Article 82
Page 7 and 8: Objectives of Article 82 7 economic
Page 9 and 10: Objectives of Article 82 9 Director
Page 11 and 12: Objectives of Article 82 11 Virtual
Page 13 and 14: Objectives of Article 82 13 product
Page 15 and 16: CHAPTER 2 Concept of Dominance The
Page 17 and 18: Concept of Dominance 17 The stateme
Page 19 and 20: Concept of Dominance 19 criticisms
Page 21 and 22: CHAPTER 3 Abuse of Superior Bargain
Page 23 and 24: Abuse of Superior Bargaining Positi
Page 43 and 44: CHAPTER 4 The Gap in the Applicatio
Page 45 and 46: The Gap in the Application of Artic
Page 55: The Gap in the Application of Artic
Page 61 and 62: from the legal norm itself. Article
Page 63 and 64: In this book we are focusing on the
Page 79 and 80: CHAPTER 5 How to Rectify the Gap Ge
Page 81 and 82: How to Rectify the Gap 81 As Faull
Page 83 and 84: How to Rectify the Gap 83 of the co
Page 85 and 86: How to Rectify the Gap 85 An argume
Page 87 and 88: How to Rectify the Gap 87 departing
Page 89 and 90: How to Rectify the Gap 89 mentioned
Page 91 and 92: How to Rectify the Gap 91 proportio
Page 93 and 94: How to Rectify the Gap 93 Depending
Page 95: How to Rectify the Gap 95 cases is
Page 98 and 99: 98 A Gap in the Enforcement of Arti
Page 100 and 101: 100 A Gap in the Enforcement of Art
Page 102 and 103: 102 A Gap in the Enforcement of Art
Page 105 and 106: Annex 1 REPORT PREPARED BY THE ICN
Page 107 and 108:
Annex 2 REPORT PREPARED BY THE ICN
Page 109:
Annex 4 Appendix C of the ICN Kyoto
Page 112 and 113:
112 Bibliography P Callol, P Pignat
Page 114 and 115:
114 Bibliography Guidance on the Co
Page 116 and 117:
116 Bibliography J Leibowitz, ‘Ta
Page 118 and 119:
118 Bibliography I Roudard (1989),
Page 120:
120 Bibliography The Distillers Com
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