vertical restraints dr. patrick krauskopf swiss competition commission (comco) national training...
TRANSCRIPT
Vertical Vertical RestraintsRestraints
Dr. Patrick Krauskopf Swiss Competition Commission
(COMCO)
National Training Workshop on Competition Policy and Law organised by CUTS International & Coordinated by CUTS Institute for Regulation and
Competition (CIRC), Namibia, 31 July – 02 August, 2007
Agenda
I. IntroductionII. Main conceptsIII. Vertical restraints
evaluationIV. Conclusions
I. Introduction (1)
Markup Not enough variety Low quality Lack of effective competition Surplus redistribution Isolated markets
Initial situation
I. Introduction (2)
Producers do not sell their products directly
Existence of different market agents (dealers, wholesalers, retailers)
Reduction of transaction costs To guarantee the stability of the offer Coordinated practices
Reasons to create vertical restraints
I. Introduction (3)
Tools
Competition promotion Market liberalization
I. Introduction (4) Sanctioned activities in the E.C. (Art.
81 RT), and in Switzerland (Art. 5.1/5.4 LCart).
Legal framework Switzerland. Cartel Act (LCart) Communication on vertical restraints
(07/2007) Communication on vertical restraints in
the automobile sector (10/2002). Explanation notes
II. Main concepts (1)
Vertical restraints: Agreements (with or without compulsory force) between economic agents at different levels of the production line. (E.g. wholesalers and retailers).
Regulation of purchase conditions, sales / resale of products and services.
The firms taking part in the agreement do not compete directly (“no-competitors” agreement).
II. Main concepts (2)
Vertical restraints are produced when one (or several) enterprises are capable to behave independently and to impose:Resale prices (fixed or minimum prices)Restrictions concerning territories
and/or consumersRestrictions regarding end consumers
salesRestrictions on freedom to contract
II. Main concepts (3)
A BInter-brand
Inter-brand
competition
Intra-brand competition
Vertical agreement
Producer
Wholesale
Retailer
Consumers
Horizontal agreement
II. Main concepts (4)
Intra-brand competition: Competition between suppliers that sell the same product or the same brand.E.g.: cars distribution.
Inter-brand competition: Different producers sell through retailers.E.g.: soda drinks.
II. Main concepts (5)
Double profit problem:Producer and supplier have market power
(can raise prices).Vertical restraints / vertical integration
could raise economic efficiency. “Free-riding” problems in providing services:
“Horizontal” externality (between retailers)Examples: quality standards, providing
information, publicity.
II. Main concepts (6)
Example: “Coke” price
South Africa: 0.35 Coke
Botswana: 0.40
Namibia: 0.30
II. Main concepts (7)
Selective distribution systems According to this agreement between
supplier and retailer:a)The supplier selects his authorized
retailers according to predefined criterions
b)The retailer can not resale to unauthorized retailers
III. Vertical restraints evaluation (1)
Not all vertical agreements are illicit. Use of “Rule of reason” or “Per-se rule” for
evaluating the agreement Analysis procedure:
Detection of vertical agreement which threatens free competition.
Relevant market definition. Verification of restrictive behavior Anticompetitive effects > benefits. Abuse of dominant position?
III. Vertical restraint evaluation (2)
Establishment of criterion to evaluate potential effects of vertical agreements:
a) “Per-se rule”b) Rule of reason
Effects of vertical restraints: Qualitative Quantitative
Cases of minor importance Justifications
III. Vertical restraint evaluation (3)
a) “Per-se rule”
Presumption of elimination of competition Can not be justified by economic reasons Exhaustive list with examples of practices There are no exceptions as to the size of
the enterprise or its market share.
III. Vertical restrictions evaluation (4)
b) Rule of reason Behavior importance
Territory and sales limitations, limitation of end consumers sales and cross distributions
Creation of obstacles for distribution of products
Non-competition clause for more than 5 years / or for more than one year after the expiration of the vertical agreement
III. Vertical restraint evaluation (5)
Cases of minor importance:
Agreements which do not exceed 10% of the relevant market.
Exception: cases where competition is limited by cumulative effects of similar vertical distribution nets.
Justifications:
Agreement allows an efficient organization of the distribution net.
Necessary to reduce production or distribution costs; and
Agreement does not eliminate efficient competition.
III. Vertical restraint evaluation (6)
¿Is the vertical
agreement important ?
YesDoes the
agreement exceed 10% of
the relevant market?
No
Yes Is the organization of the
distribution net efficient?
Yes
Illicit agreement
No
Permitted agreementNo
Per – se prohibition?
Yes
No
IV. Conclusions
Not all vertical agreements are illicit. Use of “Per-se rule” for the most serious
cases. It is important to clearly inform which
agreements will be considered anticompetitive and how they will be evaluated.
Thank youThank you
For further information, please do not hesitate to contact:
Mr. Patrick Krauskopf: [email protected]
Ms.Katrin Emmenegger: [email protected]