1 Unilateral Conduct Dr. SUN Lih-Chyun Commissioner, Taiwan Fair Trade Commission 3 October, 2012

Three Pillars of Antitrust Law 2 Ex-ante regulation Substantial lessening of competition test Merger Ex-post regulation Hard core cartel is treated as per se illegal. Cartel Ex-post regulation Concerns in the unilateral conduct cases Unilateral Conduct Which firms shall be subject to antitrust law ? What are abuse of dominance/ monopoly?

Market power in economic literature In practice, almost all firms have some degree of market power and are able to raise price above short-run marginal cost (OECD, Techniques and Evidentiary Issues in Proving Dominance/Monopoly Power,2006) Different concepts and language to identify which firms shall be subject to unilateral conduct provisions. Dominance- TFEU § 102 （ EU ） Monopoly- The Sherman Act §2 （ USA ） 3 Substantial market power is required Which firms should be subject to unilateral conduct rules – Substantial Market Power

Indirect evidence Market Share – beginning of analyzing the market power (High Market Share ≠ Substantial Market Power) In some jurisdictions, such as Germany, Korea and Taiwan, there are rebuttable presumption provisions of dominance/monopoly power. Entry Barriers ： sunk cost ； distribution outlets ； regulatory environment ； the cost of operating at the minimum viable scale Buyer Power 4 Evidence of Dominance and Monopoly Power

Direct evidence Estimating Demand Elasticities Performance – Profitability Performance – Pricing Conduct & Anticompetitive Effects : Inferences of market power should not be drawn from conduct alone Some agencies recognized that anticompetitive effects could be sufficient evidence to establish that a firm has substantial market power 5 Evidence of Dominance and Monopoly Power Form-based approach to Effect-based Approach ？

What are abuse of dominance/ monopoly? Profit Sacrifice Test Unilateral conduct would be unlawful if short run profit sacrifice is irrational without its tendency to eliminate or reduce competition in the longer run No Economic Sense Test Unilateral conduct would be unlawful if it makes no economic sense apart from its tendency to eliminate or reduce competition 6 Ref. OECD, Refusals to deal,2009

What are abuse of dominance/ monopoly? Equally Efficient Firm Test Unilateral conduct is considered harmful to competition if it would be likely to exclude rivals that are at least as efficient as the dominant firm Consumer Welfare Balancing Test Unilateral conduct is not unlawful unless there is a tendency for dominant firm to reduce consumer welfare by raising prices and lowering output Disproportionality Test (Ref. USDOJ, Single Firm Conduct under Section 2 of the Sherman Act, 2008) 7

Definition of Monopolistic Enterprise Fair Trade Act § 5 Any enterprise that faces no competition or has a dominant position to enable it to exclude competition in a relevant market. Two or more enterprises shall be deemed monopolistic enterprises if they do not in fact engage in price competition with each other and they as a whole have the same status as the enterprise defined in the provisions of the preceding paragraph. 8 Unilateral Conduct rules in Taiwan Recognition of joint dominance

Unilateral Conduct rules in Taiwan Factors for consideration Enforcement Rules to the Fair Trade Act § 3 the market share of the enterprise in a particular market; the possibility of substitution of the goods or services amidst changes in a particular market, giving regard to considerations of time and place; the ability of the enterprise to influence prices in a particular market; whether formidable difficulties exist to entry to a particular market by other enterprises; Import and export status of the goods or services. 9

Unilateral Conduct rules in Taiwan Rebuttable presumption of Monopolistic Enterprise – market share threshold Fair Trade Act § 5-1I : an enterprise shall not be deemed a monopolistic enterprise if none of the following circumstances exists: the market share of the enterprise in a relevant market reaches one-half; the combined market share of two enterprises in a relevant market reaches two-thirds the combined market share of three enterprises in a relevant market reaches three-fourths. 10

Unilateral Conduct rules in Taiwan Safe harbor Fair Trade Act § 5 -1 II Enterprise shall not be deemed as a monopolistic enterprise where the market share of any individual enterprise does not reach one-tenth of the relevant market where its total sales in the preceding fiscal year are less than one billion New Taiwan Dollars (approximate 34 million USD), such enterprise shall not be deemed as a monopolistic enterprise. 11

Unilateral Conduct rules in Taiwan Exception Fair Trade Act § 5-1III An enterprise doesn’t meet criteria of the FTA 5-1I&II may still be deemed a monopolistic enterprise if the establishment of such enterprise or any of the goods or services supplied by such enterprise to a relevant market is subject to legal or technological restraints, or any other circumstance so as to enable itself to exclude competition. 12

Unilateral Conduct rules in Taiwan Prohibited conducts Fair Trade Act § 10 : No monopolistic enterprises shall: directly or indirectly prevent any other enterprises from competing by unfair means; improperly set, maintain or change the price for goods or the remuneration for services; make a trading counterpart give preferential treatment without justification; or otherwise abuse its market power. 13

Statistics: Unilateral Conduct cases 14 Table 1 Decisions for FTC Self-initiated Investigations Case － by Practices violating the FTA

Statistics: Unilateral Conduct cases 15 Table 2 Complaints Subject to Decision Ruling by Practices violating the FTA

Unilateral Conduct cases -Taiwan’s Experience 16 Monopoly power resulted from legal restraints Setting gas price improperly The Great Taipei Gas 1990 Monopoly power resulted from legal restraints. Refusal to deal so as to exclude competition CPC Corporation 1990 Market share was 89.15% + ability of setting price over liquefied petroleum gas (LGP) Price discrimination and refusal to deal with distributors CPC Corporation 1992

Unilateral Conduct cases -Taiwan’s Experience 17 Monopoly power resulted from legal restraints Setting service price improperly to gain excessive profit Over-the-Counter Securities Exchange 2002 Monopoly power resulted from legal restraints Setting service price improperly to gain excessive profit Taiwan Stock Exchange Corporation 2002 Market share was 91%+ market characteristics (network externality and two-sided market ) Loyalty discounts so as to exclude competition Trade-Van Information Services Co. 2005

Unilateral Conduct cases -Taiwan’s Experience 18 Philips Electronics Sony Corporation Taiyo-Yuden (Joint dominance) Monopoly power resulted from legal restraints (patent) + No substitution Maintaining CD-R price improperly + refusal to provide important trading information + price fixing After further investigation, the TFTC still decided that Philips and other two companies infringed the FTA Monopoly power resulted from legal restraints (patent) + No substitution Maintaining CD-R price improperly + refusal to provide important trading information The Petition and Appeals Committee revoked the decision in 2002 The High Count overturned the decision in 2003.

Unilateral Conduct by non- dominant/monopolistic firm The FTA § 19 No 1 、 3 、 6 enterprise shall have any of the following acts which is likely to lessen competition or to impede fair competition: Boycott Discrimination Unlawful restraint of trade Tying Exclusive dealing Restriction of territory, customer, fields of use… 19

20 Thank you for listening