1 GREETINGS TO PARTICIPANTS AT THE NATIONAL TRAINING WORKSHOP ON COMPETITION POLICY AND LAW ADDIS ABABA MAY 2008

Copyright - Dr. S. Chakravarthy2 RELEVANT MARKET Dr. S. CHAKRAVARTHY (Profession : Civil Servant) Formerly, Member, Monopolies and Restrictive Trade Practices Commission, Member, High Level Committee on Competition Policy and Law And Member of Committee for Drafting the Law. Presently, Adviser/Consultant Competition Policy and Law HYDERABAD, INDIA

Copyright - Dr. S. Chakravarthy3 RELEVANT MARKET – A DEFINITION ‘RELEVANT MARKET’ REFERS TO THE LINE OF COMMERCE IN WHICH COMPETITION HAS BEEN RESTRAINED AND TO THE GEOGRAPHIC AREA INVOLVED, DEFINED TO INCLUDE ALL REASONABLY SUBSTITUTABLE PRODUCTS OR SERVICES, AND ALL NEARBY COMPETITORS, TO WHICH CONSUMERS COULD TURN IN THE NEAR TERM IF THE RESTRAINT OR ABUSE RAISED PRICES BY A NOT INSIGNIFICANT AMOUNT.

Copyright - Dr. S. Chakravarthy4 IN SIMPLE TERMS RELEVANT MARKET IDENTIFIES 1. THE PARTICULAR PRODUCT/SERVICE OR CLASS OF PRODUCTS PRODUCED OR SERVICES RENDERED BY ENTERPRISES. 2. THE GEOGRAPHIC AREA. 3. ENTERPRISES THAT COMPETE TO SUPPLY THOSE PRODUCTS OR SERVICES.

Copyright - Dr. S. Chakravarthy5 RM = RPM + RGM RELEVANT MARKET (RM) HAS TWO DIMENSIONS, NAMELY, *RELEVANT PRODUCT MARKET(RPM) * RELEVANT GEOGRAPHIC MARKET(RGM)

Copyright - Dr. S. Chakravarthy6 PRODUCT MARKET INTERCHANGEABILITY OR SUBSTITUTABILITY OF GOODS/SERVICES BY CONSUMERS/PURCHASERS 1.DEMAND SUBSTITUTABILITY – SUBSTITUTES CONSUMER WOULD SWITCH TO IF PRICE OF PRODUCT INCREASES 2. SUPPLY SUBSTITUTABILITY – SUBSTITUTES PRODUCERS WOULD SWITCH TO PRODUCE WITH EXISTING FACILITIES IF CONSUMERS WANT

Copyright - Dr. S. Chakravarthy7 3 ELEMENTS PIN PRODUCT MARKET 1.PRICE INCREASE 2.REACTION OF PURCHASERS 3.SMALLEST SIZE REQUIREMENT

Copyright - Dr. S. Chakravarthy8 PRICE INCREASE PURCHASERS SHIFT FOR SUBSTITUTES WHEN THE PRICE INCREASES PRICE INCREASE MUST BE 1. NON – TRANSITORY 2. SMALL BUT SIGNIFICANT CAKE BAKERS – BUTTER VS. MARGARINE

Copyright - Dr. S. Chakravarthy9 REACTION OF PURCHASERS PURCHASERS GENERALLY REACT TO PRICE INCREASES RATIONALLY IF PRICE OF BUTTER INCREASES OVER A REASONABLE LENGTH OF TIME, CAKE BAKERS WILL SWITCH TO MARGARINE (IN THE EVENT, B & M ARE RELEVANT PRODUCTS) IF PRICE INCREASE IS TRANSITORY, CAKE BAKERS WILL CONTINUE WITH BUTTER (IN THE EVENT, B & M ARE NOT RELEVANT PRODUCTS)

Copyright - Dr. S. Chakravarthy10 SMALLEST SIZE REQUIREMENT MARKET TO BE THE SMALLEST COLLECTION OF GOODS/SERVICES FOR WHICH THE PURCHASER REACTION HOLDS PRODUCTS SHOULD NOT BE CONSIDERED AS SUBSTITUTES MERELY BECAUSE OF PRICE INCREASE SUBSTITUTABILITY SHOULD HAVE DIRECT NEXUS WITH PRICE INCREASE

Copyright - Dr. S. Chakravarthy11 FACTORS GERMANE TO RELEVANT PRODUCT MARKET PHYSICAL CHARACTERISTICS OR END-USE OF GOODS; PRICE OF GOODS OR SERVICE; CONSUMER PREFERENCES; EXCLUSION OF IN-HOUSE PRODUCTION; EXISTENCE OF SPECIALISED PRODUCERS; CLASSIFICATION OF INDUSTRIAL PRODUCTS

Copyright - Dr. S. Chakravarthy12 DEMAND ELASTICITY DEMAND ELASTICITY = PERCENTAGE CHANGE IN QUANTITY DEMANDED BY PERCENTAGE CHANGE IN THE PRICE OF THE PRODUCT CROSS ELASTICITY OF DEMAND OF A PRODUCT IN RELATION TO PRICES OF OTHER PRODUCTS

Copyright - Dr. S. Chakravarthy13 ECONOMIC AGENTS TO CONTACT PURCHASERS OF THE PRODUCT PURCHASERS OF SIMILAR PRODUCTS SELLERS OF THE PRODUCT SELLERS OF THE SAME PRODUCT IN ANOTHER REGION SELLERS OF SIMILAR PRODUCTS ASSOCIATION OF PURCHASERS OR SELLERS OF THE PRODUCT WHOLESALERS/RETAILERS OF THE PRODUCT AND SIMILAR PRODUCTS STATISTICAL BUREAUS FOR THE PRODUCT

Copyright - Dr. S. Chakravarthy14 SOME USEFUL QUESTIONS TO PURCHASERS 1. WHO ARE YOUR CURRENT SUPPLIERS? 2. WHO HAVE BEEN YOUR SUPPLIERS IN THE PAST? 3. WHY DID YOU SWITCH SUPPLIERS? (IF ANSWERS TO ITEMS 1 AND 2 TWO ARE DIFFERENT) 4. WHO ELSE HAVE YOU CONSIDERED AS SUPPLIERS? 5. WHY HAVE YOU NOT BOUGHT FROM THEM? 6. WHAT IS IMPORTANT WHEN YOU DECIDE FROM WHICH SUPPLIER TO BUY? WHY? 7. IS THERE A SUBSTITUTE FOR THE PRODUCT THAT YOU ARE USING? 8. WHAT IS NECESSARY TO SUBSTITUTE THE PRODUCT YOU ARE PRESENTLY USING?

Copyright - Dr. S. Chakravarthy15 SOME USEFUL QUESTIONS TO SELLERS 1.WHO ARE YOUR COMPETITORS? 2. WHAT NEEDS TO BE DONE BY YOU TO CONVINCE PURCHASERS TO BUY FROM YOU? (TIMELY DELIVERY, ADVERTISE, SUPERIOR TECHNICAL SERVICE). 3. WHAT NEEDS TO BE DONE BY YOU TO CONVINCE PURCHASERS TO SWITCH FROM BUYING FROM ONE OF YOUR COMPETITORS TO BUYING FROM YOU (DISCOUNT IN PRICE) 4. IS THERE ANY TYPE OF PURCHASERS WHO TEND TO BUY FROM YOU RATHER THAN FROM YOUR COMPETITOR? 5. IF SO WHY DO THEY PREFER YOU?

Copyright - Dr. S. Chakravarthy16 RELEVANT GEOGRAPHIC MARKET (RGM) GEOGRAPHICAL DIMENSION INVOLVES IDENTIFICATION OF GEOGRAPHICAL AREA WITHIN WHICH COMPETITION TAKES PLACE RGM MAY BE LOCAL, NATIONAL OR INTERNATIONAL GEOGRAPHICAL DIMENSION INCLUDES –CONSUMPTION AND SHIPMENT PATTERNS –TRANSPORTATION COST –PERISHABILITY OF GOODS –BARRIERS BETWEEN ADJOINING GEOGRAPHIC AREAS

Copyright - Dr. S. Chakravarthy17 FACTORS GERMANE TO RELEVANT GEOGRAPHIC MARKET –REGULATORY TRADE BARRIERS; –LOCAL SPECIFICATION REQUIREMENTS; –NATIONAL PROCUREMENT POLICIES; –ADEQUATE DISTRIBUTION FACILITIES; –TRANSPORT COSTS; –LANGUAGE; –CONSUMER PREFERENCES; –NEED FOR SECURE OR REGULAR SUPPLIES OR RAPID AFTER-SALES SERVICES.

Copyright - Dr. S. Chakravarthy18 BARRIERS TO MARKET ENTRY 1.ADMINISTRATIVE DECISION BY STATE AGENCIES 2.LEGAL PROVISIONS RELATING TO MANUFACTURING AND DELIVERY 3.LEGAL PROFESSIONAL STANDARDS 4.TRADE POLICY (TARIFFS, QUOTAS, ANTI-DUMPING MEASURES ETC) 5.FINANCIAL BARRIERS 6.BARRIERS RELATING TO IPRs, TECHNOLOGY ETC

Copyright - Dr. S. Chakravarthy19 TWO MODELS MODEL 1 MODEL 2 DEMAND SIDE SUBSTITUTION DEMAND SIDE SUBSTITUTION AND SUPPLY SIDE SUBSTITUTION MARKET DEFINITION SUPPLY SIDE SUBSTITUTION MARKET DEFINITION ENTRY BARRIERS AND ENTRY BARRIERS ASSESSMENT OF COMPETITION MODEL 2 IS ADVISED

Copyright - Dr. S. Chakravarthy20 BOEING-McDONNELL DOUGLAS MERGER CASE BOTH BOEING AND McDONNELL DOUGLAS ARE COMPANIES IN US BOTH MANUFACTURE JET AIR CRAFTS BOEING ACQUIRED McDONNELL DOUGLAS EUROPEAN UNION PROTESTED THE MERGER THOUGH IT WAS NOT IN ITS SOIL AIRBUS INDUSTRIE, AN EUROPEAN CONSORTIUM IS THE ONLY OTHER MANUFACTURER CONCEPT OF RELEVANT MARKET WAS INVOKED

Copyright - Dr. S. Chakravarthy21 FINALE COMPETITION AUTHORITY NEEDS TO DETERMINE RELEVANT MARKET IT SHOULD HAVE REGARD TO RPM AND RGM INVESTIGATION IS CRITICAL TO THE DETERMINATION GOOD INVESTIGATION INVOLVES IDENTIFICATION OF IMPORTANT ECONOMIC AGENTS AND POSING APPROPRIATE QUESTIONS

Copyright - Dr. S. Chakravarthy22 THANK YOU FOR YOUR KIND ATTENTION