Rights for unilateral contact modifications as a potencial source of market power: the OTP Bank cases 2007 Toulouse ACE conference Gergely Csorba and Surd.

Slides:



Advertisements
Similar presentations
Antitrust enforcement against unilateral practices in high tech industries Michele Polo (Bocconi University and Igier) LEAR Conference – Rome, June 25-6,
Advertisements

Funding of Deposit Insurance Systems: Comments Jean Roy Professor of finance HEC-Montreal, Canada.
Week 2: Market Power, Market Definition & (Horizontal) Mergers Francis O'Toole Department of Economics Trinity College Dublin 11 th October.
Gergely Csorba (Institute of Economics, CERS-HAS) Zoltán Pápai (Infrapont Economic Consulting) CRESSE Conference, Corfu.
Report on Financial Stability Vonnák Balázs director 1 12th November 2014.
Competition Policy Vertical restraints – Interbrand Competition.
Consumer Protection Act – Seller Beware VOASA Conference – Durban 30 August 2010.
Competition Policy Predation. Exclusion  Exclusionary practices: deter entry or forcing exit of a rival  Legal concept. Monopolisation (US) – Abuse.
© Copyright Ovum The role of the BTA and competition law A presentation to the Stakeholders’ Forum on further liberalisation David Lewin.
English Welsh & Scottish Railway Holdings Ltd (“EWS”)/ Marcroft Holdings Ltd Adam Land Director of Remedies and Business Analysis Usual disclaimer: Personal.
The 5 C’s of Credit By:Sierrah, Thorn, Madison and Amber.
Transposition of Consumer Rights ERGEG Monitoring Report Christina Veigl-Guthann, ERGEG Task Force Chair.
23 © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair CHAPTER 26 Money Demand, the Equilibrium Interest Rate, and.
Competition Policy Market definition and the Assesment of Market Power.
Oligopoly Most firms are part of oligopoly or monopolistic competition, with few monopolies or perfect competition. These two market structures are called.
Buyers: balancing their power? May 22nd 2009 Prepared for British Brands Group Helen Jenkins, Managing Director.
Number of players The number of players at wholesale level is very limited (more then 97% of sources /production + import/ in one /incumbent/ hand) New.
1 Raising Capital Nandita Singh Ginette Smith Judith Muturi.
CHAPTER 8: SECTION 1 A Perfectly Competitive Market
Ch 9: General Principles of Bank Management
Toulouse 29 November Increasing Early Settlement Charges for Personal Loans by OTP-Bank Hungary Abuse of Dominant Position or a Rational Business.
Identifying Good Stock Investments Investment and Finance 12 Ms. Stewart.
1 EU S UPPORT TO STRENGTHENING COMPETITION IN S ERBIA Arpad Hargita EU-SCS A project financed by EU Implementing consortium lead by Hungarian Practice:
Introduction to Game Theory and Strategic Interactions.
Consumers Aims to afford some parity of power to consumers. KEY LEGISLATION: 1. Sale of Goods Act 2. Trade Descriptions Act 3. Fair Trading Act 4. Consumer.
Competitive dialogue – a French perspective François Lichère Professor of public law University of Aix-Marseille.
15-1 CHAPTER 15 INTERNATIONAL BANKING American International Banking l International banking dates back to the rise of international trade. l Great.
MONOPOLY © 2012 Pearson Addison-Wesley eBay, Google, and Microsoft are dominant players in the markets they serve. These firms are not like the firms.
Competition policy in times of financial crisis: more or less? Bálint BASSOLA, LL.M. Hungarian Competition Authority (Gazdasági Versenyhivatal) 31 March.
Abuse of buyer power Experience of the Hungarian competition authority Barbara Zubriczky, investigator Gazdasági Versenyhivatal,
1 ©2006 MDM Bank – Strategic Planning Department IBLF Improving financial literacy and responsible lending: the MDM experience Michelangelo Mazzarelli.
PRICING UNDER DIFFERENT MARKET STRUCTURES Oligopoly
1 Distance and Information Asymmetries in Lending Decisions by Sumit Agarwal and Robert Hauswald (& sons) Discussant Hans Degryse CentER – Tilburg University,
1 CONSOLIDATION: THE SPEED MATTERS. 2 The trends – consolidation has been approaching  Local funds were not enough for supporting economic growth  External.
1 INTRODUCTION OF THE LAWS ON ABUSE OF DOMINANT POSITION AND ABUSE OF MONOPONY POSITION IN VIETNAM Speaker: Mr. Trinh Anh Tuan Official Vietnam Competition.
Chapter 7 Firms, Competition and the Market. In Canada consumers generally rely on private businesses to produce goods and services that meet our needs.
IMPACT ESTIMATION PROJECT What do policy-makers need from behavioural economists? Dr Amelia Fletcher Chief Economist UK Office of Fair Trading DGSanco.
To start a new business, buy an existing business, or buy a Franchise
Rosneft’s Initial Public Offering. 2 Initial Public Offering An initial public offering (IPO) is the process of selling stock to the public of a pre-
Contestable Markets A2 Economics.
1 Lecture 6: Strategic commitment & applications to entry and exit (II) Entry, Capacity and Price Competition: Gelman & Salop, 1983, Bell Journal of Economics,
1 LASZLO GYERKO Competition Councillor, Member of the Board Romanian Competition Council Sofia Competition Forum November 12th, 2012 Bringing benefits.
MONEY DEMAND, THE EQUILIBRIUM INTEREST RATE, AND MONETARY POLICY Chapter 23 1.
The bank-firm relationship after Basel II: a survey of italian firms Chiara Bentivogli, Emidio Cocozza, Antonella Foglia, Simonetta Iannotti Bank of Italy.
Chapter 10 Challenge To Market Effectiveness 1: Monopolies McGraw-Hill/IrwinCopyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Improving Indian Banks’ Performance by James A. Hanson.
ACE 2007 Potentially excessive prices and switching costs: banking cases from Hungary (OTP Bank) Bruno Jullien.
Copyright © 2006 Pearson Education Canada Monopolistic Competition and Oligopoly 14 & 15 CHAPTER.
Copyright© 2003 John Wiley and Sons, Inc. Power Point Slides for: Financial Institutions, Markets, and Money, 8 th Edition Authors: Kidwell, Blackwell,
K&H Bank Bába Ágnes CFO The outlooks of the Hungarian Banking Sector Budapest, 21 April 2004.
The dominance concept: new wine in old bottles Miguel de la Mano * Member of the Chief Economist’s Office DG COMP, European Commission FTC/DOJ Hearings.
"More economic approach" in competition policy: EU & Hungarian developments Csorba Gergely Hungarian Competition Authority Budapest,
Finance (Basic) Ludek Benada Department of Finance Office 533
Understanding China’s Growth: Past, Present and Future Xiaodong Zhu Department of Economics East Asia Seminar at Asian Institute, University of Toronto.
Market Structure and Pricing. Learning outcomes By studying this section students will be able to:  understand how and why firms come to be price takers,
Product life cycle Hodder & Stoughton © 2017.
International Business
Competitive Market.
African Competition Forum
Horizontal Mergers: theory and practice
Underwriter reputation and the quality of certification Evidence from high-yield bonds Accounting English 姓名:王海婷 学号: 亮亮图文旗舰店
Competitive dialogue – a French perspective
Medco Health Solutions, Inc.
Access and Termination Charges in Telecoms: Antitrust considerations
External Analysis: The Identification of Opportunities and Threats
Limits to competition When is regulation the right instrument?
MFNs in the Digital Comparison Tools Market Study
Collusion and f0reclosure (predatory pricing)
Competition policy Made by : Mádi Vivien.
Horizontal Mergers: theory and practice
Presentation transcript:

Rights for unilateral contact modifications as a potencial source of market power: the OTP Bank cases 2007 Toulouse ACE conference Gergely Csorba and Surd Kovats Hungarian Competition Authority (GVH) The views expressed here are not purported to represent those of the GVH

29/11/2007OTP Bank cases2 Central European "heritage" Former legal monopoliesFormer legal monopolies 1.trying to preserve their position 2.engaging in activities that might be looked exploitative Regulation exists, but has its problemsRegulation exists, but has its problems Consumers should still "learn competition"Consumers should still "learn competition"  Room for competition policy

29/11/2007OTP Bank cases3 The OTP Bank cases The actions investigated are unilateral contract modification allowed by financial regulationThe actions investigated are unilateral contract modification allowed by financial regulation First case: personal loans (Vj-12/2006)First case: personal loans (Vj-12/2006) –In August 2005, bank raised termination fees from HUF to HUF –Ended with a commitment from OTP Bank Second case: housing loans (Vj-41/2006)Second case: housing loans (Vj-41/2006) –In August 2005, bank raised termination fees from 0% to 2,7-3,6% –In October 2005, cancelled an upper bar on handling fee  increase in monthly repayments –No decision yet, will not discuss it

29/11/2007OTP Bank cases4 Potential theories of harm Exploitative abuseExploitative abuse –It was not the final level of price / fee that was challenged (it was not the highest on the market), but the ex post increase that was hardly avoidable –Raising switching costs: deterrence from terminating an already unfavorable contract (interest rates have been falling) Exclusionary abuseExclusionary abuse –Raising switching costs: foreclosing rivals' access to potentially switching consumers

29/11/2007OTP Bank cases5 Main questions raised 1.Unilateral contract modification – is it a competition law question? (or civil law) We think YESWe think YES 2.Financial regulation allows it – can competition policy intervene? (DT case) We think YESWe think YES 3.Should it be considered as a potential abuse of dominance? (or consumer protection) We think YESWe think YES 4.Does the right for unilateral contract modification automatically leads to dominance? (contractual lock-in) We think NOWe think NO 5.Can we show exclusionary effect of raising switching costs when only very few consumers are switching? We think it is UNLIKELYWe think it is UNLIKELY

29/11/2007OTP Bank cases6 Market background Very asymmetric marketVery asymmetric market –OTP Bank holds retails monopoly till 1987, still largest (25% of total assets) + reputation advantage –6-7 moderately sized banks (5-10%) –About 30 smaller banks OTP's share in personal loans is about 40-60% in contract number (30-40% in loans' value)OTP's share in personal loans is about 40-60% in contract number (30-40% in loans' value) Big growth between : stock in personal loans multiplied almost 5xBig growth between : stock in personal loans multiplied almost 5x

29/11/2007OTP Bank cases7 Significant market power Three factors were considered in the analysis of dominance: 1.Regulation of unilateral contract modifications  low level of transparency 2.High switching costs 3.Pricing behavior and market share evaluation of OTP Bank

29/11/2007OTP Bank cases8 Dom1: low transparency level Unilateral contract modifications – rational to give this right to the service providerUnilateral contract modifications – rational to give this right to the service provider Constraints on abusing it should be threat of losingConstraints on abusing it should be threat of losing 1.Present consumers (termination) – needs information 2.Future consumers (reputation) – needs transparency Financial regulation in HungaryFinancial regulation in Hungary –Notice about modifications should be published only in bank offices –Consumers should inform the bank in 15 days about not accepting the change –Should quit the contract in a further 30 days

29/11/2007OTP Bank cases9 Dom2: switching costs Consumers needs to be informed about the change + needs to be rational to switchConsumers needs to be informed about the change + needs to be rational to switch Switching costs are substantial in banking (sector inquiry results)Switching costs are substantial in banking (sector inquiry results) –Entry + exit costs are on average 5-8% of the loan's present value –Our econometric studies identified further significant switching costs besides explicit entry / exit costs –Banks' market shares (and so entering consumers) do not seem to be responsive to termination fees

29/11/2007OTP Bank cases10 Dom3: pricing and market shares Trade-off of an ex-post price increaseTrade-off of an ex-post price increase 1.Increased revenue from old consumers (lock-in effect) 2.Lost revenue from new consumers (demand effect) If stock of old consumers is big enough, it might be beneficial (rip-off pricing logic)If stock of old consumers is big enough, it might be beneficial (rip-off pricing logic) –Although shares in new consumers can decline –But shares in stock of contracts may not fall considerably, especially if growth slows down –These patterns seem to be recognizable in the case

29/11/2007OTP Bank cases11 Dom3/2: Pricing (unsecured personal loan segment)

29/11/2007OTP Bank cases12 Exploitative effects examined Direct effect: 30-40'000 consumers paid a price increase that was practically not possible to avoidDirect effect: 30-40'000 consumers paid a price increase that was practically not possible to avoid –We see no peak in termination data in that month Indirect (locking) effect: additional consumers deterred from termination, although they might have done it at the original feeIndirect (locking) effect: additional consumers deterred from termination, although they might have done it at the original fee –We estimated this number for 20-30'000

29/11/2007OTP Bank cases13 Estimated indirect effect

29/11/2007OTP Bank cases14 Exclusionary effect examined No effect of the fee increase was shown on competitors' share of inflowing consumersNo effect of the fee increase was shown on competitors' share of inflowing consumers OTP's shares of inflowing consumers are also decreasingOTP's shares of inflowing consumers are also decreasing Main reason: very low ratio of terminating (switching) consumers  small base to forecloseMain reason: very low ratio of terminating (switching) consumers  small base to foreclose

29/11/2007OTP Bank cases15 Commitment decision The Competition Council of GVH accepted the following commitments from OTP Bank 1.Increase of market transparency and mobility for all of its banking products OTP informs clients about unfavorable unilateral contract modifications via personal mailOTP informs clients about unfavorable unilateral contract modifications via personal mail It allows 30 days (15 days more) for consumers to decide about not accepting the changesIt allows 30 days (15 days more) for consumers to decide about not accepting the changes 2.Compensation of consumers harmed (personal loan contracts signed with the initial fee) For those having terminated their contracts, OTP repays HUF each (30-40'000 consumers)For those having terminated their contracts, OTP repays HUF each (30-40'000 consumers) For those having not terminated, OTP offers the possibility of early settlement at the reduced termination fee of HUF (1-200'000 consumers)For those having not terminated, OTP offers the possibility of early settlement at the reduced termination fee of HUF (1-200'000 consumers)

29/11/2007OTP Bank cases16 Concluding remarks These demand-sided remedies can make abuses based on unilateral contract modifications less likely to happen in the future (see also Fletcher – Jardine 2007)These demand-sided remedies can make abuses based on unilateral contract modifications less likely to happen in the future (see also Fletcher – Jardine 2007) Commitments from the leading market player might lead other banks to adapt similar behavior (self-regulation)Commitments from the leading market player might lead other banks to adapt similar behavior (self-regulation)

Thank you for your attention Comments are welcome: