1. Conduct Remedies in BRICS Countries: Impact on Domestic and International Markets
CRESSE 2016
11th International Conference on Competition and Regulation
June 30-July
Svetlana Avdasheva, Applied Economics Department, NRU HSE,
Tatiana Radchenko,
Analytical Center, RF Government
Higher School of Economics , Moscow, 2016

2. ? Remedies in competition policy: substitutes for prohibitions
US and EU: in exceptional circumstances under merger approval, and mostly structural
BRICS: follow-ups of abuse of dominance decisions in addition to merger review, very often conduct (behavioral)
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Reasons to apply conduct remedies?
Effects of conduct remedies?
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Higher School of Economics , Moscow, 2016

3. Presentation Past and future of conduct remedies in BRICS
Survey of possible effects assessment
Special case: conduct price remedies on large exporting companies in Russia
Content of remedies
Reasons to apply remedies
Impact of conduct price remedies on the incentives to collude in international markets
Empirical analysis of pricing in several export- oriented industries
Discussion and conclusions
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Higher School of Economics , Moscow, 2016

4. Conduct remedies in BRICS: past and future
Brazil
India
South Africa
China
Russia
Price remedies in the form of marketing policies - oil and motor fuel ( ), ferrous and non-ferrous metals (from 2007), potash (from ): domestic prices should not exceed export price
Industry-specific codes of conducts – in retailing (2012), auto distribution (2013), recently in pharmaceuticals
Agreements on BRICS cooperation in the field of competition enforcement, including collective bargaining on Code of Conducts (2016)
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Higher School of Economics , Moscow, 2016

5. Our focus Remedies on prices: final products
Intermediary products (inputs)
IPR
Commodities
absolute price cap
benchmarking price cap
Our focus: price remedies on commodities in the form of price cap that uses export price as a benchmark
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Higher School of Economics , Moscow, 2016

6. Effects of conduct remedies in the recent literature
Structural remedies prevail in mature jurisdictions (Davies & Lyons ; Hoehn, 2010); there are rare exceptions in the regulated (telecom) industries (Hoehn, 2010)
Skepticism about side-effects of remedies as undermining contract precautions between companies (Joskow 2002)
In BRICS countries:
Positive impact on final customers (remedies on pharmaceutical companies, trade-offs between compulsory licensing and price discounts, Beall & Kuhn 2012);
Positive impact of compulsory licensing on small domestic producers (Competition Commission, South Africa 2015)
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Higher School of Economics , Moscow, 2016

7. Conduct price remedies: possible effects on export prices
In response to price remedies large suppliers adjust export price instead of domestic price
Intuition: collusion, explicit or tacit, in international markets with trade cost and territorial allocation (Bhattacharjea, Sinha, 2015: Bernheim, Whinston, 1990)
In contrast to classic models of collusion with territorial allocation under trade cost price in domestic market depends on price in collusive export market by formula
𝑃 2 =(1+𝛼) 𝑃 1
𝑃 2 - domestic market price
𝑃 export price
𝛼 ≤ ≥ 0 – discount or premium
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Higher School of Economics , Moscow, 2016

8. Conduct price remedies: possible effects on export prices
NE in trigger strategies (domestic supplier)
𝜋 ( 𝑃 𝑐 1 ; 1+∝ 𝑃 𝑐 1 ) 1 1−𝛿 =𝜋 ( 𝑃 𝑐 1 ; 1+∝ 𝑃 𝑐 1 )+ 𝜋 ( 𝑃 𝑝 1 ; 1+∝ 𝑃 𝑝 1 ) 𝛿 1−𝛿
𝑃 𝑐 export price under collusion
𝑃 𝑝 export price under punishment
𝛿 - discount factor, 0≤𝛿
𝛿 =δ 𝛼 threshold discounting factor depends on discount (premium)
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Higher School of Economics , Moscow, 2016

9. Data
Monthly prices (converted in USD) for 2012 (in exceptional case 2009)-2016 for four products supplied under remedies on domestic market:
Aluminium: Price cap = LME+ 5%: share of export in production = 90%
Apatite concentrate: Price cap = SA competitor; share of export in production = 30%
Motor fuel: Price cap = average of 3 prices, one is export benchmark; share of export in production = 60%
Potash: Price cap = Export benchmark (market with lower price) - discount; share of export in production = 80%
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Higher School of Economics , Moscow, 2016

10. Aluminum: 2012-2016 (USD/ ton): cap on export benchmark from 2007
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Higher School of Economics , Moscow, 2016

11. Apatite Concentrate: 2012-2016 (USD/ ton): cap on export benchmark from 2007
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Higher School of Economics , Moscow, 2016

12. Motor Fuel: 2012-2016 (USD/ ton): cap on export (
Motor Fuel: (USD/ ton): cap on export (*) benchmark from 2013
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Higher School of Economics , Moscow, 2016

13. Potash (potassium chloride): (USD/ ton): cap on export benchmark from May 2011/ revised September 2013
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Higher School of Economics , Moscow, 2016

14. Hypotheses and method
H1. Without conduct price remedies of particular type adjustment of domestic prices follows adjustment of export price, but under conduct price remedies changes in domestic prices explain changes in export prices
H2. Under conduct price remedies of particular type (price cap) effect of domestic prices on export prices increases when the share of export in the revenue of domestic suppliers decreases
H3. Under conduct price remedies of particular type reaction of export prices on domestic prices is stronger when benchmark is a minimum but not average export price ( 𝛿 =δ 𝛼 )
Method : Granger causality test
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Higher School of Economics , Moscow, 2016

15. Results: aluminium and apatite concentrate
Aluminium: impact of domestic price on export stronger than otherwise
Apatite concentrate: domestic price is adjusted towards export
Dependent variable: ∆log­_alumin_export*
Dependent variable: ∆log­_alumin_dom*
Excluded
Chi-sq
Prob
∆log_alumin_dom
5,360
0,021
∆log_alumin_export
4,294
0,038
∆log_alumin_LME
8,721
0,003
4,774
0,029
All
11,45
10,17
0,006
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Dependent variable: ∆log­_apatite_export*
Dependent variable: ∆log­_apatite_dom*
Excluded
Chi-sq
Prob
∆log_apatite_dom
0,1276
0,721
∆log_apatite_export
9,3077
0,002
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Higher School of Economics , Moscow, 2016

16. Results: motor fuel
Motor fuel: under remedies domestic price predicts export price (but not otherwise)
Dependent variable: ∆log_motor fuel_export*
Dependent variable: ∆log­_motor_fuel_ dom*
No remedy
Remedy
Excluded
Chi-sq
Prob
∆log_motor_fuel_ULSD
1,583
0,435
6,5273
0,038
6,8089
0,033
18,213
0,000
∆log_ motor_fuel_ dom
3,144
0,208
4,8675
0,088
∆log_motor fuel_export
3,9613
0,138
4,4935
0,101
All
8,304
0,081
21,426
14,100
0,007
20,211
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Higher School of Economics , Moscow, 2016

17. Results: potash (potassium chloride)
Potash: under remedies domestic price predicts export price (but not otherwise)
Dependent variable: ∆log_potassium chloride_export*
Dependent variable: ∆log_potassium chloride_dom*
No remedy
Remedy 1
Chi-sq
Prob
Excluded
∆log_potassium chloride_Vancouver
3,564
0,059
5,5521
0,018
3,2102
0,073
10,088
0,001
∆log_potassium chloride_dom
0,9354
0,333
5,5065
0,019
∆log_potassium chloride_export
12,646
0,000
14,446
∆log_potassium chloride_dom_agr
0,4129
0,521
8,2988
0,004
1,6318
0,0029
0,957
All
5,922
0,115
17,529
27,291
15,738
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Higher School of Economics , Moscow, 2016

18. Results: overview
H1 is confirmed: remedies enhance the dependence of export prices from domestic prices
H2 is not confirmed: dependence of export prices on domestic ones are not stronger for the exporting companies with larger share of domestic market in supply
H3 is not confirmed: there is no strong evidence that benchmarking formula affects the dependence of export prices on domestic ones
The most important result is that application of price cap with the benchmark of export (world market) price affects pricing strategies of large exporters
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Higher School of Economics , Moscow, 2016

19. Conclusions
Price conduct remedies may provide important instruments for support of domestic downstream producers and final customers (where competition policy meets industrial policy)
Being applied in domestic markets, they also affect international product markets
But effects depends considerably on the structure and strategic interaction in global markets
For instance, if there is a collusion in a market of particular commodity price remedies on the exporting companies may help them to sustain collusion
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Higher School of Economics , Moscow, 2016

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Ну тут должно быть неплохо: как раз низкая рыночная доля на мировом рынке снижает стимулы к сговору, а высокая доля внутренних продаж повышает влияние регулирования на стимулы
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