1. GREETINGS TO PARTICIPANTS AT THE NATIONAL TRAINING WORKSHOP ON COMPETITION POLICY AND LAW ACCRA, GHANA 27 – 28 APRIL 2010

2. DOMINANCE AND ITS ABUSE 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

3. DOMINANCE - DEFINITION DOMINANCE  IS A POSITION OF ECONOMIC STRENGTH ENJOYED BY AN UNDERTAKING  ENABLES IT TO PREVENT EFFECTIVE COMPETITION BEING MAINTAINED ON THE RELEVANT MARKET  MANIFESTS IN POWER TO BEHAVE INDEPENDENTLY OF ITS COMPETITORS, CUSTOMERS AND ULTIMATELY OF ITS CONSUMERS.

4. DOMINANT POSITION IN GHANA BILL AN ENTERPRISE HAS DOMINANT POSITION OR MARKET POWER IN RELEVANT MARKET, IF IT BY ITSELF OR TOGETHER WITH ONE OR MORE PERSONS OR ENTERPRISES n EXCLUDES COMPETITION n CONTROLS PRICES n BEHAVES INDEPENDENTLY OF COMPETITORS

5. ALTERNATIVELY IF AN ENTERPRISE OR ENTERPRISES IN JOINT DOMINANCE HAS/HAVE A MARKET SHARE OF 40%, AS REFLECTED BY ASSETS OR TURNOVER IT IS DEEMED TO BE IN A DOMINANT POSITION

6. RM = RPM + RGM RELEVANT MARKET (RM) HAS TWO DIMENSIONS, NAMELY,  RELEVANT PRODUCT MARKET (RPM)  RELEVANT GEOGRAPHIC MARKET (RGM)

7. 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

8. RELEVANT PRODUCT MARKET - FACTORS n PHYSICAL CHARACTERISTICS OR END- USE OF GOODS; n PRICE OF GOODS OR SERVICE; n CONSUMER PREFERENCES; n EXCLUSION OF IN-HOUSE PRODUCTION; n EXISTENCE OF SPECIALISED PRODUCERS; n CLASSIFICATION OF INDUSTRIAL PRODUCTS.

9. PRICE INCREASE n PURCHASERS SHIFT FOR SUBSTITUTES WHEN THE PRICE INCREASES n PRICE INCREASE MUST BE 1. NON – TRANSITORY 2. SMALL BUT SIGNIFICANT CAKE BAKERS – BUTTER VS. MARGARINE

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

11. RELEVANT GEOGRAPHIC MARKET - FACTORS n REGULATORY TRADE BARRIERS; n LOCAL SPECIFICATION REQUIREMENTS; n NATIONAL PROCUREMENT POLICIES; n ADEQUATE DISTRIBUTION FACILITIES; n TRANSPORT COSTS; n LANGUAGE; n CONSUMER PREFERENCES; n NEED FOR SECURE OR REGULAR SUPPLIES OR RAPID AFTER-SALES SERVICES

12. DOMINANCE-FACTORS n MARKET SHARE OF THE ENTERPRISE; n EXTENT TO WHICH CONDUCT OF THE ENTERPRISE IS CONSTRAINED BY CONDUCT OF COMPETITORS; n ECONOMIC POWER OF THE ENTERPRISE; n VERTICAL INTEGRATION OF THE ENTERPRISE; n ENTRY BARRIERS SUCH AS REGULATORY BARRIERS, FINANCIAL RISK, HIGH CAPITAL COST OF ENTRY, MARKETING ENTRY BARRIERS, TECHNICAL ENTRY BARRIERS, ECONOMIES OF SCALE ETC; n COUNTERVAILING BUYING POWER.

13. DOES DOMINANCE REQUIRE AN ARITHMETIC FIGURE? n SOME SUGGEST AN ARITHMETIC FIGURE OF MARKET SHARE TO ASCERTAIN DOMINANCE n SOME LAWS STIPULATE 25-30% MARKET SHARE n MODERN LAWS DISTINGUISH DOMINANCE FROM ITS ABUSE AND ESCHEWS ARITHMETIC FIGURE n LOGIC IS AGAINST A THRESHOLD AS IT MAY HARASS A GOOD COMPETING ENTITY AND ALLOW AN OFFENDING ENTITY TO ESCAPE n AS LONG AS DOMINANCE IS NOT TO BE FROWNED UPON, A GENERIC DEFINITION IS BETTER THAN MARKET SHARE THRESHOLD DEFINITION GHANA BILL ADOPTS AN ARITHMETIC FIGURE, NAMELY, 40%.

14. ABUSE OF DOMINANCE ARISES WHEN A DOMINANT ENTERPRISE 1. IMPOSES UNFAIR/DISCRIMINATORY CONDITIONOR PRICE 2. LIMITS PRODUCTION, TECHNICAL OR SCIENTIFIC DEVELOPMENT 3. DENIES MARKET ACCESS 4. CONCLUDES A CONTRACT SUBJECT TO OBLIGATIONS EXTRANEOUS TO IT 5. USES DOMINANCE IN ONE RELEVANT MARKET TO ENTER ANOTHER

15. THREE STEPS FOR ESTABLISHING ABUSE OF MARKET DOMINANCE, THE THREE CRITICAL STEPS ARE 1. MARKET DEFINITION 2. MARKET DOMINANCE 3. ABUSE OF DOMINANT MARKET POWER

16. UNFAIR PRICING IS ABUSE OF DOMINANCE n TELECENTRI IS A GOVT COMPANY IN GEORGIA WITH EXCLUSIVE RIGHTS TO OPERATE THE COUNTRY’S TELECOMMUNICATION SYSTEM. n CAUCASIA IS A TV COMPANY USING TELECENTRI’S NETWORK UNDER AN AGREEMENT TO TRANSMIT TV PROGRAMMES IN THE CAPITAL CITY OF TBILISI. n ALL OF A SUDDEN, TELECENTRI IMPOSED ADDITIONAL CONDITIONS. TELECENTRI QUOTED A VERY HIGH PRICE OF US$ 100 FOR THE BROADCAST OF SERVICES ALL OVER THE COUNTRY. CAUCASIA WAS INTERESTED ONLY IN PROGRAMMES INSIDE TBILISI (US$ 10). n CAUCASIA COMPLAINED TO THE STATE ANTI-MONOPOLY SERVICE OF GEORGIA (SASG), WHICH FOUND THAT TELECENTRI WAS VIOLATING COMPETITION LAW AND WAS ABUSING ITS DOMINANT POSITION AND DIRECTED THE COMPANY TO CEASE AND DESIST FROM THE PRACTICE. UNFAIR PRICING IS ABUSE OF DOMINANCE.

17. POLICY-INDUCED ABUSE OF DOMINANCE IN MALAWI n MALAWI GOVERNMENT CREATED MONOPOLIES THRU PARASTATALS IN SECTORS SUCH AS CEMENT, MATCHES, MEAT PRODUCTS, TEXTILES AND SHOES, IMPEDING THE DEVELOPMENT OF PRIVATE SECTOR, WHICH FELT DISCOURAGED TO ENTER THE SAID GOODS AREAS. n CONSEQUENTLY, THE GOODS RELATING TO THESE AREAS ARE HIGH PRICED AND OFTEN NOT UP TO STANDARD QUALITY. n GOVERNMENT HAS BEEN SUPPORTING THE PARASTATALS WHICH MAKES IT DIFFICULT FOR THE PRIVATE SECTOR TO ENTER THOSE AREAS AND COMPETE EFFECTIVELY. THIS IS A TYPICAL CASE OF A GOVERNMENT POLICY- INDUCED MONOPOLISTIC SITUATION CONSTITUTING ABUSE OF DOMINANCE HURTING CONSUMERS. THE POOR PEOPLE CONSUMING MEAT PRODUCTS, TEXTILES, MATCHES AND SHOES HAVE BEEN IMPACTED ADVERSELY BY THIS ABUSE OF DOMINANCE

18. LIMITING TECHNICAL DEVELOPMENT IMPEDES FAIR COMPETITION n JAPANESE MANUFACTURERS OF PERSONAL COMPUTERS DECIDED TO INSTAL MICROSOFT’S WINDOWS OS, WHICH CARRIED SOME AUDIO-VIDEO (AV) FUNCTION IN THEIR COMPUTERS. n A LICENSING AGREEMENT WAS DRAFTED BY MICROSOFT, A DOMINANT ENTERPRISE, INCORPORATING AN ‘IMMUNITY PROVISION’ PROVIDING THAT THE LICENSEES WERE PRECLUDED FROM SUING MICROSOFT FOR INFRINGEMENT OF THE JAPANESE MANUFACTURERS’ PATENTS. n SOME OF THE JAPANESE MANUFACTURERS OWNED PATENTS IN AV TECHNOLOGIES. BECAUSE OF THE ‘IMMUNITY PROVISION’, THEY WERE BARRED FROM ENFORCING THEIR PATENT RIGHTS AGAINST MICROSOFT. n THE JAPANESE FAIR TRADE COMMISSION RULED THAT THE LICENSING AGREEMENT WAS HAVING THE POTENTIAL OF CAUSING THE JAPANESE MANUFACTURERS TO LOSE THEIR COMPETITIVE EDGE IN DEVELOPING THE TECHNOLOGY RELATING TO THE AV FUNCTION AND THAT IT WAS IMPEDING FAIR COMPETITION. LIMITING TECHNICAL DEVELOPMENT IS ABUSE OF DOMINANCE

19. DISCRIMINATORY REBATES AND ABUSE OF DOMINANCE n PRODUCTION AND DISTRIBUTION OF OXYGEN GAS WERE IN THE HANDS OF CEYLON OXYGEN LIMITED (COL) TO THE EXTENT OF 80% OF THE MARKET. n IN 1993, INDUSTRIAL GASES (PVT) LIMITED (IGL) ENTERED THE MARKET AS COL’S COMPETITOR. SOON IGL NOTED THAT COL HAD STARTED INDULGING IN PRACTICES CONSTITUTING ABUSE OF ITS DOMINANT POSITION. n IGL COMPLAINED TO THE FAIR TRADE COMMISSION (FTC) OF SRI LANKA THAT COL WAS RESORTING TO PREDATORY PRICING (BY REDUCING THE DEPOSIT FEE ON OXYGEN CYLINDERS FROM LKR 8500 TO LKR 3000 AND BY DECREASING MAINTENANCE CHARGES FROM LKR 75 TO LKR 55) AFTER IGL’S ENTRY. FURTHER COL HAD ENTERED INTO AGREEMENTS WITH BULK PURCHASERS MAKING IT COMPULSORY ON THEM TO PURCHASE THEIR ENTIRE REQUIREMENTS ONLY FROM COL FOR AN AGREED TIME PERIOD. IGL FURTHER ALLEGED THAT COL WAS OFFERING SUBSTANTIAL DISCOUNTS ON DIFFERENT TYPES OF GASES AND CYLINDER CHARGES ON A DISCRIMINATORY BASIS. n FTC IDENTIFIED AND HELD THREE COURSES OF CONDUCT AS ANTI- COMPETITIVE, NAMELY, PREDATORY PRICING, DISCRIMINATORY REBATES AND EXCLUSIVE DEALING. DISCRIMINATORY REBATES (OR DISCRIMINATORY BEHAVIOUR) ARE AN EXERCISE IN ABUSE OF DOMINANCE.

20. UNFAIR CONDITION OF SALE IS ABUSE OF DOMINANCE n POULINA WAS AND IS A GIANT POULTRY FIRM IN TUNISIA. EVEN THOUGH THERE WERE 1500 SMALL PRODUCERS OF CHICKEN AND EGGS, POULINA DOMINATED THE MARKET. n POULINA COMPELLED ITS DISTRIBUTORS TO CARRY ONLY ITS PRODUCTS, EVEN IF THE PRODUCTS OF OTHER SUPPLIERS DID NOT COMPETE WITH THOSE OF POULINA. POULINA IMPOSED A CONDITION ON ITS DISTRIBUTORS THAT THEY WOULD ASSUME RESPONSIBILITY FOR ANY ECONOMIC OR HEALTH RELATED INFRACTIONS. n THE COMPETITION COUNCIL OF TUNISIA RULED THAT THE CONDITIONAL SALES CONSTITUTED ABUSE OF DOMINANT POSITION AND IMPOSED A BIG FINE OF 240000 TUNISIAN DINARS (APPROX US$ 194000).

21. TIE-IN REBATE IS AN ABUSE n VALIO OY IS A FINNISH DAIRY PRODUCTS COMPANY HAVING A DOMINANT POSITION IN THE LIQUID DAIRY PRODUCT MARKET IN FINLAND. n IT HAD A REBATE ARRANGEMENT, IN TERMS OF WHICH, RETAILERS WERE GRANTED DISCOUNTS/REBATES ON THE PRICES OF LIQUID DAIRY PRODUCTS, ON THE BASIS OF THE AVERAGE VALUE OF ALL THE PRODUCTS (LIQUID PRODUCTS, CHEESE, FATS, ICE-CREAM, SNACKS AND JUICE) OBTAINED FROM VALIO. n UNDER THIS SCHEME, RETAILERS WERE FORCED TO MAKE ALL THEIR PURCHASES OF LIQUID DAIRY PRODUCTS FROM VALIO, WHICH HAD THE EFFECT OF TYING CUSTOMERS AND EXCLUDING COMPETITORS FROM THE MARKET. n THE MATTER WAS CARRIED TO THE COMPETITION COUNCIL WHICH CONCLUDED THAT VALIO WAS SEEKING TO CAPTURE THE MARKET AND TO STRENGTHEN ITS MARKET DOMINANCE AND THAT TIE-IN REBATE CONSTITUTED ABUSE OF DOMINANCE. IT IMPOSED A FINE OF FIM 5 MILLION FOR HAVING COMMITTED THE OFFENCE OF ABUSE OF DOMINANCE.

22. PREDATORY PRICING n PREDATORY PRICING IS A PERNICIOUS FORM OF ABUSE OF DOMINANCE n IT OCCURS WHEN A DOMINANT ENTERPRISE CHARGES A PRICE BELOW THE COST OF PRODUCTION WITH A VIEW TO REDUCING COMPETITION OR ELIMINATING COMPETITORS

23. PREDATORY PRICING – MODERN FOOD INDUSTRIES CASE (INDIA) n PREDATORY PRICING IS A GENRE OF ANTITRUST VIOLATION n IT IS SELLING GOODS AT PRICE BELOW COST WITH INTENT TO ELIMINATE COMPETITION/COMPETITORS n ACTION BEFORE MRTP COMMISSION AGAINST MODERN FOOD INDUSTRIES PRODUCING BREAD AND BAKERY ITEMS FOR THE OFFENCE OF PREDATORY PRICING n COMMISSION RULED MERE CHARGING PRICE BELOW COST CANNOT LEAD TO INDICTMENT - MALAFIDE INTENT TO ELIMINATE COMPETITION/COMPETITIORS SHOULD BE PROVED

24. ELIMINATING COMPETITION IS CRITICAL FOR PREDATORY PRICING n BEER INDUSTRY IS HIGHLY CONCENTRATED IN ZIMBABWE. n NATIONAL BREWERIES LIMITED (NBL) IS THE LARGEST FIRM IN THE BEER SECTOR IN THAT COUNTRY WITH A MARKET SHARE OF 90%. n CHALLENGING THE NEAR MONOPOLY OF NBL, NESBITT BREWERY ENTERED THE BEER MARKET BUT CONFINED ITS OPERATIONS ONLY TO THE TOWN CHIREDZI IN THE COUNTRY. NBL, ON THE OTHER HAND WAS OPERATING THROUGHOUT THE COUNTRY. n NBL ORGANISED A BEER PROMOTION CAMPAIGN IN CHIREDZI OFFERING FREE SNACKS AND T-SHIRTS, LUCKY DRAW TICKETS, FREE BEERS AND SUBSTANTIAL PRICE REDUCTIONS. n NBL’S PRICES FOR BEER WERE BELOW ITS NORMAL LANDED COSTS IN THAT TOWN. n NESBITT COMPLAINED TO THE COMPETITION COMMISSION. THE ALLEGED PRACTICES WERE FOUND TO BE PREDATORY PRIMARILY AIMED AT DRIVING NESBITT OUT OF THE MARKET. ELIMINATING COMPETITION OR COMPETITORS IS AN IMPORTANT AND CRITICAL ELEMENT IN THE OFFENCE OF PREDATORY PRICING.

25. PREDATORY PRICING - A THUMB RULE SALE AT A PRICE n BELOW THE AVERAGE VARIABLE COST SHALL BE DEEMED TO BE CONCLUSIVELY PREDATORY; n BETWEEN THE AVERAGE TOTAL COST AND THE AVERAGE VARIABLE COST SHALL BE PRESUMED TO BE NOT PREDATORY PRICING, UNLESS THE COMPLAINANT ESTABLISHES INTENT ON PART OF THE RESPONDENT TO ELIMINATE COMPETITION OR COMPETITORS; n ABOVE THE AVERAGE TOTAL COST SHALL BE DEEMED TO BE CONCLUSIVELY NOT PREDATORY.

26. FINALE MODERN COMPETITION LAWS DO NOT FROWN UPON DOMINANCE AS SUCH BUT FROWN UPON ABUSE OF DOMINANCE

27. THANK YOU FOR YOUR KIND ATTENTION Copy right Dr. S. Chakravarthy