CPL 3 - Dominant Position PDF

Audio file ========== CPL VidLec2.mp4 Transcript ========== 00:00:01 The second prohibition under the Competition Act is the section for the seven prohibition, which covers monopolists like behaviour and exclusionary conduct by dominant firms. Section 47 deals with the abuse of market power. 00...

Audio file ========== CPL VidLec2.mp4 Transcript ========== 00:00:01 The second prohibition under the Competition Act is the section for the seven prohibition, which covers monopolists like behaviour and exclusionary conduct by dominant firms. Section 47 deals with the abuse of market power. 00:00:05 It\'s. 00:00:20 Or. 00:00:21 It is also known as unilateral conduct because, unlike cartels. 00:00:26 The market power is generally exercised by the undertaking with market power. 00:00:33 This in turn depends on the relevant market definition. 00:00:37 Please see chapter six of the triple CS guidelines on market definition. 00:00:49 I returned to my chart on how I view the Competition Act prohibitions regime as a competition practitioner. 00:00:59 I view the Section 47 prohibition as the second of what I term. The two behavioral prohibitions under the Competition Act. 00:01:08 In Singapore, as with the EU, such behaviour is referred to. 00:01:14 As abuse of dominance, which I will take you through in this lecture. 00:01:20 In most jurisdictions which adopt the universal competition law trifecta, this harm is sometimes also known as monopolization. 00:01:33 The language of section 47 of the Competition Act prohibits any conduct on the part of one or more undertakings, which is an abuse of the dominant position of any market in Singapore. 00:01:47 This language is broad. 00:01:50 As with the section 34 prohibition, let me break this down for you. 00:01:56 The way I see it, there is a three-part test to determine whether an abuse of dominant position for the purpose of the section 47 prohibition has taken place. 00:02:09 First, the relevant market of the focal product has to be determined. Please refer to chapter six of the triple CCS guidelines on market definition. 00:02:21 Second, it has to be ascertained whether the relevant undertaking is dominant in any market. I will explain how dominance is generally assessed later in this lecture. 00:02:32 Please also see the relevant chapter three of the triple CS guidelines on the Section 47 prohibition. 00:02:40 Thirdly, an assessment has to be made as to whether the firm has engaged in any abusive conduct. 00:02:48 Abusive conduct refers to exclusionary conduct or conduct resulting in the foreclosure of competitors to a relevant market. 00:02:56 It is important to note that dominance itself does not infringe the act. 00:03:01 In fact, in competition, economic theory, dominance is a reward for pro competitiveness. 00:03:09 It is the abuse of a firm\'s dominant position that is infringing. 00:03:14 Therefore, even if Step 2 is satisfied, an undertaking may not be regarded as having infringed the section 47 prohibition. If a competition lawyer is able to prove the that the allegedly dominant entity has not abused its dominant position. 00:03:33 The first step. 00:03:35 The first step is to define the relevant product and geographic market of the product which the alleged abuse relates to, otherwise known as the focal product. 00:03:46 The focal product and its substitute products constitute the relevant market. 00:03:51 To understand better how to properly identify substitute products, please see chapter six of the Triple C\'s guidelines on market definition. 00:04:02 The most common way to do so is to apply the snip test, which chapter 6 elaborates on. 00:04:10 Snip test. 00:04:12 Or slip stands for small but significant non transitory increase in price. 00:04:20 The snip test seeks to establish the market by examining the focal product and the reaction of its buyers to increments in its price. 00:04:29 It essentially tests the price elasticity of demand of the product and whether a hypothetical monopolist producer of the focal product will be able to maintain super competitive prices. 00:04:41 In practice, in respect of filings to the triple CCS and other contentious matters involving the triple CS, it is advisable that a competition economist, in-house or external, be involved, as market definition is a highly technical exercise. 00:05:00 The second step. 00:05:02 The second step is to establish whether the section 47 prohibition applies is to determine if the undertaking in question is dominant. 00:05:11 The legal test is whether such an undertaking has market power, in other words, whether it has the ability to profitably sustain prices above competitive levels or to restrict output or quality below competitive levels. 00:05:28 The triple CS presumes that an entity which has a 60% market share of a relevant market is dominant. However, this 60% threshold is merely indicative, and the triple CS has repeatedly emphasized and demonstrated in its decided cases that taking into account. 00:05:48 Other factors it is able to establish dominance at percentages below or far below 60%. 00:05:56 Other factors that may be considered in assessing whether the allegedly dominant undertaking has market power include some costs, economies of scale and scope, network effects, purchasing efficiencies, innovation and product differentiation. 00:06:16 Step 3. 00:06:19 At step three, you will need to assess whether the undertaking in question, if established to be dominant at Step 2, has abused its dominant position. 00:06:30 Section 47. Two of the Competition Act lists examples of conduct which may amount to abuse. 00:06:38 The examples are merely indicative and not exhaustive. 00:06:43 In determining whether abusive conduct has occurred, the triple CS will consider the likely effect of the dominant firm\'s conduct using competition rules and based on specific facts and circumstances of each case. 00:06:58 Chapter 3 of the triple CS guidelines on the Section 47 Prohibition sets out further examples of conduct that may amount to an abuse and which are listed on the slide. 00:07:12 In your work, it will be important to watch out for these types of conduct as they may be potential competition risks, especially when you are advising a dominant firm. Let me help you understand examples of abuse. 00:07:29 In the above table which I have created, I have categorized them into price and non price exclusionary conduct. 00:07:38 And whether they relate to horizontal or vertical foreclosure. 00:07:43 I will explain briefly what each type of conduct involves. 00:07:49 Let\'s start with horizontal from closure on the left column of the table. 00:07:54 Single branding or exclusive dealing is an arrangement whereby a customer is obliged to obtain all or most of its requirements in relation to a relevant product from 1 supplier. 00:08:10 Bundling occurs where a dominant firm supplies a product on condition that the customers also buy another. 00:08:18 In a typical scenario, the type in product is a must have product and the type product is a weaker product. In 2004, the European Commission fined Microsoft for bundling its Windows Media Player with its Windows operating system. 00:08:38 Full enforcing is a form of sales where in order to say, obtain a must have product in a manufacturer range, the retailer is required to stock all the products in that manufacturers range. 00:08:54 Typically the first product referred to is a dominant product. An example is a retailer being required to stock all blends of a manufacturer\'s coffee beans. 00:09:06 Loyalty rebates and volume discounts are generally pro competitive. However, certain rebate schemes could be structured and competitively. I will elaborate on anti competitive rebates in the next slide. 00:09:24 Predation occurs where a dominant firm sets its prices so low, especially below average variable cost, such that it forces one or more competitor firms out of the market. The dominant firm may deliberately incur losses in the short run in order to force market exits with a view to extracting monopoly rent. In the long run. 00:09:48 Let\'s move. 00:09:50 To vertical foreclosure. 00:09:52 On the right column of the table. 00:09:56 A dominant may decide not to supply a downstream firm due to commercial reasons, such as poor credit worthiness. 00:10:07 That\'s legitimate. 00:10:09 However, a refusal by a dominant firm to supply its subsidiaries competitors a key input required for downstream operations may be viewed as anti competitive exclusionary conduct, especially when the manufacturer has capacity and the buyer is prepared to pay market rates. 00:10:31 Constructive refusal occurs where a dominant upstream supplier offers to do business on such restrictive terms, such as unconventional, no delivery conditions that it is tantamount to refusal to supply. 00:10:47 Both refusal to deal and constructive refusal are aspects of discrimination. 00:10:55 Discrimination is the application of the similar conditions to equivalent transactions. 00:11:02 This is not to say that all suppliers and customers must be treated equally. Discrimination can be objectively justified, as I will explain in a subsequent slide. 00:11:14 An example of margin squeeze is where a vertically integrated firm dominant in the supply of a key input in a downstream market in which it also operates, sets a low margin between its input price. In other words, its wholesale price and the price in the downstream market. 00:11:33 Or its retail price such that an equally efficient competitor is forced to exit the downstream market. 00:11:50 As promised, I will explain how loyalty rebates, which is a common business practice and generally pro competitive, could be exclusionary in nature in some cases. 00:12:03 Anti competitive rebate systems are designed to lock in specific customers needs in relation to certain products so that equally efficient competitors are unable to compete effectively. A retailer may only qualify for rebates after the retailer purchases or or most of its requirements in relation to a product from the dominant firm. 00:12:27 Intel was fined approximately 1.25 billion U.S. dollars. 00:12:34 In the United States for awarding rebates to major computer manufacturers such as HP and Dell on condition that they purchased all or almost all of their X86 CPU supplies from Intel. 00:12:49 The EU reopened the case and in 2024 I said the date of this recording fined the Intel €400 million. 00:13:00 Into Triple C\'s first abuse of dominance case in 2007, which was appealed against. 00:13:09 The triple CS established that cystic.com was abusing its dominant position in the ticketing services industry. 00:13:16 As a practitioner, 2 observations can be made about the cystic case. 00:13:21 The first is that the triple CS is willing and does establish its own theories of harm as to what constitutes foreclosure, even if such theories are novel and have not been applied in other jurisdictions. 00:13:35 Insisting.com, the triple CS relied on a circular theory of harm which rests on concurrent effects of discounts and exclusive agreements. The triple CS first alleged that the trick that cystic. 00:13:49 Had used its dominance to raise booking fees, thus reaping monopoly benefits from ticket buyers. The triple CS then argued that this allowed cystic to offer discounts and other incentives to obtain exclusive agreements with venues and promoters restricting event organizers. 00:14:11 Choice. 00:14:12 Or choices. 00:14:14 This ICS internal asserted enabled cystic artificial perpetuation of dominance. 00:14:24 In 2013, the Triple C has received a complaint that Coca Cola\'s supply agreements with retailers, which sold on premise soft drinks from, say, fountain dispensers, contained exclusivity conditions which did not permit those retailers from offering products. 00:14:43 Which directly competed with Coca-Cola soft drinks range such as Coca-Cola, Venta and Sprite. 00:14:52 And that this was an abuse of Coca Cola\'s dominant position. 00:14:57 The triple CS launched an an investigation as a consequence of the abuse of dominance investigation. Coca-Cola amended its supply agreements and gave an undertaking to the triple CS that its supply agreements would not contain exclusivity conditions. Rights of first refusal and loyalty in using rebates. 00:15:20 Interestingly, a further undertaking was that in respect of physical fridge coolers sponsored or installed at retailers premises by Coca-Cola, Coca-Cola would not impose a requirement that only its brand of products could be stored and that at least 20% of such space. 00:15:41 Was to be reserved for brands outside that range. 00:15:46 Even if an allegedly abusive undertaking has behaved in a manner that can be construed to be abusive, such conduct can be objectively justified. 00:15:57 The objective justifications which competition regulators would consider are either established by written law or antitrust jurisprudence. 00:16:08 For example, a theater may be able to justify charging different prices for movie ticket, which may appear at face value to be anti competitive discrimination on a Monday morning as opposed to a Friday night by applying the objective justification of Ramsey pricing. 00:16:28 Ramsey pricing refers to the raising of individual prices for a service above marginal cost in accordance to such services, price elasticity of demand. 00:16:40 Similarly, long run incremental costs is an objective justification generally accepted in antitrust rules. Prudence as a defense to what looks like price predation. It may be used to justify perceived predatory pricing, especially in. 00:16:59 An industry with high fixed costs and low variable costs, it refers to the long run cost of providing an input which should be measured on a forward-looking basis. 00:17:12 Let me give you an example. 00:17:16 The first unit produced in the oil and gas industry may may appear to be sold at below cost when it is produced by a newly built infrastructure, which is meant to be amortized over a period of years. I will end this lecture by illustrating market definition in a case decided by the triple CS. 00:17:38 Although this was a merger control matter, the market definition principles are the same for abuse of dominance cases and merger control. Again, I refer you to the triple CS guidelines on market definition. 00:17:54 In this matter, actor for Sats ground handling company operating at Changi Airport, which was acquiring Singapore Food Industries, SAT submitted to the triple CS that its relevant product market was the provision of contract food services. The supply of processed food and the wholesale distribution of. 00:18:15 Food products. 00:18:20 Well, the triple CS opined that the party\'s market definition was too broad. 00:18:26 The triple CS instead defined the market based on four smaller segments. 00:18:31 In respect of one of the segments, the healthcare sector with in which it has its most concerns. 00:18:38 Comprised at that time, hospitals and nursing homes and the Triple C has argued that the post merger market shares would be high and that substitutability would be difficult. 00:18:50 Why? Because this triple C has had taken into account feedback from respondents that from a supply side perspective, a contract food provider would require technical expertise not available to. 00:19:04 Competitors existing at that time and that health care establishments would have no choice other than to use the merged entity. 00:19:13 Actor in this matter and we were able to convince the triple CS that as hospitals had hospital kitchens which were previously in use before external contractors were hired, the option of self catering by hospitals and homes would therefore be a constraint on the merged entity to be able to extract monopoly rent. 00:19:34 And the. 00:19:36 Merger filing was eventually cleared. 00:19:39 This ends my third lecture. My next lecture will be on merger control. Thank you. B24 CPL - Behavioural (Conduct) - Part III, Division 3 Section **** Prohibition -- **abuse of dominant** **position (e.g. Monopoly)** - **[Three-step test]** - 3\. Has there been **[abuse]** of the **[dominant]** position? Price and non-price exclusion cross referenced against Horizontal and vertical Foreclosure +-----------------------+-----------------------+-----------------------+ |   | **[Horizontal | **[Vertical | | | foreclosure]{.underli | foreclosure]{.underli | | | ne}** | ne}** | +=======================+=======================+=======================+ | **[Non-priced | **[Single | **[Discrimination]{.u | | exclusion]{.underline | branding] | nderline}** - | | }** | ** - | a refusal by a | | | an arrangement | dominant firm to | | | whereby a customer is | supply its | | | obliged to obtain all | subsidiaries | | | or most of its | competitors a key | | | requirements in | input required for | | | relation to a | downstream operations | | | relevant product from | may be viewed as anti | | | 1 supplier. | competitive | | | | exclusionary conduct, | | | **[Tying/Bundling]{.u | especially when the | | | nderline}** - | manufacturer has | | | a dominant firm | capacity and the | | | supplies a product on | buyer is prepared to | | | condition that the | pay market rates. | | | customers also buy | | | | another. | **[Constructive | | | | refusal]* | | | **[Line | * - | | | forcing]* | a dominant upstream | | | * -  | supplier offers to do | | | a form of sales where | business on such | | | in order to say, | restrictive terms, | | | obtain a must have | such as | | | product in a | unconventional, no | | | manufacturer range, | delivery conditions | | | the retailer is | that it is tantamount | | | required to stock all | to refusal to supply. | | | the products in that | | | | manufacturers range. | | | | | | | | **[Exclusive | | | | contracts]{.underline | | | | }** -  | | | | a retailer being | | | | required to stock all | | | | blends of a | | | | manufacturer\'s | | | | coffee beans | | | | | | | |   | | +-----------------------+-----------------------+-----------------------+ | **[Price based | **[Loyalty | Margin squeeze -  a | | exclusion]{.underline | rebates]* | vertically integrated | | }** | * - | firm dominant in the | | | structured anti- | supply of a key input | | | competitively | in a downstream | | | | market in which it | | | **[Predation]{.underl | also operates, sets a | | | ine}** | low margin between | | | - a dominant firm | its input price. In | | | sets its prices so | other words, its | | | low, especially below | wholesale price and | | | average variable | the price in the | | | cost, such that it | downstream market. | | | forces one or more | | | | competitor firms out | Constructive refusal | | | of the market. The | - | | | dominant firm may | | | | deliberately incur | | | | losses in the short | | | | run in order to force | | | | market exits with a | | | | view to extracting | | | | monopoly rent. | | +-----------------------+-----------------------+-----------------------+ - **[4. Dominance (biggest or more than 60% market share), in itself, is not an offence in itself.]** - Unliateral Conduct - CCS 600/008/07 -- Abuse of a Dominant Position by SISTIC.com Pte Ltd - **[Objective justification (prudence) defence]** E.g. Ramsey pricing, Long-run incremental costs - **[Statutory Exclusions]** - **[s47 does not apply if compliance to legal requirement is needed under s3(1) Third schedule Competition Act]** **[Chapter 3 pf the CCCS guidelines on Section 47]**