Miroljub Labus Comparative analyses of the relevant market: Concept and Application KOPAONIK BUSINESS FORUM 2008 March 4-6, 2008 „Transition, catching up with the EU and related topics“
Content Based on the lessons learnt from the case of horizontal merger between “Primer C & C market” (2xC) the following issues will be addressed: 1. The state of competition 2. How to test dominant position of a market player 3. Testing substantial lessening of competition 4. Implementation of the regulation on protecting competition, and proposals for its improvements
State of competition: Transition Achievements EBRD: Transition Report 4.50 Progress 4.00 in 2oo7 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 Tenderi Aukcije Firme Cene Trgovina Konkurencija Banke HoV Infrastruktura 2004 2005 2006 2007 • No overall progress in transition in the past two years • The only positive exception is related to a small improvement in the case of competition policy
State of competition: Assessment 1. Institutions: • exist • Law on protection competition is in force • The Commission for protecting competition (CfPC) has been created 2. Political support: • Exist 3. Human resources: • do not exist • CfPC has 9 staffs, while the UK CC has 650 (250 economists) 4. Implementing capacity: • does not exist • The Government’s Decree concerning the relevant market in general has only 6 articles, while the UK CC’s methodology on the relevant market particularly related to retail trade has 267 pages 5. Public resistance: • does not exist • There is a dissatisfaction due to discriminatory implementation of the law • Merkator/Rodić and Primer C/C market cases 6. Public awareness: • exist • With a totally ignorance about the regulation • Lessening competition ≠ Abuse of a dominant position • Interfering of political arguments into a professional debate
Dominant position? Two tests concerning horizontal mergers Test of a dominant Test of a substantial position lessening of competition Relevant market Competitors Barriers to entry Market power Innovation Consumers’ benefits
Dominant position? Definition of the relevant market 1. Main criteria: Demand and/or supply substitutability • US – demand substitution matters only • EU – mostly demand substitution • RS – both demand and supply substitution matter 2. Test of a hypothetical monopolist 3. Unbroken chain of substitution
Dominant position? What is the key factor for determining the relevant retail market in Belgrade? • Basket of goods or retail formats: Consumers preferences or supply substitutability • The CfPC position: • Supply substitutability – Relation between competitors matters only • Following the EU practise large super-markets and hyper-markets comprise the relevant market in the 2xC case • Contrary to that, grocery stores were additionally included in the relevant market in the similar Merkator/Rodić case • Our position: • Demand substitutability is the key factor – Consumers preferences matter in this case • It is inappropriate to separate traditional retail from the modern one on the supply side in today’s Serbia • All self-service retail formats and grocery stores comprise the relevant market in Belgrade • Position of open markets and specialized stores is ambiguous
Dominant position? The smallest relevant market:Unbroken chain of substitutability X B A Y C D
Dominant position? Overlapping of retail formats in Belgrade Convenience shopping missions Supermarkets Grocery stores One-stop shopping missions Source: Strategic Marketing Research
Dominant position? Overlapping of retail formats in UK Convenience shopping missions Supermarkets One-stop shopping missions Grocery stores Source: The UK CC
Dominant position? Serbia and UK Belgrade UK Convenience Convenience shopping shopping missions missions One-stop One-stop shopping shopping missions missions
Dominant position? An econometric test Table 2: Substitutability between shopping trips to supermarkets, grocery stores and other retail stores Variables Coefficients Standard errors t-statistics C 5.884 0.315 18.693 Grocery stores (0.291) 0.036 (8.178) Other stores 0.114 0.037 3.061 Car possession 0.149 0.252 0.591* Cross-effects: One-stop shopping missions (4.259) Convenience shopping missions 0.052 R2 0.109 DW statistics 1.368 F-statistics 39.670 • Not significant at 5% level of probability • Source: Author calculation, Strategic Marketing Research: Shopping missions in Belgrade, December, 2007
Dominant position? Shares of Delta group in the relevant market in Belgrade • Republics Statistical Office – 32%-34% All retail trade establishments • Strategic Marketing Research – 29% All market participants – 39% Supermarkets and grocery stores • Commission for Protecting Competition – 35% Supermarkets and grocery stores – 70% Supermarkets only
Substantial lessening of competition? A declining trend of Delta’s market shares Delta shares in the relevant market of daily consumer goods in Belgrade 40% 30% 20% 10% 0% Y04QI Y05QI Y06QI Y07QI
Substantial lessening of competition? Delta follows the European trend of retail modernization Modern and traditional retail in Delta Group 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% QIY05 Q4Y05 Q3Y06 Q3Y07 Up to 400 From 400 to 1000 Over 1000
Substantial lessening of competition? Fall of relative prices Delta Group prices adjusted for inflation Weighted average for 20 commodities 480 440 400 360 320 280 240 05M07 06M01 06M07 07M01 07M07
Substantial lessening of competition? Increasing number of shoppers trips Shoppers trips to outlets of Delta group PEKABETA MAXI 70000 200000 60000 160000 50000 120000 40000 80000 30000 40000 20000 0 2006M07 2007M01 2007M07 2006M07 2007M01 2007M07 CMARKET TEMPO 200000 24000 180000 20000 160000 16000 140000 12000 120000 8000 100000 4000 80000 60000 0 2006M07 2007M01 2007M07 2006M07 2007M01 2007M07
Conclusions • The relevant retail market in Belgrade – Delta is the leader – There is no substantial lessening of competition after merging 2xC • Regulation amending – Additional measures and sanctions as envisaged are acceptable – The final criteria for horizontal merger should be net benefits for consumers – CfPC should have full authority to collect all necessary information • Adjustment in the procedure – Adopt a two-stage procedure in the decision making process in the CfPC as in the EC case • Methodology for defining the relevant market in typical sectors should be developed before implementation of the law • Improve human resources and administrative capacity of the CfPC • Provide more legal certainties
Comments are welcome office@belox.rs www.belox.rs
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