Download Common Types of Remedies Applied in Abuse

Abuse of
Dominance:
Designing remedial
measures
Jennifer Skilbeck
13th January 2006
for VCAD
Remedies in Vietnamese
Competition Law
1.
2.
3.
4.
Remedies may be divided into
4 categories
Interim measures (Article 61)
Final measures such as fines,
penalties and Declarations
(Article 117(2&3))
Compulsory licensing
Restructuring (Article 117(3))
1. Interim measures
“Stop now” provisions, eg:
“Do not raise prices”,
“continue supply”…
These are kept in place until the
question has been fully resolved by
the competition authorities.
2. Fines & penalties
•
A number of fines and penalties
are set out in the Law (Article
117). These are self explanatory
•
These provisions are useful as
deterrents
•
It is believed in the UK that the
threat of being denied
directorships of companies is a
very significant deterrent
“Declarations”
This term is used to refer to any
decision addressed to an
organisation by a regulatory
authority or court, eg
• “the organisation must not
charge X a higher price than Y”,
or
• “X may not withhold supplies
from Y”
The use of Declarations
• A finding of fact will generally
be sufficient, without a
Declaration
• If the firm continues to act
unlawfully, then penalties and
specific “Declarations” may
follow.
Declarations following
“undertakings”
• “Undertakings” (eg to continue
supply) may be obtained to
settle a matter. Then a
company acts unlawfully if it
breaches its undertakings, and
Declarations may follow
Declarations that pose
difficulties:
• Declarations that require
supervision by the courts – eg
complex access issues
(telecoms)
• Declarations that require cost
or price calculations (these
calculations are usually carried
out by specialist regulators and
then challenged in the courts)
3. Compulsory licensing
• Politically controversial
• Difficult to fix a fair royalty
• Can sometimes be avoided by
controlling prices of the owner of
the intellectual property under
abuse of dominance provisions
• May be able to obtain supplies
under the “essential facilities”
doctrine
4. Industry restructuring
Organisations may be broken up:
1. Into different functional parts of the
business (vertical separation), or
2. Into smaller similar units (horizontal
separation), or
3. Access to a monopolist’s assets may be
given to other businesses.
The UK probably has more experience of
these remedies than any other
jurisdiction
4(1) Vertical separation:
UK Gas
• British Gas (privately owned) was
separated into a pipelines business
providing the infrastructure (Transco), and
a retail business selling to customers
(British Gas).
• The retail business was then opened to
competition.
• Companies buy gas under long term
contracts and compete to sell to
customers.
• Only “one gas” is carried through the pipes
and competition is financial only
4(2) Vertical separation:
UK postal services
• The publicly owned postal service
was separated into counter services
(The Post Office) and delivery (The
Royal Mail)
• Both services are now open to
competition
• It is expected that post will still be
delivered by Royal Mail as a
contractor to all postal services
Ensuring the supply is provided
by the network owner
• Failure by the owners of the gas and
postal networks to supply access to
competitors would be an abuse of a
dominant position
• If others enter the market (possibly
postal delivery) then the present
supplier may no longer be dominant
4(2) Horizontal
separation: UK breweries
• The few main breweries owned large
numbers of bars in which only their
own beers were available
• They were obliged to sell a large
number of their outlets
• In addition they had to provide a
“guest beer” brewed by another
brewery in every bar
4(2) Horizontal separation:
UK water industry
• The water industry (publicly
owned) was separated into
geographical sections and each
sold to the private sector
• Mergers and takeovers are
permitted subject to the merger
rules, which helps to encourage
efficiency.
3. Access arrangements:
telecoms and broadcasting
• The privatised telecoms company is
required to give access to its
network to other telephone
companies for landline calls and
broadband
• Television companies are required to
outsource 25% of their programmes
to independent programme makers
The typical results
• Increased efficiency and lower prices
And a failure:
• The railways were separated into one
private company to run the network (the
track) and several others to run the trains.
• Safety expenditure was reduced by the
network company to an unacceptable level
and the network (only) was returned to
public ownership.
Supervisory issues
• In most cases monopoly issues
remain
• Most of these industries have a
specific Regulator
Some regulatory tasks
Access:
• The price at which “access” is given
in telecoms must be negotiated
• Physical access terms must be
agreed for the competitors to link
physically to the telecoms supplier
Price control: one supplier
only (UK airports)
• A price formula is based on the retail price
index (“RPI”)
• Costs, revenues and a fair return on
capital are calculated by the regulator for
a 5 year period
• A price formula of RPI+x is calculated (eg
RPI+1, RPI-2)
• The company then has an incentive to
reduce costs throughout the period to
increase profits
• The efficiencies lead to a lower price
formula for the next 5 years
Price control: many
suppliers (UK water)
• There are many water suppliers,
each “dominant” in its area
• Costs are calculated for each
company and a relative index is
calculated, ranked by efficiency,
taking account of differing cost
conditions
• Prices for each are fixed combining
actual costs and those achieved by
the most efficient companies and
fixed for five years
Price controls: objectives
• Ensure some element of
competition
• Provide an incentive to increase
profits through efficiencies
• Return the benefits of those
efficiencies to the consumers in
the next period
Competition through
licensing
• The right to run a utility may be
sold by tender
• Competitions may be held every few
years, depending on the levels of
investment the licensee must make
• Examples (UK): railways, oil rights,
broadcasting, motorway service
stations
Licensing: advantages
• Provides government revenue
• Licenses can be sold on the basis of
specified prices to consumers
• Little regulation required
BUT
• Low incentive on licensee to invest
in safety (railways, water)
Finally
• Privatisation and competition
(even if artificial) has led to
great benefits to consumers in
the UK
• Pricing etc issues are
increasingly complex to provide
appropriate incentives
• Main difficulty: encouraging
investment, specially in safety
Thank You
For more information
www.monckton.com
and
[email protected]