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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]