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The Economics of Secondary Product Markets

Resumé

Some goods or services are sold in a 'secondary' market; that is, they are ancillary to, or complementary with, products sold in a 'primary' market. Everyday examples are consumables such as razor blades or toner cartridges for laser printers, but also add-on products such as extended warranties, payment protection insurance (PPI), overdraft charges on personal current accounts, or payments for baggage on budget airlines. In these situations, firms offering both the primary and the secondary product may sometimes appear to charge high prices in the secondary market. This may happen if customers do not place great emphasis on the secondary product (for example, razor blade) price when purchasing the primary product (for example, razor) and yet face a cost of switching to other providers of secondary products once they have purchased a primary product. That is, if they are partially or completely locked-in to a particular supplier. As a result of high secondary market prices, firms’ profits in secondary markets may also appear high. However, firms may have an incentive to charge low prices for the primary product, in order to attract customers and thus sell more secondary products. Therefore firms’ profits in primary markets may appear low. This pattern of low primary (for example, p rinters) and high secondary (for example, cartridges) prices and profits has typically been termed by the Competition Commission and the Office of Fair Trading (OFT) a 'waterbed effect'.

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OFT
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More Pros and Cons of Merger Control

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In the book "More Pros and Cons of Merger Control", the authors discuss the latest research on merger control and ex-post evaluation of merger decisions. The pros and cons of merger control were high on the agenda ten years ago when we released the first book in the pros and cons series. Some of the issues discussed in the 2002 volume such as expost evaluation of merger control decisions are still debated and developed in this volume in both the contributions by Duso and Metha. Other topics are new like the increased use of screening tools like UPP as is discussed in the contribution by Sørgard. How economics have come to play a major role in merger proceedings are the topic of Hildebrand’s contribution. The proliferation of merger control over the years is remarkable

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KKV
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ECN MODEL LENIENCY PROGRAMME

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In a system of parallel competences between the European Commission (hereinafter the Commission) and National Competition Authorities (hereinafter NCAs), an application for leniency1 to one authority is not to be considered as an application for leniency to another authority. It is therefore in the interest of the applicant to apply for leniency to all Competition Authorities (hereinafter CAs) which have competence to apply Article 101 of the Treaty on the Functioning of the European Union (hereinafter TFEU) in the territory which is affected by the infringement and which may be considered well placed to act against the infringement in question. The purpose of the ECN Model Leniency Programme (hereinafter the ECN Model Programme) is to ensure that potential leniency applicants are not discouraged from applying as a result of the discrepancies between the existing leniency programmes within the ECN. The ECN Model Programme therefore sets out the treatment which an applicant can anticipate in any ECN jurisdiction once alignment of all programmes has taken place. In addition, the ECN Model Programme aims to alleviate the burden associated with multiple filings in cases for which the Commission is particularly well placed by introducing a model for a uniform summary application system. The ECN Model Programme sets out a framework for rewarding the cooperation of undertakings which are party to agreements and practices falling within its scope. The ECN members commit to using their best efforts, within the limits of their competence, to align their respective programmes with the ECN Model Programme. The ECN Model Programme does not prevent a CA from adopting a more favourable approach towards applicants within its programme.

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ECN
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Market Definition

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Market definition is a widely applied analytical framework to examine and to evaluate competitive concerns. The relevant market should be defined in a way such that the competitive constraints a firm faces, i.e. demand and supply side substitution, are captured as accurately as possible. The relevant market is usually defined by applying the hypothetical monopolist test (also known as the SSNIP test), according to which a ‘market’ comprises all the products and regions for which a hypothetical profit maximising monopolist would impose a Small but Significant Non-transitory Increase in Price. Market definition serves several purposes in identifying the scope of competition in a market. The main goal of market definition is to assess the existence, creation or strengthening of market power, which is defined as the ability of the firm to keep the price above the long-run competitive level. The market shares of the respective firms provide an indication of market power. Market definition also facilitates the identification of relevant competitors and is useful in evaluating the risk of potential co-ordinated effects in mergers. In addition, identifying the area of competition allows other relevant competition issues to be examined, such as potential barriers to entry. Even when the necessary data to perform the hypothetical monopolist test are not available, this test provides a coherent conceptual framework to define the relevant market. The importance of market definition also extends beyond its role in analysing competition concerns: the concept is used as a basis for calculating fines, for estimating the effects on trade between EU member states and has served as a procedural model for other areas of law.

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OECD
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Recommendation of the OECD Council on Fighting Bid Rigging in Public Procurement

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Bid rigging (or collusive tendering) occurs when businesses, that would otherwise be expected to compete, secretly conspire to raise prices or lower the quality of goods or services for purchasers who wish to acquire products or services through a bidding process. Public and private organizations often rely upon a competitive bidding process to achieve better value for money. Low prices and/or better products are desirable because they result in resources either being saved or freed up for use on other goods and services. The competitive process can achieve lower prices or better quality and innovation only when companies genuinely compete (i.e., set their terms and conditions honestly and independently). Bid rigging can be particularly harmful if it affects public procurement. Such conspiracies take resources from purchasers and taxpayers, diminish public confidence in the competitive process, and undermine the benefits of a competitive marketplace.

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Procedural Fairness Competition Authorities Courts and Recent Developments

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National courts play a significant role within the process of competition law enforcement. The precise responsibilities of courts vary from jurisdiction to jurisdiction. Similarly, the standard of review applied by the courts in competition cases varies between jurisdictions, and may also depend upon the particular administrative or judicial act under review. In general, the courts play a central role in the private enforcement of competition law. In many member country legal systems, actions for damages for losses incurred as a result of competition law violations may be brought by private individuals before the national courts. However, there is considerable variation among national systems with respect to private enforcement, for example, regarding the viability of class actions suits, the availability of exemplary damages and the status of follow-on actions.

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OECD
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Competition in Hospital Services

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Concerns about increasing healthcare expenditures are a major motivation for introducing competition in hospital services. While competition on quality can lead to better outcomes, competition on prices has uncertain results. An active governmental role is key in ensuring quality provision and containing costs. Enforcers can address the lack of competition while regulators need to carefully define the set of variables on which competition should operate. Meaningful competition in hospital services is underpinned by the following conditions: (i) the existence of options, (ii) patients interested in choice (iii) information allowing well-informed choices, and (iv) incentives for hospitals to attract patients. Enforcers are responsible for ensuring competitive market structures. Hospital market concentration should be avoided when prices are not administered, as hospitals may abuse market power to the detriment of end users. Vertical or horizontal integration needs to be carefully assessed, as this can lead to behaviour that restrains competition.

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OECD
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UNILATERAL CONDUCT WORKBOOK CHAPTER 4: PREDATORY PRICING ANALYSIS

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The Unilateral Conduct Working Group’s (“UCWG”) Report on Predatory Pricing provides specific guidance on this topic.3 It reports the responses of thirty-four ICN Members and six non-governmental advisors to a UCWG questionnaire and takes into account the approaches of competition agencies from around the world. This Workbook Chapter seeks to complement that report by providing practical guidance on conducting a predatory pricing investigation.

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ICN
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UNILATERAL CONDUCT WORKBOOK CHAPTER 1: THE OBJECTIVES AND PRINCIPLES OF UNILATERAL CONDUCT LAWS

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This introductory Chapter of the Unilateral Conduct Workbook aims to provide a foundation to the following Chapters that deal with specific types of unilateral conduct. By describing the objectives and principles underlying unilateral conduct laws, the Chapter attempts to increase awareness and understanding among competition law enforcers of the rationale for their intervention.

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Chapter on Cartel Awareness, Outreach and Compliance

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This chapter gives an overview of cartel awareness, outreach and compliance efforts undertaken by competition agencies from around the world. It highlights some of the available tools and focuses on the experiences of a number of International Competition Network (ICN) members. This chapter is based on previous ICN Cartel Working Group work products and input from ICN Cartel Working Group members. Many of the issues outlined in this chapter were discussed during the 2010–2011 ICN Cartel Working Group call series on cartel awareness, outreach and compliance. Through this series of ‘roundtable’ discussions, ICN members and non-governmental advisors (NGAs) were able to share expertise and exchange practical ideas on effective anti-cartel enforcement. The roundtable series was complemented by a collection of examples of public messages and materials used by competition agencies from around the world in their respective cartel-related outreach efforts.1 This chapter is intended to be a reference for competition agencies that are seeking new methods of cartel awareness, outreach and compliance, and is not intended to be a comprehensive guide.

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ICN
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