Competition Policy: Theory and Practice

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MOTTA M., Competition Policy: Theory and Practice, Cambridge, Cambridge University Press, 2004

Type Book
Abstract This is the first book to provide a systematic treatment of the economics of antitrust (or competition policy) in a global context. It draws on the literature of industrial organisation and on original analyses to deal with such important issues as cartels, joint-ventures, mergers, vertical contracts, predatory pricing, exclusionary practices, and price discrimination, and to formulate policy implications on these issues. The interaction between theory and practice is one of the main features of the book, which contains frequent references to competition policy cases and a few fully developed case studies. The treatment is written to appeal to practitioners and students, to lawyers and economists. It is not only a textbook in economics for first year graduate or advanced undergraduate courses, but also a book for all those who wish to understand competition issues in a clear and rigorous way. Exercises and some solved problems are provided.
Link https://books.google.it/books?id=J3xZnDSlfC8C&pg=PA112&lpg=PA112&dq=hugin/lipton+case&source=bl&ots=rEhIJLJG4r&sig=nqTSbHwwid38WWi9iVK5ixtSr9c&hl=it&sa=X&ei=-fiTVdfBGcLcUaOSgIAB&ved=0CDwQ6AEwAw#v=onepage&q=hugin/lipton case&f=false
Topics Business Model, Competition, Technology, Interoperability

Notes

After-Markets (or Secondary Markets)(pp. 111-113)

An after-market is a market in which there exist primary and secondary products: for example, in the market of carsm we have a primary product, which is the car, and secondary products, which are spare parts; in the market of washing machines, we have the washing machine, which is the primary product, and the technical assistance, which is the secondary product.

"Often, a certain type of secondary product is designed for and can fit only a certain brand of the primary product" (p. 111): in cases like that, we can say that the secondary product has been technically tied to the primary product.

This technical tying might result in a dominant position of the maker company in the secondary market, even if its position in the primary market is weak. In fact, consumers that have already purchased the primary product can't acquire the secondary ones from third parties.

However, in order to recognise a dominant position of the company in the secondary market when its position in the primary market is weak, there is need for qualifying the secondary market as separated from the primary one: in fact, if the secondary products "at hand are sufficiently important for the overall expected cost of the product, and there are a sufficient number of buyers who will take it into account", the maker company won't find useful to raise prices of the secondary product, and therefore the two markets should be considered as a single one (p. 111).

Some useful criteria in order to identify if the two markets must be considered together or not are:

  • "whether the price of the secondary product at issue is a considerable proportion or not of the price of the primary product" (pp. 111-112);
  • the probability of need/replacement of the secondary product (p. 112);
  • the nature of buyers: consumers are less informed about the expected cost of secondary products than professional customers (p. 112).

Some well-known cases concerning after.markets are:

  • the Kodak case, by the US Supreme Court: the "Court defined the market in a narrow way, as the secondary market for spare parts and services of Kodak photocopiers" (p. 112); in this way, it was easy to identify Kodak as a company in dominant position;
  • Hugin v. Commission, by the European Commission: "the market was defined as the UK market for spare parts of the cash registers manufactured by Hugin, a Swedish company that was found dominant although it had only 13% of the UK market for cash registers" (p. 112);
  • Pelikan v. Kyocera, by the European Commission: Kyocera was a producer of printers for computers, and it was accused of abuse of dominant position in the market for secondary products of its printers; in this case, however, the EC "rejected the complaint since it found that consumers took into account the prices of the secondary products (that accounted for an important part of the cost of the life-time purchase of a printer) when buying the primary product, and that there was significant competition in the market for printers"(pp. 112-113). See also Competition/Antitrust Challenges in Technology Aftermarkets.