This presentation by Carolina Abate and Satoshi Ogawa from the OECD Competition Division was made during the discussion “Competition issues in aftermarkets” held at the 127th meeting of the OECD Competition Committee on 21 June 2017. More papers and presentations on the topic can be found out at oe.cd/1ZY.

1. COMPETITION
ISSUES IN
AFTERMARKETS
Carolina Abate
Satoshi Ogawa
Competition Division, OECD
OECD Competition Committee
June 2017

2. • Can firms operating in a primary market profit from
monopolising the corresponding aftermarket?
• Is such monopolisation capable of reducing consumers’
welfare?
• Trade-off between installed based opportunism and
strength of the reputation effect
Economic debate

3. • Quality of information available to consumers
• Size of the aftermarket relative to the foremarket
• Availability of contractual solutions
• Number of uninformed consumers
• Magnitude of lock-in effect and switching costs
Factors

4. • Not profitable to exploit consumers in the aftermarket by
charging supra-competitive prices
• Customers rational and farsighted: life-cycle pricing
• Competition in the primary market protects the
aftermarket
• Procompetitive reasons for monopolisation: quality
enhancing investments, innovation, signaling of product
quality, metering and pro-competitive price
discrimination
Chicago School

5. • Producers have the ability and the incentives to exploit
their installed base
• Myopic consumer behaviour
• Even with a competitive primary market, aftermarket
monopolisation can still lead to consumer harm: benefits
from exploiting locked-in consumers are greater than the
loss of sales linked to the reputational effect
Post-Chicago School

6. • Not different from other cases (in principle), but should be defined
with care on a case-by-case basis in light of the link between fore
and aftermarket
• Chicago School (broadly) vs. Post-Chicago School (narrowly)
• Three possible outcomes:
– A market for “systems” if customers calculate the whole life-cycle
cost of the system (or if there exist reputational effects)
– Multiple markets if customers are locked in to a limited number of
secondary goods (because of incompatibility or high switching cost)
– Dual markets if secondary goods are compatible with all primary
goods
Market definition in aftermarket cases

7. • Not different from other cases (in principle)
– E.g., market position of the company and its rivals, barriers to
expansion and entry, countervailing power of customers
• But the relationship between fore and aftermarkets should be
taken into account
– Competition in the primary market
• Factors for such a case-by-case analysis are;
– E.g., the ratio of locked-in customers /new customers, the ability
of the supplier to price discriminate, the degree of sophistication
of the customers, the price of the primary/secondary product,
the average lifetime of the primary product, the extent of
reputational effects.
Market power in aftermarket cases

8. • Mostly exclusionary in nature
– Tying (dominance in the primary market is often required)
– Refusal to deal (in particular by IP holders)
• Exploitative behaviour is rare in practice
– Excessive pricing
• Justifications
– IP rights (balance between competition and IP policy)
– Efficiencies (from a dynamic perspective)
– Other justifications (e.g., public considerations (health,
safety), well-functioning, brand image, metering)
Anticompetitive behaviour involving
aftermarkets

9. • Difficulties with remedies under traditional antitrust tools
• Use of commitment decisions for tailor-made and flexible remedies
• Competition advocacy and market studies
• Contractual remedies - Chicago School vs. Post-Chicago School (again)
• Remedies under consumer protection laws to address information
asymmetries
• Other regulatory remedies
– E.g., Repair clauses and statutory duty to deal
Remedies for Aftermarket
Monopolisation Strategies

10. • Market definition and market power: how best competition
authorities can analyse market power of the supplier active both in
primary and secondary markets, in the defined relevant market(s)?
• Abusive conduct, its competition effects and justifications: when can
competition authority establish illegality of the conduct at stake,
after considering various justifications such as IP rights and
efficiencies?
• Remedies under competition law or consumer protection laws/
regulatory remedies/ guidelines: which is better placed for
aftermarket monopolisation? To what extent should competition
authority be concerned about aftermarket monopolisation?
Key questions for this roundtable

11. Find all related materials on our
discussion webpage at:
oe.cd/1ZY