Economic analysis and evidence in abuse cases – Break-out Session 1 – Techniques and evidence for assessing market power – BRAZIL – December 2021 OECD discussion
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This presentation by Brazil was made during the break-out Session 1, “Techniques and evidence for assessing market power” in the discussion “Economic analysis and evidence in abuse cases” held at the 20th meeting of the OECD Global Forum on Competition on 7 December 2021. More papers and presentations on the topic can be found out at oe.cd/eac.
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Economic analysis and evidence in abuse cases – Break-out Session 1 – Techniques and evidence for assessing market power – BRAZIL – December 2021 OECD discussion
- 1. Techniques and evidence for assessing market power Ricardo Medeiros de Castro
- 2. DISCLAIMER The views and opinions expressed in this presentation are those of the author and do not necessarily represent official policy or position.
- 3. Federal Law 12.529/2011 (Formed by Tribunal; General Superintendence; Federal Attorney; Department of Economic Studies) Mission: To protect competition process
- 4. Advocacy effort https://www.gov.br/cade/pt-br/centrais-de-conteudo/publicacoes/estudos- economicos/documentos-de-trabalho (1) it is truly difficult to present a closed and uncontestable manner of screening dualistically what dominance is or is not, since such concept means different things, in different situations, to different interpreters (2) it is not possible, in abstract terms, to determine whether an enterprise has market power or not
- 6. Dominance is cause or effect of a conduct? DOMINANCE CAN BE THE OUTCOME OF A CONDUCT: In Administrative Proceeding nº 08012.011508/2007-91 , Former Counselour Ana Frazão stated that: the configuration of sham litigation,(...) does not require the market share assessment of the represented company.” A similar conclusion is found in the vote of Former Counselour Eduardo Pontual in Administrative Proceeding nº 08012.010648 / 2009-11: “In fact, the smaller the represented company's presence in the market, the smaller its share, the greater the damage that a sham litigation can cause. “
- 7. • Decety, J., Jackson, P. L., Sommerville, J. A., Chaminade, T., & Meltzoff, A. N. (2004). The neural bases of cooperation and competition: an fMRI investigation. NeuroImage, 23(2), 744–751. https://doi.org/10.1016/j.neuroimage.2004.05.025 COOPERATION COMPETITION Nowadays, certainly, it is not feaseble and available for Competition Authorities.... but maybe, in future, it could be possible to use neuroscience in order to analyze market power.
- 8. Votinov M, Aso T, Fukuyama H, Mima T. A Neural Mechanism of Preference Shifting Under Zero Price Condition. Front Hum Neurosci. 2016 Apr 20;10:177. doi: 10.3389/fnhum.2016.00177. PMID: 27148024; PMCID: PMC4837161.
- 10. • Market shares (static and dynamic) • Profit margin (Lerner Index) o Average profit of market agents; o Profit obtained before/after specific conduct; • Prices – Average prices – Price changes or price increases due to the practice • Costs (marginal cost, variable costs, fixed costs,... ) • Diversion ratio • Price elasticity of demand (own and cross) • Minimum Viable scale • Minimum efficient scale
- 11. Dominance and Presumption of market power
- 12. Panzar-Rosse test Panzar, J. C., and J. N. Rosse. 1987. “Testing for “Monopoly” Equilibrium.” The Journal of Industrial Economics 35 (4): 443–56, https://doi.org/10.2307/2098582 ψ (also called H statistic) is the sum of equilibrium gross revenue elasticities with respect to each input price
- 13. Conduct Parameter (𝜆) Competition: Cournot: Perfect collusion: 𝜆 = 0 𝜆 = 1 𝜆 = 𝑄 𝑞𝑘 = 𝑁 𝑞𝑘 𝜕𝑃 𝜕𝑄 𝜆 + 𝑃 − 𝑐𝑘′ = 0 𝑃 − 𝑐𝑘′ = 0 𝑞𝑘 𝜕𝑃 𝜕𝑄 + 𝑃 − 𝑐𝑘′ = 0 𝑄 𝜕𝑃 𝜕𝑄 + 𝑃 − 𝑐𝑘′ = 0
- 14. Price Quantity P MgC in competition MgC in Monopoly Q MgR • BRESNAHAN, T. F. The oligopoly solution concept is identified. Economics Letters , 10, 87-92, 1982. • LAU, L. J. On identifying the degree of competitiveness from industry price and output data. Economics Letters, 10, 93- 99, 1982. Competition Market power
- 15. These tests sometimes are wrongfully used in cartel cases!
- 16. Refusal to deal case ( 08700.001831/2014-27) Tank trunks Hydrant network
- 17. Kerosene Brazilian Market It was used in this case Bresnahan Lau test by the incumbents to demonstrate that although they have significant market shares, they compete very fiercelly in the market
- 18. The case is still pending. DEE did not accepted the result of Bresnahan Lau exercise, because parties did not try to rotate the demand curve.