This presentation by Greece 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.

1. MEASURINGVERTICAL MARKET
POWER
Dr. NIKOLAOS LIONIS
HEAD OF MARKET MAPPING AND RESEARCH UNIT
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2. BACKGROUND CASE
SECTOR INQUIRY INTO BASIC CONSUMER GOODS
 HCC conducted a sector inquiry into production, distribution and
marketing of basic consumer goods.
 11 products: Cured meat products, Soft drinks, Powdered laundry detergents,Yogurt
and yogurt desserts, Cereals for breakfast, Pasta, Coffee, Legumes, Feta cheese,Toilet
paper and Sliced bread.
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September 2019
The sector
inquiry was
prioritized
April 2020
An Interim
Report was
published
July 2020
A public
consultation
inviting interested
parties to submit
comments and
participate in a
teleconference
took place
March 2021
The Final Report
was published

3. BACKGROUND CASE
SCOPE AND OBJECTIVES OF THE SECTOR INQUIRY
 The sector inquiry aimed to outline in detail the operation of the markets for the production, distribution and marketing of the selected basic
consumer goods in Greece considering:
 The emerging changes with the development of e-commerce and the advent of new technologies;
 The overall economic impact of the retail sector, the value of the network and its links to other economic activities.
 The sector inquiry examined:
 The structure of the supermarket sector (Chapters 2 & 3);
 The structure of the supermarket supply chain for the selected products and the regulatory framework governing its operation (Chapter 4);
 The bargaining power of suppliers and supermarkets by using dedicated economic quantitative and econometric analysis (Chapter 5);
 Special marketing and distribution issues, i.e.:
 Specific discount practices (Chapter 6);
 Category management (Chapter 7);
 Private labels (Chapter 8);
 Buying alliances (Chapter 9).
 The sector inquiry
 identifies and discusses possible competition law problems along every stage of the supply chain;
 proposes actions and suggests measures that will improve its effectiveness for the benefit of the final consumer.
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4. COMPETITION AND MARKET POWER IN THE
RELEVANT MARKET
 Horizontal competition and vertical
competition coexist and complement each other
in the representation and implementation of the
relations between the players in the relevant
market.
 The evaluation of market power in such a complex
context is challenged by the twin existence of
horizontal and vertical market power.
 Vertical market power is linked to the possession
of superior bargaining power by a company
operating in the upstream or downstream market
that enhances its ability to stifle competition and
extract largest percentage of surplus value
generated by the value chain.
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Supplier 1
Supermarket 2
Supermarket 1
Supplier 2
Consumers

5. METHODOLOGY USED TO ASSESS MARKET
POWER
 The sector inquiry gave the opportunity to the HCC to apply methodologies for the assessment of
both horizontal and vertical competition and bridge the gap between vertical power theories and more
traditional horizontal market power theories for the analysis of anti-competitive practices.
 Novel indicators to assess vertical market power.
 Examine how the structure and the characteristics of the value chain, i.e. the network in which economic agents co-
create value, affect power allocation between its members.
 Lianos, Ioannis and Carballa Smichowski, Bruno, Economic Power and New Business Models in Competition Law
and Economics: Ontology and New Metrics (March 15, 2021).Available at SSRN: https://ssrn.com/abstract=3818943
or http://dx.doi.org/10.2139/ssrn.3818943.
 Standard econometric analysis to assess horizontal market power.
 Examine the interactions between supermarkets and their suppliers in the formulation of supply conditions as a
result of negotiations between them, which is linked to the supply price as a measure of bargaining power, mostly
focusing on horizontal effects (horizontal competition) on specific markets.
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6. MEASURINGVERTICAL MARKET POWER
 The new indicators have their origin in the differential dependency theory of social exchange
theory and the important role of a company's central position in a network according to
network theory.
 Central firms are those on which the whole value chain depends more to function because they
perform tasks that are more necessary to assure the overall coordination of the value chain.
 Firm’s differential dependency, i.e. the possibility of unequal access to essential resources within the
value chain, is the ultimate reason of resource-based power.
 This form of market power is vertical in that it is exerted from suppliers to buyers or vice versa,
and in that it affects the whole value chain and not only the upstream or downstream tiers
directly linked to the firm exerting it.
 The value chain is represented as a network with firms as nodes and transactions as vertices
(links).
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7. VERTICAL POWER AT THE FIRM LEVEL
 Central firms are those on which all other firms of the value chain depends more to
operate because they perform tasks and/or handle a considerable volume of the
transactions (sales).
 If a central firm was to leave the value chain, the value loss for the latter would be greater
than if a non-central easy-to-replace firm left.
 Centrality of a firm within the value chain was measured using the indicator
𝑩𝒆𝒕𝒘𝒆𝒆𝒏𝒏𝒆𝒔𝒔 𝑪𝒆𝒏𝒕𝒓𝒂𝒍𝒊𝒕𝒚 𝑵𝒙 =
𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒑𝒂𝒕𝒉𝒔 𝒑𝒂𝒔𝒔𝒊𝒏𝒈 𝒕𝒉𝒓𝒐𝒖𝒈𝒉 𝑵𝒙
𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒑𝒂𝒕𝒉𝒔 𝒊𝒏 𝒕𝒉𝒆 𝒏𝒆𝒕𝒘𝒐𝒓𝒌
where Nx stands for node (firm) x of the network of companies within the value chain.
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8. VERTICAL POWER AT THE FIRM LEVEL
 Since vertices represent a firm performing a transaction, the bigger the share of shortest paths that pass
through firm X relative to other firms in the network, the more essential that firm’s contribution to the
value chain is compared to others.
 In other words, a firm’s betweenness centrality relative to other firms’ betweenness centrality (relative centrality)
translates its differential dependency within the value chain.
 Resource-based vertical market power based on differential dependency was measured using the
indicator
𝑺𝒉𝒂𝒓𝒆 𝒐𝒇 𝑺𝒒𝒖𝒂𝒓𝒆 𝑩𝒆𝒕𝒘𝒆𝒆𝒏𝒏𝒆𝒔𝒔 𝑪𝒆𝒏𝒕𝒓𝒂𝒍𝒊𝒕𝒚 =
𝑩𝑪 𝑵𝒙
𝟐
σ𝒊=𝟏
𝒏
𝑩𝑪 𝑵𝒙
𝟐
where Nx stands for node (firm) x of the network of companies within the value chain.
 It should be noted that given that the indicator is built as a share and that it includes firms downstream
and upstream of the entire value chain, it can be interpreted as the share of vertical power each firm
holds within the value chain.
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9. THE PASTA SUPPLY CHAIN IN GREECE
Network of pasta
sales/purchases between
Greek suppliers and
supermarkets in 2019
 Green nodes represent
suppliers.
 Red nodes represent
supermarkets.
 The width of the links is
proportional to the volume
of net sales.
 The number of paths passing
through a node is equal to
the share of sales/purchases
of the supplier/retailer.
 Nodes’ size is proportional
to the corresponding firm´s
level of vertical market
power calculated using the
SSBC indicator.
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10. THE PASTA SUPPLY CHAIN IN GREECE
 Supplier 63 concentrates most of vertical power in the value chain, with a SSBC indicator level of
55%. Its market share is 30%.
 The second firm in terms of vertical power is supplier 1 with a SSBC indicator level of 21%.This
contrasts with its market share of 36%.
 This discrepancy between the two indicators would have an impact under European
Commission´s threshold of 40% to establish dominance.
 The reason of this discrepancy lies in the fact that supplier 1’s market share is highly concentrated
in a single buyer, i.e. supermarket 45.The latter, in turn, divides its purchases more equally between
suppliers 1 and 63.As a result, supplier 1 has less bargaining power than its market share would
suggest.
 This example illustrated how using the SSBC indicator can diminish the likeliness of false
positives when assessing dominance.
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11. THE SOFT DRINK SUPPLY CHAIN IN GREECE
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Network of soft drink
sales/purchases between
Greek suppliers and
supermarkets in 2019
 Green nodes represent
suppliers.
 Red nodes represent
supermarkets.
 The width of the links is
proportional to the volume
of net sales.
 The number of paths passing
through a node is equal to
the share of sales/purchases
of the supplier/retailer.
 Nodes’ size is proportional
to the corresponding firm´s
level of vertical market
power calculated using the
SSBC indicator.

12. THE SOFT DRINK SUPPLY CHAIN IN GREECE
 Supplier 21 concentrates most of the vertical market power with a SSBC indicator of 52%.
 However,its market share is 50% because the main buyers, supermarkets 45 and 9, are highly
dependent on it to obtain their supply.
 Although slight, this discrepancy would have a considerable impact in the less interventionist
courts of the United States, which have used a 50% threshold to establish dominance.
 A market share of 50% (49.82% to be precise) could have raised doubts regarding supplier 21’s
dominance in the eyes of these courts. However, if the SSBC indicator was to be used, even the less
interventionist courts would conclude supplier 21 is dominant in the soft drinks wholesale market.
 This example illustrates how the SSBC indicator reduces false negatives when assessing
dominance.
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13. VERTICAL MARKET POWER DISTRIBUTION
AMONG FIRMS
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14. VERTICAL POWER AT THEVALUE CHAIN LEVEL
 An indicator of vertical market power at the supply chain level was also calculated.
 Given that each firm’s level of power corresponds to its share of the sum of the square
betweenness centralities of all the firms of its value chain, a way of assessing the level of
power imbalances within the value chain consists in calculating the HHI index for all the
firms of the value chain using their SSBC instead of their market shares.
 In that manner, the resulting indicatorVertical HH (VHHI) measures how (un)evenly
vertical power is distributed within a value chain.
𝑽𝑯𝑯𝑰 = ෍
𝒊=𝟏
𝒏
𝑺𝑺𝑩𝑪𝟐
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15. VERTICAL POWER AT THEVALUE CHAIN LEVEL
OFTHE 11 PRODUCTS
 The colour of the cells does not represent a specific threshold.
 In red supply chains with significant vertical purchasing power.
 In green supply chains with limited vertical purchasing power.
 Yellow and orange represent cases of moderate bargaining power.
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16. VERTICAL POWER AT THEVALUE CHAIN LEVEL
OFTHE 11 PRODUCTS
 Some markets are characterised by relatively stable and low levels of vertical bargaining power between 2015 and 2019
(i.e. breakfast cereals, cold cuts, yogurt and yogurt desserts and toilet paper).
 Some others (such as toast, pulses and coffee) are characterised by relatively high levels of vertical market power for the
same (time) period.
 While the pasta market consistently showed a medium-low level of vertical power in the market between 2015 and
2019.
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17. VERTICAL POWER AT THEVALUE CHAIN LEVEL
OFTHE 11 PRODUCTS
 Some markets show significant variations in the level of vertical market power during the above years (2015-2019).
 Thus, the feta cheese market showed a medium-high level of vertical purchasing power in 2015 and 2016; however, in
2017 it decreased by almost 50% to stabilize at a low level since then.
 Respectively, for the detergent powdered for washing machine products, in 2017 the bargaining power in the market
started to increase from low levels to achieve one of the highest prices in 2019.
 Finally, the soft drink industry showed a differentiation in the level of vertical bargaining power. Specifically, it started at a
high level in 2015 and then the level alternates between significant
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18. VERTICAL MARKET POWER IMBALANCES
 In order to compare the level of vertical power asymmetries between several value chains,
another indicator that assess the level of power imbalances within a value chain, was calculated.
 The indicator used is:
𝟏
𝒏
σ𝐢=𝟏
𝒏
𝑺𝑺𝑩𝑪𝟐 − 𝑺𝑺𝑩𝑪𝟐
𝑺𝑺𝑩𝑪
 The indicator measures the level of market power in a value chain resulting from resource-based
vertical power based on differential dependency.
 The higher the indication of the above equation is, the more imbalanced power is among market
players in the value chain.
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19. VERTICAL MARKET POWER IMBALANCES
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 The supply chain level vertical market power is far from being homogeneous across product
categories.
 It ranges from [5-10]% in the toilet paper supply chain, i.e., a level that could be considered to be
low, to [25-35]% in the refreshments supply chain, which could be considered to be high.
 Intermediary levels can be found within this range in other supply chains such as cold cuts or feta
cheese.
 This supply chain level of market power translates into firm level vertical market power of the
most powerful firms of each supply chain (either supplier’s or supermarkets).

20. SUMMARY AND CONCLUSIONS
 The new SSBC andVHHI indicators:
 Reduce false negatives or positiveness when assessing market dominance.
 Maps in detailed the distribution of firm’s bargaining power within the studied market.
 Reveals the specific dynamics of the bargaining power of the market.
 Decision to form a “SupermarketTaskforce” to continuously monitors the
competitive situation in the retail sector, measure bargaining power of the
supermarket chains and suppliers based on this new methodology and prepare a
detailed report every twelve months.
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21. THANKYOU!
NIKOLAOS LIONIS
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