Transcript Industrial economics and antitrust

Industrial economics and
antitrust
Oxana Fornea
Fabrice Van Ex
The Tetra Pak case
The Tetra Pak case

Introduction

Situating the Tetra Pak Case

Investigational Questions

Economical Analysis

Conclusions

References
Introduction


Tetra Pak – one of the world leaders in the field of
cartons for liquid food and the technology for filling
these cartons
Tetra Pak company started in 1951 in Sweden with a
single product, the tetrahedronshaped package
known as « Tetra Pak Standard »
Introduction



In 1969 – the introduction of Tetra brik aseptic
packaging system which allowed liquids to be
hermetically sealed in cartons (‘long-life products’)
Tetra Pak’s largest market is Europe, with 54% of its
total turnover in 1985 and XX in 2004
Tetra Pak controls about 90% of the aseptic sector in
the European Community
Situating the Tetra Pak case
Complaints of competitor ELOPAK:


Tetra Pak sells cartons & machines at predatory
prices
Tetra Pak imposes unfair contractual conditions on
the sale/lease of its machines in order to reduce
Elopak’s competitiviness and drive it out the market
Situating the Tetra Pak case


In 1991 the European Commission fines Tetra Pak for
its anti-competitive behavior in the non-aseptic
cartons market
Tetra Pak has abused its dominant position in the
aseptic sector, to establish an anti-competitive
dominant position in the non-aseptic sector
Situating the Tetra Pak case

The European Commission distinguished four distinct
markets:
4 MARKETS:
Aseptic Cartons (AsC)
Non-aseptic Cartons
Machines for AsC
Machines for Non AsC
Commission’s view on the
markets
100
90
80
70
60
50
40
30
20
10
0
TetraPak
PKL
Others (4)
As Cartons
Machines
Nas Cartons
Machines
Interpreting the figures
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The only competitor of Tetra Pak in the aseptic sector
(cartons and machines) was PKL (with resp. 20% and
10% market share)
The non-aseptic sector (cartons and machines) is less
concentrated: 6 competitors instead of 2, Tetra Pak’s
market shares, although still important, are much
smaller than in aseptic sector
Conclusion of the Commission


Tetra Pak’s has abused its market power in the
aseptic sector to establish a dominant position in the
non-aseptic sector
The goal of Tetra Pak’s strategy was to eliminate
actual or potential competitors and/or their
technology in the Non-Aseptic market by using
vertical and horizontal market power transfer from
the aseptic business
Arguments of Tetra Paks
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There hasnot been any voluntary strategy for using Tetra
Pak’s dominant position in the aseptic sector to establish a
dominant position in the non-aseptic sector
Moreover, Tetra Pak doesn’t have a dominant position in
the non-aseptic market since the relevant market having a
much larger scope than defined by the Commission: not
only cartons but also other packaging materials (glass,
plastics, etc.)
The competitive pressure in the non-aseptic packaging
market is thus quite high, due to important substitution
possibilities to cartons and due to much more competitors
Tetra Pak’s view on the
market
90
80
70
60
50
TetraPak
Others
40
30
20
10
0
As Cartons
Nas Packs
Investigational questions
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Did Tetra Pak deploy anti-competitive actions in the
non-aseptic market (cartons & machines)?
Was there an abusive use of TP’s dominant position
in the aseptic market to strenghten its position in the
the Non-Aseptic market?
Economical Analysis of the
Case: Key issues
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Relevant Market Definition Problems
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Market Dominance
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Predatory Pricing
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Exclusive contracts and Tie-ins
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Conclusion
Relevant Market Definition
Problems
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Difficult issue in industrial economics and hence also
in Tetra Pak II case
RECALL: Commission distincted 4 separate markets
although considering As.market (cartons&packaging
systems) as closely related to Non-As.market
A distance metric = (average) price elasticity of
substitution, but:
 Value is difficult to measure and varies a lot;
 Intuitive ε -> cfr. In-class test
An In-class intuitive test
Is the carton package market closely related to other package
markets?
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Carton, Bottle: Pc=Pb=1; Qc=?; Qb=?
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If Pc*=1.20 and Pb=1; Qc*=?; Qb*=?
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If Pc**= 1.50 and Pb=1; Qc**=?; Qb**=?
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Carton, Plastic: Pc=Pp=1; Qc=?; Qp=?
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If Pc*=1.20 and Pp=1; Qc*=?; Qp*=?
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If Pc**=1.50 and Pp=1; Qc**=?; Qp**=?
Relevant Market Definition
Problems
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Tetra Pak: “long term elasticity of substitution in NonAs.market = high”
“Glass bottles, plastic bottles, metal contents, new
technology, etc. -> provide high degree of
interchangeability with (our) cartons”
“Competitive pressure will be important enough to
assure competitive pricing”
Relevant Market Definition
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EC recognized potential interchangeability between
different types of packaging modi, but only in long
run
In short and medium term analysis, relevant market
was market of non-aseptic cartons -> price elasticity
of substitution close to 0 !
Commission & ECJ: relevant market = Non-aseptic
Cartons (resp. filling machines)
Market Dominance
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RECALL: Market dominance in As. Market is clear
(90-95% market share, strong vertical integration,
technical know-how) but less clear in Non-As. Market
Commission didn’t explicitely consider Tetra Pak
(45% market share) having market dominance in
Non-As. Market
Commission considered TP’s market (super)
dominance in As-Market as basis for abusive actions
in Non-As.Market
Market Dominance
Some factors:

Market Share
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Number of competitors
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Relative firm size
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Degree of vertical integration
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Control of distribution process
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Technical know-how
RECALL of allegations towards
Tetra Pak
1.
Use of Predatory prices when selling cartons and filling
machines
2.
Applying unfair contractual conditions when supplying
machines
GOALS:
- To Kick out/buy out competitors
- To Erect barriers for potential new entrants
1. Predatory Pricing
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1 element of TP’s abusive behaviour following EC and ECJ
ECJ: “where prices are below the average variable cost,
predation must always be presumed” [cfr. Vickers (1999)
on cit.]
ECJ didn’t explicitely consider TP’s recoupment possibilities
of short-term losses (= quite rare)
ECJ: event pricing above variable cost but less than total
cost is abusive if “part of plan for eliminating competitor”
[cfr. Vickers (1999) on cit.] (= also quite rare)
ECJ not considering TP explicitely as being dominant firm
in Non-As. Market when deciding of predatory pricing (=
very rare)
2. Exclusive contracts and
Tie-ins
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Tetra Pak used exclusive contracts when supplying
machines, including:
 Exclusive rights to maintain & repair machines;
 Exclusive right to supply spare parts.
 Priority right of machine repurchase by TP at
prearranged price
Tetra Pak included Contract penalties when switching
supplier
Tetra Pak applied Tie-ins: i.e. tied sale/use of TP’s
cartons together with TP’s machines
2. Exclusive contracts and
Tie-ins
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Erects entry barriers for new entrants since they
would have to compensate (e.g. in their output
prices) penalty costs of customers switching from
Tetra Pak to them.
Designed to prevent entry and capture entrant’s rents
(via penalty clauses) and cheap buyouts
Tetra Pak: “exclusive contracts are due to complexity
of sector and products and are not deliberated
predative strategy” [Nalebuff and Majerus (2003) on cit.]
Conclusions
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Tetra Pak case is considered as very interesting in the
industrial organisational literature since it led to an
investigation/condamnation of several distinct anticompetitive actions in a same case.
Using a dominant position in a distinct (although
closely related?) market to decide about abusive use
of it in another market was/is quite uncommon.
Opinions in industrial organisation literature about
anti-competitive character of Tetra Pak’s behaviour
and strategy, are quite divided, as well as
conclusions.
References

GARCIA-GALLEGO A. and GEORGANTZIS N. (1999),
Dominance in the Tetra Pak Case: An Empirical
Approach, European Journal of Law and Economics,
7, 137-160
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HABORD D. and HOEHN T. (1994), Barriers to Entry
and Exit in European Competition, International
Review of Law and Economics, 14, 411-435
LOWE Ph. (2003), EU Competition Practice on
Predatory Pricing, Introductionary Adress to the
Seminar “Pro and Cons of Low Prices, Stockholm.
References

NALEBUFF B. and MAJERUS D. (2003), Bundling,
Tying and Portfolio Effects, DTI Economics Paper n°1
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SCHERER F.M. (1980), Industrial Market Structure
and Economic Performance, Chicago Press

TIROLE J. (2004), The Analysis of Tying Cases: A
Primer, Working Paper, 1-21
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VICKERS J. (2005), Abuse of Market Power, The
Economic Journal, 115, 244-260