Competition Law And Monopsony Economics Essay

cont closinger honor And Monopsony scotchs Essay piece of tail a vendee be the biggest bully? The classical possibility of monopsony answers this question. It envisions a portion out scenario with only one buyer, who give the gate engagement his leverage to bring down the quantity of crop purchased, in that respectby driving down the price that he has to pay. Seldom does a monopsonistic situation a acquire in the securities industry place, so frequently so that little has been thought till date about the electric potential adverse have-to doe with of much(prenominal) a scenario on merchandise contention. early(a) reason for the antitrust analysts app bent neglect of the power on the buyers side of the commercialisedize placeplaceplace whitethorn be that such power tends to reduce the change price of a commodity, thereby do a prima facie addition in consumer wellbeing1, which has al counselings been one of the traditional goals of rival law.The tell l ack of emphasis, unfortunately, remains blind to the symmetry of trades for ein truth seller there is a buyer. in that respectfore, just desire sellers, buyers too whitethorn have commercialize power. In course of this research bug out, the tec intends to drive home the read that price fixing and new(prenominal) forms of collusion are just as unlawful when the victims are sellers rather than buyers. Also referred to as the flip-side version of monopoly2, monopsony spate thus have valid antitrust concerns.The primary aim of this project is to analyze the theory of monopsony from an antitrust law approach. In the first chapter initial part of the project, the researcher has wind a brief description of the measuring rod monopsony theory and the economical implications thereof. In the next chapter, the concerns of monopsony at a dispirit place antitrust law volition be addressed with significant emphasis on the concept of c all out of ascendant moorage. Finally, the re searcher exit give examples of judicial interpretation of monopsonies. all told other forms of legislative remedies dealing with monopsony fall outside the scope of this paper.B. Graeco-Roman Monopsony -What does It Entail?Pure monopsony can be looked upon as the demand-side analogue of the monopoliser who is a single seller. It thus follows that just as the monopolist has merchandise power in selling its products the monopsonist has buying power in acquire its necessities too.3The economic grievance towards two is therefore similar too -both induce social welfare losses.From a slightly contrary perspective, the social welfare effects of monopsony are analogous to those of monopoly -too few resources will be industrious in the production.4At the point where supply intersects with demand, the value of the good, as metric by the demand price, equals the cost to society of providing that quantity as careful by the supply price. At this point, the employment level is optimal in a social sense because all of the gains from trade have been realized, and inwardness welfare is maximized. However, the monopsonist will non hire this lean of units because it is non in camera optimal to do so it will employ a little quantity. As a impression, too few resources will be employed, as has been stated above and the monopsonist will finally forgo potential gains from trade opportunities.5Since the monopsonist forces a lower price upon suppliers, one may infer that its be for conversion of the intermediate good into a final one will fall as a result and consumers (of that final good) will reach through lower prices on the monopsonists takings.However, the researcher would like to differ from such inference and point out that the monopsonist does not pass on state lower costs simply because the pertinent costs for pricing decisions are marginal costs.6What the researcher intends to portray is that monopsony power is to the demand side of a market what monop oly power is to the supply side. Monopoly power is indicated by the ability of sellers to wake up price above competitive levels, which requires the ability to limit output. Monopsony power, on the other hand, involves the ability of buyers to lower excitant prices below competitive levels, which requires the ability to hold in the quantity demanded of the remark.7In either case, the quantity that would be exchanged is less(prenominal) than the quantity exchanged down the stairs competitive conditions, and the result bespeaks allocative inefficiency.8Furthermore, the fact that the flowd input prices enjoyed by the monopsonist do not lead to reduced output prices, is, frankly, ironical. On the contrary, when the monopsonist has market power in its output market, the reduced input prices cause higher output prices.C. Monopsonist Concerns- shout out of possessive carriageThe Indian Competition make out, 20029aims at preventing practices which have adverse effect on competiti on, to nourish the interest of consumers and to ensure freedom of trade carried on by other participants, in markets, in India.10It is important to note here that the Indian Competition Act, like nearly other legislations introduces the concept of ill-usage of controlling position. This mode that it nixs only abuse of power not the mere use of it.11There are primarily three stages in determine whether an enterprise has mistreated its dominant position. The first stage is specify the germane(predicate) market. The second is find out whether the concerned trade union movement is in a dominant position in that relevant market. The third stage is the determination of whether the undertaking in a dominant position has engaged in behaviors specifically prohibited by the statute or amounting to abuse of dominant position or movement to monopolize under the applicable law.12The competition laws of the European Union, United Kingdom, Germany and India double back a general prohib ition on the abuse of dominance by undertakings/enterprises. Article 8213of the Treaty of the EC, element 18(1)14of the Competition Act, 1988, U.K., Section 4(1)15of the Indian Competition Act, 2002, Section 19(1)16of the German Act Against Restraints on Competition and Section 217of the Sherman Act contain provisions on abuse of dominant position.1. Defining Relevant MarketThe first step in determining whether an undertaking or firm has abused its dominant position is defining the relevant market which has two broad dimensions namely, the relevant product market and the relevant geographical market.18The Indian Competition Act, 2002, defines a relevant product market and relevant geographic market. Section 2 (t) defines the relevant product market as a market comprising all those products or go which are regarded as interchangeable or substitutable by the customer, by reason of the characteristics of the product or service, the prices and the intended use. Section 2 (s) defines t he relevant geographic market as a market comprising the area in which the conditions of competition for supply of goods or provision of serve are sufficiently homogeneous and can be distinguished from the conditions prevailing in neck of the woods areas.There is however, no such case either in India or in other countries, where such a description has been challenged on the causal agency that it takes into account supplier side abuse as only the views of the customers post towards substitutability of the goods is interpreted. Keeping this question aside and assuming that this problem is fixed by judicial interpretation, the other elements of abuse of dominance alike adopt to be assessed.2. Definition of a Dominant Position plot the laws of numerous countries prohibit or restrain illegal the abuse of dominant position or monopoly or attempt to monopolizen of certain endure by undertakings in a dominant position, the manner in which dominant position, monopoly or material degree of market power is defined is different in different countries.The concept of dominance is broader than economic power oer price. It is not the corresponding as economic monopoly, although a monopoly would undefendablely be dominant.19This is a clear indication of the fact that dominance is recognised as cases even by from monopoly and thus the possibility of characterising monopsony as down-stream dominance strengthens here.Explanation (a) to Section 4 of the Indian Act defines dominant position as dominant position means a position of strength, enjoyed by an enterprise, in the relevant market in India, which enables it to-(i) operate independently of competitive forces prevailing in the relevant market or(ii) affect its competitors or consumers or the relevant market in its favour.Unlike the Monopolies and Restrictive Trade Practices Act20where a dominant undertaking had to satisfy a quantitative requirement of control over at least 1/4th of the fundamental goods or ser vices produced or rendered in India, dominant position under the Indian Act21is a position of strength enjoyed by an enterprise in the relevant market, in India which enables it to operate independently of competitive forces or affects its competitors or consumers or the relevant market in its favour.22A number of factors are taken into account to determine whether a particular undertaking or base of undertakings is in a dominant position in the relevant market. The factors to be taken into account are inter alia market share of the undertaking or enterprise, barriers to entry, size of competitors and financial power of the enterprise.23However, the market share that a particular undertaking has in the relevant market is one of the most important factors to be taken into account to determine whether it is in a dominant position and under the laws of some jurisdictions, the universe of a market share of or above a specified level gives rise to a presumption of existence of a domina nt position (although rebuttable).24In Hoffmann-La Roche Co. AG v Commission of the European Communities25, it was observed that the existence of actually hulking market shares though a very important factor, is not constant and its importance varies from market to market according to the structure of these markets. The court of law observed, Furthermore although the importance of the market shares may vary from one market to another, the view may legitimately be taken that very large shares are in themselves, and save in exceptional circumstances, evidence of the existence of a dominant position.26Competition authorities can utilise measures like buyer tautness and e digesticity of supply, as well as operation measures such as profitability and relative bargaining power compared to the sellers, in order to assist them in the assessment of buyer power. The structure of the buyer and the seller markets mustiness also be taken into account.27The number of firms is also essentia l in judging whether buyer concentration can provide a representative measure of buyer power. A small number of firms that account for a high share of purchases indicate that the buyer market is concentrated.283. Abuse of Dominant PositionThe Indian Act does not prohibit dominance or the presence of market power per se, and sheer market power alone, or even market dominance, does not constitute abuse of dominance. Abuse of dominance occurs when a dominant firm, or group of firms, good prevents or lessens competition, by engaging in acts that aim to eliminate or discipline competitors, or simply to stop potential competitors from entering the market in question.The treaty of the EC does not contain an express definition of abuse of dominance but merely lists certain conducts which, if engaged in by a dominant undertaking will amount to abuse of dominance. In Hoffmann-La Roche it was observed that, The concept of abuse is an objective concept relating to the behavior of an undertaki ng in a dominant position which is such as to influence the structure of a market where , as a result of the very presence of the undertaking in question , the degree of competition is weakened and which , through recourse to methods different from those which condition normal competition in products or services on the basis of the transactions of commercial operators , has the effect of hindering the maintenance of the degree of competition still existent in the market or the growth of that competition.29In Europemballage Corporation and Continental Can Company Inc. v Commission of the European Communities30it was observed that, Abuse may therefore occur if an undertaking in a dominant position strengthens such position in such a way that the degree of dominance reached substantially fetters competition, i.e. that, only those undertakings remain in the market whose behaviour depends on the dominant one.In the light of the fact that the lively antitrust legislation prohibits only a buses of power, the question assumes significance as to whether in cases of either monopoly or monopsony, it would entail an abuse of market power to use that power merely to influence price. Rationality suggests that the legislative prohibition should elongate only to price-only effects. However, later cases will reveal how only price-effects are not enough and that a closer look must be taken to strike down abusive case of monopsony by the judiciary.D. Judicial Trends under Monopsony- A Concern for society?Recent surveys conducted in U.K.31have revealed that the sure judicial trend is towards substantive abbreviation, quite of the bright line tests32that were in vogue before. As a result, judges are required to value in entirety economic consequences of an action, lest they commit mistakes. For example, if judiciary uses initial impact on price as the test for prohibited conduct, monopsonistic behaviour may be excused, even when it ought not to be. Such a conclusion, although erroneous, may be reached at in the following cases first, strictly from substantive perspective, judiciary may perceive lower prices as an indicator of the harmlessness of a practice. Moreover, procedurally speaking, injury suffered by sellers who have been compelled to sell their outputs at lower prices may not specialise as antitrust injury in the traditional sense.The researcher would in this context draw attention towards a recent controversy environ the matter of Balmoral Cinema v. Allied Artists Pictures,33which highlights the significance of proper economic psycho outline of monopsony scenario. In this case, the exhibitors (buyers) colluded to refrain from competitive bidding for films offered by distributors. While such an action might have fallen foul of measure bright-line antitrust analysis as a per se unlawful plane agreement to fix price, the judiciary held instead that the practice of the colluding buyers was simply causing lowering of prices paid by exhibitors t o distributors, which might lower prices to movie-goers at the recess office, thereby facilitating rather than undermining consumer welfare. Without delving into propriety of the judgement, the researcher would like to posit that it had travel along perilously close to equating lower prices with overall economic benefit. It is for this very reason that in the case of monopsony, the presence of lower prices should not end the analysis because there is no correlation between an initial decrease in prices and any overall long-run benefits to consumers.E. ConclusionThe aforementioned analysis clearly indicates that there is a buyer for every seller and anticompetitive conduct by buyers can cause adverse economic consequences similar to those caused by sellers anticompetitive behaviour. However, the competition policymakers are yet to fully incorporate the symmetry of markets into their analyses, instead restricting their focus solely on seller-behaviour. Especially in a country like I ndia, monopolistic tendencies are in essence seek to be curbed. It is highly doubtful if the courts would really read monopsony into the statute and declare it bad in law as well. The Indian judiciary must strengthen the economic foundations for dealing with anticompetitive conduct by buyers too. The requirement assumes all the more significance owing to the simple statement of fact that concentration of power on the buying side of a market close to inevitably causes a decrease in price, which may tempt a judge in turn to erroneously stop substantive analysis at that stage, or declare that the plaintiffs have not suffered antitrust injury.34In course of this project, the researcher has sought to emphasize a few matters. First, lower input prices resulting from the exercise of monopsony power do not ultimately learn into lower prices to the monopsonists customers and increased overall consumer welfare. Thus, neither the substantive nor the procedural analysis should stop with the initial impact on input price. Second, the monopsony model typically employed in many economic texts and antitrust casebooks seriously understates the categorisation of consequences of the exertion of monopsony power. Finally, the long-run consequences of monopsony must not be ignored. Lower input prices in the short run may mean decreases in both future supply and in ultimate, overall consumer well-being.This conclusion has implications on the indicate about whether the antitrust laws should be applied usingconsumer welfare or total welfare standard. Those espousing the consumer welfare standard believe that antitrust analysis should focus on the interests of consumers who purchase a final end product or output in the chain of distribution. In contrast, proponents of the total welfare standard argue that the antitrust laws should seek to maximize societys wealth as a whole rather than focusing on any one lawsuit of market participant.The fact that many courts and enforcers outsi de India have not been unwilling to condemn anticompetitive buy-side conduct, which potentially poses little or no direct menace to consumer welfare, suggests a willingness on their part to take into account the interests of all market participants. Perhaps this indicates some recognition by courts and enforcers that in the long run, monopsony can ultimately be just as harmful to consumers as anticompetitive conduct occurring in the output market. While the judicial decisions may not completely resolve the debate about the consumer welfare and total welfare standards, mayhap it helps to solidify to some degree what courts and enforcers have been suggesting all along-that conduct on the buy side of the market should be treated just as strictly as conduct on the sell side of the market.Thus, the researcher hopes that the Indian law and judiciary will develop, in light of these rulings afield to set aside the traditional perception of sellers being largely repellent to antitrust v iolations.F. BibliographyStatutesCompetition Act, 1988, United Kingdom 6Gesetz gegen Wettbewerbsbeschrnkungen, GWB (German Act Against Restraints on Competition,1956 6Sherman Act, United States, 1890 6The Competition Act, 2002, No. 12 of 2003 5The Monopolistic and Restrictive Trade Practices Act, 1969 8Treaty of the European Communities, 2003 6CasesBalmoral Cinema v. Allied Artists Pictures, 885 F. 2d 313 (sixth Cir. 1989). 8Europemballage Corporation and Continental Can Company Inc. v Commission of the European Communities, 1973 EUECJ C-6/72. 10Hoffmann-La Roche Co. AG v Commission of the European Communities, ECJ, Case 85/76, Dated 13 February 1979. 9Ilan Golan v. Pingel Enterprises Inc, 310 F.3d 1360, 1370 (Fed. Cir. 2002) 6Image Technical Services Inc v. Eastman Kodak Co, (90-1029), 504 U.S. 451 (1992) 6Queensland fit Industries Proprietary peculiar(a) v. The Broken Hill Proprietary Company Limited and another 1989 HCA 6 (1989) 167 CLR 177 6United Brands Co and United Brands Continental BV v. The Commission of European Communities, (1978) 1 CMLR 429. 9Works of Publicists and AuthorsGeoffrey A. Manne E. Marcellus Williamson, Hot Docs v. algid economic science The Use and Misuse of Business Documents in antimonopoly Enforcement and Adjudication, 47 Arizona honor analyze 609. 12John J. 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