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The identification of relevant market in case of multiple aftermarkets

The identification of relevant market is fundamental to recognize where competition takes place, which are the actors involved, and if anticompetitive practices have taken place.

An important aspect that competition authorities take into consideration when defining a relevant market is the presence of a secondary or aftermarket (e.g. printers and toners), and whether to consider it separately from its primary market. However, it may also be the case that one firm is competing in more than one secondary market, and the question becomes whether those aftermarkets constitute a single relevant market or not.

One case that serves as example is the one initiated in July 2010 by the European Commission against International Business Machines (IBM) on the ground of alleged discriminatory behaviour towards competing suppliers of IBM mainframe maintenance services; the Commission concluded that IBM, abusing of its dominant position in the market for maintenance services, might have imposed unreasonable supply conditions on its competitors.

To reach such decision, several product markets where IBM was competing have been identified.

  • Primary market: large corporate servers market, where IBM sells its mainframes. Such market and its aftermarkets were considered as separate (the Commission refers to the Kiocera/Pelican case[1]).
  • Aftermarkets: i) the one of inputs (supplied only by IBM) required for the maintenance of IBM mainframes and necessary to operate in ii) the one of maintenance service themselves for IBM mainframes.

In the maintenance service aftermarket compete IBM and Third-Party Services (TPMs); the abuse of dominance was alleged as IBM alone earns between 70% and 95% of the revenue in such market[2].

The question faced by the Commission was whether to consider the two aftermarkets as a single relevant product market – on the base that they constitute a “system” – or not. Such distinction was crucial as the unfair conditions claimed by TPMs were happening in market i, but resulted into severe competitive disadvantages for the same TPMs operating in market ii. If the two markets were to be considered as separated, a judge may be less prone to recognize the casualty effect and thus admit anticompetitive practices have taken place.

The Commission concluded the two aftermarkets could be considered as a single product market using the same criteria commonly adopted for deciding on the separation of primary and secondary markets; on the grounds that, following a moderate price increase in the aftermarkets, switching to secondary products of other producers is not possible and there are high switching costs in the market for the primary product, in those aftermarkets IBM could act as a potential monopolist without losing considerable demand. The same concept was applied to identify the scope of the relevant markets, which was defined as at least European-wide, considering IBM policy regarding the supply, pricing, and the distribution of inputs is equally implemented across the area.

The case serves as example for the applicability of the definition of relevant market, which can be extended in ambiguous cases where multiple aftermarkets are present and anticompetitive practices exert severe consequences on several other markets.

 

Martina Barbanera

 

 

References

Aoife White, “IBM Settles European Union Antitrust Dispute Over Mainframes”, Dec 14 2011 on Bloomberg.com

http://www.bloomberg.com/news/2011-12-14/ibm-settles-european-union-antitrust-dispute-over-mainframes-1-.html

Domanico, F., Angeli, M. (2012) An Analysis of the IBM Commitment Decision concerning the Aftermarket for IBM mainframe maintenance. Competition Policy Newsletter, number. 1, 2012.

European Commission, Commission Decision of 13/12/2011 addressed to International Business Machines Corporation relating to proceedings under Article 102 of the Treaty of the Functioning of the European Union and Article 54 of the EEA Agreement. Case COMP/C-3/39692-IBM Maintenance Services.


[1] XXVth Report on Competition Policy, COM(96)126, paragraphs 86, 87 on the Pelikan/Kiocera decision

[2] European Commission Decision of 13/12/2011, COMP/C-3/39692-IBM Maintenance Services

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Author: studentnovasbe

Master student in Nova Sbe

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