Criteria for relevant market definition in some contries experiences for vietnamese laws on competition

A group of enterprises shall be deemed to be in a dominant market position if they act together in order to restrain competition and fall into one of the following categories: a Two ent

ON COMPETITION

COURSE: 32 STUDENT CODE: 3260111

HO CHI MINH CITY - 2011

I hereby affirm that this thesis is my own study under the supervisor’s guidance

All of the information other than my idea to be used or quoted has been

acknowledged by means of complete references I would bear

full responsibility for my protest

July 14th, 2011

Lê Trung Nhân

TABLE OF CONTENTS

INTRODUCTION 1

CHAPTER I 1

OVERVIEW OF COMPETITION REGULATIONS AND SOME FUNDAMENTAL CONCEPTS OF RELEVANT 9

1.1 Introduction of “market” and “relevant market” concepts and paramount role of relevant market definition in competition law 9

1.1.1 Introduction of “market” and “relevant market” concepts 9

1.1.2 Paramount role of relevant market definition in competition law

10

1.1.2.1 European 10

1.1.2.2 The United States of America 11

1.1.2.3 Vietnam 12

1.2 Overview of regulations governing the relevant market definition in some countries 13

1.2.1 European 13

1.2.2 The United States of America 15

1.2.3 Vietnam 16

1.3 Concept of relevant market definition in competition law 17

1.3.1 The “relevant market definition” concept in EU regulations 17

1.3.2 The “relevant market definition” concept in US regulations 18

1.3.3 The “relevant market definition” concept in Vietnamese regulations 19

1.4 Remarks 20

CHAPTER II 22

FOREIGN REGULATIONS ON THE CRITERIA FOR RELEVANT MARKET DEFINITION 22

2.1 Relevant product market 22

2.1.1 Overview 22

2.1.2 Hypothetical monopolist test process 23

2.1.3 Assessing substitution under the hypothetical monopolist test 25

2.1.3.1 Demand-side substitution 25

2.1.3.2 Supply-side substitution 29

2.2 Relevant geographic market 32

2.2.1 Overview 32

2.2.2 Basic analytical process 34

2.2.3 Defining relevant geographic market in practice 35

2.3 Remarks 38

CHAPTER III 40

VIETNAMESE COMPETITION REGULATIONS ON THE CRITERIA FOR RELEVANT MARKET DEFINITION AND RECCOMMENDATIONS FOR IMPROVEMENT 40

3.1 Vietnamese regulations on the criteria for relevant market definition

40

3.1.1 Defining the products’ substitutability 40

3.1.2 Defining the geographic region in which the products can be interchangeable to each other 47

3.2 Some recommendations to improve Vietnamese regulations on the criteria for relevant market definition 51

3.2.1 The consumers’ reaction in response to a price increase 51

3.2.2 Time factor in relevant market definition 52

3.2.3 Small but significant non transitory increase in price (SSNIP) test

53

3.2.4 Relevant market definition without depending on traditional habit

55

3.3 Remarks 56

CONCLUSION 57

INTRODUCTION

1 The necessity of doing research

Competition plays an important role in the economy, serving as a driving force of economic growth, especially in developing countries.1 On December 03rd 2004, Vietnamese Competition Law2 (herein after referred to as “the VCL”) was passed after lots of argument and revision Pursuant to regulations stipulated in this law, Vietnam keeps two main sections of competition regulations in one act including restraint of competition and unfair competition At that time, there was an urgent demand to control the restraint of competition especially towards State-owned enterprises Although Law on State Enterprises3 was terminated, State-owned enterprises still exist, many of which possess dominant or monopoly position in Vietnam, i.e this demand also remains Furthermore, controlling the restraint of competition nowadays, especially when Vietnam has just joined the World Trade Organization is considered as

a means of ensuring the equal comparative environment for all sectors of the economy

in Vietnam In other words, the role of controlling restraint of competition is more and more important day by day

Restraint of competition comprises three concepts including agreements in restraint of competition, abuse of dominant market position and monopoly position; and economic concentration, which all related to the concept “relevant market” The more important

to control the restraint of competition is, the more necessary and pressing to define the relevant market becomes

Pursuant to the VCL, market share element plays a paramount role in determination of dominant position Examples are the VCL provisions on prohibited agreements in restraint of competition (Article 9); enterprises and groups of enterprises in dominant

1 Vietnam Competition Authority - Ministry of Industry and Trade (2010), A summary of competition assessment report on ten sectors in Vietnam, p 1

2 Law No 27/2004/QH11 dated December 03 rd 2004 of the National Assembly on Competition

3 The law No 14/2003/QH11 dated November 25 th 2003 of the National Assembly on State Enterprises (hereinafter referred to as “Law on State Enterprises”) shall not be applied after July 01 st 2010 (According to Article 166 of Law No 60/2005/QH11 dated November 29 th 2005 of the National Assembly on Enterprises (hereinafter referred to as “Law on Enterprises”))

market position (Article 11) and prohibited cases of economic concentration (Article 18), as follows:

“The agreements in restraint of competition stipulated in clauses 1, 2, 3, 4 and 5

of article 8 of this law shall be prohibited when the parties to the agreement have a combined market share of thirty (30) per cent or more of the relevant market.” 4

“1 An enterprise shall be deemed to be in a dominant market position if such enterprise has a market share of thirty (30) per cent or more in the relevant market or is capable of substantially restraining competition

2 A group of enterprises shall be deemed to be in a dominant market position if they act together in order to restrain competition and fall into one of the following categories:

(a) Two enterprises have a market share of fifty (50) per cent or more

in the relevant market;

(b) Three enterprises have a market share of sixty five (65) per cent or

more in the relevant market;

(c) Four enterprises have a market share of seventy five (75) per cent

or more in the relevant market.” 5

“Any economic concentration shall be prohibited if the enterprises participating

in the economic concentration have a combined market share in the relevant market of more than fifty (50) per cent…” 6

How to define relevant market is a main process in any investigation of abusive acts inasmuch as only after we know the sphere of relevant market can the market share be identified.7 In case the relevant market is incorrectly defined, all of the next analyzing

4 Sub-article 9.2 of VCL

5 Article 11 of VCL

6 Article 18 of VCL

7 Robert O’ Donoghue and A Jorge Padilla (2006), The Law and Economics of Article 82 EC, Hart Publishing –

Oxford and Portland Oregon, p 63

and discussing steps depending upon the market shares or market structure are useless Nowadays, competition laws of many countries have been making effort on finding out the criteria as well as the effective methods to define relevant market exactly.8

Generally, the regulations for relevant market definition stipulated in Decree No 116/2005/NĐ-CP9 have shown the legislature’s effort in forming lots of objectively reflexive situations which can make influence on defining the relevant market These regulations, however, are not specific enough to apply for practice Meanwhile, in some well-known legal systems on this field, they suggest not only clear regulations but also survey methods called professional tests including lots of complex steps to find out whether two candidate enterprises are in the same relevant market or not

With more than seven years of establishment and development, Vietnamese competition laws on the criteria for relevant market definition is regarded as much younger than many other foreign countries around the world Therfore, studying valuable experiences of such foreign countries in order to propose suitable suggestions

to improve Vietnamese competition laws in this issue has significant meanings and value

For above reasons, the topic “Criteria for relevant market definition in some

countries – Experiences for Vietnamese laws on competition” is chosen for the

author’s graduation thesis Because of time and experience limitations, this thesis is not able to introduce an ideal comprehensive research on the relevant market definition Therefore, all of comments and pieces of advice from all readers are always received

by the author, which will encourage the author to develop the analysis with the purpose

of contributing to make the Vietnamese laws not only on competition but also on the relevant market definition become more and more applicable, ensuring the pure competition environment as well as protecting the legitimate rights and interests of both suppliers and consumers

2 The purpose of the thesis

First of all, the thesis focuses on introducing concepts of “market” and “relevant market” as well as the important role of relevant market definition, thereof clarifying and comparing certain concepts of relevant market not only in Vietnamese but also in foreign competition regulations10 so that we can figure out the similar and different fundamental characteristics of these concepts Such similarities and differences shall be used to form a unified basement upon which the author as well as other researchers can draw systematic comparisons of relevant market definition between competition regulations of Vietnam and those of other foreign countries

After that, the thesis will research the competition laws of some countries on relevant market definition Completing this step, we have an opportunity to clarify the general characteristics of these regulations as well as consider the effective criteria for relevant market definition

Subsequently, Vietnamese competition regulations on criteria for definition of relevant market shall be carefully analyzed so that we can figure out its lack of specification and reasonableness in regulations Discovering such weak points can help us improve the remedies upon dealing with them

Finally, after achieving the experiences of foreign regulations, the thesis shall suggest several recommendations suitable for the circumstances in Vietnam so as to develop Vietnamese competition laws on criteria for relevant market definition

10 Two foreign legal systems are chosen to analyzed are those of European and the United States of America, which will be introduced in the next section

regulations Thus, within the scope of the thesis, other relevant general issues of market such as market power, how to develop market, etc… shall not be discussed

Secondly, although relevant market plays an important role in laws on restraint of competition field, the thesis only focuses on discussing and analyzing the criteria for definition of relevant market It does not concern other general legal issues of restraint

of competition area including (i) agreements in restraint of competition, (ii) abuse of dominant market position and monopoly position and (iii) economic concentration.11

And finally, with regards to selection of foreign laws for comparison, the thesis shall focus on analyzing the competition regulations of two legal systems They are European Union (hereinafter referred to as “EU”) and The United States of America (hereinafter referred to as “US”) These two legal systems have advanced legislative experiences of building competition law generally and defining relevant market particularly

In addition, several traditional methods are also referred such as analytical method and inductive method, which are really popular methods applied by lots of researchers They still play pretty important roles in this thesis

Moreover, some case study shall be applied in the thesis so as to give some examples and situations in the practice of defining relevant market not only in Vietnam but also

in the researched foreign countries.12

And last but not least, one method by which necessary information would be mainly exploited from both legal and academic materials including books, legal journals and even from websites on internet is called synthetic method The author as well as other analysts can use this method to collect the relevant information from different sources and then make the remarkable conclusion

5 The literature review of the research

Since Vietnamese Competition Law was passed in 2004, there have been a large number of research works not only on unfair competition but also on restrain of competition According to the author’s research, these following researches including books and academic articles are considered remarkable in relation to the matter concerned:

(i) “Regulations on Competition in Viet Nam” by Prof PhD Le Danh Vinh,

Hoang Xuan Bac, LL.M Nguyen Ngoc Son (2006)13: Prof PhD Le Danh Vinh, the Chairperson of Drafting Boards of Competition Law as well as the Deputy Minister of Ministry of Industry and Trade, is the general director of this book, which makes this research become a profound and thorough analysis Up to now, this book has been stated to

be probably one of the most valuable materials for Vietnamese competition legislation

(ii) “Analyzing and interpreting the principles of competition law on abuse

of dominant market position and monopoly position in restraint of competition” by Assoc Prof PhD Nguyen Nhu Phat, LL.M Nguyen

11 Chapter III of VCL on control of practices in restraint of competition

12 Using cases in EU and US is considered as an important source because such countries are in common law system while cases in Vietnam are introduced as practical examples for the thesis

13 TS Lê Danh Vĩnh, Hoàng Xuân Bắc, ThS Nguyễn Ngọc Sơn (2006), Ibid

Ngoc Son (2006)14: This book focuses on the restraint of competition area and arranges the first section to introduce the definition of relevant market Nevertheless, this section is nearly the same as that in the book mention in (i) inasmuch as LL.M Nguyen Ngoc Son is the co-author of both research works

(iii) “Concept of essential facilities or bottleneck and recommendations for

the decree providing detailed regulations for implementation of a number

of articles of the Law on Competition (“Decree 116/2005/NĐ-CP”)”15 by PhD Le Net – Ho Chi Minh City University of Law This academic article was published on Ho Chi Minh City Legal Science Magazine No 03/2005, which describes the definition of market, market power and recommends some additional principles for Chapter II of Decree 116/2005/NĐ-CP on the basis of the United State of America Antitrust Law and EU Competition Law Furthermore, another article on June 04th,

2003 by this author was introduced before Vietnamese Competition Law was passed, which is considered as a relevant reference so as to give some suggestions of relevant market definition for Vietnamese Competition Bill.16

Such researchers, nevertheless, just state the important role of relevant market definition without discussing so thoroughly on the specific and detailed criteria to identify this concept Consequently, this thesis shall focus on the foreign regulations on definition of the relevant market which have not been gotten much consideration by Vietnamese legislators, which helps to acquire effective methods as well as valuable experiences of foreign legislation in order to improve Vietnamese competition regulations on this matter

14 PGS TS Nguyễn Như Phát, ThS Nguyễn Ngọc Sơn (2006), Phân tích và luận giải các quy định của luật cạnh tranh về hành vi lạm dụng vị trí thống lĩnh thị trường, vị trí độc quyền để hạn chế cạnh tranh, Nxb Tư Pháp, Hà

Nội

15 TS Lê Nết (2005), “Khái niệm kiểm soát kết nối thị trường và đóng góp ý kiến cho nghị định hướng dẫn thi

hành một số điều của luật cạnh tranh.”, Tạp chí Khoa học pháp lý Tp Hồ Chí Minh (03)

16 Competition Law needs to accurately define the concept of market – See more in doc/Luat-Canh-tranh-Can-dinh-nghia-ro-khai-niem-thi-truong/10821187/478/ (Last visited as of June 26 th , 2011)

http://vietbao.vn/Trang-ban-6 The structure of the thesis

The thesis is divided into three main chapters, as defined below:

Chapter I: Overview of competition regulations and some fundamental concepts of

relevant market definition

Chapter II: Foreign competition regulations on the criteria for relevant market

definition

Chapter III: Vietnamese competition regulations on the criteria for relevant market

definition and recommendations for improvement

CHAPTER I

OVERVIEW OF COMPETITION REGULATIONS

AND SOME FUNDAMENTAL CONCEPTS OF RELEVANT MARKET DEFINITION

1.1 Introduction of “market” and “relevant market” concept and paramount role

of relevant market definition in competition law

1.1.1 Introduction of “market” and “relevant market” concepts

Generally, concepts of market nowadays have been provided by lots of sources For

instance, market may be “the people who might want to buy something or a part of the world where something is sold”17, “an occasion when people buy and sell goods; the open area or building where they meet to do this”18 or “the total amount of trade in a particular kind of goods”19 Basically, “market” is a concept which is understood as “a place for people to buy and sell product”20 In other words, market in general is a place

in which a buyer and a seller (or a consumer and a supplier) are directly or indirectly able to exchange their products or services So when a supplier would like to sell a certain product or service and a consumer would like to buy such product or service, they will meet each other in the market Nowadays, in an active economy, market may

be any situation where buyers and sellers are in contact with each other Markets may

be local, regional, national, or international in scope and do not necessarily require buyers and sellers to meet or communicate directly with each other any longer.21

Narrowly, market is considered as a place for selling and buying a certain kind of product or service such as rice market, coffee market, securities market, capital market,

17 http://dictionary.cambridge.org/dictionary/british/market_1?q=market (Last visited as of July 24 th , 2011)

18 http://www.oxfordadvancedlearnersdictionary.com/dictionary/market (Last visited as of July 24 th , 2011)

19 http://www.ldoceonline.com/dictionary/market_1 (Last visited as of July 24 th , 2011)

20 Ban biên soạn chuyên từ điển New Era (2005), Từ điển tiếng Việt, Nxb Văn hóa thông tin, Hà Nội, p 1838

21 http://encyclopedia.farlex.com/Market+(economics) (Last visited as of July 24 th , 2011)

etc… Sometimes, this concept will also be regarded as a certain place where many kinds of products and services are bought and sold such as Ha Noi market, southern market, etc… On the other hand, should the concept of market be broadly analyzed in economics, in the market a large number of people will buy and sell goods in competition with each other not only every time but also everywhere, which comprises product-service market, labor market and currency market.22

Nevertheless, in competition field, there is a new concept of market called “relevant market” This concept is explained and applied differently from the above explanations For example, enterprise A produces sport shoes while enterprise B produces casual shoes So, all of trade in relation to these product of both firms will establish the “shoes market” with general meaning However, these kinds of products are considered not to be in the same relevant market in competition field because they cannot be substitutions for each other In other words their characteristics; use purposes

or prices are not the same and for that reason both firms supplying such products are not regarded as competitors of each other Relevant market definition really plays an important role in competition law, which will be discussed in detail below Pursuant to competition regulations of some countries all over the world, especially EU and US systems, to define the relevant market will help the agencies to identify the market share and then make the final conclusion of whether the enterprise in question abuses its dominant market position, or must be controlled by regulations on agreement to restrain competition or merger or not.23

1.1.2 Paramount role of relevant market definition in competition law

The EU Community Courts have stated that it is only by defining the relevant market that the competitive constraints affecting the firm or firms on that market can be identified In other words, the definition of a relevant market is necessary prerequisite for the assessment of dominance because market shares can only be measured when the boundaries of the relevant market have been accurately determined.24 The scope of the relevant market defined makes influence on whether a firm enjoys a dominant position

or not, thus both errors in defining the relevant market including narrow definition and broad definition are costly.25 An overly narrow definition will be under-inclusive and lead to the imposition of obligations on a firm that are unjustified while an excessively broad definition will be over-inclusive and allow unilateral conduct that threatens effective competition to escape scrutiny.26

1.1.2.2 The United State of America

In US, the relevant market definition plays two roles27 Firstly, market definition helps specify the line of commerce and section of the country in which the competitive concern arises In any merger enforcement action, the Agencies will normally identify one or more relevant market in which the merger may substantially lessen competition Secondly, market definition allows the Agencies to identify market participants and measure market shares and market concentration Although the measurement of market shares and market concentration is not an end of itself, it is useful to the extent it illuminates the merger’s likely competitive effects

Similar to EU Competition regulations, the principles stipulated in the Horizontal Merger Guideline also mentions the cases of broadly defined market and narrowly defined market, which may cause misleading market shares Defining a market too broadly includes pretty far product and geographic substitutes At that time, the competitive significance of distant substitutes is likely not to get balanced with their

23 See DG Competition discussion paper on the application of Article 82 of the Treaty to exclusionary abuses, Brussels, December 2005, para 11 as quoted in Robert O’ Donoghue and A Jorge Padilla, Ibid, p 63

24 Robert O’ Donoghue and A Jorge Padilla, Ibid, p 63

25 See an example on case of K + in section 1.1.2.3

26 Robert O’ Donoghue and A Jorge Padilla, Ibid, p 64

27 Horizontal Merger Guidelines of US Department of Justice and the Federal Trade Commission dated August

19 th , 2010, p.7 (hereinafter referred to as “Horizontal Merger Guidelines”)

shares in an expanded market In the other hand, market shares of various products in narrowly defined markets are more likely to capture the relative competitive significance of these products as well as often more accurately reflect competition between close substitutes Furthermore, defining the relevant market like this usually exclude several substitutes to which some customers might switch to upon facing with

a price increase though such substitutes provide interchanges for those customers For the purpose of solving this problem, the hypothetical monopolist test is designed to ensure that candidate markets are not overly narrow in this respect.28

1.1.2.3 Vietnam

As introduced above, restraint of competition according to Vietnamese competition regulations comprises three concepts including (i) agreements in restraint of competition, (ii) abuse of dominant market position and monopoly position and (iii) economic concentration, which all depend upon definition of the relevant market The importance of market definition increases day by day whenever the agencies would like to control the restraint of competition Again, to determine the relevant market is a main process in any investigation of abuse acts because of the same reason as that given by foreign competition regulations Consequently, if the relevant market is not accurately identified (too broadly or too narrowly), all of the next analyzing and discussing steps depending upon the market shares or market structure shall become errors For example, in the case of K+ recently29, how wide was the relevant market in this case taken into consideration? It may be a market of supplying entertainment programs such as sports, cultural, music, game show, etc… Narrowly, it can be a market of supplying sports programs in which the programs of many kinds of sports such as tennis, swimming, boxing, marathon, etc… would become the competitors In the narrowest way, i.e for soccer programs only, the relevant market of K+ may comprise soccer programs for Championship of other countries such as Germany, Italy, Spain, etc… 30

28 Horizontal Merger Guidelines, p 8

29 This is a case in relation to supply the Premier League programs monopolistically

30 GS TS Nguyễn Vân Nam (2010), “Vụ K + nhìn từ Luật Cạnh Tranh”, Thời báo Kinh tế Sài Gòn online,

(16/8/2010)

Since Vietnam became a member of the World Trade Organization in 2007, our government has been building a market economy in accordance with other countries’ standards all around the world This means that the role of Vietnamese competition regulations, generally, as well as the role of relevant market definition, specifically, is more and more appreciated This fact is again confirmed once the case of Megastar, a recently remarkable case, occurred.31 The more competition cases appear, the more practical principles guiding on market definition need to be applied So, day in day out Vietnamese competition regulations for this matter had better be developed so that they can satisfy almost all of the continuously changing relationships in our society

1.2 Overview of regulations governing the relevant market definition in some countries

1.2.1 European

First of all, the EU Commission assesses market definition in the three main areas of

EU Competition Law (i.e., Articles 101, 102 TFEU32 and the EU Merger Regulation

No 139/2004 dated January 20th, 2004 on the control of concentrations between undertakings) In general, Article 102 TFEU plays a paramount role of market definition This article only applies to the conduct of firms that are dominant at the time the alleged abuse is committed, i.e., firms can act with a degree of independence from their competitors, customers, and consumers.33

Although the approach to market definition under Article 102 TFEU is broadly suitable with the regulations applied in merger cases and Article 101 TFEU, the methods how

to define the relevant market under Article 102 TFEU are slightly different from those

of EU Merger Regulation In other words, in spite of the doctrinal equivalence of market power under both Article 102 TFEU and EU Merger Regulation, a number of differences between two regulations should be mentioned, as specified below:34

31 This case will be introduced in sub-section 1.2.3 and 3.1

32 Both articles are formerly Articles 81 and 82 of the EC Treaty See the application of Articles 101 and 102 TFEU - http://europa.eu/legislation_summaries/competition/firms/l26092_en.htm (Last visited as of July 25 th , 2011)

33 Robert O’ Donoghue and A Jorge Padilla, Ibid, p 63

(i) The objective of market definition under Article 102 TFEU and that

under the EU Merger Regulation are not the same as each other So, market definition under Article 102 TFEU is believed to be more difficult

to be made than in merger control; and

(ii) EU Merger Regulation is considered to use much more quantitative

techniques such as co-integration analysis and regression studies in order

to test the degree of substitution among products for purposes of defining the relevant market than Article 102 TFEU

Beside, lots of market analysts think that economics also plays an important role in market definition35 because economic thinking almost certainly provides a more reliable indicator of current and future policy on market definition than older cases under Article 102 TFEU

Therefore, in October 1997, the European Commission, which plays the key role in enforcement of the EU competition rules, publicized a notice36 on relevant market definition for the purposes of Community competition law, which provides a framework for determining the relevant market which is base on economic principles and has been appreciated as a progressive and realistic approach to the matter Especially, two main objectives of this Notice have been focused in paragraphs 1 and

2, as follows:

(i) The Notice provides guidance as to how the Commission applies the

concept of the relevant product and geographic market in its ongoing enforcement of Community competition law; and

(ii) Market definition is a tool to identify and define the boundaries of

competition between firms, so the Notice serves to establish the framework within the Commission applies competition policy

34 Robert O’ Donoghue and A Jorge Padilla, Ibid, p 65-66

35 See more the paramount role of economic in market definition in Robert O’ Donoghue and A Jorge Padilla, Ibid, p 67

36 Alison Jones and Brenda Sufrin (2001), EC Competition Law – Text, Cases and Materials, Oxford University

Express, p 41-42

However, the European Court of Justice or the European Court of First Instance does not completely depend on this Notice when giving the interpretation inasmuch as it is not binding as well as not legislation In brief, Commission’s Notice is used for vitally important reference since it sets out the Commission’s current approach to the criteria for relevant market definition in EU competition regulations particularly and competition regulations of other countries all over the world generally

1.2 2 The United States of America

The legal documents which are applied to define the relevant market in the US are the Horizontal Merger Guidelines,37 which describe how the Agencies will determine the relevant market in merger cases These Guidelines was updated on August 19th, 2010, replacing the Horizontal Merger Guidelines issued in 1992, revised in 1997

According to the explanation in the overview section, these Guidelines outline the principal analytical techniques, practices, and the enforcement policy of the Department of Justice and the Federal Trade Commission (hereinafter referred to as

“the Agencies”) with respect to mergers and acquisitions involving actual or potential competitors under the federal antitrust laws The relevant statutory provisions include Section 7 of Clayton Act, 15 U.S.C 18, sections 1 and 2 of the Sherman Act, 15 U.S.C 1,2, and Section 5 of the Federal Trade Mission Act, 15 U.S.C 45 Most particularly, Section 7 of the Clay Act prohibits mergers if “in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition or to tend to create a monopoly.”38

These Guidelines are revised from time to time as necessary to reflect significant changes in enforcement policy, to clarify existing policy, or to reflect new learning They also define markets exclusively for the purpose of analyzing horizontal mergers,

in which the chief concern is not exercises of market power by a single firm, but rather increased likelihood of collusion In the updated version in 2010, there are total thirteen

37 See more section 3.8 on market definition in the Justice Department Mergers Guidelines in Herbert

Hovenkamp (2005), Federal antitrust policy the law of competition and its practice – Third edition, Thomson

West Publishing, p 129

38 Horizontal Merger Guidelines, p 1

sections with specific explanations and examples Especially, the relevant market definition is analyzed in section 4

1.2.3 Vietnam

The Competition Law of Vietnam promulgated in 2004 is considered the first legal document to directly and expressly regulate “the criteria for relevant market definition” Specifically, the definition of relevant market is mentioned in sub-article 3.1 of Competition Law After that, several legal documents continued to be promulgated for guiding and detailing the implementation of the Competition Law39

such as Decree 116/2005/NĐ-CP, Decree 120/2005/NĐ-CP, Decree 05/2006/NĐ-CP and Decree 06/2006/NĐ-CP

Of these legal documents, Decree 116/2005 NĐ-CP dated 15 September 2005 of the Government on detailing the Implementation of a number of Articles of the Competition Law plays an important role on guiding the criteria for definition of the relevant market The legislators arrange these kinds of regulations in section 1 of chapter II in the decree including five articles, from Article 4 to Article 8

These regulations, in general, are built by doing research on and receiving methods of relevant market definition from competition regulations of developed countries Nevertheless, according to the author, these pieces of guidance are not specific and detailed enough to be applied as a practical tool whenever the agencies would like to define the relevant market, especially, when Vietnam is still a developing country with

a really young market economy In order to clarify this statement, the case of Megastar Media J.V Co., Ltd is mentioned as a following practical example

- Decree No 120/2005/NĐ-CP dated September 30 th 2005 of the Government on Dealing with Breaches

in the Competition Sector

- Decree No 05/2006/NĐ-CP dated January 9 th 2006 of the Government on Establishment, Functions, Duties, Powers and Organizational structure of Vietnam Competition Council

- Decree No 06/2006/NĐ-CP dated January 9 th 2006 of the Government on Functions, Duties, Powers and Organizational structure of Vietnam Competition Administration Department

“On May 12 th , 2011, the administrative body for competition made a decision of preliminary investigation for Megastar Media J.V Co., Ltd (“Megastar”) after having accepted jurisdiction over a complaint file of a competition case which stated that Megastar abused the dominant market position These agencies, however, found it difficult to make the final conclusion

of whether Megastar has a market share of thirty percent (30%) or more in the relevant or not In other words, such agencies cannot define the relevant market

to make the correct calculation of Megastar’s market share thanks to the current legal regulations 40 ” In Vietnam, actually, there are a few cases in

competition field41, thus the relevant regulations in this field have not regularly applied, which can make the competition authorities confused upon dealing with the cases in relation to those regulations

No doubt, to build the criteria for definition of relevant market for guiding current Vietnamese legal documents in competition field become more urgent than ever before.42 Consequently, the author hopes that this thesis will be able to support Vietnamese legislators in their establishing a more effective guidance for this matter

1.3 Concept of relevant market definition in competition law

1.3.1 The “relevant market definition” concept in EU regulations

EU regulations on competition have provided a detailed and specific definition of a relevant market, which is considered as a standard concept in history of competition legislation, as quoted below:

“A relevant market is defined according to both product and geographic factors In general terms, a relevant product market comprises all those

40 Megastar case in respect of competition field - Co-%E2%80%9Ckien%E2%80%9D-moi-thay-luat-con-ke-ho.html (Last visited as of July 15 th , 2011)

http://tuoitre.vn/Kinh-te/378793/Vu-Megastar-ep-khach-hang-41 Beside case of Megastar, there are few other cases such as case of K + and Vinapco

42 Related market definition which comprises determining the geographic market and relevant product market related to specific research areas is the first step in the third group of criteria – Evaluation of market structure See more in the section of A competition Assessment Framework applied to Vietnam, Vietnam Competition

Authority - Ministry of Industry and Trade, A summary of competition assessment report on ten sectors in Vietnam, 2010, p.5-8

products and/or services which are regarded as interchangeable or substitutable (substitutability) by reason of product characteristics, prices and intended use Products and/or services that could readily be put on the market

by other producers without significant switching cost or by potential competitors at reasonable cost and within a limited time span also need to be taken into account The relevant geographic comprises the area in which the undertaking concerned are involved in the supply and demand of products or services, in which the conditions of competition are sufficiently homogeneous and which can be distinguished from neighboring areas, because the conditions

of competition are appreciably different in those areas.” 43

According to this concept, the relevant market is typically defined along a product dimension and a geographic dimension In its product dimension, the relevant market includes those products regarded as substitute or interchangeable products that compete with each other to satisfy customers’ demands A question given is how the substitution is most accurately measured To recommend the solution for this problem, the analysts suggest the following method:

Firm A intends to increase its product‘s price A research shall be done on the extent to which customers of firm A’s product would not mind deciding to switch to use other firm’s product with nearly the same characteristic, intended use and price (firm B’s product, for instance), which is called the effect on demand of non-trivial price increases In case firm A do not get any profit from increasing its product’s price, or in other words, the value of the sales lost to firm B or any other rival firms exceeds firm A’s profit from the price rise, it shall be stated that firm A’s product and its rival products are likely to be in the same relevant product market Besides, unless quantitative analysis of this kind can be performed, the qualitative criteria such as product characteristics may be applied to define the relevant product market

1.3.2 The “relevant market definition” concept in US regulations

43 Commission Notice on the definition of the relevant market for the purposes of Community competition law [1997] OJ C372/5 [1998] 4 CMLR 177

Section 4.1 of the Merger Guidelines provides the principles applying to product market definition as well as gives guidance on how the Agencies most often apply these principles Similarly, section 4.2 describes how the same principles are applied to geographic market definition The legislators analyze two elements separately in order

to discuss and explain the matters more simply Nevertheless, the principles introduced

in Sections 4.1 and 4.2 are combined to describe the definition of the relevant market, which has both a product and a geographic dimension In other words, according to the principles described in both sections, the hypothetical monopolist test shall be applied

to a group of products along with a geographic region to define a relevant market

The Justice Department Merger Guidelines define a product relevant market as a product or group of products and a geographic area in which it is produced or sold such that a hypothetical profit maximizing firm, not subject to price regulation, that was the only present and future producer or seller of those products in that area likely would impose at least a “small but significant and non-transitory” increase in price (“SSNIP”), assuming the terms of sale of all other products are held constant A relevant market is a group of products and a geographic area that is no bigger than necessary to satisfy this test.44

Upon determining geographic relevant market without the price discrimination, the Agency tries to identify the region in order that a hypothetical monopolist would profitably impose at least a “small but significant and non-transitory” increase in price, holding constant the terms of sale for all products produced elsewhere The hypothetical monopolist in this case was the only present or future producer of the relevant product at locations in that region

1.3.3 The “relevant market definition” concept in Vietnamese regulations

Built thanks to doing research on many countries’ legislation all over the world, the

“relevant market” concept in Competition Law of Vietnam is indirectly defined by listing the components instead of directly defined, i.e relevant market consists of

44 Herbert Hovenkamp, Ibid, p 129

relevant product market and relevant geographic market.45 VCL also provides the explanation of these concepts, as defined below:

(i) Relevant product market means a market comprising good or services

which may be substituted for each other in terms of characteristic, use purpose and price

(ii) Relevant geographic market means a specific geographic area in which

goods or services may be substituted for each other with similar competitive conditions and which area is significantly different from neighboring areas

So, only when the relevant product market and the relevant geographic market are accurately and effectively defined is the relevant market definition clarified In other words, steps in the definition of the relevant market essentially stem from the methods how to define the relevant market components including relevant product market and relevant geographic market

These concepts are introduced again in Decree 116/2005/NĐ-CP46 Thereof, as mentioned above, articles 4, 5, 6, 7 and 8 in section 1 chapter II of Decree 116/2005/NĐ-CP are specified in a detailed way to become the criteria for relevant market definition in Vietnamese Competition Law

1.4 Remarks

In brief, the important role of the criteria for relevant market definition in competition regulations is undeniable The Vietnamese authorities nevertheless have had lots of difficulties in dealing with this matter due to the lack of specific and detailed guidance

up to now Consequently, this kind of guidance including effective principles had better be established as soon as possible, especially when Vietnam joined the World Trade Organization with the market economy and when there are more and more cases

in relation to competition field

45 Sub-article 3.1 of VCL

46 Sub-articles 4.1 and 7.1 of Decree 116/2005/NĐ-CP

According to the overview of EU and the US competition principles discussed above, the relevant market is typically defined along a product dimension and a geographical dimension Therefore, upon analyzing foreign regulations on the criteria for the relevant market definition in Chapter II of this thesis, the author shall approach the objective thanks to focusing on these both dimensions By this methodology, the thesis can find out the similarities and differences between EU and the US competition regulations on definition of the relevant market, which helps to evaluate the strong and weak points of these legislation systems and recommend the logical solutions to build the needed guidance for Vietnam in a near future

CHAPTER II

FOREIGN COMPETITION REGULATIONS

ON THE CRITERIA FOR RELEVANT MARKET

This chapter focuses on providing the relevant market definition through the product dimension and the geographic dimension Almost all of the approaches in respect of the matter under EU and US regulations are introduced and analyzed in turn Then, some remarks on similarities and differences between the methods under these two legal systems shall be emphasized so as to figure out the most effective approaches, which can help to propose the recommendations suitable to Vietnam’s circumstances in the next chapter

A In this case, lots of relevant product market may be defined So the objective of the legislators in this field is to create a scientific method so that the agencies can evaluate

if groups of products mentioned in candidate markets are broad enough to set up relevant antitrust markets or not.47

Finally, a method named “hypothetical monopolist test” was born to satisfy these conditions, which is used by the agencies to set of products or groups of products that are reasonably interchangeable with a product provided by one of the merging firms

47 Horizontal Merger Guidelines, p 8

The hypothetical monopolist test was first developed by the US enforcement agencies

in the Horizontal Merger Guidelines, updated on August 19th, 2010 Being applied in practice relying upon both quantitative and qualitative evidence, the test has been widespread accepted by competition agencies and court worldwide, such as the Commission48, the Community Courts and national courts, etc…, which is considered

to make a really valuable contribution in providing a more professional basis for relevant market definition not only in US but also in EU competition law Therefore, the Horizontal Merger Guidelines, in particular, and the US principles in this field, in general, just focus on the overview and other related concepts of this test as well as how to implement it into practice The guidelines even provide a large number of practical examples with explanations to clarify the matter In brief, the hypothetical monopolist test is the most popular method in the US to deal with the product relevant market definition

Despite the hypothetical monopolist test’s relative effectiveness, EU competition law cites that this kind of test is a “thought experiment”49 since to bring the test from theory

to a practical tool applied to the facts of a specific case may not always be simple In other words, the theory behind the hypothetical monopolist test is pretty clear while implementing it in practice is much less so Consequently, the hypothetical monopolist test is applied with many notes under Article 102 TFEU The EU competition legislators provide a much more specific and systematic approach as well as analyze some weak points of this kind of test, which will be discussed more in the next section

2.1.2 Hypothetical monopolist test process

A relevant product market under Article 102 TFEU includes all those products and/or services that impose a competitive constraint on the product(s) and/or service(s) of the candidate firm The first constraint applied by those consumers switching their consumption to an interchangeable product of another firm is called demand-side

48 The Commission also followed the principles of the hypothetical monopolist test in several cases E.g Tetra Pak 1 (BTG licence), OJ 1998 L 272/27, para 30; Eurofix-Bauco/Hilti, OJ 1998 L 65/19, para 60; and 1998 Football World Cup, OJ 2000 L 5/55, para 66; etc… as quoted in Robert O’ Donoghue and A Jorge Padilla, Ibid,

p 76-77

49 See J Gual, “Market Definition in the Telecoms Industry,” CEPR Discussion paper No 3988 (2003) as quoted

in Robert O’ Donoghue and A Jorge Padilla, Ibid, p 77

substitution The second one, which is created by those competing firms who can quickly produce and commercialize demand-side substitute products to those of the candidate firm, is called supply-side substitution Of two types introduced above, the latter is considered less important

So, at the beginning, the analysts will focus to clarify the procedure of a hypothetical monopolist test, after that, the competitive constraint including the demand-side substitution and the supply-side substitution will be assessed under the hypothetical monopolist test.50

To know how to apply a scientific method as a practical tool so as to evaluate one matter and get the final result is really vital, the procedure of the hypothetical monopolist test thus plays an important role in this case Actually, the key concept as well as the process of the hypothetical monopolist test under the Horizontal Merger Guidelines is slightly similar to those under Article 102 TFEU, which iterates through three steps,51 as follows:

The first step is to define a candidate set of products for the hypothetical monopolist to

control This will determine the candidate market52, which in Article 102 TFEU investigation is given by the products or services of the allegedly dominant firm that are the subject of commercial practices under investigation

The second step is to the effect of demand-side substitution on the profitability of a

price increase by the hypothetical monopolist Many customer will decide to use another interchangeable product or service outside the candidate market instead of paying the higher price, so the test will be able to answer the question whether the candidate firm can become rendered unprofitable or not

The final step in the procedure is to consider the effect of supply-side substitution The

suppliers outside the candidate market will have a lot of opportunities upon responding

to an increase in price by the hypothetical monopolist In this case, the test asks whether such suppliers can quickly enter the candidate market and offer an interchangeable products or services or not That the hypothetical monopolist cannot increase the price in a profitable manner over the initial set of products for a sustained period of time means that consumers would decide to switch to some substitution outside the candidate market Then, the candidate market will be identified once more time to include those substitutable products This process would go on iteratively until

a putative market is defined for which the hypothetical monopolist is able to increase prices profitably

2.1.3 Assessing substitution under the hypothetical monopolist test

2.1.3.1 Demand-side substitution

Assessing demand-side substitution under the hypothetical monopolist test is divided into three types of approaches: (i) quantitative evidence (i.e SSNIP test; price correlations and co-integration analysis); (ii) qualitative evidence (i.e product characteristics and customer preferences and needs); and (iii) other evidence such as consumer surveys and natural experiments

A Quantitative evidence

The most satisfactory of all quantitative techniques which are used to undertake a hypothetical monopolist is the small but significant non-transitory increase in price (“SSNIP”) test In according with the theory of the hypothetical monopolist test, the SSNIP test operates as follows Beginning with the market in question or the candidate market, the competition analyst will find out if the hypothetical monopolist with control over this set of products (the initial set of products at the beginning) can increase the prices of these products by 5%-10% profitably and permanently or not, assuming that the prices of all other products remain constant If the answer is affirmative, then the relevant product market containing the set of products mentioned coincides with the candidate market Otherwise, some new products or sets of products

52 This term originates from GJ Werden (1983), Market Delineation and the Justice Department’s Mergers Guidelines as quoted in Robert O’ Donoghue and A Jorge Padilla, Ibid, p 77

had better be added into the market and this process will be undertaken again So, a SSNIP test uses data on prices and sales volumes in order to assess whether a hypothetical monopolist is able to raise the products’ prices profitably in the market in question by 5%-10% during a sustained period of time In brief, the relevant market is identified as the smallest set of products that meets the “hypothetical monopolist” test This matter is also stipulated in the Market Definition Notice, as follows:

“The question to be answered is whether the parties’ customers would switch to readily available substitute or to suppliers located elsewhere in response to a hypothetical small (in the range 5%-10%), but permanent relative price increase in the products and area being considered If substitution were enough

to make the price increase unprofitable because of the resulting loss of sales, additional substitutes and areas are included in the relevant market This would

be done until the set of products… is such that small, permanent increases in relative prices would be profitable” 53

A price increase has two opposing effects on profits: a higher prices leads to a higher unit margin and greater profits, but reduces demand The more unit margin, the less demand So only if the first effect is bigger than the second one is the price increase believed profitable To accurately define this comparison, BC Harris and JJ Simon were the first persons to develop a theory on critical loss analysis in “Focusing Market Definition: How much Substitution is Necessary?” (1989) Actually, this kind of analysis is involved in some economics factors and mathematical formulas, this thesis thus just generally introduces the objective as well as the three main steps of this analysis including: (i) the calculation of critical loss; (ii) an estimate of sales likely to

be lost to competitors upon price increase and (iii) a comparison between two values so

as to see whether a price increase would be profitable or not

The SSNIP test is not the only quantitative approach to the relevant market definition Two other common methodologies comprise:

53 Commission Notice on the definition of the relevant market for the purposes of Community competition law [1997] OJ C372/5, [1998] 4 CMLR 177, para 17

(i) Price correlations: Price correlation analysis measures the extent to

which the prices of two or more different product are interrelated For example, if product A and product B are in the same relevant market, the ratio of the price of A with respect to price of B or their relative price shortly cannot change significantly So, a strong positive correlation between the prices of two different products suggests that two products belong to the same market

(ii) Co-integration analysis: This method is considered to be superior to

price correlation analysis, which is applied to estimate possible relationships between economic data series, such as price series In case the price series of two products are co-integrated, this means that there is

a strong relationship between the two, which indicates that both products may be interchangeable

definition This largely subjective approach has anyway characterized lots of main precedents under Article 102 TFEU:

“Demand substitutability was measured in large part on physical and technical characteristics, with price differences, cross elasticity of demand and distribution differences also playing a role, primarily to confirm what the physical characteristic analysis seemed to indicate… The Commission also defined markets in terms of end uses, even when products were physically identical, without inquiry into the seller to segregate particular end users with regard to price.”

C Other sources of evidence

First of all, the necessary information on consumer preferences may be revealed thanks

to the data of market studies and consumer survey, which may be useful to identify those products that consumers consider as substitutions with those in the candidate market However, because lots of risks can occur when the agencies use these studies, the reliability and validity of such studies had better be carefully considered to be applied

Secondly, some unexpected event appearing such as strikes, promotions and advertising campaign, unexpected plan outages, supply shortages, regulatory intervention and market entry, etc… may provide valuable information on substitution patterns between various products For instance, consumers may react to a disruption in supply due to a strike by deciding using another interchangeable product, thereby revealing information on demand-side substitution

Finally, internal business documents are also estimated as a source of evidence in assessing demand-side substitution because the agencies will be able to know which products a firm regards as close substitutes to its own Business and strategic plans, internal pricing studies, and analyses of promotions, may provide information on competitors and the degree of substitutability between their products and those in the