Abuse of dominant
practices in which a dominant firm may engage in order to maintain or
increase its position in the market. These business practices by the
firm, not without controversy, may be considered as “abusive or
improper exploitation” of monopolistic control of a market aimed at
restricting competition. Although they may include practices such as
charging excess prices, price discrimination, predatory pricing,
refusal to deal/sell, tied selling, etc., which of the different types
of business practices are considered as being abusive will vary on a
case by case basis and across countries.
||A wide range of business
practices in which a firm or group of firms may engage in order to
restrict inter-firm competition to maintain or increase their relative
market position and profits without necessarily providing goods and
services at a lower cost or of higher quality. These practices include
price fixing and other cartel arrangements, abuses of a dominant
position or monopolization, mergers that limit competition and
vertical agreements that foreclose markets to new competitors.
Barriers to entry
||Factors which prevent or
deter the entry of new firms into an industry even when the incumbent
firms are earning excess profits. There are two broad classes of
barriers: structural (economic or innocent) and strategic
(behavioral). Structural barriers arise from basic industry
characteristics such as technology, costs and demand. Strategic
barriers arise from the behavior of incumbents.
|Bid rigging (Collusive
||A particular form of
collusive price-fixing behavior by which firms coordinate their bids
on procurement or project contracts. There are two common forms of bid
rigging. In the first, firms agree to submit common bids, thus
eliminating price competition. In the second, firms agree on which
firm will be the lowest bidder and rotate in such a way that each firm
wins an agreed upon number or value of contracts.
||A cartel is a formal
agreement among firms in an oligopolistic industry. Cartel members may
agree on such matters as prices, total industry output, market shares,
allocation of customers, allocation of territories, bid-rigging,
establishment of common sales agencies, and the division of profits or
combination of these. Cartel in this broad sense is synonymous with
“explicit” forms of collusion, which does not necessarily require a
formal agreement, whether public or private, between members. Often
the terms collusion and cartel are used somewhat interchangeably.
Cartels are formed for the mutual benefit of member firms.
||Also known as “antitrust”
or “antimonopoly” laws. Antitrust refers to a field of economic policy
and laws dealing with monopoly and monopolistic practices. The
intellectual basis for antitrust economics or policy is the sub-field
of industrial organization economics which addresses issues arising
from the behavior of firms operating under different market structure
conditions and the effect that this has on economic performance. Most
antitrust or competition laws have provisions dealing with structure
such as mergers, monopoly, dominant market position and concentration,
as well as behavior, such as collusion, price fixing, and predatory
||Include competition laws in
additions to other measures aimed at promoting competition in the
national economy, such as sectoral regulations and privatization
policies. Also supervision over the government policies through
||The individual benefits
derived from the consumption of goods and services. In theory,
individual welfare is defined by an individual’s own assessment of
his/her satisfaction, given prices and income. Exact measurement of
consumer welfare therefore requires information about individual
preferences. In practice, applied welfare economics uses the notion of
consumer surplus to measure consumer welfare.
||Cooperation on competition
has two main elements: (i) provisions to facilitate “case-specific”
cooperation on anti-competitive practices having an impact on
international trade; and (ii) provisions relating to general exchanges
of information and experiences and joint analysis of global
trade-related competition issues (“institutional cooperation” in OECD
||Includes treating: (i) a
parent, a subsidiary or other enterprise with common ownership more
favorably than an unaffiliated enterprise, or (ii) one class of
enterprises more favorably than another, in like circumstances.
||It relates to the most
effective manner of utilizing scarce resources. Two types of
efficiency are generally distinguished: technological (or technical)
and economic (or allocative). A firm may be more technologically
efficient than another if it produces the same level of output with
one or fewer physical number of inputs. Economic efficiency occurs
when inputs are utilized in a manner such that a given scale of output
is produced at the lowest possible cost.
||In the multilateral context
flexibility and progressivity are qualities for an international
agreement. To get flexibility implies that the framework agreement
recognizes that competition laws cannot and probably should not the
same in all countries; they are differences in substance as well as in
procedure. Progressivity refers to the commitment to competition –for
example through transition periods– probably depends on the level of
the economic development and size of the economies.
||The ability of a firm (or
group of firms) to raise and maintain prices above the level that
would prevail under competition is referred to as market or monopoly
power. The exercise of market power leads to reduced output and loss
of economic welfare.
policies and measures
||Any rule that affects the
price or quantities traded in a relevant market, or investments in the
sector of activity affected by such rules. Market Regulation: Broadly
defined as the imposition of rules by government, backed by the use of
penalties that are intended specifically to modify the economic
behavior of individuals and firms in the private sector.
||Merger is an amalgamation
or joining of two or more firms into an existing firm or to form a new
firm. A variety of motives may exist for mergers: to increase economic
efficiency, to acquire market power, to diversify, to expand into
different geographic markets, to pursue financial and R&D synergies,
etc. Mergers are classified into three types: Horizontal Merger,
Vertical Merger, and Conglomerate Merger. Acquisitions: Refers
to obtaining ownership and control by one firm, in whole or in part,
of another firm or business entity. As distinct from a merger, an
acquisition does not necessarily entail amalgamation or consolidation
of the firms.
||A situation where there is
a single seller in the market. In conventional economic analysis, the
monopoly case is taken as the polar opposite of perfect competition.
By definition, the demand curve facing the monopolist is the industry
demand curve which is downward sloping. Thus, the monopolist has
significant power over the price it charges, i.e. is a price setter
rather than a price taker.
Natural (or legal)
||Person, may be a natural
person (individual) or juridical person (legal entity, for example a
corporation) under the law.
||In the multilateral context
there are two components to the principle of nondiscrimination:
national treatment and most-favored-nation treatment (See general
definition). In the context of FTAA Chapter on Competition Policy
that refers to each Party undertakes to ensure that the provisions of
its competition statutes and regulations do not discriminate on the
basis of the nationality of the natural or legal persons of the
Parties. (See also “procedural fairness”, page 22).
agreement –including by quotas/ hard core cartels- by competitors to
emulate monopoly in order to earn higher profits. It is for market
sharing arrangements often applied in sectors where there is surplus
capacity or where the objective is to raise prices.
Positive and negative
||Under the concept of
positive comity, cases involving anti-competitive practices
originating in one country but affecting another can be referred to
the competition agency of the country where such practices have
originated for appropriate action. Principles of negative comity mean
that countries (Parties) would take into account the important and
clearly stated trade interests of other countries before action is
taken in particular cases.
||In the multilateral
context broad provisions on procedural fairness at the domestic level
are based on three central concepts: (i) that governmental measures of
general application be published and that this be done, as a general
rule, before they are applied; (ii) that such measures be administered
in a uniform, impartial and reasonable manner or in a fair and
equitable way; and (iii) possibilities for appeal or review of
decisions on the application of such measures. The different
constituencies of competition law enforcement have somewhat different
interests in procedural fairness.
||Protection of confidential
information from unwarranted disclosure is a fundamental part of
procedural fairness. The most common way of protecting confidential
information is by establishing direct obligation for countries
(Parties) and authorities to protect confidential information, and
prohibitions to disclose confidential information.
||Means the geographic and
product market for a good or service as used in antitrust analysis. It
refers to the line of commerce in which competition has been
restrained and to the geographic area involved, defined to include all
reasonably substitutable products or services, and all nearby
competitors, to which consumers could turn in the near term if the
restraint or abuse raised prices by a not insignificant amount. See
Subsidies, Antidumping and Countervailing Duties, page 42, where this
text may have a slightly different meaning.
||In a broad sense are
degrees to which trade policies and practices, and the process by
which they are established, are open and predictable. Transparency is
a basic requirement for enforcement of competition law; as such laws
are often written in general framework form and are applied in a
technical manner on a case-by-case basis. In the context of FTAA
Chapter on Competition Policy refers to each Party undertakes to
publish or otherwise make available any laws, regulations, procedural
rules, implementing guidelines, final judicial or quasi judicial
decisions or administrative rulings of general application respecting
competition matters. See Services, page 39, where this text may
have a slightly different meaning.