Economic concentration at competition law (a comparative study)

  1. With regard to Entities’ dominant positions
  2. When shall an entity be considered as dominant?

In Saudi Arabia, an entity assumes a dominant position if it has sales of 40% or more of the total sales in the market niche in a 12 month period; or when the entity or group of entities can be in a position to influence the market prices (Dabbah, 2010).

In the US law, an entity is considered dominant if it has a market share of 70% or more with substantial barriers to entry in the market.

In the European Union, a dominant position is a position of economic strengths enjoyed by an entity and which prevents effective competition in the market by the dominant player acting in a manner independent of competitors and customers. A market share of 50% or more will make an entity to be considered dominant (MacCulloch & Rodger, 2008).

The United Kingdom law on dominant position borrows heavily from the EU definition above. According to the Competition Act of the UK, a dominant position means a dominant position when the entity is operating in the UK or any part of the UK. A market share of 50% or more will make a player to be considered dominant (MacCulloch & Rodger, 2008).

In China competition law, an entity having a market share of 50% or more is considered dominant.

In Brazil, an entity or group of entities is considered dominant if it controls at least 20% of the market share and is able to unilaterally change the market conditions (Gerber, 2010).

Country Dominance criteria Least Market percentage
Saudi Arabia Sales within a 12 month period 40%
United States Market share 70%
United Kingdom Market share 50%
European Union Market share 50%
China Market share 50%
Brazil Market share 20%

 

  1. When shall entities submit a written application to (anti-trust organizations) to realize Economic concentration of a given market (whether in form of market share or annual product category volume)
    In Saudi Arabia, an entity attains economic concentration through takeovers, mergers, acquisition or a combination of all these. The entity intending to achieve such dominance must inform the Competition Council of Saudi Arabia in writing. The entity must provide information of the positive economic consequences of such domination. The entity can then proceed with the process of domination if the Competition Council approves of the intention (Dabbah, 2010).

In the European Union, notification is done to the European Commission (EC) either at the conclusion of an agreement of merger, acquisition or takeover; or after announcement of a public bid; or following acquisition of control.

The United States case is almost similar to the one in Europe. The board of directors of all corporations must pass a resolution to approve the intended merger or acquisition. A meeting of shareholders is then called to approve the merger. After a proper number of shareholders have approved the merger, the corporations can then inform the Federal Trade Commission (Ezrachi, 2012).

In the UK, there are no stringent requirements and authorities and not required to inform the Office of Fair Trade (OFT) of their intentions. However, to avoid antitrust risks, authorities do inform the OFT before the deal is commenced (MacCulloch & Rodger, 2008).

In China, the Ministry of Commerce (MOFCOM) requires that all details of mergers, takeovers and acquisitions be filed with the authority before the plan is announced to the general public.

In Brazil, parties in a merger, takeover or acquisition can notify the Administrative Council for Economic Defense (CADE) of their deal. This can be done at any time after a binding agreement has been executed but the deal has not been consummated (Gerber, 2010).

Country Regulatory authority When to submit entities
Saudi Arabia Competition Council of Saudi Arabia Before the deal
United States Federal Trade Commission After shareholders approve the proposed deal
United Kingdom Office of Fair Trade No stringent requirements for reporting
European Union European Commission At the conclusion of an agreement of merger, acquisition or takeover; or after announcement of a public bid; or following acquisition of control
China Ministry of Finance Before the plan is announced to the general public
Brazil Administrative Council for Economic Defense (CADE) This can be done at any time after a binding agreement has been executed but the deal has not been consummated

 

  1. With regard to joint managements of two or more as a form of economic concentration,
  2. a) At what circumstances shall joint managements be considered as form of Economic Concentration? Could examples of similar cases be provided?

In Saudi Arabia, economic concentration means an entity or a group of entities individually or jointly having a market share of at least 40% (Dabbah, 2010). Different transactions involving economic concentration include: corporations involved in merger operations, or corporation intending to acquire assets, shares, proprietary rights, and which causes them to be in economic concentration as defined above. Further, competing firms may desire to combine two or more management operations into one management and this result in economic concentration if the joint management makes them control more than 40% of the market share.

In the United States, joint managements are considered a form of economic concentration if they control more than 70% of the market share (Gerber, 2010). Fox and Time Warner have proposed to have a joint management. This will dramatically change the setting in the industries that the two companies operate as the major Hollywood studios will be controlled by only five players while the major television producers will be controlled by four players. This is an undertaking that will limit competition in this sector and also change the manner in which information is disseminated to the public (Stewart, July 25, 2014).

In the EU, joint managements are considered a form of economic concentration if they control more than 50% of the market share (Ezrachi, 2012). In 2001, the European Union rejected a proposed merger between General Electric and Honeywell International Inc. This is based on the fear that the merger would result in the two operators controlling more than 50% of the aerospace market share. This would limit competition in this industry in EU and thereby substantially increase prices for the consumers (Jin, 2002).

In the UK, joint managements are considered a form of economic concentration if they control more than 50% of the market share (MacCulloch & Rodger, 2008). Ryanair a low cost airline was on March 2014 ordered to dilute its stakes in the joint operations that it had with Aer Lingus. This is after regulators found that the high holding in Aer Lingus was giving Ryanair undue advantage over its competitors (Clark, March 7, 2014).

In China, joint managements are considered a form of economic concentration if they control more than 50% of the market share (Ezrachi, 2012). In November 2011, two pharmaceutical companies in China, Weifang Huaxin Medicine Trading Company Ltd. and Shandong Weifang Shuntong Pharmaceutical Company Ltd. were fined RMB 7 million. The two companies jointly entered into exclusive sale agreement with the manufacturers of promethazine hydrocholoride. Due to this, there was an increase in the price of this ingredient adversely affected consumers (Slaughter & May, 2014).

In Brazil, joint managements are considered as form of economic concentration if they have 20% or more of the market share or when the joint management registered a gross annual income equivalent to R$400,000,000 (Gerber, 2010). An example is the telecommunications giant Telefónica that was ordered by CADE to reduce its share in the telecommunications market by selling stakes in Tim Participações; the other option that Telefónica had was to dilute its stakes in its Vivo mobile phone business (Pearson, 2013).

  1. b) What are the criteria according to which anti-trust organizations may interfere?

In all the jurisdictions, Saudi Arabia, US, UK, European Union, China and Brazil, the anti-trust organizations will interfere if the merger, takeover or acquisition operations: lessen competition in the market, does not have a benefit to the consumers, allows the entities to act independently of other players and consumers and does not have a clear benefit to the industry that the entities are operating (Ezrachi, 2012).

  1. Whereas an entity realized Economic Concentration (whether through mergence or joint management) without prior notice to the anti-trust organization, what sorts of actions are taking effect in this respect?

The competition Council of Saudi Arabia may receive complaints from a party or parties that may feel that one player in the market may have breached the competition laws. The competition council may also perform investigation even without receiving any complaint. The competition council will perform investigations into the conduct of the entity or group of entities. If the council feels that the entity has breached the competition laws, then the council will inform the entity and a hearing is set 15 days after the notification. To cure the effects of the violation, the competition council may require the breach to stop. The entities may also suffer financial penalties including: a fine not exceeding 5 million Saudi Riyals that can be multiplied if the breach recurs; a daily fine of between 1000 and 10000 Saudi Riyals until the breach is removed (Dabbah, 2010).

In the United States, the regulations are both civil and criminal in nature. The violators may be prosecuted by the Department of Justice. The violation may attract a fine not exceeding $100 million for a corporation and $1 million for an individual; this may come with a jail term not exceeding 10 years. Apart from these, the FTC will ban all the unfair competition methods.

In the European Union, the European Commission may impose a fine not exceeding 10% of the worldwide turnover to the corporations that do not notify it of their intended mergers or acquisitions.

In the United Kingdom, the OFT may issue orders that prevent further integration of companies.

In China, MOFCOM may order the corporations to stop the operation of the business combination, and in some cases, it may dispose shares or assets of the breaching corporations. A fine not exceeding ¥500,000 (US$81,500) may also be imposed.

In Brazil, parties that fail to notify the CADE of their deal before closing the deal may have the deal declared null and void. The parties may be subject to fines that range from R$60,000 (US$30,000) to R$60 million (US$ 30 million).

Country Regulatory authority Penalty
Saudi Arabia Competition Council of Saudi Arabia A fine not exceeding 5 million Saudi Riyals that can be multiplied if the breach recurs; a daily fine of between 1000 and 10000 Saudi Riyals until the breach is remove
United States Federal Trade Commission Prosecution

A fine not exceeding $100 million for a corporation and $1 million for an individual; FTC will ban all the unfair competition methods

 

United Kingdom Office of Fair Trade orders that prevent further integration of companies
European Union European Commission A fine not exceeding 10% of the worldwide turnover
China Ministry of Finance Corporations to stop the operation of the business combination

In some cases, it may dispose shares or assets of the breaching corporations.

A fine not exceeding ¥500,000 (US$81,500) may also be imposed.

 

Brazil Administrative Council for Economic Defense (CADE) Deal declared null and void. The parties may be subject to fines that range from R$60,000 (US$30,000) to R$60 million (US$ 30 million).

 

  1. Is anti-trust org authorized to compel dissolution against entity of dominant position?

Anti-trust org is a non-profit, research, education and advocacy institution. This therefore means that it does not have the powers to call for the dissolution of an entity in a dominant position.

 

 

 

 

 

 

 

 

 

References

Clark N. (March 7, 2014). Court upholds ruling against Ryanair. The New York Times.

Retrieved from: http://www.nytimes.com/2014/03/08/business/international/court-upholds-ruling-against-ryanair.html

Dabbah, M. M. (2010). International and Comparative Competition Law. Cambridge : Cambridge University Press.

Ezrachi, A. (2012). Research Handbook on International Competition Law. New York: Edward Elgar Publishing.

Gerber, D. (2010). Global Competition: Law, Markets, and Globalization. Oxford : Oxford University Press.

Jin P. (2002). Turning competition on its head: Economic analysis of the EC’s decision to bar the

GE-Honeywell merger. Northwestern Journal of International Law & Business, 23(1), 187-212.

MacCulloch A, Rodger B. (2008). Competition Law and Policy in the EC and UK. London: Routledge.

Slaughter; May (2014). Competition law in China. Retrieved from:

http://www.slaughterandmay.com/media/879862/competition-law-in-china.pdf

Stewart J. (July 25, 2014). When media mergers limit more than competition. The New York

Times. Retrieved from: http://www.nytimes.com/2014/07/26/business/a-21st-century-fox-time-warner-merger-would-narrow-already-dwindling-competition.html

Pearson S. (December 23, 2013). Brazilian antitrust watchdog finally bares its teeth. Retrieved

from: http://www.ft.com/intl/cms/s/0/11ff5a86-65a5-11e3-8451-00144feabdc0.html#axzz39BdWt6fc