consolid=concentr= low n.of suppliers (in a market)>> higher prob. of cocon
STEP 1: ESTIMATE (RELMA = MAD)
WHY? to learn:
1-if (MAS > the CA2002 thresholds = hmt ?) >> CMA.O2.review…below these threhs, there cannot be adp.cartel, nor slc(in matos)…..[plc’s mas = plc’s sales / total sales (in a given market)]
2-whether there is MAP
3-the relma (relevant market): [exception: where MAD does not affect MAS or MAP, MAD is ignored (by the cma)….ow: MAD is estimated (by cma), and is estimated by applying the HMT (‘hypothetical monopolist’ test):
3.1/ for the HMT to work (to det the certain RELMA), we would need lots of data, which we dont have >> we have to make-do with estimating a particular RELMA’s probab. how?:
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- -gws substitution trends/patterns (past.pres.fut), (wrt price.quality.value)
- -changes in demand or supply (substitution) in response to price changes.
- -price correlations (if + >> same market)
- -Similar pattern of price changes suggest that the two products are in the same market,
- -Two products of different quality might be in the same market but with some constant price differential.
- -An absence of correlations in price changes might imply that the two products are in separate markets.
- -consumer.buyer surveys: the question is not whether substitution is possible, but how many consumers would use a gws substitute, in response to quick and a 5-10% price rise (to make that price rise unprofitable)
3-2/ substitution can occur not only on the demand side, but also on the supply side (when a gws price rises >> other sellers substitute (switch) their gws production into that (now more profitable )market). ex: If supermarket apple prices >> significant increase in sales of street stall apples >> they are both in the same market. Ex: a seller of one brand of luxury cars might have a relatively high share of ‘the luxury car market’, a much smaller share of ‘the car market’ and a tiny share of ‘the vehicle market’.
a. If only a few luxury car buyers would switch (SUBSTITUTE) to buying economy cars if the price of luxury cars would rise >> we must define the market as ‘luxury cars’, not as ‘all cars’ (>> the seller’s MAS might be high)
b. if many luxury car buyers would switch to economy cars if the price of luxury cars would rise >> we must define the market as ‘all cars’ (>> the seller’s MAS is small)
3.3/ -RELMA = a particular set of gws (prod.ma), in a particular geographic area (geo.ma), that are mutual ‘close substitutes’ [= when an increased price for a gws >> higer demand for the gws]. Relmas can be described by product, geography, and/or buyer group :
a/ buyergroup.ma : discrimination (different groups of buyers are charged different prices/qualities for the same gws) >> different relmas (for each group of buyers). For example, if only certain buyers would be able to switch to a new foreign supplier
b/ prod.ma :examples: Different brands of essentially similar products (eg two brands of whisky); Different types of products serving similar purposes (eg whisky and rum); Products targeted on clearly different consumer groups (eg men’s and women’s shoes); Products of differing quality (eg five star and three star hotels); Second hand and new products (eg cars); Products sold through different channels (eg apples sold at street stalls or supermarkets); Products available at different times (eg flights serving the same destination departing in the morning or the evening)
relma = the narrowest market for which a monopolist of all the products (in that market), would be able ,profitably, to, for a sustained period, increase the price of the product by typically 5-10% ….[however, gws also compete in quality and value (ex: add-on services, advertising), and this must be accounted for].
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- (in matos, the ‘5-10% price increase is wrt premato prices)
- (IN ADP.CARTELS, the ‘5-10% price increase’ is WRT prices under competitive conditions)
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– example, when considering cars, proposing separate markets defined by colour (‘yellow cars’, ‘red cars’ etc) is too narrow because it would fail the test. Even if only one seller was selling yellow cars, he would not be able to increase profits by charging 5-10% more for them, because consumers would buy cars of other colours (“demand side substitution”) or other sellers would quickly start painting cars yellow instead of red (“supply side substitution”)…..Thus, the relma lies between the (too narrow) market for ‘yellow cars’ and the (too wide) market ‘cars’. Between these two extremes there will be questions: Is ‘luxury cars’ a separate market? Are new cars and second-hand cars in the same market?…. if car prices were very high due to a ADP/CARTEL(monopoly), many cons.buyers might switch to using the bus….forgetting this can lead us to a ‘cellophane fallacy’ case : a manufacturer of cellophane wrapping successfully argued that other wrapping materials were in the same market …but, in reality they only acted as substitutes because prices of the cellophane wrapping were at monopoly levels.
c/ geo.ma : examples: The geoma is mostly local because products sold in one location are not regarded by customers as good substitutes for products sold in another. Equally, rural and urban customers might be in separate geographic markets. Markets can be wider than ‘national’, if it is easy to obtain new supply from overseas. If the CMA decides that a market is global, it will not concern about MAP exercised (on that plc) by national.plcs in that market
-ex: if an importer of a product raises price and then loses sales to a new importer, that product is in a global market. Search engines are global. -geo.ma decision factors: exs: shipping costs; import tariffs; restrictions; marketing and distribution. For example, a cinema in Grand Baie is unlikely to be a substitute for a cinema in Mahebourg, but could be a substitute to a theatre in GranBaie, or with netflix, etc)
–ex. cos suffering competition from (possible) imports, use (MAD=HMT=SNIPP) to prove their gws face competition in a wider geographic market. ex: would a 5-10% increase in prices across Mauritius cause such an increase in imports within a year as to render that price increase unprofitable?. it must be proved that those imports will respond quickly and sufficiently to a 5-10% price increase across Mauritius
STEP 2: MAS
1/ Having defined the relma, we may now calculate MAS, (and the MAS concentration indices, ex: the HHI, C3 and C4)
2/now we compare MAS against the thresholds for: monopoly, mcr and (pot) MAP
3/consider if our co is in an industry where gws production capacity and volume could be better MAS measures, than gws production.
4/ look at MAS trends.patterns, past/pres/fut