Page 4 - Vertical Agreements
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al and E[ cEoxncolmusiicvAelvyanftogra:rdLee&S#C2 43;n Ricardo Elizondo | 23-Apr-15, 04:38 PM ] ©Getting The Deal Through MEXICO

Analytical framework for assessment 17 To what extent are buyer market shares relevant when
assessing the legality of individual restraints? Are the market
15 Explain the analytical framework that applies when assessing positions and conduct of other buyers relevant? Is it relevant
vertical restraints under antitrust law. whether certain types of restriction are widely used by buyers
in the market?
There are no vertical restraints that may be considered per se unlawful, not
even resale price maintenance. Whereas the vertical restrictions may also take place upstream, in order to
evaluate whether the buyer has market power the same analysis shall be
Conduct may be illegal if its purpose or effect is to diminish, damage or made, considering the buyer’s market share as only one of the elements
deter competition and free access to equal, similar or substantially related for the evaluation, along with the position and conduct of the buyer’s com-
goods or services. In determining whether this is the case, the Commission petitors. The fact that buyers’ restrictions are widely used does not dimin-
analyses whether the firm involved has substantial market power. ish any likely liability, nor constitutes a justification or a valid defence.
However, there is a particular precedent in the soft drinks market, where
The Commission evaluates the goods or services that make up the rel- the defendant was accused of having almost 45 per cent of the retail sales
evant market and identifies: points covered by exclusive agreements, forbidding the marketing of com-
• those that are, or may be, substituted for them (whether domestic or petitors’ products. At that time the Commission realised and ruled that
even though such exclusive agreements might be illegal, the claimant had
foreign); covered the remaining 40 per cent of retail sales points with exclusive
• the time required for the substitution; agreements, leaving only the remaining 15 per cent available for the rest of
• the geographic area in which the goods or services are supplied or are the competitors. From then on further investigations took place to correct
the market.
in demand;
• where suppliers and customers can be changed without incurring Block exemption and safe harbour

appreciably different costs; 18 Is there a block exemption or safe harbour that provides
• the cost of distributing the goods or services; certainty to companies as to the legality of vertical restraints
• the cost and probability of access to alternative markets; and under certain conditions? If so, please explain how this block
• the federal, local or international statutory restrictions that limit the exemption or safe harbour functions.

access of users or consumers to alternative supply sources or suppliers There are no block exemptions or safe harbours provided by the
to alternative consumers. Competition Law, or guidelines. However, as mentioned previously, in any
vertical agreement the more efficiency gains are demonstrated by the par-
To determine the existence of substantial market power, the Commission ties involved the more likely that it would be cleared by the Commission.
examines the following issues:
• the entities’ market share and whether they can unilaterally set prices Types of restraint

or restrict supply in the relevant market without competitors being 19 How is restricting the buyer’s ability to determine its resale
able, or potentially able, to counteract these measures; price assessed under antitrust law?
• the entry barriers and the elements that may alter those barriers;
• the existence and market power of any competitors; It has been proven that resale price maintenance may have some ben-
• the entities involved and their competitors’ possible access to sources efits or efficiencies, regardless of the existence of the market power that
of raw materials or other inputs needed to manufacture products or the firm imposing it may have. According to the Competition Law vertical
provide a service; and price-fixing may occur by setting a minimum, a maximum or a fixed price.
• the recent performance and behaviour of the entities involved. Each one of these cases deserves a particular analysis. Minimum and fixed
prices may be more sensitive when they might prevent inter-brand versus
The Competition Law also provides a list of examples of efficiency gains intra-brand competition, whereas the latter may fall under the concept of
that the Commission may take into account to assess the competitive effect related company or economic interest group, as mentioned in question 11.
of the restraint.
On the one hand, setting a maximum price may only affect the profit
16 To what extent are supplier market shares relevant when of the reseller, avoiding loss of sales for the supplier, if the buyer decides to
assessing the legality of individual restraints? Are the market get extra profit from the well-positioned product of the supplier, regardless
positions and conduct of other suppliers relevant? Is it of the fact that this maximum price does not affect the consumer.
relevant whether certain types of restriction are widely used
by suppliers in the market? On the other hand, setting a minimum price may apparently affect
competition by preventing the buyer from increasing sales by offering a
Market share is only one of the different factors to be analysed in order lower price. However, behind the product may be a brand-name reputation
to evaluate market power and the likely impact of the restriction, and of created by the supplier, which may be seriously affected if the buyer unilat-
course the existence and market power of any competitors may be relevant erally decides to drop the price in order to increase sales.
in this assessment, along with the elements mentioned in question 15.
Consequently, the result of the Commission’s analysis will very much
To determine market share, the Commission can consider: depend on the ability of the supplier to produce those business arguments
• sales indicators; to justify the resale price maintenance. Otherwise, an RMP may take place
• the number of customers; and be considered illegal according to the Competition Law.
• output capacity; and
• any other appropriate factors. 20 Have the authorities considered in their decisions or
guidelines resale price maintenance restrictions that apply
The method for calculating ratios and the degree of concentration in the for a limited period to the launch of a new product or brand,
relevant market is the Concentration Index, which is a Mexican adapta- or to a specific promotion or sales campaign; or specifically to
tion of equivalent indices used abroad (such as the Herfindahl-Hirschman prevent a retailer using a brand as a ‘loss leader’?
Index).
There are no guidelines for vertical agreements, restrictions or resale price
The fact that other suppliers or competitors may use a particular maintenance.
restriction is something that has been evaluated by the Commission as a
counterbalancing factor. In an investigation where Pepsi-Cola was chal- However, a limited time period for resale price maintenance set in
lenging the fact that Coca-Cola was foreclosing the market by imposing advance for the launch of a new product or brand, or avoiding predation
restrictions such as exclusivity on retailers, the Commission found that of the brand, could be further supported by providing legitimate business
Coca-Cola had exclusivity in 45 per cent of the retail market, while Pepsi- reasons, aside from any market power that the supplier may have.
Cola had exclusivity in 40 per cent. Therefore, the Commission deemed
that the playing field was indeed level.

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