Competition Law And Monopsony Economics Essay

Can a purchaser be the biggest bully? The classical theory of monopsony replies this inquiry. It envisions a market scenario with merely one purchaser, who can utilize his purchase to cut down the measure of merchandise purchased, thereby driving down the monetary value that he has to pay. Seldom does a monopsonistic state of affairs arise in the market, so much so that small has been thought till day of the month about the possible inauspicious impact of such a scenario on market competition. Another ground for the antimonopoly analyst ‘s evident disregard of the power on the purchaser ‘s side of the market may be that such power tends to cut down the merchandising monetary value of a trade good, thereby doing a Prima facie addition in consumer public assistance[ 1 ], which has ever been one of the traditional ends of competition jurisprudence.

The said deficiency of accent, unluckily, remains blind to the symmetricalness of markets: for every marketer there is a purchaser. Therefore, merely like Sellerss, purchasers excessively may hold market power. In class of this research undertaking, the research worker intends to drive place the point that monetary value repair and other signifiers of collusion are merely every bit improper when the victims are Sellerss instead than purchasers. Besides referred to as the “ flip-side version of monopoly ”[ 2 ], monopsony can therefore hold valid antimonopoly concerns.

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The primary purpose of this undertaking is to analyse the theory of monopsony from an antimonopoly jurisprudence attack. In the first chapter initial portion of the undertaking, the research worker has provided a brief description of the standard monopsony theory and the economic deductions thereof. In the following chapter, the concerns of monopsony under antimonopoly jurisprudence will be addressed with important accent on the construct of maltreatment of dominant place. Finally, the research worker will give illustrations of judicial reading of monopsonies. All other signifiers of legislative redresss covering with monopsony autumn outside the range of this paper.

B. Classical Monopsony -What does It Entail?

Pure monopsony can be looked upon as the demand-side parallel of the monopolizer who is a individual marketer. It therefore follows that merely as the monopolizer has market power in selling its merchandises ; the monopsonist has purchasing power in buying its necessities excessively.[ 3 ]The economic grudge towards both is hence similar excessively -both cause societal public assistance losingss.

From a somewhat different position, the societal public assistance effects of monopsony are correspondent to those of monopoly -too few resources will be employed in the production.[ 4 ]At the point where supply intersects with demand, the value of the good, as measured by the demand monetary value, equals the cost to society of supplying that measure as measured by the supply monetary value. At this point, the employment degree is optimum in a societal sense because all of the additions from trade have been realized, and entire public assistance is maximized. However, the monopsonist will non engage this figure of units because it is non in private optimum to make so ; it will use a smaller measure. As a consequence, excessively few resources will be employed, as has been stated above and the monopsonist will eventually waive possible additions from trade chances.[ 5 ]Since the monopsonist forces a lower monetary value upon providers, one may deduce that its costs for transition of the intermediate good into a concluding 1 will fall as a consequence and consumers ( of that concluding good ) will profit through lower monetary values on the monopsonist ‘s end product.

However, the research worker would wish to differ from such illation and point out that the monopsonist does non go through on said lower costs merely because the relevant costs for pricing determinations are fringy costs.[ 6 ]What the research worker intends to portray is that monopsony power is to the demand side of a market what monopoly power is to the supply side. Monopoly power is indicated by the ability of Sellerss to raise monetary value above competitory degrees, which requires the ability to restrict end product. Monopsony power, on the other manus, involves the ability of purchasers to take down input monetary values below competitory degrees, which requires the ability to curtail the measure demanded of the input.[ 7 ]In either instance, the measure that would be exchanged is less than the measure exchanged under competitory conditions, and the consequence bespeaks allocative inefficiency.[ 8 ]Furthermore, the fact that the decreased input monetary values enjoyed by the monopsonist do non take to reduced end product monetary values, is, honestly, ironical. On the contrary, when the monopsonist has market power in its end product market, the reduced input monetary values cause higher end product monetary values.

C. Monopsonist Concerns- Abuse of dominant place

The Indian Competition Act, 2002[ 9 ]purposes at forestalling patterns which have inauspicious consequence on competition, to protect the involvement of consumers and to guarantee freedom of trade carried on by other participants, in markets, in India.[ 10 ]It is of import to observe here that the Indian Competition Act, like most other statute laws introduces the construct of “ maltreatment of dominant place ” . This means that it prohibits merely maltreatment of power non the mere usage of it.[ 11 ]

There are chiefly three phases in finding whether an endeavor has abused its dominant place. The first phase is specifying the relevant market. The 2nd is finding whether the concerned project is in a dominant place in that relevant market. The 3rd phase is the finding of whether the project in a dominant place has engaged in behaviors specifically prohibited by the legislative act or amounting to mistreat of dominant place or effort to monopolise under the applicable jurisprudence.[ 12 ]

The competition Torahs of the European Union, United Kingdom, Germany and India contain a general prohibition on the maltreatment of laterality by undertakings/enterprises. Article 82[ 13 ]of the Treaty of the EC, Section 18 ( 1 )[ 14 ]of the Competition Act, 1988, U.K. , Section 4 ( 1 )[ 15 ]of the Indian Competition Act, 2002, Section 19 ( 1 )[ 16 ]of the German ‘Act Against Restraints on Competition ‘ and Section 2[ 17 ]of the Sherman Act contain commissariats on maltreatment of dominant place.

1. Specifying Relevant Market

The first measure in finding whether an project or house has abused its dominant place is specifying the relevant market which has two wide dimensions viz. , the relevant merchandise market and the relevant geographical market.[ 18 ]

The Indian Competition Act, 2002, defines a “ relevant merchandise market ” and “ relevant geographic market ” . Section 2 ( T ) defines the relevant merchandise market as a market consisting all those merchandises or services which are regarded as interchangeable or substitutable by the client, by ground of the features of the merchandise or service, the monetary values and the intended usage. Section 2 ( s ) defines the relevant geographic market as a market consisting the country in which the conditions of competition for supply of goods or proviso of services are sufficiently homogenous and can be distinguished from the conditions predominating in neighbourhood countries.

There is nevertheless, no such instance either in India or in other states, where such a definition has been challenged on the evidences that it takes into history supplier side maltreatment as merely the positions of the client ‘s attitude towards replaceability of the goods is taken. Keeping this inquiry aside and presuming that this job is resolved by judicial reading, the other elements of maltreatment of laterality besides need to be assessed.

2. Definition of a ‘Dominant Position ‘

While the Torahs of legion states prohibit or declare illegal the maltreatment of dominant place or monopoly or effort to monopolizen of certain behavior by projects in a dominant place, the mode in which ‘dominant place ‘ , ‘monopoly ‘ or ‘substantial grade of market power ‘ is defined is different in different states.

The construct of laterality is broader than economic power over monetary value. It is non the same as economic monopoly, although a monopoly would clearly be dominant.[ 19 ]This is a clear indicant of the fact that laterality is recognised as instances even apart from monopoly and therefore the possibility of characterizing monopsony as down-stream laterality strengthens here.

Explanation ( a ) to Section 4 of the Indian Act defines dominant place as “ dominant place means a place of strength, enjoyed by an endeavor, in the relevant market in India, which enables it to-

( I ) operate independently of competitory forces predominating in the relevant market or

( two ) affect its rivals or consumers or the relevant market in its favor.

Unlike the Monopolies and Restrictive Trade Practices Act[ 20 ]where a dominant project had to fulfill a quantitative demand of control over at least 1/4th of the entire “ goods ” or “ services ” produced or rendered in India, dominant place under the Indian Act[ 21 ]is “ a place of strength enjoyed by an endeavor in the relevant market, in India which enables it to run independently of competitory forces ; or affects its rivals or consumers or the relevant market in its favor.[ 22 ]

A figure of factors are taken into history to find whether a peculiar project or group of projects is in a dominant place in the relevant market. The factors to be taken into history are inter alia market portion of the project or endeavor, barriers to entry, size of rivals and fiscal power of the endeavor.[ 23 ]

However, the market portion that a peculiar project has in the relevant market is one of the most of import factors to be taken into history to find whether it is in a dominant place and under the Torahs of some legal powers, the being of a market portion of or above a specified degree gives rise to a given of being of a dominant place ( although rebuttable ) .[ 24 ]

In Hoffmann-La Roche & A ; Co. AG v Commission of the European Communities[ 25 ], it was observed that the being of really big market portions though a really of import factor, is non changeless and its importance varies from market to market harmonizing to the construction of these markets. The Court observed, “ Furthermore although the importance of the market portions may change from one market to another, the position may lawfully be taken that really big portions are in themselves, and salvage in exceeding fortunes, grounds of the being of a dominant place ” .[ 26 ]

Competition governments can use steps like purchaser concentration and snap of supply, every bit good as public presentation steps such as profitableness and comparative bargaining power compared to the Sellerss, in order to help them in the appraisal of purchaser power. The construction of the purchaser and the marketer markets must besides be taken into history.[ 27 ]The figure of houses is besides indispensable in judging whether purchaser concentration can supply a representative step of purchaser power. A little figure of houses that account for a high portion of purchases indicate that the purchaser market is concentrated.[ 28 ]

3. Maltreatment of Dominant Position

The Indian Act does non forbid laterality or the presence of market power per Se, and sheer market power entirely, or even market laterality, does non represent maltreatment of laterality. Abuse of laterality occurs when a dominant house, or group of houses, well prevents or lessens competition, by prosecuting in Acts of the Apostless that aim to extinguish or train rivals, or merely to halt possible rivals from come ining the market in inquiry.

The pact of the EC does non incorporate an express definition of maltreatment of laterality but simply lists certain behaviors which, if engaged in by a dominant project will amount to mistreat of laterality. In Hoffmann-La Roche it was observed that, “ The construct of maltreatment is an nonsubjective construct associating to the behavior of an project in a dominant place which is such as to act upon the construction of a market where, as a consequence of the very presence of the project in inquiry, the grade of competition is weakened and which, through resort to methods different from those which condition normal competition in merchandises or services on the footing of the minutess of commercial operators, has the consequence of impeding the care of the grade of competition still bing in the market or the growing of that competition ” .[ 29 ]

In Europemballage Corporation and Continental Can Company Inc. v Commission of the European Communities[ 30 ]it was observed that, “ Maltreatment may therefore occur if an project in a dominant place strengthens such place in such a manner that the grade of laterality reached well hobbles competition, i.e. that, merely those projects remain in the market whose behaviour depends on the dominant 1 ” .

In the visible radiation of the fact that the bing antimonopoly statute law prohibits merely maltreatments of power, the inquiry assumes significance as to whether in instances of either monopoly or monopsony, it would imply an maltreatment of market power to utilize that power simply to act upon monetary value. Rationality suggests that the legislative prohibition should widen merely to price-only effects. However, ulterior instances will uncover how lone price-effects are non plenty and that a closer expression must be taken to strike down opprobrious instance of monopsony by the bench.

D. Judicial Trends under Monopsony- A Concern for society?

Recent studies conducted in U.K.[ 31 ]hold revealed that the current judicial tendency is towards substantial analysis, alternatively of the “ bright line ” trials[ 32 ]that were in trend earlier. As a consequence, Judgess are required to appreciate in entireness economic effects of an action, lest they commit errors. For illustration, if judiciary utilizations initial impact on monetary value as the trial for forbidden behavior, monopsonistic behavior may be excused, even when it ought non to be. Such a decision, although erroneous, may be reached at in the undermentioned instances: foremost, purely from substantial position, bench may comprehend lower monetary values as an index of the harmlessness of a pattern. Furthermore, procedurally talking, hurt suffered by Sellerss who have been compelled to sell their end products at lower monetary values may non measure up as antimonopoly hurt in the traditional sense.

The research worker would in this context draw attending towards a recent contention environing the affair of Balmoral Cinema v. Allied Artists Pictures,[ 33 ]which highlights the significance of proper economic analysis of monopsony scenario. In this instance, the exhibitioners ( purchasers ) colluded to forbear from competitory command for movies offered by distributers. While such an action might hold fallen foul of standard bright-line antimonopoly analysis as a per Se improper horizontal understanding to repair monetary value, the judiciary held alternatively that the pattern of the conspiring purchasers was merely doing take downing of monetary values paid by exhibitioners to distributers, which might take down monetary values to movie-goers at the box office, thereby easing instead than sabotaging consumer public assistance. Without diging into properness of the opinion, the research worker would wish to situate that it had come hazardously close to comparing lower monetary values with overall economic benefit. It is for this really ground that in the instance of monopsony, the presence of lower monetary values should non stop the analysis because there is no correlativity between an initial lessening in monetary values and any overall long-term benefits to consumers.

E. Conclusion

The aforesaid analysis clearly indicates that there is a purchaser for every marketer and anticompetitive behavior by purchasers can do inauspicious economic effects similar to those caused by Sellerss ‘ anticompetitive behavior. However, the competition policymakers are yet to to the full integrate the symmetricalness of markets into their analyses, alternatively curtailing their focal point entirely on seller-behaviour. Particularly in a state like India, monopolistic inclinations are in kernel sought to be curbed. It is extremely dubious if the tribunals would truly read monopsony into the legislative act and declare it bad in jurisprudence every bit good. The Indian bench must beef up the economic foundations for covering with anticompetitive behavior by purchasers excessively. The demand assumes all the more significance owing to the simple statement of fact that concentration of power on the buying side of a market about necessarily causes a lessening in monetary value, which may allure a justice in bend to mistakenly halt substantial analysis at that phase, or declare that the complainants have non suffered antimonopoly hurt.[ 34 ]

In class of this undertaking, the research worker has sought to stress a few affairs. First, lower input monetary values ensuing from the exercising of monopsony power do non finally interpret into lower monetary values to the monopsonist ‘s clients and increased overall consumer public assistance. Therefore, neither the substantial nor the procedural analysis should halt with the initial impact on input monetary value. Second, the monopsony theoretical account typically employed in many economic texts and antimonopoly casebooks earnestly understates the assortment of effects of the effort of monopsony power. Finally, the long-term effects of monopsony must non be ignored. Lower input monetary values in the short tally may intend lessenings in both future supply and in ultimate, overall consumer wellbeing.

This decision has deductions on the argument about whether the antimonopoly Torahs should be applied utilizing ” consumer public assistance ” or “ entire public assistance ” criterion. Those adopting the “ consumer public assistance ” criterion believe that antimonopoly analysis should concentrate on the involvements of consumers who purchase a concluding terminal merchandise or end product in the concatenation of distribution. In contrast, advocates of the “ entire public assistance ” standard argue that the antimonopoly Torahs should seek to maximise society ‘s wealth as a whole instead than concentrating on any one type of market participant.

The fact that many tribunals and hatchet mans outside India have non been loath to reprobate anticompetitive buy-side behavior, which potentially poses small or no direct menace to consumer public assistance, suggests a willingness on their portion to take into history the involvements of all market participants. Possibly this indicates some acknowledgment by tribunals and hatchet mans that in the long tally, monopsony can finally be merely every bit harmful to consumers as anticompetitive behavior happening in the end product market. While the judicial determinations may non wholly decide the argument about the consumer public assistance and entire public assistance criterions, possibly it helps to solidify to some grade what tribunals and hatchet mans have been proposing all along-that behavior on the buy side of the market should be treated merely every bit purely as behavior on the sell side of the market.

Therefore, the research worker hopes that the Indian jurisprudence and bench will develop, in visible radiation of these opinions abroad to put aside the traditional perceptual experience of Sellerss being mostly immune to antimonopoly misdemeanors.

F. Bibliography

Legislative acts

Competition Act, 1988, United Kingdom 6

Gesetz gegen Wettbewerbsbeschrankungen, GWB ( German Act Against Restraints on Competition,1956 6

Sherman Act, United States, 1890 6

The Competition Act, 2002, No. 12 of 2003 5

The Monopolistic and Restrictive Trade Practices Act, 1969 8

Treaty of the European Communities, 2003 6


Balmoral Cinema v. Allied Artists Pictures, 885 F. 2d 313 ( 6th Cir. 1989 ) . 8

Europemballage Corporation and Continental Can Company Inc. v Commission of the European Communities, [ 1973 ] EUECJ C-6/72. 10

Hoffmann-La Roche & A ; Co. AG v Commission of the European Communities, ECJ, Case 85/76, Dated 13 February 1979. 9

Ilan Golan v. Pingel Enterprises Inc, 310 F.3d 1360, 1370 ( Fed. Cir. 2002 ) 6

Image Technical Services Inc v. Eastman Kodak Co, ( 90-1029 ) , 504 U.S. 451 ( 1992 ) 6

Queensland Wire Industries Proprietary Limited v. The Broken Hill Proprietary Company Limited and another [ 1989 ] HCA 6 ; ( 1989 ) 167 CLR 177 6

United Brands Co and United Brands Continental BV v. The Commission of European Communities, ( 1978 ) 1 CMLR 429. 9

Plants of Publicists and Writers

Geoffrey A. Manne & A ; E. Marcellus Williamson, “ Hot Docs v. Cold Economicss: The Use and Misuse of Business Documents in Antitrust Enforcement and Adjudication ” , 47 Arizona Law Review 609. 12

John J. Flynn, “ The Misuse of Economic Analysis in Antitrust Litigation ” , 12 Southwestern University Law Review 335. 5

Leon B. Greenfield & A ; Daniel J. Matheson, “ Rules v. Standards and the Antitrust Jurisprudence of Justice Breyer ” , 23 ( 3 ) Antitrust L. Journal 48 ( 2009 ) . 11

Mark Furse, Competition Law of the EC and UK, 6th Ed, 2008, Oxford University Press. 10

Natalie Rosenfelt, “ The Verdict on Monopsony ” , 20 Loyola Consumer Law Review 402. 4

Remarks of Dr. Betty Bock at University College of London, 55 Antitrust & A ; Trade Reg. Rep. ( BNA ) 109 ( July 21, 1988 ) , 11

Richard J. Pierce, “ Is Post-Chicago Economics Ready for the Courtroom? A Response to Professor Brennan ” , 69 George Washington Law Review 1103 12

Richard Whish, Competition Law, 6th Ed, 2008, Oxford University Press. 9

Roger D. Blair & A ; Jeffrey L. Harrison, “ Antimonopoly Policy and Monopsony ” , 76 Cornell L. Rev. 297 3

Roger G. Noll, “ Buyer Power and Economic Policy ” , 72 Antitrust L.Journal. 589, 613 ( 2005 ) 4

Web Beginnings

Competition Commission of India, “ Maltreatment of Dominance in Indian Comeptition Law ” , Available at … /Abuse % 20of % 20Dominant.pdf, Last visited on 17 March 2011 6

David Waterman, “ Local Monopsony, Free Riding, and Antimonopoly Policy ” , April 1995, Prepared for Presentation at the Fifth Annual Conference of the American Law and Economics Association, May 12-13, 1995, Available at hypertext transfer protocol: // abstract_id=54865, Last visited on 17 March 2011. 3

Dobson Consulting, “ Buyer power and its impact on competition in the nutrient retail distribution sector of the European Union ” , ( 1999 ) , available at hypertext transfer protocol: // , last visited on 17 March, 2011. 9

G.R. Bhatia, “ Maltreatment of Dominance ” , Available at … /ABUSE % 20OF % 20DOMINANCE.pdf, Last visited on 17 March 2011. 5

G.R. Bhatia, “ Advance opinions that are awaited on issues under the Competition Act, 2002 ” , Available at hypertext transfer protocol: //, Last visited on 17 March 2011. 6

John R.Wilke, “ Bully Buyers: How Driving Monetary values Lower Can Violate Antitrust Statutes ” , 27 January 2004, The Wall Street Journal, Available at hypertext transfer protocol: // % 201-27-2004 % 20Bully % 20Buyers % 20- % 20How % 20Driving % 20Prices % 20Lower % 20Can % 20Violate % 20Antitrust % 20Laws.pdf- , Last visited on 17 March 2011. 4

Mallika Ramachandran, “ Comparative Survey: Law on Abuse of Dominant Position ” , Available at … /ComparativeStudyLaw_mallikaramachandran09022007_20080411100811.pdf, Last visited on 17 March 2011. 8

OECD ( 2005 ) : “ Competition jurisprudence and Policy in the European Union ” , hypertext transfer protocol: //www.oecd.ord/dataoecd/7/41/35908641.pdf, Last visited on 17 March, 2011. 7

OECD, Directorate for Financial, Fiscal and Enterprise Affairs Comm. on Competition Law and Policy, Buying Power of Multiproduct Retailers ( 1999 ) , available at hypertext transfer protocol: //, last visited on 17 March, 2011 5

Raghav Dhawan, Countervailing Buyer Power as a defense mechanism in Dominance instances, available at hypertext transfer protocol: //, Last visited on 17 March, 2011. 9

Surabhi Singhi, “ Competition Act, 2002 and its Relevance ” , Available at hypertext transfer protocol: //, Last visited on 17 March 2011. 6



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