Relevant market definition
In July 2015 the Competition Agency received an initiative to initiate proceedings against Ytong porobeton (YP) for alleged abuse of its dominant position.
The initiative was submitted by Tegula, a competitor of YP, which claimed not only that YP had been an importer and distributor of Ytong-branded porous concrete (porous concrete, siporex) for a long time, but also that its market share in Croatia amounted to more than 90%. In addition, according to Tegula's assertions, by mid-May 2015 YP had started distributing a new brand of porous concrete called LEA, with the sole intention of eliminating competition on the market. It was also asserted that YP had, according to the then-valid price list for LEA porous concrete (and taking into account the discounts granted to buyers), set the market selling price lower than the purchase price, allegedly in order to obtain a monopolistic position on the market and completely eliminate competition. In other words, YP had allegedly applied a predatory pricing strategy.
YP rejected all of Tegula's assertions and argued that the relevant market (with respect to the product's dimensions) had been incorrectly determined. In particular, considering the market characteristics and the price, method and purpose of using porous concrete, YP concluded that it was interchangeable with other wall building materials, such as brick, plasterboard, concrete, wood, glass and polystyrol. Consequently, YP argued the wall building materials market, rather than the porous concrete market, was the relevant market. Therefore, YP was competing on the wall building materials market with competitors from the brick industry, the plasterboard industry, the concrete industry, the wood processing industry and the glass industry (ie, all companies producing construction materials used for wall building).
Tegula made additional remarks in the course of the proceedings, essentially asserting that for the abovementioned product categories, the applicable regulations upheld the separation of the relevant product markets with regard to:
- construction standards; and
- customs import.
In addition, Tegula stated that when applied to masonry structures, the materials at hand differed in terms of both their characteristics and production method.
The agency remained uncertain and thus continued to examine the market and its players. The opinions voiced on the market were also dissonant. In particular, 11 examinees maintained that porous concrete was interchangeable with other types of construction material (eg, brick and plasterboard), while five examinees stated that porous concrete products represented a separate market.
Faced with divided opinions and the inability to determine the relevant market independently and accurately, the agency did something unusual: it summoned court experts in the construction field to provide opinions and information. Based on the information provided, the agency determined that porous concrete was sufficiently interchangeable with other wall building materials. Therefore, the agency held that in terms of product dimension, the market for wall building material distribution was the relevant market.
By broadening the definition of the relevant market to include different types of wall building material, YP's market position was undercut. The agency thus concluded that YP was not dominant on the relevant market. Consequently, the agency was free to claim that it need "not further analyse the price at which YP sold the porous concrete of the 'LEA' brand because, in the case in question, it [was] irrelevant". As such, the action itself was no longer relevant and thus, in July 2016, the agency determined that there was no abuse.
Not only does this case demonstrate that YP's action challenging the relevant market was an efficient means by which to test the agency's conclusions, but also that parties in similar situations should do the same. However, this case also reveals that differing opinions exist with regard to economic issues and standardised products which have been on the market for decades. It appears that the agency has offered parties a new opportunity by providing them with greater freedom in submitting evidence and proving their assertions. The use of court experts points to an interesting and, in the long term, desirable direction for the agency, as this will help to stop it from making mechanical, repetitive decisions regarding the markets (and their delimitations), as errors in this regard lead to more harm than good.
For further information on this topic please contact Mislav Bradvica attorney at law in cooperation with Schoenherr by telephone (+385 1 4813 244) or email ([email protected]). The Schoenherr website can be accessed at www.schoenherr.eu.