regulations against abusive pricing - a comparison of eu, us and vietnamese law and an application of its results to vietnam

Table of Contents PREFACE 5 List of Abbreviations 7 1. INTRODUCTION 9 1.1. Background 9 1.1.1. Relationship of competition and monopoly 9 1.1.2. Pricing in competition and monopoly 11 1.1.3. Monopoly control laws in US, EU and Vietnam 11 1.2. Purposes: 25 1.3. Definition and delimitation 26 1.4. Methods 29 1.5. Value of the research: 31 1.6. Outline 31 2. REGULATIONS AGAINST ABUSIVE PRICING UNDER EU AND US LAW 33 2.1. Basic rules and concepts on abusive pricing in EU and US 33 2.1.1. Basic rules 33 2.1.1.1. EU Competition Law and US Anti-Trust Law are directed against abusive conduct, which includes abusive pricing 33 2.1.1.2. Laws against abusive pricing in the EU and the US protect Competition, not Competitors 45 2.1.2. Concept of Dominant position, Market power and Monopoly power 48 2.1.2.1. General approach: 48 2.1.2.2. Identification: 51 2.1.3. The Relevant Market concept 57 2.1.3.1. The relevant product market: 59 2.1.3.2. The relevant geographic market: 62 2.2. Specific forms of abusive pricing 64 2.2.1. Excessive pricing: 64 2.2.1.1. Excessive pricing on the selling side 65 2.2.1.2. Excessive pricing on the buying side 73 2.2.1.3. Remarks 75 2.2.2. Predatory pricing 76 2.2.2.1. EU test of predatory pricing 83 2.2.3. Price Squeeze 86 2.2.3.1. Price squeeze in the US 88 2.2.3.2. Price squeeze in the EU 92 2.2.4. Price Discrimination 98 2.2.4.1. Price discrimination in the US 99 2.2.4.2. Price discrimination in the EU 102 2.2.5. Discount or rebate schemes 104 A-PDF OFFICE TO PDF DEMO: Purchase from www.A-PDF.com to remove the watermark 2 2.2.5.1. Bundled discounts 105 2.2.5.2. Single-product royalty discounts 110 2.2.6. Remarks 116 2.3. Remedies to abusive pricing in EU and US laws 117 2.3.1. Conduct and Structural Remedies 118 2.3.1.1. Termination of infringement 119 2.3.1.2. Behavioural remedies 120 2.3.1.3. Structural Remedies 121 2.3.2. Monetary Remedies 125 2.3.2.1. Fines and penalties 126 2.3.2.2. Compensation 128 2.3.2.3. Legal Fees 133 2.3.3. Criminalization and Incarceration: 134 2.3.4. Remarks 134 3. ABUSIVE PRICING IN VIETNAM COMPARED WITH EU AND US 137 3.1. Background, basic rules and concepts 138 3.1.1. Gradual development of legislation and enforcement capacity 138 3.1.1.1. Development of Vietnamese laws 138 3.1.1.2. Competent Authorities for regulating abuses of dominance 146 3.1.2. Recent practices related to of abuse of dominance 150 3.1.2.1. Vinapco case 151 3.1.2.2. Megastar case 153 3.1.2.3. K+ issue 154 3.1.2.4. “Electric pole war” 157 3.1.2.5. Medicine and milk prices 161 3.1.3. Basic rules 165 3.1.3.1. Abusive conducts including abusive pricing 165 3.1.3.2. Vietnamese Competition Law protects competition and competitors 170 3.1.4. Concepts 171 3.1.4.1. Dominance and monopoly position 171 3.1.4.2. Relevant market: 175 3.2. Specific forms of abusive pricing in Vietnamese laws 177 3.2.1. Excessive pricing: 178 3.2.1.1. Excessive pricing on the selling side 178 3.2.1.2. Excessive pricing on the buying side 180 3.2.1.3. Fixing a minimum re-selling price 182 3.2.2. Predatory Pricing: 184 3.2.3. Price Discrimination: 186 3.2.4. Foreclosing competitors 187 3.2.5. Remarks 189 3.3. Remedies to Abusive Pricing 190 3.3.1. Conduct and Structural Remedies 191 3.3.1.1. Conduct remedies 191 3.3.1.2. Structural remedies 192 3.3.2. Monetary remedies 192 3.3.2.1. Fine 192 3.3.2.2. Compensation 193 3.3.3. Remarks 194 3 4. SUGGESTIONS FOR IMPROVING VIETNAMESE REGULATIONS ON ABUSIVE PRICING AND CONCLUSIONS 195 4.1. Suggestions for improving the presentation and communication of competition matters 196 4.1.1. Publication of VCAD and VCC decisions 196 4.1.2. Categorize abuses of monopoly position along with abuse of a dominant position 197 4.1.3. Determination of a dominant position 198 4.1.3.1. Single firm dominance 198 4.1.3.2. Collective dominance 199 4.1.4. Determination of a relevant market 199 4.2. Suggestions on regulations on abusive pricing 200 4.2.1. Excessive pricing 200 4.2.2. Predatory pricing 202 4.2.3. Price discrimination 203 4.2.4. Market foreclosure 203 4.2.5. Price squeeze 203 4.2.6. Discount and rebate schemes 204 4.3. Suggestions on remedies for abusive pricing 205 4.4. Conclusion 206 5. Annexes 208 1 - Extract of the VLC 208 2 - Extract of the VLC – With suggested amendments 212 3 - Extract of Decree 116/2005 216 4 - Extract of Decree 116/2005 – with suggested amendments 222 Table of Cases 228 Official Documents 233 List of websites 235 BIBLIOGRAPHY 236 PREFACE This dissertation is the visible result of my Ph.D research within the framework of the joint doctoral program between Lund University Faculty of Law and Ho Chi Minh City University of Law, supported by SIDA’s “Strengthening legal education in Vietnam” project. The research focuses on laws against abuse of a dominant position in the EU, the US and Vietnam utilizing a comparative law approach. This dissertation would not have been accomplished without the help and contribution of several individuals, to whom I would like to express my deepest appreciation. First, it was my great honour to be supervised by Professor Hans Henrik Lidgard and Associate Professor Le Thi Bich Tho. Professor Lidgard has given me invaluable guidance, advice and encouragement from the very first to the final steps of the research. He spent a great deal of his precious time reading and commenting my writing, and discussing the issues raised in my drafts. Associate Professor Le Thi Bich Tho provided me not only with warm encouragement throughout the whole process, but also with insightful comments, especially with regard to the approach to Vietnamese law in my dissertation. I would like to express my deep gratitude to Prof. Lidgard and Asst. Prof. Le Thi Bich Tho for being my teachers and supervisors throughout both my masters and doctoral degree programs. I am indebted to them for much of the professional legal content of my dissertation. Any remaining errors are entirely my own. Second, I would like to send my special thanks to Mr. Robert Schwartz, who helped me to improve my writing in the English language. Moreover, he provided me with many practical comments and relevant and valuable information. Without his help, my dissertation would not reach the standard for international academic writing. Third, I would like to thank Dr. Nguyen Thanh Tu, Professor Katarina Olsson, and all the other professors, doctors who were opponents or members of examining boards of annual prolongation seminars, during the course of which they gave me many meaningful comments and feedback on the content of drafts of this dissertation. Fourth, one thing I will never forget is the support and encouragement of the Lund University Faculty of Law and Ho Chi Minh City University of Law during my research. I would like to express my gratitude to Prof. Christina Moell, Prof. Bengt Lundell, Prof. Traskman, Asst. Prof. Mai Hong Quy, Dr. Bui Xuan Hai, and many other professors, lecturers, administrative staff and librarians of the two universities. In addition, I also would like to 6 send my thanks to Suffolk Law School, where I was aided in US antitrust law research. In particular my thanks go to Professor Stephen C. Hicks, Mr. Jonathan D. Messinger and Suffolk’s administrative staff and librarians. Finally, I would like to thank my parents, my children, my friends and my students for their warm support, encouragement, care and love. Ho Chi Minh City, August 31, 2011 Tran, Hoang Nga 7 List of Abbreviations ASEAN Associations of South East Asian Nations AAC Average avoidable cost ATC Average total cost AVC Average variable cost CCHC Competition Case Handling Council (Vietnam) CIEM Central Institute for Economic Management (Vietnam) CJEU Court of Justice of European Union DOJ Department of Justice (US) EC European Community (Communities) EPL English Premier League EU European Union EVN Electricity of Vietnam Group FOEs Foreign owned enteprises FTAIA Foreign Trade and Antitrust Improvements Act (US) FTC Federal Trade Commission (US) GC General Court (EU) HCTV Hanoi Cable Television IDRC International Development Research Centre ICN International Competition Network LIRC Long run incremental cost LRAIC Long run average incremental cost MoF Ministry of Finance (Vietnam) MoIC Ministry of Information and Communication (Vietnam) MoIT Ministry of Industry and Trade (Vietnam) MPC Minimum – per – cap policy OECD Organization for Economic Cooperation and Development 8 SOEs State owned enterprises SRMC Short-run marginal cost UN United Nations UNCTAD United Nations Conference on Trade and Development UNDP United Nations Development Programme US United States of America VCA Vietnam Competition Authority VCAD Vietnam Competition Administrative Department VCC Vietnam Competition Council VFF-FAN Vietnam football supporters association Viettel Army Telecom Group VLC Vietnam Law on Competition VNPT Vietnam Post and Telecommunications Group VSTV Viet Nam Satellite Digital Television VTV Vietnam National Television WTO World Trade Organization 9 1. INTRODUCTION 1.1. B ACKGROUND Competition and monopoly are integral issues to deal with in a market economy. While many other countries have long experience in dealing with these issues, Vietnam only commenced the process of transitioning from a planned to a market economy a little more than two decades ago. Thus, Vietnam currently faces many theoretical and practical challenges involved in protection of effective competition. Due to its own unique circumstances, abuses of dominance are one of the most serious problems for the Vietnamese market. Research in this field, therefore, has a significant potential for improving the Vietnamese economy. This part of the dissertation presents different perspectives on the relevant issues, in order to explain the importance of the subject. It begins with a discussion on relationship between competition and monopoly. Then a description of economic theories on relationship of prices and competition is briefly presented in order to describe the influence of pricing by enterprises on various kinds of market. It concludes with a description of the legal and practical situation of Vietnam in order to demonstrate the importance of research into the regulation of abusive pricing for the country. 1.1.1.Relationship of competition and monopoly Competition is an essential feature of a market economy. Fair competition benefits society. Within the overall framework of an intense struggle among suppliers for resources and economic benefit, competition motivates them to improve their performance at all times. Practical benefits are the result, such as the improvement of goods and the quality of service, with consumers getting more reasonable prices day by day. However, competition in the long run may also lead to another result, because, as is 10 often said, “competition sows the seeds of its own destruction”. 1 Competition encourages the economic development, but there are always winners and losers, and when winners are too successful and grow in strength beyond a certain limit, they may achieve monopoly positions whereby they are able to prevent others from competing and damage the process as a whole. Especially, monopoly positions contain ability of independently decide, or even govern, prices. From a philosophical perspective, competition and monopoly are considered to be two dialectically connected sides of a perfect whole. 2 Monopoly is the opposite pole of competition: where monopoly exists, competition does not. Like other economic phenomena, monopoly has advantages and disadvantages. When monopoly is the reward for successful competition, it motivates competitors, thus encouraging the development of production and the economy. Enterprises approaching monopoly size by way of successful competition usually have financial and technical strengths, and are often leaders in researching and applying advanced techniques. Their size and economies of scale may help to minimize the fixed costs of each unit, and the monopoly enterprise can satisfy market demand at a low price, fulfil market demand with less waste and free the otherwise wasted resources for other uses. However, once monopoly exists stably and firmly, the market may lose its ability to motivate. Customers are forced to depend on the monopoly enterprise, so any element of balance may be lost. This leads to the enterprise becoming over-confident, ignoring the demands and interests of customers. Furthermore, monopolists may be attempted to abuse their monopoly position by keeping output at a level lower than demand in order to push prices up and maximize profit. In the long term, monopoly may deny consumers and society the ability to choose from among the best alternatives for their demands. Personnel and financial allocation will not be able to maximize efficiencies resulting in serious 1 See e.g. European Commission’s Ninth Report on Competition Policy, Ninth Report on Competition Policy (1979) p.10 ("It is an established fact that competition carries within it the seeds of its own destruction."). Available at http://ec.europa.eu/competition/publications/annual_report/index.html: ; See also Edward Cattermole, The Development and Implications of 'Collective Dominance' in EC Competition Law, Lund University Centre for European Studies Working Paper No. 14 (2002) p. 14 Available at http://www.cfe.lu.se/publikationer/cfe-working-papers-series: ; and Marco Lankhorst, Increasing the Requirements to Show Antitrust Harm in Modernised Effects-Based Analysis: An Assessment of the Impact on the Efficiency of Enforcement of Art 81 EC, (2010) (Ph.D. dissertation University of Amsterdam Center for Law & Economics) p.20 ("Yet, competition carries within it the seeds of its own destruction.") Available at http://dare.uva.nl/document/159558 . 2 Dang, Vu Huan, Regulations on monopoly control and anti-unfair competitive activities in Vietnam [Pháp luật về kiểm soát độc quyền và chống cạnh tranh không lành mạnh ở Việt Nam], National Politics Publisher, Hanoi, 2004, p. 18, in Vietnamese. [...]... abuses of a dominant position, I became aware that many abusive activities, which had been identified and condemned by authorities, related to the pricing policies of dominant enterprises I therefore decided to perform doctoral research with the object of producing a thesis titled: Regulations against abusive pricing – A comparison of EU, US, and Vietnamese laws and an application of its results to. .. similarities and differences among relevant Vietnamese, EU and US relevant laws Part III focuses on proposals for application to Vietnamese competition law drawn from the experiences obtained from the comparative research into EU and US laws This part is presented in Chapter 4, together with final conclusions of this Dissertation 2 REGULATIONS AGAINST ABUSIVE PRICING UNDER EU AND US LAW This Chapter... 1995 Vietnam – EU Cooperation Agreement was signed Then, Vietnam officially became a member of the Association of South East Asian Nations (ASEAN) on July 25, 1995; ASEAN Free Trade Area (AFTA) on January 1, 1996 On December 10, 2001, Vietnam – US Bilateral Trade Agreement was ratified and came into effect Vietnam has entered into more than 60 bilateral trade agreements Vietnam officially became the... 1993 and commenced drafting an Anti-Monopoly Law in 1994 After 13 years of drafting, China enacted its Antimonopoly Law on 30 August 2007 which became effective 1 August 2008 18 tool which has not only model articles but also syntheses and analyses, examples and records from the practical experiences of many countries and international organizations This material is amended and supplemented every year... focuses on three main sections in turn First, an analysis of provisions setting out the basic rules and concepts of abusive pricing in the EU and US Next it anlyzes regulations and ascertains the factors relevant to identifying each particular form of abusive pricing conduct Then it considers legal remedies for infringements under EU and US law 2.1 BASIC RULES AND CONCEPTS ON ABUSIVE PRICING IN EU AND. .. economy Practical value: This dissertation may also help to satisfy the demands of both enterprises and consumers who wish to understand the concepts and forms of a large group of abuses of dominant position, i.e abusive pricing, and discover ways of avoiding to do and/ or defending against such infringements It will also endeavour reach conclusions and/ or propose solutions for dealing with the demands of. .. with abusive pricing, after setting out theoretical issues such as the basic rules of laws, concepts and forms of abusive pricing For every issue, I correlate and analyse information regarding the relevant EU and US laws Part II, located in Chapter 3, focuses on an introduction to the same issues as addressed by the Vietnamese legal system, and makes a comparison through the same logical process to identify... many countries in Africa and Asia Countries may adopt anti-unfair competition law and monopoly control 32 law in separate acts, for example Germany31, China , or adopt one act covering all areas of regulations, such as has Vietnam In recent years, awareness of the importance of competition law has grown throughout the world Economic globalization, involving zone and world economic integration has had... AND US 2.1.1.Basic rules Basic rules are prerequisites that must be set up in law at the initial step to orient and build a framework for all provisions and decisions on the matter in the legal system Therefore, they must be examined with a view to a clear and precise understanding before approaching and evaluating the appropriateness and effectiveness of any particular regulation EU and US laws relating... teaching and be a further reference for others interested in this topic 1.2 PURPOSES: My research has two purposes The first is to investigate both theoretical and practical aspects of competition laws in combating abusive pricing by dominant enterprises in the EU, US and Vietnam It aims at finding 58 Tran, Hoang Nga, Regulations on abuse of dominant position and monopoly in Vietnam – Realities and comparison . EU AND US LAW 33 2.1. Basic rules and concepts on abusive pricing in EU and US 33 2.1.1. Basic rules 33 2.1.1.1. EU Competition Law and US Anti-Trust Law are directed against abusive. of Abbreviations ASEAN Associations of South East Asian Nations AAC Average avoidable cost ATC Average total cost AVC Average variable cost CCHC Competition Case Handling Council (Vietnam) . the anti-monopoly laws (in the US called “Anti-Trust Laws”). guaranteed each and every business, no matter how small, is the freedom to compete -to assert with vigor, imagination, devotion, and