Guidelines for market investigations: Their role, procedures, assessment and remedies April 2013 CC3 (Revised) CC3 (Revised)—Guidelines for market investigations: Their role, procedures, assessment and remedies April 2013 Guidelines for market investigations: Their role, procedures, assessment and remedies Contents Introduction ......................................................................................................................... 5 Enterprise and regulatory reform ....................................................................................... 6 A brief note on terminology ................................................................................................ 6 Part 1: The promotion of competition in the UK ............................................................... 7 Threats to competition ....................................................................................................... 7 Responding to the threats to competition ........................................................................... 8 The market investigation regime ........................................................................................ 8 The making of references to the CC .................................................................................. 9 Public interest issues .................................................................................................. 10 Terms of reference and the statutory questions ............................................................... 10 An AEC ....................................................................................................................... 11 Features ..................................................................................................................... 11 Remedial action .......................................................................................................... 12 Part 2: The conduct of a market investigation ................................................................ 12 1. The gathering and analysis of evidence ...................................................................... 12 Range of analysis ....................................................................................................... 12 Qualitative and quantitative analysis ........................................................................... 13 2. Processes and procedures ......................................................................................... 13 A. Statutory obligations and rules for Inquiry Groups .................................................. 14 B. Appointment of Inquiry Groups and staff ................................................................. 15 C. Overarching procedural issues ............................................................................... 16 D. The main stages of an investigation ....................................................................... 18 Part 3: The AEC test .......................................................................................................... 24 Part 3: Section 1—Market characteristics and outcomes .............................................. 24 Market characteristics ...................................................................................................... 24 Market share data ....................................................................................................... 25 Other background market characteristics .................................................................... 25 Market outcomes ............................................................................................................. 26 A. Prices and profitability ............................................................................................. 26 B. Quality, innovation and other non-price indicators .................................................. 30 Part 3: Section 2—Market definition ................................................................................ 30 The role and determinants of market definition ................................................................ 31 Assessing substitutability ............................................................................................ 32 Dimensions of the market ................................................................................................ 32 Product market ........................................................................................................... 33 Geographic market ..................................................................................................... 33 Other issues .................................................................................................................... 34 Customer groups ........................................................................................................ 34 Temporal dimensions .................................................................................................. 34 Grouping markets together ......................................................................................... 35 3 CC3 (Revised)—Guidelines for market investigations: Their role, procedures, assessment and remedies April 2013 Effects outside the relevant market ............................................................................. 35 Part 3: Section 3—The competitive assessment ............................................................ 35 Identifying features that harm competition ....................................................................... 35 Structural features ....................................................................................................... 36 Conduct features......................................................................................................... 36 A combination of features ........................................................................................... 37 Theories of harm ............................................................................................................. 37 Formulating and reviewing theories of harm ................................................................ 37 Potential sources of competitive harm ............................................................................. 38 1. Unilateral market power .............................................................................................. 40 Indicators of unilateral market power........................................................................... 41 Assessing sources of unilateral market power ............................................................ 41 (a) High concentration ................................................................................................. 42 (b) Capacity constraints .............................................................................................. 43 (c) Lack of substitutability of products ......................................................................... 43 (d) Weak supply-side constraints ................................................................................ 44 2. Barriers to entry and expansion .................................................................................. 45 Types of entry barriers ................................................................................................ 46 Assessing the impact of entry barriers ........................................................................ 49 3. Coordinated conduct by firms...................................................................................... 51 Forms of coordination ................................................................................................. 51 Impact of coordinated conduct .................................................................................... 51 Assessing potential concerns about coordination ........................................................ 52 4. Vertical relationships ................................................................................................... 56 Impacts of vertical relationships .................................................................................. 57 Assessment of vertical relationships ........................................................................... 58 5. Weak customer response ........................................................................................... 62 Impacts and assessment of weak customer response ................................................ 63 Part 3: Section 4—Concluding the AEC test ................................................................... 68 Part 4: Remedial action .................................................................................................... 69 Framework for consideration of remedies ........................................................................ 69 The remedy questions ................................................................................................ 69 A comprehensive solution to the AEC and/or detrimental effects ................................ 70 Effectiveness .............................................................................................................. 71 Reasonableness and proportionality ........................................................................... 73 Assessing the impact of remedies ............................................................................... 74 Possible remedy outcomes ........................................................................................