The Competition Authority Published A Guidance Paper On Evaluation Of Significant Market Power

Author:Niv Zecler, Ronit Amir- Yaniv and Ofer Argov
Profession:Yigal Arnon & Co
 
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Background

In January 2019, an extensive amendment to the Economic Competition Law, 5748-1988 (formerly the Anti-Trust Law) came into effect. Inter alia, the amendment broadened the definition of a "monopolist", which will now include "a person who holds significant market power regarding the supply or purchase of assets, or regarding the provision or purchase of services"

On July 21, 2019, the Competition Authority (the "Authority") published a guidance paper regarding the method in which it interprets the term "significant market power".

What is significant market power?

According to the Authority,significant market power pursuant to the Competition Law exists when a supplier is able to determine for a specific product conditions of supply that are significantly inferior to those that would have been set in a competitive market, for a period of time that is not temporary, for all its customers or for a specific group of customers.

This definition of significant market power requires that additional points be clarified:

Firstly, the very existence of significant market power, provided that it was achieved legally, does not constitute an infringement of the provisions of the Competition Law. The prohibition in the Competition Law refers to abuse of such significant market power.

Secondly, "conditions of supply" means price, quantity, quality, variety, availability, etc.

Thirdly, the purchaser of an asset may also have significant market power (and not only the supplier of an asset), and the definition of a monopolist in the Competition Law also refers to one who possesses significant market power in purchase power − i.e. a monopsony. Nevertheless, the guidance paper focuses solely on the method of evaluation of significant market power of supply (and not purchase).

How can the existence of significant market power be determined?

In general, evaluation of the existence of significant market power requires addressing the ability of the supplier to act independently of two competitive restraints: restraint on the part of demand (in other words, the expected reaction of customers to inferior conditions of supply) and restraint on the part of supply (in other words, the expected reaction of competitors − actual or potential − of the supplier). The degree of effectiveness of these restraints on the behavior of the supplier indicates the extent of the market power enjoyed by the said supplier.

Evaluation of the expected responses of the customers...

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