Hub and Spoke arrangements: a comparative view - PowerPoint PPT Presentation

About This Presentation
Title:

Hub and Spoke arrangements: a comparative view

Description:

Title: PowerPoint Presentation Author. . Last modified by: j.nicholson-biss Created Date: 1/11/2006 11:26:39 AM Document presentation format: A4 Paper (210x297 mm) – PowerPoint PPT presentation

Number of Views:220
Avg rating:3.0/5.0
Slides: 24
Provided by: 912769
Learn more at: https://www.biicl.org
Category:

less

Transcript and Presenter's Notes

Title: Hub and Spoke arrangements: a comparative view


1
Hub and Spoke arrangements a comparative view
Monday 15 November 2010, 17.00 19.00
Chair Michael Hutchings, OBE Speakers Javier
Berasategi, Berasategi Abrogados Thomas Lübbig,
Freshfields Bruckhaus Deringer Alastair Gorrie,
Counsel to SC Johnson, Counsel to Orrick Mario
Siragusa, Cleary Gottlieb Steen Hamilton LLP
2
HUB AND SPOKE
  • BIICL 15 NOVEMBER 2010
  • MICHAEL HUTCHINGS
  • INTRODUCTION

3
TWO PREVIOUS SEMINARS
  • 19 October 2009
  • Legal Analysis
  • UK Focused
  • 19 April 2010
  • EU Proposals
  • Various NCA cases
  • UK Supermarkets Code

4
RESEARCH PROJECT
  • BRIEF Legal analysis of hub and spoke
    agreements under UK competition law
  • RESEARCHER Peter Whelan
  • OUTPUT Article in European Competition Journal
    December 2009
  • FUTURE WORK Explore themes from other EU
    countries

5
THEMES FROM WHELAN RESEARCH
  • Innocuous information exchanges may be
    anti-competitive
  • Parallel cases in numerous EU countries
  • Hub Spoke collusion is a feature of UK milk
    and tobacco cases
  • Vertical information flows can be deemed to be
    horizontal
  • High legal hurdle to establish unlawful
    horizontal collusion

6
THEMES FROM SEMINARS
  • Horizontal collusion requires higher standard of
    proof than vertical restrictions
  • Conditional participation not enough the
    vertical agreement must be unlawful (e.g. RPM)
  • RPM is easier to nail than HS (e.g. UK Tobacco)
  • Margin protection practices RPM??
  • Compliance requirements for trading partners
    including category management

7
Hub spoke is dead welcome to the era of
retailer power
  • Javier Berasategi Torices
  • BIICL Hub Spoke Conference
  • London, 15.11.2010

8
  • We used to live in a world where brand power
    was everything, but slowly and inexorably it is
    being replaced by retail power...The mountain
    here is the shelf a shelf in the supermarket, a
    shelf in a concept store or a shelf on the
    internet. Once the shelf was the place we proudly
    displayed our brands. Now its the place we fight
    to stay on. Now its the place we can be evicted
    from on the smallest whimWe believe this squeeze
    has taken us to a new type of world. Its clear
    that this new world has some big fish and some
    little fish. The biggest fish of them all is the
    global retailer. This new breed of super retailer
    increasingly gets its own way. It can decide to
    swim with the small fish or simply gobble them up
    and spit them out. The little fish are of course
    the brands.
  • Thomassen, Lincoln, Aconis, Retailization
    Brand survival in the age of retailer power, 2006
  • As retailers have grabbed power around the
    globe, theyve transformed private labels from
    price purchases into powerful brands with their
    own cachet. As a result, one powerful brand
    manufacturers like Nestlé and Procter Gamble
    now find themselves competing for shelf space
    with their biggest customers, like Tesco and
    Walt-Mart.
  • Kumar Steenkampt, Private label strategy How
    to meet the store brand challenge, 2007

8
9
Supplier-retailer relationships
  • Conventional view seller power
  • Inter-brand competition
  • Intra-brand competition
  • Modernization supermarket platforms
  • Two-sided markets
  • Supermarkets as hubs spokes
  • Conclusions

9
10
Conventional View
  • Seller power and intra-brand competition EC
    Article 101(3) Guidelines (pars. 17-18)
  • Vertical BER Guidelines
  • RPM cardinal sin
  • Listing fees supplier2supplier foreclosure
    (Guidelines, pars. 203-208)
  • Category management supplier2supplier
    foreclosure (id., pars. 209-213)
  • Retailer subcontracting manufacture of own brand
    is not a competitor (id., par. 27)
  • Car BER oligopolistic market
  • Multi-brand retailers
  • Old BER access to 2 competing brands (essential
    facility?)
  • New BER specific (low) market-shares for
    cumulative effect of parallel agreements test
    (40/30)
  • Independent spare-parts manufacturers repair
    services

10
11
Conventional View
  • Seller power and inter-brand competition
  • Hub spokes as a refined version of seller
    market power
  • Collusion at the same chain level through an
    agent upstream/downstream
  • N suppliers through a retailer
  • purchase price to the retailer? Retailer pushing
    prices down
  • purchase/retail price to all retailers? Retailer
    pushing other retailers prices up
  • N retailers through a supplier RPM
  • N retailers and N suppliers horizontal
    horizontal

11
12
The olive oil decision (Spain)
  • The Spanish Competition authority fined the
    Leading Manufacturer Brand (LMB) and several
    retailers for RPM in 2002-2004 (File 612/02,
    Aceites 2, annulled on appeal)
  • The largest retail chain (Carrefour) objected and
    delisted the LMB
  • Market shares in 2004 LMB, 35 retailer brands
    50 others 15
  • Market shares 2009 retailer brands, 70 LMB,
    20 others 10
  • In 2010 LIB market-share up Carrefour listed it
    again and low-price strategy (opposite of RPM)

12
13
Modernization
  • Retailers operate as platforms operating in
    two-sided markets (KatzShapiro, 1985 Rochet
    Tirole, 2001)
  • Retailers and suppliers compete through branded
    products their dealings are horizontal
  • Draft Horizontal Guidelines, commercialisation
    agreements, Section 6
  • Supermarkets are hubs and independent and retail
    brands are spokes new forms of horizontal
    competition raise new collusion/foreclosure
    challenges
  • Manufacturer - retailer (horizontal brand
    competition)
  • Manufacturer buying alliance (horizontal brand
    horizontal retailer competition)
  • Retailer label manufacturer-retailers (horizontal
    brand horizontal retailer competition) RLM
    tycoons (Cott, McBride, etc.)

13
14
Modernization
Source PMLA
14
15
Modernization
  • Supermarket platforms as competitive bottlenecks
    multi-homed suppliers and single-homed shoppers
    (Armstrong, 2006)
  • Single home shoppers switching costs (Diamond,
    1971 Klemperer, 1995) role of price frames
    (OFT, 2010) role of choice framing and
    intermediaries bias (OFT, 2010 Bennett
    Collins, 2010)
  • Supermarket platforms have customers on both
    sides (see EC Mastercard decision) suppliers buy
    access, shoppers buy products
  • Supermarket platforms are often special they
    keep traditional retailer functions in their
    favour facings, retail pricing (RPM ban)
  • Intra-platform (product) competition high of
    product selection is made in-store and is
    influenced by supermarket-platform
  • Inter-platform competition supermarkets compete
    for shoppers and, in rare instances, for
    suppliers (exclusive retail brand suppliers)

15
16
Modernization
  • The triangular hub spoke risk overshadowed by
    the supermarket platform dominance
  • Suppliers incentive to collude or apply minimum
    RPM diminishes loss of market-shares to
    retailers brand and risk of retailer retaliation
  • Large retailers incentives to force/induce
    suppliers into wholesale price increase or RPM to
    all retailers increase
  • they enjoy access fee mark-up over smaller
    competitors
  • the create a price gap with their own brands
    (NockeWhite, 2005)
  • they control supplier/retailer deviation and
    punish it (Toys R Us ITWAL)
  • Large retailers may unilaterally achieve this
    outcome
  • they extract fees/transfer costs unilaterally
    (Cruz Roche, 1999 MezaShedir, 2009)
  • they demand guaranteed margins/sales (Butz, 1993)
  • they demand MFN protection (Butz, 1993
    TiroleRey, 2006)
  • they create artificial gaps in retail prices
    (Oubiña et. al., 2000)

16
17
Toys R US
  • Toys R Us v. FTC, 221 F3d 928 (7th Cir. 2000) a
    retailer with just a 22 market-share forces main
    toy suppliers into exclusionary conduct towards
    some retailers
  • Swindle contended that rather than there being
    "hub and spoke" arrangement directed by TRU or
    some other type of horizontal conspiracy among
    manufacturers, the "glue that held TRUs scheme
    together was each manufacturers individual
    decision not to cross its most important
    customers interests." The Commissioner
    concluded I am simply unable to find a
    horizontal boycott on the basis of this evidence.
    The gaps and ambiguities in the record require
    that I dissent from the conclusion that TRU
    orchestrated an anticompetitive horizontal
    agreement." (FTC Press Release, citing a
    Commissioners partially dissenting opinion)

17
18
Chocolate cartel (Canada)
  • Alleged chocolate cartel in Canada a wholesaler
    coop (ITWAL) threatened retaliation if suppliers
    did not increase prices to other retailer.
    According to Competition Authoritys document
  • Cartel started with threat letter from ITWAL to
    manufacturers in order to have trade spending
    reducedAt the end of the day, it is only the
    suppliers control and discipline of trade
    spending that can restore the functionality of
    the marketplace. The problem is very serious and
    completely out of control on the part of the
    suppliers. I am being forced to reexamine how we
    operate in the market and I am not sure it would
    be in the best interests of Nestlé. I urge you to
    meet and take action before this chocolate bar
    bubble bursts.
  • ITWAL regularly monitored progress from
    manufacturersFurther to my letter of February
    21, 2002, please find attached information
    forwarded by Members on product and pricing
    available from diverters. In view of the
    seriousness of the problem, I will forward
    information as received under the acronym,
    T.A.N., which stands for 'TAKE ACTION NOW!' I
    trust you will accept the information in the
    spirit with which it is intended. I look forward
    to meeting with you to learn what steps Cadbury
    is taking to address this problem.
  • ITWAl threatened action if prices were not
    increased/supplies continued to specific
    retailers.

18
19
Conclusions (I)
  • The hub spoke tree is hiding the
    supermarket-platform forest
  • Suppliers/retailers incentives to enter into
    hub spokes diminish/increase
  • Large retailers non-coordinated practices
    replicate the same outcome
  • Ban on RPM (regulation/competition law) helped
    emergence of supermarket-platforms!
  • Should RPM be allowed? Is it too late?

19
20
Conclusions (II)
  • Are supermarket platforms reducing
    intra/inter-platform competition?
  • One-side competitive bottleneck market power or
    market dominance?
  • Even intense one-side (shopper) competition is
    compatible with sub-optimal competition on the
    other side (suppliers) balancing the two-sides?
  • Platform brand integration compounds the
    anticompetitive risk platform neutrality?
  • Compare antitrust regulatory intervention in
    other two-sided markets MIFs, TV advertising,
    call termination, international roaming, Apple,
    Internet neutrality

20
21
How retailers see card platforms
MIF 3
21
Source Eurocommerce
22
How could suppliers see supermarket platforms?
Access fees 10, 20, 30, 40?
Retailers
Manufacturer Brands
Retail Alliances
Retailer Brands
22
23
Javier Berasategi Torices
THANK YOU!
Email jb_at_berasategi.es Móvil 34 688 606 389
  • T. 91 423 09 90
  • F. 91 800 30 47
  • Claudio Coello 124
  • MADRID
  • T. 94 657 86 01
  • F. 94 494 50 29
  • Rodríguez Arias 23
  • BILBAO

www.berasategi.es
Write a Comment
User Comments (0)
About PowerShow.com