New Procedure for Analysing Competition on the Commodity Market.

21.09.2010

Goltsblat BLP advises that the Federal Antimonopoly Service (FAS) has issued Order No.220 dated 28 April 2010 "On Approval of the Procedure for Analysing Competition on the Commodity Market", which came into effect on 3 September 2010. This invalidated orders of the FAS determining a dominant position of business entities on particular commodity markets, as well as the previous Procedure for Analysing and Assessing the State of Competitive Environment on the Commodity Market dated 25 April 2006.

The new procedure applies to analysis of competition for determining which business entities hold a dominant position on a particular commodity market, as well as for identifying other cases of non-competition, restricted competition or elimination of competition. No competition analysis is required when determining the dominant position of a natural monopoly or considering cases involving breach of the antitrust legislation pursuant to certain articles of the Federal Law "On Protection of Competition".

The Order provides for 9-stage analysis of competition:

  • Determination of the time interval for commodity market research depending on the purpose of the research, commodity market specifics and information availability.
  • Determination of product boundaries of commodity markets (the procedure for identifying a product that has no substitutes or interchangeable commodities traded on the same commodity market) includes preliminary determination of the product, identification of the properties of purchased products and their potential substitutes, and determination of interchangeable commodities. The Order does not impose a statutory obligation to use a particular method for determining these boundaries. Yet, when an alleged breach of antitrust legislation is considered with regard to the product buyer (monopsony), it is the seller's opinion that is critical regarding product interchangeability.
  • Determination of geographical boundaries of the commodity market (i.e., the territory on which the buyer purchases or has an economic, technical or other opportunity to purchase the product and beyond which it has no such opportunity), including preliminary determination of geographical boundaries, identification of economic restrictions on the opportunity to purchase the product and determination of territories within the geographical boundaries. The Order no longer divides commodity markets into federal, interregional, regional, local or territorial markets, this allowing the antimonopoly service freedom to determine the geographical boundaries of the market.
  • Determination of business entities playing on the commodity market, including those that sell the given product within its boundaries within a certain time interval for commodity market research, as well as those that might enter the given commodity market within the year (potential sellers).
  • Determination of commodity market volume (i.e., the total volume of commodities in circulation during a certain time period within the product and geographical boundaries of the given market) and market share of business entities on the basis of sales volume (scope of supply, quantity of shipments). Other indicators (proceeds, shipment, production, industrial facilities, resource reserves, goods under contracts) are used when they allow more accurate determination of the competitive position of business entities on the given market.
  • Determination of the level of concentration of a commodity market using the concentration ratio (CR), Herfindahl-Hirschman Market Concentration Index (HHI) and other market concentration indicators.
  • Determination of entry barriers to a commodity market (i.e., economic, administrative and other circumstances or acts preventing, impeding or restricting business entities in launching activities on a commodity market), including identification of the presence (or absence) of entry barriers and the possibility of overcoming such entry barriers to the given commodity market.
  • Assessment of the current state of competition on the commodity market, including a conclusion regarding the market type to which the given commodity market belongs (market with developed competition, insufficiently developed competition or market with undeveloped competition) and, in certain cases, assessment of possible changes to competition on this commodity market.
  • The final step is drafting of an analytical report on the results of the analysis conducted into the current state of competition on the commodity market.

The Order specifies that, when competition is analysed for determining the dominant position of a business entity in drawing up a register of business entities with a more than 35 per cent share on the market for a specific product or holding a dominant position on other specified grounds, determination of the commodity market concentration level or entry barriers to the commodity market or assess the competition environment on the commodity market is not performed.

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