Sverdlov, OJSC Promsintez, Federal State Unitary Enterprise Bryansk Chemical Plant named after 50th October Anniversary, OJSC Kalinovsky Chemical Plant 3 OJSC Sberbank, Commercial Bank Odinbank coordination payment for regional customer (LLC), Federal State Unitary Enterprise Post of economic services of Russia, Municipal Unitary Enterprise In- activities formation-Computing Center of Odintsovo urban settlement, Odintsovsky Municipality in Moscow Region, Municipal Unitary Enterprise Housing and Utilities Division 4 LLC KRK-Strakhovaniye, OJSC Alpha coordination Insurance national customer Strakhovaniye, OJSC SG MSK, LLC Ros- of economic business gosstrakh, LLC SG Admiral, LLC Renais- activities sance Strakhovaniye Group, OJSC Russkaya Strakhovaya Kompaniya 5 Non-State Institution for continuing profes- price collu- security regional customer sional education Business Security School, sion guards certiNon-State Educational Institution STRAZHA fication exams 6 LLC Rexam, OJSC Baltika Brewery coordination aluminum national customer of economic cans activities 7 Kotlas poultry farm, Agricultural Service price collu- table egg regional FAS Company Arkhselprom sion 8 Federal Division of Motor Ways Chernoze- collusion at road con- regional customer mye, LLC Road Operating Company No.36 auction struction 9 LLC Agrotorg, CJSC Trading House Perekry- price collu- buckwheat regional FAS ostok, LLC Real Hypermarket, LLC Lenta, sion groats CJSC DIXI-PETERBURG, LLC O’Kay 10 LLC Echo firm, LLC TD-Holding, LLC RE- price collu- buckwheat regional FAS SOURCE, LLC Vladimir and Co., LLC Ale- sion groats kon, LLC Samarskaya Niva, LLC AgroMir 11 Manros-M, OJSC Wim-Bill-Dan branch, price collu- milk regional FAS CJSC Lyubinsky MKK, OJSC Vita sion 12 OJSC Kyshtym mining and concentrating exclusivity gangue frac- regional FAS company, OJSC Polyarny Quartz contract tional quartz 13 LLC LUKoil-Yugnefteprodukt, OJSC NK price collu- petroleum regional FAS Rosneft - Staropoliye sion products 14 OJSC SUEK, OJSC Russkiy Ugol, CJSC price collu- power- regional customer Stroyservice sion generating coal Section 6.
Institutional Problems (continued) table 1 2 3 4 5 6 15 OJSC AKB ROSBANK, Open Joint-Stock coordination mortgage regional customer Insurance Company RESO-Guarantiya of economic lending activities 16 OJSC Mozyrsol, LLC BPK, CJSC Predpri- market divi- sodium salt national FAS yatiye MS CJSC TDS, OJSC Upak Group, sion LLC Grocery, LLC Eurotrust Expo, LLC Gildiya+, LLC SevZapRegionSol SPb, LLC Euroservice Plus Looking at the profile of violations in 2008–2010 the following conclusion may be made:
price collusions and coordination of economic activities are the most common violations (Fig.
5, Table 23).
Exclusivity Coordination of Contract 6 11% economic activities 18 32% Impeding entry to or exit from the market 1 2% Price collusion 22 39% Division of market 5 9% Collusion at auction 4 7% Fig. 5. Identified cases of competition limiting concerted practices in 2008–2010 – by types Significant increase of concerted practice associated with financial institutions activities coordination was observed in 2010 versus 2008. In 2008 11 price collusions out of the total of 12 were identified based on monitoring petroleum products prices.
Table Competition limiting concerted practices cases by types, 2008–Year Type of violation 2008 2009 Coordination of economic activities 9 5 Impeding entry to and exit from the market Division of the market 3 Collusion at auction 3 Price collusion 12 2 Exclusivity contract 6 In the following Table (Table 25) the types of concerted practices are analyzed against the spheres of economic activity RUSSIAN ECONOMY IN trends and outlooks Table Congruence between types of concerted practices and spheres of economic activities Types of violations Impeding Coordination entry to and Division of Collusion at Price collu- Exclusivity of economic Sphere of exit from the the market auction sion contract activities economic activities market Wholesale and retail 1 Consumer goods 2 1 Industrial manufacturing 1 1 2 2 Raw materials market 1 1 13 Services to government organiza- tions Public services 1 Services to business operators 4 1 Financial services 7 As one can see from the above data, coordination of economic activities cases were identified in all spheres of business, impeding market entry/exit and division of markets are found more often in the sphere of manufacturing. Price collusion was most often identified in raw materials markets which may be associated with the fact that the products in these sectors are more homogeneous and it is easier to prove that change of price is not associated with any external factors. Besides, producers’ prices for socially important goods are monitored providing data for identifying price collusion.
Coordination of economic activities is most common type of concerted practices in financial markets associated with limiting the number of insurance companies whose policies are mandatory to have for getting a mortgage, for example.
Most often two entities are recognized as anti-monopoly law offenders committing concerted practices. In particular, most often price collusions of two companies within one regional market are identified (see Table 26 and Fig. 6).
Table Congruence between types of concerted practices and number of offenders Number of offenders 1 2 3 4 5 > Type of violations Coordination of economic 5 5 3 2 activities Impeding entry to and exit from 1 the market Division of the market 4 Collusion at auction 1 1 Price collusion 11 4 2 2 Exclusivity contract Total 5 28 5 5 2 Section 6.
Institutional Problems >1 participant participants 9% 17% 5 participants 4% 4 participants 9% 3 participants 9% 2 participants 52% Fig. 6. Identified cases of competition limiting concerted practices – by number of offenders Federal Anti-Monopoly Service (FAS) is usually initiator of investigation of concerted practices. Concerted practices are most often identified as the result of prices monitoring in case of changes in economic environment or during checks initiated by media publications.
Table Congruence between types of concerted practices and investigations initiators Investigation initiated by Competitors Power bodies Consumers FAS Type of violations 8 Coordination of economic activities Impeding entry to and exit from the market Division of the market 2 Collusion at auction 2 Price collusion 1 4 Exclusivity contract 1 1 3 17 Total Based on the analysis of completion limiting concerted practices regulation the conclusion can be made that anti-monopoly agencies are especially effective in identifying the following types of concerted actions:
– in regional raw materials markets;
– committed by two market participants;
– expressed in establishing or maintaining the same level of prices;
– identified as the result of monitoring.
The violations profile in 2008–2010 indicates that starting from 2009 the number of violations identified in the national market increased significantly (from 1 case up to 6 cases).
RUSSIAN ECONOMY IN trends and outlooks 15 National Regional 2008 2009 Fig. 7. Concerted practices in the national and regional markets in 2008–Actions by the companies simultaneously raising prices may be qualified as abuse of their dominating position in the market in the form of setting monopolistically high prices. The fact of collective domination must be identified in order to qualify a type of concerted practices violation. Also, pricing mechanisms need to be analyzed in order to prove that the established price exceeds the aggregate amount of costs and revenues required for manufacturing and selling this particular type of goods.
Identification of the market shares of each participant of an anti-competition cartel is not required in order to call them liable. However, the fact of their dominating position in the market needs to be identified in all cases of qualifying collusions at the national market. Thus, FAS issued a resolution determining the fact of OJSC Silvinit and OJSC Uralkaliy setting the monopolistically high price for potassium chloride in the Russian Federation in 2008. For that FAS had to prove the fact of collective domination of these two companies in the national Russian market. OJSC Bassol and LLC Promsol are the only manufacturers of sodium salt in the territory of Russia. FAS resolution on OJSC Electroapparat reads that automatic circuit breakers are innovative proprietary technology of the manufacturer, respectively, the company is a monopolist in the market.
A situation may be possible when concerted practices in the form of supporting prices at certain level are qualified as setting the monopolistically high price. For example, in FAS issued a resolution of setting monopolistically high prices by OJSC VympelKom, OJSC Megafon, and OJSC MTS in the roaming services market.
According to the effective legislation domination may be determined with regards to one company with a market share exceeding 35% and no more than 3 companies with their total market share collectively making 50%. The Federal State Statistics Service (Rosstat) takes into account economic concentration ratio for material production yields within the Russian Federation borders. With the assumption of the commercial market border being limited with the code of Russian Classification of Production for a certain type of goods, and the geographical borders – by the administrative border of the Russian Federation, the comparison can be made between the shares of the biggest company and three biggest companies.
Institutional Problems Fig. 8. Ration between the share of the biggest manufacturer and the collective (aggregate) share of three major manufacturers in various sectors RUSSIAN ECONOMY IN trends and outlooks According to Article 5 of the Law on Competition Protection, the company may be recognized as dominating in the market if its market share exceeds 35%, and three companies – if their collective market share exceeds 50%.
As we can see on Fig. 8, there are practically no situations when identification of the dominating position is possible for one biggest market player and impossible for three major market players. At the same time, as it is shown for the example of economic concentration of mechanical engineering, chemical and food producers, the dominating position may be identified both for the biggest manufacturer and for three biggest manufacturers of significant number of types of goods in the mentioned sectors.
The key specific feature of identifying a price collusion associated with setting monopolistically high prices in the scenario of collective dominating position is the possibility to prevent the violation before simultaneous increase of prices. The example of such type of price collusion is 2009 Resolution with regards to concerted practices of OJSC Silvinit and OJSC Uralkaliy at the national potassium chloride market – the key feedstock for producing potassium fertilizers and some other products of chemical petroleum sector.
The Resolution about setting the monopolistically high price for potassium chloride with regards to these two companies was issued in 2008.
In 2009 the actions of these two companies on simultaneous increase of prices were qualified as concerted practices limiting the competition. In particular, Moscow City Arbitration Court Ruling says that OJSC Silvinit and OJSC Uralkaliy are profit-generating for both sides, because Q2 2009 20% increase of price for potassium chloride from RUR 3,955 up to RUR 4,750 per ton is in the interests of both market players. Such actions are beneficial for them because such increase of price would lead to increase in their revenues from selling potassium chloride.
The fact of such actions being discussed at meetings at the RF Ministry of Industries and Trade where the representatives of the said compound fertilizers plants were present was regarded as evidence of price increase being known to all the participants in advance.
The fact of the price increase not being justified by calculations based on the production costs analysis and not being caused by economic factors was regarded as evidence of no external factors impact on the price level. Macroeconomic indicators were analyzed with this purpose – such as the customs duties amounts, regulated tariffs, and Rosstat data on producers’ price index by types of economic activities in the Russian Federation in 2009.
The most significant factor was that the market participants used different approaches to identifying the price collusion. Thus, actions by OJSC Uralkaliy were in the form of executing supplementary agreement to the supply contract listing the new price, which they had sent to their customers. Actions of the second collusion participant were done by sending a price increase proposal to the customers on behalf of an intermediary company. Thus, in OJSC Silvinit handed over all the potassium chloride volumes for domestic consumers to LLC Mineral Trading, at the same time the agreement between these two companies did not include and provisions for pricing. However, such actions on behalf of the manufacturer do not release from the liability for pricing when re-selling the product.
So in certain cases when pricing procedures violations were revealed in monopolistic and oligopolistic markets (i.e. markets with infrastructure deficiencies) price collusion cumulative Section 6.
Institutional Problems evidence qualification may be more efficient regulating mechanism versus identifying the facts of setting monopolistically high prices in the environment of collective domination.
About 14% of all concerted practices pertain to coordination of activities in financial markets. In order to reduce dissemination of such violations the RF Government Resolution No.386 “On Permissible Agreements between Credit Institutions and Insurance Companies” was enacted on April 30, 2009. This Resolution contained a list of non-permissible agreements between the financial market players and contributed to a significant reduction of agreements between the financial market players in 2009 versus 2008.
Practically all the violations in 2010 were connected with agreements in the mortgage loans markets. For example, FAS Territorial Division for Komi Republic determined that OJSC AKB ROSBANK and Open Joint-Stock Insurance Company RESO-Guarantiya had entered into an impermissible agreement in the property insurance market for mortgage loans.
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