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This reasoning shows that, on the one hand, a court may erroneously interpret the establishment of the amount of necessary costs and profits as compulsion for setting a certain price level. On the other hand, it shows that antimonopoly regulators have little methodology support in proving instances of high monopoly prices.
Fig. 1. Legal proceedings on monopoly price rulings passed by antimonopoly regulators Section Institutional Problems Thus, the length of time that monopoly price regulation takes depends, first and foremost, on how long it takes to contest FAS rulings in courts.
To make the task of identifying instances of high monopoly prices easier, amendments to Federal Law No 135-FZ of 26 July 2006 "On protecting competition" were adopted in 2009, providing a more specific definition of what a high monopoly price is. Conditions for identifying instances of high monopoly prices include:
a) the costs necessary to produce and distribute the goods in question remained unchanged or their change does not match the change in the price of the goods;
b) the list of sellers or buyers of the goods remained unchanged or changes in it are insignificant;
c) terms of goods circulation on the market, including those driven by state regulation, including taxation and tariff regulation, remained unchanged or changes in them are not comparable to changes in the price of the goods in question.
It is worth noting that, under the new version of the law on protecting competition, the price of a product that results from innovation activities, i.e. activities that lead to the creation of a new, not interchangeable, item or a new interchangeable item with reduced production costs and/or improved quality, is not considered to be a high monopoly price. In addition, the term "comparable market" against which the comparable price level is determined can now include markets outside the Russian Federation.
However, these changes have not resulted in a clearer definition of a high monopoly price.
For instance, the fact of economically justified costs and rate of return is in each case proved differently: through comparison with the industry-average level of profitability, through comparison of costs with the similar costs of a manufacturer who uses the same type of equipment and so on.
Amendments passed in the "second antimonopoly package" make it more difficult to prove the fact of a monopoly price for a particular product because in the process of establishing this fact it is necessary to analyze the existence of comparable markets not only in Russia but also abroad. In addition, there are no restrictions on the time during which surplus profits from setting high monopoly prices for innovation products can be received. That means that any company, with the exception of producers of commodities, can prove that it has introduced considerable innovations to a product and set any price for that product without the risk of being subject to antimonopoly regulations.
According to press releases posted on the Russian Federal Antimonopoly Service's official website, in 2009 instances of setting high monopoly prices were established in 19 cases (Table 2). The length of time during which the revealed violations remained in place varied from 21 days to 18 months, the smallest share of market dominance was 42%, while the minimal difference between the monopoly price and the industry-average price was 10.7%.
RUSSIAN ECONOMY IN trends and outlooks Table Instances of high monopoly prices revealed in Company Goods (services) Market Probe initiated by Violation 1 ОАО Gazpromneft-Omsk Petroleum products Regional FAS Unjustified price rise 2 ООО LUKOIL- Petroleum products Regional FAS Unjustified price rise Volganefteprodukt 3 ОАО Gazpromneft-Ural Petroleum products Regional FAS Unjustified price rise 4 ОАО LUKOIL- Petroleum products Regional FAS Unjustified price rise Permnefteprodukt 5 ООО Kurskoblnefteprodukt Petroleum products Regional FAS Unjustified price rise 6 ООО Energiya Holding Power generation Regional Consumers Comparatively high price Company level 7 ОАО Vorkutaugol Transport services Regional FAS Unjustified price rise 8 FGUP Main Center of Spe- Postal services in National Consumers Unjustified price rise cial Post relation to materials containing state secrets 9 ОАО Sibirtelekom Internet access National Consumers Comparatively high price level 10 ОАО Ryazannefteprodukt Petroleum products Regional FAS Unjustified price rise 11 ОАО Russkiy Solod Brewers malt National Customers Unjustified price rise 12 ОАО LUKOIL Petroleum products National FAS Unjustified price rise 13 ООО RN- Petroleum products Regional FAS Unjustified price rise Vostoknefteprodukt 14 ZAO FosAgro AG Ammophos National Prosecutor's office Unjustified price rise 15 ООО LUKOIL – Zapad- Petroleum products Regional FAS Unjustified price rise Nefteprodukt 16 Sole trader Y.V. Kistanov Liquefied gas Regional FAS Comparatively high price level 17 ОАО Sakhaneftegazsbyt Petroleum products Regional FAS Unjustified price rise 18 ОАО Belgorodnefteprodukt Petroleum products Regional FAS Unjustified price rise 19 ZAO Tambovnefteprodukt Petroleum products Regional FAS No reduction in price despite a reduction in costs The 2009 practice is different from the 2008 one in that all product markets (petroleum products, ammophos mineral fertilizer and brewers malt) are commodities markets, whereas in 2008 there were instances of high monopoly prices for such high-tech products as metal braids for aircraft and rocket engines, nickel alloy ring blanks and metal products used in the manufacturing of bearings (Table 3).
Table Instances of high monopoly prices in 2008 and 2008 No of cases % No of cases % Number of revealed instances of high monopoly prices 28 100 19 Including:
on the local market 8 29 1 Section Institutional Problems 2008 No of cases % No of cases % on the regional markets 8 29 13 on the national market 12 43 5 In the following sectors:
energy sector 10 36 14 food industry 2 7 1 chemical industry 3 11 1 services market 8 29 3 industrial production 5 18 0 Probes initiated by:
FAS 13 46 14 consumers 15 54 4 prosecutor's office 0 1 Type of violation:
comparatively high price level 19 68 15 price maintenance 6 21 3 failure to reduce prices following a reduction in production costs 3 11 1 The year 2009 saw the investigation of a large number of cases on regional petroleum product markets. Violations in the energy sector make up 74% of all investigations and 68% of probes conducted on regional markets (Fig. 2,3).
The effectiveness of passed decisions can be only assessed on the strength of court rulings in 2010, since – according to the established practice – all of FAS's decisions taken in relation to companies belonging to the energy, chemical and food industries are contested in court.
Fig. 2. Sectors in which instances of monopoly prices were revealed in (Services market, Chemical industry, Food industry, Energy sector) RUSSIAN ECONOMY IN trends and outlooks Fig. 3. Breakdown of instances of monopoly prices by size of market, in 2008 and While comparing who different investigations were initiated by, it is worth noting that the year 2009 saw a drop in the number of cases of high monopoly prices identified on the strength of consumers' complaints (Fig. 4). This may be attributed to a slowdown in the rate at which prices for manufactured goods were growing and fewer opportunities for dominant companies to set high monopoly prices given a slump in demand. For example, the producer price index in manufacturing in December 2009, as compared with December 2008, was 105.2%.
Fig. 4. Breakdown of monopoly price instances by who initiated probes, in 2008 and Section Institutional Problems On the strength of established instances of monopoly prices in 2008 and 2009, antimonopoly regulators' efforts at monopoly price regulation had an impact on just 16 markets (six local markets, three regional and seven national ones).
An analysis of the practice of monopoly price regulation in 2008 and 2009 shows that the main problem as far as increasing the effectiveness of regulation and reducing the impact on consumers are concerned may be insufficient methodological support for the process of proving the establishment of economically justified costs and profits.
It was expected that amendments to the definition of a high monopoly price adopted in the "second antimonopoly package" in 2009 would make the process of establishing an instance of a high monopoly price considerably easier. However, in reality the procedure of establishing an instance of a high monopoly price became much more complicated, especially when studying markets other than commodities ones. The introduction of the requirement to search for a comparable foreign market also makes the process of investigation considerably more difficult. All that, in turn, limits the capabilities of antimonopoly regulators to defend in court their decisions that the actions of dominant companies on some markets constitute instances of high monopoly prices.
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