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EUROPEAN COMMISSION DG Competition - page 88 / 113





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alternative suppliers. These customers may form a particular way of distributing the tied product that would be suitable for a new entrant. They may also be customers situated in a geographic area well suited to new entry, for example because of proximity to suppliers in other geographical areas. Or they could be the customers of specific, targeted competitors. A growing share of a market with network effects may also be problematic even if the share is still fairly low.123

Other companies may also tie 197. The fact that other companies also tie may add to the foreclosure effect, since this

can contribute to making entry more difficult.

Number of customers who buy both products 198. Another factor that may be important in assessing whether there is an appreciable foreclosure effect is the number of customers that buy both products. For instance, if only a third of the customers in the tied market buy both products, tying may pose less of a risk, since the tying practice may remain contained to at most a third of the market. However, the tying could still in this case have an appreciable foreclosure effect, for example if some or all of the tied customers are particularly important from an entry-deterring point of view.

Foreclosure stronger if entry barriers in tied market 199. The foreclosure effect is likely to be stronger if there are significant scale economies, learning curve or network effects or entry barriers in the tied market. Scale

economies and learning curve effects may mean that rivals in the tied market are not able to stay in the market if the dominant company forecloses part of the tied market through tying or bundling. Similarly, network effects may allow the dominant company to “tip” the market as the tying can deprive its rivals of the chance to derive network effects through the tied customers.124 The stronger the network effects, the higher the likelihood of foreclosure. When the customer’s value of a product or a bundle of product increases with the number of other customers using that product, it is more difficult for competitors to compete with the tying company since they have to discount their products to compensate customers for the lack of a network. Finally, entry

123 124

Network effects arise when consumers place greater value on larger networks than small ones. See footnote 91. Commission decision in Case No COMP/37.792 Microsoft of 24.3.2004.

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