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ORR decision on testing of track lubricants

This entry was added to on 22 August 2005.
Full blog table of contents available at Contents | viewpoint: Franck.

This article is prompted by ORR's recent decision (45 pages, PDF) in a case under the Competition Act 1998 involving allegations of exclusionary abuse in the provision of approval and access to facilities for testing track lubricants for use in electric track lubricators.

There are a few small points in the decision that I want to nitpick about (see below), but they are of no significance to the decision as a whole. Indeed, I thought that the decision was quite successful at describing ORR's findings and the reasoning that led to the finding of no infringement. And at 45 pages it is quite a bit shorter than many less informative regulatory decisions under the Competition Act 1998.

There is however one potentially serious problem which I thought arose from the ORR's approach, which relates to the question of the "standard of proof" used in regulatory investigations undertaken in response to complaints under the Competition Act 1998. This is discussed in Standards of evidence for competition complaints | viewpoint: Franck.

Nit-picking on market definition

Paragraph 86 of the ORR decision states that:

"Price data suggests that electric lubricators are in a separate market to that for mechanical/hydraulic lubricators. The asset price of electric lubricators is significantly above that of hydraulic and mechanical."

However, it was noted at paragraph 67 that:

"Electric lubricators, unlike mechanical or hydraulic lubricators, are able to lubricate both rails (near and far side) at a particular curve; this means that a single electric lubricator can lubricate a series of left-handed and right-handed curves whereas hydraulic/mechanical lubricators require a separate lubricator on each facing rail. Also electric lubricators can spread the grease along the track for much greater distances, of up to four miles, whereas hydraulic/mechanical lubricators can only achieve a maximum spread of up to half a mile. Taken together these features mean that one electric lubricator can replace a number of hydraulic/mechanical lubricators."

In short, it is as if we were given the fact that a tin of HP baked beans costs 38 pence and a four-tin pack of the Heinz variety is more than four times as much (£1.68 to be precise) as evidence that HP and Heinz beans are not in the same market. Just as well that this "evidence" is not used for anything (as far as I can tell).

Nit-picking on essential facilities

Paragraph 197 states that:

"NTM has argued that access to Portec's testing to secure a 'letter of no objection' is essential. Where a complaint is made that a refusal to supply goods or services amounts to barring access to an essential facility, it is necessary to evaluate this claim in light of the relevant case law in this area."

Paragraph 198 makes it clear that by mentioning "essential facility", ORR is referring to cases such as IMS (and Magill before it), which relate to the question of whether a vertically integrated operator controlling an essential facility is entitled to reserve the downstream market to itself and to refuse access to the essential facility to all potential competitors. This is clearly not relevant here, if only because there is no vertical integration (accepting ORR's finding that Portec and Clare do not act in concert).

But there is another, in my view more natural, interpretation of the word essential, which is the claim that testing and acceptance is essential for NTM/XL Lubricants' continued supply of the market, or in other words that denial of access (including through excessive charges) would eliminate all competition from NTM/XL Lubricants in a relevant grease market. This is, in essence the Commercial Solvents abuse, which is quite different from the abuse of denial of access to an essential facility as described by the ORR on the basis of the IMS case.

Whilst ORR does not consider the complaint in those terms, it seems clear that this allegation of abuse falls away as soon as one accepts ORR's findings that there was no discrimination against NTM/XL Lubricants placing it at an unfair competitive disadvantage and/or that NTM could still exert competitive pressure on other suppliers of grease because there was no relevant market for grease approved for use in Portec's electric lubricators.

So again this point has no impact on the outcome, but it seems a little unfortunate that the IMS precedent is being abused in this way even after the Burgess judgment.

Nit-picking on incentives

Paragraph 204 states that ORR has considered what potential benefit Portec might gain from engaging in conduct tending to exclude NTM/XL Lubricants from supplying grease for use in its lubricators, and found that there was unlikely to be any benefit since Portec had allowed testing of non-Clare greases and since Portec's products would be more attractive if tested to be compatible with a wider range of lubricants.

Whilst this seems true, I have some worries about the risk of over-reliance on such an analysis.

First, it seems to me that corporate-level incentives may say very little about the drivers of behaviour of individuals, and all decisions — including decisions to commit abuse — are ultimately made by individuals. In this case, for example, exclusionary behaviour towards NTM/XL Lubricants may have been the act of a Portec employee who had taken a personal dislike to NTM's boss, or who wanted to get a job with Portec's distributor Clare and thought that impeding Clare's competitors in the grease market would help a future application, or any number of reasons which have nothing to do with the interests of Portec as a company.

Second, ORR's points about testing of other greases and benefits to Portec from effective competition in grease supply for Portec's products seem mostly significant in relation to analysing the cost/benefit to Portec of eliminating all competition (or at least all effective competition) within a relevant market, whereas the question for abuse, following Commercial Solvents, whether all competition from a specific competitor was excluded.

Third, evidence about incentives to abuse is only relevant to the likelihood of intentional abuse (assuming that intentional abuse includes all intentional conduct that is abuse, even if undertaken by someone who did not appreciate that it was illegal, on account of the idea that not knowing the law is not a defence). If abuse had arisen from, say, incompetence or laziness in Portec's grease testing department then the lack of incentives to abuse would say very little.

Overall, it seems to me that the very incomplete negative evidence of incentive to abuse presented in the decision is no evidence at all. But this was not relied on by ORR (as far as I can tell) so I am not really complaining.

Key links

Entry added by Franck Latrémolière on 22 August 2005

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Last changed by Franck at 10:03 AM on Monday 22 August 2005.

Reference for this page:
Reckon Open "ORR decision on testing of track lubricants | viewpoint: Franck" 2005-08-22T10:03:58