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FAS presented Guidelines on economic analysis of pricing practices


On 24 September 2014 Presidium of the Federal Antimonopoly Service of the Russian Federation (hereinafter – “FAS”) enacted the Guidelines on economic analysis of pricing practices with respect to the Federal law “On competition protection” dated 26 July 2006 №135-ФЗ  (hereinafter – the “Guidelines”, the “Law” correspondingly).

The Guidelines are drawn up to determine a unified approach of analyzing pricing policy of dominant business entities on compliance with paragraphs 1 and 6 of part 1 of Article 10 of the Law. Moreover, the Guidelines are aimed at extending the practice of application of “comparable markets method” (comparison of dominant entity prices with level of prices of business entities acting within goods markets with more developed competitive environment) in the course of such analysis.

The Guidelines are applicable to the markets of raw material of the 1st-3rd degree, semi-manufactured good, metal industry goods and construction materials. They are not applicable to services markets, innovative goods markets and markets where trade name determines consumer preferences on the same basis as goods’ properties do.

Firstly, the Guidelines determine the calculation methodology of maximum price. Should the price set by dominant entity be lower the aforementioned maximum price, the price may not be considered as monopolistically high price. Economically justified price is  calculated with respect to:

  • export-oriented business entities – the net-back method less logistical costs (“net-back minus”) and the method based on data on weighted average prices (“weighted average price” method) are applied;
  • import-oriented markets – the method net-back plus logistical costs (“net-back plus”) is applied;
  • balanced markets – the method of calculation based on world indicators not including  logistical costs (“direct price” method) is applied.

Should the price set by dominant entity exceed the price calculated on the basis of the aforementioned methods, it will be considered as monopolistically high price.

Secondly, the Guidelines specify cases when the higher price may be set in respect of Russian consumers compared to foreign ones for the same goods or for consumers located closer to manufacturer compared to the ones located in remote areas. For instance, should the following terms be observed, the higher price of goods for Russian consumers in comparison with foreign ones can be set:

  • the high level of costs in manufacturing process of goods when the scale effect may be reached only on maximum manufacturing level;
  • manufactured volume of goods upon reaching of the scale effect output exceeds domestic demand;
  • export turnover values of such manufacturers are not considerable;
  • transport charges on goods delivery abroad are considerable in comparison with goods value, and the price level calculated on the basis of the “net-back minus” method is lower or comparable to the level of cost of goods production;
  • domestic demand is totally supplied, and reduction of goods’ price will not result in growth of domestic consumption volumes;
  • сompetition authority does not elicit any facts or evidence of violation of paragraphs 4, 5, 9 of part 1 Article 10 of the Law.

The officers of the central and local agencies of the FAS will apply the above reviewed Guidelines as recommended practices. According to Maksim Ovchinnikov, the Head of the Office of industry and defense complex control of FAS, due to Guidelines approval “companies have obtained the model of formation of evidence to be brought in competition authority to prove that their pricing policy complies with the provisions of the Law on competition protection”1. Therefore, now the companies, acting on the markets to which the Guidelines may be applied, may use the aforementioned Guidelines for the purposes of formation of pricing policy.

_______

1http://www.fas.gov.ru/fas-news/fas-news_35878.html



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