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Indonesia – Legal Guide To Vertical Agreements: Assessments and Exemptions.

29 July, 2014

 

 

Analytical Framework For Assessment

 

15. Explain The Analytical Framework That Applies When Assessing Vertical Restraints Under Antitrust Law.

 

For each possible violation of the Antimonopoly Law, an analysis should be undertaken of whether all of the elements of a particular provision have been met (e.g., business actors, agreement, unfair business activities, welfare loss, etc.). Typically, the Business Competition Supervisory Commission (“KPPU”) will also identify whether there are any possible links with other provisions of the Antimonopoly Law that presumably are being violated as well. As part of its analysis the KPPU would first determine the relevant market in which the contracting business actors are engaged and whether either holds a dominant position and thus has the ability to use its market power to restrict access by potential competitors (level of barriers to entry). Assuming that a business actor does have that kind of power, next in the analysis would be whether such business actor has the incentive to exercise its power in the identified relevant market. The KPPU will also look into whether the strategy pursued by the business actors to the vertical restraint in order to lessen the competition is economically rational. The cost to foreclose access in the upstream market may not be recoverable by the profits expected in the downstream or distribution market.

 

One last important point if such a business actor does exercise its market power is whether there are any losses associated with consumers. This is an analysis of the pro-competitive and anticompetitive effects and whether consumers are better off or worse off by retaining those kinds of vertical restraints between the two contracting business actors.

 

16. To What Extent Are Supplier Market Shares Relevant When Assessing The Legality Of Individual Restraints? Are The Market Positions And Conduct Of Other Suppliers Relevant? Is It Relevant Whether Certain Types Of Restriction Are Widely Used By Suppliers In The Market?

 

The KPPU recognizes that vertical restraints can be entered into between a business actor with another business actor acting as its supplier or a business actor with another business actor acting as its buyer. In both cases, identifying both parties’ market share is relevant to determine whether the vertical restraint will result in less competition in the market, either at the supplier’s level or the buyer’s level. Vertical integration between a dominant supplier and Buyer A can drive away Buyer A’s competitors as they will no longer have access to supplies from the dominant supplier and they may have to incur additional costs dealing with other suppliers that presumably have less capacity and are less efficient. This would also be the case when a dominant buyer or distributor has entered into an exclusive arrangement with Supplier A, cutting off its competitors’ access to the dominant buyer or distributor, and thus they might incur additional costs dealing with other buyers or distributors with less extensive market reach.

 

17. To What Extent Are Buyer Market Shares Relevant When Assessing The Legality Of Individual Restraints? Are The Market Positions And Conduct Of Other Buyers Relevant? Is It Relevant Whether Certain Types Of Restriction Are Widely Used By Buyers In The Market?

 

See question 16. To date no cases relating to online sales have been reported to the KPPU.

 

Block Exemption And Safe Harbor

 

18. Is There A Block Exemption Or Safe Harbor That Provides Certainty To Companies As To The Legality Of Vertical Restraints Under Certain Conditions? If So, Please Explain How This Block Exemption Or Safe Harbor Functions.

 

No express block exemption or safe harbor on vertical restraints is provided under the Antimonopoly Law and its implementing regulations. Generally, all elements have to be met (see question 15) before an allegation of violation of a particular provision can be made and those elements have to be proven before the KPPU can render any punitive decision against the business actor. In most cases, such proof includes the existence of market dominance, without which it is unlikely that the vertical restraint would result in a considerable impact on the market.

 

Despite the above, there is always the possibility for a third party to file a report to the KPPU with regard to an alleged violation of the law. The KPPU will proceed with an investigation whenever it receives a report of an alleged violation of the Antimonopoly Law, whether or not the activities have actually fulfilled all the elements for a violation. However, if during the investigation process the KPPU discovers that the report is unsubstantiated, the KPPU may decide to discontinue the investigation.

 

Related: Legal Guide To Vertical Agreements: 1. Antitrust Law, 2. Vertical Restraints4. Types of Restraint, 5. KPPU And Enforcement.

 

SSEK
 
For further information, please contact:
 
Fahrul S. Yusuf, Partner, Soewito Suhardiman Eddymurthy Kardono
fahrulyusuf@ssek.com
 
Meta Nelly Mustikaningrum, Soewito Suhardiman Eddymurthy Kardono
metamustikaningrum@ssek.com

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