Asia-Pacific Economic Cooperation (APEC) WORKSHOP ON ECONOMICS OF COMPETITION POLICY CPLG 02 2016A (Nha Trang city, Vietnam) http://www.ciem.org.vn/en/tintuc/tabid/227/articleType/ArticleView/articleId/2230/Default.aspx

1. Ex-post Evaluation of Competitive Pressure from Imports
in the Review of Business Combination
Workshop on Economics of Competition Policy CPLG 02 2016A
(23 February, 2017)
Mitsuru KIKKAWA (吉川 満)
Japan Fair Trade Commission/CPRC
mitsuru_kikkawa080f@jftc.go.jp/apec-jftc@jftc.go.jp
Disclaimer: the views expressed in this presentation is solely those of the speaker and do
not necessarily reflect those of the JFTC/CPRC. All errors in this presentation are mine.

2. Agenda
1. Competition Policy Research Center
2. The JFTC’s Business Combination Reviews
(1) Basic Concept
(2) Flowchart
3. Economic Analysis (ex-post evaluation of competitive
pressure from imports/related markets in the review of
business combination)
(1) From Imports (Merger between Furukawa-Sky Aluminum
Corp. and Sumitomo Light Metal Industries, Ltd.)
(2) From Related Markets (Capital Tie-up of Kirin Group and
Kyowa Hakko Group)
4. Conclusions/Suggestions for Japanese Business Combination
Reviews
2 /13

3. Competition Policy Research Center (CPRC)
• Project’s Member:
• Ohashi, Hiroshi (Economics, The Univ. of Tokyo/ CPRC Chief Researcher)
(Chief)
• Nakagawa, Akihiko (Law, Hokkaido Uni./CPRC Visiting Researcher)
• Nakamura, Tsuyoshi (Economics, Tokyo Keizai Univ./ CPRC Visiting
Researcher)
+ JFTC’s Staff Member(7)
• CPRC was founded in 2003 as an internal research center of the JFTC
• Director(an economics professor), Chief Researchers (2 economics professors
and 2 law professors), Visiting Researchers + staff members of the JFTC
• Major Activities
(1) CPRC Reports/Joint Research (Recent Topics: Bundle Discount, Big Data, …)
(2) Discussion Papers (Recent Topics: Sharing Economy, Quantifying Antitrust Damage,… )
(3) Workshops/Seminars (international symposium, BBL)
3
http://www.jftc.go.jp/en/cprc/index.html
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4. The Basic Concept of Business Combinations Regulations
4
• Chapter 4 of the Antimonopoly Act (AMA)
• To prohibit business combinations (ex. stockholdings, mergers, etc.) “having
the effect that may be substantially to restrain competition”
allowed in cases where measures that will
remedy the concerns from AMA is implemented
FY 2010 2011 2012 2013 2014 2015
Notifications 265 275 349 264 289 295
Primary review 263 270 340 257 275 281
Secondary review 1 4 6 4 3 6
Cease and desist order 0 0 0 0 0 0
With remedies 2 2 3 1 2 1
Source: Annual Report(JFTC)
Safe harbor
Horizontal
Vertical/Conglomerate
in a particular
field of trade
substantial restraint
to competition
business
combinations
+ +
Business
Combinations
are prohibited
(Ex. import, entry, related markets, …)
(i) HHI ≦1500
(ii) 1500 ＜ HHI ≦ 2500 and Δ HHI ≦ 250
(iii) HHI ＞ 2500 and Δ HHI ≦ 150
(i) Market share ≦10 %
(ii) HHI ≦ 2500 and Market share ≦ 25%
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5. Flowchart of Business Combinations Review (reference)
5
For detailed information please see the JFTC's website at the link below.
http://www.jftc.go.jp/en/pressreleases/yearly_2004/may/2004_may_31_001
.files/2004-May-31_002.pdf
Consultation prior to notification (Voluntary)
Receipt of notification of business combination plan
Prior notice Notification to the effect that cease and
desist order will not be issued
- Request for report, etc. required for review
- Acceptance of third parties’ opinions
Receipt of reports, etc.
Prior notice
Opportunity to state opinions and submit evidence
Notification to the effect that cease and
desist order will not be issued
Cease and desist order Cease and desist order not issued
(Demand for a trial)
Decision (Dismissal of demand)
Decision (Rescission or change of order)
Action to rescind the decision (Case) Final and binding
Note: When a notifying corporation requests
explanations about issues, etc. during the
reviewing period, the JFTC will explain the current
issues. Notifying corporation can also submit to the
JFTC written opinions or any other materials it
believes necessary for the review (including offers
to take remedies for solving the issue in question).
(Primary review)
(Secondary review)
Within 90days
Within 30days
(Note)
Source: http://www.jftc.go.jp/en/legislation_gls/imonopoly_guidelines.files/pcbr.pdf
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6. 3. Economic Analysis
(1) Competitive Pressure From Imports
6
Market share of pure copper tube products in fiscal year 2011
Rank Company name Market share
1 Company H Approx. 35%
2 Sumikei Copper
Tube Co., Ltd.
Approx. 25%
(3) (Company I) Approx. 15%
4 Furukawa
Electric Co., Ltd.
Approx. 10%
Imports Approx. 15%
Total 100%
(Company I, with the third market share, has withdrawn from the market as of March 2012.)
Source:http://www.jftc.go.jp/en/pressreleases/yearly-2013/feb/Furukawa_Sumitomo.files/130403Attachment.pdf
In the official statement (P16):
“… users recognize imports as having the same level
quality as products from Japanese pure copper tube
manufacturers … the JFTC recognizes that there is
effective import pressure.”
[Case] Merger between Furukawa-Sky Aluminum Corp. and
Sumitomo Light Metal Industries, Ltd. (2013) →
If the users have the ability to easily switch from a product of the company group to an
imported product and the switchover becomes more likely if the company group raises the
price of the product, the company group would be unlikely to raise the price on the grounds of
a potential loss of sales to the imported goods.
(Guidelines, P24)
the shipments of domestic manufacturers
0
2
4
6
8
10
12
14
16
18
20
The shipments of domestic manufacturers and imports
Oct., 2013Jan, 2003
(kt)
Imports
Green line ‐exports
Source:Current Survey of Production/Trade Statistics of Japan
Merger
the shipments of domestic
manufacturers
To find key factors/methodologies from past business combinations
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7. (1) Imports (i) Price Correlation Analysis
7
600
650
700
750
800
850
900
950
1000
600 650 700 750 800 850 900 950 1000
DomesticPrice（weightedmean）(1000yen/t)
Import Price (1000yen /t)
2012. 1
～2013. 9 2013.10
～2015. 5
2013.11
The factors
Time Lag
(import)
Copper Price
Trend
Time period
Rate
Regression
residuals
Pre-merger Post-merger*
Mean 0.920 0.923 0.758 0.813 0.936 0.035
Median 0.937 0.927 0.793 0.840 0.943 -0.028
Weighted mean 0.912 0.917 0.722 0.826 0.936 0.271
* Outlier ”2013.11”
Pre-merger:
The correlation
coefficient is larger
Post-merger :
The correlation
coefficient gets smaller
The difference of the price level between domestic and
imported goods gets smaller (same level ?).
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8. (1) Imports (ii) Estimate the demand function
8
• The relationship between competitive
pressure from imports and markup rate
(derived)
(no competitive pressure from imports)
HHI: Herfindahl-Hirschman Index
(only domestic company)
η: Price elasticity of demand
(including imports, absolute value)
ε: Price elasticity of supply for
import (absolute value)
S: the domestic market share
=1 – the import market share
S → 1
-4
-2
0
2
4
6
8
10
12
1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Markup rate (Linear demand function)
推計（圧力なし）上限
推計（圧力なし）
推計（圧力なし）下限
実測値 (MC=銅価格)
merger
(%)
Estimation (no pressure) upper limit
Estimation (no pressure) lower limit
Estimation (no pressure)
Observation (MC=Copper Price)
Competitive pressure
The another demand function, log linear function, quadratic form
are examined as well.
/13
[model] Under the residual demand
(the market demand function minus
imports), Cournot oligopoly game
with the domestic firms

9. (1) Imports (iii) Merger simulation
9
Merger simulation: the rate of price raise is 16.7%
(the comparison of pre-merger with post-merger)
Observations: 3.0%
-500
0
500
1000
1500
2000
2500
3000
3500
4000
4500
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5
2013 2014 2015
(1000yen /t)
Case : Demand function: Linear，Marginal Cost : Copper Price
合併あり 合併なし
合併あり・上限 合併あり・下限
合併なし・上限 合併なし・下限
実際の値
merger
Price
The effects of merger
import pressure ?
Observations
Merger No Merger
Merger/upper limit
Merger/lower limit
No Merger/upper limit
No Merger/lower limit
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10. 10
3. Economic Analysis
Rank Company Share
1 Kyowa Hakko Food
Specialities
Approx. 25%
2 Mercian Corporation Approx. 15%
3 Company E Approx. 15%
4 Company F Approx. 5%
5 Company G Approx. 5%
6 Company H Approx. 5%
7 Company I Approx. 5%
8 Kirin-Food-Tech Approx. 5%
Others Approx. 25%
(Top) Total of companies
concerned
Approx. 45%
Total 100%
Source:http://www.jftc.go.jp/en/pressreleases/yearly-2008/dec/individual-000066.html
In the official statement (P4) :
“… there are sake, sake compound, mirin
and mirin-like seasonings (for sake-type and
mirin-type fermented seasonings) and low-
price wines (for wine-type fermented
seasonings) for adjacent markets and these
products can serve as a brake on rising of
prices for sake-type and mirin-type
fermented seasonings and wine-type
seasonings.”
Source:http://ajibana.jp/closeup
/2015/05/151414.html
(Guidelines, P28)
Mirin
(rice cooking wine)
[Case] Capital Tie-up of Kirin Group and Kyowa
Hakko Group (2008) →
If there is vigorous competition in neighboring markets, or when the
probability of competitive products replacing demand for such goods is
high in the near future, it will be evaluated as a factor stimulating
competition in the particular field trade.
(3) Sake-type and mirin-type fermented seasonings
(2) Competitive Pressure From Related Markets
75
80
85
90
95
100
105
110
115
120
Mar-05
Jul-05
Nov-05
Mar-06
Jul-06
Nov-06
Mar-07
Jul-07
Nov-07
Mar-08
Jul-08
Nov-08
Mar-09
Jul-09
Nov-09
Mar-10
Jul-10
Nov-10
Mar-11
Jul-11
Nov-11
Mar-12
Jul-12
Nov-12
Mar-13
Jul-13
Nov-13
Mar-14
Jul-14
Nov-14
Mar-15
Jul-15
The average price みりんタイプ発酵調味料
（料理用）日本酒
みりん風調味料
（料理用）清酒
（料理用）合成清酒
みりん
Source: The Distribution Economics Institute of Japan, NPI Point of Sale Data (grocery store, etc)
(April, 2008 = 100)
Mirin-type fermented seasonings
Sake (for cooking)
Mirin-like seasonings
Seishu (for cooking)
Sake compound (for cooking)
Mirin
Capital Tie-up
/13

11. (2) Related Markets (i) Price Correlation analysis
11
Mirin-like
seasonings
Seishu
(for cooking)
Sake compound
（for cooking）
Mirin
Pre Pre Pre Post Pre Post Pre Post
Trend Removal (Pre)
Mirin-type fermented seasonings 0.62 0.73 0.42 0.59 0.01 0.39 0.52 0.83
Sake (for cooking) 0.90 0.92 0.13 0.67 -0.13 0.38 0.55 0.87
Trend Removal (Post)
Mirin-type fermented seasonings 0.40 -0.16 0.41 -0.02 0.06 0.16 0.28 0.18
Sake (for cooking) 0.79 0.51 0.18 0.09 -0.21 0.07 0.20 0.02
・ Pre-merger:
Correlation Coefficient ↑
・ Post-merger
Correlation Coefficient ↓
Field of Trade:
(i) Mirintype femented seasonings
(ii) Sake (for cooking)
The related markets:
(i) Mirin-like seasonings
(ii) Seishu (for cooking)
(iii) Sake compound (for cooking)
(iv) Mirin
Price correlation analysis
75
80
85
90
95
100
105
110
115
120
Mar-05
Jul-05
Nov-05
Mar-06
Jul-06
Nov-06
Mar-07
Jul-07
Nov-07
Mar-08
Jul-08
Nov-08
Mar-09
Jul-09
Nov-09
Mar-10
Jul-10
Nov-10
Mar-11
Jul-11
Nov-11
Mar-12
Jul-12
Nov-12
Mar-13
Jul-13
Nov-13
Mar-14
Jul-14
Nov-14
Mar-15
Jul-15
Moving Average of the price (13period)
みりんタイプ発酵調味料
（料理用）日本酒
みりん風調味料
（料理用）清酒
（料理用）合成清酒
みりん
Merger
Source: The Distribution Economics Institute of Japan, NPI Point of Sale Data (grocery store, etc)
Mirin-like seasonings
Sake (for cooking)
Seishu (for cooking)
Sake compound (for cooking)
Mirin
Mirin-type fermented seasonings
(April, 2008 = 100)
/13
Down Trend

12. 12
Pre-merger Post-merger
Mirin-type fermented
seasonings
-1.827 -5.087
Sake (for cooking) 0.973 -1.393
Mirin-like seasonings 0.093 -2.962
Seishu (for cooking) -5.003 -12.573
Sake compound
(for cooking)
-3.294 -8.854
Mirin 1.496 -2.094
Antitrust Logit Model
Pre estimation S.D. t-value significant
Price -0.008 0.003 -2.727 **
（Epstein and Rubinfeld（2004））
IV (brewers alcohol，rice)
β
The absolute values of own price elasticity become larger
(The prices are in a downtrend)
Own price elasticity
Post estimation S.D. t-value significant
Price -0.024 0.004 -6.324 ***
*** 0.1%, **, 1%
([Remark] Pre-merger : Mar. 2005 ～ Mar. 2008 Post-merger : Apr. 2008 ～ Sep. 2015)
(2) Related Markets (ii) Antitrust Logit Model/Critical Loss Analyses
Pre-merger Post-merger
ＣＬ ＡＬ ＣＬ ＡＬ
Mirin-type fermented
seasonings
8.369 37.658 20.277 22.382
Sake (for cooking) -5.115 31.833 6.513 24.684
Mirin-like seasonings -0.472 － 12.901 －
Seishu (for cooking) 20.010 18.032 38.599 14.189
Sake compound
(for cooking)
14.142 47.663 30.686 88.886
Mirin -8.088 38.627 9.478 26.531
Critical Loss Analyses
“－” not significant
Critical Loss and Actual Loss (5% SSNIP)
CL : the maximum loss in sales resulting from a price increase that would still
make the price increase profitable.
AL : the predicted loss from the demand curve that would result from a price
increase.
No incentive to price raise in each product
(except Seishu (for cooking))
→ competitive pressure from the related markets ?
Logit parameter
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13. 13
4. Conclusions/Suggestions for Japanese Business Combination Review
Conclusions
This joint research is consistent with JFTC’s review results generally, although there are some issues related to techniques
and data.
(We need to be careful about generalizing from these results and applying this cases to other cases.)
The accumulation of ex-post evaluation of business combinations is worthwhile to refine ex-post evaluation techniques.
Suggestions
(1) Enhancement of data collection in the review process
(Ex. adopt a system that would enable data to be gathered by a standardized procedure)
(2) Securing of human resources and the way of information disclosure for the refinement of analysis techniques
(Ex. train staffs with economic thinking through collaboration with economists)
Dokkin
(JFTC mascot character)
Thank you very much !!
Please visit our website at:
JFTC:http://www.jftc.go.jp/en
CPRC:http://www.jftc.go.jp/en/cprc/index.html
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