VSW abused profitability in the absence of competitors

The Federal Antimonopoly Service (FAS Russia) found that “Vyksa Steel Works” JSC (“VSW”) and “OMK-Steel” JSC violated the Federal Law “On Protection of Competition”. The companies abused their market dominance (Clause 1 Part 1 Article 10 the Federal Law “On Protection of Competition”) and fixed monopolistically high prices for the wheels for the metro system.

“Vyksa Steel Works” is a part of “OMK-Steel”; it produces a wide range of solid-rolled wheels. The company has the dominant position on the Russian market of manufacturing 860 mm diameter wheels and until 2015 dominated the market for producing 790 mm diameter wheels. The wheels are intended for trains operated in the metro system: 790 mm diameter wheels are used for wheel sets in the old types of electric metro trains; 860 mm diameter wheels – in the new types of metro coaches and road-rail buses.

The regulator compared cost-efficiency of wheels production for the metro system with cost-efficiency for the main rail-wheel product – 957 mm diameter railway wheels. It accounts for over 80% “VSW” wheel manufacturing. Being the main product, the figures on it determine economic and technological expediency of “VSW” operations.

The profit margin, gained by the company from selling the main type of wheels determines the profit level required to produce and sell all remaining rolled-wheel products, including the level of the “necessary” profit from the wheels for the metro system.

Investigating the case FAS established that in 2013 - 2014 the profit margin for 790 mm diameter wheels, where “VSW” had the dominant position, was 2.7 higher than profitability gained by the company in a competitive market for other types of products”, pointed out the Head of FAS Department for Industry Control, Nelli Galimkhanova. “A similar situation in 2013-2016 developed with production of 860 mm diameter wheels – the profit margin was 2.4 times higher.

“In the absence of competition, “VMZ” and “OMK-Steel” price exceeded the sum of the costs and profit required to produce and sell the goods”, emphasized Ms. Galimkhanova.

Upon investigating the case, FAS found that “Vyksa Steel Works” JSC and “OMK-Steel” JSC violated the antimonopoly law and issued a determination to stop abusing dominance. Every six months for the next five years the companies will have to submit to the antimonopoly authority information on the economic activity for producing and selling solid-rolled wheels.