Abuse of dominant position European Business Law 2013/2014 University of Warsaw Faculty of Management Dariusz Aziewicz LL.M

Dominant position 102 TFEU Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States.

Constituent elements of Article 102 Undertaking (one or more) Dominant position (dominance) Abuse (of dominant position) Internal market or substantial part thereof Effect on trade between Member States

Undertaking Any entity engaged in an economic activity, regardless of its legal status of the entity and the way in which it is financed (Hofner Elser v. Macrotron GmbH) Economic activity: any activity consisting in offering goods or services on a given market is an economic activity (Pavlov)

Parent or subsidiary When the parent undertaking is responsible for the definition and implementation of the undertaking’s overall policy, it can be held liable for behavior of its subsidiaries (e.g. Continental Can, Commercial Solvents, Hilti, Clearstream)

Substantial part of the internal market The pattern and volume of the production and consumption of the said product as well as the habits and economic opportunities of vendors and purchasers must be considered Members states – usually yes Question of facts in each case ex. Port of Genoa was one because of its importance and volume of traffic

What is a dominant position? Two-steps test: Relevant market – Product – Geographical – Temporal Market power – Assessment of market power on case by case basis

Relevant market Relevant product market - all products or services which are regarded as interchangeable or substitutable by the consumer by reason of the products' characteristics, their prices and their intended use; Relevant geographic market comprises the area in which the firms concerned are involved in the supply of products or services and in which the conditions of competition are sufficiently homogeneous.

Market power OECD – „ability of a firm (or group of firms) to raise and maintain prices above the level that would prevail under competition.” European Commission – „able to profitably increase prices above the competitive level for a significant period of time.” Generally – to increase prices without loosing output, so it is profitable

Deadweight loss under monopoly

Dominant Position United Brands “The dominant position referred to in this article relates to a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by giving it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers.” Hoffman-la Roche “Such a position does not preclude some competition, which it does where there is a monopoly or a quasi-monopoly, but enables the undertaking which profits by it, if not to determine, at least to have an appreciable influence on the conditions under which that competition will develop, and in any case to act largely in disregard of it so long as such conduct does not operate to its detriment.”

How to assess dominant position Market shares? Useful first indicator Hoffman – La Roche v. Commission – very large market shares are in themselves and save exceptional circumstances, evidence of existence of dominant position e.g. ICI 90%, Intel 70/80 %, Michelin 57-65% The AKZO rule - AKZO v. Commission – market shares above 50% are very large so in absence of exceptional circumstances pointing the other way such undertaking will be presumed to be dominant United Brands 40-45% was enough for dominance Virgin/British Airways – below 40% was dominant (39,7%)

Assessment Actual Competition (market shares) Potential competition – Competitive pressure exerted by firms not yes operating on the market but with capacity to enter in a timely manner – Barriers of entry (economic-costs, technical, IP rights) Countervailing buyer power – Monopsony

Special responsibility It is not unlawful to have a dominant position, unlawful is the abuse of such a position However.. A firm in a dominant position has a special responsibility not to allow its conduct to impair undistorted competition on the common market (Michelin v. Commission)

But… Dominant undertakings are entilted to compete „on the merits” in relation to pricing, contractual conditions, output, innovation, cost reduction, efficiency and so on. (Post Danmark v Konkurenceradet) Note: Objective justification

Collective dominance „Provided that form the economic point of view they present themselves or act together on a particular market as a collective entity” Simple, stable economic environment – observing and reacting to each behavior Behavior must be sustainable over time (incentive not to depart)

Forms of abuse Such abuse may, in particular, consist in: 1.directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; 2.limiting production, markets or technical development to the prejudice of consumers; 3.applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; 4.making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

Exclusive dealing Customer is required to purchase all or most of a particular type of goods or services only from dominant supplier Exclusive purchasing, single branding, requirements contracts, non-compete obligations Purchaser is prevented from purchasing competing products from anyone other than a dominant firm

Tying Supplier of one product (the tying product) requiring buyers also to buy another product (the tied product) Note: the Microsoft case: Making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature according to commercial usage, have no connection with the nature of such contracts

Refusal to supply Controversial – the right to choose one’s trading partner – Firms should be allowed to contract with whomsoever they wish – general rule But – Indispensability – Elimination of effective competition Essential facility doctrine – Port, airport, pipeline, railway network

Excessive pricing unfairly high prices To charge a price which maximizes profits – economically rational (for the dominant) To charge price which is excessive because it has no reasonable relation to the economic value of product supplied is an abuse (United Brands) To charge a high margin over costs When the price is excessive?

Rebates e.g. Fidelity rebates – discounts conditional on the customers obtaining all or most of its requirements from a dominant undertaking Targeted rebates – to promise rebate it the target is obtained

Predation Selling at loss To reduce prices at a loss making level when faced with competition from an existing competitor or a new entrant Note: is it the essence of competition that firms should compete for custom by reducing prices? Recoupment?

Margin squeeze Dominant firm conducts business upstream and supplies key input to undertakings that compete within a downstream market

Firm dominant upstream Firm supplies upstream product/service to third party which operates in a downstream market Firm also competes in that downstream market Firm sets its prices at a level where competitors in the downstream market are unable to make a profit Firm may still be profitable end to end

Mergin squezee e.g.

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