10. Competition Law 2: Abuse of a Dominant Position Flashcards
Dominant Position
To determine whether an undertaking has abused a dominant position, need to establish 4 things (Art 102 TFEU):
- THE RELEVANT MARKET
- THAT UNDERTAKING IS DOMINANT IN IT
- THAT AN ABUSE HAS OCCURRED
- THAT THE ABUSE EFFECTS TRADE
Relevant Market
There are two methods of identifying the relevant market (Notice on the Definition of the Relevant Market for the Purposes of Community Competition Law 1997 (NDRM 1997)). NB Comm notices are SOFT LAW.
- RELEVANT PRODUCT MARKET (RPM)
- RELEVANT GEOGRAPHICAL MARKET (RGM)
Relevant Market: RPM - D and S Substitution
This is where products/services are interchangeable or substitutable and perform a similar function (NDRM 1997).
The more interchangeable the products in question are, the less likely the undertaking is to be dominant. Interchangeability and substitutability are judged according to:
- Demand Substitution and Supply Substitution.
DEMAND SUB - TEST: how willing is the consumer to purchase another product if the product in question can no longer be obtained?
- The Small but Significant Non-Transitory Increase in Price of the Product test (SNIPP Test) is often used as an aid here. If original product increases 5-10% in price and consumers DON’T change to an alternative, the product in NON-INTERCHANGEABLE.
- –The following factors should be considered: pricing, intended use by consumers, physical characteristics.
- –The following were determined to be non-interchangeable: Nail guns (Hilti) and Bananas (United Brands).
SUPPLY SUB - TEST: how easily can competing suppliers produce competing products?
- cans are highly substitutable (Continental Cans), whilst OSs have low substitutability (Microsoft).
Relevant Market: RPM - Deciding the RPM
The following methods may be used to determine the RPM:
1) The existence of a spare parts market
- where products form part of a spare parts market, an undertaking may be dominant in that market rather than the main market. Will vary on circumstances (Hugin).
- Eg: nail gun cartridges formed part of spare parts market to main nail gun market, rather than nail gun market itself (Hilti).
2) Which products an undertaking’s BRAND is associated with (United Brands).
3) Whether multiple uses for a product exist.
- Where products such as tyres are supplied for different purposes, this can fragment the market (Michelin).
4) The market power of an undertaking
- a company’s size and position in a market is a relevant factor (BPB Industries).
- where impossible to establish RPM, market power may, in itself, be enough to establish it.
5) how a product is marketed
- the marketing of products for different markets can influence the RPM (Brass instruments in Boosey & Hawkes).
Relevant Markets: RGM
DEF: “within the internal market or in a substantial part of it (Art 102), And/or, the area in which the undertakings concerned are involved in the supply and demand of products or services, in which the conditions of competition are sufficiently homogenous for all traders and are appreciably different from neighbouring areas (Para 8 NDRM) - embodying (United Brands).
A ‘substantial part’ of a market can include:
- A single MS (The Netherlands in Michelin)
- Regions of MS
- –Northwest Germany (Continental Cans), Contrast with Southeast england (Hugin) or Northwest France (Alsatel) which did not constitute substantial parts.
- –Ports (B&I v Sealink) and airports.
- How easily goods can be transported (Hilti)
- the volume of trade in a region (RTE v Comm (McGill TV Guide).
Dominance in the Relevant Market
DEF: A position of economic strength enjoyed by an undertaking which enables it to prevent effective competition in the relevant market by giving it the power to behave independently of its competitors, customers and ultimately of its consumers (United Brands).
The following factors are considered when assessing whether an undertaking holds a dominant position.
1) Market Share: Generally, undertakings are automatically dominant when MS > 80% (92% in Tetrapak).
- a MS of 70-80% is clear INDICATION of DP (Cont Can, Hilti, Intel).
- if MS >50% presumed to be in DP (Akzo).
- when <50%, DP may exist but other factors will need to be established (see rest of list)
- –NB, a MS of 40-45% constituted a DP due to the size of the undertakings MS in comparison to competitors (the closest being 17%, in United Brands).
2) Barriers to Entry
- Legal Barriers (Especially IP): Exclusive patent licenses over designs (Tetrapak), OS with secret features (Microsoft), sole spare parts manufacturer in MS (Hugin).
- Vertical Integration (United Brands): where a single company controls several stages of the production in a supply chain.
- Distribution systems: an advanced sales network constituted a barrier to entry (Hoffman-La-Roche).
3) Financial Resources
- Use of financial resources to engage in ‘predatory pricing’ shows dominance in no other explanation is produced (Akzo).
4) Brands
- An undertaking may be dominant where its brand is almost exclusively associated with a particular product (United Brands).
5) Technology
- An undertaking may be dominant due to the superiority of its technology. Eg. Superior tyre (Michelin), Superior Vitamins (Hoffman-La-Roche).
Abuses of a DP.
Prohibited by Art 102 TFEU.
1) Anti-Competitive or Exploitative Behaviour
- Exploiting a DP in an anti-Comp way constitute abuse
- –Conditional Rebate systems (Intel Corp), use of IP rights to delay granting of patent licences to rival manufacturers (Hilti).
2) Supplementary Obligations (Tie-ins), (H-la-Roche, Hilti, Microsoft v Comm)
4 criteria for bundling to be a breach of Art 102(d) (Microsoft v Comm):
- the tying and tied goods are separate products.
- undertaking dominant in both product markets.
- customer has no alternative but to buy the bundle
- tying has the ability to affect competition.
3) Refusal to Supply
- Refusing to supply goods will constitute abuse unless there is an objective economic reason for doing so (United Brands).
- Eg. Refusal to supply programme details to rivals (McGills TV Guide), refusal to supply essential materials (Commercial Solvents Corporation), refusal to supply sea lanes to competing companies (B&I v Sealink).
4) Unfair Pricing (Art 102(a))
- “directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions”.
- “Unfair” prices if they are excessive, “no reasonable relation to the economic value of the product” (United Brands).
- Rebates hat have no connection with market forces will constitute unfair prices (H-La-Roche).
5) Predatory Pricing (Tetrapak, Akzo)
- Pricing products below fair market value in order to drive out competitors.
6) Unfair Treatment of Trading Parties
- Unfair treatment consists of “applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage” (Art 102(c)).
7) Discounts/Bonuses (Intel), (HleR)
- Discounting products selectively to certain customers in order to restrict competition (Hilti).
- Loyalty/rebate schemes designed to restrict competition (Michelin).
8) Limiting Production (Art 102(b))
- “limiting Production, markets or technical development to the prejudice of consumers”.
9) Exercising of public powers
- using public powers inappropriately will constitute abuse of a DP (ELPA).
Effect of the Abuse
The abuse MUST “affect trade between MS” (Art 102).
- the effect can be actual (Michelin I) or potential (British Leyland, Hugin).
- There is no requirement that any specific effect of trade be established (British Leyland).
Defences for the Abuse
OBJECTIVE ECONOMIC GROUNDS
- may be justified where objective economic grounds exist for committing the abuse.
Enforcement
As with Anti-Competitive Agreements.
Relevant Market: RTM
Relevant Temporal Market.
- the market as it is now, only partial, not really a market on its own. Think xmas jumper market. Helps to determine the other two forms of Rmarket.
(ABG Oil) is an example, was during an oil crisis in Netherlands.
