Abuse of Dominance

Question 1

What does the Chapter 2 Prohibition concern?

Answer 1

Conduct that amounts to an Abuse of Dominance (AOD), and is therefore anticompetitive, by an Undertaking.

P. 183; §18 – CA 1998.

Accordingly, holding a Dominant position is not itself unlawful, but comes with a special responsibility not to use that position to distort genuine comptition, i.e. Abuse.

Question 2

What is the Textbook Definition of Abuse?

Answer 2

An Undertaking’s use of its Dominance to distort genuine competition.

P. 227; Hoffmann-La Roche v Commission EU:C:1979:36, at [90].

This does not mean that a Dominant Undertaking cannot compete on merit, wherein Customers and Consumers choose it freely, but that it cannot unfairly compel them to it.

Question 3

What are the Textbook Examples of Abuse of Dominance?

Answer 3

• Directly or indirectly imposing unfair trading conditions, particularly regarding price.
• Limiting production, markets, or technical development to the prejudice of consumers.
• Applying dissimilar terms to equivalent transactions to disrupt competition.
• Making contract execution contingent on supplementary obligations that, by their nature or commercial use, have no connection to the contract’s subject.

P. 183; §18 – CA 1998.

Question 4

What is Dominance?

Answer 4

A position of economic strength that enables an Undertaking to:
* Prevent effective competition;
* Behave appreciably independently of its Competitors, Customers, and Consumers.

Suppliers are overwhelmingly the subject of Dominance claims.

P. 209; United Brands v Commission (C-27/76) EU:C:1978:22, at [65].

Examples of the latter include increasing prices, restricting output, or decreasing quality without experiencing considerable market discipline.

Question 5

What are the Two General Categories of Abusive Conduct?

Answer 5

• Exploitative Abuse.
• Exclusionary Abuse.

P. 183.

Question 6

What are the Core Elements of Exclusionary Abuse?

Answer 6

It occurs when:
1. A firm with dominance in a market;
2. Engages in conduct that deviates from competition on the merits; that
3. Resultantly creates anticompetitive effects;
4. Without objective justification.

P. 184.

Question 7

What are the Core Elements of Exploitative Abuse?

Answer 7

It occurs when:
1. A firm with dominance in a market;
2. Uses its dominance to impose unfair prices or terms of business on less dominant firms.

P. 184.

Question 8

What is Market Definition?

Answer 8

The process of defining a market to assess whether it is the subject of anticompetitive conduct.

P. 190.

Question 9

What are the Two Dimensions of Market Definition?

Answer 9

• The Product Dimension, namely what is being offered.
• The Geographic Dimension, namely where it is being offered.

A Temporal Dimension may also be relevant, but this is rare.

P. 190.

These are termed Product and Geographic Market Definition, respectively.

Question 10

How does the CMA Define a Market?

Answer 10

It employs the Hypothetical Monopolist Test (HMT), which seeks to:
* Identify the smallest geographic area and group of products;
* Over which a hypothetical monopolist could profitably sustain a minimally-elevated price relative to competitive levels (usually 5%-10% greater).

This is more of an analytical framework than a practical test.

P. 190; CMA Guidance, Market definition (OFT 403), at [2.12].

If the Monoplist’s strategy would prove profitable, the test is complete and the relevant market is defined, but if it would not, then whatever substitutes consumers would have chosen are accounted for and the test is re-run until the Monopolist turns a profit. This is because if a Monopolist cannot sustain a profit, the candidate market is likely too narrow and must be widened.

Question 11

What is the Problem with the Traditional Conception of the Hypothetical Monopolist Test?

Answer 11

It is exclusively concerned with price, and therefore may poorly assess non-price competition or price-insensitive markets.

P. 192.

Question 12

Regarding Product Market Definition, what are the Two Main Sources of Competition for Undertakings?

Answer 12

• Supply-Side Substitution (SSS).
• Demand-Side Substitution (DSS).

P. 193.

Usually, the CMA begins by assessing DSS it is a more immediate and effective competition constraint.

Question 13

Regarding Product Market Definition, what is the Test for Demand-Side-Substituitability?

Answer 13

Whether:
1. Two products in the same relevant market regarded as interchangeable by consumers;°
2. Possess a sufficient degree of interchangeability.°°

P. 194.

° National Grid v Ofgem [2009] CAT 21, at [34].
°° Flynn Pharma v CMA [2018] CAT 11, at [116].

Question 14

Regarding Product Market Definition, what sort of Data does the CMA use to Test Demand-Side-Substituitability?

Answer 14

• Switching costs.
• Switching studies.
• Customer surveys.
• Internal documents.
• Product characteristics.
• Price comparison studies.
• The wider economic context.

This is list is not fixed, the theme being competitive constraint.

P. 194; CMA Guidance, Market Definition (OFT403), at [3.7]; Aberdeen Journals v Director General [2002] CAT 4, at [96]–[97].

Question 15

Regarding Product Market Definition, is the Test of Demand-Side-Substituitability symmetrical?

Answer 15

No. Product A may act as a competitive constraint on Product B even if the opposite is not true.

P. 195; Case COMP/M.2420 Mitsui/CVRD/Caemi, Commission Decision of 30 October 2001, at [136].

Question 16

Regarding Product Market Definition, does the Test of Demand-Side-Substituitability consider competition from oustide the Relevant Market?

Answer 16

Yes. Product A may act as a competitive constraint on Product B even if Product A belongs to a different market.

P. 105; Amazon and Deliveroo, CMA Final Report of 4 August 2020, at [5.87].

This is also relevant if Products A and B are in different markets but also part of a chain of substitution, i.e. a set of products considered close substitutes for a particular purpose.

Question 17

Regarding Product Market Definition, what is the CMA Test for Supply-Side-Substituitability?

Answer 17

When, should prices rise, Undertakings not currently supplying a product:
* Would likely be able to supply it on short notice; and
* Without incurring substantial sunk costs.

It will only be considered when the prospect is reasonably likely.

P. 197; CMA Guidance, Market Definition (OFT403), at [3.13].

Question 18

Regarding Product Market Definition, what sort of Data does the CMA use to Test Supply-Side-Substituitability?

Answer 18

Data regarding the commercial and logistical feasability for Suppliers to start producing, or producing more of, the relevant product.

P. 198; CMA Guidance, Market Definition (OFT403), at [3.16].

Question 19

Regarding Product Market Definition, over what Period of Time is the exercise conducted?

Answer 19

The entire period of the alleged infringement, which may invlude variations in the extent of competition and substituitability between products.

This is called the Relevant Period.

P. 199; Flynn Pharma v CMA [2018] CAT 11, at [195]; Generics v CMA [2018] CAT 4, at [402].

That said, fundamental shifts in competition may warrant a re-definition of a market and its set of competitors.

Question 20

Regarding Product Market Definition, what is a Two-Sided Market?

Answer 20

A market that serves two groups of Customers, such as television, which serves both readers and advertisers.

P. 201.

Question 21

Regarding Product Market Definition, what are the Two Types of Platforms in Two-Sided Markets?

Answer 21

• Transaction Platforms, namely Undertakings that facilitate transactions between its two groups of Customers; and
• Non-Transaction Platforms, which do not.

These beget Single and Double Platform Markets, respectively.

Question 22

Regarding Product Market Definition, how are Single Platform Markets Defined?

Answer 22

The HMT is concurrently applied to both sides of the market, focusing on:
* The Monopolist’s ability to increase transaction costs;
* Given the number of close substitutes; and
* The impact of any indirect network effects.

The totality of competitive constraint is still the prime metric.

P. 202; Just Eat and Hungryhouse, CMA Final Report of 16 November 2017, at [4.11].

Question 23

Regarding Product Market Definition, how are Double Platform Markets Defined?

Answer 23

The HMT is individually applied to each sides of the market, focusing on:
* The Monopolist’s ability to increase transaction costs;
* Given the number of close substitutes; and
* The impact of any indirect network effects.

The totality of competitive constraint is still the prime metric.

P. 203; Just Eat and Hungryhouse, CMA Final Report of 16 November 2017, at [4.11].

The reason behind individual treatment is that each side of the market may face very different competitive constraints.

Question 24

Regarding Product Market Definition, what is an Aftermarket?

Answer 24

A market for Secondary Products that either repair, maintain, or enhance a Primary Product.

Think printers and ink cartridges.

P. 203.

Question 25

Regarding Product Market Definition, what are the Three Types of Aftermarkets?

Answer 25

System Markets:
* Primary and Secondary Products are sold together in the same market.

Dual Markets:
* Primary and Secondary Products are sold separately in distinct markets.

Multiple Markets:
* Primary and Secondary Products are sold separately in multiple distinct markets.

P. 203-205.

For Dual and Multiple Markets, Undertakings may be found to be dominant in an Aftermarket despite not being dominant in a Primary Market.

Question 26

Regarding Geographic Market Definition, what is the concept of the Relevant Geographic Market?

Answer 26

The geographic area wherein competitive conditions are:
* Sufficiently homogeneous; and
* Sufficientnly distinguishable from neigbouring areas.

This is likewise determined through the HMT.

P. 206; Case CW/01122/01/14, Ofcom Decision of 14 August 2018, at [6.7(b)].

Question 27

Regarding Geographic Market Definition, what sort of Data does the CMA use to Test Demand-Side-Substituitability?

Answer 27

Data regarding Customers’ ability to switch Suppliers, such as:
* Search costs for products in other geographic areas;
* Consumers’ willingness to travel to obtain such products;
* Transportation costs for products; and
* Product value relative to transportation costs.

P. 206; CMA Guidance, Market Definition (OFT403), at [4.5].

Question 28

Regarding Geographic Market Definition, what sort of Data does the CMA use to Test Supply-Side-Substituitability?

Answer 28

Data regarding Suppliers’ ability to compete, such as:
* Ease of entry for foreign Suppliers, and
* Import volumes (or the potential thereof), at least if sufficiently large to indicate competition with domestic Suppliers.

P. 206-207; CMA Guidance, Market Definition (OFT403), at [4.6].

That said, any data depending on new investment or time delays is not relevant to the exercise.

Question 29

Regarding Dominance, how is Dominance assessed?

Answer 29

By observing the Undertaking’s conduct and its economic strength based on:
* Market share;
* Direct evidence;
* Entry conditions; and
* Buyer bargaining power.

P. 209. CMA Guidance, Market Power (OFT415), at [2.4]-[3.1]; Case CE/9742-13, CMA Decision of 7 December 2016, at [4.225].

In assessing Dominance,

Question 30

Regarding Dominance, to what extent is Market Definition a relevant consideration?

Answer 30

It is merely a step rather than the end itself, outlining the domain within which an Undertaking supposedly exercises Dominance.

P. 211; Case CE/9742-13, CMA Decision of 7 December 2016, at [4.8], [4.15], and [4.25].

Question 31

Regarding Dominance, what does Direct Evidence concern?

Answer 31

Evidence of an Undertaking’s ability to act appreciably independently of competition.

Alone, it is unlikely to be enough, and should be jointly considered.

P. 211; Generics v CMA [2018] CAT 4, at [397].

An example would be profitably charging higher prices than competitors without losing market share.

Question 32

Regarding Dominance, what Market Share Thresholds indiciate Dominance?

Answer 32

While no strict thresholds exist, persistently high market shares, namely ~50% or greater, rebuttably indicate Dominance.

P. 212; AKZO Chemie v Commission (C-62/86) EU:C:1991:286, at [60].

This is among the most important evidential categories. Market share below ~40% indicates Dominance is unlikely, but this is not an absolute rule. See P. 214-215.

Question 33

Regarding Dominance, on what Grounds may a Presumption of Dominance based on Market Share be Rebutted?

Answer 33

By adducing evidence that the Undertaking’s circumstances are exceptional, namely because of:
* The market’s features;
* The nature of competition therein; and
* The competitors’ and customers’ characteristics.

P. 213; Aberdeen Journals v Director General [2003] CAT 11, at [310]-[311].

Exceptional circumstances may include trade liberalisaton, bidding markets, and persistently successful innovation.

In such circumstances, the claimant must prove Dominance without recourse to a presumption, with market share remaining an important, but not conclusive, consideration. See National Grid v Ofgem [2009] CAT 14, at [51].

Question 34

Regarding Dominance, what do Entry Conditions concern?

Answer 34

The existence and scale of Barriers to Entry (BTEs) and a market’s degree of contestability by Challengers.

This is otherwise called the Assessment of Potential Competition.

P. 216.

Question 35

What are the Textbook Examples of Barriers to Entry?

Answer 35

• Sunk costs.
• Buyer power.
• Exclusionary behavior.
• Regulatory complexity.
• Direct network effects.
• Indirect network effect.
• Access to important inputs.
• Economies of scale and scope.

P. 217-224.

Question 36

Regarding Dominance, what is the Difference between Barriers to Entry and the Costs of Doing Business (CODB)?

Answer 36

• BTEs only apply to new firms, thereby allowing Incumbents to charge supra-competitive prices; whereas
• CODBs apply to all firms operating in a given market.

P. 217.

Question 37

Regarding Domaince, what is the Test for Potential Competiton?

Answer 37

Whether facts and context suggest there are real, concrete possibilities for a Challenger to enter the market and compete with an Incumbent.

P. 217; Generics v CMA [2018] CAT 4, at [92].

Question 38

Regarding Dominance and the Test for Potential Compeition, what sort of Data is used?

Answer 38

• Historical records of entry by Challengers;
• Documentary evidence of plans to enter the market;
• Evidence of Customers being bound by long-term contracts; and
• The views of Challengers, Potential Challengers, and Incumbents; and
• Challengers’ and Potential Challengers’ sophistication and ability to enter the market.

This list is neither exhaustive nor comprehensive.

P. 217; CMA Guidance, Market Power (OFT415), at [5.30]–[5.31].

Question 39

Regarding Dominance, what is a Collective Dominant Position?

Answer 39

It is where:
* Two (or more) independent Undertakings:
* Achieve Dominance;
* By constituting a collective entity vis-à-vis their competitors, their trading partners, and consumers.

P. 225; §18 – CA 1998; Compagnie Maritime v Commission EU:C:2000:132, at [39].

Question 40

Regarding Dominance, when will Two Independent Undertakings be deemed a Collective Entity?

Answer 40

When their economic ties give rise to a connection that enables collective action appreciably independent of Competitors, Customers, and Consumers.

P. 225; Compagnie Maritime v Commission EU:C:2000:132, at [41]-[45].

Ties need not be strictly structural or economic; they may also arise from legal and commercial agreements, concerted practices, or tacit coordination between the parties.

Question 41

Regarding Abuse, to what extent is the Nature of an Abuse more important than its Effect?

Answer 41

Marginally. While certain conduct is presumptively Abusive by nature, effect is usually the paramount consideration.

P. 231; Intel v Commission EU:T:2014:547, at [85]–[88].

Question 42

Regarding Abuse, is Prepartory or Inchoate Conduct offensive?

Answer 42

No,° unless it is formally published to Competitors, Customers, or Consumers as intended future action, causing them to make appropriate changes.°°

P. 232.

° Irish Sugar EU:T:1999:246, at [121].
°° Royal Mail v Ofcom [2019] CAT 27, at [346].

Question 43

Regarding Abuse and Inchoate Conduct, what is the Procedure for Effects Analysis?

Answer 43

1. Would the conduct be anticompetitive if implemented?
2. Did its mere publication deviate from competiton on merits, and was it likely to cause anticompetitive effects?

P. 233; Royal Mail v Ofcom [2019] CAT 27, at [308].

Exceptionally, the CMA deemed abusive the mere possibility of a threat to carry out an anticompetitive practice, even though it had not yet made, although this ought be confied to its facts. See Case 50951, CMA Decision of 18 December 2020, at [1.2] and [4.4].

Question 44

Regarding Abuse, what are the Two Types of Causation?

Answer 44

• Dominance Causation: Causation between the Undertaking’s Dominance and its conduct.
• Effects Causation: Causation between the Undetaking’s conduct and its anticompetitive effects.

Both employ a Counterfactual Analysis (CFA).

The burden of proof for both falls on the Claimant.

P. 235; Socrates Training v Law Society [2017] CAT 10, at [161].

A CFA establishes causation by showing that a more competitive outcome would have occurred absent the Undertaking’s conduct.

Question 45

Regarding Abuse, what does Dominance Causation concern?

Answer 45

The use of Dominance to make conduct unnaturally effective relative to its efficacy absent Dominance.

P. 237; Tetra Pak v Commission EU:C:1996:436, at [27].

Causation is presumed in clearly Dominated markets (Own Markets), but not in other ones (Related Markets). See AstraZeneca v Commission EU:T:2010:266, at [267].

Likewise, in exceptional circumstances, Causation may be established across markets. See Tetra Pak.

Question 46

Regarding Abuse, what does Effects Causation concern?

Answer 46

Whether the alleged anticompetitive effects are directly attributable to the Undertaking’s conduct.

P. 239; Post Danmark II ECLI:EU:C:2015:651, at [47].

Question 47

Regarding Exclusionary Abuse, what must be shown to establish Effects Causation?

Answer 47

1. What the alleged anticompetitive effects are;
2. Their magnitutde; and
3. Their probability of manifesting.

P. 240.

Question 48

Regarding Exclusionary Abuse, what constitutes an Anticompetitive Effect?

Answer 48

The use of Dominance to impede Challengers’ entry or expansion by denying them access to inputs, Customers, or Consumers.

P. 240; Streetmap v Google [2016] EWHC 253 (Ch), at [62]–[63].

Question 49

Regarding Exclusionary Abuse, what Degree of Probability is requisite?

Answer 49

The alleged anticompetitive effects must be reasonably likely of manifesting.

P. 240; Streetmap v Google [2016] EWHC 253 (Ch), at [66] and [88].

Question 50

Regarding Exclusionary Abuse, what constitutes Reasonble Likelihood?

Answer 50

A probability that is neither speculative nor concrete in its degree of certainty, falling true on the balance of probabilities.

P. 243; Microsoft v Commission EU:T:2007:289 at [561].

That said, real evidence that conduct already has (or has not) harmed competition must be accounted for. See Streetmap v Google [2016] EWHC 253 (Ch), at [88]-[89].

Question 51

Regarding Exclusionary Abuse, what Level of Magnitude is requisite?

Answer 51

• In Own Markets, any level of magnitude is sufficient.°
• In Related Markets, anticompetitive effects must be appreciable, i.e. more than insignificant.°°

P. 246.

° Post Danmark II EU:C:2015:651, at [70]–[74].
°° Achilles v Network Rail [2019] CAT 20, at [121].

Question 52

Regarding Exclusionary Abuse, what is considered when determining the Level of Magnitude?

Answer 52

1. Market share.
2. Conduct’s scope.
3. Practical evidence.
4. Conduct’s duration.
5. Extent of competition in the market.
6. Terms and structure of the Undertaking’s conduct.
7. Degree of Incumbent’s intent to execute the conduct.

P. 248.

Question 53

Regarding Exclusionary Abuse, Probability and Magnitude notwithstanding, are all Exclusionary Effects deemed Anticompetitive?

Answer 53

No. An Exclusionary Effect must staisfy the As Efficient Competitor Test (AECT) to be deeded anticompetitive.

P. 251.

This is because competition on merits necessarily leads to less efficient firms being marginalised or forced out if they are unable or unwilling to match rivals’ prices or quality.

Question 54

Regarding Exclusionary Abuse, what is the As Efficient Competitor Test?

Answer 54

1. If an equally efficient Competitor can effectively compete on price with the Dominant Undertaking; then
2. The latter’s conduct is unlikely to have an adverse impact on effective competition and vice versa.

P. 252; EC Abuse of Dominance Guidance, at [27].

Specifically, the conduct’s intrinsic capacity to exclude Competitors is what is relevant. See Intel v Commission EU:C:2017:632, at [140].

Question 55

Regarding Exclusionary Abuse, what are the most notable Practical Considerations regarding the As Efficient Competitor Test?

Answer 55

1. It is not always necessary to conduct an AECT in all pricing cases.
2. There is no class of cases that always demands an AECT to identify anticompetitive behavior.
3. Scale of entry and status as a universal service providers can render an AECT inappropriate.
4. Where an AECT is deemed inappropriate, the Regulator need not examine the Defendant’s proposed AEC assessment in detail.

P. 253-254; Royal Mail v Ofcom [2019] CAT 27, at [522]-[586].

The cited case does not nullify the importance of AECTs — they are valuable — but rather illustrates that they are not a silver bullet and must considered in the context of the given facts.

Question 56

Regarding Abuse, what is the Objective Justification Defence?

Answer 56

A show that the Dominant Undertaking’s conduct:
1. Creates efficiency gains to Consumers’ benefit; that
2. Outweighs losses to competition or consumer welfare; while
3. Being necessary to the realization of said gains; and
4. Not eliminating effective competition.

Natuarlly, the burden of proof falls on the Undertaking.

P. 257; Post Danmark I EU:C:2012:172, at [41]–[42].

Question 57

Regarding Abuse, what is a Service of General Economic Interest (SGEI)?

Answer 57

A public service deemed to be of general interest and economic importance, and which is subject to specific regulatory frameworks.

Lecture Notes.

Examples include healthcare, education, public transportation, social housing, and energy supply, among others.

Question 58

Regarding Abuse, to what extent are Services of General Economic Interest subject to the Chapter 2 Prohibition?

Answer 58

The Prohibition does not apply to SGEIs insofar as it would obstruct the Undertaking’s performance, in law or in fact, of its assigned tasks.

This is also the case for the Chapter 1 Prohibition.

P. 260; §19(1)(b) – CA 1998.

Question 59

Regarding Abuse, what must be shown to Qualify for the SGEI Exception?

Answer 59

1. The Undertaking was assigned to perform a SEGI.
2. Applying the Chapter 2 Prohibition would obstruct its performance thereof under economically acceptable conditions.
3. The Undertaking’s conduct is necessary to peform its task and is proportionate.
4. The Undertaking is acting according to the relevant Regulator’s policies.

P. 260; Royal Mail v Ofcom [2019] CAT 27, at [668].

Question 60

What the Specific Practices most commonly regarded as Exclusionary Abuses of Dominance?

Answer 60

• Refusal to Deal.
• Margin Squeeze.
• Exclusive Dealing.
• Predatory Pricing.
• Tying and Bundling.
• Conditional Discounting.

Question 61

What is Exclusive Dealing?

Answer 61

An agreement wherein one Undertaking promises to source all or most its inputs exclusively from the Dominant, thereby excluding rivals.

It is prohibited by effect.

P. 262; Hoffmann-La Roche v Commission EU:C:1979:36, at [89].

In certain contexts, like franchising, this is both normal and pro-competitive, namely because it aligns the parties’ incentives, encourages Customer-specific investments, and affords certainty.

Question 62

What is Refusal to Deal?

Answer 62

A refusal by a Dominant Undertaking to provide inputs to either:
* An existing Customer; or
* An new Customer that needs them.

It is prohibited by effect.

P. 267; Attheraces v British Horseracing [2007] EWCA Civ 38, at [108].

Question 63

Regarding Refusal to Deal, when is it Abusive to Refuse to Supply to an Existing Customer?

Answer 63

When the Refusal:
* Distorts competition;
* Is without objective justification; and
* Concerns a Customer that abides by regular commercial practice.

P. 267; Burgess v OFT [2005] CAT 25, at [311(1)].

Question 64

Regarding Refusal to Deal, when is it Abusive to Refuse to Supply to a New Customer?

Answer 64

When the Refusal:
* Distorts competition;
* Is without objective justification; and
* Concerns inputs that are essential to the Customer’s operation.

P. 269; Microsoft v Commission EU:T:2007:289, at [332]–[334].

If the Refusal concerns intellectual property, it must also be shown to prevent the emergence of new products for which there is potential demand.

Question 65

What is Tying and Bundling (T&B)?

Answer 65

The practice of offering two or more products only, or less expensively, as a package rather than offering them separately.

It is prohibited by effect.

P. 271-272.

T&B may be beneficial by overcoming double marginalization, improving quality control, and reducing search costs, production costs, and licensing costs.

Question 66

Which Types of Tying and Bundling are usually deemed Abusive?

Answer 66

• Pure Bundling.
• Mixed Bundling.
• Unrelated Supplementary Obligations.

P. 272-273.

Question 67

Regarding Tying and Bundling, what is Pure Bundling?

Answer 67

The contractual or technical bundling of a Dominant Product with a Non-Dominant Product by a Dominant Undertaking.

P. 272; Genzyme v OFT [2004] CAT 4, at [485].

Dominant and Non-Dominant Products are also called Tying and Tied Products, respectively.

Technical bundling entails making it costly or difficult to separate the two products.

Question 68

Regarding Tying and Bundling, what is Mixed Bundling?

Answer 68

The price bundling of a Tying and Tied Product, making them cheaper together than independently, by a Dominant Undertaking.

P. 272.

Question 69

Regarding Tying and Bundling, what are Unrelated Supplementary Obligations?

Answer 69

The sale or license of a Tying Product subject to various commercially unrelated obligations.

P. 272.

Question 70

When is Tying and Bundling deemed Abusive?

Answer 70

1. The products are distinct.
2. The Undertaking is Dominant in the Tying Product market.
3. The T&B does not allow Customers to purchase the Tying Product without the Tied Product.
4. The T&B distorts competition.
5. The T&B is without objective justification.

P. 273; Microsoft v Commission EU:T:2007:289, at [842]–[863].

Question 71

What is a Conditional Discount?

Answer 71

A price reduction based on the volume or proportion of purchases a Customer makes from a Supplier.

It is prohibited by effect.

P. 278.

This is also known as a rebate, and may be beneficial by diffusing economies of scale and scope to Customers, increasing certainty for Suppliers, and incentivzing productivity down the Distribution Chain.

Question 72

When is a Conditional Discount deemed Abusive?

Answer 72

It either completely functions as Exclusive Dealing or only somewhat so, meaning it:
* Tends to prevent Customers from purchasing all or most of their inputs from Competitors;
* Makes market entry very difficult or impossible for Challengers; and
* Makes choosing between Suppliers more difficult for Customers.

The latter type is termed a Fidelity-Building Rebate.

P. 278-284; Case 50236, CMA Decision of 14 March 2019, at [4.8]-[4.13].

Question 73

What are the Common Characteristics of an Abusive Conditional Discount?

Answer 73

• Retroactivity.
• Long reference periods.
• Wide scope relative to the product market.
• Discriminatory discounting between Customers.
• Leveraging non-contestible sales to increase contestible sales.
• Discount thresholds equal to approximately 75% of a Customer’s demand.

P. 278-288.

Question 74

What is Predatory Pricing?

Answer 74

The decreasing of prices by a** Dominant Undertaking** to distort competiton, usually by:
* Bankrupting Competitors;
* Deterring entry by making the market seem unprofitable; or
* Deterring challenge generally for fear of a price war.

It is prohibited by effect.

P. 288-289.

A short-term price decrease is unlikely to be deemed predatory becuase it may be a legitimate strategy for attracting customers, minimizing losses, launching promotions, etc. Therefore, predatory pricing usually occurs over the medium-to-long term.

Question 75

What are the Elements of Predatory Pricing?

Answer 75

• The relevant Undertaking must be Dominant.
• It must have either:
  
  • Charged prices below AVC / ACC; or
  • Charged prices below ATC / LRAIC and above AVC / ACC intending to distort competition.
• Its pricing is without objective justification.

P. 291; Aberdeen Journals v Director General [2003] CAT 11, at [351]–[352]

Question 76

Which Cost Benchmarks are used to gauge Predatory Pricing?

Answer 76

• Average Total Costs (ATC): The average of all costs.
• Average Variable Costs (AVC): The average of all costs that vary with output.
• Long-Run Average Incremental Costs (LRAIC): The average of all costs incurred to produce a particular product.
• Average Avoidable Costs (AAC): The average of short-run costs avoidable by not producing a discrete amount of additional output.

P. 289-290.

The difference between AVCs and AACs is merely one of timeframes, with the latter operating in the short term.

Question 77

What are the Practical Considerations of establishing Predatory Pricing?

Answer 77

• Timescale: The relevant period is however long the alleged conduct may reasonably be expected to prevail.
• Object of Comparison: Prices and costs should only be assessed regarding relevant, not all, products.
• Assessing Intention: Ex ante internal documents are the best evidence for assessing intention.

P. 291-299; Aberdeen Journals v Director General [2003] CAT 11, at [354]-[426]; Cardiff Bus, OFT Decision of 18 November 2008, at [7.158]-[7.206].

Question 78

What is a Margin Squeeze?

Answer 78

The sale of inputs by a vertically-integrated Dominant Undertaking to its own downstream division at lower prices than to its downstream Competitors.

P. 300.

Question 79

What are the Elements of a Margin Squeeze?

Answer 79

1. An Upstream and Downstream Market exist.
2. The Upstream Market supplies an essential input to the Downstream Market.
3. A vertically-integrated Undertaking is Dominant in the Upstream Market and active (or Dominant) in the Downstream Market.
4. The Dominant Undertaking’s Upstream and Downstream pricing leaves insufficient margin for an efficient Downstream Competitor to operate profitably.
5. The Dominant Undertaking’s pricing is without objective justification.

P. 300; Albion Water v WSRA [2008] EWCA Civ 536, at [88]–[91].

Question 80

What are the Practical Considerations of establishing a Margin Squeeze?

Answer 80

• Subject Matter: Analysis concerns an equally, not reasonably, efficient Competitor.
• Extent of Competition: The Competitor need not attempt to displace, only duplicate, the Dominant Undertaking’s activities.
• Independence: Margin Squeeze is an independent cause of action, not requiring such grounds as Predatory Pricing.

P. 300; Albion Water v WSRA [2008] EWCA Civ 536, at [90]–[110].

Question 81

What the Specific Practices most commonly regarded as Exploitative Abuses of Dominance?

Answer 81

• Unfair Pricing.
• Discriminatory Pricing.

Question 82

What is Unfair Pricing?

Answer 82

The charging of excessive prices relative to a product’s economic value.

P. 309.

This is the most difficult charge to successfully prove, namely because proving whether and precisely to what degree a given price is unfair is an ambiguous exercise.

Question 83

What is the Process for Determining whether a Price is Excessive?

Answer 83

1. Define the Counterfactual.
2. Benchmark normal competitive conditions in the Counterfactual.
3. Verify the benchmark’s sufficiency.
4. Compare factual and counterfactual prices to determine excessiveness.

P. 310-315; Flynn Pharma v CMA [2018] CAT 11, at [92]-[287].

Excessiveness, and thereby unfairness, may either be in and of itself, relative to competing products, or both. Either one suffices, unless the Defendant presents evidence under the other, in which case, it too must be addressed.

Question 84

What is Discriminatory Pricing?

Answer 84

Charging different prices to different Customers for the same Product.

It is prohibited by effect.

P. 331.

Question 85

What are the Elements of Discriminatory Pricing?

Answer 85

1. A Dominant Undertaking applies dissimilar (or similar) conditions to similar (or dissimilar) transactions with Customers;
2. Without objective justification;
3. Thereby placing the Discriminated Customer at a competitive disadvantage.

P. 332; MEO v GDA EU:C:2018:270, at [25]–[26].

Bear in the mind that an immediate disadvantage relatve to other Customers does not necessarily indicate that competition is distorted or is capable of being distorted; the effect must be more substantial and less transitory.

Question 86

What is the Consequence of Infringing the Chapter 2 Prohibition?

Answer 86

The Agreement will be void, unless the offending provision(s) can be severed. Accordingly:
1. If it can be removed without needing to add or modify the remaining terms; which
2. Continue to be supported by adequate consideration; and
3. Its removal does not unacceptably (for the Parties) change the Agreement’s character,

Then, the Agreement will be spared.

P. 340; EWS Railway v E.ON [2007] EWHC 599 (Comm), at [27]–[29].

Financial penalties are also routinely imposed, and the CMA may order that the infringing conduct be modified or brought to an end. See §32-§33.