COMPETITION • EUROPEAN LAW • ABUSE OF DOMINANT POSITION
Article 102 TFEU prohibits “abuse […] of a dominant position within the internal market or in a substantial part of it”. The dominant position may be individual or collective. It is individual when it is held by a single undertaking.
Although the Court of Justice considers that the position held by an undertaking on the market only constitutes, in theory, a “factor” of the dominant position, it judges that “among these factors a highly important one is the existence of very large market shares” and can suffice as an indicator of a dominant position. When an undertaking holds a de jure or de facto monopoly, the European authorities would appear to be satisfied with the sole finding of such monopoly in order to conclude that a dominant position exists. The concept of dominance is not limited to monopoly situations but extends to quasi-monopoly hypotheses. By contrast, possession of a limited market share is interpreted as meaning that there is no dominant position. Between these two extremes, market share is only considered a relative factor of dominance that needs to be supported by other factors. A market share greater than 50% for several years is generally sufficient for a finding of dominance. According to the Commission, dominance is not likely if an undertaking’s market share is below 40%.
Dominance is assessed taking into account not only their existence but also the position of competing producers. The greater the disproportion between the position of the undertaking in question and its competitors, the longer their reaction time and the more limited their possibility of meeting demand will be. Thus, an undertaking possessing a market share higher than 90% whereas its direct competitor has a market share of 5% to 10% is in a dominant position. For intermediary market shares between 30% and 80%, the relative disproportion in market share between the undertaking in question and its competitors is a decisive factor in determining a dominant position. An undertaking holding a market share of 45%, much greater than that of its competitors despite a slight decrease and that conducts a big marketing campaign for the launch and distribution of its brand, is in a dominant position. An undertaking with a market share of 50% in each Member State is in a dominant position in the Union since there is a significant gap between its market share and that of its four competitors and the market includes many barriers to entry.
Outside situations of monopoly or quasi-monopoly, the predominant market share held by the undertaking is considered to be an insufficient condition that must be supported by complementary factors to establish dominance:
– Market structure: the intensity of competition on a market and the possibility for competitors to enter the market are essential criteria for defining a dominant position. Absence of potential competition and main competitors’ insignificant countervailing power may confirm the existence of a dominant position. However, the existence of lively competition on a particular market does not rule out the possibility that there is a dominant position on that market, since the predominant feature of such a position is the ability of the undertaking to act without having to take account of this competition in its market strategy and without for that reason suffering detrimental effects from such behavior. Barriers to entry (or mobility factors if competitors are already operating in the market concerned) are key factors of dominance. The high level of advertising and commercial investments required to reach an optimal size may also constitute a barrier to entry for a new competitor on a given market. The causes of any structural barriers to entering a market may be outside the natural operation of such market. Regulatory requirements may establish barriers to entry by imposing formalities, quotas or provisions protecting national or EU producers. Lastly, the market power of one or more undertakings may be offset by their customers’ purchasing power.
– Structure of the undertaking: factors corroborating a dominant position retained by the Competition authorities include market leadership, classification as incumbent operator and brand image. Disproportionate financial means between an operator and its competitors or facility in obtaining supplies may also be factors in the assessment of a dominant position. Belonging to a group, which itself is an indication of dominance confers financial strength on an undertaking. The holding of intellectual property rights or special or exclusive rights are also factors pointing to a position of dominance. The same is true where the undertaking distributes its products widely over the whole territory, where it has a vast and highly sophisticated commercial organization or a very diverse and varied product range. Lastly, an undertaking that achieves economies of scale, is vertically integrated, has technological lead or keeps its partners in a position of dependence is likely to hold a preeminent position on the market in question.
– Behavior: certain types of behavior could only be adopted if the undertaking had sufficient economic power to impose them on other players on the market or would be pointless unless the party in question was in a dominant position. Some contractual conditions can be imposed only by an undertaking in a dominant position. Likewise, the fact that several shipping companies offer rates within a matrix of prices that vary from one product to another on a basis related to their value, whereas the value of goods transported has no influence on the cost of transport, characterizes the existence of a dominant position. Generally an abuse may be an indicator of dominance. Instead of being regarded as an indicator of a dominant position, the behavior of an undertaking is sometimes considered to be the cause of dominance. Being in a position of exclusive or nearly-exclusive supplier is thus a factor of dominance.
– Performance : EU competition law is extremely hesitant about using the criteria of performance. Although the EU authorities traditionally find that the maintenance of a market share can reveal a dominant position, the progressive decrease in such market share is not sufficient to disprove the existence of a dominant position insofar as the market share remains very high. Likewise, falls in prices are not necessarily inconsistent with the existence of a dominant position insofar as they may result from a price policy freely adopted and not attributed to the pressure of competition. EU authorities even consider that “a reduced profit margin or even losses for a time are not incompatible with a dominant position, just as large profits may be compatible with a situation where there is effective competition”. An undertaking’s recorded losses and temporary unprofitability therefore are not inconsistent with the existence of a dominant position.
