COMPETITION • FRENCH LAW • ABUSE OF DOMINANT POSITION
Article L. 420-2 of the Commercial Code prohibits “the abuse […] of dominant position in the internal market or a substantial part of it “. A dominant position can be individual or collective. It is individual when it is owned by a single undertaking. In the context of differentiated products, the Competition Authority considers that sales by value and the corresponding market share give the best indication of the relative position and strength of each supplier. However, the Competition Authority has declared that “while market share can be an indicator of the existence of a dominant position, […] this information in itself is normally insufficient to justify a conclusion as to the existence of a dominant position”. Usually, the Competition Authority will conduct a “multi-criteria analysis”.
Where the undertaking’s market share is significant, it may be a sufficient indicator of the existence of a dominant position. On the other hand a limited market share is interpreted as meaning that there is no dominant position. Between these two extremes, market share is only considered a factor of dominance and must be supported by other factors if dominance is to be established. Where other factors are shown to exist, a market share of 50% or greater is generally sufficient for a finding of dominance, whereas a market share of less than 40% is generally insufficient.
According to the Competition Authority, when an undertaking controls all or almost all of a relevant market, this circumstance alone is sufficient to establish a dominant position. However, in the context of a service of general interest, market segmentation takes on a specific dimension. If the provision of a public service creates a presumption of dominance, that presumption is meaningful only if the market under consideration includes the periods, terms and other circumstances of the public service activity.The principle that control of all or substantially all of the relevant market establishes dominance extends to near-monopoly scenarios.
The relative disproportion in market share is a decisive factor in determining a dominant position. An undertaking controlling 32% of a market may be found to be in a dominant position if the market share of its main rival is not more than half of that share. This is evidently also true in the case of an undertaking with a market share of between 74% and 89% whereas its nearest rival has a market share of around 7%,
Market share is generally considered as a factor of only relative value and must be supplemented by other factors:
– Market structure: a leading position depends on the intensity of competition on a market and the possibility for competitors to enter the market. An undertaking cannot behave independently if there is a competitor of equivalent strength to its own. The pricing pressure exerted by own consumption is, in principle, significant only if the self-produced goods are sufficiently substitutable for those of the undertaking in a dominant position and if the costs of this self-production are sufficiently low. An isolated and narrow market is likely to be dominated by the premier distribution group on the national territory. Likewise, the incumbent operator with a 97% market share is in a dominant position on a market where no other leading company in the sector has been able to break in. An undertaking is in a dominant position where its direct competitors are undergoing a period of technological and commercial recession and it holds 60% of the market. Conversely, an enterprise on a lively and competitive market with a market share dropping from 49.5% to 48.25% and where its two main rivals – one of which is in a state of rapid progression hold 35.6% and 16.25% respectively, is not in a position of dominance. The strong presence of retailer brands also eliminates the existence of a dominant position for an undertaking controlling 25% of the market.According to the Competition Authority, the existence of potential competition must be analyzed at the stage where dominance is determined rather than at the definition of the relevant market stage, since the competitive constraint of potential entry may have the effect of weakening the market power of the undertakings present on the market. The size of the advertising and commercial investments required to enter or develop in the relevant market, or technical or regulatory constraints are the most frequently identified barriers to entry (or mobility factors, if the undertakings are already present in the market).
– Structure of undertaking: account must be taken of all the qualitative and quantitative elements specific to the undertaking, such as superiority in management, technical innovation or commercial operations, storage capacities, the number of convoys for a funeral undertaking, product families for mass distribution or the number of customers. The competition authorities also consider the undertaking’s leadership, its status as an incumbent operator or its brand image among the indicators that corroborate its dominant position. An operator’s disproportionate financial resources compared to its competitors or its supply facilities may also be a factor in assessing its dominant position. Product notoriety or the reputation of the business, 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 of the national territory, where it has a vast and highly sophisticated commercial organization or a very diverse and varied product range or an exhaustive and regularly updated database requiring a significant and continuous investment constituting a real barrier to entry.
– Behavior: the competition authorities consider that the conditions in which an undertaking implements the means at its disposal can be taken into account when assessing the existence of a dominant position. A pricing policy by which a supplier confines distributors’ profits to end-of-year bonuses, the existence of an exclusive agreement, a sponsorship agreement, a franchise agreement are all indicators of dominance.
– Performance: performance criteria are only given very limited importance under French law as they may be interpreted in various ways. The fall in market share for an undertaking or financial losses generally do not suffice to disprove the existence of a dominant position as it can be explained by other factors. Maintaining a significant market share over several years even in spite of higher price levels than competitors is however considered to be an indication of a dominant position. Likewise, the ability to increase prices in a declining market, despite the continuing and appreciable drop in tonnage sold, and a market share of 75% or the ability to charge higher prices than competitors indicate a position of dominance. Aligning prices to those of ones’ competitors does not exclude the existence of dominance if it enables the undertaking to maintain its market share at a level that is far higher than other operators and retain a substantial share of the profits generated previously. An increase in the turnover of an undertaking’s number-one competitor does not in itself indicate an absence of behavioral independence preventing it from being held to be in a dominant position. Similarly, an operator whose market share exceeds 80% cannot invoke, to contest its own dominant position, the progress of its main competitor.