COMPETITION • FRENCH LAW • ABUSE OF DOMINANT POSITION
To define the conditions under which prices may be qualified as predatory and constitute abuse within the meaning of Article L. 420-2 of the Commercial Code, the Competition Authority uses the criteria established by the Court of Justice: selling at a price which is lower than the average variable costs automatically constitutes predatory pricing although selling at prices lower than the average total costs but higher than the average variable costs is only abusive if it can be demonstrated that it was part of a strategy to eliminate competition. Since then the position of the European authorities has evolved and this has had some influence on the French authorities.
In its Guidance on abusive exclusionary conduct the Commission defines predation by a test designed to assess whether a hypothetical competitor which is as efficient as the dominant undertaking is likely to be excluded by abusive pricing practices, notably predatory pricing. Although the Commission does not refer to the average variable costs and average total costs, preferring to use the terms ‘average avoidable cost’ (AAC) and ‘long-run average incremental cost’ (LRAIC), there is only a slight difference between them. The exclusionary price test is positive where the average avoidable cost or the long-run average incremental cost is not covered by the price charged by the dominant undertaking. In principle only the fixing of prices below the AAC is regarded as likely to eliminate equally as efficient competitors from the market. However, predation will also be established where there is evidence showing that a dominant undertaking deliberately incurs losses or foregoes profits in the short term so as to foreclose or be likely to foreclose one or more of its actual or potential competitors with a view to strengthening or maintaining its market power. To that end, the Commission will seek to show that the undertaking has made a sacrifice or pursued a predatory strategy producing anticompetitive foreclosure effects harmful to consumers. According to the Commission, predatory conduct can take various forms, notably by developing a reputation for aggressive conduct: the predator, concerned about the entry of several competitors on distinct markets, will select its prey among those undertakings and implement an aggressive pricing policy by charging prices well below its costs in order to deter potential competitors from entering the other markets for fear that the predator will adopt the same aggressive behavior towards them.
The Court of Cassation considers that the adopting of a predatory strategy by the developing of an aggressive reputation on a market other than the dominated market is not proven in the absence of special circumstances capable of establishing a link between the abusive conduct and the dominant position. In the specific case of an undertaking charged with a public service mission but at the same time carrying out a commercial activity, the Competition Council has specified that the “notion of relevant cost to be taken into consideration to assess whether the price of services offered competitively is abusive is the incremental cost”, i.e. additional expenses due to the exercise of the competitive activity. The fact that the prices charged by the undertaking in a dominant position are situated at a level lower than the total average costs incurred for the competitive activity concerned but higher than the average incremental costs related to that activity, cannot be considered as abusive unless this pricing policy has, with no objective justification, the result of effectively or potentially ousting its competitors. It must be determined whether the disappearance of competitors results from bad internal management policies or from outside factors or if it can be attributed to the pricing practice put in place by the dominant undertaking, insofar as the competitors in question are regarded as equally as efficient as that undertaking. The Paris Court of Appeal, for its part, adopts a strict approach to price predation and considers that, in the absence of a relevant comparison between price and cost for the same category of goods or services, the existence of such a practice cannot be established. In the case of a multi-service company, it requires the Competition Authority to take into account the public interest in the analysis of avoidable cost thresholds.
