Abuse of dominant position

 

Author Definition

 

Definition

Abuse of dominance is unilateral conduct using dominant market power (or a dominant position) to damage market competition and ultimately welfare. Most jurisdictions address the issue by prohibiting use of dominance or substantial market power, taking different approaches to terminology and the relevant threshold of market power. Dominance itself, or the degree of market power required by other wordings, is generally measured by the ability of an organisation to act without significant constraint, or to influence prices to exclude competition, or to profitably maintain prices above the cost of supply in the long run. Conduct which may infringe abuse of dominance and like provisions includes predatory pricing, exclusive dealing, loyalty rebates, tying and bundling, refusal to deal, and in some jurisdictions, excessive pricing.

 

Commentary

The distinction between acceptable conduct and conduct which will breach the dominance provisions is often difficult to draw. In most jurisdictions, no definite market share thresholds are set on a numerical basis to determine market power for assuming dominance or substantial market power. In some jurisdictions, presumptions of dominance arise based on specified market shares (for example, China, Korea), while some of these presumptions are rebuttable. The EU uses the threshold of dominance in Article 102 TFEU.

A dominant position is the power to behave to an appreciable extent independently of its competitors, its customers, and consumers (Hoffmann-La Roche). Article 102 prohibits collective abuse of dominance: by “one or more undertakings” (Airtours). Mere possession of the required degree of market power is not sufficient. “Abuse” is not defined but various cases exemplify this conduct in particular sets of circumstances: see for example, (Hoffmann-La Roche; Deutsche Telekom AG, para. 174). Article 102 identifies, non-exhaustively, potential problem conduct in paras. (a)-(d) as: imposing unfair purchase or selling prices or other unfair trading conditions; limiting production or technical development which prejudices consumers; discriminatory conditions on trading partners; and imposing obligations which have no connections to the dealings.

The EU Commission and courts have more recently moved from a traditional form-based approach to prohibited conduct to focus more generally on the analysis of economic effects, but there is still a tendency to formalistically assess some types of unilateral conduct, particularly in the courts. A dominant undertaking has a special responsibility in the EU not to allow its behaviour to impair genuine, undistorted competition on the internal market (Michelin, para. 70). It is not, however, the role of Article 102 to protect less efficient competitors (Intel). If the dominant company can establish an objective justification for its conduct, such as achieving a legitimate objective of protecting or enhancing a public interest, defending its commercial interest (United Brands) or generating efficiencies not otherwise available (British Airways), assessed on the basis of proportionality, there will be no abuse. More recently important decisions have addressed concerns in digital markets, for example Google Search (Shopping).

In the US, the prohibition contained in section 2 of the Sherman Act is against monopolization, being the use of monopoly power with an anticompetitive outcome. Monopoly power is power characterised as significant and durable market power. The Supreme Court has held that unlawful monopolization consists of two elements: the possession of monopoly power and the willful acquisition or maintenance of the power, as opposed to its development as a consequence of superior product, business acumen, or historic accident (Grinnell Corp). The law requires proof of both monopoly power and exclusionary conduct (Berkey Photo Inc v Eastman Kodak Co). The courts decide the meaning of the provision. Currently, as long as there is a business rationale for the conduct, it is likely to be judged efficiency-enhancing and allowed (Verizon Communications Inc v Law Offices of Curtis V. Trinko). The US prefers false negatives to false positives in antitrust intervention, which means that enforcement actions are likely to be less common than in the EU. See, for example Verizon Communications Inc v Law Offices of Curtis V. Trinko 540 US 398.

NATIONAL COMPLEMENTS

The definition and commentary above focus on the EU/US points of views, or/and the author’s own jurisdiction. Readers are invited to complement these from their own legal system by proposing addendum of no more 150 words per country. These national complements contribute to building a more diverse and complete project. The complements are subject to review by the Editors and the primary author before inclusion.

China

China takes a European approach, focussing on elements associated with European Union law but with some additional considerations. Singapore also takes a European approach but focuses on total welfare rather than consumer welfare and expressly refers to predatory behaviour towards competitors as one type of conduct which might constitute an abuse of a dominant position.

Hong Kong, Australia and New Zealand

Hong Kong, Australia and New Zealand set thresholds for intervening in relation to unilateral market power although with differing approaches to purpose and effect and also arguably to thresholds of “substantial degree of market power”. Australia and New Zealand focus less on market shares and more on barriers to entry in determining market power. Australia has an anticompetitive purpose or effect test, while New Zealand currently has an anticompetitive purpose test. Hong Kong has an object or effect test, similar to the Australian test. All three jurisdictions focus analysis on substantially lessening or harming competition.

 

Bibliography

Whish, R. and Bailey, D., Competition Law, 9th Edition, Oxford University Press, 2018.

Author

  • University of New South Wales (Sydney)

Quotation

Deborah Healey, Abuse of dominance, Global Dictionary of Competition Law, Concurrences, Art. N° 20101

Visites 42558

Publisher Concurrences

Date 1 January 1900

Number of pages 500

 

Institution Definition

Anti-competitive business practices (including improper exploitation of customers or exclusion of competitors) in which a dominant firm may engage in order to maintain or increase its position on the market. Competition Law prohibits such behaviour, as it damages true competition between firms, exploits consumers, and makes it unnecessary for the dominant undertaking to compete with other firms on the merits. Article 102 of the Treaty on the Functioning of the EU lists some examples of abuse, namely unfair pricing, restriction of production output and imposing discriminatory or unnecessary terms in dealings with trading partners. © European Commission

Anticompetitive business practices in which a dominant firm may in order to maintain or increase its position in the market. These business practices by the firm, not without controversy, may be considered as "abusive or improper exploitation" of monopolistic control of a market aimed at restricting competition. The term abuse of dominant position has been explicitly incorporated in competition legislation of various countries such as Canada, EEC and Germany. In the United States, the counterpart provisions would be those dealing with monopoly and attempts to monopolize or monopolization of a market. Which of the different types of business practices are considered as being abusive will vary on a case by case basis and across countries. Some business practices may be treated differently in different jurisdictions as well. However, the business practices which have been contested in actual cases in different countries, not always with legal success, have included the following: charging unreasonable or excess prices, price discrimination, predatory pricing, price squeezing by integrated firms, refusal to deal/sell, tied selling or product bundling and preemption of facilities. (...) © OECD

See Dominance (notion), Abuse of economic dependence and Oligopoly

 
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