CH6: Abuse of Dominance

What is Article 102 TFEU?

Article 102 TFEU prohibits any abuse by one or more undertakings of a dominant position. Importantly, dominance itself is not prohibited. A dominant firm remains entitled to compete aggressively, provided it competes on the merits rather than through anti-competitive conduct.

What examples of potentially abusive behaviour fall under Article 102 TFEU?

Examples of potentially abusive behaviour include unfair prices or trading conditions, limiting production or innovation to the prejudice of the consumer, applying discriminatory conditions on other trading parties, and imposing supplementary obligations unrelated to a contract.

Why does the degree of dominance matter in abuse of dominance assessment?

The degree of dominance matters for assessing alleged abuse. In practice, authorities typically begin with market shares. Below roughly 40–50% market share is often considered a safe harbour. Above this level, there is greater scrutiny. However, market share alone is insufficient. Authorities also examine barriers to entry, closeness of competition, buyer power, economies of scale, and network effects.

What is anticompetitive foreclosure?

Anticompetitive foreclosure occurs when effective access to markets or supplies is hampered or eliminated for actual or potential competitors. The emphasis is on effects on competition, effects on consumers, and not merely the form of the conduct. Priority cases are those where foreclosure of competitors leads to consumer harm. Anticompetitive foreclosure also refers to cases where the dominant undertaking’s conduct can result in the weakening of competition.

What is competition on the merits?

Competition on the merits means that a dominant firm may compete aggressively through legitimate competitive behaviour. Competition on the merits can lead to the exclusion of less efficient rivals. If only inefficient competitors are excluded, the conduct may simply reflect vigorous competition.

What is the As-Efficient Competitor Principle or AEC?

The As-Efficient Competitor Principle is a common benchmark used to assess exclusionary behaviour. It asks whether the conduct would exclude a competitor that is as efficient as the dominant firm. It is known as the AEC principle and the AEC test.

What factors does the Commission examine in abuse assessment?

The Commission generally examines: the position of the dominant firm, because the stronger the dominance, the greater the risk of anti-competitive effects; the position of competitors, meaning how important competitors are for maintaining competition; market conditions in the relevant market, including entry barriers, economies of scale, and network effects; the position of customers and suppliers, including possible countervailing bargaining power; the scope and duration of conduct, because long-lasting and widespread conduct is more likely to generate foreclosure; and direct evidence such as internal documents, exclusionary strategies, and evidence of actual foreclosure.

What is objective necessity as a defence under Article 102?

Objective necessity means that a dominant firm may justify its conduct if the conduct is indispensable and proportionate, and necessary because of external factors.

What is the efficiency defence under Article 102?

The efficiency defence means that a dominant firm may justify its conduct by showing that efficiencies result from the conduct, the conduct is indispensable to the realisation of those efficiencies, efficiencies outweigh competitive harm, effective competition remains, and evidence is verifiable. This mirrors the efficiency analysis seen elsewhere in competition law.

What are the two broad categories of abuse of dominance?

The two broad categories of abuse of dominance are exclusionary conduct and exploitative conduct. Exclusionary conduct harms consumers indirectly by excluding competitors and weakening rivals. Exploitative conduct harms consumers directly through excessive prices, unfair trading conditions, or discriminatory price treatment.

What is horizontal foreclosure?

Horizontal foreclosure occurs within the same level of the supply chain. Examples include predatory pricing, rebates, and exclusive contracts. The objective is often to weaken or eliminate rivals and often relates to customer foreclosure.

What is vertical foreclosure?

Vertical foreclosure occurs across different levels of the supply chain to exclude companies competing in the downstream market. Examples include refusal to deal, margin squeeze, bundling and tying, and self-preferencing. The objective is often to leverage market power from one market into another.

What is exclusionary conduct?

Exclusionary conduct harms consumers indirectly by excluding competitors and weakening rivals. The harm arises because competition becomes weaker over time. It can occur in horizontal foreclosure as predation, rebates, and exclusive contracts. It can occur in vertical foreclosure as partial refusal to supply, margin squeeze, bundling and tying, and self-preferencing.

What is exploitative conduct?

Exploitative conduct harms consumers directly through excessive prices, unfair trading conditions, and discriminatory price treatment. Consumers are harmed immediately rather than through reduced competition.

What is predatory pricing?

Predatory pricing occurs when a dominant firm sets prices below costs in order to push rivals out of the market. The strategy has two stages. Stage 1: the dominant firm accepts losses to weaken or eliminate competitors. Stage 2: after rivals exit, the dominant firm enjoys monopoly profits in the long run and recoups losses.

What objective justifications can exist for predatory pricing?

Justifications for predation may include multi-product offerings with loss-leading products to attract customers, introduction of a new network that requires scale before it is valued due to switching costs and network effects, and economies of scale that reduce future average variable costs once achieved.

Why is predation difficult to establish?

Predation is difficult to establish because aggressive pricing is usually good for consumers, competitors may re-enter once prices increase again, an as-efficient rival could obtain financing, and enforcement mistakes can chill competition. The challenge is distinguishing aggressive competition from anti-competitive exclusion.

How is the AEC test applied in predatory pricing?

The AEC principle states that dominant firms cannot set prices lower than costs, as an efficient rival would not be able to do the same without making a loss. The AEC test asks whether the price set by the dominant firm is still above the relevant cost benchmark of the dominant firm.

What are the cost benchmarks used in predatory pricing analysis?

The cost benchmarks include AVC, meaning Average Variable Cost; AAC, meaning Average Avoidable Cost; LRAIC, meaning Long-Run Average Incremental Cost; and ATC, meaning Average Total Cost. Price below AVC or AAC is strong evidence of predation. Price between AAC and LRAIC requires context-specific analysis. Price between LRAIC and ATC is usually less problematic.

What are rebates?

Rebates are discounts conditional on purchasing behaviour. The main forms are quantity rebates, loyalty rebates, and exclusivity rebates.

What are quantity rebates, loyalty rebates, and exclusivity rebates?

Quantity rebates are discounts that increase with purchase volume. Loyalty rebates are discounts that increase when customers purchase a larger share of demand from the supplier. Exclusivity rebates are discounts that depend on purchasing all requirements from the supplier.

What objective justifications can exist for rebates?

Rebates may have a supply-side justification because they encourage sales and increase retention. They may also have a demand-side justification because they lower prices and share efficiency gains with customers, especially in the case of quantity rebates.

What is the theory of harm for rebates?

The main concern is foreclosure. Retroactive rebates can create a suction effect where buying additional units increases discounts on all previous purchases. As a result, customers become locked in, and competitors would have to offer a larger discount on smaller amounts to incentivise switching. Exclusivity rebates are generally considered the most problematic.

What is refusal to deal?

Refusal to deal occurs when a dominant firm refuses access to products or services, customers or distributors, licensing of IP rights, access to an essential facility, or reasonable trading conditions. The latter is called constructive refusal to supply.

What objective justifications can exist for refusal to deal?

Objective justifications include the principle of freedom to deal in a broader competitive setting, and the ability to reap benefits of own investment or protect ex ante incentives to innovate.

When is refusal to deal likely to be abusive?

Refusal to deal is likely to be abusive if the refusal relates to a product or service that is necessary to compete effectively in the downstream market, meaning the concept of essential facility; if the refusal is likely to lead to the elimination of effective competition in the downstream market; and if the refusal is likely to lead to consumer harm.

What is an essential facility?

An essential facility is an asset necessary to compete, without reasonable alternatives, and impossible or extremely difficult to replicate. A refusal becomes particularly problematic when access concerns an essential facility.

What is margin squeeze?

Margin squeeze occurs when a vertically integrated dominant firm in the upstream market raises upstream access charges, lowers downstream retail prices, or both. The condition is that retail price minus wholesale charge is less than or equal to retail costs, including a competitive return.

What is the key question in margin squeeze analysis?

The key question is whether an equally efficient downstream rival could survive given the wholesale charge imposed by the dominant firm’s upstream division.

What objective justifications can exist for margin squeeze?

Objective justifications include raising wholesale costs to recoup investment on new products or technologies, and lowering prices to share economies of scale or scope with downstream customers.

What is the theory of harm for margin squeeze?

The dominant firm leverages upstream market power into the downstream market. Unlike predation, short-term losses are not necessary, and exclusion can occur while remaining profitable. This makes margin squeeze a particularly effective exclusionary strategy.

What is bundling?

Bundling means products are sold together at a discount. Pure bundling occurs when it is only possible to buy A and B together, such as a pay TV package. Mixed bundling occurs when A and B can also be bought separately, such as internet and mobile.

What is tying?

Tying means the purchase of one product is conditional on purchasing another. Technical tying occurs when product A does not work well with alternatives to B, such as printers and ink systems. Contractual tying occurs when customers are not allowed to use A with alternatives to B, such as cars and servicing.

What objective justifications can exist for bundling and tying?

Bundling and tying may generate supply-side efficiencies, including economies of scale, economies of scope, and quality control. They may also generate demand-side efficiencies, including lower prices, lower search costs, and elimination of double marginalisation.

What is the theory of harm for bundling and tying?

A dominant firm may leverage power into neighbouring tied markets, protect dominance in the tying market by preventing entry and deterring innovation through the tied market, and strengthen platform ecosystems that have an exclusionary effect.

What is self-preferencing?

Self-preferencing occurs when a platform favours its own products or services over those of third parties that operate on the platform. The issue has become particularly important in digital markets.

Is self-preferencing automatically unlawful under Article 102 TFEU?

Self-preferencing is not automatically unlawful and is not prohibited by Article 102 TFEU as such. The legal analysis is effects-based. Authorities assess effects on competition and consumers, and overlap with other abuses such as refusal to deal, tying, bundling, and discrimination.

What are examples of forms of self-preferencing?

Examples of self-preferencing include preferential ranking in search results, privileged access to data, preferential access to platform features, favouring customers using first-party services, tying and bundling, and discriminatory fees.

What is excessive pricing?

Excessive pricing occurs when a dominant undertaking sets trading conditions, especially price, that can be considered supra-competitive. This usually means prices are excessively high and unfair. Unlike exclusionary abuses, exploitative abuses directly target consumers.

Why is intervention against excessive pricing controversial?

Intervention is controversial because of the tension between allocative efficiency and dynamic efficiency. From an allocative efficiency perspective, high prices reduce output and consumer welfare. From a dynamic efficiency perspective, high prices may attract entry, stimulate innovation, and encourage investment.

What are the economic and legal definitions of excessive pricing?

The economic definition is that prices are significantly and persistently above the levels that would prevail under normal, effective competition. The legal definition is that prices have no reasonable relationship to the economic value of the good or service.

What is the United Brands test for excessive pricing?

The United Brands test asks two questions. 1. Is the price high relative to costs? 2. Is the price high relative to benchmarks? Possible benchmarks include historical prices, comparable products, and prices in other countries. This framework originates from the landmark United Brands case.

What is price discrimination?

Price discrimination occurs when the same product is sold at different prices without corresponding cost differences. Three forms exist: first-degree, second-degree, and third-degree price discrimination.

What are the three forms of price discrimination?

First-degree price discrimination means each customer pays according to willingness to pay. Second-degree price discrimination means menu pricing, such as different mobile plans. Third-degree price discrimination means different prices for different customer groups.

What objective justifications can exist for price discrimination?

Price discrimination often increases welfare because it expands access by serving more customers at their willingness to pay, helps recover fixed costs, and may weaken cartel stability. Therefore price discrimination is not automatically harmful.

What is the theory of harm for price discrimination?

Problems arise when price discrimination creates targeted predation, targeted exploitation, distortion of competition, or fragmentation of the EU Single Market.

What are the four harmful forms of price discrimination?

Targeted predation occurs when very low prices aimed at specific rivals or customers can have exclusionary effects. Targeted exploitation occurs when certain customers are charged unfairly high prices to exploit that group. Distortion of competition occurs when different customers face unequal prices, distorting competitive conditions. Fragmentation of the EU Single Market occurs when geographic discrimination undermines market integration and parallel trade.