Summary
Summary Abuses problem question maps
- Module
- Competition Law (LL300)
- Institution
- London School Of Economics (LSE)
Problem question maps for abuses topic
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Abuses problem question map:Key legislation:
Article 102 TFEU:
‘Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the
internal market in so far as it may affect trade between Member States.
Such abuse may, in particular, consist in:
(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
(b) limiting production, markets or technical development to the prejudice of consumers;
(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage,
have no connection with the subject of such contracts’.
UK law is phrased in virtually the same terms
Question 1 – is there one entity engaged in an economic activity?
Question 1 – is there one entity engaged in an economic activity?
Remember that provisions on abuses only apply where there is at least one independent entity engaged in an economic activity à
• Hofner & Elser
o Concept of undertaking encompasses every entity engaged in an economic activity, regardless of the legal status and the entity of the way in which it is
financed (para.21)
• Pavlov
o It has also been consistently held that any activity consisting in offering goods or services on a given market is an economic activity.
o No need to prove profit motive or economic purpose
• AKZO
o Parent company and subsidiary
o Not two entities if parent company exercises considerable control over subsidiary
• Wouters
o Partnerships between members of the Bar and other professionals is to be regarded as a decision taken by an association of undertakings within the meaning
of Art 101 (1)
Key issues to bear in mind:
An employee is not an ‘undertaking’ (she would not be an independent entity engaged in an economic activity):
,•
A genuine agent is not an undertaking (a genuine agent is one that does not bear the commercial risks involved in the activity):
•
The hard-core of State activities are not economic in nature (including activities driven by solidarity concerns, such as public healthcare and public pensions).
• Activities that form the core of the public powers of a State are not subject to competition rules
Question 2 – Does the undertaking enjoy a dominant (monopoly) position?
Question 2 – Does the undertaking enjoy a dominant (monopoly) position?
The applicability of the provisions dealing with abuses depends on whether the undertaking enjoys (alone or jointly with other undertakings) a dominant position (within
the meaning of EU and UK law) or a monopoly position within the meaning of Section 2 of the Sherman Act.
The notion of dominance:
The notion of dominance/monopoly is associated with the economic notion of substantial market power and was defined by the Court of Justice as follows:
• ‘a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by
affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of the consumers’ (Hoffmann-La Roche
(Case 85/76, Hoffmann-La Roche & Co. AG v Commission [1979] ECR 461)
The OECD on substantial market power:
• “Substantial market power” can be said to exist when competitive constraints imposed by other firms are relatively ineffective on the dominant firm. In this
situation, the dominant firm’s decision about its own output and price can influence market outcomes”
Note: In the EU, the position must be enjoyed at least in a ‘substantial part’ of the internal market à
• Article 102 TFEU requires that the abuse takes place in a ‘substantial part’ of the internal market. In practice, however, it appears that the condition is easily met
• A port has been found to constitute a ‘substantial’ part of the internal market on account of the trade that takes place within it
• A single EU Member State (or a region within the Member State) is considered to be a ‘substantial part’ of the internal market
Examples of firms that have been found to be dominant:
• Microsoft (+90% market share on the market for operating systems for PCs)
• Intel (+80% market share on the market(s) for x86 CPUs)
• Tetra Pak (+90% market share on the market for aseptic packing machines)
To assess dominance (monopoly) demands, need to define the relevant product and geographic market:
• “For the purposes of Article 102, the appropriate definition of the relevant market is necessary precondition for any judgment concerning allegedly anti-competitive
behaviour… since, before an abuse of dominant position is ascertained, it is necessary to establish the existence of a dominant position in a given market, which
presupposes that such a market has already been defined”. (Adriaticadi NavigazioneSpA v Commission, para 27)
• “The main purpose of market definition is to identify in a systematic way the competitive constraints that the undertakings involved face. The objective of defining a
market in both its product and geographic dimension is to identify those actual competitors of the undertakings involved that are capable of constraining those
undertakings' behaviour and of preventing them from behaving independently of effective competitive pressure.” (Commission Notice, para.2)
SNIPP Test:
• Seeks to identify smallest relevant market within which a hypothetical monopolist (or cartel) could impose a profitable significant increase in price.
, • Can a hypothetical monopolist profitably impose a small but significant and non-transitory increase in price in the product market as defined?
o Yes à market def = correct
o No à market def = too narrow & should be expanded
• Consider a hypothetical monopoly supplier of (say) branded cola:
o “The question to be answered is whether the [HM’s] customers would switch to readily available substitutes or to suppliers located elsewhere in
response to a hypothetical small (in the range 5% to 10%) but permanent relative price increase in the products and areas being considered. If
substitution were enough to make the price increase unprofitable because of the resulting loss of sales, additional substitutes and areas are included in
the relevant market.”(Commission Notice, para.17)
In its Market Definition Notice, the Commission identifies three main competitive constraints to which firms are subject:
• Demand substitutability:
o Snipp test - asks whether a small (5–10 per cent) but non-transitory increase in price of one product will cause purchasers to purchase sufficient of
another product instead to make the price increase unsustainable
o United Brands - the Commission contended that bananas were a separate market, both because of their unique physical, functional, and economic
characteristics, and because economic studies demonstrated only low cross-elasticity between bananas and other fruit.
o Michelin I - Commission found that Michelin had abused a dominant position on the market for new replacement tyres for lorries, buses, and similar
vehicles
o Primary and secondary markets (Aftermarkets) –
§ An ‘aftermarket’ is a particular instance of complementary products. Aftermarkets comprise products or services which follow on from adjacent
markets, such as spare parts, consumables, or maintenance services. Competition issues can arise when the supplier of the original (primary)
product or equipment also supplies the secondary product or service in the aftermarket.
§ Hugin - the undertaking was not dominant on the primary market. The Commission defined the aftermarket narrowly, finding that the spare
parts constituted a separate market from the original equipment supplied. The justification was that original equipment and its spare parts or
consumables were not substitutes. The result is that, where only the supplier’s brand in the aftermarket is compatible with the primary product,
an undertaking with a small share of the original equipment market may nonetheless be dominant in the aftermarket and find its behaviour
constrained by Article 102, as happened in Hugin.
§ Pelikan/Kyocera - Commission held that Kyocera was not dominant in the aftermarket for its own brand of printer cartridges, because customers
made purchasing decisions based on whole-life costs and commonly used the ‘total cost per page’ when choosing a printer. Said that intense
competition on the primary market so restrained Kyocera’s behaviour on the aftermarket that it could not be dominant on the latter.
• Supply substitutability
• And potential competition.
Once the relevant product and geographic market defined, it is necessary to allocate market share:
Market shares are a Other factors that can strengthen a finding of dominance Dominant position may be found below the
valuable proxy for Barriers to entry (such as a patent): 50% threshold in some circumstances in light
dominance of the above mentioned factors and other
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