Dominance

1
Dominance the lost child?Do effects-based
rules mean the end of dominance analysis?

• BICCL
• Reform of Article 82
• 24 February 2006
• Thomas Eilmansberger, University of Salzburg

2
Dominance according to the Courts

• United Brands "the dominant position ... relates
  to a position of economic strength enjoyed by an
  undertaking which enables it to prevent effective
  competition being maintained on the relevant
  market by giving it the power to behave to an
  appreciable extent independently of its
  competitors, its customers and ultimately of its
  consumers
• Definition already refers to two basic types of
  abuse (and thereby suggests nexus between abuse
  and dominance)
• Causal connection between potential to exclude
  and capability to exploit
• Thus also in exclusion cases dominance is
  regularly assessed with regard to potential to
  behave independently (e.g. raise prices)
• However, capabilities to exclude and to exploit
  are not two sides of the same coin power to
  raise prices does not necessarily afford power to
  exclude or hinder competitors
• Dominance analysis in exclusion cases needs to be
  more attuned to investigated abuse
• often (though not generally) higher degree of
  dominance is required

3
Overview

• Dominance analysis in connection with
  effects-based abuses
• Why do we need a more effects-based analysis
  under Art 82 and what kind of effects are
  relevant?
• Purpose of abuse control under Art 82 and nexus
  between dominance and abuse
• Concrete implications of a more effects-based
  approach for dominance analysis
• Dominance analysis in other cases

4
Basic goal of control of anti-competitive abuses
under Art. 82 and the nexus between dominance and
abuse

• Central objective of control of anti-competitive
  abuses under Art. 82 is prevention of distortions
  of competition connected with market power
• Art 86 is an application of the general
  objective of the activities of the Community laid
  down by Art 3 f of the Treaty namely the
  institution of a system ensuring that competition
  in the Common Market is not distorted
  (Hoffman-La Roche, Continental Can)
• Aim of Art. 82 not only to force dominant firm to
  compete on the merits, but to safeguard
  competitors opportunities to succeed on the
  merits
• This objective suggest nexus between dominance
  and abuse
• See also wording prohibited is not abusive
  behavior by dominant firm, but abuse of dominant
  position
• Tetra Pak II (ECJ), Irish Sugar (CFI), notice
  access agreements (Commission)

5
Role of efficiencies and consumer harm

• Consumer welfare and efficiency considerations do
  not justify raising dominance threshold
• System of undistorted competition no end in
  itself but safeguarded for benefit of consumer
  (in real, not Chicago sense of the term)
• But Art. 82 protects the competitive process
  regardless of threat of immediate consumer harm
  (Continental Can)
• Prevention of consumer harm may be central
  rationale of but it is not a necessary condition
  of abuse control
• Therefore efficiency of practice as such should
  not determine its abusiveness under Art. 82
  either
• Abusiveness is not to be equated with
  inefficiency
• But Thorough determination of effects and
  economic analysis/evaluation of efficiencies is
  crucial for assessment under relevant abuse
  standards
• Only very few practices are per-se abusive

6
Categories of abuses linked to market power

• No nexus and thus no abuse normal unfair
  practices
• i.e. distorting competition regardless of
  dominant position of perpetrator
• e.g. misleading advertising, industrial espionage
• Astra Zeneca?
• Direct link between dominant position and
  practice (instrumental causality)
• practice (or commercially successful
  implementation) requires dominance
• Leveraging (tying, refusal to share necessary
  input)
• Link between objectionable effect (distortion of
  competition) caused by practice and dominant
  position
• Effect is alteration of structure of the market
  (and thus of dynamics of competition)
• Continental Can impact on effective competition
  structure
• Hoffmann-La Roche behavior which is such as
  to influence the structure of a market
• not increase of market share at expense of
  competitor

7
What are the relevant effects?

• Relevant effect is not the hindering of
  competitors but the manipulation (influence) of
  the market structure
• Supply-side friendly or unfriendly elimination,
  intimidation of competitors)
• e.g. acquisitions, collusion, predation
• mere meeting of competition will normally not
  produce such effects
• Demand-side foreclosure lasting change of
  pattern of demand
• e.g. exclusive purchasing obligations, rebate
  schemes
• But only if the firms practices themselves (and
  not in combination with competitors practices)
  bring about effect
• Potential or likelihood to bring about relevant
  effects sufficient?
• Yes, but development of market shares indicative
• important footnote Intent is also necessary and
  is regularly relied upon in case law and
  decisional practice

8
Implications of effects-based approach for
dominance analysis

• Dominance may become irrelevant for practical
  purposes
• Foreclosure can also be achieved by non dominant
  firms
• no need to establish dominance to condemn
  foreclosure by possibly dominant firm brought
  about by agreement
• Establishment of dominance remains necessary only
  with regard to unilateral (intra-enterprise)
  practices falling under Art 82
• is rebate scheme unilateral or bilateral
  practice?
• Dominance threshold degree of market power
  (market share) necessary to (single-handedly)
  achieve foreclosure effect
• In (certain) predation cases degree of dominance
  becomes relevant
• Superdominance may be required to produce certain
  effects
• e.g. elimination of competitors by selective
  price cuts
• In all cases preliminary assessment of dominance
  seems superfluous analysis should focus on
  anti-competitive effects (structural effects)
  first
• Even where dominance needs to established it does
  not need to be assessed separately as it usually
  (though not always) is a function of the
  anti-competitive effects

9
Link between dominance and abuse implications
for dominance analysis in general

• Link between abuse and dominance suggests that
  dominance analysis be generally (i.e. not only
  for effects related abuses) more focused on
  investigated abuse
• Dominance should be understood as potential to
  (single-handedly) distort competition
• Foreclosure and predation practices (see above)
  conventional dominance indicative but not
  necessarily sufficient
• above-cost (selective) prices usually
  superdominance required
• Tying conventional dominance sufficient as
  capability to exploit also confers capability to
  distort competition
• Refusal to deal finding of conventional
  dominance gratuitous
• Essential facilities dominance not sufficient
  complete absence of even imperfect substitutes
  required (otherwise no leveraging possible)
• Supply of resellers market shares and dominance
  on end-user market at best have some indicative
  value for abuse potential