Commission clears up its enforcement priorities regarding abusive exclusionary conduct by dominant undertakings

The Commission has published in the OJEU on February 24th 2009, its Communication 2009/C 45/02, setting out the enforcement priorities that will guide the Commission's action in applying Article 82 to exclusionary conduct by dominant undertakings. Commission's guidelines include the general approach applied to assess exclusionary conducts as well as some specific forms of abuse which could lead to market distortions.

Article 82 of the Treaty establishing the European Community prohibits abuses of a dominant position. In accordance with the case-law, it is not in itself illegal for an undertaking to be in a dominant position and such a dominant undertaking is entitled to compete on the merits.

However, the undertaking concerned has a special responsibility not to allow its conduct to impair genuine undistorted competition on the common market. Article 82 is the legal basis for a crucial component of competition policy and its effective enforcement helps markets to work better for the benefit of businesses and consumers. This is particularly important in the context of the wider objective of achieving an integrated internal market.

Commission's Communication is also intended to provide greater clarity and predictability as regards the general framework of analysis which the Commission employs in determining whether it should pursue cases concerning various forms of exclusionary conduct and to help undertakings better assess whether certain behaviour is likely to result in intervention by the Commission under Article 82.

General Approach of Exclusionary Conduct

Market power

Dominance has been defined under Community law as a position of economic strength enjoyed by an undertaking, which enables it to prevent effective competition being maintained on a relevant market, by affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of consumers.

The assessment of whether an undertaking is in a dominant position and of the degree of market power it holds is a first step in the application of Article 82. According to the case-law, such as the sound case of the penalty imposed to Microsoft on February 2008 based on the abuse of its dominant position, holding a dominant position confers a special responsibility on the undertaking concerned, the scope of which must be considered in the light of the specific circumstances of each case.

The assessment of dominance will take into account the competitive structure of the market, and in particular the following factors:

  • Constraints imposed by the existing supplies from, and the position on the market of, actual competitors (the market position of the dominant undertaking and itscompetitors).
  • Constraints imposed by the credible threat of future expansion by actual competitors or entry by potential competitors (expansion and entry).
  • Constraints imposed by the bargaining strength of the undertaking's customers (countervailing buyer power).

Foreclosure leading to consumer harm (‘anti-competitive foreclosure’)

Anti-competitive foreclosure’ is used to describe a situation where effective access of actual or potential competitors to supplies or markets is hampered or eliminated as a result of the conduct of the dominant undertaking whereby the dominant undertaking is likely to be in a position to profitably increase prices to the detriment of consumers.

The identification of likely consumer harm can rely on qualitative and, where possible and appropriate, quantitative evidence. The Commission will address such anti-competitive foreclosure either at the intermediate level or at the level of final consumers, or at both levels.

The Commission considers the following factors to be generally relevant to such an assessment:

  • The position of the dominant undertaking.
  • The conditions on the relevant market.
  • The position of the dominant undertaking's competitors.
  • The position of the customers or input suppliers.
  • The extent of the allegedly abusive conduct.
  • Possible evidence of actual foreclosure.
  • Direct evidence of any exclusionary strategy.

There may be circumstances where it is not necessary for the Commission to carry out a detailed assessment before concluding that the conduct in question is likely to result in consumer harm. If it appears that the conduct can only raise obstacles to competition and that it creates no efficiencies, its anti-competitive effect may be inferred.

Price-based exclusionary conduct

Vigorous price competition is generally beneficial to consumers. With a view to preventing anti-competitive foreclosure, the Commission will normally only intervene where the conduct concerned has already been or is capable of hampering competition from competitors which are considered to be as efficient as the dominant undertaking.

In order to determine whether even a hypothetical competitor as efficient as the dominant undertaking would be likely to be foreclosed by the conduct in question, the Commission will examine economic data relating to cost and sales prices, and in particular whether the dominant undertaking is engaging in below-cost pricing. This will require that sufficiently reliable data be available.

The cost benchmarks that the Commission is likely to use are average avoidable cost (AAC) and long-run average incremental cost (LRAIC).

Objective necessity and efficiencies

In the enforcement of Article 82, the Commission will also examine claims put forward by a dominant undertaking that its conduct is justified. A dominant undertaking may do so either by demonstrating that its conduct is objectively necessary or by demonstrating that its conduct produces substantial efficiencies which outweigh any anticompetitive effects on consumers. In this context, the Commission will assess whether the conduct in question is indispensable and proportionate to the goal allegedly pursued by the dominant undertaking.

Specific Forms of Abuse

The Commission also addresses in its Communication some Specific Forms of Abuse which could represent exclusionary conducts by dominant undertakings. Such forms of abuse include:

  • Exclusive dealing: inclusing exclusive purchasing, consitional rebates, efficiencies
  • Tying and bundling: Tying and bundling are common practices intended to provide customers with better products or offerings in more cost effective ways. However, an undertaking which is dominant in one product market (or more) of a tie or bundle (referred to as the tying market) can harm consumers through tying or bundling by foreclosing the market for the other products that are part of the tie or bundle (referred to as the tied market) and, indirectly, the tying market. This assessment will include either distinct products, anti-competitive foreclosure in the tied and/or tying market, multi-product rebates and efficiencies.
  • Predation: Commission will generally intervene when there is evidence showing that a dominant undertaking engages in predatory conduct, assessing criteria such as sacrifice, anti-competitive foreclosure and efficiencies.
  • Refusal to supply and margin squeeze