The Modernisation of Article 82 The concept of dominance

1. The Modernisation of Article 82The concept of dominance Frédéric P. Louis Second annual conference of the GCLC 16 June 2005

2. The concept of dominance • The legal concept « 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, customers and ultimately of its consumers » • The economic concept • Substantial market power • Power on prices and ability to restrict output (cfr. Hoffmann-La Roche)

3. The concept of dominance • Market definition • Step required by the case law (Continental Can, Coca Cola) • Economists tell us that this is not always required … but • Do we ever have the data? • Useful as a reminder of the need to appraise all relevant market circumstances • Market definition, potential competition and supply-side considerations • Overly narrow definitions (‘brass instruments for British-style brass bands’, ‘premium branded jeans in Belgium’)

4. The concept of dominance • How do we define the market? • Is the SSNIP test ever used in an Art. 82 context? In Commission questionnaires (« would you switch? ») but not in decisions • Can it? How do we deal with the Cellophane Fallacy? • What other means are available beyond the traditional approach (product characteristics and intended uses)?

5. The concept of dominance • Factors of dominance: the role of market shares “[…] although the importance of the market shares may vary from one market to another the view may legitimately be taken that very large shares are in themselves, and save in exceptional circumstances, evidence of the existence of a dominant position.  An undertaking which has a very large market share and holds it for some time, by means of the volume of production and the scale of the supply which it stands for – without those having much smaller market shares being able to meet rapidly the demand from those who would like to break away from the undertaking which has the largest market share – is by virtue of that share in a position of strength which makes it an unavoidable trading partner and which, already because of this secures for it, at the very least during relatively long periods, that freedom of action which is the special feature of a dominant position”(Hoffmann-La Roche)

6. The concept of dominance • Market shares as evidence of dominance • Hoffmann-La Roche assumes that there are barriers to entry/expansion in all but exceptional cases • Akzo: 50% is a « very large » market share • Shift of the burden of proof • a very large market share cannot relieve the regulator from a comprehensive economic analysis • What about national courts? • Negative presumption when <40% (OFT guidelines) • The Commission always starts its analysis by recalling Akzo (Microsoft at para. 435)

7. The concept of dominance • Other « factors » of dominance • This is not a checklist! • Proper analytical framework: check for the presence of barriers to entry/expansion which prevent (potential) competitor from placing a significant constraint on the allegedly dominant player • If there are no barriers to entry, 100% market share does not give you any market power • When reviewing « traditional » factors, always enquire whether they are unique to the alleged dominant firm and whether they play a significant role on the market concerned

8. The concept of dominance • Traditional factors • Legal barriers to entry • Sunk costs/barriers to expansion (United Brands) • there may be high barriers to entry, but low barriers to expansion (branding, lumpy investments) • Economies of scale/scope/network effects (United Brands, BPB, Microsoft) • can small players constrain the dominant firm? • Superior technology (United Brands, Hilti, Michelin) • Is the market innovation-driven? • Can the technology be replicated?

9. The concept of dominance • Traditional factors (cont.) • Control of assets/vertical integration/branding (United Brands, Michelin) • Is it essential? Can it be replicated? • Portfolio power/product range (Akzo, Michelin, Tetra Pak) • Relevant? Unique? Replicable? • Barrier to entry (cost savings, raising competitors costs through accross the board rebates)? • Overall strength/deep pockets (Michelin, BPB) • Hoffmann-La Roche: overall size does not matter • Multinational firms are often less « free » than familiy businesses • capital markets deficiencies

10. The concept of dominance • Traditional factors (cont.) • Behavioural factors (United Brands, Michelin) • Circularity : show me an abuse … • only for behaviour which is not feasible and profitable without market power • Earlier findings of dominance • Indicative only (Coca Cola)

11. The concept of dominance • Buyer power • Countervailing buyer power must be assessed (Italian Flat Glass) • Nuisance power • Does not have to mean that buyer is dominant

12. The concept of dominance • Superdominance and « unavoidable trading partner » • Unavoidable trading partner (BA, Michelin) • Synonimous to market power (Hoffmann-La Roche) • What makes a customer dependent on the supplier? • Superdominance (AG Fennely in CMB, Microsoft) • Threshold? Quasi-monopoly? • Relevant for abuse - truism: certain behaviour will have more of an impact if it comes from 90% player rather than 50%

13. The concept of dominance • Conclusions • « Special responsibility » so dominance analysis is important • Beware of shortcuts!