When Does Business Power Transform from a Right to Success into a Tool for Market Oppression?
This question reflects the fundamental dilemma of competition law: how can it permit economic development and the enhancement of efficiency, whilst simultaneously preventing the abusive exploitation of a dominant position. Article 102 TFEU sets the limits of this balance, seeking to safeguard fair competition in the internal market.
In today’s highly competitive business environment, the prohibition of abusive exploitation of a dominant position by undertakings is deemed to be of particular importance. This prohibition is regulated by Article 102 TFEU, which prohibits and deems as incompatible with the internal market any abusive exploitation of a dominant position by one or more undertakings, insofar as it may affect trade between Member States, whether it concerns the whole of the internal market or a substantial part thereof.
Requirements for the Application of Article 102 TFEU
For the application of Article 102, the following conditions must be met: the existence of a dominant position in the whole or a substantial part of the internal market, as well as its abusive exploitation by one or more undertakings. The abusive conduct must have actual or, at least, potential effects on competition or on inter-state trade within the Union.
The Concept of Dominant Position
Of decisive importance is the concept of “dominant position” as developed through the cases United Brands (Case 27/76) and Hoffmann-La Roche (Case 85/76). The CJEU defined that a dominant position concerns a position of economic strength enjoyed by an undertaking, which enables it to prevent effective competition being maintained in the internal market, by affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately, its consumers.
As is evident from the very text of Article 102 TFEU, the holding of a dominant position is not prohibited per se, but the Article imposes clear restrictions on its abusive exploitation. The prohibition of abusive conduct has as its primary concern the protection of consumers. The CJEU has held that in order to establish abusive conduct, it is not necessary to prove direct harm to consumers, provided that it is established that the undertaking’s conduct has restrictive effects on competition.
Categories of Abuse
The concept of abuse is divided into two broad categories: “exploitative abuse” and “exclusionary abuse”.
Exploitative Abuse
Exploitative abuse refers to practices through which an undertaking holding a dominant position in the market abuses its power to impose unfavourable terms on its customers or to obtain excessive economic benefits at their expense.
Examples
- Excessive pricing: In the United Brands case (Case 27/76), the Court examined whether the prices for bananas were excessive, determining that there must be a reasonable relationship between price and economic value.
- Unfair terms: In the British Airways case (Case C-95/04 P), the loyalty rebate scheme was deemed exploitative.
- Discriminatory treatment: In the Portuguese Airports case (Case C-163/99), different charges between airlines without objective justification constituted abuse.
Exclusionary Abuse
On the other hand, exclusionary abuse includes actions aimed at hindering or directly impeding competition, by restricting competitors’ access to the market, making their effective participation in competition difficult or even impossible.
Examples
- Predatory pricing: In the AKZO case (Case C-62/86), the Court held that prices below average variable cost are presumed to be predatory.
- Refusal to supply: The cases SpA and Commercial Solvents (Cases 6 & 7/73) and Bronner (Case C-7/97) established the criteria under which a refusal to provide a product or service may constitute abuse of a dominant position, particularly when the product is necessary for the activity of third parties and the refusal leads to the elimination of competition. In the modern era, Google Shopping (AT.39740, fine €2.42 billion) applied the same principles to digital markets.
- Margin squeeze: In the Deutsche Telekom case (Case C-280/08 P), wholesale prices that left insufficient margin for retail competition constituted abuse.
- Loyalty rebates: In the Intel case (Case C-413/14 P), rebates linked to exclusivity were deemed abusive, even when they were “above cost”.
- Tying: In the Microsoft case (Case T-201/04), the tying of Windows Media Player with Windows constituted abuse. Similarly, in the Google Android case (AT.40099, fine €4.34 billion), the imposition of pre-installation of applications was deemed abusive.
The Special Responsibility of Dominant Undertakings
Apart from the definition of the concept of abusive exploitation, it is important to note that, whilst the holding of a dominant position does not constitute per se a violation of competition law, it is deemed potentially dangerous for the maintenance of competition in the market. Consequently, undertakings holding a dominant position are subject to a special regime of responsibility, which aims to ensure genuine and undistorted competition in the internal market.
According to the case law of the CJEU, and particularly the Michelin case (Case 322/81), dominant undertakings bear a “special responsibility” not to undermine fair competition. By extension, this special responsibility entails that undertakings must avoid practices which, although they may be legitimate for undertakings of lesser strength, become illegitimate when applied by undertakings with significant power and influence in the relevant market.
However, the holding of a dominant position does not deprive the undertaking of the right to protect its commercial interests when they are threatened. In this context, a dominant undertaking may take measures which it considers necessary for the protection of its interests, regardless of whether these measures may affect competition or trade between Member States. Nevertheless, the Court has made clear that such actions must not aim at strengthening the dominant position or at its abusive exploitation.
Even if the abuse does not arise from intention or fault, this does not remove its prohibitive character. The critical point is whether the conduct in question has the effect of distorting competition or excluding other undertakings from the market.
Conclusion
Article 102 TFEU ensures that business power is exercised within the limits of fair competition, preventing the abusive exploitation of a dominant position. The holding of a dominant position does not in itself constitute a violation, but it imposes increased responsibility on undertakings to maintain fair competition and to avoid exploitative or exclusionary practices.
The application of Article 102 remains critical, particularly in an era where economic power is increasingly concentrated, especially in the digital sector, making it imperative to safeguard a fair, competitive and functional environment in the internal market, for the benefit of both undertakings and consumers.
Author:
Dimitris Zavou
Trainee Lawyer