Dominance & Abuse of

dominance
Manas Kumar Chaudhuri, Advocate,
Head Competition Law Practice
J Sagar Associates
New Delhi
India
8 – 10 August, 2007,
Mauritius
 Dominant position

• Dominant position means a position of

strength, enjoyed by an undertaking, in
the relevant market which enables it to –
1. operate independently of competitive
forces prevailing in the relevant market or
2. affect its competitors or consumers or the
relevant market in its favour
 Dominant position (contd.)

• Has the ability to behave independently of its

competitors, customers, suppliers and
ultimately the final consumers
• Holding such market power would have the
ability to set prices above the competitive level
• Can sell products or provide services at
inferior quality
• Can also reduce rate of innovation that would
otherwise exist in a competitive market
 Dominant position (contd.)
• Accounts for a significant share of a given market
• Has significantly large market share than its next
largest rival
• Many legislations do not provide for any arithmetical
figure to identify market shares but some consider a
market share of 40% or more is dominance
• Raises competition concerns when they have the
power to set prices of their own
 Factors to determine ‘dominance’

• Market share of the enterprise

• Size and resource of the enterprise
• Size and importance of competitors
• Economic power of the enterprise
• Commercial advantages over competitors
• Vertical integration of the enterprises
• Sale or service network of vertically integrated
enterprises
• Dependence on consumers on the enterprise
 Factors (contd.)
• Monopoly or dominant position whether
acquired as a result of any statute or by virtue
of being a Government company or a public
sector undertaking or otherwise
• Entry barriers including regulatory barriers
• Financial risk
• High capital cost of entry
• Marketing entry barriers
• Technical entry barriers
 Factors (contd.)

• High cost of substitutable goods or service for

consumers
• Market structure and size of market
• Social obligation and social cost
• Countervailing buying power
 Predatory Pricing
• Means the sale of goods or provision of services, at a
price which is below the cost of production of the
goods or provision of services, with a view to reduce
competition or eliminate the competitors
• A deliberate strategy usually by a dominant firm
• Once the competitors have been driven out the
predator can raise prices and earn higher profits
• Generally continues till the competitors are eliminated
• If it continues for a long period of time, it would
benefit consumers and may not be noticed by a
Competition Authority or even if noticed may not be a
competition issue
 Predatory Pricing (contd.)

• Some authorities frown upon predatory pricing

whether or not it helps predator to recoup
losses later
• Reduction of competition or elimination of
competitors – sufficient
• Some other authorities initiate action only
when the predator starts recouping past losses
 Dominance is not bad

• Dominance per se is not bad in most

Competition and Anti-trust laws
• Its abuse is prohibited
• The abuse of dominance must be felt in a
relevant market
 Filters before adjudication

• Determination of dominance
• Determination of relevant market
• Determination of relevant product and
geographic market
• Prima facie: abuse of dominance is seen in a
relevant market
 Abuse of dominance

• When a dominant undertaking directly or indirectly

imposes unfair or discriminatory
a) condition in purchase or sale of goods or service;
b) price in purchase or sale (including predatory price)
of goods or service
• Limits or restricts
a) production of goods or provision of services or
market therefor;
b) technical or scientific development relating to goods
or services to the prejudice of consumers
 Factors of abuse (contd.)

• The dominant undertaking indulges in practice or

practices resulting in denial of market access
• It makes conclusion of contracts subject to acceptance
by other parties of supplementary obligations which,
by their nature or according to commercial usage
have no connection with the subject of such contracts
• It uses its dominant position in one relevant market to
enter into, or protect, other relevant market
 Relevant Market

• Means the market which may be determined

by the Competition Authorities with reference
to the relevant product market or the relevant
geographic market or both
• Therefore product and geographic area are the
two main ingredients for determining ‘relevant
market’ in a competition analysis
 Relevant Product Market
• Means a market comprising all those
products or services which are regarded as
interchangeable or substitutable by the
consumer, by reason of characteristics of the
products or services, their prices and intended
use
• Coca Cola may be a substitute of Pepsi Cola
but a Fruit Pulp Juice may not be, though
quenches thrust
 Relevant Geographic Market
• Means a market comprising the area in which
the conditions of competition for supply of
goods or provision of services or demand of
goods or services are distinctly homogenous
and can be distinguished from the conditions
prevailing in the neighbouring areas
 European Court of Justice
Judgment explained the meaning of dominance under
the Treaty of Rome as under:
“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”
[Hoffman-LaRoche (1979) and United Brands (1978)]
Source: Competition Law & Policy in the EU 2005 page 26
 Remedies

• The new enforcement regulation of EC has

authorized the EC to order structural relief,
which could include divestiture
• The EC may only use structural measures to
correct abuse of dominance where there is no
equally effective behavioural remedy
• The EC can order interim relief, which is
particularly significant in cases about access
 Remedies (contd.)

• Behavioural orders and financial sanctions

remain the principal tools
• Substantial recent fines include:
- EUR 13 million for exclusionary pricing
in telecoms
- EUR 24 million for loyalty rebates
- EUR 497 million against Microsoft
 Remedies (contd.)

• Indian Competition Law provides the

following remedies:
- cease and desist order
- 10% of the average turnover for the last
three preceding financial years
- award compensation
- division of enterprise enjoying dominant
position
 Some cases
GlaxoSmithKline – Predatory Pricing

France’s competition agency, Conseil de la Concurrence, has fined

GlaxoSmithKline PLC €10 million in the country’s first ever prosecution
for predatory pricing. Europe’s largest drug maker was found to have
sold its injectable antibiotic Zinnat at prices below cost in a scheme
designed to force a competing generic drug producer, Flavelab, to exit the
market. Succeeding in eliminating Flavelab from the market,
GlaxoSmithKline then raised the price for Zinnat to levels that allowed it
recoup its losses and reap anticompetitive profits. According to the
agency, GlaxoSmithKline’s aggressive pricing also succeeded in deterring
two potential competitors, Panpharma and Ggam, whose generics would
have directly competed with Zinnat

[Source :Squire Sanders Anti-trust & Trade Regulation Update April 2007]
 Some cases (contd.)
British Airways case
On March 15, 2007, the European Court of Justice ruled to
uphold the EC’s 1999 finding against British Airways that BA
had abused its dominant position in the market for travel
agency services. Following a complaint by rival Virgin
Atlantic Airways, the Commission determined that BA’s
performance reward scheme had the effect of inducing travel
agents in the UK to maintain or increase their sales in BA
tickets over that of competing airlines. The ECJ found that
this amounted to an abuse of dominance. The Commission
had initially fined BA € 6.8 million. In December 2003, the
Court of First Instance dismissed BA’s action against that
decision, and BA had appealed to the ECJ.
[Source : Ibid]
 Case
Mittal Steel South Africa
Competition Tribunal of South Africa recently found that Mittal Steel South Africa
had contravened the Competition Act (89/1998) by charging excessive prices under
Section 8(a) of the Act for its flat steel products to the detriment of consumers. The
Tribunal found that Mittal had set its base prices for flat steel products in the
domestic market with reference to the demand and supply conditions prevailing in
arbitrarily selected foreign markets, and had added to that price the notional cost of
importing the product to South Africa from these arbitrarily selected foreign markets.
In addition, the Tribunal found that, in order to maintain its target price in the
domestic market (import parity price), Mittal had:
i) withheld supply to the local market by disposing of its surplus output in
the international market and also in some domestic niche markets where competitive
conditions obliged Mittal to accept prices below its target price; and
ii) segmented the market by contractually preventing customers who receive
lower prices from redirecting this discounted product into the higher-priced domestic
market
Tribunal concluded: “Mittal employs its super-dominance to achieve its target price
by ensuring that the excess supply that exists at that price is removed from the
domestic market and that it does not re-enter the domestic market again”

[Source: International Law Office Newsletter – 28 June 2007]

 Challenges before developing
countries

• Competition Law is a mix of complex

economic principles implemented initially in
accordance with quasi-judicial principles and
ends in appeal by pure judicial methods
• Competition assessment is a specialized
branch of economics – more precisely
econometrics, industrial organization and
game theory
 Challenges (contd.)
• Very few developing countries teach these complex principles
of economics in their universities – crunch of resource
personnel
• In pure judicial structure, unless admissible evidences are
adduced – the law courts tend to disregard economic
principles as evidences
• Lack of irrebuttable industrial data to substantiate economic
evidences
• Non-availability of domestic past precedence
• Competition Laws are national laws of sovereign countries –
hence application of overseas laws and jurisprudence, except
for persuasive values, has no binding force
 Challenges (contd.)
• Competition authorities have been established across the globe
at an alarming speed – but the basic capacity to implement this
law is developed later
• Many international agencies are trying to bridge this gap but
limitations exist
• Economies of countries vary so do political systems
• Competition Authorities remain sub-ordinate to political
system in most developing countries thereby not able to
address issues of anti-competitive behaviour of government
owned enterprises or state-aid given to such enterprises
• Social welfare versus economic welfare – whom to give
priority
• Life-saving patented drugs versus affordability of an ailing
buyer - [Registered IPRs mostly exempted]
 Way ahead
• International co-operation for capacity building
• Development of national competition policy in
developing countries – commensurate with their
national needs
• Introduction of appropriate academic course curricula
at school, college and university levels
• Specialized course curricula for business schools, law
schools, economic institutes, accountants’ institutes
• Customized capacity building for stakeholders
• Dominant knowledge-holder of this subject should
not abuse its position – transparency in co-operation
Thank you
manas@jsalaw.com