Dominance and Abuse of Dominance National Training Workshop

Dominance and Abuse of Dominance National Training Workshop on Competition Policy and Law Gaborone, Botswana: 25 – 27 July 2007 Presenter: John Preston 1

What is ‘Dominance’? • A measure of market power • Allows an enterprise to make decisions on prices or levels of output without need to take account of likely response of competitors • Requires high market share plus barriers to entry (effect of ‘contestability’) • Modern competition law does not prohibit dominance, but its abuse • Sometimes desirable, sometimes unavoidable, abuse of dominance always harmful 2

How does Dominance Arise? (1) Desirable Means • • • Innovation Better standard of service Better quality High efficiency leading to low prices Consumers and economy will benefit 3

How does Dominance Arise? (2) Natural Barriers to Entry • Large economies of scale (e. g. network industries) • Limits on access by others to technology, raw materials or distribution channels • Large ‘sunk costs’ • Undeveloped infrastructure creating local dominance 4

How does Dominance arise? (3) Strategic Barriers to Entry • Actions by existing suppliers to discourage new entry • Creating excess capacity • ‘Bundling and tying’ • Long-term exclusive contracts • Indications of likely aggressive or predatory response 5

How does Dominance Arise? (4) Regulatory and Policy Barriers • Onerous, costly or time-consuming requirements • Frequently changing requirements leading to policy uncertainty • Policy limitations on number of suppliers • Intellectual property rights • Regulatory capture • Incomplete reforms of agricultural marketing 6

What is ‘Abuse of Dominance’? • Conduct that could not exist in a competitive market and that reduces competition • Terms in national laws vary: e. g ‘Abuse of dominance’; ‘monopolization’; ‘taking advantage of a substantial degree of market power’ • Two broad types: - Exclusion of competitors from entry or expansion - Exploitation of consumers, or buyers of inputs, especially through high prices • Can be difficult to distinguish from vigorous beneficial competition • Price comparisons can be difficult • Also, ‘the quiet life’. Absence of innovation 7

Types of Exclusionary Conduct • Price discrimination: applying dissimilar conditions to equivalent transactions, placing some traders at a competitive disadvantage • Tied selling: making a transaction subject to a supplementary obligation that has no necessary connection with it; this can limit ability of other suppliers to compete, and can limit consumer choice • Refusal to supply • Unfair conditions • Predatory pricing: prices below cost, with intention to recoup later, to force out small competitor, or to discourage entry (‘reputation effects’) 8

Examples of EC Action Against Abuse of Dominance • BMI case. Airport landing charges at Brussels: high discounts based on monthly flights placed small airlines at competitive disadvantage • Napier Brown/British Sugar. Tied sales (including compulsory delivery) and unfair pricing. • Tetra Pak. Predatory pricing. • BRT v Sabam. Unfair conditions • Porto di Genova. Refusal of modern technology 9

Abuse of Dominance Criteria • EC case law has established: • A dominant firm has a special responsibility not to let its conduct impair genuine competition • A dominant firm may not eliminate a competitor, or strengthen its own position, other than by competition on the merits • Abuse of dominance involves using methods differing from normal competition 10

Conclusions • Abuse of dominance a central concern for competition authorities • Dominance more frequent in smaller markets • Careful analysis needed to distinguish abuse of dominance from vigorous (acceptable) competition 11