What is dominance?
Competive Intent Of TFEU
The Treaty on the Functioning of the European Union (“TFEU”) conceives any business abusing a “dominant position” in the market to be behaving in contravention to the intended competitive operation of the European market. In then evaluating a participant’s liability for abusive conduct, the dominant position as the facilitator of abusive conduct under Article 102 must be identified accurately.
The Difficulties of Defining a Dominant Position
Owing to the innumerable variations in multi-state markets, there are great difficulties in defining the dominant position. Market participants operate across varying industries, using different business models, techniques, and with distinct efficiencies that give each participant an edge somewhere. While there are certainly hallmarks to the dominant position, including market share, price control, and consumer persuasion, these hallmarks are not dispositive. To then constrict a dominance inquiry to satisfaction of an elemental definition does a disservice to the goals of Article 102 in throttling anti-competitive behavior. A single definition being inoperable for the purposes of Article 102, inquiry should proceed through contextual analysis of the position, using the notion of dominance as the perceived summation of market contexts and facts of the position. All relevant facts and circumstances should be considered in constructing a participant’s dominant position, not just easily justifiable hallmarks of domination. Notion of Dominance = (Fact + Context)^n.
The notion of dominant position can be constructed by cumulative consideration of any number of facts or contexts, whether considered jointly or severally.
Understanding The Notion Of Dominance
What is a notion? Notion is a general concept, inclusive of all plausible factors and circumstances considered in constructing a thing. Notion is what enables the construction of a thing to develop differently and appear dissimilar across applications, but to still maintain an accurate representation of the concept and effects of the thing. It creates natural variations in things that serve the same purpose. As such, using notion to understand the dominant position allows for patent variations between dominant participants.
A simple exercise to understand notion and the scope of inclusivity contemplated by it is to describe a chair. The chair is likely to look like one you have encountered in life, but it is unlikely the chair you describe is an identical chair to one another reader describes. Each of you, however, employed the notion of a chair as the backdrop on which you made the description. All factors you considered, from functionality and aesthetic to its distinction from a bench, comprise the notion of a chair. While there is no set of factors considered dispositive of every chair, when all factors are considered, the notion of the chair is presented, regardless of the final manifestation the chair takes.
What is the notion of dominance? The notion of dominant position can be construed from the EU Commission’s findings in the case of United Brands Company. The Commission’s interpretation of dominant position is deduced to a state of being whereby a participant maintains a “position of economic strength” to the extent that it can “prevent effective competition being maintained on a relevant market . . . affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of consumers.” (1). The Commission found United Brands degree of price control on the banana market allowed it to charge unfair and unreasonable prices, but only in relation to the underlying economic value of the product. If the value of the underlying product was not considered, dominance may not have been found. The finding of some economic strength that enables the prevention of effective competition in the market, can thus only be precisely identified by consideration of all relevant factors and any associated contexts.
Why use notion? Construing dominance as a notion is a reasonable alternative to enumerating a set of achievable elements as a threshold because it allows for flexibility in delineating dominant positions by accounting for variations in the market through context, better achieving the competitive market goals the EU Commission intends. The incorporation of context permits various participants to fit within the same box, despite their patent differences. For instance, analysis may not find a beef manufacturer dominant with 58% market share, but will find a computer company dominant with 25% market share. Solely considering these facts, it appears the beef manufacturer would be dominant. But facts such as market share must be viewed in the context of the market and participants in question to determine if the participant possesses some advantageous economic power. Adding context to this example, the computer company locks consumers into a technology ecosystem, effectively removing consumer choice and dominating them. Meanwhile, the beef manufacturer enjoys large scale operations that allow it to capture market share, but it still must compete for consumer attention at the grocery store, it’s not dominating, it might even be struggling to stave off competitors.
Constructing A Dominant Position
Enter Classroom: Day of the final exam. Jack is 1 of 3 people selling writing instrument during the final exam. He has a 25% market share. Mike, another seller, has 55%. Nick, the last seller, has 20%. They each sell a mix of pencils and pens for $2.
- Taken on their face, none of these factors confirm nor deny Jack is enjoying a power over the competitors. He may have a good market share which means he sells more, but these alone are not dispositive of dominance. Jack is still competing with the other sellers to be the one to provide you, the exam taker, with your writing instrument.
Now suppose, because Jack purchases and sells so many pens, his business has supply efficiencies which allow him to sell for as little as $1.25. His competitor’s lowest profitable price is $1.50.
- When you consider the efficiencies of Jack’s business, it appears he has some price power over his competitors in the pen market. But the price power is not drastic, just the ability to set his prices a bit lower than his competitors and there are still pencils to be sold. This is not yet indicative of dominant position but building towards it. If the price power were more drastic, the answer may be different.
Now suppose Jack secured a contract to purchase 90% of the pens produced by Bic, the only pen producer in the area.
- Jack is starting to really control the exam room market. He possesses market share larger than anyone else, can undercut competitor’s prices and still be profitable, and he has locked down 90% of the pen supply. If his competitors want to purchase more than 10% of Bic’s pens, they will have to buy their stock from Jack. Jack has essentially boxed his competitors out of selling anything more than that 10%.
Lastly, consider this shift in the exam room marketplace that gives context to those metrics and circumstances listed above. The exam is about to start, the professor says, “you may only use a pen on this exam.” You have $1.25.
- Consumer choice has been removed and you can only buy a pen. You can also only buy that pen from Jack. Since Jack controls the pen market, the sellers can barely participate, let alone compete.
In this example it is clear if the dominance inquiry were a check the box system, upon the first viewing the market shares Mike is the dominant party, but in fact he is not. This example intends to show that a proper analysis of dominant position must build the position towards the notion of dominance. If the notion is not met, then dominant position is not had. But, if the situation still appears unfair, an inquiry as to whether all relevant factors have been considered is appropriate.
Conclusion
Dominance is not a definitive position, it will look different throughout the market and, as such, proper identification of a dominant position requires understanding dominance as a notion. Dominance will “derive from a combination of [elements in context] which, taken separately, are not necessarily determinative.” (2). An accurate analysis of a truly dominant party will result in the summation of all factors equaling the position wielding some advantageous economic power.
Works Cited
- United Brands Company and United Brands Continentaal BV v. Commission of the European Communities., Case 27/76.
- Communication from the Commission — Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings., (2009/C 45/02).
By: Jack Clarke