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Assessment of Market Dominant Position in the European Union

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Abstract

Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) are aimed at regulation of competition, and preventing undertakings who hold a dominant position in a market from abusing that position respectively. The paper discusses the problem of abusing of market dominance position by enterprises. The objective is to analyze how the European Union and singular European states intervene to solve this kind of market problem to make sure that the objectives of perfect competition are saved. A qualitative investigation of four particular cases in the EU was carried out. The paper presents different cases of market dominance and the results of intervention of the EU Court of Justice, and other National courts. The study found out pronounced cases of Google and breach of Articles 101, and 102 of the TFEU i.e. over rival shopping services, Railway Freight Sector (SNCF), Orange and Outremer Telecom, and Société Nouvelle des Yaourts de Littée (SNYL) whose case have heard and their fines accorded for abusing their dominant position in the common market area. Ceteris paribus, the study concludes that, abusive behavior is a positional strategy and not as result of marketplace factors. The study recommends that competition offices in the member states carry out knowledge sharing activities for businesses/companies, but also keep a focus since abuse of dominant position is real.
20th International Scientific Conference
“Enterprise and Competitive Environment”, March 910, 2017,
Brno, Czech Republic
Assessment of Market Dominant Position
in the European Union
Dastan Bamwesigye1, Abel J zico2 and Ivana Blazkova3
1Department of Forest and Wood Products Economics and Policy, Mendel University in
Brno. E-mail: bamwesigyedastan@gmail.com
2Department of Tourism, School of Tourism and Hospitality, Eduardo Mondlane University,
Mozambique. E-mail: zico.mocambique@gmail.com
3Faculty of Regional Development and International Studies, Mendel University in Brno,
Zemědělská 1, 613 00 Brno, Czech Republic. Email:ivana.blazkova@mendelu.cz
Abstract
Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) are
aimed at regulation of competition, and preventing undertakings who hold a dominant
position in a market from abusing that position respectively. The paper discusses the
problem of abusing of market dominance position by enterprises. The objective is to ana-
lyze how the European Union and singular European states intervene to solve this kind of
market problem to make sure that the objectives of perfect competition are saved. A qual-
itative investigation of four particular cases in the EU was carried out. The paper presents
different cases of market dominance and the results of intervention of the EU Court of
Justice, and other National courts. The study found out pronounced cases of Google and
breach of Articles 101, and 102 of the TFEU i.e. over rival shopping services, Railway
Freight Sector (SNCF), Orange and Outremer Telecom, and Société Nouvelle des Yaourts
de Littée (SNYL) whose case have heard and their fines accorded for abusing their domi-
nant position in the common market area. Ceteris paribus, the study concludes that, abu-
sive behavior is a positional strategy and not as result of marketplace factors. The study
recommends that competition offices in the member states carry out knowledge sharing
activities for businesses/companies, but also keep a focus since abuse of dominant posi-
tion is real.
Keywords: market dominance, positional strategy, perfect competition, strategic position
JEL Code: F15, D40, H73
1. Introduction
The concept of self-reinforcing market dominance based on the Market perfect equilib-
rium can be discussed in two ways. One is the increasing dominance (ID), whereby the
Enterprise and Competitive Environment, March, 910, 2017 42
leading firm has a greater probability of winning the next sale; another is increasing dom-
inance (IID), whereby a firm's probability of winning the next sale increases with the
length of its lead. (Cabral and Riordan, 1994; Chen, Doraszelski, 2009). Market dominance
is also considered as a typical outcome of markets with network effects (Posner, 1974,
Chen, Doraszelski, 2009,).
According to the European Court, dominant market position is defined as a position
of commercial strength enjoyed by an undertaking which empowers it to stop real com-
petition being maintained on the applicable market by affording it the power to behave to
a considerable extent independently of its competitors, and eventually of its customers.
The European Court of Justice defines market dominance in relation to a position of eco-
nomic strength enjoyed by an undertaking, which enables it to prevent effective competi-
tion being maintained in the relevant market by affording it the power to behave to an
appreciable extent independently of its market opponents, its customers and eventually
of the consumers. Such a situation does not prevent some competition, which it does
where there is a monopoly or quasi-monopoly, but enables the undertaking, which pro-
ceeds by it, if not to control, at least to have an appreciable influence on the conditions
under which that competition will develop, and in any case to act largely in disregard of it
so long as such conduct does not work to its disadvantage.
In rivalry law the dominant position is accepted, that is, an undertaking having a
dominant position is not itself a retort. Therefore, to distinguish the benefits from the
costs of the existence of a dominant position, main stress from the aforementioned article
82 of treaty two elements regarding the dominance concept; dominance is an economic
strength that enables the undertaking the power. It can be analyzed in two positions: the
one is to act to a considerable extent independently of other agents, i.e. to operate so as
its conduct does not bring about harms to itself; and to have an appreciable inspiration,
in terms of easing. The first point can be restated in the following terms: the inability of
the remaining agents to react to some acceptable actions of firm in dominant position. The
second point demonstrates the firm in dominant position’s ability to deteriorate the com-
petition on the merits in another form of competition. Consequently, the strategies give
rise to a positional added value, i.e. their significant increments for the fact that there is
asymmetry midst strategy sets. Precisely the study distinguishes two no replaceable strat-
egies: if the no replaceable strategy is played only for its positional adding value, it is
called positional strategy; differing, if the no replaceable strategy is played no matter what
the counterparts can react i.e. its adding value is irrelevant for the firm calculus, it is sig-
nified as regular strategy. Formerly, in this diversity among strategy sets or action-reac-
tion correspondences, strategy can be designated for its positional value, that is, in this
situation the firm in dominance “uses” the market asymmetry leading to a distorted be-
havior and competition. The choice importantly induced by the market imperfectness is
an abuse of that imperfectness, that is, a part’s choice essentially caused by its dominance
is an abuse of dominant position. The study identifies action-reaction irregularity, the
sense of “independent behavior” of a dominant firm and in the positional approach the
economic rationality of an abusive behavior. Competition exaggerated from positional ef-
fect can determine a competition for these positional effects, then a positional competi-
tion. Besides, positional competition is much harder, and sometimes more vehement, than
normal competition or competition for merits. For instance, a competition on the merits
if all the firms investing i.e. for reducing the cost of production, they may all increase their
profits because productive inadequacies are reduced and demand is increased (Pagano,
2002, Sergio et al. 2016).
Enterprise and Competitive Environment, March, 910, 2017 43
The Article 82 of the European Union Treaty statuses: “any manipulation by one or
more undertakings of a dominant position inside the shared market and or in a consider-
able part of it shall be prohibited as incompatible with the common market in so far as it
may affect trade between the Member States. The concept of abuse of a dominant position,
as a conduct “which, through recourse to methods different from those which condition
normal competition in products or services on the basis of the transactions of commercial
operators, has the effect of hampering the maintenance of the degree of competition ex-
isting in the market or even the growth of that competition”. Abusive behavior entails
mainly of exclusionary practices such as destructive pricing, exclusive dealing, refusal to
supply, and tying. It is commendable to emphasize that European law does not punish the
dominant position in itself, just the abuse. The vigorous of abuse i.e. as a result of posi-
tional and cumulative causation effects and the role of special responsibility (Hohfeld,
1919, Bartaleich, 2016, Sergio et al. 2016). The OECD (2012) considers the potential anti-
competitive and pro-competitive effects of public announcements of future prices under
a number of headings: the first is the policy and legal matters regarding the treatment of
public announcements; and the second describes the diverse types of public price decla-
rations i.e. the economics of coordinated effects and how price declarations may facilitate
harmonization, pro-competitive effects, the counterfactual and comprehensive issues;
and conclusions as to the object and effect of price announcements and the challenges of
providing vigorous compliance guidance.
2. Methodology and Data
This research is qualitative in nature (Maxwell, 2005, Creswell, 2009), Conferring to Cre-
swell 2013, qualitative research approaches comprises key main fundamentals of narra-
tive research, phenomenology, grounded theory, ethnography, and case study.
The five study cases were chosen using the non-probabilistically sampling approach.
The information discussed in the article was found in other articles and documents. The
analytic and comparative methods were used to discuss the main information found dur-
ing the research process.
3. Results
CASE 1: European Commission vs Google: An Analysis of Google’s alleged abuse of
dominant position
The European Commission dispensed a press-statement accusing Google of breach of Ar-
ticles 101, and 102 of the TFEU, stating that the search giant has abused its dominant po-
sition on the market by preferring its own comparison shopping package (Google Search),
over rival shopping services. The attempt is made to explain what exactly the EU is accus-
ing Google with, and what steps follow next. The European Commission dispensed a
press-statement accusing Google of breach of Articles 101, and 102 of the TFEU, stating
that the search giant has abused its dominant position on the market by preferring its own
comparison shopping package (Google Search), over rival shopping services. The attempt
is made to explain what exactly the EU is accusing Google with, and what steps follow next.
According to the EU Law, Articles, 101 and 102 of the TFEU prohibits any abuse of
dominant position within the internal market or a substantial part of it in so far as it may
affect trade between Member States. Supremacy is assessed in relative to three variables,
Enterprise and Competitive Environment, March, 910, 2017 44
namely the product market, terrestrial market and chronological factor. When the rele-
vant market has been defined, the Commission has to assess whether the responsibility
in question is dominant within that particular scope. The legal examination used by the
court was industrialized in the United Products case, and defines dominance as a position
of economic strong point that allows an undertaking to act independently from its partic-
ipants, customers and consumers by enabling it to prevent effective competition on the
relevant market.
As opposed to the United States where search engines Yahoo and Bing appreciate
greater influence on the search market, in most EEA countries Google embraces a market
share of over 90%, making it a dominant responsibility on the European search-engine
market. After having received grievances from a number of firms including Microsoft,
Tripadvisor and Expedia, the Commission initiated an inquiry into Google’s practices as
dominant market player in November 2010. Though, no formal Statements of oppositions
had been issued until now.
The Commission’s criticism concerns Google’s comparison shopping service, ‘Google
Search’ which allows consumers to search for products on online shopping websites and
compare prices between different sellers.
The Google’s search chef Amit Singhai suggested that there is a ton of competition
among shopping search engines including eBay and Amazon, two of the biggest shopping
sites in the globally, and insisted Google’s shopping results have not damaged the compe-
tition
According to Article 23(2) of Regulation 1/2003 on Application of rules on competi-
tion provides that the fine for non-compliance with Article 102 TFEU cannot exceed 10%
of an undertaking’s total turnover in the preceding business year, meaning that in the
worst-case situation, Google would have to recompense a fine of around 6.2 billion euro
should the Commission establish abuse of dominant position in the case of Google Shop-
ping.
Case study 2: French competition authority vs Railway freight sector (SNCF)
A decision by the French Competition Authority (FCA) imposed a fine of €60.9 mil-
lion on the same organization, the national railway operator for abusing its dominant po-
sition in the railway freight business in France, which issued an injunction to modify its
commercial practices. The practices authorized by the French Competition Authority
(FCA) in its decision were;
In its position, Railway freight sector (SNCF) of delegated infrastructure manage-
ment of traffic and technical safety maintenance of the network infrastructure, it had gath-
ered delicate and confidential information on the strategy and business behavior of its
competitors and used it in its own commercial interest; and SNCF had been avoiding its
competitors from accessing rail capacities that were indispensable to their business by
deterring the access to freight yards and overbooking train paths and specific wagons that
are used for large tonnage transportation at the same time.
The other practice involved was valuing below cost to selected clients by which, ac-
cording to the FCA, Railway freight sector (SNCF) aimed to insincerely delay competition
in the market. The FCA considered that the practice was likely to prevent competitors as
efficient as SNCF from joining the market.
It is worth observing that the FCA’s investigation was in step with the Post Danmark
judgment delivered by the European Court of Justice. The prices charged were below the
average total costs nonetheless above SNCF’s average incremental costs. In such a case,
according to the Post Danmark judgment, the FCA was required to demonstrate that the
operator intended to exclude competitors from the market: the FCA considered that SNCF
Enterprise and Competitive Environment, March, 910, 2017 45
had an overall exclusionary strategy because it had fixed prices irrespective of profitabil-
ity conditions. With regards to this last practice, the FCA did not impose a fine but did
issue an injunction against SNCF obliging it to set up an analytical accounting system
within 18 months that would accurately identify the costs incurred by its freight business,
and to set its prices at a level that covers its average avoidable costs within three years.
However, the Paris Court of Appeal overruled the FCA decision on 6 November
201430 on this point. Although it confirmed the proper application of the Post Danmark
judgment, the court held that the FCA had failed to prove that SNCF’s pricing policy aimed
to exclude competitors from the market by charging prices below the average incremental
costs. Moreover, the court found that there was no intent to exclude on the part of SNCF,
which was primarily focused on securing consumers’ choice between rail and road and
on protecting the environment.
Case study 3: SFR vs Mobile phone service in La Réunion and Mayotte
Following a complaint by Orange and Outremer Telecom, the FCA ordered SFR and
its subsidiary in La Réunion, SRR, to pay a €45.9 million fine for excessive pricing differ-
ences between calls made within its network (on net calls) and calls made to competing
operators’ networks (off net calls), charging more for the latter and exceeding the differ-
ences in costs SFR bore.
On the substance, the FCA confirmed that SRR, with up to 70 per cent of the market
in La Réunion and in Mayotte, had abused its dominant position by implementing pricing
differences that were not justified by the costs incurred by SFR for routing off-net com-
munications. This had the effect of making calls to customers of competing networks more
expensive, thereby encouraging customers to subscribe to SRR.
Case study 4: TDF vs DTTV broadcasting in French overseas territories and commu-
nities
Following a complaint lodged by Outremer Telecom (OMT), the French Competition
Authority (FCA) imposed a fine of €4.2 million on TDF, the incumbent French terrestrial
broadcaster, for having delayed without due cause the publication of regulated orienta-
tion offers specifying the technical and pricing conditions of regulated offers for hosting
and access to its own broadcasting facilities. OMT and other TDF competitors alleged that
since TDF owned the majority of the necessary infrastructure, they needed this infor-
mation in order to submit bids in France Télévision’s call for tenders for DTTV broadcast-
ing in the French overseas territories and communities. TDF did not publish the infor-
mation before or during the procedure, which meant most competitors were precluded
from bidding in call for tenders, and all contracts were awarded to TDF.
The French Competition Authority (FCA) held that TDF had abused its dominant po-
sition on the upstream wholesale market for access to broadcasting facilities in order to
exclude competitors on the downstream retail market for DTTV broadcasting.
The FCA applied a 20 per cent increase in the fine because TDF had already been
sanctioned for similar practices in 1999.
Study case 5: the French Competition Authority vs Yoghurt distribution on the French
Caribbean
The French Competition Authority (FCA) imposed a fine of €1.6 million on Société
Nouvelle des Yaourts de Littée (SNYL), the leading manufacturer of fresh dairy products
in the French Caribbean, for disapproving the products of one of its competitors in inland
France, Laiterie de Saint-Malo.
SNYL cast doubt on the freshness of Laiterie de Saint-Malo’s yoghurts and fresh
cheeses by misrepresenting the result of bacteriological studies, and questioned whether
they complied with applicable health standards by alleging that they were overstepping
Enterprise and Competitive Environment, March, 910, 2017 46
regulations on ‘best before’ dates. This communication was circulated to a broad audi-
ence, including a professional association. As a result, the Laiterie de Saint-Malo’s prod-
ucts were delisted by a certain number of supermarkets.
4. Discussion and Conclusions
Ceteris paribus, effect-based vs form-based focused on the investigation of effects more
than that of form. Unquestionably, abusive behavior stemming from positional strategy
and not as result of marketplace factors. A positional strategy referred herein as the action
preferred crucially for its positional adding-value. Then positional effects are the reasons
of abusive behavior and, subsequently, the investigation results of abuse is an examina-
tion of positional outcomes on the market. Moreover, these are a cause of a dynamic con-
sequence: the positional competition, which represents in this framework the more gen-
erally increasing process triggered by the presence of power. In other words, positional
competition favors who is already in an advantaged position. Therefore, the dominant
firm is associated to two crucial and chronological effects i.e. static, illustrated in posi-
tional terms, and the other dynamic, as a result of positional competition.
The study concludes that, abusive behavior is a positional strategy and not as result of
marketplace factors. We recommend that competition offices in the member states carry
out knowledge sharing events for businesses and companies, but also keep a focus since
abuse of dominant position is existent.
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  • L M B Cabral
  • M H Riordan
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Abuse of a dominant position: Understanding competition law
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The 2014 Annual Report of Summary: Reinventing the Economy
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FRENCH COMPETITION AUTHORITY, 2014. The 2014 Annual Report of Summary: Reinventing the Economy. Autorité de la concurrence.
The European Antitrust Review 2016: Abuse of Dominance
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  • Al
SERGIO, S. ET AL. 2016. The European Antitrust Review 2016: Abuse of Dominance. Herbert Smith Freehills Paris LLP
Guidelines on the applicability of article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements
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  • Union
THE EUROPEAN UNION 2011. Guidelines on the applicability of article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements. OJ C 11, 14, pp. 1-72.
Fundamental Legal Conception
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HOHFELD W. N. 1919. Fundamental Legal Conception. Yale University Press, New Haven and London.