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Article 81 Dominance Notes And Cases

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Competition Law Reading Session 1: Article 82 EC-Dominance See Lecture 3 Notes and Textbook notes (latter v important) Ezrachi, 'EC Competition Law,' Chapters 2, 5 and 6: Undertakings (Chapter 1):

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Only undertakings are subject to art.81, art.82, and European Merger Regulation

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EC treaty doesn't define undertaking (left to European Courts to develop). Courts have used a functional approach, applying the term to entities engaged in economic activity, regardless of legal status or way they're financed. This focuses on the commercial nature of activities and can capture individuals, trade associations, partnerships, clubs, companies, and PAs.

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Because of functional approach, an entity can be an undertaking when it engages in some activities but not when it engages in others. This is especially true of charities or PAs which sometimes may engage in commercial activities, but usually don't.

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The definition of undertaking is especially important in art. 81 cases as agreements within an undertaking (rather than between undertakings) are not within its scope. The corporate principle of separate legal personalities gives way in competition law to the economic concept of a single economic entity/unit. Thus an undertaking may include several legal personalities. Market definition (Chapter 2):

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The main purpose of market definition is to identify in a systematic way the competitive constraints that an undertaking involved faces (as stated in the Commission Notice on the Definition of the Relevant Market for the Purposes of Community Competition Law). The market is defined in terms of its product and geographical area is to identify the actual competitors of the undertaking concerned who constrain its behaviour and prevent it from acting independently of an effective competitive pressure. Defining the market allows us to identify dominance or apply art 81(2).

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The Commission Notice tells us how the commission defines the geographical and product market. The product market is one which 'comprises all those products and/or services which are regarded as interchangeable or substitutable by the consumer, by reason of the products' characteristics, their prices and their intended use' (para 7). The geographic market is one which 'comprises the area in which the undertakings concerned are involved in the supply and demand of products or services, in which conditions of competition are sufficiently homogenous and which can be distinguished from neighbouring area because the condition of competition are appreciably different in those areas,' (para 8).

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SSNIP (Small but Significant Non-transitory Increase in Price)) is normally used to define the market, but is based on the assumption that prevailing prices on the market are competitive. In article 82 cases the price is likely to be above competitive levels , and failure to take this into account may give rise to the cellophane fallacy,

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which leads to the market being defined too widely. Other factors have to be used instead (see the Commission Notice para 25. Market definition primarily focuses on demand and supply substitutability. However the threat of competition also needs to be taken into account, looking at barriers to entry etc.

Article 82 EC (Chapter 5):

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Article 82: Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market insofar as it may affect trade between Member States. Such abuse may, in particular, consist in: (a)directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

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This can be divided up into 4 main questions (1) Is there a dominant undertaking or group of undertakings?
(2) Is this dominant position within the Common Market or in a substantial part of it?
(3) Is this dominant position being abused? (NB this is not the case where an 'objective justification' defence is made out- see below) (4) Could this abuse of dominant position affect trade between memberstates?

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Question (1): Dominance is such economic strength that the maintenance of effective competition is prevented that an undertaking can act independently of competitors, customers and consumers to an appreciable extent. To find dominance the market needs to be defined first, then dominance can be investigated by reference to things like market shares of undertaking and competitors, barriers to entry and expansion, and market position of buyers. Question (2): collective/individual dominant position in Common Market or substantial part of it is a threshold that has to be crossed to proceed with an article 82 claim. Question (3): Abuse is a concept relating to the behaviour of an undertaking that influences the structure of a market, weakening competition through recourse to

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