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Abuse Of Market Power Notes

LPC Law Notes > International Competition and Anti-Trust Notes

This is an extract of our Abuse Of Market Power document, which we sell as part of our International Competition and Anti-Trust Notes collection written by the top tier of Cambridge And Oxilp And College Of Law students.

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Outcomes

1. Explain the rationale behind the law relating to abuse of market power

2. Identify and explain the factors that the EU, UK and US systems require to establish market power

3. Identify and explain what activities amount to an abuse, and the commercial reasons for undertakings engaging in illegal abusive conduct

4. Understand the basic elements of a competition law compliance programme

5. Understand the factors that need to be considered when making a presentation to a client

6. Develop presentation skills Outcome 1 - explain the rationale behind the law relating to abuse of market power-Abuse of market power occurs when an undertaking has sufficient market power to act independently on the market - it is a unilateral conduct that can cause damage to competition (as opposed to anticompetitive agreements - WS2) Some companies have such large shares of the market that instead of responding to market forces, they can influence the competitive environment to their own advantage e.g. where a company holds a monopoly Rules relating to abusive conduct are in addition to the rules relating to anti-competitive agreements. Accordingly, an undertaking with market power must comply with both set of rules Undertakings with market power have instead of responding to market power forces have sufficient power to influence the competition market forces - this may be used to distort competition in favor of the undertaking having the market power

Outcome 2 - Identify and explain the factors that the EU, UK and US systems require to establish market power Outcome 3 - Identify and explain what activities amount to an abuse, and the commercial reasons for undertakings engaging in illegal abusive conduct EU - Article 102 TFEUArticle 102 TFEU prohibits '[a]ny abuse by one or more undertakings of a dominant position ... in so far as it may affect trade between Member States'. Unlike Article 101 TFEU there is no need to establish separate undertakings - abuse by one undertaking will be sufficient to impose liability on a dominant firm

DOMINANCE

-Must establish whether an undertaking has market power - or holds a dominant position Legal test for dominance (set out in United Brands v Commission): o The dominant position thus referred to by Article 102 relates to a 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, customers and ultimately of its consumers Legal test is based on the undertaking's ability to act independently or largely insensitive to the actions and reactions of its competitors, customers and ultimately consumers Market share of an undertaking is indicative of undertaking's ability to act independently (but will not on it's own establish dominance - other factors must also be considered)

Relevant Market
- Must define the market in which the undertaking operates to establish market share
- Broken down into RPM and RGM Relevant Product Market: all those products/services regarded as interchangeable by the consumer by reason of the products' characteristics, their prices and their intended use (European Commission Notice definition, as applied in United Brands - in this case 'bananas'). I.e. what is the exact product in question?
- 2 Economic tests to establish RPM ?
o Test 1: Demand substitutability: would a small but lasting increase in the price of product A cause product A's consumers to switch to a readily available substitute?
(United Brands)
? Apply to facts: will buyers still purchase the product if the price rises? Do they need it badly?
? SSNIP test: Small but Significant and Non-transitory Increase in Price - products will be considered to constitute a single market if a hypothetical monopolist
- the only seller of a product - could profitably impose and sustain a small but significant and non-transitory increase in price (normally 5-10%) o Test 2: Supply Substitutability: could potential competitors switch to producing the same products as the undertaking in question without incurring significant additional costs or risks? (According to the ECJ, this test is normally applied with a time frame of 1 year in mind)
? Apply to facts: Could a manufacturer of a similar product start producing the product in question with relative ease? i.e. could supplier of product X begin to easily supply product Y? NB. RPM may be very narrow (e.g. spare parts for Hugin cash registers - Hugin Kassaregister) Relevant Geographic Market: the area of the common market where the conditions of competition are homogenous (European Commission

Notice definition of RGM, as applied in United Brands) I.e. where exactly is the undertaking dominant?
- Start by assuming the RGM is the whole of the EU (Hilti AG), then work inwards if any of the following factors (outline in United Brands) so dictate: o Transportation costs
? If costs are high, producers in a distant geographic area may not be able to compete effectively because of the high price of their products o Product characteristics (is it fragile? Is it perishable?)
? Is a particular product capable of being transported?
o Shipment patterns
? Where are the relevant products currently being sold?
o Location of plants (identical product made at a wide range of plants implies small geographic markets)
? Where are manufacturing facilities located?
- Apply to facts: assume RGM is whole EU, but keep an eye out for information such as 'only in English-speaking countries due to fashion trends'
- NB. Although RGM must constitute a substantial part of the common market, it may geographically be very small, as long as it is substantial economically (Sea Containers - Port of Holyhead)Conclude as to the market share of the undertaking: Does the figure raise a presumption of dominance?
o Save in exceptional circumstances, very large market shares will be in themselves evidence of a dominant position (Hoffman La Roche) o Shares of 100% - this is a monopoly the undertaking will have dominance o Shares of 50% or more raise a rebuttable presumption of dominance (Akzo Chemie) - the higher the market share the less likely that the presumption will be capable of rebuttal o Shares of between 40% and 50% - no presumption either way. In United Brands dominance of 40-45% was held to be dominant where there were additional factors that supported dominance. In this case must also closely look at the market share of the undertaking AND it's competitors o Shares below 40% are rarely dominant - presumption of nondominance. There have been findings of dominance under 40% (e.g. British Airways - 39.7%)

Substantial part of the internal market
- To engage Article 102 an undertaking must be dominant within the internal market or in a substantial part of it
- Does not need to be a large geographical area, but must be of substantial importance
- Must first define the RGM and then once this is defined check that the RGM forms a substantial part of the internal market Other factors for Dominance
- Length of time

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