What is Abuse?
Article 102 of the Treaty on the Functioning of the European Union (“TFEU”) prohibits the abuse of a dominant position within the internal market or in a substantial part of it. This is considered incompatible with the internal market in so far as it may affect trade between Member States.
First, to establish abuse, a dominant position must be established. This is a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by giving it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers.
Primary indicators to assess dominance are market share, market power, and the impact of the conduct on the internal market.
Abuse is considered to arise when dominant undertakings strengthen their position or eliminate competitors in the market using means other than competition on the merits. This includes impacting unfair prices or conditions, limiting production, markets or technical development to the prejudice of consumers, applying dissimilar conditions to equivalent transactions with other trading parties, and 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.
Different Types of Abuse
Article 102 of the Treaty on the Functioning of the European Union (“TFEU”) outlines cases of abusive behavior that can be exhibited by a dominant undertaking. These behaviors are split into two categories: exploitative abuses, which involve practices such as the application of unfair purchase or selling prices or other unfair trading conditions, and exclusionary abuses, which involve activities such as predatory pricing, tying and bundling, margin squeeze, and exclusive dealing. When a dominant undertaking uses its market power to exploit either its customers or suppliers, this is considered to be an exploitative abuse. On the other hand, when the dominant undertaking prevents or hinders competition in the market, this is considered to be an exclusionary abuse.
The aim of the Commission’s enforcement activity in relation to exclusionary conduct is to ensure that dominant undertakings do not impair effective competition by foreclosing their competitors in an anticompetitive way, thus having an adverse impact on consumer welfare.
Examples of potential abuse include the case of United Brands Company (“UBC”) which forbade its distributors to sell bananas that UBC did not supply, charging a higher price in different Member States, and imposed unfair prices upon customers in Belgo-Luxembourg Economic Union, Denmark, The Netherlands and Germany. The United Brands Company v. Commission case could be seen as an example of a company concerning abuse of a dominant position in a relevant product market because it involved the alleged use of market power by United Brands to challenge a regulatory measure that was aimed at protecting the interests of European banana producers.
In this case, the European Commission (“EC”) had adopted a regulation that required importers of bananas from certain countries to obtain import licenses in order to limit the volume of imported bananas and protect the interests of European banana producers. United Brands, a major importer of bananas, challenged the regulation, arguing that it was in violation of European Union (EU) law and the General Agreement on Tariffs and Trade (“GATT”), a multilateral trade agreement to which the EU is a party.
According to the EC, United Brands was the dominant player in the market for imported bananas, with a market share of around 40%. As a result, the EC argued that United Brands had the ability to influence the market and the prices of imported bananas, and that its challenge to the regulatory measure was an attempt to use its market power to undermine the interests of European banana producers.
The European Court of Justice ultimately upheld the EC’s regulation, finding that it was necessary to protect the interests of European banana producers and that it was not in violation of EU law or the GATT. However, the case highlights the potential for companies with a dominant position in a relevant product market to abuse their market power in ways that could be detrimental to competition and consumer interests.
Abuse in Modern Enterprises
Modern enterprises such as Amazon have come under scrutiny for distorting competition in online retail markets, as well as potentially preferential treatment of Amazon’s own retail offers and those of marketplace sellers that use Amazon’s logistics and delivery services.
Amazon is the biggest online seller in the world. Amazon has monopoly power over millions of smaller sellers it hosts on its site. These sellers cannot turn to other alternatives due to the high cost of doing business and lack of buyers. The European Commission has accused Amazon of breaching EU antitrust rules by distorting competition in online retail markets. They are also faced with a formal antitrust investigation for preferential treatment of Amazon’s own retail offers.
Amazon’s use of third-party data to make and sell their products could be seen as an example of the company abusing its dominant position in a relevant product market. Amazon is a major player in the online retail market, with a significant share of the market for e-commerce in many countries. As a result, the company has access to a vast amount of data about consumer behavior, including what products are being purchased, at what price, and from which sellers.
If Amazon were to use this data to make and sell its own products, it could use its dominant position in the market to unfairly compete with other sellers on its platform. For example, Amazon could use the data it has collected about what products are popular and at what price points to create or source similar products and sell them at a lower price, making it more difficult for other sellers to compete.
Furthermore, if Amazon were to use this data to favor its own products in its search results or recommendations, it could also potentially abuse its dominant position by directing more traffic and sales to its own products at the expense of other sellers.
Overall, Amazon’s use of third-party data to make and sell its own products could be seen as an example of the company using its dominant position in the market to unfairly compete with other sellers and harm competition and consumer interests.
By: Christopher Green