Article 102 of the Treaty on the Functioning of the European Union

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The economist's depiction of deadweight loss to efficiency that monopolies cause

Article 102 of the Treaty on the Functioning of the European Union is aimed at preventing undertakings who hold a dominant position in a market from abusing that position. Its core role is the regulation of monopolies, which restrict competition in private industry and produce worse outcomes for consumers and society. It is the second key provision, after Article 101, in TFEU competition law. The text of Article 102 provides the following,

Dominance[edit]

Main article: Dominance (economics)

First it is necessary to determine whether a firm is dominant, or whether it behaves "to an appreciable extent independently of its competitors, customers and ultimately of its consumer."[1] Under EU law, very large market shares raise a presumption that a firm is dominant,[2] which may be rebuttable.[3] Where a firm has a dominant position, it has "a special responsibility not to allow its conduct to impair competition on the common market".[4]

Market definition[edit]

Market shares are determined with reference to the particular "relevant market" in which the firm and product in question is offered.

Market definition refers to the delineation of this relevant market. It can be an important or complex part of a competition case under Article 102. If the market is defined too widely then it will contain more firms and supposedly substitutable products, preventing a finding of a dominant position. If the market is defined too narrowly then there might be an incorrect presumption that the company is dominant. There are various ways to define whether a company is dominant;

The Product Market Questions, what other products or services might consumers switch to?

  • There is the 'hypothetical monopolist' test which is whether a small but significant increase in price is likely be allowed by the hypothetical monopolist company to profit from this. If consumers can and would move away from the hypothetical monopolist's product and onto other products then their market is more widely defined.
  • There is also the 'intuitive approach', which focuses on brand loyalty and the use of the products.
  • The Commission's Notice on the Definition of the Relevant Market is a mixture of the two above approaches, with the hypothetical monopolist having more importance.

Another question that can be asked is if new undertakings can enter the market in the short term?

The Geographical Market

  • What other market can a consumer move to? The above questions will also be asked.

Abuse[edit]

Abusive conduct is usually organised under different categories, from those in Article 102, and more. As was stated in Continental Can [1973] the categories are not closed.

Price exploitation[edit]

Under Article 102(2)a) "directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions" is considered abusive. Price exploitation is one example. It is difficult to prove at what point a dominant firm's prices become "exploitative" and this category of abuse is rarely found. In one case however, a French funeral service was found to have demanded exploitative prices, and this was justified on the basis that prices of funeral services outside the region could be compared.[5]

Limiting production[edit]

Under Article 102(2)b), "limiting production, markets or technical development to the prejudice of consumers" is considered an abuse by a dominant undertaking. An example was found in Porto di Genova [1991], where a shipping port refused to raise expenditure and update technology. This limited the amount of cargo that the port could deal with to the detriment of some of its users.

Price discrimination[edit]

Main article: Price discrimination

Price discrimination falls under Article 102(2)c), whereby an abuse is "applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage". An example of this could be offering rebates to industrial customers who export your company's sugar, but not to Irish customers who are selling their goods in the same market as you are in.[6]

Tying[edit]

Main article: Tying (commerce)

Under Article 102(2)d) "tying" is defined as "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." Tying one product into the sale of another can be considered abuse too, being restrictive of consumer choice and depriving competitors of outlets. This was the alleged case in Microsoft v. Commission[7] leading to an eventual fine of €497 million for including its Windows Media Player with the Microsoft Windows platform. A refusal to supply a facility which is essential for all businesses attempting to compete to use can constitute an abuse. One example was in a case involving a medical company named Commercial Solvents.[8] When it set up its own rival in the tuberculosis drugs market, Commercial Solvents was forced to continue supplying a company named Zoja with the raw materials for the drug. Zoja was the only market competitor, so without the court forcing supply, all competition would have been eliminated.

Predatory pricing[edit]

Main article: Predatory pricing

Predatory pricing is a controversial category. This is the practice of dropping prices of a product below costs so that one's smaller competitors cannot cover their costs and leave the market. The Chicago School holds predatory pricing to be impossible, because if it were then banks would lend money to finance it. However in France Telecom SA v Commission[9] a broadband internet company was forced to pay €10.35 Million for dropping its prices below its own production costs. It had "no interest in applying such prices except that of eliminating competitors"[3] and was being subsidized to capture the lion's share of a booming market.

See also[edit]

Notes[edit]