Contributed by Aryan Sharma

Introduction

Over the years, the European Union’s (EU) competition rules have played an important role in safeguarding the competitive process. In 2008, the European Commission (EC) adopted its Guidance on enforcement priorities for applying Article 102 TFEU (Art 102) to abusive conduct by dominant firms. This Guidance has since served as a predominant reference for antitrust enforcement by the EC, laying out the approach for the necessary threshold level for anticompetitive effects. A major aspect of the Guidance was the focus on the impact of potentially abusive behavior on consumers and the competitive process.

Abuse happens when a dominant company’s actions weaken competition in the market by using methods outside normal competition and hindering fair market maintenance. The Guidance marked a significant departure from the formalistic notion of “per se” or inherent abuses, to a more economics-based analysis under Art 102. In the years since several landmark judgments have upheld the core elements of this effects-based approach to identify abusive conduct by dominant firms. This approach says that the competition authorities and EC must focus on a likely standard of proof for anticompetitive effects.

In light of these changes within the EU legal framework, this research paper studies the identification of abusive conduct by dominant undertakings, focusing on self-preferencing, discriminatory pricing, and excessive pricing practices, particularly within the context of the dental market.

Self-Preferencing in the Absence of a Potential Substitute Constitutes Abuse

Because the Guidance talked solely about the exclusionary conduct under the ambit of Art 102, it is imperative to understand that such abuses may contain elements of self-preferencing. Self-preferencing is a practice where a company gives preferential treatment to its operations in one market to the detriment of others.

As per Slovak Telekom, a dominant firm must give other firms access to its infrastructure “only where such access is indispensable to the business of such a competitor, namely where there is no actual or potential substitute for that infrastructure.” A dominant undertaking’s services are effectively indispensable for dental operators as it is most probably the only manufacturer that has the resources to meet the supply and quality requirements of the operators.

Discriminatory Pricing in Similar Transactions Constitutes Abuse

Levying excessive pricing on some, but not all, firms in the downstream market constitutes abuse under Art 102 where the transactions are dissimilar, and it places the trading parties at a competitive disadvantage. A dominant undertaking’s transactions with its trading parties are equivalent when the services it provides to its trading parties are comparable at the commercial level,or similar in a physical or functional sense. A “vertically integrated” dominant undertaking manufactures as well as supplies dental prostheses to firms that operate dental practices. While the specific requirements of the dental operators may differ, the essence of services provided by the undertaking is the same.

Determining a competitive disadvantage does not necessitate evidence of a measurable decline in the competitive environment; “it is sufficient to show that it is capable of hindering competition.”

Excessive Pricing without Economic Justification Constitutes Abuse

When higher prices are charged which are unfair either in themselves or when compared to a benchmark, it constitutes unfair excessive pricing. The justification against regulatory intervention is based on the idea of market correction. However, in cases where dental markets may not easily correct themselves, the fear of false negatives i.e., clearing abusive conduct when it is anti-competitive outweighs the fear of false positives. This makes active regulation by the EC necessary.

To establish an unjustified conduct, competition authorities should be granted discretion on which benchmark to apply; they need not adopt a combinatorial approach. Fulfillment of either benchmark will satisfy the United Brands assessment of excessiveness, and that is an appropriate element of displaying abusive conduct.

1. Higher Prices must be compared with costs to establish an equilibrium

A competitive equilibrium for price is reflected by the product’s marginal costs. Marginal costs in dental markets are often very low given the large economies of scale reaped. Hence, a higher price charged would likely be due to an increase in the profit margin and not manufacturing costs. Moreover, if cost recovery is concentrated on only the singular category of dental implants, and not on other devices such as artificial teeth, dental crowns, etc., the higher price charged is likely excessive. A difference in price for similar products within the same market is an indication of excessive pricing.

• Levying of higher prices by a dominant undertaking constitutes excessive pricing when it pursues an anti-competitive strategy

A price is unfair in itself when it is part of an anti-competitive agenda.In judging abusive conduct, it is essential to examine the behavior in its entirety rather than focusing on individual transactions separately. Therefore, practices such as excessive pricing or even self-preferencing, as mentioned earlier, can be seen as parts of a systematic anti-competitive strategy employed by a dominant undertaking against the players in the downstream market.

A price can also be unfair when compared with benchmarks if the product at hand has a “relatively lower economic value.” Determinants of such economic value may include consideration of intangibles like demand and benefits derived by consumers. Notably, only where there is a competitive market should the actual benefits derived by consumers be taken into account.

Since the market of dental prosthesis devices is controlled by a dominant undertaking, demand is artificially inelastic, and therefore, competition in the market is only marginally present. Ultimately, the competition policy of the EU aims to promote consumer welfare by preserving competition in the market. Hence, such conduct must be identified as abusive.

Demonstration of Likely Anti-Competitive Effects

As far as the extent of probability of proving the effects of anti-competition is concerned that is necessary to trigger intervention by the competition authorities, Art 102 Guidance generally refers to a finding of ‘likely’ effects. This is supported by recent jurisprudence on Art 102 cases. It has been held by the CJEU that the alleged abusive behavior should tend to bring about anti-competitive changes; or should have the capability to bring, or likely to bring, that effect. Assessment is independent of the outcome of conduct.

The rationale for this is that a lower threshold to establish anti-competitive effects because of the alleged abusive conduct is congruent with how the EC functions. EU legislation confers investigative and decision-making powers on the Commission such as inspecting companies or other anti-competitive conduct of companies that violate EU competition rules. An increase in the EC’s burden would reduce the scope of this power afforded to it, contrary to the intention of EU law.

Establishment of the Balance of Probabilities

Balance of probabilities is the correct “standard of proof” that a competition authority must meet to establish abusive conduct, particularly when imposing substantial fines. The EC is empowered to enforce its decisions by levying penalties. The General Court in Cisco found that the EC’s burden was to show whether conduct gives rise to any competition concerns, based on an assessment of probabilities, and not a high standard such as beyond any reasonable doubt. Bertelsmann also stated that “given the features of antitrust proceedings, the appropriate standard would be analyzing market conditions as per balance of probabilities.”

Furthermore, increasing the standard of proof incumbent upon the EC will reduce its ability to effectively prevent harm in the market. Thus, if the EC is unable to gather evidence beyond a reasonable doubt to prove anti-competitive effects, it would be forced to find the dominant undertaking’s abusive behavior to align with the common market. This can lead to false negatives and under-deterrence of anti-competitive activities that would run contrary to the objectives of EU competition enforcement.

Conclusion

Therefore, in such cases of the dental industry, potentially abusive conduct under Art 102 by a dominant undertaking can be identified by checking for self-preferencing and discriminatory or excessive pricing. To establish these cases, the burden on EC should be to prove that anti-competitive effects are likely to occur. And for this exact reason, in cases involving imposition of significant fines, the standard of balance of probabilities based on evidence must be met, rather than a strong probability.