2.5.1 Abuse of Dominance

Abuse of dominance occurs when a dominant firm adopts predatory or exclusionary business practices with the aim of eliminating or substantially lessening competition and excluding competitors. Abuse of dominance may entail:

Refusals to deal, for example a refusal to supply an essential facility to a competitor,
Exclusive dealing arrangements, in which a seller prevents its distributors from selling competing products or services,
Tying and bundling, where a firm sells makes the purchase of one product or service conditional on the purchase of a second product or service,
Predatory pricing, where a firm sets prices below cost in order to force a competitor out of the market,
Non-price predation, where a firm adjusts the quality of its product offering to customers with the aim of harming its competitor. For example, a incumbent might offer an improved level of service to just those customers served by a new entrant.

In 2003, Deutsche Telekom (DT) was found to have abused its dominant position by committing a price squeeze, contrary to Article 82 of the European Commission Treaty. DT offered local access services at the retail level to end-users and at the wholesale level on an unbundled basis to competitors. DT was thus active in both upstream and downstream markets. Beginning in 1998, DT had been legally obligated to provide competitors with wholesale access to its local loops. In its decision finding that DT had abused its dominant position, the European Commission found that DT charged new entrants higher fees for wholesale access to the local loop than what DT charged its retail subscribers for fixed line subscriptions. The Commission assessed the margin between DT’s wholesale access prices and the weighted average price of its corresponding retail services for access (analog, ISDN, and ADSL). Given that wholesale access prices were higher than the weighted average of the corresponding retail prices charged to end-users, the Commission determined that the price margin was insufficient for new entrants to compete with DT. The Commission concluded that DT’s pricing practices constituted a price squeeze. The Commission further concluded that DT’s pricing for local access services deterred new competitors from entering the local access market and reduced the choice of telecommunications service providers for consumers and suppressed price competition. DT unsuccessfully appealed this decision to the European Court of First Instance (CFI). For more details about the DT abuse of dominance case, please see the Practice Note "Vertical Price Squeeze Charge against Deutsche Telekom". A link to this Practice Note is set out below.

Article 82, European Commission Treaty
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 in so far 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.

A firm does not need to be dominant (in the sense of possessing a high market share) in order to implement these strategies. However, the consequences for competition can be particularly severe when the firm concerned is dominant.