A dominant firm abuses its power when it engages in practices with the aim of eliminating or substantially lessening. 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, an incumbent might offer an improved level of service to customers served by one new entrant.
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.
If the firm is dominant in the relevant market, the behaviour does not necessarily constitute and abuse of its position: is the behaviour harmful to competition and to consumers? It is important to distinguish between aggressively competitive behaviour that harms individual competitors but benefits customers (for example by reducing prices), and behaviour that is anti-competitive because it harms competition.
A range of possible remedies exists. Which remedy is appropriate will depend on the specific nature and seriousness of the behaviour, and the likelihood that the firm may repeat the behaviour in the future.
Directive Remedies, such as injunctions or bans, require the firm to:
· Cease its abusive behaviour, or
· Make specific changes to its behaviour so it is no longer damaging to competition.
Directive remedies may require ongoing monitoring, to ensure that the behavioural change is sustained.
Punitive Remedies include:
· Fining the firm,
· Ordering the firm to pay compensation to its competitors and/or customers,
· Fining company officers with direct responsibility for the behaviour.
Punitive remedies are intended to discourage abusive behaviour in the first place by making such behavior unprofitable. However, this objective must be weighed against the potential to “chill” competition. If the penalty for abuse is very high, then dominant firms will “err on the side of caution” and compete less aggressively.
Box 2.2: Abuse of Dominance in Poland
In June 2011, the European Commission imposed a fine of €127 million on telecoms operator Telekomunikacja Polska S.A. (TP) for abusing its dominant position in the Polish market.
Poland has one of the lowest broadband penetration rates in Europe - in January 2010 it reached only 13%, significantly below the EU average of 24%.Consumers have also suffered from lower connection speeds: 66% of Internet access lines in Poland do not exceed the speed of 2Mbit/s compared to an EU average of just 15%. Finally, monthly prices per advertised Mbit/s were much higher than the prices in other Member States and the second highest in the OECD area.
In order to provide broadband Internet access to end-users, new market entrants need to acquire wholesale broadband access and local loop unbundling. In Poland, these are exclusively provided by TP which proposed unreasonable conditions, delayed the negotiation processes, rejected orders in an unjustifiable manner and refused to provide reliable and accurate information to alternative operators. Together, these practices prevented alternative operators from competing effectively in the market and constituted an abuse of TP's dominant position on the Polish broadband market.
Telekomunikacja Polska’s total turnover in 2010 was € 3.9 billion (PLN 15.7 billion). The fine takes account of the duration and gravity of the infringement and has been calculated on the basis of the average value of TP's broadband sales between 2005 and 2009 in Poland. TP’s turnover in 2010 was € 3.9 billion.
Source: European Commission, Press Release, 22 June 2011.
Some form of separation may also be considered.