Control of abusive practices
German and European competition law both prohibit the abuse of a dominant position.
- When is a company dominant?
- What are abusive practices?
- Examples of a prohibited abuse
- Penalty options
Some companies, however, are not exposed to any effective competitive pressure and therefore have a larger scope for action vis-à-vis competitors, suppliers and customers. It is not forbidden for a company to gain or hold such a position of economic power. In fact, this is often the result of great innovative power, special expertise and the readiness to take risks.
However, it is the purpose of competition law and the task of competition authorities to prevent the abuse of such market power. The control of abusive practices therefore acts as a regulatory tool of the state in the absence of competition.
When is a company dominant?
According to German law, a company is dominant if it is not exposed to any substantial competition or has a paramount market position in relation to its competitors. Whether a company holds such a paramount position on the relevant market is assessed in an overall appraisal of all competition-relevant criteria such as, e.g. the market shares of the company and its competitors, the availability of competition-relevant resources (e.g. patents, production sites, distribution networks), barriers to entry for newcomers, limits to the expansion of suppliers already active on the market, switching costs for customers and the buying power of the opposite side of the market.
German law also provides for behavioural rules for non-dominant companies if other companies, in particular small and medium-sized businesses, depend on them. In relation to these dependent companies, the ones on which they depend are often referred to as powerful companies.
What are abusive practices?
Abusive practices are actions that a dominant company can only pursue on account of its market power and that hinder or discriminate against other companies or their customers in a way that would not be possible if effective competition existed.
Irrespective of their market position, all companies are prohibited from inducing other companies to engage in anti-competitive conduct or to call for a boycott of third companies.
Examples of a prohibited abuse
An abusive hindrance or so-called exclusionary abuse exists, for example, where a dominant company uses its superior position to deny its competitors access to its networks, pipelines, ports, etc. or other facilities essential for competitive activities.
Exclusionary abuse can also exist where a dominant company tries to squeeze its competitor out of the market by means of a cut price strategy.
It can also be considered abusive if a company with a dominant position in the supply of certain products makes the purchase of these products subject to the purchase of other products of little market significance. This can be a case of compulsory bundling but can also imply a tying strategy implemented by means of price incentives.
An exploitative abuse can exist if a dominant company demands unreasonable prices or terms and conditions from its customers or suppliers. In such cases the Bundeskartellamt has, for example, achieved considerable price adjustments and reimbursements for gas, electric heating and water customers in the general public services sector. To ascertain whether a certain conduct is abusive the Bundeskartellamt applies the so-called “comparative market concept”. Possibly excessive prices are compared with prices that have developed in structurally comparable but competitive markets.
There are two possible ways for the Bundeskartellamt to act against abusive conduct. Firstly, by means of administrative proceedings it can order that the conduct objected to be discontinued. If a company has charged excessive prices, it can order the company to reimburse its customers. The companies can also undertake commitments to end the conduct in question. Secondly, it can impose fines within the framework of administrative offence proceedings.