Abuse of a dominant position

An undertaking with a dominant position in a market can have both incentives and the ability to make it difficult for competitors to compete effectively. If an undertaking is dominant, competition in the market will already be weakened. Behaviour in the market that further restricts competition could harm consumers through higher prices, lower quality, less choice or less innovation.

The Norwegian Competition Act therefore prohibits a dominant undertaking from abusing its dominant position. A corresponding prohibition is laid down in Article 54 of the EEA Agreement and Article 102 of the Treaty on the Functioning of the European Union (TFEU).

A dominant undertaking has a special responsibility to ensure that its market conduct does not restrict competition or creates a risk of such harm. It is important that undertakings with a dominant position are aware of this responsibility.

 

When does an undertaking have a dominant position?
An undertaking is dominant if it is in a position that allows it to behave to an appreciable extent independently of its competitors, customers and end-users. To assess whether that is the case, the market in which the undertaking may be dominant must first be defined.

A dominant position will typically exist when an undertaking has a significant market share and that market share is considerably larger than its competitors’. The number of competitors, their markets shares and opportunities for expansion, as well as barriers to entry for new market players and customers’ buying power are other factors that are taken into account when determining whether an undertaking is dominant.
In general, there will be considerable barriers to expansion and entry in a market where an undertaking has a dominant position. Such barriers will often make it difficult for other market players to challenge the dominant undertaking’s powerful position. In a market where one undertaking is dominant, buyers will, in general, have limited freedom of choice and few alternative suppliers they can turn to.

 

What constitutes abuse of a dominant position?
Due to its powerful position in the market, a dominant undertaking may be able to act in ways that restrict actual or potential competitors’ opportunities for growth and market entry. Such conduct may constitute abusive behaviour and can take many forms.

The term “abuse” is, a priori, objective, so no proof of the undertaking’s subjective intent to harm competition is required. Proof of such intent may nevertheless corroborate the existence of abuse.
Loyalty-inducing discounts, exclusive agreements with customers or payments to customers on the condition that they do not buy competitors’ products are examples of behaviour that can wholly or partly exclude competitors from the market. Such market behaviour may constitute an abuse of a dominant position if it has the capacity to restrict competition.

Dominant undertakings are, however, not prevented from competing on the merits, for instance by offering competitive prices or products. Such competition may result in smaller, less efficient competitors being forced out of the market. On the other hand, smaller competitors might, for a period of time, be less efficient than a dominant firm, but have the potential to become efficient competitors in the longer run. It may therefore be problematic if the conduct of a dominant undertaking forecloses such competitors from the market.

Low prices will not normally constitute an abuse. If, however, a dominant undertaking sells its products at a loss for a certain period, with the intention of squeezing a competitor out of the market or to discipline the competitor’s market behaviour, an abuse may exist in the form of predatory pricing. Such pricing could exclude competitors from the market who are as efficient as the dominant firm, to the detriment of competition and consumers. A detailed analysis of the dominant undertaking’s costs and revenues will normally be necessary before predatory pricing can be established.

Generally, undertakings are entitled to decide for themselves with whom they wish to deal. This also applies to dominant firms. However, the refusal to supply a product or service may constitute an abuse of a dominant position in certain cases. If the refusal to supply a product or service eliminates competition from a market and the input factor concerned is indispensable in order to be active in that market, an abuse may exist unless the refusal can be justified on objective grounds.

Other forms of market behaviour may also constitute an abuse, if the behaviour is capable of restricting competition.

A dominant undertaking is entitled to provide a justification for behaviour that would otherwise be deemed abusive. Firstly, there will be no abuse if the dominant undertaking can show that its behaviour has been objectively necessary and proportional. Secondly, no abuse will exist if it can be demonstrated that the behaviour is efficiency enhancing and, overall, benefits consumers. The benefits obtained by the consumers must be sufficiently probable and impossible to realise in a way that restricts competition to a lesser extent. Nor may the behaviour eliminate competition from the market.

 

Sanctions
An abuse of a dominant position is unlawful and contravenes Section 11 of the Norwegian Competition Act.

Pursuant to Section 29 of the Norwegian Competition Act such infringements can be sanctioned with administrative fines if they have been committed intentionally or negligently. Administrative fines may not exceed 10 per cent of the dominant undertaking’s total turnover.

The Norwegian Competition Authority may order the dominant firm to bring the infringement to an end. Such cease and desist orders may be imposed in addition to administrative fines. To ensure compliance with a cease and desist order, periodic penalty payments may be imposed.

A case may also be closed by means of a commitment decision. It is up to the dominant undertaking to propose appropriate corrective actions in the form of commitments. If the proposed commitments are accepted, the Authority will adopt a decision making the commitments binding. Failure to comply with a commitment decision may result in the imposition of administrative fines.

 

Appeal
The Norwegian Competition Authority’s decisions may be appealed to the Norwegian Competition Tribunal.

 

Suspect wrongdoing? Let us know
The Norwegian Competition Authority urges individuals and undertakings to inform the Authority of possible abuses of a dominant position.
The Authority has a duty to keep the identity of informants secret. This duty also applies vis-à-vis the parties involved in the case and their representatives.

To contact us you can use our dedicated phone number: +47 55 59 75 55

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