On 19 December 2005, the European Commission published a discussion paper on the application of Article 82 of the EC Treaty, which prohibits the abuse of a dominant position. The paper looks at the methodology for assessment of exclusionary abuses which exclude competitors from a market, such as predatory pricing, single branding and rebates, tying and bundling and refusal to supply. Exploitative abuses, where market power is exploited for example by a dominant firm's charging of excessive prices will be looked at in a separate piece of work which the Commission should publish this year.
It has often been said that EC case precedent on Article 82 places too much emphasis on the effect on competitors without considering whether or not there is any harm to competition. Neelie Kroes, chief Competition Commissioner, is an economist by training. Kroes is intent that it is competition and not competitors that is to be protected and that the ultimate aim is to avoid consumer harm. For Article 82 cases, she proposes an approach focusing on economic effects based on a full economic analysis of the overall situation as she says that market shares may provide an indication of dominance but focusing on market share does not take into account the degree to which competitors can constrain the behaviour of an allegedly dominant company.
When considering rebates or predatory pricing, it is questioned whether only the conduct which would risk the exclusion of equally efficient competitors should be considered as abusive. The "as efficient" benchmark would normally be the costs of the dominant company except where it is not possible to determine them or when the dominant company is a newly liberalised market or has first mover advantages that later entrants cannot match.
It is proposed that exclusionary conduct might escape the Article 82 prohibition if the dominant undertaking can provide an objective justification for its behaviour or it can demonstrate that its conduct produces efficiencies, which outweigh the negative effect on competition.
An objective justification could be that the dominant company shows that it is a loss minimising reaction to competition from others or it is necessary conduct on the basis of objective factors external to the parties involved and in particular external to the dominant company.
Interested parties have up until 31 March to make their views known to the European Commission. After which, they will consider these responses and those of the representatives of the member states and may then produce guidance on Article 82's application. This guidance could then be used by dominant companies to know whether or not their conduct is legal and by competition authorities to make their enforcement decisions.