Abuse of Dominant Position

We are all delighted when firms compete for our business - not only by being efficient and customer friendly, but also by offering volume discounts ("three for the price of two", "buy one, get one free") and loyalty discounts such as as airmiles, reward cards, Nectar cards and Clubcards. But there comes a point when such behaviour becomes anti-competitive. A large company may, for instance, temporarily reduce certain prices so as to squeeze a smaller rival out of business. Or it may refuse to supply a customer who threatens to start buying part of their supplies from a smaller competitor. Such behaviour is, in law, abuse of a dominant position and can lead to the imposition of large fines of up to 10% of turnover in all of the relevant years.

The most commonly attacked forms of abuse are as follows:

• Limiting production - perhaps by failing to expand or invest, so increasing profits but disadvantaging customers who cannot easily move elsewhere.
• Price discrimination - offering rebates to certain favoured customers, but not to others - who may be competing with you in other markets. But banks, for instance, are not prohibited from offering good interest rates to new customers, but switching established customers to much lower rates.
• Tying - such as tying one product to the sale of another, being restrictive of consumer choice and depriving competitors of outlets. This led the European Commission to fine Microsoft Euros 497 million for including its Windows Media Player within the Microsoft Windows platform.
• Refusal to supply a facility which is essential for all businesses attempting to compete.
• Predatory pricing - the practice of dropping prices of a product so much that one's smaller competitors cannot cover their costs and fall out of business.

Abuse of dominance investigations are carried out in the UK by the Office of Fair Trading (OFT) under Chapter II of the 1998 Competition Act 1998, which closely mirrors what is now Article 102 of the Treaty on the Functioning of the European Union (TFEU).

The problem is that dominance is hard to prove, and abuse of dominance even harder, given that much "abuse" is regarded as feisty competition when carried out by smaller firms. Indeed, executives of larger companies under such investigation often complain that they are being penalised for being successful. Abuse investigations are also always very hard fought, partly because the fines can be so high and also because of the word abuse and the associated accusation of wrongdoing. The European Commission has had some luck under Article 102 (and its predecessor legislation) with victories over Microsoft, for instance - see "tying" above. But it is hard to bring to mind a successful UK Chapter II investigation. Indeed the OFT has been investigating Mastercard interchange fees since 2000. Market Studies and Market investigations have been much more successful

The European Commission announced in November 2010 that they are investigating possible abuse of dominant position by Google. The investigation will try to determine whether the firm's method of generating unpaid results adversely affects the ranking of other firms, specifically those providing so-called vertical search services such as sites that offer price comparison. A UK company called Foundem filed the complaint, amongst others, in February 2010, alleging that Google's search algorithms "remove legitimate sites from [its] natural search results, irrespective of relevance". It also says that the firm promotes its own services over those offered by competitors:- "Google is exploiting its dominance of search in ways that stifle innovation, suppress competition, and erode consumer choice". Google, however, argues that there are good reasons why Foundem's site is ranked poorly. For example, it said, Foundem "duplicates 79% of its website content from other sites."