EVOLUTION OF THE CONCEPT OF COLLECTIVE DOMINANCE
Updated: Feb 21, 2019
This piece has been authored by Shaurya Aron, a third-year student at Rajiv Gandhi National University of Law, Punjab.
In an attempt to address the anti-competitive effects associated with acts of tacit parallelism, the debate amongst legal scholars and commentators saw a shift towards finding a solution through the application of Article 102 of Treaty on the Functioning of the European Union (TFEU). A similar debate was sparked amongst the US scholars in the 1960s where they “suggested the development of a case-law which would bring the “shared monopoly power” of oligopolies within the reach of Section 2 of the Sherman Act”[i]. In the EU, Article 102 TFEU (formerly Article 82 of the Treaty establishing the European Community) served as an optimal choice due to its explicit reference to “abuse by one or more undertakings of dominant position”, extending the scope to cover joint abuse of dominance on the part of oligopoly firms. The concept of collective dominance, covered under Article 102 TFEU seemed a suitable choice to deal with oligopoly problem.
As has been observed, any act of “abuse by one or more undertakings of a dominant position” insofar as it affects the trade between member states violates Article 102 TFEU. Thus, it offers a wide scope inasmuch as it can be used to regulate or control the behaviour of a single undertaking abusing its dominant position as well as of those independent oligopolists or duopolists which abuse their collectively held dominant position in the market.[ii] The key issues that arose in the process of finding a solution of the oligopoly problem through the application of the concept of collective dominance under Article 102 TFEU concerned the question of what constitutes collective dominance and the way in which it is established. The answers to these questions have evolved over the years through case laws. Italian Flat Glass[iii] case is believed to be the first known account where the Court of First Instance recognized the concept of joint dominance by one or more undertakings[iv]: “firms, legally and economically independent, had arranged agreements falling under the Article 81 [of the Treaty establishing the European Community (now Article 101 of TFEU)] provision, and, at the same time enabling them to act independently from clients, customers and rivals”. However, the concept found a mention in a number of earlier cases which got its final shape and meaning in the jurisprudence subsequent to the Flat Glass case.
In Deutsche Grammophon[v], the Court of Justice of European Union mentioned about the ability of the manufacturer (or manufacturers) “alone or jointly with other undertakings in the same group” to harm competition. Similarly, in a subsequent case law European Sugar Industry[vi], the concept gained further clarity and formed the first basis for the literal interpretation of the concept that became defined later on. As Filippelli (2008)[vii] states, ‘[t]he European Commission had already applied Article 82 to two independent sugar producers that, holding “a dominant position on the Dutch market […] have acted in a uniform manner and always appear as a single entity”.’[viii]
However, Petit[ix] gives an even earlier account of the encounter with the concept in some of the discussions amongst eminent scholars. According to him, it was in 1965 when some of the professors, appointed by the Commission, for the purpose of studying the problems faced while interpreting Article 102 TFEU, suggested a possibility of applying abuse of dominance law to oligopolistic price leadership. Moreover, in the footnote, he mentions a case where some French scholars contended that such use of the term ‘one or more’ was done purposely to cater to the situation of independent oligopolists.[x] While there were speculations amongst scholars that the concept was devised to look into collective market domination acts, Petit (2013) argued that the literal interpretation of ‘abuse by one or more undertakings’ could instead be taken to mean that it caters to abuse by more than one independent undertaking instead of ‘joint market position’. Thus, the interpretation of the concept remained highly debatable when in 1970s the Commission tried to use the concept to prove collective dominant position held by two oil distributors in the Netherlands, BP and Gulf, as their market conduct (of reducing supply to one of its customers) was liable to be prosecuted under Article 102 TFEU on account of being an abuse by entities which collectively held a dominant position. It was a passive attempt since the final decision remained mute on the position regarding collective dominance.[xi]
Despite these attempts, the European Court of Justice resisted adopting such an approach of dealing with the oligopoly problem through the concept of collective dominance under Article 102 TFEU. In Hoffman-La Roche v. Commission,[xii] the Court stated specifically that the positions of dominance must also be separable from the parallel conducts of the firms. Such conducts exist in oligopolies peculiarly. While in the case of firms occupying positions by way of which they derive profits is greatly determined unilaterally.
The scholars have held multifarious opinions on this. Filippelli (2008) states that this clearly reflected a desire to delineate the scope of article 101 and 102 by making a distinction between “dominant position and conscious parallelism” which in turn marked their different legal treatments.
Fillipelli further stated that assessment of Articles 81 and 82 of the Treaty establishing the European Community needs to be carried out by competition authorities to determine their joint applicability. For this he instated the need for a clear delineation of the areas where the said rules could be applied individually. He stated that legal treatment provided by the said articles is based on the influence of the structural differences.[xiii]
On the other hand, Whish (2003)[xiv] believed that the Court seemed to reject the idea of employing Article 102 (then Article 82 EC) to deal with issues concerning tacit coordination on the ground of reluctance to prohibit acts that may be a result of rational adaptation to market conditions, however abusive they may seem to be. Further he stated, Petit  held a similar view, although he did not specifically refer to the Court’s concern about punishing rational behaviour in the name of abusing collective dominant position. He simply stated, “[t]he growing willingness of the Commission to control oligopolies with Article 102 TFEU sparked resistance at the Court of Justice.” The court thus initially tried oligopoly defense to counter its applicability and then tried to make a clear distinction through its Hoffman-La Roche statement.
However, despite all these speculations, the concept of collective dominance was not laid to rest. The difficulty in proving intentionality aspect of parallel behaviour made it obvious to abandon the idea of utilizing Article 81 (now Article 101) for the purpose of dealing with anti-competitive conducts in oligopolistic markets. Abuse of dominance, being an objective notion, seemed to fit the purpose lacking any subjective element such as intentionality. To bring oligopolistic parallelism within the contours of Article 102, it was necessary to take help of a collective dominance approach.
In Italian Flat Glass, three major producers of flat glass were found to infringe Article 101 by means of unlawful collusion and Article 102 by abusing their collectively held dominant position in the market for flat glass. They were believed to be a part of tight oligopolistic market structure where they could remain unaffected from the competitive pressures, both actual and potential, and hence could effectively impede competition in the market.
“Technological maturity, high start-up investments, and demand stagnation”[xv] were some of the factors that supported their collective dominant position on the market. The non-automotive segment of the market was found to be affected by a range of anti-competitive conducts including “simultaneous publication of identical price lists, alignment of discounts’ rates, and a praxis of forcing wholesalers to pass price increases to their final customers.”[xvi] On the other hand, the Commission found an infringement of Article 101 by two of the firms who entered into a concerted agreement to engage in parallel behaviour in setting prices in the automotive segment of the market.
The other evidence that supported such claims of infringement included high market shares (79% in non-automotive segment and 95% in automotive segment) likely to be sustained through high entry barriers, systems of information sharing making it easier to adopt a common conduct with regard to prices, product exchanges amongst firms that “ensured to each manufacturer a portfolio of supply that included all glass products, although each produced only specific items”.[xvii] These factors buttressed Commission’s belief regarding the existence of collectively held dominant position which was abused by the firms, infringing both Articles 101 and 102. Through this case, the Commission confirmed the view that an infringement based on a collectively held dominant position amongst a number of economically independent firms which are connected by economic or structural links, is liable to be prosecuted under Article 102 TFEU.[xviii]
The main issue raised when the decision was appealed before the Court of First Instance (then General Court) was regarding the expression ‘one or more undertakings’ as specified by Article 102 TFEU. The Court, for the purpose of finding the correct interpretation, referred to the definition of the undertakings as specified by Article 101, where it comprises those firms that are economically independent entities capable of competing with each other in the relevant market. It then stated that there seems to be no valid reason (legal and economic) to change the definition for the purpose of finding a collective dominant position under Article 102 TFEU. The Court thus upheld Commission’s conception of the concept of collective dominance. However, it introduced a new element to this clarification by stating that, nothing prevents two or more firms to be united by economic links which result in the firms occupying a dominant position in the same market. Joint and collective technological leads, by way of agreements or licensing, work as valid examples where firms can operate independently of their competitors and consumers.[xix]
Thus, the Court in its statement, made clear that existence of economic links amongst entities is a prerequisite for them to exercise their collectively held market power. Also, it gave an example of such economic link where two or more firms engage into agreements to strengthen their joint technological lead in the market. Following this, a huge debate was sparked amongst the scholars as to what constitutes ‘sufficient economic links’ to demonstrate a dominant position held by independent undertakings. These ranged from “direct and indirect agreements amongst independent firms”[xx] to oligopolistic interdependence found in tight oligopoly structures.
On one hand, the Court gave due recognition to the concept of collective dominance by allowing economically independent undertakings to be a part of such a practice. On the other hand, it defeated “Commission’s attempt to insert collective dominance in an objective framework, and to recognize that oligopoly itself, under specific conditions may be the primary case of the alignment, without any need either of agreements or of concerted practices.”[xxi]
Whish (2003) argued that the Court’s judgment, while seeming to give clarity on the notion of collective dominance, failed to do so. H