The Concept of Dominance in Estonian Competition Law

• Author: Katri Paas, Elo Tamm
• Pages: 134-141

Elo Tamm

LL.M., Attorney-at-law, Lepik & Luhaäär LAWIN Law Firm

Katri Paas

LL.M., Attorney, Lepik & Luhaäär LAWIN Law Firm

The Concept of Dominance in Estonian Competition Law

One of the aims of competition law is to set out rules for ensuring that companies holding a position of strength in the market would not take adverse advantage of such a position to the detriment of customers, suppliers, or competitors. By controlling mergers, competition law aims to prevent the emergence of dominant companies in order to prevent possible restriction of competition in the future. Therefore, the concept of dominance or dominant position appears as one of the central concepts of competition law. Additionally, in order to determine whether the ban against abuse of dominance set out in § 16 of the Estonian Competition Act ¹ applies to a certain company or whether a merger may be prohibited due to the creation or strengthening of dominant position, it is vital to define and understand the concept of dominance first.

The aim of this article is to provide an in-depth analysis of how the approach to the concept of dominance has evolved in the Estonian Competition Board's practice since the adoption of the current Competition Act in October 2001. It is important to note that the definition of dominant position in the Competition Act has changed over the years. Therefore, we first give an overview of the changes in the legal definition of dominance and, thereafter, inspect the relevant practice of the Competition Board.

The analysis takes notice of the use of the concept of dominance both in decisions relating to possible abuse of dominant position under § 16 of the Competition Act and in merger control decisions. It will be interesting to explore whether the evolution of the approach to the concept of dominance has been uniform in abuse and merger cases. We analyse cases wherein the Competition Board established the existence of dominance, as well as cases in which no dominance was determined to exist, since the latter also provide valuable insight into the Competition Board's reasoning concerning dominance.

1. Definition of dominance under the Competition Act

1.1. The definition of dominant position until 1 August 2004

It is important to note that two somewhat distinct definitions of dominant position have been laid down, in different versions of the most recent legislation referred to as the Competition Act. Until 1 August 2004, the definition of dominant position was set out in § 13 as follows:

For the purposes of this act, an undertaking in a dominant position is an undertaking holding at least 40 per cent of the turnover in the market or whose position enables it to operate in the market to an appreciable extent independently of competitors, suppliers, and buyers.

The explanatory memorandum to the draft Competition Act ² noted that the definition of dominant position in such a wording corresponded to the relevant EU laws, and particularly to the principles established in the Michelin case³. It must be noted, however, that the wording of the above § 13 of the Competition Act does not fully support such correspondence. It appears from the previous text of the definition that dominant position was deemed to exist whenever an undertaking held at least 40 per cent of the turnover in the relevant market, and there was no need for further analysis of market power. At the same time, if less than 40 per cent of the turnover in the market could be attributed to the undertaking, then it might have been seen as dominant if its position enabled it to act to an appreciable extent independently of its competitors, suppliers, and buyers.

This definition recognised only single firms' dominance, since it referred to one undertaking only, not several undertakings, in its wording⁴. At the same time, it has been established in EU competition law that in certain cases companies may be deemed to be collectively dominant. Generally, collective dominance may arise in an oligopolistic market, where the market is highly concentrated - i.e., where there are relatively few market players and where the market shares of the market players are comparatively high. In such a market, it might be that none of the undertakings is dominant on its own, but the high concentration of the market increases the likelihood that the undertakings are able to co-ordinate their behaviour and thus collectively hold a dominant position. However, as is stated already above, the previous definition did not enable taking into account potential concerns that might have arisen out of collective dominance.

1.2. The definition of dominant position since 1 August 2004

As of 1 August 2004, the emphasis of the definition is no longer placed on a purely market-share-oriented criterion; instead, a dominant position is established foremost on the basis of the market power of an undertaking. The 'market share of 40 per cent' condition serves as a rebuttable presumption of dominant position. As another significant amendment, the existence of collective dominant position was recognised after the above-referenced changes to the Competition Act entered into force.

The current definition of dominant position set out in § 13 of the Competition Act is the following:

For the purposes of this act, an undertaking in a dominant position is an undertaking or several undertakings operating in the same market whose position enables it/them to operate in the market to an appreciable extent independently of competitors, suppliers, and buyers. Dominant position is presumed if an undertaking or several undertakings operating in the same market account for at least 40 per cent of the turnover in the market.

This definition of dominance is more similar to that applied in EU competition law. However, the current wording still seems to have shortcomings. In careful reading of the second sentence of the above definition, one can notice certain controversy. It appears from that sentence that if several undertakings together hold a market share of 40 per cent, they are presumed to be collectively dominant. Pursuant to such regulation, all undertakings should be presumed to be constantly dominant, because no matter how many competing undertakings there are in the market, their combined market share is always 100 per cent - i.e., more than 40 per cent. Therefore, the current wording of the definition of dominant position, especially insofar as it concerns collective dominance, is not really logical and might, in our opinion, give rise to problems of interpretation.

2. Cases proceeding on the basis of the previous definition of dominant position

2.1. Abuse of dominance

From the practice of the Competition Board in abuse-of-dominance cases, it may be concluded that in the time of validity of the earlier definition of dominant position (from 1 October 2001 until 1 August 2004) the Competition Board supported the purely textually based interpretation of § 13 of the Competition Act and held there to be a dominant position when an undertaking had a market share of at least 40 per cent in the relevant market.

This can be seen from the STV ⁵ and Telset ⁶ cases, ruled upon by the Competition Board just two days prior to the entry into force of amendments to the Competition Act in relation to the definition of dominant position. Namely, the Competition Board held that both STV and Telset held a dominant position in the cable network services market in Maardu. The companies STV and Telset were the only providers of cable network services in Maardu, and the Competition Board found that the situation of both corresponded to the definition of a dominant undertaking since STV and Telset each accounted for more than 40 per cent of the relevant market in Maardu.

It is interesting that, even though the Competition Board found both undertakings to be dominant, it went further and carried out an analysis of the market power of STV and Telset. The Competition Board noted that STV had entered the cable network services market in Maardu in 2002 and quickly increased its market share to more than 40 per cent. At the same time, the market share of Telset decreased. The Competition Board remarked that a previous competitor, AS Nom, had sold its network to STV due to the aggressive entry to the market by STV and their below-cost price levels.

The Competition Board noted that, due to the limited number of customers in the cable network services market in Maardu, increase in the market share of one undertaking can take place only at the expense of its competitors. The Competition Board analysed the increase of turnover and customers of STV and the corresponding decrease in the customers and turnover of Telset and noted that a status of economic power and market power in neighbouring areas enabled STV to maintain an unreasonably low price level, the purpose of which could be the exclusion of competition from the relevant market.

One could argue that, as a result of such a market power analysis, the...