Companies with a dominant market position may not abuse their market power.
According to chapter 2 article 7 of the Swedish Competition Act the abuse of a dominant position is prohibited. A corresponding prohibition is found in Article 102 of the Treaty on the Functioning of the European Union. Article 102 applies in parallel to chapter 2 article 7 of the Swedish Competition Act if the dominant position covers a substantial part of the internal market and the abuse may affect trade between Member States.
When does a company have a dominant position?
A company is considered to have a dominant position if it holds such market power that it can act without giving any, or giving only limited, consideration to its competitors, customers and suppliers. The single most important factor in determining whether a company is dominant is the company's market share. A market share of over 40 percent is a sign of dominance. The higher the market share a company has, the greater the likelihood that the firm is dominant. Other factors relevant for the assessment are, for example, competitors' market shares, the company's financial strength and if there are significant barriers to entry in the market.
Having a dominant position is not in itself prohibited. However, it is prohibited to abuse a dominant position, thus harming competition and consumers.
What is an abuse of a dominant position?
Due to its market power, a dominant undertaking may under certain circumstances impede effective competition. A dominant undertaking has a special responsibility not to harm competition. This means that conduct which is allowed and perhaps even positive for competition when applied by a company which is not dominant may constitute an abuse when practiced by a dominant company.
Dominant undertakings may, like any other business, compete on their merits (i.e. through competition on price and performance). When competitors are marginalised or even disappear from the market due to such normal competition, this does not amount to an abuse. An abuse usually means that the dominant undertaking, by means other than those attributable to normal competition, act in a manner that eliminates or impedes competition. Such practices may harm consumers directly or indirectly, as conditions for effective competition deteriorate. An example of the latter is so-called predatory pricing, benefiting consumers in the short term but which may weaken competition and thus lead to higher prices in the long term.
Objective justification and positive effects
If a company can show that a particular conduct is objectively justified, or that it leads to positive effects that outweigh the negative effects on competition and consumers, the conduct is not an abuse.
Here are some examples of what might constitute an abuse of a dominant position.
Refusal to supply
Generally, even a dominant undertaking has the right to choose which companies it enters into agreements with. However, if a dominant undertaking refuses to supply a product or service that is essential for the company which asks for it to be able to compete effectively, it may constitute an abuse.
Terms and conditions which stipulate that a customer has to purchase all or a major part of its requirements from a dominant undertaking may make it more difficult for other companies to compete effectively. The same applies to terms and conditions forcing a supplier only to deliver to the dominant undertaking. Such conditions may therefore constitute an abuse.
Low prices are usually good for consumers. If a dominant undertaking applies prices so low that they do not cover its costs, this may lead to foreclosure of competitors that are as efficient as the dominant undertaking. This can in turn lead to higher prices in the long term. Predatory pricing may thus constitute an abuse.
Rebates are also usually good for consumers. If a dominant undertaking applies loyalty rebates that tie in customers, it can be difficult for other companies to compete effectively on the market. Under certain circumstances, the application of such rebates may constitute an abuse.