Control of abusive practices

A company´s economic power is usually limited by comparable offers from rival companies. As long as market participants have sufficient possibilities to switch to alternative suppliers or customers, the scope of action companies have is effectively limited. Some companies, however, are not exposed to any effective competitive pressure and therefore have a larger scope of action when dealing with competitors, suppliers and customers. It is not forbidden for a company to gain or hold such a position of economic power. In fact, this is often the result of great innovative power, special expertise and the willingness to take risks. However, it is the purpose of competition law and the task of competition authorities to prevent companies from abusing such market power. The control of abusive practices therefore is a regulatory tool which can be used by the state in the absence of competition.

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The markets of the digital economy are characterised by specific features: In particular, network effects, data advantages and the associated feedback loop effects can lead to strong concentration tendencies which set in quickly. These circumstances as well as the advantages associated with the economies of scale and the resources available to established digital companies, in particular, can make it very difficult to challenge a business´s strong market position once it has been attained. Under certain circumstances the Bundeskartellamt can therefore intervene at an earlier stage if there is a risk of adverse developments.

When is a company dominant?

Not every company that is large or economically strong is also dominant within the meaning of competition law. A company is dominant if it has no competitors in a market or is not exposed to any substantial competition or has a paramount market position in relation to its competitors. As a consequence its competitors cannot sufficiently control the dominant company’s scope of action.

Whether a company holds such a paramount position in the market affected is assessed in an appraisal of all the criteria relevant to competition, such as e.g.:

• its market shares and the market shares of its competitors (the threshold value for assumed market dominance is a market share of 40 per cent);
• the number and size of its competitors;
• its access to relevant resources (e.g. patents, production sites, distribution networks);
• opportunities for newcomers to enter the market;
• the buyer power on the opposite market side.

In addition, there are other criteria which may be relevant particularly for multi-sided markets and networks and for assessing market power in the digital economy, e.g.:

• Are there any direct and indirect network effects?
• Do users typically use several services in parallel (multi-homing) or is it difficult for them to switch services?
• Are companies under pressure to innovate in order to stay competitive?
• Do companies have access to data relevant for competition?

Click here to find out more about the specific elements of abuse control applicable to large digital companies (Section 19a German Competition Act – GWB).

Relative market power and powerful companies

It is a special feature of German competition law that abuse control can also be applied to companies which are not dominant but ...

... on which other companies are dependent. There are no sufficient and reasonable possibilities for switching to third companies.

... which act as intermediaries on multi-sided markets (e.g. as an internet platform) and on whose intermediary services other companies are dependent.

 Dependence may also arise from the fact that one company controls data and another company needs to access these data to carry out its own activities.

Such companies are referred to as undertakings with relative or superior market power.

What are abusive practices?

It is not prohibited for a company to have a strong or even dominant position in a market. The fact that companies strive to attain such a position is an integral part of competition. However, it is prohibited under competition law to abuse such market power.

Practices of dominant companies may be considered abusive if they discriminate against other businesses or impede their opportunities to compete. Practices may also be considered abusive if the companies demand prices or terms and conditions that exploit their customers, suppliers or users.

Irrespective of their market position, all companies and associations of undertakings are prohibited from encouraging other companies to engage in anti-competitive conduct or from calling for a boycott of third companies.

Typical examples:

• Prohibition of unfair impediment: Any unfair impediment which adversely affects the competitive position of other
  companies without any objective justification is prohibited.
  Examples: Long-term discount contracts with customers in order to squeeze competitors out of the market or tying agreements which tie the purchase of one product to the purchase of another product.
• Prohibition of discrimination: Prohibition of discrimination against individual companies or their preferential treatment over others without any objective justification.
  Examples: Significantly different payment for similar services or the refusal to supply or enter into a business relationship
  with certain companies.
• Exploitative abuse: Unreasonable prices or conditions are demanded from customers or suppliers. Whether such demands are abusive is assessed (where possible) according to whether they are clearly excessive or less favourable than on a comparable market with effective competition.
  Examples: Excessive district heating or water prices for household customers or unfair terms of contract
• Demanding unjustified benefits (so-called Anzapfverbot): A dominant or powerful company requests the opposite market side to offer benefits without any objective justification. Example: A large supermarket chain demands special discounts from its suppliers without providing any relevant services in return.

What can the Bundeskartellamt do?

If the Bundeskartellamt suspects that a company is abusing its market power, it can initiate administrative and/or fine proceedings.

Administrative proceedings are initiated especially in complex cases which raise difficult legal and economic questions, and when it has to be clarified in exemplary proceedings how the circumstances of a particular case are to be assessed under competition law.

The Bundeskartellamt can conclude administrative proceedings for example by ordering that ...

... the abusive conduct be ended;

… the company alter its conduct in future or implement certain measures;

… customers be reimbursed for the abusively excessive prices.

The main aim of abuse proceedings is to restore and promote competition by ordering companies to change their practices.

The Bundeskartellamt may, however, decide to initiate fine proceedings especially in cases of recurrent abusive behaviour or in cases with a high potential for significant harm.

Indications that a company may be abusing its market power

In practice it is not always easy to determine whether a company is powerful within the meaning of competition law and at what point its conduct becomes abusive. However, you can help the Bundeskartellamt by blowing the whistle on potentially abusive practices of dominant companies.