New Guidelines for the Analysis of Cases of Exclusionary Abuse of Dominance

Previously, in September 2018, the Antitrust Commission (the “Commission”) had submitted a draft of the guidelines for the analysis of abuse of dominance to national and international public consultation with the aim of issuing a resolution that enacted said guidelines, including all the comments that were received. The public consultation was favorable and received contributions from competition agencies of other countries, international organizations and experts in the field, which were enshrined in these guidelines.

The main novelties introduced by the “Guidelines for the Analysis of Cases of Abuse of Dominance (the “Guidelines”)  are the following:

Implementation Framework

Anticompetitive conducts may be qualified as those that are unilaterally committed and those that are committed in a coordinated manner. Likewise, it is possible to sub-divide the abusive conducts between those that are exclusionary and those that are exploitative. These Guidelines only refer to the unilateral exclusionary abuses of dominance, which are the most frequent ones, pursuant to the experience of comparative case law.

The Commission details that the exclusionary abuses of dominance are those that “…eliminate or substantially weaken competition from existing competitors or that erect or reinforce barriers to the entry of new competitors, eliminating or weakening potential competition”.

Despite the Commission’s own delimitation, the Guidelines explicitly state that, although this document is focused on cases of abuse of dominance and not on other types of anticompetitive conducts, some of the criteria set out may be applied in those cases.

Existence of Dominant Position

Chapter II of Antitrust Law No. 27,442 (the “Antitrust Law”) (in Sections 5 and 6) regulates the dominant position, setting out its definition and the different factors for its identification. Regulatory Decree No. 480/2018 did not regulate these sections; therefore, the Antitrust Law together with the case law on the matter, makes up the applicable theoretical framework.

The Guidelines crystallize certain criteria – apart from those detailed under Section 6 of the Antitrust Law– with regards to the determination of the existence or not of a dominant position. In principle, it details that the existence of a dominant position is always relative to a certain market whose definition is paramount. To that end, it establishes two criteria for its identification: (i) the market shares of the companies; and (ii) the impact of time.

With regards to the first one, the Commission characterizes that in situations in which an investigated company has a market share of less than 40%, “it is unlikely” that it may have a dominant position – even if said company has the largest share in the relevant market.

In relation to the second one, the Commission details that a high market share over an extended period of time “is a necessary condition, but is not sufficient” to identify the existence of a dominant position. Likewise, the smaller the difference is between the market share and that of its closest competitor, the lower the probability that the former holds a dominant position in the relevant market.

Abuse of Dominant Position

The Guidelines make clear a maxim of competition law: A dominant position is not illegal. This is so, since it can be acquired through competition over the merits and an innovative company can obtain it because it creates new products or processes and benefits consumers. However, the Commission provides, these companies will not be evaluated with the same yardstick as the rest, but pursuant to the Guidelines “they have a special responsibility not to abuse of that position and in particular to prevent their behavior from affecting the competitive process”.

The Guidelines also highlight the distinction between abuses of dominance that harm the general economic interest and those in which only particular interests are affected. The Antitrust Law protects the competitive process and not one of the competitors in a specific way.

Another element highlighted by the Commission is the consideration of whether the conduct can be “replicable” by other companies. If the conduct is not replicable by an equally efficient competitor, it could be interpreted as evidence that the conduct represents an abuse of dominance.

Finally, in relation to the potential of the conduct to harm the general economic interest, the Commission clarifies that for this to occur, it is enough to elaborate a reasonable theory of occurrence of the harm to the general economic interest and that, on the contrary, there is no reasonable theory that explains the conduct in a context of absence of harm to the general economic interest.

       a. Factors to be considered for the existence of exclusionary abuses

As a general tool (before delving into the specifics of each conduct included under Section 3 of the Antitrust Law), the Commission lists the factors that should be considered to assess the existence of possible exclusive effects, so that an anticompetitive market foreclosure is established. Namely:

1. Entry barriers to the markets in which suppliers or clients operate
2. Position of the competitors of the dominant company and the feasibility to replicate or counteract the investigated conducts
3. Position of the clients or suppliers, with regards to some specific ones that are important for the entrance or expansion of the competitors
4. The extent of the investigated conduct (considering the proportion of sales in the relevant market and the extension of the conduct)
5. Evidence of exclusionary effects (e.g. the exit of the market or the reduction of the competitors’ shares / increase in the shares of the dominant company or slowdown of its decreas
6. Evidence of an exclusionary strategy (e.g. documents or plans with evidence)

2. Efficencies

The Guidelines set out requirements for the efficiency gains to be considered as a pro-competitive justification for a harmful conduct. To that end, efficiencies must fulfill each of the following conditions:

1. To directly arise from the conduct and not to be reached through less restrictive alternatives
2. To be likely and that its performance does not depend on factors that are totally beyond the control of the company. Not to be vague and to be verifiable
3. To demonstrate that they will overcome any probable negative effect over competition and the welfare of the consumers
4. Not to eliminate effective competition by suppressing actual or potential competition sources

Specific Forms of Abuse

Horizontal Restrictions

         a. Refusal to deal

The new Guidelines crystallize the case law of the Commission, stressing that companies have the right to freely choose  with whom and under what conditions they market their products; therefore, refusing to sell certain goods does not usually constitute a harmful practice. However, when such conduct is carried out by a company with a dominant position, the client may not have the option to acquire the good or service from another supplier.

The Guidelines set out that to assess whether a refusal to deal may constitute an abuse of a dominant position, it is important to consider (i) whether it has the ability to exclude (or reduce the ability to compete) the affected customer in any of the markets in which it operates; and (ii) if this situation generates a reduction in competition. Regarding the latter, the Commission highlights the following factors to be considered: a) if the company operates both “upstream” and “downstream”; b) if the refusal refers to a good or service that is essential to compete “downstream”; c) if the refusal leads to an elimination of effective competition “downstream” (evaluating, the market share “downstream”, the limitations of productive capacity, the possibility of capturing demand of excluded competitors and if the input is provided by a natural/legal monopoly); and d) if the elimination ends up causing a harm to the consumers of said good or service “downstream”.

The Guidelines also highlight some examples of strictly commercial or legal justifications that do not entail an anticompetitive conduct, such as when a customer has a low credit rating or has not complied with payment duties or faces capacity or inventory issues.

Case: “Santa María and Mr. Guanzetti”

In a recent case, the owner of a business that sold school and sports uniforms filed a claim against a series of private schools for an alleged unjustified refusal to deal by the defendants, to grant the complainant the authorization to manufacture the school uniforms (an activity performed exclusively by the manufacturer that designated each school as an authorized manufacturer). The defendant alleged that said rejection would have been made in order to exclude it from the market for the manufacture and sale of uniforms of the city of Mercedes, province of Buenos Aires.

The Commission stated that certain schools had their logo registered according to the trademark law and could therefore reserve the right to confer authorization on it. Likewise, the complainant also produced sports garments, so it could continue performing its activity. Finally, the Commission, understood that this was a commercial dispute, and that it could not analyze events that only involved offences to individual interests or particular rights, and therefore did not affect the regime of competition or the general economic interest.

       b. Tied Sales

In order for tied sales or bundling of goods to be able to operate as abuses of a dominant position, the company that implements it must have a dominant position, at least in the market of the tying good, or in one of the markets of the bundled products.

Furthermore, the Commission establishes that it will be necessary to analyze if it fulfills the following two conditions: a) the tying and tied goods or services are clearly distinct and separable and b) the conduct is likely to generate an anticompetitive foreclosure of the market.

As possible examples of pro-competitive justifications, the Guidelines highlight the efficiency gains (as long as they fulfill the abovementioned requirements) through options that are less costly for the clients or improvements in the quality, or savings in the production, distribution or commercialization costs.

Case: “ Molinos Rio de la Plata / Maxiconsumo”

In this case Molinos Rio de la Plata filed a claim for an alleged tied sale by Maxiconsumo, through which it tied the sale of a “bundle” of oil of any brand to the simultaneous purchase of a “bundle” of spaghetti “Molto” or beans “Molto Tetra Recart”.

The Commission understood that the evidence was not enough to prove that the tied sale had been carried out. However, it further indicated that even if that conduct had been carried out, the defendant did not have a dominant position in the market “sine qua non requirement for the purpose of being sanctioned under the terms of the Antitrust Law”.

        c. Predatory Pricing

Preliminarily, the Guidelines highlight the caution with which it is necessary to determine the conditions for this type of practice to operate as an abuse of a dominant position, in order not to discourage price competition.

A pricing policy that fulfills the following three conditions will be considered as predatory:

1. Low prices are not a consequence of cost advantages associated with greater efficiency on behalf of the predatory company;
2. As a consequence of said prices, the predatory company may exclude competitors and, likewise, may obtain greater participation and market power.
3. Once said market power is obtained, the company may effectively exercise it (e.g. increasing its sales prices).

Also, to distinguish between a predatory price and a low price (whose origin may be greater efficiency) it is important to compare said price with the cost of provision. If the price is lower than the incremental cost/unit variable cost generated by the provision of the good, it may be considered as predatory. If the price exceeds the average cost, then it will not qualify as predatory.

Finally, another factor is the purpose of the pricing policy, namely, whether it is intended to exclude competitors or to compete more effectively in the market. To this end, it will be relevant to analyze the scope and duration of the policy.

Case: “Universal Assistance / Assist Card”

Universal Assistance filed a claim against Assist Card for an alleged predatory pricing policy by means of discounts and sales, with the aim of excluding its competitors from the market of travel assistance.

The Commission highlighted that there was a difference in between their market shares of approximately 13% and a significant competitive constraint between both of them. It also observed that in the market of travel assistance was dynamic and that the companies faced constant client rotation, as well as discounts as a marketing technique, and was therefore not an exclusive practice of the defendant.

The Commission therefore determined not only that Assist Card did not have a dominant position in the market, but that also its performance was aligned with the habits and customs of the sector.

Vertical Restrictions

The Guidelines emphasize that “[i]n general, vertical restraints are less damaging than horizontal ones and result in significant efficiency improvements”. However, there are certain vertical restrictions that can result in an abuse of a dominant position. The main ones are detailed below:

       d. Resale price maintenance

To determine whether resale price maintenance may operate as an abuse of a dominant position, it is important to analyze first whether the resale price operates as a maximum or minimum price. With a maximum resale price, a supplier may prevent some resellers from exploiting certain particularities and causing harm to consumers. With a minimum resale price, the effect may be the opposite, namely, a supplier may force a “downstream” price increase that harms consumers.

The Commission determines that there may hardly be an abuse of a dominant position through this conduct if the fixation is not accompanied by a penalty for the reseller in the event that it fails to comply.

Among the potential pro-competitive benefits, the Guidelines highlight the possibility that the resale price maintenance generates greater efficiency in the functioning of the market, for example, when it serves to encourage a supplier or reseller to carry out activities of a better quality or a better service in relation to the products that they resell, or when it serves to encourage competition between resellers of products from different suppliers.

Case: “YPF, OPESSA, Shell, Esso, Petrobras y OIL”

The Worker’s Unions Employees of Gas Stations and NCG (Natural Compressed Gas), among other related unions, filed a claim against YPF, OPESSA, Shell, Esso, Petrobras and OIL for alleged resale price maintenance by suppliers to their flag stations owned by third parties; claiming an impact on an insufficient margin of profit for its permanence in the market.

The Commission understood that the shutdown of gas stations occurred pursuant to the statistics regardless of whether or not they were flagged. Lack of stock at a national level was analyzed, which did not exclusively affect the “unmarked” service stations (independently operated), but it did to a greater extent because they did not have exclusivity. For this reason, the establishment of quotas was also justified, so the conduct was not based on discrimination against independent stations, but rather on the structural situation of the local oil market.

Specifically with regards to the profit margin, the complainants themselves announced that said margins “were generally maintained”. As a consequence, the Commission understood that there were no elements to prove a clear intention to price fixing; in particular, nor to exclude these independent players, turned complainants, from the market. .

        e. Exclusivity

The Guidelines detail the factors that should be considered to evaluate the probability for exclusivity agreements to provide anticompetitive market foreclosure that constitute an abuse of dominant position, among them:

1. The cost for the competitors of the dominant company to obtain other suppliers or clients that are not subject to exclusivity conditions;
2. The probability that the competitors of the dominant company are excluded from the market or that competition is weakened for not being able to trade with exclusive suppliers or clients:
3.  Exclusory effects are more likely to be generated when, without exclusivity agreements, competitors or potential competitors would exert significant competitive pressure.

Among the pro-competitive benefits, the Commission highlights the evidence of: savings in transaction costs (through greater integration between the defendant and its suppliers/clients); of the need for exclusivity for the company to carry out specific investments that benefit its exclusive provider or client; and the need for exclusivity so that the supplier or exclusive client carries out activities that increase the quality or improve the service in relation to the products that it provides or resells.

Case: “Asociación Médica de Bahía Blanca”

The Army Welfare Directorate filed a claim against the Medical Association of Bahía Blanca and the Medical Circle of Punta Alta for forcing the exclusivity of the associated doctors. The Directorate tried to perform a direct hiring of doctors for their associates, which lacked attention due to an agreement between the Association and the Circle. The same Directorate had not been able to agree on these due to differences in the way of hiring, so it tried direct hiring. The complaint alleged that both the Association and the Circle applied pressure methods to reinforce the exclusivity of the benefit, denying it to the affiliates of the Directorate.

The Commission understood that the acts exercising pressure were clearly proven, and that the exclusivity imposed by the Association and the Circle with its affiliates, prohibiting them from hiring with the Directorate under threat of suspension and others, had the potential to affect the general economic interest, for which it was decided to fine the accused and order the cessation of the conduct.

       f. Conditional discounts

The Guidelines define conditional discounts as those that are granted to reward buyers for performing or refrain from performing a certain conduct. In addition, they distinguish between “retroactive” and “incremental” discounts, the former being that in which the discount is applied to all purchases of the customer and the latter that in which said discount only applies to purchases that exceed the threshold. According to the Commission, they could be classified as a variation of the exclusivity obligations since they can cause similar effects.

In order to evaluate their possible anticompetitive effects, it is important to consider (in addition to the general factors), whether competitors with a level of efficiency equivalent to that of the dominant company may compete on equal terms for the total demand of each client. The exclusory effect will be greater, the higher the discount percentage and the higher the threshold to obtain it.

Among the pro-competitive benefits, the Guidelines highlight as examples the advantages of transferable costs to consumers, as well as incentives for resellers (as detailed in the case of exclusivity). It is more likely, according to the Commission, that incremental discounts generate greater incentives than retroactive ones.

Conclusion

The enactment of guidelines by the Commission within the framework of antitrust law is a practice to be celebrated, since it provides predictability to market participants and clarifications as regards the boundaries of their commercial activities

We believe that these Guidelines will be important both for companies, as well as for the Commission itself, by encapsulating the definitions of the different exclusionary abuses of dominant position in a single unified body of law, and which are the main criteria to identify and address them.