Monday, December 31, 2007
Posted by D. Daniel Sokol
Liyang Hou of the Katholieke Universiteit Leuven's Interdisciplinary Centre for Law and ICT addresses treaty-wide dimensions of competition policy in his paper SMP vs. Dominance: Divergence Out of Convergence.
ABSTRACT: This paper aims to compare the concept of significant market power (SMP) within Article 14 of Framework Directive with that of Dominance under Article 82 of EC Treaty. According the European Commission's guideline on the assessment of SMP, the concept of SMP is equivalent to that of dominance. However, the Commission does indicate a difference between the two concepts that the former should be assessed on a forward-looking approach and the latter on a backward-looking approach. Nevertheless, the Commission does not further specify how this difference will affect the assessment of SMP. Recently the first round of market review process has almost been finished. Therefore, it is a good time to examine the Commission decisions under Article 7 procedure to see what the difference should be. This paper will base on those decisions to find out the difference between SMP and dominace.
In the following a summary of each part of this paper is provided.
1. In the first part, a different starting point between EC competition law and regulation is identified. It is that competition law is not based on the existence of dominance whereas the electronic communications regulation is based on the existence of SMP.
2. The second part will look at the relationship between market definition and SMP designation. In order to define relevant markets for the electronic communications regulation, the Commission advocates a three-criterion test: (i) the existence of high and non-transitory entry barriers, (ii) absence of dynamic competition behind entry barriers and (iii) insufficiency of EC competition law remedies alone. The report considers that the first two criteria are overlapped with the criteria of assessing SMP and should be deleted. Furthermore, some thoughts on the insufficiency of EC competition remedies are provided.
3. The third part is to examine how the single SMP is assessed. In this part, it is first investigated that a very high market share is evidence of SMP save in exceptional circumstances. The threshold of such a very high market share is above 50% recommended by the Commission. Nevertheless, I find that in practice the threshold is much higher, i.e. above 65%. Subsequently, since the market share is not the decisive criterion for SMP assessment the other criteria are also discussed. With regard to the assessment of the other criteria, the major problem is identified that the Commission does not attach specific values to each of the other criteria. In order solve this problem, this report divides the 12 other criteria into three category, (i) decisive criteria, (ii) other important criteria and (iii) non-important criteria. The criteria in the first category include (1) control of infrastructure that is not easily replicated, (2) potential/dynamic competition and (3) countervailing buying power. A further examination of the three criteria are followed.
4. The fourth part is concerned with joint SMP. This part first looks at the overlap of single SMP and joint SMP; and then it finds that this overlap is significant to the electronic communications regulation. Following it, it gives out a picture how the joint SMP is assessed in practice.
5. The fifth part is to discuss the leverage of SMP, i.e. that an undertaking is regarded as having SMP on a market when it already holds SMP in another closely related market. It concludes that this concept has added value for EC competition law, however it has little added value for the electronic communications regulation. 6. The last part offers some points to compare SMP with dominance. Nevertheless, this part has not been fully explored and will be developed in a later stage.