A company is considered dominant if it has a significant share of the market, usually above 40%. However, having a dominant position is not forbidden - it is forbidden to abuse its market power. Photo: Andrii Yalanskyi/Mostphotos

EU's competition legislation aims to promote fair and healthy competition within the European Union's internal market. Its primary goal is to prevent distortions in competition among companies and ensure the market operates efficiently for the benefit of market players and consumers. By regulating and monitoring companies' economic behaviours, this legislation aids in fostering lower prices, improved quality, and a broader range of goods and services.

A cornerstone of EU competition law is Article 102 of the Treaty on the Functioning of the European Union (Article 102 TFEU), designed to prevent companies, especially those with substantial market power, from abusing their position. It prohibits these dominant entities from leveraging their strength in ways that harm competitors or impede fair competition, such as setting unreasonably low prices, excluding competitors, or compromising consumer interests.

However, the notion of exclusionary pricing abuse is intricate and ambiguous, creating confusion when applied in practices. A recent legal dissertation at Stockholm University, titled "The Costs of Legal Certainty: A Forensically-Informed Methodology on How to Identify the Relevant Costs in an Exclusionary Abuse Case", addresses this issue by examining how pricing truly impacts competition. J.D. Marcus Skarpsvärd is behind this study, delving into the forensic relationship between pricing strategies and exclusionary abuse in compliance with Article 102 TFEU.

Studying current law and practice

The dissertation identifies three distinct cost tests used by the EU courts to evaluate whether a company abuses its dominance and sets exclusionary prices under Article 102 TFEU. Among these, the AKZO test provides strict guidelines or fixed costs to assess a dominant firm's price-based behaviours. The remaining two tests offer more flexibility and a broader interpretation of relevant costs.

Examining these tests to assess and identify the relevant cost benchmark(s), Marcus notes that despite the law's intentions to, on the one hand, condemn exclusionary pricing, but on the other hand, provide legal certainty for dominant firms, the law on exclusionary pricing remains ambiguity persists in certain situations. Additionally, the more flexible cost yardstick – variable costs – doesn't function optimally as a reference in some industries, leading to confusion and ambiguity due to its widespread application.

Possible to clarify with proper measurements

The dissertation concludes that when assessing exclusionary pricing abuse under Article 102 TFEU, confusion and legal uncertainty often arise due to the lack of objective benchmarks that ought to be used when assessing and identifying the relevant cost yardsticks.  

Based on these findings, two concrete suggestions are proposed to remedy this issue. Firstly, the dissertation recommends using managerial accounting calculated (forward-looking) costs that are associated with the product or service (out-of-pocket cost) as the relevant cost benchmark(s). Secondly, it suggests that it ought to be the dominant firm’s own price policy that is used as the relevant time period for the purposes of identifying the relevant cost(s) as well as answering if the implemented price-based practice is capable of resulting in anticompetitive foreclosure. By using the implemented price practice as the relevant time frame, the enforcement of Article 102 TFEU should enhance legal certainty and as a result, promote effective competition.

 Marcus Skarpsvärd's dissertation offers insights and suggestions to enhance legal clarity within EU competition legislation and promote better understanding and application among practitioners, academics, and legal entities. By examining how fair prices are shaped to protect competition, it aids in improving legal decision-making within EU competition legislation, benefiting not only legal professionals but also creating a fairer playing field for both companies and consumers.

Read “The Costs of Legal Certainty: A Forensically-Informed Methodology on How to Identify the Relevant Costs in an Exclusionary Abuse Case”

Marcus Skarpsvärd's profile page

Text: Natalie Oliwsson