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Note on the application of the collective dominance rule

11.02.2021

The concept of “collective dominance” is reflected in the Federal Law “On the Protection of Competition” (the “Competition Law”). Despite the concept of “collective dominance” not being directly used in the legislation, the criteria creating the conditions for it to emerge are set out in Part 3 of Article 5 of the Competition Law. Qualitative and quantitative criteria are distinguished.

The quantitative criteria include the following:
  • the aggregate share of a maximum of three business undertakings exceeds 50%, with the share of each of them being more than the shares of other undertakings in the relevant commodity market;
  • the aggregate share of a maximum of five undertakings exceeds 70%, with the share of each of them being more than the shares of other undertakings in the relevant commodity market;
  • at the same time, the share of at least one of these undertakings must be at least 8%.
The qualitative criteria include the following:
  • the relative shares of undertakings is unchanged or subject to minor changes for an extended period of time (for at least 1 year or, if such a period is less than 1 year, for the period during which the relevant commodity market exists);
  • access of new competitors to the relevant commodity market is difficult;
  • goods sold or purchased by business undertakings cannot be replaced by another product when consumed (including when consumed for production purposes);
  • an increase of the price of a product does not result in a corresponding decrease in demand for the product in question;
  • information regarding the price of and terms for the sale or purchase of the product in question in the relevant commodity market is available to the public.
Guidelines No. 15 of the FAS of Russia “On imposing liability for the abuse of a dominant position of business undertakings recognized as collectively dominant” provides that each of the above conditions must be considered and established when an analysis is made of the state of competition in a commodity market in order to assess the ability of such undertakings to influence the market environment.
 
Collective dominance in itself is not a violation of antitrust legislation, unlike the abuse of the same by any business undertaking. Throughout the existence of this institution, about 200 cases have been considered in law enforcement and court practice regarding the abuse of a dominant position. When the circumstances of these cases are examined, attempts were made to establish the collective dominance of participants in a commodity market. This mainly occurred in the mobile communications, diesel fuel, transportation and natural gas markets.

Such cases were often initiated and considered according to the following specific types of violations:
  • fixing or maintaining a monopolistically high or monopolistically low price of goods (Part 1 of Article 10 of the Competition Law);
  • imposing on a counterparty contractual terms that are unfavourable for it or that are not related to the subject matter of the contract (Part 3 of Article 10 of the Competition Law);
  • an economically or technologically unjustified reduction or termination of the production of goods (Part 4 of Article 10 of the Competition Law);
  • an economically or technologically unjustified refusal to enter into or avoidance of entering into a contract with individual buyers (Part 5 of Article 10 of the Competition Law);
  • an economically, technologically and otherwise unjustified fixing of different prices (tariffs) for the same product;
  • the creation of discriminatory conditions (Part 6 of Article 10 of the Competition Law);
  • other prohibitions not expressly mentioned in Part 1 of Article 10 of the Competition Law.
For an economic situation of “collective dominance” to occur is typical of oligopolistic markets with a small number of independent participants. In addition, the purchase of goods or services on such markets is possible only from a limited number of business undertakings operating within a defined territory. At the same time, the statutory construction does not exclude the application of this rule in markets other than oligopolistic ones.

The geographical boundaries of a commodity market are defined in different ways. A commodity market may cover the territory of the Russian Federation or the territory of several constituent entities of the Russian Federation (an interregional market), or may not go beyond the borders of a constituent entity of the Russian Federation (regional market) or not go beyond the borders of a municipality (a local market). At the same time, the antimonopoly authority may narrow the geographical boundaries of a market when analyzing the state of competition if it has been established that business undertakings are able to unilaterally influence the general conditions for the circulation of goods in the corresponding market within a certain territory and thereby restrict competition.

The current position of the FAS of Russia recognizes the possibility of classifying an independent company’s individual actions as an abuse of collective dominance in a commodity market. In this case, if a violation is identified, as a rule, only one independent undertaking from the “collective group” will be subject to sanctions. Thus, administrative liability is imposed under Article 14.31 of the Administrative Code of the Russian Federation, since the detection of this type of abuse occurs under the general rules stipulated by Article 10 of the Competition Law.

For example, in 2019, further to the results of an analytical report, it was found that MTS JSC, VimpelCom PJSC, MegaFon PJSC, T2 Mobile LLC, as well as telecom operators that are part of their groups of persons, occupy a dominant position as a part of collective dominance in the market of SMS messaging services over mobile radiotelephone networks in the Russian Federation. At the same time, the FAS of Russia recognized all of these companies as violating Clause 1 and Clause 8 of Part 1 of Article 10 of the Competition Law regarding the abuse of a dominant position. Such abuse was expressed in the fixing and maintenance of monopolistically high prices for the service of sending short text messages, as well as in the creation of discriminatory conditions by establishing in contracts for services special conditions for the fixing and changing of the prices of services involving the sending of short text messages.

In another case, the antimonopoly authority established collective dominance for three business entities (OCC Norma plus LLС, HCS SERVICE LLC and Ecological technology LLС) in the market for services involving the disposal (burial) of municipal solid waste within the geographical boundaries of Omsk. The outcome of consideration of the case was that it was recognized that OCC Norma plus LLC had violated Сlause 4 of Part 1 of Article 10 of the Competition Law, abusing its dominant position by way of an economically or technologically unjustified refusal to provide OOO “Region 55” with services involving the disposal (burial) of waste.

It should be noted that an analysis of the experiences of the concept of collective dominance has revealed a number of problems in the functioning of this institution, including the following aspects:
  • the lack of a clear distinction between violations entailing the abuse of collective dominance, cartel collusion and concerted actions;
  • the preferential use of quantitative criteria and an insufficient analysis by the antimonopoly authority of the qualitative characteristics of the market when establishing collective dominance;
  • imputing illegal actions to only one participant, and not to the entire group of collectively dominant players;
  • lowering the standards of proof for the antimonopoly authority;
  • the risk of unjustified interference by the regulator in the economic activities of market participants.
In view of the above, companies should timely determine the product and geographical boundaries of the commodity market within which they operate, as well as the share they have in this commodity market, in order to avoid cases of being held accountable for actions that form part of collective dominance. In a case where it is probable that a collective dominant position will be established in relation to business undertakings, it is also necessary to take into account the prohibitions provided for in Article 10 of the Competition Law, which are aimed at preventing the abuse of a dominant position including as a part of collective dominance.

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