While competition law often focuses on the actions of a single hegemonic company, there is another form of market power that is more complex to grasp: collective dominance. This situation arises when several companies, although legally independent, are able to adopt a common course of action and evade the rules of competition.
For managers of SMEs or entrepreneurs operating in concentrated sectors (oligopolies), understanding this concept is fundamental. The risk is not only of being abused, but also of being accused of participating in such a collective position. Determining whether a group of companies holds such a position is a delicate exercise which, as in the case of the notion of abuse of a dominant position requires a prior analysis of the relevant market. Given the complexity of these mechanisms, the assistance of a expert lawyer in competition law is often essential for assessing risks and defending interests.
Definition and legal basis of collective dominance
The concept of collective dominance is covered by both French and European Union law. Article L. 420-2 of the French Commercial Code refers to abuse by "one undertaking or a group of undertakings", echoing article 102 of the Treaty on the Functioning of the European Union (TFEU), which prohibits "one or more undertakings" from abusing a dominant position. Case law has gradually clarified the contours of this concept.
Reminder of the concept of undertaking and economic unit
Before analysing the position of a group, it is important to understand what competition law means by "undertaking". The concept is economic before it is legal. It refers to an "economic unit", which may be made up of several distinct legal entities, such as a parent company and its subsidiaries. If these subsidiaries do not determine their behaviour on the market autonomously but follow the instructions of the parent company, the whole is considered to be a single undertaking. In this case, if this economic unit dominates the market, it will be a case of individual rather than collective dominance.
Distinction from individual dominance
The distinction is fundamental. An individual dominant position is held by a single economic unit. Collective dominance, on the other hand, is held jointly by several undertakings that are legally and economically independent of each other. The challenge for competition authorities is to demonstrate that these independent entities present themselves and act on the market as a collective entity, without there being any formal agreement between them.
Definition of collective dominance by the authorities and courts
The French authorities and courts, taking their cue from European case law (in particular the Kali & Salz and Gencor), define collective dominance as a situation where several undertakings "have, together, in particular because of factors of correlation existing between them, the power to adopt a single course of action on the market and to act to an appreciable extent independently of other competitors, of their customers and, ultimately, of consumers". To qualify as a collective dominant position, therefore, it is necessary to go through two stages: firstly, to prove that the undertakings form a collective entity, and secondly, to demonstrate that this entity holds market power comparable to that of a monopolist.
The factors of collective dominance: an alternative approach
To prove the existence of this collective entity, the competition authorities have two alternative approaches, which are not cumulative. The first method is based on the identification of structural links between the undertakings, coupled with proof of the adoption of a common strategy on the market. This is the most direct approach, but it is not always applicable.
Legal links or correlating factors between companies
This first approach involves identifying concrete and objective links between companies. These links can take various forms and do not need to be secret agreements to be relevant. They simply need to be such as to align the interests of the companies and facilitate coordination of their behaviour.
Capital links (cross-shareholdings, joint subsidiaries)
Capital links are a strong indicator of correlation. The creation of a joint subsidiary, cross-shareholdings between competing companies or the presence of the same directors on different boards can signal interdependence. These structures can reduce the incentive to compete aggressively, as the successes of one competitor indirectly benefit the other. For example, the Paris Court of Appeal has already ruled that the creation of a joint subsidiary by two companies was sufficient to characterise a structural link between them.
Formal agreements (licence agreements, consortiums)
Contracts, even perfectly legal ones, can also constitute structural links. The terms of a licence agreement can align the partners' commercial strategies. Similarly, participation in a consortium or economic interest group may create a platform for information exchange and coordination. The analysis does not focus on the illegality of the agreement itself, but on its capacity to create a de facto solidarity between the members of the oligopoly.
Adopting a common line of action on the market
The existence of legal links is not enough. It must be shown that these links have enabled the undertakings concerned to adopt a common commercial policy. This convergence of behaviour must be the consequence of the structural links identified.
Proof of the interdependence of behaviours
The proof of this common line of action is often complex. It may result from price parallels that cannot be explained simply by a logical reaction to market conditions. The authorities may rely on internal documents, exchanges of strategic information or convergent public statements. The aim is to show that companies no longer determine their strategy in isolation, but by anticipating and aligning themselves with the reactions of the other members of the oligopoly.
Distinguishing from anti-competitive agreements
It is essential not to confuse a collective dominant position with a cartel. A cartel, prohibited by Article L. 420-1 of the French Commercial Code, presupposes an agreement of wills, an active concertation. Collective dominance, on the other hand, may result from tacit coordination, where each undertaking, aware of its interdependence with the others, finds it rational to align its behaviour without the need for an explicit agreement. Case law is clear: the same facts cannot be used to qualify both a cartel and a collective dominant position. This distinction is crucial because the rules of evidence and the legal implications are different, particularly for companies seeking to understand the "facts of the case". rules and risks of concerted practices.
The market structure approach (airtours criteria)
In the absence of formal legal links, competition authorities may rely on a purely economic analysis of market structure. This second approach, based on the Airtours of the Court of First Instance of the European Union, is based on three particularly strict cumulative criteria.
The oligopolistic structure and transparency of the market
The first criterion requires the market to be highly concentrated, i.e. an oligopoly with a small number of players. In addition, the market must be sufficiently transparent for each member of the oligopoly to know quickly and accurately what its competitors are doing (for example, a price change or a product launch). A high level of transparency makes it easier to detect any behaviour that deviates from the common, unwritten policy.
The possibility of retaliating against deviant companies
The second criterion is deterrence. For tacit coordination to be stable, there must be a credible and rapid retaliation mechanism against any company that tries to deviate from the common line in order to gain market share. This threat of "punishment" (for example, a generalised price war) must be strong enough for each company to understand that it has no interest in deviating. The absence of such a possibility of retaliation makes the collective position fragile and unlikely.
Non-contestability of the market and absence of potential competition
Finally, the third criterion is that the coordination of the oligopoly should not be threatened by external competition. This means that the barriers to entry for new competitors must be high. In addition, competition from existing firms on the fringes of the oligopoly or from customers (demand-side countervailing power) must be too weak to disturb the equilibrium achieved by the members of the dominant position. If a new entrant can easily penetrate the market, or if large customers can put the members of the oligopoly in competition, the collective position is not viable.
Assessing collective dominance: a case-by-case analysis
The classification of a collective dominant position is never the result of a mechanical application of the criteria. It is the result of a global and concrete analysis, in which the competition authority examines a body of evidence to forge its conviction.
The role of cumulative market share
As with individual dominance, the combined market shares of the members of the oligopoly are a major indicator. A very high combined market share that is stable over time (for example, greater than 80 %) is a strong indicator of market power. For example, the Autorité de la Concurrence considered that two companies holding 85 % of the water management market were in a position of collective dominance. However, this indicator alone is not sufficient; it must be corroborated by other elements of analysis.
Examining barriers to entry and network effects
The analysis of barriers to entry is at the heart of the assessment of market non-contestability. These barriers can be of various kinds: regulatory (licences, authorisations), structural (high sunk investment costs, exclusive access to a technology or resource), or linked to network effects. Network effects are particularly important in the digital economy: the more users a platform has, the more attractive it becomes, creating an almost insurmountable barrier for new entrants and reinforcing the stability of existing oligopolies.
Legal consequences and disputes arising from collective dominance
Once collective dominance has been established, the undertakings concerned are subject to the same obligations as an undertaking in an individual dominant position. They have a particular responsibility not to harm competition.
Prohibition of abusive exploitation
It is not the collective dominant position itself that is illegal, but its abusive exploitation. The members of the oligopoly must not use their collective power to oust competitors or to impose unfair conditions on their trading partners or consumers. Abuses may take the form of excessive prices, loyalty practices that foreclose the market or concerted refusals to sell. Practices described asexploitative abuses, such as the imposition of unfair conditionsare under particular scrutiny by the authorities.
The burden of proof for competition authorities
The burden of proving the existence of a collective dominant position and its abuse rests with the competition authority bringing the action or the complainant relying on it. The cumulative nature of the criteria in the judgment Airtours and the complexity of economic analysis make it particularly difficult to prove. This explains why convictions for abuse of a collective dominant position are less frequent than those for individual abuse. For a company, this means that a solid defence, based on rigorous economic and legal analysis, can effectively contest such accusations.
Justifying behaviour (new approach)
As part of a more economic approach to competition law, a defendant company may try to justify its behaviour. It may seek to demonstrate that the practice criticised is objectively necessary or that it generates efficiency gains (innovation, lower costs) that ultimately benefit consumers and outweigh the restrictive effects on competition. However, this defence is narrow and subject to strict conditions: the practice must be indispensable to achieving the efficiency objective and must not eliminate all substantial competition.
Analysing collective dominance is a complex exercise that combines law and economics. For companies operating in concentrated markets, vigilance is essential. It is essential to understand not only the practices at risk, but also the way in which the authorities reason to qualify such a position. An in-depth analysis of your competitive situation and appropriate advice can prove decisive. If you operate in an oligopolistic sector and you are wondering about your practices or those of your competitors, do not hesitate to contact our firm to discuss your options.
Sources
- French Commercial Code (in particular article L. 420-2)
- Treaty on the Functioning of the European Union (TFEU) (in particular Article 102)
- Case law of the Court of Justice of the European Union (in particular the Kali & Salz, Gencor and Airtours rulings)
- Decision-making practice of the Competition Authority
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