View this page on Reckon Online

Reckon home page

Akzo (ECJ)

Court of Justice of the European Communities
Case C-62/86, AKZO Chemie BV v Commission
Judgment available online from EUR-Lex

Article 82: dominant position; predatory abuse
Article numbers refer to the 1997 consolidated version of the EC Treaty.

The Akzo judgment is sometimes quoted in connection with arguments about dominant position and predatory abuse.

Dominant position

The Court endorsed the Commission's finding that Akzo held a dominant position as follows:

60. With regard to market shares the Court has held that very large shares are in themselves, and save in exceptional circumstances, evidence of the existence of a dominant position (judgment in Case 85/76 Hoffmann-La Roche v Commission [1979] ECR 461, paragraph 41). That is the situation where there is a market share of 50% such as that found to exist in this case.

61. Moreover, the Commission rightly pointed out that other factors confirmed AKZO's predominance in the market. In addition to the fact that AKZO regards itself as the world leader in the peroxides market, it should be observed that, as AKZO itself admits, it has the most highly developed marketing organization, both commercially and technically, and wider knowledge than that of their competitors with regard to safety and toxicology (Annexes 2 and 4 to the statement of objections).

62. The pleas put forward by AKZO in order to deny that it had a dominant position within the organic peroxides market as a whole must therefore be rejected.

The reference to Hoffmann-La Roche in the above extract is to the following:

Hoffmann-La Roche 41. Furthermore although the importance of the market shares may vary from one market to another the view may legitimately be taken that very large shares are in themselves, and save in exceptional circumstances, evidence of the existence of a dominant position. An undertaking which has a very large market share and holds it for some time, by means of the volume of production and the scale of the supply which it stands for — without those having much smaller market shares being able to meet rapidly the demand from those who would like to break away from the undertaking which has the largest market share — is by virtue of that share in a position of strength which makes it an unavoidable trading partner and which, already because of this secures for it, at the very least during relatively long periods, that freedom of action which is the special feature of a dominant position.

Given that the Hoffmann-La Roche statement was merely that relying on market shares could be a legitimate approach for the Commission to take, and that no other authority is given for the statement in Akzo that "very large shares" are evidence of a dominant position, it seems probable, or at least arguable, that the evidence in question is to be understood only one element of an analysis of the enterprise's market position.

Such an analysis is outlined at paragraph 61 of Akzo quoted above. It is described in more detail in United Brands, after the following statement:

United Brands 66. In general a dominant position derives from a combination of several factors which, taken separately, are not necessarily determinative.

On that reading of the judgment, "very large shares" do not amount to a presumption of the existence of a dominant position.

This interpretation also explains why the Court in Akzo did not see any need to explain why a market share of 50 per cent was "very large": a market share of 50 per cent is plainly a legitimate piece of evidence for the Commission to take into account in its analysis of whether Akzo had a dominant position, even if it proves very little on its own.

Predatory abuse

The Court also agreed with the Commission that Akzo's offer of prices below average variable costs constituted an abuse of its dominant position:

69. It should be observed that, as the Court held in its judgment in Case 85/76 Hoffmann-La Roche v Commission [1979] ECR 461, paragraph 91, the concept of abuse is an objective concept relating to the behaviour of an undertaking in a dominant position which is such as to influence the structure of a market where, as a result of the very presence of the undertaking in question, the degree of competition is weakened and through recourse to methods which, different from those which condition normal competition in products or services on the basis of the transactions of commercial operators, has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition.

70. It follows that Article 82 prohibits a dominant undertaking from eliminating a competitor and thereby strengthening its position by using methods other than those which come within the scope of competition on the basis of quality. From that point of view, however, not all competition by means of price can be regarded as legitimate.

71. Prices below average variable costs (that is to say, those which vary depending on the quantities produced) by means of which a dominant undertaking seeks to eliminate a competitor must be regarded as abusive. A dominant undertaking has no interest in applying such prices except that of eliminating competitors so as to enable it subsequently to raise its prices by taking advantage of its monopolistic position, since each sale generates a loss, namely the total amount of the fixed costs (that is to say, those which remain constant regardless of the quantities produced) and, at least, part of the variable costs relating to the unit produced.

72. Moreover, prices below average total costs, that is to say, fixed costs plus variable costs, but above average variable costs, must be regarded as abusive if they are determined as part of a plan for eliminating a competitor. Such prices can drive from the market undertakings which are perhaps as efficient as the dominant undertaking but which, because of their smaller financial resources, are incapable of withstanding the competition waged against them.

73. These are the criteria that must be applied to the situation in the present case.

74. Since the criterion of legitimacy to be adopted is a criterion based on the costs and the strategy of the dominant undertaking itself, AKZO's allegation concerning the inadequacy of the Commission' s investigation with regard to the cost structure and the pricing policy of its competitors must be rejected at the outset.

This clarifies that the essence of the predatory abuse in this case is the sacrifice of profits in a way that might (or might not) lead to the elimination of a competitor. Paragraph 74 quoted above makes it clear that in such a predation case (perhaps in contrast to a price squeeze case) evidence of actual or impending elimination — e.g. evidence that the prices are too low to enable competitors to sustain their businesses — is not necessary to establish abuse.

The Court restated these principles in 1996 in Tetra Pak II.

This page is managed by Reckon LLP. Users are encouraged to contribute relevant views and links. Use the "Edit this page" or "Add a comment" button above to edit the text or to add comments and notes. Advice on making contributions (including trackback) is in the Guidelines.

Last changed by Franck at 8:04 AM on Friday 11 May 2007.

Reference for this page:
Reckon Open "Akzo" 2007-05-11T08:04:50
Link within Reckon Open: [[Akzo]]