An extract from The Dominance and Monopolies Review - 7th edition

Market definition and market power

Further to Article 5 of the Competition Law, dominance is defined as the position of an undertaking or a group of undertakings allowing them to have a decisive influence on the general terms of circulation of goods on a relevant market, eliminate other entities from the relevant market or impede other entities' access to this market. Market share of an undertaking is the cornerstone in the assessment of a dominant position.

The dominance standard is primarily economic. The associated test is discussed in detail in the FAS Guidelines on Application of Article 10 of the Competition Law issued on 7 June 2017. In the meantime, the approach of the authority regarding market definition, which is the essential part of the analysis, is outlined in the FAS Regulations No. 220 on Procedure for Assessment of Competition on the Market dated 28 April 2010 and in the FAS Guidelines No. 17 dated 10 April 2019. Market analysis under the Regulations is necessary in antitrust cases involving abuse of dominance. Since the rules provided for in the Regulations are often rather broad, the FAS often enjoys considerable discretion in defining markets.

As part of the market assessment, the FAS generally conducts its own analysis of an industry, existing suppliers and customers, and specifics of the business. The FAS prepares a questionnaire that covers potential interchangeability of the goods in question, and distributes it to the market players in order to collect information from the inside. Initially, the temporal boundaries are defined. One year (or the period during which the market exists, if it is less than a year), including the time when an infringement took place, constitutes a minimum period of time relevant for the market analysis.

The definition of the relevant product market, which is based on the concept of interchangeability, may turn out to be a rather sensitive issue. The geographical boundaries of a market are normally defined as the territory of the Russian Federation or its regions and municipalities. To assess the geographic boundaries of the market, the FAS identifies the territory within which it is feasible for a customer, from a business and technical perspective, to buy similar products. Other factors that are taken into account by the authority include information on the region, pricing structures and differences in prices throughout the Russian territory, and the structure of goods flow.

The Competition Law applies to both dominant sellers and buyers (naturally, some of the prohibitions are only relevant for dominant suppliers); in certain instances, arguments concerning buyer power are taken into account by the FAS.

As to the market share thresholds, the general rule is that a company is deemed to be dominant if it has a market share of over 50 per cent unless the FAS determines otherwise (presumption of dominance). Under such circumstances, an undertaking is entitled to provide evidence to the contrary suggesting that it does not exercise monopoly power; however, such claims are hardly ever successful.

Further, dominance may be established where a company has a market share of less than 50 per cent. If an undertaking's market share is between 35 and 50 per cent, it can be considered as a dominant entity should the FAS manage to prove it so on the basis of such criteria as:

  1. the relative stability of its market share;
  2. its correlation with the market shares of competitors;
  3. accessibility of the market to new competitors (barriers to market entry); and
  4. other factors characteristic of the market.

An undertaking with a market share of less than 35 per cent can be viewed as dominant only in a situation of collective dominance or if the thresholds provided for in industry-specific legislation apply.

Special dominance rules are established in respect of:

  1. telecommunications (a service provider with a market share exceeding 25 per cent is considered as a dominant firm);
  2. river and sea port service providers (a share of more than 20 per cent within a port);
  3. electrical energy (as a general rule, if an entity's share of capacity of the generating facilities or share of the generated electrical energy within the boundaries of the free power transfer zone exceed 20 per cent; or if the share of electrical energy or capacity, or both (bought or consumed) within the boundaries of the free power transfer zone exceeds 20 per cent); and
  4. financial organisations: a financial organisation is dominant if its market share is more than 10 per cent of the only (financial) market in the Russian Federation, or if more than 20 per cent if its products circulate on other markets; and if, within a considerable period of time, its market share has been increasing or always exceeds the above threshold.

The Competition Law rules on unilateral conduct deal with collective dominance. For an undertaking to be considered collectively dominant, the following criteria shall be met:

  1. the aggregate market share of no more than three market players exceeds 50 per cent; or the aggregate market share of no more than five market players exceeds 70 per cent, while the market share of each undertaking concerned exceeds 8 per cent. Further, their market share must remain stable within an extended period of time (of more than a year);
  2. there are barriers to market entry for competitors;
  3. the relevant goods cannot be substituted by other products;
  4. an increase in prices does not result in a corresponding decrease in demand; and
  5. the information on the prices and terms of distribution and sale of goods is publicly available.

The situations of collective dominance are dealt with in the FAS Presidium Guidelines No. 15.

The highest fines in FAS history (several billion roubles) were imposed on major Russian oil companies that abused their position of collective dominance in the form of discrimination.

Finally, an undertaking with a revenue of below 400 million roubles cannot be declared dominant if certain conditions set forth by the Competition Law are met (this exemption is mainly relevant for small and medium-sized enterprises rather than undertakings that have substantial market power).