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

Market definition and market power

Under French law, as under EU law, regulators and judges must typically start their analysis by defining the relevant markets where the alleged practices took place. They then analyse whether a situation of dominance (single or collective dominance) or of 'economic dependence' can be established in the relevant market before assessing the existence of an abuse.

i Market definition

The FCA mostly relies on qualitative criteria, although it may also rely on an econometric analysis to define relevant markets. To assess demand-side substitutability, the FCA takes into account the nature and use of a product, the price differences between similar products, consumer preferences, the legal environment, the brand image of the products and the distribution channels. For instance, in Termite Traps, the FCA adopted a narrow market definition including termite traps soaked with a biocide called hexaflumuron in light of the specific characteristics of biocide termite traps compared with other chemical solutions (in terms of use, objective and impact on termites) and the fact that the active biocide substance hexaflumuron was the only authorised and effective product to fight termites in Réunion Island. If the data are available, the FCA may also use quantitative techniques such as cross-elasticity of demand to delineate product markets. The FCA recently recalled that complainants must bring forward sufficient elements as regards the proposed market definition to allow the FCA to assess the degree of substitutability between different types of products and services.

In situations where there are complementary products (e.g., hardware and consumables or maintenance services), the FCA determines, based on a combination of qualitative and quantitative criteria, whether a single market exists for both or whether the products form distinct product markets. In Nespresso, the FCA defined a primary market for espresso pod coffee machines, and a distinct secondary market composed only of coffee capsules compatible with Nespresso coffee machines. The FCA found that espresso pod coffee machines and coffee capsules did not belong to the same product market because coffee machines and coffee capsules are not necessarily bought simultaneously or at the same shops, and are not manufactured and marketed by the same firms. In addition, a Nespresso internal document considered that the two products were separate. The FCA also found that the secondary market should be narrowly defined as only including coffee capsules compatible with Nespresso machines because users of Nespresso machines were not in a position to use any other kind of capsule. On the contrary, in Photocopiers, pursuant to the Pelikan v. Kyocera EU case law, the FCA refused to define a separate secondary market for the maintenance of photocopiers because, when buying photocopiers, purchasers also take into account the price of maintenance services. The FCA also found that the intense competition at the primary level and the short life cycle of photocopiers (three to five years) exerted a sufficient competitive constraint on the conditions of maintenance services at the secondary level. The FCA applied the same reasoning in IT Maintenance where it refused to identify a secondary maintenance market in all cases where maintenance contracts are purchased alongside a server or storage system, given that customers take into account maintenance conditions when purchasing a server or a storage system and the primary market for servers and storage systems is very competitive.

Supply-side substitutability also constitutes a relevant criterion for market definition. In Mobile Telephony, the FCA found that each operator held a monopoly in the wholesale market for the termination of voice calls on its own network because of, inter alia, the lack of supply-side substitutability, as only the terminating operator is capable of localising the recipient of the call. The Court of Appeal followed the same reasoning. In Sanicorse, the FCA distinguished waste collection services and waste disposal services as these two types of services are not provided by the same suppliers and are invoiced separately.

As regards the geographic dimension of the market, the FCA typically determines the area where the conditions of competition are homogeneous. The FCA also analyses, for example, the applicable legal framework, transportation costs, logistical constraints and the way tenders are structured to delineate geographic markets. In Termite Traps, the insular nature of the department of Réunion Island led the FCA to limit the relevant market to that department alone. In Sanicorse, the FCA found that the infectious medical waste treatment market was limited to the Corsican territory, as transportation costs are high, Corsican healthcare establishments are legally required to manage infectious medical waste in Corsica and none of the waste management companies active in mainland France had participated in a call for tenders in Corsica. The FCA also uses a small but significant and non-transitory increase in price test approach (i.e., the relevant geographic market is defined as the area in which a company can use its market power or monopoly power to, for example, raise prices profitably without being constrained by other players located in other areas or from other product lines). In Online Advertising, the FCA also recalled that the existence of cultural and linguistic barriers can be taken into account to determine the geographic scope of a relevant market, and in that case, found that the search-related online advertising market had a national dimension.

ii Single dominance

Dominance is achieved when a company can determine its pricing policy in the relevant market independently from its competitors and customers. The FCA typically considers that market shares above 50 per cent are a strong indicator of market power.

To establish single dominance, the FCA also examines the following criteria in addition to market shares:

  1. the countervailing market power of competitors;
  2. the intensity of competition on the market;
  3. the existence of potential new entrants; and
  4. the specific advantages of the leading firm (e.g., brands, organisation, better products or services).

In Pet Food, Royal Canin, which held a market share limited to 40 per cent, was considered to be a dominant player, because the second and third-largest competitors respectively held a 12 and 7 per cent market share; Royal Canin had a very good brand image bolstered by high advertising expenses and regular contact with prescribers; and the relevant market was characterised by high barriers to entry. In Satellite TV Decoders, the FCA considered that despite the recent evolutions of the distribution of linear and catch-up pay TV services that led to the deterioration of GCP's market position over the years, GCP still held a market share of 70 to 80 per cent in value and of 50 to 60 per cent in volume, which is significantly higher than that of its competitors.

In Termite Traps, the FCA also essentially relied on Emeraude's very high market share (more than 80 per cent) to find that the operator was dominant in the market for the distribution of termite traps with hexaflumuron biocide.

Finally, in Sanicorse, the FCA relied on evidence gathered during its investigation to conclude that Sanicorse held a de facto monopoly on the infectious medical waste treatment market in Corsica since 1997, and considered that the existence of significant barriers to entry (in particular, owing to the substantial investments necessary to comply with legal standards and to develop a logistic network adapted to the island) made potential entry by new operators difficult.

iii Collective dominance

Collective dominance may result from structural links between undertakings, whether capitalistic or contractual, from the market structure, or from both. In the absence of structural links, the FCA applies the cumulative Airtours criteria (i.e., oligopolistic market, significant market transparency, possibility to engage in retaliation and absence of countervailing power from the fringe players).

In Saint-Pierre-et-Miquelon, the FCA imposed a total fine of €381,400 on companies active in the aggregates market in the archipelago of Saint Pierre and Miquelon for anticompetitive agreement and abuse of a collective dominant position. In particular, the FCA found that four undertakings held a collective dominant position as:

  1. they together held a market share in excess of 80 per cent in the relevant markets;
  2. they had structural links through the operation of a common quarry and had adopted a common strategy;
  3. deviation would be unlikely given their historical links;
  4. entry barriers were high; and
  5. there were no alternative competitors.

Although collective dominance cases are rare, the FCA's decisional practice shows that it tends to resort to collective dominance when it lacks evidence to support a claim of explicit collusion.

iv Economic dependence

Economic dependence is a specific infringement under French competition law, which has no equivalent in EU competition law. Pursuant to Article L420-2(2) of the Commercial Code, abuse of economic dependence of a customer or supplier is prohibited when it is likely to affect competition on the market. This provision was originally drafted to protect suppliers from large retail chains (i.e., supermarkets), but is rarely applied in practice.

According to established case law, economic dependence arises when a company is forced into a commercial relationship with another company because it cannot purchase substitutable products under similar terms and conditions, or sell its products to other customers. The FCA examines the following cumulative criteria:

  1. the commercial partner's brand notoriety;
  2. the commercial partner's market share;
  3. the commercial partner's share in the turnover of the dependent company; and
  4. the possibility for the dependent company to find an alternative commercial partner.

In 2018, in Take-away and Home Delivery of Pizzas I, the FCA rejected, for lack of evidence, a complaint from franchised undertakings in the pizza sales sector, which claimed to be victims of an abuse of economic dependence by Domino's Pizza, after the latter acquired the franchisees' network, Pizza Sprint. The franchisees claimed that they were forced to switch from their previous network's brand to Domino's Pizza's one, which is allegedly less advantageous. The FCA found that economic dependence could not be established in practice, either at the individual level (for each franchisee) or at the collective level. Specifically, the FCA found that the franchisees had alternative solutions since they could either adopt the new brand or continue to operate under the original conditions until their contracts expired.