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

Market definition and market power

i Definition of the relevant market

In abuse of dominance cases, the rules applicable in merger control cases are being used by analogy for the purpose of defining the relevant market. According to Article 11 of the Merger Control Ordinance of 17 June 1996, the relevant product market comprises those goods and services that are regarded as interchangeable by consumers on the one hand and by suppliers on the other with regard to their characteristics and intended use. The relevant geographic market is defined as the area in which on the one hand consumers purchase and on the other suppliers sell the goods or services that constitute the relevant product market. This provision also serves as the basis for defining the relevant market in dominance cases. From a temporal perspective, it must be examined whether any goods or services that allow for substitution in terms of product and geography are available all year round or just for a certain period of time.

The Swiss authorities generally rely on the test of cross-price elasticity and the small but significant and non-transitory increase in price (SSNIP) test to determine the relevant product market. In the context of an abuse of dominance case, it needs to be assessed whether the allegedly disadvantaged opposite side of the market (i.e., the trading partners of the dominant undertaking) could switch to alternative offers from a product, geographic and temporal perspective. If there are reasonable alternative offers for the opposite side of the market, it is likely that the undertaking considered is not dominant on a certain market.

The ComCo has previously considered cases in which the market has incorrectly been defined too broadly due to the presence of already monopolistic prices ('cellophane fallacy').

ii Definition of dominance

According to Article 4, Paragraph 2 of the Cartel Act, an undertaking is dominant if it can to an appreciable extent behave independently of other market participants (competitors, suppliers or buyers). In the course of the amendment of the Cartel Act in 2003, the text in brackets defining other market participants was added. According to the Message of the Federal Council, the aim of this amendment is to ensure that authorities do not rely only upon market structure data to determine whether an undertaking is dominant, but also take into consideration the actual relations of dependence on the market. The ComCo has had the occasion to discuss the amended wording of Article 4, Paragraph 2 of the Cartel Act. It has generally confirmed the previous understanding of dominance (i.e., the capacity to behave independently on the market), but has, in addition, specified under which circumstances actual relations of dependence would also fall under Article 4, Paragraph 2 of the Cartel Act (and thus be subject to abuse of dominance rules). Based on the wording of Article 4, Paragraph 2 of the Cartel Act, market dominance may exist both on the supply as well as on the demand side.

There is no statutory threshold above which an undertaking must be considered as dominant under Swiss law. As a rule of thumb, market shares below 20 per cent are not considered to confer a dominant position to an undertaking. Market shares of between 20 and 40 per cent generally do not confer a dominant position to an undertaking, unless special circumstances are present. Market shares of 40 per cent and above are an indicator of dominance, unless there are special circumstances that allow denying such dominance.

In any event, market shares constitute mere indicators and are never in themselves sufficient proof of dominance. In practice, the ComCo performs an in-depth analysis of the market characteristics, such as the situation of competitors (current competition), the market entry barriers (potential competition) and the position of the other side of the market (countervailing market power). Such an analysis is made even in cases where the definition of the relevant market reveals market shares of 100 per cent. In accordance with the practice of the EU Commission, the ComCo assesses the competitive pressure and market position of the potentially dominant undertaking and its competitors. It also takes into consideration the competitive pressure due to the imminent expansion of already existing competitors or the imminent market entry of new suppliers. Finally, the ComCo assesses the competitive pressure due to the negotiating strength of the other side of the market (i.e., the countervailing buying power). In its more recent practice, the ComCo has analysed the competitive position of the opposite side of the market only in cases of collective dominance. In fact, the ComCo seems to consider that, although the disciplinary effect of countervailing buyer power may prevent abuses in individual cases, it does establish or re-establish the dynamic functions of effective competition.

Market dominance may only be achieved by 'undertakings'. This corresponds to the personal scope of application of the Cartel Act. According to Article 2, Paragraph 1 bis of the Cartel Act, undertakings are all buyers or suppliers of goods and services active in commerce, regardless of their legal or organisational form. The concept of an undertaking follows an economic approach, based on the entrepreneurial activity of an entity. Therefore, it also covers undertakings governed by public law, as well as private commercial companies that are part of a public body (e.g., the federal government, cantons or communes). In the case of groups of companies, the entire group is considered as a single economic entity to the purpose of assessing market dominance.

Collective dominance

According to the definition of dominance contained in Article 4, Paragraph 2 of the Cartel Act, a dominant position may be held by one or more undertakings. Thus, collective dominance is also covered by the law. In 1998, the ComCo held for the first time that there was a case of collective dominance. Collective dominance requires two (duopoly) or several (oligopoly) undertakings deliberately adopting a parallel (i.e., collusive) behaviour. If the collusive element in the parallel behaviour is lacking, such behaviour is generally legal, as it constitutes the normal reaction of competitors to exogenous market developments.

In its decisional practice, the ComCo has developed several indicators taken into account in the assessment of potential collective dominance:

  1. high market concentration (the fewer companies are active in a certain market, the more likely it is for collusion to occur);
  2. similar and stable market shares;
  3. similar cost structures, as well as a personal and financial intertwining between competitors, and the resulting symmetry of interests;
  4. high market entry barriers;
  5. similarity of products offered (price remains the sole competitive factor); and
  6. most importantly, high market transparency.

Taking these indicators into consideration, it is necessary to perform an overall assessment of the competitive landscape on the relevant market as well as on the upstream and downstream markets thereof to determine whether the relevant market offers sufficient incentives for durable collective dominance.

In the planned merger between France Télécom SA and Sunrise Communications SA, the ComCo applied the aforementioned criteria. It found that the envisaged merger between these two companies needed to be prohibited since the newly created entity would, together with Swisscom, have held a collectively dominant position in the mobile communications market and, in the absence of new competitors entering said market, would have had no incentive to compete by reducing its prices.

When assessing the planned merger between Switzerland's two largest ticketing providers, Ticketcorner and Starticket, the ComCo considered potential collective dominance. However, in the case at issue, the ComCo did not find sufficient evidence for the existence of a collectively dominant position.

More recently, the ComCo investigated a potential collective dominance of, Expedia and HRS in the market for hotel booking platforms. While it did not formally conclude that the undertakings concerned hold a single or joint dominant position, the ComCo did not rule out the existence of such dominant position, either.