Abuse of dominance

Definition of abuse of dominance

How is abuse of dominance defined and identified? What conduct is subject to a per se prohibition?

The term abuse is not defined by the Federal Law of Economic Competition (LFCE). Notwithstanding, several types of conduct considered abusive under other jurisdictions may constitute relative monopolistic practices under Mexican law, as shown in questions 14 to 25. Article 56 of the LFCE defines 13 specific relative monopolistic practices. Mexican law follows an effects-based approach to identifying anticompetitive conduct as relative monopolistic practices may be deemed illegal only if the conduct is performed by an economic agent possessing substantial market power and the conduct’s purpose or effect is to unduly displace other economic agents from the market, to substantially preclude their access to the market or to create exclusive advantages in favour of one or several persons. Additionally, efficiency gains and their competitive effects may be alleged to sustain the legality of a relative monopolistic practice.

Unilateral conduct is never prohibited per se under Mexican law. Only horizontal restraints or collusive agreements (absolute monopolistic practices) are prohibited per se and shall always be null and void regardless of their effect on the market.

Exploitative and exclusionary practices

Does the concept of abuse cover both exploitative and exclusionary practices?

Only predatory and exclusionary unilateral conduct falling into a specific relative monopolistic practice definition is covered under the LFCE. A dominant firm does not violate the LFCE simply by exploiting its power and charging monopolistic prices.

Link between dominance and abuse

What link must be shown between dominance and abuse? May conduct by a dominant company also be abusive if it occurs on an adjacent market to the dominated market?

In order for a relative monopolistic practice to be illegal, the conduct in question must be performed in connection with goods or services pertaining to the relevant market where the defendant possesses substantial market power. Notwithstanding, the displacement of other economic agents (which is also a condition for the practice to be deemed illegal) may occur with respect to an adjacent but related market to the dominated market.

Defences

What defences may be raised to allegations of abuse of dominance? When exclusionary intent is shown, are defences an option?

The main defences, usually raised to an allegation that a certain conduct constitutes a relative monopolistic practice are: an inaccurate definition of the relevant market due to the existence of close substitutes of the product or service in question; the absence of barriers to entry and, therefore, the lack of substantial market power; and that the conduct generates efficiency gains so that net contribution to consumers’ welfare overcomes its anticompetitive effects.

Specific forms of abuse

Types of conduct

Rebate schemes

This conduct is covered by article 56, section VIII of the Federal Law of Economic Competition (LFCE). According to this provision, granting of discounts or incentives with the requirement of not using, acquiring, selling, marketing or providing the goods or services produced, processed, distributed or marketed by a third party is a relative monopolistic practice. Thus, rebate schemes, as well as conduct referred to in questions below falling into the relative monopolistic practice concept, will only be deemed illegal if: the conduct is performed by an economic agent possessing substantial market power; the conduct’s purpose or effect is to unduly displace other economic agents from the market or to substantially preclude their access to the market or to create exclusive advantages in favour of one or several persons; and the net contribution to consumers’ welfare does not overcome the anticompetitive effects of the conduct.

In 2004, Miller filed a complaint before the former Federal Competition Commission (CFC) against breweries Modelo and Femsa, alleging preclusion of access to the beer sales market (through small shops) owing to economic incentives granted by the defendants in exchange for exclusive dealing. In 2006, after an appeal for reconsideration filed by Modelo, the CFC closed the case with no liability for the defendant, revoking its first decision. In 2007, the CFC decided Femsa was not liable either.

Owing to the way the aforementioned procedure was solved (a mistake in the definition of the relevant market), in 2010, Miller was able to file a similar complaint. In 2013, the CFC decided to close the procedure on condition that the investigated agents complied with specific obligations and competition protection measures.

Tying and bundling

According to article 56, section III of the LFCE, the sale or a transaction subject to the condition of buying, acquiring, selling or providing another different or distinguishable good or service is a relative monopolistic practice.

In 2013, the CFC fined PEMEX Refinación (a state-owned company operating in a strategic area that processes, transports and markets a wide range of products derived from crude oil) with 651,606,052.66 Mexican pesos for tied sales in the gasoline and diesel market. The practice consisted of a condition imposed by PEMEX Refinación on gas stations to hire PEMEX Refinación’s trasnportation services of gasoline and diesel, regardless of the conditions and the prices placed on them. This meant that gas stations were unable to transport fuel by their own means or determine who to hire. The CFC considered this as a relative monopolistic practice. However, the Supreme Court determined that the transport of gasoline and diesel was included in the ‘strategic’ economic activities exemption.

Exclusive dealing

According to article 56, section IV, of the LFCE, a sale, purchase, or transaction subject to the condition of not using, acquiring, selling, marketing or providing the goods or services produced, processed, distributed or marketed by a third party is a relative monopolistic practice.

In 2005, the CFC fined some Coca-Cola distributors for denying the supply of Coca-Cola products to customers refusing to accept the condition of not selling rival Big Cola products.

Predatory pricing

This conduct is specifically defined as a relative monopolistic practice by article 56, section VII of the LFCE. Under this provision, there is predatory pricing when there are sales at prices below their average variable cost or sales at prices below average total cost, but above their average variable cost, when it can be presumed that the losses will be recouped through future price increments.

The most important case related to this type of conduct took place in the chewing gum sales market. Cannel’s sued Warner Lambert for predatory pricing, sustaining that the conduct was covered by section VII of article 10, then in force, which contained a general provision stating that any action unduly harming competition process was considered as a relative monopolistic practice. The CFC found liability, but the Supreme Court declared former section VII as an unconstitutional provision, as it lacked the specifics of the prohibited conduct, and forced the said agency to revoke its decision.

Price or margin squeezes

Price or margin squeezes are covered by article 56, section XIII. Under this section, there is price or margin squeezing when an economic agent reduces the margin between the access price to an essential input and the price offered for processed goods or services to the final consumer, when the essential input is used for production by the same economic agent.

On 7 April 2011, the CFC fined Telcel, the largest mobile telephony provider in Mexico, for charging its competitors higher rates for call termination services than those offered to its final customers for the mobile telephony service. The fine, at that time around US$936 million, is the highest that has ever been imposed by the competition authority. However, in the appeal process, Telcel offered several commitments. The CFC considered the commitments were viable and revoked its resolution. This decision was taken under the provision formerly contained in article 10, section XI of the former LFCE (in force until 6 July 2014).

Refusals to deal and denied access to essential facilities

Refusal to deal is explicitly covered by article 56, section V of the LFCE. Under this provision, refusing to sell, market or provide to certain persons goods or services that are usually offered to third parties is a relative monopolistic practice.

On the other hand, denied access to essential facilities is covered by article 56, section XII. Under this provision, denying, restricting or establishing discriminatory conditions in access to essential facilities is a relative monopolistic practice. Also, the LFCE contains certain provisions and a procedure for the determination of essential facilities and essential input materials (articles 60 and 94) in order to regulate access to them. Access to essential facilities is commonly regulated in sector-specific laws (eg, the Federal Telecommunications Law obliges all operators to interconnect their networks to each other’s networks).

In February 2019, the CFCE fined Dun & Bradstreet, a credit bureau, 27.4 million Mexican pesos for refusing to provide its primary database to Circulo de Credito, another credit bureau. With this conduct, CFCE established that Dun & Bradstreet bureau had prevented Circulo de Credito from accessing the collection and processing of credit information, and the commercialisation of credit information products of companies and individuals with business activity markets of the other credit bureau.

Also, in July 2019, the CFCE fined the Airport of Cancun City 72.5 million Mexican pesos for refusing to provide certain taxi companies with access to the airport. This anticompetitive conduct consisted of (1) the negative opinion of the Airport of Cancun City without justification, which refused the right to access to the federal zone of the aforementioned airport to two companies that requested the authorisation to provide taxi services; and (2) the refusal of the Airport of Cancun City to sign access service agreements with one company for the International Airport of Cancun, without justification.

 

Predatory product design or a failure to disclose new technology

This type of conduct may be covered by article 56, section XI of the LFCE, which establishes that any action increasing rivals’ costs or to hinder rivals’ productive processes is a relative monopolistic practice.

Price discrimination

This conduct is explicitly covered by article 56, section X of the LFCE. According to this provision, the imposition of dissimilar selling or buying prices or conditions to buyers or sellers situated in equal conditions is a relative monopolistic practice.

In July 2019, the CFCE closed an investigation regarding price discrimination in the laboratory proofs and certification of products of the rubber Industry (automobile wheels) market. The conduct alleged consist, among others, offering different prices (through discounts) not to all the customers (wheels producers) that demand the services of certification of rubber products. The CFCE decides not to summon with a statement of probable responsibility (dictamen de probable responsabilidad (DPR)) the economic agent that was investigated, because (1) the discounts were offered before the entrance to the market of its unique competitor; (2) its competitor was able to replicate those discounts; and (3) customers received the service with at least the same quality but with a lower price, which is the reason for economic competition.

Exploitative prices or terms of supply

These practices are not covered by Mexican competition law. Abuse of dominance is always predatory or exclusionary.

Abuse of administrative or government process

This type of conduct may be covered by article 56, section XI of the LFCE, which establishes that any action increasing rivals’ costs, reducing rivals’ demand or hindering rivals’ productive processes is a relative monopolistic practice.

In August 2013, the CFCE closed a file in which an investigation was conducted for obstructing a competitor’s access to the gas distribution market. The conduct alleged consisted, among other actions, filing motions before courts to obtain orders suspending a ‘dangerous’ construction and hampered the start of the competitor’s operations. The CFCE decided not to sanction, because the gas company’s operation was blocked due to a series of regulatory obstacles and not as a consequence of the motions filed before courts.

Mergers and acquisitions as exclusionary practices

Mergers and acquisitions as exclusionary practices do not fall within the relative monopolistic practices concept, but may be prevented or challenged by means of the LFCE’s merger control provisions.

Other abuses

The following types of conduct are defined in article 56 of the LFCE as relative monopolistic practices (although some of them are not characterised by other jurisdictions as abuse of dominance practices but as vertical restraints): resale price maintenance, cross-subsidies, boycotts and vertical market segmentation.

Law stated date

Correct as of

Give the date on which the information above is accurate.

January 2021.