Deﬁned by the ECJ is a position of economic strength, sometimes referred to as ‘market power’, which allows an undertaking to prevent effective competition in the relevant market. It can do this because its economic strength allows it to behave independently of both its customers and its competitors
– this is the true test of dominance.
- The ECJ decided that bananas were sufﬁciently distinct from other fresh fruits so as to form a separate market.
The ECJ considered a number of factors, including the prices and physical characteristics of bananas. It suggested that banana prices were largely unaffected by the prices of other fruits.
The Court also concluded that its combination of physical characteristics (eg, appearance, taste, softness and seedlessness) were sufﬁciently unique that consumers did not think that they were interchangeable with other fruits such as apples, oranges, grapes, etc. In coming to this conclusion, the ECJ rejected the defendant’s assertions that bananas ‘compete with other fresh fruits in the same shops, on the same shelves, at prices which can be compared, satisfying the same needs: consumption as a dessert or between meals’.
It indicated that the relevant geographic market is the area of the common market (now internal market) where conditions of competition are homogeneous
, ie the conditions of competition are the same for everyone operating within that market.
As with product market deﬁnition, a variety of factors may be taken into consideration in determining the precise geographic boundary of the market. For instance:
1. Transportation costs
– What are transportation costs over speciﬁed distances, and how do those costs compare with the overall price of the product? If the costs of transportation are high, producers in a distant geographic area may not be able to compete effectively because of the high price of their products.
2. Product characteristics
– Is a particular product capable of being transported? In some cases, the fragility or perishability of a product may prevent shipment over signiﬁcant distances.
3. Shipment patterns
– Where are the relevant products currently being sold? Signiﬁcant shipments of the relevant product from one area into the area under consideration will generally suggest that the second area is in the relevant market.
4. Locations of plants
– Where are manufacturing facilities located? If producers make identical products at a wide range of factories, this may suggest relatively small geographic markets: producers would otherwise be expected to capture the economies of scale available in producing in a single central plant and transporting the product to customers.
An undertaking here with a 40–45% share of the market was found to have a dominant position where there was evidence of a strong position in the market to the extent that it was difﬁcult for anyone else to enter. The nearest competitors held market shares of 16% and 10%.
Length of time was also held to be significant in decided that United Brands had a dominant position.
1. It refused to supply bananas to a particular distributor in retaliation for that distributor helping to promote a rival brand (abuse)
- The ECJ ruled that a dominant undertaking ‘cannot stop supplying a long-standing customer who abides by regular commercial practice if the orders placed by that customer are in no way out of the ordinary’. Although dominant ﬁrms are entitled to protect their commercial interests, United Brands had acted abusively; its conduct would deter its other customers from dealing in competitors’ bananas and so would entrench its dominance.
2. It imposed different selling prices for different Member States. (abuse)
3. It charged unfair prices, ie prices which were too high in relation to the economic value of the bananas. (not proven by Commission, annulled by ECJ)