Abuse of a dominant market position

Where a market becomes dominated by a small number of firms, the practices of those dominant companies can stray from welcomed healthy competition towards anti-competitiveness, putting increasing pressure on SMEs. Despite this, in a recent decision the Office of Fair Trading (OFT) has demonstrated its tendency to take a hands-off approach to addressing anti-competitive practices.

In a previous OFT survey, a quarter of all SMEs believed they were harmed by anti-competitive activities – such as collusion or price-fixing – within their sector. Despite this only 22% indicated they would report instances of price-fixing and only 9% would report a larger competitor attempting to bully them out of the market using prohibited illegal measures such as predatory pricing.

During the course of investigating anti-competitive practices, the OFT will assess market share, barriers to entry and expansion, cost bases, pricing strategies, buyer power and relationships between companies operating within a market. Where abuse is proven the OFT has the power to impose significant fines and declare void any anti-competitive arrangements.

In the recent case of IDEXX Laboratories Limited (IDEXX) the OFT received complaints that IDEXX was abusing its dominant position within the veterinary diagnostic testing sector. The market comprises two main areas:

1. The supply of in-clinic animal diagnostic testing equipment – allowing veterinarians to undertake certain tests onsite, and
   
2. Providing veterinarians with external diagnostic testing services.

Whilst IDEXX was found to be dominant in the supply of in-clinic testing equipment with a 60-70% market share, it only had a 30-40% market share of the associated external testing services market. In investigating the reported abuse the OFT assessed three potential ‘theories of harm’:

1. IDEXX engaged in anti-competitive bundling of in-clinic testing equipment with external laboratory services. In-clinic analysers were offered at drastically discounted prices in return for customers committing to a minimum expenditure, or exclusivity, in relation to external lab services.
   
2. IDEXX undertook predatory pricing in its dominant market in an attempt to force competitors out of the marketplace.
   
3. IDEXX bundled particular specialist laboratory testing services, over which it  held a dominant position, with non-specialist testing services for which IDEXX faced far greater competition.

Whilst the OFT found IDEXX had indeed bundled in-clinic testing products with external testing services, and specialist testing services with non-specialist services, the OFT decided there were no grounds for action against the company. The OFT held IDEXX’s bundling practices were unlikely to lead to the foreclosure of actual or potential competitors. Further, after analysing costs bases, the OFT found no evidence that IDEXX had priced products below cost-price.

This decision is typical of the OFT’s hands-off approach and shows the assessment of alleged abuses in relation to ‘theories of harm’, rather than objective standards of abusive conduct, and the requirement to show clear evidence of anti-competitive foreclosure before action can be taken.

Nevertheless, SMEs facing anti-competitive strategies from larger competitors, whether in a national or regional market, should report such activities to the OFT. While they may not impose sanctions on the company, the simple fact of their being investigated by the OFT can lead to change in behaviour.

Holmes & Hills Solicitors has large team of commercial solicitors and commercial property lawyers advising and representing clients across Essex and Suffolk on a wide range of commercial legal matters. Call 01376 320456 (Essex) or 01787 275275 (Suffolk) for more information on Holmes & Hill' legal services for business.