The judgment of the ECJ in Post Danmark, which was issued on 27 March 2012, has clarified the rules on selective discounts and below-cost selling under the competition law prohibition of an abuse of a dominant position. Post Danmark was dominant on the Danish market for unaddressed mail (direct mail of brochures, guides, newspapers, etc.), with just one major competitor, Forbruger-Kontakt. Post Danmark had made a low offer for its services to one of Forbruger-Kontakt's customers (Coop group) which did not allow Post Danmark to cover its average total costs of providing the service to the Coop, but did allow it to cover its average incremental costs (the average increase or decrease in costs as a result of one more or one less unit of output). The ECJ was asked to consider whether this type of pricing was an exclusionary abuse by Post Danmark, even if it was established that the prices were not set at that level for the purpose of driving a competitor out of the market.
Price discrimination does not equal exclusionary abuse
The ECJ concluded that offering low prices to certain customers is not an exclusionary abuse merely because the prices are between fixed and incremental costs. It found that in order to assess anti-competitive effects in such a situation, the national court should consider "whether that pricing policy, without objective justification, produces an actual or likely exclusionary effect, to the detriment of competition and, thereby, of consumers' interests".
In general terms, the ECJ concluded that price discrimination "cannot of itself suggest that there exists an exclusionary abuse", whatever form the discrimination takes. As a consequence, it would appear that there is a low risk of finding an abuse either for differential deals offered to customers in the same position or uniform deals offered to customers in varying positions (in the absence of exclusionary effect). The ECJ also found that where a dominant undertaking sets its prices at a level which covers most of its costs, "as a general rule" equally efficient competitors can be expected to be in a position to offer sustainable competition.
Precedent for market leaders to negotiate more freely
Article 102 of the Treaty on the Functioning of the European Union prohibits the application of "dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage". Until now, the precise status of the "competitive disadvantage" requirement has been quite vague. As a consequence dominant companies have been cautious in offering specific deals to individual customers which may trigger accusations of illegal discrimination. This case provides helpful direction to companies with a strong market presence who wish to negotiate in an unrestrained manner with their customers, in particular, where they are confident that their customer deals will have no adverse impact on their competitors.
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