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An extract from The Dominance and Monopolies Review, 10th edition
Market definition and market power
Only undertakings may achieve a dominant position. According to Article 2, Paragraph 1 bis of the Cartel Act, undertakings are all consumers or suppliers of goods or services active in commerce regardless of their legal or organisational form. This concept of an undertaking is very broad and follows – similar to other antitrust laws in Europe – a functional approach, based on the economic activity of an entity. Both undertakings governed by public law and private undertakings that are part of a public body (e.g., the federal government, cantons or communes) are considered as undertakings within the meaning of the Cartel Act.2 Furthermore, an undertaking in this sense may act on the supply side or on the demand side of a market. For the purpose of the Cartel Act and therefore for assessing dominance, a group of companies is considered as one single economic entity or undertaking, respectively.
To determine whether an undertaking enjoys a dominant position or monopoly power, the relevant market has to be defined. In cases concerning abuse of a dominant position, the rules applicable in merger control cases are being used analogously.3 Pursuant to Article 11, Paragraph 3 of the Merger Control Ordinance, the relevant product market comprises all those goods or services that are regarded as interchangeable by consumers on the one hand and by suppliers on the other hand with regard to their characteristics and intended use. The relevant geographic market comprises the area in which consumers purchase and in which suppliers sell the goods or services that constitute the product market.
As for the definition of the relevant product market, Swiss authorities generally rely on the demand-side-oriented market concept.4 According to this concept, the relevant product market consists of all goods and services that have the same characteristics or the same intended use as the product under investigation. Accordingly, goods or services that are regarded as functionally interchangeable by the opposite market side fall within the same product market. The good has to be substitutable for another good. Other methods used by the Swiss authorities to determine the relevant market are the test of cross-price elasticity and the small but significant and non-transitory increase in price test.5 These methods serve to assess whether the allegedly disadvantaged opposite side of the market could switch to alternative offers with regard to product, geographical and temporal terms.
According to the legal definition in Article 4, Paragraph 2 of the Cartel Act, 'dominant undertakings are one or more undertakings in a specific market that are able, as suppliers or consumers, to behave to an appreciable extent independently of the other participants (competitors, suppliers or consumers) in the market'. Based on this definition, dominance may exist on the demand side as well as on the supply side of a market.
Under Swiss law, there are no hard criteria to assess whether an undertaking has a dominant position. In recent case law, the FAC ruled that, to assess single dominance, an in-depth analysis of the market characteristics, such as the current competition (market shares), potential competition (market entry barriers), the position of the other side of the market (countervailing market power) and the influence of interrelated markets, has to be performed. Moreover, it held that the structure of the undertaking as well as the specific market conduct has to be taken into account.6 ComCo assesses the competitive pressure and market position of the potentially dominant undertaking and its competitors. It takes the competitive pressure due to the imminent expansion of already existing competitors or the imminent market entry of new suppliers into consideration. With regard to market shares, there is no statutory threshold above which an undertaking must be considered as dominant under Swiss law. Whereas according to the former practice of the authorities, market shares of 50 per cent and more were considered as an 'indicator' for dominance, the FAC now holds that market shares of 50 per cent or more 'at least' give rise to a presumption of the existence of a dominant position. The presumption is further strengthened for market shares above 60 or 70 per cent. The requirements for rebutting the presumption increase accordingly.7 Finally, ComCo analyses the vertical relationships by assessing the competitive pressure due to the negotiating strength of the other side of the market.
To establish market dominance, the Swiss competition authorities satisfy themselves on the balance of probability.8
According to the wording of Article 4, Paragraph 2 of the Cartel Act, one or more undertakings may hold a dominant position. In cases of collective dominance, several undertakings together hold a dominant market position. In the context of merger control, ComCo introduced the concept of collective dominance to Swiss antitrust law in 19989 and later also applied this concept to cases of abuse of market dominance.10 Collective dominance is assumed if at least two undertakings deliberately adopt a parallel (i.e., collusive) market conduct (collusion). Since parallel behaviour is a normal reaction of competitors to exogenous market developments, collective dominance is only assumed in cases of deliberate collusion.
There are no hard criteria for the existence of collective dominance. ComCo bases its assessment primarily on the following indicators:
Taking these indicators into consideration, it is necessary to perform an overall assessment of the competitive situation on the relevant market as well as on the upstream and downstream markets to determine whether the relevant market offers sufficient incentives for durable collective dominance.
In 2020 ComCo applied the aforementioned criteria to the planned merger between Sunrise Communications AG and Liberty Global Europe Financing BV.12 The target company of this merger was UPC GmbH, Switzerland's largest cable company. However, in the case at issue, ComCo found it unlikely for the newly created entity to hold a collectively dominant position together with Swisscom. When assessing the planned merger between Ticketcorner and Starticket, Switzerland's two largest ticketing providers, ComCo considered potential collective dominance. However, ComCo did not find sufficient evidence for the existence of a collectively dominant position.13
In another case, ComCo investigated a potential collective dominance of Booking.com, Expedia and HRS in the market for hotel booking platforms. While it found strong indications of a single dominant position for Booking.com, it considered the existence of collective dominance to be unlikely.14
The Swiss Parliament revised the Cartel Act and adopted the concept of relative market power in March 2021. The revised Cartel Act entered into force on 1 January 2022. In December 2021, shortly before the revised Cartel Act came into force, ComCo published a guidance paper on how it intends to interpret and enforce the new rules.
Under the revised Cartel Act, the prohibitions previously applicable only to dominant undertakings (Article 7 Cartel Act) are extended to companies with relative market power. A company is considered to have relative market power if other companies depend on it with respect to the supply of or demand for a product or service to which there is no sufficient and reasonable alternative. According to ComCo's guidance paper, alternatives are sufficient if other offers are available that can also adequately satisfy the undertaking's needs. In this regard, a number of factors are taken into account, such as product characteristics, purchasing conditions, brand reputation, brand loyalty of consumers and the market share of the undertaking with relative market power. Further, an alternative can be considered unreasonable due to individual characteristics of the dependent undertaking, such as specific investments in connection with an existing business relationship, the contractual relationship itself, switching costs, affected turnover in relation to total turnover and the occurrence of the alleged dependency (e.g., cause of the dependency). As a general rule, and according to ComCo, an undertaking can only invoke the allegation of relative market power after it has unsuccessfully tried to find reasonable alternative sources of supply. Contrary to a conventional assessment of market dominance, it is irrelevant whether the allegedly relative dominant company can behave independently of other market participants to a significant extent. The relative market power of a company must always be determined with respect to a specific bilateral commercial relationship.
Unlike dominant undertakings, relatively dominant undertakings cannot be sanctioned directly for abusing a position of relative market power (i.e., for a first offence). However, such undertakings may face an investigation of ComCo or civil lawsuits from private plaintiffs, or both. If ComCo finds a violation, it can impose behavioural remedies (e.g. an obligation to supply or non-discriminatory pricing). ComCo has already announced that it is determined to decide leading cases to provide guidance on the scope of application of the new rules. It is yet to be seen how many cases ComCo will actually decide, as settlements appear to be an attractive solution for both sides (for undertakings as well as ComCo).
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