The energy market constitutes a strategic and dynamic economic field of vital importance. The policy of companies active in the energy sector may have a significant impact on customers’ life – we certainly are witnesses of that behavior. Does “Gazprom” ring a bell? One should take into consideration that the energy field is mainly an oligopolistic economic sector. Under these circumstances, phenomena such as abuse of dominant position are very likely to appear. The European Union, as an internal market, is responsible both for preventing such practices with relevant regulations and intervening when they occur.
In the gas supply sector the Case of Gazprom – a huge Russian gas company – part-owned by the state that controls the largest market share, probably constitutes the most important antitrust case of the past decade. The purpose of this “Saga” is to present the key points of this particular case, including inter alia the EU regulation against abuse of dominance, the company’s position in the international gas supply market, the antitrust practices that raised concerns, and the legal action taken by the EU Commission against Gazprom until the final decision which settled the case.
Firstly, some clarifications are in order to understand the theoretical and economic background. In Case 2/76 United Brands Company and United Brands Continental BV v Commission we had for the first time the definition of dominant position by the European Court of Justice. In this verdict, we had the definition of dominant power as “a position of economic strength enjoyed by an undertaking which empowers it to reduce the effective competition on the relevant market by affording it the power to choose strategic options to an appreciable extent, independently of the competitors, the customers and the consumers of the relevant market”.
We may say that a company has a dominant position when it can control the market and set the prices independently from four key factors:1) Competitors, 2) customers,3) suppliers or 4) consumers. A firm in a dominant position would have the ability to set prices above the competitive level, limit production to have profitable outcomes, or affect the quality of the products. A dominant position may be held by one or more independent companies that cooperate, creating an oligopolistic environment. A dominant firm, or else a firm that has a much larger market share than its next competitor in the market.
Under EU law, a dominant position in the market is not prohibited. It may have been a result of “good business “ by a company and it even may have a positive impact on the market itself. The higher level of technology and innovation may be in favor of the final consumer as the firms may be able to increase the level of quality of the final product. At the same time, they can reduce the cost of production. The final result could be better products for the market at lower prices.
Abuse of dominant position
Article 102 TFEU prohibits the abuse of a dominant position in the internal market or a substantial part of it by one or more undertakings. Article 102 TFEU defines in paras a – d the abuse of dominant position as unfair trading conditions such as imposing unfair purchase or selling price, limiting the production or technical developments to the prejudice of the consumers, discriminating trading conditions on partners, and imposing obligations that have no connection with the subject of the contracts.
Guess what Gazprom did?