Unilateral Conduct Working Group
Case Study in the Assessment of Dominance
British Airways plc v. Commission
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6th Annual Conference
Moscow, 30 May 2007
Presentation Structure
1. Case history
2. Dominance assessment by COM/CFI
– Definition of Dominance
– Market share assessment
– Other criteria:
•
•
•
Network effects
Entry barriers
Buyer power
3. Issues for Discussion
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6th Annual Conference
Moscow, 30 May 2007
Case History
• Commission Decision 2000/74/EC (14 July 1999) (found BA to
abuse a dominant position in the U.K. market for air travel agency
services).
• Case T-219/99 British Airways Plc v. Commission, judgment of 17
Dec. 2003 (upheld Commission’s decision).
• Case C-95/04P British Airways Plc v. Commission, judgment of 15
March 2007 (dominance not appealed)
• U.S. litigation in the Second Circuit (dominance not addressed)
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6th Annual Conference
Moscow, 30 May 2007
Definition of Dominance
• “Position of economic strength enjoyed by an undertaking which
enables it to prevent effective competition being maintained on a
relevant market by affording it the power to behave to an
appreciable extent independently of its competitors, its customers
and ultimately consumers” (ECJ in United Brands, Hoffman-La
Roche)
• BA found to be the dominant purchaser in the U.K. market for air
travel agency services
Upstream
BA
Purchase
agency services
Downstream
Travel Agents
Sell Airline
Tickets
Commission
£
Revenue
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6th Annual Conference
Moscow, 30 May 2007
Market Share Assessment
• COM: ‘A combination of factors can lead to the conclusion [of
dominance] although market share is the most direct indicator.’
1992
1993
1994
1995
1996
1997
1998
BA
46.3
45.6
43.5
42.7
40.3
42.0
39.7
Virgin
2.8
3.0
3.7
4.0
4.0
5.8
5.5
AA
-
5.4
7.3
7.7
7.6
3.6
3.8
BMI
3.6
3.4
3.2
3.0
2.7
-
-
Qantas
3.0
2.7
3.0
2.6
6.4
3.0
3.3
KLM
2.5
-
-
-
-
3.8
5.3
% of total sales to IATA BSPUK travel agents
• BA shares much higher than those of its closest rival, Virgin
• BA share was over twice the combined share of 4 largest rivals
• Position of BA had been maintained for several years
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6th Annual Conference
Moscow, 30 May 2007
Durability in Market Power
Percentage Change in Sales Volume
50%
40%
30%
Total Virgin
growth: 96%
20%
BA
Virgin
10%
0%
1993
1994
1995
1996
-10%
1997
1998
Total BA loss:
14%
• CFI: Reduction in BA’s share cannot, by itself, constitute proof that
there is no dominant position
– Decline in market position not substantial enough to call into question
BA’s dominant position
– Substantial gap remained between BA and competitors
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6th Annual Conference
Moscow, 30 May 2007
Other Criteria: Network Effects
• Network effects in downstream market for passenger
air travel
• Largest U.K. network, offering significantly more routes to
and from the U.K. than any other airline
• BA holds twice as many slots at LHR than its nearest rival
• BA operates several times the number of routes served by
each of its nearest rivals operating from LGW and LHR
• “Operation of hub network in the UK allows [BA] to offer
many more flights and carry a larger number of passengers
than rivals operating point-to-point services…..”.
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6th Annual Conference
Moscow, 30 May 2007
Other Criteria: Entry Barriers
–
Legal/regulatory:
•
–
Structural:
•
•
–
For example « grandfathering » of slot allocations
BA has a very powerful negotiating position vis-à-vis the
travel agents
High hurdle for new entrants: have to pay very high
commissions to win business
Strategic:
•
BA created contractual barriers by concluding global and
marketing agreements with the most important agents, and
implementing its performance award schemes.
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6th Annual Conference
Moscow, 30 May 2007
Other Criteria: Lack of Buyer Power
• Agents tied in by contracts;
• They risk losing their commission if selling tickets from
other airlines;
• No supply side substitutability with other services (such
as hotel rooms or charter flights);
• BA is thus an obligatory business partner!
– Supporting evidence: BA in a position in 1998 to
• Unilaterally impose a reduction of its base travel agent
commissions;
• Extend its new performance reward scheme to all travel
agents in the UK.
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6th Annual Conference
Moscow, 30 May 2007
Some Issues for Discussion
•
Dynamic Considerations
– Did the COM fail to consider the impact of sales through other channels
(internet/direct telephone) and how this may affect BA’s ability to act
independently?
•
Market Share
– The absolute figures were not overwhelming (40%)
– The COM found dominance notwithstanding a net decline in the % of BA’s total
sales, while competitors’ shares increased
•
Buyer Power
– If travel agents need to offer a range of airlines, why are they dependent on BA?
– If travel agents can use supply side substitution by increasing other revenue
producing activities, why are they dependent on BA’s business?
•
BA’s Behaviour
– If BA was dominant, would it then have invested substantial amounts into
improving its services to compete more effectively against other airlines?
– While new structure reduced BA’s base commissions, incentives made greater
commissions (up to 11%) possible
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6th Annual Conference
Moscow, 30 May 2007