Abuse of Monopoly Position during Quarantine: How to Avoid Fines from AMCU

The situation with the COVID-19 virus and all the quarantine measures had a significant impact on the Ukrainian economy. In these conditions a lot of different businesses have found themselves without their usual competitors and after the lifting of quarantine measures adopted aggressive marketing strategies to try to recover their losses. And in many cases such strategies are subject to Ukrainian antimonopoly legislation and considered as violations.

One of the most widespread mistakes that is presumed by company managers is that their company can in no way be regarded a monopolist and, therefore, it is free to act in its sales and cost decisions. Unfortunately, as the AMCU’s longtime practice suggests, this is not the case. Moreover, with the mass closure of business as well as transportation and travel restrictions imposed by quarantining, the possibility of recognizing a company as a monopolist on some local market is higher than ever.

We would like to remind people that according to Article 12 of the Law of Ukraine On Protection of Economic Competition a company shall be considered as occupying a monopoly (dominant) position on a commodity market if:

•  it has no competitors on this market;
•  is not subject to significant competition due to limited access of other entities to purchase raw materials, materials and sales of goods, the presence of barriers to market access of other entities, the availability of benefits or other circumstances.

The law sets the “standard” monopolistic market share threshold at 35%. Having a market share of more than this is considered a monopoly position unless it is proven that the company is subject to significant competition.

But how are these legislative norms transferred into practice?

First of all, it should be noted that calculation of the market share impacts the territorial (i.e. the geography of sales) and goods borders (types of goods/services which are considered as interchangeable) of a market.

The AMCU tended, for a long time, to narrow down market borders, whether territorial or goods borders. This led to the birth of some very impossible from the economic view, but justifiable from the consumers point of view, markets, like the market of car technical services for cars during the warranty period. The AMCU’s justification for this is very simple; car owners do not want to lose their warranty (which will happen if they come to unofficial service stations), thus they are limited in their choice of service.

Territorial borders are also significant as the AMCU does consider the actual possibility of buying goods/services elsewhere rather than just if there is another seller of similar goods. As a simple example, for foods the market borders can be limited to several streets in a city, as consumers are unlikely to travel far to buy bread, milk, etc.

As a result, it is easy for a company to suddenly become a monopolist if there are no competitors on the local market defined by the AMCU.

At the same time, it should be noted that just having a monopoly market share does not make a company an automatic transgressor. Only certain actions by a company with such a position are considered to be unlawful.

Article 13 of the Law of Ukraine On Protection of Economic Competition stipulates that abuse of a monopoly (dominant) position in the market is the actions or omissions of an economic entity that holds a monopoly (dominant) position in the market, which have led to, or may lead to, the prevention, elimination or restriction of competition, or infringement of the interests of other entities or consumers that would be impossible in the face of significant competition in the market.

The law also indicates a few actions which are recognized as abuse of monopoly (dominant) position in the market by default:

1) the establishment of such prices or other conditions for the purchase or sale of goods that could not be established in the presence of significant competition on the market;

2) application of different prices or different other conditions to equivalent agreements with business entities, sellers or buyers without objectively justified reasons;

3) stipulating the conclusion of agreements through the acceptance by the business entity of additional obligations, which by their nature or in accordance with trade and other fair customs in business activities, do not relate to the subject of the contract;

4) restriction of production, markets or technical development, which has caused, or may cause, damage to other business entities, buyers, sellers;

5) partial or complete refusal to purchase or sell goods in the absence of alternative sources of sale or purchase;

6) significant restriction of the competitiveness of other economic entities in the market without objectively justified reasons;

7) creating barriers to market access (exit from a market) or removing sellers, buyers and other business entities from a market.

The most common violation from this list is setting additional or unusual conditions for the purchase of goods.

For example, setting as one of the conditions for purchase buying in bulk or only by adding other goods or signing an additional service agreement.

At the same time, possible violations are not limited to the above-mentioned. For example, in 2019 the AMCU fined an insurance company for abuse of monopoly (dominant) position due to the sale of insurance only through agents. The AMCU has decreed that including agents into the scheme of concluding insurance agreements (with the absence of the possibility to conclude an ­agreement directly) increased the price of the insurance due to the agency fee paid by the insurance.

Another widely spread violation recognized by the AMCU as abuse of monopoly position is submitting knowingly inflated tariffs for approval to the regulator. This violation is often committed by a carrier on the route where the one carrier is selected by the local authorities.

Another violation is that of recognized actions by one electricity provider which demanded from customers who wanted to connect payment for using electricity without an agreement before the signing of a new agreement — which is not allowed by Ukrainian legislation. The AMCU concluded that such actions were abuse of the monopoly position as in the presence of competition the electricity company would not have demanded this from customers.

By way of conclusion, we can say that the AMCU can recognize as abuse of position practically any unlawful action carried out by a company which may affect the interests of customers.

Under these circumstances any aggressive marketing or sales strategy implemented by the company needs to be checked for compliance with antimonopoly legislation. Otherwise, the risks and possible fines for violation may practically finish off a company.

It should be remembered that the maximum fine for this violation is 10% of last year’s income. While in practice the actual fine is lower due to various mitigating circumstances, and may generally come to 2-5% of a company’s income.