In its first predatory pricing case since 2003, the European Commission has fined tech firm Qualcomm €242 million for abusing its dominant market position by engaging in predatory pricing in relation to its 3G baseband chipsets.
Abuse of dominance: predatory pricing
While there is nothing inherently anti-competitive with holding a dominant market position, an additional responsibility rests on businesses who have a dominant market position to ensure that their market power is not abused1. Abuse of dominance typically involves excluding rivals or exploiting customers, which can manifest in various ways including predatory pricing.
Predatory pricing involves selling a product at an artificially low price, below the average costs associated with selling that product and a price at which equally efficient competitors are unable to compete.
This leads to competitors exiting the market leaving customers reliant on the dominant business. Often the dominant business then raises its prices leaving customers no choice but to pay the higher prices.
Such cases tend to be complex and hard to prove, and significantly this is the first predatory pricing case that the European Commission has pursued in 16 years.
The European Commission concluded that Qualcomm holds a dominant market position due to its high market share (approximately 60%), which is almost three times the market share of its biggest competitor.
The European Commission also found that Qualcomm sold below cost to two strategic customers, Huawei and ZTE, between 2009 and 2011 forcing its main competitor, Icera, out of the market. The European Commission based its decision on:
- a price-cost test; and
- a broad range of qualitative evidence.
The price-cost test showed that Qualcomm’s prices were so low that they did not cover the costs for developing and producing the chipsets. Internal documents confirmed the anti-competitive rationale behind Qualcomm’s conduct i.e. to prevent Icera, a new entrant perceived by Qualcomm as posing a “critical” threat to its business, from expanding and building market presence, thereby ensuring that its own market position was maintained.
Margrethe Vestager, European Commissioner for Competition, has stated that Qualcomm’s conduct “prevented competition and innovation in this market by limiting the choice available to consumers in a sector with a huge demand and potential for innovative technologies”.
Qualcomm has indicated it plans to appeal this decision, commenting that Huawei and ZTE favoured their chipsets due to competitors’ products being “technologically inferior” rather than because of price.
Qualcomm already has two appeals pending in relation to entirely separate European Commission cases. These include an appeal against a fine of €997 million imposed for abuse of dominance in relation to exclusive purchasing of its LTE broadband chipsets by key customer Apple (achieved by making significant payments to Apple in return for the exclusivity).
This is the fifth fine imposed in the tech sector during Vestager’s mandate, demonstrating that the Commission is prepared to scrutinise the influence of big tech firms despite the complexity and time-consuming nature of the cases.
1. Article 102 of the TFEU