Forum pour l’emploi: The Luxembourg Competition Authority dismissed a predatory pricing claim against a non-profit entity

By a decision made on 30 September 2016 in the Forum pour l’emploi case, the Conseil de la concurrence or Luxembourg Competition Authority (LCA) has considered whether the pricing policies applied by Asbl Forum pour l’emploi (FPE) amounted to a predatory pricing banned by Article 102 TFEU and the corresponding Article 5 of the Luxembourg Competition Act[1]. Eventually, the LCA cleared FPE of all the allegations given that FPE did not have a dominant position in the relevant market and was not subject to the special responsibilities of dominant firms under competition law.

FPE was a not-for-profit entity whose statutory task is to reduce the unemployment rate in Luxembourg. In December 2015 the LCA opened an antitrust investigation against FPE, following the receipt of a complaint filed by its competitor Wäschfra. Considering that FPE was beneficiary of financial aid granted by the Luxembourg public authorities, Wäschfra claimed that FPE was in the position to offer customers such low prices that could not be met by privately-held rivals that did not enjoy the public subsidies awarded to FPE.  

First, the LCA pointed out that to pursue its objective to reduce unemployment, FPE carried out a number of economic activities, including the provision of laundry services in competition with Wäschfra. FPE was a major actor of the social and solidarity economy, which was taken in high consideration and financially supported by the Luxembourg authorities being instrumental in achieving the goal of a sustainable economic development. That said, the LCA observed that the regulatory regime for the social and solidarity economy did not provide guidance on pricing policies of social undertakings beneficiary of State aid measures such as FPE.

Second, the LCA identified the relevant product market affected by the allegedly anti-competitive pricing policies in the market for the provision of laundry services of professional apparels. This market was considered to be national in dimension.

Third, rather curiously, the LCA went on by dealing with the issue whether the FPE pricing policy was predatory before ascertaining whether FPE had a dominant position in the relevant market. To this end, the LCA relied on the Azko test developed by the European courts on the basis of a price-cost comparison under which:

A.    Where the prices applied by a dominant firm are lower than the average total costs (ATC) but higher than the average variable costs (AVC), the firm can be found to have applied predatory pricing when evidence that this is done with the intention to eliminate a competitor is shown;

B.    Where the prices applied by a dominant firm are lower than the (AVC), the firm is presumed to have infringed competition with predatory pricing.

In that regard, the LCA compared the prices offered by FPE to one of its customers with the prices offered by Wäschfra to the same customer and with the market prices that were identified in the prices applied by a third competitors. The underlying idea was that the market prices charged by an efficient competitor should not be below the AVC. Instead, those prices should cover the ATC that encompass variable costs and fixed costs, inclusive of cost of capital. In essence, the LCA embraced the ‘as efficient competitor’ standard, according to which intervention to regulate a predatory pricing practice is warranted only when below-cost pricing may result in competition foreclosure[2]. That may be the case when the prices of the dominant firms are below its ATC. Then, the LCA calculated the FPE prices that turned out to be much lower than the prices charged by an as efficient competitor. Indeed, the prices applied by FPE corresponded to 41.57% of the prices applied by the former. This figure attracted the attention of the LCA. It noted that for the variable costs of FPE to be covered by its prices, it was necessary that the variable costs of the as efficient competitor were above the 41,57% threshold of total costs, which was unlikely due to manifold reasons. In the market for the provision of services the variable costs are normally much higher than the fixed costs. This was reflected by an estimation made by the Luxembourg public authorities, according to which in the context of social economy the variable costs amount to 80% of the total costs. Hereby, the LCA took the view that the FPE prices were below its variable costs and, accordingly, the FPE pricing policy fell within the scenario ‘B’ in the Azko test, prices below AVC. In other words, the FPE caould be presumed to be predatory

Fourth and finally, after establishing that the FPE pricing policy was predatory in nature, the LCA addressed the question whether the FPE conduct constituted a competition breach in the shape of abuse of its dominant position. The LCA replied in the negative to this question. In fact, with a market share of only 3%, FEP was far from enjoying a dominant position in the relevant market. Then, the LCA ruled out that FPE violated Article 102 TFEU and Article 5 of the Luxembourg Competition Act

Arguably, the most noteworthy aspect in Forum pour l’emploi is the unusual approach taken by the LCA in examining the allegedly anti-competitive pricing policy. Contrary to the order normally followed by the European Commission, the LCA first established that the contested prices were below costs and only after that it dealt with the issue whether FPE was dominant in the relevant market. This approach may be explained by bearing in mind the proactive competition enforcement policy recently embraced by the LCA. In that regard, the LCA made it clear that public undertakings are subject to competition law (Pompes Funèbres[3], Philharmonie[4]) and exerted its jurisdiction on the basis of Article 102 TFEU to review the competition impact of mergers (Utopia[5]). By acting in this way aspect in Forum pour l’emploi, the LCA may have wished to stress that also undertakings of third sectors have to comply with competition rules and clarify which criteria those firms have to follow to make sure that their pricing policies are not predatory. If such firms were allowed to apply predatory pricing, that would led to a paradoxical result. They could drive their competitors off the market, thereby increasing the unemployment rate which, on the contrary, social undertakings have to combat.

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[1] Conseil de la concurrence, Case n. 2016-RP-08 Asbl Forum pour l’emploi, http://www.concurrence.public.lu/fr/decisions/abus-de-position-dominante/2016/decision-2016-rp-08/Decision-2016-RP-08-version-non-confidentielle1.pdf.

[2] Commission’s  Guidance on Article 102 Enforcement Priorities.

[3] Conseil de la concurrence, Case n. 2015-E-01, Pompes Funebrès,  http://www.concurrence.public.lu/fr/decisions/abus-de-position-dominante/2015/decision-2015-e-01/Decision-2015-E-01.pdf.

[4] Conseil de la concurrence, Case n. 2015-RP-02, Philarmonie,  http://www.concurrence.public.lu/fr/decisions/abus-de-position-dominante/2015/decision-2015-rp-02/Decision-n_-2015-RP-02-du-22-5-2015.pdf.

[5] Conseil de la concurrence, Case n. 2016-FO-04, Utopia, http://www.concurrence.public.lu/fr/decisions/abus-de-position-dominante/2016/decision-2016-fo-04/Decision-2016-FO-04---version-non-confidentielle.pdf.