A recent European Court case has confirmed that a dominant firm will not breach EU competition law simply by selling its services below their total cost, as long as the services are charged above their 'incremental' cost. Furthermore, an abuse of dominance will only occur where it can be shown that the company intended to remove a competitor from the market as a result of its pricing strategies.
The Court of Justice of the European Union ('ECJ') has ruled that a dominant postal company (Post Danmark) which has a universal service obligation may make selective price reductions, and bring its prices below the level of its average overall costs but not below its average incremental costs, without infringing Article 102 of the Treaty on the Functioning of the European Union ('TFEU') prohibiting an abuse of a dominant position. The court concluded that each case should be judged on its particular facts but the important question is whether the pricing strategy has the result or potential, without objective justification, to remove a competitor from the market.
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