General Authority for Competition’s Assessment of Abuse of Dominance

Prohibiting abuse of dominance is one of the main pillars of competition law in any jurisdiction. Abuse of dominance describes unilateral conduct by which businesses use their substantial influence in a specific market to undermine fair competition. Given the threat abuse of dominance poses to healthy competition, economic development, and innovation, active antitrust jurisdictions typically restrict certain conduct by businesses with substantial market power. The approaches different jurisdictions take vary in respect to both the threshold of what constitutes a market dominant position and whether certain conduct is per se prohibited for market dominant undertakings or only if and to the extend they have negative impacts on competition.

In November 2022, the Saudi General Authority for Competition (GAC) published guidelines on the abuse of dominance under Saudi law (Guidelines). In these guidelines GAC outlines their position on the matter explaining how they implement and enforce the provisions of the Saudi Competition Law and their Executive Regulations governing abuse of dominance. The Guidelines detail the standards applied by GAC for assessing dominance, give examples of conducts that may be deemed an abuse of dominance, and the conditions under which such conduct may be exempted.

The Guidelines define abuse of dominance as an (1) undertaking with a (2) dominant position in a (3) specific market (4) abusing that dominance by engaging in conduct that has the purpose to or results in preventing, restricting, or distorting competition in the relevant market, or (5) is deemed to be per se anti-competitive.

Undertaking

The term ‘undertaking’ is used by GAC as well as in the statutes as a wider term to include any type of entity, person, or group thereof conducting any economic activity in any given market.

Dominance

To detect an act of abuse of dominance, GAC must establish whether the concerned undertaking has a dominant position in the relevant market. Article 1 Competition Law broadly defines ‘dominant position’ as a situation in which an undertaking controls a certain percentage of the market in which it operates or on which it has influence, or both. Article 10 Executive Regulations further expands on this definition. It clarifies that undertakings with a market share of 40 percent or more are generally deemed to have a dominant position. However, depending on the relevant market an undertaking may be considered dominant, even if their market share is below this threshold. For instance, in fragmented markets, which include several large competitors, undertakings with lesser market shares may still be considered dominant. Accordingly, GAC conducts two different tests to establish whether an undertaking has a dominant position: the market share and the market power test.

Market Definition

Markets are defined according to product and geographic scope. To established the relevant product market GAC examines the relevant product or services from the customers’ perspective. Where a potential customer considers two services or products as substitutes to each other and would turn to one instead of the other in case of changes of certain circumstances, those two services or products belong to the same relevant product market. GAC will consider circumstances such as price, uses and consumption, physical characteristics, and marketing when assessing whether different services or products are substitutable.

GAC applies the same logic when assessing the geographical scope of the relevant market. They will consider a geographical area as a coherent market, if the market conditions including customer preference concerning the relevant service or product are largely the same in the relevant area.

Assessing dominance

Once the relevant market and the relevant competitors are defined, GAC will assess whether the undertaking investigated has a market share of at least 40 percent or other wise has a dominant position in the relevant market. To do so GAC relies primarily on the undertaking’s sales value, sales volume, and the capacity to supply the relevant market compared to its the competitors.

While GAC’s analysis will primarily be focused on market shares, a high market share alone does not necessarily imply substantial market power. In particular, GAC points out in their guidelines that market shares that are only high for a brief time are not indicative of a substantial degree of market power. Accordingly, GAC will consider additional factors to assess market power; such as: (1) legal, technological, or strategic barriers for market entry or expansion, (2) accessibility of production inputs and exclusivities, (3) customer bargaining power, and (4) financial and non-financial resources of competitors.

Being Dominant is Not Prohibited

The guidelines make it clear that GAC does not considers its role to be to protect less capable competitors. Instead GAC strives to protect competition itself. Hence, GAC’s purpose is not to prohibit stronger competitors from using their market power. Holding a dominant position is not per se prohibited. The Competition Law only prohibits undertakings from (mis-)using a dominant position to unduly hurt competition. Provisions addressing abuse of dominance do not prohibit undertakings from gaining market power or being able to exercise it to increase their profits for a time. Nor do they prohibit those with a dominant position from ‘out-competing’ their rivals by using superior skills and efficiencies to win customers.

Abuse of Dominance is Prohibited

What is prohibited is dominant undertakings using their market power to hurt fair and healthy competition by restricting or undermining their competitors’ ability to compete as opposed to by offering a better product or service. Article 6 Competition Law prohibits exploiting a position of dominance to undermine or limit competition. Article 9 Executive Regulations further clarifies that conduct that violates Article 6 Competition Law, is prohibited if such conduct is intended to or potentially has the effect of unduly undermining competition. The neither does the anti-competitive effect have to materialize itself nor do such (potential) effects have to be the intended consequence for the conduct to be unlawful pursuant to articles 6 Competition Law. Once the potentially anti-competitive effect is established, the undertaking in question is deemed to have abused its dominant position in violation of Saudi law.

The guidelines do not define a specific test by which GAC assesses the (potential) effect of a conduct. However, GAC will generally consider negative effects for customers to be indicative of harm to competition. Accordingly, a conduct by an undertaking in a dominant position that would result in higher prices, restricted availability of products or services, or reduced quality will be deemed to harm competition and, therefore, constitute an abuse of dominance. Still, other factors may also be considered indicative of an abuse of dominance.

Strictly Prohibited Conducts

Aside form the general rule according to which conduct of market dominant undertakings is only prohibited, if it (potentially) harms fair competition, the Executive Regulations define two activities that are per se prohibited. These are dominant undertakings (1) prohibiting others (i.e. their suppliers) from dealing with other undertakings (i.e. their competitors), or (2) tying and bundling—thus, making the sale of one product or services conditional on the purchase of another product or service. These practices are deemed per se an abuse of dominance, if conducted by a dominant undertaking. Hence, dominant undertakings my not engage in these practices regardless of their (potential) market effect.

Other Conduct Generally Considered Abuse

Article 6 Competition Law includes a non-exclusive catalog of conduct considered as abuse of dominance, if their potentially anti-competitive effect is established. The most commonly known of these is selling a good or service below cost is such a catalog offence. While such predatory pricing may benefit customers in the short run, dominant undertakings may use such practice to squeeze out competitors allowing them to raise prices in the midterm. Other forms of abuse of dominance explicitly mentioned by Article 6 Competition Law include refusing to deal with individual undertakings without an objective reason and discrimination in treating contracting partners. Any of these catalogue offences are prohibited, if they (potentially) have a negative effect on competition, and (2) are undertaken by a dominant undertaking. The catalogue of article 6 Competition Law is not exhaustive. Thus, other conduct may be prohibited pursuant to article 6 Competition Law.

Special regulations

Some sectors such as the telecommunications sector are excluded from the application of the provisions on abuse of dominance. The Telecommunications and Information Technology Act sanctions dominance of existing telecommunications infrastructure operators. Still, the act imposes certain obligations on them. In particular, they must provide access to telecommunication infrastructure to telecommunication businesses without discrimination.

Exemption

As expressed in the Guidelines GAC’s aim is to protect competition to preserve quality of products and services, diversification, technological development, innovative, and efficiency. Therefore, certain generally problematic conduct may be permitted, if positive market effects of such conduct outweigh the negative effects. This is also true in case of conduct that formally would be prohibited as an abuse of dominance.

Pursuant to article 8 Competition Law in connection with the Executive Regulations a dominant undertaking may request GAC to exempt a specific conduct from the restrictions of article 6 Competition Law. In their request the undertaking must provide an assessment of the expected positive and negative effects of the proposed conduct. The request will then be assess by a specifically designated technical committee within GAC.

In their assessment the committee will take into account the proposal of the requesting undertaking, as well as information the committee collected in their market assessment and interviews with potentially effected parties. The committee than publishes the request for public consultation. Based on the assessment of the request by the technical committee and input received during the public consultation phase, GAC will decide on the request. They may issue unconditional or conditional approval or reject the request to exempt the conduct from the prohibition of article 6 Competition Law.

Competing Fairly to Avoid Penalties 

The Competition Law gives GAC wide authorities to investigate perceived abuse of dominance. Moreover, if found to have abuse a dominant position, undertakings may be subject to severe penalties including fines and alternative sanctions. Furthermore, we have seen a stark increase in enforcement activities by GAC over the past year. The situation is further complicated by the lack of awareness for competition regulations in Saudi Arabia. Effectively, the Kingdom only has an active competition regime since late 2019. While GAC has started an ambitious public awareness campaign, local staff and business partners still often have little awareness and understanding of competition law. Consequently, there is an increased risk of violations occurring due to persons not being aware of their obligations. Paired with the increasing enforcement and severe penalties, these risks pose considerable concerns for businesses doing active in or with Saudi Arabia.

To mitigated these risks and preempt violations, companies should raise awareness for competition law in their organizations. Measures to do so can include setting up designated competition compliance officers, establish clear lines of communications through which competition concerns can be addressed, issue competition compliance guidelines, and conduct competition law trainings for their (local) staff. When dealing with local partners these should be made aware of and compelled to adhere to applicable competition law. Furthermore, partners’ compliance should be monitored, for example by implementing controlling measures, regular inspections, supervision of operations, and trainings. These measures will be most relevant where close cooperation is established—i.e. through joint ventures or agencies. Still, even in ‘looser’ forms of cooperation such as distribution agreements close attention should be paid to partners’ complying with applicable competition law.

Such measures will not only help preempt or mitigate violations of the Saudi competition regime. Where GAC finds a violation, undertakings may avoid or mitigate sanctions, if they can show  that they took adequate measures to prevent violations.