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Danish postal incumbent Post Danmark has abused its dominant position through loyalty enhancing rebates

22. december 2010

The Danish Competition Council (“the Council”) found in a decision of 22. December 2010 that the Danish incumbent postal carrier Post Danmark A/S (“Post Danmark”) has abused its dominant position in the national market for magazine mail, thus infringing Section 11 in the Danish Competition Act and Article 102 TFEU. The abuse consist in: 1) the grant of individual target rebates to four large magazine mail customers; and 2) minimum thresholds per magazine title per posting in order to qualify as magazine mail.

Post Danmark is an unavoidable trading partner for magazine mail customers. Post Danmark is the sole distributor with a nation-wide distribution of addressed magazine mail, meaning that the customers must use Post Danmark’s services for at least part of its magazine mail.
Individual target rebates

During the period 2007-2009 Post Danmark provided substantial individual target rebates between [0-40] pct. to four large magazine mail costumers. Post Danmark’s turnover from the four magazine mail customers amounted to [45-65] pct. (2008) of Post Danmark’s total turnover from distribution of magazine mail.

The four customers that received individual target rebates risked losing a significant rebate if they let a competitor to Post Danmark distribute parts of their magazine mail quantities. In order to be able to win parts of customer’s quantities, a competitor to Post Danmark had to offer the customer a significant lower net price than Post Danmark offered the customer, inclusive the individual target rebate, hereby compensating the customer for the loss of rebate on the quantities which had to remain with Post Danmark.

Post Danmark has not been able to give an objective economic reason for the individual target rebates. Post Danmark has submitted a “meeting the competition defence” (MCD). The individual target rebates, however, cannot be defended by referring to MCD, since a purchasing target corresponding to all or most of the relevant customers’ magazine mail quantities is not necessary to meet price competition.
Minimum thresholds

In addition, Post Danmark is operating with four general price lists for each of its four magazine mail products. The general pricelists are standardized with equal thresholds and criteria for all customers. Moreover, the pricelists observe a step-by-step, non-cumulative rebate scale, which means that the achieved rebate only applies to the share of the customer’s magazine mail which is above each step on the scale. The number of magazines is calculated for each magazine separately.

However, in order to be categorized as a magazine mail product/a specific magazine mail product and, thus, for the relevant general pricelist to be applicable, each magazine title has to meet a minimum threshold: Number of magazines per title per posting. This first step in Post Danmark’s general pricelists for magazine mail is cumulative (retroactive).

The minimum thresholds in Post Danmark’s general pricelists entail that a customer has strong incentives to select Post Danmark and subsequently deselect the competitors for the distribution of a magazine title, if the magazine title is close to a minimum threshold. At the same time the minimum thresholds are constructed in a way that a significant part of the customers’ magazine mail quantities cannot be moved to a competitor to Post Danmark without the risk of not meeting a threshold. In order to be able to win parts of a magazine mail customer’s quantities, a competitor to Post Danmark had to offer the customer a significant lower price than Post Danmark offered the customer, inclusive the quantity rebate, hereby compensating the customer for the loss of rebate which the shift caused on the quantities remaining at Post Danmark.

Post Danmark has not been able to give an objective economic reason for the minimum thresholds.
Conclusion

Post Danmark’s competitors had to offer the customers who received individual target rebates significantly lower prices in comparison to Post Danmark’s prices in order to win magazine mail quantities. Both this and the minimum thresholds in Post Danmark’s general pricelist for magazine mail made it difficult for Post Danmark’s competitors to compete effectively with Post Danmark for a large part of the relevant market. Thus, the individual target rebates and the minimum thresholds, each individually, had the loyalty enhancing effect of foreclosing the market for competitors and thereby tended to restrict effective competition on the market.