The Italian Competition Authority ("ICA") has recently issued a decision in a proceeding relating to the abuse of dominant position by Caronte&Tourist S.p.A. ("C&T" or the "Company"), a company specialised in maritime transportation across the Strait of Messina (the limb of sea between Sicily and the Italian mainland).
C&T was accused of taking advantage of their long-lasting market power in the Strait of Messina by imposing excessive and unfair charges to their customers (particularly to those travelling with a vehicle). This type of abusive conduct is rare and peculiar both in the national and European landscapes.
C&T is the most active company in the Strait of Messina. It offers bidirectional transport to passengers with or without a vehicle in two main commercial routes: Villa San Giovanni-Messina-Rada San Francesco ("VSG-MRSF") and Villa San Giovanni-Messina-Tremestieri ("VSG-MTR"). Furthermore, C&T is also in charge of other aspects of the marine transport sector, such as the operation of terminals.
Assessment of C&T Dominant Position
The investigations revealed the unequivocal dominant position held by C&T in the routes VSG-MRSF, VSG-MTR and, in general, in the market of passenger routes in the Strait of Messina. This conclusion was based on the following considerations:
- The market share held by the Company amounts to a 95-100% of the total share of passengers and vehicles and to around 85% of the total share of goods transport.
- C&T has been offering maritime transport in the area for almost 60 years, therefore it is a well-established company. Due to its longevity, in the ICA opinion, the Company is perfectly able to anticipate and adapt its commercial offers according to the demand.
- C&T is the only Company that has always operated the route VSG-MRSF, which is the most attractive to customers with vehicles in the Strait of Messina since it is both the shortest route and the one directly connected to the highway.
- The fleet possessed by C&T is by far the most numerous in the relevant area. This allows C&T to offer more frequent rides than all other maritime companies operating in the Streat of Messina.
Considering all the above-mentioned factors, the ICA reached the conclusion that C&T holds a position of a near-monopoly. A crucial aspect in support of such outcome is that C&T's closest competitor, Blueferries – which is operating in the same geographical market but mainly during summer and for the transport of heavy commercial vehicles – occupies a marginal share of the market and only serves a residual percentage of the overall demand. Therefore, Blueferries cannot possibly exert competitive pressure on C&T. The ICA also stressed how C&T's pricing strategy has never changed even after Blueferries entered the market. Blueferries aligned its prices to C&T's pricing strategy and has thus been regarded by the ICA as acting as a mere follower of C&T and not as an actual competitor.
C&T abusive conduct
As stated above, the case at hand concerned the imposition of unjustifiably unfair prices. Current national and EU case law do not provide for a clear-cut methodology to establish the relationship between the economic value of a product or a service and its price. On the contrary, the excessiveness and iniquity of a pricing strategy must be evaluated on a case-by-case basis.
In the proceeding at stake, the ICA opted for the application of the test adopted in the United Brands judgment, which is divided into two parts:
- Verify whether there is an excessive disproportion between the costs incurred and the price actually charged.
- Verify whether the imposition of an excessive price is unfair in itself or in comparison to similar competing products (so-called "benchmark analysis").
As far as the first test is concerned, the ICA compared the earnings of the Company with its cost plus (i.e., the selling price of the product at stake and the relative cost of production). The result would reveal the amount of margin of profit of C&T. Further evidence of the abuse was gathered by comparing the Return on Investment (ROI) of the dominant company with the average ROI in the sector.
During the proceeding, C&T manifested its disagreement with regards to the methodology adopted by the ICA to calculate the excessiveness of the prices. The Company proposed to compare their prices to the ones offered by other businesses active in the same geographical market or to conduct an analysis of the chronological evolution of its pricing strategy. Moreover, C&T also contested the establishment by the ICA of the adequate ROI percentage at 8%, because it was based on a comparative study of various maritime companies with fleets of various ages. C&T has one of the oldest fleets in the market, and therefore stressed that such standard value does not appreciate the age of the fleet. C&T thus suggested to consider 54,6% as the adequate ROI percentage.
The ICA rejected the alternatives brought forward by C&T as they were deemed to be unreliable. Due to their absolute dominance in the territory, no comparison can actually be made between C&T's prices and other maritime companies (such as Blueferries) because they are not actual competitors. Additionally, the fact that the prices imposed by C&T did not increase overtime is a confirmation of the power that the Company holds in the market. Lastly, for what concerns the adequate ROI percentage, the one indicated by C&T is three times higher than the ROI percentage of the company with the oldest fleet. Therefore, the ICA did not consider the ROI proposed by C&T to be accurate.
Once demonstrated the excessive nature of the prices imposed by C&T, the ICA proceeded with the application of the second part of the United Brands test and proved the unfairness of the prices charged by C&T though the benchmark analysis.
In particular, C&T's pricing strategy was compared with the ones adopted by similar maritime companies which offered analogous services in different geographical markets. The variable chosen to make the comparison was the price of the tickets. The results of the benchmark analysis revealed that C&T's prices are at least 80% higher than the ones imposed by other similar companies. Moreover, the ICA also discovered that such prices could not be possibly justified in relation to the quality of the services offered by C&T, on which the majority of the Company's customers have only expressed negative judgments.
Eventually, the ICA concluded that C&T's prices were not only excessive but also unfair compared to other companies active in the sector and fined C&T for 3,719,370 euro for having abused its dominant position. C&T was also urged to make its pricing strategy fair and proportionate and to communicate to the ICA all actions taken to implement a fair price regime each year until 2025.
The ICA decision in the case at stake confirms a renewed interest of antitrust watchdogs, both at national and EU level, in excessive pricing conducts of dominant undertakings.
However, the rarity of cases in which a company has been found liable for abuse of dominant position due to excessive prices conducts has determined a lack of guidance on the assessment to be applied when there is a risk of this type of violation of Article 102 TFEU. This is mirrored in the ICA difficulty when choosing the test to be applied in order to prove excessive pricings, which has undoubtedly been the most disputed aspect among the parties in the case at stake.
The ICA decision is available here (in Italian only)
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