Skip to main content
SpringerLink
Log in

Underpricing as Unfair Competition?

  • Article
  • Published:
IIC - International Review of Intellectual Property and Competition Law Aims and scope Submit manuscript

Abstract

This paper deals with the issue of underpricing from the perspective of the law against unfair competition. It points out the intertwining of the private and public branches of competition law and the confusion of the purpose of both branches in the decision-making practice of Czech courts when assessing the illegality of underpricing used by a non-dominant competitor. The Czech courts incorrectly adopt the conclusions of the case law of the CJEU on the assessment of the unlawful use of below-cost prices by a dominant competitor to cases where such prices are used by a competitor not in that position. This paper seeks to stimulate debate on the issue under consideration and outline appropriate approaches. The possible sanction of below-cost pricing should first be examined according to whether it is offered by the dominant competitor – if so, the application of antitrust law rules (as a sub-fact of abuse of dominance) is appropriate, while a cumulative sanction under the law against unfair competition is not excluded. If the use of underpricing is committed by a competitor without a dominant market position, then only the unfair competition law sanction is applicable – in the context of the cumulative fulfilment of the conditions of the general unfair competition clause, it is necessary to take into account the extent and duration of the impact on the relevant market, other competitors or customers, whether the application of below-cost prices is accompanied by an intention on the part of the competitor to eliminate competition on the market (or a particular competitor), the nature of the market, and the behaviour of the average consumer on that market (what is the general price level of the goods or services offered at below-cost prices, what is the consumer’s reaction to the price change, what is the substitutability of the goods or services, etc?).

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. Dickinson (2008), pp. 9–58.

  2. Soukupová and Strachotová (2005), pp. 47–48.

  3. For more on the price elasticity of demand, cf. Samuelson and Nordhaus (2010), pp. 65–72.

  4. Dufková (2021), p. 21.

  5. This pricing strategy is discussed in more detail, e.g. by Kotrbová (1993), p. 23.

  6. Zákon o cenách (Act on Prices), Zákon č. 526/1990 Sb., o cenách, as amended (Czech) (hereinafter Act on Prices).

  7. Consolidated Version of the Treaty on the Functioning of the European Union, 9 May 2008, 2008 O.J. (C 115) (hereinafter TFEU).

  8. Zákon o ochraně hospodářské soutěže (Act on the Protection of Competition), Zákon č. 143/2001 Sb. (Czech) (hereinafter Competition Act or Act on the Protection of Competition).

  9. Občanský zákoník (Civil Code), Zákon č. 89/2012 Sb., as amended (Czech) (hereinafter Civil Code or CC).

  10. The general clause under Sec. 2976(1) of the Civil Code reads as follows: “Whoever, in the course of commercial intercourse, comes into conflict with the good morals of competition by conduct capable of causing injury to other competitors or customers commits unfair competition. Unfair competition shall be prohibited”.

  11. Bejček (2009), p. 596.

  12. Callmann (1962), p. 136.

  13. Other examples include discriminatory conduct, anti-competition, bid-rigging, boycotts and many others.

  14. Henning-Bodewig (2013), p. 237.

  15. Gesetz gegen den unlauteren Wettbewerb (UWG – Act Against Unfair Competition), 3 March 2010, Elektronischer Bundesanzeiger (eBAnz) 2949, 2008 I (Ger.) (hereinafter UWG).

  16. The basis for this ramification of competition law is Sec. 2972 of the Civil Code, which states that “whoever participates in competition (a competitor) may not, in the course of competitive activity or in association for the performance of competitive activity, abuse his own participation in competition by unfair competition or restrict the participation of others in competition”. The provision in question contains two sub-prohibitions: the prohibition of “abusing one’s participation in competition by unfair competition” (i.e. unfair competition) and the prohibition of “restricting the participation of others in competition” (i.e. antitrust law).

  17. Sec. 2976(1) of the Civil Code.

  18. The legal regulation of cartel (antitrust) law is mainly contained in the Act on Protection of Competition.

  19. In our case, this is a procedure under the Code of Civil Procedure.

  20. Raus and Neruda (2006), p. 15.

  21. Sec. 11(1)(e) of the Competition Act.

  22. Callmann (1962), pp. 139–140.

  23. For more details, see Weston et al. (1992), pp. 803–810.

  24. Kuča (2015), p. 528.

  25. In this regard, see for more detail on the Commission Communication – Guidance on the Commission’s enforcement priorities in applying Article 82 TFEU to abusive conduct by dominant undertakings to the exclusion of other competitors, 24 February 2009, 2009 O.J. (C 45/7), para. 65. See also O’Donoghue and Padilla (2006), pp. 283–302, or Moisejevas (2011), pp. 213–232.

  26. For a closer analysis of this case, see Craig and de Búrca (1998), p. 970. For a more recent analysis, see Rose and Bailey (2013), p. 794, or Faull and Nikpay (2014), p. 398.

  27. According to the CJEU (in simplified terms), average variable costs are those costs that vary according to the quantity of production. In contrast, fixed costs are those costs that remain constant regardless of the quantity of production. Average total costs are then given by the sum of fixed and variable costs.

  28. Rozsudek Krajského soudu v. Brně ze dne, Decision of the Regional Court in Brno of 25 September 2014, sp. zn. 62 Af 27/2011 (Czech).

  29. Bejček (2009), p. 596; Ondrejová (2014), p. 64; Šturm (2018), p. 1160; Večerková (2005), p. 116.

  30. According to Sec. 2976(1) of the Civil Code, it is “an act in competition which is contrary to the good morals of competition and likely to cause harm to other competitors or customers”.

  31. Rozsudek Nejvyššího soudu ze dne (NS), Decision of the Supreme Court of 29 May 2019, sp.zn. 23 Cdo 5955/2017 (Czech).

  32. Rozsudek Najvyššieho súdu Slovenskej republiky ze dne (NS), Decision of the Supreme Court of the Slovak Republic of 14 January 2009, sp.zn. 2 Obo 58/2008 (Slovak.). Also Harte-Bavendamm and Henning-Bodewig (2013), p. 1012.

  33. Hajn (2000), p. 137.

  34. Petr and Vavříček (2006), p. 358.

  35. For example, so-called “free riding”, see Rozsudek Nejvyššího soudu ze dne (NS), Decision of the Supreme Court of 14 November 2008, sp.zn. 32 Cdo 166/2008 (Czech).

  36. Rozsudek Městského soudu v. Praze ze dne, Decision of the Municipal Court in Prague of 11 July 2017, sp. zn. 2 Cm 29/2014 (Czech).

  37. Rozsudek Vrchního soudu v. Praze ze dne, Decision of the High Court in Prague of 26 September 2018, sp. zn. 3 Cmo 201/2017 (Czech).

  38. Rozsudek Městského soudu v. Praze ze dne, Decision of the Municipal Court in Prague of 24 September 2019, sp. zn. 2 Cm 29/2014 (Czech).

  39. Rozsudek Vrchního soudu v. Praze ze dne, Decision of the High Court in Prague of 15 February 2021, sp. zn. 3 Cmo 203/2019 (Czech).

  40. Rozsudek Nejvyššího soudu (NS) ze dne, Decision of the Supreme Court of 31 January 2022, sp. zn. 23 Cdo 2174/2021.

  41. Rozsudek Městského soudu v. Praze ze dne, Decision of the Municipal Court in Prague of 3 December 2019, sp. zn. 41 Cm 12/2019 (Czech).

  42. Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 Concerning Unfair Business-to-consumer Commercial Practices in the Internal Market, 2000 O.J. (L 149) 2 (hereinafter Directive 2005/29).

  43. The small general clause of misleading commercial practices is contained in Arts. 6 and 7 of Directive 2005/29 and Secs. 5 and 5a of Act No. 634/1992 Coll., the Consumer Protection Act, as amended (hereinafter CPA), and the small general clause of aggressive commercial practices is contained in Arts. 8 and 9 of Directive 2005/29 and Sec. 5b of the CPA.

  44. The general unfair commercial practices clause is contained in Art. 5(2) of Directive 2005/29 and Art. 4(1) of the CPA.

  45. Pelikán (2006), p. 15.

  46. Cf. Rozsudek Nejvyššího soudu ze dne (NS), Decision of the Supreme Court of 25 October 2012, sp.zn. 23 Cdo 3964/2011 (Czech) (on unfair competition as an objective tort), or Rozsudek Nejvyššího správního soudu ze dne (NSS), Decision of the Supreme Administrative Court of 28 August 2014, sp.zn. 7 Afs 57/2011 (Czech): “it is not necessary to deal with the concept of the application of underlying prices in all details. What is relevant is whether the applicant actually (on occasion) applied prices below its own costs and, if so, in what circumstances and in what context it did so”.

  47. Callmann (1962), p. 131.

  48. See Munková and Kindl (2016), p. 215.

  49. The necessity of longevity as a feature of unfair competitive underpricing is also pointed out by the Slovak author Vozár (2013), p. 106.

  50. Kuča (2015), p. 531.

  51. Bednář (2005), p. 161.

  52. Bejček (2009), p. 594. The short-term loss here is a kind of investment to be appreciated in the future.

  53. This conclusion can be justified as follows: if there is a significant outflow of sales of goods and services, the company’s cash flow will be significantly impaired. Moreover, if we consider an average turnaround time of 30 days (usually the time when invoices are due), the company will not be able to pay its liabilities (it will be without sufficient revenue from sales of goods and services for more than a month) and may even reach a situation of primary insolvency. This entails further increased costs in the form of interest on late payments or contractual penalties. A less radical solution to the lack of cash is financing through external sources (credit), but this again entails increased interest costs (the vicious circle of lower revenues and higher costs, and thus lower profits, may again be ultimately liquidating for the entrepreneur). It is similar to the change in the quality of life of an individual if he ends up going two months without income, or his income is significantly reduced – he draws down savings, takes out loans, reduces consumption.... By analogy, the “quality of business” of the affected entrepreneurs will also change, and thus the quality of the competitive environment of the market in which they operate.

  54. See, e.g., on-site investigations on business premises pursuant to Sec. 21f of the Competition Act.

  55. Ferrier (1942), p. 223. Ferrier states that some states provide for shifting the burden of proof as to overhead to the defendant by showing that the sale is below the billing (or replacement) cost plus any prima facie markup of the sale below cost. This method is considered fair and in many situations (such as where the plaintiff has no proof of the defendant’s actual costs) should be of great advantage.

  56. The objective character of unfair competition as a tort is respected even after the recodification of civil law. The concept according to which the result of a person’s conduct is decisive, regardless of intent or fault, is preserved, cf. Ondrejová (2014), p. 1769; alternatively see Ozsudek Nejvyššího soudu ze dne (NS), Decision of the Supreme Court of 25 October 2012, sp.zn. 23 Cdo 3964/2011 (Czech).

  57. Bejček (2009), p. 612.

  58. Hajn (2000), p. 137.

  59. Kuča (2015), p. 529.

  60. Šilhán (2009), pp. 107–108.

  61. Vozár (1999), p. 530.

  62. The case of Dikeou v. Food Distributors Ass’n, (Colo. 1940) 108 P. (2d) 529. Quoted from Ferrier (1942), p. 224.

  63. A similar solution is proposed for problems with proving non-pecuniary damage.

  64. This was also supported to some extent by the Court of Justice of the EU, which held in Post Danmark (Case C-209/10) that “prices below average variable costs are in principle an abuse of a dominant position, since it is presumed that the dominant competitor pursues no economic purpose other than the exclusion of its competitors by applying such prices”.

  65. As follows by analogy from Rozsudek Nejvyššího soudu ze dne (NS), Decision of the Supreme Court of 16 December 2011, sp. zn. 22 Cdo 883/2010 (Czech): “As a general rule, the burden of proof with regard to certain facts rests on the party who draws the legal consequences favourable to himself from the existence of those facts; it is the party who also alleges the existence of those facts. In some cases, however, the party burdened with the burden of proof does not and cannot objectively have information about facts relevant to the decision in the dispute, but the opposing party does. If the party burdened with the burden of proof then puts forward at least the ‘supporting facts’, thereby increasing the likelihood of its factual allegations, the opposing party’s duty of explanation kicks in; failure to do so may result in the evidence being evaluated against the party who has failed to meet the duty of explanation”.

  66. Cf. Dutch price sensitivity test, Kolingerová (2017), p. 27.

  67. This is also confirmed by the case law of Rozsudek Nejvyššího správního soudu ze dne (NSS), Decision of the Supreme Administrative Court of 15 June 2017, sp.zn. 4 As 20/2017 (Czech).

  68. As a result, a consumer may have a distorted idea of the market price, and may therefore suspect a doctor offering services at a below-market price of being a novice or “non-expert”, but at the same time may suspect a doctor offering services at the usual market price of being overpriced, a “thief”, since a poor consumer in an information deficit cannot always have a realistic idea of the true market price.

  69. See Rozsudek Nejvyššího správního soudu ze dne (NSS), Decision of the Supreme Administrative Court of 15 June 2017, sp.zn. 4 As 20/2017 (Czech): “A different level of attention may be required from the consumer when purchasing products of negligible value and a different level of attention for products of higher value, importance or special purpose”.

References

  • Bednář J (2005) Aplikace soutěžního práva v rozhodovací praxi. C.H. Beck, Prague, p 161

    Google Scholar 

  • Bejček J (2009) Právní význam cenových vybočení (mimořádně vysokých a mimořádně nízkých cen). Právník 6:608

    Google Scholar 

  • Callmann R (1962) Boycott and price war: violation of the antitrust laws or unfair competition? Ohio St. L.J. 23:136

  • Craig P, de Búrca G (1998) EU law: text, cases and materials. Oxford University Press, New York, p 970

    Google Scholar 

  • Dickinson AM (2008) The historical roots of organizational behavior management in the private sector. J Organ Behav Manag 20:9–58

    Google Scholar 

  • Dufková A (2021) Účtování podnákladových cen jako možný způsob zneužití dominantního postavení – případ Falcon. Commercial Law 5:18–24

    Google Scholar 

  • Faull J, Nikpay A (2014) The EC law of competition, 3rd edn. Oxford University Press, New York, p 419

    Google Scholar 

  • Ferrier HW (1942) Unfair competition: problems of proof of costs under the Unfair Practices Acts. Calif Law Rev 30:223

    Article  Google Scholar 

  • Hajn P (2000) Soutěžní chování a právo proti nekalé soutěži. Masaryk University, Brno, p 137

    Google Scholar 

  • Harte-Bavendamm H, Henning-Bodewig F (2013) Gesetz gegen den unlauteren Wettbewerb (UWG). Kommentar, 3rd edn. C.H. Beck, Munich, p 1012

    Google Scholar 

  • Henning-Bodewig F (2013) International handbook on unfair competition. C.H. Beck, Munich, p 237

    Book  Google Scholar 

  • Kolingerová T (2017) Holandský test cenové citlivosti: Případová studie. Sci J Fac Econ Univ Technol Pilsen 4:27

    Google Scholar 

  • Kotrbová H (1993) Marketingový mix: Cenová politika. Vysoká škola ekonomická, Prague, p 23

    Google Scholar 

  • Kuča V (2015) Jak poznat predatorní ceny? Právní rozhledy 15–16:528

    Google Scholar 

  • Moisejevas R (2011) Objective justification in predatory pricing. Jurisprudence 18:213

    Google Scholar 

  • Munková J, Kindl J (2016) Zákon o ochraně hospodářské soutěže. Komentář, 3rd edn. C.H. Beck, Prague, p 215

    Google Scholar 

  • O’Donoghue R, Padilla AJ (2006) The law and economics of Article 82 EC. Hart Publishing, Oxford, pp 283–302

    Google Scholar 

  • Ondrejová D (2014) Nekalá soutěž v novém občanském zákoníku. Komentář. § 2972–2990. C.H. Beck, Prague, p 48

    Google Scholar 

  • Pelikán R (2006) Jak je to s novelou zákona o cenách. Legal Bull 1:15

    Google Scholar 

  • Petr M, Vavříček V (2006) Úprava podnákladových cen v České republikce. Legal Forum 10:358

    Google Scholar 

  • Raus D, Neruda R (2006) Zákon o ochraně hospodářské soutěže Komentář a souvisící české i komunitární předpisy, 2nd edn. Linde Praha a.s., Prague, p 15

    Google Scholar 

  • Rose V, Bailey D (2013) European Union law of competition, 7th edn. Oxford University Press, Oxford, p 794

    Google Scholar 

  • Samuelson PA, Nordhaus WD (2010) Economics 19e. The McGraw-Hill Companies, Inc., New York, p 65

    Google Scholar 

  • Šilhán J (2009) Cenové praktiky zneužití dominantního postavení z pohledu práva a ekonomie. Tribun EU, Brno, pp 107–108

    Google Scholar 

  • Soukupová V, Strachotová D (2005) Podniková ekonomika. Vysoká škola chemicko-technologická, Prague, pp 47–48

    Google Scholar 

  • Šturm J (2018). In: Melzer F et al (eds) Občanský zákoník. § 2894–3081. Velký komentář. IX. svazek. Leges, Prague, p 1160

    Google Scholar 

  • Večerková E (2005) Nekalá soutěž a reklama (vybrané kapitoly). Masaryk University, Brno, p 116

    Google Scholar 

  • Vozár J (1999) Predaj výrobkov pod cenu a nekalá súťaž. Právní rozhledy 10:530

    Google Scholar 

  • Vozár J (2013) Právo proti nekalej súťaži. VEDA, vydavateľstvo Slovenskej akadémie vied, Bratislava, p 106

    Google Scholar 

  • Weston E et al (1992) Unfair trade practices and consumer protection: cases and comments, 5th edn. West Publishing Co., Eagan, pp 803–810

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Ph.D.; Associate Professor, Department of Commercial Law, Faculty of Law, Masaryk University, Brno, Czech Republic

    Dana Ondrejová

Authors
  1. Dana Ondrejová
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Dana Ondrejová.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Ondrejová, D. Underpricing as Unfair Competition?. IIC 54, 61–86 (2023). https://doi.org/10.1007/s40319-022-01272-w

Download citation

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s40319-022-01272-w

Keywords

Search

Navigation