ACM fines railway operator for abuse of dominance in a public tender procedure

​In a decision of 22 May 2017, the Authority for Consumers & Markets (ACM) finds Nederlandse Spoorwegen (NS) guilty of having abused its dominant position on the main railway network with two separate infringements.

In the Netherlands, the public transport by rail is organised in two ways. On the one hand, there is the main railway network, which mainly covers the intercity connections and is exploited by NS. On the other hand, there are the regional railway networks, which include slow train services. The concessions for the latter are awarded through public procurement procedures. The case at hand concerned the public tender procedure for the public transport concession (including train and bus) in the province of Limburg for 15 years. NS (by way of its subsidiary Abellio Limburg) participated in the public tender procedure as did Veolia and Arriva. Initially, the concession was awarded to NS. However, when irregularities came to light, the award decision was revoked and the concession was awarded to Arriva.

In a decision of 22 May 2017, the ACM finds NS guilty of having abused its dominant position on the main railway network with two separate infringements. Both abuses took place on the adjacent markets for the concession of the Limburg regional railway network and were aimed at preventing its competitors from winning the concession in view of protecting its dominant position for the main railway network.

Firstly, NS engaged in predatory pricing by submitting a lossmaking offer. NS overestimated the expected revenues by assuming mistakenly a strong increase in passenger revenues. In a realistic scenario, the revenues would have been lower than the avoidable costs and NS would have suffered a loss in the exploitation of the concession. Further, it did not take into account certain known risks. As a result, other bidders could not match or surpass NS’ offer without incurring a loss themselves, even if they operated as efficiently as NS. Hence, the lossmaking offer was aimed at depriving competitors from having a fair chance of competing for the concession, which was also confirmed by NS’ internal documents.

ACM notes that the facts of this case differ from other predatory pricing cases. Nevertheless, it affirms that it is possible to catch this kind of predatory conduct. Firstly, costs and revenues can be judged ex ante on the basis of estimates. Further, although the bidders do not compete on price but on quality, ACM can still assess whether NS is likely to suffer a loss. Price and quality are both competitive parameters. Hence, by accepting a loss caused by the higher costs of offering more and better services, NS can offer more and better services than its competitors at a lower price. Finally, the fact that it concerns competition for a market at one particular moment in time, does not take away that there is competition.

The second abuse is a combination of several related actions. On the one hand, the actions were aimed at granting NS’ subsidiary Abellio a competitive advantage over competing bidders by providing it with information which it used to improve its offer. The information included:

  • Confidential information on Veolia, which operated the regional rail services in Limburg at the time of the public tender procedure. It had obtained the information from a former Veolia director, which at the time of the tender indirectly worked for NS.
  • Information on the main railway network, which was at the time not yet available for the competing bidders.
  • Confidential information regarding the requests of competing bidders for access to services and facilities to other NS’ subsidiaries.

On the other hand, the actions were aimed at affecting adversely the competing bidders by:

  • Responding slowly and providing incomplete answers in response to their requests for access to certain services and facilities. As a result of the uncertainty created by NS, the competing bidders had to take into account certain risks when setting their price.
  • Withholding information about passenger revenues, while such information was made available to Abellio.

Although each of these actions taken separately does not constitute an abuse, as a whole they were considered an abuse. They were all aimed at granting NS a competitive advantage, making it impossible for the other bidders to compete with NS’ offer. Such actions by a dominant undertaking cannot be considered competition on the merits.

Parallel to the investigation into NS’ alleged abuse of dominance ACM opened investigations into two former NS’ directors. However, these investigations were closed without imposing any fine as ACM considered there were insufficient grounds to hold them personally liable for NS’ abuse of dominance.

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