EU Competition Law Revision Notes PDF

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Competition Law Revision Notes Article 101 Essay: interpretation of the concept of a in EU competition law is too Critically discuss this statement with reference to the relevant case law under Article 101 TFEU. Critically assess the extent to which there exists a workable of in EU competition law. ...

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Competition Law Revision Notes Article 101 Essay: “The interpretation of the concept of a ‘concerted practice’ in EU competition law is too wide” Critically discuss this statement with reference to the relevant case law under Article 101 TFEU. Critically assess the extent to which there exists a workable ‘rule of reason’ in EU competition law. It is ‘possible to balance the pro and anti-competitive effects of an agreement within Article 101(1), and still to preserve a role for Article 101(3).’ Critically assess this statement with reference to Article 101 TFEU. Article 102 Essay: “Whatever the merits of the criticism that has surrounded Article 102 over the years, it is clear that a dominant firm (or one that fears that it might be characterised as dominant) must behave on the market with great caution. A transgression of Article 102 may have serious consequences.” Critically assess this statement. ‘The current approach to determining market power for the purposes of Article 102 TFEU is overly complex and lacks clarity’. Critically assess this statement. With reference to the interpretation of 'abuse' by the Court of Justice, critically discuss the extent to which Article 102 TFEU has succeeded in achieving the aims of EU competition law. Article 102 Essay Notes:  Aims of EU competition law: o Achieving the internal market, efficiency, protection of the consumer, protection of small and medium-sized undertakings  Role of Article 102 TFEU: o Seeks to regulate the unilateral behaviour of undertakings with significant market power. o “Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between MS.” o A dominant position is not unlawful in itself. It is the abuse of this position which is prohibited.  Market definition: Product Market Definition o Identifying the relevant market can be very controversial. Determining whether to adopt a wide market definition or a narrow one is important in determining if an undertaking holds a dominant position in that market. o The Commission’s approach to market definition was criticised as lacking in sophistication and as biased towards narrow markets (Turnbull, 1996). o This can be seen in the case of United Brands in which the ECJ upheld the finding that bananas were in a separate market to ‘fresh fruit’.  The court used economic evidence to justify the Commission’s assessment of the market for the whole year, rather than finding that UB’s dominance only occurred during certain months of the year. Secondly, the court used studies investigating the cross-elasticity of

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demand: whether the demand for one product is affected by the prices of another. The defendant and the court interpreted these studies differently, which illustrates that different interpretations can be place upon market studies, and the Court becomes the final arbiter about which economic analysis is to be preferred.  The court also placed weight upon whether banana’s are reasonable interchangeable with other fruits, with the banana’s seedless-ness and softness becoming factors relevant to singling it out as a separate market product. The key criteria in this approach are the properties, prices and intended use of the products. This approach creates risks of inconsistency, for example, while cola flavoured soft drinks were a market separate from other commercial beverages (Coca-cola), all home storage products were bundled in one product market (Newtell).  The basis of the ‘reasonable interchangeability’ standard is the views of the consumers. In considering this, the court noted that the banana was a particularly unique fruit for certain segments of the population – babies, old people and the sick. However, unless United Brands is able to price discriminate and sell bananas to these groups at a higher price than it sells to other consumers, then Korah (1980) argues that there is no separate product market. o In conclusion, this case has been criticised, because while economic evidence appears to offer objective set of data to determine the relevant product market, the information can be ambiguous and subject to different interpretations. Moreover, the court allows the Commission to look beyond economic studies and this has led to greater weight being placed upon less objective evidence to identify relevant markets with the risk that the final market definition is not one which accords with economic theory. Market definition: Supply substitutability o The main focus on market definition is upon demand substitutability, however supply substitutes can affect the assessment of dominance. The ECJ set out the relevance of supply substitutes in the case of Continental Can. o However, Kauper (1997) has criticised the ECJ’s focus on supply substitutability, highlighting the fact that the Commission and ECJ have tailored market definition to reach particular outcomes that reflect substantive policies other than those based on conventional antitrust concerns over market power. He argues that the Commission seems to view market definition as a means to achieve a narrow market so as to facilitate the finding of dominance. o Although, he notes that there is a trend in the merger cases towards more economically rational analyses of market definition, which is consolidated in the Market Definition Notice (1997). o The Notice emphasises a more objective standard for defining the relevant market. While an assessment of the product’s physical characteristics, price and intended use operates at a preliminary level, emphasis is placed on the socalled hypothetical monopolist test. o Applied to a case such as United Brands, the approach would be to assume that all bananas were sold by one firm (the hypothetical monopolist) and to ask what would happen if it raised the price: would considerable numbers of consumers switch to oranges? If so, the market is oranges and bananas. And the test goes on until there is no more regular pattern of substitution.

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o The Notice is not legally binding, but its approach has been applied in a number of decisions, such as Danish Crown, in which the Commission determined that pork and beef were in different product markets, but the reasoning is in stark contrast to that deployed in United Brands to isolate the banana market. o In the decision, the Commission uses the views of consumers more systematically, drawing upon the views of all consumers (not just a small segment) and upon consumer studies. The decision uses the hypothetical monopolist test to confirm the relevant market definition which the consumer studies had revealed. o However, not all decisions demonstrate this kind of methodology, meaning that because the Notice approach is not applied regularly, there is even less certainty over market definition. Dominance: o Dominance means that an undertaking has the power to harm the competitive process, either by harming consumers (e.g. through higher prices) or by harming competitors (e.g. by offering discounts to customers who would otherwise buy the competitor’s goods). o From this perspective, it can be said that there are different degrees of dominance: some undertakings are so powerful that they face no competitive constraint, whilse some dominant undertakings may face competition from others, but are strong enough to keep the small competitors at bay. o The ECJ measures dominance first by considering the undertaking’s market share and secondly, by other factors used to determine the undertaking’s position vis-à-vis its competitors, customers and consumers. (Michelin). o Market Shares: o The significance of market shares was explored in Hoffman La Roche. The court asked for more than just a calculation of market shares: the undertaking must hold the high market share for some time and its rivals’ market shares should be considerably smaller. o The case law suggests that a market share of 50% can give rise to a presumption of dominance (Akzo). In many cases the dominant firm has held market shares in excess of 50% while its competitors all have had considerably smaller market shares (Michelin). o However, a market share between 40 and 50% has also been sufficient to identify a dominant position once other factors were taken into consideration, for instance where there were significant barriers to entry (United Brands; British Airways). o Protection of Dominance: o The ECJ has found that a dominant position might be protected by ownership of intellectual property rights (which prevent other from duplicating the dominant undertaking’s products), by access to capital, by considerable costs of entry, by economies of scale necessary to penetrate the market (United Brands), or by a well organised distribution system, advertising and brand recognition (Michelin). Examples of abuse: o Under Article 102: unfair pricing/trading conditions; limit production, markets, technical development to detriment of consumers; discriminatory

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treatment; imposition of supplementary obligations not connected to the subject of contracts. o The list of abuses in Article 102 TFEU is not exhaustive. o In the case of Continental Can the ECJ discussed three relevant principles. First, the method by which novel categories of abuse are establish is through teleological interpretation. Secondly, the court doesn’t require that the dominant firm uses its dominance to achieve the abuse, so long as the dominant firm’s action have anti-competitive effects. Thirdly, they place emphasis on a provision which aims at sustaining an effective competition structure. o Although these principles allow for a wide scope for the meaning of abuse, the types of abuse may be classified in two categories: exploitative and exclusionary (anti-competitive abuses). Types of abuse o Distinction between exploitative and anti-competitive abuses: Continental Can: both exploitative and exclusionary abuse is included under Article 102. o Exploitative abuses include abuses that aim to harm the customer of the dominant undertaking (e.g. excessive prices). o Exclusionary abuses (anti-competitive) are designed to impact negatively on rivals. o There are two justifications for extending the application of Article 102 TFEU to exclusionary abuses. On the one hand, these abusive practices are designed to safeguard the undertaking’s dominant position and to facilitate subsequent exploitation of dominance, for instance, United Brands, dominant in the market for bananas, fought to exclude other banana manufacturers from the European market as a way as maintaining its power over customers. o Another justification for treating exclusionary abuses as anti-competitive is that by eliminating or weakening competitors, the dominant firm denies the opportunities of other economic actors to participate on the market. This justification is not based upon the inefficiency of exclusionary abuses, but merely upon the denial of the right to market access of other market players. Exploitative abuses – difficulties in proving o The Commission has shown little interest in punishing exploitative abuses. High prices and inefficient behaviour by monopolists have been considered mostly when a complaint was made in the national courts and the ECJ was called upon to explain the meaning of exploitative abuses. o Price discrimination and tie-ins have been of greater interest to the Commission, but not because of the potential harm suffered by consumers, rather because these tactics can be used by the dominant firm to exclude competitors. o The major reason for not intervening against firms that exploit market power is that it is difficult to identify the parameters for intervention. In any market where an undertaking has some market power, prices are higher than marginal cost. o However, if EU competition law were to apply to all prices above marginal cost, virtually all undertakings would be subject to scrutiny. Clearly only exorbitantly high prices require regulation, although the Court’s case law has provided little clear guidance to identify what constitutes an excessive price.

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o In United Brands, the Court suggested that a price is excessive when it bears no reasonable relation to the economic value of the product in question. This could be measured by comparing the selling price with the cost of production. o This can make it difficult to establish the practice, with having to work out the costs of production of a hypothetically efficient undertaking, which creates a complex test in United Brands. o An alternative method for calculating excessiveness is to compare the prices in the geographical market where the abuse is alleged, with the prices in other MS. If the fees are appreciably higher, then prime facie the prices are excessive, although the undertaking has the opportunity to prove that there are objective reasons why prices are different (Tournier). Exclusionary abuse o The Commission has used Article 102 more aggressively when addressing the causes of high prices and reduced efficiency, by making sure that dominant firms are unable to exclude competitors from the market, for competition is the best source of economic pressures that force firms to act for the benefit of consumers. o However, the ECJ’s rulings appear to be designed to protect small undertakings rather than consumers. This is because a finding of an infringement is made very easy by the court’s case law and undertakings under scrutiny find it difficult to justify their actions once these have been judge to constitute an abuse. o Finding of abuse are made easy because for many abuses there is no need to show that competitors have suffered harm. According to the CFI in British Airways, it is not even necessary to show that the dominant firm’s efforts were successful in excluding competitors. o Predatory pricing: o Below cost pricing can be a benevolent strategy to enter a market, by reducing prices so as to invite customers, but it may also constitute a predatory strategy designed to drive other competitors out of the market, whereby the predator endures losses until the prey exits the market. o The Court in Azko distinguished between legitimate and illegitimate means of competition, noting that below cost pricing is illegitimate in two circumstances: first, when it is below average variable cost and secondly, when it is above average variable cost but below average total cost in circumstances where the predator intends to eliminate the prey. o However, this does not take into account that below cost pricing can be a procompetitive strategy when a firm is entering a new product market, where low prices are necessary to generate initial sales (recognised in the case of Tetra Pak). o Also, intention is inferred by internal memoranda indicating the desire to undercut their competitor, but the desire to undermine competitors is the prime instinct of any company, dominant or not, so the probative value of this approach to intention is unclear. o Furthermore, they require no showing that the predatory pricing campaign is likely to be successful. To be successful, the company must be able to raise prices and recoup its losses afterwards, but the court doesn’t require any showing that they will be able to do this.

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o The court stated in Tetra Pak that the aim pursued, which is to maintain undistorted competition, rules out waiting until such a strategy leads to the actual elimination of competitors. o The CFI has suggested that a dominant firm may respond aggressively with price cuts that are not below cost, provided that the prices are (1) the result of a decision to protect one’s position, (2) based on efficiencies, and (3) are in the interests of consumers. (Irish Sugar). o However, the application of this standard is difficult. The Court suggests that a dominant firm may only protect its position, not improve it, but this is difficult to confirm. The circumstances in which a dominant firm will succeed in justifying its practices are extremely limited (Andrews, 1998). o Fox (2002) argues that Article 102 is not focused on the benefits to consumers, but the importance of market access is valuable in itself. Therefore, it is not easy to craft an economic justification defence, because the objective pursued by the abuse doctrine is not the creation of efficient markets. o Competition v Innovation o The Commission decided in Microsoft that the incentives to innovate would be strengthened by forcing them to cooperate with its rivals. o This illustrates that the Commission is willing to consider a refusal to license as objective justified when the opposite result would obtain, i.e. if licensing would weaken innovation. o Although Killick considers that the balance carried out by the Commission is impractical and unnecessary in this area. Commission Review of Article 102: o Criticism of Commission and Courts application of Article 102 TFEU: controversy over findings of dominance and an adoption of a formalistic rather than an effects based approach. In relation to the Microsoft case, this was particularly controversial. o There are unclear and inconsistent policy objectives: should Article 102 be used to protect consumers, competitors or both?  The Commission has regularly used Article 102 as a tool to achieve a vast array of Community objectives.  Cases which support the aims of safeguarding small and medium-sized undertakings and of market integration, are seen as engines for developing, in the long term, the interests of consumers.  This explains why dominant firms find it difficult to defend suspect behaviour. They are also subject to a proportionality standard, meaning their actions must be the least restrictive way of safeguarding the justifiable interest. o 2005: Commission conducted a review of the law and practice of Article 102 TFEU as it applied to exclusionary abuse.  The Commission has been pushed to embrace and economics oriented approach to the abuse doctrine, in particular exclusionary abuses. o 2008: Commission published its Guidance on its Enforcement Priorities in Applying Article 102 TFEU to Abusive Exclusionary Conduct by Dominant Undertakings.  This confirms that Article 102 is to protect consumers rather than competitors, but this involved protecting the competitive process from foreclosure.

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The economics of abuse are sufficiently complex, and formalistic or per se rules are inappropriate. Behaviour should only be condemned where it has had/likely to have a serious anti-competitive effect on the market. o For those seeking a more economic-effects approach, the Guidance does not go far enough. However, Vickers recognised that it is difficult to convert an effects-based approach into administrable rules. o The Guidance is not legally binding and does not change the jurisprudence of the EU courts, although it could influence future decisions. Judgments of the Union Courts Post-Guidance o The Courts have stressed the importance of protecting the process of competition for the benefit of consumers o Deutsche Telekom: ‘Article 102 prohibits a dominant undertaking from, inter alia, adopting pricing practices which have an exclusionary effect on its equally efficient actual or potential competitor.’ o The courts have adopted an effects-based approach in cases such as Deutsche Telekom and TeliaSonera. And the court has confirmed the use of efficiencies as a defence (Post-Danmark). Interpretation and application of ‘abuse’ by the ECJ o Exploitative abuses (protection of the consumer): those actions which one expects from firms having monopoly power: higher prices, reductions in quantities supplied, and a lack of innovation because there is no competitor that threatens the monopolist.  Unfair pricing (United Brands; British Leyland)  Price discrimination (United Brands) o Anti-competitive abuses:  Predatory pricing (Akzo; Tetra Park) – protection of small and medium-sized undertakings  Refusal to supply (Commercial Solvents; Hugin; Sealink; United Brands) – protection and small and medium-sized undertakings and achieving internal market  In all the above cases, the promotion of efficiency a...