EU competition law and economics [1 ed.] 9780199566563, 0199566569

Table of contents :
Contents
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
About the Authors
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
General Court
Tables Of Cases
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
European Court of Justice
Permanent Court Of International Justice
France
United Kingdom
United States
Table Of Commission Decisions
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
European Treaties And Conventions
Tables of Legislation
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
(p. xxxiv) European Secondary Legislation
Regulations
Directives
National Legislation
Canada
Germany
European
United States
1 Introduction
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
(p. 1) 1  Introduction
I.  The Ubiquity of EU Competition Law
A.  Impact of EU Competition Law on Public and Private Decision-Makers
B.  The Positive Economic Effects of EU Competition Policy
(1)  The beneficial macro and micro-economic effects of competition law
(2)  Beneficial macro-economic effects
(3)  Beneficial micro-economic effects
(a)  General remarks
(b)  Neoclassical price theory
(c)  The market failure theory
(4)  The ‘integrationist’ effects of competition law
Illustration: the Volkswagen case
II.  The History of EU Competition Law
A.  Origins of Competition Laws
(p. 14) B.  Appearance of Modern Competition Laws
(1)  The adoption of competition law in North America
(p. 15) (2)  The emergence of competition regimes in Europe
(a)  The ordo-liberal school
(b)  Treaty establishing the European Economic Community
C.  Modernization of EU Competition Law
III.  The Goals of EU Competition Law
A.  Economic Goals
B.  European Integration Goals
Illustration: the GSK v Commission case
IV.  The Sources of EU Competition Law
A.  Treaty Law
(p. 27) (1)  Rules applying to undertakings—Articles 101 and 102 TFEU
(2)  Rules applying to Member States—Articles 106 and 107 to 109 TFEU
(3)  ‘Enforcement’ rules—Article 103, 104, and 105 TFEU
(4)  Protocol on competition policy and the internal market
B.  Secondary Law
C.  Case Law
(1)  Decisional practice of the Commission
(2)  The case law of the European Courts
(3)  National case law
V.  The Scope of Application of EU Competition Law
A.  Scope Ratione Personae—To Whom Does EU Competition Law Apply?
(1)  Jurisprudential definition of the concept of ‘undertaking’
(2)  Jurisprudential restrictions of the concept of ‘undertaking’
B.  Scope Ratione Materiae—To What Sectors Does Competition Law Apply?
(1)  Agricultural products
(p. 47) (2)  Transport
(p. 49) (3)  Network industries
(4)  The arms industry
C.  Scope Ratione Loci—Where is EU Competition Law Applied and Enforced?
(1)  The prescriptive jurisdiction of EU competition law
(2)  Executive jurisdiction of EU competition law
(a)  Investigative measures
(p. 54) (b)  Orders
(3)  The problem of global competition law
(a)  Diagnosis—inadequacy of a competition law system that is not international
(p. 55) Illustration: the Boeing/McDonnell-Douglas case
(b)  Remedy—internationalization of competition law
(4)  Conclusions
Footnotes:
2 Elements of Competition Law Economics
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
(p. 59) 2  Elements of Competition Law Economics
I.  Introduction
II.  Epistemology of Competition Economics
A.  Classical and Neoclassical Competition Economics
(p. 63) (1)  The law of supply and demand
(2)  The theory of ‘perfect competition’
(3)  The monopoly and the cartel
(4)  Evaluation of classical and neoclassical competition theories
B.  The Normative Economics of Competition
(p. 71) (1)  The Harvard School (or the ‘structuralist’ movement)
(2)  The Chicago School (or the ‘behaviouralist’ movement)
(3)  New industrial economics (or ‘Post-Chicago’ School)
(p. 78) III.  Methodology of Competition Economics
A.  The Concept of Market Power
Illustration: behavioural theory of anticompetitive conduct—the Alcoa/Reynolds case
B.  Measuring Market Power
(1)  Direct measurement of market power
(a)  The Lerner index and the semantics of cost
(b)  Measuring profits
(c)  Price comparisons
(d)  Price-elasticity of residual demand
C.  Measuring Market Power, Indirectly
(1)  Structural measurement
(a)  Market shares
(b)  Measuring concentration
(2)  Additional measurement tools—assessment of obstacles to entry and expansion
(a)  What is a barrier to entry?
(b)  Characteristics of a barrier to entry
(c)  Types of barrier to entry
(d)  Structural barriers
(p. 95) (e)  Strategic barriers relating to the behaviours of incumbent undertakings
D.  Other Useful Economic Concepts—Competition Law, Law of Costs
(p. 97) (1)  Marginal cost
(p. 98) (2)  Average costs
(a)  Average total costs
(b)  Difficulties
(c)  Subdivision—fixed and variable average costs
(i)  Fixed costs
(ii)  Variable costs
(3)  Average avoidable costs
(4)  Other cost concepts
(a)  Average incremental costs
(b)  Stranded costs
Footnotes:
3 The Law and Economics of Anticompetitive Coordination
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
(p. 105) 3  The Law and Economics of Anticompetitive Coordination
I.  Article 101(1) TFEU—The Prohibition Rule
A.  The Legal Component of Article 101(1) TFEU—A Concurrence of Wills between Several Independent Undertakings
(1)  Plurality of independent undertakings
(a)  ‘Intra-group’ agreements
Illustration: Viho v Commission
(b)  Agency agreements
(c)  Employment contracts
(2)  Concurrence of wills
(p. 112) (a)  Agreements
(i)  A broad concept
(ii)  Limits of the concept
(iii)  Private coercion
(iv)  Public coercion
(p. 116) (v)  Unilateral actions
(p. 118) (b)  Decisions by associations of undertakings
(c)  Concerted practice
(3)  Final comments
(p. 123) B.  The Economic Component of Article 101(1) TFEU—A Restriction of Competition
(1)  The concept of competition
(p. 125) (2)  Substantive content of the concept of a ‘restriction of competition’
(a)  What a restriction of competition is not (or is no longer)
(i)  A situation of contractual imbalance
(ii)  A restriction on the parties’ freedom to act on the market
(b)  What a restriction of competition is
(i)  An ‘economic’ concept
(ii)  The ‘integrationist’ approach towards a restriction of competition
(3)  Presumed restrictions of competition vs Proven restrictions of competition—the object and effect dichotomy
(a)  Presumed restrictions: the concept of restriction by ‘object’
(b)  Restrictions of competition to be proved: the concept of restriction by ‘effect’
(i)  Basic principles for assessing agreements under Article 101(1) TFEU
(ii)  Appreciable effects
(iii)  Cumulative effects
(4)  The ancillary restraints doctrine
C.  The Jurisdictional Component of Article 101(1) TFEU—A Restriction ‘Within the Internal Market’ Which ‘Affects Trade between Member States’
(p. 145) (1)  Horizontal jurisdictional issues
(2)  Vertical jurisdictional issues
(a)  The ‘effect on trade’ concept—purpose
(b)  The ‘effect on trade’ concept—interpretation
(i)  Screening—quantitative presumptions
(ii)  Individual assessment—qualitative analysis
(iii)  The agreement involves an economic activity
(iv)  The agreement has the ability to affect trade
(v)  The agreement ‘may have an influence’ on trade between Member States
Decrease, increase, or diversion of trade
(p. 156) Direct or indirect influence on trade
(vi)  The agreement ‘appreciably’ affects trade between Member States
(c)  Shortcuts for the appraisal of the effect on trade
(i)  Transnational agreements
(ii)  National, regional, and local agreements
II.  Article 101(2) TFEU—The Rule of Nullity
A.  The Principle
B.  The Practice
(p. 162) III.  Article 101(3) TFEU—The Exception Rule
A.  Overview of the Exception Rule
B.  The Application of the Four Conditions of Article 101(3) TFEU
(1)  The welfare improvement condition
(a)  Economic improvements
(i)  Type of possible efficiency gains
(ii)  Conditions for the admissibility of efficiency gains
(b)  Non-economic improvements
(p. 169) (2)  The passing-on condition
(3)  The indispensability condition
(4)  The non-elimination of competition condition
Footnotes:
4 Abuse of Dominance
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
(p. 175) 4  Abuse of Dominance
I.  Introduction
II.  Determining Dominance
A.  Market Definition
(p. 178) (1)  The components of a relevant market
(a)  The product market
(i)  Demand-side substitution
(ii)  Supply-side substitution
(iii)  Potential competition
(b)  The geographic market
(2)  Methods for defining a relevant market
B.  Dominance
(1)  Introduction
(2)  The definition of dominance stemming from case law
(3)  The definition and assessment of ‘substantial market power’
(4)  Factors to be taken into account to determine the presence of dominance
(a)  Market position of the undertaking under investigation and its competitors
(p. 190) (b)  Expansion or entry
(c)  Countervailing buyer power
(5)  Collective dominance
(p. 194) (a)  Collective dominance and oligopolistic anticompetitive coordination
(i)  The Commission’s initial attempts to craft a doctrine of oligopolistic dominance
(ii)  The Courts’ acceptance of the doctrine of collective dominance under Article 102 TFEU
(iii)  Clarifications in the field of merger control
(p. 198) (iv)  Exportability of the EU Merger Regulation case law to Article 102 TFEU?
(v)  The enduring low-enforcement practice of the Commission
(vi)  The uncertain contours of the notion of abuse of a collective dominant position
(b)  Other settings in which collective dominant positions can be identified
(i)  Collective dominance as the cumulative effect of individual dominant positions on distinct markets
(p. 202) (c)  Collective dominance short of the single economic entity doctrine
(d)  Collective dominance and legislative/regulatory measures
(e)  The test for collective dominance in oligopolistic settings
(i)  The existence of a collective entity
(ii)  Assessment of dominance
III.  The Notion of Abuse
A.  Exclusionary Abuses
(1)  The concept of exclusionary abuse
(p. 207) (a)  The case law of the EU Courts and the decisional practice of the Commission
(p. 208) (b)  From a form-based approach to effects-based approach to exclusionary abuses
(i)  The form-based approach pursued by the EU Courts and the Commission
(ii)  The modernization of Article 102 and the 2005 Discussion Paper
(iii)  The 2008 Guidance Paper
(2)  The various forms of exclusionary abuses
(a)  Exclusive dealing
(i)  Exclusive purchasing
(p. 214) (b)  Conditional rebates
(i)  The concept of conditional rebates
(p. 215) (ii)  Effects of conditional rebates
(iii)  Decisional practice of the Commission and case law of the EU Courts preceding the adoption of the Guidance Paper
(iv)  The Guidance Paper
(v)  Case law of the EU Courts and decisional practice of the Commission after adoption of the Guidance Paper
(p. 231) (c)  Tying
(i)  The concept of tying
(ii)  Effects of tying
(iii)  Decisional practice of the Commission and case law of the EU Courts
(iv)  The Guidance Paper
(d)  Predation
(i)  The concept of predation
(ii)  Effects of predation
(iii)  Decisional practice of the Commission and case law of the EU Courts
(e)  Refusal to supply and margin squeeze
(i)  The concepts of refusal to supply and margin squeeze
(ii)  Effects of refusal to supply and margin squeeze
(iii)  Decisional practice of the Commission and case law of the EU Courts
(iv)  The Guidance Paper
B.  Exploitative Abuses
(1)  Excessive prices
(a)  Introduction
(b)  Standards set by the European Courts’ case law and Member State courts for assessing excessive price
(c)  Practical difficulties of controlling excessive prices
(i)  Finding an adequate cost measure and defining an appropriate profit margin
(ii)  Identifying the appropriate benchmarks
(iii)  Designing an adequate remedy
(d)  Decisional practice of DG Competition
(e)  Limits to the application of Article 102(a) TFEU
(f)  Comparison with US law
(g)  Summary on excessive pricing
(2)  Unfair contractual terms and conditions
(a)  Abuse of buyer power
(b)  Abuse through the imposition of ‘other unfair trading conditions’
(p. 293) C.  Price Discrimination
(1)  Introduction
(p. 294) (2)  Definition, conditions, and different forms of price discrimination
(a)  Definition of and conditions for price discrimination
(b)  Different forms of price discrimination
(c)  Welfare effects of price discrimination
(3)  The scope of Article 102(c) TFEU
(4)  Analytical framework for examining price discrimination measures
(a)  Price discrimination in primary line injury settings
(i)  Main forms of primary line price discrimination measures examined under Article 102(c)
(ii)  Why have the Commission and the EU Courts mistakenly relied on Article 102(c) to address primary line cases?
(b)  Price discrimination in secondary line injury settings
(p. 308) (i)  Main forms of secondary line price discrimination measures examined under Article 102(c)
(ii)  Secondary line injury price discrimination by non-vertically integrated operators
(iii)  Secondary line injury price discrimination by vertically integrated operators
(iv)  The choice of Article 102(c) as the legal basis for the secondary line injury cases
(c)  Geographic price discrimination and measures facilitating this form of discrimination
(i)  Case law of the EC Courts and Commission decisions on geographic price discrimination
(ii)  Is Article 102(c) the appropriate legal basis for geographic price discrimination and facilitating measures?
(5)  Conclusion
Footnotes:
5 Enforcement, Institutions, and Procedure
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
(p. 321) 5  Enforcement, Institutions, and Procedure
I.  Introduction
(p. 323) II.  The Institutional Framework
A.  The Commission
(1)  Missions
(2)  Organization
B.  The National Competition Authorities
(1)  The powers and duties of NCAs under EU competition law
(a)  Main institutional models
(p. 329) C.  Interplay of the Commission and NCAs within the ECN
(1)  Vertical issues
(a)  Priority competence of the Commission
(p. 330) (b)  Duty of loyal cooperation
(c)  Cooperation mechanisms
(p. 331) (d)  Monitoring instruments
(2)  Horizontal issues
(p. 335) (3)  The European Competition Network
D.  The National Courts
(1)  The role of national courts in the EU competition system
(2)  Vertical and horizontal coordination with national courts
(a)  Vertical relationships between the Commission and national courts
(i)  Duty to avoid passing judgments contrary to Commission decisions
(ii)  Duty on the Member States to forward written judgments to the Commission
(iii)  The amicus curiae procedure
(iv)  Duty on the Commission to transmit information to national courts
(b)  Horizontal relationships amongst national courts
III.  The Procedural Framework
A.  The Detection of Infringements
(1)  Market monitoring
(2)  Information received through other institutional channels
(3)  Information received from complainants
(4)  Information received from consumers
(p. 346) (5)  Information received through specific legal instruments
(a)  Sector inquiries
(b)  Leniency
B.  The Investigation of Alleged Infringements
(1)  Requests for information
(2)  Inspections
(p. 351) (a)  Inspections of firms’ premises
(b)  Inspection of other premises
(3)  Power to take statements
C.  The Evaluation of Infringements
(1)  Preliminary remarks
(2)  The Statement of Objections
(3)  Access to file
(4)  Right to be heard
(5)  Final stages
D.  The Decision
(p. 358) (1)  Decisions finding and terminating an infringement
(p. 360) (2)  Decisions making commitments binding
(3)  Decisions withdrawing the benefit of a block exemption Regulation
(4)  Decisions ordering interim measures
(5)  Settlement decisions
E.  Final Remarks
IV.  The Judicial Framework
A.  Acts Subject to Annulment Proceedings
(1)  The theory
(2)  The practice
B.  Persons that can Start Annulment Proceedings
(1)  Decisions addressed to other individuals
(2)  Acts of a general nature
C.  Modalities of Annulment Proceedings
(1)  Formal conditions
(2)  Substantive conditions
(a)  Grounds of external legality
(p. 378) (b)  Grounds of internal legality
D.  Parallel and Subsequent Actions to Annulment Proceedings
(1)  Actions seeking to obtain a revision of the fine
(2)  Actions seeking compensation from the EU institutions
E.  Scope and Intensity of Judicial Review in Annulment Proceedings
(p. 381) (1)  The scope of judicial review—Restricted vs Unlimited jurisdiction
Table 5.1  Main differences between annulment proceedings (restricted review) and appeal (full jurisdiction)
(p. 382) (2)  The intensity of judicial review—Standard (full) vs Marginal (restrained) review
(a)  The theory
(b)  The practice
(p. 384) (i)  Review of the law
(ii)  Review of the facts
(p. 386) (iii)  Review of ‘complex economic matters’
Footnotes:
6 Cartels And Other Horizontal Hardcore Restrictions
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
(p. 391) 6  Cartels And Other Horizontal Hardcore Restrictions
I.  The EU Anti-Cartel Policy
(p. 396) II.  Substantive Cartel Law
A.  Substantive Scope of Application—What Agreements Constitute Hardcore Cartels?
(1)  Concept of a hardcore cartel
(p. 398) (2)  Types of hardcore cartels
(a)  Cartels related to price fixing or other trading conditions
(i)  Price-fixing cartels
(ii)  Cartels over trading conditions
(b)  Cartels limiting production, markets, technical development, or investments
(i)  Limitation or control of production
(ii)  Limitation or control of ‘markets’
(iii)  Limitation or control of technical development
(iv)  Limitation or control of investment—the principle
(v)  Limitation or control of investment—the specific case of crisis cartels
(c)  Agreements entailing the sharing of markets or of sources of supply
(d)  Agreements applying dissimilar conditions to equivalent transactions and entailing joint boycott
(i)  Agreement applying dissimilar conditions to equivalent transactions
(ii)  Collective boycott strategies
B.  Personal Scope of Application—What Undertakings are Liable for Hardcore Cartels?
(1)  The ‘parental liability’ doctrine
(2)  Conduct of employees
(3)  Undertakings succeeding other undertakings as purchasing entities
(4)  Third parties not present in the market but active within the cartel
C.  Temporal Scope of Application—Are There Time Limits for Pursuing a Hardcore Cartel?
III.  Institutional Aspects of Cartel Law
A.  Deterring Hardcore Cartels
(1)  Punishing hardcore cartels
(a)  Administrative fines
(i)  Method of calculation
(p. 414) (ii)  Determining the basic amount
(iii)  Adjustment of amount of fine
(p. 416) (b)  Alternative penalties?
(2)  Detecting hardcore cartels
(a)  Ex officio detection by the Commission
(b)  Indirect detection by the firms themselves
(i)  The EU leniency programme
(p. 421) B.  Litigation Relating to Cartels and Hardcore Restrictions
Footnotes:
7 Horizontal Cooperation Agreements
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
(p. 423) 7  Horizontal Cooperation Agreements
I.  Introduction
II.  The Law Applicable to Horizontal Cooperation Agreements
A.  Origin of Applicable Texts
B.  Scope of Application of the EU Framework
III.  Principles of Competition Analysis Applicable to Horizontal Cooperation Agreements
A.  Basic Principles of Competition Analysis of Horizontal Cooperation Agreements
(p. 428) (1)  Is the agreement in question restrictive of competition within the meaning of Article 101(1)?
(2)  Can a restrictive agreement benefit from exemption in Article 101(3)?
(p. 429) B.  Specific Principles for Competition Analysis (By Type of Cooperation)
(1)  Exchanges of information
(a)  Definition and scope
(b)  Assessment under Article 101(1) TFEU
(i)  Main competition concerns
(ii)  Restriction of competition by object
(iii)  Restrictive effects on competition
(iv)  Restrictive effects on competition–market characteristics
(p. 433) (v)  Restrictive effects on competition—characteristics of the information exchanged
(c)  Assessment under Article 101(3) TFEU
(3)  Research and development agreements
(a)  Introduction
(p. 437) (b)  Assessment under Article 101(1)
(i)  Main competition concerns
(ii)  Relevant markets
(iii)  Restrictions of competition by object
(iv)  Restrictive effects on competition
(c)  Assessment under Article 101(3)
(p. 440) (4)  Production and specialization agreements
(a)  Introduction
(b)  Assessment under Article 101(1)
(i)  Main competition concerns
(ii)  Relevant markets
(iii)  Restrictions of competition by object
(iv)  Restrictive effects on competition
(v)  Assessment under Article 101(3)
(5)  Purchasing agreements
(a)  Introduction
(b)  Assessment under Article 101(1)
(i)  Relevant markets
(ii)  Main competition concerns
(iii)  Restrictions of competition by object
(iv)  Restrictive effects on competition
(v)  Analysis under Article 101(3)
(6)  Commercialization agreements
(a)  Introduction
(b)  Assessment under Article 101(1)
(i)  Relevant markets
(ii)  Main competition concerns
(iii)  Restrictions of competition by object
(p. 451) (iv)  Restrictive effects on competition
(vi)  Assessment under Article 101(3)
(7)  Standardization agreements
(a)  Introduction
(b)  Analysis under Article 101(1)
(i)  Relevant markets
(ii)  Main competition concerns
(iii)  Restrictions by object
(p. 457) (iv)  Restrictive effects—agreements normally not restrictive of competition
(v)  Restrictive effects—additional guidance on FRAND requirements
(vi)  Restrictive effects—effects-based assessment for standardization agreements
(c)  Assessment under Article 101(3)
C.  Conclusions
Footnotes:
8 The Law And Economics Of Vertical Restraints
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
(p. 463) 8  The Law And Economics Of Vertical Restraints
I.  Introduction
II.  Types of Vertical Restraint
A.  The Issue
B.  The Exclusive Contractual Relationship Group
(1)  Notion of exclusive contractual relationships
(2)  Theories of competitive harm
(3)  Objective justifications and pro-competitive effects
C.  The Resale Price Maintenance Group
(1)  Notion of resale price maintenance
(2)  Theories of competitive harm
(3)  Objective justifications and pro-competitive effects
(p. 470) D.  The Limited Distribution Group
(1)  Notion of limited distribution
(2)  Theories of competitive harm
(3)  Objective justifications and pro-competitive effects
E.  The Market-Sharing Group
(1)  Notion of market sharing
(2)  Theories of competitive harm
(3)  Objective justifications and pro-competitive effects
F.  The Buyer Power Group
(1)  Notion of buyer power
(2)  Theories of competitive harm
(p. 475) (3)  Objective justifications and pro-competitive effects
III.  A Step-by-Step Method for the Self-Assessment of Vertical Restrictions
A.  Screening of Vertical Restraints
(1)  The presumption of incompatibility
(a)  Preliminary remarks
(b)  Resale price maintenance
(c)  Territorial resale prohibitions
(i)  Principle
(ii)  Exceptions
(d)  Restrictions on active and passive sales in selective distribution networks
(e)  Restrictions of cross-deliveries in selective distribution networks
(f)  Restrictions on component suppliers to sell to end-users, repairers, and independent service providers
(p. 481) (2)  The presumptions of compatibility
(a)  Agreements of minor importance
(i)  The appreciability rule
(ii)  The practice
(b)  Agreements between small and medium-sized enterprises
(c)  Block exemption mechanism
(p. 483) (i)  The double market-share thresholds
(p. 486) (ii)  Conditions
(iii)  Withdrawal of the block exemption
B.  Full-Blown Competition Analysis of Vertical Restraints
(1)  Preliminary remarks
(p. 488) (2)  Method
(a)  Selection of the theories of harm
(b)  Assessment of the theories of harm
(p. 490) (c)  Efficiencies and objective justifications
(p. 491) IV.  Online Distribution
A.  The Context
B.  The New Framework for Online Distribution
(1)  Selective distribution and online commerce
(2)  Active and passive sales
(a)  Internet sales are passive
(b)  In exceptional circumstances, internet sales may be considered active
(p. 495) V.  Conclusions
Footnotes:
9 Merger Control
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
(p. 497) 9  Merger Control
I.  Introduction
A.  History of the Development of an EU Merger Control Regime
(p. 499) B.  The Concept of Concentration in EU Competition Law
(1)  Definition
(2)  Different types of concentrations
II.  Regulation 139/2004
(p. 501) A.  Should the Concentration be Notified?
(1)  The concept of ‘concentration’
(2)  The ‘Community dimension’
(p. 502) (a)  Identification of the undertakings concerned
(b)  Calculation of the turnover to determine whether the thresholds are reached
(3)  Implications resulting from the fact that a concentration has a ‘Community dimension’
(a)  Compulsory ex ante notification and suspension rule
(b)  Lack of jurisdiction of the Member States
(p. 506) B.  Is the Concentration Compatible with the Common Market?
(1)  The double test included in Regulation 139/2004
(p. 507) (2)  Assessment of horizontal mergers
(a)  The screening of horizontal mergers—market shares and HHI
(b)  The in-depth analysis
(i)  Non-coordinated effects
(ii)  Coordinated effects
(3)  The analysis of non-horizontal mergers
(a)  Filtering non-horizontal mergers
(b)  The admissibility of vertical mergers
(c)  The admissibility of conglomerate mergers
(4)  The assessment of the parties’ justifications
(a)  The ‘failing firm’ doctrine
(b)  The ‘efficiency defence’?
(i)  Nature of the issue
(ii)  Efficiency gains in economic theory
(iii)  Principles applicable to the consideration of efficiency gains
(5)  The analysis of the compatibility of ancillary restraints
(6)  The compatibility analysis of full-function joint ventures
(a)  What is a joint venture?
(b)  The concept of ‘full function’ and the applicability of the EMCR
(i)  The content of full function
(ii)  The material condition
(iii)  The time condition—lasting quality/stability
(iv)  Substantial rules applicable to full-function joint ventures
(c)  Comparative assessment of the legal regimes of Article 101 TFEU and the EMCR
III.  The Institutional and Procedural Implementation of Merger Control
A.  The Informal Pre-Notification Procedure
(p. 529) B.  The Formal Notification Procedure
(1)  Form CO
(2)  Calendar of the procedure
(a)  General remarks
(p. 530) (b)  Phase I
(c)  Phase II
(d)  Remedies
(i)  Nature of the issue
(ii)  ‘Structural’ and ‘behavioural’ remedies
C.  Merger Litigation
(p. 535) (1)  Annulment proceedings
(a)  Marginal review
(b)  Effective judicial review
D.  Conclusions—Myths and Reality of Merger Control
(1)  The myth(s)
(2)  The reality
Footnotes:
(p. 541) Index Of Names
Index Of Names
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
(p. 543) General Index
General Index
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit

Citation preview

Contents Damien Geradin, Anne Layne-Farrar, Nicolas Petit From: EU Competition Law and Economics Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit Content type: Book content Product: Oxford Competition Law [OCL] Published in print: 22 March 2012 ISBN: 9780199566563

About the Authors ix Tables of Cases xi Table of Commission Decisions xxiii Tables of Legislation xxxi 1.  Introduction 1 I.  The Ubiquity of EU Competition Law 1.01 A.  Impact of EU Competition Law on Public and Private DecisionMakers 1.03 B.  The Positive Economic Effects of EU Competition Policy 1.09 II.  The History of EU Competition Law 1.32 A.  Origins of Competition Laws 1.33 B.  Appearance of Modern Competition Laws 1.39 C.  Modernization of EU Competition Law 1.56 III.  The Goals of EU Competition Law 1.61 A.  Economic Goals 1.61 B.  European Integration Goals 1.73

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IV.  The Sources of EU Competition Law 1.81 A.  Treaty Law 1.81 B.  Secondary Law 1.97 C.  Case Law 1.102 V.  The Scope of Application of EU Competition Law 1.128 A.  Scope Ratione Personae—To Whom Does EU Competition Law Apply? 1.128 B.  Scope Ratione Materiae—To What Sectors Does Competition Law Apply? 1.145 C.  Scope Ratione Loci—Where is EU Competition Law Applied and Enforced? 1.167 2.  Elements of Competition Law Economics 59 I.  Introduction 2.01 II.  Epistemology of Competition Economics 2.10 A.  Classical and Neoclassical Competition Economics 2.10 B.  The Normative Economics of Competition 2.35 III.  Methodology of Competition Economics 2.55 A.  The Concept of Market Power 2.56 B.  Measuring Market Power 2.62 C.  Measuring Market Power, Indirectly 2.83 (p. vi) D.  Other Useful Economic Concepts—Competition Law, Law of Costs 2.125 3.  The Law and Economics of Anticompetitive Coordination 105 I.  Article 101(1) TFEU—The Prohibition Rule 3.04 A.  The Legal Component of Article 101(1) TFEU—A Concurrence of Wills between Several Independent Undertakings 3.07 B.  The Economic Component of Article 101(1) TFEU—A Restriction of Competition 3.70 C.  The Jurisdictional Component of Article 101(1) TFEU—A Restriction ‘Within the Internal Market’ Which ‘Affects Trade between Member States’ 3.151 II.  Article 101(2) TFEU—The Rule of Nullity 3.202 A.  The Principle 3.202 B.  The Practice 3.207

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III.  Article 101(3) TFEU—The Exception Rule 3.215 A.  Overview of the Exception Rule 3.215 B.  The Application of the Four Conditions of Article 101(3) TFEU 3.222 4.  Abuse of Dominance 175 I.  Introduction 4.01 II.  Determining Dominance 4.04 A.  Market Definition 4.05 B.  Dominance 4.48 III.  The Notion of Abuse 4.131 A.  Exclusionary Abuses 4.132 B.  Exploitative Abuses 4.371 C.  Price Discrimination 4.452 5.  Enforcement, Institutions, and Procedure 321 I.  Introduction 5.01 II.  The Institutional Framework 5.08 A.  The Commission 5.09 B.  The National Competition Authorities 5.27 C.  Interplay of the Commission and NCAs within the ECN 5.38 D.  The National Courts 5.71 III.  The Procedural Framework 5.90 A.  The Detection of Infringements 5.91 B.  The Investigation of Alleged Infringements 5.123 C.  The Evaluation of Infringements 5.141 D.  The Decision 5.166 E.  Final Remarks 5.201 IV.  The Judicial Framework 5.204 A.  Acts Subject to Annulment Proceedings 5.210 B.  Persons that can Start Annulment Proceedings 5.221 (p. vii) C.  Modalities of Annulment Proceedings 5.234 D.  Parallel and Subsequent Actions to Annulment Proceedings 5.243 E.  Scope and Intensity of Judicial Review in Annulment Proceedings 5.251 6.  Cartels and Other Horizontal Hardcore Restrictions 391 I.  The EU Anti-Cartel Policy 6.01

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II.  Substantive Cartel Law 6.15 A.  Substantive Scope of Application—What Agreements Constitute Hardcore Cartels? 6.15 B.  Personal Scope of Application—What Undertakings are Liable for Hardcore Cartels? 6.53 C.  Temporal Scope of Application—Are There Time Limits for Pursuing a Hardcore Cartel? 6.75 III.  Institutional Aspects of Cartel Law 6.78 A.  Deterring Hardcore Cartels 6.78 B.  Litigation Relating to Cartels and Hardcore Restrictions 6.113 7.  Horizontal Cooperation Agreements 423 I.  Introduction 7.01 II.  The Law Applicable to Horizontal Cooperation Agreements 7.06 A.  Origin of Applicable Texts 7.06 B.  Scope of Application of the EU Framework 7.10 III.  Principles of Competition Analysis Applicable to Horizontal Cooperation Agreements 7.16 A.  Basic Principles of Competition Analysis of Horizontal Cooperation Agreements 7.16 B.  Specific Principles for Competition Analysis (By Type of Cooperation) 7.22 C.  Conclusions 7.166 8.  The Law and Economics of Vertical Restraints 463 I.  Introduction 8.01 II.  Types of Vertical Restraint 8.06 A.  The Issue 8.06 B.  The Exclusive Contractual Relationship Group 8.08 C.  The Resale Price Maintenance Group 8.18 D.  The Limited Distribution Group 8.21 E.  The Market-Sharing Group 8.29 F.  The Buyer Power Group 8.38 III.  A Step-by-Step Method for the Self-Assessment of Vertical Restrictions 8.45 A.  Screening of Vertical Restraints 8.47 B.  Full-Blown Competition Analysis of Vertical Restraints 8.86

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IV.  Online Distribution 8.100 A.  The Context 8.100 B.  The New Framework for Online Distribution 8.104 V.  Conclusions 8.112 (p. viii) 9.  Merger Control 497 I.  Introduction 9.01 A.  History of the Development of an EU Merger Control Regime 9.02 B.  The Concept of Concentration in EU Competition Law 9.06 II.  Regulation 139/2004 9.16 A.  Should the Concentration be Notified? 9.18 B.  Is the Concentration Compatible with the Common Market? 9.41 III.  The Institutional and Procedural Implementation of Merger Control 9.141 A.  The Informal Pre-Notification Procedure 9.141 B.  The Formal Notification Procedure 9.143 C.  Merger Litigation 9.161 D.  Conclusions—Myths and Reality of Merger Control 9.183 Index of Names 541 General Index 543

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About the Authors Damien Geradin, Anne Layne-Farrar, Nicolas Petit From: EU Competition Law and Economics Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit Content type: Book content Product: Oxford Competition Law [OCL] Published in print: 22 March 2012 ISBN: 9780199566563

Damien Geradin is a partner at Covington & Burling in Brussels. He is also a Professor of competition law and economics at Tilburg University and a William W. Cook Global Law Professor at the University of Michigan Law School. He is the author of many publications in the fields of competition law, intellectual property law, and the regulation of network industries. He is the co-editor-in-chief of the Journal of Competition Law & Economics published by Oxford University Press. He holds a PhD in law from Cambridge University. Dr Anne Layne-Farrar received her BA in economics with honours, summa cum laude, from Indiana University (Bloomington), her master’s and her PhD in economics from the University of Chicago. She has worked as an economic consultant for the past 15 years, advising corporations and lawyers on competition, intellectual property, regulation, and policy issues across a broad range of industries. She has numerous publications in academic journals, including Antitrust Law Journal, International Journal of Industrial Organization, and Journal of Competition Law and Economics. She is currently a Vice President in the Chicago Office of Compass Lexecon. Nicolas Petit is Professor at the Law School of the University of Liege (ULg), Belgium and Visiting Professor at EDHEC Business School, Lille, France. He is the Director of the ULg LLM in European Competition and Intellectual Property Law and Director of the Brussels School of Competition (BSC). He has authored many publications in the field of competition law, focussing in particular on oligopolies, abuse of dominance, intellectual property rights, and network industries. In 2009, he received the Jacques Lassier Prize from the International League of Competition Law (LIDC). Nicolas is also the founder of a well known weblog on competition law and economics .(p. x)

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Tables Of Cases Damien Geradin, Anne Layne-Farrar, Nicolas Petit From: EU Competition Law and Economics Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit Content type: Book content Product: Oxford Competition Law [OCL] Published in print: 22 March 2012 ISBN: 9780199566563

General Court T-13/89 ICI v Commission, 10 March 1992 [1992] ECR II-1021 6.25 T-30/89 Hilti v Commission [1991] ECR II-1439 4.227 T-64/89 Automec I, 10 July 1990 [1990] ECR II-3671 5.214 T-65/89 BPB Industries plc and British Gypsum Ltd v Commission [1993] ECR II-389 4.490 T-68/89 and T-77–78/89 Società Italiana Vetro SpA, Fabbrica Pisana SpA and PPG Vernante Pennitalia SpA v Commission (‘Italian Flat Glass’), 10 March 1992 [1992] ECR II-1403 3.63, 4.74, 4.87, 4.88, 4.90, 4.110, 5.267, 9.61 T-69/89 Radio Telefis Eireann v Commission (Magill) [1991] ECR II-485 4.72, 4.318, 4.320, 4.321, 4.323, 4.324, 4.326, 4.328, 4.333, 4.334, 4.335, 4.339 T-79/89, T-84/89, T-85/89, T-86/89, T-89/89, T-91/89, T-92/89, T-94/89, T-96/89, T-98/89, T-80/89, T-81/89, T-83/89, T-87/89, T-88/89, T-90/89, T-93/89, T-95/89, T-97/89, T-99/89, T-100/89, T-101/89, T-103/89, T-105/89, T-107/89 and T-112/89 BASF AG v Commission, 6 April 1995 [1995] ECR II-729 5.24 T-102/89 and T-104/89 BASF AG v Commission, 27 February 1992 [1992] ECR II-315 5.25 T-141/89 Tréfileurope v Commission [1995] ECR II-791 3.27 T-152/89 ILRO SpA v Commission, 6 April 1995 [1995] ECR II-1197 6.11

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T-28/90 Asia Motor France SA v Commission, 18 September 1992 [1992] ECR II-2285 5.100 T-83/91 Tetra Pak International v Commission (Tetra Pak II) [1994] ECR II-755 4.230, 4.231, 4.377, 4.449, 4.501, 4.531 T-10/92 Cimenteries CBR ea v Commission, 18 December 1992 [1992] ECR II-2667 5.153, 5.154 T-35/92 John Deere Ltd v Commission [1994] ECR II-957 7.25, 7.34 T-37/92 Bureau europeen des unions des consommateurs and National Consumer Council v Commission, 18 May 1994 [1994] ECR II-285 5.223, 5.234 T-83/92 Zunis Holding v Commission, 28 October 1993 [1993] ECR II-1169 5.226 T-87/92 BVBA Kruidvat v Commission, 12 December 1996 [1996] ECR II-1913 5.223 T-96/92 CE de la Societe des grandes sources Perrier v Commission, 27 April 1992 [1992] ECR II-1213 5.223, 5.225 T-102/92 Viho Europe BV v Commission, 12 January 1995 [1995] ECR II-17 3.08, 3.09, 6.56 T-114/92 BEMIM v Commission, 24 January 1995 [1995] ECR II-147 5.223 T-3/93 Societe anonyme a participation ouvriere Compagnie nationale Air France v Commission, 24 March 1994 [1994] ECR II-121 5.223(p. xii) T-17/93 Matra Hachette SA v Commission [1994] ECR II-595 3.120, 3.236, 9.162 T-24/93, T-25/93, T-26/93 and T-28/93 Compagnie maritime belge transports SA and Compagnie maritime belge SA, Dafra-Lines A/S, Deutsche Afrika-Linien GmbH & Co and Nedlloyd Lijnen BV v Commission, October 1996 [1996] ECR II-01201 3.161, 3.177, 3.241, 4.293, 4.497 T-528/93, T542/93, T543/93 and T-546/93 Metropole television SA, Reti Televisive Italiane SpA, Gestevision Telecinco SA and Antena 3 de Television v Commission, 11 July 1996 [1996] ECR 649 5.223, 7.115 T-88/94 Societe commerciale des potasses et de l’azote et Entreprise miniere et chimique v Commission, 15 June 1994 [1994] ECR II-401 5.235 T-141/94 Thyssen Stahl [1999] ECR II-347 7.25 T-229/94 Deutsche Bahn AG v Commission [1997] ECR II-1689 4.516 T-305/94 Elf Atochem SA v Commission, 20 April 1999 [1999] ECR II-931 5.240 T-353/94 Postbank NV v Commission, 18 September 1996 [1996] ECR II-921 5.85 T 374/94 European Night Services and others v Commission [1998] ECR II-3141 3.135 T-25/95 SA Cimenteries CBR v Commission, 15 March 2000 [2000] ECR II 491 5.240

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T-86/95 Compagnie Générale Maritime and others v Commission [2002] ECR II-1011 3.241 T-41/96 Bayer AG v Commission, (‘Adalat’ case) 26 October 2000 [2000] ECR II-3383 1.79, 3.20, 3.22, 3.42, 3.43, 3.45, 3.48, 4.539, 4.540, 4.540 T-65/96 DEP Kish Glass & Co Ltd v Commission, 8 November 2001 [2001] ECR II-3261 5.100 T-102/96 Gencor Ltd v Commission, 25 March 1999 [1999] ECR II-753 1.169, 4.95, 4.120, 5.239, 9.61 T-5/97 Industrie des poudres sphériques v Commission [2000] ECR II-3755 4.344 T-228/97 Irish Sugar plc v Commission, 7 October 1999 [1999] ECR II-2969 3.182, 4.113, 4.114, 4.119, 4.489, 4.495, 4.502, 4.503, 4.534, 4.540 T-596/97 Dalmine v Commission, 24 June 1998 [1998] ECR II-2383 5.212 T-62/98 Volkswagen AG v Commission 6 July 2000 [2000] ECR II-2707 1.30, 3.42 T-65/98 Van den Bergh Foods Ltd v Commission, 23 October 2003 [2003] ECR I-4653 3.145, 3.147, 5.234, 8.09 T-89/98 National Association of Licensed Opencast Operators (NALOO) v Commission [2001] ECR II 515 4.381 T-128/98 Aéroports de Paris v Commission, 12 December 2000 [2000] ECR II-3929 1.138, 4.514 T-191/98, T-212–214/98 Atlantic Container Line AB v Commission (‘TACA’) 4.117, 4.128, 4.136, 5.234, 6.28 T-198/98 Micro Leader Business v Commission, 16 December 1999 [1999] ECR II-3989 4.539 T-202/98, T-204/98 and T-207/98 Tate & Lyle et al v Commission, 12 July 2001 [2001] ECR II-2035 3.114 T-9/99 HFB Holding für Fernwärmetechnik Beteiligungsgesellschaft mbH & Co KG et al v Commission, 20 March 2002 [2002] ECR II-1487 1.134, 6.66 T-25/99 Colin Arthur Roberts and Valerie Ann Roberts v Commission [2001] ECR II-1881 3.145 T-59-99 Ventouris Group Enterprises SA v Commission [2003] ECR II-5257 3.134 T-112/99 Métropole Télévision (M6) et al v Commission, 18 September 2001 [2001] ECR II-2459 3.85, 3.89, 3.149, 3.233 T-219/99 British Airways plc v Commission [2003] ECR II-5917 1.113, 4.491, 5.234 T-319/99 FENIN v Commission, 4 March 2003 [2003] ECR II-357 1.132(p. xiii)

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T-342/99 DEP Airtours v Commission, 6 June 2002 [2002] ECR II-258 1.124, 4.96, 4.120, 4.124, 4.125, 4.126, 4.127, 5.268, 5.285, 5.287, 9.61, 9.69, 9.72, 9.73, 9.98, 9.167, 9.172 T-44/00 Mannesmannröhren-Werke AG v Commission, 8 July 2004 [2004] ECR II-2223 3.132 T-67/00, T-68/00, T-71/00 and T-78/00 JFE Engineering Corp v Commission [2004] ECR II-2501 3.160, 6.44 T-158/2000 ARD v Commission, 30 September 2003 [2003] ECR II-3825 5.223 T-185/00, T-216/00, T-299/00 and T-300/00, Métropole télévision SA (M6) et al v Commission, 8 October 2002 [2002] ECR II-3805 7.99, 7.115 T-251/00 Lagardère SCA and Canal + SA v Commission, 20 November 2002 [2002] ECR II-04825 9.111 T-310/00 MCI Inc v Commission 5.224 T-368/00 General Motors Nederland and Opel Nederland v Commission, 21 October 2003 [2003] ECR II-4491 4.539 T-377/00, T-379/00, T-380/00, T-260/01 and T-272/01 Philip Morris International Inc v Commission, 15 January 2003 [2003] ECR 1 5.220 T-383/00 Beamglow v Parlement ao, 14 December 2005 [2005] ECR II-5459 5.247 T 66/01 Imperial Chemical Industries Ltd v Commission 3.162, 3.163 T-67/01 JCB Service v Commission [2004] ECR II-49 8.50 T-168/01 GlaxoSmithKline Services Unlimited v Commission, 27 September 2006 [2006] ECR II-2969 1.79, 3.70, 3.101, 3.118, 3.120, 3.242 T-203/01 Manufacture française des pneumatiques Michelin v Commission (Michelin II) [2003] ECR II-4071 4.172, 4.213, 4.214 T-236/01, T-239/01, T-244–246/01, T-251/01 and T-252/01 Tokai Carbon Co Ltd and others v Commission, 29 April 2004 [2004] ECR II-1181 6.114 T-310/01 Schneider Electric v Commission, 22 October 2002 [2002] ECR II-4071 1.124, 5.287, 9.98, 9.167, 9.168 T-325/01 DaimlerChrysler AG v Commission, 15 September 2005 [2005] ECR II-3319 3.14 T-5/02 Tetra Laval v Commission, 25 October 2002 [2002] ECR II-4381 1.124, 5.287, 9.90, 9.98, 9.167, 9.168 T-43/02 Jungbunzlauer AG v Commission, 27 September 2006 [2006] ECR II-3435 6.69 T-44/02 OP, T-54/02 OP, T-56/02 OP, T-60/02 OP and T-61/02 OP Dresdner Bank v Commission, 27 September 2006 [2006] ECR II-3567 3.22, 3.66

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T-49–51/02 Brasserie nationale v Commission, 27 July 2005 [2005] ECR II-3033 3.22 T-56/02 Bayerische Hypo-und Vereinsbank v Commission, 14 October 2004 [2004] ECR II-3495 3.22 T-77/02 Schneider v Commission, 22 October 2002 [2002] ECR II-04519 5.268, 9.98 T-80/02 Tetra Laval v Commission, 25 October 2002 [2002] ECR II-04519 5.268 T-109/02, T-118/02, T-122/02, T-125/02, T-126/02, T-128/02, T-129/02, T-132/02 and T-136/02, Bolloré SA ea v Commission of the European Communities, 26 April 2007 [2007] ECR II-947 3.11, 6.113 T-114/02 Babyliss SA v Commission, 3 April 2003 [2003] ECR II-01279 9.89 T-193/02 Laurent Piau v Commission [2005] ECR II-209 4.99, 4.101, 4.120, 4.122 T-259–264/02 and T-271/02 Raiffeisen Zentralbank Österreich AG v Commission (Austrian Banks Cartel case) 14 December 2006 [2006] ECR II-5169 1.91, 1.113 T-2/03 Verein fur Konsumenteninformation v Commission (‘Lombard Cartel’), 13 April 2005 [2005] ECR II-01121 5.214 T-28/03 Holcim AG v Commission, 21 April 2005 [2005] ECR II-1357 5.250(p. xiv) T-53/03 BPB v Commission [2008] ECR II-1333 7.26 T-212/03 MyTravel Group v Commission, 9 September 2008 [2008] ECR II-2027 5.250 T-217/03 and T-245/03 Fédération nationale de la Cooperation bétail et viande (National Federation of the livestock and meat cooperation) (FNCBV) v Commission, 13 December 2006 [2006] ECR II-4987 1.152 T-271/03 Deutsche Telecom v Commission [2008] ECR II-477 .4.188, 4.347, 4.348, 4.353 T-328/03 O2 (Germany) v Commission, 2 May 2006 [2006] ECR II-1231 3.93, 7.75 T-340/03 France Télécom SA v Commission, 30 January 2007 [2007] ECR II-107 1.124, 2.131, 4.274, 4.283 T-155/04 SELEX Sistemi Integrati SpA v Commission, 12 December 2006 [2006] ECR II-4797 1.138 T-201/04 Microsoft v Commission, 17 September 2007 [2007] ECR II-3601 1.05, 1.124, 4.140, 4.238, 4.241, 4.248, 4.335, 5.23, 5.273 T-431/04 R Italian Republic v Commission, 18 June 2007 [2007] ECR II-64 5.206 T-30/05 William Prym GmbH & Co KG and Prym Consumer GmbH & Co KG v Commission, 12 September 2007 [2007] ECR II-00107 6.113 T-36/05 Coats Holdings Ltd, and J & P Coats Ltd v Commission, 12 September 2007 [2007] ECR II-00110 6.113

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T-101/05 and T-111/05 BASF and UCB v Commission, 12 December 2007 [2007] ECR II-4949 5.174, 6.113, 6.114 T-112/05, Akzo Nobel NV v Commission of the European Communities, 12 December 2007 [2007] ECR II-5049 3.11, 3.12, 6.61 T-155/06 Tomra Systems v Commission, 9 September 2010 4.214, 4.215, 4.216 T-442/07 Ryanair Ltd v Commission, 29 September 2011 5.206 T-427/08 CEAHR v Commission, 15 December 2010 5.103

European Court of Justice 322/21 NV Nederlandsche Banden Industrie Michelin v Commission, 9 November 1983 [1983] ECR 3461 1.64 C-8/55 Fedechar, 29 November 1956 [1956] ECR 291 5.242 19/61 Mannesmann AG v High Authority, 13 July 1962 [1962] ECR 675 1.130 C-25/62 Plaumann 15 July 1963 [1963] ECR 305 5.223 13/63 Italian Republic v Commission, 17 July 1963 [1963] ECR 165 4.455 C-23/63 Societe anonyme Usines Emile Henricot v High Authority, 5 December 1963 [1963] ECR 441 5.215 56 and 58/64, Établissements Consten SàRL and Grundig-Verkaufs-GmbH v Commission, 13 July 1966 [1966] ECR 429 1.74, 1.75, 3.70, 3.75, 3.114, 3.142, 3.188, 5.272, 8.02 C-56/65 Société Technique Minière v Maschinenbau Ulm, 30 June 1966 [1966] ECR 337 3.84, 3.85, 3.89, 3.113 C-8–11/66 Societe anonyme Cimenteries CBR Cementsbedrijven NV v Commission [1993] ECR 75 5.212, 5.240 C-23/67 SA Brasserie de Haecht v Consorts Wilkin-Janssen, 12 December 1967 [1967] ECR 525 3.142, 8.30 C-10 and 18/68 Societa ‘Eridania’ Zuccherifici Nazionali v Commission, 10 December 1969 [1969] ECR 459 5.229 14/68 Walt Wilhelm v Bundeskartellamt, 13 February 1969 [1969] ECR 1 5.48 C-5/69 Franz Völk v SPRL Ets J Vervaecke, 9 July 1969 [1969] ECR 295 3.129, 8.63 C-41/69 ACF Chemiefarma v Commission, 15 July 1970 [1970] ECR 661 3.23(p. xv) C-48/69 Imperial Chemical Industries Ltd v Commission (Dyestuffs), 14 July 1972 [1972] ECR 619 3.55, 3.59, 3.62, 4.80, 4.82, 6.55 54/69 SA française des matières colorantes (Francolor) v Commission, 14 July 1972 [1972] ECR 851 1.169

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C-22/70 Commission v Council, 31 March 1971 [1971] ECR I-263 5.212 78/70 Deutsche Grammophon v Metro SB [1971] ECR 487 4.380 22/71 Béguelin Import Co v SAGL Import Export, 25 November 1971 [1971] ECR 949 1.169, 3.171, 3.203 6/72 Europemballage and Continental Can v Commission, 21 February 1973 [1973] ECR 215 1.31, 1.74, 1.169, 4.500, 5.239, 6.55, 9.02, 9.03 C-8/72 Vereeniging van Cementhandelaren v Commission, 17 October 1972 [1972] ECR 977 3.199, 6.25 6/73 and 7/73 Istituto Chemioterapico Italiano and Commercial Solvents v Commission, 6 March 1974 [1974] ECR 223 1.91, 1.169, 4.314, 4.316, 4.318 6 and 7/73 R Istituto Chemioterapico Italiano and Commercial Solvents v Commission [1973] ECR-357 4.314 C-40/73 Suiker Unie, 16 December 1975 [1975] ECR 480 3.15, 3.16, 3.26, 3.30, 3.155, 4.484, 4.487 40–48, 50, 54–56, 111, 113 and 114/73 Coöperatieve Vereniging ‘Suiker Unie’ UA v Commission of the European Communities (European Sugar) [1975] ECR 1663 3.56 167/73 Commission v French Republic, 4 April 1974 [1974] ECR 359 1.155 15/74 Centrafarm BV and Adriaan de Peijper v Sterling Drug Inc [1974] ECR-1147 4.321 36/74 BNO Walrave and LJN Koch v Association Union Cycliste Internationale ea, 12 December 1974 [1974] ECR 1405 1.132 C-73/74 Papiers Peints de Belgique, 26 November 1975 [1975] ECR 1491 3.165 26/75 General Motors v Commission [1975] ECR 1367 4.409 13/76 Gaetano Donà v Mario Mantero, 14 July 1976 [1976] ECR 1333 1.132 C-26/76 Metro v Commission, 25 October 1977 [1977] ECR 1875 3.70, 3.236, 5.223 C-27/76 United Brands v Commission [1978] ECR 207 4.50, 4.68, 4.377, 4.379, 4.380, 4.381, 4.384, 4.386, 4.392, 4.396, 4.400, 4.408, 4.414, 4.446, 4.473, 4.476, 4.526, 5.241, 7.143, 7.158 C-83 and 94/76, 4, 15 and 40/77 Bayerische HNL Vermehrungsbetriebe GmbH & Co KG v Council and Commission, 25 May 1978 [1978] ECR 1209 5.250 85/76 Hoffmann-La Roche v Commission, 13 February 1979 [1979] ECR 461 1.94, 4.50, 4.85, 4.88, 4.135, 4.169, 4.213, 4.214, 4.485, 4.485, 4.491, 4.500 6/77 Commission v Kingdom of Belgium, 12 October 1978 [1978] ECR 1881 1.155 C-13/77 SA GB-INNO-BM v Association of Tobacco Retailers (‘INNO/ATAB’), 16 November 1977 [1977] ECR 2115 3.33, 6.74

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C-28/77 Tepea v Commission, 20 June 1978 [1978] ECR 1391 3.23 C-30/78 Distillers v Commission, 10 July 1980 [1980] ECR 2223 5.240 C-209 –215/78 and 218/78 Van Landewyck v Commission [1980] ECR 3125 3.233 258/78 LC Nungesser KG and Kurt Eisele v Commission (‘Maize Seed case’), 8 June 1982 [1982] ECR 2015 1.135 C-155/79 AM&S v Commission, 18 May 1982 [1982] ECR 1575 5.264 C-792/79 R Camera Care v Commission, 17 January 1980 [1980] ECR 119 5.191 C-61/80 Coöperatieve Stremsel-en Kleurselfabriek v Commission, 25 March 1981 [1981] ECR 851 3.200 100–103/80 SA Musique Diffusion française et al v Commission, 7 June 1983 [1983] ECR 1825 1.71, 6.66, 6.81 C-26/81 Oleifici Mediterranei v CEE, 29 September 1982 [1982] ECR 3057 5.247(p. xvi) C-60/81 IBM v Commission, 11 November 1981 [1981] ECR 2639 5.215, 5.216, 5.217 322/81 NV Nederlandsche Banden Industrie Michelin v Commission (Michelin I) [1983] ECR I-03461 4.168, 4.169, 4.173, 4.179, 4.488 7/82 GVL v Commission [1983] ECR 483 6.75 43/82 and 63/82 VBBB and VBVB [1984] ECR 19 3.222, 3.233 C-86/82 Hasselblad v Commission [1984] ECR 883 8.50 C-96–102, 104, 105, 108 and 110/82 NV IAZ International Belgium et al v Commission, 8 November 1983 [1983] ECR 3369 1.04, 7.151 107/82 Allgemeine Elektrizitäts-Gesellschaft AEG-Telefunken AG v Commission [1983] ECR 3151 3.40, 3.183, 6.56, 8.50 C-228–229/82 Ford v Commission, 28 February 1984 [1984] ECR 1129 3.41, 5.242 260/82 Nederlandse Sigarenwinkeliers Organisatie v Commission, 10 December 1985 [1985] ECR 3801 6.88 C-319/82 Société de vente de ciments et bétons de l’Est SA v Kerpen & Kerpen GmbH und Co KG, 14 December 1983 [1983] ECR 4173 3.205 C-29–30/83 Compagnie royale Asturienne des mines SA and Rheinzink GmbH v Commission of the European Communities, 28 March 1984 [1984] ECR 1679 3.65, 3.157 C-123/83a BNIC v Clair, 30 January 1985 [1985] ECR 391 3.114, 3.193 C-243/83 SA Binon & Cie v SA Agence et messageries de la presse, 3 July 1985 [1985] ECR 2015 3.114, 4.86, 8.50

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C-294/83 Les Verts v Parliament, 23 April 1986 [1986] ECR 1339 5.212 298/83 Comité des industries cinématographiques des Communautés européennes (CICCE) v Commission, 28 March 1985 [1985] ECR 1105 4.444 42/84 Remia v Commission [1985] ECR 2545 3.148, 3.177, 3.199, 3.233, 3.236, 5.273, 9.162 C-68/94 and C-30/95 République française et Société commerciale des potasses et de l’azote (SCPA) et entreprise minière et chimique (EMC) v Commission, 31 March 1998 [1998 ECR I-01375 9.165 C-75/84 Metro SB-Grossmarkte GmbH & Co KG v Commission, 22 October 1986 [1986] ECR 3021 5.223 C-142/84 BAT et Reynolds v Commission, 18 June 1986 [1986] ECR 1899 5.145 142 and 156/84 British-American Tobacco Company Ltd et RJ Reynolds v Commission [1987] ECR I-4487 9.03 C-191/84 Pronuptia de Paris GmbH v Pronuptia de Paris Irmgard Schillgallis [1986] ECR 353 8.50 209–213/84 Public Ministry v Lucas Asjes et al, Andrew Gray et al, Andrew Gray et al, Jacques Maillot et al and Léo Ludwig et al (‘Nouvelles Frontières Case’), 30 April 1986 [1986 ECR] 1425 1.155 226/84 British Leyland plc v Commission [1986] ECR 3263 4.380, 4.393, 4.408, 4.409, 4.423, 4.424, 4.533 226/84 General Motors v Commission [1975] ECR 1367 4.380, 4.408, 4.409 C-5/85 AKZO Chemie BV and AKZO Chemie UK Ltd v Commission, 23 September 1986 [1986] ECR 2585 5.239 C-89/85, C-104/85, C-114/85, C-116/85, C-117/85 and C-125–129/85 Ahlström Osakeyhtiö et al v Commission (‘Wood Pulp’), 31 March 1993 [1993] ECR I-1307 1.64, 1.169, 2.04, 3.63, 4.80, 5.286, 5.287, 9.162 118/85 Commission v Italy, 16 June 1987 [1987] ECR 2599 1.132 C-311/85 Vereniging van Vlaamse Reisbureaus [1987] ECR 3801 8.50 C-62/86 AKZO Chemie BV v Commission, judgment, 3 July 1991 2.131, 4.259, 4.261, 4.262, 4.263, 4.268, 4.272, 4.293, 4.493 66/86 Ahmed Saeed Flugreisen et Silver Line Reisebüro GmbH v Zentrale zur Bekämpfung unlauteren Wettbewerbs eV [1989] ECR 803 4.86(p. xvii) C-136/86 BNIC v Aubert, 3 December 1987 [1987] ECR 4789 3.193 247/86 Société alsacienne et lorraine de télécommunications et d’électronique (Alsatel) v SA Novasam [1988] ECR 5987 4.86 263/86 Belgian State v René Humbel and Marie-Thérèse Edel, 27 September 1988 [1988] ECR 5365 1.132

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30/87 Corinne Bodson v SA Pompes funèbres des régions libérées. Reference for a preliminary ruling: Cour de cassation, France, Competition, Funeral services, Exclusive special rights [1988] ECR I-02479 3.179, 4.111, 4.380, 4.396, 4.398, 4.541 C-46/87 and 227/88 Hoechst v Commission, 21 September 1989 [1989] ECR 2859 5.218 238/87 AB Volvo v Erik Veng Ltd [1988] ECR 6211 4.321 C-374/87 Orkem v Commission, 18 October 1989 [1989] ECR 3283 5.218, 5.264 395/87 Ministère Public v Tournier [1989] ECR 2521 4.396 110/88 Lucazeau v SACEM [1989] ECR 2811 4.380, 4.387, 4.396 C-234/89 Delimitis v Henninger Bräu AG [1991] ECR I-935 3.145, 5.42, 5.78, 5.84, 8.30 C-41/90 Klaus Höfner and Fritz Elser v Macrotron GmbH, 23 April 1991 [1991] ECR I-1979 1.131, 1.136 C-179/90 Merci convenzionali porto di Genova SpA v Siderurgica Gabrielli SpA 1.138 C-2/91 Criminal proceedings against Wolf W Meng, 17 November 1993 [1993] ECR I-5751 3.34 C-159/91 and C-160/91 Christian Poucet v Assurances générales de France and Caisse mutuelle régionale du Languedoc-Roussillon, 13 February 1993 [1993] ECR I-637 1.139, 1.140, 1.144 C-241/91 and C-242/91 Radio Telefis Eireann and Independent Television Publications Ltd v Commission [1995] ECR 743 4.320 C-320/91 Criminal proceedings against Paul Corbeau, 19 May 1993 [1993] ECR I-2533 1.158 C-325/91 France v Commission, 16 June 1993 [1993] ECR I-3283 5.214, 5.232 C-49/92 P Commission of the European Communities v Anic Partecipazioni SpA [1999] ECR I-04125 3.58 C-51/92 P Hercules Chemicals v Commission, 8 July 1999 [1999] ECR I-4235 5.157 C-128/92 HJ Banks & Co Ltd v British Coal Corporation [1994] ECR I-1209 3.212 C-200/92 ICI v Commission [1999] ECR I-4399 6.25 C-250/92 Gottrup-Klim v Dansk Landbrugs Grovvareselskab [1994] ECR I-5641 3.177 C-364/92 SAT Fluggesellschaft mbH v Eurocontrol, 19 January 1994 [1994] ECR I-43 1.138, 7.117 C-393/92 Gemeente Almelo v Energiebedrijf IJsselmij [1994] ECR I-1477 4.111, 4.119 C-18/93 Corsica Ferries Italia Srl v Corpo dei Piloti del Porto di Genova, 17 May 1994 [1994] ECR I-1783 4.500, 4.509, 4.510, 4.524

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C-39/93 SFEI v Commission, 16 June 1994 [1994] ECR I-2681 5.214 C-266/93 VAG Leasing, 24 October 1995 [1995] ECR I-3477 3.15 C-383/93 Centre d’insémination de la Crespelle v Coopérative de la Mayenne [1994] ECR I-5077 4.111 C-480/93 Zunis Holding v Commission 5.226 C-68/94 and C-30/95 République française et Société commerciale des potasses et de l’azote (SCPA) et entreprise minière et chimique (EMC) v Commission (‘Kali & Salz’) [1998] ECR I-1375 4.94, 5.274, 9.61, 9.92 C-96/94 Centro Servizi Spediporto v Spedizioni Marittima del Golfo [1995] ECR I-2883 4.115 C-140/94 DIP v Comune di Bassano del Grappa and others [1995] ECR I-3257 4.115 C-244/94 FFSA v Ministry of Agriculture and Fisheries, 16 November 1995 [1995] ECR I-4013 1.140 C-333/94 P Tetra Pak v Commission [1996] ECR I-5951 4.231, 4.449 C-7/95 John Deere v Commission [1998] ECR I-3111 7.33, 7.34(p. xviii) C-10/95 Asocarne, 23 November 1995 [1995] ECR I-4149 5.231 C-70/95 Sodemare v Regione Lombardia [1997] ECR I-3395 4.115 C-73/95 Viho Europe BV v Commission, 24 October 1996 [1996] ECR I-5457 3.08, 3.09, 4.113, 4.119 C-282/95 Guerin automobiles v Commission, 18 March 1997 [1997] ECR I-1503 5.216 C-343/95 Diego Calì & Figli Srl v Servizi ecologici porto di Genova SpA (SEPG), 18 March 1997 [1997] ECR I-1547 1.138, 1.141 C-350/95 P and C-379/95 P Commission and French Republic v Tiercé Ladbroke Racing Ltd [1997] ECR I-6265 3.30 C-35/96 Commission v Italy, 18 June 1998 [1998] ECR I-3851 1.132, 3.199 C-67/96 Albany International BV v Stichting Bedrijfspensioenfonds Textielindustrie, 21 September 1999 [1999] ECR I-5751 1.140, 1.141, 1.142, 1.143 C-215/96 and C-216/96 Carlo Bagnasco ea v Banca Popolare di Novara (BNP)) and Cassa di Risparmio di Genova e Imperia (Carige), 21 January 1999 [1999] ECR I-135 3.199 C-230/96 Cabour and Nord Distribution Automobile/Arnor ‘SOCO’, 30 April 1998 [1998] ECR I-2055 7.167 C-306/96 Javico v Yves Saint Laurent Parfums, 28 April 1998 [1998] ECR I-1983 1.169, 3.158, 5.73

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C-386/96 Societe Louis Dreyfus & Cie v Commission, 5 May 1998 [1998] ECR I-2309 5.222 C-395/96 P and C-396/96 P Compagnie Maritimes Belges, judgment, 16 March 2000 2.131, 4.98, 4.117, 4.282, 4.293, 4.502, 9.61 C-7/97 Oscar Bronner v Mediaprint [1998] ECR I-7794 4.308, 4.316, 4.317, 4.324, 4.349, 4.350, 4.351, 4.364, 4.368 C-126/97 Eco Swiss China Time Ltd v Benetton International NV, 1 June 1999 [1999] ECR I-3055 1.85 C-180–184/98 Pavel Pavlov v Stichting Pensioenfonds Medische Specialisten, 12 September 2000 [2000] ECR I-06451 1.133 C-286/98 P Stora Kopparbergs Bergslags v Commission, 16 November 2000 [2000] ECR I-9925 6.55, 6.57, 6.58 C-344/98 Masterfoods Ltd v HB Ice Cream Ltd 14 December 2000 [2000] ECR I 11369 5.42, 5.78 C-352/98 P Bergaderm and Goupil v Commission, 4 July 2000 [2000] ECR I-5291 5.247 C-163/99 Portuguese Republic v Commission, 29 March 2001 [2001] ECR I-2613 4.524 C-194/99 Thyssen Stahl AG v Commission [2003] ECR I-10821 7.34 C-214/99 Neste Markkinointi Oy and Yötuuli Ky [2000] ECR-I-11121 3.144, 3.145, 3.146 C-238/99 P, C-244/99 P, C-245/99 P, C-247/99 P, C-250–252/99 P and C-254/99 P Limburgse Vinyl Maatschappij NV, DSM NV and DSM Kunststoff en BV, Montedison SpA, Elf Atochem SA, Degussa AG, Enichem SpA, Wacker-Chemie GmbH and Hoechst AG and Imperial Chemical Industries plc v Commission, 15 October 2002 [2002] ECR I-8375 5.185 C-309/99 Wouters Savelbergh and Price Waterhouse Belastingadviseurs BV v Algemene Raad van de Nederlandse Orde van Advocaten, 19 February 2002 [2002] ECR I-1577 1.133, 3.53, 3.178 C-453/99 Courage v Crehan, 20 September 2001 [2001] ECR I-06297 1.94, 3.204, 3.211, 3.214, 5.01, 5.73 C-475/99 Firma Ambulanz Glöckner v Landkreis Südwestpfalz, 25 October 2001 [2001] ECR I-08089 1.136(p. xix) C-50/00 P Union de Pequenos Agricultores v Council, 25 July 2002 [2002] ECR I-6677 5.231 C-137/00 Milk Marque Ltd and National Farmers’ Union, 9 September 2003 [2003] ECR I-7975 1.151, 1.152

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C-204/00 P, C-205/00 P, C-211/00 P, C-213/00 P, C-217/00 P and C-219/00 P Aalborg Portland et al v Commission, 7 January 2004 [2004] ECR I-00123 9.165 C-218/00 Cisal di Battistello Venanzio & C Sas v Istituto nazionale per l’assicurazione contro gli infortuni sul lavoro (INAIL), 22 January 2002 [2002] ECR I-691 1.139 C-338/00 Volkswagen v Commission, 18 September 2003 [2003] ECR I-9189 1.30 C-02/01 P Bundesverband der Arzneimittel-Importeure v Bayer AG and Commission, 6 January 2004 [2004] ECR I-23 1.79, 4.539, 4.540, 5.234 C-102/01 Aéroports de Paris v Commission, 24 October 2002 [2002] ECR I-9297 4.514 C-198/01 Consorzio Industrie Fiammiferi, 9 September 2003 [2003] ECR I-8055 1.94, 1.95, 3.36 C-264/01, C-306/01, C-354/01 and C-355/01, AOK Bundesverband ea, 16 March 2004 [2004] ECR I-2493 1.144 C-418/01 IMS Health [2004] ECR I-5039 4.322, 4.324, 4.326, 4.326, 4.327, 4.328, 4.329, 4.330, 4.331, 4.333, 4.334, 4.335, 4.339, 5.206 C-189/02 P, C-202/02 P, C-205/02 P to C-208/02 P and C-213/02 P Dansk Rorindustri A/ S (C-189/02 P), Isoplus Fernwarmetechnik Vertriebsgesellschaft mbH ao, 28 June 2005 [2005] ECR I-5425 5.10 C-213/02 P R ø rindustri v Commission [2004] ECR I-05425 1.102 C-12/03 P Commission v Tetra Laval (‘Tetra Laval II’) 15 February 2005 [2005] ECR I-987 5.281, 5.284, 5.285 C-13/03 P Commission v Tetra Laval BV [2005] ECR I-1113 9.169, 9.170 C-53/03 Syfait v GlaxoSmithKline plc, 31 May 2005 4.540 C-176/03 Commission v Council, 13 September 2005 [2005] ECR I-7879 1.04 C-551/03 General Motors Nederland and Opel Nederland v Commission, 6 April 2006 [2006] ECR I-3173 3.119 C-94/04 and C-202/04 Cipolla and Others [2006] ECR I-11421 3.37 C-95/04 P British Airways plc v Commission, 23 February 2006 1.91, 4.177, 4.491, 8.73 C-289/04 P Showa Denko KK v Commission, 29 June 2006 [2006] ECR I-05859 1.91 C-295/04–298/04 Vincenzo Manfredi, 13 July 2006 [2006] ECR I-6619 1.85, 3.180, 3.213, 3.214, 5.01 C-407/04 P Dalmine SpA v Commission, 25 January 2007 [2007] ECR I-829 6.11 C-411/04 P Salzgitter Mannesmann GmbH v Commission, 25 January 2007 [2007] ECR I-00959 6.113

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C-519/04 P David Meca-Medina and Igor Majcen v Commission, 18 July 2006 [2006] ECR I-6991 1.135 C-168/05 Elisa María Mostaza Claro v Centro Móvil Milenium SL, 26 October 2006 [2006] ECR I-10421 1.85 C-217/05 Confederación Española de Empresarios de Estaciones de Servicio v Compañía Española de Petróleos SA, 14 December 2006 3.14, 3.16, 3.17, 3.145 C-238/05 Asnef-Equifax, Servicios de Información sobre Solvencia y Crédito, SL v Asociación de Usuarios de Servicios Bancarios (Ausbanc) [2006] ECR I-11125 3.243, 7.57 C-319/05 Commission v Germany [2007] ECR I-9811 3.237 C-328/05 P SGL Carbon AG v Commission, 10 May 2007 [2007] ECR I-3921 1.95, 6.113 C-421/05 City Motors Groep NV v Citroën Belux NV [2007] ECR I-659 3.208(p. xx) C-3/06 P Danone Group v Commissions, 8 February 2007 [2007] ECR I-01331 6.113 C-76/06 P Britannia Alloys & Chemicals Ltd v Commission, 7 June 2007 [2007] ECR I-0440 6.113 C-280/06 Autorità Garante della Concorrenza e del Mercato against Ente tabacchi italiani—ETI SpA, Philip Morris Products SA, Philip Morris Holland BV, Philip Morris GmbH, Philip Morris Products Inc and Philip Morris International Management SA, 11 December 2007 [2007] ECR I-10893 6.69, 9.03 C-413/06 P Bertelsmann AG v Impala [2008] ECR II-4951 4.101, 4.121, 9.61 C-468–478/06 Sot Lélos kai Sia EE and Others v GlaxoSmithKline EVE 1.80, 3.72, 4.71 C-501/06 P, C-513/06 P, C-515/06 P and C-519/06 P 1.80, 3.105 C-209/07 Beef Industry Development Society Ltd, Barry Brothers (Carrigmore) Meats Ltd [2008] ECR I-8637 3.115, 3.117, 3.118, 3.119, 6.16, 6.30, 6.43, 6.11 C-260/07 Pedro IV Servicios SL v Total España SA [2009] ECR I-02437 3.145 C-429/07 Inspecteur van de Belastingdienst v X BVneca, 11 June 2009 [2009] ECR I-4833 5.84 C-440/07 P Commission v Schneider Electric SA, 16 July 2009 [2009] ECR I-6413 5.250, 5.264 C-441/07 P Commission v Alrosa Co Ltd, 29 June 2010 5.187 C-08/08 T-Mobile and others v Raad van bestuur van de Nederlandse Mededingingsautoriteit 3.93, 3.113, 3.115, 3.117, 3.118 C-97/08P Akzo Nobel v Commission, 10 September 2009 6.54, 6.58 C-280/08 P Deutsche Telekom v Commission, 14 October 2010 4.347, 4.408, 4.409

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C-393/08 Emanuela Sbarigia 3.179 C-439/08 Vlaamse federatie van verenigingen van Brood-en Banketbakkers, Ijsbereiders en Chocoladebewerkers (VEBIC) VZW, 7 December 2010 5.31, 5.206, 7.44 C-52/09 TeliaSonera Sverige, 17 February 2011 4.355, 4.363 C-375/09 Prezes Urzędu Ochrony Konkurencji i Konsumentow v Tele2 Polska sp zoo, 3 May 2011 5.31, 5.166, 5.206 C-439/09 Pierre Fabre Dermo Cosmétique SAS 8.49

Permanent Court Of International Justice France v Turkey, Series 1 no 10 1.168

France Paris Court of Appeals, Esso, Total, BP et Shell v Ministère de l’Economie, des Finances et de l’Industrie, 9 December 2003, BOCCRF no 2 of 12 March 2004 7.49

United Kingdom King, The v Norris 2 Keny 300, 96 Eng Rep 1189 (KB 1758) 1.37

United States A.A. Poultry Farms, Inc v Rose Acre Farms, Inc, 881 F2d 1396, 1401 (7 th Cir 1989), cert denied, 110 Sct 1326 (1990) 4.279 Aspen Skiing 4.325 Berkey Photo, Inc v Eastman Kodak Co, 603 F2d 263, 294 (2nd Cir 1979), cert denied 444 US 1093 (1980) 4.433 Brooke Group Ltd v Brown & Williamson Tobacco Corp, 509 US 209 (October Term 1992), 224 4.279(p. xxi) Brown Shoe Co, Inc v United States, 370 US 294 (1962) 1.64, 1.69 Brunswick Corp v Pueblo Bowl-O-Mat, Inc, 429 US 477, 489 (1977) 5.227 Dr Miles Medical Co v John D Park & Sons Co, 220 US 373 (1911) 8.51 Federal Trade Commission v Morton Salt, 334 US 37 4.477 FTC v Heinz, 116 F Supp 2d 190 (DDC 2000), rev’d 246 F3d 708 (DC Cir 2001) 9.55 Leegin Creative Leather Products, Inc v PSKS, Inc 127 S Ct 2705 (2007) 8.51 Ortho Diagnostic Systems, Inc v Abbott Labs, 920 F Supp 455 (SDNY 1996) 4.188 Standard Oil Co of New Jersey v United States 221 US 1 (1911) 1.42, 8.51

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US v du Pont, 351 US 377 (1956) 4.45 Verizon Communications, Inc v Law Offices of Curtis Trinko, LLP, 157 LEd2d 823, 836 (2004) 4.325, 4.434(p. xxii)

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Table Of Commission Decisions Damien Geradin, Anne Layne-Farrar, Nicolas Petit From: EU Competition Law and Economics Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit Content type: Book content Product: Oxford Competition Law [OCL] Published in print: 22 March 2012 ISBN: 9780199566563

ABB/Daimler-Benz, Commission Decision of 18 October 1995, IV/M.580, 4.93 ABG/Oil companies operating in the Netherlands, Commission Decision of 19 April 1977, IV/28.841, 77/327/EEC 4.84 AEG-Telefunken, Commission Decision IV/28.748, OJ L 117 of 24 November 1982 P 3.40 Aerospatiale/Alenia/De Havilland, M.53, 2 October 1991 1.03, 9.185 Airtours/First Choice, Commission Decision, IV/M.1524, 22 September 1999 1.03, 4.93, 4.100, 9.62, 9.69, 9.96, 9.98, 9.185 Alcan/Pechiney, M.1715 1.03 Alcoa/Reynolds, COMP/M.1693, 3 May 2000, OJ L 58 of 28 February 2002 2.61, 2.98 Alpha Flight Services/Aéroports de Paris, Commission Decision, 98/153 of 11 June 1998, OJ L 230 of 18 August 1998 4.514 Alstom case Commission Decision, 7 July 2004, OJ L 150, 10 June 2005 1.08 AMCA, Commission Decision of 19 January 2005, COMP/E-1/37.773 6.25 Amino Acids, COMP/36.545/F3, OJ L 152, 7 June 2001 1.04 Animal feed phosphates, Commission Decision of 20 July 2010, COMP/38.866, OJ C 111 of 9 April 2011 5.198, 5.199 AOL/Time Warner, Commission Decision of 11 September 2000, OJ L 268 of 9 October 2001 9.81, 9.82

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ARA, ARGEV, ARO, Commission Decision of 16 October 2003, OJ L 75, 2004 3.233 AREVA/Urenco/ETC, Commission Decision, COMP/M.3099, 6 October 2004 9.134, 9.135, 9.136 AROW/BNIC, IV/29.883, Commission Decision of 15 December 1982, OJ L 379 of 31 December 1982 3.31 Assurpol, Commission Decision 92/96/EEC, IV/33.100, OJ L 37, 1992 3.233 AstraZeneca, COMP/A.37.507/F3, OJ L 332 of 30 November 2006 1.62, 1.72 AstraZeneca/Novartis, Commission Decision of 26 July 2000, COMP/M.1806, OJ L 110, 2004 4.30 Atlas, Commission Decision of 17 July 1996, IV/35.337, OJ L 239 of 19 September 1996 9.191 Automobiles Peugeot SA, Commission Decision of 7 December 2005, COMP/36.623 6.20 Automotive glass, Commission Decision of 12 November 2008, COMP/39.125, OJ C 173 of 25 July 2009 6.82 Bananas, Commission Decision, COMP/39.188, 15 October 2008 7.26 Bandengroothandel Frieschebrug BV/NV Nederlandsche Banden-Industrie Michelin, Commission Decision of 7 October 1981, IV.29.491, OJ L 353 of 9 December 1981 4.168, 4.488 BASF/Eurodiol/Pantochim, Commission Decision of 11 July 2001, COMP/M.2314, OJ L 132 of 17 May 2002 9.92 BdKEP/Deutsche Post AG and Bundesrepublik Deutschland, Commission Decision of 20 October 2004, COMP/38.745 4.522 Belgian Architects’ Association, Commission Decision of 24 June 2004, COMP/38.549, no official publication 6.25 Belgian wallpaper, Commission Decision of 23 July 1974, OJ L 237 of 29 August 1974 6.51 Bertelsmann/Kirch/Premiere, M.993, 27 May 1998 1.03, 9.185(p. xxiv) Bitumen—NL, Commission Decision of 13 September 2006, COMP/38.456 6.25, 6.87 BL, Commission Decision 84/379 of 2 July 1984, OJ L 207 of 2 August 1984 4.533 Bloemenveilingen Aalsmeer, Commission decision of 26 July 1988, IV/31.379, OJ L 262 of 22 September 1988 1.152 Blokker/Toys ‘R’ Us, Commission Decision of 26 June 1997, IV/M.890, OJ L 316 of 25 November 1998 1.03, 9.92, 9.185 Boeing/McDonnell Douglas, IV/M.887, Commission Decision of 30 July 1997, OJ L 336 of 8 December 1997 1.178

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BP Kemi/DDSF, Commission Decision of 5 September 1979, IV/29.021, OJ L 286 of 14 November 1979 6.32 BPB Industries plc, Commission Decision 89/22 of 5 December 1988, IV/31.900, OJ L 10 of 13 January 1989 4.490 Brussels National Airport case, Commission Decision 95/364 of 28 June 1995, OJ L 216 of 12 September 1995 4.511 Calcium carbide and magnesium based reagents for the steel and gas industries Commission Decision of 22 July 2009, COMP/39.396 6.25 Campari, Commission Decision of 23 December 1977, IV/171, 856, 172, 117, 28.173, OJ L 70 of 13 March 1978 3.159 Car glass COMP/39.125, OJ C 173, 25 July 2009 1.04, 6.87 Carbon Gas Technologie, Commission Decision of 8 December 1983, IV/29.955, 83/669/EEC 3.233 Carreaux céramiques, Commission Decision of 29 December 1970, IV/25107, OJ L 10 of 13 January 1971 6.25 Cartonboard, Commission Decision, IV/C/33.833, 13 July 1994, OJ L 243 of 19 September 1994 7.26 Cast iron and steel rolls, Commission Decision of 17 October 1983, IV/30.064, OJ L 317 of 15 November 1983 6.25 CECED, Commission Decision 2000/475/EC of 24 January 1999, OJ L 187, 2000 3.233 Central marketing of the commercial rights to the UEFA Champions League, COMP/C. 2-37.398, OJ L 291 of 8 November 2003 1.133 Cewal, Commission Decision 93/102 of 23 December 1992, OJ L 34 of 10 February 1993 4.496 Cewal, Cowac and Ukwal, Commission Decision, 23 December 1992, IV/32.448 and IV/32.450, and Cewal IV/32.448 and IV/32.450 4.293, 4.496 Chloroprene rubber case 6.87 Cimbel, Commission Decision of 22 December 1972, IV/243, 244, 245, OJ L 303 of 31 December 1972 6.25 Clearstream, Commission Decision of 2 June 2004, COMP/38.096 4.520 COAPI, IV/33.686, OJ L 122 of 2 June 1995 1.133 Cobelpa/VNP, Commission Decision, IV/312-366, 8 September 1977, OJ L 242 of 21 September 1977 7.45 Commission v Association of Belgian Architects, Commission Decision of 24 June 2004, COMP/38.549, 3.53

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Commission Decision, 29 October 1975, 76/185/ECSC, adopting interim measures concerning the National Coal Board, National Smokeless Fuels Limited and the National Carbonizing Company Limited, OJ L 35, 1976 4.341 Commission Decision 82/267/EEC of 6 January 1982 relating to a proceeding under Article 85 of the EEC Treaty 3.40 Commission Decision 97/745 of 21 October 1997, OJ L 301 of 5 November 1997 4.509 Commission Decision 2000/521 of 26 July 2000, OJ L 208 of 18 August 2000 4.513(p. xxv) Commission Decision of 23 May 2001 on the terms of reference of hearing officers in certain competition proceedings, OJ L 162 of 19 June 2001 5.155 Commission Decision 2006/857/EC of 15 June 2005 relating to a proceeding under Article 82 of the EC Treaty and Article 54 of the EEA Agreement 1.62 Compagnie Maritime Belge SA, Commission Decisions of 29 April 2004, COMP/ D2/32448 and 32450, OJ L 171 of 2 July 2005 6.49 Consumer Detergents, Commission Decision of 13 April 2011, COMP/39579, OJ C 193 of 2 August 2011 5.198 Copper fittings, Commission Decision of 20 September 2006, COMP/F-1/38.121 6.25, 6.87 CVC/Lenzing, M.2187, 17 October 2001 1.03, 9.185 Danish Crown/Vestjyske Slagterier, Commission Decision 9 March 1999, IV/M.1313, OJ L 20 of 25 January 2000 1.150, 9.96 Danone Group/Kronenbourg and Heineken NV/Heineken France breweries, Commission Decision of 29 September 2004, COMP/C.37.750/B2 6.36 DECA, Commission Decision of 22 October 1964, IV.A-00071, OJ L 173 of 31 October 1964 3.152 Deutsche Post AG—Interception of cross-border mail, Commission Decision 2001/892 of 25 July 2001, OJ L 331 4.519 Deutsche Post AG—Interception of crossborder mail, Commission Decision of 25 July 2001, COMP/C-1/36.915, OJ L 331, 2001 4.423, 4.425, 4.519 Deutsche Post AG, Commission Decision of 20 March 2001, COMP/35.141, OJ L 125 of 5 May 2001 4.269, 4.270 Deutsche Telekom AG, COMP/C-1/37.451, 37.578, 37.579, OJ L 263 of 14 October 2003 1.160, 4.345, 4.346 Deutsche Telekom/Betaresearch, M.1027, 27 May 1998 1.03, 9.185 DRAMs, Commission Decision of 19 May 2010 COMP/38.511, OJ C 180 of 21 June 2011 5.198 DSD, Commission Decision of 17 September 2001, 2001/837/EC, OJ L 319, 2001 3.233

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Dutch Banks, Commission Decision, IV/31.499, 19 July 1989, OJ L 253 3.79 E.ON Gas, COMP/39.317, OJ C 278 of 15 October 2010 5.186, 5.244 E.ON/GDF, Commission Decision of 8 July 2009, COMP/39.401, OJ C 248 of 6 October 2009 6.14, 6.83 E.ON/Endesa, Commission Decision of 25 April 2006, COMP/M.4110 9.39 EBU/Eurovision System, Commission Decision, OJ L 179, 1993 3.233 ECS v Akzo, Commission Decision of 14 December 1985, IV/30.698, OJ L 375, 1985 4.136, 4.299 ECS/Akzo, Commission Decision 85/609 of 14 December 1985, OJ L 374 of 31 December 1985 4.492 Electrabel/Compagnie Nationale du Rhône, Commission Decision of 10 June 2009, COMP/M.4994 9.32 Electrical and mechanical carbon and graphite products COMP/E2/C.38.359 1.04, 6.28 Electrolux/AEG, IV/M.458, 21 June 1994 7.76 Elevators and mechanical escalators Commission Decision of 21 February 2007, COMP/E-1/38.823, 6.87 EMI/TimeWarner 1.03, 9.186 ENI, COMP/39.315, OJ C 352 of 23 December 2010 5.186 ENI/EDP/GDP (4064), M.3440, 9 December 2004 1.03, 9.185 Enso/Stora 9.50 Eurofix-Bauco v Hilti, Commission Decision of 22 December 1987, IV/30.787 and 31.488, OJ L 65, 11 March 1988 4.10, 4.226, 4.239, 4.494(p. xxvi) Fatty Acids, Commission Decision of 2 December 1986, IV/31.128, OJ L 3 of 6 January 1987 7.53 Fedetab, Commission Decision of 20 July 1978, IV/28.852, IV/29.127 IV/29.149, OJ L 224 of 15 August 1978 6.25 Fenex, Commission Decision of 5 June 1996, IV/34.983, OJ L 181 of 20 July 1996 6.25 Flat glass, Commission Decision of 28 November 2007 relating to a proceeding under Article 81 of the EC Treaty, COMP/39.165, OJ C 127 of 24 May 2008 5.175 Flat glass (Italy), Commission Decision of 7 December 1988, IV/31.906, OJ L 33 of 4 February 1989 4.87 Floral, Commission Decision of 28 November 1979, IV/29.672, OJ L 39 of 15 February 1980 7.126

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Ford Volkswagen, Commission Decision 93/49/EE of 23 December 1992, IV/33.814, OJ L 20, 1993 3.233 Ford Werke AG, Commission Decision of 18 August 1982, IV/30.696, OJ L 256 of 24 November 1983 3.41 French beef, Commission Decision of 2 April 2003, COMP/C.38.279/F3, OJ L 209 of 19 August 2003 3.32 Fujitsu/Fujitsu Siemens Computers, COMP/M.5413, OJ C 4 of 9 January 2009 7.02 Fujitsu/Siemens, Commission Decision of 30 September 1999, N IV/JV.22, OJ C 318 of 5 November 1999 9.119, 9.133 Gas insulated switchgear case 6.14, 6.87 Gaz de France/Suez, COMP/M.4180, Commission Decision of 14 November 2006 9.15 Gaz de France/Suez, COMP/M.4180, Commission Decision of 14 November 2006 9.15 GEC-Weir Sodium, Commission Decision of 23 November 1977, COMP 377D07 81, OJ L 327 of 20 December 1977 3.250 Gencor/Lonrho, Commission Decision IV/M.619, OJ L 11 of 14 January 1997 4.93, 9.96, 9.185 Gencor/Lonrho, Commission Decision 24 April 1996, M.619 1.03 General Electric/Honeywell, Commission Decision of 3 July 2001, COMP/M.2220, OJ L 48 of 18 February 2004 1.03, 1.178, 9.95, 9.185 General Motors Continental, Commission Decision of 19 December 1974, IV/28.851, OJ L 294, 1975 4.400, 4.423 Goodyear Italiana–Euram, Commission Decision 3.159 Goodyear Italiana–Euram, Commission Decision 3.159 Graphite electrodes, COMP/E-1/36.490, OJ L 100, 16 April 2000 1.04 Grosfillex-Fillistorf, Commission Decision of 11 March 1964, IV/A-00061, OJ L 58 of 9 April 1964 3.152 Guinness/Grand Metropolitan, Commission Decision of 15 October 1997, IV/M938, OJ L 288 of 27 October 1998 9.88 Hasselblad, Commission Decision of 2 December 1981, COMP/IV/25.757, OJ L 161 of 12 June 1982 5.173 HOV-SVZ/MCN, Commission Decision 94/210 of 29 March 1994, OJ L 104 of 23 April 1994 4.516 IFTRA rules for producers of virgin aluminium, Commission Decision of 15 July 1975, IV/27.000, OJ L 228 of 29 August 1975 6.25

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Ilmailulaitos/Luftfarsverket, Commission Decision 1999/98 of 10 February 1999, OJ L 69 of 16 March 1999 4.514 Industrial bags, Commission Decision of 30 November 2005, COMP/38.354, 39 6.25, 6.31, 6.47, 6.87 Industrial thread, Commission Decision of 14 September 2005, COMP/38.337 6.25(p. xxvii) Industrieverband Solnhofener Natursteinplatten eV, Commission Decision 80/1074 of 16 October 1980, OJ L 318 of 26 November 1980 4.501 Intel, Commission Decision of 13 May 2009, COMP/C-3/37-990, OJ C 227 of 22 September 2009 1.05, 4.140, 4.141, 4.144, 4.213, 5.12 International removal services, 32, Commission Decision of 11 March 2008, COMP/ 38.543 6.25 ITT/Promedia 4.424, 4.518 JCB, Commission Decision of 21 December 2000, COMP.F.1/35.918, OJ L 69 of 13 March 2002 5.173 Kali + Salz/MdK/Treuhand, Commission Decision of 14 December 1993, IV/M.308, 4.93 Kali und Salz, Commission Decision of 14 December 1993, IV/M.308, OJ L 186 of 21 July 1994 9.92 Kesko/Tuko, M.784, 20 November 1996 1.03, 9.185 Kodak, Commission Decision of 30 June 1970, IV/24055, OJ L 159 of 21 July 1970 3.159 KSB/Goulds/Lowara/ITT, Commission Decision 91/38/EEC, IV/32.363, OJ L 19, 1991 3.233 Langnese-Iglo GmbH, Commission Decision of 23 December 1992, IV/34.072, OJ L 183 of 26 July 1993 3.255, 8.84 Laurent Piau v FIFA, Commission Decision of 15 April 2002 3.233 Laurent Piau v FIFA, Commission Decision of 15 April 2002 3.233 Long Term Electricity Contracts France, Commission Decision of 17 March 2010 relating to a proceeding under Article 102 of the Treaty on the Functioning of the European Union, COMP/39.386, OJ C 133 of 22 May 2010 5.186 Magill TV Guide/ITP, BBC and RTE, Commission Decision of 21 December 1988, IV/ 31.851, OJ L 78, 1998 4.320 Mannesman/Vallourec/Ilva, Commission Decision, IV/M.315, OJ L 102 of 21 April 1994 9.96 Marine Hoses, Commission Decision of 28 January 2009, COMP/39406 5.137, 6.95

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Matra/Aérospatiale, Commission Decision of 28 April 1999, IV/M.1309, OJ C 133 of 13 May 1999 1.165 MCI Worldcom/Sprint, M.1741, 28 June 2000 1.03, 9.185 Meldoc, Commission Decision 86/596 of 26 November 1986, OJ L 348 of 10 December 1986 4.501 Methacrylates, 25 Commission Decision of 31 May 2006, COMP/F/38.645 6.25 Michelin, Commission Decision of 20 June 2001, COMP/E-2/36.041/PO, OJ L 143 of 31 May 2002 4.171 Microsoft Commission Decision of 24 May 2004 relating to a proceeding pursuant to Article 82 of the EC Treaty, COMP/C-3/37.792, OJ L 32 of 6 February 2007, 5.244 Microsoft, Commission Decision of 24 March 2004, COMP/C-3/37.792 1.05, 4.26, 4.140, 4.225, 4.232, 4.250, 4.310, 4.328, 4.333, 5.12, 5.244 Microsoft, Commission Decision of 24 May 2004, OJ L 32 of 6 February 2007, COMP/ C-3/37.792 5.12 Microsoft, Commission Decision of 27 February 2008, COMP/C-3/37.792, OJ C 166 of 18 July 2009 2.44 Microsoft (Tying), Commission Decision of 16 December 2009 relating to a proceeding under Article 102 of the Treaty on the Functioning of the European Union and Article 54 of the EEA Agreement, COMP/39.530, OJ C 36 of 13 February 2010 5.12(p. xxviii) MSG Media Service, M.469, 9 November 1994 1.03, 9.185 Napier Brown—British Sugar, Commission Decision of 18 July 1988, IV/30.178, OJ 284 of 19 October 1988 4.342 Nathan Bricolux, Commission Decision of 5 July 2000, OJ L 54, 2001 8.50 Navewa/Anseau, Commission Decision of 17 December 1981, IV/29.995, OJ L 325 of 20 November 1982 7.151 Needles, Commission Decision of 26 October 2004, COMP 38.338 PO 6.46 Nestlé/Perrier, Commission Decision 92/553, IV/M.190, 22 July 1992 4.93, 4.541, 5.225 Newscorp/Telepiù, Commission Decision of 2 April 2003, COMP/M.2876 9.93 Nokia Corporation/SP Tyres UK 9.115 Nordic Satellite Distribution, M.490, 19 July 1995 1.03, 9.185 O2 UK Ltd/T-Mobile UK Ltd, COMP/38.370, OJ L 200, 7 August 2003 1.160 Olympic/Aegean Airlines, M.5830, 26 January 2011 9.185 Omega—Nintendo, OJ L 255 COMP/36.321 1.78, 6.19

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Opel Nederland BV/General Motors Nederland BV, Commission Decision of 20 September 2000, OJ L 59 of 28 February 2001 4.539 Oracle/PeopleSoft merger, Commission press release IP/04/1312 of 26 October 2004 9.149, 9.151 Oracle/PeopleSoft, Commission Decision 2005/621/EC, OJ L 218, 2005 4.26 Organic Peroxides, Commission Decision 2003 6.70, 6.98 Österreichische Banken, Commission Decision of 11 June 2002, COMP/36.571 6.94 Paraffin wax, 53, Commission Decision of 1 October 2008, COMP/39.181 6.25 Peroxygen, Commission Decision of 23 November 1984, IV/30907, OJ L 35 of 7 February 1985 6.44 Peroxygen products, IV/30.907, OJ L 035, 7 February 1985, at 1–19 3.100 Plasterboard, Commission Decision of 27 November 2002, COMP/37.978 6.82 PO Nintendo Distribution COMP/35.706 1.78, 6.19 PO Video Games COMP/35.587 1.78, 6.19 PO/Belgian architects fee system, Commission Decision 24 June 2004, COMP/38.549, 1.133 PO/Yamaha, Commission Decision of 16 July 2003, COMP/37.975 6.18, 6.67, 8.50 Portuguese Airports, Commission Decision 1999/199 of 10 February 1999, OJ L 69 of 16 March 1999 4.513, 4.524 Preinsulated pipes, Commission Decision of 21 October 1998, IV/35691, OJE L 24 of 30 January 1999 6.52, 6.87 Professional Videotapes case 6.87 Prokent-Tomra, Commission Decision of 29 March 2006, COMP/E-1/38.113, OJ C 227 of 22 September 2009 4.214 PRYM-BEKA, Commission Decision of 8 October 1973, IV/26.825, OJ L 296 of 24 October 1973 7.76 Qualcomm 7.139, 7.141, 7.142, 7.143, 7.144 RAI/Unitel, IV/29.559, OJ L 157 1.133 Rambus, Commission Decision of 9 December 2009, COMP/38.636, OJ C 30 of 6 February 2010 4.432, 5.12, 7.139, 7.140, 7.143, 7.144 Raw tobacco—Italy, Commission Decision of 20 October 2005, COMP/C.38.281/B.2, OJ L 353 of 13 December 2006 6.25 Raw tobacco—Spain, Commission Decision of 20 October 2004, COMP/C.38.238/B.2, OJ L 102 of 19 April 2007 3.32(p. xxix)

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Raymond—Nagoya, Commission Decision of 9 June 1972, IV/26.813, OJ L 143 of 23 June 1972 3.152 REIMS II, Commission Decision 1999/695/EC of 15 September 1999, IV/36.748 3.121 Reinforcing bars, Commission Decision of 17 December 2002, COMP/37.956OJ L 353 of 13 December 2006 6.29 Rennet, IV/29.011, Commission Decision, 5 December 1979, OJ L 51 of 25 February 1980 3.79, 3.200, 7.117 Reuter/BASF, IV/28.996, IV/28.996, Commission Decision of 26 July 1976, OJ L 254 of 17 September 1976 1.133, 3.19 Rewe/Meinl, Commission Decision of 3 February 1999, IV/M.1221, OJ L 274 of 23 October 1999 9.92 Rieckermann/AEG-Elotherm, Commission Decision of 6 November 1968, IV/23077, OJ L 276 of 14 November 1968 1.170, 3.152 Rolled zinc products and zinc alloys, Commission Decision of 14 December 1982, IV/ 29.629, OJ L 362, 1982 3.65 Roofing felt, Commission Decision 86/399 of 10 July 1986, OJ L 232 of 19 August 1986 4.501 Rovin 6.42 RTL/Veronica/Endemol (‘HMG’), 20 September 1995, M.553 1.03, 9.185 Rubber chemicals, Commission Decision of 21 December 2005, COMP/F/38.443, OJ L 353 of 13 December 2006 6.25 Ryanair, Commission Decision of 12 February 2004, OJ L 137 of 30 April 2004 1.08 Ryanair/Aer Lingus, Commission Decision of 27 June 2007/30 October 2006, COMP/ M.4439 1.03, 9.13, 9.54, 9.185 Saint-Gobain/Wacker-Chemie/NOM, Commission Decision of 4 December 1996, IV/M. 774, OJ L 247 of 10 September 1997 1.03, 9.92, 9.185 SAMSUNG/AST, Commission Decision, IV/M.920 9.32 SAMSUNG/AST, Commission Decision, IV/M.920 9.32 SCA/Metsä Tissue, M.2097, 31 January 2001 1.03, 9.185 Scandlines Sverige AB v Port of Helsingborg, Commission Decision of 23 July 2004, COMP/A.36.568/D3 4.381, 4.391, 4.402, 4.410, 4.413 Schneider/Legrand, M.2283, 10 October 2001 1.03, 9.185 Schöller Lebensmittel GmbH Co KG, Commission Decision of 23 December 1992, IV/ 31.533 and IV/34.072, OJ L 183 of 26 July 1993 3.255, 8.84

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Sea Containers v Stena Sealink, Commission Decision 94/19/EC of 21 December 1993 relating to a proceeding pursuant to Article 86 of the EC Treaty, IV/34.689, OJ L 8, 1994 4.25 Sony/BMG, Commission Decision of 19 July 2004, COMP/M.3333, OJ L 62 of 9 March 2005 9.125, 9.130, 9.135 Sorbates, Commission Decision of 1 October 2003, COMP/EI-37.370 1.04, 6.25 Souris Bleue/Topps + Nintendo, Commission Decision of 13 December 2006, COMP/ C-3/37.980, OJ L 353 of 26 May 2004 3.100, 6.19 Sperry New Holland, Commission Decision of 16 December 1985, COMP/IV/30.839, OJ L 376 of 31 December 1985 5.149 Stichting Baksteen case, Commission Decision of 29 April 1994, IV/34.456, OJ L 131 of 26 May 1994 6.40, 6.42 Supexie, Commission Decision of 23 December 1970, IV/337, OJ L 10 of 13 January 1971 3.152 Swedish Interconnectors, COMP/39.351, OJ C 142 of 1 June 2010 5.186 Synthetic Fibres, Commission Decision of 4 July 1984, 84/380/EEC, OJ L 207, 1984 3.233 Telia/Telenor, Commission Decision, IV/M.1439, OJ L 40 of 9 February 2001 9.191(p. xxx) Telos, Commission Decision of 25 November 1981, COMP/IV/29.895, OJ L 58 of 2 March 1982 5.128 Tetra Laval/Sidel, M.2416, 30 October 2001 1.03, 9.185 Tetra Pak II, Commission Decision 92/163 of 24 July 1991, IV/31043, OJ L 72 of 18 March 1992 4.228, 4.229, 4.239, 4.281, 4.283, 4.449, 4.501, 4.531, 4.535, 4.536, 4.540 T-mobile Austria/tele.ring, Commission Decision of 26 April 2006, COMP/M.3916 9.56 TomTom/TeleAtlas, Commission Decision of 14 May 2008, COMP/M.4854 9.14 Trans-Atlantic Conference Agreement, Commission Decision of 16 September 1998, IV/35.134, OJ L 95 of 9 April 1999 6.28 UEFA, Commission Decision of 21 December 1994, OJ L 378 of 31 December 1994 3.250 UIP, Commission Decision of 12 July 1989, 89/467, OJ L 226 of 8 March 1989 7.133 UK Agricultural Registration Exchange Commission Decision of 17 February 1992, IV/ 31.370 and 31.446, OJ L 68 of 13 March 1992 7.25, 7.46, 7.53 VBVB/VBBB, Commission Decision of 25 November 1981, IV/428, OJ L 54, 1982 3.233

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Video Games, Nintendo Distribution, Commission Decision of 30 October 2002, OJ L 255, 2003 8.33, 8.56 VIFKA, Commission Decision of 30 September 1986, IV/28.959, OJ L 291 of 15 October 1986 3.79 Virgin/British Airways, Commission Decision 2000/74 of 14 July 1999, OJ L 30 of 4 February 2000 4.491 Visa International—Multilateral Interchange Fee, COMP/29.373, OJ L 318, 2002 3.121 Vitamins, COMP/E-1/37.512, OJ L 6, 10 January 2003 1.04, 6.25, 6.82 Volkswagen Commission Decision IV/35.733, OJ L 124 1.30 Volvo/Scania, Commission Decision of 14 March 2000, COMP/M.1672, OJ L 143 of 29 May 2001 1.03, 9.184, 9.185 VVVF, Commission Decision, IV/597, 25 June 1969, OJ L 168 of 10 July 1969 3.152 VW-MAN, Commission Decision of 5 December 1983, V/29.329, OJ L 376 of 31 December 1983 7.74 Wanadoo España v Telefónica Commission Decision of 4 July 2007, COMP/38.784 4.348, 4.350, 4.366, 4.367, 5.276 Wanadoo Interactive, Commission Decision, 16 July 2003, COMP/38.233 4.273, 4.283 Wirtschaftsvereinigung Stahl, Commission Decision of 26 November 1997, IV/36.069, OJ L 1 of 3 January 1998 7.34, 7.46 Wood Pulp, Commission Decision of 19 December 1984, OJ L 85 of 26 March 1985 6.24, 6.25 Zinc phosphate, Commission Decision of 11 December 2001, COMP/E-1/37.027, OJ L 153 of 20 June 2003 6.25 Zinc producer group, Commission Decision of 6 August 1984, IV/30.350, OJ L 220 of 17 August 1984 6.25

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Tables of Legislation Damien Geradin, Anne Layne-Farrar, Nicolas Petit From: EU Competition Law and Economics Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit Content type: Book content Product: Oxford Competition Law [OCL] Published in print: 22 March 2012 ISBN: 9780199566563

European Treaties And Conventions Charter of Fundamental Rights of the European Union Art 17 5.130 European Convention on Human Rights and Fundamental Freedoms Art 6(1) 5.231 Single European Act 1986 1.28 Art 7A 1.28 Treaty Establishing the European Coal and Steel Community 1951 (ECSC or Treaty of Paris) 1.04, 1.43, 1.49, 1.50, 3.212, 4.455, 6.81 Art 60(1) 4.500 Art 65 1.49 Art 66 1.49 Art 90 5.48 Treaty Establishing the European Economic Community 1957 (EEC Treaty) 1.04, 1.28, 1.43, 9.02 Art 3(f) 1.51, 1.91 Art 85 1.91, 3.40, 3.100 Art 86 1.91

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Treaty establishing the Economic Community 1.51, 1.52, 1.53, 1.59, 1.70, 4.533 Preamble 1.62, 1.69 Title VI, Chap 1 1.59, 1.81 Title VII, Chap I, Section I 1.87 Title VII, Chap I, Section II 1.87 Art 2 EC 1.28, 1.74 Art 3 EC 1.74 Art 3(1)(g) EC 1.51, 1.90, 1.91, 1.92, 1.94, 1.95, 1.96 Art 3(f) 3.33, 3.34 Art 4 EC 1.63, 1.69 Art 10 EC 3.33, 3.34, 4.115 Art 12 EC 4.524 Art 33 1.149 Art 36 1.147 Art 49 EC 3.37 Art 81 EC 1.52, 1.53, 1.55, 1.59, 1.60, 1.69, 1.75, 1.95, 1.101, 1.105, 1.106, 1.109, 1.169, 2.55, 2.128, 3.34, 5.14, 5.60, 5.80, 5.81, 5.86, 5.102, 5.103, 5.116, 5.125, 5.129, 5.142, 5.153, 5.165, 5.166, 5.170, 5.174, 5.231, 7.22, 7.96, 7.121, 8.83, 9.60 Art 81(1) EC 1.54, 1.80, 1.94, 1.149, 1.156, 3.105, 3.218, 5.166, 5.188, 7.99, 8.63, 9.132 Art 81(3) EC 1.54, 1.60, 3.87, 3.119, 3.236, 3.241, 5.166, 5.188, 9.132, 9.153 Arts 81–86 1.149 Art 82 1.132, 4.388, 5.142,

EC 1.52, 1.55, 1.59, 1.69, 1.71, 1.75, 1.101, 1.105, 1.106, 1.109, 1.110, 1.153, 2.128, 3.236, 4.98, 4.140, 4.141, 4.210, 4.213, 4.214, 4.322, 4.387, 4.411, 4.500, 5.14, 5.60, 5.80, 5.81, 5.86, 5.102, 5.103, 5.125, 5.129, 5.165, 5.166, 5.170, 5.174, 5.231, 8.83

Art 82(a) 4.409, 4.411, 4.414, 4.420, 4.428 Art 83 EC 1.52 Art 84 EC 1.52, 1.156 Art 85 EC 1.51, 1.56, 4.89 Art 85(1) EC 1.102, 4.89

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Art 85(2) EC 3.205 Arts 85–90 1.74 Art 86 EC 1.51, 1.102, 3.177, 4.89 Arts 87–89 EC 1.59 Art 88(1) EC 1.150 Art 88(3) EC 1.150 Arts 90–100 EC 1.153 Art 98 EC 1.63, 1.69 Art 223 EC 1.125 Art 230 EC 3.93, 5.225 Art 234 EC 1.113 Art 296 EC 1.166 Art 297 EC 1.166(p. xxxii) Art 298 EC 1.166 Art 299 EC 1.167 Art 308 EC 9.04 Art 346(1)(b) 1.163, 1.164, 1.165 Art 348 1.166 Treaty of Lisbon 1.59, 1.90, 1.91, 1.119, 5.233 Treaty on the European Union Art 51 1.92 Treaty on the Functioning of the European Union (TFEU) 1.03, 1.05, 1.08, 1.09, 1.31, 1.59, 1.82, 1.89, 1.92, 1.97, 1.119, 1.128, 1.158, 1.167, 1.168, 1.188, 1.189, 3.37, 3.77, 3.113, 3.152, 3.162, 3.203, 3.236, 4.433, 4.448, 4.453, 4.542, 5.208, 5.235, 5.251, 5.252, 5.254, 6.17, 6.45 Title VI 1.153 Title VII, Chap 1 1.59, 1.81 Art 3 1.98 Art 4(3) 5.42 Art 17 5.10, 5.24 Art 34 1.31, 3.98

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Art 36 3.98 Art 42 1.147, 1.155 Art 49 1.31 Art 52 1.128 Art 56 1.31, 3.37 Art 90 1.154 Art 101 1.51, 1.52, 1.55, 1.59, 1.68, 1.76, 1.79, 1.82, 1.84, 1.85, 1.86, 1.87, 1.89, 1.94, 1.99, 1.101, 1.102, 1.105, 1.108, 1.113, 1.128, 1.168, 1.169, 2.54, 2.128, 3.02, 3.03, 3.05, 3.08, 3.09, 3.12, 3.15, 3.17, 3.18, 3.19, 3.22, 3.23, 3.30, 3.34, 3.36, 3.42, 3.43, 3.44, 3.49, 3.51, 3.53, 3.55, 3.68, 3.75, 3.101, 3.106, 3.113, 3.118, 3.129, 3.131, 3.139, 3.145, 3.148, 3.151, 3.152, 3.155, 3.157, 3.158, 3.166, 3.167, 3.183, 3.187, 3.189, 3.204, 3.207, 3.209, 3.210, 3.212, 3.213, 3.214, 3.217, 3.233, 3.241, 4.80, 4.81, 4.85, 4.87, 4.88, 4.89, 4.111, 4.113, 4.139, 4.537, 4.538, 4.539, 5.08, 5.10, 5.13, 5.17, 5.26, 5.28, 5.30, 5.38, 5.39, 5.42, 5.44, 5.45, 5.46, 5.50, 5.59, 5.71, 5.72, 5.73, 5.77, 5.81, 5.82, 5.83, 5.84, 5.89, 5.91, 5.94, 5.96, 5.114, 5.131, 5.136, 5.141, 5.143, 5.153, 5.172, 5.184, 5.185, 5.194, 5.201, 5.218, 5.250, 5.264, 6.02, 6.28, 6.45, 6.62, 6.66, 6.68, 6.72, 6.73, 6.74, 6.75, 6.81, 6.85, 6.87, 6.101, 6.102, 6.107, 7.05, 7.16, 7.49, 7.144, 8.45, 8.47, 8.46, 8.62, 8.73, 8.79, 8.84, 9.01, 9.03, 9.18, 9.21, 9.60, 9.110, 9.111, 9.121, 9.138, 9.148, 9.162 Art 101(a)–(e) 3.114 Art 101(b) 6.30 Art 101(1) 1.58, 1.100, 1.102, 1.108, 1.156, 3.03, 3.04, 3.05, 3.06, 3.07, 3.08, 3.09, 3.10, 3.11, 3.12, 3.13, 3.14, 3.15, 3.16, 3.17, 3.18, 3.20, 3.22, 3.26, 3.27, 3.30, 3.36, 3.39, 3.40, 3.41, 3.43, 3.52, 3.53, 3.61, 3.62, 3.63, 3.66, 3.70, 3.74, 3.75, 3.76, 3.80, 3.81, 3.82, 3.83, 3.84, 3.85, 3.88, 3.89, 3.92, 3.93, 3.95, 3.102, 3.113, 3.115, 3.122, 3.123, 3.124, 3.126, 3.128, 3.129, 3.130, 3.134, 3.136, 3.137, 3.141, 3.142, 3.148, 3.152, 3.153, 3.156, 3.158, 3.162, 3.167, 3.171, 3.178, 3.182, 3.202, 3.205, 3.207, 3.215, 3.216, 3.217, 3.227, 3.245, 5.13, 5.43, 5.272, 5.279, 6.11, 6.13, 6.14, 6.15, 6.16, 6.18, 6.21, 6.40, 6.42, 6.43, 6.50, 6.51, 6.53, 6.71, 6.75, 7.05, 7.08, 7.16, 7.17, 7.20, 7.21, 7.24, 7.28, 7.31, 7.40, 7.60, 7.62, 7.63, 7.67, 7.68, 7.69, 7.74, 7.76, 7.79, 7.85, 7.86, 7.102, 7.106, 7.107, 7.108, 7.109, 7.123, 7.125, 7.128, 7.144, 7.145, 7.150, 7.151, 7.153, 7.154, 7.159, 7.161, 8.02, 8.46, 8.48, 8.46, 8.48, 8.61, 8.63, 8.69, 8.70, 8.77, 8.78, 8.79, 8.87, 9.133, 9.139 Art 101(1)(a) 6.23 Art 101(1)(d) 4.501 Art 101(2) 3.03, 3.158, 3.202, 3.203, 3.204, 3.205, 3.207, 5.72, 8.48 Art 101(3) 1.58, 1.69, 1.89, 1.100, 1.108, 1.126, 1.156, 3.03 3.04, 3.73, 3.83, 3.88, 3.92, 3.97, 3.114, 3.120, 3.123, 3.126, 3.167, 3.204, 3.215, 3.216, 3.217, 3.218, 3.219, 3.220, 3.221, 3.222, 3.224, 3.227, 3.229, 3.230, 3.233, 3.234, 3.235, 3.236, 3.237, 3.238, 3.241, 3.243, 3.244, 3.245, 3.246, 3.247, 3.249, 3.250, 3.252, 4.103, 5.11, 5.13, 5.43, 5.71, 5.188, 5.190, 5.272, 5.279, 5.280, 6.11, 6.40, 7.05, 7.06, 7.08, 7.13, 7.16, 7.21, 7.28, 7.50, 7.58, 7.62, 7.67, 7.71, From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

7.76, 7.90, 7.95, 7.99, 7.109, 7.116, 7.117, 7.119, 7.128, 7.134, 7.151, 7.159, 7.162, 7.163, 7.166, 7.168, 7.169, 7.170, 8.02, 8.03, 8.48, 8.52, 8.54, 8.70, 8.71, 8.74, 8.85, 8.87, 8.96, 8.97, 8.98, 8.110, 9.47, 9.133, 9.139(p. xxxiii) Arts 101–106 1.149 Art 102 1.05, 1.51, 1.52, 1.55, 1.59, 1.64, 1.68, 1.80, 1.82, 1.83, 1.84, 1.85, 1.86, 1.87, 1.89, 1.94, 1.99, 1.101, 1.102, 1.113, 1.124, 1.128, 1.137, 1.150, 1.168, 1.169, 2.54, 2.128, 2.152, 3.30, 3.124, 3.169, 3.214, 3.244, 3.253, 4.01, 4.02, 4.03, 4.05, 4.09, 4.10, 4.12, 4.16, 4.23, 4.24, 4.30, 4.41, 4.44, 4.49, 4.57, 4.62, 4.80, 4.81, 4.82, 4.83, 4.84, 4.85, 4.87, 4.88, 4.89, 4.92, 4.97, 4.98, 4.101, 4.102, 4.103, 4.104, 4.105, 4.106, 4.107, 4.111, 4.112, 4.113, 4.115, 4.120, 4.122, 4.123, 4.124, 4.125, 4.126, 4.131, 4.134, 4.136, 4.138, 4.139, 4.140, 4.141, 4.142, 4.143, 4.145, 4.165, 4.167, 4.168, 4.172, 4.175, 4.176, 4.177, 4.180, 4.214, 4.218, 4.221, 4.229, 4.232, 4.234, 4.238, 4.244, 4.249, 4.250, 4.270, 4.314, 4.318, 4.330, 4.331, 4.334, 4.348, 4.349, 4.350, 4.353, 4.355, 4.361, 4.363, 4.367, 4.397, 4.418, 4.430, 4.431, 4.432, 4.438, 4.444, 4.447, 4.448, 4.479, 4.486, 4.500, 4.501, 4.502, 4.509, 4.519, 4.520, 4.535, 4.540, 5.08, 5.10, 5.11, 5.13, 5.17, 5.22, 5.26, 5.28, 5.30, 5.38, 5.39, 5.43, 5.44, 5.45, 5.46, 5.50, 5.59, 5.71, 5.72, 5.77, 5.81, 5.82, 5.83, 5.84, 5.89, 5.91, 5.94, 5.96, 5.114, 5.131, 5.136, 5.141, 5.143, 5.153, 5.172, 5.184, 5.185, 5.186, 5.201, 5.218, 5.239, 5.258, 5.264, 5.273, 6.33, 6.87, 7.140, 8.73, 9.02, 9.03, 9.18, 9.21, 9.61, 9.87, 9.148, 9.162 Art 102(a) 4.87, 4.131, 4.371, 4.377, 4.380, 4.430, 4.432, 4.439, 4.443, 4.446, 4.540, 4.541 Art 102(b) 4.87, 4.131, 4.178, 4.180, 4.335, 4.336, 4.339, 4.443, 4.452, 4.478, 4.479, 4.480, 4.485, 4.503, 4.505, 4.540, 4.542 Art 102(c) 4.452, 4.453, 4.455, 4.475, 4.476, 4.477, 4.478, 4.479, 4.482, 4.483, 4.485, 4.486, 4.487, 4.488, 4.490, 4.491, 4.492, 4.494, 4.495, 4.496, 4.498, 4.499, 4.500, 4.501, 4.502, 4.503, 4.504, 4.505, 4.506, 4.507, 4.511, 4.512, 4.513, 4.514, 4.516, 4.518, 4.519, 4.522, 4.524, 4.525, 4.529, 4.530, 4.531, 4.532, 4.535, 4.536, 4.540, 4.541, 4.542 Art 102(d) 4.131, 4.234 Art 103 1.52, 1.89, 1.99 Art 103(1) 5.13 Art 103(2) 5.13 Art 103(2)(b) 1.100 Art 104 1.52, 1.89 Art 105 1.89 Art 105(3) 1.100 Art 106 1.87, 1.88, 4.117, 4.509, 4.512

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Art 106(1) 1.87 Art 106(2) 1.87 Art 107 1.87, 1.137 Arts 107–109 1.59, 1.87, 1.128 Art 108 1.87 Art 109 1.87 Art 119 1.63 Art 120 1.63 Art 127 1.128 Art 130 1.128 Art 179(2) 7.71 Art 214 1.128 Art 252 1.99 Art 256 1.121 Art 256(1) 5.208 Art 257 1.125 Art 258 1.121, 1.166, 4.346, 5.81, 5.206 Art 259 1.121, 1.166, 5.206 Art 261 1.120, 5.207, 6.113 Art 262 5.244 Art 263 1.120, 5.134, 5.151, 5.204, 5.207, 5.211, 5.212, 5.214, 5.216, 5.218, 5.219, 5.221, 5.224, 5.225, 5.231, 5.232, 5.233, 5.252 Art 263(2) 5.237 Art 263(5) 5.234 Art 265 5.206 Art 267 1.121, 5.77, 5.85, 5.86, 5.206, 5.231 Art 268 1.120, 5.207, 5.246, 5.247, 5.250, 9.177, 9.180 Art 269 9.177, 9.180 Art 277 5.231 Art 278 5.134, 5.206, 5.215, 5.235

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Art 279 5.206, 5.235 Art 296 5.167, 5.238 Art 340 1.120, 5.246, 5.247, 9.176, 9.177, 9.178, 9.180 Art 352 9.04 Art 353 9.04 Protocol 27 1.90, 1.92, 1.93, 1.96

(p. xxxiv) European Secondary Legislation Regulations Block Exemption Regulation Art 4 1.76 Council Regulation 17/62, OJ L, 21 February 1962 1.54, 1.55, 1.56, 1.57, 1.89, 1.148, 1.156, 3.04, 3.82, 5.14, 6.41, 9.18 Art 9(1) 1.54 Regulation 141/62 1.156, 1.157 Council Regulation 26/62 1.148, 1.152 Art 2 1.152 Regulation 17/65 Art 7 8.83 Regulation 19/65/EEC 5.188 Council Regulation 1017/68, OJ L 175 1.156 Art 3(1)(a) 1.156 Regulation 2821/71 5.188 Council Regulation 2840/72, OJ L 300 1.187 Council Regulation 2988/74, OJ L 319 6.76 Art 1 6.76 Commission Regulation 417/85, OJ L 53 7.06 Commission Regulation 418/85, OJ L 53 7.06 Council Regulation 4056/86, OJ L 378 1.109, 1.156, 1.157 Art 1(2) 1.157 Art 1(3) 1.157 Art 2(1)(b) 1.156 Art 3 1.156 Art 8 4.89

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Art 8(2) 4.89 Council Regulation 3975/87, OJ L 374 1.156 Art 2 1.156 Annex 1.156 Council Regulation 3976/87, OJ L 374 1.156, 5.188 Council Regulation 4064/1989, OJ L 24 European Merger Control Regulation (EMCR) 1.99, 9.02, 9.07, 9.16, 9.18, 9.19, 9.27, 9.34, 9.38, 9.41, 9.42, 9.61, 9.95, 9.96, 9.97, 9.112, 9.121, 9.122, 9.123, 9.125, 9.133, 9.138, 9.146, 9.148, 9.153, 9.161, 9.164, 9.168, 9.187, 9.191 Art 2 9.152 Art 2(1)(b) 9.95, 9.99 Art 2(2) 9.95 Art 2(3) 9.41, 9.129, 9.137, 9.152 Art 2(4) 9.132 Art 3 9.19, 9.132 Art 3(1)(a) 9.19 Art 3(1)(b) 9.19 Art 3(4) 9.122 Art 4(5) 9.31 Art 7 9.31 Art 7(1) 9.32 Art 18(4) 5.223 Art 21 9.39 Art 21(2) 9.33, 9.38 Art 21(3) 9.33, 9.38 Art 21(4) 9.38 Art 22 9.36 Regulation 1534/91 5.188 Regulation 479/92 5.188 Council Regulation 1310/97, OJ L 180 9.02 Preamble, Recital 8 9.153

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Commission Regulation 447/98 9.146 Regulation 270/99 3.12, 3.15 Commission Regulation 2790/1999, OJ L 336, Block Exemption 8.02, 8.03, 8.04, 8.72, 8.78, 8.100, 8.104 Art 4 3.138 Commission Exemption Regulation 2658/2000, OJ L 304 1.59, 7.08 Commission Regulation 2659/2000 OJ L 304 1.59, 7.08 Council Regulation 44/2001, OJ L 012 5.87, 5.89 Art 2 5.87 Art 27 5.88 Art 34 5.89 Art 60 5.87 Regulation 2887/2000 9.191 Council Regulation 1400/2002 3.208 Council Regulation 1/2003, OJ L 1 1.57, 1.58, 1.99, 1.102, 1.103, 1.105, 1.107, 1.126, 1.127, 1.149, 1.156, 1.157, 3.88, 3.166, 3.168, 3.170, 3.221, 5.08, 5.14, 5.28, 5.37, 5.39, 5.40, 5.41, 5.45, 5.47, 5.50, 5.63, 5.64, 5.71, 5.80, 5.84, 5.85, 5.123, 5.125, 5.135, 5.174, 5.233, 6.95, 9.33, 9.138 Preamble, Recital 3 5.40 Preamble, Recital 7 5.72 Preamble, Recital 13 5.178, 5.180 Preamble, Recital 14 5.40, 9.40 Preamble, Recital 15 5.62, 5.63 Preamble, Recital 22 1.157(p. xxxv) Art 2 3.88 Art 3 3.168 Art 3(1) 3.167, 5.43 Art 3(2) 3.167, 3.169, 5.43 Art 3(3) 3.169 Art 5 1.126, 3.166, 5.30, 5.32, 5.166 Art 6 1.126, 3.166, 5.71

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Art 7 1.101, 1.175, 5.26, 5.44, 5.103, 5.129, 5.146, 5.150, 5.151, 5.158, 5.164, 5.165, 5.167, 5.187, 5.189, 5.196, 5.219, 6.111 Art 7(1) 5.103, 5.170, 5.172 Art 7(2) 5.86, 5.98, 5.99 Art 7(3) 5.96 Arts 7–10 1.113, 5.201 Art 8 1.175, 5.26, 5.44, 5.129, 5.146, 5.150, 5.151, 5.158, 5.164, 5.165, 5.189, 5.191, 5.192 Art 9 5.26, 5.44, 5.129, 5.150, 5.165, 5.172, 5.177, 5.178, 5.181, 5.186, 5.187, 5.189, 5.195, 5.219, 5.223 Art 9(2) 5.183 Art 10 5.26, 5.44, 5.165, 5.166, 5.181, 5.189, 5.223 Art 11 1.107, 5.53, 5.63 Art 11(1) 5.44 Art 11(2) 5.44 Art 11(3) 5.45, 5.53, 5.64 Art 11(4) 5.45, 5.47, 5.64, 5.190 Art 11(5) 5.44 Art 11(6) 5.46, 5.47, 5.64, 5.142, 5.185 Art 12 5.61, 5.63, 5.66 Art 12(1) 5.58, 5.59 Art 12(2) 5.59 Art 12(3) 5.60 Art 13 5.54 Art 14 5.109 Art 14(1) 5.165, 5.189 Art 14(3) 5.165 Art 14(5) 5.165 Art 14(7) 5.165 Art 15 5.76, 5.81, 5.84 Art 15(1) 5.85, 5.86

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Art 15(2) 5.80, 5.81 Art 15(3) 5.82 Art 16(1) 5.77, 5.85 Art 16(2) 5.42, 5.185 Art 17 1.75, 5.107, 5.110, 5.125, 5.129 Art 17(1) 5.108 Art 17(2) 5.109 Art 18 5.109, 5.124, 5.125, 5.138, 5.166, 5.219 Art 18(1) 5.124 Art 18(2) 5.126, 5.129 Art 18(3) 5.129, 5.219 Art 18(6) 5.124 Arts 18–21 5.202 Art 19 5.109, 5.138, 5.139, 6.95 Art 20 1.174, 5.109, 5.130, 5.166, 5.219 Art 20(1) 5.131 Art 20(2)(d) 6.95 Art 20(3) 5.132 Art 20(4) 5.129, 5.132, 5.134, 5.219 Art 21 1.174, 5.130, 5.135, 5.136, 5.137, 6.95 Art 21(3) 5.136, 6.88 Art 22 5.61, 5.109 Art 22(1) 5.67 Art 23 1.04, 1.175, 5.26, 5.109, 5.128, 5.129, 5.146, 5.150, 5.151, 5.158, 5.164, 5.165, 5.189, 5.196, 5.201 Art 23(2) 1.04, 3.27, 5.174, 6.81, 6.86 Art 23(3) 5.174 Art 24 1.175, 5.26, 5.109, 5.129, 5.132, 5.201 Art 24(2) 5.146, 5.150, 5.151, 5.158, 5.164, 5.165, 5.189 Art 25(1)(a) 6.75

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Art 25(1)(b) 6.75 Art 25(2) 6.76 Art 25(3) 6.77 Art 27 1.101, 5.151, 5.240 Art 27(1) 5.146, 5.158, 5.149 Art 27(2) 5.153 Art 27(3) 5.223 Art 27(4) 5.181, 5.184, 5.223 Art 29 5.219 Art 29(1) 5.44, 5.150, 5.165, 5.188, 5.189, 8.83, 8.85 Art 29(2) 5.190, 8.85 Art 30 5.201 Art 31 1.120, 5.207, 5.244, 6.113, 6.114 Art 32 1.157 Art 33 1.101 Art 34 1.157 Art 35(1) 5.28, 5.29 Art 35(2) 5.29 Art 36 1.157 Art 38 1.157 Art 39 1.157 Art 43 1.157(p. xxxvi) Regulation 139/2004, OJ L 24 1.60, 1.69, 1.99, 4.102, 5.153, 5.223, 7.14, 7.15, 9.02, 9.16, 9.22, 9.43, 9.46, 9.49, 9.99, 9.121, 9.122, 9.138, 9.144, 9.145 Preamble 9.99 Preamble, Recital 4 9.153 Preamble, Recital 10 9.26 Preamble, Recital 29 9.99 Preamble, Recital 30 9.154 Preamble, Recital 32 9.49

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Art 1(1) 9.21 Art 1(2) 9.25 Art 2(1) 9.188 Art 2(2) 9.41, 9.153 Art 2(3) 1.99, 9.41, 9.43 Art 2(4) 9.153 Art 3 9.06, 9.08, 9.31 Art 3(1) 9.20 Art 3(1)(b) 9.19 Art 3(2) 9.19, 9.20 Art 3(4) 9.112 Art 4 9.31 Art 4(1) 9.29, 9.30 Art 4(2) 5.223, 9.29 Art 4(5) 9.21 Art 5 9.24 Art 6(2) 9.153 Art 7 9.145 Art 7(1) 9.31 Art 8(2) 9.153 Art 9(3) 9.146 Art 10 9.149 Art 10(1) 9.145 Art 10(3) 9.145 Art 10(4) 9.145, 9.150 Art 10(6) 9.145 Art 11 9.145, 9.150 Art 12 9.145 Art 13 9.145, 9.150

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Art 14 5.223, 9.145 Art 14(2) 9.32 Art 15 5.223, 9.145 Art 16 5.244, 9.161 Art 18 5.223, 9.148 Art 18(4) 5.223 Art 21(3) 9.33 Art 22 9.21 Council Regulation 411/2004, OJ L 68 1.156 Commission Regulation 773/2004, OJ L 123 1.101, 5.98, 5.193, 6.111 Art 1 6.111 Art 3 5.139 Art 5 5.223 Art 6(1) 5.101 Art 6(2) 5.101 Art 7 5.219 Art 10(1) 5.146 Art 10 bis (3) 6.111 Art 11 5.223 Art 13(1) 5.223 Annex 5.99 Commission Regulation 802/2004, OJ L 133 9.144 Art 9 9.145 Art 11 5.223 Art 14 9.148 Art 15 9.148 Art 19 9.146 Art 20 9.146 Annex I 9.144

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Council Regulation 1184/2006, OJ L 214 1.148, 1.149 Art 1 1.149 Art 2 1.149 Art 2(1) 1.149 Art 2(2) 1.149 Art 3 1.150 Council Regulation 1419/2006, OJ L 269 1.157 Commission Regulation 1459/2006, OJ L 272 1.157 Commission Regulation 622/2008, OJ L 173 1.101, 5.196 Commission Regulation 267/2010, OJ L 83 7.13 Commission Regulation 330/2010, OJ L 102 3.138, 3.145, 7.99, 7.101, 8.02, 8.04, 8.06, 8.46, 8.70, 8.72, 8.80 Preamble, Recital 8 8.70 Art 1(1)(a) 8.02 Art 1(1)(b) 8.02 Art 1(d) 8.80 Art 2(1) 8.46 Art 2(5) 8.46 Art 3 8.71 Art 4 8.47, 8.48, 8.49, 8.110 Art 4(a) 8.52 Art 4(b) 8.55, 8.56, 8.58 Art 4(c) 8.58, 8.59, 8.105 Art 4(d) 8.60 Art 4(e) 8.61 Art 5 8.48, 8.79, 8.80, 8.81, 8.82 Art 5(1)(b) 8.81 Art 5(1)(c) 8.82 Art 5(2)(a) 8.80 Art 6 8.83

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Art 7 8.71 Art 7(a) 8.68 Art 7(b) 8.70 Art 9 9.37 Commission Regulation 1217/2010 (R & D Regulation) OJ L 355 7.09 Preamble, Recital 2 7.71 Art 1 7.64 Art 3(2) 7.66 Art 3(3) 7.66 Art 3(4) 7.66 Art 3(5) 7.66 Art 4 7.65 Art 5 7.63 Art 5(b)(i) 7.63 Art 5(b)(ii) 7.63 Commission Regulation 1218/2010 (Specialization Regulation) OJ L 355 7.09 Preamble, Recital 10 7.87 Art 1 7.72, 7.73 Art 1(o) 7.88 Art 1(p) 7.88 Art 2 7.87 Art 2(2) 7.88 Art 2(3) 7.88 Art 3 7.87 Art 5 7.87 Staff Regulations Art 17 1.116 Art 17(1) 1.116 Art 17a(1) 1.116

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Directives Directive 2002/19/EC Access Directive Art 12 4.353 Directive 2002/21/EC Framework Directive Recital 25 4.353

National Legislation Canada Act for the Prevention and Suppression of Combinations in Restraint of Trade (Statutes of Canada, 1889, 52 Vic, c 41) 1.39

Germany Law on restriction of competition Art 1 3.79

European Statute of the Court of Justice Art 19 5.234 Art 40 5.234 Rules of Procedure Court of Justice Art 42(2) 5.236 Rules of the General Court Art 48(2) 5.236

United States Clayton Act 4.477 s 7A 9.153 Constitution, Section 8, Art 1, cl 3 3.162 Hart-Scott-Rodino Antitrust Improvements Act 1976 9.153 Title II 9.153 Robinson-Patman Act 4.477, 4.505 Sherman Act 1890 1.42, 1.63, 3.29 Section I 1.42, 1.49, 1.84, 3.02 Section II 1.42, 1.49, 1.84, 4.81, 4.279(p. xxxvii) (p. xxxviii)

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1 Introduction Damien Geradin, Anne Layne-Farrar, Nicolas Petit From: EU Competition Law and Economics Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit Content type: Book content Product: Oxford Competition Law [OCL] Published in print: 22 March 2012 ISBN: 9780199566563

Subject(s): Consumer benefits — Free movement — European Union — Application of EU competition rules — Fair, reasonable and non-discriminatory terms (FRAND)

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(p. 1) 1  Introduction I.  The Ubiquity of EU Competition Law 1.01 A.  Impact of EU Competition Law on Public and Private Decision-Makers 1.03 B.  The Positive Economic Effects of EU Competition Policy 1.09 II.  The History of EU Competition Law 1.32 A.  Origins of Competition Laws 1.33 B.  Appearance of Modern Competition Laws 1.39 C.  Modernization of EU Competition Law 1.56 III.  The Goals of EU Competition Law 1.61 A.  Economic Goals 1.61 B.  European Integration Goals 1.73 IV.  The Sources of EU Competition Law 1.81 A.  Treaty Law 1.81 B.  Secondary Law 1.97 C.  Case Law 1.102 V.  The Scope of Application of EU Competition Law 1.128 A.  Scope Ratione Personae—To Whom Does EU Competition Law Apply? 1.128 B.  Scope Ratione Materiae—To What Sectors Does Competition Law Apply? 1.145 C.  Scope Ratione Loci—Where is EU Competition Law Applied and Enforced? 1.167

I.  The Ubiquity of EU Competition Law 1.01  ‘Show business competition policy’ Only a few areas of law, and in particular of European Union law, garner as much press exposure as EU competition law: ‘Europe fines Intel $1.45 billion in antitrust case’;1 ‘European Commission blocks Ryanair’s bid for Aer Lingus’;2 ‘Brussels slaps record fine on glass cartel’;3 ‘European banks get EU warning’.4 In fact, major business newspapers almost daily report on competition authorities’ interventions in the market. Press agencies now boast dozens of specialized competition journalists and offer competition-related briefings on a real-time basis. 1.02  This evolution bears testimony to the steady rise of EU competition law as a critical issue throughout Europe and elsewhere. Today, the constraints imposed by EU competition law have become a major area of concern for decision-makers both in the public and private (p. 2) sectors (see Section A). Yet, beyond the cosmetics of press releases and business reports, the significance of EU competition law can be measured by its profound and lasting effects on economic activity (see Section B).

A.  Impact of EU Competition Law on Public and Private DecisionMakers

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1.03  Impact on undertakings EU competition law has a direct, critical influence on the business strategies chosen by firms (or ‘undertakings’ as mentioned in the Treaty on the Functioning of the European Union (TFEU)). To take a few examples, companies of a certain size that decide to merge need to obtain prior authorization from the European Commission.5 Although, to date, the Commission has only actually objected to a very small number of the 4,274 combinations notified between 1990 and December 2009 (the prohibition against the concentration of the aircraft manufacturers GE and Honeywell in 2001 is one well-known example),6 it has frequently allowed these operations subject to significant conditions or ‘remedies’, including the divesture of entire industrial facilities, the compulsory licensing of intellectual property (IP) rights, and the adoption of long-term supply commitments. 1.04  In the same vein, undertakings that coordinate their pricing policies, limit their production, partition markets, or reduce their investments expose themselves to the ire of competition authorities. Whilst such coordinations, generally referred to as ‘cartels’,7 used to be the customary organizational model adopted by European industries before the Second World War,8 they are, today, said to be the ‘cancer’ of modern free market economies and (p. 3) are accordingly heavily sanctioned.9 In this regard, EU competition law allows the imposition, on cartel participants, of administrative fines of up to 10 per cent of their total worldwide revenue in the preceding year.10 Of course, the EU competition law regime is still far from the harsh tone set by US antitrust law, where participation in a cartel is punishable by imprisonment.11 Nonetheless, over the last decade the Commission has been able to impose a number of stiff fines on undertakings convicted of participating in a cartel. In 2003, a €462 million fine was imposed on just one company, Roche, in the famous Vitamins case.12 In February 2007, four undertakings were fined €992 million for illegally concluding a series of agreements in the mechanical elevator and escalator installation and maintenance market of four Member States (Germany, Belgium, Luxembourg, and the Netherlands).13 Finally, in the car glass cartel, the firm Saint Gobain was fined €896 million, the highest fine ever imposed on a single undertaking in a cartel case.14 Since such staggering financial penalties may force infringing firms out of business,15 the enforcement of EU competition law now constitutes a legal risk that undertakings can no longer ignore. This explains the success of internal compliance programmes designed, often with great ingenuity, by competition law practitioners for their corporate clients. (p. 4) 1.05  Firms’ unilateral conduct on the market has also become a concern for companies holding a powerful position on one or several markets. Microsoft, which was sanctioned and fined €497 million in March 2004 for leveraging its near monopoly position in the market for PC operating systems (OS) onto the markets for work group server operating systems and for media players, is a clear illustration of the Commission’s strict enforcement of Article 102 TFEU.16 Later in the same decade, in May 2009, the Commission fined Intel €1.06 billion on the ground that it unlawfully granted rebates that foreclosed its competitors.17 In EU competition law, size is, in itself, ‘suspect’: an undertaking that occupies a dominant position would, by its very presence in the market, be deemed to alter the degree of prevailing competition.18 The TFEU therefore subordinates dominant undertakings to a regime of ‘special responsibility’19 that allows the Commission to declare illegal and, if necessary, prohibit and sanction, commercial practices that are otherwise lawful, when practised by a non-dominant firm. Such commercial practices include, inter alia, price discrimination, exclusive supply clauses, tie-in sales, aggressive new product launch prices (‘introductory pricing’ in economics jargon), and even certain types of price discounts and rebates.

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1.06  Impact on public authorities Unlike in the United States, where ‘big stick’ government is often decried as encroaching upon individual freedoms and entailing costly policy choices, the State—and its supporting administration—is often perceived in Europe as a legitimate, and benevolent, organization. Accordingly, European governments and other public authorities have traditionally enjoyed a large margin of manoeuvre to intervene in economic and social affairs. 1.07  EU competition law has, however, significantly limited this freedom. A first illustration of this can be found in the major liberalization programmes initiated by the Commission in the 1990s. Those reforms led to the elimination of statutory monopolies20 and to the dismantling of restrictive regulations in a large range of economic sectors (telecommunications, energy, postal service, air, rail, and maritime transport, often referred to as network industries).21 Whilst those reforms were not, sensu stricto, triggered by EU competition law, the Commission has nonetheless proactively enforced competition rules in those sectors, where the natural advantage held by incumbent operators remained in place for several years following liberalization and abuses were pervasively carried out by the former state-sponsored monopolists. EU competition law was therefore particularly instrumental in putting an end to abusive practices which risked undermining the benefits of the liberalization process. 1.08  Second, EU competition law also constrains the ability of the Member States to intervene financially in the economy. Often, States grant subsidies to support national undertakings (p. 5) facing strong international competition, for instance steel producers or car manufacturers. States may also seek to attract foreign direct investment (FDI) in their territory by offering financial incentives to foreign firms (tax and social security exemptions, direct subsidies, etc). Obviously, such measures are liable to distort competition by artificially increasing the competitiveness of certain economic operators at the expense of others. State aid that distorts, or threatens to distort, competition is therefore declared ‘incompatible with the common market’ in the TFEU.22 In recent years the Commission has proactively enforced the State aid rules. The Alstom case, for instance, showed that Member States are not allowed to ‘rescue’ an undertaking that is in financial difficulties, regardless of whether such difficulties arose as a result of international competition or as a result of its own industrial strategic decisions.23 The Ryanair case also demonstrated that local municipalities are not necessarily free to grant financial advantages in order to induce undertakings to settle in their territory.24

B.  The Positive Economic Effects of EU Competition Policy 1.09  Introduction The Commission’s active enforcement policy, and more fundamentally the rules of the TFEU, are based on the belief that a ‘proactive’ competition policy delivers beneficial macro and micro-economic effects (see Section 1).25 Moreover, within the EU, the competition rules are deemed to bring a decisive contribution to the economic integration of national markets (see Section 2).

(1)  The beneficial macro and micro-economic effects of competition law 1.10  The effects of competition policy and its implementing Regulations can be observed at both the macro-economic level (ie, on factors such as growth, inflation, jobs, consumption, and investment) and the micro-economic level (ie, at the level of the individual economic ‘agents’, namely the undertaking and the consumer).

(2)  Beneficial macro-economic effects 1.11  General statements Beyond abstract, intuitive statements on the positive macroeconomic effects of competition policy, there have been few attempts to evaluate accurately the effects of competition policy on the determinants of long-term growth. Even farreaching, sophisticated macro-economic assessments, like the famous ‘Sapir report’ of

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2003,26 remain silent (p. 6) on the source of their contention that EU competition policy has sustained technological innovation and contributed to the EU’s macro-economic stability.27 1.12  Imputation issues The lack of concrete, ‘hard fact’, evidence in support of the allegation that competition policy delivers beneficial macro-economic effects is unsurprising. In addition to competition policy, many other public policies (monetary, budgetary, commercial, etc) can contribute to growth, job creation, consumption, and investment. It is hard, then, to isolate the macro-economic contribution of competition policy from these other policies.28 1.13  Attempts at empirical measurement Notwithstanding the identification problem, several economists have tried to quantify, at least indirectly, the contribution of competition policy to economic growth. While some have questioned whether the impact of active enforcement is worth its cost, these studies tend not to offer any hard cost–benefit evidence.29 In an effort to provide such evidence, several studies have tried to evaluate the social cost of monopolies on Gross Domestic Product (GDP). For instance, studies carried out in the 1950s in the United States placed the social cost of monopoly between 0.1 and 1 point of GDP.30 On the other hand, a French study by Professors Jenny and Weber in 1983 reached an estimate of 7.4 per cent.31 In their famous work on industrial economics published in the 1990s, Professors Scherer and Ross estimated the social cost of monopoly to be in a range of 4 per cent to 7 per cent.32 A 2003 study by Baker harkens back to the 1950s estimate. He found that [t]he total annual costs of antitrust enforcement in the United States are no more than $2 billion each year [both direct and indirect] … [whereas] the costs to the economy from (p. 7) the exercise of market power could readily be at least 1 percent of national product, or in excess of $100 billion annually, not withstanding the antitrust laws.33 Finally, an even later empirical study on ‘total factor productivity’ in 22 industries of 12 OECD countries between 1995 and 2005 demonstrated a causal link between strong competition enforcement and long-term economic growth, although it offered no hard figures on GDP.34 While the specific figures estimated vary tremendously, the consensus among these studies is that competition enforcement is justified (and perhaps should even be increased) to reduce the huge cost to society that derives from the exercise of market power.

(3)  Beneficial micro-economic effects 1.14  Micro-economic theory envisages the effects of competition on the welfare of individual economic agents. In this context, the early works of neoclassical economists in the late nineteenth century cast light on the welfare-reducing effects of monopoly on economic agents (Section (b)). The findings of those economists subsequently gave rise to a new, normative, body of economic literature, which views the enforcement of competition rules as a means to eradicate ‘market failures’ (Section (c)). Prior to delving into those issues, however, a number of general remarks concerning micro-economic analysis are appropriate (Section (a)).

(a)  General remarks 1.15  Allocation of scarce resources Economic theory studies how scarce resources are allocated within society. To take an example, a business manager enjoys scarce (ie, limited) labour and financial resources.35 His primary, if not sole, activity is thus to decide how best to use (allocate) those resources, for example purchasing inputs, making investments, etc, in order to maximize his return (ie, his profits). By the same token, given the scarcity of

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resources available, any human society must decide who will perform which tasks and under what conditions in order to maximize social welfare. 1.16  Allocation method To allocate resources, a given human society faces several options: it can delegate allocation decisions to a central government be it, or not, democratically constituted (‘central planning’) or it can rely on the ‘market’, that is, a system where suppliers and customers exchange their resources (the ‘market economy’). In most cases, societies allocate their resources through both State and market mechanisms, although not necessarily to the same extent.

(b)  Neoclassical price theory 1.17  Presentation Neoclassical price theory was initially developed by Alfred Marshall at the end of the nineteenth century.36 In its normative dimension, it views the market as the best form of economic organization. The famous ‘invisible hand’ of the market would indeed deliver an optimal allocation of scarce resources within society, by channelling those resources (p. 8) to the economic agents who value them the most.37 In layman’s language, one would say resources are allocated to people who like them best. 1.18  The decisive role of ‘price’ Within the resource-allocation process, the price plays a critical coordination role,38 in allowing the selection of the agents who will be supplied and the conclusion of transactions between suppliers and customers. The supply of goods/ services can only take place if the price (the value) at which the customer/consumer is willing to buy the product matches the price (value) at which the producer agrees to sell his product. The supplier must offer a price lower than (or equal to) the maximum price which the customer is ready to pay for the product/service (his maximum valuation of the product/ service). This is known as a reservation price. The customer must offer a price greater than (or equal to) the price under which the supplier would stop producing (in principle, any price lower than the costs of production, since at that price the supplier would lose money on each sale made). The market allows what is called an equilibrium price to be reached through negotiation, and this, in principle, guarantees optimal allocation of the resources. 1.19  Monopolies and competition Neoclassical price theory indicates that the optimal operation of the market—generally referred to as ‘market performance’—is contingent on the existence or absence of competition. In a market with limited competition, for instance a monopoly, the allocation of resources will be suboptimal. When a single firm owns the entire production capacities of a market, it can refuse to supply certain customers who nonetheless are willing to pay a price greater than its costs of production. In this case, the allocation of resources is suboptimal since the monopolist could improve the situation of those particular customers by selling them the product without incurring any loss (its costs would still be covered).39 The exclusion of certain customers from consumption leads to a deadweight loss. Those particular customers who are not supplied are forced to shift to other products, which they value less. In addition, the customers that are supplied, because they are ready to pay a higher monopoly price, have less resources to invest into other products/services. 1.20  A similar logic applies to markets where suppliers coordinate their industrial and commercial policies (eg in the case of a cartel). Producers can refuse to supply certain customers by collectively reducing their output. The Organization of Petroleum Exporting Countries (OPEC) is a well-known example of this. By means of a formal, institutionalized agreement, oil-exporting countries collectively reduce the quantities of petrol placed on the market, thereby causing certain customers who value it at levels exceeding the costs of production to be excluded from the market.

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1.21  Of course, one may wonder why a supplier would refuse to supply its products to customers that value it. Here again, neoclassical price theory offers an explanation. Economic agents are deemed to act ‘rationally’, and thus seek to maximize the utility which they derive from (p. 9) their activities.40 For a firm, utility maximization equates to profit maximization, that is, the maximization of the difference between the price charged and the cost incurred. By reducing production, a firm with a monopoly can create scarcity on the market and thereby lead prices to rise. Limiting production is therefore an obvious profitmaximizing strategy, provided, of course, that the gain arising from the price increase exceeds the loss arising from the reduction in the quantities supplied. 1.22  Debate Economic theorists do not fully agree in respect of the magnitude of the harmful effects of monopolies. On the one hand, a number of orthodox economists consider that the sole harmful effect of monopolies lies in the exclusion of potential customers whose reservation price is less than the monopolist’s price but greater than its costs.41 This deadweight loss, or allocative inefficiency of the monopoly, may be corrected by introducing price discrimination. Under perfect price discrimination, the monopolist adopts differentiated tariffs, indexed to the reservation price of each customer on the market, so that all of the quantities requested at a price greater than cost are supplied. The fact that certain customers pay a price far in excess of costs is not a problem, as long as they are ready to pay for it (their reservation price is not met). Competition economists often refer to this approach as the total welfare standard. 1.23  According to other authors, the primary cost of a monopoly is the price surplus paid by customers to the monopolist even if all of the quantities requested on the market are indeed supplied (eg in the case of price discrimination). All customers, including those whose reservation price is high, should be supplied at a price level that is geared to the costs of the monopolist. There is otherwise an inappropriate transfer of income from the customer to the supplier, which may be referred to as a distributive inefficiency. Because it focuses on the wellbeing of the customer, this approach has been labelled the consumer welfare standard. In practice, it has led politicians to support the adoption of price control mechanisms on monopolists in times of economic inflation.42

(c)  The market failure theory 1.24  Introduction Building on the works of neoclassical theorists, a new economic school of thought, sometimes called welfare economics, emerged. As explained previously, the free operation of economic agents on the market occasionally fails to ensure an optimal allocation of resources. This may, for instance, happen because a producer holds a monopoly or because rivals coordinate their pricing policies. When such ‘market failures’ arise,43 public (p. 10) intervention into the marketplace is deemed necessary to eradicate the observed inefficiencies.44 This need for public intervention is what caused competition law to develop.45 1.25  Government failure Whilst modern economic theory teaches that market imperfections justify public intervention, in addition it demonstrates that government intervention is also fraught with significant imperfections. The first of these imperfections is informational. As compared to firms, public authorities do not possess accurate, comprehensive, reliable information on markets (on prices, costs, output, technology, etc). Absent perfect information, government may thus be mistaken. Public intervention may in turn lead to suboptimal outcomes (ie, it may not improve social welfare). The costs of intervention may even be higher than those of the original market failure which it aimed to correct.

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1.26  A second imperfection concerns the risk of opportunism of government representatives. Public choice theory argues that elected officials (and, even more so, civil servants) are, like entrepreneurs, driven by self-interest and profit-maximization objectives. Because public officials do not sell products/services in exchange for a price, and thus cannot make monetary profits, ‘profit maximization’ takes other forms, such as ensuring reelection or reappointment, expanding powers and jurisdiction, or increasing notoriety.46 Such strategies may lead to suboptimal decisional outcomes, with public officials making self-serving choices at the expense of society. For instance, a civil servant may refuse to inflict a fine on a monopolist, in the hope that he may, in the future, obtain an influential position within this company (the so-called ‘revolving door practice’). Or, at the other end of the spectrum, an agency official may push for large fines to be imposed on a high-profile company in order to fund a large budget for her group or in the hope for reappointment.

(4)  The ‘integrationist’ effects of competition law 1.27  Trade in Europe before 1957 Prior to 1957, a customer living in one Member State could not easily acquire goods and services produced in another Member State.47 Indeed, a whole host of barriers to trade—tariffs (customs duties), quantitative restrictions (eg quotas), and regulations (eg specific marketing authorizations)—prevented goods and services from moving across national boundaries.48 1.28  EC Treaty and common market The adoption of the Treaty Establishing the European Community (EC Treaty or Treaty of Rome) in 1957 changed this situation. The Treaty of (p. 11) Rome progressively replaced several nationwide economic territories with a ‘common market’49 based on a ‘customs union’ (ie, the dismantling of tariff and non-tariff barriers),50 and on the coordination of national regulations (through harmonization or mutual recognition),51 so that factors of production (goods, services, labour, and capital) could flow freely between Member States. 1.29  Economic rationale of European integration The beneficial economic effects of European integration were well summarized in a report compiled in 1992 by Professor Cecchini.52 First, market integration enables firms to achieve tremendous economies of scale .The dismantling of obstacles to trade increases the size of the market on which European firms are active, entitling them to serve new customers based in other Member States. In industries with high fixed costs, firms engaging in cross-border trade are thus able to reduce their average production cost and, consequently, their prices. Second, many domestic firms which were previously protected by tariff and non-tariff barriers suddenly faced the competitive pressure of foreign undertakings and thus had strong incentives to become more efficient.53 1.30  Competition law as a safeguard to market integration The benefits arising from the elimination of public obstacles to trade could be largely undermined if firms could freely re-establish similar barriers. For instance, a supplier may contractually assign exclusive sale territories to its distributors and prevent them from serving customers outside their national territories. Such a distribution system obviously erects indirect obstacles to trade. 54

Illustration: the Volkswagen case The Volkswagen group was ordered by the Commission to pay a heavy fine (€102 million) for impeding the purchase of vehicles in Italy by customers not residing within that Member State.54 Volkswagen had concluded agreements with its subsidiaries and with the Italian dealers in its distribution network aimed at prohibiting or restricting sales of Volkswagen and Audi vehicles in Italy to customers of other Member States or dealers in its network established in other Member States. The methods used by Volkswagen to restrict these ‘parallel imports’ from Italy included a contingent supply system for Italian dealers leading

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to a partitioning of the market and a bonus system that discouraged the Italian dealers from selling to non-Italian customers. (p. 12) 1.31  To alleviate this risk, and ensure the effet utile of the other Treaty provisions in particular Articles 34, 49, and 56 TFEU, which aim at eliminating public barriers to intraCommunity trade, the competition rules of the TFEU have been used to combat private obstacles to trade.55 This particular feature of EU competition law finds formal expression in the provisions of the EU Treaty, which declares anticompetitive conduct ‘incompatible with the common market’ rather than unlawful.56

II.  The History of EU Competition Law 1.32  Because it was first formally enacted in 1957, EU competition law is generally perceived as a relatively recent legal discipline (Section B). Its real, substantive, origins are however much older, and can be traced back to the history of ancient civilizations (Section A).

A.  Origins of Competition Laws 1.33  Antiquity Anticompetitive practices are probably as old as the history of trade. In ancient Egypt and Greece (more than 3,000 years BC), historians report the existence of monopolistic and collusive practices.57 In this context, the famous Greek astronomer, Thales, for instance, holds a somewhat surprising place in the history of competition law. Following erudite astronomic observations, Thales managed to forecast a particularly hot and sunny period.58 Anticipating an abundant olive harvest, Thales immediately rented all of the oil presses available in the neighbourhoods of Milet and Chios. When the harvest came around, Thales enjoyed a regional monopoly in olive pressing equipment. He made a fortune in renting olive pressing capacity. 1.34  The first regulations prohibiting anticompetitive conduct were adopted a few centuries BC, in India and Rome. Surprisingly, the substantive scope of those regulations was quite similar to modern competition rules: they forbade certain agreements between undertakings, boycotts, output-limiting conduct, and activities of private and public monopolies.59 (p. 13) However, those regulations lacked effectiveness. They were periodically dismantled by kings, emperors, and governments wanting to extract rents from public monopolies as well as reward political support through the granting of private monopolies.60 1.35  Development of competition laws (tenth to eighteenth century) Until the tenth century, trade in Europe was limited and concerns for restrictions of competition were rare. The development of commercial exchanges in Europe, however, induced a number of countries to adopt competition-inspired legislation. In Great Britain, legislation was passed to establish price control mechanisms and to forbid specific infringements. English law prohibits, for instance, forestalling practices under which operators artificially create shortages by buying goods before they reach the market. Elsewhere in continental Europe, similar laws emerged between the thirteenth and sixteenth centuries.61 1.36  Again, however, this second round of commitment of European nations to competition laws was fragile. Most economic activities were subject to State monopolies. In Great Britain, for instance, the government sold exclusive rights (labelled ‘licences’) over certain markets to collective organizations of entrepreneurs.62 In continental Europe, with the reign of Louis XIV, the influence of Colbertism led nations to create national industrial monopolies and to support the export activities of domestic firms through the allocation of significant subsidies.

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1.37  Progress in the eighteenth century The development of common law paved the way for the development of an embryonic competition culture. Common law sanctions restraints of trade, that is, restrictions that two parties to a contract impose on each other’s freedom to operate without restriction on the market (eg non-compete clauses in the sale of a business). In the same vein, in 1758 in The King v Norris, an English judge condemned several salt producers that had engaged in price fixing.63 The ruling is particularly interesting because it considers the price level—allegedly low—as irrelevant. The infringement hinged on the very act of collusion. A per se prohibition of cartels began to take shape. 1.38  At around the same time in France, ‘corporations’—groups of individuals enjoying monopolies in entire economic sectors—fell into disgrace. In 1791, the Décret d’Allarde and the Loi le Chapelier elevated freedom of trade and industry as a mandatory rule of law and accordingly outlawed ‘corporations’.64 That said, in practice, monopolies, State funding, and protectionism still remained pervasive.65

(p. 14) B.  Appearance of Modern Competition Laws 1.39  The first bodies of modern competition rules appeared in North America (Canada and then the United States) at the end of the nineteenth century (Section 1).66 These two nations’ rules had a significant influence on the design and content of the EU competition rules (Section 2).

(1)  The adoption of competition law in North America 1.40  From the industrial revolution to ‘trusts’ The second industrial revolution, which started in the second half of the nineteenth century led to a surge in the degree of competition on many product/services markets in the United States. The development of modern transport (railway and internal combustion engine) and telecommunications (telegraph and telephone) induced US firms—which primarily traded their goods and services at the local, State level—to operate across several regions of the US territory, so as take advantage of economies of scale. 1.41  To insulate themselves from what was perceived as profit-killing price competition, market players formed trusts, that is, legal organizations in which several independent firms of the same sector cooperate to determine their commercial policies.67 In the same vein, major mergers and acquisitions were implemented—under the impetus of financial tycoons such as JP Morgan—to reduce overcapacities in a number of industries (eg the steel industry) and undermine the ‘ruinous’ competitive process. 1.42  Adoption of the Sherman Act US farmers and small undertakings were harmed by the trusts’ pricing policies, from which they sourced their inputs. In addition, the monopolization of the petrol industry by John Rockefeller’s Standard Oil became a cause of concerns for the US decision-makers.68 Petrol is a critical input in many goods and services, then and today. Its pricing has a significant effect on the overall US economy (and particularly, impacts inflation). Moreover, Rockfeller’s monopoly threatened the democratic process. Policy makers feared that Rockfeller would seek to steer his strong economic power to influence decision making in a number of unrelated policy areas. Those concerns led to the adoption of the Sherman Act in 1890. Section I of the Sherman Act enshrines a prohibition of interfirm contracts, combinations, and conspiracies (trusts and other forms of agreements), which restrain trade between US States. Section II of the Sherman Act outlaws the monopolization, or attempts to monopolize, of any part of the trade or commerce.

(p. 15) (2)  The emergence of competition regimes in Europe

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1.43  It took 50 more years for competition rules to be adopted in Europe. Drawing on both the North American experience and on the insights of the so-called ‘ordo-liberal’ theories of the Fribourg School (Section (a)), the founding fathers of the EU enacted European-wide competition rules with the 1951 Treaty of Paris establishing the European Coal and Steel Community (ECSC). A few years later, the 1957 Treaty of Rome establishing the European Community (EC) recognized that a system of undistorted competition shall prevail in Europe, and provided to this end a sophisticated competition law regime covering anticompetitive agreements between competitors, abuses of dominance, and rules governing State aid (Section (b)).

(a)  The ordo-liberal school 1.44  The ultra-liberalism of the twentieth century In the early twentieth century, an ideology that can be described as ultraliberal prevailed in Germany. The Prussian legislation in force in the German empire considered—as was subsequently theorized by Ludwig Von Mises and Friedrich Hayek69—that government should never interfere with freely established, contractual relationships between private economic agents. Accordingly, cartels were viewed as entirely lawful. Naturally, they became a pervasive market practice. Historians report that 4,000 cartels were active in Germany70 at the end of the Weimar Republic in 1933.71 Then the advent of the Nazi regime further increased the number of cartels in the German industry. 1.45  The emergence of ordo-liberalism Against this background, a number of German schol-ars from the University of Fribourg (amongst others, Walter Eucken) considered, in the 1930s, that because market competition does not arise spontaneously, State intervention is required in order to establish, organize, promote, and protect it. Left to themselves, firms will collude rather than compete.72 And even when firms do not collude, they try to eliminate competition by acquiring harmful dominant positions.73 1.46  To promote healthy market competition, according to this view, later named ordoliberalism, heavy-handed public intervention is thus required. However, because executive authorities’ intervention intrinsically embodies a risk of discretionary abuse, the competition system must be based on a detailed, prescriptive, and high-ranking regulation. The Fribourg scholars thus advocated the adoption of an economic constitution (‘ Wirtschaftsverfassung’),74 which, in practice dictated to firms occupying a dominant position to behave as if they were active in a competitive market.75 To this end, competition statutes were explicitly and (p. 16) exhaustively to provide for a list of practices deemed to restrict competition (eg predatory pricing, boycotts, and the granting of loyalty rebates). As will be seen later, the very idea that dominant firms should be forced, because of their market position, to behave in a particular fashion has heavily influenced the case law of the European courts and is the foundation for the ‘special responsibilities’ provision in force today.76 Similarly, the pervasive regulation of vertical agreements that has long prevailed under EU competition law is a clear practical repercussion of ordo-liberal ideas. 1.47  From a public policy perspective, the end of the Second World War provided a fertile ground for the transposition of ordo-liberal theories in Germany. Indeed, the postwar economic reforms of the West German Minister of Economics, Ludwig Erhard, significantly drew upon ordo-liberal theories. 1.48  Marshall Plan In the postwar era, the nations administering the German territory adopted laws designed to eliminate cartels and structurally to dismantle a number of industries in Germany.77 The purpose of these rules was primarily to dissolve the giant industrial cartels (in the Ruhr region, in particular) and the groups which had helped Germany to reach a position of military supremacy under Hitler.

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(b)  Treaty establishing the European Economic Community 1.49  Treaty of Paris Aware of, and possibly enlightened by, the US experience and the work of the ordo-liberal school, the governments of Belgium, France, Germany, Italy, Luxemburg, and the Netherlands considered in 1951 that competition and market integration were necessary conditions for collective prosperity. European-wide competition rules should (i) ensure undistorted competition and (ii) eliminate private obstacles to trade amongst European countries. This rationale prompted the drafter of the 1951 ECSC Treaty to lay down competition provisions (Arts 65 and 66) prohibiting both cartels and abuses of economic power (including concentrations) in the steel and coal sectors.78 The implementation of those provisions was then entrusted to a supranational executive body of the ECSC, the ‘High Authority.’ 1.50  Treaty of Rome In 1957, the six founding Member States of the ECSC considered that full economic integration, not limited to coal and steel, was necessary. Amongst other things they expanded, in the Treaty of Rome, the competition provisions of the ECSC Treaty to all economic sectors. Importantly, those rules were perceived as complements of other Treaty provisions which sought to eradicate public barriers to trade between Member States (ie, public regulations forbidding foreign firms from operating on domestic territory). There was indeed a real risk that, through market partitioning agreements for instance, firms reinstate private obstacles to trade, thereby undermining the dynamics of economic integration which the Treaty purports to achieve.79 Moreover, the EC competition provisions embodied a ban on State aids that distort competition, in selectively advantaging certain companies over others. (p. 17) 1.51  Compromise The competition rules of the EC Treaty are the result of a political compro-mise. On the one hand, the German ordo-liberal view that the rules of competition should be enshrined in a constitutional instrument is clearly reflected within the EC Treaty. Its preamble provides, at Article 3(f), that the activities of the Community shall include a system of undistorted competition.80 Similarly, the rules on cartels and abuse of dominance form an integral part of the Treaty (Arts 85 and 86 EC, now Arts 101 and 102 TFEU). No regulatory instrument can thus supersede those provisions. 1.52  On the other hand, the fact that the EC Treaty did not provide for a specific European com-petition enforcement structure (ie, institutions and procedures), was clearly a concession to the French government, which was reluctant to forfeit its freedom to intervene discretionarily in market-related issues, by being placed under the permanent supervision of a supranational authority.81 This explains why Article 84 EC (now Art 104 TFEU) delegated the enforcement of the competition rules to the Member States. Article 84 EC provided nonetheless that the Council of Ministers (‘the Council’), that is, the EU’s main legislative arm, could adopt specific Regulations governing the enforcement of Articles 81 and 82 EC (now Arts 101 and 102 TFEU), pursuant to the procedure set out under Article 83 EC (now Art 103 TFEU). 1.53  Institutional negotiations Competition enforcement issues gave rise to lengthy negotia-tions between France and Germany in the years following the adoption of the EC Treaty. Whilst the German government supported the adoption, pursuant to a Council Regulation, of an authorization/notification system, whereby the European Commission would ex ante review all business transactions involving a potential violation of the then Article 81 EC, the French—who had finally agreed to entrust the Commission with some powers—argued in favour of a legal exception system, whereby the Commission would pursue infringements of the EC competition rules ex post.

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1.54  Regulation 17/62 Those negotiations finally came to fruition in 1962, with the adoption of Council Regulation 17/62. In line with the German position, Regulation 17/62 established a centralized enforcement system,82 where the European Commission (and more particularly the Directorate General for Competition, (DG COMP)) was entrusted with significant enforcement powers and, in particular, the power to scrutinize ex ante agreements between firms. While national authorities and courts remained competent to enforce the prohibition laid out in the then Article 81(1) EC, Article 9(1) of the Regulation additionally bestowed upon the Commission exclusive jurisdiction over the enforcement of Article 81(3) EC. This provision salvages anticompetitive agreements from the prohibition of Article 81(1) EC, provided the said agreement generates economic benefits. In practice, all firms likely to conclude a potentially restrictive agreement are thus incentivized to ‘notify’ it to the Commission. 1.55  Limits of Regulation 17/62 This mandatory notification procedure, which had the undeni-able direct merit of helping the Commission to build significant market expertise quickly was, however, fraught with very significant shortcomings. Only a few years after the adoption of Regulation 17/62, the Commission had received a massive number of notifications, and (p. 18) was no longer capable of enforcing the competition rules in a swift, timely manner. The Commission thus developed a number of administrative practices to speed up case processing: adoption of block exemption regulations and guidelines, comfort letters,83 negative clearance decisions,84 de minimis notices, etc.

C.  Modernization of EU Competition Law 1.56  The modernization process In 1999, 40 years after the inception of Regulation 17/62, the Commission undertook a review of the EC competition enforcement framework. The Commission’s effort ushered in a ‘White Paper on the modernisation of the regulations implementing Articles 85 and 86 of the EC Treaty’, which painted a grim picture of its own enforcement activities:85 the Commission’s monopoly over the notification and exemption of agreements had led EC and non-EC firms to notify a huge number of agreements which, for the most part, did not pose a real threat to competition. As a result, the Commission had spent a considerable amount of time reviewing benign agreements, whilst more serious agreements, those that are difficult to uncover, had hardly been investigated for lack of available resources.86 In addition, this notification procedure imposed significant costs and red tape on companies. 1.57  Regulation 1/2003 The White Paper’s main findings did not give rise to strong opposition within the competition law community.87 The Commission thus subsequently submitted to the Council a proposed Regulation reforming the competition enforcement system. The Council followed the Commission’s proposal and adopted Regulation 1/2003 (‘the Regulation’), which now replaces Regulation 17/62. This Regulation came into force on 1 May 2004.88 1.58  The Regulation’s primary innovation is to ‘decentralize’ the enforcement of EU competition rules. First, it abolishes the Commission’s monopoly as regards Article 101(3) TFEU. Second, it replaces the ex ante authorization with an ex post legal exception system. Firms and their counsel can no longer request the Commission to review proposed agreements. Undertakings are now required to self-assess their business practices through the lens of Article 101(1) and (3) TFEU. 1.59  Entry into force of the Lisbon Treaty The TFEU, which followed the ratification of the Lisbon Treaty in 2009, replaces the EC Treaty. Under the new Treaty, the EU competition rules can now be found in Articles 101, 102, and 107 to 109, which replace Articles 81, 82, (p. 19) and 87 to 89 EC. As was the case under the previous Treaty, those rules cover agreements between undertakings, abuses of dominance, and anticompetitive State aids respectively.89 Similarly, the substantive wording of Articles 101, 102, and 107 to 109 TFEU is almost identical to the wording of the competition rules of the EC Treaty. From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Overall, with the exception of State aid provisions, the competition rules of the Lisbon Treaty thus remain remarkably stable. The only noticeable change relates to the reference to the common market which, under the new Treaty, is replaced by a reference to the ‘internal market’. 1.60  Current trends in European competition law In addition to the above institutional and procedural changes, in recent years EU competition law has undergone drastic, substantive evolution. Since the late 1990s, the Commission has endorsed a so-called ‘more economic approach’,90 which turns EU competition law into a technical, sophisticated discipline, where economists often supplant legal experts.91 In brief, the Commission will no longer focus on the formal features of a given practice to establish an infringement of the competition rules (the so-called ‘forms-based approach’), but instead will seek to verify concretely whether the practice has given—or is likely to give—rise to competitive harm (the so-called ‘effects-based approach’). This evolution, which this book seeks fully to embrace, has its advantages, insofar as it diminishes the risks of false convictions (type I errors). Yet, the benefits provided by economic analysis in the decision-making process must be put into perspective with the costs, namely those resulting from the loss of legal certainty.

III.  The Goals of EU Competition Law A.  Economic Goals 1.61  Doctrinal debate There has been, in recent years, endless doctrinal discussions on the economic objective(s) underpinning EU competition law.92 The theoretical literature ascribes four possible objectives to the EU competition rules.93 (p. 20) 1.62  Fairness A first strand of authors consider that the primary economic goal of EU competition law is to protect fairness in competition. This interpretation is based on the wording of the Preamble to the Treaty of Rome itself.94 It endorses the ordo-liberal view that the rules of the competitive ‘game’ should be the same for all undertakings. In other words, competition law enforcement should seek to level the playing field, offering a guarantee of genuine equality of opportunity to market players,95 absent which firms would be dissuaded from participating in the market. In practice, this interpretation is well illustrated by Commission decisions ordering firms occupying a dominant position to share their IP rights or to increase their prices so as to assist the entry of their competitors. Quite ironically, a US Department of Justice official labelled this approach ‘Gentlemen’s competition’.96 Similarly, the view that the EU competition rules seek to promote ‘fairness’ may have led the Commission to sanction, in recent years, practices whereby dominant firms manipulate official administrative procedures (eg marketing authorization procedures for pharmaceutical products)97 or ambush their competitors (in the context of standardsetting organizations, eg, by failing to disclose that they own essential IP rights).98 1.63  Economic freedom, plurality, and consumer choice Articles 119 and 120 TFEU refer to ‘the principle of an open market economy with free competition’.99 Albeit inserted in the Treaty’s general provisions on the EU’s economic and monetary policy, certain scholars consider that those provisions arguably apply to the EU competition rules. In a nutshell, this view maintains that market players—in particular small ones—must be free to operate on the market, and should therefore be protected from any obstacle arising from the behaviour of other agents, whether public or private. This view, in turn, hinges on the belief that plurality in the market enhances social welfare.100 The theoretical foundations of this can be traced back to the works of the so-called ‘Harvard School’ in the 1950s which

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held that the less concentrated a market, the better its performance in terms of price and choice for the consumer.101 (p. 21) 1.64  From a practical standpoint, the plurality goal implies, for instance, a strict interpretation of abuse of dominance rules. On markets where a firm holds a dominant position, customers/suppliers do not face many purchasing/selling options. This, in turn, allegedly justifies that, under Article 102 TFEU, holding a dominant position is, in and of itself, suspicious, so that firms occupying such a market position are subject to a special responsibility (certain behaviours by dominant undertakings which, absent a dominant position, would be entirely lawful, may be deemed unlawful).102 Similarly, this goal entails a harsh enforcement policy against mergers which reduce the number of firms active on a market through, for instance, the creation or strengthening of a dominant position.103 Finally, this objective can be discerned in the field of anti-cartel enforcement, where the Commission views agreements ‘substituting practical cooperation’ (ie, unity of decision) for the ‘risks of competition’ (ie, plurality on the market) as per se infringements of the competition rules, regardless of their effects on the market.104 1.65  Taken to extremes, pluralism can lead to unsatisfactory results. In industries with increasing returns to scale, prohibiting firms from serving a large share of the market leads to productive inefficiency and consumers would suffer as a result. A number of scholars, in particular the so-called ‘Chicago School’ scholars, have criticized this approach and encouraged courts and agencies to protect competition, not competitors. 1.66  Economic efficiency A third interpretation, which originates in the work of US scholars and finds no clear-cut support in the wording of the Treaty, ascribes to EU competition law the promotion of economic efficiency.105 Richard Posner, an illustrious representative of the Chicago School, summarized this idea in one pithy maxim: ‘Efficiency is the ultimate goal of antitrust.’106 Yet, this view remains particularly controversial, and commentators often dismiss it as overly simplistic.107 (p. 22) 1.67  Under this approach, competition authorities should primarily incriminate output-reducing strategies and refrain from enforcing competition rules against outputincreasing conduct. More precisely, competition authorities’ decisions should be based on a systematic examination of firms’ efficiency, understood as the ratio of output produced to input used. Where a firm’s input remains constant, all its output-increasing strategies should be deemed lawful. Similarly, where a firm’s output remains constant, its inputreducing strategies should be deemed lawful. Such strategies are indeed deemed to maximize the aggregate wealth created in society, or to minimize the share of society’s wealth used to produce a given good or service.108 As such, those strategies maximize social welfare. Interestingly, under this interpretation, all that matters is that the total wealth produced increases (or that the total wealth used decreases), even if the increment in wealth is captured by a relatively small segment of society (producers and not consumers). In other words, this approach considers the size of the economic pie and not how the slices of that pie are distributed. 1.68  In practice, this approach imposes significant limits on the application of competition law. To take the example of Article 102 TFEU, for instance, many otherwise unlawful fidelity rebates granted by dominant firms should be tolerated, because they (i) increase the quantities served on the market and (ii) decrease production costs through the achievement of economies of scale. In the field of merger control, mergers to monopoly should be cleared in all cases where the price increases linked to the market power held by the merged entity (which is likely to reduce output), are lower than the costs savings arising from the integration of the parties’ assets (economies of scale, synergies, etc). Finally, under Article 101 TFEU, horizontal distribution agreements between firms with significant

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market power should be tolerated if the agreement meanwhile generates redeeming efficiencies that are sufficient to outweigh its potential anticompetitive effects. 1.69  Consumer welfare A fourth interpretation views the promotion of ‘consumer welfare’ as the defining goal of EU competition law. In this regard, Article 101(3) TFEU specifically requires that consumers receive a fair share of the efficiency benefits generated by an agreement. Similarly, the Commission’s Guidelines on the assessment of horizontal mergers state that the relevant benchmark in assessing efficiency claims is that consumers will not be worse off as a result of the merger. For that purpose, efficiencies should be substantial and timely, and should, in principle, benefit consumers in those relevant markets where it is otherwise likely that competition concerns would occur.109 The main implication of this standard is that mere increases in society’s total wealth are not sufficient to insulate a business strategy from the ambit of the competition rules. The benefits arising from increases in efficiency should be transferred to consumers. An increasing number of legal and policy documents adopted by the Commission refer to the consumer welfare standard as the ultimate goal of EU competition law.110 (p. 23) 1.70  Conclusion The debate over the goals of EU competition law is far from settled.111 Whilst most scholars have to date sought to ascribe a whole and sole objective to EU competition law, we believe that each of the four objectives mentioned held an important place in the founding fathers’ concerns when the European Community was created.112 The EC Treaty was indeed a collective work, moulded by various influences, all of which are reflected in the various provisions referring to competition policy. In other words, the Treaty’s commitment to ‘undistorted competition’ enshrines a multifaceted concept. 1.71  Importantly, one should not lose sight of the fact that EU competition law is primarily a public policy tool.113 As with tax policy, the emphasis placed on one or the other objective (fairness, freedom, efficiency, consumer welfare) may fluctuate over time, and be influenced by external factors, such as changes in the overall economic situation, political background of the competition commissioner, etc. That said, the goals of economic efficiency and consumer welfare seem to be particularly prevalent in the latest applications of the competition rules.114 The Commission, which is legally entrusted with the mission of enforcing the EU’s competition policy,115 seems to endorse the view that a ‘competitive and open market offers the best guarantee of European undertakings boosting their efficiency and their potential for innovation’ (emphasis added).116 Also, the Commission regularly recalls that ‘consumer welfare is the standard for implementing competition law’.117 1.72  That notwithstanding, the Commission and the European Courts continue, on occasion, to make decisions inspired by other objectives. The AstraZeneca case, for instance, where the Commission held unlawful several deceptive practices implemented by a dominant firm, regardless of their effects on the market, is a remarkable illustration of this. As a result, one should not discard this debate as purely theoretical in nature. In practice, the question of the goals of EU competition law has practical consequences. Firms uncertain of which (p. 24) standard will be applied to their conduct face considerable uncertainty regarding the legality of their business decisions.

B.  European Integration Goals 1.73  Rationale As noted, the effectiveness of the Treaty rules prohibiting public obstacles to trade between Member States would be seriously undermined if firms could reinstate private barriers to trade, for example through horizontal market-sharing agreements.

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1.74  Case law To obviate risks of private partitioning of Member States’ markets, the European Courts very early on considered that market integration was a core objective of the EU competition rules. In 1966, the Court of Justice held in Consten and Grundig v Commission that: an agreement … which might tend to restore the national divisions in trade between member states might be such as to frustrate the most fundamental objectives of the Community; the Treaty, the aim of the Preamble and text of which is to eliminate the barriers between states and which in many of the provisions is severe with regard to their reappearance, could not allow undertakings to recreate such barriers.118 (Emphasis added) Since this judgment, many EU scholars and enforcers commonly consider that market integration is the ‘primary’ goal of EU competition rules.119 1.75  Practical consequences Over the past decades, the Consten and Grundig ruling has had a major impact on the practice of EU competition law, in particular helping the Commission to build a strong decisional record against agreements frustrating the objective of market integration. Its practical consequences can be observed at four different levels. First, from an enforcement policy viewpoint, the Commission considers that sectors likely to have restrictions to trade between Member States constitute priority enforcement targets .120 Many investigations have, for instance, been launched in the car distribution and pharmaceutical sectors (p. 25) where, despite significant price differentials among Member States, trade between Member States has remained historically limited.121 1.76  Second, from an evidentiary perspective, the Commission considers that the mere existence of market partitioning practices constitutes an infringement, regardless of its actual (and potential) effects on the market. In other words, the Commission does not need to verify that the impugned agreement has had anticompetitive effects to apply Article 101 TFEU to such agreements. Similarly, firms cannot escape a finding of infringement by arguing that their conduct did not generate anticompetitive effects.122 Agreements frustrating the objective of market integration are said to have, as their object, the restriction of competition. 1.77  Third, the Commission and the EU judiciary have promoted a wide substantive interpretation of the Treaty provisions when faced with market partitioning practices.123 As will be seen in Chapter 3, the concept of an ‘agreement between undertakings’ which seems to catch only the concerted action of several firms, may also apply to purely unilateral courses of conduct.124 1.78  Finally, from a punitive standpoint, the Commission—supported by the EU Courts— consistently qualifies practices which breach the objective of market integration as ‘very serious’ infringements and, in turn, applies to them a draconian penalty regime.125 1.79  Recent case law Several recent judgments, discussed below, have, however, seemed to downgrade the importance of market integration as a key objective of EU competition rules. In Adalat, for instance, both the General Court (GC) and the Court of Justice refused to consider that a pharmaceutical supplier’s unilateral practice of rationing supplies in order to limit parallel trade amounted to an anticompetitive agreement .126 Likewise, in GlaxoSmith-Kline v Commission, the GC refused to accept that a supplier’s dual pricing system, aimed at (p. 26) reducing parallel trade in drugs, constituted, by its object, an infringement of the Treaty.127 A concrete analysis of the pro-and anti-competitive effects of the impugned practice was needed in order to establish a breach of Article 101 TFEU.128

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Illustration: the GSK v Commission case In the EU, there has traditionally been significant parallel trade from Spain, where the public authorities set very low maximum prices, to other Member States, such as the UK, where prices are higher. In 1998, the Spanish subsidiary of the GlaxoSmithKline group (GSK) adopted new general sales conditions stipulating that its drugs would be sold at differentiated prices to Spanish wholesalers. GSK’s Spanish subsidiary wanted to apply higher prices to products sold in Spain but intended for export, than to products intended for the local market. This so-called ‘dual pricing’ system was scrutinized by the Commission, which held that it was incompatible with Article 101 TFEU. The GC, on appeal, refused to consider that the purpose of the dual pricing system was to restrict competition. In particular, the Court held that it could not be assumed that parallel trade tends to reduce prices and increase the welfare of the end consumers: in most cases, parallel importers pocket the price difference, and the consumers located in the export countries do not benefit from lower prices. The market integration objective must therefore be assessed with regard to an even more fundamental objective—that of enhancing consumer welfare.128 1.80  This case law, however, is still in flux. On appeal, the Court of Justice quashed the GC’s judgment.129 In addition, in a ruling rendered in the field of Article 102 TFEU, the Court of Justice has also seemed to endorse the view that unilateral actions limiting parallel trade may be tantamount to an unlawful abuse of dominance.130

IV.  The Sources of EU Competition Law A.  Treaty Law 1.81  In line with the ordo-liberal recommendation that competition rules should be enshrined in the highest possible legal instrument, the EU rules of competition can be found in Title VII, Chapter I of the TFEU. Those rules can be divided into three groups.131

(p. 27) (1)  Rules applying to undertakings—Articles 101 and 102 TFEU 1.82  Wording The competition rules of the TFEU are first directed at firms, referred to more generally as ‘undertakings’. Article 101 TFEU provides that: 1.  The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which: (a)  directly or indirectly fix purchase or selling prices or any other trading conditions; (b)  limit or control production, markets, technical development, or investment; (c)  share markets or sources of supply; (d)  apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e)  make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. 2.  Any agreements or decisions prohibited pursuant to this Article shall be automatically void.

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3.  The provisions of paragraph 1 may, however, be declared inapplicable in the case of: — any agreement or category of agreements between undertakings, — any decision or category of decisions by associations of undertakings, — any concerted practice or category of concerted practices, which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not: (a)  impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; (b)  afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question. 1.83  Article 102 TFEU provides that: 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 Member States. Such abuse may, in particular, consist in: (a)  directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b)  limiting production, markets or technical development to the prejudice of consumers; (c)  applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d)  making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

1.84  Distinction Influenced by US legal scholars who draw a distinction between Section 1 of the Sherman Act, which targets the joint conduct of several firms, and Section 2, which outlaws firms’ unilateral monopolization practices, EU lawyers often consider that Article 101 TFEU applies to collective conduct and Article 102 TFEU covers individual conduct. In our opinion, this distinction is not entirely satisfactory. The case law of the Commission and the European Courts has, indeed, extended the ambit of Article 101 TFEU (p. 28) to unilateral actions.132 In addition, it is possible to rely upon Article 102 TFEU to sanction the conduct of several firms jointly occupying a dominant position.133 1.85  Public policy According to the case law, Articles 101 and 102 TFEU are rules of ‘public policy’ (also referred to as rules of ‘public order’).134 In practice, this means that courts are bound to raise infringements of Articles 101 and 102 TFEU ex officio, even if the parties in the proceedings have not raised any allegations on those grounds. In other words, the court may thus have to rule ultra petita .135 1.86  In addition, parties to judicial proceedings are free to invoke, and benefit from, the applicability of Articles 101 and 102 TFEU, irrespective of whether they have actively participated in an infringement. For instance, a party that has deliberately concluded an unlawful distribution agreement but that later wishes to escape the contractual obligations

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can legitimately ask a court to declare the said agreement null and void pursuant to Article 101 TFEU.

(2)  Rules applying to Member States—Articles 106 and 107 to 109 TFEU 1.87  Overview A second group of rules, which will not be dealt with at great length in this book, comprises provisions which impose, directly or indirectly, obligations on the Member States.136 Article 106 TFEU governs the situation of undertakings enjoying ‘special’ or ‘exclusive’ rights (monopoly or quasi-monopolies granted by law) as well as public undertakings. In respect of such firms, Article 106(1) TFEU forbids Member States to enact (or maintain in force) rules which infringe Articles 101 and 102 TFEU. In addition, pursuant to Article 106(2) TFEU, those firms are, like other firms, bound to observe Articles 101 and 102 TFEU, ‘in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them’ (eg services of general economic interest). Articles 107, 108, and 109 TFEU forbid Member States from granting aid to firms. There are exceptions to this principle and specific procedures apply in State aid cases. 1.88  Practical assessment With the ongoing liberalization of sectors subject to special or exclusive rights and public undertakings (ie, network industries such as telecommunications, energy, post, rail, air transport), the practical significance of Article 106 TFEU decreases. By contrast, the enforcement of State aid rules has been increasingly pervasive in recent years, partly because of the many financial measures which States have adopted to help firms to face the challenges of globalization, the 2008 financial meltdown, etc.

(3)  ‘Enforcement’ rules—Article 103, 104, and 105 TFEU 1.89  Content The TFEU does not endorse a particular enforcement model. Article 103 TFEU provides that the Council shall define, through Regulations, the rules governing the institutional and sectoral implementation of the principles contained in Articles 101 and 102 (p. 29) TFEU.137 Absent such implementing Regulations, Articles 104 and 105 TFEU provide for a transitional enforcement system, and define respectively the powers of Member State authorities and of the Commission. As explained previously, Articles 104 and 105 TFEU were applied between 1957 and 1962, before the entry into force of Regulation 17/62.

(4)  Protocol on competition policy and the internal market 1.90  The Lisbon Treaty repeals Article 3(1)(g) EC, which stated that the ‘activities’ of the European Community included ‘a system ensuring that competition in the internal market is not distorted’. A new Protocol No 27, appended to the TFEU, however, reproduces almost literally the substantive content of Article 3(1)(g) EC. This Protocol unambiguously states that the internal market ‘includes a system ensuring that competition is not distorted’.138 1.91  This modification has triggered a great deal of controversy within the competition law community. Ahead of the adoption of the Lisbon Treaty, a number of observers voiced concerns that the proposed abolition of Article 3(1)(g) EC, and its replacement by a mere Protocol, would mark—in line with the intentions disclosed by some Heads of State while negotiating the Treaty139—a downgrading of the legal status of competition policy, from an ‘end’ of the EU, to a simple ‘means’.140 This view is partly based on the case law of the European Courts, which had repeatedly held that Article 3(1)(g) EC enunciated a true ‘objective’ of the European Community.141 In response to this, a former high-ranking official of the European Commission has contended that, pursuant to the wording of Article 3(1)(g), the system of undistorted competition was simply a means of the EU.142 Because ‘an

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objective that does not exist cannot be lost’, it was thus arguably wrong to claim that the new Treaty brings about a relegation of EU competition policy.143 1.92  On close examination, both views appear reasonable. Almost inevitably, the resolution of this debate will therefore require the European Courts to rule on the status of Protocol No 27 in the context of future judicial proceedings. In this regard, we believe that a useful distinction (p. 30) may be drawn between, on the one hand, the ranking of Protocol No 27 within the hierarchy of European rules and policies and, on the other hand, the substantive content of Protocol No 27. On the first issue, the most likely conclusion is that Protocol No 27 ranks as high as former Article 3(1)(g) EC, so that conflicts between EU competition policy and other European policies (or ‘activities’) should be dealt with according to the traditional case law standards. This is because Article 51 of the Treaty on the European Union—that is, the other new Treaty which besides the TFEU deals primarily with institutional issues—states that Protocols form an integral part of the Treaties and have a legal value identical to Treaty provisions. 1.93  On the second issue, however, the European Courts face more options. They may, for instance, decide to follow their traditional case law and consider that the content of Protocol No 27 enshrines an ‘objective’ of the EU. However, the European Courts may resort to teleological interpretation and, in line with the reported intentions of some Heads of State, judge that a system of undistorted competition should no longer be an ‘objective’ of the EU, but simply a means that might, for instance, be traded-off against other, more important, goals. 1.94  From a public policy perspective, we believe that the latter interpretation could have a number of detrimental and undesirable consequences. First, it could undermine the adaptability of competition rules to new issues, which were not foreseen by the Treaty drafters. In the past Article 3(1)(g) EC has often been used to legitimize extensions of the scope of Articles 101 and 102. For instance, Article 3(1)(g) was instrumental in entitling the Commission to challenge exclusionary abuses under Article 102.144 Similarly, the European Courts have also relied on Article 3(1)(g) to establish Member States’ liability in cases where regulatory intervention had induced/coerced firms to conclude unlawful agreements.145 Finally, the Courts found support in Article 3(1)(g) in order to hold that violations of Article 101(1) could lead to a right to damages before national courts.146 1.95  Second, this interpretation may weaken the effectiveness of competition law enforcement. The gradual and continual increase in the fines imposed on cartels has, for instance, partly found its legal basis in Article 3(1)(g) EC.147 In the same vein, this provision has been a stepping stone for the devolution of increased powers to national competition authorities (NCAs) and, in particular, the power to set aside provisions of domestic legislation which frustrate the effet utile of Article 81.148 1.96  In sum, therefore, the transfer of the content of Article 3(1)(g) EC to Protocol No 27 could possibly entail a weakening of competition law within the EU legal order.

B.  Secondary Law 1.97  Open-ended nature of the Treaty rules The competition rules of the TFEU are particularly terse. They leave many substantive and enforcement issues unresolved. To fill this gap, the Council and the Commission have adopted texts which seek to clarify the conditions governing the application of the Treaty provisions. (p. 31) 1.98  Exclusive competence of the EU Under Article 3 TFEU, the EU shall have ‘exclusive competence’ in ‘the establishing of the competition rules necessary for the functioning of the internal market’. This means that the Council, and possibly other

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European institutions, are the sole institutions competent to define the substance of EU competition policy. 1.99  Council Regulations As explained previously, the Council has set out detailed rules for the enforcement of Articles 101 and 102 TFEU in Regulation 1/2003. In addition, the Council has occasionally adopted other Regulations with a view to increasing the effectiveness of EU competition policy. For instance, the Council adopted in 1989 a Regulation establishing an ex ante system of control of concentrations between undertakings.149 Interestingly, this Regulation is not only based on Article 103 TFEU, but also on Article 252 TFEU, which allows the Council to adopt legislation ‘to attain one of the objectives set out in the Treaties’ when the Treaty has ‘not provided the necessary powers’ for this purpose. Reliance on Article 252 TFEU was perceived as necessary because the adoption of a merger control system went beyond the strict implementation of Articles 101 and 102 TFEU. Indeed, in an effective merger control regime, the competition authority must be entitled to forbid concentrations conducive to dominance, regardless of the existence of an abuse. This legal basis was again used in 2004 to modify the substantive standard for the assessment of mergers. Regulation 139/2004 no longer refers to the concept of dominance as the key criterion for evaluating mergers, but now refers to a standard alien to Article 102 TFEU, that is, the ‘significant impediment to effective competition’ concept.150 1.100  Commission Regulations Under the TFEU, Article 105(3) provides that ‘the Commission may adopt regulations relating to the categories of agreement in respect of which the Council has adopted a regulation or a directive pursuant to Article 103(2)(b) [which lays down detailed rules for the application of Article 101(3)]’. Accordingly, the Commission may adopt directly so-called block exemption regulations which salvage categories of restrictive agreements from the prohibition of Article 101(1) TFEU. 1.101  In addition, Article 33 of Regulation 1/2003 authorizes the Commission to take any provision it deems appropriate in order to ensure its implementation.151 On this basis, the Commission has adopted Regulation 773/2004, which sets out the main procedural rules governing the enforcement of Articles 101 and 102 TFEU (rules related to the conduct of inspections, the treatment of complaints, the organization of a hearing, the protection of (p. 32) business secrets, etc).152 The Commission also relied on this legal basis in 2008, to establish a settlement procedure in cartel cases, whereby firms may, in exchange for the early recognition of their participation in a cartel, obtain a discount on the fine eventually inflicted.153

C.  Case Law (1)  Decisional practice of the Commission 1.102  Introduction Although, under Regulation 1/2003, the Commission is no longer the only body entitled to enforce the Treaty competition rules, it is undeniably the ‘orchestrator’ of competition policy in the EU. This idea is particularly well expressed in the Dansk Rørindustri A/S v Commission case, where the Court of Justice stressed that the missions of the Commission were not simply confined to enforcing Articles 101 and 102 TFEU: The supervisory task conferred on the Commission by Articles 85(1) and 86 of the EC Treaty [now Arts 101(1) and 102 TFEU] not only includes the duty to investigate and punish individual infringements but also encompasses the duty to pursue a general policy designed to apply, in competition matters, the principles laid down by

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the Treaty and to guide the conduct of undertakings in the light of those principles.154 1.103  Decisions To discharge this duty, the Commission has a number of tools at its disposal. Decisions are the primary means of Commission intervention. Decisions are legal instruments addressed to specific, identified, firm(s) (or, in the field of State aid, to a Member State). For instance, the Commission adopts Decisions to declare a given practice incompatible with the EU Treaty, to take interim measures, to impose corrective measures, to inflict fines, etc. The variety of such measures has increased since the adoption of Regulation 1/2003.155 Commission Decisions have binding force. They represent an important source of EU competition law. 1.104  Other instruments For a number of reasons—notably its limited administrative resources—the Commission seems to be relying increasingly on methods of competition law enforcement based on informal pronouncements (press releases, oral statements, etc) and soft law instruments which do not pertain, sensu stricto, to case law.156 Those instruments differ in scope (general v individual), author (the Commission itself, DG COMP, individual Commission officials, third parties, etc), purpose (publicity, guidance, etc), form (written or oral), and binding effect.157 (p. 33) 1.105  Formal Commission Guidelines, Notices, and Communications Over the past 15 years, the Commission has issued an increasing number of Guidelines, Communications, and Notices.158 These instruments are adopted by the Commission as a whole and published in the Official Journal of the European Union (OJ). Examples of such Communications include the Guide lines on vertical restraints, the Guidelines on the applicability of Article 101 to horizontal cooperation agreements, the Commission notice on the definition of the relevant market for the purposes of EU competition law, and the Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control of concentrations between undertakings.159 1.106  Put simply, the main purpose of these formal instruments is to provide assistance to firms,160 competitions authorities, and national courts161 when engaging in complex competitive assessment.162 They thus pursue enforcement-related goals, that is, they aim to induce firms to comply with EU competition law and to assist courts and competition authorities in applying it. 1.107  In addition, in our view, those Communications addressing substantive issues of competition law may also help the Commission to detect infringements of the competition rules.163 In the decentralized enforcement system instituted by Regulation 1/2003 (and a fortiori (p. 34) within the realm of the private enforcement of competition law), competitors, suppliers, customers, and governments play a key role in the detection of competition law infringements. It can be argued that the Guidelines, Notices, and Communications adopted by the Commission increase the likelihood that those dealing with infringers will be able to detect anticompetitive behaviour and attempt to bring it to an end. 1.108  In that respect, the Guidelines on the application of Article 101(3) TFEU are a case in point. Despite their title—which suggests that they focus solely on the interpretation of the exception provided in Article 101(3)—the Guidelines deal at length with substantive issues underlying ‘the prohibition rule of Article 101(1) EU’.164 Similarly, the Guidelines on the applicability of Article 101 to horizontal cooperation agreements devote considerable space to categories—and examples—of unlawful agreements and practices, under the heading ‘assessment under Article 101(1)’.165

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1.109  Commission papers (discussion papers, etc) Driven to a large extent by DG COMP, that is, the Commission’s administrative department specialized in competition matters, a new breed of ‘papers’ dealing with specific legal issues (and/or economic sectors) has mushroomed in EU competition enforcement. Despite their heterogeneous nomenclature (discussion papers, position papers, consultation papers, working papers, etc), those papers share at least three common features. First, they are authored by services within DG COMP (generally, units or directorates). Second, such papers are generally adopted in the context of the ‘review’ of specific enforcement policies (eg the socalled ‘Article 82 EC review’, which seeks to increase the role of economic analysis in abuse of dominance cases).166 They are therefore, by their very nature, acts with a provisional status, setting out DG COMP’s preliminary views on certain practice(s)/sector(s) and, in certain circumstances, posing questions to stakeholders.167 Third, these papers are general in scope and do not target individual market players. 1.110  Similar to so-called Green Papers and White Papers, which are formally adopted by the Commission and normally culminate in legislative action,168 this type of Commission paper is often followed up by subsequent action (eg adoption of guidelines, decisions, etc). For instance, the Merger Remedies Study169 and, perhaps more importantly, the Discussion (p. 35) Paper on the Application of Article 82 of the Treaty to Exclusionary Abuses gave rise respectively to a reform on the Guidelines on merger remedies and to a Guidance Paper on exclusionary abuse. The less formal papers can be a means of issuing ‘trial balloons’, whereby DG COMP can solicit feedback and tap into the current debate before issuing Guidelines. 1.111  Annual reports on competition policy Since 1971, the Commission has published an Annual Report on Competition Policy (the ‘annual report’) providing an overview of the main developments in EU competition policy and summarizing changes to EU competition rules that have occurred over the course of the previous year.170 The annual report is adopted by the Commission as a whole in the form of an official ‘Communication’. It is usually preceded by a foreword from the Competition Commissioner.171 1.112  Importantly, annual reports show, through selected examples, how the EU competition rules are implemented. In addition, they are often supplemented by various sets of annexes (in the form of Staff working papers), which provide detailed case-specific information, methodological information, statistics, etc. Again, annual reports constitute a useful tool to instigate voluntary compliance with the law. 1.113  Press releases The Commission usually issues press releases following the adoption of a formal decision under Articles 101 and 102 TFEU or the European Merger Control Regulation (EUMR), for example decisions finding an infringement and imposing fines, commitment decisions, decisions imposing remedies, etc.172 In addition, it occasionally adopts press releases to comment on or clarify certain developments in EU and national competition laws (often in the form of ‘Memos’ or ‘Frequently Asked Questions’).173 (p. 36) 1.114  Articles written by Commission officials Commission officials routinely address issues relating to the enforcement of EU competition law in articles published in generalist174 and scientific reviews, academic treatises,175 etc. In contrast with oral statements—which mainly focus on public policy issues—written articles typically relate to technical and/or case-specific issues of EU competition enforcement. Very often, those articles clarify aspects of the Commission’s reasoning underlying particular investigations and decisions that might other wise have remained unknown. They constitute therefore a

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useful source of guidance for legal practitioners, who frequently rely upon them to provide advice to their clients. 1.115  Oral statements In a world driven by information, Competition Commissioners, individual DG COMP officials, and spokespersons often convey enforcement messages to the general public through oral statements. Speeches given at international symposiums, interviews, and press conferences offer convenient opportunities to announce new enforcement actions, provide explanations of the Commission’s analysis in specific cases, and send warnings to firms suspected of a violation of EU competition law. Whilst over the past 12 years, the three successive Competition Commissioners appear to have been equally vocal—we have found no evidence of an increase in the number of speeches delivered by Competition Commissioners—the content and implications of their public pronouncements seem to be, however, a question of individual personality. Commissioners such as Karel Van Miert or Neelie Kroes were well known for their powerful—and often controversial—statements.176 1.116  Importantly, Commission officials cannot, in principle, divulge information or express opinions on the Commission’s activities.177 The statements made by individuals employed by the Commission are, however, not all covered by the same rules. First, Commissioners are not civil servants within the meaning of the Staff Regulations and enjoy a legal mandate to represent the Commission in public. Second, the Commission’s spokespersons, who are called upon to discuss the Commission’s activities before the media, enjoy a general authorization, within the meaning of Article 17 of the Staff Regulations, to make public statements that convey information received in the line of duty not otherwise available to the public. All other civil servants must obtain authorization to disclose information on the Commission’s (p. 37) enforcement activities. That said, Commission officials regularly comment in public on ongoing investigations or decisions adopted. In practice, only the highest ranking civil servants—such as Directors General, Deputy Directors General, Directors, Heads of Unit, and cabinet members—make such statements. In this context, Commission officials usually take extreme care to ensure that they speak ‘in a personal capacity’, and that ‘the views expressed [by them] are not an official position of the European Commission’. 1.117  Expert reports and third parties studies The Commission relies increasingly on reports and studies authored by third parties. In commissioning such reports, the Commission typically seeks expert advice that will allow it to gather data on particular economic sectors or commercial practices,178 to determine the feasibility/desirability of proposed policy reforms,179 to assess the outcome of past enforcement actions in certain fields/sectors,180 or simply to promote the emergence and discussion of innovative ideas on intricate issues of EU competition policy.181 1.118  Miscellaneous The Commission’s competition policy is also often clarified in other documents, circumstances, etc. For instance, the Commissioner’s responses to parliamentary questions, although fairly rare, may cast light on the Commission’s approach in certain cases (often highly politicized ones).

(2)  The case law of the European Courts 1.119  Introduction The ECJ is a generalist court which deals with all questions of EU law, both institutional and substantive, since the creation of the European Community in 1957. In order to reduce the growing backlog of cases of the Court of Justice, the Council created in 1989 the GC, to which it gave jurisdiction to hear at first instance annulment proceedings brought by natural and legal persons. Since the entry into force of the Lisbon Treaty, the GC also has first instance jurisdiction over annulment proceedings brought by Member States.

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1.120  Main features of EU competition litigation Because EU competition law is primarily enforced through Commission Decisions against natural and legal persons, most of the competition cases have, since 1989, been dealt with by the GC. The most frequent types of proceedings brought before the GC are (i) applications for annulment of Commission Decisions (Art 263 TFEU); (ii) applications for annulment or reduction of fines imposed by (p. 38) the Commission (Art 261 TFEU);182 and (iii) applications seeking compensation for damages caused by the Commission when unlawfully enforcing the competition rules (Arts 268 and 340 TFEU). 1.121  The Court of Justice’s intervention in the field of competition law is less frequent. The Court assumes duties which are akin to those of a supreme court. It (i) hears appeals on questions of law against judgments of the GC (Art 256 TFEU); (ii) responds to preliminary references from national courts (Art 267 TFEU); and (iii) rules on infringement proceedings brought against Member States for failure to comply with EU law obligations (Arts 258 and 259 TFEU). 1.122  Nature and intensity of judicial review As explained previously, the substance of EU competition law has become increasingly economic in nature. The upshot of this is that the outcome of cases routinely hinges upon complex economic assessments, where the frontier between legality and illegality is far from clear. 1.123  Almost inevitably, the Commission must thus enjoy a certain degree of discretion when discharging its enforcement duties. To accommodate that discretion, the European Courts have devised a standard of judicial review which, albeit apparently homogeneous, fluctuates amongst the various areas of competition enforcement. As will be seen in Chapter 5, this standard of judicial review has, in recent years, been heavily criticized by scholars and practitioners. 1.124  Whilst in certain matters, such as merger control, judicial review of the Commission’s decisions has seemed to become more intense, following a series of annulment judgments in Airtours, Schneider, and Tetra Laval,183 the GC has been reluctant to scrutinize Commission’s decisions under Article 102 TFEU. The GC’s judicial deference as regards the Commission’s assessments in that field is particularly well illustrated in judgments such as Microsoft v Commission and Wanadoo v Commission .184 In Microsoft v Commission, the GC held, for instance, that: it follows from consistent case-law that, although as a general rule the Community Courts[’] review of complex economic appraisals made by the Commission is necessarily limited to checking whether the relevant rules on procedure and on stating reasons have been complied with, whether the facts have been accurately stated and whether there has been any manifest error of assessment or a misuse of powers.185 1.125  Many consider that those cases demonstrate the EU Courts’ discomfort in matters involving sophisticated economic analysis. To increase the effectiveness of judicial review, as well as to reduce the average duration of proceedings before the EU Courts (currently it takes 20 to 30 months for the GC to rule on a competition case), a number of observers have recently argued in favour of establishing a specialist competition court at the EU level, similar to the (p. 39) Competition Appeals Tribunal in the UK.186 Article 257 TFEU indeed provides for the creation of ‘specialised courts attached to the General Court to hear and determine at first instance certain classes of action or proceeding brought in specific areas’.

(3)  National case law

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1.126  Decentralized enforcement system Until recently, NCAs and national courts had not been particularly involved in the enforcement of EU competition law. With the adoption of Regulation 1/2003, this situation has changed. Regulation 1/2003 has abolished the Commission’s jurisdictional monopoly over Article 101(3) TFEU and explicitly declares that NCAs and national courts can apply Article 101(3) TFEU.187 Whilst, from a mere legal standpoint, it is questionable whether an institution can, by means of a Regulation, legally declare the direct effect of a provision of the Treaty, the fact remains that since 2004 EU competition rules are increasingly enforced by national institutions. As in most decentralized enforcement systems, the implementation of EU competition rules by various NCAs and national courts triggers interesting dynamics, such as experimentation, crossfertilization, etc.188 For instance, the case law of the French courts on the requirements that may be imposed on online retailers in the context of selective distribution networks has clearly inspired the Commission’s new guidelines on vertical restraints. 1.127  However, the enforcement of the EU competition rules by an indefinite number of national institutions generates obvious concerns of inconsistent application across Europe. To reduce risks of inconsistency, Regulation 1/2003 in addition to various Commission Communications, establishes a whole host of cooperation mechanisms between the Commission, NCAs, and national courts.

V.  The Scope of Application of EU Competition Law A.  Scope Ratione Personae—To Whom Does EU Competition Law Apply? 1.128  ‘Undertakings’ EU competition rules apply primarily—in some instances directly (Arts 101 and 102 TFEU) and in others indirectly (Arts 107 to 109 TFEU)—to ‘undertakings’. European competition law is thus faced with a definitional problem. Does the concept of an (p. 40) ‘undertaking’, which is defined neither in the TFEU nor in secondary legislation,189 encompass, as economists would say, any ‘organization which transforms resources into goods and services which it sells on a market’? By this definition, any entity is potentially subject to EU competition law—raising the question of whether it is necessarily a good idea to make certain organizations (universities, hospitals, cultural centres, etc) subject to the EU competition regime. 1.129  The difficult task of elucidating the meaning of the concept of an undertaking fell to the EU judiciary. The Court first defined the concept broadly (Section 1) and then later restricted its scope (Section 2).

(1)  Jurisprudential definition of the concept of ‘undertaking’ 1.130  Economic activity, characteristic feature of an undertaking The question of defining the concept of an undertaking occupied the EU judiciary very early on. As early as 1962, the Court of Justice in the Mannesmann case held that an undertaking is: A unitary organisation of individuals and tangible and intangible assets connected to a legally independent subject, and pursuing on an ongoing basis a specific economic goal.190 1.131  The concept of undertaking was more clearly defined some years later when the Court of Justice made the notion of an undertaking dependent on the exercise of an ‘economic activity’.191 Thus, in the case of Höfner and Elser, the Court held that: The concept of undertaking includes any entity exercising an economic activity, regardless of the legal status of that entity and its method of financing.192

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1.132  While it might seem that definition merely shifts the ambiguity from ‘undertaking’ to ‘economic activity’, which was also left undefined, in fact it is not problematic. Already recognized from previous EU jurisprudence,193 ‘economic activity’ is—as the GC would later recall in the FENIN case—an activity consisting of ‘offering goods or services on a given market’.194 (p. 41) ‘Offering goods or services’ is, in turn, defined by the Court, as supplying ‘services … for payment’, or, more generally, in exchange for ‘economic consideration’.195 1.133  Extent of the notion of undertaking The extent of the concept of undertaking was progressively clarified through the Court of Justice case law. It is now taken to include, inter alia: football clubs;196 Formula 1 teams; opera singers;197 artists; businessmen; individual professionals (lawyers, architects, doctors, accountants, etc);198 and employees pursuing their own economic interests.199 1.134  Classifications under internal law are irrelevant Formal classifications under national law are of little significance to the EU judiciary. An undertaking can be a commercial company, a civil company, a cooperative, an economic interest grouping, a public institution, etc. Nor does the body in question have to have legal personality, as defined by national law, in order to be called an undertaking within the meaning of EU competition law.200 1.135  Diverse activities The coexistence, within one and the same organization, of both economic and non-economic activities, is common.201 In the area of public health, for example, it is common for public hospitals to dispense universal medical care (noneconomic activity) while simultaneously granting licences for the inventions made by their laboratories (economic activity).202 Thus a public hospital is an undertaking within the meaning of EU law when its laboratories monetize their IP rights. In the same vein, the Court held that the International Olympic Committee’s anti-doping regulations also fell within the scope of the Treaty, even though the regulations were purely sports-related and not an economic activity per se.203 Given the tremendous amount of economic activity based on sports, however, and the repercussions for sports-based economic activity that lax doping rules could have, this ruling makes sense. By contrast, non-economic activities are not caught by competition law. (p. 42) 1.136  Non-profit organizations The concept of an undertaking also covers entities that are not for profit, such as certain public bodies in charge of an economic activity and certain non-profit associations whose object is to exercise an economic activity. Thus, both a public employment office providing executive placement services (Höfner and Elser)204 and a non-profit medical organization providing emergency transport and ambulance services (Ambulanz Glöckner)205 have been held to be ‘undertakings’ by the Court of Justice. In defining an undertaking, it is therefore irrelevant whether the entity’s activity is or is not for profit, unlike the equivalent concept in company law. It is enough for an activity to be exercised for onerous consideration, that is, that the activity is normally provided in consideration for direct compensation (when paid by the beneficiary of the activity) or indirect compensation (when paid by another undertaking or institution). It is this jurisprudence, incidentally, which allows new business models providing free goods and services to one side of a market (consumers) to be made subject to competition law: prima facie, search engines (Google.com), theme-based community sites (MySpace.com), free morning papers, etc, do not sell a product or service to the customers. They do, however, exercise an economic activity within the meaning of competition law. These entities—and this is the key to their success—are paid by undertakings located on the other side of the two-sided market, namely advertising entities.

(2)  Jurisprudential restrictions of the concept of ‘undertaking’

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1.137  Where the problem lies The potentially limitless scope of the concept of an undertaking has not failed to provoke sharp criticism from legal scholars. At issue is the risk that some activities which, from an economic standpoint, may be termed ‘for the public good’ might somehow find themselves subject to the EU competition regime and its accompanying constraints.206 Termed an undertaking, a university could thus find itself deprived of public subsidies under Article 107 TFEU, or even unable to provide free education under Article 102 TFEU. Aware of such considerations, the Court of Justice has endeavoured to ‘confine’ its case law. 1.138  State activities The Court first removed certain activities by public authorities from the scope of the ‘economic activity’ concept. It held, for instance, that entities enjoying and exercising prerogatives ‘that were typical’ of governmental organizations, could not be termed undertakings.207 In the Eurocontrol case, the Court, for example, was of the view that air traffic control was not an economic activity.208 It also held, in Diego Cali, that marine anti-pollution monitoring did not constitute an economic activity but rather a ‘general interest mission’ that was part of the essential functions of the State in terms of environmental protection.209 (p. 43) 1.139  Social security benefits In the Poucet and Pistre judgments, the Court of Justice also considered that bodies which fulfil an ‘exclusively social’ function based on ‘national solidarity’ do not perform an economic activity, or constitute an undertaking thereby.210 1.140  One outstanding question, however, remained: should schemes with a function that was not exclusively social (so-called ‘provident’ schemes’) be carved out as well? Provident schemes are those that are supplementary to the usual State social security schemes, for instance supplementary insurance, retirement services, pensions, and life assurance. Such schemes appear, prima facie, to have the nature of solidarity. However, they are frequently provided by independent entities, for a profit, in direct competition with one another and with the equivalent State services. Consequently, it is questionable whether companies offering such schemes should be excluded from the scope of the economic activity concept. This question was finally referred to the wisdom of the EU judiciary in two cases, FFSA and Albany, which dealt with, respectively, retirement insurance for non-employed individuals in the agricultural sector and a sectoral pension fund.211 In these cases the Court ruled that such schemes should be distinguished from the health insurance funds in the Poucet case, which fulfilled an exclusively social function. These cases, therefore, could not be said to give rise to ‘national solidarity’ and, consequently, the providers of the services in each of these cases must be considered as undertakings subject to EU competition rules. 1.141  Functional approach As Advocate General Francis Jacobs explained in Albany, in order to determine whether a social security system exercises an economic activity, the Court must apply a ‘functional approach’.212 He then laid down three criteria that would usually be indicative of the existence of an economic activity, as opposed to national solidarity: (i)  membership of the insurance scheme or system is optional; (ii)  the contributions made by a specific beneficiary would finance his own future social security benefits (the principle of capitalization), rather than being used immediately to finance the current social security benefits of other contributors (the principle of allocation); (iii)  the contributions paid should correlate to the benefits received by the contributor (correlated benefits), as opposed to the financial income of the managing body (uncorrelated benefits). 213

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(p. 44) 1.142  If these criteria are met, the presumption is that the activity in question is economic in nature, although it still remained unclear whether the criteria were cumulative. The Albany case, for instance, involved a supplementary pension fund based on a mandatory membership system exhibiting certain features of ‘solidarity’ (both indicative of national solidarity). However, the Court held that the fund exercised an economic activity under competition law because the entity in question itself determined the amount of the contributions and benefits and the scheme functioned according to the principle of capitalization. The fund could therefore be seen to be active on the market as an undertaking in competition with insurance companies.214 1.143  Overall, the approach followed by the Court to determine whether a given individual or entity is an ‘undertaking’ seems to be based on a case-by-case assessment. This approach hinges on looking at a number of parameters that help to determine whether the scheme under review is consistent with an engagement in economic activity or, rather, takes the form of solidarity. If only some of the three criteria laid down by Advocate General Jacobs in Albany are met, then the Court will turn to older case law that points to other factors indicative of national solidarity, such as the absence of a profit motive and the social character of the functions. 1.144  Reminder concerning cumulative activities In accordance with the principles described, where services with an exclusively social character (eg those in Poucet) are combined with economic activities, the Court considers that only the latter activities will fall within the scope of EU competition law.215

B.  Scope Ratione Materiae—To What Sectors Does Competition Law Apply? 1.145  One of the features of competition law regimes is that they are not sector-specific, that is, they theoretically apply to all sectors of the economy. That said, an immediate qualification must be made: although EU competition law aims to catch all economic activities within the scope of the Treaty, it does not apply uniformly in all economic sectors.

(1)  Agricultural products 1.146  Brief recap of common agricultural policy A prominent feature of the EU, and one to which almost half its annual budget is devoted,216 is the common agricultural policy (CAP). Laid out in Title II of the Treaty, the CAP is characterized by guaranteed price mechanisms,217 production quotas, and aids to farmers, all of which, of course, run entirely counter to the Treaty’s pursuit of free, undistorted competition.218 (p. 45) 1.147  Special system of competition in the agricultural sector Noting the special nature of the agricultural sector, Article 36 EC (now Art 42 TFEU) therefore required the adoption of a Council Regulation, in order to determine the conditions for application of the competition rules in this sector: The provisions of the chapter relating to the competition rules only apply to the production of and trade in agricultural products to the extent determined by the Council in the context of the provisions and in accordance with the procedures provided in Article 37, paragraphs 2 and 3, in the light of the objectives referred to in Article 33. 1.148  The Council lost no time in clarifying the conditions for the application of the competition rules to agricultural products. In the wake of Regulation 17/62, which set out the general principles for implementing EU competition rules, the Council adopted, on 4 April 1962, Regulation 26/62 providing for the application of special principles in the

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agricultural sector.219 In 2006, Regulation 26/62 was repealed and replaced, without any fundamental changes, by Regulation 1184/2006.220 1.149  Derogations for agreements Article 1 of Regulation 1184/2006 declares that Articles 81 to 86 EC (now Arts 101 to 106 TFEU) apply to the production of, and trade in, those agricultural products which are listed in Annex I of the then EC Treaty. Article 2 of the Regulation, however, immediately lays out three derogations to this principle as applied to agreements between undertakings. Contrary to the position under Regulation 1/2003— whereby agreements between undertakings may be assessed by NCAs and courts—the assessment of agreements within the agricultural sector falls within the exclusive jurisdiction of the Commission.221 Three derogations, then, provide for situations in which the Commission is not to apply Articles 81 to 86 EC (now Arts 101 to 106 TFEU) to the production of, and trade in, specified agricultural products: (i)  Article 81(1) EC does not apply to agreements, decisions, and practices which are an integral part of a ‘national organisation of the market’; (ii)  Article 81(1) EC does not apply to agreements, decisions, and practices which are necessary for the attainment of the objectives referred to in Article 33 EC, namely ‘to increase agricultural productivity, ensure a fair standard of living for the agricultural community, stabilise markets, assure the availability of supplies, and ensure that supplies reach consumers at reasonable prices’; (iii)  Article 81(1) EC does not apply, as is explicitly stated in Article 2(1), to national agreements which—without imposing the obligation to charge a specified price— concern ‘the production or sales of agricultural products or the use of joint facilities for the (p. 46) storage, treatment or processing of agricultural products’, 222 in other words, agricultural cooperatives and groups of agricultural operators. 223 1.150  Limited scope of derogations In practice, these derogations only raise a limited obstacle to the application of the competition rules in the agricultural sector. Namely, they do not affect the application of Article 102 TFEU, the merger control regulation224 or the State aid provisions.225 1.151  Moreover, the first derogation no longer has much relevance since ‘national market organizations’ have given way to ‘common market organizations.’226 The Court held in the Milk Marque Ltd case that national authorities had jurisdiction to apply national competition law in the areas governed by the common market organizations, signifying that even in the absence of the application of EU competition law, the undertakings concerned will still be governed by national competition laws.227 1.152  Finally, the Court of Justice and the GC have consistently promoted a strict approach in respect of the second derogation.228 Thus, in FNCBV v Commission, which dealt with a cartel between the main French federations in the beef sector, the GC refused to allow the application of Article 2, Regulation 26/62.229 The federations had participated in a cartel aimed at fixing a minimum purchasing price for certain categories of cattle and suspending imports of beef to France. They argued that the cartel was necessary to ensure a fair standard of living for the agricultural community and to stabilize the markets.230 The GC agreed to recognize the relevance of the first objective. In considering the proportionality of the measures taken by the federations for this purpose, however, the Court felt that the agreement included an excessive risk ‘of harming, at the very least, the charging of reasonable prices in deliveries to consumers’.231 The derogation of Regulation 26/62 did not, therefore, apply in the particular case.

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(p. 47) (2)  Transport 1.153  Brief recap of the common transport policy Just as with agricultural products, the transport sector has been the subject of a common EU policy, laid out in Title VI of the TFEU.232 The aim of this policy is to remove obstacles to cross-border transport,233 primarily in order to help the effectiveness of the major freedoms of movement (goods and people, in particular) provided by the Treaty. 1.154  Discussion on the applicability of the competition rules The existence of a common transport policy has led some to claim, mainly for political reasons, that the sector is not subject to the application of EU competition rules.234 The proponents of this theory took their line of argument from Article 90 TFEU, according to which: The objectives of the Treaty shall be pursued by member states, in matters governed by this Title, within the framework of a common transport policy. 1.155  Based solely on the wording of the Treaty, however, Article 90 TFEU—unlike Article 42 TFEU in the agricultural sector—in no way ruled out the applicability of the competition rules to the transport sector. In the Nouvelles Frontières case, the Court of Justice concluded that: the competition rules of the Treaty, … apply to the transport sector regardless of the establishment of a common policy in that sector.235 1.156  Sectoral approach In fact, it was in secondary legislation that the specific rules relating to the transport sector were laid out: Regulation 141/62, adopted in November 1962, suspended the application of Regulation 17/62 (and therefore the mandatory notification mechanism) to the transport sector. Without any enforcement powers,236 the Commission now had to wait for the Council to adopt enforcement provisions in order for it to intervene in the transport sector. The Council chose a sector-specific approach by adopting separate Regulations for (i) transport by rail, road, and inland waterway;237 (ii) maritime transport services;238 and (iii) air transport.239 These Regulations held two things in common: first, most of the specific (p. 48) procedural rules are the same240 and, second, a derogation from the provision in Article 101(1) TFEU that declared ‘technical cartel agreements’ incompatible with the Treaty,241 recognizing, instead, the benefit of (generous) exemptions under Article 101(3) for certain forms of cooperation that would usually be prohibited. Regulation 4056/86, which thereby exempted cartels dividing markets between maritime shippers from the application of Article 101(1), is in this regard a model of legislative leniency.242 1.157  Influence of modernization To take full account of the case law—which does not require a specific procedural regime for the transport sector—and arguably to simplify the EU enforcement structure, Regulation 1/2003 repealed Regulation 141/62 and thus eliminated the specific procedural provisions enshrined in sectoral regulations. The general legal exception system is now applicable in the transport sector.243 However—and this is important—Regulation 1/2003 maintains the special substantive rules (‘technical exceptions’ and exemptions).244

(p. 49) (3)  Network industries 1.158  Inadequacy of the TFEU’s competition rules In the early 1990s, European institutions undertook to ‘liberalize’—that is, open up to competition—the ‘network industries’ (telecommunications, energy, postal services, etc) sectors where there had previously been a system of State monopolies.245 In these industries, therefore, there were good reasons to believe that the application of EU competition rules246 might not have been

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sufficient to ensure that formerly monopolistic market structures would become competitive:247 •  specificity of the sectors/practices and insufficient expertise of competition authorities—competition rules (and authorities) are not capable of settling the complex issues relating to methods of access to infrastructure (price and conditions), which are frequent in liberalized sectors. Market entry is usually conditional on receiving access to the incumbents’ infrastructures at a reasonable price; 248 •  unsuitable modus operandi of the competition authorities—competition rules (and authorities) generally intervene ex post to sanction restrictive practices. In emerging markets such as those undergoing liberalization, the ex ante intervention of regulatory authorities may be needed in order to prevent incumbents from abusing their dominance and to stimulate the entry of new traders; •  inappropriate normative structure of the competition rules—competition rules (and authorities) typically do not prescribe positive obligations (obligations to do something) but only injunctions (obligations not to do something). In liberalized sectors, however, it is often necessary to impose specific obligations on incumbent operators, that is, to enjoin them to implement measures designed to ensure transparency, the separation of accounts, access to network elements, cost orientation, unbundling, etc; •  failures of the competition rules—competition rules (and authorities) typically do not take into account the universal service requirements (provision of a service at an affordable price and at a quality level that is constant and continuous throughout the territory) that typically apply in these sectors. 1.159  Adoption of ad hoc regulations In order to ensure the liberalization of formerly monopolistic sectors, the Commission decided to adopt a sequential strategy .249 First, sector-specific Directives were adopted to open the market to competition and provide a regulatory framework that would prevent incumbents from abusing their market power to prevent entry. These Directives would also provide for a variety of measures designed to reduce switching costs (p. 50) (eg number portability in the telecommunications field), thereby facilitating market entry. Once the liberalized markets had become competitive, sector-specific regulations would give way to the exclusive application of the EU competition rules. 1.160  Qualifications An attractive concept, this sequential approach is not, in practice, totally satisfactory. In the course of the liberalization processes, competition rules must first be able to intervene as an adjunct to sectoral regulation: •  anti-competitive agreements—sector-specific rules typically do not catch certain anticompetitive behaviours such as cartels relating to pricing or sales terms which nevertheless affect the sectors being deregulated; •  mergers—sector-specific rules do not provide for any form of merger control to take place in liberalized sectors. Merger control is, however, essential, since the liberalization process typically triggers consolidation among the various players in the market; 250 •  other practices—the flexibility of competition rules allows the resolution of a series of problems typically not envisaged in sector-specific regulatory frameworks (eg infrastructure-sharing agreements), 251 and anticompetitive practices that have not been addressed by the sectoral regulator. 252

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1.161  This is why, in the course of the deregulation process, the Commission has often vigorously applied EU competition rules to fill in the gaps in the sectoral regulations. 1.162  Interpretative instruments The Commission has adopted interpretative texts which clarify the principles for applying competition rules in the sectors being liberalized. Since 1991, several Notices and Guidelines have addressed a range of issues that are linked with the application of competition rules to the liberalized sectors, such as market definition, dominance analysis, etc. Such interpretative documents have been adopted in the telecommunications253 and in the postal services sectors.254

(4)  The arms industry 1.163  Where the problem lies EU competition rules in principle apply to the arms industry. However, Article 346(1)(b) of the Treaty states that: any Member State may take such measures as it considers necessary for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions and war material; such measures shall not adversely affect the conditions of (p. 51) competition in the internal market regarding products which are not intended for specifically military purposes. 1.164  Article 346(1)(b) EC refers to a real ‘national security exception’. Although the provision does not rule out the application of the competition rules to undertakings active in the arms sector, Member States nonetheless have the power—in the case of a procedure applying the competition rules—to take any measure to protect the essential interests of their security. 1.165  Practical impact Article 346(1)(b) EC has only been invoked once thus far, in the case of Matra/Aérospatiale .255 In that case, the French authorities were trying to avoid the need for parties to a concentration to notify the aspects of the operation relating to missiles and missile systems.256 They therefore enjoined the parties not to provide information on these aspects, in their notification. The Commission checked to see whether the conditions of Article 346(1)(b) EC were met. It concluded that the French authorities had legitimately sought to protect the essential interests of their national security. 1.166  There are, however, certain limitations to the national security exception. Importantly, it does not apply to certain industrial activities of a civil nature (aeronautical engineering) that are often ancillary to military activities. Second, if the measures taken distort competition, Article 348 TFEU authorizes the Commission to negotiate an ‘adjustment’ of these measures with the Member State in question.257 Third, if a Member State makes wrongful use of the national security exception, the Commission (or any other Member State) can directly file an appeal with the Court of Justice in respect of the breach, in derogation from the procedure provided in Articles 258 and 259 TFEU.258

C.  Scope Ratione Loci—Where is EU Competition Law Applied and Enforced? (1)  The prescriptive jurisdiction of EU competition law 1.167  Brief reminder of the concept of prescriptive jurisdiction Prescriptive jurisdiction refers to a State’s basic ability to adopt legislation that may apply within and outside its territory. Theoretically, States will either pass legislation that applies on the basis of nationality (all practices in restraint of trade committed by EU undertakings fall within the scope of the TFEU), or on the basis of territoriality, which can have several variations (all practices in restraint of trade committed by undertakings that are active in

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the Union territory fall within (p. 52) the scope of the TFEU; or all practices in restraint of trade affecting the Union territory fall within the scope of the TFEU).259 1.168  Choice of criterion of objective territoriality In Articles 101 and 102, the TFEU tells us that a cartel or an abuse of a dominant position are incompatible if their aim or effect is to distort competition ‘within the internal market’. The TFEU thus bases the normative jurisdiction of its competition rules on a principle of territoriality of the impact of the restraint:260 •  unless a restraint of competition has an impact within the EU, the competition rules of the TFEU do not apply; •  if a restraint of competition has an impact within the EU, the competition rules of the TFEU do apply. 1.169  The principle, rooted in the actual wording of Articles 101 and 102 TFEU, has been confirmed, after lengthy jurisprudential developments,261 in the Javico judgment.262 1.170  Practical impact In the first of the circumstances mentioned (absence of impact of restraint within the EU), EU competition law does not apply even though the undertakings responsible for the restraint are established in the EU.263 The restraint of competition will not, (p. 53) however, necessarily remain unchecked. If the restraint produces effects on non-Member territories, the competition rules of foreign States may have jurisdiction to catch and, if necessary, prohibit the anticompetitive practice.264 1.171  In the second circumstance described above (impact of the restraint within the EU), EU competition law applies to restraints of competition even when such restraints are implemented by undertakings located outside the EU, as long as their impact is felt within the EU. If, today, the doctrine of effects as the basis of the extraterritorial jurisdiction of a State is no longer in serious dispute,265 it nonetheless continues to result in serious practical difficulties.

(2)  Executive jurisdiction of EU competition law 1.172  Brief recap of the concept of executive jurisdiction Executive jurisdiction is the area in which a given government can adopt measures and orders to implement competition rules, namely investigations, coercive measures concerning assets or individuals, injunctions to do or not do something, etc. Certainly the executive jurisdiction of EU competition law extends, without any problem, throughout the EU territory. In contrast, when the party which is the subject of the enforcement measures is outside the territory of the EU, the executive jurisdiction of EU competition law can vary. A distinction must be made here between investigative measures (Section (a)) and orders (Section (b)).

(a)  Investigative measures 1.173  The position of scholars Leading scholars have argued, pursuant to public international law, that in the context of applying competition law, State authorities are not justified in forcing, either directly or indirectly, parties or witnesses located abroad, to produce documents or provide information.266 1.174  Assessment In practice, however, a distinction must be made between two issues. As regards on-site inspections (‘dawn raids’),267 it is undeniable that the EU cannot conduct these in a foreign territory unless there are specific international cooperation procedures. As regards simple requests for information, on the other hand, nothing prevents EU authorities from asking foreign-based undertakings to provide documents that are in their possession.268

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(p. 54) (b)  Orders 1.175  Clarification Orders refer to demands made by an authority to a party which is subject to its jurisdiction to carry out an act abroad for the purpose of compliance with the law in question.269 In competition law, these include injunctions to provide information,270 cease and desist orders,271 corrective measures,272 interim measures,273 decisions imposing sanctions (administrative fines or criminal penalties),274 and orders for the payment of compensation, etc.275 1.176  Assessment Enforcement of orders is not problematic provided the undertakings which are the subject of the order have assets in the EU. On the other hand, orders cannot be enforced against foreign undertakings which have no assets within the EU territory. One could argue that, with globalization, this issue is likely to become increasingly academic as corporations generally have to establish a presence (and thus own some assets) in the EU. But that does not take into account the dematerialization of trade and the advent of the digital economy: more and more undertakings provide services in the EU even though they are not physically present there.

(3)  The problem of global competition law (a)  Diagnosis—inadequacy of a competition law system that is not international 1.177  The principles of territorial application of competition law which have just been set forth raise at least four major difficulties. 1.178  Fundamental dissensions among authorities Under the doctrine of effects, there is nothing to prevent different competition authorities from declaring that they have jurisdiction to examine the same practice/operation. In practice, if one competition authority prohibits a transaction or a certain type of behaviour, this is sufficient for that transaction or behaviour to be anticompetitive, even if all other competition authorities claiming jurisdiction considered the activity in question to pose no problems under their own competition rules.276 This danger, which certainly affects the area of merger control, is illustrated by the Boeing/McDonnell-Douglas or the GE/Honeywell cases.277

(p. 55) Illustration: the Boeing/McDonnell-Douglas case In 1997, Boeing and McDonnell-Douglas, two US aircraft manufacturers, agreed to merge. The operation was approved unconditionally on 1 July 1997 by the US Federal Trade Commission (FTC) which found that the concentration would not result in a ‘substantial lessening of competition’, since McDonnell-Douglas was not a major competitive force in the commercial aircraft market. At the same time, the operation was notified to the European Commission—which made a different finding. It found that Boeing, already in a dominant position in the large commercial jet aircraft market, would strengthen this dominant position in acquiring McDonnell-Douglas. The Commission threatened to declare the operation incompatible unless certain modifications were made by the parties. After a month of tense negotiations, the Commission authorized the deal, subject to conditions, on 30 July 1997. Of course, the influence of political and economic interests did not escape anyone.278 For the EU, it was a matter of preserving the long-term interests of the European manufacturer Airbus, Boeing’s sole competitor. For the United States, it was important to ensure a restructuring of the defence sector through the merger rather than seeing McDonnell-Douglas exit the market. 1.179  Nations having competition law regimes attempt to resolve these problems by concluding cooperation agreements. The agreement concluded between the United States and the EU is the best known of such agreements.279 Apart from the mechanisms of reciprocal notification, exchange of information, and procedural cooperation/coordination, the most fundamental aspect of this agreement is the establishment of ‘comity’ mechanisms. Article V(1) of the agreement provides a general obligation of negative comity: each party takes into consideration the important interests of the other during all stages of From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

the procedure.280 In addition, Article V(2) of the agreement provides for a mechanism of positive comity: one party may ask the other to take enforcement measures against anticompetitive practices which are committed on the territory of the latter, but which harm the important interests of the party making the request.281 1.180  Transaction and duplication costs Even absent any disagreement, the cumulative application of distinct competition law regimes generates significant transaction costs for undertakings that must first discover and then comply with the specific laws of multiple jurisdictions. In addition, there is the public cost of duplication of administrative procedures, although each authority will focus on the effect of the transaction on its own domestic market. 1.181  Problems of enforcement As stated, the principle of the territoriality of enforcement measures (inspections, cease and desist orders, corrective measures, etc) impedes the efficiency, (p. 56) at a domestic level, of competition systems. Meanwhile, the bilateral agreements mentioned are inevitably limited by their non-binding nature. 1.182  Exposure of the emerging economies Frequently, emerging economies do not have competition rules, or if they have them, fail to enforce them sufficiently to catch the anticompetitive practices of major foreign industrial groups.282 If one adheres to the principle of territoriality applied by the main competition law regimes, competition authorities of the countries to which these corporations belong would not have jurisdiction, or even where they do have jurisdiction would not try to catch export cartels and abuses.

(b)  Remedy—internationalization of competition law 1.183  Agreement among scholars The importance of creating international competition rules is broadly agreed among legal scholars.283 There is also a broad agreement that the various initiatives to develop such rules—for instance within the framework of the ICN,284 UNCTD,285 or OECD,286—have not, to date, been adequate. 1.184  Discussion on the methods While there is a broad recognition that the development of international competition rules would be desirable, scholars tend to disagree as to how such development should take place. Some authors propose the adoption of a brand new international competition authority.287 Others, more realistically, advocate the establishment of an international system within the World Trade Organization (WTO).288 (p. 57) 1.185  The question of feasibility Certain scholars, such as Professor Eleanor Fox, have argued that the political feasibility of a system involving an institutional structure for dispute settlement (such as the WTO), was doubtful, because this would inevitably entail a degree of coercion over national sovereignty which States will be reluctant to concede.289 Others have disputed this claim, asserting that in the area of IPRs—where, however, greater divergences exist among national legislations than is the case in competition law—States have succeeded in concluding an agreement on the Trade-related Aspects of Intellectual Property Law (TRIPS), within the WTO. 1.186  Assessment Although the WTO appears to be the right forum for an international competition agreement, it is primarily interested in the behaviours of States. And, while an agreement imposing the obligation for members to protect ‘undistorted’ competition is a realistic prospect, an international system of substantive competition law with direct effect and its own supranational institutions remains utopian. The failure of the Cancun ministerial conference in 2003, one of the aims of which was to promote international negotiation on basic principles and the establishment of minimum common values in

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competition law,290 illustrates the difficulty of making progress on the development of a global competition regime.291

(4)  Conclusions 1.187  Prospects In the absence of a global competition law regime, the frictions between the different competition law regimes remain and can only be settled by bilateral ad hoc agreements. The EU has concluded a large number of agreements with non-Member States, which go beyond simple technical agreements like the US–EU Agreement. These include: •  the agreement creating an association between the EEC and Turkey, known as the ‘Ankara Agreement’; 292 •  the EEA Agreement (Norway, Liechtenstein, Iceland) (the same States, with the addition of Switzerland); 294 (p. 58) • the European Agreements;

293

and the EFTA Agreement

295

•  the Euro-Mediterranean Agreements.

296

1.188  Most of these agreements contain competition rules which reflect the provisions of the TFEU. These rules aim at preventing and sanctioning anticompetitive practices which might affect trade between the EU and non-Member States or groups of co-contracting States. These rules are implemented in a decentralized manner: each of the parties to the agreement has jurisdiction to apply its provisions. Certain provisions of these agreements are the subject of escape clauses.297 1.189  Practical effect In practice, these agreements extend to new territories the standard of protection offered by EU competition law to undertakings active within these territories. Suppose, for instance, that an EU undertaking exporting its products to Norway is the victim of a predatory pricing strategy conducted by a Norwegian undertaking that is dominant on the relevant market. Legal action may be taken against that company before the Norwegian authorities based on the prohibition against abuses of dominant position. The rules applied by the Norwegian authority are those of the EEA Agreement (since trade between the EU and Norway is affected), which are identical to those of the TFEU. They must be interpreted in accordance with EU case law. 1.190  Qualified effectiveness The effectiveness of the competition rules contained in the international agreements concluded by the EU with non-Member States is not uniform. Where the parties have a similar level of economic development, the rules will generally be effective. Thus, the rules of the EEA Agreements and the European Agreements are effectively enforced. On the other hand, where the level of economic development differs, implementation will typically be weak. The competition provisions in the EuroMediterranean Agreements, for instance, are not enforced.298 Such agreements nevertheless produce an indirect normative influence on the States that contract to them. Thus many non-Member States that are parties to agreements with the EU have adopted national competition legislation that is inspired by the rules laid down in the TFEU.

Footnotes: 1

  James Kanter, ‘Europe Fines Intel $1.45 Billion in Antitrust Case’, New York Times, 13 May 2009. 2

  David Lawsky and Sabina Zawadzki, ‘EU Commission blocks Ryanair’s bid for Aer Lingus’, Reuters, 27 June 2007.

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3

  Sarah Arnott, ‘Brussels slaps record fine on glass cartel’, The Independent, 13 November 2008. 4

  Stephen Castle, ‘European Banks Get EU Warning’, International Herald Tribune, 23 July 2009. 5

  EU merger control was the subject of much debate following the famous ‘merger mania’ of the 1990s. See ‘Europe’s Merger Morass’, The Economist, 23 September 2000, at 73–4. 6

  To date, the Commission has issued 20 Decisions declaring concentrations to be ‘incompatible’ with the common market. See Decisions M.4439, RyanAir/Aer Lingus, 30 October 2006; M.3440, ENI/EDP/GDP, 9 December 2004; M.2416, Tetra Laval/Sidel, 30 October 2001; M.2187, CVC/Lenzing, 17 October 2001; M.2283, Schneider/Legrand, 10 October 2001; M.2220, General Electric/Honeywell, 3 July 2001; M.2097, SCA/Metsä Tissue, 31 January 2001; M. 1741, MCI Worldcom/Sprint, 28 June 2000; M. 1672, Volvo/ Scania, 15 March 2000; M. 1524, Airtours/First choice, 22 September 1999; M. 1027, Deutsche Telekom/Betaresearch, 27 May 1998; M.993, Bertelsmann/Kirch/Premiere, 27 May 1998; M.890, Blokker/Toys ‘R’ Us (II), 26 June 1997; M.774, Saint Gobain/Wacker Chemie/Nom, 4 December 1996; M.784, Kesko/Tuko, 20 November 1996; M.619, Gencor/ Lonrho, 24 April 1996; M.553, RTL/Veronica/Endemol (HMG), 20 September 1995; M.490, Nordic Satellite Distribution, 19 July 1995; M.469, MSG Media Service, 9 November 1994; M. 53, Aerospatiale/Alenia/De Havilland, 2 October 1991. Added to the above list should be those concentrations which the parties abandoned before a ban was pronounced. See eg cases M. 1852, EMI/TimeWarner and M. 1715, Alcan/Pechiney. 7

  Cartels date back to early wars, when those fighting concluded agreements to suspend hostilities in order to exchange prisoners. Nowadays the cartel is understood as an agreement to suspend competition (which itself is a form of economic warfare). See with regard to these points, J. Joshua and C. Harding, Regulating Cartels in Europe—A Study of Legal Control of Corporate Delinquency (Oxford: Oxford University Press, 2003), at xxiii. 8

  A negative perception of cartel agreements is, in Europe, relatively recent, dating back to the end of the Second World War. Prior to that, agreeing with competitors to limit the harmful effects of ‘excessive’ competition was viewed as a perfectly legitimate practice, a form of collective industry code preferable to ‘individualism’. A legacy of nineteenth century Austrian and German schools of thought, the cartels so common in the Rhine region had the blessing of the public authorities. Realizing, after the Second World War, that the major cartels in the Ruhr had backed the German war effort and established the military supremacy of the Third Reich, the drafters of the European Steel and Coal and EC Treaties were keen to establish the basis of a lasting peace in Europe. They therefore introduced in these treaties a provision prohibiting agreements in restraint of trade. Not surprisingly, however, history and habit have been hard to break, meaning that even today undertakings in certain industries continue to enter into cartel agreements. See J. Monnet, Mémoires (Paris: Fayard, 1998). 9

  See Mario Monti’s speech, ‘Fighting Cartels Why and How? Why should we be concerned with cartels and collusive behaviour?’, 3rd Nordic Competition Policy Conference, Stockholm, 11–12 September 2000. 10

  The objective of administrative sanctions is to ‘exhort people to respect the laws and regulations and to encourage them to adopt behaviours that are in accordance with the legal framework.’ See J. Schwartze, ‘Sanctions imposed for infringements of European competition law according to Article 23 of EC Regulation no. 1/2003 in light of the general principles of the law’ (2007) 43(1) RTD 1. See Art 23(2) of Council Regulation 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, OJ L 1 of 4 January 2003, at 1. National legal systems may provide criminal sanctions for infringements of national competition law. Member States which have adopted such provisions include Estonia, France, Greece, Hungary, Ireland, the Czech From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Republic, Romania, and the UK. The question of transposing these solutions to the EU level is the subject of fierce debate, however. A recent Court of Justice judgment, the scope of which is still argued, might perhaps provide a legal basis for introducing criminal sanctions into Community law. See CJ, C-176/03 Commission v Council, 13 September 2005 [2005] ECR I-7879, at 47 and 48. 11

  In the United States, a number of industry executives have been imprisoned for infringing antitrust laws. In December 2001, eg, the chairman of the board of directors of Sotheby’s, Alfred Taubman, was sentenced to a year and a day’s imprisonment for having been actively involved in concerted price-fixing practices with Christies. See ‘Taubman Sentenced To One Year—Plus A Day’, Forbes, 22 April 2004. 12

  See Commission Decision of 21 November 2001, COMP/E-1/37.512, Vitamins, OJ L 6 of 10 January 2003, at 1–89. 13

  See Commission Decision of 21 February 2007, COMP/E-1/38.823, Elevators and escalators, nyr. 14

  Summary of Commission Decision of 12 November 2008 relating to a proceeding under Article 81 of the Treaty establishing the European Community and Article 53 of the EEA Agreement, COMP/39.125, Car glass, OJ C 173 of 25 July 2009, at 13. 15

  See CJ, Cases annexed 96–102, 104, 105, 108, and 110/82 NV IAZ International Belgium et al v Commission, 8 November 1983 [1983] ECR 3369, at 56. According to the EU judge in that case, the Commission does not have to take account of the ‘adverse financial situation’ of an undertaking when it sanctions it: ‘recognition of such an obligation would be tantamount to conferring an unjustified competitive advantage on undertakings least well adapted to the conditions of the market.’ The undertaking’s inability to pay is therefore not, in principle, a mitigating circumstance that is taken into account by the Commission in calculating an individual fine (see Commission Decision of 18 July 2001, COMP/E-1/36.490, Graphite electrodes, OJ L 100 of 16 April 2002, at 1, paras 184–5). The Commission has, however, encouraged a flexible interpretation of this principle, either by reducing the amount of a fine (see Commission Decision of 3 December 2003, COMP/C.38.359, Electrical and mechanical carbon and graphite products, at 360 where the Commission reduced the amount of the fine imposed on the undertaking SGL by taking account of (i) the serious financial problems it was then experiencing and (ii) the fines which had recently been imposed on it for its participation in two other cartels), or by agreeing to adjustments in payment terms (eg deferred payment; see Commission Decision of 7 June 2000, COMP/ 36.545/F3, Amino Acids, OJ L 152 of 7 June 2001, at 24, para 438). See COMP/C37.370, Sorbates (2005/493/EC), where two firms left business in the years following the discovery of the cartel. 16

  See Commission Decision of 24 March 2004, COMP/C-3/37.792, Microsoft, OJ L 32 of 6 February 2007, at 23. See also, GC, T-201/04 Microsoft v Commission, 17 September 2007, ECR II-360. See regarding this case, N. Petit, ‘L’arrêt Microsoft: abus de position dominante, refus de licence et vente liée—L’article 82 TCE sans code source’ (2008) 145 JDE 8–12. 17

  Commission Decision of 13 May 2009, COMP/37-990, Intel, available at . 18

  There are grounds for criticizing this eminently ‘structuralist’ approach. See Chapter 2.

19

  See CJ, Michelin v Commission [1983] ECR 3461.

20

  The terms used in EU law are ‘exclusive rights’ and ‘special rights’.

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21

  In order to achieve its chief aims of improving consumer welfare and promoting a single European market, the Commission aimed to increase competition in these European industry sectors, which necessitated the opening of the sectors to new market participants. The Commission was therefore quick to require Member States to terminate legal monopolies that had previously been granted to some undertakings. 22

  The present treatise does not cover State aids, which are presented here simply to illustrate the wide reach of EU competition law. 23

  See Commission Decision of 7 July 2004 concerning the aid measures enforced by France in favour of Alstom, OJ L 150 of 10 June 2005, at 24. 24

  See Commission Decision of 12 February 2004 concerning the advantages granted by the Walloon Region and Brussels South Charleroi Airport to the airline Ryanair when it set up at Charleroi, OJ L 137 of 30 April 2004, at 1. 25

  See Commission Notice, ‘A Pro-active Competition Policy for a Competitive Europe’, 20 April 2004, COM(2004) 293 final, at 2: Competition policy is one of a number of Community policies impacting upon the economic performance of Europe. It is a key element of a coherent and integrated policy to foster the competitiveness of Europe’s industries and to attain the goals of the Lisbon strategy. 26

  See An Agenda For A Growing Europe—Making the EU Economic System Deliver, Report of an Independent High-Level Study Group established on the initiative of the President of the European Commission, July 2003, at 130. 27

  By improving the EU’s resilience to external shocks. Ibid, esp at 73–4.

28

  Certain political representatives have proposed concrete estimates of the macroeconomic effects of competition law. Eg, Belgium’s former Minister for the Economy, F. Moerman, mentioned annual benefits of around €250 million, representing 6,000 potential jobs, for Belgium. See F. Moerman, ‘Towards a Belgian competition authority’ in P. Nihoul (ed), Decentralisation in the Application of Competition Law. A Greater Role for the Practitioner? (Brussels: Bruylant, 2004), at 253–4. 29

  Most notably, Richard Posner falls into this camp. Richard A. Posner, ‘The Social Costs of Monopoly and Regulation’ (1975) 83(4) J Political Economy 807, at 818–19 (‘Indeed, the costs of regulation probably exceed the costs of private monopoly’). Warren Schwartz identifies the appropriate question that should be asked: do the deterrence effects of enforcement outweigh the costs of achieving them? Warren F. Schwartz, ‘An Overview of the Economics of Antitrust Enforcement’ (1079–80) 68 Georgetown LJ 1075 at 1082: The costs involved in deterring violations by exacting a price from individual antitrust violators therefore must be traded off against the benefits from the resulting reduction in the harm caused by antitrust offenses. Decreasing the number of antitrust violations benefits society by reducing both the misallocation of resources associated with charging monopoly prices and the waste of resources involved in securing monopoly power. To maximize the social value of enforcement expenditures it is these two types of harm that must be minimized. Greater or lesser gain to the monopolist, however, does not necessarily correlate with the magnitude of the social harm caused by the proscribed conduct.

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30

  A cost that is perhaps less than the cost of regulating and administering competition law. See, in particular, the study carried out by A. Haberger, ‘Monopoly and Resource Allocation’ (1954) 44 Am Economic Rev 77. The period under empirical examination extended from 1924 to 1928. Haberger, who was aware of the problems of measurement, decided to overestimate rather than underestimate the cost of monopoly. Of course, an approach, which overestimates the cost of monopoly, is not reliable since the empirical measurement of cost is based on a system in which antitrust law already applies. The estimate cannot therefore be a true and fair view of the monopoly cost, which is already limited by the application of antitrust law. See also K. Cowling and D. Mueller, ‘The Social Costs of Monopoly Power’ (1978) 88 Economic Journal 727, who, for their part, had estimated the welfare losses for the US economy as between 4 and 13 per cent of GDP. 31

  See F. Jenny and A. Weber, Initiation into Microeconomic Theory (Paris: Dunod, 1983).

32

  See F.M. Scherer and D. Ross, Industrial Market Structure and Economic Performance, 3rd edn (Boston, MA: Houghton Mifflin, 1990), at 459–62. 33

  Jonathan B. Baker, ‘Does Antitrust Policy Improve Consumer Welfare? Assessing the Evidence’ (2003) 17(4) J of Economic Perspectives 27, at 43 and 45. 34

  See Paolo Buccirossi, Lorenzo Ciari, Tomaso Duso, Giancarlo Spagnolo, and Cristiana Vitale, DP7470 Competition Policy and Productivity Growth: An Empirical Assessment, September 2009. 35

  Our example is taken from N.G. Mankiw, Principles of Economics (New York: The Dryden Press/Harcourt Brace, 1998). 36

  See A. Marshall, Principles of Economics (London/New York: Macmillan, 1890).

37

  See A. Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, 1776. Depending on their respective preferences, each economic agent that values a good, service, or investment, may be freely supplied on the market. 38

  See Michael L. Katz and Harvey S. Rosen, Microeconomics, 3rd edn (Columbus, OH: Irwin McGraw-Hill, 1998), at 10. 39

  In the sense of Vifredo Pareto’s optimum, ie, ‘making someone better off, without making someone worse off’. According to Pareto, an optimal allocation of resources exists when it is no longer possible to improve the situation of any individual without harming another individual. See V. Pareto, Cours d’économie politique (Lausanne: 1896). 40

  The premise that undertakings are absolutely rational at all times must be qualified. See eg Gary S. Becker, ‘Irrational Behavior and Economic Theory’ (1962) 70(1) J Political Economy 1 (discussing how some irrational (non-optimizing) firms may exist in a largely rational industry, at 11–13). More intuitively appealing in its explanation of suboptimal behaviour is the theory of ‘near-rational behaviour’. Along these lines, see George A. Akerhof and Janet L. Yellen, ‘A Near-Rational Model of the Business Cycle, With Wage and Price Inertia’ (1985) 100 Quarterly J Economics 823 (discussing that firms may adjust prices and wages slowly and thereby fail to optimize at every point in time, even though the related losses tend to be small, at 825). 41

  See Mankiw, n 35, at 318.

42

  According to the orthodox view, combating inflation, eg, is not a suitable area for competition authority intervention. Inflation leads to a general price increase on the market, thereby affecting all producers uniformly. See K.N. Hylton, Antitrust Law (Cambridge: Cambridge University Press, 2003), at 151.

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43

  See Mankiw, n 35, at 10. The invisible hand that guides the market does not always operate optimally. In particular, one or more of the following shortcomings may be present in a market: externalities (ie, a spillover stemming from an economic transaction which impacts third parties that are not directly involved in the transaction), public goods (goods or services which benefit all of society and which are neither exclusive nor rivalrous), asymmetries of information (situations where there is imperfect information on one side of transaction), transaction costs, natural monopoly (in the case of economies of scale or increasing returns), etc. All of these examples constitute scenarios of so-called market failure. 44

  Ibid. Appropriate State intervention is seen as justified for the purpose of promoting efficiency and eradicating or at least reducing market failures. In addition to the objective of promoting efficiency, a second objective of government intervention in the marketplace is the goal of fairness or equitable redistribution (eg through fiscal policies like taxes). 45

  It also led to the adoption of special regulations in certain sectors, eg in the telecommunications sector, to correct the negative effects of a market failure known as ‘natural monopoly’. 46

  See J.M. Buchanan, The Limits of Liberty (Chicago, IL: Chicago University Press, 1975). A government subject to mandatory re-election will thus have a tendency to favour choices and decisions that are in line with the preferences of the categories of electors that are crucial to its re-election. See W.D. Nordhaus, ‘The Political Business Cycle’ (1975) 42 Rev of Economic Studies 169. 47

  Of course, by the mid-1950s the development of international transportation had contributed to the increase in imports/exports within the European area. 48

  The State has a predominant role in the development of a nation’s wealth by adopting selective protectionist policies that include establishing tariff barriers and encouraging exports. 49

  See Art 2 of the former EC Treaty.

50

  In other words, a free trade area (no internal obstacles to trade) and a common customs tariff, in accordance with the definition in Art XXIV.8 of the General Agreement on Tariffs and Trade (GATT). 51

  When the EU adopted the Single European Act in 1986, it set the goal of creating an ‘internal market’ in Europe by 1992. See Art 7A. The concept of an ‘internal market’, which is closely related to the concept of a ‘common market’, expresses the desire for greater harmonization of national policies. 52

  See P. Cecchini, The European Challenge, 1992: The Benefits of a Single Market (Aldershot: Gower, 1988). 53

  Since the protection offered by customs duties has disappeared, prices, production, and innovation are directly stimulated by the dismantling of the obstacles to economic trade among Member States. 54

  See Commission Decision IV/35.733, VW, OJ L 124, at 60. See GC, T-62/98 Volkswagen AG v Commission, 6 July 2000 [2000] ECR II-2707; CJ, C-338/00 P Volkswagen AG v Commission, 18 September 2003 [2003] ECR I-9189. 55

  See in particular J. Stuyck, ‘Libre circulation et concurrence: Les deux piliers du Marché commun’, Mélanges en hommage à Michel Waelbroeck, vol II (Brussels: Bruylant, 1999), at 1477. See also C.-D. Ehlermann, ‘The Contribution of EC Competition Rules to the Single

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Market’ (1992) 29 Common Market L Rev 257, which emphasizes competition law’s crucial role in the construction of the large European internal market. 56

  The concept of incompatibility with the common market is complementary to the goal of promoting economic efficiency. Namely, eliminating private barriers to trade and allowing for the completion of an integrated market achieves both goals. Note that the EU judiciary saw the incompatibility concept as separate from economic efficiency and especially important for obtaining an integrated market. See CJ, 6/72 Europemballage and Continental Can v Commission, 21 February 1973 [1973] ECR 215. 57

  See K.P. Ewing, Competition Rules for the 21st Century: Principles from America’s Experience (The Hague: Kluwer Law International, 2003), at 75–6. 58

  The Greek philosopher Aristotle provides this example in his discussion of monopolies in Book IV of his Politics collection. 59

  See Ewing, n 57, at 76. The Lex Julia de Annona—adopted under Caesar during the Roman Republic around 50 BC—provided for sanctions against arrangements intended to raise the price of wheat. Around AD 301, the emperor Diocletian issued an edict aimed at fighting the increase in the cost of living which sanctioned, in particular, practices aimed at artificially creating situations of shortage in staples. Finally, Zeno’s constitution of AD 483, which pursued similar goals, prohibited not only monopolies and private agreements but also eliminated ‘public’ or ‘State’ monopolies previously granted by the Emperor. 60

  The Emperor Justinian, eg, decided to reintroduce the status of State monopolies. See R.O. Wilberforce, A. Campbell, and N.P.M. Elles, The Law of Restrictive Trade Practices and Monopolies (London: Sweet & Maxwell, 1957). 61

  The King of Bohemia Wenceslas II introduced the constitutiones juris metallici between 1283 and 1305, which prohibited ore traders from making agreements among themselves to increase prices. The municipal statutes of Florence of 1322 and 1325 eliminated public monopolies. 62

  In 1561, a system of licences of industrial monopolies was introduced.

63

  See 2 Keny 300, 96 Eng Rep 1189 (KB 1758).

64

  See Allarde decree, 2–17 March 1791: ‘Any person shall be free to choose the trade, profession, art or occupation he wants’. See le Chapelier Law of 14 and 17 June 1791. 65

  See M. Glais and P. Laurent, Traité d’économie et de droit de la concurrence (Paris: PUF, 1983), at 21–2. 66

  Contrary to the popular view, Canada adopted a competition legislation one year before the United States. On 2 May 1889, Canada adopted the Act for the Prevention and Suppression of Combinations in Restraint of Trade, Statutes of Canada, 1889, 52 Vic, c 41. 67

  See M. Motta, Competition Policy—Theory and Practice (Cambridge: Cambridge University Press, 2004), at 1. 68

  This fear became the cause of the legislature’s intervention with the adoption of the Sherman Act. In Standard Oil Co of New Jersey v United States, 221 US 1 (1911) [1], the US Supreme Court found Standard Oil guilty of illegally monopolizing the US oil industry through a series of anticompetitive actions. Standard Oil was severely sanctioned and dismantled into several competing companies. 69

  See Ludwig von Mises, A Critique of Interventionism (1929); Ludwig von Mises, Interventionism: An Economic Analysis (1941); Friedrich Hayek, The Constitution of Liberty (Chicago, IL: University of Chicago Press, 1960).

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70

  See D. Gerber, Law and Competition in Twentieth Century Europe: Protecting Prometheus (Oxford: Oxford University Press, 1998), at 148. 71

  See K.-U. Kuhn, ‘Germany’ in D.J. Graham and E.M. Richardson (eds), Global Competition Policy (Washington DC: Institute for International Economics, 1997). Germany did, however, have an administrative system for controlling cartels, established by legislation in 1923. 72

  See Gerber, n 70, at 250.

73

  Ibid.

74

  Ibid, at 245.

75

  Ibid, at 252.

76

  Ibid, at 253.

77

  Ibid, at 268–9.

78

  These provisions bear traces of sections 1 and 2 of the Sherman Act. The founding fathers were advised by several American experts (R. Bowie, Professor at Harvard, and G. Ball, an American attorney with an office in Paris). The provisions were ‘corrected’ by an eminent French legal expert (M. Lagrange, Councillor of State). See Gerber, n 70, at 338–9. 79

  Ibid, at 343; and D. Goyder, Competition Law, 4th edn (Oxford: Oxford University Press, 2003), at 23–4. 80

  See Art 3 (f) EEC Treaty, later Art 3 (1)(g) EC.

81

  See Gerber, n 70, at 347.

82

  See Council Regulation 17 of 6 February 1962, First Regulation implementing Articles [81] and [82] of the Treaty, OJ L, 21 February 1962, at 204. 83

  Administrative letters in which DG COMP informs the parties that it considers that competition law did not apply to the agreements notified or that it did not consider it necessary to pursue the procedure to the stage of making a decision. 84

  Formal decisions finding that the behaviour examined did not constitute either an anticompetitive agreement as defined in Art 81 EC (now Art 101 TFEU) or an abuse of a dominant position as defined in Art 82 EC (now Art 102 TFEU). 85

  See White Paper on the modernisation of the regulations implementing Articles 85 and 86, COM(1999) 101 final of 28 April 1999, OJ C 132 of 12 May 1999. 86

  See ibid.

87

  With the notable exception of D. Waelbroeck, ‘La modernisation des règles de concurrence’ (2001) 1–2 Cahiers de droit européen 204. This author considers that the number of notifications was not excessive. 88

  See Regulation 1/2003, n 10, on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, OJ L 1 of 4 January 2003, at 1–25. 89

  Title VII, Chapter 1 TFEU replaces former Title VI, Chapter 1 EC Treaty.

90

  In the late 1990s, the Commission began a wave of reforms targeting the fundamental rules of EU competition law—regulations on vertical restrictions, horizontal agreements, technology transfer agreements, concentrations between undertakings. The text adopted under the reforms aimed to increase the efficiency of competition policy in Europe. See Commission Exemption Regulation 2658/2000 of 29 November 2000 on the application of Article 81(3) of the Treaty to categories of specialization agreements, OJ L 304 of 5 December 2000, at 3–6; Commission Exemption Regulation 2659/2000 of 29 November 2000 on the application of Article 81(3) of the Treaty to categories of research and development agreements, OJ L 304 of 5 December 2000, at 7–12; Commission Regulation From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

2790/1999 of 22 December 1999 on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices, OJ L 336 of 29 December 1999, at 21–5; Commission Notice—Guidelines on Vertical Restraints, OJ C 291 of 13 October 2000, at 1–44; Commission Notice, Guidelines on the applicability of Article 81 of the EC Treaty to horizontal cooperation agreements, OJ C 3 of 6 January 2001, at 2–30; Council Regulation 139/2004 of 20 January 2004 on the control of concentrations between undertakings, OJ L 24 of 29 January 2004, at 1–22; Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings, OJ C 31 of 5 February 2004, at 5–18. 91

  See regarding this, D. Geradin and N. Petit, ‘Droit de la concurrence et recours en annulation à l’ère postmodernisation’, RTD Eur, 4, October–December 2006, 795. 92

  See eg L. Parret, ‘Do We (Still) Know What We are Protecting?’, Tilburg Law and Economics Center (TILEC) Discussion Paper No 2009-010, 1 April 2009. 93

  See R.J. van den Bergh and P.D. Camesasca, European Competition Law and Economics: A Comparative Perspective (Antwerp/Oxford: Intersentia/Hart Publishing, 2001), at 1–2. Others would like to see competition policy given industrial objectives. See in particular, J. Oudin, Europe et mondialisation—L’espoir industriel, Information report 462 (97–98)— Delegation of the Senate for the European Union. 94

  See Preamble to the EC Treaty, which states, eg ‘ Recognising that the removal of existing obstacles calls for concerted action in order to guarantee steady expansion, balanced trade and fair competition.’ 95

  This is the concept of fairness that was espoused by the ordo-liberal doctrine already referred to. See Gerber, n 70, at 37–8. 96

  See ‘Section 2 and Article 82: Cowboys and Gentlemen’, Remarks by J. Bruce McDonald, Deputy Assistant Attorney General, Antitrust Division, US Department of Justice, presented to the College of Europe, Global Competition Law Centre, The Modernisation of Article 82, Second Annual Conference, Brussels, 16–17 June 2005. 97

  Commission Decision 2006/857/EC of 15 June 2005 relating to a proceeding under Article 82 of the EC Treaty and Article 54 of the EEA Agreement, COMP/A.37.507/F3, AstraZeneca, OJ L 332 of 30 November 2006, at 24–5. 98

  ‘Commission accepts commitments from Rambus lowering memory chip royalty rates’, IP/09/1897, 9 December 2009. 99

  See Arts 4 and 98 EC.

100

  See D. Encaoua and R. Guesnerie, Politiques de la concurrence (CAE no. 60) (Paris: La Documentation française, 2006), at 37. By extension, economic concentration may allow some dominant undertakings to influence the play of democracy. See G. Amato, Antitrust and the Bounds of Power—The Dilemma of Liberal Democracy in the History of the Market (Oxford: Hart Publishing, 1997), at 2. 101

  See, generally, Monti, n 9, at 87. In the United States, Professor Robert Lande is one of the few authors who espouses, in keeping with ordo-liberal ideology, that the main objective of the Sherman Act is the maintenance of a choice for the consumer. See R. Lande, ‘Consumer Choice as the Ultimate Goal of Antitrust’ (2001) 62 U Pittsburg L Rev 503: The role of antitrust can best be understood in terms of a fundamental standard— the standard of consumer choice. The antitrust laws are intended to ensure that the marketplace remains competitive so that worthwhile options are produced and

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made available to consumers, and this range of options is not to be significantly impaired or distorted by anticompetitive practices. See also R. Lande, ‘Proving the Obvious: The Antitrust Laws Were Passed to Protect Consumers (Not Just to Increase Efficiency)’ (1999) 50 Hastings LJ 959. 102

  See CJ, 322/21 NV Nederlandsche Banden Industrie Michelin v Commission, 9 November 1983 [1983] ECR 3461, at 57. 103

  A good illustration of this can be found in a US case of 1962, oft-cited as favouring the protection of competitors over the protection of competition. In Brown Shoe v United States, the US Supreme Court upheld the prohibition on the merger of Brown Shoe and G.R. Kinney Co, two shoe manufacturers whose combined market share did not exceed 4.5 per cent. Obsessed with the risk of economic concentration, the Court was worried about a snowball effect in the shoe market, which would lead to the marginalization of small businesses. The Court therefore diverged from the principle that promoting competition should take precedence over protecting competitors. It declared: It is competition, not competitors, which the Act protects. But we cannot fail to recognize Congress’ desire to promote competition through the protection of viable, small, locally owned business. Congress appreciated that occasional higher costs and prices might result from the maintenance of fragmented industries and markets. It resolved these competing considerations in favor of decentralization. We must give effect to that decision. See Brown Shoe Co, Inc v United States, 370 US 294 (1962). Regarding this point, see Amato, n 100, at 18. 104

  See CJ, 89/85 Ahlström Osakeyhtiö vCommission (‘ Wood Pulp’), 27 September 1988 [1993] ECR I-1307, at 63. 105

  In this vein, see van den Bergh and Camesasca, n 93, at 5. The origin of this view lies in the works of the Chicago School, which we discuss in Chapter 2. See also Monti, n 9, at 22. 106

  See R.A. Posner, Antitrust Law, 2nd edn (Chicago, IL: University of Chicago Press, 2001), at 29. 107

  See eg ‘An economic approach to Article 82’, July 2005, European Advisors Group on Competition Policy (EAGCP), at 2 108

  See J. Brodley, ‘The Economic Goals of Antitrust: Efficiency, Consumer Welfare and Technological Progress’ (1987) 62 NYU L Rev 1020, who links the concepts of social welfare and economic efficiency. 109

  See Guidelines on the assessment of horizontal mergers, para 79.

110

  See eg Guidance Communication on the Commission’s Enforcement Priorities in Applying Article 82 of the EC Treaty to Abusive Exclusionary Conduct by Dominant Undertakings, C(2009) 864 final, para 19. 111

  See D. Geradin, ‘Efficiency Claims in EC Competition Law’ in H. Ullrich (ed), The Evolution of European Competition Law—Whose Regulation, Which Competition? (Cheltenham: Edward Elgar, 2006). 112

  Others, however, question whether the founding fathers had considered such concepts. See van den Bergh and Camesasca, n 93, at 6. 113

  The GC and the Court of Justice have been careful not to become involved in the debate relating to the economic purposes of competition rules. As far as we know, the European Courts have never explicitly pronounced on the economic objectives of European

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competition law. Such moderation by the Courts is perhaps the best evidence that the question is a political one and not a strictly legal one. 114

  See Geradin, n 111.

115

  See CJ, Cases annexed 100–103/80 SA Musique Diffusion française et al v Commission, 7 June 1983 [1983] ECR 1825, at 105: That task certainly includes the duty to investigate and punish individual infringements, but it also encompasses the duty to pursue a general policy designed to apply, in competition matters, the principles laid down by the Treaty and to guide the conduct of undertakings in the light of those principles. 116

  See Commission Notice—A proactive competition policy for a competitive Europe, esp para 1. The Notice also states that ‘Vigorous competition is thus a key driver for competitiveness and economic growth’. 117

  See, in this vein, the words of N. Kroes, ‘Making consumers’ right to damages a reality: the case for collective redress mechanisms in antitrust claims’, Conference on collective redress for European consumers, Lisbon, SPEECH/07/698, 9 November 2007 (‘Consumer welfare is the standard of antitrust enforcement’). See also N. Kroes, ‘Preliminary Thoughts on Policy Review of Article 82’, Fordham Corporate Law Institute, New York, SPEECH/ 05/537, 23 September 2005. See again the Commission’s Discussion document on abuses of dominant position, 19 December 2005, at paras 4 and 54 (‘the objective of Article 82 is the protection of competition on the market as a means of enhancing consumer welfare and of ensuring an efficient allocation of resources’). 118

  See CJ, Cases annexed to 56 and 58/64, Établissements Consten SàRL and GrundigVerkaufs-GmbH v Commission, 13 July 1966 [1966] ECR 429. In the Continental Can case the ECJ again notes the fundamental value of the objective of market integration provided in Art 2 EC: the restrictions on competition which the Treaty allows under certain conditions because of the need to harmonize the various objectives of the Treaty, are limited by the requirements of Articles 2 and 3, going beyond this limit involves the risk that weakening of competition would conflict with the aims of the common market. With a view to safeguarding the principles and attaining the objectives set out in Articles 2 and 3 of the Treaty, Articles 85 to 90 have laid down general rules applicable to undertakings. See CJ, 6/72 Continental Can v Commission, 21 February 1973 [1973] ECR 215, at 24–5. 119

  See European Commission, IXth Report on Competition Policy, 1979, at 9. See also Claus-Dieter Ehlermann, ‘The Contribution of EC Competition Policy to the Single Market’ (1992) 29 Common Market L Rev 257, 273. 120

  Article 17 of Regulation 1/2003, specifically, relating to the ‘Investigations into sectors of the economy and into types of agreements’ illustrates our remarks: Where the trend of trade between Member States, the rigidity of prices or other circumstances suggest that competition may be restricted or distorted within the common market, the Commission may conduct its inquiry into a particular sector of the economy or into a particular type of agreements across various sectors. In the course of that inquiry, the Commission may request the undertakings or associations of undertakings concerned to supply the information necessary for

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giving effect to Articles 81 and 82 of the Treaty and may carry out any inspections necessary for that purpose. 121

  See, in particular, the conclusion of C. Dussart, ‘Parallel Import of Motor Vehicles: The Peugeot Case’ (2006) 1 Competition Policy Newsletter, at 49. 122

  See Commission Notice—Guidelines on Vertical Restraints, n 90, esp at para 7, which sums up this principle well: However, in the case of restraints by object as listed in Article 4 of the Block Exemption Regulation, the Commission is not required to assess the actual effect on the market. Market integration is an additional goal of EC competition policy. Market integration enhances competition in the Community. A company should not be allowed to recreate private barriers between Member States where State barriers have been successfully abolished. 123

  See eg G. Monti, EC Competition Law—Law in Context (Cambridge: Cambridge University Press, 2007), at 41. 124

  See our exposition in Chapter 3.

125

  In 2002, the Commission imposed a fine totalling €167.8 million on Nintendo and on seven of its official distributors in Europe for entering into an agreement to prevent exports from cheaper countries to more expensive ones. See Commission Decision of 30 October 2002, COMP/35.587 PO Video Games, COMP/35.706 PO Nintendo Distribution, and COMP/ 36.321 Omega—Nintendo, OJ L 255 of 8 October 2003, at 33. In calculating the fine, the Commission noted that: It follows from the facts that the infringement had the object of enhancing the territorial protection awarded to exclusive distributors to a state of absolute territorial protection and eliminating in each territory all competition with the distributor of the products in that territory. It also had the object of artificially partitioning the single market, thereby jeopardising a fundamental principle of the Treaty Restrictions of this kind are by their nature very serious violations of Article 81(1) of the Treaty and 53(1) of the EEA Agreement. 126

  See CJ, C-02/01 P Bundesverband der Arzneimittel-Importeure v Bayer AG and Commission, 6 January 2004 [2004] ECR I-23; GC, T-41/96 Bayer AG v Commission, 26 October 2000 [2000] ECR II-3383. 127

  See GC, T-168/01 GlaxoSmithKline Services Unlimited v Commission, 27 September 2006 [2006] ECR II-2969. 128

  Moreover, with regard to the heavy investment in R&D incurred by the upstream producers, it does not seem illegitimate for these producers to protect themselves from reimportation of their products at cut-rate prices. In this case, one Member State is in essence subsidising R&D for another, with parallel imports acting to increase the subsidy. Finally, to the extent that drug prices are set or controlled by Member States, the influence made by parallel trade on retail prices (as opposed to wholesale prices) appears, at the very least, hypothetical. 129

  Judgment of the Court (Third Chamber) of 6 October 2009, Joined Cases C-501/06 P, C-513/06 P, C-515/06 P, and C-519/06 P). 130

  See CJ, Joined Cases C-468–478/06 Lélos kai Sia (Syfait II), [2008] ECR I-8637.

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131

  See Title VI, Chapter I, Section I of the EC Treaty.

132

  See our exposition in Chapter 3.

133

  See our exposition in Chapter 4.

134

  See in particular, CJ, C-126/97 Eco Swiss China Time Ltd v Benetton International NV, 1 June 1999 [1999] ECR I-3055; CJ, annexed Cases C-295/04–298/04 Vincenzo Manfredi et al, 13 July 2006 [2006] ECR I-6619, at 31. 135

  See C-168/05 Elisa María Mostaza Claro v Centro Móvil Milenium SL, 26 October 2006 [2006] ECR I-10421. 136

  See Title VII, Chapter I, Sections I and II TFEU.

137

  These Regulations were adopted by a qualified majority following the Commission’s proposal, after consultation with the European Parliament. Implementation questions cover, eg general and sectoral methods of applying Art 101(3), relations between EU law and national law, sanctions and penalties, corrective measures, etc. 138

  See Protocol No 27 on the internal market and competition, OJ C 115 of 9 May 2008, at 309. 139

  See ‘A Less “Anglo-Saxon” EU. Sarkozy Scraps Competition Clause from New Treaty’, Der Spiegel, 22 June 2007. 140

  See A. Riley, ‘The EU Reform Treaty and the Competition Protocol: Undermining EC Competition Law’, CEPS Policy Briefs, 24 September 2007 who supports the view that the Lisbon Treaty watered down competition policy. See also A. Weitbrecht, ‘From Freidburg to Chicago and Beyond—The First 50 Years of European Competition Law’ (2008) 2 ECLR 81. 141

  eg in the Club Lombard case, the GC expressly referred to ‘the fundamental objective of undistorted competition embodied in Article 3(g) EC’. See GC, Cases T-259–264/02 and T-271/02 Raiffeisen Zentralbank Österreich AG and Others v Commission, 14 December 2006 [2006] ECR II-5169, at 255. See also CJ, C-289/04 P Showa Denko KK v Commission, 29 June 2006 [2006] ECR I-05859, at 55, judging that free competition within the common market ‘constitutes a fundamental objective of the Community under Article 3(1)(g) EC’. See also Advocate General Kokott, in C-95/04 P British Airways plc v Commission, 23 February 2006, at 69, referring to ‘the purpose of protecting competition in the internal market from distortions (Article 3(1)(g) EC)’; and CJ, Cases 6/73 and 7/73 Istituto Chemioterapico Italiano and Commercial Solvents v Commission, 6 March 1974 [1974] ECR 223, at 25, referring to ‘the objectives expressed in article 3(f) of the Treaty and set out in greater detail in Articles 85 and 86’. 142

  See M. Petite, ‘La place du droit de la concurrence dans le futur ordre juridique communautaire’ [2008] 1 Concurrences. 143

  Ibid. See also T. Buck, ‘Kroes vows to maintain “firm and fair” line on competition’, Financial Times, 25 June 2007. 144

  See CJ, 85/76 Hoffmann-La Roche v Commission, 13 February 1979 [1979] ECR 461, at 38. 145

  See CJ, C-198/01 Consorzio Industrie Fiammiferi, 9 September 2003 [2003] ECR I-8055, at 54–5. 146

  See CJ, C-453/99 Courage v Crehan, 20 September 2001 [2001] ECR I-06297, at 20.

147

  Article 3(1)(g) was invoked to justify fining a firm already punished in another legal order. See CJ, C-328/05 P SGL Carbon AG v Commission, 10 May 2007 [2007] ECR I-3921.

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148

  See CJ, C-198/01, Consorzio Industrie Fiammiferi, n 145, at 54–5.

149

  See Council Regulation 4064/1989 of 21 December 1989 on the control of concentrations between undertakings, OJ L 395 of 30 December 1989, at 1. 150

  See Council Regulation 139/2004 of 20 January 2004 on the control of concentrations between undertakings, OJ L 24 of 29 January 2004, at 1, in Art 2(3) (the concept of dominant position is maintained, in the guise of an example of a significant obstacle to effective competition). 151

  See Art 33 of Regulation 1/2003: The Commission shall be authorised to take such measures as may be appropriate in order to apply this Regulation. The measures may concern, inter alia: a) the form, content and other details of complaints lodged pursuant to Article 7 and the procedure for rejecting complaints; b) the practical arrangements for the exchange of information and consultations provided for in Article 11; c) the practical arrangements for the hearings provided for in Article 27. 2. Before the adoption of any measures pursuant to paragraph 1, the Commission shall publish a draft thereof and invite all interested parties to submit their comments within the time-limit it lays down, which may not be less than one month. Before publishing a draft measure and before adopting it, the Commission shall consult the Advisory Committee on Restrictive Practices and Dominant Positions.

152

  See Commission Regulation 773/2004 of 7 April 2004 relating to the conduct of proceedings by the Commission pursuant to Articles 81 and 82 of the EC Treaty, OJ L 123 of 27 April 2004, at 18. 153

  See Commission Regulation (EC) No 622/2008 of 30 June 2008 amending Regulation (EC) No 773/2004, as regards the conduct of settlement procedures in cartel cases, OJ L 173, 1 July 2004, at 1. 154

  C-213/02 P Rørindustri and others v Commission [2004] ECR I-05425.

155

  See, for a full description, Geradin and Petit, n 91.

156

  On soft law instruments see generally, U. Morth, Soft Law in Governance and Regulation: An Interdisciplinary Analysis (Cheltenham: Edward Elgar, 2004), at 37–8. 157

  We do not examine other less orthodox—but by no means less effective—forms of intervention such as information purposefully leaked to the press by regulators. For a good account of this phenomenon, see M. Heim, ‘The Impact of the Media on EU Merger Decisions’ (2003) 2 European Competition L Rev 49. 158

  See D. Geradin and N. Petit, ‘Judicial Remedies under EC Competition Law: Complex Issues arising from the “Modernisation” Process’ in International Antitrust Law and Policy: Fordham Corporate Law (Huntington: NY: Juris Publishing, 2005), at 393. There is no significant difference between these instruments, which seem to be interchangeable (see H.A. Cosma and R. Whish, ‘Soft Law in the Field of EU Competition Policy’ (2003) 14(1) European Business L Rev 25, at 51). In a nutshell, the proliferation of such Guidelines, Notices, and Communications is due to the recognition that economic operators need added guidance in light of (i) the requirement, introduced by the adoption of Regulation 1/2003, that firms themselves assess the legality of their business practices and (ii) the increased sophistication of substantive EU competition law resulting in part from the influence of micro-economic analysis.

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159

  Although the Commission’s website contains most Notices, the Commission has not published a full list of all those in force. However, a list of such Notices is provided as an Annex to the Notice on cooperation between the Commission and National Courts. See Commission Notice on the cooperation between the Commission and the courts of the EU Member States in the application of Articles 81 and 82 EC, OJ C 101 of 27 April 2004, at 54. This list does not appear to be exhaustive, given that a number of Notices are not mentioned (sub-contracting, exclusive commercial agents, etc). It has been suggested that the omitted instruments should now be presumed defunct. See C. Kerse and N. Khan, EC Antitrust Procedure, 5th edn (London: Thomson–Sweet & Maxwell, 2005), at para 1-026. For a full list, see Van Bael and Bellis, Competition Law of the European Community, 4th edn (The Hague: Kluwer Law International, 2005), at 1146–8. 160

  See Commission Notice—Guidelines on Vertical Restraints, n 90, at 1, para 3: ‘By issuing these Guidelines the Commission aims to help companies to make their own assessment of vertical agreements under the EC competition rules.’ 161

  See Commission Notice on the cooperation between the Commission and the courts of the EU Member States in the application of Articles 81 and 82 EC, n 159, at para 8: national courts may find guidance in Commission regulations and decisions which present elements that are similar to those in a case they are dealing with, as well as in Commission notices and guidelines relating to the application of Articles 81 and 82 EC and in the annual report on competition policy. 162

  To that end, the Guidelines set out the views of the Commission (ie, its interpretation of statutory and case law). In addition, the Commission often builds on the case law of the EU Courts, where existing precedent is unclear or where it does not fully answer a specific question. See eg Commission Notice on agreements of minor importance which do not appreciably restrict competition under Article 81(1) of the Treaty establishing the European Community (de minimis), OJ C 368 of 22 December 2001, at 13. 163

  Most of these instruments concern substantive issues of EU competition law, although the Commission adopted such instruments with respect to procedural matters as well. See Kerse and Khan, n 159, at para 1-026. 164

  See L. Idot, ‘La qualification de la restriction de concurrence: à propos des lignes directrices de la Commission concernant l’application de l’article 81 §3’ in G. Canivet, La Modernisation du droit de la concurrence (Paris: LGDJ, 2006), at 88. 165

  The guidelines on vertical restraints contain similar provisions, under the heading ‘negative effects of vertical restraints’. Commission Notice—Guidelines on Vertical Restraints, n 90, at paras 103–14. 166

  See Discussion Paper on the Application of Article 82 of the Treaty to Exclusionary Abuses, Brussels, December 2005, available at . They may also follow expert reports issued by third parties. See eg Consultation paper on the review of Council Regulation 4056/86 laying down detailed rules for the application of Articles 81 and 82 of the Treaty to maritime transport, 27 March 2003, available at . 167

  See Consultation paper on the review of Council Regulation 4056/86 laying down detailed rules for the application of Articles 81 and 82 of the Treaty to maritime transport, n 166.

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168

  They usually give rise to a legislative proposal from the Commission to the Council (and possibly the Parliament). 169

  In October 2005, the Commission issued a self-evaluation document reviewing its policy on merger remedies (its goal was also to determine whether (and where) further improvements were needed). The study followed a process of consultation of firms involved in merger transactions having led to the adoption of remedies. See DG COMP In House Merger Remedies Study, October 2005 available at . 170

  The annual report on Competition Policy is published by the Commission in response to a request of the European Parliament contained in a Resolution of 7 June 1971. It is now published in conjunction with the General Report on the activities of the EU. 171

  See eg Report on Competition Policy 2006, COM(2007) 358 final.

172

  In particular, in respect of Decisions adopted pursuant to Arts 7 to 10 of Regulation 1/2003, n 10, on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, OJ L 1, 2003, at 1. See also, Kerse and Khan, n 159; L. Ortiz Blanco, EC Competition Procedure, 5th edn (London: Sweet & Maxwell, 2005), at para 6-050. The Commission’s press releases (and other written information disclosed to the press) are issued by its Directorate-General for Press and Communication. This department is under the authority of the President of the Commission and is headed by a Director General and by the Spokesperson. The Spokesperson is assisted by more than 20 spokespersons responsible for specific portfolios, among which competition policy. See J. Faull, ‘The Spokesperson and the Law’ in A. von Bogdandy, P.C. Mavroidis, and Y. Mény (eds), European Integration and International Co-ordination: Studies in Transnational Law in Honour of Claus-Dieter Ehlermann (Alphen aan den Rijn: Kluwer Law International, 2002), at 160. 173

  The Commission increasingly adopts press releases to comment on judgments handed down by European Courts (such press releases are common in the context of judgments under Art 234 EC) and on measures adopted by other bodies (EU legislation, decisions of NCAs, etc). Eg, following the GC’s ruling in Tetra Laval, the Commission publicly expressed its disagreement with the standard of judicial review endorsed by the Court. See Commission Press Release, Commission appeals GC ruling on Tetra Laval/Sidel to the European Court of Justice, IP/02/1952, 20 December 2002. See, more generally, Ortiz Blanco, n 172, at para 4.33. Press releases labelled ‘Memos’ generally seek to clarify legal issues arising from certain cases (the Commission usually issues Memos in the context of settlements when it does not adopt a final decision). Memos describe briefly the facts of the case and the legal approaches followed by the Commission, and sometimes provide answers to FAQs. During the British Airways proceedings, the Commission explained that its press releases are an important source of guidance for firms, as they convey its stance on certain practices. See T-219/99 British Airways plc v Commission [2003] ECR II-5917, at 62: According to the press release on the principles concerning travel agents’ commissions, issued on the same day that the contested decision was adopted, that decision constituted a first step in dealing with commissions paid by airlines to travel agents. The principles established in that press release also gave clear guidance for any other airline in a situation similar to that of BA, and the Commission stated that it would take all measures necessary to ensure that those principles were complied with by other airlines in equivalent situations.

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In the Austrian Banks Cartel case, the GC noted that the Commission, through the adoption of a press release, had clarified the state of the law with respect to agreements on bank interest rates. The Court accordingly rejected the allegation that the Commission had been ambiguous and had created legal uncertainty. See T-259–264/02 and T-271/02 Raiffeisen Zentralbank Österreich AG and others v Commission [2006] ECR II-5169, at 507. 174

  See eg M. Petite, ‘EU Commitment to free competition remains unchanged’, Financial Times, 27 June 2007. 175

  See eg the competition law treatise edited by J. Faull and A. Nikpay, The EC Law of Competition (Oxford: Oxford University Press, 2007). 176

  eg Commissioner Kroes publicly rebuked the US Assistant Attorney General for Antitrust for his ‘totally unacceptable’ criticism of the GC ruling in the Microsoft case. See T. Buck, ‘Kroes rebuffs US on Microsoft ruling’, Financial Times, 19 September 2007. 177

  Articles 17(1) and 17a(1) of the Staff Regulations provide as follows: ‘An official shall refrain from any unauthorised disclosure of information received in the line of duty, unless that information has already been made public or is accessible to the public’; ‘An official has the right to freedom of expression, with due respect to the principles of loyalty and impartiality’. See Staff Regulations of Officials of the European Communities, available at . 178

  See I. Paterson, M. Fink, A. Ogus et al, Economic impact of regulation in the field of liberal professions in different Member States, Study for the European Commission, DG COMP, January 2003 available at . 179

  See Study on the conditions of claims for damages in case of infringement of EC competition rules, Comparative report prepared by D. Waelbroeck, D. Slater, and G. EvenShoshan, 31 August 2004 available at . 180

  See, in the field of maritime transport, The application of competition rules to liner shipping, Final report, Global Insight et al, 26 October 2005, available at . 181

  See M. Ivaldi, B. Jullien, P. Rey, P. Seabright, and J. Tirole Idei, The Economics of Unilateral Effects, Toulouse, November 2003, Interim Report for DG COMP, European Commission, available at ; K.U. Kühn and X. Vives, Information Exchange among Firms and their Impact on Competition (Luxembourg: Office for Official Publications of the European Community, 1995); E. Kantzenbach, E. Kottman, and R. Krüger, New Industrial Economics and Experiences from European Merger Control—New Lessons about Collective Dominance?, Study commissioned by the European Commission (Luxembourg: Office for Official Publications of the European Communities, 1995); S. Meadowcroft and D. Thompson, Minority Share Acquisition: The Impact upon Competition (Luxembourg: Office for Official Publications of the European Communities, 1986). 182

  See also Art 31 of Regulation 1/2003, n 10.

183

  In these three cases the GC censured the decisions of the Commission for errors in the factual assessment, lack of sufficient evidence, and errors of law. See GC, T-342/99 Airtours v Commission, 6 June 2002 [2002] ECR II-258; GC, T-310/01 Schneider Electric v Commission, 22 October 2002 [2002] ECR II-4071; GC, T-5/02 Tetra Laval v Commission, 25 October 2002 [2002] ECR II-4381. The growing effectiveness of judicial control in mergers

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encourages parties to make use of the remedies offered to them by EU law. This development is reinforced by accelerated judicial procedures. 184

  See GC, T-201/04 Microsoft Corp v Commission, 17 September 2007, nyr; GC, T-340/03 France Télécom SA v Commission, 30 January 2007 [2007] ECR II-107. 185

  See GC, Microsoft Corp v Commission, para 87.

186

  See Confederation of British Industry, ‘The Need for an EU Competition Court’, 15 June 2006, available at . Others have proposed waiving the rule that requires the functions of a judge at the Court to be reserved for legal experts (rule provided in the Treaty in Art 223 EC). In particular, the appointment of economists would allow progress both in terms of quality (of case law) and quantity (case backlog). See Comments of William Bishop before the House of Lords, ‘An EU Competition Court’, 20 October 2006. For a full report, see House of Lords, European Union Committee, 15th Report of Session 2006–07, ‘An EU Competition Court’, Report with Evidence, 23 April 2007. 187

  See Arts 5 and 6 of Regulation 1/2003, n 10.

188

  This issue faces perennial debate within the United States in the context of federal vs state law. One of the primary arguments made in the US ‘federalism’ debate is precisely that state laws allow for experimentation. See eg H. Hovenkamp, ‘State Antitrust in the Federal Scheme’ (1983) 58 Indiana LJ 375, at 389–90; see also, R.W. Hahn and A. LayneFarrar, ‘Federalism in Antitrust’ (2003) 26(3) Harvard J Law and Public Policy 877. 189

  The concept is taken from the section devoted to the competition rules in Arts 52, 127, 130, and 214, but is not defined. 190

  See CJ, 19/61 Mannesmann AG v High Authority, 13 July 1962 [1962] ECR 675.

191

  In the Mannesmann judgment, ibid, the Court talked of an ‘economic goal’.

192

  See CJ, C-41/90 Klaus Höfner and Fritz Elser v Macrotron GmbH, 23 April 1991 [1991] ECR I-1979. 193

  See eg CJ, 118/85 Commission v Italy, 16 June 1987 [1987] ECR 2599, at 7 and CJ, Case C-35/96 Commission v Italy, 18 June 1998 [1998] ECR I-3851, at 36. 194

  See GC, T-319/99 FENIN v Commission, 4 March 2003 [2003] ECR II-357, at 36. The concept of economic activity is assessed from the supply-side viewpoint and not, as in the FENIN case, from the viewpoint of demand (purchases), as the plaintiff s claimed. FENIN was an association of undertakings marketing medical goods and equipment used in hospitals in Spain. On the basis that it was the victim of anticompetitive practices allegedly committed by 26 entities (including three ministerial ones) in charge of managing the Spanish national health system (SNS), FENIN filed a complaint with the Commission. The entities in question systematically paid for their purchases of medical equipment within an average period of 300 days, which although lengthy, was much timelier than other providers were paying their debts. FENIN maintained that this discriminatory practice constituted an abuse of a dominant position in breach of Art 82 EC. The Commission dismissed FENIN’s complaint on the grounds that the competition rules of the Treaty do not apply to the entities in question. It found that: first, the two entities do not constitute undertakings when they participate in the management of the public health service; and second, the position of customers (purchasers) of the entities in question could not be dissociated from their subsequent position as suppliers (providing public health services). The entities in question were not, therefore, acting as undertakings when they bought medical products from members of the petitioner. The GC, on hearing FENIN’s appeal, upheld the Commission’s position: the GC found that the concept of economic activity could not be determined by a ‘purchasing activity as such’. It considered that the character of a purchasing activity depends on ‘whether the subsequent use of the purchased product has an economic character or not’. When an undertaking buys a good for use in an activity that is not From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

economic in nature, it does not act as an undertaking within the meaning of the EC Treaty competition rules. 195

  See CJ, 263/86 Belgian State v René Humbel and Marie-Thérèse Edel, 27 September 1988 [1988] ECR 5365. The advantage of using the economic activity criterion is that it ensures a certain homogeneity in substantive EU law since this concept is also used to delineate the scope of the rules relating to freedom of establishment, the free provision of services, and free movement of persons. See CJ, 36/74 BNO Walrave and LJN Koch v Association Union Cycliste Internationale ea, 12 December 1974 [1974] ECR 1405; CJ, Case 13/76 Gaetano Donà v Mario Mantero, 14 July 1976 [1976] ECR 1333. 196

  See Commission Decision of 23 July 2003, COMP/C.2-37.398, Central marketing of the commercial rights to the UEFA Champions League, at 105–6, OJ L 291 of 8 November 2003, at 25. 197

  See Commission Decision of 26 May 1978, IV/29.559, RAI/Unitel, OJ L 157 of 15 June 1978, at 39. 198

  See CJ, Case C-309/99 Wouters Savelbergh and Price Waterhouse Belastingadviseurs BV v Algemene Raad van de Nederlandse Orde van Advocaten, 19 February 2002 [2002] ECR I-1577, at 49; Commission Decision of 24 June 2004, COMP/38.549, PO/Belgian architects fee system, at 36–7; CJ, Joined Cases C-180–184/98 Pavel Pavlov ea v Stichting Pensioenfonds Medische Specialisten, 12 September 2000 [2000] ECR I-06451, at 77; see Commission Decision of 30 January 1995, IV/33.686, COAPI, OJ L 122 of 2 June 1995, at 37. 199

  eg a research activity. See Commission Decision of 26 July 1976, IV/28.996, Reuter/ BASF, OJ L 254 of 17 September 1976, at 40. 200

  See GC, T-9/99 HFB Holding für Fernwärmetechnik Beteiligungsgesellschaft mbH & Co KG et al v Commission, 20 March 2002 [2002] ECR II-1487, at 66. 201

  See Green Paper on services of general interest, COM(2003) 0270 final, at para 44.

202

  See, by analogy, in the agricultural sector, CJ, 258/78 LC Nungesser KG and Kurt Eisele v Commission (‘ Maize Seed case’), 8 June 1982 [1982] ECR 2015, at 7–9. 203

  See CJ, C-519/04 P David Meca-Medina and Igor Majcen v Commission, 18 July 2006 [2006] ECR I-6991, at 27. 204

  See CJ, C-41/90 Klaus Höfner and Fritz Elser v Macrotron GmbH, n 192.

205

  See CJ, C-475/99 Firma Ambulanz Glöckner v Landkreis Südwestpfalz, 25 October 2001 [2001] ECR I-08089, at 9–22 . 206

  The provision of public goods or services, such as police, education, and health services, must not be exclusive or competitive. 207

  See CJ, C-364/92 SAT Fluggesellschaft mbH v Eurocontrol, 19 January 1994 [1994] ECR I-43, at 30. 208

  Ibid. See also GC, T-155/04 SELEX Sistemi Integrati SpA v Commission, 12 December 2006 [2006] ECR II-4797, at 77. See CJ, C-179/90 Merci convenzionali porto di Genova SpA v Siderurgica Gabrielli SpA, 10 December 1991 [1991] ECR I-5889. Similarly, in the case of Aéroports de Paris, the GC distinguished policing activities from the economic activities of management and the operation of airports, which are remunerated by commercial charges that vary depending on the sales achieved. See GC, T-128/98 Aéroports de Paris v Commission, 12 December 2000 [2000] ECR II-3929, at 112. 209

  See CJ, C-343/95 Diego Calì & Figli Srl v Servizi ecologici porto di Genova SpA (SEPG), 18 March 1997 [1997] ECR I-1547, at 22–3.

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210

  ‘National solidarity’ is defined as situations in which (i) those subject to the largest optional contributions finance the social security benefits of the least well-off and (ii) active workers finance the social security benefits paid to pensioners. See CJ, C-159/91 and C-160/91 Christian Poucet v Assurances générales de France and Caisse mutuelle régionale du Languedoc-Roussillon, 13 February 1993 [1993] ECR I-637, at 16–19. See, in the same vein, CJ, C-218/00 Cisal di Battistello Venanzio & C Sas v Istituto nazionale per l’assicurazione contro gli infortuni sul lavoro (INAIL), 22 January 2002 [2002] ECR I-691, at 38: the Court held that an Italian body responsible by law for an occupational accidental and health insurance scheme was not an undertaking. In addition to its national solidarity objective, there was the fact that the benefits amount and contributions were set by law. See also paras 43–6. 211

  See CJ, C-244/94 FFSA v Ministry of Agriculture and Fisheries, 16 November 1995 [1995] ECR I-4013, at 17ff; CJ, C-67/96 Albany International BV v Stichting Bedrijfspensioenfonds Textielindustrie, 21 September 1999 [1999] ECR I-5751, at 77–87. 212

  See Opinion of the Advocate General F. Jacobs of 28 January 1999, in the case Albany International BV v Stichting Bedrijfspensioenfonds Textielindustrie, n 211, at 311. 213

  See CJ, C-343/95 Diego Calì & Figli Srl v Servizi ecologici porto di Genova SpA (SEPG), n 209, at 41 where the Court notes the absence of a link between the contributions made and the benefits provided that led to the conclusion that there was national solidarity and, consequently, no economic activity. 214

  See CJ, C-67/96 Albany International BV v Stichting Bedrijfspensioenfonds Textielindustrie, n 211, at 81 and 84. 215

  They alone constitute decisions of undertakings. See CJ, Joined Cases C-264/01, C-306/01, C-354/01, and C-355/01, AOK Bundesverband ea, 16 March 2004 [2004] ECR I-2493, at 58. 216

  In 2006, the PAC represented 42 per cent of the Community budget.

217

  Guaranteeing farmers a minimum price greater than the market price, which would not cover the production costs. 218

  Initially adopted to ensure the EU’s self-sufficiency in food, given the rural exodus taking place at the time, the CAP quickly reached its objective by leading to increased production volumes and the modernization of production facilities. A victim of its own success, however, production quickly then became distorted: agricultural production reached all time highs, leading to a pricing collapse in the market. The CAP was therefore given new objectives in the years 1980–90, namely to cut back production. In 2003, a reform introduced the principle of ‘decoupling’: the calculation and payment of aid is therefore no longer linked to farmers’ production. 219

  See Council Regulation 26/62 applying certain rules of competition to production of and trade in agricultural products, OJ 30 of 20 March 1962, at 993. 220

  See Council Regulation 1184/2006 of 24 July 2006 applying certain rules of competition to the production of, and trade in, agricultural products, OJ L 214 of 4 August 2006, at 7. 221

  The Commission has sole jurisdiction to determine which agreements, decisions, and practices meet the conditions of this provision. See Art 2(2) of Regulation 1184/2006. 222

  Especially agreements creating cooperatives within a Member State.

223

  There is debate among scholars as to whether this derogation is a form of the second one above or, on the contrary, stands on its own. See M. Waelbroeck and A. Frignani,

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Commentaire J. Megret—Competition, 2nd edn (Brussels: Editions de l’Université de Brussels, 1997), at 66–7. 224

  For an illustration, see Commission Decision, IV/M.1313, Danish Crown/Vestjyske Slagterier, 9 March 1999, OJ L 20 of 25 January 2000, at 1 . 225

  See Art 3 of Regulation 1184/2006, specifically, which states that the provisions of Art 108(1) and (3) TFEU apply to the agricultural sector. 226

  Common market organizations (CMOs) are the provisions governing the production of, and trade in, agricultural products. They cover a large number of products (cereals, pork, eggs, poultry, fruit and vegetables, etc) and account for 90 per cent of the Community’s agricultural production. Their principal role is to set the prices of agricultural products for European markets, grant aid to producers, and control production. In concrete terms, the CMOs set indicative prices for the agricultural products sold in the EU. 227

  See CJ, C-137/00 Milk Marque Ltd and National Farmers’ Union, 9 September 2003 [2003] ECR I-7975, at 67. 228

  The strict nature of this approach had already been emphasized by Waelbroeck and Frignani, n 223, at 55–6. See eg the Commission decision of 26 July 1988, IV/31.379, Bloemenveilingen Aalsmeer, OJ L 262 of 22 September 1988, at 27, at paras 137–49. This approach is still very clear in CJ, C-137/2000 Milk Marque Ltd and National Farmers’ Union, n 227, at 57, where the Court holds that ‘the maintenance of effective competition on the market for agricultural products is one of the objectives of the common agricultural policy and the common organisation of the relevant markets’. 229

  See GC, annexed Cases T-217/03 and T-245/03 Fédération nationale de la Cooperation bétail et viande [ National Federation of the livestock and meat cooperation ] (FNCBV) ea v Commission, 13 December 2006 [2006] ECR II-4987. 230

  Ibid, at 192.

231

  Ibid at 206. What is more, the agreement could not in any way achieve the second objective since it did not provide any measure for reducing supply in a context of overproduction and under-consumption. 232

  See Arts 90 to 100.

233

  And other objectives include, in particular, transport safety.

234

  Historically, States played a major role in the transport sector. Most of the air and rail transport companies were State-controlled undertakings. Application of the competition rules led some to fear painful restructurings. 235

  See CJ, annexed Cases 209–213/84 Public Ministry v Lucas Asjes et al, Andrew Gray et al, Jacques Maillot et al and Léo Ludwig et al (‘ Nouvelles Frontières Case’), 30 April 1986 [1986 ECR] 1425, at 42. The Court had implied it in the past. See CJ, 167/73 Commission v French Republic, 4 April 1974 [1974] ECR 359, at 20–1 (the rules of the second part of the EC Treaty—now the third part, which enshrines the ‘Community policies’—are ‘designed to apply to all economic activities [and] can only be removed in accordance with the express provisions of the Treaty’). See also CJ, 6/77 Commission v Kingdom of Belgium, 12 October 1978 [1978] ECR 1881, at 10, which posits the same principle in the area of State aid. 236

  With the exception of Arts 84 and 85 EC (now Arts 104 and 105 TFEU), which, pending adoption of implementing provisions by the Council, made any action the responsibility of the national authorities and the Commission.

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237

  See Council Regulation 1017/68 of 19 July 1968 on the application of competition rules to the rail, road, and inland waterway transport sectors, OJ L 175 of 23 July 1968, at 1. 238

  See Council Regulation 4056/86 of 22 December 1986 determining the arrangements for applying Articles 85 and 86 of the treaty to maritime transport services, OJ L 378 of 31 December 1986, at 4. 239

  See Council Regulation 3975/87 of 14 December 1987 determining the arrangements for applying the competition rules to air haulage undertakings, OJ L 374 of 31 December 1987, at 1. See also Council Regulation 3976/87 of 14 December 1987 concerning the application of Article 85 paragraph 3 of the treaty to categories of agreements and concerted practices in the area of aviation transport, OJ L 374 of 31 December 1987, at 9, which grants authority to the Commission to adopt block exemption regulations. These Regulations were amended by Council Regulation 411/2004 of 26 February 2004 repealing Regulation 3975/87 and amending Regulation 3976/87 as well as Regulation 1/2003, regarding air transport between the Community and nonmember countries, OJ L 68 of 6 March 2004, at 1. 240

  A procedure known as an ‘opposition’ procedure thus applied in the area of rail, road, and inland waterway transport and in that of maritime transport. 241

  See Art 2(1)(b) of Regulation 4056/86, n 238 (in the maritime transport sector, cooperation for the purpose of ‘the exchange or pooling for the purpose of operating transport services, of vessels, space on vessels or slots and other means of transport, staff, equipment or fixed installations’ do not infringe Art 101(1) TFEU). See Art 2 and Annex to Regulation 3975/87, n 239 (in the air transport sector, cooperation for the purpose of ‘[t]he introduction or uniform application of mandatory or recommended technical standards for aircraft, aircraft parts, equipment and aircraft supplies, where such standards are set by an organisation normally accorded international recognition, or by an aircraft or equipment manufacturer’ do not infringe Art 101(1) TFEU). See Art 3(1)(a) of Regulation 1017/68, n 237 (in the rail, road and inland waterway transport sector, cooperation for the purpose of ‘the standardization of equipment, transport supplies, vehicles or fixed installations’ do not infringe Art 101(1) TFEU). 242

  See Art 3 of Regulation 4056/86, n 238, which exempts ‘the coordination of shipping timetables, sailing dates or dates of calls; the determination of the frequency of sailings or calls; the coordination or allocation of sailings or calls among members of the conference; the regulation of the carrying capacity offered by each member; the allocation of cargo or revenue among members’. 243

  See Art 43 and recital 36 of the Preamble to Regulation 1/2003, n 10. The complicated arrangement of these laws is made even more complicated by Art 32 of Regulation 1/2003 which identifies the following exemptions: a)  international maritime transport of the ‘tramp services’ type as defined in Article 1, paragraph 3, point a), of Regulation (CEE) 4056/86; b)  maritime transport services provided exclusively between ports located in a member state, as provided in Article 1, paragraph 2, of Regulation (EEC) 4056/86; c)  air transport between the airports of the Community and non-member countries. 244

  Which is why there are still, eg, basic block exemptions for certain aspects of the transport sector. See Arts 34, 36, 38, and 39 of the Regulation. These specific rules are, however, gradually being eliminated. See, regarding maritime conferences, Regulation 1419/2006 of the Council of 25 September 2006 repealing Regulation 4056/86 specifying the arrangements for applying Articles 85 and 86 of the treaty to maritime transport, and amending Regulation 1/2003 to extend its scope to cabotage (ie, maritime transport

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services between ports in one or to the same Member State) and international tramp services, OJ L 269 of 28 September 2006, at 1. In the area of air transport, see Commission Regulation 1459/2006 of 28 September 2006 on the application of Article 81, paragraph 3, of the treaty to certain categories of agreements, decisions or concerted practices, the object of which is to promote consultation on tariffs for the transport of passengers on scheduled air services and slot allocations at airports, OJ L 272 of 3 October 2006, at 3. 245

  See D. Geradin, ‘L’ouverture à la concurrence des entreprises de réseau: analyse des principaux débats du processus de libéralisation’ (1999) 1–2 Cahiers de Droit Européen 13. 246

  See, in particular, for confirmation of the principle in the postal services sector, CJ, C-320/91 Criminal proceedings against Paul Corbeau, 19 May 1993 [1993] ECR I-2533. 247

  The experience of New Zealand illustrates this well. See D. Geradin and M. Kerf, Controlling Market Power in Telecommunications: Antitrust vs Sector-Specific Regulation (Oxford: Oxford University Press, 2003), at 119ff. 248

  In the case of New Zealand, it thus took several years to resolve a fairly ordinary case of interconnection based on competition rules. See Ibid, at 149. 249

  Technically, the strategy implemented is, first, to remove any special and exclusive rights and, second, to control the market power of incumbents that still retain their dominant positions. See Geradin, n 111; N. Petit, ‘The Proliferation of National Regulatory Authorities alongside Competition Authorities: A Source of Jurisdictional Confusion?’ in D. Geradin, R. Muñoz, and N. Petit (eds), Regulation through Agencies—A New Paradigm of European Governance (Cheltenham: Edward Elgar, 2005), at 180. 250

  eg since the energy market has been opened to competition, over a hundred mergers have been notified to the Commission. See M. Piergiovanni, ‘EC Merger Control Regulation and the Energy Sector: An Analysis of the European Commission’s Decisional Practice on Remedies’ (2003) 3 J Network Industries 227. 251

  See Commission Decision of 30 April 2003, COMP/38.370, O2 UK Ltd/T-Mobile UK Ltd, OJ L 200 of 7 August 2003, at 59. 252

  eg margin squeeze practices. See Commission Decision of 21 May 2003, COMP/ C-1/37.451, 37.578, 37.579, Deutsche Telekom AG, OJ L 263 of 14 October 2003, at 9. 253

  See Guidelines on the application of EEC competition rules in the telecommunications sector, OJ C 233 of 6 September 1991, at 2; Commission Notice on the application of the competition rules to access agreements in the telecommunications sector—Framework, relevant markets and principles, OJ C 265 of 22 August 1998, at 2; and Commission guidelines on market analysis and the assessment of Significant Market Power under the regulatory framework for electronic communications networks and services, OJ C 165 of 11 July 2002, at 6. 254

  Notice from the Commission on the application of the competition rules to the postal sector and on the assessment of certain State measures relating to postal services, OJ C 39, 1998, at 2. 255

  A similar provision was introduced in secondary legislation instituting an EU system for control of concentrations, and has been invoked on several occasions. 256

  See Commission Decision of 28 April 1999, IV/M.1309, Matra/Aérospatiale, OJ C 133 of 13 May 1999, at 5. 257

  See Art 348 TFEU:

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If measures taken in the circumstances referred to in Articles 346 and 347 have the effect of distorting the conditions of competition in the common market, the Commission shall, together with the State concerned, examine how these measures can be adjusted to the rules laid down in the Treaty. 258

  Ibid. The Court then rules in camera.

259

  The territory of the Community is defined in Art 349 TFEU. Currently it extends to the territory of the 27 Member States. 260

  This requirement is often cited as ‘localization of the competitive effects’. See eg C. Gavalda and G. Parleani, Droit des affaires de l’Union européenne, 4th edn (Paris: Litec, 2007), at 294. More fundamentally, public international law would refer to ‘objective territoriality’. Since the famous Lotus case, States can rely on public international law to extend the reach of their laws and submit to the jurisdiction of their courts, persons, assets, and actions outside their territory. See judgment of the Permanent Court of International Justice of 7 September 1927, France v Turkey, Series 1 no 10. 261

  The Javico judgment ends a long period of the development of the law. In the 1971 Béguelin case, the Court seemed to suggest that the incompatibility of Art 101 TFEU applied if a cartel produced its effects on the territory covered by EU law. See CJ, 22/71 Béguelin Import Co v SAGL Import Export, 25 November 1971 [1971] ECR 949. In subsequent case law the Court succeeded in avoiding settling the difficult question of whether EU law applied when an anticompetitive effect was observed in the EU. In the cases Dyes, Continental Can and Commercial Solvents, the Court merely noted that the undertakings in question had subsidiaries or branch offices within the EU, through which the foreign firms had been active in the EU. See CJ, 54/69 SA française des matières colorantes (Francolor) v Commission, 14 July 1972 [1972] ECR 851; CJ, 6/72 Europemballage Corporation et Continental Can v Commission, 21 February 1973 [1973] ECR 215; CJ, 6/73 Istituto Chemioterapico Italiano and Commercial Solvents v Commission, 6 March 1974 [1974] ECR 223. In Woodpulp I, the Court held then that ‘the place where the cartel agreement is implemented’ is the determining factor. See CJ, 89/85 Ahlström Osakeyhtiö v Commission (‘ Wood Pulp’), 27 September 1988 [1993] ECR I-1307, at 16. Eventually, EU law found its point of equilibrium in a doctrine known as a qualified effect. In the Gencor case, relating to the Commission injunction against the concentration of two South African diamond producers, the GC held that: ‘when it is foreseeable that a planned concentration will produce an immediate and substantive effect in the Community, application of the Regulation is justified with regard to public international law’ (emphasis added). See GC, T-102/96 Gencor Ltd v Commission, 25 March 1999 [1999] ECR II-753, at 90. The Javico judgment makes this doctrine permanent by referring to the impact of the restraint of competition inside the common market. 262

  See CJ, Case C-306/96 Javico v Yves Saint Laurent Parfums, 28 April 1998 [1998] ECR I-1983, at 12: In order to determine whether agreements such as those concluded by YSLP with Javico fall within the prohibition laid down by that provision it is necessary to consider whether the purpose or effect of the ban on supplies which they entail is to restrict to an appreciable extent competition within the common market and whether the ban may affect trade between Member States. 263

  See Commission Decision of 6 November 1968, IV/23077, Rieckermann/AEG-Elotherm, OJ L 276 of 14 November 1968, at 25.

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264

  Nearly 100 countries have legislation regarding competition. Y. Devellennes and G. Kiriazis, ‘The Creation of an International Competition Network’ (2002) Competition Policy Newsletter, at 25. 265

  See P. Demaret, ‘L’application du droit communautaire de la concurrence dans une économie mondiale globalisée. La problématique de la territorialité’ in J.-F. Bellis (ed.), La politique communautaire de la competition face à la mondialisation et à l’élargissement de l’Union européenne (Baden-Baden: Nomos, 2001), at 13. 266

  See B. Goldman, ‘Les champs d’application territoriale des lois sur la concurrence’, Recueil des cours de l’Académie de droit international, 1969, iii, 631, at 714; J. Stoufflet, ‘La compétence extraterritoriale du droit de la concurrence de la Community économique européenne’ (1971) Journal de droit international 487, at 497–8. 267

  See Arts 20 and 21 of Regulation 1/2003, n 10.

268

  We can see a distinction between simple requests for information and decisions enjoining the party to provide information. 269

  See P. Demaret, ‘L’extraterritorialité de lois et des relations transatlantiques: une question de droit ou de diplomatie?’ (1985) RTD Eur 1, at 4–5. 270

  See Arts 23 and 24 of Regulation 1/2003, n 10. Under which the Commission can impose fines and penalties if the parties provide inaccurate or incomplete information or do not provide information within the specified time limit. 271

  See Art 7 of Regulation 1/2003, n 10. An injunction to cease an anticompetitive practice means that the undertaking should cease to engage in conduct that has an anticompetitive object, or effect. 272

  Ibid.

273

  Ibid, Art 8.

274

  Ibid, Art 23.

275

  Ibid, Art 24 for the penalties.

276

  There is sometimes concern about the risk of cumulative sanctions. However, when several fines are imposed on an undertaking by different competition authorities, it must be understood that each State, by its own laws, does not sanction the anticompetitive practice in itself but the effects it produces on its own territory. 277

  See Commission Decision of 30 July 1997, IV/M.887, Boeing/McDonnell Douglas, OJ L 336 of 8 December 1997, at 16; Commission Decision of 3 July 2001, COMP/M.2220, General Electric/Honeywell, OJ L 48 of 18 February 2004, at 1. 278

  See L. Idot, ‘Mondialisation, liberté et régulation de la competition—Le contrôle des concentrations’ (2002) 2/3 Revue Internationale de Droit Economique, at 197. 279

  An initial agreement was signed on 23 September 1991, but was cancelled by the Court of Justice. In a decision of the Council and Commission of 10 April 1995, the 1991 Agreement was declared applicable with retroactive effect. See Agreement Between The Government of the United States of America and the European Communities Regarding the Application of Their Competition Laws—Exchange of letters interpreted with the government of the United States of America, OJ L 95 of 27 April 1995, at 47. 280

  Ibid, Art VI.

281

  Ibid, Art V(2).

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282

  See F. Jenny, ‘Globalization, Competition and Trade Policy’ in Y.-C. Chao, G. San, C. Lo, and J. Ho (eds), International and Comparative Competition Laws and Policies (The Hague: Kluwer Law International, 2001), at 45. This is the case, eg, for the major exporting cartels, the effects of which can be very harmful on such countries. See, in this regard, B. Hoekman and P. Holmes, ‘Competition Policy, Developing Countries, and the World Trade Organization’, World Bank, April 1999. Available at . The authors consider that, for developing economies, the main interest in having an international agreement on competition is to ban major export cartels. In fact, more often than not, their domestic law will not allow them effectively to prohibit this type of practice. 283

  See, in particular, Idot, n 278, at 191. See contra, J.-F. Pons, ‘Is it Time for an International Agreement on Antitrust, DG Competition, European’, 3–5 June 2002, who argues that it is not the right time for an international solution. 284

  The International Competition Network is an organization that was created in October 2001 comprising competition authorities from all over the world. It seeks to find consensus on specific problems and to draft codes of practice. See . 285

  The United Nations Commission for Trade and Development assists the competition authorities of developing countries and emerging economies in the practical problems they encounter in competition law and policy (normative cooperation and technical assistance basically). See . 286

  The Organisation for Economic Co-Operation and Development established a competition committee made up of top officials from the competition authorities of the OECD countries plus observers from a number of non-member countries. The object of the Committee is to encourage action to stop anticompetitive practices and regulations. It has been assisted by a competition division responsible for providing analysis to the Committee and promoting globally the reforms put forward by the Committee. To this end, the Division prepares documents, studies, and recommendations for action. It also provides assistance to States wishing to improve their competition law system. See . 287

  See D. Borges Barbosa, ‘The World Competition Agency as a Necessary International Institution’ in R.S. Uh (ed.), Financial Institutions and Services (New York: Nova Publishers, 2006), at 31; O. Bertrand and M. Ivaldi, ‘An “International Sheriff ” to enforce fairness in worldwide competition’, Vox, 18 June 2007. 288

  See A.T. Guzman, ‘International Antitrust and the WTO: The Lesson from Intellectual Property’, Berkeley Program in Law & Economics, Working Paper Series, Year 2000 Paper 36, at 16; F. Jenny, ‘Competition Law and Policy: Global Governance Issues’ (2003) 26(4) World Competition 609, at 624. 289

  See E.M. Fox, ‘Competition Law and the Millennium Round’ (1999) 2 J Int’l Economic L 665. More generally, for a formal demonstration, see A. Bradford, ‘International Antitrust Negotiations and the False Hope of the WTO’ (2007) 48(2) Harvard International LJ 383. 290

  Transparency, non-discrimination, and impartiality, in particular, as well as aid for the creation of institutional and normative capacity. See, in particular, Annual reports of the Working Group on the Interaction between Trade and Competition Policy to the General Council, WT/WGTCP/7 of 17 July 2003, available at .

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291

  See Ministerial Conference, Fifth session, Cancun, 10–14 September 2003, Ministerial Notice adopted 14 September 2003, WT/MIN(03)/20, 23 September 2003. 292

  See Agreement creating an association between the European Economic Community and Turkey, OJ P 217 of 29 December 1964, at 3687. See also Council Decision 1/95 of the EC-Turkey Association, of 22 December 1995, relating to the establishment of the final phase of the customs union, OJ L 35 of 13 February 1996, at 1, particularly Arts 32 to 38. 293

  See Agreement on the European Economic Area—Final Act—Joint Declarations— Declarations by the Governments of the Member States of the Community and the EFTA States—Arrangements—Agreed Minutes—Declarations by one or several of the Contracting Parties of the Agreement on the European Economic Area, OJ L 1 of 3 January 1994, at 3. See also the series of additional protocols, available from the website of the European Commission’s DG COMP. 294

  See Regulation 2840/72 of the Council of 19 December 1972 concluding an Agreement between the European Economic Community and the Swiss Confederation, OJ L 300 of 31 December 1972, at 188. 295

  See Europe Agreement establishing an association between the European Communities and their Member States, of the one part, and Romania, of the other part, OJ L 357 of 31 December 1994, at 2, particularly Art 64; see Europe Agreement establishing an association between the European Communities and their Member States, of the one part, and the Republic of Bulgaria, of the other part, OJ L 358 of 31 December 1994, at 3, particularly Art 64. 296

  See eg Association Agreement between EU-Morocco, 26 February 1996, OJ L 70 of 18 March 2000, particularly Arts 36 to 41. 297

  Especially regarding State aid for agreements concluded with countries in economic transition. 298

  See D. Geradin and N. Petit, ‘Règles de concurrence et partenariat euro-méditerranéen: échec ou succès’ (2003) 1 Revue Internationale de Droit Economique 47.

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2 Elements of Competition Law Economics Damien Geradin, Anne Layne-Farrar, Nicolas Petit From: EU Competition Law and Economics Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit Content type: Book content Product: Oxford Competition Law [OCL] Published in print: 22 March 2012 ISBN: 9780199566563

Subject(s): Market power — Economics

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(p. 59) 2  Elements of Competition Law Economics I.  Introduction 2.01 II.  Epistemology of Competition Economics 2.10 A.  Classical and Neoclassical Competition Economics 2.10 B.  The Normative Economics of Competition 2.35 III.  Methodology of Competition Economics 2.55 A.  The Concept of Market Power 2.56 B.  Measuring Market Power 2.62 C.  Measuring Market Power, Indirectly 2.83 D.  Other Useful Economic Concepts—Competition Law, Law of Costs 2.125

I.  Introduction 2.01  The current sociology of EU competition law Like other branches of corporate law, EU competition law is no longer the sole province of lawyers.1 Instead, lawyers collaborate on a daily basis with economic consultants. Authorities and courts are not to be outdone either. In 2003, the Commission announced the creation, within DG Competition (DG COMP), of the position of chief economist, responsible for heading a unit of economists who are to provide analytical support to the legal team and to review draft decisions for their social welfare implications.2 A year later in France, an eminent professor of industrial economics acceded to the highest judicial office, with Frédéric Jenny’s appointment a member of the French Cour de Cassation.3 (p. 60) 2.02  The origins of the economics of competition law The involvement of economists in the competition law process is a sufficiently important phenomenon for us to take a few moments to consider it.4 To appreciate its scope, we must go back in time and beyond the borders of the EU. In the United States, from the 1950s on, economists and law professors, versed in classical and neoclassical price theories, became interested in antitrust policy as a practical application of their theories. Their studies relied on complex economic arguments and quickly gave rise to a new discipline: competition economics.5 2.03  The resistance of EU competition law In the EU, the influence of competition economics (and incentives and effects-based approach) was marginal for a long time.6 The Treaty’s competition rules were designed by law professors7 and were formally enforced by DG COMP.8 Cooperation agreements between undertakings were deemed incompatible regardless of the market power of the undertakings for the businesses involved: it was thought that by committing to an agreement, undertakings illegally limited their freedom of action on the market and hence the motivations to do so could not be benign. The standard for assessing mergers was therefore whether they ‘create or strengthen a dominant position’, regardless of any efficiency gains that might derive as a result.9 2.04  The breakthrough of competition economics into EU law It was not until the end of the 1990s that competition economics started exerting some influence on the Commission and the EU Courts.10 The decisions of the Commission and the judgments of the EU Courts, particularly as regards vertical agreements, were then harshly criticized as being poorly in line with economic theory.11 They were contrasted with the decisions of the

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US courts and authorities, which were considered to be more sensitive to the teachings of economic theory. 2.05  Breaking with the formalistic approach which had so far prevailed, the Commission engaged in reforming the assessment of vertical agreements to be more in line with economic analysis.12 The new approach focused on the ‘market power’ of the parties to an agreement.13 (p. 61) 2.06  The legal revolution But the assessment of vertical agreements was not the only area of EU competition law to be reformed by the Commission. It also sought to modernize its approach in the areas of horizontal cooperation agreements, technology transfer agreements, control of concentrations, abuse of a dominant position, etc.14 In the end, no area of competition law was spared from what is now referred to as the ‘economic approach’ or the ‘effects-based approach’, albeit to varying degrees.15 2.07  The scholarly debate Despite the many efforts led by the Commission, the economic approach received a cold reception from a number of scholars who considered that economics, traditionally the ‘servant’ of competition law, had now become its ‘master’.16 In fact, the conflict between these two interpretations does not necessarily have to be resolved. What is new with competition economics is that the rule of law has more recourse to economic tools in its customary implementation. On the other hand, the economic purposes pursued by competition law have existed since the adoption of the Treaty of Rome, with the qualifications already mentioned in Chapter 1. 2.08  Scholars also recognized that competition law economics poses problems of a practical nature as well. While its aim is laudable (to serve as a tool to help in decision making, whether individual or regulatory, and to help in evaluating the law), it should be borne in mind that effects-based analysis when applied improperly (eg in the absence of a unified economic theory) can provide misleading results. Moreover, even when applied well, it is rarely the case that sufficient data are available to reach a foolproof conclusion. The inevitable ambiguities must, by necessity, be resolved by a judgment regarding the perceived risks and/or severity of the potential harm. Such judgments naturally imply some degree of legal insecurity for those subject to the legal system.17 2.09  The remainder of the chapter Today, competition economics is generally described as a composite discipline borrowing from different economic schools of thought. In what follows, we describe the leading schools of thought in regards to competition economics as they (p. 62) have evolved over the years (Section II).18 Then we get to the methodological aspects of competition economics or, more concretely, the instruments and concepts on which competition economics rely (Section III).

II.  Epistemology of Competition Economics A.  Classical and Neoclassical Competition Economics 2.10  Introduction Classical and neoclassical economists were the first to focus on competition issues. The classical economists of the seventeenth century and before, particularly Adam Smith, saw competition as a behavioural process .19 The common view was thus that competition is an individual behaviour by which each actor (firm or person) will play to their own advantage so as to defeat rivals. Thanks to the ‘invisible hand’ of the market, the sum of these selfish individual behaviours naturally results in a goods price that is close to the costs of production. 2.11  With the neoclassical economists of the late nineteenth century and early twentieth century came a structural interpretation of competition,20 which is still a feature of the economics of law today.21 Neoclassical theorists constructed two theoretical models of market structures which are meant to constitute the alpha and omega of social welfare. First, ‘perfect competition’, that is, a market made up of a multitude of buyers and sellers,

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optimizes the operation of the law of supply and demand and consequently provides a positive contribution to social welfare (see Section B). In other words, the more actors that are present in a market, the more likely it is that the invisible hand will function to the benefit of society. Second, monopoly markets (or cartelized markets) disrupt the invisible hand (the operation of the law of supply and demand) and by doing so greatly impair social welfare (Section C). These neoclassical conclusions, however, must be assessed with some care (Section D).

(p. 63) (1)  The law of supply and demand 2.12  A brief recap of the law of supply and demand As is well known, if ‘demand’ for a product increases, the price increases;22 if ‘supply’ of a product increases, the price decreases.23 Hence, when coal is in high demand its relative scarcity of supply makes each unit more valuable (purchasers compete to buy it) and its price rises logically. This may have the consequence that the market price will rise above the reservation price of some buyers who will thus no longer be able to acquire the product. Analogously, when the harvest of certain agricultural products is plentiful (so that scarcity is reduced) their prices collapse. Only certain sellers, those who offer the lowest prices (notably the most efficient ones), will survive to sell their products on the market. 2.13  This intuition was formalized by Alfred Marshall, the father of neoclassical economics, in a graphic representation showing the prices on the Y-axis and the quantities on the X-axis (see Fig 2.1).24 As regards demand, the quantities sought decrease as the price of the good increases. The downward sloping curve of demand (D) illustrates this phenomenon. The quantities placed on the market, on the other hand, rise as the price increases. The upward sloping supply curve (S) illustrates this phenomenon. 2.14  Figure 2.1 illustrates the difference between the incentives of buyers and sellers.25 When the price is low (in relation to ‘equilibrium’, eg P L), only a few sellers are willing to place quantities on the market, but not enough to meet demand. In such a case, the result is what is termed excess demand (or insufficient supply). As a result, allocation of resources is not optimal because customers who would benefit from purchasing the good are not supplied View full-sized figure

Figure 2.1  How supply and demand interoperate (p. 64) and must either to turn to other products or do without altogether. When the price is high (in relation to ‘equilibrium’, eg P H), many sellers are ready to place quantities on the market, but not enough consumers are willing to pay the price, hence not all the quantities produced are bought. In such a case, there is what is known as excess supply (or insufficient demand). In this case, too, allocation of resources is not optimal since the sellers have expended resources to produce goods that will not be purchased, resources that would have had a more productive use elsewhere. Marshall shows that there is an

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equilibrium price that exactly matches supply and demand.26 Its level is situated where the supply and demand curves intersect, resulting in P * and Q * in the graph.27

(2)  The theory of ‘perfect competition’ 2.15  The virtues of supply and demand The first neoclassical competition theorists were convinced that when competition is ‘perfect’, it contributes positively to social welfare as it causes the equilibrium price and quantity pair as presented by Marshall to emerge. 2.16  Conditions of perfect competition The perfect competition equilibrium, however, is not automatic. Five criteria must be satisfied for perfect competition to emerge (referred to as ‘necessary conditions’ by economists).28 First, the market must be characterized by a large number of sellers and buyers, no single one of which can influence prices.29 Second, the products must be homogeneous. In the eyes of the buyers, the products of each of the sellers must be viewed as strictly identical to one another. Third, the information of the buyers and sellers must be perfect .The purchase and sales terms on the market (especially the price) must be immediately known by everyone. Fourth, the entry (and exit) of new producers on the market must be free. Any economic agent may start up new productive operations without incurring any economic or regulatory obstacles (typically referred to as ‘barriers to entry’). Finally, the acquisition of a product must not result in any transportation cost, which would restrict the free movement of goods. Figure 2.2 summarizes these five necessary criteria. 2.17  Virtuous effects of perfect competition According to classical theorists, perfectly competitive markets provide for a number of virtuous effects. First of all, a single price is created in the market. No one seller is capable of fixing a price that differs from his competitors. As soon as one of the suppliers raises his price, he immediately loses all his customers to his competitors and is forced to exit the market. As soon as one supplier reduces his price, he finds that his profits decline relative to his competitors. 2.18  The second virtuous effect of perfect competition described by Marshall also relates to the equilibrium price. The price paid by the consumers ‘is driven down’ to its lowest sustainable level: it is simply equal to the marginal cost of production of all the producers. The explanation is relatively simple. Since none of the sellers can individually fix the price, each must ‘accept’ the price imposed by the market.30 That said, the only level guaranteeing that each(p. 65) View full-sized figure

Figure 2.2  The necessary conditions for ‘perfect’ competition producer can stay in the market is the marginal cost of production: if price is less than the marginal production cost, the producer is no longer profitable and has to exit the market;31 if it is greater than the marginal production cost, the producer loses his customers to his rivals, who are selling at marginal production cost. 2.19  Conclusions When competition is perfect, the law of supply and demand works well. Perfect competition leads not only to an optimal allocation of resources through the equilibrium price, but also to the elimination of supra-competitive profits.32

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(3)  The monopoly and the cartel 2.20  Imperfections in the law of supply and demand A monopoly exists when a market is sup-plied by one single undertaking.33 Whether this results from the commercial success (stemming from, eg, particular ‘business acumen’) of a firm, the existence of natural barriers (eg the tremendous expense of building a tunnel linking France and Great Britain) or a regulatory decision (eg the restricted certification process for the provision of legal services), a monopoly disturbs the welfare benefits of the law of supply and demand. 2.21  Unlike perfect competition where no seller can influence prices (sellers are called price-takers), the monopolist is a price maker. Since it controls all the production capacities, the monopolist enjoys a ‘scarcity rent’; it has the power to reduce the quantities offered on the market. With the supply of the product restricted to a level below that demanded, prices naturally rise to a level greater than the costs of the monopolist.34 As long as the gains made (p. 66) from raising the price are greater than the losses resulting from reduced quantities sold (and hence not meeting some of the existing demand), the monopolist’s incentives are clear: prices are higher under monopoly than under competition. 2.22  Analogy with the cartel A cartel, which is nothing other than a monopoly comprised of several undertakings working in concert organized by means of an agreement to restrict production and keep prices high, produces analogous effects.35 A cartel, however, is an industrial organization which is less stable than the monopoly, requiring as it does trust and cooperation among the participants. 2.23  The three principle inefficiencies of a monopoly (or a cartel) Neoclassical theorists consider that a monopoly generates at least three inefficiencies. The first of these is its allocative inefficiency, of which we have already had a brief glimpse in Chapter 1. Certain customers who value the product at a level above the cost of producing it and are willing to compensate the monopolist for those costs are nonetheless not supplied because the monopolist reduces the quantities offered on the market in relation to the competitive level (see QM in Fig 2.3 and the arrow from QC, representing the competitive quantity supplied). This quantity reduction leads to a ‘suboptimal’ allocation of resources, as defined by Vilfredo Pareto, because some amount of surplus is left unclaimed.36 The monopolist could improve the situation of the customers excluded from buying the product without incurring a loss (his costs would be covered), but he would sacrifice his own profits to do so. Customers not supplied by the monopolist must turn to other products which they value less or simply do without. The loss of welfare (in value) caused by the monopolist is represented in Figure 2.3 by the triangle ABC and referred to by economists as the ‘deadweight loss’ of monopoly.37 2.24  The second inefficiency is the monopoly’s productive inefficiency. As John Hicks, Nobel prize winner for economics, explained, ‘the best of all monopoly profits is a quiet life’.38 Exempt from any competitive discipline, the monopoly undertaking is free to let its production costs drift upwards. Its shareholders do not take action against the monopoly’s poor cost control performance because they are not able to compare the monopolist with any competing undertakings.39 It is no surprise, then, to find among the great monopolists massive undertakings with breathtakingly high cost curves. The landline telecommunications companies, which were originally protected by natural barriers to entry in the form of substantial network building and later protected by government regulations, are a classic example of this phenomenon. Of course, it is important to understand that the natural barriers to entry in(p. 67)

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View full-sized figure

Figure 2.3  Inefficiencies associated with monopolies telephone service were the reason that the telephone monopolies emerged in the first place. This point reinforces the difficulty involved in disentangling any productive inefficiencies from the inherently high costs frequently associated with monopolies. 2.25  The third inefficiency of a monopoly is dynamic. In the same vein as discussed, some have argued that monopolists have few, if any, incentives to innovate.40 The idea here, as expressed most prominently by Kenneth Arrow, is that the monopolist recognizes that any innovations it introduces will only cannibalize its current sales, and moreover that it will do so at the cost of the investment required to reach the innovation. It makes little sense to expend resources when few net gains in profit are anticipated to result. Hence, economists supporting dynamic inefficiencies arguments extended the notion of the ‘quiet life’ of the monopolist to research and development (R&D) and innovation as well. 2.26  This third dynamic inefficiency has been, and still is, extremely controversial. One of the more prominent attackers of the theory was the famous Austrian economist Joseph Schumpeter.41 In brief, Schumpeter argued that innovation is primarily done by monopolists. The connection between market power and innovation resulted, Schumpeter claimed, from the more powerful undertaking’s ability to finance and develop innovations and to bring them to market. Smaller, weaker undertakings, on the other hand, lacked the resources to conduct research or to develop its fruits. Moreover, under Schumpeter’s view, monopolists are condemned to innovate in order to maintain the uniqueness of their market position, not because they face rivals today but because rivals can emerge from unforeseen quarters at any moment, sweeping in to replace the incumbent. This view led to Schumpeter’s best known quote regarding the ‘perennial gale of creative destruction’. (p. 68) 2.27  The debate over innovation—what defines it, who is best at creating it, what factors spur its creation, and so on—is one that continues to rage today.42 Even casual observers of high technology industries must recognize the tremendous amount of innovation that has emerged from small, start-up undertakings in the Silicon Valley of California.43 Thus far, the empirical evidence remains mixed with some support for both Schumpeter’s view that monopolists can be highly innovative as well as contrary views that smaller, nimbler, hungrier undertakings produce the most and best innovation. The truth is probably far too complicated to be explained by one variable alone. 2.28  Other inefficiencies Other forms of inefficiencies are also associated with monopoly, some purely formal. For instance, the term ‘X inefficiency’ is sometimes used in the competition economics literature. This expression, coined by Harvey Lebenstein, in fact covers inefficiencies that are not allocative, but rather are productive and dynamic.44 The competition economics literature also refers to the notion of technical inefficiency, which is a form of productive inefficiency (linked to the idea that the monopolist chooses suboptimal production techniques). Along the same lines, another term often used is internal or organizational inefficiency, which tends to indicate that the internal structure of the monopolist is not optimal (duplications in certain units, absence of control mechanisms, etc). The concept of ‘managerial inefficiency’, a more recent concept, is a variant of From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

organizational inefficiency. Shielded from any competitive pressure and exposed to superficial control by shareholders (who, as noted, are incapable of comparing the performance of their undertaking with other operators on the market), executives running monopolies are not purely concerned with profit. Provided they meet the minimum profit requirement they are free to make decisions motivated instead by individual interest,45 such as in-kind bonuses (luxury offices, business cars, etc), initiatives aimed at boosting their personal stature (creation of foundations, charity work, etc), nepotism, and so forth. 2.29  Lastly, a newly emerging concept is that monopolies exhibit distributive inefficiency.46 This concept relates to the distribution of benefits across undertakings and individuals. As explained, monopolists charge prices in excess of their marginal costs. While the customers supplied at this monopoly price only pay the monopolist if the price set is less than their reservation price for the good, the fact remains that they are paying more than they would have under competitive conditions. As a result, monopolies transfer resources from consumers to themselves (see red zone in Fig 2.4). This distribution of resources to the company from consumers is said to be a new form of inefficiency. Hence, it is suggested that competition law should focus on controlling prices on concentrated markets. The question of distributive efficiency, which has been a bone of contention for economist for decades, is a political one. After all, the optimal distribution of resources among consumers and undertakings, the latter of which employ individuals (who are also consumers) and are often held by individual shareholders (who are consumers as well) is a subjective matter. Profits earned by a monopoly can be redistributed to shareholders (by dividends), to employees (by profit-sharing(p. 69) View full-sized figure

Figure 2.4  Distributional effects of monopolies mechanisms), and to society in general (by tax mechanisms), or even kept within the undertaking but reinvested in new R&D or other productive endeavours that contribute to social welfare. 2.30  Conclusions In a monopoly (or cartel), the law of supply and demand in the market does not lead to socially optimal outcomes.

(4)  Evaluation of classical and neoclassical competition theories 2.31  Perhaps one of the most important aspects of the neoclassical models is that they illustrate quite clearly the effects of competition (and its antithesis, monopoly) on social welfare. For the reasons outlined hereafter, however, these models fail to provide a precise guide for intervention by the competition authorities. 2.32  Failure to adapt to contemporary economic realities With the exception of a few economic sectors, classical and neoclassical theories focus on market structures which largely disappeared in the twenty-first century. Nowhere do the features characterizing perfect competition seem to exist.47 Moreover, it is difficult to identify modern-day monopolies—except perhaps statutory monopolies—that are so stable that no firm is likely to enter the market on which they operate. Even Microsoft, which is often considered as a stable monopoly, is regularly challenged by new operators (Linux, Apple, and most recently From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Google) and hence only imperfectly fits the description of neoclassical theory. That said, neoclassical theorists did offer a glimpse of the more complicated market structures of today: Augustin Cournot’s theory focused on the oligopoly, a market structure where only a handful of sellers operate and thus represents a midpoint between perfect competition and monopoly. (Oligopolies are markets where there are only a few sellers.48) In the model known as Cournot competition, oligopolists fix their production at a level that leads to a price greater than perfect (p. 70) competition but less than the monopoly price. Cournot’s duopoly is then characterized by a ‘mild’ competition where each of the operators makes economic profits.49 2.33  Another problem comes from the fact that, because the classical and neoclassical theories are so abstract, they produce inexact and unrealistic results. As Friedrich Hayek notes, perfect competition paradoxically results in ‘the absence of any competitive activity’ since the price is constantly unified.50 The assessment made against the monopoly should also be corrected since, as we shall see, it acts in certain circumstances in a way that is allocatively efficient (through price discrimination), productively efficient (by realizing economies of scale), and dynamically efficient (by financing innovation). 2.34  Useful, albeit limited While it is true that the lack of realism of the models described have made practical enforcement based upon them impossible,51 neoclassical models nevertheless offer useful benchmarks for determining the direction of effects, even if they cannot be relied upon to determine the magnitudes.52

B.  The Normative Economics of Competition 2.35  Introduction Immediately after the Second World War, competition economics became more normative. Based on empirical economic analyses, scholars from Harvard University formulated ambitious policy recommendations as a guide for competition authorities (discussed in Section 1). A few years later, members of the University of Chicago proposed a different interpretation of the economic theory of the legal implications, an approach that was diametrically opposite from Harvard’s (see Section 2). The teachings of these two schools were both criticized by a new modern movement of thought which appeared in the 1980s, often referred to as Post-Chicago School (see Section 3). The debate between the Chicago and Post-Chicago viewpoints is one that is still carried on today.

(p. 71) (1)  The Harvard School (or the ‘structuralist’ movement) 2.36  A new methodology In the 1960s, a group of economists from Harvard led by Professor Joe Bain started reflecting, as the neoclassical theorists had done, on the relationship between the structure of a market and its performance. But any similarity between the two approaches stops there. Rejecting the arguments of neoclassical theory, which were felt to be too abstract, the Harvard economists used an empirical method based on making factual observations of branches of industry.53 2.37  The ‘SCP’ paradigm Their work highlighted a causal relationship between the structure of a market, that is to say, its endogenous characteristics (the number of producers and buyers, barriers to entry, degree of product differentiation, etc), the conduct of the undertakings (price setting, investments, publicity policies, etc), and the performance of the industry, that is, its contribution to ‘welfare’, which is understood not only as economic efficiency but, more generally, as social progress.54 Professor Bain argued that the more concentrated the structure of a market is, the more suboptimal the behaviours of the undertakings on that market are (supra-competitive price policies) and the more negative the performance of the industry is (the supra-competitive profits of the undertakings are to the detriment of consumers).

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2.38  Like any equation, the Structure-Conduct-Performance paradigm contains an unknown factor: the explanation for the relationship of cause and effect between the size of a firm and the profits it makes. Professors Carl Kaysen and Donald Turner suggested one answer, an elementary one: the existence of high profits is proof that large firms have ‘unreasonable market power’—the power to raise price above the costs—which they exploit to the detriment of consumers.55 Of course, this is just one possible answer. High profits may also signify high (and risky) upfront investments, such as often required with researchdriven products and services; high profits ex post are required to recoup risky outlays made ex ante. 2.39  Structuralist recommendations The originality of the Harvard School is illustrated in the fact that its authors moved from economic theory to formulate policy recommendations. They felt that government must closely monitor the structures of concentrated markets.56 However, as regards the legal remedies to be used, the members of the Harvard School differ on which approach is best. Some, like Professor James Rahl, argue in favour of a strict application of Section 2 of the Sherman Act, which prohibits ‘monopolization’.57 Others, like Kaysen and Turner, recommended that a special law be passed which would allow (p. 72) concentrated markets to be deconcentrated at any time.58 On the other hand, the ex ante control of concentrations between undertakings was not endorsed by the Harvard School, which thought such a policy would be too limited and incapable of correcting concentration that emerged through organic growth. 2.40  From theory to practice The radical proposals put forward by Bain, Kaysen, and Turner found political favour at the end of the 1960s. The White House Task Force on Antitrust Policy produced a report known as the Neal Report59 that recommended the adoption of a special law entitled the Concentrated Industries Act which would have allowed the implementation of a policy to deconcentrate concentrated markets.60 The Attorney General would have been responsible for identifying all concentrated US industries and then for taking legal proceedings against firms holding more than 15 per cent of the identified market.61 The set objective was to use structural remedies to reduce the undertakings’ market share to below 12 per cent.62 In 1972, Senator Philip Hart proposed the adoption of a similar law evocatively entitled the Industrial Reorganization Act.63 Neither of these proposals was ever made into US law. 2.41  In fact, enthusiasm for the Harvard proposals quickly faded. The legislative proposals met with a lot of harsh criticism64 and the drafts got buried when reviewed by the parliamentary committee. Reviewers, for instance, pointed to the fact that the relationship between market concentration and firm profitability was weak and that such important considerations as examining the potential for barriers to entry had been ignored. Furthermore, there was little to suggest that the analyses had confirmed whether deconcentration trends held in the long term or if they merely exhibited short-term fluctuations.

(2)  The Chicago School (or the ‘behaviouralist’ movement) 2.42  Introduction Coincident with the demise of the Harvard School of Thought, the years 1960–70 saw the birth of a new movement at the University of Chicago.65 The view there (p. 73) broke with the stance that concentrated market structures had to be dissolved. The Chicago School differed from the Harvard structuralists both methodologically and ideologically.66 First, methodologically, it rehabilitated the theoretical analysis of the markets (by invoking neoclassical competition theory).67 Next, ideologically, it assigned to competition (and to the policy underlying it) the single objective of promoting economic efficiency, in its three forms (allocative, productive, and dynamic).68

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2.43  Another interpretation of the ‘SCP’ paradigm The difference in approach led members of the Chicago School to propose a different interpretation of the SCP paradigm which looks more favourably on industrial concentration.69 In their view, the condemnation of concentration, without other anticompetitive conduct, overlooks the efficiencies that can come with concentration in the form of economies of scale, cost reductions, and product improvements.70 When such efficiencies are present in an industry, undertakings may logically be encouraged to grow in size, thus accentuating the degree of market concentration. Large firms, which tend to be more efficient than smaller ones, thus sell products that are less costly and of better quality.71 And since their costs are lower, their profits naturally surpass those of small undertakings. 2.44  In general, the difference between the Harvard and the Chicago Schools lies in their interpretation of the SCP paradigm. For the Chicago School, the existence of profits in concentrated industries does not automatically come from the exercise of ‘unreasonable market power’ but can be explained by the greater efficiency of large undertakings.72 2.45  Minimalist legal recommendations Codified in work by Robert Bork evocatively entitled The Antitrust Paradox,73 the advice given by the Chicago School to government is the very (p. 74) opposite of the structuralist directives of the Harvard School. Competition authorities should not be concerned with market structure. Most of the time, the oligopolistic concentration of the markets is a rich source of efficiencies. The Chicago School challenged the Harvard proposals for administering structural measures on concentrated markets.74 2.46  Instead, the Chicago School argues that authorities should limit their intervention to the detection of collusive behaviours (which show no efficiency) and, where necessary, to punish them when they appear.75 But the need for competition authorities to intervene to prevent collusive behaviour may in fact be limited. According to George Stigler, horizontal collusion is rare in practice since it is intrinsically unstable—the participants nearly always have incentives to deviate from the agreement.76 As to vertical collusion (eg retail pricefixing agreements between suppliers and distributors), it can often be explained by large efficiency gains.77 In truth, according to the Chicago School, collusion should only be a concern for concentrated markets. That is, governments need only look into collusive behaviours when markets are oligopolistic. Thus both the Harvard and Chicago Schools were concerned with concentrated markets, but for the Harvard School concentration was enough on its own while the Chicago School focused on anticompetitive behaviours within concentrated markets. 2.47  In the final analysis, the Chicago School therefore advocates a ‘minimalist’ competition policy. In line with these precepts, the Reagan Administration of the early 1980s limited antitrust intervention to its very minimum (‘small antitrust’).78

(3)  New industrial economics (or ‘Post-Chicago’ School) 2.48  Introduction On reflection, the Harvard and Chicago Schools may be closer than is ordinarily thought. If one were to pinpoint what they had in common, one would say that each paints too-simplistic a caricature of the way markets operate. It was too restrictive to conclude that all concentrated markets were problematic, as the Harvard School did; on the other hand, it was too sweeping a generalization to conclude that all monopolies and oligopolies were efficient and should be left to their own governance, as the Chicago School did. When not taken to their extremes, both schools offer useful insights. 2.49  The key concept of ‘strategic behaviour’ In the 1970s and 1980s, some economists drew the same conclusion that markets are more complex than suggested by the Chicago School.79 (p. 75) These economists focused on oligopolistic markets, which constitute most contemporary industrial structures, albeit under very specific circumstances. As Professors Dennis Carlton and Jeffrey Perloff explain, on oligopolistic markets interdependent undertakings sometimes adopt so-called ‘strategic’ behaviours From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

which ‘try to reduce the competition exercised by [their] current or potential rivals’ with the ultimate goal of ‘harming [their] competitors’ and ‘thus increasing [their] profits’.80 2.50  The Post-Chicago economists, adopting a ‘behaviouralist’ approach like the Chicago School,81 have identified a number of non-cooperative strategic behaviours which negatively affect market performance and, where necessary, justify the intervention of competition authorities.82 In particular, they have identified some circumstances under which oligopolistic firms have incentives to engage in predatory pricing,83 ‘limit pricing’,84 raising rivals’ costs of production,85 strategic investments (eg advertising expenses,86 or R&D), etc.87 It is important to note that just like the Chicago School models, the PostChicago models rest on some strong assumptions and therefore can only be applied to policy with great caution, something that the authors themselves have been quick to point out.88 Moreover, these models are often difficult to implement in practice.89 (p. 76) 2.51  The Post-Chicago economists have also developed a theory of strategic cooperative behaviours. Undertakings sometimes take decisions which make it easier for them to coordinate and which ultimately limit competition.90 Unlike non-cooperative behaviour, where the undertaking that initiates the behaviour tries to reduce the profit of its rivals, cooperative behaviour is aimed at increasing all participants’ earnings, and thus it increases the profit of the initiators’ competitors as well. Cartels provide the clearest example of this type of behaviour. Other types of cooperation that are a priori less harmful but may nevertheless reflect strategic cooperative behaviours are covered as well, for instance the exchange of statistical information, early price announcements,91 the practice of facilitating cartel agreements (such as the widespread use of preferential customer clauses in vertical relations),92 etc. 2.52  Assessment In sum, the main contribution of the ‘Post-Chicago School’ is to rehabilitate the idea that intervention by the competition authorities is legitimate under certain circumstances. How frequently those certain circumstances are relevant in practice remains a subject of debate.93 2.53  Conclusions While it has more explicitly introduced the complexity of the economic realities into competition analysis, Post-Chicago economics has done so at the cost of conceptual unity and, where applicable, the normative force of the Harvard and Chicago Schools. In the final analysis, we are left with individualistic evaluations, entirely dependent upon the circumstances at hand in a particular case, which brings with it a serious problem of legal uncertainty. This is probably a contributing reason why, in various parts of the world, courts and competition authorities continue, according to their decisions, to draw on the teachings of the Harvard and Chicago theories.94 2.54  As is probably apparent from our review of all three economic movements, beneath the apparent clarity of the concepts of strategic cooperative behaviours (illustrated in Art 101 TFEU) and non-cooperative ones (illustrated in Art 102 TFEU) there is a fair amount of complexity and uncertainty. First, regardless of whether we are talking of Chicago or PostChicago, modern scholars are divided about the specific standards that need to be applied to the assessment of strategic behaviours. Many—not necessarily consistent—tests have been proposed to assess exclusionary abuses of dominance, such as predatory pricing or anticompetitive rebates. With respect to such practices, EU law is still in flux. Moreover, the analytical tools used by industrial economics today borrow from virtually the whole range of modern economic theories, including, in no particular order, the theory of contestable (p. 77) markets,95 game theory,96 principal–agent theory,97 transaction cost theory (sometimes also known as theory of the firm),98 signal theory,99 the theory of externalities,100 behavioural economics,101 etc.

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(p. 78) III.  Methodology of Competition Economics 2.55  Introduction As we shall see, the main focus of study of competition economics is ‘market power’ (Section A). Market power can enable behaviours with pernicious effects on economic efficiency (which competition law, from a purely economic angle, is supposed to be responsible for protecting). Making the same finding, EU competition rules are today based, if not wholly at least mainly, on the concept of market power.102 Economists have designed instruments to help authorities, courts, and undertakings to identify and measure market power and its possible abuses and these are listed in Section B.

A.  The Concept of Market Power 2.56  Concept of ‘market power’ Whether an undertaking merges with a competitor, resorts to the strategic behaviours already mentioned, or enters into a cartel agreement, the concern of competition economics is that the undertaking may acquire, strengthen, or exploit market power. Market power describes the capacity of undertakings, by reducing their production, to set higher prices than those which would prevail in a situation of perfect competition (ie, prices exceeding marginal cost)103 and, at least in the short term, to thus make supracompetitive profits. 2.57  Differing degrees of market power Defining market power in these terms might lead one to fear that any market would, at the end of the day, find itself in the sights of competition authorities. Obviously such a situation would not be desirable. Market power is not harmful on its own, rather it is the abuse of market power that raises concerns. Emphasizing this point is the fact that in all markets in which products/services are not perfect substitutes104—that is, all the markets with the possible exception of those for fungible commodities105—undertakings can (p. 79) fix their prices higher than their marginal cost.106 Despite this price setting ability, it quite often happens that on these same markets the undertakings engage in fierce competition, hence making the intervention of competition authorities unnecessary.107 2.58  Market power and competition are therefore not necessarily antithetical. Economists tell us today with one accord (and such consensus is sufficiently rare as to be underlined here) that there are degrees in market power.108 Only certain undertakings enjoy ‘significant’ market power, that is, those that are able to raise their price to a level that is substantially greater than their marginal cost, in the medium, or even long, term. The crux of the problem is obviously to determine at what level of market power anticompetitive concerns begin to appear. And it is on this matter, which calls for a necessarily arbitrary response, that structuralist and behaviouralist economists are frequently split.109 2.59  Extending the concept of market power Focused on the power a firm has over prices, our definition of the concept of market power is incomplete. Apart from quantities, it says nothing about the fact that a powerful undertaking on the market is as often capable of influencing other parameters such as the quality of products/services, which it can make worse while holding price and quantity constant, or innovation, which it can stall .110 The concept of market power therefore encompasses other dimensions.111 2.60  Power to exclude Others, without in any way denying the relevance of power over price, consider that the concept of market power also covers a power to exclude rivals or entrants. This is the theory put forward by Professors Thomas Krattenmaker, Robert Lande, and Steven Salop.112 A firm has power to raise prices above the competitive level (or to prevent any price decrease) when it is able to raise the costs of its competitors and limit their production. An established undertaking can, for example, buy a large amount of shelf space in supermarkets while its competitor develops an intense advertising campaign. Unable to obtain adequate or appropriate display space, and hence unable to make the sales potentially triggered by the advertising campaign, the production of the competitor stagnates. Similarly, (p. 80) an established undertaking can dissuade customers from From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

turning to the products of a new entrant113 by offering them financial benefits (rebates, customer loyalty programmes, etc) or by imposing penalties114 (threatening to stop supplying another key product or, in the case where the established undertaking supplies complementary products, by making competing products incompatible). All these practices may have the effect of raising rivals’ costs. If one takes the example where an undertaking stops supplying a complementary product or service that is essential to consumers, the new entrant will also have to penetrate this new market if it wants to supply the consumers in the first market. These practices clearly limit production. If one takes the example of customer loyalty programmes, the new entrant can be dissuaded from marketing new capacities. The increase in production, which should have led to a price reduction, does not occur. 2.61  Practical scope This less classical form of the concept of market power has been recognized by European authorities.115 For instance, in the area of merger control, authorities traditionally investigate the future risk of significant market power being created or strengthened. In their investigations, authorities now tend to test behavioural theories of anticompetitive behaviours, which are directly inspired by the works mentioned earlier. They will, for instance, try to determine whether the merged entity will engage in behaviours that raise rivals’ costs. Such scenarios are frequent in vertical mergers, that is, the merger of two undertakings operating at distinct stages of the production process. When one of the parties to the operation controls certain resources that are key to downstream operators who are competitors of the other party to the operation, the newly merged entity is likely to increase the costs of its downstream competitors by making it more difficult for them to be supplied with the input at prices and on terms identical to those which would have prevailed if there had been no merger.116 117

Illustration: behavioural theory of anticompetitive conduct—the Alcoa/Reynolds case In 2000, the two US aluminium producers, Alcoa and Reynolds, notified the Commission of a planned merger.117 This merger had a vertical dimension. Reynolds was the main producer of P0404, a specific quality of primary aluminium used in the manufacture of aluminium alloys for the aerospace industry. Downstream, Alcoa produced alloys of this type. Its sole competitor was McCook Metals, previously supplied by Reynolds. The Commission was concerned that post-merger McCook would no longer be supplied with the raw material by the merged entity—or would be supplied on disadvantageous conditions— and would therefore be excluded from the downstream market for aluminium (p. 81) alloys for the aerospace industry.118 During the proceedings, Alcoa offered to share with an independent third party part of a foundry producing P0404 and, where necessary, to maintain competitive supplies of P0404. The Commission held that these commitments were appropriate, and cleared the transaction.119

B.  Measuring Market Power 2.62  Preliminary remarks Looking for an absolute instrument with which to measure market power has always come to naught. Despite the efforts of many economists, no instrument manages clearly to measure whether or not market power exists. At the end of the day authorities, courts, and undertakings must rely on a range of instruments, concepts, and criteria meant to proxy market power, as listed below.

(1)  Direct measurement of market power (a)  The Lerner index and the semantics of cost

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2.63  The Lerner index As market power has been defined as the power of a firm to fix prices at a level above that which would prevail in a perfectly competitive market, that is, above marginal costs, Abba Lerner considered that the best way to evaluate market power would be to compare the level of prices in a given market with the level of prices which would exist in the same market in a situation of perfect competition.120 According to Lerner, the gap between the price of the seller and its marginal cost of production reveals its degree of market power. This measure is essentially the undertaking’s gross margin. 2.64  While this comparison is easy to grasp conceptually, the level of the gap between the two figures is not necessarily representative of the extent of market power. For example, in some markets, a gap of several hundred euros on an extremely expensive product (eg a luxury car) may not identify meaningful market power, while a gap of just a few euros on an inexpensive good (eg a food product) may. To account for the problem of levels, Lerner designed an index that expresses relative values. The index (L) measures the ratio between (i) the price (P) less marginal cost of production (Cm) (eg the absolute price gap) and (ii) the price (P).The marginal cost of an undertaking (sometimes referred to as incremental cost), is defined as the cost incurred to produce an additional unit of output (in actual fact, the cost of the last unit of output produced).121 Thus, Lerner’s index measures the proportion of a price offered on the (p. 82) market which is greater than its costs. The undertaking has market power if the ratio is greater than 0. The closer the index gets to 1, the larger the undertaking’s market power.

2.65  Marginal cost, theoretical standard Although attractive in theory, in practice Lerner’s index only provides limited indications.122 First, note that it is a short-term measure because it is based on marginal costs. In industries with high fixed costs that must be recovered through apparently high prices (in that they exceed short run marginal costs), the Lerner index will suggest greater market power than actually exists. 2.66  Second, the index glosses over real-world complications that can have a material impact on the analysis. Let us imagine a simple example in which a firm produces electricity. It costs €500 million to build a nuclear power plant. It then costs €1,000 to produce each megawatt of electricity (the productive capacity of modern electric nuclear generators is estimated to be between 500–2,000 MW). The total cost of the first unit is €500,001,000; the total cost of the second is €500,002,000; the total cost of the third unit is €500,003,000; and so on. In our example, the marginal cost of the first unit is €500,001,000–500,000,000, that is, €1,000; the marginal cost of the second unit is €500,002,000–500,001,000, that is, €1,000; and the marginal cost of the third unit is €500,003,000–500,002,000, that is €1,000. Here, marginal cost is not only easy to identify but it also remains constant as production rises. That is not always the case. Indeed, it is typically quite hard to calculate incremental costs in practice.123 2.67  First, with the exception of certain sectors, undertakings do not typically produce one additional unit of output but will rather produce series of additional units. In other words, production does not increase in a smooth linear fashion but instead increases in steps. Under such circumstances, how should one calculate the cost of a single marginal unit? Second, sometimes a single input is used to produce more than one good at a time, such as when the lights in a factory shine equally on two distinct production lines. How should the utility bill be allocated to each product’s cost?

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2.68  Besides the problems of isolating incremental costs in the first instance, analysing marginal costs poses a range of additional issues. The electricity example was obviously simplistic. The marginal cost of an undertaking is rarely constant. As their production increases, undertakings achieve efficiency gains (effects of training, gains in productivity, etc) or, on the other hand, incur new fixed costs, when, for example, their output capacity reaches saturation level (need to build a new power plant, exhaustion of pollution emission quotas, etc) or their production tool deteriorates or suffers an incident following heavy use (breakdowns). Depending on the situation, the marginal cost can either decrease or increase as production rises, and can do both over a large enough range of output. 2.69  The difficulties in cleanly isolating costs are the likely explanation for what has been called the ‘marginalist controversy’. In the 1940s, a study by Richard Lester challenged the ‘marginalist’ premises of neoclassical price theory by demonstrating that undertakings (p. 83) themselves do not calculate their marginal cost.124 Despite its imperfections, however, marginal cost remains a useful and frequently employed concept in economics. 2.70  Productive inefficiency and high costs of monopolies Aside from the complications of accurately measuring marginal cost, the Lerner index also underestimates the market power of the most powerful undertakings. In the most serious cases of market power, the gap between price and costs may shrink away to very little. This can occur, as noted earlier, because firms with substantial market power often have little incentive to keep costs low or production efficient and may indeed use revenues for non-monetary profit taking, in the form of lavish offices say, which of course show up on the accounting books as costs.125 If price margins do not keep pace with rising (inefficiently so) costs, then the Lerner index will be misleadingly small. 2.71  Marginal cost and non-manufacturing industries In many sectors, and this is particularly so in the IT sector, the marginal costs of undertakings are minimal or close to zero.126 In such industries, firms incur large fixed costs, the size of which bears no correlation to the volume they intend to produce. For example, the invention of a new piece of software, production of a film, development of a biotechnology research tool, design of a financial product, etc, all involve substantial upfront costs but low to no incremental costs of use.127 While upfront costs are high in these markets, ‘variable costs’, that is, the cost that depends on the volume of production, are low.128 Burning a software programmes on a disk, granting intellectual property (IP) licences for broadcasting a film, licensing a biotech research tool, or marketing a financial investment—all these actions involve only reproduction or distribution costs and perhaps some enforcement costs for protecting IP rights, but do not involve sizeable recurring charges analogous to a manufacturer’s variable costs. In these non-manufacturing sectors, the marginal cost of putting an additional unit of the products/services on the market will therefore be insignificant.129 In this case, if prices were set equal to marginal costs, the undertakings would be unable to recoup their large, and typically risky, upfront investments and would thus leave the market. But applying the Lerner index to such sectors would lead to the erroneous conclusion that all market players hold significant market power. (p. 84) This problem would also be present in all other industries where fixed costs are high and variable costs low: energy, air transport, telecommunications, rail transport, the pharmaceutical industry, etc. 2.72  Conclusions What must be well understood is that the problems we have just identified present a significant obstacle to reliable and accurate measurement of market power by competition authorities and courts based on the Lerner index: if undertakings do not know their marginal cost, how could third parties (the competition authorities and courts) be expected to measure it accurately,130 especially since there are asymmetries of information and risks of the firms overestimating their costs in order to escape investigation?131 In light of this problem, competition lawyers and economists have tried to

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design other measurement tools in the never-ending search for better guidance on the market power question.

(b)  Measuring profits 2.73  Introduction Intuitively, it might be tempting to infer a causal link between the high profits observed in a sector and the holding of significant market power. This, in any case, is the link upon which many litigants relied in the 1970s in the United States to prove the existence of illegal monopolies. After all, a monopoly can typically charge supra-competitive profits. There were therefore prima facie good reasons for making profits the legal ‘paradigm’ of market power. 2.74  Type I and II errors Making profits the benchmark for measuring market power is not always appropriate. As already noted, monopoly undertakings which enjoy market power are sometimes inefficient, and so their reported profits may be limited. Moreover, in the event of an abrupt fall in demand, even a monopolist will post heavy losses. Similarly, relying on profits is likely to result in a type II error (or false negative), assuming some undertakings do not have market power when if fact they do. Thus a type II error appears when an authority fails to control a conduct which harms economic efficiency.132 2.75  In addition, large profits pose a similar problem of identification of costs133 since the level of profits can be explained by the achievement of major efficiency gains (decreasing marginal costs) that cannot be replicated by other smaller scale operators (eg new entrants).134 Focusing intervention on firms making significant profits, although the firms may just be reaping the rewards of their industrial and commercial superiority, would lead here to a type I error (or false positive).135 The repercussions of this enforcement failing can distort both the (p. 85) immediate market (by hindering an efficient undertaking) and long-term competition (by reducing the expected rewards of investing in efficient production in the first place). 2.76  Accounting profits or economic profits? As noted, litigants in the 1970s usually relied on documentation showing large profits to persuade authorities and courts of the existence of significant market power. In this respect, they usually cited the ‘accounting profits’ of the undertakings, pointing to the values shown on the assets side of the annual balance sheet of the undertakings in question. However, in the early 1980s, economists showed that this was a profound mistake for at least two reasons. First, accounting profits are calculated without taking into account the opportunity cost of mobilizing capital.136 The problem is that a firm, which decides to invest x euros as capital, takes a risk as it gives up other market opportunities (to allocate its resources differently). Hence, this firm incurs an opportunity cost (the cost of what it gives up) that is in no way reflected by the book value of the capital. Second, accounting profits do not inform on the timing of investments or enable economists to identify easily the incremental profits from a particular action. For example, the depreciation of past investments (such as when a piece of equipment loses production capacity over time and with use), the allocation of taxes and costs, and so forth will all prevent the final accounting profit figure from being economically predictive. 2.77  Measuring ‘economic profits’, that is, the total income less the cost of labour, input, and capital and including the opportunity cost will actually reflect the profits of an undertaking.137 This definition means that it is possible for an undertaking to achieve significant profits in the accounting sense, but for profits to be low, or even zero, in the economic sense; hence, the often condemned unreliability of profit-measurement tools.138

(c)  Price comparisons 2.78  Introduction If it were possible to identify the competitive level of prices that would otherwise prevail, it would then be fairly simple to determine if an undertaking exercises significant market power by simply comparing existing prices to the competitive prices. According to some, this type of approach would be possible, and desirable, by introducing some degree of empiricism,139 based on what economists call ‘natural experiments’. Such From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

experiments essentially look within a given sector for data on the market in time (observation of price differences on the market at various comparable times), in space (observation of price differences on distinct but comparable markets), or in sectors that are close but distinct (observation of price differences on geographical markets).140 At the end of such an investigation, it may (p. 86) be possible to ‘reconstruct’ one (or more) market(s) that appear structurally competitive(s).141 All that is then needed is to compare the price of the undertaking in question with the estimated price on those benchmark markets (‘competitive benchmark price’). 2.79  Mobile phones in Ireland Such natural experiments can be illustrated by the following example. In 2007, Professors Gregory Sidak and Jerry Hausman published an analysis focused on the mobile phone market in Ireland, which was composed of two operators controlling nearly 94 per cent of the market.142 The national regulatory authority had deemed that these operators held significant market power. The authors proposed an alternative analysis of the market based on the method just presented. In particular, they focused on the prices on the British mobile phone market, which the Irish national authority deemed to be competitive. The UK would appear to be a valid benchmark for Ireland since, in terms of costs, technology, and regulations, the British market shared many characteristics with the Irish market. Sidak and Hausman proved empirically that mobile prices were actually higher in the UK, where competition was presumed, than in Ireland, where only two operators essentially shared the market. 2.80  Impracticality Because it is conceptually simple, the empirical benchmark approach is undeniably appealing. The sector analysed by Professors Sidak and Hausman was, however, exceptional in that the presence of authorities controlling the day-to-day operation of the markets offered accurate and up-to-date information. Moreover, due to the harmonization Directives adopted at Community level, the regulatory requirements imposed in both Member States were relatively close. The problem with this approach is that finding two markets that are sufficiently comparable may be extremely difficult. As Sidak and Hausman seem to acknowledge,143 it will not always be possible to identify two appropriate comparators, with the possible exception of adjacent retail markets.144 As a result, this approach can be but one tool in the box; it will not always be feasible.

(d)  Price-elasticity of residual demand 2.81  Other techniques enable market power to be measured directly—for example, by measuring the price-elasticity of residual demand faced by an undertaking.145 The priceelasticity of demand in the market measures the reaction of the quantities that are wanted in response to a price increase—if quantities remain stable, demand is said to be inelastic; if they decrease considerably, demand is said to be elastic. The concept of residual demand faced by an undertaking is the total demand of the market less the quantity supplied by other undertakings.146 To put it more simply, it is the fringe of demand not supplied once other undertakings have satisfied their customers and sold the quantities they have.147 One might say that this is the natural customer base of the undertaking in question. (p. 87) 2.82  If, on this portion of demand, the undertaking is unable to increase prices without incurring a decrease in demand (customers stop consuming or turn to its competitors), demand is elastic and the undertaking is deemed not to have market power. Conversely, if its order book is kept full in spite of a price increase, demand is inelastic and the undertaking has market power. Although attractive in theory,148 measuring market power using residual demand faced by an undertaking poses significant problems in terms of collecting information and conducting the econometric calculations.149

C.  Measuring Market Power, Indirectly

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2.83  Preliminary comments Given the limits to marginal cost, residual demand, and other direct approaches to measuring market power, competition economics traditionally has taken recourse to other instruments. For instance, Professors Landes and Posner have expressed the view that market power should be estimated using a formula that takes into account market shares, as well as the general elasticity of demand and supply.150 Today, competition authorities typically rely on multi-factor analysis, combining a review of market shares (Section 1) with other indices (Section 2).

(1)  Structural measurement (a)  Market shares 2.84  Presentation Market shares are still the primary benchmark used by competition authorities to assess whether a firm is dominant on one or several markets. 2.85  Value or volume? According to economists, measuring market shares in terms of revenue (ie, sales of each firm in relation to sales of the sector) certainly provides the most reliable indirect assessment of the power of operators on the market.151 To reconsider the mobile phone example, a legitimate question is whether it is a good idea to evaluate market shares in terms of volume (number of subscribers of each operator) when it is possible that some only rarely use their telephone. A measurement in terms of revenue is a truer reflection of the economic importance of each operator. Even so, revenue-based market share is not always representative either. On markets where there are a lot of firms, input reserves and capacity can be indicative of market power. For instance, anticipating reserves of raw materials (eg in the steel industry, where the stocks of scrap metal ore must be bought in advance) or where firms have production capacities in reserve, an undertaking that has low reserves and is therefore incapable of influencing quantities/prices in the mid and long term, will only have weak market power, even if, at the time of evaluation, it makes most of the sales in the sector.152 The European authorities, as a matter of principle, adopt the opposite approach, placing more weight on current sales. (p. 88) 2.86  Characteristic of economic operations Assessing market shares is intrinsically linked to the way a particular market works. In some markets where transactions are infrequent and irregular in terms of size (eg the aeronautical sector) market share can vary greatly from one year to another. In fact, in any industry in which ‘design wins’ are important, ‘share’ can fluctuate considerably over time. Thus care must be taken to ensure that assessment of market share is performed over a sufficiently long period. 2.87  Similarly, when the focus is on the future market power of an undertaking (eg in the prospective area of control of concentrations) it is crucial to take account of anticipated changes. For example, suppose an undertaking currently has a ‘large’ share, but due to a recent contractual win is at production capacity. If other sales contracts are expected to come up for bid in the short term, other undertakings clearly will be better positioned to win them.

(b)  Measuring concentration 2.88  Concentration ratios Simply counting the number of firms on the market is not always a true reflection of the actual size of an oligopoly. Certain markets with a large number of operators can in fact be controlled by a handful of undertakings. The risk of tacit collusion is then greater than suggested by simply counting the undertakings that are active in the market. This issue can be addressed by looking at market concentration ratios. A concentration ratio (CR) is the sum of the market shares of the m largest firms (CRm). Thus, the ratio CR4 is the sum of the market shares of the four largest firms in a market. A

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market composed of ten operators, but where the ratio CR4 is 80 per cent (the four largest firms hold 80 per cent of market shares) can be described as oligopolistic. 2.89  Two instruments are generally used to measure concentration: concentration rates, which are nothing other than the market share held by a given group of undertakings, and concentration indices. The best known index is the HHI (Herfindahl-Hirschman Index, named after the two economists who invented it), which equals the sum of the square of the market shares of each of the undertakings present in the market.153 The index ranges from zero (perfectly competitive) to 10,000 (monopoly); it goes up when the number of undertakings goes down and when asymmetries of market share between operators increase.154

(2)  Additional measurement tools—assessment of obstacles to entry and expansion 2.90  Introductory comments Market share and the measurement of market concentration are, in the view of many economists, ‘poor’ indicators of an undertaking’s market power.155 To our knowledge no economist would dare to define an absolute threshold for presuming significant market power based on a level of market share/ concentration. At best, market shares serve as a mechanism for ‘filtering’ market power. How then can authorities and courts measure market power more precisely? Economic theory tells us that in addition to the structural measurement tools, the focus must be expanded to other parameters, that is, the obstacles (usually referred to as ‘barriers’) to entry and expansion. (p. 89) 2.91  Understanding barriers to entry The ‘contestable market theory’, which was developed in the early 1980s,156 embodies the idea that faced with the threatened intrusion of potential entrants (or the expansion of current competitors), a firm is, in principle, deterred from cutting its production or raising its prices.157 On the other hand, when a firm is protected by barriers to entry, it will be able to exert a certain influence on prices and, hence, will enjoy market power. If the existence of barriers to entry and expansion is not in itself sufficient to conclude that market power exists,158 it is nonetheless a crucial parameter in the analysis undertaken by competition authorities, regardless of the practice/operation in question (determination of a dominant position, prospective analysis of the effects of a concentration, etc). 2.92  Entry or expansion? Economists are equally interested in barriers to entry (ie, obstacles to the entrance of operators that are not currently present on the market) and in barriers to expansion (ie, obstacles to the growth of the production capacities of incumbent competing operators). In fact, whether it is an undertaking that is likely to enter the market (referred to as a ‘potential competitor’ or ‘new entrant’) or an undertaking already present which might expand its activities (‘current competitor’), the competitive pressure being exerted on the market power is inherently the same.159

(a)  What is a barrier to entry? 2.93  Harvard vs Chicago, again From a simple commonsense point of view it would be tempting to say, as the OECD does, that a barrier to entry is ‘any factor which makes it harder for potential applicants to enter a market’.160 But this definition would ignore a significant economic controversy between the Harvard and Chicago economists.161 The Harvard economists, whose views are expressed through Joe Bain, define a barrier to entry as any advantage of incumbent firms in an industry over potential entrants, reflected in the extent to which the incumbent undertakings can raise their prices above the competitive level without encouraging new competitors to enter the industry.162

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Bain also indicates the three main factors that contribute to the presence of a barrier to entry: absolute cost advantage, economies of scale requiring major investments, and product differentiation. Bain therefore proposes an empirical definition rooted in examining the prices practised on the market. (p. 90) 2.94  George Stigler, for his part, defines a barrier to entry as a production cost (over all possible production levels or over a subset of the latter) which must be borne by the firms seeking to enter an industry but which is not (or has not been) incurred by incumbent firms.163 Stigler therefore proposes a definition more closely aligned with neoclassical theory and focusing on the costs incurred by the undertakings. Of course, one of the three advantages that Bain lists are cost advantages, so the two definitions have some fundamental aspects in common. 2.95  Illustration A brief example taken from the electronic communications sector highlights the differences and, in some cases, the analogies, between these two approaches. If the entrants and the incumbent operators have identical access to the technology, Stigler’s view is that economies of scale and other productive, financial, advertising, and other investments (costs already realized by the incumbent operators) do not constitute barriers to entry, whereas Bain thinks that they do.164 On the other hand, if the incumbent was ‘offered’ its telecommunications network by the authorities, the (costly) construction of an alternative network by the new entrants constitutes a barrier to entry according to Stigler’s definition.165 Similarly, the incumbent operator generally enjoys a ‘first-mover advantage’ which would act as a barrier to entry according to both Stigler’s and Bain’s definitions: the incumbent operator, which has for a long time had no competitors on the market, has been able to build a customer base for itself without undertaking any significant marketing. In order to capture customers new entrants must, on the other hand, spend large amounts for marketing. These (asymmetrical) investments constitute a barrier to entry.166 2.96  Assessment Bain’s definition is certainly more inclusive than Stigler’s. Of the various different criticisms that have been made of this definition the most persuasive is that Bain’s definition covers elements which concern the efficiency of the undertakings already present in the market, such as, for example, a cost advantage or a profitable product differentiation strategy. 2.97  On the other hand, Stigler’s definition has been accused of being too narrow in that (i) it excludes from barriers to entry irrecoverable costs (which are also incurred by the incumbent undertaking)167 and (ii) it does not take into account the absence of similarity of the cost structures between the undertakings. (p. 91) 2.98  Finally, Bain’s and Stigler’s detractors have accused them of not being interested in ‘strategic barriers to entry’, that is, behaviours adopted by the incumbent undertaking to stave off the entry of competitors (eg making threats of exclusion by public announcements, making a pre-emptive acquisition of the capacities of marginal operators eyed by the entrant, establishing excessive production capacities,168 registering ‘dormant’ or ‘immaterial’ IP rights (for blocking purposes), etc).169 2.99  Recent discussions of the definition of barriers to entry tend to show that a static structural approach to barriers to entry is not sufficient; there must also be a more dynamic and behavioural approach. For instance, even if an entrant’s and an incumbent’s costs are similar, there may be a barrier to entry if a new entrant must incur those costs over a

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shorter period of time.170 Likewise, economies of scale and investment costs, as identified by Bain, may represent barriers if they delay entry and reduce social welfare.171

(b)  Characteristics of a barrier to entry 2.100  Status of problem As interesting as it may be in theory, the debate relating to the definition of the concept of barriers to entry seems to have had a minor impact in practice. What is important is not so much the formal content of the concept of barriers to entry but the ability of the obstacle in question to deter the probable entry (or expansion) of a competitor which would be timely and sufficient .172 2.101  Preventing ‘timely’ entry It would be wrong to think that only obstacles that are insurmountable in the long term for potential entrants are barriers to entry. On the contrary, since the authorities are interested in the competitive pressure exerted on undertakings that are already present in the market, anything that on the day of examination, or in the near future, constitutes an obstacle to entry deserves to be considered as a barrier to entry.173 Following the same line of thought, long-term entry (eg with a time line three or four years down the road) is not likely to constrain the current price policy of incumbent operators. 2.102  Preventing ‘probable’ entry The aim of analysing barriers to entry is to determine the existence and the extent of the market power of an undertaking that is already established on the market. This is why the analysis must not be simply theoretical: an answer must be found to the question of whether entry (or expansion) is not only possible within a suitable period in order to put pressure on the incumbent undertaking, but also whether it is probable. In other words, it is not a matter of finding out whether an undertaking might enter a market (p. 92) but of knowing whether it is likely to do so174 because it has a commercial interest in doing so.175 2.103  Preventing entry of ‘sufficient’ competition Because only entry (or expansion) that is sufficiently intense is likely to constrain the incumbent undertaking, the extent and importance of the entry (expansion) that is envisaged must be examined as well.176

(c)  Types of barrier to entry 2.104  Introduction Summarizing all the theoretical studies devoted to the concept of barriers to entry, the OECD in 2005 offered a list of types of barriers to entry which is widely accepted as comprehensive.177 Below we offer a slightly adapted version of that list.178

(d)  Structural barriers 2.105  These are barriers to entry which are endogeneous to the market in question and which do not stem from the behaviour of the incumbent undertakings. 2.106  Absolute cost advantages These advantages comprise the favourable economic conditions enjoyed by firms already present on the market which new entrants cannot enjoy (so that new entrants would be unable to replicate the prices offered by incumbent firms).179 The question of innovation in the market is crucially important here: in a market that is exposed to a sustained rate of innovation, the cost advantage enjoyed by an undertaking may, in the medium term, prove to be particularly precarious. 2.107  Economies of scale With an identical cost structure, undertakings already present on the market may benefit from economies of scale resulting from a high level of production. The undertakings can then allocate their fixed costs (eg the cost of obtaining their premises) over a relatively high number of units produced and thus reduce their average production cost.

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2.108  Economies of scope An incumbent producing a range of products can allocate its common costs over all the units of the various products and, if need be, cut the average production cost of the different products. In other words, economies of scope allow an undertaking to crosssubsidize production. A potential entrant who is not present on these various other markets would not be able to replicate the prices of that undertaking. 2.109  High investment costs The amount and cost (interest) of capital required to enter into a market may constitute a barrier to entry. Financing terms can differ substantially across investment projects depending upon their relative risk levels, and interest rates can vary (p. 93) across undertakings even within the same industry due to the differing ability of firms to repay loans. 2.110  Product differentiation and advertising investments Product differentiation and advertising investments are often considered to be barriers to entry180 for they often go hand in hand with loyalty to the brand of the incumbent. A potential entrant may decide not to enter a market if it has to make major expenditures in order to advertise its products and encourage the customers of the incumbent to change their consumption habits. It should be noted, however, that when it is permitted (ie, in most of the economic sectors) advertising can have a positive effect on entry. By improving the information provided to consumers, it can increase sales opportunities.181 2.111  Reputation effects The notoriety acquired by undertakings already present in the market can constitute a barrier to entry to the extent that the new entrant must make special efforts (eg investments) to attract customers who consider reputation to be an important factor in their purchasing decision.182 2.112  Switching costs183 These are the costs incurred not by the entrant but by a consumer who switches from one supplier’s product to another’s. When this cost is high, elasticity of demand is weak and the new entrant is faced with a barrier to entry.184 An example helps to clarify. Previously when a consumer switched his mobile phone operator, he lost his phone number, necessitating the often time-consuming process of notifying all his contacts of the change. This switching cost made it more difficult for customers of an operator to switch to another operator, even in the face of mobile service price increases. Regulations requiring number portability have eliminated this switching cost.185 2.113  Network effects Direct network effects appear when the usefulness that one customer derives individually from the consumption of a good/service increases with the number of other people who collectively consume it. Hence the individual usefulness of being connected to the telephone network increases with the number of subscribers collectively connected to the network. Indirect network effects appear when the size of the network affects the quality or cost of the good/service. For instance, an individual does not benefit directly when she purchases a widely used printer, but because it is widely used she is likely to find that service and repair is easier to find in her area and the cost of replacement toner cartridges may be lower as well. An undertaking wishing to enter a market which has network effects will tend to encounter barriers that may even be virtually insurmountable,186 whilst the (p. 94) incumbent undertaking can take advantage of its customer base to expand the number of its customers. 2.114  Regulatory barriers Notwithstanding its merits or how opportune it is, the existence of a regulation, law, or any other legal instrument that imposes conditions on undertakings within a given market can also constitute a barrier to entry.187 The practice of setting quotas to regulate access to certain professions (eg the legal and medical professions) is a good example of this.

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2.115  Barriers to exit These are all costs that an undertaking might incur if it leaves the market. These barriers therefore include sunk costs188 (costs that cannot be recouped, eg advertising investments), investments that have no salvage value (eg highly specialized machinery), or undertaking dissolution costs (eg the costs of unwinding established contractual relations). Economists consider that exit costs are likely to deter new entrants from entering a market in the first place.189 What is more, to the extent that the fear of incurring large exit costs is also shared by the incumbents on the market, the latter may be all the more determined to prevent any market entry by using strategic behaviours. Barriers to exit therefore can double as barriers to entry for potential entrants.190 2.116  ‘First-mover advantages’ First-mover advantages can take several forms, most of which are related to other potential barriers. Most simply, being first in a market can create reputation effects that later entrants have difficulty overcoming. In markets with network effects, firstmovers can benefit from switching costs. Or, if the market is characterized by learning effects, experience or the acquisition of know-how (eg production experiences a learning curve that takes a ‘positive exponential’ form) then it may be impossible for undertakings which were not present from the start to compete on equal cost footing in the short, or perhaps even in the medium, term with the incumbent undertaking. 2.117  Vertical integration Vertical integration can be a source of strategic advantages. Vertically integrated undertakings, for example, may enjoy security in terms of upstream supplies or, more simply, they may achieve substantial cost savings, particularly relating to transaction costs since they may not need to look for co-contractors to distribute their products, negotiate the terms for distributing their products, or monitor proper performance of the contractual obligations. Finally, on markets where undertakings are vertically integrated, new entrants risk being foreclosed due to preferential treatment between the upstream and downstream operations of vertically integrated firms.191

(p. 95) (e)  Strategic barriers relating to the behaviours of incumbent undertakings 2.118  These are barriers intentionally erected by incumbents. Unlike structural barriers, they are not obstacles inherent to the market in question but rather barriers created by market participants. While many of these barriers are analysed by economists as measures of the market position of an undertaking (eg its dominant position), lawyers are generally interested in these barriers in relation to the lawfulness of the behaviours of the undertaking in question. 2.119  Strategic tariff barriers A distinction is usually made between three types of strategic tariff barriers: (i) strategic financial barriers, the purpose of which is to block/limit the access of a new entrant (or a current competitor that wishes to expand) to financial resources (capital); (ii) strategic barriers with a signalling effect the object of which is to influence the perception that a potential entrant has of the profitability of the market; and (iii) strategic barriers with a reputation effect which the incumbent undertaking uses to reinforce an aggressive image vis-à-vis new entrants.192 2.120  Overinvestment in capacities By investing in excess production capacities an incumbent can discourage new entrants which may be concerned that once they have entered the market, the incumbent will flood the market with huge quantities, inducing a downward trend in prices that makes entry unprofitable.193 This phenomenon becomes more acute when a potential entrant must incur sunk investment costs in order to compete with the incumbent undertaking.194 2.121  Loyalty discounts and group rebates Provided it enjoys sufficient market power, an incumbent can create an obstacle to the entry (or expansion) of competitors by offering discounts to its customers. The latter can take several forms. First, it can set up a system of loyalty discounts: customers are encouraged to obtain their supplies for their contestable volumes (those which might be satisfied by competitors) from the incumbent by making the grant of a discount conditional upon satisfying a volume or minimum percentage of From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

orders.195 The incumbent can also make the grant of a discount on a product conditional on the purchase of other products. 2.122  Tied sales The dominant undertaking may also erect a barrier to entry on the market by jointly offering several products. If customers respond positively, it will be hard for (p. 96) a potential entrant to penetrate the market without itself adopting this approach. Entry on multiple fronts is, however, more costly than entry on one single product market.196 2.123  Exclusive commercial arrangements An incumbent supplier may use exclusive supply agreements with its customers to limit, or even prevent, competitors from entering the market. These agreements may erect barriers to entry to the extent that the contestable share of the market for new entrants is reduced in proportion to the extent/term of said agreements.197 2.124  Patent hoarding If the existence of intellectual property rights and, where applicable, exclusive operating rights can constitute a barrier to entry on a market, these rights logically fall within the category of regulatory barriers. What is involved here is a strategy used by some undertakings which develop a portfolio of intellectual property rights with the intention of blocking the entry (or expansion) of rival undertakings. Incumbents may, for example, file an array of patent applications in related fields with the competent authorities (related to sometimes minor innovations). The risk of infringing any one of these patents in the event of entry onto the market (and costly court actions that can follow) can deter the entry of new operators.198 These barriers to entry must be examined very carefully for it is particularly tricky to separate what falls under a legitimate intellectual property right from an illegally obtained intellectual property right.

D.  Other Useful Economic Concepts—Competition Law, Law of Costs 2.125  The key role of production costs in analysing competition Examining production costs in competition law is useful from two points of view. First, a focus on production costs may facilitate the identification of competition law infringements by competition authorities. Prices that are significantly above the production costs of a dominant firm, for instance, may amount to exploitation. Conversely, prices that are below certain measures of costs may be considered exclusionary or predatory. In either of these extreme cases, production costs will be the benchmark against which prices will be assessed. 2.126  Second, undertakings can sometimes justify practices that are deemed suspect by the authorities by formulating counterarguments based on their production costs. One example of this is a merger that generates efficiency gains, particularly when it results in cost savings (eg by means of returns to scale or economies of scope).

(p. 97) (1)  Marginal cost 2.127  Introduction In the pure and perfect competition model, we have seen the market price drops to the level of the marginal cost of the undertakings. Since it offers a theoretical yardstick of significant market power, if data permitted it would be sufficient to measure the marginal cost of an undertaking against its prices to reach conclusions regarding the undertaking’s capacity to harm consumer welfare.199 Inversely, according to the teachings of neoclassical price theory, when undertakings set prices aligned to marginal cost, the market is deemed to be operating competitively. 2.128  Definition As explained earlier, marginal cost is the cost which would be borne by a firm to make one additional unit of a given product/service.200 Industrial economics, which is interested in the decisions of firms, teaches that this cost is the one which entrepreneurs would calculate to decide whether it would be opportune to produce an additional unit (ie, to choose their level of production), but since in competition law the focus is on the

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behaviour of undertakings that have already made their decisions regarding production, the marginal cost of an undertaking is represented by the cost of the last unit produced.201 2.129  Controversy Phillip Areeda and Donald Turner, both representatives of the Harvard School, have argued that although marginal costs are worth looking at, they are very hard to calculate in practice.202 We know from the work of economists in the 1930s that in practice undertakings do not calculate this cost—ever. How could competition authorities therefore base their investigations on marginal cost when this information does not exist and must be estimated imperfectly? In fact, modern economists teach us that undertakings calculate their prices based on three considerations: production costs, obviously, but also the commercial objectives of the firm in question (maximizing result, developing a reputation on the market, obtaining share, etc) and consumer behaviour (sensitivity to price, etc). Given this latter parameter, it is possible for consumers to be responsive to high prices that are not aligned to costs—luxury goods come particularly to mind. In such markets, pricing is not generally aligned to costs but seeks to reflect the value perceived by the consumer. What is more, even if access to information about the marginal costs were available, this cost only concerns the production of an additional unit/the last unit, so that it is hard to draw conclusions about the behaviour of an undertaking for anything other than that unit.

(p. 98) (2)  Average costs (a)  Average total costs 2.130  Definition Average total cost (ATC) is the total cost incurred by an undertaking divided by the total number of units. It is perhaps in order to overcome the problems associated with calculating marginal cost that economists and lawyers are, in practice, often tempted, by trial and error, to rely on ATC. And on the face of it, ATC, representing as it does the ‘typical’ cost of a unit produced (per unit cost), has the virtues of a significant yardstick. 2.131  Customary practical applications ATC is often used when assessing the pricing conduct of a dominant firm and, in particular, predatory strategies. EU case law thus considers that certain pricing practices that lead to prices below ATC may, under certain conditions, have a predatory effect.203

(b)  Difficulties 2.132  ATC, however, is not entirely free of difficulties when it comes to assessing anticompetitive practices. 2.133  Limited significance of ATC Prices below ATC are not necessarily anticompetitive.204 For instance, firms that conduct what is called ‘loss-leading’ or ‘penetration pricing’ strategies set prices, in the short term, that forgo recovery of all of their ATC (eg they give up some of their fixed costs) to ensure that their products take hold on the market quickly. Grocery stores often follow a loss-leader strategy, setting some popular item’s price below cost in an effort to induce shoppers into the market who will then purchase other, higher margin, items so as to offset the loss. 2.134  Multi-product firms and the allocation of common costs Measuring ATC can prove to be complicated. This is the case when looking at multi-product firms, that is, undertakings which are active in markets that are distinct but which use common production factors (labour or capital) to supply their diverse products. It is a question of both measuring and then assigning common costs, which are defined as the costs associated with two or more activities within the same undertaking.205 Consider an extreme example: what proportion of the remuneration of a postman should be imputed to the cost of delivering one unit of express mail compared to the normal mail that he also delivers

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during his round? A more common example lies in the cost represented by establishing an HR or legal department responsible for the activities of the various group subsidiaries. 2.135  Economists tell us there must be an allocation of the common costs over the various products/services in question. There are, however, many different methods of distributing (p. 99) common costs over the different activities (and determining the proportion that should be attributed to the supply of a specific product/service). All these methods involve varying degrees of complicated analyses and there is no consensus among analytical accounting experts about any of them. Generally, therefore, even with ATC (as opposed to the more controversial marginal cost), a certain degree of arbitrariness remains. 2.136  Strategic behaviours There has been a lot of talk about cost-allocation issues in the recently liberalized sectors. For instance, in the postal sector, incumbents faced with the new challenges of opening up to competition have sometimes taken to transferring to the accounts of their (State remunerated) universal service activities a large part of their common costs so as to lower only the reported costs on the newly competitive activities (eg express mail). These accounting strategies, also known as ‘cross subsidies’, can be illegal.

(c)  Subdivision—fixed and variable average costs 2.136a  In order to overcome the aforementioned problems, economists and lawyers have taken to refining cost analysis by distinguishing between two components within total costs, that is (Section (i)) fixed costs and (Section (ii)) variable costs. (i)  Fixed costs

2.137  Definition These are production costs which do not vary depending on the quantity of goods or services, such as property taxes, rent, and infrastructure expenses in some cases. The level of these costs remains ‘fixed’ regardless of the number of units produced. In the air transport sector, for example, the expenses incurred to build up a fleet are, at least in the short and medium term, fixed costs. 2.138  Economic law Undertakings with high fixed costs will in principle be able to achieve ‘returns on scale’, that is, they will be able to reduce their per-unit fixed costs by producing more units. Fixed costs are then allocated over a greater scale of production and have less impact on each unit produced. With returns to scale the average fixed cost decreases as production increases. 2.139  Practical impact In practice, the principle of spreading fixed costs over larger production levels directly influences the strategies of firms: undertakings have every interest in adopting behaviours that enable them to increase their production and, if necessary, in exploiting all of these returns on scale. Economics thus sheds a new light on behaviours which competition law sometimes penalizes blindly. A particular instance of this is price discrimination or discounts granted by dominant undertakings: where a single price system necessarily may exclude certain consumers from buying the product (those whose reservation price is lower than the price set) and therefore does not allow the quantities produced to be maximized, discrimination or volume-related rebates allow these customers to be satisfied and raise the scale of production. 2.140  Similarly, Ronald Coase’s famous theory of the firm indicates that if economies of scale are achieved by operators situated downstream or upstream, it may be efficient for a firm to delegate the performance of a task (eg the distribution of its product or the production of an input) to a specialized third party. This is why car manufacturers delegate tyre production to third party specialists. These ‘transactional’ reasons provide objective justifications for the cooperation agreements between undertakings which also concern competition law.

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(p. 100) 2.141  Confusion between fixed costs and sunk costs Lawyers and public decision-makers sometimes confuse the concepts of fixed costs and sunk costs (also called ‘irreversible costs’). Sunk costs are, as we have seen, costs which have been incurred and which cannot be recovered in case of exit (advertising expenses, certain innovation expenses, etc). Although it is true that sunk costs are, if not exclusively at least primarily, fixed costs,206 the opposite is not true: a fixed cost is not necessarily irrecoverable. To take another example in the air transport field, acquiring the fleet is a fixed cost which may be recovered in case of exit since planes can be resold on the second hand market or reallocated to other routes. 2.142  Dogma Lawyers sometimes say that sunk costs are not taken into account by firms when defining their pricing policy. In other words, firms would not seek to recover those costs from their customers.207 This claim is obviously going too far. All undertakings, for example those which have incurred major innovation expenses, seek to recover some of those costs over the long term. If an undertaking does not expect to recoup R&D costs through sales in the market, for instance, it will not invest in that R&D. This point is especially important in highly innovative sectors, such as pharmaceuticals and IT. (ii)  Variable costs

2.143  Definition These are costs which vary depending on the production volume. The costs of inputs or energy used in the production process are in principle variable costs. In the transport sector, fuel expenses are a variable cost. Because measuring them tends to be easier, economists often use average variable costs (AVC) instead of marginal costs (which depend solely on variable costs since fixed costs do not vary based on production).208 2.144  Economics Economic theory teaches that an undertaking will stay on the market as long as it is able to cover its variable costs in the short and medium term (ie, its unit price is higher than or equal to its average variable costs) since recovering fixed costs is in fact a long-term concern. On the other hand, if an undertaking does not manage to cover its variable costs it is, in principle, forced to exit the market. This is why an airline which has high fixed costs and low variable costs continues to fly its fleet of aircrafts even when the occupancy rates of its planes are low.209 2.145  Practical impact AVC has practical applications in the two previously mentioned areas of identifying conduct violating competition law and justifying conduct that may be deemed in violation of competition law. First, when it comes to identifying an infringement, AVC is traditionally used by competition authorities in the context of predatory pricing tests.210 In short, a dominant undertaking which prices its products or services at a price that is lower than its AVC is undoubtedly seeking to squeeze out its competitors. It is not acting rationally (p. 101) since each unit that it sells represents a net loss. Although it is often considered to be a satisfactory approximation of marginal cost, using AVC has been, however, criticized so that authorities seem to be moving away from it in favour of average avoidable costs (AAC). AAC are defined as those costs that are entirely avoided if production ceases. 2.146  Next, looking at ‘justification’, dominant undertakings sometimes refer to their AVC to justify discriminatory pricing behaviour or price cutting, which the authorities suspect is anticompetitive. The idea is simple: a dominant firm which grants a price reduction to some customers and agrees to sell its product above AVC is not necessarily seeking to foreclose its competitors. Since any price higher than the variable cost enables it to recover at least some of its fixed costs (the difference between the price and the average variable cost), serving these customers, including at a knock-down price, is more efficient than failing

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altogether to satisfy their demand. This is why it is usually said that price discrimination, rebates, or discounts result in more rapid recovery of fixed costs. 2.147  When do costs cease being fixed A fixed-cost item may, in time, become variable, just as a variable cost item may become fixed. Outsourcing is one example. When an undertaking itself produces an intermediate component which it incorporates into final goods, it must incur certain fixed costs, in particular fixed assets (equipment, etc) associated with that component. But if that undertaking decides to outsource production of that same component, it no longer incurs a fixed cost but a variable cost corresponding to the purchase of the component from a third party.211 2.148  Similarly, any fixed cost becomes variable in the long term. For instance, the cost of building a nuclear power plant, which is a fixed cost in the short term for any energy producer (regardless of whether it produces 0 or 1,500 MW) necessarily becomes a variable cost when it is looked at over the long term. Once a power plant reaches its capacity limit, another one must be built to increase production. The construction cost of a power plant is therefore linked to the relatively large increase in the quantities produced.

(3)  Average avoidable costs 2.149  Definition As mentioned briefly above, AAC represent all average costs incurred by an undertaking for the supply of a specific product/service and which are recoverable over a given period .They therefore include not only the AVC but also the part of the fixed average costs which (i) is specific to the production of the good/service in question and (ii) can, over a certain period, be recovered by the undertaking. The term used is ‘avoidable cost’ as a way of simply referring to what the undertaking would have saved by discontinuing the production in question.212 One of the main advantages of the notion of avoidable costs is that it overcomes the shortcomings that go along with the measurement of variable costs: those of fixed costs which, as we have seen, influence the pricing decisions of firms (those they want to recover eventually) are taken into account here;213 common fixed costs that cannot be imputed to the good/service in question are not taken into account. (p. 102) 2.150  Practical impact The concept of AAC has been used increasingly in competition law in recent years,214 particularly with regard to characterizing exclusionary or predatory price policies of dominant undertakings, that is, abusively low prices. The variable cost standard, in fact, previously allowed firms that incurred large fixed costs to escape any criticism under competition law despite the potentially anticompetitive efforts of their practices. The avoided cost standard, which is less broad and more closely tied to business decisions, is undoubtedly going to become the common legal standard in EU competition law.215

(4)  Other cost concepts (a)  Average incremental costs 2.151  Definition Average incremental costs are made up of all costs specifically linked to an increment, that is, an increase, of production. This concept therefore covers not only variable costs but also fixed costs, whether recoverable or not. The difference with marginal cost lies in the fact that average incremental cost corresponds to the average cost of a set of additional units and not of a single one, which is more realistic since firms do not decide to produce by unit but by ‘a set’ of units. As with AAC, average incremental cost does not include the common costs relating to other products, which makes it a standard that is useful for multiproduct firms.

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2.152  Practical impact Long-run average incremental cost (or LRAIC) is regularly used in the newly liberalized network industries. These industries have two characteristics that make the LRAIC a cost standard that argue for its use in reaching conclusions about the existence of a competition law infringement (eg predatory prices). First, undertakings that are active in these sectors often have multiple activities, including what are called ‘reserved’ activities, that is, where they enjoy a monopoly behind which they can attempt to conceal the costs of competing activities.216 Second, LRAIC is used within a relatively longtime frame in order to take account of the often considerable investments made in these sectors (infrastructure investments) which are only incurred by firms that take a long-term view.217 However, as recognized in the Article 102 Guidance Paper, LRAIC is not applicable when products and services can be sold in bundles.218 In that case, the relevant comparison is not whether incremental revenues cover incremental cost, but rather is whether the bundle as whole is priced (p. 103) in a predatory fashion. Moreover, sometimes costs are common across the provision of several goods, which requires an allocation.

(b)  Stranded costs 2.153  Definition These are irrecoverable costs of a specific type since they only appear in certain industries. They can be defined as the costs incurred by an undertaking due to the universal service obligation (eg picking up the mail and distributing it to households at least once each business day) which the undertaking has and which it would not have incurred if the activity to which the costs relate had been a competitive activity.219 2.154  Practical impact Incumbents with universal service obligations have often taken advantage of significant stranded costs in order to (i) challenge the price reduction obligations imposed by the sector regulators based on lower cost measurements (eg average variable costs) and/or (ii) justify their high price policies by the need to recover their investments from the customers.220

Footnotes: 1 

eg in intellectual property it is common practice for engineers and lawyers to collaborate.

2

  See L.-H. Röller, ‘Economic Analysis and Competition Policy Enforcement in Europe’ in P.A.G. van Bergeijk and E. Kloosterhuis (eds), Modelling European Mergers: Theory, Competition Policy and Case Studies (Cheltenham: Edward Elgar, 2005), 14. It should also be noted that approximately 200 of the 700 civil servants who make up DG COMP have training in economics. Around 20 civil servants hold a doctorate in economics. M. Monti, Competition Commissioner between 1999 and 2005, was Professor of Economics at the University of Bocconi in Milan. 3 

See Interview with F. Jenny, ‘An Economist on the Bench’ (2005) 1 Concurrences, 5–8.

4

  For a full survey see D. Encaoua and R. Guesnerie, Politiques de la concurrence (CAE no 60), (Paris: La Documentation française, 2006), Part One. 5

  See eg the appointment of D. Turner in 1965 as Assistant Attorney General for Antitrust at the Department of Justice. The office of the US judge is also becoming more economicsbased. Lawyers with advanced economic training, such as R. Posner or F. Easterbrook exercise judicial functions. 6

  See D. Gerber, ‘Law and the Abuse of Economic Power in Europe’ (1987) Tulane L Rev 57. D.B. Audretsch, W.J. Baumol, and A.E. Burke, ‘Competition Policy in Dynamic Markets’ (2001) 19(5) Int’l J Industrial Organization 614: ‘If there is any body of law that owes its existence to economics, it is surely antitrust law.’ 7

  See our arguments on the origin of the Treaty’s competition rules in Chapter 1.

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8

  Lawyers have long made up the great majority of the staff at DG COMP. See G. Monti, EC Competition Law—Law in Context (Cambridge: Cambridge University Press, 2007, Cambridge), at 80. 9

  See, in this regard, D. Gerard, ‘Merger Control Policy: How to Give Meaningful Consideration to Efficiency Claims’ (2004) 40(6) Common Market L Rev 1410. 10

  However, in the past European judges and the Commission, did take, from time to time, economic analyses into account. The Wood Pulp II judgment is a case in point. The Court ordered two opinions by economic experts for the purpose of determining if the price parallelisms observed in the wood pulp market could be explained by the oligopolistic characteristics of the sector. See CJ, C-89/85, C-104/85, C-114/85, C-116/85, C-117/85, and C-125–129/85 Ahlström Osakeyhtiö et al v Commission, 31 March 1993 [1993] ECR I-1307. 11

  See in particular B.E. Hawk, ‘System Failure: Vertical Restraints and EC Competition Law’ (1995) 35 Common Market L Rev 973. 12

  See Green Paper—Community competition policy and vertical restrictions, COM(96) 721, 22 January 1997, at para 65: ‘For policy purposes, it is necessary to translate the conclusions from economic analysis into workable tools that are both consistent with EC competition rules and relatively easy to implement with the necessary legal certainty for undertakings’ (emphasis added). 13

  In order to assess market power, the Commission uses market share thresholds. Below certain thresholds, practices are presumed to be compatible. Above certain thresholds, the practices must each be subject to an in-depth examination. A legitimate question is whether the market share approach is actually much of an economic improvement over the prior process though. Market share analysis has been the subject of considerable debate. For an example of the criticisms levelled, see Robert H. Lande, ‘Market Power Without a Large Market Share: The Role of Imperfect Information and Other “Consumer Protection” Market Failures’, American Antitrust Institute Working Paper No 07-06, 14 March 2007. Available at SSRN . 14

  There is also a growing influence of economics on the law of State aids, the law of car distribution, and so forth. 15

  Merger review has undergone a more significant transformation in relation to effectsbased economic analysis than cartel investigations. 16

  In other words, many lawyers expressed concern that economics, heretofore a tool for implementing the rule of law, had become the very purpose of the rule of law. See L. Vogel, L’économie, serviteur ou maître du droit (Paris: Litec, 2004), at 605. 17

  Interdisciplinarity has been the subject of some heavy criticism. See eg A. D’Amato, ‘The Interdisciplinary Turn in Legal Education’, Northwestern University School of Law Public Law and Legal Theory Series No 06-32, at 66: as to the question of emergence, there is little evidence that economic analysis of law has changed these areas in any innovative way. Indeed, the focus on the quantitative aspects of antitrust—such as in Robert Bork’s reductionism of antitrust to the goal of delivering the lowest prices to the consumer—has had a distorting effect on the field. The original impetus (not the only motive, of course) for antitrust legislation—combating an incipient fascist tendency of huge corporate combinations to overwhelm and run the government—seems to be an inconvenient memory for those who would like economic analysis to quantify everything in dollars.

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18

  Of course, there are disagreements between the various movements that we discuss in this chapter. See R.J. van den Bergh and P.D. Camesasca, European Competition Law and Economics: A Comparative Perspective (Antwerp/Oxford: Intersentia/Hart Publishing, 2001), at 16, who emphasize the great divergences among economic schools since classical theory. However, competition economics has been nourished by these interactions between movements, schools, and doctrines so that today it is relatively stable and reliable, at least in those applications with a longer history. 19

  See P. McNulty, ‘A Note on the History of Perfect Competition’ (1967) 75 J Political Economy 395, who mentions the influence of other writers in the seventeenth century; P. McNulty, ‘Economic Theory and the Meaning of Competition’ (1968) 82 Quarterly J Economics 639. 20

  In fact, classical economists such as A. Smith and J. Stuart Mill spoke of competition but never gave a precise definition of the concept. It was not until the British economist S. Jevons, one of the co-founders of the neoclassical movement, that the adjective ‘perfect’ began to be heard. The neoclassical economist Y. Edgeworth was subsequently the first to attempt to define what perfect competition might be. But it was not until 1921 and the book Risk Uncertainty and Profit by F. Knight that economists offered an explicit statement of the five conditions that must be met for a market structure to qualify as perfect competition. J. Boncoeur and H. Thouement, Histoire des idées économiques de Walras aux contemporains, 3rd edn (Paris: Armand Colin, 1921), ch III, at 39–55. V. Pareto subsequently explained why perfect competition is an ideal to be attained. 21

  See van den Bergh and Camesasca, n 18, at 18.

22

  When supply is held constant, of course.

23

  When demand is held constant, of course.

24

  See R. Guesnerie, L’économie de marché (Paris: Le Pommier, 2006), at 35.

25

  Ibid.

26

  Note that Marshall studied what is known as ‘partial’ equilibrium, ie, he showed how prices are determined on a particular market, not for the economy as a whole. L. Walras studied the much broader concept of general equilibrium by imagining the situation of an auctioneer who by trial and error determines the equilibrium prices on all markets. 27

  See Guesnerie, n 24, at 6.

28

  See M. Glais and P. Laurent, Traité d’économie et de droit de la concurrence (Paris: PUF, 1983), at 8. 29

  Each of the sellers and buyers must be considered an ‘atom’ on the market.

30

  Sellers of this type are called ‘price-takers’.

31

  When the price is equal to the marginal cost, sellers are nonetheless profitable since they do not make a loss and therefore remain on the market. The important notion to bear in mind here is the difference between ‘accounting profits’ and ‘economic profits’. The marginal cost that economists use includes opportunity costs, or the cost of using resources to produce the good at hand instead of moving those resources to their next best alternative. Hence zero economic profits, as occurs when price equals marginal cost, enables firms to earn positive accounting profits equal to the competitive return for the particular industry or market. 32

  See Glais and Laurent, n 28, at 6.

33

  The first premise of perfect competition has therefore not been met.

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34

  See J. Pearce Azevedo and M. Walker, ‘Dominance: Meaning and Measurement’ (2002) 7 European Competition L Rev 366. 35

  Classical theorists saw an analogy between the cartel and the monopoly as an antithesis to competition. See in particular, A. Smith’s famous words: People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices (A. Smith, An Enquiry into the Nature and Causes of the Wealth of Nations, 1776, at 127–8). 36

  V. Pareto argues that a situation is optimal when it is no longer possible to improve the situation of an economic agent without making that of another (economic agent) worse. This condition is referred to as Pareto Optimality. See V. Pareto, Course of Political Economy (Lausanne: 1896). 37

  This triangle is also sometimes referred to as the ‘Harberger triangle’. Its value is equal to (QC−QM) × (PM−PC)/2. See A. Haberger, ‘Monopoly and Resource Allocation’ (1954) 44(2) Am Economic Rev 77. Note that the fact that the holder of a monopoly makes economic profits is not the source of major concern for neoclassical theorists. Such profits are only one of the collateral consequences of monopoly power. 38

  E. Combes, Economie et politique de la concurrence (Paris: Dalloz, 2005), at 36, para 11. See J. Hicks, ‘The Theory of Monopoly’ (1935) Econometrica 1. 39

  See J. Tirole, The Theory of Industrial Organization (Cambridge, MA: MIT Press, 1988).

40

  See K. Arrow, ‘Economic Welfare and the Allocation of Resources for Invention’ in R. Nelson, The Rate and Direction of Inventive Activity (Princeton, NJ: Princeton University Press, 1962), 609. 41

  See J.A. Schumpeter, Capitalism, Socialism and Democracy (New York: Harper, 1975).

42

  The relationship between competition and innovation is one of the most hotly debated issues in economic theory. See P. Aghion, ‘A Primer on Innovation’, Bruegel Policy Brief 04, Issue 2006/06, October 2006. 43

  See Guesnerie, n 24, at 78 who points out that the greatest technological leaps in the twentieth century originated in the tight networks of small undertakings in the Silicon Valley. 44

  See H. Leibenstein, ‘Allocative Efficiency vs X-Efficiency’ (1966) 56 Am Economic Rev 392. 45

  See O. Williamson, ‘Managerial Discretion and Business Behavior’ (1963) 53(5) Am Economic Rev 1032. 46

  See van den Bergh and Camesasca, n 18, at 6, who refer to this problem.

47

  All the writers agree on this point. See, in this sense, van den Bergh and Camesasca, n 18, at 20. 48

  The term oligopoly is a combination of two Greek words: ‘oligos’, an adjective meaning ‘small’, and ‘poleo’, a verb meaning ‘to trade’ or more generally ‘to sell’. 49

  See A. Cournot, Recherches sur les principes mathématiques de la théorie des richesses (Paris: Dunod, 2001). 50

  Incidentally, a market structure organized on the basis of atomicity of producers is generally inefficient. In a large number of sectors, the existence of economies of scale results in efficiency gains. Exploiting these economies of scale implies an increase in the size of the undertakings active in the market and a reduction in their number. These scale efficiency gains go hand in hand with substantial improvements in ‘welfare’ for both From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

manufacturers and consumers (reduction in price, improvements in the quality of the products and services, etc). This observation subsequently led to the development of more pragmatic theories, eg the theory of ‘workable competition’. See J. Clark, ‘Towards a Theory of Workable Competition’ (1940) 30 Am Economic Rev 241. The theory of monopolistic competition is another such theory. Proposed by E. Chamberlin in 1933, it is based on four conditions which to some extent echo perfect competition, but differ slightly from it: (i) undertakings sell products that are of the same type but are imperfectly substitutable (differentiated products); (ii) each firm may choose the price of its product; (iii) the number of undertakings that are part of the industry in question is high and each is negligible in relation to all the others; and (iv) there is free entry and exit on the market. In this model each firm sells a specific product the price of which it sets. On its own (narrow) market, it holds a limited monopoly. See E. Chamberlin, The Theory of Monopolistic Competition (Cambridge, MA: Harvard University Press, 1933). 51

  Ibid, at 22.

52

  While most economists recognized the practical limitations of neoclassical models, some ordo-liberal theorists later argued in favour of making perfect competition, with some adjustments, a policy guideline. See van den Bergh and Camesasca, n 18, at 21. 53

  The first research is that of Mason in 1930–40. See E.S. Mason, ‘Price and Production Policies of Large Scale Enterprises’ (1939) 29 Am Economic Rev 61. 54

  Understood as being the contribution of the commercial activity of the undertakings in the market to general material welfare, ie, not only allocative, productive, and dynamic efficiency but also in terms of distribution of revenue, growth, and employment. See F.M. Scherer and D. Ross, Industrial Market Structure and Economic Performance, 3rd edn (Boston, MA: Houghton Mifflin, 1990), at 4. 55

  See C. Kaysen and D.F. Turner, Antitrust Policy (Cambridge, MA: Harvard University Press, 1959), at 106, 110, and 111. 56

  In general, implementation of a strict policy relating to the control of undertakings operating within concentrated markets. 57

  See the arguments of R. Joliet, Monopolization and Abuse of a Dominant Position—A Comparative Study of the American and European Approaches to the Control of Economic Power (The Hague: Martinus Nijhoff, 1970), at 106. 58

  See Kaysen and Turner, n 55, at 266. This would involve sending deconcentration and disinvestment orders to operators. Ibid, at 498 and 520. 59

  This was a Commission established by the White House to study the concentration of US industry. The Task Force, set up in December 1967, was chaired by Phil C. Neal, Dean of the Faculty of Law at the University of Chicago and comprised three practising lawyers, three economists, and six professors of law (William F. Baxter, Robert H. Bork, Carl H. Fulda, William K. Jones, Dennis G. Lyons, Paul W. Macavoy, James W. McKie, Lee E. Preston, James A. Rahl, George D. Reycraft, Richard E. Sherwood, and S. Paul Posner). See A.A. Foer, ‘Putting the Antitrust Modernization Commission into Perspective’ (2003) 51 Buffalo L Rev 1029, at 1039–41. The proposals for specific legislation were adopted by 11 out of the 13 members of the Task Force. 60

  See White House Task Force on Antitrust Policy, Report 1 (in Trade Reg, supp to no 415, 26 May 1969), reproduced in (1968–69) Antitrust Law and Economics Rev (Winter) 11. 61

  Concentrated industries were defined as the industries whose sales exceeded $500 million and in which four undertakings jointly held more than 70 per cent of market share.

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62

  This target is set so that the four largest undertakings in the sector would not control more than 50 per cent of the market. 63

  See P.A. Hart, ‘Restructuring the Oligopoly Sector: The Case for a New “Industrial Reorganization Act”’ (1972) 4 Antitrust Law & Economics Rev 35. 64

  See Y. Brozen, ‘The Antitrust Task Force Deconcentration Recommendation’ (1970) 13 J Law and Economics 279. At the famous Airlie House conference in 1974, critics of the structuralist approach synthesized their arguments and research. The conference activities and subsequent work succeeded in discrediting the recommendations of the structuralist school. 65

  The founders of this movement were Aaron Director, Robert Bork, Harold Demsetz, Richard Posner, and George Stigler. 66

  See R. Posner, ‘The Chicago School of Antitrust Analysis’ (1979) 127 U Penn L Rev 925, at 944 who establishes the issue of economic concentration and deconcentration policies as the fundamental difference between the Chicago School and the Harvard School. 67

  See van den Bergh and Camesasca, n 18, at 4. This methodology is no less capable of being criticized. While it is motivated by empirical observation, the analysis is based on theoretical models, often with restrictive premises far removed from reality. 68

  See R.H. Bork, The Antitrust Paradox—A Policy at War with Itself (New York: The Free Press, 1993), at 91; N. Mercuro and S.G. Medema, Economics and the Law—From Posner to Post-Modernism (Princeton, NJ: Princeton University Press, 1997), at 53; see van den Bergh and Camesasca, n 18, at 4. The concept of economic efficiency refers to the optimization of allocative efficiency and productive efficiency. Allocative efficiency exists when productive resources are used for the purposes that consumers value most or, in other words, when all the demand on the market is satisfied. Productive efficiency exists when the productive resources are used optimally by the undertakings, ie, when they reduce their costs in an optimal fashion. 69

  See van den Bergh and Camesasca, n 18, at 42.

70

  See Posner, n 66.

71

  See H. Demsetz, ‘Industry Structure, Market Rivalry and Public Policy’ (1973) 16 J Law and Economics, 1. 72

  A positive causal link can certainly be established between the structure of a market and its performance (for the Harvard School, making a profit). The Chicago School finds that this link, however, does not come from the market power of the operators but, on the contrary, from the greater efficiency of the latter. See H. Demsetz, ibid, which explains the concentration of an industry either (i) by the commercial or productive superiority of an undertaking or (ii) by the greater efficiency of a market structure comprising a limited number of undertakings (eg due to economies of scale). It should be noted that Bain had already mentioned the possibility of concentration of markets being both the cause and the consequence of the efficiency of undertakings. See J. S. Bain, Industrial Organization (London: Wiley, 1959), at 424. Nevertheless, Bain felt that efficiency was only one of several explanations while the Chicago School considers that this is the primary explanation. 73

  See Bork, n 68.

74

  See Demsetz, n 71, at 9. Deconcentration policies include the risk of promoting the appearance of inefficient market structures. If, in certain cases, they can reduce the risk of collusion it is not certain that this positive effect is sufficient to offset the resulting efficiency losses. Ibid, at 4–5.

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75

  This doctrine is echoed in Germany, where Professor Hoppmann criticized the structure/ performance link and came out in favour of a competition policy targeting behaviour. See van den Bergh and Camesasca, n 18, at 40 and 45. 76

  See G.J. Stigler, ‘Theory of Oligopoly’ (1964) 72 J Political Economy 44.

77

  See L.G. Telser, ‘Why Should Manufacturers Want Fair Trade?’ (1960) 3 J Law and Economics 86. 78

  See P.A. London, The Competition Solution—The Bipartisan Secret behind American Prosperity (Washington DC: AEI Press, 2005). 79

  See H. Hovenkamp, ‘The Reckoning of post-Chicago Antitrust’ in A. Cucinota, R. Pardolesi, and R. van den Bergh (eds), Post-Chicago Developments in Antitrust (Cheltenham: Edward Elgar, 2002), at 4. 80

  See D.W. Carlton and J.M. Perloff, Modern Industrial Organization, 4th edn (London: Longman Higher Education, 1990), at 351ff. They focus in particular on ‘strategic interactions’. 81

  See A.I. Gavil, W.E. Kovacic, and J.B. Baker, Antitrust Law in Perspective: Cases, Concepts and Problems in Competition Policy, American Casebook Series (St Paul, MN: Thomson West, 2002), at 67–8. 82

  See Carlton and Perloff, n 80, at 315–79; see van den Bergh and Camesasca, n 18, at 60. Intervention is justified where there is ‘welfare loss’. The concept is broader than the concept of efficiency established as the objective of competition policy by the Chicago School. Efficiency is the maximization of the sum of producer and consumer surpluses; thus equal transfers from consumers to producers create a zero net effect on total surplus. ‘Welfare’, however, is most often evaluated in terms of consumer surplus alone, so that gains to producers that have no direct impact on consumer welfare (eg when improvements in the cost of production are not passed on to consumers via lower prices) have a zero net effect on welfare. Second order effects, such as gains to the producer’s shareholders who also function as consumers, are generally not considered. 83

  D.E. Waldman and E.J. Jensen, Industrial Organization, Theory and Practice (Reading, MA: Addison-Wesley Longman, 1997), at 245–8. Eg a strategy consisting of reducing prices in order to eliminate competitors, then raising them again later when rivals find entry difficult. 84

  See for a full treatment of price limitation practices, Tirole, n 39, para 9.4, at 367ff.

85

  See S.C. Salop and D.T. Scheffman, ‘Cost-Raising Strategies’ (1987) 36(1) J Industrial Economics 19. 86

  See R. Schmalensee, ‘Advertising and Entry Deterrence: An Exploratory Model’ (1983) 91(4) J Political Economy 636; O.P. Heil and A.W. Langvardt, ‘The Interface between Competitive Market Signalling and Antitrust Law’ (1994) 58(3) J Marketing 81. 87

  On the literature relating to strategic investments, see M. Motta, Competition Policy— Theory and Practice (Cambridge: Cambridge University Press, 2004), at 454. 88

  See eg Dennis W. Carlton and M. Waldman, ‘Theories of Tying and Implications for Antitrust’ in W. Dale Collins (ed), Economics of Antitrust (American Bar Association, forthcoming). Hart et al concede a similar point in their seminal paper on vertical integration simply stating that ‘Given these conflicting effects it is hard to deliver clear-cut prescriptions for antitrust policy on vertical mergers’, O. Hart et al, ‘Vertical Integration

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and Market Foreclosure’, 1990 Brookings Papers on Economic Activity: Microeconomics, 205, 213. 89

  Herbert Hovenkamp made this point in his general critique of the Post-Chicago School noting that, [w]hile [the post-Chicago methodologies] sometimes produce robust economic conclusions, testing them has proven difficult. Further, they are messier and more difficult to use and too often strain the fact-finding power of courts beyond the breaking point. ( H. Hovenkamp, ‘Post-Chicago Antitrust: A Review and Critique’ (2001) Colum Bus L Rev 257, 336 ). 90

  See Salop and Scheffman, n 85.

91

  For a complete description of these behaviours, see Carlton and Perloff, n 80, at 379–86.

92

  Ibid. Clauses such as ‘most favoured nation’ offer a guarantee to any buyer that he is paying the lowest possible price. When its use is widespread in an oligopoly setting, each producer is able more easily to detect if one of its competitors is cheating on the implied cooperative agreement and the incentive of each to deviate from the collusive price decreases since a price reduction becomes very costly (it has to be extended to all customers). 93

  For a summary of this point, see J. Church, ‘The Impact of Vertical and Conglomerate Mergers on Competition’, Report for DG COMP Merger Task Force, European Commission, September 2004, at 4–10. 94

  According to Professor E. Elhauge, recent judgments of the US Supreme Court apply the precepts of the Harvard School. See E. Elhauge, ‘Harvard, not Chicago: Which Antitrust School Drives Recent Supreme Court Decisions’ (2007) 3 Competition Policy International 59. 95

  See W.J. Baumol, J.C. Panzar, and R.D. Willig, Contestable Markets and the Theory of Industrial Structure (New York: Harcourt Brace, 1982). The theory of contestable markets appeared in the early 1980s with the publication of Baumol, Panzar, and Willig’s work. It summarizes and sets out the conclusions of the Chicago School. In short, it finds that concentrated markets are not problematic provided new operators can enter the market when incumbents try to extract supra-competitive profits (ie, the market is contestable). This theory therefore stresses the concepts of exit costs and irrecoverable investments, the effects of which deter potential entrants from entering a market and therefore ease the competitive pressures on the established operators. 96

  See N. Petit, Oligopoles, collusion tacite et droit communautaire de la concurrence (Brussels: Bruylant-LGDJ, 2007), ch I. Game theory is a mathematical theory based on the premise that producers are players in a ‘game’ seeking to maximize their gains in light of the anticipated behaviour of others. Players therefore act in a strategic way. This theory allows predictions to be made about the behaviour of operators on the market. Eg it allows one to determine if operators in an oligopoly are going to become involved in parallel price hike strategies or if a price-fixing agreement will be adhered to by all the parties to the agreement. 97

  This theory focuses on the ‘principal–agent’ relationship: a ‘principal’ grants authority to an ‘agent’ to conduct a task, the performance of which he cannot completely observe or control. When information is asymmetric, with the agent having greater information, the theory finds that ‘problems of opportunism’ appear. One such problem is ‘moral hazard’: the agent does not comply with the terms of the agreed contract but instead tries to defraud the principal, say by distributing a competitor’s products in addition to the principal’s. In order to limit the problems of opportunism, principals generally must incur two types of

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expenses: incentive expenses meant to align the agent’s incentives with the principal’s (eg profit sharing) and audit expenses meant to catch and punish the agent for any opportunistic behaviour and thus to limit its occurrence (eg unannounced visits to the point of sale). Agents, in an attempt to limit the principal’s concerns, incur expenses known as agency costs, such as monthly reporting which a distributor agrees to perform. See Tirole, n 39, at 51–5. 98

  Transaction cost theory seeks to answer the following question: why do firms not conclude a contract with a specialist third party to produce a good or a service instead of handling diverse production tasks themselves, using internal employees over whom they have hierarchical control? Ronald Coase was the first to answer this question. He explains that to carry out an action, undertakings can choose between (i) the market, ie, they will conclude a contract with another operator (a decentralized mechanism based on prices) and (ii) the firm, ie, they will themselves carry out this activity (an organized mechanism based on authority). Consider an example: to fit its vehicles with tyres a car maker can choose either to buy them from major tyre producers or to become vertically integrated in the tyre manufacturing business. According to Coase, the decisive criterion between both these possibilities is the size of the transaction costs (from concluding a contract) and the internal organization costs (from vertical integration). Transaction costs are traditionally split between (i) research and information costs; (ii) negotiation and decision costs; and (iii) monitoring and control costs. See R. Coase, ‘The Nature of the Firm’ (1937) 4 Economica 386; O. Williamson, Market and Hierarchies: Analysis and Antitrust Implications (New York: The Free Press, 1975). 99

  The decisions taken by economic operators regarding pricing and production send signals to the market. An operator can thus make considerable strategic investments (advertising, R&D, etc) in order, eg, to signal to potential entrants that it has major resources to defend its market share in the event of market entry. See O.P. Heil and A.W. Langvardt, ‘The Interface between Competitive Market Signalling and Antitrust Law’ (1994) 58(3) J Marketing 81. Signals are informative when there is imperfect information because they offer indirect information in the absence of direct information. Signal theory has interesting applications in the area of tacit oligopolistic collusion, eg although it originated in the area of labour economics. See A.M. Spence, ‘Job Market Signaling’ (1973) 87(3) Quarterly J Economics 355. 100

  In very general terms, an externality, either positive or negative, is defined as the undesired and unintentional after effect on a third party of a specific behaviour, either an individual or several individuals linked by agreements, including those joined in a firm. Eg a car distributor creates a positive externality when he advertises his products. The other distributors in the network carrying the same brands, which are therefore potential competitors, benefit from the car brand names being circulated among potential customers. A steel producer, on the other hand, creates a negative externality when its factories generate pollution affecting, eg nearby agricultural activities. 101

  Behavioural economics suggests that agents do not always, as neoclassical theory tends to suggest, make rational decisions (ie, decisions aimed at maximizing utility). On the contrary, in some situations, economic agents adopt behaviours that might appear irrational (contrary to what neoclassical theory would predict). Eg individuals or undertakings may have very high discount rates that result in myopic behaviour. Or, the decisions taken by undertakings may not always be motivated by monetary profit, eg if racial prejudice motivates some decisions. For individual behaviour, lab experiments show the sometimes irrational nature of operators’ decisions. See V.L. Smith, Bargaining and Market Behavior— Essays in Experimental Economics (Cambridge: Cambridge University Press, 2000).

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102

  The criterion of market power has, since the reform of the regulations applicable to agreements between undertakings, occupied a central place in EU competition law. See Commission Notice of 6 January 2001: Guidelines on the applicability of Article 81 of the EC Treaty to horizontal cooperation agreements, OJ C 3 of 6 January 2001, at 1, para 7: ‘Economic criteria such as the market power of the parties and other factors relating to the market structure, form a key element of the assessment of the market impact likely to be caused by a cooperation and therefore for the assessment under Article 81.’ Similarly, in its guidelines on vertical restrictions, the Commission considers that: ‘For most vertical restraints, competition concerns can only arise if there is insufficient inter-brand competition, i.e. if there is some degree of market power at the level of the supplier or the buyer or at both levels.’ See Commission Notice—Guidelines on Vertical Restraints, OJ C 291 of 13 October 2000, at 1, para 6. 103

  See Tirole, n 39, at 284. Conceptually, market power is analogous with the notion of monopoly power, although a firm need not be a monopoly to possess market power. 104

  See Motta, n 87, at 116. Such a situation, eg, exists when products are differentiated, exchange costs are large, or customers are loyal to particular brands. 105

  See R. Posner, Antitrust Law, 2nd edn (Chicago, IL: University of Chicago Press, 2001), at 265. A product is said to be a commodity once any qualitative difference derived from its natural origin has disappeared. Wheat, chemicals such as sulphuric acid, refined metals, refined oil products, refined sugar, more elaborated manufactured products such as rails or standard electronic components, electricity, pass band, RAM processors, etc are generally viewed as commodities. 106

  See D. Geradin, P. Hofer, F. Louis, N. Petit, and M. Walker, ‘The Concept of Dominance’ in D. Geradin (ed), GCLC Research Papers on Article 82 EC (Bruges: Global Competition Law Centre, 2005), at 9. 107

  Generally markets where recovery of fixed costs is substantial and relatively easy.

108

  See R. Landes and R. Posner, ‘Market Power in Antitrust Cases’ (1981) 94 Harvard L Rev 937, at 939: ‘the fact of market power must be distinguished from the amount of market power’. See also Geradin et al, n 106, at 9; Motta, n 87, at 116. 109

  See Motta, n 87, at 116.

110

  See J. Pearce Azevedo and M. Walker, ‘Dominance: Meaning and Measurement’ (2002) 7 European Competition Policy Review 365. 111

  The Commission recently acknowledged that [m]arket power is the ability to maintain prices above competitive levels for a significant period of time or to maintain output in terms of product quantities, product quality and variety or innovation below competitive levels for a significant period of time. In markets with high fixed costs, undertakings must price significantly above their marginal costs of production in order to ensure a competitive return on their investment. (Commission Notice—Guidelines on the application of Article 81(3) of the Treaty, OJ C 101 of 27 April 2004, at 97, para 25).

112

  T.G. Krattenmaker, R.H. Lande, and S.C. Salop, ‘Monopoly Power and Market Power in Antitrust Law’ (1987) 76 Georgetown LJ 241: A firm or group of firms may raise price above the competitive level or prevent it from falling to a lower competitive level by raising its rivals’ costs and thereby causing them to restrain their output (‘exclude competition’). Such allegations are at the bottom of most antitrust cases in which one firm or group of firms is claimed

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to have harmed competition by foreclosing or excluding its competitors. We denote this power as exclusionary or ‘Bainian’ market power. 113

  See R. Schmalensee, ‘Another Look at Market Power’ (1982) 95 Harvard L Rev 1789.

114

  See P. Klemperer, ‘Entry Deterrence in Markets with Consumer Switching Costs’ (1987) 97 Economic Journal 99. 115

  This form of market power is already explicitly taken into account by a number of competition authorities, including the OFT which states that ‘[a dominant firm] can also use its market power to engage in anticompetitive conduct and exclude or deter competitors from the market’. See ‘The Chapter II Prohibition’, OFT 402, 1999, at para 3.9. 116

  See Guidelines on the assessment of horizontal mergers under the Council Regulation on control of concentrations between undertakings, OJ C 265 of 18 October 2008, at 6, para 31. 117

  See Commission Decision, COMP/M.1693, Alcoa/Reynolds, 3 May 2000, OJ L 58 of 28 February 2002, at 25. 118

  Ibid, at para 128: ‘the merged firm will be able to foreclose its competitors in the downstream market and become the main supplier of aerospace alloys’. 119

  Ibid, at paras 138–9. In this operation, other anticompetitive concerns have also been identified by the Commission and corrected by the parties by means of undertakings. 120

  See A. Lerner, ‘The Concept of Monopoly and the Measurement of Monopoly Power’ (1934) 1 Rev of Economic Studies 157. 121

  Neoclassical theory postulates that economic agents think about the margin by comparing the usefulness of an additional action to its cost. Additional units are produced until the marginal cost of a given unit is exactly equal to the marginal revenue expected from its sale. 122

  Theoretically even, the index postulates a single price, although many undertakings engage in price differentiation (discrimination). See on this point, R. Landes and R. Posner, n 108, at 943. 123

  See Motta, n 87, at 116.

124

  See R. Lester, ‘Shortcomings of Marginal Analysis for Wage-Employment Problems’ (1946) 36 Am Economic Rev 63. 125

  See Motta, n 87, at 116.

126

  See C. Shapiro and H.R. Varian, Information Rules—A Strategic Guide to the Network Economy (Boston, MA: Harvard Business School Press, 1999). 127

  This applies, by extension, to other sectors, eg the pharmaceutical industry (creation of a drug, etc). 128

  Generally, these are the costs that vary depending on the volume of production. Costs of material and energy used in the production process, eg are variable costs. In the aviation sector, fuel expenses are a variable cost. Economic theory teaches that an undertaking will continue to produce as long as it covers its variable costs. This is why an undertaking that operates cinemas and which therefore has very large fixed costs but very low variable costs will remain open even if it only fills 5 per cent of its cinemas each night (in the short run, anyway—at some point the operator will choose to sell the assets to a higher value user). This logic can be applied to aviation transport as well.

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129

  See C. Ahlborn, V. Denicolò, D. Geradin, and A.J. Padilla, ‘DG COMP’s Discussion Paper on Article 82: Implications of the Proposed Framework and Antitrust Rules for Dynamically Competitive Industries’, at 13, para 3.1: Innovative industries tend to have high fixed costs and low marginal costs of production. This is because developing a new, innovative product requires heavy investment, possibly in research and development. However, it may also be because innovative firms often need to invest in a physical or virtual network to create and distribute their products. Once these initial investments are made, the incremental costs of additional units are fairly low, sometimes close to zero. 130

  See Landes and Posner, n 108, at 941: ‘[B]ecause marginal cost is a hypothetical construct—the effect on total costs of a small change in output—it is very difficult to determine in practice, especially by the methods of litigation.’ 131

  See Motta, n 87, at 116. What is more, undertakings can take advantage of their asymmetry of information with the authorities and courts to overestimate the cost data they send competition authorities. 132

  See A. Christiansen and W. Kerber, ‘Competition Policy with Optimally Differentiated Rules instead of “Per se Rules vs Rule of Reason”’ (2006) 2 J Competition Law and Economics 215. 133

  See D. Dewey, The Antitrust Experiment in America (New York: Columbia University Press, 1990), at 107 and 91–105. 134

  See S. Peltzman, ‘The Gains and Losses from Industrial Concentration’ (1977) 20 J Law and Economics 229 which shows that profits in concentrated industries are larger not because of higher prices linked to a market upsurge, but because of the reduced costs of the large undertakings: H. Demsetz, ‘Industry Structure, Market Rivalry, and Public Policy’ (1973) 16 J Law and Economics 1. 135

  See Christiansen and Kerber, n 132. A type I error (false positive) appears when the competition authority restricts a market practice or controls a market structure which contributes to economic efficiency. 136

  See the seminal paper of F.M. Fisher and J.J. McGowan, ‘On the Misuse of Accounting Rates of Return to Infer Monopoly Profits’ (1983) 73 Am Economic Rev 82. 137

  See K.N. Hylton, Antitrust Law (Cambridge: Cambridge University Press, 2003), at 9.

138

  Ibid. But measuring opportunity costs is a very inexact science. Allocating common costs for multiproduct firms is a sensitive issue for the competition authorities and courts. 139

  See J.A. Hausman and J.G. Sidak, ‘Evaluating Market Power Using Competitive Benchmark Prices Rather than the Hirschman-Herfindahl Index’ (2007) 74(2) Antitrust LJ 388. 140

  See the definition given by D. Scheffman and M. Coleman, ‘FTC Perspectives on the Use of Econometric Analyses in Antitrust Cases’ available at : ‘natural experiments try to exploit differences in data over space, time, and competitors to shed light on market definition, barriers, and the analysis of potential competitive effects’. See L.-H. Röller, ‘Economic Analysis and Competition Policy Enforcement in Europe’ in P.A.G. van Bergeijk and E. Kloosterhuis (eds), Modelling European Mergers: Theory, Competition and Case Studies (Cheltenham: Edward Elgar, 2005), 17.

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141

  Any variations in quality, cost, or currency may be ‘smoothed out’ by applying econometric techniques. 142

  See Hausman and Sidak, n 139.

143

  Ibid.

144

  See L.J. White, ‘Market Definition in Monopolization Cases: A Paradigm is Missing’ in W.D. Collins (ed), Issues in Competition Law and Policy (Chicago, IL: American Bar Association, forthcoming). 145

  See Landes and Posner, n 108. Note that elasticity is inversely proportional to the Lerner index, the degree depends on market structure. 146

  See Carlton and Perloff, n 80, at 66.

147

  See Motta, n 87, at 125.

148

  Ibid. The reasoning generally ignores dynamic issues, such as the reaction of competitors who might decide to increase their own prices, and does it account for the introduction of new features or changes in quality? 149

  Ibid, esp at 125–8.

150

  See Landes and Posner, n 108, at 944ff.

151

  See Motta, n 87, at 119.

152

  Ibid.

153

  The index varies therefore between 10,000 (in the case of a monopolistic market) and 1 (in the case of an atomistic market). See Tirole, n 39, at 221. 154

  See A. Lindsay, The EC Merger Regulation: Substantive Issues, London: Thomson/ Sweet & Maxwell, 2003), para 3.54. 155

  See Carlton and Perloff, n 80, at 644.

156

  Although the question of barriers to entry goes much further back. See in particular D.H. Wallace, ‘Monopolistic Competition and Public Policy’ (1936) 26(1) Am Economic Rev, Supplemental Papers and Proceedings of the 48th Annual Meeting of the American Economic Association, 77. 157

  W.J. Baumol, J.C. Panzar, and R.D. Willig, Contestable Markets and the Theory of Industry Structure (New York: Harcourt Brace Jovanovich, Inc, 1982). 158

  The level of competition already present on the market is particularly indicative of the weight to be given to barriers to entry. OECD, Policy Roundtables, Barriers to Entry, 2005, available at . 159

  The European Commission placed particular emphasis on this point during the discussions on the modernization of the enforcement of Art 102. See DG COMP Discussion Paper on the application of Article 82 of the Treaty to exclusionary abuses, (2005), at 34–40. 160

  See OECD, Policy Roundtables, Barriers to Entry, n 158.

161

  Here we will pass over the most radical opinions, such as that of H. Demsetz who considers that the only real barriers to entry originate in the action of government power. See H. Demsetz, ‘Barriers to Entry’ (1982) 72 Am Economic Rev 47. 162

  J. Bain, Barriers to New Competition (Cambridge, MA: Harvard University Press, 1956).

163

  G. Stigler, The Organization of Industry (Chicago, IL: University of Chicago Press, 1968). In his definition, Stigler does not (at least not explicitly) propose taking into consideration the costs which have been incurred by the undertakings present on the market, but only those that they are incurring today or will incur tomorrow. Legal scholars

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are, however, unanimous in considering that Stigler’s definition should be understood as comprising all costs incurred by undertakings. 164

  eg Bain argues that it will be more difficult for new entrants to find funds to increase their production and make investments than the incumbent undertaking. See also on this point, Carlton and Perloff, n 80, at 79. As a general rule, competition and regulatory authorities espouse the Bain approach of economies of scale. The economies of scale achieved by telecommunications operators that have a huge customer base (enabling them to reduce the rate of contribution to the fixed costs of each client) are traditionally perceived to be a barrier to entry by competition and regulatory authorities. 165

  Or if, eg, the authorities charge astronomical amounts for a mobile spectrum operating licence, whereas the incumbent previously obtained such a licence for free (or at a lower cost). 166

  See Carlton and Perloff, n 80, at 128.

167

  R. Schmalensee, ‘Sunk Costs and Antitrust Barriers to Entry’ (2004) 94 Am Economic Rev, Papers and Proceedings 471, 473. 168

  See Motta, n 87, para 7.3.1, at 454 and fn 59.

169

  One can also cite the development of customer loyalty programmes aimed at raising switching costs or the engagement of massive investments for R&D (the infamous ‘R&D wars’). See S.C. Salop and D.T. Scheffman, ‘Cost-Raising Strategies’ (1987) 36(1) J Industrial Economics 19; Motta, n 87, at 554, note 59. Another possibility is the renegotiation of supply and distribution contracts. See Carlton and Perloff, n 80, at 298, who take the example of the Alcoa case in the United States (where the undertaking holding the aluminium monopoly had negotiated contracts with electricity generators stipulating that the latter would not supply energy to competing aluminium producers). 170

  R.P. McAfee, H.M. Mialon, and M.A. Williams, ‘What Is A Barrier To Entry?’ (2004) 94 Am Economic Rev, Papers and Proceedings, 461. 171

  Ibid.

172

  See eg European Commission, Guidelines on the assessment of horizontal mergers under the Council Regulation on control of concentrations between undertakings, n 116, at 68. 173

  See D.W. Carlton, ‘Why Barriers to Entry Are Barriers to Understanding’ (2004) 94 Am Economic Rev, Papers and Proceedings, 466, 467. This analysis suggests competition authorities pay particular attention to the market dynamics and the costs of adjustments. 174

  See OECD, Policy Roundtables, Barriers to Entry, n 158, at 86. See also J. Baker, ‘The Problem with Baker Hugues and Syufy: On the Role of Entry in Merger Analysis’ (1997) 65 Antitrust Journal 371. See also the guidelines of the Federal Trade Commission and the Department of Justice, 1992 Horizontal Merger Guidelines, 3.3. 175

  See eg DG COMP Discussion Paper on the application of Article 82 of the Treaty to exclusionary abuses, n 159, at 38–9. 176

  Ibid, at 35.

177

  OECD, Policy Roundtables, Barriers to entry, n 158.

178

  To be clear, we treat sunk costs as one type of structural barrier to entry. It is possible to consider that some sunk costs are intentionally incurred by incumbent firms in order to create an obstacle to entry and, if need be, to constitute strategic barriers to entry (eg

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advertising investments in particular). For our purposes, however, treating them as a separate category is not warranted. 179

  eg depreciation expenses which the incumbent undertakings have perhaps already paid for in full, which reduces their production cost. 180

  J. Bain, Barriers to New Competition (Cambridge, MA: Harvard University Press, 1956), 123. 181

  See in particular, I. Kessides, ‘Advertising, Sunk Costs, and Barriers to Entry’ (1986) 68 Rev of Economics and Statistics 64, 84, and note 5. 182

  It seems, however, that the courts are still sometimes reluctant to consider reputation as a barrier to entry. See OECD, Policy Roundtables, Barriers to Entry, n 158, at 73. 183

  These are also described as ‘transfer’ costs or ‘exit’ costs.

184

  See in particular, J. Farrell and P. Klemperer, ‘Coordination and Lock-In: Competition with Switching Costs and Network Effects’, Handbook of Industrial Organization (Amsterdam: Elsevier, 2007). 185

  With regard to the exit costs in the electronic communications sector in France, see the Report on ‘the exit costs’, Mission entrusted to Philippe Nasse by the Minister for Industry (2005), available at . 186

  See G.J. Werden, ‘Network Effects and Conditions of Entry: Lessons from the Microsoft Case’ (2001) 69 Antitrust LJ 87. 187

  See OECD, Policy Roundtables, Barriers to Entry, n 158, at 74. It would be possible to consider that some barriers described as regulatory barriers in fact originate in the legal strategy of the undertakings already present on the market, so that these should fall within the category of strategic barriers rather than structural barriers. 188

  See in particular T. Ross, ‘Sunk Cost and the Entry Decision’ (2004) 4 J Industry, Competition and Trade, Bank papers, 79, 80. These should be distinguished from fixed costs, some of which may be recovered, even if the two concepts can sometimes describe the same cost expended by the undertaking. 189

  See, in particular, the arguments on this point in OECD, Policy Roundtables, Barriers to Entry, n 158, at 66–8. 190

  See Werden, n 186.

191

  See eg the Guidelines on the assessment of non-horizontal concentrations under the Council regulation on control of concentrations between undertakings, Official Journal C 265 of 18/10/2008, at 49. 192

  Two situations may be distinguished here. First, the undertaking can set its prices at a level lower than its costs for a certain limited period. Such predatory prices may in certain circumstances have crowding out effects and therefore be contrary to the competition rules. Second, an undertaking may set its prices at what is called the ‘price limit’ level—greater than costs, but sufficiently low so as to deter entry—with the aim of discouraging any potential entrant from entering the market. See in particular Tirole, n 39, at 367–75; see also R. Gilbert, ‘Mobility Barriers and the Value of Incumbency’ in R. Schmalensee and R. Willig, Handbook of Industrial Organization (Amsterdam: Elsevier, 1989); P. Milgrom and J. Roberts, ‘Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis’ (1982) 50(2) Econometrica 443–59. See also OECD, Policy Roundtables, Predatory Foreclosure, 2004, available at .

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193

  See A.M. Spence, ‘Entry, Capacity, Investment and Oligopolistic Pricing’ (1977) 8 Bell J Economics 534. 194

  See A. Dixit, ‘The Role of Investment in Entry Deterrence’ (1980) 90 Economic Journal 95. 195

  See in particular OECD, Policy Roundtables, Bundled and Loyalty Discounts and Rebates, 2008, available at . 196

  The barriers to entry on the second market may also deter a potential entrant from entering the first market, when the provision of both products is seen as necessary to viably compete in either market. See in particular, B. Nalebuff, ‘Bundling as an Entry Barrier’ (2004) 119 Quarterly J Economics 159. 197

  As a result, a potential entrant might not enter a market if entry would not allow it to reach a sufficiently large number of customers. See in particular P. Aghion and P. Bolton, ‘Contracts as Barriers to Entry’ (1987) 77 Am Economic Rev 388. 198

  See OECD, Policy Roundtables, Intellectual Property Rights, 2004, available at . See also, J. Lerner, ‘Patenting in the Shadow of Competitors’ (1995) J Law and Economics 489–90: ‘Firms with high litigation costs appear less likely to patent in the same [patent technology] subclasses as rivals’. 199

  The theory that pricing aligned to marginal cost guarantees an economic optimum has been the subject of scholarly debate. See, in particular, W. Baumol and D.F. Bradford, ‘Optimal Departures from Marginal Cost Pricing’ (1970) 60 Am Economic Rev 265. 200

  See US Department of Justice, Competition and Monopoly: Single-firm conduct under Section 2 of the Sherman Act (US Department of Justice: 2008), 62. See also P. Areeda and D. Hovenkamp, Antitrust Law, 2nd edn (Alphen aan den Rijn: Kluwer Law International, 2002), 753b3, at 367. 201

  Most competition law cases, especially in the area of Arts 81 and 82 EC (now Arts 101 and 102 TFEU, respectively), are examined after the fact. 202

  See Areeda, P. and Turner, D.F., ‘Predatory Pricing and Related Issues Under Section 2 of the Sherman Act’ (1975) 88 Harvard Law Review 697; Motta, n 87, at 116; DG COMP Discussion Paper on the application of Article 82 of the Treaty to exclusionary abuses (2005), at para 107. 203

  See the case law on predatory prices, in particular CJ, C-62/86 AKZO Chemie BV v Commission, judgment, 3 July 1991, and for a recent application, Court of First Instance, T-340/03 France Télécom SA v Commission, 30 January, 2007 (appeal pending). See DG COMP Discussion Paper, n 202, at paras 127–33. Based on the case law of the Court and in particular the Compagnie Maritime Belge judgment, the Commission considers that a price exceeding average total cost would not be predatory except in exceptional circumstances. See CJ, Cases C-395/96 P and C-396/96 P Compagnie Maritime Belge, judgment, 16 March 2000. 204

  See Department of Justice, Single-firm conduct under Section 2, n 200, at 49–76.

205

  In contrast, direct costs are costs that can be directly allocated to the supply of a product/service. 206

  When an undertaking adds workers to increase its output, the cost of training a new employee for a specific technique is a variable cost that is not recoverable. 207

  This idea has resulted in some competition authorities refusing to incorporate sunk costs in their analysis of the allegedly excessive price policies of dominant undertakings

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and, by doing so, rejecting the justifications for the pricing based on the high sunk costs incurred by said firms. 208

  P. Areeda and H. Hovenkamp thus define this cost as the cost resulting from the production of one unit at a period during which ‘the undertaking does not change its production assets generating fixed costs, such as its factory’; see Areeda and Hovenkamp, n 200, 735b1, at 365 and 735b3, at 367. 209

  From the time the price of the ticket covers the cost of the service provided to the customer who consumes it. This example can be transposed to cinemas, rail transport, etc. 210

  See in particular ICN, Unilateral Conduct Working Group, Report on Predatory Pricing (2008), available at . 211

  This cost is called variable in that it varies depending on the number of final goods produced. It might, however, become a fixed item again if the undertaking had a contract with the outsourcing company providing for a flat fee regardless of the quantity bought. 212

  As compared with the sales realized.

213

  In addition, with regard to predatory prices or rebates, a cost test based on AAC allows the sole focus to be on the costs incurred by the undertaking with regard to specific levels of output or supplying certain customers only. D. Ridyard, ‘Exclusionary Pricing and Price discrimination Abuses under Article 82—An Economic Analysis’ (2002) 23 European Competition L Rev 286, 295. 214

  See first, J.A. Ordover and R.D. Willig, ‘An Economic Definition of Predation: Pricing And Product Innovation’ (1981) 81 Yale LJ 8; see also OECD, Policy Roundtables, Predatory Foreclosure, n 192, at 68–9. 215

  See in particular W. Baumol, ‘Predation and the Logic of the Average Variable Cost Test’ (1996) 39 J Law and Economics 49, 59 and P. Bolton et al, ‘Predatory Pricing: Strategic Theory and Legal Policy’ (2000) 88 Georgetown LJ 2239, 2250. See also, ICN, Report on Predatory Pricing, n 210; Department of Justice, Singlefirm conduct under Section 2, n 200, at 65–7; DG COMP Discussion Paper, n 202, at 106–12. 216

  This behaviour is referred to as cross subsidization.

217

  Recourse to LRAIC as well as its place within cost tests are both still confused however. See, eg OECD, Policy Roundtables, Bundled and Loyalty Discounts and Rebates, European Contribution, 2008 (not yet published). Compare with DG COMP Discussion Paper, n 202, at 123–6; Department of Justice, Single-firm conduct under Section 2, n 200, at 63–4. 218

  See Communication from the Commission—Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, OJ 2009, C 45/7, at para 27. 219

  On stranded costs, see, eg J. Sidak and W. Baumol, ‘Stranded Costs’ (1995) 18 Harvard J Law & Public Policy 835. 220

  See, eg in the electricity sector, European Commission Communication relating to the methodology for analysing State aid linked to stranded costs, 26 July 2001.(p. 104)

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3 The Law and Economics of Anticompetitive Coordination Damien Geradin, Anne Layne-Farrar, Nicolas Petit From: EU Competition Law and Economics Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit Content type: Book content Product: Oxford Competition Law [OCL] Published in print: 22 March 2012 ISBN: 9780199566563

Subject(s): Article 101(3) TFEU application to individual contracts — Basic principles of competition law

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(p. 105) 3  The Law and Economics of Anticompetitive Coordination I.  Article 101(1) TFEU—The Prohibition Rule 3.04 A.  The Legal Component of Article 101(1) TFEU—A Concurrence of Wills between Several Independent Undertakings 3.07 B.  The Economic Component of Article 101(1) TFEU—A Restriction of Competition 3.70 C.  The Jurisdictional Component of Article 101(1) TFEU—A Restriction ‘Within the Internal Market’ Which ‘Affects Trade between Member States’ 3.151 II.  Article 101(2) TFEU—The Rule of Nullity 3.202 A.  The Principle 3.202 B.  The Practice 3.207 III.  Article 101(3) TFEU—The Exception Rule 3.215 A.  Overview of the Exception Rule 3.215 B.  The Application of the Four Conditions of Article 101(3) TFEU 3.222 3.01  Preliminary remarks In today’s economy, many products/services—from mobile tele-phony to steel, from sports clothing to the distribution of oil products, from catering to legal services—are brought to the market by a handful of firms. On those oligopolistic markets, no firm is in principle—unless it is dominant—individually able to raise prices or limit output. However, the firms active on those markets may collectively exercise market power and jointly increase their profits through the coordination of their commercial conduct. From an economic perspective, this form of ‘strategic cooperative behaviour’ generates welfare losses similar to those of a conventional monopoly. Unsurprisingly then, strategic cooperative behaviour has been a key area of concern for EU competition enforcement.1 3.02  A ‘classic’ competition offence All modern competition law regimes outlaw the coordi n-ation of independent undertakings where it leads to a restriction of competition. In the United States, for instance, Section 1 of the Sherman Act declares unlawful any type of ‘combination in form of trust or otherwise, or conspiracy’. In the European Union, a similar (p. 106) prohibition system is enshrined in Article 101 TFEU, which holds that ‘agreements between undertakings’ which restrict competition are ‘incompatible’ with the Treaty. 3.03  Three-pronged approach Article 101 TFEU is a three-pronged provision. First, Article 101(1) TFEU establishes a prohibition rule, which provides that agreements between undertakings which may affect trade between Member States and which restrict competition are incompatible with the internal market (Section I). Second, Article 101(2) TFEU declares that agreements deemed incompatible pursuant to Article 101(1) TFEU are null and void (Section II). Third, Article 101(3) TFEU embodies an exception rule which defuses the application of Article 101(1) to agreements that bring a positive net contribution to consumer welfare (Section III).

I.  Article 101(1) TFEU—The Prohibition Rule

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3.04  The choice of a ‘prohibition’ system From a comparative law perspective, competition rules can be enforced in two different ways. In certain legal regimes a permissive enforcement system, referred to as a system of ‘control of abuses’, prevails. In this system, firms can, in principle, coordinate freely their behaviour on the market. In exceptional circumstances, however, public authorities may declare some of those instances of coordination unlawful. This liberal system fits nicely with the free-market spirit of the EU Treaties. However, haunted by the memories of the Ruhr cartels during the Second World War, and influenced as well by the ordo-liberal heavy-handed enforcement approach, the founding fathers decided to implement a radically different system, which declares all concerted actions between undertakings incompatible with the common market.2 This socalled ‘prohibition system’ is captured in Article 101(1) TFEU which states that: The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market, and in particular those which: a)  directly or indirectly fix purchase or selling prices or any other trading conditions, b) limit or control production, markets, technical development, or investment, c)  share markets or sources of supply, d)  apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage, e)  make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

3.05  ‘Hotch-potch’ Obviously the main agreements caught under Article 101(1) TFEU are those whereby firms jointly set prices, reduce output, partition markets, or limit investments (p. 107) (often referred to collectively as ‘cartels’).3 In addition to this, however, the wording of Article 101(1) TFEU also embraces a myriad of other agreements which may have anticompetitive effects. In a world where firms increasingly cooperate through ‘strategic alliances’, ‘joint ventures’, ‘patent pools’, and other agreements,4 the application of Article 101 TFEU has indeed become a critical issue for the business community. Agreements caught under Article 101 TFEU include horizontal cooperation agreements between rival firms (eg joint R&D agreements) which may restrict competition to the extent they harmonize the parties’ costs structures; vertical agreements between manufacturers and retailers (eg exclusive distribution agreements), which may limit intrabrand competition amongst retailers by affording each of them exclusive territorial protection, or may limit inter-brand competition when they entail exclusive dealing arrangements (eg single branding) that foreclose competitors; technology transfers between owners of intellectual property (IP) rights and licensees, which may be granted in exchange for a non-compete commitment by the licensee; and so forth. 3.06  What renders a given agreement ‘ incompatible’ Three cumulative conditions must be met for an agreement to fall foul of Article 101(1) TFEU. The first condition, which can be referred to as the legal component of Article 101(1) TFEU, requires the proof of a concurrence of wills between several independent undertakings (Section A). The second condition, which can be referred to as the economic component of Article 101(1) TFEU, involves proving that the agreement has the object or the effect of restricting competition (Section B). The third condition, which can be labelled the jurisdictional component of

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Article 101(1) TFEU, requires evidence that the agreement restricts competition within the common market and may have an effect on trade between Member States (Section C).

A.  The Legal Component of Article 101(1) TFEU—A Concurrence of Wills between Several Independent Undertakings (1)  Plurality of independent undertakings 3.07  It takes two, or more, to … agree An agreement necessarily involves more than one economically independent firm. Thus, there can be no Article 101(1) TFEU concerns absent a situation involving a plurality of independent undertakings. In practice, this requirement has important consequences for certain types of coordination.

(a)  ‘Intra-group’ agreements 3.08  Agreements between several entities belonging to the same corporate group fall short of Article 101 TFEU.5 A supply agreement between a parent company and its subsidiary will, for instance, be considered as a mere internal organizational measure within a ‘single economic unit’, which falls short of the concept of ‘agreement’ under Article 101(1) TFEU.6 (p. 108) 3.09  Presumption Under EU competition law the existence of a ‘single economic unit’ is presumed when the parent company owns 100 per cent of its subsidiary. As the General Court (GC) held in Viho: Where, as in this case, the subsidiary, although having a separate legal personality, does not freely determine its conduct on the market but carries out the instructions given to it directly or indirectly by the parent company by which it is wholly controlled, Article [101(1)] does not apply to the relationship between the subsidiary and the parent company with which it forms an economic unit.7 (Emphasis added)

Illustration: Viho v Commission Parker Pen, a manufacturer of ballpoint pens, fountain pens, and ink cartridges, distributed its products through a network of subsidiaries which it wholly owned. Viho, a wholesale dealer of office supplies, had filed a complaint with the Commission based on Article 101 TFEU. The latter claimed that Parker required its subsidiaries to limit their deliveries to their exclusive distribution territory, in breach of Article 101(1) TFEU. 3.10  Other scenarios The fact that the parent company does not fully control its subsidiary does not, however, necessarily rule out the existence of a ‘single economic unit’. In cases where the parent-subsidiary relationship does not involve 100 per cent ownership, a case-by-case assessment will be necessary to determine whether the controlling undertaking exercises a ‘decisive influence’ on the controlled undertaking (eg if it appoints the subsidiary’s board of directors, it takes strategic decisions on investments; the subsidiary is subject to reporting requirements, etc). In such cases, there may be a ‘single economic unit’ within the meaning of Article 101(1) TFEU, absent 100 per cent ownership links. 3.11  The risk of a back fire As explained, the ‘economic unit’ doctrine defuses the applicability of Article 101(1) TFEU to intra-groups agreements. It may thus be used by firms as a means of defence in the context of Article 101(1) TFEU proceedings. That said, in other circumstances, this doctrine has occasionally led to the aggravation of the liability of companies involved in infringements of Article 101(1) TFEU, for instance when it comes to the punishment of infringements. In a string of (highly controversial) judgments, the GC and Court of Justice have indeed upheld Commission decisions finding the parent undertaking liable for its subsidiary’s involvement in a cartel—regardless of the fact that the mother company had neither participated in, nor even been made aware of, the cartel to which its subsidiary was found to be party. Such decisions are based simply on a From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

presumption arising from the ownership of share capital and the ensuing conclusion that the two entities formed a single economic unit.8 (p. 109) 3.12  The rationale behind this decisional practice is that—as noted by the GC in Akzo—where the fine is imposed on the parent company, it must be calculated based on the global turnover of the entire group, composed of the parent and its subsidiaries.9 Consequently, a violation of Article 101 TFEU committed by a small subsidiary within a large group may trigger gigantic (and, some would argue, disproportionate) fines. On the other hand, principal– agent theory tends to indicate that holding the parent responsible for its subsidiaries aligns the parent’s and the subsidiary’s incentives to establish ex ante prevention and ex post control mechanisms, with a view to ensure compliance with Article 101(1) TFEU. Without such responsibility, the parent would be motivated to turn a knowingly blind eye to its subsidiaries’ behaviour.

(b)  Agency agreements 3.13  Analogies with intra-group agreements A similar reasoning immunizes agency agreements from the application of Article 101(1) TFEU. Under an agency relationship, a firm (the agent) is retained by a third party (the principal) to negotiate and conclude agreements on its behalf. Agency agreements exhibit a number of interesting features for both principal and agent. First, from the principal’s perspective, they are a convenient organizational method which does not involve the heavy cost of setting up a fully fledged internal distribution network. In this context, agency agreements are particularly interesting for producers contemplating the penetration of new, or risky, markets. Second, from the agent’s perspective, they are less costly and risky than classic distribution agreements. This is because the agent does not purchase products from the supplier, but simply negotiates supply contracts on its behalf. 3.14  ‘Genuine’ agency agreements Under EU competition law, ‘genuine’ agency agreements do not fall within the scope of Article 101(1) TFEU. The genuine agent is indeed deemed to enjoy no commercial autonomy. He acts ‘on behalf of’ the principal and is compensated through a commission specified in the agency agreement. In other words, the agent acts ‘as if’ he constituted an ‘economic unit’ with the principal.10 (p. 110) 3.15  Conditions necessary to find a ‘genuine’ agreement The requirements to characterize a ‘genuine’ agency agreement have recently evolved. The first criterion relates to the so-called allocation of ‘commercial and financial risks’. In the past, the Court and the Commission conditioned the finding of a ‘genuine’ agency agreement (to which Art 101(1) TFEU would not apply) upon proof that the agent assumed ‘no commercial and financial risk’.11 Conversely, the Commission considered that there was no ‘genuine’ agency agreement (so Art 101(1) TFEU did apply) in cases where the agent assumed, in particular, one or more of the following risks: •  transport and other logistics costs; •  advertising costs; •  maintenance and stock of the products; •  provision of after-sales (or warranty) service; •  specific investments in equipment, premises, or training of personnel; •  liability vis-à-vis third parties for the products sold; and •  liability vis-à-vis the principal for non-performance of the contract by the customer. 12

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3.16  Additional criterion In Confederacion Española de Estaciones de Servicio, the Court of Justice recently introduced a second condition that must be fulfilled for a genuine agency agreement to be found.13 The Court seemed concerned that under the previous case law some agents were inappropriately considered ‘genuine’ agents, although they enjoyed a certain degree of autonomy of commercial action. This was in particular the case in situations where the agent acted on behalf of several principals (known as ‘multiple agency’) or performed in parallel other commercial activities. The Court thus deemed it necessary to add a further condition for the finding of a genuine agency, which is that the agent must be an ‘auxiliary orga[nization] forming an integral part of the principal’s undertaking’.14 In other words, for an agency agreement to fall outside Article 101(1) TFEU, the agent must act exclusively for the principal, as if he was a simple commercial employee.15 In practice, multiple agency agreements are thus normally covered by Article 101(1) TFEU. From an economic standpoint, this solution is legitimate. Professors Bernheim and Whinston have indeed demonstrated that multiple agency agreements may facilitate collusion between rival producers.16 (p. 111) 3.17  Principal–agent relationship In recent years, the case law has clearly reduced the immu-nity of ‘genuine’ agency agreements. This trend was furthered in a recent ruling of the Court, which holds that contractual provisions governing the relationship between the principal and the ‘genuine’ agent fall within the scope of Article 101 TFEU. In CEPSA, the Commission, followed by the Court of Justice, held that noncompete and exclusivity of supply clauses between a principal and its (genuine) agents fell within the ambit of Article 101(1) TFEU.17 As a result of this case law, only those contractual provisions which govern the genuine agent’s relationship with customers are immunized from the application of Article 101 TFEU.

(c)  Employment contracts 3.18  An agreement between an undertaking and one of its employees does not fall under Article 101(1) TFEU. From an economic perspective, employees form the ‘human capital’ of a firm, and thus are an integral part of it. From a legal perspective, moreover, an employee normally enjoys no decisional autonomy (he is subject to a hierarchical relationship). 3.19  Notwithstanding this, an employee may be deemed an independent undertaking within the meaning of Article 101 TFEU if he pursues his own economic interests (research, freelance activity, etc) and those interests are separate from those of his employer. This situation arose in the Reuter/BASF case where the Commission ruled on a non-compete clause between a company and one of its former employees.18

(2)  Concurrence of wills 3.20  Introduction To coordinate their conduct on the market, the firms involved must demon-strably share a common mindset. As the GC indicated in Bayer, ‘the concept of an agreement within the meaning of Article [101(1) TFEU] … centres around the existence of a concurrence of wills between at least two parties’ (emphasis added) .19 3.21  This concurrence of wills may take different forms. The Treaty, in this context, refers to: agreements (Section (a)); decisions by an association of undertakings (Section (b)); and concerted practices (Section (c)). The main differences between those three concepts relate to evidentiary issues.

(p. 112) (a)  Agreements (i)  A broad concept

3.22  An EU law concept The concept of agreement, as governed by Article 101(1) TFEU, does not refer to a particular form of arrangement. According to the GC in Bayer, ‘the form in which it is manifested is unimportant so long as it constitutes the faithful expression’ of ‘the parties’ intention’.20 In the same vein, the concept of agreement is independent from

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national law concepts. Hence, Article 101(1) TFEU is not limited to agreements which form legally binding contracts under civil or common law principles. 3.23  Examples Numerous ‘arrangements’ between economic operators have been deemed to constitute ‘agreements’ within the meaning of Article 101 TFEU: a simple mutual verbal agreement,21 a gentleman’s agreement,22 a protocol, a memorandum of understanding, subsections of a contract, general guidelines, the acceptance of general terms and conditions of sale, etc. 3.24  Adherence In addition, the case law has held that where an agreement has been reached, the reluctance of some parties to enter into the agreement or the fact that they do not reap any private benefits from the arrangement do not disqualify a finding of ‘agreement’.23 (ii)  Limits of the concept

3.25  The very extensive interpretation of the concept of an agreement has, in practice, raised a number of difficulties. The Court has therefore sought to limit its ambit in three areas. (iii)  Private coercion

3.26  Case law Arguably influenced by general principles of continental civil law, the early case law of the Court refused to find ‘agreements’ where one party had not freely and deliberately acquiesced to cooperate with other firms. For instance, Article 101(1) TFEU did not apply where parties had been coerced by other cartel participants to join a coordinated course of conduct. In Suiker Unie, for example, the Court of Justice held that the existence of an agreement was conditional upon identifying free consent.24 3.27  U-turn? Later, however, the case law embraced a more extensive interpretation of the concept of agreement. In line with English common law, the defective consent of a party (eg due to fraud or violence) was deemed to no longer rule out the qualification of agreement.25 The defect in consent is, however, taken into account at a later stage, for the purposes of (p. 113) sanctioning the infringement of Article 101(1) TFEU. The Commission can indeed mitigate the amount of the fine inflicted on the undertakings which did not intend to, but nonetheless did, take part in the agreement.26 Also, with the expected development of private enforcement, those firms that have coerced others to participate in an unlawful agreement face larger exposure to customers’ claims for compensation. 3.28  The rationale for this strict case law hinges on the idea that a firm exposed to private pressure is free to denounce its economic partners to the competition authorities. A firm that remains silent deliberately forfeits its opportunity to denounce the cartel participants and thus can be deemed to have deliberately chosen to engage in the unlawful agreement. (iv)  Public coercion

3.29  US antitrust law and the ‘State Compulsion’ doctrine The consent of firms to an alleged agreement is sometimes influenced by the intervention of a public authority. US antitrust law offers undertakings a ground of defence in such circumstances—called the Act of State Defence. In short, when private anticompetitive conduct originates from government action, firms cannot be held liable for an infringement of the provisions of the Sherman Act. 3.30  EU law A similar, albeit slightly different, principle prevails under EU law.27 In Suiker Unie, the Court considered that Article 101(1) TFEU should not apply, if—but for regulatory requirements—the impugned practice would not have taken place. In Commission and French Republic v Tiercé Ladbroke, the Court of Justice stated that if ‘the anticompetitive conduct is required of undertakings by national legislation or if the latter creates a legal framework which itself eliminates any possibility of competitive activity on their part, Articles [101] and [102] do not apply.’28 Faced with heavy-handed State intervention, firms

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cannot be deemed to have ‘freely’ consented to form an agreement. The voluntary element required for establishing an unlawful agreement is thus missing. 3.31  Criterion To benefit from the EU equivalent of the Act of State Defence, undertakings must prove that the State (understood broadly as a public authority with ‘imperium’) has exercised a ‘direct influence’ over their decision.29 The Court of Justice interprets this concept narrowly. In Arow/BNIC, for example, the Commission sanctioned undertakings that had entered into an agreement to set the price of cognac. For their defence, the undertakings argued that these agreements had been extended and later made compulsory by a ministerial decree. The Commission observed, however, that at the time the price-fixing agreement was concluded, the public measure in question was not yet in force. The firms involved had therefore coordinated their conduct of their own free will. 3.32  In situations where influence is not decisive, but where the State merely supports or encourages illicit agreements, the State compulsion doctrine will not play. Yet, the Commission has, (p. 114) in past cases, recognized that firms could benefit from mitigating circumstances when sanctioning the impugned practice.30 3.33  The related question of the Act of State Off ense It is fair and legitimate to immunize undertakings from their liability under EU competition law in cases of State intervention. Yet, in such a situation, the distortion of competition that arises as a result of State intervention remains. To tackle this issue, the Court of Justice laid down in INNO/ ATAB the foundations of an ‘Act of State Offence’. Relying on Articles 3(f) and importantly on Article 10 EC, which enshrine a ‘duty’ of loyal cooperation on Member States, the Court held that Member States must refrain from taking measures that might limit the effet utile of the Treaty’s competition provisions.31 3.34  Taken extensively, this Act of State Offence could have entailed dramatic consequences for Member States. This is because many regulatory instruments limit the scope for competition amongst market players (eg regulations providing for preliminary authorizations erect barriers to entry; harmonization regulations increase the homogeneity of products/services/costs; etc). As a result of this case law, many State measures applicable to a plurality of undertakings could have been challenged on the basis of Articles 3(f), 10, and 81 EC (now Art 101 TFEU). In Meng, the Court of Justice thus sought to limit the cases in which a Member State can be held liable for an infringement of Article 101 TFEU: … Article [101], read in conjunction with Article [3(f)] of the [former EC] Treaty, requires the Member States not to introduce or maintain in force measures, even of a legislative or regulatory nature, which may render ineffective the competition rules applicable to undertakings. By virtue of the same case-law, such as the case where a Member State requires or favours the adoption of agreements, decisions or concerted practices contrary to Article [101] or reinforces their effects or deprives its own legislation of its official character by delegating to private traders responsibility for taking economic decisions affecting the economic sphere.32 3.35  From theory to practice The scope of this case law is unclear. Although, in theory, it provides a legal basis for bringing infringement proceedings against a Member State (Act of State Offence), the Commission almost never used it, presumably for political reasons.33 3.36  Prospects In more recent times, however, the Court of Justice has seemed to lean towards a more severe approach towards public restrictions of competition.34 In Italian Matches, the Court drew the following distinction: •  if the impugned legislation leaves room for manoeuvre to the undertakings, they can be the subject of proceedings for infringement of Article 101(1) TFEU. In this

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case, the (p. 115) involvement of the State will be taken into account at the sanctioning stage as a mitigating circumstance; •  conversely if, under the legislation, undertakings enjoy no room for manoeuvre, competition authorities cannot pursue them for infringement of Article 101(1) TFEU. Interestingly, however, the Court added that, in such circumstances, the national competition authorities must declare inapplicable any national legislative provisions which render Article 101 ineffective ‘from engaging in autonomous conduct which prevents, restricts or distorts competition’. 35 In practice, once the law has been declared inappli cable, firms will no longer be able to argue that the legislation forces them to coordinate their conduct. Should they continue to act in concert, they will be amenable to Article 101(1) TFEU. 3.37  Freedom of movement? Overall, the TFEU’s rules on free movement (of persons, goods, and services) bring the greatest impediment to public measures restricting competition. In its recent Cipolla judgment,36 the Court had to rule on the compatibility with the Treaty of a mandatory price floor for the provision of legal services in Italy. Reaffirming its case law on the State compulsion doctrine, the Court held that the Italian State (and not the lawyers’ association) was vested with the power to take decisions relating to the minimum fee scale, and had simply made use of it. Consequently, it was impossible to take direct action against the lawyers’ association. However, the Court considered that this public measure made it more difficult for lawyers established outside Italy to provide legal services on the Italian market. The latter were indeed deprived of the ability to price compete with domestic lawyers. The Court therefore held that the Italian legislation constituted a restriction to the freedom to provide services protected under the Article 49 EC (now Art 56 TFEU).37 3.38  Competition advocacy In recent years, the Commission seems to have pursued a different strategy to combat public restrictions of competition. Through constructive and educational dialogue with Member States, the Commission tries to prevent, or if already existing to induce public authorities to repeal (or modify), State measures restricting competition.38 In this context, the Commission adopted a policy document entitled ‘Better Regulation: A Guide to Competition Screening’, which seeks to induce Member States to carry out ex ante competition impacts whilst drafting legislation/regulation. This document, which unfortunately has gone widely unnoticed, devises a number of principles for ‘competition screening’ and provides a typology with illustration of regulatory measures restricting competition (ie, measures exempting certain markets or sectors from competition, measures which directly interfere with the commercial conduct of companies, and measures which indirectly interfere with the commercial conduct of companies). (p. 116) (v)  Unilateral actions

3.39  The issue The above principles should in theory exclude pure ‘unilateral conduct’ from the ambit of Article 101(1) TFEU. However, between the 1970 and the 1990s, the Commission—and the Court—have applied Article 101(1) TFEU to practices which, at least in appearance, looked clearly unilateral. To this end, the Commission and the Court have devised two particularly creative, and somewhat controversial, doctrines. 3.40  The ‘common interest’ doctrine The first doctrine can be traced back to the AEG Telefunken case.39 In that case, a unilateral refusal, by a supplier, to appoint a new distributor within its selective distribution network was deemed to constitute an unlawful agreement pursuant to Article 101(1) TFEU. The Commission considered that beyond the unilateral nature of the refusal, a ‘common interest’ allegedly existed between several

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firms, that is, the supplier and its incumbent distributors, who had no interest in facing the entry of a new member within the distribution network. 3.41  The ‘contractual framework’ doctrine The second doctrine is well illustrated in Ford II. In a written document, Ford announced unilaterally to its German distributors that it would cease to deliver them ‘left hand drive’ cars. The Commission considered that Ford’s announcement was part of a collective strategy which led to a reduction of cars sold on the market, and was accordingly unlawful pursuant to Article 101(1) TFEU.40 This is because from the date on which they joined Ford’s distribution network, its distributors could be deemed to have implicitly agreed to the supplier’s subsequent commercial choices. 3.42  Case law evolution In two judgments, Bayer and Volkswagen Germany, handed down respectively in 2000 and 2003, the GC placed a limit on the Commission’s attempts to bring purely unilateral behaviour under the concept of agreement pursuant to Article 101 TFEU. 3.43  The Bayer decision41 In the Adalat case, the Commission applied Article 101 TFEU to Bayer’s Spanish distribution policy for the drug Adalat (a drug for the treatment of cardiovascular diseases). In the past, Bayer’s Spanish and French wholesalers had engaged in parallel exports to the UK where the prices offered by Bayer’s UK wholesalers were 60 per cent higher. To curb those parallel imports, Bayer progressively limited the quantities of Adalat supplied to Spanish and French wholesalers. Upon complaints of the latter, the Commission relied on the contractual framework doctrine and came to the conclusion that Bayer’s unilateral reductions in quantities (and outright refusals to supply) were agreements violating Article 101(1) TFEU, the effect of which was to fragment the national markets. 3.44  The Commission’s conclusion was far from undisputable. On the facts, the wholesalers had clearly not agreed to Bayer’s reduction of supplies. On the contrary, they had continuously requested additional quantities to Bayer. Moreover, they had even tried to procure Adalat through other channels. No ‘concurrence of wills’ thus existed between Bayer and (p. 117) its wholesalers. In addition, from a public policy standpoint, the Commission’s decision could have encouraged inefficient distribution structures, by artificially inducing drug manu facturers to integrate vertically so as to benefit from the immunity of intra-group agreements under Article 101 TFEU. 3.45  The GC, followed by the Court of Justice, quashed the Commission decision.42 The Court considered that, on the facts, there had been no concurrence of wills between Bayer and its wholesalers. For the GC and the Court of Justice, a unilateral measure (eg an invitation to act in a particular way) may only constitute an agreement if it is expressly or impliedly accepted by the other party.43 However, when the other party reacts against this unilateral measure, there can be no agreement. 3.46  The Vokswagen Germany judgment In this case the Commission found that Volkswagen Germany had unlawfully requested its dealers to observe a recommended price and to refuse discounts on the Passat. Albeit unilateral in nature, Voslkwagen’s request was, according to the Commission, akin to an unlawful agreement. Because the distributors had signed a distribution agreement whilst joining the network, they could be presumed to have agreed, in advance, to any subsequent illegal modification of that contract. 3.47  The GC struck down the Commission’s decision. It held that the Commission had not demonstrated the dealers’ acquiescence to Volkswagen’s request. According to the GC, the mere fact of signing a distribution agreement ex ante cannot lead to the presumption that all ex post unlawful evolutions have been agreed upon. In the words of the GC:

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it cannot be accepted that an unlawful contractual variation could be regarded as having been accepted in advance, upon and by the signature of a lawful distribution agreement. In that case, acquiescence in the unlawful contractual variation can occur only after the dealer has become aware of the variation desired by the manufacturer.44 3.48  In addition, the GC clarified an evidentiary question left open in the Bayer judgment, namely that the proof of acquiescence may be inferred from the parties’ actual behaviour on the market. 3.49  Conclusion The above principles can be summarized as follows. The fact that one under-taking proposes a certain course of action in the market and that the other acquiesces, expressly or impliedly, gives rise to an agreement between undertakings within the meaning of Article 101 TFEU. If, however, the other undertaking rejects the initial proposal, either expressly or implicitly (by taking a non-compliant course of action), there is no agreement, absent a concurrence of wills.

(p. 118) (b)  Decisions by associations of undertakings 3.50  Preliminary remark Research into the history of cartels indicates that conspirators have often sought to disguise illicit activity behind the veil of classic, legitimate, ‘associations’. In Great Britain, for instance, in the 1920s many large-scale anticompetitive arrangements between industrial companies often took the form of ‘trade associations’ (eg the Bradford Dyers’ Association, British Cotton and Wool Dyers Association, Associated Portland Cement).45 3.51  Non-formalist interpretation Again, the concept of an ‘association of undertakings’ is not defined in the Treaty. The case law of the Court of Justice and the Commission has promoted an extensive interpretation of this concept. A group of firms that is not registered as an ‘association’ pursuant to national law may nevertheless be found to constitute an ‘association of undertakings’ within the meaning of Article 101 TFEU. Similarly, the existence of an entity with legal personality, with articles of association or with a for-profit purpose is not dispositive in deciding whether a particular group of companies forms an association of undertakings.46 3.52  The same is true of the word ‘decision’ found in Article 101(1) TFEU, but left undefined by the Treaty. The Court and the Commission have promoted a non-formalistic approach of the wording of the Treaty, whereby a circular, a recommendation, or even an email may constitute a decision. 3.53  Illustrations In Wouters, the Court held that a professional organization such as the Bar of the Netherlands was an ‘association of undertakings’ within the meaning of Article 101(1) TFEU.47 In the same vein, the Commission recently ruled against the Belgian Architects’ Association on the ground that its scale of recommended minimum fees breached Article 101(1) TFEU.48 Finally, the Commission seems to consider that within the professional services sector (architects, pharmacists, estate agents, accountants, lawyers), most supervisory and regulatory organs constitute associations of undertakings that fall foul of Article 101 TFEU. In those sectors, the Commission seeks to eliminate a number of pervasive restrictive practices, such as fixed prices, recommended prices, advertising restrictions, entry restrictions and reserved rights, and regulations governing business structure and multi disciplinary practices.49

(c)  Concerted practice

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3.54  Preliminary comment Among the various forms of concurrences of will, the concept of a concerted practice is by far the most cryptic, both in the case law and the legal literature. (p. 119) 3.55  The nebulous case law of the Court It took decades for the Court to define accurately what constitutes a concerted practice. The Court first sought to clarify the concept in the 1969 Dyestuffs ruling.50 It held that: … Article [101] draws a distinction between the concept of ‘concerted practices’ and that of ‘agreements between undertakings’ or of ‘decisions by associations of undertakings’ the object is to bring within the prohibition of that article a form of coordination between undertakings which, without having reached the stage where an agreement properly so-called has been concluded, knowingly substitutes practical cooperation between them for the risks of competition. By its very nature, then, a concerted practice does not have all the elements of a contract but may inter alia arise out of coordination which becomes apparent from the behaviour of the participants.51 (Emphasis added) 3.56  A year later, in European Sugar Industry, the Court honed this definition by declaring that the criteria of’coordination’ and ‘cooperation’ used in the preceding definition in no way require[d] the working out of an actual plan’, [but] ‘must be understood in the light of the concept inherent in the provisions of the treaty relating to competition that each economic operator must determine independently the policy which he intends to adopt on the common market including the choice of the persons and undertakings to which he makes offers or sells.52 3.57  The Court further added: although it is correct to say that this requirement of independence does not deprive economic operators of the right to adapt themselves intelligently to the existing and anticipated conduct of their competitors, it does however strictly preclude any direct or indirect contact between such operators, the object or effect whereof is either to influence the conduct on the market of an actual or potential competitor or to disclose to such a competitor the course of conduct which they themselves have decided to adopt or contemplate adopting on the market.53 3.58  Finally, more recently in Commission v Anic Partecipazioni SpA, the Court stated that: A comparison between that definition of agreement and the definition of a concerted practice … shows that, from the subjective point of view, they are intended to catch forms of collusion having the same nature and are only distinguishable from each other by their intensity and the forms in which they manifest themselves.54 3.59  Clarification The difference between an agreement and a concerted practice has been nicely summarized by Professor Giorgio Monti:55 if two competitors sign a contract fixing a common price for their goods, they have concluded an anticompetitive agreement. On the other hand, if these two competitors meet and exchange information about their future commercial policies, there is a concerted practice if these parties rely on that information to define their future conduct. Dyestuffs is a good example of a concerted practice. In that case, (p. 120) the undertakings had not concluded any direct agreement on

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price.56 Rather, they had secretly committed to announce to each other in advance their respective price increases and the dates on which they would occur. 3.59a  Direct, ‘smoking gun’, evidence vs Concordant circumstantial evidence Undertakings concluding illicit agreements usually take infinite precautions not to leave any direct evidence of their conspiracies. The concept of a ‘concerted practice’ catches factual settings in which there is no trace of agreement, but in which shreds of circumstantial evidence point to unlawful, anticompetitive coordination. Under the current case law standards, the burden of proof which the Commission must discharge to sustain a finding of concerted practice requires providing the three following pieces of circumstantial evidence: (i)  Contacts between competitors based on direct elements (telephone conversations, exchange of emails, minutes of meetings) and indirect elements (parking tickets, matching agendas, costs of representation, etc). Mere unilateral signalling strategies (press announcements) do not constitute contacts between competitors. (ii)  A concurrence of wills (or a meeting of minds) between each of the undertakings to substitute cooperation for competition. According to the Court, when the information exchanged relates to commercial data, consensus is presumed. This is because ‘the intended recipient of the information cannot refrain from taking it into account when he defines his behaviour on the market’. (iii)  A subsequent coordinated course of conduct on the market as well as anticompetitive effects. In Hüls, however, the Court held that the proof of anticompetitive effects was not required. The Commission was simply required to prove that the coordination had an anticompetitive object. 3.60  Challenge of proving concerted practices The constituent elements of a concerted practice are difficult to prove. To escape competition law exposure, undertakings that are parties to such practices often falsify documents, use sobriquets, organize meetings outside the EU territory, etc. This probably explains why, in the 1970s, the Commission sought to infer the existence of concerted practices from the observation of mere parallel conduct. 3.61  This practice, however, raised concerns that the Commission would apply Article 101(1) TFEU to situations of oligopolistic tacit collusion where the endogenous features of the market leads firms independently to mimic their rivals’ commercial policies. Applying Article 101(1) to such practices would first be unfair, because on such markets firms have no other—rational—choice but to follow each others’ strategies. In addition, prohibiting parallel oligopolistic conduct through Article 101(1) TFEU would be ineffective unless other corrective measures were added (eg divestitures). 3.62  The position of the Court of Justice In Dyestuffs, the Commission had sanctioned parallel price announcements. In their appeals to the Court of Justice, the parties had argued that the oligopolistic nature of the market was the key explanatory factor for their parallel behaviour. The Court upheld this argumentation as a matter of principle, and allowed the parties to rebut the Commission’s reliance on evidence of parallel conduct. It ruled that to prove an infringement of Article 101(1) TFEU, the Commission had to demonstrate that the parallel behaviour in question could not be explained by the ‘normal conditions of the market’ and, (p. 121) in particular, by its tight oligopolistic nature.57 On the facts, the Court however held that the market was not a pure oligopoly and that therefore the parallel behaviour of dyestuff producers originated in an unlawful concerted action.

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3.63  Scholarship A number of prominent scholars criticized this judgment. René Joliet, who would later become a judge at the Court of Justice, deplored the Court’s overly superficial economic analysis. According to Joliet, the Court should have more thoroughly examined whether the market’s normal operation could have led to parallel behaviour.58 In dismissing this possibility on the basis of cursory evidence, the Court demonstrated a clear reluctance to uphold firms’ defences to the effect that their behaviour was merely rational and could not be ascribed to a concerted practice. In turn, the Court’s insufficient degree of economic analysis de facto left the Commission free to prohibit oligopolistic tacit collusion under Article 101(1) TFEU. Subsequent case law The issue of oligopolistic tacit collusion under Article 101(1) TFEU recurred in the Wood pulp case (and later in the Italian flat glass case). Now a judge at the Court of Justice, Joliet was able to influence the outcome of the Wood pulp judgment.59 In this case, the Court held that the Treaty ‘does not deprive economic operators of the right to adapt themselves intelligently to the existing and anticipated conduct of their competitors.’60 It considered that parallel conduct in itself cannot be regarded as furnishing proof of an infringement to Article 101(1) TFEU ‘unless concertation constitutes the only plausible explanation for such conduct’.61 3.64  This standard of proof is undeniably high. To prove that concerted action is the only explanation for the parallel behaviour, the Commission must rule out each of the alternative potential explanations which might otherwise justify such conduct. On the facts, the Court engaged in an in-depth economic analysis and appointed economic experts. The experts pointed to the existence of: a ‘very high degree of transparency’ on the market; ‘a group of oligopolies-oligopsonies consisting of certain producers and of certain buyers and each corresponding to a given kind of pulp’; and a large flow of information due to a ‘very dynamic trade press’. They thus considered the normal operation of the market as a more plausible explanation for the uniformity of prices than a deliberate strategy of anticompetitive concertation.62 (p. 122) 3.65  Other explanations of parallel conduct In Asturienne-Rheinzink,63 the Commission found two zinc producers guilty of a concerted practice. The Commission held that the two firms had both unlawfully refused in parallel to supply their Belgian distributors. According to the Commission, the zinc producers were allegedly seeking to discourage parallel exports from Belgium to Germany. In their appeal before the Court of Justice, the parties successfully argued that their purported parallel course of conduct was remote from any concerted practice. The zinc producers had independently decided to cease supplies, because the Belgian distributors had failed to settle their invoices. The Court thus quashed the decision of the Commission.

(3)  Final comments 3.66  Standard of proof Unlike in other areas of competition law, the question of the applicable standard of proof for finding an infringement of Article 101(1) TFEU was for a long time ignored. The question is, however, of crucial importance, and was finally clearly addressed in the judgment Dresdner Bank and others v Commission .64 3.67  The Dresdner Bank case Before the definitive adoption of the euro in several EU Member States, a transitional period was arranged in which the national currency and the euro coexisted. During that period, banks had to convert the national currency into euros. In a 2001 decision, the Commission considered that several German banks had unlawfully coordinated the price of the commissions received on the purchase of banknotes in currencies of the euro zone at around 3 per cent. With this practice, the banks sought to recover around 90 per cent of the revenues lost due to the abolition of the buying and selling spread. In its decision, the Commission relied both on (i) factual elements which

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seemed to prove a concerted action among the banks and (ii) on the uniformity of the pricing policies applied by the German banks. 3.68  On appeal, the GC censured the Commission, considering that the latter had provided no substantive proof of the existence of an agreement in breach of Article 101 TFEU. According to the GC, the (relative) convergence of the rates invoiced (within a range of between 3–4.5 per cent), could only be explained by the operation of the market after the disappearance of the exchange risk. 3.69  Importantly, the GC further added that the Commission must adduce ‘precise’ and ‘consistent’ evidence to establish the existence of an agreement. The GC, however, considered that it is not necessary for the Commission to meet the criteria of precision and consistency with regard to each element of the infringement. On the contrary, it is enough that, taken ‘globally’, the indications referred to by the Commission meet these requirements.

(p. 123) B.  The Economic Component of Article 101(1) TFEU—A Restriction of Competition (1)  The concept of competition 3.70  Perfect competition vs Workable competition … For obvious reasons, the concept of ‘competition’ mentioned in the Treaty and, inter alia, under Article 101(1) TFEU shall not be construed through the lens of the unrealistic model of pure and perfect competition described in Chapter 2. In the early Consten and Grundig and Metro I cases,65 the Court seemed rather to view the model of ‘workable competition’ designed by the US economist John Maurice Clark in the 1940s, as the appropriate theoretical foundation of the Treaty provisions.66 In practice, the implication of this is that the optimal degree of competition to be attained may vary from one market to another.67 As noted by the Court, ‘its parameters may assume unequal importance, as price competition does not constitute the only effective form of competition or that to which absolute priority must in all circumstances be’.68 3.71  Assessment Whilst more realistic than the perfect competition model, the concept of ‘workable competition’ is however equally impractical, as it is likely to receive many different, and possibly subjective, interpretations. The concept of workable competition suggests in particular that competition may be traded off against other objectives far removed from competition (eg social policies, cultural pluralism), endowing competition authorities with a large degree of discretion to promote discretionary policy choices, falling beyond their official remit. 3.72  In addition, the issue of whether EU competition law protects ‘workable competition’ as opposed to other forms of competition is primarily a question of semantics. The case law of the Court also refers occasionally to the concept of ‘effective competition’, thereby implying that this issue is primarily theoretical.69 3.73  Inter-brand and intra-brand competition A somewhat more interesting discussion relates to the notions of inter and intra-brand competition. As a matter of principle, EU competition law seeks to protect—although with a different intensity—both (i) inter-brand (p. 124) competition, that is, competition between sellers of products (or services) of different brands or, in economic terms, between slightly imperfect substitutes within a same relevant market and (ii) intra-brand competition, that is, competition between sellers of products (or services) of the same brand, or in economic terms, absolutely perfect substitutes (eg competing retailers within a same distribution network).70 In practice, intrabrand competition often occurs downstream, at the level of distributors supplying to end-

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users (but not only, ie, wholesalers may also sell products of the same brand).71 By contrast, inter-brand competition often occurs upstream, at the level of production. 3.74  A common, mistaken, view is that vertical agreements, as opposed to horizontal agreements, primarily entail restrictions of intra-brand competition (eg through territorial exclusivity). However, a vertical agreement may also contain restrictions of inter-brand competition, for instance when a supplier forbids its retailers from selling/purchasing the products of its rivals (a practice labelled ‘single branding’). Conversely, a horizontal agreement may entail restrictions of intra-brand competition, for instance when cartel participants commit jointly to fix the retail price of their distributors. The Commission is aware of this, and considers that because restrictions of competition may be capable of affecting both inter-brand and intra-brand competition at the same time, it may be necessary to analyse a restraint in light of these two forms of competition, before concluding whether Article 101(1) applies.72 3.75  Internal and external competition Article 101(1) TFEU undeniably applies to restrictions of ‘internal competition’ whereby rival firms reciprocally agree to cease competing against each other. In addition, however, the Court of Justice extended in Consten and Grundig the scope of Article 101 TFEU to restrictions of ‘external competition’, that is, restrictions of competition between the parties to an agreement—or just one of them—and third parties.73 In that particular case, an agreement which granted absolute territorial protection to a retailer, and which consequently did not restrict competition between the parties, was nevertheless held to be incompatible with Article 101(1) TFEU on the ground that it prevented third parties, that is, other retailers, from entering the distribution market. This judgment has since been interpreted as the stepping stone of the application of Article 101 TFEU to vertical restraints. 3.76  Miscellaneous Article 101(1) TFEU applies equally to restrictions of competition at the level of demand and supply (eg sales cartels or purchasing cartels) for goods and services. Moreover, both restrictions of actual and potential competition are covered. Joint R&D agreements, which may restrict future, potential competition, thus fall within the ambit of Article 101(1) TFEU.

(p. 125) (2)  Substantive content of the concept of a ‘restriction of competition’ 3.77  Introductory clarification The TFEU refers to agreements which ‘distort’, ‘affect’, and ‘restrict’ competition, without however, drawing any distinctions among those terms. In practice, the Commission and the EU Courts seem to use those terms interchangeably in their decisional practice.

(a)  What a restriction of competition is not (or is no longer) (i)  A situation of contractual imbalance

3.78  Competition law vs Other statutory provisions An imbalanced commercial contract where one party with a strong bargaining position is clearly advantaged as compared to the other party (eg a contract between a large supermarket chain and a small supplier), does not necessarily restrict competition. Consequently, absent a restriction of competition, the fact that a co-contractor is subject to unfair commercial terms (in terms of prices and conditions) does not open ground for rescission on the basis of EU competition law.74 Issues of contractual fairness and equity shall be dealt with under other statutory provisions (ie, civil law or unfair competition rules). As will be seen, however, in the case of agreements that actually restrict competition, the contractual context (and, where applicable, situations of contractual imbalance) is a relevant element which the courts can take into account when ruling on the award of damages (and compensation for the interests harmed).

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(ii)  A restriction on the parties’ freedom to act on the market

3.79  The initial, formalistic, approach of the Commission Influenced by the principle of ‘free enterprise’, as well as by the German ordo-liberal tradition,75 the Commission’s first decisions declared restrictive of competition all agreements whereby the parties limited their commercial autonomy in favour of coordinated action, regardless of the market power of the parties.76 3.80  Under this interpretation, a whole host of agreements (and contractual provisions) have been deemed to fall within the scope of Article 101(1) TFEU. Combined with the system of prior notification of agreements, this extensive interpretation led undertakings to submit thousands of agreements to the Commission in the hope of benefiting from an exemption. 3.81  Calls for a rule of reason In the 1970s and 1980s, European scholars challenged the Commission’s approach of the concept of a restriction of competition as overly intrusive and alien to the protection of competition. Drawing on the insights of US antitrust law, they argued in favour of the introduction of a ‘rule of reason’ under Article 101(1) TFEU.77 Following this approach, an agreement should be found incompatible pursuant to (p. 126) Article 101(1) TFEU only if, following a ‘balancing’ exercise, its anticompetitive effects exceeded its pro-competitive effects. 3.82  The introduction of a US-style rule of reason would have allegedly had two advantages. First, from a procedural standpoint, many agreements caught by Article 101(1) under the Commission’s broad interpretation would have escaped the costly notification procedure (under Regulation 17/1962). Second, from a substantive standpoint, the competitive assessment underlying the rule of reason would have refocused Article 101(1) TFEU on purely economic concerns. 3.83  Evaluation The wording of the Treaty however erects a serious legal obstacle to the introduction of a system of rule of reason under Article 101(1) TFEU. Article 101(3) declares that incompatible agreements (and other forms of coordination) pursuant to Article 101(1) may benefit from an exemption if they have positive effects on social welfare. This provision would be made redundant if these positive effects were to be already assessed in the context of Article 101(1). 3.84  Incompatibility with the case law In addition to the above difficulty, the Commission’s early decisions were not in line with the notion of restriction of competition promoted by the Court of Justice’s seminal ruling in Société la Technique Minière .78 In this case, the Court had been asked to rule on the compatibility of an exclusive supply commitment under Article 101(1) TFEU. Such commitments inevitably restrict the commercial freedom of the parties, in limiting the producer’s ability to supply other customers.79 However, the Court repudiated the Commission’s form-based approach, stating that Article 101(1) TFEU ‘is based on an economic assessment of the effects of an agreement and cannot therefore be interpreted as introducing any kind of advance judgment with regard to a category of agreements determined by their legal nature’.80 An agreement, such as the one in question cannot fall automatically under the prohibition set out in Article [101(1) TFEU]. But, such an agreement can contain the elements provided in the said legislative provision by reason of a particular factual situation or of the severity of the clauses protecting the exclusive dealership.81

(b)  What a restriction of competition is (i)  An ‘economic’ concept

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3.85  Economic interpretation of the concept of restriction of competition It took a number of years for the GC and the Court of Justice to clarify fully the concrete, practical meaning of the judgment Société la Technique Minière. In Métropole Télévision (M6), the GC stressed that this judgment is part of a broader trend in the case-law according to which it is not necessary to hold, wholly abstractly and without drawing any distinction, that any agreement restricting the freedom of action of one or more of the parties is necessarily caught by the prohibition laid down in Article [101(1) TFEU]. In assessing the applicability of that provision to an agreement, account should be (p. 127) taken of the actual conditions in which it functions, in particular the economic context in which the undertaking operate, the products or services covered by the agreement and the actual structure of the market concerned.82 3.86  In what constitutes a clear-cut, unambiguous statement, the GC wholly dismisses the form-based interpretation endorsed by the Commission in its early decisions.83 Moreover, the GC also censures proponents of the rule of reason, stating that: According to the applicants, as a consequence of the existence of a rule of reason in Community competition law, when Article 85(1) of the Treaty is applied it is necessary to weigh the pro and anti-competitive effects of an agreement in order to determine whether it is caught by the prohibition laid down in that article. It should, however, be observed, first of all, that contrary to the applicants’ assertions the existence of such a rule has not, as such, been confirmed by the Community courts. Quite to the contrary, in various judgments the Court of Justice and the Court of First Instance have been at pains to indicate that the existence of a rule of reason in Community competition law is doubtful.84 (Emphasis added) 3.87  Later, in its Guidelines on Article 81(3), the Commission confirmed the demise of the form-based approach when it stated that to prove an infringement, ‘It is not sufficient in itself that the agreement restricts the freedom of action of one or more of the parties’.85 3.88  Practical repercussions under Regulation 1/2003 The enforcement system put in place under Regulation 1/2003 allocates the burden of proving an infringement of Article 101(1) TFEU on the competition authority (and/or plaintiff).86 One could thus argue that a transposition of the rule of reason system would have elevated the burden of proof bearing on the competition authority. To prove an infringement of Article 101(1) TFEU, the competition authority would have had to prove not only anticompetitive effects but also would have had to identify, and dismiss, potential pro-competitive effects. By rejecting the rule of reason, the burden of proof is arguably shared among the parties: the authority (and/or the plaintiff), have the burden of proving an anticompetitive effect, while the defendant has to invoke the benefit of an exemption as defined in Article 101(3) TFEU and substantiate its claims by specifically proving the existence of pro-competitive effects. This, however, ignores a number of practical realities. 3.89  Counterfactual standard In Métropole Télévision, the GC not only discarded previous Commission interpretations, it also devised a clear legal standard for bringing proof of a restriction of competition. The GC ruled that there is a restriction of competition if the agreement reduces the actual or potential competition which would exist in the absence of an agreement.87 Remarkably, this statement espouses a sound economics-based methodology, generally referred to as ‘counterfactual’ or ‘but for’ analysis. Whether ex ante —when firms self-assess tentative agreements—or ex post—when competition authorities and courts (p. 128) evaluate past and present agreements—a three-step approach must be applied.88 First, one must speculate on the hypothetical degree of competition (‘Comp’) in the market without the agreement (‘Comp WtA’). Second, one must determine the degree of

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competition in the market with the agreement (‘Comp WA’). Third, one must then compare the outcome of those assessments. If Comp WtA > Comp WA, then there is an infringement to Article 101(1) TFEU. Importantly, both Comp WtA and Comp WA must be assessed in terms of prices, output, product variety, product quality, innovation, etc. 3.90  Despite the necessarily speculative nature of counterfactual analysis, given that the ‘but for’ world has not occurred and must instead be hypothesized, it is not always mere ‘guesswork’. For instance, if an allegedly anticompetitive agreement takes place in a welldefined geographic area, analysis of an economically similar geographic area in which no such agreement was in place can provide the basis for a meaningful counterfactual comparison. Or, competition that took place within the same region (even among the same parties) before the agreement was said to have begun, can be studied, as long as care is taken to account for any relevant factors that may have changed over time. Finally, a closely related, but distinct market or industry, again not subject to an agreement can be used as the basis for the counterfactual analysis. 3.91  But even when such concrete comparators cannot be identified, counterfactual analysis still represents an important development in the assessment of coordinated behaviour because such analysis helps to clarify the theory of harm being put forward in the case. In the comparison between the two states of the world, the specific factors or conditions that differ between the two must be identified and how those factors or conditions lead (or potentially will lead) to consumer harm must be explained. This alone provides some rigour to the analysis. 3.92  Illustration: mobile telephony infrastructure sharing/national roaming In early 2000, most mobile operators incurred huge fixed costs for the acquisition of 3G spectrum licences. As a result of the implementation of costly attribution procedures everywhere in Europe, the ability of mobile operators to roll out 3G networks (and start providing service) was largely compromised, simply because of the further capital expenditures required. In this context, in 2001, O2 Germany and T-Mobile Deutschland notified the Commission of a two-pronged horizontal agreement which sought to minimize deployment costs through (i) the sharing of certain network elements (antenna relays, masts, etc) and (ii) the conclusion of national roaming arrangements (each using the network of the other in certain regions). The Commission did not object to the sharing of infrastructures. However, it considered that the agreement’s provisions relating to national roaming restricted competition on a number of key parameters (coverage, service quality, etc). First, as a result of the agreement, the roaming operator would not have proper incentives to develop its own network sufficiently. Second, the agreement would also limit call quality and network transmission rates, because the (p. 129) roaming operator would have to rely on the technical and commercial choices made by the host operator.89 Third, the Commission took objection to a risk that the wholesale charge arrangements between the mobile operators might lead to coordination on retail price levels. The Commission thus found the agreement to restrict competition within the meaning of Article 101(1) TFEU. Despite these reservations, the Commission issued an exemption based on Article 101(3) TFEU. 3.93  This decision was subsequently subject to partial annulment proceedings. O2 and TMobile sought to challenge the provisions of the decision which had declared part of their agreement incompatible with Article 101(1).90 3.94  The GC reviewed the Commission’s analysis, and in particular its counterfactual examination of the market situation in the absence of the agreement. It considered that the Commission had not mentioned, let alone examined, the risk that absent the agreement one of the parties could have been fully or partially absent from the mobile telephony market in Germany.91 Had this been the case then the restrictive effects of the agreement would be far less clear. On the contrary, the agreement would guarantee both undertakings’ presence

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in the market and, therefore, a certain degree of rivalry. The Commission simply reiterated that the agreement, once implemented, would give rise to restrictions of competition, thereby continuing to focus only on the market context resulting from the agreement, without comparison to the market in the absence of the agreement.92 The GC partly annulled the decision of the Commission. 3.95  Interestingly, under the EU counterfactual standard, an agreement that will exert clear, appreciable, anticompetitive restrictive effects may thus escape Article 101(1) TFEU, if absent the agreement, one can predict a situation where competition is (at least equally) hampered. It is the relative state of competition that matters, so even if some restrictive effects can be identified if the agreement offers relief from other restrictions it may avoid censure. 3.96  Subsequent clarifications The Commission further clarified the way this double test ought to be implemented. The Guidelines indicate that the counterfactual analysis implies a twotier assessment that focuses first on the agreement, and second on the particular contractual restraints. First, one needs to assess whether the agreement restricts competition that would have existed absent the agreement. If, for instance, ‘due to the financial risks involved and the technical capabilities of the parties it is unlikely on the basis of objective factors that each party would be able to carry out on its own the activities covered by the agreement’, the parties would not be competitors.93 The agreement thus cannot limit competition that does (p. 130) not exist. Second, one needs to examine whether competition that would have existed with the agreement, but absent the contractual restraint, is restricted. In other words, the analysis focuses on the question whether there could be a less restrictive agreement between the parties. As explained by the Guidelines, the question is not whether the parties in their particular situation would not have accepted to conclude a less restrictive agreement, but whether given the nature of the agreement and the characteristics of the market a less restrictive agreement would not have been concluded by undertakings in a similar setting.94 3.97  Competition The Guidelines concerning the application of Article 101(3) TFEU refer to agreements that ‘are likely to have an appreciable adverse impact on the parameters of competition on the market, such as price, output, product quality, product variety and innovation’.95 The potentially anticompetitive effect of the agreement must therefore be assessed on each and every one of those parameters . (ii)  The ‘integrationist’ approach towards a restriction of competition

3.98  Recap By contrast to other modern competition law systems such as US antitrust law, the sole goal of which is the promotion of consumer welfare, EU competition law is often said to have an additional objective: to achieve the integration of national geographic markets within a larger trans-European market by removing obstacles to interstate trade.96 3.99  On close examination, it is probably erroneous to view this goal as a non-economic goal, wholly distinct from the promotion of consumer welfare. After all, the EU Treaties’ commitment to market integration lies entirely on the belief that it fosters competition across the European territory and increases choice to the benefit of consumers. Moreover, market integration enables firms to achieve economies of scale, to make purchasing economies (eg by having access to alternative sources of supply), and to take rationalization measures (cost savings that may be realized from shifting output from one plant to another plant located in another territory), which then can be transferred to consumers in the form of reduced prices or increased consumer choice. That said, the objective of ‘market

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integration’—some have talked of a ‘dogma’ or ‘mantra’—plays a critical role in the enforcement of the EU competition rules. 3.100  Legal stringency Until recently, the EU Courts have viewed market integration as one of the most fundamental objectives of the EU. Hence, they have generally considered that agreements threatening market integration were hardcore restrictions of competition. Those agreements must thus be deemed unlawful, regardless of whether (i) they have—or not—anticompetitive effects and (ii) they give rise—or not—to economic benefits (efficiencies, etc). Such agreements include, for instance, horizontal market partitioning agreements whereby rival companies seek to protect their domestic territories,97 as well as vertical agreements (p. 131) whereby suppliers fix different retail prices (price discrimination) and seek to prevent parallel imports (arbitrage) across countries.98 3.101  The ‘dual pricing’ case—a more economic approach? Recently, in GSK v Commission, the GC has seemed to stray away from the abovementioned strict interpretation and has instead endorsed a more economic interpretation of restrictions of competition.99 In the EU, parallel trade in drugs from Spain (where public authorities fix low maximum prices) to other Member States (eg the UK) where prices are much higher, is a well-known phenomenon. In 1998, the Spanish subsidiary of GlaxoSmithKline adopted new terms and conditions of sale, stipulating differentiated prices for drugs sold to Spanish wholesalers. The subsidiary in particular wanted to apply higher prices to drugs sold in Spain but intended for (parallel) export as compared to drugs intended for the local market. In line with earlier case law, the Commission declared this system of ‘dual pricing’ a restriction of competition by object, incompatible with Article 101 TFEU. 3.102  On appeal, the GC set aside the Commission decision. The GC considered that the mere fact that an agreement sought to limit parallel trade could not by itself establish a presumption that the agreement had an anticompetitive object. Rather, the GC indicated that this question was contingent on whether parallel trade entails competition (in terms of supply and prices) to the benefit to consumers.100 In other words, the conclusion that impediments to parallel trade are restrictive by object is not automatic, but requires further analysis of the market’s ‘legal and economic context’.101 Parallel trade is not protected as such, but only ‘in so far as it gives final consumers the advantages of effective competition in terms of supply or price’.102 As a basis for its analysis, the GC considered that whilst linked to the issue of the functioning of the internal market, the objective of Article 101(1) TFEU is, quite simply, to prevent firms ‘from reducing the welfare of the final consumer of the products in question’.103 3.103  On the facts, the GC reviewed the ‘main characteristics of the legal and economic context’ of parallel trade in pharmaceuticals.104 It held, in particular, that low prices in pharmaceuticals were not the result of the competitive process, but of different national price regulations. Hence, it cannot be presumed that parallel trade has an impact on the prices charged to the final consumers of medicines reimbursed by the national sickness insurance scheme and thus confers on them an appreciable advantage analogous to that which it would confer if those prices were determined by the play of supply and demand .105 (Emphasis added) Since parallel trade is not the offspring of competition, a restriction of parallel trade is not a restriction of competition. Moreover, the GC noted that—as explained by the Commission in a related Communication—most of the financial benefit of parallel trade ‘accrues to the (p. 132) parallel trader rather than to the health care system or the patient’.106 For those

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reasons, the Court considered that Glaxo’s agreement was not restrictive by object, and that its practical, concrete effects on competition had to be scrutinized. 3.104  Observation What is noteworthy here is that the GC is calling for the counterfactual economic analysis described above. In the absence of ‘dual pricing’ agreements, consumer welfare would not necessarily improve, since the profit margin achieved through the parallel import would be absorbed by the parallel importers. Moreover, limiting parallel imports and maintaining dual pricing can increase the undertaking’s incentives to serve Spain in the first instance; with forced uniform pricing across nations, nations with price caps may find they are underserved or not served at all.107 3.105  The appeal This unprecedented judgment of the GC was appealed before the Court by both Glaxo and the Commission (amongst other).108 The latter in particular alleged that the GC had ‘made an incorrect interpretation and application of the term “object” in Article 81(1) EC’.109 First, the Commission argued that the GC’s ruling is not in line with wellestablished case law. Second, the Commission challenged the new legal standard as unduly ‘restrictive’ for parallel trade, and criticized its particular implementation in the case at hand, with the Court not scrutinizing adequately benefits to consumers. 3.106  Under a very legalistic reasoning, which almost entirely disregards the economic and legal context of parallel trade, the Court set aside the GC’s innovative ruling. The Court’s reasoning is twofold. First, the Court is reluctant to depart from its traditional case law which finds that ‘agreements aimed at prohibiting or limiting parallel trade have as their object the prevention of competition’,110 and which it has occasionally applied to the pharmaceutical sector.111 Second, the Court relies on a textual interpretation of Article 101 TFEU and contends that there is ‘nothing in that provision to indicate that only those agreements which deprive consumers of certain advantages may have an anti-competitive object.’112 The Court adds that Article 101 TFEU ‘aims to protect not only the interests of competitors or of consumers, but also the structure of the market and, in so doing, competition as such’. In other words, and in our opinion quite disputably, an agreement that is unlikely to have harmful effects on consumer welfare may nonetheless be deemed a restriction by object. By requiring proof that the agreement entailed disadvantages to consumers as a prerequisite for a finding of anticompetitive object under Article 101 TFEU, the GC erred in law. Overall, the Court thus invalidates any attempt to follow a more economic approach in relation to commercial conduct that involves parallel trade. (p. 133) 3.107  Critical appraisal The conservative and harsh stance of the Court of Justice on parallel trade is not supported by the economic literature. The very few empirical economic studies which have sought to examine the effects of parallel trade on consumer welfare have reached inconsistent results. To focus only on the EU internal situation— where parallel trade is protected113—a first strand of studies invalidated the perception that parallel trade enhances consumer welfare in the short term through price reductions. In 1999, a survey conducted in relation to a wide range of trademarked products (eg compact disks, cars, cosmetics and perfumes, soft drinks, clothing) for instance reported that the ‘effect of [parallel trade] on retailers and consumers was largely seen as neutral’, and consequently that the case for international exhaustion is ‘simply stated and rests on the assumption that this will deliver lower prices to consumers’.114 3.108  In the same vein, a 2004 study by the London School of Economics (LSE) empirically tested the effects of parallel imports on six pharmaceutical product categories in six EU Member States.115 It found that

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the hypothesis that pharmaceutical parallel trade stimulates price competition and drives prices down in destination (importing) countries over the long-term is rejected. There is also very little evidence lending support to the argument that parallel trade stimulates (price) competition among exporting and importing countries. Thus, the arbitrage hypothesis of price equalisation or price approximation is also rejected.116 3.109  A similar finding was reached in a 2003 study, which demonstrated that parallel imports of pharmaceutical products in Finland had not intensified price competition, and has thus only generated minimal consumer savings.117 3.110  A second strand of empirical studies has, however, pointed to a contrary conclusion. In 2001, a study showed that the price of drugs subject to parallel imports in Sweden had risen less than the price of other drugs.118 Similarly, a 2003 study focusing on patented drugs in Denmark, the UK, Germany, Sweden, and the Netherlands found that prices had decreased with competition from parallel trade between 1997 and 2002.119 Another study covering 50 pharmaceutical products in Denmark, Germany, the UK, and Sweden found in 2006 that parallel imports competition had exercised a downward effect on prices120. 3.111  Finally, a third strand of studies offers nuanced, ambiguous results. For instance in 1999, a report of the Swedish Competition Authority indicated that the magnitude of the price increases arising from a prohibition of parallel imports was at best limited.121 To add even more confusion to this complex state of affairs, an academic paper published in 2003 argued (p. 134) that the price pressure exerted by parallel imports was highly product specific and often immaterial.122 3.112  Overall, the empirical economic literature hardly provides any conclusive evidence that parallel trade delivers lower prices to consumers. In light of this, the Court’s position on agreements that restrict parallel trade seems overly severe. In the absence of clear economic guidance, courts could call for an evaluation of the specific prices at issue in the parallel trade case at hand, but have thus far not done so.

(3)  Presumed restrictions of competition vs Proven restrictions of competition —the object and effect dichotomy 3.113  Introduction It follows from the wording of Article 101(1) TFEU, that to find an infringement of Article 101(1), the Commission (or a court/plaintiff), must prove that the agreement (or, in the alternative, a concerted practice or decision of association of undertakings) under scrutiny has as its ‘object or effect’ the restriction of competition. The Court of Justice has traditionally considered that the words ‘object’ and ‘effect’ are to be read disjunctively.123 In other words, the Commission must seek first to verify whether the agreement has as its ‘object’ the restriction of competition.124 If this is the case, and subject to the fulfilment of the other conditions for the application of Article 101, this will be the end of the investigation, and the infringement will be proven (even if the agreement has generated no anticompetitive effects). Proof of actual or potential anticompetitive effects will not be required in order for an agreement to be declared incompatible with the TFEU. If—and only if—however, this is not the case, the Commission will have to undertake the burdensome verification of whether the agreement in ‘effect’ restricts competition.

(a)  Presumed restrictions: the concept of restriction by ‘object’ 3.114  Definition A restriction by ‘object’ is a practice that holds such features that—from a balance of probabilities perspective—will in all likelihood harm competition.125 Whilst there is no formal list of restrictions by ‘object’, it is reasonable to consider that all those agreements—and in particular cartels—referred to in the text of the Treaty at Article 101(a) to (e) must be deemed restrictions by ‘object’. Regulations, guidelines, and other soft law instruments also occasionally classify certain types of agreements and clauses as restrictions by (p. 135) ‘object’.126 As a result, agreements that have as their object to From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

restrict competition include price-fixing agreements among competitors,127 market sharing agreements, agreements to exchange information regarding otherwise unpublished prices, passive sale prohibitions,128 and agreements fixing the retail price of a distributor.129 3.115–3.116  That said, the concept of a restriction by ‘object’ is open-ended.130 According to the Court in Competition Authority v Beef Industry Development Society Ltd and Barry Brothers (Carrigmore) Meats Ltd131 and in T-Mobile v Raad van bestuur van de Nederlandse Mededingingsautoriteit,132 restrictions by object cover all those practices which, ‘by their very nature’ are injurious of competition. The Court sought to provide further clarity in adding that a practice has as its object the restriction of competition if: according to its content and objectives and having regard to its legal and economic context, it is capable in an individual case of resulting in the prevention, restriction or distortion of competition within the common market.133 3.117  In Competition Authority v Beef Industry Development Society Ltd and Barry Brothers (Carrigmore) Meats Ltd, the Court considered as a restriction by object an agreement amongst processors of beef representing approximately 93 per cent of the market seeking to rationalize the beef industry in order to make it more competitive by reducing, but not eliminating, production overcapacity. In T-Mobile v Raad van bestuur van de Nederlandse Mededingingsautoriteit, where the agreement had no direct effect on the price paid by end-users, the Court held that an exchange of information between competitors had an anticompetitive object if the exchange was capable of removing uncertainties concerning the intended conduct of the participating undertakings.134 3.118  Practical importance The notion of a restriction by object is a vexing issue, which has given rise to a spate of disputes before the EU Courts in recent years. This is because, in (p. 136) practice, the classification of an agreement as a restriction by object—for example a cartel—has critical consequences. In a nutshell, it imposes a light evidentiary burden on the competition authority, which does not need to assess the effects of the agreement under scrutiny.135 The analysis will focus on the formal features of the agreement, and on determining whether those features are such that the agreement will likely restrict competition. A mere ‘reading’ of the agreement will thus suffice to establish an infringement of Article 101 TFEU.136 In Competition Authority v Beef Industry Development Society Ltd and Barry Brothers (Carrigmore) Meats Ltd137 the Court, for instance, noted that ‘close regard must be paid to the wording of its provisions and to the objectives which it is intended to attain’. 3.119  Undertakings parties to an agreement that restricts competition by object face, by contrast, a tougher time. They cannot avoid a finding of infringement by arguing, and even proving, that their agreement exerted no anticompetitive effects (eg because they did not implement the agreement on the market or because their cumulative market share is minimal).138 Neither is the absence of anticompetitive intent a means of defence.139 The fact that the parties did not seek to restrict competition (eg they sought to remedy the effects of a crisis in their sector) does not dismiss a finding of restriction by object.140 By contrast, the EU institutions may take the wilful intention of the parties to restrict competition into account. This is, however, not an essential factor.141 3.120  Restrictions by object vs ‘Hardcore’ restrictions Competition authorities, and in particular, the Commission, occasionally talk of ‘hardcore’ restrictions. In practice, the concept of a ‘hardcore’ restriction is often confounded with the notion of a restriction by ‘object’. The thin dividing line between the two concepts is the following. A ‘hardcore’ restriction is surely a restriction by object. As explained in the Guidelines on Article 101(3) TFEU, its anticompetitive effects are presumed.142 However, a ‘hardcore’ restriction is a subset of restriction by object, which must be treated particularly severely from a legal standpoint, because it is blatantly inefficient. Contrary to the principle that standard

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restrictions by (p. 137) ‘object’ can benefit from an exemption under Article 101(3) TFEU,143 a hardcore restriction thus cannot benefit from a block exemption regulation (see exception of horizontal guidelines). More importantly, it is unlikely ever to benefit from an individual exemption pursuant to Article 101(3) TFEU.144 Thus, hardcore restrictions are ‘per se’ prohibited. 3.121  In practice, the Commission has occasionally exempted restrictions by object—for instance in the REIMS II case,145 or in the International Multilateral Interchange Fee Agreement of 2002 .146

(b)  Restrictions of competition to be proved: the concept of restriction by ‘effect’ 3.122  Reasoning Limiting the scope of Article 101(1) TFEU to restrictions by ‘object’ or would leave unchecked a plethora of agreements which, although unintended to restrict competition, might nonetheless cause competitive harm on the market. Joint R&D agreements provide a good example. Whilst those agreements seem perfectly neutral from a competition standpoint, their specific terms may occasionally create anticompetitive effects by, for instance, harmonizing the parties’ cost structures leading to an alignment of prices on the market. 3.123  Understandably, these agreements come within the scope of Article 101(1) TFEU, subject to the ability of the Commission (or plaintiff) to prove their restrictive effect by applying the abovementioned counterfactual standard. In its Guidelines on the Application of Article 101(3) TFEU (sometimes labelled the ‘General Guidelines’), the Commission has defined the basic principles applicable to the assessment of the restrictive effects that an agreement may have on competition (Section (i)).147 Importantly, Article 101(1) TFEU only applies if the agreement has appreciable effects on competition (Section (ii)). In addition, Article 101(1) TFEU applies to agreements which have little restrictive effects on competition but which—taken together with other agreements—‘cumulatively’ have such effects (Section (iii)). (i)  Basic principles for assessing agreements under Article 101(1) TFEU

3.124  Introduction The Commission’s approach is economic in nature. An agreement will be deemed to have restrictive effects on the relevant market if its adverse effects on prices, output, innovation, or the variety or quality of goods and services can be expected with a reasonable degree of probability .148 To this end, the key question hinges on assessing whether the agreement contributes to create, maintain, or strengthen market power to the benefit of (p. 138) the parties to the agreement.149 A single branding agreement between a supplier and an important retailer may, for instance, entitle the supplier to gain market power, because it will foreclose its competitors’ access to retail outlets. 3.125  Testing the likely effects on competition of an agreement will not, however, always be necessary. When the agreement has been applied, the Commission will focus on the actual conduct of the parties on the market. It will, for instance, scrutinize whether the agreement has led to price increases (which might be proof that the parties collectively enjoy market power).150 3.126  On closer examination, the approach proposed by the Commission in the General Guidelines is quite inadequate. The Guidelines recall that it is normally necessary to define the relevant market. They then go on to mention a laundry list of factors which have normally to be examined, such as ‘the nature of the products, the market position of the parties, the market position of competitors, the market position of buyers, the existence of potential competitors and the level of entry barriers’.151 Yet, the Guidelines provide no further guidance on those issues. This may, of course, be attributed to the fact that (i) the core concern of the Guidelines is to clarify the application of Article 101(3) TFEU (and not

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of Art 101(1)) and (ii) detailed, additional guidance for the various types of agreements is provided in other specific instruments.152 3.127  In addition, the Guidelines fail to explain how this ‘market power’ test must be articulated in practice with the counterfactual standard discussed. We believe, however, that the answer to this question is fairly easy. It ought to be tested whether the situation with and without the agreement entails the creation, maintenance, or strengthening of market power. (ii)  Appreciable effects

3.128  The early case law: laying down the principles Driven, arguably, by (i) the need to avoid too large a number of agreements falling within the scope of Article 101(1) in light of the Commission’s scarce administrative resources and (ii) the traditional principle de minimis non curat praetor, the Court of Justice considered that those agreements the effects of which are insufficiently appreciable, should be excluded from the prohibition rule. 3.129  In a remarkably terse judgment (three paragraphs) handed down in 1969, the Court considered in Völk that ‘an agreement falls outside the prohibition in Article [101] when it has only an insignificant effect on the markets, taking into account the weak position which the persons concerned have on the market of the product in question.’153 This case law marks the birth of what is known as the de minimis doctrine, under which restrictions of competition of minor importance should not fall under the prohibition rule of Article 101(1) TFEU. (p. 139) 3.130  The codification of the de minimis rule in soft law instruments In line with this principle, the Commission subsequently developed in 1986,154 1997,155 and in 2001156 a Notice removing certain categories of agreement from the scope of the Article 101(1) TFEU prohibition. More precisely, and because the Commission cannot declare Article 101(1) wholly inapplicable, its Notice expresses that in cases where the agreement has no appreciable effects, it ‘will not institute proceedings either upon application or on its own initiative’.157 3.131  The Commission’s Notice defines appreciable effects in a negative way. Since 1997, the notices follow an economic approach,158 which seeks to quantify, with the help of market share thresholds, what is not an appreciable restriction of competition under Article 101 TFEU. Below certain market share thresholds, parties to the agreement will not be deemed to enjoy market power. In this regard, the Commission’s 2001 Notice on agreements of minor importance holds that agreements between competitors whose aggregate market share does not exceed 10 per cent on any of the relevant markets do not appreciably restrict competition within the meaning of Article 101.159 In the same vein, agreements between non-competitors whose market share does not exceed 15 per cent on any of the relevant markets affected by the agreement do not appreciably restrict competition within the meaning of Article 101.160 In cases where it is difficult to classify the agreement as either an agreement between competitors or an agreement between noncompetitors, the conservative 10 per cent threshold prevails.161 Finally, because market shares are not fixed and frequently evolve over time, the Notice exhibits a certain degree of flexibility. The above rules also benefit agreements that do not exceed the thresholds during two successive calendar years by more than 2 per cent.162 3.132  The Court of Justice has occasionally referred to the Commission’s Notice in its case law, thereby confirming the validity of the above rules. In Mannesmannröhren-Werke AG v Commission, for instance,163 the GC noted that the thresholds had been crossed, so that the contracts under scrutiny were not agreements of minor importance within the meaning of the Commission’s Notice.

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3.133  Small and medium-sized undertakings The Commission’s Notice does not clearly say whether agreements between small and medium-sized undertakings should benefit, as a general principle, from the de minimis doctrine. Small and medium-sized undertakings are (p. 140) enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding €50 million, and/or an annual balance sheet total not exceeding €43 million.164 3.134  This question arose in Ventouris v Commission .165 In this case, a provider of ferry services, challenged a Commission decision which had fined a number of ferry operators for unlawful price-fixing agreements on routes between Greece and Italy. The applicant submitted that the alleged agreement fell outside the scope of Article 101(1) TFEU on the ground that its company came within the category of small and medium-sized enterprises (SMEs) and that the Commission had allegedly acknowledged, when determining the amount of the fine, that its participation in the agreement did not affect competitive conditions in the market.166 The agreement was therefore one of minor importance. The Court confirmed that the 1997 Notice excluded, as a general rule, agreements between SMEs, but stressed that ‘only agreements to which all the parties are SMEs’ fell outside the scope of the prohibition.167 In the present case, only two companies (including the applicant) could be regarded as SMEs. 3.135  De minimis agreements above the threshold The fact that the agreement exceeds the minimum threshold applicable does not mean that it appreciably restricts competition. In those cases, an individual assessment of the agreement will be necessary to determine whether it appreciably restricts competition.168 For instance, in European Night Services (ENS) v Commission, the Commission had exempted the agreement creating ENS —a joint venture between national railway operators seeking to provide overnight passenger rail services between the UK and the continent through the Channel Tunnel— subject to a number of access conditions (provision of locomotive, train crew, and path to a rival railway operator). This decision was challenged by some of the parties before the GC. Amongst other things, the applicants argued that the Commission had not established that the agreement had appreciable effects on competition: ‘the only market shares in excess of 4% likely to be enjoyed by ENS were 6% and 7% for leisure travellers on the LondonAmsterdam and London-Frankfurt/Dortmund routes respectively.’169 3.136  The Commission argued that ‘in accordance with its notice on agreements of minor importance … Article 101(1) TFEU applie[d] to an agreement when the market share of the parties to the agreement amoun[ted] to 5% .’170 In other words, once the threshold is crossed, the agreement has allegedly appreciable effects. 3.137  The GC rebutted the Commission’s position. It held that ‘the mere fact that that threshold may be reached and even exceeded does not make it possible to conclude with certainty that an agreement is caught by Article 101(1).’171 The GC moreover noted that the Commission had to state the reasons for considering that an agreement has appreciable effects on (p. 141) com petition, and is thus caught by Article 101(1) TFEU.172 The GC annulled the Commission’s decision on that ground. 3.138  Unlawful de minimis agreements The text of the Notice expressly precludes the application of the de minimis presumption to certain types of agreements. The agreements in question are (i) those between competitors who have as their object the fixing of prices when selling the products to third parties, the limitation of output or sales, and the allocation of markets or customers173 and (ii) those between non-competitors which contain restrictions that are expressly listed as ‘hardcore restrictions’ under Article 4 of the Block Exemption Regulation on vertical agreements.174 In practice, however, the Commission has never pursued hardcore restrictions implemented by undertakings of a small size.175 This

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probably explains the mistaken view that the de minimis doctrine also applies to restrictions by object.176 3.139  Critical appraisal While the de minimis Notice seeks to assist firms, competition author-ities, and courts to assess, from the outset, whether an agreement deserves to be scrutinized under Article 101 TFEU, it relies on a somewhat complex mechanism. The simplicity implied by the market share thresholds often belies the reality of their determination. In practice, the calculation of market shares is a complex issue.177 Moreover, and prior to this, a delineation of the relevant market is necessary. This, in and of itself, often proves intricate and onerous for firms—in particular small ones—and national courts with no specific expertise in competition law and economics. 3.140  Cross-fertilization As will be seen under Chapter 8, the de minimis Notice has influenced the review of the rules applicable to vertical restraints. In particular, the de minimis requirement to scrutinize the market share of both parties to a vertical agreement (double market share threshold) has been transposed in the Commission’s Block Exemption Regulation 330/2010. (iii)  Cumulative effects

3.141  Big picture When scrutinizing an agreement through the lens of Article 101(1) TFEU, it may be tempting to jump to the conclusion that there is no appreciable restriction of competition, in particular where one of the parties to the agreement is small, so that the agreement only covers a marginal part of the market. For instance, a single branding commitment subscribed by a small retailer to the benefit of a large manufacturer does not appreciably harm rival manufacturers. However, this agreement may restrict competition if it adds up to similar agreements—of the same and/or of other firms—on the same relevant market. The key economic concern here is a risk of customers’ foreclosure arising from single branding arrangements which induce buyers on the market to concentrate their orders for a particular type of product with one supplier (ie, exclusive purchasing agreements, (p. 142) non-compete clauses, quantity forcing). Altogether, those agreements can act as a barrier to the entry/expansion of other suppliers. 3.142  Case law This issue was at the heart of the seminal Court of Justice ruling in SA Brasserie de Haecht v Consorts Wilkin-Janssen, which involved vertical agreements between a large Belgian brewery and a small liquor licensee. In this case, the Court held first that ‘by referring in the same sentence to agreements … which may involve many parties, article [101(1)] implies that the constituent elements of those agreements … may be considered together as a whole’ (emphasis added).178 More importantly, and in full congruence with its ruling in Consten and Grundig rendered a year before, the Court endorsed a pragmatic, economically driven interpretation. It held that Article [101(1)] implies that regard must be had to such effects in the context in which they occur, that is to say, in the economic and legal context of such agreements, decisions or practices and where they might combine with others to have a cumulative effect on competition.179 3.143  It concluded in noting ‘the existence of similar contracts may be taken into consideration for this objective to the extent to which the general body of contracts of this type is capable of restricting the freedom of trade’ (emphasis added).180 3.144  Test In brief, firms, competition authorities, and courts, should not follow a myopic approach focusing on the particular agreement under scrutiny, but should instead seek to grasp the bigger economic and legal picture. Faced with a single agreement (or a handful of them), the assessment should first determine on whether it belongs to a group/network of similar agreements, from the same and/or rival suppliers. The degree of similarity required to find a network of parallel agreements is unclear. Contracts with a common purpose (ie,

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single branding), but subject to different terms and conditions, arguably belong to a similar network of agreements.181 3.145  Second, the assessment should determine whether this agreement ‘may combine with other agreements to have a cumulative effect on competition’.182 The key issue here is to quantify the market coverage of the network of similar agreements. In Van den Bergh Foods v Commission, for instance, the Court reviewed a Commission Decision which had found a freezer exclusivity agreement unlawful. It confirmed that together with other agreements (from rivals, in particular) ‘the networks of agreements in place on the relevant market affect (p. 143) 83% of outlets in that market’.183 By contrast, in Roberts and Roberts v Commission, the Court found that a network of agreements that left 80 per cent of the purchased quantities open to competition could not be deemed unlawful.184 Finally, in its de minimis Notice, the Commission has clarified that a cumulative foreclosure effect is unlikely to exist if less than 30 per cent of the market is covered by the network of parallel agreements.185 This principle is in line with the benchmark applicable under Regulation 330/2010, where vertical agreements covering less than 30 per cent of the relevant market benefit (subject to other conditions) from the block exemption. 3.146  Third, the assessment should evaluate the contribution of the particular agree ment(s) under scrutiny to the cumulative foreclosure effect. In Neste Markkinointi Oy and Yötuuli Ky and Others, for instance, the Court considered that a number of contracts, which could be terminated on a one-year notice (as compared to other contracts which were entered into for a period of several years) only represented a very small proportion of all the exclusive purchasing agreements entered into by a particular supplier.186 The Court thus considered that those contracts could be regarded as making no significant contribution to the cumulative effect. However, one could argue that those contracts were in the first place not relevant in the analysis. The fact that those contracts were different from other contracts should have led the Court to consider that they did not belong to a similar net work of agreements. Again, in the de minimis Notice, the Commission considered that ‘individual suppliers or distributors with a market share not exceeding 5% are in general not considered to contribute significantly to a cumulative foreclosure effect.’ In other words, this means that if one, or more, agreement(s) covers less than 5 per cent of a relevant market, it should be deemed to bring a de minimis contribution to the cumulative fore closure effect. 3.147  Finally, it is necessary to analyse the market conditions—in particular the real and specific opportunities for new competitors to penetrate that market notwithstanding the existence of the network of agreements.187 Financial constraints, marketing authorizations, reputational effects, fixed costs, etc may indeed render entry/expansion of rival suppliers ineffective.

(4)  The ancillary restraints doctrine 3.148  Presentation In Remia, the Court drew inspiration from the well-known adage, accessorium sequitur principale, to accept that a restrictive non-compete clause which was merely ancillary to an otherwise non-restrictive agreement escaped the application of Article 101(1).188 In this case, the Court had to rule on the validity under Article 101 TFEU of an agreement which purported to transfer a company to a third party. The Court noted that non-competition clauses incorporated in an agreement for the transfer of an undertaking in principle have the merit of ensuring that the transfer has the effect intended. By virtue of that (p. 144) very fact they contribute to the promotion of

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competition because they lead to an increase in the number of undertakings in the market in question.189 3.149  Conditions The application of the ‘ancillary restraints doctrine’ is subject to two conditions.190 First, the main agreement must not restrict competition within the meaning of Article 101(1) TFEU. Second, the restrictive clause must be ancillary to the principal operation. This latter condition was clarified by the GC in Métropole Télévision .191 In this judgment, the GC considered that a restriction is ancillary if it is ‘directly related and necessary’ to the implementation of the principal agreement.192 A restriction ‘directly related’ to the implementation of a principal operation means ‘any restriction which is subordinate to the implementation of that operation and which has an evident link with it’.193 The ‘necessary’ character of a restriction is in turn assessed by looking at the operation from two aspects. According to the GC, ‘it is necessary to establish, first, whether the restriction is objectively necessary for the implementation of the main operation and, second, whether it is proportionate to it.’194 A restriction will only be deemed to be necessary ‘if, without the restriction, the main operation is difficult or even impossible to implement’.195 3.150  Cross-fertilization The ancillary restraints doctrine has subsequently penetrated the field of merger control, where joint ventures and other structural transactions are often accompanied by non-compete obligations.196

C.  The Jurisdictional Component of Article 101(1) TFEU—A Restriction ‘Within the Internal Market’ Which ‘Affects Trade between Member States’ 3.151  Establishing the jurisdiction of Article 101 TFEU over a given practice first entails solving horizontal jurisdiction issues, that is, demonstrating that the practice affects the territory of the EU, as opposed to the territory of third countries (Section 1). Second, it entails solving vertical jurisdiction issues, in proving that the practice may have an effect on trade between the Member States of the EU, as opposed to purely domestic conduct (Section 2).

(p. 145) (1)  Horizontal jurisdictional issues 3.152  Wording of the TFEU Pursuant to the TFEU, only those agreements that restrict competition ‘within the internal market’ fall foul of Article 101. Agreements that restrict competition outside the ‘the internal market’ fall within the jurisdiction of other competition rules, adopted by non-EU countries. As explained in Chapter 1, this rule—which is often referred to as the ‘effects doctrine’—seeks to establish the jurisdiction of the EU or one of its 27 Member States over a particular case. In DECA, Grosfillex-Fillistorf, Supexie, Rieckermann/AEG-Elotherm, Raymond-Nagoya, and VVVF, which related to restrictions of competition targeting non EU-countries, the Commission refused to apply Article 101(1) TFEU since the agreements could not be said to have produced an effect within the internal market.197 3.153  Export cartels An export cartel is an agreement between firms to charge a specified export price and/or to divide export markets. Many competition law regimes leave export cartels unchallenged, absent injurious effects on competition in the domestic market. EU law is no exception. In principle, export cartels amongst EU firms do not fall under Article 101(1) TFEU, absent an effect within the internal market.198 3.154  There is relatively little literature on the frequency and effects of export cartels.199 However, those agreements are often said to target primarily developing countries, which lack the institutional tools to defeat such conduct. Accordingly, it is often argued that export

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cartels should be dealt with in the context of international organizations, such as the OECD, the WTO, or the ICN. 3.155  Export cartels with domestic anticompetitive object/effect Importantly, not all export cartels fall outside the scope of EU law. EU firms may agree to export certain (surplus) quantities to non-EU countries, in order to create an artificial shortage of supply within the internal market, and in turn charge higher prices. An analogous practice was at stake in the Suiker Unie case.200 More generally, firms engaging in joint exports towards non-EU countries may incidentally divert quantities away from the EU territory, and in turn relax price competition within the internal market. In both cases, there is an impact within the common market and, consequently, Article 101 TFEU applies.201 3.156  Export agreements which prevent competitive re-imports Agreements governing export sales towards non-EU countries may also fall foul of Article 101(1) TFEU, when the products/(p. 146) services subject to the agreement can be re-imported into the EU. For instance, a vertical agreement between an EU-based supplier and a non-EU distributor may restrict the latter’s ability to resell outside an allocated territory, including the EU.202 If resale within the EU would be possible and likely absent the agreement, then the agreement clearly has an impact ‘within the internal market’ (it protects the EU territory from competition by re-imports). 3.157  The case law of the EU Courts provides a number of illustrations of this. In CRAM/ Rheinzink,203 Schiltz, a Belgian firm, had purchased quantities of rolled zinc products to producers located in France and Germany. Pursuant to the agreement, Schiltz had been requested to resell those products specifically into Egypt. However, Schiltz re-imported the products into Germany, and resold them at prices slightly lower than those normally charged on this market.204 In this case, both the Commission and the Court found that the agreement allowed the two producers to limit parallel imports within the internal market.205 In turn, Article 101 TFEU was indisputably applicable. 3.158  Similarly in Javico,206 Yves St Laurent Parfums (YSLP) had concluded with Javico, a German firm, several distribution agreements for the sale of YSLP perfumes in Russia, Ukraine, and Slovenia. The contracts provided that the contractual products would be sold only in the territories of Russia, Ukraine, and Slovenia (and not outside). At a later stage, YSLP found products which had been sold to Javico on the British, Belgian, and Dutch markets. YSLP thus filed an action for damages. The case eventually reached the Court of Justice through the preliminary reference procedure, with Javico arguing that the agreement was incompatible and void within the meaning of Article 101(1) and (2) TFEU. The Court of Justice, asked to rule on the merits of this argument, considered that Article 101 TFEU was applicable, even if the agreements applied to non-EU territories. The Court noted, in particular, that an agreement which requires a reseller not to resell contractual products outside the contractual territory has as its object the exclusion of parallel imports within the Community and consequently restriction of competition in the common market .207 (Emphasis added) 3.159  In practice, re-imports typically arise in respect of products/services which are subject to appreciable price differentials between the EU and the export country.208 However, re-imports may be undermined by: (i) the level of the EU customs duties imposed on the (p. 147) products/services concerned;209 (ii) the importance of transport costs;210 (iii) the accumulation of profit margins across the distribution chain;211 and (iv) the existence of intellectual property rights, which may be used to block parallel trade originating from nonEU countries. A careful, case-by-case assessment is thus necessary. Moreover, re-imports

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must be of an ‘appreciable’ magnitude to trigger the jurisdiction of the EU competition rules.212 3.160  Other agreements with an impact within the internal market The case law of the Court of Justice provides additional illustrations of agreements with only remote connections to the EU territory, which nonetheless have an impact within the internal market. First, competing firms in the EU and in third countries may share markets, by agreeing to stay away from each other’s domestic market.213 In JFE Engineering Corp and others v Commission,214 the Commission sanctioned eight European and Japanese producers which had unlawfully agreed not to sell seamless steel tubes and pipes in each other’s domestic markets. On appeal, the Japanese producers argued that their tubes were only sold to oil companies external to the EU, and they were never resold within the EU. Hence, the EU competition rules were arguably not applicable to the impugned marketsharing agreement between EU and Japanese producers. The GC however noted, amongst other things, that the Japanese producers might have had an interest in selling their products in the EU, following the cessation of seamless tube production by the UK incumbent supplier.215 3.161  Second, agreements governing economic activities undertaken away from the EU territory may impact within the internal market, when the products/services subject to the agreements are an important input for EU customers. This issue was present in the Compagnie Maritime Belge case, where several liner conferences had shared maritime transport routes between Africa and the EU, thereby limiting the catchment area of EU ports as well as reducing the availability of transport services for EU customers.216

(2)  Vertical jurisdictional issues (a)  The ‘effect on trade’ concept—purpose 3.162  Principle Agreements that have an impact within the internal market may fall within the jurisdiction of two sets of rules, namely the EU competition rules and the national (p. 148) competition laws.217 Pursuant to the TFEU, Article 101(1) only applies to agreements which ‘may affect trade between Member States’. In its ruling in ICI v Commission, the GC held that this condition seeks to ‘define, in the context of the law governing competition, the boundary between the areas covered by Community law and the law of the Member States.’218 To this end, it confines the jurisdiction of Article 101(1) TFEU to practices which are ‘capable of having a minimal level of cross-border effects within the [EU]’.219 This requirement is generally referred to as ‘the effect on trade concept’. It is congruent with the quasi-federal nature of the rules enshrined in the TFEU. 3.163  ‘Autonomous’ concept The GC’s pronouncement in ICI v Commission deserves a word of caution. The effect on trade concept is not a jurisdictional test to determine which of EU or national competition law applies. Rather, it is an ‘autonomous Community (now EU) law criterion’ which only determines when EU law is applicable.220 It thus provides no information about the jurisdiction of national competition law. Accordingly, the fact that an agreement has no effect on trade between Member States does not automatically trigger the jurisdiction of national competition law. This will only be the case if the jurisdictional conditions set by national competition law are fulfilled.221 Conversely, the fact that an agreement affects trade between Member States does not exclude the jurisdiction of national competition law. In this case, both EU and national competition laws may apply cumulatively to the same agreement. 3.164  Market integration With the elimination of public obstacles to trade across the EU (eg quotas, customs duties, and other obstacles to trade), an ever-growing number of private economic transactions affects trade between Member States. Whilst the effect on trade concept sought initially to limit EU law jurisdiction to a subset of anticompetitive practices, the inner dynamics of the internal market have incidentally expanded the scope of EU competition rules over the past decades.222 This has given rise to theoretical From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

problems (possible violation of the subsidiarity principle) as well as practical issues (parties invoking EU competition law in order to challenge decisions taken pursuant to national law).223 More fundamentally, many cases devoid of any EU public policy interest have been deemed to fall within the jurisdiction of EU competition rules. 3.165  Faced with a progressively integrated, EU-wide market in many sectors, a new, limitative jurisdictional requirement might thus be more appropriate. Already in 1975, Advocate General Trabucchi in the Wallpapers case observed that the effect on trade concept could be replaced by a ‘concept based on its importance for the Community (now EU)’.224 To date, the EU Courts have refused to follow this approach. (p. 149) 3.166  Normative vs Institutional jurisdiction It is a common mistake to believe that a practice that may affect trade between Member States has to be examined at the EU level (by the Commission) and falls short of the institutional jurisdiction of national competition authorities (NCAs) and courts. However, Articles 5 and 6 of Regulation 1/2003 expressly entrusts NCAs and national courts with the jurisdiction to apply Article 101 TFEU. In certain circumstances, Regulation 1/2003 even requires NCAs and national courts to apply Article 101 TFEU. This is the case when NCAs and national courts only apply national competition law to agreements, decisions of associations of undertakings, and concerted practices which may otherwise affect trade between Member States. In such circumstances, there is a risk that the solutions promoted under national competition laws differ from EU competition law principles. 3.167  To avoid this, Article 3(1) of Regulation 1/2003 thus provides for a ‘cumulative jurisdiction’ rule, which compels NCAs and national courts to apply Article 101 TFEU (and the related case law) when they apply national competition law to agreements that may affect trade between Member States. This rule intends to ensure that Article 101 TFEU is applied to all cases within its scope.225 In turn, Article 3(2) of Regulation 1/2003 seeks to limit the risk of schizophrenic decisions when both EU and national competition laws apply. It provides for a so-called ‘convergence’ rule which forbids NCAs and national courts from (i) authorizing under national law agreements which would be held incompatible under Article 101(1) TFEU and (ii) prohibiting agreements which do not restrict competition within the meaning of Article 101(1) or which benefit from an exemption under Article 101(3).226 3.168  In practice, the complex system enshrined in Article 3 imposes on NCAs and national courts a duty to scrutinize the ‘effect on trade concept’ in all national competition law cases. Since 2004, it has led to a significant increase in the application of the EU competition rules at the national level.227 This confirms the view of a number of English scholars that Regulation 1/2003 is not so much about decentralization through the empowerment of NCAs and courts, but rather about the forced Europeanization of national competition policy.228 3.169  Exceptions (including Article 102 TFEU) The ‘cumulative jurisdiction’ and ‘convergence’ rules do not apply when NCAs and national courts apply national merger control laws or other provisions of national law that pursue an objective different from the goal of the EU competition rules (eg sector-specific regulation in network industries, environmental regulations, unfair competition legislation).229 In addition, the convergence rule does not preclude Member States from adopting and applying stricter national competition laws on unilateral conduct (rules on abuse of economic dependence, superior bargaining power, resale below cost or at a loss, stricter standards on dominance, etc).230 This means that NCAs and courts (p. 150) can forbid under national law behaviour that is

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not tantamount to an unlawful abuse under Article 102 TFEU, provided there is a specific legal basis to this end.

(b)  The ‘effect on trade’ concept—interpretation 3.170  Introduction There is an extensive body of case law in relation to the effect on trade concept. In the wake of Regulation 1/2003, the Commission adopted formal Guidelines to help NCAs and national courts assess whether an agreement may affect appreciably trade between Member States (‘Guidelines on the effect on trade concept’).231 The Guidelines provide for a two-stage methodology to this end. First, agreements have to be screened through a set of quantitative presumptions (Section (i)). Second, should none of those presumptions be applicable, agreements should be subject to a multi-factor, qualitative analysis, along the lines described in the Guidelines (Section (ii)). (i)  Screening—quantitative presumptions

3.171  Appreciability In Béguelin, the Court stated that an agreement must affect trade between Member States ‘to an appreciable extent’ in order to trigger the applicability of Article 101(1) TFEU.232 In view of this and of subsequent case law,233 the Commission sought to define presumptions of whether or not the appreciable effects threshold was met based on turnover and market share figures.234 3.172  The Non-Appreciable Affectation of Trade (NAAT) rule At paragraph 52, the Guidelines set out a rebuttable presumption ‘defining the absence of an appreciable effect on trade between Member States’.235 This presumption, known under the name ‘NAAT rule’, applies to all agreements including hardcore restrictions (to the exception of crossborder cartels, which are deemed by their very nature to have appreciable effects on trade).236 It applies if two cumulative conditions are met: (a)  The aggregate market share of the parties on any relevant market within the EU affected by the agreement does not exceed 5%, and (b)  In the case of horizontal agreements, the aggregate annual EU turnover of the undertakings concerned in the products covered by the agreement does not exceed 40 million euro. In the case of agreements concerning the joint buying of products the relevant turnover shall be the parties’ combined purchases of the products covered by the agreement. In the case of vertical agreements, the aggregate annual Community turnover of the supplier in the products covered by the agreement does not exceed 40 million euro. 237 (p. 151) 3.173  Below this threshold, the Commission will not initiate proceedings upon application or on its own initiative,238 and arguably neither should national enforcers in light of the Commission’s strong commitment to apply the presumption to ‘all’ agreements.239 Above this threshold,240 the agreement does not necessarily affect trade between Member States to an appreciable extent.241 A case-by-case analysis is necessary. The same is true for emerging markets, where market shares and turnover figures are not available.242 3.174  The appreciable affectation of trade presumption The Guidelines also formulate a positive presumption of appreciable effects on trade that applies to a subcategory of agreements, that is, those agreements which cover two or more Member States, and which are deemed to affect trade between Member States ‘by their very nature’ (eg agreements that concern parallel imports). The appreciable effects requirement will be presumed if:

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the turnover of the parties in the products covered by the agreement calculated as indicated in paragraphs 52 and 54 exceeds 40 million euro [or] the market share of the parties exceeds the 5% threshold set out in the previous paragraph [52].243 3.175  An SME exemption Because SMEs are normally local or regional companies, the Guidelines presume that agreements between SMEs are in principle not capable to affect trade between Member States.244 3.176  Market definition The above presumptions purport to establish user-friendly instruments. In practice, however, they entail sophisticated, time-consuming economic analysis. This is because the presumptions hinge on market share thresholds, which involve the notoriously complex delineation of the relevant market.245 The EU Courts and the Commission’s Guidelines acknowledge this problem.246 As a matter of principle, the case law considers that the application of the appreciable effects test does not necessarily require that relevant markets be defined and market shares calculated. Yet, the Commission —quite inconsistently—observes later in its Guidelines that the practical implementation of the presumptions makes it ‘necessary to determine the relevant market’.247 (ii)  Individual assessment—qualitative analysis

3.177  Introduction Agreements that fall short of the above presumptions shall be subject to an individual assessment, which takes account of ‘qualitative elements relating to the nature of the agreement or practice and the nature of the products that they concern’.248 In line with the standard defined in the seminal Remia judgment, this assessment should seek to establish whether it is possible (p. 152) to foresee with a sufficient degree of probability on the basis of a set of objective factors of law or fact that it may have an influence, direct or indirect, actual or potential, on the pattern of trade between Member States, such as might prejudice the realisation of the aim of a single market in all the Member States.249 Moreover, this influence ought to be ‘appreciable’. On closer examination, the individual assessment stage thus hinges on a multi-factor analysis,250 which entails the verification of four distinct issues.251 (iii)  The agreement involves an economic activity

3.178  ‘Trade’ The concept of trade between Member States clearly covers the trade of goods and services. In addition, it also applies to the establishment of the exercise of an economic activity (ie, carrying out an economic activity in a stable and continuous way in an EU Member State). The Wouters case sheds light on this issue.252 In this case, the supervisory board of the Bar of Rotterdam had denied Mr Wouters, a member of the Bar of Amsterdam, the right to practise in Rotterdam under the name Arthur Andersen & Co Lawyers and Tax Advisers. The supervisory board’s decision was based on a Regulation which prohibited lawyers from setting up professional partnerships with tax advisers. The aim of this Regulation was to preserve the independence of professional lawyers. The Court of Justice was subsequently asked whether the Regulation was a decision by associations of undertakings contrary to Article 101(1) TFEU. As regards the ‘effect on trade’ concept, the Court noted that the Regulation applied equally to ‘visiting lawyers who are registered members of the bar of another member state’ and that ‘economic and commercial law’ governs a growing number of ‘transnational transactions’.253 The Regulation could therefore be deemed to affect trade between Member States, because it impeded establishment in the Dutch legal services market.

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3.179  Other examples The above principle has entitled the Court to leave the door open to the application of EU competition rules in a slew of cases involving local conduct, arising from national proceedings.254 In Bodson, for instance, the Court suggested that the activities of a group of undertakings holding a public monopoly over funeral services in the south of France could affect trade between Member States. The Court did not challenge the (p. 153) Commission’s view that the conduct under scrutiny had an imperceptible influence on transactions with other Member States in so far that ‘it did not involve the supply of any goods other than coffins and that a monopoly exists in only some 14% of communes in France’.255 Rather, the Court considered that the benefit of a structural monopoly over a large part of the territory of a Member State could impede the provision of cross-border services by non-local firms. It noted in particular that a monopoly may ‘affect the importation of goods from other Member States or the possibility for competing undertakings established in other Member States to provide services in the first-mentioned Member State.’256 3.180  Similarly, in Manfredi, the Court found that an agreement amongst insurance companies that had led to an increase of the premiums for civil liability car insurance policies in Italy could affect trade between Member States. The Court considered that there could be an effect on trade because despite important barriers to entry ‘the market concerned [was] susceptible to the provision of services by insurance companies from other Member States’.257 According to the Court of Justice, the national court should verify whether the agreement was capable of having a deterrent effect on insurance companies from other Member States without activities in Italy, in particular by enabling the coordination and fixing of civil liability auto insurance premiums at a level at which the sale of such insurance by those companies would not be profitable.258 3.181  Finally, in AmbulanzGlöckner, the Court had to rule on a measure which subjected the provision of emergency and patient transport services in a German Land to a preliminary authorization procedure, under the responsibility of incumbent medical aid organizations. The Court recalled generally that ‘trade between Member States may be affected by a measure which prevents an undertaking from establishing itself in another Member State with a view to providing services there on the market in question.’259 Regardless of the local nature of the services at stake, it referred the case to the national court and noted that ‘the economic characteristics of the emergency transport market and the patient transport market’ should be scrutinized, so as to determine with ‘a sufficient degree of probability’ whether the impugned measure ‘will actually prevent operators established in Member States other than the Member State in question either from providing ambulance transport services in that Member State or from establishing themselves there.’260 (iv)  The agreement has the ability to affect trade

3.182  ‘Capable’ The applicability of Article 101(1) TFEU is not subject to establishing that the agreement has an actual effect on trade. It is enough to prove that the agreement holds the potential (or is ‘capable’) to have such an effect,261 with a ‘sufficient degree of probability’.262 (p. 154) In other words, it is the agreement’s ability to affect trade between Member States which must be scrutinized. Accordingly, there is no obligation to calculate accurately the actual effects of an existing agreement.263 Neither is it necessary to show that a future agreement will affect trade at the time it is implemented.264 It is sufficient to establish that in the ‘foreseeable future’, a given agreement may affect trade between Member States.265

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3.183  Standard of proof In the past, the standard of probability applied by the EU Courts to prove potential effects seemed particularly lax. In the AEG Telefunken case, the Court confirmed that a hypothetical effect on trade sufficed to trigger the applicability of Article 101 TFEU. The mere fact that at a certain time traders applying for admission to a selective distribution network or who have already been admitted are not engaging in intraCommunity trade cannot suffice to exclude the possibility that restrictions on their freedom of action imposed by the manufacturer may impede intra-Community trade, since the situation may change from one year to another in terms of alterations in the conditions or composition of the market both in the common market as a whole and in the individual national markets.266 3.184  However, in more recent years, the Commission stressed that the analysis of potential effects on trade could not be based on ‘remote’ or ‘hypothetical’ effects.267 For instance, the mere fact that consumers have less money to spend on imported products, because they must purchase from a local cartel, is not sufficient to establish EU law jurisdiction. 3.185  Guidelines A welcome innovation of the Commission’s Guidelines is to summarize the various factors which influence the ‘capability’ of an agreement to affect trade.268 First, the ‘nature of the agreement’ is of particular relevance.269 Cross-border, market partitioning cartels are obviously more likely to affect trade than other cooperation agreements confined to the territory of a single Member State. 3.186  Second, the ability of an agreement to affect trade also fluctuates with the ‘nature of the products covered by the agreement’.270 For instance, agreements relating to air transport services—which are a key input to many other economic activities—are undeniably more likely to affect trade than agreements involving retail distribution activities. Similarly, agreements covering products with a high value/weight ratio (ie, products that are easily transportable) are more likely to affect trade than agreements covering products which are not easily traded across borders. 3.187  Third, the ‘legal and factual environment’ is of utmost relevance to assess the ability of an agreement to affect trade between Member States.271 If, absent the agreement, there is no trade between Member States—because, for instance, of regulatory barriers or because market players do not trade across borders—the agreement cannot affect trade patterns (p. 155) that do not exist, and Article 101 TFEU shall not apply. This may for instance be the case with certain cultural products (books, traditional songs, etc) which have a limited geographical radius. 3.188  Somewhat confusingly, the Guidelines add a further criterion to the assessment of the ability of an agreement to affect trade between Member States. Pursuant to the Guidelines, the ‘market position of the undertakings concerned and their sales volume’ are allegedly ‘indicative’ of the ability of the agreement to affect trade. However, the position and the importance of the parties on the market for the products concerned is arguably more relevant in relation to the assessment of ‘appreciability’, which is a factor distinct from the agreement’s ability to affect trade between Member States. The ruling of the Court in Consten and Grundig—which the Commission quotes in its Guidelines—said just this when it held that

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even an agreement imposing absolute territorial protection may escape the prohibition laid down in Article 85 if it affects the market only insignificantly, regard being had to the weak position of the persons concerned on the market in the products in question.272 (v)  The agreement ‘may have an influence’ on trade between Member States Decrease, increase, or diversion of trade

3.189  Definition Trade between Member States is surely affected if a practice limits cross-border commercial flows. However, in Consten and Grundig the Court of Justice suggested that the word ‘affect’ referred to either a reduction or an increase in the volume of trade between Member States: What is particularly important is whether the agreement is capable of constituting a threat, either direct or indirect, actual or potential, to freedom of trade between member states in a manner which might harm the attainment of the objectives of a single market between states. The fact that an agreement encourages an increase, even a large one, in the volume of trade between states is not sufficient to exclude the possibility that the agreement may ‘affect’ such trade within the meaning of Article [ 101 ].273 (Emphasis added) 3.190  In light of the various linguistic versions of the Treaty, this solution is not evident. In languages such as French, Dutch, or Spanish, the word ‘affect’ refers to a negative influence. This notwithstanding, the EU Courts and the Commission have repeatedly deemed that trade could be affected even when an agreement caused an increase in trade.274 3.191  Reasoning The ‘effect on trade’ concept is jurisdictional in nature.275 It seeks to cover all situations involving cross-border issues. Because many anticompetitive agreements may increase trade between Member States (customers of a cartel might relocate their orders abroad), the ‘effect of trade’ concept must encompass all diversions of trade which would not have developed in the absence of the agreement.276 (p. 156) Direct or indirect influence on trade

3.192  Principle Agreements may directly or indirectly affect trade between Member States. Its influence is ‘direct’ when the effect on trade concerns the product subject to the agreement. Steel producers engaging in a market-sharing agreement will directly limit trade in steel between Member States. 3.193  The influence of an agreement on trade between Member States may also be ‘indirect’. This situation occurs when the effect on trade concerns products related to those covered by the agreement. In BNIC v Clair,277 for instance, the Court reviewed an agreement on spirits used in the production of cognac. The spirits were not traded outside the region of Cognac in France. This notwithstanding, the Court found that the agreement had an effect on trade between Member States because the final product incorporating the spirits, Cognac, was subject to significant cross-border trade. More generally, any agreement that covers local intermediate products (raw materials, etc) may affect trade at other stages of the value chain.278 (vi)  The agreement ‘appreciably’ affects trade between Member States

3.194  As explained previously, only those agreements that ‘appreciably’ affect trade between Member States fall within the purview of EU competition rules. That said, the Guidelines offer scant guidance on how to interpret what is appreciable when the presumptions outlined above do not apply. In essence, the Guidelines consider that a caseby-case analysis is warranted.279 In this context, ‘the market position of the undertakings concerned and their turnover in the products concerned’ are the key elements.280 The

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Commission seems to apply a sliding scale whereby the higher the market position/turnover of the undertakings concerned, the greater the likelihood that the agreement will appreciably affect trade between Member States.281 However, the Guidelines provide no thresholds for the purpose of applying this sliding scale. Hence, determining what is and what is not appreciable often amounts to a guessing game. To be on the safe side, it is reasonable to consider that agreements which do not fulfil the NAAT presumption are appreciable.

(c)  Shortcuts for the appraisal of the effect on trade 3.195  Paradox The Commission Guidelines enshrine an ‘economic approach’ for the effect on trade concept, which hinges on case-by-case impact assessments. However, this methodology is complex to implement in practice. Thus, somewhat inconsistently, Section III of the Guidelines reintroduces a form-based approach.282 This approach consists of regrouping (p. 157) common types of agreements according to their geographical coverage and, for each of those groups, providing guidance on the effect of trade concept. This section does not, however, provide guidance on appreciable effects. (i)  Transnational agreements

3.196  The first group of agreements dealt with in the Guidelines consists of ‘agreements and practices covering or implemented in several member states’. These agreements are those concerning imports and exports (eg a national distribution agreement that forbids a retailer from selling to end consumers from other Member States),283 cross-border cartels (market partitioning, price fixing, allocation of quotas, etc),284 horizontal cooperation agreements covering several Member States (eg production and distribution joint ventures which relocate production),285 and vertical agreements implemented in several Member States (including agreements between distributors to source only within their Member State).286 The Guidelines provide numerous illustrations of such agreements. 3.197  Importantly, the Guidelines declare that those agreements ‘are, by their very nature, capable of affecting trade between member states’.287 It is thus ‘not necessary to conduct a detailed analysis of whether trade between Member States is capable of being affected’.288 It will only be necessary to assess whether the impact is appreciable. (ii)  National, regional, and local agreements

3.198  A second group of agreements comprises those covering the territory of a single Member State or just part of it. According to the Commission, such agreements cannot be deemed automatically to affect trade between Member States. A ‘more detailed inquiry into the ability of the agreements … to affect trade between member states’ is warranted.289 3.199  National cartels covering a single Member State The Guidelines first provide guidance on cartels that cover a single Member State.290 Such agreements may typically affect trade between Member States if the cartel participants take steps to ‘exclude competitors from other Member States’,291 or ‘to join the restrictive agreement’.292 A key condition for this is that the product covered by the national/regional agreement be ‘tradable’, that is, potentially subject to cross-border trade. In Bagnasco, for instance, the Court had to deal with the standard banking conditions imposed by the Associazione Bancaria Italiana on banks (p. 158) established in Italy. The Court observed that the potential for cross-border trade in retail banking services was very limited.293 In addition, the uniform standard banking conditions were found to have no decisive influence on the decision of non-domestic operators to establish in Italy.294 3.200  Horizontal and vertical agreements covering a single Member State Similarly, the Guidelines provide guidance on horizontal cooperation agreements and vertical agreements which, whilst covering a single Member State, may have an effect on trade. Horizontal cooperation agreements may be capable of affecting trade if they have foreclosure effects (eg national certification regimes that exclude firms from other Member

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States),295 or if they have an impact on imports/exports (firms which previously imported raw material from a joint venture which is entrusted with the production of that product).296 The same is true of vertical agreements. Single branding agreements that generate foreclosure effects adverse to foreign rivals may affect trade between Member States.297 National resale price maintenance schemes encourage consumers to divert purchases towards other Member States.298 3.201  Agreements covering part of a Member State Finally, the Guidelines deal with agreements that cover only part of a Member State. Regional agreements are generally less likely to have appreciable effects on trade. Hence, the Guidelines consider that the best indicator is the share of the national market that is covered by the agreement.299 Regional agreements that cover areas with massive demand concentration (eg big cities), are more likely to affect trade than agreements covering rural areas. By contrast, local agreements, including those concerning border regions, are deemed per se ‘not capable of appreciably affecting trade between Member States’.300

II.  Article 101(2) TFEU—The Rule of Nullity A.  The Principle 3.202  The Treaty Article 101(2) TFEU states that agreements and decisions that are prohibited under Article 101(1) TFEU ‘shall be automatically void’. Interestingly, Article 101(2) TFEU does not mention concerted practices, thereby confirming that such practices cover only informal types of coordination which cannot be annulled sensu stricto. (p. 159) 3.203  Erga omnes effect The TFEU, however, sheds no further clarification on the regime that applies to agreements that are null and void. Over the years, the case law has thus clarified this issue. In its judgment in Béguelin, the Court of Justice stated that unlawful agreements and decisions were null erga omnes: since the nullity referred to in Article [101(2)] is absolute, an agreement which is null and void by virtue of this provision has no effect as between the contracting parties and cannot be set up against third parties.301 3.204  Ex tunc effect In the Courage case, the Court further expanded on this and explained that: This principle of nullity, which can be relied on by anyone, and the courts are bound by it once the conditions for the application of Article [101], paragraph 1 are met and so long as the agreement concerned does not justify the grant of an exemption under Article [101](3) of the Treaty. Since the nullity referred to in Article [101](2) is absolute, an agreement which is null and void by virtue of this provision has no effect as between the contracting parties and cannot be set up against third parties. Moreover, it is capable of having a bearing on all the effects, either past or future, of the agreement or decision concerned.302 (Emphases added) 3.205  The ‘severability’ rule Given the rather drastic consequences of Article 101(2) TFEU, the Court of Justice circumscribed the effects of the rule of nullity to those specific provisions of the agreement that are incompatible with Article 101(1).303 In other words, Article 101(2) does not target the provisions of the agreement which are severable from the incompatible clauses. This is an issue to be decided by domestic courts on the basis of national law, as confirmed by the Court in Kerpen and Kerpen:

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The consequences of such nullity for other parts of the agreement are not a matter for Community law. The same applies to any orders and deliveries made on the basis of such an agreement and to the resulting financial obligations. 3.206  In practice, the ‘severability’ of a particular clause will thus often be dealt with in the context of follow-on domestic litigation.304

B.  The Practice 3.207  ‘Defence’ and ‘ offence’ The rule of nullity provided in Article 101(2) TFEU has received interesting applications in the context of national litigation. Defendants have first sought to invoke Article 101 TFEU as a shield, to escape contractual obligations by claiming that their agreement was null and void because it was incompatible with EU competition rules. (p. 160) For instance, a retailer that is brought to court by a supplier for failure to observe a recommended price may—should he wish to sell at lower prices—raise as a defence the allegation that the agreement is incompatible with Article 101(1), and thus null and void. Applicants have also sought to use Article 101 as a sword in order to terminate established commercial relationships without incurring contractual penalties.305 One of the mother companies of a joint venture may, for instance, initiate proceedings under Article 101 to have it declared null and void. 3.208  Actions for damages amongst parties to an unlawful agreement Occasionally, parties seeking to have an anticompetitive agreement declared null in court will also request damages, alleging that the impugned restrictive agreement was concluded at the behest of the other party. This setting arose in the City Motors Groep NV case, where CMG, a Belgian car distributor, had requested from Citröen, a large car manufacturer, damages for unlawful breach of their concession contract.306 The termination clause in the agreement was allegedly contrary to Regulation 1400/2002. 3.209  On cursory examination, however, such actions seem contrary to basic principles of justice, and in particular to the rule nemo auditur propriam turpitudinem allegans, which bars people acting unlawfully from obtaining damages in court. In Courage v Crehan, the Court of Justice was confronted with this issue for the first time. A brewery was seeking to recover money from a recalcitrant pub tenant. The latter contested the action on its merits, claiming that the underlying agreement was contrary Article 101 TFEU. In addition, the pub tenant filed a counterclaim for damages against the brewery (alleging that he had been charged excessively high prices). The national UK courts referred a question to the Court concerning the validity of English law, which did not allow a party to an illegal agreement to claim damages from the other party. 3.210  Following Advocate General Mischo’s opinion, the Court considered that the English law bar on actions for damages could prejudice the effectiveness of the EU competition rules. The Court noted that: The full effectiveness of Article [101] of the Treaty and, in particular, the practical effect of the prohibition laid down in Article [101](1) would be put at risk if it were not open to any individual to claim damages for loss caused to him by a contract or by conduct liable to restrict or distort competition. Indeed, the existence of such a right strengthens the working of the Community competition rules and discourages agreements or practices, which are frequently covert, which are liable to restrict or distort competition. From that point of view, actions for damages before the national courts can make a significant contribution to the maintenance of effective competition in the Community. There should not therefore be any absolute bar to

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such an action being brought by a party to a contract which would be held to violate the competition rules. 3.211  The Court nonetheless added a qualification to the above statement: Community law does not preclude national law from denying a party who is found to bear significant responsibility for the distortion of competition the right to obtain damages from the other contracting party. Under a principle which is recognised in most of the legal systems of (p. 161) the Member States and which the Court has applied in the past, a litigant should not profit from his own unlawful conduct, where this is proven.307 (Emphasis added) 3.212  In sum, parties that bear no responsibility for the existence of an infringement of Article 101 TFEU shall be entitled to compensation, assuming damages can be shown, regardless of their participation in the agreement.308 This reasoning applies to all agreements, including cartels where a firm is coerced to join the collusive course of action.309 From a purely theoretical standpoint, this rule dilutes the severity of the principle whereby a firm can be found guilty of an infringement of Article 101 TFEU absent free consent to the collusive course of conduct.310 3.213  Actions for damages against parties to an unlawful agreement In Manfredi,311 the Court of Justice further extended the above principle. It held that all victims of unlawful agreements should be allowed to claim damages against parties to an infringement of Article 101 TFEU. The ruling followed a decision of the Italian NCA against an anticompetitive agreement between three domestic insurance companies. With the agreement, civil liability insurance premiums for accidents caused by cars, ships, etc had increased. Following the decision, Mr Manfredi claimed restitution of the increased premium paid by virtue of the unlawful agreement. The Italian court solicited the views of the Court of Justice on whether third parties could claim compensation for the loss caused by an illegal cartel. In its judgment, the Court ruled that ‘that any individual can rely on the invalidity of an agreement or practice prohibited under that article and, where there is a causal relationship between the latter and the harm suffered, claim compensation for that harm.’312 3.214  Caveat Actions for damages before national courts remain subject to domestic rules, over which EU law has little impact. In accordance with the principle of procedural autonomy, EU law simply imposes that such rules are not less favourable than those governing similar domestic actions (‘principle of equivalence’) and that they do not render practically impossible or excessively difficult the exercise of rights conferred by EU law (‘principle of effectiveness’).313 EU law thus leaves a lot of room for the Member States to define national compensation rules.314 Across Member States, there is a lot of variance in relation to the rules governing actions for damages.315 This situation, which is increasingly perceived as a source of legal uncertainty and transaction costs, harms the development of private enforcement, and has been in recent years a key concern of the Commission.316

(p. 162) III.  Article 101(3) TFEU—The Exception Rule A.  Overview of the Exception Rule 3.215  Wording Article 101(3) TFEU sets out an exception rule, which salvages a number of agreements, decisions of association of undertakings, and concerted practices, from the prohibition rule of Article 101(1) TFEU. Technically, this provision declares Article 101(1) TFEU:

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inapplicable in the case of [agreement, decision or category by associations of undertakings and concerted practice] which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not: (a)  impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; (b)  afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.

3.216  Purpose The rationale under the exception rule of Article 101(3) TFEU originates in overenforcement concerns. Due to its abstract, general wording, Article 101(1) covers very many anticompetitive practices which also wield pro-competitive effects, or find other legitimate justifications. Article 101(3) TFEU seeks to limit the risk of type I errors (false positives) by exempting otherwise anticompetitive practices from the prohibition upon proof of welfareenhancing effects. Obviously, Article 101(3) TFEU only becomes relevant in respect of agreements which restrict competition within the meaning of Article 101(1). 3.217  Method The exception rule introduces a ‘balancing’ exercise into Article 101 TFEU. Once a restriction of competition has been found under Article 101(1), it must be put into perspective with possible welfare enhancing effects under Article 101(3).317 3.218  Scope of application As a matter of principle, the exception rule applies to virtually all types of agreements which restrict competition by object or effect, including hardcore restrictions of competition (eg a cartel).318 In the past, the Commission has, for instance, exempted crisis cartels under Article 101(3) TFEU. In the same vein, its guidelines on (p. 163) horizontal cooperation agreements declare that price fixing in the context of joint production and distribution ventures can benefit from an exemption under Article 101(3) TFEU. 3.219  Nevertheless, hardcore restrictions of competition are generally excluded from the benefit of ‘block exemptions’ regulations which declare certain categories of agreements lawful. In addition, the Commission has often declared that, in practice, it is ‘unlikely’ that a hardcore restriction can ever benefit from an individual exemption pursuant to Article 101(3) TFEU.319 Its Guidelines on Article 101(3), for instance, take a hostile stance with respect to the exemption of severe restrictions of competition in declaring generally that ‘they neither create objective economic benefits, nor do they benefit consumers’.320 3.220  Enforcement system Until 2004, the Commission was the sole entity entitled to enforce Article 101(3) TFEU. Parties wishing to enter into a welfare-enhancing but anticompetitive agreement had to request prior clearance from the Commission. In addition to legal certainty for the parties to the agreement, this system gave rise to a significant body of case law, which has helped many third parties to evaluate their own agreements. 3.221  With the adoption of Regulation 1/2003, firms must no longer notify their agreements to the Commission for prior approval. Agreements that fulfil the conditions of Article 101(3) TFEU are valid and enforceable. Because they can be challenged ex post by competition authorities or in national courts, parties to the agreement must carefully selfassess their planned agreements. This new system generates considerable resource savings on the part of the Commission. However, it also increases legal uncertainty for firms seeking to conclude agreements. To provide guidance to stakeholders—including NCAs and courts confronted with anticompetitive agreements—the Commission has issued a set of Guidelines on the application of Article 101(3) of the Treaty (the ‘General Guidelines’). The Guidelines provide a methodology for the application of Article 101(3) TFEU in individual cases.321 To this end, they are based on the case law of the EU Courts. Yet, the Guidelines

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also seek to reflect the Commission’s own interpretation of disputed case law principles and to cover issues that have not been dealt with by the EU Courts.322 As a result, the overall validity of the Guidelines remains a bone of contention (including inside the Commission). In addition, the quality of the guidance provided in the Guidelines is inevitably lower than the detailed guidance provided in positive Article 101(3) Commission decisions.

B.  The Application of the Four Conditions of Article 101(3) TFEU 3.222  The benefit of the exemption of Article 101(3) TFEU is subject to the satisfaction of four conditions. According to established case law, those conditions are cumulative.323 The bene fit of the exception rule thus applies as long as they are all fulfilled and ceases when any (p. 164) condition is not met.324 The Guidelines add that the conditions are exhaustive, in that the benefit of the exception rule cannot be subordinated to other conditions.325

(1)  The welfare improvement condition 3.223  The first condition for the benefit of an exemption requires proof that the agreement ‘contributes to improving production or distribution or promote[s] technical or economic progress’. In line with well-settled case law, this condition covers both economic (Section (a)) and non-economic (Section (b)) improvements. The Commission’s Guidelines, however, have sought to discard the admissibility of non-economic justifications for anticompetitive agreements (Section (b)).

(a)  Economic improvements 3.224  According to the Commission, the primary, if not only, valid source of improvement under Article 101(3) consists in ‘objective economic benefits’, or ‘pro-competitive effects’,326 which occur ‘by way of efficiency gains’. The Guidelines provide a detailed description of the various types of possible efficiency gains (Section (i)) and define the conditions for such efficiency gains to be admissible under the exception rule (Section (ii)).327 (i)  Type of possible efficiency gains

3.225  Cost efficiencies With a great deal of detail, the Guidelines provide examples of possible ‘cost efficiencies’ flowing from inter-firm agreements: synergies,328 economies of scale,329 economies of learning,330 economies of scope,331 reduction of transaction costs, etc. Those cost efficiencies frequently appear in the area of horizontal cooperation agreements.332 Through strategic alliances, for instance, airline companies regroup passengers amongst commonly operated aircrafts. The ensuing increase in traffic density leads to economies of scale. 3.226  Qualitative efficiencies A qualitative efficiency arises when value is created through new or improved (quality, reliability, safety, etc) products/services.333 Distribution agreements which lead to the provision of services tailored to the needs of local consumers can be said to generate efficiencies of a qualitative nature.334 Qualitative efficiencies have been found, for instance, in the banking sector where cooperation agreements have made available improved facilities for cross-border payments.335 Unfortunately, however, and in contrast to cost efficiencies, the Guidelines fail to provide a clear picture of the various types of admissible quality-related efficiencies (eg those relating to advertising investments, brand image).336 (p. 165) 3.227  Balancing As explained previously, firms, competition authorities, and courts are called upon to balance anticompetitive effects under Article 101(1) TFEU with pro-competitive effects under Article 101(3).337 In practice, this balancing test may not be as easily undertaken as envisioned in the Guidelines.338 This is because many procompetitive effects cannot be quantified—or translated into a meaningful monetized figure (take, eg, a joint R&D agreement whereby two pharmaceutical companies work on a common specialty)—and cannot in turn be weighed against their anticompetitive effects.339 In that sense, when the pro-competitive effects of an agreement are ‘qualitative’ in nature From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

the balancing test advocated by the Guidelines almost inevitably calls for a ‘value judgment’.340 Conversely, even a firm running a fully fledged quantitative assessment under Article 101(3) TFEU will encounter problems in demonstrating that the efficiencies created by its agreement offset its anticompetitive effects, simply because the assessment under Article 101(1) does not necessarily require a precise quantification of anticompetitive effects. (ii)  Conditions for the admissibility of efficiency gains

3.228  Requisite characteristics Paragraph 51 of the General Guidelines mentions the various conditions that a ‘decision-maker’ (a competition authority, a court, or arguably the parties) should scrutinize when faced with an anticompetitive agreement: (i) the claimed efficiencies must have an objective nature; (ii) there must be a link between the agreement and the efficiencies; (iii) the efficiencies must be likely and their magnitude verifiable; and (iv) the method and timing must be clearly articulated. 3.229  Objective efficiency gains Only efficiency gains that constitute objective economic benefits will be taken into account. By contrast, efficiency gains arising from the mere exercise of market power will not be admissible.341 For instance, a cartel agreement that limits output through the allocation of quotas inevitably leads to a decrease of production costs. Yet, this benefit is inadmissible under Article 101(3) TFEU because it does not ‘lead to the creation of value through the integration of assets and activities’ (and, as will be seen later, cost savings are not transferred to customers). An agreement of this type only entails an improvement ‘from the subjective point of view of the parties’.342 3.230  Causality Efficiency gains must be directly caused by the restrictive agreement.343 A remote causal relationship between the agreement and the claimed efficiency will exclude the application of Article 101(3) TFEU. For instance, parties to an agreement cannot claim that (p. 166) they will increase R&D capital expenditure thanks to the joint profits resulting from price coordination. On the other hand, a restrictive territorial exclusivity might directly increase a retailer’s incentive to optimize its point of sale through investments. 3.231  Likelihood and magnitude Parties contemplating the adoption of a restrictive agreement must conduct a probability assessment in order to determine whether the envisioned efficiency benefits will materialize. Forecasts and projections must be substantiated, so that competition authorities and courts can, as the case may be, verify that future efficiencies are likely to materialize.344 In addition, the claimed efficiencies must be ‘as accurately and as reasonably possible’ calculated or estimated.345 When the purported efficiencies are qualitative, parties should undertake a detailed description of the new or improved product/services.346 Parties should keep a record of the self-assessment of their agreements, should a competition authority/court scrutinize their agreement at a later stage. 3.232  Method The method by which the efficiencies will be achieved, and the dates at which they will become operational must be clearly set out.347

(b)  Non-economic improvements 3.233  Public policy improvements348 The case law of the EU Courts and the decisional practice of the Commission) promote a more open interpretation of Article 101(3) TFEU than the Guidelines do. They cover not only pure ‘economic efficiencies’ but also encompass non-competition concerns.349 In the Métropole Télévision judgment, the GC held that ‘the Commission is entitled to base itself on considerations connected with the pursuit of the public interest in order to grant exemptions under Article [101](3).’350 For instance, the EU Courts and the Commission held that, amongst others, environmental benefits,351 the protection of employment,352 cultural diversity and media pluralism,353 regional (p. 167) development,354 and professional ethics,355 constituted legitimate factors to be taken into

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account when reviewing an agreement under Article 101(3).356 This case law has drawn the attention of many commentators in the past few years.357 3.234  Conflict? There is a clear inconsistency between the case law of the EU Courts, on the one hand, and, on the other hand, the strict economic interpretation of Article 101(3) TFEU conveyed in the Guidelines, on the other. In an attempt to bridge a potential conflict with the case law, the Guidelines on Article 101(3) declare that non-competition concerns are admissible under Article 101(3), provided that they (i) ‘are pursued by other Treaty provisions’ and (ii) ‘can be subsumed under the four conditions of Article [101](3) TFEU’.358 In other words, the non-competition concerns followed must ‘translat[e] into economic benefits’ that satisfy the four conditions of Article [101](3) TFEU.359 The Guidelines thus seem to require an economic quantification of benefits which are essentially non-economic or not purely economic in nature. 3.235  Rationale The Guidelines’ orthodox interpretation of Article 101(3) TFEU360 is wholly based on the fear that the abolition of the Commission’s exemption monopoly would induce NCAs and/or national courts to exempt unlawful agreements on national public policy grounds thereby bringing about an increased degree of legal uncertainty/ inconsistency.361 3.236  Assessment In our opinion, the Commission’s concerns that NCAs and/or national courts might abuse Article 101(3) TFEU to pursue public policy objectives at the expense of the competitive process are reasonable. That said, the narrow substantive interpretation of Article 101(3) introduced by the Guidelines on Article 101(3) TFEU yields a number of problems. First, in endorsing an interpretation of Article 101(3) which departs from the EU Courts’ case law, the Commission has undermined the precedential value of its Guidelines as a whole and causes legal confusion. Second, the Guidelines’ attempt to reconcile the EU (p. 168) Courts’ case law with its proposed restrictive interpretation of Article 101(3) TFEU fails to convince.362 This is because many non-competition concerns that have been held admissible by the EU Courts are not amenable to pure economic quantification and cannot therefore be ‘subsumed’ under the four conditions of Article 101(3) in the manner envisaged by the Guidelines. For instance, it is unclear how an anticompetitive agreement that prevents cuts in the labour force363—and protects inefficient production units from going out of business—directly benefits consumers within the meaning of the second condition of Article 101(3) as interpreted by the Guidelines.364 The same is true of agreements that wield positive effects on sustainable development, as those benefits will be difficult to substantiate in terms of probability and almost impossible to quantify.365 Finally, and contrary to the Commission’s position, the case law of the EU Courts seems to accommodate within Article 101(3) a variety of non-competition concerns that cannot strictly be ascribed to the goals pursued by other Treaty provisions.366 For instance, a longterm supply agreement that fosters the security of energy supplies could potentially,367 under the EU Courts’ case law, be found admissible for an exemption under Article 101(3). However, to the best of our knowledge, the security of energy supply does not yet constitute a goal explicitly pursued by the TFEU.368 3.237  A note of caution In practice, the benefit of an exemption on the basis of public policy considerations remains relatively uncertain. The above case law involved exceptional situations. Hence, firms self-assessing their agreements should be cautious when basing their industrial choices on public policy grounds. This is compounded by the fact that both the EU Courts and the Commission consider that exceptions must be interpreted strictly and there is no apparent reason for Article 101(3) TFEU to be treated differently.369

(p. 169) (2)  The passing-on condition

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3.238  Pursuant to the second condition of Article 101(3) TFEU, ‘consumers’ must receive ‘a fair share’ of the agreement’s resulting benefit. In other words, an agreement that is only beneficial to the parties cannot benefit from an exemption. 3.239  ‘Consumers’ In referring to ‘consumers’, the Treaty covers not only end consumers but also undertakings acting as intermediate customers (including producers purchasing the products as an input, wholesalers, retailers, etc).370 From an economic perspective, this interpretation is wholly justified. Otherwise, firms contemplating a cost-efficient agreement, but faced with a downstream monopsonistic purchaser would be prevented from concluding the agreement, in light of the risk that their customer would not pass on price reductions (and maintain the prices charged) to end-users. In such a situation, firms would be deterred from concluding efficient agreements even though the source of the problem originates in the downstream purchaser’s market power (a type I error). 3.240  ‘Consumers’ in the same market The Guidelines contend that ‘the efficiencies generated by the restrictive agreement must be sufficient to outweigh the anti-competitive effects produced by the agreement within that same relevant market’ (emphasis added).371 The rationale for this rule is fairly obvious. As explained by a former Commission official, the Guidelines seek to preclude complex ‘inter-personal comparisons’.372 Back in 2004, the Commission feared that in the case of an agreement which harms consumers of product A/ Member State A and benefits consumers of product B/Member State B, NCAs and national courts might give preference to consumers of a certain product market/geographic market on the basis of non-economic considerations (eg national bias). To avoid this problem, the Guidelines provide that the anticompetitive effects that take place in a relevant market cannot be compensated with pro-competitive effects that take place in another relevant market.373 3.241  At first glance, this market-by-market standard constitutes a commendable development, which is likely to simplify the assessment of agreements under Article 101 TFEU. Yet, this standard also seems to restrict the range of efficiency arguments that can be invoked under Article 101(3) and is inconsistent with the case law which, contrary to the position adopted by the Commission in the Guidelines, accepts in principle that the balancing of pro and anticompetitive effects can be conducted across different markets.374 Under the EU Courts’ case law, any agreement that on the whole produces a net positive effect for consumers, regardless of whether some consumers are harmed while others are favoured, is deemed pro-competitive and benefits from Article 101(3). In Compagnie Maritime Belge v Commission, the GC held that: for the purposes of examining the merits of the Commission’s findings as to the various requirements of Article [101(3)] of the Treaty, … regard should naturally be had to the (p. 170) advantages arising from the agreement in question, not only for the relevant market, … but also, in appropriate cases, for every other market on which the agreement in question has might have beneficial effects ….375 (Emphasis added) 3.242  Similarly, in GlaxoSmithKline v Commission (a judgment handed down after the adoption of the Guidelines, the GC noted that: It is therefore for the Commission, in the first place, to examine whether … the agreement in question must enable appreciable objective advantages to be obtained, it being understood that these advantages may arise not only on the relevant market but also on other markets .376 (Emphasis added)

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3.243  Finally, in somewhat similar language, the Court of Justice held more recently in Asnef-Equifax that under Article 101(3) TFEU: it is the beneficial nature of the effect on all consumers in the relevant markets that must be taken into consideration, not the effect on each member of that category of consumers.377 (Emphases added) 3.244  Interestingly, the Guidelines on Article 101(3) TFEU are also inconsistent with the Commission’s practice in other fields of competition law. For example, the Guidelines on horizontal cooperation agreements suggest that the anticompetitive ‘spill-over’ effects that arise on the market(s) where the parties to a joint venture remain independent can be exempted if, for instance, the agreement meanwhile generates efficiencies on the market concerned by the cooperation.378 Moreover, in other fields, such as Article 102 TFEU, the Commission is ready to balance the actual anticompetitive effects on consumers in a defined relevant market, with the future pro-competitive effects on consumers in prospective, undefined, relevant markets. For instance, the Commission will balance the actual harmful effects of an alleged abusive refusal to license intellectual property rights, with its positive effects on the dominant firm’s incentives to invest in R&D and market new products.379 3.245  Sliding scale The passing-on condition incorporates a ‘sliding scale’. The greater the restriction of competition found pursuant to Article 101(1) TFEU, the greater must be the efficiency gains and the pass-on to consumers under Article 101(3).380 It is indeed presumed that if the restrictive effects of an agreement are relatively limited and the efficiency gains substantial, it is very likely that a fair share of those benefits will be passed on to consumers. Conversely, (p. 171) if the restrictive effects of the agreement are substantial and the efficiency gains limited, it is very unlikely that a fair share of those benefits will be passed on to consumers.381 3.246  Extent of passing-on The notion of ‘fair share’ under Article 101(3) TFEU implies that the efficiencies transferred to consumers must be ‘at least’ equal to the agreement’s restrictive effect on competition.382 3.247  Timing of passing-on The fact that the passing-on does not occur immediately does not prevent the application of Article 101(3) TFEU.383 For instance, joint R&D agreements only deliver efficiencies in the future, and consumers might have to suffer a certain degree of anticompetitive harm in the initial cooperation period. When taking into account prospective efficiencies, a discount rate must be applied to reflect the rate of inflation, and more fundamentally, to display the fact that future gains have lower value than immediate benefits. 3.248  Assessing passing-on ex ante Firms self-assessing the rate and probability of passing-on must look at four factors.384 First, the characteristics and structure of the market have a direct influence on the parties’ incentives to pass on cost efficiencies. On concentrated markets, where the parties enjoy market power (individually or jointly with other firms), passing-on is unlikely.385 Second, the nature of the efficiency gains also influences the probability of passing-on. Variable costs efficiencies are more likely to be passed on than fixed costs efficiencies (which normally have no direct influence on prices).386 Third, the price elasticity of demand has a direct influence on the passing-on rate. Demand is said to be price-elastic, when a price change (a price cut) triggers a variation in quantities demanded (a surge in demand). According to the Guidelines, the more price-elastic the demand is, the more likely the parties will pass on cost savings to consumers. This is because the parties will capture a significant number of sales simply by transferring cost efficiencies in the form of price reductions. Fourth, the magnitude of the restriction of competition must be reviewed. As explained previously in relation to the

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sliding scale, a substantial reduction in the competitive constraints facing the parties will demand ‘extraordinarily large’ efficiencies to trigger the benefit of an exemption.

(3)  The indispensability condition 3.249  Standard Under the third condition for the application of Article 101(3) TFEU, the agreement must ‘not impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives’. This condition implies the demonstration that there is no less restrictive alternative that achieves the same amount of efficiencies (the necessity test).387 If there are no alternatives, or if there are alternatives which deliver fewer efficiency gains, the indispensability condition will be fulfilled. (p. 172) 3.250  Discretion This condition confers a large margin of appreciation to competition authorities, when negotiating amendments to an agreement. Often, competition authorities will go beyond a mere ‘necessity’ test and seek to perform a ‘suitability’ assessment. By contrast, in some cases the Commission has considered that restrictions that were not indispensable, but merely useful, could be exempted under Article 101(3) TFEU.388 The Commission decision in UEFA illustrates the application of the indispensability condition in practice.389 3.251  Guidelines The Commission considers that the indispensability condition enshrines a twofold test.390 First, one must determine whether the agreement is necessary to achieve the efficiencies. Second, the individual restrictions of competition contained in the agreement must also be necessary to achieve the efficiencies. However, this test has never been upheld by the EU Courts, which focus on restrictions of competition regardless of whether the whole agreement or only clauses are restrictive. Its validity is thus unclear.

(4)  The non-elimination of competition condition 3.252  The last condition for the applications of Article 101(3) TFEU is that the agreement does not ‘aff ord [the parties] the possibility of eliminating competition in respect of a substantial part of the products in question’. The key concern here is to ensure that following the agreement, there remains sufficient ‘rivalry’ on the market.391 3.253  Structural competition To this end, the Commission first considers that the analysis should focus on the magnitude of the ‘remaining sources of actual competition’ on the market, that is, actual and potential competitors.392 Competition will probably be eliminated if the agreement involves all the actual competitors of a market, a maverick operator,393 or a close competitor.394 3.254  Parametrical competition Second, the Commission considers that there will be an elimination of competition if the agreement eliminates rivalry in one of its most important expressions, such as price, or if it suppresses rivalry in respect of several significant parameters (eg innovation and production).395 3.255  Illustration In the Langnese-Iglo and Schöller cases, the Commission refused to exempt single branding agreements concluded by two leading ice cream producers whose market (p. 173) shares were respectively 45 per cent and 20 per cent.396 The Commission held that the exclusivity obligations contained in the agreements foreclosed other competitors. The agreement thus eliminated external competition,397 thereby giving rise to concern given the weakness of internal competition between the ice cream producers. In the case in question, the market exhibited signs of tacit collusion.398

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Footnotes: 1

  See S.C. Salop and D.T. Scheffman, ‘Cost-Raising Strategies’ (1987) 36(1) J Industrial Economics 19. 2

  The (institutional) implementation of this prohibition may take two forms: the first possibility is through a notification system, by which agreements between undertakings must first be notified to an authority and explicitly authorized. This system prevailed, under the ambit of Regulation 17/62, until 2004, when the notification procedure was repealed. A second possibility, which has been in force since 2004, is that of the legal exception: undertakings must assess their agreements themselves, and run the risk, at any moment, of their agreements being declared incompatible if the conditions for the application of Art 101(1) TFEU are met and the parties cannot show that the agreement falls within the Art 101(3) exception. 3

  V. Waelbroeck and A. Frignani, Commentaire J Mégret: Droit de la CE, Vol 4, Competition, 2nd edn (Brussels: Editions de l’Université Libre de Bruxelles, 1997), at 124. We discuss cartels in more detail in Chapter 6. 4

  See, regarding these questions, M.M. Leitão Marques and A. Abrunhosa, ‘Cooperative Networking: Bridging the Cooperation-Concentration Gap’ in H. Ullrich (ed), The Evolution Of European Competition Law—Whose Regulation, Which Competition? (Cheltenham: Edward Elgar, 2006). 5

  GC, T-102/92 Viho Europe BV v Commission, 12 January 1995 [1995] ECR II-17 and CJ, C-73/95 Viho Europe BV v Commission, 24 October 1996 [1996] ECR I-5457 at 51. 6

  CJ, Viho Europe BV v Commission, esp at 13–18; D. Brault, Politique et pratique du droit de la concurrence en France (Paris: LGDJ, 2004), at 756–60. 7

  GC, Viho Europe BV v Commission, spec, and CJ Viho Europe BV v Commission, esp at 51. 8

  GC, Joined Cases T-109/02, T-118/02, T-122/02, T-125/02, T-126/02, T-128/02, T-129/02, T-132/02, and T-136/02, Bolloré SA ea v Commission of the European Communities, 26 April 2007 [2007] ECR II-947; GC, T-112/05, Akzo Nobel NV ea v Commission of the European Communities, 12 December 2007 [2007] ECR II-5049. As a reminder, it is sufficient in principle to show the existence of an economic unit, in order to bring a parent company within the ambit of the competition rules. In Bolloré, the GC seemed hesitant to accept the existence of a presumption: according to Court in that case, ownership of the entire share capital of a subsidiary company is a ‘strong indication’ (not a presumption) of control but, in addition, the Commission must demonstrate some parental involvement in the subsidiary’s business. See para 150. 9

  GC, T-175/05 Akzo Nobel and others v Commission, at 89: It is not therefore because the parent company instigated its subsidiary to commit the infringement or, a fortiori, because the parent company is involved in the infringement, but because they constitute a single undertaking in the above sense that the Commission is able to address the decision imposing fines to the parent company of a group of companies.

See also GC, Akzo, esp at 91. In Akzo, the GC returned to a more orthodox approach: holding a 100 per cent stake entails a presumption of decisive influence, which may be reversed if the parent company can demonstrate the complete commercial autonomy of the subsidiary. See ibid, paras 62–5. However, on the facts of this case, the GC’s interpretation of the concept of commercial policy is very wide-ranging. The parent company has only to take an interest in the strategy, operational plan, investments, general operational policies, auditing and accounting, human resources, or legal matters, for control over the subsidiary

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to be presumed. See ibid, paras 72–7. In the same vein, the concept of decisive influence is so broad that it extends to simple activities of reporting, consultation, or supervision. This principle is highly problematic: it does not take into account that, even in vertically integrated groups, there are agency problems, with subsidiaries frequently taking advantage of inadequate information to act in an opportunistic way. See S. Völcker, ‘Rough Justice? An Analysis of the European’s Commission’s New Fining Guidelines’ (2007) 44 Common Market L Rev 1285–320 at 1317. 10

  He is therefore part of the same economic unit (undertaking) as the principal. See for a recent reminder, CJ, C-217/05 Confederación Española de Empresarios de Estaciones de Servicio v Compañía Española de Petróleos SA, 14 December 2006, nyr, at 44–6 and GC, T-325/01 DaimlerChrysler AG v Commission, 15 September 2005 [2005] ECR II-3319, at 85– 88. For a good summary of these principles, see D. Waelbroeck, ‘Vertical Agreements: 4 Years of Liberalisation by Regulation no 270/99 after 40 Years of Legal (block) Regulation’ in Ullrich (ed), n 4, at 108–9. 11

  See Commission Notice on exclusive distribution agreements with commercial agents, 24 December 1962. Principles espoused by the Court in C-40/73 Suiker Unie, 16 December 1975 [1975] ECR 480 and 539 and C-266/93 VAG Leasing, 24 October 1995 [1995] ECR I-3477, at 19. See Guidelines on vertical restraints, esp paras 12–20. In its Guidelines on vertical restraints the Commission endeavoured, however, to separate ‘true’ agency agreements which do not come within the scope of Art 101 TFEU from other agreements where the agent assumes a commercial and financial risk in relation to the activities for which the principal has appointed him. See for a critical appraisal, Waelbroeck, n 10, at 108–9, which condemns the extensive (and probably finalist) interpretation of the concept of risk by the Commission. 12

  With the exceptions of the loss of the agent’s own commission; or liability for damage resulting from the agent’s negligence. 13

  CJ, C-217/05 CEPSA, 14 December 2006 [2006] ECR I-11987. For a recent analysis, E. Dieny, ‘The Relationship between a Principal and its Agent in Light of Article 101(1) TFEU: How Many Criteria?’ (2008) European Competition L Rev 1, at 5. 14

  CJ, CEPSA, n 13, at 43.

15

  See Suiker Unie, n 11, which already foresaw this requirement.

16

  See B.D. Bernheim and M.D. Whinston, ‘Common Marketing Agency as a Device for Facilitating Collusion’ (1985) 16 RAND J Economics 269. 17

  CJ, CEPSA, n 13, at 62: Nevertheless, it must be pointed out that, in such a case, only the obligations imposed on the intermediary in the context of the sale of goods to third parties on behalf of the principal fall outside the scope of that article. As the Commission submitted, an agency contract may contain clauses concerning the relationship between the agent and the principal to which that article applies, such as exclusivity and non-competition clauses. In that connection it must be considered that, in the context of such relationships, agents are, in principle, independent economic operators and such clauses are capable of infringing the competition rules in so far as they entail locking up the market concerned.

18

  Commission Decision of 26 July 1976, IV/28.996, Reuter/BASF, OJ L 254 of 17 September 1976, at 40–50.

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19

  GC, T-41/96 Bayer, 26 October 2000 [ 2000] ECR II-3383.

20

  Ibid, at 67–9. See also T-49–51/02 Brasserie nationale v Commission, 27 July 2005 [2005] ECR II-3033, at 119; T-44/02 OP, T-54/02 OP, T-56/02 OP, T-60/02 OP, and T-61/02 OP, Dresdner Bank v Commission, 27 September 2006 [2006] ECR II-3567, at 53–5; T-56/02 Bayerische Hypo-und Vereinsbank v Commission, 14 October 2004 [2004] ECR II-3495, at 59–61. 21

  CJ, C-28/77 Tepea v Commission, 20 June 1978 [1978] ECR 1391.

22

  CJ, C-41/69 ACF Chemiefarma v Commission, 15 July 1970 [1970] ECR 661.

23

  Private benefits are, however, taken into account after the infringement has been identified, when the inquiry turns towards assessing the amount of the fines. 24

  CJ, Suiker Unie, n 11.

25

  GC, T-141/89 Tréfileurope v Commission [1995] ECR II-791, at 58: The Court considers that the applicant cannot rely on the fact that it participated in the meetings against its will. It could have complained to the competent authorities about the pressure brought to bear on it and lodged a complaint with the Commission, … rather than participating in such meetings.

26

  See Guidelines on the calculation of fines imposed pursuant to Art 23, para 2, under a), of Regulation (EC) no 1/2003, OJ C 210 of 1 September 2006, at 2. 27

  CJ, Suiker Unie, n 11, at 65–6 and 71–2.

28

  CJ, C-350/95 P and C-379/95 P Commission and French Republic v Tiercé Ladbroke Racing Ltd [1997] ECR I-6265, at 33. 29

  Commission Decision, IV/29.883, AROW/BNIC, 15 December 1982, OJ L 379 of 31 December 1982, at 58. 30

  Commission Decision, COMP/C.38.279/F3, French beef, 2 April 2003, OJ L 209 of 19 August 2003, at 12, para 176, where the support of the French Minister of Agriculture for agreements resulted in the reduction of the fines eventually imposed by 30 per cent. See also Commission Decision, COMP/C.38.238/B.2, Raw tobacco—Spain, 20 October 2004, OJ L 102 of 19 April 2007, at 14. 31

  CJ, C-13/77 SA GB-INNO-BM v Association of Tobacco Retailers (‘ INNO/ATAB’), 16 November 1977 [1977] ECR 2115, at 33: ‘member states may not enact measures enabling undertakings to escape from the constraints imposed by Articles 85(81) to 94 (88) inclusive.’ 32

  CJ, C-2/91 Criminal proceedings against Wolf W Meng, 17 November 1993 [1993] ECR I-5751, at 14. 33

  Regarding the political obstacles, see N. Petit, ‘The Proliferation of National Regulatory Authorities besides Competition Authorities: A Risk of Jurisdictional Confusion?’ in D. Geradin et al (eds), Regulation through Agencies: A New Paradigm of European Governance (Cheltenham: Edward Elgar, 2005). 34

  For a critical opinion that undertakings are acquiring too much freedom, and that the principle of primacy should be fully applied to the question of private constraint, see F. Castillo de la Torre, ‘State Action Defence in EC Competition Law’ (2005) 28(4) World Competition 407.

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35

  CJ, C-198/01 Consorzio Industrie Fiammiferi (CIF) v Autorità Garante della Concorrenza e del Mercato [2003] ECR I-08055 at 53. 36

  Joined Cases C-94/04 and C-202/04 Cipolla and Others [2006] ECR I-11421.

37

  The Court considered, however, that it was the role of the national court to check whether such a regulation, as actually applied, was justified by urgent reasons of general interest, and genuinely met the requirements of consumer protection and the proper administration of justice. The Court also required the national judge to check whether the restrictions in question were proportionate to achieving these objectives. 38

  See N. Kroes, ‘The Competition Principle as a Guideline for Legislation and State Action —The Responsibility of Politicians and the Role of Competition Authorities’, Speech 05/324 given at the 12th International Conference on Competition, Bonn, 6 June 2005. 39

  Commission Decision 82/267/EEC of 6 January 1982 relating to a proceeding under Article 85 of the EEC Treaty, IV/28.748, AEG-Telefunken, OJ L 117 of 24 November 1982 P, at 15 and CJ, 107/82 Allgemeine Elektrizitäts-Gesellschaft AEG-Telefunken AG v Commission [1983] ECR 3151. 40

  Ford had applied to the Commission for an individual exemption. See Commission Decision IV/30.696, Ford Werke AG, 18 August 1982, OJ L 256 of 24 November 1983, at 20. See CJ, C-228–229/82 Ford v Commission, 28 February 1984 [1984] ECR 1129. 41

  See, for a good summary, C. Brown, ‘Bayer v Commission: The ECJ Agrees’ (2004) 7 European Competition L Rev 386. 42

  T-41/96 Bayer, n 19.

43

  Ibid, at para 71: a distinction should be drawn between cases in which an undertaking has adopted a genuinely unilateral measure, and thus without the express or implied participation of another undertaking and those in which the unilateral nature is merely apparent. Whilst the former do not fall within Article 85, paragraph 1, of the Treaty, the latter must be regarded as revealing an agreement between undertakings and may consequently come within the scope of that article. That is the case, in particular, with practices and measures in restraint of competition which, though apparently adopted unilaterally by the manufacturer in the context of its contractual relations with its retailers, nevertheless receive at least tacit, acquiescence of those dealers.

44

  T-62/98 Volkswagen v Commission [2000] ECR II-2707, para 45.

45

  See M. Jephcott and T. Lübbig, Laws of Cartels (Bristol: Jordans, 2003), at 72.

46

  Many examples may be found in the case law and decision-making practice of the Commission: professional federations, sports bodies such as FIFA or UEFA, environmental protection associations, professional associations such as associations of lawyers, architects, etc. 47

  CJ, C-309/99 Wouters [2002] ECR I-15771, at 64.

48

  Commission Decision, COMP/38.549, Commission v Association of Belgian Architects, 24 June 2004, not published but available at . 49

  Commission Notice of 17 February 2004 establishing a Report on competition in the sector of the liberal professions, COM(2004) 83 final. As we saw when we examined the

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State Compulsion Doctrine, there is nonetheless likely to be a limit to this intervention when the State concurs fully in the restrictions enacted by professional associations. 50

  CJ, C-48/69 Imperial Chemical Industries Ltd v Commission, 14 July 1972 [ 1972] ECR 619. 51

  Ibid, at paras 63 and 64.

52

  Judgment of the Court of 16 December 1975, Joined Cases 40–48, 50, 54–56, 111, 113, and 114/73 Coöperatieve Vereniging ‘Suiker Unie’ UA and others v Commission of the European Communities [1975] ECR 1663, at 173. 53

  Ibid, at para 174.

54

  Judgment of the Court (Sixth Chamber) of 8 July 1999, C-49/92 P Commission of the European Communities v Anic Partecipazioni SpA [1999] ECR I-04125. 55

  See G. Monti, EC Competition Law—Law in Context (Cambridge: Cambridge University Press, 2007, Cambridge), at 328–9. 56

  CJ, C-48/69 Imperial Chemical Industries Ltd v Commission, n 50.

57

  Ibid, at para 66. This is a system of proving the negative, which presumes the existence of a concerted practice by ruling out any other scenario. 58

  See R. Joliet, La notion de pratique concertée et l’arrêt ICI dans une perspective comparative (1974) 3–4 Cahiers de droit européen 251, 285. The principle could have remained unheeded or at least little known in the absence of a sufficiently in-depth economic analysis; in the same sense see V. Korah, ‘Concerted Practices’ (1973) 36 Modern L Rev 220. 59

  See, respectively, CJ, C-89/85, C-104/85, C-114/85, C-116/85, C-117/85, and C-125– 129/85 Ahlström Osakeyhtiö et al v Commission (‘Wood Pulp’), 31 March 1993 [1993] ECR I-1307 and GC, T-68/89 and T-77– 78/89 Società Italiana Vetro SpA, Fabbrica Pisana SpA and PPG Vernante Pennitalia SpA v Commission, 10 March 1992 [1992] ECR II-1403. 60

  See CJ, C-89/85 etc, Ahlström Osakeyhtiö et al v Commission, n 59, at para 71.

61

  Ibid.

62

  This is a more onerous system of positive proof, which requires the Commission to prove the existence of a concerted practice and rule out any other explanation (demand for advance price announcements, made by customers, etc). 63

  Commission Decision, IV/29.629, Rolled zinc products and zinc alloys, 14 December 1982, OJ L 362, 1982, at 40 and CJ, C-29–30/83 Compagnie royale Asturienne des mines SA and Rheinzink GmbH v Commission of the European Communities, 28 March 1984 [1984] ECR 1679. 64

  GC, T-44/02 OP, T-54/02 OP, T-56/02 OP, T-60/02 OP, and T-61/02 OP Dresdner Bank ea v Commission, 27 September 2006 [2006] ECR II-3567. 65

  GC, T-168/01 GlaxoSmithKline Services Unlimited v Commission [2006] ECR II-2969, at 109 (taken from para 21 of the Metro I judgment). See also CJ, C-56 and 58/64 Établissements Consten SARL and Grundig-Verkaufs-GmbH v Commission [1966] ECR 429 where the Court speaks of ‘prices subject to workable competition’. 66

  See J.-M. Clark, ‘Toward a Concept of Workable Competition’ (1940) 30 Am Economic Rev 241. Clark comes to the simple conclusion that perfect competition is unattainable in practice and not desirable in theory. A model of competition that is less perfect is nevertheless satisfactory since it offers buyers sufficient options. Clark proposes many criteria to determine whether competition is ‘workable’ (or ‘practicable’): promotional expenses must not be excessive, publicity must be informative, the size of the firms must be as large as allowed by the economies of scale. The theory has, however, been severely From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

criticized, particularly for the debatable nature of the criteria. See F. Easterbrook, ‘Workable Antitrust Policy’ (1986) 84 Mich L Rev 1696; S. Sosnick, ‘A Critique of Concepts of Workable Competition’ (1958) 72 Quarterly J Economics 380. 67

  CJ, C-26/76 Metro v Commission, 25 October 1977 [1977] ECR 1875, at 20 (‘the nature and intensiveness of competition may vary to the extent dictated by the products or services in question and the economic structure of the relevant market sectors’). 68

  GC, GlaxoSmithKline Services Unlimited v Commission, n 65, at 109 (taken from para 21 of the Metro I judgment). 69

  See, in particular, CJ, C-468/06 Sot Lékos kai Sia EE v GlaxoSmithKline AEVE Farmakeftiton Proïonton, 16 September 2008, not published, at 35 (referring to ‘workable competition’) and at 66 (referring to ‘effective competition’). 70

  See Guidelines on the Application of Article 101(3) TFEU, para 17.

71

  See ibid, at para 17.

72

  See ibid, at para 18.

73

  CJ, C-56 and 58/64 Consten and Grundig, n 65, at 339.

74

  See Waelbroeck and Frignani, n 3, at 171.

75

  See I. Liannos, La transformation du droit de la concurrence par le recours à l’analyse économique (Brussels: Sakkoulas/Bruylant, 2007), at 633. Article 1 of the German law on restriction of competition defines a restriction of competition in this way: ‘any limitation of the freedom of commercial action of the parties’. 76

  Commission Decision, IV/29.011, Rennet, 5 December 1979, OJ L 51 of 25 February 1980, at 19; Commission Decision, IV/28.959, VIFKA, 30 September 1986, OJ L 291 of 15 October 1986, at 46; Commission Decision, IV/31.499, Dutch Banks, 19 July 1989, OJ L 253 at 1, para 55. 77

  See, regarding this question, R. Joliet, The Rule of Reason in Antitrust Law—American, German and Common Market Laws in Comparative Perspective (The Hague: Martinus Nijhoff, 1967); R. Kovar, ‘Le droit communautaire de la concurrence et la règle de la raison’ (1987) Revue Trimestrielle de Droit Européen at 237. 78

  CJ, C-56/65 Société Technique Minière v Maschinenbau Ulm, 30 June 1966 [1966] ECR 337. 79

  By means of which a producer entrusts one single distributor with selling its products.

80

  CJ, C-56/65 Société Technique Minière v Maschinenbau Ulm, n 78.

81

  Ibid.

82

  GC, T-112/99 Métropole Télévision (M6) et al v Commission, 18 September 2001 [2001] ECR II-2459, at 76. 83

  Ibid, at para 77.

84

  Ibid, at paras 70 and 76.

85

  See Communication from the Commission—Guidelines on the application of Article 81(3) of the Treaty, OJ C 101 of 27 April 2004, at fn 31. 86

  See Art 2 of Regulation 1/2003.

87

  C-56/65 Société Technique Minière v Maschinenbau Ulm, n 78, at 39 where the Court said: ‘the competition must be understood within the actual context in which it would occur in the absence of the agreement in dispute .’ See also Guidelines on Article 81(3), n 85, at para 24, and Paul H.H. Lugard and Leigh Hancher, ‘Honey, I Shrunk the Article! A Critical

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Assessment of the Commission’s Notice on Article 81(3) of the EC Treaty’ (2004) 7 European Competition L Rev 410, at 413. 88

  This is also referred to as the ‘but for analysis’. The development of the counterfactual analysis goes back to the works of the economist R.W. Fogel who, in the 1960s, challenged the affirmation that certain major discoveries contributed to modern economic development. Fogel, inspired by econometrics and history, tried to measure the economic development which would have been achieved in the absence of the discovery and mass use of the railways, and shows that this contribution to economic development was limited. Fogel won the Nobel prize for economics for his work in 1993. See R.W. Fogel, Railroads and American Economic Growth: Essays in Econometric History (Baltimore, MD: Johns Hopkins Press, 1964). 89

  In addition, the wholesale rates invoiced by the roaming operator to the parties purchasing its services would be based on the wholesale prices paid to the operator visited. Finally, roaming has restrictive effects on the retail markets since, at that level, it would involve greater uniformity of conditions for supplying the services concerned. 90

  GC, T-328/03 O2 (Germany) v Commission, 2 May 2006 [2006] ECR II-1231. The GC considers that the petitioners have interest to act. In general, an exemption, by satisfying the undertakings concerned, removes their interest to act pursuant to Art 230 EC. See GC, paras 44–6. 91

  Ibid, at para 74: ‘examination of the effects of the agreement (by the Commission) is based on the idea that whether or not there had been an agreement both the operators O2 and T-Mobile would have been present and competing in the market in question.’ 92

  Ibid, at para 116.

93

  See Guidelines on the Article 81(3), n 85, at para 18.

94

  Ibid, at para 18.

95

  Ibid, at para 16.

96

  This is the ‘private’ aspect of market integration, which plays as a complement to the ‘public’ aspect of this policy, enshrined in Arts 34 and 36 TFEU. 97

  See eg 5/74/EEC: Commission Decision of 23 November 1984 relating to a proceeding under Article 85 of the EEC Treaty (IV/30.907, Peroxygen products, OJ L 035, 7 February 1985, at 1–19 (where the producers applied the ‘home market rule’). 98

  See Commission Decision, COMP.C-3/37.980, Souris Bleue/TOPPS + Nintendo, 26 May 2004. 99

  GC, T-168/01 GlaxoSmithKline Services v Commission, 27 September 2006 [2006] ECR II-2969. 100

  See ibid, at paras 117–99.

101

  Ibid, at para 119.

102

  Ibid, at para 121.

103

  Ibid, at para 118.

104

  Ibid, at para 124.

105

  Ibid, at para 134.

106

  Ibid, at para 135.

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107

  This is one of the fundamental findings in the economics literature focused on ‘discriminatory pricing’, which means the application of differential prices when costs of production do not differ. See, generally, H.R. Varian, ‘Price Discrimination’ in R. Schmalensee and R.D. Willig (eds), Handbook of Industrial Organization (Amsterdam: Elsevier, 1989), at 597 (surveying price discrimination theory and practices); and also Lars A. Stole, ‘Price Discrimination and Competition’ in M. Armstrong and R. Porter (eds), Handbook of Industrial Organization (Chicago, IL: University of Chicago Press, 2007), at 2223 (surveying price discrimination in oligopoly markets). 108

  CJ, Joined Cases C-501/06 P, C-513/06 P, C-515/06 P and C-519/06 P GlaxoSmithKline et al v Commission [2009] ECR I-9291. 109

  See para 52.

110

  See para 59.

111

  See para 61.

112

  See para 63.

113

  The situation of the EU provides what economists call a good ‘natural experiment’.

114

  National Economic Research Associates, Inc (NERA), 1998, at 17 and 8 respectively.

115

  Accounting for 21 per cent of the retail market.

116

  LSE, 2004, at 13.

117

  Linnosmaa, Karhunen, and Vohlonen, 2003.

118

  Glandsandt and Maskus, 2001.

119

  West and Mahon, 2003.

120

  Pedersen, Enemark, and Sorensen, 2006.

121

  Swedish Competition Authority, 1999.

122

  U. Persson and A. Anell, ‘The Economics of Parallel Trade in Pharmaceuticals: Experiences From Sweden’ (2001) 4(2) Value in Health 168. 123

  CJ, C-56/65 LTM v MBU [1966] ECR 235, at 249: ‘the fact that these are not cumulative but alternative requirements, indicated by the conjunction’ or ‘leads first to the need to consider the precise purpose of the agreement, in the economic context in which it is to be applied’. 124

  CJ, C-08/08 T-Mobile et al v Raad van bestuur van de Nederlandse Mededingingsautoriteit, nyr, at 28: the alternative nature of that requirement, indicated by the conjunction ‘or’, means that it is necessary, first, to consider the precise purpose of the concerted practice, in the economic context in which it is to be pursued. Where, however, an analysis of the terms of the concerted practice does not reveal the effect on competition to be sufficiently deleterious, its consequences should then be considered. 125

  It is defined by the law as an agreement which in all likelihood will harm competition (resale price maintenance). This, in turn, may be based on economic evidence, or on the past experience of the competition authority and courts. 126

  eg under Art 4 of the BER on vertical agreements, the Regulation talks of restrictions which have as their object

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the restriction of the buyer’s ability to determine its sale price, without prejudice to the possibility of the supplier to impose a maximum sale price or recommend a sale price, provided that they do not amount to a fixed or minimum sale price as a result of pressure from, or incentives offered by, any of the parties. See, more generally, Guidelines on Article 101(3) TFEU, para 23: In the case of horizontal agreements restrictions of competition by object include price fixing, output limitation and sharing of markets and customers(28). As regards vertical agreements the category of restrictions by object includes, in particular, fixed and minimum resale price maintenance and restrictions providing absolute territorial protection, including restrictions on passive sales(29). 127

  CJ, C-123/83 BNIC v Clair, 30 January 1985 [1985] ECR 391 and GC, Joined Cases T-202/98, T-204/98, and T-207/98 Tate & Lyle et al v Commission, 12 July 2001 [2001] ECR II-2035. 128

  CJ, C-56 and 58/64 Consten and Grundig v Commission, n 65, at 299.

129

  CJ, C-243/83 SA Binon & Cie v SA Agence et messageries de la presse, 3 July 1985 [1985] ECR 2015. 130

  See in this sense, Barry Rodger at para 23 which indicates that the list of practices under Art 101 is not exhaustive. 131

  CJ, C-209/07 Beef Industry Development Society Ltd, Barry Brothers (Carrigmore) Meats Ltd [2008] ECR I-8637, at 17. 132

  CJ, C-08/08 T-Mobile et al v Raad van bestuur van de Nederlandse Mededingingsautoriteit, n 124, at 29. 133

  Ibid, at para 43.

134

  Ibid, at para 37.

135

  Ibid, at para 30.

136

  See GC, GlaxoSmithKline, n 99, at 147: ‘it cannot be inferred merely from a reading of the terms of that agreement, in its context, that the agreement is restrictive of competition, and it is therefore necessary to consider the effects of the agreement’. 137

  CJ, C-209/07 Beef Industry Development Society Ltd, Barry Brothers (Carrigmore) Meats Ltd, n 131, at 21. 138

  There is, however, a doctrinal debate regarding the question of combining the per se prohibition of hardcore restrictions and the de minimis rule which we will look at later. Certain writers consider that the de minimis rule allows certain agreements containing restrictions by object to escape the per se prohibition. The text of the de minimis Notice, however, does not tend to support this view. See para 11 of the Commission Notice on agreements of minor importance which do not appreciably restrict competition under Article 81(1), of the Treaty establishing the European Community (de minimis), OJ C 368 of 22 December 2001, at 14. 139

  CJ, C-551/03 General Motors Nederland and Opel Nederland v Commission, 6 April 2006 [2006] ECR I-3173. In that judgment the Court specified that ‘an agreement may be regarded as having a restrictive object even if it does not have the restriction of competition as its sole aim but also pursues other legitimate objectives’ (para 64). On the other hand: ‘proof of that intention of the parties to an agreement to restrict competition is not a necessary factor in determining whether an agreement has such a restriction as its object

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…, there is nothing to prohibit the Commission or the Community courts from taking that intention into account’ (paras 27–8). 140

  See Beef Industry Development Society Ltd, Barry Brothers (Carrigmore) Meats Ltd, n 131, at 21. 141

  See IAZ International Belgium and Others v Commission [1983] ECR 3369, at 23–5.

142

  See Guidelines on Article 101(3), para 55.

143

  GC, T-17/93 Matra [1994] ECR II-595, at 85. In GlaxoSmithKline, the GC also unambiguously held that: ‘Any agreement which restricts competition, whether by its effects or by its object, may in principle benefit from an exemption’. See GC, T-168/01 GlaxoSmithKline Services Unlimited v Commission, n 99, at 233. 144

  See Guidelines on Article 101(3), para 46.

145

  Commission Decision 1999/695/EC of 15 September 1999 relating to a proceeding under Article 81 of the EC Treaty and Article 53 of the EEA Agreement (IV/36.748, REIMS II) (notified under document number C(1999) 2596) OJ L 275, 1999, at 17. 146

  Commission Decision of 24 July 2002 relating to a proceeding under Article 81 of the EC Treaty and Article 53 of the EEA Agreement (COMP/29.373, Visa International— Multilateral Interchange Fee), OJ L 318, 2002, at 17. 147

  It has also defined additional principles in a series of Notices, Guidelines, and other documents specific to certain types of agreements (eg horizontal cooperation agreements, vertical agreements) which will be examined later. 148

  See General Guidelines at para 24.

149

  See ibid, at para 25. The Guidelines rightly note that evidence of prices above marginal costs does not necessarily indicate that firms have market power (in particular in markets with high fixed costs and low variable costs). See ibid, para 26. That said, the Guidelines also stress that Art 101(1) TFEU applies below the market power level required for proving an infringement of Art 102 TFEU. See ibid, para 27. 150

  See ibid, para 27.

151

  See ibid, para 27.

152

  See ibid, para 27.

153

  CJ, C-5/69 Franz Völk v SPRL Ets J Vervaecke, 9 July 1969 [1969] ECR 295, at 7.

154

  See Commission Notice of 3 September 1986 on agreements of minor importance which do not fall under Article [81](1) of the Treaty establishing the European Economic Community, OJ C 231, 1986, at 2. 155

  Commission Notice on agreements of minor importance published in OJ C 372 of 9 December 1997. 156

  See de minimis Notice, n 138, at 14.

157

  See Commission Notice on agreements of minor importance, n 155, at para 4.

158

  See General Guidelines, at para 24.

159

  See de minimis Notice, n. 138, at 13–15.

160

  These agreements are generally less harmful to competition, and so the de minimis threshold is higher. Importantly, the market share held by each of the parties to the agreement must remain below the 15 per cent threshold for the presumption to apply.

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161

  See de minimis Notice, n 138, at para 7.

162

  See ibid, at para 9.

163

  GC, Case T-44/00 Mannesmannröhren-Werke AG v Commission, 8 July 2004 [2004] ECR II-2223, at 200 and 205. 164

  See Art 2(1) of Commission Recommendation of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises, OJ L 124 of 20 May 2003, at 36. 165

  GC, T-59-99 Ventouris Group Enterprises SA v Commission [2003] ECR II-5257.

166

  Ibid, at para 165.

167

  Ibid, at para 169.

168

  See General Guidelines, para 24 and note 32: ‘Agreements, which fall outside the scope of the de minimis notice, do not necessarily have appreciable restrictive effects. An individual assessment is required’. 169

  GC, T-374/94 European Night Services and others v Commission [1998] ECR II-3141, at 83. 170

  Ibid, at para 102.

171

  Ibid, at para 102.

172

  Ibid, at para 103.

173

  See de minimis Notice, n 138, Art 11(1).

174

  See Art 4 of the Block Exemption Regulation, 2790/1999 (the Notice has not yet been updated to reflect the changes introduced in Regulation 330/2010). 175

  See J. Faull and A. Nikpay, The EC Law of Competition (Oxford: Oxford University Press, 1999). The text of the Notice would, in reality, have an educational role. 176

  See eg R. Whish, Competition Law, 4th edn (London: Butterworths, 2001).

177

  Market shares should normally be calculated in sales value data. Where this is not possible, they should be calculated in volume data. See de minimis Notice, n 138, at para 10. 178

  CJ, C-23/67 SA Brasserie de Haecht v Consorts Wilkin-Janssen, 12 December 1967 [1967] ECR 525. 179

  Ibid, at 415.

180

  Ibid.

181

  CJ, Case C-214/99 Neste Markkinointi Oy and Yötuuli Ky and Others [2000] ECRI-11121, at 36 and our remarks below. 182

  CJ, C-260/07 Pedro IV Servicios SL v Total España SA [2009] ECR I-02437, at 83. See also C-234/89 Delimitis [1991] ECR I-935 at 13–15; C-214/99 Neste [2000] ECR I-11121, at 25; and CEPSA, para 43. In CJ, C-234/89 Stergios Delimitis v Henninger Bräu AG, 28 February 1991 [1991] ECR I-935, at 24, the Court held that it is necessary to assess the extent to which the agreements entered into by the brewery in question contribute to the cumulative effect produced in that respect by the totality of the similar contracts found on that market. Under the Community rules on competition, responsibility for such an effect of closing off the market must be attributed to the breweries which make an appreciable contribution thereto. Beer supply agreements entered into by breweries whose contribution to the

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cumulative effect is insignificant do not therefore fall under the prohibition under Article 85(1). 183

  GC, T-65/98 Van den Bergh Foods Ltd v Commission, 23 October 2003 [2003] ECR I-4653, at 111, concerning the supply at no cost by Van den Bergh Foods, of freezers to ice cream retailers. These contracts were accompanied by a prohibition against keeping and marketing competing products in those freezers. The resulting cumulative effect of closing off the market was held to be incompatible with Art 101. 184

  GC, Case T-25/99 Colin Arthur Roberts and Valerie Ann Roberts v Commission [2001] ECR II-1881, at 113. 185

  See de minimis Notice, para 8.

186

  CJ, C-214/99 Neste Markkinointi Oy and Yötuuli Ky and Others, n 181, at 36.

187

  GC, T-65/98 Van den Bergh Foods Ltd v Commission, 23 October 2003 [2003] ECR I-4653, at 112. 188

  CJ, C-42/84 Remia BV et al v Commission [1985] ECR 2545.

189

  Ibid, at para 19. The sale of an undertaking did not, in this particular case, restrict competition but, on the contrary, would strengthen it by increasing the number of undertakings present in the market in question. See ibid, at para 19. 190

  Those conditions were codified in the General Guidelines, paras 28–31.

191

  GC, T-112/99 Métropole télévision (M6), n 82, at 104; see also Guidelines on Article 81(3), n 85, at para 19. 192

  GC, T-112/99 Métropole télévision (M6), n 82, at para 104. The GC borrows this concept from the Commission Notice of 14 August 1990 regarding restrictions ancillary to concentrations, OJ C 203, 19990, para 65. 193

  GC, T-112/99 Métropole télévision (M6), n 82, at para 105. The Guidelines on Article 101(3) TFEU use more restrictive semantics in alluding to a restriction ‘subordinate to the implementation’ of the principal transaction and ‘inseparably linked to it’. See para 29. 194

  GC, T-112/99 Métropole télévision (M6), n 82, at para 106.

195

  Ibid, at para 109.

196

  See Commission Notice of 14 August 1990, n 192, at 5.

197

  Commission Decision, IV/337, Supexie, 23 December 1970, OJ L 10 of 13 January 1971, at 12–14; Commission Decision, IV/23077, Rieckermann/AEG-Elotherm, 6 November 1968, OJ L 276 of 14 November 1968, at 25–8; Commission Decision, IV/597, VVVF, 25 June 1969, OJ L 168 of 10 July 1969, at 22–5; Commission Decision, IV.A-00071, DECA, 22 October 1964, OJ L 173 of 31 October 1964, at 2761–2; Commission Decision, IV/A-00061, Grosfillex-Fillistorf, 11 March 1964, OJ L 58 of 9 April 1964, at 915–16; Commission Decision, IV/26.813, Raymond– Nagoya, 9 June 1972, OJ L 143 of 23 June 1972, at 39–42. 198

  Such cartels often affect States which do not have any competition legislation. Eradicating them is a matter for international cooperation. Regular discussions have, eg taken place within the OECD regarding the adoption of international rules on cooperation on this matter. 199

  See Daniel D. Sokol, ‘What Do We Really Know About Export Cartels and What is the Appropriate Solution?’ (2008) 4(4) J Competition Law and Economics 967–82. 200

  Yet, in Suiker Unie, n 11, this practice seemed to take place primarily within the EU.

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201

  See Commission Notice—Guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty, OJ C 101, para 105 (which only refer to the first example). 202

  See ibid, at para 108.

203

  CJ, Joined Cases 29/83 and 30/83 Compagnie Royale Asturienne des Mines SA and Rheinzink GmbH v Commission, 28 March 1984 [1984] ECR 167. 204

  This led the producers to discontinue, in parallel, their deliveries to Schiltz.

205

  See CRAM/Rheinzink, n 203, at 24 para 24.

206

  CJ, C-306/96 Javico v Yves Saint Laurent Parfums, 28 April 1998 [1998] ECR I-1983: In order to determine whether agreements such as those concluded by YSLP with Javico fall within the prohibition laid down by that provision it is necessary to consider whether the purpose or effect of the ban on supplies which they entail is to restrict to an appreciable extent competition within the common market and whether the ban may affect trade between Member States. (Emphasis added)

207

  See ibid, at para 14.

208

  Commission Decision, Goodyear Italiana–Euram, OJ L 38 of 12 February 1975, esp para 8; recital specifying that resale inside the EU of products that are the subject of a prohibition against export outside the EU would be even less likely because as far as the Commission is aware there are not, nor having regard to the competitive situation in this field, are there likely to be in the foreseeable future, such differences in price for this product between the EEC and other countries as to allow such additional charges to be absorbed. 209

  Commission Decision, IV/171, 856, 172, 117, 28.173, Campari, 23 December 1977, OJ L 70 of 13 March 1978, at 69: reimportation into the common market of bitter previously exported outside the Community by licensees or their trade customers would seem unlikely, in view of supplementary economic factors such as … the duties charged on crossing the European Economic Community borders. 210

  Commission Decision, IV/24055, Kodak, 30 June 1970, OJ L 159 of 21 July 1970, at 22, para 20. 211

  When an importer in a non-Member State re-exports a product to the EU he does so with a profit margin. The accumulated profit margins contribute to making the price of the reimported product prohibitive. 212

  See Guidelines on the effect on trade concept, para 109.

213

  Ibid, at para 104. Or by concluding reciprocal distribution agreements, allowing each party to control the penetration of its rival’s product on its home market. 214

  GC, Joined Cases T-67/00, T-68/00, T-71/00, and T-78/00 JFE Engineering Corp and others v Commission [2004] ECR II-2501. 215

  Ibid, at para 394.

216

  GC, Joined Cases T-24/93, T-25/93, T-26/93 and T-28/93 Compagnie maritime belge transports SA and Compagnie maritime belge SA, Dafra-Lines A/S, Deutsche Afrika-Linien GmbH & Co and Nedlloyd Lijnen BV v Commission, October 1996 [1996] ECR II-01201.

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217

  See Guidelines on the effect on trade concept, n 201, at 82, para 16.

218

  GC, T-66/01 Imperial Chemical Industries Ltd v Commission, nyr, para 334.

219

  See Guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty, n 217, at 13. A somewhat similar principle applies in US economic law. The ‘interstate commerce clause’ provides that the federal legislator only has jurisdiction to regulate interstate trade (and not trade within the states). See Art 1, Section 8, cl 3 of the US Constitution. 220

  Ibid, at para 12: ‘the effect on trade criterion is an autonomous Community law criterion’. 221

  National law shall only apply if the criteria that it provides for justifying its normative jurisdiction are fulfilled. 222

  See R. Wesseling, The Modernisation of EC Antitrust Law (Oxford: Hart, 2000), at 145–

6. 223

  Ibid, at 148–9.

224

  CJ, C-73/74 Papiers Peints de Belgique, 26 November 1975 [1975] ECR 1491, at 1522–

4. 225

  See Report on the functioning of Regulation 1/2003, para 20.

226

  The opposite situation, ie, the authorization, under national law, of an agreement that is incompatible within the meaning of EU law, does not seem to be as problematic since in that case EU law prevails and the agreement is de facto void. 227

  Ibid.

228

  See, in this vein, S. Wilks, ‘Agency Escape: Decentralisation or Dominance of the European Commission in the Modernisation of Competition Policy?’ (2005) 18 Governance 431; A. Riley, ‘EC Antitrust Modernisation’ (2003) 24(12) European Competition L Rev 657. 229

  See Art 3(3) of Regulation 1/2003.

230

  See Art 3(2) of Regulation 1/2003 and para 21 of Report on the functioning of Regulation 1/2003. 231

  Commission Notice—Guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty, OJ C 101, 27 April 2004, at 81. 232

  CJ, C-22/71 Béguelin Import/GL Import Export, 25 November 1971 [1971] ECR 949, at 16. 233

  See Guidelines at para 46.

234

  See ibid, at para 47.

235

  See ibid, at para 50.

236

  See ibid, at para 65.

237

  See ibid, at para 52. The Guidelines further state that: In the case of licence agreements the relevant turnover shall be the aggregate turnover of the licensees in the products incorporating the licensed technology and the licensor’s own turnover in such products. In cases involving agreements concluded between a buyer and several suppliers the relevant turnover shall be the buyer’s combined purchases of the products covered by the agreements.

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238

  See Guidelines, at para 50

239

  See ibid, at para 58.

240

  The turnover threshold shall be calculated on the basis of the total sales of the contract product achieved in the EU during the previous financial year by the undertakings concerned. See Guidelines, at para 54. 241

  See ibid, at para 51.

242

  See ibid, at para 52.

243

  See ibid, at para 53.

244

  See ibid, at para 50.

245

  See ibid, at para 55.

246

  See ibid, at para 48.

247

  See ibid, at para 55.

248

  See ibid, at para 59.

249

  CJ, 42/84 Remia BV et al v Commission, n 188, at 22.

250

  CJ, C-250/92 Gottrup-Klim v Dansk Landbrugs Grovvareselskab [1994] ECR I-5641, at 54: ‘Accordingly, the effect on intra-Community trade is normally the result of a combination of several factors which, taken separately, are not necessarily decisive’. 251

  Besides this test (the pattern of trade test), the Guidelines also mention, at paras 20 and 23, the existence of a distinct, competitive-structure test, which was allegedly established by the Court in the Compagnie Maritime Belge case. In this judgment, the Court declared at para 203 that: practices whereby a group of undertakings seeks to eliminate from the market their main established competitor in the common market are inherently capable of affecting the structure of competition in that market and thereby of affecting trade between Member States within the meaning of Article 86 of the Treaty. See CJ, Joined Cases T-24/93, T-25/93, T-26/93 and T-28/93 Compagnie maritime belge transports SA, n 216. This test, however, was never applied again. It is thus unclear whether it is still good law. 252

  CJ, C-309/99 Wouters, n 47.

253

  Ibid, at para 95.

254

  See for a recent case, CJ, C-393/08 Emanuela Sbarigia, nyr, where the Court considered that national legislation regulating opening periods of pharmacies in Italy could not affect trade between Member States, possibly because this legislation had no influence on the decision of pharmacists to establish in Italy. See para 32. 255

  Judgment of the Court (Sixth Chamber) of 4 May 1988, 30/87 Corinne Bodson v SA Pompes funèbres des régions libérées. Reference for a preliminary ruling: Cour de cassation, France. Competition, Funeral services, Exclusive special rights [1988] ECR I-02479. 256

  Ibid.

257

  See Joined Cases C-295–298/04 Manfredi, 13 July 2006 [2006] ECR I-6619, at para 50.

258

  See ibid, at para 51.

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259

  See CJ, para 49.

260

  See ibid, at para 50.

261

  See T-228/97 Irish Sugar v Commission [1999] ECR II-2969, at para 15.

262

  Ibid, at paras 25–32.

263

  See Guidelines, at para 26.

264

  See ibid, at para 27.

265

  See ibid, at para 41.

266

  CJ, C-107/82 AEG Telefunken v Commission, n 39, at 60.

267

  See Guidelines, at para 43.

268

  In line with the case-law of the EU Courts.

269

  See Guidelines, at para 29.

270

  See ibid, at para 30.

271

  See ibid, at para 32.

272

  CJ, C-56 and 58/64 Consten and Grundig, n 65, at para 17. The Commission however acknowledges this at para 17 of its Guidelines. 273

  CJ, C-56 and 58/64 Consten and Grundig, n 65, esp paras 341–2.

274

  See Guidelines, at para 34.

275

  See ibid, at para 35.

276

  See ibid, at para 34.

277

  CJ, C-123/83 BNIC v Clair, n 127, at 29 and CJ, C-136/86 BNIC v Aubert, 3 December 1987 [1987] ECR 4789, at 18. 278

  See Guidelines, at para 38.

279

  See ibid, at para 51.

280

  See ibid, at paras 44 and 47.

281

  See ibid, at para 45.

282

  This section seeks to ‘provide additional guidance on the application of the effect on trade concept’. See Guidelines, at para 59. 283

  See ibid, at paras 62–3 and para 63 in particular.

284

  See ibid, at paras 64–5.

285

  See ibid, at paras 66–9.

286

  See ibid, at paras 70–2.

287

  See ibid, at para 61.

288

  See ibid, at para 61.

289

  Ibid, at para 77.

290

  See for case law illustrations CJ, SC Belasco et al v Commission [1989] ECR 2117, esp at 33: ‘It must first be recalled that … the fact that a cartel relates only to the marketing of products in a single member state is not sufficient to exclude the possibility that trade between member states might be affected.’ See also CJ, C-8/72 Vereeniging van Cementhandelaren v Commission, 17 October 1972 [1972] ECR 977, at 29; CJ, C-42/84

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Remia BV et al v Commission, n 188, at 22, and CJ, C-35/96 Commission v Italy, 18 June 1998 [1998] ECR I-37175, esp at 48. 291

  See Guidelines, at para 79.

292

  See ibid, at para 82.

293

  CJ, Joined Cases C-215/96 and C-216/96 Carlo Bagnasco ea v Banca Popolare di Novara (BNP)) and Cassa di Risparmio di Genova e Imperia (Carige), 21 January 1999 [1999] ECR I-135, at 51–3. 294

  Besides those agreements, national/regional cartels may also affect trade between Member States (a local cartel whose members resell products imported from other Member States). See Guidelines, at para 82. 295

  See generally Guidelines, at paras 83–5 and esp para 84.

296

  See ibid, at para 85.

297

  See ibid, at para 87. In Rennet, n 76, a Dutch cooperative that produced animal rennet (a coagulant) and cheese colorants had imposed an exclusive purchasing obligation on its members. Although confined to a single Member State, this agreement eliminated the possibility of competing suppliers from non-Member States supplying rennet and colorants on the Dutch market (the members held 90 per cent of Dutch cheese production): CJ, C-61/80 Coöperatieve Stremsel-en Kleurselfabriek v Commission, 25 March 1981 [1981] ECR 851. 298

  See Guidelines, at para 88.

299

  See ibid, at para 90.

300

  See ibid, at para 91.

301

  CJ, 22/71 Béguelin Import Co v SAGL Import Export [1971] ECR 949, esp at 29.

302

  See also CJ, C-453/99 Courage Ltd v Bernard Crehan and Bernard Crehan v Courage Ltd et al, 20 September 2001 [2001] ECR I-6297, at 22. 303

  CJ, C-319/82 Société de vente de ciments et bétons de l’Est SA v Kerpen & Kerpen GmbH und Co KG, 14 December 1983 [1983] ECR 4173, at 11: The automatic nullity decreed by Article 85 (2) applies only to those contractual provisions which are incompatible with Article 85 (1)…. The consequences of such nullity for other parts of the agreement are not a matter for Community law. The same applies to any orders and deliveries made on the basis of such an agreement and to the resulting financial obligations. 304

  By contrast, such questions are of little concern for competition agencies, whose mission ends with a finding of infringement (and possibly, a cease and desist order as well as penalties). 305

  eg because the other party may have stopped cooperating (or made no effort to perform its obligations). 306

  CJ, C-421/05 City Motors Groep NV v Citroën Belux NV [2007] ECR I-659.

307

  CJ, C-453/99 Courage and Crehan, n 302, esp at 31.

308

  See arguments of Advocate General van Gerven in CJ, C-128/92 HJ Banks & Co Ltd v British Coal Corporation [1994] ECR I-1209, at 45. He relied on the principle of giving full effect to EU law and the obligation incumbent on the courts to protect the rights accorded

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to individuals in this respect. The Court rejected this submission, however, holding that the provisions in question, which were derived from the ECSC Treaty, did not have direct effect. 309

  See para 44 of the arguments of the Advocate General.

310

  See para 3.30.

311

  CJ, Joined Cases C-295–298/04 Manfredi, n 257 .

312

  Ibid, at paras 63 and 60–1.

313

  See Courage, n 302, at 29 and Manfredi, n 257, at 62.

314

  Ibid, at 62. It is indeed the task of each Member State to define the forms such legal actions may take (in terms of competent courts, assessment of damages etc). 315

  See Denis Waelbroeck, Donald Slater, and Gil Even-Shoshan, ‘Study on the conditions of claims for damages in case of infringement of EC competition rules’, Ashurst, Brussels, 31 August 2004. 316

  Resolved to make progress in this area, the Commission published a Green Paper in 2005. See ‘Green Paper on Actions for damages for breach of EC antitrust rules’, COM(2005) 672 of 19 December 2005. It then issued a White Paper on damages actions for breach of EC antitrust rules in 2008. See ‘White Paper on actions for damages for breach of EC antitrust rules’, COM(2008) 165 of 2 April 2008. The latter’s primary objective is to improve the regulatory framework allowing victims to exercise their right to demand full compensation for all damages incurred as a result of an infringement of EU competition rules. Ibid, at 3. Here, the Commission thus supported a series of measures that contribute to eliminating the obstacles to a private action. In no particular order, these include representative actions (introduced by qualified entities such as consumer associations, public bodies or professional organizations), class actions (introduced by victim support groups and open to all according to an opt-in clause), the requirement of a minimum level of ‘disclosure’, acknowledgement of the quality of ‘irrefutable proof’ of any decision by an NCA or any final court judgment, the establishment of a presumption of ‘fault’ for undertakings found guilty of a breach of Art 101 or 102 TFEU in a decision or a judgment. 317

  See Guidelines, at para 11.

318

  See Guidelines on Article 81(3), n 85, esp para 46, which explicitly provide that ‘Article 81, paragraph 3, does not exclude a priori certain types of agreements from its scope’ and that ‘In principle, all restrictive agreements which cumulatively met the four conditions of Article 81, paragraph 3, are covered by the exemption rule (61)’. However, severe restrictions of competition ‘are unlikely to fulfil the conditions of Article 81, paragraph 3’. This system of per se prohibition is rarely disputed by economists. See, however, P. Salin, ‘Cartels as Efficient Productive Structures’ (1996) 9(2) Rev of Austrian Economics 29. 319

  See Guidelines on Article 101(3), para 46.

320

  See ibid, at para 46. Which add ‘moreover, these types of agreements generally also fail the indispensability test under the third condition’. 321

  As explained at para 6, however, a ‘mechanical’ application of the guidelines is precluded. Each case must be assessed on its own facts and the guidelines ‘must be applied reasonably and flexibly’. 322

  See Guidelines, at para 7.

323

  CJ, 43/82 and 63/82 VBBB and VBVB [1984] ECR 19.

324

  See Guidelines, at para 44.

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325

  See ibid, at para 42.

326

  See ibid, at para 33.

327

  The Guidelines on the application of Article 81(3) EC also make this distinction, esp at paras 59ff. 328

  Ibid, at para 65.

329

  Ibid, at para 66.

330

  Ibid.

331

  Ibid, at para 67.

332

  Particularly joint production, purchasing, and marketing.

333

  See para 59.

334

  They generally improve the service provided to the customer. Ibid, at para 72.

335

  See para 71.

336

  These circumstances are not reprises in the guidelines. See M. Williams and P. Hofer, ‘Minding your Ps and your Qs: Moving beyond Conventional Theory to capture the nonprice dimension of Market Competition’ in Lawrence Wu (ed), Economics of Antitrust: Complex Issues In a Dynamic Economy (White Plains, NY: National Economic Research Associates, Inc (NERA), 2007). 337

  Ibid, at paras 11 and 92.

338

  See in this sense, D. Geradin, ‘Efficiency Claims in EC Competition Law’ in H. Ullrich (ed), n 4, at 336. 339

  See ibid, at 336.

340

  The Guidelines on Article 81(3) seem to acknowledge this in explaining that the question whether qualitative efficiencies (eg new and improved products) compensate for the anticompetitive effects of an agreement ‘necessarily require value judgment’. See Guidelines on Article 81(3), n 85, at paras 10 and 11. 341

  See Guidelines, at para 49.

342

  Ibid, at para 49: ie, a market sharing or production limitation agreement which would, according to the parties, have the effect of reducing the costs, does not entail an objective improvement. 343

  Ibid, at para 54.

344

  See ibid, at para 43.

345

  See ibid, at para 56, plus a description of the calculation method used.

346

  Ibid, at para 57.

347

  See ibid, at paras 56 and 58.

348

  Also referred to as ‘general interest’ considerations. See, on this, A. Komninos, ‘Noncompetition Concerns: Resolution of Conflicts in the Integrated Article 81’, Working Paper (L) 08/08, The University of Oxford Centre for Competition Law and Policy; G. Monti, ‘Article 101 TFEU and Public Policy’ (2002) 39 Common Market L Rev 1057–99; H. Schweitzer, ‘Competition Law and Public Policy: Reconsidering an Uneasy Relationship. The Example of Art 81’, EUI Working Papers Law 2007/30, Italy. This extensive interpretation originates in the fact that within the EU legal order, other policies might have to take prevalence—or be combined—with competition policy.

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349

  Also referred to as ‘public policy’ or ‘general interest’ considerations. See, on this, C. Townley, Article 81 EC and Public Policy (Oxford: Hart Publishing, 2009); Komninos, n 348; Monti, ‘Article 101 TFEU and Public Policy’, n 348, at 1057–99; Schweitzer, n 348. 350

  GC, T-112/99 Métropole Télévision (M6), n 82, at 118.

351

  Commission Decision of 8 December 1983, IV/29.955, Carbon Gas Technologie, 83/669/ EEC; Commission Decision 91/38/EEC, IV/32.363, KSB/Goulds/Lowara/ITT, OJ L 19, 1991, at 25, para 27; Commission Decision 92/96/EEC, IV/33.100, Assurpol, OJ L 37, 1992, at 16, para 38; Commission Decision 2000/475/EC of 24 January 1999, CECED, OJ L 187, 2000, at 47, paras 51 and 57; Commission Decision 2001/837/EC of 17 September 2001, DSD, OJ L 319, 2001, at 1; Commission Decision of 16 October 2003, ARA, ARGEV, ARO, OJ L 75, 2004, at 59. 352

  CJ, C-42/84 Remia BV et al v Commission, n 188, at 42; CJ, Joined Cases C-209 –215/78 and 218/78 Van Landewyck v Commission [1980] ECR 3125 at 182; Commission Decision of 4 July 1984, 84/380/EEC, Synthetic Fibres, OJ L 207, 1984, at 17, para 37. 353

  Commission Decision, IV/428, VBVB/VBBB, 25 November 1981, OJ L 54, 1982, at 36; CJ, 43 and 63/82 VBVB and VBBB v Commission [1984] ECR 19; Commission Decision, EBU/ Eurovision System, OJ L 179, 1993, at 23, para 62. See, more generally, M. Ariño, ‘Competition Law and Pluralism in European Digital—Broadcasting: Addressing the Gaps’ (2004) 54 Communications & Strategies 97, at 107. 354

  Commission Decision 93/49/EE of 23 December 1992, IV/33.814, Ford Volkswagen, OJ L 20, 1993, at 14. 355

  Commission Decision of 15 April 2002, Laurent Piau v FIFA, para 29. In this case, the Commission considered that the FIFA rules on the professional conduct for players’ agents worldwide justified by the general interest ‘are proportionate and compatible with competition law’ (paras 60–1). See, on this, E. Loozen, ‘Professional Ethics and Restraints of Competition’ (2006) 31(1) European L Rev 41. 356

  Certain observers have sought to construe the occasional Commission and Court references to noncompetition benefits as obiter dicta. See L. Gyselen, ‘The Substantive Legality Test under Article 81-3 EC Treaty—Revisited in light of the Commission’s Modernization Initiative’ in von Bogdandy, Mavroidis, and Meny (eds), European Integration and International Coordination, Studies in Transnational Economic Law in Honour of ClausDieter Ehlermann (The Hague: Kluwer, 2002). See, contra, Townley, n 349, at 66. Similarly, it has been argued that most of those non-competition concerns could be reconciled with the Guidelines approach, in that they contained an efficiency component. Finally, others have explained that such non-competition concerns were, by their very nature, ancillary and could thus potentially be taken into account within the Art 81(1) assessment under the ancillary restraints doctrine. See Loozen, n 355. 357

  See J. Bourgeois and J. Bocken, ‘Guidelines on the Application of Article 81(3) of the EC Treaty or How to Restrict a Restriction’ (2005) 32(2) Legal Issues of Economic Integration 111; P. Lugard and L. Hancher, ‘Honey, I Shrunk the Article! A Critical Assessment of the Commission’s Notice on Article 81(3) of the EC Treaty’ (2004) 7 European Competition L Rev 413. 358

  See Guidelines on Article 81(3), n 85, at para 40.

359

  See L. Kjolbye, ‘The New Commission Guidelines on the Application of Article 81(3): An Economic Approach to Article 81’ (2004) 9 ECLR, at 570.

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360

  The rationale for this interpretation is to ensure that, with decentralization, NCAs and courts will not exempt otherwise anticompetitive conduct on the basis of public policy goals. See Kjolbye, n 359. 361

  See Komninos, n 348, at 6.

362

  The legal basis for this theory is debatable. The Commission relies on the Matra judgment, n 143, which, it argues, ‘implicitly’ embodies the principles that non-competition concerns should be subsumed under the four conditions of Arte 81(3). However, in Matra, the Court arguably held that regardless of non-competition concerns, the agreement could benefit from an exemption solely on the basis of a classic economic analysis. See Guidelines on Article 81(3), n 85. 363

  An objective falling within the scope of Art 81(3) according to the Court of Justice in Remia, n 188, at para 42: in connection with the argument to the effect that the survival of the undertaking and the preservation of jobs are only possible if the non-competition clause applies for a period of 10 years, it must indeed be admitted that, as the Court held in its judgment of 25 October 1977 in case 26/76 (Metro, (1977) ECR 1875), the provision of employment comes within the framework of the objectives to which reference may be had pursuant to article 85 (3) because it improves the general conditions of production, especially when market conditions are unfavourable. 364

  Of course, an agreement of this type may be beneficial to consumers in the long run. Yet, the Guidelines take a restrictive stance on long-term efficiencies. At para 87 the Guidelines provide that while The fact that pass-on to the consumer occurs with a certain time lag does not in itself exclude the application of Article 81(3), … the greater the time lag, the greater must be the efficiencies to compensate also for the loss to consumers during the period preceding the pass-on. (Emphasis added) 365

  See P. Sands, Principles of International Environmental Law (Cambridge: Cambridge University Press, 2003), at 1016. 366

  Along the lines of the ‘mandatory requirements’ doctrine that applies under Art 30 EC. See Komninos, n 348, at 12. 367

  eg an agreement to build new generation capacity (a nuclear plant); an agreement to build a new pipeline for the transport of gas; a 25-year supply agreement between a gas producer and a gas distributor. 368

  It is only defined in passing in a number of EC secondary law instruments in the gas sector. 369

  In Community economic law, this rule is habitually upheld by the community Courts in the area of free movement. See, with regard to the free movement of goods, CJ, C-319/05 Commission v Germany [2007] ECR I-9811, at 88. 370

  Ibid, at 84.

371

  See Guidelines on Article 81(3), n 85, at para 43.

372

  See Kjolbye, n 359, at 572.

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373

  Additionally, a number of less explicit motives may have prompted the Commission to establish this standard. Among other things, the market-by-market standard limits the risk that public policy considerations—which do not strictly take place on a relevant market— might be invoked to justify an otherwise anticompetitive agreement. 374

  In economic language, the standard endorsed by the case law of the EU Courts comes close to a ‘total welfare’ standard. 375

  GC, T-86/95 Compagnie Générale Maritime and others v Commission [2002] ECR II-1011, at 343. This point has been confirmed in a number of recent rulings of the Community Courts. See, on this, J. Aitken and S. Mitchell, ‘Efficiency Defences under Art 81 EC—Is the Hurdle Getting Higher?’, in Competition Law (2009), at 64–5. The GC went on to note that Art 101(3) does not ‘requir[e] a specific link with the relevant market’. 376

  GC, T-168/01 GlaxoSmithKline v Commission [2006] ECR II-2969, at 248.

377

  CJ, C-238/05 Asnef-Equifax [2006] ECR I-11125, at 70. The Court accordingly dismissed the allegation that an agreement which had a detrimental effect on a particular category of consumers and no pro-competitive effects in that respect was unlikely to benefit from an exemption. 378

  See Guidelines on Article 81(3), n 85, at para 82. However, in a setting of this kind, the agreement may benefit from the derogation enshrined at para 43 of the Guidelines: ‘efficiencies achieved on separate markets can be taken into account provided that the group of consumers affected by the restriction and benefiting from the efficiency gains are substantially the same.’ 379

  See Guidance Communication on the Commission’s enforcement Priorities in Applying Article 82 of the EC Treaty to Abusive Exclusionary Conduct by Dominant Undertakings, C(2009) 864 final, at para 90. 380

  See Guidelines, at para 90.

381

  See ibid, at para 92.

382

  See ibid, at para 85 (which, however, erroneously refer to consumers in the same relevant market). 383

  See Guidelines, at paras 87–8.

384

  See ibid, at para 96.

385

  See ibid, at para 97.

386

  See ibid, at para 98.

387

  See also T. Tridimas, ‘Searching for the Appropriate Standard of Scrutinity’ in E. Ellis, The Principle of Proportionality in the Laws of Europe (Oxford: Hart Publishing, 1999): ‘The test grants to the Community institutions ample discretion and applies to both aspects of proportionality, i.e. suitability and necessity.’ 388

  Commission Decision, COMP 377D07 81, GEC-Weir Sodium, 23 November 1977, OJ L 327 of 20 December 1977, at 26. 389

  Commission Decision, UEFA, 21 December 1994, OJ L 378 of 31 December 1994, at 45, paras 181–91. 390

  See Guidelines, at paras 73–82.

391

  See ibid, at para 105.

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392

  See ibid, at para 109. This concept is often erroneously associated with proving that the agreement does not result in the creation of a dominant position on the market (dominant undertakings can certainly conclude agreements). In which case the agreement might simultaneously come within the ambit of Art 102 TFEU (subject to proving an abuse). See Guidelines, at para 104. 393

  See Guidelines, at para 112.

394

  See ibid, at para 113.

395

  Ibid, at para 110: The last condition for exception provided in Article 81, paragraph 3, is not fulfilled if the agreement eliminates competition in one of its most important expressions. This is particularly the case when an agreement eliminates price competition … (Emphases added)

396

  Commission Decision, IV/34.072, Langnese-Iglo GmbH, 23 December 1992, OJ L 183 of 26 July 1993, at 19–37; Commission Decision, IV/31.533 and IV/34.072, Schöller Lebensmittel GmbH Co KG, 23 December 1992, OJ L 183 of 26 July 1993, at 1–18. 397

  Ibid, at paras 126–41. In other words, the agreement had a positive effect on the noncompete condition (C4). 398

  Ibid, at para 146: It can be presumed that where there is a duopolistic market structure such as that observed on the relevant market here, competition between the duopolists tends to be limited. Any aggressive conduct on the part of either undertaking will very likely produce a corresponding reaction on the part of the other, whose market potential is comparable. The conviction will therefore arise that the maximization of the profits of both will be best served if they refrain from competing with one another. (p. 174)

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4 Abuse of Dominance Damien Geradin, Anne Layne-Farrar, Nicolas Petit From: EU Competition Law and Economics Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit Content type: Book content Product: Oxford Competition Law [OCL] Published in print: 22 March 2012 ISBN: 9780199566563

Subject(s): Defining abuse of dominant position — Determining abuse of dominant position — Basic principles of competition law

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(p. 175) 4  Abuse of Dominance I.  Introduction 4.01 II.  Determining Dominance 4.04 A.  Market Definition 4.05 B.  Dominance 4.48 III.  The Notion of Abuse 4.131 A.  Exclusionary Abuses 4.132 B.  Exploitative Abuses 4.371 C.  Price Discrimination 4.452

I.  Introduction 4.01  Article 102 TFEU prohibits dominant firms from abusing their dominant position. Two elements need to be present for Article 102 to apply to a given firm conduct: (i) that firm must be dominant on one or several markets and (ii) it must have abused that dominant position. In other words, being dominant is not unlawful in itself, fortunately as firms may acquire dominance by competing on the merits (eg because they offer better products and services). Similarly, Article 102 applies only to firms that already hold a dominant position. Unlike in US antitrust law, ‘monopolization’, that is, the acquisition of monopoly power through anti-competitive means, is not an offence under EU competition law. 4.02  Over the past decade, the Commission has adopted a number of high-profile Article 102 decisions in many critical sectors of the European economy (energy, financial services, airlines, pharmaceuticals, postal services, telecommunications, etc). The Commission has also investigated and condemned major information technology firms, such as Microsoft and Intel. The decisional practice of the Commission and the case law of the EU Courts has often been harshly criticized by scholars and practitioners for being excessively formalistic and, thus, not in line with economic theory. Reacting to such criticisms, the Commission has attempted since 2004 to ‘modernize’ its enforcement of Article 102. It did so by first issuing a Discussion Paper in December 2005,1 which has no binding effect but was intended to stimulate debate on the way Article 102 should be applied. This document was followed in December 2008 by a Guidance Paper, which outlines the way the Commission will set its enforcement priorities with respect to exclusionary abuses.2 (p. 176) 4.03  This chapter is divided in two main sections. Section II explores the assessment of dominance. As a firm can only be dominant on a given market, this section starts by discussing the various methods that are used by the Commission and the Courts to define markets. Section III then reviews the second element that is required to trigger the application of Article 102, that is, the proof of an abuse.

II.  Determining Dominance 4.04  The first step in the assessment of dominance is to define the relevant market(s) (Section A). Once such markets have been defined, various economic tools can be used to determine the extent to which one or several firms are dominant on them (Section B).3

A.  Market Definition

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4.05  Although the exercise of defining a ‘relevant market’ for competition analysis continues to be discussed, as illustrated amply in the discussions regarding the most recent round of the US Horizontal Merger Guidelines revisions, it also continues to be an instrumental tool in the application of Article 102 TFEU. Because one of the primary factors of interest in an Article 102 matter, namely a firm’s market power, is nearly impossible to measure directly, we must rely on proxies. Defining a ‘relevant market’ is one of the most important steps in assessing proxies of market power. 4.06  According to the Commission’s Notice on the definition of the relevant market for the purposes of EU competition law (hereinafter ‘the Commission’s Notice’): Market definition is a tool to identify and define the boundaries of competition between firms. It serves to establish the framework within which competition policy is applied by the Commission. The main purpose of market definition is to identify in a systematic way the competitive constraints that the undertakings involved face.4 4.07  The importance of identifying ‘the competitive constraints’ lies in gauging an undertaking’s market power. If a firm faces no competitive constraints, it is free to restrict its output and to charge the highest price its customers will pay for its goods and services— in other words, the undertaking is a monopoly. The more effective the competitive constraints, the closer the quantity supplied and the price charged will be to the perfectly competitive ideal, which offers a nice theoretical benchmark even if perfect competition is rarely ever seen in practice. (p. 177) 4.08  The one instance in which market definition is irrelevant is when all reasonable alternative definitions lead to the same conclusion. In particular, the Commission’s Notice observes that If under the conceivable alternative market definitions the operation in question does not raise competition concerns, the question of market definition will be left open, reducing thereby the burden on companies to supply information.5 4.09  Given the pivotal role that the relevant market plays in Article 102 assessment, it is important that the definition not be over-or under-inclusive.6 If the definition is too narrow, constraints will be unjustly imposed on an undertaking with no real market power in practice; if it is too broad, a firm with genuine market power will be able to threaten the operation of effective competition without fear of agency oversight or imposed restrictions. 4.10  In light of the balance required in the definition of a relevant market, it is not surprising that Article 102 case outcomes can be manipulated through the chosen market definition. Parties seeking to avoid competition agency scrutiny typically argue for as broad a market as possible, hence implying the existence of many competitive constraints and the absence of any meaningful market power. On the other hand, parties seeking to establish an undertaking’s dominance, and hence seeking to impose ‘special responsibilities’ for that undertaking’s conduct, can argue for a narrow market definition—and indeed some of the Commission’s older cases have been criticized for this reason.7 The Hilti case is one example.8 In Hilti, the Commission defined a narrow relevant market consisting of poweractuated fastening systems (nail guns); it did not consider whether the prices of other fastening systems, such as screws, bolts, welding, rivets, and the like posed any constraint on the pricing of nail guns, or whether customers might switch among these various fastener types if faced with a nail gun price increase.

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4.11  As a final caveat, it is important to understand that the ‘relevant market’ is a distinct competi-tion concept. As such, a ‘market’ for competition policy purposes typically has an entirely different meaning from any use of the word ‘market’ that the parties under investigation may make in their internal business documents, such as those describing strategic planning and day-to-day operations, or from the general use of the term ‘market’ as regularly seen in news media or the popular press. 4.12  Because of the manipulation and misinterpretation risks involved, it is important to use economic tools—and whenever possible, data analysis—to determine market definition for Article 102 purposes. Regardless of the specific approach taken, however, we must remember why we are defining a relevant market in the first place: to proxy for the competitive constraints facing the firm(s) under inquiry. Market definition informs on that issue, but it is not definitive given its indirect nature.

(p. 178) (1)  The components of a relevant market 4.13  Within competition assessments, a ‘relevant market’ comprises the intersection of the product market and the geographic market, both of which should be defined using economic analysis. The product market identifies the products and producers that impose effective competitive constraints on the firms whose actions are under scrutiny while the geographic market identifies the physical area within which those products and producers compete.

(a)  The product market 4.14  The Commission’s Notice specifies that ‘[a] relevant product market comprises all those products and/or services which are regarded as interchangeable or substitutable by the consumer, by reason of the products’ characteristics, their prices and their intended use.’9 The task in market definition, then, is to determine how consumers view products and whether they will move to another product if the price of their first product of choice increases by an appreciable amount. This task is accomplished through the aide of two key concepts—demand-side substitution and supply-side substitution—plus one additional but more controversial concept—potential competition. (i)  Demand-side substitution

4.15  Demand analysis identifies those products that consumers view as interchangeable. As such, demand-side substitution ‘constitutes the most immediate and effective disciplinary force on the suppliers of a given product, in particular in relationship to other pricing decisions.’10 4.16  Consider a simple example to illustrate the concept of demand-side substitution. When at the grocery store facing the products arrayed on the baking aisle, you see three brands of granulated sugar. Interestingly, even though granulated sugar is by and large a commodity product, you will probably see that all three brands have similar but slightly different prices, most likely reflecting brand strength. However, if one of those brands attempted to raise its price by some small but significant amount, chances are quite high that many consumers would switch from purchasing that brand to one of the other, now relatively less expensive, brands precisely because granulated sugar is largely a commodity product. Such product switching would be direct evidence of demand-side substitution and would indicate that the three granulated sugar brands are in the same relevant market for the purposes of Article 102 assessments. 4.17  But we cannot stop our market definition assessment there. What of honey, corn syrup, or artificial sweeteners—are these products in the same relevant market with granulated sugar as well? The answer depends on the particular circumstances in the case at hand and whether the consumers of interest are willing to switch to honey, say, if the relative price of granulated sugar rose by a small but significant amount. Thus, as

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O’Donoghue and Padilla explain, ‘[t]he scope and scale of demand-side substitution depends entirely on consumer preferences’.11 (p. 179) 4.18  To take the argument further, it is unimportant whether two products appear, as a matter of casual observation, to have similar physical characteristics (as will two brands of granulated sugar). Consumers may view seemingly similar products as not being interchangeable. This is often the case when consumers hold strong brand preferences. Socalled luxury goods (fur coats, designer clothes, sports cars, and the like) often meet this criterion, as the brand name itself carries a great deal of weight for differentiating the products for certain consumers. And, equally, consumers may view products with distinct physical characteristics as close substitutes, as would be the case if consumers switched from one brand of granulated sugar to honey in the face of a relative price change. It is not enough, therefore, to describe products qualitatively or discuss them anecdotally; to the extent possible given the information available, one must examine consumer preferences and behaviour to determine the effects of demand-side substitution. (ii)  Supply-side substitution

4.19  The complement to demand-side substitution is supply-side substitution. Here it is suppliers that define the substitutes (within, of course, the acceptance of consumers). If ‘suppliers are able to switch production to the relevant products and market them in the short term without incurring significant additional costs or risks in response to small and permanent changes in relative prices’, then supply-side substitution will act as a constraint on an undertaking’s market power.12 For instance, suppose that a shoe manufacturer attempted to raise the price it charges for size 38 shoes. Other shoemakers could easily and quickly increase their own production of size 38 shoes, thereby increasing the supply of that size shoe and thus countering the price increase. In other words, timely entry places a check on incumbent firms’ ability to raise prices or restrict output. 4.20  Some conditions must be met for supply-side substitution to be relevant, however. Most importantly, the assets needed to produce, distribute, and commercialize the substitute product must be readily available to the suppliers; the suppliers must have incentives to make rapid production adjustments in the face of significant but small price increases; and consumers must see the resulting goods as viable substitutes. Moreover, enough suppliers must be able to switch production in this rapid fashion in order to provide a meaningful constraint on prices. Depending on the market circumstances, numerous suppliers may need to be deemed capable of such a swift response to a price increase in order to have a consequential impact on market prices—that is, the increase in the quantity supplied must be large enough to reverse the price increase in order for supply-side substitution to pose an effective competitive constraint. As a result, the Commission’s Notice on market definition requires that ‘most of the suppliers’ or ‘most if not all manufacturers’ are capable of shifting between the production of goods before the Commission will consider those producers as offering supply-side substitutes in the same market.13 (iii)  Potential competition

4.21  The final element of product market definition is determining whether potential competition can constrain an undertaking’s market power. Rather than being firms already supplying goods and able to shift production quickly in response to changes in demand, as with (p. 180) supply-side substitution, potential competition represents those entities that are currently outside the market, but could enter the market in the longer term or through the investment of sunk costs.

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4.22  Three distinguishing features separate supply-side competition from potential competition. First is speed. With supply-side substitution competition is fast, whereas with potential competition it is assumed to take a year or more, due to the investments required. It is here that barriers to entry will be considered: low to no barriers to entry imply faster and less costly entry whereas the presence of significant barriers to entry may render potential competition altogether infeasible. Second, the level of price effects needs to be larger for potential competition. Because supply-side competition is rapid and does not require significant sunk cost investments, it can respond to relatively modest price increases. In contrast, potential competition responds to expected long-term prices and therefore tends to be triggered by greater price increases. Third, the scope of price effects differs as well. Again because it is swift and since competitors anticipate it, supply-side competition affects both pre-entry and post-entry prices, whereas potential entry affects only post-entry prices because the competition must be realized to be effective. 4.23  Given its more nebulous nature, potential competition may or may not be part of the market assessment in any given Article 102 case. As the Commission’s Notice explains, ‘If required, this analysis is only carried out at a subsequent stage, in general once the position of the companies involved in the relevant market has already been ascertained, and when such position gives rise to concerns from a competition point of view.’14

(b)  The geographic market 4.24  In addition to the product market definition, the second necessary element of defining a relevant market for an Article 102 assessment is determining the geographic scope of the market. Let us again start with the Commission Notice description: The relevant geographic market comprises the area in which the undertakings concerned are involved in the supply and demand of products or services, in which the conditions of competition are sufficiently homogeneous and which can be distinguished from neighbouring areas because the conditions of competition are appreciably different in those area.15 Here the task is determining how far a consumer is willing to travel or transport a product when faced with a price increase for the first product of choice. 4.25  For physical goods, transport costs are among the most important factors determining the extent of a geographic market. Most durable goods, such as household appliances like dishwashers and refrigerators, are large, heavy, and therefore expensive to ship across locales. As a result, these products tend to have narrower, often local markets for end consumers. Likewise, location-specific services, such as railway and maritime shipping, typically have narrow local markets—sometimes comprising just one port or one city’s airports. This was the case in both Stena Sealink and Aéroports de Paris, where the Commission determined that a specific transport location constituted the relevant market.16 Obviously, if the service at (p. 181) issue is shipping out of a specific city, only shipping services located within or very nearby that city will be relevant. 4.26  When transport costs are low, however, the geographic limits of the market are often flexible. Software, for instance, has low or even zero transport costs (eg zero when it is offered as a service over the internet), so software markets may be defined narrowly by functionality, but are often global in geographic scope. Thus in both the Microsoft and PeopleSoft-Oracle matters, the Commission found global software markets.17 For those cases, the product market definition—the specific software applications and features that were determined to compete with one another—was paramount, while geography played a far lesser role as the geographic scope of sales was determined to be worldwide.

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4.27  For intangible goods, transport costs are irrelevant. In particular, intellectual property (IP) does not have geographic barriers per se, but rather legal barriers that define statutory regions. This flows from the fact that IP rights are granted by governments and hence are recognized only by the government doing the granting. For instance, an innovator must obtain a patent in each jurisdiction for which he wishes to obtain the rights of exclusion for her innovation, but if she chooses to do so she can generally obtain patents on the innovation in multiple jurisdictions. When multi-jurisdiction coverage is obtained, while the particular patent numbers will differ across locales and the specific patent claims may be written somewhat differently across the patents so as to be in accordance with local practice, for all intents and purposes the patented innovation is covered in a very broad geographic area. The question then becomes, as before, how do customers (licensees or consumers purchasing a product embodying the patent) see the product and which geographic areas should be included in the market according to customer behaviour. 4.28  Chains of substitution For either product or geographic market definitions, the products and services at issue may involve ‘chains of substitution’. It is often the case that drawing a bright-line circle around products clearly to define a market is quite difficult. Even though it might be clear that the extremes of the product or geographic spectrum would obviously not be in the same market, going stepwise through the products or areas does not offer a clear stopping point. In this circumstance, a somewhat arbitrary demarcation for the market is chosen, but allowance is made for ‘chains of substitution’ outside that market. Hence, certain products will be deemed indirect substitutes to products that fall within the relevant market, even though the indirect substitute products do not fall directly in the same market. 4.29  For example, suppose that it is determined that grocery stores are in the same relevant market if they are within ten minutes drive of one another. By this rule, stores A and B are considered to be in the same relevant market. A third store, C, is 20 minutes drive from store A, but is within ten minutes of store B, meaning that stores B and C would be in the same relevant market. Store C would therefore be considered to pose an indirect constraint on A. Because store C constrains the prices charged in store B, and store B constrains the prices charged in store A, store C indirectly constrains the prices charged in store A. More specifically, if store A attempted to raise its prices, it must consider whether store B will follow suit, or whether it will keep its prices relatively low and thus take customers away from A. Of course, in (p. 182) making its determination, store B will consider how store C will react. With store C not raising its prices, B will be less likely to raise its prices, even though A’s price increase means that competition with store A is softer and would allow B some leeway to increase its own prices. This chain of substitution mitigates store A’s incentive and ability successfully to increase its prices. 4.30  The chain of substitution line of reasoning has been applied in several Commission cases. One example is the AstaZeneca/Novartis herbicide case.18 There the Commission found that a chain of substitution linked two broad spectrum herbicides to one another, even though the products were not found to be in the same relevant market. The hypothetical monopolist test was used to establish the reasoning: the Commission concluded that a hypothetical monopolist would not find it profitable to raise the price of the herbicide at issue as that would lead to a drop in overall sales and profits as customers substituted to another of the broad spectrum herbicides. Thus, even though the products differed and were not considered direct substitutes, the Commission concluded that they nonetheless exerted price constraints on one another.

(2)  Methods for defining a relevant market

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4.31  The hypothetical monopolist test A number of constructs exist for measuring demandside substitution. One of the more prevalent is the hypothetical monopolist test (HMT). This test defines the narrowest market (collection of products plus geographic area) for which a single firm could sustainably raise prices or otherwise exercise market power. It is a ‘thought experiment’, since it defines a counterfactual that can only be estimated and cannot be known. It is also a flexible test in that it can use either quantitative or qualitative evidence, or both—although (reliable) quantitative evidence is always preferable. 4.32  Under this test, one asks how many customers will switch away from the good under investigation in response to a ‘small but significant and non-transitory increase in price’, or SSNIP. Common practice sets the SSNIP amount at 5–10 per cent. Thus the typical analysis selects a ‘candidate market’ or bundle of goods, assumes that the price of those goods increases by 5–10 per cent, and estimates how many customers would switch to goods outside the candidate market in reaction to the price increase. If that number is small enough that a hypothetical monopolist supplying the candidate bundle of goods would increase its profits by raising its price, then the next step would be to make the candidate market a bit smaller and again check whether a SSNIP of 5–10 per cent would be profitable for the hypothetical monopolist. If, however, it is found that a SSNIP would not be profitable for the candidate market, then products are added sequentially until a product market is obtained for which a 5–10 per cent price increase would be profitable for a hypothetical monopolist supplying the entire candidate market. The goal, then, is the smallest market for which such a price increase would be profitable for a hypothetical monopolist. 4.33  The HMT can also factor in supply-side substitution. The question in this case is whether and how many suppliers of products not included in the candidate market will react to a price increase by shifting their production to supply the now higher priced good, thereby increasing competition and lowering prices. (p. 183) 4.34  In conducting the HMT, recall that a price increase has two opposing effects for a supplier’s profits. Since profits equal price minus cost (referred to as net price or gross margin) multiplied by the quantity of goods sold, there are two elements we must consider: gross margin and quantity sold. The test assumes that costs remain the same, so any price increase will raise the gross margin, but it can also induce changes in quantities sold. For the hypothetical monopolist, then, the first effect is that a higher price translates into a higher profit margin, meaning that each sale made contributes more to the supplier’s overall earnings. On the other hand, consumers do not like higher prices and therefore tend to purchase less as prices rise, meaning that fewer sales are likely to be made when prices increase. In order for a supplier to benefit from raising prices, the first effect of a higher margin for a given unit of product sold must outweigh the second effect of fewer units being sold as prices rise. 4.35  Critical loss Another way to gauge demand-side substitution is the critical loss test. This test measures the price increase that just offsets the two reactions deriving from a price increase, leaving profits unchanged. In other words, the critical loss amount is the price increase that results in an increase in the gross margin just sufficient to offset the loss of profits stemming from a decline in the quantity sold. This level can then be compared to the drop in sales that is expected to result from a price increase for the undertakings under investigation. If the expected loss is greater than the critical loss, then a price increase will not be profitable and the party(s) are sufficiently constrained. Thinking of the problem in this fashion can be particularly helpful in merger contexts where the newly combined undertaking is expected to raise prices by some anticipated amount.

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4.36  Note that critical loss analysis is inappropriate in two-sided markets because it will lead to overly narrow market definitions. This follows because the formula fails to take into account the lost volume on the ‘B’ side of the market that stems from a price increase to the ‘A’ side.19 4.37  Statistical analysis We can also look at how the products within the candidate market react when prices outside that market increase. Specifically, we can calculate price correlations across two products over time. If the correlations are positive, then the supposed outside goods may actually belong inside the market, suggesting a broadening of the candidate market. However, observe that correlation is a scale variable that ranges from zero to one, and as such, the delineation for what constitutes a sufficiently ‘positive’ correlation is not clearcut. Moreover, the correlation may be spurious, caused, say, by a common shock that affects both products and has nothing to do with either demand-or supply-side substitution. Nonetheless, correlation can be one of the many tests that are considered when looking at market definition and can be used to corroborate findings obtained under another method. 4.38  Cointegration analysis is another useful statistical tool. Similar to simple correlations, cointegration tests whether two price series show the same, constant trend over time.20 Such a constant trend can be indicative of supply-side substitution, which continually draws rising (p. 184) prices back to their mean level. Cointegration has the advantage of measuring prices over time, so delayed price effects can be captured and common shocks (eg strikes, natural disasters) can be identified. 4.39  Data requirements But how, exactly, are HMT, the critical loss, and the other tests calculated? Clearly data of some sort are required. The candidate of choice is typically historical sales records. For instance, if the undertakings involved in the Article 102 investigation have company records of prices charged and quantities sold going back for any reasonable period, one can look for price change events and then calculate how the quantities sold changed in response in order to measure the demand-side substitution. 4.40  Full demand estimation through econometric methods (regression analysis) is the most sophisticated tool for assessing demand substitution and market definition, although the data demands are the greatest. While this most thorough approach is not feasible for many markets, for some it is quite common. For instance, with the ready availability of supermarket scanner data, economists now have access to detailed price and quantity data that enables a detailed calculation of price effects (eg price elasticities, customer switching patterns). Thus markets can be carefully delineated for consumer goods sold in groceries. 4.41  So-called ‘natural experiments’ are another favourite empirical approach among economists. A natural experiment occurs when some outside force (eg a strike, a flood, a war, a change in legislation) causes a demand shock wholly unrelated to market power to which consumers might react. Quantitative analysis then considers the price and quantity patterns before and after this shock. For example, the global oil price increases that took place in 2008–09 affected the prices of many goods for which transportation is a key cost component. One such particular good was milk, which experienced price increases of 20–25 per cent across Europe in 2009. If the Commission were faced with an Article 102 case involving milk sales, this natural experiment would have enabled an empirical test on consumers’ reactions to the price increase. One could check, for instance, whether milk consumption fell by any appreciable amount and whether soy milk consumption rose, as soy milk is a possible substitute for cow’s milk. If soy milk consumption did rise in reaction to an increase in the price of cow’s milk (holding the price of soy milk constant), then it might be reasonable to consider both cow’s milk and soy milk in the same relevant market.

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4.42  Questionnaires and surveys Less reliable, but certainly better than no data at all, are customer interviews, questionnaires, and surveys. Although surveys can cover large numbers of customers, in competition cases they are most often relatively small-scale endeavours asking some ‘representative’ group of customers what they would do if faced with a price increase of a particular good. The questions might elicit the names and brands of possible substitute goods or they might instead provide respondents with lists of possible substitutes and record their reactions. 4.43  Survey methods are less reliable than data sources providing evidence on actual customer behaviour, however. This follows because people answering hypothetical questions on their potential behaviour in reaction to something that has not actually occurred are known to make mistakes in judgment. In particular, people may provide the answer that they believe the interviewer wants to hear. Or they may simply be unable to predict their behaviour in the absence of real experience. Nevertheless, such indirect evidence is often the best one can muster. (p. 185) 4.44  Company documents Finally, if neither direct data on customer behaviour in the form of sales data nor indirect data in the form of surveys conducted for the case are available, we can review the internal documents of the undertakings for clues on the relevant market definition. In particular, strategic planning documents often identify the competitors and products that the undertakings consider to be their top rivals. Firms sometimes conduct studies on customer substitution as well, recording quantity changes as prices were adjusted. And they may have customer surveys or questionnaires conducted for internal business reasons (and therefore untainted by any desire to elicit certain responses for either support or defence against Article 102 allegations) that can inform on the relevant market. 4.45  Important caveats Regardless of the quality and detail of the data employed, none of the above tests is perfect. One particular concern is the so-called ‘cellophane fallacy’, named after the case in which it was first identified.21 The fallacy occurs when a SSNIP is applied to a firm that is already pricing at supra-competitive levels. Under that circumstance, the HMT or critical loss test may indicate that the undertaking cannot profitably raise its prices, and hence suggest that the firm does not have significant market power, simply because raising prices above the already-existing monopoly level would push customers to otherwise distant substitutes or to doing without the good altogether, thereby leading to a profit loss for the undertaking. In other words, a monopolist will already have set prices so as to maximize its profits, so naturally any additional price increase will lead to a profit loss. In this case, the test would falsely indicate that the firm has no market power. In US v du Pont, for instance, the Court found that du Pont, a leading producer of cellophane, was active on the ‘flexible packaging market’, and held on this market a share of approximately 20 per cent. However, the Court assessed the alternative for cellophane after du Pont had raised its cellophane prices to the monopoly level. Hence, the Court erroneously included imperfect substitutes in the relevant market. 4.46  To guard against the cellophane fallacy, one could estimate the competitive price before conducting a hypothetical monopolist test with a SSNIP or a critical loss test. In practice, however, if determining the competitive price were easy, we would not need to conduct any other tests. We could simply compare the actual price the undertaking was charging in the marketplace with the competitive one to assess that undertaking’s market power—we would not need any HMT or critical loss estimation. Alternatively, one could ignore the HMT test and instead rely on qualitative evidence to determine the relevant market. The point of the HMT and critical loss tests, however, is to provide meaningful structure to the assessment of markets, to ensure that physically similar products are included in the same market only when consumers view them as substitutes, and to identify those seemingly dissimilar products that should be included in a market because consumers substitute among them. It is difficult to impossible to achieve those goals through From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

qualitative analysis alone. As a result, the Commission’s Discussion Paper observes that ‘[t]he SSNIP test at prevailing prices remains useful in the sense that it is indicative of substitution patterns at those prices.’22 4.47  The best approach, then, is to conduct a SSNIP or critical loss test, but compare the results against other measures to ensure that the market has not been defined too broadly and thus falsely indicated a lack of market power. One way to do that is to consider multiple tests (p. 186) with qualitative checks, where consistent results among all of the evidence would offer the most reliable market definition.

B.  Dominance 4.48  In this section, we successively review the definition of dominance stemming from the case law of the EU Courts, the definition and assessment of ‘substantial market power’, the factors to be taken into account to determine the presence of dominance, and the notion of collective dominance.

(1)  Introduction 4.49  Once a relevant market has been defined, the next step in the Article 102 TFEU analysis is determining whether an undertaking is dominant on that market. Because this provision of EU competition law centres on the abuse of dominance, establishing the existence of that dominance is a necessary step in any Article 102 case. If an undertaking is not dominant, then there is no Article 102 TFEU case, although its behaviour may nevertheless fall under other EU competition law provisions (such as Article 101 in case of anticompetitive coordination).

(2)  The definition of dominance stemming from case law 4.50  In the seminal United Brands and Hoffmann-La Roche cases, the Court defined dominance as: a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers.23 4.51  Some authors have seen two elements in this definition, namely (i) the power to behave independently of competitors, customers, and consumers and (ii) the ability to prevent effective competition being maintained on the relevant market.24 However, it seems that on the legal ground, these elements are simply one and the same thing.25 This is confirmed by the rulings of the EU Courts which have never drawn any distinction between these elements. 4.52  Nonetheless, the formulation used by the Court of Justice is not entirely satisfactory. The concept of ‘acting independently’ does not provide an adequate basis for discriminating between dominant firms and non-dominant firms. No firm can act to an appreciable extent independently, since every firm, dominant or not, will be constrained by its respective (p. 187) demand curve, which is obviously affected by the presence of competitors and the behaviour and preferences of its customers.26 4.53  There is, of course, one important sense in which a dominant firm can act to an appreciable extent independently of its competitors. As Richard Whish notes, ‘the ability to restrict output and increase price derives from independence or, to put the matter another way, freedom from competitive constraint.’27 In the Guidance Paper, the Commission interprets the notion of independence in a similar manner by stating it ‘is related to the degree of competitive constraint exerted on the undertaking in question’.28 And that

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dominance ‘entails that these competitive constraints are not sufficiently effective and hence that the firm in question enjoys substantial market power over a period of time.’29 4.54  This, however, raises the question of what ‘substantial market power’ means, an issue on which, as will be seen in the next section, economists have done considerable thinking.

(3)  The definition and assessment of ‘substantial market power’ 4.55  From an economic perspective, competition can be said to be effective when no firm, either acting individually or in concert, is able to exercise substantial market power. Market power is a continuum and a very large number of firms possess some degree of market power. Dominance should therefore apply only to those firms that possess substantial market power or a very high degree of market power. The question then immediately turns on what counts as substantial market power, as opposed to insubstantial or insignificant market power. 4.56  Scholars and competition law enforcers have identified two forms of substantial market power. A first form of substantial market power concentrates on the ‘power over price’. In this respect, the Guidance Paper states that ‘an undertaking ‘which is capable of profitably increasing prices above the competitive level for a significant period of time does not face sufficiently effective competitive constraints and can thus generally be regarded as dominant.’30 The concept of ‘power over price’ is, however, not entirely satisfactory. First, it underplays the fact that substantial market power can be exercised on many other factors such as, for instance, quality, service, and innovation.31 Thus, a definition of substantial market power should also encompass the ability to lower quality or reduce the pace of innovation. Second, the suggested definition of this concept requires the identification of the competitive price level which is a notoriously daunting task, as explained in the section above. It is indeed virtually impossible to determine the competitive price level, and if that was possible, there would be no need to be concerned with the concept of dominance. 4.57  A second form of market power is the ‘power to exclude’.32 Identifying a firm as dominant because it has the power to exclude competitors is, however, problematic as the second (p. 188) element required by Article 102 TFEU is the presence of an abuse, generally taking the form of an exclusionary conduct. Thus, in any case where a firm has in fact engaged in exclusionary conduct satisfying the second element, one would think that would necessarily mean that the firm must have had the power to exclude rivals, thus satisfying the first element. But adopting that logic would largely conflate what are supposed to be separate legal elements, thus eliminating any screening effect from the dominance element. Moreover, non-dominant firms can also exclude their competitors from markets simply because they have better products, lower costs, lower prices, and so on. Hence, no correlation can be drawn between the power to exclude and dominance. 4.58  There does not seem to be any magic formula which can be readily used to determine the presence of substantial market power and thus dominance. What the Commission and the EU Courts have done is thus to rely on a variety of factors to determine whether a firm holds a dominant position, as will be discussed in the next section.

(4)  Factors to be taken into account to determine the presence of dominance 4.59  Based on the case law of the EU Courts, the Guidance Paper provides that in its assessment of dominance the Commission

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will take into account the competitive structure of the market, and in particular the following factors: •  constraints imposed by the existing supplies from, and the position on the market of, actual competitors (the market position of the dominant undertaking and its competitors); •  constraints imposed by the credible threat of future expansion by actual competitors or entry by potential competitors (expansion and entry); •  constraints imposed by the bargaining strength of the undertaking’s customers (countervailing buyer power). 33 We review hereafter these different factors.

(a)  Market position of the undertaking under investigation and its competitors 4.60  As the Commission notes in the Guidance Paper: Market shares provide a useful first indication for the Commission of the market structure and of the relative importance of the various undertakings active on the market.34 4.61  The Commission is undeniably correct in not overstating the importance of market shares as an indicator of dominance. In fact, market shares are at best a crude indicator of dominance,35 since they capture the undertaking’s position only in a static fashion, as can be illustrated by some examples. (p. 189) 4.62  As a first example, consider an undertaking that has 60 per cent of a particular product market in the year prior to the start of an Article 102 TFEU investigation. Three years prior, however, suppose that undertaking had a 90 per cent share of the same product market. A 60 per cent share with a downward trend is quite different from a 60 per cent share that has been increasing over time, or that has remained stable for many years. Significantly declining market shares can indicate a number of relevant competitive constraints—such as successful challenges from rival undertakings, ease of new firm entry, losses in bids for new business, and the like—that either preclude or are eroding an undertaking’s dominance. 4.63  As a second example, again consider an undertaking that has 60 per cent of a particular product market in the year prior to the start of the investigation. This time, however, suppose that the share the year before was 30 per cent and the share two years before was 75 per cent. If the relevant product market is characterized by suppliers bidding for projects, which they then supply for some specified period of time, such as one year, then a high share in one year is not evidence of dominance but simply of winning the bid for that year’s project. When the next project comes up for bid, if it will again be contestable by all firms in the market, then it may be that no undertaking is dominant. The key issue in this situation is therefore not shares in any one year, but the length of time any given project runs and whether the bidding process is open to other suppliers. 4.64  It is because of these counter examples and others like them that the Guidance Paper recognizes that market shares must be interpreted ‘in the light of the relevant market conditions’, including volatility and trends over time.36 4.65  While the Commission has offered no safe harbour below which shares would definitively preclude any finding of dominance, relatively low market shares (below 40 per cent per the Guidance Paper) are generally taken to indicate that the undertaking is not likely to be found dominant on the relevant market. Exceptions are admissible, however, such as when an industry faces capacity constraints.37 In that instance, even firms with low market share may be able to exercise market power because their rivals cannot react by increasing their own output. Relatively high market shares, on the other hand, will indicate that dominance is likely to be found, although here no specific number is given by the From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Guidance Paper (others, however, have suggested 70 per cent38). Moderately high shares (between 40–70 per cent) indicate that further investigation measures are needed to determine whether the undertaking is dominant. 4.66  In sum, the higher the share and the longer the time that high share is held by the undertaking, the more credence market share tends to be given as suggestive of dominance, although shares are generally not relied on as the sole evidence of dominance.

(p. 190) (b)  Expansion or entry 4.67  As competition is a ‘dynamic process’, the Guidance Paper notes that ‘an assessment of the competitive constraints on an undertaking cannot be based solely on the existing market situation’.39 Hence, the ‘potential impact of expansion by actual competitors or entry by potential competitors, including the threat of such expansion or entry, is also relevant.’40 4.68  It is generally admitted that ‘barriers to entry’ can take a variety of forms, including: •  Legal barriers to entry. For instance, undertakings enjoying exclusive rights to provide a given product or service (ie, statutory monopolies) will by definition enjoy a dominant position as no other firm can enter in the market to challenge them. •  Sunk costs. These are costs that must be incurred in order to compete on a given market, and that are not recoverable upon exit. Such costs include large capital investments (eg the building of a power station, large advertising expenses). 41 •  Economies of scale. In the presence of large economies of scale, a potential entrant may be deterred or delayed for a substantial period from entering the market due to the perceived difficulty of competing successfully against the incumbent who has already attracted such scale economies. The markets for online search and search advertising are a case in point. While many companies may be able to develop competitive search engines, the importance of scale in this sector is such that successful entry may not be possible. 42 •  Network effects. The presence of such effects, which occur where users’ valuations of a network increase as more users join the network, may make entry difficult. Social networks, such as Facebook, are characterized by significant network effects, which while not making entry impossible requires that a new entrant develop a strategy that will allow it to gain sufficient scale in a reasonably short period. •  Technological lead. The fact that an undertaking owns superior technology, which is for instance protected by IP rights, may represent a barrier to entry. That said, undertakings that once appeared dominant on a market because of superior technologies are regularly toppled by new entrants as may be observed in vibrant consumer electronic markets, such as videogames, MP3 players, smartphones, etc. •  Vertical integration/control of an ‘essential facility’. In some circumstances, a new entrant on a downstream market may be dependent on an input solely produced by another firm, which will then be considered as dominant on the upstream market for that essential input. 4.69  The concept of ‘barrier to expansion’ that is referred to in the Guidance Paper is different.43 While barriers to entry relate to the ability of firms outside a particular market to impose (p. 191) a constraint on the potential for exercising market power within the market, barriers to expansion relate to the ability of firms already operating in the market to impose a constraint on the potential for a firm or firms to exercise market power within the market. Thus, a firm holding a significant market share may not be able to increase prices as customers could turn to rivals able to expand their output. Barriers to expansion can be low even though barriers to entry are high. That would, for instance, be the case in a market which requires new entrants to undertake significant capital investment, such as From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

the construction of a power plant, the output of which could be increased at low cost as the market requires. On the other hand, a barrier to expansion exists when rivals are unable to expand output without incurring significant sunk costs. In the preceding example, this may be the case when the power plant in question is already working at full capacity, hence making an output increase dependent on incurring significant sunk costs (eg the construction of an additional plant). 4.70  While the Commission will entertain claims that the market in question in an investigation faces no barriers to entry or expansion, the Guidance Paper makes clear, however, that it will only consider that an undertaking can be deterred from increasing prices ‘if expansion or entry is likely, timely and sufficient’.44 In this respect, the Guidance Paper provides that to consider expansion or entry: •  ‘likely’ it ‘must be sufficiently profitable for the competitor or entrant, taking into account factors such as the barriers to expansion or entry, the likely reactions of the allegedly dominant undertaking and other competitors, and the risks and costs of failure’; 45 •  ‘timely’ it ‘must be sufficiently swift to deter or defeat the exercise of substantial market power’; and •  ‘sufficient’, it ‘must be of such a magnitude as to be able to deter any attempt to increase prices by the putatively dominant undertaking in the relevant market.’ 46 4.71  An aside on technology markets Patents are sometimes referred to as granting their holders a ‘limited monopoly’.47 In Sot Lélos kai Sia EE and Others v GlaxoSmithKline EVE, the Court of Justice held for instance that a medicine is protected by a patent which confers a temporary monopoly on its holder, the price competition which may exist between a producer and its distributors, or between parallel traders and national distributors, is, until the expiry of that patent, the only form of competition which can be envisaged.48 4.72  The essence of a patent is in fact a government-provided right to exclude others from use of the covered intellectual property for some specified period. The important distinction to bear in mind when considering patents and dominance, however, is that a patent will rarely define a relevant market. Indeed, while pharmaceutical and chemical patents may fully define a product, in most other industries patents tend to cover extremely narrow elements of a single product or service. In high technology, for instance, a particular piece of electronic hardware may be covered by thousands of complementary patents. As a result, the fact that the undertaking holds IP rights does not automatically translate into a finding (p. 192) of dominance. Voicing this point in its Magill decision, the Court of Justice found that ‘so far as dominant position is concerned … mere ownership of an intellectual property right cannot confer such a position.’49

(c)  Countervailing buyer power 4.73  Even after looking at market shares, as well as barriers to entry and expansion, we cannot conclude that a firm is dominant until we have considered the firm’s customers. Indeed, a dominant buyer can constitute an effective constraint on a seller regardless of market share and barriers to entry. As the Guidance Paper acknowledges on this point, ‘Competitive constraints may be exerted not only by actual or potential competitors but also by customers’.50

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4.74  The OECD has defined buyer power as ‘the ability of a buyer to influence the terms and conditions on which it purchases goods’.51 Naturally, if buyers are influencing the terms on which they buy goods, suppliers cannot be acting independently, as required by the definition of dominance. This possibility is now well established in EU Court precedent. For instance, in its Italian Flat Glass judgment, the GC criticized the Commission for failing even to consider the countervailing effects of buyer power.52 As with all forms of market power, buyer power is also a matter of degree. The important point here is whether a strong buyer or group of buyers has sufficient market power substantively to constrain an otherwise dominant supplier. 4.75  The steps required for assessing buyer power are analogous to those for determining dominance. First, a relevant market must be defined, this time the procurement market for customers of the undertaking at issue. Customer concentration is then estimated for that market, either in terms of the percentage of supplier demand accounted for by the largest buyer or group of buyers or in relative terms of buyer demand to seller supplier percentages. Finally, other factors influencing buyer power are assessed to either corroborate (or contradict) the findings suggested by the concentration measure. 4.76  In particular, buyer power can derive from a number of factors. In addition to the customer’s size or the share of revenues they comprise for the undertaking, buyers may also have an ability to self-supply (eg with a house brand for retailers) or they may be ‘unavoidable trading partners’ with whom a supplier must deal in order to reach the targeted customers. Buyers may be able to sponsor a new supplier or enable a smaller supplier to expand significantly, if the buyer’s sales alone constitute enough scale to support a new supplier. Or, buyers may simply be able to switch to an alternative product to discipline a supplier that attempted to raise prices. 4.77  Other routes are open to retailer and distributor buyers as well. For instance, if a retailer can delist a supplier from an acceptable vendor list, or credibly threaten to do so, it can thereby preclude the supplier from a meaningful distribution of its products. Likewise, changing (p. 193) distribution outlets may entail switching costs for the undertaking, which the distributor can take advantage of to obtain better wholesale terms. When the supplier has limited outside options, its bargaining power with the distributor/buyer will be impaired. In other words, the seller will not be able to make a credible threat to walk away from negotiations. To the extent that the buyer does have other options aside from the seller at issue, it will obtain appreciable bargaining power that can be used to improve the terms and conditions of its purchase. 4.78  When any of these circumstances exist, then even a supplier with substantial market share may be found not dominant. Indeed, with a strong enough single buyer (a monopsonist), even a monopolist can be adequately constrained so as to prevent dominance.

(5)  Collective dominance 4.79  Economic theory teaches that market power can be enjoyed by a single firm, but can also be jointly enjoyed by two or more firms. A classic way of jointly exercising market power is the formation of a cartel. However, absent any cartel or agreement, certain market conditions can in themselves induce independent firms jointly to exercise their market power. This may in particular happen on oligopolistic markets where prices rise and output decreases as a result of individual decisions taken by the operators, which do however take account of their interdependence in the framework of repeated interaction. This in turn leads to losses in allocative efficiency similar to those resulting from a cartel without, however, any collusive agreement being entered into.53 This issue, often referred to as the

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‘oligopoly problem’, has given rise to substantial practical difficulties in both the EU and the United States.54 4.80  As regards EU competition law, the concern for such market structures is not recent. In Dyestuff55 and Wood Pulp,56 the Court of Justice held that such practices could not be caught under the concept of ‘concerted practice’ pursuant to Article 101 TFEU. The question subsequently arose whether the application of Article 102 TFEU to the abuse of a dominant position held by ‘one or more undertakings’ could provide a basis for initiating legal action towards such market outcomes. Under the influence of the Commission, both the GC and the Court of Justice upheld a ‘collective dominance’ doctrine whereby anticompetitive oligopolistic outcomes could constitute an infringement of Article 102 TFEU (Section (a)).57 However, the EU Courts and the legislator further stretched this concept so as to encapsulate a number of other market configurations which are distinct from oligopolistic coordination settings (Section (b)). These judgments and decisions raise important concerns (Section (c)).

(p. 194) (a)  Collective dominance and oligopolistic anticompetitive coordination (i)  The Commission’s initial attempts to craft a doctrine of oligopolistic dominance

4.81  In the early 1960s, US scholars such as Professor Rahl suggested the development of a case law which would bring the ‘shared monopoly power’ of oligopolies within the reach of Section 2 of the Sherman Act.58 With the ambiguities surrounding the applicability of Article 101 TFEU to tacit collusion (and its progressive obstruction in Dyestuffs and Wood Pulp), European scholars followed a similar approach and turned to Article 102 TFEU. In contrast to Section 2 of the Sherman Act, however, the Treaty offers the ‘advantage’ of providing an explicit textual basis to this end.59 Article 102 TFEU indeed holds unlawful the ‘abuse by one or more undertakings of a dominant position’. 4.82  The first vindication of this possibility came in 1965. A group of professors appointed by the Commission to study the problems raised by the interpretation of Article 102 TFEU60 alluded to the possibility to apply abuse of dominance law to oligopolistic price leadership.61 In subsequent years, the idea gained traction, and a number of eminent scholars made similar proposals.62 Professor Joliet, for instance, argued that the wording of Article 102 TFEU embraced ‘collective market domination’ situations which, in turn, covered ‘the conjectural interdependence of action characteristic of tightly oligopolized industries’.63 4.83  The proposed interpretation of Article 102 TFEU remained, however, subject to contention. Literally, Article 102 TFEU refers to the ‘abuse by one or more undertakings’, and thus seems to cover the participation of several companies to an abuse, rather than a joint market position. Theologically, moreover, the Treaty drafters purported to target the so-called German Konzerns, that is, groups of firms that were legally distinct but subject to a unified economic management, including vertically related companies (mother and subsidiaries).64 4.84  This notwithstanding, in the early 1970s the Commission took a first try at the notion of collective dominance. In the midst of the 1973 oil crisis, the two main oil distributors in the Netherlands, BP and Gulf, had reduced supplies to one of their customers, ABG, meanwhile maintaining supplies to others. In a provisional Report, the Commission considered that BP and Gulf collectively held a dominant position on the Dutch market, and could thus be investigated for abuse under Article 102 TFEU.65 Whilst the final Decision in this case (p. 195) remained mute on collective dominance,66 the Commission reaffirmed, in subsequent years, its interest in the concept in several annual reports.67

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4.85  The growing willingness of the Commission to control oligopolies with Article 102 sparked resistance at the Court of Justice. In an obiter dictum, the Court held in HoffmannLa Roche that: a dominant position must also be distinguished from parallel courses of conduct which are peculiar to oligopolies in that in an oligopoly the courses of conduct interact, while in the case of an undertaking occupying a dominant position the conduct of the undertaking which derives profits from that position is to a great extent determined unilaterally.68 4.86  In subsequent cases, the Court systematically rebuff ed invitations from parties, Advocates General, and the Commission to apply the notion of collective dominance.69 (ii)  The Courts’ acceptance of the doctrine of collective dominance under Article 102 TFEU

4.87  Remarkably, the Court’s conservatism did not discourage the Commission from developing its first abuse of collective dominance case in 1988.70 In the Italian Flat Glass case, the Commission found that three producers of flat glass had unlawfully colluded pursuant to Article 101 TFEU and collectively abused a dominant position under Article 102 TFEU. According to the Commission, the market position of the various firms could be jointly examined, because the ‘undertakings present[ed] themselves on the market as a single entity and not as individuals’ (emphasis added).71 Given that the parties jointly controlled between 79–95 per cent of the market, they held a collective dominant position.72 4.88  The Decision was appealed before the newly born General Court (at the time ‘Court of First Instance’). The pleadings revolved around the expression ‘more undertakings’ enshrined in Article 102 TFEU. The parties and the UK Government sustained that this expression covered the situation of ‘undertakings [that] form part of one and the same single economic entity’—in other words corporate groups—whose internal agreements fall short of Article 101 TFEU.73 In contrast, the Commission offered a more extensive reading: the concept of a collective dominant position could be applied to wholly independent undertakings, (p. 196) provided that they present themselves ‘as a single entity and not as individuals’,74 in the presence for instance, of ‘structural links’ (eg a ‘systematic exchange of products’).75 4.89  To solve this of issue interpretation, the GC relied on the wording of the Treaty.76 When Article 101 TFEU refers to agreements between ‘undertakings’, it refers to relations between two or more economic entities capable of competing with one another.77 Hence, when Article 102 TFEU refers to ‘undertakings’, there is no legal or economic reason to suppose that the term has a different meaning.78 Consequently, a collective dominant position can be held by several independent undertakings that compete one against the other on a relevant market.79 4.90  While bringing this welcome clarification, the judgment however introduced a new uncertainty. The Court held that: there is nothing, in principle, to prevent two or more independent economic entities from being, on a specific market, united by such economic links that, by virtue of that fact, together they hold a dominant position vis-à-vis the other operators on the same market.80 (Emphasis added) 4.91  In the GC’s ruling, a finding of a collective dominant position is made conditional on the proof that the parties are united by ‘economic links’. From this point onwards, the scholarly debate on collective dominance focused almost exclusively on defining what constitutes ‘economic links’. Some contend that economic links cover direct (and possibly indirect) agreements amongst independent firms.81 Others argue that the notion of

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economic links encapsulates (also or only) the situation of interdependence found in tight oligopolies.82 (iii)  Clarifications in the field of merger control

4.92  Background The case law developed in the field of merger control—a 1989 Regulation introduced a merger control system in the EU—clarified that the second interpretation was the right one. In this new area of competition enforcement, the Commission has been granted the power to forbid mergers creating or strengthening a ‘dominant position’. The Commission progressively sought to develop a doctrine of collective dominance that could (p. 197) lead to the ex ante prohibition of oligopolistic mergers conducive to tacit collusion.83 Meanwhile, the Commission largely ignored the doctrine of collective dominance under Article 102 TFEU. It used the concept sporadically, in market situations remote from oligopolistic tacit collusion.84 4.93  The case law From 1992 to 1999, the Commission adopted a host of merger decisions in N estlé/Perrier (clearance with remedies), Kali und Salz (clearance with remedies), ABB/Daimler Benz (clearance with remedies), Gencor/Lonrho (prohibition), and Airtours v Commission (prohibition),85 which were all based on the theory that the proposed concentration would create or strengthen a collective dominant position, in the form of a tacitly collusive equilibrium. 4.94  The judgments delivered in the context of annulment proceedings against those decisions clarified that the notion of collective dominance captured tacit collusion. The ruling of the Court in France v Commission was the first to state that view, albeit implicitly. The Court ruled that parties may hold a collective dominant position ‘because of correlative factors which exist between them’.86 4.95  But the clearest pronouncements on this issue were yet to come. In Gencor Ltd v Commission, a case which concerns a 3–2 merger of two South African suppliers of platinum metal, the GC held that: there is no reason whatsoever in legal or economic terms to exclude from the notion of economic links the relationship of interdependence existing between the parties to a tight oligopoly within which, in a market with the appropriate characteristics, in particular in terms of market concentration, transparency and product homogeneity, those parties are in a position to anticipate one another’s behaviour and are therefore strongly encouraged to align their conduct in the market, in particular in such a way as to maximise their joint profits by restricting production with a view to increasing prices.87 4.96  A few years later, the Airtours plc v Commission judgment eliminated all remaining ambiguities. For the first time in the history of collective dominance, the Court explicitly talked of ‘tacit coordination’ in a judgment.88 This case is also (and primarily) known for refining the evidentiary conditions required to prove collective dominance, and bringing them in line with modern economic, game theory thinking. (p. 198) (iv)  Exportability of the EU Merger Regulation case law to Article 102 TFEU?

4.97  The above case law was developed in the area of merger control. The question thus arises whether it can be exported to the context of Article 102 TFEU. To this day, the issue still sparks disagreements amongst scholars and practitioners. Some argue against that view, insisting on the different goals of Article 102 and the EU Merger Regulation,89 or simply pointing out consequentialist arguments.90 Others consider that, in principle, there is no legal reason to treat the concepts of collective dominance differently under Article 102 and the Merger Regulation.91

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4.98  From a legal perspective, however, there are several reasons supporting that latter view. First, the notion of single firm dominance is interpreted similarly under both instruments. By parity of reasoning, a similar approach should prevail in relation to collective dominance. Second, the European Courts have endorsed this view. Many collective dominance ‘merger’ judgments cross-reference former Article 82 EC rulings. And subsequent Article 102 TFEU judgments quote the ‘merger’ cases as precedents. This is particularly clear in Compagnie Maritime Belge v Commission, a case that on the facts did not involve a situation of oligopolistic collusion.92 Confirming the exportability of the merger judgments to Article 102 settings, the Court quotes France v Commission as authority. Moreover, in this case, the Court borrows substantive concepts from the merger case law. With words reminiscent of the notion of ‘correlative factors’ established in France v Commission, the Court states for instance, that the existence of an agreement or of other links in law is not indispensable to a finding of a collective dominant position; such a finding may be based on other connecting factors and would depend on an economic assessment and, in particular, on an assessment of the structure of the market in question.93 Implicit in the Court’s ruling is thus the view that Article 102 harbours tacit collusion. 4.99  The ruling in Laurent Piau v Commission—again a case that does not deal with a situation of tacit collusion—will however dispel all remaining uncertainties.94 In this case, a football player’s agent had lodged a complaint with the Commission, in relation to restrictions FIFA placed on the exercise of his profession. The complainant argued that as an association of inde pendent football clubs, FIFA occupied a collective dominant position. In turn, FIFA was allegedly guilty of unlawful abuse, by excluding certain football players’ agents from the (p. 199) market. Following several modifications of FIFA regulations, the Commission dismissed the complaint. 4.100  The complainant challenged the Commission’s decision to turn down his complaint before the GC. In its judgment, the GC found that the football clubs held a collective dominant position by virtue of their membership of FIFA.95 Yet, while the GC could arguably have confined its reasoning to this sole finding (ie, the football clubs entertained structural links), it proceeded to add, citing expressly the Airtours merger case law, that: Three cumulative conditions must be met for a finding of collective dominance: first, each member of the dominant oligopoly must have the ability to know how the other members are behaving in order to monitor whether or not they are adopting the common policy; second, the situation of tacit coordination must be sustainable over time, that is to say, there must be an incentive not to depart from the common policy on the market; thirdly, the foreseeable reaction of current and future competitors, as well as of consumers, must not jeopardise the results expected from the common policy.96 4.101  With explicit references to ‘oligopoly’ and ‘tacit coordination’, the Laurent Piau v Commission judgment makes clear that the concept of collective dominance under Article 102 TFEU covers situations of tacit collusion.97 The subsequent case law of the EU Courts, in particular in Bertelsmann AG v Impala, will confirm this.98 (v)  The enduring low-enforcement practice of the Commission

4.102  As the Commission has trust in its ability to prevent tacit collusion situations under Regulation 139/2004,99 or in the context of sector-specific regulatory frameworks,100 it has

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been extremely cautious in launching Article 102 TFEU proceedings on the basis of the collective dominance doctrine. 4.103  In addition, among the few collective dominance decisions adopted by the Commission, there has been so far been no Article 102 TFEU case where oligopolistic interdependence was held to constitute a sufficient connecting element required for a collective dominant position.101 In most cases, the Commission was able to adduce evidence of close links between the companies and the Commission’s reliance on the collective dominance concept might be (p. 200) explained by the willingness to circumvent Article 101(3) exemptions or immunity from fines.102 4.104  In the debates leading to the adoption of the Discussion Paper and the Guidance Paper, several stakeholders urged the Commission to clarify whether it intended to enforce Article 102 TFEU where there were only connecting factors in the form of pure oligopolistic interdependence.103 4.105  Faced with a new stream of Article 102 TFEU rulings, the Commission made a number of pronouncements on the issue. In 2005, it expressly confirmed in its Discussion Paper on Article 102 that collective dominance could apply outside ‘the existence of an agreement or of other links in law’ and that a finding of collective dominance could ‘be based on other connecting factors and depends on an economic assessment and, in particular, on an assessment of the structure of the market in question.’104 The Commission also provided guidance on the conditions necessary for the purposes of establishing collective dominance. Remarkably, the Commission alluded for the first time to the notion of abuse of collective dominance, indicating that such abuses were typically collective, rather than individual.105 4.106  In 2009, however, the Commission endorsed a more conservative approach, which sets the current enforcement paradigm. With the release of the Guidance Paper, the Commission seemed to confirm its lack of interest in the enforcement of Article 102 TFEU in tacitly collusive oligopolies. Whilst the Guidance Paper confirms the theoretical applicability of the concept of collective dominance,106 it focuses only on ‘single dominant positions’ as a matter of enforcement priority. That said, the Guidance Paper is not binding on national competition authorities (NCAs), which remain therefore free to run abuse of collective dominance cases on the basis of both Article 102 and national legislation. (vi)  The uncertain contours of the notion of abuse of a collective dominant position

4.107  Over the years, the case law has vastly expanded the boundaries of Article 102 TFEU. At least in principle, Article 102 may apply to tacit collusion. As a result, firms active in oligopolies should take a cautious stance as they can now be found guilty of abuse, even if they do not hold a position of single firm dominance. 4.108  It is important to note, however, that the case law does not prohibit tacit collusion. As explained previously, holding a dominant position, including a collectively dominant one, is not unlawful per se. What is forbidden to oligopolists, however, is to abuse a collective dominant position. And the case law on what constitutes an ‘abuse’ of collective dominance remains murky. Scholars are especially divided on whether the conventional notion of (p. 201) abuse, crafted by the Courts in relation to single firm dominance, applies also to collective dominant positions.107 Given the low level of enforcement of the collective dominance, this issue may remain unsettled for years.

(b)  Other settings in which collective dominant positions can be identified 4.109  As explained, besides oligopolistic markets, the concept of collective dominance has also developed in different configurations. This has been essentially so for legal reasons.

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(i)  Collective dominance as the cumulative effect of individual dominant positions on distinct markets

4.110  Initially, the concept of collective dominance seemed to apply only where one relevant market was concerned. This is apparent in the (often overlooked) wording of the GC in Flat Glass where the Court held that two or more independent firms could be jointly dominant ‘ on a specific’, ‘ same market’.108 4.111  Subsequently, the concept of collective dominance was however extended to situations where several undertakings enjoyed a dominant position respectively on different markets.109 The reason for this extension is of a legal nature. Article 102 TFEU requires, for a finding of a dominant position, that there is a dominant position ‘within the common market or in a substantial part of it’. In Almelo and La Crespelle, several firms enjoyed a dominant position on a number of distinct and narrow geographic markets.110 Taken one by one, the dominant position of each firm did not seem to affect a substantial part of the common market. However, in a fashion similar to the cumulative effect doctrine under Article 101 TFEU, the Court considered that it was possible to aggregate individual dominant positions on different markets under the concept of collective dominance, so that a substantial part of the common market was affected.111 4.112  This case law raises important legal questions. First, the Commission never itself enforced Article 102 TFEU in situations of this type. These cases referred to above reached the Court of Justice through preliminary rulings. There is therefore some uncertainty as to whether the Commission would pursue such cases. Second, most of these cases could potentially have been dealt with under national law.112 It would thus be welcome if the Commission could clarify its position on this issue and state whether there is a ‘cumulative effect’ doctrine under Article 102 when several small companies each hold a single dominant position on neighbouring geographic markets. In addition, the Commission should explain why such situations of ‘minor geographic importance’ should not be left to national law.

(p. 202) (c)  Collective dominance short of the single economic entity doctrine 4.113  A further setting where collective dominance situations have been found consists in undertakings related to the same group that operate at different levels within the supply chain (and thus on different markets113), but that are not sufficiently integrated to form a single economic entity and can thus be are found individually dominant. This situation, often referred to as ‘vertical collective dominance’, arose in the Irish Sugar case.113a In that decision, the Commission wanted to put an end to a series of abuses entered into by a supplier and its distributor. The latter was under the control of the former but the two of them did not meet the conditions set by the Court of Justice for a finding of a single economic entity.114 Thus they formed two distinct economic units. Only part of the anticompetitive practices could have been brought to an end pursuant to Article 101 TFEU as some of them were purely unilateral to the distributor. These practices could not be caught under Article 102 either, because there was no evidence that the distributor held an individual dominant position. The Commission thus linked the practices of the distributor to the dominant position of the supplier by relying on the concept of collective dominance. 4.114  The Irish Sugar judgment, although isolated, is problematic in several respects. It could indeed extend the ‘special responsibility’ bearing on dominant undertakings not to impair competition to their distributors and trading partners.115 While in Irish Sugar a number of factual elements suggested that the producer held a significant control (through close management relationships) over the distributor, it remains to be seen whether, in a case where control would not be so strong, undertakings could be considered jointly dominant.116 Absent any enforcement after the Irish Sugar case, there is some uncertainty whether the Commission will actively scrutinize the trading partners of dominant

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companies or whether it only intends to do so in very specific instances, such as the ones at stake in that case.

(d)  Collective dominance and legislative/regulatory measures 4.115  A number of plaintiff s have also tried to invoke the collective dominance concept in order to challenge national laws on the basis of Article 102 TFEU and the former Article 10 EC. In all these cases, the Court of Justice rebutted the claims. In Spediporto, Bassano, and Sodemare, the Court considered that the national laws at hand could not lead to a collective dominant position, because the undertakings were not linked sufficiently so that there was no com petition at all between them.117 The standard for holding that national legislation creates (p. 203) collective dominant positions is thus that the undertakings be sufficiently linked between themselves that they adopt the same conduct on the market, that is, that they do not compete with each other. 4.116  In spite of the negative stance taken by the Court to the above cases, a number of authors nonetheless argue that State liability cannot be excluded in theory.118 Some even call on the Commission to bring enforcement proceedings against Member States that would, through legislation, create or strengthen a market structure that is conducive to anticompetitive behaviour (eg a collective dominant position that could lead to potential abuses). A clarification on this issue by the Commission would therefore be welcome.

(e)  The test for collective dominance in oligopolistic settings 4.117  In Compagnie Maritime Belge, the Court of Justice defined the test for a finding of collective dominance: It follows that the expression one or more undertakings in Article 86 of the Treaty [now Art 106 TFEU] implies that a dominant position may be held by two or more economic entities legally independent of each other, provided that from an economic point of view they present themselves or act together on a particular market as a collective entity…. So, for the purposes of analysis under Article 86 [now Art 106] of the Treaty, it is necessary to consider whether the undertakings concerned together constitute a collective entity vis-à-vis their competitors, their trading partners and consumers on a particular market. It is only where that question is answered in the affirmative that it is appropriate to consider whether that collective entity actually holds a dominant position and whether its conduct constitutes abuse.119 4.118  Two steps are thus necessary in order to find a collective dominant position.120 First, there must be a ‘collective entity’ (Section (i)). Second, the identified collective entity must enjoy a dominant position. Classically, the assessment of dominance is made by reference to market shares as well as the other parameters that were outlined in our single dominance discussion (Section (ii)). (i)  The existence of a collective entity

4.119  Pursuant to the case law, a collective entity may be found either when some ‘economic links’ exist between the undertakings or when some ‘correlating factors’ lead them to behave as a common entity. While the concept of economic links not only covers oligopoly and can help in finding collective dominance in other market configurations (ie, Almelo, Irish Sugar, etc), the concept of correlating factors seems exclusively to target situations of oligopolistic interaction. 4.120  It is in relation to the latter concept that there remains some legal uncertainty. In Laurent Piau, the GC set the legal test for tackling oligopolistic interdependence taking the form of tacit coordination under Article 102 TFEU cases. Borrowing from its merger case law, and in particular from Airtours, it held that three cumulative conditions must be fulfilled for a (p. 204) finding of collective dominance, namely: (i) oligopolists can monitor

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adherence to a tacitly collusive equilibrium; (ii) oligopolists can punish deviation from the tacitly collusive equilibrium;121 and (iii) current and future competitors, as well as consumers, are unable to jeopardize the tacitly collusive equilibrium.122 New texts have added a fourth requirement, namely that oligopolists share a common understanding of the tacitly collusive policy.123 4.121  A number of subsequent judicial pronouncements (again in the field of merger control) blurred the simplicity of the above standard. In Impala v Commission, the Court held that: in the context of the assessment of the existence of a collective dominant position, although the three conditions … which were inferred from a theoretical analysis of the concept of a collective dominant position, are indeed also necessary, they may, however, in the appropriate circumstances, be established indirectly on the basis of what may be a very mixed series of indicia and items of evidence relating to the signs, manifestations and phenomena inherent in the presence of a collective dominant position. 4.122  Against this background—and absent any practical guidance from individual cases— the sole possible interpretation of those judgments suggests that in Article 102 TFEU cases, a finding of ‘collective entity’ requires either: (i) the observance of a certain degree of parallel behaviour amongst oligopolists (the manifestation of the ‘collective entity’) or (ii) the satisfaction of the three conditions articulated by the GC in Laurent Piau v Commission (the explanation for the ‘collective entit y’). 4.123  Now, given that merger control has a number of features that make it different from Article 102 TFEU proceedings, it can be questioned whether the test should be enforced in a similar fashion.124 4.124  A first issue concerns the burden of proof lying on the Commission. In the context of the EU Merger Regulation, the Airtours conditions aim at predicting a risk of future tacit coordination. In contrast, the approach under Article 102 TFEU aims at showing that parallel pricing has actually occurred because of market features that were conducive to tacit collusion. A flawed decision can always be adopted under the Merger Regulation. However, under Article 102, a risk also exists that a parallel price increase, for instance, be sanctioned where it does not result from tacit coordination (when, eg, price competition was constrained because of national legislation or because the price increase was caused by underlying cost increases).125 For this reason, while one should tolerate a margin of appreciation under the Merger Regulation given the predictive nature of the assessment, the standard of proof under Article 102 should be more stringent. Because information not available to the Commission in merger proceedings is generally available in ex post enforcement scenarios, it seems (p. 205) reasonable to require the Commission to establish with a great degree of care the existence of tacit coordination. 4.125  This is particularly true with respect to the substantive conditions laid down in Airtours. As far as the second condition is concerned, the GC specifically noted in Airtours that the Commission did not have to bring evidence of the existence of a specific retaliatory mechanism. Rather it just had to show that a potential retaliatory mechanism might give incentives to firms not to deviate.126 The backward looking nature of Article 102 allows a better assessment of whether the collective action is the direct consequence of the existence of a retaliatory mechanism. Therefore, the Commission should be required, unlike under the Merger Regulation test, to show that a specific retaliatory mechanism existed and exerted a deterrent effect that led the oligopolists to stick to a common line of action.

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4.126  Equally, the transposition of the third Airtours condition within Article 102 proceedings could be debated. Under this condition, the Commission should prove that the ‘foreseeable’ reaction of current and potential competitors as well as consumers would not jeopardize the expected results of the common policy. However, if an anticompetitive effect resulting from an abusive practice has been observed, it probably implies that potential competition was not sufficient and that the jointly dominant undertakings could actually behave independently of their actual and potential competitors, as well as consumers.127 Nevertheless, this does not mean that the Commission should not analyse the question of potential competition within Article 102 proceedings.128 On the contrary, the Commission should prove that the undertakings could effectively implement tacit coordination because of the absence of countervailing power from their customers as well as actual and potential competitors. 4.127  Another related issue concerns the degree to which—in support of its finding of a collective entity—the Commission should produce evidence that competition between the oligopolists is hampered. In Airtours, the GC held: The evidence must concern, in particular, factors playing a significant role in the assessment of whether a situation of collective dominance exists, such as, for example, the lack of effective competition between the operators alleged to be members of the dominant oligopoly and the weakness of any competitive pressure that might be exerted by other operators.129 4.128  In TACA, the GC however added that: there can be no requirement, for the purpose of establishing the existence of such a dominant position, that the elimination of effective competition must result in the elimination of all competition between the undertakings concerned.130 4.129  This ruling is unclear because it does not say how much competition between the oligopolists should be hampered to lead to a finding of collective dominance. There could be, for instance, a risk that even where operators compete on a number of parameters, they could nevertheless (p. 206) be found to enjoy a collective dominant position.131 This would be quite problematic. In certain industries, operators might not compete on price compete on a wide range of other parameters (quality, innovation, commercial services, etc) which should limit findings of a ‘collective entity’. For instance, in the oil sector, or the tobacco sector, price competition is to a large extent constrained by the cost of raw material, the homogeneity of products, or taxation. This does not preclude operators from competing fiercely on these markets. It is thus submitted that competition agencies should focus on markets where there is a lack of effective competition on a large range of parameters. (ii)  Assessment of dominance

4.130  Whether or not the assessment of collective dominance should be carried out in a similar fashion to that of individual dominance is an open question.132 In particular, reliance on market shares may not be as decisive in collective dominance settings as in single dominance ones. While an undertaking may be presumed to enjoy an individual dominant position if it has a very large market share, a finding of collective dominance may not be reached even in the presence of a very large market share. For instance, if the collective entity enjoys a 70 per cent market share, but there is important product differentiation, a lack of transparency, the ability to exercise collective market power seems plausible. This is why there should not be any presumption of collective dominance on the basis of the identification of a high collective market share in an oligopolistic market.

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III.  The Notion of Abuse 4.131  For Article 102 to apply, it must be demonstrated that the dominant firm has committed one or several abuses on the market(s) in question. Article 102 prohibits two main categories of abuses, exclusionary abuses (Art 102(b) and (d)) and exploitative abuses (Art 102(a)), which are respectively dealt with in Sections A and B below. Article 102 also prohibits certain forms of price discrimination (Section C below).

A.  Exclusionary Abuses 4.132  In this section, we successively review the concept of exclusionary abuse and the various forms of exclusionary abuses.

(1)  The concept of exclusionary abuse 4.133  We review hereafter the concept of exclusionary abuse as traditionally interpreted in the case law of the EU Courts and the decisional practice of the Commission. We then discuss the gradual evolution away from a form-based approach to the concept of exclusionary abuse to an effects-based approach.

(p. 207) (a)  The case law of the EU Courts and the decisional practice of the Commission 4.134  Although the case law of the EU Courts and the decisional practice of the Commission comprise a large number of decisions dealing with Article 102, the notion of exclusionary abuse has historically been extremely vague. As pointed out by Temple Lang and O’Donoghue in 2005: ‘no currently-applied definition has sufficient normative content to be applied ex ante as a normative rule by firms making pricing decisions or embarking on a given course of conduct.’133 4.135  The concept of exclusionary abuse has been given a variety of different meanings. In Hoffmann-La Roche, for instance, an exclusionary abuse was defined as a behaviour which, through recourse to methods different from those which condition normal competition in products or services on the basis of transactions of commercial operators, has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition.134 The notion of ‘normal competition’ is inherently vague and cannot be the basis for distinguishing competitive behaviour from anticompetitive one. 4.136  In other cases, the Commission and the Courts suggested that exclusionary abuse should be distinguished from ‘competition on the merits’135 and that dominant undertakings have a ‘special responsibility’ not to allow their conduct to impair genuine undistorted competition.136 Unfortunately, the notions of ‘competition on the merits’ and of ‘special responsibility’ fare no better when it comes to assessing the compatibility with Article 102 of unilateral conduct by dominant firms. The fact that a dominant firm has a special responsibility does not say much about what that responsibility entails. In Atlantic Container, the GC held that this term ‘means only that a dominant undertaking may be prohibited from conduct which is legitimate where it is carried out by non-dominant undertakings.’137 This statement, however, says nothing about what type of conduct that is legitimate for non-dominant firms is illegitimate for dominant ones. The notion of ‘competition on the merits’ is equally unhelpful. As pointed out in an OECD briefing paper trying to define the contours of the notion: that phrase has never been satisfactorily defined. This has led to a discordant body of case law that uses an assortment of analytical methods. That, in turn, has

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produced unpredictable results and undermined the term’s legitimacy along with policies that are supposedly based on it.138

(p. 208) (b)  From a form-based approach to effects-based approach to exclusionary abuses (i)  The form-based approach pursued by the EU Courts and the Commission

4.137  In addition to the lack of a workable definition of the notion of exclusionary abuses, the case law of the EU Courts and the decisional practice of the Commission were often criticized for its ‘formalism’.139 4.138  In the field of rebates, for instance, the case law condemned various forms of rebates without the need to show that these rebates generated exclusionary effects driving equally efficient rivals out of the market.140 That formalistic approach was not only at odds with the effectsbased approach put forward by scholars and practitioners, but also created the risk that dominant firms would not engage in pro-competitive behaviour because of the fear of breaching Article 102. (ii)  The modernization of Article 102 and the 2005 Discussion Paper

4.139  Roughly at the time Neelie Kroes became Competition Commissioner, DG COMP expressed the intention to move away from its form-based approach and embrace the effectsbased approach it had already adopted with respect to the enforcement of Article 101. The first step in that direction came with the major policy speech given by Commissioner Kroes at the Fordham international antitrust conference in September 2005 in which she declared that she was convinced that the exercise of market power must be assessed essentially on the basis of its effects in the market, although there are exceptions such as the per se illegality of horizontal price fixing…. Article [102] enforcement should focus on real competition problems: In other words, behaviour that has actual or likely restrictive effects on the market, which harm consumers. [ … ] Low prices and rebates are, normally, to be welcomed as they are beneficial to consumers.141 4.140  Commissioner Kroes’ speech was immediately followed by a Commission Discussion Paper on Article 82 EC (now Art 102 TFEU),142 which promoted the very effects-based approach announced by the Commissioner. While the new economics-based principles guiding the approach proposed in the Discussion Paper were largely welcomed by commentators, the ways in which the Commission proposed to analyse certain categories of conduct were criticized as too reminiscent of the old formalistic approach.143 The Commission was of course operating under tight constraints. First, it was ‘prisoner’ to the unhelpful case law to which it had in large measure contributed. Second, a number of highly sensitive cases (p. 209) were still being investigated144 or were subject to appeal145 at the time and the Commission did not want to tie its hands. That said, the Discussion Paper largely met its objective of stimulating debate as it was subject to abundant commentary, conferences, and events. (iii)  The 2008 Guidance Paper

4.141  The next steps for the Commission were not clear as there was, for instance, speculation on whether the Discussion Paper would be turned into guidelines. While Commission officials were regularly recalling the Commission’s intention to pursue an effects-based approach, no further move was made for almost three years before the Commission published a Guidance Paper on its enforcement priorities in applying Article 82 EC (now Art 102 TFEU) to abusive exclusionary conduct by dominant undertakings (hereinafter, the ‘Guidance Paper’).146 This document is of a sui generis nature as it ‘sets out the enforcement priorities that will guide the Commission’s action in applying Article [102] to exclusionary conduct by dominant undertakings.’147 The Commission does not From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

therefore state or restate the way in which Article 102 should be interpreted, a task which falls within the exclusive remit of the Court of Justice, but explains the circumstances in which a given dominant firm’s conduct is likely to be subject to enforcement action by the Commission.148 4.142  The Guidance Paper focuses only on exclusionary abuses leaving aside exploitative abuses and price discrimination. The Guidance Paper seeks to address the two criticisms referred to above. First, the Guidance Paper seeks to provide a definition of anticompetitive foreclosure (which is another formulation of the notion of exclusionary abuse) that carries more substance than the vague and largely unhelpful definitions mentioned above. Second, the Guidance Paper signals that the Commission will pursue an effects-based approach in its enforcement of Article 102 TFEU. 4.143  The Guidance Paper defines the term ‘anticompetitive foreclosure’ as a situation where effective access of actual or potential competitors to supplies or markets is hampered or eliminated as a result of the conduct of the dominant undertaking whereby the dominant undertaking is likely to be in a position to profitably increase prices to the detriment of consumers.149 (p. 210) This definition suggests that a two-stage test will be relied upon to assess whether a given conduct is anticompetitive. In accordance with such test the Commission should first establish the presence of foreclosure and then prove that such foreclosure will harm consumer welfare. The reference to consumer welfare is important as it suggests that a conduct that would merely affect the ‘structure of competition’ by, for instance, eliminating less efficient competitors but that would have no effect on prices or on the quality of products, or innovation, and thus would not harm consumers, would not lead to enforcement action by the Commission under Article 102. It is thus the presence of likely consumer harm that will trigger the intervention of the Commission. 4.144  The Guidance Paper then lists a number of factors that will generally be relevant to its assessment of foreclosure, including: the position of the dominant undertaking, the conditions on the relevant market, the position of the dominant undertaking’s competitors, the position of the customers or input suppliers, the extent of the allegedly abusive conduct, possible evidence of actual foreclosure, and direct evidence of any exclusionary strategy.150 This list triggers two observations. First, the majority of these factors relate to the ‘structure of the market’, which is surprising considering the Commission’s apparent attempt to move away from the ordo-liberal perspective. Second, none of these factors relate directly to the assessment of harm to consumer welfare, which is again quite surprising considering the emphasis placed on consumer harm in the definition of anticompetitive foreclosure provided for in the Guidance Paper. The Guidance Paper merely says that ‘[t]he identification of likely consumer harm can rely on qualitative and, where possible and appropriate, quantitative evidence’.151 In this respect, the rather cursory treatment of consumer harm in the Commission’s Intel decision is not particularly reassuring.152 4.145  Finally, the Guidance Paper indicates that the Commission will normally intervene under Article 102 where there is ‘cogent and convincing evidence’ that the allegedly abusive conduct ‘is likely to lead to anticompetitive foreclosure’.153 It also provides that the assessment of a given conduct will be made by comparing the actual or likely future situation in the relevant market (with the dominant undertaking’s conduct in place) with an appropriate counterfactual, such as the simple absence of the conduct in question or with

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another realistic alternative scenario, having regard to established business practices.154 4.146  The Guidance Paper also contains a section dealing with price-based exclusionary conduct. It states that to prevent anticompetitive foreclosure, the Commission ‘will normally only intervene where the conduct concerned has already been or is capable of hampering competition from competitors which are considered to be as efficient as the dominant undertaking.’155 As the objective of competition is not to protect (less efficient) competitors, the ‘as efficient test’ is certainly conceptually correct, although its application may at times raise significant difficulties.156 (p. 211) 4.147  The Guidance Paper states that the cost benchmarks the Commission will normally use to perform the ‘as efficient competitor’ test are the average avoidable cost (AAC) and long-run average incremental cost (LRAIC).157 In practice, when the effective price of a product is not sufficient to cover the AAC of producing the good or service in question (P e < AAC),158 this means that the dominant firm sacrifices profits in the short term and that an ‘as efficient competitor’ will not be able to serve the targeted customers without incurring a loss.159 Failure to cover LRAIC (P e < LRAIC) indicates that the dominant firm is not recovering all the fixed costs of producing the good or service in question and that an ‘as efficient competitor’ could be foreclosed from the market.160 4.148  The Guidance Paper provides that if the data clearly suggest that an as efficient competitor can compete effectively with the dominant firm’s price conduct, the Commission will ‘in principle’ infer that this conduct is unlikely adversely to impact effective competition, and thus consumers, and will therefore be unlikely to intervene.161 If, by contrast, the data suggest that the price charged by the dominant firm has the potential to foreclose as efficient competitors, the Commission will integrate this into the general assessment of anticompetitive foreclosure, taking into account other relevant quantitative and/or qualitative evidence (see the foreclosure analysis discussed at paras 4.143ff).162 This language is important as it makes clear that under the Guidance Paper the performance of a price-cost test is necessary, but not sufficient to determine the presence of foreclosure. Indeed, while a price-cost test may establish that by granting aggressive rebates to a given customer a dominant firm may foreclose as efficient competitors from such a customer, the demand of that customer may be insufficient (because it, eg, only represents 5 per cent of the overall demand) to drive as efficient competitors from the market. 4.149  Unfortunately, while the Guidance Paper rightly states that in cases of alleged pricing abuses the Commission will base its assessment on an ‘as efficient competitor’ test, it provides that the Commission may in certain circumstances deviate from the ‘as efficient’ standard to protect less efficient competitors: the Commission recognises that in certain circumstances a less efficient competitor may also exert a constraint which should be taken into account when considering whether a particular price-based conduct leads to anticompetitive foreclosure. The Commission will take a dynamic view of this constraint, given that in the absence of an abusive practice such a competitor may benefit from demand-related advantages, such as network and learning effects, which will tend to enhance its efficiency.163 4.150  This approach is regrettable since it leaves dominant firms in a situation of uncertainty. They may decide not to grant some forms of pro-competitive rebates (eg above cost discounts) due to the fact they are concerned by the possible antitrust implications.164

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Even if there are (p. 212) settings where above-cost pricing could arguably lead to foreclosure, such settings seem very rare to say the least.

(2)  The various forms of exclusionary abuses 4.151  We successively review the following categories of conduct that may be found to be exclusionary abuses: exclusive dealing, conditional rebates, tying, predatory pricing, and refusal to supply and margin squeeze.

(a)  Exclusive dealing (i)  Exclusive purchasing

4.152  An exclusive purchasing obligation is an agreement to sell a product on the condition that a customer on a particular market purchase exclusively, or to a large extent, only from the dominant undertaking. Such agreements have possible anticompetitive effects, but may also generate redeeming efficiencies. 4.153  The major anticompetitive concern raised by exclusive dealing agreements is that such agreements might foreclose enough of the market to competitors to impair competition.165 Such foreclosure may impede entry or expansion of rivals in the market, or accelerate their exit from the market, hence increasing the market power of the excluding firm.166 4.154  More particularly, exclusive purchasing may inflict competitive harm for the following reasons. First, most industries are subject to economies of scale, meaning that firms can lower their costs by expanding until they reach the output level that minimizes their costs, which is called the minimum efficient scale.167 If foreclosure prevents a competitive number of rivals from maintaining this scale, or from expanding their operations to reach it, then it impairs their efficiency. Second, foreclosure can similarly deprive rivals of economies of scope if, without the foreclosure, rival expansion would have enabled them to offer a variety of products that can be more efficiently produced or sold together than separately. Third, most industries are characterized by a learning curve, so that substantial foreclosure of the market can impair rival efficiency by simply slowing down rival expansion even though it does not outright prevent that expansion. Fourth, even if rivals are able to achieve their minimum efficient scale and scope of production, foreclosure that bars rivals from the most efficient suppliers or means of distribution (downstream exclusive dealing) can also impair rival efficiency by increasing their costs. Finally, dominant firms may foreclose rivals by denying them access to key inputs by making exclusive deals with the sellers (upstream exclusive dealing). (p. 213) 4.155  If rival efficiency is impaired in any of these ways, then rivals will have to cover their now higher costs by charging higher prices than they otherwise would have. In the extreme case, these higher prices will be unsustainable, and thus rival entry will be deterred and existing rivals will be eliminated. But even if foreclosure reduced rival efficiency without outright eliminating them, it will worsen the market options available to consumers, and mean that these rivals will impose less of a constraint on the defendant’s market power than they otherwise would have. This can thus enhance or maintain that market power even if it does not eliminate rivals or bar their entry. 4.156  The Guidance Paper indicates that, while some customers may benefit from exclusive agreements (because they receive compensation, such as rebates and other forms of price incentives, in return for buying all or most of their needs from the dominant firm), the Commission will focus its attention on those cases ‘where it is likely that consumers as a whole will not benefit’.168 This would in particular be the case if there are many buyers and the exclusive purchasing obligations of the dominant undertaking, taken together, have the effect of preventing the entry or expansion of rival firms. An agreement whereby a customer representing 10 per cent of the total demand for the product in question agrees to source that product exclusively from the dominant supplier cannot foreclose rivals if that is

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the only agreement of that type. Problems arise when the dominant supplier concludes exclusive agreements covering a large fraction of the total demand. 4.157  The Guidance Paper notes that some factors will be of particular relevance in determining whether the Commission will intervene against exclusive purchasing arrangements. The capacity for exclusive purchasing obligations to result in anticompetitive foreclosure arises in particular where an important competitive constraint is exercised by competitors who either are not yet present in the market at the time the obligations are concluded, or who are not in a position to compete for the full supply of the customers because, for instance, the dominant undertaking’s brand is a ‘must-stock’ item.169 In contrast, if rivals can compete on equal terms for each individual customer’s entire demand, exclusive purchasing obligations are generally unlikely to hamper effective competition unless the switching of supplier by customers is made difficult by the duration of the exclusive purchasing obligation. The Guidance Paper observes that ‘the longer the duration of the obligation, the greater the likely foreclosure effect’.170 4.158  Although exclusive dealing agreements can have anticompetitive effects, they also have many possible redeeming efficiencies.171 They might, for instance, reduce uncertainty about whether future sales will occur at the contractually set price. This can give suppliers the contractual commitments they need to invest in capital intensive projects (eg banks may only agree to fund the construction of a power plant if they have guarantees that the owner of the plant will be able to sell its power). While customers may not be willing to commit to buy large volumes of the product in question (in case their needs for this product end up being lower than anticipated), they may be more amenable to commit to buy the totality of their needs from the supplier, whatever those needs might be, hence providing it with at least the assurance that the buyer will take all it can profitably use.

(p. 214) (b)  Conditional rebates 4.159  While the granting of rebates is a common commercial practice largely used by dominant and non-dominant firms, the assessment of rebates is one of the most complex and unsettled areas of competition law. In the EU, the decisional practice of the European Commission and the case law of the EU Courts have been harshly criticized as unnecessarily strict, following a form-based approach that sits uneasily with modern economic theory.172 In response, in its 2005 Discussion Paper, the Commission promoted an effects-based approach to the assessment of rebates. This approach was then confirmed in the Guidance Paper. (i)  The concept of conditional rebates

4.160  Although, as will be seen, the case law of the EU Courts refers to several different concepts, such as fidelity rebates, volume rebates, or target rebates, these forms of price incentive all belong to the broader category of conditional rebates, which cover different incentive schemes granted by a supplier to its customers or distributors/retailers provided that the latter’s purchases or sales achieve or exceed certain thresholds formulated in terms of volume targets, percentages of total requirements, or increase in purchases.173 4.161  Conditional rebates can be classified into different categories. For instance, Ahlborn and Bailey distinguish rebates, according to: •  the type of thresholds which, as noted in the definition above, can be defined in terms of volume targets (quantity rebates) or percentage of total requirements (market-share rebates) or increase in purchases (growth rebates). When the percentage required is 100 per cent, we can speak of exclusive rebates;

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•  the scope of application, whether they are forward-looking, that is, they apply to incremental units above the threshold (incremental rebates) or backward-looking, that is applying to both units below and above the threshold (retroactive rebates or roll-back rebates); •  the products or set of products to which they apply, whether they apply to one category of products (single-product rebates) or across several distinct products (multi-product or bundled rebates). 174 4.162  This section will classify rebates according to the way they operate and their potential effects on competition. It distinguishes between single-product and multi-product (bundled) rebates. It also distinguishes between conditional175 and unconditional176 rebates and, as far as conditional rebates are concerned, between incremental and retroactive rebates.

(p. 215) (ii)  Effects of conditional rebates 4.163  While rebates may in limited circumstances be granted for exclusionary purposes, this is the exception rather than the rule.177 This is evidenced by the fact that both dominant and non-dominant firms (the latter having no power to exclude) resort to various types of rebates, including conditional rebates, to increase their sales with resulting efficiencies, such as the realization of economies of scale, the faster recovery of fixed costs, etc.178 As pointed out in a report commissioned by the UK Office of Fair Trading (OFT) on Selective Price Cuts and Fidelity Rebates: The pervasive use of … non-cost-related discounts by firms without market power demonstrates that there are many non-exclusionary motives for using discount schemes.179 4.164  There is thus no reason to presume that a given regime of conditional rebates produces anticompetitive effects, hence placing the burden on the dominant firm to prove that its rebates are objectively justified or generate valuable efficiencies, which is a notoriously difficult task. Given that there are many pro-competitive rationales for the granting of rebates by dominant firms to their customers, such a presumption is totally unwarranted and unreasonable. In this respect, the OFT Report notes that: Theory does not suggest that dominant firms would usually use discount schemes to harm competition. In turn, theory does not support a presumption that discounts employed by dominant firms should be presumed to have anti-competitive effects unless they can be ‘justified’ with an efficiency rationale. Given this, a requirement that discounts must be ‘justified’ could chill price competition where firms are discouraged from employing beneficial discounts due to the burden of having to justify them to the authorities.180 (iii)  Decisional practice of the Commission and case law of the EU Courts preceding the adoption of the Guidance Paper

4.165  Over the last 30 years, the EU Courts adopted a number of important judgments addressing the compatibility of rebates with Article 102 TFEU. 4.166  In Hoffmann-La Roche, Roche had entered into ‘fidelity agreements’ with 22 large purchasers of vitamins which had the following main features. Roche paid a rebate to those customers who had obtained all or most of their requirements from Roche calculated on vitamin total purchases. The amount of the rebate differed from customer to customer and

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typically varied between 1–5 per cent, although one customer received rebates of 12.5–20 per cent. (p. 216) 4.167  The Court of Justice ruled that a dominant firm violates Article 102 when it applies, either under the terms of agreements concluded with these purchasers or unilaterally, a system of fidelity rebates, that is to say discounts conditional on the customer’s obtaining all or most of its requirements—whether the quantity of its purchases be large or small.181 The Court considered that such rebates were incompatible with the objective of undistorted competition within the common market, because ‘they are not based on an economic transaction which justifies this burden or benefit but are designed to deprive the purchaser of or restrict his possible choices of sources of supply and to deny other producers access to the market.’182 The Court of Justice also established a distinction between fidelity rebates and volume rebates by stating that the fidelity rebate, unlike quantity rebates exclusively linked with the volume of purchases from the producer concerned, is designed through the grant of a financial advantage to prevent customers from obtaining their supplies from competing producers.183 4.168  The next important judgment of the Court of Justice was in Michelin I, in which Michelin offered its dealers an annual variable discount based on the dealer’s turnover in Michelin heavy vehicle, van, and car tyres in the previous year. The dealer received the discount, or the full rate thereof, only if it achieved an annual sales target set by Michelin. Neither the discount as a whole nor the scale of discounts was published by Michelin. The Commission concluded that this discount scheme violated Article 102184 and Michelin appealed the decision to the Court of Justice. 4.169  The Court observed that the rebate in question, which was characterized by the use of sales targets, did not fit within the distinction made in Hoffmann-La Roche between ‘fidelity’ and ‘volume’ or ‘quantity’ rebates. The rebates used by Michelin were not merely based on the purchase of a certain amount of tyres by its distributors. The system in question did not require dealers to enter into any exclusive dealing agreements or to obtain a specific proportion of their supplies from Michelin. The Court considered that in deciding whether Michelin had committed an abuse it was therefore necessary to consider all the circumstances, particularly the criteria and rules for the grant of the discount, and to investigate whether, in providing an advantage not based on any economic service justifying it, the discount tends to remove or restrict the buyer’s freedom to choose his sources of supply, to bar competitors from access to the market, to apply dissimilar conditions to equivalent transactions with other trading parties or to strengthen the dominant position by distorting competition.185 4.170  Applying this approach, the Court of Justice first found that the discount systems based on a long reference period, such as the one-year period used by Michelin, had ‘the inherent effect, at the end of that period, of increasing pressure on the buyer to reach the purchase figure needed to obtain the discount or to avoid suffering the expected loss for the entire (p. 217) period.’186 The Court also found that, due to the retroactive nature of the discount system used by Michelin, ‘the variations in the rate of discount over a year as a result of one last order, even a small one, affected the dealer’s margin of profit on the whole year’s sales of Michelin heavy-vehicle tyres.’187 Hence, even slight variations could put dealers under appreciable pressure. The Court further criticized the lack of transparency of Michelin’s discount system considering its rules changed on several occasions during the relevant period. Moreover, neither the scale of discounts nor the sales targets or discounts From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

relating to them were communicated in writing to dealers, which meant that they were left with uncertainty and on the whole could not predict with any confidence the effect of attaining their targets or failing to do so. The Court concluded that all those factors were instrumental in creating for dealers a situation in which they were under considerable pressure, especially towards the end of a year, to attain Michelin’s sales targets if they did not wish to run the risk of losses which its competitors could not easily make good by means of the discounts which they themselves were able to offer.188 4.171  A few years later, Michelin had another brush with the Commission regarding a complex rebates regime comprising different components. First, Michelin paid rebates to its dealers based on the quantity of tyres they purchased the year before. The rebates system provided for an annual refund expressed as a percentage of the turnover achieved by the dealer with Michelin, the rate increasing gradually according to the quantities purchased. Michelin’s general conditions provided for three scales, depending on the tyres in question (all types, heavy plant tyre, and retreads). In 1995, for example, the rebates ranged, in the case of retreads, from 2 per cent on a turnover of over 7,000 French Francs to 6 per cent on a turnover in excess of 3.92 million Francs. Michelin also paid a service bonus based on its assessment of whether the dealer had earned various service points. The bonus ranged from 0–1.5 per cent during the period 1980–91 and from 0–2.25 per cent for the period 1992–96. Finally, Michelin also offered additional bonuses, including: (i) a progress bonus based on increased purchases from the prior year; (ii) a PRO bonus based on a combination of progress, quantity of tyres returned for retreading, and total output; and (iii) a Michelin Friends Club bonus for promotion of Michelin tires. The Commission deemed the above an abuse of a dominant position, fining Michelin €19.76 million and prohibiting it from engaging in the conduct again.189 Michelin appealed to the GC. 4.172  The GC first reviewed the argument made by Michelin that its quantity rebates did not infringe Article 102. The GC recalled that quantity rebate systems linked solely to the volume of purchases made from a dominant firm are generally considered not to have the foreclosure effect prohibited by Article 102. If by expanding the quantity supplied the supplier is able to lower its costs, it is entitled to pass on that reduction to the customer in the form of a lower price. When the rate of the discount increases according to the volume purchased, a rebate will not infringe Article 102 (p. 218) unless the criteria and rules for granting the rebate reveal that the system is not based on an economically justified countervailing advantage but tends, following the example of a loyalty and target rebate, to prevent customers from obtaining their supplies from competitors.190 The approach followed by the GC is therefore quite restrictive as quantity rebates will only comply with Article 102 provided that the amount of the rebate is directly linked to the cost savings realized thanks to the greater volume of supply. 4.173  Following the approach pursued by the Court of Justice in Michelin I, the GC indicated that it would look at all the relevant circumstances to determine whether the rebates were exclusionary. In this respect, the GC first sought to determine whether the rebates had a loyaltyinducing effect. In its decision the Commission inferred that the rebates were loyalty-inducing in light of the fact that the discount was calculated on the dealer’s entire turnover with Michelin and the fact that the reference period applied for the purpose of the discount was one year. The GC observed that

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if a discount is granted for purchases made during a reference period, the loyaltyinducing effect is less significant where the additional discount applies only to the quantities exceeding a certain threshold than where the discount applies to total turnover achieved during the reference period. In the latter case, the saving which may be made by reaching a higher scale applies to total turnover achieved whereas, in the former case, it applies only to the additional amount purchased.191 4.174  In other words, the GC observed that retroactive rebates where the rebate will apply to all the units sold once a quantity threshold is exceeded and not only to the incremental units sold create a strong loyalty-inducing effect. The GC noted that the applicant did not provide any information showing that the rebate in question was based on a countervailing advantage which could be economically justified or if it rewarded an economy of scale made by the applicant because of orders for large quantities. The GC ruled that the Commission was entitled to conclude, in the contested decision, that the quantity rebate system at issue was designed to tie truck tyre dealers in France to the applicant by granting advantages which were not based on any economic justification. 4.175  As regards the service bonus system put in place by Michelin, the GC examined whether the Commission was correct to find that the service bonus was unfair, because of the subjectivity of the assessment of the criteria giving entitlement to the bonus. Here again, the GC supported the Commission as the GC considered that a discount system applied by a dominant undertaking, which leaves that undertaking a considerable margin of discretion as to whether the dealer may obtain the discount must be considered unfair and constitutes a breach of Article 102: Because of the subjective assessment of the criteria giving entitlement to the service bonus, dealers were left in uncertainty and on the whole could not predict with any confidence the rate of discount which they would receive by way of service bonus.192 4.176  Finally, the GC rejected the argument made by the applicant that the Commission should have carried out a detailed analysis of the effects of the rebates in question. The GC considered (p. 219) that for the purposes of establishing a breach of Article 102, it is sufficient to show that the abusive conduct of the dominant firm ‘tends to’ restrict competition or, in other words, that the conduct ‘is capable of’ having that effect. Hence, for the purposes of applying Article 102, ‘establishing the anti-competitive object and the anticompetitive effect are one and the same thing’.193 If it is shown that the object pursued by the conduct in question is to limit competition, that conduct will also be liable to have such an effect. In this respect, the GC found that the Commission demonstrated that the purpose of the rebate systems applied by Michelin was to tie its dealers, and these systems tended to restrict competition because they sought, in particular, to make it more difficult for the Michelin’s competitors to enter the relevant market.194 4.177  In British Airways, the Court of Justice endorsed the judgment of the GC, in which it had considered that the Commission was correct in finding that British Airways’ (BA) rebates were in breach of Article 102.195 BA had concluded agreements with UK travel agents accredited by the International Air Transport Association (IATA) entitling them to a basic standard commission on their sales of BA air tickets. In addition to that basic commission system, BA concluded agreements with IATA travel agents comprising three distinct systems of financial incentives: marketing agreements, global agreements, and, finally, a performance reward scheme.

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4.178  In its appeal to the Court of Justice, BA claimed inter alia that the GC had made an error of law in its assessment of the exclusionary effect of the bonus schemes in question; that the GC erred in finding that BA’s bonuses were not based on an economically justified consideration as it is economically justified for an airline to reward travel agents which allows it to increase its sales and help it to cover its high fixed costs by bringing additional passengers; and that the GC failed to examine whether BA’s conduct involved a prejudice to consumers as required by Article 102(b) TFEU. 4.179  Citing Michelin I, the Court of Justice observed that an exclusionary effect may arise from goal-related discounts or bonuses, that is, those the granting of which is linked to the attainment of sales objectives defined individually, and that BA’s bonus schemes in question were of such a nature.196 Furthermore, the Court noted that an exclusionary effect also occurred when the rebates in question were of a retroactive nature, which was again the case with BA’s bonus schemes. The exclusionary effect of retroactive rebates was particularly strong when the dominant firm in question holds a market share that is subsequently higher than its competitors, which was again the case with BA. 4.180  The Court of Justice also rejected BA’s claim that its bonus schemes could be economically justified as it is justified for an airline to reward travel agents which allows it to increase its sales and helps it to cover its high fixed costs by bringing additional passengers. As to Michelin’s reference to the prejudice of consumer interests referred to in Article 102(b), discounts or bonuses granted by dominant undertakings may be contrary to Article 102 ‘even where they do not correspond to any of the examples mentioned in the second paragraph of that article.’197 Moreover, Article 102 ‘is aimed not only at practices which may (p. 220) cause prejudice to consumers directly, but also at those which are detrimental to them through their impact on an effective competition structure.’198 (iv)  The Guidance Paper

4.181  The Guidance Paper seeks to move away from the terminology traditionally used by the Commission and the EU Courts, which relied on concepts such as fidelity rebates, quantity rebates, or target rebates, towards the clearer notion of ‘conditional rebates’, which it defines as ‘rebates granted to customers to reward them for a particular form of purchasing behaviour.’199 While the Guidance Paper acknowledges that conditional rebates are not an uncommon practice, it notes that such rebates—when granted by a dominant undertaking—can also have actual or potential foreclosure effects similar to exclusive purchasing obligations.200 4.182  The Guidance Paper makes a distinction between single-product rebates (ie, rebates applying to one product) and multi-product or bundled rebates (ie, rebates applying across several products). The Guidance Paper discusses bundled rebates as part of its section on tying, but as such rebates raise issues analogous to single-product rebates, we will analyse them as part of this section. 4.183  Single-product rebates The Guidance Paper details several factors that it considers to be of particular importance in determining whether a given system of conditional rebates is liable to result in anticompetitive foreclosure. 4.184  As with exclusive purchasing obligations, the Guidance Paper indicates that anticompetitive foreclosure is more likely to occur where the dominant undertaking’s rivals are not able to compete on equal terms for the entire demand of each individual customer. The reason is that a conditional rebate granted by a dominant undertaking may enable it to use the ‘non-contestable’ portion of the demand of each customer (ie, the amount that would in any event be purchased by the customer from the dominant undertaking) as

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leverage to decrease the price to be paid for the ‘contestable’ portion of demand (ie, the amount for which the customer may prefer and be able to find substitutes).201 4.185  The concern expressed in the Guidance Paper can be illustrated as follows. Let us assume that a dominant supplier sells to a particular company. The supplier has an assured base of sales to that customer because, for a portion of the customer’s demand, there are no proper substitutes.202 These sales represent the non-contestable share of that company’s demand. However, the portion of the customer’s demand for which substitutes are available is the contestable share of that customer’s demand.203 The dominant supplier offers the company a retroactive rebate. This gives the customer a rebate over all the quantities sourced if it purchases more than the rebate threshold level within the reference period.204 This scenario is illustrated by Figure 4.1. 4.186  The competition concern is that when the non-contestable part (NC) of the customer demand in question is large compared to the contestable part (C), that is, when NC > C, the (p. 221) View full-sized figure

Figure 4.1  Retroactive rebate scheme retro active rebate may allow the dominant supplier to leverage its position of strength in the non-contestable to the contestable part of a customer’s sales. Indeed, while the dominant supplier can recoup the rebate on its overall sales including both contestable and non-contestable parts (ie, the dominant firm does not incur losses on the whole range of sales), competing suppliers will have to recoup the rebate over a smaller base represented by the contestable part. This retroactive rebate scheme could thus have the effect of excluding equally efficient rivals from that part of the customer’s sales that would otherwise be contestable. 4.187  Echoing the position expressed by the EU Courts, the Guidance Paper also notes that ‘retroactive’ rebates may foreclose the market significantly, ‘as they may make it less attractive for customers to switch small amounts of demand to an alternative supplier, if this would lead to loss of the retroactive rebates.’205 In this respect, the higher the rebate as a percentage of the total price (eg a 20 per cent rebate, which is a large rebate) and the higher the threshold (eg the fact that the 20 per cent rebate would be granted when the buyer purchases more than 90 per cent of its requirements from the dominant firm), the greater the inducement below the threshold (this indictment being sometimes referred to as the ‘suction effect’206) and, therefore, the stronger the likely foreclosure of actual or potential competitors. 4.188  Moving away from the formalistic approach pursued by the EU Courts, the Guidance Paper provides that the Commission intends to investigate ‘to the extent that the data are available and reliable’ whether the rebate granted by the dominant firm is capable of hindering the expansion or entry even of ‘as efficient’ competitors by making it more difficult for them to supply part of the requirements of individual customers.207 (p. 222) 4.189  The Commission will estimate what price a rival would have to offer to the buyer that has received a conditional rebate from a dominant firm in order to compensate this buyer for the loss of that rebate if the latter would switch part of its demand, which is referred to as the ‘relevant range’, away from the dominant undertaking. The price that the competitor will have to match is not the average price of the dominant undertaking, but the From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

normal (list) price less the rebate it loses by switching (ie, the ‘effective price’), calculated over the relevant range of sales and in the relevant period. 4.190  The Guidance Paper provides that for incremental rebates, the ‘relevant range’ is normally the incremental purchases (ie, the purchases made beyond the threshold set by the dominant firm for granting the rebate) that are being considered. For retroactive rebates, it will generally be relevant to assess in the specific market context how much of a customer’s purchase requirements can realistically be switched to a rival (the ‘contestable share’ or ‘contestable portion’). 4.191  Against this background, the Guidance Paper provides that: •  Where the effective price remains consistently above the LRAIC of the dominant undertaking, this would normally allow an equally efficient competitor to compete profitably notwithstanding the rebate. In those circumstances the rebate is normally not capable of foreclosing in an anticompetitive way. •  Where the effective price is below AAC, as a general rule the rebate scheme is capable of foreclosing even as efficient competitors. •  Where the effective price is between AAC and LRAIC, the Commission will investigate whether other factors point to the conclusion that entry or expansion even by as efficient competitors is likely to be affected. In such a case, the Commission will investigate whether and to what extent rivals have realistic and effective ‘counterstrategies’ at their disposal, for instance their capacity also to use a ‘noncontestable’ portion of their buyer’s demand as leverage to decrease the price for the relevant range. 208 4.192  A simple numerical example can be used to clarify the leverage mechanism described by the Commission in the Guidance Paper. Suppose that Customer A will always buy 50 units that are available only from the dominant supplier, so the assured base or the non-contestable share Q A NCS = 50 Units. But the customer’s total demand Q A T = 100 Units, and the remaining 50 units could be satisfied by products sold by either the dominant supplier or one of its competitors. Thus the contestable share Q A CS = 50 Units .The AAC = $1/Unit. The LRAIC = $2/Unit. 4.193  The dominant supplier offers the following pricing scheme. The customer pays $4/ Unit if it buys any quantity less than 100 units. So P Before Rebate = $4/Unit if Q < 100 Units. But if the customer buys 100 units (Q = 100 Units) it receives a rebate R worth $120 in total, or $1.2 for each of the 100 units bought in total. P After Rebate = $2.8/Unit if Q = 100 Units. To determine whether there is a suction effect, the Guidance Paper requires the calculation of (p. 223) the effective price, P e, for the units that belong to the contestable share and then to see whether this price is inferior to the dominant supplier’s ATC. P Before Rebate = $4/Unit P After Rebate = $2.8/Unit = $4/Unit—$1.2/Unit Contestable share C = 50 Units ➔Total With rebate = 100 × $2.80 = $280 ➔Total Without rebate = 50 × $4 = $200 Total With rebate – Total Without rebate = $280 – $200 = $80 is being paid for the last 50 contestable units The effective price (P e) over the last 50 = $80/50 = $1.6 As AAC < P e < LRAIC ➔ the Commission will look at whether the dominant firm’s rivals have counterstrategies

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4.194  Among the factors taken into consideration by the Commission in its assessment is whether the threshold set by the dominant firm is ‘individualized’ or ‘standard’. The importance of this distinction comes from the fact that while an ‘individualized’ threshold allows the dominant supplier to set the threshold at such a level as to make it difficult for customers to switch suppliers, a standardized volume threshold may be too high for some smaller customers and/or too low for larger customers to have a loyalty-enhancing effect.209 The loyalty-inducing effect is thus probably stronger for individualized thresholds than standard ones. 4.195  The Guidance Paper indicates that the Commission will be willing to consider ‘claims by dominant undertakings that rebate systems achieve cost or other advantages which are passed on to customers’.210 The Guidance Paper is, however, rather cryptic as to the categories of cost advantages that will be accepted by the Commission, merely providing that transactioncost related advantages are often more likely to be achieved with standardized volume targets than with individualized ones. As to other efficiencies, the Guidance Paper limits itself to noting that incremental rebates are generally more likely to give resellers an incentive to produce and resell a higher volume than retroactive rebate schemes without, however, explaining why this is the case.211 4.196  The Guidance Paper would have benefitted from a broader review of the various ‘efficiencies’ or pro-competitive effects that have often been associated with rebates and other forms of price concessions, such as: •  Price reduction: the most obvious effect of rebates is to reduce the prices of the firm offering the rebate to the direct benefit of its customers. 212 This also stimulates price cuts by other competitors which, in turn, enable firms on downstream markets to decrease their prices to their own customers. •  Economies of scale and faster fixed costs recovery: in industries with high fixed costs, such as innovative industries (information technology, pharmaceutical research, etc) rebates allow suppliers to increase output and, in turn, recover their fixed costs more rapidly (since (p. 224) they will be able to achieve economies of scale by spreading their fixed costs over larger volumes) resulting in lower average total costs and prices for consumers. 213 •  Economies of scope and reduction of transaction costs: multi-product rebates can allow businesses to achieve economies of scope and reduce transaction costs as buyers are able to obtain the requirements for different products from a single supplier. 214 •  Avoiding double marginalization: rebates assist in avoiding ‘double marginalization’ if the dominant firm’s customer also enjoys substantial market power, because there is a risk that absent the rebates, the price would be higher than the price which would prevail if a vertically integrated monopolist was operating on the market. 215 •  Preventing hold-up: in certain cases, the rebate system may be necessary to provide the incentive for the dominant supplier to make certain relationship-specific investments to supply a particular customer. 216 This may be the case when supplying a customer requires the supplier to invest in new technologies, new production, or even build a production plant. Conditional rebates may be the most efficient way to give the type of assurances needed by the supplier to engage in such investments. •  Supplementary services: rebates may also be an effective way of providing incentives for customers to supply complementary services (product promotion, etc), hence aligning the incentives of the customers with those of the supplier. 217

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4.197  Bundled rebates In a multi-product rebate setting, a dominant supplier might be assured of a certain level of sales from a customer if that customer’s demand is spread across several different products, and the dominant supplier is the only company able to offer some of those products.218 In this case, a multi-product scheme can work in the same way as a single product one—to leverage the dominant company’s position of strength in the assured base into the contestable part of a customer’s sales. 4.198  The test proposed by the Commission in its Guidance Paper is that: If the incremental price that customers pay for each of the dominant undertaking’s products in the bundle remains above the LRAIC of the dominant firm from including this product in the bundle, the Commission will normally not intervene since an equally efficient competitor with only one product should in principle be able to compete profitably against the bundle. Enforcement action may however be warranted if the incremental price is below the LRAIC, because in such a case even an equally efficient competitor may be prevented from expanding or entering.219 (p. 225) 4.199  This test can once again be illustrated through a simple numerical example. Assume that the dominant supplier sells two products, X and Y. Product X is only offered by the dominant supplier, but Product Y is offered by both the dominant supplier and some efficient rivals. Customer A will always buy 50 units of Product X from the dominant supplier, so this supplier has an assured base of 50 units (Q X A NCS = 50 Units). But the customer also has a demand for 50 units of Product Y (Q Y A CS = 50 Units), and these sales could be contested by efficient entrants or rivals, so there is a contestable market of 50 units. The LRAIC of producing one unit of X and Y is similar, that is, $2. 4.200  The dominant supplier offers the following multi-product rebate scheme. The customer pays $4 per unit for either product if they buy any aggregate quantity less than 100 units. So P Before Rebate = $4/Unit if Q < 100 Units. But if they buy 100 units they are given a rebate worth $120 in total, or $1.20 per unit for each of the 100 units bought in total. So P After Rebate = $2.8/Unit if Q = 100 Units. As the methodology and the figures are the same as in the example used above, the result will be the same. The effective price (P e) over the 50 contestable units of Product Y is $80/50 = $1.6. As P e < LRAIC, the rebate creates a suction effect. 4.201  Assessment of the effects-based approach of the Guidance Paper While the logic of the suction effect test proposed by the Commission is attractive and such a pricecost test represents major progress compared to the formalistic approach pursed by the EU Courts, this test has been severely criticized by legal and economic scholars as uncertain, impracticable, and likely to lead to serious mistakes as it applies to single-product rebates.220 4.202  First, the numerical example taken above, which is in line with the Commission’s own example in the Discussion Paper, is highly stylized (ie, simplified) and relies on a number of assumptions (the threshold is set above the amount that the buyer would purchase from the dominant company in the absence of any rebate, the NC is above C and the respective size of NC and C do not fluctuate, etc), which are not likely to hold in practice.221 Moreover, this test may be complex to apply—and thus prone to implementation errors—to certain categories of rebates. This may, for instance, be the case with respect to rebates taking the form of ‘grids’ whereby the level of the rebate varies in small incremental steps depending on the performance of the buyer.222 This may explain why the Commission takes a particularly cautious stance in the Guidance Paper as it indicates that it

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‘will take into account the margin of error that may be caused by the uncertainties inherent in this kind of analysis.’223 4.203  That said, the most significant difficulty raised by the suction effect test relates to the deter-mination of the size of the contestable share of a given customer’s demand.224 The suction (p. 226) effect test relies on the assumption that the dominant supplier controls a part of the demand of the customer to which it gives a rebate (or, in the case of multiproduct rebates, the dominant supplier sells a product needed by the customer in question and for which there is no alternative supplier), which will be its assured base. It also assumes that this assured base (and thus the non-contestable part of the customer’s demand) is large (as otherwise, the dominant firm would not be able to leverage its control of the non-contestable part to the contestable part).225 4.204  The test is quite intuitive for multi-product rebates, where it is easy to distinguish between the competitive and non-competitive products since they are distinct. As far as single-product rebates are concerned, it is by contrast difficult to determine in practice whether—and, if so, the extent to which—the demand of a given customer for a particular product or service is contestable. Several factors should play a role in this determination: •  Switching costs: when such costs are significant, they may have the effect of locking-in customers with the dominant supplier even if they were willing to switch part of their requirements to alternative suppliers. The contestable share will thus be small. Switching costs may for instance be present when the customer has made significant investments to use the products of the dominant firm (eg where the customer has made specific investments in equipment, premises, or training of personnel). •  Must-have brands (or must-stock products): some brands or products may be essential for various categories of retailer. For instance, supermarkets may have to stock certain popular consumer brands, such as Coca-Cola, Danone, or Nestlé and consumer electronics’ retailers may have to stock leading brands, such as Apple, LG, Samsung, or Sony. With limited exceptions, brands tend to play a lesser role in input markets, such as raw materials or electronic components, as these inputs will be embedded in products and thus not directly identifiable by the end consumers. •  Capacity constraints: even if customers were willing and able to switch to alternative suppliers, such suppliers may be unable to satisfy the resulting demand, hence providing an assured base to the dominant firm (at least equal to the total demand minus the maximum available capacities of its rivals). •  Single-source supply: in sectors where transaction costs savings are of critical importance, customers may prefer to buy from a single supplier that is able to supply them with the full, or at least a large part, of the range of the products they need. This may prevent suppliers with a narrow range of products from supplying such customers. 226 (p. 227) 4.205  The problem is that these different factors, and their relative importance for a given product/service and/or a given customer, are notoriously hard to measure. While economists have long explored the issue of the contestability of a given ‘market’,227 little seems to have been written on the issue of the contestability of a given ‘customer’s demand’, which is not surprising since this very notion seems to be of limited application beyond the assessment of single-product rebates. 4.206  In the Guidance Paper the Commission also refers to some factors that need to be taken into account in the determination of the scope of the contestable share:

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For existing competitors their capacity to expand sales to customers and the fluctuations in these sales over time may also provide an indication of the relevant range. For potential competitors, when possible, an assessment of the scale at which a new entrant would realistically be able to enter may be undertaken. It may be possible to take the historical growth pattern of new entrants in the same or in similar markets as an indication of a realistic market share of a new entrant.228 4.207  Some of these factors may be more relevant than others. As far as existing competitors are concerned, it is certainly true that some of these firms may be able to develop strategies to ‘expand sales to customers’. For instance, when faced with capacity constraints, a dominant firm’s rival may decide to concentrate all its supplies on one or a limited number of customers. If its output needs to be increased, this rival may also decide to subcontract the manufacturing of its products to other producers. However, the fact that rivals may be able to expand their sales is, as we have seen, only one of the factors that may allow them to satisfy a given customer’s demand, but it does not say very much as to the willingness of that customer to switch its orders to these rivals. Moreover, ‘the fluctuations in these [firms’] sales over time’ is a questionable factor. No clear relationship can be established between the share of a given customer’s demand supplied by one or several rivals of a dominant firm at a given stage, and the degree of contestability of that demand at that stage or, a fortiori, at a later stage. It is not, for instance, because one or several rivals of a dominant firm supply 5 per cent of the share of a given customer’s demand that these 5 per cent represent the contestable share of that customer’s demand. These firms may in fact have failed to capture the totality of the contestable share of that customer’s demand (which would be, eg, as high as 20 per cent) for a variety of reasons (high prices, insufficient quality, etc). 4.208  As far as new entrants are concerned, their ‘historical growth pattern in the same or in similar markets’ represents at best a rough instrument to determine the size of the buyer in question’s (p. 228) contestable share. First, the determination of the size of the contestable share is an issue that should be analysed at the customer level, not at the market-wide level. Moreover, the fact that historical growth in the market in question or in ‘similar’ (whatever this means) markets has been limited may be explained by a variety of factors, which have little to do with the willingness of one or several buyers to switch their requirements to one or several new entrants. 4.209  The Commission seems to acknowledge the limitations of the factors mentioned in its Guidance Paper as it indicates in a footnote that: The relevant range will be estimated on the basis of data which may have varying degrees of precision. The Commission will take this into account in drawing any conclusions regarding the dominant undertaking’s ability to foreclose as efficient competitors.229 4.210  Given the considerable difficulty of measuring the size of the contestable share of a given customer’s demand and the resulting risk of mistakes when engaging in such measurement, it is subject to question whether the suction effect test meets the requirements of ‘administrability’ and ‘certainty’ that should always apply to the tests used by competition authorities and courts for assessing the legality of dominant firms’ practices.230 As noted, dominant firms adopting certain types of potentially anticompetitive rebates may not be able to self-assess their practices as they may not have the information to run complex price-cost tests such as the suction effect test.231 Due to uncertainty, they

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may thus be forced to abandon efficient rebate schemes given their inability to assess their legality or to take inconsiderate risks.232 4.211  Moreover, because of the complexity of applying a suction effect test and the large amount of information and technical resources needed to apply it properly, it is subject to question whether the suction effect is administrable at all, except in the limited number of cases where the size of the contestable share of the demand of a given customer of the dominant firm is easy to determine. (v)  Case law of the EU Courts and decisional practice of the Commission after adoption of the Guidance Paper

4.212  Following the adoption of the Guidance Paper, the Commission adopted on 13 May 2009 a Decision in which it condemned Intel to a record fine of €1.06 billion on the ground that it had granted conditional rebates and payments to a number of original equipment manufacturers (OEMs) and a large retailer of consumer electronics purchasing its x86 CPUs, and that it had paid OEMs to delay, cancel, or in some other way restrict the commercialization of specific AMD-based products. (p. 229) 4.213  In its Decision, the Commission claimed that it was not bound by the Guidance Paper as this document is ‘intended to set priorities for the cases that the Commission will focus upon in the future, it does not apply to proceedings that had already been initiated before it was published, such as this case.’233 Instead, the Commission relied on the restrictive approach that prevails in the case law of the EU Courts dealing with conditional rebates, recalling the position held by the Court of Justice in Hoffmann-La Roche whereby an undertaking which is in a dominant position on a market and ties purchasers … by an obligation or promise on their part to obtain all or most of their requirements exclusively from the said undertaking abuses its dominant position within the meaning of article 82 EC …234 Referring to British Airways and Michelin II, the Commission also noted that ‘for the purposes of establishing an infringement of Article 82 EC, it is not necessary to demonstrate that the abuse in question had a concrete effect on the markets concerned.’ In direct contradiction with the philosophy of the Guidance Paper, the Discussion Paper that preceded it and policy speeches by Commission officials, the Commission thus stuck to the formalistic approach of the EU Courts, and of its own decisional practice, whereby no evidence of foreclosure is needed.235 To avoid criticism, the Commission nevertheless applied an ‘as efficient competitor’ test to prove that the conditional rebate schemes prevented or made it more difficult for each of those OEMs to source x86 CPUs from AMD.236 But it made it very clear that this test was not required pursuant to the case law of the EU Courts. 4.214  As to the GC, it recently lost an opportunity to modernize its case law. In its recent judgment in Tomra, the GC not only faithfully repeated the controversial case law of the Court of Justice in the area of rebates (Hoffmann-La Roche, Michelin II, etc), but to some extent made it even worse.237 This judgment stemmed from an appeal lodged by Tomra, a company that produces automatic recovery machines for empty beverage containers (reverse vending machines (RVMs)), against a Commission Decision finding that it had infringed Article 102 TFEU by implementing an exclusionary strategy in several national RVM markets, involving exclusivity agreements, individualized quantity commitments, and individualized retroactive rebate schemes, thus foreclosing competition on the markets.238 The GC’s discussion of the compatibility of Tomra’s rebates with Article 102 is interesting

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as it summarizes the legal tests adopted by the EU Courts with respect to the ‘loyalty’ rebates in prior judgments. According to the GC: with more particular regard to the granting of rebates by an undertaking in a dominant position, it is apparent from a consistent line of decisions that a loyalty rebate, which is granted in return for an undertaking by the customer to obtain his stock exclusively or almost exclusively from an undertaking in a dominant position, is contrary to Article 82 EC.239 4.215  It is undeniably true that loyalty rebates may produce exclusionary effects. Whether or not such effects occur can, however, only be determined on the basis of a price-costs analysis of (p. 230) the type proposed by the Commission in its Guidance Paper (within the limits discussed above).240 While the GC acknowledges that the Commission has performed such an analysis, it restates the traditional case law whereby ‘the actual effects of the applicants’ practices’ do not have to be demonstrated by the Commission to establish an infringement as loyalty rebates are ‘liable to’ restrict competition.241 Although the Commission has been conducting price-cost tests in its more recent rebates cases, it does not make a difference whether these tests are properly conducted as in any event loyalty rebates are per se illegal. 4.216  But this is not the only part of the judgment (or, more generally, the case law of the EU Courts on rebates) that is subject to criticism. Indeed, as correctly observed by Tomra in its appeal, even if the contested decision had demonstrated that all the agreements in question might have had foreclosure effects, that would prove only that competitors would have been foreclosed from supplying customers which had already concluded those agreements. Nothing would have prevented Tomra’s rivals from supplying the remaining customers. Indeed, the fact that a given rebate forecloses one or several competitors of the dominant firm from supplying one or several customers is not sufficient to demonstrate the presence of anticompetitive effects. Such effects will only appear when such customers represent a substantial share of the market that is critical for rivals’ competitiveness. Otherwise, even if they are unable to supply one or several customers, rivals will have access to a sufficient share of the demand for the products/services in question to allow them profitably to enter or remain on the market, and thus constrain the dominant firm. 4.217  Yet, in one of the most extraordinary statements ever made in a competition law judgment, the GC states that: the foreclosure by a dominant undertaking of a substantial part of the market cannot be justified by showing that the contestable part of the market is still sufficient to accommodate a limited number of competitors…. [T]he customers on the foreclosed part of the market should have the opportunity to benefit from whatever degree of competition is possible on the market and competitors should be able to compete on the merits for the entire market and not just for a part of it.242 4.218  That position is entirely untenable as, taken literally, it suggests that if a dominant firm grants loyalty rebates to customers whose combined purchases amount to 10 per cent of the market (hence, leaving the other 90 per cent up for grabs by new entrants), that firm would nevertheless have committed an abuse. Moreover, this type of disastrous statement goes entirely against the efforts by the Commission, and some NCAs, to move away from a legalistic approach of enforcing Article 102 TFEU to an effects-based one.

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4.219  Clearly, the EU Courts’ case law on loyalty rebates, as well as in other areas of abuse of dominance law, not only is incongruent with effects-based reform, but truly plays against it by validating formalistic analyses. In fact, this case law signals to the Commission and NCAs that, although they are free to engage in effects-based analysis, this analysis is not essential to a finding of infringement and even if such analysis ends up being flawed that will not jeopardize the viability of their decision in appeal.

(p. 231) (c)  Tying (i)  The concept of tying

4.220  Tying generally refers to a situation where a seller refuses to sell one product (the ‘tying’ product) on the market for which it is dominant unless the buyer also takes another product (the ‘tied’ product).243 Tying can take place on a contractual basis, but also on a technical or technological basis (where, eg, the tying and the tied product are physically integrated or designed in such a way that they can only work together). Microsoft’s integration of its Internet Explorer web browser into its Windows operating system led, for instance, to competition law investigations in both the United States and the EU on the ground that it amounted to technological tying of two distinct products, which created foreclosure effects. 4.221  Although it is often used as a synonym for tying, ‘bundling’ usually refers to the way products are offered and priced by a dominant firm. Bundling can come in two distinct forms: ‘pure bundling’ or ‘mixed bundling’. While in the case of ‘pure bundling’ the products ‘are only sold jointly in fixed proportions’,244 ‘mixed bundling’ (also referred to as ‘bundled rebates’) refers to a situation whereby the products are made available separately, but the sum of the prices when sold separately is higher than the bundled price, hence giving buyers a strong incentive to take the bundle. The compatibility of bundled rebates with Article 102 was discussed at paras 4.197ff. (ii)  Effects of tying

4.222  Tying is a common practice used by both dominant and non-dominant firms to offer better, cheaper, and more convenient products or services. Shoes have always been sold with laces and cars with tyres, and hotel nights generally with breakfast. But beyond these trivial examples, product integration has become a key business strategy in many industries. Manufacturers of consumer electronics, for instance, combine many different components into a single product to make these components work better or to make the product more cost-effective, smaller, or less energy consuming. Smartphones, for instance, comprise elements that used to be provided separately (eg phone and camera), and their larger screen allows users to play games, exchange emails, browse the internet, and access various forms of content. Manufacturers seek to grow sales by increasing the value proposition offered to their customers, and tying different functionalities is an important part of that strategy. 4.223  While in the vast majority of cases tying is pro-competitive, tying may also be used as an exclusionary strategy. First, there may be circumstances where a firm that is dominant in the market for the tying product may seek to extend its market power into the market for the tied product by tying the purchase of the two goods together (a strategy often referred to as ‘monopoly leveraging’).245 Because customers must obtain the monopoly product from the dominant firm, if that firm ties a complementary product to its monopoly product (ie, customers can only buy the monopoly product if they also purchase the tied product), then customers will be less willing to purchase a separate (now redundant) tied product from an independent supplier, thereby foreclosing competition in the otherwise competitive complementary product market.

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(p. 232) 4.224  Second, there may also be circumstances where tying may not be so much about leveraging a dominant position in the tying product market to the tied product market as it is about protecting dominance in the tying product market.246 When the tying monopolist has reason to believe that successful tied product makers are likely to evolve into tying product makers in the future, it has incentives to foreclose rivals in the tied product markets to prevent or reduce erosion in its tying market over time. For instance, in the US Microsoft case, the Department of Justice argued that by tying Windows with Internet Explorer, Microsoft did not aim to reap profit in the browser market, but to protect its dominant position in the operating system market from the threat that might emerge from a significant browser competitor, which could eventually be turned into an alternative operating system.247 (iii)  Decisional practice of the Commission and case law of the EU Courts

4.225  The Commission has only issued a small number of decisions concerning tying and bundling, the most famous one being its 2004 Decision (which also concerned refusal to license, see paras 4.334ff) in which it condemned Microsoft for abusing its dominant position on the PC operating system market.248 While Microsoft was a case of technological tying, the Commission prior to Microsoft handled two cases of contractual tying: Hilti and Tetra Pak II. 4.226  The first of these cases concerned the conduct of Hilti, which was the largest producer of nail guns in the EU. Nail guns use nails and cartridge strips, which are specifically made and adapted to a particular brand of nail gun. Eurofix and Bauco complained that Hilti was excluding them from the market in nails compatible with Hilti by refusing to sell Hilti cartridges without nails to distributors and by cutting off the supply of Hilti cartridges to rival nail makers. The Commission found that, although interdependent, the markets for nail guns, Hilti-compatible cartridge strips, and Hilti-compatible nails, were separate product markets since they are subject to different conditions of supply and demand.249 4.227  Hilti attempted to justify its behaviour by safety reasons claiming that nails made by certain independent nail makers, such as those made by the complainants, were substandard and dangerous. The Commission refused that justification as the normal course of action for Hilti should have been to inform competent UK authorities and ask them to take action against the independent producers of nails it considered dangerous.250 The Commission concluded that Hilti’s actions reflected ‘a commercial interest in stopping the penetration of the market of non-Hilti consumables since the main profit from [nail guns] originates from consumables, not the sale of nail guns.’251 Hilti’s appeal to the Commission’s decision was rejected by the GC.252 4.228  The second case of contractual tying concerned Tetra Pak, the largest supplier in the EU of equipment for the packaging of liquid and semi-liquid food and the materials (cartons) for such packaging. Tetra Pak was active in both the aseptic and non-aseptic packaging sectors. (p. 233) In its decision, the Commission identified four separate markets, distinguishing between: (i) the market in machinery for the aseptic packaging of liquid food; (ii) the corresponding market in cartons (‘aseptic markets’); (iii) the market in machinery for the non-aseptic packaging of liquid food; and (iv) the corresponding market for cartons (‘nonaseptic markets’).253 4.229  The Commission observed that taking advantage of its dominant position on the aseptic market in machines, Tetra Pak managed to impose on the buyers of such machines a variety of contractual clauses, including an obligation to use its cartons exclusively. Tetra Pak tried to justify this obligation by the need to protect public health, but, as in Hilti, the

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Commission rejected that justification and condemned Tetra Pak for its attempt to eliminate competition on the market for cartons in breach of Article 102. 4.230  Tetra Pak appealed the decision of the Commission to the GC and then the Court of Justice. The GC rejected Tetra Pak’s argument that the machinery for packaging a product is indivisible from the cartons holding that: For a considerable time there have been independent manufacturers who specialize in the manufacture of non-aseptic cartons designed for use in machines manufactured by other concerns and who do not manufacture machinery themselves.254 4.231  As to Tetra Pak’s attempt to justify the obligation imposed on the buyers of its machinery to use its cartons, the GC observed that: It is not for the manufacturers of complete systems to decide that, in order to satisfy requirements in the public interest, consumable products such as cartons constitute, with the machines with which they are intended to be used, an inseparable integrated system…. In those circumstances, … the protection of public health may be guaranteed by other means, in particular by notifying machine users of the technical specifications with which cartons must comply in order to be compatible with those machines, without infringing manufacturers’ intellectual property rights.255 Tetra Pak’s appeal of the GC’s judgment to the Court of Justice was unsuccessful.256 4.232  In Microsoft, the Commission decided that Microsoft infringed Article 102 by tying Windows Media Player (WMP) with its Windows PC operating system (Windows).257 The Commission considered that anticompetitive tying requires the presence of the following elements: (i) the tying and the tied goods are two separate products; (ii) the undertaking concerned is dominant in the tying product market; (iii) the undertaking concerned does not give customers a choice to obtain the tying product without the tied product; and (iv) the tying in question forecloses competition.258 (p. 234) 4.233  The Commission found that WMP and Windows were two separate products.259 The distinctness of products had to be assessed with a view to consumer demand, and, according to the Commission, the fact that the market provides media players separately shows that there is separate consumer demand for media players that could be distinguished from the demand for client PC operating systems. Hence, WMP and Windows were separate products. It also found that Microsoft was dominant on the market for PC operating systems. 4.234  The Commission also established that customers were not given the choice of acquiring the tying product without the tied product as Microsoft rendered the availability of Windows conditional on the customer’s simultaneous acquisition of the tied product. The Commission noted that the fact that customers need not pay extra (WMP is distributed with Windows at no additional cost) was not a relevant consideration as the wording of Article 102(d) ‘does not require a reference to “paying” when introducing the element of “supplemental obligation”.’260 It also noted that there is no language in Article 102 that would suggest that ‘in order to show coercion, customers need to be forced to use the tied product’.261 4.235  As to the element of foreclosure, the Commission stated that tying has a harmful effect on competition.262 It acknowledged, however, that there were circumstances

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relating to the tying of WMP which warrant a closer examination of the effects that tying has on competition in this case. While in classical tying cases, the Commission and the Courts considered the foreclosure effect for competing vendors to be demonstrated by the bundling of a separate product with the dominant product, in the case at issue, users can and do to a certain extent obtain third party media players through the Internet, sometimes for free. There are therefore good reasons not to assume without further analysis that tying WMP constitutes conduct which by its very nature is liable to foreclose competition.263 4.236  The Commission thus considered that the form-based approach applied to tying in its prior decisions (Hilti and Tetra Pack) had to be replaced by an effects-based approach that the Commission was beginning to promote at the time. As a result, it followed a threestep analysis. First, the Commission observed that given that Windows was present on more than 90 per cent of all PCs, the tying of WMP with Windows ensured WMP unmatched ubiquity in the market. The Commission also rejected the view that other media player vendors could offset WMP’s ubiquity through other distribution channels, such as installation agreements with OEMs, free downloading of their software from the internet, etc.264 The ubiquitous presence of WMP on PCs thus provided a significant ‘competitive advantage’ to Microsoft. Second, the Commission considered that this competitive advantage would lead content providers to encode their content primarily in WMPcompatible format and application vendors to write applications primarily for WMP. The presence of strong network effects would ultimately tip the market in favour of Microsoft.265 Finally, the Commission looked at market developments in the media player industry and identified a trend in favour of WMP.266 (p. 235) 4.237  As a remedy to the infringement, the Commission ordered Microsoft to offer a version of Windows for client PCs that does not include WMP. 4.238  Although many observers praised the Commission for the significant efforts it put in its investigation and its willingness to analyse the facts in great detail, its decision contains a number of significant flaws. The first element of the test, whereby two products are distinct if there is separate demand for the tied product, makes little economic sense. Taken literally, it might lead one to conclude that mobile telephones and ring tones, PCs and keyboards, and MP3 players and earphones are all distinct products, despite the fact that consumers clearly see them as forming part of a single product. As correctly observed by the applicant in the Microsoft case,267 the correct test is that two products are distinct if there is no separate consumer demand for both the tying and the tied product. Hence, unless this test, which the EU Courts have repeatedly affirmed in their case law, is changed, there is a considerable risk that perfectly benign combinations of products are caught as tying with the meaning of Article 102 TFEU (a type I error). 4.239  The third element of the test, according to which there is coercion when the dominant firm does not give the option of buying the tying product without the tied product, does not fare better.268 This test makes sense in certain circumstances, but does not in others. Clearly, if a customer cannot acquire a printer (the tying product) without buying a large quantity of paper (the tied product) from the printer manufacturer, that customer will not purchase paper from the manufacturers’ competitors, at least for a certain period of time. In these circumstances, which were present in the seminal Hilti and Tetra Pak judgments,269 the customer is clearly coerced to buy the dominant firm’s paper and rival paper makers are foreclosed. In contrast, in the settings that were at stake in the Microsoft case, the test used by the Commission is flawed. It is indeed not because a customer buying Windows also automatically acquires WMP that this customer is coerced. Unlike in the prior example, nothing prevents this customer from acquiring as many rival media players as he wishes and many computer users have different browsers on their computer (a practice called ‘multi-homing’). Clearly, the test of coercion applied by the Commission is too broad

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and should be limited (p. 236) to situations where the tie makes it significantly more difficult (even if only financially) for the customer to purchase or consume a rival version of the tied good. 4.240  Finally, it did not take long after the decision to realize that the remedy adopted by the Commission, that is, the obligation imposed on Microsoft to offer a version of Windows with WMP (so-called ‘Windows N’), was a failure. As Microsoft charged the same price for the bundled and the unbundled versions, Windows N had very few takers. 4.241  Microsoft subsequently appealed the decision of the Commission to the GC, which delivered its judgment in September 2007.270 In that judgment, the GC supported the position of the Commission that: (i) operating systems for PCs and media players are distinct products; (ii) Microsoft is dominant on the market for operating systems; and (iii) the condition of coercion is met in that Microsoft does not give consumers the option of obtaining Windows without WMP. 4.242  However, as far as the condition of foreclosure is concerned, the GC departed from the effects-based approach followed by the Commission in its decision. That is made clear at paragraph 1058 of the judgment, which stated that the Commission’s findings that the ubiquitous presence of WMP on PCs provided a significant ‘competitive advantage’ to Microsoft are in themselves sufficient to establish that the fourth constituent element of abusive bundling is present in this case. Those findings are not based on any new or speculative theory, but on the nature of the impugned conduct, on the conditions of the market and on the essential features of the relevant products. They are based on accurate, reliable and consistent evidence which Microsoft, by merely contending that it is pure conjecture, has not succeeded in showing to be incorrect. 4.243  Hence, according to the GC, it is sufficient to show that WMP was ubiquitous on PCs to demonstrate that the tying in question creates a competitive advantage that rivals are unable to replicate. Once such a competitive advantage has been demonstrated, it is no longer necessary to show that the tying produces foreclosure effects in the market in question. In our view, assimilating the presence of a ‘competitive advantage’ to the presence of ‘foreclosure’ is unjustified and not at all in line with the Commission’s more prudent approach in a case such as Bronner (see paras 4.316ff). 4.244  Less than a year after the judgment of the GC, the Commission initiated another tying investigation against Microsoft and eventually sent a statement of objections to Microsoft in January 2009 outlining the Commission’s preliminary view that Microsoft’s tying of its Internet Explorer web browser with Windows infringed Article 102. In the press release accompanying the statement, the Commission noted that it had gathered during the investigation evidence that led it to believe that: the tying of Internet Explorer with Windows, which makes Internet Explorer available on 90% of the world’s PCs, distorts competition on the merits between competing web browsers insofar as it provides Internet Explorer with an artificial distribution advantage which other web browsers are unable to match.271 (p. 237) 4.245  This made it obvious that the Internet Explorer case was effectively a re-run of the WMP case. One of the differences, however, in the approach of the Commission in the Internet Explorer case related to the remedy sought. Having learned from its mistake in the WMP case, the Commission did not want Microsoft to develop a version of Windows without Internet Explorer, but instead wanted Microsoft to carry a number of competing browsers with each copy of Windows. This ‘must carry’, the legality of which was questionable, would

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force Microsoft to program a ‘ballot screen’ to make users select which browser to install on their new PC. 4.246  In the end, Microsoft settled the case by offering remedies to the Commission, which the Commission rendered legally binding through an Article 9 decision.272 As ‘requested’ by the Commission, Microsoft committed to offer European users of Windows a choice among different web browsers. Specifically, Microsoft offered to make available for five years in the EEA (through the Windows Update mechanism) a ‘Choice Screen’ enabling users of Windows XP, Windows Vista, and Windows 7 to choose which web browser(s) they want to install in addition to, or instead of, Microsoft’s browser Internet Explorer. 4.247  While the Article 9 decision adopted by the Commission brought Microsoft’s Internet Explorer tying to an end, the fact of the matter is that the case law of the European Courts after the GC’s judgment is entirely unfavourable to dominant firms engaging in tying and bundling in the vast majority of the cases for efficiency-related reasons. Of particular concern is that the test set by the GC in its judgment is highly formalistic and, for reasons explained above, defies economic logic. (iv)  The Guidance Paper

4.248  The Guidance Paper was adopted in December 2008, that is, more than a year after the judgment of the GC in Microsoft. As will be seen, the Guidance Paper seems to take a slightly different approach than the approach of the GC.273 4.249  A first interesting aspect of the Guidance Paper’s section on tying is that the Commission does not refer to the condition of coercion found in the case law. According to the Guidance Paper, the Commission will normally intervene on the basis of Art