Abuses of Dominance - Generalities
Transcript of Abuses of Dominance - Generalities
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Abuses of dominance
GeneralitiesDr Pablo Ibanez Colomo
LL300 Competition
Law
Competition law and dominant firms
• Article 102 TFEU [ex‐Article 82 EC, ex‐Article
86 EEC] reads:
‘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 […]’
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Explaining the terms of the
controversy
• The controversy revolves around the criteria used to establish an abuse in practice: – One perspective on the controversy: form‐based
(rules) vs effects‐based (standard ) approaches:• Are there ways of competing that are inherently good or
bad? (competition on the merits/abuse)
• Does Article 102 TFEU apply even in the absence of significant effects on competition?
– A second perspective: objective vs subjectiveconsiderations:• Is the intent of the dominant firm relevant?
• Or should the abuse established only by reference to its objective impact on the market?
Explaining the terms of the
controversy
Form‐based
Subjective
Effects‐based
Objective
Legal approach Economic
approach
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Explaining the terms of the
controversy
• EU Courts apply Article 102 TFEU inconsistently:
– In some cases, they follow a form‐based approach, in
others, they require evidence of negative effects
– Similarly, the intent of the dominant firm is a crucial
factor in some cases, but an irrelevant one in others
• This inconsistency creates legal uncertainty
– Article
102
TFEU
is
at
odds
with
other
provisions
(Article 101 TFEU, mergers)
– Article 102 TFEU without boundaries?
Exclusive dealing under Article 101
TFEU
Exclusive dealing
Brewers
Public houses
Case C‐234/89, Delimitis
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Exclusive dealing under Article 101
TFEU
‘11. [A]s a result of his exclusive purchasing obligation andthe prohibition on competition, the reseller concentrateshis sales efforts on the distribution of the contract goods.The supply agreements, moreover, [allow] the supplier toplan his sales over the duration of the agreement and toorganize production and distribution effectively.12. Beer supply agreements also have advantages for thereseller, inasmuch as they enable him to gain access underfavourable conditions. […] The reseller’s and supplier’s
shared interest in promoting sales of the contract goodslikewise secures for the reseller the benefit of the supplier'sassistance in guaranteeing product quality and customerservice’.
Case C‐234/89, Delimitis
Exclusive dealing under Article 102
TFEU‘89. An undertaking which is in a dominant position on a marketand ties purchasers . . . by an obligation or promise on their partto obtain all or most of their requirements exclusively from thesaid undertaking abuses its dominant position within themeaning of article [102] of the Treaty […]
90. Obligations of this kind […] are incompatible with theobjective of undistorted competition within the commonmarket, because […] they are not based on an economictransaction which justifies this burden or benefit but aredesigned to deprive the purchaser of or restrict his possiblechoices of sources of supply and to deny other producers accessto the market’
Case 85/76, Hoffmann‐La Roche
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Reactions to
the
controversy
• Strong reactions after the GC judgments in
Michelin II and British Airways (2003)
– The European Commission issued a Discussion
Paper (draft guidelines) in December 2005
– The efforts led to the adoption of a more modest
Guidance (December 2008)
• The Guidance
endorse
an
effects
‐based
approach based on objective considerations
Elements of Article 102 TFEU
• Substantive aspects:
– Undertaking: same meaning and scope as in Article 101 TFEU
– Dominance
– Abuse
• Jurisdictional aspects:
– ‘Substantial part’ of the internal market
– Effect on trade between Member States [see Article 101 TFEU]
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Article 102
TFEU
‘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
[…]’
Single‐firm dominance
• In Hoffmann‐La Roche, the notion of single‐firm
dominance was defined as:
‘a position of economic strength enjoyed by an
undertaking which enables it to prevent effectivecompetition being maintained on the relevant
market by affording it the power to behave to an
appreciable extent independently of its competitors,
its customers and ultimately of the consumers’
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Single‐firm
dominance
• The OECD on substantial market power:
‘“Substantial market power” can be said to
exist when competitive constraints imposed
by other firms are relatively ineffective on the
dominant firm. In this situation, the dominant
firm’s decision about its own output and price
can influence market outcomes’
Single‐firm dominance
• Market shares provide a first indicator of
market dominance:
– ‘very large shares are in themselves evidence . . .
of the
existence
of
a dominant
position’
(Hoffmann‐La Roche)
– x 50%: rebuttable presumption of dominance
( AKZO)
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Single‐firm
dominance
• Other factors may alter the finding:
– Barriers to entry and expansion (lato sensu):
economies of scale, sunk costs, network effects
– Firm characteristics: ‘deep pocket’, vertical
integration, spare capacity, product range
– Countervailing buyer power (accepted in Irish
Sugar ) – Firm behaviour?
Collective dominance
• A dominant position may be enjoyed by ‘one or more undertakings’ under Article 102 TFEU
• What is less clear is the exact scope of the notion of collective dominance – It
would
seem
that
the
drafters
of
the
Treaty
sought to capture ‘quasi‐groups’ of companies – In Italian Flat Glass, the General Court (CFI) accepted an
expansion of the notion of collective dominance• The European Commission must establish the existence of
‘economic links’ between the undertakings
• In Almelo, the ECJ required that the undertakings ‘adopt the same conduct on the market’
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Collective dominance
Complementary patents
Joint licensing
(patent pool)
An example of ‘economic links’ in Italian
Flat
Glass:
the
undertakings
may share a technology
Collective dominance
• In Compagnie Maritime Belge, the ECJ found that the ‘economic links’ may result from the
market structure
– The members of an oligopoly may be found to hold a collective dominant position
– This principle had been accepted in merger control law (Kali & Salz and Gencor cases)
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Collective dominance
• The boundaries of the notion of collective
dominance remained unclear until Airtours
– The legal notion in line with the economic concept
of tacit collusion
– The conditions set out by the General Court are
the following:
• Market transparency
• Retaliation mechanisms
• Absence of countervailing power
Exclusionary abuses
Tie‐in Potentially excluded
rivals
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Exclusionary abuses
Exclusive
dealing
(or
loyalty
rebates)
Public houses
Exploitative abuses
Excessive prices
End consumers
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Exploitative abuses
Discriminatory
treatment
An effects‐based approach
Box 1: Exploitative abuses
Why is it potentially counterproductive to take
action against excessive prices charged by
dominant firms?
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The substantive challenge in
competition law
• How are legal principles elaborated in
competition law?
– Step 1: Understand the nature of the behaviour
under examination
– Step 2: Decide between the application of rules or
standards
– Step 3: Refine rules and standards
Defining the relevant variables
Rules(form
‐based)
Standards(effects
‐based)
Step 2
Refine
standards
Efficiencies?
vs.
Step 3
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A form
‐based
approach
• From a form‐based perspective, some
practices are seen as anticompetitive per se
– Rules: There would thus be ‘unfair’ or ‘improper’
methods of competition
– Exclusionary effects become irrelevant (as, for
instance, with cartels)
– If exclusionary
effects
are
not
relevant,
then
intent
becomes (implicitly or explicitly) a crucial factor
A form‐based approach
• A form‐based approach is problematic for several reasons:
– For most practices, anticompetitive intent isdifficult to establish unequivocally
– In some cases, exclusionary intent seems to bebeyond reproach (e.g. low prices)
– A form‐based approach leads to Type I errors(false positives)
– A form‐based approach deters efficient behaviour (harm for consumers and society)
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An effects
‐based
approach
• Effects‐based approach: only conduct having exclusionary effects should be regarded as abusive
– Standard: Intervention depends on a case‐by‐case assessment of the relevant market
– Intervention may take place following exclusion, but may be prospective (as in merger control)
– If the authority intends to intervene at an earlier stage, it must
put
forward
a credible
theory
of
harm
– Intent could play a marginal role under an effects‐based approach (e.g. modulate the substantive standard)
Case 85/76, Hoffmann‐La Roche v
Commission
‘The concept of abuse is an objective concept
relating to the behaviour . . . which is such as to
influence the structure of a market where . . . the
degree of competition is weakened and which,
through recourse to methods different from those
which condition normal competition in products or
services . . . , has the effect of hindering the
maintenance of the degree of competition still
existing in the market or the growth of that
competition’
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EU Courts’
approach
to
abuses
• The definition of abuse provided in Hoffmann‐La Roche suggests that:
– The notion of abuse is an objective one (no role for intent?)
– Dominant undertakings are able to outperform their rivals ‘on the merits’
– It is necessary to assess the effects of potentially abusive
conduct
• The actual implementation of Article 102 TFEU is very different
EU Courts’ approach to abuses
• In essence, EU Courts endorse a form‐based approach (legalistic pigeon‐holing)
– For
any
practice,
the
relevant
question
is
whether
it is a form of competition on the merits
– Intent considerations seem to play a fundamental role in this regard
– For conduct departing from competition on the merits, the assessment of effects is not necessary
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EU Courts’
approach
to
abuses
Competition on the merits Abusive conduct
Exclusive dealing
Loyalty rebates
Below ‐cost pricing
Tying/Bundling
Quantity rebates?
Above‐cost pricing?
Refusal to supply?
EU Courts’ approach to abuses
• It may well be that conduct deemed abusive is a common business practice (e.g. rebates)
• In Michelin
I, the
ECJ
introduced
the
idea
of
a ‘special responsibility ’
– This seems to mean that some business practices are not open to dominant undertakings
– This may also mean that standards may not be consistent across the board
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EU Courts’
approach
to
abuses
• As already mentioned, the assessment of
effects in concreto is not deemed necessary
• It is sufficient that the practice could, in the
abstract , have exclusionary effects
•
The fact
that
the
practice
did
not
yield
anticompetitive effects is irrelevant
EU Courts’ approach to abuses
Box 4: Object and effect in Article 102 TFEU
In Michelin II, the CFI held the following:
‘241. [F]or the purposes of applying Article [102TFEU], establishing the anticompetitive object and
the anti‐competitive effect are one and the same
thing […] If it is shown that the object pursued by
the conduct of an undertaking in a dominant
position is to limit competition, that conduct will
also be liable to have such an effect […]
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EU Courts’
approach
to
abuses
‘245. The applicant cannot base an argument on
the fact that its market shares and prices fell
during the period in question. When an
undertaking […] implements practices with the
aim of restricting competition, the fact that the
result sought is not achieved is not enough to
avoid the application of Article [102 TFEU] […] Inany event, it is very probable that the fall in the
applicant's market shares […] and in its sales
prices […] would have been greater […]’
EU Courts’ approach to abuses
Box 4: Object and effect in Article 102 TFEU
Why are these passages problematic from a legal
perspective? And from an economic perspective?
What is the idea underlying these excerpts?