abuses of dominance - generalities

8/19/2019 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?


controversy

Form‐based

Subjective

Effects‐based

Objective

Legal approach Economic

approach


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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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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


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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Complementary patents

Joint licensing

(patent pool)

An example of ‘economic links’ in Italian

Flat

Glass:

the

undertakings

may share a technology


• 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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• 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?


• 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


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 […]’


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?

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