Relaxing whilst doing Competition Law is not an Oxymoron

The definitive article on two-sided markets, by me

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(1) Economic theories on multi-sided markets are now well established and, in fact, earned Prof. Tirole a Nobel Prize earlier this year; (2) Some of the most prominent ongoing cases, including the two concerning Google, go to the heart of antitrust issues in multi-sided settings; (3) In addition, the EU has been said to intend to regulate “platforms” (see here for a piece including some leaked documents). Not that anyone seems to know what a “platform” is exactly (since when is ignorance an impediment to introduce regulation?), but the Commission’s leaked documents make it clear “multi-sidedness” is what the Commission (or at least Commissioner Oettinger, a champion of smart regulation in the digital single market –like this?-) has in mind (the docs also refer to specific search engines, social networks, application stores and internet payment gateways as the quintessential examples of platforms in alleged need of regulation).

In my view, in spite of all these developments we lawyers have not yet reflected enough on how the application of competition law should be refined in this context.

As you may remember, I gave my views on the subject at the Swedish Competition Authority’s “Pros and Cons conference” (French speakers may think that I was the “con” among the pros, which is probably right….) (the slides are available here).

My speech at this event has now been beefed up and features in the latest issue of the Competition Law Journal, published by Jordan Publishing, at [2015] Comp Law 64; it is available here:

The Double Duality of Two Sided Markets_CLJ_Lamadrid

 [The title of the post was perhaps a bit of an overstatement, but since Chillin’Competition is not (yet) a regulated platform, I thought I could use some self-favouring ;) ]

And on 4 June the European Commission has (at the behest of the UK’s CMA) very kindly invited me to talk about these issues in Uppsala at the annual gathering of the European Association of Competition Law Judges; it should be fun. The program for that event is available here: AECLJ Uppsala prov programme

Written by Alfonso Lamadrid

5 May 2015 at 3:46 pm

Supermarkets and competition law: lessons from Tesco’s recent troubles (and other news)

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Supermarkets are often presented as serial competition law offenders. Some commentators simply assume that it is a highly concentrated industry that makes supra-competitive profits. From this perspective, they would be the epitome of the tight (and evil) oligopoly. According to other accounts, however, high prices are not the problem, but excessively low ones. Some see with genuine concern that supermarket chains compete vigorously across some product categories. The exercise of unilateral market power vis-à-vis suppliers has emerged as a third popular topic in recent years. The idea that there is something wrong about retailers favouring their labels and/or with them competing vigorously with manufacturers at the downstream level has become a popular one.

It is hard to believe that these claims can all be true at the same time. The reality of the industry must be far more complex than commonly assumed. I thought of all of this when reading about Tesco’s recent troubles. The consensus among analysts is that a significant part of the company’s problems – currently the leading supermarket chain in the UK with a market share of around 29% – is the consequence of strong competition from hard discounters such as Aldi or Lidl. Incumbents have a hard time meeting the prices of the two German chains, which are relatively recent entrants in the British market.

Why do I say all this? Well, because sometimes there may be a gulf between popular belief and the reality of markets. The problems in the supermarket industry are assumed to be so rampant and fundamental that the European Parliament became involved and – in line with the growing tradition – sector-specific regulation addressing the perceived problems was discussed and contemplated. In such situations, the best competition authorities can do is assess rigorously whether such claims are really justified, even if it means not taking any measures in the end. In fact, I wrote a while ago that a major task of competition authorities is to lead by inaction, which means that sometimes their remit is to explain clearly to the wider public why concerns are not justified, why the market is working in the interest of consumers or why sector-specific regulation could have the perverse effect of stifling competition. This is how I interpret what the Commission did recently in relation to supermarkets.

The groceries sector is also interesting in that it shows that there are necessarily winners and losers when markets evolve. The fact that some companies are driven out of the market does not always mean that it is the consequence of anticompetitive conduct. The exclusion or marginalisation of some players may simply mean that the conditions of competition are changing. In this sense, indicators that rivalry among supermarket chains in the UK is fierce may be interpreted as suggesting that vertical integration is merely a logical reaction to the new conditions of competition, and not an unlawful strategy limiting – enter the buzzwords – choice and innovation.

As I was thinking about the above, I received an email from Caron Beaton-Wells (Professor of Law at the University of Melbourne) informing about the launch of a research project about the industry (Supermarket Project). I wish her and her team the best of luck and I look forward to the findings!

In other news, and to indulge in some self-preferencing: I am delighted to report that my co-blogger has (once again) been the sole non-partner listed in the 2015 edition of Chambers Europe. Congratulations on the richly deserved achievement! Knowing how Spanish law firms work, he should be able to repeat the feat a good number of years… ;)

Written by Pablo Ibanez Colomo

4 May 2015 at 4:13 pm

Posted in Uncategorized

More on EU Courts: Ian Forrester to be appointed as GC Judge & the ECJ’s “Fight Club”

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We have just learnt that Ian Forrester -our first Friday Slot interviewee and actually the person who named the Friday Slotwill be a Judge at the General Court replacing Judge Forwood. The addition of a distinguished competition law expert to the Court is always good news; congrats to him. For his interview with us, click here.

The ECJ is again news due to the controversy surrounding the planned duplication of Judgments Judges at the General Court. The tension seems to have mounted and some internal documents have become public. For the Financial Times‘ piece on this topic, click here: “The 1st rule of ECF Fight Club is about to be broken“. And speaking of the FT, I was quoted in it today in a piece on the Apple State aid case (see here).

Written by Alfonso Lamadrid

30 April 2015 at 3:47 pm

Posted in Uncategorized

Bananas – Case C-286/13 P, Dole v Commission

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Bananas have traditionally been an important product in competition law. Among others, they provoked the peculiar market definition at issue in United Brands (vitiated by the toothless fallacy :“the banana has certain characteristics , appearance , taste , softness , seedlessness , easy handling , a constant level of production which enable it to satisfy the constant needs of an important section of the population consisting of the very young , the old and the sick”), and they also inspired Kevin Coates’ “exploding banana hypothesis”.

Most recently they were the subject of the ECJ’s Judgment in Dole. A few weeks ago Pablo commented on this case focusing on how the Judgment illustrates that the “object” label is not about formal categories nor about a presumption of effects. I don’t disagree with Pablo’s views, but I think that they only tell one part of the story.

The facts

In a nutshell, employees of companies active in the banana trade apparently had numerous bilateral calls to discuss/disclose pre-pricing information (namely factors relevant for the setting of quotation prices for the forthcoming week or price trends). These exchanges of views were in a sense pure gossip, and were not liable to affect real market prices because quotation prices were neither actual prices nor the basis for the negotiation of the actual prices. Moreover, the Commission had not contested that the employees taking part in these discussions did not have the authority to set the quotation prices.

The legal issue

Against this background, the legal question raised by Dole’s third ground of appeal was notably whether it is possible to characterize the information exchanges as an infringement by object. According to Dole, the information exchange was in no way capable of reducing uncertainty on the market regarding actual prices.

The ECJ validated the General Court’s conclusions in this regard, observing essentially that information had been exchanged, that the information could be relevant to infer “signals, trends or indications”, that accordingly the exchange of info created abnormal conditions of competition, and that a given practice may have an anti-competitive object even if it does not have a direct link with consumer prices.

Why I think this is bananas

Many of you may think that there’s nothing new here, and that all this was already present in T-Mobile (and partly in the guidelines on horizontal agreements), and you would be right. This is not so much a novelty as an additional (and particularly illustrative) step in a very wrong direction.

The point I want to make today is not about whether the object label was rightly applied or not (a matter on which I have doubts, particularly if one takes seriously the requirement on the “sufficient degree of harm” set out in para 58 of Cartes Bancaires).

My point is that even if the object categorization were correct, this should only entail a procedural consequence: that the Commission would be dispensed of the burden of proving effects.  In spite of my doubts, I can see how the Commission could regard these practices as being more restrictive than not and lacking a “legitimate objective” (which was the sensible point made by Pablo in his post on the Judgment).

In my view, the widespread misconception lies in the automatic identification of “object restriction” with “very serious infringement” and even with a “cartel”. In other words, the way I see it, “object” is about obviousness, not about gravity.

Even if the practices at issue were labelled as object and not considered objectively justifiable or redeemable under 101(3), they –apparently- were little more than gossip of irrelevant employees with regard to quotations far removed from actual prices. Is that really so serious as to deserve a 60 million euro cartel fine? I don’t think so. And would the Commission have characterized it equally had it not received a leniency application? I doubt it.

A cartel is something else and is subject to a whole different level of reproach (even criminal in some jurisdictions); companies and individuals know when they are engaging in a cartel, and do not engage in it unconsciously; a cartel does have effects; a cartel is the “supreme evil of antitrust” (I’m using Scalia’s words in Trinko), and an exchange of information like this, which appears as practically irrelevant at all levels, might not be right, may be a restriction by object, but it certainly is not a cartel deserving a quasi-criminal fine. It is a venial sin, not a mortal one.

Holding the contrary is not only at odds with traditional (pre-T Mobile) case law, it also is at odds with economic reality and with the principles underlying any sanctioning regime; it is, in sum, bananas.

For earlier and more developed related views on my part, see here and here.

Written by Alfonso Lamadrid

28 April 2015 at 2:27 pm

Posted in Case-Law

Competition Rules in Banking and Financial Services

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Financial services, including banking and payments, have been one of the preferred areas of enforcement on the part of the European Commission in recent times. The cases that have taken place in this area have moreover raised a variety of peculiar challenges and issues on which we have commented on this blog and that cannot be found in other sectors: there have been two sector enquiries, landmark “object-not object” cases (Cartes Bancaires; see here), effects-cases including a 101(3) assessment (Mastercard; see here), various commitment decisions (see here), infringement decisions related to 101 – including cartel decisions imposing record-breaking fines in hybrid settlement scenarios- as well as to 102 (i.e. the Standard & Poor’s and Thomson Reuters cases dealing with the issue of access to information necessary for securities trading). All very rare as you can see, and this in only a teaser.

Those interested in a comprehensive discussion on these issues should attend the upcoming ERA’s Workshop on Application of EU Competition Rules in Banking and Financial Services, to be held in Brussels on 3 June. It will feature three top-notch speakers, and then me.

The programme is the following:

– 14:15 Competition issues in the cards and e-payments sector

Alfonso Lamadrid (Garrigues); Cédric Nouel de Buzonniere (DG Competition’s Payment Systems Unit)

– 15:00 Questions and discussion

– 15:30 Trading platforms and competition

James Modrall (Norton Rose)

– 16:00 Questions and discussion

– 16:30 Coffee break

– 17:00 Competition issues with benchmarks and indexes

Viktor Bottka (European Commission’s Legal Service)

To register, click here.

Written by Alfonso Lamadrid

27 April 2015 at 6:55 pm

Posted in Events

How to distinguish between tying and refusal to deal cases (hint: it’s not just words)

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 What's your word

I hear very often that the outcome of Google depends on whether you call it a refusal to deal or a tying case. If one sees it as a refusal to deal case, then it would be necessary to establish, at the very least, that non-discriminatory access to the search engine is indispensable. If not, the threshold would be much lower (although the Commission committed to establish anticompetitive foreclosure in tying cases in the Guidance). This approach cannot be right. The legal test that applies to a practice should not depend on what one ‘sees’, or on picking the words that one prefers (and which, no surprise, tend to coincide with the legal test that one also prefers).

What should matter when thinking about the applicable legal test to a given practice is the underlying issue, and in particular whether it is closer in nature to those underlying refusal to deal cases or tying cases instead. How could one draw the line between one and the other? This is a topic that I discuss very often in class with my students. The easiest way to go about the question is to think backwards about the case. In other words, it makes sense to think first about the remedy and then about the legal test.

In technology markets, it is not always easy to distinguish between tie-ins and refusals to deal, in the same way that it is difficult to distinguish between vertical and conglomerate mergers. What is clear, on the other hand, is that remedies in tying and refusal to deal cases are very different in nature. This explains, in turn, why the legal test under Article 102 TFEU is also very different.

The typical remedy in a tying case is an example of the good old, unsophisticated competition law. The likely or potential anticompetitive effects of tying can be easily addressed by breaking the tie-in, that is, by preventing the dominant firm from conditioning the acquisition of one product to the acquisition of another. Once tying is prohibited, concerns about the ability of the dominant firm to extend (or strengthen) its position on the market for the tied product disappear.

The remedy in refusal to deal cases takes competition law out of its comfort zone. Remedial action is no longer about a one-off, proscriptive form of intervention but about positive obligations that require monitoring. If a refusal to deal is found to be abusive, it is inevitable that the remedy will regulate the conditions of access to an input or a platform owned by an integrated firm. Remedies will, as a result, greatly interfere with the way in which a company does business. These are some of the reasons why competition law has traditionally limited to exceptional circumstances the instances in which regulated access obligations are imposed on a dominant firm.

The fact that concerns are addressed by means of access obligations on regulated terms and conditions tells you something else about the underlying issues in a case. If the dispute relates to the conditions of access to a platform or input, it also means that it does not really involve two separate products, as is in principle required in tying cases (just take a look at the Guidance). The dispute, in other words, relates to a complex product that integrates different components and not to a tie-in of distinct products. What about the Internet Explorer case? Was it not about access and tying at the same time? Indeed, but bear in mind it also was a commitments decision, which did not address substantive issues. In fact, I fully agree with the view, taken by some authors, that it was a refusal to deal case in disguise.

Where does the above leave us in relation to Google? I have written several times in the blog that I suspect that the underlying issues in the case are closer to those at stake in refusal to deal cases (hence why I mentioned last week that I am not convinced that anticompetitive foreclosure would or should suffice). It seems now clear to me that the Commission does not challenge the integration of Google’s services into the search engine, which suggests that talking about distinct products would be entirely artificial. This issue became very clear when the different rounds of commitments were discussed. The Commission has now explicitly mentioned that the remedy should be non-discriminatory access to the platform.

One could wonder whether it has become meaningless to distinguish between refusal to deal and tying cases. If drawing the line between the two is so difficult in practice, would it not make more sense to require anticompetitive foreclosure across the board, and get rid of the indispensability/new product conditions? I think it would be a terrible idea. The reasons why the legal test in refusal to deal cases is so strict are in fact as compelling as ever given the shift of the discipline towards IP-intensive and technology-intensive markets.

A separate question is of course whether the indispensability and new product conditions will be watered down in EU competition law to the point that they are no longer reliable indicators of administrative action in the field. In one way or the other, and irrespective of what courts and authorities formally say, we may end up in a situation in which, for all practical purposes, the test applying to refusals to deal and to tying cases is the same. I am more inclined to agree with this question, which is not one of principle. This is a phenomenon in which I am interested and which I follow closely. Who knows, maybe I will teach my students in a few years’ time that the Microsoft saga was the first nail in the coffin of the refusal to deal doctrine and that Google was the definitive one.

Written by Pablo Ibanez Colomo

24 April 2015 at 11:03 am

Posted in Uncategorized

About the e-commerce sector inquiry

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The Google case has kept us distracted from other interesting issues. Of the recent developments that keep piling up (including this one), Commissioner Vestager’s proposal to launch a sector inquiry into e-commerce is arguably the most relevant. The expression e-commerce is used in a relatively expansive way in the Commissioner’s anouncement, as it encompasses a variety of activities that do not necessarily belong together (other than, I suspect, involving the use an electronic device like a smartphone or a computer).

The context behind the proposal is well-known, but is precisely what makes it particularly interesting. The new Commission has given priority to the so-called Digital Single Market. The (explicit) purpose of the sector inquiry is in fact to explore the contributions that competition law can make to the policy agenda of the institution. The use of competition law as a tool to explore the feasibility of initiatives that are, more often than not, eventually addressed via ad hoc legislation has become something of a tradition (and, as far as I am concerned, a research topic). Just think of roaming or energy. In this sense, it is remarkable that the announcement itself openly presents the sector inquiry as a contribution not only to EU competition law but to other policy initiatives.

I look forward to some of the findings. According to the announcement, the Commission will examine whether there are barriers to e-commerce that limit access to websites from other Member States, based on their location or the credit card details. One would have assumed that, following the adoption of the Guidelines on vertical restraints (in particular following the ruling of the ECJ in Pierre Fabre), these issues were clear for stakeholders. It will therefore be interesting to see whether soft law instruments are truly effective in changing business conduct. And, why not say it: there is so much going on in relation to vertical restraints that some enforcement action in the area would be exciting.

The issue of geo-blocking is trickier. The statements made by several Commissioners in recent months suggest that European consumers should be able to access the content of their choice from the website of their choice. From this perspective, subscriptions to pay TV services should be accessible from anywhere in Europe. The announcement insists on the idea that geo-blocking of websites or of content is plain unacceptable.

It is not that I would be opposed to such an outcome, it is simply that it is not obvious to say that the phenomenon of geo-blocking is the consequence of an infringement of competition law provisions (as opposed to an undesirable phenomenon from a policy-making perspective). In fact, it was accepted for a long time that granting exclusive territorial licences (which then may give rise to geo-blocking) does not amount to an infringement of Article 101(1) TFEU. The issue is far less clear now. What is more, removing geo-blocking across the board may itself raise major challenges. I have dozens on questions on this aspect of the inquiry, but I guess it is better to wait for the details!

Written by Pablo Ibanez Colomo

22 April 2015 at 3:34 pm

Posted in Uncategorized


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