Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Archive for May 2011

Subversive Thoughts (2) – Excessive Pricing

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Today, I would like to advance again four heretical propositions, this time in relation to excessive pricing cases under Article 102 TFEU. In essence, they challenge the mainstream view that there are insuperable conceptual and practical hurdles to the control of dominant firms’ pricing policies. No doubt this will again trigger opposition from the mainstream.

A Proposed Theory of Harm for Excessive Pricing Cases, the Foreclosure of Ir-Relevant Markets – To start, I believe that there is a reasonably sound – and overlooked – conceptual basis to challenge monopolists’ excessive pricing policies on the basis of the antitrust rules. Take a monopolist charging excessive prices in market A (the relevant market). With this, the monopolist dries up demand on neighboring markets (B, C, D …). But this is not all. He also dries up a range of unrelated markets (W, X, Y, Z) which include virtually all the markets where customers make purchases of goods/services. To take one example of this, a customer faced with an increase in the price of oil will purchase lesser quantities of milk, cereals, fruits, etc. (assuming finite resources). The monopolist’s pricing policy on market A thus forecloses – possibly unwillingly – the sales opportunities of other producers on a range of ir-relevant markets. In turn, this may force out a number of firms of those markets, increase concentration, decrease entry opportunities and eventually harm market competition. This effect will be particularly acute on markets relating to products/services that do not fulfill basic needs, where customers will simply forego consumption.

But this is not all. With this conduct, the monopolist may even distort, and drive demand up in market A. This is because consumers foregoing consumption of B, C, D, W, X, Y, Z will divert their freed resources towards market A, thereby consuming more of the monopolist’s product (for instance, because they fear a further increase in the price of A). This may give rise to extra-superprofits on the part of the monopolist.

From an economic standpoint, there is nothing truly shocking to my proposition. After all, we know since Walras that markets work altogether in equilibrium. Moreover, it suggests that dominant firms’ excessive prices inflict a collateral damage on other firms which, in the word of economists, is akin to a negative externality. Hence, there is good ground to regulate such pricing practices. Finally, the emphasis of this proposed theory of harm is on foreclosure (and not on exploitation, thereby limiting the risks that agencies will seek to achieve distributional goals).

In practice, the upshot of this first proposition is that competition authorities, who often view markets as silos, should not shy away from thinking outside of the box relevant market. There is nothing wrong to consider the effects that price increases may have on other unrelated markets. After all, competition authorities do this all the time. Think for instance of the complexities involved in the balancing, under Article 101 TFEU, of the anticompetitive effects of an agreement in market 1 with its pro-competitive effects in market 2. Likewise, many theories of harm under Article 102 TFEU involve practices that take place in one market, and that have anticompetitive effects in another market (e.g., predatory pricing, tying, etc.).

A Proposed Practical Benchmark to Screen Excessive Pricing Cases – The most powerful argument against excessive pricing cases is practical in nature. No one, let alone antitrust regulators, can arguably say at what level a price (and a profit margin) becomes excessive. Moreover, price-costs benchmarks would be unpractical, because there would be insuperable cost-measurement problems in a number of areas (e.g. multi-products firms, etc.). Read the rest of this entry »

Written by Nicolas Petit

31 May 2011 at 4:08 pm

The Microsoft and Telefónica hearings-towards stricter judicial review of Art. 102 TFEU cases?

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Something might be moving at the European Courts.

According to some of the people who attended the hearings held last week before the General Court on the Microsoft and Telefónica cases, the Judges in Luxembourg showed an unusual interest in the details of both cases and asked an unusual number of well-thought out questions. This was also reflected on the duration of the hearings: I hear that the one on the Telefónica case finished around 21.00 pm, which is quite unusual too.

According to my sources, the members of the Second Chamber were particularly eager to listen to the oral arguments on the Microsoft case. (By the way, some of Nicolas´opinion with regards to this case have been widely quoted in the media; see here).

 It will be most interesting to see  how the General Court deals now with the second part of this case, particularly given that the Judgment issued with regards to the main original decision may not have pleased all of its members. 

In this sense, it  is worth noting that Judge Forwood (President of Chamber) is the Rapporteur on this case and the one who asked all questions. Judge Forwood has been reported to be amongst the 6 Judges who lost the vote on the Microsoft Judgment by a margin of one  (click here for more info on this).

The EU Courts´ stance in relation to the appropriate degree of  judicial review in abuse of dominance cases will be put to test in other pending cases. The ECJ´s Judgment on the appeal against the General Court´s  Judgment in Tomra could be of particular interest for the future in light of the limited review undertaken by the GC. In fact, I hear that the Intel case -currently pending before the GC- may be slowed down so as to wait for the ECJ to state its position on the obligations incumbent upon the Commission and the Courts with respect to the assessment of the effects of a given practice.

Written by Alfonso Lamadrid

30 May 2011 at 7:28 pm

ChillinLeaks

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Back from Luxembourg with a present for our readers:

Report for the Hearing – MSFT v Commission – T 167-08

Not only the hearing was cool. We also had bilateral meetings with a legal secretary of the General Court (Foad Hoseinian), a judge of the Civil Service Tribunal  (Mr. Gillot, not sure about the spelling) and, last but not least, Judge Koen Lenaerts from the ECJ.

A truly great day.

Written by Nicolas Petit

27 May 2011 at 7:32 am

Posted in ChillinLeaks

Overzealous antitrust enforcement in Spain?

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A couple of days ago Nicolas wrote a post reporting the concerns expressed by some experts in relation to a possible enforcement gap in Italy in light of the fact that the Autoritá Garante has been mainly focusing on investigating unfair competition cases rather than on pursuing antitrust cases. Apparently, some of the lawyers who attended the conference at which Nicolas was present bemoaned these “dark times for antitrust in Italy”.

The situation in Italy, if true, appears to be in stark contrast to the one we have in Spain, where the Comisión Nacional de la Competencia is currently showing that it is one of the most overzealous enforcers in international antitrust.

In the past 18 months the CNC has initiated 70 formal investigations concerning all sorts of practices in a wide array of markets, and has adopted 20 fining decisions (click here for more details; I know there´s even an inside-joke at an american firm in Brussels which is based on spotting new investigations undertaken by the CNC). These numbers don’t include neither informal investigations nor proceedings initiated by regional competition authorities. Who said Spaniards aren’t productive?

From a strictly numerical point of view, these are clearly not at all dark times for antitrust in Spain. Indeed, there’s plenty of work for Spanish competition lawyers.

However, when looked at from a qualitative standpoint, the story seems a bit different (next week I´ll post a comment on the reasoning of the  joke major decision adopted last week sanctioning electricity companies with 61 million euros and you´ll see what I mean).  The CNC has skilled staff but pehaps their willingness to have on their plate more than what they can deal with is at the root of some questioable prioritization decisions and of some (too many) weak reasonings (which nevertheless generally withstand judicial review…)

The CNC must be credited for its very good job in bringing competition law issues to the forefront of the public debate, but it also needs to understand that Spanish over-enforcement is an undesirable and harmful to vigorous competition on the merits as the alleged Italian under-enforcement.

Written by Alfonso Lamadrid

26 May 2011 at 6:56 pm

Posted in Uncategorized

Are above-cost selective price cuts abusive? AG Mengozzi´s Opinion in Post Danmark (Case C-209/10)

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Yesterday, Advocate General Mengozzi delivered an interesting Opinion in the Post Danmark v Konkurrenceradet case (C-209/10) (Not yet available in English).

This case has its origin on a preliminary reference submitted by the Danish Hojesteret which asks the ECJ whether it can be concluded that a dominant company which sets selectively low but non-predarory prices to be applied to three large customers of its main competitor can be held to have abused its dominant position when there is no evidence of any strategy aimed at excluding its competitor. The Danish Court also asked about the relevant additional elements that must be taken into consideration before concluding that selective above-cost pricing is illegal.

One of the main remarkable aspects of this Opinion is that it names Nicolas as authorized doctrine (this reflects the current level of antitrust doctrine.. ) 😉  But we´ll come back to that later.

Mengozzi´s Opinion is interesting in several respects. If you´re interested on a fairly detailed and hastily written identification of its highlights, click here to keep reading.

(Warning: as many cost-related discussions this one can be a bit tedious for some lawyers).

Read the rest of this entry »

Written by Alfonso Lamadrid

25 May 2011 at 11:02 pm

Posted in Case-Law, Uncategorized

Information Exchange in EU Competition Law – Conference 22 June

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I attach the programme and registration form of a forthcoming half day conference on information exchange agreements. It will be organized under the auspices of the BSC, and held at the premises of the FEB.

Do not wait to register (with the online form here or by following the link below).

Programme Conf. Exch. Info. BSC 22 JUNE 2011 version 24052011

registration form – Conf. Info. Exch. 22 June 2011

Written by Nicolas Petit

24 May 2011 at 7:34 pm

Posted in Events

Enforcement Gap?

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While in Sorrento for the first conference of the Associazone Antitrust Italiana, I learned an interesting fact about Italian competition law. For a few years now, the Italian Antitrust Authority has apparently shifted the quasi-entirety of its enforcement resources to the investigation of unfair trading practices. As a result,  little, if any, enforcement initiatives are undertaken on the basis of the Italian competition rules. The daily business of Italian competition lawyers has thus changed dramatically, and many have had to learn a new discipline.

Interestingly, the rationale for this strange enforcement prioritization agenda has to do with media exposure. Because unfair trading practices cases require little resources, the competition authority can investigate and decide many of them and thus appears frequently in the press. In contrast, antitrust cases are more costly, lengthy and uncertain. Their political, social, and media benefits are much more limited.

Now, I wonder if the Italian CA, and more generally multi-function CAs, can lawfully decide to renege on competition enforcement, and allocate their resources to other areas (e.g., consumer protection, unfair trading practices, etc.). After all, an enforcement agenda of this kind undermines the principle of effectiveness of Article 101 and 102 TFEU enshrined in Article 35(1) of Regulation 1/2003. Such a practice creates an enforcement gap on Italian territory which to me, is incompatible with the twin logic of decentralized & homogeneous enforcement which blows on the EU competition system.  Just think for a minute to the situation of a French firm facing exclusionary tactics from a dominant Italian incumbent. Faced with a CA reluctant to open proceedings, the remedies open to the French firm are drastically limited.

Of course, the next question is: what can firms do to induce the Italian CA to revisit its enforcement agenda? Besides asking DG COMP to put pressure on Italian officials, the most obvious course of action involves a complaint before the Commission against Italy under Article 258 TFEU for failure to comply with EU law.

The first conference of the Associazone Antitrust Italiana was a great success with approximately 150 participants. I attach my slides and the text of my speech.

Oral Intervention – Speaking Notes – N Petit

Slides NP – Judicial Review in European Union Competition Law – Final

Written by Nicolas Petit

23 May 2011 at 11:58 pm

Posted in Events