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Archive for January 26th, 2016

Burgers, Booze and Competition Law

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Burgers and Booze

Last time I wrote on Uber, I mentioned the recent ECJ ruling on Scottish legislation setting a minimum price per unit of alcohol. These measures are intended to address binge drinking, which, I understand, has become a serious issue in Scotland and the whole of the UK. The Guardian published the other day an interesting – and shocking – piece on the impact of binge drinking on the National Health Service.

What would be the status of similar measures under competition law? I thought of a couple of hypotheticals to show that, under a proper construction of Article 101(1) TFEU, private measures of this kind would not necessarily be problematic.

Example 1: It is well-known that nutrition is key to prevent heart disease, even to those (including Alfonso and myself) who enjoy a burger at Five Guys. Those with a history of cardiovascular problems, or those who want to prevent them might find it a challenge to eat out. Imagine a group of restaurants that create a common label, ‘Heart Healthy’. These restaurants commit to follow the guidelines issued by cardiologists and would give consumers the guarantee that healthy menus would be available.

I do not think anyone would argue that an agreement of this kind is akin to a cartel. It is closer to a standard-setting agreement or a certification mechanism. But please note that the restaurants would go a long way in the coordination of their conduct. They would agree, inter alia, not to add salt to the dishes, not to use red meat (or not to use meat at all) and not to use certain types of oil (or maybe not to use oil at all). Moreover, they might agree to limit the size of their portions (cardiologists insist that portions in some restaurants are too big; Alfonso is not convinced). All of these restraints, examined in isolation, look like those found in cartel agreements, but the rationale of the agreements and the context are clearly different.

Example 2: What if a group of small, independent grocery stores do something similar? A group of retailers could create a common label, ‘Ethical groceries’, and commit, inter alia, to strict animal welfare standards. For instance, they would not sell products like foie gras. They could also commit not to contribute to the negative impact of binge drinking on the community and agree not to sell alcohol in their premises. The label would allow consumers to recognise the stores that share certain views on business practices. A certification scheme of this kind could not be more different from a cartel. Again, I struggle to see how it could be argued that an agreement of this kind is restrictive of competition by object, but I would love to read the views of those who disagree.

Example 3: I have just argued that an agreement between small, independent grocery stores not to sell alcohol and other products is most probably not a restriction of competition by object. What if the same independent stores decide to set minimum prices for alcohol? If an agreement not to sell a product in this particular context is not a cartel, I fail to see why price-fixing should be treated differently. If anything, an agreement not to sell a product at all should be treated more harshly than an agreement setting minimum prices.

The reason why this agreement between small, independent grocery stores should not be treated like a price-fixing cartel seems clear. These small retailers would not have significant market power. And we know very well that a cartel worthy of the name only exists where its participants have market power. If a group of small rivals agrees on price-fixing, they would be harming their profitability. They are in fact foregoing profits to bigger rivals who sell alcohol or who compete on price. If price-fixing in this particular context is not an obvious profit-maximising strategy, the explanation for the arrangement must be a different one (in this context, it would be part of a certification mechanism).

I do not think I am saying anything new. We have acquired sufficient experience to know that not every price-fixing agreement between competitors is restrictive by object. Just take a look at the examples cited by the Commission in its recent Guidance on the question. And I guess the lesson is clear. The nature of the agreement and the economic and legal context of which it is part must always be considered. There are no shortcuts and certainly no exceptions to the principle!

Written by Pablo Ibanez Colomo

26 January 2016 at 11:21 am

Posted in Uncategorized