Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Archive for May 2017

Book review: EU State Aid Control. Law and Economics, by Philipp Werner and Vincent Verouden

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Werner and Verouden

One of the big events of the season is the launch of Philipp Werner’s and Vincent Verouden’s, EU State Aid Control. Law and Economics, which came out a few months ago. It is a remarkable achievement for which they should be congratulated. Together with a large team of authors, they have truly managed to blend legal and economic analysis. It would have been already impressive as a law book tout court, but this aspect makes it special.

I was honoured that they asked me to review the book for the European State Aid Law Quarterly. My review has just come out, and has done so in a special 15th anniversary issue that matches the importance of the book (congratulations to the EStAL team, by the way: what they have achieved is wonderful too). When browsing through the review, I was proud to see an article co-authored by a former student of mine, Sylvain Petit, together with Adrien Giraud, a good friend of the blog.

Read the rest of this entry »

Written by Pablo Ibanez Colomo

30 May 2017 at 5:41 pm

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The Brussels School of Competition

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bsc

Applications for the Brussels School of Competition specialised LL.M. in Competition Law and Economics are now open. I have been teaching at the BSC since its creation, and despite the painful exam grading process [which occupied me for a couple of flights this week; yes, Brussels wasn’t big enough for Trump and me and I had to leave], it is always a great experience. It’s hard to find more motivated students, a better crafted programme and a more impressive faculty) (I guess the programme is also appealing for “visiting professors” because we only have to lecture for one -long- afternoon and then one can claim to be a professor all year long…).

Jointly organised with the University of Liège and Saint-Louis University, this one-year programme in Competition Law and Economics and entirely taught in English covers every major aspect of European competition law and its economic issues such as joint ventures and horizontal cooperation agreements, vertical agreements and distribution networks, cartels, abuse of dominance, mergers and acquisitions, state aid, etc.  As we noted in an earlier post, the BSC is now, for very good reasons, in the top 10 for specialized competition law LLMs worldwide.

This programme targets in particular:

  • Business Lawyers and Economic Consultants
  • In-house Legal Counsels, Managers, Executive and Public Affairs Experts
  • Civil servants
  • Students who have just graduated from university (Law or Economics)

The programme offers:

  • the unique privilege of seeing Alfonso Lamadrid teaching and of participating in one of his legendary simulation games;
  • a comprehensive and structured teaching curriculum with periodic assessments ;
  • a multidisciplinary approach, with courses in both competition law and economics taught by leading experts with deep expertise and vast practical experience in competition law from both the private and public sector ;
  • Friday afternoon sessions from 12.30 to 18.00, a schedule that is fully compatible with the requirements of professional practice ;
  • a student’s opportunities to socialise and meet fellow competition professionals on a regular basis;
  • an ‘interuniversity certificate in competition law’, which is worth 32 credits.
  • did we mention the unique opportunity of seeing Alfonso Lamadrid in action?

For more info click here.

Written by Alfonso Lamadrid

29 May 2017 at 7:17 pm

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The OPEC cartel’s blues: lessons for competition law

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OPEC

I guess many of you are following with interest what is going on in the oil sector. It looks like the OPEC cartel does not manage to scare people anymore. And it is not for lack of trying. Due to several economic and technological developments, the OPEC’s ability to dictate oil prices is not what it used to be. Their market power, while definitely significant, has appreciably decreased. There are reasons to believe that (relatively) low oil prices are here to stay.

As a good geek, it did not take long before this piece of news got me thinking about its competition law angle. I can think of the following:

Market power should be in any definition of cartel conduct

There have been attempts to give a meaningful definition of what a cartel is, and how it is different from other horizontal agreements. It has always been clear to me that definitions that focus on the external manifestation of cartel conduct (price-fixing, market sharing and so on) are not accurate, because (1) cartel conduct may take many other forms; and (2) not all agreements that provide for price-fixing, market sharing or output restrictions are necessarily cartels.

It has also been clear to me – and the OPEC cartel’s current travails confirm this view – that cartel conduct worthy of the name only exists where the parties enjoy significant market power. There may be conduct that, on the face of it, looks like a cartel. If the market power of the parties is insignificant, however, the practice is most probably not one. In all likelihood, it is something else (Herb Hovenkamp explains all of this brilliantly in his Antitrust Enterprise, by the way).

Just in case you were wondering: the good old days of the OPEC cartel may now be gone, but it still a cartel, the object of which is certainly restrict competition. Whether, and how long, the cartel will last is a different question.

How to distinguish between by object and by effect restrictions

The degree of market power enjoyed by the parties is a useful filter not only to identify cartel conduct but to distinguish, more generally, between by object and by effect agreements. Where the market power enjoyed by the parties is not significant, the object of the practice is, in all likelihood, not the restriction of competition.

Let me take a couple of examples from prior discussions in the blog.

Buyers’ cartel vs pro-competitive joint purchasing agreement

The Commission has taken action in the past few years against cartels involving buyers of a product. And rightly so. A buyers’ cartel can be as damaging, and every bit as restrictive by object, as a cartel involving sellers. There is no reason to distinguish between the two.

The twist is that not all agreements involving buyers are restrictive by object. A joint purchasing agreement like the one at stake in Gottrup-Klim is not as such contrary to Article 101(1) TFEU. As the Court explained in that case, it may be that such arrangements ‘make way for more effective competition’, and thus fall outside Article 101(1) TFEU altogether. The Commission takes the same view in its Guidelines on horizontal co-operation agreements, where it distinguishes between buyers’ cartels and joint purchasing agreements.

How is it possible to distinguish between the two in practice? The form of the agreement does not help that much. Both a buyers’ cartel and a joint purchasing agreement take the form of price fixing (yet another example that a price-fixing agreement between competitors is not necessarily a cartel!)

The degree of market power, on the other hand, gives an idea of the object of the agreement. The lower the degree of market power enjoyed by the parties, the more credible the claim that the object is not to restrict competition, but to ‘make way for more effective competition’ instead. And vice versa: if the agreement involves all buyers of a product it is very likely that the parties seek to restrict competition.

If, for instance, the joint market share of the parties is below 15%, the parties are unlikely to have the ability to influence prices. They would be shooting themselves in the foot if they tried to raise prices. Thus, the rationale for the agreement cannot be to raise prices in a coordinated manner, but a different, pro-competitive one.

Joint bidding

I discussed joint tendering before my book-related break. A joint tender is, on its form, difficult to distinguish from a (bid-rigging) cartel. As much as a cartel, submitting a joint tender involves price-fixing between competitors. Does it make it a ‘by object’ infringement? Not always. What the Court held in Gottrup-Klim should be equally applicable in this context (I do not see any reason why it should not, anyway).

It may well be the case that a joint tender ‘makes way for more effective competition’ within the meaning of Gottrup-Klim. If the firms submitting the joint tender are relatively small, their chances of competing against larger rivals may be substantially improved if they join forces. The object of such an agreement does not seem to be (and cannot be) the restriction of competition, but the opposite. Again, market power can provide a reliable filter to identify pro-competitive and ‘by object’ infringements.

Evidence issues

The above suggests that a market power defence should be available to the parties to an agreement, in particular in cases where an authority or a claimant argues that their practice amounts to a ‘by object’ infringement. The parties can show, in other words, that there are factors pertaining to the economic and legal context that lead to the conclusion that the agreement is not caught by Article 101(1) TFEU by its very nature. That this sort of defence is available in the context of Article 101(1) TFEU was confirmed by the Court in Murphy.

Written by Pablo Ibanez Colomo

26 May 2017 at 1:54 pm

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The book that has kept me away from the blog: The Shaping of EU Competition Law

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Juan Gris

There is a chance that some of you have realised that I have not been blogging in the past weeks. I have, I think, a good reason for this prolonged silence. I am about to finish a book that will come out with Cambridge University Press at some point next year. After much thinking (and some wise advice from, inter alia, Alfonso himself), it will be entitled The Shaping of EU Competition Law. And the painting you see above, by Juan Gris, is the one that I have chosen for the cover (what do you think?).

I have been revising the findings and I am at this stage where everything seems exciting . It is not only that the work is almost finished; it is also the feeling that comes from realising that the vague intuitions that I had at the beginning of the project seem to be confirmed.

So what is the book about, and what got me writing? Essentially, two ideas that I thought could be developed further:

  • Institutions and substance in EU competition law

We all know, and agree, that the underlying institutional structure has influenced the substantive evolution of US antitrust. For instance, the fear of type I errors, which has an enormous influence on the shaping of the law, results from some institutional peculiarities of the system. The European model is very different. As a result, one can expect the law to develop differently (for instance, one can expect it to be far less concerned with Type I errors). This is fine and understood, but another question remains, I think, largely unanswered: how, in turn, has the institutional structure influenced the evolution of EU competition law? How, in other words, does the centrality of an institution like the Commission impact on the substantive dimension of the field?

  • The need for comprehensive data

Last week at a conference, a speaker with whom I shared a panel emphasised the importance of supporting any claims with all of the case law, not only with the judgments that happen to support one’s views. I fully agree. I have come to realise, over and over, that our ideas about what the law is often change when one considers every single case. It takes time, but it is worth the effort. The problem I encountered when preparing the book is that it is difficult to find every case from a single reliable source.

The solution? A database including every Commission decision and every judgment of the EU courts. I could never have completed this database without the fundamental contribution of my amazing colleague Andriani Kalintiri. My idea is to reproduce the practices that are commonplace in other academic disciplines: with the help of CUP, I will make the data available to allow anybody to check and replicate the results of my findings.

How about the findings? Let me anticipate a couple of them:

  • The intensity of judicial review

Some people like to say that the EU courts are overly or unduly deferential to the Commission. There are instances where no evidence (or only anecdotal evidence) is provided in support of this claim. Sometimes, the claim is not properly substantiated. As I explain in the book, if one intends to argue that courts are overly or unduly deferential, it is simply not enough to come up with the percentage of Commission decisions that have been quashed when challenged.

Any careful study would need consider a whole range of other factors. For instance, one has to compare like with like (e.g. a prohibition decision is not a rejection or a commitment decision). Secondly, the success of the Commission may very well be explained by risk aversion (if it appears that it only takes action where there is a clear-cut infringement, it is only reasonable to expect its decisions to be upheld, at least on substantive grounds). When one examines carefully the case law, and takes these factors into consideration, the picture that emerges is much more interesting and much more nuanced.

  • Economics and EU competition law

According to conventional wisdom, the EU courts are reluctant to introduce economic analysis, which is relied upon by the Commission in its decisions and soft law instruments. I always suspected, and have argued in the past, that this depiction was far from the truth. I feel I can now properly substantiate this intuition. More often than not, economic analysis has been introduced by the EU courts, not the other way around. Moreover, economics plays a role that is often underestimated, or ignored: that of constraining, and defining the boundaries of, administrative action. In this sense, economics is seen, and has been used, by the EU courts as a valuable tool to make enforcement more predictable – and thus as a means to enhance legal certainty.

I hope to get back with more news soon!

Written by Pablo Ibanez Colomo

24 May 2017 at 7:24 am

Posted in Uncategorized

Robots and associate lawyers

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Remember this Forbes survey concluding that associate lawyer was the unhappiest job?

You know what they say about robots taking the most “dull, dirty an dangerous” jobs?

Yeah, well….

FT.jpg

Although, why bother making robots when some law firms have perfected the art of having untiring,  uncomplaining human machines billing-4,000-hours-a-year?   Resultado de imagen de puzzled smiley

Plus, I’m not sure it’s that easy; associates have, in turn, perfected the art of dealing with contradictory instructions and coming up with bogus excuses (having surgery? come on…) to an extent impossible to replicate by artificial intelligence…

Written by Alfonso Lamadrid

11 May 2017 at 9:38 am

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The lifecycle of the competition and data debate and the misconception behind calls for antitrust intervention

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The Economist

The Economist devotes its front page and a feature this week to the question of how data affects competition and competition law. It was not my greatest concern this week, but ok [if this post, written on a Saturday morning, gets published on Monday that’s because Macron won and I have not jumped out of the window]. The newspaper -which we have often echoed on this blog- joins the chorus of those who want “changes” and “new tools” in competition law to deal with this allegedly new phenomenon. In a way, The Economist sides with economic populism on this one (we’ll explain why in a few lines from now).

You already know my views on this topic from the posts and presentations available here, here, etc, essentially summarised in this CPI contribution. Today let me address something fundamentally more important (albeit in a rush, while my kid is miraculously still asleep… )

Creating waves

Step 1. This whole debate was triggered and fuelled by some tech companies who, unlike their rivals, did not operate data intensive businesses, or certainly not to the same scale. For instance, a company whose name we don’t need to mention, appeared to share these views only a couple of years ago, but then -following its acquisition of LinkedIn-  😉 changed views and endorsed these (or at least their spokesperson redirected about 300 different media outlets to this blog, for which we are grateful). This is actually not new (a similar thing happened regarding SEPs) and I actually think it is legitimate, logical, and absolutely not reproachable for private companies to change stance according to their evolving interests. But the origins of the debate are interesting nonetheless.

Step 2. A debate that was part of a business strategy and in its own self-interest finds some well-meaning allies (EDPS and others) who are genuinely concerned about what they see as a problem and a regulatory void and are keen on having their message propelled.

Step 3. Then it’s the turn for us lawyers and conference organisers: since we have little else to talk about these days (and we like to talk, so much that some even pay to do it, a market failure well exploited by others) we make an issue out of this. The result being that the topic is everywhere (to be sure , I myself have contributed to this speaking about it at the European Parliament, ERA, the VUB, Leeds University, the IEB and others, even if to say it is a non issue). This, in turn, eventually reaches academia. And there we see interesting hypotheses and theoretical reflections, but most of which I am not sure correspond to what we actually see in the markets (and which, to the extent I know, have not offered conclusive answers as to how competition should allegedly be changed).

Step 4. The next phase consists in competition authorities showing that they listen and adapt to public debates and to seemingly changing markets, and we end up with joint reports and strange cases (see here for my comments on the German Facebook case). Only the European Commission has kept its cool, although lately there are signs of changing winds there too…

Step 5 is that part of the media -not an ally of many of these data-intensive business models and companies- echoes it and turns it into a wider issue of public policy. This is where we seem to be now. Admittedly, however, what you see in print may only be the tip of the iceberg;  one day someone should write about how the media is shaping competition law these days -both to widen is net (at least that is what other media reports, see here) and to narrow it (see here).

Step 5 is that politics (the most permeable of all, particularly these days) succumbs to the idea.

And this is how change and sausages are made.

Economic Populism?

Contrary to some, I have always accepted that data can give rise to barriers to entry, market power and that it can be used to foreclose competitors. The circumstances under which this can happen are much narrower that many now claim, but still possible, as precedents actually show. My point is nonetheless that we have the tools to deal with those problems whenever they arise. Caution is what is needed, not substantive changes [a different matter being the procedural reform of merger notification thresholds, a point we actually made here before this debate exploded]. If there is one thing that cannot be criticised if competition law is lack of flexibility. A set of wide, common sense (rule of reason) principles and rules that has been able to apply and adapt to every industry for over a century can certainly be applied to data.

To be sure, our economic and legal tools will not always yield conclusive results when applied to data (they often don’t either when it comes to price, including for market definition and others, but it looks somewhat more objective or seemingly mathematical and we are happy to play along. But when do we have conclusive results in social sciences? (Any pollsters have a view?)

And this brings us to the fundamental misconception of these debates. Whenever politicians, respected economists or the media -including the ones with whom I would generally agree-  discuss competition law, they tend to view it as one more took among those available for economic regulation to pursue legitimate goals [admittedly, competition authorities have facilitated that by using enforcement to shape markets and fill in perceived regulatory voids particularly in recent years]. But it’s not. Competition law, rather antitrust (admittedly we can leave mergers and State aid aside), is a sanctioning regime. Dettaching the discipline from its legal nature (remember?) is wrong, and is a bit populist too.

So, yes, its  correct application will (most often) naturally improve the functioning of markets and contribute to a fairer society (more on this here), and yes, enforcement discretion can be exercised to target the greatest perceived social concerns.

But in a sanctioning regime there are limitations inherent to the very rule of law. We don’t get to change the rules in the middle of the game, we don’t (should not) get to strecth the rules to impose sactions nor do (should) we intervene in the face of uncertainty and doubt. Competition law should not prohibit what it does not understand, it should not meddle with ecosystems or with the very core of business models (including those based on data) when the effects of intervention are uncertain. This, until now, was uncontroversial. It all goes back to basics: general principles of law trump or should trump expediency and effectiveness.

Written by Alfonso Lamadrid

8 May 2017 at 10:56 am

Posted in Uncategorized

On Excessive Pricing: The Common Ground in AG Wahl’s Opinion and Commissioner Vestager’s Chilling’Competition Speech

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On 6 April AG Wahl delivered an Opinion in a case that he sees as “an opportunity to clarify he conditions under which the imposition of high prices by a dominant company” might run afoul of the competition rules. The Opinion is timely. It comes a few months after Commissioner Vestager delivered a speech –precisely at our Chillin’Competition Conference- that focused on excessive pricing. The Commissioner’s speech (a full video of which is available here, including Q&As) spurred quite some commentary, but we had yet to give our views. The Opinion gives us the opportunity to also do that now.

AG Wahl’s Opinion has been reported as somehow contradicting the Commissioner’s speech –and in fact has been portrayed by Trevor Soames –our former “correspondent” at the Intel Hearing; see here– as an “antidote” to that speech. In my view, however, on closer inspection both are pretty much aligned, and both are welcome examples of common sense.

To be sure, there are differences between the two. For one, you can expect more of a detailed legal discussion in an Opinion than you would from a short speech, and AG Wahl’s proposal refers to elements that the speech could not touch upon [By the way, another difference is that the Commissioner’s speech did refer to us by name, AG Wahl is yet to do so, although you know we are trying to fix that; see here 😉 ].

Below I set out the key messages contained in the Opinion and the way in which they tie in with the Commissioner’s speech. A few personal comments will follow:

On prudence. The Opinion starts off saying that “there is simply no need to apply [the prohibition against unfair trading conditions in Art. 102] in a free and competitive market: with no barriers to entry, high prices should normally attract new entrants. The market would self-correct”. AG Wahl notes that this is why the Commission has, “rightly” been “extremely reluctant to make use of that provision”.

Commissioner Vestager also insisted that “most of the time, we get consumers a fairer deal by keeping markets competitive, not by correcting prices or other outcomes in the market”, and emphasized that “we have to be careful in the way we deal with [exceptions to this rule]. The very conclusion of the speech was that “we need to act carefully when we deal with excessive prices. The best defense against exploitation remains the ability to walk away. So we can often protect consumers just by stopping powerful companies from driving their rivals out of the market. But we still have the option of acting directly against excessive prices”.

On the circumstances in which action may be needed. The Opinion nevertheless explains that markets may not be able to self-correct when there are “legal barriers to entry or expansion and, in particular, [when] there is a legal monopoly”. The Opinion relates to a case concerning allegedly excessive rates set by a collecting society. As AG Wahl observes, this is not a first. Actually, my second ever publication in the field of competition law already 12 years ago was precisely about excessive prices and collecting societies (the first was about fiscal state aid, all of which shows that in competition discussions we are cyclically reinventing the wheel…).

The Commissioner’s speech also identified, as an exception, that the Commission is “still bound to come across cases where competition hasn’t been enough to provide a real choice” and after explaining why competition authorities “have to be careful” (see below), she mentioned 3 examples of instances where action could be justified: Gazprom, pharmaceuticals and standard-essential patents, all of which share in common allegedly high legal barriers to entry.

On the methodology to assess allegedly excessive prices. As recalled in the Opinion (16-18), back in United Brands [1978] the CJEU laid down a two-step test to discern whether prices were “unfair”, “disproportionate” or “exorbitant” with regard to the value of the product at issue. First, one is to determine whether there is a significant difference between the price charged by the dominant company and what would have been charged in a competitive environment. Secondly, one needs to assess whether the price at issue is unfair in itself or when compared to competing products. In theory it sounds easy, right?

No method is perfect. When discussing how to approach the first step and determine the benchmark price, AG Wahl –as he often does- looks for the consensus in economic thinking, and in para. 36 states that “at the current stage of legal and economic thinking, there is no single method, test or set of criteria which is generally accepted in economic writings or across jurisdictions” . He –quite logically- observes that each of those methods “reveals some inherent weaknesses” (36), that their suitability depends “on the specific features of each case” (37); that the information required to conduct them may be missing, incomplete or controversial (usefully noting how different accounting methods may provide inaccurate pictures) (38); that mere comparisons across geographic markets are risky as markets are rarely so homogeneous as to allow for immediate and automatic meaningful comparisons (39) [on that point see also  paras. 61 and 65 ]; that comparisons between undertaking may overlook different qualities or value (40), and that comparisons over time may fail to account for rapidly changing business strategies or market conditions (41). The Opinion underlines that “because of those limitations, antitrust authorities and economists generally agree that the exercise consisting of determining the benchmark price (…) carries a high risk of producing both type I (…) and type II (…) errors”.

A combination of methods as the most perfect of imperfect solutions. Given the observed limitations, the main proposal in the Opinion is that in order to minimize risks, “competition authorities should strive to examine a case by combining several methods among those which are accepted by standard economic thinking” (43). Whilst recognizing that the weakness of one method is not remedied by applying other weak methods, the Opinion states that the convergence of results may be taken as an indicator of the possible benchmark price in a given case (45).

Additional indicators when only one method is available. According to AG Wahl, when only one method is available competition authorities should double check its results considering other indicators, including, (i) whether the market is or not protected by high barriers to entry or expansion (48); (ii) whether there is an expert sector regulator whose task is inter alia to control prices (in which case intervention may appear less warranted except, very importantly, in cases “where the sectoral authority should have intervened and erroneously failed to do so” (49); (iii) whether there is market power on the buyers’ side (50); and (iv) other factors relevant depending on the case (51).

[Commissioner Vestager’s speech also noted that “the best answer is often to adjust regulation” (…) even if “there can be times when competition rules need to to their bit to deal with excessive prices”.]

Purchasing Power Parity Index. In the case at issue the Latvian competition authority had “corrected” the rates applied in other 19 Member States in order to account for differences in purchasing power prior to comparing them with those applied in Latvia. AG Wahl notes that any comparison must be among very similar products and also in a broadly similar economic context (84), acknowledges that significant price differences exist for the same goods even in the EU (85) and therefore concludes that the PPP index can be a useful and appropriate instrument (86 and 92), its sufficiency depending on other factors. The bottom-line is that 1 euro in Germany has a different value than 1 euro in, say, Portugal, and that this should be reflected in the comparisons. Makes sense to me.

On when a price difference is excessive. It all often boils down to this. The Opinion states that theoretically any deviation from the competitive price may warrant intervention, but that this approach would “neither be realistic nor advisable” (102) given (i) the complexities inherent to establishing a benchmark and the risk of type I errors (which, citing Easterbrook, he notes involve a much larger cost for society in unilateral conduct cases) (103); (ii) the difficulty for the dominant company to estimate in advance what price would be legal and the legal certainty issue this entails (104); and (iii) the fact that competition authorities are not well-suited to be turned into price regulators.

[Commissioner Vestager’s speech also acknowledged some of these problems, and insisted that “we also need to be careful that we don’t end up with competition authorities taking the place of the market. The last thing we should be doing s to set ourselves up as a regulator, deciding on the right price”]

AG Wahl takes the view that a price can only be deemed excessive under 102 when it is both “significantly and persistently above the benchmark price” (106). Significant is simply described as “appreciably higher” and “persistently” as remaining/being recurrently above the benchmark price for a “substantial period of time” (107 and 108). The Opinion (109) acknowledges the remaining crucial question: how significant and how persistent? In Wahl’s view, neither the case law nor the decisional practice provide precise guidance or clear patterns (110), and this because the question cannot be responded in the abstract, it all depends on the case (111). As a consequence, he proposes that an authority should intervene “only when it feels sure” that “almost no doubt remains” as to the abusive nature of a price. The more significant the difference and the longer the period, the easier it should be to build a case. (112)

Prices unfair in themselves or when compared to competing products. In order to assess the fairness of a given price, the United Brands case law offers two possibilities, deciding on the basis of the price in itself or comparing it to other products. The AG provides some explanations on these alternative conditions. He explains that prices may be considered unfair in themselves when, for instance, the legislation enabled a dominant company to demand payment for services not requested (Merci Convenzionali or Grüne Punkt), as well as when the excessive price is a means to pursue a different anticompetitive aim (such as curbing parallel trade, e.g. General Motors and British Leyland).

The alternative comparison is presented as a “sanity-check” of the assessment made with regard to the benchmark price, particularly to include factors that were overlooked or that were not easily quantifiable in financial terms (including some types of costs, demand, consumers’ perceptions on the value or superior quality of the dominant company’s product) [Commissioner Vestager’s speech also made the point that caution was needed because “sometimes a company is dominant simply because it’s better than its competitors. And when that’s the case it’s only fair that it should get the rewards of its efforts”]

In sum, the Opinion explains that “it is only when no rational economic explanation –other than the mere capacity and willingness to use market power even when abusive- can be found (…) that a price may be qualified as excessive under Article 102”.

My personal comments:

As explained above, the Commissioner’s speech and AG Wahl’s Opinion have much more in common than some have suggested. They both acknowledge that competition law is to be prudent but that there are instances where intervention may be warranted, and both logically coincide in pointing to markets with high barriers to entry and particularly to legal and natural monopolies and, more generally, to market and regulatory failures. If anyone can point to real differences in their content, I’m happy to pay a round of beers.

Cases concerning exclusive rights are in my view clear candidates. For example, I have lately discovered a new phenomenon that consists of privatizing without liberalizing, whereby a legal monopoly is granted to a private party that is allowed or required under the national regulatory system to charge excessive prices. After all, if the concession holder is able to extract high prices it will be willing to pay more in exchange for the privatization. That way, the State gets more money, and so does the concession holder under the umbrella of national law. It’s a win-win for them, and a clear loss to everyone else, starting with consumers/citizens… ]

-I would therefore interpret the speech and the Opinion as supporting intervention in the right cases. But that may be my interested view (as a father of a 2 years old and purchaser of baby stuff I’m now very sensitive to excessive pricing ripping off consumers…).

-Actually, I had a recent conversation with the President of a national competition authority in which he expressed the view that running excessive pricing cases was almost a matter of legitimacy. After all, citizens/consumers have the impression that competition law is there precisely to combat excessive pricing and may not be so perceptive of the attempts to avoid these via the protection of competitive structures. Sometimes, he said, direct intervention would send a right message. This reminds me of the very last phrase in the Commissioners’ speech: “we still have the option of acting directly against excessive prices. Because we have a responsibility to the public. And we should be willing to use every means we have to fulfill that responsibility”. For more on my views on fairness and legitimacy in the Commissioner’s speeches, see here.

As a matter of fact, the widespread view that excessive pricing cases are rare in the EU is a bit misplaced. If one looks closely at national cases you will find that a surprising number of cases on unilateral conduct relate to exploitative abuses. My most frequent co-authors (Luis Ortiz Blanco and your very own Pablo) teamed up some years ago to write this article where they brilliantly make this point looking at Spanish practice.

-In sum AG Wahl’s Opinion is a welcome exercise of common sense and contains interesting points even if it still unavoidably leaves pretty open some the relevant questions. In practice, he advocates for prudency but ultimately relies on authorities’ discretion to pursue cases depending on whether they “feel sure” (see paras. 35 and 112) (and, to be sure, proposing a high burden and very much insisting on safeguarding the presumption of innocence in the face of uncertainty). This is a rare instance when AG Wahl appears to (unavoidably?) rely on the Commission’s enforcement-setting priorities as the main limitation to a wide prohibition (which he has rebelled against in Intel, for example).

Written by Alfonso Lamadrid

3 May 2017 at 4:57 pm

Posted in Uncategorized