Chillin'Competition

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Impulse Ice Cream: while we wait for Intel, the CMA shows the way

with 6 comments

Impulse Ice Cream

The CMA found the ideal timing for the publication of its decision in the Impulse Ice Cream case: it came out when ice cream consumption peaks (mid-August) and right before the Intel judgment (when, incidentally and among other things, ice cream consumption starts to decline and coffee consumption starts to go up).

Following its investigation of the question, the CMA concluded that there were no grounds for action against Unilever under Article 102 TFEU and its national equivalent. When I write that the CMA shows the way with this decision, it is not because of the outcome (I have already explained that the outcome of individual cases does not matter to me).

What I find interesting is how the authority approached a potential infringement both from a policy and a substantive perspective. There are many lessons to draw from both:

  • From a policy-making standpoint, the decision is a valuable reminder that ‘no infringement’ decisions and ‘no grounds for action’ decisions are essential in any competition law system. What an authority does not do is as important as what it does.
  • From a substantive standpoint, the CMA shows that an effect-based approach can be conducted effectively and that it is a valuable means to make the best use of (and not to drain, as some like to claim) an authority’s resources.

Allow me to discuss them in more detail.

The importance of ‘no infringement’ and ‘no grounds for action’ decisions in policy-making: we should have many more of them

We live in strange times. Some people like to believe that competition law (like rock ‘n’ roll) can save the world. Some people think that every concern justifies intervention.

Competition law is valuable for society at large because of the lessons learned over decades of enforcement. Experience shows that, while competition law is indispensable in a social market economy, it cannot save the world (this is also true of rock ‘n’ roll, by the way). Experience also shows that sometimes intervention may not achieve anything meaningful and can sometimes be counterproductive (in the sense that it may harm the competitive process and ultimately consumers).

It is very important that competition authorities regularly convey these two messages to the business community and the wider public. Explaining why not everything is a competition law concern, and that intervention is sometimes counterproductive is likely to reduce the appetite for sweeping (and typically unreflective) regulation. My sense is that it will also protect competition authorities against demands for tailor-made action (which sometimes requires a fresh, untested and/or incoherent theory of harm).

The best instruments to show the world that competition law cannot and should not try to get to El Dorado are ‘no infringement’ and/or ‘no grounds for action’ decisions. In this regard, Impulse Ice Cream is a model: it is succinct yet sufficiently detailed to understand why, in light of the case law and administrative practice of the European Commission, Unilever’s practices were unlikely to have exclusionary effects.

The effects-based approach is administrable and can save resources to an authority

Those who oppose the effects-based approach like to claim that it is unmanageable: their hyperbolic stories describe armies of economists engaged in impossibly complex calculations and unable to come to meaningful conclusions. It would no longer be possible, the argument goes, to know whether something is lawful or unlawful, and dominant companies would be able to exploit this uncertainty to avoid intervention. And, if there was any doubt, courts would be overwhelmed with numbers and welfare estimations.

The CMA’s decision shows that these claims do not stand up to serious scrutiny (to tell the truth, I suspect that many commentators do not even take the claims seriously; it is just an irresistible rhetorical point). In about 4 pages, the authority applies the framework laid down in Post Danmark II and concludes that there was no point in keeping the case open and thus devoting some of its limited resources to it.

I will take just one of the practices examined by the authority to show how the effects-based approach works in the real world (spoiler: it does not involve infinite rows of sleepless econometricians). The CMA raised concerns, inter alia, about some ‘large’ package deals offered by Unilever to supermarkets (the decision refers to ‘buy 8 [packages] get 4 free’ or ‘buy 12 get 6 free’).

Unilever is probably dominant on the relevant market, and some of its products are must-haves. In spite of these factors, the CMA concluded that exclusionary effects were unlikely to result from the large package offers. As explained in the decision, the firm gave these offers in February or March, where ice cream consumption is typically low, and were available for just one month. In addition, the purchasing decisions made during winter and early spring were deemed unlikely to affect purchasing decisions during the summer months; instead, such decisions were found to be determined by other considerations.

These conclusions are not only sensible, but also in line with the case law. Needless to say, nothing of what the CMA does is out of the reach of a generalist court. Far from that. A court applying Delimitis or Maxima Latvija to a dispute is more than able to consider the same factors in an Article 102 TFEU case. There seems to be no reason why what is considered acceptable and administrable in the context of Article 101 TFEU is not acceptable and administrable in abuse cases. This is something that is implicit in some of the most recent rulings of the Court.

Any lessons for Intel?

Before I forget: Impulse Ice Cream is relevant for the (never-ending) discussions around Intel in one important respect. The case provides yet another example that the tripartite division between quantity rebates, loyalty rebates and ‘third category’ rebates is, insofar as it exists, neither meaningful nor workable.

Why do I say that? As I started reading the decision, I thought ‘it looks to me like a set of quantity rebates, as the discounts are given with respect to each of the orders; this would make them prima facie lawful’. The officials at the CMA (who obviously have more information) characterised it instead as a ‘third category’ rebate scheme. As sensibly explained in the decision, the characterisation of the practices, in any event, matters less than their impact on the competitive process. This point is buried in a footnote, but it is key.

I will say more: the boundaries of each category are so blurred, and all rebate practices are so similar in their nature and potential effects, that I fail to see what the tripartite division achieves, other than creating confusion and opening the door to arbitrary decision-making. We need legal categories, that is out of the question, but legal categories need to make sense. We will get to know next week whether the Court agrees with me on this one!

Written by Pablo Ibanez Colomo

28 August 2017 at 9:28 pm

Posted in Uncategorized

6 Responses

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  1. This all sounds very logical, but I still have a bad feeling about this…if the argument was based only on the absence of effects, then you basically say: these marketing guys at Unilever are so incompetent that they cannot even design a proper rebate scheme, which could bring benefits (ie a gain of market share, ie effects) to their own company – they even missed the appropriate season of the year to implement the rebate! Otherwise why on earth would they engage in such a practice? to be nice to their hungry customers? to share the benefits of having a lot of ice cream in your fridge?…this reminds me of the good old Bananas decision of the ECJ and the rather “sketchy” (?) – to say the least – economic analysis contained therein….

    Asimo

    28 August 2017 at 10:35 pm

    • As usual, thanks, Asimo!

      If you take a look at the decision, you will be able to find the answer. Unilever explained that these large discounts were implemented to incentivise supermarkets to buy ice cream when consumption is lower and thus when supermarkets are less inclined to sell it. A bit like morning cinema sessions being cheaper or ‘two for Tuesday’ promotions at pizzerias. Does it not make sense?

      Your comment is a good reminder of two important issues we have learned over the years:
      – It is not because we do not immediately understand the rationale behind a practice that the practice in question is necessarily anticompetitive. Competition authorities have learned to be humble and to avoid jumping to conclusions whenever they examined something was not immediately obvious to understand.
      – Our instincts and ‘bad feelings’, as you put it, are often wrong. If we trust formal analysis, instead of our gut feeling, we often come to counter-intuitive conclusions. Again, another reason to be careful and humble!

      Pablo Ibanez Colomo

      29 August 2017 at 6:54 am

      • Fair enough and thanks! I fully share your views on the need for authorities to be humble and careful when approaching any unique industry. Nevertheless, the little devil (and its advocate) still plays in my head: did the practice not result in the dominant firm’s rivals selling ice cream as a result – even if not in the “big arena” of the summer? did the practice not result in consumers facing a smaller choice of delicious ice creams? or should we simply explain this by the de facto application of the de minimis doctrine in dominance cases? have I not seen an insightful article precisely on this topic somewhere around this blog?:))))

        Asimo

        29 August 2017 at 8:36 pm

      • Believe it or not, the answers to all your questions can be found in the decision 😉 There is a whole section addressing these points! It is probably wiser to take a look at it

        And since you mention it: you are right. The article is entitled ‘Appreciability and de minimis in Article 102 TFEU’, and came out in JECLAP: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2843609

        Pablo Ibanez Colomo

        29 August 2017 at 10:05 pm

  2. Yes, yes: this last reference was exactly what I was really missing from the decision!:)

    Asimo

    29 August 2017 at 10:30 pm

  3. I am not so interested in the effects aspect but could not agree more with you that it is important for authorities also to take and explain far more “no action” decisions, which ought over time to reduce the number of pointless complaints they receive. Too often they justify them on “administrative priorities”, which teaches us little.

    Stephen Kinsella

    2 September 2017 at 6:00 pm


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