Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

On Excessive Pricing and Subjectivity- The CJEU’s Judgment in case C-177/16 AKKA/LAA

with 5 comments

Too Much

Excessive pricing has been one of the topics of the year. It’s also an issue close to our heart, first because Commissioner Vestager’s speech about it includes our names (the text is here and the full video is available here) and, second, because we are victims this practice daily (Pablo in his quest for vegan/bio products and me as a frequent purchaser of products for kids).

In spite of the public perception that competition law should be there to intervene directly against excessively high prices, these cases have –maybe for good reasons- been uncommon at the EU level (as explained before, at the national level things are quite different; see e.g. the CMA’s Phenytoin case). A cause and consequence of this situation is the lack of clarity on the applicable legal criteria, which have remained elusive. The prevailing legal test in this area was the fairly subjective “I-know-it-when-I-see-it-approach”. On a less legal note, that subjective approach is the rule in day-to-day life too; for example, my wife believes that whatever I buy is excessively priced and I think the same of what she buys. Fortunately I have the good sense of not saying it and of crossing this, she certainly wouldn’t have liked me to write that on the blog.

A recent Latvian case provided a good opportunity to clarify these criteria. A few months ago we commented on AG Wahl’s Opinion in the case (see here for our comments). The CJEU delivered its ruling on 14 September. It is available here. The name of the case is “Autortiesību un komunicēšanās konsultāciju aģentūra/Latvijas Autoru apvienība’ v Konkurences padome”. Since the acronyms aren’t so easy to remember either, it will probably be verbally referred to in the future as “the collecting societies case in…was it Latvia??”

As noted in our earlier post, the questions posed by the Latvian Supreme Court were right on the mark (except for one on the effect of trade between Member States the answer to which was evident and on which we will not comment). There is also a quite interesting issue regarding calculation of fines that is unrelated to the discussion on excessive pricing and on which we will comment in a future post.

In a nutshell, the issues posed by the case and the responses from the CJEU are the following:

Issue 1: In order to identify excessive pricing, “is it appropriate and sufficient-and in which –cases- to draw a comparison between the prices in the market in question and the price (rates) in neighbouring markets”? (underlining added)

The CJEU reformulates the question in para. 31 as only referring to whether the comparison is “appropriate”. Accordingly, the CJEU only responds to that question saying that yes, it is appropriate. It refers to established case law pursuant to which “a method based on a comparison of prices applied in other Member States must be considered valid” and that “that difference must be regarded as indicative of an abuse” (para. 38, citing Tournier and Lucazeau).

As the Court says, this was all “apparent from the case-law”. Actually, the referring Court was very much aware of it, as evidenced by the summary of its views contained in para. 20 of the Ruling. But can it be “sufficient” and, if so, “in which cases”? Those questions remain unanswered.

Issue 2: When is a comparison across markets sufficiently representative?

This is actually not a question that had been explicitly asked by the referring Court, but it certainly something that was in its mind, as perceptively observed in para. 39 of the Ruling. Since comparative exercises often boil down to this question (the apples and pears issue that we see everywhere), it is commendable that the Court went on to address it. It is however unfortunate that we may not be able to extract practical lessons. What the CJEU says in this regard is that:

  • “A comparison cannot be considered to be insufficiently representative merely because it takes a limited number of Member States into account” (40).

This is pretty common-sensical, but does the inclusion of the word “merely” suggest that it nevertheless is a relevant factor?

  • “Such a comparison may prove relevant on condition (…) that the reference Member States are selected in accordance with objective, appropriate and verifiable criteria” (41), that these “may include, inter alia, consumption habits and other economic and sociocultural factors, such as GDP per capita and cultural and historical heritage” (42), and that the comparison “must be made on a consistent basis” (44).

“Objective, appropriate, verifiable and consistent” all sound great and make sense, but I’m not sure they offer much practical guidance as they lend themselves to interpretation and gerrymandering as many different choices and divergent results can be said to be covered by those. Also, the examples provided by the Court “other sociocultural factors” or “cultural and historical heritage” are arguably perhaps not the best examples of objective and verifiable criteria. The CJEU concludes that all this is for national courts to assess depending on the circumstance of the case (42). If the comparison of prices requires competition authorities and courts to compare cultures and historical heritage, well, subjectivity will continue to play a major role.

Issue 3: In order to identify excessive pricing, “is it appropriate and sufficient- to use the Power Parity Index based on gross domestic product”?

Paras. 45 and 46 of the Judgment now make it clear that the PPP index “must be taken into account” when conducting comparisons between Member States. Whether the outcome of this assessment is or not conclusive or “sufficient” remains unclear (AG Wahl had said that it was useful and appropriate, its sufficiency depending on other factors), but we now know that it is not only “appropriate” but “mandatory”. This is a genuine development.

Issue 4: Should one compare user segments or average rates for all segments?

That was, again, an excellent and tough question. The CJEU’s sort-of-response is that it is possible to look at “one or several specific segments” (50), so that the assessment of average rates is not the only possible method. But the Court makes it clear that “it falls to the competition authority concerned to make the comparison and to define its framework, although it should be borne in mind that that authority has a certain margin of manoeuvre and that there is no single adequate method” (49). In other words, this is the sort of “complex economic assessment” for which some latitude on the part of the auhority is accepted.

Issue 5: When is a difference between prices “appreciable” and indicative of its abusive nature?

Once again, excellent question. The CJEU observes, first, that the differences in this case (twice as high in comparison to Estonia and Lithuania and between 50-100% higher than the average EU rates) were not as large as the differences that gave rise to the finding of excessive pricing by collecting societies in Tournier and Lucazeau (para. 54). It then notes, however, that this doesn’t mean that differences like those at issue cannot be abusive, given that “there is in fact no minimum threshold above which a rate must be regarded as “appreciably higher, given that the circumstances specific to each case are decisive in that regard.” The CJEU clarifies, along the lines of what AG Wahl had suggested, that “a difference between rates may be qualified as “appreciable” if it is both significant and persistent on the facts” (55) and that “that difference must persist for a certain length of time and must not be temporary or episodic”.

This all makes sense, the next question (aside from the unavoidable “what is significant”), being:  “what is a certain length of time?”, what counts as “temporary”? Wahl’s Opinion (at 109) had acknowledged that those questions would always be there. His proposed solution was that an authority should intervene “only when it feels sure” that “almost no doubt remains” as to the abusive nature of a price.

FINAL COMMENTS

-Unlike AG Wahl’s Opinion in this case, and somewhat unlike in the Intel Judgment, the Ruling does not contain any wider statements of principle. Perhaps unsurprisingly, the Court does not delve into discussing why prudence may or not be needed in these cases, nor about the exceptional circumstances in which action may be needed. As AG Wahl had observed, legal monopolies –including collecting societies, at issue in this case, and companies benefitting from exclusive rights- are exceptional and perfect candidates in this regard.

-At the end of the day, the CJEU ultimately says that the elusive riddles are for national authorities and courts to solve on a case by case basis (although with a different “background music”, this is actually not so different from the bottomline of AG Wahl’s Opinion). Indeed, the end result of this story is that it is up to national Courts or competition authorities to (a) determine whether to rely on a comparison across Member States or on other methods also/instead (37-38); and, in case a comparison is used, to (b) come up with a relevant benchmark for the comparison considering objective, appropriate and verifiable criteria which include economic, sociocultural and historical elements (40-41); (c) decide whether to make the comparison within one or several specific segments (50), and (d) determine whether a given price difference is “both significant and persistent” (55).

-However, and as we said then, the main contribution in AG Wahl’s Opinion was the idea that since no method is perfect, a combination of methods would be the most perfect of imperfect solutions: “competition authorities should strive to examine a case by combining several methods among those which are accepted by standard economic thinking” (Opinion, 43). That made sense to me. The CJEU’s ruling, as explained, falls short of saying this. It appears to be less conscious, or less concerned, about the alleged flaws inherent to a methodology of comparison across Member States (arguably, the CJEU understandably operates under an internal market logic which might play a role) and seems to leave the door open to the idea that this method may be sufficient.

-To be sure, the CJEU has nonetheless clarified that any comparison analysis must take into account the PPP index, and that “appreciable” means “significant and persistent”  (well, that last one we could have guessed… )

-In reality, however, and in the Court’s defence, perhaps this is all unavoidable. This may very well be one of the cases that is impossible to discuss in the abstract and that can only be assessed on a case by case basis. But as unavoidable as this might be, it says something (once again) about the lack of predictability of Art. 102 TFEU. If one admits that there is a large “margin of manoeuvre” for an authority to (a) define a relevant market; see here; (b) identify dominance; see here, (c) choosing what to compare to what; and (d) determining whether the result of the comparison is satisfactory, well, there may be an issue there.

But like Ortega y Gasset said of another problem that is unfortunately making headlines this week, this is one that perhaps cannot be resolved and that we need to carry on and live with…

Written by Alfonso Lamadrid

28 September 2017 at 3:21 pm

Posted in Uncategorized

5 Responses

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  1. Alfonso: excellent post, as usual.
    Although a cursory look to the operating part of this Judgement seems to take us to the test established almost 30 years ago in Tournier and Lucazeau to determine when prices are excessive, in fact both AG Wahl’s Opinion and the reasoning of the Court are more nuanced and detailed.
    In view of recent comments by Commission Vestager on excessive prices, it is worth reminding, as AG does in his Opinion, that in this area there is a general consensus amongst antitrust authorities and economists that choosing a particular benchmark price to determine when a price is excessive carries a high risk of producing both type I and type II errors (42). That’s why, as you rightly point out, authorities should refrain from intervening unless “almost no doubt remains”. In fact before applying the Tournier and Lucazeau test to the case at hand, AG Wahl makes an explicit caveat to remind two obvious principles: that “it is for an antitrust authority to prove an infringement of EU competition rules” and that “the presumption of innocence” also applies to dominant undertakings (52). He also recalls that difficulties encountered by an authority in calculating the benchmark price “cannot justify an incomplete, superficial or dubious analysis” to the detriment of the undertaking being investigated (53).
    But probably the main novelty of this Judgment is the fact that the Court explicitly accepts AG Wahl’s argument that “significant differences in price levels exist, meaning that for the same goods or service citizens pay different prices in various countries” are not sufficient evidence of excessive prices (85). This is why the Court introduces an additional requirement to the comparison under the traditional Tournier and Lucazeau test: where a significant and persistent difference of prices exists, before deciding whether it could reflect the existence of excessive prices, the authority must compare the PPP in the different countries. The indispensability of this additional comparison appears more clearly stated in some linguistic versions of the Judgment than in others: the English version states that “that the PPP index must be taken into account” (46), but versions such as the French, Spanish and Italian all add the adverb “necessarily”.
    The Court’s reasoning in this case is also interesting regarding the calculation of the fine, as the Judgement goes well beyond AG Wahl’s simple analysis of this question. I’m looking forward to the future post you announce.

    Rafael

    28 September 2017 at 9:53 pm

  2. Good summary Alfonso, but I am not sure I understand your ‘closing’ words…

    Luca

    29 September 2017 at 9:51 am

    • The point is that some problems (like the role of some degree of subjectivity in excessive pricing assessments) may not be definitively solved and that we may just have to live with it in the best way possible. Ortega said the same of the Catalan issue, hence the quote

      Alfonso Lamadrid

      29 September 2017 at 9:58 am

  3. Time to that someone challenges the Brussels Bar fees which are about 20 times higher than in most Member States (and extra-EU jurisdictions)?

    Gianni

    2 October 2017 at 10:11 am

    • I guess you also received the letter today 😉

      Alfonso Lamadrid

      2 October 2017 at 11:59 am


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