Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

My Chillin’ talk (‘What is an anticompetitive effect?’) and more

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The video of my Ted@Chillin’ Talk on ‘What is an anticompetitive effect?’ is available here. And the slides are available here. Our readers know that this is a question that keeps me busy. It is also a topical one. You may remember that I wrote a post about the MEO case earlier this year.

In MEO, the Court clarified that not every competitive disadvantage amounts to an anticompetitive effect under Article 102 TFEU. In my view, it is the single most important development in EU competition law this year.

Speaking of which: I am truly honoured to have taken part in Rupprecht Podszun‘s famous Advent Calendar, where I make that very point and discuss at length MEO and its implications (see here).

If you prefer to read rather than listen to my presentation, here is the (approximate) transcript of my Chillin’ talk:

What is an anticompetitive effect?

We have been hearing about the effects-based approach for over 15 years now. The effects-based approach is embraced in papers issued by the Commission, in papers issued for the Commission, in papers issued by Commission officials and is discussed many conferences and publications.

Since we have been talking about effects for all these years, you would be forgiven to assume that we know what we mean by effect, or at least that there is a consensus about what we should be looking for when we evaluate the impact of a practice on competition.

No matter how surprising this may sound, the truth is that this is a question we do not ask ourselves, and about which there is not unequivocal guidance in the case law and administrative practice. We need to dig very deep to find insights.

One can think of some reasons this may be so. But I will betray the supposed topic of the conference and will not make the ‘why, though’ the focus of my talk.

I will just mention that, if we do not discuss this question, this is not because the answer is an obvious one, or one that does not need to be discussed.

An effect can be anything from a competitive disadvantage to a consumer welfare loss – with some options in between.

The consequences of the choice we make in this sense are very significant in practice.

If we say that any competitive disadvantage amounts to an anticompetitive effect, then pretty much every practice can be safely assumed to have a negative impact on competition.

Just think about it: potentially anticompetitive practices inflict, by definition, a competitive disadvantage on rivals. That is the reason we look into them in the first place.

If we were to decide that any competitive disadvantage is an anticompetitive effect, then there would be no meaningful difference between restrictions by object and by effect.

The threshold would be so low that the line between object and effect would be blurred.

The veterans among you will remember the days of Regulation 17, where agreements were deemed restrictive of competition by object or effect. It did not matter whether one was chosen over the other, because pretty much every agreement was prohibited anyway.

If this were still the meaning we attached to the notion, the effects-based approach would have achieved exactly nothing.

The good news for those who believe in a meaningful analysis of effects is that this approach has been unequivocally rejected by the Court of Justice.

The MEO judgment, which was delivered earlier this year, is particularly eloquent in this regard. A difference in price, the Court told us in that judgment, is not sufficient to trigger the application of Article 102 TFEU.

One could also argue that anything that makes competitors’ life more difficult amounts to an anticompetitive effect.

Again, if every practice that makes competitors’ life more difficult amounted to an anticompetitive effect, then the threshold would be very easy to meet in practice. After all, we pay attention to some practices precisely because they make competitors’ life more difficult.

Exclusivity obligations, tying and margin squeeze are examples that come to mind immediately.

So again, is it sufficient to show that a practice makes competitors’ life more difficult to trigger EU competition law?

There is a critical mass of case law already showing that an anticompetitive effect is something more than that.

It makes sense that I pause for a second and discuss three cases that illustrate this idea well.

The first one is Deutsche Telekom.

The Commission had found evidence that the rivals of the incumbent had been squeezed.

Surely a margin squeeze is sufficient to trigger Article 102 TFEU? What else do you need other than showing that competitors are being forced to sell at a loss?

That was the argument raised by the Commission. It is certainly not an unreasonable one. However, the argument did not win the day.

The Court made it clear that a margin squeeze, in and of itself, is not enough to establish an anticompetitive effect. This point would be confirmed in TeliaSonera.

The second one is Post Danmark I.

Again, there was evidence in that case that the dominant company was selling below cost, and that it had gained some customers from rivals.

And again, the Court ruled that these factors are not enough to establish an anticompetitive effect.

The reasoning of the Court is worth recalling.

The Court noted that, as a general rule, an equally efficient rival can match prices that cover the average incremental costs

It also noted that, in the meantime, the competitor had been able to gain back a customer it had previously lost to the dominant undertaking.

So yes, competitors’ life might have been made more difficult during the aggressive pricing campaign, but competitors stayed on the market and fought back

My third case is Intel. There is not much point in discussing it in detail. Suffice it to mention that exclusivity agreements make, by definition, competitors’ life more difficult (that was after all the point made in Hoffmann-La Roche). But even if this is so, the Court declared in Intel that the dominant firm can escape Article 102 TFEU

What do these cases tell us, when taken together?

I believe they tell us that a practice does not have an anticompetitive effect where the ability and the incentive of competitors is not affected by it.

In other words, conduct has an anticompetitive effect were rivals are no longer willing and able to fight. And a competitive disadvantage, or a practice that makes their life more difficult, may well incentivise them to fight even harder.

So there you have it, my definition of an anticompetitive effect.

This idea should come across as obvious if one pays attention to other areas of EU competition law.

Think of Tetra Laval/Sidel and GE/Honeywell. Think of Microsoft/Skype.

All these cases involved dominant companies. In all these cases the new entity enjoyed a competitive advantage that made rivals’ life more difficult. And we know that these facts, alone, were deemed insufficient to prohibit the mergers.

Is there a reason to define the notion of effects differently depending on the provision? I do not think so, and have never seen a cogent argument in favour of defining effects differently

Some in the audience, when listening to this, might have thought: ‘wait a second, you are cheating’.

Did the Court not say that there is no such thing as de minimis in Article 102 TFEU, and therefore anything that dominant companies do cannot fail to have an effect?

To which I would reply: I am afraid the appreciability issue is a different one. A third dimension of the analysis of effects if you will. But for that, I would need more than 10 minutes –  for today, I can leave it here

Thanks very much.

Written by Pablo Ibanez Colomo

20 December 2018 at 3:00 pm

Posted in Uncategorized

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