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Archive for November 19th, 2021

As efficient competitors in Case T‑612/17, Google Shopping: the principle and the conflations

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It was inevitable that the Google Shopping judgment would require the General Court to engage with an illustrious principle of the case law: Article 102 TFEU is only concerned with the exclusion of rivals that are as efficient as the dominant firm.

As the Court put it in para 22 of Post Danmark Inot every exclusionary effect is necessarily detrimental to competition […]. Competition on the merits may, by definition, lead to the departure from the market or the marginalisation of competitors that are less efficient and so less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation‘.

The corollary to this principle is that only anticompetitive effects that are ‘attributable‘ to the dominant firm’s conduct can trigger the application of Article 102 TFEU. Post Danmark II made an explicit reference to attributability (para 47). Crucially, this point is acknowledged in para 441 of Google Shopping (‘in order to find that Google had abused its dominant position, the Commission had to demonstrate the – at least potential – effects attributable to the impugned conduct of restricting or eliminating competition‘).

Showing that the effects are attributable to the dominant firm’s behaviour (that is, establishing a causal link between the conduct and its impact) demands, by definition, identifying a counterfactual. There is no way around it (I have come to understand that this idea is controversial in some quarters; it is a topic for another post, but I will definitely address it).

The Google Shopping judgment reveals that the principle tends to be conflated with related matters. Two conflations deserve to be discussed:

  • The principle is sometimes interpreted as meaning that the Commision (or any other authority or claimant) needs to show that specific rivals are as efficient as the dominant firm. I do not believe that interpretation is correct, and I struggle to find support for it in the case law.
  • The principle is occasionally used as synonymous with the ‘as efficient competitor’ test. They are different, and the former should not be reduced to the latter.

The principle in practice: what needs to be proved?

In para 514 of the judgment, the General Court explains that one of the interveners argued that the Commission had not established the anticompetitive effects of the practice as it had ‘failed to show that comparison shopping services competing with Google that had experienced difficulties were as efficient as Google or that they had exerted significant competitive pressure on prices or innovation‘.

The General Court rejects the argument as described above. There seems to be no basis for it in the case law. What cases like Post Danmark I and II demand is that a causal link be established between the practice and the effects. If the effects are not attributable to the dominant firm, but to other factors, then there is no abuse (think by analogy of the ‘failing firm defence’ in merger control).

Put differently: the implementation of the principle demands comparing the conditions of competition with and without the practice. It does not demand, however, establishing the relative relative efficiency of rivals in a reality that has already been ‘contaminated’ by the practice. It would not be possible to establish a causal link in such circumstances.

Suppose that a practice denies rivals a minimum efficient scale. It should not be possible for the dominant firm to then claim that rivals are less efficient and therefore that the practice is not abusive. If such an argument were accepted, then effects that are attributable to the dominant firm’s behaviour would fall outside the scope of Article 102 TFEU. The General Court makes a point along similar lines in para 540.

Instead, the question should rather be whether rivals being denied a minimum efficient scale is attributable to the behaviour of the dominant firm or to other factors. Simply put, the appropriate benchmark should be the world in the absence of the practice.

The principle and the ‘as efficient competitor test’

There is a point in the judgment that is arguably more controversial. In paras 538 and 539, the General Court appears to conflate the principle as described above and the ‘as efficient competitor test’ as used in relation to pricing abuses (such as margin squeezes and rebates).

It is sufficient to read the relevant passages in Post Danmark I (then reiterated in Intel) to realise that the Court of Justice lays down a principle that is broader than the ‘as efficient competitor test’. It is emphasising that exclusion that is not attributable to the dominant firm’s behaviour does not amount to an abuse of a dominant position within the meaning of Article 102 TFUE.

This principle can find many incarnations and can be implemented in a number of ways. The ‘as efficient competitor test’ is just one of them, and one that is particularly apt in relation to price abuses: if it turns out that a ‘margin squeeze’ would not require rivals to sell below cost, any exclusion would not be attributable to the dominant firm, but to the fact that the former are less efficient.

The wording of the judgment, which seemingly conflates principle and test, can be interpreted as meaning that only pricing abuses are concerned with as efficient competitors. According to this interpretation, the principle would not apply to practices such as tying or exclusive dealing. Which takes me to the last point.

Is the principle only relevant for pricing abuses? How could it be so?

According to a current of opinion, the principle laid down in Post Danmark I would indeed only be relevant in relation to pricing abuses. I struggle with this interpretation of the case law, but insofar as it has been debated, it is worth discussing.

There are several reasons why the principle laid down in Post Danmark I is applicable across the board. To begin with, the Court (both in Post Danmark I and Intel) did not confine it to pricing abuses. It was a general pronouncement. What is more, it made an explicit reference to other parameters of competition, namely ‘choice, quality or innovation‘.

The most powerful reason, in any event, is that confining the principle to pricing abuses would lead to outcomes that seem difficult to defend from an intellectual standpoint. Taken to its logical consequences, such an interpretation of Article 102 TFEU would mean that it is necessary to establish a causal link between practice and effects in relation to rebates and mixed bundling, but not in relation to exclusive dealing and tying.

If this interpretation of the case law were accepted, the two sets of practices would be subject to different analytical framework for a purely arbitrary reason (the fact that one set of practices relies on pricing mechanisms) even though they are interchangeable (and have the same object and effect).

I really look forward to your comments on this point (or indeed any of the preceding ones).

Written by Pablo Ibanez Colomo

19 November 2021 at 12:41 pm

Posted in Uncategorized