Chillin'Competition

The Global Competition Law Centre‘s annual conference took place last Friday and Saturday in Bruges. The best measure of how much of a success it was is that I came back home full of ideas, having learnt a great deal from other speakers.

Instead of sharing my presentation, I thought it more interesting to engage with some of the points that were made (in particular those that were recurring issues) and some particularly valuable contributions by the rest of participants.

One of the recurring topics was, unsurprisingly, the (much misunderstood) ‘as-efficient competitor principle’ (which has been discussed on this blog, including here, and which is to be distinguished from the so-called ‘as-efficient competitor test’ itself).

While a considerable part of the discussion focused on the meaning of the principle and its implications, I found it refreshing that some participants challenged the consensus and suggested that it may be nothing other than a tautology or a rhetorical device.

The principle is best understood as a necessary consequence that follows from the need to show that any actual or potential effects are attributable to the practice. It is, put differently, an aspect of the causality assessment.

Thus, there would be no abuse where the exclusion of a rival is attributable to the fact that it is less efficient or less attractive in terms of, inter alia, price, quality and innovation.

What does the principle involve in concrete terms? The implications are best illustrated, I think, by reference to the practices that are deemed lawful under Article 102 TFEU.

We have known since Hoffmann-La Roche (as Post Danmark II would later confirm) that genuine quantity rebates do not amount to an abuse of a dominant position.

According to the case law, these rebates (‘linked solely to the volume of purchases‘) escape the prohibition because the lower prices merely reflect the cost savings that the dominant firm can make as a result of the increase in the volume supplied.

Thus, any exclusion of a rival would not be attributable to the quantity rebates, but to the fact that it the dominant firm is more efficient.

Think now of unconditional pricing. It was implied in AKZO, and confirmed in Post Danmark I, that above-cost prices are not predatory within the meaning of the former judgment.

Again, an equally efficient rival would be able to sustain aggressive pricing that remains above cost. If the rival leaves the market in such circumstances, the outcome would not be attributate to the pricing campaign, but to the fact that it is less efficient than the dominant firm.

Commentators tend to focus on paragraph 22 of Post Danmark I, which enunciates the ‘as-efficient competitor’ principle (‘[…] [c]ompetition 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‘).

Paragraph 38, however, is more illuminating about it, in the sense that it reveals its concrete role in practice. In the words of the Court:

’38. […] a dominant undertaking sets its prices at a level covering the great bulk of the costs attributable to the supply of the goods or services in question, it will, as a general rule, be possible for a competitor as efficient as that undertaking to compete with those prices without suffering losses that are unsustainable in the long term‘.

According to this paragraph, below-cost pricing is not necessarily abusive. This is so, generally speaking, where an equally efficient rival would be able to sustain a campaign that allows it to cover ‘the great bulk‘ of the relevant costs.

Another point that is worth emphasising, having followed the discussions at the conference, is that the ‘as-efficient competitor principle’ does not cease to apply merely because a practice is deemed abusive by its very nature (or, if you prefer, by object).

No participant seriously questioned the idea that some practices are abusive by object. The most recent case law makes it clear that Article 102 TFEU can be triggered where exclusion is the only plausible explanation for the conduct.

However, this ‘by object’ category of conduct raises an interesting question: where Article 102 TFEU applies because the strategy is deemed to serve an exclusionary purpose, is the principle relevant?

The answer to this question is to be found in AKZO (and, more precisely, in para 72). Where it is shown that below-cost pricing is part of an exclusionary strategy, the practice will be abusive without it being necessary to show anticompetitive effects. If the restrictive object is established, such effects are presumed.

Hovewer, the ‘as-efficient competitor principle’ remains relevant in such circumstances. As explained by the Court, below-cost pricing is problematic precisely because it ‘can drive from the market undertakings which are perhaps as efficient as the dominant undertaking‘.

The points discussed above are also useful to clarify another common misconception: the ‘as-efficient competitor principle’ does not imply that it is necessary to evaluate the relative efficiency of individual rivals.