Chillin'Competition

The ECJ issued a Judgment yesterday in the General Química-Repsol case in which it partly upheld and partly annulled  the General Court´s judgment dismissing the appeals against the Commission decision in the rubber chemicals cartel.

In its Judgment the Court provides some guidance on the operation of the iuris tantum presumption pursuant to which the exercise of decisive influence of a parent company over the conduct of its subsidiaries (and, accordingly, the responsibility of the parent for the wrongdoing of its subsidiary) can be presumed, always subject to rebuttal,  in case of 100% ownership.

The Commission and the General Court had held that the infringement commmited by General Química (GQ) could be attributed to the owner of the totality of its shares: Repsol Química (RQ), and -climbing one additional step up the ladder- to Repsol YPF, who, in turn,  was the owner of the totality of RQ´s shares.

Leaving aside some of the details and specificities of the case, and focusing on the general application of this Judgment to future cases,  the ECJ has ruled that :

(i) The operation of the presumption shall not be dependent upon the existence of additional evidence on the exercise of decisive influence over the conduct of the subsidiary; on the contrary, it will be triggered automatically in cases of 100% ownership (paragraphs 41 and 42);

(ii) The General Court did not adequately motivate some of its conclusions (recitals 58-63) and failed to examine in detail the evidence submitted by the appellants to demonstrate the commercial and operational independence of GQ in relation to RQ (recitals 75 and 76), this being precisely one of the relevant factors with which the presumption could have been rebutted (recital 77). Consequently, the Judgment holds that “the General Court committed an error of law in affirming, in paragraph 74 of the judgment under appeal, that the arguments raised in order to establish such independence could not succeed ‘in the light of the case-law cited’, without carrying out a concrete examination of the factors raised by the appellants” (recital 79).

After having set aside part of the General Court´Judgment, the ECJ itself undertakes the task of giving final Judgment on the matter, and rules that:

a )  the mere fact, first, that RQ was made aware of the infringement only after an inspection of GQ´s premises and, second, that it did not participate directly in that infringement or encourage it to be committed is not such as to show that those two companies do not constitute a single economic unit. Such a fact is not sufficient to rebut the presumption that RQ actually exercised decisive influence over GQ’s conduct

b)  Although it was true that certain documents submitted by the appellants show that many of GQ’s management and administrative competencies had been delegated to the executives of that company, other evidence in the file showed, by contrast, the existence of significant interference on the part of RQ in several aspects of GQ’s strategy and commercial policy.

The Judgment attributes particular importance to several facts:  Firstly, it notes that RQ’s board of directors intervened significantly in matters concerning the sale of real estate and shareholding in other companies.  Secondly, it underlines that GQ’s sole director designated by RQ constituted a link between those two companies, by which the information concerning sales, production and financial results were communicated to RQ.  Thirdly, the ECJ explains that the fact that information was provided on the implementation stage of strategic and commercial plans constitutes an additional indication that RQ exercised control over the decisions drawn up and executed by GQ’s executives.

At the end of the day, the ECJ has reminded the General Court of its obligation to assess and motivate with greater care its conclusions on the elements put forward by companies attempting to rebut the presumption on the exercise of decisive influence. But at the same time it has validated the Commission´s decision on the basis of a reasoning that, in the face of conflicting evidence, seems inclined to favor the Commission´s discretion. 

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Also, and totally unrelated, I leave you a link to an article discussing whether lawyering can be compatible with work/life balance (it´s also interesting to check the first comment, positing that quality of life in accounting firms is due to the oligopolistic nature of that market). As I´ve said before, unless law firms become more progressive on the quality-of-life front they risk disencouraging the brightest people (their only asset) to choose this job or to continue working at it. 

Have a great weekend!

I took the above picture last week in the centre of Brussels.  This shop sells modern design furniture.

More importantly, this picture shows why competition agencies will never fully eradicate cartels. The very fact that design shops, political parties, and even modern rock bands deliberately use the world “cartel” as a marketing device brings proof that most people do not view cartels as a bad things. Much to the contrary, to many citizens, the word “cartel” relates to a range of positive things, such as solidarity, strength, etc.

Now, contrast this with Monti’s “cancer of the market economy” or Scalia’s “supreme evil of antitrust” (thanks to Alfonso for reminding me of those quotes)… The rift between antitrust specialists and society at large seems alarmingly wide.

To date, antitrust specialists have failed to explain the detrimental effects of cartels to society. Often, if not systematically, they have used complex language and obscure micro-economics concepts (e.g., deadweight loss, allocative inefficiency, etc).

There is an easy fix a long term remedy to this unfortunate state of affairs: competition authorities, academics, economists and lawyers should seek to quantify the harmful macro-economic impacts of cartels on growth, GDP, employment, productivity, etc. A number of interesting studies have been published on this issue in recent years (see here and here), but I believe that there is still scope for further research.

Because you missed us, here’s a brief summary of what happened in the past two weeks:

• Last weds, my students in Liege took their competition law exam. It was a funny exam, with references to F. Beigbeder’s famous book “99 francs”, electric guitars, etc.
• The latest monthly magazine of the Federation of Enterprises in Belgium (FEB, the organization that hosts the Brussels School of Competition) is devoted EU competition law. A very nice issue. See here.
• I have presented a paper on “Free riding under EU competition law” at a conference at the EDHEC Business School in Lille. A link to my ppt. presentation can be found at the end of this post. A working paper that I am drafting with my assistant N. Neyrinck will follow shortly.
• In a case involving gas distribution, the French competition authority found that the leniency applicant had sought to request immunity on the basis of falsified documents (just wonder what happened to the lawyers/in house who provided the advice)… and dismissed concerns of abuse of collective dominance with words/concepts close to those used in my Phd (thanks to Elise Provost and Joseph Vogel for the pointer).

Le droit de la concurrence face aux free-riders

Blogging from Madrid today, for the first class of the IEB programme in EU and Spanish competition law. Thanks again to Luis Ortiz and Alfonso for their kind invitation.

Dear readers,

Best wishes for a  happy and prosperous 2011. Our holidays away from blogging have extended a little more than what we´d initially announced. Sorry about that. The good news is: we´ve received plently of emails in which readers were wondering when we would open the shop again. Thanks so much for the interest!

Alfonso and I have agreed on a range of resolutions for 2011:

• Expand our readership and foster the interaction amongst readers. The fact that we are no longer boycotted by CPI’s Blog o’ Blogs (last week they recommended one post of ours for the first time) may help.
• Boost our Chillin’Leaks section
• Publish two substantive posts a week. Hopefully the Court and the Commission will give us timely “food for thought” (and draft concise, yet comprehensive opinions)
• Publish a monthly review of State Aid issues that antitrust lawyers should be aware of
• Organize more surveys
• Start doing some interviews (suggestions on names would be very welcome)
• Open Chillin’Competition to guest bloggers (as we did a few weeks ago with Pablo Ibanez)
• Ensure a timely and original coverage of the various Google investigations
• Keep our head cold and try to take things not too seriously
• Have our friends in China, Latin America and Russia inform us on what´s hot in their jurisdictions

The bottom line: This blog is yours. Please do not hesitate to send us suggestions and comments on what you would like to read here.

Now let’s chill competition again in 2011.

After a busy year, it is time for the authors of this blog to take a short break. Chillin’Competition will be closed until 3 January.

As usual, I attach a link here to Waldfogel’s seminal paper on the economics of Xmas presents.

PS: I feel today like saying thank you. To our readers, to my co-blogger Alfonso, but also to my colleagues at university, the BSC staff, and last but not least, to my terrific groups of students in Liege and Lille.

Ronald Coase once said:

“One important result of this preoccupation with the monopoly problem is that if an economist finds something—a business practice of one sort or other—that he does not understand, he looks for a monopoly explanation. And as in this field we are very ignorant, the number of ununderstandable practices tends to be very large, and the reliance on a monopoly explanation, frequent.”

A quote worth ruminating, in light of the increased interest of antitrust agencies’ for unilateral conduct in dynamic industries.

Found on TOTM. The real source is Ronald H. Coase, “Industrial Organization: A Proposal for Research,” in Victor Fuchs, ed., Policy Issues and Research Issues in Industrial Organization (New York, NY: National Bureau of Economic Research, 1972), p. 69.

A thought to share:

In going through the RyanAir/AerLingus and Iberia/Vueling/Clickair cases – and following a discussion with David Hull yesterday –  I have increased difficulties with the idea  that low cost companies and flag carriers operate on the same relevant market.

Intuitively, I am prone to think that the demand served by low costs companies and flag carriers comprises several groups of customers, with different elasticities. In particular,  low costs carriers likely face a bunch of captive customers, which would never switch to a flag carrier. In the same vein, flag carriers probably face a share of captive demand, which would never switch to a low cost carrier.  I may be wrong out of sufficient technical knowledge, but it seems possible to argue that we have two distinct product markets (which, as the case may be, possibly exercise a competitive constraint on each other). My intuition is further confirmed by the fact that the features of low cost and flag carrier services are very different.

If I find time I’ll try to go through the decisions again, which might conceal the answer to this.

In past decades, the Commission repeatedly insisted on the importance of competition policy for the purposes of achieving the Single Market.

A few weeks ago, the Commission adopted a Communication entitled “Towards a Single Market Act – For a highly competitive social market economy“. Quite strikingly, the word “competition” appears only 9 times in this document.

Of course, this document is not competition law related. Yet, it seems to place only little emphasis on competition in general, not to talk of competition policy. This ought to be contrasted with the earlier Report of Mario Monti which referred 69 times to competition, and pleaded amongst other things in favour of:

“a new approach to industrial policy which builds on a mutually reinforcing relation with single market and competition rules“.

As a matter of fact, the concept of competition seems primarily quoted in relation to the international competition faced by EU businesses, and the need to foster the competitiveness of European firms.

A little disappointing.

Btw: Mario Monti’s report has gone relatively unnoticed in the competition law community, and this is extremely unfortunate.

Not much to report today, so here’s a full account of my day (I admit this is of limited interest for our readers, but (i) I have little inspiration today, and (ii) it will at least prove that some academics do work).

5.00 am: wake up call.

6.00 am-10.30 am : draft a paper on the new EU framework on vertical restraints (which I co-write with my friend and colleague David Henry).

10.30 am-11.00 am: answer to emails and call with my secretary at university.

11.00 am-11.45 am: read a paper on trademarks and antitrust law.

12.30 am-2.30 pm: lunch with JJ Evrard, re. possible conference on trademarks and antitrust law in early March.

2.45 pm-3.30 pm: answer to emails.

3.30 pm-5.00 pm: review outline of Elise Provost doctoral thesis.

5.00 pm-5.30 pm: call with Elise.

5.30 pm-6.30 pm: prepare annual meeting of the GCLC scientific council.

7.00 pm-10.00 pm: annual meeting of the GCLC scientific council.

10.30 pm : s***t, I forgot to post shting on the blog…

Probably less than most private practitioners, but still a pretty busy day after all.

PS1: the dominant OS for PCs turned 25 a few days ago.

PS: We still have a few seats for tomorrow’s Evening Policy Talk with D. Neven. Please drop me a line if you want to participate.

The College of Europe – the academic institution which hosts the GCLC – made the buzz yesterday. I paste hereafter the full AFP story.

Belgian premier butt of linguistic gaffe

(AFP) – 1 day ago

BRUSSELS — The premier of linguistically-divided Belgium, Yves Leterme, came in for a shock on being told Tuesday that French was the nation’s official language as well as his own — though he is a Flemish-speaker.

The gaffe came when Leterme, who has a French name and speaks the language fluently, visited the prestigious College of Europe in Bruges, flanked by German Chancellor Angela Merkel, who is on an official visit to Belgium.

Delivering a speech to the pair, the head of the institution, Spaniard Inigo Mendez de Vigo, said he would conclude in Belgium’s official language, French, “the language of Yves Leterme”, raising eyebrows in the room.

Leterme currently heads a caretaker government following inconclusive general elections in June that have left the country rudderless as parties on both sides of the linguistic divide quarrel over a deal to form a government.

Sixty percent of the country’s around 10 million people speak Flemish, the remainder French.

This story is a telling illustration that no one understands a d***** thing as to what is currently going on in Belgium.

Also, the head of the College is currently Rector Paul Demaret.