A cura di Martina Vetere con la collaborazione del prof.Marcus Skarpsvard–
1.Introduction
All the EU competition law goes around the concept of efficient or effective competition, even if it’s not known as I mentioned but scholars prefer to define it as “undistorted competition”.
The entire subject goes under the EU competition Law which regulates the Union market in order to prohibit the damage of the EU economic interests by the creation of cartels and monopolies and other anti-competitive practices.
Differently from what was used to happen in the early years of the Union, when there were prohibitions and restrictions to the trade, now – thanks to the reception of the USA Sherman Act and to the creation of the internal market – competition is regulated from articles 101 to 109 of the Treaty on the Functioning of the European Union.
The objective of this paper is to provide an analysis of the concept by focusing on the theory of effective competition.
The aim of my work is to firstly individuate and deeply understand what competition is and how it is regulated in the EU, and finally – thanks to the material sought and the studies carried on – try to give a meaning to its efficiency and/or effective policy that should be pursued.
1.2 Purpose
The purpose of my investigation would be to have an overview of the competition situation between the Member States, to describe the main Antitrust system (its birth and its developing during the increasing of EU Law) and to clarify the position of the European Commission, which, according to The Treaties, has the power to control the competition policy and prevent and/or punish the anticompetitive practices.
In addition to it, I’m also going to analyse the position of the consumers and discover if they are effectively protected or if they only result as pawns of the free market.
In the end I would like to settle accounts and discover if all of this system is effectively as its purpose wants it to be or it arises as an unattainable utopia.
1.3 Method
In order to do it, I’m using the classical method that is the Traditional Legal Dogmatic Method – maybe I can define it as a Teleological one – through which I’m going to examine all the precepts, rules, and the entire legal framework concerned to my topic such the Treaties (TFEU and TEU), secondary legislation, Articles and same Cases of the European jurisprudence to promote overall objectives.
In addition, because of the competition’s economic foundations, (especially in the third section) I’m following up on some law and economics such as the competition and monopoly definitions, theory of costs, relations between demands and supplies given by the old economic Schools (the main are the Harvard, the Chicago, the post-Chicago Schools and the German Ordoliberalism doctrine developed in Europe) to better understand this phenomena. In fact, as Chicago and post-Chicago Schools have arisen, “economics is the essence of antitrust and that protecting consumer welfare, conceived in allocative efficiency terms should be the exclusive goal of competition law.”
1.4 Outline
So, in the second section I’ll spend some words to introduce what is called the internal market whose competition is one of the most important element; in the third one the notion of competition will be analysed focusing my attention to what we call undistorted competition; in section four I’ll explain the antitrust system and in paragraph five and six I’ll talk about the rules with which the Institutions guarantee it; then I will describe the whole situation from the consumers point of view; in the last one I’ll try to understand if this policy is really “efficient” and finally, I’m going to give my opinion trying to find an answer to this question.
2. What is competition?
I’ve tried to collect as many definitions as possible I could to give the sufficient one answer to the question stated supra.
Firstly, even thought it could appear shallow and pettifogging, according to the Merriam-Webster British Encyclopaedia, competition is “the act or process of trying to get or win something (such as a prize or a higher level of success) that someone else is also trying to get or win ”: it’s easily to understand from that lowly definition that in the game of competition there must be – at least – two “competitors” which try to reach the same purpose laying different acting strategies.
But let’s try to draw up an overall plan starting from the beginning and using as a reference point the European primary law.
According to Article 3 (2, 3) TEU, one of the Union values is to create and offer an area of freedom, security and justice without internal frontiers and to create and establish an internal market representing the highly competitive social market economy of the entire Union.
What is the internal market? Article 26 (2) TFEU answers this way: “The internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties”.
The trade and the game of competition is also guaranteed by the freedom to conduct a business that is the basic feature of the Single European Market: it is expressly stated to Article 16 of the Charter of Fundamental Rights of the European Union which says “The freedom to conduct a business in accordance with Union law and national laws and practices is recognised”.
Furthermore, to realize this goal, Article 119 (1) TFEU foresees that “For the purposes set out in Article 3 of the Treaty on European Union, the activities of the Member States and the Union shall include, as provided in the Treaties, the adoption of an economic policy which is based on the close coordination of Member States’ economic policies, on the internal market and on the definition of common objectives, and conducted in accordance with the principle of an open market economy with free competition”.
Pursuant to Article 4 (1) TEU, internal market comes under the shared competences which it means that, in application of the subsidiarity principle – stated by Article 5 (3) TEU which says “Under the principle of subsidiarity, in areas which do not fall within its exclusive competence, the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, either at central level or at regional and local level, but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level” – each of the Member States has the power to regulate its own policy and the Union shall intervene when a Member State doesn’t respect the aim set by the Union – and especially in this case – when it provides an unfair game acting violating the principles of the European competition.
In fact, even if the power to regulate the competition remains to each Member State, it’s established that they have to cooperate under the Commission’s control using also the proportionality criteria to balance the elimination of trade barriers.
To realize the objective of Article 26 TFEU, the institutions of the European Union could intervene thanks to the Article 114 (1) TFEU, which decrees the power to harmonise directives regarding the internal market: “Save where otherwise provided in the Treaties, the following provisions shall apply for the achievement of the objectives set out in Article 26. The European Parliament and the Council shall, acting in accordance with the ordinary legislative procedure and after consulting the Economic and Social Committee, adopt the measures for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and functioning of the internal market.”
3.
This internal market should be governed by a system called “undistorted competition”.
Pursuant to Protocol 27 on the Internal Market and Competition, “The high contracting parties, considering that the internal market as set out in Article 3 of the Treaty on European Union includes a system ensuring that competition is not distorted, have agreed that:
To this end, the Union shall, if necessary, take action under the provisions of the Treaties, including under Article 352 of the Treaty on the Functioning of the European Union”.
Besides, the Court stated in Case C- 52/09 TeliaSonera that “the function of those rules is precisely to prevent competition from being distorted to the detriment of public interest, individual undertakings and consumers, thereby ensuring the well-being of the European Union.”
The fair competition model theorized by the economists is the following:
‘[…] Simultaneous presence on the market of a plurality of operators competing with each other to answer the demand for goods and services from the community, resulting in fragmentation of supply among several companies none of which individually can affect the price of goods sold; full mobility of factors of production that assure the ready production to market demands; corresponding full mobility of demand from consumers, who are free to direct their decisions towards products more affordable for audibility and price; the absence of barriers to let new players entry in every area of production and distribution, as well as agreements between companies operating which distorts the freedom of economic competition.’
At the beginning of EU Competition Law, this ideology had yet to emerge basically in every State which traditionally favored cartels, agreements and state intervention.
When they understood that competition had to become a part of the Treaty, first it was a way to complement the internal market rules by preventing business from partitioning the market and by encouraging competition across borders: now this need means a way of securing economic welfare and its rules are enforced by the Commission.
Competition is surely an economic issue and especially Fox and Sullivan locate competition law into a liberal economic view. At the beginning, EU competition law was influenced by a German scholarship called Ordoliberalism even if before of it there have been two economic schools – the Harvard School in the late 1960s and the Chicago School in the 1970s – who has already influenced this policy and especially the Chicago School had a deep impact to the development of the competition policy in Europe.
Ordoliberalism represents an entire political and economical philosophy: it was born in the first half of the 1900 in Germany and it discovered a new deep relationship between law and economics. Following its thinking, competition law should be a value itself: it foresees a sort of economic freedom according to which all the EU citizens are able to enter and compete on the European market.
As Moschel says “The actual goal of the competition policy of Ordoliberalism lies in the protection of individual economic freedom of action as a value itself, or vice versa, in the restraint of undue economic power”
It was in the 1980s that the real competition policy took place thanks to the approach of Regan in the USA and Thatcher in the United Kingdom who introduced a sort of neoliberal system. An important role was also played by the European Court of Justice, which has consolidated the power of the Commission with its precedents giving it the competence to act as both prosecutor and judge.
Furthermore, it grew thanks to two exponents of the Commission, Peter Sutherland and Sir Leon Brittan, who pursued and extended the free market logic. After Sir Leon Brittan, Mario Monti continued the settlement of this neo liberal competition in fact, as Wesseling says, “ the first period of the Union antitrust (1958-1973) saw the Commission enforcing the rules with constant reference to ensuring the free flow of goods, thus promoting market integration”.
Something changed when in 2004 Regulation 1/2003 came into force: it has started a process of modernization with which the approach of the Union starts to move as closer as possible to protect consumers.
This could explain how the competition policy is affected by many factors and by many different thought lines: that’s why sometimes the first aim of the Commission in this set is to protect the consumer welfare regulating the market and also could explain why it so difficult to assure a system of fair competition. That’s why it’s not easy to match economic features within the law view especially between twenty-eight Member States with twenty-eight different traditions concerning trade’s regulation.
According to G. Campobasso – and to others law and economic exponents – that one barely quoted results to be the perfect and ideal model of the competition because its aim would be to urge to a progressive reduction of the production’s and sell’s costs. It also assures the “ […] natural elimination of the less competitive companies from the market primping the technological pump and the production’s efficiency growth and determines the more rationale use of the resources and the achieving of the highest possible degree of economic and social welfare”.
So, economically, we can reassume that, at the end, “[…] Equilibrium in perfect competition is the point where market demands will be equal to market supply. A firm’s price will be determined at this point. In the short run, equilibrium will be affected by demand. In the long run, both demand and supply of a product will affect the equilibrium in fair competition. A firm will receive only normal profit in the long run at the equilibrium point.”
These two graphics describe the market development in a perfect competition system.
In the second one it’s described the relation between the prize and the quantity attendant to a good’s demand and supplies; instead on the first one is underlined the equilibrium prize line relatively to a good’s demands and supplies: here competitors are called price takers: they do not set the prize but the prize is set by the market itself. This means that their demand curve is perfectly elastic (that is that any small changes in Prizes causes a large response of the Quantity demanded): if they set a higher price nobody would buy from them because of perfect knowledge.
Unfortunately this remains a dream to the economists because there are actually many factors which prevent and restrict the freedom of the economical initiative such as the uneven provision of natural resources in the whole territory or the large capital investments required or even the low mobility of the workforce. All these underlying causes, instead of increasing the competition between more companies, let the big firms expand or at least create concentrations or link one to the other, which is in absolute one of the three phenomena prohibited by the European Union (as it’s set by Art 101 and Art 102 TFEU about which I’ll talk in the next paragraph).
This inevitably leads to the creation of oligopolies and then to a market that is characterized by controlling the supply of a few large companies.
This leads these companies to collide and thus to limit competition between each other, to select and divide the markets, to set prizes and the amount of the production.
In the way, this condition could also bears to a situation in which one company – realizing what is called a monopoly situation – regulates all the market: “Monopolies are thus characterized by a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the existence of a high monopoly price well above the firm’s marginal cost that leads to a high monopoly profit.”
In a situation of pure monopoly, the main firm controls the entire supply and it can control the prize and that is why firms in monopoly are called prize maker (in opposition of the prize takers which there are in a perfect competition situation).
“Legally a monopoly is defined as a market where a single supplier has a 25% market share, as classified by the competition commission using various methods including percentage of market profits, percentage of total revenue and percentage of quantity produced (measured by mass or units).
In a pure monopoly supernormal profits are earned in both the short and long run. There are high barriers to entry (factors which prevent other firms from joining the industry), consumers have low knowledge and the firm is a price maker as there is no competition.
Economies of scale act as a barrier to entry as new entrants are unable to take advantage of economies of scale so they must charge a higher price. […] In a monopoly demand is inelastic as there are no substitute goods.”
So, in an economical view, the main difference between fair competition and monopoly is that thanks to the fact that in monopoly there is only one firm, it can control the prize and wield all the good’s supply: even if the prize changes, consumers demands its good because there aren’t any others firms “playing this game” and obviously it’s easier to it to realize a maximum profit.
Differently, as I stated supra, in a competition situation no one can realize a profit and all the firms must apply the prize agreed by the market itself.
Therefore, it’s hopeful not to create Oligopolies and Monopolies because, as I stated supra, there are two kind of market’s structures that don’t allow all the sellers – especially the weakest and the smallest – to stay in the market and that create a sort of barriers to its entrance: so all the competition policy would be distorted.
4.
In order to prevent this situation, the Union wrote new rules to destroy this inequality and to balance the powers of all the firms acting into the European Market.
At the beginning, the Antitrust law provisions had the aim to promote the market integration: they were used just to guarantee the freedom to trade across borders without hindering the enter of the market between the Member States; then they helped the creation of the Community industrial policy and in the end these rules became also a way to realize and promote the objective settled in Art. 3 TEU. “Hans von der Groeben, the first head of the European Commission’s Directorate for Competition, maintained that one of the fundamental objectives of competition policy is “to establish an effective and workable competitive system” (CEC: 1966, p. 59). In accomplishing this objective of introducing as well as maintaining effective competition, EU competition policy inhibits restrictive practices that fail to qualify for exemption (Article 81); proscribes abusive market conducts by dominant firms (Article 82); and prevents emergence of a dominant position that alters market structure significantly through mergers, acquisitions and merger-like joint ventures (the Merger Control Regulation or MCR). Moreover, it makes sure that public or private firms granted special rights by member states do not harm market competition (Article 86) and that state aids do not distort market competition (Article 87) (Korah: 2000). With respect to administrating EU competition policy, Article 83 states that the Council of Ministers lays down the appropriate regulations and directives for implementing the principles in Articles 81 and 82 based on a proposal from the European Commission. Moreover, the Council of Ministers has extensive powers for implementing Article 87, as stated in Articles 88 and 89. Similarly, the European Commission has the power to implement Articles 81, 82, 86, and 87 as stipulated in Articles 85, 86 and 88. Moreover, the European Commission has the right to apply the MCR. National competition authorities and courts can implement Articles 81 and 82 only by following previous interpretation of them by the European Commission, the Court of First Instance (CFI) and the ECJ. In Moschel’s words, “Ultimately, the organs of the Member States mutate into auxiliaries of the Commission” (Moschel: 2000, p. 497). This brief account illustrates the fact that powers to implement EU competition law are centralized in the hands of EU institutions. ”
After the Lisbon Treaty the articles referring to Competition Law are changed. The new articles that regulate the competition’s system are in the TFUE, Chapter 1, Section 1 and are from Article 101 to Article 109, which have replaced the old ones (from Article 81 to Article 89 TEC).
EU Competition Law is a system of enforceable rules under the Treaty to maintain undistorted or effective competition: the main framework is composed by the regulation of Articles 101, 102 and 107 TFEU and European Union Merger Regulation 139/2004 in order to achieve and realize the market integration, the consumer welfare, the fairness, the economic freedom and a system of pluralism.
The aim of these articles is to avoid this sort of results that anticompetitive practices could produce: exploitation, exclusion and anticompetitive foreclosure.
4.1
Article 101 TFEU states:
“1. The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which:
(a) directly or indirectly fix purchase or selling prices or any other trading conditions;
(b) limit or control production, markets, technical development, or investment;
(c) share markets or sources of supply;
(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
2. Any agreements or decisions prohibited pursuant to this Article shall be automatically void.
3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of:
– any agreement or category of agreements between undertakings,
– any decision or category of decisions by associations of undertakings,
– any concerted practice or category of concerted practices,
which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not:
(a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;
(b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.”
It prohibits the three kind of agreements – agreements, decision by associations and concerted practices – signed by two or more undertakings (and we have to assume that an undertaking is any entity engaged in economic activities as it has been settled in C-41/90, Hofner v Mactron) that may affect the trade and which want to prevent, restrict or distort competition.
An agreement is a consensus (expressed or tacit) between undertakings to act in a certain manner; a concerted practice is sort of collusion where the parties stay in touch and cooperate with the aim to exclude the other companies from the market; and instead a decision by associations is a kind of provision in the rules of a trade association.
In the first point of the article there’s a list of some of these behaviors but it is an illustrative and not exclusive list: they could be horizontal (between competitors) or vertical agreements (between undertakings on different levels).
These behaviors might be about price fixing, information exchange, market sharing, limit output, limit sales, collective exclusive dealing, pay for delay, export bans, selective distribution and so on.
Obviously, in order to be forbidden, the agreement must be signed by undertakings which act in a relevant market: it’s so necessary to identify which it is applying the relevant product and the relevant geographical rules.
Furthermore, this kind of collusion must produce effects on the trade: for these requirement to be fulfilled it must be possible to foresee that the agreement may have influence directly or indirectly, actually or potentially on the pattern of trade. In the Commission Guide line on the effect on tradeconcept contained in Articles 81 and 82 of the Treaty, in par. 53 , has been settled a presumption: a combination of a over 5% market share threshold and more then 40 million euro turnover threshold presume the agreement to be anticompetitive. The Commission writes: “The Commission will also hold the view that where an agreement by its very nature is capable of affecting trade between Member States, for example, because it concerns imports and exports or covers several Member States, there is a rebuttable positive presumption that such effects on trade are appreciable when the turnover of the parties in the products covered by the agreement calculated as indicated in paragraphs 52 and 54 exceeds 40 million euro. In the case of agreements that by their very nature are capable of affecting trade between Member States it can also often be presumed that such effects are appreciable when the market share of the parties exceeds the 5 % threshold set out in the previous paragraph. However, this presumption does not apply where the agreement covers only part of a Member State.”
The restriction of competition could be on the object and/or in the effect – it’s not a cumulative but an alternative point. To discover it, the Commission, which due to fine anticompetitive practices, does an investigation applying the Double Appreciability Test (Voelk v Vervaecke Case, C-5/69): for the horizontal agreement the market shares cannot exceed 10 percent; for the vertical one the market share of either the party cannot exceed the 15 percent on their respective markets. This is also called De Minimis Notice doctrine and it is used to verify if the agreements has an appreciable effect on the Member States trade.
However the ECJ – in C-226/1, Expedia Inc. Case, par. 49 – changed its point of view, abandoning the double Appreciability Test. It stated that if the agreement has a restriction on the object there is a presumption so there isn’t the need to prove the market power: “Only if there are insufficient grounds for presuming an anti-competitive object does the application of Article 81(1) EC require proof that an agreement has actual anti-competitive effects. If, on the other hand, it is clear that the agreement in question has an anti-competitive object, then, according to settled case-law, actual proof of adverse effects on competition is unnecessary. It is then sufficient to show that the agreement is actually capable of preventing, restricting or distorting competition within the internal market.”
How the Commission have to decide if there is a restriction is an investigation which will be the topic of the next paragraph to where I cross reference: in this paragraph I want to explain the essential rules whose aim is to realize the effective competition system.
According to the second point of the article, all the agreements contained in the first part of the same article are automatically void: in fact it says that the Commission “shall” prohibit them differently from the last part of the article which says that for the other kind of behaviors the Commission “may” act consequently.
The reason why this happens is that article 101(3) provides a list of behaviors that – even though they appear to be anticompetitive – actually they increase and realize economic benefits: they are the exemptions. In these cases the Commission should verify the consumer benefits countervailing the pro-competitive and the anti-competitive effects of the agreement and verify if there are any barriers to enter the market.
4.2
Article 102 TFEU states: “Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States.
Such abuse may, in particular, consist in:
(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
(b) limiting production, markets or technical development to the prejudice of consumers;
(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.”
Differently from what we have earlier seen in Article 101 TFEU, where the subjects of the speech were essentially agreements between two undertakings, Article 102 regulates unilateral conducts.
Besides, it’s immediately noticed that the structure of the articles are different: while in Article 101 there are the exemptions, in Article 102 we cannot find any. That’s why by analogy we apply the objective justifications of the Article 101(3) also for the abuse of dominance position.
Article 102 TFEU describes the abuse of dominance position: in order to apply it, we must first understand how an undertaking – which is as I said supra an entity engaged in economic activity – could be in a dominant position.
So, when the Commission seeks to establish an infringement of Article 102 TFEU, it must show the following:
a) that an undertaking is dominant in a given market;
b) that it has abused its dominant position;
c) that the abuse has an effect on trade between the Member States;
d) that there aren’t any objective justification for the abuse.
The abuse of a dominant position is, therefore, the manifestation of an economic power that reduces efficiencies of competition.
As it has been stated in C- 27/76, United Brands v Commission: “The dominant position referred to in this article relates to a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by giving it the power to behave to an appreciable extent independently for its competitors, customers and ultimately of its consumers”.
The two features to identify it are the economic strength and the fact that it behaves independently on the market: that’s also why the undertaking becomes price-maker and it’s not price-taker anymore, because it can impose prices and the rules of the market as it wants abusing its strength.
Secondly it has to be underlined which is the market in which the undertaking is playing: in this case, the relevant market is identified whit the SSNIP Test which verifies the demands and supplies substitutability.
In Suiker Unie and Others v Commission, par. 371 the relevant market is given this way: “[f]or the purpose of determining whether a specific territory is large enough to amount to ‘a substantial part of the common market’ within the meaning of Article 86 of the Treaty the pattern and volume of the production and consumption of the said product as well as the habits and economic opportunities of vendors and purchasers must be considered.”
In addition to it, there has been settled a presumption of dominance.
In fact, C-62/86, AKZO v Commission, par. 60 says: “With regard to market shares the Court has held that very large shares are in themselves, and save in exceptional circumstances, evidence of the existence of a dominant position (judgment in Case 85/76 Hoffman-La Roche v Commission [1979] ECR 461, paragraph 41). That is the situation where there is a market share of 50% such as that found to exist in this case.”
After having gathered that the undertaking is dominant, it’s necessary to discover if it is abusing of it: in fact, Article 102 doesn’t bar being in a dominant position, but only its abuse.
“The concept of abuse is an objective concept relating to the behaviour of an undertaking in a dominant position which is such as to influence the structure of a market where, as a result of the very presence of the undertaking in question, the degree of competition is weakened and which, through recourse to methods different from those which condition normal competition in products or services on the basis of the transactions of commercial operators, has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition” as has been said in Hoffmann- La Roche case.
It means that the behaviour can be exploitative such as excessive pricing or exclusionary especially when it forecloses competitors, actual or potential, from the market.
One of the main forms of the abuse is manipulating the prices by applying bundling, predatory pricing, margin squeezes or refusal to supply.
The most difficult phenomenon is the one called predatory pricing.
In par. 70 and 71 of AKZO Case, the Court says: “[i]t follows that Article 86 prohibits a dominant undertaking from eliminating a competitor and thereby strengthening its position by using methods other than those which come within the scope of competition on the basis of quality. From that point of view, however, not all competition by means of price can be regarded as legitimate. Prices below average variable costs (that is to say, those which vary depending on the quantities produced) by means of which a dominant undertaking seeks to eliminate a competitor must be regarded as abusive. A dominant undertaking has no interest in applying such prices except that of eliminating competitors so as to enable it subsequently to raise its prices by taking advantage of its monopolistic position, since each sale generates a loss, namely the total amount of the fixed costs (that is to say, those which remain constant regardless of the quantities produced) and, at least, part of the variable costs relating to the unit produced. Moreover, prices below average total costs, that is to say, fixed costs plus variable costs, but above average variable costs, must be regarded as abusive if they are determined as part of a plan for eliminating a competitor. Such prices can drive from the market undertakings which are perhaps as efficient as the dominant undertaking but which, because of their smaller financial resources, are incapable of withstanding the competition waged against them. ”
So the AKZO test foresees that:
a) prizes below AVC are presumed to be predatory;
b) prizes above AVC but below ATC are not presumed predatory but are abusive if they are probed to be a plan to eliminate a competitor.
Predation means, thus, defacing prices and it “ought to be proscribed when it causes more efficient firms to exit or be excluded from the market. ”
William Baumol writes: “[t]here are three necessary conditions that must be satisfied before a price can legitimately be deemed to be predatory: […] First, the choice of that price must have no legitimate business purpose. Second, that price must threaten the existence or the entry of rivals that are at least as efficient as the firm tha has adopted the price at issue. Third, there must be a reasonable prospect of recoupment of at least whatever initial costs to firm F were entailed in the company’s adoption of the price in question.”
Coming back to Article 102 TFEU, I’ve said at the beginning of the paragraph that there are any expressed exemptions but it’s possible to deduce them by applying by analogy Article 101(3) TFEU.
In C- 209/10, Post Danmark A/S v Konkurrenceradet, the Court says in par. 41 and 42: “In particular, such an undertaking may demonstrate, for that purpose, either that its conduct is objectively necessary (see, to that effect, Case 311/84 CBEM [1985] ECR 3261, paragraph 27), or that the exclusionary effect produced may be counterbalanced, outweighed even, by advantages in terms of efficiency that also benefit consumers (Case C-95/04 P British Airways v Commission [2007] ECR I-2331, paragraph 86, and TeliaSonera Sverige, paragraph 76). In that last regard, it is for the dominant undertaking to show that the efficiency gains likely to result from the conduct under consideration counteract any likely negative effects on competition and consumer welfare in the affected markets, that those gains have been, or are likely to be, brought about as a result of that conduct, that such conduct is necessary for the achievement of those gains in efficiency and that it does not eliminate effective competition, by removing all or most existing sources of actual or potential competition.”
So, if the behavior seems to produce economic benefits and it seems to be indispensable for the consumers without leading to total elimination of competitors it could be not considered as restriction of competition.
4.3
One more Article who tends to prevent the system of undistorted competition is Article 107 TFEU:
“1. Save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.
2. The following shall be compatible with the internal market:
(a) aid having a social character, granted to individual consumers, provided that such aid is granted without discrimination related to the origin of the products concerned;
(b) aid to make good the damage caused by natural disasters or exceptional occurrences;
(c) aid granted to the economy of certain areas of the Federal Republic of Germany affected by the division of Germany, in so far as such aid is required in order to compensate for the economic disadvantages caused by that division. Five years after the entry into force of the Treaty of Lisbon, the Council, acting on a proposal from the Commission, may adopt a decision repealing this point.
3. The following may be considered to be compatible with the internal market:
(a) aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment, and of the regions referred to in Article 349, in view of their structural, economic and social situation;
(b) aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State;
(c) aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest;
(d) aid to promote culture and heritage conservation where such aid does not affect trading conditions and competition in the Union to an extent that is contrary to the common interest;
(e) such other categories of aid as may be specified by decision of the Council on a proposal from the Commission.”
This article prohibits Member States from granting economic advantages to firms.
In the first provision, there are some prohibitions: they are all the behaviors that are definitely incompatible with the internal market.
It prevents any aid granted by a Member State in the form of state resources such as subsides, investments, reduction of the taxes that for certain distorts or threatens to distort the game: the provision presents again an illustrative list of some of these.
In the last two provisions, instead, there are two different kind of exemptions: one mandatory (they shall be compatible) and one discretionary (they may be compatible): the former are objective justifications from the beginning, the latter have to be defined as well by the investigation of the Commission, which has to examine their benefits by effecting a balancing test, answering if the measure is necessary and proportionate.
Any way, in order to achieve the transparency – seen as one of the scope of competitions –Article 108 TFEU states that the aid must be notified at the Commission and then the Commission itself approves and so the State can implement it.
4.4
The last rule whose purpose is essentially to catch anti-competitive measures, protect the structure of the market and especially cover loopholes in the Treaty is the Merger Regulation (Council Regulation 139/2004) accompanied by the Commission Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings.
The Regulation prohibits mergers and acquisitions which would significantly reduce or distort competition and according to Article 21 it “shall apply to concentrations as defined in Article 3”, which are according to Article 3(1,2):
“1. A concentration shall be deemed to arise where a change of control on a lasting basis results from:
(a) the merger of two or more previously independent undertakings or parts of undertakings, or
(b) the acquisition, by one or more persons already controlling at least one undertaking, or by one or more undertakings, whether by purchase of securities or assets, by contract or by any other means, of direct or indirect control of the whole or parts of one or more other undertakings.
2. Control shall be constituted by rights, contracts or any other means which, either separately or in combination and having regard to the considerations of fact or law involved, confer the possibility of exercising decisive influence on an undertaking, in particular by:
(a) ownership or the right to use all or part of the assets of an undertaking;
(b) rights or contracts which confer decisive influence on the composition, voting or decisions of the organs of an undertaking.”
A Merger is constituted by two firms who form a third entity and cease to exist or when one firm takes over another entity which ceases to exist: in both these cases, the merging entities have to notify to the Commission according to Article 4 .
For this Regulation to apply is important to remember that the concentration ought to have a Community dimension and it happens when:
“2. A concentration has a Community dimension where:
(a) the combined aggregate worldwide turnover of all the undertakings concerned is more than EUR 5000 million; and
(b) the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than EUR 250 million,
unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State.
3. A concentration that does not meet the thresholds laid down in paragraph 2 has a Community dimension where:
(a) the combined aggregate worldwide turnover of all the undertakings concerned is more than EUR 2500 million;
(b) in each of at least three Member States, the combined aggregate turnover of all the undertakings concerned is more than EUR 100 million;
(c) in each of at least three Member States included for the purpose of point (b), the aggregate turnover of each of at least two of the undertakings concerned is more than EUR 25 million; and
(d) the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than EUR 100 million,
unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State.”
Some mergers may reduce competition in a market, usually by creating or strengthening a dominant player. The reason why they have to be examined is to prevent harmful effects on competition: if the annual turnover of the combined businesses exceeds the specified thresholds stated in Article 1, the proposed merger must be notified to the European Commission, which must examine it; below these thresholds, only the national competition authorities in the EU Member States may review the merger.
At this point it’s possible to underline the cooperation between the national authorities and the Commission: the Commission may also examine mergers which are referred to it from the national competition authorities of the Member States on the basis of a request by the merging companies or based on a request by the national competition authority itself but, besides, sometimes also the Commission may refer a case to the national competition authority of an EU Member State.
All proposed mergers notified to the Commission are examined to see if they would significantly impede effective competition in the EU: if they don’t, they are approved directly. If they do, and no commitments aimed at removing the impediment proposed by the merging firms, they must be prohibited to protect businesses and consumers from higher prices or a more limited choice of goods or services.
However, not all mergers, which significantly impede competition, are prohibited. Even if the European Commission finds that a proposed merger could distort competition, the parties may commit to taking action to try to correct this likely effect. In order to define it as incompatible, the Commission does the SIEC- test of the Article 2: it controls the respect of maintaining and developing effective competition, it studies the market position of the undertakings, the alternative available to suppliers and users, if there are any barriers to entry and so on: in order to verify it the Commission makes a comparison with the situation in absence of the transaction and checks the anticompetitive effects.
How the Commission should identify the anticompetitive effects is better established also in Article 22 of the Commission Guidelines:
“There are two main ways in which horizontal mergers may significantly impede effective competition, in particular by creating or strengthening a dominant position:
(a) by eliminating important competitive constraints on one or more firms, which consequently would have increased market power, without resorting to coordinated behavior (non-coordinated effects);
(b) by changing the nature of competition in such a way that firms that previously were not coordinating their behavior, are now significantly more likely to coordinate and raise prices or otherwise harm effective competition. A merger may also make coordination easier, more stable or more effective for firms which were coordinating prior to the merger (coordinated effects).”
5.
How EU competition policy and law promote effective competition? We’ve already seen which are the rules whose aim is to prevent undistorted competition.
The institution, which plays the most important role in this field, is the EU Commission: it’s seen as the guarding of the Treaties.
“In a procedure relating to the infringement of the EU competition rules, the Commission combines the functions of investigator and decision-maker.”
Commission’s powers were originally set out in Regulation 17/62 and then have been expanded by Regulation 1/2003, which only applies to Article 101 TFEU and 102 TFEU.
Its work is essentially divided in two steps: the first that is the Investigation part in which Commission gathers evidence to determine whether there has been an infringement or not and the second step is the adjudication and the decision that consists in declaring the anticompetitive behavior and in imposing the fine.
Applying this power, Commission has a large margin of discretion, especially thanks to the second regulation, which has established a strong cooperation between the National Competition Authorities of the Member States and the Commission itself consenting the NAC to apply directly Article 101 and 102 TFEU.
Investigation could be carried on by the Commission ex officio, or by complaint from a Member State or individuals (“1. Where the Commission, acting on a complaint or on its own initiative, finds that there is an infringement of Article 81 or of Article 82 of the Treaty, it may by decision require the undertakings and associations of undertakings concerned to bring such infringement to an end. For this purpose, it may impose on them any behavioral or structural remedies which are proportionate to the infringement committed and necessary to bring the infringement effectively to an end. Structural remedies can only be imposed either where there is no equally effective behavioural remedy or where any equally effective behavioural remedy would be more burdensome for the undertaking concerned than the structural remedy. If the Commission has a legitimate interest in doing so, it may also find that an infringement has been committed in the past.
2. Those entitled to lodge a complaint for the purposes of paragraph 1 are natural or legal persons who can show a legitimate interest and Member States.”) but also NAC can investigate on their own choice or for a complaint (The competition authorities of the Member States shall have the power to apply Articles 81 and 82 of the Treaty in individual cases. For this purpose, acting on their own initiative or on a complaint, they may take the following decisions:
– requiring that an infringement be brought to an end,
– ordering interim measures,
– accepting commitments,
– imposing fines, periodic penalty payments or any other penalty provided for in their national law.”)
The administrative enforcement procedure follows this structure:
a) Commission applies its investigation power requiring undertakings to hand over information (Article 18) and it interviews natural and legal person related to the infringement (Article 19(1)): in doing it, Commission can’t judge against fundamental rights standard even if there’s a derogation in Article 8 ECHR, which states that infringement of privacy are justified only if necessary;
b) Commission must notify the parties of the infringement without violating the right of hearing them or the right for them to defense;
c) Commission explains its decision and imposes fines not arbitrarily (Article 23).
Commission may also apply a leniency policy settled in Commission notice on immunity from fines and reduction of fines in cartel cases , which foresees that the undertaking that informs the Commission of the infringement obtains immunity from any fine and the one who helps the investigation may have a reduction of it.
In order to grant efficiency – as I stated supra – the Commission’s investigation is characterized by a margin of discretion in the sense that it can decide when to act but not how: Commission first must define the relevant market – as it’s been state in Commission Notice on the definition of the relevant market for the purpose of Community Competition Law in par. 25 or in C-6/72 Continental Can point 14 – and then it must verify the appreciable effects that undertaking behaviors have on competition applying all the rules stated supra (De minimis notice, double appreciability test, the presumptions and so on) but especially it must verify the economic benefits, the pass on consumers, the indispensability of the restriction, and it have to control whether there is no leading to total elimination of competitors and check if there are any exemption rules to apply.
So, summing up, “Commission has to gather all relevant facts, develop the basic theory of anticompetitive harm, specify the applicable test and select the appropriate econometric tools that would support its opinion”.
6.
Until now I’ve talked about the Commission, and it seems that it is the only EU institution granting effective competition.
Actually Commission should act under the regular control of the European Court of Justice that has the duty to check the real application of competition law: “[f]rom a constitutional point of view, judicial review can be described as an institutional concept defining the scope of intervention of the judiciary in relation to acts and decisions adopted by the administrative bodies of the EU. There is the idea that the Courts may not be invested with the power to review an administrative decision de novo but should nevertheless inquire as to the legality of the decision against a set of principles.”
“The exercise by the Commission of that discretion means that Courts should abstain from entering “into the merits of the Commission’s complex economic assessments or to substitute its own point of view for that of the institution”. Clearly, the Courts have been keen to highlight the fact that their power is not to review a case on its merits but to exercise an appellate jurisdiction over the findings and conclusions of an administrative body.”
Pursuant to Article 263 TFEU, ECJ may annul Commission decisions because of lack of competence, infringement of an essential procedural requirement, infringement of this Treaty or of any of its rule of law relating to its application, or misuse of powers.
“In particular, the Court could review (i) whether the econometric analyses were conducted in a transparent manner, (ii) whether the analyses essentially fit well with key market conditions and support the other elements of evidence in the file, and (iii) whether the Commission has adequately weighed the econometric evidence in support of its conclusions against competing models.”
So, generally, the Judicial Review can be used only to verify whether and when the Commission committed a manifest error of assessment: otherwise, Courts work would not be to review, but to enforce Competition law and that is not its aim.
“The principle of separation of powers guarantees the administrative body’s ability to act within the territory assigned to it by the Treaty. It explains that control of legality under Article 263 TFEU enables the Courts to annul the European Commission’s decisions, but not to substitute them. Competition enforcement is entrusted to the Commission, which act as investigator, prosecutor and decision- maker. The role of the Courts is to verify the legality of the contested measuretesting whether the information and evidence relied on by the Commission in its decision is sufficient to establish the existence of the alleged infringement.”
Furthermore victims of anti-competitive acts could seek for damages and so they can bring an action to the Court or claim for the impingement of their fundamental rights: these are two other different faces of the coin of the insurance of competition law.
7.
Whether competition policy means applying rules to make the market efficient, there is the need to reinforce this efficiency also by protecting the consumers who are the last “players” in the competition game.
Efficiency on this matter is assured by the following this steps:
a) lowing prices – when more people can afford to buy products, it encourages businesses to produce and boosts the economy in general;
b) improving quality of goods and services sold – to attract more customers and expand market share;
c) granting more choices – so consumers can select the product that offers the right balance between price and quality;
d) innovation.
Competition policy and Consumer policy generally pursue similar objectives and rely on different instruments to achieve them: while Competition law addresses – “horizontally – the relationship between firms preventing structural or behavioural patterns that would damage competition, Consumer Protection law generally addresses – “vertically – the relationship between enterprises and consumer in order to enable consumer’s choice to be effectively exercised. Consumer policy refers to actions taken by the government to provide and ensure the attainment of consumer rights. It takes into account consumer concerns, such as product patterns but, in particular, consumer protection has the aim to protect consumers from defective, dangerous or inferior goods, fraudulent and other unfair selling practices and at ensuring quality and safety, fair pricing and advertising.
All this regulations is a way to potentiate efficiency as well by maximizing consumers’ satisfaction.
8.
Finally it’s time to take stocks.
The aim of my investigation was to understand if EU Competition law is about effective and/or efficient competition.
Actually, the terms of effectiveness and efficiency, often used interchangeably as synonyms, reflect in fact two distinct concepts: effectiveness indicates the ability to achieve the set goal, while efficiency assesses the ability to do so using the minimum resources needed.
I think, after this investigation, that we cannot exclude one of them: EU Competition is about effective and efficient– or at least, it might be.
Concerning the effectiveness, the effective competition theory was proposed by John Maurice Clark under the name of “workable competition” and as I’ve tried to explain in all the paper it is a condition in which two or more companies seek the same business without collusion.
Besides, Markham thinks that “An industry may be judged to be workably competitive when, after the structural characteristics of its market and the dynamic forces that shaped them have been thoroughly examined, there is no clearly indicated change than can be effected through public policy measures that would result in greater social gains than social losses.”
Regarding the efficiency, instead, economics has been suggesting us that a system of perfect competition is an idealized market structure that achieves an efficient allocation of resources.
Only if the profit-maximizing quantity of output results in the equality between price and marginal cost then it is possible to achieve efficiency.
Economists generally distinguish between three types of efficiencies:
a) Allocative efficiency that is usually achieved when goods are allocated through the price system to those buyers who value them most;
b) Productive efficiency that is when a given level of output is produced by one firm at least cost or when inputs are producing the maximum possible output;
c) Dynamic efficiency that is realized when the production increases productivity and innovation over time.
“An efficient allocation of resources is achieved if it is not possible to increase society’s overall level of satisfaction by producing more of one good and less of another good. Such efficiency is achieved by a firm if the price of a good is equal to the marginal cost of production.”
I’ve long been through the assessment of the law: the effectiveness is still trying to be assured by the power of enforcement of the Commission (“As we have seen, discretionary powers grant the European Commission the ability to decide what is more convenient to achieve the Competition policy goals, by setting priorities and choosing the means and criteria by which the decision has to be reached”), by the fundamental rules of Competition stated in Article 101 and 102 TFEU and in EC Regulation 1/2003 – the Merger Regulation -, and also by the modernization of the law that has created a system of connection among the EU Commission and the NCA of the Member States with the specific aim to cooperate in order to grant the best system of perfect competition and to punish all the infringements.
This regulation “entrusted the national competition authorities with a key role in ensuring that the EU competition rules are applied effectively and consistently, in conjunction with the Commission.”
As concerns efficiency, many cases of law – especially Akzo, Post Danmark and TeliaSonera – have revolutionized the way in which Commission or the other authorities have to establish the infringement using purposeful types of tests or presumptions so it would be easier and faster to solve competition problems.
So, it’s clear that path that Competition policy has been treading is long and goodly enough.
Surely it’s possible to talk about effectiveness because, expecting to reach the objectives settled in the Treaty, the EU Commission and the NCA – under the regular inspection of the Court – are applying the Antitrust and other anti-competitive rules.
It’s also right to say that Competition is about efficiency, because, economically speaking, the aim of this policy is to grant a market where all companies in it could maximize their profits without imposing their own rules to the others and allowing all the firms to join the market destroying all the barriers to entry: all for the consumers protection and satisfaction.
This efficiency is improving thanks to the new assessment of competition law made by the Court and came into being by the Commission in order to apply it as soon as possible to the new cases.
Maybe it’s still early to claim a perfect, undistorted, effective and efficient system of competition: Commission has taken into account and already closed a few numbers of cases and the enforcement has to be improved strongly yet.
But in the end it doesn’t mean that the European Union is failing: in my opinion it has just to confirm and support its power and its concerning in the subject. And that’s because only ensuring that we Europeans abide by the rulescan realize an undistorted system of competition.
In doing so it encourages the entrepreneurial spirit and efficiency, increases the possibilities for consumer choice and helps to lower prices and improve quality.
