EC Competition Law

1
EC Competition Law

• An Introduction

2
EC Competition Law Its Base in the EU Treaty

• Article 2 establishing a common market
• Article 3(g) a system ensuring that
  competition in the internal market is not
  distorted
• Articles 81, 82, 86 and 87 and Merger Regulation

3
Two Fundamental Points

• EC Competition law has an ordoliberal foundation
  historically rather than a consumer welfare
  approach
• EC competition law is not completely autonomous
  from other Treaty policies
• E.g. A. 157(3) industrial policy
• Art 6 EC Environment

4
Why have a Government Policy to keep Markets
Competitive?

• There is a paradox that to get the benefits of a
  competitive market, a market characterised by
  undistorted competition, it is necessary for
  Governments to establish limits to legitimate
  commercial competition competition on the
  merits
• Markets that are unregulated tend towards cartels
  and monopolies

5
Competition Policy and Markets

• The purpose of EC competition law is to keep
  markets effectively or workably competitive. In
  legal terms undistorted This requires that
  competition authorities attempt to keep markets
  open to new competitors as well as offering some
  basic protections to existing competitors.
• Undistorted competition is meant to protect
  consumers from exploitation by cartels as well as
  exclusionary conduct by large firms.
• It presses firms to behave more efficiently.

6
Effective Competition and Efficiencies

• Allocative efficiencies
• Productive efficiencies
• Innovative efficiencies?

7
How does EC Competition Law Promote Effective
Competition?

• EC Competition law uses three basic tools
• a law vs abuse of dominant market power (Article
  82)
• a law vs cartels and other restrictive agreements
  (Article 81)
• and a merger control policy

8
The General Norms of EC Competition Law

• Article 82 prohibits abusive conduct by
  dominant firms
• Article 81 prohibits agreements which restrict
  competition agreements between competitors such
  as cartels and patent pools and agreements which
  are vertical such as distribution agreements and
  IPR licences.
• Merger Policy - only allows mergers which do not
  substantially impede competition differentiates
  between mergers between competitors BMG/Sony and
  vertical mergers AOL/Time Warner

9
Competition Tools Focus on the Extremes of
Commercial Conduct

• Art 82 Abuses of dominance. Achieving dominance
  by lawful means is acceptable
• Art 81 Agreements must appreciably restrict
  competition. Many restrictions necessary to
  business are not caught.
• Mergers only mergers that substantially impede
  competition are prohibited
• These leave wide margins to legitimate competition

10
The Structural Basis to EC Competition Law

• Underlying EC competition law are two principles
• (1) certain market structures (market shares)
  influence the conduct of competitors and the
  performance of the market as a whole, i.e. the
  structure/conduct/performance paradigm (Harvard)
  
• (2) structural analysis must be complemented by
  an analysis of the process (actual behaviour) in
  the particular market. (The Chicago School)

11
Market Structures

• Perfect competition
• Imperfect competition including non collusive
  oligopoly
• Oligopoly which is collusive
• Monopoly

12
Examples

• High market shares do not automatically equate to
  high market power. Actual competition, potential
  competition and barriers to entry a reality
  check.
• Oligoply. A concentrated market with few
  players. Is there actual competition or tacit
  coodination? E.g. roaming charges for mobile
  phones
• The process of competition on a market must be
  investigated and analysed, not assumed.

13
Article 82

• The prohibition of abusive conduct by dominant
  firms

14
Article 82 Abusive Conduct

• Prohibits conduct on the part of one or more
  undertakings which amounts to abuse of a dominant
  position in any market in the Common Market.
• Examples of abuse are
• Unfair pricing excessive or predatory pricing
• Refusals to give access, to supply, to licence
  IPRs or to give access to proprietary interface
  codes.
• Discriminatory pricing or dealing margin
  squeeze
• Tie-ins and exclusive contracts

15
Article 82 What are the preconditions of its
prohibition?

• The firm must be found to be dominant in a
  particular market. Once a firm achieves
  dominance, it is given by law a special
  responsibility not to further weaken competition
  by engaging in abusive conduct
• Achieving dominance itself is not unlawful. A
  firm can grow to dominance by lawful competition.
  Remaining dominant is not unlawful. Dominant
  firms may still compete on the merits but they
  must not use their dominance to compete
  abusively examples predatory pricing (AKZO)and
  exclusive contracts (Deutsche Telecoms)

16
Article 82 The Concept of Abuse

• Article 82 has embraced a theory of economic
  justice to limit the misuse of power by the
  powerful, e.g. to strike a particular balance
  between MNCs and SMEs.
• It protects the consumer by protecting existing
  competitors from abusive expulsion and new
  entrants in a market from abusive exclusion.
• The issue under current review is to what extent
  the competition authorities should have to prove
  not only a course of conduct which is abusive in
  form but also conduct which has actual adverse
  effects on consumer welfare

17
Article 82 Its three Main Constituent Elements

• (1) A concept of relevant market
• (2) A concept of dominance
• (3) A concept of commercial conduct which is an
  abuse of that dominance

18
(1)Defining a Relevant Market

• Choose the product of the target firm
• Ask what are its functions and are there there
  are any substitutes?
• Example handsets like iPods-iTunes
• Any substitutes? Mobile telephones?
• Geographic market.

19
Hilti An Example
Staple Gun
Cartridges
Nails
Or PAFS
20
One or Two Markets?

• Products in systems
• Consumables? Copiers printers
• Spare parts and maintenance?
• Operating systems and applications?
• Aftermarkets
• Telecoms wholesale and resale

21
Defining Dominance

• Position of Economic Strength
• Enabling the prevention of competition
• Power to behave independently
• Single Dominance and Collective Dominance
• Market Shares
• Barriers to entry
• See Section 4 of Discussion Paper

22
(2) Defining a Dominant Position

• (1) Ordinary dominance considerable market power
  but competitors exist in market
• (2) Exceptional dominance (super dominance or
  essential facility dominance)
• (i) economic monopoly, i.e i.e. no alternative
  technologies or products in market and
• (ii) the product or technology is an
  indispensable input or infrastructure to another
  product in an after-market.

23
MNC
SME
Commercial Solvents
Zoya
Raw Materials
Pharmaceutical Products
24
Defining Abuse

• Unfair pricing excessive or predatory pricing
• Refusals to supply, to licence IPRs or to give
  access to interface protocols to the prejudice
  of consumers.
• Discriminatory pricing or dealing discounts and
  margin squeeze
• Tie-ins and exclusive contracts
• But presupposes that firms are dominant!

25
Exploitive Abuses

• Excessive Prices
• Limiting Markets
• Tie-ins

26
Exclusionary Abuses

• Conduct that eliminates competition
• Continental Can
• Commercial Solvents
• Conduct that further weakens competition by using
  methods different from normal competition and has
  the effect of hindering existing competition or
  growth of that competition.
• Hoffman La Roche para 91
• Commission Discussion Paper section 5