Market Power in EU Antitrust Law 9781472561060, 9781841135281

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PREFACE Competition law disciplines the conduct of undertakings in the market, but not conduct pure and simple; it does so on the basis of the conduct’s potential effects on the market – that is, as long as the conduct is ‘significant for the market’. As Regulation 330/2010 shows us, the market power of undertakings that buy or sell products and services makes it possible to distinguish precisely the ‘economic’ and – as a result – legally significant from the insignificant; the harmful from the innocuous; the innocuous from the beneficial. For this reason, the central concern and the cornerstone of the antitrust and merger control rules is the creation or strengthening of market power (US Department of Justice & Federal Trade Commission (2006); Vickers (2006)). This is reflected by the fact that references to market power by the European Courts, Commission decisions and soft law have increased in recent years, from none in 1983 to 150 in 2006 (Lianos [2009] 60). According to paragraph 8 of the European Commission’s Guidelines on Horizontal Mergers of 2004, effective competition has different advantages for consumers. For this reason the Commission protects it, inter alia, through merger control, preventing ‘mergers that would be likely to deprive customers of these benefits by significantly increasing the market power of firms. By “increased market power” is meant the ability of one or more firms to profitably increase prices, reduce output, choice or quality of goods and services, diminish innovation, or otherwise influence parameters of competition.’ At paragraph 25 of the European Commission’s Guidelines on Article 101(3) of the Treaty on the Functioning of the European Union (TFEU) of 2004, we find that ‘[m]arket power is the ability to maintain prices above competitive levels for a significant period of time or to maintain output in terms of product quantities, product quality and variety or innovation below competitive levels for a significant period of time’. Paragraph 97 of the Commission’s Guidelines on Vertical Restraints of 2010 provides that ‘[m]arket power is the ability to maintain prices above competitive levels or to maintain output in terms of product quantities, product quality and variety or innovation below competitive levels for a not insignificant period of time’; while paragraph 98 states that it is within the power of an undertaking to fix a ‘higher price of its product’, which is effectively the same thing. Finally, paragraph 39 of the Guidelines on Horizontal Cooperation Agreements of 2011 provides that ‘[m]arket power is the ability to profitably maintain prices above competitive levels for a period of time or to profitably maintain output in terms of product quantities, product quality and variety or innovation below competitive levels for a period of time’; while paragraph 38 states that ‘it is when competitive constraints are insufficient to maintain prices, output, innovation, and product quality and variety at competitive levels that undertakings have market power within the meaning of Article 101(1)’, which amounts to the same thing. In general, it is assumed that, first, market power is a question of degree (variable according to the circumstances), and secondly, a small degree of market power is very common (it

vi Preface would only be absent in markets with perfect competition) and does not necessitate the intervention of the competition authorities. The economic and legal significance of the substantial elimination of effective competition (Article 101(3)(b) TFEU), the abuse of a dominant position (Article 102 TFEU) and the significant impediment of effective competition, in particular by the creation or strengthening of a dominant position (Regulation 139/2004 on the control of concentrations), is quite patent. However, the economic and legal importance of agreements between undertakings that restrict competition (eg Article 101(1) TFEU) is more difficult to pin down. In fact, it depends on who is making the assessment. Thus, a global authority would consider what happens in a single region of the world to be irrelevant; a continental authority views what happens in a single country as irrelevant, particularly a small one; a national authority has no interest in what happens in a single region, particularly a small one; and so on, down through regional, provincial and muni­ cipal authorities. Ultimately, we all see as important that which affects each one of us. At what point should antitrust law intervene? Does it help that different authorities must apply the rules depending on the proximity to the individual interests of those affected by restrictive agreements and abuses of market power? Why, with the same conduct (eg pricefixing), is the interest different depending on whether a cartel fixes the prices of essential foodstuffs in an entire country or the four local shops left in my area do it? At the end of the day, the question is whether the conduct as such, regardless of its ability to affect the market, should be pursued (regardless of who pursues it) or whether a specific quantitative limit must be established in order to apply the rules, and if so, at what level. But the filter will always be market power, ie the ability of conduct to alter market conditions in a sufficiently significant manner. This is the essential difference between the competition (antitrust) rules and those relating to unfair competition, which embody, on the one hand, the public (collective) interest, and, on the other, private (individual) interests. The public interest is in the market; the private interest is in the definition of the conduct as unfair and in the availability of actions to enable those affected to defend their interests in the courts (which, by the way, also has the indirect effect of influencing the prevalent conditions in the market). Given the relevance of market power in competition law, two fundamental questions arise: first, how is it assessed? Does the assessment depend on the rule being applied? As regards ‘how’, the assessment of market power must take place on a case-by-case basis, even with respect to block exemptions (in this case, a general rather than a specific situation will be analysed). With respect to whether the method of assessing varies according to the provision applied, this book will look at how the market power of undertakings has been examined in applying the different rules and will conclude that there are no major differences, except perhaps the specific ex ante perspective of merger control. The foregoing may appear to be an obvious statement that is not worth being proven, and perhaps this is the case; the problem is that in my view – as will be seen below – it is also obvious that there are only two relevant levels of market power in European competition law, and due to this fact I have decided to examine both questions in great detail. And so we come to the second crucial question: what is the relevant market power for the rules to be applied? Is it always the same, or are there different relevant thresholds, depending on which rule is applied? From the outset, it should be noted that there is not a single relevant degree or level of market power. So how many degrees or levels are there? Two, three, four? Even more? Here it will be concluded, as noted above, that there are only

Preface  vii two relevant levels of market power. This conclusion, which is based mainly on a reading of the relevant texts and systematic reasoning, also has a solid basis in competition policy: effectiveness in the application of the rules and the need for legal certainty lead us to rule out other possible levels, as will later be seen, after reviewing how the different relevant concepts of market power have been applied in relation to each provision. This analysis will, first, allow certain differences to be observed and highlight the need for greater consistency, and, secondly, show how, historically, market power has been evaluated, fundamentally on the basis of market share, potential competition, the countervailing power of demand, and so on. Nowadays, market power is assessed using very blunt tools. The starting point is to define the market in which such power is evaluated and the goal is to figure out, directly or indirectly, the power of the undertaking(s) being examined. The direct assessment is carried out by reference to market shares exclusively when these may reasonably be considered to represent the share of market power that corresponds to the undertaking(s) in question, which occurs – rarely – when we can reasonably define an ‘all or nothing’ market where that which is excluded clearly does not exert competitive pressure on that which is included. The indirect assessment is carried out using certain techniques that allow us to qualify the importance of market share either because of the inaccuracy of the market share to determine market power (because the market in question cannot be defined using ‘bright lines’ (Schmalensee [2011]), as ‘all or nothing’, ‘in or out’, ‘0/1’, without qualifications) or because the intrinsic nature of the market limits the importance of market share (for example, because entry into the market is easy and quick for other companies). However, is it possible to dream about a truly direct assessment of market power, a type of infallible thermometer that tells us the exact position of the undertaking being investigated? Sigmund Freud, the much vilified father of psychoanalysis, said that many of the ailments that he treated on the couch in his practice in Vienna for years with modest results would be treatable with drugs, once enough was known about the biochemical mechan­ isms that alter our psyche. At the present time it cannot be said that science has advanced sufficiently to make Freud’s prophecy come true, although the same idea could easily be applied to the assessment of market power: perhaps in the future the competition author­ ities will easily reach the conclusion that one or more undertakings have substantial market power, using entirely reliable econometric techniques, which, logically, will make their task much easier. The economists of the US Department of Justice and the Federal Trade Commission are constantly striving to find this panacea, but the closest they have come so far is the ‘Upward Pricing Pressure’ (UPP) to which they refer in their new Horizontal Merger Guidelines 2010. This cosy utopia does not, however, appear to be just around the corner, so I fear that we will all have to continue to observe our patients on the couches of our consulting rooms; in other words, we must continue to define markets and assess market power using less revolutionary procedures that are, nevertheless, tangible, despite their undoubted faults. In order to examine relevant market power in the application of the competition rules, I consider it both useful and necessary to study collective dominant positions, from all their different perspectives, like some illustrious predecessors (eg Petit [2007]). Useful, because the fact they are a ‘meeting point’ of the different rules allows us to make comparisons and draw parallels that help clarify matters; necessary, because this is a particularly problematic market structure in competition law.

viii Preface After this, and directly related to oligopolies, the two theoretical gaps in EU antitrust law will be examined, namely the inability of (i) the dominant position test (specifically, the merger control test under the former merger control regulation) to prevent so-called ‘unilateral effects’ in oligopolistic markets; and (ii) Articles 101 and 102 TFEU to put an end to tacit coordination. It is often said that the ‘substantial lessening of competition’ (SLC) test and its twin brother, the substantial impediment to effective competition’ (SIEC) test, are better than the traditional test for determining a dominant position, since they focus on the effects of a concentration in the market and on the reduction of competition between undertakings rather than on structural questions such as the market shares of the parties to the merger and the dominant position thresholds. It is claimed that the substantive assessment focuses fundamentally on whether prices will rise, as if the dominant position test did not do precisely this. In fact, the problem is, always, exceeding a given market power threshold (or elimination of a competition threshold, which, in practical terms, amounts to the same thing) since only then can there be negative effects on prices. Accordingly, however much we may want to distinguish between one test or another, ultimately we will always be referring to the same thing, not just in practice but also in legal and economic terms. The alleged difference between the dominant position test and the SLC/SIEC test is that the former contains a ‘blind spot’ or gap that makes it impossible to prohibit concentrations capable of producing unilateral price rises in oligopolistic markets that are not ‘tacitly collusive’, in the most commonly used economic jargon, or ‘tacitly coordinated’ in the legal terminology employed by the European Commission. But no such gap exists. The ‘non-collusive’ or ‘non-coordinated’ oligopoly produces competitive results, in principle. The effect of a concentration on this type of market – as on any market – is to alter the pre-existing equilibrium and, by definition (except, perhaps, in very special cases), reduce – a little or a lot – competition. This being the case, where do we place the relevant threshold of intervention? At a price rise of 5–10 per cent, so as to define the market through the hypothetical monopolist test? At a lower price rise? If the threshold of prohibition is set at a market power level that allows undertakings to increase prices by 5–10 per cent, then we are talking about an individual and instantaneous (one-shot) dominant position of each and every one of the members of the oligopoly (their jump to a new equilibrium at a price that is quite significantly higher must be understood in these terms). If we are referring to a lower increase, what figure should we use? What is the reference criterion? 1 per cent more? 2 per cent more? What should the percentage figure below 5 per cent be? The problem is that we do not know; as a result, it is better to fix it at the level of the ‘hypothetical monopolist’ and equate the threshold of intervention to that of the domin­ant position (again, although we are dealing with momentary individual dominant positions). Thus, if a dominant position is defined as enjoying ‘substantial market power’ – ie sufficient to make prices rise by between 5 and 10 per cent – then there is no gap and the dominant position test covers all ‘unilateral effects’ without any problem. However, if the ‘unilateral effects’ that trigger the prohibition of a concentration are produced, supposedly, below these thresholds (price increases of 5–10 per cent) and the new and more flexible SLC/SIEC test allows this, then we will have sacrificed business freedom in exchange for very limited anti-competitive effects in the market, the avoidance of which will not offset the damage done to the undertakings concerned.

Preface  ix In short, we are dealing with the old debate between business freedom on the one hand and the control of economic power on the other. The weighing up of both, but legal certainty too, suggest the need for a restrained interpretation of the test used in merger control, whatever this is. In this regard, the old dominant position test raised fewer question marks, although the new test, if correctly interpreted, should not lead to very different results from its predecessor. Competition authorities may wish to intervene, to benefit consumers and market fluidity, below the reasonable threshold of ‘substantial market power’, dominant position or the SLC/SIEC, but they should not do this. It is not acceptable to stretch the tolerance of the test or to try out new ‘theories of harm’ to protect ourselves from business concentration. We are much better protected through legal certainty. Thus, once again the SLC/SIEC test cannot and must not lead to different results, and the European Commission’s intervention will only be justified if we have an SLC/SIEC, ‘substantial [significant] market power’, or an individual or collective dominant position (or unilateral or non-coordinated effects, or coordinated effects) in the form of price increases of 5–10 per cent. As regards the second alleged ‘gap’, which would prevent using ex post Articles 101 and 102 TFEU to put an end to tacit coordination in non-competitive oligopolies, this has been closed, for better or for worse, by the European Court of Justice (ECJ) in CEWAL (2000) and by the General Court (GC) in Gencor (1999), Piau (2005) and Impala (2006) by applying Article 102. Thus, this latter provision may be used to tackle abuses of an oligopolistic dominant position, obviating the need to stretch the meaning of ‘agreement’ or ‘concerted practice’ under Article 101. Another issue dealt with in this book is whether ephemeral ‘substantial [significant] market power’ is irrelevant in competition terms. In my view, it is not, based on a reading of the relevant texts and also for logical reasons. In this regard, a distinction must be made between (i) the duration of a high market share, which, when ephemeral, may indicate that one or more undertakings are not in a dominant position (Article 102 TFEU), or do not significantly impede effective competition (Regulation 139/2004 on the control of concentrations), or do not eliminate competition in respect of a substantial part of the market (Article 101(3)(b) TFEU) – three things that, in my view, amount to the same thing; and (ii) the lasting nature of market power, which although it is ephemeral, if it is held or obtained, may create competition problems. Ex post, I do not consider that substantial but short-lived market power is always irrelevant for competition law purposes if it is used in an anti-competitive manner for whatever time it is held. At most, a lengthy duration will allow us to prove more convincingly the existence of market power. However, it is illogical to make the existence of market power conditional upon its being of a lasting nature. Ex ante, in merger control and with respect to an individual or collective dominant position, the lasting nature of potential ‘unilateral’ or ‘coordinated’ effects will only be of significance in determining whether there are reasons to intervene, because a possible non-lasting dominant position may effectively not justify the authorities intervening to prohibit a concentration. This book also evidences the conquest of competition law by economists. Perhaps there should be no complaints about this, given that jurists have been unable to advocate their views more forcibly, yet this conquest has had very dubious results as far as legal certainty is concerned. The criticism of the vilified per se infringements and the reliance, on the one hand, on a relativising analysis based on effects, in all fields, and, on the other, on ‘efficiencies’ to justify any prima facie anti-competitive conduct has undermined and reduced even

x Preface further the legal content of competition law, bringing it closer to economic divination. A ‘more economic approach’, yes please; exaggerations, no thanks. More specifically, as regards ‘efficiencies’ in European law, their rise to fame in recent years is a particularly good illustration of the shift just referred to. The model (since it already existed) of ‘European efficiencies’ is Article 101(3) TFEU, which was on the fringes – rather than part of the core – of the substantive test of the repealed Regulation 4064/89. No attention was paid to it until much later (and only then of a limited nature), during the heat of the debate prior to the adoption of Regulation 139/2004. Until then, the conditions imported from that provision were of no practical use, except for the condition of the non-elimination of effective competition – the only one of relevance, in fact, in the form of the old and new substantive test (dominant position/SLC or SIEC). The term in question was imported from the US to the EU in the field of merger control and first colonised Article 101(3) TFEU, a provision which dates back to 1957 and which, until the publication of the Guidelines on its application, had never been considered to contain any reference to efficiencies. Later, thanks to the architectural creativity of the European Commission, and unless the ECJ as planning authority corrects this, a pre-­ fabricated room has been added to the edifice known as Article 102 TFEU. Thus, imitating another well-known but different edifice – Article 101 TFEU – the European Commission has attached a strange ‘paragraph 3’ to Article 102 via ‘soft-soft law’ (a Guidance Paper, not even Guidelines). Going beyond the traditional ‘objective justification’, the new ‘Article 102(3)’ makes it possible for the Commission to give its blessing to ‘efficient abuses’ through the expeditious method of analysing the exception in a manner that theoretically takes place prior to the determination of the existence of an abuse, in exactly the same way as occurs in merger control. This is so because only if, logically speaking, the cart (the four conditions of ‘Article 102(3)’) is put before the horse (the existence, or otherwise, of abuse) can the Article 101 approach be used (in a distorted manner) with Article 102 TFEU. Thus, the European Commission uses the term ‘efficiencies’ to refer to quite different legal realities according to whether we are dealing with Article 101 TFEU, merger control or Article 102 TFEU, confusing everyone in the process. Talking of confusion, the use of the term ‘pro-competitive’ to refer to that which is economically or technically advantageous in European competition law (see, inter alia, the recent example of the Guidelines on Horizontal Cooperation of 2011 and, in the literature, Faull & Nikpay (2007) paras 3.398ff) has also helped to spread the use of imprecise terminology, which neither jurists nor economists are comfortable with. Thus, while in merger control it is acceptable to refer to an anti-competitive/pro-competitive dichotomy (with neutral in the middle) in the field of Article 101(3) TFEU, the typical use of these two adjectives is incorrect. In merger control, given the limited material scope of the substantive test, significant impediments to effective competition (SIEC) are not permitted, nor are good dominant positions, since if a concentration is authorised on the basis of its ‘efficiencies’ this is because the latter prevent an SIEC or a dominant position from arising. In other words, the efficiencies make a concentration genuinely pro-competitive or at least neutral. By contrast, under Article 101(3) TFEU, it is clear that there are ‘good’ restrictions on competition, which nonetheless are still restrictions, despite being economically or technically ‘efficient’. In this case, ultimately what is weighed up is not anti-competitive effects on the one hand and pro-competitive effects on the other (this could be examined under Article 101(1) TFEU), but rather anti-competitive effects (which are presumed to be negative) and

Preface  xi effects that are positive in economic or technical terms. Finally, Article 102 TFEU appears in this respect to be closer to merger control or Article 101(1) TFEU than to Article 101(3) TFEU, in the sense that the existence of efficiencies can only lead to the conclusion that there is no abuse but never that there can be good abuse, ie abuse whose negative features for competition are offset by other positive features. At the same time, largely without the help of economists, European competition law has become less systematic as a result of various actions of the Institutions that have blurred the meaning and the position of the rules, specifically as far as the market power of undertakings is concerned. The Commission’s decision in P&I Clubs II (1999) and the judgment of the GC in TACA (2002); the greater flexibility in practice – upwards or downwards – of the merger control test under Regulation 139/2004; the judgment of the GC in Piau (2005); the above-mentioned universal application of ‘efficiencies’ and the backdoor introduction – via soft law that, in theory, only binds the European Commission – of a highly creative and already mentioned ‘paragraph 3’ – letter b) included – under Article 102 TFEU (Discussion Paper (2005) and Guidance Paper (2009) of the Commission): these have all caused confusion by blurring the basic systematic differences between the rules relating to market power; reduced the level of legal certainty as regards the correct interpretation of the rules; and made it difficult for the uninitiated (including, no less, the judges in the ordin­ary courts and undertakings themselves) to know where they stand. The aim of this book is to try to straighten out the current muddle and suggest some practical solutions to make the rules easier to understand and apply, without making them either less strict than they are and without requiring the person called upon to interpret them (ultimately, a judge) to become an expert economist. The task is an arduous one, and the reader will judge whether my arguments are convincing and my goal has been achieved. Madrid, 1 July 2011

TABLE OF CASES JUDGMENTS OF THE COURT OF JUSTICE OF THE EUROPEAN COMMUNITIES/EUROPEAN UNION (ECJ)

ECJ Geitling I (1957): Judgment of the Court of 20 March 1957 in Case 2/1956, ‘Geitling’ Ruhrkohlen-Verkaufsgesellschaft mbH v High Authority of the European Coal and Steel Community ECR 3 (English Special Edition).............................................25 ECJ Chambre syndicale de la sidérurgie de l’est de la France (1960): Judgment of the Court of 15 July 1960 in Joined Cases 24/1958 and 34/1958, Chambre syndicale de la sidérurgie de l’est de la France and others v High Authority of the European Coal and Steel Community ECR 281 (English Special Edition).................................................59 ECJ De Geus v Bosch (1962): Judgment of the Court of 6 April 1962 in Case 13/1961, De Geus v Bosch ECR 89 (French Special Edition).................................................................... 5 ECJ Geitling II (1962): Judgment of the Court of 18 May 1962 in Case 13/1960, ‘Geitling’ Ruhrkohlen-Verkaufsgesellschaft mbh and others v High Authority ECR 165 (French Special Edition).............................................................. 26, 118, 128, 131 ECJ Netherlands v High Authority (1964): Judgment of the Court of 15 July 1964 in Case 66/63, Kingdom of the Netherlands v High Authority of the European Coal and Steel Community ECR 533 (English Special Edition) ..............................................119 ECJ Consten and Grundig (1966): Judgment of the Court of 13 July 1966 in Joined Cases 56 and 58-64/1966, Consten and Grundig v Commission of the European Communities ECR 299 (English Special Edition) ............................. 22, 24, 99–101, 103–4, 110, 112, 114, 264, 270, 283 ECJ Technique Minière v Maschinenbau Ulm (1966): Judgment of the Court of 30 June 1966 in Case 56/1965, Société Technique Minière v Maschinenbau Ulm GmbH ECR 337 (English Special Edition).........................................................................27 ECJ Völk (1969): Judgment of the Court of 9 July 1969 in Case 5/1969, Franz Völk v SPRL Éts J Vervaecke ECR 295..............................................................4, 7, 27, 29, 30–5, 44, 260 ECJ Walt Wilhelm (1969): Judgment of the Court of 13 February 1969 in Case 14/68, Walt Wilhelm and others v Bundeskartellamt ECR 1..........................................................99 ECJ Béguelin (1971): Judgment of the Court of 25 November in Case 22/1971, Béguelin Import Co v SAGL Import Export ECR 949............................................28, 37, 155 ECJ Cadillon (1971): Judgment of the Court of 6 May 1971 in Case 1/1971, Cadillon v Hoss ECR 351 (English Special Edition).................................................................. 7 ECJ Sirena (1971): Judgment of the Court of 18 February 1971 in Case 40/70, Sirena SRL v EDA SRL and others ECR 69............................................................................... 46 ECJ ICI (1972): Judgment of the Court of 14 July 1972 in Case 48/69, ICI v Commission of the European Communities ECR 619............................................ 148, 228, 235 ECJ Continental Can (1973): Judgment of the Court of 21 February 1973 in Case 6/1972, Europemballage Corporation and Continental Can Company Inc v Commission of the European Communities ECR 215................. 10, 18, 46, 64, 116–18, 141, 143, 148, 156, 225, 231, 243, 247, 248, 250, 254–60, 274

xviii  Table of Cases ECJ BRT/SABAM II (1974): Judgment of the Court of 21 March 1974 in Case 127/73, Belgische Radio en Televisie et société belge des auteurs, compositeurs et éditeurs v SV SABAM et NV Fonoir ECR 313..................................................................... 54 ECJ Centrafarm (1974): Judgment of the Court of 31 October 1974 in Case 16/74, Centrafarm BV and Adriaan de Peijper v Winthrop BV ECR 1183..................................149 ECJ ICI/Comercial Solvents (1974): Judgment of the Court of 6 March 1974 in Joined Cases 6/73 and 7/73, Istituto Chemioterapico Italiano SpA and Commercial Solvents Corporation v Commission of the European Communities ECR 223.......................148 ECJ Transocean Marine Paint Association (1974): Judgment of the Court of 23 October 1974 in Case 17/1974, Transocean Marine Paint Association v Commission of the European Communities ECR 1063.................................................................................... 11, 131 ECJ Frubo (1975): Judgment of the Court of 15 May 1975 in Case 71/74, Nederlandse Vereniging voor de fruit-en groentenimporthandel, Nederlandse Bond van grossiers in zuidvruchten en ander geimporteerd fruit (‘Frubo’) v Commission of the European Communities and Vereniging de Fruitunie ECR 205.........................................................112 ECJ General Motors (1975): Judgment of the Court of 13 November 1975 in Case 26/75, General Motors Continental NV v Commission of the European Communities ECR 1367..............................................................................................................................67 ECJ Kali + Salz I (1975): Judgment of the Court of 14 May 1975 in Joined Cases 19 and 20/74, Kali und Salz AG and Kali Chemie AG v Commission of the European Communities ECR 499 ..........................................................................................35, 99, 131 ECJ Suiker Unie (1975): Judgment of the Court of 16 December 1975 in Joined Cases 40–48, 50, 54–56, 111, 113 and 114/1973, Suiker Unie and others v Commission ECR 1663......................................21, 23, 149–50, 152, 154, 157, 228, 248, 273 ECJ Metro I (1977): Judgment of the Court of 25 October 1977 in Case 26/1976, Metro SB-Grossmärkte GmbH & Co KG v Commission of the European Communities ECR 1875............................................................................ 6, 42, 53, 103, 105, 108–9, 111, 116, 127, 141, 277 ECJ BP Nederland (1978): Judgment of the Court of 29 June 1978 in Case 77/77, Benzine & Petroleum BV (BP) v Commission of the European Communities ECR 1513..............................................................................................................67, 148, 239 ECJ Tepea (1978): Judgment of the Court of 20 June 1978 in Case 28/1977, Tepea BV v Commission of the European Communities ECR 1391................................................... 7 ECJ United Brands (1978): Judgment of the Court of 14 February 1978 in Case 27/1976, United Brands Company and United Brands Continental BV v Commission of the European Communities ECR 207........................................ 2, 10–11, 18, 33, 46, 54–5, 58, 64, 66, 115, 145, 258, 262, 275 ECJ BMW Belgium (1979): Judgment of the Court of 12 July 1979 in Joined Cases 32/1978, 36/1978, 82/1978, BMW Belgium v Commission of the European Communities ECR 2435.......................................................................................................28 ECJ Hoffmann-La Roche (1979): Judgment of the Court of 13 February 1979 in Case 85/1976, Hoffmann-La Roche & Co AG v Commission of the European Communities ECR 461.............................10–11, 15, 18, 46, 52–61, 66–7, 85, 115, 130, 150, 225, 228, 233, 243, 250, 254–55, 258, 265, 275 ECJ Hugin (1979): Judgment of the Court of 31 May 1979 in Case 22/1978, Hugin Kassaregister AB and Hugin Cash Registers Ltd v Commission of the European Communities ECR 1869.......................................................................................18, 27, 66–7

Table of Cases  xix ECJ Miller (1978): Judgment of the Court of 1 February 1978 in Case 19/1977, Miller International Schallplatten v Commission of the European Communities ECR 131........................................................................................................28, 34–5, 37, 260 ECJ Commission v Denmark (1980): Judgment of the Court of 27 February 1980 in Case 171/1978, Commission of the European Communities v Denmark ECR 447................ 59 ECJ Commission v France (1980): Judgment of the Court of 27 February 1980 in Case 168/1978, Commission of the European Communities v France ECR 347............... 59, 73 ECJ Commission v Italy (1980): Judgment of the Court of 27 February 1980 in Case 169/1978, Commission of the European Communities v Italy ECR 385.................................. 59 ECJ FEDETAB (1980): Judgment of the Court of 29 October 1980 in Joined Cases 209–215 and 218/78, Heintz van Landewyck SARL and others v Commission of the European Communities ECR 3125..................................... 21, 104, 106, 116, 131, 273 ECJ L’Oréal (1980): Judgment of the Court of 11 December 1980 in Case 31/1980, NV L’Oréal and SA L’Oréal v PVBA ‘De Nieuwe AMCK’ ECR 3775............................. 18, 46 ECJ Coöperatieve Stremsel- en Kleurselfabriek (1981): Judgment of the Court of 25 March 1981 in Case 61/1980, Coöperatieve Stremsel- en Kleurselfabriek v Commission of the European Communities ECR 851................................................113, 131 ECJ Züchner (1981): Judgment of the Court of 14 July 1981 in Case 172/80, Gerhard Züchner v Bayerische Vereinsbank ECR 2021................ 149–50, 225, 228, 231, 250 ECJ Coditel (1982): Judgment of the Court of 6 October 1982 in Case 262/81, Coditel SA (Compagnie générale pour la diffusion de la televisión) and others v Ciné-Vog Films SA and others ECR 1982, 3381...................................................................41 ECJ Nungesser (1982): Judgment of the Court of 8 June 1982 in Case 258/78, LC Nungesser KG and Kurt Eisele v Commission of the European Communities ECR 2015 .....................................................................................................................41, 112 ECJ AEG (1983): Judgment of the Court of 25 October 1983 in Case 107/82, Allgemeine Elektrizitäts-Gesellschaft AEG-Telefunken AG v Commission of the European Communities ECR 3151.......................................................................................34 ECJ GVL (1983): Judgment of the Court of 2 March 1983 in Case 7/1982, Gesellschaft zur Verwertung von Leistungsschutzrechten mbH (GVL) v Commission of the European Communities ECR 483.........................................................................................67 ECJ IAZ (1983): Judgment of the Court of 8 November 1983 in Joined Cases 96-102, 104, 105, 108 and 110/1982, NV IAZ International Belgium v Commission of the European Communities ECR 3369.......................................................................................24 ECJ Kerpen & Kerpen (1983): Judgment of the Court of 14 December 1983 in Case 319/1982, Société de vente de ciments et bétons de l’est SA v Kerpen & Kerpen GmbH und Co KG ECR 4173..................................................................................33 ECJ Michelin I (1983): Judgment of the Court of 9 November 1983 in Case 322/1981, NV Nederlandsche Banden Industrie Michelin v Commission of the European Communities ECR 3461................................................. 14–15, 46, 56–8, 61, 63–7, 247, 273 ECJ Pioneer (1983): Judgment of the Court of 7 June 1983 in Joined Cases 100–103/1980, SA Musique Diffusion française and others v Commission of the European Communities ECR 1825................................................................................. 7, 34 ECJ Hasselblad (1984): Judgment of the Court of 21 February 1984 in Case 86/1982, Hasselblad (GB) Limited v Commission of the European Communities ECR 883.................. 7 ECJ VBVB and VBBB (1984): Judgment of the Court of 17 January 1984 in Joined Cases 43/82 and 63/82, Vereniging ter Bevordering van het Vlaamse Boekwezen, VBVB,

xx  Table of Cases and Vereniging ter Bevordering van de Belangen des Boekhandels, VBBB, v Commission of the European Communities ECR 19...........................100, 113, 131 ECJ Binon (1985): Judgment of the Court of 3 July 1985 in Case 243/83, SA Binon & Cie v SA Agence et messageries de la presse ECR 2015....................28, 150, 228 ECJ CICCE (1985): Judgment of the Court of 28 March 1985 in Case 298/83, Comité des industries cinématographiques des Communautés européennes (CICCE) v Commission of the European Communities ECR 1105......................................................150 ECJ Ford-Werke (1985): Judgment of the Court of 17 September 1985 in Joined Cases 25 and 26/84, Ford-Werke AG and Ford of Europe Inc v Commission of the European Communities ECR 2725.............................................................................102, 104 ECJ Remia (1985): Judgment of the Court of 11 July 1985 in Case 42/84, Remia BV and others v Commission of the European Communities ECR 2545.............................41, 99 ECJ Metro II (1986): Judgment of the Court of 22 October 1986 in Case 75/84, Metro SB-Grossmärkte GmbH & Co KG v Commission of the European Communities ECR 3021............................................................................... 54, 116, 141, 273 ECJ Pronuptia (1986): Judgment of the Court of 28 January 1986 in Case 161/84, Pronuptia de Paris GmbH v Pronuptia de Paris Irmgard Schillgallis ECR 353......................................................................................................................38, 41–2 ECJ Ancides (1987): Judgment of the Court of 9 July 1987 in Case 43/85, Associazione nazionale commercianti internazionali dentali e sanitari (Ancides) v Commission of the European Communities ECR 3131.............................. 6, 116, 137, 260–1 ECJ BAT and Reynolds (1987): Judgment of the Court of 17 November 1987 in Joined Cases 142/84 and 156/84, British-American Tobacco Company Ltd (‘BAT’) and RJ Reynolds Industries Inc v Commission of the European Communities ECR 4487......................................................................................................................99, 158 ECJ Commission v Italy (1987): Judgment of the Court of 7 May 1987 in Case 184/1985, Commission of the European Communities v Italy ECR 2013................................ 59 ECJ Cooperativa Co-Frutta (1987): Judgment of the Court of 7 May 1987 in Case 193/1985, Cooperativa Co-Frutta Srl v Amministrazione delle finanze dello Stato ECR 2085.................................................................................................................................... 59 ECJ Verband der Sachversicherer (1987): Judgment of the Court of 27 January 1987 in Case 45/1985, Verband der Sachversicherer eV v Commission of the European Communities ECR 405 ......................................................................................................104 ECJ Alsatel (1988): Judgment of the Court of 5 October 1988 in Case 247/86, Société Alsacienne et Lorraine de Telecommunications et D’Electronique v SA Novasam ECR 5987......................................................................................................19, 150 ECJ Bodson (1988): Judgment of the Court of 4 May 1988 in Case 30/1987, Corinne Bodson v SA Pompes funèbres des régions libérées ECR 2479............55, 151–2, 155 ECJ Erauw-Jacquery (1988): Judgment of the Court of 19 April 1988 in Case 27/1987, SPRL Louis Erauw-Jacquery v La Hesbignonne SC ECR 1919.............................28 ECJ Wood Pulp I (1988): Judgment of the Court of 27 September 1988 in Joined Cases 89/85, 104/85, 114/85, 116/85, 117/85, and 125–129/85, A Ahlstrom Osakeyhtioe and others v Commission of the European Communities ...............................26 ECJ Ahmed Saeed (1989): Judgment of the Court of 11 April 1989 in Case 66/86, Ahmed Saeed Flugreisen and Silver Line Reisebüro GmbH v Zentrale zur Bekämpfung unlauteren Wettbewerbs eV (ZBUW) ECR 803 .............................. 13, 18, 152, 246, 248–50, 254

Table of Cases  xxi ECJ Belasco (1989): Judgment of the Court of 11 July 1989 in Case 246/1986, Belasco v Commission of the European Communities ECR 2117........................................33 ECJ Lucazeau (1989): Judgment of the Court of 13 July 1989 in Case C-110/88, François Lucazeau and others v SACEM and others ECR 2811......................................43, 277 ECJ Tournier (1989): Judgment of the Court of 13 July 1989 in Case 395/87, Ministère Public v Jean Louis Tournier ECR 1989, 2521 ....................................................43 ECJ Sandoz (1990): Judgment of the Court of 11 January 1990 in Case C-277/87, Sandoz v Commission of the European Communities ECR I-45.......................................107 ECJ Akzo (1991): Judgment of the Court of 3 July 1991 in Case C-62/86, Akzo Chemie BV v Commission of the European Communities ECR I-3359....................55–6, 64, 83, 137, 169–70, 281 ECJ Delimitis (1991): Judgment of the Court of 28 February 1991 in Case C-234/89, Stergios Delimitis v Henninger Bräu AG ECR I-935............................................25, 121, 141 ECJ Port of Genoa I (1991): Judgment of the Court of 10 December 1991 in Case C-179/1990, Merci convenzionali Porto di Génova SpA v Siderurgica Gabrielli SpA ECR I-5889...................................................................................................................13 ECJ Wood Pulp II (1993): Judgment of the Court of 31 March 1993 in Joined Cases C-89/85, C-104/85, C-114/85, C-116/85, C-117/85 and C-125/85 to C-129/85, Ahlström Osakeyhtiö and others v Commission of the European Communities ECR I-01307............................................................................226–8, 231, 235 ECJ Almelo (1994): Judgment of the Court of 27 April 1994 in Case C-393/92, Almelo v Ysselmij ECR I-1477 ................147, 151–5, 158–9, 185, 190, 232, 243, 245–6, 249 ECJ Banks & Co (1994): Judgment of the Court of 13 April 1994 in Case C-128/92 HJ Banks & Co Ltd v British Coal Corporation ECR I-01209...........................................117 ECJ Gøttrup-Klim (1994): Judgment of the Court of 15 December 1994 in Case C-250/1992, Gøttrup-Klim ea Grovvareforeninger v Dansk Landbrugs Grovvareselskab AmbA (DLG) ECR I-5641...........................................................42, 55, 260 ECJ La Crespelle (1994): Judgment of the Court of 5 October 1994 in Case C-323/93, Société civile agricole du Centre insemination de la Crespelle v Coopérative d’élevage et d’insemination artificielle du department de la Mayenne ECR I-5077...........153–4, 185, 243 ECJ BMW (1995): Judgment of the Court of 24 October 1995 in Case C-70/93, Bayerische Motorenwerke AG (BMW) v ALD Auto-Leasing D GmbH ECR I-3439...........33 ECJ Bosman (1995): Judgment of the Court of 15 December 1995 in Case C-415/93, Union royale belge des sociétés de football association ASBL v Jean-Marc Bosman ECR I-4921.................................................................................153, 154 ECJ DIP (1995): Judgment of the Court of 17 October 1995 in Joined Cases C-140/94, C-141/94 and C-142/94, DIP Spa v Comune di Bassano del Grappa and others ECR I-3227....................................................... 153, 159, 162–3, 184–5, 243, 246 ECJ Oude Luttikhuis (1995): Judgment of the Court of 12 December 1995 in Case C-299/1993, HG Oude Luttikhuis and others v Verenigde Coöperatieve Melkindustrie Coberco BA ECR I-4515.........................................................................25, 41 ECJ Publishers’ Association (1995): Judgment of the Court of 17 January 1995 in Case C-360/92 P, Publishers’ Association v Commission of the European Communities ECR I-23............................................................................9, 100, 107, 112–13 ECJ Port of Genoa II (1995): Judgment of the Court of 5 October 1995 in Case C-96/94, Centro Servizi Spediporto Srl v Spedizioni Marittima del Golfo Srl ECR I-2883.....................................................................................................153, 159, 162–3

xxii  Table of Cases ECJ RTE & ITP (1995): Judgment of the Court of 6 April 1995 in Joined Cases C-241/91 P and C-242/91 P, Radio Telefis Éireann (RTE) and Independent Television Publications Ltd (ITP) v Commission of the European Communities ECR I-743.............................................................................................................56, 115, 148 ECJ Tetra Pak II (1996): Judgment of the Court of 14 November 1996 in Case C-333/1994, Tetra Pak International SA v Commission of the European Communities ECR I-5951.................................................................. 56, 61–4, 149, 169, 281 ECJ Viho II (1996): Judgment of the Court of 24 October 1996 in Case C-73/95 P, Viho Europe BV v Commission of the European Communities ECR I-05457...................149 ECJ Ferriere Nord (1997): Judgment of the Court of 17 July 1997 in Case C-219/95 P, Ferriere Nord SpA v Commission of the European Communities ECR I-4411....................24 ECJ Sodemare (1997): Judgment of the Court of 17 June 1997 in Case C-70/95, Sodemare SA and others v Regione Lombardia ECR I-3395 .................................152–3, 159 ECJ Ladbroke (1997): Judgment of the Court of 11 November 1997 in Joined Cases C-359/95 and 379/95, Commission of the European Communities and French Republic v Ladbroke Racing Ltd ECR I-7007.........................................................................278 ECJ Blasi (1998): Judgment of the Court of 12 February 1998 in Case C-346/1995, Elisabeth Blasi v Finanzamt München I ECR I-481............................................................59 ECJ Javico (1998): Judgment of the Court of 28 April 1998 in Case C-306/1996, Javico International and Javico AG v Yves Saint Laurent Parfums SA (YSLP) ECR I-1983.....................................................................................................24, 28–9, 32, 34 ECJ Kali + Salz II (1998): Judgment of the Court of 31 March 1998 in Joined Cases C-68/94 and C-30/95, French Republic and Société commerciale des potasses et de l’azote (SCPA) and Entreprise minière et chimique (EMC) v Commission of the European Communities, I-1375................................. 10, 73, 81, 86, 147, 151, 155, 157, 165, 170, 179, 185–6, 196, 213, 216, 231, 242, 245 ECJ Somaco (1998): Judgment of the Court of 7 May 1998 in Case C-401/96, Somaco SARL v Commission of the European Communities ECR I-2587........................278 ECJ ANIC Partecipazioni (1999): Judgment of the Court of 8 July 1999 in Case C-49/92 P, Commission of the European Communities v ANIC Partecipazioni ECR I-4125.........................................................................................................................224 ECJ Bagnasco (1999): Judgment of the Court of 21 January 1999 in Case C-215/1996, Carlo Bagnasco v Banca Popolare di Novara soc coop Arl ECR I-135.........................32, 158 ECJ Hercules (1999): Judgment of the Court of 8 July 1999 in Case C-51/92 P, Hercules Chemicals NV v Commission of the European Communities ECR I-4235............224 ECJ Hüls (1999): Judgment of the Court of 8 July 1999 in Case C-199/92 P Hüls AG v Commission of the European Communities ECR I-04287..................................23, 224 ECJ Montecatini (1999): Judgment of the Court of 8 July 1999 in Case C-235/92 P, Montecatini SpA v Commission of the European Communities ECR I-4539................22, 24 ECJ CEWAL (2000): Judgment of the Court of 16 March 2000 in Joined Cases C-395/1996 P and C-396/1996 P, Compagnie Maritime Belge Transports, Compagnie Maritime Belge and Dafra-Lines A/S v Commission of the European Communities ECR I-1365 ........................................... ix, 49, 52, 78, 120–1, 146–59, 162–4, 173–5, 186–90, 199, 209, 225–7, 231, 243–9, 273, 276 ECJ Wouters (2002): Judgment of the Court of 19 February 2002 in Case C-309/99, JCJ Wouters and others v Algemene Raad van de Nederlandse Prde van Advocaten ECR I-1577..................................................................... 22, 41–2, 147, 156–7, 231, 233, 245

Table of Cases  xxiii ECJ Bayer (Adalat) (2004): Judgment of the Court of 6 January 2004 in Joined Cases C-2/01 P and C-3/01 P, Bundesverband der Arzneimittel-Importeure eV, European Association of Euro Pharmaceutical Companies (EAEPC), and Commission of the European Communities v Bayer AG ECR I-23....................................................................20 ECJ Tetra Laval (2005): Judgment of the Court of 15 February 2005 in Case C-12/03 P, Commission of the European Communities v Tetra Laval BV ECR I-987...................80, 186 ECJ Syfait (2005): Judgment of the Court of 31 May 2005 in Case C-53/03, Syfait and others v GlaxoSmithKline plc and others ECR I-4609..................................................51 ECJ Meca Medina (2006): Judgment of the Court of 18 July 2006 in Case C-519/04 P, David Meca-Medina and Igor Majcen v Commission of the European Communities ECR I-6991.............................................................................................................................22, 41 ECJ Impala (2008): Judgment of the Court of 10 July 2008 in Case C-413/06 P, Bertelsmann AG and Sony Corporation of America v Independent Music Publishers and Labels Association ECR I-4951..................................................10, 14, 81, 191, 236, 240, 243 ECJ T-Mobile Netherlands (2009): Judgment of the Court of 4 June 2009 in Case C-8/08, T-Mobile Netherlands and others v Raad van Bestuur van de Nederlandse Mededingingsantoriteit ECR I-4529....................................................................23, 223, 227 ECJ Glaxo (2009): Judgment of the Court of 17 September 2009 in Case C-182/08, GlaxoSmithKline Services Unlimited v Commission of the European Communities ECR 2009 I-8591..................................................................................................................41 ECJ Deutsche Telekom (2010): Judgment of the Court of 14 October 2010 in Case C-280/08 P, Deutsche Telekom AG v Commission of the European Communities ECR 2010 I-0000............................................................................................................56, 61 ECJ TeliaSonera (2011): Judgment of the Court of 17 February 2011 in Case C-52/09, Konkurrensverket v TeliaSonera AB ECR 2011 I-0000..................................................49, 50

JUDGMENTS OF THE GENERAL COURT (GC), FORMERLY COURT OF FIRST INSTANCE

GC Tetra Pak I (1990): Judgment of the Court of First Instance of 10 July 1990 in Case T-51/89, Tetra Pak Rausing SA v Commission of the European Communities ECR II-309 .....................................................62, 100, 112, 167, 248, 249–52, 254, 276, 281 GC BBC (1991): Judgment of the Court of First Instance of 10 July 1991 in Case T-70/1989, British Broadcasting Corporation and BBC Enterprises Ltd v Commission of the European Communities ECR II-535.............................................62, 148 GC Hercules (1991): Judgment of the Court of First Instance of 17 December 1991 in Case T-7/1989, SA Hercules Chemicals NV v Commission of the European Communities ECR II-1711...........................................................................................37, 228 GC Hilti (1991): Judgment of the Court of First Instance of 12 December 1991 in Case T-30/1989, Hilti AG v Commission of the European Communities ECR II-1439..........................................................................................................................56, 169 GC ITP (1991): Judgment of the Court of First Instance of 10 July 1991 in Case T-76/1989, Independent Television Publications Ltd v Commission of the European Communities ECR II-575.....................................................................................................62

xxiv  Table of Cases GC Rhône-Poulenc (1991): Judgment of the Court of First Instance of 24 October 1991 in Case T-1/1989, Rhône-Poulenc SA v Commission of the European Communities ECR II-867.....................................................................................................26 GC RTE (1991): Judgment of the Court of First Instance of 10 July 1991 in Case T-69/1989, Radio Telefis Éireann v Commission of the European Communities ECR II-485...........................................................................................................................62 GC Dansk Pelsdyravlerforening (1992): Judgment of the Court of First Instance of 2 July 1992 in Case T-61/89, Dansk Pelsdyravlerforening v Commission of the European Communities ECR II-1931..................................................................................42 GC Dutch Banks (1992): Judgment of the Court of First Instance of 17 September 1992 in Case T-138/89, Nederlandse Bankiersvereniging and Nederlandse Vereniging van Banken v Commission of the European Communities ECR II-2195..........11 GC Publishers’ Association (1992): Judgment of the Court of First Instance of 9 July 1992 in Case T-66/89, Publishers’ Association v Commission of the European Communities ECR II-1995 ........................................................................................100, 107 GC Vichy (1992): Judgment of the Court of First Instance of 27 February 1992 in Case T-19/91, Société d’hygiene dermatologique de Vichy v Commission of the European Communities ECR II-415..................................................................................108 GC Peugeot (1993): Judgment of the Court of First Instance of 22 April 1993 in Case T-9/92, Automobiles Peugeot SA and Peugeot SA v Commission of the European Communities ECR II-493..................................................................................106 GC Air France (TAT) (1994): Judgment of the Court of First Instance of 19 May 1994 in Case T-2/93, Société Anonyme à participation ouvriere compagnie nationale Air France v Commission of the European Communities ECR II-323................................. 71–3 GC CB and Europay (1994): Judgment of the Court of First Instance of 23 February 1994 in Joined Cases T-39/92 and T-40/92, Groupement des Cartes Bancaires ‘CB’ and Europay International SA v Commission of the European Communities ECR II-49.......................................................................................................99, 100, 112–13 GC Fiatagri and New Holland Ford (1994): Judgment of the Court of First Instance of 27 October 1994 in Case T-34/92, Fiatagri UK Ltd and New Holland Ford Ltd v Commission of the European Communities ECR II-905..........................................113 GC Matra Hachette (1994): Judgment of the Court of First Instance of 15 July 1994 in Case T-17/93, Matra Hachette SA v Commission of the European Communities ECR II-595 ..................................................................................... 38, 41, 99–100, 103, 108, 111–12, 128, 129, 259–62, 275 GC Parker Pen (1994): Judgment of the Court of First Instance of 14 July 1994 in Case T-77/1992, Parker Pen Ltd v Commission of the European Communities ECR II-549...........................................................................................................................28 GC Tetra Pak II (1994): Judgment of the Court of First Instance of 6 October 1994 in Case T-83/91, Tetra Pak v Commission of the European Communities ECR II-755......................................................................................... 56, 61–3, 149, 169, 281 GC Langnese Iglo (1995): Judgment of the Court of First Instance of 8 June 1995 in Case T-7/93, Langnese Iglo GmbH v Commission of the European Communities ECR II-1533..................................................9, 99–100, 108–9, 113, 117, 141, 252, 273, 281 GC Schöller (1995): Judgment of the Court of First Instance of 8 June 1995 in Case T-9/1993, Schöller Lebensmittel v Commission of the European Communities ECR II-1611...............................................................................................................117, 273

Table of Cases  xxv GC Solvay (1995): Judgment of the Court of First Instance of 29 June 1995 in Joined Cases T-30/1991, T-31/1991 and T-32/1991, Solvay SA v Commission of the European Communities ECR II-1775..................................................................................56 GC SPO (1995): Judgment of the Court of First Instance of 21 February 1995 in Case T-29/92, Vereniging van Samenwerkende Prijsregelende Organisaties in de Bouwnijverheid (SPO) and others v Commission of the European Communities ECR II-289..................................................................................... 7–8, 32, 99, 102, 109, 113 GC Tréfileurope (1995): Judgment of the Court of First Instance of 6 April 1995 in Case T-142/1989, Tréfileurope v Commission of the European Communities ECR II-791.................................................................................................................136, 252 GC Tréfilunion (1995): Judgment of the Court of First Instance of 6 April 1995 in Case T-148/89, Tréfilunion SA v Commission of the European Communities ECR II-1063.........................................................................................................................25 GC UIC (1995): Judgment of the Court of First Instance of 6 June 1995 in Case T-14/93, Union Internationale des Chemins de Fer (UIC) v Commission of the European Communities ECR II-1503...................................................................................... 133 GC Usines Gustave Boël (1995): Judgment of the Court of First Instance of 6 April 1995 in Case 142/1989, Usines Gustave Boël SA v Commission of the European Communities ECR II-867.....................................................................................................33 GC Casper Koelman (1996): Judgment of the Court of First Instance of 9 January 1996 in Case T-575/93, Casper Koelman v Commission of the European Communities ECR II-1.......................................................................................................113 GC CEWAL (1996): Judgment of the Court of First Instance of 8 October 1996 in Joined Cases T-24/93, T-25/93, T-26/93 and T-28/93, Compagnie Maritime Belge Transports SA and others v Commission of the European Communities ECR II-1201........................................................................................................ 157, 231, 243, 247 GC Métropole Télévision (1996): Judgment of the Court of First Instance of 11 July 1996 in Joined cases T-528/93, T-542/93, T-543/93 and T-546/93, Métropole Télévision and others v Commission of the European Communities ECR II-649..............113 GC Deutsche Bahn (1997): Judgment of the Court of First Instance of 21 October 1997 in Case T-229/1994, Deutsche Bahn AG v Commission of the European Communities ECR II-1689.......................................................................................18, 19, 66 GC SCK and FNK (1997): Judgment of the Court of First Instance of 22 October 1997 in Joined Cases T-213/95 and T-18/96, Stichting Certificatie Kraanverbedrijven (SCK) and Federatie van Nederlandse Kraanbedrijven (FNK) v Commission of the European Communities ECR II-1739..........................................................................99, 100 GC Kaysersberg (1997): Judgment of the Court of First Instance of 27 November 1997 in Case T-290/94, Kaysersberg SA v Commission of the European Communities ECR II-2137..................................................................................................................................72 GC Ladbroke (1997): Judgment of the Court of First Instance of 12 June 1997 in Case T-504/93, Tiercé Ladbroke SA v Commission of the European Communities ECR II-923.........................................................................................................................279 GC VGB (1997): Judgment of the Court of First Instance of 14 May 1997 in Case T-77/94, Vereniging van Groothandelaren in Bloemkwekerijprodukten and others v Commission of the European Communities ECR II-759.....................................................25 GC European Night Services (1998): Judgment of the Court of First Instance of 15 September 1998 in Joined Cases T-374/1994, T-375/1994, T-384/1994 and

xxvi  Table of Cases T-388/1994, European Night Services and others v Commission of the European Communities ECR II-3141...................................................................... 2, 7–8, 22, 24–5, 32, 36, 38–9, 41, 43, 112, 115 GC Sinochem (1998): Judgment of the Court of First Instance of 29 January 1998 in Case T-97/1995, Sinochem National Chemicals Import & Export Corporation v Council of the European Union ECR II-85..........................................................................59 GC Endemol (1999): Judgment of the Court of First Instance of 28 April 1999 in Case T-221/95, Endemol Entertainment Holding BV v Commission of the European Communities ECR II-1229..........................................................................................................83 GC Eurofer (1999): Judgment of the Court of First Instance of 11 March 1999 in Case T-136/94, Eurofer ASBL v Commission of the European Communities ECR II-263.........117 GC Gencor (1999): Judgment of the Court of First Instance of 25 March 1999 in Case T-102/1996, Gencor Ltd v Commission of the European Communities ECR II-753........................................................................ix, 26, 73, 78, 82–3, 147, 151, 157, 163, 165, 169–70, 186–90, 198–9, 231–6, 242 GC Irish Sugar (1999): Judgment of the Court of First Instance of 7 October 1999 in Case T-228/97, Irish Sugar plc v Commission of the European Communities ECR II-2969..............................................................52, 56, 62, 149, 154, 157–8, 231–2, 278 GC Kesko OY (1999): Judgment of the Court of First Instance of 15 December 1999 in Case T-22/1997, Kesko Oy v Commission of the European Communities ECR II-3775........................................................................................... 10, 80, 186, 248, 271 GC Thyssen (1999): Judgment of the Court of First Instance of 11 March 1999 in Case T-141/1994, Thyssen Stahl AG v Commission of the European Communities ECR II-347...................................................................................................................26, 117 GC Bayer (Adalat) (2000): Judgment of the Court of First Instance of 26 October 2000 in Case T-41/1996, Bayer AG v Commission of the European Communities ECR II-3383.........................................................................................................................20 GC CNSD (2000): Judgment of the Court of 30 March 2000 in Case T-513/93, Consiglio Nazionale degli Spedizionieri Doganali v Commission of the European Communities ECR II-1807.................................................................................................278 GC Volkswagen (2000): Judgment of the Court of First Instance of 6 July 2000 in Case T-62/1998, Volkswagen AG v Commission of the European Communities ECR II-2707................................................................................. 2, 7–8, 14, 29, 31–4, 43, 45 GC Amministrazione Autonoma dei Monopoli di Stato (AAMS) (2001): Judgment of the Court of First Instance of 22 November 2001 in Case T-139/98, Amministrazione Autonoma dei Monopoli di Stato (AAMS) v Commission of the European Communities ECR II-3413..................................................................................57 GC Métropole Télévision (2001): Judgment of the Court of First Instance of 18 September 2001 in Case T-112/99, Métropole Télévision (M6) and others v Commission of the European Communities ECR II-2459...................................22, 38, 41–2 GC Airtours (2002): Judgment of the Court of First Instance of 6 June 2002 in Case T-342/99, Airtours plc v Commission of the European Communities ECR II-2585..................................................... 72–3, 78, 85, 90, 93, 100, 146, 156, 158, 163, 165, 172, 181, 188–91, 199, 210–14, 218, 223, 239 GC FEFC (2002): Judgment of the Court of First Instance of 28 February 2002 in Case T-86/95, Compagnie générale maritime and others v Commission of the European Communities ECR II-1011............................................................ 9, 100, 110, 113

Table of Cases  xxvii GC TAA (2002): Judgment of the Court of First Instance of 28 February 2002 in Case T395/94, Atlantic Container Line and others v Commission of the European Communities ECR II-875..................................................................... 24, 36, 53, 123, 141, 252, 255–7, 262, 265, 270–6, 280, 286 GC Métropole Télévision (2002): Judgment of the Court of First Instance of 8 October 2002 in Joined Cases T-185/00, T-216/00, T-299/00 and T-300/00, Métropole Télévision SA (M6) and others v Commission of the European Communities ECR II-3805.........................................................................................................................12 GC Schneider (2002): Judgment of the Court of First Instance of 22 October 2002 in Case T-310/01, Schneider Electric SA v Commission of the European Communities ECR II-4071.....................................................................................50, 72, 100 GC Shaw (2002): Judgment of the Court of First Instance of 21 March 2002 in Case T-131/99, Shaw and others v Commission of the European Communities ECR II-2023.......................................................................................................................107 GC Tetra Laval (2002): Judgment of the Court of First Instance of 25 October 2002 in Case T-5/02, Tetra Laval BV v Commission of the European Communities ECR II-4381..................................................................50, 72–3, 81, 86, 89, 100, 122–3, 195 GC ARD (2003): Judgment of the Court of First Instance of 30 September 2003 in Case T-158/00, ARD v Commission of the European Communities ECR II-3825..............72 GC British Airways (2003): Judgment of the Court of First Instance of 17 December 2003 in Case T-219/99, British Airways plc v Commission of the European Communities ECR II-5917...................................................................................53–4, 57, 86 GC FETTCSA (2003): Judgment of the Court of First Instance of 19 March 2003 in Case T-213/00, CMA CGM and others v Commission of the European Communities ECR II-913...................................................................................................8, 9 GC Michelin (2003): Judgment of the Court of First Instance of 30 September 2003 in Case T-203/01, Manufacture française des pneumatiques Michelin v Commission of the European Communities ECR II-4071........................................................................86 GC TACA (2003): Judgment of the Court of First Instance of 30 September 2003 in Joined Cases T-191/98 and T-212/98–T-214/98, Atlantic Container Line AB and others v Commission of the European Communities, II-3275...................53–4, 169–70, 233, 255–6, 262, 270, 274, 276, 280 GC Van den Bergh Foods (2003): Judgment of the Court of First Instance of 23 October 2003 in Case T-65/98, Van den Bergh Foods Ltd v Commission of the European Communities ECR II-2641..........................................................................100 GC Verband der freien Rohrwerke (2003): Judgment of the Court of First Instance of 8 July 2003 in Case T-374/00, Verband der freien Rohrwerke and others v Commission of the European Communities ECR 2003, II-2275........................................177 GC EDP SA (2005): Judgment of the Court of First Instance of 21 September 2005 in Case T-87/05, Energias de Portugal SA v Commission of the European Communities ECR II-3745...................................................................................................72 GC Piau (2005): Judgment of the Court of First Instance of 26 January 2005 in Case T-193/02, Piau v Commission of the European Communities ECR II-209........................................................................... ix, xi, 156–7, 231, 233, 236, 243 GC Glaxo (2006): Judgment of the Court of First Instance of 27 September 2006 in Case T-168/01, GlaxoSmithKline Services v Commission of the European Communities ECR II-2969...................................................................................................41

xxviii  Table of Cases GC Impala (2006): Judgment of the Court of First Instance of 13 July 2006 in Case T-464/04, Independent Music Publishers and Labels Association v Commission of the European Communities ECR II-2289.................................... ix, 14, 81, 172, 179, 186–7, 191–3, 216, 227, 231, 236, 239–43, 245 GC O2 (2006): Judgment of the Court of First Instance of 2 May 2006 in Case T-328/2003, O2 (Germany) GmbH & Co OHG v Commission of the European Communities ECR II-1231.............................................................................................22, 24 GC Microsoft (2007): Judgment of the Court of First Instance of 17 September 2007 in Case T-201/04, Microsoft Corp v Commission of the European Communities ECR II-3601.............................................................................................................19, 56, 62 GC Wanadoo (2007): Judgment of the Court of First Instance of 30 January 2007 in Case T-340/03, France Télécom SA v Commission of the European Communities ECR II-521..............................................................................................................................54, 86 GC Deutsche Telekom (2008): Judgment of the Court of First Instance of 10 April 2008 in Case T-271/03, Deutsche Telekom AG v Commission of the European Communities ECR II-477...............................................................................................56, 61  GC NVV (2009): Judgment of the Court of First Instance of 7 May 2009 in Case T-151/05, NVV and others v Commission of the European Communities ECR..................19 GC CEAHR (Richemont) (2010): Judgment of the General Court of 15 December 2010 in Case T-427/08, CEAHR v European Commission ECR 2010 II-0000.............15, 19 GC Ryanair (2010): Judgment of the General Court of 6 July 2010 in Case T-342/07, Ryanair v European Commission ECR 2010 II-0000....................................................65, 84 GC Tomra (2010): Judgment of the General Court of 9 September 2010 in Case T-155/06, Tomra Systems and others v European Commission ECR 2010 II-0000....... 56–7 GC EMC (2010): Judgment of the General Court of 12 May 2010 in Case T-432/05, EMC Development AB v European Commission ECR II-0000........................240 GC Astra Zeneca (2010): Judgment of the General Court of 1 July 2010 in Case T-321/05, AstraZeneca AB and others v European Commission ECR II-0000..........46–7, 56 Other EU Court Decisions Opinion 1/61 (1961): Opinion of the Court of 13 December 1961 in Case 1/61 concerning the Amendment of Article 65 of the Treaty establishing the European Coal and Steel Community ECR 243 (English Special Edition).......................................117 Decisions Commission decision Dyestuffs (1969): decision 69/243/EEC of 24 July 1969 in Case Dyestuffs [1969] OJ L217/11.....................................................................................235 Commission decision Continental Can (1971): decision 72/21/EEC of 9 December 1971 in Case Continental Can Company [1972] OJ L7/25...........................................46, 64 Commission decision FN-CF (1971): decision 71/222/EEC of 28 May 1971 in Case FN-CF [1971] OJ L134/6....................................................................................................132 Commission decision Henkel/Colgate (1971): decision 72/41/EEC of 23 December 1971 in Case Henkel/Colgate [1972] OJ L14/14..........................................................49, 138 Commission decision Cimbel (1972): decision 72/474/EEC of 22 November 1972 in Case Cimbel [1972] OJ L303/24..............................................................................21, 103

Table of Cases  xxix Commission decision Davidson Rubber (1972): decision 72/237/EEC of 9 June 1972 in Case Davidson Rubber [1972] OJ L143/31...................................................................143 Commission decision MAN-Saviem (1972): decision 72/88/EEC of 17 January 1972 in Case Man-Saviem [1972] OJ L31/21......................................................................... 131, 142 Commission decision Light Paper (1972): decision 72/291/EEC of 27 July 1972 in Case Papier Mince (Light Paper) [1972] OJ L182/24...................................126, 132, 143 Commission decision Raymond-Nagoya (1972): decision 72/238/EEC of 9 June 1972 in Case Raymond Nagoya (IV/26.813) [1972] OJ L43/39...................................................... 26 Commission decision European Sugar Industry (1973): decision 73/109/EEC of 2 January 1973 in Case European Sugar Industry [1973] OJ L140/17.............................................................................................149, 157, 245–6, 248 Commission decision Kali + Salz (1973): decision 74/17/EEC of 21 December 1973 in Case Kali und Salz [1974] OJ L19/22....................................................................... 131 Commission decision Transocean Marine Paint Association I (1973): decision 80/184/EEC of 21 December 1973 in Case Transocean Marine Paint Association I [1974] OJ L19/18.................................................................................................................................. 131 Commission decision Bayer/Gist Brocades (1975): decision 76/172/EEC of 15 December 1975 in Case Bayer-Gist Brocades [1976] OJ L30/13....................... 21, 102, 132 Commission decision Bomée (1975): decision 75/781/EEC of 21 November 1975 in Case Bomée [1975] OJ L329/30.......................................................................................... 131 Commission decision IFTRA Aluminium (1975): decision 75/497/EEC of 15 July 1975 in Case IFTRA Aluminium [1975] OJ L228/3.........................................................131 Commission decision Rank-Sopelem (1975): decision 75/76/EEC of 20 December 1974 in Case Rank-Sopelem [1975] OJ L29/20..................................................................... 131 Commission decision UNIDI I (1975): decision 75/498/EEC of 17 July 1975 in Case UNIDI I [1975] OJ L228/17......................................................................................261 Commission decision United Reprocessors (1975): decision 75/248/EEC of 23 December 1975 in Case United Reprocessors [1976] OJ L51/7.......................132–3, 135 Commission decision Reuter/Basf (1976): decision 76/743/EEC of 26 July 1976 in Case Reuter/BASF [1976] OJ L254/40....................................................................41, 277 Commission decision ABG/BP (1977): decision 77/327/EEC of 19 April 1977 in Case ABG/BP (IV/28.841) [1977] OJ L117/1.....................................................66, 148, 239 Commission decision Campari (1977): decision 78/253/EEC of 23 December 1977 in Case Campari [1978] OJ L70/69....................................................... 26, 30, 109, 113, 129 Commission decision De Laval-Stork I (1977): decision 77/543/EEC of 25 July 1977 in Case De Laval-Stork I [1977] OJ L215/11................................................................. 131, 138 Commission decision GEC-Weir Sodium Circulators (1977): decision 77/781/EEC of 23 November 1977 in Case GEC-Weir Sodium Circulators [1977] OJ L327/26.......122, 142–3 Commission decision Gerofabriek (1977): decision 77/66/EEC of 22 December 1976 in Case Gerofabriek [1977] OJ L16/8...................................................................................... 131–3 Commission decision Penneys (1977): decision 78/195/EEC of 23 December 1977 in Case Penneys [1978] OJ/19.............................................................................................30 Commission decision Vacuum Interrupters I (1977): decision 77/160/EEC of 20 January 1977 in Case Vacuum Interrupters I [1977] OJ L48/32.........................135, 143 Commission decision Centraal Bureau voor de Rijwielhandel (1978): decision 78/59/EEC of 2 December 1977 in Case Centraal Bureau voor de Rijwielhandel [1978] OJ L20/18...........................................................................................................................131

xxx  Table of Cases Commission decision Centraal Stikstof Verkoopkantoor (1978): decision 78/732/EEC of 20 July 1978 in Case Centraal Stikstof Verkoopkantoor [1978] OJ L242/15............113, 131 Commission decision FEDETAB (1978): decision 78/670/EEC of 20 July 20 1978 in Case FEDETAB [1978] OJ L224/29..............................................................104, 106, 131 Commission decision Jaz-Peter II (1978): decision 78/194/EEC of 23 December 1977 in Case Jaz-Peter (II) [1978] OJ L61/17................................................................................. 132 Commission decision SNPE-LEL (1978): decision 78/571/EEC of 12 June 1978 in Case SNPE-LEL [1978] OJ L191/41....................................................................................... 129 Commission decision Sopelem-Vickers (1978): decision 78/251/EEC of 21 December 1977 in Case Sopelem-Vickers [1978] OJ L70/47............................................................................ 131 Commission decision Beecham/Parke Davis (1979): decision 79/298/EEC of 17 January 1979 in Case Beecham/Parke Davis [1979] OJ L70/11..................................135 Commission decision Rennet (1979): decision 80/234/EEC of 5 December 1979 in Case Rennet [1980] OJ L51/19..........................................................................107, 113, 131 Commission decision Distillers/Victuallers (1980): decision 80/789/EEC of 22 July 1980 in Case The Distillers Company Ltd [1980] OJ L233/43............................................30 Commission decision Industrieverband Solnhofener Natursteinplatten (1980): decision 80/1074/EEC of 16 October 1980 in Case Industrieverband Solnhofener Natursteinplatten [1980] OJ L318/32................................................................................... 7, 32 Commission decision Krups (1980): decision 80/489/EEC of 17 April 1980 in Case Krups [1980] OJ L120/26.....................................................................................................30 Commission decision National Sulphuric Acid Association I (1980): decision 80/917/EEC of 9 July 1980 in Case National Sulphuric Acid Association [1980] OJ L260/24...............................................................................................63, 106–7, 132, 143 Commission decision Vacuum Interrupters II (1980): decision 80/1332/EEC of 11 December 1980 in Case Vacuum Interrupters II [1980] OJ L383/1............................135 Commission decision GVL (1981): decision 81/1030/EEC of 29 October 1981 in Case GVL [1981] OJ L370/49........................................................................................57, 67 Commission decision Langenscheidt/Hachette (1981): decision 82/71/EEC of 17 November 1981 in Case Langenscheidt/Hachette [1982] OJ L39/25....................128, 133 Commission decision Michelin I (1981): decision 81/969/EEC of 7 October 1981 in Case Bandengroothandel Frieschebrug BV/NV Nederlandsche Banden-Industrie Michelin (Michelin) [1981] OJ L353/33..................................................................14, 56, 64 Commission decision VBBB/VBVB (1981): decision 82/123/EEC of 25 November 1981 in Case VBBB/VBVB [1982] OJ L54/36...................................................................131 Commission decision Flat Glass in Italy (1981): decision 81/881/EEC of 28 September 1981 in Case Flat Glass in Italy [1981] OJ L326/32..................................131 Commission decision Amersham/Buchler (1982): decision 82/742/EEC of 29 October 1982 in Case Amersham/Buchler [1982] OJ L314/34....................................131 Commission decision British Leyland (1982): decision 82/379/EEC of 29 October 1982 in Case BL (British Leyland) [1982] OJ L207/11.......................................................66 Commission decision Carbon Gas Technologie (1983): decision 83/669/EEC of 8 December 1983 in Case Carbon Gas Technologie [1983] OJ L376/17............................133 Commission decision Ford-Werke (1983): decision 83/560/EEC of 16 November 1983 in Case Ford-Werke AG [1983] OJ L327/31.............................................................102 Commission decision International Energy Agency (1983): decision 83/671/EEC of 12 December 1983 in Case International Energy Agency [1983] OJ L376/30.............126, 132

Table of Cases  xxxi Commission decision Murat (1983): decision 83/619/EEC of 5 December 1983 in Case Murat [1983] OJ L348/20...........................................................................................30 Commission decision Rockwell/Iveco (1983): decision 83/390/EEC of 13 July 1983 in Case Rockwell/Iveco [1983] OJ L224/19.........................................................................131 Commission decision Saba II (1983): decision 83/672/EEC of 21 December 1983 in Case Saba II [1983] OJ L376/41.............................................................................127, 131 Commission decision Schlegel/CPIO (1983): decision 83/622/EEC of 6 December 1983 in Case Schlegel/CPIO [1983] OJ L351/20.................................................................26 Commission decision SMM&T (1983): decision 83/666/EEC of 5 December 1983 in Case SMM&T [1983] OJ L376/1...........................................................................126, 133 Commission decision VW/MAN (1983): decision 83/668/EEC of 5 December 1983 in Case VW/MAN [1983] OJ L376/11.......................................................................128, 132 Commission decision Aluminium—Imports from Eastern Europe (1984): decision 85/206/EEC of 19 December 1984 in Case Aluminium imports from Eastern Europe [1985] OJ L92/1.......................................................................................................................131 Commission decision Arbed/Cockerill-Sambre (1984): decision 84/317/EEC of 28 May 1984 in Case Arbed/Cockerill-Sambre [1984] OJ L163/37....................................119 Commission decision BPCL/ICI (1984): decision 84/387/EEC of 19 July 1984 in Case BPCL/ICI [1984] OJ L212/1.............................................................................131, 134 Commission decision Carlsberg (1984): decision 84/381/EEC of 12 July 1984 in Case Carlsberg [1984] OJ L207/26.....................................................................................131 Commission decision Flat Glass (Benelux) (1984): decision 84/388/EEC of 23 July 1984 in Case Flat Glass in Benelux [1984] OJ L212/13......................................................49 Commission decision Synthetic Fibres (1984): decision 84/380/EEC of 4 July 1984 in Case Synthetic Fibres [1984] OJ L207/17..........................................104, 122–3, 133, 142 Commission decision IBM (1984): decision 84/233/EEC of 18 April 1984 in Case IBM Personal Computer [1984] OJ L188/24.......................................................................30 Commission decision Mecaniver/PPG (1984): decision 85/78/EEC of 12 December 1984 in Case Mecaniver/PPG [1985] OJ L35/54.................................................................54 Commission decision Milchförderungsfonds (1984): decision 85/76/EEC of 7 December 1984 in Case Milchförderungsfonds [1985] OJ/L 35/35.................................33 Commission decision Nuovo CEGAM (1984): decision 84/191/EEC of March 1984 in Case Nuovo CEGAM [1984] OJ L99/29................................................................132, 138 Commission decision Peroxides (1984): decision of 23 November 1984 in Case Peroxide Products [1985] OJ L35/1....................................................................................131 Commission decision UNIDI II (1984): decision 84/588/EEC of 23 November 1984 in Case UNIDI II [1984] OJ L322/10................................................................................261 Commission decision Uniform Eurocheques (1984): decision 85/77/EEC of 10 December 1984 in Case Uniform Cheques [1985] OJ L35/43...........112–13, 126, 132 Commission decision Wood Pulp (1984): decision 85/202/EEC of 19 December 1984 in Case Wood Pulp [1984] OJ L85/1.........................................................................228 Commission decision Sole distribution agreements for whisky and gin (1985): decision 85/562/CE of 1 December 1985 in Case Sole distribution agreements for whisky and gin [1985] OJ L369/19.....................................................................................131 Commission decision BP/Kellogg (1985): decision 85/560/EEC of 2 December 1985 in Case BP/Kellog [1985] OJ L369/6..................................................................................131 Commission decision Breeders’ rights: roses (1985): decision 85/561/EEC of

xxxii  Table of Cases 13 December 1985 in Case Breeders’ rights: roses [1985] OJ L369/9........................................ 7 Commission decision ECS/Akzo (1985): decision 85/609/EEC of 14 December 1985 in Case ECS/Akzo [1985] OJ L374/1.......................................................................................64 Commission decision Grundig I (1985): decision 85/404/EEC of 10 July 1985 in Case Grundig I [1985] OJ L233/1.....................................................................127, 132–3 Commission decision London Cocoa Terminal Market Association Ltd (1985): decision 85/564/EEC of 13 December 1985 in Case London Cocoa Terminal Market Association Ltd [1985] OJ L369/28.........................................................................31 Commission decision London Coffee Terminal Market Association Ltd (1985): decision 85/565/EEC of 13 December 1985 in Case London Coffee Terminal Market Association Ltd [1985] OJ L369/31.........................................................................31 Commission decision London Rubber Terminal Market Association Ltd (1985): decision 85/566/EEC of 13 December 1985 in Case London Rubber Terminal Market Association Ltd [1985] OJ L369/34.........................................................................31 Commission decision London Sugar Futures Market Ltd (1985): decision 85/563/EEC of 13 December 1985 in Case London Sugar Futures Market Ltd [1985] OJ L369/25...............................................................................................................31 Commission decision P&I Clubs I (1985): decision 85/615/EEC of 16 December 1985 in Case P&I Clubs I [1985] OJ L376/2..........................................................132, 166–7 Commission decision Villeroy & Boch (1985): decision 85/616/EEC of 16 December 1985 in Case Villeroy & Boch [1985] OJ L376/15.................................................................... 30 Commission decision Irish Banks (1986): decision 86/507/EEC of 30 September 1986 in Case Irish Banks’ Standing Committee (IV/31.362) [1986] OJ L295/28...............31 Commission decision Italian Banks (ABI) (1986): decision 87/1053/EEC of 12 December 1986 in Case Italian Banks’ Association [1987] OJ L43/51..........32, 126, 132 Commission decision Belgian Banks (1986): decision 87/13/EEC of 11 December 1986 in Case Association Belge des Banques [1987] OJ L7/27..................................126, 132 Commission decision Boussois/Interpane (1986): decision 87/123/EEC of 15 December 1986 in Case Boussois/Interpane [1986] OJ L50/30............................127, 132 Commission decision ENI/Montedison (1986): decision 86/398/EEC of 23 April 1986 in Case ENI/Montedison [1986] OJ L230/1...............................................131, 134, 273 Commission decision Optical Fibres (1986): decision 86/405/EEC of 14 July 1986 in Case Optical Fibres [1986] OJ L236/30.................................................. 132, 135, 139, 143 Commission decision GAFTA Soya Bean Meal Futures Association (1986): decision 87/44/EEC of 10 December 1986 in Case GAFTA Soya Bean Meal Futures Association [1987] OJ L19/18..............................................................................................31 Commission decision London Grain Futures Market (1986): decision 87/45/EEC of 10 December of 1986 in Case London Grain Futures Market [1987] OJ L19/22..............31 Commission decision London Potato Futures Association Ltd (1986): decision 87/46/EEC of 10 December 1986 in Case London Potato Futures Association Ltd [1987] OJ L19/26.................................................................................................................31 Commission decision Mitchell Cotts/Sofiltra (1986): decision 87/100/EEC of 17 December 1986 in Case Mitchell Cotts/Sofiltra [1987] OJ L41/31..............................131 Commission decision Petroleum Exchange of London Ltd (1986): decision 87/2/EEC of 4 December 1986 in Case Petroleum Exchange of London Ltd [1987] OJ L3/27..........31 Commission decision Vifka (1986): decision 86/499/EEC of 30 September 1986 in Case Vifka [1986] OJ L291/46............................................................................................133

Table of Cases  xxxiii Commission decision X/Open Group (1986): decision 87/69/EEC of 15 December 1986 in Case X/Open Group [1987] OJ L35/36.........................................................126, 133 Commission decision Yves Rocher (1986): decision 87/14/EEC of 17 December 1986 in Case Yves Rocher [1987] OJ L8/49..........................................................................131, 139 Commission decision London Meat Futures Exchange Ltd (1986): decision 87/47/EEC of 10 December 1986 in Case London Meat Futures Exchange Ltd [1987] OJ L19/30.................................................................................................................31 Commission decision BBI/Boosey & Hawkes (1987): decision 87/500/EEC of 15 December 1986 in Case BBI/Boosey & Hawkes [1986] OJ L286/36..................................56 Commission decision Computerland (1987): decision 87/407/EEC of 13 July 1987 in Case Computerland [1987] OJ L222/12..........................................................................63 Commission decision De Laval-Stork II (1987): decision 88/110/EEC of 22 December 1987 in Case De Laval-Stork II [1988] OJ L59/32.......................................................................131 Commission decision Enichem/ICI (1987): decision 87/3/EEC of 4 December 1986 in Case Enichem/ICI [1987] OJ L5/13................................................................132, 139, 273 Commission decision Eurofix-Bauco/Hilti (1987): decision 88/138/EEC of 22 December 1987 in Case Eurofix-Bauco/Hilti [1988] OJ L65/19...................................57 Commission decision Internationale Dentalschau (1987): decision 87/509/EEC of 18 September 1987 in Case Internationale Dentalschau [1987] OJ L293/58....................133 Commission decision Olivetti/Canon (1987): decision 88/88/EEC of 22 December 1987 in Case Olivetti/Canon [1988] OJ L52/51.........................................................132, 139 Commission decision Rich Products/Jus-Rol (1987): decision 88/143/EEC of 22 December 1987 in Case Rich Products/Jus-Rol [1988] OJ L69/21................................30 Commission decision Sandoz (1987): decision 87/409/EEC of 13 July 1987 in Case Sandoz [1987] OJ L222/28.................................................................................................107 Commission decision AGR/Unipart (1987): decision 88/84/EEC of 22 December 1987 in Case AGR/Unipart [1988] OJ L45/34............................................................................131 Commission decision Bayer/BP Chemicals (1988): decision 88/330/EEC of 5 May 1988 in Case Bayer/BP Chemicals [1988] OJ L150/35...............................................131, 273 Commission decision BBC/Brown Boveri (1988): decision 88/541/EEC of 11 October 1988 in Case BBC/Brown Boveri [1988] OJ L301/68.................................................127, 133 Commission decision BPB Industries (1988): decision 89/22/EEC of 5 December 1988 in Case British Plasterboard Industries plc (BPB) [1989] OJ L10/50.........................57 Commission decision Continental/Michelin (1988): decision 88/555/EEC of 11 October 1988 in Case Continental/Michelin [1988] OJ L305/33...................14, 126, 133 Commission decision Charles Jourdan (1988): decision 89/94/EEC of 2 December 1988 in Case Charles Jourdan [1989] OJ L35/31........................................................127, 131 Commission decision Decca Navigator System (1988): decision 89/113/EEC of 21 December 1988 in Case Decca Navigator System [1989] OJ L43/27.................................................................................................57, 131, 248, 265–6 Commission decision Delta Chemie/DDD (1988): decision 88/563/EEC of 13 October 1988 in Case Delta Chemie/DDD [1988] OJ L309/34..........................127, 133 Commission decision Hudson Bay/Dansk Pelsdryavlerforening (1988): decision 88/587/EEC of 28 October 1988 in Case Hudson Bay/Dansk Pelsdyravlerforening [1988] OJ L316/43..............................................................................................................131 Commission decision IVECO/Ford (1988): decision 88/469/EEC of 20 July 1988 in Case IVECO/Ford [1988] OJ L230/39................................................................................131

xxxiv  Table of Cases Commission decision London European/Sabena (1988): decision 88/589/EEC of 4 November 1988 in Case London European/Sabena [1988] OJ L317/47............................56 Commission decision Magill/TV Guide (1988): decision 89/205/EEC of 21 December 1988 in Case TV Guide/ITP/BBC & RTE [1989] OJ L78/43........................................................................................... 62, 66–7, 148, 209, 237 Commission decision Napier Brown/British Sugar (1988): decision 88/518/EEC of 18 July 1988 in Case Napier Brown/British Sugar [1988] OJ L284/41.........................56, 64 Commission decision Publishers’ Association—‘Net Book Agreements’ (1988): decision 89/44/EEC of 12 December 1988 in Case Publishers’ Association— ‘Net Book Agreements’ [1989] OJ L22/12..................................................................107, 112 Commission decision Service Master (1988): decision 88/604/EEC of 14 November 1988 in Case Service Master [1988] OJ L332/38........................................................127, 133 Commission decision Tetra Pak I (BTG Licence) (1988): decision 88/501/EEC of 26 July 1988 Tetra Pak I (BTG licence) [1988] OJ L272/27.................... 18, 57, 62, 131, 266 Commission decision Transocean Marine Paint Association IV (1988): decision 88/635/EEC of 2 December 1988 in Case Transocean Marine Paint Association IV [1988] OJ L351/40, L378/45.........................................................................................131 Commission decision Flat Glass (1988): decision 89/93/EEC of 7 December 1988 in Case Flat Glass [1989] OJ L33/44......................................... 150, 157–8, 231, 246, 248–9 Commission decision APB (1989): decision 90/33/EEC of 14 December 1989 in Case APB [1990] OJ L18/35................................................................................................30 Commission decision Dutch Banks (1989): decision 89/512/EEC of 19 July 1989 in Case Nederlandse Banken [1989] OJ L253/1......................................................32, 126, 132 Commission decision Concordato Incendio (1989): decision 90/25/EEC of 20 December 1989 in Case Concordato Incendio [1990] OJ L15/25........................126, 132 Commission decision National Sulphuric Acid Association II (1989): decision 1989/408/EEC of 9 June 1989 in Case National Sulphuric Acid Association II [1989] OJ L190/22.....................................................................................................126, 132 Commission decision TEKO (1989): decision 90/22/EEC of 20 December 1989 in Case Teko [1990] OJ L13/34.........................................................................................62, 131 Commission decision UIP (1989): decision 89/467/EEC of 12 July 1989 in Case UIP [1989] OJ L226/25......................................................................................130, 132, 143 Commission decision Alcatel Space/ANT Nachrichtentechnik (1990): decision 90/46/EEC of 12 January 1990 in Case Alcatel Space/ANT Nachrichtentechnik [1990] OJ L32/19................................................................................................................131 Commission decision Cekacan (1990): decision 90/535/EEC of 15 October 1990 in Case Cekacan [1990] OJ L299/64..................................................................................133 Commission decision Soda Ash/ICI (1990): decision 91/300/EEC of 19 December 1990 in Case Soda Ash/ICI [1991] OJ L152/40.....................................................56, 62, 209 Commission decision Soda Ash/Solvay (1990): decision 91/2999/EEC of 11 July 1990 in Case Soda Ash/Solvay [1991] OJ L152/21................................................56, 62, 209 Commission decision KBS/Goulds/Lowara/ITT (1990): decision 91/38/EEC of 12 December 1990 in Case KSB/Goulds/Lowara/ITT [1991] OJ L19/25..........................133 Commission decision Metaleurop (1990): decision 90/363/EEC of 26 June 1990 in Case Metaleurop SA [1990] OJ L179/41.........................................................................54 Commission decision Moosehead/Whitbread (1990): decision 90/186/EEC of 23 March 1990 in Case Moosehead/Whitbread [1990] OJ L100/32.................................131

Table of Cases  xxxv Commission decision Aérospatiale/MBB (1991): decision of 25 February 1991 in Case Aérospatiale/MBB [1991] OJ C59/1.......................................................................73 Commission decision Aérospatiale-Alenia/De Havilland (1991): decision of 25 February 1991 in Case Aérospatiale-Alenia/De Havilland [1991] OJ C59/1.......................................................................................................71–3, 84, 90, 123 Commission decision Alcatel/AEG Kabel (1991): decision of 18 December 1991 in Case Alcatel/AEG Kabel [1992] OJ L356/1.............................................................95, 184 Commission decision Alcatel/Telettra (1991): decision 91/251/EEC of 12 April 1991 in Case Alcatel/Telettra [1991] OJ L122/48........................................ 83, 85, 90, 93, 95 Commission decision Arbed/Usinor Sacilor (Europrofil) (1991): decision 91/515/EEC of 9 September 1991 in Case Arbed/Usinor Sacilor (Europrofil) [1991] OJ L281/17..........119 Commission decision AT&T/NCR (1991): decision of 18 January 1991 in Case AT&T/NCR (IV/M.0050) [1991] OJ C16/1........................................................................73 Commission decision Courtaulds/SNIA (1991): decision of 19 December 1991 in Case Courtaulds/SNIA (IV/M.133) [1991] OJ C333/1......................................................91 Commission decision Digital/Kienzle (1991): decision of 22 February 1991 in Case Digital/Kienzle [1991] OJ C56/1...................................................................................83, 85 Commission decision Digital/Philips (1991): decision of 2 September 1991 in Case Digital/Philips [1991] OJ C235/1..................................................................................83, 85 Commission decision Eirpage (1991): decision 91/562/EEC of 18 October 1991 in Case Eirpage [1991] OJ L306/22........................................................................................132 Commission decision Eridania/ISI (1991): decision of 30 July 1991 in Case Eridania/ISI [1991] OJ C204..................................................................................................... 90 Commission decision Fiat Geotech/Ford New Holland (1991): decision of 8 February 1991 in Case Fiat Geotech/Ford New Holland [1991] OJ C118/1...................85 Commission decision IATA Cargo Agency Programme (1991): decision 91/481/EEC of 30 July 1991 in Case IATA Cargo Agency Programme [1991] OJ L258/29.................................................................................................................... 126–7 Commission decision IATA Passenger Agency Programme (1991): decision 91/480/EEC of 30 July 1991 in Case IATA Passenger Agency Programme [1991] OJ L258/18........................................................................................................ 126–7 Commission decision Lucas/Eaton (1991): decision of 9 December 1991 in Case Lucas/Eaton [1991] OJ C328/1....................................................................................... 90–1 Commission decision Lyonnaise des Eaux Dumez/Brochier (1991): decision of 11 July 1991 in Case Lyonnaise des Eaux Dumez/Brochier [1991] OJ C188/1...................73 Commission decision Magneti Marelli/CEAC (1991): decision 91/403/EEC of 29 May 1991 in Case Magneti Marelli/CEAC [1991] OJ L222/38.....................................94 Commission decision Mannesmann/Boge (1991): decision of 23 September 1991 in Case Mannesmann/Boge (IV/M.134) [1991] OJ C265........................................................... 91 Commission decision Mannesmann/VDO (1991): decision of 13 December 1991 in Case Mannesman/VDO (IV/M.164) [1992] OJ C88/1................................................86, 95 Commission decision Metallgesellschaft/Safic Alcan (1991): decision of 8 November 1991 in Case Metallgesellschaft/Safic Alcan (IV/M.146) [1991] OJ C300/1......................91 Commission decision Pechiney/Usinor-Sacilor (1991): decision of 24 June 1991 in Case Pechiney/Usinor-Sacilor (IV/M.0097) [1991] OJ C175/1..........................................86 Commission decision Scottish Nuclear/1991): decision 91/329/EEC of 30 April 1991 in Case Scottish Nuclear [1991] OJ L178/31.......................................................................132

xxxvi  Table of Cases Commission decision SIPPA (1991): decision 91/128/EEC of 15 February 1991 in Case Sippa [1991] OJ L060/19...........................................................................................133 Commission decision Tetra Pak II (Elopak) (1991): decision 92/163/EEC of 24 July 1991 in Case Tetra Pak II (Elopak) [1992] OJ L72/1.......................................56, 62 Commission decision Tetra Pak/Alfa Laval (1991): decision 91/535/EEC of 19 July 1991 in Case Tetra Pak/Alfa-Laval [1991] OJ L290/35..............................83, 86, 90 Commission decision TNT/Canada Post (1991): decision of 2 December 1991 in Case TNT/Canada Post, DBP Postdienst, La Poste, PTT Post & Sweden Post (IV/M.102) [1991] OJ C322, 1............................................................................................85 Commission decision Varta/Bosch (1991): decision 91/595/EEC of 31 July 1991 in Case Varta/Bosch (IV/M.012) [1991] OJ L320/26.......................................................184 Commission decision Viag/Continental Can (1991): decision of 6 June 1991 in Case Viag/Continental Can (IV/M.0081) [1991] OJ C156................................................93 Commission decision Viag/EB-Brühl (1991): decision of 19 December 1991 in Case Viag/EB-Brühl (IV/M.139) [1991] OJ C333..............................................................91 Commission decision Yves Saint Laurent Parfums (1991): decision 92/33/EEC of 16 December 1991 in Case Yves Saint Laurent Parfums [1992] OJ L12/24...............127, 133 Commission decision 1990 World Cup (1992): decision 92/521/EEC of 27 October 1992 in Case 1990 World Cup [1992] OJ L326/31............................................................133 Commission decision ABB/Brel (1992): decision of 16 May 1992 in Case ABB/Brel (IV/M.221) [1992] OJ C142/1............................................................................................95 Commission decision Ahold/Jerónimo Martins (1992): decision of 29 September 1992 in Case Ahold/Jerónimo Martins (IV/M.263) [1992] OJ C261/1..............................93 Commission decision Air France/Sabena (1992): decision of 5 October 1992 in Case Air France/Sabena (IV/M.157) [1992] OJ C272/1.....................................................85 Commission decision Assurpol (1992): decision 92/96/EEC of 14 January 1992 in Case Assurpol [1992] OJ L37/16................................................................................127, 132 Commission decision British Airways/TAT (1992): decision of 27 November 1992 in Case British Airways/TAT (M.259) [1992] OJ C326/1...................................................85 Commission decision CCIE/GTE (1992): decision of 25 September 1992 in Case CCIE/GTE (IV/M.258) [1992] OJ C265...........................................................................171 Commission decision CEWAL (1992): decision 93/82/EEC of 23 December 1992 in Cases Cewal, Cowac and Ukwal [1993] OJ L34/20...................... 154, 157, 175, 209, 266 Commission decision French-West African shipowners’ committees (1992): decision 92/262/EEC of 1 April 1992 in Case of French-West African shipowners’ committees [1992] OJ L134/1.........................................................................................................57, 158 Commission decision Distribution of railway tickets by travel agents (1992): decision 92/568/EEC of 25 November 1992 in Case Distribution of railway tickets by travel agents [1992] OJ L366/47....................................................................................133 Commission decision Du Pont/ICI (I) (1992): decision 93/9/EEC of 30 September 1992 in Case Du Pont/ICI [1993] OJ L7/13........................................................................85 Commission decision Elf Aquitaine-Thyssen/Minol (1992): decision of 4 September 1992 in Case Elf Aquitaine-Thyssen/Minol (IV/M.235) [1992] OJ C232/1.................. 85–6 Commission decision ENSIDESA/Aristrain (1992): decision 92/455/EEC of 31 August 1992 in Case Ensidesa/Aristrain [1992] OJ L256/13..........................................................119 Commission decision Eurocheque-Helsinki Agreement (1992): decision 92/212/EEC of 25 March 1992 in Case Eurocheque-Helsinki Agreement [1992] OJ L95/50...........115, 131

Table of Cases  xxxvii Commission decision Fiat/Hitachi (1992): decision 93/48/EEC of 21 December 1992 in Case Fiat/Hitachi [1993] OJ L20/10......................................................................131, 266 Commission decision Ford/Volkswagen (1992): decision 93/49/EEC of 23 December 1992 in Case Ford/Volkswagen [1993] OJ L20/14.............. 103, 128, 133, 277 Commission decision Gillette (1992): decision 93/252/EEC of 10 November 1992 in Cases Lambert/Gillette and others and BIC/Gillette and others [1993] OJ L116/21..........56, 266 Commission decision Langnese-Iglo (1992): decision 93/406/EEC of 23 December 1992 in Case Mars/Langnese Iglo [1993] OJ L183/19........................138, 273 Commission decision Lloyd´s Underwriters’ Association-Institute of London Underwriters (1992): decision 93/3/EEC of 4 December 1992 in Case Lloyd’s Underwriters’ Association and Institute of London Underwriters [1993] OJ L4/26.............................32, 35 Commission decision Nestlé/Perrier (1992): decision 92/553/EEC of 22 July 1992 in Case Nestlé/Perrier [1992] OJ L356/1........................................ 61, 86, 89–90, 93–4, 138, 146–7, 171, 184, 195, 198 Commission decision Parfums Givenchy (1992): decision 92/428/EEC of 24 July 1992 in Case Parfums Givenchy [1992] OJ L236/11..................................................127, 133 Commission decision Rhône-Poulenc/SNIA (1992): decision of 10 August 1992 in Case Rhône-Poulenc [1992] OJ C212/1..............................................................90–1, 171 Commission decision Schöller (1992): decision 93/405/EEC of 23 December 1992 in Case Mars/Schöller Lebensmittel [1993] OJ L183/1..............................................138, 273 Commission decision Thorn EMI/Virgin Music (1992): decision of 27 April 1992 in Case Thorn EMI/Virgin Music (IV/M.202) [1992] OJ C120.......................................171 Commission decision Torras/Sarrió (1992): decision of 24 February 1992 in Case Torras/Sarrió (IV/M.166) [1992] OJ C58 1........................................................................16 Commission decision UK Agricultural Tractor Registration Exchange (1992): decision 92/157/EEC of 17 February 1992 in Case UK Agricultural Tractor Registration Exchange [1992] OJ L68/19...........................................................................139 Commission decision VIHO/Parker Pen (1992): decision 92/426/EEC of 15 July 1992 in Case VIHO/Parker Pen [1992] OJ L233/27......................................................................... 28 Commission decision British Airways/Dan Air (1993): decision of 17 February 1993 in Case British Airways/Dan Air (IV/M.278) [1993] OJ C68/5.................................... 85–6 Commission decision Alcan/Inespal/Palco (1993): decision of 14 April 1993 in Case Alcan/Inespal/Palco (IV/M.322) [1993] OJ C114/1...................................................91 Commission decision American Cyanamid/Shell (1993): decision of 1 October 1993 in Case American Cyanamid/Shell (IV/M.354) [1993] OJ C273/1..............................86, 91 Commission decision Auditel (1993): decision 93/668/CE of 24 November 1993 in Case Auditel [1993] OJ L306/50.........................................................................................131 Commission decision Tariff structures in the combined transport of goods (1993): decision 93/174/EEC of 24 February 1993 in Case Tariff structures in the combined transport of goods [1993] OJ L73/38.........................................................127, 132 Commission decision Grundig II (1993): decision 94/29/EC of 21 December 1993 in Case Grundig II [1994] OJ L020/15......................................................................127, 131 Commission decision Kali + Salz/MDK/Treuhand (1993): decision 94/449/CE of 14 February 1993 in Case Kali + Salz/MdK/Treuhand [1994] OJ L186/38....................................................................................................... 73, 84, 86, 171 Commission decision Kingfisher/Darty (1993): decision of 22 March 1993 in Case Kingfisher/Darty (IV/M.300) [1993] OJ C87/1..........................................................93

xxxviii  Table of Cases Commission decision KNP/BT/VRG (1993): decision 93/466/CE of 4 May 1993 in Case KNP/BT/VRG [1993] OJ L217/35..........................................................................93 Commission decision MATRA/Cap Gemini Sogeti (1993): decision of 17 March 1993 in Case Matra/Cap Gemini Sogeti (IV/M.272) [1993] OJ C88/8..............................94 Commission decision McCormick/CPC (1993): decision of 29 October 1993 in Case McCormick/CPC/Rabobank/Ostmann/(IV/M.330)...................................................94 Commission decision Philips/Thomson/Sagem (1993): decision of 18 January 1993 in Case Philips/Thomson/Sagem (IV/M.293) [1993] OJ C22/1.......................................135 Commission decision Pilkington-Techint/SIV (1993): decision 94/395/CE of 21 December 1993 in Case Pilkington-Techint/SIV (IV/M.358) [1994] OJ L158/24..........171 Commission decision Rhône Poulenc/SNIA (II) (1993): decision of 8 September 1993 in Case Rhône Poulenc/SNIA (II) (IV/M.355) [1993] OJ C272/6......... 90, 91, 94, 171 Commission decision EBU/Eurovision System (1993): decision 93/403/CE of 11 June 1993 in Case EBU/Eurovision System [1993] OJ L179/23.......................................132 Commission decision ACI (1994): decision 94/594/EC of 27 July 1994 in Case ACI [1994] OJ L224/28......................................................................................................133 Commission decision Asahi/Saint Gobain (1994): decision 94/896/EC of 16 December 1994 in Case Asahi/Saint Gobain [1994] OJ L354/87........................................................133 Commission decision BSN/Euralim (1994): decision of 7 June 1994 in Case BSN/Euralim (IV/M.445) [1994] OJ C269/1......................................................................95 Commission decision Electrolux/AEG (1994): decision of 21 June 1994 in Case Electrolux/AEG [1994] OJ C187/1.................................................................................. 85–6 Commission decision European Night Services (1994): decision 94/663/EC of 21 September 1994 in Case European Night Services [1994] OJ L259/20......................115, 133 Commission decision Eurotunnel (1994): decision 94/84/EC of 13 December 1994 in Case Eurotunnel [1994] OJ L354/66........................................................................... 133 Commission decision Exxon/Shell (1994): decision 94/322/EC of 18 May 1994 in Case Exxon/Shell [1994] OJ L144/20.................................................................132, 139, 273 Commission decision FEFC (1994): decision 94/985/EC of 21 December 1994 in Case Far Eastern Freight Conference (FEFC) [1994] OJ L378/17.........................7, 110, 113 Commission decision Fujitsu AMD Semiconductor (1994): decision 94/823/EC of 12 December 1994 in Case Fujitsu AMD Semiconductor [1994] OJ L341/66...........................................................................................................26, 132, 266 Commission decision HOV-SVZ/MCN (1994): decision 94/210/EC of 29 March 1994 in Case HOV SVZ/MCN [1994] OJ L104/34.............................................................57 Commission decision International Private Satellite Partners (1994): decision 94/895/EEC of 17 July 1994 in Case International Private Satellite Partners [1994] OJ L354/75...............................................................................................................34 Commission decision Mannesmann/Vallourec/Ilva (1994): decision 94/208/EC of 31 January 1994 in Case Mannesmann/Vallourec/Ilva [1994] OJ L102/15..................................................................................................... 18, 90, 171, 197 Commission decision Marconi/Finmeccanica (1994): decision of 5 September 1995 in Case Marconi/Finmeccanica (IV/M.496) [1994] OJ C253/10..............................94 Commission decision MSG Media Service (1994): decision 94/922/EC of 9 November 1994 in Case MSG Media Service [1994] OJ L364/1...............................84, 86 Commission decision Olivetti/Digital (1994): decision 94/771/EC of 11 November 1994 in Case Olivetti/Digital [1994] OJ L309/24.................................................... 30, 128, 133

Table of Cases  xxxix Commission decision Pasteur Mérieux-Merck (1994): decision 94/770/EC of 6 October 1994 in Case Pasteur Mérieux-Merck [1994] OJ L309/1..........................133, 142 Commission decision Phillips/Osram (1994): decision 94/986/EC of 21 December 1994 in Case Philips/Osram [1994] OJ L378/37................................................................133 Commission decision Procter & Gamble/Schickedanz (1994): decision 94/893/EC of 21 June 1994 in Case Procter & Gamble/Schickedanz [1994] OJ L354/32/65...............86 Commission decision Rütgerswerke/Hülls Troisdorf (1994): decision of 2 March 1994 in Case Rütgerswerke/Hülls Troisdorf (IV/M.401) [1994] OJ C95/1.........................94 Commission decision Shell/Montecatini (1994): decision 94/811/EC of 8 June 1994 in Case Shell/Montecatini [1994] OJ L332/48.....................................................................85 Commission decision Snecma/TI (1994): decision of 17 January 1994 in Case Snecma/TI (IV/M.368) [1994] OJ C42/1..................................................................91, 94–5 Commission decision Stichting Baksteen (1994): decision 94/296/EC of 29 April 1994 in Case Stichting Baksteen [1994] OJ L131/15.............................................132–5, 165 Commission decision Tretorn (1994): decision 94/987/EC of 21 December 1994 in Case Tretorn [1994] OJ L378/45............................................................................................... 28 Commission decision ABB/Daimler-Benz (1995): decision of 18 October 1995 in Case ABB/Daimler-Benz (IV/M.580) [1997] OJ L11/1...................................................162, 171............................................................................................................................................ Commission decision CGI/Dassault (1995): decision of 24 March 1995 in Case CGI/DassaultCGI/Dassault (IV/M.571) [1995] OJ C100/3...............................................94 Commission decision Crown Cork & Seal/Carnaud Metalbox (1995): decision 96/222/EC of 14 November 1995 in Case Crown Cork & Seal/Carnaud Metalbox [1996] OJ L75/38.............................................................................................................................85 Commission decision Glaxo/Wellcome (1995): decision of 28 February 1995 in Case Glaxo/Wellcome (IV/M.555) [1995] OJ C65/3..........................................................85 Commission decision Mercedes-Benz/Kässbohrer (1995): decision 95/354/EC of 14 February 1995 in Case Mercedes-Benz/Kässbohrer [1995] OJ L211/1....................18, 85 Commission decision Nordic Satellite Distribution (1995): decision 96/177/EC of 19 July 1995 in Case Nordic Satellite Distribution [1996] OJ L53/20................................84 Commission decision Orkla/Volvo (1995): decision 96/204/EC of 20 September 1995 in Case Orkla/Volvo OJ 1995 L66/17..............................................................85, 90, 94 Commission decision Rhône Poulenc Rorer/Fisons (1995): decision of 21 September 1995 in Case Rhône Poulenc Rorer/Fisons (IV/M.632) [1995] OJ C263/4.................... 85–6 Commission decision RTL/Verónica/Endemol (HMG I) (1995): decision 96/346/EC of 20 September 1995 in Case RTL/Veronica/Endemol (I) [1996] OJ L134/32...........84, 89 Commission decision Swissair/Sabena (1995): decision 95/404/EEC of 19 July 1995 in Case Swissair/Sabena [1995] OJ L239/19.......................................................................85 Commission decision Thomson-CSF/Teneo/Indra (1995): decision of 22 August 1995 in Case Thomson- CSF/Teneo/Indra (IV/M.620) [1995] OJ C264/9........................94 Commission decision Thomson CSF/Deutsche Aerospace (1995): decision of 2 December 1995 in Case Thomson CSF/Deutsche Aerospace (IV/M.527) [1995] OJ C65/4...............................................................................................................................94 Commission decision ADIA/ECCO (1996): decision of 24 June 1996 in Case ADIA/ECCO (IV/M.765) [1996] OJ C226/5......................................................................92 Commission decision Atlas (1996): decision 96/546/CEE of 17 July 1996 in Case Atlas [1996] OJ L239/23.....................................................................................................133

xl  Table of Cases Commission decision BNP/Dresdner Bank (1996): decision 96/454/EC of 24 June 1996 in Case BNP/Dresdner Bank [1996] OJ L188/37.......................................................131 Commission decision Ciba-Geigy/Sandoz (1996): decision 97/469/EC of 17 July 1996 in Case Ciba-Geigy/Sandoz (IV/M.737) [1997] OJ L201/1.................................................... 85 Commission decision Gencor/Lonrho (1996): decision 97/26/EC of 24 April 1996 in Case Gencor/Lonrho [1997] OJ L11/30................................................84, 171,177, 184–7 Commission decision Kesko/Tuko (1996): decision 97/277/EEC of 20 November 1996 in Case Kesko/Tuko (IV/M.784) [1997] OJ L110/53/76.......................................................... 84 Commission decision Kimberly-Clark/Scott (1996): decision 96/435/EC of 16 January 1996 in Case Kimberly-Clark/Scott [1996] OJ L183/1.........................83, 89, 94 Commission decision Lufthansa/SAS (1996): decision 96/180/EC of 16 January 1996 in Case Lufthansa/SAS [1996] OJ L54/28..................................................................115, 133 Commission decision Norsk Hydro/Arnyca (1996): decision of 29 September 1996 in Case Norsk Hydro/Arnyca (IV/M.769) [1996] OJ C266/6.............................................91 Commission decision Novalliance/Systemform (1996): decision 97/123/EC of 4 December 1996 in Case Novalliance/Systemform [1997] OJ L47/11..............................131 Commission decision Phoenix/Global One (1996): decision 96/547/EC of 17 July 1996 in Case Phoenix/Global One [1996] OJ L239/57.............................................133, 143 Commission decision P&O/Royal Nedlloyd (1996): decision of 19 December 1996 in Case P&O/Royal Nedlloyd (IV/M.831) [1997] OJ C110/7............................................75 Commission decision RTL/Veronica/Endemol (‘HMG’ II) (1996): decision 96/649/EC of 17 July 1996 in Case RTL/Veronica/Endemol (II) [1996] OJ L294/14...........................................................................................................................84 Commission decision Saint Gobain/Wacker Chemie/Nom (1996): decision 97/610/CE of 4 December 1996 in Case Saint-Gobain/Wacker-Chemie/Nom [1997] OJ L247/1...............................................................................................84, 89–90, 93 Commission decision Sun Alliance/Royal Insurance (1996): decision of 18 June 1996 in Case Sun Alliance/Royal Insurance (IV/M.741) [1996] OJ C225/12..............91, 94 Commission decision Thomson/CSF/Finmeccanica/Elettronica (1996): decision of 29 September 1996 in Case Thomson/CSF/Finmeccanica/Elettronica (IV/M.767) [1996] OJ C310/9.................................................................................................................93 Commission decision Unilever/Diversey (1996): decision of 20 March 1996 in Case Unilever/Diversey (IV/M.704) [1996] OJ C113/10.............................................................94 Commission decision Zeneca/Vanderhave (1996): decision of 9 April 1996 in Case Zeneca/Vanderhave (IV/M.556) [1996] OJ C188/10..................................................... 85–6 Commission decision ADM/Acatos & Hutcheson/Soya Mainz (1997): decision of 11 August 1997 in Case ADM/Acatos & Hutcheson/Soya Mainz (IV/M.941) [1997] OJ C275/3...........................................................................................................85, 91 Commission decision Bacob Banque/Banque Paribas de Belgique (1997): decision of 22 September 1997 in Case Bacob Banque/Banque Paribas de Belgique (IV/M.983) [1997] OJ C342/17..........................................................................................87 Commission decision Blokker/Toys ‘R’ Us II (1997): decision 98/663/EC of 26 June 1997 in Case Blokker/Toys ‘R’ Us [1998] OJ L316/1......................................... 83–4 Commission decision Boeing/McDonnell Douglas (1997): decision 97/816/EC of 30 July 1997 in Case Boeing/McDonnell Douglas [1997] OJ L336/16......................73, 85–6 Commission decision British Telecom/MCI (II) (1997): decision 97/815/EC of 14 May 1997 in Case British Telecom/MCI (II) [1997] OJ L336/1....................................73

Table of Cases  xli Commission decision Coca-Cola/Amalgamated Beverages (1997): decision 97/540/CE of 22 January 1997 in Case Coca-Cola/Amalgamated Beverages GB [1997] OJ L218/15...................................................................................................73, 86, 94 Commission decision Du Pont/ICI (II) (1997): decision 97/9/EC of 2 October 1997 in Case Dupont/ICI (IV/M.984) [1998] OJ C4/4...............................................................18 Commission decision Irish Sugar (1997): decision 97/624/CE of 14 May 1997 in Case Irish Sugar [1997] OJ L258/1................................................................ 56, 62, 157, 158 Commission decision Lafarge/Redland (1997): decision of 16 December 1997 in Case Lafarge/Redland (IV/M.1030) [1978] OJ C78/6........................................................85 Commission decision Lear/Keiper (1997): decision of 22 July 1997 in Case Lear/Keiper (IV/M.937) [1997] OJ C275/3.............................................................83, 93, 95 Commission decision Lyonnaise des Eaux/Suez (1997): decision of 5 June 1997 in Case Lyonnaise des Eaux/Suez (IV/M.916) [1997] OJ C207/12....................................87 Commission decision Mannesman/Vallourec (1997): decision of 3 June 1997 in Case Mannesmann/Vallourec (IV/M.906) [1997] OJ C238/15................................85–7, 90 Commission decision Merck/Rhône-Poulenc-Merial (1997): decision of 2 July 1997 in Case Merck/Rhône-Poulenc-Merial (IV/M.885) [1997] OJ C312/15....................85 Commission decision Promodès/Casino (1997): decision of 30 October 1997 in Case Promodès/Casino [1997] OJ C376/12...............................................................63, 93–4 Commission decision Tesco/ABF (1997): decision of 5 May 1997 in Case Tesco/ABF (IV/M.914) [1997] OJ C62/3..................................................................................63, 83, 93 Commission decision Thomson/Siemens/ATM (1997): decision of 18 July 1997 in Case Thomson/Siemens/ATM (IV/M.953) [1997] OJ C255/8.............................85–6, 93 Commission decision TRW/Magna (1997): decision of 28 January 1997 in Case TRW/Magna (IV/M.872) [1997] OJ C110/9......................................................85–7, 92, 94 Commission decision Unisource (1997): decision 97/780/EC of 29 October 1997 in Case Unisource [1997] OJ L318/1..................................................................................133 Commission decision Uniworld (1997): decision 97/781/EC of 29 October 1997 in Case Uniworld [1997] OJ L318/24.................................................................................131 Commission decision Wirtschaftsvereinigung Stahl (1997): decision 98/4/CECA of 26 November 1997 in Case Wirtschaftsvereinigung Stahl [1998] OJ L1/10..................26 Commission decision Agfa-Gevaert/DuPont (1998): decision 98/475/EC of 11 February 1998 in Case Agfa-Gevaert/DuPont (IV/M.986) [1998] OJ L211/22...........85 Commission decision Alcatel/Thomson (1998): decision of 4 June 1998 in Case Alcatel/Thomson CSF-SCS (IV/M.1185) [1998] OJ C272/5..............................................85 Commission decision American Home Products/Monsanto (1998): decision of 28 September 1998 in Case American Home Products/Monsanto (IV/M.1229) [1999] OJ C109/4.................................................................................................................85 Commission decision Bertelsmann/Kirch/Premiere (1998): decision 1999/153/EC of 27 May 1998 in Case Bertelsmann/Kirch/Premiere [1999] OJ L53/1.....................84, 171 Commission decision Compaq/Digital (1998): decision of 23 March 1998 in Case Compaq/Digital (IV/M.1120) [1998] OJ C128/21.............................................................85 Commission decision Deutsche Telecom/Beta Research (1998): decision 1999/154/EC of 27 May 1998 in Case Deutsche Telekom/BetaResearch [1999] OJ L53/31.....................................................................................................................84, 171 Commission decision Nestlé/Dalgety (1998): decision of 2 April 1998 in Case Nestlé/Dalgety (IV/M.1127) [1998] OJ C143/28................................................................85

xlii  Table of Cases Commission decision Nordic Capital/Mölnlycke Clinica/Kolmi (1998): decision of 20 January 1998 in Case Nordic Capital/Mölnlycke Clinica/Kolmi (IV/M.75) [1998] OJ C39/19...........................................................................................................89, 94 Commission decision Nortel/Norweb (1998): decision of 18 March 1998 in Case Nortel/Norweb (IV/M.1113) [1998] OJ C123/3.................................................................85 Commission decision Owens-Illinois/BTR Packaging (1998): decision of 21 April 1998 in Case Owens-Illinois/BTR Packaging (IV/M.1109) [1998] OJ C165/7..................85 Commission decision Price Waterhouse/Coopers&Lybrand (1998): decision 1999/152/EC of 20 May 1998 in Case Price Waterhouse/Coopers & Lybrand (IV/M.1016) [1999] OJ L50/27.........................................................................................172 Commission decision REWE/Meinl (1998): decision 1999/674/EC of 3 February 1999 in Case REWE/Meinl (IV/1221) [1999] OJ L274/1.............................................63, 83 Commission decision Sicasov (1998): decision 1999/6/EC of 14 December 1998 in Case Sicasov [1999] OJ L4/27............................................................................................133 Commission decision Skanska/Scancem (1998): decision 1999/458/EC of 11 November 1998 in Case Skanska/Scancem [1999] OJ L183/1......................................85 Commission decision TACA (1998): decision 99/243/EC of 16 September 1998 in Case Trans Atlantic Conference Agreement (TACA) [1999] OJ L95/1................65, 163, 266 Commission decision Van den Bergh Foods Limited (HB Ice Cream) (1998): decision 1998/531/EC of 11 March 1998 in Case Van den Bergh Foods Limited [1998] OJ L246/1.........................................................................................................56, 266 Commission decision Volkswagen (1998): decision 98/273/EC of 28 January 1998 in Case Volkswagen [1998] OJ L124/60.................................................................................8 Commission decision ECIA/Bertrand Faure (1998): decision of 28 January 1998 in Case Ecia/Bertrand Faure (IV/M.1093) [1998] OJ C48/5..............................................93 Commission decision AGFA-Gevaert/Sterling (1999): decision of 15 April 1999 in Case AGFA-Gevaert/Sterling (IV/M.1432) [1999] OJ C228/11.........................................85 Commission decision Airtours/First Choice (1999): decision 2000/276/CE of 22 September 1999 in Case Airtours/First Choice [2000] OJ L93/1................... 78, 84, 90, 146, 158, 171–2, 174, 179, 181, 184, 188, 198–9, 213, 258 Commission decision Allied Signal/Honeywell (1999): decision of 12 December 1999 in Case Allied Signal/Honeywell (IV/M.1601).....................................................................83 Commission decision AXA/GRE (1999): decision of 8 April 1999 in Case AXA/GRE (IV/M.1453) [2000] OJ C30/6............................................................................................83 Commission decision Bass (1999): decision 1999/473/EC of 16 June 1999 in Case Bass [1999] OJ L186/1................................................................................................132, 141 Commission decision Bertelsmann/Mondadori (1999): decision of 22 April 1999 in Case Bertelsmann/Mondadori [1999] OJ C145/4...........................................................85 Commission decision British Interactive Broadcasting/Open (1999): decision of 15 September 1999 in Case British Interactive Broadcasting/Open [1999] OJ L312/1....133, 142 Commission decision British Sugar (1999): decision 1999/210/EC of 14 October 1998 in Case British Sugar plc [1999] OJ L76/1..................................................................23 Commission decision Castrol/Carless/JV (1999): decision of 14 October 1999 in Case Castrol/Carless/JV (IV/M.1597) [1999] OJ C16/5.....................................................85 Commission decision CECED (1999): decision 2000/475/EC of 24 January 1999 in Case CECED, European Committee of Domestic Electrical Appliances’ Manufacturers [2000] OJ L187/47.............................................................................132, 142

Table of Cases  xliii Commission decision EPI Code of Conduct (1999): decision 1999/267/EC of 7 April 1999 in Case EPI Code of Conduct [1999] OJ L106/14.................................127, 132 Commission decision CVC/Danone/Gerresheimer (1999): decision of 5 July 1999 in Case CVC/Danone/Gerresheimer (IV/M.1539) [1999] OJ C214/7................................85 Commission decision Danish Crown/Vestjyske Slagterier (1999): decision 2000/42/EC of 9 March 1999 in Case Danish Crown/Vestjyske Slagterier [2000] OJ L20/1.................................................................................................63, 93–4, 171 Commission decision DuPont/Hoechst/Herberts (1999): decision of 5 February 1999 in Case DuPont/Hoechst/Herberts (IV/M.1363) [1999] OJ C64/2............................95 Commission decision Dupont/Pioneer Hi-Bred International (1999): decision of 21 June 1999 in Case Dupont/Pioneer Hi-Bred International (IV/M.1512) [1999] OJ C208/3.............................................................................................................................85 Commission decision EATA (1999): decision 99/485/EC of 30 April 1999 in Case Europe Asia Trades Agreement (EATA) [1999] OJ L193/23.............................110, 112 Commission decision EDF/Louis Dreyfus (1999): decision of 28 September 1999 in Case EDF/Louis Dreyfus (IV/M.1557) [1999] OJ C323/11............................................85 Commission decision Exxon/Mobil (1999): decision 2004/84/EC of 29 September 1999 in Case Exxon/Mobil [2004] OJ L101/1/136...................................... 77, 172, 210, 216 Commission decision Fujitsu/Siemens (1999): decision of 30 September 1999 in Case Fujitsu/Siemens (IV/JV. 22) [1999] OJ C318/15........................................................83 Commission decision Gränges/Norsk Hydro (1999): decision of 5 July 1999 in Case Gränges/Norsk Hydro (IV/M.1569) [1999] OJ C216/10......................................85, 95 Commission decision Hoechst/Rhône Poulenc (1999): decision of 9 August 1999 in Case Hoechst/Rhône- Poulenc (IV/M.1378) [1999] OJ C254/5.....................................90 Commission decision International Paper/Union Camp (1999): decision of 5 February 1999 in Case International Paper/Union Camp (IV/M.1391) [1999] OJ C63/4...............................................................................................................................83 Commission decision KLM/Alitalia (1999): decision of 11 August 1999 in Case KLM/Alitalia (IV/M.0019) [1999] OJ C96/5............................................................... 121–2 Commission decision Matra/Aérospatiale (1999): decision of 28 April 1999 in Case Matra/Aérospatiale (IV/M.1309) [1999] OJ C133/5.................................................85 Commission decision Novartis/Maïsadour (1999): decision of 30 June 1999 in Case Novartis/Maïsadour (M.1497) [1999] OJ C208/4......................................................85 Commission decision P&I Clubs II (1999): decision 1999/329/EC of 12 April 1999 in Case P&I Clubs II [1999] OJ L125/12............................................................xi, 124, 132, 162, 166–8, 256–6, 269 Commission decision Pakhoed/Van Ommeren (II) (1999): decision of 10 September 1999 in Case Pakhoed/Van Ommeren (II) (IV/M.1621) [1999] OJ C282/3......................85 Commission decision Rodhia/Donau Chemie/Albright&Wilson (1999): decision of 13 July 1999 in Case Rodhia/Donau Chemie/Albright&Wilson (IV/M.1517) [1999] OJ C248/10.............................................................................................................171 Commission decision SANOFI/Synthélabo (1999): decision of 17 May 1999 in Case Sanofi/Synthélabo (IV/M.1397) [2000] OJ C23/4..............................................85, 120 Commission decision Scottish and Newcastle (1999): decision 1999/474/EC of 16 June 1999 in Case Scottish and Newcastle [1999] OJ L186/28..............................132, 141 Commission decision Schneider/Lexel (1999): decision of 3 June 1999 in Case Schneider/Lexel (IV/M.1434) [1999] OJ C176/12..............................................................93

xliv  Table of Cases Commission decision Seita/Tabacalera (1999): decision of 3 December 1999 in Case Seita/Tabacalera (IV/M.1735) [2000] OJ C32/4.................................................................73 Commission decision TPS (1999): decision 1999/242/EC of 3 March 1999 in Case TPS [1999] OJ L90/6..................................................................................................129, 133 Commission decision Virgin/British Airway (1999): decision 2000/74/EC of July 1999 in Case Virgin/British Airways [2000] OJ L30/1................................................... 55–7 Commission decision Whitbread (1999): decision 1999/230/EC of 24 February 1999 in Case Whitbread [1999] OJ L88/26.........................................................................131, 141 Commission decision Rewe/Meinl (1999): decision 1999/674/EC of 3 February 1999 in Case Rewe/Meinl [1999] OJ L274/1..........................................................................63, 83 Commission decision Carrefour/Promodès (2000): decision of 25 January 2000 in Case Carrefour/Promodès (IV/M.1684) [2000] OJ C164/5..........................................63, 83 Commission decision EMI/TIME WARNER (2000): decision of 5 May 2003 in Case EMI/Time Warner. See press releases: IP/00/617 and IP/00/1122..................172, 212 Commission decision Glaxo Wellcome/Smithkline Beecham (2000): decision of 8 May 2000 in Case Glaxo Wellcome/Smithkline Beecham (IV/M.1846) [2000] OJ C170/6.............................................................................................................................85 Commission decision Granada/Compass (2000): decision of 29 June 2000 in Case Granada/Compass (IV/M.1972) [2000] OJ C237/6...........................................................93 Commission decision MCI WorldCom/Sprint (2000): decision 2003/790/EC of 28 June 2000 in Case MCI WorldCom/Sprint (COMP/M.1741) [2003] OJ L300/1........84, 87 Commission decision Minnesota Mining and Manufacturing/Quante (2000): decision of 31 March 2000 in Case Minnesota Mining and Manufacturing/Quante (IV/M.1880) [2000] OJ C255/9..........................................................................................85 Commission decision Monsanto/Pharmacia & Upjohn (2000): decision of 30 March 2000 in Case Monsanto/Pharmacia & Upjohn (IV/M.1835) [2000] OJ C143/4...............85 Commission decision Pirelli/BICC (2000): decision 2003/176/EC of 19 July 2000 in Case Pirelli/BICC [2003] OJ L70/35.............................................................................175 Commission decision Shell/BASF/JV-Project Nicole (2000): decision of 29 March 2000 in Case Shell/BASF/JV-Project Nicol (IV/M.1751) [2000] OJ C142/35....................83 Commission decision Totalfina/Elf (2000): decision of 9 February 2000 in Case Totalfina/Elf (COMP/M.1628) [2001] OJ L143/1............................................................172 Commission decision Unilever/Amora-Maille (2000): decision of 8 March 2000 in Case Unilever/Amora-Maille (IV/M.1802) [2000] OJ C33/4.............................................85 Commission decision Unilever/Best Foods (2000): decision of 28 September 2000 in Case Unilever/Best Foods (IV/M.1990) [2000] OJ C311/6.............................................83 Commission decision Valeo/Labinal (2000): decision of 4 August 2000 in Case Valeo/Labinal (IV/M.2036) [2000] OJ C289/3...................................................................85 Commission decision Vodafone/Airtouch/Mannesmann (2000): decision of 12 March 2000 in Case Vodafone Airtouch/Mannesmann (IV/M.1795) [2000] OJ C141/19...........................................................................................................................93 Commission decision Volvo/Scania (2000): decision of 14 March 2000 in Case Volvo/Scania (IV/M.1672) [2001] OJ L143/74.......................................................78, 80, 84 Commission decision CVC/Lenzing (2001): decision 2004/237/EEC of 17 October 2001 in Case CVC/Lenzing [2001] OJ L82/20....................................................................84 Commission decision De Beers/LVMH (2001): decision 2003/79/EC of 25 July 2001 in Case De Beers/LVMH (COMP/M.2333) [2003] OJ L29/40..................................74

Table of Cases  xlv Commission decision Deutsche Post (2001): decision 2001/354/CE of 20 March 2001 in Case Deutsche Post [2001] OJ L125/27...........................................................................56 Commission decision General Electric/Honeywell (2001): decision 2004/134/EC of 3 July 2001 in Case General Electric/Honeywell [2004] OJ L48/1............................78, 84 Commission decision Grupo Villar Mir/EnBW/Hidroeléctrica del Cantábrico (2001): decision 2004/135/EC of 26 September 2001 in Case Grupo Villar Mir/EnBW/Hidroeléctrica del Cantábrico [2001] OJ L48/86........................77, 210–11, 216 Commission decision Nestlé/Ralston Purina (2001): decision of 27 July 2001 in Case Nestlé/Ralston Purina (IV/M.2337) [2001] OJ C239/8.............................................83 Commission decision SCA/Metsä Tissue (2001): decision 2002/156/EC of 31 January 2001 in Case SCA/Metsä Tissue [2002] OJ L57/1......................................80, 84 Commission decision Schneider Electric/Legrand (2001): decision 2004/275/EC of 10 October 2001 in Case Schneider/Legrand [2004] OJ L101/1........................50, 78, 84 Commission decision Tetra Laval/Sidel (2001): decision 2004/124/EC of 30 October 2001 in Case Tetra Laval/Sidel [2004] OJ L43/1............. 50, 78, 84, 86, 89, 122 Commission decision The Post Office/TPG/SPPL (2001): decision 2004/236/CE of 13 March 2001 in Case The Post Office/TPG/SPPL [2004] OJ L82/1................................91 Commission decision UPM-Kymmene/Haindl (2001): decision 2002/737/CE of 21 November 2001 in Case UPM-Kymmene/Haindl [2002] OJ L233/38...............146, 172 Commission decision Michelin II (2001): decision 2002/405/EC of 20 June 2001 in Case Michelin II [2001] OJ L143/1.................................................................................67 Commission decision BASF/Eurodiol/Pantochim (2002): decision 2002/365/EC of 11 July 2001 in Case BASF/Eurodiol/Pantochim [2002] OJ L132/45.................................73 Commission decision Bayer/Aventis Crop Science (2002): decision 2004/304/EC of 17 April 2002 in Case Bayer/Aventis Crop Science [2004] OJ L107/1................................83 Commission decision Cargill/Cerestar (2002): decision of 18 January 2002 in Case Cargill/Cerestar (COMP/M.2502) [2002] OJ C40/7..........................................................85 Commission decision Deloitte & Touche/Andersen (UK) (2002): decision of 1 July 2002 in Case Deloitte & Touche/Andersen (UK), (COMP/M.2810) [2002] OJ C200/8.............................................................................................................................73 Commission decision EnBW/EDP/Cajastur/Hidrocantábrico (2002): decision of 19 March 2002 in Case EnBW/EDP/Cajastur/Hidrocantábrico (COMP/M.2684) [2002] OJ C114/23.........................................................................................77, 210–11, 216 Commission decision Ernst & Young/Andersen France (2002): decision of 5 September 2002 in Case Ernst & Young/Andersen France (COMP/M.2816) [2002] OJ C232/6....................................................................................................................... 73 Commission decision Ernst & Young/Andersen Germany (2002): decision of 27 August 2002 in Case Ernst & Young/Andersen Germany (COMP/M.2824) [2002] OJ C246/21..................................................................................................................... 73 Commission decision HP/Compaq (2002): decision of 31 January 2002 in Case HP/Compaq (COMP/M.2609) [2002] OJ C39/23.................................................................. 87 Commission decision IFPI ‘Simulcasting’ (2002): decision 2003/300/CE of 8 October 2002 in Case IFPI ‘Simulcasting’ [2002] OJ L107/58........................................24 Commission decision Norske Skog/Parenco/Walsum (2002): decision 2002/737/EC of 21 November 2001 in Case Norske Skog/Parenco/Walsum [2002] OJ L233/38..........172 Commission decision Visa International (2002): decision 2002/914/EC of 24 July 2002 in Case Visa International [2002] OJ L318/17.........................................................132

xlvi  Table of Cases Commission decision Wallenius Lines AB/Wilhelmsen ASA/Hyundai Merchant Marine (2002): decision of 29 November 2002 in Case Wallenius Lines AB/ Wilhelmsen ASA/Hyundai Merchant Marine (COMP/M.2879) [2003] OJ C30/31.........74 Commission decision AGCO/Valtra (2003): decision of 12 December 2003 in Case AGCO/Valtra (COMP/M.3287) [2004] OJ C11/12.............................................85, 87 Commission decision British Airways/Iberia/GB Airways (2003): decision of 10 December 2003 in Case British Airways/Iberia/GB Airways (COMP/ D2/38.479), available at http://ec.europa.eu/competition/antitrust/cases/dec_ docs/38479/38479_24_8.pdf.............................................................................................132 Commission decision Carnival Corporation/P&O Princess (2003): decision 2003/667/ EC of 24 July 2002 in Case Carnival Corporation/P&O Princess [2003] OJ L248/1.........86 Commission decision Celanese/Degussa/JV (2003): decision 2004/105/EC of 11 June 2003 in Case Celanese/Degussa/JV [2004] OJ L38/47...........................................85 Commission decision Deutsche Telekom (2003): decision 2004/322/EC of 21 May 2003 in Case Deutsche Telekom [2003] OJ L263/9..........................................56, 61 Commission decision GE/Instrumentarium (2003): decision 2004/322/EC of 2 September 2003 in Case GE/Instrumentarium [2004] OJ L109/1..................................80 Commission decision Newscorp/Telepiù (2003): decision 2004/311/EC of 2 April 2003 in Case Newscorp/Telepiù [2004] OJ L110/73.....................................73, 84–5 Commission decision Shell/BEB (2003): decision of 20 November 2003 in Case Shell/BEB (COMP/M.3293) [2004] OJ C8/7......................................................................83 Commission decision Siemens/Drägerwerk/JV (2003): decision 2003/777/CE of 30 April 2003 in Case Siemens/Drägerwerk/JV [2003] OJ L291/1...................................207 Commission decision Smith & Nephew/Centerpulse (2003): decision of 27 May 2003 in Case Smith & Nephew/Centerpulse (IV/M.3146) [2003] OJ C115/2.............83, 87 Commission decision UCB/Solutia (2003): decision of 31 January 2003 in Case UCB/Solutia (COMP/M.3060) [2003] OJ C78/6.........................................................85, 87 Commission decision Wanadoo Interactive (2003): decision of 16 July 2003/in case Wanadoo (COMP/38.233) not published in the OJ...........................................................56 Commission decision Air Liquide/Messer Targets (2004): decision of 15 March 2004 in Case Air Liquide/Messer Targets (COMP/M.3314) [2004] OJ C91/7..........................171 Commission decision Clearstream (2004): decision of 2 June 2004 in Case PO/Clearstream (Clearing and settlement) (COMP/38.096) [2009] OJ C165/5..............................57 Commission decision ENI/EDP/GDP (2004): decision 2005/801/EC of 9 December 2004 in Case ENI/EDP/GDP [2005] OJ L302/69.........................................................84, 91 Commission decision General Dynamics/Alvis (2004): decision of 26 May 2004 in Case General Dynamics/Alvis (COMP/M.3418) [2004] OJ C227/5............................85, 87 Commission decision IMS Health (2004): decision of 3 July 2001 in Case NDC Health/IMS Health (Interim measures) [2002] OJ L59/18..............................................115 Commission decision Kesko/ICA/JV (2004): decision of 15 November 2004 in Case KESKO/ICA/JV (COMP/M.3464) [2005] OJ C8/4............................................................85 Commission decision Microsoft (2004): decision of 24 May 2004 in Case Microsoft (COMP/C-3/37.792) [2007] OJ L32/23.................................................................54, 60, 62 Commission decision Oracle/PeopleSoft (2004): decision 2005/621/EC of 26 October 2004 in Case Oracle/PeopleSoft (COMP/M.3216) [2005] OJ L218/6..............207, 213, 221 Commission decision Repsol/Shell Portugal (2004): decision of 13 September 2004 in Case REPSOL YPF/SHELL Portugal (COMP/M.3516) [2004] OJ C272/6...................82

Table of Cases  xlvii Commission decision Syngenta/Advanta (2004): decision of 17 August 2004 in Case Syngeta/Advanta (COMP/M.3465) [2004] OJ C263/7..........................................................207 Commission decision Total/Gaz de France (2004): decision of 8 October 2004 in Case Total/Gaz de France (COMP/M.3410) [2005] OJ C0/3...........................................221 Commission decision Astra Zeneca (2005): decision of 15 June 2005 in Case Generics/Astra Zeneca (COMP/A.37.507/F3), available at http://ec.europa.eu/ competition/antitrust/cases/dec_docs/37507/37507_193_6.pdf.................................56, 60 Commission decision Amer/Salomon (2005): decision of 12 October 2005 in Case AMER/SALOMON (COMP/M.3765) [2005] OJ C318/6, available at http://ec.europa. eu/competition/mergers/cases/decisions/m3765_20051012_20212_en.pdf..................218 Commission decision Bertelsmann/Springer/JV (2005): decision 2006/171/EC of 3 May 2005 in Case Bertelsmann/Springer/JV [2006] OJ L61/17......................................85 Commission decision EMC/European Cement Producers (2005): decision of 28 September 2005 in Case EMC/Producteurs européens de ciment (COMP/F-2/38.401), available at http://ec.europa.eu/competition/antitrust/ cases/dec_docs/38401/38401_35_5.pdf ...........................................................................240 Commission decision Johnson Controls/Robert Bosch/Delphi SLI (2005): decision of 29 June 2005 in Case Johnson Controls/Robert Bosch/Delphi SLI, (COMP/M.3789), available at http://ec.europa.eu/competition/mergers/cases/decisions/m3789_ 20050629_20310_en.pdf......................................................................................................85 Commission decision Johnson and Johnson/Guidant (2005): decision 2006/430/EC of 25 August 2005 in Case Johnson and Johnson/Guidant [2006] OJ L173/16..................85 Commission decision Maersk/PONL (2005): decision of 29 July 2005 in Case Maersk/PONL (COMP/M.3829), OJ C 207/8, available at http://ec.europa.eu/ competition/mergers/cases/decisions/m3829_20050729_20212_en.pdf.......................205 Commission decision Novartis/Hexal (2005): decision of 27 May 2005 in Case Novartis/Hexal (COMP/M.3751), available at http://ec.europa.eu/competition/ mergers/cases/decisions/m3751_20050527_20212_en.pdf.............................................222 Commission decision Reuters/Telerate (2005): decision of 23 May 2005 in Case Reuters/Telerate (COMP/M.3692), available at http://ec.europa.eu/competition/ mergers/cases/decisions/m3692_20050523_20212_en.pdf...............................................85 Commission decision Apollo/Azko Nobel (2006): decision of 29 May 2006 in Case Apollo/Akzo Nobel (COMP/M.4071), available at http://ec.europa.eu/competition/ elojade/isef/case_details.cfm?proc_code=2_M_4071........................................................85 Commission decision Cargill/Degussa Food Ingredients (2006): decision 2007/783/ EC of 29 March 2006 in Case Cargill/Degussa [2007] OJ L316/53...................................85 Commission decision E.on/MOL (2006): decision 2006/622/EC of 21 December 2005 in Case E.ON/MOL [2006] OJ L253/20............................................................................221 Commission decision Glatfelter/Crompton Assets (2006): decision 2007/403/EC of 20 December 2006 in Case Glatfelter/Crompton Assets [2007] OJ L151/41......................85 Commission decision Korsnäs/Assidomän Cartonboard (2006): decision of 12 May 2006 in Case Korsnäs/Assidomän Cartonboard (COMP/M.4057) [2006] OJ C209/12...................................................................................................................77, 218 Commission decision T-Mobile Austria/tele.ring (2006): decision 2007/193/EC of 26 April 2006 in Case Austria/tele.ring [2007] OJ L88/44.................... 205, 213, 218, 221–2 Commission decision Prokent/Tomra (2006): decision of 29 March 2006 in Case Prokent/Tomra Summary decision: [2008] OJ C219/11..............................................56, 57

xlviii  Table of Cases Commission decision Arques/Actebis (2007): decision of 18 December 2007 in Case Aeques/SAL (COMP/M.4965) [2008] OJ C12/1........................................................82 Commission decision Arla/Ingman Foods (2007): decision of 15 January 2007 in Case Arla/Ingman Foods (COMP/M.4323) [2007] OJ C24/1............................................85 Commission decision Ryanair/Aer Lingus (2007): decision of 27 June 2007 in Case Ryanair/AER Lingus (COMP/M.4439) [2006] OJ C274/10................................65, 84 Commission decision SCA/P&G (European Tissue Business) (2007): decision of 5 September 2007 in Case SCA/P&G (European Tissue Business) (COMP/M.4533) [2007] OJ C275/1.................................................................................................................85 Commission decision Seagate/Maxtor (2007): decision of 27 April 2006 in Case Seagate/Maxtor (COMP/M.4100), available at http://ec.europa.eu/competition/ mergers/cases/decisions/m4100_20060427_20310_en.pdf...............................................85 Commission decision Teléfonica (2007): decision of 4 July 2007 in Case Telefonica SA (broadband) Summary decision: [2008] OJ C83/6.......................................................56 Commission decision KLM/Martinair (2008): decision of 17 December 2008 in Case KLM/Martinair(COMP/M.5141) [2009] OJ C51/3, available at http://ec.europa.eu/ competition/mergers/cases/decisions/m5141_20081217_20682_en.pdf.........................85 Commission decision StatoilHydro/ConocoPhillips (2008): decision of 21 October 2008 in Case StatoilHydro/ConocoPhillips (COMP/M.4919), available at http:// ec.europa.eu/competition/mergers/cases/decisions/m4919_20081021_20600_ en.pdf............................................................................................................................85, 205 Commission decision Amcor/Alcan (2009): decision of 14 December 2009 in Case Amcor/Alcan (COMP/M.5599) [2010] OJ C35/1, available at http://ec.europa.eu/ competition/mergers/cases/decisions/m5599_20091214_20212_en.pdf.................85, 221 Commission decision BASF/CIBA (2009): decision of 12 March 2009 in Case BASF/CIBA (COMP/M.5355) [2009] OJ C122/5............................................................221 Commission decision Iberia/Vueling/Clickair (2009): decision of 9 January 2009 in Case Iberia/Vueling/Clickair (COMP/M.5364) [2009] OJ C72/23, available at http://ec.europa.eu/competition/mergers/cases/decisions/m5364_20090109_ 20212_en.pdf...............................................................................................................85, 221 Commission decision IPIC/MAN Ferrostaal (2009): decision of 13 March 2009 in Case IPIC/MAN Ferrostaal (COMP/M.5406) [2009] OJ C114/8, available at http://ec.europa.eu/competition/mergers/cases/decisions/m5406_20090313_ 20212_en.pdf.....................................................................................................................221 Commission decision Intel (2009): decision of 13 May 2009 in Case Intel Summary decision: [2009] OJ C227/13...............................................................................................56 Commission decision Lufthansa/SN Airholding (Brussels Airlines) (2009): decision of 22 June 2009 in Case Lufthansa/SN Airholding (Brussels Airlines) (COMP/M.5335), available at http://ec.europa.eu/competition/mergers/cases/ decisions/M5335_20090622_20600_229007_EN.pdf........................................................85 Commission decision Lufthansa/Austrian Airlines (2009): decision of 28 August 2009 in Case Lufthansa/Austrian Airlines (COMP/M.5440), available at http://ec.europa.eu/ competition/mergers/cases/decisions/m5440_20090828_20600_en.pdf.................85, 221 Commission decision Panasonic/Sanyo (2009): decision of 29 September 2009 in Case Panasonic/Sanyo (COMP/M.5421) [2009] OJ C322/13, available at http:// ec.europa.eu/competition/mergers/cases/decisions/m5421_20090929_20212_ en.pdf............................................................................................................................85, 221

Table of Cases  xlix Commission decision Pfizer/Wyeth (2009): decision of 17 July 2009 in Case Pfizer/ Wyeth (COMP/M.5476) [2009] OJ C262/1, available at http://ec.europa.eu/ competition/mergers/cases/decisions/m5476_20090717_20212_en.pdf.......................221 Commission decision Posten AB/Post Danmark AS(2009): decision of 21 April 2009 in Case Posten AB/Post Danmark AS (COMP/M.5152) [2009] OJ C148/8, available at http://ec.europa.eu/competition/mergers/cases/decisions/ m5152_20090421_20212_en.pdf................................................................................85, 221 Commission decision Sanofi-Aventis/Zentiva (2009): decision of 4 February 2009 in Case Sanofi-Aventis/Zentiva (COMP/M.5253) [2009] OJ C66/24, available at http://ec.europa.eu/competition/mergers/cases/decisions/m5253_20090204_ 20212_en.pdf.......................................................................................................................85 Commission decision Abbott/Solvay Pharmaceuticals (2010): decision of 11 February 2010 in Case Abbott/Solvay Pharmaceuticals (COMP/M.5661) [2010] OJ C89/1, available at http://ec.europa.eu/competition/mergers/cases/decisions/ M5661_20100211_20212_228522_EN.pdf........................................................................85 Commission decision Agilent/Varian (2010): decision of 20 January 2010 in Case Agilent/Varian (COMP/M.5611) [2010] OJ C56/6, available at http://ec.europa.eu/ competition/mergers/cases/decisions/m5611_20100120_20212_en.pdf.................85, 221 Commission decision BASF/Cognis (2010): decision of 30 November 2010 in Case BASF/Cognis (COMP/M.5927) [2011] OJ C123/1, available at http://ec.europa.eu/ competition/mergers/cases/decisions/m5927_20101130_20212_1720734_ EN.pdf .................................................................................................................................85 Commission decision Cisco/Tandberg (2010): decision of 29 March 2010 in Case Cisco/Tandberg (COMP/M.5669), available at http://ec.europa.eu/competition/ mergers/cases/decisions/M5669_20100329_20212_253140_EN.pdf...............................85 Commission decision DB/Arriva (2010): decision of 11 August 2010 in Case DB/ Arriva (COMP/M.5855) [2010] OJ C276/1, available at http://ec.europa.eu/ competition/mergers/cases/decisions/M5855_20100811_20212_839431_EN.pdf.........85 Commission decision DFDS/Norfolk (2010): decision of 17 June 2010 in Case DFDS/Norfolk (COMP/M.5756) [2010] OJ C241/1, available at http://ec.europa.eu/ competition/mergers/cases/decisions/M5756_20100617_20212_802533_ EN.pdf..........................................................................................................................85, 221 Commission decision Kraft Foods/Cadbury (2010): decision of 6 January 2010 in Case Kraft Foods/Cadbury (COMP/M.5644) [2010] OJ C29/4, available at http://ec.europa. eu/competition/mergers/cases/decisions/m5644_20100106_20212_en.pdf............85, 221 Commission decision Reckitt Benckiser/SSL (2010): decision of 25 October 2010 in Case Reckitt Beckinser/SSL (COMP/M.5953) [2010] OJ C333/6, available at http://ec.europa.eu/competition/mergers/cases/decisions/m5953_20101025_ 20212_1531727_EN.pdf..............................................................................................85, 221 Commission decision SNCF/LCR/Eurostar (2010): decision of 17 June 2010 in Case SNCF/LCR/Eurostar (COMP/M.5655) [2010] OJ C272/2, available at http://ec.europa.eu/competition/mergers/cases/decisions/M5655_20100617_ 20212_831906_EN.pdf................................................................................................85, 221 Commission decision Syngenta/Monsanto’s Sunflower Seeds Business (2010): decision of 17 November 2010 in Case Syngenta/Monsanto’s Sunflower Seeds Business (COMP/M.5675), available at http://ec.europa.eu/competition/mergers/ cases/decisions/m5675_20101117_20600_1556193_EN.pdf..........................................221

l  Table of Cases Commission decision Teva/Ratiopharm (2010): decision of 3 August 2010 in Case Teva/Ratiopharm (COMP/M.5865) [2011] C7/5, available at http://ec.europa.eu/ competition/mergers/cases/decisions/m5865_20100803_20212_1565851_EN.pdf.......85, 221 Commission decision TLP/Ermewa (2010): decision of 22 January 2010 in Case TLP/Ermewa (COMP/M.5579) [2010] OJ C60/1, available at http://ec.europa.eu/ competition/mergers/cases/decisions/m5579_20100122_20212_fr.pdf.............67, 85, 221 Commission decision Unilever/Sara Lee Body Care (2010): decision of 17 November 2010 in Case Unilever/Sara Lee Body Care (COMP/M.5658).......................221  Commission decision BASF/Ineos/Styrene/JV (2011): decision of 1 June 2011 in Case BASF/Ineos/Styrene/JV (COMP/M.6093)................................................................221 Commission decision GDF Suez/International Power (2011): decision of 26 January 2011 in Case GDF Suez/International Power (COMP/M.5978) [2011] OJ C60/9, available at http://ec.europa.eu/competition/mergers/cases/decisions/ m5978_20110126_20212_1635064_EN.pdf....................................................................221 Commission decision Olympic/Aegean Airlines (2011): decision of 26 January 2011 in Case Olympic/Aegean Airlines (COMP/M.5830), Press Release IP/11/68.............84, 221 Commission decision Telekomunikacja Polska (2011): decision of 22 June 2011 in Case 39.525 Telekomunikacja Polska. Press Release IP/11/771 and MEMO/11/444, of 22 June 2011.....................................................................................................................57

OTHER DOCUMENTS OF THE COMMISSION

EUROPEAN COMMISSION (1968): Commission Notice of 29 July 1968 concerning agreements, decisions and concerted practices in the field of cooperation between enterprises [1968] OJ C75, 3, amended by [1968] OJ C84/14...........................31 EUROPEAN COMMISSION (1977): Commission Notice of 19 December 1977 concerning agreements of minor importance which do not fall under Article 85 (1) of the Treaty establishing the European Economic Community [1977] OJ C313/3........21 EUROPEAN COMMISSION (1979): Commission Notice of 18 December 1978 concerning its assessment of certain subcontracting agreements in relation to Article 85 (1) of the EEC Treaty [1979] OJ C1/2...............................................................31 EUROPEAN COMMISSION (1986): Commission Notice of 3 September 1986 on agreements of minor importance which do not fall under Article 85 (1) of the Treaty establishing the European Economic Community [1994] OJ C368/20....21, 33, 35 EUROPEAN COMMISSION (1990): Commission Notice regarding the concentrative and cooperative operations under Council Regulation (EEC) No 4064/89 [1990] OJ C203/1...........................................................................................................................121 EUROPEAN COMMISSION (1993): Commission Notice concerning the assessment of cooperative joint ventures pursuant to Article 85 of the EEC Treaty [1993] OJ C43/2.......................................................................................................................31, 121 EUROPEAN COMMISSION (1997a): Commission Notice on the definition of relevant market for the purposes of Community competition law [1997] OJ C372/5............................................................................................3, 12, 15, 21, 36, 48, 88 EUROPEAN COMMISSION (1997b): Commission Notice on agreements of minor importance which do not fall within the meaning of Article 85 (1) of the Treaty establishing the European Community [1997] OJ C372/13............................. 5, 28, 33, 37

Table of Cases  li EUROPEAN COMMISSION (1998a): Commission Notice on the concept of fullfunction joint ventures under Council Regulation (EEC) No 4064/89 on the control of concentrations between undertakings [1998] OJ C66/1.............................................121 EUROPEAN COMMISSION (1998b): Commission Notice on the application of the competition rules to access agreements in the telecommunications sector— framework, relevant markets and principles [1998] OJ C265/2.....................146, 163, 214 EUROPEAN COMMISSION (1999a): White paper on modernisation of the rules implementing Articles 85 and 86 of the EC Treaty [1999] OJ C132, 1.............................22 EUROPEAN COMMISSION (1999b): European Parliament legislative resolution on the draft guidelines on vertical restraints [1999] OJ C270/12...................................267 EUROPEAN COMMISSION (2000a): Competition rules relating to horizontal cooperation agreements—Communication pursuant to Article 5 of Council Regulation (EEC) No 2821/71 of 20 December 1971 on the application of Article 81(3) of the Treaty to categories of agreements, decisions and concerted practices modified by Regulation (EEC) No 2743/72 [2000] OJ C118/3.............................46, 268–9 EUROPEAN COMMISSION (2000b): Guidelines on Vertical Restraints [2000] OJ C291/1.................................................................................................................49, 264–6 EUROPEAN COMMISSION (2001a): Guidelines on the applicability of Article 81 of the EC Treaty to horizontal cooperation agreements [2001] OJ C3/2.............................. 17, 25, 32, 36–7, 63, 102–3, 105, 114, 130, 141, 144, 265, 267–9 EUROPEAN COMMISSION (2001b): Commission Working Document—On Proposed New Regulatory Framework for Electronic Communications Networks and Services—Draft Guidelines on market analysis and the calculation of significant market power under Article 14 of the proposed Directive on a common regulatory framework for electronic communications networks and services. Document COM(2001) 175 final.........................................................................................7 EUROPEAN COMMISSION (2001c): Commission Working Document of May 31 2001 on Article 3 of the draft of new Regulation applying Articles 81 and 82 EC. Document SEC (2001) 871.....................................................................................33, 43, 44 EUROPEAN COMMISSION (2001d): Commission Notice on agreements of minor importance which do not appreciably restrict competition under Article 81(1) of the Treaty establishing the European Community (de minimis) [2001] OJ C368/13............................................................................................. 5, 28, 33–5, 37, 44–5 EUROPEAN COMMISSION (2001e): Green Paper on the Review of EEC Council Regulation No 4064/89. COM(2001) 745 final, available at http://eur-lex.europa.eu/ LexUriServ/site/en/com/2001/com2001_0745en01.pdf..............................................75, 78 EUROPEAN COMMISSION (2002a): Commission Guidelines on market analysis and the assessment of significant market power under the Community regulatory framework for electronic communications networks and services [2002] OJ C165/6............................................................................. 6, 15–19, 163, 179, 189–90, 199 EUROPEAN COMMISSION (2002b): Draft Commission Notice on the appraisal of horizontal mergers under the Council Regulation on the control of concentrations between undertakings [2002] OJ C331/18.............................................................1, 72, 122 EUROPEAN COMMISSION (2003a): Proposal for a Council Regulation on the control of concentrations between undertakings [2003] OJ C20/4..........207, 210, 213–14 EUROPEAN COMMISSION (2003b): Draft Commission Notice on the appraisal of horizontal mergers [2002] OJ C331/18..........................................................79, 204, 214

lii  Table of Cases EUROPEAN COMMISSION (2003c): Consultation Document concerning the Revision of Council Regulation (EEC) No 4056/86 laying down detailed rules for the application of Articles 85 and 86 of the Treaty to maritime transport, available at http://ec.europa.eu/competition/consultations/2003_reg_4056_86/en.pdf...........196, 213 EUROPEAN COMMISSION (2003d): Draft Commission Guidelines on the effect on trade concept contained in Article 81 and 82 of the Treaty [2004] OJ C101/81......35, 270 EUROPEAN COMMISSION (2003e): Draft Commission Notice on the Guidelines on the Application of Article 81(3) of the EC Treaty [2003] OJ C101/97......................251 EUROPEAN COMMISSION (2004a): Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings [2004] OJ C31/5................................................. 1, 36, 60, 63, 76–7, 81–3, 85, 88–90, 92, 122, 140, 182, 205, 217, 220 EUROPEAN COMMISSION (2004b): Guidelines on the application of Article 81 of the EC Treaty to technology transfer agreements [2004] OJ C101/2.................262, 265 EUROPEAN COMMISSION (2004c): Guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty [2004] OJ C101/81................27–9, 32–5, 43 EUROPEAN COMMISSION (2004d): Guidelines on the application of Article [101(3)] of the Treaty [2004] OJ C101/97. ........................................8, 9, 22, 25, 36, 43, 49, 101, 106–13, 254, 265, 270, 275–6 EUROPEAN COMMISSION (2005): DG Competition discussion paper on the application of Article 82 of the Treaty to exclusionary abuses, December 2005. available at http://ec.europa.eu/competition/antitrust/art82/ discpaper2005.pdf.............................................11, 16, 47–9, 51–3, 60–2, 64–5, 88, 240, 284 EUROPEAN COMMISSION (2009): Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings [2009] OJ C45/7. ............................................. 47, 49, 51–3, 56, 61–2, 64–5, 88, 236, 284 EUROPEAN COMMISSION (2010a): Guidelines on Vertical Restraints [2010] OJ C130/1 ...................................................................................... 43, 45, 60–1, 63, 264, 270 EUROPEAN COMMISSION (2010d): Draft Communication from the Commission Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, available at http:// ec.europa.eu/competition/consultations/2010_horizontals/guidelines_en.pdf. ...........270 EUROPEAN COMMISSION (2011): Communication from the Commission Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, [2011] OJ C11/1. .......................................................23, 25, 32, 36–7, 49, 63, 103, 109, 121, 130, 142, 144, 254, 267, 268, 270, 276

JUDICIAL AND ADMINISTRATIVE RESOLUTIONS OF THE US

Judgment United States v Addyston Pipe&Steel (1898) 85 F 271.........................................240 Judgment Appalachian Coals Inc v United States (1933) 288 U S 344.....................................2 Judgment United States v Aluminium Co of America (1945) 148 F2d 416............................57 Judgment American Tobacco Co v United States (1946) 328 US 781.....................57, 225, 236

Table of Cases  liii Judgment US v EI du Pont de Nemours & Co (1956) 351 US 377.............................................. 16 Judgment Brown Shoe Co v United States (1962) 370 US 294.............................................262 Judgment EI du Pont de Nemours & Co v FTC (1984) 729 F2d 128....................................236 Judgment Exxon Corp v Berwick Bay Real State Partners (1984) 748 F2d 937.....................57 Judgment FTC v Indiana Federation of Dentists (1986) 476 US 447.........................2, 36, 240 Judgment Interstate Gas Co v Natural Gas Pipeline Co Of America (1989) 885 F2d 683....................................................................................................................47, 57 Judgment Eastman Kodak Co v Image Technical Serv Inc (1992) 504 US 451.....................240 Judgment Brooke Group Ltd v Brown & Williamson Tobacco Corp (1993) 509 US 209................................................................................................................................190 Judgment Hospital Corp of America v FTC (2001) 807 F3d 708..........................................195 Judgment Conwood Co v US Tobacco Co (2002) 290 F3d 768.................................................2 Judgment Baby Food, FTC v HJ Heinz Co, 116 F Su 2d 190, 192 (DDC 2000).........................................................................................................210, 218–19 Judgment FTC v HJ Heinz & Co, DC Circuit Docket (2002) 246 F3d 708...................210, 218 Judgment United States v Dentsply Int’l, Inc (2005) 399 F3d 181..........................................57 Judgment Broadcom Corp v Qualcomm Inc (2007) 501 F3d 297.............................................2 Judgment of the US District Court, Southern District of New York, of 11 May 2010 in Case No 06 Civ 13122, The City of New York v Group Health Inc, et al (District Judge: Richard J Sullivan).......................................................................................2

TABLE OF LEGISLATION EUROPEAN UNION

Regulations Regulation 17: EEC Council Regulation No 17. First Regulation implementing Articles 85 and 86 of the Treaty. Original version in [1962] OJ 13/204 (Special Edition 8, vol 1, 22). Modified by Regulation (EEC) No 59/62 [1962] OJ 58/1655 (Special Edition 8, vol 1, 53), Regulation (EEC) No 118/63 [1963] OJ 162/2696 (Special Edition 8, Series I, 65), Regulation (EEC) No 2822/71 [1985] OJ L285 (Special Edition 8, vol 2, 16) and Regulation (EEC) No 1216/99 [1999] OJ L148/5..............................................................99–100, 110, 120, 122, 129, 144–5, 167, 259 Regulation 27: Commission Regulation (EC) No 27. First Regulation implementing Council Regulation No 17 of 6 February 1962 [1962] OJ 35/1118 (Special Edition chap 8, series 1, 31)................................................................................................................3 Regulation 67/67: Commission Regulation (EC) No 67/67 of 22 March 1967 on the application of Article 85(3) of the Treaty to certain categories of exclusive dealing agreements [1967] OJ 57/94 .............................................................................................136 Regulation 1983/83: Commission Regulation (EC) No 1983/83 of 22 June 1983 on the application of Article 85(3) of the Treaty to categories of exclusive purchasing agreements [1983] OJ L173/1 (Spanish Special Edition, vol 2, ch 8, 110)........................273 Regulation 1984/83: Commission Regulation (EC) No 1984/83 of 22 June 1983 on the application of Article 85(3) of the Treaty to categories of exclusive purchasing agreements [1983] OJ L173/5 (Spanish Special Edition, vol 2 ch 8, 114)...............141, 273 Regulation 2349/1984: Commission Regulation (EEC) No 2349/1984 of 23 July 1984 on the application of Article 85(3) of the Treaty to certain categories of patent licensing agreements [1984] OJ L219/15 (Spanish Special Edition vol 2 ch 8, 135).............................................................................................................................251, 273 Regulation 417/85: Commission Regulation (EC) No 417/85 of 19 December 1984 on the application of Article 85(3) of the Treaty to categories of specialization agreements [1985] OJ L53/1 (Special Edition vol 2, 162)............................................ 135–6 Regulation 418/85: Commission Regulation (EC) No 418/85 of 19 December 1984 on the application of Article 85(3) of the Treaty to categories of research and development agreements [1985] OJ L53/5.................................................................. 135–6 Regulation 4056/86: Council Regulation (EEC) No 4056/86 of 22 December 1986 laying down detailed rules for the application of Articles 85 and 86 of the Treaty to maritime transport [1986] OJ L378/4, error corrections in [1988] OJ L117/34............................................................68, 105, 151, 196, 251–3, 266, 273–4, 279 Regulation 3975/87: Council Regulation (EEC) No 3975/87 of 14 December 1987 laying down procedure for the application of the rules on competition to undertakings in the air transport sector [1987] OJ L374/1.............................................253

lvi  Table of Legislation Regulation 4064/89: Council Regulation (EEC) No 4064/89 of 21 December 1989 on the control of concentrations between undertakings [1989] OJ L395/1, whole text republished in [1990] OJ L257/13, modified by Council Regulation (EC) No 1310/97 of 30 June 1997 amending Regulation (EEC) No 4064/89 on the control of concentrations between undertakings [1997] OJ L180/1....................... x, 9, 12, 54, 68–74, 78–9, 119–20, 146, 182–4, 210–11, 216, 221, 262, 271–2, 282–4 Regulation 2367/90: Commission Regulation (EEC) No 2367/90 of 25 July 1990 on the notifications, time limits and hearings provided for in Council Regulation (EEC) No 4064/89 on the control of concentrations between undertakings [1990] OJ L219/5................................................................................................................................3 Regulation 870/95: Commission Regulation (EC) No 870/95 of 20 April 1995 on the application of Article 85(3) of the Treaty to certain categories of agreements, decisions and concerted practices between liner shipping companies (consortia) pursuant to Council Regulation (EEC) No 479/92 [1995] OJ L89/7 .....................136, 141 Regulation 240/96: Commission Regulation (EC) No 240/96 of 31 January 1996 on the application of Article 85(3) of the Treaty to certain categories of technology transfer agreements [1996] OJ L31/2–13 .........................................................................136 Regulation 1310/97: Council Regulation (EC) No 1310/97 of 30 June 1997 amending Regulation (EEC) No 4064/89 on the control of concentrations between undertakings [1997] OJ L180/1..................................................................................................................69 Regulation 2790/1999: Commission Regulation (EC) No 2790/1999 of 22 December 1999 on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices [1999] OJ L336/21.................................................136 Regulation 823/2000: Commission Regulation (EC) No 823/2000 of 19 April 2000 on the application of Article 81(3) of the Treaty to certain categories of agreements, decisions and concerted practices between liner shipping companies (consortia) (Text with EEA relevance) [2000] OJ L100/24.........................................................136, 141 Regulation 2659/2000: Commission Regulation (EC) No 2659/2000 of 29 November 2000 on the application of Article 81(3) of the Treaty to categories of research and development agreements (Text with EEA relevance) [2000] OJ L304/7........................252 Regulation 1400/2002: Commission Regulation (EC) No 1400/2002 of 31 July 2002 on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices in the motor vehicle sector [2002] OJ L203/30...............................136 Regulation 1/2003: Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty (Text with EEA relevance) [2003] OJ L001/1........................... 5–6, 9, 12–14, 27, 41, 99–100, 122, 129, 144–5, 234, 279 Regulation 358/2003: Commission Regulation (EC) No 358/2003 of 27 February 2003 on the application of Article 81(3) of the Treaty to certain categories of agreements, decisions and concerted practices in the insurance sector (Text with EEA relevance) [2003] OJ L53/8.........................................................................................................130, 136 Regulation 139/2004: Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation) (Text with EEA relevance) [2004] OJ L024/1............vi, ix–xi, 3, 5, 9, 12–13, 17, 48, 51, 54, 59–60, 68, 71, 76–80, 83, 88, 93, 119–20, 123, 144, 173, 1 82–3, 189, 195–8, 200, 215–21, 248, 257–60, 272, 279–86

Table of Legislation  lvii Regulation 772/2004: Commission Regulation (EC) No 772/2004 of 27 April 2004 on the application of Article 81(3) of the Treaty to categories of technology transfer agreements (Text with EEA relevance) [2004] OJ L123/11.....................................130, 137 Regulation 906/2009: Commission Regulation (EC) No 906/2009 of 28 September 2009 on the application of Article 81(3) of the Treaty to certain categories of agreements, decisions and concerted practices between liner shipping companies (consortia) (Text with EEA relevance) [2009] OJ L256/31 ................................................................136 Regulation 267/2010: Commission Regulation (EU) No 267/2010 of 24 March 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of agreements, decisions and concerted practices in the insurance sector (Text with EEA relevance) [2010] OJ L83/1–7.....................................136 Regulation 330/2010: Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices (Text with EEA relevance) [2010] OJ L102/1......................................................................... v, 130, 136, 253 Regulation 461/2010: Commission Regulation (EU) No 461/2010 of 27 May 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices in the motor vehicle sector (Text with EEA relevance) [2010] OJ L129/52..........................................136 Regulation 1217/2010: Commission Regulation (EU) No 1217/2010 of 14 December 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of research and development agreements (Text with EEA relevance) [2010] OJ L335/36..................................................... 17, 130, 136, 253 Regulation 1218/2010: Commission Regulation (EU) No 1218/2010 of 14 December 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of specialisation agreements (Text with EEA relevance) [2010] OJ L335/43..................................................................... 17, 130, 136, 253 Directives Directive 77/388/EEC: Sixth Council Directive of 17 May 1977 on the harmonization of the laws of the Member States concerning turnover taxes—Common system of value added tax: uniform basis of assessment [1977] OJ L145/1......................................59 Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services (Framework Directive) [2002] OJ L108/33........................................................179

NON EUROPEAN UNION LEGISLATION

France Order No 86-1243 of 1 December 1986 relating to freedom of prices and competition. Published in the Official Gazette of the Republic of France (JORF), 1 December 1986. Consolidated version of 21 September 2000......................................................................66

lviii  Table of Legislation Germany Law Against Restrictive Trade Practices, GWB, issued in 1957, modified by the 7 Kartellnovelle of 15 July 2005..............................................................................................................66 Spain Competition Act 16/1989 of 17 July, Official State Gazette No 170, of 18 July....................66 Act 52/1999 of 28 December, on Reform of the Competition Act 16/1989 of 17 July, Official State Gazette No 311, of 29 December..................................................................66 Competition Act 15/2007 of 3 July, Official State Gazette No 159, of 4 July 2007, 28848....................................................................................................................................66 US Sherman Act 1890, 15 United States Code (USC) 1ff......................... 2–3, 26, 40, 47, 57, 173, 175, 179, 182–3, 197, 224–5, 233–6, 239 Federal Trade Commission Act 1914, 15 United States Code (USC) §§ 41–58..................236

1 Defining the Relevant Market in European Competition Law 1.1 INTRODUCTION

Before attempting to analyse behaviour which is presumed to be anti-competitive, an adequate definition of the market in which the restrictive practices that are the subject matter of the examination, known as the relevant or reference market, must be arrived at.1 The expression ‘relevant market’, first found in US case law in the mid-twentieth century, is now commonly used in all countries where antitrust law is applied, and has become a standard feature of competition law.2 The main objective of defining the market is to determine systematically the competitive pressures facing the undertakings under investigation, identifying those competitors that may restrict their behaviour and, in general, discipline and structure the examination of market power.3 Many of the considerations that are taken into account when defining the relevant market may also be significant when assessing undertakings’ market power.4 Actually, ‘market definition is the first step in the assessment of market power’5. Like the analysis of market power, analysis of the relevant market must take into account the conduct of companies and their allegedly anticompetitive effects, since otherwise errors of assessment might be made.6 In the USA, definition of the relevant market and the assessment of market power are not regarded as being of such great importance,7 and it has been suggested that establishment of the existence of market power (in the sense of ‘significant market power’, monopolistic power or, in European terminology, a dominant position), or even definition of the relevant market, would be unnecessary if the theoretical monopolist showed through its behaviour that it held or holds market power.8 This has been called the ‘first principles approach’.9 Thus, on the basis of the US Supreme Court judgments in  GC Flat Glass (1992) para 159.   Ten Kate & Niels (2008) 297. 3   US Department of Justice (2008) 25. ‘The market-definition requirement brings discipline and structure to the monopoly-power inquiry, thereby reducing the risks and costs of error.’ 4   Draft Guidelines on Horizontal Mergers (European Commission (2002b)) para 6 in fine. Strangely, the definitive Guidelines (European Commission (2004a)) do not contain this statement. In the same vein, according to Evans (2011) ‘market power can be a mere parrot for market definition’. However,‘market power should really be the leading man of the antitrust show’, so ‘ definition and power should be co-stars and get equal billing’. 5   Schmalensee (2011) 2. 6   cf Bishop & Walker (2010) 103–04, para 3.053. 7   Walker (2004) 3. ‘At the moment, perhaps the biggest difference between US and EU merger control is the absolutely central role played by market definition in the EU and the lesser role played by it in the US.’ 8   For a study of the definition of market in the US, see Baker (2007). 9   Bishop & Walker (2010) 233, para 6.10. 1 2

2  Defining the Relevant Market in European Competition Law Appalachian Coals in 1933, Indiana Federation of Dentists in 1986 and, above all, Kodak in 1992, it has been said that the market and market power must not be assessed in isolation but rather in the context of the behaviour in question and the alleged anticompetitive effects.10 More recently, the US Department of Justice and the Federal Trade Commission (FTC) have also proposed reducing the importance of the definition of markets in merger control and instead have advocated the use of direct indicators of market power and the negative effects of a concentration, such as ‘upward pricing pressure’ (UPP)11 – a concept that has still not been accepted by US federal judges.12 Applying this philosophy to the European Union, the behaviour of undertakings and the effects of that behaviour should be the starting point for investigations under Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU), rather than a purely theoretical examination whose first two phases are clearly distinct (definition of relevant market, and then analysis of market power) from the reality of the alleged infraction, to which attention is only given in the third phase.13 Definition of the relevant market is of importance in all areas of competition law. First, it constitutes the indispensable prerequisite for applying Article 101 TFEU and determining whether an appreciable reduction in competition has occurred or will occur.14 Secondly, definition of the market makes it possible for market share to be calculated. Market share provides very useful information about market power, both for the purposes of observing the existence of a substantial reduction in competition within the meaning of Article

10   Literally, ‘not as a flawed filter carried out in a vacuum divorced from these factors’: Salop (2000) 191. According to this author, ‘only by analysing market power and market definition as part of and in reference to the economic analysis of the alleged anticompetitive conduct and its market effects can logic and consistency be maintained and errors be avoided. Similarly, only in this way can relevant markets properly be defined.’ A similar point was also made by Baker (2007) 173: ‘Market definition does not take place in a vacuum; in any particular case, demand substitution must be evaluated with reference to the specific allegations of anticompetitive effect in the matter under review.’ For its part, the US Department of Justice, in its report on s 2 of the Sherman Act, referred to the advantages of the traditional procedure for defining markets compared to the use of direct evidence of profits, margins or demand elasticities. US Department of Justice (2008) 29: ‘In short, direct evidence of a firm’s profits, margins, or demand elasticities is not likely to provide an accurate or reliable alternative to the traditional approach of first defining the relevant market and then examining market shares and entry conditions when trying to determine whether the firm possesses monopoly power.’ However, the same document did support the idea of having recourse, even exclusively, to the ‘first principles approach’ when proving the anticompetitive effects of conduct. US Department of Justice (2008) 30: ‘If a dominant firm’s conduct has been demonstrated to cause competitive harm, one could rely simply on that evidence and dispense with the market definition requirement entirely.’ According to fn 88 of the document, this solution was mooted by the courts in cases such as Broadcom Corp v Qualcomm Inc, 501 F3d 297, 307 (3rd Cir 2007); Conwood Co v US Tobacco Co, 290 F3d 768, 783 n 2 (6th Cir 2002). 11   See Farrell & Shapiro (2010), the comment by Gippini Fournier (2010) and the criticism by Werden & Froeb (2011) and Jackson (2011). 12   Judgment of the US District Court, Southern District of New York, of 11 May 2010 in case No 06 Civ 13122 The City of New York v Group Health Incorporated and others (District Judge: Richard J Sullivan). 13   A fairly similar approach to this can be found in GC Volkswagen (2000) paras 230–31, which confirmed the decision where, faced with an obvious and serious restriction on competition, the Commission had not bothered to define in detail the relevant market when applying Art 101 (for this and other similar judgments, see section 1.2.2 below); and in the numerous judgments of the ECJ that have confirmed the relevance of the behaviour of the undertakings when assessing their market power for the purposes of applying Art 102, inter alia United Brands (1978) (on this point and also as regards the well-known ‘circular argument’ in the establishment of a dominant position, see section 3.5 below). 14  GC European Night Services (1998) para 96.

Introduction  3 101(3)(b) TFEU, and also to prove the existence of a concentration of excessive market power, whether under Article 10215 TFEU or under Regulation 139/2004.16 After many years of at times inconsistent decision-making practice, the Commission produced a Notice concerning the definition of relevant market for the purposes of European competition law.17 In this Notice, the Commission opts for the traditional and more rigorous system, initially developed in the field of Article 102 TFEU and later, from 1989 onwards, in the field of merger control. Thus, it examines the relevant market first from the point of view of the product or service and then from the geographic standpoint.18 Before this Notice, the Commission19 had defined product market as follows: A relevant product market comprises all those products and/or services which are regarded as interchangeable or substitutable by the consumer, by reason of the products’ characteristics, their prices and their intended use.

The geographic reference market was in turn defined as follows: The relevant geographic market comprises the area in which the undertakings concerned are involved in the supply and demand of relevant products or services, in which the conditions of competition are sufficiently homogeneous and which can be distinguished from neighbouring geographic areas because, in particular, conditions of competition are appreciably different in those areas.

As can be observed, the concept of reference market is different from other concepts of market used frequently in other contexts (undertakings often use the concept to mean the area in which they sell their products, or, in a wider sense, the industry or sector to which they belong).20 In the following section we will examine whether the concept of reference market is unique and applicable in a homogeneous manner in all fields of European competition law or whether its definition depends on the particular context. After that, the general proced­ ure followed by the Commission in defining relevant markets will be described.

15   At the very least, the traditional definition of market and the assessment of market power act as a filter for those cases in which problems of abuse can be ruled out from the start. In this regard, see Vickers (2006) 12 and Evans (2011) 3. See also ICN (2008), which describes dominant position/substantial market power as the ‘filter for intervention’ that ‘limits the scope of application of most unilateral conduct laws’. See also US Department of Justice (2008) 19, which defines the requirement of ‘monopoly power’ (similar in content to ‘substantial market power’) as a useful filter for ruling out application of s 2 of the Sherman Act (the US equivalent of Art 102) in many cases: ‘This monopoly-power requirement serves as an important screen for evaluating single-firm liability. It significantly reduces the possibility of discouraging “the competitive enthusiasm that the antitrust law seek to promote”, assures the vast majority of competitors that their unilateral actions do not violate section 2 and reduces enforcement costs by keeping many meritless cases out of court and allowing others to be resolved without a trial.’ For the opposite view that competition law regimes should pay attention to unilateral conduct of firms lacking substantial market power, see Tor (2010). 16   Nevertheless, new Guidelines on Horizontal Mergers of the US Department of Justice and Federal Trade Commission (2010) reduce the systemic importance of the definition of markets and blur the limits between this operation and the analysis of the anti-competitive effects of a restrictive practice. That said, they appear to allow very narrow market definitions. 17   European Commission (1997a). 18   Some authors also refer to a ‘temporal market’, which would be based on the time period in which a market functions in a homogenous manner; such a market will function differently depending on the time of day or the season. See Bellamy & Child (2008) paras 4.089–4.090. 19   See the rudimentary section 6 of the A/B form of Reg 27 of 1962, and section 6 of the CO form of Reg 2367/90, for the notification of concentrations with a European dimension. 20   European Commission (1997a) para 8.

4  Defining the Relevant Market in European Competition Law

1.2  ONE OR SEVERAL DEFINITIONS OF THE CONCEPT OF REFERENCE MARKET IN COMPETITION CASES

The case law of the EU Courts, and above all decisions of the European Commission, reveal an apparent lack of homogeneity in the assessment of relevant markets, as the nature of any assessment depends upon whether Articles 101(1), 101(3) or 102 TFEU or the Merger Regulation are applied. It is true that the depth and sophistication of the analysis will vary greatly, but there is no difference at all – nor should there be – in the substantive content.21 While it can be accepted that retrospective definitions of market may be more precise than prospective definitions – that is, in cases under Articles 101(1) and 102 TFEU as opposed to merger control where the Commission must base its approach on reasonable hypotheses about the future – it does not appear adequate from a systematic point of view, and even less so as regards legal certainty, that there are various – possibly innumerable – definitions of the same market, depending on the always variable circumstances in each case.22 Further, the use of apparently different geographic concepts in the various provisions does not mean that a different approach to the relevant geographic market should be taken according to whether one or other rule is applied.

1.2.1  Alleged Lack of Substantive Homogeneity in the Analysis of Relevant Market As regards the alleged lack of substantive homogeneity in the analysis of relevant market, looking initially at Article 101(1), it is possible to evaluate a restriction on competition, whether for its object or its effects, simply by examining the content of the agreements or practices of the parties without analysing an empirical market; in other words, by taking a wholly abstract approach. However, in practice the appreciable nature of a restriction on competition and trade between Member States, which is a condition for the applicability of Article 101(1) established by the European Court of Justice (ECJ),23 is usually evaluated according to both qualitative (abstract) and quantitative (empirical) criteria.24 From the qualitative point of view, not all agreements between undertakings are restrictive – the fact that some appear to be restrictive but in fact are not has led certain authors to speak about an EU rule of reason in the application of Article 101(1) – and even if they are restrictive this does not mean that all are equally so.25 From the quantitative point of view, the most recent (2001) in the series of Commission Notices on agreements of minor importance, also known as the de minimis Notices, provides that the Article 101(1) prohibition does not affect agreements between undertakings when the market shares of the participants taken together does not exceed, in any of the relevant markets, the threshold of 10 per cent, if the agreement has been entered into by

21   According to Bishop & Walker (2010) 143, para 4.083, ‘[a] common misconception is that market definitions are independent of the particular competition issue at hand’. 22   A less extreme formulation of this point of view would, however, be acceptable: see Bishop & Walker (2010) 103–04, para 3.053. 23   See ECJ Société Technique Minière (1966) 359–60 (French edn), and the grounds given in ECJ Völk (1969). This latter ruling gave rise to the Commission’s first de minimis Notice in 1970. 24   Van Houtte (1983) 93–94. 25   See sections 2.2 and 2.5 below.

Definitions of the Concept of Reference Market in Competition Cases  5 real or potential competitors, or 15 per cent if the agreement has been entered into by noncompetitors.26 Clearly, in order to calculate market share it will be necessary to determine the relevant market, which involves defining both the product market and the geographic reference market, in accordance with the criteria established by the Commission in its Notice on the definition of relevant market of 1997. Secondly, regarding examination of the relevant market in the context of Article 101(3) TFEU, it can be observed that the assessment of economic power in this field mainly requires an analysis of empirical markets, although an abstract analysis is still needed. It is precisely the latter that may make it possible to calculate a fundamental variable to evaluate the elimination or otherwise of competition: internal competition. Only by carrying out a detailed analysis of the clauses of agreements can it be decided whether or not competition between the parties exists.27 The relevant markets examined under Article 101 TFEU have generally been considered to be identical. In support of this view, reference is made to the definition of ‘relevant market’ set out in the former de minimis Notices,28 and also the ECJ ruling in De Geus v Bosch (1962),29 which described Article 85 of the EEC Treaty (now Article 101 TFEU) as ‘an indivisible whole’. Nevertheless, the concept of ‘agreements of minor importance’ that the Commission deals with does not necessarily have exactly the same scope as the concept of ‘appreciable restriction of competition’ of the ECJ, and it was not until relatively recently that this judgment30 could be considered to be absolutely right, becoming more significant than ever from 2004 onwards. In fact, before the adoption of Regulation 1/2003, paragraphs 1 and 3 of Article 101 TFEU were not always applied at the same time. The mere fact that Article 101(1) had direct effect and could (and had to) be applied by the national courts, whereas Article 101(3) did not have direct effect and could only be applied by the Commission, should be enough to limit the scope of the Court’s declarations, which fit better the current situation than that existing in 1962. In any event, there is little doubt that the analysis of the market is (and, in fact, must be) the same whether Article 101(1) or 101(3) is applied. This substantive homogeneity also exists in the analysis of markets for the purposes of Article 102 TFEU, regarding abuse of a dominant position, and in the context of Regulation 139/2004. It has always been considered that the concept of relevant market is identical, whether applied in the field of Article 101(3) or Article 102.31 In practice, the ECJ and the 26   When it is difficult to determine whether it is a question of one or the other type of agreement, then, according to the Commission, a threshold of 10% will be applied. When a cumulative effect of exclusion occurs, due to the existence of parallel networks of agreements of similar consequences in the market, the market share thresholds will be 5%. See the de minimis Notice of the Commission (European Commission (2001d)) paras 7–8. This Notice is still in force but is currently under review. 27   See section 6.1 below. 28  See, for example, the Commission’s 1986 de minimis Notice, paras 10 ff or that of 1997 – European Commission (1997b) paras 13 ff. As already explained, the first version of the de minimis Notice was published in 1970, and the second in 1977. 29  ECJ De Geus v Bosch (1962) 105 (French version). 30   See Van Houtte (1983) 94–96. 31   See, for example, Gleiss & Hirsch (1978) 325; Schröter (1977) 466–69; Thiesing cited in Van Houtte (1983) 118, fn 115. However, some authors doubt whether the markets were identical, suggesting that one of them may have been broader than the other, something which would have particularly affected the degree of substitutability required and the extension of the territory concerned. See Van Houtte (1983) 119, who cites JF Verstrynge, ‘Het begrip “relevante markt” in het EEG-mededingingsrecht: de stand na het Hugin-arrest’ (1980) Sociaal-economische wetgeving 400–18, 403 to support this view.

6  Defining the Relevant Market in European Competition Law Commission have not distinguished between these two means of applying the concept. Thus, for example, in Metro I (1977), the Court examined the system of selective distribution of the SABA brand from the point of view of both Article 102 and the fourth condition of Article 101(3). In both instances, the Court used the domestic leisure market in electronic equipment as the relevant market.32 Later, in ANCIDES (1987)33 the Court treated the relevant market for the purposes of both provisions in the same way, examining the applicability of both in the market for exhibitions of dental products. The Commission has largely resolved the question by showing itself to be wholly in favour of homogeneity in the analysis of the relevant market in all types of competition matters in its Notice on the definition of relevant market (1997). It does not appear, therefore, that the substantive analysis of the market or the elements to be taken into account when assessing the importance of restrictions – which amounts to the same thing – will differ when evaluating the extent of restrictions on competition within the scope of Article 101(1) or (3), or the existence of a dominant position in the context of Article 102, or, in merger cases, whether a concentration impedes effective competition in the internal market.34 Despite the same methodology for all competition rules being used, this may not prevent there being: different results depending on the nature of the competition issue being examined. For instance, the scope of the geographic market might be different when analysing a concentration, where the analysis is essentially prospective, from an analysis of past behaviour. The different time horizon considered in each case might lead to the result that different geographic markets are defined for the same products depending on whether the Commission is examining a change in the structure of supply, such as a concentration or a cooperative joint venture, or examining issues relating to certain past behaviour.35

The process of integrating and widening markets could, therefore, mean that in the market for a given product the analysis of geographic market could lead to different conclusions depending on whether the analysis is based on past activity, before a probable and predictable widening of the market, or on presumed future activity.36 However, it seems clear that it is worth preserving, as far as possible, equivalence in the definition of market developed for the purposes of ex ante application with that developed for the purposes of ex post application of the competition rules.37  ECJ Metro I (1977) paras 16–18, 42–50.  ECJ ANCIDES (1987) paras 11 ff. 34   By contrast, see Van Houtte (1983) 94–95; Waelbroeck & Frignani (1998) 245, para 178. For these authors, ‘with respect to the application of paragraph 1 of Article 85 [now Article 101 TFEU], the concept of relevant market has a narrower meaning than that used in relation to paragraph 3(b) of Article 85, or Article 86 [now Article 102 TFEU]. The mere fact that the products are substitutes for each other is not enough for them to belong to the same market within the meaning of paragraph 1 of Article 85.’ (Author’s own translation.) 35   Commission Notice on the definition of relevant market (1997a) para 12 (emphasis added). 36   Before Regulation 1/2003 came into force, it was also possible for this same situation to arise when defining the relevant geographic market in the context of Art 101(3) TFEU, since before deciding whether or not the condition of non-elimination of competition was satisfied, a prospective examination had to be carried out; in principle as prospective on examination as in the control of concentrations, although in reality in the past this was hardly ever so, and now, with the joint application of Art 101(1) and (3) it is even less so. See section 5.4 below. 37   In the same way, see the Guidelines on market analysis and the assessment of significant market power under the European regulatory framework for electronic communications networks and services (European Commission (2002a)) para 37. This document recognises that the markets defined by the Commission and by the national competition authorities can differ from those defined in other fields (such as activities for sectoral control carried out by national regulatory bodies in the field of telecommunications) and that the reference markets defined in 32 33

Definitions of the Concept of Reference Market in Competition Cases  7

1.2.2  Depth or Sophistication of Market Analysis The general homogeneity of the analysis does not prevent, from the Commission’s perspective (or that of the national or EU Courts where relevant), the depth or sophistication of the market analysis required from being very different, according to which provision is applied.38 Formerly, in Article 101(1) cases concerning agreements or restrictive practices that could not be authorised because they had not been notified or because they did not satisfy any of the first three conditions for exemption set out in Article 101(3), it was thought that it was not necessary to examine whether the parties could eliminate competition. In fact, the Commission39 (with the ECJ’s blessing)40 did not usually assess the exact position of the parties in the relevant market; rather, as has just been explained, it limited itself to proving the existence of a restriction on competition by object or effect, that the restriction on competition was qualitatively and quantitatively appreciable for competition and for trade between Member States, and that, as a result, Article 101(1) applied.41 In such cases, the Commission generally limited its role to describing in a general manner the products or services in question, the structure of the market and the conditions of competition; it did not assess the economic power of the parties and their competitors in the market, unless some special reason obliged it to do so.42 Following the judgments of the General Court (GC) in SPO (1995) and European Night Services (1998), the Commission took an increasingly rigorous approach. This new doctrine was summed up in the GC’s judgment in Volkswagen (2000): As regards the scope of the Commission’s obligation to define the relevant market before finding an infringement of the Community competition rules, the Court points out that the approach to defining the relevant market differs according to whether Article 85 or Article 86 of the EEC Treaty [now Articles 101 and 102 TFEU] is to be applied. For the purposes of Article 86, the proper definition of the relevant market is a necessary precondition for any judgment as to allegedly anticompetitive behaviour, since, before an abuse of a dominant position is ascertained, it is necessary to establish the existence of a dominant position in a given market, which presupposes that such a market has already been defined. On the other hand, for the purposes of applying Article 85, the reason for defining the relevant market, if at all, is to determine whether the agreement, the decision by an association of undertakings or the concerted practice at issue is liable to affect trade between Member States and has as its object or effect the prevention, restriction or distortion of competition within the common market . . . Consequently, there is an obligation on the the context of the telecommunications regulatory framework prior to the proposal were different to those defined according to competition regulations, since they were based on certain specific aspects of end-to-end communications rather than on demand and supply criteria used in an analysis in accordance with competition law (Guidelines, paras 25–28 and 34). See also Working Paper on proposed guidelines on the analysis of the market in electronic communications (European Commission (2001b)). Unlike other Commission documents of that time (see section 10.3.2 below), the proposals set out in the Working Paper were, in essence, adopted in the definitive Guidelines. 38   See Vickers (2003) 171. 39   See, inter alia, Commission decision Industrieverband Solnhofener Natursteinplatten (1980) 16; Commission decision Breeders’ Rights (1985) 16; and more recently Commission decision FEFC (1994) paras 43–44. 40   See, inter alia, in addition to ECJ Technique Minière (1966) and ECJ Völk (1969), which will be analysed in section 2.4, ECJ Cadillon (1971) paras 5–9; ECJ Tepea (1978) paras 52–56; ECJ Pioneer (1983) paras 81–87; ECJ Hasselblad (1984) paras 19–23. 41   See ch 2. 42   For some of these reasons, see Ritter & Braun (2004) 123–24.

8  Defining the Relevant Market in European Competition Law Commission to define the market in a decision applying Article 85 of the Treaty where it is impossible, without such a definition, to determine whether the agreement, decision by an association of undertakings or concerted practice at issue is liable to affect trade between Member States and has as its object or effect the prevention, restriction or distortion of competition within the common market . . . [T]he Commission duly proved in the decision that the applicant committed an infringement whose object was to restrict competition within the common market and which was by its nature liable to affect trade between Member States. Since the Commission was entitled to find that the applicant had, jointly with its subsidiaries Audi and Autogerma, partitioned the Italian market, it naturally followed that the transactions from Italy to all the other Member States were capable of being affected. Consequently, the application of Article 85 of the Treaty by the Commission did not require, in this case, that it first define the geographic market.43

This case law undoubtedly inspired the Commission’s Guidelines on the application of Article 101(3), where, as the following text shows, apart from restrictions by object, it leaves open the possibility of identifying a restriction without analysing its specific effects: For the purposes of analysing the restrictive effects of an agreement it is normally necessary to define the relevant market. It is normally also necessary to examine and assess, inter alia, the nature of the products, the market position of the parties, the market position of competitors, the market position of buyers, the existence of potential competitors and the level of entry barriers. In some cases, however, it may be possible to show anti-competitive effects directly by analysing the conduct of the parties to the agreement on the market.44

As regards Article 101(3), and more particularly letter (b), the reference market and economic power of the parties in this market are essential parameters for assessing whether their agreement provides them with the possibility of eliminating competition within the meaning of the fourth condition. Even today, therefore, the rigorousness of the analysis of the impact on the market of agreements or restrictive practices varies greatly, depending on whether we wish to show that Article 101(1) TFEU applies on its own or whether it applies in conjunction with Article 101(3)(b). At the same time, the Commission’s economic analysis when refusing (let alone when granting) an exemption from Article 101(3) has been much less sophisticated than when it has considered it necessary to establish an abuse of a dominant position. There are two reasons for this. First, in many cases where it applied Article 101(3), the Commission had already determined that one or more of the first three conditions of the exemption did not exist, and therefore it did not have to carry out an in-depth analysis of the fourth condition. Since this latter condition is as complicated conceptually as the first part of the test set out in Article 102, this meant that the Commission was able to save a great deal of administrative 43  GC Volkswagen (2000) paras 230–31, in conjunction with GC SPO (1995) para 74, GC European Night Services (1998) paras 93–95 and 105, and GC FETTCSA (2003) paras 203–30. In its decision in Volkswagen (1998), the Commission found to be illegal a series of agreements and practices between different companies belonging to the Volkswagen group and its distributors in Italy aimed at eliminating the parallel sale of vehicles of the same make between Italy on the one hand and Austria and Germany on the other. The GC confirmed the decision, apart from reducing the very substantial fine of 102m euros by about 10%. Volkswagen had alleged in its action for annulment that the Commission decision by which Art 101(1) was applied suffered from a significant omission, since it had not defined the way in which the market where the Treaty breach took place should be defined. This led the GC to examine the Commission’s obligations regarding market definition, clarifying and extending its relevant case law. For the effects of Volkswagen, and subsequent cases that have followed it concerning the evaluation of the conditions of application of Art 101(1), see ch 2. 44   Guidelines on Art 101(3) TFEU (European Commission (2004d)) para 27.

Definitions of the Concept of Reference Market in Competition Cases  9 resources, although the exercise would undoubtedly have been interesting from a doctrinal standpoint. In order to determine whether the first three conditions of Article 101(3) are satisfied, the Commission must take into account the advantages and benefits that derive from an agreement, although not specifically in the relevant market, but rather in any market where the agreement in question may produce beneficial effects.45 As a result, the market analysis may be more superficial with respect to the first three conditions than when the fourth condition is applied.46 Secondly, in the context of the application of Article 101(3), the Commission has always found itself in the comfortable position of waiting for the parties to an agreement to show, to its satisfaction, that they satisfy the fourth condition.47 In principle, this has not changed with the arrival of Regulation 1/2003.48 In addition, in order to refuse to apply Article 101(3), the Commission can always show that it is not convinced by the parties’ submissions relating to the first three conditions, thus avoiding the need to study the fourth condition and the relevant market in depth. This is not possible if the Commission aims to show an abuse of a dominant position, nor was it possible if it aimed to prove the creation or strengthening of a dominant position within the procedures laid down by the now repealed Regulation 4064/89. It does not appear possible either under the system laid down by Regulation 139/2004, although there are those who argue that one of the advantages of the new substantive test is that it reduces the importance of the definition of markets in EU merger control.49 In any event, because of the very nature of its decisions, the market analysis tends to be more superficial in first-phase than in second-phase decisions.50  GC FETTCSA (2003) para 227. See also ECJ Publishers’ Association (1995) para 29. See also GC FEFC (2002) paras 343–45, where the Court held that Art 101(3) did not require the benefits to be linked to a specific market and that in certain cases benefits had to be taken into account ‘for every other market on which the agreement in question might have beneficial effects, and even, in a more general sense, for any service the quality or efficiency of which might be improved by the existence of that agreement’. For the diametrically opposed position, see Guidelines on Art 101(3) TFEU (European Commission (2004d)) para 27: ‘The assessment under Article 81(3) [now Article 101(3) TFEU] of benefits flowing from restrictive agreements is in principle made within the confines of each relevant market to which the agreement relates. The European competition rules have as their objective the protection of competition in the market and cannot be detached from this objective. Moreover, the condition that consumers must receive a fair share of the benefits implies in general that efficiencies generated by the restrictive agreement within a relevant market must be sufficient to outweigh the anti-­competitive effects produced by the agreement within that same relevant market. Negative effects on consumers in one geographic market or product market cannot normally be balanced against and compensated by positive effects for consumers in another unrelated geographic market or product market. However, where two markets are related, efficiencies achieved on separate markets can be taken into account provided that the group of consumers affected by the restriction and benefiting from the efficiency gains are substantially the same. Indeed, in some cases only consumers in a downstream market are affected by the agreement in which case the impact of the agreement on such consumers must be assessed. This is for instance so in the case of purchasing agreements.’ 46  GC FETTCSA (2003) paras 228–30. 47   See, inter alia, citing the case law above in the same way, GC Langnese/Iglo (1995) para 179. See also ch 5. 48   Art 2 of Reg 1/2003 provides: ‘The undertaking or association of undertakings claiming the benefit of Article 81(3) [now Article 101(3) TFEU] of the Treaty shall bear the burden of proving that the conditions of that paragraph are fulfilled.’ 49   Dubow, Elliot & Morrison (2004) 116 argue that in the analysis of unilateral effects it is not necessary to define precisely the relevant market and that this may include products that it would be hard to describe as substitutes for those of the firms involved in the merger. The above applies where the starting point is an examination of direct competition between the parties’ products. Gurrea & Owen (2003) 91–94, citing Charles A James, ‘Rediscovering Coordinated Effects’, address at the American Bar Association Section of Antitrust Law Annual Meeting (13 August 2002) 8–9, stress the work that is saved in the market definition phase, since ‘most economists would concede that market definition is not particularly important in unilateral effects analysis’. 50   The matters decided in the first phase are those that do not cause serious doubts as regards their compatibility with the internal market (Art 6(1)(b) of Reg 139/2004). The question of exactly how the burden of proof is distributed in Reg 139/2004 proceedings has yet to be decided by the EU Courts. It seems logical that each of the 45

10  Defining the Relevant Market in European Competition Law On the basis of the above, it may be the case that some of the Commission’s market assessments in decisions applying Article 101(3) TFEU positively, particularly the oldest ones, would not stand up to scrutiny by the ECJ if they had been carried out in Article 102 proceedings.51 Finally, and once again, as regards merger control, the substantive objective of the analysis of the relevant market is the same (the traditional objective laid down in Continental Can (1973) – a case concerning a concentration, United Brands/Chiquita (1978), Hoffmann-La Roche (1979) and so on),52 although the future53 situation is studied, whereas in Article 102 cases the past is analysed, as a first step towards establishing the existence of an abuse in the past that occasionally continues to exist in the present. The temporal perspective is therefore different depending on which rule is applied, and means that, as has already been explained, on occasion different geographic markets may exist for the same products in merger control and in the prevention of abuses of a dominant position.54 It must again be recognised that the analysis of the relevant or reference market in merger control cases55 has been as technical and exhaustive as normally occurs in Article 102 cases (especially in second-phase decisions), more technical and exhaustive than in Article 101(3) cases, and much more technical and exhaustive than in Article 101(1) cases. In fact, merger control has resulted in spectacular improvements in the economic analysis undertaken (particularly the market analysis) within EU antitrust law,56 despite the fact that until recently the usual criticism of the Commission was that, even as regards concentrations, its decisions were highly legalistic and short on economic reasoning, unlike those adopted by the US Department of Justice and the Federal Trade Commission. As has already been suggested, there are basically two reasons why, in practice, from the point of view of economic analysis, EU merger control has proved to be top of the class. First, market analysis in merger cases came about at a time when European competition law had reached a level of maturity. The Commission replaced its previous legalistic approach with one where it attempted to justify its decisions using solid economic arguments. Nevertheless, it should not be thought that the Commission took its responsibilities lightly in the past; it simply limited itself to justifying its decisions with the minimum economic arguments necessary in each type of case, as we have just seen. From the above, we can find the second and main reason for the differing depth of market analysis in different contexts: the different nature of each rule allows a differentiated treatment of the definition of market, although the Commission’s decision-making practice in this area has clearly also evolved in line with changes in competition policy. The degree of economic analysis has, therefore, varied according to the degree of sophistication that the Commission has required. In other words, the intensity of the Commission’s intervening parties, including the Commission, must prove whatever they allege. Thus, companies that notify a merger must show that this will not significantly impede effective competition, in particular by creating or strengthening a dominant position, and if the Commission disagrees, it must show the reverse. If the Commission considers that the notifying companies cannot sufficiently prove what they allege, it still has to make its case before prohibiting a concentration. 51   Van Houtte (1983) 130. 52   For the case law on this point, see below. 53   See ECJ Kali + Salz II (1998) para 221; GC Kesko OY (1999) para 107. More recently, see ECJ Impala (2008). 54   See section 1.2.1 above in fine. 55   At least as regards second-phase decisions prohibiting or authorising concentrations. The language used in first-phase decisions has always been very ambiguous. As regards merger control procedure, see Ortiz Blanco (2006) part two. 56   See, inter alia, Ridyard (1994) 262.

Definitions of the Concept of Reference Market in Competition Cases  11 economic analysis has depended on the greater or lesser need to justify in economic terms the type of decisions that its policy has focused on. On the other hand, in practice it can be shown that in general the Commission’s competition policy has, perhaps rightly, avoided cases with legal or economic complications, and wherever possible – or where the complainants have allowed them to – it has tackled soft targets first, leaving hard targets for a later date.57 In the first place, it has attacked those infringements which are both the most numerous and the easiest to prove, which require less economic finesse. Thus, initially (from 1962 onwards) the Commission tackled vertical agreements between producers and distributors, and cartels, under Article 101(1), applying Article 101(3) to the former. However, once again the degree of sophistication in the economic analysis that these latter provisions required, in the absence of complaints, was very limited, particularly taking into account the very limited number of actions brought against decisions that favoured the notifying undertakings.58 Following decentralisation, the Commission should act as a guide for the national authorities and use the mechanisms that it has been provided with ad hoc to take responsibility for the most complex cases. Despite this, the current policy, particularly with respect to Article 101, continues to be to deal with what, in legal terms, are the easier cases (cartels) while avoiding, where possible, those that are more difficult. The above reasons also explain, at least in part, why the Commission has applied Article 102 much less frequently than Article 101. Thus, the Commission has the burden of proving that one or more undertakings have abused a dominant position and therefore must take a much more sophisticated economic approach to markets and the position of the undertakings involved.59 In Article 102 cases, the Commission is able to access methods of obtaining evidence that it cannot access in merger cases. This may make its task of establishing the existence of a dominant position somewhat less arduous. As regards defining the market in Article 102 cases, the starting point is the allegedly abusive practice, then the product market is analysed, and finally the geographic market;60 in merger control, the first step does not exist, since there is no abuse to correct and a much more abstract attempt is made to define the market (generally several or even numerous markets). It is therefore extremely useful to be able to use the fact that a firm has been able to commit abusive acts as evidence of the existence of a dominant position; in other words, the much criticised (yet repeatedly used by the Commission and the ECJ) ‘circular argument’.61

57   On this point, the ECJ can hardly criticise the Commission, since the Court can itself also be evasive when deciding issues that it is faced with. It makes decisions more easily in simple than in complicated cases, where it manages to evade complex issues more or less gracefully. 58   Very few cases against Commission decisions concerning individual exemptions have been brought by those benefiting from the exemption. See, for example, ECJ Transocean Marine Paint Association I (1973) and GC Dutch Banks (1992). 59   As noted by RBB Economics (2006) 24 ff para 3.3, the main problem in relation to dominant position is that it is assumed that a satisfactory market definition may be established when in fact this rarely happens. See also Discussion Paper on Art 102 TFEU (European Commission (2005)) para 32, which acknowledges the difficulty of defining markets in Art 102 cases. 60   Against this, the group of economists that make up the EAGCP (European Advisory Group for Competition Policy) propose an effects-based approach, according to which the analysis of whether an abuse of a dominant position exists takes place in a single phase, on the basis of a theory of competitive harm in which the need to define the market would be greatly reduced and dominant position and abuse would be examined at the same time. See EAGCP (2005) 14–17. 61   See, inter alia, ECJ United Brands (1978) para 68; ECJ Hoffmann-La Roche (1979) para 49. See Ritter & Braun (2004) 406–07.

12  Defining the Relevant Market in European Competition Law As regards merger control, two further points should be borne in mind. First, on most occasions the Commission is not obliged to take sides as regards the relevant market, since, even taking as a reference the narrowest possible market, most mergers do not cause competition problems, and therefore, as the Commission recognises, it is not necessary to define them with precision.62 The Commission has attempted to export this merger control practice to the field of individual exemptions (only partially successfully),63 although it is very doubtful that in order to apply Article 101(3) it can decide not to choose a given market definition. In theory it can, for the same reasons as in merger control: a negative condition is being examined, which may not be satisfied whichever definition is adopted. In practice, if the Commission has done its work properly, it should already have defined the market when examining the applicability of Article 101(1) TFEU, although in theory it could conclude that whatever the relevant market, competition would be restricted within the meaning of this provision, as was seen above. In fact, despite these possible theories, the analysis of relevant market in Article 101 cases should always be closer to that undertaken in Article 102 or second-phase investigations in merger control cases (decisions taken under Article 8 of Regulation 139/2004) than first-phase merger control investigations (decisions taken under Article 6(1)(b) of Regulation 139/2004). Secondly, it must be borne in mind that much more attention is paid to the Commission’s merger control activities than agreements, restrictive practices and dominant positions – even if this is only because of the large number of formal decisions adopted each year (more than 220 per year since 1990) compared to the much lower number adopted in applying Articles 101 or 102 TFEU and Article 9 of Regulation 1/2003 (15 or 20 at most). Finally, there is also perhaps a psychological factor: the behaviour ‘controlled’ under Regulation 139/2004 – one undertaking taking control of another – could be perceived as much more innocuous than that being investigated (albeit only by the administrative authorities) under Articles 101 and 102 TFEU (carrying out of agreements and practices that restrict competition, and abuses of a dominant position), although it is true that, at least in Europe, until recently the latter were not regarded as being particularly serious. The Commission may, therefore, feel the need to justify much more thoroughly the way it acts in concentration cases than with respect to antitrust cases.

1.2.3  Geographic Concepts Used in the Various Rules To conclude the analysis of the apparent differences between the relevant markets in the different areas of application of the European competition rules, as regards geographic market, the different wording of Article 101(3) TFEU and Article 65(2) of the Treaty estab62   In fact, often no particular market definition is given with respect to concentrations authorised in the first phase under Art 6(1)(b) of Reg 139/2004 and, previously, under the same provision in Reg 4064/89. The vast majority of decisions adopted by the Commission in merger control cases belong to this category. See Notice on the Definition of Relevant Market (European Commission (1997a)) para 27. In the XXXIth Report on Competition Policy (2001) para 253, the Commission estimated that in the five previous years, more than 70% of definitions of geographic market had been left open. Cited in Cook & Kerse (2008) 254. There are also those who argue that, in practice, it is not necessary to identify the precise limits of the relevant market following the enactment of the new Regulation. This would be one of the alleged ‘advantages’ of the new substantive test. See Dubow, Elliot & Morrison (2004) 116. 63   See GC Métropole (2002) paras 54 ff.

Definitions of the Concept of Reference Market in Competition Cases  13 lishing the Coal and Steel Community (ECSC Treaty) (to which must be added its close relative, Article 2(3) of Regulation 139/2004)64 has been rightly pointed out. Thus, unlike the other provisions referred to, there is no reference to geographic scope in Article 101(3). Nevertheless, the geographic references contained in the expired Article 65(2) of the ECSC Treaty did not appear to have any purpose beyond limiting the Commission’s jurisdiction: the power to impose non-competitive transaction conditions outside EU territory did not fall within the ECSC’s jurisdiction. On this point, Article 65(2) had a similar role to the condition set out in Article 101(1) that the agreements, decisions and prohibited practices impede, restrict or distort competition within the internal (formerly common) market in the EC (nowadays the EU). As regards Article 102 TFEU, abuse of a dominant position is only prohibited if it takes place ‘within the internal market or a substantial part of it’. The difference between Article 101(3) and Article 102 appears to be substantive, since it could be thought that there are no minimum dimensions for determining the reference market within Article 101(3). Nevertheless, the ECJ and the Commission have defined markets for the purposes of Article 102 as if in reality there are no minimum dimensions for the definition of geographic market, as can be seen in, inter alia, Ahmed Saeed (1989)65 and Port of Genoa (1991).66 In fact, at least in practice, the effect of the wording of Article 102 could be the same as that set out in the Commission’s de minimis Notice in the field of Article 101;67 that is, it would establish the need for an ‘appreciable effect’. Once it had been shown that European trade was appreciably affected (with the same criteria applicable in the context of Article 101), all abuse would have to take place ‘within the internal market or a substantial part of it’. This phrase would not add anything new to the general requirement that Articles 101 and 102 TFEU ‘affect [appreciably] trade between Member States’. In practice, once the fundamental jurisdictional condition for the application of the EU competition rules has been met (an appreciable effect on competition and intra-European trade), the Commission and the ECJ often consider almost automatically that the relevant market constitutes a substantial part of the internal market.68 The same can be said of Article 2(3) of Regulation 139/2004, although in this case the structure of Articles 1 and 2 leaves even less room for doubt: once it has been shown that the Article 1 thresholds (whether worldwide, EU or national) have been reached, the Commission takes it as read that the concentration in question could be a significant impediment to effective competition, in particular by creating or strengthening a dominant position in the internal market or in a substantial part of it, and therefore must be examined.

1.2.4 Conclusion The market analysis in cases examined under paragraphs 1 and 3 of Article 101 and Article 102 and the Merger Regulation is, despite the different wording of these provisions, not different under each rule, although the different time perspective of Articles 101(1) and 102   See, inter alia, Ritter & Braun (2004) 393 ff; Van Houtte (1993) 143–44.  ECJ Ahmed Saeed (1989) paras 39 ff. 66  ECJ Port of Genoa I (1991) paras 14–15. 67   See Whish (2008) 186. 68   See Commission Staff Working Paper: Commission’s proposal for a new Council Regulation (1/2003) implementing Arts 101 and 102 TFEU; Article 3 – the relationship between EU law and national law (2001c) para 102. 64 65

14  Defining the Relevant Market in European Competition Law TFEU (ex post) and merger control (ex ante)69 could lead on occasion to different geographic markets being defined for the same products. Despite this slight anomaly, the objective should be uniformity, or, failing that, at least compatibility among all the market definitions (both geographic and product) reached for the same product or service when applying the different rules. The ideal situation would be for the analysis of a situation under Articles 101 and 102 and the merger control rules to produce identical results. This may be impossible to achieve because merger control analysis is more hypothetical; unlike analyses under Articles 101 and 102, it is not based (or is based much less) on the actual facts, if only because the (past) conduct of undertakings and their manner of exercising (or not) their market power cannot be taken into account when assessing the future results of a concentration.70 For example, in the Commission decision and the ECJ ruling in Michelin (1981 and 1983 respectively), the relevant geographic market was defined as the Netherlands because it was precisely there that Michelin committed abuses in the distribution of certain replacement tyres. However, in Continental/Michelin (1988), which concerned a joint venture for the production of a new type of tyre (both original and replacement), the relevant geographic market was defined as the whole of the European Community.71 In this case, if it were possible to punish the abuse of a dominant position in Holland by applying Article 102, it should have been concluded that the Continental/Michelin operation strengthened a preexisting dominant position on the Dutch market. This example shows, unfortunately, that the results of the application of the two rules are not the same. Although this is a fairly common situation, rather than being accepted as the natural order of things, it should be fought against. A similar point can be made regarding the temporal effect: the market evaluation in Article 102 cases takes place at a given point in time: even if the dominant position exists over a period of time, it is when the alleged abuse occurs that its existence should be established. By contrast, in merger control cases the market assessment attempts to detect lasting and long-term dominant positions. Whatever the situation, it is a fact that the Commission’s obligations when defining the market are different depending on which provision it intends to apply. According to the GC in Volkswagen (2000), a case concerning Article 101 TFEU, the Commission is not obliged to define the market in all cases, rather only when without such a limitation it is not possible to determine whether an agreement or practice appreciably affects trade between Member States and prejudices competition within the internal market.72 This does not mean, of course, that when the Commission has to analyse the market it must do so using different criteria according to whichever rule it must apply: the definition of relevant market, in this sense, is a question of fact.

69   Until Reg 1/2003 came into force, the Commission analysed Art 101(3) cases on an ex ante basis, as in merger control cases (at least in theory, despite the length of time it took the Commission to adopt its exemption decisions – commonly, several years). Undertakings’ self-assessment of their agreements must also be carried out ex ante, although the Commission’s perspective when analysing these same agreements will be ex post. 70   Specifically, as an element for analysing a pre-existing dominant position or a possible history of collusion prior to examining the possible creation of an oligopolistic dominant position or, and this amounts to the same thing, the ‘coordinated effects’ of a concentration. See GC Impala (2006) paras 251 ff; ECJ Impala (2008) para 129. 71   The example is given by Ritter & Braun (2004) 393. 72   For a more detailed opinion, see section 2.4 below.

Factors Used in the Analysis of Relevant Market  15

1.3  FACTORS USED IN THE ANALYSIS OF RELEVANT MARKET73

According to the General Court: The concept of the relevant market in fact implies that there can be effective competition between the products or services which form part of it and this presupposes that there is a sufficient degree of interchangeability between all the products or services forming part of the same market in so far as a specific use of such products or services is concerned (see, to that effect, Case 85/76 Hoffmann-La Roche v Commission [1979] ERC 461, paragraph 28, and Case T-340/03 France Télécom v Commission [2007] ERC II-107, paragraph 80). The interchangeability or substitutability is not assessed solely in relation to the objective characteristics of the products and services at issue, but the competitive conditions and the structure of supply and demand on the market must be also be taken into consideration (Case 322/81 Michelin v Commission [1983] ERC 3461, paragraph 37, and Case T-219/99 British Airways v Commission [2003] ERC II-5917, paragraph 91).74

Defining the relevant market is not a mechanical or abstract process; it requires the analysis of any evidence available regarding previous behaviour in the market and a global understanding of the mechanisms of each sector in question.75 In essence, in order to define a market, the real alternative sources of supply to which clients of the undertakings in question can turn must be identified, as regards both products or services and the geographical situation of suppliers. Other more or less immediate sources of competition that also put pressure on undertakings that allegedly enjoy market power can be analysed either within the relevant market itself (substitutability of supply, as regards the immediate possibility of participating in a market in which they are not present) or as a structural characteristic of the market (potential rather than immediate competition, which requires the analysis of other factors and is examined in the assessment phase of the elimination or obstruction of competition or the existence of a dominant position). The competitive pressure on undertakings capable of holding market power arises fundamentally from the substitutability of demand and, to a lesser extent, the substitutability of supply, which on occasion is difficult to distinguish from potential competition.76 The Commission sees the analysis of demand substitutability as involving a determination of the series of products or services that the consumer considers to be substitutes. Thus, on the basis of the type of product or service that the undertakings concerned sell and the area in which they sell it, other products or services and other areas of the market will be included or excluded as substitutes, depending on whether the competition posed by these other products or services (with similar characteristics, price or use) and areas   See Notice on the definition of relevant market (European Commission (1997a)).  GC CEAHR (Richemont) (2010) para 67. In the same sense, see also para 104. Cf Veljanovski (2010), for whom constraints, not substitution, is ‘the key to market definition’. 75   eg any previous evidence of the behaviour of consumers when substituting certain products or services for others. See the Guidelines on market analysis and the assessment of significant market power under the European regulatory framework for electronic communications networks and services (European Commission (2002a)) paras 35 and 49. It can be seen, then, that behavioural criteria are also useful for defining the market, not only to conclude that competition is being eliminated or that a dominant position is being held. 76   Notice on the application of the competition rules to access agreements in the telecommunications sector – framework, relevant markets and principles (1998b) paras 40–41. For a study of the substitutability of supply in the definition of relevant market in the control of concentrations, see Padilla (2001). According to Baker (2007) 134, in the USA supply substitutability is examined not at the market definition stage but later, as potential competition. 73 74

16  Defining the Relevant Market in European Competition Law (sufficiently neighbouring) has a strong enough effect on the parties’ price-fixing strategy in the short term, or restricts it.77 Thus, the Commission ascribes prime importance to the practical or theoretical effect on prices that the inclusion of similar products or services in a given sales area and similar or the same products or services in neighbouring areas would have. For this reason, the market would cover the range of products or services for which an increase in price of between 5 and 10 per cent would not lead to a sufficient substitution of demand – that is, it would not lead consumers to obtain other products or services that were similar but not the same outside the sales area. The price test78 does, however, have its drawbacks: it is not always possible to know what the competitive price is, or the price that would prevail in the market if no concentration of economic power existed, or above all when such a concentration exists and may previously have led to a substantial increase of the prevailing price in the market.79 Substitutability of supply may also be taken into account when defining markets, but only on condition that its effects are equivalent to those of the substitutability of demand in terms of efficiency and immediate response.80 This requires that suppliers are able to start making the products or providing the services in question and marketing them in the short term (that is, within a period that does not involve a significant adjustment to its tangible and intangible assets), without incurring costs or significant additional risks, in response to small, permanent price changes.81 Substitutability of supply will not be taken into account when defining the market when it involves a need to adjust significantly existing tangible and intangible assets, additional investments, strategic decisions or time periods. In such cases, the effects of the substitutability of supply and other possible forms of potential competition will be examined at a later stage. 77   The approach to market definition is ‘all or nothing’, ‘in or out’, yet common sense dictates that substitutability between products, which is the basis of definition of a market, is a question of degree. Thus, Vickers favours a ‘weighted market share approach’, something that happens in practice, albeit with less mathematical precision. See Vickers (2006) 3, 8–10. According to Röller and de la Mano (2006) 10 Box 1, the fact that the market definition takes into account whether or not products are within the market is the reason why market shares are not definitive. Thus, a definition of perfect market, which would include each and every one of the latter’s characteristics, would allow the market shares of the companies to reflect the latter’s genuine market power. 78   Also known as SSNIP: ‘small but significant non transitory increase in price’, and equally set out in the Notice on the application of the competition rules to access agreements in the telecommunications sector – framework, relevant markets and principles (1998) para 46, and in the Guidelines on market analysis and the assessment of significant market power under the European regulatory framework for electronic communications networks and services (European Commission (2002a)) paras 40 and 43. According to Geradin, Hofer, Louis, Petit & Walker (2005) 15, ‘the Commission has manifestly not applied the SSNIP test but rather preferred to rely on a qualitative assessment of substitutability through the identification of a cluster of indicators’. 79   This problem, which particularly arises in Art 102 cases, and which is especially significant in traditionally cartelised markets, such as schedule maritime liner services, is known as the Cellophane fallacy, the name coming from the infamous case where the mistake was made of forgetting that the prevailing price was already very high as a result of the market power of the producer of this material. See the judgment of the US Supreme Court in United States v EI du Pont de Nemours & Co (Cellophane) (1956) 351 US 377; 76 S Ct 994; L Ed 1264. For a detailed explanation, see Bishop & Walker (2010) 124 ff, paras 4.017 ff. See also the Discussion Paper on Art 102 TFEU (European Commission (2005)) paras 13–15. 80   According to Schmalensee (2011) 4, ‘[i]n merger cases, the US authorities don’t consider supply-side substitution in market definition, while the Europeans do. On the other hand, the US authorities do consider the impact of supply-side substitution on market power after they have defined the relevant market’. 81   In its Notice on the definition of relevant market, the Commission cites the paper sector as a practical example of supply substitution analysis in order to define a product market. Despite the fact that different types of paper are not suitable for the same uses, paper plants can produce different qualities, and production can be adjusted in the short term at an insignificant cost. Thus, the Commission does not define a different market for each quality of paper or use respectively. The various qualities of paper are included in the relevant market, and its sales are added together to estimate the total value and volume of the market. See Commission decision Torras/ Sarrió (1992) paras 8 ff.

Factors Used in the Analysis of Relevant Market  17 The third source of competitive pressure – potential competition – is not taken into account when defining markets, since the conditions under which such competition will exercise genuine pressure depend on the analysis of factors and specific circumstances related to conditions of access (which basically means entry barriers). Such an analysis will either be carried out before the market is defined, when it is a question of determining whether two undertakings are in a relationship of potential competition and their agreements are capable of restricting such competition under Article 101(1) TFEU, or subsequently, when establishing whether the agreements or practices of the undertakings that enter into restrictive agreements eliminate competition as regards a substantial part of the market under Article 101(3) TFEU or to determine whether a dominant position under Article 102 TFEU exists, or whether effective competition is significantly impeded, in particular through the creation or strengthening of a dominant position under Article 2(3) of Regulation 139/2004. The Commission appears to consider supply substitutability to be a qualified form of potential competition, in the sense that its immediacy allows it to be analysed in relation to relevant markets rather than in relation to the market power of undertakings.82 On this basis, the speed and ease of conversion of potential competition into actual competition would transform general potential competition into supply substitutability, or specific potential competition, according to its greater or lesser immediacy or automatic nature.83 In its Notice on the definition of relevant market, the Commission has set out in great detail the factors that will be employed to define markets. These factors are very varied and the Commission does not follow a rigid hierarchical order when using different sources of information and different types of factors. When defining the relevant product market, in practice the Commission defines several possible alternative relevant markets. If no competition problems arise under any of these scenarios, the Commission’s assessment stops there. The Commission justifies this line of least resistance on the grounds of the need to reduce to a minimum the burden on undertakings to supply information, although this approach actually suits the Commission as much as it does the firms involved, if not more so. The same can also be said with respect to the concept of geographic market. Here, the Commission also uses different factors in its assessments, with which it formulates various working hypotheses concerning the scope of the geographic market. Once again, these hypotheses are assessed according to the substitution that would result from a change in relative prices, answering the question of whether the clients of the parties would transfer their orders to undertakings situated in other areas in the short term and at an insignificant cost, if an increase in prices in the principal sales areas occurred. In short, the Commission 82   Against this, see Vickers (2003) 100, for whom the strength or weakness of competitive pressure on the supply side is the same, whether it is called demand substitutability and is situated within the market or whether it is called potential competition and is situated outside the market. 83   See the old Guidelines on Horizontal Cooperation Agreements (European Commission (2001a)) para 9, notes 8 and 9. Periods of entry into the market of less than a year, and more than a year, or ‘in the medium term’ have been cited as indicating supply substitutability (for the electronic communications market, see the Guidelines on market analysis and the assessment of significant market power under the European regulatory framework for electronic communications networks and services (European Commission (2002a)) para 52 fn 37), and potential competition (see fn 9 of the former Guidelines cited and para 74 of the latter). The new block exemption regulations for R&D agreements, Regulation 1217/2010, Art 1(1)(t), and for specialisation agreements, Regulation 1218/2010, Art 1(1)(n), increase the entry period to three years. The main text of the Guidelines on Horizontal Cooperation Agreements (2011) para 10 only refers to a ‘short period of time’, but note 3 explains why three years is a ‘short period of time’.

18  Defining the Relevant Market in European Competition Law will identify the possible obstacles that protect the undertakings situated in a given area against the pressure of competing undertakings situated outside that area. The Commission analyses, in particular, trade flows between adjoining areas, which in some cases will allow it to decide whether a uniform geographic reference market exists. Nevertheless, a high level of exports does not necessarily prove the existence of a wider geographic market; nor does a low level of imports necessarily mean that certain geographic areas do not form part of broader markets. According to the Commission, the important point is that ‘mutual interpenetration’ exists, since only in this way can purchasers engage in price arbitrage through buying in cheaper areas.84 In its merger decisions, the Commission appears to have ruled out the application in European competition law of the Helzinga-Hogarty test used in the USA, according to which an area must be considered to belong to a wider geographic market when imports and exports exceed 10 per cent of production and consumption respectively.85 Another fundamental element when defining the geographic market is transport costs, and the degree to which these may affect trade between different areas, taking into account the location of factories, production costs and relative price levels. Although the Commission has routinely studied transport costs as part of the relevant geographic market assessment, it has not often considered transport markets themselves. These have only been studied in decisions applying Articles 101 and 102 to the transport sector, above all from 1987 onwards. In short, whether for the purposes of Article 101 TFEU – especially as regards examining the requirement of Article 101(3)(b) – or for the purposes of proving the existence of a dominant position under Article 102 or the strengthening of a dominant position with respect to European merger control, the market analysis is carried out in two stages. First, the product or service market affected by the restrictive conduct or concentration between undertakings must be determined, singling it out with respect to other products or services in accordance with those characteristics that make it almost or completely non-­ interchangeable for the same uses, bearing in mind that if other products or services are sufficiently interchangeable for the same uses in terms of their characteristics and price, they are part of the same market.86 The reverse is also true: products or services that are interchangeable in only a limited or relative way do not form part of the same market.87 The definition of the product or service reference market also requires an analysis of supply substitutability to be carried out – that is, the possibility of other suppliers switching their production capacity or resources to produce the goods or provide the services in question.88 Secondly, it is necessary to determine the geographic market in which the anti-competitive conduct has taken place, or within which a concentration between undertakings will take place. The relevant geographic market is that in which the conditions of competition are   Commission decision Mannesmann/Vallourec/Ilva (1994) para 33.   Commission decisions Mannesmann/Vallourec/Ilva (1994) para 33; Mercedes-Benz/Kässbohrer (1995) para 30; Du Pont/ICI II (1997) para 44, cited in Levy (2000) para 8–125. Against this view, see Cook & Kerse (1996) 145. 86   See ECJ Hoffmann-La Roche (1979) paras 21 ff; ECJ United Brands (1978) paras 10 ff; ECJ Hugin (1979) paras 5 ff; ECJ L’Oréal (1980) paras 24 ff. 87  ECJ Ahmed Saeed (1989) paras 39–40; United Brands (1978) paras 12, 22 and 29; GC Deutsche Bahn (1997) para 54. See the Guidelines on market analysis and the assessment of significant market power under the European regulatory framework for electronic communications networks and services (European Commission (2002a)) para 44. 88   See, for example, Commission decision Tetra Pak I (BTG Licence) (1988) 34; ECJ Continental Can (1973) para 33. See in general Ritter & Braun (2004) 125, 390 ff. 84 85

Factors Used in the Analysis of Relevant Market  19 sufficiently homogeneous to enable the economic power of an undertaking to be judged.89 The conditions of competition need not be completely homogeneous; it is sufficient that they are similar. As a result, those areas in which the conditions of competition are heterogeneous will not form part of the same market.90 As far as the geographic area is concerned, this can include the whole or a part of the EU, a Member State, and even a region within a Member State, provided that trade between Member States may be affected. The last two geographic areas, and even smaller geographic areas, may be considered to constitute a substantial part of the internal market for the purposes of Article 102 TFEU.91 A final note: according to the General Court, ‘the definition of the relevant market involves complex economic assessments’, thus ‘it is subject only to limited review by the Courts of the European Union’.92

 ECJ Alsatel (1988) paras 14–15.  GC Deutsche Bahn (1997) para 92. See the Guidelines on market analysis and the assessment of significant market power under the European regulatory framework for electronic communications networks and services (European Commission (2002a)) para 56. 91   Ritter & Braun (2004) 394–95. 92  GC CEAHR (Richemont) (2010) para 66, citing GC Microsoft (2007) para 482 and GC NVV (2009) para 53. In the opinion of Schmalensee (2011)3, ‘market definition is fundamentally a factual empirical exercise; it is done in leading competition authorities by economists, not lawyers’. I agree with the first part of this statement, not with the second. 89 90

2 Economic Power under Article 101(1) TFEU: Quantitative Evaluation of the ‘Appreciable’ Nature of a Restriction on Competition and Trade between Member States 2.1 INTRODUCTION

According to Article 101(1) of the Treaty on the Functioning of the European Union (TFEU): 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 . . .

It is clear from this wording that the prohibition set out in Article 101(1) TFEU is only applicable to agreements, decisions of associations or concerted practices (agreements)1 between undertakings2 if two conditions are met. First, agreements must be restrictive of competition,3 by their object or effect, within the internal market; and secondly, they must be capable of affecting trade between Member States. The precedents of the European Courts also require that the effect of agreements on competition and trade between Member States is, in the words of the European Court of Justice (ECJ), ‘not insignificant’ or, in the words of the Commission, ‘appreciable’. The examination of the appreciable nature of a restriction must be made on the basis of both qualitative and quantitative criteria. The quantitative criteria employed by the Commission refer fundamentally to the market shares of the parties, as a measure of their market power, and are the most important for the purposes of the present chapter.4 1   The term ‘agreements’ is used here generically to refer to both agreements strictly speaking and decisions of associations and concerted practices. For a review of the specific meaning of the term ‘agreement’ in the case law of the EU Courts, and a new approach to this matter, see GC Bayer v Commission (Adalat) (2000) paras 66ff, confirmed by ECJ Bayer (Adalat) (2004). 2   In European competition law, the term ‘undertaking’ is used in a practical and economic sense. See, inter alia, Bellamy & Child (2008) paras 2-003–2-006. 3   In practice, the verbs ‘impede’, ‘restrict’ and ‘distort’ are usually treated as synonyms. Here, ‘restrictive’ covers every agreement that impedes, restricts or distorts competition. 4   The importance of the transactions affected depends on the importance of the parties, which is measured by their joint market power, whose main indicator is market share. The old de minimis Notices also contained criteria

The Requirement that Competition Within the Internal Market is Restricted  21

2.2  THE REQUIREMENT THAT COMPETITION WITHIN THE INTERNAL MARKET IS RESTRICTED

With regard to the restrictive effect on competition within the internal market of agreements coming within Article 101, paragraph 1 lists certain practices that are considered restrictive (without doubt the clearest infringements) by way of example, but does not provide a general definition of what is to be understood by ‘restriction of competition’. In order to obtain a definition, therefore, it is first necessary to analyse why the prohibition exists. If the basic axiom of all competition law (and, of course, the market economy) is that free competition produces economic advantages which benefit the whole of society, particularly consumers, then restrictions on competition must be proscribed, unless it is shown that, in exceptional circumstances, the (economic or technical) results of the limitation on competition are greater than those that would accrue from free competition.5 The Treaty is undoubtedly based on the idea that undertakings have to be free to decide their market strategy. If they decide independently how to behave, then they comply with the TFEU and do not infringe Article 101.6 On the other hand, if they consciously give up their individual autonomy in return for cooperation with their competitors (through agreements, decisions of associations of undertakings or concerted practices),7 thus preventing market forces from having full sway,8 they infringe the Treaty. That said, not every limitation on individual freedom will necessarily amount to an infringement: only those whose object or effect is to reduce rivalry between undertakings will do so. Competition protected by Article 101(1) is that which would exist in the absence of an agreement – that is, the auto­ nomy of behaviour that the parties or third parties would enjoy if the agreement had not been reached. The freedom protected is both that of the parties to agreements (for example, in horizontal agreements) and that of third parties (for example, in vertical agreements, which may limit the commercial possibilities of resellers who are not parties thereto).9 This interpretation has obvious practical advantages for the administrative authorities and courts entrusted with applying Article 101(1), since, as has been seen, on occasion it may allow them to apply the rule without having to examine the markets where the undertakings that enter into their agreements operate – a practice which has been criticised from concerning the turnover of the participating companies. See the de minimis Notice of 1977 (European Commission (1977)), which referred to a total turnover of 50 million account units, an amount raised to 200 million ecus in the 1986 de minimis Notice (European Commission (1986)), which ended up being 300 million ecus, before the 1997 de minimis Notice (European Commission (1997a)) abolished this criterion. 5   On this point, see Ritter & Braun (2004) 143–44 and fn 313, citing Commission decisions Bayer/Gist Brocades (1975) and Cimbel (1972). 6   Van Houtte (1983) 7–8. In competition law, unilateral behaviour can only be sanctioned when companies enjoy a dominant position and abuse it, in accordance with Art 102. 7   According to the ECJ in Suiker Unie (1975) paras 26–27: ‘[T]he concept of a “concerted practice” refers to a form of coordination between undertakings, which, without having been taken to the stage where an agreement properly so called has been concluded, knowingly substitutes for the risks of competition, practical cooperation between them which leads to conditions of competition which . . . enables the persons concerned to consolidate established positions to the detriment of effective freedom of movement of the products in the common market and of the freedom of consumers to choose their suppliers.’ 8   For example, limiting the freedom of choice of methods to compete with one another. ECJ FEDETAB (1980) para 141. 9   See Van Houtte (1983) 21–24.

22  Economic Power under Article 101(1) TFEU an economic point of view. Thus, contrary to the mainstream opinion of the European institutions, some authors have argued that it is necessary to examine systematically the actual markets where the restrictions occur before reaching the conclusion that they restrict competition within the meaning of Article 101(1) TFEU. These authors have advocated an analysis similar to the rule of reason used in US antitrust law before deciding whether an agreement breaches the Article 101(1) TFEU prohibition. However, weighing up the economic pros and cons of an agreement already within the scope of Article 101(1) would make Article 101(3) redundant,10 and is something that the Commission has always rejected,11 although occasionally it has been proposed by the EU Courts.12 However, the case law appears to rule out the existence of a ‘rule of reason’ in European competition law,13 but, rather than clarifying the content specific to, on the one hand, para10   See the interesting article of Bishop (2003) 231ff, who wonders whether Art 101(3) could be seen as super­ fluous or redundant, in commenting with approval on a decision of the Dutch competition authority. Its approach had been close to the rule of reason in considering that exclusive supply agreements between Heineken (the dominant operator in the market for beer consumed in pubs and bars etc in the Netherlands) and its associated establishments did not restrict competition under Art 101(1). 11   See eg White Paper on modernisation of the rules implementing Articles 85 and 86 of the EC Treaty [now Articles 101 and 102 TFEU] (European Commission (1999a)) para 57, where the Commission states that the structure of Art 101 does not allow such an interpretation, and that a change of approach would make its para 3 redundant (since everything would be decided under paragraph 1) and this could only be achieved through amendment of the Treaty. See Faull & Nikpay (1999) 85, para 2.71; Faull & Nikpay (2007) 261ff, paras 3.282ff. 12   See AG Roemer’s Opinion in Consten & Grundig (1966) 517–18 (French edn), considered excessively radical for its time by some commentators, which stressed the value of the traditional interpretation of the Commission in defence of the objectives of integrating European competition law. See Faull & Nikpay (1999) 464, paras 7.95ff; Faull & Nikpay (2007) 261ff, paras 3.282ff. See also GC European Night Services (1998) para 136, where the Court appears to move towards an interpretation close to the rule of reason of Art 101(1). In Wouters (2002), the ECJ also applied a different test to that traditionally used. It referred to a wider context to evaluate restrictions on competition within which it is possible to take into account other legitimate interests unrelated to competition or economic efficiency. In Meca Medina (2006) para 46, the ECJ appears to have followed the underlying reasoning used in Wouters: ‘Therefore, even if the anti-doping rules at issue are to be regarded as a decision of an association of undertakings limiting the appellants’ freedom of action, they do not, for all that, necessarily constitute a restriction of competition incompatible with the common market, within the meaning of Article 81 EC [now Article 101 TFEU], since they are justified by a legitimate objective.’ 13  ECJ Montecatini (1999) para 133; GC Métropole Télévision (2001) para 76; GC Van der Bergh Foods (2002) para 106; and the more recent GC O2 (2006) para 69, where reference is made to ‘carrying out an assessment of the pro- and anti-competitive effects of the agreement and thus to applying a rule of reason, which the Community judicature has not deemed to have its place under Article 81(1) EC [now Article 101(1) TFEU]’. The Commission took a similar position in its Guidelines on Art 101(3) TFEU (European Commission (2004d)) para 11. However, according to Nazzini (2006), the Art 101(1) test laid down in Métropole, which rejected the use of the rule of reason in European law, has now been superseded by ECJ Wouters (2002). At 521ff, Nazzini explains that ‘there are currently three conflicting versions of the Article 81(1) [now Article 101(1) TFEU] test’: (1) Wouters, (2) Métropole, and (3) the approach set out in the Guidelines on Article 101(3) TFEU, which are based on all the traditional case law up to ENS, Métropole and Wouters. This latter test described by Nazzini constitutes, in my opinion, an example of the syncretic approach which the Commission has traditionally favoured. Nazzini also criticises the GC judgment in Métropole while praising the ECJ ruling in Wouters on the basis that the latter is more in line with economic theory, concluding that the case law supports the view, against Métropole, that under Art 101(1) anti- and pro-competitive effects are assessed and weighed up. In my opinion, however, the approach in Métropole is correct while Wouters is inconsistent. There is no problem in examining given conduct under Art 101(1) in an abstract manner in order to determine whether it is restrictive and, in relation to Art 101(3), in an empirical manner while examining the beneficial effects of a restriction, if these exist. Sufrin (2006) 923–24 considers that since Métropole Télévision (2001), Art 101 has a two-pronged structure, in which the ‘rule of reason’ is identified with para 3 (see 963–64). In my view, this explanation is correct, apart from the poetic licence of referring to paragraph 3 as a ‘rule of reason’. In any event, the so-called ‘European rule of reason’ cannot and should not be compared to that used in the US, which, according to the approach of the American authorities, involves identifying the relevant market and establishing the market power of undertakings, along with a host of other factors that are used to analyse whether the alleged restriction damages competition, and whether it is justified because there is a legitimate business objective and it is necessary to achieve this objective. See Hildebrand (1998) 415 fn 10.

The Requirement that Competition Within the Internal Market is Restricted  23 graph 1 of Article 101, and, on the other, paragraph 3 of the same provision,14 it simply muddies the water. The following pages will attempt to clarify such content. The above interpretation of ‘restriction of competition’ also has certain problems: it widens enormously the scope of the prohibition (particularly since the analysis of whether an agreement restricts competition must not be restricted to actual competition but should also include potential competition).15 Precisely in order to limit the general and all-­ encompassing scope of the prohibition interpreted according to these rules, the ECJ – and then the Commission – introduced a principle according to which only appreciable restrictions on competition are prohibited under Article 101(1) TFEU.16 The agreements, decisions and concerted practices between undertakings prohibited under Article 101(1) TFEU must, therefore, be restrictive, because (alternatively and not accumulatively) their object or their effect is to restrict competition.17 This is the legal basis for the classical distinction between agreements that are restrictive by object and agreements that are restrictive by effect.   Against: Manzini (2002) 396.   Art 101 ‘does not solely protect the competition that exists between firms at a given moment’; rather it ‘also protects that which could exist’ (author’s own translation). In order to examine whether an agreement qualitatively restricts competition, then, the analysis must not be limited to actual or real competition, but must also include potential competition. See Waelbroeck & Frignani (1998) 216–17, para 160, and the decisions referred to therein, which clearly establish that companies that do not operate in the same geographic or product market may compete with each other, and therefore an agreement between them can restrict competition under Art 101(1). In the same way, see also the new Guidelines on Horizontal Cooperation Agreements (European Commission (2011)) para 166, referring to production agreements. However, it must also be noted that the use of potential competition in other areas of competition law is very different – it could even be said to be the opposite – to that existing in Art 101(1) cases. If in this case it allows the existence of a restrictive agreement subject to prohibition to be established, for block exemptions, abuses of a dominant position and merger control it is used to limit the market power of undertakings that attempt to benefit from the legal exception or exemption, are suspected of abusing a dominant position or are parties to a concentration. In short, potential competition is a double-edged sword. The greater or lesser degree of realism employed in assessing it will benefit or prejudice companies, as the case may be. 16   See section 2.4 below. 17   There is little doubt that there are agreements (in the strict sense) and decisions of business associations whose object or effect is to restrict competition. Whether there are concerted practices whose object is to restrict competition used to be more doubtful, at least prior to ECJ T-Mobile Netherlands (2009), which confirmed their existence without a shadow of a doubt, following very closely AG Kokott’s Opinion. That said, one would have thought that ‘restrictions by object’ can be found to be illegal without having to observe their effects in the market and that it is impossible to imagine the existence of concerted practices without the need to observe them in the market. Alese (1999) 382 fn 14, Whish (2001) 85–86, Black (2003) 224–25 and Albors Llorens (2006) expressed their opinion on this point long before T-Mobile Netherlands. According to Alese, on the basis of GC Solvay (1992) paras 250ff and ICI (1992) paras 251ff, both cases concerning the polypropylene cartel, ‘[i]f there is a need to show two requirements of concerted practice and conduct in the market, the purpose of Art 101, in terms of concerted practice, would be defeated’. Whish recognises that stating that concerted practices can be illegal exclusively on the basis of their object would give rise to ‘semantic, or indeed philosophical, problems’, but concludes that it is possible, on the basis of ECJ Suiker Unie (1975) 425 (English edn), ECJ Hüls (1999) paras 161–65 and Commission decision British Sugar (1999) paras 95–97, while Black doubts that this is possible. Finally, Albors Llorens (2006) follows precisely, albeit avant la lettre, AG Kokott’s theory in T-Mobile Netherlands. For my part, I consider that the concept of concerted practices is essentially no different from an agreement between undertakings. Behind concerted practices one finds an agreement whose existence can only be proved through circumstantial evidence, namely the conduct of the undertakings actually involved; in particular: (i) the existence of consciously parallel behaviour; (ii) the presence of ‘plus factors’, such as communications or previous contacts between undertakings, or certain practices that make concerted practices easier; and (iii) the absence of a reasonable alternative explanation for the behaviour of undertakings other than the existence of a concerted practice between them. As a result, it makes no sense to admit that there are concerted practices that are restrictive by object. In fact, T-Mobile Netherlands concerned an atypical type of concerted practice, for whose proof it was not necessary to show the conduct of the firms – contacts between them being sufficient if such contact eliminates the uncertainty regarding the conduct of the other companies – for there to be a breach of Art 101 TFEU. See section 9.2 below. 14 15

24  Economic Power under Article 101(1) TFEU The ECJ has declared that in order to apply Article 101(1) TFEU, it is not necessary to take into account the specific effects of an agreement when it appears that its object is to impede, restrict or distort competition.18 The question of whether the object of an agreement is to restrict competition depends on its terms, the legal and economic context in which the agreement was made, and the conduct of the parties.19 When examining the compatibility of an agreement with Article 101(1), it is therefore essential to identify whether ‘restrictions by object’ exist; that is, agreements, parts of agreements or clauses whose main objective is to restrict competition. Only such restrictions can be considered to infringe Article 101(1) TFEU without necessitating a detailed economic analysis such as that required to establish a ‘restriction by effect’. Practices such as price-fixing, sharing of markets or clients, controlling supply or demand at a horizontal level, maintaining resale prices, and the absolute territorial protection or exclusion of parallel trade in vertical relations are, by their very nature, restrictions on competition capable of infringing Article 101(1) TFEU.20 At the other end of the spectrum are agreements between undertakings that do not limit competition because they do not involve any coordination of the behaviour of those operating in the market, such as agreements between non-competing undertakings, agreements to carry out business projects that the parties would be unable to carry out on their own,21 and agreements relating to activities prior to the marketing of a product or service. Between these two extremes there are a number of agreements which must be analysed in order to discover whether or not Article 101(1) TFEU applies. When the object of an agreement is not to restrict competition, therefore, its effects must be considered. For the prohibition to operate, there must be factors which show that competition has in fact been limited, restricted or distorted. Agreements that have no effect on competition (neutral) or that affect it favourably (pro-competitive)22 do not come within the prohibition. The competition in question must be examined in the context that would have existed if the agreement in dispute had not been entered into.23 In European Night Services (ENS) (1998), the Court of First Instance (GC) recalled that: [I]n assessing an agreement under Article 85(1) of the Treaty [now Article 101(1) TFEU], account should be taken of the actual conditions in which it functions, in particular the economic context in which the undertakings operate, the products or services covered by the agreement and the actual structure of the market concerned . . . unless it is an agreement containing obvious restrictions of competition such as price-fixing, market-sharing or the control of outlets . . . In the latter

18  ECJ Consten & Grundig (1966) 342. Similarly, see, inter alia, ECJ Ferriere Nord (1997) paras 14–15; ECJ Montecatini (1999) para 122; GC TAA (2002) para 76. 19  ECJ IAZ (1983) paras 23–25. 20   Unless, as will be explained later in detail, its effects on competition and on trade between Member States were insignificant. ECJ Javico v Yves Saint Laurent (1998) paras 14, 20 and 21. The concepts of restriction by object and restriction by its own nature are synonymous. See Faull & Nikpay (1999) 439–40, para 7.25. 21   eg Commission decision IFPI Simultaneous Broadcast (2002) para 62. 22   The use of the term ‘pro-competitive’ in the sense of economically advantageous is erroneous, yet very common in Europe. Thus, the terms ‘anti-competitive’ and ‘pro-competitive’ are widely used, with the latter being employed as the equivalent of economically efficient. This approach can also be found in the case law of the EU Courts, eg GC Van der Bergh Foods (2002) paras 106–07 and GC O2 (2006) para 69 (particularly in their English versions). However, the comparison that should be made is in fact between anti-competitive and economically advantageous effects, which the General Court calls pro-competitive or favourable to competition without this necessarily being the case. Among academic writings, this use of the term ‘pro-competitive’ can be found, for example, in Faull & Nikpay (2007) paras 3.339ff. See section 2.5 below. 23  ECJ Société Technique Minière (1966) 249 (English edn).

The Requirement that Competition Within the Internal Market is Restricted  25 case, such restrictions may be weighed against their claimed pro-competitive effects only in the context of Article 85(3) of the Treaty [now Article 101(3) TFEU], with a view to granting an exemption from the prohibition in Article 85(1).24

In the same way, the Commission understands that, in general, when deciding whether a cooperation agreement between undertakings comes within the scope of Article 101(1), its effects must be analysed. This will be so except in very clear cases where the object of the agreement between undertakings is to limit competition (for example by fixing prices, reducing production or sharing out markets or clients).25 In order to analyse the effects of an agreement it is not sufficient that the agreement limits competition between the parties. It must also affect competition in the market in such a way that it can be expected to produce negative effects on prices, production, innovation or the diversity and quality of products and services. The capacity or otherwise of the agreement in question to cause such negative effects depends on the economic context, so that it will be necessary to take into account both the nature of the agreement and the joint market power of the parties,26 which determines, together with other structural factors, the ability of the cooperation to affect in an appreciable manner competition in general.27 In conclusion, only in very clear cases is it presumed, effectively, that a restriction produces negative effects in a markets, and it is not necessary to examine the real effects on competition and the market.28 This position is somewhat different from that historically taken by the ECJ. As early as 1957, in Geitling – a case concerning Article 65(1) of the Treaty establishing the Coal and Steel Community (ECSC Treaty)29 – the Court declared that when establishing whether an agreement distorts or restricts competition it is not necessary to examine its effects, on the basis of the wording of the ECSC Treaty. As is well known, the prohibition set out in Article 65(1) of the ECSC Treaty was the equivalent of Article 101(1) TFEU as regards the common market in coal and steel, and the case law established that there was no reason to interpret the concept of agreement set out in Article 65(1) of the ECSC Treaty any

24  GC European Night Services (1998) para 136, citing, on the one hand, in relation to the need to take into account the specific framework in which the effects of agreements are produced, ECJ Delimitis (1991); ECJ DLG (1994) para 31; ECJ Oude Luttikhuis (1995), para 10; GC VGB (1997) para 140. On the other hand, in relation to the evident restriction exception, GC Tréfilunion (1995) para 109. 25  See the old Guidelines on Horizontal Cooperation Agreements (European Commission (2001a)) paras 18–19 and the Guidelines on Art 101(3) TFEU (European Commission (2004d)) paras 25–27. See also the new Guidelines on Horizontal Agreements (European Commission (2011)) paras 23ff. 26   Rousseva (2005) 590 states that ‘[a]n important aspect of the modernisation of Article 81 [now Article 101 TFEU] . . . is that Article 81 now takes market power of the undertakings as a decisive factor in the assessment of the competitive effect of the agreement’. In my view, however, this factor has clearly been taken into account in the past and is not new at all in relation to Art 101(1) and much less so with respect to Art 101(3). 27   This is a summary of the Commission’s statements as regards horizontal cooperation between companies, adapted to cover all types of restrictions, which, given the wording of the Guidelines, seems possible. See the old Guidelines on Horizontal Cooperation Agreements (European Commission (2001a)) paras 17–20 and the new Guidelines on Horizontal Agreements (European Commission (2011)) paras 23ff, particularly paras 32–38 (nature and content of the agreement) and paras 37–45 (market power and other market characteristics). As already indicated, the examination of the appreciable nature of a restriction on competition can be conducted on the basis of qualitative criteria (abstract: the nature of the agreement) and on the basis of quantitative criteria (empirical: the joint market power of the parties). For a more detailed study of the condition concerning the appreciable nature of restrictions, see section 2.4. 28   Guidelines on Art 101(3) TFEU (European Commission (2004d)) para 20. 29  ECJ Geitling I (1957) 17.

26  Economic Power under Article 101(1) TFEU differently from that under Article 101(1) TFEU.30 The same applies to the concept of restrictive practices.31 To conclude this section on the requirement that agreements prohibited by Article 101(1) TFEU restrict competition within the internal market, this first jurisdictional criterion for the application of the prohibition (the other being the need for an effect on trade between Member States) must be analysed. This jurisdictional criterion requires ‘a sufficient connection between the activity concerned and the territory of the European Community’.32 Unlike section 1 of the US Sherman Act, which expressly mentions ‘trade with foreign nations’, Article 101 TFEU appears to refer only to ‘trade within the internal market’. Nevertheless, as regards international jurisdiction, in practice both the US Supreme Court and the ECJ have applied the rules in a very similar manner: at the end of the day there is little to choose between the ‘theory of effects’ advocated by the US Supreme Court and the ‘theory of implementation’ advocated by the ECJ.33 Therefore, not only agreements between European undertakings that are carried out in the European Union but also those between undertakings from third countries that operate within the EU, and even those whose principal effects occur outside the EU, can be subject to Article 101, if one of its effects occurs within the internal market and affects trade between Member States, as will now be seen. This would be the case, for example, if undertakings from third countries were obliged not to export to the European internal market, provided that imports were not impossible.34 On the other hand, agreements that restrict competition between European undertakings whose principal effects are felt in overseas markets could also have a certain effect on competition within the internal market, par­ ticularly on competition between European exporters and re-exporters located in third countries.35 Despite the above, an obligation not to manufacture a product outside of the internal market,36 or even the sharing out of the market outside the internal market or the European Economic Area,37 may not restrict competition inside the common market or affect trade within Member States.

30   See GC Thyssen (1999) para 262, which, for the definition of the concept of ‘agreement’ within the framework TFEU, referred to the judgment of the GC in Rhône-Poulenc (1991) para 120. See also Commission decision Wirtschaftsvereinigung Stahl (1997) para 41, where, citing the ECJ’s judgment in Geitling II (1962), it emphasised that Art 65(1) of the ECSC Treaty and former Art 81(1) of the EC Treaty [now Art 101 TFEU] were based on a common intention and, referring to its Notice on Cooperation Agreements between Companies (1968), it stated that the Commission considered such cooperation in the same way when applying both Treaties. 31  GC Thyssen (1999) paras 266, 270. 32   See Faull & Nikpay (1999) 100ff, paras 2.115ff; Faull & Nikpay (2007) 275ff, paras 3.337ff. 33   See ECJ Wood Pulp I (1988) para 16. See also GC Gencor (1999) paras 90–92. 34   Due to the nature of the product itself (Raymond-Nagoya (1972) para II.2 in fine), the double imposition of customs duties (SABA (1975) para 35) or the accumulation of commercial margins or transport costs (Campari (1977) para II.C, first hyphen). 35   Van Houtte (1983) 34–35. 36   See Commission decision Schlegel/CPIO (1983) para 12, which held that such an obligation, not being in any case ‘appreciable’, could even be non-restrictive of competition within the common market. 37   According to Commission decision Fujitsu AMD Semiconductor (1994) para 39.3.

The Requirement that Trade Between Member States is Affected  27

2.3  THE REQUIREMENT THAT TRADE BETWEEN MEMBER STATES IS AFFECTED

An effect on trade between Member States is the second condition and the second jurisdictional criterion for the application of Article 101(1) TFEU, and a requirement of both Articles 101 and 102 that is sometimes analysed from the point of view of trade flows and sometimes from the point of view of alterations in competitive structure.38 According to the case law of the ECJ: [T]he interpretation and application of the condition relating to effects on trade between Member States contained in Articles 85 and 86 of the Treaty [now Articles 101 and 102 TFEU] must be based on the purpose of that condition which is to define, in the context of the law governing competition, the boundary between the areas respectively covered by Community law and the law of the Member States. Thus Community law covers any agreement or any practice which is capable of constituting a threat to freedom of trade between Member States in a manner which might harm the attainment of the objectives of a single market between the Member States, in particular by partitioning the national markets or by affecting the structure of competition within the common market.39

Therefore, the condition will be satisfied if it is foreseeable that trade flows or the competitive structure may develop differently from how they would have developed in the absence of the agreement or practice in question. This will easily occur if, on the one hand, the goods and services to which an agreement refers are the object of transactions between Member States, or the parties operate in more than one Member State, or even if an agreement covers the whole territory of a Member State; and, on the other, if as a result of the agreement the pre-existing market structure is altered, for example because competitors are eliminated,40 or if the market is closed to new competitors. According to the traditional definition laid down by the ECJ, ‘in order that an agreement may affect trade between Member States it must be possible to foresee with a sufficient degree of probability on the basis of a set of objective factors of law or of fact that the agreement in question may have an influence, direct or indirect, actual or potential, on the pattern of trade between Member States’.41 The Commission has published a Notice setting out guidelines regarding the concept of effect on intra-European trade, on the basis of the case law of the EU Courts and its own experience.42

  Faull & Nikpay (1999) 96ff, paras 2.100ff. See also Faull & Nikpay (2007) 275ff, paras 3.337ff.  ECJ Hugin (1979) para 17. 40   Faull & Nikpay (1999) and (2007) loc ult cit. 41  ECJ Société Technique Minière v Maschinenbau Ulm (1966) 337 (French edn) 359; Völk v Vervaecke (1969) paras 5–7. 42   Guidelines on the effect on trade concept (European Commission (2004c)). The purpose of this Notice is to define better this concept, which is used as a criterion for the applicability of the European competition rules. If the Commission’s initial proposal on Art 3 of Reg 1/2003, whereby national competition law would not apply where European law applied, had been successful, it would have become a criterion for excluding the applicability of the national competition rules. 38 39

28  Economic Power under Article 101(1) TFEU

2.4  THE REQUIREMENT THAT THE RESTRICTION ON COMPETITION AND THE EFFECT ON TRADE BETWEEN MEMBER STATES BE APPRECIABLE: ‘QUALITATIVE APPRECIABILITY’ AND ‘QUANTITATIVE APPRECIABILITY’

The third and final (double) condition for the application of Article 101(1) TFEU is that the restriction must have an appreciable effect on competition and trade between Member States, because, as was stated at the beginning of this section, even an agreement whose object is the restriction of competition which may affect trade between Member States will escape the prohibition set out in Article 101(1) TFEU if its consequences are not ‘appreciable’. Although Article 101(1) does not contain the word ‘appreciable’, the case law of the ECJ and the Commission’s practice leave no room for doubt that a restriction on competition will not come within the scope of the rule unless it is capable of having an appreciable influence on competition in the relevant market and on trade between Member States.43 The doctrine according to which the condition of appreciable effect is applied to restrictions on both competition and trade between Member States is not settled, and in fact the Commission’s precedents reveal a degree of inconsistency. In order to apply Article 101(1), the Commission has shown its support for the requirement that the effects on competition and on trade are appreciable in its Notices on agreements of minor importance, known as de minimis Notices (1997 and 2001), as well as in its Guidelines on the effect on trade concept (2004).44 Nevertheless, on occasion the Commission itself has not consistently taken this approach,45 and neither have the EU Courts.46 As has been mentioned, the examination of the appreciable nature of a restriction must take into account both qualitative and quantitative criteria.47 It might be thought that the qualitative aspects of the appreciable nature of a restriction on competition and on trade between Member States do not in fact exist, since they coincide with the aspects of an agreement that restrict competition and affect trade between Member States and result in a restriction satisfying the first two conditions for the applicability of Article 101(1). According to this interpretation, from the moment a restriction on competition exists (first condition) and there is an effect on trade between Member States (second condition), in theory the only thing left to examine is the appreciable nature   As regards the order of assessment of appreciability, see ECJ ASNEF-EQUIFAX (2006) paras 33–63.   See Commission 1997 Notice (European Commission (1997b)) para 2; Commission 2001 Notice (European Commission (2001d)) para 1; Guidelines on the effect on trade concept (European Commission (2004c)) para 4. 45   For example, in its decisions Viho/Parker Pen (1992) paras 18ff and Tretorn (1994) paras 64ff, both of them concerning a prohibition on exports (a restriction by object), the Commission did not carry out any analysis of the condition of ‘appreciability’ in relation to the restriction on competition, although it did as regards the effect on trade between Member States. On the other hand, in Volkswagen/Audi (1998), where it detected restrictions by both object and effect, in paras 130ff the Commission analysed both the restriction on competition and the effect on trade between Member States in terms of its ‘appreciability’. See Faull & Nikpay (1999) 446, para 7.43. 46   Thus, for example, the ECJ does not seem to have applied the criterion in Binon (1985) para 9; but in Béguelin (1971) paras 10ff, it appeared to apply it to both the restriction on competition and the effect on trade between Member States, whereas in BMW Belgium (1979) para 31 it only applied the criterion to the restriction on competition. In Miller (1978) paras 14–19 and Erauw-Jacquery (1988) paras 14–20, on the other hand, it applied the criterion only to the effect on trade between Member States. See AG Mischo’s Opinion in Louis Erauw-Jacquery (1988) paras 37–41. See Faull & Nikpay (1999) 463, para 7.92. More recently, the GC applied the criterion only to the effect on trade between Member States in Parker Pen (1994) paras 37ff, while the ECJ applied it both to the restriction on competition and the effect on intra-European trade in Javico (1998) para 15–17. See Faull & Nikpay (1999) 84, para 2.67. 47   See section 2.4 above. 43 44

‘Qualitative Appreciability’ and ‘Quantitative Appreciability’  29 of both from the quantitative point of view. The third condition is therefore exclusively quantitative. However, a different interpretation is possible. The qualitative aspects of the ‘appreciable effect’ of a restriction on competition and trade between Member States makes reference, on the one hand, to the greater or lesser seriousness of a restriction, and, on the other, to its greater or lesser intrinsic ability to affect trade between Member States; that is, its theoretical importance or intensity. The existence of restrictions on competition that are, by their very nature, appreciable (‘restrictions by object’) testifies to the presence of qualitative criteria in the study of the appreciable nature of a restriction. As regards the appreciable nature of the effect on trade between Member States, and by analogy with how the qualitatively appreciable nature of a restriction on competition is examined, it is also possible to carry out an examination of the qualitatively appreciable nature of the effect on trade between Member States: just as the very nature of certain restrictions means that they appreciably affect competition, there are also certain restrictions that appreciably affect trade between Member States.48 The qualitative criteria cannot, therefore, be overlooked when examining the appreciable nature of a restriction, whether as regards competition or trade between Member States. Ultimately, the assessment of the appreciable nature of a restriction on competition and trade between Member States (as a double condition) depends in turn on the qualitative and quantitative49 importance of the restriction in question. In the four scenarios listed below, therefore, the prohibition set out in Article 101(1) TFEU will not apply: •  if the restriction does not have a qualitatively appreciable effect on competition; •  if the restriction has a qualitatively appreciable but quantitatively insignificant effect on competition; •  if the restriction has both a qualitatively and a quantitatively appreciable effect on competition, but is qualitatively insignificant as regards trade between Member States; •  if the restriction has both a qualitatively and a quantitatively appreciable effect on competition, and has a qualitatively appreciable but quantitatively insignificant effect on trade between Member States. The requisite degree of appreciable effect under Article 101(1) can only be achieved through a combination of qualitative and quantitative elements, and this applies as regards both the restriction on competition and the effect on trade between Member States. If the qualitative appreciable effect tends towards zero (because competition is restricted or intraEuropean trade is affected very weakly), however significant the quantitative appreciable effect (that is, the importance of the parties in terms of market share or turnover), the third condition of Article 101(1) will not be satisfied. Similarly, if the quantitative appreciable effect tends towards zero (that is, if the participating undertakings are insignificant in terms of market presence), regardless of how significant the qualitative appreciable effect is (because competition is restricted or intra-European trade would be very strongly affected), the condition will not be satisfied either. Only if an adequate level of qualitative appreciable effect is combined with an adequate level of quantitative appreciable effect will there be 48   See the Guidelines on the effect on trade concept (European Commission (2004c)) para 29. The Commission, however, maintained the opposite point of view in its Working Paper containing its proposal for a new Council Regulation implementing Arts 101 and 102; Article 3 – The relationship between EC law and national law (2001c) para 99. 49   Unless GC Volkswagen (2000) is considered to be more reliable than ECJ Javico (1998) or ECJ Völk (1969), as will be explained below.

30  Economic Power under Article 101(1) TFEU both an appreciable restriction on competition and an appreciable effect on trade between Member States. We will now examine first the qualitative aspects and then the quantitative aspects of the appreciable nature of restrictions. As regards the qualitative aspects, we must examine initially the qualitative aspects of the analysis of the appreciable nature of restrictions on competition. As has just been mentioned, this part of the examination of the third condition in the application of Article 101(1) TFEU is closely related to the first condition (that an agreement, decision or business practice restricts competition), in the sense that the appreciable effect of an agreement on competition will depend on the extent to which it restricts competition. If under the first condition the existence of a restriction on competition is shown, under the first part of the third condition the degree of the seriousness of such a restriction is examined. The case law of the EU Courts and the precedents of the Commission show that the most serious restrictions are those that are ‘restrictions by object’. These are always considered to have a qualitatively appreciable effect on competition, although perhaps not always quantitatively so, as the judgment in Völk shows.50 At the other extreme, certain restrictions have been considered not to be qualitatively appreciable because of their limited effect on competition. This is the case, for example, with an obligation to actively promote sales of a particular brand;51 an obligation to maintain an adequate level of stock, when the range of products in question is neither very wide nor very expensive;52 a commitment not to use certain trademarks where the parties have not established any goodwill;53 an obligation imposed on a licensee to purchase certain secret ingredients from the licensor;54 a distribution agreement concerning parapharmaceutical products that creates a seal of quality and prevents its use by undertakings that are not pharmacies, bearing in mind the possibility of creating other seals of quality and that quality is not the only possible way of competing;55 an obligation to supply and be supplied exclusively by those distributors that satisfy the specific requirements for a system of selective distribution;56 a commitment to purchase for a small sum (in comparison with the annual expenditure of the undertaking in question in the acquisition of products from third parties) and for an unlimited amount of time;57 an obligation imposed by the manufacturers of spirits on the suppliers of ships, airports and embassies not to sell spirits except for duty-free consumption, because the suppliers do not usually sell outside of duty-free areas, and if they did they could obtain spirits for resale under the normal conditions of any trader;58 an obligation to  ECJ Völk (1969) paras 5–7.   Commission decisions Krups (1980) para 15; Villeroy & Boch (1985) para 30. 52   Commission decision Krups (1980) para 15. See also Villeroy & Boch (1985) para 29. 53   Commission decision Penneys (1977) para II.4.c. 54   Commission decision Campari (1977) para II.C, third hyphen. See also Rich Products/Jus-Rol (1987) para 37. 55   Commission decision APB (1989) paras 40–42. 56   Commission decision Murat (1983) para 16. Para 13 summarises the conditions established by European case law in order for a selective distribution system to avoid the scope of Art 101(1) TFEU. See also Commission decision IBM (1984) paras 11ff. 57   Commission decision Olivetti/Digital (1994) para 22, where the purchase obligation amounted to US $70m over two years. 58   Commission decision Distillers/Victuallers (1980) paras 15–16. In the same way, but taking a step further as regards the imposition of very similar limitations on wholesalers specialised in the sale of high quality cutlery to hotels and restaurants, and to corporate gift distributors, in its decision Villeroy & Boch (1985) paras 37–38 the Commission declared such limitations as being simply non-restrictive of competition, due, inter alia, to their reasonableness. 50 51

‘Qualitative Appreciability’ and ‘Quantitative Appreciability’  31 charge a commission on certain transactions carried out on a futures market, because it only implies charging ‘a’ commission, without making any reference to the amount;59 or even an agreement between Irish banks to fix their opening hours, bearing in mind that only some bank services would be affected and there were no other restrictions on competition between the parties.60 Between these extremes, other serious restrictions, while not being as serious as restrictions ‘by their object’, could be considered to have a qualitatively appreciable effect on competition. In many cases, the appreciable effect on competition of a restriction is taken as read once the qualitative analysis has been carried out (as if it were a question of a restriction by object) without also examining the quantitative appreciable effect of the restriction on competition and concentrating the analysis of ‘appreciable effect’ on trade between Member States.61 In addition to the individual cases where the possible qualitatively appreciable effect of a restriction on competition has been examined, the Commission has provided (albeit indirectly) certain general guidelines on this question. Thus, its former Notice concerning cooperation between undertakings (1968)62 included a list of agreements that, by their very nature, could not be considered to restrict competition. The Notice on subcontracting agreements (1979)63 in turn clarified that such agreements were not subject to Article 101(1) TFEU. The Notice on cooperative joint ventures (1993),64 after first referring to the traditional quantitative criteria,65 established certain qualitative criteria to evaluate the appreciable nature of restrictions on competition.66 In its old Guidelines on Horizontal Cooperation Agreements (2001), while the terminology ‘appreciable’ or ‘appreciability’ was not used, the Commission did refer specifically to the nature of agreements (scope and objective of cooperation, internal competition between the parties and scope of the combination of its activities) as a qualitative criterion that in conjunction with other quantitative criteria (above all the market power of participating undertakings, but also other structural factors) determine the probability that the parties coordinate their behaviour in the 59   Commission decisions London Sugar Futures Market Ltd (1985) para II.2 in fine; London Cocoa Terminal Market Association Ltd (1985) para II.2 in fine; Coffee Terminal Market Association of London Ltd (1985) para II.2 in fine; London Rubber Terminal Market Association Ltd (1985) para II.2 in fine. See also the following Commission decisions: Petroleum Exchange of London Ltd (1986) para 16; London Grain Futures Market (1986) para 18; London Potato Futures Association Ltd (1986) para 19; London Meat Futures Exchange Ltd (1986) para 17; GAFTA Soya Bean Meal Futures Association (1986) para 19. 60   Commission decision Irish Banks (1986) para 16. 61   See Faull & Nikpay (1999) 443, para 7.34 as regards the cases referred to in paras 7.48–7.89. See, however, the different perspective in Faull & Nikpay (2007) 281ff, paras 3.365ff, which focuses on quantitative appreciability. In fact, on some occasions on which it has examined restrictions by object, and contradicting to some extent ECJ Völk (1969), the Commission has only studied qualitative ‘appreciability’ for competition, taking for granted, and thus not analysing, the quantitative ‘appreciability’ for competition, as if once the existence of the first type has been shown, the second type automatically exists. This also appears to be the approach taken in GC Volkswagen (2000), as will be seen below. 62   European Commission (1968). 63   European Commission (1979). 64   European Commission (1993). 65   Market share of the parties, market structure, and degree of concentration on the one hand; and economic and financial capability of the founders on the other. 66   It thus referred to the proximity to the market of activities engaged in by the joint venture, the identity or interdependency of the activities of the founders and the joint venture, the importance and the objective of the activities of the joint venture with respect to the founders, and the more or less restrictive nature of agreements entered into between interested companies and the degree of exclusion of third companies resulting from such cooperation. The reference to the more or less restrictive character of agreements is particularly surprising, since this is precisely what should be clarified by the Notice.

32  Economic Power under Article 101(1) TFEU market. The Guidelines referred to R&D agreements, standardisation agreements and agreements relating to the protection of the environment among the agreements that will probably not restrict competition, and production or purchasing agreements as agreements that will lead to competitive coordination if the shared costs are substantial.67 The new Guidelines on Horizontal Cooperation Agreements (2011) are more explicit than the old Guidelines with respect to the ‘appreciability’ of the restrictions, although they follow the same basic pattern: qualitative analysis (nature of the agreement)/quantitative analysis (market power).68 However, the Commission has yet to give general interpretive guidance on the point in its de minimis Notices, which historically have focused exclusively on the quantitative aspects of the ‘appreciable nature’ of restrictions on competition and trade between Member States.69 As regards the qualitative aspects of the appreciable nature of the effect on trade between Member States, in Volkswagen (2000) the GC established that certain restrictions on competition, such as those that tend to compartmentalise the national markets of Member States, may, by their very nature, affect trade between Member States.70 According to this case, absolute territorial protection and the prohibition of parallel trade are not only restrictions that by their very nature have a qualitative effect on competition,71 they also have a qualitative effect on trade between Member States.72 Similarly, an agreement between maritime insurance companies, since it affects transport, may, by its very nature, have an appreciable effect on trade between Member States, above all if the shipowners and intermediaries with whom the participating insurance companies contract are based in several Member States.73 Other restrictions, despite being restrictions ‘by object’ and therefore having a qualitatively appreciable effect on competition, such as price-fixing, may not affect trade between Member States in a qualitatively appreciable way in certain circumstances. In Italian Banks (ABI) (1986), the Commission concluded that agreements between members of the Association of Italian Banks regarding commissions and inter-bank accounting dates, and the exclusive clause in the Bancomat Agreement, which prevented the signatory banks from joining competitor cash dispenser networks, as well as agreements on minimum deposit prices and custody in safe boxes, did not significantly affect intra-European trade. This was because they referred to economic activities carried out exclusively in Italy and the participation of subsidiaries of foreign banks was limited and therefore could only affect the Italian market.74 This generous doctrine was confirmed recently by the ECJ in Bagnasco v Banca Popolare di Novara (1999).75 Nor has the Commission produced any general guidelines with regard to the qualitative assessment of appreciable effects on intra-European trade. As has just been explained, to   Guidelines on Horizontal Cooperation Agreements (European Commission (2001a)) paras 21–23.   Guidelines on Horizontal Cooperation Agreements (European Commission (2011)) paras 23–47.  The de minimis Notice (2001d) at paras 2–3 clarifies, specifically, that it only refers to quantitative appreciability as regards competition and not as regards trade between Member States. 70  GC Volkswagen (2000) paras 230–31, in connection with GC SPO (1995) para 74 and GC European Night Services (1998) paras 93–95 and 105. Similarly, see Guidelines on the effect on trade concept (European Commission (2004c)) para 29. 71   cf ECJ Völk (1969) paras 5–7. 72   See, however, the comments below regarding ECJ Javico (1998) and its apparent conflict with GC Volkswagen (2000). 73   Commission decision Lloyd’s Underwriters’ Association – Institute of London Underwriters (1992) para 29. 74   Commission decision Italian Banks (ABI) (1986) paras 35–40. For a very similar meaning, see Commission decision Dutch Banks (1989) paras 58–58. See also Commission decision Industrieverband Solnhofener Natursteinplatten (1980) para 43. 75  ECJ Bagnasco (1999) paras 47ff, which did not follow AG Ruiz-Jarabo’s Opinion. 67 68 69

‘Qualitative Appreciability’ and ‘Quantitative Appreciability’  33 date its de minimis Notices have focused exclusively on the quantitative aspects of the appreciable nature of restrictions on competition and trade between Member States. However, the most recent de minimis Notice – that of 2001 – does not even specify quantitative criteria to define what constitutes an appreciable effect on intra-European trade, unlike previous de minimis Notices76 and the specific Guidelines on the meaning of effect on intra-European trade, which set out both qualitative and quantitative criteria on this question,77 even carrying out an analysis of the capacity of the most common types of agreements and abusive practices to affect trade.78 Both these latter Guidelines and their predecessor, the Commission’s Working Paper on Article 3 of its proposed Regulation implementing Articles 81 and 82 of the EC Treaty (now Articles 101 and 102 TFEU),79 based on the case law of the EU Courts and the Commission’s precedents, define, using qualitative criteria, various categories of agreement which in general will satisfy the requirement of appreciable effect on trade between Member States: •  Agreements regarding imports and exports, in particular agreements that restrict ‘parallel trade’, even if the undertakings belong to the same Member State.80 •  Agreements and practices carried out in two or more Member States.81 •  Agreements and practices that affect the competitive structure in more than one Member State.82 •  Agreements and practices that cover only, but entirely, a Member State.83 Moving on to the quantitative aspects, which are more easily observable and are of most interest for the purposes of this section, the quantitative aspects of the appreciable nature of a restriction on competition will be examined first. In Völk v Vervaecke (1969), which concerned one of the most serious restrictions in European competition law – absolute territorial protection – the ECJ accepted the principle that even as regards agreements that have as their main object the restriction of competition between the parties (restrictions by object), it is still necessary to examine the real or potential effects of the agreement in question in order to rule out the possibility that it has only an ‘insignificant effect’ on the market or trade.84 In this case, the parties had a combined market share of less than 1 per cent in the production and sale of washing machines (0.08 per cent in the common market, 0.2 per cent in Germany and approximately 0.6 per cent in Belgium and Luxembourg). On the basis of this small market share, the Commission admitted that even an agreement that was 76   Despite the fact that the method of quantifying ‘appreciability’ is identical in all of them (or almost identical if we take into account that before 1997, both market shares and business turnover of participating companies were used). Cf de minimis Notice (European Commission (2001d)) para 3, de minimis Notice (European Commission (1997b)) para 3 and de minimis Notice (European Commission (1986)) para 3. 77   See Guidelines on the effect on trade concept (European Commission (2004c)). See also Commission Staff Working Paper: Commission’s proposal for a new Council Regulation implementing Arts 101 and 102 TFEU; Article 3 – The relationship between EC law and national law (European Commission (2001c)) para 106, anti­ cipating that the Notice should contain both quantitative and qualitative elements. 78   See Guidelines on the effect on trade concept (European Commission (2004c)). 79   See European Commission (2001c) paras 89–98. 80   See, inter alia, ECJ Kerpen & Kerpen (1983) para 8; GC Volkswagen (2000) paras 230ff; Commission decision Milchförderungsfonds (1984) para 31. 81   See, inter alia, GC Usines Gustave Boël (1995) para 102. 82   See, inter alia, ECJ United Brands (1978) paras 197–203. 83   See, inter alia, ECJ Belasco (1989) paras 32–38 and ECJ BMW (1995) para 20. 84  ECJ Völk (1969) para 7. As has already been seen, this last point of view is not unanimously shared by all academics. For example, some hold that once an agreement has a restrictive object, the ‘appreciable’ character of the restriction is only applied to its effect on intra-European trade.

34  Economic Power under Article 101(1) TFEU naturally restrictive of competition (like the one that guaranteed absolute territorial protection to one of the parties) may not restrict competition or affect trade between Member States in any appreciable way. However, in Miller v Commission (1978), another case relating to absolute territorial protection, in which the undertaking in question had a market share of 5–6 per cent in the German market, the ECJ held that Völk did not apply and therefore the conduct in question fell to be dealt with under Article 101(1) TFEU. Similarly, in Pioneer (1983) the ECJ held that even though the market share of the products in question was 3 per cent, agreements to limit parallel trade appreciably affect trade between Member States (particularly if the parties do a great deal of business with these products and they are well known in the market).85 As a consequence, undertakings with a relatively small market share (between 5 and 6 per cent, or even only 3 per cent, that is, rather lower than in Völk) may infringe Article 101(1) if they enter into agreements whose main object is to restrict competition.86 This last line of case law is reflected in the de minimis Notice of 2001, which provides that the quantitative thresholds laid down therein do not apply to ‘hardcore restrictions’, as defined in the Notice itself.87 A joint examination of Völk, Miller and Pioneer leads to the conclusion that even when from the qualitative point of view it is possible to affect trade between Member States in an appreciable way without also restricting competition, from the quantitative point of view it is impossible to affect intra-European trade without at the same time restricting competition in an appreciable way. Turning now to examine in detail the quantitative aspects of the analysis of the appreciable nature of the effect on trade between Member States, following Völk, Miller and Pioneer, in Javico v Yves Saint Laurent (1998) the ECJ held that anti-competitive conduct could not be dealt with under Article 101(1) unless it could affect trade between Member States in a not insignificant way. The Court therefore held that even an agreement that imposes absolute territorial protection may avoid the Article 101(1) TFEU prohibition if it only affects the market (and, it is submitted, trade between Member States) in an insignificant way, taking into account the weak position of the persons affected in the market of the products in question. This highlights the need to use additional quantitative criteria to assess the appreciable nature of a restriction on trade between Member States, although in Javico, unlike in the other two judgments, these are not quantified.88 For this reason, the judgment in Volkswagen, where the GC established that certain restrictions on competition, like those that tend to compartmentalise the national markets of Member States, may, by their very nature, affect trade between Member States in an appreciable way,89 seems to contradict the doctrine established by the ECJ in Javico. 85  ECJ Pioneer (1983) para 86. This approach was confirmed in the Guidelines on the effect on trade concept (European Commission (2004c)), para 47 of which states that ‘appreciability can thus be measured both in absolute terms (turnover) and in relative terms, comparing the position of the undertaking(s) concerned to that of other players on the market (market share)’. 86  ECJ Miller (1978) paras 9–15. See also ECJ AEG (1983) paras 58–60 and ECJ Pioneer (1983) para 86. However, if the main object of the agreement is different, that is, if it is an agreement with restrictive effects, a market share of 5% may not be sufficient for the restriction on competition that it causes to be considered appreciable. See Commission decision International Private Satellite Partners (1994) para 60(e). 87  See de minimis Notice (European Commission (2001d)) para 11. However, the Guidelines do not appear to rule out the possibility of the de minimis rule applying to agreements in which the joint market share of the parties is significantly lower than the thresholds laid down therein. 88  ECJ Javico (1998) paras 15–17. 89  GC Volkswagen (2000) paras 230–31.

‘Qualitative Appreciability’ and ‘Quantitative Appreciability’  35 The Commission has also concluded that in certain cases trade between Member States is quantitatively affected in an appreciable way. For instance, in Lloyd’s Underwriters’ Association – Institute of London Underwriters (1992), it held that the fact that the agreement in question covered 100 per cent of the British market meant that it had a considerable effect on trade between Member States.90 Here, the Commission to some extent followed the judgment in Kali + Salz I (1975), where the ECJ established that when undertakings participating in an agreement have a significant market share, the market can be compartmentalised. This is difficult if the agreement refers to 10 per cent of imports or 5 per cent of the national market in the absence of exclusivity ties between the parties and foreign producers.91 Finally, in the Guidelines on the effect on trade concept, the Commission states that ‘[i]t is not possible to establish general quantitative rules covering all categories of agreements indicating when trade between Member States is capable of being appreciably affected’.92 That said, the Guidelines lay down a series of de minimis rules with respect to effects on trade, despite the fact that, unlike in the Draft Guidelines, they are not labelled as such.93 The Notice provides that in order to determine the possibility of an effect on trade, quantitative and qualitative elements must be taken into account, such as the nature of the agreement and the products, or the market position of the undertakings concerned.94 Whatever was said in individual cases, and despite the fact that they could be studied separately, in its General Notices prior to 2001 the Commission always examined the quantitative aspects of the appreciable nature of a restriction (on competition and trade between Member States) together.95 Further, it was more specific than the EU Courts when establishing thresholds concerning the appreciable effect of restrictions. According to the Commission, in order to find out whether Article 101(1) TFEU applies, it is necessary to use market-related criteria, such as the position of the parties in the market and other structural factors. The starting point of this analysis is the situation of the parties in the market affected by the cooperation. In this way, it is possible to determine   Commission decision Lloyd’s Underwriters’ Association – Institute of London Underwriters (1992) para 29.  ECJ Kali + Salz I (1975) 520–21 (French edn). See also AG Warner’s Opinion in Miller (1978) 158 (French edn). See Van Houtte (1983) 16. 92   Guidelines on the effect on trade concept (European Commission (2004c)) para 50. 93   Draft Guidelines on the effect on trade concept (European Commission (2003d)) paras 3 and 48. In its final version, the Commission chose to use the term ‘NAAT rule’, where NAAT means not appreciably affecting trade (between Member States). See Commission Guidelines on the effect on trade concept (European Commission (2004c)) paras 3 and 50. 94   Guidelines on the effect on trade concept (European Commission (2004c)) paras 29–31. In referring to the market position of the undertakings concerned as an aspect ‘which forms an integral part of the assessment of appreciability’ (para 31), in practice the Commission defines it as a true de minimis rule, stating that it is a ‘quantitative element limiting Community law jurisdiction to agreements and practices that are capable of having effects of a certain magnitude’ (para 44). See section 2.4. Para 46 of the Notice places the threshold of appreciability at 5% of the market, despite the fact that the Draft Guidelines (para 49) had originally opted for 10%. The turnover corresponding to products covered by the agreement also constituted a relevant element, fixing the limit of appreciability at €40m (para 52). Given the wording of the Notice, the quantitative rules also apply to agreements that by their very nature affect trade (para 53). This statement, which is in line with the ECJ’s judgments in Völk (1969) and Miller (1978), contrasts with the treatment of the concept of ‘appreciable restriction of competition’, which may be qualitatively appreciable without necessarily also being quantitatively so. 95   As explained above, the 2001 de minimis Notice (European Commission (2001d)) clarified that it did not establish quantitative criteria regarding the concept of ‘appreciable’ effects on intra-European trade, something which previous de minimis Notices had done – cf de minimis Notice (European Commission (2001d)) paras 2 and 3, de minimis Notice (European Commission (1986)) para 3 and de minimis Notice (European Commission (1997)) para 3 – and which the Guidelines on the effect on trade concept (European Commission (2004c)) currently do lay down. 90 91

36  Economic Power under Article 101(1) TFEU whether the parties can, by means of this cooperation, acquire, improve or increase their market power – that is, whether they can produce negative market effects on prices, production, innovation, variety, or the quality of products and services.96 In order to carry out this analysis, it is of course necessary to define the market,97 using the method described in the Commission’s Notice on the definition of relevant market.98 If the joint position of the parties in the market is weak, it is unlikely that cooperation will have restrictive effects and no additional examination will be necessary. Given the different ways in which they may cooperate and the different effects they can have on the market depending on existing conditions, it is impossible (according to the Commission) to define a threshold of general market share from which it can be supposed that there is enough market power to cause restrictive effects. As well as joint market share, it is necessary to take into account the market share of each of the parties. The Commission considers that a high joint market share cannot normally be considered to be a sign of a restrictive effect on competition if the market share of one of the parties is low. When the joint position of the parties is strong and their total market share is significant, it may be necessary to take into account, as a supplementary element for evaluating the effects of cooperation on competition, the degree of concentration in the market – that is, the position and number of competitors.99 According to the position of the parties in the market and the latter’s degree of concentration, it will be necessary to consider other factors such as the stability of market shares over time, barriers to entry, the probability of new firms entering the market, the possibility of purchasers/suppliers having countervailing power, and the nature of the products (for instance, their homogeneity or degree of maturity).100 96  Guidelines on Horizontal Cooperation Agreements (European Commission (2001a)) paras 17–30; and Guidelines on Horizontal Cooperation Agreements (European Commission (2011)) paras 23–47. See also Guidelines on Art 101(3) TFEU (European Commission (2004d)) para 25. As Kjølbye (2004) 570 states, anticompetitive effects may be determined directly on some occasions, although in most cases it will be necessary to use ‘proxies’, mainly to assess the parties’ market power and the extent to which the agreement strengthens this. According to Bourgeois & Bocken (2005) 115–16, generally an agreement between firms will only restrict competition within the meaning of Art 101(1) if the parties have some market power. In such cases, there will be an infringement when the agreement in question contributes positively to the creation or strengthening of this market power. See also Nicolaides (2005) 133; Lugard & Hancher (2004) 412; Alfaro Águila Real (2004) 53, who points out that restrictive agreements are prohibited because they generate market power for those entering into them. According to Bourgeois & Bocken (2005), this significantly limits the scope of Art 101 in comparison with the Commission’s traditional standard. In this regard, see also Lugard & Hancher (2004) 410. In my opinion, this would not be the case except where the relevant market share threshold for applying Art 101(1) was increased to much higher levels than those previously existing. That said, it should be noted that successive de minimis Guidelines have progressively raised the minimum threshold from 5% to 10%, and later to 15% in some cases. 97   See GC TAA (2002) para 116, which refers to GC Volkswagen (2000) para 230 and European Night Services (1998) paras 93–95 and 103. However, in some US cases concerning agreements that are restrictive of competition, it has been held that direct evidence of anti-competitive effects may, in itself, show the existence of market power. US Department of Justice (2008), citing FTC v Indiana Federation of Dentists, 476 US 447, 460–61 (1986), according to which ‘proof of actual detrimental effects, such as reduction of output, can obviate the need for an inquiry into market power, which is but a surrogate for detrimental effects’. 98   European Commission (1997a). For specific types of markets, such as purchase or technology markets, the Guidelines give supplementary indications. 99   The Horizontal Merger Guidelines suggest the use of the Herfindahl-Hirschman index (HHI) as an indicator. This index adds the squares of individual market shares of each competitor: if the index is less than 1,000, the degree of market concentration is considered to be low; between 1,000 and 1,800 it is moderate; and above 1,800 it is high. It is very commonly used in the control of concentrations. See the Guidelines on Horizontal Mergers (European Commission (2004a)) paras 16 and 19–21, which state that a concentration will not raise competition concerns if it has an HHI of less than 2,000 if the increase in the delta (ie the change in the HHI) is less than 250, or even above 2,000, if the delta is less than 150, except in special circumstances. 100   See the old Guidelines on Horizontal Cooperation Agreements (European Commission (2001a)) paras 27–30 and the new Guidelines on Horizontal Cooperation Agreements (European Commission (2011)) paras 39–47.

‘Qualitative Appreciability’ and ‘Quantitative Appreciability’  37 In its de minimis Notices, the Commission has established certain limits as regards market shares that are relatively small, below which it has taken the view that agreements and practices of undertakings are normally not significant enough to consider the test set out in Article 101(1) TFEU satisfied. As was explained some pages above, the last de minimis Notice (2001) states that agreements between undertakings are not affected by the Article 101(1) prohibition when the market share of each participant taken together is not higher, in any of the relevant markets, than the 10 per cent threshold, if the agreement has been entered into by competitor undertakings, or 15 per cent if the agreement has been entered into by various non-competitor undertakings operating at different levels within the economy (‘vertical’ agreement). According to the Commission, when difficulties in classifying the agreement as horizontal or vertical arise, the 10 per cent threshold will be applied.101 In its new Guidelines on Horizontal Agreements, with reference to both R&D agreements and joint purchasing arrangements, the Commission has pointed out that there is no absolute maximum limit which shows that cooperation in these areas gives rise to a certain level of market power which therefore comes within Article 101(1). Nevertheless, the Commission maintains that in most cases it is unlikely that market power exists if the joint market share of the parties to the agreement is lower than 25% (R&D) or 15% (joint purchasing), thus below this level the Commission presumes that such agreements between competitors do not restrict competition within the meaning of Article 101(1) TFEU.102 However, the legal value of the Notices referred to above is open to question. Neither the ECJ nor the General Court has expressly pronounced on the value of the various de minimis Notices of the Commission, but it is doubtful that they feel bound by their content, as some of their judgments seem to indicate.103 The Notices are not binding on national jurisdictions either.104 The same can be said of the Guidelines on Horizontal Agreements (2011) and in general of all European ‘soft law’ as regards competition.105 If any value is to be given to de minimis Notices and the Notices on horizontal agreements, the Article 101(1) TFEU prohibition should only apply from the moment the agreement gave the parties an appreciable or not inconsiderable market power: according to the Commission, around 10 or 15 per cent of the relevant market, depending on the case (although a less significant market share could be enough and a higher one could be insufficient in the eyes of the ECJ and the General Court – and perhaps even the Commission – depending on the circumstances).

 See de minimis Notice (European Commission (2001d)) para 7.   Guidelines on Horizontal Cooperation Agreements (European Commission (2011)) paras 134–35 and 208– 09. In the same vein, see the old Guidelines on Horizontal Cooperation Agreements (European Commission (2001a)) paras 130–31 and 149–50. 103   See, inter alia, ECJ Miller (1978) para 12. 104   Strictly speaking, the de minimis Notices are only unilateral interpretive declarations which solely affect the Commission in its investigations of competition cases (see GC Hercules (1991) para 53: the Commission may not ignore the rules that it has imposed on itself). If the Commission found that in a specific case a de minimis agreement (according to its own definition) affected competition within the common market in an appreciable way, these general limits would not prevent it from bringing an action against that agreement, as an exception. See the Commission’s allegations in ECJ Béguelin (1971) and, above all, the 1997 de minimis Notice (European Commission (1997b)) paras 11, 18 and 20. In the past, the Commission generally undertook not to commence proceedings or fine parties which did not notify the agreement because they wrongly thought it was de minimis, where they had acted in good faith. See the 1997 de minimis Notice (European Commission (1997b)) paras 5 and 20. 105   For the legal effect of European ‘soft law’, see Alonso García (2001). 101 102

38  Economic Power under Article 101(1) TFEU

2.5  RESTATEMENT: THE QUALITATIVE AND QUANTITATIVE ELEMENTS OF ARTICLE 101(1) TFEU

The previous points regarding Article 101(1) may be illustrated in the following diagram, which is explained in detail in the notes with roman numerals that follow: ARTICLE 101(1) CONDITIONS OF APPLICATION

1st Undertakings [Concept] 2nd Agreements (agreements, concerted practices and decisions of associations) : 3rd That restrict competition

7th That may affect trade between Member States

By their object or effects) I

II

Qualitative Analysis (Abstract)]

[Qualitative Analysis (Abstract)]

III

4

III th

IV

th

In the internal market 4

+

Of an appreciable nature

Appreciable nature nature

II

-

Qualitative POV

5th

Of an appreciable nature -

+ -

Qualitative POV 8th +

Quantitative POV 6th

-

Appreciable nature nature

Quantitative POV 9th

V

COMMENT I: In principle, an agreement restricts competition if it limits the freedom or autonomy of the parties as regards matters that are relevant to the market in which they are operating. Agreements whose objective is precisely this (such as price cartels) are said to be ‘restrictive by object’, and, as the GC explained in European Night Services (1998), their restrictions ‘may be weighed against their claimed pro-competitive effects only in the context of Article 85(3) of the Treaty [now Article 101(3) TFEU], with a view to granting an exemption from the prohibition in Article 85(1) [now Article 101(1) TFEU]’.106 The question whether an agreement is restrictive must be assessed according to the ‘actual conditions in which it functions, in particular the economic context in which the undertakings operate, the products or services covered by the agreement and the actual structure of the market concerned’.107 These agreements, which are restrictive by effect, must be the subject of a prior analysis in order to see whether, despite limiting the freedom of undertakings, they are neutral (because they do not affect the market: non-restrictive), or even pro-competitive.  GC European Night Services (1998) para 136.   ibid, para 137. In the same vein, see eg ECJ Pronuptia (1986) para 24, GC Matra Hachette (1994) para 48, and, above all, Métropole Télévision (2001) paras 77–78. 106 107

Restatement: The Qualitative and Quantitative Elements of Article 101(1) TFEU  39 The case law therefore does not accept that, once detected, any restrictive effect on competition resulting from an agreement between undertakings can be countered or compensated by other pro-competitive effects of the same agreement which would nullify the restriction under Article 101(1) TFEU. In short, in order to apply Article 101(1), each of the effects of an agreement must be assessed separately in order to establish whether they are favourable, neutral or unfavourable to competition (something that, as has already been mentioned, is not necessary with regard to a ‘by object’ restriction). At the same time, the case law clarifies that weighing up the anti-competitive (negative) and advantageous or beneficial (positive) effects of an agreement is only possible under Article 101(3). It should be noted, however, that what is valued under Article 101(3) is not whether an agreement between undertakings is good or bad for competition, since if an examination of the applicability of Article 101(3) to an agreement has been carried out it is because it is clear that Article 101(1) applies, which means that the agreement in question is at least partially restrictive of free competition. What really matters is whether the agreement is good or bad for the economy and for technical progress (the first condition for applying Article 101(3)). Where it has been shown that anti-competitive effects also exist, the ‘pro-competitive effects’ sometimes referred to in the case law and very often by the Commission are simply an inaccurate way of saying ‘promoting technical or economic progress’ – an element that must be evaluated within the examination of the first condition of the exemption. The term ‘pro-competitive’ is sometimes used as a synonym for ‘economically beneficial’, overlooking – or not accepting – the fact that competition fundamentally involves ‘rivalry between undertakings’.108 However, rivalry may not always be economically beneficial, and an agreement that limits or reduces it may not always produce greater economic advantages than free competition (understood to mean rivalry) – not because it is pro-competitive, but rather because free competition does not always produce economically optimal results. (If this reality were not recognised, no exceptions – or exemptions – would be possible to the rule prohibiting agreements that are restrictive of competition.)109 The GC judgment in European Night Services (1998) and the line of cases that this case follows must not, therefore, lead to the basic examination under Article 101(1) (whether an agreement restricts competition depends on whether it is neutral or beneficial for competition) being confused with the actual examination of the first condition of paragraph 3 (whether an agreement that damages competition is, exceptionally, and contrary to the central axiom of competition law, better for the economy or technical progress than free competition; in other words, whether the economic or technical results of competition are greater than those that would result from free competition). The only moment at which an assessment can and must be made as to whether an agreement has neutral, favourable or unfavourable effects on competition (but not comparing or weighing up its favourable as against its unfavourable effects) is precisely during the

108   See, inter alia, Bishop & Walker (2010) 17 para 2.004, for whom ‘[r]ather than always being anti-competitive, reductions in rivalry may be pro-competitive in the sense that they increase consumer welfare’. 109   See section 2.2 above. For an example of an article that typifies this confusion caused by equating the terms anti-competitive/economically disadvantageous and pro-competitive/economically advantageous, see Nicolaides (2005). These concepts would be much better understood and differentiated if it were simply accepted that Art 101 TFEU assumes that the best economic results are not always achieved through free competition.

40  Economic Power under Article 101(1) TFEU examination of the applicability of Article 101(1). If an agreement has both types of effects, the favourable ones may only be taken into account within the scope of Article 101(3) as favourable economic effects of the agreement in question. (The pro-competitive nature of certain aspects of an agreement that restrict competition will constitute an economic advantage within the meaning of the first condition, and will not alter its restrictive nature for the purposes of applying Article 101(1).) There are other cases in which it is even clearer that it is worth carrying out this comparison within the framework of Article 101(3). For example, where the matter involves complex agreements with various clauses, some restrictive, others neutral or pro-­ competitive, is it worth weighing up the effects of one against the other before concluding whether an agreement as a whole is restrictive or not? It seems clear that the answer is ‘no’, if we examine the case law on the point. The existence of a restriction on competition ‘by effect’ must be examined not only in its legal or economic context, which includes the market in question, but also agreement by agreement, clause by clause. As has just been explained, in a complex agreement it is the individual clauses that must be considered to be restrictive or not, according to their effects on competition. If a complex agreement contains restrictive clauses, the effects of other pro-competitive clauses must be assessed under Article 101(3). This is perfectly logical, if we bear in mind that an individual clause, whose effects are both anti and pro-competitive, cannot be freed of the Article 101(1) prohibition without being analysed as an exception under paragraph 3. When an agreement between under­ takings restricts a certain type of competition (for example, competition between products of the same brand, or in a distribution channel) although it favours another type of competition (for example, between different brands, or in other distribution channels), it comes within the scope of application of Article 101(1) despite the fact that it could avoid the prohibition by virtue of Article 101(3). In any event, this debate was more relevant in the past than it is today; following ‘modernisation’ of the application of competition rules the system of ‘legal exception’ allows this problem to be partially overcome, through a joint examination (ie not necessarily in two phases) of Article 101(1) and (3). A final comment concerning this case law is that it is perhaps too concerned with the US rule of reason, which it interprets incorrectly, without emphasising the specific features of Article 101 TFEU compared to section 1 of the Sherman Act. In the US, the unfettered breadth of the rule of reason led the courts to introduce the qualification that prohibited ‘restrictions on trade’ meant only those that were ‘unreasonable’, which did not include either apparent restrictions (neutral or even pro-competitive) or true but nevertheless reasonable restrictions (because they had ‘redeeming features’). European law was more farsighted and established two rules where US law had only one: first, it imposed a general prohibition on agreements that restricted competition between undertakings, and secondly, it established an exception, with the requisite conditions enabling agreements to escape the prohibition. What US law does on the basis of a single prohibition and in a single operation European competition law does in two, so that the prohibition can be avoided either after a first examination, because the requirements for the prohibitive rule itself to apply have not been satisfied (for example, because an agreement between undertakings is not unfavourable to competition or is favourable to it), or after a second examination, since despite restricting competition and satisfying the remaining requirements for the pro-

Restatement: The Qualitative and Quantitative Elements of Article 101(1) TFEU  41 hibitive rule to apply, it also satisfies the conditions for the application of the ‘legal exception’.110 The inappropriately named EU ‘rule of reason’ (which it has been argued the ECJ attempted to establish in Société Technique Minière (1966), Nungesser (1982), Coditel (1982) para 20, DLG (1994) paras 31–35, Oude Luttikhuis (1995) para 10, all cited in GC Métropole Télévision (2001) paras 68ff; and more recently in the ECJ’s judgments in Wouters (2002) and Meca Medina (2006)),111 has been developed exclusively within the field of Article 101(1), to protect or attempt to protect from this prohibition those agreements that appear to restrict competition but in fact do not. It has not been used to consider true restrictions to be reasonable, something that can only be done under Article 101(3) (ECJ Pronuptia (1986) para 24, GC Matra Hachette (1994) para 48, and European Night Services (1998) para 136). However, the GC in Glaxo (2006) paras 16ff appeared to admit the existence of a rule of reason applicable to restrictions by object according to whether or not they prejudiced consumers (although ECJ Glaxo (2009) paras 62ff has returned matters back to the way they were), and it even appears that this idea is gaining a foothold in such unlikely terrain as Article 102. It should be noted that, continuing with the false parallel drawn with US antitrust law, side by side with its peculiar ‘rule of reason’, European competition law would also recognise ‘per se’ infringements of Article 101(1) (but never of Article 101(3)): so-called ‘restrictions by object’.112 Whatever the situation, the EU Courts and the European Commission have clarified over the years that the following, for example, do not restrict competition: 1. Restrictions between undertakings that are not actual or potential competitors situated at the same production or marketing level (because they do not affect the markets of each other). 2. Restrictions between undertakings concerning activities that take place long before the marketing of a product or service (because, being very distant from the market, they do not affect it either). Neither do the following restrict competition under Article 101(1):113 3. Indispensable ‘ancillary restrictions’ that are inseverable from an agreement which, in all other respects, is perfectly legitimate (for example, non-compete clauses imposed on the seller of an undertaking, to the extent that these are necessary to guarantee the effective transfer of intangible elements, such as clients, know-how and so on; see, amongst many others, Commission decision Reuter/Basf (1976) para II.3, and ECJ Remia (1985) paras 19–20). 110   The system of ‘legal exception’ introduced by Reg 1/2003 has more in common with the US ‘all-in-one-go’ system than the repealed Reg 17, but it would continue to allow that Art 101 TFEU should not be applied, either because the requirements of Art 101(1) are not met, or because, even though they are satisfied, those in Art 101(3) are also satisfied. However, it is unclear whether future decisions under Art 10 of Reg 1/2003, when they are adopted, will find that Art 101 as a whole does not apply or whether they will specify for which of the two reasons this is so. As at 1 July 2011, the Commission has still not adopted any decisions of this nature. 111   As regards these cases, see Manzini (2002), especially 393–97. 112   See EAGCP (2005) 2ff. See also Manzini (2002) 398–99 and García Cachafeiro (2005), who highlights the more or less covert acceptance in the EU ‘of the extremely well-known US doctrines of the per se rule and the rule of reason, always controversial on this side of the Atlantic’ (author’s own translation). For a general description of the content of the per se rule and the rule of reason, see Black (1996). 113   See Van Houtte (1983) 48ff.

42  Economic Power under Article 101(1) TFEU 4. Commercial practices that are normal or justifiable for economic reasons (for example, systems of selective distribution under conditions established by the ECJ; see Metro I (1977) para 20; or given restrictions within the franchise system: ECJ Pronuptia (1986) paras 15–17, or within the bye-laws of a cooperative: STJCE Gøttrup-Klim (1994) para 35). 5. Restrictions that are indispensable to the exercise of an economic activity (for example, agreements necessary to penetrate a market: ECJ Société Technique Minière (1966) p 360 (French edition)). 6. Inherently and reasonably necessary restrictions on competition for the proper exercise of a profession such as that of law: ECJ Wouters (2002). 7. Finally, agreements between competitors not to sell their products or services to clients that do not satisfy certain mandatory rules which, if complied with, would make it impossible to provide the product or service in question.114 The first two types of restrictions do not create any problems, because they do not affect competition in the market: they are restrictions on the freedom of undertakings that are obviously neutral as regards competition. Type 3, although it appears to have an effect on competition, in fact does not have any such effect, since the agreement is not entered into between competitors (one company leaves the market and another takes its place; they never coincide in the market). Type 4 causes the most problems: depending on the circumstances, restrictions on the business freedom of the undertakings could be both neutral or pro-competitive as well as anti-competitive. Restrictions under type 5 affect competition, but in a positive fashion: the restrictions in question are pro-competitive. Type 6 is very similar to type 4, except that the restrictions are justified for reasons of an economic nature. Type 7 would not affect fair competition within the law either. Types 3 to 7 have two things in common: apparent restrictions have a legitimate protectable objective or are economically advantageous and are necessary or indispensable for achieving the objective in question. It will be observed that in these four cases the two elements of the examination of the restrictive nature of an agreement between undertakings for the purpose of determining the applicability of Article 101(1) mirror the first and third conditions for applying Article 101(3) to restrictions on competition (specifically, that the restrictions produce more economic or technical advantages than disadvantages, and that they are indispensable to enabling these positive results to be achieved; it should be noted, however, that the requirement of necessity or indispensability could be stricter under paragraph 1 than under paragraph 3 of Article 101: GC Dansk Pelsdyravlerforening (1992) para 78, and GC Métropole Télévision (2001) paras 111–113). From the above, it can be deduced that certain prima facie restrictions on competition could either be examined initially according to the first two conditions mentioned and then in the light of the four conditions of Article 101(3), or solely in the light of the first two conditions, depending on whether, objectively, in view of the existing market conditions, it is believed that to achieve certain legitimate objectives there are alternatives that do not limit the business freedom of undertakings (a situation where a restriction on competition would exist) or not (a situation where a restriction on competition would not exist). In short, if the objectives pursued are recognised as desirable, everything could be reduced to the condition of the indispensability of the restriction. 114   See Van Miert (1999) 9, who specifically refers to a recommendation by insurance companies not to insure vessels that do not comply with International Safety Management Code standards, which is obligatory in the EU for certain ships.

Restatement: The Qualitative and Quantitative Elements of Article 101(1) TFEU  43 Take, for example, agreements between companies that manage copyrights on a national or international level, which have given rise to so much EU case law. According to one theory, if it were recognised that they have a valuable role that could not be achieved by any other means (that is, if they were the only means of managing copyright efficiently), what would at first sight be agreements that restrict competition could be seen to be non-­ restrictive because they are economically valuable and indispensable, in the sense that there are no less restrictive alternatives available. (See the Opinion of Advocate General Jacobs in Lucazeau and Tournier [1989] paras 33–34). Nevertheless, this theory may create doubts where agreements that are restrictive ‘by their nature’ exist: even in such cases, could the conclusion be reached that, at the end of the day, these agreements do not restrict competition because they pursue legitimate protectable objectives and do not go any further than that which is strictly necessary to achieve them? It would appear not, if GC European Night Services (1998) and the line of cases that followed it are to be believed, and yet the Commission, referring to the Guidelines on the application of Article 101(3) TFEU, European Commission (2004d) para 18, which refer in general terms to ‘restrictions’, not specifically to restrictions by object or hardcore restrictions, has established in its Guidelines on Vertical Restraints that ‘[h]ardcore restrictions may be objectively necessary in exceptional cases for an agreement of a particular type or nature115 and therefore fall outside Article 101(1). For example, a hardcore restriction may be objectively necessary to ensure that a public ban on selling dangerous substances to certain customers for reasons of safety or health is respected.’116 COMMENT II: There may be doubts as to whether there are one or two qualitative examinations, the first concerning the restrictive nature or effect on trade, the second concerning its hypothetical intensity. In terms of the appreciable nature of a restriction on competition, it appears clear that in the case law and in academic writings there are two qualitative examinations, or one in two phases: in the first phase, the incorrectly labelled European ‘rule of reason’ will be applied, which will assess whether or not the apparent restriction in fact has a restrictive effect, since it does not affect competition, or benefits it; and in the second phase, the seriousness of the restriction, once it has been concluded that this exists. As regards the appreciable nature of the effect on trade between Member States, the separation is less clear. In its Working Paper on Article 3 of its proposed Regulation implementing Articles 101 and 102 TFEU, Article 3 – The relationship between EU law and national law, European Commission (2001c) para 99, the Commission appeared to opt for the existence of a single quantitative examination, which would mean that the ‘appreciability’ of the affectation would be purely quantitative. Nevertheless, in Volkswagen (2000) it looks as though the GC accepted that on occasion a qualitative examination is enough to conclude that intra-European trade is affected (see Comment III). The Commission itself has recognised this, in its Notice on the effect on trade concept set out in Articles 101 and 102 TFEU, European Commission (2004c) para 29, among others. COMMENT III: In Volkswagen (2000) paras 23–231, the GC stated that in certain especially serious cases it is only necessary to carry out a qualitative examination of the third and seventh conditions (the third condition would cover the fifth, the seventh would cover the eighth, and if the seventh were satisfied, the fourth would be too, while the sixth and ninth conditions would be unnecessary).   See Commission Guidelines on Art 101(3) TFEU (European Commission (2004d)) para 18.   European Commission (2010a) para 60.

115 116

44  Economic Power under Article 101(1) TFEU COMMENT IV: If the seventh condition is satisfied, so is the fourth, but not the other way round. COMMENT V: If the ninth condition is satisfied, so is the sixth, but not the other way round. To conclude, we must recall what has been said regarding the quantitative aspects of the appreciable nature of a restriction on competition and intra-European trade. The ECJ has interpreted Article 101(1) as requiring that agreements and practices between undertakings restrict competition and affect trade between Member States (which is analysed on the basis of purely qualitative criteria, taking into account the object and effects of the agreement) and that restrictions are ‘appreciable’ (that is, of a certain import­ ance), as regards competition in the internal market on the one hand and trade between Member States on the other. The ‘appreciable nature’ of a restriction on competition and on trade between Member States is evaluated taking into account both qualitative (abstract) and quantitative (empirical) criteria. The more the freedom of the parties is limited (which will depend on the nature of the agreement), and the stronger their joint position in the markets (which will depend on their joint market power), the more likely it is that Article 101(1) TFEU will apply.117 Restrictions by object always have a qualitatively appreciable effect on competition, but not always a quantitatively appreciable effect.118 In order for Article 101(1) to apply to such restrictions it is necessary to investigate the degree to which they affect trade between Member States, something that can also be examined on the basis of qualitative and quantitative criteria. In its de minimis Notices, the Commission has favoured quantitative over qualitative criteria. This chapter has focused on the quantitative evaluation of the ‘appreciable’ nature of a restriction on competition and trade between Member States. This is generally carried out by observing the market shares of undertakings that enter into an agreement which restricts competition, on the basis of criteria identical to those used to study the fourth condition of Article 101(3) TFEU or the past, present or future existence of a dominant position – that is, examining the joint market power of the undertakings that are parties to the agreements. The basic elements in the analysis of the economic power of undertakings under Article 101(1) TFEU (definition of the market, criteria for assessing economic power, etc) are, naturally, the same as those under Articles 101(3) or 102 TFEU and in the control of concentrations.119 The thresholds, however, are clearly much lower than those required to enjoy a dominant position:120 less than 1 per cent market share in order for a hardcore restriction on competition not to have a quantitatively appreciable effect on competition (Völk); less than 10 per cent market share in order that agreements between competitors (horizontal agreements) do not have a quantitatively appreciable effect on competition or trade 117   See Commission Staff Working Paper: Commission’s proposal for a new Council Regulation implementing Arts 101 and 102 TFEU; Article 3 – The relationship between EC law and national law (European Commission (2001c)) para 106. 118  ECJ Völk (1969) paras 5–7. 119   For a full explanation of this idea, see the following chapters. 120   Guidelines on Art 101(3) TFEU (European Commission (2004d)) para 26: ‘The creation, maintenance and strengthening of market power can result from a restriction of competition between the parties to the agreement. It can also result from a restriction of competition between any one of the parties and third parties . . . Market power is a question of degree. The degree of market power normally required for the finding of an infringement under Article 81(1) [now Article 101(1) TFEU] in the case of agreements that are restrictive of competition by effect is less than the degree of market power required for a finding of dominance under Article 82 [now Article 102 TFEU].’

Restatement: The Qualitative and Quantitative Elements of Article 101(1) TFEU  45 between Member States (see the de minimis Notice 2001); less than 15 per cent market share in order that agreements between non-competitors (vertical agreements) do not have a quantitatively appreciable effect on competition (de minimis Notice 2001);121 and less than 15 per cent market share in order for certain horizontal agreements not to have a quantitatively appreciable effect on competition or trade between Member States (Guidelines on Horizontal Cooperation Agreements (2011)). The analysis of undertakings’ market power is therefore of fundamental importance for the application of Article 101(1) TFEU, although according to the GC in Volkswagen (2000) there are times when it is not necessary to carry out the quantitative analysis before concluding that Article 101(1) TFEU is applicable, since particularly significant qualitative elements may exist which indicate that either competition or trade between Member States has been affected in an appreciable way. The relevant thresholds of market power for the application of this Article are, however, much lower than those set out in Articles 101(3) and 102 TFEU and the Merger Regulation, as will be seen in the Epilogue to this book. Without doubt, the European Commission has been overly prudent in saying that, in principle – but only in principle, ‘[t]he degree of market power normally required for the finding of an infringement under Article 81(1) [now Article 101(1) TFEU] in the case of agreements that are restrictive of competition by effect is less than the degree of market power required for a finding of dominance under Article 82 [now Article 102 TFEU]’.122

121   As already explained, the de minimis Notice (2001d) has changed tack (see paras 2 and 3), and states that it is limited to the clarification of quantitative criteria on the ‘appreciability’ of competition, without concerning itself with any aspects, whether quantitative or qualitative, of the ‘appreciability’ of the effect on trade between Member States, a concept that is dealt with in a separate communication. 122   Guidelines on Art 101(3) TFEU (European Commission (2004d)) para 26. In the same way, see the Guidelines on Vertical Restraints (European Commission (2010a)) para 97 and the new Draft Guidelines on Horizontal Cooperation Agreements (2011) para 42.

3 Economic Power under Article 102 TFEU: Establishment of Dominant Position 3.1  INTRODUCTION: THE CONCEPT OF DOMINANT POSITION. DOMINANCE, SUPERDOMINANCE AND THE NEW ‘ARTICLE 102(3)’

Article 102 of the Treaty on the Functioning of the European Union (TFEU) prohibits the abusive exploitation of a dominant position in the internal market or a substantial part of it,1 but does not define the concept of ‘dominant position’. Article 66(7) of the Treaty establishing the Coal and Steel Community (ECSC Treaty) did define a dominant position as one ‘shielding [the undertaking holding it] against effective competition’. Shortly before, in the ECSC Treaty itself, Article 66(2) had implicitly defined ‘dominant position’ as a position that allows the undertaking in question ‘to hinder effective competition’. This definition was followed by the ECJ in Sirena (1971).2 Subsequently, in United Brands (1978) the ECJ established perhaps the most famous of the definitions of dominant position, based on the combination of factors laid down by the Commission in Continental Can (1971), which placed the emphasis on the possibility of dominant undertakings independently determining their behaviour, without taking into account possible competitors, purchasers or suppliers.3 The Court provided that in the context of European competition policy a 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 of its competitors, customers and ultimately of its consumers’.4 5 1   As is well known, competition law does not prevent one or more firms enjoying significant market power or – which amounts to the same thing – a dominant position. Rather, it limits itself to ensuring that substantial market power is acquired, maintained or strengthened as a result of undertakings’ own merits and that such power is not abused, if it becomes significant. In fact, the possibility of acquiring a dominant position and, consequently, of receiving the benefits that derive therefrom, is a significant incentive to companies investing in, producing, and putting in place the processes that create economic growth. See US Department of Justice (2008) 20. 2  ECJ Sirena (1971) para 16. 3   Commission decision Continental Can (1971) para II.3. 4  ECJ United Brands (1978) para 65, later reproduced in ECJ Hoffmann-La Roche (1979) para 38, ECJ L’Oréal (1980) para 26, ECJ Michelin I (1983) para 37, and many other later cases up to the present day. See Waelbroeck & Frignani (1998) 306–08, para 237. This case law definition has been included in Art 13(2) of the Directive on a common regulatory framework for electronic communications networks and services (European Commission (2000)), which on the other hand refers to ‘significant market power’ rather than dominant position, although at present Art 14(2) of the Directive itself equates the two concepts. Previously, in the package on electronic communications in 1998, the threshold of ‘significant market power’ was set at a market share of 25%. This was an atypical intermediate threshold, below that of the dominant position, and it did not last very long in this sector (from 1998 to 2003) before returning to the orthodox position found in competition law. 5   In GC AstraZeneca (2010) para 267, the General Court appears to forget that when a dominant position exists, effective competition has already been eliminated when it states that in order to establish a dominant

The Concept of Dominant Position  47 In more specific and current terms, a dominant position can be equated with the enjoyment of substantial or significant market power.6 It is often said that substantial market power and, therefore, a dominant position exists when one or more undertakings are capable of increasing prices profitably and on a lasting basis above the competitive level,7 which could be defined as the prevalent level in the market if the dominant undertaking(s) did not exist. In fact, the traditional definition of dominant position, based on the concept of independence, and the more modern one, which requires the capacity to maintain supra-competitive prices, basically refer to the same thing. In a market economy that focuses on profit, independence can only lead to price increases and, at the same time, improvements in the results or the positions of the companies.8 It is often stated that significant market power must be lasting. Thus, the ability to apply monopolistic price rises temporarily is not sufficient to determine its existence.9 However,

position (market power, in the original wording) it is not necessary that the firm in question can use its power ‘in such a way as to prevent effective competition from being maintained’. 6   See, inter alia, Discussion Paper on Article 102 TFEU (European Commission (2005)) paras 23 and 28; Guidance Paper on the same Article (European Commission (2009)) paras 10, 14 and 16. See also Evans (2011) 3. According to Majumdar (2006) 164, ‘[t]he Discussion Paper misses the opportunity to narrow the definition of dominance – ie to raise the hurdle for intervention. On the contrary, if anything, the threshold for finding dominance is lowered.’ The ICN (2008) also defines both concepts as indicating the ‘ability to price profitably above the competitive level’ and mentions two parameters that indicate the level of market power: ‘a high degree of market power both with respect to the level to which price can be profitably raised and to the duration that price can be maintained at such level’. See also Kühn (2001) section 2; Bishop and Walker (2010) 227, para 6.004; Dethmers, Dodoo & Morfey (2005); Niels & Jenkins (2005) 606, who, in a similar sense to that found in the Discussion Paper and the Guidance Paper on Article 102 TFEU, define dominant position as ‘a very high degree of market power – one that enables a firm to sustain prices above the competitive level without inducing customer switching or competitor entry’. Similarly, see also G Monti (2006) 31–32, who puts forward three other definitions or concepts of dominant position. First, he states that the Commission has tended to equate, erroneously, dominant position with ‘commercial power’. Secondly, dominant position is referred to as the power to exclude competitors and then immediately increase prices. And finally, he refers to a conception of dominant position as simply a jurisdictional criterion, which, if satisfied, makes it possible to apply Art 102. In the USA, the expression ‘market power’ (free of adjectives) has been steadily converging with that of ‘monopoly power’, the approximate equivalent of the European ‘dominant position’. See Gavil (2000) 102–04. However Coppi & Walker (2004) 103 appear to distinguish between market power and dominant position: ‘We believe that many of the differences in approach have to do with the difference between the concept of market power, which is at the heart of the US analysis, and that of dominance, which is the basis of the analysis in Europe.’ The position of these authors may be explained by the fact that they assume that the European Commission reserves use of the adjective ‘dominant’ to a single undertaking when in fact there may be different firms with market power that are capable of increasing prices above the competitive level (133). On the idea that a monopolist can be considered an undertaking with a high degree of market power, see Salop (2000) 189–90. Levy in Organization for Economic Co-operation & Development (2002) 18ff also makes this point. Finally, Werden (2008) 96 argues that dominant position, substantial market power and monopoly power are identical and the document published by the Department of Justice with respect to s 2 of the Sherman Act also equates the expression ‘monopoly power’ with the concept of ‘substantial market power’ and this, in turn, with the ability to control prices and exclude competition. US Department of Justice (2008) 20. For the various degrees of market power, see below. 7   In this regard, see GC AstraZeneca (2010) para 267, which equates market power with dominant position and, after referring to the traditional definition of dominant operator (who is capable of acting independently of his competitors, his clients and, ultimately, consumers), interprets this in the sense that the dominant operator, or the one who holds market power, is capable, in particular, of maintaining prices at a higher level. 8   See also Luescher (2004) 75. 9   See US Department of Justice (2008) 20: ‘the power in question is generally required to be much more than merely fleeting; that is, it must also be durable.’ The DOJ Report, subsequently withdrawn following a change of Administration in the USA, cites Areeda & Hovenkamp (2002) 323 801d, as well as the judgment in Colorado Interstate Gas Co v Natural Gas Pipeline Co of America, 885 F2d 683, 695–96 (10th Cir 1989). In Europe, see the Discussion Paper on Art 102 TFEU (European Commission (2005)) para 24 in fine.

48  Economic Power under Article 102 TFEU: Establishment of Dominant Position in terms of competition, substantial or significant market power cannot be irrelevant, even where it is ephemeral, for reasons that are both legal and logical. First, the rule does not provide for this (Article 102 does not exclusively punish abuses of a lasting dominant position) and it would give rise to the problem of determining how long a dominant position should last to be considered as such. The case law has only established that the market shares of the undertakings and their immediate competitors – above all when the shares of the former are high, stable and lasting – are relevant for the examination of a dominant position.10 In other words, high and lasting market shares make it possible to prove more convincingly the existence of that market power,11 but nowhere does it say that a dominant position must be lasting in order to apply Article 102 TFEU. Second, it would seem illogical to suggest that antitrust law should not have a role to play when substantial market power is not lasting if that power is used in an anti-competitive manner during the time (short or long) that it is held. As a result, being of a lasting nature should not be a condition for the existence of substantial market power, at least not for the purposes of Article 102 TFEU.12 Further, from a different perspective, the dominant position could be defined by the capacity to control or limit (reduce), also profitably, production or the market.13 This description recalls the content of Article 65(2)(c) of the ECSC Treaty, a provision that is analogous to the fourth condition of Article 101(3)(b) TFEU. As will later be seen, the power to determine (increase) prices or to control or limit (reduce) production and the market, typical of a dominant position, is equivalent to the power enjoyed by undertakings when competition has been eliminated with regard to a substantial part of the market.14 The above situation occurs, in general, when an undertaking or group of undertakings controls a significant amount of supply (or, less frequently, of demand) in a specific market, provided that the other factors analysed in the evaluation (barriers to entry, clients’ or suppliers’ reaction capacity, etc) point in the same direction. The Commission takes the same approach in the application of Article 102 to those undertakings which hold, individually or collectively, a dominant position, as its approach in merger control.15

10   Or to determine that effective competition is not significantly impeded, for the purposes of Reg 139/2004, on the control of concentrations, or that competition is not eliminated in respect of a substantial part of the market, for the purposes of Art 101(3)(b) TFEU, three things that I consider amount to the same thing. 11   See, inter alia, ECJ Hoffman-La Roche (1979) paras 39–41, in which the periods examined by the Commission were generally three years. 12   In merger control, the Commission and the EU Courts have historically been more flexible, taking the view that non-lasting dominant positions will not satisfy the requirements of the substantive test. See section 4.1 below. 13   See, inter alia, Azevedo & Walker (2002) 366, who propose a dominant position and market power test based on an ‘output restriction approach’. Dobbs & Richards (2005) develop this idea on the basis of the concept of ‘output restriction elasticity’, which means ‘the percentage change in total output induced by a given percentage change in the individual firm’s output’, which could supplement market share as an indicator of market power. 14   See ch 5 below. Geradin, Hofer, Louis, Petit & Walker (2005) 9–10 propose a slightly different dual description – a dominant position would be typified by the capacity to increase prices profitably by 5–10% (which is the most common quantificative measurement of a dominant position) or alternatively by the power to exclude other competitors. More broadly, the Discussion Paper on Art 102 TFEU (European Commission (2005)) para 24 and the Guidance Paper on the same provision (European Commission (2009)) para 11 view market power as ‘the power to influence market prices, output, innovation, the variety or quality of goods and services, or other para­ meters of competition on the market for a significant period of time’. 15   See Notice on the definition of the relevant market (European Commission (1997a)) paras 10–11.

The Concept of Dominant Position  49 It is a fact that there are degrees of market power, both above and below the level of dominant position,16 and at times the Commission and the EU Courts have used other expressions, similar to ‘dominant position’, in order to describe them. The Commission has, for example, used the expression ‘predominant position’, whose meaning is not at all clear, although it appears to mean something similar, if not identical, to dominant position. In its decision in Henkel/Colgate (1971), for example, the Commission ruled that competition with respect to a substantial part of the market was not eliminated because ‘[although] the two contracting parties [had] significant market shares in all of the countries of the common market, . . . together they did not [hold] a predominant position on the market’.17 The Commission has also used the expression ‘predominant position’ to describe a situation in which the two undertakings shared out the whole of a market.18 In this context, the expression in question appears to refer to a strengthened dominant position. Similarly, Advocate General Fennelly has used the expression ‘superdominance’ to refer to a dominant position close to monopoly.19 Although the term in question could not, strictly speaking, be found in the case law until ECJ TeliaSonera (2010)20, both the EU Courts and the Commission appeared to have adopted the underlying concept.21 The same can be said of academics, who have argued that some conduct may be abusive if it is carried out by certain dominant operators (implicitly: superdominant) and not abusive if carried out by other dominant operators (implicitly: simply dominant).22 This

16   See in the first place the Guidelines on Vertical Restraints (European Commission (2000b)) para 119(1) and 148 in fine. According to the first of these passages, ‘Conceptually, market power is the power to raise price above the competitive level and, at least in the short term, to obtain supra-normal profits. Companies may have market power below the level of market dominance, which is the threshold for the application of Article 82 [now Article 102 TFEU].’ The second text, which refers to single brand agreements entered into by a dominant supplier, states that ‘[t]he stronger its dominance, the higher the risk of foreclosure of other competitors’. Similarly, the Guidelines on Art 101(3) TFEU (European Commission (2004d)) para 26 recognise that ‘[m]arket power is a question of degree’. In the same way, see the Guidelines on Horizontal Agreements (European Commission (2011) para 42. For its part, the Discussion Paper on Art 102 TFEU (European Commission (2005)) para 59 refers to the degree of dominance and its effects. ‘In addition the degree of dominance will be a relevant factor. In general, the higher the capability of conduct to foreclose and the wider its application and the stronger the dominant position, the higher the likelihood that an anticompetitive foreclosure effect results.’ See also the Guidance Paper on Article 102 (European Commission (2009)) paras 9, 10 and 15 n 1. In the literature see, inter alia, Geradin, Hofer, Louis, Petit & Walker (2005) 11, for whom ‘there is no logical difficulty with the fact that there are different levels of substantial’. 17   Commission decision Henkel/Colgate (1971) para III, ninth recital (p 17 of the French edn) (author’s own translation). 18   Commission decision Flat Glass (Benelux) (1984) para 51. 19   With respect to CEWAL in the case of the same name. See AG Fennelly’s Opinion in CEWAL (2000) para 137. 20  ECJ TeliaSonera (2010) para 81. See also AG Mazák’s Opinion in this case, para 41. 21   See, inter alia, the references to ‘approaching that of a monopoly’ set out in the Discussion Paper on Art 102 TFEU (European Commission (2005)) paras 90–92 and fn 67 and in the Guidance Paper on the same provision (European Commission (2009)) para 30 in fine. 22   See Albers in Albers & Peeperkorn (2006) 3–4: ‘I would thus not exclude that particular conduct may still be allowed from the dominant firm, depending on the degree of dominance’; Sinclair (2004) 493–98; Appeldoorn (2005) 653, for whom the concept of superdominance involves an ‘extra burden on undertakings that enjoy exceptional market power’, thus introducing a second distinction . . . between firms being scrutinised under Article 82 EC [now Article 102 TFEU]’; Niels and Jenkins (2005) 606, for whom the fact that there is a single threshold for dominant position applicable to all types of behaviour is a shortcoming of Art 102. These authors consider that it should be possible to define certain per se prohibitions for superdominant operators that do not apply to those that are merely dominant. Similarly, see also Temple Lang & Renda (2009) 2.

50  Economic Power under Article 102 TFEU: Establishment of Dominant Position proposition has, however, no economic foundation23 or legal basis24, and has been rejected by the ECJ.25 Following the Commission’s lead, the General Court has also distinguished between dominant position and preponderant position; between dominant position and ‘leading position’; and between dominant position and ‘strong position’, without defining any of these expressions. All three would involve substantial market power, but less than that needed to enjoy a dominant position.26 The last two expressions have been used both as if they meant different things (the market power referred to by ‘strong position’ would be less than that of ‘leading position’) and as if they were synonyms.27 In its Draft Notice on Horizontal Mergers – which, given the limited emphasis placed on individual dominant positions, should perhaps have been called ‘Notice on oligopolistic collective dominant positions’ – the Commission used the expression ‘paramount position’ without defining it, as a term that is apparently subtly different from the ‘traditional’ dominant position. On the one hand, it used the expression ‘paramount position’ exclusively to refer to individual undertakings; on the other, without any reason or clarification, it used the traditional terminology twice within the section entitled ‘A firm with a paramount market position’. This could have meant either that ‘paramount position’ included the traditional dominant position (this latter could be a variety of the former), or that the two terms were synonyms, although in the latter case the Commission’s intention in using this expression, until then unknown in European competition law, is unclear. On the other hand, the Commission might have wished to use this expression in a specific manner, to designate one of the three forms of dominant position that it proposed to distinguish in EU merger control (a proposal it later dropped), giving the expression ‘dominant position’ a generic meaning.28 Whatever were the intentions of the Commission in inserting this 23  According to O’Donoghue & Padilla (2006) 168–69, the concept of superdominance is problematic, given that there is no objective economic test that makes it possible to define when a company is superdominant and its behaviour should be subjected to greater scrutiny. Etro (2006) 32 is also critical of the introduction of the concept of superdominance. As he puts it, ‘a strange concept of market position “approaching that of monopoly” is introduced [in the Commission’s Discussion Paper] and associated with market shares above 75%, something, as we will see, without any justification in economic theory: a firm is a monopoly or is not (in which case, its behaviour is constrained by competitors), but it cannot be an “almost monopoly” or a “near monopoly”.’ It is submitted that the obligations of a superdominant firm are and must be identical to those of a merely dominant undertaking, and no basis for arguing otherwise exists. In this regard, see also O’Donoghue & Padilla (2006) 412. However, taking as our starting point the fact that, as Appeldoorn (2005) has pointed out, ‘some firms are more dominant than others’, any even slightly significant action of those that have a stronger position (that will involve a significant reduction of competition and very limited residual competition) may more easily harm the remaining competition. The superdominant firm is like a bull in a china shop. There is therefore no legal difference (different types of dominant position, with different obligations) but rather a factual difference that means that superdominant operators, then, may more easily damage residual competition. In a subtly opposite sense, see Temple, Lang & Renda (2009) 20–21, for whom ‘for certain types of abuse, an even higher level of market power might be required than under the general dominance test’. 24   In addition, Art 102 does not contain any legal basis that makes it possible to discern an increased level of dominance. Despite this, the Commission appears to assume that whenever a firm has more market power, it has greater incentives and possibilities to act in an abusive manner. 25  ECJ TeliaSonera (2011) paras 78–82. 26   ‘Position prépondérante’, ‘leading position’, and ‘strong position’ in the French and English originals. See, on the one hand, paras 445–55 of GC Schneider (2002), which annulled Commission decision Schneider Electric/ Legrand (2001), para 811 of which, for example, used the former expression; and, on the other, paras 40, 42, 45, 48, 54, 148, 151, 181, 226, 272, 284 and 321, inter alia, of GC Tetra Laval v Commission (2002), which reproduces the terms used by the Commission in, inter alia, paras 229, 231, 248, 259, 263, 330, 359 and 389 of the decision. 27   Compare Commission decision Tetra Laval/Sidel (2001) paras 259 and 359 with GC Tetra Laval v Commission (2002) paras 40 and 48. 28   See Commission Notice on Horizontal Mergers (2002b) paras 20 and 24.

The Concept of Dominant Position  51 expression, the fact is that this neologism complicated even further the already very abstruse terminology used in relation to market power in European competition law and merger control. Finally, the definitive Notice and Regulation 139/2004 opted for the traditional terminology, although they also introduced concepts imported from the USA into European merger control, such as uncoordinated or unilateral effects and coordinated effects.29 Even more recently, in its Discussion Paper on Article 102 published in 2005, followed by the Guidance Paper on the same provision in 2009, the Commission implicitly resuscitated the concept of ‘superdominance’, defining it as the threshold of intolerable market power even where economic efficiencies exist.30 Thus after an initial announcement by the Commissioner for Competition,31 and in addition to the traditional defence of the existence of an objective justification for prima facie abusive conduct,32 the Commission openly envisaged the possibility of not considering to be abusive the behaviour of dominant operators which satisfied four very similar (if not identical) conditions to those set out in Article 101(3) EC with respect to restrictive agreements. Nevertheless, Article 101 TFEU has a very different structure and logic from Article 102 TFEU. While the latter establishes an unconditional prohibition, with no exceptions, the former contains a full-blown exception, which does not prohibit the restrictive nature of the conduct examined as long as the four conditions of paragraph 3 are satisfied. For this reason, the objective justification set out in the case law does not act as an exception; rather, from a logical perspective, it is located prior to the conclusion that abuse exists since it avoids such a conclusion being reached. For this reason too, a ‘fusion’ of Article 101(3) and Article 102 is not possible without distorting the latter’s meaning. There is, therefore, no legal exception or means of authorising a verified abuse of a dominant position, although to achieve something similar to this the Commission’s Article 102(3) uses an identical methodology to that of objective justification, in this case putting the cart (the examination of efficiencies) before the horse (the conclusion as to whether or not there is an abuse).33   See chs 4 and 9 below.   Discussion Paper on Art 102 TFEU (European Commission (2005)) para 91: ‘Ultimately the protection of rivalry and the competitive process is given priority over possible pro-competitive efficiency gains. This is also required for a consistent application of Articles 81 and 82 [now Articles 101 and 102 TFEU]. It is therefore, also when assessing the no-elimination-of competition requirement, highly unlikely that abusive conduct of a dominant company with a market position approaching that of a monopoly, or with a similar level of market power, could be justified on the ground that efficiency gains would be sufficient to counteract its actual or likely anti-competitive effects.’ At para 92 of the document, the Commission proposes setting the threshold of superdominance at 75% of market share. See also the Guidance Paper (European Commission (2009)) para 30, which does not mention any specific market share. For a general study on the Guidance Paper, see Pace (2011). 31   Kroes (2005). In the official presentation of Art 102(3), the Commissioner for Competition referred to the need for symmetry between Arts 101 and 102 and merger control law in order to introduce the assessment of ‘efficiencies’ in the context of Art 102. 32   Of which there are two types, according to the Commission: the ‘objective necessity defence’ and the ‘meeting competition defence’. Discussion Paper on Art 102 TFEU (European Commission (2005)) paras 78–83. 33   Albers & Peeperkorn (2006) 5 identify the objective justification of Art 102 with Art 101(3), which they in turn equate with an ‘efficiency defence’. However, it is submitted that the case law leaves no room for doubt that such a comparison is inappropriate, whatever the Commission says. See the Opinion of AG Jacobs in Syfait (2005) para 72, who considers that in Art 102 cases, unlike under Art 101, no two-stage analysis either exists or could exist. When conduct has been defined as abusive, a negative conclusion with respect thereto has already been reached while the terminology of Art 101 (‘prevention, restriction, distortion’) is more neutral. For these reasons, Jacobs considers that ‘it is therefore more accurate to say that certain types of conducts on the part of a dominant undertaking do not fall within the category of abuse at all’. As a result, ‘objective justification’ and Article 101(3) 29 30

52  Economic Power under Article 102 TFEU: Establishment of Dominant Position According to the Commission, the existence of ‘efficiencies’ could save certain prima facie abusive conduct from being prohibited under Article 102,34 provided that: •  the efficiencies are realised or likely to be realised as a result of the conduct concerned;35 •  the conduct concerned is indispensable for the realisation of these ‘efficiencies’; •  the ‘efficiencies’ benefit consumers; and •  competition in respect of a substantial part of the products concerned is not eliminated.36 Essentially, the description of the content of the first three conditions referred to in the Discussion Paper is no different from the content of the Notice on Article 101(3) as regards the first three conditions of this latter provision.37 As regards the fourth condition of the new ‘Article 102(3) TFEU’, and after invoking the need for consistency in the application of Articles 101 and 102, the Commission explains that, when examining whether the condition of non-elimination of competition has been satisfied, it is very unlikely that the abusive conduct of a dominant firm with a position in the market close to monopoly, or with similar market power, may be justified by generating sufficient efficiency gains to offset its real or potential anti-competitive effects. Thereafter, but only in the Discussion Paper, as already mentioned, the Commission states that an undertaking comes close to having a monopoly position when its market share exceeds 75 per cent and there is practically no real or potential competition.38 In practice, then, the Commission is proposing the creation of a new market power threshold, above that of dominant power, which arguably goes beyond the elimination of effective competition (where, in my opinion, one or more firms would hold a dominant position), to a point where practically all competition is eliminated.39 This last situation, which equates to the ‘superdominance’ referred to by Advocate General Fennelly in CEWAL (2000),40 would occur when ‘competition in respect of a substantial part of the products concerned’ is eliminated, following to the letter the wording used in Article 101(3)(b). exist in different logical planes. The former serves to rule out conduct that is abusive within the meaning of Art 102; the latter to justify conduct that is restrictive. 34   For a criticism of ‘Article 102(3)’, see Govaere (2008). For a lament on its illusory rather than practical nature, see Tosza (2009). Similarly, see Temple Lang & Renda (2009) 37–40, who advocate integrating the analysis of efficiencies into the determination of the existence of abuse, instead of treating them as a defence a posteriori. 35   The assessment of efficiencies takes place both in the field of Art 101(3) as well as in merger control, and the Commission has introduced it de facto into Art 102 cases following its Guidance Paper in 2009. In all of these cases, the Commission refers to something wider than efficiencies strictly defined as economic advantages, and also includes considerations related to consumer welfare, the indispensability of the restrictions, concentration or abusive practice, and even the elimination of competition. In this way, a part (‘efficiencies’) is taken to refer to the whole (the tests for redeeming restrictive agreements, alleged abuses and ‘difficult’ mergers). 36   Discussion Paper on Art 102 TFEU (European Commission (2005)) para 84; Guidance Paper (European Commission (2009)) 30. 37  See Discussion Paper on Art 102 TFEU (European Commission (2005)) paras 48ff; Guidance Paper (European Commission (2009)) 30. 38   Discussion Paper on Art 102 TFEU (European Commission (2005)) paras 91–92, citing ECJ Hoffmann-La Roche (1979) paras 38–39 and GC Irish Sugar (1999) paras 186, 233. 39   This approach is defended by those who, like Niels & Jenkins (2005) 606, have criticised the fact that ‘EU law has only one threshold for dominance regardless of the type of practice at hand’. These authors point out that generally the threshold is set at a low level and ‘constitutes the basis for a form-based per se prohibition of certain behaviour’), and propose that the per se prohibition should only apply in superdominance cases, so that simple dominance is ‘used as an intermediate step in the analysis of actual or likely anti-competitive effects’. Doubts often arise as to the compatibility of ideas put forward by economists with the principle of legal certainty, and that is so in this case. In my opinion, a theory that postulates that the rule exists but it is not possible to know in advance whether specific action is prohibited until its effects have been examined does not hold much water. 40   Opinion of AG Fennelly in ECJ CEWAL (2000) para 137.

Market Share and the Structure and Resources of Undertakings  53 As can be seen, the Discussion Paper and the Guidance Paper set the threshold for the tolerance of prima facie abusive conduct at the same level as, supposedly, that of restrictive behaviour, and always above the level of a simple dominant position (as opposed to a superdominant position). This approach, which will be critically analysed later, fits in well with some of the recent declarations of the General Court.41 As regards the criteria used to establish the existence of a dominant position, although it cannot be said that the list of criteria is closed, since the Commission and the EU Courts have developed it on a case-by-case basis,42 the essential elements that must be analysed can be identified. These are basically as follows: •  The structure of supply, above all the market share of the undertaking or undertakings that are alleged to be dominant and their stability over time; their advantages over competitors derived from their structure and resources (technical, economic or any other kind); and the strength, structure and resources of competitors. •  P  otential competition and barriers to entry (for instance, legal regulations which impede, limit or make it difficult to enter markets, economies of scale, the degree of differentiation of products that belong to the same market, etc), whose study allows an assessment to be made of the presence or otherwise – and the degree of immediacy – of potential competition or the possibility that new competitors will gain access to the market and limit established undertakings’ power. •  The structure of demand, mainly the countervailing power of customers, but also the elasticity of demand and the degree of maturity of the market. •  The behaviour of undertakings, since certain behaviour, even if not considered abusive in principle, may indicate the existence of a strong market position. As well as the structural analysis of the market and an evaluation of undertakings’ behaviour, some authors have placed great practical importance when establishing a dominant position on the economic dependence of the victims of an abuse, in that they have to contract with the dominant undertaking or undertakings.43 The importance of these criteria vary from one market to another and, if considered separately would not, in general, be decisive.

3.2  STRUCTURE OF SUPPLY: MARKET SHARE AND THE STRUCTURE AND RESOURCES OF UNDERTAKINGS

Although it is certainly not the only element that should be examined,44 the most signific­ ant structural indication of the market power of undertakings is, without a doubt, their absolute market share. Its practical value must not be underestimated since at the very least it serves as a starting point for every examination.45 Being a relatively easy parameter to measure, market share is of considerable importance when evaluating the market power of 41   See ch 5 below, sections 10.3 and 10.4 below, and the Epilogue to this book for more on GC TAA (2002) para 330 and TACA (2003) para 939. 42   See Ritter & Braun (2004) 396–407. 43  GC British Airways (2003) para 217. 44  ECJ Hoffmann-La Roche (1979) para 39. See also ECJ Metro I (1977) para 17. 45   See, among many others, the Discussion Paper on Art 102 TFEU (European Commission (2005)) paras 29, 32; Guidance Paper on the same provision (European Commission (2009)) paras 13–15.

54  Economic Power under Article 102 TFEU: Establishment of Dominant Position the undertakings, and therefore when examining the existence, creation or strengthening of a dominant position.46 It should be noted, however, that for the EU Courts and the Commission only stable and relatively long-lasting market shares are relevant for the assessment of the existence of a dominant position.47 It is clear from the case law that periods of three years or more are relevant, at least in some markets,48 but the Courts have has not set a minimum period of time (or a range of variation) which allows a market share to be considered relevant for the establishment of a dominant position.49 Even if it is not always conclusive, the higher the market share, the greater the likelihood that the Commission will conclude that a dominant position exists. Its value as the first and most significant indication of whether or not a dominant position exists is then confirmed or rejected following an assessment of the rest of the criteria.50 A high share is necessary, although not always sufficient, to prove the existence of a dominant position.51 At the same time, small shares show themselves to lack such a position. In Metro II (1986) the ECJ established that a 10 per cent market share was too small to be capable of establishing a dominant position, at least in the absence of exceptional circumstances, and that this position was unlikely to exist below a market share of 25 per cent.52 This approach was later followed in the Merger Regulation.53 In Mecaniver/PPG (1984), a curious case concerning merger control prior to the existence of the Merger Regulation, the Commission adopted a negative clearance decision regarding certain agreements under which PPG gained control of certain companies within the BSN-Gervais Danone and Mecaniver group, and increased its market share from 4 to 11 per cent.54 In a similar case called Metaleurop (1990), the Commission pointed out that market shares of 12 and 18 per cent did not constitute a dominant position, and that after a merger, market shares of between 20 and 30 per cent did not impede effective competition when other producers and imports from third countries existed.55  ECJ United Brands (1978) 281–82.   According to the Guidelines on the Assessment of Market Power (Office of Fair Trading (1999)) 4.3: ‘The history of the market share of all undertakings within the relevant market is often more informative than considering market shares at a single point in time, partly because such a snapshot might not reveal the dynamic nature of a market. For example, volatile market shares might indicate that undertakings constantly innovate to get ahead of each other, which is consistent with effective competition. Evidence that undertakings with low market shares have grown rapidly to attain relatively large market shares might suggest that barriers to expansion are low, particularly when such growth is observed for recent entrants.’ In relation to declining shares, in Wanadoo (2007) para 104, the GC recently held that ‘a decline in market shares which are still very large cannot in itself constitute proof of the absence of a dominant position’. See also GC British Airways (2003) paras 224, 298. 48  ECJ Hoffmann-La Roche (1979) paras 39–41, in which the periods examined by the Commission generally lasted three years. Defining a market share as long-lasting may depend on the nature of the market, since what may be durable in one market may not be in another. See Bellamy & Child (2008) § 10-028. According to Geradin, Hofer, Louis, Petit & Walker (2005) 19, ‘any period less than 3–5 years is unlikely to be sufficient for market shares to be used even as an initial indicator of market power’. 49   In GC TACA (2003) para 919, the Court indicated that, in certain circumstances, a high market share held for a short period of time may not be enough to presume the existence of a dominant position. 50   Geradin, Hofer, Louis, Petit & Walker (2005) 18 criticise the fact that although the Commission does not end its examination once it has calculated a very high market share, the impression that it gives is that after this point, in most cases the rest of the analysis is limited to observing whether there are special circumstances that contradict its initial presumptions. 51  ECJ Hoffmann-La Roche v Commission (1979) para 40. A monopolist is, by definition, dominant. ECJ BRT v SABAM (1974) paras 5ff. 52  ECJ Metro II (1986) paras 85–86. 53   See recital 15 of the now repealed Reg 4064/89 and recital 32 of Reg 139/2004. 54   Commission decision Mecaniver/PPG (1984) para 17. 55   Commission decision Metaleurop (1990) paras 17–18. 46 47

Market Share and the Structure and Resources of Undertakings  55 However, in Gøttrup-Klim (1994), the ECJ held that a market share of 32–36 per cent was a clear indication of the existence of a dominant position. That said, although an under­ taking which enjoys such a market share can, depending on the strength and number of its competitors, be considered to hold a dominant position, such a market share is not in itself conclusive proof of the existence of a dominant position.56 A similar, much earlier declaration can be found in United Brands (1978), where both the Commission and the ECJ found that a market share of 40–45 per cent indicated that an undertaking held a dominant position, although this market share on its own would not have been sufficient to prove the existence of a dominant position.57 In any event, this case shows that an undertaking with a market share of less than 50 per cent of the relevant market may be considered to hold a dominant position.58 The Commission has said that a dominant position can be considered to exist where an undertaking has a market share of 40–45 per cent and that even a market share of between 20 and 40 per cent may be sufficient.59 In Bodson (1998), the ECJ seemed to agree with the Commission, indicating that although the existence of a dominant position must be established by the national court in question, in order to assess it, the following factors should be taken into account: the part of the French market in which the group of undertakings offering funeral services in question held exclusive concessions; the way in which this monopoly situation affected the supply of goods and services not covered by the mono­ poly; and the position of the group in the territory where there was no third licensee of the service. The fact that the group covered more than 30 per cent of the French population, together with other factors – in particular the limited significance of the competition and the greater economic strength of the group – could have enabled the national court to find the existence of a dominant position.60 Perhaps the most significant declaration of the ECJ regarding market shares occurred in Akzo, where it held that a market share of 50 per cent constituted, except in exceptional circumstances, a strong presumption of the existence of a dominant position.61 In these  ECJ Gøttrup-Klim (1994) para 48.  ECJ United Brands (1978) paras 113–17. 58   See Whish (2008) 177–78, citing in particular Commission decision Virgin/British Airways (1999). 59   See the Commission’s Xth Report on Competition Policy (1980) para 150, which expressly refers at fn 4 to the IXth Report on Competition Policy (1979) para 22, which implicitly refers to paras 57 and 58 of ECJ Hoffmann-La Roche (1979). In this passage of the decision, the Court rejected the existence of a dominant position in the vitamin B3 market, in which (taking into account imports of a Japanese product that had not been considered by the Commission) the company Roche had an approximate share of 20–40%, because the Commission had not adduced any other evidence in its decision in support of the view that there was a dominant position. The Commission interpreted this section of the decision to mean that the ECJ had not ruled out the possibility that the presence of additional factors could indicate the existence of a dominant position with a market share of 20–40%. As has already been explained, authors such as Niels & Jenkins (2005) 606 are critical of the fact that what they consider to be a relatively low threshold has been set that does not distinguish the type of practice in question and that ‘constitutes the basis for a form-based per se prohibition of certain behaviour’. These authors consider that, in relation to individual dominant positions, the threshold must act as a filter that makes it possible to rule out the applicability of Art 102 in many cases. Having passed through this filter, it would be necessary to carry out the effects analysis. Per se prohibitions should solely be maintained with respect to firms in a position of super­ dominance. As can be seen, Niels & Jenkins take a similar approach to that of the European Commission in its Discussion Paper on Art 102 TFEU. However, in my opinion such a stance is unsatisfactory, in that it would give rise to a distinct lack of legal certainty, since at no given time would it be clear which type of dominant operator could do what. 60  ECJ Bodson (1998) paras 26–29. 61  ECJ Akzo (1991) para 60. Albers & Peeperkorn (2006) 3 point out that the Discussion Paper on Art 102 TFEU proposes the elimination of this presumption – which could indicate that the Commission has attempted to place itself above the ECJ and modify the traditional interpretation laid down in Akzo through soft law. 56 57

56  Economic Power under Article 102 TFEU: Establishment of Dominant Position cases, the undertaking or undertakings that are alleged to be dominant since they hold half of the market or more must show that, contrary to appearances, they are not.62 The Guidance Paper on Article 102 (2009) effectively silences this case law, replacing it with the statement that it is not likely that a dominant position exists if the share of the company in the relevant market is below 40 per cent, although the Commission does state that there may be cases where it does exist below this threshold.63 A very substantial market share of 75 per cent or more over a relatively long period of time constitutes by itself proof of the existence of a dominant position.64 A review of the precedents where Article 102 TFEU has been applied by the Commission shows that the market shares of the dominant undertakings vary, ranging from less than 40 per cent65 to 50 per cent,66 60 per cent,67 70 per cent,68 80 per cent,69 90 per cent70 and 62   For example, the GC applied this principle of reversing the burden of proof with market shares of above 50% in Hilti (1991) para 92, where the company had a share of 70–80% (para 258), and in Tetra Pak II (1994) para 109. 63   European Commission (2009) para 14, referring to markets with significant capacity limitations. 64  ECJ Hoffmann-La Roche (1979) para 41. In these cases proving the reverse would also be possible under circumstances even more exceptional than in Akzo. 65   In Commission decision Virgin/British Airways (1999) para 41, the Commission determined that the share of British Airways in the UK flights market was 39.7% in 1998, having been 46.3% in 1992. As far as I am aware, this is the lowest market share in relation to which a dominant position has been established to date. Another curious and different situation occurred in ECJ RTE & ITP (1995), in which the Court confirmed the findings of the Commission and the GC, and accepted that each television channel in Ireland had a monopoly with respect to its respective programme guides despite the fact that none of them had a share above 33% in the market as a whole. 66   In Commission decision London European/Sabena (1988) paras 23–27, the Commission held that Sabena’s Belgian market share in computerised reservation services (CRSs) varied between 40 and 50%. In Commission decision Wanadoo Interactive (2005) paras 254ff, the Commission examined how this company increased its share from 46% to 72% in the high-speed internet access market. In Commission decision AstraZeneca (2005) paras 587, 590 and 594–97, the Commission explained how this company lost market share in the Netherlands, Norway and the United Kingdom, and fell to 59%, 45% and 44% at given moments during the relevant period, which did not prevent the Commission from considering it to be dominant. See also Commission decision Telefonica (2007) paras 243–77, in which Telefonica was considered to be dominant with a market share of 55% in the retail broadband internet access market. 67   In Commission decision Michelin I (1981), Michelin was considered to be dominant as a result of its market shares of 57% and 65%. In Napier Brown/British Sugar (1988) para 50, the Commission determined that the market share of British Sugar within the British sugar market was 58%, and that its prices were followed by two other market operators, which had shares of 37% and 5% respectively. 68   Commission decision Soda Ash – Solvay (1990) paras 39–49, annulled for other reasons by GC Solvay (1995); Commission decision Gillette (1992) para 22; Commission decision AstraZeneca (2005) para 570 (Belgium, 66% in 2000), paras 577–79 (Denmark, less than 75% in 1999) and para 590 (Norway, almost 75% in 1999), upheld in practically all regards in ECJ AstraZeneca (2010) paras 247–49; and Commission decision Prokent/Tomra (2006) para 70, upheld in GC Tomra (2010). 69  In Van den Bergh Foods Ltd (HB Ice Cream) (1998) para 259, the Commission determined that the market share of HB in the Irish ‘impulse purchase’ ice-cream market was above 75%. In Commission decision Deutsche Post (2001) para 50, the Commission found a dominant position to exist on the basis of a share of 85% in the long-­ distance package delivery services market in Germany over a 10-year period (1990–99). In Commission decision AstraZeneca (2005) paras 582–83, the Commission found this company to be dominant in Germany, where it enjoyed a market share of approximately 83%. In Commission decision Telefonica (2007) 235, the company was found to be dominant with a market share of 84% in the Spanish wholesale broadband market. In Commission decision Intel (2009) paras 837ff, Intel was considered to be dominant with market shares of 80% and 70%. 70   In Commission decision BBI/Boosey & Hawkes (interim relief) (1987) para 18, the Commission determined that the market share of B&H was 80–90%. In Commission decision Tetra Pak II (Elopak) (1991) paras 100–01, the Commission found that the market share of Tetra Pak in the aseptic carton market was 92% for machinery and 89% for cardboard. In Commission decision Soda Ash – ICI (1990) para 47, the Commission established that the market share of ICI within the British market was also 90%. In Commission decision Irish Sugar (1997) paras 99–113, the Commission established that the market share of Irish Sugar was 88–90%. Similarly, see Commission decision Deutsche Telekom (2003), paras 59 ff, upheld in GC Deutsche Telekom (2008) and in ECJ Deutsche Telekom (2010), where the Commission found the following shares to exist in the German internet access market: 100% in wholesale broadband and narrow band, 95.6% in retail narrow band, and 94% in retail broadband. In Commission decision Microsoft (2004) and GC Microsoft (2007) market shares above 90% were also found to exist in some cases.

Market Share and the Structure and Resources of Undertakings  57 above,71 even 100 per cent.72 In the US, any discussion of the importance of markets is defined with reference to the term ‘monopoly’ (100 per cent market share, strictly speaking) and typically begins with the words of Judge Hand in Alcoa that a market share of 90 per cent is sufficient to amount to a monopoly; that it is doubtful that shares of 60 or 64 per cent would be sufficient; and that a share of 33 per cent certainly would not be.73 Since the ruling in Alcoa, the US courts have held that monopoly power rarely exists where market share is less than 70 per cent,74 have required that there is a share significantly in excess of 55 per cent,75 and have referred to precedents when holding that generally shares of 70–80 per cent are needed, before concluding that shares of 75–80 per cent are ‘more than adequate’.76 In the Report published by the Department of Justice on section 2 of the Sherman Act, a rebuttable presumption was established that monopoly power existed where market share exceeded 66 per cent for a significant length of time and where market conditions meant that said share would probably not be reduced in the near future.77 In any event, market share is not in itself sufficient to show the existence of monopoly power within the meaning of section 2. It is a useful starting point, but the analysis must be supplemented by other considerations.78 As important as absolute market share is relative market share79 – that is, the market shares of the closest competitors of the undertaking alleged to hold a dominant position. The lower their market shares, the more likely it is that the Commission will conclude that the most significant undertaking is dominant.80 This occurred, for instance, in Hoffmann-La Roche (1979), where Roche had a market share of 64.8 per cent with respect to a specific type of vitamin, while its closest competitors only had 14.8 per cent and 6.3 per cent respectively. It also occurred in ECJ Michelin I (1983), where Michelin enjoyed between 57 and 65 per cent of the market while its closest competitors enjoyed only 4–8 per cent of the market, a very significant factor influencing the conclusion that a dominant position existed.81 Finally, in its decision in Virgin/British Airways (1999) the Commission took into account the fact that British Airways’ share in the British market for the sale of tickets through travel agencies (39.7 per cent) was 2.2 times higher than the combined share of its four closest rivals.82 71   In Commission decision Tetra Pak I (BTG Licence) (1988) para 44, the Commission established that in this case the market share of Tetra Pak was 91.8%. In Commission decision BPB Industries (1988) paras 114–121, BPB’s market shares varied between 96% and 98%, and between 92% and 100% in the British plasterboard and plaster market. In Commission decision Prokent/Tomra (2006) para 70, upheld in GC Tomra (2010) it was pointed out that Tomra’s market share had exceeded 95% in Europe since 1997. 72   Commission decisions GVL (1981) para 45; Eurofix-Bauco/Hilti (1987) paras 66–73; Decca Navigator System (1988) paras 91–96; French-West African Shipowners’ Committees (1992) paras 50–51; HOV-SVZ/MCN (1994) paras 102, 140–42; Clearstream (2004) paras 202ff and TeleKomunikacja Polska (2011), inter alia. See also GC AAMS (2001) para 52. 73   United States v Aluminum Co of America, 148 F2d 416, 424 (2nd Cir 1945). This statement was quickly supported by the Supreme Court in American Tobacco v United States, 328 US 781, 813–14 (1946). 74   Exxon Corp v Berwick Bay Real Estate Partners, 748 F2d 937, 940 (5th Cir 1984). 75   United States v Dentsply International, Inc, 399 F3d 181, 187 (3rd Cir 2005). 76   Colorado Interstate Gas Co v Natural Gas Pipeline Co of America, 885 F2d 683, 694 n 18 (10th Cir 1989). 77   US Department of Justice (2008) 23. 78   See US Department of Justice (2008) 22–23 and the case law cited therein. 79   The terminology used here is that of Bellamy & Child (2008) para 10.027. 80   Certain authors are wary of so-called safe harbours based on absolute shares, favouring instead rebuttable presumptions as to the existence of a dominant position on the basis that these are capable of better reflecting the difference in market power between the undertakings operating therein. See US Department of Justice (2008) 24 and the testimony cited in fn 45. 81  ECJ Hoffmann-La Roche (1979) para 37 and ECJ Michelin I (1983) para 52. 82   Commission decision Virgin/British Airways (1999) para 88, cited in Bellamy & Child (2008) para 10.027, confirmed in GC British Airways (2003) para 211.

58  Economic Power under Article 102 TFEU: Establishment of Dominant Position The differences between market shares do not need to be as big as in the previous examples to conclude that a dominant position exists. In another of the markets for vitamins analysed in ECJ Hoffmann-La Roche (1979) the Court held that in a relevant market with the characteristics of a tight oligopoly, in which by its very nature the degree of competition had already been weakened, a market share of 47 per cent (in the presence of market shares of 27 per cent, 18 per cent, 7 per cent and 1 per cent of its closest competitors) proved that Roche was entirely free to decide what attitude to take with respect to the competition.83 In conclusion, a market share below 30 per cent may indicate the existence of a dominant position only if exceptional circumstances are present. A market share of between 30 and 40 per cent may indicate the existence of a dominant position only where there are substantial differences between the market share of the supposedly dominant undertakings and their most immediate competitors, significant barriers to entry, etc. Percentages over 40 and up to 50 per cent would be considered to be a clear indicator of dominance, depending on the stability of the particular market share over time, the relative market shares of closest competitors and the presence of other factors which tend to strengthen the leading position, or, alternatively, to threaten it. A market share above 50 per cent sustained over a relatively long period of time is by itself, except in exceptional circumstances, proof of the existence of a dominant position. In these cases, the allegedly dominant undertaking or undertakings must show that despite appearances (despite controlling half of the market or more), they are not dominant.84 As regards the structure and the resources of the undertakings, factors relating to these areas are not in themselves sufficient to establish a dominant position, but they can corroborate other evidence of the existence of such a position obtained by means of analysing the market structure.85 In this way, there may be differentiated objective factors that corroborate a position of strength, such as technological advantages over competitors, commercial advantages (for instance, a prestigious brand or an extensive and efficient distribution network), high production capacity and security of long-term supply, better access to raw materials, diversification of production, vertical integration, presence on other markets through branches, ‘deep-pocket’ financial resources that cannot be afforded by competitors, economies of scale or scope, lower opportunity costs, and so on.86 On many occasions these factors act as barriers to entry, as will be seen in the next section. The size and volume of sales of an undertaking and the breadth of its range of products do not in themselves, therefore, indicate a dominant position.87 Nor do higher or lower profit levels: very low profitability is compatible with a dominant position, in the same way that very high profitability is compatible with effective competition.88

 ECJ Hoffmann-La Roche (1979) paras 50–51.   These groups of shares are essentially those of Bellamy & Child (2008) para 10.029, subject to some minor changes. 85   See Ritter & Braun (2004) 404. The behaviour of the companies and the existence of economic dependency are also criteria that corroborate the existence of a dominant position. See sections 3.5 and 3.6 below. 86   See Ritter & Braun (2004) 404–06; Bellamy & Child (2008) paras 10.0032ff; Whish (2008) 175–83. All of these authors refer primarily to the ECJ’s judgments in Hoffmann-La Roche (1979), United Brands (1978) and Michelin I (1983). 87  ECJ Hoffman-La Roche (1979) paras 42–49. 88  ECJ United Brands (1978) paras 125–28 and ECJ Michelin I (1983) para 59. 83 84

Potential Competition and Barriers to Entry  59 3.3  POTENTIAL COMPETITION AND BARRIERS TO ENTRY

Potential competition89 is commonly cited as being a significant structural factor weakening the power of undertakings suspected of being dominant.90 Depending on the rules for whose application it is relevant, this factor plays a different role according to whether it is analysed under Article 101(1) TFEU, Articles 101(3) and 102 TFEU, or Article 2(3) of Regulation 139/2004. In the first case, it is studied in order to establish whether there is a previous relation of potential competition between the parties to an agreement and, if so, to apply the rule. In the second and third cases, it is studied in order to establish whether as a result of it there are effective competitive pressures on the undertakings, which render the rules inapplicable. Under normal circumstances, potential competition depends fundamentally on the barriers to entry (and exit) that exist in the relevant market.91 However, examining the former is not exactly the same as examining the latter: in theory, at least, despite the existence of significant entry and/or exit barriers, one or several undertakings could intend to enter the market (for instance, because they planned a strategy of long-term profitability); or alternatively, in a market free of barriers no undertaking may show any interest in entering (for instance because it involved abandoning other more lucrative projects; in other words, because of the opportunity costs involved). That is why it should certainly be investigated to see whether those undertakings that are not present in the market will have difficulties entering the market, but also whether, and to what extent, it is not possible, but probable, that other competitors, which are capable of limiting the market power of the established undertakings, can enter into the market. 89   This element limiting market power will also be studied within the study of market power in the control of concentrations and in the application of Art 101(3)(b) TFEU (see sections 4.3 and 6.3 below). In addition, the concept of potential competition has already been very briefly studied with regard to Art 101(1) TFEU (see section 2.2 above). 90   According to European case law, the notion of potential competition is not exclusive to competition law. See, for example, ECJ Chambre syndicale de la sidérurgie de l’est de la France (1960) 293, where in a specific case within the scope of the ECSC Treaty, concerning the justification of certain ‘competition tariffs’ (which allow a freight transporter operating in a specific transport mode to compete with freight transporters in other modes), the Court ruled that in some of the destinations examined, inland waterway transport was in ‘genuine competition’ with railway transport, whilst it was in ‘potential competition’ with other means of transport. See also the ECJ’s judgments in Case 168/78 Commission v France (1980) para 12; Case 169/78 Commission v Italy (1980) para 12; Case 171/78 Commission v Denmark (1980) para 12; Case 184/85 Commission v Italy (1987) paras 11–12; Cooperativa Co-Frutta (1987) para 17, which referred to the interpretation of Art 95 second paragraph of the former EEC Treaty (now Art 110, second paragraph of the TFEU)), and considered the issue of whether, where products were in a relationship of potential competition, certain products coming from a given Member States were, as regards taxation, indirectly discriminated against in others, in an effort to protect similar products in the country of destination. Subsequently, the ECJ has also used the notion of potential competition in ECJ Blasi (1998), which concerned the interpretation of the Council’s Sixth Directive (77/388/CEE) regarding VAT, whose para 20 states that within the Directive, reference to ‘sectors with a similar function’ must be interpreted widely, since its purpose is to ensure that the offer of temporary accommodation similar to, and therefore in potential competition with, that offered in the hotel industry is taxable. The judgment in GC Sinochem (1998) para 68 also refers ‘from the point of view of both demand and supply’ to a product with a specific use (furfuraldehyde intended for the cleaning of lubricating oils), and the same product when it is destined for other uses, to conclude that the imposition of antidumping rights exclusively over imported products when destined for a specific use would make this measure redundant. However, it must be noted that in all these cases the Court refers to potential competition between products or services, not between undertakings. In fact, within the competition rules, this ‘potential competition between products or services’ is very close to demand substitutability, and is more significant when defining the relevant product market than when analysing market structure. Therefore, for our purposes the most significant ruling of those mentioned above is Commission v Italy (1987), where, contrary to what was stated in United Brands (1978) paras 12–35, the Court considered that bananas were in competition with other table fruits. 91   According to ECJ Hoffmann-La Roche (1979) para 48, ‘the absence of potential competition . . . is the consequence of the existence of obstacles preventing new competitors from having access to the market’.

60  Economic Power under Article 102 TFEU: Establishment of Dominant Position In any case, there is no doubt that, in general, the importance of entry and exit barriers is directly proportional to the power of the undertakings present in a given market and inversely proportional to the potential competition of those undertakings that are not present.92 The Commission and the EU Courts tend to consider that a barrier to entry is any cost that must be borne by the operators in a given industry, even if that cost must be or must have been borne by the already-established or ‘incumbent’ operators.93 As an example of such costs, the ECJ has mentioned, for instance, the need to invest substantially in order to produce or distribute a certain product.94 Barriers to entry are measured according to the extent to which the undertakings already present in the market increase their prices above the competitive level and obtain aboveaverage profits without attracting newcomers into the market. If there were no barriers, the simple and rapid entry of competitors95 into the market may be sufficiently effective96 to end their supracompetitive profits. Barriers to entry are created by various factors.97 In the first place, they may be the result of: legislative or regulatory measures, such as legal monopolies and exclusive rights, the requirement that authorisation be obtained in order to carry out an activity, state subsidies, import duties, intellectual property rights,98 etc. Barriers can also arise from the very characteristics of the relevant market, which may include problems of access to raw materials, the existence of essential facilities in the hands of incumbent undertakings, economies of scale and scope, network effects99 and other advantages accruing from being the pioneer undertaking in the market, the need for com92   This is valid both when assessing whether effective competition is eliminated (for the purposes of the fourth condition for the exemption, abuse of dominant position and control of concentrations) and establishing whether an agreement between companies restricts competition (within the meaning of Art 101(1) TFEU). The very lack of barriers, which makes companies which are not present in a given market potential competitors of those present, and which allows their agreements to restrict competition in the sense of Art 101(1) TFEU, may mean that such agreements do not eliminate effective competition. Curiously, then, as potential competition increases, the possibility of companies being subject to proceedings under Art 101(1) also increases, but the possibility of Arts 101(3)(b) and 102 TFEU and Art 2(3) of Reg 139/2004 being applied decreases. 93   As the Commission says, ‘entry barriers may be present at only the supplier or buyer level or at both levels’. See the Guidelines on Vertical Restraints (European Commission (2010a)) para 117. 94  ECJ Hoffmann-La Roche (1979) para 122. The classic American economic theory states that an entry barrier only exists where those companies that intend to set up in a given market have to finance an additional cost that should not be financed by companies already established in that market. See Waelbroeck & Frignani (1998) 312– 13, para 239, who cite Stigler (1968) 67 and Posner (1979). 95   The Commission believes that if new competitors are likely to enter within one or two years, entry barriers can be said to be low. See the Guidelines on Vertical Restraints (European Commission (2010a)) para 117. However, the period will depend on the characteristics and dynamics of each particular market. The Commission has indicated that the period of time that the companies active in the market would need to adjust their capacity may be used as a reference. See Discussion Paper on Article 102 (European Commission (2005)) para 35. 96   In this regard, entry on a small scale or into a specific niche market may not be sufficient. See Discussion Paper on Art 102 TFEU (European Commission (2005)) para 35: ‘Expansion or entry which is not of sufficient scope and magnitude is not likely to constitute an effective constraint on the undertaking concerned. Small-scale entry, for instance into some market “niche”, may not be considered sufficient.’ 97   See Waelbroeck & Frignani (1998) 312ff, para 239. For their part, the Guidelines on Horizontal Mergers (European Commission (2004a)) classify barriers to entry as legal, technical or strategic (advantages). Recently, the Commission has distinguished various types of barriers according to their origin, with reference to legal barriers, limitations on capacity, economies of scale and scope, absolute cost advantages, privileged access to sources of supply, highly developed distribution and sales networks, consolidated position of the incumbent firm and other strategic barriers such as switching costs, network effects and long-term contracts. See Discussion Paper on Art 102 TFEU (European Commission (2005)) paras 40ff and the Guidance Paper on the same provision (European Commission (2009)) paras 17 and 20. 98   See Commission decision AstraZeneca (2005) paras 520ff. 99   See Commission decision Microsoft (2004) paras 418, 515–17.

Potential Competition and Barriers to Entry  61 plex technology, and the reluctance of purchasers to change their suppliers. This last factor may be due to psychological factors, such as brand loyalty,100 or technological factors, such as the need for lengthy tests before a new supplier is accepted.101 In the third place, they may result from already established undertakings behaving in a restrictive way.102 Among the practices of established undertakings that act as barriers to entry are the threat of setting off a price war, the deliberate maintenance of excess production capacity, and all type of practices designed to strengthen client loyalty, by means of excessive advertising expenses, loyalty discounts, an artificial policy of product differentiation,103 etc. Finally, according to the Commission, vertical restrictions and vertical integration can also act as a barrier to entry, since they make access more difficult and exclude potential competitors.104 Whether the above factors are regarded as barriers to entry depends, according to the Commission, on whether they are related to ‘sunk costs’. Sunk costs are those costs which it is necessary to incur in order to enter or to remain in a market, but are lost if the market is abandoned.105 Advertising costs incurred to obtain consumer loyalty are, in general, sunk costs, unless the undertaking abandoning the market can sell its brand or use it in another market without suffering a loss. The higher the level of sunk costs, the more potential competitors must weigh the risks of entering the market, and the more vigorous competition from incumbent undertakings will be, since the sunk costs make it expensive for them to leave the market. Entry into the market at any moment generally involves incurring sunk costs, which are sometimes very substantial and sometimes not. For this reason, actual or real competition is in general more effective and is more significant in the analysis of the specific matters than potential competition.106 Although regularly mentioned as a structural element that weakens dominant position, in practice potential competition has not been used too frequently in Commission decisions where abuse of a dominant position has been confirmed. For instance, in Hoffmann-La Roche (1979), the ECJ held that although the existence of a considerable amount of unused production capacity made it difficult for new producers to enter the market, it also created potential competition among the established producers.107 In GC Tetra Pak II (1994), the undertaking claimed that the Commission had paid too much attention to market shares (approximately 90 per cent), without taking into account competition by means of innovation. The GC denied the existence of such competition, because of the existence of technological barriers 100   Commission decision Nestlé/Perrier (1992) para 96. See also Discussion Paper on Art 102 TFEU (European Commission (2005)) para 40 and Guidance Paper on the same provision (European Commission (2009)) para 36. 101  ECJ Michelin I (1983) para 56. 102   See Commission decision Deutsche Telekom (2003) paras 181ff, upheld in GC Deutsche Telekom (2008) and in ECJ Deutsche Telekom (2010). 103   See Waelbroeck & Frignani (1998) 314, para 239, who cite, on the one hand, Commission decision Nestlé/ Perrier (1992) para 98 as regards joint reactions to new entries, and paras 96–97 as regards advertising expenses; and, on the other, the work of Stuyck, Product Differentiation (Deventer, 1983), especially 21–23. For fidelity discounts, see Commission decision Nestlé/Perrier (1992) para 95; ECJ Michelin I (1983) paras 72–86. 104   Against: Waelbroeck & Frignani (1998) p 315, para 239. For these authors, the fact that a company is integrated either upstream or downstream does not in itself increase that company’s market power, unless integration reduces third companies’ access to the market (for example, by denying them access to raw materials). The same can be said of ‘deep-pocket’ financial capacity, which can indirectly help to reinforce entry barriers by making it easier to offer discounts, engage in mass advertising campaigns and so on. 105   The Commission considers that the sunk costs required to enter a market may be less for companies operating in adjacent markets. See Discussion Paper on Art 102 TFEU (European Commission (2005)) para 30. 106   Guidelines on Vertical Restraints (European Commission (2010a)) para 117. 107  ECJ Hoffmann-La Roche (1979) para 48. However, in this case the Court concluded that excess capacity was beneficial to Roche. See paras 51 and 55 of the decision.

62  Economic Power under Article 102 TFEU: Establishment of Dominant Position and numerous patents which prevented new competitors from entering one of the relevant markets (the market for aseptic packaging machines), which helped to strengthen Tetra Pak’s dominant position both in the market in question and in a neighbouring market (aseptic cartons). In fact, although it was technically possible to enter the carton market, the lack of products in the aseptic machines market, due to Tetra Pak’s tied sales policy, in practice amounted to a significant barrier to entry for new competitors.108 Subsequently, in Irish Sugar (1999) the GC rejected the argument of the undertaking concerned that the Commission had not taken into account the potential competition of imports from other Member States when establishing its dominant position in the Irish sugar market. The Court ruled that the Commission had taken into account such potential competition, but had considered it insufficient to counteract Irish Sugar’s dominant position, especially in view of transport costs, which acted as a significant barrier to entry for potential competition.109 More recently, in Microsoft (2004 and 2007) both the Commission and the GC appeared to move away from the ‘checklist approach’, having carried out a thorough examination of the market, on the basis of which they concluded the existence of high barriers to entry, mainly as a result of the existence of indirect network effects, capable of diminishing the effectiveness of potential competition.110 In most cases, potential competition has been analysed under Article 102 TFEU when considering whether dominant undertakings’ attempts to eliminate it amount to abuse of a dominant position.111

3.4  STRUCTURE OF DEMAND: COUNTERVAILING POWER, DEMAND ELASTICITY AND MARKET MATURITY

In the first place, when studying the structure of demand, the countervailing power of clients is cited as being a factor that weakens the power of undertakings suspected of dominating a market. On occasions, demand for a product (the people or companies that buy it) can itself limit the power of those that sell, thus preventing a dominant position from existing on the supply side of the market.112 Before studying the countervailing power of clients, a clarification is necessary. If the dominant position is typified by the possibility of an operator acting independently of, inter alia, clients and consumers, strictly speaking this does not appear possible, at least not to any significant degree. This is due to what economists call ‘the discipline of the demand curve’, which limits the theoretical independence of all undertakings, including those that  GC Tetra Pak II (1994) paras 101 and 109.   See Commission decision Irish Sugar (1997) para 95; GC Irish Sugar (1999) paras 80 and 82 in relation to paras 72–79. 110   Commission decision Microsoft (2004) paras 448–64, 515–25; GC Microsoft (2007) paras 558, 562. 111   See eg Commission decision Magill TV Guide (1988) para 23, confirmed in GC RTE (1991) paras 74 and 77, BBC (1991), paras 61 and 65, and ITP (1991) paras 59 and 63; Commission decision Tetra Pak I (BTG Licence) (1988) paras 45, 47 and 60, confirmed in GC Tetra Pak I (1990); Commission decisions Soda Ash/Solvay (1990) para 42, and Soda Ash/ICI (1990) para 43, annulled for other reasons by the GC in Cases T-32/91 and T-37/91 (Soda Ash) (1995); Commission decision Tetra Pak II (Elopak) (1991) Art 1(2) in conjunction with paras 106–45, confirmed in GC Tetra Pak II (1994) and upheld in ECJ Tetra Pak II (1996); Commission decision Deutsche Telecom (2003) paras 181ff. 112   According to the Commission, in order for this to occur, ‘strong buyers should not only protect themselves, but effectively protect the market’. Discussion Paper on Art 102 TFEU (European Commission (2005)) para 41. See the Guidance Paper on Article 102 (European Commission (2009)) para 18. Among academics, see also G Monti (2006) 36. 108 109

Countervailing Power, Demand Elasticity and Market Maturity  63 are dominant.113 Given the lack of substitutability of a product or service, whose manufacturer or service provider therefore holds a monopoly, and faced with a worsening of purchase conditions (for example, a price increase), clients and consumers, or at least some of them, may simply decide not to purchase. This factor is not normally taken into account when assessing the countervailing power of clients, yet undoubtedly it greatly limits the theoretical independence of dominant undertakings.114 In any event, purchasing power is simply one of the possible forms of countervailing power used by clients against vendors.115 Certainly, as a factor limiting the market power of vendors, its study is important in order to confirm whether a dominant position is created or strengthened, or competition on the supply side (the sales market) is eliminated in the sense of the fourth condition for the Article 101(3) exception.116 But it is also important as a factor increasing the market power of buyers in order to analyse whether competition is restricted in an appreciable way, in the sense of Article 101(1) TFEU,117 and, of course, whether a dominant position is created or strengthened, or competition is eliminated, on the demand side (the purchase market).118 Historically, the Commission has favoured the accumulation of purchasing power, authorising certain restrictions on competition on the demand side, claiming that they allow a reduction in prices.119 Its position is now much less clear-cut,120 perhaps because it no longer presumes that buyers enter into restrictive agreements and practices (or con­centrations) for defensive reasons, while vendors (producers or intermediaries) do so for offensive reasons. This is fairly obvious from some of its decisions regarding merger control.121 As a factor weakening vendors’ market power, clients’ countervailing power has been even less common than potential competition in European precedents where abuse of a dominant position has been confirmed. Among the few cases where it is mentioned is the ECJ’s judgment in Michelin I (1983), where the Court rejected (without any explanation for doing so) the arguments put forward by Michelin that since the buyers of tyres for heavy vehicles were experienced commercial users, this deprived it of its privileged position in the Dutch market.122 In addition, in GC Tetra Pak II (1994) the undertaking claimed that the Commission had not taken into consideration the countervailing power of its clients. In   See Azevedo & Walker (2002) 364.   If it were taken into account, it could greatly limit the scope of Art 102, whose relevance would probably be limited to essential goods and services. 115   For other types, see section 4.4 below. 116   See eg Guidelines on Vertical Restraints (European Commission (2010a)) para 221, which refers to buying power as a compensating factor as regards companies that engage in product-tying practices. For the importance of buying power with respect to vertical restrictions in general, see para 116 of these Guidelines. 117   See Guidelines on Vertical Restraints (European Commission (2010a)) paras 156, 157, 181, 196 and 221ff; Guidelines on Horizontal Cooperation Agreements (European Commission (2001a)) paras 30 and 131; the new Guidelines on Horizontal Cooperation Agreements (European Commission (2011) paras 47 and 208. 118   See Guidelines on Horizontal Cooperation Agreements (European Commission (2001a)) para 134. Cf the new Guidelines on Horizontal Cooperation Agreements (European Commission (2011) para 220, which do not give any guidance. Similarly, see Guidelines on Vertical Restraints (European Commission (2010a)) para 116. 119   See Waelbroeck & Frignani (1998) 220 para 162, who cite Commission decisions National Sulphuric Acid Association I (1980) para 45, Computerland (1987) para 31 and TEKO (1989) para 27, and criticise the favoured status given to such restrictions. 120  See Guidelines on Horizontal Mergers (European Commission (2004a)) paras 61–63; Guidelines on Horizontal Cooperation Agreements (European Commission (2001a)) paras 115ff. More recently, see the new Guidelines on Horizontal Cooperation Agreements (European Commission (2011) paras 194 ff. 121   See, inter alia, Commission decisions Tesco/ABF (1997); Promodès/Casino (1997); Danish Crown/Vestjyske Slagterier (1999); Rewe/Meinl (1999); Carrefour/Promodès (2000). 122  ECJ Michelin I (1983) para 59. 113 114

64  Economic Power under Article 102 TFEU: Establishment of Dominant Position response, the GC referred to the very high market share of Tetra Pak; this allowed the Court to conclude that, without a doubt, the firm was an ‘inevitable partner’ for the packagers, which guaranteed the freedom of conduct characteristic of a dominant position. The Court therefore rejected implicitly that in this case the clients had any countervailing power. Prior to this case, the ECJ had already dealt with one of the possible forms of countervailing power of demand for the purposes of Article 102 TFEU, although it described it as potential competition. Thus, in Continental Can (1973) the Court referred to the potential competition of big clients that were able to be vertically integrated, manufacture the products in question (cans), supply themselves and even sell the surplus in the market, while pointing out the incongruities of the Commission’s decision on this issue, which caused the Court to revoke it.123

3.5  BEHAVIOUR OF UNDERTAKINGS

As regards the behaviour of undertakings, in United Brands (1978) the ECJ established that in order to examine whether an undertaking enjoys a dominant position ‘it may be advisable to take account if need be of the facts put forward as acts amounting to abuses without necessarily having to acknowledge that they are abuses’.124 The ECJ therefore allows the conduct of an allegedly dominant undertaking to be adduced as evidence of its market dominance: observation of the practices of an undertaking can serve to demonstrate that it is able to impede effective competition and act without taking its competitors and clients into account.125 For instance, the capacity to fix or control market prices is very significant. In United Brands (1978), the Court considered that the capacity of this undertaking to adapt its prices to the competitive conditions of the various national markets was proof of its dominant position.126 Engaging in practices through which a powerful undertaking aims to contain or limit the number of competitors, weakening or eliminating them, can also indicate dominance, especially predatory tactics used against competitors.127 Offers of discriminatory discounts to some clients can also be relevant for the purposes of establishing the dominant position of an undertaking which engages in this practice, since discounts can in themselves prevent competitors from entering the market, and therefore constitute a barrier to entry.128 In ECJ Michelin I (1983), the mere ability to engage in price discrimination between clients was considered to indicate dominance.129 In addition, there is

 ECJ Continental Can (1973) para 36.  ECJ United Brands (1978) paras 66–68.   See Discussion Paper on Art 102 TFEU (European Commission (2005)) para 26: ‘the way in which a firm acts in a market may in itself be indicative of substantial market power.’ Similarly, see the Guidance Paper on Article 102 (European Commission (2009)) para 20, penultimate hyphen. 126  ECJ United Brands (1978) paras 113–21. See also Commission decisions Continental Can (1971) para II.B.3 and Napier Brown/British Sugar (1988) para 55. Art 66(2) of the now expired ECSC Treaty established as a condition for the authorisation of a concentration between undertakings that the resulting entity was not able to establish market prices. See Ritter & Braun (200) 344 fn 142. As regards the importance of being able to determine market prices with respect to the fourth condition of Art 101(3) TFEU, see section 5.3 below. 127   Commissions decision ECS/AKZO (1985) para 56, confirmed in ECJ Akzo (1991) para 61. 128   See Whish (2003) 187. 129  ECJ Michelin I (1983) paras 60–61, in which ‘other criteria’ used by the Commission to conclude that a dominant position existed are implicitly approved, amongst other things the possibility of discriminatory treatment of distributors. See Commission decision Michelin I (1981) para 35. 123 124 125

Economic Dependence  65 the possibility that the observation of conduct adopted in the past by an incumbent may act as a disincentive to potential newcomers, thus giving rise to a ‘reputational barrier’.130 However, conduct that is usually pro-competitive, such as price reductions to avoid losing market share and tackle competition (as long as they are not fixed below cost in order to destroy competitors), or launching new products onto the market or improving the quality of existing ones, or similar actions, cannot be held against an undertaking simply because they can strengthen its competitive position.131 The use of reasoning based on the behaviour of undertakings to demonstrate the existence of a dominant position has been criticised because of its circular nature, since it apparently infers the dominant position from the behaviour of undertakings before reaching the conclusion that since undertakings are dominant their conduct is abusive. Despite this risk, the Commission does not hesitate to consider undertakings’ behaviour to be a significant factor when finding that a dominant position exists. In reality, however, behavioural criteria are taken into consideration in order to confirm the conclusions of the structural analysis, or to supplement them, when the structural criteria do not provide a fail-safe solution. These two methods are in no way mutually exclusive.132 Further, the opposition between them is only apparent: behaviour and structure are intimately linked, since only a company that holds a significant position in the market can behave independently.133 Thus, the objections derived from the supposed circularity of this type of reasoning can be overcome if the Commission uses such behaviour as an indicator of dominance only in clear-cut cases, and provided that it does not rely exclusively on this argument to arrive at its conclusions regarding the dominant position of an undertaking.134 In conclusion, the ECJ has accepted that in order to prove the existence of a dominant position it might be advisable to take into account, as far as necessary, facts which prima facie could be considered to be abuses, without necessarily admitting that they amount to actual abuses. Following the example of the Court, and despite the criticisms that it has received, the Commission has used this indicator of dominance on numerous occasions.135

3.6  ECONOMIC DEPENDENCE

Once market structure and the behaviour of undertakings has been analysed, as an ancillary assessment criterion it may also be worth examining whether the victims of the alleged 130   See Discussion Paper on Art 102 TFEU (European Commission (2005)) para 39 and Guidance Paper on the same provision (European Commission (2009)) paras 20 (third hyphen) and 68. In the case law, see Commission decision Ryanair/Aerlingus (2007) paras 624–60, upheld in GC Ryanair (2010) paras 284–88. 131   See, inter alia, ECJ Hoffmann-La Roche (1979) paras 42–48; ECJ Michelin I (1983) paras 53–59. 132   H Schröter, ‘Le concept de position dominante dans l’application des articles 66, paragraphe 7, du traité CECA et 86 du traité CEE’, cited in Waelbroeck & Frignani (1998) 319, para 242. 133   Waelbroeck & Frignani (1998), who cite F Scherer, Industrial Market Structure (1970) and LA Sullivan, Handbook of the Law of Antitrust (1977) 22ff. 134   In this sense, see Whish (2003) 187 fn 101. 135   See Whish (2003) 187 fn 101 and the decisions cited there. See also Commission decision TACA (1998) paras 532ff, in particular paras 534–36 and 543, where the Commission used, inter alia, the possibility of freight discrimination, and imposing periodical freight increases and additional charges, to confirm, from the behaviour point of view, its first impression in the light of TACA members’ joint market share (around 60%) that the shipping companies complained of held a collective dominant position.

66  Economic Power under Article 102 TFEU: Establishment of Dominant Position

abuse depend economically on the dominant undertakings – that is, if the latter are ‘unavoidable trading partners’ for the former. Other legal systems, for example Article 20(2) of the German Law against Restrictions on Competition (Gesetz gegen Wettbewerbsbeschränkungen or GWB), deal specifically with situations of ‘relative dominance’ of undertakings over commercial partners who depend on them. French law also developed the concept of ‘compulsory partner’ (‘partenaire obligatoire’) in Ordonnance Nº 86-1243, relating to freedom of prices and competition, whose Article 8(2), today replaced by the new Article L-420(2) of the new French Code of Commerce, defines a relative dominant position (without calling it this) as a situation where a client or supplier is economically dependent on the dominant undertaking and there is no equivalent alternative. The concept of a ‘situation of economic dependence’ became part of Spanish law with a very similar meaning to its French counterpart, although it has disappeared from Law 15/2007 for the Defence of Competition (LDC). According to Article 6(1)(b) of the now repealed Law 16/1989, introduced by Law 52/1999 of 28 December, ‘the abusive exploitation by one or more undertakings . . . of the situation of economic dependence where its clients or suppliers do not enjoy an equivalent alternative for the exercise of their activity is prohibited’.136 The Commission has sometimes used the concept of ‘economic dependence’ in the context of its procedures for the application of Article 102 TFEU, for instance in General Motors (1974), ABG/Oil companies operating in the Netherlands (1977), Hugin/Lipton (1977), British Leyland (1982) and Magill/TV Guide (1988).137 This use has been accepted with reservations by the ECJ and has been possible only in markets that are very narrowly defined and very small indeed (such as the market in certificates of conformity for parallel imported General Motors vehicles, or the market in spare parts for the repair and maintenance of Hugin machines), because that is the only way to establish a dominant position within the meaning of the European rule.138 In Deutsche Bahn (1997), which concerned the application by the holder of a statutory monopoly in the rail transport market of discriminatorily low prices in combined maritime-rail transport services according to the ports of origin and destination, the GC held that ‘where, as in the present case, the services covered by the sub-market are the subject of a statutory monopoly, placing those seeking the services in a position of economic dependence on the supplier, the existence of a dominant position in a distinct market cannot be denied, even if the services provided under a monopoly are linked to a product which is itself in competition with other products’.139

136   Art 6(1)b) of Law 16/1989 added: ‘This situation will be presumed when a supplier has to grant its clients not only standard discounts but also other additional advantages on a regular basis that are not granted to similar purchasers.’ Law 52/1999 also added two new letters, (f) and (g), to Art 6(2) LDC, to describe two types of abuses apparently (or at least in view of the Spanish Legislator) typical of ‘relative dominant positions’: the ending of trading relations without prior notice of at least six months, and the obtaining or attempting to obtain, under the threat of breaking off trade relations, prices, payment conditions, and other trade conditions not set out in agreements between the parties. 137   In Commission decision British Leyland (1984) para 9, the Commission specifically pointed out the existence of ‘a situation of economic dependency characteristic of a dominant position’, and in Magill/TV Guide (1988) para 22, it referred to the economic dependency of the publishers of TV guides with respect to television channels, which gave the latter a dominant position as compared to the first. 138   See Waelbroeck & Frignani (1998) 320–21, para 243. 139  GC Deutsche Bahn (1997) 57.

Economic Dependence  67 It is not clear, however, that the existence of a dominant position within the meaning of Article 102 TFEU can be inferred directly or exclusively from the existence in the relevant market of an undertaking that is considered by its clients to be an ‘unavoidable trading partner’, in the sense that these clients are completely dependent on it and they lack alternative sources of sufficient or reasonable supply. Although references to the notion of ‘unavoidable trading partner’ can be found in the ECJ judgments United Brands (1978), Hoffmann-La Roche (1979) and Michelin I (1983),140 this was not the fundamental reason for establishing the existence of a dominant position in these cases, since in all of them it had been sufficiently proven by means of the structural and behavioural criteria in use.141 In practice, in cases where the Commission has based its arguments only or mainly on the notion of dependence, the EU Courts have generally revoked its decisions, although for other reasons, as in the ECJ’s judgments in General Motors (1975), BP Nederland (1978) and Hugin (1979). This did not happen with the decision in Magill TV Guide (1988) which was confirmed by the GC and the ECJ.142 The concept of ‘unavoidable trading partner’ is, in reality, just a means of defining dominant position in some contexts – including mergers143 –, a supplementary tool used in the analysis of certain abuses of a dominant position.144 The Commission’s decision-making practice shows that the concept of ‘unavoidable trading partner’ is the flip side of dominance, and does not have the function of extending the scope of Article 102. In EU competition law, then, no rule exists like those that we have just seen in the German, French and Spanish legal systems. European law prohibits abuse of a dominant position in absolute terms, but is silent as regards ‘relative dominant positions’, whose abuse is prohibited in these countries through different specific rules, which coexist with the prohibition on the ‘absolute’ or ‘traditional’145 dominant position. Therefore, this concept must be used not to extend the notion of dominant position, but rather to explain it in a specific factual context in which a dominant position exists with respect to a purchaser for whom viable alternative sources of supply are not reasonably available.146 The criterion of dependence must be used cautiously, therefore, in order to avoid div­ erging from the Article 102 system. Within this system, economic dependence should be used not as a basis for establishing the existence of a dominant position, but rather to corroborate it, when the structure of the market and the behaviour of undertakings provide sufficient evidence of its existence.147

140  ECJ United Brands (1978) para 93; ECJ Hoffmann-La Roche (1979) para 41; ECJ Michelin I (1983) para 56. In ECJ GVL (1983) para 42, the German copyright management company argued that it was not the only commercial partner of the artists, relying on a defence under German rather than EU law. 141   Ritter & Braun (2004) 404. See also Commission decision Michelin II (2001). 142   See Waelbroeck & Frignani (1998) 321, para 243. 143   See Commission decision TLP/Ermewa (2010) para 101. 144   The Commission explored the possibility of using this concept as a supplementary tool in considering dominant position abuses in vertical or ‘conglomerate’ contexts. See the Commission’s XVIth Report on Competition Policy (1986) para 340. 145   Thus, in German law, Art 19 of the GWB prohibits abuse of an absolute dominant position, and Art 20.2 prohibits abuse of a relative dominant position; in French law, Art L-420.2 first paragraph of the Commercial Code prohibits abuse of an absolute dominant position while L-420.2 second paragraph of the Commercial Code prohibits abuse of a relative dominant position; and in Spanish Law Art 6.1(a) of the now repealed Law 18/1989 prohibited abuse of an absolute dominant position, while Art 6.1(b) prohibited abuse of a relative dominant position. 146   See Ritter & Braun (2004) 404. 147   See Waelbroeck & Frignani (1998) 322, para 243 in fine; Ritter & Braun (2004) 404.

4 Economic Power in the European Merger Regulation: Significant Impediment to Effective Competition, in Particular as the Result of the Creation or Strengthening of a Dominant Position 4.1  INTRODUCTION: ARTICLE 2 OF THE EUROPEAN MERGER REGULATION

In the context of European merger control, the main objective of examining structural changes in the supply or – less frequently – demand for a product or service is to prevent the reduction of competition in the market and the increase of power of the merging undertakings. For this reason, Article 2 of Regulation 4064/89 considered concentration operations which create or strengthen a dominant position as a result of which effective competition is significantly impeded in the common market or in a substantial part of it to be incompatible with the common market, and Article 2 of Regulation 139/2004, which has replaced Regulation 4064/89, considers concentrations that are capable of significantly impeding effective competition in the common market or a substantial part of it, in particular as a result of the creation or strengthening of a dominant position, incompatible with the common market. The concept of dominant position is central to both the old and the new merger control tests, although the emphasis is different.1 Whereas Regulation 4064/89 obliged the Commission to establish a dominant position in all cases where it intended to prohibit a concentration, under Regulation 139/2004 this may no longer be necessary. It appears that the Commission can now take action even if a dominant position is not foreseeable. In short, Regulation 139/2004 may have increased (and without doubt it has clarified) the Commission’s powers, by allowing it to prohibit concentrations which could result in lower market power than that historically necessary to establish a dominant position.2 1   For the origins and the terminological oscillations with regard to both the old and the new tests during the legislative passage of Regs 4056/89 and 139/2004, see Levy (2008) ch 2. As this author explains, the debate concerning the first test focused on whether it should be a pure competition test or whether it should take into account industrial policy considerations that made it possible to authorise certain operations that, while they damaged competition, were of interest as regards encouraging European industry. The debate regarding the second test focused on the type of (pure) competition test that should be adopted, although industrial considerations also came into play as part of the discussion of where ‘efficiencies’ fitted in to the new regulation. See below. 2   With respect to the new test see eg Walker (2004) or Röller & de la Mano (2006). Baxter & Dethmers (2005) 380–81 state that the new test lowers the authorisation and prohibition threshold to the extent that the level of unilateral effects is lower than that existing in relation to the individual dominant position. In my opinion, this

Introduction: Article 2 of the European Merger Regulation  69 But this is not the only substantive test of market power employed by the Merger Regulation. In order to avoid the creation of a full-function joint venture having ‘as its direct consequence an appreciable restriction of competition between undertakings that remain independent’,3 Regulation 1310/97 added a new paragraph 4 to Article 2, incorporating the analysis carried out under Article 101(3) to this type of concentration operation. According to Article 2(4) of Regulations 4064/89 and 139/2004: To the extent that the creation of a joint venture constituting a concentration pursuant to Article 3 [a full-function joint venture] has as its object or effect the coordination of the competitive behaviour of undertakings that remain independent, such coordination shall be appraised in accordance with the criteria of Article 81(1) and (3) of the Treaty [now Article 101(1) and (3) TFEU], with a view to establishing whether or not the operation is compatible with the common market.

Despite the interest generated by this provision during the reform process of 1998, its use has been relatively infrequent and essentially uncontroversial.4 The use of the substantive criteria of Article 101(3) TFEU in merger control cases raises unusual problems, mainly related to the assessment of the first three conditions of this rule.5 As regards the fourth, reproduced word for word in the last part of Article 2(4), it appears obvious that it must use the same market power thresholds as Article 101(3)(b) TFEU.6 As regards the relationship between Article 2(3) and 2(4) of Regulation 4064/89 (before) and 139/2004 (now), even if it is theoretically possible to apply the elimination of competition test in a different way to the test regarding the creation or strengthening of a dominant position (considering it to be more or less rigorous), from a systematic point of view the most logical approach appears to be to use the same thresholds of market power in both rules.7 Focusing once more on the more important substantive test in European merger control, and starting with the content of Article 2(3) of Regulation 4064/89, this provision automatically evoked concepts that are already known in the field of Article 102 TFEU.8 However, it was argued that the old Merger Regulation might not have prohibited the should not be the case, nor, probably, is it the case; moreover, this statement appears to contradict another idea put forward by Baxter & Dethmers, namely that the assessment of unilateral effects is not based mainly on the examination of market power, ‘but rather on a direct assessment of the likelihood of a [sufficiently significant] price rise post merger’, which amounts to the same thing, approaching the subject from a different angle and with a more comfortable methodology for the Commission. Against the position of Baxter & Dethmers, see González Díaz (2004) 189, who considers that the new test ‘does not lower the intervention test’. 3   Recital 5 of Reg 1310/97, amending Reg 4064/89. 4   According to Cook & Kerse (2008) 269, until 2008 the Commission had never applied Art 101(3) TFEU in this context, and had considered the spill-over effects of a joint venture on barely 50 occasions, without any consequences in the vast majority of the cases. 5   For example, if certain restrictive effects of a concentration are produced between the parent companies in different markets to that of the joint venture, is there perhaps a causal connection, as required under Art 101, between the restrictions on competition and the advantages or benefits derived from the joint venture? As regards the first two conditions, in a somewhat unorthodox manner, the Commission, rather than establishing the positive effects of the joint venture in the market where the restrictions occurred, often limits itself to proving that there are no negative effects. As regards the third condition, how can the requirement of the indispensability of the restrictions of Art 101(3)(a) be met where there are secondary effects that are generally not foreseeable nor desired by the founding companies? These and other problems mean that in practice the test set out in Art 2(4) of Reg 4064/89 was limited to showing the non-elimination of competition in the related market where the restrictions take place. See Maíllo González-Orús (2007) ch 3. 6   For market power within the scope of Art 101(3)(b) see chs 5 and 6 below. 7   See the Epilogue to this book. 8   According to Levy (2010) 214, the most plausible explanation of the initial choice of the dominance test is its familiarity, which would lead to greater legal certainty, which is what the German competition authorities wanted. In fact, Weitbrecht (2008) 84 considers that the adoption of the old merger control test was the last of more than 30 years of triumphs of the Freiburg School, the main proponent of ordoliberalism, in European competition policy.

70  Economic Power in the European Merger Regulation creation or strengthening of a dominant position in all cases, but only when such a position ‘involve[d] a significant obstacle for effective competition’, giving this expression an independent meaning,9 and even that the fact that the Merger Regulation was based on Article 235 of the EEC Treaty (now Article 352 TFEU), and not only Article 87 of the EEC Treaty (now Article 103 TFEU), would make it possible to apply the concept of dominance different from that developed by the ECJ in the field of Article 86 of the EEC Treaty (now Article 102 TFEU). Article 2(3) of the former Merger Regulation would thus have allowed the Commission to develop a totally new concept of dominant position, involving a structural and predictive examination of the market.10 Unlike the traditional definition of dominant position, which focuses on the capacity of the undertakings to avoid the effective competition of other operators and have a decisive influence on competition conditions in the market, the compatibility criterion of Regulation 4064/89 may have introduced clarifications which prevented Article 2(3) of the former Regulation from being considered a mere test of dominance of the undertakings concerned.11 This appeared to be the inference to be drawn from the various drafts of Article 2 of the Regulation,12 and from the statements of Sir Leon (now Lord) Brittan, Commissioner for 9   By contrast, there are those who consider that the presence of a significant impediment to effective competition is merely a corollary of the very existence of a dominant position. See Van Bael in ‘The Regulation from the Perspective of the Practitioner’, The Implementation of the Merger Regulation, DG4, Ostende, 13 September 1990, 4–5, cited in Moussis (1995) 401. 10   Winckler & Hansen (1993) 803. Walker (2004) 1–2 explains that the debate between the US ‘substantial lessening of competition’ (SLC) test and the EU dominance test in merger control has turned around the choice between a structural test (that of the dominant position) and another focused on the effects on competition (SLC), a debate which would have been resolved by adopting the new European ‘significant impediment to effective competition’ (SIEC) test, which is somewhere between the original alternatives. However, the author stresses the fact that ‘a dominance standard does not have to imply a purely structural approach. Increasingly dominance is being treated in a much more economic sense and is being thought of as equivalent of “substantial market power”.’ 11   See Briones, Font, Folguera & Navarro (1999) 141–44; or Moussis (1995) 401, who distinguishes two stages within the same test: the first is aimed at assessing whether the concentration will create or strengthen a dominant position, while the second assesses whether this dominant position will significantly impede effective competition. Similarly, Heimler (2008) 87. Hinds (2006) 1701 opines that, in theory, the second part of the dominant position test under Reg 4064/89 ‘placed a legal obligation on the Commission to show that the merger had the impact of changing the competitive structure of the market in question in the future. This involves a dynamic analysis of the market in question. The analysis would focus on the importance of potential competition . . .’ According to Luescher (2004) 74, ‘it remains a controversial question whether this dominance concept contains one test or two’. For their part, Fountoukakos & Ryan (2005) 280 point to three possible interpretations of the two limbs of the test in Reg 4084/89: (1) ‘two distinct steps in the analytical process, to be assessed separately if necessary’; (2) ‘two elements of a single assessment, with the second limb merely qualifying the first’; and (3) ‘the second limb is essentially superfluous, in that a significant impediment to competition always results from the creation or strengthening of a dominant position’. To my mind, the meaning of ‘if necessary’ is not clear, nor is ‘merely qualifying the first’. Curiously, the third theory, which I consider to be the correct one, is stated in a footnote 25 at the end of the second theory. 12   See Briones, Font, Folguera & Navarro (1999) 141–44, referring on page 142 at fn 5 to OJ 1988 C 130/4, Art 2(4), and OJ 1989 C 22/14, Art 2(3). For these authors, ‘the criterion of compatibility finally established is a formula negotiated between the supporters of the “effective competition criterion” and supporters of the “dominant position criterion”’. The formulation of the substantive test set out in Reg 4064/89 would constitute a compromise solution arrived at in order to reconcile the conflicting positions of Member States which, like France, viewed merger control as an ancillary instrument to industrial policy and those in favour of the free play of competition, such as Germany, which argued that when analysing a merger the only thing that should be taken into account was its foreseeable impact on the competitive structure of the market in question. In this regard, see Moussis (1995) 396–404 (‘un compromis est très visible à l’article 2 du règlement, où au lieu de trancher entre la thèse française ou allemande quant à la détermination du caractère compatible ou pas d’une concentration avec le droit communautaire, le règlement essaye de concilier les deux thèses’), and Drauz & Jones (2006) paras 1.13–14. Nevertheless, in practice the German approach would appear to have prevailed (in the sense that the substantive test is a ‘pure competition test’, according to Drauz & Jones (2006) para 4.14), although it is true that concessions had to be made in the Regulation to countries that had insisted on a test that made it possible to take into account wider considerations (above all France and Spain). These concessions, according to Fountoukakos & Ryan (2005) 278–79, were set out

Introduction: Article 2 of the European Merger Regulation  71 Competition during the first years of the Merger Regulation’s application.13 Some authors argued in favour of this theory,14 others against,15 and there was even indirect evidence to support it in certain cases prior to the adoption of Regulation 4064/89 in which the Commission decided not to apply Article 102 to certain economic concentrations.16 17 in the references made to technical and economic development (which could be interpreted, at least in part, as a concession to industrial policy) and to social cohesion set out in Art 2(1)(a), which introduced a truncated version of the Art 101(3) test, and recital 13 of Reg 4084/89. The authors cite a declaration of the Commission for the minutes of the Council, which also said that, in relation to these two provisions (Art 2(1)(a) and recital 13), the problems of development in certain European regions should also be taken into account. Winckler & Gerondeau (1990) 543ff insist that Reg 4064/89 was designed as a compromise solution, as a result of which its internal consistency suffered. This would explain why the various draft texts became increasingly flexible, since the term ‘dominant position’ was in turn overtaken by the criterion of ‘impeding effective competition’ and by that of ‘significant effect’. These authors consider it difficult to know whether these refinements made to the wording changed in any way the substance of the reasoning and suggest that they can be traced to the position advocated by industrialists, namely that a dominant position can, on some occasions, be a good thing. For them, this compromise has led to the existence a subtle balance, the effect of which has been to give the Commission ample room to manoeuvre. In my view, the ambiguity of Reg 4064/89 (and its successor, Reg 139/2004) has allowed the Commission to: (i) not accept an ex post defence on the basis of the efficiencies arising from the creation or strengthening of a dominant position; and (ii) not apply the test in two stages, except at the beginning of European merger control in Aérospatiale Alenia/De Havilland (1991) before forgetting this even when it was reminded of it by the GC in Air France (1994), and instead to opt for a one-step analysis based more on the pure defence of free competition than the two-phase test, which finally fell out of favour in practice, after it was not applied as industrialists had wished. See below. For the origins of the European merger control test and the oscillations between the dominance test and others (including the current one), see Levy (2003) 145–51; Levy (2010) 212–15. 13   ‘In my view, we are at the beginning of a new legal development and the Council did not wish to create a pure dominant position test. A dominant position as such is not prohibited. One may ask whether a dominant position without the effect of impeding competition is at all conceivable. I think that in most cases it is not. However, the dynamic factor of time is again important here. A short-lived market share of some size in a market with no or low barriers to entry is not really a threat to competition. The European Court has traditionally defined dominance in Article 86 [now Art 102 TFEU] cases in terms of interdependence or the ability to act with scant regard to competitive pressures. This is not quite the same as impeding competition and I expect a new line of case law to develop.’ Brittan (1990) 354, cited in Navarro, Font, Folguera & Briones (2005) 147 fn 14. 14   See, inter alia, Langeheine (1990), Venit (1990), Dechery (1990), and Bellamy & Child (2001) 405–31ff, cited in Temple Lang (2002) 312–13 fn 95; Helmuth Schröter in Von der Groeben-Thiesing-Ehlermann, Kommentar Zum EWG-Vertrag, Article 87, 4th edn (Nomos Verlag, 1999) Rdnr 269, cited in Venit (1999) 1665 fn 35; Ritter, Braun & Rawlinson (2000) 459. 15   See González Díaz (2004) 186, who, in considering the question of whether the old test had one or two limbs, highlights the lack of clarification by the GC of the content of the second limb, and appears to favour the theory of automatism of the second vis-à-vis the first limbs. See also Weitbrecht (2005) 68, according to whom the SIEC ‘had been a second element in the old test which, however, never had enjoyed an independent meaning of its own. At best it had been considered to require that the creation or strengthening of a dominant position must be of a lasting nature (which is inherent in such position anyway).’ On this last point, I disagree. In the same vein, see Van Bael in ‘The Regulation from the Perspective of the Practitioner’, The Implementation of the Merger Regulation, DG4, Ostende, 13 September 1990 4–5, cited in Moussis (1995) 401. Hinds (2006) 1700 argues that although in theory the old test consisted of two parts, in practice the analysis was ‘very much focused’ on assessing the dominant position. The author later states that ‘[t]o a large extent, the second part of the Article 2(2) and (3) EC test, whether it resulted in a [SIEC], was therefore subsumed into the dominance assessment’. 16   Temple Lang (2002) 312–13 fn 95 cites the cases Michelin Actor & AVEBE/KSH, the Commission’s VIIIth Report on Competition Policy (1978) paras 146, 147–48; Pilkington/BSN-Gervais-Danone, the Commission’s Xth Report on Competition Policy (1980) paras 152–56; British Sugar/Berisford, the Commission’s XIIth Report on Competition Policy (1982) paras 104–06; British Airways/British Caledonian, the Commission’s XVIIIth Report on Competition Policy (1988) para 81. Similarly, although not mentioned by Temple Lang, Air France/Air Inter/UTA, the Commission’s XXth Report on Competition Policy (1990) para 116, could also be referred to. The truth is that it would be difficult to argue that these cases suggest that, at the time, the Commission already envisaged a differentiated test for the future control of concentrations. In fact, in all of these cases the Commission followed the letter of the law, as it did after 1990 with Reg 4064/89, but within the line of cases established in Continental Can, and imposed conditions, obtained commitments and forced amendments that resulted in the operations in question not strengthening significantly the dominant positions of the parties, in exchange for abandoning the proceedings brought against them. 17   According to Drauz & Jones (2006) para 4.23, the substantive test of Reg 4064/89 was the subject of debate, for most of the time it was in force, between those who considered it to be ‘a one-stage test’ in which the reference

72  Economic Power in the European Merger Regulation However, the clearest statement of this theory concerning the two parts of the ‘merger control test’18 is to be found in Air France (1994), where the GC stated as follows: It follows from [Article 2 (2) and (3) of Regulation 4064/89] that the Commission is bound to declare a concentration compatible with the common market where two conditions are fulfilled, the first being that the transaction in question should neither create nor strengthen a dominant position and the second being that competition in the common market must not be significantly impeded by the creation or strengthening of such a position. If, therefore, there is no creation or strengthening of a dominant position, the transaction must be authorised, without there being any need to examine the effects of the transaction on effective competition.19

More recently, the GC reached the same conclusion in EDP (2005), noting that the test set out in Regulation 4064/89 ‘la[id] down two cumulative criteria, the first of which relates to the creation or strengthening of a dominant position and the second to the fact that effective competition in the common market will be significantly impeded by the creation or strengthening of such a position’. The GC indicated the source of the confusion regarding the application of the two parts of the test, pointing out that, in some cases, the creation or strengthening of a dominant position may constitute in itself a significant obstacle to effective competition. According to the Court, ‘[t]hat observation does not in any way mean that the second criterion is the same in law as the first, but only that it may follow from one and the same factual analysis of a specific market that both criteria are satisfied’.20 In its decision-making practice, however, the Commission has rarely applied this theory. (In fact, after some initial flirtations, and having ruled it out in practice,21 the Commission may have been the first to be surprised by the revival of this theory by the GC in 1994.22 The position was never confirmed by the ECJ, which perhaps could have seen only a single condition where the GC saw two.)23 The first case in which the Commission deviated from the strict test of dominant position was Aérospatiale-Alenia/De Havilland (1991). In its Annual Report on Competition for 1991 the Commission stated as follows: In Aérospatiale-Alenia/De Havilland, the Commission stated that a concentration which leads to the creation of a dominant position may be compatible with the common market if there exists strong evidence that this dominant position is only temporary and would be quickly eroded to a significant impediment to effective competition simply described the inherent effect on the creation or strengthening of a dominant position, and others that considered that two conditions had to be complied with in order to prohibit a concentration: first, the existence of a dominant position; and second, impediment, etc. In the same way, see Levy (2008) para 10.06 [2]. 18   See Levy (2010) 218–20. 19  GC Air France (1994) para 79, confirmed and cited in GC Kaysersberg (1997) para 184; GC Airtours (2002) para 58; GC Tetra Laval (2002) paras 120, 146. Equally, see GC Schneider (2002) paras 321, 380; GC ARD (2003) para 130. 20  GC EDP (2005) paras 45ff. 21   Bergman, Jakobsson & Razo (2005) 720 also point out that, in practice, the Commission ascribed little importance to the second part of the former test: ‘as soon as dominance was found, very little was required for finding competition to be significantly impeded.’ See also Hinds (2006) 1700. 22   Pappalardo (2004) 166 states that although the substantive test of Reg 4064/89 included in its Art 2(1) certain criteria or factors of a general nature, in practice it was limited to examining whether a dominant position essentially identical to that under Art 102 was created or strengthened, although it was the GC that insisted, without generally being followed by the Commission, on the second part of the test, concerning significant impediments to competition. 23   The Commission never formally accepted that the test was the one proposed by the GC. For example, it is very significant that in paras 5 and 8 of its Draft Guidelines on Horizontal Mergers (European Commission (2002b)) it carefully avoided splitting in two the substantive test in European merger control.

Introduction: Article 2 of the European Merger Regulation  73 because of high probability of strong market entry. With strong market entry a dominant position is not, in the opinion of the Commission, likely to significantly impede effective competition within the meaning of Article 2(3) of the Merger Regulation. Thus, the test of dominance is to be understood as an appreciable freedom of action uncontrolled by actual or potential competition.24

Other decisions where the Commission would seem to have applied a specific test are, on the one hand, Kali + Salz/Mdk/Treuhand (1993), annulled by the ECJ in France v Commission, and, on the other, Kali + Salz II (1998), which, applying for the first time in EU merger control the American ‘failing firm’ defence (based on the precarious situation of one of the undertakings in the concentration, which is destined to disappear regardless of whether the merger takes place),25 confirmed that in the absence of a causal connection between the concentration and the significant impediment to effective competition, the Commission should not prohibit it because the reduction in competition (the absorption of the failing firm) would occur not because of the merger but rather as a result of the inevitable disappearance of the company acquired.26 In addition, there are several decisions where the Commission has recognised the compatibility of concentrations where the parties had a dominant position prior to the concentration, since it considered that the concentration would not strengthen their dominant position.27 The GC appeared to share the views of the Commission in its most recent decisions, and in Air France, Gencor and Airtours it held that if the concentration does not add anything substantial to the market structure or change significantly the pre-existing level of competition, the concentration must be approved because competition is not significantly impeded.28 In fact, it is clear from the precedents that the test in Article 2(3) of Regulation 4064/89 permitted the authorisation of concentrations that involved the creation or strengthening of a dominant position where:29 •  T  here was clear evidence that the dominant position in question would disappear within a short period of time (in my opinion this was odd and open to criticism). At the same time, the Commission could also prohibit a transaction that did not create or strengthen immediately a dominant position if it concluded that, in all probability, in the relatively near future (for example, up to four years) this would happen.30 Logically, this was an even greater target for criticism. 24   Commission’s XXIst Report on Competition Policy (1991) Annex III 362, regarding Commission decision Aérospatiale-Alenia/De Havilland (1991). 25   For a description of the first condition of this defence, see Levy (2008) para 15.03; Ritter & Braun (2004) 594ff; Jörgens (2003). See also Commission decisions BASF/Eurodiol/Pantochim (2001) and Newscorp/Telepiù (2003). For a summary of the Commission’s most recent position on this matter, and the conditions applying this ‘defence’, see the Commission’s Guidelines on Horizontal Mergers (2004a) paras 89–91. 26   For Navarro, Font, Folguera & Briones (2005) 337, ‘if there is a deterioration of competition in the market, and as a result the market share of a failing company (that will shortly leave the market in any event) becomes that of an acquiring company, it is accepted that this deterioration of competition (the absorption of the bankrupt under­ taking) is not caused by the concentration. Instead, this possible deterioration of competition will be the result of the new market situation caused by the liquidation of an undertaking.’ For an example of lack of causation that is somewhat removed from the ‘failing firm’ argument, see Commission decisions Deloitte & Touche/Andersen (UK), Ernst & Young/Andersen (Germany) and Ernst & Young/Andersen (France), all (2002), analysed by Jörgens (2003). 27   See eg the following Commission decisions: Coca-Cola/Amalgamated Beverages (1997) paras 108–09; British Telecom/MCI (II) (1997) para 26; Lyonnaise des Eaux-Dumez/Brochier (1991) paras 16–17; Boeing/McDonnellDouglas (1997) para 124; AT&T/NCR (1991) para 15 and Aérospatiale/MBB (1991) para 14; EDF/South Western Electricity (1999); Seita/Tabacalera (1999); Callahan Invest/Kabel Nordrhein-Westfalen (2000), cited in Navarro, Font, Folguera & Briones (2005) 147 fn 13. 28  GC Air France (1994) paras 79–80; GC Gencor (1999) 170, 180 and 193; GC Airtours (2002) paras 58 and 82. 29   In the same way, see Levy (2008) para 10.06 [2]. 30   See GC Tetra Laval (2002) para 153 in conjunction with para 148.

74  Economic Power in the European Merger Regulation •  The concentration in question strengthened only minimally, or did not strengthen in an appreciable manner, a pre-existing dominant position31 (this did not appear to create problems from the point of view of the traditional dominance test, since it was logical that the effect of a concentration on competition had to be ‘appreciable’ – something the ECJ requires of restrictions on competition so that they come within Article 101(1)). •  There was no causal link between the concentration and the worsening of competition; that is, the creation or strengthening of the dominant position would occur in any event, whether or not the concentration took place32 (which did not cause problems either, since if the basic situation for prohibiting a concentration did not exist – that the concentration itself, and not something else, created or strengthened a dominant position – logically, the authorities would not intervene). As a result, in practice the theory of the two elements of the alleged test in European merger control could be summed up as follows: only those concentrations with a minimally important and lasting negative effect on competition were prohibited.33 On this basis, the theory, although open to criticism, did not appear to differ significantly from the pure dominance test. Whatever the position, the examples of tolerance towards those concentrations that create or strengthen a dominant position applying these alleged exceptions are very rare, and in 99.9 per cent of the cases where the Commission concluded that a dominant position was created or strengthened, it prohibited the proposed concentration. This early inter­ pretation advocated by the Commission and the Commissioner for Competition at that time did not have, therefore, much practical importance and in the almost 15 years of application of Regulation 4064/89, it was never used to diverge significantly from the traditional test of dominance. Certainly, if the Commission was in difficulties, this test could have provided it with a way of authorising the unauthorisable,34 but this would have made no sense from the point of view of a genuine competition policy, and of the objectives of the system of rules that existed – and still exist – to ensure that competition in the internal market was not distorted – even for a short time – in accordance with Article 3(g) of the EC Treaty and now with Protocol No 27 TFEU. Indeed, it was worth asking whether a short-lived dominant position implied dominance at all;35 but, assuming that ‘dominant position’ is defined as the power to oppose the maintenance of effective competition, and that the economic objective of European competition law is the protection and promotion of effective competition,36 it seemed to run counter to the logic of the system to admit that a certain concentration operation created or strengthened a dominant position but not to prohibit it on the grounds that although it eliminated effective competition it did not do so ‘in a significant way’.37 Unless it were argued that the expression 31   For how this theory works in practice, see eg Commission decision De Beers/LVMH (2001) para 144, and Commission decision Wallenius Lines/Wilhelmsen/Hyundai Merchant Marine (2002) paras 51–53, 58–60, which refers to the insignificant strengthening of the dominant position of the FEFC shipping conference as a result of this operation. 32   See the decisions cited above. 33   Levy (2000) 8-132–8-136, cited in Temple Lang (2002) 313 fn 96. 34   In the same way, the introduction of a test of ‘substantial lessening of competition’, as in the US system, would allow it to prohibit proposed mergers more easily. On this point, see below. 35   I believe it does, since do EU competition rules provide otherwise? Further, what should be the maximum duration of temporary dominant positions to consider them relevant dominant positions as regards EU merger control? See below. 36   Bishop & Walker (2010) 16, para 2.03. 37   On this point, see ch 9 below.

Introduction: Article 2 of the European Merger Regulation  75 ‘dominant position’ had a different meaning under Regulation 4064/89 compared with Article 102 EC, it seemed clear that the mere fact of creating – and, even more so, strengthening – a dominant position involved, in itself, a significant impediment to competition.38 Thus, the phrase ‘as a result of which . . .’ would, in practice, be redundant.39 In its decisions, the Commission took this approach, and when it set out the criterion of Article 2(3) of Regulation 4064/89 it often stated that ‘effective competition would be significantly impeded’ as an automatic consequence of the creation or strengthening of a dominant position.40 Taking the same strict interpretive approach, and despite the reference to ‘the development of technical and economic progress’ in Article 2(1)(b) of Regulation 4064/89, the Commission considered that the substantive test for European merger control did not include the so-called ‘efficiency defence’ supported by American academics and accepted by certain US federal courts. In its most extreme form, this ‘defence’ would allow the authorisation of a concentration even if it created or strengthened a dominant position, for reasons of economic efficiency.41 A more reasonable version of the ‘efficiency defence’ allowed the ‘efficiencies’ of an operation to be assessed before (as part of the substantive ‘test’), but never after concluding that a dominant position was created or reinforced, and this was effectively how this defence was interpreted in the US and the EU.42 The term ‘efficiencies’ was imported into the EU in the field of merger control and initially colonised Article 101(3) TFEU. This provision dates back to 1957 and, until the Guidelines for its application in 2003, had never officially been considered to contain any reference to ‘efficiencies’. Within the scope of Article 101, there is a prohibition (paragraph 1) subject to exceptions (paragraph 3), provided that four conditions are satisfied, only one of which refers to the maintenance of effective competition. In merger control, there is no prohibition with conditional exceptions, but rather a basic right in a free-market economy (merging, which at the end of the day implies buying and selling, or sharing the means of production and 38   Against: de la Mano (2002), who, prior to the modification of the substantive test in 2004, proposed that the Commission could authorise concentrations that created or strengthened a dominant position if they did not significantly impede effective competition, on condition that the concentration in question generated efficiency gains. 39   In this sense, see Faull & Nikpay (1999) 124, para 3.32. See also Waelbroeck & Frignani (1998) 308, para 237, who cite Venit (1990) 20–22 and Pendibene (1994) as examples of authors for whom ‘dominant position’ has a different meaning in the Merger Regulation and in Art 102 TFEU. 40   See eg Commission decision P&O/Royal Nedlloyd (1996) para 53. 41   See Luescher (2004). Colley (2004) 344–45 explains the meaning and the mechanics of the efficiencies of a concentration: ‘A given reduction in variable costs will, otherwise equal, lead to an incentive to cut price. Note that this is even (in fact, especially) the case for a monopolist. Volume becomes more attractive . . . It is more profitable for the firm to cut prices.’ This statement is useful as a description of acceptable efficiencies. However, even if a mono­ polist produces such efficiencies, it cannot be said that they eliminate or exclude the possible dominant position. 42   See Kolasky & Dick (2002), particularly 13, 24, 25. Commissioner Monti (2002a) 6–8, and (2002b) 45, was in favour of introducing this defence (subject to the qualifications of Götz Drauz) into European merger control, although he expressed his ‘healthy scepticism’ about the ‘efficiencies’ achieved through mergers. In any event, it appears clear that the only ‘efficiencies’ that the Commission could ultimately have considered related to competition; that is, those that improve the competitive situation in the relevant market. See the Commission’s Green Paper on the revision of Council Regulation (CEE) 4064/89 (European Commission (2001e)) paras 170–72. ‘Efficiencies’ of this type would occur, for example, if a concentration generated a more asymmetrical costs structure between the members of an oligopoly, in which case it would be pro-competitive. See Christensen & Rabassa (2001) 235. For a criticism of the worthlessness of the ‘efficiency defence’ in these conditions, see Ilzkovitz & Meiklejohn (2001) 15; Röller, Stennek & Verboven (2001) 80. The latter authors cite in their support Neven, Nuttall & Seabright (1993) 62. See also the criticism of Motta (2000) 202–03, who suggests that the Commission should expressly use this ‘defence’. For a recent summary of questions regarding this defence in EU merger control, see Iversen (2010).

76  Economic Power in the European Merger Regulation distribution) the exercise of which is subject, exceptionally, to obtaining clearance to ensure that it does not result in any significant impediment to effective competition, dominant position or elimination of effective competition (which all amount to the same thing). In fact, given the obvious point that merging is not generally prohibited, but rather quite the opposite (unlike agreements that restrict competition), it is generally not necessary to show that a concentration is good but simply that it does not impede effective competition. In merger control, the conditions concerning technical or economic advantages and the benefit to consumers are on a very different level from Article 101(3) and can only play a part as an element prior to determining that a substantial impediment etc has not taken place, which is certainly inconsistent, since, illogically, it places the cart (the ‘efficiencies’ that are first cousins of those under Article 101(3) TFEU) before the horse (the existence or otherwise of an impediment), or is like applying a bandage before being injured. The efficiencies, then, must mean something else: the genuinely pro-competitive consequences (in the sense of generating more competition than before the merger) or those that neutralise other possible anti-competitive consequences resulting from the concentration. The latter do not come into being as a result of the existence of ‘efficiencies’. That is, the ‘efficiencies’ result in the problem not arising, rather than remedying the problem once it has occurred. The debate about the treatment of ‘efficiencies’ in European merger control has its origins in the attempt of those advocating an ‘industrialist’ approach to introduce the possibility of authorising concentrations that created a dominant position.43 From this point of view, it made sense to be inspired by the test designed to authorise restrictive practices (the four conditions of Article 101(3)). Thus, to distinguish the merger control test even further from a mere dominance test, but without going so far as to set up a system of exemptions per se, in the vein of Article 101(3), the criteria of compatibility set out in Article 2(1)(a) and (b) would have introduced a type of ‘equilibrium theory’ that would make it possible to counteract the creation of a dominant position with the analysis of different economic factors, such as market features, consumer interests, technical and economic progress, etc, in line with the approach of the French administrative courts.44 Nevertheless, insisting that 43   For an explanation of the origins of this debate and its legal basis in EU law, see Kocmut (2006) 20–22. It is curious that, as Fountoukakos & Ryan (2005) 278–79 note, the legal basis for considering efficiencies in European merger control were introduced with very different aims to these, related more to industrial and social policy, etc. The industrialist line would represent a ‘total welfare approach’ that sacrifices the consumer, placing him in the hands of a dominant operator by permitting the elimination of effective competition. 44   Winckler & Gerondeau (1990) 545ff define the system under the Regulation as ‘hybrid’, since it reintroduces the criteria of Art 101(3) into the analysis of the dominant position itself and its compatibility, although they consider that the wording of the Regulation appears to indicate that the protection of competition must prevail over other considerations of an industrial policy nature. These authors indicate that, unlike Art 101, under which it is actually obligatory to first detect a restriction of competition before an exemption/exception may be applied, in the analysis of merger control, the Art 101(3) elements introduced into the criteria for application must be analysed before and during the process of examination of compatibility, and cannot be used ex post to exempt or authorise a concentration that creates or strengthens a dominant position as a result of which competition is significantly impeded; rather they should be employed to reach the conclusion that this does not ensue. The authors describe the origins of the theory of the assessment of efficiencies, without using this terminology, promoted both before and after Reg 139/2004 was adopted by the Commission. The ex ante or in itinere method of assessing ‘efficiencies’ which, to date, has always been advocated by the Commission in merger control, is also favoured in the Discussion Paper and the Guidance Paper on Art 102 TFEU for assessing efficiencies in the application of this provision to prima facie abusive conduct. This would appear logical in the light of the case law on Art 102, which has established that no exceptions to this rule are allowed, unlike that with respect to Art 101. This method, then, attempts to get round the obstacles in the case law and allow ‘efficient’ abuses to be authorised (ie conduct that, if not sufficiently efficient, would be abusive) by a dominant operator. ‘Efficiency’ is understood to mean any exceptional circumstance that foreseeably will result in market power not being created where a concentration would normally generate it. See the Guidelines on Horizontal Mergers (European Commission (2004a)) para 29.

Introduction: Article 2 of the European Merger Regulation  77 competition is not eliminated creates problems here, since it closes the door once more on this type of operation, should the creation or strengthening of a dominant position occur. In theory and in practice, neither the Merger Regulation nor section 5.7 of the Clayton Act allow efficiencies to redeem a significant impediment to effective competition or a ‘substantial lessening of competition’. In short, only pro-competitive efficiencies can be accepted in the two jurisdictions.45 A concentration operation must be authorised if it does not harm competition (neutral effect) or if its features that favour competition are more numerous than those that are anticompetitive (positive effect for competition or genuinely pro-competitive).46 For this reason, the EU Guidelines on Horizontal Mergers explain that efficiencies may improve the capacity and incentives of undertakings to compete for the benefit of consumers and counteract ‘any adverse effects on competition which the merger might otherwise have’.47 As a result, in European law the ‘efficiencies’ derived from a merger would not permit either the ‘sacred threshold’ of the creation or strengthening of a dominant position or the significant impediment to effective competition to be breached,48 or allow an operation of this type to avoid the prohibition.49 In this regard, Article 2(1)(b) of the Merger Regulation could create false hopes.50 At the same time, in certain respects the dominant position test in European merger control was rather more elastic than the concept of dominant position in Article 102 cases, at least as far as the Commission’s interpretation was concerned. Thus, for example, the dominant position whose creation or strengthening allowed a concentration to be prohibited was not necessarily the dominant position of the entity resulting from the operation in question. Instead, it could be an individual or collective dominant position of one or more third parties.51 The ECJ did not have the opportunity to declare on this use of the substantive test (the   Hofer & Williams (2005) 8 consider that ‘efficiencies are a pro-competitive effect of mergers’.   ‘Pro-competitive’ is a different concept from ‘economically advantageous’, in the sense that for the purposes of Art 101(3) TFEU, a restrictive agreement could have economic advantages that made it tolerable. That said, this does not happen with a merger that generates a dominant position or that significantly impedes effective competition, since there are no ‘efficiencies’, ie economic or technical advantages, that make tolerable a concentration that creates or reinforces a dominant position or produces a SIEC. 47   Guidelines on Horizontal Mergers (European Commission (2004a)) para 11.e. 48   For a similar point of view, see Herrero Suárez (2001) 1961, for whom ‘the possibility of having recourse to considerations other than those that merely relate to competition cannot exceed the limit laid down in the Treaty. This limit is the maintenance of effective competition.’ (Author’s own translation.) 49   The Commission’s position has not changed with the new Reg 139/2004 and can be summed up in the statement set out in the Guidelines on Horizontal Mergers (European Commission (2004a)) paras 76–88, particularly para 77, which sets out the conditions for the applicability of the ‘efficiency defence’ in European merger control: ‘For the Commission to take account of efficiency claims in its assessment of the merger and be in a position to reach the conclusion that as a consequence of efficiencies, there are no grounds for declaring the merger to be incompatible with the common market, the efficiencies have to benefit consumers, be merger-specific and be verifiable. These conditions are cumulative.’ That said, certain authors with very close ties to the Commission could accept a concentration that creates or strengthens a dominant position if it gave rise to efficiencies or increased buying power vis-à-vis purchasers with considerable market power, in such a way that it counteracted the potential damage to consumers. See Röller & de la Mano (2006) 14. With regard to efficiencies, note Commission decision Korsnäs/Assidomän Cartonboard (2006) paras 57ff, the first time the Commission made an express reference thereto. 50   Cook & Kerse (2008) 273. 51   The first version of this theory can be found in Commission decision Exxon/Mobil (1999). The most surprising is in Commission decision Grupo Villar Mir/EnBW/Hidroeléctrica del Cantábrico (2001) and in Commission decision EnBW/EDP/Cajastur/Hidrocantábrico (2002), where the reinforced dominant position would have been enjoyed by the oligopolistic group of Spanish electrical companies, competitors of the entity resulting from the merger. The problems encountered were resolved through the commitment given by EDF and RTE (the operator 45 46

78  Economic Power in the European Merger Regulation so-called ‘third-party dominance theory’).52 This and other strange extensions of the concept of dominant position,53 which went beyond even the concept of oligopolistic collective dominant position accepted by the legal systems of the Member States,54 led some to point out the risk that the widening of the concept of dominant position in merger control would also lead to the widening of the number of undertakings subject to the special obligations under Article 102, thus limiting the possibility of carrying out certain commercial practices capable of being considered abusive when whoever carried them out held a dominant position. This concern referred in particular, but not exclusively, to collective dominant positions.55 For this reason, these authors proposed that the concept of dominance for the purposes of merger control should be separated from the concept of dominance under Article 102.56 Such was the state of affairs in December 2001, when the European Commission set in motion the reform of the Merger Regulation with the publication of its Green Paper on the review of Regulation 4064/89.57 While in principle the review did not contemplate any amendment to the substantive text, in fact this is what ended up happening. Apart from the criticisms made of the European test for rigidity and insufficiency, and the praise heaped on the US ‘SLC’ (‘substantially lessen competition’) test for covering better both the coordinated and unilateral effects of mergers,58 the origins of this change of plan can be traced back to the annulment by the GC in 2002 of Commission decisions Airtours/First Choice, Schneider/Legrand and Tetra Laval/Sidel, three decisions in which the Commission prohibited mergers, and above all in GC Airtours. For some, this judgment made it clear that by using the concept of collective dominant position the Commission could not reach and prevent ‘unilateral effects’ in oligopolistic markets, since the Court found that to establish the existence of a collective dominant position it was not enough to show that a concentration meant that for oligopolists, individually, it was rational to reduce production or increase prices.59 Such a wide definition of collective dominant position, it was said, would enable the Commission to block almost all concentrations in oligopolistic markets.60 Thus, to achieve ‘unilateral effects’ in oligopolistic markets the Commission seemed to need a new legal basis. As a result, from 2002 onwards the Commission favoured widening the test set out in Article 2(2) and (3) of Regulation 4064/89, and differentiating it slightly from the domin­ of the French electricity network) to increase the electrical interconnection capacity between France and Spain. This finally enabled both operations to be authorised. According to Levy (2008) para 10.07 [1], these cases showed that the Commission knows both how to oppose external political pressure (eg Commission decisions General Electric/Honeywell (2001), Volvo/Scania (2000) and Schneider/Legrand (2001)) and how to exercise such pressure itself, to promote structural reforms in the EU, despite its commitment to a pure competition test. 52   See Levy (2010) 236. 53   The greatest criticism was targeted at Commission decision Airtours/First Choice (1999), annulled by the GC in Airtours (2002). 54   Specifically, and inter alia, see GC Gencor (1998) and ECJ CEWAL (2000). See ch 8 below. 55   See ch 9 below. 56   See M Monti (2002a) 5. This same point of view was expressed by Richard Whish during the very same congress in which Commissioner Monti summarised in this way one of the comments received by the Commission as regards the reform of European merger control. 57   European Commission (2001e). On the Green Paper, see Berenguer Fuster (2004). 58   A (curious and alleged) difference between the dominant position and SLC tests is that the former is a subjective test while the latter would stand out for its objectivity. See Peinado Gracia (2004) 10. 59   See, inter alia, Kokkoris (2005) 41, who points to the judgment in Airtours as the origin of an alleged gap in European merger control. 60   See, inter alia, Stroux (2002) 744.

Introduction: Article 2 of the European Merger Regulation  79 ant position of Article 102 TFEU, thus avoiding any further widening of the scope of this latter provision (after the relatively large number of cases concerning collective dominant positions). According to the then Commissioner for Competition, the legislative change would have the (in my view, dubious) virtue of not linking the definition of dominant position in the Merger Regulation with the same concept under Article 102 TFEU.61 Article 2(2) of the original Draft Regulation effectively tried to ‘clarify’ the concept of dominant position for the purposes of merger control, including a two-part definition. The first part fitted in with the definition already confirmed by the EU Courts (including the oligopolistic collective dominant position). The second part was added in order to be able to catch the unilateral effects of concentrations in markets where there were oligo­ polies in which there was no ‘tacit coordination’.62 Specifically, the proposed provision stated as follows: 2. For the purpose of this Regulation, one or more undertakings shall be deemed to be in a dominant position if, with or without coordinating, they hold the economic power to influence appreciably and sustainably the parameters of competition, in particular, prices, production, quality of output, distribution or innovation, or appreciably to foreclose competition.

Finally, following heavy criticism, the draft Regulation was substantially amended in order to introduce a substantive test which appeared to be less patched-up and more in line with the SLC test.63 By simply changing the order of the elements of the already-existing test, it aimed to widen notably the substantive scope of the new test.64 Thus, the final wording of Article 2(3) of Regulation 139/2004 was as follows: A concentration which would significantly impede effective competition, in the common market or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position, shall be declared incompatible with the common market.65 61   See M Monti (2002b) 3–4 and Berenguer Fuster (2004). See also the Explanatory Memorandum accompanying the Draft Merger Regulation (European Commission (2003b)) paras 53–58. 62   An example, perhaps the last, of this type of case cleared under the old Regulation was Oracle/People Soft (2004). See ch 9 below. 63   Fountoukakos & Ryan (2005) 286–87 explain that before the adoption of the new SIEC test, the Member States were split into three groups, each supporting a different test: the dominant position test, the SLC test, and the hybrid test, which combined the former two. This latter position was the one that triumphed, sponsored by France and Spain, which claimed that this test was already the one they used. With respect to the conception of the SIEC test as a compromise solution, see also Verouden, Bengtsson & Albaek (2004) 261; González Díaz (2004) 187; or Weitbrecht (2005) 68, who stated that the SIEC test is a ‘compromise, which is a remarkable and elegant exercise in semantics . . . proposed late in the debate by the French and Spanish delegations’. Brunet & Girgenson (2004) 23 consider the SIEC test to be the same as the SLC test. Similarly, see Voigt & Schmidt (2004b) 1583 and Levy (2010) 211, for whom the most important thing that the new test has brought is a new methodological framework, which is less focused on structural issues and more concerned with examining the nature and importance of competition between the undertakings that are parties to the concentration. In fact, Levy points out that the goal of both tests is the same, since in US merger control ‘[t]he agencies challenge mergers that are likely to create or enhance the merged firm’s ability – either unilaterally or through coordination with other rivals – to exercise market power’. 64   Pappalardo (2004) 166 argues that, breaking the laws of arithmetic, inverting the order of the factors can significantly change the product. In fact, this alteration should not take place if the Commission is true to its word as regards the merely explanatory nature of the new test. 65   Fountoukakos & Ryan (2005) 278–79 underline the fact that the substantive test initially proposed by the Commission in 1973, as well as the proposal made in 1988, did not refer to the creation or strengthening of a dominant position, and focused on the maintenance of effective competition. In this regard, the proposals prior to Reg 4064/89 and Reg 139/2004 were similar. According to the authors, ‘the current wording amounts to a return to the Commission’s original conception of the basic standard for merger control as one encompassing all scenarios of market power and not merely those viewed through the prism of a “dominant position”.’ In addition, the new test is ‘true to the vision of the EU’s founding fathers, as articulated in Article 66 of the ECSC Treaty and

80  Economic Power in the European Merger Regulation The new test averted to the alleged risks of ‘contamination’ between merger control and Article 102 EC and allowed the unilateral effects of concentrations to be effectively prevented by the safe means of defining them as a subspecies of ‘impediment of competition’, without having to stretch even more the concept of collective dominant position.66 67 In any event, whatever the new Merger Regulation says,68 the market power thresholds that apply in Article 102 and merger control cases are essentially the same.69 EU merger control and Article 102 TFEU are, however, certainly different in one respect: their temporal point of view. By its very nature, under the merger control regime, the Commission must carry out a prospective evaluation of the effects of the proposed concentration on the market; under Article 102 TFEU, however, the Commission must focus its analysis on the actual conduct of undertakings having a dominant position, which necessarily entails a retrospective approach. The evaluation of a concentration’s compatibility with the internal market always involves predicting the future behaviour of the market, and therefore, although it can take into account the possibility that from then on abuses will be committed, it does not focus on this aspect, since EU merger control is strictly structural in nature.70 Accordingly, to attain unilateral effects in oligopolistic markets, the Commission appeared to need new legal bases.71 The economic analysis carried out in merger control cases also has unusual features compared with Article 102 and the rest of the competition rules, since its application has been much more sophisticated than in other types of case, for example the granting of both individual and block exemptions. The rigour of the analysis of concentrations has become the rule in competition policy as a whole, to its benefit: EU antitrust policy has been impregnated with it, in such a way that through Article 102 it has decisively influenced the

Article 3(g) of the EC Treaty’. Consequently, they conclude that it is incorrect to refer to Americanisation in the adoption of the SIEC test. In fact, long before these two authors, Moussis (1995) 397 had observed the similarity between the wording of the new substantive test and Art 38 of the Ordonnance française of 1 December 1986 (later Art L-430-6 of the French Commercial Code, which stated as follows: ‘Si une opération de concentration a fait l’objet . . . d’une saisine du Conseil de la concurrence, celui-ci examine si elle est de nature à porter atteinte à la concurrence, notamment par création ou renforcement d’une position dominante ou par création ou renforcement d’une puissance d’achat qui place les fournisseurs en situation de dépendance économique. Il apprécie si l’opération apporte au progrès économique une contribution suffisante pour compenser les atteintes à la concurrence. Le conseil tient compte de la compétitivité des entreprises en cause au regard de la concurrence internationale et de la création ou du maintien de l’emploi.’ 66   According to Völcker (2004) 397–99, alleged examples of ‘unilateral effects-type analysis’ during the term of the old test included SCA/Metsa Tissue (2001), Volvo/Scania (2000) and GE/Instrumentarium (2003). Thus, according to Völcker, these matters would amount to a kind of ‘prototype’ of the concept. In my opinion, all the different assessments of market power are similar although not the labels attached thereto. Accordingly, it is not difficult, if one wishes, to find in this field ‘labels avant la lettre’. 67   For the new substantive test under Reg 139/2004 see ch 9 below. 68   Reg 139/2004 at recital 25 actually expressly rejects the idea that the EU Courts had considered the old test insufficient to prohibit concentrations with ‘unilateral effects’. (For an interpretation of recital 25 from the point of view of the officials who prepared the 2004 reform, see Drauz & Jones (2006) paras 4.41–4.46). Nevertheless, as Hinds (2006) 1704 notes, in the Commission’s press release published following the adoption of Reg 139/2004, an indirect recognition of the existence of the gap can be observed; ‘the test will also now clearly encompass anticompetitive effects in oligopolistic markets where the merged company would not be strictly dominant in the usual sense of the word (ie much bigger than the rest)’. ‘Merger Control: Merger Review Package in a Nutshell’, Memo/04/9 (emphasis added). 69   See the Epilogue to this book. 70   See GC Kesko Oy (1999) paras 106–07; the Commission’s XXIst Report on Competition Policy (1991) Annex III 393; ECJ Tetra Laval (2005) para 42. 71   See ch 9 below.

Introduction: Article 2 of the European Merger Regulation  81 study of the reference market and the economic power of undertakings in European competition law as a whole. Otherwise, however, despite its objective being purely structural and prospective, the analysis of dominant positions in EU merger control is the same as under Article 102 TFEU. In fact, when assessing concentrations, the Commission has expressly declared that its analysis covered four points: 1. the position in the market of the merged entity (market share and other advantages over the competition); 2. the strength of competing undertakings (structure of supply); 3. the buyer power of clients (structure of demand); and 4. the increased capacity of rival undertakings already established and the access to the market of new competitors (potential competition).72 These criteria summarise the traditional elements of the analysis of dominant positions under Article 102 TFEU, with one exception: they do not include the behaviour of undertakings. In the context of merger control, the behaviour of undertakings might, however, be important in two ways. On the one hand, in the context of the examination of a collective dominant position, showing that in the past there have been cases of tacit coordination in similar geographic or product markets may be useful information from which to infer that in the markets affected by the concentration the conditions for such coordination probably also exist.73 However, the probability of express collusion after a concentration, detected, for example, on the basis of the verification of past episodes of collusion, should not be a factor to be taken into account in EU merger control because there are ways of acting against it, including so-called ‘structural remedies’.74 In a similar manner, undertakings may have competed vigorously before the concentration, so that in that market it is unlikely that coordination will take place.75 On the other hand, the past conduct of undertakings could be used to judge the previous existence of a dominant position capable of being strengthened by a concentration. If any past or present conduct of an undertaking in the process of entering a concentration appeared to be typically abusive within the meaning of Article 102 TFEU, the Commission could, apart from

  See the Commission’s XXIst Report on Competition Policy (1991) Annex III 394–96.   See GC Impala (2006) paras 251ff; ECJ Impala (2008) para 129. 74   According to Roberts & Hudson (2004) 166–68, the role of past express collusion in the assessment of tacit coordination (past or future) must be limited to those cases in which ‘the salient characteristics of the market have not changed appreciably since the more recent such incident’. In the same way, see also ECJ Kali + Salz (1998) para 241, in which the Court criticised the Commission for referring to a cartel 20 years before the decision; and GC Tetra Laval (2002) paras 154–62, where the Court held that it could not be assumed that a company would infringe the law (abuse) after the merger. The same authors argue that express collusion in the past could even be proof of the impossibility of tacit collusion in the present; if the latter were possible without anticompetitive contact, the companies would prefer it and would not run risks. In fact, according to Roberts & Hudson, some old studies of eminent jurists, such as Richard Posner, ‘A Statistical Study of Antitrust Enforcement’ (1970) 13 Journal of Law and Economics 365, prove precisely that ‘cartels are more likely to be found in industries with low concentration . . . markets with more, not fewer, players’. 75   Guidelines on Horizontal Mergers (European Commission (2004a)) para 43 and fn 58. Note that, unlike the ‘circular argument’, which would allow the dominant position of an undertaking to be corroborated as a result of its past conduct on the relevant market (see section 3.5 above), in this case the behaviour in question takes place in markets other than the relevant one, and is not necessarily engaged in by the parties to the merger under examination. 72 73

82  Economic Power in the European Merger Regulation applying this provision, infer that the undertaking in question was already in a dominant position, the strengthening of which, if foreseeable, would lead it to prohibit the operation. This idea is not so far fetched, since in control of concentrations proceedings the Commission sometimes discovers breaches that typically come within the scope of Articles 101 and 102 TFEU. As with Article 102 TFEU, the importance of the abovementioned criteria varies from one market to another, and if they were considered on their own, none of them would generally be decisive.76 The most important criterion here is, again, the market shares of the undertakings and those of their most immediate competitors, above all when the market shares of the former are high, stable, lasting and much greater than those of the latter.77 This does not mean that we must forget potential competition (which depends mainly on the existence or otherwise of barriers to entry and their importance), or the client’s countervailing power (or that of suppliers, where purchasers’ market power is being investigated).

4.2  STRUCTURE OF SUPPLY: MARKET SHARE (TEMPORAL EVOLUTION AND DEGREE OF CONCENTRATION)

As regards the structure of supply, and in particular the market share, the main indicator of substantial market power, the practice of the Commission regarding merger control reveals certain peculiarities when examining the market shares of the undertakings involved in the concentration. While market share is not the only relevant factor when assessing the compatibility of concentrations with the internal market, it is certainly the most representative element of the position that the parties and their competitors will hold in the market after the concentration,78 as made clear by the EU legislature in recital 32 of the Merger Regulation:79 Concentrations which, by reason of the limited market share of the undertakings concerned, are not liable to impede effective competition may be presumed to be compatible with the common market. Without prejudice to Articles 81 and 82 of the Treaty [now Articles 101 and 102 TFEU], an indication to this effect exists, in particular, where the market share of the undertakings concerned does not exceed 25 per cent either in the common market or in a substantial part of it.

In this way, the Council has established a general non-binding criterion that concentrations between undertakings with a joint market share of less than 25 per cent are compatible with the internal market, considering that, in general, they are not liable to have a signific­ ant impact on the market. In fact, the Commission approves a great number of concentrations under this ‘de minimis presumption’, without considering any other factors.80

  See, inter alia, GC Gencor (1999) paras 201–02.  GC Gencor (1999) paras 205–06. 78   See the Commission’s XXIst Report on Competition Policy (1991) Annex III 395. 79   See also the Guidelines on Horizontal Mergers (European Commission (2004a)) para 18. 80   See Levy (2008) para 9.04 [1], who cites, inter alia, Commission decisions Repsol/Shell Portugal (2004) para 16 and Arques/Actebis (2007) paras 13–16. 76 77

Market Share (Temporal Evolution and Degree of Concentration)  83 Even so, the Commission and the EU Courts analyse market share on a case-by-case basis, since, unlike other legal systems, European law does not establish a presumption of the creation or strengthening of a dominant position starting from a certain market share,81 although sometimes the Commission has considered that a very high market share (90 per cent) is in itself a clear indicator of the existence of a dominant position.82 However, in merger control, much lower market shares, such as 50 per cent, are not automatically considered in themselves (except in exceptional circumstances) to be proof of the existence of a dominant position, which certainly contradicts the ECJ’s judgment in Akzo (1991).83 As regards concentrations, following the precedents concerning the application of Article 102,84 in general85 the Commission has not found the existence of a dominant position where joint market shares have been lower than 40 per cent.86 If this market share is higher, concentrations are frequently examined in more detail in the second phase of the investigation provided for in Article 10(3) of Regulation 139/2004. Most concentrations are authorised in the first phase; a reduced number of them (around 5 per cent) are examined in the second phase; and, as of 30 June 2011, only 21 of the 4,711 notified operations have been finally prohibited (and of these 21, some have eventually been authorised).87 Nevertheless, these figures do not give an exact idea of the Commission’s

81   Navarro, Font, Folguera & Briones (2005) 152 and fn 30. These authors point out that in Germany, the existence of an individual dominant position is presumed when a company holds a market share above 33%, and a joint dominant position when three or fewer companies jointly hold more than 50% of the market. Concentrations above these thresholds are subject to control by the merger authorities. Similarly, in the USA, s 1(51) of the 1992 US Horizontal Merger Guidelines states that concentrations whose Herfindahl-Hirschman index (HHI) prior to the concentration was equal to or above 1,800 points and which increases by 50 points after the concentration are subject to Administrative Merger Control. For this index, see what will be said regarding degree of market concentration below. 82   See the Commission’s XXIst Report on Competition Policy (1991) Annex III 395, citing Commission decision Tetra Pak/Alfa Laval (1991) point 3(3) and Commission decision Alcatel/Telettra (1991) para 38. 83  ECJ Akzo (1991) para 60. Despite everything, both the Commission and the General Court have referred to the 50% threshold and to the presumption of the existence of a dominant position in certain cases. See eg the Guidelines on Horizontal Mergers (European Commission (2004a)) para 17. See also GC Endemol (1999) para 134; GC Gencor (1999) para 205; Commission decision Blokker/Toys‘R’Us (1998) para 74. 84   See ch 3 above. 85   Some exceptions cited in Whish (2003) 838–39 are: REWE/Meinl (1998) with 37%; Hutchinson/RMPM/ECT (2001) with 36%; and Carrefour/Promodès (2000) with less than 30%. Levy (2003) 157 fn 69 also cites Nestlé/Ralston Purina (2001), in which the Commission considered 35% to be the level above which problems of dominant position could arise; Unilever/Best Foods (2000), in which the Commission required disinvestments in markets in which the market shares went up to 35–45%; and Bayer/Aventis Crop Science (2002), in which the Commission was worried because in some markets the joint market share of the parties amounted to less than 40%. 86   For authorised concentrations in which the joint market share in those markets in which they were stronger was below 30%, see eg Commission decisions Digital/Kienzle (1991); Digital/Philips (1991); Kimberly-Clark/Scott (1996); AXA/GRE (1999); Shell/BEB (2003). For concentrations where the joint share in the strongest markets was between 30 and 40%, see Commission decisions Tesco/ADF (1997); Lear/Keiper (1997); International Paper/Union Camp (1999); Fujitsu/Siemens (1999); Allied Signal/Honeywell (1999); Shell/BASF/JV – Project Nicole (2000); Smith & Nephew/Centerpulse (2003). Nevertheless, the Commission has also subjected to rigorous control certain concentrations in which the market share of the merged entity was below 40%. See eg Commission decision Carrefour/Promodès (2000). Similarly, Baxter & Dethmers (2005) 384 claim that market shares of apparently limited relevance have raised doubts or led the Commission to intervene ‘only in a few exceptional cases’, citing as examples, in addition to Carrefour/Promodès, the following Commission decisions: Rewe/Meinl (1999) in which the operation gave rise to a market share of between 32 and 43%; Unilever/Best Foods (2000) where the market share was 35–45%; Nestlé/Ralston Purina (2001) with a market share of 35%; Bayer/Aventis Crop Science (2002) where the market share was below 40%. For these and other mergers that have given rise to market shares of 25–40%, see Levy (2008) para 9.04 [2]. 87  See DG COMP’s website for merger statistics: http://ec.europa.eu/competition/mergers/statistics.pdf. The prohibition decisions to date (30 June 2011) are, to the best of this author’s knowledge, the following:

84  Economic Power in the European Merger Regulation attitude when examining proposed concentrations: it might seem that the Commission is tremendously benevolent, yet this is not the case at all. Basically, the unusual nature of proceedings under the Merger Regulation – fundamentally the suspensory effect of the notification – puts pressure on the undertakings to negotiate a compromise with the Commission as soon as possible. In most cases this leads them to accept (formally, to propose) the structural ‘remedies’ required to eliminate competitive problems (generally by selling assets, granting licences, etc), so that the operations can be authorised. In addition, as of 30 June 2011 140 notifications had been withdrawn, some of them probably as a result of the Commission’s opposition. The Commission has prohibited proposed concentrations where the joint market share of the parties in the markets in which they were strongest was 50 per cent,88 58 per cent,89 63.3 per cent,90 64 per cent,91 60–70 per cent,92 90 per cent93 and 100 per cent,94 95 yet it has authorised others, with or without commitments, with the same or a higher market share. For instance, it has authorised concentrations where the joint market share of the parties

Aérospatiale-Alenia/De Havilland (1991); MSG Media Service (1994); Nordic Satellite Distribution (1995); RTL/ Veronica/Endemol (‘HMG’) (1995); Gencor/Lonrho (1996); Kesko/Tuko (1996); Saint Gobain/Wacker Chemie/Nom (1996); Blokker/Toys‘R’Us (II) (1997); Bertelsmann/Kirch/Premiere (1998); Deutsche Telekom/Beta Research (1998); Airtours/First Choice (1999); Volvo/Scania (2000); MCI/World Com/Sprint (2000); SCA/Metsä Tissue (2001); General Electric/Honeywell (2001); Schneider Electric/Legrand (2001); CVC/Lenzing (2001); Tetra Laval/Sidel (2001); ENI/EDP/GDP (2004); Ryanair/Aer Lingus (2007); and Olympic/Aegean Airlines (2011). 88   In Commission decision Kesko/Tuko (1996), taking into account the proposed commitments, the market share approached 50%, yet that operation was declared to be incompatible with the common market. 89  Commission decision RTL/Veronica/Endemol (‘HMG’) I (1995). The subsequent decision RTL/Veronica/ Endemol (‘HMG’) II (1996) authorised the concentration because the market share had fallen below 40% due to market conditions. 90   Commission decision Nordic Satellite Distribution (1995). Incompatibility was due to market concentration and the small number of suppliers in the market. The market would have been greatly narrowed if the concentration had been approved. The market share reached a maximum of 50% in Denmark, in the cable TV operations market. As regards satellite transmission capability, the operator resulting from the concentration would have obtained 19 transponders out of 30, equivalent to a 63.3% market share. 91   Commission decision Aérospatiale-Alenia/De Havilland (1991). Market shares for certain aircraft of 64% (world share), 72% (EC share), and for others 76% (world share), and 74% (EC share). 92   Commission decision Saint Gobain/Wacker Chemie/Nom (1996). 93   Commission decision Volvo/Scania (2000). In ENI/EDP/GDP (2004), the Commission observed that the operation would strengthen EDP’s dominant position in the markets for the wholesale and retail supply of electricity in Portugal (the decision only refers to EDP’s 90% market share in the retail market) as well as that of GDP in the Portuguese gas market. 94   Commission decision MSG Media Service (1994). In technical and administrative services and in cable networks there existed a monopoly, long-term in the former case. As regards pay-TV, market shares were very high (with no further specifications), and the Commission pointed out that there was a strong dominant position. See also Commission decision Newscorp/Telepiù (2003), where the parties had 100% of the Italian pay TV market. In Ryanair/Aer Lingus (2007), upheld by GC Ryanair (2010), the merged entity had a monopoly on 22 air routes and market shares of more than 60% in a further 13. In Olympic/Aegean Airlines (2011) the merging parties would have acquired a quasi-monopoly on nine routes. 95   The rest of the prohibited operations were declared as such with no indication of a precise joint market share, as in Commission decision Blokker/Toys‘R’Us (II) (1997) (the joint market shares remained confidential, and all the decision mentions is that the parties held shares of 55–65% before the operation), and Commission decisions Bertelsmann/Kirch/Premiere (1998) and Deutsche Telekom/Beta Research (1998) regarding the cable TV market and the cable network market respectively. In other cases concentration operations were banned because they created or reinforced an oligopolistic collective dominant position. See Commission decisions Kali + Salz/ MDK/Treuhand (1993); Gencor/Lonrho (1996); Airtours/First Choice (1999). In Bertelsmann/Kirch/Premiere (1998) and Deutsche Telekom/Beta Research (1998), the two operations were also declared incompatible because they created a duopoly in the market for technical services for cable and satellite TV.

Market Share (Temporal Evolution and Degree of Concentration)  85 was 40–50 per cent,96 50–60 per cent,97 60–70 per cent,98 70–80 per cent,99 80–90 per cent,100 even over 90 per cent, and 100 per cent.101 This apparent lack of homogeneity is explained either by adequate remedies being offered by the parties or by the presence of other factors which meant that market share was not so significant. As for the purposes of Article 102 TFEU, the importance of the market share must be judged over time, since only a stable and relatively long-lasting market share is relevant when examining whether a proposed concentration hinders effective competition, or creates or strengthens a dominant position.102 The Commission has admitted that high market shares in expanding markets, new markets or those concerning modern technologies do not necessarily reflect the strength of the undertakings that concentrate.103 Not even a monopoly, if it exists in a new market which is only starting to develop, can be considered to be in a dominant position within the meaning of Article 2(3) of the Merger Regulation, if the market in question will remain open to 96   See, inter alia, Commission decisions TNT/Canada Post (1991); Du Pont/ICI I (1992); Shell/Montecatini (1994); Lafarge/Redlan (1997); Mannesmann/Vallourec (1997); ADM/Acatos & Hutcheson/Soya Mainz (1997); Owens-Illinois/BTR Packaging (1998); AGFA-Gevaert/Sterling (1999); Bertelsmann/Mondadori (1999); Novartis/ Maïsadour (1999); Pakhoed/Van Ommeren (II) (1999); Castrol/Carless/JV (1999); UCB/Solutia (2003); Kesko/ ICA/JV (2004); Bertelsmann/Springer/JV (2005); Seagate/Maxtor (2007); StatoilHydro/ConocoPhillips (2008); Sanofi-Aventis/Zentiva (2009); BASF/Cognis (2010); Cisco/Tandberg (2010); and Varian/Agilent (2010). 97  Commission decisions Fiat Geotech/Ford New Holland (1991); British Airways/Dan Air (1993); Zeneca/ Vanderhave (1996); TRW/Magna (1997); Compaq/Digital (1998); CVC/Danone/Gerresheimer (1999); Valeo/ Labinal (2000); Cargill/Cerestar (2002); AGCO/Valtra (2003); Bertelsmann/Springer (2005); Johnson Controls/ Robert Bosch/Delphi SLI (2005); Apollo/Akzo Nobel (2006); Arla/Ingman Foods (2007); Lufthansa/Austrian Airlines (2009); Panasonic/Sanyo (2009); Kraft Foods/Cadbury (2010); and Reckitt Benckiser/SSL (2010), inter alia. 98  Commission decisions Electrolux/AEG (1994); Orkla/Volvo (1995); Rhône Poulenc Rorer/Fisons (1995); Crown Cork & Seal/Carnaud Metal Box (1995); Nestlé/Dalgety (1998); Alcatel/Thomson CSF-SCS (1998); Dupont/ Pioneer Hi-Bred International (1999); Unilever/Amora-Maille (2000); Minnesota Mining and Manufacturing/ Quante (2000); Celanese/Degussa (2003); General Dynamics/Alvis (2004); Johnson & Johnson/Guidant (2005); Cargill/Degussa Food Ingredients (2006); Glatfelter/Crompton Assets (2006); KLM/Martinair (2008); Amcor/Alcan (2009); Lufthansa/Austrian Airlines (2009); DB/Arriva (2010); and Kraft Foods/Cadbury (2010), inter alia. 99   Inter alia, Commission decisions Elf Aquitaine-Thyssen/Minol (1992); Mercedes-Benz/Kässbohrer (1995); Glaxo/Wellcome (1995); Merck/Rhône-Poulenc/Merial (1997); Boeing/McDonnell-Douglas (1997); American Home Products/Monsanto (1998); Sanofi/Synthelabo (1999); KLM/Martinair (2008); Amcor/Alcan (2009); Lufthansa/ Austrian Airlines (2009); Posten/Post Danmark (2009); Abbot/Solvay (2010); DB/Arriva (2010); and SNCF/LCR/ Eurostar (2010). 100  Inter alia, Commission decisions Alcatel/Telettra (1991); Thomson/Siemens/ATM (1997); Agfa-Gevaert/ DuPont (1998); Skanska/Scancem (1998)); Matra/Aerospatiale (1999); Monsanto/Pharmacia & Upjohn (2000); Newscorp/Telepiù (2003); Johnson and Johnson/Guidant (2006); KLM/Martinair (2008); DB/Arriva (2010); Reckitt Benckiser/SSL (2010) and Varian/Angilent (2010). 101   Inter alia, Commission decisions Air France/Sabena (1992); British Airways/TAT (1992); Swissair/Sabena (1995); Ciba-Geigy/Sandoz (1996); Nortel/Norweb (1998); EDF/Louis Dreyfus (1999); Gränges/Norsk Hydro (1999); Glaxo Wellcome/Smithkline Beecham (2000); Reuters/Telerate (2006); SCA/P&G (European Tissue Business) (2007); Lufthansa/SN Airholding (Brussels Airlines) (2009); Posten/Post Danmark (2009); Abbott/Soloay (2010); DFDS/Norfolk (2010); Iberia/Vueling/Clickair (2010); Teva/Ratiopharm (2010); and TLP/Ermewa (2010). 102  ECJ Hoffmann-La Roche (1979) paras 39–41. In the Guidelines on Horizontal Mergers (European Commission (2004a)) para 15, the Commission explains that ‘[h]istoric data may be used if market shares have been volatile, for instance when the market is characterised by large, lumpy orders. Changes in historic market shares may provide useful information about the competitive process and the likely future importance of the various competitors, for instance, by indicating whether firms have been gaining or losing market shares. In any event, the Commission interprets market shares in the light of likely market conditions, for instance, if the market is highly dynamic in character and if the market structure is unstable due to innovation or growth.’ 103  ECJ Hoffmann-La Roche (1979) paras 39–41. See Commission decisions Digital/Kienzle (1991) para 20 and Digital/Philips (1991) para 18. In these cases market shares fluctuated and there were certain takeovers in supply leadership, which proved the existence of a high degree of competition between operators. See also GC Airtours (2002) paras 109–19.

86  Economic Power in the European Merger Regulation future competition and the monopoly is, as a result, temporary.104 In these cases, market share may not be the best criterion for assessing the position of the parties.105 The possible presumption of dominance caused by a high market share may not be confirmed if there is a tendency for the market shares of the undertakings alleged to hold a dominant position to fall.106 The Commission has not always required effective proof of the fall in market shares of the undertakings in the concentration and on occasion it has been satisfied with a combination of factors that allowed a probable drop to be predicted, such as the entrance of new operators, changes in technology and the product itself, and the loss of stable contracts with clients.107 By contrast, high market shares that are either increasing or stable are taken to indicate market power and the incapacity of competitors to limit it.108 The presumption of dominance is not maintained either if the market shares fluctuate considerably from one financial year to another,109 or if the entrance and exit of new competitors into the market is constant.110 This has been considered by the Commission to indicate competition and the capacity of operators to discipline the behaviour of the entity resulting from the concentration.111 The degree of concentration is also of great importance in the assessment of the structure of supply in concentration operations.112 The Commission has sometimes found that an excessive concentration of supply might in itself be a barrier to entry.113 But, above all, the degree of market concentration facilitates the analysis of two factors.

104   In Commission decision MSG Media Service (1994) para 55, the Commission stated that MSG would probably be the only pay-TV service supplier in the German market in the immediate future, and it would therefore have a monopoly. The Commission took the view that the monopoly would not be temporary, and it prohibited the operation. 105   In Commission decision Zeneca/Vanderhave (1996) para 20, the Commission acknowledged that market share was a random factor in a constantly evolving market where product innovation was frequent. This favoured constant leadership changes between the different operators. Similarly, see Etro (2006) section 3, who distinguishes the dominant position of market leadership, to argue that Microsoft may be a leader, but it is not dominant. 106   In ECJ Kali + Salz (1998), the ECJ held that the increased market share of the main competitor in the presumed oligopoly indicated that a joint dominant position did not exist, and annulled Commission decision Kali + Salz/Mdk/Treuhand (1993). See also GC Tetra Laval (2002) para 294, annulling Commission decision Tetra Laval/ Sidel (2001). See also, inter alia, Commission decisions Pechiney/Usinor-Sacilor (1991) para 15; American Cyanamid/Shell (1993) para 33; Electrolux/AEG (1994) para 32; Rhône Poulenc Rorer/Fisons (1995) para 63; Mannesman/Vallourec (1997) section III.C. In relation to declining shares, the GC held in Wanadoo (2007) para 104 that ‘a decline in market shares which are still very large cannot in itself constitute proof of the absence of a dominant position’. See also GC Michelin II (2003) para 259, and GC British Airways (2003) paras 224, 298, confirmed in ECJ British Airways (2007). 107   For example, in Commission decision British Airways/Dan Air (1993) para 10, the Commission did not calculate the joint market share by adding the shares of those companies about to concentrate (50% and 9% respectively). It took into account the foreseeable decrease in their shares after the entry of a new competitor, British Midland. It therefore considered that the joint market share only reached 50%. Similarly, see Elf AquitaineThyssen/Minol (1992) para 11, and Mannesman/VDO (1991) paras 21–23. 108  See, inter alia, Commission decisions Coca-Cola/Amalgamated Beverages GB (1997) para 13; Boeing/ McDonnell-Douglas (1997) para 37; Tetra Pak/Alfa Laval (1991) para IV.B.4. 109   See, inter alia, Commission decisions TRW/Magna (1997) para 17; Thomson/Siemens/ATM (1997) section V; Carnival Corporation/P&O Princess (2003) paras 193–97. 110   For this reason Form CO requests information regarding the existence of entry barriers (section 8.10), as well as a list of companies that have entered the market in the last five years (section 8.8) or that may foreseeably enter the market in the future (section 8.9). 111  See the Commission’s XXIst Report on Competition Policy (1991) Annex III 395, and Navarro, Font, Folguera & Briones (2005) 153–54. See also GC Tetra Laval (2002) para 130. 112   See Levy (2008) para 9.05 and Navarro, Font, Folguera & Briones (2005) 161–66. 113   Commission decisions Nestlé/Perrier (1992) para 13, and Procter & Gamble/Schickedanz (1994) para 96.

Market Share (Temporal Evolution and Degree of Concentration)  87 First, it allows the possible individual dominant position of the merged entity to be evaluated, comparing it to its rivals. The more significant these are, the fewer the possibilities of the merged entity acquiring a position of dominance and increasing prices or imposing non-competitive conditions.114 The Commission’s starting point is that the smaller the difference between the market shares of the merged entity and its competitors, the greater will be the latter’s capacity to react to the concentration. Secondly, the degree of concentration makes it possible to verify ‘the tendency of the market to develop oligopolistic structures that lead to consciously parallel behaviour between competitors, which would reduce even more the level of competition on the market’.115 That is, it allows an assessment to be made of the possibility that a collective dominant position of an oligopolistic kind is created between the merged entity and the main remaining undertakings in a given market.116 The presumption here is that concentrations between undertakings in already very concentrated markets are more restrictive of competition than concentrations on atomised markets.117 As a result, a certain degree of concentration can be pro-competitive in some cir­ cumstances and anticompetitive in others, depending on both the level of concentration (a duopoly or an oligopoly of three undertakings is unlikely to be competitive) and the structure of the relevant market (above all, the relative size and strength of competitors).118 Until the adoption of the Guidelines on Horizontal Concentrations in 2004, the European rules did not set out any particular method of measuring the degree of market concentration. For this reason, the Commission’s analysis, apart from proceeding on a case-by-case basis, as was noted before, sometimes produced contradictory results. Nevertheless, it was clear from its previous decisions that the Commission used three basic parameters in order to evaluate the degree of market concentration: first, the number of competitors present; second, the market share of each one; and third, the relative shares of each of them and the degree of difference existing.119 The Commission’s practice has varied in this area. Thus, it has considered markets in which the three main undertakings owned 70 per cent or more of the market and the rest of the competitors had market shares of less than 15 per cent to be very concentrated.120 Nevertheless, on other occasions markets with very similar structures to the foregoing have only been considered to be slightly concentrated.121 114  See Commission decisions Bacob Banque/Banque Paribas de Belgique (1997); Lyonnaise des Eaux/Suez (1997); MCI WorldCom/Sprint (2000) para 117, concentrations whose compatibility with the common market was considered doubtful by the Commission mainly due to the great difference between the market shares of the merged entities (40–60%) and those of their main competitors (10–16%). By contrast, the importance of competitors was considered to be sufficient to counteract the anticompetitive effects of a merger in, inter alia, the following Commission decisions: HP/Compaq (2002) paras 39–40, AGCO/Valtra (2003) para 34; Smith/Centerpulse (2003) paras 17–21; UCB/Solutia (2003) paras 41–43; General Dynamics/Alvis (2004) paras 18–21. 115   Navarro, Font, Folguera & Briones (2005) 161. 116   On this point, see ch 8 below. 117   Navarro, Font, Folguera & Briones (2005) 161–62. 118   Despite the disappearance of an independent competitor as a result of a concentration, this is not in itself a determining factor in the assessment of the operation, since there will normally be competitors capable of counteracting the market power of concentrating companies; if the concentration eliminates precisely one of the most competitive and aggressive competitors in the market (something which the US 2010 Horizontal Merger Guidelines, s 2.1.5, like the 1992 Guidelines, s 2.12, call ‘maverick firms’), arguably the consequences for effective competition could be much more negative than those resulting from the mere accumulation of market shares. 119   Navarro, Font, Folguera & Briones (2005) 163–64. 120   See eg Commission decisions Lyonnaise des Eaux/Suez (1997) para 36 and TRW/Magna (1997) para 17. 121   See eg Commission decision Mannesmann/Vallourec (1997).

88  Economic Power in the European Merger Regulation Since 2004, following the example of section 1.5 of the US 1992 Horizontal Merger Guidelines, the degree of concentration in a given market is measured according to the Herfindahl-Hirschman Index (HHI), which is calculated by adding the square values of market shares of companies operating inside it.122 The maximum – that of a company in a monopoly situation (100 per cent market share) – would be 10,000 points.123 According to the Commission, while the absolute HHI level may give an initial indication of the competitive pressure in the market following the merger, the HHI variation, or delta, gives a very good idea of the increase in the concentration of the market as a result of the operation in question. According to the Commission, it is unlikely that problems will be detected if, post-merger, the HHI is less than 1,000. If the HHI is between 1,000 and 2,000 and the delta is less than 250, or if the HHI is above 2000 but the delta is less than 150, generally there will not be any problems either, except in very specific circumstances.124 The problems therefore occur when there is an HHI of above 2,000 and a delta of 150. Such figures, however, ‘do not give rise to a presumption of either the existence or the absence of such concerns’.125

4.3  POTENTIAL COMPETITION126 127

Potential competition is another fundamental element when evaluating the market position of the parties to a merger.128 Regulation 139/2004 itself provides at Article 2(1)(a) that when assessing concentration operations with a European dimension, ‘the need to maintain and develop effective competition within the common market in view of, among other things . . . actual or potential competition from undertakings located either within or outwith the Community’ will be taken into account. 122   See the Guidelines on Horizontal Mergers (European Commission (2004a)) para 14. The suitability of using the HHI as regards European concentrations has been questioned, since the definition of relevant market in European law tends to be narrower than in the US, and, consequently, market shares are, by definition, higher. For the use of the HHI in US merger control, see US Horizontal Merger Guidelines, DOJ/FTC (2010), s 5.3. 123   The American Authorities presume that the market is highly concentrated if the HHI is above 1,800 points (eg 5 companies each with a market share of 20%; the HHI would be 5 x 20 x 20, which equals 2,000); moderately concentrated if the HHI is between 1,000 and 1,800 points (eg 6 companies each with a market share of 15%, and a seventh company with a share of 10%; the HHI would be 6 x 15 x 15 + 1 x 10 x 10, which equals 1,450); and not very concentrated if the HHI is below 1,000 points (eg 20 companies each with a 5% market share; the HHI would be 20 x 5 x 5, which equals 500). 124   Guidelines on Horizontal Mergers (European Commission (2004a)) para 20. 125   ibid, para 21. 126   In this section, I summarise the views of Navarro, Font, Folguera & Briones (2005) 263ff and the precedents cited therein. See also Levy (2008) para 11.08; Drauz & Jones (2006) paras 4.487ff; and Bishop & Walker (2010) 70ff, paras 3.020ff. 127   Guidelines on Horizontal Mergers (European Commission (2004a)) paras 68ff. 128   The Commission’s XXIst Report on Competition Policy (1991) Annex III 394–96 groups under the heading ‘competitive potential’ the access of new competitors to the market and the increase in capacity of rival companies already established in that market. According to the Commission Notice on the definition of the relevant market (European Commission (1997a)) paras 20ff, the latter could be considered as showing the substitutability of supply in a given market, a concept very close to that of potential competition. As regards the difference (greater or lesser degree of immediacy), and location in the study of company positions within a market (as an integrating part of the relevant market in order to calculate market shares, or as a structural characteristic reducing the importance of market shares) between the substitutability of supply and potential competition, see section 1.3 above. With respect to the analysis of potential competition under Art 102 TFEU, see Discussion Paper on Art 102 TFEU (European Commission (2005)) paras 34–40 and the Guidance Paper on the same provision (European Commission (2009)) paras 16–17.

Potential Competition  89 Under normal circumstances, potential competition depends on the barriers to entry and exit, although in theory potential competition could exist alongside significant barriers to entry and/or exit and, at the same time, not exist without them.129 That is why the Commission, in its decisions, checks not only to see whether an important potential competitor will disappear (which will create or strengthen a dominant position),130 or whether new entrants will have problems entering the market, but also to what extent it is not only possible, but very likely, that other competitors will be able to enter the market, thus limiting the market power of the firms in the merger (for which it will certainly evaluate such difficulties). The Commission has established the factors that must be present for potential competition effectively to limit the market power of the merged entity and thus counteract the effects of the concentration. From its decision-making practice and from its Guidelines on Horizontal Mergers, it can be concluded that potential competition will only be effective if: •  it is likely; •  it can take place quickly, which means ‘within a time frame short enough to deter the parties from exploiting their market power’;131 and •  it has a significant scope.132 In order to determine whether the entrance of new competitors into the market is likely and not just possible, the Commission considers whether the entry of new competitors will be sufficiently profitable, taking into account the effect on price of the introduction of new capacity and the possible response of competitors in the market. The entry of new competitors will be less likely if it must be produced on a large scale in order to be viable, which will involve a considerable price reduction. Further, long-term contracts of existing operators or their preferential discounts to potential clients of the newcomer may complicate life even more for the latter. Finally, the probability will also be lower if the risks and costs of a failed entry are high, which will depend directly on the sunk costs which the newcomer has to bear.133 The risks of entering the market can be assessed by examining the most recent entries, or attempts to enter, and their success or failure. Despite this, the existence of recent entries does not in itself prevent the conclusion being reached that a concentration impedes competition or creates a position of dominance, except where newcomers can compete effectively and in a manner consistent with the merged entity.134 The Commission may also look for signs that potential competitors intend to enter the market or proof that this has already occurred. The undertakings that concentrate effectively have every interest in showing satisfactorily that potential competitors intend to 129   See section 3.3 above. See also the Guidelines on Horizontal Mergers (European Commission (2004a)) paras 70–1, which classifies the barriers to entry as legal, technical and strategic. See also ICN Report on Merger Guidelines, ICN (2004) Ch V: Assessment of Market Entry and Expansion (Barriers to Entry). 130   See eg Commission decision Tetra Laval/Sidel (2001) para 390, annulled, however, on this point by the GC in Tetra Laval (2002) para 312. 131   See the Commission’s XXIVth Report on Competition Policy (1994) para 311. 132   See the Guidelines on Horizontal Mergers (European Commission (2004a)). See Levy (2008) paras 11.08 [1]–[3]. As indicated by Navarro, Font, Folguera & Briones (2005) 263 fn 62, these three requirements coincide with the ‘committed entry’ test of markets set out in ss 3.0 and 3.4 of the 1992 US Merger Guidelines. 133   See also the Guidelines on Horizontal Mergers (European Commission (2004a)) para 69, citing Commission decision Saint Gobain/Wacker Chemie/NOM (1997) para 184. 134   See, inter alia, Commission decisions Nestlé/Perrier (1992) paras 34, 221, 225; Saint Gobain/Wacker-Chemie/ NOM (1996) paras 119, 128, 167; Nordic Capital/Mölnlycke Clinica/Kolmi (1998) para 21; RTL/Verónica/Endemol (1995) paras 84–86; Kimberly-Clark/Scott (1996) paras 184ff.

90  Economic Power in the European Merger Regulation enter the market, or that they have tried to do so.135 In any case, in concentration cases the Commission itself usually questions alleged potential competitors about their intention to enter the market.136 Secondly, in order for potential competition to be effective, the Commission requires the time frame within which potential competitors can enter the market to be short enough to dissuade the merged entity from exploiting its market power. The Commission’s practice shows that what constitutes a ‘short period’ depends on market conditions. Nevertheless, in general the Commission considers in merger control that market entry is only fast enough if it occurs within the maximum period of two years.137 Finally, in order for the entrance of new potential competitors in the market to be considered competitive and effective, the Commission will only take into consideration the undertakings likely to enter the market with a sufficient scope; in other words, ‘on a volume and price basis which would quickly and effectively constrain a price increase or prevent the maintenance of a supracompetitive price’.138 Thus, the Commission does not consider as potential competitors those companies that, although they can effectively enter the market, are likely to have little or no effect on the behaviour of the undertakings in the concentration.139 The General Court, however, does not appear to have accepted the Commission’s approach on this point (at least as far as any specific market is concerned).140 Apart from defining its basic requirements, the Commission has described the different forms that potential competition can adopt.141 The first is the increase in capacity of competitor undertakings;142 the second is the probability of imports from other geographic markets;143 the third is the possibility and the probability that (easily and without excessive   See Commission decision Aérospatiale-Alenia/De Havilland (1991) paras 18ff, 59ff.   The weight of these statements is considerable, and the parties will have to adduce conclusive evidence if they want to overturn them. See, inter alia, Commission decisions Aérospatiale-Alenia/De Havilland (1991) para 61; Nestlé/Perrier (1992) para 100; Saint Gobain/Wacker-Chemie/NOM (1996) para 191; Coca-Cola/Nestlé/JV (2001) para 38. 137   Guidelines on Horizontal Mergers (European Commission (2004a)) para 74. In the past, the Commission has considered periods of up to three years (which are, by the way, those that it has most recently considered to be appropriate in the application of Art 101 TFEU). For examples of time periods held to be either sufficient or insufficient in European merger control, see Commission decisions Saint Gobain/Wacker-Chemie/NOM (1996) paras 216, 220; Aérospatiale-Alenia/De Havilland (1991) para 59; Rhône-Poulenc/SNIA (1992) para 8; Lucas/Eaton (1991) paras 37–38. 138   See Commission decision Nestlé/Perrier (1992) paras 25–27, 91, 101–04. 139   An entry with a reduced scope, for example in a niche market, may not be sufficient. See the Guidelines on Horizontal Mergers (European Commission (2004a)) para 75. See eg Commission decisions Saint Gobain/WackerChemie/NOM (1996) para 193; Orkla/Volvo (1995) para 82; Mannesmann/Vallourec/Ilva (1994) para 124; Tetra Pak/ Alfa Laval (1991) para I.B. 3.3; Hoechst/Rhône Poulenc (1999) paras 44, 69; Alcoa/Reynolds (2000) paras 114ff. 140   See GC Airtours (2002) paras 265–66, where the Court rejected the similar arguments used in Commission decision Airtours/First Choice (1999) para 115, which referred to the British tourist market. Even those defending Airtours were surprised by the success of this part of their appeal, which they quite openly recognised was not their strongest argument. See the statements of Nicholson (2002) 5. 141   See the Commission’s XXIst Report on Competition Policy (1991) Annex III 397–98. 142   In Commission decision Alcatel/Telettra (1991) the possibility of AT&T Ericsson increasing production to supply Telefónica was a crucial element leading to the concentration being declared compatible. In the opposite sense, in Commission decision Tetra Pak/Alfa Laval (1991), the only real competitor in the market could not cope with a growth in demand in the short term. The same happened in Commission decision Nestlé/Perrier (1992), where local producers lacked springs that would allow them to increase production. 143   This was a determining factor in, inter alia, Commission decisions Alcatel/Telettra (1991), due to possible imports from Siemens; Eridania/ISI (1991) due to probable imports of sugar from Germany, France and Italy; and Mannesmann/Vallourec/Ilva (1994) where the foreseeable increase of imports of seamless steel tubes from Japan and Eastern Europe to Western Europe enabled the Commission to approve the concentration, despite the fact that the two market leaders would have a joint share of more than 70%. In the same way, see Commission decision Mannesmann/Vallourec (1997). 135 136

Phase of the Market, Countervailing Power, Degree of Concentration  91 costs) the undertakings placed in neighbouring markets turn into suppliers of the product in question, adapting their production process, or substitutability of supply;144 the fourth is the probability of a new entry of an undertaking not located in a neighbouring market145 (since if it were in a neighbouring market the Commission would have catalogued it as substitutability of supply); the fifth is the probability that, in adverse conditions (which largely means price increases), the clients themselves cater for their own needs with respect to a product;146 and the sixth, the potential competition that comes from the imperfect substitutability between products situated in neighbouring markets, whether upstream or downstream.147 Although all the types of potential competition mentioned limit in some way the market power acquired by the undertaking resulting from a concentration, the Commission has indicated that the most significant and influential factors are those belonging to the two first categories: the increase in capacity and imports from other geographic markets by rival undertakings.148 In any event, it should be noted that potential competition acts as a dissuasive force of a structural nature that, coming (strictly speaking) from outside the relevant market, has an effect on the market power of the undertakings present in that market. When potential competition becomes real, it enters the relevant market and widens it. If this specification is very obvious or certain, because it is easy, and in addition it is very quick, potential competition (in the broad sense) may be considered actual competition and be directly assessed when the relevant market is analysed. (This is the case with substitutability of supply, which may only be considered to be potential competition in general terms.)

4.4  STRUCTURE OF DEMAND: PHASE OF THE MARKET, COUNTERVAILING POWER, DEGREE OF CONCENTRATION149

The third key element when examining the position in the market of undertakings in a concentration is the structure of demand. As in other areas of competition policy, in merger 144   See, inter alia, Commission decisions Norsk Hydro/Arnyca (1996) (fertiliser producers could easily adjust production to each type of fertiliser); Sun Alliance/Royal Insurance (1996) (insurance companies could offer life insurance, even when this was not their main specialisation); Rhone-Poulenc/SNIA (1992) (carpet producers could easily enter the market since machinery conversion only required a period of adaptation of one day), and all other decisions cited in Navarro, Font, Folguera & Briones (2005) 271 fn 91. More recently, see Commission decision Siemens/VATech (2005) para 161. 145   See, inter alia, Commission decisions American Cyanamid/Shell (1993) paras 31, 32; Alcan/Inespal/Palco (1993) paras 15–20; Courtaulds/SNIA (1991) para 24; Metallgesellschaft/Safic Alcan (1991) para 26; Post Office/ TPG/SPPL (2001). 146   According to the Commission’s XXIst Report on Competition Policy (1991) Annex III 398, this aspect was analysed in Commission decisions Mannesmann/BOGE, Lucas/Eaton and Viag/EB-Brühl, all (1991). The possibility of supplying oneself relates to the countervailing power of demand. For this issue in the context of the control of concentrations, see section 4.4 below. 147   In Commission decision ADM/Acatos & Hutchison/Soya Maiz (1997) para 28, the Commission highlighted the potential competition of companies operating in neighbouring markets, not only because of their ability to produce the chemical compound in question (lecithin), but also because of the substitutability of the products manufactured by them. In SNECMA/TI (1994) paras 34–36, the Commission accepted that there was potential competition in the landing gear market from producers of landing gear pieces. Potential competition represented by competitors in upstream or downstream markets is greater in certain markets, such as those for electricity or gas. See, in this regard, EDP/ENI/GDP (2004). 148   See the Commission’s XXIst Report on Competition Policy (1991) Annex III 398. 149   This section also adopts the structure of Navarro, Font, Folguera & Briones (2005) 186ff. See also Levy (2008) para 11.09; Drauz & Jones (2006) paras 4.534ff.

92  Economic Power in the European Merger Regulation control the characteristics and the composition of demand must be taken into account, since they provide very significant data on the effective market power of the undertakings that are not reflected in the market shares and that are fundamentally two: the perspectives of market growth, which affects the stability of the market shares of the undertakings (phase of the market), and clients’ countervailing power, which enables them to prevent the merged entity from increasing prices above the competitive level.150 As regards the phase of the market, the expansive, stable or regressive nature of demand on a given market favours or damages the entry of new undertakings and qualifies the importance of the market shares of the undertakings that concentrate. The Commission’s starting point is that in markets that are expanding the interest of operators is, above all, in increasing their market shares and for that reason they compete effectively, reducing the risk of creation or strengthening of a dominant position.151 This is especially true in new technology markets or those that are in the process of being liberalised, where competitors usually concentrate on gaining a market share through innovation and improving their product.152 In mature markets the incentives to enter are lower, since what the newcomer can expect to gain, once it has overcome the barriers to entry, will be at the expense of the established operators (a zero-sum game, in the terminology of game theory), and it will prove difficult to compensate the reductions in prices that it can offer (at the moment when its costs would be higher) through an increase in market share. Therefore, it can be said that generally ‘in such situations market shares reflect, without distortion, the market power of the undertakings that merge’.153 In declining markets it is unlikely that the merged entity will have to face new competitors. Nevertheless, the Commission considers this factor to be a pro-competitive element that limits the market power of the merged entity. Indeed, if the products or services in the market have become obsolete, the merged entity will face a high degree of competitive pressure, as a consequence of both the emergence of new products and the countervailing power of clients, capable of disciplining prices by threatening to change supplier. In addition, in contracting markets there is generally an imbalance between supply (higher) and demand (lower), which promotes competition between operators and dissuades any increase in prices above the competitive level, since this could lead to the loss of a significant number of clients. The strength of demand and its bargaining or countervailing power,154 which is mainly shown through buying power,155 could be another counterweight to the market power acquired by the entity resulting from a concentration. If demand is sufficiently concentrated and there are other sources of supply, ‘customers can play one competitor against the other’,156 and market share becomes somewhat less significant, since although high it does not reflect the real power of the merged entity. 150   The reaction of demand to a possible price rise, or demand elasticity, is strongly related to market maturity, which is also of great importance when studying the structure of demand. 151  In TRW/Magna (1997) para 16 the Commission considered that market expansion would favour a production increase within small European producers of ‘airbags’, as well as the entry of Japanese producers in Europe. See also Commission decision ADIA/ECCO (1996). 152   See, in addition to Navarro, Font, Folguera & Briones (2005) 188, and the decisions referred to therein, Levy (2008) para 9.02 [4]. 153   Navarro, Font, Folguera & Briones (2005) 188. 154   See the Guidelines on Horizontal Mergers (European Commission (2004a)) paras 64–67. 155   Reference is sometimes made to ‘buyer power’, in the sense of the power of purchasers generally rather than the power to buy large amounts of products (‘buying power’). 156   See the Commission’s XXIst Report on Competition Policy (1991) Annex III 364.

Phase of the Market, Countervailing Power, Degree of Concentration  93 For the purpose of evaluating the capacity of demand to discipline the behaviour of undertakings that merge, the Commission takes into account several factors. As has just been mentioned, the fundamental factor is the level of concentration of demand. In general terms, the higher the concentration, the greater the bargaining power of demand, since the greater the dependence of the supplier on a small number of clients.157 On occasion, clients or buyers may even hold market power that is higher than that of their suppliers and provoke the opposite situation (a dominant position on the demand side). That is why the Commission takes this factor into account when examining the compatibility of a proposed concentration on the demand side.158 The Commission has concluded that clients have the capacity to counteract the increase in market power of an undertaking resulting from a concentration when the level of concentration of demand is similar or higher than that of supply,159 or a small number of clients represents a large proportion of the sales of the merged entity,160 or the clients have a great deal of professional experience and economic power and are well aware of the production costs and the average prices of the product in question.161 Without denying the importance of the degree of concentration of demand, although perhaps in a way that is difficult to believe, the General Court has, however, argued that the fact that the consumers do not have sufficient buying power because they act in isolation must not be confused with the question of whether they will be capable of reacting faced with an increase in prices (due to a limit on supply, for example), since consumers compare prices before buying (holidays, for example), and can try to obtain better prices from other operators (for example, the smallest in the market).162

157   This is the reason why ss 8.6 and 8.7 of Form CO, relating to notifications of concentration operations under Regulation 139/2004, request information regarding the main clients of affected companies, and the sales percentage represented by each of them. 158   See, inter alia, Commission decisions Tesco/ADF (1997) para 96; Promodès/Casino (1997) paras 19–25, 36; Kingfisher/Darty (1993) paras 6, 7; Ahold/Jerónimo Martins (1992) paras 17, 18; Danish Crown/Vestjyske Slagterier (2000); Vodafone/Airtouch/Mannesmann (2000) paras 51–54. 159   For example, in Commission decision Viag/Continental Can (1991) para 21, despite the high concentration of supply (five companies with 95%), the Commission authorised the concentration when it verified that demand had a degree of concentration comparable to that of supply (the 10 most important clients accounted for more than 70% of the sales of the undertakings in the concentration). (However, in Commission decision Nestlé/Perrier (1992) para 78, where 10 clients represented 70% of the sales of concentrating companies, the Commission considered that demand did not have enough negotiating power vis-à-vis the resulting duopolistic supply.) By contrast, in Commission decision KNP/BT/VRG (1993) para 22, the market share of the merged entity was 67% and demand was made up of more than 3,500 clients, none of which accounted for more than 2% of this figure; and in Commission decision Saint Gobain/Wacker-Chemie/NOM (1996) para 180, demand came basically from small and medium-sized businesses which had a very much lower level of concentration than that of supply. See also Commission decision Schneider/Lexel (1999) section IV, where the five main wholesalers of Scandinavian countries controlled 90% of the wholesale market. 160   See eg Commission decisions ECIA/Bertrand Faure (1998) para 17 (concentration of demand for components and seats for cars); Thomson/Siemens/ATM (1997) point V, Thomson-CSF/Finmeccanica/Elettronica (1996) para 15 (where the clients were public authorities); Alcatel/Telettra (1991) para 38 (de facto monopsony of Telefónica in Spain). See also Commission decision Granada/Compass (2000) para 34 (the main client in the market for restaurant service concessions in airports was the British Airports Authority, which had substantial countervailing power). 161   See eg Commission decision Lear/Keiper (1997) point V, where despite the fact that the concentration would reinforce the market’s oligopolistic structure (92% held by the oligopoly), demand could counteract the power of supply since it was composed of producers of worldwide prestige with a high degree of specialisation and in-depth knowledge of prices and product costs. 162  GC Airtours (2002) paras 273–75. The GC could have overlooked the fact that small operators have a capa­ city to satisfy demand that is proportional to their size.

94  Economic Power in the European Merger Regulation However, countervailing power will not exist if there are significant barriers preventing a change of supplier (for instance, due to the technological specifications of the product made for a traditional supplier, or because of the cost of adapting production to a new supplier), or if the products of the undertakings that concentrate are so well known as to make them compulsory purchases (must-stock products), because of their brand names or for other reasons. Both of these factors would prevent demand from effectively counteracting the market power of supply.163 In any event, in order to appreciate the degree of countervailing power, it is necessary to prove for certain the effectiveness of the pressure exerted by demand.164 Another relevant factor when examining the countervailing power of demand is the diversification of sources of supply, that is, the tendency of demand (the clients or buyers) to diversify their sources of supply, not so much to guarantee supply as to improve their negotiation capacity with respect to supply (the suppliers or sellers), using the better conditions that are or could be offered by competitor(s) as a bargaining chip in negotiations with a given supplier.165 Faced with such buying policies, the significance of market share may lessen.166 The degree of effectiveness of a diversified buying strategy depends on whether the products in question must be purchased for commercial reasons (whether or not they are ‘must-stock’ products), the existence of alternative suppliers with enough productive capacity, and the costs associated with changing supplier.167 By contrast, if the supplier has made significant investments in order to adapt to a particular client, he should be expected to act with the necessary moderation so that he does not lose the client before recouping the investment.168 163   In Commission decision Nestlé/Perrier (1992) paras 80 and 81, the countervailing power of demand was limited, as it could not do without the products of the duopoly, a very well-known brand. In Commission decision Magneti Marelli/CEAC (1991) para 16, within the car battery market, demand had no countervailing power since the well-known brand name was one of the main reasons for purchasing that product. See also Commission decisions Coca-Cola/Amalgamated Beverages GB (1997) para 47 and Kimberly-Clark/Scott (1996) para 170. See also Commission decision Danish Crown/Vestjyske Slagterier (1999) paras 171–73, where fresh pork from the two major slaughterhouses in Denmark that were about to merge was considered a ‘must-stock item’ for Danish supermarkets. Despite the fact that the two main supermarket chains bought 50% of the pork sold in Denmark, this was only 5% of the total amount sold by the slaughterhouses overall, so they therefore lacked countervailing power. 164   See Navarro, Font, Folguera & Briones (2005) 193, who cite Commission decisions Promodès/Casino (1997) paras 44–46; Coca-Cola/Amalgamated Beverages GB (1997) paras 28ff; Orkla/Volvo (1995) para 76; Nestlé/Perrier (1992) paras 77ff. For an example of lack of effectiveness, see Commission decision McCormick/CPC/Rabobank/ Ostmann (1993) para 72, where it was observed that demand might not counteract the effects of the concentration of supply if clients (retailers and intermediaries) were able to transfer to the final consumer the price rise that the merged entity could undergo, since clients would not concentrate their negotiation power to achieve better prices. For an example of effectiveness, even where atomised demand exists, see Commission decision Rütgerswerke/Hülls Troisdorf (1994) para 25. Despite the pool of demand consisting of more than 900 clients, the Commission found that there was significant negotiating power insofar as those companies could not pass on a price increase to their clients that was above a competitive level. See also Commission decision Rhône Poulenc/SNIA (II) (1993) paras 25, 26. 165   See, inter alia, Commission decision Unilever/Diversey (1996) para 24. 166   Navarro Font, Folguera & Briones (2005) 194 give the example of national state authorities in markets concerning large-scale infrastructure (especially of a technological nature), or national defence, where suppliers have to tender sporadically, or in markets where companies place their orders following tenders submitted by different suppliers. See, inter alia, Commission decisions Thomson/Siemens/ATM (1997) para 25; Sun Alliance/Royal Insurance (1996) para 13; Thomson-CSF/Teneo/Indra (1995) paras 24, 26; CGI/Dassault (1995) para 19; Thomson CSF/Deutsche Aerospace (1994) para 26; Marconi Finmeccanica (1994) para 17; SNECMA/TI (1994) para 38; Matra/Cap Gemini Sogeti (1993) para 18. 167   For example, in Nordic Capital/Mölnlycke Clinical/Kolmi (1998) para V, the Commission considered the large hospitals’ policy of diversifying their purchases of surgical gas to be an efficient way of avoiding price increases, since there were no significant barriers preventing them from changing suppliers, and periodical tenders encouraged price competition between suppliers. 168   See, inter alia, Commission decisions ICI/Unilever (1997) para 19; TRW/Magna (1997) para 16.

The Establishment of a Significant Market Power in Merger Control Cases  95 In practice, a diversified buying policy may limit and even reduce the market power of undertakings that merge. This could occur if the clients existing prior to a merger consider it inadequate to maintain the same purchase volume with the new entity as that which they used to buy separately from each operator,169 and also where conflicts of interest arise between the clients of the undertakings involved in the merger.170 At the same time, the Commission has also declared that a centralised buying policy could give buyers countervailing power.171 Another relevant factor when evaluating the countervailing power of demand is the type of relations between suppliers and clients. The greater the volume and duration of a contract of supply or services, the greater will be the negotiation capacity of demand, since suppliers will have greater incentives to gain their competitors’ clients. The large volume contracted and the long duration of links with clients are pro-competitive in this case, since they make suppliers more willing to offer better conditions in order to be rewarded with significant long-term contracts. However, from another perspective, they could be frankly anti-­ competitive, as in certain cases they would result in de facto exclusivity agreements for very long periods, closing the market to potential newcomers.172 In other cases, the countervailing power of clients resides in the possibilities for vertical integration, that is, their capacity to supply themselves and even become competitors to their suppliers, marketing their stock. This possibility will depend on whether the clients can afford the costs associated with vertical integration.173

4.5  CONCLUSIONS REGARDING THE ESTABLISHMENT OF A SIGNIFICANT MARKET POWER IN MERGER CONTROL CASES

From what has been seen so far in this chapter, one might think that the Commission’s practice regarding concentrations differs from its practice regarding Article 102 TFEU. First, it would appear that the concept of dominant position is wider in merger control than in Article 102 cases.174 Nevertheless, if this alleged difference existed it should tend to disappear rather than widen to the point of schism. Neither the legal texts nor a correct systematic and purposive interpretation of the rules should allow this to occur. If the Commission has, on occasion, been excessively creative, the remedy for this situation is not to keep going in that direction, but to take a step back. 169   See the Commission’s XXIst Report on Competition Policy (1991) Annex III 395, which cites Commission decisions Alcatel/Telettra (1991) paras 38–39; Mannesman/Boge (1991) para 27; Mannesman/VDO (1991) paras 21–23. 170   See Commission decision BSN/Euralim (1994) para 38. 171   In Commission decision Gränges/Norsk Hydro (1999) paras 18–19, the Commission considered that the growing tendency to follow a centralised purchasing policy, through tenders in which all possible suppliers took part, gave manufacturers countervailing power. 172   See Navarro, Font, Folguera & Briones (2005) 196 fn 298, who cite Commission decisions Lear/Keiper (1997) section V; Alcatel/AEG Kabel (1991) para 38; SNECMA/TI (1994) para 37; ABB/BREL (1992) para 21; DuPont/Hoechst/Herberts (1999). 173   Competitive pressure derived from the possibility of vertical integration of clients was considered, inter alia, in Commission decision Lear/Keiper (1997) section V, where the Commission verified that in a market that at first sight seemed oligopolistic, the market share of the main companies decreased from 92% to 59%, taking into account the internal production of clients. 174   See section 4.1 above.

96  Economic Power in the European Merger Regulation Secondly, in a diametrically opposed sense, it could appear that the ‘threshold of dominance’ was (and residually, after the change of test, is) higher in merger control than in the application of Article 102, although it has been said that a disciplined competition policy should instead lead to the opposite conclusion.175 The reasons for any such lassitude with respect to concentrations are not clear, however. It is clear that there is a general laissez faire approach to those concentrations that do not create competitive problems. For an economist, this could reflect a general presumption that concentrations between undertakings favour economic efficiency,176 although a jurist would see a much more obvious explanation in the need to respect and maintain the maximum degree of freedom for undertakings and avoid state intervention in the economy unless there are good reasons for doing so. However, the reason why, apart from a handful of exceptions, all concentrations are allowed is that buying and selling is the essential feature of a market economy and this is protected by the principle of business freedom and non-intervention or minimal intervention in the economy. Thus, ‘freedom to concentrate’ is based on economic freedom generally, rather than economic efficiency. As was explained above, the Commission’s policy might be influenced by the fact that its examination of the market in cases related to Article 102 TFEU is based on the alleged existence of an abuse, and that, in general, apart from public monopolies established by law and private monopolies that arise out of the former, an undertaking that has acquired an individual dominant position has reached this position through competing, on its own merits. (This is the main reason for not objecting to the mere existence of a dominant position.) The presumption that they have got to where they are under their own steam does not, however, apply to those undertakings that have gained a dominant position by acquiring their competitors. To some extent the advantage of not being suspected of committing abuses should be compensated by the qualified disadvantage of expanding by merging with competitors, and the amount of power that can be tolerated should be the same in both areas of European competition law. Indeed, although in legal terms it can be debated whether the substantive test in European merger control establishes a market power threshold that is different from that of dominant position, from an economic point of view there should be only one: the creation or strengthening of a dominant position, whether it is defined in terms of market power of one or more undertakings, necessarily impedes effective competition, and vice versa.177 Of even greater importance when considering the different practices as between the application of Articles 101 and 102 and merger control, of the proposed concentration has been the special emphasis the Commission has given to the temporal factor. The prospective nature of many of its assessments has allowed it to be extremely optimistic when it has so desired, which has generally not been the case in assessments under the fourth condition of Article 101(3) TFEU.178 175  According to John Vickers, former Director General of the British Office of Fair Trading (OFT), ‘[t]he threshold of market power that triggers intervention to maintain competitive incentives by preventing anticompetitive structural changes in markets ought to be lower than that which triggers liability for the breach of competition law prohibitions on firms that have become dominant’: extract from the conference speech entitled ‘How to Reform the EC Merger Test?’ given in Brussels on 8 November 2002 before the European Commission/ IBA Conference on EU Merger Control. Cited in Frontier Economics (2002). 176   Vickers (2003) 100; Ivaldi, Jullien, Rey, Seabright & Tirole (2003b) 64. 177   Similarly, see Bishop & Walker (2010) 356, para 7.010. 178   As regards considering time as a factor that weakens the presumption of the existence of a dominant position, see section 3.2 above.

The Establishment of a Significant Market Power in Merger Control Cases  97 However, nothing indicates that this greater flexibility is the result of the application of a different and less rigorous test, since not even after the change of test have its criteria been applied in a fundamentally different way from the traditional test of the position of dominance. In other words, a concentration has never been authorised despite the fact that, and knowing that, it created or strengthened a dominant position (at least not when it was supposed that the dominant position would be long lasting). At the same time, no operation that did not create or strengthen a dominant position has been prohibited.179

  For an analysis of the Commission’s application of the new test, see section 9.1 below.

179

5 Economic Power under Article 101(3)(b) TFEU: The Condition of Not Eliminating Competition in Respect of a Substantial Part of the Market 5.1  INTRODUCTION: GENERAL QUESTIONS CONCERNING ARTICLE 101(3) TFEU1

As explained in chapter two, Article 101(1) and (3) of the Treaty on the Functioning of the European Union (TFEU) state as follows: 1. The following shall be prohibited as incompatible with the internal market: all agree­ ments 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 sup­ plementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts . . . ... 3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of: n n n

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 pro­ moting 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.   For this question, see particularly Van Houtte (1983); Forwood (2004); Ortiz Blanco (2007) ch 3.

1

General Questions Concerning Article 101(3)(b) TFEU  99 When Regulation 17 was in force, it was said that Article 101(3) was a very flexible provi­ sion which gave the Commission a great deal of discretion, and that in order to grant an individual exemption it was better to subject the specific agreement to a general examina­ tion in the light of the general policy objectives of the Commission than to subject it to a microscopic analysis of the four conditions of the exemption. This was because, in practice, when the Commission was convinced of the merit of an agreement and wished to grant it an exemption, it did not give exhaustive reasons stating why it concluded that the provision was satisfied.2 A detailed study of the Commission’s decisions on exemptions reveals a level of inconsistency that borders on arbitrariness, particularly as regards the fourth condition. Even with the best will in the world, it is a struggle to find any consistent approach. The monopoly awarded to the Commission under Regulation 17 for the granting of individual exemptions, its rare and at times unconvincing justifications, and the large degree of discretion that the European Court of Justice (ECJ) traditionally allowed it when interpreting its four conditions, made Article 101(3) probably the least attractive provision of all European competition law, and the easiest to manipulate. Under European law, unlike US law, an agreement may be exempted3 even though it con­ stitutes a clear infringement of Article 101(1) TFEU.4 The exemption is a positive measure through which the Commission recognises the useful effect of a concerted practice for the European Union.5 Under Article 101(3), the Commission is able to ‘carry out certain positive, though indirect, action with a view to promoting a harmonious development of economic activities within the whole community, in accordance with Article 2 of the Treaty’.6 The ECJ and the General Court (formerly Court of First Instance) generally have complete control over ensuring compliance with the conditions for the application of Article 101(1) and (3) TFEU.7 Their starting point in carrying out this task is the Commission’s grounds for its decisions (or block exemption regulations); decisions must state the facts and the consid­ erations on which they are based, in accordance with Article 296 TFEU. A declaration of the inapplicability of Article 101(3) (which, before Regulation 1/2003 came into force, meant a refusal to grant an exemption) is not a merely discretionary act and may be annulled by the ECJ, particularly where the Commission has given insufficient grounds for its decision.8 Nevertheless, the Commission, and by extension the Council, have always had wide pow­ ers of evaluation where Article 101(3) is concerned. As the EU Courts have repeatedly stated, the application of this provision by the Commission necessarily involves a com­plicated economic evaluation. In proceedings for judicial review, the courts had to respect the dis­ cretionary nature of such evaluations and limit themselves to ensuring that the procedural and substantive law were complied with, and also that the facts were correctly stated and there was no manifest error in the assessment carried out, or any misuse of powers.9   Whish & Sufrin (1993) 228.   In this section, ‘exemption’, ‘authorisation’ and ‘exception’ are used as synonyms, although each of these words has its own nuances and is used in a different context. 4   Order of the President of the ECJ in TAA (1995) para 31. 5   Waelbroeck and Frignani (1998) vol I 276. 6  ECJ Walt Wilhelm (1969) para 5. See Protocol no 27 TFEU. 7  ECJ Remia (1985), cited by the ECJ in BAT and Reynolds (1987) para 62. These two judgments refer only to Art 101(1) TFEU, although the EU Courts themselves cite them in support of their case law with respect to Art 101(3). 8   See in particular ECJ Kali + Salz (1975) paras 7, 15. 9   See, inter alia, ECJ judgments in Consten and Grundig (1966) 347; Remia (1985) para 34; BAT and Reynolds (1987) para 62. See also GC CB and Europay (1994) para 109; GC Matra Hachette (1994) para 104; GC SPO and others (1995) para 288; GC Langnese/Iglo (1995) para 178; GC FNK and SCK (1997) para 190. 2 3

100  Economic Power under Article 101(3)(b) TFEU With respect to block exemption regulations, the practice of the EU institutions has always been that they must respect the substantive conditions of Article 101(3) TFEU, tak­ ing the view that such regulations are not mere instruments for the granting of immunity, but rather are based on an assessment of the technical or economic advantages (efficien­ cies, as they are now called) etc of the agreements to which they are directed. After the GC judgment in Tetra Pak I (1990), the formal nature of block exemptions was reinforced, in that it was clarified that undertakings which wished to obtain a block exemption had only to satisfy the requirements of the regulations containing them, and not the four conditions of Article 101(3). However, the authorities that grant block exemptions still insist that these conditions are satisfied. The Commission relinquished its exclusivity under Article 9(3) of Regulation 17 to grant individual exemptions, so that now national competition authorities and even national courts can apply Article 101 as a whole, including paragraph (3) on the terms of Articles 5 and 6 of the new Regulation 1/2003. Thus, the complex economic assessments that the Commission used to engage in exclusively and with great discretion are now carried out by national judges and competition authorities. This should lead to a change in the (until now) relatively non-interventionist approach of the ECJ regarding the application of Article 101(3), since it may wish to harmonise the way in which the four conditions are applied by national competition authorities and courts. To date, there has been a clear change in the General Court’s attitude towards concentrations between undertakings. In marked contrast to the traditional non-interventionist approach of the Court in applying Article 101(3), in these cases the General Court has not hesitated for even a moment before reviewing the Commission’s complex economic assessments in this area.10 Where the application of Article 101(3) is concerned, settled case law11 and Article 2 of Regulation 1/2003 both require that where an exception under Article 101(3) is sought, the undertakings concerned must provide the necessary evidence to show that the agreement or restrictive practice satisfies the four requirements of that provision. In addition, given the cumulative nature of the four requirements,12 it will not be possi­ ble to apply Article 101(3) if any one of these four conditions is not satisfied.13

10   cf GC Airtours (2002), Schneider (2002) and Tetra Laval (2002). Cf the recent GC Van den Bergh Foods (2003), particularly para 135, where it is reiterated that Art 101(3) TFEU confers on the Commission a wide degree of discretion and the judicial review of such assessments is limited. 11   See, inter alia, ECJ Consten and Grundig (1966) 347 (where the ECJ made more demands of the Commission as regards adducing evidence than it did in subsequent case law); ECJ VBVB and VBBB v Commission (1984) para 52; GC CB and Europay (1994) para 110; GC Matra Hachette (1994) para 104; GC Langnese/Iglo (1995) para 179; GC FEFC (2002) para 339. 12   According to Sufrin (2006) 933, ‘[i]t is very commonly said that Article 81(3) [now Article 101(3) TFEU] demands the fulfillment of four criteria. In reality, however, there is only one substantive condition, the first . . . The other three are limitations on, or requirements, of the first.’ In my opinion, this explanation hits the nail on the head. In this regard, it can be said that Art 101(3) deals with ‘efficiencies’, although there are other factors that question the fundamental value of economic efficiency in the field of Art 101(3). The best example of this is the fourth condition: if efficiency, or even the benefit for consumers, were everything, the elimination of competition would be an acceptable price to pay; but it is not always. Compare this situation with that in merger control, where there is a condition, which is very similar to the fourth condition of Art 101(3), that is applied exceptionally to a fully legitimate operation. Under Art 101(3) there are four conditions, which essentially boil down to one (the first condition of Art 101(3)), that are generally applied to authorise an operation that is, in principle, prohibited. 13  ECJ Consten and Grundig (1966) 348; ECJ VBVB and VBBB (1984) para 61; GC Publishers’ Association (1992) para 69 (not annulled on this issue by the ECJ in Publishers’ Association (1995)); GC CB and Europay (1994) para 110; GC Matra Hachette (1994) para 104; GC Langnese/Iglo (1995) para 177; GC FNK and SCK (1997) para 191; GC FEFC (2002) para 349.

General Questions Concerning Article 101(3)(b) TFEU  101 As far as block exemptions are concerned, the benefit of the exemption must also be limited to those agreements which it can be safely assumed satisfy the requirements of Article 101(3) TFEU, and for this reason block exemption regulations generally lay down strict and detailed conditions. The EU Courts have analysed Article 101(3) on relatively few occasions (approximately 30 times) and in general they have not dealt with the four conditions in every judgment in detail; rather they have concentrated on the most controversial condition or conditions in the case under examination. The Commission has adopted more than 150 formal exemption decisions14 and around 20 block exemption regulations, some of which have been repealed and replaced by others, about half of which relate to the transport sector, principally air transport. In its decisions and regulations the Commission has justified the satisfaction of the four conditions set out in Article 101(3) TFEU in a succinct and even superficial15 manner, especially in its legislation. A more detailed explanation of the Commission’s reasoning, in compliance with Article 296 TFEU, should, perhaps, have been given. Partly in order to make amends for its lack of rigour in the past, and partly in order to provide guidance to the various authorities that, in addition to itself, must apply Article 101(3) (the competition authorities and the ordinary courts of the Member States), the Commission published Guidelines, couched in language that was often inspired more by economics than by law, which tried (albeit not very successfully) to clarify the meaning of the four conditions and explain how they had to be applied after 1 May 2004.16 In some significant respects, these Guidelines go considerably further than the precedents of the Commission and the case law of the EU Courts.17 Assessment of the economic pros and cons is clearly part of the examination of the first requirement of the exemption, which, as will now be seen, amounts to analysing the appre­ ciable or sufficiently compensatory character of the advantage in question. This is precisely the method applied by the European authorities.18 However, although the ECJ in Consten and Grundig (1966) referred mainly to the first condition in requiring that the advantages of a restrictive agreement sufficiently compensated the disadvantages it produced in the field of competition, the scales must also tip towards the positive side with respect to the second condition. For similar reasons to those relating to the first condition, on which the second depends so heavily, and on the basis that the participation of consumers in the resulting benefit must be fair, the requirement of a sufficiently clear positive economic bal­ ance should also exist as regards the second condition. The General Court has held that a restrictive agreement cannot be authorised if its benefits are limited, first compared to the disadvantages that the consumer must bear and, secondly, compared to the benefits 14   At the same time, it has sent numerous comfort letters giving informal approval to many agreements that have been notified, some of which (although only in passing) have been referred to in its Annual Reports on Competition Policy. 15  Röller, Stennek & Verboven (2001) 83, citing Neven, Papandropoulos & Seabright (1998), consider the assessment of the economic and technical advantages of an agreement within the examination of the first condition of Art 101(3) to be superficial, and the precedents for the application of this provision to be useless when studying the possible ‘efficiencies’ generated by concentration operations within European merger control. A curious example of the scant argument in support of an individual exemption in the maritime sector can be found in Commission decision Revised TACA (2002) paras 89–97. 16   See the Guidelines on Art 101(3) TFEU (European Commission (2004d)). 17   With a similar meaning, see Lugard & Hancher (2004) 410. 18   See Tobío Rivas (1994) 105.

102  Economic Power under Article 101(3)(b) TFEU obtained by the undertakings implementing such an agreement. The Court thus confirmed that Article 101(3) does not apply when the benefits obtained by consumers do not match those obtained by undertakings.19 For its part, the Commission has also found in favour of carrying out a cost-benefit analysis in order to determine whether there are good reasons to expect that certain agree­ ments which restrict competition produce a net benefit for consumers in general.20 In any event, the need to carry out an economic assessment regarding both of the first two condi­ tions of Article 101(3) is neither a new nor a different requirement from anything found in the case law, nor is it a separate analysis. Instead, it underpins the analysis of the first two requirements of the exception,21 as the ECJ pointed out in Ford-Werke (1985), which con­ firmed the Commission decision of the same name (1983). The Commission had refused to grant an individual exemption because Ford refused to supply certain right-hand drive vehicles to its German dealers. The Commission’s decision compared the improvement in the distribution of vehicles obtained as a result of the contract in question (which excluded right-hand drive vehicles) with the competitive disadvantages caused by the impossibility of buying right-hand drive vehicles in Germany at German prices and the significant reduction in competitive pressure in the United Kingdom. For this reason, the ECJ22 found that the Commission had correctly concluded that the first two requirements of Article 101(3) had not been satisfied.23 The first condition of Article 101(3) is that authorised agreements should contribute to improvements in the production or distribution of goods or promote technical or eco­ nomic progress, which in 2004 was renamed ‘efficiency gains’ by the Commission. As the Commission correctly stated: The fundamental principle in this respect, established at the time the common market was formed, lays down that fair and undistorted competition is the best guarantee of regular supply on the best terms. Thus, the question of a contribution to economic progress within the meaning of Article 85(3) [now Article 101(3) TFEU] can only arise in those exceptional circumstances where the free play of competition is unable to produce the best result economically speaking.24

Requiring that an agreement contribute to an economic or technical improvement or pro­ gress means that there must exist a cause and effect relationship between the restrictions on competition that seek to benefit from the exception and the economic benefits pursued, which must be attributable, at least in part, to the authorised restrictions. This means that although the restrictive agreement does not have to be the only cause – or even the main cause – of the desired beneficial effects, it must make a positive contribution to them.25 Furthermore, the restrictions on competition performed by undertakings must be objectively capable of producing economic or technical advantages, regardless of whether in practice, for reasons beyond the control of the undertakings, such advantages are not actually achieved. A solely theoretical possibility that certain advantages will be obtained is  GC SPO (1995) para 295.   See eg the old Guidelines on Horizontal Cooperation Agreements (European Commission (2001a)) para 194, regarding ‘environmental agreements’, which are not dealt with in a separate chapter in the new Guidelines of 2011. 21   Tobío Rivas (1994) 106 refers to all the requirements of Art 101(3) TFEU in general, rather than specifically the first two. It is submitted, however, that the only requirements capable of being subjected to an economic bal­ ancing exercise are the first two, as will be explained below. 22  ECJ Ford-Werke (1985) para 33. 23   See also GC SPO (1995) para 295. 24   Commission decision Bayer Gist-Brocades (1975) para III. 25   Van Houtte (1983) 163. 19 20

General Questions Concerning Article 101(3)(b) TFEU  103 not enough; it is a question of examining probable (not possible) outcomes.26 It is inevita­ ble that the Commission will on occasion make mistakes or that the situation will not evolve at the rate expected; these errors are inherent in any process that involves predicting the future and should not prevent such process from being used. The declared intentions of the parties are not decisive; the analysis must be based on the objectively provable or foreseeable effects of the agreement.27 On this point, the symmetry with Article 101(1) is not exact, because for this latter provision to apply it is sufficient that the object of an agreement simply restricts competition. However, the objectives pursued by the parties are of some importance, since they aid understanding of the specific effect of an agreement on the market in question.28 The four types of advantages to which the first condition refers, redefined as ‘cost efficiencies’ and ‘efficiencies of a qualitative nature’ (which generate value in the form of new or improved products, a greater variety of products, and so on), are the true raison d’être of the exception. The possible advantages are alternatives, not cumulative – unlike the conditions set out in Article 101(3) TFEU. Compliance with any one of them is sufficient to satisfy the first requirement of the exemption. In fact, the Commission has frequently used various advantages at the same time when justifying satisfaction of the first condition, although it is satisfied if it can establish the existence of advantages of an eco­ nomic (industrial or commercial) or technical nature, in the broadest sense of the words. Typical advantages are cost reductions,29 an increase in the variety of products offered for sale or an improvement in their quality, an increase in the flexibility of distribution and the stability of supply, the development of new products and acceleration of this process, new sources of regular supply in a market, and so on.30 In addition, the interpretation of this condition by the Commission and the EU Courts has led to the acceptance of advantages that are not purely economic. For example, the Commission has accepted a contribution to greater protection of the environment as an advantage for the purposes of Article 101(3).31 For its part, the ECJ has admitted the exist­ ence of advantages for the economy in general which cannot be imputed to an identifiable category of purchasers. Thus, the Court has accepted the possibility of considering the pro­ motion or maintenance of full employment, which constitutes an advantage for workers and the economy in general, as coming within the objectives covered by Article 101(3), since it constitutes a contribution to improving the general conditions of production, par­ ticularly when the economic situation is unfavourable.32 However, certain advantages of a general nature, such as social progress or regional development, may not be sufficient in themselves to justify satisfaction of the first requirement of Article 101(1) if no economic advantages can be shown.33   Commission decision Cimbel (1972) para 20.  ECJ Consten and Grundig (1966) 348. 28   Van Houtte (1983) 163–64. 29   Nevertheless, the Commission does not take into account savings in costs resulting from a reduction in pro­ duction, sharing out markets or clients, or the mere exercise of market power. On the other hand, it does accept savings in costs through the reduction of the duplication of resources and facilities. See the Guidelines on Horizontal Cooperation Agreements (European Commission (2011) paras 52, 185 and 248, and the old Guidelines on Horizontal Cooperation Agreements, European Commission (2001a) paras 33, 153 and 157. 30   See Van Houtte (1983) 149–51 and the decisions cited therein. 31   See Guidelines on Horizontal Cooperation Agreements (European Commission (2001a)) paras 192–94. 32  ECJ Metro I (1977). See Van Houtte (1983) 152. For this and other possible economic advantages of a more general nature accepted by the Commission and the EU Courts, see the case law and the administrative precedents cited by that author at 154–55, and Tobío Rivas (1994) 119. 33   See GC Matra Hachette (1994) para 107, in relation to Commission decision Ford/Volkswagen (1992) paras 24ff. 26 27

104  Economic Power under Article 101(3)(b) TFEU This requirement was dealt with at a very early stage by the ECJ.34 According to the Court, the existence of an improvement in the production or distribution of the products in ques­ tion, which is required for an exemption to be granted, must be examined in the spirit of Article 101. Improvement cannot be identified with all the advantages that the parties obtain from the agreement in relation to the activity of production or distribution. These advantages are generally indisputable and show the agreement as in all aspects indispensa­ ble to an improvement as understood in this sense. This subjective approach, whereby the meaning of ‘improvement’ would depend on the specific nature of the contractual relations in each case, would not satisfy the objectives of Article 101. In addition, as the ECJ has stated, ‘this improvement must in particular show appreciable objective advantages of such a character as to compensate for the disadvantages which they cause in the field of competi­ tion’. The very fact that the TFEU provides that the limitation on competition must be indispensable for the improvement in question clearly indicates the importance that such improvement must have. Further, the advantages must compensate sufficiently35 the incon­ veniences arising from restrictions on competition that an agreement between under­ takings may cause. The need for the advantages to have an objective character and to be appreciable has been confirmed in numerous judgments and decisions.36 Objective advantages exist, in principle, when the parties to the restrictive agreement are not the only ones to benefit from them. ‘Subjective’ advantages, which consist in an improve­ ment in the parties’ situation – in particular an increase in profits – are not in themselves sufficient to satisfy the first condition of the exemption. However, if the improvement in the parties’ situation has a favourable effect on the market or on the economy in general, the advantages thus obtained cannot be overlooked.37 The mere survival of undertakings in the market does not in itself constitute an eco­ nomic advantage capable of coming within the first condition of Article 101(3) TFEU.38 However, if certain agreements are capable of turning the parties into strong undertakings, making them able in the short or medium term to produce or distribute more or more effectively (in a word, compete), the Commission may decide to permit even those agree­ ments that seriously restrict competition.39 The advantages that must be taken into account when examining the first requirement are not those that may benefit consumers either, since this is precisely the subject matter of the second requirement of the exemption. This does not mean that a large degree of inter­ dependence does not exist on most occasions between objective advantages and benefits for consumers. Often (although not always) the two are effectively intertwined and what is an advantage for the parties is also a benefit for consumers. As regards the ‘material’ nature of the advantages – or in other words their importance40 – Article 101(3) TFEU makes no reference to whether such advantages are subject to any quan­ titative requirement. This is different from Article 65(2)(a) of the European Coal and Steel  ECJ Consten and Grundig (1966) 348.  ECJ FEDETAB (1980) para 185. 36   See, inter alia, ECJ Ford-Werke (1985), and ECJ Verband der Sachversicherer (1987), which cites Consten and Grundig and FEDETAB. 37   See Van Houtte (1983) 157 and Tobío Rivas (1994) 108. 38   The Commission had the opportunity to examine this problem in its decision FEDETAB (1978) para 123, confirmed in ECJ FEDETAB (1980) para 183. See Van Houtte (1983) 152, 156. 39   See eg Commission decision Synthetic Fibres (1984). 40   The Commission uses various terms when referring to this requirement. Thus, advantages may be, inter alia, ‘notable’, ‘real’, ‘substantial’, ‘specific and perceptible’. See Van Houtte (1983) 175 and the decisions referred to therein. 34 35

General Questions Concerning Article 101(3)(b) TFEU  105 Community (ECSC) Treaty, which provided for the possibility of authorising certain agree­ ments that contributed to ‘a substantial improvement in the production or distribution’ of certain products. Despite this, it is submitted that those who drafted the TFEU must have meant the advantages considered in Article 101(3) to be of some importance, albeit only by analogy with the requirement that restrictions on competition be ‘material’ or ‘appreciable’ within the context of Article 101(1) TFEU and to prevent the parties to a restrictive agreement from being able to use insignificant advantages to justify such agreement.41 As just mentioned, advantages will be ‘appreciable’ within the meaning of the first condi­ tion of Article 101(3) TFEU when, apart from the value attributed to them by the parties (who, by definition, obtain sufficiently significant advantages from the agreement or restrictive practice in question otherwise they would not have entered into it), they are capable of compensating sufficiently the restrictions on competition resulting from an agreement, decision or concerted practice between undertakings. In other words, the advantages will be ‘appreciable’ when the positive economic aspects of an agreement or restrictive practice (the advantages) not only equal but actually outweigh sufficiently the negative consequences for competition in the market (the disadvantages). Deciding whether the advantages outweigh the disadvantages always means comparing the positive and negative effects that the presence or absence of a restrictive agreement will have on the economy and competition. First, what will be the effect of the agreement, deci­ sion or restrictive practice as it is or will be applied in its economic and legal context? Secondly, what would the situation be without the agreement, that is, if there were free competition? In order to merit the exception, the advantages accruing from the restrictive agreement must be greater than those that would result from free competition.42 As far as the individual application of Article 101(3) is concerned, one must look at the different possible effects that the agreement or restrictive practice in question may have in the future. As for block exemptions, one must analyse both the real past effects of agree­ ments or practices that are intended to be authorised in the future, as well as precedents of individual application of the exception to the type of agreements or practices in question. In general, the Commission will not adopt a block exemption without previously having evaluated at least once, on an individual basis, the agreement in question.43 The last point in this brief analysis of the first condition of Article 101(3) TFEU concerns the evaluation of the advantages of complex agreements, decisions or restrictive practices – that is, those that contain numerous elements or clauses, some restrictive and others not. The question is whether the Commission should examine the agreement, decision or restrictive practice as a whole44 or whether it should concentrate only on the restrictive ele­ ments or clauses.45 With this latter approach, the restrictive elements or clauses themselves would have to cause the advantages directly.   See Van Houtte (1983) 176–77.  The Commission does not apply this principle in a rigorous manner. Sometimes it is stated, but the Commission is in fact content to list the advantages deriving from the agreement, without comparing them with a benchmark. In other cases, it compares the effects of the agreement with the previously existing situation, which is only admissible if that situation was fully competitive and would have remained so. See Van Houtte (1983) 164–65 and the decisions cited therein. 43   The exemptions for liner shipping companies under Regulation 4056/86, adopted by the Council following the Commission’s proposal, are a notable exception. 44   This is the meaning that the ECJ appears to favour: see ECJ Metro I (1977) para 43. More recently, the Commission has expressly stated that complex agreements must be examined as a whole. See the old Guidelines on Horizontal Cooperation Agreements (European Commission (2001a)) para 12 in fine. 45   See Van Houtte (1983) 162, who cites both those in favour of and those against this theory. 41 42

106  Economic Power under Article 101(3)(b) TFEU In fact, in order to examine correctly whether the four conditions of Article 101(3) have been satisfied, the agreement, decision or practice must be considered as a whole, while at the same time each restrictive element must be analysed separately. Restrictive elements or clauses within the meaning of Article 101(1) must have been identified previously, since if they do not exist no examination of any of the four conditions will be necessary. In the examination of the first condition, the desired economic or technical advantages must be identified, bearing in mind the particular agreement, decision or restrictive practice as a whole. Later, within the examination of the third condition, it must be proven that the ori­ gin of the advantages is either a direct result of the restrictive elements or clauses or a result of certain non-restrictive elements or clauses which, nevertheless, cannot be severed from the restrictive elements or clauses. The Commission does not have to require that the restrictive elements or clauses themselves contribute directly to the resulting or expected advantages,46 but the advantages must result from elements or clauses that are non-­ severable from the former. The reason for this is very simple. If the elements or clauses that result in the economic advantages were severable from the restrictive elements or clauses, the restrictions would not be indispensable for the achievement of the objectives of the first and second conditions, within the meaning of the third condition, since the agreement, decision or practice without the restrictive element(s) or clause(s) would amount to a less restrictive alternative capable of achieving those objectives. The key to this examination is, therefore, whether the restrictive elements of an agreement, decision or restrictive practice contribute directly (themselves) or indirectly (through non-restrictive elements or clauses that are non-severable from them) to the obtaining of economic or technical advantages. In either case, the first condition of Article 101(3) TFEU will be satisfied. In conclusion, when examining the first condition the decisive matter is the agreement as a whole rather than the individual clauses that restrict competition, and the need for these latter clauses must be examined in relation to the indispensable nature of the restrictions.47 The second condition of Article 101(3) TFEU provides that agreements, practices or conditions which aspire to the exception must allow ‘consumers a fair share of the resulting benefit’. The concept of ‘consumers’ refers, in the first place, to the purchasers of the goods and services that are the object of a restrictive agreement or practice. If the product in question still has to go through various stages of production before reaching the final consumer, or if it is a raw material used to produce derivatives, the different categories of successive con­ sumers are occasionally listed as users.48 In addition, the Commission often employs the term ‘consumers’ in the sense of final users.49 In this, the Commission reflects the subtle differences that exist in the different linguistic versions of Article 101(3); in some cases the term ‘user’ is preferred (in the French (‘utilisateurs’), Italian (‘utilizzatori’) and Spanish (‘usuarios’)), whereas in others the term ‘consumer’ (‘Verbraucher’ in German and ‘consumidor’ or ‘usuario final’ in Spanish) is employed. The declared objective of this condition is to prevent the parties to a restrictive agreement from being the only beneficiaries of the resulting advantages, although in certain circum­   In this regard, see Van Houtte (1983) 172.   Deringer (1968) 136, cited in Tobío Rivas (1994) 111. See also the Guidelines on Art 101(3) TFEU (European Commission (2004d)) para 73. 48  See, inter alia, ECJ FEDETAB (1980) para 178, quoting Commission decision FEDETAB (1978) and Commission decision National Sulphuric Acid Association (1980) para 47. 49   See eg GC Peugeot (1993) para 27, where the Commission referred specifically to final consumers when deal­ ing with the second condition of Art 101(3) TFEU. 46 47

General Questions Concerning Article 101(3)(b) TFEU  107 stances parties and users may be partially the same.50 The question of whether the advan­ tages enjoyed by intermediate users are passed on to the final consumer essentially depends on the existence of competition downstream in subsequent phases of the supply chain.51 Refusing to apply Article 101(3) because subsequent purchasers prevent advantages being passed on to consumers would not appear to be the correct approach. Instead, restrictions on competition that exist in this later phase, in downstream markets, must be eliminated.52 Neither would it appear to be correct to define the concept of consumer or user so widely that it effectively means the same thing as much more general concepts, such as the public interest or the general interest, since this could result in the first two conditions of Article 101(3) being confused.53 The geographic markets in which the relevant users are situated for the purposes of the exemption are generally those where the effect of the restrictive agreement or practice is felt. The decisive factor is the global impact on consumers of the products affected in the relevant market, and not the impact on the individual members of this group of consum­ ers.54 In principle, then, the assessment of benefits is carried out within the boundaries of each reference market, so that the negative effects for consumers in a geographical or prod­ uct market cannot be compared with or compensated by the positive effects for consumers in other geographical or product markets, except where it is a case of related markets and the consumers affected by the restriction and that benefit from its advantageous results are fundamentally the same.55 However, this does not prevent the Commission, when dealing with restrictions on exports, from referring to consumers (as those prejudiced) in the countries to which the export of products or services affected is prevented.56 Further, the ECJ has held that there is nothing in the wording or spirit of Article 101(3) TFEU that per­ mits an interpretation in the sense that the possibility of an exemption ‘is subject to the condition that those benefits should occur only on the territory of the Member State or States in which the undertakings who are parties to the agreement are established and not in the territory of other Member States’.57 In the same way, the ECJ should accept, where applicable, the possibility of taking into account the beneficial effects of a restrictive agreement even where such effects are felt outside the European Union.58 50   For example, as regards horizontal agreements for the creation of a cooperative (see Commission decision Rennet (1979) para 30) or as regards vertical agreements between a manufacturer and wholesaler of contractual products. 51   Although on occasion the Commission has taken it as read that consumers in later markets receive an equal benefit, without having established the existence of sufficient competition in each subsequent stage in those later markets. See Commission decision National Sulphuric Acid Association (1980) para 47. 52   Van Houtte (1983) 184 is in favour of limiting the notion of users to the first purchasers, although of course the repercussion of the advantages obtained by them over final users can only increase the beneficial nature of the agreement. 53   Van Houtte (1983) 186. 54  GC Shaw (2002) para 163. 55   Guidelines on Art 101(3) TFEU (European Commission (2004d)) paras 43, 87. 56   See, inter alia, within those matters concerning parallel trade in pharmaceutical products, Commission deci­ sion Sandoz (1987) para 31, confirmed by the ECJ in Sandoz (1990), and the statements of the Commission with respect to Organon, in its XXVth Report on Competition Policy (1995) para 37. 57  ECJ Publishers’ Association (1995) para 29, following GC Publishers’ Association (1992) which confirmed Commission decision Publishers’ Association Net Book Agreements (1988). The GC had held (para 84) that certain British undertakings lacked standing to allege the possible negative effects which, in the absence of their agree­ ments, could occur in the Irish market. 58   At the very least, such effects should indeed be taken into account in third countries which belong to the EEA and perhaps in other states with which certain special connections exist, such as countries seeking accession to the EU.

108  Economic Power under Article 101(3)(b) TFEU When establishing whether consumers obtain a fair share of the resulting benefit of a restrictive agreement, the ECJ has stated that the analysis must be limited to evaluating those portions of the resulting benefits for the consumer that are directly and strictly attrib­ utable to the restrictive agreement in question.59 This does not mean that agreements which only produce indirect benefits cannot satisfy the second condition, as will now be seen. With respect to the second condition, the ECJ only restates a general principle of European competition law on the question of exceptions, namely that exceptions to the rule must be interpreted strictly. In its decision-making practice, the Commission has declared that consumers often bene­fit directly from the advantages resulting from an agreement, in particular when spe­ cific improvements in production or distribution occur within the meaning of Article 101(3) TFEU. Wider choice, increased and more regular supply,60 improved after-sales ser­ vice or, above all, a reduction in prices are considered to be benefits for users that may derive directly from the technical or economic advantages of certain restrictive agreements. The fact that consumers share in these benefits is a logical and automatic consequence of their existence, since the improvements in question fundamentally relate to the producerconsumer relationship. In fact, the way in which consumers benefit from these advantages is inseparable from the advantages themselves. On the other hand, less choice, more limited supply, poorer after-sales service and above all an increase in prices will generally mean that the second condition is not satisfied.61 However, it is not always the case that an improvement in production or distribution within the meaning of the first condition of Article 101(3) TFEU benefits consumers. For this reason, the second condition requires that, at the very least, consumers benefit indi­ rectly from the resulting benefits of an agreement. This would occur, for example, where an agreement led to intensified competition with undertakings that were not party to the agreement,62 or if it resulted in increased research and the development of better products. For the purposes of the second condition of Article 101(3), the benefits resulting from an agreement that restricts competition do not have to be judged against the benefits that would result from other technically possible or economically viable choices. The General Court has recalled that it is when the Commission examines compliance with the third rather than the second condition of Article 101(3) that it can take into account other pos­ sible solutions, with the objective of evaluating the indispensability of restrictions on com­ petition resulting from an agreement between undertakings.63 As has already been mentioned, the Commission has traditionally considered the fact that the benefits obtained are translated into a reduction in prices to be of great import­ ance, since this is seen as a more genuine way of benefiting users.64 This does not mean that other types of advantages, such as an improvement in the quality of products or services, are of little importance, but rather that they are rarely recognised as being the equivalent of  GC Vichy (1992) para 98.  ECJ Metro I (1977) para 48. 61   As regards less choice, see in particular GC Langnese/Iglo (1995) para 166, and as regards price increases, see the Guidelines on Art 101(3) TFEU (European Commission (2004d)) para 86. 62   See the submissions of the Portuguese Government in GC Matra Hachette (1994) paras 146ff, which I agree with. 63  GC Matra Hachette (1994) para 122. 64   Thus, the General Court has held that denying users the opportunity to take advantage of the differences in prices resulting from competition between brands is prejudicial. See GC Dunlop Slazenger (1994) para 102, third hyphen. 59 60

General Questions Concerning Article 101(3)(b) TFEU  109 a reduction in prices. When parties restrict price competition, in general the Commission will not accept that consumers share in the resulting benefit of the agreement. This is despite the fact that in Metro I (1977), the ECJ played down the importance of price com­ petition compared to other forms of competition.65 As with the first condition, in order to evaluate the participation of consumers in the resulting benefit, the Commission must consider how the agreement improves their posi­ tion. The Commission has generally been satisfied with a ‘reasonable’ level of probability.66 However, this analysis should not be necessary when for whatever reason it has been possible to examine the actual effects of an agreement on consumers.67 This might occur, for example, where the Commission has to decide whether an agreement which has been put into practice for a period of time deserves to be granted the exception. When taking individual decisions, the Commission has not normally carried out a detailed examination of consumers’ share of the benefits. Instead, it has been satisfied with stating that they exist, once different indicators have been studied. It is more likely that consumers share in the resulting benefit if restrictions on competition are limited, or if the purchasers are powerful businesses that can make use of their economic power in order to oblige the parties to the restrictive agreement to pass the benefit on to them. If consumers have genuine alternative suppliers to the parties to the restrictive agreement, the same occurs.68 However, the most important indicator of sharing the resulting benefit consists in the existence of healthy competition in the market. If there is healthy competition, it can be assumed that the parties to the agreement will be forced to pass on the benefits resulting from their cooperation. If the parties occupy a monopoly position, it is very unlikely that their clients will benefit from any of the possible advantages. Passing on the benefit to con­ sumers would therefore appear to require the existence of a substantial degree of competi­ tion, with respect to both the goods or services directly affected by the agreement (internal competition between participating undertakings) and other competing goods or services (competition with third party undertakings or external competition).69 The lower the market share of the parties to the restrictive agreement, the more likely it will be that con­ sumers receive a fair share of the advantages.70 The General Court has held that competition creates real benefits for consumers, in considering that when undertakings restrict competition they deprive consumers of their benefits.71 However, it cannot be assumed that the existence of substantial competition automatically forces the parties to pass on the advantages they obtain from an agreement.72 As regards the meaning of ‘fair share’, neither the EU Courts nor the Commission have ever given any indication of what, in practice, ‘fair’ means. In its individual decision-­making practice, the Commission has normally limited itself to proving that the part of the benefit 65  ECJ Metro I (1977) para 21. See Tobío Rivas (1994) 296, 299, and the Guidelines on Art 101(3) TFEU (European Commission (2004d)) para 86. 66   See Van Houtte (1983) 197; Tobío Rivas (1994) 326. 67   In Commission decision Campari (1977), the Commission presumed that an agreement which had been notified to it 15 years previously benefited users, when it could easily have studied the actual effects of the agree­ ment in question on the market. 68   See Van Houtte (1983) 197–98; Tobío Rivas (1994) 329–31. 69   See the Commission’s views in GC Langnese/Iglo (1995) paras 166–68. 70   See Guidelines on Horizontal Cooperation Agreements (European Commission (2011)), paras 103, 185, 219, 250 and 321. 71  GC SPO (1995) para 294 in fine. 72  ECJ Metro I (1977) para 48.

110  Economic Power under Article 101(3)(b) TFEU enjoyed by consumers was or was not fair, or making very general descriptions, stating that consumers benefited to the appropriate extent. The quantitative requirement of the second condition of the exception did not appear to play an important part in previous decisions, although it is beyond doubt that the consumers’ share of the benefit must be specifically related to the overall resulting benefit of the agreement. Clearly, this concept is subjective and does not seem to be capable of quantification. When Regulation 17 was in force, the Commission enjoyed a very wide degree of discretion in this matter and arguably only very obvious abuses were prevented. Thus, the Commission had to concentrate on examining whether the improvement in the position of purchasers was not manifestly out of propor­ tion to (that is, was not significantly less important than) the improvement enjoyed by the parties to the agreement.73 Advocate General Roemer attempted to quantify the meaning of ‘fair’ in Consten and Grundig (1966). Accepting the submissions of the German Government, he observed that ‘[consumers] need only pay the price which develops in the market under the influence of effective competition. That is what the Treaty would regard as the optimum measure of share in the benefit to be given to consumers.’74 Thus, the Advocate General directly linked the second and fourth conditions of Article 101(3) TFEU. If the second condition were to be given an even more specific meaning, it would have to include the requirement that not only does the purchasers’ situation (or the majority of them, since not all benefit) not deteriorate,75 but it actually improves in comparison with the situation where there is no restrictive agreement. Arguably, this improvement should be appreciable, for the reasons given above with respect to the first condition. Finally, what of the opinions of consumers as regards the application of the exception? Article 101(3) TFEU does not state that for the purposes of evaluating whether a restrictive agreement satisfies the second condition, consumers must be in support of the exemption, nor even that their opinion need be taken into account. Nevertheless, it appears that it is impossible for the Commission and the Council to ignore their criticisms and grant or maintain an exemption against their will.76 Such an attitude would be paternalistic in the extreme and unacceptable in a democratic system. Nobody knows what is good for con­ sumers better than consumers themselves. In summary, in order to state definitively that consumers obtain a fair share of the result­ ing benefits, three conditions must be met. First, the advantages must be greater than the disadvantages, or at least, according to the Commission, the result of the restrictions must be neutral for consumers. Secondly, the resulting economic or technical advantages must not either exclusively or principally benefit those that put restrictive agreements into prac­ tice; and thirdly, if there is an unequal impact on consumers, the number of those benefit­ ing must be greater than the number of those prejudiced. Therefore, there must be the same situation with the second as with the first condition: the scales must tip in favour of benefits and not inconveniences. In addition, basic democratic principles should prevent the second condition being treated as having been satisfied without the acquiescence, or at least the lack of opposition, of consumers, when these can be clearly identified.   See Van Houtte (1983) 182–83, 188; Tobío Rivas (1994) 348.  ECJ Consten and Grundig (1966) 371.   This appears to be sufficient in the Guidelines on Art 101(3) TFEU (European Commission (2004d)) para 85. 76   The Commission appears very much to take into account the opinions of consumers, at least in its individual decisions. See Commission decisions FEFC (1994) para 117 and EATA (1999) para 213. See also GC FEFC (2002) paras 370–71, 450, where the Court stated that the Commission was ‘perfectly entitled’ to take note of the com­ plaints of users when evaluating whether an agreement took into account their interests. 73 74 75

General Questions Concerning Article 101(3)(b) TFEU  111 The third condition of Article 101(3) TFEU (paragraph (a)) prevents the exception being applied to those agreements which impose on the undertakings concerned restric­ tions that are not indispensable for the attainment of objectives that satisfy the first and second conditions.77 In terms of the individual examination of agreements notified, the third condition has historically given the Commission more direct influence over the content of agreements than the second or fourth conditions. It was very common for the Commission to require the amendment of certain restrictive clauses that it did not consider indispensable, either by making the exemption conditional on the amendment of the agreement or by not apply­ ing certain non-indispensable clauses. In common currency, the word ‘indispensable’ means the same as ‘necessary’: it applies to that which constitutes a condition sine qua non for something, without which nothing is possible. According to the Commission: This condition implies a two-fold test. First, the restrictive agreement as such must be reasonably necessary in order to achieve the efficiencies. Secondly, the individual restrictions of competition that flow from the agreement must also be reasonably necessary for the attainment of the efficiencies.78

The first part of the test requires that the technical or economic advantages (‘efficiencies’ in the Guidelines) are specific to the agreement – that is, that there is no economically viable and less restrictive method of achieving them. Once it has been determined that the agreement is necessary to produce advantages (‘to generate efficiencies’), the role of the second part of the test is to evaluate the indispensable nature of each restriction on competition that flows from it. A restriction will be considered indispensable if its absence eliminates or substantially reduces the advantages of an agreement or makes it much more improbable that such advan­ tages will be obtained. In addition, it should be examined whether less restrictive alternatives exist. Further, a restriction may be indispensable for a given period, which is the period of time necessary to obtain the advantages that justify the application of Article 101(3).79 The Commission thus gives a double meaning to the third condition of the exception. First, restrictions have to be inextricably linked to the advantages, in the sense that, first, they must contribute to the latter’s attainment, and secondly, without them the beneficial effects would be greatly reduced or even eliminated. In this way, the indispensability of restrictions is related to the need for them to achieve positive results. Second, restrictions cannot go beyond that which is strictly necessary for the attainment of the objectives referred to in the first two conditions of Article 101(3) TFEU. In this sense, indispensability is very closely linked to the principle of proportionality. In Commission decisions and the case law of the EU Courts the terms ‘indispensable’, ‘necessary’ and ‘proportionate’ are sometimes used as synonyms, which reflects their similarity as concepts in the context of the third condition. For example, in Metro I (1977)80 the ECJ used the term ‘necessary’ as the equivalent of ‘indispensable’, as did the Commission in the supplementary statement of allegations made against member banks of the Groupement Carte Bleu which gave rise to its decision in 77   In GC Matra Hachette (1994) para 138, the Court interpreted ‘indispensable’ to mean ‘strictly indispensable’, which is a well-known interpretation of the third condition of Art 101(3) TFEU. 78   Guidelines on Art 101(3) TFEU (European Commission (2004d)) para 73. 79   ibid, paras 73ff. 80  ECJ Metro I (1977) para 45.

112  Economic Power under Article 101(3)(b) TFEU Eurocheque (1994).81 However, when revising the Commission’s decision in this matter, the GC distinguished between ‘necessary’ and ‘indispensable’82 and stated that the latter term was equivalent to ‘strictly necessary’.83 The Commission itself has distinguished between simply ‘necessary’ and ‘indispensable’.84 The term ‘proportionate’ was used, for example, by the GC in Matra Hachette (1994).85 In this case, relying on the judgment of the ECJ in Consten and Grundig (1966),86 the GC declared that it is clear from the terms of the third condition of Article 101(3) TFEU that a decision applying this provision must show that ‘any adverse affects on competition deriv­ ing from the project in question are indispensable in order to attain the objectives of achieving economic and technical progress’.87 In an even clearer manner, the GC judge Kirchner has considered the requirement of indispensability to be equivalent to, or an example of, the principle of proportionality.88 The indispensable nature of a restriction on competition89 can only be adequately ana­ lysed properly taking into account the context and the prevailing market conditions.90 Further, its objectives must be clearly understood91 – in other words, what advantages and benefits the restrictive agreement in question will achieve. Nevertheless, it does not appear necessary to examine whether such objectives are actually achieved, if the Commission is sure that the restrictions on competition examined are not indispensable for their achieve­ ment, having found suitable alternative measures which restrict competition less.92 Nor is it necessary to justify the lack of indispensability where the objective of a restriction is to resolve a non-existent problem; it goes without saying that no advantage is gained from resolving a non-existent problem and therefore the first condition of Article 101(3) cannot be said to have been satisfied.93 81   Commission decision Uniform Eurocheques (1984) para 72, summarised in this aspect in GC CB and Europay (1994) para 54. 82   See GC CB and Europay (1994) para 113. 83   See GC CB and Europay (1994) para 114, which, inter alia, cites with approval ECJ Nungesser and Eisele (1982) para 77. 84   See GC European Night Services (1998) para 203. 85  GC Matra Hachette (1994) para 135. 86  ECJ Consten and Grundig (1966) para 348. 87  GC Matra Hachette (1994) para 135. In Consten and Grundig the ECJ appeared, in fact, to indicate that the evaluation of the benefits resulting from an agreement according to the restrictions that it contains formed part of the examination imposed by the third condition. Although the General Court has recently revived this interpreta­ tion, it does not appear to be supported by the text of Art 101(3) TFEU since it confuses indispensability with the positive or negative balance of advantages as opposed to inconveniences that must exist in order for the first two conditions to be satisfied, as explained earlier. In my view, a situation could exist where the advantages outweigh the disadvantages and yet there exist suitable means which restrict competition less – or are not restrictive at all – in order to achieve the objectives of the agreement. Similarly, see ECJ Frubo (1975) para 42. For the same conclu­ sion, albeit for other reasons, see Van Houtte (1983) 206. 88   Opinion of Judge H Kirchner in GC Tetra Pak I (1990) para 72. 89   The examination of indispensability obviously presupposes the prior establishment of the existence of a restriction on competition within the meaning of Art 101 TFEU, with the implications this has as regards know­ ledge of the state of the market, degree of existing competition and the nature of the supposed restrictions. See GC European Night Services (1998) para 206. 90   Guidelines on Art 101(3) TFEU (European Commission (2004d)) paras 75, 76, 80. 91   See Commission decision Publishers’ Association (1988) para 73 and AG Lenz’s Opinion in ECJ Publishers’ Association (1995) para 43. 92   See AG Lenz’s Opinion in ECJ Publishers’ Association (1995) para 33. 93   In Commission decision EATA (1999) paras 225–28, the Commission found that an agreement that in theory resolved a non-existent problem could not satisfy the third condition of Art 101(3) (indispensability of restric­ tions), when it was even clearer that it was unable to satisfy, in the first place, the condition of contributing to technical or economic progress.

General Questions Concerning Article 101(3)(b) TFEU  113 The Commission and the authorities competent to apply Article 101(3) may indicate to undertakings possible alternative solutions, although they are not legally obliged to do so, and of course they do not have to accept proposals which they consider are incompatible with the requirements of Article 101(3).94 Nor has the Commission considered that it is obliged to provide undertakings which request an exemption with a detailed description of the existing alternative means that are less restrictive of competition in order to achieve the objectives pursued in each case.95 However, it is reasonable to suggest that if the Commission or other authorities deny that certain restrictions on competition are indispensable, they should at least indicate which less restrictive alternatives they have in mind,96 since other­ wise ‘[they] would in fact be given “carte blanche” and would be enabled simply to deny the indispensability of restrictions on competition in abstracto without any explanation’.97 Once the Commission or the other authorities have outlined the alternatives, it is for the parties to show that they are not viable.98 This whole process could be called the ‘less restric­ tive alternatives test’, and the analysis of the third condition of the legal exception revolves around it. In examining the third condition, the Commission has not adopted the specific point of view of undertakings that are parties to the agreement; rather it looks at the matter from the perspective of any rational undertaking in a similar situation. Thus, for example, as regards exclusive distribution agreements with territorial restrictions, the Commission has declared that no undertaking would agree to carry out the necessary investments without being sure that it was protected by the restrictive clauses of the agreement.99 As regards deciding what is indispensable, the Commission has declared that where the same undertakings enter into two consecutive agreements and the second amends the terms of the first in many respects, the first was neither ‘necessary nor indispensable’ for the achievement of the common objectives of both agreements – the prerequisite for satis­ fying the first two conditions of Article 101(3) TFEU.100 Similarly, if the Commission finds that competitors can obtain the same advantages as the parties to an agreement without the need for restrictive practices, or if the parties themselves do not employ the clause in relation to their activities in other territories, it will conclude rapidly that the restrictive agreement in question is not indispensable.101 In the same way, if, once the allegedly indis­ pensable agreement has been entered into, the parties do not meet its terms, this will show that it is not indispensable, since they can do without it. These factors, particularly the last two, will demonstrate that for the parties themselves, the restrictions are in fact dispensa­ ble.102 Finally, the Commission has stressed that the question of indispensability is of particular importance with respect to price fixing or market sharing.103  GC Langnese/Iglo (1995) para 192, citing ECJ VBVB & VBBB (1984).   AG Lenz’s Opinion in ECJ Publishers’ Association (1995) para 31, last paragraph.   As it did in Commission decisions Rennet (1979) and FEFC (1994) paras 135ff (although in the latter case the Commission proposed an authorised alternative to a block exemption – a cargo or income pool – rather than a less restrictive alternative). See ECJ Coöperatieve Stremsel-en Kleurselfabriek (1981) para 6; GC FEFC (2002) para 384. 97   See AG Lenz’s Opinion in ECJ Publishers’ Association (1995) para 35. 98  GC Casper Koelman (1996) para 60. 99   See, inter alia, Commission decision Campari (1977) para III.C. 100   See Commission decision Uniform Eurocheques (1984); GC CB and Europay (1994). 101   See Commission decision Centraal Stikstof Verkoopkantoor (1978) para 106. 102   For other indices of the non-indispensable nature of an agreement, see the following GC judgments: Fiatagri and New Holland Ford (1994) paras 99–100; SPO (1995) paras 310–14; Casper Koelman (1996) para 60; Métropole télévision (1996) paras 93–126. 103   Guidelines on Art 101(3) TFEU (European Commission (2004d)) para 79. 94 95 96

114  Economic Power under Article 101(3)(b) TFEU

5.2  GENERAL QUESTIONS REGARDING THE FOURTH CONDITION OF ARTICLE 101(3) TFEU

The fourth and final condition of Article 101(3) makes the application of the legal exception or exemption subject to proof that the agreement does not give the interested undertakings ‘the possibility of eliminating competition in respect of a substantial part of the products in question’. In other words, in order not to be prohibited, a measure that limits competition must permit a certain degree of competition in the market. Determining what this means requires, a sensu contrario, an examination of the degree of restriction on competition caused by the undertakings that enter into a collusive agreement.104 In its decision-making practice, the Commission did not pay much attention to this section of Article 101 TFEU, either because an agreement had failed because of other con­ ditions, or because of quite the reverse: having satisfied the other conditions (especially the first one), the Commission would take a lenient view of an operation in the light of this last condition.105 In fact, it was seldom a key factor, and most commentators just made some general observations regarding to it. It is, however, an essential condition, which influences the interpretation of the other three conditions,106 and on which the philosophy of Article 101 in general is based.107 Starting from the premise that possible restrictions on competition have different degrees of intensity, there is a first maximum acceptable limit that is directly proportional to the advantages and benefits of a restrictive agreement that is indispensable to these being obtained: the greater the advantages and benefits with respect to the first two conditions of Article 101(3) TFEU, the greater will be the degree of acceptance of restrictions on compe­ tition. (The reverse also applies: if an agreement is less restrictive of competition, then the advantages and benefits that must be shown in order for it to be authorised will be propor­ tionately less.) The beneficial effects of a measure that limits competition will mean that a higher or lower degree of restriction on competition is admitted (in the same way that the more (or less) restrictive effects of an agreement or practice will make it more difficult (or easier) to authorise).108 This maximum level is, therefore, variable: it depends on how bene­ ficial an agreement is for the economy, technological progress and consumers, and has nothing to do with the fourth condition for the exemption of Article 101(3)(b) TFEU. Instead, it is derived from the doctrine laid down by the ECJ in Consten v Grundig (1966) regarding the first two conditions for the exemption. It is a fact that the Commission has occasionally authorised agreements that restricted competition in a significant way, on the basis of the advantages and benefits (very substantial) that the measure involved.109 On the other hand, there is a second absolute limit, which is that of Article 101(3)(b) TFEU. This cannot be exceeded, no matter how beneficial a restrictive agreement between undertakings is for competition. No matter how many advantages and benefits an agree­ ment involves whose restrictions are indispensable in order to obtain the positive results   Tobío Rivas (1994) 336.   Whish (2003) 159. 106   The sentence is from Van Houtte (1983) 81, and it is still valid today. 107   Whish (2001) 132. 108   In this sense, see the Guidelines on Horizontal Cooperation Agreements (European Commission (2001)) para 208, where, in reference to joint purchasing agreements, the Commission states that with a market share of less than 15% in the purchasing market and in the selling market ‘it is likely that the conditions of Article 101(3) are fulfilled’. 109   Tobío Rivas (1994) 336 fn 3. 104 105

General Questions Regarding the Fourth Condition of Article 101(3) TFEU  115 that it seeks, it will not be authorised if it gives the parties the opportunity to eliminate competition with regard to a substantial part of the products in question. The fact that the first maximum limit (the variable or flexible limit) varies is normal. But the fact that the absolute limit varies is unacceptable. The Commission may sometimes have given the impression of interpreting – incorrectly – this limit as being flexible. The fourth condition thus imposes a significant limitation on the Commission and on the undertakings that self-assess; for the former, this limitation is on the power to grant block exemptions, while for the latter, it affects the grounds for their conclusions regarding the competitive impact of their agreements. In any event, its task is to preserve free compe­ tition, which could be seriously endangered by an arbitrary or rash policy of granting exemptions or accepting self-assessments. The legal basis of this limitation on powers to authorise exemptions can be found in Article 3(g) of the EC Treaty, which stated that the objective of the European Community and its institutions was to establish ‘a system ensur­ ing that competition in the internal market is not distorted’.110 The spirit of this provision is now set out in Protocol No 27 to the EU Treaty and the TFEU. In common currency, ‘to eliminate competition’ means to monopolise.111 But for a long time in European competition law it has been clear that, in addition, certain restrictions on free competition that do not mean its complete elimination prevent the grant of an exemp­ tion.112 The emphasis must be on the ‘substantial part’ that this elimination refers to: suffi­ ciently substantial partial elimination is, without doubt, enough for an exemption to be refused.113 In the same way that a certain degree of competition is compatible with the existence of a dominant position,114 the same degree of competition should be compatible with the elimination of competition from a substantial part of the market. On various occasions, however, the Commission has interpreted the fourth condition of Article 101(3) as requiring ‘the non-elimination of all competition’ (Eurocheque (1992)) or that the agreements under scrutiny ‘[do] not eliminate all competition’ (European Night Services (1994)).115 This is a mistake (which was not often made), although perhaps in some of these cases the Commission may have preferred to refer consciously to the complete or total elimination of competition, because the mere reference to ‘substantial elimination’ (more moderate) might seem hard to believe in such a restrictive context. Indeed, on some notable occasions certain undertakings have benefited from an extremely generous interpretation of this condition where there have been – or, rather, the Commission has perceived there to be – significant reasons of industrial policy, either because of a crisis in a particular sector, or reasons to favour competition of European undertakings with respect to their non-European competitors. In particular, in cases related to crisis cartels or ‘restructuring’ the Commission has had difficulties showing convincingly that the agreements did not substantially eliminate competition.116   See Font Galán (1986) 203.   And in specialist terminology too. See eg US Department of Justice (2008) 20, which identified the concept of ‘monopoly power’ with that of ‘substantial market power’, and these, in turn, with the possibility of controlling prices or eliminating competition. 112   Note that complete elimination is sometimes required by the EU Courts, inter alia when considering a refusal to supply to be anti-competitive. See ECJ RTE & ITP (1995) para 56; Oscar Bronner (1998) para 40; IMS Health (2004) paras 38, 40ff. For the meaning of ‘capable of eliminating all competition’, see LE (2005). 113   Van Houtte (1983) 81. 114  ECJ United Brands (1978) para 119; Hoffmann-La Roche (1979) para 39. 115  Decisions Eurocheque- Helsinki Agreement (1992) paras 74, 76; European Night Services (1994) para 70 (annulled by the GC in European Night Services (1998)); Lufthansa/SAS (1996) para 83. 116   Whish (2001) 132. 110 111

116  Economic Power under Article 101(3)(b) TFEU Most academics agree, however, that exemption from the prohibition can never be granted to an agreement, decision or practice whose object or effect is the creation of a simple dominant position in the market, let alone the establishment of a monopoly situa­ tion.117 Establishing this point is the main purpose of this chapter.

5.3  OUTLINE OF THE CONCEPT OF THE ELIMINATION OF COMPETITION IN THE CASE LAW OF THE EU COURTS118

Case law of the EU Courts on Article 101(3)(b) TFEU is relatively scarce and does not resolve the doubts – some of them fundamental – about the meaning of ‘elimination of competition’.119 In Continental Can (1973), for instance, the ECJ insisted on the importance of this con­ dition in general terms: ‘[I]f Article 3(f) [now Protocol No 27 of the EU Treaty/TFEU] provides for the institution of a system ensuring that competition in the common market is not distorted, then it requires a fortiori that competition must not be eliminated. This requirement is so essential that without it numerous provisions of the Treaty would be pointless.’ To reinforce this point, the Court continued: ‘[T]he endeavour of the authors of the Treaty to maintain in the market real or potential competition even in cases in which restraints on competition are permitted, was explicitly laid down in Article 85(3)(b) [now Article 101(3)(b) TFEU] of the Treaty.’ And it added: ‘Article 86 [now Article 102 TFEU] does not contain the same explicit provisions, but this can be explained by the fact that the system fixed there for dominant positions, unlike Article 85(3) [now Article 101(3) TFEU], does not recognise any exemption from the prohibition.’120 Following the same reasoning, in Metro I (1977) the ECJ made it clear that even if it were not the only effective way of competing, or that which should be given absolute priority in all circumstances, price competition was so significant that it could never be eliminated.121 In FEDETAB (1980) the ECJ clarified that Article 101(3) provides that the requirement of maintaining workable competition can be reconciled with other objectives and to this end some restrictions on competition can be authorised when they are indispensable to obtain­ ing such objectives, provided that they do not involve the elimination of competition in respect of a substantial part of the products in question.122 This doctrine was confirmed by the ECJ in Metro II (1987).123 In ANCIDES, the ECJ explained that an excessive – and in the case in question, increas­ ing – concentration of market power could be an obstacle to obtaining – or renewing – one of the old individual exemptions under Article 81(3) of the EC Treaty.124

  See section 10.3 above.   See Van Houtte (1983) 84ff. 119   According to Veljanovski (2004) 178–79, ‘a further complication or gap is the absence of a definition of the term effective competition’). The author puts forward various definitions of competition that are typically found in European competition law textbooks: (1) rivalry; (2) absence of constraint; (3) an outcome or condition in the market where individual firms or buyers do not have influence over price; (4) an atomistic market structure; and (5) a state of affairs where consumer welfare cannot be further improved. 120  ECJ Continental Can (1973) paras 24, 25. 121  ECJ Metro I (1977) para 21. 122  ECJ FEDETAB (1980) para 17. 123  ECJ Metro II (1987) para 65. 124  ECJ ANCIDES (1987) para 13. 117 118

The Concept of the Elimination of Competition in the Case Law of the EU Courts  117 In Schöller (1995) and Langnese-Iglo (1995), the GC also declared that an exemption could be revoked on the basis of Article 101(3)(b) if competitors’ access to the market of the undertaking that enjoyed the exemption was considerably obstructed by the authorised agreement(s).125 This case law does not allow the meaning of the fourth condition to be determined accu­ rately and thus given a workable definition. Notwithstanding these judgments, where Article 101(3)(b) TFEU is considered in isolation, the ECJ and the General Court have been able to clarify better the meaning of this provision by relating it to Article 102 TFEU.126 Some authors have suggested that the case law of the ECJ on Article 65(2)(c) of the ECSC Treaty could fill this potential gap, at least partially.127 According to this provision, an agreement in the coal and steel sector could not be authorised unless the agreement [was] not liable to give the undertakings concerned the power to determine the prices, or to control or restrict the production or marketing, of a substantial part of the products in question within the common market, or to shield them against effective competition from other undertakings within the common market.

This was analogous to the fourth condition of the exemption set out in Article 101(3)(b) TFEU: the power to determine prices is more or less equivalent to the power undertakings have when competition has been eliminated. The first significant judicial ruling concerning the interpretation of Article 65(2)(c) ECSC Treaty was the ECJ’s Opinion 1/61. In order to tackle the incipient crisis in the coal and steel sector, the High Authority and the Council proposed, on the basis of Article 95 of the ECSC Treaty, a revised version of Article 65(2). Amongst their intentions was that the High Authority be allowed to leave to one side the conditions listed in section (c) in order to authorise the agreements related to the purchase or sale in common, subject to some conditions. The Court ruled against this, declaring that it was not possible to ignore the conditions set out in section (c), in the first place because it would be more than a mere adaptation of the ECSC Treaty (the only tolerable thing in the light of Article 95),128 and secondly because it would breach Article 4(d), which declared ‘restrictive practices which tend towards the sharing or exploiting of markets’ to be incompatible with the common market in coal and steel.129 In other respects, the basic approach of Opinion 1/61 is similar to that of the ECJ in Continental Can (1973): the maintenance of substantial competition is one of the essential characteristics of the European treaties. The specific nature of ‘substantial competition’ in the context of Article 65(2)(c) ECSC Treaty was clarified by the ECJ in Geitling (1966), a few months after Opinion 1/61.130 In this case, the mining companies of the Ruhr basin appealed against the High Authority’s refusal to authorise the creation of a single marketing board (‘comptoir de vente’).

125  GC Schöller (1995) para 149; GC Langnese-Iglo (1995) para 152. I have applied the specific conclusions of the GC in this case more generally. 126   See section 10.2 below. 127   Van Houtte (1983) 84–91. 128   Art 95 of the ECSC Treaty allowed the High Authority to amend previously conferred powers but not to grant new ones. 129   The ECJ’s approach in Opinion 1/61 was followed by the GC in, inter alia, GC Eurofer (1999) paras 80ff and GC Thyssen (1999) paras 264ff. See also AG Van Gerven’s Opinion in HJ Banks & Co (1994) paras 14ff. 130   Opinion 1/61, 165 (French edn).

118  Economic Power under Article 101(3)(b) TFEU The Court declared that the meaning of Article 65(2)(c) of the ECSC Treaty was the same as that of Article 101(3) TFEU. If it is accepted that the drafting of both provisions was inspired by a common intention, the ‘power to determine prices’ as set out in the former would be more or less the same as the power that undertakings enjoy in the latter as a result of having eliminated competition with respect to a substantial part of the market. The power to determine prices means that whoever has such power can establish prices at an appreciably different level from that which would be established by the simple operation of competition; it is necessary, therefore, to examine whether effective prices are or could be different from those that would have existed if there had not been any power to fix prices.131 This was, according to the Court, the specific meaning of Article 65(2)(c) of the ECSC Treaty. The power to determine prices results from both the elimination of competition between members of a cartel (internal competition) and the absence of competition from other undertakings (external competition). The absence of internal competition was clear: the members of the comptoir de vente had abandoned their economic independence in the market. The Court concluded that there was an absence of external competition from the lack of efficient competition from other coal mining areas of the common market (the producers – in this case, extractors – of heavy or voluminous products normally have geo­ graphic protection), from coal imported from third countries (which had a market share of 15 per cent in Federal Germany) and from fuel oil, although competition from the latter was real and increasing, and reduced the power of the members of the comptoir in the market for energy generation.132 The participants in the comptoir were not confronted with immutable market prices; instead, each one of them tried to ‘determine’ market prices; quite successfully, as it turned out.133 As regards the question of deciding whether the power to determine prices extended to cover a substantial part of the products in the common market, the Court declared that this was the case if the wide range of the effects of the power to determine prices was not subordinated or accessory, but able to affect negatively the level of competition desired by the Treaty in the common market. The market share of the undertakings in question (which ranged from 26 to 43 per cent of the common market) and their relative import­ ance compared with their competitors justified the High Authority’s conclusion on this point. The principles laid down in this judgment have stood the test of time,134 and their impor­ tance when interpreting Article 101(3)(b) TFEU cannot be overstated. In Geitling II (1962), the ECJ admitted expressly the analogy between ‘the power to determine the prices . . . of a substantial part of the products in question within the common market’ referred to in the ECSC Treaty and ‘the possibility of eliminating competition in respect of a substantial part of the products in question’ of the EEC Treaty (now the TFEU).135 Within the scope of the ECSC Treaty, which covered relatively homogenous products, competition was essentially over prices, which justified the exclusive reference to this parameter when deciding whether competition had been eliminated. In markets for less homogenous products, and for the  ECJ Geitling II (1962) 201.  ECJ Geitling II (1962) 205–07. 133  ECJ Geitling II (1962) 211. 134   Van Houtte (1983) 90–91. They were relevant in 1983, and they are still relevant now. 135   The omission of the wording ‘within the common [or internal] market’ from Art 101(3)(b) TFEU and its predecessors does not seem to have significant consequences, since the aim of this phrase – to make reference to the Treaty’s objectives – is identical to the purpose of the fourth condition of the exemption in the Treaty, accord­ ing to Continental Can. See the earlier part of this section. 131 132

Analysis of Article 101(3)(b) TFEU  119 purposes of Article 101(3) TFEU, this concept must be extended to cover all competition parameters (that is, all the transaction conditions). As a result, a first attempt to define the concept of ‘eliminating competition in respect of a substantial part of the products in question’ would make it equivalent to: [A] situation in which the parties to an agreement have the opportunity, given the lack of internal and external competition, to establish the transaction conditions at an appreciably different level from that which would be established under the sole effect of competition – or, even better, in the absence of the agreement – for a substantial number of transactions, so that the amount of compe­ tition necessary for the fundamental requirements to be respected and the objectives of the Treaty to be achieved is no longer present.136

On this basis, a restrictive agreement cannot be authorised if it affects a substantial part of the market, since otherwise the parties, without competitive pressures, could determine transaction conditions. The criteria employed in the case law137 and the decision-making practice of the Commission in applying Article 65(2)(c) of the ECSC Treaty were very sim­ ilar (if not identical) to those used in applying Article 101(3)(b) TFEU.138 Ultimately, the criterion would consist in not limiting free competition so as to endanger the objectives of the internal market, in particular the establishment of ‘a system ensuring that competition in the internal market is not distorted’ (ex Article 3(1)(g) of the EC Treaty and Protocol No 27 of the EU Treaty/TFEU) and the creation of a single market in which the conditions of an internal market exist. Such objectives are not endangered when only a few insignificant undertakings take part in the agreements.

5.4  ANALYSIS OF ARTICLE 101(3)(B) TFEU

The means by which the European Commission, national competition authorities and national courts ensure compliance with the fourth condition of Article 101(3) TFEU is structurally similar to merger control, since the objective is also to prevent undertakings from altering the market structure, and not to permit the existence of excessive concentra­ tions of economic power through agreements or restrictive practices. The concepts of dominant position and elimination of competition thus describe a structural situation that the competition rules, led by the Treaty, intend to prevent (if it arises from collusive agree­ ments or concentrations between undertakings), or which they do not trust, although not to the point of prohibiting it as such, but only its abuse (when this has been obtained, for instance, ‘as a consequence of a superior product, business acumen or historic accident’139). However, the comparison of the concepts of dominant position under Article 102 TFEU, significant impediment of effective competition and dominant position within the mean­ ing of Regulations 4064/89 and 139/2004, and elimination of competition within the meaning of Article 101(3)(b) TFEU may create problems; at first sight, it might seem as though apples are being compared with pears. Ultimately, as will now be seen, we are dealing with the same thing.   Van Houtte (1983) 90–91 (translation from the French original).   See eg ECJ Case 66/63 Netherlands v High Authority (1964) para 2(B) in fine. 138   See eg Commission decisions Arbed/Cockerill-Sambre (1984) paras 24ff, especially 41; Arbed/Usinor Sacilor (Europrofil) (1991) paras 38–40; ENSIDESA/Aristrain (1992) paras 30–33. 139   US v Grinnell 384 US 563, 571 (1966). 136 137

120  Economic Power under Article 101(3)(b) TFEU On the one hand, it is said that Articles 101 and 102 TFEU emphasise the behaviour of undertakings, while Regulation 139/2004 (like Regulation 4064/89 before it) emphasises market structure. This, however, is an oversimplification. While it is true that Articles 101(1) and 102 TFEU undoubtedly refer to behaviour (enter­ ing into collusive agreements and the abuse of a dominant position), it is no less true that Article 101(3)(b) TFEU shares the structural concerns of the Merger Regulation. Further although the acquisition by an undertaking of a dominant position on its own merits (better quality and technology, for instance) or by sheer chance is not prohibited, the European control of already dominant undertakings shows, first, a certain distrust of concentrations of economic power (as in the USA) and, secondly, that once (perhaps for very good reasons) the possibility of maintaining a market structure in which effective competition is not threatened has been lost, the mistakes that derive from this structural situation in which the conditions of competition are unusual140 are rectified by subjecting dominant undertakings to special and stricter supervision. All of this shows that the EU authorities are very much concerned with structural matters as regards Articles 101 and 102 TFEU. With respect to Article 101(3)(b) being the bottom line of what can be tolerated with respect to restrictive agreements, both this provision and the Merger Regulation (Article 2(3) of Regulation 139/2004, like Article 2(3) of Regulation 4064/89 before it) share a fun­ damental structural concern: the position of the market ‘the day after’ the transaction, both ex post when it has taken place (by means of restrictive agreements) and ex ante when it has not (through concentrations). In the same way that a concentration which significantly impedes effective competition will not be authorised, in particular because it creates or strengthens a dominant position, neither will a restrictive agreement between undertakings be authorised if, among other things (the analysis of Article 101(3) is more complex),141 the agreement allows the parties to eliminate competition in respect of a substantial part of the market. In fact, the new merger control test, with its focus on the significant impediment of effective competition, brings the two concepts even closer together (significant impedi­ ment/substantial elimination). It has rightly been said that the analysis carried out under the Merger Regulation is structural and looks to the future. The examination of the fourth condition of the legal exception/exemption is also structural, although less prospective. Indeed, Article 8(1) of Regulation 17 established that exemption decisions were granted for a fixed period of time, and accordingly the Commission had to foresee the effects of an agreement during that period, but not after. Article 8(3) of Regulation 17 concerned cases where the Commission was able to revoke its exemption decisions (exceptional, but in theory less so than in merger control).142 Concentrations oblige a prospective examination – that is, for a longer period (for the whole foreseeable future, since there is no time limit on validity for clearance decisions), and in greater depth (since there is no way of turning back the clock, except in exceptional circumstances).143   See AG Fennelly’s Opinion in CEWAL (2000) para 21.   Not eliminating competition is only one of the four conditions of Art 101(3). 142   However, there are no examples of withdrawal of an individual exemption following application of Art 8(3) of Reg 17. 143   Arts 6(3) and 8(6) of Reg 139/2004 (like Arts 6(3) and 8(5) of Reg 4064/89 before them) allow the revoca­ tion of decisions clearing concentrations between undertakings on more limited grounds than under the repealed Art 8(3) of Reg 17, although a precedent of this nature already exists in the Commission’s decision-making prac­ tice with respect to merger control under the former Regulation. See Commission decision SANOFI/Synthélabo (1999). 140 141

Analysis of Article 101(3)(b) TFEU  121 In addition, it should be noted that the dividing line between what is an agreement for the purposes of Article 101(3) TFEU and what is a concentration for the purposes of the Merger Regulation, and also between what is irreversible and what is not, can be tremen­ dously hard to define.144 As has just been explained, European competition law as a whole shares a basic struc­ tural aim: to achieve ‘normal’145 – in the sense of fluid – competition conditions the day after a transaction. That is why it does not allow undertakings to be granted sufficient eco­ nomic power to hinder effective competition in the market and establish non-competitive transaction conditions whether through exemption of a restrictive agreement or through economic concentration. Further, it seems that Article 101(3)(b) TFEU must be applied taking into account the rest of the competition in the market, rather than the joint power that undertakings to the con­ centration have, although in reality this is the same thing looked at from a different angle. Indeed, restrictions on competition always result in market power.146 However, the emphasis of the concept of elimination of competition is on the market – on the competi­ tion (internal and external) that remains after a collusive agreement between undertakings has been entered into, whereas the emphasis of the concept of dominant position is on the undertakings themselves – on their power to control what happens in the market. With regard to the former, the focus on the power that is not held (by the parties to the agree­ ment), while in the latter the focus is on the power that is held (by dominant undertaking(s)). If there were no competition between the parties to a restrictive agreement147 (taking into account that the elimination of competition between independent undertakings that take part in this kind of agreement is not always complete), we would see that both notions point, in practice, to the same reality, seen from different perspectives: the insufficient nature of competition remaining outside an agreement (the limited power of competitors) is more or less the same as the excessive market power of one or more undertakings when they do not compete amongst each other, but only with third parties, being able to behave as a collective entity in the market. The market is like a bottle that is half empty or half full: the quantity of liquid (whether market power or residual competition) is the same. The elimination of effective competition with respect to a substantial part of the market evokes negative (or passive) market power, which cannot be abused, whereas the dominant position evokes positive (or active) market power, which can be abused. In this way, there may be restrictions in relation to which the elimination of competition does not mean that a dominant position is established, except where there is a collective dominant position. In this situation, the two concepts converge.148 The competitive situation in a given market can be studied, therefore, from the perspec­ tive of the power that others have (the power that is not enjoyed, the competition that is left), as occurs under Article 101(3) TFEU, or by looking at the power that the undertakings examined have, as occurs under Article 102 TFEU or merger control, with identical 144   See the Commission Notices on concentrations and cooperation (European Commission (1990)), on coop­ erative joint ventures (European Commission (1993)), and on full-function joint ventures (European Commission (1998a)). See also the Commission’s decision regarding the application of the Merger Regulation in KLM/Alitalia (1999), which is analysed just below. 145   See, once more, AG Fennelly’s Opinion in CEWAL (2000) para 21. 146   See Guidelines on Horizontal Cooperation Agreements (European Commission (2011)) paras 3, 28, 40, 41and 44 in fine. 147   Or between members of a network of agreements. See ECJ Delimitis (1991). 148   See chs 7 and 9 below.

122  Economic Power under Article 101(3)(b) TFEU results.149 The concepts of ‘eliminating competition in respect of a substantial part of the products in question’ and dominant position are, therefore, ‘market equivalents’. The differences between the examination of merger control operations and the examina­ tion of agreements that restrict competition are currently limited, on the one hand, to the necessity or otherwise of evaluating internal competition existing between participant undertakings (the competition that continues to exist between the parties to a restrictive agreement can be very significant);150 and, on the other hand, to their temporal perspective: prospective in terms of the future control of concentrations and retrospective in terms of the individual control of agreements that restrict competition, following the adoption of Regulation 1/2003 and the introduction of the system of ‘legal exception’. Under the now extinct system of individual exemptions under Regulation 17, which should have been, but almost never was, prospective,151 the temporal scope of the analysis of the repercussions of a restrictive agreement on the structure of affected markets was also different. In a concentration, the change in the competitive structure of the affected mar­ kets is, in principle, permanent and irreversible, although there are some strange exceptions of rapidly reversible concentrations, such as the failed KLM/Alitalia alliance in the air transport sector.152 With regard to collusive agreements, the alteration will last as long as the effects of the agreement itself. (The fact that the undertakings are fully competitive when their agreement ends, or that the agreement is short-term, is – or at least should be – irrele­ vant for the purposes of examining the fourth condition of the exemption,153 and must be considered during the weighing up of the pros and cons of the operation as regards the first two conditions, or – above all – in the indispensability of the restrictions.) That is why the temporal scope of the prospective analysis common to both provisions was theoretically, in the first case, the whole foreseeable future, and, in the second, the duration of the effects of the agreement, as has already been explained. Putting these qualifications to one side, the concern to ensure that effective competition is not eliminated in the control of collusive agreements is as structural as the concern for not creating or strengthening dominant positions in merger control. In practice, there are no notable differences between the method of considering the time factor in one or the other field. In both cases it may be interpreted as a factor that weakens or strengthens154 the market position of the undertakings. Some authors155 have stressed the 149   In respect of merger control, the Commission itself made this same comparison in its Draft Notice on Horizontal Mergers (European Commission (2002b)) para 22, where as regards the change in market power of undertakings in mergers it stated that it would verify ‘whether the merging firms will face sufficient residual com­ petition to make it unprofitable to increase prices or reduce output’. See also Böge & Müller (2002) 495, who refer to both the old test used in European merger control and the US ‘substantially lessening of competition’ test. See also the Guidelines on Horizontal Mergers (European Commission (2004a)) para 24. For their part, Evans & Grave (2005) 151–52 underline the new focus based on the effects of the new substantive test in merger control, apparently contrasting it with the static and structural analysis of dominant positions when, in fact, the same thing is being talked about from two different perspectives. 150   Internal competition between oligopoly members may, however, also be relevant in some merger control cases. 151   The absence of an obligation to suspend notified agreements while they were being examined and the slow­ ness of the Commission always allowed the effects of agreements on the market to be observed, but the Commission almost never did so. 152   See Commission decision KLM/Alitalia (1999), regarding a concentration that was dissolved a few months later. 153   By contrast, see Commission decisions GEC-Weir Sodium Circulators (1977) para III.4(b), and Synthetic Fibres (1984) para 54. 154   See eg Commission decision Tetra Laval/Sidel (2001), confirmed in GC Tetra Laval (2002) paras 148, 153. 155   eg Waelbroeck & Frignani (1998) 294, para 227.

Analysis of Article 101(3)(b) TFEU  123 great importance of the temporal element in the structural examination of markets, when examining both the fourth condition of Article 101(3) TFEU and the substantive require­ ments of the Merger Regulation.156 Without denying the importance of this argument, it is open to doubt whether, when applying the prohibitions and limitations to undertakings as regards agreements that restrict competition and economic concentrations, the Commission can introduce this debilitating or strengthening factor, absent from the word­ ing of the rules, in order to make them more flexible. On the one hand, Article 101(3)(b) TFEU and Article 2(3) of Regulation 139/2004 make no reference to ‘eliminating competition in a lasting way’ or to ‘impeding effective competi­ tion in a significant and lasting way’. Thus, occasional interpretations under the second (theoretical) part of the substantive test of the old Merger Regulation, which used the lack of significant impediments to effective competition to authorise operations in which a temporary dominant position could be created or a pre-existing dominant position slightly strengthened, could be seen as escape valves in cases where the Commission wished to be benevolent, without having any good reasons for authorising a transaction at its disposal.157 This could be why the ‘temporal argument’ was used so rarely and so tentatively.158 On the other hand, these provisions do not refer either to ‘eliminating (or impeding) competition in the future’ (in a longer or shorter period). In this regard, the time factor makes more stringent the examination of agreements and concentrations that may not be justified by the literal wording of the rules and creates legal uncertainty, at the very least as regards the specific duration of the relevant period in each case.159 In short, the analysis carried out under Article 101(3)(b) TFEU focuses, like that under the Merger Regulation, on market structure after the agreement applies or the notified operation is authorised, although it does have its own special features. Thus, as a specific element, the Article 101(3)(b) TFEU analysis focuses in the first place on discovering the degree of internal competition that persists between the undertakings that are party to an agreement that restricts competition. The greater the degree of restric­ tions on internal competition, the more necessary it will be for external competition to be intense and substantial in order for the agreement to merit exemption.160 Investigating the degree of elimination of competition in the market starts, therefore, with the undertakings themselves: it must be examined whether the agreed restrictions involve a total or just a partial elimination of competition between them. In the latter case, the importance of the aspects not regulated by the agreement must be evaluated – that is, a detailed analysis of the content of the agreement must be carried out. This might be more or less restrictive of competition between the parties, depending on the areas of competitive freedom that it affects. In reality, this is the same analysis as that under Article 101(1) TFEU, but from a positive perspective: Article 101(3) TFEU studies those areas where competition still exists 156   See Commission decision Synthetic Fibres (1984) paras 49, 52, where the Commission took into account that the removal of competition between European synthetic fibre manufacturers was only temporary, which meant that the parties were still aware that they would have to compete again between themselves as soon as the agreement was over. See also Commission decision Aérospatiale-Alenia/De Havilland (1991) para 54 and the Commission’s XXIst Report on Competition Policy (1991) 394. 157   Note, however, that in Commission decision Aérospatiale-Alenia/De Havilland (1991) the notified concen­ tration operation was prohibited. 158   For the substantive test in European merger control cases, see chs 4 and 9. 159  In Tetra Laval (2002), for example, the GC impliedly accepted four years. Will this period always be seen as reasonable, or will it depend on the circumstances? What does the expression ‘near future’, set out in para 153 of this judgment, mean? 160  GC TAA (2002) para 300.

124  Economic Power under Article 101(3)(b) TFEU instead of those where competition has ended (whose study allows the conclusion to be reached that an agreement restricts competition in the sense of the first provision). The analysis of the market power of several undertakings for the purposes of Article 101(3) therefore requires that the degree of coordination of such undertakings in the market is ascertained first. In addition, as regards competition outside the agreement, or external competition, the structural analysis of the market under Article 101(3)(b) follows in practice the system of Article 102 and merger control. However, in the latter area, as was noted above, in general the examination of the behaviour of undertakings does not generally provide data that is useful for the evaluation of their market power, unless it is a concentration operation capa­ ble of strengthening a previous dominant position, which could be established on the basis of both structural and behavioural criteria. With this exception, the suspension of concen­ tration operations until they are authorised makes the examination by the Commission exclusively prospective. With respect to the individual legal exception and block exemp­ tions, the possibility of putting into practice agreements without having to obtain the Commission’s approval often allows the behaviour of undertakings to be taken into account in order to evaluate their market power, as under Article 102 TFEU, but in this case in order to reject the applicability of the legal exception or to withdraw a block exemption, due to breach of Article 101(3)(b) TFEU. As a result, after residual internal competition, the next factor to be examined is the structure of supply, and in particular the market shares of the undertakings (those that are part of the restrictive agreement and those that are not) and the degree of concentration of the market; then the potential competition (which involves, among other things, the exam­ ination of barriers to entry); after that, the structure of demand, fundamentally the coun­ tervailing power of clients; and, finally, the behaviour of undertakings. This second part of the examination is certainly conventional, in exactly the same vein as under Article 102 TFEU (and, to a lesser extent, in merger control, as has just been explained), and the start­ ing point in all three cases is an identical analysis of the market, as regards its definition and structure. If effective competition is not eliminated within the agreement, it is not eliminated in general either.161 At the same time, if it is not eliminated outside the scope of the agreement, it is not eliminated in general either, no matter how much internal competition is elimi­ nated between the parties. ‘Eliminating competition’ within the fourth condition can occur, therefore, depending on the circumstances, through the elimination of internal competi­ tion without external competition being effective; through the elimination of external competition without internal competition being effective; or through the elimination of both. The greater the degree of elimination of internal competition, the more undertakings act as a unit against third parties. When internal competition between undertakings that are party to a restrictive agreement is already eliminated, because the content of the agree­ ment covers the main competitive parameters (such as price, production or marketing), eliminating competition equates to eliminating external competition.

161   Against this, see Commission decision P&I Clubs II (1999) section 7.3 below, where it was held that the group of undertakings in question, which held a collective dominant position due to an agreement that restricted competition, did not eliminate competition in the sense of Art 101(3)(b) TFEU because internal competition still existed among its members.

6 Assessment of Economic Power under Article 101(3)(b)(II) 6.1  THE IMPORTANCE OF INTERNAL COMPETITION: AGREEMENTS WITH LIMITED CONTENT

It is a fact that some agreements between undertakings which enjoy a very high joint market share have been authorised, and others with a much lower market share have not. One possible explanation for this discrepancy is that, with regard to the former, despite their substantial market share there is a high degree of internal competition between the parties.1 Indeed, competition between undertakings involves many different facets: price, production (quantity), quality of the product or service, sales conditions, means of distribution, after-sales service, innovation (research and development), marketing, and so on.2 In order to come within the scope of Article 101(1) TFEU it is not necessary for an agreement or practice to limit the freedom of the parties with respect to all of the above: it is enough if it does so with respect to one of them. However, it is clear that some of these parameters are more significant than others. For instance, a restriction on price competition is more serious than a restriction on sales conditions or the distribution of a product.3 Firms that are party to an agreement that restricts competition might continue to be partially free to compete with each other. For instance, they may limit the scope of their cooperation to the manufacture of a given product, yet be free to market or distribute it or to sell accessories or spare parts, etc. Thus, the Commission has authorised agreements which, despite bringing together the vast majority of operators in a market, do not eliminate com­ petition since their cooperation is restricted to certain limited aspects of their activities, while as regards the rest they maintain an appreciable degree of competition between them. The analysis of joint market power exerted by a group of undertakings joined by an agreement that restricts competition therefore requires an initial investigation into the extent to which they present a united front with respect to third parties, which means analysing the extent to which competition between them persists.4 1   The existence of differences in interests and company structure of the parties (their asymmetric nature) can also favour the existence of this type of competition. However, the fact that they are still competing in other product markets not covered by the agreement is irrelevant. If a restriction on competition capable of authorisation were to take place on such markets, the parties would have to notify it. The possibility of the parties fully competing again after the agreement has expired is also irrelevant, since this is precisely what they are supposed to do. See Tobío Rivas (1994) 382–83. 2   A Sölter, ‘Von atomistischen zum allparameter Wettbewerb’ (1975/76) 77 Scherpunkte des Kartellrechts 1, cited in Waelbroeck & Frignani (1998) 221–22, para 164. 3   Waelbroeck & Frignani (1998), ibid. 4  This is of vital importance under Art 101(3)(b) TFEU, but also in the analysis of collective dominant positions, particularly collusive ones. See ch 10 below.

126  Assessment of Economic Power under Article 101(3)(b)(II) In Papier Mince (1972), for example, the Commission referred inter alia to competition that existed between the parties to the agreement (which it referred to as ‘potential com­ petition’) when finding that the fourth condition of the exemption was satisfied. In International Energy Agency (1983), it authorised an agreement between almost all the oil companies which did not influence the pricing and production policy of the participants, and affected at most 10 per cent of their production, and only in cases where there was a shortage of petrol.5 In addition, in SMM&T (1983), which concerned certain agreements relating to the organisation of vehicle trade fairs, the Commission based satisfaction of the fourth condition on the mildly restrictive content of the agreements, which only limited competition as regards the promotion of vehicle sales, and nothing else.6 In Uniform Eurocheques (1984), although the agreements in question brought together, through their associations, practically all European banks, they concerned only a fraction of those banks’ activities.7 In the same way, in Commission decisions Belgian Banks (1986) and Italian Banks (1986), although practically all Belgian and Italian financial entities were parties to the agreements in question, those agreements were of very limited scope, and therefore a lot of internal (and external) competition existed between the entities.8 In decision X/Open Group (1986), agreements between the main computer undertakings present in Europe with the purpose of developing an open standard based on the operating system Unix were authorised by the Commission, on the grounds that competition among the parties to the agreement, as well as with third parties, would remain.9 In Continental/ Michelin (1988), the fourth condition was satisfied since the scope of the agreement was limited and contained only slight restrictions on competition.10 In National Sulphuric Acid Association II (1989), all producers of sulphuric acid in the United Kingdom had created a common agency for the purchase of sulphur, but they competed as regards other aspects of their activities.11 As in the earlier Belgium Banks (1986) and Italian Banks (1986), in Dutch Banks (1989) the Commission authorised certain agreements between banks which controlled 90 per cent of the banking sector in the Netherlands, precisely because of their limited scope (internal competition) and the presence of competition outside the agreement (external competition).12 The decision Concordato Incendio (1989) concerned an agreement between insurance companies with regard to industrial fires (with a market share of 50 per cent) and general fires (with a market share of 23 per cent) in Italy, which allowed price competition among its members to continue, although it also maintained vigorous external competition with other very powerful non-member undertakings.13 In IATA – Passenger Agencies (1991) and IATA – Cargo Agencies (1991), despite finding certain agreements between IATA members, which amounted to practically 100 per cent of the commercial airlines in the world, to be restrictive of competition, the Commission concluded that various alternative ways of competing internally in the distribution and marketing of air transport services of passengers and cargo were open to IATA members   Commission decision International Energy Agency (1983) para 32.   Commission decision SMM&T (1983) para 23. 7   Commission decision Uniform Eurocheques (1984) paras 41–43. 8   Commission decisions Belgian Banks (1986) paras 56–58; Italian Banks (1986) paras 68–71. 9   Commission decision X/Open Group (1986) para 46. 10   Commission decision Continental/Michelin (1988) para 36. 11   Commission decision National Sulphuric Acid Association II (1989) paras 1–2. 12   Commission decision Dutch Banks (1989) paras 57, 65. 13   Commission decision Concordato Incendio (1989) paras 1, 28. 5 6

The Importance of Internal Competition: Agreements with Limited Content  127 and users, and therefore competition within the meaning of the fourth condition of Article 101(3) was not eliminated.14 In Assurpol (1992), the Commission authorised an agreement between insurance companies that insured environmental damage risks, since although the companies concerned controlled 70 per cent of this market, there was still internal competition among the participants.15 In the decision Tariff Structures in the Combined Transport of Goods (1993), the agreements in question among all European railway undertakings were limited to the common fixing of the structure of sales prices and incidental costs of the combined transport of goods.16 Finally, the decision EPI Code of Conduct (1999) referred to a series of agreements among practically all authorised patent agents before the European Patent Office. The Commission found that these only partially restricted competition, as they excluded certain means of marketing and supplying services, and left members free to compete by other means.17 In conclusion, undertakings can continue to be actual or potential competitors to a greater or lesser extent, depending on the content of their agreements and on the competitive parameters that they affect. Those agreements that inhibit parties’ freedom of action with regard to price (above all those that standardise them) would seem at first sight to eliminate internal competition. Although price competition is not the only form of effective competition, its importance is such that it must never be eliminated.18 Therefore, if it is eliminated, strictly speaking two or more independent undertakings cannot be said to remain in the market (their independence would be purely theoretical, or formal). The elimination of price competition would thus prevent effective internal competition. The same could be said of freedom to introduce more or fewer products or services to the market: the importance of this is such (prices and supply being so closely related) that a lack of freedom regarding the amount of a product that is placed in a market would also involve the elimination of effective competition of an internal nature.19 14   Commission decisions IATA – Passenger Agencies (1991) paras 63–67; IATA – Cargo Agencies (1991) paras 54–61. 15   Commission decision Assurpol (1992) para 21. 16   Commission decision relating to Tariff Structures in the Combined Transport of Goods (1993) paras 58–61. 17   Commission decision EPI Code of Conduct (1999) para 46. 18  ECJ Metro I (1977) para 21. 19   In an attempt to justify the view that the elimination of price competition does not exclude the possible application of Art 101(3) TFEU, it has been said that competition within a single brand (intrabrand) can be as effective as competition between different brands (interbrand): Waelbroeck & Frignani (1998) 292, para 227. Without rejecting this argument outright, it is difficult to imagine how intrabrand competition can be strong enough to satisfy the fourth condition of the exemption without price competition except where the latter between different brands is sufficiently vigorous. In this case, the reason for granting an authorisation would come from outside, and not from other forms of residual intrabrand competition (as regards parameters other than price). Certainly, the elimination of intra-brand competition does not necessarily eliminate competition within the meaning of Art 101(3)(b) TFEU, and neither does the elimination of external competition, provided that internal competition is strong. Regardless of whether it played a significant role in the assessment of the fourth condition for the exemption, intrabrand competition was usually also examined by the Commission in the light of the first two conditions for the exemption (eg arguing that maintaining fixed resale prices does not benefit the consumer), and in weighing up the pros (the alleged technical or economic advantages, and the benefits for consumers) and cons of an agreement which restricts intrabrand competition (eg warning that if it were authorised, the agreement would eliminate parallel trade, and would lead to compartmentalisation of the single market). Intrabrand competition has been used either alone or together with other reasons to justify satisfaction of the fourth condition of Art 101(3) TFEU. See eg Commission decisions SABA II (1983) para II.B.4; Grundig I (1985) para II.B.4; Boussois/Interpane (1986) paras 10 and 20; BBC/Brown Boveri (1988) para 33; Delta Chemie (1988) para 45; Service Master (1988) para 27; Charles Jourdan (1988) paras 41, 42; Yves Saint Laurent Parfums (1991) para II.B.5; Parfums Givenchy (1992) para II.B.5; Grundig II (1993) paras 39–41.

128  Assessment of Economic Power under Article 101(3)(b)(II) Following this approach, in Geitling II (1962)20 the ECJ established that: This elimination of competition between members of the cartel is the internal effect of the agreement. Through the elimination of competition between its members, prices within the cartel are freed not only from ‘destructive’ competition but also from the pressure of competition which would otherwise have been exerted by those producers with the lowest production costs against those who have, for whatever reason, higher production costs.

According to the ECJ, the use that cartel members made of their joint market power was subject to external competition, but it could not be denied that the internal effect of the organisation of joint sales involved a certain power to determine prices, and that the extension of such power depended naturally on the volume of production under their control, which in this case was quite high.21 In addition, aside from internal competition among parties to an agreement, the Commission has at times based its decision that the fourth condition of the exemption is satisfied on the pro-competitive character of the agreement in question. Thus, in Langenscheidt/Hachette (1981) one of the factors which led to the Commission considering the fourth condition satisfied was that the creation of a joint venture between two undertakings which previously competed in the market of French language courses for Germans, where there were already around 20 undertakings, some of them much more significant than the joint venture, tended ‘rather to stimulate competition by replacing two under­ takings which were not very competitive in this field with one undertaking which better correspond[ed] to the requirements of the market’.22 In VW/MAN (1983), the Commission found the establishment of a joint venture between Volkswagen and MAN for the manufacture of trucks between 6 and 9 tons to be pro-competitive. The parties were not present in the market at that time, although they were potential competitors, which was why they needed an exemption.23 Years later, the Commission used identical reasoning in Ford/Volkswagen (1992), which concerned the establishment of a joint venture for the manufacture of a multi-purpose vehicle.24 In subsequent decisions, also concerning joint ventures, the Commission followed the same reasoning. For instance, in Olivetti/Digital (1994) it found that the agreement allowed the undertakings to compete better with existing, much more powerful competitors.25 Subsequently, in TPS (1999) – perhaps the most curious case of all – which concerned the Télévision par Satellite (TPS) agreement for the creation of a digital platform for the marketing of audiovisual programs and services via satellite and pay-per-view in France, it declared that, ‘[f]ar from eliminating competition, the TPS agreements are pro-­competitive.

20   As will be recalled, ECJ Geitling II (1962) concerned the review of an individual decision of the ECSC High Authority refusing authorisation of a single sales agency for a group of mining companies in the Ruhr valley. See section 5.3 above. 21  ECJ Geitling II (1962) 202–04 (French edn). Since almost all mining production of the Ruhr valley (and between 26 and 43% of their sales in the common market) was in the hands of the cartel members, the Court concluded that the High Authority was right in that the organisation in question had the power to determine prices, allowing mining companies to maintain them above the level that would have prevailed had the cartel not existed. See pp 205ff of this judgment. 22   Commission decision Langenscheidt/Hachette (1981) para 23. This argument should in fact have led to the conclusion that the agreement did not breach Art 101(1). See later in this section. 23   See Commission decision VW/MAN (1983) paras 12, 17, 35. 24   See Commission decision Ford/Volkswagen (1992) paras 37–38, confirmed by the GC in Matra Hachette (1994). 25   Commission decision Olivetti/Digital (1994) para 33.

Structure of Supply: Market Share and Degree of Concentration  129 Development of the pay-TV market has been strongly stimulated, particularly through the emergence of keen competition between CanalSatellite and TPS.’26 In general terms, we might ask whether a ‘pro-competitive agreement’ – that is, one which promotes competition – can be the object of a decision under Article 101(3) TFEU, since at first sight it would seem that, at most, it could be exclusively the subject of a ‘declaration of inapplicability’ (in the terminology of Regulation 1/2003) or of ‘negative clearance’ (in the language of the repealed Regulation 17). It does not seem to make sense to say that a procompetitive agreement restricts competition within the meaning of Article 101(1) TFEU and requires exemption. Nevertheless, the Commission’s precedents show that it takes the view that the restrictive nature or otherwise of an agreement depends on whether the participating undertakings can individually enter the market in question with a reasonable prospect of success.27 This question is linked to the application of Article 101(1) TFEU to restrictions on competition between potential competitors: if there is potential competition, competition is restricted and an exemption is required; if there is not a believable relationship of potential competition, the agreement is not within the scope of application of Article 101(1) TFEU and, therefore, it does not need to be authorised (it is perfectly legal).28

6.2  STRUCTURE OF SUPPLY: MARKET SHARE AND DEGREE OF CONCENTRATION

As has just been seen, the Commission takes into account very diverse factors when examining whether the condition of non-elimination of competition is satisfied. The importance of those factors has varied greatly from one case to another. However, the Commission has not always taken into account these ‘other elements’; sometimes it has based its reasoning exclusively on market share. At the same time, the Commission has not always indicated the precise market share in question, due to practical problems or lack of information, and has used general arguments to justify satisfaction of the condition.29 In the Commission’s decision-making practice, the uniqueness of certain situations has led it to apply Article 101(3)(b) TFEU to restrictive agreements whose market shares have allowed the parties, at first sight, to impose non-competitive transaction conditions. Thus, in order to qualify the significance of market shares, apart from putting them in historical perspective (observing their upward or downward trend), the Commission has valued other structural characteristics of markets (such as the concentration of supply and demand, the size of the closest competitors, potential competition, substitutability of demand, etc), the characteristics of the participating individual undertakings (capital, technological level, control of raw materials, access to distribution networks, etc) and, of course, the internal competition that exists between them, as has just been seen.30 Joint market share is a very valuable indicator – although not the only one – when examining the extent to which competition will be reduced and the joint market power of the parties to an agreement that restricts competition will increase. An excessive reduction in competition or, in other words, an excessive increase in joint market power will involve the   Commission decision TPS (1999) paras 135–38.   cf GC Matra Hachette (1994) paras 135ff. 28   As regards this issue, see section 2.2 above. 29   See Commission decisions SNPE-LEL (1978) 42; Campari (1977) 73. 30   See, inter alia, Ritter & Braun (2004) 155ff. 26 27

130  Assessment of Economic Power under Article 101(3)(b)(II) elimination of competition with respect to a substantial part of the market within the meaning of the fourth condition of Article 101(3). The criteria used to examine whether too much competition has been eliminated are, therefore, the same as those that are used to conclude that one or several undertakings enjoy a dominant position. Market share is, therefore, fundamental. However, in this area the Commission’s practice in Article 101(3) proceedings has been more erratic and less uniform than under Article 102. In merger control, the approach has not been very uniform as regards market share either, although it has not been as unpredictable here as in cases concerning individual exemptions. As noted, it is undeniable that some agreements between undertakings which enjoy a very high joint market share have been authorised, while others with a much lower market share have not. The explanation for this is logical in many cases: it may be that, despite having a high market share, the parties retain a significant degree of internal competition; or that the high market share refers to the products directly covered in the agreement, without taking into account other substitute products; or that the same market shares are obtained in smaller geographical areas than the relevant market from a geographical point of view (for instance, the national market share is cited when the market is European or worldwide); or that the restriction, despite being slight, does not satisfy the first two conditions, in the sense that its economic or technical advantages and the benefits for consumers are still less than the moderate damage that it causes to competition. But the truth is that precedents do exist where the markets, the types of agreements and the market shares are similar and yet the Commission has reached very different conclusions as to whether the fourth condition is satisfied. Whatever the situation, the principle that market share is only significant if it is stable and reasonably long lasting, settled by the case law of the ECJ in its analysis of dominant position,31 fully applies not only to European merger control32 but also to the application of Article 101(3) TFEU,33 and even to the granting of block exemptions, as a result of the provisions that allow the maximum market share thresholds established by the block exemption regulations to be exceeded temporarily, within certain limits.34 In its old Guidelines on Horizontal Agreements (2001), with particular reference to R&D agreements, the Commission expressly allowed this principle. As regards the moment of the evaluation and the duration of block exemptions for such agreements, it explained: [T]he first companies to reach the market with a new product/technology will often enjoy very high initial market shares and successful R&D is also often rewarded by intellectual property protection. A strong market position due to this ‘first mover advantage’ cannot normally be interpreted as elimination of competition. Therefore, the block exemption covers R&D agreements for an additional period of seven years (ie beyond the R&D phase) irrespective of whether or not the parties obtain with their new products/technology a high share within this period. This also applies to the individual assessment of cases falling outside the block exemption provided that the criteria of Article 81(3) [now Article 101(3) TFEU] as to the other aspects of the agreement are fulfilled.35  ECJ Hoffmann-La Roche (1979) paras 39–41.   See ch 4 above. 33   In Commission decision UIP (1989) paras 13 and 57, for example, the Commission stressed that market shares of the parties within the different European national markets varied considerably from one year to another, depending on the success of their films, and for that reason they were not an indicator of the real power of the parties. 34   See eg Art 7(d), (e) and (f) of Reg 330/2010, on block exemptions of certain vertical restrictions; Art 7(d), (e) and (f) of Reg 1217/2010, on block exemptions of certain R&D agreements; Art 5(d), (e) and (f) of Reg 1218/2010, on block exemptions of specialisation agreements; Arts 8(2) and 9(2) of Reg 1400/2000, on block exemptions for categories of motor vehicle distribution agreements; Art 7 ss 4–9 of Reg 358/2003, on block exemptions in the insurance sector; and Art 8(2) of Reg 772/2004, on block exemption for categories of technology transfer agreements. 35   Guidelines on Horizontal Cooperation Agreements (European Commission (2001a)) para 73. See also the new Guidelines on Horizontal Cooperation Agreements (European Commission (2011) para 126. 31 32

Structure of Supply: Market Share and Degree of Concentration  131 In the context of the individual application of the legal exception (previously exemption) under Article 101(3) TFEU, in general where there is a market share of 100,36 95,37 92,38 90,39 85,40 8041 or 7242 per cent the conclusion can be reached, without any further indepth examination, that ‘competition has been eliminated’. The same conclusion can be deduced from a market share of between 50 and 60 per cent, if it is a flagrant breach,43 although even lower market shares, of 55–45,44 35,45 or even 2646 per cent, have also been sufficient for the authorisation to be refused. On the other hand, a market share that is simply ‘low’,47 or not very high, such as 4,48 5,49 7.5,50 8,51 8.3,52 10,53 12,54 13,55 15,56 16,57 17,58 18,59 20,60 21,61 22 (a market share considered to 36   eg Commission decisions Kali + Salz (1974) 25; Peroxides (1984) para 53; Aluminium – Importations from Eastern Europe (1984) para 16.2.4; Decca Navigator System (1988) paras 122, 127; Eurocheque–Helsinki Agreement (1992) paras 74–77; Construction Industry in the Netherlands (1992) para 128; Auditel (1993) paras 31–34. 37   Commission decisions FEDETAB (1978) 30; Rennet (1979), confirmed by ECJ FEDETAB (1980) paras 188– 89, and ECJ Coöperatieve Stremsel- en Kleurselfabriek (1981) para 18, respectively. The agreements in question enabled the parties to control over 90% of the market, and the exemption was also refused. 38   Commission decision Tetra Pak I (BTG Licence) (1988) paras 44, 58–59 (abuse of a dominant position and implicit withdrawal of the block exemption for the patent licence agreement in question). 39   Commission decision Bomée (1975) 30, at 33. 40   Commission decision Iftra Aluminium (1975) 12. 41   Commission decision Centraal Bureau voor de Rijwielhandel (1978) 18, at 22. 42   Commission decision Hudson Bay/Dansk Pelsdyravlerforening (1988) para 12(i). 43   Commission decisions Gerofabriek (1977) 12; Flat Glass in Italy (1981) para II.B.1, second para. 44   Commission decision VBBB/VBVB (1981) paras 12–16, 61. 45  In Billiton/Metal and Thermit Chemicals, in the Commission’s VIIth Report on Competition Policy (1977) paras 13–15, which concerned an exclusive supply agreement between the dominant manufacturer and the main industrial consumer of a product whose market share was 35%, the Commission held that the agreement in question eliminated competition with respect to a substantial part of the product. 46  In Geitling II (1962), which concerned the ECSC Treaty, it was admitted that the parties could determine prices in a market (something equivalent to eliminating competition from a substantial part of the market) when they held a joint market share of 26–43% in the common market. For more on this judgment, see section 5.3 above. 47   See Commission decisions Exclusive distribution agreements for whisky and gin (1985) para 29 in fine; Yves Rocher (1986) para 65 in relation to 6 (low share and low market concentration); Transocean Marine Paint Association IV (1988) para 16 in relation to 3 (low market share compared with powerful competitors); Grundig II (1993) paras 39–41 (low market share in interbrand and intrabrand competition); Novalliance/Systemform (1996) para 76, among others. 48   Commission decision Carlsberg (1984) para 12. 49   Commission decision Sopelem-Vickers (1978) 52. 50   Commission decision Man-Saviem (1972) 36. 51   Commission decision BNP/Dresdner Bank (1996) para 21 in relation to para 10 (the share in France and Luxembourg was 8%; in Germany it only reached 6%). 52   Commission decision Saba II (1983) para II.B.4. SABA’s share in the television sets market was 7.3% in Italy, and 0–2% in the sound reproduction devices market. 53   Commission decisions Transocean Marine Paint Association I (1973) 18, at 20; De Laval-Stork II (1987) paras 1(g), 7; Charles Jourdan (1988) paras 41, 42 (the share was 10% in France and 2% within the common market); Uniworld (1997) paras 83ff, in relation to para 40. 54   Commission decision Moosehead/Whitbread (1990) paras 6, 16. 55   Commission decision Whitbread (1999) para 177. 56   Commission decisions De Laval-Stork I (1977) 17; BPCL/ICI (1984) paras 18–19, 40; Bayer/BP Chemicals (1988) para 7 in conjunction with paras 38–41; AGR/Unipart (1987) para 40 in conjunction with paras 16–20. 57   Commission decision FIAT/Hitachi (1992) para 26. 58   Commission decision Mitchell Cotts/Sofiltra (1986) paras 15, 26. 59   Commission decision Amersham/Buchler (1982) para 14. 60   Commission decisions Rank-Sopelem (1975) 24; Rockwell/IVECO (1983) para 11(a) and (b); BP/Kellogg (1985) para 15(c) in relation to para 5; IVECO/Ford (1988) paras 41, 38; TEKO (1989) paras 3, 31; Alcatel Space/ ANT Nachrichtentechnik (1990) paras 8, 21. 61   Commission decision ENI/Montedison (1986) paras 39–41 (the highest share in the common market, which the Commission seemed to accept as the relevant geographic market, was 21%; in Italy, the highest share for one product reached 57%).

132  Assessment of Economic Power under Article 101(3)(b)(II) be significant in some decisions62), 23,63 24,64 2565 or 2666 per cent, is not an obstacle to exemption, and sometimes even a market share of 28–29,67 30,68 3169 or 33.570 per cent, which is rather high, is not an obstacle either. Some individual decisions have authorised agreements with much higher market shares: 40,71 48,72 50,73 60,74 70,75 80,76 90,77 and even 10078 per cent. These decisions are usually explained – although not always79 – by reference to either the maintenance of internal com62   Commission decisions UIP (1989) paras 56–59 (UIP’s share in the common market was 22%, but the market characteristics described in the decision seemed to suggest the existence of national markets); Exxon/Shell (1994) paras 79–82 (‘significant’ market share compared to the shares accepted by the Commission in its block exemption regulations, and in its Notice regarding cooperative joint ventures (1993), which loses importance with regard to the existence of internal residual competition and external competition of different technologies); Fujitsu AMD Semiconductor (1994) para 45 (22% world share, 27% in the common market). 63   Commission decisions Enichem/ICI (1987) paras 46–50; VW/MAN (1983) paras 12, 17, 35. 64   Commission decision Bass (1999) para 195. 65   Commission decision Jaz-Peter (II) (1978) 21. 66   Commission decision Nuovo CEGAM (1984) para 25. 67   Commission decision Scottish and Newcastle (1999) para 164. 68   Commission decision Bayer-Gist Brocades (1976) 13, at 20. 69   Commission decision Olivetti/Canon (1987) paras 51, 58. 70   Commission decision Grundig (1985) 7. 71   Commission decision Boussois/Interpane (1986) paras 10, 20. 72   Commission decision Optical Fibres (Corning) (1986) paras 30, 73–80. The 48% market share corresponded to production capacity within the common market, in a market which the Commission seemed to recognise as being worldwide. Apart from taking into account the competitive pressure of American and Japanese companies, the Commission referred to competition from other transmission methods and to the purchasing power of clients (mail and telecommunications companies or administrative entities), and also compelled those companies to grant manufacturing licences to third companies. 73   Commission decisions FN-CF (1971) 12; Concordato Incendio (1989) paras 1, 28. 74   Commission decision Eirpage (1991) para 20. In this case, satisfaction of the fourth condition for the exemption was justified since the technological market was considered to be immature and in full expansion, and it also had to cope with competition from mobile phones. 75   Commission decisions Rank-Sopelem (1975) 22; Assurpol (1992) para 21; British Airways/Iberia/GB Airways (2003) para 33 (70% in the London-Madrid route). This individual exemption with conditions was followed by the unconditional first-phase clearance of the merger between British Airways and Iberia (Commission decision British Airways/Iberia [2010]). 76   Commission decisions Papier Mince (1972) 27; National Sulphuric Acid Association I (1980) 31. 77   Commission decisions Dutch Banks (1989) paras 57, 65; CECED (1999) para 6. In Visa International (2002) para 54, the Commission authorised a restrictive agreement where the parties held market shares of 65.9% and 93% in certain countries while in other countries such shares were limited to 4% or 2%. 78   See Commission decisions International Energy Agency (1983) para 32; Uniform Eurocheques (1984) paras 41–43; Belgian Banks (1986) paras 56–58; Italian Banks (1986) paras 68–71; National Sulphuric Acid Association II (1989) para 1 (100% of purchases in the UK); Scottish Nuclear (1991) para 42; Tariff Structures in the Combined Transport of Goods (1993) paras 58–61; EBU/Eurovision System (1993) para 77 (100% of public television channels); EPI Code of Conduct (1999) para 46. 79   See eg Commission decision United Reprocessors (1975) para III.4. Despite the fact that the parties had 100% of the market, the Commission was confident that competition would appear in the future, in several years (!), when ruling that the fourth condition had been satisfied, but with the proviso that this decision would not set a precedent as regards the interpretation of ‘eliminating competition as regards a substantial part of the products involved’. See the Commission’s Vth Report on Competition Policy (1975) para 45. Commission decision P&I Clubs I (1985) paras 11, 55 is also unconvincing as regards satisfaction of Art 101(3)(b) TFEU. It referred to an agreement between P&I (protection and indemnity) insurance companies whose world market share was 90% in tonnage terms. Despite the Commission finding that competition in prices and in the offer of services persisted between members, the description of the mechanics of the agreements implies that the margin for competition was minimal. The Commission also explained that it had reached a compromise, since prohibition of the agreement would have led to the shipping companies switching to other insurance companies outside the common market, something that would ultimately have damaged consumers. This argument seems more a political than a legal one, and hardly fits the parameters of Art 101(3) TFEU. The Commission did, however, commit itself to ‘control strictly’ the agreements. The exemption granted in 1985 was renewed in Commission decision P&I Clubs II (1999). For a criticism of this last decision, see section 7.3 below. Equally, in Commission decision Stichting

Structure of Supply: Market Share and Degree of Concentration  133 petition (as we have just seen) or the presence of other elements qualifying the market shares (as will now be seen), because the Commission claims to have solved the problems of eliminating competition either by imposing conditions and obligations on the participant undertakings (aimed fundamentally at allowing third parties to have access to the market)80 or by means of very short authorisation deadlines.81 The effectiveness of the last two mechanisms in counteracting the market power of the parties is, however, open to doubt in many cases. Finally, the Commission often omits any reference to precise market share, and is content to justify satisfaction of the fourth condition on the basis of various general circumstances.82 In any case, as regards market share, the Commission’s decision-making practice when applying Article 101(3)(b) TFEU smacks of arbitrariness. In some cases it has authorised agreements where the parties have a very high market share and competition among them is eliminated for long periods of time, and in others, where the parties have much less market power, it has concluded that competition has been eliminated and has rejected the exemption.83 This erratic practice of the Commission continued until the end of the authorisation system. Baksteen (1994) paras 38–42, the Commission justified satisfaction of the fourth condition due to internal price competition, and external competition via imports, and the existence of alternative materials and the short duration of the authorisation (all of them scarcely credible reasons). 80   See eg Commission decisions Eurotunnel (1994) paras 102ff; Pasteur Mérieux-Merck (1994) paras 96, 112; Lufthansa/SAS (1996) paras 82–85; Atlas (1996) paras 59ff; Phoenix/Global One (1996) paras 65–66; Unisource (1997) paras 94–101; British Interactive Broadcasting/Open (1999) paras 170–71. 81   See eg Commission decisions United Reprocessors (1975) para III.4; Synthetic Fibres (1984) para 52; Stichting Baksteen (1994) para 42 (as has just been seen, the short duration was one of various reasons, none of which were particularly credible). 82   See eg Commission decisions Langenscheidt/Hachette (1981) para 23 (the exemption was justified because competition was encouraged in a market of approximately 20 companies); SMM&T (1983) para 22 (limited agreement in which internal competition exists); Carbon Gas Technology (1983) paras I in fine, II.B.4 (a minimal analysis is performed on competition conditions; only a list of competitors is put forward); Grundig I (1985) para II.B.4 (interbrand and intrabrand competition); VIFKA (1986) para 21 (there exist other trade fairs and ways of promoting sales); X/Open Group (1986) para 46 (agreement of limited scope, in which internal competition is preserved, and existence of other standards); Internationale Dentalschau (1987) para 28 (no reasoning); Continental/Michelin (1988) para 36 (agreement of limited scope, and, in consequence, internal competition); BBC/Brown Boveri (1988) para 33 (interbrand and intrabrand competition); Delta Chemie/DDD (1988) para 45 (interbrand and intrabrand competition); Service Master (1988) para 27 (interbrand and intrabrand competition and absence of entry barriers); Cekacan (1990) para 47 (competition not eliminated due to a very wide market definition); KSB/Goulds/Lowara/ITT (1990) para 33 (agreement to manufacture a new product); SIPPA (1991) para 21 (existence of other trade fairs and ways of promoting sales); Yves Saint Laurent Parfums (1991) para II.B.5 (interbrand and intrabrand competition); Parfums Givenchy (1992) para II.B.5 (the only requirement is for Givenchy’s market share to reach 3.1%); Distribution of railway tickets by travel agents (1992) para 106 (annulled by the GC in UIC (1996)); World Cup 1990 (1992) (no reasoning); Ford/Volkswagen (1992) (the parties were not present in the market they were about to enter); Olivetti/Digital (1994) para 33 (pro-competitive agreement); ACI (1994) para 59 (other undetermined operators existed); European Night Services (1994) paras 67–70 (annulled by the GC in ENS (1998)); Eurotunnel (1994) paras 102, 103 (no elimination of competition due to the conditions imposed); Asahi/Saint Gobain (1994) paras 32–34 (the agreement was limited and it sustained internal competition, demand had countervailing power and other technologies existed, as did licensees of the same competing technology); Philips/Osram (1994) paras 29–30 (there were other competitors both in Europe and worldwide, and there was overproduction in the European Community); SICASOV (1998) para 77 (there were other competitive products as well as parallel imports); TPS (1999) paras 135–38 (pro-competitive agreement). 83   See Van Houtte (1983) 83, who cites Commission decision United Reprocessors (1975), where the market share of interested undertakings was 100% yet the agreement was authorised for a 10-year period; and also Commission decision Gerofabriek (1976), where the market share of the undertakings was 50% but the agreement was not authorised (Van Houtte points out, however, that the main reason for the Commission refusing this individual exemption was that the agreement did not create significant economic advantages).

134  Assessment of Economic Power under Article 101(3)(b)(II) Even admitting that these are extreme cases and that market share is not the only criterion to be taken into consideration when assessing the elimination of competition, it is undeniably difficult to foresee a priori what the Commission’s reaction will be to an agreement which covers an insignificant part of the market. And this gap inevitably creates serious legal certainty problems.84 Apart from appearing to be arbitrary, the Commission has also sometimes applied the fourth condition in a very lax manner. On occasion it has greatly widened the definition of ‘non-elimination of competition’ in order to grant an exemption to a restrictive agreement which it wished to authorise more for reasons of industrial than competition policy. In particular, it may be that certain ‘crisis cartels’85 were cleared without complying with the condition of not eliminating competition with regard to a substantial part of the market.86 The background to these individual authorisations is the industrial crisis in certain manufacturing sectors of the European economy. The idea behind the crisis cartels was somehow to rescue the undertakings whose viability was endangered by price competition derived from excess production capacity. The Commission’s intention was to restructure and strengthen European industry (and, sometimes, to safeguard jobs as well). The prototype of these decisions concerned the agreement in Synthetic Fibres (1984). The same philosophy was applied more recently in Stichting Baksteen (1994). Other decisions more modest in scope include BPCL/ICI (1984) and ENI/Montedison (1986). In Synthetic Fibres (1984), the crisis cartel in question intended to reduce the excess structural capacity in this sector. It grouped together the 10 biggest European producers of synthetic fibres, which involved the closure of 18 per cent of production capacity relating to six types of synthetic fibres. Applying the theory that it had propounded two years earlier in its XIIth Annual Report into Competition Policy (1982),87 as well as the limited duration of the agreement, the Commission invoked the presence in the European market of products imported from third countries and substitute products, such as wool and cotton. It emphasised that the objective of the agreement was not to coordinate the commercial conduct of the parties, and that the coordinated reduction in excess capacity concerned only one element of the undertakings’ competitive strategy. Further, it imposed certain conditions prohibiting the exchange of information between the parties regarding their real production, but not regarding the reduction in their respective production capacities.88 In Stichting Baksteen (1994), the Commission examined an agreement to restructure and rationalise the brick manufacturing sector in the Netherlands, signed by 16 companies – which represented 90 per cent of settled production capacity and 85 per cent of sales in that country. The agreement foresaw a coordinated reduction in stock levels through the elimination of around 12 per cent of production capacity, backed up by a system of fines in the event of breach of the commitments entered into, financed by a compensation fund. The Commission found that competition was not eliminated for various reasons: price com­ petition remained (the authorised agreement did not refer to coordination of the parties’ commercial policies); there were Dutch competitors who did not take part in the agreement, as well as importers; there were alternative products with a sufficient degree of  ibid.   See Costas Comesaña (1997), particularly chs 3 and 4. 86   See Costas Comesaña (1997) 210–13, and the authors referred to therein. As regards the application of Art 101(3)(b) TFEU to these cartels, see 264ff. 87   paras 38–41. 88   Commission decision Synthetic Fibres (1984) paras 48–52. See Van Bael & Bellis (1991) 74, para 231. 84 85

Structure of Supply: Market Share and Degree of Concentration  135 substitutability to be competitors; and the agreement was, from the outset, strictly limited in time, in such a way that the certainty of the prompt restoration of a situation of full competition would oblige the undertakings to take into account, when acting within the scope of the agreement, the fact that when it ended they would once more be operating in a competitive environment.89 It is not only crisis cartels that have received special treatment from the Commission. Other agreements of special interest from the industrial point of view have also been authorised, despite involving significant restrictions on competition in some cases. This was the case with certain R&D and specialisation agreements prior to Regulations 417/85 and 418/85,90 and with some subsequent ones, such as those examined in Optical Fibres. In Optical Fibres (1986), the Commission examined a series of agreements under which several common subsidiaries for the production and the marketing of optical fibres were created using the technology of the American undertaking Corning. Although the Commission accepted that, taken together, the agreements allowed the creation of a network of common interrelated subsidiaries which shared a common technology and operated in an oligopolistic market, enjoying 48 per cent of EU production, it found that competition was not eliminated with regard to a substantial part of the market for various reasons: there were other producers of optical fibres in the common market; the common market of those fibres was not immune to the competitive pressures of the worldwide market; optical cables competed with traditional cables and with other transmission techniques through microwaves and satellites; there were certain competitor producers of cable who could obtain optical fibres from the common subsidiaries in terms of non-discrimination, or from other independent producers of optical fibres, in order to produce optical cables; and the final users – namely the undertakings or entities in charge of the post, telegraph and telephone services – had exceptional buyer power, and could therefore demand that both optical fibre and optical cable were supplied at competitive prices in the worldwide market, and could obtain supplies from non-national producers if they wished.91 Years later, in a case concerning active matrix liquid crystal displays, the Commission authorised the creation of a cooperative joint venture between Philips, Thomson and Sagem, the only companies in Europe that carried out research into such screens. After finding that the joint venture company could not be analysed under the Merger Regulation,92 it was finally examined under Article 101(3) TFEU. In this context, the Commission concluded that given that the investment of these undertakings was of strategic importance to the then European Community with respect to world competition, it had shown that the conditions for the granting of an individual exemption were satisfied and it decided to send the parties a comfort letter and close the file. The Commission took the view that there were already half a dozen Japanese companies that had made great technical and industrial progress in developing these screens, which were especially difficult to produce (in fact, these undertakings were already producing them), thus ruling that a realistic approach was to view the market as worldwide and being subject to intense competition.93

  Commission decision Stichting Baksteen (1994) paras 38–42.  See, inter alia, Commission decisions United Reprocessors (1975); Beecham/Parke Davis (1979); Vacuum Interrupters I (1977) and II (1980). 91   Commission decision Optical Fibres (1986) paras 73–80. 92   See Commission decision 293-Philips/Thomson/Sagem (1993). 93   See Press release IP/93/322, 23 April 1993. 89 90

136  Assessment of Economic Power under Article 101(3)(b)(II) As regards block exemptions, the regulations under which they were granted have in many cases correctly established certain maximum thresholds with regard to market share or turnover which must be complied with not only for reasons of form, but also for reasons of substance. Thus, the existence of such limits amounts to a mandatory provision based on the need to ensure that competition with respect to a substantial part of the products in question is not eliminated.94 The Commission has become increasingly tolerant over the years in this regard. Initially, its preference was for a maximum market share of 15 per cent.95 Subsequently, for many years it did not consider it possible to authorise en masse agreements where the parties held a market share of more than 20 per cent, and this provided that the cooperation between undertakings did not extend to the marketing of products developed or produced together.96 The more recent block exemptions of a general nature (those concerning socalled ‘vertical’ agreements, and R&D and specialisation agreements or ‘horizontal’ agreements), nevertheless provide for a maximum market share of 30,97 2598 and 20 per cent.99 The block exemption for maritime consortia, in its Regulation 823/2000 version, possibly extended even further the already generous thresholds set out in Regulation 870/95, converting what were previously called ‘traffic shares’ with a maximum of 30–35 per cent (depending on which consortia operated inside or outside a conference) into market shares per se,100 although the current Regulation 906/2009 reduces the maximum acceptable share to 30 per cent with a temporary maximum of 33 per cent for six months.101 Regulation 1400/2002 on the distribution of automobile vehicles continued this relaxed approach, and widened the admissible market share to 40 per cent, for those manufacturers that opted for a system of selective quantitative distribution.102 The most recent automobile regulation, Regulation 461/2010, does not change the status quo, while awaiting the expiry of Regulation 1400/2002 in 2013, when the general threshold of 30 per cent set out in Regulation 330/2010 will begin to apply. For its part, Regulation 267/2010, like Regulation 358/2003 before it, authorises certain horizontal agreements between insurance companies, subject to thresholds of 20 per cent (co-insurance groups) and 25 per cent   GC in Tréfileurope (1995) paras 94, 98.   See Van Houtte (1983) 105 fn 70, who cites Art 3 of Reg 2779/72, on specialisation agreements, and Art 3(d) of the draft amendment of Reg 67/67 on exclusive distribution agreements published in OJ 1978 C 31 2. 96   See Art 3 of Reg 417/85, on specialisation agreements and Art 3 of EEC Reg 418/85, on R&D agreements. See also Art 5(2) of Reg 240/96, concerning technology transfer agreements, which nevertheless provided for the withdrawal of the exemption when the licensee had a market share above 40% (Art 7(1)), which means that the Regulation would comfortably cover those agreements whose licensees did not exceed these thresholds. These three Regulations have been repealed and replaced by others. 97   Reg 330/2010, Art 3. Art 7(d) and (e) allow a share not above 35% to be reached, so long as this situation is temporary. Reg 2790/1999 contained very similar rules. 98   Art 4(2) and (3) of Reg 1217/2010 on block exemptions for R&D agreements. Art 7(d) allows a temporary market share of up to 30%. 99   Art 3 of Reg 1218/2010 on block exemptions for specialisation agreements. Art 5(d) & (e) allow a temporary market share of up to 25%. 100   See Art 6(1) of Reg 823/2000 and Art 6(1) of Reg 870/1995. Art 6(2) of Reg 823/2000, and Art 6(2) of Reg 870/1995, permitted temporary market shares of not more than 33% or 38.5%. The Commission has stated that maritime consortia may exceed the market shares set out in the block exemption regulations and reach as much as 60%, provided they comply with the conditions of Art 101(3). However, it is hard for a market share of this size to meet the requirement of no significant elimination of effective competition. The Commission’s approach may be based on the idea that a certain degree of internal competition still continues to exist between consortium members. 101   Art 5 of Reg 906/2009. 102   30% as a maximum for manufacturers that opt for a system of exclusive distribution. See Art 3, paras 1 and 2 of Reg 1400/2002. 94 95

Structure of Supply: Market Share and Degree of Concentration  137 (co-reinsurance groups). In relation to technology transfer agreements, Regulation 772/2004 has opted to establish a maximum market share of 20 per cent for agreements between competitors, and 30 per cent for agreements between non-competitors.103 From the foregoing, certain conclusions can be reached as regards market share. The first and principal conclusion is that it is very difficult to find general rules regarding the level of market share permitted by the Commission for the purposes of Article 101(3)(b) TFEU. As has been observed, the Commission has interpreted Article 101(3) extremely generously when it has considered that there are good reasons for doing so.104 However, an analysis of the Commission’s decision-making practice shows that as regards those agreements whose beneficial effects are beyond doubt, the Commission generally appears to be prepared to admit without too much difficulty a market share of 30 per cent for the individual application of Article 101(3), and even for the grant of block exemptions, something which until quite recently it had been reluctant to do. Nevertheless, economists have been unable to identify a level of market share which can be assumed to reflect the existence of a degree of economic power necessary to eliminate competition with respect to a substantial part of the market.105 It is very understandable to wish to use a single market share to simplify the application of the competition rules. The figure of 30 per cent can be defended, and economic theory has occasionally considered that this level does not cause concern.106 Higher levels may also be allowed, as long as they are backed up by an in-depth economic analysis of the market.107 If the concepts of ‘elimination of competition’ within the meaning of Article 101(3)(b) and ‘dominant position’ are equivalent,108 this figure could even rise to as much as 50 per cent.109 Within the structural examination of supply in the relevant market, the degree of market concentration and the relative size of undertakings (parties and non-parties to the agreement) are also significant, as both the ECJ and the Commission have established. In Ancides (1987), the ECJ held that ‘the increasing degree of concentration on the market is a factor to be taken into account when considering an application for the renewal of an exemption under Article 85(3) [now Article 101(3)] of the Treaty if that increasing concentration affects the competitive structure of the market at issue’.110 As regards the Commission, on the one hand it has maintained that a high degree of supply concentration is in itself a barrier to entry, since it increases the probability and effectiveness of a reaction of the undertakings established in the market against new competitors in order to defend the positions consolidated in the market, as is clear from its decisions in   Reg 772/2004 on the application of Art 101(3) TFEU to categories of technology transfer agreements.   In these and other decisions, the Commission seems to have pursued industrial policy rather than competition policy objectives, and has showed how, whether right or not, the advantages demanded by the first requirement and the interpretation given to them by the European authorities in each case are, in many cases, the essential reason for granting or refusing an authorisation. See Tobío Rivas (1994) 405. 105   See, in particular Scherer (1980) 267–95, and Jacquemin & De Jong (1977) 135–58, cited in Van Houtte (1983) 115 fn 105. 106   See Posner (1976) 111, cited in Van Houtte (1983) 115 fn 106. 107   According to Van Houtte (1983) 115, ‘the cost of this analysis is probably no greater than the costs involved in a legal discussion in which a reasoned conclusion is not reached, and which leaves the parties with the feeling of being the victims of a random application of undetermined legal principles’ (free translation from the French original). 108   See section 10.3 below. 109  ECJ AKZO (1991) para 60. See section 3.2 above. 110  ECJ ANCIDES (1987) para 13. 103 104

138  Assessment of Economic Power under Article 101(3)(b)(II) Nestlé/Perrier (1992), Schöller (1992) and Langnese/Iglo (1992).111 In the first case a concentration operation was examined, whereas in the last two the fourth condition for the exemption was at issue. Schöller and Langnese-Iglo together held 66 per cent of the icecream market sold in grocery outlets, and more than 50 per cent of the traditional ice cream market in Germany. In addition, and even more importantly, since authorisation of an agreement between undertakings may favour the creation of a non-competitive market or the strengthening of a collective dominant position,112 the high concentration of supply typical of oligopolistic markets has been considered relevant not only after 1989 in merger control; in fact it was considered much earlier, in the context of Article 81(3)(b) EC, now Article 101(3)(b) TFEU. As regards the steel industry, for example, the Commission declared on one occasion that the number of undertakings that represented 90 per cent of production must not be less than 10 and that the maximum market share of each one of them must not be above 12 or 13 per cent.113 In Henkel-Colgate (1971), the Commission granted these undertakings an exemption to enable them to create a research joint venture with respect to detergents, a market which was recognised as having an oligopolistic structure. To justify compliance with the fourth condition, the Commission declared that competition with regard to a substantial part of the market was not eliminated, since although the two contracting parties enjoyed significant market shares in all countries in the common market, they did not hold a predomin­ ant position in the market. However, in 1978 the Commission refused to renew the exemption on the grounds that ‘[t]he relevant market in washing powders and detergents is, after all, very much an oligopolistic market surrounded by high barriers to entry’ and therefore the undertakings’ refusal to grant licences freely to third parties to manufacture products that had been jointly developed, without the prior consent of both undertakings, was the perfect way of making it unduly difficult for third parties to enter the market.114 In De Laval-Stork (1971), which concerned the examination of the fourth condition of Article 101(3), the Commission found that despite the fact that some of the relevant markets (steam turbines, centrifugal compressors, feed pumps) had an oligopolistic structure, the position in the market of the two parties was not such as to place them, once united, among the best-placed undertakings, since its European market share was between 10 and 15 per cent and they had to compete with certain large groups that sold their products throughout the world and had capacity and sales that were often much higher than those of De Laval-Stork.115 In Nuovo CEGAM (1984), the Commission authorised an agreement whereby the member insurance companies had a 26 per cent share of the Italian market in engineering insurance (a type of industrial risk insurance) and took into account the fact that it was a question of a relatively concentrated market, where the main three operators, without including the members of CEGAM, had a combined market share of 46 per cent.116 111   Commission decision Nestlé/Perrier (1992) para 98, cited in Commission decisions Schöller (1992) para 126; Langnese-Iglo (1992) para 127. 112   See the following chapters. 113   Communication ‘Grandes lignes d’une politique de concurrence en matière de structures de l’industrie sidérurgique’ [1979] OJ C12/5, cited in Van Houtte (1983) 105. 114   See the Commission’s VIIIth Report on Competition Policy (1978) paras 89–91. See also Tobío Rivas (1994) 382. 115   Commission decision De Laval-Stork (1977) para 12. 116   Commission decision Nuovo CEGAM (1984) para 25.

Structure of Supply: Market Share and Degree of Concentration  139 In Optical Fibres (1986), as explained above, the Commission examined agreements which created various joint subsidiaries for the production and marketing of optical fibres using the technology of the US company Corning. Although the Commission accepted that overall the agreements permitted the creation of a network of interrelated joint subsidiaries that shared a common technology, operated on a oligopolistic market, and was responsible for 48 per cent of production in the European Community, it concluded that there was reason to believe that competition with respect to a substantial part of the common market was not eliminated.117 In Yves Rocher (1986), when granting an exemption the Commission took into account the low level of concentration in the European cosmetics market, the relatively small size of the undertakings with respect to the market, and the moderate differences in market share among the majority of manufacturers.118 The Commission did something similar in Olivetti/Canon (1987), when it stated that despite the existence of joint market shares of between 22 and 31 per cent on the two markets of European products and in view of the fact that the parent companies of the joint venture maintained their independence as regards sales policy, there was no significant risk that the degree of concentration would increase noticeably.119 In Enichem/ICI (1987), the joint venture created by the two undertakings became the largest producer and seller of PVC within the Community, with a market share of 22–23 per cent. The Commission recognised that in terms of structure, behaviour and economic results the anticompetitive impact of the creation and operation of the joint subsidiary would be significant, particularly in a market characterised by a tendency towards a tighter oligopoly. Nevertheless, effective competition was maintained both in the common market and in the different national markets of Member States, where the presence of strong competition among European producers did not allow the joint venture to exercise market power in the short and medium term.120 In UK Agricultural Tractor Registration Exchange (1992), the Commission established that an information exchange agreement that identified in detail the volume of retail sales and the market shares of the main suppliers on a national market (with an overall share of 88 per cent), and which included the main undertakings that imported from other Member States, encouraged transparency and prevented hidden competition in a highly concentrated market, strengthened the barriers to entry to the market, substantially affected trade between Member States, and was not indispensable for the beneficial objectives that it claimed to pursue.121 Another decision where the oligopolistic structure of the markets affected by the agreement examined by the Commission was Exxon/Shell (1994), concerning the creation in France of a joint venture for the manufacture of high-density polyethylene (HDPE) and linear low-density polyethylene (LLDPE), whose markets had oligopolistic features – something that did not, however, prevent the Commission from granting an exemption.122   Commission decision Optical Fibres (1986) paras 73–80.   Commission decision Yves Rocher (1986) para 7. 119   Commission decision Olivetti/Canon (1987) para 58. 120   Commission decision Enichem/ICI (1987) para 48. Curiously, despite defining the geographic market as the common market, the Commission presented one piece of information from which it could be deduced that markets were national ones: the market share of the joint venture was not significantly high except in Italy, the United Kingdom and Ireland, yet in these markets the addition of the market shares of Enichem and ICI only altered the competitive situation marginally. 121   Commission decision UK Agricultural Tractor Registration Exchange (1992) paras 57, 64, 65. 122   Commission decision Exxon/Shell (1994) para 23 in relation to paras 17–19. 117 118

140  Assessment of Economic Power under Article 101(3)(b)(II) One of the most interesting cases in which the Commission has examined the degree of market concentration with regard to the fourth condition of Article 101(3) is P&O/Stena Line (1999). The case concerned an agreement between two ferry companies to create a joint venture relating to the transportation of passengers across the English Channel, which substantially eliminated competition not only between the undertakings involved, but also through increased concentration in the market. In its decision, the Commission went into particular detail to prove (perhaps with a bad conscience) that the agreement between the two notifying undertakings allowed competition to be maintained with respect to a substantial part of the market, since there was no risk of the creation of a duopoly in the relevant market. The Commission observed that as a result of the creation of the subsequently authorised joint venture the joint market share of the two main companies in this trade would increase considerably, from 64 per cent (Eurotunnel and P&O) to 82 per cent (Eurotunnel and P&O plus Stena Line). The market share of the transport undertakings present on these routes would then become 45 per cent (Eurotunnel), 37 per cent (P&O/Stena Line) and, a long way behind, the three remaining companies, with 9, 8 and 1 per cent respectively. Despite these figures, the Commission considered that the interests of the ferry companies and Eurotunnel, with regard to the maintenance of market shares or prices, were not the same. Accepting that the prices on this market were totally transparent, the Commission considered that Eurotunnel had enormous unused capacity (if used, Eurotunnel forecast a progressive increase in its market share from 45 to 70 per cent in 2006), and this factor, linked to the frequency of its trains, gave it an incomparable advantage on the reference market. The Commission therefore concluded that Eurotunnel and the ferry companies had an interest in adjusting their pricing strategies in order to increase turnover rather than prices. The existence of excess capacity could limit any attempt by either company to increase prices unilaterally, because its competitor would have at its disposal the necessary capacity to absorb those clients switching from one to the other. Further, the fact that the undertakings had different cost structures made it less likely that they would act in a parallel manner. The Commission therefore recognised that after 1999 effective competition from the remaining ferry companies was not sufficiently likely, and that it was improbable that on their own these undertakings could guarantee the maintenance of competition; and also that there was no potential competition, due to the barriers to entry. Nevertheless, given that the market shares had not remained stable in previous years, that Eurotunnel and the joint venture were unlikely to face significant limitations on capacity, that their cost structures were different, and that until 1999 they would have to face competition from other ferry companies, the Commission concluded that Eurotunnel and the joint venture could be expected to compete with each other instead of acting in a parallel manner to increase prices. The Commission therefore found that the joint venture would face effective competition and the fourth condition of Article 101(3) was satisfied. All of these cases support, with differing degrees of success, one conclusion: a correct application of the fourth condition for exemption should avoid promoting oligopolistic coordination in concentrated markets. Those agreements where the real number of competitors in the market is reduced to unacceptable levels that make possible tacit noncollusive coordination (in a legal sense) between the main operators should be refused exemption. On this point the application of Article 101(3)(b) should be no different from merger control between undertakings under the Merger Regulation.123   See ch 8 below, and the Guidelines on Horizontal Mergers (European Commission (2004a)).

123

Potential Competition Under Article 101(3)(b) TFEU  141 In addition, the study of the market structure where agreements take place is not limited only to possible oligopolistic concentration – a particularly relevant question where horizontal agreements are being dealt with – but rather concerns, inter alia, the parallel existence of ‘simple’ distribution networks based on a given type of distribution (eg selective distribution) that may prevent the development of other forms of distribution (eg ‘cash and carry’) – a question that typically arises with respect to vertical agreements.124 For example, in Mars/Schöller Lebensmittel (1992) and Mars/Langnese Iglo (1992), which concerned the ice cream market in Germany, the Commission took into account the fact that through their exclusive distribution networks the two undertakings which Mars had complained about controlled almost two thirds of ‘traditional trade’ and more than half of ‘grocery trade’ when withdrawing the block exemption set out in Regulation 1984/83.125 Subsequently, however, in three 1999 decisions – Whitbread, Bass and Scottish and Newcastle – the Commission ruled that even if 58 per cent of the market was covered by exclusive sales networks, market shares of 24, 13 and 28–29 per cent of the British market in the sale of beer in situ were not sufficient to conclude that the condition for the nonelimination of competition with respect to a substantial part of the relevant market was breached.

6.3  POTENTIAL COMPETITION UNDER ARTICLE 101(3)(B) TFEU

In order to be able to decide whether or not competition is eliminated for the purposes of Article 101(3)(b), within the study of the structure of the markets affected by a restrictive agreement, it is not only actual competition from undertakings of sufficient size and financial capacity that must be investigated but also whether there are significant barriers to entry and whether other undertakings are likely to enter the market – in other words, effective potential competition. The greater the market share of the parties, and the less signific­ ant the internal competition between them, the stronger the level of potential competition must be in order for an agreement to satisfy this provision.126 In Continental Can (1973), the ECJ clearly established that Article 101(3)(b) refers not only to the elimination of real (actual) competition, but also to the elimination of potential competition,127 which means that the fourth condition of the exemption will be satisfied not only if there is real competition but also in the presence of potential competition, provided that either of them is ‘effective’.128 On the other hand, where there is little real or actual competition, the elimination of potential competition will prevent satisfaction of the fourth condition for the exemption.129 124   See ECJ Metro I (1976); ECJ Metro II (1986); ECJ Delimitis (1991). See also, inter alia, Tobío Rivas (1994) 399ff. 125  Commission decisions Mars/Schöller Lebensmittel (1992) paras 124, 126, 129, 146; Mars/Langnese Iglo (1992) paras 125, 127, 130, 147, its essential points confirmed in GC Schöller Lebensmittel v Commission (1995) and GC Langnese Iglo v Commission (1995). 126  GC TAA (2002) para 300. 127  ECJ Continental Can (1973) para 25. 128   This distinction, or clarification, is already a classic one within European competition law. See eg recital 11, third dash of the preamble to Regs 870/95 and 823/2000, on block exemptions for liner shipping company consortia. 129   According to the old Guidelines on Horizontal Cooperation Agreements (European Commission (2001a)) para 98: ‘Under specific circumstances cooperation between potential competitors may also raise competition concerns. This is, however, limited to cases where a strong player in one market cooperates with a realistic potential

142  Assessment of Economic Power under Article 101(3)(b)(II) In MAN-Saviem (1972), the Commission had already recognised that its decision concerning the applicability of the fourth condition for the exemption in certain territories was based on the fact that undertakings or groups of undertakings that offered their products (industrial vehicles) on the common market faced potential competition at that time, and that would increase as trade between Member States increased.130 In GEC-Weir Sodium Circulators (1977), potential competition from third-party undertakings that were investigating alternative technologies to that of the parties to the agreement was sufficient to satisfy the condition relating to the non-elimination of competition.131 On one occasion, the Commission also considered that the limited duration of the authorisation of an agreement and its imminent disappearance obliged its signatories to take into account this fact when adopting its decisions during the term of the agreement, implicitly limiting the degree of autonomy of their conduct.132 This could be considered to be a form of potential competition133 (although atypical) of a prospective nature, and, to some extent, internal. In Pasteur Mérieux-Merck (1994), the Commission also considered that the notified joint venture faced effective potential competition since in the vaccines market in question the remaining producers were expected to perfect their own vaccines and return to the market, particularly because a producer had potential access to the markets of the EEA, in which it did not yet operate.134 Subsequently, in CECED (1999), which concerned a technical agreement limited to certain production and distribution (import) aspects of less efficient washing machines from the point of view of the consumption of electricity, such as monitoring the market and educating users, the Commission relied on the potential competition of all European manufacturers in those national markets where they were not present, first to define the geographic market as being the whole of the EEA, and secondly to conclude that the fourth condition for the exemption was satisfied, despite the fact that the parties to the agreement controlled 90 per cent of the relevant market.135

6.4  COUNTERVAILING POWER OF CLIENTS AS A MEANS OF AVOIDING THE ELIMINATION OF EFFECTIVE COMPETITION136

A significant element that must be taken into account when assessing the competitive position of undertakings participating in a restrictive agreement is the situation of such

entrant, for instance, with a strong supplier of the same product or service in a neighbouring geographic market. The reduction of potential competition creates particular problems if actual competition is already weak and threat of entry is a major source of competition.’ See also the new Guidelines on Horizontal Cooperation Agreements, European Commission (2011) paras 1 & 10 and Commission decision British Interactive Broadcasting/Open (1999) para 169, in which the elimination of potential competition would have hindered the granting of the exemption had it not been for the imposition of adequate conditions to ensure the introduction of competition into the market. 130   Commission decision MAN-Saviem (1972) para 33. 131   Commission decision GEC-Weir Sodium Circulators (1977) para III.4(a). 132   Commission decision Synthetic Fibres (1984) para 52. 133   See Waelbroeck & Frignani (1998) 295 para 227. 134   Commission decision Pasteur Mérieux-Merck (1994) para 97. 135   Commission decision CECED (1999) para 6. 136   See Tobío Rivas (1994) 403–04.

Avoiding the Elimination of Effective Competition  143 companies with respect to their clients: if there are few (and therefore powerful) buyers137 (or sellers, if what is being evaluated is purchasing power),138 the Commission appears to assume that these have the necessary means to prevent the agreement in question having negative effects. Such power is known as ‘countervailing power’, as was explained in section 3.4 above. With respect to the second condition of Article 101(3), in order to assess the probability that consumers will obtain a fair share of the resulting benefits of a restrictive agreement, the Commission has taken into consideration the buyer power of clients and their negotiating expertise with respect to the parties. In GEC/Weir Sodium Circulators (1977), for example, the Commission took into account the countervailing power of customers to determine whether they obtained a fair share of the benefits resulting from the agreement.139 In the same way, in Vacuum Interrupters the Commission stated that ‘vacuum interrupters are sold to sophisticated buyers whose technical and economic requirements are demanding and whose expertise and bargaining strength will ensure that a fair share of the benefit is passed to the user’.140 The Commission has also approved this possibility when examining the fourth condition for the exemption. Thus, for example, in its decision in Papier Mince (1972) it authorised an agreement between the most significant cigarette paper manufacturers in France, which had market shares of 80 per cent in France and 70 per cent in the Benelux countries, among other reasons because the structure of demand was very limited, with State mono­ polies in some countries and a very small number of cigarette producers in the rest.141 In Optical Fibres (1986) the Commission also took into account the fact that final users of optical fibres and cable (undertakings and bodies entrusted with providing postal, telegraphic and telephony services) had an exceptional level of purchasing power, so that they could require supplies to be made at competitive prices on the world market.142 In UIP (1989), the Commission expressly stated that the chances of eliminating the competition of the joint subsidiary in question were similarly reduced by the countervailing economic power that exhibitors in Member States exercised, which in certain cases enjoyed positions of control in key areas.143 In Phoenix/Global One (1996) it was held that the creation of the joint venture in question would not eliminate competition because of, inter alia, the countervailing power of clients in the market for customised packages of corporate telecom­ munications services.144 Countervailing power may also exist if purchasers can dispense with suppliers that participate in the restrictive agreement by producing or simply threatening to produce the goods or services they need.145 On the other hand, where purchasers are weak the Commission tends to be more rigorous. Thus, for example, it has declared that it will not allow as high a concentration of participation in trade fairs in the consumer goods sector as it will in the investment goods sector.146   Commission decision GEC-Weir Sodium Circulators (1977) 33 para III.1(b).   Commission decision National Sulphuric Acid Association I (1980) paras 13ff. 139   Commission decision GEC/Weir Sodium Circulators (1977) para III.2(a). 140   Commission decision Vacuum Interrupters (1980) para III.5. 141   Commission decision Papier Mince (1972) para III.4. 142   Commission decision Optical Fibres (1986) paras 73–80. 143   Commission decision UIP (1989) para 58. 144   Commission decision Phoenix/Global One (1996) para 65. 145   Commission decisions Davidson Rubber (1972) para 14; Continental Can (1973) para 36. 146   Commission’s 1st Report on Competition Policy (1971) para 43. 137 138

144  Assessment of Economic Power under Article 101(3)(b)(II) Finally, as mentioned at the beginning of this section, countervailing power can also arise the other way round. In its Guidelines on Horizontal Cooperation Agreements (2001), the Commission referred, with respect to purchasing agreements between competitors, to the countervailing power of suppliers on the purchasing markets as a mitigating circumstance when evaluating whether the collective market shares of the parties indicate the existence of a dominant position and whether the possibility of obtaining an exemption under Article 101(3) TFEU is excluded ‘in principle’ because of this.147

6.5  BEHAVIOUR OF UNDERTAKINGS PARTICIPATING IN A RESTRICTIVE AGREEMENT AS AN INDICATION OF THEIR MARKET POWER

We saw in chapter four that European merger control was characterised by being structural and prospective, a description which, until Regulation 1/2003 abolished the authorisation system, also largely fitted the examination of the conditions for the non-elimination of competition with respect to a substantial part of the market. The fact that the examination of the fourth condition for the exemption obliged the Commission to foresee the consequences of an individual exemption during its term did not prevent the Commission from taking into account previous (retrospective) elements or present elements derived from the same agreement, when they had already been put into practice, and its real effects have been noted in the market. In this respect, the analysis of the final condition for the exemption (but also the first three) looked both to the future and to the past. In fact, what makes merger control purely and exclusively prospective is the obligation not to implement such concentrations until the Commission’s authorisation is received.148 On the question of agreements, Regulation 17 did not provide for the suspension of notified agreements while the Commission examined them,149 and block exemption regulations, by their very nature, allow the agreements described to be put into practice immediately on the conditions laid down. It was very common for various years to go by between notification of an agreement and its approval or rejection; or between a complaint or an individual request for withdrawal of a block exemption and any resolution in this regard that the Commission may have adopted. In these circumstances, the Commission always had at its disposal (or at least it could have had at its disposal) real elements, and concrete effects of the agreements examined, and therefore its structural examination of the market under the fourth condition for the exemption could be both prospective and retrospective at the same time.150 147   Guidelines on Horizontal Cooperation Agreements (European Commission (2001a)) para 134. For a criticism of the qualification introduced by the words ‘in principle’, see section 10.3.2 below. See also the new Guidelines on Horizontal Cooperation Agreements (European Commission (2011)) paras 45 and 200ff, particularly para 209. 148   See Art 7 of Reg 139/2004. 149   See Art 4 of Reg 17. 150   In the absence of the suspensive effect found in merger control, the control of agreements between undertakings carried out by the Commission could also have been predominantly prospective if the Commission had handled sufficiently quickly (eg within the time periods established in the procedure for control of concentrations) the notifications it received within the now-defunct procedure for individual exemptions of restrictive agreements. See ch 5 below.

Behaviour of Undertakings Participating in a Restrctive Agreement  145 The potentially ex post nature of the examination under Article 101(3) TFEU, a result of the lack of procedural obstacles to implementing a notified agreement that restricts competition, has increased. Regulation 1/2003, which replaced Regulation 17, eliminates the notification procedure and the individual exemption and introduces a system of ‘legal exception’. This allows undertakings to implement their agreements in all cases, and therefore the effects of the latter (whether in relation to assessing satisfaction of the fourth condition, or any of the three previous conditions) will be systematically assessed a posteriori by the administrative authorities or courts entrusted with applying this rule. At present, therefore, faced with the prospective nature of merger control, the analysis of Article 101 has become as retrospective as that of Article 102. The conduct of participant undertakings, or, more generally, the effects of any agreement on the market, are therefore very relevant for the assessment of all four conditions, not only the last one. By observing the proven consequences of an agreement, a number of factors can therefore be established, including the following: whether new and improved products have been manufactured (for the purposes of the first condition); whether the products are cheaper as a result of the agreement (for the purposes of the second condition); whether the parties have shown by their own attitude that the agreements were necessary to achieve the objectives that theoretically they aimed to achieve (for the purposes of the third condition); whether the parties have been able to increase prices substantially, thus evidencing their market power; or even whether they have carried out ‘acts amounting to abuses without necessarily having to acknowledge that they are abuses’.151 In conclusion, all the elements used in the analysis of market power under Article 102,152 such as the appearance of apparently abusive behaviour by undertakings, or the proven consequences of the agreements in question, principally as regards prices or the supply of goods and services, must also be taken into account within the scope of Article 101(3)(b).

 ECJ United Brands (1978) paras 66–68.   See ch 3 above.

151 152

7 Collective Dominant Position in General 7.1 INTRODUCTION

A joint or collective dominant position1 may be defined as the collective exercise of market power.2 Two undertakings hold a collective dominant position when they are effectively in the same position vis-à-vis their clients and competitors as an individual dominant firm.3 A collective dominant position has been defined simply as a position of power jointly held by oligopoly members,4 and has been equated with tacit collusion on oligopolistic markets.5 As will be explained below, however, the concept of dominant position is wider than that, since it also covers situations not necessarily based on an oligopoly, or at least not on a stable non-competitive and non-cooperative oligopoly. In fact, there are subtle differences between the concepts of collective dominant position used in the field of merger control6 on the one hand and in Article 102 cases on the other.7 1   AG Fennelly, the European Commission and most authors consider these two expressions to be synonyms, and they also see them as meaning the same as ‘oligopolistic dominant position’. See AG Fennelly’s Opinion in CEWAL (2000) para 15; the contribution of the Commission’s DG COMP in Organization for Economic Co-operation & Development (1999) 215 fn 3; and Commission decisions Airtours/First Choice (1999) para 58 and UPM-Kymmene/Haindl (2001) para 75. In the academic literature, see Korah (1999a) 337; Bishop (1999) 37; Whish (2000) 581; and Haupt (2002) 435. Arguably, though, an ‘oligopolistic dominant position’ is not the equivalent of a joint or collective dominant position, since the latter can and does exist in non-oligopolistic markets (eg collective dominant positions founded on the basis of an agreement that restricts competition in technically non-oligopolistic markets). Thus an oligopolistic dominant position is a mere variety (albeit quite a specific one) of a joint or collective dominant position, and not exactly the same thing. For joint or collective dominant positions in general see ia Petit (2007). 2   Commission decision Airtours/First Choice (1999) para 108, cited in GC Airtours (2002). 3   Notice on the application of the competition rules to access agreements in the telecommunications sector (European Commission (1998b)) para 78. 4   Flint (1978) 55. 5   Caffarra & Kühn (1999) 356. See below for the meaning of this expression. 6   According to Levy (2010) 226, the European Commission has considered issues related to collective dominant positions in well over 100 cases since 1990. 7   González Díaz (1999) 16 and Whish (2008) 557 opt for the identity thesis. Briones (1993) seems to choose the difference thesis and talks about ‘oligopolistic dominance’ as something new and different (but see Briones (2009) 3: ‘Whereas the notions of collective dominant or joint dominant positions are legal terms that are strange to economic analysis, there is, however, a clear equivalence between an oligopoly where a collusive equilibrium is sustainable and a collective dominant position’). Whish & Sufrin (1993) 77, 78, 80, 82 use similar terms but they believe that they have detected in Commission merger control decisions a new concept of collective dominant position (oligopolistic) which does not necessarily have the same meaning as when Art 102 is applied (similarly, see Navarro Suay (2004) 57). Not long after Regulation 4064/89 was adopted, after examining the decision Nestlé/Perrier (1992) where the Commission first used the concept of oligopolistic dominant collective position, Winckler & Hansen (1993) 802–03 and 828 argued that the use of former Art 235 of the EC Treaty (now Art 352 TFEU) as the legal basis of the Regulation together with former Art 87 of EC Treaty (now Art 103 TFEU) could enable the Commission to develop a totally new concept of dominant position, on the basis of a structural and predictive analysis (this did not occur, as will be seen below), and that the review standard of oligopolistic dominant positions was different to that established in GC Flat Glass (1992). Rodger (1994) 23 states that the dominant position standard or ‘test’ used in merger control was different from the Art

Introduction  147 However, these slight differences cannot and should not be used to establish two different types of collective dominant position, one for merger control and the other for tackling individual or collective abuses committed by various independent undertakings acting as a ‘collective entity’ due to their economic links, including belonging to a stable non-­ competitive, non-cooperative oligopoly (ie a ‘tacitly collusive’ oligopoly in an economic sense).8 The concept of collective dominant position is essentially the same in all cases, but the processes that lead to the creation of a ‘cooperative’, ‘classical’ or ‘traditional’ collective dominant position9 are undoubtedly different to those that lead to a ‘non-cooperative’ or ‘oligopolistic’ collective dominant position. Whatever the position, from a logical point of view the analysis of collective dominant positions will always involve an examination of whether the undertakings affected form a collective entity vis-à-vis their competitors, the third parties with which they enter into contracts and the consumers in a given market. It is only once the existence of such a collective entity has been established that the investigation can turn to consider whether it actually holds a dominant position and behaves in an abusive manner.10 In short, before examining the dominant position of the undertakings concerned, their ‘collective position’ needs to be ascertained.11 The following sections will analyse two main issues. First is the way in which a joint or collective position has been established (i) by non-interdependent undertakings suspected of having committed a breach of Article 102 and (ii) by firms remaining in an oligopolistic market after a concentration has taken place.12 13 Special attention will be paid to the possibility that internal competition exists in both cases. The second point to be examined is the way in which these same undertakings have been found to be in a dominant position in 102 test. G Monti (1996) 98 shares the opinion of Winckler and Hansen (1993) on the relevance of the dual legal basis of the Merger Regulation for the existence of a different type of collective dominant positions in merger control. Richardson and Gordon (2001) 416, 422 have distinguished as many as four distinct types of dominant positions: the individual or ‘classical’, the collective ex post under Art 102, the collective ex ante in merger control, and the collective ‘multifirm dominance’: ‘where more than one undertaking in a market is individually in a dominant position’. According to Venit (1999) 1113, some EC officials have distinguished between collective dominant positions for the purposes of Art 102 and merger control and since Commission decision Nestlé/Perrier (1992) have tried to avoid the need to establish ‘links’ in merger control. (See section 7.2.1 below on the importance of ‘links’ between undertakings in the establishment of a collective dominant position.) In Kali + Salz II (1998), after being accused of not respecting the criteria for the establishment of a collective dominant position in GC Flat Glass (1992), the Commission defended itself before the ECJ (para 180), saying that it did not accept that the criteria for the establishment of a collective dominant position in the Merger Regulation were necessarily the same as under Art 102. The ECJ made no comment on that suggestion, but the GC in Gencor (1999) paras 276–77 did not distinguish between a collective dominant position under Art 102 and merger control; see Whish (2000) 595–96 and fn 63. By contrast, Stephanou (2009) is against mixing and confusing these concepts in merger control and Art 102 cases. 8   The meaning of these expressions will be clarified below in section 8.3. 9   These terms will be used as synonyms from now on. 10  ECJ CEWAL (2000) paras 39, 41, citing ECJ Almelo (1994) para 43 and ECJ Kali + Salz (1998) para 221. More recently, see also ECJ Wouters (2002) paras 113–14. 11   A precedent for this approach can be found in Ridyard (1994) 259, who states that in Nestlé/Perrier (1992) ‘the Commission simply applied a test of dominance against the jointly dominant firms similar to the one it has applied in cases of single firm dominance[; t]hus the approach to oligopolistic dominance is much the same as that taken to single firm dominance but with one extra step inserted at the beginning of the analysis.’ 12   There are still no actual examples of abuse of an oligopolistic dominant position. See section 9.3 below. 13   As will be explained below (see section 7.4), and although this approach has been chosen to make the presentation clearer, in practice when trying to establish an oligopolistic dominant position, this two-stage analysis – first the ‘collective position’ and then the dominant position – cannot be used because there are elements of the analysis that are significant for both stages.

148  Collective Dominant Position in General cases of collective monopoly (cooperative or traditional collective dominant positions) and in cases of stable non-competitive and non-cooperative oligopoly (or non-cooperative or oligopolistic collective dominant positions),14 and the way in which market power is evaluated in both cases, paying special attention to market share.

7.2  ANALYSIS OF ‘COLLECTIVE POSITION’

7.2.1  Traditional Analysis: Collective Dominant Positions as ‘Collective Monopolies’. Some History.15 Classical ‘Links’ between Undertakings According to Article 102, ‘[a]ny abuse by one or more undertakings of a dominant position’ (emphasis added) is incompatible with the internal market and therefore prohibited. The prohibition thus applies to both abuses of a single dominant undertaking and abuses of two or more collectively dominant undertakings. Despite the clarity of this wording, there are relatively few Commission decisions or judgments of the EU Courts on this point. Putting on one side the simultaneous application of Article 102 to various undertakings in an individual dominant position vis-à-vis their clients,16 or in their own product markets17 – these are not so much examples of the application of the theory of collective dominant position but rather examples of various undertakings in individual dominant positions operating on a parallel basis, with no collusion between them18 – an early theory of collective dominant position interpreted the reference to ‘undertakings’ as the possible behaviour of undertakings belonging to the same business group.19 This would mean a form of dominant position which, while appearing to be collective (in the sense that the undertakings in the same group would definitely act as a ‘collective entity’), was in fact

14  Economic theory recognises the existence of competitive and non-competitive oligopolies. Stable non-­ competitive oligopolies generate similar economic results to those of individual or collective monopolies. 15   See Petit (2007) ch II; Soames (1996), criticised in Black (1996); Whish & Sufrin (1993) 67ff; and Rodger (1995) 22–23. 16   Commission decision ABG/Oil companies operating in the Netherlands (1977), annulled in ECJ BP Nederland (1978). In this case, the traditional clients of petrol companies in the Netherlands depended on their providers in such a way that the European Commission held that each company was in an individual dominant position. The allegations made prior to the decision being adopted had suggested that the petrol companies were in a collective dominant position, although this point did not appear in the decision, which was annulled by the ECJ for other reasons. 17   Commission decision Magill Television Guide (1988), first confirmed by the GC in BBC (1991), Independent Television Publications (1991), and Radio Telefis Éireann (1991) and then by the ECJ in RTE and ITP (1995). The Commission found that each of the three television companies operating in Ireland at that time enjoyed an individual dominant position, as a result of their intellectual property rights over their programmes and the economic dependency of Magill, a company that wished to create a comprehensive television guide for the Irish market. See ECJ Independent Television Publications (1995) paras 47–56. 18   As just stated, the Commission, supported by the ECJ, has established that more than one undertaking can hold an individual dominant position in some specific markets, eg in ABG/Oil companies operating in the Netherlands (1977) and Magill TV Guide (1988). Some authors have also talked about ‘multi-firm dominance’, which could occur on markets whose structure allows for one or more undertakings to raise prices above the competitive level. This situation would be possible, for example, in cases of significant barriers to entry, mature markets or inelastic, static or moderately increasing demand. See Richardson & Gordon (2001) 421–23. 19   See ECJ ICI and Commercial Solvents (1974) paras 36–41. See Ritter, Braun & Rawlinson (2000) 409 fnn 208–11. See also Rodger (1995) 22, who cites ECJ Continental Can (1973).

Analysis of ‘Collective Position’  149 individual, since for competition law purposes a business group is treated as a ‘single entity’ – that is, a single undertaking.20 21 The interpretation of ‘undertakings’ as a reference to a collective monopoly situation goes back to the Commission’s decision concerning the European sugar industry, in which it found that Raffinerie Tirlemontoise, Suiker Unie and Centrale Suiker Maatschappij had breached Articles 101 and 102 TFEU. The Commission declared that some of the measures adopted by these three companies with respect to their clients and distributors, which had previously been found to be concerted practices contrary to Article 101, also amounted to infringements of Article 102. The Commission concluded that Raffinerie Tirlemontoise had abused its individual dominant position and that certain behaviour of the other two Dutch sugar producers mentioned above – neither of which enjoyed an individual domin­ ant position – amounted to abuse of a collective dominant position. The Commission based its decision on the fact that these two producers cooperated closely on almost all matters, specifically the collective purchase of raw materials, allocating production, collaborating in the use of intermediate products, collective research projects, cooperation in market research, advertising and sales promotions, and the harmonisation of factory prices and sales conditions. Compared to other undertakings and particularly compared to distributors, these two producers acted in a uniform manner and always appeared to be a single entity. Their collective dominant position was due to the fact that they produced almost all Dutch sugar, their sales being over 85 per cent of this market. They also directly or indirectly controlled in various ways almost all sugar imported into the Netherlands.22 Subsequent judgments limited the potential scope of the concept of collective dominant position, particularly Suiker Unie (1975) (following the action for annulment of the Commission’s decision in European Sugar Industry), Hoffman-La Roche (1979) (concerning the Commission’s decision in Vitamins) and Züchner (1981), in which the Court of Justice tried to maintain a distinction between the application of Article 101 and that of Article 102. As early as 1975, the Court of Justice in Suiker Unie (1975) took into account the personal and economic ties or links existing between certain sugar producers and the main producer in the Belgian market, along with the fact that the producers in question adopted a sales policy fixed by the latter. On this basis, the Court found that all producers’ market 20   The undertakings in the same group that follow the same commercial strategy coordinated within the group form, de facto, a single economic unit (see GC Tetra Pak II (1994) paras 92–99, and the commentary of Rodger (1995) 43). Thus, their conduct cannot be examined from the perspective of a collective dominant position, but as action by a single dominant operator. (For a decision where the Commission considered two undertakings, which appeared to be under sole control, to be in a collective dominant position, see Irish Sugar (1997), confirmed in GC Irish Sugar (1999).) Behaviour within a group subject to the control of a parent company can effectively be subject to Art 102, but it is not subject – or at least it should not be subject – to Art 101. In fact, the different entities will be treated as a single entity if they form an economic unit within which the subsidiary does not have true freedom to determine its behaviour in the market, and the agreements or practices merely refer to the internal distribution of tasks between undertakings. See ECJ Centrafarm (1974) para 41; ECJ Viho II (1996), where the Court, referring in para 16 only to the question of whether the subsidiaries enjoyed any real autonomy to determine their behaviour, impliedly rejected the viewpoint of certain academics who, in the light of Centrafarm, argued that both criteria should be satisfied before a group of undertakings could be considered to be a single entity. See AG Fennelly’s Opinion in CEWAL (2000) para 24. 21   In this and the following chapters I will use the expression ‘single entity’ to describe the falsely collective (dominant) position of undertakings belonging to the same business group. The expression ‘collective entity’ will be used only when there are various undertakings for the purpose of competition law, but these act as one; ie they are genuinely in a collective (dominant) position. 22   See Commission decision European Sugar Industry (1973) para II.E.2.

150  Collective Dominant Position in General shares should be aggregated when assessing the importance of the dominant position enjoyed by the largest of them.23 Nevertheless, the ECJ did not examine the Commission’s conclusions concerning the existence of a collective dominant position in the Dutch sugar market. Similarly, in Hoffmann-La Roche (1979) the ECJ stated that parallel conduct that was oligopolistic but not collusive in nature fell outside the scope of Article 102,24 while Züchner (1981) clarified that Article 102 dealt with abuses of a dominant position and did not affect the existence of concerted practices, to which only Article 101 could apply.25 The debate concerning collective dominant positions intensified at the end of the 1980s,26 when the Commission fought to wrest powers from the Council in order to control concentrations between undertakings. Thus, in Alsatel (1988), following a reference for a preliminary ruling, the Commission tried to argue before the European Court of Justice (ECJ) that the concept of collective dominant position applied to the non-collusive oligopolistic behaviour of undertakings.27 The Commission submitted that a group of undertakings with a two-thirds market share, where legislation regulating its members’ business allowed it to control the entry of new operators, and where a large number of its members acted in the same way, was in a dominant position and that it abused this dominant position if its members imposed unfair conditions, or their conduct limited technical development.28 The ECJ did not rule on this point, since it held that it had no connection with the facts at issue in the hearing and was based solely on the fairly imprecise information available to the Commission.29 In December 1988 the Commission adopted its highly controversial decision, Flat Glass, in which it found that the three Italian producers of flat glass had breached Articles 101 and 102. As regards Article 102, the Commission considered that the three producers enjoyed a collective dominant position and operated a ‘tight oligopoly’. This gave them a degree of independence from competitive pressures that allowed them to prevent the development of effective competition and ignore the behaviour of other operators in the market. The Commission concluded that the flat glass producers were in a collective dominant position because they presented themselves in the market as a single entity rather than as individual undertakings. In addition, they had special ties or links with a group of wholesale distribu ECJ Suiker Unie (1975) paras 173–74. See also AG Fennelly’s Opinion in CEWAL (2000) para 25.  ECJ Hoffmann-La Roche (1979) para 39. Similarly, AG Slynn stated in his Opinion in Binon (1985) para 25 that the mere parallel behaviour of some oligopolies having made identical agreements was not itself valid proof of collective dominance, but the ECJ did not address this question. 25  ECJ Züchner (1981) para 10. 26   Whish & Sufrin (1993) 67–69 cite the mid-1980s ECJ case of CICCE (1985) as ‘one case in which the concept of collective dominance was conspicuous by its absence’. The case related to licences for broadcasting films, in which, according to these authors, it was impossible to establish an individual dominant position and only a collective dominant position could be established. 27  ECJ Alsatel (1988). Report for the Hearing 5994. The exact words were: ‘The Commission considers that a dominant position occupied by undertakings collectively may also arise from parallel behaviour on the part of several undertakings. The question whether the present case constitutes an instance of parallel behaviour is ultimately a matter for the national court.’ 28   According to some authors, the fact that in this case – the first in which the concept of collective dominant position was mentioned – the links between the companies were structural in nature could lead one to conclude wrongly that such links are necessary for a collective dominant position to exist. See O’Donoghue & Padilla (2006) 138. 29   See Soames (1996) 31–32, who in turn cites Shaw (1989) 96–99. Other authors argue that the meaning of Alsatel is slightly different, since the ECJ appeared to accept at paras 21–22 that parallel behaviour was a valid indicator of a collective dominant position, provided always that it was proven by the Commission. See Ritter & Braun (2004) 409. 23 24

Analysis of ‘Collective Position’  151 tors. Further, the commercial decisions taken by the three firms had a marked degree of interdependence as regards prices and sales outlets, client relations and commercial strategies. As if this were not enough, they had established structural ties or links related to production through the regular exchange of products.30 The action for annulment of this decision was one of the first cases to come before the GC. In its judgment in Flat Glass,31 considered by many to be a landmark in the case law concerning collective dominant positions,32 the GC held that the Commission had not proved its central allegation that the three Italian flat glass producers presented themselves in the market as a single entity rather than as individual undertakings, which made it unnecessary for the Court to analyse the issue of collective dominance in detail. The Court thus limited itself to general obiter dicta. According to the GC’s declarations, it was possible for two or more economically independent entities to be connected in a specific market by economic links that placed them in a dominant position in relation to other operators on the same market.33 The precise meaning of ‘economic links’ was not clear, but from the context it appeared to mean both arrangements capable of coming within the scope of Article 101 (such as an agreement or concerted practice) and other types of links, such as ties or links that are purely economic, rather than those based on an agreement. To support its approach, the Court referred to Article 8 of Regulation 4056/86, which allowed the Commission to withdraw the block exemption enjoyed by liner shipping conferences in EU law34 when the conduct of a conference had effects that were incompatible with Article 102. Liner conferences are undoubtedly agreements between economically independent undertakings, whose potential for abusing a dominant position were expressly recognised by the Council prior to the GC doing so.35 Before the GC’s judgment in Flat Glass, the ECJ in Bodson had dealt with similar questions to that of the meaning of ‘collective dominant position’. This case was cited by the ECJ as a precedent as regards collective dominance, although the term ‘collective dominant position’ does not appear in it. In Bodson, the mere fact that in France the holders of concessions with exclusive rights to operate municipal funeral services belonged to the same economic group was not considered to be decisive in establishing a collective dominant position. This was because the nature of the relationship between the undertakings belonging to this group had to be taken into account; in particular, whether they followed the same marketing strategy, which was determined by the parent company.36 The two ingredients mentioned – the nature of the relationship and common strategy in the market – are constantly referred to in the later case law defining the concept of ‘collective dominant position’.37 30   For the main argument about the collective dominant position of the companies involved, see Commission decision Flat Glass (1998) para 79. 31  GC Flat Glass (1992) paras 357ff. 32   eg Whish (2000) 588, who nevertheless admits that the ECJ in Kali + Salz (1998) and the GC in Gencor (1999) should have clarified the meaning of ECJ Flat Glass (1992). See below for an analysis of these two judgments. 33  GC Flat Glass (1992) para 358. 34   See Ortiz Blanco (2007). 35  GC Flat Glass (1992) para 359. 36  ECJ Bodson (1988) para 20. As Temple Lang (2002) 278 rightly says, despite being cited by the ECJ in Almelo (1994), Bodson does not contain any reference to collective dominant positions, nor even to a single such position, because the group of companies concerned had to be considered as a single company for the purposes of competition law, and as such could only hold an individual dominant position. This latter point has been highlighted by, inter alia, Venit (1999) 1108, 1110–11. 37   See AG Fennelly’s Opinion in CEWAL (2000) para 24.

152  Collective Dominant Position in General The ECJ also missed the opportunity to pin down the notion of collective dominant positions in Ahmed Saeed (1989). In this reference for a preliminary ruling, the Commission maintained that the airlines authorised to operate transport services on a route that constituted a substantial part of the common market held a collective dominant position on this route, since competition over prices was eliminated by concerted action as regards tariffs, and other forms of competition. The initial opinion of Advocate General Lenz supported this view. Following the judgment in Suiker Unie (1975),38 he argued that ‘members of a cartel or parties to agreements contrary to Community law under Article 85 [now Article 101 TFEU] may jointly occupy a dominant position’, suggesting that when, for example, only two airlines operate on a particular route, this permits them to dominate collectively the reference market.39 For its part, the Court was faced with having to decide whether the application of a tariff may constitute an abuse of a dominant position when it is the result of a concerted action between two undertakings capable of being subject to the prohibition set out in Article 101(1). It decided that the simultaneous application of Articles 101 and 102 TFEU is necessary when, through the agreement in question, an undertaking in a dominant position manages to make other undertakings apply its tariffs.40 In this way, however, the Court did not exclude the possibility of applying Article 102 to a situation that comes within the scope of Article 101, where none of the undertakings in question holds an individual dominant position.41 The case law following Flat Glass (1992) has not clarified matters much. In Almelo (1994), the ECJ considered whether the regional electricity distributors in the Netherlands occupied a collective dominant position in the market for the public supply of electricity to local distributors. Each regional distributor had the power to impose an exclusive purchase obligation on its local distributors in accordance with the standard general conditions of supply, drafted by the Dutch Association of Operators of Electricity Undertakings. The Court held that this obligation breached Article 101(1). As regards Article 102, Advocate General Darmon, citing the GC’s judgment in Flat Glass, considered that a dominant position could not exist without a minimum level of links or ties that allowed the undertakings in question to be collectively dominant in the market. Without referring to the judgment of the GC, the ECJ went even further and, citing Bodson, defined the concept of collective dominant position – to be applied by the national court in question – in the following manner: [I]n order for . . . a collective dominant position to exist, the undertakings in the group must be linked in such a way that they adopt the same conduct on the market . . . It is for the national court to consider whether there exist between the regional electricity distributors in the Netherlands links which are sufficiently strong for there to be a collective dominant position in a substantial part of the common market.42

Accordingly, the ECJ’s position is that various undertakings can occupy a collective dominant position when they are united by sufficiently strong or tight ties or links – whether economic or of whatever other type, without excluding collusive agreements – provided  ECJ Suiker Unie (1975) 1993, 1994, 1996, 1997.   First Opinion of AG Lenz in Ahmed Saeed (1989) para 27.  ECJ Ahmed Saeed (1989) paras 34, 37. 41   Against: Waelbroeck and Frignani (1998) 305 para 236. 42  ECJ Almelo (1994) paras 42–43. Cited in, inter alia, ECJ Sodemare (1997) para 46. As Venit (1999) 1109 points out (citing Art & Van Liedekerke (1995) 949–50 fn 84), in Bodson the ECJ dealt not with the question of the links between the concessionaries offering funeral services, but rather with their market power. 38 39 40

Analysis of ‘Collective Position’  153 that these ties or links lead them to behave in the same way in the market. The Court thus appeared to accept that the possible parallel behaviour of various undertakings with sufficiently strong or tight common ties or links could be affected by the prohibition set out in Article 102, regardless of whether they operated in the same oligopolistic market, although not in a collusive manner. This approach was confirmed in La Crespelle (1994), where the Court held that a dominant position had been created through the establishment in France of artificial insemination centres as local monopolies (although of limited geographical scope, taken together they covered the whole of France). Nevertheless, the Court did not examine whether this dominant position could be considered to be a collective dominant position according to the definition of the Court in Almelo or whether such conduct could come within the scope of Article 101(1).43 The concept of collective dominant position was considered again by the ECJ in Centro Servizi Spediporto (Port of Genoa), in DIP and in allegations in Bosman, all in 1995. In the first two cases, the Court recalled that the absence of competition between under­ takings supposedly in a collective dominant position strongly suggested that such a position existed.44 In Port of Genoa II (1995), the collective dominant position of Italian road transporters within the different associations and organisations created under Italian law was examined. The facts seemed to indicate that the road transport companies (200,000 small companies) competed effectively against each other, despite national regulation of the sector. In DIP v Comune di Bassano del Grappa and others (1995), doubt had been cast on the legality of an Italian law that made the opening of a shop conditional upon obtaining a licence from the mayor for the area where it was planned to run the shop. The mayor had been advised by a local council committee, on which members of trade associations were represented. The issue was whether this situation promoted either a concerted practice among the existing retailers or the creation of a collective dominant position, and whether it allowed them to abuse this position by imposing prices that would not have been possible had there been more competition in the market. Advocate General Fennelly pointed out, inter alia, that no evidence had been adduced to show that the traders could act effectively against the suppliers, competitors and clients ‘as a single economic entity’, thus using the definition of collective dominant position established in Flat Glass45 but without referring to the requirement of the existence of ‘sufficiently strong economic ties’ added in Almelo and La Crespelle. For its part, the ECJ sustained that it could not be considered that the national rules in question meant that each trader was in a dominant position, nor that the group of traders established in a municipal area was in collective dominant position, ‘a salient feature of which would be that traders did not compete against one another’. Unlike the Advocate General, the Court did refer to the judgment in Almelo and repeated the test that in order for a collective dominant position to exist the undertakings in the group in question ‘must be linked in such a way that they adopt the same conduct on the market’.46 In Bosman (1995), significant issues were raised with regard to the application of former Articles 48, 85 and 86 of the EEC Treaty (now Articles 45, 101 and 102 TFEU respectively) to the rules relating to the limitation on the number of foreign football players and those  See La Crespelle (1994) paras 15ff.  ECJ Port of Genoa II (1995) para 33 and ECJ DIP (1995) paras 25–26, cited in AG Fennelly’s Opinion in CEWAL (2000) para 26. 45   See AG Fennelly’s Opinion in DIP (1995) paras 64–65. 46  ECJ DIP (1995) paras 26–27, mentioning Almelo (1994). See also ECJ Sodemare (1997) para 46. 43 44

154  Collective Dominant Position in General governing the transfer of players to other Member States, which were decided by the national football federations of the Member States and by their international association, UEFA. Advocate General Lenz considered that these rules were not compatible with either Article 54 or Article 101 TFEU. He also examined whether the professional football clubs of individual national associations (with respect to the rules on foreign players) and the professional clubs of the EU as a whole (referring to the transfer rules on footballers between Member States) collectively occupied a dominant position.47 In his analysis, the Advocate General did not refer to the requirement laid down in Almelo of the existence of sufficiently strong links, and limited his analysis to the judgments in La Crespelle and Flat Glass. He concluded that the clubs in a professional league could be united by economic ties or links so that, taken together, they could be considered to hold a dominant position. Advocate General Lenz indicated that the football clubs depended on each other if they wanted to be successful, and added that such a national community of interests was very unlikely to occur in any other sector. Nevertheless, he concluded that since there was no proof that there had been abuse it was not necessary to consider the question in more detail. Finally, the Court did not give any ruling on the problems involving former Article 86 (now Article 102 TFEU) that had been raised by the Belgian court, and resolved the matter on the basis of former Article 48 (now Article 45 TFEU).48 In Irish Sugar (1999), the Commission found that Irish Sugar, the only processor of sugar beet in Ireland and the main supplier of sugar in that country, held a position of collective dominance with Sugar Distributors Ltd before acquiring full control over it, and thus breached Article 102 TFEU. On appeal to the GC against the Commission’s decision, the Court clarified and extended the case law, holding that two economically independent undertakings could enjoy a collective dominant position if there were ‘close links’ between them which led them to behave in the same way and take the same line of action in the market where they were collectively dominant.49 The Court confirmed that even if the two Irish companies were considered to be independent, this did not prevent them from being collectively dominant. The GC added that the close relations that existed between the management of both firms (Irish Sugar held 51 per cent of the shares in Sugar Distributors Ltd, half of the latter’s directors were from Irish Sugar, and the two undertakings shared out the tasks and held monthly meetings) satisfied the requirement regarding the existence of the same behaviour in the market, and therefore collective dominance existed. The fact that the undertakings found themselves in a commercial relationship at a different level (vertical) did not affect this conclusion (Irish Sugar was the sole supplier of sugar to Sugar Distributors Ltd). In addition, since both companies had operated actively in the same market for a number of years, the relationship was not exclusively vertical. Maritime transport is the area in which the issues relating to cooperative collective dominant positions in general and those of a collusive nature in particular have been dealt with most explicitly. This is particularly so in the long-running CEWAL case, which started with the Commission decision in 1992, followed by the GC judgment in 1996 and the ECJ’s judgment in 2000.50 In the ECJ proceedings, Advocate General Fennelly summarised the situation regarding collective dominant positions at the end of 1998 in the following way: the dual test for a collective dominant position, which required the existence of sufficient   AG Lenz’s Opinion in Bosman (1995) para 283.  ECJ Bosman (1995) paras 138ff. 49  GC Irish Sugar (1999) para 47. 50   For a more detailed explanation of the issues in CEWAL, see Ortiz Blanco (2007) ch 4. 47 48

Analysis of ‘Collective Position’  155 economic links to enable various independent undertakings to behave as if they were one entity51 in the market, is in substance only one test, with the predominant element being the latter one. In other words, a position of individual dominance must be established, or – amounting to the same thing – various undertakings must act as a single entity (the ECJ would say ‘collective entity’) and, therefore, unilaterally in the market. It is not necessary to specify in an exhaustive manner, or even at all, the nature of the relations or the economic links. The following may be useful indicators: uniform supply conditions drawn up by a common trade association (as in Almelo), cross-shareholdings in undertakings, and common management or even family ties with economic consequences. Such links may also consist of following a commercial strategy or a common sales policy (as in Bodson and Suiker Unie). They do not have to be defined except by reference to their result: the establishment of a situation where a group of independent undertakings behaves as a sole undertaking from a commercial point of view.52 In CEWAL (2000), the ECJ clarified that the wording of Article 102 indicated that a dominant position could be held by one or ‘more undertakings’. It then noted that on numerous occasions the ECJ had previously held that the concept of ‘undertaking’ referred to in the Treaty chapter on the competition rules presupposed the economic independence of the entity in question.53 The ECJ thus concluded that the expression ‘more undertakings’ set out in Article 102 ‘implies that a dominant position may be held by two or more economic entities legally independent of each other, provided that from an economic point of view they present themselves or act together on a particular market as a collective entity’, and stated that it would use the expression ‘collective dominant position’ in this sense throughout the judgment.54 Later in the judgment, the Court again referred to the importance of economic relations between undertakings when it clarified that ‘[a] finding that two or more undertakings hold a collective dominant position must, in principle, proceed upon an economic assessment of the position on the relevant market of the undertakings concerned’. The Court then went on to set out the logical order for the analysis of the existence of a collective dominant position: [F]or the purposes of analysis under Article 86 of the Treaty [now Article 102 TFEU], it is necessary to consider whether the undertakings concerned together constitute a collective entity vis-àvis their competitors, their trading partners and consumers on a particular market. It is only where that question is answered in the affirmative that it is appropriate to consider whether that collective entity actually holds a dominant position and whether its conduct constitutes abuse.

To see whether a collective entity exists in this sense ‘it is necessary to examine the economic links or factors which give rise to a connection between the undertakings concerned’.55 Thus, 51   AG Fennelly uses the expression ‘single entity’ in a different way to that proposed at the beginning of this section, saving it for cases of apparent plurality but effective unity of undertakings for the purposes of competition law. Further, he uses other adjectives, such as ‘joint’ or ‘common’, as synonyms of ‘single’ (when used with ‘entity’) (see his Opinion, paras 41–42). The ECJ, for its part, preferred the expression ‘collective entity’ to refer to the same concept in CEWAL (2000) paras 39, 41, relying on ECJ Almelo (1994) para 43 and Kali + Salz (1998) para 221. Commission decision TACA (2003) at, inter alia, paras 601, 602, 607, 620, 624, 630 and 932 uses both expressions equally, as well as some new expressions (‘single united body’, para 620), and contrasts ‘individual entity’ with ‘collective entity’ (para 932). 52   AG Fennelly’s Opinion in CEWAL (2000) para 28. 53   CEWAL (2000) para 35, citing ECJ Béguelin (1971). 54   CEWAL (2000) para 36. 55   CEWAL (2000) paras 39, 41, citing ECJ Almelo (1994) para 43 and Kali + Salz (1998) para 221. See also ECJ Wouters (2002) paras 113–14 and ECJ Piau (2006) paras 108ff.

156  Collective Dominant Position in General before examining the dominant position of the undertakings in question, the ‘collective position’ must be analysed. In terms of detecting the existence of economic links typical of a collective dominant position, the ECJ has recognised that the mere fact that two undertakings are linked by a collusive agreement of the type referred to in Article 101(1) is not, in itself, sufficient.56 On the other hand, when a collusive agreement is put into practice, regardless of whether or not it has been authorised under Article 101(3), it is perfectly feasible for it to have the effect of linking the behaviour of the undertakings in question, so that they appear in the market as a collective entity.57 For the Court, therefore, the existence of a dominant position may arise from the nature and content of the agreement, from the way that it is applied and, consequently, from the resulting links or correlative factors between undertakings.58 Two years later, in Wouters (2002), the ECJ held that the Bar of the Netherlands did not constitute an ‘association of undertakings’ for the purposes of Article 102, on the basis that members of the Dutch Bar were not sufficiently linked to each other to enable them to engage in the same conduct in the market. The Court noted that the legal profession reflected only a limited degree of concentration, as well as the fact that it was heterogeneous and that a high level of internal competition existed, before concluding: ‘In the absence of sufficient structural links between them, members of the Bar cannot be regarded as occupying a collective dominant position for the purposes of Article 86 [now Article 102 TFEU] of the Treaty.’59 In Piau (2005) the GC supported the contention that FIFA’s adoption of the Players’ Agents Regulations would link football clubs in a lasting manner,60 thus allowing them to impose, through FIFA, conditions that had to be satisfied by the other operators in the market. In this way, members of FIFA could present themselves in the market for agent services as a collective entity, thus enjoying a collective dominant position in this market.61 Surprisingly, despite dealing with a classical collective dominant position, the Court referred to the criteria developed in Airtours (2002)62 in relation to oligopolistic dominant positions.63 Equally, despite referring to the dominant oligopoly, the GC made reference to the ECJ’s judgment in CEWAL (2000), a case which also concerned a traditional collective dominant position. Therefore, contrary to the oldest case law in this area, in Piau the GC appeared to indicate the existence of a single type of collective dominant position, which would be oligopolistic in nature. In addition, unlike in Tetra Pak and CEWAL,64 the GC judgment linked the non-­existence of abuse to the analysis of a possible application of Article 101(3) to the FIFA Regulation, although with wording more typical of the examination regarding ‘objective justification’  ECJ CEWAL (2000) paras 42–43.  ECJ CEWAL (2000) para 44. The opposite possibility, ie that non-collusive ‘close connections’ between undertakings may avoid the Art 101 prohibition and yet not come within the scope of Art 102, had already been suggested in Continental Can (1973) at para 25. 58  ECJ CEWAL (2000) para 45. 59  ECJ Wouters (2002) paras 113–14. 60   The GC contrasts the position of players’ agents, who lack ‘structural links’ (para 118), with that of football clubs through their national federations and FIFA, whose links would be ‘long-lasting’, equating ‘long-term’ with ‘structural’. 61  GC Piau (2005) paras 108–14. 62  GC Airtours (2002). Similarly, see also Mezzanotte (2009). 63  GC Piau (2005) para 111. Some authors consider that in transferring these conditions to the field of Art 102 TFEU, the GC removed any doubts that might have existed regarding the applicability in this context of the principles developed in relation to merger control. See O’Donoghue & Padilla (2006) 147. 64   See Ortiz Blanco (2003). 56 57

Analysis of ‘Collective Position’  157 within the meaning of Article 102 TFEU. Thus, to the extent that the Regulation only imposes qualitative restrictions that ‘may be justified’, the Court ruled out the possible existence of abuse.65 As the reader may have noted, when referring to the ‘ties’, ‘links’ or ‘correlative factors’ (which are treated as the same thing66) among undertakings in a ‘collective position’, both the oldest case law 67 and that of the 1999–2000 period68 use the expression ‘economic links’, while some ‘middle-aged’ merger cases,69 some Commission decisions70 and the most recent case law71 use the term ‘structural links’ instead. In the current case law, despite the interference caused by Wouters and Piau – two judgments with shaky foundations – it could be said that the first term includes the second as well as oligopolistic interdependence,72 which, despite depending on structural market characteristics, would not, strictly speaking, be considered a ‘structural link’.73 This last type of link could also include ‘legal links’, whose most obvious variety would be contracts and agreements between undertakings, especially those whose object or effect is to restrict competition, or ‘collusive links’.74 The case law leaves open the possibility of considering other types of links, such as personal75 or family ties, provided that these have ‘economic consequences’.76 To summarise the case law and the Commission’s precedents in this area, the following are examples of links or correlative factors between undertakings that cause them not to compete with each other and to act in the same way in the market, and therefore to hold a ‘traditional’ or ‘cooperative’ collective dominant position: 1 An agreement that restricts competition that leads the participating undertakings to cooperate closely in almost all, or most, of its principal commercial activities.77 2 An agreement or licence that permits the enjoyment of a technological advantage.78 3 Connections between the management of undertakings.79  GC Piau (2005) para 115.  ECJ CEWAL (2000) paras 43–45; AG Fennelly’s Opinion in CEWAL (2000) para 27, who prefers ‘factors giving rise to a connection between them’ to ‘correlative factors’. 67  GC Flat Glass (1992). 68  ECJ CEWAL (2000). See also GC Gencor (1999) in the field of merger control. 69   Kali + Salz (1998). See, however, ECJ Wouters (2002) para 104 and GC Piau (2005) para 118. 70   eg Commission decision Flat Glass (1988) para 79. 71  ECJ Wouters (2002); GC Piau (2005). 72   See Whish (2000) 599–600. See also Richardson & Gordon (2001) 419, and, much earlier, Rodger (1995) 24, who had already argued that oligopolistic interdependence could be considered an economic or structural link. 73   See section 7.2.2 below. 74   See Muñiz Fernández (2000) 649, who considers collusion to be a ‘legal link’; Haupt (2002) 440, who sees agreements as ‘structural links’. 75  ECJ Suiker Unie (1975) paras 377–78; AG Fennelly’s Opinion in CEWAL (2000) para 25. 76   AG Fennelly’s Opinion in CEWAL (2000) para 28. 77   See Commission decision European Sugar Industry (1973) para II.E.2; Commission decision CEWAL (1992); GC CEWAL (1996); ECJ CEWAL (2000). According to G Monti (1996) 93, whose opinion I do not share, a collective dominant position between cartel members can only arise if the links between the members can be legally implemented as a result of obtaining an individual exemption or the existence of a block exemption. For Monti, a weaker link would not be enough, because although cartel members are independent of third parties, they depend on each other as competitors. Very similarly, Whish & Sufrin (1993) 73 state, perhaps naively, that if agreements that constitute ‘economic links’ are contrary to Art 101(1) and are not exempt, they cannot be put into practice. In their view, except where ‘economic links’ means something other than ‘agreement between undertakings’, a collective dominant position may only exist where the agreements between the undertakings in question do not infringe Art 101 (such as the supply agreements between competitors in Commission decision Flat Glass (1988) and GC Flat Glass (1992), in the light of what the GC appears to say at para 224) or were exempt (as in Commission decision CEWAL (1992) and ECJ CEWAL (2000)). 78   Commission decision Flat Glass (1988); GC Flat Glass (1992) para 358. 79   Commission decision Irish Sugar (1997); GC Irish Sugar (1999) para 47. 65 66

158  Collective Dominant Position in General 4 The holding by one undertaking of a stake in another (including cross-shareholdings).80 5 Undertakings taking part in a common coordination body.81 6 Uniform supply conditions drawn up by a common association.82 7 The existence of a common regulatory framework.83 8 Collective management, or the right of all directors to vote in another undertaking’s board meetings,84 including common directors. 9 Family ties with financial consequences.85 10  In general, factors leading to a common commercial strategy or sales policy being put into practice.86 87 Neither membership of a business association88 nor, in certain circumstances, commercial ties or links that derive from vertical integration, in particular the fact that the undertakings in question are either their competitors’ suppliers or distributors,89 have been considered strong enough links to establish the existence of a traditional collective dominant position. The case law and the precedents of the Commission show that, under the right conditions, some of these links may themselves create a traditional collective dominant position (for example, an competition-restricting agreement of a similar nature to liner shipping conference agreements), although establishing such a position may involve two or more links. Leaving aside questions of terminology (business links, structural links, legal links, etc), despite the fact that the case law does not specify the type of links needed for various undertakings to adopt common behaviour, and despite the fact that the ties in the form of an agreement or restrictive practice are only one of the possible causes of the lack of effective competition among undertakings in a collective dominant position,90 the first six links or link types listed above are of an openly collusive nature, in that they restrict, limit, or at least weaken competition among undertakings. The eighth and the ninth are also collusive, because regardless of how an individual entity decides to act (eg through the same person in charge of both entities) or what the incentives are to induce coordination (in this case, 80   Commission decision Irish Sugar (1997); GC Irish Sugar (1999) para 47 in relation to ECJ BAT Reynolds (1987) para 37 and the Commission’s XVIIth Report on Competition Policy (1987) para 101. See Ritter & Braun (2004) 415. 81   Commission decisions Flat Glass (1988); French-West African Shipowners’ Committees (1992); GC Flat Glass (1992); ECJ Kali + Salz (1988) and CEWAL (2000). 82  ECJ Almelo (1994) para 42. 83   ibid, para 43. 84   AG Fennelly’s Opinion in CEWAL (2000) para 28. 85  ibid. 86   ibid. For example, Irish Sugar’s commitment to bear the cost of all consumer promotions and reductions offered by its distributor to individual customers. See Commission decision Irish Sugar (1997) para 112. According to the Commission, these links meant that the two companies clearly had parallel interests vis-à-vis third parties. See Albors Llorens (2003) 163–64. 87   For another list of ‘links’ used to establish a collective dominant position, see Stroux (2000a) 40–42, who proposes five categories and a total of 11 ‘links’, the last being oligopolistic interdependence, which will be dealt with in section 8.3 below. 88   Against: AG Ruiz-Jarabo’s Opinion in Bagnasco (1999) paras 45–52. 89   Commission decision Airtours/First Choice (1999); GC Airtours (2002) paras 287–89. Similarly, the supply agreements between competitors in Flat Glass (1988) and GC Flat Glass (1992) would not, prima facie, be restrictive (see para 224 of the judgment). See Whish & Sufrin (1993) 73. Nevertheless, Stroux (2000a) 40–42 calls ‘bilateral links’ the ‘supply links’ between Kali + Salz and the SCPA (see Kali + Salz II (1998) and the ‘commercial links’ in the form of ‘cross-selling’ and ‘reciprocal distribution agreements’. 90   Bellamy & Child (2001) 714–15, paras 9.061 and 9.062, referring to ECJ Kali + Salz (1988) and CEWAL (2000). Cf Bellamy & Child (2008) paras 8.195–8.197, 8.209–8.215.

Analysis of ‘Collective Position’  159 family ties between owners or managers), if undertakings establish a common sales policy, or coordinate their commercial strategy, they limit competition among them.91 Calling the seventh link collusive is more questionable. However, to judge from the case law (prin­ cipally Almelo, Port of Genoa, DIP and Sodemare) the effective creation of a ‘collective position’ through legislation always or almost always requires the existence of prior or subsequent complementary collusive agreements, without which it very probably could not exist.92 As can be seen, in practice many of the examples of ties or links used by the EU Courts and the Commission to establish the existence of a traditional collective dominant position are clearly collusive, because they are based on relations capable of breaching Article 101.93 This is because the almost complete lack of competition within a group of undertakings in a collective dominant position is precisely what leads them to act in a parallel manner in the market, and to behave like a ‘collective entity’. In other words, the effect of the ‘links’ or ‘ties’ or ‘correlative factors’ is always to restrict competition between the undertakings that are members of the group, so that in certain circumstances they may breach Article 101(1) TFEU.94 95

91   According to Ritter & Braun (2004) 415 fn 260, the commitment to avoid having ‘interlocking directorates’ may be a condition for the approval of a merger, citing Commission decision Generali/INA (2000) in support of this contention. 92   According to Stroux (2000a) 22, in these last three judgments there were ‘externally-imposed links’ through legislation; in Port of Genoa II (1995) and DIP (1995) the Court did not state that the legislation placed the undertakings in a collective dominant position; in Sodemare (1997), with a questionable interpretation of para 47, Stroux says that the Court seems to have taken this approach, although it is not clear exactly which legislation she is referring to. 93   According to Withers and Jephcott (2001) 300, apart from collusive ‘connection factors’, the EU Courts have not given any indication of the type of links or ‘correlative factors’ that could be used to establish a collective dominant position. That is not completely true, because we have just seen that the case law and precedents of the Commission provide some examples of apparently non-collusive ‘links’, although they could also have restrictive effects, as will now be argued. 94   Against this point of view, it has been said that the conditions for the application of this provision do not exist in all cases where competition between companies is limited, and that there may be cases where contracts between undertakings may help to give them a collective position in the market without breaching Art 101(1). An example is agreements that give the parties a competitive advantage on a non-exclusive basis, without creating obstacles or difficulties for competitors. As Temple Lang (2002) 328 put it, ‘[i]f the relevant agreements are not subject to Article 81 [now Article 101 TFEU], the precise extent and nature of their effects on competition are not significant, except as part of the description of the market in which joint dominance is said to exist, because nothing can be done about them’. Yet the approach would appear to be the wrong way round, since concluding that Art 101(1) has not been infringed is only possible once it has been shown that the effects on competition are not significant. Bearing in mind that one of the characteristics of a collective dominant position is the absence of effective competition between the undertakings of the group, and that this kind of contract could indirectly limit internal competition, it is very doubtful that even in this kind of situation the application of Art 101(1) can be ruled out. It has also been said that if the collective dominant position was simply created through agreements, decisions or concerted practices between undertakings with significant market power, then the scope of the collective dominant position would not be much greater than that of Art 101. According to G Monti (2001) 132, this is why the collective dominant position must have a wider scope if its incorporation within Art 102 is to make any sense. The truth is, however, that even in such a case the prohibition on the abuse of a collective dominant position would be of additional value; think, for example, of a restrictive agreement authorised by a block exemption that creates a collective dominant position (irregularly, and in breach of the fourth condition of the exemption), such as the agreements of the members of the CEWAL shipping conference, to which the decision and judgments of the same name made reference (Monti himself appears to recognise this use beyond Art 101: see G Monti (2001) 138); or of enforcement of Art 102 against abuses of an oligopolistic collective dominant position. See section 9.3 below. 95   In the opinion of Stroux (2000a) 21, one which I do not share, ‘the links, other than their effect, also seem to need as their object the adoption of the same conduct in the market’.

160  Collective Dominant Position in General That said, the fact that the ties are of a collusive nature (in the sense that their effect is to limit internal competition among undertakings which are members of a group in a ‘collective position’) and are capable of breaching Article 101, does not necessarily mean that they always breach this provision, nor that it is an indispensable prerequisite for the establishment of a traditional or cooperative collective dominant position. In practice, though, those links that do not breach Article 101 are generally not strong or ‘close’ enough to be the sole or even the main reason for finding that a collective dominant position exists. In order to describe within the category of classical collective dominant positions those based exclusively or principally on links that breach Article 101 TFEU, the expression ‘expressly collusive dominant position’ or ‘pure collusive dominant position’ will be used. This effectively describes a ‘sub-species’ of the cooperative or traditional collective domin­ ant position.96 Unlike traditional collective dominant positions, the only necessary and sufficient link or correlative factor needed to establish an oligopolistic collective dominant position is oligopolistic interdependence which leads to stable non-competitive results. This inter­ dependence in turn depends on very divergent factors.

7.2.2  ‘Collective Position’ of the Members of an Oligopoly within the Control of Concentrations97 A new approach to the concept of collective dominant position within the control of concentrations has gradually developed since 1990 and has been applied alongside the traditional concept.98 The concept of the oligopolistic collective dominant position is based on the premise that in highly concentrated markets, ‘it is likely that if only a small number of firms survive they will recognize their interdependence and the futility of aggressive behaviour’. Thus, they will naturally coordinate their competitive conduct without needing to reach express agreements, and significantly raise prices above the competitive level.99 The European Commission and Courts, largely applying academic models of ‘tacit collusion’,100 have equated the oligopolistic collective dominant position with the type of 96  Although some authors, like Winckler & Hansen (1993), for example at 828, use the expression ‘non-­ cooperative collusion’, I would argue that in its strict legal meaning, ‘collusion’ is one possible form of cooperation among undertakings, and therefore it is always ‘cooperative’ per se. Other authors, like Harris & Veljanovski (2003) 217, use the expression ‘collusive, cartel-like or collective dominance’ to refer to what is called here collective oligopolistic dominant position. 97   For a more detailed analysis of this question, see section 8.4 below. 98   For an historical overview of the concept of collective dominant position in merger control, see Morgan (1996) 216ff, who distinguishes four different phases in the EC’s treatment of oligopolies between 1990 and 1996; Whish (2000) 592–93; Ritter & Braun (2004) 603–08ff. See Levy (2003) 202–17 for the main developments in merger control. 99   Etter (2000) 103–04, citing Cook & Kerse (2000) 171. Porter Elliot (1999) 645 offers the following curious metaphor to describe non-competitive oligopolistic interdependence: ‘Two sumo wrestlers in a closet will not bother to fight each other, knowing that in the end they’d both wind up battered and bruised and still having more or less the same amount of space as they started out with.’ In fact, if we identify free space with profit, the comparison with oligopolies would be more precise if the sumo wrestlers ended up with even less space than they had at the beginning of the fight, because prices would go down, at least during the fight. 100   According to Kloosterhuis (2001) 81, who cites J Tirole, The Theory of Industrial Organization (MIT Press, 1988) 207, and JW Friedman, Oligopoly Theory (Cambridge University Press, 1983) 132, this is the expression most commonly used to describe oligopolies. However, the Commission has criticised the expression as being ‘at best a metaphor and at worst highly misleading’, because it has evoked the existence of a true restrictive agreement

The Problem of Internal Competition  161 market structure where undertakings have no need to contact each other to obtain noncompetitive results; or that where it is rational and economically (even legally) justified to imitate competitors by not competing; or, and this amounts to the same thing, the market position that allows members of an oligopoly not to compete effectively (to ‘collaborate tacitly’) without any agreement or previous contact between them, which therefore does not breach Article 101(1).101 The conditions set out in the Discussion Paper (2005) and in the Commission’s Guidance Paper on Article 102 TFEU (2009) in relation to the identification of a collective dominant position are valid with respect to tacit coordination, but not with respect to ‘traditional’ or ‘classical’ collective dominant positions, since these may occur in any market. In short, unlike the classic collective dominant position102 based on a ‘collective mono­ poly’, the new collective dominant position essentially describes a particular type of oligopoly where the interdependence typical of all oligopolies leads to non-competitive results103 (its members naturally act in a parallel way, without needing to cooperate with each other and therefore without collusion), which generates economic results similar to those of the individual or collective monopoly.104 This new concept has been developed in the field of EU merger control,105 but its potential application goes beyond this area.106

7.3  THE PROBLEM OF INTERNAL COMPETITION BETWEEN UNDERTAKINGS IN A COLLECTIVE DOMINANT POSITION

According to the EU Courts, undertakings that enjoy a collective dominant position behave like a ‘collective entity’ in the market. This behaviour has been described in the case law principally in relation to third parties (competitors, clients and final consumers), with respect to which the collective entity behaves with considerable independence. We know that collective dominant positions are in some circumstances established through collusive agreements and in others through other types of ‘economic links or ties’, which, in practice, are difficult to describe as non-collusive.107 We also know that one of these links – without doubt the one which has received most attention lately – is non-competitive oligopolistic interdependence. But, apart from this sole exception, little has been said about competition between undertakings that are members of a ‘collective entity’. between oligopoly members, or because EU merger control aims to avoid the probable formation of true agreements. Report for the Hearing in Airtours, para 91, cited in Nikpay & Houwen (2003) 201. 101   See section 8.4 below. 102   Kokkoris (2007) 419 identifies the concepts of collective dominance, joint dominance and oligopolistic dominance. With respect to this theory, however, it should be noted that ‘traditional’ dominant positions exist in markets that are not necessarily non-competitive oligopolistic ones. 103   As a matter of course, economic theory accepts that competitive oligopolies may exist. 104   cf Böge & Müller (2002) 496. 105   According to Haupt (2002) 439, as at 2002 the European Commission had dealt with 80 concentrations where the creation of an oligopolistic dominant position had been considered. Of these, 27 entered the second phase under the Merger Regulation, 4 were prohibited, and 23 were authorised, some subject to commitments attached. 106   For example, it could be used to apply Art 102 TFEU to abuses of an oligopolistic collective dominant position. See section 9.3 below. 107   See section 7.2.1 above.

162  Collective Dominant Position in General While it is true that the ECJ has held that the absence of competition between under­ takings alleged to be in a collective dominant position is very strong evidence of their dominance,108 it has not definitively declared whether the members of a group of independent undertakings in a collective dominant position compete with each other or not, and, if they do, the degree to which they can compete without losing their collective position.109 This point, which is of fundamental importance with respect to Article 101(3) (b),110 is also vital for the analysis of collective dominant positions in general and those of a collusive nature in particular. Could a collective dominant position exist without the ‘collective entity’ behaving in the same way vis-à-vis ‘the outside world’? If undertakings in a position of collective dominance must effectively act ‘as one’ in the market, to what extent is the existence of internal competition compatible with the maintenance of collective behaviour in the market? In the case of an individual dominant position, internal competition does not, by definition, exist, although if we were to stretch our imaginations we could perhaps envisage a situation where a number of entities belonging to the same business group were authorised by its parent company to compete with each other. The undertakings in such a group could find themselves in an individual rather than a collective dominant position, since for economic (and therefore competition law) purposes the group would be treated as a single undertaking. With an oligopolistic dominant position, however, there is at least a risk – a serious risk – that internal competition exists. One could even say that there is too much competition. This type of competition, or rather, this type of purely competitive relation, paradoxically ends up discouraging all competition and becomes ‘non-competition’,111 making oligopolists act as a single collective undertaking vis-à-vis their always smaller competitors, and consumers. (Oligopolists act without taking into account other smaller competitors and consumers, caring only about the relationship of mutual dependence within the group that makes up the oligopoly.) Under adequate conditions, the undoubted risk – or rather the absolute certainty – of the competitive reaction of other oligopolists paralyses competition within the group: no undertaking is interested in competing because the certain and immediate reaction of the others would prevent it from being able to profit from this decision and, at the end of the day, it would only harm itself and the others. There is potentially so much competition that oligopolists do not compete since nobody is interested in competing if doing so means causing itself damage. The group, therefore, shares the common and very strong incentive not to damage itself. That said, the Commission and the EU Courts have described non-competitive oligo­ polies not so much on the basis of the total and absolute elimination of internal competition, but instead according to the absence of a significant degree of competition between oligopolists, and also between oligopolists and third parties.112 The results of this market 108  ECJ Port of Genoa II (1995) para 33, and ECJ DIP (1995) paras 26–27, referred to in AG Fennelly’s Opinion in CEWAL (2000) para 26. 109   This gap allows the Commission to lay down precedents such as its decision in P&I Clubs II (1999), which will be examined below, and ECJ TACA (2003) paras 933, 1041–44. 110   See section 6.1 above. 111   This point coincides with the content of the table concerning parallel behaviour in the light of Arts 101 and 102 TFEU, reproduced below in section 9.4, as regards behaviour coming within zones X and Y. 112  Commission decision ABB/Daimler Benz (1995) para 86. See also Flint (1978) 50, for whom internal competition is to some extent possible within a dominant oligopoly. Similarly, Temple Lang (2002) 315 states that if the test or basic criterion for the existence of a dominant position is lack of effective competition, it is not necessary for oligopolists always to behave in the same way, since differences that are insignificant or short-lived may occur without creating effective competition.

The Problem of Internal Competition  163 situation are therefore equivalent to those in a collective dominant position, which has been called ‘traditional’ (a collective monopoly) in this book. In fact, in a traditional collective dominant position, where various undertakings operate in the market as a single entity as a result of the close economic links or ties between them (whether these be legal, structural or of some other nature, apart from those of oligopolistic interdependence), it appears that there is no room, either in theory or in practice, for effective internal competition, apart from competition of a residual nature. In TACA, decided in 1998, the Commission had already rejected the idea that internal competition must be completely eliminated in order for a collective dominant position to exist.113 Instead, it recognised that the continued presence of a possible degree of competition between the parties did not exclude the existence of a collective dominant position. In the action for annulment of the decision, the GC clarified that the existence of a collective dominant position did not mean that all competition between undertakings enjoying such a position was eradicated; nor did it require them all to behave in the same way with regard to all competitive aspects in the relevant market. Although the lack of effective competition between the alleged dominant oligopoly members is an important factor in determining the existence of a collective dominant position,114 this does not mean that all competition between the undertakings involved need be eliminated.115 In the same year, in its Notice on access agreements in the telecommunications sector,116 the Commission stated that although at that time both its practice and EU case law were still evolving, it would consider two or more undertakings to be in a collective dominant position if they presented themselves to their clients and competitors as if they were a dominant undertaking, provided that there was no effective competition between them.117 In practice, the lack of competition could be due to the existence of certain links between undertakings, although the Commission said that such links were not a requirement for the establishment of a collective dominant position.118 In 2000, the ECJ in CEWAL followed the GC in Gencor (1999) and held that for a group of undertakings to behave like a collective entity vis-à-vis their competitors and consumers two conditions had to be satisfied: no effective internal competition could exist, and the undertakings had to follow the same market policy.119 Whatever the situation, it is very doubtful that without bearing the essential features of a ‘single’ or ‘collective entity’, a group of independent undertakings can hold a cooperative or traditional collective position; or, much more significantly, that the typical feature of the collective entity is limited to the external relations of its members. On the basis that they behave as one sole undertaking vis-à-vis third parties, they must necessarily act ‘as one’ with respect to each other; that is, there must be full coordination at least as regards the most significant competitive parameters, fundamentally price and the supply of products and services, so that internal competition is wholly or substantially eliminated. (Note that the determining factor is coordination, not necessarily price uniformity or parity of   Commission decision TACA (1998) paras 521–23.  GC Airtours (2002) para 63; ECJ Port of Genoa II (1995) para 34; ECJ DIP (1995) para 27. 115  ECJ TACA (2003) paras 654–55. 116   European Commission (1998b) para 79. 117   However, for some authors the predominant criterion for the existence of a collective position is simply operating in the market as a single entity. See Depoortere & Motta (2009) 3; Vitzilaiou & Lambadarios (2009) 2–3. 118  Guidelines on Market Analysis and Significant Market Power in Electronic Communications Markets (European Commission (2002a)) paras 87, 92, citing CEWAL (2000) para 39. 119  ECJ CEWAL (2000) para 39. 113 114

164  Collective Dominant Position in General supply.) Other parameters are less significant (technical specifications, quality of product or service etc) and the lack of coordination and the differences between members allow a certain degree of internal competition to exist, albeit not enough to exclude the existence of a ‘collective entity’.120 The existence of a ‘collective entity’ vis-à-vis third parties therefore presupposes in-depth coordination in the market strategy of the group of allegedly dominant undertakings; by definition, this means a very substantial reduction – although not necessarily the complete elimination – of internal competition. The question, then, is what degree of internal residual competition does not damage undertakings’ ‘collective position’, because any significant degree of internal competition would immediately result in the members of the group offering different conditions to third parties, and they would therefore cease to operate as (nor would they be considered to be) a ‘collective entity’. By analogy, as regards the oligopolistic dominant position, the parallel behaviour on which it is based need not necessarily be perfect; certain competitive deviations that are insignificant or of a limited duration are compatible with it. By contrast, if internal competition is effective, this alone prevents the existence of a ‘collective position’, and therefore the existence of a collective dominant position.121 In short, although it is clear that competition between members of a group of independent undertakings considered to hold a ‘collective position’ can never be effective, it seems reasonable to think that the existence of a lower (or even a considerably lower) level of competition would also prevent them from holding a common ‘collective position’. To achieve or maintain a ‘collective position’, the competition between the members of a group should be at most residual – that is, quite significantly weaker than just below the level of effective competition; otherwise they would be different entities vis-à-vis third parties and not a ‘collective entity’. It is also worth asking whether a group of independent undertakings that enters into an agreement that restricts competition can eliminate competition within the meaning of the fourth condition of Article 101(3) without attaining a collective dominant position. At first sight, this would appear to be possible; everything would depend on the relative import­ ance of the group’s members in the reference market, and the internal competition within the group. The elimination of effective competition in general does not necessarily mean the disappearance of all internal competition, although if all competition is eliminated, undertakings will logically behave like a ‘single entity’ in the market. If internal competition survives in some way, it is worth imagining that it is sufficient to prevent the group of 120   Against: see the submissions of the Compagnie Maritime Belge (CMB) in ECJ CEWAL (2000), referred to in AG Fennelly’s Opinion at para 34. Temple Lang (2002) 317 takes the view that in order for a collective dominant position to exist, the following three questions must be answered: Do the undertakings essentially follow a single pricing policy? Are the companies as a whole relatively immune to external competition, in such a way that if they belonged to the same group of companies, they would hold an individual dominant position? Has effective competition been eliminated between the companies in question? (I have adapted these questions so that all of them can be answered in the affirmative.) As has just been noted, in the vast majority of the cases the first and third questions will produce the same answer, since if essentially the same pricing policy is followed, it would be very difficult for effective competition to exist as regards other matters. 121   See Fernández de Araoz (1993) 10109–11. See also Böge and Müller (2002) 495, who, citing the Principles of Interpretation applied by the German Bundeskartellamt when assessing market dominance (available at www. bundeskartellant.de) 41ff, argue that ‘[t]he precondition for establishing such oligopolistic dominance is that there is no substantial competition between the oligopolists’. Similarly, see Haupt (2002) 439, 440, for whom the absence of effective competition between oligopoly members is a fundamental criterion of behaviour with regard to the establishment of an oligopolistic dominant position, ex post as much as ex ante, because if internal competition is eliminated, a group of undertakings is constituted as a collective entity vis-à-vis third parties in the market.

The Problem of Internal Competition  165 undertakings in question from behaving as a ‘collective entity’ and nevertheless insufficient for effective competition to exist. Take, for example, a group of independent undertakings that enter into a restrictive agreement and eliminate substantially internal competition, although not enough for such undertakings to be considered a ‘collective entity’ in the market, within the meaning established in EU case law. If the global weight of the undertakings in the market were significant, the partial elimination of internal competition could lead to the elimination of effective competition within the meaning of Article 101(3)(b) TFEU without attributing a collective dominant position to such undertakings. In this way, a group of undertakings cannot acquire the ‘collective position’ as a result of its restrictive agreements, but it can eliminate competition to the same extent as occurs with the creation of a dominant position (ie the degree of elimination of effective competition in the market). One example would be an agreement regarding production quotas entered into between a group of independent undertakings that controlled 90 per cent of the market and did not involve other restrictions on prices, distribution, quality of products or services and so on. Curiously, in Stichting Baksteen (1994) a very similar agreement was authorised by the Commission under Article 101(3). Finally, it is worth asking whether it is possible to envisage a scenario where within the members of a group of independent undertakings that behave in the same way in the market, effective competition does not exist (internal competition) and yet there is competition from other undertakings (external competition). In other words, is it possible to establish a ‘collective position’ without establishing a dominant position? The answer is obviously ‘yes’, where traditional collective positions are concerned, although the position is not at all clear as regards oligopolistic dominant positions. An initial clarification needs to be made, namely that a collective dominant position is characterised by the absence of both internal and external competition. While the absence of internal competition in itself leads to the establishment of a ‘collective position’, the absence of external competition, together with other factors such as insufficient residual internal competition, leads to the establishment of a dominant position. With regard to an oligopolistic dominant position, effective internal competition is incompatible with the interdependence typical of non-competitive oligopolies, in the same way that effective external competition is incompatible with the independence typical of dominant operators vis-à-vis third parties. Oligopolistic dominant positions therefore arise in market situations where parallel behaviour is the result of certain factors, such as a high concentration of market power, which are essential for the establishment of both the collective position (absence of effective internal competition) and the dominant position (absence of effective external competition) of oligopolistic firms. It is precisely for this reason that with oligopolistic collective dominant positions it is difficult to distinguish between correlative factors for the purposes of establishing a collective dominant position and factors relevant to establishing a dominant position, since to some extent all factors, when taken together, serve both ends.122 In addition, the idea of an oligopoly acting interdependently vis-à-vis insiders and competitively vis-à-vis outsiders would seem illogical, as previously explained. Under normal circumstances, the existence of effective external competition will prevent the oligo­ poly from being stably non-competitive, since all competition directed outside the oligopoly 122   Withers & Jephcott (2001) 301, on the basis of GC Airtours (2002) and Gencor (1999), and ECJ Kali + Salz II (1998).

166  Collective Dominant Position in General will become competition directed inwards (competition will affect each and every operator in the market) and will alter the balance between the oligopolists, who will be obliged to compete in all directions.123 In conclusion, although there are those who disagree with this approach, and doubt that it is sufficient to eliminate (almost entirely) internal competition in order for a group of undertakings to be considered a ‘collective entity’ in the market,124 it cannot be denied that a necessary condition for behaving as a ‘collective entity’ is that internal competition is substantially eliminated.125 In reality, once again it could be a question of degree: not all ‘eliminations’ are complete, and not all partial eliminations are of equal importance. On this basis, it could be argued that the elimination of competition as regards the main competitive parameters (price, supply, sales conditions etc) in practice leads (in terms of its effects) to the establishment of a traditional collective dominant position. The approach described, according to which there can be no effective internal competition between the members of a group in a collective dominant position, was rejected by the Commission in a 1999 decision. Faced with the question ‘Is it possible for a collusive agreement that serves as a basis for a collective dominant position between undertakings not to eliminate effective competition between these same undertakings, and therefore satisfy the fourth condition of the exemption?’ the Commission answered ‘yes’. This momentarily undermined the very foundations of the concept of traditional collective dominant position or collective monopoly (the existence of a single entity vis-à-vis third parties) and, in arguing that there may be effective internal competition within a group in a collective dominant position of a collusive nature, the Commission drove a coach and horses through the fourth condition of the exemption. The decision in which the Commission took this surprising approach was P&I Clubs II (1999). The Commission granted an individual exemption to a very significant group of individual mutual insurance companies of P&I on the basis of, inter alia, the existence of internal competition, while establishing that these companies held a collective dominant position through the authorised agreements. The Commission, however, was silent as to whether the degree of market power necessary to eliminate ‘competition in respect of a substantial part of the products in question’ was the same with regard to collusive agreements between independent undertakings as that required to establish a collective dominant position between them.126 P&I Clubs II is directly related to P&I Clubs I (1985), where the Commission granted an individual exemption for a period of 10 years. In fact, P&I Clubs II arose following the

123   Very interestingly, the shipping companies involved in TACA argued that, whatever the GC’s opinion regarding their submission that there was no ‘collective position’ due to the internal competition between them, the Court had to accept that the latter was sufficient to prevent their occupying a dominant position in the market. The GC rejected this allegation with dubious and unclear arguments (ECJ TACA (2003) paras 1041–4), when it would have been much easier and more direct for it to hold that if a ‘collective position’ existed due to insufficient internal competition in a group of undertakings, that competition did not in itself mean that there was no dominant position; this could only happen if effective competition existed, in which case it would have been impossible to establish a collective position in the first place. 124   See Ritter & Braun (2004) 413. 125   According to Temple Lang (2000) 434, a joint dominant position involves two conditions: first, lack of effective competition between the collectively dominant companies; and second, relative immunity from the market pressures of other competitors and clients. 126   For theories concerning the relationship between market power when applying Art 101(3)(b) and Art 102, see section 10.3 below.

The Problem of Internal Competition  167 request for renewal of this first exemption.127 The two decisions refer to different agreements among the vast majority of Protection and Indemnity clubs, or P&I clubs, in the world. These are mutual associations that offer this type of insurance and whose members are their own insured shipowners. Approximately 89 per cent of world tonnage and almost 100 per cent of European tonnage has been insured by members of the agreements authorised in 1985 and 1999. In the first place, the members of the club are parties to a pooling agreement whose aim is twofold: to share cover proportionally among all the P&I clubs for those accidents whose value is above a certain amount, and to establish a common minimum level of cover. Secondly, they are also parties to an ‘International Group Agreement’, or IGA, within which the clubs have established rules and methods applicable to a possible offer of P&I cover to a shipowner that belongs to another club. These include rules concerning prices, tankers and cancellation charges paid in order to change the mutual insurance company. Once the agreements were notified, the Commission served a statement of objections, alleging that they were contrary to Articles 101 and 102. Finally, however, as was the case in P&I Clubs I, once the agreements were amended to the Commission’s satisfaction, it granted them an individual exemption. Up to this point, there is nothing out of the ordinary. The curious point here is that in addition to granting the exemption, the Commission declared that through their agreements, in breach of Article 102, the P&I clubs had committed various abuses of a collective dominant position, yet it did not penalise them (because the clubs had amended their agreements to the satisfaction of the Commission). In the very same decision, therefore, the Commission justified the non-elimination of competition with respect to a substantial part of the protection and indemnity insurance market, within the meaning of the fourth condition of Article 101(3), while also declaring that the P&I clubs enjoyed a collective dominant position, which, however, they had not abused (or rather, which they had abused before the amendments required by the Commission had been introduced, albeit without consequences).128 In concluding that competition had not been eliminated, the Commission referred mainly to internal competition between member clubs, in view of the weakness of external competition.129 To a neutral observer, however, the internal competition described by the Commission may seem too limited for the purpose of satisfying the fourth condition of Article 101(3). This once again proves that when Regulation 17 was in force, the Commission was capable of exercising incredible flexibility when, for whatever reason, it considered that it should grant an individual exemption. In order to conclude that a collective dominant position existed, the Commission referred to different factors, such as strong economic links created by authorised agreements (shared costs, common procedures, joint contracting of reinsurance, agreements on 127  The individual exemption granted in Commission decision P&I Clubs II (1999) expired in 2009. The Commission opened formal proceedings against the previously exempted agreements on 26 August 2010. See press release IP/10/1072. 128   This case contradicts the statement of Lowenthal (2005) 461, who, after referring to the Opinion of Judge Kirchner acting as Advocate General in Tetra Pak I (1990) para 22, stated as follows: ‘[T]hat is not to say that an exemption under Article 81(3) [now Article 101(3) TFEU] will never have an effect on the application of Article 82 [now Article 102 TFEU]. Under the old notification system [of notification and authorisation of restrictive agreements under Regulation 17], where the Commission had decided that an agreement falling under Article 81(1) was exempted by Article 81(3), it would have been impossible for that conduct to be found to constitute an abuse under Article 82 in simultaneous proceedings.’ 129   Commission decision P&I Clubs II (1999) paras 113–15.

168  Collective Dominant Position in General conditions applicable to its members and other forms of cooperation within the scope of indemnity insurance) and the adoption of a uniform policy in the market (common insurance conditions and single level of coverage). These features, combined with their capacity to offer all levels of P&I cover (something which residual competitors lack), their great experience and reputation and their presence throughout the world through a wide network of offices, as well as, of course their enormous market share, clearly enabled the clubs to occupy a collective dominant position and to act largely independently of their competitors.130 P&I Clubs II (1999) is highly unusual to say the least. Never before has the Commission accepted that collusive agreements through which a group of independent undertakings placed themselves in a collective dominant position could satisfy the fourth condition of Article 101(3). However, as has been pointed out, the Commission’s approach was not based on the fact that the market power necessary to establish a collective dominant position was less than that necessary to eliminate competition with respect to a substantial part of the market, but rather it used internal competition (albeit in an unbelievable manner) to justify its decision. Perhaps in order to avoid taking any express decision on this point, the Commission painted itself into a corner, justifying the existence of a sufficient degree of internal competition in a situation in which it was highly unrealistic to believe that this could exist, one which was wholly at odds with how members of the group presented themselves to third parties as a ‘collective entity’. This last factor, when it exists, removes at a stroke the possibility of a minimum level of effective competition existing between the members of a group of independent undertakings in a collective dominant position.

7.4  ANALYSIS OF MARKET POWER IN SITUATIONS WHERE A COLLECTIVE DOMINANT POSITION EXISTS

The criteria for examining market power and establishing the dominant position of a group of undertakings are (and must be) the same as those used to establish the dominant position of an individual undertaking. If one of the main objectives of the competition rules is to fight against abuses of market power, whether committed by an individual company or by a group thereof, the thresholds on the basis of which these rules impose obligations and may prohibit abuses will, logically, be the same, regardless of the number of undertakings involved.131 As we saw above, in order to establish whether a collective dominant position exists, the Commission does two things. First, it examines the relations between the members of the group of undertakings in question (which may or may not form part of an oligopoly) to see whether there is a ‘collective position’, and second, it looks at the structure of supply (especially companies’ market shares), the structure of demand (particularly clients’ ‘countervailing power’) and potential competition (which depends directly on the existence or otherwise of entry and exit barriers). However, because of the very nature of collective dominant positions of an oligopolistic nature, it is not possible to separate the two parts of the analysis. Since they are oligopolies, establishing both the collective and the dominant   ibid, paras 119–26.   Similarly, see Richardson & Gordon (2001) 421.

130 131

Market Power in Situations Where a Collective Dominant Position Exists  169 position takes place at the same time, when the structure and nature of the market is analysed. In other words, the existence of non-competitive oligopolistic interdependence is shown using the same elements as those employed to establish the collective market power of a group of undertakings.132 This qualified identity does not prevent the assessment of the joint market power of a group of undertakings in a traditional collective dominant position (a collective mono­ poly) or in an oligopolistic collective dominant position (a stable non-competitive and non-cooperative oligopoly) from having its own special features. In traditional collective dominant positions, or collective monopolies, internal competition has effectively been eliminated and undertakings act as a single ‘collective entity’ in the market. The analysis of economic power is therefore carried out in the same way as and by applying identical criteria to those already described for individual dominant positions, including observing firms’ behaviour.133 Taking as our starting point market share, and perhaps the most significant declaration of the ECJ on this matter in Akzo (1991),134 it could be said that once the joint position of a group of undertakings as a ‘collective entity’ has been established, a joint market share of 50 per cent should constitute, save in exceptional circumstances, a strong presumption of the existence of a dominant position. In these cases the allegedly dominant undertakings also have the burden of proving that despite appearances (ie holding at least half of the market) they are not collectively dominant.135 As regards oligopolistic collective dominant positions, or stable non-competitive non-­ cooperative oligopolies, there are relations of individual interdependence that lead the undertakings that form part of them not to compete with each other. This is different from the situation with collective monopolies. However the analysis of oligopoly members’ economic power vis-à-vis third party competitors that are not members should be no different from that which usually takes place in competition matters, since their ‘collective position’ would make them operate as a single undertaking.136 Focusing solely on the structure of supply, to repeat what was said at the beginning of this section, market share is doubly relevant for oligopolistic collective dominant positions: first, in order to establish a ‘collective position’ of the undertakings in the market (oligopolists’ market shares should be ‘symmetrical’, ie relatively similar) and, secondly, to establish the dominant position of a group as a ‘collective entity’ vis-à-vis other competitors (joint oligopolists’ market share should be significant in absolute and relative terms compared to other competitors). However, as explained above, the typical two-phase analysis used to establish a traditional collective dominant position or a collective monopoly is of no use here. As regards the question of oligopolistic dominant positions, in a very similar way to the ECJ in Akzo (1991), in Gencor (1999) the GC established the presumption of the existence   As Withers and Jephcott (2001) 301 put it, the two elements are ‘inextricably bound’.   See ch 3 above. 134  ECJ Akzo (1991) para 60. 135   As already explained, the GC reversed the burden of proof for market shares above 50% in GC Hilti (1991) paras 89, 92 and in GC Tetra Pak II (1994) para 109. More recently, see also GC TACA (2003) paras 907, 913, where it was held that a share of 50% was itself proof, save in exceptional circumstances, of the existence of a traditional or cooperative collective dominant position among the shipowner members of a liner conference. 136  Kühn (2002) 56 argues that the market power of a group of companies in an oligopolistic dominant position will always be less than that of an individual company that is apparently in the same position, since the coordination of the members of the dominant oligopoly will never be perfect. 132 133

170  Collective Dominant Position in General of an oligopolistic collective dominant position above certain joint market shares, or the degree of concentration of supply as a whole. According to the GC, ‘particularly in the case of a duopoly, a large market share is, in the absence of evidence to the contrary, likewise a strong indication of the existence of a collective dominant position’. In the case in question it was forecast that the duopolist undertakings would hold 80 per cent of the market (40 per cent each) within a very short time.137 Nevertheless, shortly before, in Kali + Salz II (1998) the ECJ had refused to accept that a joint market share of 60 per cent held by two undertakings (37 per cent/23 per cent) was conclusive proof of the existence of a collective dominant position.138 Kali + Salz is probably a better precedent than Gencor, but neither of them conflict with Akzo. This case relates to an individual dominant position, while Kali + Salz relates to a collective dominant position. In the former, only the ‘dominant position’ of the undertaking need be examined, not its ‘collective position’, because an individual undertaking is not subject to internal competition, by definition – although, as mentioned above, some subsidiaries of the same parent company can compete in some cases. Thus, to establish an individual dominant position, it is only necessary to analyse external competition, one of the main criteria of which is market share (both of the individually dominant company and of others). In the latter, the ‘collective position’ of the undertakings vis-à-vis third parties needs to be established, which requires an analysis of both competition between them and, on the other hand, their ‘dominant position’, that is, whether they hold significant market power, which requires an assessment of the degree of external competition between undertakings. A joint share of 50, 60 or even 80 per cent is of little value if the undertakings (two, three, or more) effectively continue to compete with each other. But if they do not compete and behave like a ‘collective entity’ in the market, a joint share of 50 per cent should be enough to be able to presume the existence of a dominant position, as occurred in Akzo (albeit this time of a collective nature).139 In essence, since they are oligopolistic dominant positions, the ‘collective position’ test cannot be separated from the ‘dominant position’ test, and thus a given market share in isolation from other factors or market features aiming at the ‘collective entity’ does not mean anything.140 However, a considerable

 GC Gencor (1999) para 206.  ECJ Kali + Salz II (1998) para 226. According to Briones (1993), during the initial years of merger control, duopolies with more than 50% and less than 60% normally set the Commission’s alarm bells ringing. Kühn (2001) section 5 maintains that the market share of companies in a collective dominant position has to be significantly greater than 50%, placing it at 65%. In my view, however, this depends on how closely linked the companies in question are – if they are sufficiently linked, the same percentage should suffice whether an individual or a collective dominant position exists. 139   This position seems to be confirmed by the GC in TACA (2003) paras 913–32. It would appear logical to think that an entity with a market share of more than 50%, whether an individual or collective entity, could enjoy a level of independence typical of a dominant operator. According to Christensen and Rabassa (2001) 234–35, the elimination of internal competition is never absolute in oligopolies. Therefore, a duopoly covering 60–70% of the market (such as the one analysed by the ECJ in Kali + Salz) can have the same market power as a sole undertaking with 50%. However, the more internal competition is eliminated, the more the joint market share of a group of undertakings will resemble the individual market share of a single undertaking. 140   According to Richardson & Gordon (2001) 417, the ‘50% rule’ laid down by the ECJ in Akzo (1991) is not applicable to collective dominant positions. Whish (2000) 596 takes the same view, but appears to do so in order to stress that sharing out the market in such a way does not itself guarantee the existence of a ‘collective position’. Some years earlier, the same author argued with respect to ECJ Akzo (1991) that 50% cannot indicate dominance if another undertaking holds the other 50%; Whish and Sufrin (1993) 82. This is true as regards an individual dominant position, although not necessarily so with respect to a collective dominant position, as GC Gencor (1999) shows. 137 138

Market Power in Situations Where a Collective Dominant Position Exists  171 number of merger control systems apply market share and concentration indicators in order to rule out or presume the existence of competitive coordination problems in the operations being evaluated.141 Presumptions apart, in each case the Commission analyses the specific conditions that prevail in the markets concerned and observes a whole series of economic factors without, in general, a single criterion being crucial in a given case. The risk of a concentration creating or strengthening a collective dominant position (ie producing ‘coordinated effects’)142 increases in proportion to greater concentration of supply, greater stability of market shares over time and greater similarity of market shares of undertakings capable of enjoying an oligopolistic collective dominant position. The existence of significant differences between undertakings’ market shares makes it very unlikely that an oligopolistic collective dominant position will be established.143 However, in some cases these asymmetries have not prevented such a conclusion.144 As regards concentration at the supply level, the Commission has tended to consider only the joint market share of the two or three main suppliers as capable of creating a collective dominant position. In practice, and for the time being, it has prohibited concentrations or imposed severe conditions to avoid the creation or reinforcement of a collective dominant position only in cases of duopoly145 – that is, in situations where the undertaking resulting from the concentration and a third undertaking had a market share of more than 50–60 per cent of the relevant market and the remaining suppliers in that market had much lower market shares.146 The Commission opened second-phase investigations because serious doubts existed regarding the creation or reinforcement of a collective dominant position in other matters that led to a similar distribution of market shares in the relevant market, but finally decided to authorise the operations in question without imposing conditions.147 In a limited number of cases, the Commission has analysed the collective dominant position of groups of three undertakings or more, and until recently it authorised these operations in the first phase of the European procedure.148 According to the Commission, in general collective dominance of more than three or four undertakings is unlikely simply because of the complexity of their relationship, and the temptation that will exist to deviate

141   See the interesting country-by-country summary prepared by Rill, Taladay, Norton, Oxenham, Matsushita, Montag & Rosenfeld (2003) 4–7, based on the merger control guidelines published by different competition authorities around the world. 142   See section 9.1.1 below. 143  Kühn (2001) section 4 offers an example of a pro-competitive concentration as creating asymmetries, despite being one of 4-3: 4 companies each with a market share of 25%, of which two merge. The incentives of the merged entity with a 50% share diverge from those of the others and more competition is foreseeable than before, and there is less risk of tacit coordination. 144   Navarro Font, Folguera & Briones (2005) 218. 145  Commission decision Airtours/First Choice (1999), to date the only decision to prohibit a concentration because of the alleged creation of a collective dominant position of three undertakings, was annulled by GC Airtours (2002). 146   See Commission decisions Nestlé/Perrier (1992) paras 133–38; Kali + Salz/MDK/Treuhand (1998); ABB/ Daimler Benz (1995) para 63; Gencor/Lonrho (1996) paras 181–88; Bertelsmann/Kirch/Premiere (1998) paras 118ff; Deutsche Telekom/Beta Research (1998) paras 28–44; Rodhia/Donau Chemie/Albright & Wilson (1999) para 61; Danish Crown/Vestjyske Slagterier (1999) paras 174–81; BP/E.ON (2001); Air Liquide/Messer Targets (2004). 147   See Commission decisions Pilkington Techint/SIV (1993) paras 61–64; Mannesmann/Vallourec/Ilva (1994). Cited in Briones, Font, Folguera & Navarro (1999) 218. See also the decisions cited in Venit (1998) 1122–24. 148   See, inter alia, Commission decisions Rhône-Poulenc/SNIA (1992), for three companies with a market share of 66%; Thorn EMI/Virgin Music (1992), for five companies with a market share of 80%; and CCIE/GTE (1992), for two companies with 50% each of the market, or four companies with a 90% share.

172  Collective Dominant Position in General from the oligopolistic equilibrium. Such a situation is unstable and unsustainable over the long term.149 The Commission took decisive steps to widen the possible number of undertakings in an oligopolistic dominant position in Air Tours/First Choice (1999), where it established the existence of a collective dominant position among three large companies in the British tour operators market. If the merger had gone ahead it would have given rise to an entity with a market share of 32 per cent, which supposedly would have created an oligopolistic collective dominant position with Thomson and Thomas Cook, which had market shares of 27 and 20 per cent respectively, the remaining competitors being much smaller and, unlike those that formed the alleged oligopoly, not vertically integrated.150 Finally, in Exxon/Mobil (1999), Total/Fina/Elf (2000) and EMI/Time Warner (2000), the Commission appears to have suggested that an oligopolistic collective dominant position could be established among four or more undertakings.151 However, in most markets it would be very difficult to find all the factors necessary to establish an oligopolistic dominant position (particularly that of symmetry among oligopolists) where there were, say, five or more competitors.152 Following the GC’s reprimand in Airtours (2002), it seemed highly unlikely that the Commission would risk considering oligopolies consisting of three or more undertakings to be dominant,153 and this proved to be the case in Sony/BMG (2004), where the Commission authorised the merger in question (a decision that was subsequently annulled by the GC in Impala (2006), which was in turn annulled on other grounds by the ECJ). The Commission found a market in which five companies had a joint market share of approximately 72–93 per cent in each national market affected to be competitive.

149   Commission decision Price Waterhouse/Coopers & Lybrand (1998) paras 103, 113. At para 72 of this decision, the Commission declared that ‘from a general viewpoint, collective dominance involving more than three or four suppliers is unlikely simply because of the complexity of the interrelationships involved, and the consequent temptation to deviate such a situation is unstable and untenable in the long term’. 150   See Commission decision Airtours/First Choice (1999) paras 72ff, annulled by the GC in Airtours (2002) on the grounds that the Commission had made different (and in the Court’s opinion, numerous and significant) errors of assessment. 151  In Exxon/Mobil (1999), the Commission detected the existence of oligopolies in various national markets for petroleum products where there were five or six competitors, due to the structural links between the oil companies (through capital holdings) and the fact that petrol prices were very transparent. In TotalFina/Elf (2000) paras 216–17, the Commission specifically referred to the sale of petroleum products on French motorways. In this relevant market, the merger between TotalFina and Elf (with a market share of 50–60%) would lead to the resulting entity holding an individual dominant position, or a joint dominant position with its closest competitors (the next three biggest companies had shares of between 10 and 20%). In Commission decision EMI/Time Warner (2000), a transaction which was ultimately abandoned, described in Press Releases IP/00/617, dated 14 June 2000, and IP/00/1122, dated 5 October 2000, the Commission stated that the concentration would create an oligopoly composed of four companies holding 80% of the market, suggesting that a collective dominant position existed in the national markets for music recordings. In the end the parties abandoned the transaction. Even more recently, see UPM-Kymmene/Haindl (2002) and Norske Skog/Parenco/Walsum (2002). 152   Temple Lang (2002) 322. Similarly, see Coppi & Walker (2004) 118, who note that ‘[a] popular view, common on both sides of the Atlantic, is that 3-to-2 mergers are allowed only in the most exceptional circumstances; that 4-to-3 mergers raise a number of concerns and will attract close scrutiny, and that, in general, 5-to-4 mergers do not raise particular concerns.’ Against: Flint (1978) 49–50 argued that for an industry to be considered oligo­ polistic, the maximum number of companies would be between 10 and 12. 153   Briones (1995) 337 argued this point years before the Commission’s decision in Airtours/First Choice (1999).

8 Oligopolistic Interdependence and Dominant Oligopolistic Position in Relation to Articles 101 and 102 TFEU and Regulation 139/2004(I) 8.1  OLIGOPOLIES AND OLIGOPOLISTIC COMPETITION

Economists have written extensively on oligopolistic markets and oligopoly models.1 The fascination with oligopolies has also affected US antitrust law and European competition law2, perhaps because business behaviour in oligopolistic markets is probably the single most important imperfection of modern capitalism,3 and because it is commonly thought that the legal tools that have been used are not strong enough to resolve the ‘oligopoly problem’.4 Some years ago, oligopolies were a very fashionable subject in European circles, perhaps because their study is extremely complicated:5 it seems that there are as many theories 1   For an overview, see, among many others, Kantzenbach, Kottmann & Krüger (1995); NERA (1999); Europe Economics (2001) 9ff; Bishop & Walker (2010). Among lawyers, see eg Petit (2007). For the origins of the word ‘oligopoly’, see Werden (2004) 720 fn 4, who attributes it to Edward Chamberlin, who in turn considers it to have been invented by Thomas Moore, who used it in his book Utopia. 2   See Callery (2011). 3   Fernández de Araoz (1993) 10058, citing Bishop (1983). 4   In this regard, see Raffaelli (2003) 130, who says that antitrust law, on which the whole of competition law is based, emerged at a historical moment when ‘the oligopoly problem’ had still not manifested itself as clearly and intensely as it has now. Hawk & Motta (2008) 4 refer to two ‘gaps’ – that of Art 102/s 2 of the Sherman Act, which they call the ‘oligopoly gap’, and that of Art 101/s 1 of the Sherman Act, which they call the ‘improved cartel gap’. In my opinion, the first gap does not exist, particularly since the ECJ’s judgment in CEWAL (2000), and even after the GC’s judgment in Gencor (1999), at least in the EU; with respect to the second gap, if it exists, it is because infringements of Art 101 must be proven to the requisite legal standard by showing the existence of an agreement/ concerted practice. If this is not done, action should not be taken under Art 101, but – as the case may be – under Art 102 if a collective dominant position and its abuse can be established. (In Spain the Comisión Nacional de la Competencia (CNC) has considered filling this gap with the concept of consciously parallel practices, ‘prácticas conscientemente paralelas’, whose content is different and less strict than that of ‘concerted practices’.) In EU law, the abuse of an oligopolistic collective dominant position closes this gap, as long as there is a non-competitive oligopoly that does not breach Art 101. The third possible gap, which is not mentioned by these authors, is the one that has resulted in the most ink being spilt, and it was resolved (assuming that it ever existed) with the change in the substantive test used in EU merger control in 2004. 5   Temple Lang (2002) starts his excellent article with an apposite Mark Twain quote: ‘The researches of many commentators have already thrown much darkness on this subject, and it is probable that if they continue we shall soon know nothing about it.’ Similarly, Richardson & Gordon (2001) 416 state that ‘at some point during all the analysis, discussion and consideration, the waters have been muddied. This article attempts to clear them.’ Another prestigious author, Baker (1993) 903, states the ‘oligopoly problem defies solving’. At 908, Baker cites Donald Dewey: ‘antitrust is part theater, and the oligopoly problem is an act that can run for ever’. In the same vein, see Kauper (2008) 751, who considers that the attempts to resolve the problem suggest that there is no direct solution to it.

174  Oligopolistic Interdependence and Dominant Oligopolistic Position about oligopolies as there are economists that have written about them.6 An added complication is that the terminology used is vague and imprecise, as the reader will unfortunately now discover.7 In simple terms, an oligopoly can be defined as the existence on the market of a reduced number of competitors.8 Unlike the situation regarding monopolies or perfect competition,9 where decision-making on prices, capacity and production is relatively simple (these competition variables are givens), in the case of oligopolies each undertaking is capable of affecting prices and the overall dimension of the market, and therefore the profits of its competitors. Because of this, each undertaking must take into account the behaviour of its rivals when deciding the policy that best suits it, and interdependence – particularly the fact that undertakings are totally aware of this – is the most typical feature of oligopolies. This seems to be the most natural thing in the world: all business decisions are interdependent, because all business people act with the possible decisions of their competitors in mind.10 However, the degree of interdependence common to all markets is highly exaggerated in oligopolies. Thus, it has been said that an oligopoly forces each operator to bear in mind his rivals’ policies when determining his own, without leaving himself open to the possibility that this is interpreted as a ‘tacit agreement’ contrary to the competition rules.11 Interdependence as regards decisions on prices, production or capacity,12 or even geographic scope,13 does not in itself, however, mean that a given market is non-­ 6   ‘There appear to be as many oligopoly theories as there are economists who have written on the subject.’ Bork (1978) 102, cited in Etter (2000) 111, and in Temple Lang (2002) 357. Brock (2006) 228–32 criticises the modern theory of oligopolies, which he describes as having ‘no grounding whatsoever’ and refers to the ‘profusion of confusion’, which is partly the result of an ‘effusion of theoretical acrobatics’. For their part, Hawk & Motta (2008) 2 distinguish two phases in the study of oligopolies – the first being marked by ‘dogmatism’ and ‘criticism’ and the second, post-1970, by a certain ‘agnosticism’ towards oligopolies. 7   Briones & Padilla (2001) 309 fn 3 explain that ‘the oligopoly issue has proven so difficult to tackle under competition policies, that there has been a remarkable proliferation of terms, each of which evokes a large set of complexities’. See also Black (2003) 222 and fn 24. 8   Petit (2007) 23 cites Bain (1959) 423–24, who assumed that a narrow oligopoly existed when the eight most significant operators in the market produced between two-thirds and three-quarters of total production. Petit also cites Kaysen and Turner (1959) 104, for whom the existence of a narrow oligopoly could be presumed – and, consequently, the existence of anticompetitive effects – from the point where eight companies have a market share of 50%, up to 15 companies enjoying a market share of 80%. 9   Richard Whish in Whish (2000) 58 and Whish (2003) 506 uses a curious neologism – ‘polipoly’ – to refer to perfect competition. 10   Accordingly, dominance in the sense of ‘independence’ from competitors and consumers is impossible if taken to its logical limit, in the same way that the oligopolistic collective dominant position, which is based on interdependence, could be everywhere. See Fernández de Araoz (1993) 10067–68 on games theory as a basis of the theory of oligopolistic dominant positions. 11  Chamberlin cited in Lopatka (1996) 849 fn 17. The classical approach to oligopolies, put forward by Chamberlin, was to equate the individual and collective interests of the members of an oligopoly. However, according to modern oligopoly theory the individual interest is to take advantage of the situation and not follow the rest (in order to win market share), except where a credible threat of reprisals exists; it is only in this latter situation that oligopolists pursue the collective interest (which will be a ‘second best’ option, faced with the impossibility of winning market share at the expense of the rest of the oligopolists). See Werden (2004) 36, who argues that the case law has overlooked this nuance, due to the fact that the courts have not understood or have misinterpreted modern oligopoly theory. 12   See Commission decision Airtours/First Choice (1999), annulled in GC Airtours v Commission (2002), where the Commission detected the risk of collusion as regards the capacity of several tour operators in the UK. 13   Kantzenbach, Kottmann & Krüger (1995) 12ff, 47ff, cited in Venit (1998) 1119 fn 43 and Venit (1999) 1667 fn 43, refer precisely to these three possible types of collusion (‘economic’ rather than ‘legal’ – see below) within oligopolies: price collusion, collusion over capacity (not exactly the same as collusion over production, although the authors include production in the strict sense of the word within capacity), and collusion as regards geographical market, which could, for example, take the form of a policy of each player on ‘its own turf ’. Although in theory this type of collusion is studied within the collective dominant position, the truth is that in practice it could

Oligopolies and Oligopolistic Competition  175 competitive.14 ‘[I]n oligopoly anything can happen, and theory cannot predict whether a certain oligopolistic market structure will lead to a perfectly competitive or perfectly collusive outcome, or (most likely) somewhere in between.’15 In fact, it is far from inevitable that oligopolies behave in a non-competitive manner. This is because even in oligopolistic markets, the individual interests of the members of an oligopoly conflict with the common interests of the group. The common incentive to sell and earn more, even where this involves selling at a lower price, is frequently stronger than the common incentive to agree on the production and the prices (not compete) but sell and earn less, which is challenged by the uncertainty regarding the behaviour of the other group members. As one academic put it, ‘[this] is the very market force by which competition assures low prices and high output to the benefit of the consumers and the economy’.16 For an oligopoly to be stably non-competitive, its members should consider that in the long run they gain more by not competing than by competing. In other words, they should be clear that the short-term profits made as a result of their independent competitive actions will be lower than the long-term profits achievable through not competing. Everything depends on the nature of the oligopolistic market in question.17 Competitive instability generated by the conflict between undertakings’ individual and collective interests is frequent in oligopolies and cartels.18 In fact, competitive oligopolies naturally degenerate into non-competitive oligopolies when their members substitute speculation and uncertainty with respect to other firms’ strategy for perfect awareness thereof.19 In all cases their behaviour is markedly influenced by the degree of certainty regarding their rivals’ reactions, making it more or less reasonable to compete. If there is no reasonable certainty that the others will not compete, it is reasonable to compete. Accordingly, it cannot be blithely assumed that oligopolies always create non-competitive stability. On the basis of the above, therefore, it is possible to classify oligopolies in at least three ways. Within the branch of economics related to competition law, it is most common to divide them into collusive and non-collusive oligopolies. There are some drawbacks to this instead lead to the creation of various monopolies, based either on geographic area or on individual products. According to Bishop & Lofaro (2004) 205, companies may tacitly agree to split the market into different areas of influence. The concern here is that they will not enter or expand in ‘a rival’s home area’ because this would lead to reprisals in their own market by the attacked rival. By separating areas of influence, each firm can charge supracompetitive prices in its own area. According to these authors, this was the Commission’s main concern in the decision Pirelli/BICC (2000). See also Kantzenbach, Kottmann & Krüger (1995) 76 and Motta (2004) 141, who considers ‘area collusion’ to be a form of ‘market sharing’ or ‘market allocation’. Express collusion has been a relevant element when defining the geographic market and establishing the market power of undertakings, eg in Commission decision CEWAL (1992) paras 53ff. A very marked degree of specialisation in the production of water by Nestlé (high mineralisation) and BSN (low mineralisation) could also be seen in Nestlé/Perrier (1992) para 128. See Kantzenbach, Kottmann & Krüger (1995) 48. 14   See Jenny (2001), citing Carlton and Perloff, and Scherer and Ross (1990) 199. See also the perspicacious comments of John Fingleton in Hawk (2003) 325. 15   Niels (2001) 172. The inspiration for the quote comes from Scherer & Ross 199, cited in Jenny (2002) 362– 63. Winckler & Hansen (1993) 790 use another similar quote by Scherer and Ross 290–04: ‘Non-competitive behaviour is, however, not a given in oligopolistic market structures. Some oligopolies can be highly competitive, even to the point of ruinous competition.’ The ‘non-competitive oligopolies’ to which these authors refer are those which produce ‘economic’ rather than ‘legal’ collusion (agreements and restrictive practices within Art 101 TFEU or s 1 of the US Sherman Act). For the meaning of the expression ‘tacit collusion’, see below. 16   Baker (1993) 151, citing Stigler (1964). 17   Ivaldi, Jullien, Rey, Seabright & Tirole (2003a) 5. See section 8.3 below. 18   See Bishop & Walker (2010) 33ff. 19   Fernández de Araoz (1993) 10070, who in turn refers to Machlup (1952) 439.

176  Oligopolistic Interdependence and Dominant Oligopolistic Position terminology because the term ‘collusive’ is understood differently by economists and jurists; in essence, a jurist would not consider what economists call ‘tacit collusion’ to be ‘collusion’.20 A second method of classification makes a distinction between competitive and noncompetitive oligopolies. This terminology appears clearer, although, unlike the first classi­ fication, it says nothing about the reasons for the presence or absence of competition. The third and final classification of interest for our purposes (although there are many others) differentiates between stable and unstable oligopolies. The second and third classifications are of most relevance for our purposes, because in non-competitive stable oligopolies collective dominant positions are actually created, in accordance with the decisions of the Commission and the case law of the EU Courts. Within the category of non-competitive stable oligopolies, we should also distinguish between those that are: (i) cooperative, based on legal or economic links different from oligopolistic interdependence, and which in most cases are also ‘collusive’ strictly speaking, in that the links between their members exclusively or mainly arise from agreements or practices that restrict competition; and (ii) non-cooperative, based solely on oligopolistic interdependence. In the first case we are dealing with a cooperative or traditional collective dominant position (a collective monopoly),21 in the second an oligopolistic collective dominant position. As a result, the latter are called ‘stable non-competitive and non-cooperative oligopolies’.

8.2  COLLECTIVE MONOPOLIES AND NON-COMPETITIVE OLIGOPOLIES

The difference between a collective monopoly (a traditional collective dominant position) and a non-competitive and non-cooperative stable oligopoly (an oligopolistic collective dominant position), which is of fundamental importance for this section, creates certain problems. In principle, it can be assumed that if it is a question of the former, the members of the group, although they are independent from a financial and management point of view, act as a single collective entity in the market, due to their legal, structural or, in general, economic links and ties. The Commission’s analysis of the latter is, as we have already mentioned, essentially based on the economic model of ‘tacit collusion’ between the members of an oligopoly and aims to establish whether the structure of the market, most of the time following a concentration, leads to the undertakings substituting competitive behaviour with ‘mutual accommodation’ of each other’s conduct and market strategies, thus avoiding competition. Undertakings may be unable to achieve ‘tacit’ collusion prior to the concentration, but capable afterwards, because the concentration creates the necessary structural conditions.22 It is not clear, however, that the key to examining the existence of an oligopolistic collective dominant position resides in the possibility of substituting competition with anti20   According to Motta (2004) 138, ‘in economics collusion coincides with an outcome (high enough price), and not with the specific form through which that outcome is attained’. Collusion may be the result of a cartel (express collusion) or companies acting in a purely non-cooperative manner (tacit collusion). 21   A dominant position of this kind can be found in any type of market, not only in oligopolistic markets (although the limited number of undertakings facilitates cooperation). 22   Motta (2000) 201, who refers to both express collusion (a cartel) as well as ‘tacit’ collusion. As will be seen below, the possibility of achieving the former does not seem to be conclusive in determining that a group of undertakings holds an oligopolistic collective dominant position (or at least it should not be so in the EU control of concentrations). That is why the control of concentrations aims at detecting ex ante this type of situations.

Collective Monopolies and Non-Competitive Oligopolies  177 competitive mutual accommodation. This expression could introduce an element of choice into expected behaviour that may be unnecessary: if the conditions are sufficient for the existence of a non-competitive and non-cooperative stable oligopoly no such mutual accommodation is necessary, since in such cases non-competitive parallel conduct is perfectly rational in economic terms for each oligopolist, without the need for cooperation, since they do better by not competing than by competing.23 The usual description of oligopolistic market structures as ‘anti-competitive’ is not, therefore, satisfactory and it is better to describe them as ‘non-competitive’.24 Assuming that in general the market is naturally competitive, and that certain acts favour competition (they are ‘pro-competitive’) while others harm it (they are ‘anti-competitive’), a situation where there is naturally no competition should not be called anti-competitive, but rather ‘uncompetitive’ or simply non-competitive. For this reason it is suggested that the term ‘anti-competitive’ should be used to refer to conduct that restricts competition per se, and not to apply it to either the market structure or the conduct of an oligopoly’s members where ‘tacit collusion or coordination’ appears.25 In the latter two cases the expression ‘noncompetitive’ will be used.26 27 In a non-competitive and non-cooperative stable oligopoly, therefore, each oligopoly member decides separately and rationally but the market structure makes all members act in the same way (as though a close and inexorable financial link exists – and it does exist).28 On the other hand, the ‘collective monopoly’ can arise in any situation, and on any market, although it seems clear that it is more likely where there are fewer undertakings in the market.29   In this situation, competing is a ‘lose-lose’ scenario for all concerned. See section 8.5 below.   Temple Lang (2002) avoids applying the term ‘anti-competitive’ to stable and non-competitive oligopolistic market structures where there are no incentives for oligopoly members to compete, preferring the term ‘uncompetitive’ so as to differentiate them from agreements and practices that restrict competition, which are genuinely anti-competitive (see the author’s criticism at 275–76 of Commission decision Gencor/Lonrho (1997)). 25   It is not, therefore, correct to attribute anti-competitive parallel conduct to stable non-competitive or noncooperative oligopolies, ie to oligopolistic stable dominant positions. For ‘tacit collusion’ and ‘tacit coordination’, see below. 26   Conduct can be anti-competitive (contrary to competition shown by the minus sign –) or non-competitive (neither having the minus sign – nor the plus sign +). Structures can only be competitive (the most common case) or non-competitive. A non-competitive structure naturally leads to non-competitive conduct, because competitive conduct in non-competitive structures is irrational (but not impossible, as is the case with anti-competitive conduct in non-competitive structures). These expressions are used differently in academic texts. Sometimes the adjective ‘anticompetitive’ is solely or mainly used (eg Venit (1999) 1110–11; Navarro, Font, Folguera & Briones (2005) 207 para 7.37; Black (2003) 223); in other instances, ‘non-competitive’ and ‘uncompetitive’ are used indistinctly (eg Winckler & Hansen (1993) 790–91; Stroux (2000a) 6; Böge and Müller (2002) 496); others even label the conduct of oligopolists as ‘anticompetitive’, but the markets in which this occurs are termed uncompetitive (eg Briones (1993) 118; Briones (1995) 342). For the use proposed here, see among others Posner (1969) 1575, 1605 (although Posner considers ‘non-competitive pricing by oligopolists to be collusive in the strict legal sense’); Ridyard (1992) 161; Lopatka (1996) 849, fn 17 (citing Turner (1962) 658, 897); Whish (2000) 583. 27   The apparent academic nature of this terminological question in fact reflects the debate as to whether competition law imposes on undertakings a positive obligation to compete or merely a negative obligation not to restrain competition. In the first case, acting merely in a non-competitive manner would be illegal, while in the second case it would not. Posner (1969) 1575, 1605 inter alia, treats ‘non-competitive pricing by oligopolists’ as ‘tacit collusion’, which suggests that he favours the former approach. 28   See section 8.5 below. 29   Nevertheless, Ivaldi, Jullien, Rey, Seabright & Tirole (2003a) 12, fn 10 argue that the idea of coordination in bigger groups being difficult is still guesswork, since there is very little literature on this point. See also GC Verband der Freien Rohrwerke (2003) para 121, according to which ‘the mere fact that three undertakings together have a very large share of a given market is not, as such, proof that they form an oligopoly’ (implicitly, non-competitive). For this to be the case, it would be necessary to satisfy the three conditions laid down in Airtours. 23 24

178  Oligopolistic Interdependence and Dominant Oligopolistic Position

8.3  ‘TACIT COLLUSION’ AND ‘TACIT COORDINATION’

The true father of the modern theory of oligopolies is George J Stigler. In a landmark article in 1964,30 Stigler departed from the static oligopoly models (mainly posited by Cournot, Bertrand and Stackelberg)31 and based his approach on game theory, developed by John F Nash Jr and others. According to Stigler, there are three conditions necessary for the existence of ‘tacit collusion’ (an economic concept equivalent to the European legal concept of ‘tacit coordination’, the distinctive feature of the ‘oligopolistic collective dominant position’, which is a synonym of ‘stable non-competitive and non-cooperative oligopoly’) in an oligopolistic market without the need for restrictive agreements or practices among the oligopolists.32 Stigler’s first condition is that the oligopoly members must be capable of identifying ‘coordination terms’, ie the contents of their ‘tacit agreement’. Second, oligopoly members must be capable of ensuring that the ‘coordination terms’ are satisfied and detecting deviations from these terms, or outright failure to comply. Transparency is therefore important to enable the detection of ‘tacit collusion’ in oligo­ polistic markets.33 The third and final condition is that oligopoly members must be capable of taking action against those in breach and punishing deviations. Economic theory distinguishes between two possible forms of punishment: first, a return to competition, which seems usually to be sufficient punishment; and second, and more occasionally, a greater specific punishment. Clearly, the more severe the punishment, the more successful the coordination, since the greater the incentive not to deviate from the common conduct, the stronger collusion and the higher prices will be.34 However, the threat of renewed competition is generally sufficient to dissuade oligopolists from not respecting the ‘coordination terms’,35 provided that this is credible. Most textbooks assume that an oligopoly would punish the deviation by simply returning to a state of competition.36 Moreover, the expectation of a foreseeable excess of competition may freeze possible competition, since nobody will compete if the consequences of doing so are too severe.37 30   See Stigler (1964) 44–61, summarised by Kolasky (2002) 4–6 and Fernández de Araoz (1993) 10066ff. In his article, Stigler was more concerned with express collusion than tacit collusion within oligopolies. Werden (2004) fn 39 cites something Stigler stated in 1956 that reflects this: ‘Tacit collusion based on “oligopolistic rationality” is as inferior in efficiency and flexibility to overt collusion as mental telepathy is to a telephone . . . It has not yet been shown that effective co-operation would be possible without leaving a dozen large evidences in the institution and practices of the industry.’ ‘Report of the Attorney General’s Committee on Antitrust Policy: Discussion’ (1956) American Economic Review (Papers & Proceedings) 496, 506. 31   See section 9.1.1 below. 32   cf Navarro, Font, Folguera & Briones (2005) 207 para 7.35, who cautiously point out that there is a ‘clear similarity’ between a collective dominant position and an oligopoly where a ‘collusive’ (ie tacitly collusive or noncompetitive) balance is sustainable. 33   See Navarro, Font, Folguera & Briones (2005) 232 para 7.129; cf Ivaldi, Jullien, Rey, Seabright & Tirole (2003a) 69. 34   See Kühn (2001) section 2: ‘The more severely firms believe that competitors will respond to a price reduction, the higher the established price will be.’ 35   The verb ‘to cheat’ is normally used to describe this situation. It may be appropriate in the context of express collusion, but perhaps not as regards ‘tacit collusion or coordination’, where the element of consensus typical of cartels is missing. 36   Baker (1993) 157–69. See Ivaldi, Jullien, Rey, Seabright & Tirole (2003a) 5ff. 37   Similarly, Kühn (2001) section 4 considers that ‘[t]he finding of [individual] dominance and joint dominance should be mutually exclusive’, arguing that ‘features that make the market more competitive in the absence of collusion are exactly those that make harsh punishment more credible’.

‘Tacit Collusion’ and ‘Tacit Coordination’  179 In order to verify the existence of a punishment mechanism, it is not necessary to prove that such a mechanism has been used in the past. As the GC recently pointed out, ‘[t]he mere existence of effective deterrent mechanisms is sufficient, in principle, since if the members of the oligopoly comply with the common policy, there is no need to resort to the exercise of a sanction. Moreover, the most effective deterrent is that which has not been used.’38 In order to identify the terms of coordination, economic theory has established that oligopolists can use so-called ‘facilitating practices’, and also ‘focal rules’/‘focal points’. In both cases it is easy to identify specific terms of coordination where other alternative terms exist.39 According to contemporary economic theory: To the extent that it is easy to identify some terms of coordination in this way, the contemporary perspective suggests that it is typically the difficulties of policing a coordinated understanding (monitoring or punishing cheaters) rather than the difficulties of reaching the terms of that arrangement that potentially inhibits the possibility of coordination in most oligopolies.40

The three conditions established by Stigler only exist in specific markets with special characteristics. It has become standard practice in the economic and legal literature on oligopolies to include lists with characteristics that will enable the identification of stable non-­ competitive and non-cooperative oligopolies or oligopolistic collective dominant positions.41 Some authors argue, however, that non-competitive oligopolies should not be identified mechanically, as if all that is required is a ‘tick-box exercise’. Instead, a ‘structural approach’ should be undertaken.42 These characteristics, with their corresponding lists, are relevant when determining whether non-competitive oligopolistic interdependence is the reason for – and a justification of – parallel conduct, above all with respect to prices, or for suspecting, or even determining, the existence of an agreement or a concerted practice.43 Lists of ‘facilitating factors’44  GC Impala (2006) paras 465–66.   See, inter alia, Baker (1993) 162ff; Fernández de Araoz (1993) 10068–69. 40   Baker (1993) 163. 41   See, inter alia, Fernández de Araoz (1993) 10090–92; Briones (1993) 119–22; the declarations of the US authorities and the EC Commission in Organization for Economic Co-operation & Development (1999) 21–23 and 217ff respectively (the Commission puts forward eight specific factors that lead to oligopolistic interdependence); Bishop (1999) 38, fn 9 (who states that many of the factors of oligopolistic dominance are also factors that lead to the formation and sustainability of express cartels); Navarro, Font, Folguera & Briones (2005) 223ff; Stroux (2000) 7–13; Withers & Jephcott (2001) 301 (summarising ECJ Kali + Salz II (1998); GC Gencor (1999) and Commission decision Airtours/First Choice (1999)); Europe Economics (2001) 20ff, which identifies seven notes; Annex II and Arts 14(2), 15 and 16 of Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services, and paras 97–98 of the Guidelines on Market Analysis for Electronic Communications Networks (European Commission (2002a)); Bishop & Walker (2010) 395ff paras 7.054ff, who classify these factors as internal or external; Temple Lang (2002) 320–21, who refers to a total of 14 factors used in EU merger control; Ivaldi, Jullien, Rey, Seabright & Tirole (2003a) 1–63, almost all of whose book is dedicated to ‘tacit collusion’ by the Commission’s DG COMP to examine the characteristics of non-competitive oligopolistic markets, summarised at 65–67; and, more recently, Kokkoris (2007) 424, 427ff, among many others. For an excellent categorisation of ‘elements of coordinated interaction’, based on Stigler’s three conditions, see Rill, Taladay, Norton, Oxenham, Matsushita, Montag & Rosenfeld (2003) 7–20. 42   Ivaldi, Jullien, Rey, Seabright & Tirole (2003a) 70. 43   See Baker (1993) 145–46. In the same sense, referring to the USA and the application of s 1 of the Sherman Act. 44   Fingleton (2003) 185 calls them ‘plus factors’, an expression that evokes the world of ‘concerted practices’. See sections 8.5, 9.2 and 9.3 below. 38 39

180  Oligopolistic Interdependence and Dominant Oligopolistic Position are therefore used to identify or rule out ex ante the creation or strengthening of an oligopolistic dominant position for the purpose of the control of concentrations, and ex post the existence of a non-competitive oligopoly or of concerted agreements and practices, for the purposes of applying Articles 101 and 102.45 The inclusion of lists of ‘complication factors’,46 which are those that make non-­ competitive oligopolistic interdependence more difficult, is also common, although somewhat less so.47 In fact, ‘complication factors’ are ‘market features that facilitate coordination’ the other way around. Looked at from the opposite perspective, any complication factor we might put forward could be a feature that facilitates coordination, and vice versa. In addition, some of the features that should enable us to identify stable non-­competitive and non-cooperative oligopolies or rule out their existence are interpreted differently according to the context in which they arise. They can also sometimes be ambiguous; in other words, they serve to facilitate coordination in some respects, while making it more difficult in others (starting with concentrations between undertakings on already-­concentrated markets; where there is a non-competitive equilibrium, mergers may change the status quo and introduce competition, whereas in a competitive situation they may contribute to the strengthening of a non-competitive equilibrium that has not existed before).48 The features that always appear on these lists of ‘facilitating factors’ are: very concentrated supply; similar (symmetrical) market shares,49 productive structures and under­ takings’ costs;50 homogeneous product; mature market; inelastic demand; and the existence of significant price transparency so that the process of detecting and punishing competitive deviations is very straightforward. In this regard, it is important to point out that the features that enable us to identify a ‘collective position’ of an oligopolistic nature are not exactly ‘correlation factors’, ‘links’ or ‘ties’ in the way that EU law understands it,51 but the elements that, once evaluated as a whole, allow oligopolistic interdependence to be established as a ‘correlation factor’ between undertakings. 45   Kovacic (1993) advocates the need to carry out ‘a structured competitive effects analysis’ similar to that of the US merger guidelines, observing that judges who assess the ‘plus factors’ tend to recite lists of relevant criteria without establishing any hierarchy or weighting the different factors. 46   Structural ‘complication factors’ of markets are sometimes weighed against undertakings’ ‘facilitating practices’ in order to achieve a long-term non-competitive oligopolistic balance. This is perfectly acceptable provided that it is recalled that conduct is being compared to structural elements. 47   See, inter alia, Fernández de Araoz (1993) 10071ff; the US authorities’ declarations in OECD (1999) 235ff; and Temple Lang (2002) 334, who establishes seven features that go against the existence of an oligopolistic collective dominant position in a market. Certain concentrations could also be authorised on very concentrated markets if they complicated the oligopolists’ coordination, eg by creating asymmetries in market shares and undertakings’ structures and costs. See Kühn (2002) 46. 48   See Ivaldi, Jullien, Rey, Seabright & Tirole (2003b) 8, 22 for the ambiguous nature of the effects of concentrations and some of the ambiguous effects of certain market features; and Ivaldi, Jullien, Rey, Seabright & Tirole (2003a) 28, 41, considering that eg demand growth and capacity constraints are ambiguous. 49   Market share has a twofold importance in collective dominant position issues: first, to establish the collective position of the undertakings in the market (oligopolists’ market shares should be symmetrical, ie relatively similar), and secondly, to establish the group dominant position as a ‘collective entity’ (joint oligopolists’ market shares should be significant). According to Venit (1999) 1670, ‘descriptive symmetries’ such as market share symmetry are less significant than cause symmetries, such as cost structures, use of productive capacity, and even demand elasticity. Ivaldi, Jullien, Rey, Seabright & Tirole (2003a) 40 nevertheless state that the asymmetry of market shares can serve as indirect proof of a deeper asymmetry with a tendency to impede coordination. 50   Temple Lang (2002) 320 also refers to symmetries in the degree of vertical integration, product mix, size of undertaking, economies of scale and of range or scope, and sunk costs. 51   Against: Ritter & Braun (2004) 413–14; Withers & Jephcott (2001) 300. For ‘economic links’, see section 7.2.1 above.

‘Tacit Collusion’ and ‘Tacit Coordination’  181 The list of features of stable non-competitive and non-cooperative oligopolies probably still remains open, although the General Court has established three essential conditions that must be satisfied in order for an oligopolistic collective dominant position to exist (the first two refer to the ‘collective position’ of the members of an oligopoly, the third to its collective market power): 1. there must be a sufficient degree of transparency on the market;52 2. the tacit coordination53 of oligopolists must be sustainable over time, therefore there must be incentives to prevent deviation from the ‘common policy on the market’; according to the GC, the possibility (in reality, the certainty) of reprisals by the remaining oligopolists is inherent in this condition;54 and finally, 3. it must be sufficiently proven at law that neither the expected reaction of other competitors, both present and future, nor that of consumers, shall prevent the common policy from being carried out.55 Nevertheless, the General Court appears to have held that occasionally transparency by itself is sufficient to result in a dominant position. According to the General Court, the fact that a market is sufficiently transparent to allow each oligopoly member to be aware of the behaviour of the rest leads to the creation of a collective dominant position.56 The similarity between the conditions established by Stigler and the General Court is clear, which shows that EU merger control has moved into line with the US position as regards ‘coordinated effects’.57 ‘Coordinated effects’ has long been one of the main concerns of US merger control. The EU initially focused on those concentrations that could create or reinforce an individual dominant position, which would apparently be simply a variant of what is called ‘unilateral effects’ in American merger control law. However, the European Commission has paid more and more attention to collective dominant positions, which, using American legal terminology, create ‘coordinated effects’, while at the same time the US authorities have increasingly paid attention to ‘unilateral effects’. These conflicting movements have not prevented US and EU practices from converging towards common control standards.58 The most recent General Court and ECJ judgments suggest that there are two different methods of coordination among undertakings that are relevant to the control of con­ centrations: 52   Market transparency is of fundamental importance, because without it detecting and sanctioning deviations from the coordination terms would never be possible. (However, Ivaldi, Jullien, Rey, Seabright & Tirole (2003a) 69 do not consider it a priority factor and they place it in the third most important category of market characteristics that facilitate coordination). On the other hand, Christensen and Rabassa (2001) 234 note that transparency is an element ancillary to punishment, although it is at least as much an element for the detection of deviations. 53   The GC uses the expression ‘tacit coordination’ instead of the term ‘tacit collusion’ which is favoured by economists, especially Anglo-Americans (see below). Economists also used other terms, especially ‘tacit cooperation’ instead of ‘tacit collusion’. See Baker (1993) 152–53, fn 16. 54   See Ivaldi, Jullien, Rey, Seabright & Tirole (2003a) 5ff; Ivaldi, Jullien, Rey, Seabright & Tirole (2003b) 18ff, who, with regard to the stability of non-competitive oligopolies (ie the ‘sustainability’ of ‘tacit collusion’) state that this will occur more easily if the following four conditions are satisfied: the individual profits resulting from bettering the terms offered by rivals are limited; the profits flowing from ‘tacit collusion’ are high; it is highly likely that bettering rivals’ terms will lead competitors to take reprisals; and the importance accorded to future profits is great. According to Etter (2000) 135, Commission decision Airtours/First Choice (1999) (reversed in GC Airtours (2002)) expressly – and incorrectly – denied the need for a ‘punishment mechanism’ or a competitive reprisal. 55  GC Airtours (2002) para 62. See also Ritter & Braun (2004) 412–13. 56  GC Airtours (2002) para 156. 57   Levy (2003) 214. 58   Kolasky (2002) 1–2. For the ‘unilateral effects’ and ‘coordinated effects’ of mergers, see section 9.1.1 below.

182  Oligopolistic Interdependence and Dominant Oligopolistic Position 1. On the one hand, classical anti-competitive coordination in all types of market between two or more parent companies through a common undertaking or between parent companies and a common undertaking, which is the target of Article 2(5) of Regulation 139/2004 (formerly Article 2(4) of Regulation 4064/86), a provision that brought the authorisation criteria under Article 101(3) TFEU into the control of concentrations. 2. On the other hand, the more recent phenomenon of non-competitive coordination in certain oligopolistic markets, where a concentration can change the nature of the competition, ‘increas[ing] the likelihood that firms are able to coordinate their behaviour in this way and raise prices, even without entering into an agreement or resorting to a concerted practice within the meaning of Article 81 of the Treaty [now Article 101 TFEU]’.59 The latter is known as ‘tacit coordination’, which, as we have already seen, is the EU law equivalent of the expression ‘tacit collusion’ used in economics.60 As already mentioned, the term ‘collusion’ indeed has different connotations in the worlds of law and economics,61 and although the expression ‘tacit collusion’ is common in economic jargon, ‘collusion’ is a word that jurists would rather not go near.62 A jurist would think of anti-competitive conduct that was hard to prove (typically concerted practices or ‘conspiracies’),63 while an economist would think of non-competitive parallel conduct derived from oligopolistic interdependence,64 and would be quick to clarify that there are no significant differences 59   Guidelines on Horizontal Mergers (European Commission (2004a)) para 39, citing GC Gencor (1999) para 227 and GC Airtours (2002) para 61. 60   According to Haupt (2002) 435, fn 7, who cites Whish (2000) 459, 462, and Caffarra and Kühn (1999) 356, ‘in legal literature the term “tacit co-ordination” is used as a paraphrase for oligopolistic interdependence in order to emphasise the distinction between non-collusive market interaction and “explicit” collusion in the sense of Article 81(1) EC [now Article 101(1) TFEU]’. See also Roberts & Hudson (2004) 166; Ivaldi, Jullien, Rey, Seabright & Tirole (2003a) 4, fn 2; and Ivaldi, Jullien, Rey, Seabright & Tirole (2003b) 3 fn 1. 61   Temple Lang (2002) 276 sums it up very well. While lawyers define collusion according to the reasons for certain conduct on the market (an agreement or a concerted practice), economists define it with reference to its effects, ie as a result (parallel conduct) regardless of its origin. Collusion means conscious parallel behaviour for economists and illegal concerted practices or agreements for jurists (ibid, 311). For the economic concept of ‘collusion’ see Kühn (2002) 43 and Kühn (2001) section 3. Petit (2007) 21 considers that the term ‘tacit collusion’ used by economists is the equivalent of the notion ‘tacit coordination’ favoured in legal circles, and that this latter term, in turn, has the same meaning as the (also legal) concept of consciously parallel practices. On the basis of this identity, a theory has been put forward in Spain which has attempted to include tacit coordination within the scope of the prohibition set out in Art 1 of the Spanish Competition Act (the equivalent of Art 101 TFEU), considering it to be illegal consciously parallel conduct. To some extent, this is the solution also proposed by Posner, who looks to resolve the problem by equating tacit collusion with the collusion prohibited under s 1 of the Sherman Act or Art 101 TFEU. With respect to the different meaning of ‘collusion’ in law and economics, see also Herrero Suárez (2001) 116–17. 62   Whish (2008) 544. Some jurists, like Turner (1962) 662, have also used ‘tacit agreement’ to describe these legally non-traditional ‘agreements’. See Lopatka (1996) 848–49. Lopatka also notices (853) that Turner considers them legal, despite calling them ‘agreements’. (Posner does not do the same; according to Baker (1993) 903, the focus of neither Turner nor Posner is satisfactory, although they are probably more similar than different. For a summary of the theory of oligopolies in relation to s 1 of the Sherman Act, see Werden (2004) 771ff.) According to Lopatka (1996) 849, fn 17, Edward H Chamberlin, in his book The Theory of Monopolistic Competition (7th edn, 1960) 31, also uses ‘tacit agreement’ but he does not apply the expression to oligopolistic interdependence. For problems relating to the adjectives used to qualify the noun ‘agreement’ (oral and non-oral agreements) and the meaning of the expression ‘tacit collusion’, see Werden (2004) 735–36. 63   See eg Stevens (1995) 47 fn 1. Stroux (2000a) 6 includes ‘tacit collusion’ within ‘collusion’, but recognises that jurists and economists use the term differently. 64   According to the US antitrust authorities (OECD (1999) 230): ‘Collusion is distinct from mere oligopoly pricing (although the latter is arguably also a form of coordination).’ However, the Chicago School, which has dominated US antitrust law since the mid-1970s, considers it to mean nothing more than an agreement proven by ‘circumstantial evidence’. See Baker (1993) 145–46. See the US authorities’ declarations in OECD (1999) 200 fnn 1 and 9.

Oligopolistic Collective Dominant Position in EU Merger Control  183 between a cartel and ‘tacit collusion’, because what sustains both is essentially the same mechanism.65 That is why it is preferable to use different terms that are acceptable to both lawyers and economists, such as ‘tacit coordination’, which eliminates the negative connotations of ‘collusion’66 (although it can still evoke agreed conduct which is therefore strictly speaking anti-competitive).67

8.4  EVOLUTION OF THE CONCEPT OF OLIGOPOLISTIC COLLECTIVE DOMINANT POSITION IN EU MERGER CONTROL

As has been stated, in European competition law the new incarnation of the collective dominant position appeared as a consequence of the Commission’s desire to avoid the creation or reinforcement of non-competitive oligopolies in the EU using Regulation 4064/89 on the control of concentrations, now replaced by Regulation 139/2004 (‘the Merger Regulation’). The Merger Regulation allowed the Commission to assess the compatibility with the common market of those concentrations with a ‘Community dimension’ in the sense of Article 1(2).68 Article 2 determined the questions that the Commission had to take into account in its examination, and provided that concentrations with a European dimension had to be declared compatible or incompatible with the common market depending on whether or not they created or reinforced a dominant position which resulted in effective competition on the common market or a substantial part thereof being impeded significantly.69 The first Merger Regulation did not refer, however, to the creation or reinforcement of a collective dominant position. Faced with this gap, the Commission reacted in a creative fashion. Worried about its ability to control effectively concentrations capable of creating or exacerbating market structures that, in accordance with generally accepted economic theories, lead to the noncompetitive oligopolistic parallel behaviour of undertakings, the Commission maintained that, since it was not expressly excluded, a certain concept of collective dominance was implied in the Merger Regulation.70 65   Caffarra & Kühn (1999) 356: ‘[N]o meaningful distinction . . . because what sustains collusion is the same essential mechanism.’ In this regard, see Sjostrom (2003), who adopts the concept of cartel used by economists: an agreement whose purpose is for its members to act jointly, as if they are a single monopolist. From the point of view of game theory it has been said that ‘tacit collusion’ is equivalent to express collusion. See Baker (1993) 146, fn 7. Posner (1976) 47, citing Stigler (1964), also says that there are no differences between ‘tacit collusion’ and express collusion, because he thinks that behind ‘economic collusion’ (price interdependence etc) there is a ‘a “cartel” that requires no detectable machinery of collusion’ and for this reason he takes a generous approach in assessing relative evidence that may reveal the existence of express but secret collusion. Similarly, some years earlier, Posner (1969) 1575, 1578–79, 1605 insisted that ‘tacit collusion’ is a conventional cartel variety that should be repressed by s 1 of the Sherman Act. 66   See Whish (2000) 584; Christensen & Rabassa (2001) 228; Whish (2004), who defines tacit coordination as the collective exercise of market power. See also Baker (1993) 152–53, fn 16. 67   Black (2003) 222 and fn 24, generally speaks about the lack of clear terminology and the difficulty of discerning the meaning and the relationships among numerous terms starting with ‘co-’ and which are frequently used in law, economy and competition policy: ‘concert, co-operate, co-ordinate, concord, correlate, collude’. 68   Art 1(2) of Reg 139/2004 is basically identical to Art 1(2) of Reg 4064/89. 69   Art 2 of Reg 139/2004 appears to be fundamentally different from Art 2 of Reg 4064/89. See section 9.1 below. 70   See Soames (1996) 38.

184  Oligopolistic Interdependence and Dominant Oligopolistic Position A simple reading of the approximately 130 merger control decisions71 where the Commission has examined collective dominant positions (or its most recent equivalent, ‘coordinated effects’)72 clearly shows us that in this field it uses a subtly different concept to that laid down by the GC in Flat Glass (1992), the latter having been established with Article 102 cases in mind. This judgment seemed to limit the existence of a collective dominant position to those cases where confirmed and significant economic links within undertakings existed, whereas such links did not seem to exist, or existed at a much lower level of intensity, in merger control cases where the Commission has found that a collective dominant position could be created or reinforced. On this basis, the Commission developed what was to some extent an independent concept of collective dominant position for cases coming within Regulation 4064/89, albeit one firmly anchored in, and respectful of, the ‘traditional terminology’ used in the earliest cases relating to collective dominant positions. The traditional test for establishing a collective dominant position was basically the same as that which applied in relation to establishing an individual dominant position; it meant the creation or existence of an independent group of companies that acted as an entity in the market, as if they were a single undertaking holding a dominant position. Within the scope of merger control, the concept of collective dominant position used by the Commission developed gradually from the orthodoxy of the traditional dominant position to a new structural ‘test’, which made it comparable with a stable non-competitive, non-cooperative oligopoly. Thus, in the first cases in which the concept was referred to with respect to the control of concentrations,73 such as Varta/Bosch (1991) and Alcatel/AEG Kabel (1991), the Commission considered the possibility that a concentration created a market structure leading to ‘tacit coordination’. In the next, intermediate phase, the most illustrative cases are Nestlé/Perrier (1992) – the first decision in which the Commission considered itself openly competent to prohibit such operations, and Kali + Salz (1993) – where it was still unsure whether to favour the new concept of an oligopolistic collective dominant position or the orthodox collective dominant position involving the formation of a united block with respect to third parties, and with a previous elimination of competition between the members of the group (as in Flat Glass (1992), Almelo (1992) and DIP (1995)). Finally, the last step occurred in 1996, when it established the very clear economicstructural approach in Gencor/Lonrho (1996), far removed from the position in Flat Glass. The traditional collective dominant position test required first that there was a sufficiently compact group of undertakings, with significant economic links or ties among them, that acted as a single undertaking vis-à-vis third parties. So, the test involved an extremely important behavioural element: all the undertakings acted as one, and, in addition, they acted independently of competitors and consumers. In order to act as a ‘collective entity’, there must not have been any ‘competitive relations’ between the members of the dominant group; that is, they must not have competed with each other.74 The ‘test’ drawn up by the Commission in the context of control of concentrations, best exemplified75 in Gencor/Lonrho (1996), does not require the existence of significant structural links or ties among undertakings. It is sufficient that a market exhibits certain features   See Petit & Henry (2010) 2.   See section 9.1.1 below. 73   See Whish (2000) 592–93. 74  ECJ DIP (1995) para 27. 75   Leaving on one side Commission decision Airtours/First Choice (1999), which will be analysed below. 71 72

Oligopolistic Collective Dominant Position in EU Merger Control  185 that naturally lead oligopolists to act in a non-competitive parallel manner, because the market structure is such that it would be irrational to behave any other way. Without doubt, they act independently of other actors in the market – the remaining small competitors that do not form part of the oligopoly – and of consumers, but they are structurally ruled or linked by the behaviour of their oligopolistic colleagues: they cannot act independently of them; quite the opposite, they must taken into account the others’ conduct and know that any of their actions may provoke a chain reaction. The mere adjustment by oligopoly members to the market conditions results in non-competitive parallel behaviour. Curiously, within its analysis of concentrations that may give rise to a collective dominant position the Commission has maintained the criterion of the oligopoly’s independence from its competitors, its clients and, ultimately, its consumers. However, the truth is that this habitual independence of monopolies from these actors, while a perfectly valid factor in relation to individual dominant positions, is irrelevant when it comes to oligopoly situations. It is hard to maintain that oligopolists are independent of their competitors; while they may be independent as regards their small non-oligopolistic competitors, they are not independent of their fellow oligopoly members. In other words, what is the point of being independent of other competitors that are not in the oligopoly (by definition those with a much lower response capacity) if one is interdependent vis-à-vis other oligopoly members?76 Moreover, pure oligopolists are not united by strong financial ties, of the type found in Flat Glass (1992), Almelo (1994) and La Crespelle (1994); rather they are linked only by the non-cooperative oligopolistic interdependence that results in non-competitive parallel behaviour. After Gencor/Lonrho (1996), it appeared that the concept of oligopolistic collective dominant position used in merger control would one day become totally separate from the classical definition of collective dominant position. In order for this to happen, the Commission first had to eliminate the remains of the test of independence, and then recognise that among the oligopoly members whose behaviour was to be controlled, there were, in general, sufficiently intense ‘competitive relations’, contrary to the ECJ’s declarations in DIP (1995). But the case law took a different turn. In Kali + Salz II (1998), the ECJ appeared to go in the direction that the Commission had signalled, accepting that the Merger Regulation permitted the control of collective dominant positions, although without accepting that the criteria for determining the existence of a collective dominant position could not be the same within the context of Article 102 and the Merger Regulation.77 In fact, the ECJ adopted the traditional definition of the individual dominant position, adjusting it to fit the context of a number of undertakings,78 establishing that: In the case of an alleged collective dominant position, the Commission is therefore obliged to assess, using a prospective analysis of the reference market, whether the concentration which has been referred to it leads to a situation in which effective competition in the relevant market is significantly impeded by the undertakings involved in the concentration and one or more other undertakings which together, in particular because of correlative factors which exist between them, 76   G Monti (1996) 95 raises exactly the same question when analysing whether Art 102 is an instrument that could be used against non-competitive oligopolies. According to Monti, from an economic point of view it is axiomatic that oligopolists are interdependent, and they cannot hold a collective dominant position, since this requires independence from competitors. 77  ECJ Kali + Salz (1998) paras 178, 180. 78   Temple Lang (2002) 280.

186  Oligopolistic Interdependence and Dominant Oligopolistic Position are able to adopt a common policy on the market and act to a considerable extent independently of their competitors, their customers, and also of consumers.79

In analysing the correlative factors between the European manufacturers of potash, the Court found that some of the criticisms of the recurring areas of the alleged ‘cluster of structural links’ on which the Commission had based its decision were well founded,80 and it annulled the Commission’s decision. The ‘economic links’ referred to by the GC in Flat Glass (1992), which have basically been accepted by the ECJ in its subsequent case law, must now be interpreted, therefore, in the light of the correlative factors between undertakings to which the ECJ referred in Kali + Salz II (1998). Although in practice the two concepts amount to the same thing,81 the Kali + Salz approach is apparently more general and could perhaps also permit factors other than those that are purely economic to be taken into account.82 In Gencor (1999), considered by some as confirmation that ‘game theory’ is the economic premise underlying the concept of oligopolistic dominant position,83 the GC developed this latter concept, confirming the Commission’s decision in Gencor/Lonrho (1996) prohibiting a concentration under the Merger Regulation, which was the first time the Commission had declared itself to be competent to control oligopolistic dominant positions, here moving even further away from the traditional analysis of collective dominant positions under Article 102 than it did in Nestlé/Perrier (1992) and Kali + Salz (1993). In fact, although in Gencor/Lonrho the Commission analysed the structural links existing between under­ takings, it did not consider them to be essential, and treated them merely as additional factors to be taken into account when examining the conditions for the establishment of a collective dominant position. It declared that the concentration operation would create a duopolistic dominant position in the platinum market on the specific grounds of the modification of the structure of the market in the medium term and the similarity in the costs of the members of the future duopoly, without according greater importance to the structural links between such undertakings. The GC rejected the appeal and, in establishing the analysis that the Commission had to pursue in order to find the existence of a collective dominant position, referred to the need to prove the existence of ‘correlative factors’ between the undertakings that participate in a concentration and one or more third companies that allow and incite them to adopt the same course of non-competitive action in the market, within the meaning of Kali + Salz.84 Gencor had alleged that the Commission had not taken into account the GC’s judgment in Flat Glass (1992), which in the context of Article 102 TFEU made the establishment of a collective dominant position conditional upon the existence of ‘structural links’ between undertakings. The GC rejected this argument, and declared that in Flat Glass it had not considered that structural links had to exist before reaching the conclusion that there was a 79  ECJ Kali + Salz (1998) para 221. For the prospective nature of the Commission’s analysis in the control of concentrations, see also GC Kesko Oy (1999) para 107; ECJ Tetra Laval (2005) paras 42–43; GC Impala (2006) paras 245, 248, 523. 80  ECJ Kali + Salz (1998) para 232. 81   See AG Fennelly’s Opinion in ECJ CEWAL (2000) para 27. 82   As will be argued, regardless of the nature of the ‘links’ or ‘correlation factors’ between members of a group in a collective dominant position, its content or final consequences should be economic in nature. 83   In the words of Etter (2000) 133, ‘a strong statement confirming that the game theory is the underlying economic concept of collective dominance’. According to Ridyard (1994) 259, ‘[t]he game theory literature is a blend of mathematical models and behavioural psychology’. 84  GC Gencor (1999) para 163.

Oligopolistic Collective Dominant Position in EU Merger Control  187 collective dominant position, nor had it reduced the concept of economic links to the structural links mentioned by the claimant.85 The GC took the opposite approach and, like the Commission, interpreted the concept of economic links broadly, so as to include the relationship of interdependence between the members of a tight oligopoly. As the Court said: [T]here is no reason whatsoever in legal or economic terms to exclude from the notion of economic links the relationship of interdependence existing between the parties to a tight oligopoly within which, in a market with the appropriate characteristics, in particular in terms of market concentration, transparency and product homogeneity, those parties are in a position to anticipate one another’s behaviour and are therefore strongly encouraged to align their conduct in the market, in particular in such a way as to maximise their joint profits by restricting production with a view to increasing prices.86

The wording used in Gencor (1999) is essentially no different from that employed in Commission decision Gencor/Lonrho (1996),87 and appears to be based directly on the economic theory of tacit collusion88 within oligopolies. Thus, the oligopolistic collective dominant position is established on the basis of (i) being in a position to anticipate reciprocal behaviour; (ii) serious incentives that strongly encourage oligopolists to align their behaviour in the market; and (iii) the non-competitive results (or those results expected to be non-competitive) of the parallel nature of behaviour (maximise the joint benefits of oligopolists, restrict production, and increase prices). In short, in order for a collective dominant position to exist it is not necessary for there to be any active collusion between oligopolists;89 it is sufficient that the interdependence of oligopolists leads (naturally, logically or rationally) to non-competitive, even abusive, results. Indeed, the GC described the oligopolistic collective dominant position as a situation where abusive conduct is not only possible, but also economically rational.90 Although in its decision the Commission had found that links between undertakings were an additional element that was not essential to determining the existence of a collective dominant position, the Court held that in order to arrive at such a conclusion the Commission could have shown either the existence of economic links strictly speaking or the existence of market structures of an oligopolistic nature, where each operator may become aware of common interests and, in particular, increase prices without having to enter into an agreement or have recourse to concerted practices. The Commission could, therefore, have concluded that the planned operation would create a dominant duopoly based on the anticipated modification of the market structure and on the similarity of the costs of the two remaining undertakings in the medium term. But it could also have reached the same conclusion based on the economic links that had been described, and to which it had accorded so little importance.91   ibid, paras 264, 273, 275.   ibid, para 276. See also GC Impala (2006) para 246. 87   Against: Niels (2001) 68, who specifically refers to the definition of collective dominant position at para 140 of Commission decision Gencor/Lonrho (1996), where the Commission established that ‘a mere adaptation by members of the oligopoly to market conditions causes anticompetitive parallel behaviour whereby the oligopoly becomes dominant’. 88   See section 8.3 above. 89   As the Commission’s decision itself in Gencor/Lonrho (1996) para 140 reminds us. Kloosterhuis (2001) 80 summarises the paragraph in this way: ‘Thus, according to Gencor, the creation of a collective dominant position is not a synonym for the creation of a situation that promotes active coordination of market behaviour.’ 90   Gencor (1999) paras 94, 236. 91  GC Gencor (1999) paras 277, 279–80. 85 86

188  Oligopolistic Interdependence and Dominant Oligopolistic Position The GC judgment in Gencor (1999) is a step in the right direction with respect to the previous case law, since it recognises that interdependence among members of a tight oligopoly is, in the widest sense, an ‘economic link’ that facilitates the creation of a collective dominant position. Thus, oligopolies create, in principle, hypercompetitive situations which, at the end of the day, lead its members to act the same way in the market, without the need for tacit or express agreement, and that, depending on the circumstances, can lead to results ranging from very competitive to non-competitive. The difference between this and the previous case law is the express acceptance that the lack of structural links among undertakings does not prevent them from behaving in the same way in the market, if other economic links exist, such as non-competitive and non-cooperative oligopolistic inter­ dependence. In CEWAL (2000), which was decided shortly after Gencor, the ECJ went a step further in recognising oligopolistic dominant positions. It did so in a case concerning a traditional collective dominant position – that is, a ‘collective monopoly’ – not by recognising the stable non-competitive and non-cooperative oligopoly as a variant of the collective dominant position, but rather through the fusion (and, arguably, confusion) of the criteria used to identify collective monopolies and non-competitive oligopolies. While it confirmed beyond question the previous case law on oligopolistic collective dominant positions, the Court pointed out that: Nevertheless, the existence of an agreement or of other links in law is not indispensable to a finding of a collective dominant position; such a finding may be based on other connecting factors and would depend on an economic assessment and, in particular, on an assessment of the structure of the market in question.92

The Court therefore accepted the widest application of oligopoly theory in European competition law without limiting it to the control of concentrations (something that in Kali + Salz the Court had already stated was possible), thus fully opening the door – and this is the significant part of the judgment – to even the prevention of abuses of an oligopolistic dominant position under Article 102, something the GC had anticipated in Gencor.93 The most significant declaration of the EU Courts as regards oligopolistic dominant positions is that of the GC in Airtours v Commission (2002), which decided the annulment action brought against Commission decision Airtours/First Choice (1999). This was a landmark judgment for two reasons: it was the first time since the Merger Regulation came into force that a decision prohibiting a concentration operation had been annulled; and, secondly, it was the first time the Commission had prohibited a proposed concentration on the grounds that it would create a collective dominant position among three undertakings. On a theoretical level, Airtours/First Choice (1996) decided, inter alia, that the capacity of the oligopolists to take reprisals against members whose behaviour deviated from that expected of the group was not necessarily an essential element of a collective dominant position of an oligopolistic nature, emphasising instead the importance of the incentives to cooperate tacitly and the economic rationality of parallel non-competitive behaviour.94 This latter aspect of the decision (the rationality that oligopolists individually decide to limit production and fix supra-competitive prices) had already been highlighted by the ECJ  ECJ CEWAL (2000) para 45.   For this question, see section 9.3 below. 94   See Briones & Padilla (2001) 310–11, citing Commission decision Airtours/First Choice (1999) paras 54–55, 150–51, and Etter (2000). Those paragraphs of the Airtours decision were criticised for their ambiguity in GC Airtours (2002) para 191. 92 93

Oligopolistic Collective Dominant Position in EU Merger Control  189 in Gencor (1999)95 and is connected with the nineteenth-century model of oligopolistic equilibrium described by Cournot (1838). For this reason, it has been said that the reasoning of the Commission contained arguments both in favour of this theory and in favour of ‘tacit collusion’.96 The GC annulled the Commission decision for various, allegedly serious, numerous and clear errors in terms of the way it had analysed the fundamental factors relating to the establishment of the alleged collective dominant position that the concentration between Airtours and First Choice would have created, but not because of errors in the interpretation of law. However, the Court also took the opportunity to produce a synthesis of the previous case law on the matter, and highlighted those issues that in its judgment were most relevant for the establishment of an oligopolistic collective dominant position.97 According to the GC: A collective dominant position significantly impeding effective competition in the common market or a substantial part of it may thus arise as the result of a concentration where, in view of the actual characteristics of the relevant market and of the alteration in its structure that the trans­ action would entail, the latter would make each member of the dominant oligopoly, as it becomes aware of common interests, consider it possible, economically rational, and hence preferable, to adopt on a lasting basis a common policy on the market with the aim of selling at above competitive prices, without having to enter into an agreement or resort to a concerted practice within the meaning of Article 81 EC [now Article 101 TFEU] (see, to that effect, Gencor v Commission, paragraph 277) and without any actual or potential competitors, let alone customers or consumers, being able to react effectively.98

The GC also stated that in order for an oligopolistic collective dominant position to exist in a given market there must be a sufficient degree of transparency and incentive to follow a ‘common policy on the market’; it also insisted that there be a lack of effective competition, whether current or potential, and of countervailing power of clients.99 In short, the case law currently provides that, due to the current or future features of the relevant market, an oligopolistic collective dominant position will exist in the following circumstances: 95  GC Gencor (1999) paras 94, 236, which refer to the rationality of abusive conduct in general and not only of limiting production and increasing prices to a supra-competitive level. 96  Kloosterhuis (2001) 89–90, according to whom there are two different economic models underlying oligopolistic dominant positions: ‘tacit collusion’ and Cournot’s theory (1838). Against the majority-held views, he argues that the latter would explain oligopolistic interaction better than the theory of tacit collusion since it provides an explanation of the extent to which production may be limited. He argues, however, that even if the conditions needed for these models to be complied with are different, the two theories do not contradict each other, and could even be applied simultaneously. For a summary of classical oligopoly models, including Cournot’s, see section 9.1.1 below and Europe Economics (2001) 10–14. 97   According to Nikpay & Houwen (2003) 193, this decision simply distilled and summarised the issue in question (mainly the contribution of Gencor (1999) paras 276–77) without adding much, and its importance has been exaggerated. 98  GC Airtours (2002) para 61. 99   ibid, para 62. The requirements set out by the GC at paras 61–62 of this judgment became part of the Guidelines on Market Analysis for Electronic Communications Networks (European Commission (2002a)) para 96. Venit & Depoortere (2004) expand (in my opinion correctly) the three requirements laid down in Airtours into four: ie the three ‘classical’ ones described by Stigler (which apply to both cartels and tacit collusion) plus the absence of external competition. Coppi & Walker (2004) 139, who appear to assume that the condition concerning external competition was also suggested by Stigler, criticise the fact that, in practice, these conditions have always been assessed using a ‘tick-box’ approach, weighing up the characteristics that facilitate coordination against those that hinder it, when in fact economic theory requires that all the factors exist in order for coordination to be probable.

190  Oligopolistic Interdependence and Dominant Oligopolistic Position 1. Each member of an oligopoly is aware of the interests it has in common with respect to the other oligopolists. 2. Each oligopoly member considers it possible, economically rational, and therefore preferable to adopt a common strategy on the market. 3. The common strategy may be lasting. 4. The common strategy is not competitive, without the need for restrictive agreements or concerted anti-competitive agreements. 5. The oligopoly is not subject to effective outside competition, whether from other current or potential competitors, or clients. The first four elements refer to the oligopoly members’ ‘collective position’, while the fifth refers to the oligopoly members’ dominant position. The mere fact that there are very few undertakings on the market and that, because there are so few, they recognise their interdependence and operate accordingly, is not sufficient to conclude that a collective dominant position exists, since interdependence always exists wherever there is an oligopolistic market structure. Interdependence is a necessary but insufficient condition for the establishment of a collective dominant position, since it could lead to both extremely competitive situations and those where there is no competition at all.100 It is not oligopolistic interdependence, but rather what economists call ‘tacit collusion’ and the Commission and the EU Courts call ‘tacit coordination’ – which can be summed up as ‘non-competitive non-cooperative oligopolistic parallel behaviour’ – that leads to an oligopolistic collective dominant position.101 The only ‘economic link’ or ‘correlation factor’ necessary for the establishment of an oligopolistic collective dominant position is, therefore, oligopolistic interdependence, but only when this leads to stable, non-competitive results. ‘Structural links’102 are therefore not indispensable, although if they exist in parallel with ‘oligopolistic links’ (which depends on market features) they could reinforce or consolidate the oligopolists’ ‘collective position’.103 On this basis, hybrid collective dominant positions could exist, somewhere between traditional and oligopolistic positions, containing elements of both to a greater or lesser 100   According to Principles of Interpretation, Bundeskartellamt (2000) para II.A.1, oligopolies are neither good nor bad per se. 101   Niels (2001) 170–71. See also the judgment of the US Supreme Court in Brooke Group Ltd v Brown & Williamson Tobacco Corp, 509 US 209, 227 (1993). 102  GC Gencor (1999) paras 276–77; ECJ CEWAL (2000) para 45. See also Notice on the application of the competition rules to access agreements in the telecommunications sector (1998b) para 79, and the Guidelines on Market Analysis for Electronic Communications Networks (European Commission (2002a)) paras 87, 98. In the same sense, see Rodger (1994) 23; Briones (1995) 339; Bishop and Walker (2002) 251, paras 6.125–6; Navarro, Font, Folguera & Briones (2005) 214, para 7.94, who suggest that although CEWAL does not state that ‘structural links’ are required for the establishment of an oligopolistic dominant position in the control of concentrations, it could require them for the establishment of the same position for the purposes of applying Art 102. According to the same authors (214, para 7.96), the important thing in economic terms is to analyse whether a ‘link’ in itself increases the viability or the sustainability of a collusory equilibrium, and not so much whether the existence of these links is a prerequisite to concluding that a collective dominant position exists. According to Muñiz Fernández (2000) 650, the case law is confusing because some precedents consider ‘structural links’ to be necessary while others do not. In fact, for a group of independent undertakings to be considered a ‘collective entity’ in a dominant position, links between undertakings are always necessary (see, inter alia, Venit (1999) 1110–11). This has not been in doubt since Flat Glass (1992), and was confirmed in Almelo (1994) paras 42ff. The only doubt was in relation to the type of links in question. Kühn (2001) section 5 states that ‘[s]tructural links can never be necessary for establishing joint dominance’; ‘that “structural links” are a strong indication for joint dominance, is just as wrong’. 103   Ivaldi, Jullien, Rey, Seabright & Tirole (2003a) 53 consider that ‘structural links’ are one of the factors to be considered when evaluating the probability that ‘tacit collusion’ is produced after a concentration.

Parallel Behaviour and Non-Competitive Oligopolistic Interdependence  191 extent. Ultimately, in practice many collective dominant positions have both ‘traditional’ and ‘oligopolistic’ features.104 Last in this list of court rulings in relation to oligopolistic dominant positions,105 the judgment in Impala qualifies to some extent the previous case law. This case was the result of appeals against the Commission’s decision in Sony/BMG (2004), which authorised a merger between two of the five majors in the recorded music business. In Impala (2006), the GC annulled the Commission’s decision, but its ruling was in turn annulled by the ECJ in Impala (2008) on formal grounds. From the substantive point of view, both judgments confirm the GC’s ruling in Airtours (2002), subject to the qualification that, since the case involved the strengthening of a dominant position, the prior existence of an oligopolistic dominant position and the requirements laid down in Airtours, although they may be ‘inferred from a theoretical analysis of the concept of a collective dominant position’ and are ‘indeed also necessary’, ‘may, however, in the appropriate circumstances, be established indirectly on the basis of what may be a very mixed series of indicia and items of evidence relating to the signs, manifestations and phenomena inherent in the presence of a collective dominant position’.106 In this way, the Impala judgments expressly increase – very significantly – the possibilities of proving the existence of an oligopolistic dominant position, a particularly relevant issue for the application of Article 102 TFEU to stable non-cooperative and non-competitive oligopolies.107

8.5  PARALLEL BEHAVIOUR AND NON-COMPETITIVE OLIGOPOLISTIC INTERDEPENDENCE: COLLUSION (EXPRESS OR TACIT) AS A DEFINING CRITERION. POSSIBILITY, EASE OR PROBABILITY COMPARED TO RATIONAL CERTAINTY OR AUTOMATISM OF NON-COMPETITIVE PARALLEL BEHAVIOUR BETWEEN OLIGOPOLISTS

Oligopolistic dominant positions result from given market structures, but paradoxically, they are based on the conduct of oligopolists. EU case law indeed shows that the concept of oligopolistic dominant position is based, on the one hand, on the proven or foreseeable conduct of the members of an oligopoly (if parallel conduct does not occur, nor is it likely to occur – and that will depend on the degree of interdependence between the oligopolists – there is no ‘collective position’), and, on the other, on the results of parallel behaviour not being competitive.108 104   In this regard, once the existence of close non-oligopolistic links together with a relationship of oligopolistic interdependence is detected, when controlling the compatibility of a concentration operation with the common market the Commission could: (i) obtain, within the control of concentrations procedure, commitments that would eliminate non-oligopolistic links that might contribute to the creation of a traditional ‘collective position’ which, if not offered, would result in the operation being prohibited; and even (ii) also apply Art (101), if that were feasible, in order to prohibit the collusive links that would help to create a hybrid dominant position, such as that detected by the Commission in Kali + Salz (1993). 105   Shorter than the list of court precedents relating to traditional collective dominant positions. See section 7.2.1 above. 106  GC Impala (2006) paras 251ff; ECJ Impala (2008) para 129. 107   See section 9.3 below. 108   As Jenny (2001) 10 explains, ‘[b]ecause a collective dominant position is defined by reference to a certain type of behaviour by the oligopolists, and because whether or not they will engage in this behaviour cannot be assessed simply by looking at the structural conditions in the market even if one assumes that they maximise profits, the Commission is faced with a major challenge: it must set out the methodology for defining a “parallel anti-competitive behaviour” characterizing a collective dominant position.’

192  Oligopolistic Interdependence and Dominant Oligopolistic Position The requirement that an oligopolistic dominant position is established on the basis of the conduct of oligopolists109 is both striking and unsatisfactory – for want of better criteria – in an analysis of a structural nature, since it makes the definition of the structure of the market dependent on the past, planned or foreseeable actions of undertakings. Only if these are not competitive (if a position of non-competitive stable equilibrium, or ‘tacit collusion’/‘tacit coordination’, is reached) is it concluded that that position exists, but not otherwise (if a stable equilibrium is not achieved, or if a stable non-collusive competitive equilibrium is achieved).110 Analyses of oligopolistic dominant positions may differ fundamentally, according to whether they are to be carried out ex ante (in the control of concentrations) or ex post (when Article 102 and even Article 101 are applied, where such a position does not exist and there is evidence of collusion; or, in merger control, to examine whether a pre-existing oligopolistic collective dominant position is strengthened). Ex ante, the creation of an oligopolistic dominant position depends on whether or not non-competitive parallel behaviour is reasonably inevitable for the members of an oligo­ poly. The mechanisms employed to reach that conclusion that it will happen are imperfect and eminently speculative, and it is important to stress ad liminem that although economic theory offers many ideas about the nature of ‘tacit collusion’ (and also express collusion), it says very little about whether undertakings will end up behaving in a coordinated way in a determined market and how and which of the possible equilibria will prevail. Economic theory can identify the possible competitive equilibria in a market, including the ‘tacitly collusive’ ones, but for the moment it is unable to say which of these will prevail.111 Ex post, the analysis of what has happened on a market can help to determine whether a group of undertakings held an oligopolistic dominant position.112 Any examination of a collective dominant position will depend primarily and crucially on the proof of oligopolists’ parallel behaviour. Once this is established, that behaviour must be examined to see whether it produces non-competitive results. Finally, market features must be observed in order to evaluate whether the conduct is due to oligopolistic interdependence (and thus we are talking about an oligopolistic dominant position), or presumably to some form of collusion (strictly speaking, which must be proven in any event). With regard to transparency in the market, in Impala (2006) the GC suggested that, on an ex post basis, it would not be necessary to show this when other data, principally concerning the conduct of operators, may lead to the identification of a non-competitive oligopoly or even a non-competitive non-oligopolistic market.113 109   Schödermeier (1990) emphasises that parallel behaviour, especially price uniformity, is a necessary but not a sufficient condition for establishing oligopolies and collective dominant positions. 110   A dominant position should certainly not be established merely on the basis that oligopolists take a ‘followthy-neighbour’ approach, since the market can be followed upwards (towards monopolistic equilibrium) or downwards, competitively (towards the equilibrium of perfect competition). But is it logical that, all things being equal, the oligopolistic collective dominant position exists when the market goes up, but not down? The answer is probably yes, for two reasons: first, because if the results are different, the circumstances are perhaps, in fact, different; and second, because the problem for competition authorities is price increases (or reduced production etc) flowing from the existence of a situation comparable in its results to that caused by an individual dominant position, not the other way round. Schödermeier (1990) 33 proposes that for the purposes of distinguishing (logical) parallel behaviour in oligopolies from collective dominant positions, it is not the result but rather ‘the aim of the parallel action’ that draws an ‘adequate dividing line between the two kinds of behaviour’. 111   Ivaldi, Jullien, Rey, Seabright & Tirole (2003a) 6 and fn 4, 64. In the same sense, see Kolasky (2002) 6. 112   See Ivaldi, Jullien, Rey, Seabright & Tirole (2003a) 63; GC Impala (2006) paras 251ff. 113   In what appears to be an obiter dictum, the GC cites with approval the ‘theory that a finding of a common policy over a long period, together with the presence of a series of other factors characteristic of a collective

Parallel Behaviour and Non-Competitive Oligopolistic Interdependence  193 The examination of the kind of relationship that exists between oligopoly members will always be relevant, either to prevent or impede the creation of an oligopolistic collective dominant position or, in a proven case of non-competitive parallel behaviour, to apply Article 102 to those responsible for an abuse114 or Article 101 to those responsible for a concerted practice (clear enough, provided that the other conditions necessary for the application of these norms are satisfied). By analogy with how within a group of undertakings in a cooperative or traditional collective dominant position a certain degree of internal competition (always ineffective) can exist, parallel behaviour on which the oligopolistic dominant position is based does not need to be perfect, and certain competitive deviations of little importance or duration are compatible with it.115 It is also unimportant whether such behaviour is conscious or not;116 at most, this question may be relevant to assess the intentional nature of behaviour for the purposes of Article 101. However, non-competitive parallel behaviour must not be cooperative or collusive in the legal sense, since if it were this could amount to a cooperative or collusive collective dominant position (which can also be dealt with under Article 101) superimposed on a falsely stable, non-competitive and non-cooperative oligopolistic structure.117 In both the cooperative or classical collective dominant position and the oligopolistic collective dominant position, the parallel behaviour of individual oligopoly members is governed by the existence of correlative factors. In terms of the former, reference is made to economic links or ties of any nature (structural, legal, collusive, personal). As regards the latter, specific reference is made to oligopolists’ interdependence (based, in turn, on very different factors118) as a correlation factor. As stated above, while it is felt that a dominant position in general exists when one or more undertakings can behave on the market independently with respect to its competitors, clients and consumers, an oligopolistic collective dominant position exists when the members of an oligopoly are extremely interdependent, due to the very characteristics of the market. Because of this, undertakings in that position are at the same time dependent dominant position, might, in certain circumstances and in the absence of an alternative explanation, suffice to demonstrate the existence of a dominant position, as opposed to the creation of such a position, without it being necessary positively to establish market transparency’, and warns that, rather than examine it, ‘the Court will confine itself, in its examination of the pleas in law put forward, to ascertaining that the decision properly applied the conditions defined in Airtours v Commission’. GC Impala (2006) para 254. Contrary to the opinion of Kokkoris (2007) 419, GC Impala does not lower the threshold of the collective dominant position established in Airtours. Instead, it does two things. First, it requires the Commission to be equally strict when authorising concentrations as when prohibiting them. (This requirement may not be completely positive; after all, merging – which ultimately amounts to buying and selling – is a fundamental right in the ‘economic constitution’ of any country and, while any limitation placed on the exercise of such right must be based on good grounds, affirming its existence should not cause the same problems; if there were problems in this case, it was perhaps because there was an obstinate complainant/appellant.) Secondly, it requires that the decision is based partially on pre-existing (ex post) evidence of the existence of a collective dominant position, something that could not be done in Airtours, where the assessment was 100% ex ante. 114   See section 9.3 below. 115   See section 7.3 above. 116   Similarly, G Monti (1996) 61, fn 9 says that ‘consciousness is a rather ambiguous concept’. 117   See below. Note, however, that the possibility of anticompetitive collusion (in the legal sense) occurring cannot be ruled out in oligopolistic markets that are theoretically stable and non-competitive (where in theory noncompetitive tacit collusion in the economic sense could occur), if, notwithstanding market logic, oligopolists prefer to ensure that competition is dead and buried. Further, hybrid collective dominant positions can also exist to a greater or lesser extent, sharing elements of both the traditional and the oligopolistic dominant position. As has just been explained, in a significant number of cases, collective dominant positions have both ‘cooperative’ and ‘oligopolistic’ features. See section 8.4 above in fine. 118   For a list of these factors, see section 8.3 above.

194  Oligopolistic Interdependence and Dominant Oligopolistic Position on their fellow oligopoly members and independent of other competitors.119 This structural interdependence does not exist in the cooperative collective dominant position or the collective monopoly, where it is replaced by another type of link. Assuming, as has been said so many times, that not all parallel behaviour leads to the creation of an oligopolistic dominant position – only that of a stable non-competitive nature does so – the degree of dependence between oligopolists is directly proportional to the degree of ‘collectiveness’ of its position. The greater the degree of interdependence, the more uniform will be the behaviour of the oligopoly members, and the greater the probability of them enjoying a ‘collective position’. Internal group cohesion also depends directly on the level of external competition (real or potential) and that of buyers’ market power. Thus, ‘collective position’ depends directly on the oligopolists’ market power. Indeed, since we are dealing with the establishment of an oligopolistic dominant position, it is not possible in practice to operate in two phases, analysing the ‘collective position’ first and the dominant position later, because in that case the elements of analysis are always significant for both.120 In an environment exhibiting the greatest degree of interdependence, the features of the market necessarily lead to parallel behaviour by oligopolists, whose individual actions rationally and inevitably result from the peculiarities of the markets in question. Below this maximum level of interdependence (characterised by automatic reactions to the actions of other oligopolists) there will be other levels – a whole range, according to the characteristics of the market – where parallel behaviour is more or less likely to occur, although it is not inevitable. At these levels, oligopolists may also act in a parallel manner, but for this to occur there must be additional elements (more or less perceptible) of collusion (as usual, in the legal sense).121 Economic theory accepts that oligopolies can range from being very competitive or not competitive at all, with all the varieties in between. Oligopolists can maximise their profits with monopoly prices or those that are close thereto,122 or reach other types of equilibrium with much lower prices, including fully competitive prices, depending on the market. Where there are different conduct alternatives at the oligopolists’ disposal, undertakings need agree, via either agreements or concerted practices (including ‘facilitating practices’ under certain circumstances123), to converge towards the least competitive equilibrium, because the natural tendency would be to seek their own profit by trying to sell more, although at a lower price (in short, competing), to the detriment of the rest of the oligopolists.124 119   See section 8.1. As noted above, Fernández de Araoz (1993) 10067–68 has pointed out this paradox, when commenting with regard to the ‘theory of games’ – the economic concept that allegedly explains the oligopolistic collective dominant position (Etter (2000) 133) – that all business decisions are interdependent because all CEOs act with their competitors’ possible decisions in mind. In this way, the dominant position defined as ‘independence’ with respect to competitors and consumers would be impossible, and the collective dominant position, when based on interdependence, would exist everywhere. 120   See ch 7 above. 121   cf Temple Lang (2002) 272, for whom ‘[a] market is not uncompetitive merely because collusion is possible, or because collusion, if it was arranged, would be easy for the parties to monitor. The fact that collusion could be effective does not prove that it exists. Nor does the fact that collusion could be effective mean that the market is in fact uncompetitive: companies cannot be assumed always to be colluding merely because the market would enable them to do so effectively, if antitrust law allowed it.’ As regards this author’s use of the term ‘uncompetitive’, see below. 122   The Chicago and Harvard Schools have conflicting opinions as to why oligopolies yield higher profits. For followers of the Chicago School it is because of the greater efficiency of large-scale companies, while the traditional Harvard School blames the exercise of unreasonable market power. See Petit (2007) 26ff. 123   According to Kauper (2008) 756–57, ‘[s]uccessful challenges to facilitating practices, of course, require that they are, themselves, antitrust violations’. However, theoretically, there can be ‘facilitating practices’ that do not breach Art 101. Against: Raffaelli (2003) 131. 124   See section 8.1 above.

Parallel Behaviour and Non-Competitive Oligopolistic Interdependence  195 In terms of the ex ante analysis of oligopolistic collective dominant positions, one problem that arises is how to determine the degree of certainty that non-competitive parallel behaviour will occur, which is necessary to prohibit a concentration that results in such a situation. (Ex post, the question focuses on whether the oligopolistic interdependence is plausibly the cause of parallel conduct in the given market, either in the context of an Article 101 investigation [as an alternative explanation to the existence of concerted practices] or in an Article 102 investigation [for establishing a collective dominant position that some or all oligopolists could have abused].) In practice, with regard to control of concentrations, the existence of an oligopolistic dominant position has come to depend on (i) the greater or lesser degree of ‘likelihood’ or ‘probability’ that the oligopolists will collude following a concentration; (ii) the degree to which the concentration will make the collusion easier;125 or even (iii) the mere possibility of ‘coordination’ amongst themselves.126 None of those criteria is satisfactory, regardless of whether the term ‘collusion’ is used in the legal or economic sense (including ‘tacit collusion’). On the one hand, as regards ‘facilitation’ and the related increase in the probability of express collusion,127 the preventive medicine of the control of concentrations should not, in any way, be applied in that case. There are various reasons for this. First, it is not at all clear that every group of undertakings that can collude will, inevitably, do so.128 The Commission cannot assume that an infringement will take place in order to justify the prohibition of a concentration.129 Second, collusion is always easier and more likely after a concentration than before one. Third, even if it came within the substantive test of Article 2 of Regulation 139/2004 on the control of concentrations (the SIEC test, for ‘significantly impede effective competition’), which test is still not clearly defined outside of dominant positions, the degree of ‘facilitation’ or the increase in probability of express collusion would be even more difficult to define than in ‘tacit coordination’,130 since how easy or probable should express collusion be so that a concentration is not authorised, bearing in mind that rational economic behaviour131 cannot be a valid criterion in this case132 and that the competition authorities have sufficient tools to prevent such a situation? Lastly, whatever the definitive scope of the new EU merger control test, if it is accepted that there are no ‘blind spots’ between Articles 101 and 102 TFEU,133 and to respect the principles of business freedom and minimal administrative intervention, the Commission should consider it sufficient to apply the ‘curative medicine’ of Article 101 in the future,

125  See Nestlé/Perrier (1991) paras 120, 134, and the comments of Winckler and Hansen (1993) 828; Ysewyn & Caffarra (1998) 469; Caffarra and Kühn (1999) 356; Motta (2000) 199, 201, 206; Bellamy & Child (2001) 6.139 (cf Bellamy & Child (2008) paras 8.209–8.15). 126   See eg Bishop (1999) 37–38; Whish (2001) 459. Cf Whish & Sufrin (1993) 69; Whish (2000) 586; Whish (2001) 474, where the author describes much more accurately the undertakings’ position in a non-competitive oligopoly. Cf also Whish (2008) 860–61. 127   See, among many other references, apart from those set out in the US Horizontal Merger Guidelines 1992 and 2010, Kolasky (2002) 1, 4, 5, 10. See also Judge Richard Posner’s declarations in Hospital Corp of America v FTC, 807 F3d 708 (DC Cir 2001), cited in Kolasky (2002) 1. 128   Temple Lang (2002) 305. 129   cf GC Tetra Laval (2002) para 218, which refers to abuses within the meaning of Art 102. 130   See section 8.3 above. 131   This is the criterion that has been used to define the concept of ‘tacit coordination’, as will be seen below. 132   Can undertakings’ illicit behaviour be ‘rational’ for these purposes? 133   See section 9.4 below.

196  Oligopolistic Interdependence and Dominant Oligopolistic Position and not prohibit concentrations that facilitate or increase the probability of express collusion.134 To sum up, if greater facility to create cartels successfully was considered to be a coordinated effect, it would be much more difficult to authorise undertakings’ concentrations to the detriment of legal certainty and economic freedom.135 As regards ‘facilitation’ and the related increase in the probability of ‘tacit collusion’ as a criterion for the establishment of an oligopolistic dominant position, how probable must it be that non-competitive and non-cooperative parallel behaviour between oligopolists allegedly holding that position will occur? This question should be answered by assessing the oligopolists’ degree of freedom and rationality of conduct in the given market, and by asking one further question: according to economic logic, is each oligopolist free to act in a different manner from the rest? The US competition authorities have defined the relation between market features and the probability of ‘coordination’ (what we have termed ‘non-competitive parallel behaviour’) in the following manner:136137 Market perfectly conducive to coordination

Market somewhat conducive to coordination

No agreement necessary/ interdependent behaviour expected

Some agreement necessary/tacit collusion workable137

Market somewhat unfavourable to coordination

Market highly unfavourable to coordination

Extensive agreement required/express collusion needed/coordination increasingly unlikely

However, in theory, one may distinguish more levels of probable coordination, from low to high. I am proposing six instead of four or three.138 At the lowest level of coordination, it would be possible for oligopoly members to act in a parallel manner, and they would have the capacity to do so.139 At a moderately higher level of coordination, non-competitive parallel behaviour would be ‘likely’ and not simply possible, because there would be some incentives to act in a parallel manner. 134   Against: Kühn (2002) 51, 54, for whom the effects of a concentration on incentives to coordinate (either colluding or acting in parallel) should be of concern for competition policy. 135   It is difficult to say for sure whether this has already been achieved by Art 2 of Reg 139/2004, or quite the reverse. See section 9.1 below. 136   See OECD (1999) 204. 137   US authorities use the term ‘collusion’ in the legal sense here, so that ‘tacit collusion’ refers to agreements and practices that restrict competition whose existence can only be proved through circumstantial evidence. 138   The Commission has pointed out that anti-competitive coordination may take various forms, having even established a sliding scale. In the Consultation Paper on the reform of Regulation 4056/86, and with respect to the system of shipowners’ ‘trade committees’ proposed by the European Liner Affairs Association (ELAA) to replace liner conferences, the Commission declared that it was difficult to imagine how such committees could function without restricting competition, and referred to five levels of coordination: ‘It should be kept in mind that there is a sliding scale between collusive agreements, co-ordinated behaviour, tacit collusion, conscious parallel behaviour, signalling of behaviour and so-called cheap talk.’ European Commission (2003c). 139   This has sometimes been considered sufficient for ‘coordinated effects’ to exist. See section 9.1 below. For example, Frontier Economics (2002) 4 describes ‘coordinated effects’ as those that derive from ‘the ability (meaning capacity) and the incentive for firms to develop a sustainable tacitly collusive arrangement’. See also Nikpay & Houwen (2003) 197, who state that the main criterion used to establish a dominant position is the ‘ability to adopt a common policy’ in the market. According to these authors, this is the EU Courts’ position. In the case law, see ECJ Kali + Salz II (1998) para 221.

Parallel Behaviour and Non-Competitive Oligopolistic Interdependence  197 At the third level, there would be a relatively high probability of non-competitive parallel behaviour. There would be considerable incentives for it to occur.140 At the fourth level, the incentives for non-competitive parallel behaviour would be very strong and would make it logical and rational in economic terms.141 The market structure would induce142 non-competitive parallel behaviour and the oligopolists would behave as rational profit maximisers.143 At the fifth level, the incentives for parallel behaviour would be so strong that to act in a different way would be illogical and irrational. The market structure would inevitably lead to non-competitive parallel behaviour, unless undertakings were required to act illogically and irrationally, which is not reasonable.144 At the sixth and final level, we should imagine a situation that necessarily and auto­ matically leads to non-competitive parallel behaviour, where undertakings do not even have the freedom to act irrationally. In practice, however, the fifth and the sixth levels almost certainly amount to the same thing.145 Within this scheme of things, non-competitive parallel behaviour in markets characterised by first, second or third level coordination, although perhaps predictable, should not be used to establish a ‘collective position’ of oligopoly members. However, it may be used to serve as an indication or proof of anti-competitive practices contrary to Article 101. From the fourth level on, collusion cannot be suspected to exist,146 but an oligopolistic dominant position can be established. Parallel behaviour may be considered not to be anti-­competitive, but merely non-competitive and caused by market structure, as will be seen below. The first Commission decisions concerning the control of concentrations limited themselves to proving that certain operations, by reducing the number of undertakings in a given market (for example, from three to two), made it much easier for parallel 140   This is the ‘sufficiently likely’ level that Haupt (2002) 438, 440 appears to refer to. See, inter alia, Harris & Veljanovski (2003) 217, who use the expression ‘high likelihood’ of ‘tacit collusion’ as a distinctive criterion regarding collective dominant positions and recall the Commission’s allegedly futile attempt to remove the need to show it (Commission decision Airtours/First Choice (1999), reversed by GC Airtours (2002)). The relevant question for Ivaldi, Jullien, Rey, Seabright & Tirole (2003a) 64 is whether the concentration will make coordination more probable, ie significantly easier to maintain than before. 141  ‘Oligopolistic rationality’ may lead to a situation where oligopoly members individually (and independently) ‘understand’ that each one of them (and the group) will be better off if they do not compete. See Flint (1978) 50. However, some authors consider that coordination rationality is less significant. See Lexecon (1999). 142   See Briones (1995) 342, who, however, in other parts of the text does not use the verb ‘induce’, but rather ‘allow’. 143  An example of this can be found in Commission decision Mannesmann/Vallourec/Ilva (1994) para 55, where it was said that the market structure would create ‘a strong incentive to engage in anticompetitive parallel behaviour’. According to the OECD (1999) 17, 20, concentrations should be prohibited not merely because they increase the probability of anti-competitive cooperation, but because they ‘significantly increase the probability of coordinated interaction’. 144   Turner (1962) 661, cited in Lopatka (1996) 851, argues that in an oligopoly all sellers could decide to establish identical supra-competitive prices ‘solely through a rational calculation by each seller of what the consequences of his price decision would be, taking into account the probable or virtually certain reactions of his competitors’. Similarly, see Lopatka (1996) 906. 145   Posner (1969) 1575 argues that ‘noncompetitive pricing by oligopolists is not compelled, although it is facilitated, by the structure of the market’. He considers that only automatism or an irresistible force would not be sanctioned under s 1 of the Sherman Act, although he feels that this possibility is theoretical rather than real. Merely facilitating parallel behaviour would not be enough to eliminate undertakings’ responsibility. According to Lopatka (1996) 896, although there is not yet enough empirical evidence on the point, game theory suggests that independent pricing at supracompetitive levels is rational conduct and is probably more common than Posner thinks. 146   The fourth and fifth levels of interdependence would amount to a complete defence against a charge of parallel conduct by oligopolists, whereas the sixth level would represent a ground for unimputability.

198  Oligopolistic Interdependence and Dominant Oligopolistic Position non-competitive behaviour – which was classified as anti-competitive and equated with collusive behaviour strictly speaking – and collective abuses to exist. The test appeared to be whether the new market structure would facilitate (but not necessarily lead to) ‘tacit collusion’ (as understood by economists).147 The equivalence of oligopolistic dominant position with the concept of ‘tacit collusion’ used by economists (in everything but name)148 was definitively established by the GC in Gencor.149 However, neither this, nor subsequent judgments, nor subsequent decisions of the Commission where this definition of oligopolistic collective dominant position is established (occasionally even denying its connections with the economic theory of tacit collusion150), have specified either the mechanism that would lead to ‘tacit collusion or coordination’ or the degree of ease, probability or certainty of colluding tacitly required by the test for establishing an oligopolistic collective dominant position. Despite the often unclear wording of Commission decisions and the case law of the EU Courts, the most reasonable approach when prohibiting a proposed concentration is to assume that it is not enough merely to show that it is possible (it is always possible, and the consequences of being collectively dominant are too significant to be based solely on a possibility that has yet to occur151), or even probable (risk) or very probable (high risk), that such parallel behaviour will occur. The important thing is not that the probability of ‘tacit coordination’ (or ‘tacit collusion’ in the economic sense) increases but that it increases above a predetermined threshold which is close to certainty.152 Independently of how close to the ‘substantial lessening of competition’ (SLC) test it may have come,153 a minimum degree of rigour in the application of the new test under Article 2 of Regulation 139/2004 should require that this threshold is only reached when predictably, applying a rigorous standard, the non-competitive parallel behaviour of oligopolists is a rational and inevitable consequence of the simple adjustment of oligopoly members to the new market conditions resulting from the concentration.154 147   See Commission decision Nestlé/Perrier (1991) paras 120, 134. However, Whish & Sufrin (1993) 80 interpret the decision in a slightly different way: ‘In Nestlé/Perrier . . . the Commission looked beyond the concentration ratio to assess whether the merger would lead to a situation in which parallel behaviour would be more likely, or even the only logical course of action for the firms remaining in the market, and effective competition impeded.’ (Emphasis added.) 148   Europe Economics (2001) 4. 149  GC Gencor (1999) paras 276–77. See also Commission decision Airtours/First Choice (1999) paras 54, 150. Among the academic literature, see Richardson & Gordon (2001) 419–20. 150   In Commission decision Airtours/First Choice (1999) para 150 (annulled by the GC in Airtours (2002)), after declaring that in order to conclude that a collective dominant position existed it did ‘not consider that it is necessary to show that the market participants as a result of the proposed merger would behave as if there were a cartel, with a tacit rather than explicit cartel agreement’, the Commission stated, while limiting its conclusions to the case in hand, that what was important in order for a dominant position to exist was that the level of interdependence between oligopolists was such that for them it was rational to limit production and thus reduce competition to such an extent that a collective dominant position was created. 151   Temple Lang (2002) 272. 152   Briones (1993) 119 talks about an ‘oligopolistic structure that will in all probability lead to uncompetitive markets’. However, later in the text he describes oligopolistic collective dominant position using clearly different expressions: for example, at 122, the market is ‘prone’ to the development of tacit collusion; at 119 the structure of the market ‘allows’ the oligopolists to behave as a ‘single monopolist’; at 119 the undertakings in the market are ‘able’ to act in a coordinated manner. 153   Note that the SLC test allows a broader interpretation than the dominance test in force until 2004. 154   In a similar sense, within the EU doctrine see Whish & Sufrin (1993) 69; Ridyard (1994) 259; Böge & Müller (2002) 496; Whish (2000) 586, 605ff; Whish (2001) 474. Whish emphasises the rationality of oligopolists’ behaviour, on the basis of ECJ Hoffmann-La Roche (1979). According to Whish (2003) 521, the ECJ could have thought that when oligopolists behave in the same way due to the structure of the market they operate in, rather than due to active participation in an agreement or concerted practice, they should not be accused of abusing their position

Parallel Behaviour and Non-Competitive Oligopolistic Interdependence  199 Until now, this seems to have been the attitude adopted by the Commission, which, with the support of the judgments of the GC in Gencor (1999) and the ECJ in CEWAL (2000), considered that a collective dominant position may also appear where there are no structural links on ‘an oligopolistic or highly concentrated market whose structure alone is conductive to coordinated effects on the relevant market’.155 To conclude this section, it is important to emphasise that the problem of interdependence of oligopoly members arises in a very different way in ex post scenarios: being a question of strengthening an oligopolistic collective dominant position, or the abuse of an oligopolistic collective dominant position,156 oligopolists’ past behaviour makes it possible from the beginning – and relatively easy – to establish their real position in the market and prove or otherwise their ‘collective position’, by simply demonstrating the existence or non-existence of non-competitive parallel behaviour. To sum up, the European Commission’s merger policy should be extremely prudent and demand a lot of itself, and, in practice, not be implemented in an arbitrary fashion. Undertakings have the right to legal certainty, which is always difficult to achieve, but particularly so in competition law where undefined legal and economic concepts are even more difficult to pin down than in other areas. A test for establishing the existence of an oligopolistic collective dominant position based on the ease and probability of express collusion would undoubtedly not cover the minimum requirements of legal certainty, but neither would one based on a loose interpretation of the ease or probability of tacit collusion. Accordingly, the suggested criterion for establishing the existence of an oligopolistic dominant position is that it is (at least) rational or (reasonably and predictably) inevitable that the oligopoly members, without collusion amongst them, will engage in parallel noncompetitive behaviour (tacit coordination) after a concentration. Prior administrative intervention is only justified when it can be clearly predicted that after a concentration oligopoly members, in market practice, will not be free to compete, either because the most logical and rational behaviour is not to compete, or because following the other oligopoly members is inevitable (unless they are required not to act rationally) or automatic. The consequence in both cases is that Article 101 cannot be applied to counter undertakings’ actions (although Article 102 could be used in certain conditions157) and for that reason it may be legitimate and adequate to prevent such a situation from arising.

‘if their conduct is rational – even inevitable – behaviour’. In the same sense, see Ridyard (1994) 259, who says that the analysis of collective individual dominant positions is no different from that of individual dominant positions, apart from an additional step at the beginning: ‘the critical judgment that the members of the oligopoly will inevitably behave as if they were a single firm’. 155   Guidelines on Market Analysis in the Electronic Communications Sector (European Commission (2002a)) para 94. Against, see Depoortere & Motta (2009) 4; Vitzilaiou & Lambadarios (2009) 6. 156   It does not seem that undertakings’ past conduct can be used to infer or corroborate the future creation of a dominant position within an ex ante analysis. In its judgment in Airtours (2002) paras 88–92, the GC criticised the fact that in its decision in Airtours/First Choice (1999) paras 128–38, the Commission had examined the under­ takings’ past behaviour before concluding that there was ‘a tendency towards collective dominance on the market’, in order to corroborate its conclusions concerning the creation (but not the reinforcement) of such a position as a result of the concentration at issue. According to the GC (para 92), since it did not deny that the market had been previously competitive, the Commission could not treat certain characteristics of the market in normal circumstances (specifically the cautious planning of capacity typical of the wholesale market for short-distance package holidays in the UK) as proof of its theory that the market was already showing a tendency towards the existence of a collective dominant position. 157   See section 9.3 below.

9 Oligopolistic Interdependence and Dominant Oligopolistic Position in Relation to Articles 101 and 102 TFEU and Regulation 139/2004 (II) 9.1  THE ADOPTION OF A NEW SUBSTANTIVE TEST TO COVER CERTAIN UNILATERAL EFFECTS OF CONCENTRATIONS. COORDINATED EFFECTS AND UNILATERAL EFFECTS IN THE EUROPEAN CONTROL OF CONCENTRATIONS

Within the economic analysis of concentrations between firms, using categories more typical of US than European merger control, European jurists and, above all, economists distinguished between the ‘coordinated effects’ and the ‘unilateral effects’ of concentrations for years before Regulation 139/2004 was adopted,1 particularly in oligopolistic markets. At the same time, they criticised the insufficiency of the dominance test to prevent ‘unilateral effects’ in such markets.2

9.1.1  ‘Coordinated Effects’ and ‘Unilateral Effects’ In their Horizontal Merger Guidelines of 1992 and later in the Guidelines of 2010, the US Department of Justice and the Federal Trade Commission3 distinguished in a general manner, without limiting their distinction to oligopolies, between the ‘coordinated effects’ (which occur exclusively on oligopolistic markets) and the ‘unilateral effects’ of concentrations (that occur as a result of both the creation or strengthening of an individual dominant position, and the changes in an oligopoly’s structure following a concentration4). It does not seem correct to say, therefore, that both concepts are forms of oligopolistic behaviour.5 1   This is the most commonly used terminology, and comes from the US Merger Guidelines of 1992. Certain noteworthy authors (no less than the former Chairman of the Irish competition authority and the Chief Executive of the UK Office of Fair Trading) proposed, however, to refer to ‘multilateral effects’ rather than ‘unilateral effects’ so as not to give the impression that it concerns the effects arising from the conduct of a single company (the merged entity), but rather the conduct of a multitude of them, once the concentration has broken the pre-existing competitive balance, and until a new balance can be found. See Fingleton (2003) 181ff, who cites Vickers (2003). 2   See eg the declaration of Ilene Knable Gotts in Hawk (2003) 313. 3   See Horizontal Merger Guidelines 1992, US Department of Justice and Federal Trade Commission (1992) paras 2.1, 2.2 and Horizontal Merger Guidelines 2010, DOJ/FTC (2010), paras 6 and 7. The US DOJ started some time ago to revise the Guidelines with respect to the method of assessing and proving ‘coordinated effects’ in US merger control. Kolasky (2002) 1. 4   However, Whish (2000) 592 seems to use ‘unilateral effects’ exclusively to refer to individual dominant positions. On this point, see later in this section. 5   Ivaldi, Jullien, Rey, Seabright & Tirole (2003a) 4.

The Adoption of a New Substantive Test to Cover Unilateral Effects of Concentrations  201 According to the American authorities, undertakings in a concentration can see it as profitable to change their behaviour unilaterally as a consequence of the transaction and raise prices or lower production (‘unilateral effects’), or there is a greater probability that they can coordinate more successfully and completely their competitive behaviour as a consequence of the concentration (‘coordinated effects’). Coordinated competitive interaction refers to the actions of a group of undertakings that are profitable for each one of them only as a consequence of a similar reaction by other undertakings in the group (an oligopoly). Changes in market concentration are, then, capable of having indirect effects by changing the nature of the prevalent equilibrium in the market in question. A concentration between undertakings may lead oligopoly members to abandon their competitive (or noncooperative) behaviour. The term ‘coordinated effects’, as understood by the American authorities and most economists, refers precisely to the risk that a concentration will be followed by either express collusive behaviour (ie collusion in an economic and legal sense or collusion strictly speaking) or tacit collusive behaviour (collusion only in an economic, and not a legal, sense). If the market already shows signs of express or tacit collusion, the increase of concentration in an oligopolistic market can make the sustainable price level rise through such collusion. The effects of a concentration on the capacity to collude either expressly or tacitly, or on the success of a collusion, are called ‘coordinated effects’ because they are not derived from the unilateral incentives for the merged entity to adjust its behaviour to the new situation created after the concentration, but rather because a group of undertakings realises that it could be more profitable for all of them to come to an understanding instead of competing. As will be recalled, it was argued above that the probability that a merger will be followed by express collusion between oligopoly members is not a valid criterion for establishing an oligopolistic collective dominant position which must be avoided by prohibiting the concentration in question.6 As regards ‘tacit collusion’, as mentioned above, economists hold that it does not necessarily amount to a breach of Article 101, although it favours the establishment of an oligopolistic collective dominant position, which could breach Article 102.7 Competition would be threatened by ‘tacit collusion’ because oligopoly members would behave like a single undertaking in an individual dominant position.8 The ‘coordinated effects’ or their exacerbation would be necessarily and directly related to the creation or strengthening, and even the abuse, of an oligopolistic collective dominant position according to EU case law. It is generally accepted that where relatively homogeneous products are concerned, and sellers have little freedom to set prices, the main risk of concentrations between under­ takings is due to coordinated behaviour, that is, possible ‘coordinated effects’. On the other hand, where products are very differentiated, either due to their own characteristics (for 6   Preventing the occurrence of express collusion through merger control is like applying a bandage just in case you get injured; there are adequate means to resolve the problem, if it arises, and there is no guarantee that it will arise. Thus, given that a suitable – albeit ex post – instrument exists, ex ante solutions should not be used, even if they would be more effective in resolving ‘the problem’, simply because we do not know whether it will actually happen (although Kokkoris (2007) 423 says that it will). Certainly, the dividing line between tacit and non-tacit (but almost tacit) coordination is a battleground between free enterprise (which implies a limitation on public authorities’ powers to intervene, including in merger control) and competition policy, ie the defence of free, undistorted competition (which justifies the power to control the sale and purchase of companies by public authorities). 7   See section 9.3 below. 8   Ivaldi, Jullien, Rey, Seabright & Tirole (2003a) 4; Ivaldi, Jullien, Rey Seabright & Tirole (2003b) 3. For the meaning of ‘tacit collusion’ see section 8.3 above.

202  Oligopolistic Interdependence and Dominant Oligopolistic Position example, bus or air transport) or because they are well-known brands, the risks to competition arise above all from ‘unilateral effects’.9 ‘Unilateral effects’ refers to the risk that the merged entity following a concentration raises prices or reduces production due to the disappearance of competition. When a market is sufficiently concentrated, in order to profit more undertakings can exercise certain market power by adjusting individually to the new market conditions post-merger (so-called ‘unilateral market power’),10 according to some opinions, even when none of them can be considered to be individually dominant.11 A concentration can produce such effects due to the increase in the market power of the resulting entity, causing it to change its behaviour and to damage general economic well-being. The term ‘unilateral effects’ refers to the fact that the merged entity does not need to pay heed to its competitors’ behaviour to maximise its profit. Its optimum behaviour prior to the concentration has changed as a result of its greater market power (basically because of its bigger post-concentration market share) so that it can allow itself either to raise prices or to restrict production unilaterally. Although some might follow it, making individual adjustments, there are incentives for the merged entity to raise prices or reduce production regardless of whether it considers that others will follow it or not.12 However, possible reactions of rival undertakings to a unilateral price increase following a concentration must not be confused with ‘coordinated effects’,13 because ‘unilateral effects’ not only include the impact of a concentration, but also the ‘re-equilibrium effect’ resulting from other undertakings’ adjustments to the merged entity’s new decisions.14 The terminology used, always confusing with oligopolies, is particularly so as regards ‘unilateral effects’ and ‘coordinated effects’,15 although, as was mentioned above, the basic difference between the two lies in the exact way in which undertakings anticipate their competitors’ behaviour.16 9   See the 1999 Report of the National Economic Research Associates for the UK Office of Fair Trading in NERA (1999) 33ff. 10   See Levy in Organization for Economic Co-operation & Development (2010) 225. 11   Ivaldi, Jullien, Rey, Seabright & Tirole (2003a) 4; Ivaldi, Jullien, Rey, Seabright & Tirole (2003b) 3. 12   See NERA (1999) 33ff. According to Werden (2008) 97, ‘the merger of competitors has a unilateral anticompetitive effect if it causes the merged firm to adopt a less intensely competitive strategy while its non-merging rivals do not alter their strategies’. 13   See Bishop & Walker (2010) 390 para 7.049 fn 150; Kühn (2002) 41; and below. 14   See Ivaldi, Jullien, Rey, Seabright & Tirole (2003a) 7 fn 5, 22 and 38–39. 15   For a very different use of ‘unilateral’ to refer to the behaviour of non-competitive or tacitly coordinated oligopoly members, see Lopatka (1996) 906: ‘oligopolists, who under given market conditions act rationally and unilaterally to raise price by taking into account each other’s anticipated reactions, cannot sensibly be said to have “conspired”’; the US antitrust authorities in Organization for Economic Co-operation & Development (1999) 228: ‘Based on the reaction it expects from rivals, each firm unilaterally selects the price that maximises its own profits’; ‘Rational profit-maximizing behavior by oligopolists who merely take account of perceived inter­ dependencies should not be construed as collusion; there is no agreement of any rival, only informed unilateral action’ (emphasis in the original); and Christensen and Rabassa (2001) 228: ‘In this situation (tacit collusion) companies take decisions individually, unilaterally, independently and rationally . . . Consequently, ‘tacit collusion’ is not necessarily illegal. Often the term ‘tacit coordination’ is used instead in an attempt to avoid any negative connotations.’ 16   Ivaldi, Jullien, Rey Seabright & Tirole (2003a) 4. Bishop & Lofaro (2004) 206–07 explain that a unilateral price increase carried out by a merged entity after a concentration would cause increases in the prices of its competitors; these could be considered not coordinated effects, but rather unilateral effects prompted by each and every operator in the market (which is why Fingleton calls them ‘multilateral effects’ and the joint efforts of Vickers and Fingleton within the Council’s Working Group on Competition Policy succeeded in having them called ‘non-coordinated effects’ in the Guidelines on Horizontal Mergers). In such situations, ‘the increase in price above the pre-merger level is optimal for the merged entity’, regardless of what the other companies do.

The Adoption of a New Substantive Test to Cover Unilateral Effects of Concentrations  203 Generally speaking, ‘unilateral’ denotes the prevalence in an undertaking’s decisions of the aim to make more short-term profits than its competitors, almost always at their cost, than to obtain lower profits at the beginning, but higher and more secure profits in the long run, by coordinating their conduct. The ‘unilateral’ element is always present in all business decisions in all markets, although its effects are easier to perceive in concentrated markets.17 ‘Unilateral effects’ would therefore originate from the same market force that manages to lower the prices and increase production benefiting consumers and the economy, even within oligopolies.18 Therefore, the word ‘unilateral’ in the context of the effects of a concentration denotes the initiative of an undertaking whose success depends only on the undertaking itself. The adjective ‘coordinated’ refers to initiatives whose success depends on the other oligopoly members following such initiatives.19 Business decisions that lead to ‘unilateral effects’, as well as those that lead to ‘coordinated effects’, are ‘rational’ or ‘logical’ from the economic point of view (although some respond to an individual logic and others to a group logic), selfish (their goal is to increase profit)20 and even ‘independent’ (because their appearance is not the result of being individually subject to the common design of a group,21 although the US authorities and authors consider express collusion to come within ‘coordinated effects’). The clearest ‘unilateral effects’ are produced when the resulting entity obtains or strengthens an individual dominant position, but not only then.22 It is usually believed that ‘unilateral effects’ also appear in an oligopolistic market where none of the undertakings that are oligopoly members enjoy an individual dominant position.23   Kühn (2002) 41–43.   Baker (1993) 151, based on Stigler (1964): ‘the very market force by which competition assures low prices and high output to the benefit of consumers and the economy’. According to Baker, Stigler’s view led to it being accepted that it is far from inevitable that oligopolists behave ‘noncompetitively’. See also Harris & Veljanovski (2003) 217. 19   Remember that if the new structure resulting from a concentration enables one of the undertakings within a theoretical oligopoly model to raise prices or limit production without having regard to the others, the rest of the undertakings will be able to follow the undertaking that acted unilaterally first, having also their own unilateral reasons, which must not be confused with ‘coordinated effects’. 20   Companies pursue their own individual interests when both ‘unilateral effects’ and ‘coordinated effects’ are produced. In the latter case, oligopoly members recognise their common interest in ‘not harming each other’ as being in their own interest from the moment when, without coordination, all undertakings would lose out. 21   The adjective ‘independent’ could be contrasted with ‘collusive’ in the legal sense; it would denote the inexistence of a restrictive agreement on competition between undertakings. 22   According to Hofer & Williams (2005) 6, the Guidelines on Horizontal Mergers include individual dominant positions and ‘unilateral effects’ (with regard to the debate on the ‘gap’ in merger control’) as non-coordinated effects; these authors state that ‘the difference between traditional single-firm dominance and unilateral effects is only one of degree’). It is submitted, however, that there should be no difference of degree (implicitly, of market power) between the two concepts, as I will explain later on. However, Baxter & Dethmers (2005) 382 refer to Commission decision Singenta/Aduanta (2004) as an example of a case in which, in its analysis, the Commission distinguished between markets which produced individual dominant positions and those in which non-­ coordinated effects would be produced in oligopolistic markets. 23   There are essentially three basic types of ‘unilateral effects’: first, those derived from a concentration that leads to a monopoly (‘merger to monopoly’); second, those derived from a concentration creating or strengthening ‘paramount market position’; and third, those that in very particular circumstances result from a concentration in an oligopolistic market. See Lindsay, Fullerton & Matthews (2003) 2–4. Coppi & Walker (2004) 133 note that economists have applauded the adoption of the theory of unilateral effects, which ‘allows them to shortcut the traditional formal antitrust analysis and go to the core question: are prices likely to rise as a result of the merger?’ For this author, this same core question is also found in the traditional test for dominant position. The problem with this alleged shortcut is that very often the question cannot be answered using reliable quantitative tools. The economists’ magic solution is even less reliable than the ‘formal’ legal analysis, and is also more difficult to control. In this case, it is worth asking whether the cure is not worse than the disease. 17 18

204  Oligopolistic Interdependence and Dominant Oligopolistic Position ‘Unilateral effects’ actually appear on oligopolistic markets because the ties of inter­ dependence linking one oligopolist to other oligopoly members loosen, while ‘coordinated effects’ appear because the ties linking one oligopolist to other oligopoly members stretch. In other words, as Stigler would put it, ‘coordinated effects’ are ultimately based on the risk that other oligopolists take measures against those who do not respect the rules of the game. This threat does not come about when ‘unilateral effects’ are produced. ‘Unilateral effects’ in ‘non-[“tacitly”] collusive oligopolies’ are usually associated with the oligopoly models described by economists Antoine-Augustin Cournot,24 Heinrich von Stackelberg25 and, above all, Joseph Louis Bertrand.26 27 The models of those three economists are static, or, in game theory jargon, they suggest only ‘one-period games’ or ‘oneshot games’ where, by definition, ‘coordinated effects’ are not produced because ‘tacit collusion’ emerges not from a static equilibrium, but from dynamic interaction.28 As opposed to static oligopoly models, where competitive interaction is not produced over time, dynamic models are based on ‘games’ that are repeated indefinitely or ‘supergames’ where undertakings can learn from their past experiences.29 If game theory owes much to the work of John F Nash, modern oligopoly theory originates in the work of another Nobel prizewinner, George J Stigler, whose ‘tacit collusion’ model is especially relevant for the establishment of ‘coordinated effects’ following a concentration.30 ‘Unilateral effects’, therefore, arise from a change in the static equilibrium of a competitive oligopoly,31 while ‘coordinated effects’ arise from the creation or consolidation of a non-competitive equilibrium in a dynamic context. In any event, it is logical that there are many common elements in the competitive analysis of unilateral and coordinated effects,32 since in both cases what is examined is whether or not market power exists. 24   In the Cournot model, undertakings try to maximise their profits by fixing production, and treat as a given their rivals’ production output. Resulting prices are supracompetitive, but inferior to those of a monopoly and they depend directly but not proportionally on the number of undertakings in the market: if other variables remain the same, the higher the number of undertakings, the lower the prices. When the equilibrium price gets close to the competitive level, the number of undertakings tends to be infinite. 25   Unlike Cournot, in the Stackelberg model the market leader is the first to choose its production output, and then commits itself seriously to this. Other oligopoly members follow the leader and choose their production output on the basis of that of the leader. As in the Cournot model, concentrations (either between the leader and one of its ‘followers’, or between two ‘followers’) result in a reduction of the production output of the parties to the merger, followed by an increase in the production output of other oligopolists. 26   In the Bertrand model, undertakings compete as regards prices rather than production output and thus try to maximise their profits. Assuming that products are homogeneous and that each undertaking alone can supply the whole market (there are no capacity limits), the model predicts an equilibrium price which is the same as the marginal cost of production (eg fully competitive cost) even if there are only two firms in the market, provided that both are equally efficient. If one of them has lower costs, it will supply the whole market at a slightly lower price than the production cost of the less efficient undertaking. In this model, therefore, there is no correlation between price and the number of the undertakings in the market, as long as there are at least two. See Europe Economics (2001) 10–14 for the Cournot, Stackelberg and Bertrand oligopoly models. General oligopolistic competition models are also considered in the Draft Guidelines on Horizontal Mergers (European Commission (2003b)) paras 30–38. 27   See Kolasky (2002) 3–4. Opposing this association see Katz (2003), who points out that the US Merger Guidelines 1992 state that the same concentration can produce ‘unilateral’ as well as ‘coordinated’ effects. See Kloosterhuis (2001) 89–90, who implicitly takes the same view. 28   See Ivaldi, Jullien, Rey, Seabright & Tirole (2003a) 7. 29   For the relationship between classical oligopoly models and game theory, see Werden (2004) 722–25, who cites Vives (1999) ch 4. The Cournot model would be a direct application of the concept of non-cooperative oneshot equilibrium, in which firms compete with respect to the amounts offered. 30   See Kolasky (2002) 3–6. See section 8.3 above for Stigler’s description of oligopoly theory. 31   See the opinions of Illene Knable Gotts and John Fingleton in Hawk (2003) 315, 323, respectively. 32   Bishop & Lofaro (2004) 207.

The Adoption of a New Substantive Test to Cover Unilateral Effects of Concentrations  205 In practice it is not always easy to distinguish between ‘coordinated effects’ and ‘unilateral effects’ within oligopolies33. For example, on the one hand, if in a hypothetical situation the new market structure originating from a concentration were such as to let each and every oligopoly member raise prices or limit production without thinking of the others, in practice this situation would be difficult to distinguish from ‘tacit coordination’, typical of an oligo­ polistic collective dominant position. On the other hand, if the new structure allowed one of the members of a hypothetical oligopoly to raise prices or limit production regardless of the others, other oligopolists would be able to follow the undertaking that had first acted unilaterally for its own reasons, which would result in a situation that was also difficult to distinguish from the ‘coordinated effects’ typical of an oligopolistic collective dominant position.34 The disappearance of a maverick may also give rise to both coordinated and unilateral effects.35 In T-Mobile Austria/tele.ring (2006), despite the fact that from the outset the Commission investigated coordinated effects at the same time, the emphasis of the final decision was placed on unilateral effects due to the disappearance of tele.ring, which the Commission considered to be the maverick.36 Whatever the position, what seems to be quite clear is that ‘unilateral effects’ as much as ‘coordinated effects’ originate in the greater market power of certain undertakings,37 which in turn comes from a change in relevant market structure caused by a concentration between undertakings, as follows: Concentration → Change in relevant market structure → Increased market power of certain undertakings → Negative effects on competition parameters (price, production, quality, variety, etc)

Having said that, and bearing in mind that what distinguishes ‘coordinated effects’ from ‘unilateral effects’ is dependence on other undertakings as regards raising prices or limiting capacity, it should be asked whether the two are compatible; or – and this amounts to the same thing – if in a given market, and as a consequence of the same cause (a concentration between undertakings), ‘unilateral effects’ (at the beginning and within a standard dynamic equilibrium) can be produced as much as ‘coordinated effects’ (within a dynamic equilibrium of posterior interaction of a non-competitive nature). Economic theory usually considers that in the presence of ‘tacit coordination’ typical of an oligopolistic collective dominant position (that is, in the presence of ‘coordinated effects’) it is difficult to imagine ‘unilateral effects’ being produced, but the US authorities in their Horizontal Merger Guidelines 1992 and 2010 do not rule out a concentration producing both types of effects.38 33   See, for example, Commission decision Statoil Hydro/ ConocoPhillips (2008), in which both the reinforcement of the oligopolistic structure of the Norwegian market and the reinforcement of StatoilHydro’s position as the largest provider of motor fuels in Norway stemmed from the transaction, as originally notified. 34   An interesting example of ‘strange effects’ that are difficult to fit into one of these categories can be found in Commission decision Maersk/PONL (2005), which concerned a situation in which a company took control of an authorised cartel (a liner conference), which in turn controlled a market. 35   Guidelines on Horizontal Mergers (European Commission (2004a)) para 37. 36   Use of the term ‘maverick’ in the context of unilateral effects causes problems, since normally it is used to refer to coordinated effects: mavericks are competitors that do not wish to form part of the coordinated group, due to their business culture or for other reasons, and their existence makes it impossible for other firms to coordinate their actions. Despite this definition, references to the term ‘maverick’ are often found in the context of unilateral effects. 37   See, inter alia, Kühn (2002) 40. 38   See also Katz (2003) and Ivaldi, Jullien, Rey, Seabright & Tirole (2003a) 63 fn 58, who implicitly seem to support the compatibility of both types of effects, since they do not rule out the possibility of an initial static equilibrium being followed by a dynamic equilibrium. As Coppi & Walker (2004) 147 put it: ‘Indeed,

206  Oligopolistic Interdependence and Dominant Oligopolistic Position

9.1.2  Theoretical Insufficiency of the Test of Dominance to Prevent Unilateral Effects on Oligopolistic Markets (the First39 Oligopoly Blind Spot) It is commonly accepted that there are two circumstances in which a concentration can produce unilateral effects on markets characterised as ‘non-[tacitly] collusive’:40 41 •  First, when two or more close competitors concentrate in a market with differentiated products, provided that: (i) the products of the undertakings in the concentration are the closest possible substitutes; (ii) their nearest rivals’ products are not close substitutes; (iii) rivals cannot or do not want to relocate their products to compete with the merged entity after a concentration; and (iv) the concentration does not produce significant efficiencies that could give the merged entity an incentive to increase production and, as a result, lower prices. •  Secondly, when the undertakings that merge have, unlike their rivals, surplus production capacity regardless of their moderate market share, provided that there are barriers to entry or expansion. The merger would eliminate the principal source of competition and lead to a price increase. As mentioned above, the most common characterisation of ‘unilateral effects’, which is also that of the American authorities,42 states that even within an oligopolistic market these effects are produced after a concentration as a consequence of a new individual position of an undertaking, which, owing to its differentiated products43 or to the limitations on competitors expanding their production capacity, is capable of acting with the independence typical of a dominant operator.44 That said, in practice the Commission considers that the market power threshold required to identify unilateral effects could be lower than the threshold for determining the existence of a dominant position. The

3-to-2 mergers leading to a market leader have traditionally tended to be challenged on the basis of collective dominance rather than on the basis of single-firm dominance. . . . The traditional view of the European Commission is that single-firm dominance and collective dominance are mutually exclusive effects. This is not the case of the US agencies, which often argue the likelihood of both effects when preparing to litigate a case’. 39   There are numerous and very different theories about the number and type of ‘blind spots’ or ‘gaps’ in EU competition law. For example, Coate (2009) states that under the previous regime (until 2004) there were not less than four, although he describes them as ‘immaterial’. Kokkoris (2009b) also contends that other ‘gaps’ in addition to those examined here also exist (see also section 9.2 below). 40   This is a summary of the position of Lindsay, Fullerton & Matthews (2003). 41   As stated, a third situation in which it has been said that unilateral effects could be produced is the disappearance of a maverick firm (see statements of Ilene Knable Gotts in Hawk (2003) 323), although this circumstance is more commonly considered as a factor favouring tacit coordination, ie a possible ‘coordinated effects’ detonator. See, inter alia, Kolasky (2002) 6ff, who defines ‘maverick firm’ as one that ‘declines to follow the industry consensus and thereby constrains effective coordination’. 42  See the Horizontal Merger Guidelines 1992, US Department of Justice and Federal Trade Commission (1992) para 2.2, and the Horizontal Merger Guidelines 2010, DOJ/FTC (2010), para 6. 43   As noted by Röller & de la Mano (2006) 9, ‘[e]very seller of a differentiated product almost certainly has some market power’. 44   According to Motta (2004) 233, unilateral effects are not equivalent to the existence of an individual dominant position. In my opinion, however, this is open to doubt: if ‘dominant position’ is adequately defined as the capacity to increase prices by 5–10% above the competitive level, the two will be the same, even where a market leader exists. See below.

The Adoption of a New Substantive Test to Cover Unilateral Effects of Concentrations  207 concept of unilateral effects would allow it to intervene in the absence of an individual dominant position.45 In any event, regardless of whether the market is oligopolistic, ‘unilateral effects’ do seem to come about as a consequence of the greater market power of one undertaking, while ‘coordinated effects’ originate from a change in relations between oligopoly members, which leads them to act as though they are a ‘collective entity’. In the latter case, each oligopoly member lacks individual market power, although the market structure induces them to have collective market power. Unlike the situation where ‘unilateral effects’ occur within an oligopoly, undertakings cannot individually raise prices or limit production, but rather depend on others to do it. Through close observation of situations where unilateral effects are produced, therefore, we find an individual rather than a collective dominant position.46 Once it has been ruled out that ‘unilateral effects’ in oligopolies can be derived from a collective dominant position,47 it is necessary to investigate whether these effects are in fact typical features of an individual dominant position, or whether, it being about something different which the dominance test cannot deal with, it was necessary to extend the then existing EU dominance test or adopt a new and different one, similar to the SLC test, which appears to be more flexible and wider in scope. The first problem with characterising ‘unilateral effects’ within oligopolies as typical of individual dominant positions lies in the fact that undertakings that can act unilaterally may not always be, at least in appearance, the most powerful.48 Other undertakings may hold similar or even higher market shares.49 The second problem is this: the fact that ‘unilateral effects’ (a price increase, a production limitation) occur straight after a concentration does not mean that they can occur again later, precisely because of the competitive pressure of other ‘non-cooperative’ oligopolists. If it were accepted that the independent behaviour typical of an individual dominant position always had to be lasting, then the occasional independence that would allow an undertaking to provoke ‘unilateral effects’ straight after a concentration in a ‘non-­ cooperative’ oligopoly may not be enough to attribute to that undertaking an individual dominant position strictly speaking. However, these objections can be at least partially overcome. 45   See Baxter & Dethmers (2005) 383–84, for whom the Commission has obtained ‘significant and almost unlimited scope for intervention below the level of single dominance’. In support of this contention, they cite Siemens/Drägerwerk/JV (2003), Syngenta/Advanta (2004) and Oracle/PeopleSoft (2004). According to these authors (386–87), in general intervention takes place in 3-to-2 cases even without a collective dominant position, as well as when a close competitor is eliminated from a differentiated product market. In homogenous product markets, the individual dominant position is the equivalent of unilateral effects and intervention is less likely, although it is not impossible. 46   See Nicholson (2002) 7–8. Against: Fingleton (2003) 191ff. 47   Although it is difficult to imagine that ‘unilateral effects’ are produced in the presence of the ‘tacit coordination’ typical of an oligopolistic collective dominant position, the US Merger Guidelines 1992 do not exclude the possibility that a concentration produces both types of effects, as was just explained. See Katz (2003). The same applies to the US Horizontal Merger Guidelines 2010. 48   For Coppi & Walker (2004) 123, 133, ‘[t]he unilateral effects gap goes to the heart of the difference between the market power and dominance concepts at the basis of the analysis of the two jurisdictions: there can be several firms with market power who can unilaterally raise prices after a merger, while there can only be one single-firm dominant firm according to the European Commission’. 49   According to Ivaldi, Jullien, Rey, Seabright & Tirole (2003b) 55, an individually dominant company must have a larger market share than its rivals. See the first draft of the new European Regulation on the control of concentrations (European Commission (2003a)) paras 53–54.

208  Oligopolistic Interdependence and Dominant Oligopolistic Position First, the strange and atypical individual dominant position of one undertaking compared to other more powerful undertakings may only be apparent. In the first place, nobody, not even the General Court, questions the notion that the concept of dominant position is a legal version of the economic concept of ‘significant market power’, and it seems to be perfectly possible that an undertaking which is not the biggest in the market enjoys this power.50 Secondly, since the products are differentiated, the market could have been defined inappropriately. If a merged entity, which in theory competes with other undertakings in the same market and appears to have less power than its competitors, can successfully raise prices or limit production unilaterally following a concentration, this is perhaps because the substitutability of its products or services and those of the competition is partial and limited (as much as they can form totally or partially different product markets, in each of which it is possible to establish an individual dominant position). The model where differentiated products compete as part of ‘monopolistic competition’ (competition between differentiated ‘product monopolies’) describes well many markets in the real world where a few undertakings sell products whose substitutability is limited or very limited.51 If markets were defined strictly, various interconnected product markets could be distinguished where each undertaking enjoyed an individual dominant position and even a monopoly. The competition would appear in overlapping areas between adjoining markets.52 The fact that the probability that a concentration leads to the creation or strengthening of an oligopolistic collective dominant position is lower in markets with differentiated products seems to corroborate this conclusion. ‘Tacit coordination’ is indeed more difficult in this type of market.53 On this basis, the fundamental question is therefore whether products are in the same or different markets, and the method of assessing this. Ideally, the definition of a homogeneous product market implies total substitutability between products forming part of it. However, substitutability between products is often precarious and the effect of the price of a product over the prices of other products is limited. When defining the product market in these cases, there are two options. The simpler option is to assume that a market should always be totally homogeneous so that, once defined, all products in it are totally substitutable for each other (although they might not be entirely so). In this black and white situation, either one is or is not in the same market. There is no middle ground. If one is in the market, perfect substitutability is presumed in all cases. The second and more complicated option is to include in the market definition qualifications related to the level of substitutability between products that are only partially substitutable between themselves so that although they might be included in the same 50   See Kühn (2002) 48; Montag & Von Bonin (2003) 333. Röller & de la Mano (2006) 15 contend that ‘if dominance is properly understood as significant market power, then there is no reason for market leadership to be necessary for dominance’. Etro (2006) section 3 distinguishes dominant position from market leadership, to argue, for example, that while Microsoft may be a market leader, it is not dominant. Personally, I agree with the distinction between leadership and dominant position but, like Röller and de la Mano, I take the view that a non-leader may be ‘dominant’ in the short term, even in the presence of ‘other dominant firms’, if dominant position is equated with significant market power and the latter with the power to increase prices substantially above the competitive level. Against, see, inter alia, RBB Economics (2006) 24; Ivaldi, Jullien, Rey, Seabright & Tirole (2003b) 55; Verouden, Bengtsson & Albaek (2004) 253–54; or Völcker (2004) 396, 4. 51   See Bishop & Walker (2010) 84–85. 52   See ibid, 84–85, table 3.8. 53   See ibid, 400 para 7.061 fn 49.

The Adoption of a New Substantive Test to Cover Unilateral Effects of Concentrations  209 product market, the assessment of the market power of the undertaking or undertakings in question should be carried out with these qualifications in mind.54 With this type of market definition, the level of substitutability between products that are theoretically within the same market can be so limited as to allow one of the undertakings to produce ‘unilateral effects’, with price rises equal to or higher than those of the SSNIP test (5–10 per cent price increase)55 without the risk of losing sales to other products in the same market, which would lead to a different product market being defined using the first approach. Unilateral price increases decided by the other undertakings in the theoretical oligopoly following the first one to apply them would not invalidate this conclusion, from the moment that competitive pressures (or depressions) are continuously felt, although less intensely, on neighbouring product markets. As regards the battle against ‘unilateral effects’ in ‘non-[tacitly] collusive’ oligopolistic markets, the first approach therefore appears preferable. The method of defining narrow markets works especially well ex post. Supposing that the prevailing price level in a market is competitive (in order to avoid the ‘cellophane fallacy’), from the moment the operator under examination significantly and permanently increases prices (SSNIP56) it should be assumed that it has significant market power – ie, that it is in a dominant position. This method is legitimate and not unknown in EU case law, where in apparently oligopolistic markets Article 102 TFEU has been easier to apply, establishing that each undertaking was actually individually dominant in a particular market, strictly defined geographically and according to the product.57 In all these cases, the question whether an oligopoly existed was avoided by defining the market in a very narrow way, so that undertakings were easily condemned for abuse of a single dominant position.58 Ex ante and without behaviour on which to base the conclusion that market power exists (ie without an effective price increase) it can be more difficult – although not impossible – to segment the market credibly so that the operator that will raise prices can be considered to hold a future individual dominant position.

  Ivaldi, Jullien, Rey, Seabright & Tirole (2003b) 9 seem to assume that this is the most common practice.   See section 1.1 above.   See section 1.3 above. 57  See Commission decision Magill/TV Guide (1988), where different product markets were defined in respect of information about Irish TV channels’ programmes, and Commission decisions Soda Ash/Solvay (1991) and Soda Ash/ICI (1991), where different geographical markets in continental Europe, Great Britain and Ireland were defined. The Soda Ash decisions are similar to CEWAL (1992) with regard to the breach of Art 102 by members of this and two other conferences (COWAC and UKWAL) who had shared out the market and carried out what Kantzenbach, Kottmann & Krüger (1995) call ‘area collusion’. Express collusion (Soda Ash and CEWAL) or ‘tacit collusion’ (the theory of which is described by Kantzenbach, Kottmann & Krüger (1995)) as regards geographical implantation leads to the establishment of territorial monopolies separated in geographical areas potentially belonging to the same market. In Soda Ash and CEWAL, there were breaches of both Arts 101 and 102 TFEU. According to the theory posited by Kantzenbach, Kottmann & Krüger (1995) (‘tacit coordination’ or ‘tacit collusion’ in the economic sense), there would be no breach of Art 101 and it would be only possible to act in each separate case of abuse of an individual dominant position under Art 102. This provision could also be used (although with a lot of difficulty) against abuse of an oligopolistic collective dominant position based on an area, where for the purpose of the establishment of a dominant position the geographical market is wider, but it does not function as a unit due to the said coordination. In such a situation the abuse should be established separately in each case, and in principle above the ‘tacit area coordination’ threshold (which would serve to establish a collective dominant position) depending on the individual use of the oligopolists’ market power in their geographical zone. The results of analysing the same facts from these two points of view should not be different. 58   According to Whish & Sufrin (1993) 66, 68–69 this is a dangerous approach. 54 55 56

210  Oligopolistic Interdependence and Dominant Oligopolistic Position Regardless of these difficulties, in respect of differentiated products, most authors consider that ‘unilateral effects’ could have been prevented by using the existent dominance test, which defines the product market strictly.59 On the other hand, the possible criticism that ‘unilateral effects’ would show at most the existence of an instantaneous dominant position or ‘one-shot dominance’ could be met, first by stating that even if it were admitted that the effects typical of a dominant position must always be lasting, they certainly are in this case, although they cannot be repeated (although the undertaking or undertakings that have increased prices or limited production cannot do this again when they want, the effects of their actions remain);60 and secondly, and perhaps more importantly in the area of principles, that a short-term individual dominant position should not be seen as an irrelevance for competition policy.61 A totally different issue is that in order to establish an oligopolistic collective dominant position the oligopoly in question must be stably non-competitive,62 because without stability (durability) oligopolists would not be able to enjoy a collective position. As a consequence, ‘unilateral effects’ in the first of the two hypothetical situations of a ‘non-cooperative’ oligopoly identified by economists seem to flow from an individual 59   See Bishop & Walker (2010) 356ff, para 7. 010ff; Ilene Knable Gotts’ opinions in Hawk (2003) 314; or Heimler (2008) 89, 94, who takes a similar position: ‘If dominance is defined as it should be, as the ability to raise prices substantially above the pre-merger level [fn12: citing Roller & de la Mano (2006)], the gap would have been eliminated without the need of changing the legal test’; ‘the notice on the relevant market had implicitly led to a definition of dominance based on the ability to increase prices above the existing level . . . No change was necessary for unilateral effects, not even additions. All that was needed was a good case and good argument.’ See also the declarations of the same author in Organization for Economic Co-operation and Development (2010) 246–47. Levy (2003) 162 proposes this method, among others, in order to bring ‘unilateral effects’ within the concept of ‘non-collusive’ oligopolies without changing the EU merger control test. Levy suggests solutions to the theoretical problem of the insufficiency of the dominance test on the basis of the ‘Baby food’ case in the US, FTC v HJ Heinz & Co, DC Circuit Docket No 00-5362 (decided 27 April 2002). The case concerned a concentration involving the second and the third largest operators in the US baby food market, which had market shares of 17% and 15% respectively, compared to the market leader’s 65%. According to Levy, not even here would the SCL test be necessary to cover ‘unilateral effects’. He suggested three solutions: (i) establish an oligopolistic collective dominant position (this was the Federal Trade Commission’s first line of attack); (ii) define the market more precisely (that the merger resulting from the concentration between the second and the third operator can increase prices by 5–10% is an unmistakable sign of the market power of the merged entity if the product market is defined correctly); and (iii) establish that the concentration strengthens or reinforces the individual or collective dominant position of one or more third parties (in this case, the market leader) following the example of Commission decisions Exxon/Mobil (1999), Grupo Villar Mir/EnBW/Hidroeléctrica del Cantábrico (2001) and EnBW/EDP/Cajastur/ Hidrocantábrico (2002). (In an identical manner, see Drauz & Jones (2006) para 4.35.) Levy therefore considered that the amendment of Art 2(2) of Reg 4064/89 could be useful in relation to operations that give rise to unilateral effects without going as far as to attribute a dominant position and that take place in markets that are not conducive to tacit collusion. Despite the fact that, as already explained, there are alternative ways of analysing such operations, the adoption of a new test would bring an end to the uncertainty surrounding this alternative manner of proceeding and would have the virtue of conferring on the Commission express powers to examine in detail this type of transaction. See Levy in Organization for Economic Co-operation & Development (2010) 236 and the declarations of that same author in Organization for Economic Co-operation and Development (2010) 251, where he states that the most worrying feature of the old test was perhaps that it was not clear that the EU Courts would support an interpretation that included unilateral effects in non-collusive oligopolies. 60   Art 2(2) of the first draft Regulation on the control of concentrations (European Commission (2003a)) talked about ‘economic power to influence appreciably and sustainably’ referring to ‘unilateral effects’ as much as to coordinated effects. 61   In previous chapters, the idea that a short-lived dominant position should not be considered to be a dominant position at all was criticised, inter alia because the rules make no reference to this (Art 102 does not only punish abuses of a lasting dominant position, while Art 2(2) and (3) of Reg 4064/89 did not refer to ‘creating or strengthening in a lasting way a dominant position’, nor does Art 2 of Reg 139/2004) and there would be a problem determining how long a dominant position must last in order to be considered as such. See section 3.1 above. 62   See GC Airtours (2002) para 61.

The Adoption of a New Substantive Test to Cover Unilateral Effects of Concentrations  211 dominant position, and could reasonably be considered to come within the dominance test under Article 2 of Regulation 4064/89.63 The more difficult hypothesis to fit into the dominance test was the second one, where a merged entity would confront one or more much bigger competitors which, despite their size, would have serious difficulties increasing production, being unable to handle a significant number of orders which the merged entity’s client might want to divert to them in the event that the merged entity decided to raise prices. In short, if two smaller competitors with surplus capacity merge, and a bigger competitor or competitors is unable to limit the market power of the merged entity, the result would be damage to competition, but perhaps not the creation of a dominant position capable of being prohibited by EU merger control. There are two solutions to this situation – which might be just a theoretical, but not impossible, hypothesis. The first involves concluding that an individual dominant position exists. The dis­ appearance of mutual competitive pressure stemming from excess individual production capacity would give the merged entity the independence typical of an operator in a dominant position, although its market share would be less than those of other operators that were finding it difficult to increase their production capacity. Before a concentration, these seemingly more significant operators would be unable to increase prices by reducing production (due to the fact that operators with available capacity would seize the opportunity to increase their market share) and therefore they could not be considered dominant. Nevertheless, once the price level rose, the most significant operators would benefit from this increase in proportion to their share, and would do so more than the merged entity (it would be like manna from heaven for them).64 As a consequence, in the same way that ‘coordinated effects’ would result from oligopolistic collective dominant positions, all ‘unilateral effects’ in oligopolies (those produced on differentiated product markets and those produced on limited capacity markets) would originate from individual dominant positions and could be prevented using the dominance test.65 The second solution involves widening the scope of the EU merger control test in order to prevent the creation of ‘independent’ market power, but not dominant in the traditional sense, as a result of the paralysis of the apparently more dominant operator or operators. The widened test would allow the Commission to prohibit a concentration where the most significant operator or operators were not capable, at a given moment, of causing a price decrease due to a lack of capacity to increase production when faced with a limitation on production by a smaller merged entity that had surplus capacity. This was the solution the Commission chose in its first draft of the new Merger Regulation, but without limiting it exclusively to ‘unilateral effects’ on oligopolistic markets with production capacity limitations. 63   In this regard, see also Montag & Von Bonin (2003) 333; Heimler (2008) 85ff. According to Drauz & Jones (2006) para 4.51, ‘in terms of competitive outcomes (eg the expected level of price increase, or reductions of output), non-coordinated effects resulting either from a situation of single dominance or from a situation of noncollusive oligopoly, are comparable. In other words, the latter situation is not less damaging than the former.’ 64   A possible objection to this solution is that the price level in the market could be supracompetitive prior to the merger (‘cellophane fallacy’), so that an operator or operators without surplus production capacity would actually find themselves in a dominant position, but would not be able to exploit it fully. The concentration would indirectly give them this opportunity, strengthening their dominant position (as in Commission decisions Grupo Villar Mir/EnBW/Hidroeléctrica del Cantábrico (2002) and EnBW/EDP/Cajastur/Hidrocantábrico (2002)), but would not place in a dominant position those who triggered the capacity limitation and price increase. 65   Similarly, see Kühn (2002) 51.

212  Oligopolistic Interdependence and Dominant Oligopolistic Position

9.1.3  Reform of the Substantive Test to Establish ‘Unilateral Effects’ in Oligopolies: The ‘Significant Impediment to Effective Competition’ Test As we have seen, ‘unilateral effects’ were for some commentators the most difficult to deal with in the field of EU merger control. Given that the EU system basically wanted to impede the creation or strengthening of individual of collective dominant positions, and that these effects could not be considered to flow from either an individual or a collective dominant position, these authors insisted that there was a ‘blind spot’ in the EU control of concentrations.66 The judgment of the GC in Airtours (2002) was cited in support of this theory, which some authors saw as ruling out the possibility that pure ‘unilateral effects’ within a ‘noncooperative’ or ‘non-[“tacitly”] collusive’ oligopoly could be tackled under Article 2 of the old Merger Regulation.67 In Airtours (1999) the Commission did indeed use new language, and instead of defining the ‘collective position’ of undertakings according to the adoption of a common policy in the market (the usual ‘test’) it seemed to use a different ‘test’, based on the rational and individual adaption of such a policy to market conditions.68 It was therefore said that the Commission could have intended to widen the concept of collective dominant position ‘by looking at the rational unilateral behaviour of individual entities rather than their tacit coordination’.69 Although it is not clear whether the Commission wanted to broaden the notion of collective dominant position, or whether the wording led to a misunderstanding,70 in Airtours (2002) the GC seemed to rule out the possibility that ‘unilateral effects’ in oligopolies could be dealt with by applying the dominance test. Whatever the position, and regardless of the very significant changes in the concept of dominant position in the years prior to Airtours essentially to cover the needs of the control of concentrations in the area of ‘[tacitly] 66   See Fingleton (2003) 91ff; Motta (2000), cited in Christensen and Rabassa (2001) 229 and Frontier Economics (2002) 4; Röller & de la Mano (2006) 1; Werden (2008) 96. Against: González Díaz (2004) 312–13, who takes the view that there is no such thing as a blind spot and that ‘[t]herefore, both the unilateral exercise of market power by oligopolists, as well as the latter’s tacit coordination, could support a finding of dominance under the ECMCR’. For Walker (2004) 3–5, the alleged blind spot could be avoided by defining the market correctly. Other authors who have argued against the existence of the gap include Ehlermann, Völcker & Gutermuth (2005) and Verouden, Bengtsson & Albaek (2004) 257. 67  See Frontier Economics (2002) 4; Nicholson (2002) 7–8; Nicholson & Cardell (2002); Oxera cited in Fingleton (2003) 189; and, in a fairly similar sense, Stroux (2002) 744. Against: Nikpay & Houwen (2003) 200ff, who cite testimony along the same lines as former Commissioner Mario Monti, and Götz Drauz, at the time Director of the Merger Task Force (MTF) of the Directorate General for Competition (DG COMP). See contributions of Götz Drauz, Paul Malric-Smith and Enrique González Díaz in Antitrust Source (2002) 6–7, 11. For his part, in Hawk (2003) 307, Philip Lowe, Director General of DG COMP, asserted that both the Commission and the GC had dealt with the question of ‘tacit coordination’, but they had not dealt expressly with the question of ‘unilateral effects’. For a point of view between these two extremes, see Kühn (2002) 52ff, who argued that Airtours made it clear that the concept of collective dominant position only covers the ‘coordinated effects’ of concentrations, although he admitted that the dominance test would be sufficient to cover ‘unilateral effects’, if the concept of an individual dominant position related to the notion of market power is developed. 68   In Commission decision Airtours (1999) para 54, the Commission argued that to establish an oligopolistic collective dominant position it was sufficient that oligopolists had incentives to ‘act – individually – in ways which substantially reduce competition between them’. 69   Whish (2000) 604–05. In a similar sense, see Briones (2009) 1. According to Kühn (2002) 50, the Commission would have wanted to ‘catch’ the ‘unilateral effects’ of concentrations by expanding the notion of collective dominant position, but without formally changing the standard of an individual dominant position, thus enabling it to increase the number of concentrations suspected of allowing price increases and, in practice, to block operations where the merger would have a market share of less than 30%, as in EMI/Time Warner (2000). 70   See Whish (2000) 604–05; Whish (2008) 852–53.

The Adoption of a New Substantive Test to Cover Unilateral Effects of Concentrations  213 collusive oligopolies’, ever since then there has been even more doubt as to whether the dominance test could cover all ‘unilateral effects’ without stretching the point too much. To fill this gap, some Member States’ national competition defence authorities, as well as some academics, proposed that the EU should adopt the substantive test preferred in the English-speaking world, where concentrations between undertakings that ‘substantially lessen competition’ (SLC) are prohibited. From the point of view of competition policy, switching to the SLC test meant recognising that oligopoly situations existed where undertakings would compete less vigorously after a concentration, without the need for tacit coordination. This could happen, for example, where the number of operators on a market is reduced from four to three or in those cases where the operation results in the disappearance of a maverick.71 In these circumstances, the dominance test might not cover concentrations that substantially reduce competition but do not make ‘tacit coordination’ likely, or do not create an individual dominant position.72 The Commission did not turn a blind eye to this controversy; quite the contrary. Although it denied that in Airtours/First Choice (1999) it had tried to broaden the notion of collective dominant position to include ‘unilateral effects’ within ‘non-coordinated’ oligopolies,73 and that the interpretation of the GC in Airtours (2002) was correct,74 the Commission in principle proposed to broaden the concept of dominant position, but this time through a specific amendment of the substantive test used in the control of 71   Fingleton (2003) 349–50 makes reference to the UK Lloyds/Abbey National case, in which the market leader in the British banking market with a 22% market share merged with a maverick with only a 5% share and where four other banks had 72% of the market. In the absence of a risk of the creation of an individual dominant position or of coordinated effects due to the ‘inertia of consumers’, for Fingleton an operation of this nature could not have been prohibited using the test of dominance. In any event, it is difficult to observe in this case any damage to competition in the form of unilateral effects. In addition, by covering the alleged ‘gap’ in this way there is a risk of a lack of specific detail, since in any concentration, by definition, a competitor disappears, and it is not clear in what cases this will be a determining factor. There will only be a problem if the transaction results in a ‘one-shot’ price increase of more than 5–10%, and in such a case each and every one of the oligopolists must be defined as holding an individual dominant position. Another example can be found in Commission decision Oracle/PeopleSoft (2004), which constitutes an example of ‘modern’ analysis (non-coordinated/coordinated effects) using the old test. At para 187 the Commission stated that Oracle contended that the Commission did not have jurisdiction to deal with non-coordinated effects under Regulation 4064/89, although it was not necessary to examine this issue because in the light of the evidence the Commission had reached the conclusion that they did not exist. According to Kokkoris (2009a), Sony/BMG (2004) is another case in which non-coordinated effects were produced and the Commission did not prohibit the merger because the new test was not then available. After the new test came into force, the Commission may have been faced with one of these cases for the first time in T-Mobile Austria/tele.ring (2006). 72   Vickers (2003) 102 states: ‘There are many oligopolistic circumstances in which, post-merger, firms would simply compete substantially less vigorously, without necessarily co-ordinating tacitly. (For example, it is easy to imagine hypothetical but realistic four-to-three mergers of this type.) . . . [T]here would be a risk that the dominance test might not capture mergers that substantially lessen competition but without making tacit coordination likely (or creating single-firm dominance).’ 73   See Christensen & Rabassa (2001) 227ff. 74   According to the Draft Guidelines on Horizontal Mergers (European Commission (2003c)), ‘[i]t should also be noted that the Court of Justice has not explicitly ruled on, and therefore not explicitly excluded, the possibility of addressing the effect of mergers in (non-collusive) oligopolies with no single firm being significantly larger than the others under the current dominance test’. As can be seen, the Commission used the expression ‘non-­ collusive oligopolies’ (instead of ‘non-tacitly collusive’; see paras 25–39) and at the same time talked about oligopolies where the undertakings ‘coordinate’ (see paras 40–69) without defining the relation between those terms (see Black (2003) 408, who confirms that for the Commission at least, some coordinations are not collusions). Moreover, citing ECJ Kali & Salz (1998) para 170, the Commission recalled that ‘[i]n the past, the Court has shown a willingness to adopt a teleological interpretation of the notion of dominance in order not to deprive it of its effet utile’. Verouden, Bengtsson & Albaek (2004) 257 point to the ECJ favouring a purposive interpretation of the rules to deny the existence of the gap. See also the first draft of the new Merger Regulation (European Commission (2003a)) para 54 and fn 17.

214  Oligopolistic Interdependence and Dominant Oligopolistic Position concentrations.75 The test would be extended to cover those situations that, whether or not they came within the classic parameters of a dominant position, were open to doubt, and would be made partially independent of the classic test of dominance (including the GC’s minor adjustments as regards the alleged second part of the test) while waiting for the EU Courts’ pronouncement on the new ad hoc type of dominant position proposed by the Commission in order to prevent a setback by the courts.76 The Commission did not choose to define explicitly ‘unilateral effects’ within ‘non-­ cooperative’ oligopolies as characteristic of an individual dominant position77 or of an oligopolistic collective dominant position;78 rather it seemed to consider them as a third type of a dominant position, different from either individual or collective dominance,79 which for some was excessive and unnecessary.80 In the first draft of the new Merger Regulation, the Commission was careful to include a recital and a new Article 2 to clarify that the new test it proposed (which remained a dominance test, although extended) also covered certain ‘specific oligopoly situations’, clearly referring to ‘unilateral effects’ in these market types.81 75   Heimler (2008) 90, fn 14 argues that the real reason for the change of test was the three defeats suffered by the Commission before the GC (Airtours, Schneider and Tetra Laval). This had nothing to do with the breadth of the test; as he puts it, ‘the change in the test was a good communications device for the Commission in front of public opinion’. 76   In the Draft Guidelines on Horizontal Mergers (European Commission (2003b)) para 11, the Commission suggested distinguishing, for the purpose of EU merger control, between three types of dominant position and left open the possibility that other unspecified types existed. At letter (a), a dominant individual position was described using an adjective different from ‘dominant’ (in particular ‘paramount’) with the likely (albeit in this case not very commendable) intention of avoiding referring to what is described by its name within the description. (The use of a new and different adjective or expression to describe a particular type of dominant position – the individual one – could cause confusion about whether this adjective referred to a level of market power that was more or less than – or different from – that usually attributed to dominant position as commonly understood; according to Verouden, Bengtsson & Albaek (2004) 264, ‘paramount position’ and ‘individual dominant position’ were equivalent concepts.) Letter (b) included a situation where ‘unilateral effects’ are produced within an oligopolistic market. Finally, letter (c) referred to oligopolistic collective dominant position and to the ‘coordinated effects’ of a concentration. 77   According to Fingleton (2003) 183, ‘unilateral market power’ would be less than that usually associated with the US term ‘monopolization’ and the EU term ‘dominant position’. For the view that this market power should be tackled by competition laws, see Tor (2010). 78   If it had done so, as seemed likely at one point, it would have gone too far. See Fingleton (2003) 189, who refers to the Notice on access agreements in the telecommunications sector (European Commission (1998b)) para 79. 79   This is probably the way to interpret the opinions of Götz Drauz, then director of the Merger Task Force (MTF) of the DG COMP of the European Commission, in Antitrust Source (2002) 10, who said: ‘I am not sure that the only avenues for the test we have at the moment are to identify single or collective dominance.’ 80   See Kühn (2002) 51; Bishop & Ridyard (2003) 358. 81   Recital 21 of the first Draft Regulation provided: ‘The notion of dominance within the meaning of this Regulation should, therefore, encompass situations in which, because of the oligopolistic structure of the relevant market and the resulting interdependence of the various undertakings active on that market, one or more undertakings would hold the economic power to influence appreciably and sustainably the parameters of competition, in particular, prices, production, quality of output, distribution or innovation, even without coordination by the members of the oligopoly.’ (Emphasis added.) Article 2(2) of the Draft stated as follows: ‘For the purpose of this Regulation, one or more undertakings shall be deemed to be in a dominant position if, with or without coordinating, they hold the economic power to influence appreciably and sustainably the parameters of competition, in particular, prices, production, quality of output, distribution or innovation, or appreciably to foreclose competition.’ (Emphasis added.) The Commission, however, in a display of prudence bordering on lack of self-confidence, specified that including within the concept of dominant position situations where ‘unilateral effects’ are produced in an oligopoly did not aim to link ‘the definition of dominance under the Merger Regulation to any future interpretations given by the ECJ to the concept of dominance under Article 82 of the Treaty [now Art 102 TFEU]’. See first draft of new Council Regulation on the control of concentrations between undertakings (European Commission (2003a)) para 57. As for the origins of this provision, see the interesting declarations of Philip Lowe, Director General of DG COMP, in Hawk (2003) 322.

The Adoption of a New Substantive Test to Cover Unilateral Effects of Concentrations  215 If the Merger Regulation had been adopted in the form first proposed by the Commission, its Article 2(2) would have allowed ‘unilateral effects’ to be considered as evidence of an ad hoc dominant position for the control of concentrations.82 The Council finally chose a simpler solution. Under Article 2(2) and (3) of Regulation 139/2004: 2.  A concentration which would not significantly impede effective competition in the common market or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position, shall be declared compatible with the common market. 3.  A concentration which would significantly impede effective competition, in the common market or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position, shall be declared incompatible with the common market.

As can be seen, in the final version of Article 2 of Regulation 139/2004 the Commission and the Council appeared to succumb to the charms of the SLC test,83 using words taken from the second limb of the old test (which talked about ‘significant impediment to effective competition’ (SIEC) in addition to dominant position) and treating the creation or strengthening of a dominant position as a particular case of ‘significant impediment to effective competition’,84 which probably leaves open the possibility of interpreting from scratch where the ‘impediment’ does not arise as a result of the creation or strengthening of an individual or dominant position, or from ‘unilateral effects’ in oligopolistic markets, which are the only two examples of ‘impediment’ referred to in the Regulation. The advantage of using the term ‘impediment’ instead of ‘lessening’, as in the US test, is that basically it does not change the absolute point of view of EU merger control, which is based on the existence of pre-established thresholds of market power, which if reached allows a concentration to be prohibited. Although it may in practice lead to very similar results, the SLC test takes in principle a relative point of view and takes into account the intensity of the predictable worsening of competitive conditions on a market, independently of the market power that the merged entity may have.85 82   cf Kühn (2002) 51, who, with respect to Art 2(2) of the draft Council Regulation on concentrations, argued that if a dominance position standard were established ad hoc (aiming at covering the ‘unilateral effects’ of concentrations), it would end up being converted into a new individual dominant position test. Criticising this possibility, see Bishop & Ridyard (2003) 358–59, who considered that the Commission would have at its disposal an excessively broad power to prohibit concentrations if this new dominant position standard were adopted and that the alleged ‘blind spot’ in European merger control had been exaggerated. 83   See, inter alia, O’Donoghue & Padilla (2006) 169 and Heimler (2008) 86, fn 4, who equate the SIEC test with that of SLC. See also Werden (2008) 95; Cook & Kerse (2009) 209; Hinds (2006) 1712–13; Kokkoris (2005) 41; Veljanovski (2004) 165; or Venit & Depoortere (2004) 30, who dub the SIEC test the ‘functional equivalent’ of the SLC test. However, for Kokkoris (2005) 44, the SIEC test is ‘an altered version of the dominance test’. 84   Venit & Depoortere (2004) 29 contend that despite the fact that the Commission acted as if the change was not significant, in fact the SIEC test amounted to an ‘important expansion of the substantive test’. 85   According to Temple Lang (2002) 309–10: ‘The Regulation is based on the result (dominance, or increased dominance), rather than the significance of the change resulting from the merger. Substantially reduced competition is not necessarily dominance: dominance is a result of how much competition is left, not how big the change has been.’ Kokkoris (2005) 44 argues that the main difference between the dominant position test and the SLC and SIEC tests is that the former places more emphasis on the definition of market, while the latter focuses on assessing ‘the impact of the merger on existing competitive constraints’. In my opinion, it is not clear how the impact of a concentration can be observed without placing it in the context of a correctly defined market. Coppi & Walker (2004) 120 argue that ‘the SLC and the dominance tests may in fact be the same provided that the concept of dominance is equivalent to that of market power. It is not clear whether this is the case.’ Ivaldi, Jullien, Rey, Seabright & Tirole (2003b) 55 favour the SLC test, on the basis that it ‘allows without ambiguity to account for all the equilibrium effects of a merger. This is so because it applies not only to the merging firms but to the market as a whole.’ In fact, there is not so much of a difference, since the parties occupy the position they occupy within and

216  Oligopolistic Interdependence and Dominant Oligopolistic Position In terms of market power, the new test apparently places ‘significant impediment to effective competition’ below the level of the classical dominant position, thus enabling the Commission to prohibit more mergers than with the old test.86 87 In any event, the old and new tests use the term ‘impediment’ in very different ways. As will be recalled, the GC’s interpretation of Article 2 of Regulation 4064/89 placed ‘significant impediment to effective competition’ slightly above the level of dominant position and allowed the Commission to authorise more mergers than would have been the case with a pure dominance test.88 Under Regulation 139/2004, ‘significant impediment’ is presented as a general category, one of whose manifestations is the creation or strengthening of a dominant position. At a stroke, the new test also ends the dispute as to whether or not the test of dominance in the field of European merger control allows ‘unilateral effects’ in ‘non-[tacitly] collusive’ oligopolies to be prevented. The new test undoubtedly covers them (as well as having the potential to cover much more than that) and in passing perhaps validates, with the vagueness of the term ‘impediment’ as an escape valve, some of the more than likely interpretive excesses of the dominance test.89 This is all the result of a considerable and unintended broadening of the Commission’s discretionary powers,90 whereby it is now undoubtedly with reference to the market, and therefore the analysis of their position therein also reveals the degree of competition that continues to exist in the market. 86   In this regard, see also Nicholson & Cardell (2003) 286; Bergman, Jakobsson & Razo (2005) 719; Kokkoris (2005) 42; Ehlermann & Atanasiu (2007) xxviii; Walker (2004) 4–5, who contends that the SIEC test is more severe than the dominant position test, obviously in relation to the old alleged gap cases but also overall, and wonders, if this were not the case, what would have been the point of changing the test. Nevertheless, the General Court (formerly GC) appears to build a bridge between the concepts of significant impediment of competition and a dominant position in establishing that ‘the determination of the existence of a collective dominant position must be supported by a series of elements of established facts, past or present, which show that there is a significant impediment of competition on the market owing to the power acquired by certain undertakings to adopt together the same course of conduct on that market, to a significant extent, independently of their competitors, their customers and consumers’. GC Impala (2006) para 250. Heimler (2008) 86 also points to the risk of the SIEC test resulting in over-enforcement of merger control. In fact, this should not happen, since the concept of SIEC should be equated to that of dominant position, as will later be argued in more detail. 87   Against: see Faull & Nikpay (2007) para 5.202, who argue that the reform has not resulted in the lowering of the market power threshold for prohibiting mergers, in line with the official position of the Commission. Similarly, see Drauz & Jones (2006) para 1.60 and Levy (2008) para 10.09[2], who reproduces certain declarations of the former Director General for competition of the European Commission, Philip Lowe, during the Annual Competition Day (Rome, 9 December 2003), in the same vein. 88   See section 4.1 above. 89  According to Brunet & Girgenson (2004) 3ff, the ECJ called a halt to ‘l’imagination créatrice de la Commission, en privilégiant une interpretation stricte du critère de position dominante’. In this context, the new test could protect some of the Commission’s more imaginative theories from possible setbacks in the EU Courts, because in the future what it will not be able to justify as a creation or strengthening of an individual or collective dominant position it will be able to justify as an impediment to competition. In particular, this could occur through the theory that states that a dominant position is created or strengthened with regard to the control of concentrations when the market power that increases with the concentration belongs not to either the merger or the oligopoly forming part of the merger, but to one or more third parties which have no connection to the merger. See Commission decisions Exxon/Mobil (1999) and the more modern and surprising Grupo Villar Mir/ EnBW/Hidroeléctrica del Cantábrico (2001) and EnBW/EDP/Cajastur/Hidrocantábrico (2002), where the strengthened dominant position would have been the oligopolistic collective one enjoyed by the Spanish electric undertakings that competed with the merged entity, which was not part of the oligopoly. In these cases, the Commission relied on the ECJ’s interpretation of the substantive test in Kali + Salz (1998) paras 168ff, where the Court held that a concentration that creates or strengthens a dominant position of the parties together with a third-party entity with respect to the operation could be incompatible with the internal market, since ‘if it were accepted that only concentrations creating or strengthening a dominant position on the part of the parties to the concentration were covered by the Regulation, [the] purpose [of the latter] would be partially frustrated’ (para 171). 90   Paradoxes of EU policy: if the Commission had initially proposed that its powers be extended in this way, the Council would probably have been against it.

The Adoption of a New Substantive Test to Cover Unilateral Effects of Concentrations  217 allowed to prohibit, but also perhaps to authorise,91 mergers at the expense of legal certainty.92 The Commission may prohibit, because the ‘unilateral effects’ within an oligopoly, as most frequently described, are associated with an increase in market power insufficient to establish an individual dominant position.93 Thus, the imprecision of this new concept makes it possible to extend the Commission’s powers through an expansive interpretation, a risk that is confirmed by the Horizontal Merger Guidelines.94 In fact, this risk should have been avoided with the inclusion of recital 25 of Regulation 139/2004, in which, with notable and unusual self-control, the Commission undertook to use the SIEC test ‘beyond the concept of dominance’,95 exclusively against ‘non-coordinated’ or ‘unilateral’ effects in oligopolies.96 91   In this regard, see Röller & de la Mano (2006) 9, who consider that ‘the new test can be expected to increase both the accuracy and the effectiveness of merger control in two ways: first, it may close a gap in enforcement, which may have led to underenforcement in the past; and secondly, it may add to clarity by eliminating ambiguities regarding the interpretation of the old test, which possibly led to overenforcement in some cases’. See also Voigt & Schmidt (2004b) 1566–67. If this is correct – and it most probably is, even if it should not be – the Commission will have amassed much greater powers than before: there is no red line, but rather a very wide red area in which the Commission may act as it pleases (whitening the red at will). Curiously, Voigt & Schmidt (2004b) praise the new Regulation 139/2004 for this reason, arguing (at 1583–84) that the SIEC test is more severe than the dominant position test, which means that there are more possibilities for the Commission to prohibit an operation, while at the same time pointing out that under the new test more discretion is available, which in turn means greater opportunities to authorise transactions. 92   Voigt & Schmidt (2004b) 1593–94 criticise the lack of legal certainty that may arise as a result of the broadening of the European Commission’s powers and the greater flexibility that the latter enjoys under Reg 139/2004. Similarly, Bishop & Lofaro (2005) 205 state that ‘regardless of whether the gap exists, one consequence of the introduction of the concept of non-coordinated effects is to open up a wide area of enforcement discretion beyond that envisaged by the proponents of the gap theory by reducing the market share thresholds at which mergers might be considered to be problematic from the traditional 40% threshold to 25%’. While this may be an exaggeration, qualifying the elimination of ‘an important competitive force’ (which, in principle, is difficult to distinguish from one that lacks importance) as non-coordinated effects leaves the door open to any prohibition. See Guidelines on Horizontal Mergers (European Commission (2004a)) paras 37–38). Against: Bergman, Jakobsson & Razo (2005) 736, who consider that the European merger control rules offer sufficient legal certainty. For Kokkoris (2005) 42, ‘[a]lthough these tests in the hands of creative interpreters can result in different outcomes, this has not been the case because the economic rationale . . . in the jurisdictions implementing these tests is very similar’. Finally, going back to Voigt & Schmidt (2004b) 1565, these authors praise the SIEC test and while recognising that it may be a Pandora’s box, they consider that it avoids the alleged ‘straightjacket effect’ of the dominant position test. 93   Against: Fountoukakos & Ryan (2005) 291. 94   Brunet & Girgenson (2004) 23. As noted by Gurrea & Owen (2003) 91–94, ‘[a]pparently, unilateral effects theories appeal to aggressive enforcers because they are more readily found in proposed transactions than are coordinated interaction effects. Virtually all relevant markets involve differentiated products and any merger among producers of competing differentiated products necessarily produces a price increase by the remaining competitors . . . The economic theory of unilateral effects predicts that a merger between companies who are “adjacent” or even “nearby” in differentiated product space (or geographic space) will necessarily produce a price increase, regardless of how the relevant market is defined and regardless of the level of concentration in that market, as long as there are significant entry and relocation costs and no offsetting efficiencies.’ Dethmers (2005) 638, 642–43 also states that post-Airtours it is easier to control (prohibit) mergers with ‘unilateral effects’ than those with ‘coordinated effects’. As a result, he predicts that the Commission will go in this direction. The author even cites various 3-to-2 transactions which he considers the Commission did not prohibit for this reason. 95   For an interpretation from within DG COMP of the meaning of this phrase, which is set out in recital 25 of Reg 139/2004, see Drauz & Jones (2006) paras 4.41–4.46. 96   Voigt & Schmidt (2004b) 1569 make reference to recital 25 of the Regulation in support of their contention that the SIEC test covers individual and collective dominant positions together with unilateral effects of non-­ collusive oligopolies, although he warns that ‘this restriction might not be adhered to in practice by the Commission and the Courts’. As these authors correctly observe, there is a risk that, over time, the Commission may decide to explore new interpretations of unilateral effects. Similarly, see Völcker (2004) 404 and Drauz & Jones (2006) para 4.38, who recognise that it is difficult to predict in detail all the possible implications of the new substantive test, given the way that the former test evolved over the previous 15 years.

218  Oligopolistic Interdependence and Dominant Oligopolistic Position However, the wording of the final part of the section of the Guidelines with respect to noncoordinated effects has not helped to remove all of these doubts.97 The Commission may authorise, because the new test enables it to go way above the ‘additional authorisability ceiling’ created more or less unexpectedly by the General Court in the event of a proven creation or strengthening of a dominant position, on the basis of the alleged application of the second limb of the substantive test of Article 2 of the old Merger Regulation. Thus, recital 26 of the new Regulation indeed makes it clear that only ‘generally’ (not always) will the creation or strengthening of a dominant position lead to a ‘significant impediment to effective competition’. Although this adverb seems to refer to alleged cases detected by the General Court of the creation or strengthening of a dominant position where there is no ‘significant impediment to effective competition’, once a reasonable quarantine period is over, there is nothing to stop the Commission from returning to its creative ways based on ‘generally’, above all when it is the Council and the General Court that have enabled it to do so. The T-Mobile Austria/tele.ring decision (2006) may be viewed as an example of the widening of the Commission’s discretion in relation to the extent to which a merger may be prohibited.98 In this case a similar situation arose to that in the Babyfoods case in the USA99 and, moreover, the operation involved the disappearance of a maverick firm.100 By contrast, an example of the Commission’s greater degree of discretion to authorise mergers may be found in its decision in Amer/Salomon (2005), where, despite the trans­ action creating substantial market shares in certain national ski markets, it was authorised in circumstances that could lead one to think that this would not have been possible under the previous test. In fact, Salomon could have been authorised under the old test with a correct definition of the relevant market, while T-Mobile Austria/tele.ring could have been prohibited with an interpretation of dominant position that – which I believe to be the correct approach – equated it to ‘significant market power’; that is, sufficient to be able to raise prices in a sig97   Heimler (2008) 93 also takes the view that the SIEC test has eliminated ‘the need to show that the collective dominant firms would act in the market as a single entity’. In his opinion, this is positive because it introduces more flexibility – that is, a greater ability to prohibit – and means that the European test for the establishment of an oligopolistic dominant position is much less demanding than the US test. In his view, this is ‘a very welcome result that was not part of the discussion that led to the introduction of SIEC’. See also Werden (2008) 95, fn 4. In my opinion, this should not be the case, either in the US or in the EU, since allegedly the new test has established a verified market power threshold that is significantly lower than that associated with collective dominant position (as it also appears to do with unilateral effects). 98   According to the Report on Competition Policy 2010, para 16 n 8, this would be a case of unilateral effects analysis, together with Commission decision Korsnäs/Assidomän Cartonboard (2006). 99   FTC v HJ Heinz & Co, DC Circuit Docket No 00-5362 (decided 27 April 2002). 100   T-Mobile Austria/tele.ring (2006) is possibly the first gap case since the new Regulation came into force. T-Mobile, the second largest operator in the Austrian mobile telephony market, notified its intention to purchase tele.ring, the fourth largest operator. The resulting entity would have a market share of more than 30%, yet below that of the market leader. Accordingly, in the light of the former dominance test, the Commission may not have been able to allege the creation or strengthening of an individual dominant position, while contending that the existence of a collective dominant position following GC Airtours (2002) would only be possible if a risk of tacit collusion or coordination could be shown. The Commission considered that the disappearance of tele.ring could have anticompetitive effects, given its strategy of operating with reduced prices and in view of the rapid change in its market share. Finally, the operation was approved after the commitments offered by T-Mobile were accepted. According to Briones (2009) 6, ‘[this] case was analyzed as a unilateral effects case and, in all probability, it would have been handled as a collective dominance situation under the pre-guidelines dominance test’. However, in his opinion, although the new test - which he calls ‘SLC’- ‘may have had a formal impact on the way the case was analysed (unilateral effects versus previous collective dominance test), [] it is to be doubted that the change of test had any material impact on the final outcome’.

The Adoption of a New Substantive Test to Cover Unilateral Effects of Concentrations  219 nificant manner, regardless of whether or not a firm is a market leader (has the biggest market share). That said, for some authors the latter would go against the genuine essence of the notion of dominant position.101 However, everything depends on the meaning given to ‘dominant position’, which is very much influenced by the concept of abuse. If dominant position is the same as substantial or significant market power, ie the power to increase prices by 5–10 per cent and still obtain a profit, then a dominant position may exist in situations in which the party that enjoys it is neither the market leader nor the operator with the biggest market share. In this way, the individual dominant position would be equated with unilateral effects and collective dominant position would be the equivalent of coordinated effects. From this perspective instantaneous dominant positions would also be acceptable, since these would be one-shot (temporary) unilateral effects in merger control. The issue is that such instantaneous dominant positions are not capable of giving rise to abuse, since this market power disappears with the price rise derived from the new market equilibrium. In any event, perhaps in this type of situation the authorities should not really intervene at all, since the impact of concentrations of the Babyfoods and/or maverick type on prices may not be as clear as first thought. The most innovative part of the new Merger Regulation is the intended increase (in reality, clarification) of the Commission’s prohibitive powers. As just explained, if the market power necessary to produce ‘unilateral effects’ were less than that needed to create or significantly strengthen a dominant position (although this last situation was already easy to fight within the old interpretive framework), and EU merger control could now deal with them, the threshold of unacceptable market power in EU merger control would simply have been placed below that used until now.102 The same effect could have been achieved without changing the standards of the Merger Regulation, by simply recognising that dominant position is nothing more than significant market power. This would have made it possible not only to cover the ‘unilateral effects’ of an oligopoly, but also all those cases where undertakings can attain, by whatever means, a price increase or a significant and lasting limitation on production. Would this have been possible without changing the essence of the dominance test, had the latter been maintained? Undoubtedly, the answer is ‘yes’, but if the answer had been ‘no’, it should have been accepted quite openly that in the EU some ‘unilateral effects’ escaped the scope of merger control. Finally, rather than inventing an ad hoc type of dominant position (as the first draft new Regulation proposed) or concluding that a dominant position is produced where one or more firms hold significant market power (which would have been the simplest solution 101   See, inter alia, Ehlermann, Völcker & Gutermuth (2005) 195–96, who consider that ‘[t]he plain meaning of “dominant position” expresses the concept of holding the leading position on the market. Only the company in the leading position can be viewed as dominant . . . [T]he proposition that an undertaking could be dominant on a market where another player is stronger and therefore closer to a monopoly position than the undertaking at issue runs counter to the roots of the dominance concept.’ 102   See Kühn (2002) 49 or Voigt & Schmidt (2004b) 1583ff, for whom the market power threshold for intervening has dropped markedly, and who consider that ‘the purpose of the new criterion [is] to include mergers that do create additional market power but do not quite reach the threshold of a dominant position yet’. It remains to be seen whether the Commission will choose to exercise its powers in this way, although this should not be the case if it has regard to the content of recital 25 of Regulation 139/2004, something which certain authors have doubted, such as Voigt & Schmidt (2004b), who do not appear to believe in the Commission’s ‘vows of restraint’. If these predictions are confirmed, the predictability of European merger control will be significantly reduced.

220  Oligopolistic Interdependence and Dominant Oligopolistic Position and the most appropriate from a systemic point of view),103 the Council preferred to apply a different standard, which has been defined as ‘hybrid’,104 different and apparently stricter than the previous one (although it uses the same terminology), so that the Commission could prohibit more easily ‘non-coordinated effects’, as recital 25 of the new Merger Regulation calls ‘unilateral effects’. To conclude, with the new test the Commission and the Council may have ended up using a sledgehammer to crack a nut, because in order to cover more clearly and at most the mainly theoretical and perhaps insignificant ‘unilateral effects’ in oligopolistic markets with the capacity limitations described above (the other unilateral effects may simply have been covered by an adequate market definition), they may have done more harm (lack of legal certainty) than good (broader and better control of merger operations that damage competition). On the plus side, the new test, like the SLC, makes it possible to ‘avoid the Commission’s having to “go through the mental contortions” that are sometimes necessary to fit its assessment into the dominance prism’ that it was faced with when applying the old test,105 but at the cost of having to engage in not very different contortions with the new test and scattering the seeds of legal uncertainty throughout the field of merger control. In the short term this will occur as a result of the initial caution that this potential new Pandora’s box has generated, even if the Commission keeps its interpretive creativity strictly under control. In the long term, when faced in the future with a merger that the Commission wants to prohibit or authorise without being able to use solid traditional arguments – such as the creation or strengthening of an individual or collective dominant position, even ‘coordinated effects’ – it is doubtful that it will give up the comfortable escape hatches offered by the vagueness of the test set out in the new Merger Regulation, and above all, the Guidelines on Horizontal Mergers (2004) and in its liberal interpretation of non-­coordinated or unilateral effects.106 According to the Commission, if a merger ‘eliminates an important competitive force’, this may produce unilateral or non-coordinated effects.107 Thus the Commission states that ‘[s]ome firms have more of an influence on the competitive process than their market shares or similar measures would suggest’. This points to something similar, although not identical, to what the Commission itself says with respect to maverick firms at paras 20(d) and 42 of the Guidelines. As in these latter cases, the problem is that definition of a firm as ‘maverick’ and the importance of a competitor is a question of taste; any competitor may be defined as ‘maverick’ or ‘important’/‘significant’ by a particularly stringent competition authority. On this basis, unilateral or non-coordinated effects may be produced in each and every merger operation, in which a competitor (who could, it must be stressed, be maverick or important/significant) always, by definition, disappears. It is still too early to assess the effects of the change of test.108 At the time of writing, it is fair to say that it has not led to a radical change in the Commission’s decision-making 103   Baxter & Dethmers (2005) 382–83 criticise the co-existence of the two different concepts – unilateral effects and dominant position – something that may make sense in relation to the lack of legal certainty that it causes. However, these authors also claim that ideally the ‘application of one theory rather than the other could of course make a significant difference’, a statement that I completely disagree with; at least, in a perfect world this should not occur. 104   ‘EU Adopts a Hybrid Test’ (2003/4) 6(11) Global Competition Review 2. 105   Levy (2002) 160, citing William Bishop in The Review of the EC Merger Regulation, Minutes of Evidence, 32nd Report of the House of Lords Select Committee on the European Union, HL Paper 165, Session 2001–02, 26. 106   See European Commission (2004a) paras 24–38. 107   Guidelines on Horizontal Mergers, European Commission (2004a) para 37. 108   For an assessment up to November 2009, see Levy in Organization for Economic Co-operation & Development (2010) 244ff.

The Adoption of a New Substantive Test to Cover Unilateral Effects of Concentrations  221 practice,109 which in any event had evolved considerably before the new test was introduced. Some suggest that the Commission is taking a more flexible and less interventionist approach.110 Whatever the situation, the impact of this new policy, enshrined in the introduction of the SIEC text, will be felt gradually.111 At present, although the Commission has on occasion analysed the possible anti-competitive effects of certain operations despite the absence of a previous or subsequent dominant position,112 the dominance test continues to be central to the Commission’s decision-making practice, one that it has only deviated from on a handful of occasions, normally in the second phase of an investigation.113 However, with some exceptions,114 the most recent merger decisions tend to avoid using the expression ‘dominant position’115 and prefer to use ‘(clear) market leader’ and similar wording instead.116 Occassionally, they may describe the likely evils of the merger under examination in terms of higher prices and less choice for consumers.117 The ‘new language’ includes expressions like ‘reduce competition’,118 ‘close/not close competitors’,119 ‘important competitor’120 and ‘remove a significant competitive force’,121 inter alia, and has made very  ibid.   ibid 244.   In this regard, see also Röller & de la Mano (2006) 10: ‘The adoption of a new test and merger guidelines cannot be expected to have a one-time, radical and sweeping impact on the Commission’s decisional practice. The influence is more likely to be slow and gradual as the Commission and the merger control community at large adapt to the new rules of the game.’ According to Levy in Organization for Economic Co-operation & Development (2010), who refers to a longer period of time, despite the fact that there has been no prohibition following the application of the new SIEC test, the Commission has used it in two cases, one horizontal – BASF/CIBA (2009) and the other vertical – E.ON/MOL (2006) – that would not have been easy to attack under the old test. 112   See Levy in Organization for Economic Co-operation & Development (2010) 246–49, citing, inter alia, Commission decisions Oracle/PeopleSoft (2004); Siemens/VA Tech (2005); T-Mobile Austria/tele.ring (2006); BASF/CIBA (2009). 113   See Levy in Organization for Economic Co-operation & Development (2010) 246–49; Röller & de la Mano (2006) 13. 114   See, for example, Commission decisions Iberia/Vueling/Clickair (2009) (monopoly on 19 routes); Posten/ Post Danmark (2009) (Posten dominant in Sweden); DFDS/Norfolk (2010) (quasimonopoly on certaìn shipping routes); TLP/Ermewa (2010) (SNCF dominant in France); SNCF/LCR/Eurostar (2010) (Eurostar dominant on routes from London to Brussels and Paris with 70–80% market share); and GDF Suez/International Power (2011) (GDF dominant in Belgium with 70–80% share of electricity produced in this country). 115   Roller & de la Mano (2006) 13 point out that the Commission decision in Total/Gaz de France (2004) is possibly the first case not to refer to the creation of a dominant position. In my opinion, the dissapearance of ‘dominance’ from Commission decisions has been gradual. In the old times of Regulation 4064/89 the expression ‘dominant position’ was ubiquitous. Shortly before Regulation 139/2004 was adopted both ‘dominant position’ and new language coexisted, with ‘dominant position’ still being the most important expression. Then in the very first years of application of the new test, ‘dominant position’ quickly faded away and appeared less and less in Commission decisions. At present, ‘dominant position’ is hardly ever mentioned - not even by the Competition Commissioner; see Commissioner Almunia’s SPEECH/10/658 of 17 November 2010 on the occassion of the clearance decisions in Unilever/Sara Lee Body Care (2010) and Syngenta/Monsanto’s Sunflower Seeds Business (2010) – and when it is, it gives the impression that the Commission is referring to a different category of situations in which the market power of the merging parties is particularly high or self-evident, like in the cases cited in the prior note. 116  See, for example, Commission decisions Sanofi-Aventis/Zentiva (2008); Pfizer/Wyeth (2009); Teva/ Ratiopharm (2010); Unilever/Sara Lee Body Care (2010) (‘very strong leadership’); and BASF/Ineos/Styrene/JV (2011) (‘a very strong player’). 117   See, for example, Press Release IP/09/1255 of 28 August 2009, regarding Commission decision Lufthansa/ Austrian Airlines (2009). 118   See, for example, Press Release IP/09/403 of 13 March 2009, regarding Commission decision IPIC/MAN Ferrostaal (2009). 119  See, for example, Commission decisions Panasonic/Sanyo (2009); Agilent/Varian (2010); Kraft Foods/ Cadbury (2010), where reference is also made to ‘close brands’; Reckitt Benckiser/SSL (2010); and Olympic/Aegean Airlines (2011). 120   See, for example, Commission decision Syngenta/Monsanto’s Sunflower Seeds Business (2010) para 181. 121   See Commission decision Amcor/Alcan (2009) paras 105, 117. 109 110 111

222  Oligopolistic Interdependence and Dominant Oligopolistic Position important inroads into merger analysis, cornering older and more classic expressions linked to the dominance test. Essentially, the Commission appears to accord greater importance to the degree of competitive pressure that previously existed between the parties to the transaction and that will disappear as a result of the merger.122 At the same time, there are signs of a move towards greater tolerance (with respect to market share, for example).123

9.2  APPLICATION OF ARTICLE 101 TFEU TO ‘TACIT COORDINATION’ AND ITS LIMITATIONS: THE OTHER ‘BLIND SPOT’ OF OLIGOPOLIES IN COMPETITION LAW AND THE POSSIBLE BOUNDARY BETWEEN COMPETITIVE AND NON-COMPETITIVE OLIGOPOLIES

When it is neither rational nor inevitable for non-competitive parallel behaviour to occur – that is, oligopolists could choose from different forms of behaviour – they need to agree, either through agreements or concerted practices (including, in certain circumstances, ‘facilitating practices’), to engage in such parallel behaviour. There now seems to be no doubt that: (i) oligopoly members can collude in the legal sense; (ii) competitive oligopolies tend to become non-competitive due to tacit coordination (‘tacit collusion’) or express collusion;124 (iii) a cartel could be lurking behind some cases of theoretical oligopolistic behaviour, which could be unmasked using a joint test of market structure and undertakings’ behaviour;125 and (iv) if they behave in such a way, oligopoly members breach Article 101.126 This phenomenon is neither new nor strange, and for this reason it is important to draw a dividing line between competitive oligopolies, where, in the right conditions, certain conscious parallel behaviour between competitors can breach Article 101, and non-competitive oligopolies, where conscious parallel behaviour on its own cannot be pursued under this provision,127 although the prohibition on abuse of a dominant position under Article 102 122   Determining the strength of this competitive pressure may arise either (i) from a market definition-related analysis of the degree of substitutability of the products or services of the parties to the merger, as occurred in Novartis/Hexal (2005) and Siemens/VA Tech (2005); or (ii) as a result of the identification of a maverick firm that would disappear as a result of the merger. A recent example can be found in T-Mobile Austria/tele.ring (2006), already mentioned. 123   See the most recent decisions cited in section 4.2 above. 124   Occasionally, competitive oligopolies degenerate into non-competitive oligopolies because their members have a natural tendency to substitute speculation and uncertainty about the others’ strategy for certain knowledge of it. Fernández de Araoz (1993) 10070, citing Machlup (1952) 439. 125   See Álvarez González (1992) 9, who argues that there are many such cases. See also Baker (1993) 145–46, who considers that the analysis of structural features of the industrial context that make coordination more plausible has become relevant for determining the existence of an agreement in the case of parallel price fixing. For Werden (2004) 719–20, ‘modern economic theory . . . is the only rational basis for evaluating economic evidence on the existence of collusion’. 126   Ritter & Braun (2004) 414, fn 242. 127   According to Venit (1999) 1110–11, the concept of collective dominant position exists to compensate for the Commission’s inability to attack under Art 101 unilateral behaviour that prevents entry into the market or that ‘makes it easier for incumbents not to compete with each other’. However, note that in non-competitive

Application of Article 101 TFEU to ‘Tacit Coordination’ and its Limitations  223 could be applied using the concept of oligopolistic collective dominant position,128 or a concentration between undertakings could be prohibited.129 In fact, both methods have been used to try to bring oligopolistic parallel behaviour within the scope of competition law: broadening the concept of ‘concerted practice’ (or ‘conspiracy’ in American terminology) and using the concept of ‘abuse of a collective dominant position’ (‘joint monopolisation’ in American terminology). The first possibility has been explored in more depth,130 but has been of little help in the fight against oligopolies,131 which could be the reason why EU law has turned to Article 102,132 and in particular to the idea of collective dominant position where economic links between undertakings are the existing links of non-competitive interdependence.133 As regards the first method, ‘tacit coordination’ in the terminology of the General Court or ‘tacit collusion’ in economics terminology is similar to competitive behaviour, in that both types of conduct are rational (they respond to the logic of the market) and independent (they occur without agreements between companies). A rational oligopolist thus behaves exactly the same way as a rational seller in an industry with a competitive structure.134 However, unlike competitive behaviour, ‘tacit coordination’ is not unilateral (in the sense that it is not dependent on competitors’ behaviour), but coordinated (it considers and anticipates competitors’ reactions and adjusts to them beforehand) and has non-competitive consequences. ‘Tacit coordination’ (or ‘tacit collusion’) is different from express collusion in that the latter arises from an agreement or understanding between undertakings. While the latter can clearly be dealt with using Article 101, the former cannot; at best, it may be dealt with in a limited way, applying a liberal (and in my opinion wholly incorrect) definition of what constitutes a concerted practice.135 136 However, this oligo­polies the oligopolists may also want to reach an agreement to kill off competition. In these markets it would be impossible to distinguish on the basis of effects between collusive behaviour (in the legal sense, or express collusion) and oligopolistic parallel behaviour in such a way that it would be impossible to apply Art 101 on the basis of the identity of conduct of the oligopolists (which would be guaranteed by the market structure). In practice, therefore, even concerted practices could be indiscernible. However, if restrictive agreements between oligopolists are discovered and proved, Art 101 should be applied, at least to ‘infringements by their object’. The possibility that in such markets ‘infringements by their effects’ are produced cannot be disregarded, but this raises many questions, basically because anti-competitive effects of agreements should be individualised and distinguished from the non-competitive effects of a given market structure. 128   See section 9.3 below. 129   The difference between competitive and non-competitive oligopolies is also fundamental in the control of concentrations; according to Malcolm Nicholson and Alan Overd, it was the key issue in GC Airtours (2002). Since oligopolies are characterised by their members’ interdependence, the question is how to distinguish acceptable from unacceptable oligopolistic behaviour. See The Antitrust Source (2002) 2. 130   G Monti (1996) 63: ‘Two avenues to catch oligopolists have been travelled, though one more extensively than the other: extending the concept of conspiracy and concerted practice and using the notion of joint mono­ polization.’ 131   According to Ridyard (1994) 259: ‘Article 85 [now Article 101 TFEU] is concerned with coordinated behaviour that goes beyond the intelligent adaptation to competitors’ actions. Oligopoly problems such as those now falling to be analyzed under the (Merger) Regulation concern behaviour that falls short of this line.’ 132   Whish & Sufrin (1993) 65. 133   According to Venit (1999) 111ff, if it were impossible to establish a collective dominant position without traditional structural ties between undertakings, behaviour would exist which could neither be attacked under Art 102 nor be prevented by the control of concentrations. 134   Álvarez Gónzález (1992) 6, citing Turner (1962). 135   See Christensen and Rabassa (2001) 234. With respect to the different meanings of the expression ‘tacit collusion’ for the lawyer and the economist, see Roberts & Hudson (2004) 166. 136   See ECJ T-Mobile Netherlands (2009), greatly influenced by the Opinion of AG Kokott, which adopts the theory according to which the conduct of firms is not a crucial element in determining the existence of a concerted practice, it being sufficient to prove actual contact between them (to eliminate uncertainty regarding the

224  Oligopolistic Interdependence and Dominant Oligopolistic Position approach will come up against certain limits beyond which it is futile to try to make undertakings ignore their interdependence and refrain from acting rationally for their own profit.137 Although some well-known authors might deny that there are forms of coordinated behaviour between undertakings that escape the prohibition on restrictive agreements,138 most academics consider that certain manifestations of oligopolistic interdependence can lead undertakings to engage in coordinated non-competitive behaviour without having to resort to restrictions on competition.139 In these circumstances it would not be possible to

conduct of others in the market) to find them liable under Art 101. In the same way, see Albors Llorens (2006) 844–48. This author bases her findings on the ECJ’s judgments in Hüls (1999) para 161, ANIC Partecipazioni (1999) para 21 and Hercules (1999) 259–64, stating: ‘It would appear that all that is needed for a concerted practice to be deemed to exist is an act of reciprocal communication whereby undertakings have knowingly reduced uncertainty as to their future market behaviour. It is no longer necessary to show that the subsequent behavior of the market participants accords with the parameters established in the course of their contacts’ (footnotes omitted). However, it should not be forgotten that in the Polypropylene saga the Commission decided to classify – vaguely, as usual – companies’ behaviour in the market as agreements and concerted practices. The ECJ confirmed this approach, which allows the Commission not to give too much detail about the category to which each aspect of cartel participants’ behaviour belongs. In such cases, the concept of concerted practices acts as ‘thick glue’ to ‘fill gaps’ and to consider as parts of a single ‘complex’ infringement of Art 101 connected facts or genuine restrictive agreements that have a life of their own. Despite the fact that the liberal interpretation of the concept of concerted practice in this sense, to the point that it is converted into an ‘all-embracing category of concerted practices in Article 81 EC [now Article 101 TFEU] [which operates] as a residual mechanism that encompasses other forms of cooperation that cannot be labelled as agreements’ (see Albors Llorens (2006) 872), may be useful and very convenient in practice, particularly for the Commission, it appears, at the very least, open to criticism on a theoretical level since it blurs the boundaries between and confuses two different concepts. In fact, what is analysed in T-Mobile Netherlands, Hüls, ANiC, Hercules, etc, is ‘agreements’ strictly speaking and not ‘concerted practices’ strictly speaking, which would be a sub-category of agreements which are proven on the basis of the conduct of companies in the market and, therefore, by definition, must be examined in practice. In short, as has already been said: concerted practices are agreements that are proven through circumstantial evidence on the basis of what happens in the market (essentially parallel conduct and plus factors). See section 2.2 above. 137   Organization for Economic Co-operation and Development (1999) 17. 138  According to this school of thought, whose most eminent adherent is Posner (1969), although non-­ competitive oligopolistic behaviour without any collusion is still a possibility, in most (if not all) cases a mechan­ ism to facilitate the process is required: ‘pure parallel behaviour of pricing without some collusion, however collateral, is rare, perhaps almost academic’. G Monti (1996) 74, citing Nye (1975) 209. For Posner, the ‘oligopoly problem’ is pure theory, and can be reduced to a simple problem of proof. For Bork, it is doubtful whether ‘tacit collusion is an important phenomenon, or even that it is a real phenomenon’. Bork (1978) 175, cited in Lopatka (1996) 881. Thus, for the Chicago School, which has dominated US antitrust law since the mid-1970s, the term ‘tacit collusion’ (a key concept in the economic theory of non-competitive oligopolies) came to mean nothing more than an agreement tested using ‘circumstantial evidence’. Baker (1993) 145–46. For a ‘neo-Chicago approach to concerted action’, see Page (2011), who argues that although section 1 of the Sherman Act does not reach tacit collusion, neither does it require a verbal agreement; and that communication between rivals is the key element to consider in establishing an infringement. 139  See, inter alia, Turner (1962) and Baker (1993). According to the US authorities (Organization for Economic Co-operation and Development (1999) 201–02), there are five typical forms of collusion. Form 1 is the easiest to prove; forms 2, 3 and 5 are very difficult, but not impossible to prove. Form 4 (undertakings coordinate their actions by simply observing and anticipating their rivals’ behaviour) would be impossible to attack using the prohibition on restrictive agreements and practices. According to Lopatka (1996) 897, who holds the same opinion as that of Turner (1962) more than three decades earlier, interindependent price fixing would not in itself be sufficient to establish the existence of an illegal agreement. Although Posner (1969) would be against this theory, both Turner and he would agree that such cases are very rare anyway. For an opinion that is qualifiedly opposed to Turner’s regarding EU competition law, see Whish (2000) 583.

Application of Article 101 TFEU to ‘Tacit Coordination’ and its Limitations  225 apply the prohibition on agreements that restrict competition,140 not even in the guise of ‘concerted practices’141 or ‘conspiracies’.142 In the US, evidential requirements and the particularly strict interpretation of rules which involve the criminal law have prevented the ‘oligopoly problem’ from being resolved under sections 1 and 2 of the Sherman Act.143 In the EU, ECJ Hoffmann-La Roche (1979) showed for the first time that the Court seemed to hold that when oligopolists behave in the same way due to market structure rather than as a result of active participation in an agreement or concerted practice, they should not be condemned for abusing their position if their behaviour is rational and even inevitable.144 In fact, the ECJ held that parallel but non-collusive behaviour did not come within Articles 101 and 102, and argued that: A dominant position must also be distinguished from parallel courses of conduct which are peculiar to oligopolies in that in an oligopoly the courses of conduct interact, while in the case of an undertaking occupying a dominant position the conduct of the undertaking which derives profits from that position is to a great extent determined unilaterally.145

140   According to Baker (1993) 147, the concept of agreement includes not only ‘meeting of minds’ but also ‘the exchange of assurances of compliance’. The origin of the expression ‘meeting of minds’, which is very popular in both US and EU antitrust law, lies in the US Supreme Court judgment American Tobacco Co v United States, 328 US 781, 810 (1946). According to Baker (1993) 853, this expression is ‘a metaphorical phrase borrowed from contract law, where it originated from a mistake and, unhappily, its meaning is nearly as opaque’ as it is in antitrust law. 141  As regards the dividing line between tacit coordination (tacit collusion) and concerted practices, Black (2003) distinguishes between (1) degrees of correlation (in behaviour) and (2) degrees of communication; a spectrum (2) within a spectrum (1), according to this author. In fact, in practice it is a question of first studying the degree of correlation (to detect sufficiently parallel conduct – if this does not exist, concerted practices do not exist) and after that the degree of communication, which may range from very brief to very intense (a genuine agreement). If the degree of communication is analysed before the degree of correlation, something else may be being investigated, not whether concerted practices exist – for example, whether an agreement between firms, an exchange of information, or any other verified potentially anti-competitive practice has been engaged in by the parties, which may not be the case. 142   Nevertheless, there are those who propose to resolve the ‘problem’ of oligopolies (the gap) by considering ‘consciously parallel conduct’ (‘tacit coordination’ or ‘tacit collusion’) to be a breach of competition law. See Navarro Suay (2004); Navarro Suay (2005). Spanish competition law defines such conduct as illicit, although in practice its application has not led to very different results from those reached in European law. For this reason, the author in question proposes to reassess this concept. 143   According to Hay (2006) 892, ‘pure oligopoly cannot – and should not – constitute a Sherman Act violation. The core of the problem is that there is no conduct that can fairly be established as “culpable”.’ While this is true, it is doubtful that culpable conduct exists with respect to ‘facilitating practices’ – which, in Hay’s opinion, may be contrary to s 1 (see 913) – beyond the fact that they serve as circumstantial evidence that, ultimately, an agreement exists (concerted practices). In my opinion, the element of culpability does not exist, and therefore we must go back to the specific requirements of concerted practices. The starting point for Werden (2004) 43, 779–80 is the way in which the US courts have interpreted ‘agreement’ within the meaning of s 1 of the Sherman Act (‘conscious commitment to a common scheme’; ‘a meeting of minds’) to conclude that the two definitions are wide enough to cover the interdependence typical of oligopoly models. As Werden puts it, ‘[o]ne might reasonably find a “meeting of minds” or a “conscious commitment to a common scheme” in the equilibrium of every oligopoly model’. See also Baker (1993) 198ff, who discovered a renewed interest in this problem, caused, on the one hand, by advances in economic theory since Stigler (1964) (in particular, advances in game theory in the field of ‘super games’; the recognition that coordination does not necessarily have to be perfect for the results to be non-competitive; and evidence that intuitive identification of ‘focal rules’ or ‘focal points’ facilitate ‘coordination’ or ‘tacit collusion’), and, on the other hand, by the existence of new econometric analytical tools. 144   Whish (2003) 521; Whish (2000) 586; Whish & Sufrin (1993) 69. 145  ECJ Hoffmann-La Roche (1979) para 39. See also ECJ Continental Can (1973) para 25, and ECJ Züchner (1981) para 10. The prevailing ‘unilateral’ character of behaviour in Art 101 TFEU was recalled by AG Fennelly in his Opinion in CEWAL (2000) para 39. See also AG Slynn’s Opinion in Züchner, at 2039.

226  Oligopolistic Interdependence and Dominant Oligopolistic Position It seemed, therefore, that apart from the gap of ‘unilateral effects’ in ‘non-[tacitly] collusive’ oligopolies in the control of concentrations,146 there would be another gap which would affect the application of European competition rules aimed at undertakings. In fact, between what can be prevented through the prohibition of collusive agreements under Article 101 on the one hand and the scope of Article 102 on the other, there could be gap or ‘blind spot’ that was either de facto (collusion, which is in practice impossible to prove without the possibility of inferring the existence of an oligopolistic collective dominant position from the characteristics of the market in question) or de jure (certain evidence or indicia of express or tacit collusion may not be conclusive or sufficient to establish an infringement of Articles 101 or 102 TFEU in proceedings to impose sanctions, albeit only of an administrative nature, even if the evidential requirements are less strict than in criminal law). This situation may have occurred in ECJ Wood Pulp II (1993), where the importance of alternative plausible (or implausible) explanations to exonerate (or declare illegal) parallel behaviour as a breach of Article 101 was clearly seen. The experts appointed by the ECJ rationalised price uniformity and parallel behaviour as a natural consequence of the oligopolistic market structure – that is, they relied on the ‘oligopoly defence’, and gave a plausible alternative explanation different from concerted practices with respect to prices which meant that the undertakings were not caught by Article 101.147 Although the wood pulp manufacturers were found not to have engaged in concerted practices given their oligopolistic interdependence, would they be caught by Article 102 for holding an oligo­ polistic collective dominant position, given the specific facts of the case? While their inter­ dependence was sufficient to escape Article 101, maybe it would have been insufficient to establish an oligopolistic collective dominant position whose abuse could have been punished under Article 102.148 In fact, Wood Pulp II (1993) only raised the possibility (nowadays more theoretical than practical) of finding the existence of concerted practices exclusively on the basis of economic evidence of the implausibility of oligopolistic interdependence.149 Faced with parallel behaviour in a concentrated market, undertakings’ behaviour and market structure would allow collusion to be distinguished from oligopolistic pricing interdependence. Thus, for example, if prices or production were inconsistent with interdependent noncooperative models of behaviour, or if apart from parallel behaviour there were also ‘plus factors’ indicating the existence of collusion,150 or if the industry conditions did not naturally lead to non-competitive oligopolistic interdependence, because ‘complication factors’ appeared without ‘facilitating factors’ as counterweight, it could be concluded that the   See section 9.1 above.   See Rodger (1994) 13. 148   This was suggested by Ridyard (1992) among others. 149   Whish & Sufrin (1993) 64, however, argue that ‘the burden of proof is daunting’. 150   ‘Plus factors’ could be, for example, that the undertakings’ behaviour was directed against their own unilateral interests as profit maximisers; that they had adopted facilitating practices; that there had been direct contact between rivals; that the undertakings had had opportunities to collude; that the undertakings had anti-­competitive intentions; and that there was no legitimate economic account of the undertakings’ behaviour. See the US authorities’ opinions in Organization for Economic Co-operation and Development (1999) 202, citing Baker (1993). When reference is made to ‘action contrary to self-interest’ as a plus factor, the intention is in fact to refer to behaviour that is prejudicial to such interests except where they form part of a joint action. Thus, behaviour of this type is not just a plus factor, rather it constitutes a necessary condition in order to appreciate the existence of collusion, which cannot be shown where there are alternative explanations or actions in accordance with the firm’s own interests in the absence of collusion. See Werden (2004) 23. 146 147

Application of Article 101 TFEU to ‘Tacit Coordination’ and its Limitations  227 behaviour of undertakings was collusive, in the sense of concerted practices. Finally, the task of distinguishing collusion from oligopolistic price fixing using this formula is not easy at all, because in many instances there will be various models of behaviour and various ways of being rational, so that it might be clear whether collusion is more or less likely, but it is not possible to be absolutely certain that it is actually taking place.151 As regards the application of Article 102 to oligopolistic collective dominant positions, the most common criticism is that the Commission has often manipulated this provision so as to be able to suppress situations where it lacks sufficient evidence to apply Article 101.152 This criticism has been extended to EU merger control, where initially there were worries and doubts about whether to include oligopolies within its scope, because it was thought that this would be tantamount to applying Article 101 by the back door, thus reducing the burden of proof necessary to enable the Commission to tackle concerted practices.153 However, there is now no doubt that Article 102 cannot and should not be used as a substitute for a lack of evidence of collusion, as the Commission has itself admitted.154 The same should also be said with regard to the control of concentrations. Much progress has been made in recent times with regard to the application of Article 102 to oligopolies,155 but perhaps not enough, even ex post and being able to study effective behaviour of undertakings in the market in a situation like the one described in Wood Pulp II, to have made it possible to apply Article 102 to diverse and numerically ‘broad’ (not ‘narrow’) product oligopolies and regional oligopolies detected by the experts at the ECJ.156 As a consequence, the judgment in Wood Pulp II in no sense shows that a blind spot exists. Perhaps what happened only shows that the Commission was exaggerating when it accused members of a competitive oligopoly of concerted practices, or it made a mistake in not characterising some of the ‘facilitating practices’ of undertakings as genuine agreements (for example, the exchange of information), which would have saved its vain attempts at proving the existence of concerted practices under Article 101.157 In order to fill the ‘oligopoly gap’ in European competition law, a possible solution would be to say that oligopoly members may obtain a collective dominant position, at the very latest, from the moment it is decided that Article 101 cannot be applied to them. Showing that their behaviour was rational could mean that they were not caught by the accusation of concerted practices, yet at the same time this could serve to establish their ‘collective position’ as a consequence of their non-competitive interdependence. Thus, the boundary 151   See the US authorities’ opinions in Organization for Economic Co-operation and Development (1999) 229–300, citing Stigler (1964) and Posner (1976). 152   McGregor (2001) 439. 153   Navarro, Font, Folguera & Briones (2005) 208, para 7.40. According to these authors (para 7.42), the terminological problems in this grey area are actually caused by the attempt to distinguish conceptually breaches of Art 101 from conduct which is relevant for merger control purposes. 154   See opinions of DG COMP in Organization for Economic Co-operation and Development (1999) 270; Ritter, Braun & Rawlinson (2000) 345–46. See also AG Fenelly’s Opinion in CEWAL (2000) para 29: ‘weakness in evidence of concertation cannot be overcome by resort to Article 86 [now Article 102 TFEU].’ 155   See section 9.3 below. 156   Going beyond the circular argument (which consists of taking into account the behaviour of undertakings in order to corroborate their market power), a more radical ‘first principles approach’, based on clear evidence of the exercise of market power being treated as sufficient to establish market power, would perhaps be a much more fruitful course to follow in the ex post establishment of a collective dominant position, perhaps enabling situations analogous to the one existing in Wood Pulp II to be covered. See Salop (2000) 200–01 and section 9.3 in fine below for the ‘first principles approach’ in US antitrust law. For the method of assessing ex post the existence of an oligopolistic dominant position, see GC Impala (2006) paras 251ff. 157   Compare the situation in Wood Pulp with what happened in ECJ T-Mobile Netherlands (2009).

228  Oligopolistic Interdependence and Dominant Oligopolistic Position between competitive and non-competitive oligopolies could perhaps be established at the point where the concepts of concerted practices and oligopolistic collective (dominant) positions meet. While the parallel behaviour of members of a non-competitive oligopoly (which are therefore in a collective dominant position) is a secondary effect of a given market structure and a result of the individual behaviour of the oligopolists, the parallel behaviour of those that indulge in concerted practices is the result of a conscious effort to substitute the risks of competition with practical cooperation between them. Historically speaking, the behaviour of oligopolies has been scrutinised from the point of view of Article 101 on various occasions. The ECJ established at an early stage in ICI (1972) that mere parallel behaviour could not be equated with concerted practices.158 In Suiker Unie (1975), in considering the application of Article 101, the ECJ confirmed that although each operator must determine independently the policy that it intends to follow in the internal market, this requirement does not prevent them from adapting intelligently to the real or foreseeable behaviour of their competitors.159 In a very similar manner, in Hoffmann-La Roche (1979) the ECJ held that parallel behaviour of an oligopolistic nature that was not collusive was not caught by Article 102,160 while in Züchner (1981) the ECJ clarified that Article 102 TFEU concerns abuses of a dominant position but not concerted practices, which can only be dealt with under Article 101 TFEU.161 Of particularly relevance to this debate is the Opinion of Advocate General Slynn in Binon (1985), where he argued that mere parallel behaviour of certain oligopolists that had signed identical agreements was not itself an indicator of collective dominance,162 although the ECJ did not actually address the issue. Finally, following the line of cases going back to ICI (1972), in Wood Pulp II (1993) the ECJ held that if parallel behaviour can be explained as a result of the oligopolistic tendencies of the market, Article 101 does not apply.163 After Wood Pulp II, the Commission seemed to stop applying Article 101 to non-competitive oligopolies, perhaps having decided to follow the dictum in Hoffmann-La Roche to the letter, contrary to its approach in Commission decision Wood Pulp (1984). It can be argued, then, that express collusion (although it may not always be enough) always allows a collective dominant position to be obtained in any market, and parallel behaviour is not incompatible with undertakings having decided their behaviour separately, but may instead be due to the nature of the market in question and rationally explainable in economic terms (that is, there may be a valid alternative explanation other than collusion). On this basis, the difference between oligopolistic collective dominant positions (capable of being prevented ex ante through the control of concentrations, and controlled ex post under Article 102 in the case of abuse) and concerted practices in oligopolistic markets must boil down to whether or not there are alternative explanations for the parallel behaviour of undertakings that do not involve collusion (in the legal rather than the economic sense). One could suspect the existence of express collusion wherever parallel behaviour did not have a rational explanation, and infer the existence of an oligopolistic collective dominant position (tacit collusion, in economic terms) wherever it did.  ECJ ICI (1972) para 64.  ECJ Suiker Unie (1975) paras 173–74, referred to inter alia by ECJ in Wood Pulp II (1993) para 63 and GC Hercules (1991) para 258. 160  ECJ Hoffmann-La Roche (1979) para 39. 161  ECJ Züchner (1981) para 10. 162  ECJ Binon (1985) para 25 of the Opinion. 163  ECJ Wood Pulp II (1993) para 126. 158 159

Application of Article 101 TFEU to ‘Tacit Coordination’ and its Limitations  229 Where parallel behaviour is not definitely caused by the characteristics of the market – in other words, wherever the behaviour of undertakings does not clearly amount to a rational or even an inevitable reaction to market conditions – the oligopolistic collective position of the members of an oligopoly cannot be established, although the parallel behaviour of undertakings may be based on some form of agreement capable of coming within the scope of Article 101(1), which under certain conditions can perhaps be used to establish a purely collusive dominant position. The mere fact that proving the existence of such an agreement is difficult or very difficult (if it exists, proving it will never be impossible) should not allow the Commission to avoid its responsibility to prove that oligopoly members have infringed Article 101 by the expedited means of considering its members to hold an oligopolistic collective dominant position, which would allow it to apply Article 102 in cases of abuse. In this sense, Hoffman-La Roche is fully compatible with the most recent declarations of the EU Courts and is therefore still very much applicable today. In any event, in order to establish whether non-competitive parallel behaviour between oligopolists is due to the interdependence that is typical of oligopolies, or to other factors of a collusive nature, or – which amounts to the same thing – to distinguish the oligopolistic dominant position (‘tacit collusion’ in economic terms) from collusion in legal terms, or non-competitive oligopolies from those that are competitive, the characteristics of the market will have to be taken into account. If these are such that oligopolists cannot reasonably be required to act in another manner, because each operator sees clearly that a given equilibrium is in its best interests, and in addition they are reasonably sure that the others also read the situation in this way, an oligopolistic collective dominant position will exist. Such a position is characterised by it being clearly foreseeable that undertakings will prefer a non-competitive option and the practical inevitability of the results flowing from this market structure (equivalent to that of a monopoly).164 On the other hand, if the characteristics of the market in question do not justify noncompetitive parallel behaviour, reasonably allow oligopolists to behave in another way, objectively require collusion (in the legal sense) to achieve a non-competitive equilibrium and no valid alternative explanation exists (for example a trigger event), the possibility of a collective dominant position can be ruled out and the existence of concerted practices may be suspected. In other words, collusion (in the legal sense) may exist where there is no rational explanation for parallel behaviour and an oligopolistic collective dominant position may exist (‘tacit collusion’ in economic terms) where there is. The use of ‘alternative explanations’ as a way of drawing a line between competitive and non-competitive oligopolies appears to raise a problem which on closer analysis does not exist: the different degree of rationality or explicability of parallel behaviour with respect to concerted practices (Article 101(1)) and with respect to the existence, creation or reinforcement of an oligopolistic collective dominant position (Article 102 and the Merger Regulation). Concerted practices cannot be established if there is a plausible alternative explanation (one that cannot be ruled out) for non-competitive parallel behaviour. Nevertheless, in order to find an abuse of a dominant position by one, various, or all 164   In order for an oligopoly to be collectively dominant there must, then, be an equilibrium from which no oligopolist has an interest in deviating individually and unilaterally. This is known as the ‘Nash equilibrium’ in game theory. This is an intuitive concept that, according to Werden (2004) 759–65, unlike other economic concepts, is easy for lawyers and judges to comprehend. (The problem is that in game theory, there are almost always not just one but various possible equilibria.) According to Temple Lang (2002) 303, the key issue in every case is whether the features of the market mean that price reductions are so unprofitable that they do not occur.

230  Oligopolistic Interdependence and Dominant Oligopolistic Position members of an oligopoly,165 or to prohibit a concentration between undertakings, it must be proved to the requisite legal standard that the market structure has led to non-­competitive parallel behaviour which one, various or all of the members of an oligopoly have abused, or that the concentration will lead to or reinforce such non-competitive parallel behaviour. In reality, this clear difference in degree is simply the result of presuming the innocence of undertakings accused of prohibited restrictive practices, and the fact that the burden of proof is on the authority levelling the accusations. None of this prevents the dividing line between concerted practices and oligopolistic dominant positions from being the same. In conclusion, with regard to competitive oligopolies, non-competitive parallel behaviour its not rationally explicable in economic terms (under the right conditions, Article 101 may apply), whereas with non-competitive oligopolies it is explicable (the Merger Regulation or, under the right conditions, Article 102 may apply). ‘Tacit collusion’ in the strict legal sense (as opposed to ‘tacit coordination’) is collusion: the fact that it is difficult to prove does not allow the competition authorities to apply Article 102 if the market features on their own do not rationally or automatically lead to coordination. If a ‘plus factor’ is necessary for parallel behaviour to exist, this factor must be identified and punished under Article 101; it should not be dealt with using the concept of collective dominant position under Article 102.166 As was noted at the beginning of this section, this obviously does not mean that within oligopolistic markets characterised as non-competitive, Article 101 should not and cannot be applied when attempts to restrict competition occur. Any attempt by oligopolists to kill off competition amongst themselves or third parties in such markets is sanctionable under Article 101, however harmless and senseless the oligopolists’ behaviour might seem. (In such a situation the competition authorities would very probably have doubts about the market in question being non-competitive in nature from the outset.)

9.3  TACKLING NON-COMPETITIVE OLIGOPOLIES BY APPLYING THE CONCEPT OF COLLECTIVE DOMINANT POSITION UNDER ARTICLE 102

As has just been seen, the mechanisms established for the control of concentrations are effective for the purpose of avoiding a situation where, as a result of concentrations between undertakings, a stable or non-competitive and non-cooperative oligopoly is created or reinforced. But faced with a situation where an oligopoly already exists, do the Commission, competition authorities and judges of the Member States have at their disposal the tools needed to exercise effective control? The prohibition of concerted practices cannot be used in cases like this, and it would appear that neither can the prohibition on abuses of a dominant position, following the principle established by the ECJ in Hoffman-La Roche (1979). As has just been explained, in this case, the ECJ did not accept that parallel behaviour that was not collusive came within the scope of Articles 101 and 102; instead, it held that a ‘dominant position must also be distinguished from parallel courses of conduct which are peculiar to oligopolies in that in an oligopoly the courses of conduct interact, while in the   See section 9.3 below.   Stroux (2000b) 1260.

165 166

Collective Dominant Position Under Article 102  231 case of an undertaking occupying a dominant position the conduct of the undertaking which derives profits from that position is to a great extent determined unilaterally’.167 The Commission had the opportunity to overcome this barrier in Flat Glass (1988), a decision that seemed to open up the possibility that in situations where Article 101 did not apply, the parallel behaviour of oligopoly members could be dealt with under Article 102.168 However, in its submissions in defence of the position it took before the GC,169 the Commission denied ‘having adopted the position that Article 86 [now Article 102 TFEU] may be applied to undertakings in an oligopolistic position regardless of whether or not there are agreements or concerted practices among them’, and the GC did not rule on this issue.170 The use of Article 102 therefore appeared to be reserved for cooperative or traditional collective dominant positions (see the judgments in Flat Glass (1992), CEWAL (1996) and Irish Sugar (1999)), and not applicable to stable non-competitive and non-cooperative oligopolies where ‘tacit coordination’ occurs (to which Article 101 cannot be applied either).171 However, things appear to have changed following the judgments in Gencor (1999) and CEWAL (2000).172 173 In CEWAL (2000) the ECJ confirmed its previous rulings on oligopolistic collective dominant positions, stating that ‘the existence of an agreement or of other links in law is not indispensable to a finding of a collective dominant position; such a finding may be based on other connecting factors and would depend on an economic assessment and, in particular, on an assessment of the structure of the market in question’.174 In this way, as was mentioned above, the Court appeared to accept the widest application of oligopoly theory in competition law, which would include not only the control of concentrations (something already confirmed by Kali + Salz II (1998)), but also the control of abuses of an oligopolistic dominant position under Article 102. This would invalidate – or, at the very least, greatly qualify – the principle established in Hoffman-La Roche (1979). In Gencor (1999) the GC anticipated what the ECJ would say in CEWAL when it stated that ‘it is true that the concentration would not necessarily lead to abuses immediately, since that depends on decisions which the parties to the duopoly may or may not take in the future’, and added: ‘However, the concentration would have had the direct and immediate effect of creating the conditions in which abuses were not only possible but economically rational.’175 The reference to ‘economically rational’ behaviour points quite clearly to 167  ECJ Hoffman-La Roche (1979) para 39. See also ECJ Continental Can (1973) para 25 and ECJ Züchner (1981) para 10. See further AG Fennelly’s Opinion in ECJ CEWAL (2000) para 39. 168   See Whish & Sufrin (1993) 70, who express their concern about this (at inter alia 69 and 83). 169  GC Flat Glass (1992) para 350. 170   According to G Monti (1996) 91, the GC implicitly rejected this possibility. 171   For a diametrically opposed point of view, see Schödermeier (1999) who was in favour of applying Art 102 to non-competitive oligopolies (to ‘tacit coordination’ (or tacit collusion, in economic terminology)) and against applying it to cartels (or to express collusion). This point of view is correct for cartels in general, but not for certain types of cartels, such as liner conferences or others that create strong or close economic (structural) links among their members. 172   According to Albors Llorens (2003) 165, ‘[t]he judgment in Compagnie Maritime Belge could therefore be construed as the awaited response to the ‘oligopoly problem’ in Article 82 [now Art 102 TFEU] cases, just as Gencor was construed as a response to that problem in the context of merger control’. 173  ECJ Wouters (2002), GC Piau (2005) and GC Impala (2006) simply confirm the previous case law. 174  ECJ CEWAL (2000) para 45. 175   See GC Gencor (1999) paras 94, 236. See also González Díaz (1999) 16–17, who argued that the GC had filled the gap created by ECJ Wood Pulp II (1993), and Stroux (2000a) 43, who argued that Gencor would allow that which did not come within Art 101 TFEU to come within Art 102 TFEU.

232  Oligopolistic Interdependence and Dominant Oligopolistic Position oligopolistic interdependence. Accordingly, if the EU Courts concede that oligopoly members can establish – and abuse – a dominant position, they must also concede that Article 102 can be applied to the non-collusive behaviour of a non-competitive oligopoly,176 although not necessarily to all its members.177 The possibility of finding an individual abuse of a cooperative or traditional collective dominant position was established in the GC judgment Irish Sugar (1999), where the Court stated as follows: Whilst the existence of a joint dominant position may be deduced from the position which the economic entities concerned together hold on the market in question, the abuse does not necessarily have to be the action of all the undertakings in question. It only has to be capable of being identified as one of the manifestations of such a joint dominant position being held. Therefore, undertakings occupying a joint dominant position may engage in joint or individual abusive conduct. It is enough for that abusive conduct to relate to the exploitation of the joint dominant position which the undertakings hold in the market.178

This declaration ties in with the judgment in Almelo (1994), where the ECJ hinted that abuse of a collective dominant position (an exclusive purchase obligation) could be committed by one of many collectively dominant companies (the regional distributors of electricity in the Netherlands).179 The possibility of applying Article 102 to the non-collusive behaviour of a stable noncompetitive and non-cooperative oligopoly effectively means that the principle laid down in Hoffman-La Roche (1979) no longer applies, at least as regards those oligopoly members that have not been merely passive or have just followed the instigator(s) of the abuse in an economically rational or inexorable manner.180   See Porter Elliott (1999) 646.   See G Monti (2001) 141ff, who suggests various examples of individual abuse of an oligopolistic collective dominant position (give ‘signals’ to the market, grant ‘most favoured client’ status; offer to match competitors’ conditions), although he submits that Art 102 should only be used to tackle certain, and not all, oligopolistic practices, and only in the case of very tight oligopolies. For a summary of his position, see 151. See also Nicholson (2002) 11. 178  GC Irish Sugar (1999) para 66. An identical approach (citing Irish Sugar) was adopted in GC TACA (2003) para 633. Allegedly, Irish Sugar concerned an unusual abuse of a ‘vertical collective dominant position’. According to Temple Lang (2002) 282, this expression is rather unfortunate. It has also been said that Irish Sugar concerned an unusual abuse of a ‘collective vertical dominant position’. In reality, it is probable that the Commission simply did not dare to say categorically that Irish Sugar effectively controlled Sugar Distributors Ltd during the whole period in which abuses had taken place, and, in order to avoid problems, it took the easy option of stating that the two undertakings had been collectively dominant during the first part of the period in question: see Temple Lang (2002) 282. However, G Monti (2001) 142–43 argues that the Commission’s aim was very different. He claims that it used Art 102 and the concept of collective dominant position to punish three practices at the same time, one or more of which would not have been caught by Art 101(1) or Art 102 had the concept of individual dominant position been used. Nevertheless, this does not change the fact that they could be considered to be a single undertaking for the purposes of the competition rules: Irish Sugar was the main shareholder of Sugar Distributors Ltd, it effectively dictated the commercial policy of the distributor (which was basically to distribute exclusively the sugar produced by Irish Sugar) and it used the latter as a vehicle to carry out its illegal pricing policies. See Temple Lang (2002) 282. In GC TACA (2003), a case concerning a traditional collective dominant position, all of the liner conference members were fined, essentially because they were able to leave or not form part of the conference that committed the abuse. Accordingly, prosecuting all members of TACA was based on a voluntary act that attributed to them direct responsibility for the abuse. This would not be possible in an oligopolistic collective dominant position, where the members of the oligopoly in question act rationally or inexorably, if the appropriate market conditions exist. 179   See Temple Lang (2002) para 278. 180   G Monti (2001) 145 appears to accept that the doctrine in ECJ Hoffmann-La Roche (1979) para 39 applies to those oligopoly members that only ‘adapt intelligently’ to the behaviour of their competitors, even though this amounts to an abuse. See also Temple Lang (2002) 344–45. 176 177

Collective Dominant Position Under Article 102  233 As a result, since CEWAL (2000) and Gencor (1999) (confirmed, subject to different nuances, by the ECJ in Wouters (2002), and by the GC in Piau (2005) and Impala (2006)), oligopolistic interdependence and conscious parallel behaviour cannot be considered to fall completely outside the scope of the European competition rules. Although they cannot be prohibited under Article 101, they can be used to establish an oligopolistic collective dominant position susceptible of abuse and punishment under Article 102. Thus, the Commission has found a means of filling the ‘oligopoly gap’ in such a way that ‘intelligent adaptation’ as a legitimate explanation of competitors’ parallel behaviour may turn into ‘an endangered juridical species’.181 Despite the clarity of the declarations of the EU Courts, many authors have expressed their doubts about the possibility of applying Article 102 in such circumstances.182 On the one hand, they doubt whether in practice ‘collective abuse’ can exist in oligopolies without there being an element of express collusion which could be attacked by applying the prohibition of agreements that restrict competition.183 And, on the other, they doubt whether oligopolists’ economically rational behaviour, which cannot be punished using Article 101, could be punished under Article 102.184 In other words, these authors argue that the paradoxical situation could arise whereby in defending themselves against the accusation of having infringed Article 101, undertakings could put themselves in a position where they could be attacked under Article 102.185 Some authors have therefore suggested the need to adopt a ‘new political tool’, different from Articles 101 and 102, to cover this situation.186 The fundamental reason why many authors do not consider Article 102 to be an appropriate tool to intervene in non-competitive oligopolistic markets is that there are no adequate ‘remedies’ to correct their structural imperfections, because undertakings cannot be required or expected not to be guided by economic logic and rationality in the markets in which they operate. The starting point of this approach is that the ‘oligopoly problem’ is not as a result of undertakings’ behaviour (it is not possible to ‘remedy’ it under Articles 101 and 102 TFEU), but is caused by the market structure itself.187 The only solution is, therefore, to tackle the market structure, basically by means of ex ante control of con­ centrations between undertakings. However, there are other possible ‘remedies’ to correct   Withers & Jephcott (2001) 300 and 303.   For example, Mezzanotte (2010), who refers to evidential problems, and Mezzanotte (2009), less categorically. 183   See McGregor (2001) 436ff. In a similar sense, but prior to GC Gencor (1999) and ECJ CEWAL (2000), see Fernández de Araoz (1993) 10112–13. See also, in US antitrust law, Posner (1969). 184   Bishop & Walker (2002) 251–52, para 6.127, citing Whish (2001) 480. The latter author, in Whish (2001) 586–87 and in Whish (2008) 559, referring to ECJ Hoffmann-La Roche (1979), explains that the ‘apparent rejection of Article 82 [now Art 102 TFEU] as a tool for controlling oligopolistic behaviour . . . [was] understandable’; ‘where there was no explicit collusion contrary to Article 81 [now Article 101 TFEU], the Court was not prepared to characterise the economist’s notion of tacit collusion as abusive under Article 82 [now Article 102 TFEU].’ In the same sense, see Withers & Jephcott (2001) 303. On the impossibility of attacking oligopolists’ economically rational behaviour under s 1 of the US Sherman Act, see Lopatka (1996) 906. 185   For a similar point of view, see Stevens (1995) 76 and G Monti (1996) 92–93, 95. The latter opposed using Art 102 for reasons of principle and for reasons of logic. From the legal point of view, Monti argued that if the GC accepted oligopolistic interdependence as a defence to Art 101, it could not be used as evidence of a breach of Art 102. From the economic point of view, he argued that it was axiomatic that oligopolists were interdependent and could not hold a collective dominant position that requires independence from competitors. 186   Rodger (1994) 21, 24–25; Rodger (1995) 44, 47. 187   The rational oligopolist behaves in exactly the same way as a rational seller in an industry with a competitive structure: Álvarez González (1992) 6, citing Turner (1962). Hawk & Motta (2008) 5 also underline the absence of adequate remedies to apply effectively Art 102 to oligopolistic collective dominant positions. 181 182

234  Oligopolistic Interdependence and Dominant Oligopolistic Position structural situations ex post, such as forced demergers, although they have yet to be used in EC competition law.188 Nevertheless, it is very clear that price interdependence cannot be dealt with on its own, because public authorities cannot prevent undertakings anticipating their rivals’ behaviour when deciding their prices.189 Therefore, mere ‘tacit coordination’ typical of an oligopolistic collective dominant position cannot be condemned as abusive because it is rational (and for this reason it also escapes Article 102).190 It would be impossible to punish oligopolists merely because they acted in an economically logical way (remember that with Article 102 we are in the area of sanctions, albeit of an administrative nature). The most obvious way to mend structural flaws in such markets would be through price intervention, but competition authorities and judges systematically refuse to become bodies that intervene in or regulate markets and embark on the adventure of comparing costs and prices.191 Alternatively, although mere oligopolistic interdependence cannot be attacked, any practice destined to ‘convert an imperfect oligopoly pricing pattern into a perfect one by eliminating uncertainty’ could be.192 In fact, there is a whole range of ‘facilitating practices’, or ‘activities that tend to promote interdependent behavior among competitors by reducing their uncertainty as to each other’s future actions, or diminishing their incentives to deviate from a coordinated strategy’.193 Despite the fact that in real life oligopolists can always be accused of acting in a way that reduces uncertainty,194 among the best-known ‘facilitating practices’ are the following:195 •  announcements of future price increases;196 •  granting of most-favoured client clauses;197 •  information sharing between competitors, in a trade association or by any other means;198 •  standardisation of products or terms;199 188   Whish (2008) 209–10. This possibility is implicitly but clearly set out in Art 7(1) of Reg 1/2003, implementing Arts 101 and 102 TFEU and to date (30 June 2011) it has not been used by the Commission. 189   See Lopatka (1996) 861, who refers to the inapplicability of s 1 of the Sherman Act. 190   Whish (2000) 605ff argues that for this reason, the emphasis has to be on prevention via the control of concentrations. Cf, however, Whish & Sufrin (1993) 67, who cite parallelism in prices on oligopolistic markets as an example of a practice capable of being examined under Art 102. 191   See the opinions of the EU authorities (DG COMP of the European Commission) and of the US authorities in Organization for Economic Co-operation and Development (1999) 254, 228. See also Lopatka (1996) 906; Fernández de Araoz (1993) 10112–13. 192   Lopatka (1996) 861, citing Turner. 193   This definition has been used by the US authorities: see Organization for Economic Co-operation and Development (1999) 204, citing Philip E Areeda, vol VI, para 1407b (1986). Fernández de Araoz (1993) 10115–16, fn 33 defines it as a series of measures used by business people to ‘compensate’ the obstacles to equilibrium that exist in imperfect oligopolistic markets. In the same way that ‘facilitating practices’ (behaviour) exist, there are also ‘[structural] complication factors’, or market features that hinder oligopolistic interdependence and non-­ competitive parallel behaviour. See the US authorities’ opinions in Organization for Economic Co-operation and Development (1999) 235ff. With respect to facilitating practices, see, in general, Kovacic (1993) 48ff. 194   Accordingly, Lopatka (1996) 861 wonders what exactly would trigger infringement. 195   According to Baker (1993) 151, fn 14, who cites various authors, ‘a list of practices facilitating collusion has become a staple of both economics texts and antitrust monographs’. See, inter alia, Fernández de Araoz (1993) 10092–93 and Motta (2004) 191, who refers to a ‘black list of facilitating practices’. 196   Stevens (1995) 54–8; Venit (1999) 1105–06, 1113; Kauper (2008) 756–57. 197   Venit (1999) 1105–06, 1113; Bavasso (1999) 64; Kauper (2008) 756–57. 198   Stevens (1995) 54–58; Venit (1999) 1105–06, 1113; Kauper (2008) 756–57; or Kovacic (1993) 19, according to whom ‘[t]he most significant facilitating practice in section 1 cases has consisted of bilateral exchanges of information among competitors or exchanges of data through trade associations’. 199   Stevens (1995) 54–58.

Collective Dominant Position Under Article 102  235 •  use of ‘delivered pricing’ (including transport and delivery costs) or ‘basing-point pricing’.200 ‘Facilitating practices’ of non-competitive oligopolistic parallel behaviour can be considered to breach Article 101, Article 102 or both. From the point of view of Article 101, and depending on the circumstances, parallel adoption of such practices could be considered a factor evidencing the existence of concerted practices (like ‘plus factors’),201 or even – exceptionally – concerted practices per se.202 203 Only non-competitive oligopolistic parallel behaviour without ‘facilitating practices’ could escape Article 101.204 Applying the prohibition on agreements and practices that restrict competition to ‘facilitating practices’ in either of the two ways described gives rise, however, to problems that are difficult to solve. These have been experienced both by the US authorities as regards section 1 of the Sherman Act205 and by the European Commission as regards Article 101, as the ECJ showed in Wood Pulp II (1993).206 As was explained some pages earlier, in this case the European Commission accused various wood pulp manufacturers of engaging in concerted practices. It adduced various evidence in support of these allegations, including a practice carried out by all under­ takings of announcing price changes a long time in advance, which gave all undertakings time to bring their prices in line with those notified by the one that had acted as leader. This practice, which was considered to be conclusive evidence in Dyestuffs (1969),207 was seen differently in ECJ Wood Pulp II (1993), since such advance notices were common in the wood pulp industry and clients considered that the notices helped them plan their costs and adjust their own prices. In other words, the effects of the ‘facilitating practice’ in question were ambiguous.  ibid.   Kauper (2008) 756–57 explains that ‘[a]s plus factors, [facilitating practices] need not be free standing violations. They are simply elements of proof of a broader unlawful agreement about prices’. According to Stevens (1995) 54–58, among these ‘plus factors’ are: (i) evidence of direct communication or an opportunity for this; (ii) behaviour that is seemingly irrational or contrary to undertakings’ interests when there is no agreement; (iii) the use of ‘facilitating devices’. Kauper (2008) 763 refers to ‘the murky waters of identifying and proving socalled “plus factors”, the proof of which is sufficient, when coupled with proof of parallel pricing and of market structures suggesting that collusion could be successful, to convert a parallel pricing case into a price fixing case.’ 202   In the US, Hay (2006) 913 tries to establish the situations in which facilitating practices may be contrary to s 1 of the Sherman Act, stating that ‘when a group of firms has managed to coordinate their actions in such a way as to achieve supra-competitive prices (or some other anticompetitive result) and that coordination was facilitated by certain practices that the firms have engaged in which have no offsetting business justification, then the coordination can be described as constituting a tacit (and therefore unlawful) agreement’. The conditions would therefore be: (1) effective coordination (parallel behaviour); (2) supra-competitive prices; (3) the existence of facilitating practices; and (4) lack of ‘offsetting business justification’. See also Lopatka (1996) 906–07. 203   The same distinction between ‘facilitating practices leading to, or as constituting, an unlawful agreement’ can be found in Hay (2006) 901–02. This author makes a distinction between ‘plus factors’ and ‘facilitating practices’. Thus, according to Hay ‘plus factors’ are evidential elements that must be taken into account when identifying consciously parallel conduct in order for this to be considered actionable, while ‘facilitating practices’ are acts without which the parallel conduct would not be conscious and, therefore, concern substantive rather than just evidential matters. In my opinion, this shows that the boundary between these concepts is not so clear; perhaps it is the context that determines the use of the two terms, although they could both coincide in the same situation. 204   Or s 1 of the Sherman Act; see Lopatka (1996) 906–07. However it would not necessarily escape Art 102, at least as regards the leaders or initiators of an anti-competitive oligopolistic reaction, as will now be seen. 205   Lopatka (1996) 906–07. 206   See Stevens (1995) 75–76. 207   See Commission decision Dyestuffs (1969), ECJ ICI (1972) and the other cases with the same date. See also Korah (1999a) 341. 200 201

236  Oligopolistic Interdependence and Dominant Oligopolistic Position In sharp contrast with Article 101, Article 102’s cause has been greatly helped by GC Gencor (1999) and ECJ CEWAL (2000),208 and some authors are also in favour of it being used in an unfettered manner.209 This does not happen in the US, where section 2 of the Sherman Act cannot be used to fix the ‘oligopoly blind spot’. The debate on the possible application of this rule – which punishes monopolisation and attempts to monopolise – to stable non-competitive and non-cooperative oligopolies, describing them as ‘joint monopolisation’ or ‘shared mono­ polisation’, took place in the 1960s and 1970s. Ultimately, despite the initially good prospects of this argument succeeding and the efforts of the antitrust authorities, the US federal judges decided not to apply section 2 in this way.210 The same occurred with section 5 of the Federal Trade Commission Act, which prohibits practices that facilitate collusion. This rule, which apparently should have been used to overcome the limitations of sections 1 and 2 of the Sherman Act and the Clayton Act,211 was thwarted in practice by a restrictive judicial interpretation, despite the Federal Trade Commission’s attempts to apply it.212 213 From the perspective of Article 102, ‘facilitating practices’ are used in the first place to create the necessary uniformity of behaviour typical of collective dominant positions (in this case of an apparently collusive nature, within the legal meaning) that is to establish the ‘collective position’ of undertakings; and, secondly, in certain specific circumstances they can go beyond the mere creation of a collective dominant position de facto and constitute   See also GC Piau (2005) and GC Impala (2006), the latter confirmed in ECJ Impala (2008).   See Petit & Henry (2010); Siciliani (2009), who is implicitly in favour of making its application possible to cases of refusal to supply in the Italian mobile phone market; and Vecchi (2008), amongst others. Petit & Henry (2010) criticise both those that only accept that action be taken ex ante against non-competitive oligopolies and the European Commission for having adopted this approach in its Guidance Paper on Art 102 TFEU (European Commission (2009)) (see below) and propose that Art 102 be applied, but without imposing fines, on the basis of an ‘oligopolistic compulsion doctrine’ based on the European ‘state compulsion doctrine’. 210   The US Supreme Court decision in American Tobacco Co v United States 328 US 781 (1946) seemed to suggest that members of joint or shared monopolies could be controlled under s 2 of the Sherman Act. See Whish & Sufrin (1993) 61–62. However, lower federal courts have in fact rejected that theory. See Levy (2002) 36, fn 117, who cites American Bar Association, Antitrust Law Developments vol I (5th edn, 2002) 312 and Areeda & Hovenkamp (1997). See also G Monti (1996) 89. As regards legislation, a 1969 recommendation by the White House Task Force on Antitrust Policy existed; had it been passed it would have allowed courts to require (except where the ‘efficiency defence’ succeeded) the demerger of any industry where four or fewer undertakings control at least 70% of the market. See Whish & Sufrin (1993) 61–62. According to Baker (1993) 207, 173–74 fn 56, legislative attempts, supported by academics, to apply s 2 of the Sherman Act were based on good intentions but were essentially impracticable, aimed at ending the frustration of not being able to use s 1 against non-competitive oligopolies. Donald Turner advocated both means and made a fundamental contribution to the Merger Guidelines 1968 as the then Assistant Attorney General for Antitrust. From the Chicago School, Posner (1969) 1595ff, who was in favour of applying s 1 to such situations, also opposed the use of s 2 vis-à-vis non-competitive oligopolies. In his view, if s 1 could not be applied, then there was no hope for s 2. 211   According to Stevens (1995) 57–58, faced with the difficulties of applying the Sherman Act to ‘facilitating practices’, ‘[t]o some extent . . . the debate has shifted from a discussion of the probative weight of facilitating devices as “plus factors” in proving conspiracy under the Sherman Act, to the outright condemnation of facilitating devices under the Federal Trade Commission Act’. 212   See, inter alia, EI du Pont de Nemours & Co v Federal Trade Commission (Ethyl), 729 F2d 128 (2d Cir 1984). In relation to this point, see the observations of Kovacic (1993) 75ff. See also Kovacic & Winermann (2011) 950, who promote a broader application of section 5 which takes into account ‘past problems’ for its enforcement. 213   Kauper (2008) 751 considers that ‘the oligopoly problem of an earlier time was based on the prediction that oligopolists, without explicit collusion or even direct contact among themselves, would likely . . . set output limits similar to those of explicit cartels or single firm monopolists’; ‘the oligopoly problem as we knew it in earlier times has, in essence, been resolved in a manner suggesting that the problem is without direct solution’. This might be the case in the USA, but perhaps not yet in the EU, where Art 102 can still be used in relation to oligopolistic collective dominant positions, or in Spain, where the legislature has chosen to preserve the concept of consciously parallel conduct potentially as a self-standing infringement different from concerted practices. 208 209

Collective Dominant Position Under Article 102  237 in themselves an abuse of a collective dominant position. The prerequisites for the application of Article 102 in such cases could be the following: (i) proof of ‘facilitating practices’ being carried out; (ii) proof of stable non-competitive parallel behaviour (that is, proof of the lack of minimally effective competition between oligopolists, ie the existence of a ‘collective position’); (iii) a causal link between (i) and (ii) (ie that the non-competitive oligopolistic equilibrium is a result of the facilitating practices); (iv) proof that there is no effective external competition or countervailing power of demand (dominant position); and (v) lack of a valid economic reason for the practices or, alternatively, if their effects were ambiguous, proof of an anti-competitive intention. In fact, as with regard to Article 101, ‘facilitating practices’ can only be found to be an abuse if there is no ‘alternative’ economic justification or reason for them. If they simultaneously benefit consumers, that is, if they produce ambiguous effects, there is nothing wrong with them. In fact, this is the main problem: most facilitating practices can have economically advantageous or even pro-competitive objectives, as well as anti-competitive ends.214 At most, ambiguous ‘facilitating practices’ could be punished if it were shown that oligopolists had anti-competitive intentions when putting them into practice. Putting ‘facilitating practices’ on one side, what could amount to an abuse of an oligo­ polistic dominant position? Various forms of abuse have been suggested: •  The first, which is the most doubtful and controversial, is conscious parallel behaviour, or ‘tacit collusion’ in an economic sense: according to some authors, this could be abusive if its effect is to reinforce an oligopolistic collective dominant position,215 while others hold that on its own it cannot amount to an abuse.216 •  Excessive prices imposed collectively.217 •  Exclusion practices such as those held to be illegal in the Commission’s decision in Magill (1988).218 •  Excessive cost of advertising campaigns.219

214   See opinions of US authorities in Organization for Economic Co-operation and Development (1999) 205. According to Lopatka (1996) 906–07, there are usually good substitutes for ‘facilitating practices’, some of which are sufficiently ambiguous as to make them impossible to attack. Thus, attacking oligopolies in the best possible way, the most that antitrust law would achieve would be to increase the marginal costs of collusion (as defined by the author). To conclude, although not much harm would be done, neither would much be achieved, ‘a final implication of human imperfection’ as Lopatka puts it. 215   See Stroux (2000b) 1262, who advocates this possibility in the light of economic theory, although she detects certain problems for legal certainty. 216   Whish (2000) 480. 217   See Rodger (1995) 24; or Albors Llorens (2003) 169, who defines excessive pricing as an obvious type of abuse of an oligopolistic collective dominant position. However, in my opinion it is not sufficient that firms have engaged in supracompetitive pricing for an abuse to be identified. Thus, in addition to that which is required to establish a collective dominant position (which implies that competition is not effective and prices are higher than in a competitive market), something else will always be necessary. See, in this regard, Eilmansberger (2005) 28–29. 218   Rodger (1995) 24. 219   Whish & Sufrin (1993) 67 also suggest that parallel pricing behaviour and product differentiation can be abusive when neither of them seems credibly to lead to abuse (the first because logical and rational behaviour in the market should not be punished; the second because only the opposite of differentiation, ie product standardisation, would at most be punishable, and that as a ‘facilitating practice’).

238  Oligopolistic Interdependence and Dominant Oligopolistic Position •  Sharing information regarding discounts or capacity. This would also breach Article 101.220 •  Authorisation of most-favoured client clauses.221 •  ‘Selective price cutting designed [without collusion] to eliminate a competitor from the market or to raise/stabilise barriers to entry.’222 •  Fidelity rebates.223 •  A minority share pack purchase by a competitor within an oligopolistic market.224 The precise nature of the beast is still unknown, because to date the concept of abuse of an oligopolistic collective dominant position has merely been sketched out in EU case law and Commission decisions.225 Some authors have suggested that for Article 102 to apply there must be proof that, although they have not colluded, the undertakings in question ‘have sought to hinder [effective] competition’,226 although the requirement of proof of anticompetitive intention can turn out to be excessive and make Article 102 inapplicable in many cases. In any event, developing the concept of abuse of an oligopolistic dominant position could start with behaviour that is at present easier to identify: ‘facilitating practices’ and the individual abuse of a collective dominant position.227 We find ourselves, therefore, in the very early stages of development of the concept of abuse of an oligopolistic dominant position, and it is premature to assess the opportunities for and/or the correct way of applying this concept. Three points, however, do seem clear. First, there does not necessarily have to be symmetry between illegal practices in an individual dominant position and those in an oligopolistic collective dominant position. Looking to the future, it does indeed seem reasonable to create a new and different concept of abuse in these types of situations. The many differences that exist between a collective oligopolistic dominant position and an individual dominant position suggest that the best starting point is to concede that not everything that amounts to abuse of an individual dominant position should necessarily be considered abusive in an oligopolistic collective dominant position, and vice versa (recalling what was said about abuse through ‘facilitating practices’).228 However,   Bavasso (1999) 64.   ibid. This author places the two last forms of behaviour in the category ‘unilateral actions which result in exclusionary practices or facilitating practices’, and cites Korah (1999b) 63. 222   Withers & Jephcott (2001) 303 give an example taken from CEWAL (a non-oligopolistic collective dominant position). The existence of a ‘design’ could per se infringe Art 101, although these authors do not say it, because their starting point is that there is no collusion in the example they give. 223   Whish & Sufrin (1993) 67. According to these authors, who accept that the first to give rebates acts competitively, if various or most oligopolists offer them, there could be an abuse. However, if the first to give rebates acts in a pro-competitive manner, and the others follow it because it is rational to do so (or because they have no choice), there seems to be nobody to blame for the worsening of competitive conditions; perhaps only proof of an anti-competitive intention would be sufficient to punish the first oligopolist who offers them for breach of Art 102. Generally speaking, these authors seem to suggest that there would be abuse if an oligopolist’s intention were to exclude a competitor from the market (Whish & Sufrin (1993) 75). 224   See Struijlaart (2002). 225   See also Whish (2004). 226   Withers & Jephcott (2001) 303. 227   Korah (1999a) 341; Whish (2008) 565–67. 228   See an interesting debate between Barry Hawk and John Temple Lang in Hawk (2003) 390–01. Hawk suggested that another reason to separate the ‘substantive test’ of the EC control of concentrations from the basic ‘test’ of Art 102 (he advocated moving towards the US ‘substantial lessening of competition’ (SLC) test) is that using merger precedents in collective dominant position cases could lead to an individual oligopoly member being held to have acted illegally ‘for very ambiguous competitive behavior as an abuse of a dominant position’. Temple Lang agreed that behaviour contrary to Art 102 when in an individual dominant position is not necessarily illegal where an undertaking holds a collective dominant position with other undertakings. According to Temple Lang, ‘that means, I think, that you need a more flexible and sophisticated analysis of abuse, not a separate concept of joint dominance’. In a similar sense, see Depoortere & Motta (2009) 5. 220 221

Collective Dominant Position Under Article 102  239 these differences do not exist when it comes to collective dominant positions of a collusive nature, and therefore in such cases the same practices that are found to be abuse of an individual dominant position can and should be considered abusive. The second point is that abuse of an oligopolistic collective dominant position can be individual, plural or joint, because undertakings holding a collective dominant position and undertakings that abuse it are not necessarily the same: while all members hold the collective dominant position, only one, several, or all of them may abuse it.229 This is far from meaning that the behaviour of that or those members abusing it is different from the rest (being substantially the same is a basic prerequisite for establishing the group’s ‘collective position’), but from the point of view of liability, not all undertakings are responsible for their actions. For example, the undertaking (or undertakings) that triggers an anticompetitive oligopolistic reaction in the market may act in an abusive manner, while those that ‘follow’ have no choice but to act in parallel.230 To sum up, for behaviour to be held illegal in competition law, it must be proved that each undertaking infringed the law through some anti-competitive action, and for that it must be shown that each of them is responsible for its own actions, which in turn requires that before they acted as they did, they had a reasonable opportunity to act differently. Merely showing that a group of undertakings had joint market power should not be enough to find that one of those under­takings has committed an abuse.231 The third point that seems to be beyond doubt is that, compared with the ex ante analysis of the control of concentrations, an ex post analysis would allow the Commission to be much more precise when establishing the existence of an oligopolistic collective dominant position, because the analysis of undertakings’ behaviour in the market (acting de facto in a uniform manner vis-à-vis other operators in the market232) would allow it to come to specific conclusions regarding the existence of a ‘collective position’, dominance and abuse. The GC’s judgment in Impala (2006) is correctly based on this obvious point: it is easier to observe the past than predict the future.233 For this reason, the GC held that in the context of the assessing whether a collective dominant position exists, although the three requirements laid down in GC Airtours (2002) ‘inferred from a theoretical analysis of the 229   The possibility of individual abuse of a collective dominant position was suggested by Flint (1978) 61, 74–75, where he refers to a peculiar situation in Commission decision ABG/Oil companies operating in the Netherlands (1977) (annulled by the ECJ in BP Nederland (1978)). Depoortere & Motta (2009) propose two ‘attribution standards’: the ‘all together abuse standard’ and the ‘just one abuse standard’. 230   Thus, against what was advocated by Ritter, Braun & Rawlinson (2000) 344–45 and fn 147, there is no contradiction of the requirement that undertakings holding a collective dominant position behave in the same or a very similar way (see, inter alia, Flat Glass (1992) paras 343, 358–63, and Gencor (1992) paras 205–06, 273–76). Even the oligopolist that initiated an oligopolistic reaction contrary to the interests of competitors which are not part of the oligopoly, consumers, etc, could have acted in economically the most rational way. In such a case, could the initiator be punished for an individual abuse of a collective dominant position? Probably not, given that an objective justification existed, although the Commission can always find elements that are not strictly rational to enable it to reach the opposite conclusion. 231   See Baker (1993) 208–09, who refers to the application of s 1 of the Sherman Act to oligopolies and argues: ‘Antitrust adjudication requires proof that each defendant violated the law through some anticompetitive act; the mere demonstration that firms have exercised market power is insufficient to hold a firm liable for its past conduct . . . [N]o individual firm is held liable for its past behavior unless it had the choice of acting otherwise.’ 232   Haupt (2002) 438. 233   On this basis, it is easier to prove an oligopolistic dominant position ex post than ex ante. Against: Siciliani (2009) 697–98. One point where it is possible to agree with Siciliani is that an abuse of an oligopolistic dominant position would be more difficult to prove than an abuse of an individual dominant position, or an abuse of a classical or traditional collective dominant position (based on different links with oligopolistic ‘tacit coordination’), if only because firms accused of abuse of a dominant position of this kind would have a readily available ‘objective justification’: the interdependence of oligopolists that forms an inherent part of the oligopolistic dominant position.

240  Oligopolistic Interdependence and Dominant Oligopolistic Position concept of a collective dominant position, are indeed also necessary, they may, however, in the appropriate circumstances, be established indirectly on the basis of what may be a very mixed series of indicia and items of evidence relating to the signs, manifestations and phenomena inherent in the presence of a collective dominant position’.234 The Court also appears to suggest that a ‘finding of a common policy over a long period, together with the presence of a series of other factors characteristic of a collective dominant position, might, in certain circumstances and in the absence of an alternative explanation, suffice to demonstrate the existence of a dominant position, as opposed to the creation of such a position, without it being necessary positively to establish market transparency’.235 Very similarly, ECJ Impala (2008), in which the Court set aside the GC’s ruling on other grounds, accepts that the investigation of a pre-existing collective dominant position is based on a series of factors normally considered to indicate the presence or the probability of tacit coordination between competitors but requires ‘that such an investigation be carried out with care and, above all, that it should adopt an approach based on the analysis of such plausible coordination strategies as may exist in the circumstances’.236 In this regard, use of a ‘first principles’ approach when studying undertakings’ behaviour should make it possible to establish the three elements of abuse of an oligopolistic collective dominant position (collective position, market dominance and abuse) with the same or a similar level of difficulty as the two elements of ‘abuse’ of an individual dominant position (dominant position and abuse).237 An approach based on proving the uniform behaviour of undertakings and its consequences on the market would greatly facilitate the application of the concept of abuse of an oligopolistic collective dominant position, and would avoid it being turned into a theoretical curiosity which is of no practical help in remedying the ‘blind spot’ in European competition law as regards oligopolies. The fact is that although the developments in the case law in recent years have paved the way for Article 102 to be applied when dealing with oligopolistic collective dominant positions, the practice has not matched the theory. It is true that in its Discussion Paper on Article 102 the Commission included a series of possible examples of abuse of an oligopolistic collective dominant position.238 But from the outset, certain authors very close to DG COMP expressed their scepticism about the Commission’s intentions as regards the application of this theory,239 and that scepticism was confirmed by the removal of the reference to these possible abuses in the Guidance Paper on the application of Article 102 finally published by the Commission in 2009. In fact, there has not even been a return to the application of Article 102 to situations involving traditional collective dominant positions.240  GC Impala (2006) para 251.   ibid, para 254. 236  ECJ Impala (2008) para 129. 237   For the ‘First Principles approach’ in the USA see Salop (2000) 200–01, who cites Eastman Kodak Co v Image Technical Serv Inc, 504 US 451 (1992) 477, and FTC v Indiana Federation of Dentists, 476 US 447 (1986) 460–01, where Philip Areeda, Antitrust Law vol 7 (1986) para 1511, 429 and United States v Addyston Pipe & Steel, 85 F 271, 292 (6th Cir 1898) are cited. This last case is the source of the ‘First Principles approach’ advocated by Salop and others. In Judge Taft’s words: ‘The most cogent evidence that [the defendants] had this [market] power is the fact, everywhere apparent in this record, that they exercised it.’ 238   Discussion Paper on Art 102 TFEU (European Commission (2005)) para 47. 239   Albers & Peeperkorn (2006) 4. 240   For an unsuccessful complaint regarding an abuse of this nature, see Commission decision EMC/European Cement Producers (2005), upheld by GC EMC (2010). 234 235

Parallel Behaviour with Respect to Articles 101 and 102 TFEU  241

9.4  A GRAPHIC REPRESENTATION OF THE POSSIBLE CLASSIFICATION OF PARALLEL BEHAVIOUR WITH RESPECT TO ARTICLES 101 AND 102 TFEU AND THE SECOND ‘OLIGOPOLY BLIND SPOT’

In the two last sections it was argued that in European competition law there is neither a gap nor a ‘blind spot’ in ex post prevention of oligopolistic parallel behaviour because either Article 101 or Article 102, or both provisions at the same time (overlapping theory), will apply. An intermediate solution between the ‘blind spot’ and overlapping theories is the contiguity theory: where parallel behaviour reaches a level at which it cannot be sanctioned under Article 101, it will be caught by Article 102. Thus, no restrictive behaviour will escape the competition rules. However, as we shall now see, this is the least credible solution, once we are dealing with expressly collusive collective dominant positions capable of breaching both Articles 101 and 102 at the same time. The diagram below reflects the content of sections 9.2 and 9.3, and the ‘blind spot’, overlapping and contiguity theories in relation to the application of Articles 101 and 102 to parallel behaviour between undertakings, particularly in oligopolistic markets. APPLICATION OF ARTICLES 101 & 102 TFEU TO PARALLEL CONDUCT *x=y=alleged blind spot. In a circular continuum, x and y would be the same area Parallel conduct which, given the characteristics of the relevant market, reflects an oligopolistic collective position.

Parallel conduct between firms that have a relationship of noncompetitive oligopolistic interdependence.

Parallel conduct that is based on the existence of express restrictive agreements that create a collusive collective position.

x*

y*

Parallel conduct caused by market reasons, within a structure in which firms do not show oligopolistic interdependence, or if they do it is competitive.

OVERLAPPING THEORY

Parallel conduct that is carried out in the presence of facilitating practices: That prove the existence of concerted practices That themselves constitute concerted practices

Not contrary to Art 101 TFEU

Capable of being considered

Openly

Capable of being considered

BLIND SPOT (OR GAP) THEORY Not contrary to Art 101 TFEU

Contrary to Art 101 TFEU

According to the contiguity theory, the same conduct cannot breach Arts 101 and 102 TFEU at the same time.

Parallel conduct that is carried out in the presence of ‘plus factors’ capable of indicating the existence of concerted practices (without ‘facilitating practices’, which may also be ‘plus factors’).

Situations capable of creating a collective position, which, if dominance also exists, would imply that the firms' conduct could be subject to Art 102 TFEU.

Contrary to Art 101 TFEU

CONTIGUITY THEORY

Parallel conduct that is based on the existence of express restrictive agreements.

Openly Situations not capable of allowing the application of Art 102 TFEU: the “gap” Situations capable of creating a collective position, which, if dominance also exists, would imply that the firms‘ conduct could be subject to Article 102 TFEU.

*X = Y = Alleged blind spot - in a circular continuum, X and Y would be the same area ** According to the contiguity theory, the same conduct cannot breach Arts 101 and 102 TFEU at the same time.

242  Oligopolistic Interdependence and Dominant Oligopolistic Position

9.5  RESTATEMENT: DIFFERENCES BETWEEN THE TRADITIONAL COLLECTIVE DOMINANT POSITION AND THE OLIGOPOLISTIC COLLECTIVE DOMINANT POSITION

Article 102 prohibits abuse of a dominant position by one or more undertakings. The EU Courts have defined ‘collective dominant position’ as the existence of a group of independent undertakings which, united by close links, act in the market as a collective entity with respect to their competitors, their clients and, ultimately, consumers. In terms of merger control, there are substantial differences between oligopoly situations and the traditional collective dominant position under Article 102.241 In fact, on the basis that an oligopoly is a small group of undertakings within which the individual actions of each undertaking are interdependent, and that there are both competitive and non-­ competitive oligopolies, the oligopolistic collective dominant position will be equated with oligopolies where the relation of dependence between the oligopolists leads to a stable non-competitive outcome. If oligopolistic interdependence did not lead to a stable non-­ competitive equilibrium between the members of the theoretical dominant oligopoly, and the members believed that they were obliged to compete effectively, the oligopolists would not hold a collective position, and therefore they could not occupy a dominant position either. Although at the end of the day the results are the same with respect to both types of collective dominant position, the oligopolistic dominant position is slightly different from the cooperative or traditional form, in that its members are united precisely by relationships of intense latent competition which leads them to behave in the same way in the market: their ‘close economic link’ is their unique competitive relationship derived from the structural characteristics of this relationship. In the traditional collective dominant position, undertakings may act as a unit because they have eliminated competition between each other by various means, such as tangible means of a cooperative and generally (if not systematically) collusive nature (such as agreements that restrict internal competition among members of the group, whether or not they breach Article 101). In these circumstances, faced with the foreseeable difficulty of proving tangible links, the Commission has ceased to consider them as a necessary element for the control of concentrations, on the basis that in a tight oligopoly interdependence between undertakings may result in them acting without the need for an express or implied agreement, causing the same damage to consumer wellbeing as a traditional cooperative collective dominant position. After the ECJ in Kali + Salz II (1998) had annulled the whole of the Commission’s decision of the same name for failing to demonstrate sufficiently the existence of structural links on the potash market which would have formed the basis for proving the existence of a collective dominant position (one that was clearly hybrid, ie a mixture of traditional and oligopolistic), in Gencor (1999) the GC again relaxed the need for strong links to exist between undertakings to demonstrate the creation or reinforcement of a collective dominant position. It did so by defining broadly the concept of economic links, which definition included the relation of interdependence that exists between members of a tight oligopoly.

241   See also Nicholson & Cardell (2003) 286; O’Donoghue & Padilla (2006) 138, 146–47, 150–51; Navarro Suay (2004) 57, who all advocate the existence of two types of collective dominant position.

Differences Between the Traditional and Oligopolistic Collective Dominant Position  243 Finally, in CEWAL (2000) the ECJ also adopted a broad definition of the concept of ‘links’ for the purposes of establishing a ‘collective position’ between undertakings, and did not reduce them to cooperative links (specifically agreements and practices that restrict com­ petition); instead, it accepted ‘links’ or ‘correlative factors’ resulting from market structure. As can be seen, neither the ECJ nor the GC have wished to cut completely the umbilical cord that unites collective dominant positions developed by the Commission in the field of the control of concentrations with traditional collective dominant positions, as defined by the EU Courts in cases like Flat Glass (1992), Almelo (1994), La Crespelle (1994), DIP (1995), CEWAL (1996) and CEWAL (2000). Correctly, none of these cases has completely detached itself from the traditional analysis, which holds that in order for a ‘collective position’ to exist there must be links (in the broadest sense) between undertakings that lead them to adopt the same form of behaviour in the market. By contrast, the case law relating to merger control has notably influenced the perception of traditional dominant positions (GC Piau (2005), GC Impala (2006) and ECJ Impala (2008)). In addition, the most recent changes in the case law have qualified and limited the scope of Hoffmann-La Roche (1979), which held that parallel but non-collusive behaviour of members of an oligopoly did not come within the scope of Article 102 (nor within Article 101). In the current circumstances it is worth asking how the Commission will apply Gencor and CEWAL, above all in the light (or rather the darkness) of Piau, and Impala (GC and ECJ). Will it ever apply Article 102 to an oligopoly? The problems are not to be dismissed lightly. For example, who should be punished? The undertaking that triggers the abuse? Or all undertakings that have no alternative but to follow, or have followed rationally, the one that decided to look for a new equilibrium? Can the theory of ‘structural’ or strictly ‘objective’ abuse be applied in such cases? The truth is that Hoffmann-La Roche (1979), in establishing that ‘in an oligopoly the courses of conduct interact, while in the case of an undertaking occupying a dominant position the conduct of the undertaking which derives profits from that position is to a great extent determined unilaterally’,242 points to the fundamental difference between individual dominant positions and oligopolistic behaviour and suggests a possible method of differentiating between cooperative or traditional oligopolistic collective dominant positions: in the former, the behaviour is ‘unilateral’ in nature243 (there is one single common form of behaviour that is not spontaneous but established through pre-existing mechan­ isms, ‘links’ or ‘correlative factors’ between the members of the group), and in the latter it is interdependent (the same behaviour results from a process of rational and spontaneous decision-making, as a consequence of the individual recognition by each of the group members of their common interests). It could be said that whereas in a cooperative or traditional collective dominant position (a collective monopoly) the undertakings jointly develop (using economic links that result in destroying effective competition among them and in that sense they are at least comparable to collusion) an independent form of behaviour (which is typical of a dominant operator), within an oligopolistic collective dominant position (a non-competitive and tacitly coordinated stable oligopoly) they independently (without express collusion) develop a common form of behaviour. Therefore, in a way, all collective dominant positions are derived either from collusion (for example, liner  ECJ Hoffmann-La Roche (1979) para 39.   See ECJ Continental Can (1973) para 25, which explains how Art 102 TFEU concerns the ‘unilateral activity of one or more undertakings’ (emphasis added). 242 243

244  Oligopolistic Interdependence and Dominant Oligopolistic Position con­ferences and other groups of undertakings whose links or correlative factors can simply be reflected in agreements with a restrictive object or effect) or tacit coordination (stable coordinated non-competitive oligopolies). To sum up, oligopolistic interdependence involves a competitive relationship, which means the existence of internal competition within the group (although ultimately it remains hidden, because of the undertakings’ fear of unleashing a self-destructive fight, or it only occasionally manifests itself before rapidly being replaced by a new equilibrium). Within oligopolies, then, internal competition has not, in principle, been eliminated – only at the end of the process is this true. This is also the difference between the oligopolistic dominant position and the traditional dominant position: the starting point of the latter is the absence, by elimination, of internal competition between its members (although a traditional collective dominant position may be compatible with a certain degree of marginal internal competition), whereas the former leads to a situation of no internal competition.244 In addition, within cooperative or traditional collective dominant positions, the ‘collective position’ is established exclusively on the basis of the direct relations between the members of the dominant group, whereas with oligopolistic collective dominant positions it is established on the basis of the characteristics of the market.245 In addition, due to their very nature, in the examination of oligopolistic dominant positions the two-stage analysis (first collective position, then dominant position or market power) takes place at the same time. A final and significant difference, closely connected to the previous one, is that oligo­ polistic dominant positions are only possible in highly concentrated markets that have the very specific characteristics already mentioned,246 whereas cooperative or traditional collective dominant positions (particularly those that are expressly collusive, as we will see below) can arise in all types of market conditions. The characteristics of the market are key factors in assessing the existence of a ‘link’ or correlation factor of non-competitive oligopolistic interdependence. However, market features, including (but not limited to) the number of operators, are in principle irrelevant in terms of the creation of a traditional collective dominant position. Nevertheless, it is clear that in practice it is much easier to keep a ‘collective entity’ united if there are external factors which do not depend on the will of undertakings that favour it. In other words, it is easier to create a traditional collective dominant position in markets with characteristic(s) that are typical of non-competitive oligopolies (few sellers, homogeneous products, transparency, etc) than in those that lack such features.247

244   For the impossibility of the existence of effective internal competition between the members of a group of companies in a collective dominant position, see section 7.3 above. 245   See Briones & Padilla (2001) 317. 246   See sections 7.2.2 and 8.3 above. 247   When these features are per se insufficient to create an oligopolistic dominant position, undertakings will not normally turn to express (traditional) coordination methods, except where they diligently strive to achieve a non-competitive result, are unsure whether given market features would automatically lead to coordination, and wish to ensure that competition is destroyed, as already noted on numerous occasions above.

10 Expressly Collusive or Pure Collusive Dominant Position in European Competition Law 10.1  INTRODUCTION: THE PURE OR EXPRESSLY COLLUSIVE DOMINANT POSITION AS A TYPE OF TRADITIONAL OR COOPERATIVE DOMINANT POSITION

The most common type of cooperative or traditional collective dominant position is that in which the links between collectively dominant undertakings are established through agreements that restrict competition – the pure or expressly collusive dominant position.1 With this type, two different perspectives for the analysis of market power converge (that of restrictive agreements and that of dominant positions) and the relationship between Article 101(3)(b) and Article 102 is thrown into sharp relief. As with any collective dominant position, the expressly collusive dominant position involves two things.2 First, various undertakings that at first sight appear to be independent must enjoy a ‘collective position’ and behave as a ‘collective entity’, for which reason they must maintain ‘close links’ that make them act like a single undertaking in the market. Secondly, the basic conditions of economic power that, according to the European case law, are necessary for there to be a dominant position must exist. In addition, typically the ‘close links’ between undertakings in a pure collusive dominant position are established exclusively or principally through agreements that restrict competition. It is precisely these collusive links that make them lose the freedom of action that characterises genuinely competitive undertakings and make them behave in the market as a ‘collective entity’ vis-à-vis third parties. In these circumstances, if such a position allows them to eliminate effective competition, there is no reason at all why Article 102 should not apply to them.3 As we saw a few pages earlier, the European Commission has long accepted the possibility that expressly collusive dominant positions exist. As early as 1973, in European Sugar Industry, it declared that it could apply Article 102 to a situation where two undertakings,

1   This expression is used here to describe collective dominant positions based totally or principally on links that openly restrict competition. ‘Pure’ and ‘expressly’ are used interchangeably. ‘Expressly collusive’ is opposed to ‘tacitly collusive’ here, tacit collusion having been dealt with in chs 8 and 9. 2  ECJ CEWAL (2000) paras 39, 41, citing ECJ Almelo (1994) para 43 and Kali + Salz II (1998) para 221. See also ECJ Wouters (2002) paras 113–14; GC Impala (2006) 305–06. 3   Waelbroeck & Frignani (1998) 305–06, para 236.

246  Expressly or Pure Collusive Dominant Position in European Competition Law neither of which individually held a dominant position, collectively enjoyed such a position and presented themselves to third parties as a ‘single entity’.4 The Commission used this theory again in 1988 in Flat Glass, when it applied both Articles 101 and 102 TFEU to a concerted practice whereby three Italian producers of flat glass had agreed their pricing and discount policies, and the sharing out of their supplies to clients. The Commission noted three points: the three undertakings presented themselves to the common market as a single entity rather than individually, their economic decisions showed a high degree of interdependence as regards prices, sales conditions, relations with clients and commercial strategy, and, as regards production, structural links with each other had been established through the systematic exchange of products. In the appeal against this decision, the GC accepted that it was possible to apply Article 102 to the participants in a collusive practice that collectively enjoyed a dominant position, although it annulled the decision on the grounds that the Commission had failed to prove sufficiently the facts on which it had based its findings.5 The possibility of considering that the undertakings involved in a collusive practice hold a collective dominant position when they are not subject to appreciable competition from third parties was also accepted by Advocate General Lenz in his first Opinion in Ahmed Saeed (1989), although in the end the judgment in that case was silent as to the possibility of applying Article 102 to a situation that came within the scope of Article 101 and where none of the undertakings in question individually held a dominant position. Subsequently, in Almelo (1994)6 and DIP (1995),7 the ECJ accepted that it was possible to apply Article 102 to undertakings that were linked to each other in such a way as to be able to adopt the same line of action in the market, a formula that was broad enough to include undertakings participating in an agreement contrary to Article 101.8 The sector that has experienced the greatest number of expressly collusive dominant positions is liner (scheduled) shipping transport. The declarations of the ECJ in CEWAL (2000) are of particular importance for two reasons. In the first place, the ECJ clarified that, as a general principle, while the existence of a collusive agreement between various independent undertakings with a large collective market share does not automatically mean that a collective dominant position exists,9 the opposite is not automatically true either. In other words, in certain cases the agreement in question may provide the foundations for establishing a collective dominant position.10 On this 4   Commission decision European Sugar Industry (1973) section II.E.1. See also Waelbroeck & Frignani (1998) 304, para 236. Note that in this case the Commission does not use the expression ‘collective entity’, which is more recent, and is the one preferred by the ECJ to refer to the typical way in which collectively dominant undertakings present themselves to third parties. See ECJ CEWAL (2000) para 40. 5  GC Flat Glass (1990) paras 357–66. See also Waelbroeck & Frignani (1998) 304, para 236. 6  GC Almelo (1994) para 42. 7  GC DIP (1995) para 26. 8   See Waelbroeck & Frignani (1998) 305, para 236. 9   The ECJ has expressly recognised, following AG Fennelly’s Opinion in DIP (1995) para 65, that the mere fact that two undertakings are linked by an agreement, a decision of an association of undertakings or a concerted practice within the meaning of Art 101(1), cannot in itself amount to a sufficient basis for concluding that a collective dominant position exists, that is, to find the existence of economic links between the undertakings concerned that allow them to act jointly, independently of their competitors, clients and consumers. ECJ CEWAL (2000) paras 42–43. 10   According to the ECJ, an agreement, decision or concerted practice (whether or not it benefits from an exemption under Art 101(3) TFEU) ‘may undoubtedly, where it is implemented, result in the undertakings concerned being so linked as to their conduct on a particular market that they present themselves on that market as a collective entity vis-à-vis their competitors, their trading partners and consumers’. ECJ CEWAL (2000) para 44. The opposite possibility – that through non-collusive close connections between undertakings the Art 101 TFEU

Introduction  247 point the ECJ corrected to some extent the position taken by the GC, which, in order to reject the appellants’ argument that the Commission had ‘recycled’ facts that constituted an infringement of Article 101,11 had held that the Commission had sufficiently demonstrated that, regardless of the agreements entered into between the shipping lines which created the CEWAL conference, the links between them were such that they had adopted a single form of behaviour in the market.12 For the ECJ, ‘[t]he existence of a collective dominant position may therefore flow from the nature and terms of an agreement, from the way in which it is implemented and, consequently, from the links or factors which give rise to a connection between undertakings which result from it’.13 According to the ECJ, therefore, it is not unthinkable that certain types of collusive agreement may in fact cause various independent companies to behave as a ‘collective entity’ in the market. It is submitted that one cannot rule out the possibility that these same agreements, in the right circumstances, automatically amount to an abuse of the collective dominant position that they themselves created. Everything will depend on the specific content of the agreement in question;14 some will only be restrictive within the meaning of Article 101, others will be restrictive and also permit the establishment of a collective dominant position, and finally others will also constitute an abuse of that position. Take, for example, an agreement between the vast majority of operators in a given market to apply common uniform and discriminatory prices, share out the market, offer reductions for loyalty, and pool income or profit. (Liner conferences in the European Union were authorised to do all of the above.) In any event, it is clear that both the Commission and the EU Courts will have no difficulty applying Article 102 to a situation that also comes within the scope of Article 101.15 The second reason why ECJ CEWAL (2000) is particularly important for the examination of pure collusive dominant positions is that it allowed the Court to clarify, while referring to the traditional case law, that demonstrating that an undertaking holds a dominant position does not, in itself, prove anything. All it means is that whatever the reasons for the dominant position, that undertaking has a special responsibility not to impede, through its behaviour, the development of effective and undistorted competition in the common market.16 Up to this point there is no problem. The Court went on to declare that this same conclusion must be applied to undertakings that hold a collective dominant position.17 This declaration, which will be looked at in the next section and in the conclusions to this chapter, is, in my opinion, incorrect, since some of the possible reasons for that position existing, such as the existence of a collusive agreement, are important.

prohibition could be avoided without coming within the scope of Art 102 TFEU – was suggested in Continental Can, although in this case the ECJ was referring to the close connections between undertakings as a result of a concentration. ECJ Continental Can (1973) para 25. 11   In the terminology of the GC in Flat Glass (1990) para 360. 12  GC CEWAL (1996) paras 59–67. 13  ECJ CEWAL (2000) para 45. 14   Similarly, see Temple Lang (2002) 333 and also Stroux (2000b) 1261ff, although the latter appears to limit the possibility that through a restrictive agreement a dominant position is abused at the same time to situations where the agreement in question strengthens the dominant position. 15   See section 9.2 above. 16  ECJ CEWAL (2000) para 37, citing the ECJ in Michelin (1983) para 57. 17  ECJ CEWAL (2000) para 38.

248  Expressly or Pure Collusive Dominant Position in European Competition Law 10.2  RELATIONSHIP BETWEEN ARTICLES 101(3) AND 102 TFEU18

Articles 101 and 102 TFEU ‘do not exist in watertight compartments’19 and together with Regulation 139/2004 form an integral part of the EU legal system directed at ensuring that competition in the internal market is not distorted.20 The Treaty does not state any hierarchy between these rules.21 Although they are independent provisions, in principle aimed at regulating different situations, they are also complementary22 and have the same objective, namely the mainten­ ance of effective competition in the common market at different levels. For this reason they cannot be interpreted in conflicting ways.23 The conditions for applying the two Articles are, in any event, different, although the ECJ has clarified that the correct interpretation of Articles 101(1)(a), (b), (d) and (e) and 102 (a)–(d) is that the same conduct may give rise to an infringement of both provisions, and therefore the joint application of both provisions should not, a priori, be excluded.24 If the requirements relating to the application of both are met, the Commission can commence proceedings either under Article 101 or Article 102, or under both.25 The Commission therefore considers that it has the power to apply Articles 101 and 102 in the alternative or jointly to the same facts, and this is how it has proceeded on various occasions.26 Applying these rules in the alternative does not create many problems, although applying them together does.27 As noted in the introduction to this chapter, the first case in which the Commission applied Articles 101 and 102 together led to the decision European Sugar Industry (1973).   See Ortiz Blanco (2003).   AG Fennelly’s Opinion in CEWAL (2000) para 22.  GC Kesko Oy (1999) paras 106–07. 21   Waelbroeck & Frignani (1998) 299, para 232. 22  GC Tetra Pak I (1991) para 25. 23   See ECJ Continental Can (1973) para 25; GC Kesko Oy (1999) paras 106–07. 24  ECJ CEWAL (2000) para 33. 25   The Commission made this clear in 1977. On numerous occasions since then it has repeated this stance, which has been confirmed by the ECJ. See the Commission’s VIIth Report on Competition Policy (1977) paras 13–15, where, with respect to the Billiton/Metal and Thermit Chemicals case, the Commission declared that the application of Art 102 to a given exclusive supply contract does not mean that the same contract breaches the Art 101 prohibition. Where the conditions of both provisions are met, the Commission has the choice of starting proceedings under Art 101, Art 102 or both. In this matter, summarised at para 131 of the Report, the Commission had brought an action under Art 101 against a properly notified exclusive agreement entered into by a manu­facturer in a dominant position and the most important industrial consumer of the product in question. See also ECJ Hoffman-La Roche (1979) para 116; ECJ Ahmed Saeed (1989) para 37; GC Tetra Pak I (1990) para 21 (which refers to the first two). 26   eg in Flat Glass (1988), subsequently annulled by the GC, and Decca Navigator System (1988). In paras 97ff and 117ff of the latter, the Commission applied Art 101 to market-sharing arrangements between a company in a dominant position and its main competitors, and applied Art 102 to the practices that had led to the agreements, including the actual entering into of all the agreements. See Waelbroeck & Frignani (1988) 300, para 233. The EU Courts have also accepted this possibility; see ECJ Suiker Unie (1975) paras 97, 117; ECJ Ahmed Saeed (1989) para 37 and the first Opinion of AG Lenz in this matter at 824; GC Flat Glass (1992) para 358. The possibility of applying Art 102 to a group of undertakings acting together as a cartel generated much academic debate some years ago. See Schödermeier (1990) 28, who, having analysed the views of German experts (favourable) and their British counterparts (doubtful), came down against such a possibility and tried to define the scope of Arts 101 and 102. His efforts appear to have been in vain, although it is true that the standards of each provision are different. Cf Rodger (1994) 19. See also the criticism of Stroux (2000a) 6; Stroux (2000b) 1261, fn 41. 27   According to Flint (1978), it would be possible to apply Arts 101 and 102 TFEU together but each would have its own purpose. On the one hand, Art 101 would be used to attack the restriction resulting from an agreement between undertakings, while Art 102 would be used to attack abuses of a dominant position ‘by each individual enterprise’. 18 19 20

Relationship between Articles 101(3) and 102 TFEU  249 The Commission declared that some of the actions taken by the three undertakings directly involving clients and distributors, which had previously been held to be concerted practices in breach of Article 101, were also infringements of Article 102. A long time after this, perhaps due to the setback caused by the ECJ judgment Hoffmann-La Roche (1979) on the question of oligopolies, in Flat Glass (1988) the Commission held that the practices of the principal flat glass manufacturers infringed both Articles 101 and 102. In Flat Glass (1992), in an action for annulment of the Commission’s decision, the GC overruled the Commission and declared that in order to prove an infringement of Article 102 it is not enough merely to ‘recycle’ the facts that amounted to a breach of Article 101, affirm that the parties to an agreement or an illicit practice collectively possess a sig­nificant market share, and, therefore, solely for this reason conclude that they are in a collective dominant position and their illegal behaviour amounts to an abuse of this position.28 The GC’s approach in Flat Glass has divided observers. Some believe that it indicates that the collective dominant position of independent companies must be evidenced by more than just an agreement of a cartelistic nature, whether a price-fixing or any other type of agreement.29 Others see it as meaning that the application of Article 102 requires proof of restrictive behaviour apart from merely carrying on a concerted practice.30 Thus, it is said that the behaviour of collectively dominant undertakings that is unacceptable cannot be identified with concerted practices through which competition itself has been eliminated: since Article 102 does not prohibit the creation of a dominant position, the agreement that permits it cannot be considered to be abusive as such.31 This is not entirely true, as we shall now see. First, in Tetra Pak I (1990) the GC did not accept the defence’s submission that in Ahmed Saeed (1989) the ECJ had justified the simultaneous application of Articles 101 and 102 only when there was some additional factor other than just entering into a collusive agreement.32 Despite this declaration, the GC went on to find this additional element (which the undertaking denied) in the existence of an abuse within the meaning of Article 102: Tetra Rausing’s purchase of a new exclusive licence, which in practice destroyed all competition in the relevant market.33 Secondly, even accepting that not all agreements that restrict competition are capable of creating a ‘collective position’ of the parties, certain particularly restrictive agreements are capable of generating such a position, creating ‘links which are sufficiently strong for there to be a collective dominant position’.34 It all depends on the degree to which internal competition is eliminated. The lower the degree of residual competition between the parties, the greater the possibility that a collusive agreement converts the participating undertakings into a ‘collective entity’ in the market in question.35 It follows, therefore, that the possibility of certain restrictive agreements infringing both Article 101(1) and Article 102 when they are entered into by a dominant undertaking, or  GC Flat Glass (1992) para 360.   See AG Fennelly’s Opinion in CEWAL (2000) para 23, where it was denied that AG Lenz in his Opinion in Ahmed Saeed (1989) para 27 had suggested that a mere cartel with a significant market share was enough to establish collective dominance, confirming what was said in GC Flat Glass about ‘recycling’. 30   See Waelbroeck & Frignani (1998) 301, para 233. 31   See Waelbroeck & Frignani (1998) 305–06, para 236. From this point of view, it was reasonable to attack Commission decision Flat Glass (1988), since the behaviour considered by the Commission to be an abuse was that which had enabled the companies to eliminate competition between them. 32  ECJ Ahmed Saeed (1989) para 46. 33  GC Tetra Pak I (1990) para 24. 34  ECJ Almelo (1994) paras 43–44. 35   See section 7.3 below. 28 29

250  Expressly or Pure Collusive Dominant Position in European Competition Law leading to various undertakings holding a collective dominant position, appears to depend entirely on the content of the agreements themselves. For example, going back to a situation that has already been described, a price agreement that is discriminatory in nature, or a market sharing agreement with supply limitation, accompanied by efficient systems for control, detection and punishment of the breach, completely eliminates competition between the parties (creating a collective position) and contains elements that are in themselves abusive (discrimination, limitation of supply) if they occur in the context of a dominant position (if the parties collectively have significant market power). Up to this point we have mainly described the relations between Articles 101 and 102 from the point of view of the possible concurrence of breaches of Articles 101(1) and 102 based on the same facts.36 The precedents of the Commission and the case law of the EU Courts show, however, that the collective application of Articles 101(3) and 102 has also occurred. The relationship between these two provisions (one authorising, the other prohibiting) is quite different to the relationship between Articles 101(1) and 102 (two prohibiting provisions) and varies according to whether Article 101(3) is applied individually or through a block exemption.37 The question of the compatibility of applying Article 102 with the benefit of a block exemption was dealt with for the first time by the GC in Tetra Pak I (1990). While it recognised that this question had yet to be resolved by the EU Courts, the GC noted that the relationship between these two provisions had been partly clarified by the ECJ, which had expressly stated that applying Article 101 to a collusive practice did not exclude the application of Article 102.38 Given the need for consistency in the application of Articles 101 and 102, the GC maintained that the question of the compatibility of the application of Article 102 with the exemption must be resolved by looking at the system for the protection of competition laid down in Articles 101 and 102, as well as the regulations adopted thereunder. The GC stated: [Articles 101 and 102] are complementary inasmuch as they pursue a common general objective, set out in Article 3(f) of the Treaty [now, essentially, Protocol No 27 TEU/TFEU], which provides that the activities of the Community are to include ‘the institution of a system ensuring that competition in the common market is not distorted’. But they nonetheless constitute, in the scheme of the Treaty, two independent legal instruments addressing different situations. This was emphasised by the Court of Justice in Continental Can where, having said that ‘Article 85 [now Article 101 TFEU] concerns agreements between undertakings, decisions of associations of undertakings and concerted practices, while Article 86 [now Article 102 TFEU] concerns unilateral activity of one or more undertakings’, the Court held that ‘Articles 85 and 86 seek to achieve the same aim on different levels, namely, the maintenance of effective competition within the common market’ (judgment in Case 6/72, cited above, paragraph 25).39

36   The fact that an agreement infringes Art 101(1) and Art 102 does not mean that a fine must (or can) be imposed twice, but it allows conduct to be declared doubly illegal: it is possible for the same fact to give rise to two infringements, but, applying general principles of law, only one can be punished. To reach this conclusion, it seems to be appropriate to use the same criteria as those used in criminal law to punish only once conduct that comes within the definition of two or more different crimes (in this case, infringements of administrative law). 37   Similarly, see Lowenthal (2005) 461–62. 38  ECJ Hoffmann-La Roche (1979) para 116; ECJ Ahmed Saeed (1989) para 37. 39  GC Tetra Pak I (1990) paras 21–23. The dominant position is also characterised as unilateral in later cases, such as ECJ Züchner (1981) para 10.

Relationship between Articles 101(3) and 102 TFEU  251 The GC further held that: [U]nlike individual exemptions, block exemptions are, by definition, not dependent on a case-bycase examination to establish that the conditions for exemption laid down in the Treaty are in fact satisfied. In order to qualify for a block exemption, an agreement has only to satisfy the criteria laid down in the relevant block-exemption regulation. The agreement itself is not subject to any positive assessment with regard to the conditions set out in Article 85(3) [now Article 101(3) TFEU].40 So a block exemption cannot, generally speaking, be construed as having effects similar to negative clearance in relation to Article 86 [now Article 102 TFEU]. The result is that, where agreements to which undertakings in a dominant position are parties fall within the scope of a block-exemption regulation (that is, where the regulation is unlimited in scope), the effects of block exemption on the applicability of Article 86 must be assessed solely in the context of the scheme of Article 86.41

The GC thus made it very clear that abuses were not protected at all by the granting of block exemptions, something that was already well known. The new point was that the Court’s argument was based, at least partially, on the lack of exclusion thresholds in certain block exemptions and the lack of specific analysis of cases in the light of Article 101(3). It is precisely the lack of thresholds that allows not just an undertaking in an individual dominant position that enters into a restrictive agreement with another, but also a group of undertakings in a collective dominant position as a result of a collective agreement between them, to enjoy the benefit of a block exemption. As regards the possibility of applying Article 102 to an agreement that benefits from a block exemption, the GC made two points that are even more relevant to this discussion. First, using the example of Regulation 2349/84 on patent licence agreements, applicable in this case, it carried out a thorough analysis of the block exemption regulations before concluding: ‘[These] regulations do not, in principle, exclude undertakings in a dominant position from qualifying for exemption and therefore do not take account of the position on the relevant markets of the parties to any given agreement.’42 Secondly, using the example of, on the one hand, the first three block exemption regulations in the air transport sector and, on the other, Regulation 4056/86, the GC recalled that ‘the possibility of applying Article 85(3) and Article 86 [now Article 101(3) and Article 102 TFEU] concurrently is expressly confirmed by certain of the block-exemption regulations where it is provided that enjoyment of block exemption does not preclude application of Article 86’.43 The GC’s declarations on these points require comment. As regards the first point, it is not entirely correct that block exemption regulations ‘do not take account of the position on the relevant markets of the parties to any given agreement’. If this were so, they could breach the fourth condition of the exemption, which obliges the European institutions not to authorise those agreements that allow under­takings to eliminate competition with respect to a substantial part of the products in question. As a matter of fact, and as a general approach, the Commission normally limits the benefits as regards block exemptions to those agreements where it is possible to show with a sufficient 40   cf Draft Guidelines on the application of Art 101(3) TFEU (European Commission (2003e)) para 31, which clarifies that block exemption regulations are based on the assumption that all agreements coming within their scope observe the four conditions of Art 101(3). Thus, if undertakings want to obtain the benefits of these conditions they have only to prove that they observe the conditions of the regulation in question. 41  GC Tetra Pak I (1990) para 29. Note added. 42   ibid, para 30. 43   ibid, paras 31ff, referring to Art 8 of Regulation 4056/86.

252  Expressly or Pure Collusive Dominant Position in European Competition Law degree of certainty that they observe the conditions of Article 101(3).44 What is true, however, is that by not including exclusion thresholds according to the market shares of the participating undertakings, certain regulations – like the former patent licence Regulation – do not prevent those agreements that are entered into by dominant undertakings, or those capable of creating a dominant position, from benefiting from the exemption. As regards the GC’s second argument, two points should be made. •  First, the possibility of applying simultaneously Article 101(3) and Article 102 stems from the fact that for legal certainty reasons the validity of the agreements satisfying the criteria set out in the block exemption regulations must be established without carrying out a detailed study of the four conditions of the exemption, as the Court itself has pointed out.45 Another very different issue is whether, once it has been proved that one of the parties to an agreement enjoys an individual dominant position, or that the parties enjoy a collective dominant position as a result of the agreement (which means that the party or parties can commit abuses, regardless of whether they actually commit them), the Commission would be obliged to withdraw the block exemption for breach of the last condition of Article 101(3) TFEU. (It certainly has the power to do so.) •  Secondly, the GC referred exclusively to block exemptions, which naturally have a much greater and more diffuse scope than individual exemptions, and allow, without doubt against the will of the legislator in almost all cases (except Article 3 of the now repealed Regulation 4056/86),46 what can only be called anomalous situations to occur, where the block exemption is applied to undertakings that enjoy a position of individual or collective dominance. If it had referred to an individual exemption, the GC would not have confirmed ‘the possibility of applying Article 85(3) and Article 86 [now Articles 101(3) and Article 102 TFEU]’. This is the central issue: to what extent, in the face of the large-scale elimination of competition, or substantial market power, characterised and individualised, and without affecting legal certainty, can an exemption be granted knowing (not just because of an anomaly inherent in the necessary generalisations of block exemptions) that the agreement reinforces an individual dominant position or creates a collective dominant position between undertakings, on the basis that the elimination of competition within the meaning of the fourth condition of Article 101(3) TFEU only occurs above the level of a dominant position? The GC’s judgment in Tetra Pak I does not, therefore, support this theory.47 As noted above, where there is a block exemption without exclusion thresholds, then, for reasons of legal certainty, the exemption is applicable on the terms of the regulations granting it, regardless of whether the undertakings in question hold an individual or collective dominant position. The existence of maximum market share limits is based on the need to ensure that competition is not eliminated with respect to a substantial part of the products in question. For this reason, block exemption regulations often establish market share thresholds, not only for formal reasons but also for reasons of substance.48 If the correct legal technique had always been used in these regulations and exclusion thresholds had 44   See eg Regulation 220/2010, granting a block exemption to certain vertical agreements, recital 5, and Regulation 2659/2000, granting a block exemption for R&D agreements, recital 9. 45  GC Tetra Pak I (1990) para 37, and, inter alia, GC Langnese-Iglo (1995) paras 145, 174. 46   See Ortiz Blanco (2007). 47   See section 10.3 below and the criticism there of GC TAA (2002). 48  GC Tréfileurope (1995) paras 94, 98.

Relationship between Articles 101(3) and 102 TFEU  253 been established according to the market power of the parties to the agreements authorised by block exemptions, the application of Article 102 TFEU would have been impossible, or at least very difficult, in these cases. In its most recent regulations and draft regulations concerning block exemptions, the Commission consistently includes exclusion thresholds, so that for those vertical and horizontal agreements whose members have a market share above a certain level, the exemption does not apply. Regulations of this type do not create problems: the thresholds established49 generally place the parties, individually or collectively, below the level of market power necessary to enjoy a dominant position, or – and this amounts to the same thing – eliminate competition within the meaning of the fourth condition to apply the exception or adopt a block exemption. The Commission in fact takes the view that for the purposes of applying Article 101(3) TFEU, below a certain level of market power the positive effects of the agreement can generally be presumed to exceed its possible negative effects on competition.50 This does not mean, however, that those agreements excluded from the exemption as a result of the market share thresholds cannot be considered legal individually. It may still be perfectly possible to show either that they do not restrain competition, or that they satisfy the fourth condition of Article 101(3), because although they exceed the required level of market share to qualify for automatic exemption, they do not eliminate effective competition within the meaning of the fourth condition of this provision.51 This legislative drafting not only offers undertakings sufficient legal certainty (something that block exemptions, by definition, have always offered) but also guarantees the effective protection of competition. As regards undertakings already in a dominant position entering into collusive agreements,52 rather than acquiring a collective dominant position through such agreements,53 it has been said that this problem only arose with respect to certain block exemptions,54 mainly in the transport sector.55 This is because of the legislative drafting used, in particular the lack of exclusion thresholds on the basis of the parties’ market shares (their market power), or the degree of elimination of competition caused by a restrictive agreement.   See section 6.2 above.   See eg Reg 330/2010 (block exemption for certain categories of vertical agreements) recitals 7–9 and 12; Reg 1217/2010 (block exemption for certain categories of R&D agreements) recitals 4, 9 and 15–18; and Reg 1218/2010 (block exemption for certain categories of specialisation agreements) recitals 3 and 10–12. 51   An example of authorisation in national competition law of certain vertical agreements between a dominant operator and its distributors can be found in the Dutch beer market, as described by Bishop (2003) especially 230–31. 52   eg exclusivity agreements or loyalty discounts between a dominant provider and important clients, as in Hoffmann-La Roche (1979) or Billiton/Metal and Termit Chemicals, as summarised in the Commission’s VIIth Report on Competition Policy (1977) paras 13–15, 131. 53   See section 10.4 below. 54   See Whish & Sufrin (1993) 233; cf Whish (2001) 133–34. 55   However a curious exception existed: Art 5(3)(2) of Reg 3975/87, which provided that individual exemptions granted through the opposition procedure in the air transport sector could be retroactively revoked where ‘the parties concerned . . . have contravened Article 86 [now Art 102 TFEU]’. Thus, in this sector the possibility of awarding exemptions to undertakings that held or came to hold an individual or collective dominant position was implicitly accepted. No other procedural regulation contained such a provision. Other regulations referred to ‘abuse’ of the exemption but in Reg 3975/87 this expression had two meanings: abuse of the exemption granted under Art 101(1) and ‘contravention’ of Art 102. See Art 8(3)(d) of Reg 17, Art 12(3) second para of Reg 1017/68, and Art 12(3) second para of Reg 4056/86. 49 50

254  Expressly or Pure Collusive Dominant Position in European Competition Law In this situation it was always possible to apply Article 102 directly without having to withdraw the block exemption when, as a result of the authorised restrictive agreement, an abuse occurred.56 The withdrawal of the exemption was also possible when one of the first three conditions of Article 101(3) had not been complied with. However, problems could arise where withdrawal of the exemption for breach of the fourth condition was con­ templated. On the basis of one of the parties already holding an individual dominant position, it could be thought that competition could not be eliminated as a result of the authorised restrictive agreement in question, since effective competition would have been previously eliminated, simply because of the existence of an undertaking in a dominant position.57 This is formally possible: if the elimination of competition occurs prior to and independently of the agreement under examination (because an undertaking in a dominant position already exists), there is no causal relationship between the elimination and the agreement in question, so it is doubtful whether the fourth condition has been breached.58 However, an even greater elimination of competition, while irrelevant for the purposes of Article 101(3), would be relevant under Article 102, since it would amount to a reinforcement of the undertaking’s dominant position.59 Another question is whether the putting into practice of any restrictive agreement by those authorised under different block exemptions that did not include maximum market share thresholds when executed by a domin­ ant undertaking constituted ipso facto an abuse within the meaning of Article 102. The answer would not appear automatically to be ‘yes’; instead, it would depend on the content of the agreement and, above all, the facts in each case.60 What does seem clear is that if an abuse is committed, the exemption can never apply, although not because of Article 101(3) (b) but rather because of Article 102, since abuses can never be authorised.61 In the field of individual exemptions, or now within the legal exception system, confronted with a perfectly defined agreement in all the circumstances, the evaluation in turn of the four conditions of Article 101(3) for authorisation may perhaps also permit the Commission to consider certain agreements that restrict competition entered into by a dominant undertaking and other undertakings to be legal, provided that a reinforcement of that position does not take place or is insignificant.62 The Commission can perhaps avail itself of the lack of a causal connection between the (pre-existing) dominant position and the agreement to conclude that the fourth condition is not breached, but in such a case it will give up the possibility of using the fourth condition of Article 101(3) against the rele  See GC Tetra Pak I (1990).   cf AG Reischl’s Opinion in Hoffmann-La Roche (1979) 593. This is a ‘Bob Dylan defence’ – ‘when you got nothing, you got nothing to lose’, as Bishop (2003) 360 calls a similar argument used with respect to concentrations. 58   Although any of the three could be infringed in the absence of effective competition. Take the example of the condition of reserving a fair share of the resulting benefit for consumers. It is generally considered that consumers benefit from the technical and economic advantages arising from a restrictive agreement, as long as this takes place in a competitive environment. 59   See ECJ Continental Can (1973). 60   See also the Guidelines on Art 101(3) TFEU (European Commission (2004d)) para 106. 61   See, inter alia, ECJ Ahmed Saeed (1989) para 32; GC Tetra Pak I (1990) paras 25ff . 62   According to the Guidelines on Art 101(3) TFEU (European Commission (2004d)) para 106, ‘not all restrictive agreements concluded by a dominant undertaking constitute an abuse of a dominant position’. However, it is more likely that certain agreements are considered contrary to competition if they are carried out by dominant firms. In this regard, see Guidelines on Horizontal Cooperation Agreements (European Commission (2011)) paras 139, 146 & 148 in respect of R&D agreements. 56 57

Relationship between Articles 101(3) and 102 TFEU  255 vant agreement in the future, unless it can demonstrate that the surrounding circumstances have changed. In any event, a restrictive agreement that reinforces a dominant individual position of an undertaking will almost certainly be rejected by the Commission under Article 102, as has just been explained. There is no doubt that the participation of a dominant undertaking in collusive agreements causes problems that do not arise between undertakings in other situations. It does not appear, however, that the concept of abuse can be equated with any type of restrictive behaviour. Nor does authorising an agreement in which a dominant undertaking participates necessarily mean authorising the abuse of a dominant position.63 At least in theory, not all agreements that restrict competition significantly reinforce the relative position of the undertakings in the market, nor is it an unusual method of competition (think, for example, of certain distribution agreements), nor does it necessarily deviate from the criterion of competition on the merits, all of which may amount to abusive conduct in the context of a dominant position. In conclusion, the fact that various block exemptions have been drawn up without exclusion thresholds (something that, with hindsight, may be considered to be a mistake or an anomaly) has in turn provoked the anomaly that one or more undertakings in a dominant position may formally enjoy an exemption for legal certainty reasons, without satisfying the fourth requirement of Article 101(3). If European legislation had always guaranteed compliance with this Treaty provision through exclusion thresholds, situations such as those described would probably never have arisen. Individual exemption or application of the legal exception to restrictive agreements between a dominant undertaking and other undertakings is not always prohibited under Article 101(3)(b) (competition is not eliminated with respect to a substantial part of the agreement, rather it has already been eliminated), nor is entering into such restrictive agreements necessarily abusive within the meaning of Article 102, although it may be in certain circumstances. In any event, it seems clear that abuse of a dominant position cannot be authorised directly or indirectly through the exemption or legal exception set out in Article 101(3). The same, however, is also true of the creation or reinforcement of a dominant position through a restrictive agreement, which is what most interests us here. The creation of a dominant position cannot be authorised because, despite what the GC said in TAA (2002),64 it is contrary to Article 101(3)(b),65 while its reinforcement is contrary to Article 102 and the principles laid down by the ECJ in Continental Can (1973).

63   See Waelbroeck & Frignani (1998) paras 234, 302 fn 22 and the literature referred to there. They argue that following ECJ Hoffmann-La Roche (1979) para 120, ‘[t]he constitutive nature of the decision granting the exemption explains that, until said exemption is granted, the behaviour is considered abusive and can be subject to a fine . . ., but does not rule out the possibility that, once exempted, the conduct in question ceases to be abusive’ (author’s translation). I do not share this point of view at all. 64   See also GC TACA (2003) para 939. 65   See section 10.3 below.

256  Expressly or Pure Collusive Dominant Position in European Competition Law

10.3  THEORIES CONCERNING THRESHOLDS OF MARKET POWER IN EUROPEAN COMPETITION LAW AND THE CONCEPTS OF ‘DOMINANT POSITION’ AND ‘ELIMINATION OF COMPETITION IN RESPECT OF A SUBSTANTIAL PART OF THE MARKET’

The relationship between the concept of elimination of competition within the meaning of Article 101(3) and dominant position within the meaning of Article 102 and the Merger Regulation, as a sub-species of significant impediment to effective competition (SIEC),66 was not clarified by the EU Courts until the GC’s judgment in TAA (2002).67 The Commission has not addressed this question directly, not even in P&I Clubs II (1999),68 where indirectly and implicitly it reached the same conclusions as the GC in TAA: specific­ ally, that the fact that a collusive agreement established a dominant position for the benefit of its members does not prevent it from satisfying the fourth condition for exemption and from being authorised under Article 101(3) TFEU.69 As has been seen, the condition set out in Article 101(3)(b) is an absolute and strict limitation on the possibility of authorising restrictive agreements. It prevents, for example, the creation of a monopoly – that is, the complete elimination of all competition – being authorised under Article 101(3).70 However, as has been mentioned, the Commission’s decision-making practice shows that less complete ‘eliminations of competition’ will not satisfy the condition either. Article 102 does not contain such express provisions concerning the elimination of competition as Article 101(3)(b), which has undoubtedly encouraged the debate about whether market power under the two provisions is the same or different. This is so despite the fact that ECJ’s explanation as to why no limit is mentioned in Article 102 could not be clearer and more conclusive: unlike Article 101, in no circumstances will Article 102 permit exemptions to the prohibition on abuse of a dominant position; therefore it would have been useless to formulate an obligation of non-elimination of competition.71 Nevertheless, despite the formal differences, in terms of market power the fourth condition of the exemption set out in Article 101(3)(b) and Article 102 refer to situations that are substantially the same, as will now be shown.

  This concept complicates this issue even further. See the Epilogue below.  GC TAA (2002) paras 328, 330, followed in GC TACA (2003) para 939. 68   In Commission decision P&I Clubs II (1999), on the one hand the Commission granted to the P&I clubs (mutual non-profit making associations providing insurance to their members) an individual exemption for their agreements based, inter alia, on the existence of internal competition, and on the other established the joint dominant position of those associations on the basis of those agreements. However, it did not make any statement as to whether in the area of a collusive agreement between independent undertakings the market power needed to ‘eliminat(e) competition in respect of a substantial part of the products in question’ was greater, less or equal to that necessary to establish a joint dominant position between them. For a critique of this decision, see section 7.3 above. 69  GC TAA (2002) para 330; GC TACA (2003) para 939. 70   Waelbroeck & Frignani (1998) 290–91, para 226. 71   But see eg AG Roemer’s Opinion in ECJ Continental Can (1973) 256 (English edn). Paragraphs 24 and 25 of the ruling appear to go directly against the Advocate General’s views. 66 67

Theories Concerning Thresholds of Market Power in European Competition Law  257

10.3.1  First Theory: The Market Power Necessary to Enjoy a Dominant Position is Less than that Necessary to Eliminate Competition with respect to a Substantial Part of the Market Certain authors have argued that the mere fact that an agreement allows the parties to enjoy a dominant position is not sufficient to exclude the exemption,72 and indeed certain judgments of the EU Courts prior to the GC’s ruling in TAA (2002), the first time this approach received judicial support,73 could be interpreted in this way. In the oft-cited judgment in Continental Can (1973), for example, the ECJ held that the fact that an undertaking in a dominant position strengthened this position to the point that the degree of dominance substantially fettered competition amounted to an abuse.74 On this basis it could be thought that the ECJ contemplated the possibility that an undertaking in a dominant position might not substantially fetter competition. If it could be shown that ‘substantially fetter competition’ within the meaning of Continental Can (which describes a situation of economic power that is greater than a simple dominant position) is the same as ‘eliminating competition in respect of a substantial part of the market’ within the meaning of Article 101(3)(b), this latter concept would require a greater degree of market power than that necessary to hold a dominant position. In another part of the same judgment, the Court treated Articles 101(3) and 102 TFEU as equivalent expressions of the Treaty’s objective to maintain effective competition, whether real or potential.75 This would be threatened both in the case of elimination of competition and in the case of abuse of a dominant position. Continental Can was therefore prohibited not from holding a dominant position per se, but rather from strengthening it in a way that eliminated competition. An undertaking in a dominant position must not abuse such position; but an agreement that eliminates competition is prohibited, even if it favours the objectives set out in the first condition of the exemption. From this perspective a dominant position could mean a lower level of economic power than that necessary to eliminate competition.76 72   Waelbroeck & Frignani (1998) 291, para 227. These authors also believe that the fact that one of the parties to a restrictive agreement holds a dominant position does not impede the granting of an exemption. Font Galán (1986) 259; Whish & Sufrin (1993) 73 fn 77, citing CEWAL (1992) in support of this approach; Gabaldón García & Ruiz Soroa (1999) 153; Boet Serra (2000) 406ff. The latter two texts specifically defend the view that the fact that liner shipping conferences hold a dominant position does not prevent them from satisfying the condition of nonelimination of competition, because this involves a stricter requirement (the elimination of all competition). Boet Serra (2000) cites Waelbroeck & Frignani (1998), Font Galán (1986), and Van Houtte (1983) 102. Curiously, Waelbroeck & Frignani had expressed the opposite view 20 years earlier in Frignani & Waelbroeck (1978) 87 (see Font Galán (1986) 203). Font Galán (1986) had also done the same thing some pages earlier (see 203). As regards Van Houtte (1983), contrary to the claims made by Boet Serra, he does not pronounce any theory and leaves the question open (see 104). Van Houtte (1983) 101, fn 49 does cite AG Reischl in his Opinion in Hoffmann-La Roche (1979) 593 (English edn) as supporting this view, although it is submitted that it is not clear that the Advocate General actually took this position. More recently, Ilzkovitz & Meiklejohn (2001) 14 also argue that Art 101(3) allows the Commission to authorise agreements whose impact goes beyond the creation of a dominant position, which until Regulation 139/2004, at least, was the tolerance limit in the control of concentrations. According to them, although dominant position clearly implies a degree of market power, ‘it falls far short of the elimination of competition’. Nevertheless, in note 1 of their article, these authors recognise that some academics consider that the precedents for the application of Art 101 indicate that ‘eliminating competition’ may be interpreted as equivalent to creating or strengthening a dominant position. 73  GC TAA (2002) paras 328, 330. 74  ECJ Continental Can (1973) para 26. 75  ECJ Continental Can (1973) para 25. 76   See Van Houtte (1983) 102–03.

258  Expressly or Pure Collusive Dominant Position in European Competition Law However, the fact is that ‘substantially fetter competition’, the phrase coined by the ECJ in Continental Can, cannot be considered to equate with the concept of ‘elimination of competition’ under Article 101(3)(b), since it only refers to a special type of dominant position: one that is particularly strong, close to a monopoly. It is obvious that there are different degrees of market power, both above and below the level of dominant position.77 Neither can the fact that a dominant position is not prohibited whereas the ‘elimination of competition’ is be interpreted as indicating that the TFEU sees the first situation as less serious than the second. The Treaty simply recognises implicitly that a dominant position can be achieved by legitimate means, while the ‘elimination of competition’ through restrictive agreements cannot. In the latter case the starting point is the existence of an agreement between undertakings that is, in principle, prohibited, which must overcome the fourth condition in order to be authorised. Finally, and although it arose much later than the judgment in Continental Can, a very similar form of words (‘significantly impede effective competition’) can be found in Article 2 paragraphs 2 and 3 of Regulation 134/2004, where it does not have a meaning that is significantly different from dominant position and, if it does, it indicates a lower market power than that of dominant position.78 In United Brands (1978), the ECJ also stated that an undertaking need not have eliminated ‘all opportunity for competition’ in order to hold a dominant position.79 The Court certainly held here that a dominant position can be established before competition is completely eliminated: in other words, before a monopoly is achieved.80 Similarly, in Hoffmann-La Roche (1979) the Court established that a dominant position ‘does not preclude some competition’.81 Nevertheless, this case does not support the view that the level of market power necessary to establish the existence of a dominant position is less than that required to ‘eliminat[e] competition in respect of a substantial part of the products in question’. In fact, the elimination of competition referred to in Article 101(3) is ‘in respect of a substantial part of the products in question’. The elimination of competition referred to in United Brands, on the other hand, concerned the whole of the market, and therefore the statement of the ECJ was of no consequence for the interpretation of that provision. The theory that the elimination of competition within the meaning of Article 101(3)(b) occurs at a level of market power above that required to establish a dominant position also appears to be supported in another part of Hoffmann-La Roche. Referring to certain contracts between Hoffmann-La Roche and Merck, and above all to one concerning reciprocal and exclusive supply, the ECJ wondered whether the conduct in question came within the scope of Article 101, and in particular Article 101(3), as well as within the scope of Article 102. The Court explained: [T]he fact that agreements of this kind might fall within Article 85 [now Article 101] and in particular within paragraph (3) thereof does not preclude the application of Article 86 [now Article 102], since this latter Article is expressly aimed in fact at situations which clearly originate in contractual relations so that in such cases the Commission is entitled, taking into account the nature   See chs 3 and 9.   See ch 4. 79  ECJ United Brands (1978) para 113. 80   Similarly, see Commission decision Airtours/First Choice (1999) para 56: ‘Even in cases involving single dominance or tight cartels competition is rarely completely eliminated.’ 81  ECJ Hoffmann-La Roche (1979) para 39. 77 78

Theories Concerning Thresholds of Market Power in European Competition Law  259 of the reciprocal undertakings entered into and to the competitive position of the various contracting parties in the market or markets in which they operate to proceed on the basis of Article 85 or Article 86.82

Here the Court really only stated that agreements of this nature (reciprocal and exclusive supply) can come within the scope of Article 101, and Article 101(3) may apply to them. However, at no point does it state that in the specific example of the agreements between Roche and Merck Article 101(3) would apply. The statements of the Court as regards the exclusive contracts between Roche and Unilever must be interpreted similarly. In a statement that gives much more support than previous judgments to the theory that the elimination of competition under Article 101(3) occurs beyond a dominant position, the ECJ maintained that: [S]uch agreements could only possibly be admissible in the context of, and subject to the conditions laid down in, Article 85(3) [now Article 101(3)] of the Treaty but none of the contracting parties has thought it necessary to avail itself of this possibility.83

In this way, the Court appeared to accept implicitly that agreements such as those described (of exclusive supply, with one of the parties being in a dominant position in the market) can be authorised. This would perhaps be acceptable in general terms for the ‘type of agreement’ in question, but it is clearly not acceptable in the specific context described, since Roche used them to strengthen its dominant position in the market. The sentence – an obiter dictum, in any event – can only mean that, while Regulation 17 was in force, in general any supply agreement could be authorised on the basis of the conditions set out in Article 101(3), but it was not necessary to examine these conditions when the parties had not requested that the Commission do so. If such a request had been made, the Commission would have discovered – and the Court would have corroborated this – that an exclusive supply agreement with or without reductions for loyalty, between an undertaking in a dominant position and an important client, regardless of whether or not any of the other conditions are satisfied, eliminates competition within the meaning of the fourth condition of Article 101(3).84 In the paragraph in question, the ECJ did not accept at all that this type of agreement in the specific circumstances of the case could be authorised, although at first sight the wording may suggest this to be the case. A more recent judgment of the GC also supports this theory. In Matra Hachette (1994), this French company had argued that the existence of excess production capacity would, over time, give Ford and Volkswagen the possibility of acquiring a collective dominant position in this market, as a result of a joint venture established for the manufacture of multipurpose vehicles which had been authorised by the Commission. The Court confirmed the Commission’s approach, however, ruling that ‘the achievement or strengthening of a dominant position, whether individual or collective, is not as such prohibited by Articles 85 and 86 [now Articles 101 and 102 TFEU] of the Treaty’. The GC went on to clarify that:   ibid, para 116.   ibid, para 120. 84   As did the Commission in eg Billiton/Metal and Thermit Chemicals, where it declared that application of Art 102 TFEU to a specific exclusivity supply contract did not prevent such a contract from breaching the prohibition established in Art 101 TFEU. In this case, the Commission had proceeded on the basis of Art 101 TFEU against an exclusivity agreement that had been regularly notified, and which had been concluded between a manufacturer holding a dominant position, and the most important industrial consumer of the product in question. See the Commission’s VIIth Report on Competition Policy (1977) paras 13–15, 131. 82 83

260  Expressly or Pure Collusive Dominant Position in European Competition Law Article 86 [now Article 102 TFEU] merely prohibits the abuse of a dominant position by one or more undertakings. Accordingly, an alleged risk that the founders might in time collectively achieve a dominant position cannot in any event constitute legal justification for withholding an exemption, the likelihood of that risk materializing during the period of validity of the Decision not having been established by the applicant. Accordingly, the Court considers that . . . the argument based on the risk of the achievement and abuse of a collective dominant position must be rejected in any event, without it being necessary for the Court to decide whether, as the applicant necessarily implies the Commission should, in the presence of a sufficiently clear infringement of Article 86 of the Treaty, reject an application for an individual exemption.85

In its judgment, the GC rejected the argument that an exemption could be refused on the basis of a hypothesis which had not been proven, specifically that undertakings may acquire a collective dominant position. It then went on to emphasise that the application of Article 102 TFEU meant not only the establishment of a dominant position, but an abuse, and it avoided ruling on whether abuse of a dominant position would oblige the Commission to refuse to exempt the relevant agreement. This evasive action indicates instead that the point at issue was neither supported nor rejected by the EU Courts before 1994. The question, therefore, remained open. In one sense, the declaration of the GC, following the submissions of the Commission’s Legal Service, is wide open to doubt: the acquisition of a collective dominant position through an agreement that restricts competition, without being, in fact, expressly prohibited by Article 101(1) TFEU, cannot be authorised under Article 101(3)(b), unless it is understood that the elimination of competition within the meaning of this last provision only occurs on the basis of a dominant position.86 Curiously, shortly after Matra Hachette (1994), in a very similarly worded judgment, the ECJ omitted any reference to Article 101.87 Neither is a more recent statement of the ECJ entirely correct. This provides as follows: ‘Article 85 [now Article 101] of the Treaty applies to agreements, decisions and concerted practices which may appreciably affect trade between Member States, regardless of the position in the market of the undertakings concerned.’ However ‘Article 86 [now Article 102] of the Treaty, on the other hand, deals with the conduct of one or more economic operators consisting in the abuse of a position of economic strength.’88 This is not correct as regards Article 101(1) TFEU (unless we put to one side the judgments in Völk (1969) and Miller (1978)),89 and even less so with respect to Article 101(3), in particular paragraph (b). Advocate General Slynn made a similar mistake in his Opinion in ECJ ANCIDES (1987). During the proceedings, this Italian association of international dental and health traders  GC Matra Hachette (1994) paras 153–54 (emphasis added).   The acquisition of an oligopolistic collective dominant position, however, would not be, effectively, prohibited by either Art 101 or Art 102 TFEU, but it could be prohibited under Reg 139/2004, if it had its origins in a concentration between undertakings. 87  ECJ Gøttrup-Klim (1994) para 49, where, in a reference for a preliminary ruling concerning the interpretation of Arts 101 and 102 TFEU, the Court recalled that Art 102 did not prohibit per se either the creation of a dominant position or its strengthening, but it did not refer to Art 101. This analysis of Art 102 appears to overlook the fact that, at least in certain circumstances, it does prohibit the strengthening of a pre-existing dominant position. See ECJ Continental Can (1973). 88  ECJ CEWAL (2000) para 34. 89   In ECJ Völk v Vervaecke (1969) it was held that there was no appreciable restriction of competition where the joint share of the two parties to a restrictive agreement in the relevant market was less than 1%, while in ECJ Miller (1978) a share of 5–6% was found to be enough for the parties to an agreement to restrict competition appreciably. See ch 2. 85 86

Theories Concerning Thresholds of Market Power in European Competition Law  261 had argued that in adopting its decision in UNIDI II (1984), by which it renewed the individual exemption that it had previously granted to the rules on participating in an exhibition of dental and health equipment (the ‘Expo Dental’),90 the Commission had not correctly applied Articles 101 and 102, and as a result UNIDI had obtained an advantage that was the equivalent to a dominant position. Following the submissions of the Commission’s Legal Service – as the GC would later do in Matra-Hachette (1994) – Advocate General Slynn maintained that even if the exemption granted by the Commission conferred a dominant position on the requesting association of undertakings (UNIDI), this did not in itself establish sufficient grounds for a competing association to appeal (ANCIDES). Basing its argument on Article 102, which requires the existence of an abuse and not the mere holding of a dominant position, and pointing out that ANCIDES had not requested the application of this rule, either before the Commission or before the Court,91 the Advocate General ignored the fact that the possible creation of a collective dominant position through an agreement that restricted competition, although irrelevant for Article 102, implied in itself the elimination of competition in a very substantial part of the market in question, something which, as ANCIDES claimed, does greatly affect the legality of an individual exemption. In its judgment, the Court accepted from the outset that ‘the increasing degree of concentration in the market is a factor to be taken into account when considering an application for the renewal [or grant] of an exemption under Article 85(3) [now Article 101(3) TFEU] of the Treaty if that increasing concentration affects the competitive structure of the market at issue’.92 However, it clarified that it was for ANCIDES to prove the existence of a similar situation. Very interestingly, the ECJ observed that ANCIDES had not submitted evidence that would have enabled the Court to declare that UNIDI effectively enjoyed a dominant position (replying to the allegation that the Commission had incorrectly applied Article 101) or that they had abused that dominant position (replying to the allegation concerning the incorrect application of Article 102). The Court therefore concluded that ANCIDES had not been able to demonstrate that the authorised practice had led to such a degree of concentration in the market that the requirements for the grant of an exemption had not been met (clearly referring, albeit implicitly, to the fourth requirement of the exemption set out in Article 101(3)(b)). More recent support for this theory can be found in the field of EU merger control. As was seen earlier,93 if the Merger Regulation does not prohibit the creation or strengthening of a dominant position in all cases, but rather only when that position impedes effective competition in a significant way, it could be thought that, by analogy, the threshold of Article 101(3)(b) would be above that of a dominant position. The truth is that this theory concerning the substantive test in EU merger control could establish a market power threshold that is subtly different, but not necessarily higher, for merger control than for Articles 101(3)(b) and 102, particularly taking into account the fact that the new test was introduced to provide the Commission with better tools for controlling and prohibiting specific mergers, which in practice means lowering the intervention threshold.

  Commission decision UNIDI I (1975).   AG Slynn’s Opinion in ANCIDES [1987] ECR 3147. This formal argument was not used by the Court, which, in summarising the arguments of ANCIDES, referred to both provisions. See para 11 of the judgment. 92  ECJ ANCIDES (1987) para 13. 93   See chs 3 and 9 above. 90 91

262  Expressly or Pure Collusive Dominant Position in European Competition Law Actually, the new test in European merger control drew inspiration from the ‘substantial lessening of competition’ (SLC) test used by the US authorities, as set out in section 7 of the Clayton Act 1914. While its aim is more to give the Commission greater freedom to prohibit concentrations94 than to be even more permissive than the previous test, in practice it may have blurred the upper and lower limits of the old test, so that the Commission can both prohibit and authorise mergers with fewer legal restrictions.95 Given this background, in TAA (2002), the GC, referring to three of the judgments analysed above (those of the ECJ in United Brands and Hoffmann-La Roche and that of the GC in Matra Hachette), appears to have settled the issue for the moment. In a brief obiter dictum, it established that a dominant position cannot be treated, purely and simply, as the elimination of competition for the purposes of Article 101(3)(b), and that the prohibition on eliminating competition is a narrower concept than that of the existence or acquisition of a dominant position, in such a way that it may be considered that an agreement does not eliminate competition within the meaning of Article 101(3)(b), and therefore satisfies the requirements of the exemption, even if it established a dominant position for the benefit of its members.96

10.3.2  Second Theory: The Market Power Necessary to Enjoy a Dominant Position is Greater than or Equal to that Necessary to Eliminate Competition with respect to a Substantial Part of the Market As has been stated, most academics maintain that, despite everything, the exception to the prohibition can never apply to an agreement, decision or practice whose object or effect is

94   As M Monti states (2002a) 5, some businesses expressed concern regarding the uncertainty that a change of test would bring, at least temporarily, and the excessive discretion that the Commission would end up enjoying. The fact is that the Commission could use – and some fear that it will use – this test both to prohibit and to authorise concentrations at its discretion. 95   In its Green Paper on the review of the Council’s Merger Regulation (Regulation 4064/89) (2001) paras 159–69, the Commission commenced a debate on the need to change the substantive EU merger control test to one closer to the US test, a debate that has now ended in favour of establishing a new test. See chs 3 and 9 above. In fact, before the change in the substantive test the approach of the US authorities had become much more tolerant since the rigorous approach of the Supreme Court in Brown Shoe (1962), so that the differences between the two tests were more theoretical than practical. Witness the fact that the 1992 and the 2010 Horizontal Merger Guidelines of the FTC and the DOJ declare that ‘[t]he unifying theme of the Guidelines is that mergers should not be permitted to create or enhance market power or to facilitate its exercise’: US Horizontal Merger Guidelines 1992, DOJ/FTC (1992), para 0.1, and US Horizontal Merger Guidelines 2010, DOJ/FTC (2010) para 1. The de facto convergence of the two tests had been recognised by academics and EU authorities on numerous occasions. See eg Bishop & Walker (2010) 350ff, paras 0.010ff; G Monti (2001a) 3; M Monti (2002a) 5. In contrast, see Vickers (2003) 101, for whom the ‘test’ establishing the existence of a dominant position was weaker than the SLC test, at least with respect to individual dominant positions, because ‘a merger can obviously lessen competition without creating or strengthening a single dominant firm’. 96  GC TAA (2002) paras 328, 330. See also GC TACA (2003) para 939. The Commission made reference to these judgments in its Guidelines on Art 101(3) TFEU (European Commission (2004b)) para 106, after stating that the ‘elimination of competition’ referred to in Art 101(3) is a concept that is autonomous and specific to this provision, something that had never previously been expressly asserted. As pointed out by O’Donoghue & Padilla (2006) 39, the Commission has indicated that this concept is, in addition to being autonomous, narrower than that of dominance. In this way, according to Nicolaides (2005) 140, 142, the fourth condition of Art 101(3) ‘would, in practice, apply only to very few cases: those that go beyond dominance and onto a higher level of market power . . . Indeed, . . . after the ruling in [TAA] the fourth condition appears to have been attenuated.’ According to Nicolaides, the Guidelines on Article 101(3) strengthened the second condition to close the gap left open by the TAA judgment.

Theories Concerning Thresholds of Market Power in European Competition Law  263 the establishment of a dominant position in the market.97 This means either that the market power needed to enjoy a dominant position is greater than that necessary to eliminate competition with respect to a substantial part of the market or (and at most) that both market powers are the same.98 According to the first interpretation, the accumulation of market power necessary to enjoy a dominant position is much greater than the accumulation of market power needed to eliminate competition with respect to a substantial part of the market, so that the dominant undertaking or undertakings have, by definition, more than enough capacity to eliminate competition within the meaning of Article 101(3)(b).99 As has been seen, the 97   According to Van Houtte (1983) 101, fn 48, some authors have supported this approach for a long time, specifically Joliet (1967) 126 and (1970); Schröter (1977) particularly 447. Font Galán (1986) 203, referring to Thiesing, Schröter & Hochbaum (1977) 141 and Frignani & Waelbroeck (1978) 87, states that ‘academics correctly maintain that the exemption from the prohibition can never be granted to agreements, decisions or practices whose object or effect is the establishment of monopoly situations or mere positions of dominance in the market’ (author’s translation). However, he takes the opposite approach at 259, where he argues that ‘Article 85(3) [now Article 101(3) TFEU] . . . allows factual situations where there is limited competition (or, even, positions of dominance in the market) to be declared legal’ (author’s translation), and that ‘Article 85(3) provides for (amongst other matters that are not relevant to this point) the possibility of authorising agreements that restrict competition that constitute or lead to factual situations of dominance in the market’ (author’s translation). However, at 260 he appears to qualify this point of view in the sense that this would be an anomaly that should be remedied by withdrawing the exemption. See also Gondra Romero (1969) 374–75, who contrasted the terms of Art 85(3)(b) (now Art 101(3)(b) TFEU), which would not permit the authorisation of agreements that created a dominant position, with that established in the Spanish Ley de Represión de las Prácticas Restrictivas de la Competencia (Law for the Repression of Restrictive Practices of Competition) of 1963, according to which ‘the fact that the agreement or restrictive practice makes it possible for the cartelised undertakings to secure a position of dominance in the trade or market is not an obstacle for it to be excepted’ (author’s translation). Costas Comesaña (1997) 265 also states that most academics do not believe it possible that Art 101(3)(b) allows ‘restrictive agreements that lead to situations where there is a monopoly or dominant position in the relevant market’ (author’s translation) and refers to Frignani & Waelbroeck (1978) 95; Castell Borrás (1986) 279; Font Galán (1986) 203; Tobío Rivas (1994) 336 (whose position on the issue is not, however, clear, neither on this page nor on any other); Goldman & Goldman (1994) 398, para 525 (who, according to Costas Comesaña, ‘point out that the creation of a monopoly through an agreement is excluded “if this condition is rigorously applied”’ (author’s translation). Samkalden & Druker (1965) 166, cited in Hildebrand (1998) 56 make the same point, as do Ritter, Braun & Rawlinson (2000) 128–29, although less emphatically, stating that ‘dominance normally excludes the granting of an exemption under Article 81(3) [now Article 101(3) TFEU]’. In a subsequent edition, these same authors limit themselves to stating that ‘[t]he criterion of elimination of competition for a substantial part of the products in question is related to the question of dominance’). See Ritter & Braun (2004) 155. Lowenthal (2005) 461–26 also appears to support this theory. Finally, Bellamy & Child (2001) 312–13, para 5-053 state that no benefit can compensate the elimination of effective competition, something that, according to the Commission, will occur if the parties will become, or may become, dominant, and therefore an agreement (specifically, in this case, a joint venture) that creates a dominant position can never be authorised by virtue of Art 101(3). These authors, writing prior to the judgment of the GC in TAA (2002), recognise, however, that the relationship between the Art 101(3)(b) test and the test of dominance under Art 102 would remain uncertain ‘in the absence of a determination by the Community Courts’, and refer to Temple Lang (2000) as being against, and Waelbroeck & Frignani as being in favour, of the possibility of authorising an agreement that creates a dominant position under Art 101(3). These authors qualified their position following GC TAA (2002), as can be seen in Bellamy & Child (2008) paras 3.062ff, although they state that the Commission considers that if a company is or becomes dominant as a result of an agreement that has a significant effect on competition, this agreement cannot, in principle, comply with the condition of Art 101(3)(b) TFEU. 98   For example, according to Navarro, Font, Folguera & Briones (2002) para 10.16 291–92, the test under Art 101(3)(b) is very close (although they do not say identical) to the dominant position text. Nevertheless, Winckler & Hansen (1993) 805 suggest that the effective competition and dominance tests are different, although both are based on Arts 101 and 102 TFEU. 99   This seems to be the theory advocated in Temple Lang (2000) 422–23, Temple Lang (2002) 273–74, and Faull & Nikpay (1999) 115, para 2.172. However, in a subsequent edition, Faull & Nikpay (2007) 310 appear to support the most recent case law of the GC: ‘[T]he concept of dominance is not synonymous with the concept of elimination of competition. Given that dominance is a question of degree, dominance may be sufficient for a finding of elimination of competition. However the mere finding of dominance is not sufficient. Further enquiry into the degree of market power and the relationship between the agreement and such market power is needed.’ For his

264  Expressly or Pure Collusive Dominant Position in European Competition Law Commission’s decision-making practice as regards individual exemptions would support this interpretation.100 Even though the Commission has on occasion authorised very restrictive agreements indeed (which could give completely the opposite impression), in general it has kept a safe distance from the levels of market power that are sufficient to establish a dominant position. This is particularly clear when it comes to block exemptions, especially the oldest, although the most recent legislation, for example in the maritime (consortia), insurance and automobile distribution sectors, has substantially raised the admissible thresholds of market power. The Commission itself appears to have implicitly supported this interpretation. Thus, in its Notice on cooperative joint ventures of 2000, it stated: Competition must be fully functioning at all times. Agreements which endanger its effectiveness cannot benefit from individual exemption. This category includes JVs which, through the combination of activities of the parents, achieve, consolidate or strengthen a dominant position.101

Further, in its Guidelines on Vertical Restraints of 2000, the Commission argued that: Conceptually, market power is the power to raise price above the competitive level and, at least in the short term, to obtain supra-normal profits. Companies may have market power below the level of market dominance, which is the threshold for the application of Article 82 [now Article 102 TFEU].102 103

If this statement is compared to the case law of the ECJ concerning Article 65(2)(c) of the now expired ECSC Treaty, a provision that prevented a restrictive agreement in the coal and steel sectors from being authorised unless it was ‘not liable to give the undertakings concerned the power to determine the prices’, etc, and was equivalent to the fourth condition of Article 101(3)(b),104 it should be agreed that the power to increase prices and obtain profits above normal levels appears to be more or less equivalent to the power that undertakings dispose of when the competition has been eliminated, and that the fourth condition may not be satisfied below the level of market power of a dominant position.

part, Temple Lang (2002) 350 admits, however, the possibility that Art 101(3) allows the parties to eliminate competition by creating an ‘unbeatable advantage’ for them, enabling them to drive competition out of the market, although he notes that this point is not clear. Fountoukakos & Ryan (2005) 280 could also perhaps be included in the group of authors who argue that this market power threshold could be lower than that of a dominant position. 100   See section 6.2 above. 101   Commission Notice concerning the assessment of cooperative joint ventures (1993) para 58. 102   See the Guidelines on Vertical Restraints of 2000 (European Commission (2000b)) para 119, 1. Paragraphs 147–48 and 204 of the Guidelines themselves could also follow this line, since they admitted the possibility that with certain vertical agreements (single brand or exclusive supply) competition problems or anticompetitive effects may arise below the market power threshold of a dominant position of the supplier or the purchaser and even below the general exemption threshold (30% market share), which could compel the Commission to withdraw the exemption. The possibility of authorising an agreement that created competition problems did not seem feasible, which the Commission appeared to acknowledge. However, it was not clear whether these problems meant infringement of the fourth condition, or only of the first two conditions, since the detriment to competition seemed to outweigh the advantages of the agreement within the meaning of the principle laid down in Consten & Grundig (1966). 103   The most recent Guidelines on Vertical Restraints (European Commission (2010a)) paras 97–98 retain the essence of this definition, although the subsequent clarification is different: ‘The degree of market power normally required for a finding of an infringement under Article 101(1) is less than the degree of market power required for a finding of dominance under Article 102.’ (Emphasis added.) 104   See ch 5 above.

Theories Concerning Thresholds of Market Power in European Competition Law  265 According to the second interpretation, the market power referred to in Articles 102 and 101(3)(b) is the same,105 which means that an exemption with respect to an agreement that is used to establish a dominant position is not possible.106 The setting out of the conditions, positive in the first case (there must be a dominant position before an abuse can exist) and negative in the second (competition must not be eliminated in order for the legal exception to apply, or for an exemption to be granted), means that although both refer to the same threshold of economic power, in one case this must be attained, whereas in the other it must not. In this way, the admissible level of market power needed to authorise a restrictive agreement will always be below, but not necessarily very far below, that necessary to apply Article 102. This is perfectly logical: if the market power that eliminates competition within the meaning of the fourth condition is equal to that which permits the establishment of a dominant position, market power that does not eliminate competition is lower than that which permits the establishment of a dominant position. The second version of the second theory appears to find more support in the case law – and even from the Commission’s decisions – than the first one, as will now be seen. To start with, submissions have sometimes been made to the EU Courts which completely contradict those academics who argue that the elimination of competition for the purposes of the fourth condition of Article 101(3) can only occur above the level for establishing a dominant position. For example, in his Opinion in Hoffmann-La Roche (1979), in answer to the submissions of this undertaking that its behaviour would not have had an appreciable adverse effect on competition, nor on trade between Member States, Advocate General Reischl argued that ‘in circumstances to which Article 86 [now Article 102 TFEU] applies competition is practically eliminated because an undertaking in a dominant position is not exposed to effective competition’.107 In Decca Navigator System (1988) the Commission itself stated that ‘as all the agreements in question arise from an abuse of a dominant position in violation of Article 86 [now Article 102 TFEU], they cannot benefit from the application of Article 85(3) [now Article 101(3) TFEU]’. The agreements in question (sharing of markets and clients between an 105   Kjølbye (2004) 576–77 notes that in the past the Commission declared that the elimination of competition amounts to a position of dominance; see eg the previous Guidelines on Vertical Restraints (European Commission (2000b)) para 135 and Guidelines on Horizontal Cooperation Agreements (European Commission (2001a)) paras 36, 71, 105, 134 and 155, which stated that restrictive agreements of dominant operators could not be exempted. These declarations have been reinterpreted in the Guidelines on Art 101(3) TFEU (European Commission (2004d)) para 106, fn 92 as meaning that Art 101(3) ‘[precludes] any application of this provision to restrictive agreements that constitute an abuse of a dominant position’. According to Kjølbye, the reason for this significant change between 2000 and 2004 can be found in TAA (2002) and TACA (2003). Nicolaides (2005) 140 also states that the GC’s judgment in TAA (2002) changed the traditional approach and influenced the Guidelines on Art 101(3) TFEU, for which reason they exhibit ‘conflicting views’. As with other important aspects of the competition rules, the Guidelines go further than the Commission’s precedents, this time to accommodate the case law of the GC. See also Lugard & Hancher (2004) 410. 106   For Peeperkorn (2002) 40, ‘elimination of competition and dominance are closely linked. When a firm is able to eliminate competition, this firm is dominant.’ Accordingly, this would mean that a dominant firm cannot satisfy the four conditions of Art 101(3). Commissioner M Monti expressed exactly the same view in reply to Written Question E-0640/01 by Bert Doorn and Kapla Peijs, concerning the 2001 Vertical Guidelines, OJ 2001 C318 E/90. Similarly, see de Steel (2003) 539. For their part, Ehlermann & Ratliff (2005) 96 point out that ‘the limit of Article 81(3) [now Article 101(3)] is not dominance – as was previously thought by many – but the abuse thereof ’. In support of these declarations, they rely on the Guidelines on Art 101(3) TFEU (European Commission (2004d)) para 106, as well as the Guidelines on Technology Transfers (European Commission (2004b)). Despite the fact that such a conclusion cannot be deduced from these paragraphs, it is interesting to highlight the fact that many authors supported equating elimination of competition within the meaning of Art 101(3) with dominant position. 107   See AG Reischl’s Opinion in Hoffmann-La Roche (1979) 593.

266  Expressly or Pure Collusive Dominant Position in European Competition Law undertaking in a dominant position and its only competitors) breached Article 102, and on that basis the Commission ruled that advantage could not be taken of Article 101(3), either on an individual basis or through a block exemption.108 On occasion, the Commission has expressly equated dominant position with the possibility of eliminating competition in respect of a substantial part of the products in question, and vice versa. Thus, for example, in Tetra Pak I – BTG Licence (1988) the Commission ruled that the dominant position that it had described, in particular the market share of the undertaking in question, provided the company with the chance to eliminate competition in the market.109 The Commission made identical or similar declarations in Van Den Bergh Foods (HB Ice Cream) (1998)110 and Gillette (1992).111 In Fiat/Hitachi (1992), while stating that the conditions of Article 101(3) were satisfied, the Commission said that it expected that the joint venture would hold a moderate share (16 per cent) of the excavator market within the EU, which did not give it a dominant position on that market.112 In Fujitsu AMD Semiconductor (1994), it did something very similar: in justifying the non-elimination of substantial competition, the Commission maintained that it was very unlikely that either AMD or, a fortiori, Fujitsu would acquire a dominant position within the product market in question (‘flash memories’) within the EEA as a result of the joint venture.113 Until 1999, in not one case had the Commission established the existence of a dominant position while ruling out the elimination of competition.114 However, it had shown the existence – and the abuse – of a dominant position by a liner shipping conference authorised by a block exemption, without withdrawing it for breach of the condition of nonelimination of competition.115 In its Guidelines on Vertical Restraints of 2000 and on Horizontal Cooperation Agreements of 2001 the Commission also repeatedly argued (albeit sometimes subject to qualification) in favour of the concepts of elimination of competition under Article 101(3) and dominant position under Article 102 being treated as identical. The Guidelines on Vertical Restraints of 2000 stated: Where [in single branding agreements] appreciable anti-competitive effects are established, the question of a possible exemption under Article 81(3) [now Article 101(3) TFEU] arises as long as the supplier is not dominant.116 108   Commission decision Decca Navigator System (1988) paras 122ff. See Whish (2008) 159–60. Is this simply due to the fact that conduct which is abusive, and therefore unconditionally reprehensible, should not be authorised under any circumstances, either (obviously) under Art 102 or, alternatively, Art 101(3)? Or is there a prior fundamental problem, one that is structural rather than behavioural, that could be defined as follows – whoever enjoys a dominant position necessarily eliminates competition in the sense of the fourth condition? The correct answer would appear to be the second one, but neither the Commission nor Whish clarifies the point. 109   Commission decision Tetra Pak (BTG Licence) (1988) para 58. 110   Commission decision Van Den Bergh Foods (HB Ice Cream) (1998) para 244. 111   Commission decision Gillette (1992) para 22 in conjunction with para 40, where the notion that companies holding a dominant position always eliminate competition in the sense of Art 101(3) TFEU is implicitly established. 112   Commission decision Fiat/Hitachi (1992) para 26. 113   Commission decision Fujitsu AMD Semiconductor (1994) para 45. 114   Everything changed after Commission decision P&I Clubs II (1999). For a criticism of this atypical decision, see section 7.3 above. 115   See Commission decisions CEWAL (1992) and TACA (1998). For a critique of this and other decisions in the very unusual political context of Reg 4056/86 on the application of Arts 101 and 102 TFEU to the maritime sector, including a block exemption for shipping conferences, see Ortiz Blanco (2007). 116   Commission Notice on vertical restraints of 2000 (European Commission (2000b)) para 153.

Theories Concerning Thresholds of Market Power in European Competition Law  267 ... Where [as regards exclusive supply agreements] appreciable anti-competitive effects are established, an exemption under Article 81(3) [now Article 101(3) TFEU] is possible as long as the company is not dominant.117 ... Where [in tying agreements] appreciable anti-competitive effects are established, the question of a possible exemption under Article 81(3) [now Article 101(3) TFEU] arises as long as the company is not dominant.118

Less clearly, the Guidelines on Vertical Restraints of 2000 stated as follows: [In single branding agreements,] [b]elow the level of dominance the combination of non-compete with exclusive distribution may also justify the non-compete obligation lasting the full length of the agreement.119 ... [R]eciprocal exclusivity in [exclusive] industrial supply agreements is usually justified below the level of dominance.120

However, some parts of the Guidelines on Vertical Restraints were even less conclusive than those mentioned above. For example, concerning the methodology of analysis and the rele­ vant factors for assessment in accordance with Article 101(3), they stated, in a very similar fashion to some parts of the Guidelines on Horizontal Cooperation Agreements of 2001 (which are looked at below): The last criterion of elimination of competition for a substantial part of the products in question is related to the question of dominance. Where an undertaking is dominant or becoming dominant as a consequence of the vertical agreement, a vertical restraint that has appreciable anti-competitive effects can in principle not be exempted. . . . Where the supplier and the buyer are not dominant, the other three criteria become import­ ant.121

For their part, the Guidelines on Horizontal Cooperation Agreements (2001) provided that: The last criterion of elimination of competition for a substantial part of the products in question is related to the question of dominance. Where an undertaking is dominant or becoming dominant as a consequence of a horizontal agreement, an agreement which produces anti-competitive effects in the meaning of Article 81 [now Article 101 TFEU] can in principle not be exempted.122

The text proposed in the Notice containing the Draft Guidelines on Horizontal Cooperation Agreements of 2000 was much clearer, more conclusive and more logical. It stated as follows:   ibid, para 211.   ibid, para 222. 119   ibid, para 158. 120   ibid, para 208 in fine. 121   ibid, paras 135–36 (emphasis added). Unlike the first version of the Horizontal Guidelines, the text of the Commission’s Draft Guidelines on Vertical Restraints (European Commission (1999b)) paras 128–29 was almost identical to that of the final version. 122  Guidelines on Horizontal Cooperation Agreements (European Commission (2001a)) para 36 (emphasis added). The new Guidelines on Horizontal Cooperation Agreements (European Commission (2011)) contain no declaration of a similar nature. 117 118

268  Expressly or Pure Collusive Dominant Position in European Competition Law One of the key elements for the assessment under Article 81(3) [now Article 101(3) TFEU] is the question whether or not competition is likely to be eliminated. The analysis can be carried out on the basis of the assessment of market power and market structures under Article 101(1) [now Article 101(1) TFEU].123 The only difference is that under Article 101(3) a higher degree of market power is permitted provided that significant efficiencies are generated which outweigh the anticompetitive effects. The absolute limit for exemption is the elimination of effective competition. Even considerable efficiency gains cannot justify the elimination of effective competition. This is effectively the point at which the parties are or would be likely to become dominant.124 (Emphasis and footnote added)

Another part of the Guidelines on Horizontal Cooperation Agreements (2001), on research and development agreements, and concerning the fourth condition of Article 101(3), states: No exemption will be possible, if the parties are afforded the possibility of eliminating competition in respect of a substantial part of the products (or technologies) in question. Where as a consequence of an R & D agreement an undertaking is dominant or becoming dominant either on existing markets or with respect to innovation, such an agreement which produces anti-competitive effects in the meaning of Article 81 [now Article 101 TFEU] can in principle not be exempted. For innovation this is the case, for example, if the agreement combines the only two existing poles of research.125

Once again, the corresponding part of the Draft Horizontal Guidelines of 2000 was clearer: No exemption will be possible, if the parties are afforded the possibility of eliminating competition in respect of a substantial part of the products (or technologies) in question. Thus, dominance on existing markets and with respect to innovation must not be created or increased. For innovation this is the case, for example, if the agreement combines the only two existing poles of research.126

Later, when analysing the condition for the non-elimination of competition within the context of specialisation agreements, the Commission stated in its Horizontal Guidelines (2001) that: No exemption will be possible, if the parties are afforded the possibility of eliminating competition in respect of a substantial part of the products in question. Where as a consequence of a production agreement an undertaking is dominant or becoming dominant, such an agreement which produces anti-competitive effects in the meaning of Article 81 [now Article 101 TFEU] can in principle not be exempted. This has to be analysed on the relevant market to which the products subject to the cooperation belong and on possible spill-over markets.127 123  This analysis is described in the old Commission’s Guidelines on Horizontal Cooperation Agreements (2001a) §§ 17–30 (§§ 16–31 of the 2000 Draft), and includes a first part concerning the nature of the agreement (in order to establish the scope of cooperation or the restriction of competition between companies, ie the intensity of internal competition) and a second part, identical to the usual one used to establish a dominant position, which includes an assessment of market power and market structure. See also the new Guidelines on Horizontal Cooperation Agreements (European Commission (2011) paras 32–38 (nature of the agreement) and paras 39–47 (market power and other market characteristics). 124   Draft Guidelines on Horizontal Cooperation Agreements (European Commission (2000a)) para 37. See also the new Guidelines on Horizontal Cooperation Agreements (European Commission (2011)), loc ult cit. 125   Guidelines on Horizontal Cooperation Agreements (European Commission (2001a)) para 71 (emphasis added). The new Guidelines on Horizontal Cooperation Agreements (European Commission (2011)) contain nothing of a similar nature. 126   Draft Guidelines on Horizontal Cooperation Agreements (European Commission (2000a)) para 67 (emphasis added). 127   Guidelines on Horizontal Cooperation Agreements (European Commission (2001a)) para 105 (emphasis added). There is nothing of this nature in the new Guidelines on Horizontal Cooperation Agreements (European Commission (2011)).

Theories Concerning Thresholds of Market Power in European Competition Law  269 For their part, the Draft Horizontal Guidelines established that: The effects on competition have to be analysed on the market to which the products subject to the cooperation belong and on possible spill-over markets. Production agreements which bring about efficiencies, but involve parties with significant market power require a detailed analysis as to the assessment of whether or not effective competition is likely to be eliminated in the market. The analysis has to include the factors described under the point ‘market power and market structures’. Efficiencies and other relevant benefits can justify even a significant restriction of competition in the market provided that effective competition is not eliminated and the creation or strengthening of a dominant position is excluded.128

Finally, on the subject of buying agreements between competitors, the Guidelines on Horizontal Agreements (2001) stated that: No exemption will be possible, if the parties are afforded the possibility of eliminating competition in respect of a substantial part of the products in question. This assessment has to cover buying and selling markets. The combined market shares of the parties can be regarded as a starting point. It then needs to be evaluated whether these market shares are indicative of a dominant position, and whether there are any mitigating factors, such as countervailing power of suppliers on the purchasing markets or potential for market entry in the selling markets. Where as a consequence of a purchasing agreement an undertaking is dominant or becoming dominant on either the buying or selling market, such an agreement which produces anti-competitive effects in the meaning of Article 81 [now Article 101 TFEU] can in principle not be exempted.129

Nevertheless, in the corresponding part of the Draft Guidelines on Horizontal Cooperation Agreements (2000), the Commission considered that the thresholds of market power set out in Article 101(3)(b) and Article 102 TFEU were completely identical. According to the Commission: Joint buying agreements can never be exempted if they afford the parties the possibility of eliminating competition in respect of a substantial part of the products in question. This assessment has to cover buying and selling markets. The combined market shares of the parties can be regarded as a starting point. It then needs to be evaluated whether these market shares are indicative of a dominant position, and whether there are any mitigating factors, such as countervailing power of suppliers on the purchasing markets or potential for market entry in the selling markets. A dominant position on either the buying or selling market excludes exemption under Article 81(3) [now Article 101(3) TFEU].130

The Commission, undoubtedly not by accident, amended the Draft Horizontal Guidelines (2000) in such a way that it created doubts as to whether in certain cases it is possible to authorise an agreement that restricts competition where it creates or strengthens a dominant position. Perhaps the Commission’s intention was to keep something up its sleeve for any complicated scenario in which it might need to make use of the first theory described above to justify its decisions, as in P&I Clubs II (1999).131 The words ‘in principle’ probably hide a compromise between the proponents of the first theory and those of the second within DG COMP, and the net result is an unwelcome lack of precision, which will have a negative effect on the systemic coherence of EU competition law. 128  Draft Guidelines on Horizontal Cooperation Agreements (European Commission (2000a)) para 97 (emphasis added). 129   Guidelines on Horizontal Cooperation Agreements (European Commission (2001a)) para 134 (emphasis added). 130   Draft Guidelines on Horizontal Cooperation Agreements (European Commission (2000a)) para 126 (emphasis added). 131   See section 7.3 below.

270  Expressly or Pure Collusive Dominant Position in European Competition Law The Draft Horizontal Guidelines (2000) could certainly be criticised for solving the problem without explaining anything much, as if it were an obvious point. But, in fact, perhaps it is obvious, despite the arguments raised against it. In any event, any justification of this point of view must be based on the European competition law system and its objectives. In its Draft Guidelines on the Effect on Trade Concept of 2003, the Commission ratified its traditional position when it recognised that the presence of a dominant operator eliminates effective competition.132 This reiteration is not particularly significant except insofar as it shows that the systemic crisis that uncoupled the concepts of elimination of competition and dominant position took place between 2003 and 2004. Since then, the Commission has chosen either to go back on its word or to avoid the issue. The first example, of the Commission retracting what it previously stated, can be found in the Guidelines on the application of Article 101(3) of the TFEU of April 2004, in which the Commission stated that its previous declarations regarding the relationship between the elimination of competition within the meaning of Article 101(3) and the dominant position of Article 102 in fact only meant that ‘Article 81(3) [now Article 101(3) TFEU] [precluded] any application of this provision to restrictive agreements that constitute an abuse of a dominant position’.133 The second approach, that of evading the issue, can be found, in different versions, in the new Vertical Restraints Guidelines (2010) and the new Guidelines on Horizontal Cooperation Agreements (2011). That said, in both texts we can find, despite everything, certain ‘red lines’, two implied and one express, in relation to the maximum admissible market power for the purposes of Article 101(3)(b) TFEU. In the Vertical Restraints Guidelines of 2010, the implied maximum level of market power is that of dominant position,134 while the express maximum level is that of ‘superdominance’. Indeed, according to these Guidelines, ‘[a] restrictive agreement which maintains, creates or strengthens a market position approaching that of a monopoly can normally not be justified on the grounds that it also creates efficiency gains’.135 By contrast, in the new Guidelines on Horizontal Cooperation Agreements of 2011, the implied maximum level of tolerance of market power is located below the dominant position.136

132   Draft Guidelines on the Effect on Trade Concept (European Commission (2003d)) para 71: ‘[w]hen effective competition has been eliminated due to the presence of a dominant firm . . .’ 133   Guidelines on Art 101(3) TFEU (European Commission (2004d)) para 106 and fnn 89–92, which refer to GC TAA (2002) and TACA (2003). The retraction can be found in fn 92, which cites the most embarrassing sections, for the triumphant ideology, set out in the Guidelines on Vertical Restraints of 2000 and the Guidelines on Horizontal Cooperation Agreements of 2001. On this question, see Faull & Nikpay (2007) paras 3.453ff, who state, without beating about the bush, that the Guidelines on Art 101(3) ‘effectively amend’ the previous Guidelines. 134   See the Guidelines on Vertical Restraints (European Commission (2010a)) para 11, which refer to an individual or – more significantly – a collective dominant position. Paragraphs 133, 138–42 and 198–99 refer to the dominant position of companies that enter into restrictive agreements. 135   Guidelines on Vertical Restraints (European Commission (2010a)) para 127 in fine. 136   See the new Guidelines on Horizontal Cooperation Agreements (European Commission (2011) paras 127, 130 (fn1) & 201. Although these paragraphs refer to the analysis of Art 101(1) TFEU (the sections relating to the Art 101(3)(b) TFEU condition are devoid of content, except para 324, which refers to ‘standardisation agreements’), they reveal an almost complete lack of tolerance of concentrations of market power as regards horizontal agreements, where problems are foreseen below the dominant position level. In other cases, the Guidelines simply apply the Consten and Grundig (1966) case law and rule out the application of Art 101(3), on the grounds that there is nothing to offset the restrictions on competition, well below the level of a dominant position (see paras 222 & 255). Interestingly, one of the examples in the Draft Guidelines on Horizontal Cooperation Agreements, European Commission (2010d) para 188, entitled ‘market power with low market shares’ has not been included in the definitive Guidelines.

Theories Concerning Thresholds of Market Power in European Competition Law  271 The net result of the above is a conspicuous lack of clarity and consistency, perhaps due, as has so often been the case in the past, to the split personality of DG COMP, where, ideologically, sometimes Doctor Jekyll wins while on other occasions Mr Hyde comes out on top. The need to apply the competition rules in a logical fashion and to refer to the system for the protection of competition (as is particularly clear from Articles 101 and 102 and the regulations implementing them) to resolve the problems of interpretation that they cause was highlighted by the GC in Kesko (1999). Interpreting the meaning of a particular omission in a provision of the Merger Regulation, which in the opinion of the undertaking appellant would have required the effects of a concentration operation to be proven before it was prohibited, the GC stated: As is apparent, in particular, from the first eight recitals in the preamble thereto, Regulation No 4064/89, Articles 85 and 86 of the EC Treaty [now Articles 101 and 102 TFEU] and the regulations implementing them form a composite whole constituting an integral part of the Community system designed to ensure, in accordance with Article 3(g) of the EC Treaty (now, after amendment, Article 3(g) EC [see Protocol No 27 of the TEU and the TFEU]), that competition in the internal market is not distorted. It is therefore necessary to apply to the criterion of an effect on trade between Member States, within the meaning of Article 22(3) of Regulation No 4064/89, an interpretation which is consistent with that given to it in the context of Articles 85 and 86 of the Treaty.

That conclusion is not invalidated by the fact that the word ‘may’, appearing in Articles 85 and 86 of the Treaty, does not feature in Article 22(3) of Regulation No 4064/89. It is apparent from the very nature of merger control established by Regulation No 4064/89 that the Commission is required to carry out a prospective analysis of the effect of the concentration in question, and hence to consider, in the context of Article 22(3) of that Regulation, its effect on trade between Member States in the future. It follows that the Commission is entitled, in that context, to take account of potential effects on trade between Member States, provided that they are sufficiently appreciable and foreseeable, without being required to establish that the concentration in question has actually affected intra-­ Community trade.137 In the same way, it is worth noting that Article 2(4) of the old and the new Merger Regulation, following amendment in 1997, incorporates the analysis of Article 101(3) with regard to the control of certain concentration operations. From a systemic point of view, while it is theoretically possible to apply the test relating to elimination of competition differently from the test for creation or strengthening of a dominant position (which could be considered more or less rigorous), the most logical step would be to use the same thresholds of market power in Article 2(3) and (4) of the Merger Regulation. The debate concerning the thresholds of market power applicable in European competition law goes to the heart of the issue regarding the systemic coherence of competition policy. If the creation or strengthening of a dominant position is prohibited by the Merger Regulation, can it be authorised under Article 101(3)? It is submitted that it cannot, for various reasons. The first reason for reaching this conclusion concerns economic efficiency. In an economy in which the aim is undistorted trade (see Protocol 27 of the TEU and TFEU, formerly Article 3(g) of the EC Treaty), the concentration of two or more undertakings into one that is big enough to eliminate effective competition and control the market should not be  GC Kesko (1999) paras 106–07.

137

272  Expressly or Pure Collusive Dominant Position in European Competition Law authorised. This is so even when by its very nature any concentration operation may be capable of producing economies of scale and scope, as well as benefits (such as replacing inferior products with better ones) that individual undertakings cannot achieve (synergies), which are, on occasion, not to be dismissed lightly.138 For their part, agreements that restrict competition do not necessarily produce the type of synergies possible through concentrations and yet they may effectively convert various competitors into one, by making them behave in the same manner. The number of operators is in practice reduced (the supply may become uniform), but there is no synergy whatsoever, since the undertakings that participate in a restrictive agreement have their own resources (which are sometimes similar, if not very similar) and manage them independently.139 The second reason concerns the fundamentally different premise on which the behaviour that is subject to the control of competition law is assessed under the two rules. In merger control, perfectly legitimate operations without the slightest hint of illegality, except where they are prohibited, are controlled; in the control of agreements that restrict com­ petition but are capable of being excepted from the prohibition under Article 101(3), activities that are in principle prohibited, except where they satisfy the four conditions of the legal exception, are supervised. The former are assumed to be positive, or perhaps neutral (nobody prohibits them, therefore they are not bad), whereas the latter are assumed to be negative (they are prohibited, therefore they are bad). Leaving to one side the efficiency defence,140 this is what results in merger control ultimately being limited to only one (the last) of the four conditions for the exemption of agreements that restrict competition between undertakings. There are very good reasons why the first three conditions do not need to be examined within the scope of merger control: despite everything, nobody needs to be convinced that an acquisition agreement or a merger between companies is a good thing. Undertakings can legitimately merge, and have nothing to prove, except that they do not impede effective competition, particularly by creating or strengthening a dominant position.141 It is true that in the first case, one talks about the permanent disappearance of one or more competitors, whereas in the second case the undertakings are still independent although they do not compete with each other in the market. A concentration is in principle ‘for ever’ (more or less irreversible), whereas an agreement that restricts competition is normally of a limited duration. But even the consolation that restrictive agreements have a limited duration does not appear to be a sufficient reason to sacrifice economic efficiency in the short term, or to overcome the negative prejudice with respect to collusive agreements. 138   However, Posner (1969) 1604 clarifies that ‘[no] general presumption that mergers promote efficiency can be indulged’. Motta (2000) 200 goes further, and argues that ‘because they increase market power, in the absence of efficiency gains, mergers hurt consumers and society at large’. This author holds that only if the ‘efficiencies’ are very substantial will concentrations improve the pre-existing situation. There may, therefore, be no good reason to look more kindly on concentrations than on collusive agreements. 139   In the same vein, it has been said, contrary to the idea that joint ventures are necessarily less anti-­competitive than concentrations since they are not full concentrations, that the situation may arise where in certain circumstances a joint venture causes competition problems, but this is not the case with a full merger between the participating parent companies, if the full integration encouraged efficiency more than integration within a joint venture. See Nye (1992), cited in Kolasky & Dick (2002) 19, fn 101. 140   For the interpretation of this ‘defence’ in European merger control law, see section 4.1 above. 141   Merger control systems other than that existing in EU law do introduce such elements, however. Note, though, that Art 2(1)(b) of Reg 139/2004, like Reg 4064/89 before it, also refers to the interests of consumers and technical or economic progress, but very differently to Art 101(3) TFEU. See section 4.1 above.

Theories Concerning Thresholds of Market Power in European Competition Law  273 In addition, the Commission and the EU Courts systematically equate the elimination of effective competition142 with the establishment of a dominant position and the failure to satisfy the fourth condition of the exemption.143 The ECJ’s judgment in CEWAL (2000), which followed the traditional approach taken in the case law, excludes the possibility that in the presence of a dominant position effective competition may exist,144 and clearly indicates that the authorisation of a restrictive agreement means the existence of such competition.145 The block exemption regulations also support this equalisation and provide the clearest interpretation of the meaning of the fourth condition of Article 101(3). In applying Article 7 of Council Regulation 19/65, the Commission had the power to withdraw the exemption where the products referred to in a block exemption were not subject, in the territory in question or in the common market, whichever applied, to effective competition from identical products or those that the user considered to be similar for reasons of quality, price and use.146 Thus, the very elimination of effective competition that would allow the existence of a dominant position would also involve a breach of the fourth condition of the exemption, and therefore the practical content of both concepts would be the same. In this way, through the intermediate step of preventing the continuation of ‘effective competition in the relevant market’ (step 2), the concept of ‘eliminating competition in respect of a substantial part of the products in question’ (starting point, or step 1) would be equated with possessing a dominant position (final point, or step 3). (1) would be the same as (2), and (2) the same as (3). As a result, a correct systematic interpretation should make incompatible with the Treaty the situation where an exemption under Article 101(3) allows undertakings participating in restrictive agreements to create or strengthen an individual or collective dominant position,147 thus eliminating effective competition in the market, or – and this is, and should be, the same thing – eliminating competition with respect to a substantial part of the products concerned, in breach of the fourth condition of the exemption. The purposive interpretation of the Treaty, in the light of the principles and objectives laid down in Article 3(3) of the EU Treaty and in Protocol 27 of the Founding Treaties, and specifically that of preventing competition in the single market from being distorted, would equally support this conclusion. Ultimately, the most important reason for rejecting the 142   The Commission and the EU Courts have occasionally used the term ‘workable’. See eg ECJ FEDETAB (1980) para 17; ECJ Metro II (1987) para 65; Commission decision ENI/Montedison (1986) para 41; Commission decisions Enichem/ICI (1987) para 48; Bayer/BP Chemicals (1988) paras 38–41; Exxon/Shell (1994) para 81. 143   See, amongst many others, with reference to Art 101(3)(b), GC Langnese-Iglo (1995) para 167; GC Schöller (1995) para 129; Commission decision Schöller (1992) paras 124, 146; Commission decision Langnese-Iglo (1995) paras 125, 147; and, as regards dominant position, ECJ Suiker Unie (1975) paras 456–57. In exactly the same way, see Temple Lang (2002) 316, who states that there is no indication that the EU Courts interpret the position of dominance otherwise, both for the purposes of Art 102 and in relation to the control of concentrations. 144   The judgment states that Art 102 TFEU ‘looks upon the behaviour of one or several economic operators that consists in exploiting in an abusive manner an economic power situation that would allow the operator enjoying it to hinder effective competition in the given market, allowing it the possibility of behaving with an appreciable degree of independence before its competitors, its clients, and finally, before consumers’ (emphasis added). ECJ CEWAL (2000) para 34, citing Michelin (1983) para 30. 145   See ECJ CEWAL (2000) para 131, as regards liner conference loyalty agreements, authorised by the now repealed Reg 4056/86. 146   See, inter alia, Art 6(a) of Reg 1983/83, Art 14(a) of Reg 1984/83, Art 10(1) of Reg 123/85, and Art 9(2) of Reg 2349/84. 147   For strengthening of a dominant position by means of an agreement that restricts competition, see section 10.2 above.

274  Expressly or Pure Collusive Dominant Position in European Competition Law argument that agreements that create or strengthen a dominant position can be authorised is one of principle: Protocol 27 TFEU, like Article 3(g) of the EC Treaty before it, defines the establishment of a system ensuring that competition in the internal market is not distorted as one of the objectives of the EU and its institutions. While the TFEU does not outlaw dominant positions as such, it does not consider that they have no effect on competition. It is neither logical, nor in harmony with the Treaty objectives, that European legislation prevents such a position – or its strengthening – being obtained through a concentration operation while no action is taken when the same result is achieved through a collusive agreement. Imitating the ECJ in a famous example of purposive interpretation as regards the protection of competition, the restriction on competition that is prohibited if it is the result of a concentration between undertakings that come within the scope of the Merger Regulation (the creation or strengthening of a dominant position), cannot become permissible when such a result is achieved through an agreement between undertakings, based on Article 101(3). Articles 101 and 102 and the Merger Regulation cannot be interpreted in such a way that they contradict each other, since their aim is to achieve the same objective.148 For this reason, there could be serious doubts about the compatibility of the GC’s TAA (2002) and its descendants149 with Article 101(3)(b) and Article 102 TFEU. The Trans-Atlantic Agreement (TAA) was an agreement between shipowners that was not a liner conference, and therefore could not benefit from the block exemption under Article 3 of Regulation 4056/86. In assessing whether it satisfied the conditions for obtaining an individual exemption, the Commission reached the conclusion that its members did not compete with each other in an effective manner, and held a market share close to 70 per cent (50 per cent in accordance with the definition of market put forward by the shipowners), and thus eliminated competition under Article 101(3)(b). As if this were not enough, external competition was also insufficient to satisfy the fourth condition of the exemption. The GC confirmed the Commission’s findings concerning internal competition and the market share of the members of TAA, but held that it was impossible to reach a definitive conclusion concerning the fourth condition of the exemption solely on the basis of this information. At this point, without there being any particular relation between the argument that it was attempting to develop, and which it continued to develop after that (specifically, that it was also necessary to examine actual and potential external competition), the Court stated that the prohibition on eliminating competition was a narrower concept than the existence or acquisition of a dominant position, and therefore it could be considered that an agreement did not eliminate competition within the meaning of Article 101(3)(b), and satisfied the requirements of the exemption, even if it established a dominant position in favour of its members.150 (Slightly earlier in the judgment, the GC had stated that a dominant position could not be treated, purely and simply, as eliminating competition for the purposes of Article 101(3)(b),151 something that, with qualifications, would perhaps not be difficult to subscribe to,152 but whose meaning, in the light of the above, would also be unacceptable.)  ECJ Continental Can (1973) para 25.   This approach was followed by the same Chamber of the Court and the same judge rapporteur in GC TACA (2003) para 939. 150  GC TAA (2002) para 330. 151   ibid, para 328. 152   See section 5.3 above. 148 149

Theories Concerning Thresholds of Market Power in European Competition Law  275 This unsubstantiated statement is set out in a brief obiter dictum which does not appear to belong to the ruling and is made on the basis of judgments that do not deal with the matter in hand, and appears instead to wish to get round one of the shipowners’ favourite arguments: that the fact that a liner conference enjoyed a block exemption under Article 101(3) prevented it from being considered to occupy a dominant position. The GC (or, at least, some of its members) could perhaps have seen the need to justify the block exemption of the shipping conferences, arguing that Article 101(3)(b) did not prevent the authorisation of agreements that placed participating undertakings in a collective dominant position. The reasoning employed by the GC in TAA is laconic in the extreme. First, it mysteriously establishes that the prohibition on eliminating competition is a narrower concept than the existence or acquisition of a dominant position, without stating exactly what this means for the interpretation of both rules. In addition, the Court relies on three authorities (those of the ECJ in United Brands (1978) and Hoffmann-La Roche (1979), and its own ruling in Matra Hachette (1994)), which can, without doubt, be interpreted in a different manner, as was seen early in this chapter. On this flimsy basis, the Court concludes that Article 101(3)(b) TFEU clearly does not prohibit authorisation of agreements that restrict competition which lead the participating companies to enjoy a collective dominant position. In any event, leaving to one side textual and contextual reasons, the GC’s ‘clarification’ of the position clashes with the most basic ideas of a coherent competition policy, seriously attacks uniformity and the internal logic of European competition law, and occurs at a time when the Commission has opted – perhaps also somewhat unclearly – for the opposite solution, as has just been seen. The preservation of uniformity and the internal logic of the system is especially import­ ant at present, when the Commission has convinced the Council that it is necessary to modernise European competition law and has introduced a system of legal exception in place of the system of authorisation under its sole control in force until 2004. In practice, modernisation obliges the new authorities excluded from the authorisation system until now to examine the four conditions of Article 101(3) and especially the condition relating to non-elimination of competition with regard to a substantial part of the market. If the GC’s approach in TAA is followed, the possible landmarks existing for the interpretation of the fourth condition of the legal exception (previously exemption) will be lost. The Guidelines on the application of Article 101(3) TFEU have done nothing to clarify matters; they have simply evaded the issue, using cryptic and confusing language.153 Thus, while the Commission appears to disagree with the findings of the GC, since it does not expressly cite the latter’s extremely clear declaration, it does not criticise or disassociate itself from it. The Commission therefore tiptoes around the subject, without taking a stance. The issue is whether the Commission agrees that Article 101(3)(b) TFEU makes it possible to apply the legal exception (or a block exemption, since this amounts to the same thing) to agreements that restrict competition which place the firms involved in a 153   Nicolaides (2005) 140 considers that the attenuation of the fourth condition following the GC’s ruling in TAA would explain why the Guidelines on Art 101(3) TFEU (European Commission (2004d)) make more demands of the second condition, ‘so as to catch those cases where parties can increase their market power without actually eliminating competition’. Here, the second condition is even more significant since there is ‘hardly any case law’ on ‘a) how much reduction of competition may be tolerated when competition is not eliminated; and b) when the creation of dominance can be considered to be equivalent to the elimination of effective competition (as under Art 82 [now Art 102 TFEU]) but not to the substantial elimination of competition’. Given these ambiguities, Nicolaides ponders the role of the fourth condition.

276  Expressly or Pure Collusive Dominant Position in European Competition Law dominant position. Yet the Commission goes off at a tangent and only states that (i) the application of Article 101(3) TFEU cannot prevent the application of Article 102, something which we have known since the GC’s judgment in Tetra Pak I in 1990; and (ii) that Article 101(3) TFEU cannot be applied to restrictive agreements that constitute an abuse of a dominant position, as the ECJ’s judgment in CEWAL (2000) showed us. While these two statements are completely correct, they fail to address the point, as the Commission is undoubtedly well aware. Its unwillingness to take the bull by the horns is perhaps because it is waiting for the ECJ to either uphold or reject the principles laid down by the GC in TAA (2002) and confirmed by the same court in TACA (2003).154 Certain authors with very close ties to the Commission have spoken clearly on this point. For these authors, who cite the GC judgments in TAA and TACA and the Discussion Paper on Article 102 TFEU, the threshold for the elimination of effective competition is located above that of dominant position; specifically, in that of ‘superdominance’, which may be presumed to exist above a market share of 75 per cent.155 Thus, at least some Commission officials would appear to have opted, against what has been argued here, for the first theory of market power thresholds referred to above:156 the market power required to eliminate competition within the meaning of Art 101(3)(b) TFEU is (much) higher than that required to enjoy a dominant position. Given the lack of clear guidelines concerning the meaning of the fourth condition of Article 101(3) and the limits of acceptability of the joint market power of the parties to a agreement that restricts competition – issues which the Commission shows itself to be systematically allergic to157 – the task of interpreting and applying the legal exception could be made much more difficult for the competition authorities and the ordinary courts of the Member States. This authentic but provisional interpretation could seriously damage the comprehensibility of European competition policy while we wait for the ECJ’s confirmation or annulment of the GC judgments in TAA and TACA in other proceedings.

10.4  LIMITS ON THE ACCEPTANCE OF AGREEMENTS RESTRICTING COMPETITION BETWEEN COMPANIES AND THE COMPLETE INCOMPATIBILITY OF PURE COLLUSIVE DOMINANT POSITIONS WITH ARTICLE 101(3)(B) TFEU158

There are four ways in which restrictions of competition between undertakings in European competition law may be accepted. In the first place, it may be that the apparent restrictions examined are absolutely necessary to attain a legitimate and valuable (economic or other) objective which would otherwise be impossible to achieve. In such cases there is no breach of Article 101(1) TFEU.159 Thus, for instance, it has been held that the following do not restrict competition:

  See the Guidelines on Art 101(3) TFEU (European Commission (2004d)) para 106.   Faull & Nikpay (2007) paras 3.453–3.460.   See section 10.3.1 above. 157   See eg the new Guidelines on Horizontal Cooperation Agreements (European Commission (2011)) paras 104, 144, 186, 220 & 251, in which any explanation regarding the fourth condition is conspicuous by its absence. 158   See Ortiz Blanco (2007) 542ff. 159   See sections 2.2 and 2.5 above. 154 155 156

Limits on the Acceptance of Agreements Restricting Competition  277 (i) restrictions that are essential for the exercise of an economic activity – for instance, agreements necessary to penetrate a market;160 (ii) ‘ancillary restrictions’ that are inextricably linked to an agreement which is otherwise perfectly legitimate – for instance, non-competition clauses imposed on the seller of a business, to the extent that they are necessary to guarantee the effective transfer of certain intangible assets, such as clients, know-how etc;161 (iii) commercial practices that are normal or justifiable for economic reasons – for instance, selective systems of distribution under the conditions laid down by the ECJ.162 Some of these alleged restrictions could be considered pro-competitive, because they create competition (for instance, those which allow entry into a new market) or contribute to improving the competitiveness and the economic – and even technological – conditions in the market.163 The only condition is that they must be essential to achieve the legitimate objective that they pursue. As can be seen, the arguments are similar to two of the four conditions on which Article 101(3) TFEU exemptions are based: the first (objective advantages) and the third (indispensable nature). Certain apparent restrictions on competition may be examined either according to the four conditions of Article 101(3), or only according to those other two, depending on whether objectively and from an economic point of view it is considered that there are non-restrictive or less restrictive means of attaining certain legitimate objectives, or not. Ultimately, the only condition is that the restriction is indispensable, if the objectives pursued are recognised as being desirable. Consider, for instance, agreements between copyright managing companies with both a national and international scope (agreements which have given rise to so much European case law). If it is recognised that they play a valuable role that could not otherwise be carried out (ie they are the only way to manage effectively copyrights), then what at first sight might seem to be domestic monopolies agreeing prices between themselves may be considered not to restrict competition (because they are economically valuable and essential, in the sense that there are no less restrictive means of carrying out their function).164 Secondly, the acceptance of real restrictions on competition in European law can take place through the individual application of the legal exception, or through block exemptions. In such cases, Article 101(1) applies, as does – exceptionally – Article 101(3), whose conditions we have already examined in detail.165 Thirdly, as regards state-owned companies or those that enjoy special or exclusive rights, provided that they are entrusted with the operation of services of general economic interest or which have a fiscal monopoly nature, Article 102(2) TFEU allows for the non-­application of Article 18 and Articles 101–09 inclusive, in order that its mission is not impeded de facto or de jure. In the presence of real restrictions, and once again exceptionally, Article 101(1) is disapplied by virtue of the Treaty, this time on the basis of provisions different from Article 101.  ECJ Société Technique Minière (1966) ECR 360 (French edn).   See, inter alia, Commission decision Reuter/BASF (1976) para II.3.  ECJ Metro I (1977) para 20. 163   eg Commission decision Ford/Volkswagen (1992) paras 22, 23ff, confirmed by GC Matra (1994), although in this case the agreement was held to restrict potential competition. 164   See the Opinion of AG Jacobs in Lucazeau (1989) paras 33–34. 165   See ch 5 above. 160 161 162

278  Expressly or Pure Collusive Dominant Position in European Competition Law Fourthly and finally, certain real restrictions on competition originate in the state, and derive from domestic or even European law.166 This prevents them from breaching Article 101 (which is not applied to them at all) provided that the anticompetitive behaviour in question has been imposed, de facto167 or de jure, 168 on companies that are subject to regulation or intervention and that have no freedom or autonomy to act otherwise. Apart from this, certain restrictions on competition that, if they arose from an agreement among companies, would not satisfy one or more of the conditions set out in Article 101(3), could still be legitimately authorised by public authorities. Logically, public authorities will only intervene: (i) where there is a public interest to be safeguarded, or where they deem that the restrictions in question produce some kind of advantage (which effectively amounts to the same thing); therefore, to some extent the first condition of the exemption will always be satisfied; and (ii) if there are no alternative means which are less restrictive of individual companies’ rights than public regulation or intervention – in such a way that theoretically, if public authorities apply common sense and proportionality, the third condition of Article 101(3) will always be satisfied too, at least to some extent. For the sake of this greater good – reasonably, at least greater than that which allows the EU institutions to authorise en bloc certain restrictions on competition under Article 101(3) in situations where, in theory, a better result would not be achieved through the application of market forces – public authorities can pass legislation that restricts competition without there being any benefit for consumers or that eliminates effective competition in the market. While the safeguarding of citizens’ interests and the desirability of free competition are two basic general premises according to which public authorities normally act in a market economy, they can undoubtedly choose to give priority to other considerations. More specifically, as regards the fourth condition of Article 101(3) TFEU, in those markets where, exceptionally, competition is considered economically inefficient or unviable, public authorities may certainly decide to eliminate it. Companies are not allowed to do so, and under no circumstances can they eliminate competition through restrictive agreements of a private nature, however useful in economic terms this may seem. This is precisely the meaning of Article 101(3)(b). If it were considered that the economic results flowing from the elimination of competition in a specific market were better than if competition were merely reduced, it would be for public authorities – not companies – to resolve possible defects in the market (the same ones that, exceptionally, make competition undesirable). It is hardly surprising that only public authorities are allowed to eliminate competition from markets, as it is their role to safeguard the public interest, and this is something that companies are not well placed to do. If companies were allowed to ‘regulate’ their own markets, they would do so in their own interests, rather than in the public interest, let alone those of consumers or users. It is for this reason that ‘self-regulation’ (which is necessarily of a private nature) has clear and strict limits in European law, which is none other than the necessary maintenance of effective competition. It is precisely for this reason that it is incorrect to say that the creation of a collective dominant position ‘is not in itself a ground of criticism . . . of the undertaking[s] concerned’, nor 166   In theory, restrictions can also come from EU legislation, although the degree of market intervention on the part of EU institutions – with the exception of agriculture – is very moderate. 167  ECJ Somaco (1998) para 65. 168  ECJ Ladbroke (1997) para 33; GC Irish Sugar (1999) para 130; GC CNSD (2000) para 58.

Limits on the Acceptance of Agreements Restricting Competition  279 that the ‘the reasons for which [they have] such a dominant position’169 are not important, since at the very least in certain cases the creation of a collective dominant position may result from collusive agreements that are in principle prohibited. These may only be considered to be legal by the Commission if the parties involved comply with the condition of not eliminating competition with regard to a substantial part of the market, which in turn means that they will not be capable of acquiring a collective dominant position as a result of the agreements. If the dominant position is established by eliminating effective competition, and if this is precisely what any restrictive agreement between undertakings is not allowed to do under Article 101(3)(b) if it wishes to benefit from the legal exception, it is clear that an agreement that allows the participating undertakings to place themselves in a dominant position cannot satisfy the fourth condition of the exemption. Nevertheless, the existence of block exemptions without exclusionary thresholds has created a situation whereby a collusive agreement that creates or reinforces a collective dominant position cannot be attacked under Article 101(1) without the exemption first being withdrawn, and may only be dealt with under Article 102. This is an undesirable and anomalous situation.170 Although at first sight it may appear that different thresholds of market power exist depending on whether Article 101(3), Article 102 or even the Merger Regulation applies, the alleged differences are really more a question of form than substance. In fact, an approach based on synthesis and generalisation that includes what has been learnt from experience in one area that is then applied in other areas in an indistinct manner would be better than the approach used in previous chapters, which describe the subtle differences not in order to justify them, but rather to show that they exist and to advocate their elim­ ination. In short, the case law of the EU Courts and the decision-making practice of the Commission, when interpreted systematically and purposively, has shown that in reality, with the exception of Article 101(1), there is no good reason to believe that there is any other relevant threshold of market power for all the competition rules than that of mainten­ ance of effective competition.171 Finally, compared to individual dominant positions, whether acquired on their own merits or as a result of an economic concentration, pure collusive dominant positions are economically more inefficient, as argued earlier in this chapter. As regards the disadvantages of concentrations (reduction in variety in terms of conditions of supply and/or demand), collusive dominant positions, maintaining in the market various undertakings that do not compete but are independent, at the very least lack the potential to rationalise the production of an individual undertaking of a comparable size to that of the whole. The presumption of having reached the position that they are in under their own steam does not apply to undertakings in an expressly collusive dominant position. The only advantage of collusion over concentrations of undertakings is that it would appear to be easier to reverse.172  ECJ CEWAL (2000) paras 37–38. See also GC Ladbroke (1997) paras 109–11.   See Ortiz Blanco (2007) with respect to shipping conferences and Reg 4056/86.   If any situation should be distinguished, it would be more appropriate to be stricter with restrictive agreements, adopting the first interpretation of the second theory concerning thresholds of market power. See section 10.3.2 above. 172   An expressly collusive dominant position can be reversed either by using Arts 101 and 102 TFEU or by applying national competition rules, when the European rules do not apply. However, revoking a merger clearance (see Arts 6(3) and 8(6) of Reg 139/2004) appears as difficult and unlikely as the revocation of an individual or block exemption, although, unlike the latter, the decision to clear a merger has no validity period: it never expires. That said, the Commission has now obtained powers that would even allow it to dissolve those individual or collective dominant positions that have been abused. See Art 7(1) of Reg 1/2003. 169 170 171

Epilogue: A Paradigm of Market Power in EU Competition Law Having examined the case law and the Commission’s precedents, it can be concluded that, despite what the GC held in TAA (2002) and reiterated in TACA (2003), Article 101(3)(b) and Article 102 and the Merger Regulation refer to analogous situations where the effective competition desired by the Treaty is eliminated. As a result, with the exception of Article 101(1), there is a basic similarity between the concepts applicable in antitrust law and in EU merger control, and the assessment criteria, without exceptions, are truly interchangeable. The Article 101(1) test covers qualitative and quantitative elements. Once a restriction on competition has been established (qualitative examination), this provision covers all types of collaboration between undertakings that affects a non-negligible part of the internal market (quantitative examination). Instead, the condition set out in Article 101(3)(b) prevents restrictive agreements within the meaning of Article 101(1) being considered legal if they offer their members the possibility of ‘eliminating competition in respect of a substantial part of the products in question’ (within a fundamentally quantitative examination, modified by the qualitative examination necessary to determine the degree of survival of internal competition between the parties to the agreement). This is the equivalent of eliminating effective competition, which is what occurs when a dominant position exists. Dominance, for its part, entails being capable of acting independently of competitors and consumers, imposing transaction conditions notably different from those that prevail in a competitive context. The difference between these two paragraphs of Article 101 therefore resides, fundamentally, in the quantitative effect on the market required in order for the two rules to apply, which is less in paragraph 1 than in paragraph 3. The influence of an agreement on the market is measured by the market power capable of being exercised jointly by the parties. As regards market power, therefore, there is a difference between the relevant concepts for the purposes of Article 101(1) and for the purposes of the remaining rules, but not among the latter. ‘Eliminate competition’ within the meaning of the fourth condition of Article 101(3) equates, in terms of concentration of market power, with occupying a dominant position within the meaning of Article 102 or significantly impeding effective competition in EU merger control. Despite this, in order to examine whether a restrictive agreement meets the quantitative requirements of Article 101(1),1 the Commission uses the same tools as when examining whether the same agreement allows the parties to eliminate competition with regard to a 1   The case law specifies that in order to conclude that an agreement is qualitatively restrictive of competition within the meaning of Art 101(1), it is not always necessary to assess the effects that such an agreement may have on the market.

Epilogue: A Paradigm of Market Power in EU Competition Law  281 substantial part of the products in question within the meaning of Article 101(3)(b), or when establishing a dominant position under Article 102, or when determining that effective competition is significantly impeded for the purposes of merger control. The second conclusion is that the market power that has to exist in order to establish a dominant position and punish an abuse or prohibit a concentration, cannot in any case be acquired through a restrictive agreement between economically independent undertakings. As a result, despite there being the same thresholds, there is a difference – infinitesimal or substantial, depending on one’s perspective – between the level of market power acceptable under Article 101(3)(b) and the market power necessary to establish a dominant position and punish an abuse or prohibit a concentration: that market power has always to be (a little or a lot) below the level of elimination of competition or establishment of a dominant position. The third conclusion refers to market share as an indicator of the power of undertakings in the market. A review of the Commission’s decision-making practice, on the one hand, and the case law of the EU Courts, on the other, shows that in the absence of special elements (principally internal competition) that qualify the importance of market share (to de-emphasise it), the EU authorities have considered that a joint market share of around 35 per cent is the most that can be tolerated individually for agreements between undertakings that restrict competition. The maximum acceptable market share in block exemptions also reaches 35 per cent (and even more at times), escalating from 15 per cent and then 20 per cent in the past, during periods when the Commission was far less generous. The reason for the Commission’s greater prudence with regard to market shares in block exemptions was because even though it could not be expected that each and every one of the agreements defined and covered by a block exemption satisfied the conditions of Article 101(3) at all times and in all circumstances,2 the aim should at least be that the majority of the agreements defined in the block exemptions did so. This approach has now been abandoned. In addition, the ECJ has established that the existence of a dominant position within the context of Article 102 is presumed where a market share of 50 per cent is reached, once again without there being other elements that de-emphasise the importance of this figure.3 The Commission’s decision-making practice as regards concentrations appears to have gone some way beyond the threshold accepted in matters concerning Article 102. Accordingly, it is not unreasonable to say that, despite the apparently identical nature of the economic power in both types of cases, the ‘threshold of dominance’ may, in practice, be higher in the control of concentrations between undertakings than in the control of abuses of a dominant position by one or more undertakings. Nothing indicates, however, that this greater flexibility is due to the application of a substantially different test, since in the vast majority of decisions adopted to date the classical test for establishing a position of dominance has been applied.4 In fact, to date the new test under Regulation 139/2004 has not evolved in a different direction, except, perhaps, to reduce the level of tolerance and stiffen the clearance conditions, reducing the thresholds of acceptable market power in non-­ coordinated oligopolistic markets. However, not everything is reduced to a question of market share. Rather, it is a question of investigating the level of effective market power that an agreement confers on the parties   See GC Tetra Pak I (1990); GC Tetra Pak II (1995); GC Langnese/Iglo (1995).  ECJ AKZO (1991) para 60.   See ch 4 above.

2 3 4

282  Epilogue: A Paradigm of Market Power in EU Competition Law that enter into it and to observe the actual or potential effects of such an agreement on the market. In this way it can be proved that it is not correct to differentiate various thresholds of market power according to the relevant legislative context: one for ‘eliminating competition in respect of a substantial part of the products in question’ within the meaning of Article 101(3), another for a dominant position within the meaning of Article 102, and a third for a significant impediment to effective competition in the internal market within the meaning of the Merger Regulation. The tools used to analyse the relevant market are – and must be – the same and the factors to assess market power are – and must be – the same, whether it be to refuse the applicability of Article 101(3)(b), to punish an individual or collective abuse of a dominant position, or to prevent a concentration operation. As pointed out earlier in this book, the temporal perspective is the only difference between the two sets of rules, while the analysis of the market and of market power is – and must be – identical. The inexistence of abuse and the prospective – and untestable – nature of the Commission’s assessments as regards the effects of a concentration tend to make the Commission more ‘understanding’ when it comes to market shares and structural features which in the context of Article 102 (and even of Article 101(3)) would be judged (looking to the past and where prima facie abusive conduct existed) as clear indicators of dominance, and yet they are not, for all of the peculiar aspects of the control of concentrations compared with the control of cartels and abuses of a dominant position. This is, without doubt, an important point when assessing the consequences of a given position in the market, but not a fundamental difference that can be attributed to the market as such, or to alleged different meanings of dominance in different contexts. At most, this difference may stem from the objectives of the various rules and the attitudes of their enforcers. Neither are there reasons to differentiate between the relevant thresholds of economic power in the application of Article 101(3), Article 102, Article 2(3) of Regulation 4064/89 and Article 2(3) of Regulation 139/2004. Thus, with the exception of Article 101(1), as has already been said, there should not be different market power thresholds in EU competition law. In order to illustrate the intensity of relevant economic power in each context, summarising what was said previously concerning thresholds of market power, the graph in the page following shows the different levels of intensity required to trigger each rule. This coloured cylinder attempts to illustrate the precise level of market power that is needed for the various European competition rules to apply. Market power (individual or collective) is ‘stored’ inside the cylinder. The greater the accumulation of market power, the darker the successive layers5. The bottom of the cylinder, level A, represents the absolute absence of market power or restrictions on competition – that is, a state of perfect atomised competition. Level D represents total lack of competition or absolute power over the market – that is, a monopoly. Level B represents the level of market power or restriction on competition that can lead to an appreciable effect on competition in the internal market, within the meaning of 5   I can not help but quote Evans (2011) 5 here: ‘Courts in the United Stated and the European Union really want to measure market power like we measure the temperature on a single scale. And they want to have a dividing point like the boiling point of 100 degrees Celsius to separate the weak from the powerful. Unfortunately, this quest for a thermometer of market power is based on an impossible dream. The market power thermometer can’t exist, and those who think they have found it in market shares or markups or anything else have strayed very far from reality.’ The cylinder I propose is pretty close to Evans’ thermometer, mea culpa.

Epilogue: A Paradigm of Market Power in EU Competition Law  283

D

C1 C3 C C2

B A GRAPH:  Relevant levels of market power for the application of European competition rules

Article 101(1).6 In the white area between levels A and B are those restrictions on competition that do not appreciably distort competition in the internal market. Article 101(1) is not applicable, but the national rules prohibiting agreements and anticompetitive practices may be. Level C represents, in the first place, the intensity of market power or the degree of restriction on competition which entails that competition is eliminated with respect to a substantial part of the market within the meaning of Article 101(3)(b), and Articles 2(4) of Regulations 139/2004 and 4064/89. In the yellow and orange area between levels B and C we find the maximum legally admissible amount of market power, or the maximum legally admissible degree of restriction on competition flowing from an agreement between undertakings for that agreement to be deemed legal, if the first three conditions of Article 101(3) are complied with, particularly the first two. In line with ECJ Consten and Grundig (1966), the greater the technical and economic advantages and the benefits for consumers, the more the acceptance of market power or restriction on competition derived from an agreement will be accepted, provided that restrictions are indispensable. Secondly, level C also represents the threshold of market power in which a dominant position within the meaning of Article 102 and Articles 2(3) of the repealed Regulation 4064/89 and current Regulation 139/2004 on the control of concentrations is established, according to the second variation of the second theory concerning thresholds of market power set out above (section 10.3.2). Even if it were accepted that the applicable test in EU merger control is not a mere test of dominance, the scarcity and limited scope of the exceptions to the application pure and simple of this latter test would not support the conclusion 6   In order to simplify the explanation, I have omitted the distinctions made in ch 2 regarding the market power necessary for a restriction to be quantitatively appreciable for competition and trade between Member States.

284  Epilogue: A Paradigm of Market Power in EU Competition Law that, when confronted with a high degree of market power, EU merger control is more tolerant than EU antitrust rules; in fact, the reverse may be true, subject to qualifications (chapters four and nine). This is the basic outline proposed. Levels C1 to C3 represent other possible thresholds of market power that derive from the various theories set out in this book. Level C2 represents the threshold of market power at which, according to the first variation of the second theory concerning thresholds of market power (section 10.3.2), competition with respect to a substantial part of the market within the meaning of Article 101(3)(b) would be eliminated. This threshold would be lower than that needed to establish a dominant position (level C). According to this interpretation, the orange area between C2 and C would cover the possible levels of market power or restriction on competition sufficient to eliminate competition within the meaning of Article 101(3)(b), but not sufficient to establish a dominant position for the purposes of Article 102 and EU merger control. An agreement that restricts competition could not be authorised above this level of market power or restriction on competition. Such level would be appreciably below that which is required to have or achieve a dominant position. Level C1 represents the threshold of market power at which, according to the first theory concerning such thresholds (section 10.3.1), competition would be eliminated with respect to a substantial part of the market within the meaning of Article 101(3)(b). This threshold is above that necessary to establish a dominant position (level C). Following the interpretation referred to, the red and purple area situated between C and C1 would cover the possible levels of market power or restriction of competition sufficient to establish a dominant position for the purposes of Article 102 and the Merger Regulation, but insufficient to eliminate competition within the meaning of Article 101(3)(b). The existence or creation of a dominant position would not be an obstacle to applying the legal exception. Level C1 could also represent the market power necessary to attain superdominance and the exclusion of the efficiency defence from prima facie abusive conduct, within the terms of the Commission’s Discussion Paper (2005) and its Guidance Paper on the application of Article 102 (2009).7 Level C3 represents the limit of tolerable market power according to former Regulation 4064/89 on the control of concentrations, according to the theory which stated that, despite the absence of significant precedents of divergent application, Article 2(3) of the Merger Regulation did not merely contain a ‘test of dominance’, and did not prohibit the creation or reinforcement of a dominant position in all cases, but only when ‘effective competition [was] significantly impeded’ by such a position, which occurred at a level of market power appreciably above that required for the establishment of a dominant position (chapter four). Level C3 is related to C. If in this latter level a ‘simple’ dominant position is established, at level C3 a reinforced or qualified dominant position is produced, which amounts to a situation where ‘effective competition would be significantly impeded’. The red area between C and C3 describes levels of market power that are superior to that of a ‘simple’ dominant position, but lower than the level where ‘effective competition would be significantly impeded’. The Commission could have authorised concentration operations which placed the merged entity in the red area without breaching Article 2(3) of the Merger Regulation. 7   See Discussion Paper on Art 102 TFEU (European Commission (2005)) paras 90–91, and Guidance Paper on Art 102 TFEU (European Commission (2009)) para 30.

Epilogue: A Paradigm of Market Power in EU Competition Law  285 The level of market power which would allow ‘unilateral effects’ or ‘unilateral market power’ to occur, would fall below level C, according to the most common approach. If it were placed at level C2, the level of market power where a standard or simple dominant position would be established would remain above the level of market power where ‘unilateral effects’ of a concentration in a ‘non-[tacitly] collusive’ oligopoly would be established. The latter market power would coincide with the level needed to eliminate competition in respect of a substantial part of the market within the meaning of Article 101(3)(b) TFEU, if it is accepted that this occurs below the level of establishment of a dominant position.8 The above could lead one to think that the new test is stricter than the old dominance test, but it is far from clear that this is so, as can be seen from the adverb ‘generally’ which appears in recital 26 of Regulation 139/2004. In fact, the new test may have established an area of ‘prohibitability’ above a dominant position and one of ‘authorisability’ below it. The zone would be established: (i) either between level C2 or thereabouts, where the market power required to produce ‘unilateral effects’ could be found, and level C, or a little above it, being the level of market power necessary to ‘significantly impede effective competition’, which, until now, was an ambivalent standard moderately less strict than that of dominant position, according to the GC’s interpretation, while at the same time being stricter than that of dominant position under Regulation 139/2004, according to the most widelyheld interpretation of the latter; or (ii) between level C2, or thereabouts, and level C3, or even higher, if the Commission decided to interpret flexibly the ‘significant impediment to effective competition’ test in an upwards direction (it was expressly made flexible in a downward sense in recital 25 of Regulation 139/2004 on ‘unilateral effects’), giving it a new and different meaning. (However, this possibility does not seem to fit with either the wording or the spirit of recital 25 of Regulation 139/2004.) In either of these two situations, the Commission, as it saw fit and without being subject to any clear parameters, could either prohibit or authorise concentration operations that would place the merged entity somewhere between more or less C2 and C, or C2 and C3/ C1. Combining, on the one hand, the interpretation of the Merger Regulation that would place its level of tolerance at level C1 with, on the other, the first theory concerning market power (section 10.3.1), it could be argued that the threshold at which competition is eliminated within the meaning of Article 101(3)(b) (above the threshold for the establishment of a standard or simple dominant position for the purposes of Article 102) would coincide with the threshold where ‘effective competition would be significantly impeded’ for the purposes of Article 2 of Regulation 139/2004, which is also higher than the threshold where a standard dominant position is established. In this way the substantive ‘tests’ contained in Article 2 of Regulation 139/2004 and Article 101(3) would be raised to the same level, C1. The existence of levels C1 and C3 would imply the possibility of the Commission authorising, without a breach of Article 101(3)(b) or Article 2 of Regulation 139/2004, restrictive agreements or concentrations that, knowingly, led to a dominant position capable of being abused, which would be inconsistent with the general structural competition policy of the 8   See section 10.3.2 for the first interpretation within the second theory of the market power thresholds set out in Arts 101(3)(b) and 102 TFEU.

286  Epilogue: A Paradigm of Market Power in EU Competition Law Commission. Certainly, the wider and more flexible the thresholds of market power, the greater the Commission’s freedom to prohibit or authorise agreements or concentrations between undertakings. However, while this policy may be administratively convenient for the Commission, it is difficult to accept in terms of legal certainty, and specifically as regards Article 101(3) it runs counter to the very objectives of the ‘modernisation’ of the application of the competition rules, promoted by the Commission, since without more or less fixed and comprehensible rules it would be impossible for a competition authority or a judge in the ordinary courts to apply the fourth condition within the examination of the ‘legal exception’ contained in that provision. Here, as with the definition of relevant market, the simplest scheme is used: A, B, C and D, without any numbered ‘Cs’. The reason is also simple, and is connected to the rules and objectives of European competition policy. A policy that aspires to be understood by citizens and governments, and even shared by European undertakings, must be based on an interpretation of the rules as a harmonious and coherent whole that is both clear and simple, where there is no place for arbitrariness or legal uncertainty. With this interpretive approach, the search for nuances must be limited to that which may be justified in terms of competition policy. Suggesting the existence of relevant markets and tools to define them that are different according to the rule that is applied, or the existence of various ‘tests’ of significant market power, only creates confusion. The best thing that could happen to competition policy would be, without doubt, the unification of criteria wherever the rules in question allow this. This is one of those situations. The market is one and the same, be it for antitrust or merger control purposes, and the method of measuring economic power is one and the same for whatever purpose, too. Apart from Article 101(1), the limits of economic power are the same under Article 101(3)(b), Article 102 and even under Regulation 139/2004. All of these rules should be applied simply and coherently. If an analysis of economic power that was different for each type of case were applied, not only would this not help the sometimes opaque European competition policy, it would also prejudice legal certainty with respect to undertakings. There are enough very real problems of all types in the enforcement of the competition rules (for example, how to make judges and national authorities better understand and apply the rules, or pure and simple problems of antitrust analysis) without adding imaginary ones in an area which is not, and which should not be, complicated. From this perspective, the GC’s ruling in TAA (2002) has not helped competition policy at all, in stating that an agreement may be considered not to eliminate competition within the meaning of Article 101(3)(b), and therefore satisfies the requirements of the exemption (or of the legal exception, where an individual application is concerned), even if it leads to a dominant position for its members.9 In short, the competition rules require a certain effect on the market, which is moderate (appreciable) in the case of Article 101(1), and substantial (significant) in all other cases. The Commission’s precedents and the case law of the EU Courts – with the exception of the GC’s ruling in TAA – show (i) that the assessment of these effects is carried out in all cases by studying the degree to which competition in the market has been reduced, or – and this amounts to the same thing – the market power that undertakings, whether individually or collectively, have acquired or will acquire, and (ii) that the accumulation of market power to the point of eliminating effective competition desired by the Treaty triggers the repres GC TAA (2002) paras 328 and, particularly, 330.

9

Epilogue: A Paradigm of Market Power in EU Competition Law  287 sive or preventive mechanisms of all the different rules. With the special features already explained regarding merger control, the critical market power threshold is the same for all the rules, with the exception of Article 101(1). One final observation is worth making. In this book I have very briefly described the different methods of defining the relevant market that can be used when applying any of the competition rules and, in much more detail, the criteria for analysing market power with respect to each of the different rules. At first sight, it may appear that my description suggests the existence of subtle differences in the analytical tools employed in one or other context. This is not the case. I have tried only to summarise and categorise everything interesting that has been said about market power when applying each of the rules. The apparent qualifications that the case law and administrative practice of the Commission have introduced in the application of each rule are really of no importance, since certain tools developed in specific areas are in fact valid in all areas. With the exception of the effect on the market (market power) under Article 101(1), any concept, any idea, any element coming from one area (particularly, given the depth of analysis, from the control of concentrations) can be used in other areas. If the approach to the problem adopted had not been descriptive, the book would have begun where it ended (equality of the assessment techniques and the thresholds of market power under the different rules, with the usual exception of Article 101(1)) and would then have gone on to study, under a single common plan, the different elements or factors of analysis described in the Commission’s decisions and the case law of the EU Courts when applying the various rules.

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