Competition Law and Consumer Welfare - Coursework Example

Competition Law and Consumer Welfare The European Commission reviewed Article 101 of the Treaty on the Functioning of the European Union (TFEU), in order to reform the interpretation and application of competition law rules. Thereafter, the Commission reviewed the functioning of the Merger Regulation of the EU and the methodology adopted by it in addressing abusive exclusionary conduct by a dominant undertaking, under the provisions of Article 102 of the TFEU. 1 The chief goal of these reforms was to heighten the importance accorded to rules relating to the economic effects of any specific conduct at issue. In addition, these reforms were seized with promoting the Commission’s focus on protecting competition in the market, as a measure of improving the welfare of the consumers. 2 The guidelines under Article 102 of the TFEU establish a two – stage system for identifying the priorities of the Commission, relating to enforcement, with regard to the assessment of exclusionary conduct under what had been Article 82 EC. The first step requires the Commission to describe the manner in which the allegedly abusive conduct can limit competition and injure the interests of consumers. 3 In the second stage, the Commission will permit the undertaking to refute allegations of such abusive conduct. However, such rebuttal has to establish that the allegedly abusive conduct, in fact generates several efficiencies that on the whole improve the lot of the consumer. 4 Thus, consumer welfare is of great importance in EU policy. Council Regulation 1/2003 determines the application of Articles 101 and 102 of the TFEU. 5 While applying these Articles the national competition authorities (NCAs) and national courts have to evaluate anti – competitive practices as per the provisions of Articles 101 and 102 of the TFEU, on every occasion that their requirements are satisfied. 6 These provisions incorporate the condition that the trade between Member States may be adversely affected due to anti – competitive behaviour. In any Member State, the national courts are provided with assistance in applying Articles 101 and 102 of the TFEU by their NCA and the Commission. 7 In addition, Article 15(3) of Regulation 1/2003 empowers the latter to submit written observations regarding proceedings pending before the national court. 8 In accordance with Article 35 of the Regulation, Member States have to designate responsibility to the Court, in a manner that ensures effective compliance with its provisions. 9 As such, the competition law of the EU is dependant to a significant extent on Articles 101 and 102 of the TFEU. The VEBIC10 case had substantial influence on the decentralized enforcement of these Articles. In its ruling the European Court of Justice (ECJ) applied the principle of effectiveness to review proceedings before domestic courts, by re – evaluating Member State institutional autonomy.11 In addition, vertical agreements and the competition law are seized with market power. In general, vertical agreements do not create disputes with regard to competition. However, if a party with market power on the relevant market or the agreement is a component of a network of similar agreements, then there will be competition issues.12 The European Commission has concentrated on the problems arising from vertical agreements and established certain restraints. These deal, principally, with improving efficiency and analyse the influence of vertical restraints on the market. The fundamental objective of restraints is to promote the welfare of consumers and bring about the optimal allocation of resources.13 According to the European Commission, consumer welfare is the objective of its antitrust laws. The guidance offered by the Commission has not been uniform. For instance, the Commission has provided certain guidelines with regard to the application of Article 101 of the TFEU. These require an analysis that mirrors economics of consumer welfare and should relate restriction of competition with possible outcomes of a specific restraint in the areas of price and output. 14 Similarly, the new vertical agreements, block exemptions and the associated guidelines continue to treat market power as crucial in evaluating whether the welfare of consumers is harmed by vertical restraints. However, it is to be noted that these very same documents decry a vast array of vertical restraints on the ground that they constitute hardcore violations that are founded on a pure form based approach.15 In addition, no explanation is provided regarding the manner in which these restraints permit firms to increase their power in the market. As such, these guidelines are ambiguous in assessing the harmful influence of vertical restraints on consumers. Moreover, the cartel prohibition under Article 101 of the TFEU relates to agreements that establish purchase or sale prices or any other condition related to trading. 16 If it were to be presumed that this prohibition applies to selling and purchase prices, then cartels that fix the purchase price should also be subject to the same prohibition as cartels that fix selling prices. In this regard it is important to realise that buyer cartels, will initially cause harm to the interests of sellers and not the consumers.17 This situation indicates that cartel prohibition under Article 101 should be more beneficial to the consumer. Article 102 defines undertaking as an entity that is engaged in economic activity. Under the provisions of this Article, an entity that does not engage in economic activity will not be classified as an undertaking, even if its constituent members engage in economic activity.18 Accordingly, in Wouters v Algemene Raad van de NetherlandseOrde van Advocaten, it was held by the ECJ that the Dutch Bar was not an undertaking even though the members of the Bar had engaged in economic activities individually. With regard to the classification stipulated under Article 101, these individual members had been deemed to be undertakings. 19 This decision is detrimental to consumer welfare. In general, vertical agreements consist of the sale and purchase of goods or services. These agreements transpire between manufacturers and wholesalers or retailers. 20 Article 101 of the TFEU, which provides a clear description of activities that prevent, restrict or distort competition, addresses vertical agreements. European antitrust law enjoins that any agreement or decision is automatically void or unenforceable in court, if it has been prohibited by Article 101 of the TFEU. In general, any agreement between undertakings, decisions of associations of undertakings and concerted practices are prohibited if they could influence trade between Member States and which aim to or result in the distortion, restriction or prevention of competition. However, if certain conditions are satisfied, then exemption could be obtained with regard to the prohibition on restrictive agreements or undertakings. These provisions are clear cut and leave no room for ambiguity; however, the Commission and judicial bodies have frequently interpreted treaty provisions in a wide and substantive manner.21 Abuse of a dominant position is addressed by Article 102 of the TFEU. This Article disallows the abuse of a dominant position by a company or a group of companies. It does not preclude the creation of such dominance. This is in marked contrast to Article 101 of the TFEU.22 These Articles can be applied independently of each other and also simultaneously to the same agreement or conduct. Article 102 of the TFEU states that an abuse could include the imposition of unfair sale or purchase prices or some other unfair trading condition. In this context, the abuse of buyer and market power by a seller can be deemed to be a violation. In this manner, the competition law addresses a much wider area and is not restricted to consumer needs. 23 The Commission has relentlessly reiterated that the welfare of the consumer is foremost among the objectives of the competition law of the EU. However, this does not hold good in practice, as is evident from the trend followed by the decisions of the European Courts and Commission. The interpretation of consumer welfare by the Commission is peculiar for the following reasons. 24 First, the Commission considers every entity that directly or indirectly uses products as a consumer. Thus, it includes producers, wholesalers, retailers and the final consumers under this interpretation. On the other hand, economics and consumer law restricts the term consumer to persons who act for objectives unrelated to their business, profession or trade and as end users. 25 The second reason relates to the presumption that any harm to an intermediate buyer would harm the final consumer. Consequently, reduction in customer welfare would lead to a reduction in consumer welfare, which in turn would indicate a violation under Article 102 of the TFEU. 26 It is generally presumed that the basic goals of the EU competition law are to protect economic freedom, promote efficiency and integrate the market.27 It has usually been contended that safeguarding economic freedom results in the protection of competitors and not competition. This had resulted in criticism regarding the implementation of Article 102 of the TFEU. 28 In the context of protecting competitors in isolation, the protection of economic freedom could have the outcome of inefficient results and even injury to consumer welfare. Protecting consumer welfare is the avowed objective of the competition law of the EU. In addition, a major economic and political objective of the EU competition policy is to promote consumer welfare. 29 It is essential to realise that market integration could on occasion be in conflict with consumer welfare and efficiency. A policy that aims to promote market integration may not support consumer interests. In Commission v France, 30 Commission v Austria31 and Commission v Ireland, 32 a minimum price had been determined for tobacco products. This was in contradiction to Directive 95/59. 33 It was argued by these Member States that the minimum price had been fixed in order to protect human health. The ECJ ruled in the above three cases that fixing such minimum price was contrary to Article 9(1) of Directive 95/59. 34 These rulings clearly favour the seller to the detriment of consumer welfare. In Hoffmann – La Roche, a dominant producer of vitamins formed contracts with its customers. These contracts required the purchaser to acquire at least if not all of its supplies from this vitamin producer. In addition, these contracts provided discounts that were determined by the total purchase volume of vitamins. The Court held these discounts to be restrictive to competition, as these were aimed at limiting the options of the purchaser and preventing other producers from gaining access to the market.35 In Michelin I, the Court ruled that the rebates granted to customers who had achieved a specified sales target were abusive. Such rebates had the effect of restricting the choice of dealers with regard to suppliers. Moreover, competitors were significantly restricted in their access to the market, on account of such discounts. 36 Furthermore, in Michelin II, a rebate was provided to customers, in order to induce loyalty. The Court held this practice to be abusive, as it prevented a customer from choosing between the best available offers on the market. In addition, the customer was prevented from selecting and varying suppliers, due to the economic disadvantage involved.37 In the British Airways case, the airline operator had granted an enhanced commission to travel agents who sold its flight tickets. This bonus was provided on a monthly basis by comparing the sales for that month with the sales for that month in the corresponding year. This practice was held by the ECJ to be abusive, as the increased commission was provided for all the tickets of this airlines handled by the agent. As such, this bonus effectively limited the choice of agents to provide their services to other airlines. Consequently, the access to the market of the competitors of British Airways was substantially restricted.38 Article 102 TFEU has the objective of preventing practices that are harmful to consumers, via their influence on the elective competition framework. In this context the ECJ has stated that this Article addresses practices, which directly or indirectly cause harm to consumers. 39 The EU policy aims to restrict anti – competitive measures, in order to promote economic freedom and consumer welfare. The above discussion discloses that consumer welfare, one of the core objectives of the EU policy, is relegated to the background, on account of other considerations related to market integration. Bibliography Akman, P, ‘ ‘Consumer’ versus ‘Customer’: The Devil in the Detail’, Journal of Law and Society, vol. 37, no. 2, 2010, pp. 315 – 344. Akman, P, ‘The European Commission’s Guidance on Article 102TFEU: From Inferno to Paradiso?’, Modern Law Review, vol. 73, no. 4, 2010, pp. 605 – 630. Basedow, WW, Structure and effects in EU competition law: studies on exclusionary conduct and state aid, Kluwer Law International, 2011. 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