The European Commission and Protecting an Effective Competitive Process - Essay Example

The European Commission is mindful that what really matters is protecting an effective competitive process and not simply protecting competitors.” Critically discuss this in the context of abusive exclusionary conduct by dominant undertakings” The European Union (EU) was the first regional trade agreement to adopt the region wide competition policy. The EU is also the most important case among the regional trading agreements of policies aimed at the promotion of competition because of the deep integration in the area, which includes competition law and other policies that have an impact upon competition, and because of the large number of countries now involved in these policies. The 1957 Treaty of Rome consists several chapters related to competition law. This gives competition law in the EU a constitutional basis which is unique among the regional trading agreements with elements of regional competition law. The idea inherent in the EU policy is that of the development of a broad set of policies which promote competition in the EU markets for all goods and services1, which has its basis in the common market. The idea behind EU itself was the removal of barriers in interstate trade, along with the establishment ultimately of the common market. The removal of barriers aiding the free movement within the area of goods, services persons and capital was strengthened in 1987 with the passage of the Single Act which established the concept of a Single Market, defined as an area without frontiers in which the free movement of goods and services is ensured”. These measures were strengthened again through the aegis of the Maastricht Treaty which laid down that the activities of the member states and the community [shall] be conducted in accordance with the principle of open market economy with free competition2. The idea itself finds derivation from the Chicago School, by which US antitrust law aims to protect free markets as efficient mechanisms of allocation and to spur innovation that is the principal source of economic growth, therefore the idea remains that mere harm to competitors cannot form the basis for antitrust liability. Analogously, the European Commission (recently) maintained that “what really matters is to protect an effective competitive prices and not simply protecting competitors”. This may well mean that competitors who deliver less to consumers in terms of price, choice quality and innovation will leave the market3. Unilateral conduct merits the close attention of antitrust authorities worldwide4. Enforcement should focus on real competition problems. In particular, the Commission has clarified that a dominant firm’s conduct will be deemed allegedly abusive if it is likely to lead to ‘anticompetitive foreclosure’ given that the term anticompetitive foreclosure addresses a situation where the practice hampers, or prevents, actual or potential competitors to effectively access supplies or markets so that the dominant firm is likely to be in a position to profitably act in detriment of consumers, by increasing market prices, reducing market output, limiting innovation and reducing consumer choices5. What really matters in the paraphrased statement is that the Commission finally acknowledges that a practice’s exclusionary effect (i.e. the fact that a practice may hamper or prevent actual or potential competitors to effectively access supplies or markets) entails antitrust concerns only if it becomes the vehicle whereby the dominant firm is likely to be in a position to profitably act in detriment of consumers. Nowadays, therefore the key antitrust jurisdictions finally concur in considering that antitrust law must no longer protect economic pluralism6. The 2008 guidance document on the Commission’s enforcement priorities in applying Article 102 TFEU to exclusionary conduct states that the Commission will focus on those types of conduct that are most harmful to consumers7. To explain the Commission’s enforcement policies, the guidance paper develops the concept of foreclosure leading to consumer harm or anticompetitive foreclosure. According to this document, the Commission will normally intervene under Article 102 TFEU, where on the basis of cogent and convincing evidence the allegedly abusive conduct is likely to lead to anticompetitive foreclosure8. The notion of the anticompetitive foreclosure is: “Used to describe a situation where effective access of actual or potential competitors to supplies or markets is hampered or eliminated as a result of the conduct of the dominant undertaking whereby the dominant undertaking is likely to be in a position to profitably increase prices of to the detriment of consumers. The identification of likely consumer harm can rely on qualitative and where possible and appropriate quantitative evidence9. The European Commission has published guidance on its enforcement priorities in applying EC Treaty rules on abuse of a dominant market position (Article 82) to abusive exclusionary conduct by dominant undertakings. Such conduct aims to exclude actual competitors from expanding or would-be competitors from entering a market, thereby potentially depriving customers of more choice, more innovative goods or services and/or lower prices10. The guidance sets out the Commission's determination to priorities those cases where the exclusionary conduct of a dominant undertaking is liable to have harmful effects on consumers. Article 82(1) of the Treaty states that: Any abuse by one or more undertakings of a dominant position within the common market or in a substantial party of it shall be prohibited as incompatible with the common market on sop gar as it may fact trade between Member States”. The guidance paper further lists a series of factors that the Commission considers to be generally relevant for assessing whether the alleged abusive conduct is likely to lead to anti-competitive foreclosure. These factors are the position of the dominant undertaking, the condition on the relevant market, the position of the dominant undertakings competitors, the position of the customers or input suppliers, the extent of the allegedly abusive conduct, possible evidence of actual foreclosure and direct evidence of any exclusionary strategy. Accordingly, although the case law has developed form based tests to identify abusive practices such practices are not necessarily an enforcement priority for the Commission unless a more comprehensive assessment reveals that the conduct is likely to lead to anticompetitive foreclosure11. Where the commission was concerned, there were four major innovations in coming up with the factors defining dominance leading to antitrust: 1. First, the Commission does not refer to the AKZO presumption that market shares in excess of 50 per cent indicate dominance12. 2. Second, it defines dominance as a position of ‘substantial market power over a period of time’ (normally two years). 3. Third, it compiles a list of economic factors to test for market power (e.g. barriers to entry and expansion, countervailing buyer power) which is in line with that found in the merger guidelines. There is much more economic sophistication than is found in some of the earlier cases where findings of dominance appeared to exaggerate the market power of the undertaking in question 4. Fourth, the Commission explains that in its experience market shares below 40 per cent indicate that the undertaking is unlikely to be dominant. There are two omissions from this section of the document which were present in the Discussion Paper that DG Competition issued in 2005: an analysis of collective dominance and a discussion on how to avoid the cellophane fallacy when defining markets. The question is whether the word abuse as stated inn Article 82(2) refers only to practices of undertaking which may indirectly impact the market and hence are detrimental to production or sales, to purchase or consumers, or whether this word stands in reference also to changes in the structuring of the undertaking which lead to competition being seriously disturbed in a substantial part of the Common market. Case law, in answer to the question goes back to the sprit, general scheme and wording of article 82(2) as well as to the system and objectives of the Treaty. The idea is that the article is part of a chapter that has been devoted to the common rules of the Community’s policy in the field of competition. The policy itself is based on Article [3(1) (g)] of the treaty, according to which, the Community’s activity shall be inclusive of the institution of s system that ensures prevention of distortion where competition within the Common Market was concerned. Article 3 considers the pursuit of the objectives which it lays down to be indispensable for the achievement of the Community’s tasks13. The idea therefore is that with a safeguarding the principles that have been laid down in 2 and 3 of the treaty, Article 81 to 86 have laid down general rules that are applicable to undertakings. Article 82 in this context could be seen as being concerned largely with the unilateral activity opf one or more undertakings14. What this signifies therefore is that in the absence of explicit provision one cannot assume that the Treaty, which prohibits in Article 81 certain decisions of ordinary associations of undertakings restricting competition without eliminating it, permits in Article 82 that undertakings, after merging into an organic unity should reach such a dominant position that nay serious chance of competition without eliminating it, is rendered practically impossible. The interpretation where Article 82 is concerned would therefore signify that in order to come within the prohibition of a dominant position must have been abused. The idea however remains that with providing that the institution of a system to ensure that competition is not distorts, there is, in place, the basic requirement that competition must not be eliminated. Thus the restraints ion competition which the treaty allows under certain conditions because of the need to harmonize the various objective of the treaty itself set by the requirements of Article 2 and 3. Going beyond this limit involves the risk that the weakening of competition would conflict with the aims of the Common Market15. The Continental Can case marked in 1956 the major set where theorizing antitrust laws across the world was concerned. In the case, was involved the second principal manufacturer of metal containers in America which set about acquiring the Hazel-Atlas Glass Company which was the third principal manufacturer of glass containers. The administration asked for Continental Can's divestiture of the assets of Hazel-Atlas putting forward an argument that the merger stood in violation of Section 7 of the Clayton Antitrust Act. The claim placed forward by the government made it clear that in claiming that there were ten product markets which were in existence at the time where the can industry, the glass container industry, and various lines of commerce defined by the end use of the containers. The United States District Court for the Southern District of New York found three product markets: metal containers, glass containers, and beer containers. The district court dismissed the case, holding that the government had failed to prove reasonable probability of lessening competition in the markets it had identified. The reason this assumes importance is due to the fact that first and foremost, it forth the clarification that Article 82 did not set out an exhaustive list of prohibited conduct and, on the contrary it could prohibit a dominant undertaking from merging with another, the finding that the provision might prohibit mergers was crucial to the Commission since it had no direct means of controlling mergers till 1990. The case also established the fact that conduct was prohibited irrespective of the fact that the dominant undertaking had not exploited, or otherwise used, its market power in concluding the merger transaction. Thus anti-competitive conduct which excludes competitors, strengthens the dominant position and weakens competition on the market is within the scope of the prohibition. The judgment basically held that the objective of article 82 is not just to directly protect consumers from the dominant undertaking’s exploitation of its market power but to protect the competitive process itself. Conduct is prohibited if it threatens to weaken further the competitive structure of the market. In the case, the ECJ accepted that a dominant undertaking could strengthen its position and eliminate competition by taking over its rival. Nevertheless, it should be noted that in paragraph 26 of the judgment the ECJ is concerned about the impact on the competitive structure because of the indirect detriment to consumers. Thirdly the way in which it is interpreted; article 82 is both of interest and importance, in determining the scope of the rule of the Court looked to the basic objective of the Community and construed Article 82 as a specific application of Article 3(1)(g). The teleological reason was an early indication of how the Treaty and other Community rules, particularly the competition rules would be interpreted in the future. The Court has frequently referred to the broad treaty aims and objectives. In the case of Commercial Solvents16 the ECJ held that: “[t]he prohibitions of the Articles 81 and 82 must in fact be interpreted and applied in the light f article 3(1)(g) of the Treaty which provides that the activities of the community shall include the institution of a system ensuring that competition in the common Market is not distorted and article 2 of the treaty which gives the community the task of promoting throughout the Community harmonious development of economic activities’. By prohibiting the abuse of dominant position within the market in so far as it may affect trade between Member States, Article 82 therefore corves abuse which may directly prejudice consumers as well as abuse which indirectly prejudices them by impairing the effective competitive structure as envisaged in Article 3(1)(g) of the Treaty. The idea that Article 82 is applicable to both exploitative and to exclusionary behavior has been reaffirmed the judgment in Continental Can case. In Hoffmann La Roche17 the ECJ gave a description of the concept of an abuse which has been the foundation of the jurisprudence ever since. In this case the idea put forward was that for the purpose of rejecting the finding that there has been abuse of a dominant position the interpretation suggested by the applicant that an abuse implies that the use of the economic power bestowed by a dominant position is the means whereby the abuse has been brought about cannot be accepted. The concept of abuse is an objective concept relating to the behavior of an undertaking in a dominant position which is such as to influence the structure of a market where as a result of the very presence of the undertaking in question. Again in the Nederlandsche18 case it was stated that in prohibiting any abuse of a dominant position on the market…Article 82 covers practices which are likely to affect the structure of a market where, as a direct result of the presence of the undertaking in question, competition has already been weakened and which through recourse to methods different from those governing normal competition in products or services based on traders performance, have the effect of hindering the maintenance or development of the level of competition still existing on the market. The broad nature of the concept of abuse as seen the continental Can case is that the Court adopted a broad view of what conduct mat amount to an abuse of a dominant position for the purpose of Article 82. It is also clear from the judgments of Rochman and Michelin set out that there is no need for a causal link to be established between the dominant position and the abuse19. It is necessary only that the conduct strengthens the undertaking’s dominant position and fetters competition on the market. By saying that there is requirement of causal link what signifies is that the dominant undertaking does no need to be using its dominance to commit the abuse20. The fact also remains that the undertaking is dominant that renders behavior abusive. The dominance therefore means that the behavior has effects which the behavior of a non-dominant undertaking would not have. Since a dominant undertaking may be prohibited from some conduct even though it is not actually using its market power, some strategies possible for, and permitted, non-dominant firms will be prohibited. This is because a dominant undertaking has a special responsibility on the market which it dominates, it may abuse its position by engaging in conduct which is acceptable when carried out by its competitors and irrespective of any intention to commit and abuse21. The various categories of abuse-exploitative, exclusionary, and reprisal (if a separate category)- are not mutually exclusive. The sam3e conduct may be both exploitative and make it more difficult for a competitor to gain excess to the market this might be the case, where for example a firm charges discriminatory prices which are prohibited by Article 82(c). These discriminatory prices might exploit one set of customers and exclude competitors by charging lower prices to customers which might otherwise purchase from the competitor22. Limiting production and tying can also simultaneously exploit customers and exclude competitors. Similarly, it seems that reprisal abuses are really a subcategory of exclusionary abuses. What transpires from this is that, the dominant firm have a special responsibility towards the competitive process and implicitly also toward its competitors. This means that conduct which might at first sight look like ordinary business behavior may be condemned as abusive. The special responsibility arises irrespective of the reasons fro which has such a domiant position. The idea that dominant firms have a special responsibility towards the competitive is an absolutely key element in the application of Article 8223. In conclusion, therefore it might be reiterated that there is a movement away from the ordoliberal principles of competition policy, which influenced the European Competition law from the very beginning24. Article 82 serves to protect competition on the market. Not for its own sake, but rather as a means of enhancing consumer welfare and ensuring the efficient allocation of resources. Exclusionary abuses often lead to customer exploitation later. Exclusionary abuses may be both price based and non-price based. In non-price based abuses it is clear that some “exclusion” takes place. According to this ordoliberal approach competition law used to be a means of securing the freedom of participants. Ordoliberal theory treats individuals as ends in themselves and not as the means to the welfare of others. When considering unilateral action, the freedom of participants is threatened from dominant undertakings, dominant undertakings do not underlie competitive pressure and are able to dictate their terms on consumers and to suppress their competitors, impeding their participation in the market and depriving them from their freedom25. The prohibition of the abuse of market power has this according to this approach the objective of limiting the activity of dominant undertakings in favor of freedom of consumers or remaining competitors. As a result of this approach therefore the idea is that the EC Competition law places substantial weight on the market structure. The goal of competition law is to ensure that several competitors are present in the market and that they act independently from each other26. The outcome (market performance) is thought to be optimal, only when optimal structure is safeguarded. In this context the ECJ has imposed a special responsibility on dominant firms to not impair already weakened competition27. Reference: Lloyd, P. J., and Vautier, K. M., (1999). Promoting competition in global markets: a multi-national approach. Edward Elgar Publishing. p69 Elgar, E., (2010). Intellectual Property Law: Economic and Social Justice Perspectives. Edward Elgar Publishing. p164 Kroes, N., (2006). The Commission’s Review of Exclusionary Abuses of Dominant Position. Retrieved January 9, 2010. < http://ec.europa.eu/competition/speeches/text/sp2006_012_en.pdf> Guidance on the Commission’s Enforcement Priorities in Applying Article 82 EC Treaty to Abusive Exclusionary Conduct by Dominant Undertakings, Para5 Article 82 Review., retrieved January 8, 2011. http://ec.europa.eu/competition/antitrust/art82/index.html Osterud., (2010). Identifying Exclusionary Abuses by Dominant Undertakings Under EU. Kluwer Law International. p62 Peeperkorn, L., and Kvietiö, (2009). ‘Implementing an effects-based approach to Article 82’ Competition Policy Newsletter (forthcoming). Vol.1 Russo, F., Schinkel, M. P., Gunster, M. A., and Caree, M., (2008). European Commission Decisions on Competition: Economic Perspectives. Cambridge University Press. Pp136-141 Jones, A., and Sfrin, B., (2007). EC Competition Law: Text, Cases and Materials. Oxford University Press. p323 Gerber, M., (1994). ‘Constitutionalising the Economy: German Neo-lIberalism, competition law and the New Europe’. American journal of competition law. Vol. 42. Pp25-73 Auricchio, P., (2005). ‘Consumer Welfare, standard of proof and the objefy9ves of competition policy’. International European Competition Journal. Pp153-59 Read More