© DET JURIDISKE FAKULTET UNIVERSITETET I OSLO EC Competition Law Associate professor Olav Kolstad Department of Private Law

© DET JURIDISKE FAKULTET

UNIVERSITETET I OSLO

EC Competition Law

Associate professor Olav Kolstad

Department of Private Law



What is competition law?• Competition law exists to protect the process

of competition in a free market economy– A system where the allocation of resources is determined

solely by supply and demand in free markets

• Competition wanted because of the market result it produces

– Efficiency– Low prices– Innovations

• Competition rules limits the freedom of the market players to protect the process of competition



Competition policy and competition law• Competition policy

– Describes the way in which governments take measures to promote competitive market structures and behaviour

– Formulation of goals» Competition policy and science

• Competition law– The legal rules implementing the competition policy– Law and economics

• Developing competition policy through case law



Economic efficiency- main objective of competition policy• Competition gives the best utilisation of scarce

resources– Perfect competition v monopoly

• Perfect competition– Pareto optimal use of resources

» None could be made better of without someone being made worse of

» Consumer welfare maximized– Productive efficiency

» Constant pressure on costs» Cost reductions is the only means whereby firms can stay

in business and increase profits



• Monopoly– Leads to an inefficient allocation of resources

» Quantity supplied less the quantity which would be supplied in a competitive market

– Deadweight loss» Loss of consumer surplus which is not turned into

profit for the producer– X-efficiency

• Perfect competition, monopoly and competition in the real world

– Workable competition



Other goals of competition policy?• Preservation of liberty• Fair competition

– Promoting small and medium sized undertakings

• Socio-political issues– Social policies– Employment– Industrial policy– Environment



The objectives of EC competition law• ECJ: Teleological interpretation• Article 2 EC Treaty:

– The Community shall have as its task, by establishing a common market and an economic and monetary union and by implementing the common policies or activities referred to in Articles 3 and 3a, to promote throughout the Community a harmonious and balanced development of economic activities, a high level of employment and of social protection, equality between men and women, sustainable and non-inflanatory growth, a high degree of competitiveness and convergence of economic performance, a high level of protection and improvement of the quality of life, and economic and social cohesion and solidarity among Member States.



• The common market is not an end in itself but a means of achieving the promotion of matters listed in Article 2

• Common market– An area where direct and indirect barriers to trade

between Member States are removed (internal aspect) and

– a common import and export policy adopted toward the outside world as far as commercial transactions are concerned (external aspect)



• Internal market – the internal aspect of the common market– Defined in Article 14:

» The internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of this Treaty.

• Articles 3 sets out the ”activities” of the Community, including

– (g) a system ensuring that competition in the internal market is not distorted



• The role of competition policy as an instrument of single market integration absolutely crucial to understanding EC competition law

– Regulates conduct of undertakings threatening the establishment of an internal market

– Rules on ”free movement” directed towards Member States

• EC competition law serve to masters– Competition– Single market integration

• Thus: efficiency and allocation of resources a central concern, but not the sole goal



• Other objectives?– The objectives in Article 2– Interface with other policies



ECJs concept of competition• ECJ has not relied upon any particular competition

”ideology”– But economic arguments/theories/models decisive for the

application of the competition rules in individual cases

• Definition in Metro (case 26/76)– The requirements contained in Articles 3 and [81] of the EEC

Treaty that competition shall not be distorted implies the existence on the market of workable competition, that is to say the degree of competition necessary to ensure the observance of the basic requirements and the attainment of the objectives of the Treaty, in particular the creation of a single market achieving conditions similar to those of the domestic market. In accordance with this requirement the nature and the intensiveness of competition may vary to an extent dictated by the products or services in question and the economic structure of the relevant market sectors.



• The ECJs concept of ”workable competition” related to what competitin is inteded to achieve in the Community context

– Not one of the concepts of ”workable competition” found in economic theory

» But influenced by the theory

• Concept of competition in the Merger Regulation compared:

– Prohibits concentrations creating or strengthening a dominant position ”as a result of which effective competition would be significantly impeded in the common market”

» Article 2(2) and (3)



How to pursue the goals?• Prevent agreements restrictive of

competition– Horisontal agreements (Among competitors)– Vertical agreements (between parties at different

levels of the production or distribution chain)

• Control market power and its abuse• Control oligopolistic markets• Prevent mergers which lead to a

concentration in market power



The Competition Rules – an overview• Article 81

– Article 81(1) prohibits agreements or concerted practices restrictive of competition is

– According to Article 81(3) Article 81(1) “may … be declared inapplicable”

• Article 82– Forbids dominant undertakings to abuse their market

power

• Merger Regulation– Prohibits concentrations significantly impeding

effective competition



The sources of EC competition law• The Treaty Articles• Regulations

– Merger regulation– Block exemptions

• Judgements– European Court of Justice– Court of First Instance

• Commission notices and guidelines• Commission decisions• Annual reports from the Commission• Other documents



Some basic concepts• Market power• Market definition• Barriers to entry• S-C-P paradigm



The concept of market power• Competition law concerned first and

foremost with the problems that occur when a firm or two or more firms possess market power

• A firm or firms that possess market power can enjoy some of the benefits available to the true monopolist

– Market power presents undertakings with the possibility of limiting output and raising price, which are clearly harmful to consumer welfare



• Ways in which market power is manifested– Collusion and cooperation between competitors– Unilateral conduct; Abuse of dominant position– Structural changes; Merger Control– Split up off monopolies

• The legal test of market power; per se or rule of reason?



Market definition• Decides the factual framework for the

analysis of market power– The relevant market– Economic concept: Economic or econometric analysis

of the facts• An analytical tool, not an end in itself

– ”a tool for aiding the competitive assessment by identifying those substitute products or services which provide an effective constraint on the competitive behaviour of the products or services being offered in the market by the parties under investigation”

• But have normative implications– The implications of a broad or limited definition of the

relevant market



• The market definition focus on the market as it is today

– Identify competitive restraints from actual competitors, does not include potential competitors

• The European Commission’s Notice on the Definition of the Relevant Market

– Extract of the Commissions practice or experience– Without prejudice to the case law of the Court of First

Instance and the ECJ– But: In practice an extremely an influential guide



• The “relevant market” the product of three different market dimensions

• The relevant product market– Interchangeability: to what degree are other products

substitutes to the product in question?

• The relevant geographic market– The area in which the actual product is sold; the

relevant geographic market

• Temporal market



Barriers to entry• Barriers to entry hinders the emergence of

potential competition which would otherwise constrain the incumbent undertaking

• Crucial when determining market power– May have high market shares but no market power if

there are no barriers to entry



Analysing barriers to entry• Market definition and entry by production

substitutes• Market conditions and historical entry• Assessment of absolute cost advantages• Assessment of strategic (first mover)

advantages• Vertical foreclosure and exclusion• Predatory behaviour• Assessment of entry impediments



S-C-P paradigm• Structure• Conduct• Performance



Enforcement – an overview• Enforcement by the Commission

– The legal basis» Article 85, cfr. Article 83» Regulation 1/2003

• Enforcement by national authorities– Regulation 1/2003



• Enforcement by national courts– Article 81(1) and 82 have direct effect

» Case 127/73, BRT v SABAM– After Regulation 1/2003: Also Article 81(3)– Remedies in national courts

» The enforceability of agreements» Actions by third parties

• Damages• Does Community law require a national Court to ensure that

a remedy is available?



The scheme of Article 81• The prohibition in Article 81(1)• Nullity, Article 81(2)• Exemption, Article 81(3)



Article 81(1) – the elements• The meaning of “undertaking”• Forms of co-operation caught

– The meaning of agreement– Decisions by associations of undertakings– Concerted practices

• “Object or effect the prevention, restriction or distortion of competition”

• Effect on trade between member states• De minimis



The concept of an “undertaking”• Article 81 (and 82) applies only to

“undertakings”– Undertaking not defined in the EC Treaty

• ECJs definition of an undertaking:– “the concept of an undertaking encompasses every

entity engaged in an economic activity regardless of the legal status of the entity and the way in which it is financed”

» Case 41/90, Höfner and Elsner v Macrotron, para 21



• “Every entity”– The legal form of the entity irrelevant

» All kind of companies» Persons

• Self employed• Not employees (Opinion of GA Jacobs, case C-67/96, Albany)

» Associations• “Associations of undertakings” directly caught• But can also be found to act as “undertakings”• Example: Co-operatives, P&I clubs• Exception: trade unions representing their members

– The entity’s engagement in “economic activity” decisive



• “Economic activity”– Any activity consisting in offering goods and services

on a given market» Wide definition



State bodies• Exercising official authority

– ECJ: Article 81 does not apply to agreements concluded by bodies “acting in their capacity as public authorities and undertakings entrusted with the provision of a public service” (case 30/87, Bodson)

– Includes tasks which are typical those of a public authority

– Such tasks are not of an economic nature– Can to a certain extent be financed through fees of

economic contributions

• Engaging in economic activity– Will be regarded as an “undertaking”– How the public body is organised is not decisive



• Bodies both exercising official authority and engaged in economic activity

• Undertakings engaged in “services of general economic interest”, article 86(2)



Single economic unit doctrine• Two or more separate legal undertakings

can be treated as on undertaking– if the undertakings “form an economic unit within

which the subsidiary has no real freedom to determine its course of action on the market, and if the agreements or practices are concerned merely with the internal allocation of tasks as between the undertakings”

» Case 30/87, Corinne Bodson

• Agreements between two undertakings within a single economic unit not regarded as an agreement “between” undertakings

– Escapes the prohibition in article 81(1)



• The rationale:– No freedom to take decisions regarding the market

conduct» Regarded as unilateral conduct» May be caught by article 82 if the undertaking has

a dominant market position– Internal allocation of functions

• The other side of the coin:– If a subsidiary engages in anti competitive agreements

the mother company will also be regarded as part of the agreement



• The test of control– If a parent company owns more than 50% of the

shares in a subsidiary interdependency is presumed– Minority share holdings may also give control if

combined with specific rights attached to them– One large shareholder and many small– Joint control (50/50)

» Jointly controlled companies must belong to a single group of companies to be regarded as part of one economic unit

• The State regarded as one economic unit?



The concept of an “agreement”• ”Agreement” widely construed

– It is sufficient if the undertakings in question should have expressed their joint intention to conduct themselves on the market in a specific way

» Alignment of the competition parameters available to them

• “joint intention” a legally binding agreement not necessary

– The form of no importance (oral, signed, unsigned)– “gentlemen’s agreements”– The agreement does not have to be exhaustive

» It is enough just to set the broad framework for the undertakings market conduct



• The engagement of the parties in the agreement

– It is enough to be partly engaged in the collaboration» Breach of contract regarding parts of the

agreement– Passive “members”– An excuse if an undertaking has been “forced” into a

cartel?

• Collaboration through the establishment of a company (joint ventures)



• The situation when the agreement is terminated

– ECJ: It is sufficient if such agreements continue to produce their effects after they have formally ceased to be in force

» Case 51/75, EMI Records Limited v CBS United Kingdom Limited

– It is the effects of the agreement on the parties conduct that is decisive for the application of art 81(1)



“Decisions of undertakings”• Collusion can take place through the medium

of an association: Directly covered by art 81(1)

– Makes it possible to hold associations directly liable

• Association widely defined

• Decision every statement made with the object or effect of

influencing the commercial behaviour of the association’s members

– Does not have to be binding (e g recommendations)



“Concerted practices” • A form of co-ordination where undertakings, without

concluding any sort of agreement or establishing a plan of action, knowingly substitute practical co-operation between them for the risks of competition

– This criteria avoids that situations where companies collaborate without any kind of agreement but only on the basis of a common understand falls outside article 81(1)

• It is contrary to the rules on competition for a producer to co-operate with his competitors, in any way whatsoever, in order to determine a co-operated way of action or to ensure its success by prior elimination of all uncertainty as to each others conduct regarding the essential elements of that action

– ECJ, case 48/69, ICI v Commission



Proving concerted practices• Direct or indirect contact• Meeting of minds or some kind of

consensus– Exchange of information– Unilateral disclosure– Public announcements

• Subsequent behaviour in the market• Casuality



Can a concerted practice be inferred from circumstantial evidence alone?• A question of the use of economic evidence in

competition cases• Parallel market behaviour alone in itself not a

concerted practice• BUT: It may however amount to strong evidence of

such a practice if it leads to conditions of competition which do not correspond to the normal conditions of the market having regard to the nature of the products, the size and numbers of undertakings, and the volume of the said market power

– ECJ, case 48/69, ICI v Commission

• Oligopoly markets and economic evidence– Joint dominance



The distinction between “agreement” and “concerted practices”• Overlapping concepts• No precise distinction

– And no use for a precise distinction

• “Concerted practice” important mainly where the Commission or the Courts is forced to rely upon circumstantial evidence alone

Documents

© DET JURIDISKE FAKULTET UNIVERSITETET I OSLO EC Competition Law Associate professor Olav Kolstad Department of Private Law