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Post Danmark II in context
Pablo Ibanez ColomoLondon School of Economics
Summary
• Post Danmark II and prior case law• Implications for Article 102 TFEU• Open questions
Post Danmark II and prior case law
• The analysis in Post Danmark II departs from prior case law in two majors respects– Shift in the focus of analysis: from customers’
behaviour to effects on the competitive process– Exclusionary effects are not merely assumed
(capability): their likelihood is to be established
Establishing the effects of rebates
Customers’ behaviour
Competitive process
Consumer welfare
Is the scheme ‘loyalty-inducing’?
Impact on rivals’ ability and incentive to compete?
Does the exclusion of rivals harm consumers?
The world of Michelin II
• A standardised rebate scheme was found to be abusive in Michelin II
• The fact that it was loyalty-inducing was sufficient to establish a prima facie breach
• Relevant questions in Michelin II (GC ruling)– Retroactive (‘all-unit’) scheme– Reference period of one year– Significant variation in the discount rates
The world of Michelin II
‘95. It follows from all of the foregoing that a quantity rebate system in which there is a significant variation in the discount rates between the lower and higher steps, which has a reference period of one year and in which the discount is fixed on the basis of total turnover achieved during the reference period, has the characteristics of a loyalty-inducing discount system’.
Case T-203/01, Michelin II
The world of Michelin II
• In the world of Michelin II, the exclusionary effects of the scheme need not be shown– ‘Loyalty-inducing’ schemes are deemed to have an
anticompetitive object (para 241)– Such practices are assumed to be ‘capable’ of
having exclusionary effects– The absence of exclusionary effects is not a valid
defence• The firm can only escape the prohibition by
advancing an objective justification
The world of Michelin II
Customers’ behaviour
Competitive process
Consumer welfare
Is the scheme ‘loyalty-inducing?
Impact on rivals’ ability and incentive to compete?
Does the exclusion of rivals harm consumers?
The world of Post Danmark II
• The Court proposes a two-step test in Post Danmark II (paras 29-30)1. Assess the nature and the operation of the scheme
(paras 31-38)2. Examine the likely exclusionary effects of the
scheme (paras 39-46)• Showing that the scheme is ‘loyalty-inducing’ is
not sufficient to establish an abuse• The exclusionary effects are not merely assumed;
likelihood must be established
The world of Post Danmark II
• The likely exclusionary effects of the scheme are established in light of:– Extent of the dominant position (para 39)– Is the dominant firm an unavoidable trading
partner? (paras 35 and 40)– Regulatory barriers to entry (para 40)– Coverage of the practice (para 46)
• An objective justification may be advanced once exclusionary effects are established
The world of Post Danmark II
‘46. However, the fact that a rebate scheme, such as that at issue in the main proceedings, covers the majority of customers on the market may constitute a useful indication as to the extent of that practice and its impact on the market, which may bear out the likelihood of an anti-competitive exclusionary effect’.
Case C-23/14, Post Danmark II
The world of Post Danmark II
Customers’ behaviour
Competitive process
Consumer welfare
Is the scheme ‘loyalty-inducing?
Impact on rivals’ ability and incentive to compete?
Does the exclusion of rivals harm consumers?
Summary
• Post Danmark II and prior case law• Implications for Article 102 TFEU• Open questions
Implications for Article 102 TFEU
• Post Danmark II confirms that the object/effect divide exists in Article 102 TFEU– Some practices are deemed abusive by their very
nature (‘by object’)• Evidence of exclusionary effects is not required• The practice is assumed to be ‘capable’ of having such
effects
– Other practices are only abusive where they are likely to have exclusionary effects
Implications for Article 102 TFEU
‘By object’ abuses ‘By effect’ abuses
Pricing below AVC Refusal to deal
Exclusive dealing ‘Margin squeeze’
Loyalty rebates Standardised rebates
Tying Selective price cuts
Implications for Article 102 TFEU
• Post Danmark II provides insights about the assessment of ‘by effect’ practices
• The approach seems very much in line with the logic of the Commission Guidance…– Threshold of effects: likelihood of foreclosure– Criteria to assess the exclusionary effects of the
practice• …except for the perpetuation of the ‘by
object’ category for some practices (para 27)
Summary
• Post Danmark II and prior case law• Implications for Article 102 TFEU• Open questions
Open questions
• Is there a reason not to extend Post Danmark II to target rebate schemes?– Schemes based on individualised targets may be
more conducive to foreclosure– But:• Would it be enough to claim that the scheme is ‘loyalty-
inducing’, as in British Airways?• After Post Danmark II, exclusionary effects are not to be
assumed, they have to be established (2-step test)
Open questions
• Is it justified to prohibit exclusivity and loyalty rebates ‘by object’ after Post Danmark II?
• There are, in theory, two reasons why this would be justified – Argument 1: it is safe to presume that exclusivity
and loyalty rebates serve an exclusionary purpose– Argument 2: Exclusivity and loyalty rebates can
have exclusionary effects
Open questions
• Is it safe to presume that exclusivity and loyalty rebates serve an exclusionary purpose?– These practices are plausibly pro-competitive (unlike
cartels)– This point is not disputed. See:
• Case law (e.g. Delimitis, BPB, Van den Bergh Foods, Intel)• Commission Guidance on Article 102 TFEU (paras 34 and 37) • Commission Guidelines on vertical restraints (paras 107 and
146)
• After Post Danmark II: is it enough to claim that these practices are potentially exclusionary?