EU and German Competition Law II (Abuse of a dominant position, ) 23 May 2017 Summer term 2017 Tuesday, 10-11 h Room IV, Alte Universität Prof. Dr. Florian Bien, Maître en Droit (Aix-Marseille III) Chair for International Business Law, International Arbitration Law and Private Law
Antitrust Law Three pillars Restrictive agreements Abuse of a dominant position Merger control Art. 101 TFEU Art. 102 TFEU Regulation Nr.139/2004
A. Article 102 TFEU
I. Overview EU and German Competition Law II:
Article 102 TFEU Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States. Such abuse may, in particular, consist in: (a)directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
Art. 102 TFEU: Prohibition of abuse of a dominant position Four preconditions: Possible Effect on Inter-State Trade Undertaking Dominant Position in the whole or substantial part of the internal market Abuse (Exploitative or exclusionary)
Legal consequences Finding and termination of infringement - Art. 7 of Regulation No 1/2003 [...] it (the Commission) may impose on them any behavioral or structural remedies which are proportionate to the infringement committed and necessary to bring the infringement effectively to an end. [...] Commitments - Art. 9 of Regulation No 1/2003 [ ] Commission may by decision make those commitments binding on the undertakings. [ ] Fines - Art. 23 of Regulation No 1/2003 [ ] 2. The Commission may by decision impose fines on undertakings and associations of undertakings where, either intentionally or negligently: (a) they infringe Article 81 or Article 82 of the Treaty; or [ ]
Possible forms of abuse 1. Exploitative abuse Supplier Abuse by paying excessively low prices Competitor Dominant Undertaking Distributor Abuse by charging excessively high prices
Possible forms of abuse 2. Exclusionary abuse Supplier Abuse by forcing existing competitors out of the market Potential Competitor Dominant Undertaking Abuse by preventing potential competitors from entering the market Distributor
Possible forms of abuse 3. Leveraging of market power from one market to another Competitor Dominant Undertaking Third Market Abuse by entering a third market and by trying to monopolize it
Possible forms of abuse 3. Leveraging of market power from one market to another Competitor Microsoft Market for Media Players Market for Browsers Quasi-monopoly of Microsoft in the market for operating systems for PCs
Leveraging: The Microsoft examples Market for operating systems: Microsoft = dominant Market for Browsers Leveraging Internet Explorer Google Chrome Mozilla Firefox Safari
II. Delineation of the relevant market
Delineation of the relevant market Gives the answer to Product market Geographic market Which other firms impose a competitive constraint on the one under investigation
1. Relevant product market a) Demand-side oriented market concept or concept of the interchangeability of the products from the buyer s perspective Product characteristics Price Criteria according to the Commission Intended use Court of Justice of the European Union (CJEU), Judgment of 13 February 1979, C-85/76 - Hoffmann-La Roche (28) [...] The concept of the relevant market in fact implies that there can be effective competition between the products which form part of it and this presupposes that there is a sufficient degree of interchangeability between all the products forming part of the same market in so far as a specific use of such products is concerned.
1. Relevant product market b) Price elasticity Change of the demand of a product in case of a price rise Demand declines High elasticity Demand remains the same Low elasticity The more the price rise of a product leads the buyers to other products, the more possible it is that those products belong to the same relevant product market
1. Relevant product market c) SSNIP Test : small but significant non-transitory increase in price by the producer (5%-10%) Hypothetical monopolist test definition of substitutable products and services Would enough customers be inclined to switch their purchases to readily available substitutes? Yes Wide market definition * More suitable in the merger control No Prices could be raised profitable No competitive constraint
1. Relevant product market d) Supply-side substitutability As criterion when: Suppliers switch the production to the relevant products and market In response to small and permanent changes in relative prices Without significant additional costs or risks
2. Relevant geographic market Area with homogeneous conditions of competition, significantly different than the ones of the neighboring areas E.g. : Regional markets Territory of a member state Group of member states (Benelux) EU
2. Relevant geographic market Two kind of characteristics for the delineation of the market: Indicators for the existence of separate markets: significant differences concerning market shares, selling and production prices etc. Possible reasons for the fragmentation of the markets: consumer preferences, climatic conditions, language barriers, cost of transporting products, market entry barriers etc.
3. Aftermarkets/Secondary markets Market for parts and accessories used in the upkeep or enhancement of a previous purchase (spare parts) Compatibility with the primary product of high importance narrow definition of market for secondary products E.g. printer/toner, razor/razor blades Commission s Notice (56) [ ] The method of defining markets in these cases is the same, i.e. assessing the responses of customers based on their purchasing decisions to relative price changes, but taking into account as well, constraints on substitution imposed by conditions in the connected markets. [ ]
4. Market definition with regard to Internet platforms Internet Platforms: Intermediaries which facilitate the interaction of two or more user sides Matching platforms Advertising platforms (facilitating attention) Transaction platforms, e.g. Ebay Non transaction platforms, e.g. Dating platforms E.g. Google search, Yahoo search
4. Market definition with regard to Internet platforms Matching platforms Transaction platforms, e.g. Ebay Non transaction platforms, e.g. Dating platforms Intermediation Ebay Dating Platform Distributor Consumer Man Woman Contract of sale Acquaintance
4. Market definition with regard to Internet platforms Advertising platforms (facilitating attention) E.g. Google search, Yahoo search Attention Google Search Searcher Brand
4. Market definition with regard to Internet platforms Economic particularities of internet platforms and their implications to the assessment under the aspect of competition law a) Direct and indirect network effects b) Economies of scale c) Dynamism of digital business models New German law: 18 para. 3a GWB 2017 For the assessment of the market power of an undertaking on multi-sided markets and networks have to be especially taken into account 1. direct and indirect network effects, 2. the parallel use of more services and the changing possibilities for the user, 3. its economies of scale in the context of network effects, 4. its access to competition relevant data 5. competitive pressure based on innovations
4. Market definition with regard to Internet platforms a) Direct and indirect network effects (1) Direct network effects The more users of a service, the bigger is the benefit for the single user e.g.: mobile services (2) Indirect network effects A greater number of users on one side of the market attracts more users on the other market side Platform subsidises one side of the market by charging a higher price to the other, the one that is less price sensitive e.g.: dating platforms hotel booking platforms equal price sensitivity lower price sensitivity of hotels Granting of zero-priced services to one side of the platform e.g. for dating platform users, (financed by advertisers) or for or hotel guests problem: market entry barrier; concentration but: Multihoming? (see 18 para. 3a Nr. 2 GWB)
4. Market definition with regard to Internet platforms a) Direct and indirect network effects cont d Difficulties concerning the delineation of the relevant market in cases of zero-priced services SSNIP-Test (-); therefore idea of an SSNDQ-Test: small but significant non-transitory decrease in quality (criticism: practicability?!) Qualitative criteria, e.g. physical characteristics, end use, price including costs for switching from one service to another (+) Application of competition law also to services provided free of charge? European Commission (+) Germany: Until now, German courts have only taken into consideration possible influence of free services (booking of a hotel by final consumers) on the market side where prices are charged (e.g. platform hotels) as well as the interchangeability with non-zero-priced platforms BUT : New German law: 18 para. 2a GWB 2017 The assumption of a market is not precluded by the fact that a service is provided free of charge. Competition law can be applied to services for which the client does not pay with money.
4. Market definition with regard to Internet platforms b) Economies of scale EU and German Competition Law II: high fixed costs e.g.: operation of the website + low variable costs tendency to concentration of market power; risk of market entry barriers c) Dynamism of digital business models Innovations and dynamism of digital business models can lead to fast-moving changings concerning the balance of power on a given market ( disruptive innovation ).
III. Dominant Position
Dominant Position CJEU, Judgement of 13 February 1979, C-85/76 - Hoffmann-La Roche Economic strength of an undertaking Preventing the effective competition on the relevant market + Allowing the undertaking to behave independently of its competitors, customers and consumers
Dominant position: Two stage examination Definition of relevant market Relevant product market Relevant geographic market Assessment of the dominance (Guidance on the Commission's enforcement priorities in applying Article 82 of the EC Treaty, Official Journal C 45, 24/02/2009) A. The market position of the dominant undertaking and its competitors B. Possibility of the expansion of actual competitors and of the entry of new ones C. Countervailing buying power
IV. Abusive Behaviour
1. Exploitative Abuses
Most common examples Unfair purchase or selling prices or other unfair trading conditions Art. 102 (2) (a) TFEU Exploitation: Earning of monopoly profits at the expense of the customer or the supplier Measurement of the fairness of prices CJEU, Judgment of 14 February 1978, C-27/76 - United Brands Abusive pricing is the behavior that allows a dominant undertaking to gain commercial advantages that it wouldn t gain within normal and effective competition Criterion: Price that is inadequate to the value of the provided service
Court of Justice, Judgment of 14 February 1978, C-27/76 United Brands v Commission [Charging] a price which is excessive because it has no reasonable relation to the product supplied may be an abuse of a dominant position [within the meaning of subparagraph (a) of article 86 [now article 102 TFEU]. This excess could, inter alia, be determined objectively if it were possible for it to be calculated by making a comparison between the selling price of the product in question and its cost of production, which would disclose the amount of the profit margin; however the Commission has not done this since it has not analyzed UBS s cost structure. (para. 250 and 251)
Court of Justice, Judgment of 4 May 1988, C-30/87 - Corinne Bodson v Pompes Funèbres In Corinne Bodson v Pompes Funèbres, one question before the Court of Justice was whether Pompes Funèbres, which had been given an exclusive concession to provide external services for funerals in a particular French town, was guilty of charging excessive prices. The Court of Justice said that, given that more than 30,000 communes in France had not granted exclusive concessions such as that enjoyed by Pompes Funèbres, but instead had left the service unregulated or operated it themselves, it must be possible to make a comparison between the prices charged by undertakings with concessions and other undertakings: Such a comparison could provide a basis for assessing whether or not the prices charged by the concession holders are fair
Assessment of the unfairness Cost/Price analysis Price Comparison Comparison with the prices of the same undertaking charged in another time period or to other customers Comparison with the prices of other undertakings
2. Non-price based exclusionary conduct