Transcript Dawn Raids’in the Netherlands

Discussion Paper Art. 82
VvM
&
Kenniscentrum Financieel en
economisch recht
17 maart 2006
Introductie

Praktische toepasbaarheid van de draft guidelines
Art 82 EC.

Praktijkvoorbeelden van Roofprijzen (‘predatory
pricing’):
- Lothian vs First Edinburg (OFT)
- Drogheda (Ierse mededingingsautoriteit)
Motto

Judge Learned Hand: ‘t]he successful competitor,
having been urged to compete, must not be turned
upon when he wins.’
Michelin II en ‘vorm’

Michelin II: … that prices below average variable
costs .. are regarded as abusive in themselves
because the only interest which the undertaking
may have in applying such prices is that of
eliminating competitors ….
Wat literatuur

D. Waelbroeck, Michelin II: a per se rule against
rebates by dominant companies?, Journal of
Competition and Economics 1(1), 149-171, maart
2005.

K. Elzinga, Predatory pricing and strategic theory,
Georgetown Law Journal,
http://www.findarticles.com/p/articles/mi_qa3805/is
_200108/ai_n8992779/print
First Edinburg

Decision of the Office of Fair Trading, No.
CA98/05/2004, First Edinburgh / Lothian, 29 April
2004

Twee busmaatschappijen
First Edinburg: productmarkt

Productmarkt: The relevant product market
comprises all those products and/or services which
are regarded as interchangeable or substitutable
by the consumer by reason of the products'
characteristics, their prices and their intended use.

Hier: commerciële busdiensten
First Edinburg: geografische markt

Geografische markt: The relevant geographic
market comprises the area in which the
undertakings concerned are involved in the supply
and demand of products or services in which the
conditions of competition are sufficiently
homogeneous and which can be distinguished
from neighbouring areas because the conditions of
competition are appreciably different in those
areas.
Hier: Greater Edinburg en de omgeving
First Edinburg: dominantie 1

Dominantie: a position of economic strength
enjoyed by an undertaking which enables it to
prevent effective competition being maintained on
the relevant market byallowing it the power to
behave to an appreciable extent independently of
its competitors, its customers and ultimately of
consumers. [United Brands]
First Edinburg: dominantie 2

Hier: marktaandelen gebaseerd op aantallen
kilometers en op omzet.

Greater Edinburg: Lothian meer dan 70%, First
minder dan 20
Omgeving: Lothian minder dan 20, First meer dan
70
First Edinburg: dominantie 3

The OFT considers it unlikely that an undertaking
will be individually dominant if it has a market share
of below 40 per cent, especially where a competitor
in that market has a larger market share.
First Edinburg: dominantie 4

In considering whether First Edinburgh does hold a
dominant position .. the OFT would also have to
consider the extent to which potential competition
is likely to constrain First Edinburgh's behaviour.
Factors that might influence the likelihood of entry
into these markets include the lack of nearby
depots owned by other operators, the financial
strength of First Edinburgh .. and the impact that
any predatory attack might have on its reputation
for responding strongly to competition.
First Edinburg: dominantie 5

Vgl. Commissie in rnrs. 31-32: This would be the
case where an undertaking holds 50% or more of
the market, provided that rivals hold a much
smaller share of the market. … The strength of any
indication based on market share depends on the
facts of each individual case. Market share is only
a proxy for market power, which is the decisive
factor. It is therefore necessary to extend the
dominance analysis beyond market shares…
First Edinburg: dominantie 6

..the fact that there are no other large operators
within the region surrounding Edinburgh suggests
there is no ready supply of entrants that could
easily establish significant operations in Edinburgh
by expanding from an existing base. It would, of
course, be possible in these circumstances for an
entrant to purchase Lothian's assets as a means of
entry, although such a purchase may be
unattractive if First Edinburgh were to obtain a
reputation for predatory behaviour.
First Edinburg: klacht 1
First Edinburgh had abused a dominant position by:
engaging in predation in the Greater Edinburgh
area, by reducing prices (both on particular routes
and for certain 'day' and 'weekly' tickets valid
throughout Edinburgh), increasing frequencies on a
number of routes and introducing a number of new
routes.
First Edinburg: klacht 2

(OFT:) Predation … comprises strategic behaviour
whereby a dominant undertaking deliberately
incurs losses in order to eliminate a competitor, or
deter market entry by potential competitors, so as
to be able to charge excessive prices in the future.
First Edinburg: klacht 3

(Cie., rnr. 96): The predatory nature of charging
lower prices to all or certain customers is found in
the predator making a sacrifice by deliberately
incurring short run losses with the intention to
eliminate or discipline rivals or prevent their entry…
exclusion should thus allow the predator to return
to, maintain or obtain high prices afterwards…
First Edinburg: Akzo test

AKZO-test

OFT:… although evidence of pricing below average
variable cost provides a strong presumption of
predation, an undertaking may be able
exceptionally to rebut this presumption providing,
inter alia, the pricing strategy is not directed
towards eliminating a competitor.
First Edinburg: Akzo test en
Commissie

(Cie., rnr. 109): If the price charged by the
dominant company is below AAC this means that
the dominant company incurred a loss that it could
have avoided. It is, at least in the short run, not
minimising its losses. This is sufficient to presume
that the dominant company made this sacrifice in
order to exclude the targeted competitor. This is
however a rebuttable presumption; there may be
exceptional circumstances under which a price
below AAC is justified
First Edinburg: AAC
Commissie rnr. 108: The AAC benchmark is the
appropriate and practical answer to the question
about avoidable losses. If a dominant company
charges a price below AAC this means that the
price it is charging for (that particular part of) its
output is not covering the costs that could have
been avoided by not producing that (particular part
of its) output.
First Edinburg: analyse 1


(OFT:) there is strong evidence of First Edinburgh
having set prices below its average total cost.
There is also evidence that it was pricing below
average variable cost on a significant number of
the routes in the sample considered …
..Lothian responded to First Edinburgh's increased
activity and lower fares by increasing frequencies
on some of its routes that were in direct
competition with the First Edinburgh services.
..First Edinburgh's revenues may have been below
costs as a result of Lothian's actions, rather than as
the result of predatory intent.
First Edinburg: analyse 2

(Cie., rnrs. 131-132) .. although the price is below
the relevant cost benchmark and although there is
a likely exclusionary effect, the dominant company
is actually minimising its losses in the short run.
Such justification is, for the reasons explained
above, unlikely for pricing below the AAC
benchmark, although … A change in market
conditions could also be provoked by entry by a
rival. In case the rival is asking a price lower than
the dominant company, the dominant company
may invoke the meeting competition defence, to
the extent that this is the response that minimises
its short run losses.
First Edinburg: analyse 3

these losses were incurred because First
Edinburgh saw future benefits in establishing a
more comprehensive network within the Greater
Edinburgh area and in rationalising its depots
serving that market

at no stage did First Edinburgh intend to force
Lothian from the Greater Edinburgh market, or
believe that it was capable of so doing.
First Edinburg: intent

.. the documents … point to the strategy as being
an attempt to improve on poor performance in the
Greater Edinburgh area.
First Edinburg: effect

the OFT considers it unlikely that Lothian was at
risk of elimination from that market as a result of
First Edinburgh's conduct, or of damage that would
prevent it from competing effectively in the future.
First Edinburg: conclusie 1

The balance of evidence suggests that First
Edinburgh was deliberately incurring losses in the
short-run in an attempt to establish a more secure
commercial basis for its Edinburgh operations and
so compete more effectively with Lothian in that
market in the longer term.
First Edinburg: conclusie 2

The OFT has therefore concluded that First
Edinburgh's conduct, and Lothian's reaction to it,
could be characterised as legitimate competition
between rival undertakings, which ultimately
benefited consumers within the Greater Edinburgh
market by resulting, for a time, in lower fares and
higher route frequencies, with no danger that this
would lead to competition being weakened in the
future.
First Edinburg: conclusie 3

(Cie. rnr. 133:) An efficiency defence can in general
not be applied to predatory pricing. It is highly
unlikely that clear efficiencies from predation can
be shown and even when they exist that predation
is the least restrictive way to achieve them. In
addition it is similarly unlikely that, in the case that
such benefits arise, that in the longer run some of
these benefits are passed on to the customers and
that these benefits outweigh the loss of competition
brought about by the predation.