Transcript Modernisation

Article 82 Discussion Paper
Luc Peeperkorn
Rita Wezenbeek
DG Competition, European Commission
Rotterdam, 17 March 2006
Discussion paper
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Published on 19th December 2005
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Public consultation until end of March
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We hope for serious and wide debate on paper
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Paper concerns exclusionary abuses only;
exploitative abuses and discrimination follow at
later stage
Depending on results Guidelines may follow.
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Review of Article 82
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Continuation of work done in other areas
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Vertical restraints BER + Guidelines
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Horizontal BERs + Guidelines;
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Article 81 (3) Guidelines;
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Technology transfer BER+ Guidelines;
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Horizontal Merger Guidelines
Effects based approach using economic principles
and concepts, leading to a more systematic and
consistent policy in different areas of anti-trust
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‘Form’ vs ‘effects’ based approach
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Form based approach: may provide certainty and timely
enforcement but at too high a cost of false positives and
false negatives
Pure effects case by case approach: may provide correct
outcome in each case but risk of uncertainty and too (s)low
enforcement
Conclusion:
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Need a combination of elements of form and effect and a
fair division of the burden of proof to ensure operational
rules
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Rules anchored in economic principles to help consistency
and predictability
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Framework exclusionary abuses
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Essential objective of 82 is to protect competition
as a means to protect consumer welfare
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Central concern is foreclosure that hinders
competition and thereby harms consumers
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Protection of competition, not protection of
competitors against competition
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Equal right of dominant firms and of residual
competitors to compete on the merits
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General test
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Does conduct have capability to foreclose?
• Investigate form and nature
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Does it have a likely or actual market distorting
foreclosure effect?
• Actual or potential competitors are completely or partially
denied profitable access to the market, entry or expansion
of rivals is discouraged, maintenance or growth of
competition is hindered;
• Incidence;
• Importance of customers or competitors in case of selective
foreclosure;
• Other market characteristics such as network effects;
• Degree of dominance
‘Sliding scale approach’
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Exception for conduct which creates no efficiencies and
only raises obstacles to residual competition.
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Application to price based abuses
Predation, loyalty rebates, mixed bundling
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How to distinguish between abusive pricing which is
capable to foreclose and thereby harm competition and
pro-competitive pricing?
As efficient competitor test as practical proxy for consumer
harm test
In general, conduct that would not exclude “as efficient
competitors” but would only exclude “not as efficient
competitors” is unlikely to harm competition
Such conduct also more easily identified with competition
on the merits
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As efficient competitor test
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Price-cost test
Normally costs of dominant company
benchmark for competition on the
merits
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Defences
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Objective necessity
• constraint that applies to all undertakings in the market
• is the prima facie abusive conduct actually necessary on
the basis of objective factors external to the dominant
company?
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‘Meeting competition’
• dominant company may defend its own commercial and
economic interests in the face of action taken by
competitors
• conduct that may seem abuse is actually a loss
minimising reaction to competition from others
• suitable, indispensable and proportionate
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‘Efficiencies’
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Efficiency defence
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Efficiency defense needed since same conduct
can be both efficiency-enhancing and restrictive
No exemption possible: Successful efficiency
defense must lead to conclusion that conduct is
not abusive
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Consistency required with analytical framework of
Art. 81(3) and merger control
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Case law (Syfait, Piau) indicates such a defence
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Conditions for efficiency defence
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Efficiencies realised or likely to be realised by conduct
Conduct indispensable to realise efficiencies
‘Consumer pass on’
Competition not eliminated in respect of a substantial part
of the products concerned
Level of dominance above which protecting the
competitive process will normally outweigh possible
efficiencies: market share above 75% and no meaningful
competitive pressure left from either residual or potential
competitors
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Conditional rebates on all purchases
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Overall test of capability and effect
Is the dominant firm an unavoidable
trading partner?
• If yes, no effective ex ante competition
for whole demand
• Rebate may create suction effect
• If no, the rebate scheme does not
foreclose, unless overall predatory
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Capability: the threshold
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Authority to show that threshold is not set so
low as to allow switching of customers
Share of individual customer’s requirements or
individualised quantity target
• It is assumed that the thresholds are well-targeted
absent evidence that actual purchases far exceed the
threshold
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Single target or generalised grid with a certain
number of steps
• Targeting of steps needs to be analysed more carefully
in order to assess capability to have effect
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Capability: how to apply the asefficient-competitor test
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Close to the threshold effective price
is often negative but competition not
just for marginal units
The relevant range: What is the CVS
on which P effective is calculated?
Capability to exclude if Price < ATC
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Effect on the market
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the dominant company applies the rebate
system to a good part of its buyers and
this system therefore affects, if not most,
at least a substantial part of market
demand, or
it applies selectively but these selected
buyers are of particular importance for
(potential) competitors, and
there are no clear indications of a lack of
foreclosure effect such as aggressive and
significant entry and/or expansion by
competitors and/or switching of customers
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Rebuttal and efficiencies
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Rebuttal on capability
Rebuttal on effect
Efficiency defence
Conclusion: full effects based analysis,
no easy presumptions helping the
authority to shift the burden of proof
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Example 1
ThresholdRebate
Average
Price
Turnover
Incremental Step
Turnover
Size
Step
Price
5000
2,5
97,5
487500
10000
3
97
970000
482500
5000
96,5
15000
3,25
96,75
1451250
481250
5000
96,25
20000
3,5
96,5
1930000
478750
5000
95,75
25000
3,65
96,35
2408750
478750
5000
95,75
30000
3,75
96,25
2887500
478750
5000
95,75
35000
3,82
96,18
3366300
478800
5000
95,76
97,5
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Example 2: CVS = 10%
Threshold
Rebate
Average
Price
CVA
Effective
Price
5000
2,5
97,5
500
75
10000
3
97
1000
92,5
15000
3,25
96,75
1500
94,5
20000
3,5
96,5
2000
94,25
25000
3,65
96,35
2500
95
30000
3,75
96,25
3000
95,35
35000
3,82
96,18
3500
95,55
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Example 3: CVS = 5 %
Threshold
Rebate
Average
Price
CVA
Effective
Price
5000
2,5
97,5
250
50
10000
3
97
500
87,5
15000
3,25
96,75
750
92
20000
3,5
96,5
1000
91,75
25000
3,65
96,35
1250
93,5
30000
3,75
96,25
1500
94,35
35000
3,82
96,18
1750
94,85
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Example 4
Threshold
Rebate
Average
Price
5000
2,5
97,5
10000
3
97
5000
96,5
15000
3,25
96,75
5000
96,25
20000
3,5
96,5
5000
95,75
25000
3,65
96,35
5000
95,75
30000
7
93
5000
76,25
35000
10
90
5000
72
CVA
Effective
Price
97,5
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Example 5: CVS = 10%
Threshold
Rebate
Average
Price
CVA
Effective
Price
5000
2,5
97,5
500
75
10000
3
97
1000
92,5
15000
3,25
96,75
1500
94,5
20000
3,5
96,5
2000
94,25
25000
3,65
96,35
2500
95
30000
7
93
3000
62,85
35000
10
90
3500
63
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Example 6: CVS = 5 %
Threshold
Rebate
Average
Price
CVA
Effective
Price
5000
2,5
97,5
250
50
10000
3
97
500
87,5
15000
3,25
96,75
750
92
20000
3,5
96,5
1000
91,75
25000
3,65
96,35
1250
93,5
30000
7
93
1500
29,35
35000
10
90
1750
33
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