W1 - Intro + art. 101 TFEU | Quizlet

Week 1: What is competition, why do we want competition and how does competition law figure in all of this?

• Intro + art. 101 TFEU

• Cases

  • Metro1

  • GlaxoSmithKleine

  • Cartes Bancaires

  • Commission Guidance

  • Intel

  • Servizio

  • Consten&Grundig

Art. 101 TFEU (W1)

prohibition of anti-competitive competition, has to be 2 or more undertakings involved. N.A to internal company arrangements.

types of agreements (W1)

i.e. types of 'coordination'

1. Horizontal agreements (between producers/competitors)

2. Vertical agreements (on different levels of supply chain)

Horizontal agreements(W1)

agreements between undertakings on the same relevant market (e.g. between producers)

- considered to be more ‘suspicious' (since this is an agreement between competitors)

-if 2 competitors secretly get together to agree on certain things may be for their own benefit

vertical agreements(W1)

agreements between undertakings active on different levels of the supply chain

e.g. manufacturer & distributor / distributor & retailer

- downstream market = the market closer to the consumer

(e.g. in an agreement between wholesaler and retailer, retailer is active on the downstream market)

- upstream market = the market further away from the consumer (e.g. retailer is active on the upstream market)

structure of art. 101 TFEU(W1)

1. applicability of art. 101 TFEU

a) are the parties involved undertakings?

b) Is there coordination in the form of an agreement or concerted practice?

c) Does the coordination affect trade between member states?

2. Material scope of art. 101 TFEU

a) restriction "by object"?

b) restriction "by effect"?

3. Justification under art. 101(3) TFEU

a) justified by Article 101(3) TFEU?

b) justified by block exemption?

inter-brand competition(W1)

competition between different brands / producers

--> presumes that 2 brands are on the same relevant market

(e.g. Nike vs Adidas)

intra-brand competition(w1)

competition between sellers of the same brand

/  competition within the single brand (e.g. between the Saba retailers). They all face the same high costs of maintaining quality sales environment.

(e.g. apple store vs medimarkt both selling apple products)

how is competition law triggerred(W1)

... by bad behaviour (SCP conduct):

1. Bad because of impact on market structure (S)

2. Bad because of impact on performance (efficiency) (P)

3. Bad in and of themselves (rationale for by object category)

behaviour impacting market structure (Structure)(W1)

= Behavior that causes competitors to exit the market

• low barriers to entry is desired, do not want behavior by dominant companies causing exit from the market

e.g. a retail exclusivity clause between retailer and importer --> market entry is more difficult --> less competitive market structure

how is this measured - through the no. of competitors, exit by companies, profitability of entering the market (if you will only loose money = insurmountable barrier to entry)

behaviour impacting performance (efficiency) (W1)

Behaviour that drives up prices, reduces output or innovation

How is this measured - productive and allocative efficiency (producing enough products at the right prices without wasting). Dynamic efficiency, i.e. measuring how 'new' something is, very difficult.

- but digital markets do not have a monetary price, so innovation has to be looked at

competitive process(W1)

= the competitive pressure felt by the boardroom, managers, directors and the response thereto

- if you are not as efficient as a company, deserved to be kicked off the market (not every exit from the market is problematic)

i.e. if a company is out-competed because it is an inefficient competitor, it is not afforded protection under competition law

(Servizio; Intel)

factors of competition (SCP)(W1)

1. market structure

2. conduct that takes place on the market

3. performance on the market

market structure(W1)

- How many companies?

- How easy is it to enter or leave the market? i.e. barriers to entry and exit

Test: Defining the market, market share of companies...

conduct that takes place on the market(W1)

- Is price setting competitive?

- Are companies innovating?

- Are companies trying to be more efficient? Trying to improve their products and lower costs?

Test: List of conduct that is bad (e.g. hard-core restrictions)

performance on the market(W1)

• Are there enough products at the right price?

• Is there enough innovation? (consumer welfare)

• dynamic efficiency

Test: Price increases, lower output, limited innovation...

chicago/liberalist perspective(W1)

The US SC declared its Sherman act only concerns efficiency by asking the question whether consumer welfare is impacted (have prices gone up?)

-       downside is that many cases will not be dealt with (e.g. digital markets with zero monetary price)

-       focus is on performance

-       Intel attempted to push into the liberalist direction

focus is on: performance

German perspective(W1)

To enhance competition, a healthy competitive structure is needed

focus is on: market structure

relationship between competitors and competitive process(W1)

Unlikely to have competition without competitors. Competitive pressure can even arise from potential competition (e.g. Meta fearing Whatsapp)

relationship between market structure and competitive process(W1)

barriers to entry affect competition

- e.g. to enter the digital market need a huge investment (compliance costs, ads)

- -there will be very low traffic on a new startup search engine, nobody will want to advertise. Digital markets likely have high barriers to entry.

relationship between competitive process and efficiency(W1)

efficiency is the outcome of the competitive process (performance)

Error Cost Framework(W1)

what is the cost of getting it wrong and how does it relate to the benefit of getting it right?

1. Determine when we get it right or wrong

• the objective of the rule that is being enforced

• EU Comp: no clear objective; determining whether there is a restriction or distortion of comp or not

2. Determine the cost of getting it wrong

1.Wrong because we intervene / over-enforcement / false positive / type I error

2. Wrong because we fail to intervene / under-enforcement / false negative / type II error

3. Determine whether one should carry more weight than the other^

• false positives seen as more harmful, err at the side of the false negative

• via burden of proof, high standards for proof, strict (judicial) review of that proof = avoid false positives

• EU Comp: a false positive would mean prohibiting actual competitive behavior

general cases competition law (what matters) (3)(W1)

1. Servizio

2. Intel

3. Metro I

art. 101 cases (2)(W1)

1. GlaxoSmithKline

2. Cartes Bancaires

Servizio(W1)

--> apply to: what matters in EU Comp law

rule: EU Competition law does not protect inefficient competitors

Art. 102 ‘seeks to sanction not only practices likely to cause direct harm to consumers but also those which cause them harm indirectly by undermining an effective structure of competition’, however it ‘does not preclude […] departure from the market or marginalisation of competitors that are less efficient and so less attractive to consumers...

-       complainants must show to be as efficient as the company they are complaining about, otherwise deserved to be kicked out of the market

Intel(W1)

--> apply to: what matters in EU Comp law

Facts:

• Intel knew it was under-performing AMD

• Adopted corporate loyalty program - bonus available for all of their consumers but ONLY if they promise to buy 80% of their CPU needs from Intel.

Rule: EU Competition law does not protect inefficient competitors

• protection under EU competition rules is afforded to the competitive process as such, and not, for example, to competitors.

• competitors that are forced to exit the market due to fierce competition, rather than anticompetitive behaviour, are not protected. Therefore, not every exit from the market is necessarily a sign of abusive conduct, but rather a sign of aggressive, yet healthy and permissible, competition

Metro I(W1)

--> apply to: what matters in EU Comp law

Facts

 - Applicant (Metro) wanted to start selling Saba radios but Saba had a selective distribution system: only those selected could join the retail scheme.

- Metro sold S radios in its cash and carry stores, which is not specialized, lower quality sales environment with lower prices

rule: There is more to competition than just price competition, such as quality competition

GlaxoSmithKline(W1)

--> apply to: art. 101 TFEU

Facts:

• GSK prohibited wholesalers from exporting its products outside Spain

• Charged higher prices for medicines intended to be re-exported, lower prices for medicines intended to be used in Spain --> dual pricing scheme --> prevents parallel importers selling Glaxo medicine --> removes potential competitors of parallel importers

rule: Art. 101 as a whole and competition rules do not have a narrow theory of harm / EU Comp law does not just apply to cases harming consumer welfare but ALSO where there is harm to market structure

• Article 101 aims to protect not only the interests of competitors or of consumers, but also the structure of the market and, in so doing, competition as such.

• Consequently, for a finding that an agreement has an anticompetitive object, it is not necessary that final consumers be deprived of the advantages of effective competition in terms of supply or price

Cartes Bancaires(W1)

--> apply to: art. 101 TFEU

Facts:

- CB’s scheme made it more difficult for smaller banks to join because of solidarity mechanism (had to pay the CB scheme)

- incentivized banks to keep on acquiring consumers (shops, businesses) AND forced prices up (consumers pay for this through the charges of having a card and the charges the shop owners impose)

rule: restrictions by object

§49-§54, §58

rule: restrictions by effect

§52

Rule: In two-sided markets interactions between the two sides are a relevant aspect to consider.

-        The economic and legal context is a wider concept than relevant market, at least in two-sided markets

-       in a multi-sided market the competitive assessment must extend to all sides affected by the practice at issue. §76-78

 

rule: a need of thorough analysis shows that “by object” standard is not suitable.

Clarifies the need for a restrictive interpretation of the restriction “by object” notion. Therefore, if an arrangement is novel or happens in a complex economic setting (network industry- two side market) “by object” analysis is not suitable because it requires careful examination of its effects within its economic context and market circumstances (§?)