W2 - Art. 101 TFEU + Digital Distribution | Quizlet

W2-Whydcompaniesrestrictcompetitiontrhoughcooperation?

- Art. 101 TFEU + Digital Distribution

-PierreFabre

-Coty(Coty&Ping)

-ISU

-Booking.com

-SuikerUnie

-VMRemonts

-ACTreuhand

distribution agreements(W2)

are vertical agreements, organized to add value to products

- parties are dependent on each other, both add value to the product and the price the consumer is willing to pay increases

value from the importer/producer (upstream): producing a product, e.g. assembling a laptop, launching a marketing campaign, investing in ads

value from the distributor (downstream): creating a pleasurable pre-sales (trained staff, product display, atmosphere) and post-sales service level (e.g. a warranty)

(Consten and Grundig, Metro I)

upstream market(W2)

the market further away from the consumer (e.g. wholesaler is active on the upstream market)

downstream market(W2)

the market closer to the consumer

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

value game on platforms(W2)

a successful platform need both sides of the market

- e.g.: food delivery platform: consumers want plenty of restaurants on the platform and restaurants are not interested in joining the platform unless there are consumers on it)

problem of free-riding:

- What if a restaurant asks its consumers to call directly and not to order via the platform?

·      Platform has already invested in the restaurant

·      Its win-win for consumers and the restaurant – consumer gets a rebate (the commission is not passed down in the price) and restaurant gets more profit.

--> platforms use anti-steering provisions or most favoured customer clause / price parity clauses to prevent this

adding value offline(W2)

(i.e. in brick and mortar stores)

by providing an attractive purchasing environment

e.g. apple stores, perfume stores

results in:

Reduced price competition (Metro I)

- because the costs go up for everyone: incentive for everyone to recoup these costs in the form of a higher price

- because of selective distribution (qualifying for the quality criteria said by the producer – qualitative criteria has an effect on quantitative criteria because it increases price

Greater reliance on interbrand competition and less

on intrabrand competition

e.g. mcdonalds franchises: no price competition, no quality competition (taste) for bigmacs. Mcdonalds franchise formula so strictly regulated that it rules out intrabrand competiton and resultingly increases interbrand competition.

adding value online(W2)

Increased market transparency

- price comparison possible within milliseconds

- Reviews also tells you of the quality of the service

- better informs consumption choices and increases bargaining power, therefore increasing competition.

 

Increased consumer knowledge (and emancipation)

- adds to competitive pressure.

= change in value game online

change in value game online(W2)

upstream producer: value is still largely the same – through distribution value is added to the product.

downstream retailer: less possibilities to compete on quality in an online environment (e.g. only through delivery, user-friendliness)

-       incentivised to compete on price/output

online contractual obligations(W2)

(resulting from asymmetry in the value game, new contractual obligations arise bc value is represented in the contractual clauses):

1. Offline only (Pierre Fabre and Ping) – e.g. a clause banning online sales as put by the producer. This makes good sense because of the increased price competition and asymmetry in value game.

2. Dedicated webshop only (Coty) – no third party marketplace (e.g. Amazon) allowed to retail the product

passive sales vs active sales(W2)

describe how a seller reaches customers outside its assigned territory or customer group. The distinction matters because suppliers are sometimes allowed to restrict active sales but generally cannot restrict passive sale.

-       Passive sales = being discoverable and accepting orders (e.g. an international web)

-       Active sales = soliciting customers directly, e.g. use of country-specific domain

general ban on online sales(W2)

obligation from producer that products can only be sold in physical stores

- internal market POV: banning online sales makes cross-boundary sales more difficult, consumers from another MB will have to travel to physical store

- effect on market structure: protects the existing market structure of physical pharmacies, ruling out creation of a new market, that is an online market for the same product. The geographic market is merely where the pharmacy is.

- effect on performance: improvement on product availability if there was an online market, improvement in consumer welfare, arguably innovation.

rules out all online presence, wiping out both passive and active sales, No chance of cross-border sales at all

= restriction by object (Pierre-Fabre)

ban on using third party market for sales(W2)

online distribution is not ruled out but has to be via own dedicated webshop

- producer wants a dedicated webshop bc pricing decisions are not just set by the shop owner but ALSO by the third party. This can reduce the exclusive image, affords the shop owner less control over prices, risk for profitability

= not restriction by object, considered a justified restriction (Coty)

- legal certainty for companies: know they cannot have an all out ban on online retailing but can impose quality conditions on the online sales channels that retailers can use and through this, can prevent some price competition.

hardcore restrictions on online sales examples(W2)

(i) a direct restriction on the use of the internet as a sales channel, as well as the indirect measures such as a requirement for a distributor

(ii) to only sell in a physical space or in the physical presence of specialised personnel

(iii) to seek the supplier's prior authorisation for selling online, or

(iv) not to use the supplier's trademarks or brand names on its website.

+ Geo-blocking restrictions, i.e., requirements for a distributor

(i) to prevent customers located in another territory from viewing its website or to automatically re-route its customers to the manufacturer's or other distributors' websites, or

(ii) to terminate consumers' online transactions once their credit card data reveal an address that is not within the distributor's territory

platforms as regulators(W2)

play a form of regulatory role as they determine the rules according to which their users, including consumers, business users and providers of complementary services, interact. e.g.:

• The design of the ranking algorithm of a search engine

• Access to and exclusion from the platform by regulating which sellers can present their offers, data they can access

• Imposing price controls

• When they are dominant, have a responsibility to ensure that competition on their platforms is fair, unbiased, and pro-users (e.g. A dominant platform that sets up a marketplace must ensure a level playing field on this marketplace and must not use its rule-setting power to determine the outcome of the competition)

how do platforms exclude each other(W2)

1. Competition exclusivities (like in ISU)

2. Anti-steering (Ohio/Am-Ex – s 1 Sherman Act US Antitrust Law)

3. MFCs (most favoured customers clauses) / price parity clauses(Booking.com)

competition exclusivities (exclusionary effects)(W2)

e.g. platform reserving athletes to its own competition through eligibility rules (eligibility rules made it very unattractive to compete at another competition) (ISU)

anti-steering rules (exclusionary effects)(W2)

e.g. credit card companies to keep shop owners from steering consumers to using certain payment models (Ohio/Am-Ex)

- There are costs for shop owners if a consumer pays with a specific credit card (the credit card company gets a % commission).

- Shop owner has an interest in steering the payment interest of their client (lower commission financially attractive to both shop owner and consumer, saves money for the both; avoiding loosing commission fees to competitors).

- credit card companies have an interest in preventing this to prevent free-riding

price parity clauses (exclusionary effects)(W2)

prevent sellers from charging lower prices on alternative sales channels

- narrow price parity

- wide price parity clauses

pro-competitive effects: will reassure a retailer that its supplier will not sell to other retailers at lower prices and therefore encourage the retailer to invest in providing sales and service support for the product

but:

Booking.com

- Hotels will not want to violate this clause (platform can delist, make the accom less visible)

- Unattractive to switch to alternative provider because the price advantages of that alternative would have to be communicated to booking.com.

narrow MFCs/price parity clauses(W2)

clauses preventing the seller from offering lower prices on its own website

only restrict lower pricing on their direct sales channels (i.e., their own websites).

wide MFCs/price parity clauses(W2)

 clauses that prevent sellers on a platform from price differentiating between platforms 

- prohibited from offering lower or better prices on both their own sales channels and those operated by third parties

regulating price parity / MFC clauses(W2)

issue that such clauses (esp. wide MFCs) restrict comp and lead to higher prices

-       an alternative platform would find it impossible to compete through lower prices in the presence of an incumbent platform with a large market share

- Any practice protecting the investment of a dominant platform should be minimal and well targeted

Ban wide MFCs, allow narrow MFNs when there is enough competition between platforms

- If platforms already compete strongly with each other:

Sellers should be free to offer different prices across platforms.

- helps platforms compete on commission fees, quality, etc.

- Allow narrow MFNs (to protect platform investment somewhat)

Ban wide MFCs and narrow MFCs when competition between platforms is weak (dominant platform)

- pressure on the dominant platforms can only come from other sales channels, appropriate to also prohibit narrow MFNs

- The only real competitive pressure comes from direct sales (e.g., a hotel’s own website).

other exclusive practices(W2)

1. Mergers

--> practice by platforms: purchasing potential competitors

2. Multi-homing and switching

3. Data regulation

4. Leveraging of market power and self-preferencing

multi-homing and switching(W2)

multi-homing: Users of an entrant platform will be hesitant to switch even if the services it offers are of better quality, often uncertain on how well the new platform

meets their needs. consumers will want to multi-home: using both platforms.

--> practice by platforms: rarely directly forbid multi-homing by their users. sometimes they make it difficult through technical mean, made less attractive through fidelity rebates and some types of bundling.

data regulation(W2)

Portability: ability of users to transfer data that a platform has collected about them. Switching / multihoming is facilitated through this.

--> dominant platforms would be subject to stricter data portability reqs than non-dominant platforms (stricter obligations to allow for it, leaving the platform is more costly for users w/o data portability)

leveraging / self-preferencing(W2)

when the platform or another service from the same ecosystem is also a participant in the market. / giving preferential treatment to one’s own products or services, or one from the same ecosystem, when they are in competition with products and services provided by other entities

pro-comp? giving its products or services preferential treatment is an appropriate reward for management of the platform.

anti-comp? where a dominant platform engages in self-preferencing, the distortive effect on downstream markets may be substantial, such that self-preferencing ultimately constitutes a disproportionate form of reward

- e.g. issue of bundling goods or services in a platform. Dominant platforms try to bundle services and products where their control of consumers’ data and of network externalities are strong with other services and products where these factors play less of a role.

e.g. a vertically integrated platform providing privileged data access to its own subsidiary

is exclusivity invariably bad(W2)

- no, sometimes necessary to jumpstart a market, to convince consumers

- but when done by a platform with some market power: problematic because they already have market power and want to expand/solidify this

(could also be tackled by art. 102)

traditional cartels(W2)

- inherently unstable, communication will always kill a cartel (perfect transparency is needed)

anti-competitive potential of AI(W2)

can lead to tacit coordination that escapes enforcement under antitrust laws.

- This could happen when AI scans the internet for competitors’ prices and makes autonomous decisions, including competitors’ possible reactions. Under certain circumstances, this could reduce competition and create parallelism outside enforcement’s reach.

anti-competitive potential:

1. Monitoring an existing cartel --> Delegating monitoring tasks to an AI can secure the cartel’s longevity.

2. Facilitate entering into a new cartel --> AI can assist the parties in understanding and accepting the benefits of cooperating

3. Facilitate entering into a cartel without direct contact --> AI facilitates the exchange of commercially sensitive information that allows the parties to collude without direct contact.

4. Facilitate tacit collusion

AI price fixing(W2)

Treating the AI just like any (rogue) employee

--> Just like an employee or an outside consultant working under a firm's “direction or control,”, an algorithm remains under the firm’s control, and therefore the firm is liable even if its actions were informed by algorithms”

- very fine line between adapting your conduct intelligently in anticipation and direct or indirect contact

- price signalling from one firm, economically rational for other firm to match (oligopolistic interdependence) – this is allowed

- but may form a cartel without even talking to each other

(SuikerUnie)

liability for AI price fixing(W2)

Since the parties had already reached an illegal understanding and relied on AI for compliance, no controversy in finding an agreement:

User of the algorithm can be liable (VM Remonts)

- user of the algorithm will need to check if and under which conditions information is exchanged

- could have or should have been aware of the possibility of exchanging commercially sensitive info and run risks under art. 101

but Blackbox tech is inherent in AI – simply do not know how AI engages in price fixing

supplier of the algorithm can be liable

- depends on how the algorithm was trained (and instructed)

selective distribution cases (2)(W2)

1. Pierre Fabre --> complete ban on online sales

2. Coty --> ban on online sales via third party

exclusionary effects of platforms cases (3)(W2)

1. ISU --> eligibility rules

2. Ohio/Am-ex--> anti-steering rules

3. Booking.com --> MFCs/price parity clauses

Pierre Fabre(W2)

--> apply to: art. 101/selective distribution

Facts

- Obligation under a contractual clause to sell certain cosmetics and personal care products in a physical space in the presence of a qualified pharmacist.

- The real rationale: protecting the prestigious/luxurious image of their products.

- General and absolute ban (active and passive sales) on internet sales

rule: An all out ban on online retailing is a by object restriction under art. 101(1) TFEU that cannot be justified on the grounds of preserving a prestigious/luxurious image

- By excluding de facto a method of marketing products that does not require the physical movement of the customer, the contractual clause considerably reduces the ability of an authorised distributor to sell the contractual products to customers outside its contractual territory or area of activity

Coty(W2)

--> apply to: art. 101/selective distribution

Facts:

- Coty is a supplier of luxury cosmetics in DE.

- Contract between Coty and its authorised distributors: clause prohibiting distributors from making use of non-authorised third party in the context of internet sales.

- Online retailing limited to a dedicated webshop

rule: Ban on online retailing through third party market is a justified restriction

- clause here at issue in the main proceedings does not contain an absolute prohibition imposed on authorised distributors to sell the contract goods online… the prohibition applies solely to the internet sale of the contract goods via third-party platforms

ISU(W2)

--> apply to: art. 101 / exclusionary effects of platforms / eligibility rules

Facts:

ISU imposed prior-authorisation and eligibility rules according to which athletes loose the eligibility to compete in ISU events if they partake in non-authorised competitions.

rule: Prior-authorisation and eligibility rules as a restriction by object

- Those rules are … able to be used to allow or exclude from that market any competing undertaking, even an equally efficient undertaking, or at least restrict the creation and marketing of alternative or new competitions in terms of their format or content. In so doing, they also completely deprive athletes of the opportunity to participate in those competitions, even where they could be of interest to them, for example on account of an innovative format, while observing all the principles, values and rules underpinning the sporting discipline concerned. Ultimately, they are such as to completely deprive spectators and viewers of any opportunity to attend those competitions or to watch a broadcast thereof §146

(level-playing field rule)

-       at the very least an objectively justified, open and transparent procedure necessary for third parties to come with their idea and ISU must accommodate this to allow others to enter the market (FRAND procedure = fair, reasonable and non-discriminatory is the BARE minimum §131-133

Ohio/Amex(W2)

--> apply to: art. 101 / exclusionary effects of platforms / anti-steering

Facts:

Anti-steering rule imposed by credit card companies to keep shop owners from steering consumers to using certain payment models (prevent free-riding).

rule: Am-Ex was overcharging

-

Booking.com(W2)

--> apply to: art. 101 / exclusionary effects of platforms / MFCs; price parity clause

Facts:

- Booking.com online travel agency (OTA).

- General terms and conditions of agreements with accom providers had a wide price parity clause: service providers prohibited from offering, through their own sales channels or through sales channels operated by third parties – including competing OTAs – rooms at prices lower than those offered on Booking.com

Rule: Wide and narrow parity clauses are not objectively necessary for booking.com’s main operation of the provision of online hotel reservation services

- In order for a restriction to be classified as ‘ancillary’, it is necessary to establish: 1. The restriction in question is objectively necessary for the implementation of the main operation and 2. is proportionate to the objective pursued by it.

 - Wide parity clauses: do not appear to be objectively necessary

-       there is no intrinsic link between the continued existence of the main activity of the hotel reservation platform and the imposition of such clauses

- such clauses are liable to reduce competition between the various hotel reservation platforms, they carry the risk of ousting small platforms and new entrants.

- Narrow parity clauses: they do not appear to be objectively necessary to ensure the economic viability of the hotel reservation platform