8 The Law And Economics Of Vertical Restraints

This chapter examines independent distribution and how it is treated under EU competition law. Since the 1960s, it is acknowledged that vertical agreements can entail restrictions of competition—generally called ‘vertical restraints’—which deserve competition law scrutiny. While the early case law and Regulations adopted in the field focused primarily on restrictions of intra-brand competition, a more liberal and economic approach was introduced with the promulgation of Regulation 2790/1999. The new legal framework rested on a basic economic premise: the ability of a vertical agreement to produce anticompetitive effects hinges predominantly on the market power of the parties to the agreement. With the expiry of Regulation 2790/1999 on 31 May 2010, but also with the growth of large retailers throughout Europe and the rise of internet distribution, the Commission initiated a review process in July 2009 which culminated in the adoption of Regulation 330/2010 and of a new set of Guidelines.

2 Elements of Competition Law Economics

This chapter describes the leading schools of thought in regards to competition economics as they have evolved over the years. Classical and neoclassical economists were the first to focus on competition issues. The classical economists saw competition as a behavioural process. Meanwhile, with the neoclassical economists came a structural interpretation of competition. Immediately after the Second World War, competition economics became more normative. The chapter then looks at the methodological aspects of competition economics or, more concretely, the instruments and concepts on which competition economics rely. The main focus of study of competition economics is ‘market power’. Indeed, EU competition rules today are based, if not wholly at least mainly, on the concept of market power. Market power can enable behaviours with pernicious effects on economic efficiency. Thus, economists have designed instruments to help authorities, courts, and undertakings to identify and measure market power and its possible abuses.

5 Enforcement, Institutions, and Procedure

This chapter discusses the enforcement of EU competition law. EU competition law is primarily enforced through a system of ‘public enforcement’, where specialized administrative institutions initiate, decide, and terminate cases. Articles 101 and 102 TFEU are enforced by competition authorities at both the European—by the Commission—and national levels—by national competition authorities (NCAs). Since the adoption of Regulation 1/2003, the Commission and the NCAs form a ‘network’ of competition authorities called the European Competition Network (ECN). A set of specific legal mechanisms have been adopted to ensure a harmonious and effective enforcement of EU competition rules amongst the ECN. In addition, national courts also offer a remedial avenue for plaintiffs seeking to invoke EU competition rules. The chapter then looks at how the Commission and NCAs process competition cases. In general, a competition case goes through four stages: detection, investigation, evaluation, and decision.

9 Merger Control

This concluding chapter discusses the EU merger control regime. Merger-specific law is relatively new to the EU body of law. It was not until 1974 that specific merger regulation was even proposed, and not until over a decade after that that any merger regulation was actually adopted. Regulation 4064/89 (the ‘European Merger Control Regulation’ or ‘EMCR’) sets out an ex ante notification procedure for concentration with an EU dimension. Two reasons seem to have driven the adoption of a merger control regime by the EU. The first is economic. The second reason is of a legal nature. Between 1989 and 2010, more than 4,500 operations were notified to the Commission. This number does not comprise the very many mergers notified to the national competition authorities (NCAs).

6 Cartels And Other Horizontal Hardcore Restrictions

This chapter explores the EU anti-cartel policy. A cartel can be defined as a collective organization whose members make an agreement to suspend competition among themselves. The cartels against which EU competition law takes exception are however slightly different. Whilst Article 101 TFEU takes issue with collective organizations whose purpose is to suspend competition, its primary target are secret organizations, not State-sponsored ones, whose members are undertakings and not government entities. Economists unanimously agree that a cartel produces significant welfare losses, which probably exceed those of a monopoly. A cartel is, in fact, comparable to a collective monopoly. It therefore exhibits all the inefficiencies associated with form of organization: allocative inefficiencies and distributive inefficiencies.

1 Introduction

This introductory chapter provides an overview of EU competition law. Because it was first formally enacted in 1957, EU competition law is generally perceived as a relatively recent legal discipline. Its real, substantive, origins are however much older, and can be traced back to the history of ancient civilization. Today, the constraints imposed by EU competition law have become a major area of concern for decision-makers both in public and private sectors. Yet, beyond the cosmetics of press releases and business reports, the significance of EU competition law can be measured by its profound and lasting effects in economic activity. There are four possible objectives to the EU competition rules: the protection of fairness in competition; the promotion of economic freedom, plurality, and consumer choice; the promotion of economic efficiency; and the promotion of consumer welfare.

4 Abuse of Dominance

This chapter focuses on Article 102 TFEU, which prohibits dominant firms from abusing their dominant position. Two elements need to be present for Article 102 to apply to a given firm conduct: (i) that firm must be dominant on one or several markets and (ii) it must have abused that dominant position. The first step in the assessment of dominance is to define the relevant market(s). Once such markets have been defined, various economic tools can be used to determine the extent to which one or several firms are dominant on them. For Article 102 to apply, it must be demonstrated that the dominant firm has committed one or several abuses on the market(s) in question. Article 102 prohibits two main categories of abuses: exclusionary abuses (Art 102(b) and (d)) and exploitative abuses (Art 102(a)). Article 102 also prohibits certain forms of price discrimination.

7 Horizontal Cooperation Agreements

This chapter focuses on horizontal cooperation agreements. Horizontal cooperation agreements are agreements that are entered into by undertakings operating at the same stage of the value chain in order to achieve a variety of efficiencies. While these agreements are generally pro-competitive, they may, however, raise anticompetitive concerns. Under EU law, horizontal cooperation agreements are generally not considered to be agreements that have as their object the restriction of competition, although there may be exceptions. Indeed, as these cooperation agreements may adversely affect the parameters of competition, competition law has taken an interest in them. Cooperation agreements are typically caught by Article 101(1) TFEU. Nevertheless, horizontal cooperation agreements that trigger anticompetitive effects, but generate efficiencies as well, can be exempted under Article 101(3) TFEU.

3 The Law and Economics of Anticompetitive Coordination

This chapter examines Article 101 TFEU (Treaty on the Functioning of the European Union). All modern competition law regimes outlaw the coordination of independent undertakings where it leads to a restriction of competition. In the European Union, a prohibition system is enshrined in Article 101 TFEU, which holds that ‘agreements between undertakings’ which restrict competition are ‘incompatible’ with the Treaty. Article 101 TFEU is a three-pronged provision. First, Article 101(1) TFEU establishes a prohibition rule, which provides that agreements between undertakings which may affect trade between Member States and which restrict competition are incompatible with the internal market. Second, Article 101(2) TFEU declares that agreements deemed incompatible pursuant to Article 101(1) TFEU are null and void. Third, Article 101(3) TFEU embodies an exception rule which defuses the application of Article 101(1) to agreements that bring a positive net contribution to consumer welfare.