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1
King’s College London
Thesis submitted for PhD in law
Liza Nette Lovdahl Gormsen
0224334
Is there a tension between the goals of protecting
economic freedom and the promotion of consumer
welfare in the application of Article 82 EC?
Supervised by
Professor Richard Whish
David Bailey
London, 20 July 2007
2
Acknowledgements
The seeds for this thesis were sown during my LL.M. at King’s College
London in 2002-2003 where I was taught competition law by Professor
Richard Whish and David Bailey who later became my supervisors.
My intellectual indebtedness derives from various sources in particular
my main supervisor Professor Richard Whish. His intellectual reputation
is immense and it is impossible to capture the impressiveness of his
capacity and logic in a few lines. In short, it would have been more
difficult to write without his probing questions and rigorous criticism. On
a personal level, I admire him for his integrity and fine personality.
I am also intellectually indebted to my second supervisor David Bailey
who has been a helpful mentor and friend throughout the process. His
meticulous corrections were always given with incredible sensitivity and
intelligent understanding.
A number of friends took the time to review, discuss and improve parts
of the thesis, including Dr Chris Townley, Anne Aylwin and Francesca
Maria Jennings Gibbons. I am also grateful for the many and interesting
discussions I have had with Professor Margaret Bloom, Dr Oke Odudu,
Professor Alison Jones and all the bright people I have met on my way.
I am fortunate to have been a part of the enormous intellectual capacity
surrounding the Centre for European Law at King’s College London.
Thanks to my dear friend Dr Melanie Smith for wise counselling,
encouragement, emotional support and endless conversations about the
Freiburg School, legitimate democracy and fundamental human rights.
3
I wish to acknowledge with gratitude the financial support from the
Competition Law Scholar Forum and the Office of Fair Trading.
Above all, I thank my partner Fanis who has given me emotional and
financial support throughout the three and a half years it has taken me
to finish this project. I am grateful for his endless patience and his
company. Without him the thesis would have been less fun.
4
Abstract
Article 82 is traditionally analysed as a tool to integrate and liberalise the
European Single Market and to protect competition from distortion. As
such there is no comprehensive discussion of the tensions that lie at the
centre of the objective of protecting competition in the current
rethinking of Article 82. With regard to exclusionary abuses, DG
Competition has articulated that the main objective of Article 82 is the
protection of competition in the market as a means of enhancing
consumer welfare and of ensuring an efficient allocation of resources.
This statement may conflict with some of the case law protecting the
economic freedom of the market players derived from ordoliberalism.
The latter is a well respected German legal tradition that holds both that
government needs to be restrained from abuse of power, and that the
free market has its limits. Economic rights deserve protection and
vigilance is needed to ensure economic power is not misused or abused,
not only in the interests of consumer welfare, but also in the interests of
the economic liberty of the individual. This thesis considers the tension
between the goals of protecting economic freedom and the promotion of
consumer welfare in the application of Article 82. Presupposing that
economic freedom and consumer welfare are in opposition to one
another, such tension is only set to intensify and must be given
appropriate weight in considering the extent to which DG Competition
can or should try to move to a consumer welfare standard. Changing the
interpretation of protection of competition from economic freedom to
consumer welfare within Article 82 can undermine a fundamental right if
economic freedom is considered a fundamental right in the Community
legal order. However, consumer welfare can also be seen as an
opportunity, if properly debated or agreed to by the ECJ, to adopt a
more economics-based approach to Article 82.
5
ACKNOWLEDGEMENTS ............................................................................................................ 2
ABSTRACT ...................................................................................................................................... 4
CHAPTER 1 THESIS INTRODUCTION .............................................................................. 8
INTRODUCTION .............................................................................................................................. 8
1. TOOLS AVAILABLE FOR REFORMING ARTICLE 82 ..................................................15
2. RESEARCH MOTIVATION ..................................................................................................17
3. RESEARCH QUESTION .......................................................................................................26
4. THE RESEARCH PUZZLE ...................................................................................................29
5. RESEARCH APPROACH ......................................................................................................31
6. RESEARCH METHOD ...........................................................................................................33
7. THESIS STRUCTURE ...........................................................................................................33
PART I .............................................................................................................................................36
CHAPTER 2 ORDOLIBERAL ECONOMIC FREEDOM..................................................39
INTRODUCTION .............................................................................................................................39
1. ORDOLIBERALISM ...............................................................................................................39
1.1 ORDOLIBERAL IDEOLOGY ................................................................................................40 1.2 ORDOLIBERAL COMPETITION POLICY .............................................................................45 1.3 COMPLETE COMPETITION ................................................................................................48 1.4 SUMMARY .........................................................................................................................50
2. GERMAN COMPETITION LAW ..........................................................................................52
2.1 THE ORDINANCE AGAINST THE MISUSE OF ECONOMIC POWER ...................................53 2.2 THE ACT AGAINST RESTRAINTS OF COMPETITION ........................................................57
2.2.1 The Josten draft ................................................................................................59 2.2.2 The Government draft ....................................................................................60
2.3 THE APPLICATION OF THE ARC ......................................................................................61 2.4 SUMMARY .........................................................................................................................66
CONCLUSION ..................................................................................................................................67
CHAPTER 3 ECONOMIC FREEDOM IN ARTICLE 82: THE EARLY
JURISPRUDENCE OF THE EUROPEAN COURT OF JUSTICE ................................68
INTRODUCTION .............................................................................................................................68
1. ORDOLIBERAL INFLUENCE ON THE EC TREATY ......................................................68
1.1 THE SPAAK REPORT .........................................................................................................70 1.2 EXPLOITATIVE AND EXCLUSIONARY CONDUCT ..............................................................72
2. THE APPLICATION OF ARTICLE 82 ...............................................................................79
2.1 CONTINENTAL CAN ..........................................................................................................79 2.1.1 Facts of the case ...............................................................................................79 2.1.2 The Commission’s decision ...........................................................................80 2.1.3. The ECJ’s judgment .........................................................................................82
6
2.1.4 Analysis of the ECJ’s judgment ...................................................................86 2.2 COMMERCIAL SOLVENTS .................................................................................................87
2.2.1 Facts of the case ...............................................................................................87 2.2.2 The Commission’s decision ...........................................................................88 2.2.3 The ECJ’s judgment .........................................................................................89 2.2.4 Analysis of the ECJ’s judgment ...................................................................91
2.3 HOFFMANN-LA ROCHE ....................................................................................................97 2.3.1 Facts of the case ...............................................................................................97 2.3.2 The Commission’s decision ...........................................................................98 2.3.3 The ECJ’s judgment .........................................................................................99 2.3.4 Analysis of the ECJ’s judgment .................................................................101
2.4 UNITED BRANDS............................................................................................................108 2.4.1 Facts of the case .............................................................................................108 2.4.2 The Commission’s decision .........................................................................109 2.4.3 The ECJ’s judgment .......................................................................................111 2.4.4 Analysis of the ECJ’s judgment .................................................................115
2.5 MICHELIN I ....................................................................................................................117 2.5.1 Facts of the case .............................................................................................117 2.5.2 The Commission’s decision .........................................................................118 2.5.3 The ECJ’s judgment .......................................................................................120 2.5.4 Analysis of the ECJ’s judgment .................................................................122
2.6 SUMMARY .......................................................................................................................125
CONCLUSION ................................................................................................................................127
PART II .........................................................................................................................................129
CHAPTER 4 CONSUMER WELFARE .................................................................................131
INTRODUCTION ...........................................................................................................................131
1. EFFICIENCY AND THE CLASSICAL ECONOMIC MODELS OF MONOPOLY AND PERFECT COMPETITION ...........................................................................................................134
1.1 DYNAMIC, ALLOCATIVE AND PRODUCTIVE EFFICIENCY ...............................................135 1.2 PERFECT COMPETITION .................................................................................................138 1.3 MONOPOLY SITUATION ..................................................................................................140 1.4 THE CORRELATION BETWEEN EFFICIENCY AND WELFARE STANDARDS ......................142
2. THE CHICAGO SCHOOL’S DEFINITION OF CONSUMER WELFARE .................144
2.1 THE THEORETICAL FOUNDATION OF THE CHICAGO SCHOOL .....................................147 2.2 MAIN CRITIQUE OF THE CHICAGO SCHOOL ................................................................149
3. THE COMMUNITY WELFARE STANDARD ...................................................................152
3.1 CONSUMER WELFARE ....................................................................................................152 3.2 THE MEASUREMENT OF CONSUMER HARM ....................................................................156 3.3 MICROSOFT ....................................................................................................................159
3.3.1 Facts of the case .............................................................................................159 3.3.2 The Commission’s decision .........................................................................160 3.3.3 Analysis of Commission’s decision ...........................................................162
3.4 WANADOO ......................................................................................................................172 3.4.1 Facts of the case .............................................................................................172 3.4.2 The Commission’s decision .........................................................................173 3.4.3 The CFI’s judgment .......................................................................................175 3.4.4 Analysis of CFI’s judgment .........................................................................178
7
4. EFFICIENCY CONSIDERATIONS UNDER ARTICLE 82 ..........................................181
4.1 THE STRUCTURE OF ARTICLE 82..................................................................................182 4.2 EFFICIENCIES AS A DEFENCE ........................................................................................185 4.3 BALANCING EFFICIENCIES ............................................................................................188
CONCLUSION ................................................................................................................................192
PART III .......................................................................................................................................194
CHAPTER 5 ECONOMIC FREEDOM IN THE COMMUNITY LEGAL ORDER...196
INTRODUCTION ...........................................................................................................................196
1. THE CONSTITUTIONALITY OF THE EC TREATY ......................................................199
1.1 THE ORDOLIBERAL ECONOMIC CONSTITUTION ............................................................204
2. THE GENERAL PRINCIPLES OF THE EU .....................................................................207
2.1 ECONOMIC FREEDOM AS PART OF THE GENERAL PRINCIPLES OF THE EU .................211 2.1.1 Freedom of competition .............................................................................213
3. THE GERMAN CONSTITUTION ......................................................................................217
4. SUMMARY .............................................................................................................................220
CONCLUSION ................................................................................................................................221
CHAPTER 6 THE RELATIONSHIP BETWEEN ECONOMIC FREEDOM & CONSUMER WELFARE ...........................................................................................................222
INTRODUCTION ...........................................................................................................................222
1. ECONOMIC FREEDOM AS UNDERSTOOD BY ORDOLIBERALS ..........................222
2. ECONOMIC FREEDOM DOES NOT EQUAL CONSUMER WELFARE ....................227
3. PROTECTING ECONOMIC FREEDOM INTRINSICALLY OR INSTRUMENTALLY.......................................................................................................................233
3.1 CHOICE .........................................................................................................................237
4. ECONOMIC FREEDOM IN THE EC TREATY ...............................................................240
CONCLUSION ................................................................................................................................246
CHAPTER 7 THESIS CONCLUSION .................................................................................248
1. SUMMARY OF FINDINGS ................................................................................................248
2. ELABORATION OF FINDINGS ........................................................................................250
3. CONSEQUENCES OF ADOPTING A CONSUMER WELFARE STANDARD .........255
4. GUIDELINES ........................................................................................................................258
5. CONTRIBUTION TO THE ARTICLE 82 DISCUSSION .............................................261
BIBLIOGRAPHY ........................................................................................................................263
8
Chapter 1 Thesis Introduction
Introduction
Article 82 EC (formerly Article 86)1 is the mechanism used in the
European Community (the ‘EC’)2 to control the abuse of a dominant
position. The provision is aimed at eliminating abusive conduct by
prohibiting any abuse by one or more undertakings of a dominant
position in a market in so far as it affects trade between Member States.
It forms part of the competition provisions established by the Treaty of
Rome in 1957 (the ‘EC Treaty’),3 along with Articles 81 EC and 83-89
1 For simplicity this thesis will refer to Article 82 throughout notwithstanding that some of the cases
mentioned in the thesis refer to Article 86 as the article was numbered before the enactment of the
Treaty of Amsterdam on 1 May 1999. Quotations will remain in their original form.
2 In the 1950s, Germany, France, Italy and the Benelux Countries (the Netherlands, Belgium and
Luxemburg) decided to establish a system of joint decision-making on economic issues. They
formed the European Coal and Steel Community (ECSC), the European Atomic Energy Community
(Euratom) and the European Economic Community (EEC). These three communities – collectively
known as the European communities – formed the basis of what is today the European Union (the
‘EU’). The European Community, which is the most important of the three European communities,
was originally founded on 25 March 1957 by the signing of the Treaty of Rome under the name of
European Economic Community. The ‘Economic’ was removed from its name by the Maastricht
Treaty in 1992, which also established the EU. The Maastricht Treaty effectively made the European
Community the first of three pillars of the EU, called the Community (or Communities) pillar. The
first pillar corresponds to the European Community, the second comprises the common foreign and
security policy (CFSP) and the European security and defence policy (ESDP) and the third consists of
police and judicial cooperation in criminal matters. The establishment of the EU in 1992 did not
cause the European Community to disappear. It remains part of the EU under the designation
‘European Community’. In keeping with the prevailing practice and the ordinary scope of the Court
of Justice's jurisdiction, this thesis will mainly refer to ‘Community’ or ‘EC’ law, rather than
‘European Union’ or ‘EU’ law, notwithstanding the formation of the EU in 1992. The European Court
of Justice, for its part, continues to be known as the Court of Justice of the European Communities.
Community law is defined as ‘[t]he law governing the structure, organs, and functioning of the
Council of Europe and other European organizations or institutions; further the law contained in the
conventions and agreements of the Council of Europe and the instruments of other European
organizations or institutions’, see Frits Willem Hondius, ‘The New Architecture of Europe and ius
commune earopaeum’ in Bruno de Witte and Caroline Forder (eds), The Common Law of Europe and
the Future of Legal Education (Deventer, 1992) page 215.
3 It is the consolidated version of the EC Treaty which is referred to in this thesis.
9
EC.4 Article 82 is at the pinnacle of this study, with discussion of the
other provisions included only where relevant. The text of Article 82 is as
follows:
Any abuse by one or more undertakings of a dominant position
within the common market or in a substantial part of it shall be
prohibited as incompatible with the common market in so far as it
may affect trade between Member States.
Such abuse may, in particular, consist in:
(a) directly or indirectly imposing unfair purchase or selling prices
or other unfair trading conditions;
(b) limiting production, markets or technical development to the
prejudice of consumers;
(c) applying dissimilar conditions to equivalent transactions with
other trading parties, thereby placing them at a competitive
disadvantage;
(d) making the conclusion of contracts subject to acceptance by
the other parties of supplementary obligations which, by their
nature or according to commercial usage, have no connection
with the subject of such contracts.
Article 82 is a framework provision and the central terms ‘dominance’
and ‘abuse’ are inherently vague. Neither the concept of abuse nor that
of dominance is defined in the EC Treaty. The European Commission (the
‘Commission’) has not sought to publish general secondary legislation or
practical guidance.5 Although the travaux préparatoires were released in
the 1990s, the European Court of Justice (the ‘ECJ’) and the European
4 The provisions in the EC Treaty will be referred to hereinafter by simple number alone rather than
providing the full reference. The complete reference will be included when referring to articles for
the first time, or when referring to provisions from other Treaties.
5 Even though the Commission has published guidance in specific sectors such as postal services
and telecommunications. Some insight into the identification of market power can be gained by
analogy from OJ [2002] C165/03 Commission Guidelines on Market Analysis and Assessment of
Significant Market Power under the Community Regulatory Framework for Electronic
Communications Networks and Services, paragraph 70, and EC Directive 2002/21 on a Common
Regulatory Framework for Electronic Communication Service (the Framework Directive) Article
14(2) where significant market power is equated with dominance under Article 82. Commission
Issues Market Power Assessment Guidelines for Electronic Communications, press release of 9 July
2002 IP/02/1016. Available at:
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/02/1016&format=HTML&aged=1&lang
uage=EN&guiLanguage=en.
10
Court of First Instance (the ‘CFI’)6 rarely focus on the intent of the
drafters of the EC Treaty.
The meaning of the concepts of dominance and abuse has been left to
emerge from the case law and practice of the Commission and the
Community Courts. This allows the concepts to develop to fit the
contours of a particular decision and new learning to be integrated into
the case law in an ever-changing economy. A systematic approach to
the interpretation of Article 82 also requires that the analysis of the
provision is constantly updated, as interpretations that seemed adequate
years ago may no longer be suitable. An explicit definition of each of the
concepts in the EC Treaty could have a limiting effect on its
interpretation, because every decision or judgment would have to fit
within the definition. However, the lack of general guidance as to what
does and does not constitute an abuse has led to an ad hoc process,
swayed by the specific facts that come before the authorities or the
courts. It is hard to see a single unifying theory underpinning the
interpretation of Article 82.7 The law of Article 82 seems to be the
function of the cases brought before the Community Courts. This has led
to legal uncertainty resulting from the way in which the provision is
being applied in practice and the way in which the legal framework is
written.
This uncertainty may create a feeling of discontent amongst dominant
undertakings – having to regard the special responsibility8 – resulting in
6 For the sake of clarity, the thesis will refer to the ECJ or CFI individually where appropriate. The
term ‘Community Courts’ will be used when referring to the CFI and the ECJ when they are
discussed together.
7 Dabbah highlights that the ECJ has created a jurisprudence under Article 82 which makes it
difficult to understand the real aim of Article 82, see Maher M Dabbah, ‘Conduct, Dominance and
Abuse in “Market Relationship”: Analysis of Some Conceptual Issues under Article 82’ 21(1)
European Competition Law Review (2000) 45.
8 Case 322/81 Nederlansche Banden-Industrie Michelin NV v Commission [1983] ECR 3461, [1985]
1 CMLR 282, paragraph 57.
11
less aggressive competition in the market. However, formalistic rules, as
to what does and does not constitute an abuse in the market, are not
helpful or desirable either. It may not be appropriate to rely on case law
decided decades ago in today’s markets which are characterised by very
rapid technological changes, creation and exploitation of intellectual
property rights and a high degree of technical complexity.9 In general,
concepts like dominance and abuse cannot be applied mechanically in
today’s economic environment and many of the traditional presumptions
do not hold in this context.
Article 82 is a legal provision, and one that has been shaped by the
interpretation of the Community Courts. The Community is not a static
legal environment and the EC Treaty is a ‘living instrument’, where the
interpretation of text is always evolving. While the Community legal
system has changed enormously since Article 82 was conceived, the
provision itself has remained unchanged since 1957.10
At the 8th annual conference of the European University Institute in
Fiesole in June 2003 Mario Monti, then the Competition Commissioner,
announced that the Commission had started an internal review of its
policy on abuse of a dominant position.11 One of the primary reasons for
initiating the review was a greater appreciation of micro-economic
theory on the part of the policy-makers and the need to ensure that the
9 Christian Ahlborn, ‘Competition Policy in the New Economy: Is European Competition Law up to
the Challenge’ 22(5) European Competition Law Review (2001) 156; Michele Messina, ‘Article 82
and the New Economy: Need for Modernisation?’ 2(2) Competition Law Review (2005).
10 There have been some procedural changes to Article 82, for example, OJ [2003] L1/1 Council
Regulation 1/2003 On the Implementation of the Rules on Competition Laid Down in Article 81 and
82 of the Treaty. Council Regulation 1/2003 has been in force since 1 May 2004, repealing Council
Regulation 17/62 OJ special edition 1962, No 204/62, page 87 as amended by Council Regulation
(EC) 1216/1999, OJ [1999] L148/5. This thesis will only consider procedural issues where relevant,
for example in chapter four where efficiency as a defence is discussed.
11 That an internal review was initiated was confirmed in October 2003 by DG Competition’s
Director General Philip Lowe at the annual conference of the Fordham Corporate Law Institute,
speech available at: http://europa.eu.int/comm/competition/speeches/text/sp2003_040_en.pdf.
12
rules under Article 82 are sufficiently responsive to sound economics.
One of the overall conclusions from the annual conference in Fiesole was
that the concept of abuse does not lend itself easily to per se rules, and
that a rule of reason approach is normally preferable. Another conclusion
was that legal formalism should be abandoned in favour of the analysis
and evaluation of economic effects.12 The initiation of the policy review
came after growing criticism of the application of Article 82 and, in
particular, the insufficient attention to economic principles and the rigour
of the Commission's policy in this area of law.13 The great intellectual
confusion over the proper standard of liability governing allegedly
exclusionary conduct in practice and case law under Article 82,14 led DG
Competition to publish its Discussion Paper on the Application of Article
82 of the Treaty to Exclusionary Abuses in December 2005 (the
‘Discussion Paper’).15 While DG Competition published the Discussion
Paper, as it is responsible for competition policy, the Commission will be
responsible for applying the principles described in the Discussion Paper
if these principles are later adopted in a Notice.16
12 Claus-Dieter Ehlermann and Isabela Atanasiu (eds), European Competition Law Annual – What is
an Abuse of a Dominant Position? (Hart, 2006).
13 The debate is not new and has been going on for years, but the latest case law and the
modernisation program, in force since 1 May 2004, have intensified the debate.
14 This is no criticism, as it is probably the most difficult question in competition law to determine
what conduct is ‘competition on the merits’ and therefore legal, and what is ‘anti-competitive
conduct’ and therefore illegal, as the two kinds of conduct often look identical in practice. According
to Arthur Hadley ‘to control the abuses without destroying the industries is a matter of the utmost
difficulty’ see Hadley in Frederic M Scherer, Competition Policies for an Integrated Work Economy
(The Brookings Institution Washington DC, 1944) page 19, and according to Franz Böhm ‘[i]t is
easier to hold a greased pig by the tail than to control a firm for abuse of a dominant position’ see
Böhm in Frederic M Scherer, ibid. page 70.
15 DG Competition Discussion Paper on the Application of Article 82 of the Treaty to Exclusionary
Abuses (December, 2005). Available at:
http://www.europa.eu.int/comm/competition/antitrust/others/discpaper2005.pdf. DG Competition
has received 107 replies to the public consultation on the Discussion Paper, these are available at:
http://www.europa.eu.int/comm/competition/antitrust/others/article_82_contributions.hml.
16 DG Competition is the policy branch within the Commission. The main responsibility of DG
Competition is making competition policy and the main responsibilities of the Commission are fact-
finding, taking action against the infringement of the law and imposing penalties. For a detailed
13
The Discussion Paper sets out DG Competition’s agenda for developing
and explaining theories of harm to consumers on the basis of a sound
economic assessment of the most frequent types of abusive behaviour.17
The Discussion Paper focuses upon four general themes: dominance,
general principles, abusive practices and defences. Through its general
framework,18 DG Competition pinpoints the way in which exclusionary
conduct may lead to the foreclosure of rivals, and proposes a two-step
analysis for assessing whether a particular conduct is exclusionary. The
specific conduct in question (1) must be capable of foreclosing the
market, but (2) will only be considered abusive where it can be
established that the conduct has a market-distorting foreclosure effect.
The latter is a new development compared to the case law, but more
importantly, DG Competition declares:19
With regard to exclusionary abuses the objective of Article 82 is
the protection of competition on the market as a means of
enhancing consumer welfare and of ensuring an efficient
allocation of resources.
Whilst DG Competition embraces the objective of consumer welfare, its
success in practice depends on whether DG Competition can reconcile
the objective of consumer welfare with other possible conflicting
objectives pursued under Article 82.
Besides the possible conflict with other objectives, choosing a consumer
welfare standard will require the Commission to assess whether the
exclusionary conduct is likely to produce anti-competitive effects in the
description of the difference between DG Competition and the Commission, see Richard Whish,
Competition Law (LexisNexis Butterworth, 5th ed, 2003) pages 53-54.
17 Commission Discussion Paper on Abuse of Dominance - Frequently Asked Questions, MEMO of
19 December 2005 MEMO/05/486. Available at:
http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/05/486&format=HTML&aged=1&l
anguage=EN&guiLanguage=en.
18 Discussion Paper, supra note 15, section 5.
19 Ibid. paragraphs 4 and 54.
14
market, which harm consumers directly or indirectly.20 Depending on the
standard of proof, where it is required to demonstrate adverse effects on
consumers the enforcement of Article 82 is likely to create more ‘type I
errors’ or fewer ‘type II errors’.21 A type I error is where a given
hypothesis, i.e. that an undertaking has committed an infringement, is
rejected although it is true. A type II error is where a hypothesis is
accepted, but an alternative hypothesis, i.e. that an undertaking has not
committed the infringement, is true.22 In the first situation the
competition authorities have substantial confidence in the robustness of
markets to withstand abuse of a dominant position and do not intervene
although intervention would have been justified. The boundary of public
power is set as far ahead as possible to see whether the market can take
care of itself and thereby accept the risk of private power. In the second
situation the competition authorities have little faith in the robustness of
the market and seek to prevent the risk of private power emerging –
and thereby run the risk of intrusion by public power – by activating
intervention in the markets earlier.23 Competition authorities intervene in
circumstances where intervention is not justified. When enforcing Article
82, the Commission has been criticised for being too intrusive to prevent
20 Harm to interim buyers will be presumed to harm end consumers.
21 These are sometimes also known respectively as false negatives and false positives.
22 Some scholars have identified a ‘type III error’ which occurs when you get the right answer to
the wrong question. In competition law terms, this can be equated with wrong enforcement priority
decisions. Type III errors risk over-enthusiastic enforcement activities and can give rise to spurious
or speculative complaints from competitors. This in turn gives rise to a form of regulatory drag
which is, in principle, just as harmful as unnecessary regulation, wasting resources ultimately to the
detriment of consumers. It is also problematic in terms of business planning and strategy, since
enforcement which is unpredictable has a cooling effect on commercial behaviour. See Report from
IBC conference on Advanced EC Competition Law (4-5 May, 2006) pages 64-65.
23 Former Competition Commissioner Mario Monti has said: ‘[E]nshrined in the Treaty is …an open
market economy with free competition…. Personally I believe that an open market economy does
not imply an attitude of unconditional faith with respect to the operation of market mechanisms’ see
Mario Monti, ‘European Competition Policy for the 21st Century’ in International Antitrust Law and
Policy (Fordham Corporate Law Institute, 2000) page 257.
15
the risk of private power from emerging.24 In other words, the
Commission has been criticised for making type II errors.
1. Tools Available for Reforming Article 82
Reforming Article 82 is not a simple matter and the tools available are
limited. Reform of Article 82 is different from the reform of Article 81,
because there is no general secondary legislation or practical guidance
on the application of Article 82.25 Moreover, Article 82 does not, unlike
Article 81, allow the possibility of exemption. The absence of a provision
like Article 81(3) means that it is not easy, even though theoretically
possible given Article 83 EC, to adopt block exemptions on certain types
of conduct, thereby making that type of conduct permissible.
Amendments of the text of Article 82 are unlikely. The Treaty
Establishing a Constitution for Europe maintained the original text of the
provision.26 Although the Treaty Establishing a Constitution for Europe
has been abandon, it will be introduced into the existing Treaties, which
remain in force.27 The text of Article 82, however, remains the same28
and, unless the Treaty is amended, reform of Article 82 will depend upon
the ECJ reconsidering its case law and/or the Commission changing its
enforcement policy.
It is unlikely that earlier case law will be overruled to the effect that
those who would like to see a reorientation of the law were disappointed
24 A criticism acknowledged by DG Competition’s Director General Philip Lowe, ‘New Challenges in
Europe’, speech given on 24 June 2005, King’s College London.
25 Apart from the guidance in specific sectors mentioned above, supra note 5.
26 The Treaty Establishing a Constitution for Europe is available at:
http://europa.eu.int/constitution/en/lstoc1_en.htm.
27 See the Presidency Conclusions of the Brussels European Council, Annex I page 15. European
Council Document No 11177/07 of 21-22 June 2007. Available at:
http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/ec/94932.pdf.
28 Ibid.
16
that the Community Courts did not take the opportunity in British
Airways29 and Michelin II.30 Although the ECJ’s judgment in British
Airways contains some promising indications, such as the need to
establish some form of competitive impact and an appreciation of
economic benefits, these judgments confirm that reform of Article 82 is
not going to happen immediately. It is a reminder that if the
Commission’s enforcement policy is to become more economics-based,
the impetus cannot be expected to come from the Community Courts
alone. It will have to come from the Commission itself and from the
national competition authorities, whether through future enforcement
decisions or through guidelines. Although guidelines are not legally
binding,31 they would help create a unified body of decisions, rather than
a set of individual ad hoc and inconsistent measures. As a result, the
underlying objectives are more likely to be realised.32
The Commission is not precluded from regarding a more economics-
based approach simply because the ECJ has endorsed its old form-based
approach. However, the Commission must use its prosecutorial
discretion within the framework of Community case law. This was
highlighted by Advocate General Kokott in her Opinion of 23 February
2006:33
[E]ven if its [the Commission] administrative practice were to
change, the Commission would still have to act within the
framework prescribed for it by Article 82 EC as interpreted by the
Court of Justice.
29 Case C-95/04P British Airways plc v Commission.
30 Case T-203/01 Manufacture Française des Pneumatiques Michelin v Commission (Michelin II).
31 According to Article 249 EC only regulations, directives and decisions are legally binding
measures in the Community. 32 Commission Report on the Action Plan for Consumer Policy 1999-2001 and on the General
Framework for Community Activities in Favour of Consumers 1999-2003 COM(2001) 486, pages 17-
19.
33 Advocate General Kokott in her Opinion in British Airways, supra note 29, delivered on 23
February 2006, paragraph 28.
17
2. Research Motivation
The traditional approach to Article 82 has been criticised, as it is
supposedly not sufficiently effects-based and in general not founded on
sound economics.34 It is argued that the interpretation of Article 82 is
still influenced by old-fashioned formalistic and legalistic principles
attributed to ordoliberalism.35 This criticism goes to the heart of the
objective of economic freedom, which played a central role in the
ordoliberal conception of competition policy.36
Many commentators believe that the underlying principles of Article 82
could be clearer,37 and some observers point out that the Commission
and the Community Courts often place too much emphasis on the ‘form’
34 For example, John Ratliff, ‘Abuse of Dominant Position and Pricing Practices – A Practitioner’s
Viewpoint’ and Derek Ridyard, ‘Article 82 Price Abuses – Towards a More Economic Approach’ in
Ehlermann and Atanasiu (eds), supra note 12; Dennis Waelbroeck, ‘Michelin II: A Per Se Rule
against Rebates by Dominant Companies?’ 1(1) Journal of Competition Law & Economics (2005)
149, page 151.
35 John Kallaugher and Brian Sher, ‘Rebates Revisited: Anti-Competitive Effects and Exclusionary
Abuse Under Article 82’ 5 European Competition Law Review (2004) 263, page 268; see also David Gerber, Law and Competition in Twentieth Century Europe: Protecting Prometheus (Clarendon Press
Oxford, 1998); Wernhard Möschel, ‘Competition Policy from an Ordo Point of View’ in Alan Peacock
and Hans Willgerodt (eds), German Neo-Liberals and the Social Market Economy (Macmillan, 1989)
page 142.
36 Not all share the view that case law and practice do not, or even should in all respects, reflect
modern economic thinking. Professor Eilmansberger is one of them even though he criticises the
lack of a clear coherent conceptual basis in decisions concerning exclusionary abuses, see Thomas
Eilmansberger, ‘How to Distinguish Good from Bad Competition under Article 82 EC: in search of
Clearer and More Coherent Standards for Anti-competitive Abuses’ 42 Common Market Law Review
(2005) 129, page 131.
37 Eilmansberger, supra note 36; Sir John Vickers, ‘Abuse of Market Power’ 115 The Economic
Journal (2005) F244; Brian Sher, ‘The Last of the Steam-Powered Trains: Modernising Article 82’ 25
European Competition Law Review (2004) 243, who argues that there is no internal consistency of
application, and that there is no longer any coherent policy basis for applying Article 82; Sven
Völcker, ‘Developments in EC Competition Law in 2003: An Overview’ 41 Common Market Law
Review (2004) 1027, page 1048 arguing that Article 82 currently lacks a coherent overall approach
and remains largely untouched by the increasing focus on economic analysis that has characterised
the development of the law and practice under Article 81.
18
of the conduct, and too little on the economic impact, or the ‘effects’ of
the conduct on the market.38 This was also the view presented by the
EAGCP, an economic advisory group on competition policy to the
Commission, in its report An Economic Approach to Article 82 EC
published on 21 July 2005.39 The report suggests that an economics-
based approach to Article 82 must be adopted in order to avoid a
confusion of the two objectives ‘protection of competition’ and
‘protection of competitors’.40 In this context, an economics-based
approach is understood to be an approach that ‘requires a careful
examination of how competition works in each particular market in order
to evaluate how specific company strategies affect consumer welfare’.41
The schism between ‘protection of competition’ and ‘protection of
competitors’ presents an interesting paradox which will remain as long
as the meaning of ‘protection of competition’ is not clear.42 On the one
hand, Mestmäcker argues that ‘protection of competition’ means the
protection of undertakings’ economic freedom.43 On the other hand,
Competition Commissioner Neelie Kroes argues:44
My own philosophy on this is fairly simple. First, it is competition,
and not competitors, that is to be protected. Second, ultimately
the aim is to avoid consumers harm. …I like aggressive
competition – including by dominant companies - and I don’t care
if it may hurt competitors – as long as it ultimately benefits
consumers. That is because the main and ultimate objective of
38 See for example, Ratliff and Ridyard respectively in Ehlermann and Atanasiu (eds), supra note
12; Kallaugher and Sher, supra note 35, page 268; Waelbroeck, supra note 34, page 151.
39 EAGCP Report on An Economic Approach to Article 82 EC (July 2005). Available at:
http://europa.eu.int/comm/competition/publications/studies/eagcp_july_21_05.pdf.
40 This was also suggested in the OECD Report on Competition Law and Policy in the European
Union (October, 2005) page 30. Available at: http://www.oecd.org/dataoecd/7/41/35908641.pdf.
41 EAGCP Report, supra note 39, page 2.
42 Gerber, supra note 35, section 2 of the preface.
43 Ernst-Joachim Mestmäcker, Europäisches Wettbewerbsrecht (München Beck, 1974).
44 Neelie Kroes, ‘Preliminary Thoughts on Policy Review of Article 82’, speech given on 23
September 2005 at the Fordham Corporate Law Institute New York, speech available at:
europa.eu.int/comm/competition/speeches.
19
Article 82 is to protect consumers, and this does, of course,
require the protection of an undistorted competitive process on
the market.
This view, in favour of protection of competition to protect the welfare of
consumers,45 is supported in early legal scholarship on Article 82. A
study by Joliet in the late 1960s argued that the protection of
competition means prohibiting exploitative behaviour,46 which harms
consumers.47 Joliet specifically argued that it did not mean preventing
competitors’ exclusion from the market.48 This view was contradicted in
the case law where the ECJ has confirmed that Article 82 can be applied
to prohibit conduct affecting the structure of the market.49 In Continental
Can the ECJ held:50
The provision [Article 82] is not only aimed at practices which
may cause damage to consumers directly, but also at those which
are detrimental to them through their impact on an effective
competition structure, such as is mentioned in Article 3(1)(g) of
the Treaty.
45 This view is also supported by Advocate General Jacobs in his Opinion in Case C-7/97 Oscar
Bronner GmbH & Co KG and Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co KG,
Mediaprint Zeitungsvertriebsgesellschaft mbH & Co KG, Mediaprint Anzeigengesellschaft mbH & Co
KG [1998] ECR I-7791, delivered on 28 May 1998, paragraph 58: ‘[I]n assessing this issue [access
to a competitors’ facility] it is important not to lose sight of the fact that the primary purpose of
Article 86 [Article 82] is to prevent distortion of competition - and in particular to safeguard the
interests of consumers - rather than to protect the position of particular competitors’.
46 René Joliet, Monopolization and Abuse of Dominant Position (Martinus Nijhoff, 1970) pages 250-
251.
47 A ‘consumer’ may not only mean a member of the public who purchases goods for personal use
but also those who purchase goods in the course of their trade, see Whish, supra note 16, page
156.
48 Joliet’s study was comparative in scope – in particular a comparative analysis of Section 2 of the
Sherman Act and Article 82 – and consisted of three parts: American law on single-firm monopolies,
a survey of the national laws of the Common Market countries and of Great Britain and lastly, an
analysis of the system of abuse of dominant position under Article 82.
49 Case 85/76 Hoffmann-La Roche AG v Commission [1979] ECR 461, [1979] 3 CMLR 211,
paragraph 91 and Michelin, supra note 8, paragraph 70.
50 Case 6/72 Europemballage Corpn and Continental Can Co Inc v Commission [1973] ECR 215,
[1973] CMLR 199, paragraph 26.
20
Neither economic freedom nor consumer welfare is defined in the EC
Treaty, and the Community Courts rarely articulate these objectives. The
uncertainty about whether the protection of competition means
consumer welfare, economic freedom or something else is hardly
surprising given that neither the EC Treaty, nor the Community Courts,
nor the Commission has defined the protection of competition with
certainty. This is not a criticism of any of these institutions or the
drafters of the EC Treaty as the meaning and interpretation of protection
of competition may change over time given that the economy changes
over time. It is nevertheless essential to understand the meaning of
protection of competition for at least two reasons. First, Article 82 has
been and continues to be interpreted in the light of the objective of
protection of competition; and second, in order to give the provision an
adequate level of predictability and consistency in its application so that
undertakings can understand how Article 82 is applied by national courts
and competition authorities.
Traditionally, the Community Courts have interpreted the basic objective
of protection of competition by adopting a teleological interpretation, as
opposed to a literal, historical or contextual interpretation.51 The ECJ has
used this method of interpretation under Article 82 since Continental
Can,52 where the Court interpreted Article 82 in the light of Article
3(1)(g).53 The teleological interpretation has given the Community
Courts an opportunity to develop the law and implement suitable
51 For a general explanation of the different methods of interpretation, see Stephen Weatherill and
Paul Beaumont, EU Law (Penguin Books, 3rd ed, 1999) page 184ff. The ECJ has been accused of
being rather political in its purposive interpretation and has been criticised by Paul Joan George
Kapteyn and Pieter Verloren Van Thematt in Lawrence W Gormley (ed), Introduction to the Law of
the European Communities after the Coming into Force of the Single European Act (Graham &
Trotman, 2nd ed, 1990) pages 169-173; Hjalte Rasmussen, ‘Between Self-Restraint and Activism: A
Judicial Policy for the European Court’ 13 European Law Review (1988) 28, pages 28-29 and 37.
52 Continental Can, supra note 50.
53 Article 3(1)(g) ‘A system ensuring that competition in the internal market is not distorted’.
21
objectives,54 and according to the Court it has been ‘indispensable for
the achievement of the Community’s tasks’.55 The protection of
competition against distortion is necessary to promote a high degree of
competitiveness; however promoting competition is not an end in
itself,56 but a means of achieving the broader objectives of the EC
Treaty.57 The aim of promoting a high degree of competitiveness is to
guarantee freedom of action, as stated by the Commission in Report on
Competition Policy in 1971 ‘competition is the best stimulant of
economic activity since it guarantees the widest possible freedom of
action to all’.58
Gerber identifies four basic conceptions of what it means to protect
competition in Community competition law. These are economic
freedom, economic efficiency, prevention of economic power and finally,
the reduction or elimination of obstacles to economic change and
development.59 Protecting competition by reducing or eliminating the
obstacles to economic change and development is fundamental to the
broader political aim of the Community, which is the process of
54 The Community Courts continue to apply a teleological interpretation of the competition rules,
for example, Case T-83/91 Tetra Pak International SA v Commission [1994] ECR II-755, [1997] 4
CMLR 726, paragraph 114: ‘Article 86 of the Treaty must accordingly be interpreted by reference to
its object and purpose as they have been described by the Court of Justice, …in accordance with the
general objective set out in Article 3(f) [Article 3(1)(g)] of the Treaty as it was then worded’.
55 Continental Can, supra note 50, paragraph 23.
56 Karel Van Miert, ‘Competition Policy in the 1990’s’, speech given on 11 May 1993 to the Royal
Institute of International Affairs, speech available at: europa.eu.int/comm/competition/speeches;
Mario Monti in his foreword to the Commission’s 33rd Report on Competition Policy (2003).
57 Under Article 2 EC, the Community has as its task to promote a ‘harmonious, balanced and
sustainable development of economic activities, a high level of employment and of social protection,
equality between men and women, sustainable and non-inflationary growth, a high degree of
competitiveness and convergence of economic performance, a high level of protection and
improvement of the quality of the environment, the raising of the standard of living and quality of
life, and economic and social cohesion and solidarity among Member States’. One of the means of
obtaining these goals is by ensuring that competition in the common market is not distorted.
58 1st Report on Competition Policy (1971), page 11.
59 Gerber, supra note 35, section 2 of the preface.
22
integration in economic unions and free trade areas. This goal is
articulated in the EC Treaty60 as well as being judicially recognised.61
Broadly speaking, these conceptions of protecting competition can be
divided into three main categories of goals:
1. socio-economic goals, which include economic freedom;
2. economic goals, which include economic efficiency in the form of
consumer welfare; and
3. political goals, for example, market integration.
It is hard to avoid generalisations in categorising the goals of Article 82.
Each of the three categories concerns issues other than the ones falling
under their headlines, and Article 82 applies to some situations, besides
the mentioned categories, which are not easily categorised. For
example, Article 82 has been used as a tool in the Commission’s broader
effort to liberalise markets in sectors which were previously monopolies,
one example is the postal sector.62 Liberalisation is not easily
categorised because it is a process for achieving an open market by
allowing undertakings the economic freedom to enter markets, and a
process for enhancing competition, which may in turn ensure consumer
welfare.
When assessing exclusionary abuses, DG Competition has said that the
protection of competition will be interpreted as a means of enhancing
consumer welfare.63 This economic efficiency objective runs counter to
the non-economic objective of economic freedom as understood by
60 Articles 2 and 3 EC.
61 For example, Case 226/84 British Leyland plc v Commission [1986] ECR 3263, [1987] 1 CMLR
185; Case 26/75 General Motors Continental NV v Commission [1975] ECR 1367, [1976] 1 CMLR
95; Case 27/76 United Brands Company v Commission [1978] ECR 207, [1978] 1 CMLR 429. These
are just a few of the cases where market integration considerations had an influence on the
outcome.
62 Deutsche Post AG OJ [2001] L331/40, [2002] 4 CMLR 598.
63 Discussion Paper, supra note 15, paragraphs 4 and 54.
23
ordoliberals. For ordoliberals the aim of competition policy was a
limitation and control of private power, or at least its harmful effects,64
to protect the economic freedom of undertakings in the market in the
interest of a free and fair political and social order.65 According to one of
the founding fathers of ordoliberalism Franz Böhm:66
The real motives behind the enactment of antitrust law were …
not economic efficiency and the effectiveness of economic
control, but social justice and civil liberties which were held to be
threatened by monopolies.
Set against this search for how best to protect competition, the one-
dimensional view focusing on maximising economic efficiency in form of
consumer welfare, as defined in this thesis, raises a myriad of problems.
First, consumer welfare may conflict with fairness and the protection of
individual competitors, values which are expressed in the language of
the Treaty itself.67
Second, consumer welfare is not entirely in tune with Community case
law. An exclusive dedication to the objective of consumer welfare is a
departure from the jurisprudence analysed in chapter three. Amongst
other objectives, the ECJ has interpreted the protection of competition in
the market as protection of the economic freedom of market
participants. As between economic freedom and consumer welfare, the
former has clearly received the most emphasis in Europe. The
Commission and Community Courts have tended to equate an abuse
with a restriction of economic freedom, by which is meant restrictions on
the rights and opportunities of market operators. This is evident in, for
64 Gerber, supra note 35, page 251.
65 Möschel, supra note 35, page 146.
66 Franz Böhm, ‘Democracy and Economic Power’ in Cartel and Monopoly in Modern Law (CF Muller
Karlsruhe, 1961) page 28.
67 Barry E Hawk, ‘Article 82 and Section 2’ in OECD Report on Competition on the Merits (March,
2006). Available at: http://www.oecd.org/dataoecd/7/13/35911017.pdf.
24
example, those cases where the dominant undertaking prevented firms
from sourcing relevant products from other suppliers.68
Third, focusing on economic efficiency in the form of consumer welfare
may not, as argued by Cruz, be in tune with the normative structure of
the Community competition rules:69
As the law now stands, however, the competition rules contained
in the Treaty have a constitutional status and may be interpreted
as shaping a law of economic liberty from restraints of
competition and abuses of private economic power, not only a law
of economic efficiency. Thus, an efficiency-orientated approach to
the Community competition rules may not be in tune with the
current normative structure.
Fourth, a focus on consumer welfare arguably runs counter to the
ordoliberals’ understanding of competition law as illustrated by Franz
Böhm, quoted above. For ordoliberals competition is best protected by
protecting the economic freedom of undertakings’ access to the market
and their economic freedom in the market as a fundamental right. The
theory of ordoliberalism as defined in this thesis cannot be ignored as it
has had a considerable influence on Community competition law.70
68 Continental Can, supra note 50, paragraph 26; Hoffmann-La Roche, supra note 49, paragraphs
89ff and 125; Case T-219/99 British Airways plc v Commission [2003] ECR II-5917, paragraph 244;
Joined Cases 40-114/73 Cooperative Vereniging ‘Suiker Unie’ U.A. and Others v Commission [1975]
ECR 1663, [1976] 1 CMLR 295, paragraph 518; Michelin, supra note 8, paragraph 71; Case T-
65/89 BPB Industries v Commission [1993] ECR II-389, paragraph 120; Case T-228/97 Irish Sugar
v Commission [1999] ECR II-2969, [1999] 5 CMLR 1300, paragraph 232.
69 Julio Baquero Cruz, Between Competition and Free Movement, The Economic Constitutional Law
of the European Community (Hart, 2002) page 1.
70 Philip Lowe, ‘Consumer Welfare and Efficiency – New Guiding Principles of Competition Policy?’,
speech given on 27 March 2007 at the 13th International Conference on Competition and 14th
European Competition Day, page 2, speech available at:
http://ec.europa.eu/comm/competition/speeches/text/sp2007_02_en.pdf; David Evans,
‘Roundtable Discussion about the US Supreme Court’s decision in Verizon v Trinko’ Global
Competition Review (2004) page 26; OECD paper on Competition on the Merits, supra note 67,
page 253; David Gerber, ‘Constitutionalizing the Economy: German Neo-liberalism, Competition Law
and the “New” Europe’ 42 American Journal of Comparative Law (1994) 25, page 73.
25
Even if economic freedom is a key objective in the analysis of Article 82,
there are clear reasons why the Commission is keen to depart from this
approach. The aim of DG Competition’s policy review of Article 82 is to
bring the law in line with ‘mainstream economics’.71 Whether DG
Competition is willing to depart from past decisions in order to
accommodate the objective of consumer welfare is far from certain.
When asked whether it is prepared to depart from earlier decisions, DG
Competition replies:72
There is nothing in the discussion paper that calls into question
any of the Commission’s past decisions. At the same time, the
Commission must always work to improve its decisions and its
policies. The review is about a better focus and a better
argumentation in future cases. Furthermore, the fact that if the
discussion paper leads to a more refined economic analysis, the
Commission would in future argue a case in a different way than
in the past, does not mean that the decision taken in a past case
was wrong, only that the argumentation would today have been
different.
In the late 1990s, when the Commission was discussing the reform of
Article 81, a leading academic in competition policy said:73
[T]he reasons why reform or modernization in this area [Article
81] is such a delicate task is the temptation to adjust the rules in
light of past disappointments and to open a Pandora’s box of new
interest and power balancing.
A similar concern can be advanced about the review of Article 82, as it is
not unthinkable that some may be tempted to argue that the
Commission and the ECJ were pursuing an objective of consumer welfare
in the early cases in order to defend DG Competition’s commitment to
71 Philip Lowe ‘DG Competition’s Review of the Policy on Abuse of Dominance’ in Barry E Hawk
(ed), Annual Proceedings of the Fordham Corporate Law Institute: International Antitrust Law &
Policy (New York: Juris, 2004) page 165.
72 MEMO/05/486, supra note 17.
73 Ernst-Joachim Mestmäcker, ‘The EC Commission’s Modernization of Competition Policy: A
Challenge to the Community’s Constitutional order’ 1 European Business Organization Law Review
(2000) 401, page 413.
26
consumer welfare.74 The challenge to the policy review of Article 82
comes where economic freedom which is related to fairness conflicts
with the efficiency-maximising consumer welfare goal highlighted by
Hawk:75
The major policy issue concerns the possible tension between
efficiency considerations on the one hand and the Article 86 [now
Article 82] market integration and fairness policies on the other
hand. To date that tension has largely been resolved in favour of
the latter. Whether this will continue may depend on the EEC's
willingness to acknowledge the tension and resultant possible
trade-offs between allocative efficiency (or consumer welfare
according to many economists) and protection of individual firms
(or distributive concerns according to many economists).
Despite comprehensive discussions of the review of Article 82, there is a
lack of thorough debate about the potential conflict a focus on consumer
welfare may create. If the consumer welfare agenda and a more
economics-based approach to Article 82 are to be taken seriously, the
first step must be to examine whether consumer welfare conflicts with
economic freedom. Furthermore, it need not be the case that the
protection of economic freedom and promoting consumer welfare are
seen as polar opposites, even though they do not necessarily have to be
polar opposites to be in conflict.
3. Research Question
The thesis does not purport to explain how Article 82 applies generally or
to discuss all possible objectives pursued under the provision, but
74 See for example Neelie Kroes, ‘European Competition Policy in a Changing World and Globalised
Economy: Fundamentals, New Objectives and Challenges Ahead’, speech given on 5 June 2007 at
GCLC/College of Europe Conference on "50 years of EC Competition Law" Brussels, speech available
at: europa.eu.int/comm/competition/speeches. This is however contradicted by Director General
Philip Lowe who argues that case law and decisional practice have been influenced by
ordoliberalism, see below page 69.
75 Barry E Hawk, ‘The American (Anti-trust) Revolution: Lessons for the EEC’ 9(1) European
Competition Law Review (1988) 53, page 81.
27
questions whether there is a tension between the two objectives of
protecting economic freedom and the promotion of consumer welfare in
the application of Article 82. The aim is to assess the legitimacy of DG
Competition’s current aspirations of consumer welfare.
There are various concepts and doctrines within Article 82, but this
specific focus has been chosen in order to assess the legitimacy of DG
Competition’s commitment to consumer welfare in its policy review on
Article 82. Even though the Commission and Community Courts have
interpreted case law in the light of many objectives (for example, market
integration, efficiency, economic freedom and liberalisation) this thesis
focuses on the objectives of economic freedom and consumer welfare
only. Market integration and liberalisation will not be discussed as they
are arguably intermediate objectives;76 they are not an end in
themselves. When assessing whether market integration is effected it is
arguably to assess whether consumer welfare and an efficient allocation
of resources are enhanced. Market integration is believed by some
scholars to be a rationale for efficiency.77 This view is supported by
Waelbroeck who believes that the original focus on the free movement of
goods in the Spaak Report,78 prepared by the Intergovernmental
Committee on European Integration, was ‘a means of increasing
competition, which itself was seen as a means of enhancing economic
76 Market integration is an intermediate objective, see Case T-168/01 GlaxoSmithKline v
Commission, paragraph 118 and OJ [2000] C291/1 Commission Guidelines on Vertical Restraints,
paragraph 7.
77 Roger Van Den Bergh, ‘Modern Industrial Organisation versus Old-fashioned European
Competition Law’ 17(2) European Competition Law Review (1996) 75, pages 76-80.
78 Rapport des Chefs de Délégation aux Ministres des Affaires Etrangères (in English: Report of the
Heads of Delegation of the Governmental Committee) set up by the Messina Conference, named
after Paul-Henri Spaak, then the Belgian prime minister, was presented on 21 April 1956 and led to
the Treaty of Rome of 1957. Available at:
http://aei.pitt.edu/archive/00000995/01/Spaak_report.pdf.
28
efficiency’.79 Liberalisation is arguably also a means to an end, as it is a
process for achieving an open market and allowing other competitors
access to the market to ensure economic freedom as well as enhancing
competition.
The discussion of objectives is not new, but it is necessary, as pointed
out by Giuliano Amato:80
[I]t requires a frank discussion [discussion of goals of
competition], because it is doubtful that we all agree on the goals
of competition. Generally, however, we refrain from discussing it
openly, and ambiguities remain.
Economic freedom and consumer welfare will not be examined in a legal
vacuum. The former will be considered in the light of ordoliberalism,
German competition law and, where appropriate, Community case law.
The latter will be examined in the light of DG Competition’s policy review
of Article 82. The main research question, outlined above, is approached
by asking the following questions:
What is the theory behind the objective of economic freedom?
What is the theory behind the objective of consumer welfare?
Which of the two objectives actively shaped the law and policy of
Article 82?
And has this theory influenced judicial decision-making under Article
82 in the early judgments where the law of Article 82 is to be found?
How does this theory fit with DG Competition’s current aspirations of
ensuring consumer welfare?
79 Michel Waelbroeck, ‘Competition, Integration and Economic Efficiency in the EEC from the Point
of View of the Private Firm’ in Festschrift zu Ehren von Eric Stein (Nomos Verlagsgesellshaft, 1987)
page 302.
80 Panel discussion on Competition Policy Objectives in Claus-Dieter Ehlermann & Laraine L Laudati
(eds), European Competition Law Annual – The Objectives of Competition Policy (Hart, 1998) page
3.
29
4. The Research Puzzle
This study will contribute to the scholarly discussion of Article 82 by
starting from the basic standpoint of questioning the legitimacy of DG
Competition’s priority of consumer welfare, given the impact
ordoliberalism has had on Article 82.
This study begins from the proposition that the objective of protection of
competition encompasses many different conceptions, two of which are
economic freedom and consumer welfare. It evaluates whether there is a
tension between the protection of economic freedom and the promotion
of consumer welfare, as any tension must be identified and explored
before a useful evaluation of the legitimacy of DG Competition’s aims
can be undertaken.
Some contemporary literature under Article 82 identifies this tension,
but does not deal with it comprehensively.81 Although analysis has
expanded to consider the role of economics within the scope of Article
82,82 which is also apparent in the policy review of Article 82,83
historically the centre of most academic debate on the subject and the
bedrock of Article 82 scholarship is legal analysis of the wording of the
EC Treaty and the case law of the Community Courts.84
To comprehend whether there is a tension between protecting economic
freedom and promoting consumer welfare, it is essential to fully
understand the fundamentally different values consumer welfare and
economic freedom are trying to achieve. By defining each concept it
81 Robert O’Donoghue and A Jorge Padilla, The Law and Economics of Article 82 EC (Hart, 2006).
82 EAGCP Report, supra note 39; O’Donoghue and Padilla, supra note 81.
83 Ehlermann and Atanasiu (eds), supra note 12.
84 For example, Joliet, supra note 46; Samkalden and Druker, ‘Legal problems relating to Article 86
of the Rome Treaty’ Common Market Law Review (1965) 158; Vogelenzang, ‘Abuse of Dominant
Position in Article 86; The problem of Causality and Some Applications’ 13 Common Market Law
Review (1976) 63; Eilmansberger, supra note 36.
30
becomes clear that consumer welfare takes a neo-classical position
whereas economic freedom, as derived from ordoliberalism, values
individual economic freedom in the market as a fundamental right.
Despite the conceptual difference, it is essential to assess whether
economic freedom is considered a fundamental right in the Community
legal order or is used to enhance consumer welfare. If economic freedom
is considered a fundamental right in the ordoliberal sense, then DG
Competition is replacing a fundamental right with a utilitarian goal of
consumer welfare. This would be a violation of a fundamental right. If
economic freedom is used to enhance consumer welfare then economic
freedom is a means to the end of consumer welfare. A third possible
outcome is that economic freedom is an end in itself without being a
fundamental right in the Community legal order. The legitimacy of DG
Competition’s decision to give priority to consumer welfare depends on
which of these outcomes applies.
Seeking to protect the economic freedom of undertakings may give rise
to competitor concerns. This inevitably brings competition authorities
into conflict with their goal of protecting consumer welfare and creates a
dilemma: which category of rights to protect at the expense of which
other rights. To what extent should the manner in which a large firm
exerts its market power to the detriment of competitors, as opposed to
the detriment of consumer welfare (or competition) at large, be the
concern of competition authorities? Indeed, it is a fine distinction,
because by protecting competition and the competitive process,
competitors, who make up the fabric of competitive markets, are in fact
being protected. If there are no competitors, there is no competitive
process to protect. Importantly, these views are reflected in decisions
and case law where the Commission and the Community Courts
continuously have held that conduct by dominant undertakings
31
constitutes an abuse where it hinders the production of competitors, i.e.
hinders their economic freedom in the market.85
5. Research Approach
The potential tension between economic freedom and consumer welfare
can only be understood by defining these concepts and understanding
that they are quite distinct. This study does not analyse the evolution of
case law under Article 82, as it is a conceptual study of two potentially
conflicting objectives under Article 82. Judicial practice and case law will
be considered only where it is necessary in order to assess whether
economic freedom and consumer welfare have been pursued by the
Commission and the Community Courts. This study is a conceptual
thesis involving discussions of economics, politics and law. It will touch
upon economic history, politics and some contemporary economic
thinking, but is written from a legal perspective.
This study seeks to move academic discussions about the individual
abuses within Article 82 to an examination of some of the concepts of
the provision, given DG Competition’s commitment to consumer welfare.
The research approach is illustrated below in figure one.
85 Case 6-7/73 Istituto Chemioterapico Italiano SpA and Commercial Solvents Corporation v
Commission of the European Communities [1974] ECR 223, [1974] 1 CMLR 309, paragraph 25;
Case 53/87 Consorzio Italiano della Componentistica di Ricambio per Autoveicoli and Maxicar v
Régie Nationale des Usines Renault [1988] ECR 6039, [1990] 4 CMLR 265, paragraph 16; Case
238/87 AB Volvo v Erik Veng (UK) Ltd [1988] ECR 6211, 4 CMLR 122, paragraph 9; Cases C-241-
242/91P Radio Telefis Eireann (RTE) and Independent Television Publications Ltd v Commission
[1995] ECR I-743, [1995] 4 CMLR 718, paragraph 54; Irish Sugar PLC OJ [1997] L258/1, [1997] 5
CMLR 666, paragraph 134; British Midland v Aer Lingus OJ [1992] L96/34, [1993] 4 CMLR 596,
paragraph 25; Decca Navigator System OJ [1989] L43/27, [1990] 4 CMLR 627, paragraph 97ff.
32
Figure 1: An illustration of the research approach.86
Intellectual
framework
Empirical
investigation
and analysis
Inquiry: How does the objective of economic freedom fit with DG Competition’s current
aspirations of consumer welfare?
Research aim: To examine whether there is a tension between economic freedom and consumer
welfare in order to assess DG Competition’s legitimacy of prioritising consumer
welfare.
Examines: Whether economic freedom is a fundamental right in the Community legal order
and whether economic freedom is a means to the end of consumer welfare.
Carried out: Chapter five and chapter six.
Inquiry: What is the theory of consumer welfare?
Research aim: To identify the concept of consumer welfare.
Examines: The Chicago School’s understanding of consumer welfare; the concepts of
allocative, productive and dynamic efficiency, and the Commission’s
understanding of consumer welfare. Relevant Community case law.
Carried out: Chapter four.
Inquiry: Has ordoliberalism influenced jurisprudence under Article 82?
Research aim: To establish which legal doctrine influenced the development of Article 82.
Examines: Relevant case law, the Spaak Report and Reports on Competition Policy.
Carried out: Chapter three.
Inquiry: What is the theory of economic freedom?
Research aim: To identify the concept of economic freedom.
Examines: Ordoliberalism and its competition law model and its influence on German
competition law.
Carried out: Chapter two.
86 I have drawn inspiration for the format of this model from Dorte Sindbjerg Martinsen, European
Institutionalisation of Social Security Rights: A Two-layered Process of Integration (European
University Institute, Florence, PhD Thesis, 2004) page 13.
33
6. Research Method
The primary research method employed in this study is examination and
analysis of primary and secondary documentary material. In order to
evaluate the appropriate legal context, the approach of the Community
Courts has been evaluated including, where appropriate, specific
judgments of the Community Courts. The political context, and in
particular the initiative of the policy review of Article 82, has been
analysed in some parts with reference to DG Competition’s Discussion
Paper.87
The Discussion Paper provides useful information on DG Competition’s
current thinking on Article 82. This primary research material is however
necessarily one-sided as it presents Article 82 from the perspective of
DG Competition alone. In order to uncover another perspective on the
approach to Article 82, specific judgments of the Community Courts
have been analysed.
The secondary documentary material comprises scholarly works in the
disciplines of law, politics and economics.
7. Thesis Structure
The thesis is divided into seven chapters. Chapter one introduces the
thesis puzzle and explains the research approach and motivation. It
contextualises the study in the broader perspective of Article 82.
Chapter two begins the examination of ordoliberalism that affected the
development of German competition law, focusing on the ordoliberal
conception of competition policy. It analyses the ordoliberal
understanding of economic freedom and explores how German
competition law has been influenced by ordoliberal orthodoxy. The
87 Discussion Paper, supra note 15.
34
analysis of German competition law is necessary as it has had an impact
on Community competition law and the interpretation of Article 82. The
analysis of ordoliberalism is essential as the concept of economic
freedom is derived from ordoliberalism. The analysis is necessary for the
discussion of early case law in chapter three and for the comparison with
the concept of consumer welfare in chapter six.
Chapter three continues the examination of ordoliberalism. It analyses
how ordoliberalism can be traced in the Spaak Report.88 It considers
whether the Commission and the ECJ were pursuing an objective of
economic freedom in some of the fundamental cases decided under
Article 82 in the 1970s and 1980s. Chapter three relies on case law as
there is no general secondary legislation or practical guidance under
Article 82. The law of Article 82 is therefore to be found in the case law
of the Community Courts and, in particular, the early cases analysed in
chapter three.
Chapter four attempts to provide a definition of consumer welfare and
explains the concepts of allocative, dynamic and productive efficiency.
This is essential for the thesis question and for the analysis in chapter
six where it is considered whether economic freedom is a means to the
end of consumer welfare. Even though DG Competition has declared that
consumer welfare is the main objective when considering exclusionary
abuses under Article 82, it has not assigned a precise meaning to the
objective in its Discussion Paper. The chapter identifies the Chicago
School’s definition of consumer welfare and the Commission’s perception
of the concept. It considers some recent practice to examine whether
the Commission and the Community Courts are adopting an analysis
which focuses on economic efficiency.
88 The Spaak Report, supra note 78.
35
Chapter five explains how economic freedom and consumer welfare are
conceptually quite distinct. It examines whether the EC Treaty is based
on the ordoliberal economic constitution. Moreover, whether economic
freedom forms part of the general principles of the EU by looking at the
European Convention on Human Rights, the Charter of Fundamental
Rights of the European Union and the German Constitution.
Chapter six questions whether economic freedom is considered an aim in
itself or a means to the end of consumer welfare. This is essential to
assess the legitimacy of DG Competition’s move to consumer welfare as
the main aim when assessing exclusionary abuses under Article 82.
Chapter seven outlines the findings and conclusions of the thesis. Based
on the findings, it presents an answer to the research question.
36
PART I
Part I of this thesis consists of two chapters: chapter two Ordoliberal
Economic Freedom and chapter three Economic Freedom in Article 82:
the Early Jurisprudence of the European Court of Justice.
Chapter two considers the German legal tradition of ordoliberalism.1 The
ideology behind Germany’s post-war social market approach was
ordoliberalism (also associated with the Freiburg School). This ideology
asserted that individual economic rights deserve protection, and that
vigilance is needed to ensure economic power is not misused or abused
in the interests of the economic liberty of the individual. Chapter two
describes the ordoliberal competition law model which it contrasts with
the competition law model that was derived from Germany’s first but
non-sustainable competition law, the Ordinance against the Misuse of
Economic Power of 1923 in German Verordnung gegen Missbrauch
wirtschaftlicher Machtstellungen.2 The contrast between the two models
shows that German competition law developed from an abuse system to
a prohibition system which is the system adopted in the current German
competition law Act against Restraints of Competition in German Gesetz
gegen Wettbewerbsbeschränkungen.3 It also examines how the German
equivalent provision to Article 82 has been applied in some German
cases.
1 There is no definition of the term ‘ordoliberalism’, but the term ‘ordo’ was chosen by Walter
Eucken (a leading exponent of the theory) to establish the link between the German neo-liberal
concept of economic order and the medieval idea of ‘ordo’, that is the ‘natural and harmonious state
of affairs to be detected by scholarly discussion and to be approached in reality by appropriate
policies’ see Herbert Giersch, Karl-Heinz Paque and Holger Schmieding, The Fading Miracle: Four
Decades of Market Economy in Germany (Cambridge University Press, 1992) page 26, footnote 30.
2 Verordnung gegen Missbrauch wirtschaftlicher Machtstellungen, 1923 Reichsgesetzblatt [RGB1.] I
1067 (2 November 1923). An English translation can be found in Robert Leifman, Cartels, Concerns
and Trusts (London, Methuen & Co Ltd, 1932) pages 351-357.
3 Gesetz gegen Wettbewerbsbeschränkungen [GWB], 1957 Bundesgesetsblatt [BGB1.] I 1081
(West Germany). An English translation can be found in the German journal Wirtschaft und
Wettbewerb (Düsseldorf, Handelsblatt).
37
Chapter three examines whether ordoliberalism is a doctrine which has
had an influence on Article 82 by analysing the Spaak Report, the EC
Treaty and the case law. It establishes that, in addition to the well-
known market integration objective,4 the protection of the individual
economic freedom of competitors has been of central concern to the
Commission and Community Courts.5 The Community Courts rarely
embrace the language of economic freedom, but prohibit conduct that
interferes with the structure of markets.6 The accessibility and openness
of markets have been seen as necessary tools to achieve greater
individual economic freedom, by increasing the opportunities for market
participants. The conduct of dominant undertakings, which detracts from
the openness of markets, has in some cases been condemned by the
Community Courts under Article 82.7 Moreover, an undertaking with a
4 For example, Case 226/84 British Leyland plc v Commission [1986] ECR 3263, [1987] 1 CMLR
185; Case 26/75 General Motors Continental NV v Commission [1975] ECR 1367, [1976] 1 CMLR
95; Case 27/76 United Brands Company v Commission [1978] ECR 207, [1978] 1 CMLR 429, are
just a few of the cases where market integration considerations had an influence on the outcome.
Market integration does no longer seem to be the over-arching goal in the Community as pointed
out by the CFI in Case T-168/01 GlaxoSmithKline v Commission, paragraph 118. It is however
worth noting that there are four appeals against the CFI judgment (Case C-501/06 GlaxoSmithKline
v Commission, Case C-513/06 Commission v GlaxoSmithKline, Case C-515/06 European Association
of Euro Pharmaceutical Companies and Case C-519/06 Asociación de exportadores españoles de
productos farmacéuticos) so this point is far from certain.
5 Merit E Janow, ‘International Perspectives on Abuse of Dominance’ in OECD paper GD(96)131 on
Abuse of Dominance and Monopolisation 1996, page 34. 6 As recently emphasised by Advocate General Kokott in her Opinion in Case C-95/04P British
Airways plc v Commission, delivered on 23 February 2006, paragraph 73: ‘Article 82 EC, like the
other competition rules of the Treaty, is not designed only or primarily to protect the immediate
interests of individual competitors or consumers, but to protect the structure of the market and thus
competition as such (as an institution), which has already been weakened by the presence of the
dominant undertaking on the market’.
7 For example, Case 6/72 Europemballage Corpn and Continental Can Co Inc v Commission [1973]
ECR 215, [1973] CMLR 199; Case T-83/91 Tetra Pak International SA v Commission [1994] ECR II-
755, [1997] 4 CMLR 726.
38
dominant position has ‘a special responsibility not to allow its conduct to
impair genuine undistorted competition in the common market’.8
Chapter three goes on to argue that the focus on damage to the
competitive market structure is inherent in the very definition of abuse,
as articulated by the ECJ in Hoffmann-La Roche.9 The aim of protecting
the structures within which firms compete, is that effective competition
amongst competitors is maintained so that no firm or firms become too
influential.10 The chapter examines some of the early cases under Article
82 which laid down the foundation of the provision. It shows that the
Commission and the Community Courts have required prohibition
whenever the market freedom of market participants was endangered.
This understanding of competition law may be viewed as protecting
smaller competitors from the aggregation of economic power.11
8 Case 322/81 Nederlansche Banden-Industrie Michelin NV v Commission [1983] ECR 3461, [1985]
1 CMLR 282, paragraph 57. 9 Case 85/76 Hoffmann-La Roche AG v Commission [1979] ECR 461, [1979] 3 CMLR 211. 10 Janow, supra note 5, page 33ff.
11 Giuliano Amato, Antitrust and the Bounds of Power (Hart, 1997) page 69; Eleanor Fox,
‘Monopolization and Dominance in the United States and the European Community: Efficiency,
Opportunity, and Fairness’ 61 Notre Dame Lawyer (1986) 981.
39
Chapter 2 Ordoliberal Economic Freedom
Introduction
The argument advanced in chapter two is that German competition law
took a different turn after World War II, namely a turn away from a law
based on administrative measures, towards a law based on judicial
measures protecting individual economic freedom as a fundamental right
due to ordoliberalism.
Section one conducts a theoretical analysis of ordoliberalism and its
competition law model. This is done in a legal vacuum. The aim of section
one is to understand the ordoliberal conception of competition law and its
main objective of individual economic freedom as a fundamental right.
Section two describes the Ordinance against the Misuse of Economic
Power of 1923. This represents a different competition law model from
the ordoliberal competition law model, in that it is based on
administrative measures pursuing an objective of public interest. Section
two examines the main, and current, German competition law: the Act
against Restraints of Competition, which is based on the ordoliberal
competition law model. It discusses how the abuse provision of the Act
against Restraints of Competition has been interpreted in some German
cases.
1. Ordoliberalism
The ideas of ordoliberalism took shape in response to the economic,
political and social crises starting with the fall of the Weimar Republic in
1933 and the rise of Nazi Germany.1 One of the greatest European
calamities resulted from the totalitarian Nazi regime misusing the
1 Nazi economic policy was not concerned with protecting the process of competition but with the
elimination, or at least marginalisation, of it.
40
powerful iron and steel industry (the German Schwerindustrie)2 by
turning private economic power into political power. Well-run cartels3
and monopolies resulted in powerful economic concentration in
conjunction with great accumulation of political power, which led to the
abandonment of democratic principles.4 Ordoliberals disliked both
totalitarianism and socialism, because they considered that these
ideologies were contrary to the principles of private property, free-
market economy, and paid little attention to the rule of law.5
Ordoliberals rejected notions of both totalitarianism and socialism, and
developed the idea of the ‘social market economy’ (Soziale
Marktwirtschaft).
1.1 Ordoliberal ideology
Ordoliberalism is an ideology developed in the 1930s and 1940s by a
group of neo-liberals at Freiburg University in Germany.6 Their ideologies
were grouped together under the term ordoliberalism, which became
shorthand for the underlying set of ideas behind the social market
economy.7
2 Wilhelm Röpke, German Commercial Policy (Longmans, 1934) pages 24-27.
3 Especially the chemical cartel ‘Interssen Gemeinschaft Farben’ (I.G. Farben), from which the
major source of Hitler's power derived. Germany processed large quantities of coal and a German
scientist discovered the process of converting coal into gasoline in 1909, but the technology was not
completely developed during World War I. In August 1927, the US company Standard Oil agreed to
embark on a cooperative program of research and development of the hydrogenation process to
refine the oil and on 9 November 1929, Standard Oil and IG Farben signed a cartel agreement, see
Joseph Borkin, The Crime and Punishment of I.G. Farben (London: Deutsch, 1979).
4 Röpke, supra note 2, pages 24-27.
5 Svetozar Pejovich, ‘From Socialism to the Market Economy: Post-war West Germany versus Post-
1989 East Bloc’ 1 The Independent Review (2001) 27. 6 The founders of the Freiburg School were economist Walter Eucken, lawyer Franz Böhm and
lawyer Hans Grossmann-Doerth. Some protagonists of ordoliberalism were Wilhelm Röpke,
Alexander Rüstow, Alfred Müller-Armack and Leonhard Miksch.
7 Herbert Giersch, Karl-Heinz Paque and Holger Schmieding, The Fading Miracle: Four Decades of
Market Economy in Germany (Cambridge University Press, 1992) page 31.
41
If we trace the theoretical roots of the social market
economy, we find that the idea originated from neoliberal
economics, in other words, the new study of economics that
drew attention to the important function of competition
while trying to create a competitive order that deviated from
paläoliberalism and was in line with the ideas of Walter
Eucken and Franz Böhm.8;9
In developing the social market economy, Eucken advanced the idea of
order-based policy (‘Ordnungspolitik’) which consisted of two
fundamental ‘orders’. One was the transaction economy
(verkehrswirtschaft) and the other was the administered economy
(zentralverwaltungswirtschaft). According to the first order (the
transaction economy) economic conduct was organised through private
transactional decision-making. Private companies could act on the basis
of incentives and disincentives created by economic competition.
According to the second order (the administered economy) economic
activity was organised according to criteria external to the economic
system.10 These two fundamental orders were incompatible, as the
transaction economy would be harmed by governmental intervention
and the administered economy would be harmed without governmental
intervention. According to Eucken, the failure to recognise the
incompatibility of the two orders was a major problem of the twentieth
century.11 In order to avoid the repetition of history and to prevent
private economic power turning into political power, it was imperative for
the ordoliberals to establish the appropriate economic order, protected
by the appropriate legal framework.
8 Alfred Müller-Armack, Wirtschaftslenkung und Marktwirtschaft (Hamburg, 1946) translation from
German to English is taken from: http://admin.fnst.universum.de/uploads/900/MarketEconomy.pdf.
9 Paläoliberalism is a term used by Wilhelm Röpke to describe the failures of nineteenth century
economic liberalism, see Erich Mende, ‘Studien und Berichte der Katholischen Akademie in Bayern’
in Eric Voegelin et al. Christentum und Liberalismus (Karl Zink, 1960) page 149ff.
10 David Gerber, ‘Constitutionalizing the Economy: German Neo-liberalism, Competition Law and
the “New” Europe’ 42 American Journal of Comparative Law (1994) 25, page 42.
11 Ibid. page 43.
42
The government’s policies should be designed to create and maintain the
chosen economic order through Ordnungspolitik.12 If the economic
constitution calls for a transaction economy, then the Ordnungspolitik
must ensure the creation of conditions within an industrialised economy,
which allow the development of a functioning and humane economic
order.13 The task of the Ordnungspolitik is to search for a normative
order.14 The ordoliberal approach is a ‘program of freedom’ embedded in
and subordinated to a constitutionally theoretical set of conditions where
order becomes a prerequisite for freedom.
Ordoliberalism was dedicated to achieving an economic order – a
competitive order – which was able to control private economic power
and political power in order to ensure a prosperous and humane society
which guaranteed individual economic freedom and price stability.15 Price
stability was seen as essential for a society where long-term contracts
would act as the cement for civil society, whilst the competitive order
was seen as necessary both to prevent the accumulation of private
economic power in too few hands and to sustain economic
development.16 The higher the level of competition in the economy, the
more effectively the system functioned.
The social market economy became the name for the economic order,
the competitive order, underlying the transaction economy. The
individual characteristics of the transaction economy were private
property, the protection of economic freedom and low barriers to entry
12 David Gerber, Law and Competition in Twentieth Century Europe: Protecting Prometheus
(Clarendon Press Oxford, 1998) page 246.
13 Walter Eucken, ‘Die Wettbewerbsordnung und ihre Werwirklichung’ 2 ORDO 1949, page 21. (An
English translation of this article can be found in 2(2) Competition Policy International (2006) 219. This thesis will be referring to the original German article).
14 Walter Eucken, Grundsätze der Wirtschaftspolitik (Tübingen, 1952) page 14.
15 Ibid. page 290ff.
16 Ray Barrell and Karen Dury, ‘Choosing the Regime: Macroeconomic Effects of UK Entry into EMU’
NIESR Discussion Paper No 168 (2000) page 5.
43
into markets. These characteristics tended to reinforce each other and
thereby increase the effectiveness of the system as a whole.17 The social
market economy advocated by ordoliberals, became the actual economic
system created in (the then) West Germany by Ludwig Erhard.18
The social market economy represented the ordoliberal vision of society,
where individual economic freedom and competition were sources of
political freedom, and represented the ‘economic constitution’ of society.
Ordoliberals intertwined legal and economic perspectives and discourses
by arguing that the characteristics and effectiveness of the economy
depended on its relationship with the political and legal systems. This
view is based on a belief that the economic order was formed through
political and legal decision-making. Ordoliberals believed that the
institutional framework that constituted a well-functioning market could
not be expected to arise naturally, but rather was a matter of adequate
constitutional choice. The economic constitution emphasised the need for
competition laws to control the economic power of private firms and
prohibit conduct by firms with power, which would otherwise interfere
with the process of competition.19
The economic constitution was by definition not political as it was not
subject to political intervention. It was committed to economic rationality
and a system of undistorted competition implemented and protected by
a legal framework. The legal framework would regulate and limit the
emergence of private economic power by prohibiting cartels, the growth
of economic power and contracts that created unjustified limits on the
competitive autonomy of firms. From the ordoliberal perspective, private
17 Gerber, supra note 10, page 42.
18 Niels Goldsmith & Arnold Berndt: ‘Leonhard Miksch (1901-1950) – A Forgotten Member of the
Freiburg School’ Freiburg Discussion Paper on Constitutional Economics No 3 (2002).
19 This concept of economic power is one of the features of German and European competition law
thinking that most clearly distinguishes it from US antitrust law analogues, see Gerber, supra note
10, page 51.
44
economic power threatened the competitive process, so the primary
function of competition law was to eliminate private economic power in
order to protect the process of competition. When a system had chosen
a transaction economy in its economic constitution, then that choice
required the government to make the system function effectively. In
order to function effectively the government should adopt an order-
based policy as suggested by Eucken, with the legal system, constructed
in such a way that it could maintain conditions of complete
competition.20 Complete competition exists in a market where no firm
has the power to coerce conduct of other firms.21 A firm with market
power would have the power to hinder the performance of its rivals and
that was structurally inconsistent with complete competition. Therefore
the conduct of a firm with economic power was to be limited so as not to
harm its competitors or society in general.22 Complete competition will
be described in more detail in section 1.3 below.
Competition law was the main pillar of the social market economy and
was represented as constitutional in scope.23 Competition was viewed as
the most ‘ingenious instrument of deprivation of power in history’ and
needed to be protected by law.24 Ordoliberals saw competition as a
process whereby market actors participate in the economy without being
disproportionately constrained by either private or public power. Under
the ordoliberal competition law model the aim is ‘the protection of
individual economic freedom of action as a value in itself, or vice versa,
the restraint of undue economic power’.25 Ordoliberals would prefer a
20 Gerber, supra note 12, pages 246-247. 21 Eucken, supra note 13, page 23.
22 Gerber, supra note 10, page 52.
23 Gerber, supra note 12, pages 277 and 282.
24 Eucken, supra note 13, page 23.
25 Wernhard Möschel, ‘The Proper Scope of Government Viewed from an Ordoliberal Perspective:
the Example of Competition Policy’ 157 Journal of Institutional and Theoretical Economics (2001) 3;
Wernhard Möschel, ‘Competition Policy from an Ordo Point of View’ in Hans Willgerodt & Alan
Peacock (eds), German Neo-liberals and the Social Market Economy (Macmillan, 1989) page 146.
45
state of inefficiency coupled with freedom rather than a totalitarian, but
efficient, state.26 Effectively every power – whether political or economic
– must be associated with checks, constraints and countervailing forces.
When it comes to political and economic power, ordoliberals argue
strongly for representative democracy and against the economic power
of firms as their conduct could hinder the performance of rivals. Their
dislike of power was due to their belief that individual economic freedom
was eroded from within by the rise of private economic power. The
deprivation of power was one of the core ideas of ordoliberalism:27
The one who has power has no right to be free and the
one who wants to be free should have no power.
Ordoliberals believed that the accumulation of power resulted from the
inability of the legal system to prevent the creation and misuse of
private economic power.28 They alleged that both the lack of adequate
safeguards against the rise of private economic power and the weakness
of the state ultimately replaced economic and political freedom with an
unrestrained dictatorship, which became unstoppable and led to World
War II.29
1.2 Ordoliberal competition policy
The theory of ordoliberalism breaks competition policy down to four
main points. First, the primary goal of competition policy is individual
economic freedom. Second, the state retains a strong role in protecting
the basic parameters of the system of competition, but with strict limits
26 Christian Watrin, ‘Germany’s Social Market Economy’ in Alastair Kilmarnock (ed), The Social
Market and the State (The Social Market Foundation, 1999) pages 91-95.
27 Franz Böhm, ‘Stenographische Berichte des 2. Deutschen Bundestages’ 76 Sitzung Bonn (Bonn:
Hans Heger 1955) page 4217; Ernst-Joachim Mestmäcker, ‘Competition Policy and Antitrust: Some
Comparative Observations’ 136 Zeitschrift für die gesamte Staatswissenschaft’ (1980) page 387.
28 Gerber, supra note 10, page 29.
29 Giersch, Paque and Schmieding, supra note 7, pages 27-28.
46
on more direct intervention. Third, competition policy is shaped by the
rule of law rather than by ad hoc political decision-making. Fourth,
competition policy is embedded in the economic order of a free and open
society.30
The theory has two basic starting points: first, that individual economic
freedom is an essential accompaniment to political freedom and second,
that competition is necessary for the economic liberty of the individual.31
In the so-called ordoliberal view of society, individual economic freedom
and competition are the source not only of prosperity, but also of
political freedom. Thus, the legal framework, the economic constitution,
should include basic principles to counteract any tendencies that
neutralise competition. It should regulate and limit the emergence of
private economic power by prohibiting cartels, the growth of single firm
economic power and contracts that create unjustified limits on the
competitive autonomy of firms.
The legal framework should protect the competitive order by allowing
‘liberal state intervention’ (but without intervening to achieve particular
results).32 Intervention should control the accumulation of economic
power to prevent the hindrance of competition, and thereby individual
economic freedom, from being endangered. Ordoliberalism did not
regard capitalism (pure economic liberalism) as a self-generating, self-
equilibrating, and self-correcting system, but believed that the state
should intervene to cure market failures. Eucken was concerned with
securing and maintaining the competitive order and argued in favour of
state intervention ‘directed at securing the order of the economy, not at
30 Möschel, ‘Competition Policy from an Ordo Point of View’, supra note 25, page 142.
31 Friedrich A Hayek, New Studies in Philosophy, Politics, Economics and the History of Ideas
(University of Chicago Press, 1978) pages 179–190.
32 The idea of liberal state intervention makes ordoliberalism decidedly different from other liberal
strands, see Niels Goldsmith & Arnold Berndt, supra note 18, page 12.
47
the steering of the economic process’.33 Eucken declared that ‘the
economic system cannot be left to organize itself’,34 and Röpke called
pure economic liberalism ‘undiluted capitalism’ and regarded it as
intolerable.35 They argued that a free economic market is good in theory
but may have undesirable outcomes in practice. Röpke was concerned
with the undesirable social consequences of the pure market
mechanism, despite being pro-market.36 He argued in favour of state
intervention to correct the outcome of the market process through, for
example, direct transfers and subsidies.37 However, he argued against
interference with the market mechanism itself, for example, he was not
in favour of fixing prices and quantities.38 Miksch argued that a ‘free
economy can only be an economy which is organized by the state
according to liberal principles’. Thus, competition is a ‘game that is
regulated by the state’.39
Ordoliberal theorists acknowledged that both individuals and society
need to be protected from the misuse of power. Thus, the framework
assigned a positive role to the state in the form of power to intervene in
the market to protect the autonomy of the individual, and to guarantee
private contractual autonomy, freedom of occupation and trade,
individual property rights and free movement of persons, by imposing
restrictions on cartels and abusive behaviour by dominant companies.40
Besides imposing restrictions on the players in the market, the legal
framework should impose restrictions on the political system in order to
33 Eucken, supra note 14, page 336.
34 Walter Eucken, The Unsuccessful Age (Edinburgh: William Hodge, 1951) page 93.
35 Wilhelm Röpke, Social Crisis of Our Time (London: Thames and Hudson, 1958) page 119. 36 Wilhelm Röpke, Civitas Humana. Grundfragen der Gesellschafts- und Wirtschaftsreform
(Erlenbach-Zurich, 1944). 37 Wilhelm Röpke, Die Gesellschaftskrisis der Gegenwart (Erlenbach-Zürich, 1942) pages 252-258.
38 Giersch, Paque and Schmieding, supra note 7, page 31.
39 Leonhard Miksch, Wettbewerb als Aufgabe. Grundsätze einer Wettbewerbsordnung (Godesberg,
2nd ed, 1947) page 9.
40 Philip Manow, ‘Ordoliberalismus als ökomische Ordnungstheologie’ in Leviathan (2001) page 179.
48
protect the free market against political intrusion.41 The legal framework
should be respected both by the political system, to avoid opportunism
under the pressure of socio-economic forces exerted by political parties,
and by private cartels and undertakings with economic power.
Whilst traditional liberalism maintained that the rule of law was mainly
to protect the individual against government coercion (political power),42
ordoliberalism attached equal importance to safeguarding individual
economic freedom from intrusion by private undertakings’ economic
power. Ordoliberalism thereby differentiates itself from traditional
classical liberalism in two respects: first, that an unregulated free
market is not the most efficient means of allocating resources, and
second, that individual economic freedom needs to be protected from
both political power and the misuse of private economic power.
Ordoliberalism considers free enterprise and free competition as being
inseparable from the concepts of liberty and prosperity.
1.3 Complete competition
The competitive order underlying the transaction economy, was the only
economic order ordoliberals considered capable of achieving the
beneficial result of a democratic and humane society. They considered
that only complete competition could produce this beneficial outcome.
Where complete competition exists, therefore certain kinds of behaviour
which could potentially amount to an abuse, such as predatory pricing or
loyalty rebates, would not constitute an abuse. Instead, such behaviour
would constitute performance competition, as the firm engaging in
pricing below cost or offering the rebate would not have power to
41 Franz Böhm, Wirtschaftsordnung und Staatsverfassung (Tübingen Mohr, 1950).
42 Bruno Leoni, Freedom and the Law (Liberty Fund, 3rd ed, 1991).
49
foreclose competition.43 Complete competition could be achieved through
competition on both the supply and demand sides of the market.44 To
have competition on both sides of the market would require that no
market player on either the supply or the demand side of the market
was restricted by foreclosure in their freedom to compete. It was
therefore imperative to protect the individuals’ freedom to compete.
The complete competition model has similarities with the model of
perfect competition,45 but the complete competition model is different
from the neo-classical price theory based on perfect competition,46 as
complete competition requires that no firm has the power to coerce
other firms.47
43 The term ‘competition on the basis of performance’ or ‘performance competition’ is interrelated
with the term ‘competition on the merits’. Some scholars think that it is no more than a semantic
difference, but the ECJ seems to mean that it is the same in substance, for example in Hoffmann-La
Roche, supra note 9, paragraph 91 where the text discusses competition ‘on the basis of commercial
operators’. This is a poor translation of the authentic German version in which the Court used the
term ‘leistungswettbewerbs auf der grundlage der leistungen der marktbürger abweichen’ where
‘leistungswettbewerb’ is the legal concept of ‘competition on the basis of performance’. A better
translation would therefore have been ‘competition on the basis of performance’. In Case 62/86
AKZO Chemie BV v Commission [1991] ECR-I 3359, [1993] 5 CMLR 215, paragraph 70 the text
mentions ‘competition on the basis of quality’ whereas in the original French version the term
‘concurrence par les mérites’ was used. A better translation therefore would have been ‘competition
on the merits’.
44 Eucken, supra note 13, page 26.
45 An explanation of the model of perfect competition can be found in chapter four.
46 The term ‘complete competition’ in German is ‘vollstandiger Wettbewerb’. It is generally
translated as ‘perfect competition’. However, as noted by Möschel: ‘the scholars of ordoliberalism
have also used economic models for the description of their ideas, for instance, the model of perfect
competition as it was developed in the traditional theory of competition. Such models, however,
served only for the description of general effects of a market system, illustrating them in what
might be called a chemically pure form. That did not imply, however, that those partly unreal
premises were to be integrated as goals into practical competition policy. Any attempts to disprove
or ridicule the ordoliberal concepts of competition as unrealistic miss the point’ see Möschel,
‘Competition Policy from an Ordo Point of View’, supra note 25, page 146.
47 Möschel, ‘Competition Policy from an Ordo Point of View’, supra note 25, page 157 footnote 16.
50
Where an individual firm has economic power it must be controlled, as it
is otherwise capable of obstructing social justice. An independent
competition authority should impose a positive obligation on such a
dominant undertaking in order for it to conduct itself ‘as-if’ it were faced
with complete competition.48 It was believed that the dominant
undertaking would thereby be forced to compete on performance in
order to be profitable, rather than use its power to gain an unfair
advantage over rivals.49 The dominant undertaking would therefore have
an obligation not to impair its rivals’ freedom and right to compete.
Ordoliberals assumed that the ‘as-if’ standard would provide clear
guidelines for applying the abuse concept by basing it on the proposition
that economic science could effectively use perfect competition as a
model against which to measure actual economic behaviour.50
1.4 Summary
The origin of ordoliberalism was in humanist values rather than
economic efficiency.51 The ordoliberal theorists set out to create a
tolerant and humane society that would protect human dignity and
personal freedom. To protect individual freedoms from the public power
of government as well as from the power of private companies,
ordoliberals advanced a political and legal framework, the economic
constitution. This constitution had to guarantee an efficient functioning
of the competitive order by allowing liberal state intervention to correct
market failure. The economic constitution should achieve a market which
functioned in a way that all members of society perceived as fair, and
48 Dieter Schmidtchen, ‘German Ordnungspolitik as Institutional Choice’ 140 Zeitschrift für die
gesamte Staatswissenschaft (1984) 60.
49 The use of the ‘as-if’ standard requires a comparison between markets with and without players
having market power. According to Miksch such a comparison could be made by using the
equilibrium-theoretical analyses of Alfred Marshall and Léon Walras, see Goldsmith & Berndt, supra
note 18, page 4.
50 Gerber, supra note 12, page 308.
51 Gerber, supra note 10, page 36.
51
provided equal opportunities for participation. To achieve this objective,
political power and private economic power had to be limited by
establishing a competitive order based on a model of complete
competition in order to protect individual economic freedom as a value in
itself.
By emphasising individual economic freedom as the overriding
normative principle,52 ordoliberals connected competition law to
fundamental rights.53 The latter point will be elaborated in chapter six.
They viewed competition law as a matter of rights and individual
freedoms. They believed that competition within the economy provided
the basis for the economic order they envisioned: a free market
economy. They also believed that competition provided the best way to
organise social change.54 The ordoliberals encouraged open access to the
market, as they believed that this would be the best control of private
and political power. In their view the aim of competition policy was not
economic efficiency, but rather the limitation and control of private
power, or at least of its harmful effects,55 in order to protect individual
economic freedom in the interest of a free and fair political and social
order.56 For ordoliberals the economic constitution had constitutional
status and should protect the individual's freedom to compete.
Competition law was a part of the social market economy, which
represented the ordoliberal vision of society, where economic freedom
52 Giersch, Paque and Schmieding, supra note 7, page 28.
53 Ordoliberals saw individual economic freedom as a fundamental right. Economic freedom has
been important for others than ordoliberals, see for example the US Supreme Court in US v Topco
Assocs [405 US 596 1972] page 610: ‘Antitrust laws in general… are the Magna Carta of free
enterprise. They are as important to the preservation of economic freedom and our free-enterprise
system as the Bill of Rights is to the protection of our fundamental personal freedoms. And the
freedom guaranteed each and every business, no matter how small, is the freedom to compete…’.
54 Giersch, Paque and Schmieding, supra note 7, page 32.
55 Gerber, supra note 12, page 251.
56 Möschel, ‘Competition Policy from an Ordo Point of View’, supra note 25, page 146.
52
and competition were sources of political freedom, and represented the
economic constitution of society. Ordoliberal theorists intertwined legal
and economic perspectives and discourses by arguing that the
characteristics and the effectiveness of the economy depended on its
relationship to the political and legal system.
2. German Competition Law
Germany’s competition law – inspired and developed primarily by
ordoliberals – has led European, if not world, developments in
combatting restraints on competition.57
Given the influence from German competition law, it will be explored in
some depth in this section in order to examine how it was influenced by
ordoliberalism and in turn influenced EC competition law. That German
competition law has played an essential role in the evolution and shaping
of Community competition law has been acknowledged by former
Competition Commissioner Karel Van Miert:58
We all know now what a success story it [German competition
law] has been. It has been a successful export too. The fact
that the competition rules were made a cornerstone of the
EEC Treaty from the very beginning was due not least to the
influence of Germany, where the same subject was occupying
minds at the same time. It is largely thanks to Germany,
therefore, that the EEC attached so much importance to
competition from the outset, to the point where it became
almost a constitutional principle. Again and again since then
German politicians and competition specialists have taken a
leading role in the shaping and practical development of the
European competition rules.
Before exploring the principal and current German competition
law the Act against Restraints of Competition (the ‘ARC’)
57 Gerber, supra note 10, page 68.
58 Karel Van Miert, ‘The Future of European Competition Policy’, speech given on 17 September
1998 at the Ludwig Erhard Foundation in Bonn (speech/98/1351), speech available at:
europa.eu.int/comm/competition/speeches.
53
Germany’s first competition law the Ordinance against the
Misuse of Economic Power (the ‘Abuse Regulation’) will be
discussed.59
2.1 The Ordinance against the misuse of economic power
The Abuse Regulation has historical significance because it was modelled
and was the first initiative in Germany to control the private economic
power of undertakings. It was also the first general competition
legislation in Europe which was specifically aimed at protecting the
competitive process.60
The Abuse Regulation relied on administrative measures which
authorised officials to control the conduct of economically powerful firms
to avoid harm to the public interest. This objective gave the German
Federal Cartel Office (the ‘FCO’)61 power to exercise discretionary
authority in the name of public interest. This is, as discussed below,
fundamentally different from the objective of individual economic
freedom pursued under the ARC.
During industrialisation in the late nineteenth century, the number of
cartels and powerful businesses in Germany increased, in particular in
the steel and coal industries. At the beginning of the twentieth century,
restraints on competition in the form of cartels were deemed legitimate.
World War I gave an additional impetus to cartelisation (so-called war
59 Verordnung gegen Missbrauch wirtschaftlicher Machtstellungen, 1923 Reichsgesetzblatt [RGB1.]
I 1067 (2 November 1923).
60 OECD Report, The Role of Competition Policy in Regulatory Reform, prepared for the OECD
Review of Regulatory Reform in Germany (July 2004) page 8.
61 For a general discussion of the German Federal Cartel Office, see Andre R Fiebig, ‘The German
Federal Cartel Office and the Application of Competition Law in Reunified Germany’ 14 University of
Pennsylvania Journal of International Business Law (1993) 373.
54
cartels) because of government rationing policy. Germany became the
country of cartels.62
Historically, cartels were regarded very positively; cartels had long
shown themselves to be a valuable means of stabilising economic
development. They were also politically useful, as the government used
cartels to control industry. The government found it easier to control the
activity of a relatively small number of cartels than a large number of
independent firms. For politicians, cartels were necessary for the
economy to recover from hyper-inflation.63 By pursuing an objective of
public interest, the government could still allow cartel activity if it turned
out to be beneficial for its policies.
The German use of the term cartel referred to any kind of agreement
between competitors about production or distribution that involved or
affected competition.64 The term cartel covered agreements used to
protect cartel members from the impact of inflation by agreeing that the
prices charged by the cartel members should automatically be increased
in response to an increase in the price of the goods or services they
purchased. As a result, producers were able to shift the burden of
inflation to their purchasers and, ultimately, to consumers. Thus, cartels
were highly desirable for German industries.
German industry’s positive view of cartels changed slightly after World
War I when cartels became associated with the potentially harmful
effects of big businesses. The years after World War I were characterised
62 Möschel, ‘Competition Policy from an Ordo Point of View’, supra note 25, page 143.
63 Hyper-inflation is a term used to describe levels of inflation that are very high. This was the case
in Germany in the period 1919–1923.
64 An analysis of the German use of the term ‘cartel’ is offered by Theodore F Marburg,
‘Government and Businesses in Germany: Public Policy towards Cartels’ 38(1) The Business History
Review (1964) 78. He argues that the German use of the term ‘cartel’ was broader then than it is
today under Article 81.
55
by political instability and hyper-inflation. As inflation accelerated,
cartels became recognised as being harmful as it was believed that they
contributed to inflation. The pressure for legislation to control cartels
increased. Since 1920, small businesses and consumer interests had
been demanding legislation. A cartel advisory committee was set up in
1922 as hyper-inflation reached catastrophic heights, with devastating
results.65 The Abuse Regulation was enacted in 1923 as a response to
big businesses’ cartel agreements66 and the post-World War I hyper-
inflation. By enacting the Abuse Regulation, the Weimar Government67
hoped to free the economy from unproductive restraints, increase
production and thereby control inflation in the interest of the public
welfare.68
The Abuse Regulation was ratified by the Weimar Government, but was
not approved by the Parliament. It lacked democratic legitimacy, which
impaired its effectiveness.69 Chancellor Gustav Stresemann,70 who
promulgated the Abuse Regulation, had been a pre-war advocate of
controls on large-firm abuse in order to protect small businesses, but at
the time of its enactment, the Weimar Government only had limited
power. In order to avoid too much resistance from German industry,
Stresemann described the Abuse Regulation in liberal terms. He argued
that by removing the restraints imposed by cartels, production would
increase and inflation would be reduced.
65 Detlev J K Peukert, The Weimar Republic (Penguin Books, 1993) page 249.
66 OECD Report, supra note 60, page 6.
67 Named after the town of Weimar where meetings of the elected National Assembly were held.
68 Wilhelm Röpke, Welfare, Freedom and Inflation (University of Alabama Press, 1964) page 9;
Gerber, supra note 12, pages 123-124.
69 Gerber, supra note 12, page 124.
70 German politician and statesman during the Weimar Republic and one of the first to talk about
European economic integration.
56
The objective of the Abuse Regulation was to protect public interest.71 To
fulfil that purpose, it contained provisions to control the conduct of
cartels and reduce the coercive power of cartels that harmed public
interest. However, it did not prohibit cartel agreements directly, but
could reduce the power of the cartels indirectly by giving members of
the cartel the possibility to withdraw from the cartel arrangement.72
Paragraph 4 in conjunction with paragraph 10 of the Abuse Regulation
authorised administrative enforcement measures to be taken
prospectively against any conduct of a cartel which endangered the
public interest, by suggesting changes to that conduct. The objective of
public interest made it acceptable to violate the economic rights of the
individual; if cartels turned out to be beneficial for public interest then
they would be allowed regardless of the violation of the individual’s
economic rights. Thus, the Abuse Regulation was a weak legislative
measure from an ordoliberal perspective.
The Abuse Regulation was annulled by the Nazi regime in the 1930s. It
was not in line with Nazi totalitarian economic legislation, for example,
price fixing, rationing of consumer goods, central allocation of labour,
raw materials and major commodities.73 Despite the fact that the Abuse
Regulation was repealed, it became central to the discourse of
competition law in Germany as well as Europe, after World War II.74
In the years after World War II, competition law took a new turn in
Germany, one that was to play a key role in the process of European
integration and which was to have extraordinary consequences for the
71 Abuse Regulation, supra note 59, paragraph 4.
72 Abuse Regulation, supra note 59, paragraph 8 sought to reduce the power of the cartel over its
members by allowing the cartelists to get out of the cartel agreement, if they had an urgent cause.
73 Giersch, Paque and Schmieding, supra note 7, page 19.
74 Gerber, supra note 12, page 127.
57
course of post-war European history.75 Germany fundamentally changed
its conception of competition law by linking competition law with political
responsibility and fundamental rights.76
2.2 The Act against restraints of competition
The purpose of the ARC is to protect freedom of competition and to
eliminate economic power whenever it impairs effectiveness of
competition.77 This is in essence the core of the ordoliberal competition
model described above in section one. As will be explained in this
section, the underlying principles of the ARC were heavily influenced by
the ordoliberal concept of competition policy. According to Gerber:78
Enactment of the GWB [ARC] probably ranks as the most
important political victory for ordoliberalism.
The preparation of the ARC had already started in 1948, but Germany
had to wait until 1957 before the ARC was enacted.79 The enactment
was the result of an intense battle between two possible models of
competition law. One model was the one known from the Abuse
Regulation, which was based on a model of administrative control where
conduct by economically powerful firms could be controlled, but not
prohibited, in order to protect public interest. The other model was the
ordoliberal competition law model, which the ARC rely on. It represented
a hybrid between an administrative competition law model known from
the Abuse Regulation and a judicial competition law model. It is
75 Manfred E Streit, ‘Economic Order, Private Law and Public Policy: the Freiburg School of Law and
Economics’ 148 Journal of Institutional and Theoretical Economics (1992) 675.
76 Wolfgang G Friedman, Anti-trust Laws: A comparative symposium (London: Stevens, 1956) page
233.
77 Bundesgerichtshof [BGH], Ölfeldrohre, WuW/E BGH 1276 (1973).
78 Gerber, supra note 10, page 66. 79 For a detailed description, see Rudolf Mueller, Martin Heidenhain and Hannes Schneider, German
Antitrust Law: An Introduction to the German Antitrust Law with German Text and Synopsis
(Frankfurt am Main: Fritz Knapp, 1981) page 189ff.
58
administrative in that an administrative authority, the FCO, is
responsible for enforcing it. It is judicial in that the FCO’s decisions can
be appealed to the ordinary courts operating according to judicial
principles and procedures.80 The ordinary courts have the power to apply
the ARC and where the courts’ interpretation is inconsistent with that of
the FCO, the courts can overturn the decisions made by the FCO.81 Like
the ordoliberal competition law model, the ARC is based on a prohibition
system and operates according to judicial principles rather than
administrative discretion, in order to protect the individual’s freedom to
compete.
The preparation of the ARC started as a response to the Nazi totalitarian
system, which built on ineffective administrative allocation of resources,
illegal markets and excess liquidity in the face of rigidly fixed prices,
giving rise to widespread inefficient production, very high transaction
costs and a very unfavourable ratio of stocks to output in an economy
desperately short of raw materials.82 After this totalitarian system
collapsed there was a need to protect the general market order of the
economy. The traumatic experience of Nazism had shown that political
freedom and economic freedom are inseparably linked, and that
maintaining competition and fighting restraints of competition not only
gives individuals freedom to compete, but also secures political freedom.
The battle for the ARC will be discussed in the following section. It is
interesting, because as a leading German economic official Otto Schlecht
has argued:83
80 David Gerber, ‘The Transformation of European Community Competition Law’ 35 Harvard
International Law Journal (1994) 97, page 98.
81 David Gerber, ‘Two Models of Competition Law’ in Hanns Ullrich, Comparative Competition Law:
Approaching an International System of Antitrust Law (Nomos, 1998) page 113. 82 Giersch, Paque and Schmieding, supra note 7, page 21.
83 Otto Schlecht, ‘Macht und Ohnmacht der Ordnungpolitik – Eine Bilanz nach 40 Jahren Sozialer
Marktwirtschaft’ 40 ORDO (1989) 303.
59
Without the battle for GWB [ARC] there would probably never
have been the prohibition of cartels or the abuse supervision in
the EC Treaty.
2.2.1 The Josten draft
The first draft of the ARC was the Draft of an Act to Protect Competition
Based on Performance and an Act Concerning the Monopoly Office.84 In
German the draft was known as the Josten-Entwurf as it was prepared
by Paul Josten.85 Josten had previously been the head of the cartel
section of the Economic Ministry where he worked with one of the
founding fathers of ordoliberalism, Franz Böhm. Böhm was a member of
the Josten committee and had a huge impact on the draft,86 which
represented an elaboration of ordoliberal competition policy.
The Josten Draft proposed a total ban on cartels. The ordoliberal
theorists preferred a total ban on cartels because they believed the
individual’s freedom to compete was limited by cartel activity. This
proposal was a dramatic change from the Abuse Regulation, which did
not contain a total ban on cartels, but merely tried to indirectly reduce
the coercive power of cartels over their members. German industry was
opposed to a total ban on cartels and preferred an administrative control
competition law model as in the Abuse Regulation;87 it preferred an
abuse system enforced by administrative officials to a prohibition system
enforced by the court.88
84 Entwurf zu einem Gesetz zur Sicherung des Leistungswettbewerbs und zu einem Gesetz uber das
Monopolamt (Bundeswirtschaftsminister publication, Bonn, 1949).
85 In English the draft is known as the Josten Draft. This is the name that will be used in the
thesis.
86 Knut W Norr, Die Leiden des Privatrechts (Tubingen, 1994) page 163.
87 Gerber, supra note 12, page 271.
88 In contrast with a prohibition system where conduct can be prohibited, an abuse system does
not prohibit conduct, but rather investigates conduct. Changes can be put in place prospectively, but
not prohibited.
60
On 5 July 1949, the Josten Draft was presented to the Federal Minister
of Economics, Ludwig Erhard. He supported the idea of the social market
economy,89 but his philosophy was not entirely identical to those of the
Freiburg School.90 Erhard was a determined opponent of cartels,91 but
decided against the Josten Draft as he saw the total ban as too
controversial at the time. He was a newly appointed minister and his
position was far from stable.92 Having decided against the Josten Draft,
Erhard gave Roland Risse,93 the head of the ‘Price and Decartelisation
Department’ in the Economic Ministry, the responsibility for the
continuing drafting of the ARC.
2.2.2 The Government draft
Risse was not as hostile towards cartels as the ordoliberals and tried to
outline a more politically acceptable draft by incorporating some
exemptions to the cartel prohibition. Risse submitted the so-called
‘Government Draft’ in 1952. It was a watered-down version of the Josten
Draft, but it was still influenced by ordoliberalism with the aim of
achieving complete competition. It contained the ordoliberal ‘as-if’
standard and a ban on cartels.94 Equally responsible for the Government
Draft was Eberhard Günther,95 who had the same attitude towards
cartels as the ordoliberals.
89 Gerber, supra note 12, page 260.
90 Volker Rolf Berghahn, The Americanisation of West Germany Industry (Leamington Spa, 1986)
page 159.
91 Volker Rolf Berghahn, Modern Germany: Society, Economy and Politics in the Twentieth Century
(Cambridge University Press, 2nd ed, 1987) page 156.
92 Dr Gerrit Meijer, ‘Some Aspects of the Relationship between the Freiburg School and the Austrian
School’ (1999) page 13. Available at: http://www-edocs.unimaas.nl/abs/rm99001.htm.
93 In 1950, Risse was the German delegate in the Schuman Plan negotiations leading to the ECSC
Treaty. For further information see: http://www.eu-history.leidenuniv.nl/index.php3?m=&c=54.
94 Volker Rolf Berghahn, ‘Ideas into Politics: the case of Ludwig Erhard’ in RJ Bullen, H Pogge von
Strandmann, and AB Polonsky (eds), Ideas into Politics: Aspects of European History, 1880 to 1950
(London: Croom Helm, 1984) pages 159-161.
95 Günther was later to become the first president of the BundesKartellAmt.
61
The Government Draft was fiercely attacked by German industry which
was very powerful. Erhard tried to negotiate the different interests as he
needed support from industry in order to remain in politics in the longer
term. A major debate took place on 24 and 31 March 1955 where the
central question discussed was whether cartels and other restrictive
practices were to be regarded as bad in principle, or only because of
specific objectionable behaviour.96 A compromise was reached. German
industry accepted the cartel prohibition and in return Erhard agreed to
accept some exemptions such as rationalisation cartels, crises cartels
and export cartels. The Government Draft was accepted and the final
version of what became the ARC97 was ratified on 27 July 1957 and
came into force on 1 January 1958.98
2.3 The application of the ARC
As shown in previous section, the underlying principles of the ARC are
heavily influenced by ordoliberalism. The main objective of the ARC is
the protection of economic freedom,99 as will be shown in the brief
summary of the following cases.
The Vitamin B12 case concerned excessive pricing where vitamins in
Germany were sold at prices above those in the countries around
Germany.100 The German Supreme Court emphasised that the abuse
provision in section 22 of the ARC (now section 19) could be used to
determine whether prices above the competitive price level were
abusive. The Supreme Court concluded that the abuse provision was
violated as prices were excessive and upheld the FCO’s decision
96 Friedman, supra note 76, page 190.
97 The ARC contained provisions on horizontal restraints, vertical restraints and abuse of market-
dominating position. Merger control was not added until 1973. 98 Gesetz gegen Wettbewerbsbeschränkungen [GWB], 1957 Bundesgesetsblatt [BGB1.] I 1081
(West Germany). 99 Ölfeldrohre, supra note 77.
100 BGH Vitamin B-12, WuW/E BGH 1435 (1976).
62
requiring the defendant to reduce its prices to the competitive price
level. According to the Supreme Court, this requirement to reduce prices
did not interfere with the defendant’s economic freedom; it merely
established a limit beyond which prices could be considered abusive.
In order to establish that the prices were abusive, the FCO had
compared German prices with prices in the neighbouring countries. The
Supreme Court held that in comparing prices, it is necessary to assess
what the prices would have been, if the dominant undertaking had
behaved ‘as-if’ it were constrained by complete competition. To make a
comparison between the actual market conditions and the market
conditions which would prevail if substantial competition existed is very
difficult. The difficulties in determining exploitative abuses resulted in
few cases reaching the German courts and a widespread belief in
Germany that the concept of exploitative abuse was ill-conceived and ill-
adapted to judicial application.101
Besides exploitative abuses, the abuse provision is used to prohibit
exclusionary abuses or, in other terms, impediment competition. The
main objective when considering impediment competition is to protect
freedom of competition by protecting the process of competition. Priority
is given to the process of competition, and this is an exact replica of
ordoliberal thinking, where the benefit of competition is a market
characterised by a desirable process, and the end result does not
matter. This objective could be achieved by preventing dominant
undertakings from using their power to harm competitors and other
market participants. This objective makes it difficult to distinguish
between impediment competition and performance competition, as also
performance competition can exclude rivals. Thus, early cases
concerning impediment competition struggled to find an effective
101 Gerber, supra note 12, page 312.
63
analysis to distinguish between impediment competition and
performance competition.102
Professor Peter Ulmer of the University of Heidelberg suggested a test to
analyse impediment competition, which was adopted by the German
courts. Ulmer proposed a cumulative two-step test, which was heavily
inspired by ordoliberalism. First, the conduct must constitute non-
performance competition and second, the conduct must restrict the
remaining competition in the dominated market.103 The key to the
application of Ulmer’s test is whether or not the conduct can be linked to
the undertaking’s performance.104 Conduct such as offering lower prices,
better quality and other forms of consumer benefits is not automatically
performance competition; the benefits to the consumer must be linked
to the undertaking’s performance. If the court finds that a certain
conduct is based on the economic power of a company, which endangers
the economic freedom of rivals, then the conduct is considered non-
performance competition. Conduct based on economic power can be
condemned only where there is not complete competition in the market.
If the first limb of the test is satisfied, it is necessary to consider the
second limb of the test, which is whether the conduct restricts the
remaining competition in the dominated market, that is to say the
structure of the market.
Several factors indicate that Ulmer’s performance-based competition test
was modelled upon the ordoliberal notion of competition law. First,
competition on the basis of performance was central for ordoliberals,
who linked the notion of performance competition with complete
competition by arguing that complete competition will ensure
102 Ibid. page 313.
103 Peter Ulmer, Schranken zulässigen Wetttbewerbs marktbeherrschender Unternehmen (Nomos-
Verlagsgesellschaft, 1977) page 147.
104 John Kallaugher and Brian Sher, ‘Rebates Revisited: Anti-Competitive Effects and Exclusionary
Abuse under Article 82’ 5 European Competition Law Review (2004) 263, page 271.
64
performance-based competition as no firm has economic power and thus
cannot use its power to impede economic freedom of rivals. In the
ordoliberal view complete competition exists in a market in which none
of the players has any economic power to coerce the conduct of other
firms. Second, one of the founders of ordoliberalism, Franz Böhm,
decades before Ulmer, had provided a theoretical basis for applying the
abuse provision based on the distinction between impediment
competition and performance competition.105 This distinction was
perceived by scholar Hans Carl Nipperdey,106 who used it in applying the
German statutes against unfair competition. According to Böhm, it would
be impediment competition if the conduct in question was designed to
for example impede a rival’s capacity to perform. Where a firm with
economic power used its power to impede the performance of a rival, for
example, by excluding the rival from the market, this would be an
interference with the competitive process and such conduct should be
prevented.107
Ulmer’s test was applied in the Combination Price Schedule case.108 A
publishing company in Berlin owned two different newspapers. One
newspaper was dominant in the market and the other was struggling
financially to stay in that market. The publishing company listed the
advertising fees for the two newspapers in combination. Any potential
customers wanting to advertise in the dominant newspaper was bound
also to advertise in the struggling newspaper for the combined price.
The FCO argued that it was a tying agreement, which interfered with
advertisers’ freedom to advertise in the dominant newspaper only, as
they were bound to advertise in the other non-dominant newspaper as
well. This tying constituted an abuse and infringement of the abuse
provision, section 22 of the ARC.
105 Franz Böhm, Wettbewerb und Monopolkampf (Berlin Heymann, 1933) page 253.
106 Hans Carl Nipperdey, ‘Wettbewerb und Existenzvernichtung’ 28 Kartell-Rundschau (1930) 127.
107 Gerber, supra note 10, page 53.
108 BGH Kombinationstarif WuW/E OLG 1767 (1977).
65
The infringement decision was appealed to the Supreme Court. The
Court held that the first step of Ulmer’s test was fulfilled, as the
combined price schedule improved sales of the tied product (the
struggling newspaper) by using the power of the tying product
(dominant newspaper) rather than through improved performance. It
was not competition based on performance, but conduct which was
possible only due to economic power. The Court found that the first step
of Ulmer’s test was met. However, the Court did not consider that the
second step of Ulmer’s test was met, as the conduct had not been
substantial enough to significantly foreclose and alter the structure of
the market. The Court emphasised that undertakings with economic
power should be subject to a standard of conduct higher than that of
firms without power. However, it required that abuse should be found
only where the conduct led to the destruction, or serious impairment, of
the market structure.109 According to the Court, this meant that there
must be a detrimental change in the structure of the market and that
was not the case in this particular situation. The Court held that only
conduct which seriously impaired the remaining competition in the
market should be prohibited. This is to avoid interfering with a dominant
undertaking’s right to use its power in the market.110
This case indicated that pursuing an objective of economic freedom
meant that the Court would find an abuse only where the economic
freedom of other market participants had been impaired by foreclosure
which seriously changed the structure of the market. Focusing on
foreclosure and the structure of the market involves considering whether
the competitive process actually reduces the capacity of firms to coerce
the behaviour of other firms.
109 Ibid. page 1772.
110 Gerber, supra note 12, page 314.
66
2.4 Summary
After World War II German competition law moved in a new direction
that would fundamentally alter the path of competition law in Europe.111
Germany adopted the ordoliberal competition law model according to
which competition law should operate as a fundamental protection of the
competitive process and of the economic freedom of individual market
players.112
According to ordoliberal ideas, competition law should have
constitutional status and play a leading role in promoting fundamental
rights, such as individual economic freedom. It should protect structures
within which firms compete so that effective competition amongst
competitors is maintained and no firm or firms become too influential.113
By adopting the ordoliberal competition law model, competition law was
given constitutional status in Germany. Competition law ‘should promote
basic values and protect fundamental rights’.114 It should operate
according to judicial and constitutional principles rather than
administrative discretion.
The application of the abuse provision of the ARC, in early cases
concerning impediment competition, was based on a test suggested by
Professor Ulmer. Ulmer’s test was heavily inspired by ordoliberalism. In
applying the test, the Court focused on the impairment of the structure
of the market. This meant that only conduct which led to serious
structural impairment of the remaining competition in the market, would
be considered a violation of the abuse provision.
111 Ibid. page 266.
112 Gerber, supra note 12, page 271.
113 Merit E Janow, ‘International Perspectives on Abuse of Dominance’ in OECD paper GD(96)131
on Abuse of Dominance and Monopolisation 1996, page 33ff.
114 Gerber, supra note 12, page 266.
67
Conclusion
Chapter two concludes that ordoliberalism holds both that government
needs to be restrained from abuse of power, and that the free market
has its limits.
Ordoliberalism has played a key role in the adoption of German
competition law and that has influenced the process of European
integration and has had extraordinary consequences for the course of
post-war European history.115
The ARC is based on the ordoliberal competition law model. The model’s
focus is on the protection of economic freedom and on the market’s role
as an integrative aspect in society rather than a creator of aggregate
wealth. It is fundamentally different from the competition law model that
was adopted by Germany before World War II, which was based on the
objective of public interest. Unlike the Abuse Regulation, which was
based on administrative discretion, the ARC is based on judicial
principles. This was considered appropriate by ordoliberals, for whom
competition law was the main pillar of the social market economy.
115 Streit, supra note 75.
68
Chapter 3 Economic Freedom in Article 82: the Early
Jurisprudence of the European Court of Justice
Introduction
This chapter discusses the extent to which Article 82 protects economic
freedom by protecting the competitive structures of a market as a goal
derived from the ordoliberal tradition. The chapter contains two sections.
Section one examines whether ordoliberalism has had a profound
influence on the structure of Article 82. This entails looking at the
distinction between exploitative and exclusionary abuses. Section two
considers whether cases such as Continental Can, Commercial Solvents,
United Brands, Hoffmann-La Roche and Michelin I reflect an emphasis on
rivalry apparently without rigorous inquiry into relative efficiency, as in
the ordoliberal approach.
1. Ordoliberal Influence on the EC Treaty
The idea that ordoliberalism has had a profound influence on Community
competition law is relatively uncontroversial1 and is supported by the
structure of the competition provisions in the EC Treaty.2 According to
Gerber, the ordoliberal creation of competition law ‘has evolved into the
European concept of competition law, and without it [ordoliberalism] the
1 David Evans, ‘Roundtable discussion about US Supreme Court’s decision in Verizon v Trinko’
Global Competition Review (2004) page 26; Barry E Hawk ‘Article 82 and Section 2’ in OECD paper
on Competition on the Merits, page 253. Available at: http://www.oecd.org/dataoecd/7/13/
35911017.pdf; David Gerber, ‘Constitutionalizing the Economy: German Neo-liberalism, Competition
Law and the “New” Europe’ 42 American Journal of Comparative Law (1994) 25, page 73.
2 Articles 81 and 82 are not a replica of ordoliberal thought, but their structure bears the imprint of
ordoliberal political philosophy, see Karel Van Miert, ‘The Future of European Competition Policy’,
speech given on 17 September 1998 at the Ludwig Erhard Foundation in Bonn (speech/98/1351),
speech available at: europa.eu.int/comm/competition/speeches; David Gerber, Law and
Competition in Twentieth Century Europe: Protecting Prometheus (Clarendon Press Oxford, 1998)
chapter 9.
69
development of the European Community is unimaginable’.3 Judicial
practice has been influenced by ordoliberalism as acknowledged by DG
Competition’s Director General Philip Lowe:4
The case-law of the European courts and also the decisional
practice of the Commission were initially influenced by ordoliberal
thought which has its origin in the so-called Freiburg School.
Their members advocated a strict legal framework and a strong
role for the state in protecting the basic parameters of
competition. Competition was understood as a process of
economic coordination on the basis of freedom of action. The
protection of individual economic freedom – as a value in itself –
was regarded as the primary objective of competition policy.
Despite this, there is little discussion in the legal literature about how
ordoliberal theory influenced the EC Treaty and in particular the
jurisprudence of Article 82.5 Traces of ordoliberalism can be found in the
report prepared by the Intergovernmental Committee on European
Integration, which unofficially is referred to as the Spaak Report.6 This
report gives an interesting insight to the historical background and the
influence of ordoliberal ideas which will be discussed briefly in the
following section. The point of the section is not to given an exhaustive
analysis of the Spaak Report, but to show briefly that this document,
predating the Treaty, bears imprint of ordoliberalism.
3 Gerber, supra note 1, page 49.
4 Philip Lowe, ‘Consumer Welfare and Efficiency – New Guiding Principles of Competition Policy?’,
speech given on 27 March 2007 at the 13th International Conference on Competition and 14th
European Competition Day, page 2, speech available at:
http://ec.europa.eu/comm/competition/speeches/text/sp2007_02_en.pdf. 5 There is plenty of literature which discusses ordoliberalism, but little discussion about the
influence of the doctrine on Community law and specific cases under Article 82.
6 The Spaak Report – Rapport des Chefs de Délégation aux Ministres des Affaires Etrangères (in
English: Report of the Heads of Delegation of the Governmental Committee) set up by the Messina
Conference, named after Paul-Henri Spaak, then the Belgian prime minister. Paul-Henri Spaak was
the chairman of the preparatory committee in charge of its preparation. The Report was presented
on 21 April 1956 and led to the Treaty of Rome of 1957, which came into force 1 January 1958.
Available at: http://aei.pitt.edu/archive/00000995/01/Spaak_report.pdf.
70
1.1 The Spaak report
By 1955 the idea of moving toward economic integration and
establishing a European Economic Community (EEC) led to delegates
from France, Italy and Germany drafting a report on the common
European market.7 The Spaak Report still relevant if we want to
understand ordoliberal influences on the EC Treaty. Even if the Spaak
Report was drafted so many years ago it paved the way for the EC
Treaty and is one of the public documents predating the EC Treaty. The
Spaak Report can be seen as a kind of ‘white paper’. Also, as pointed out
by Ludwig von Mises: ‘if we wish to understand contemporary events,
we would do well to read the books written 20 or 30 years ago’.8
The Spaak Report had two main objectives: one political and one
economic. The political objective was to reduce the possibility of conflicts
and wars.9 The economic objective was to increase prosperity in Europe
by reducing barriers to trade between the European states.10 To ensure
the establishment of a common market and ensure economic rights and
freedoms in the form of the freedom to provide services, free movement
of goods and freedom of establishment, barriers to trade had to be
abolished and undistorted competition ensured. The free movement
should be ensured by enforcing rules opening the markets between
Member States, and rules on competition to make sure that private
undertakings did not close the markets again by distorting competition.
7 Prior to the formation of the EEC, the European Coal and Steel Community (ECSC) was
established between (the then) West Germany, France, Italy and the Benelux countries (Belgium,
the Netherlands and Luxembourg) by the Treaty of Paris, ratified in April 1951 and in force from
July 1952. The formation of the ECSC arose from an increasing need for European integration to
secure lasting peace between European countries after World War II. The ECSC was a significant
achievement in organising the coal and steel market, but further integration was considered
necessary.
8 Quoted by Ludwig Von Mises in ‘Democracy and Economic Power’ in Cartel and Monopoly in
Modern Law (CF Müller Karlsruhe, 1961) page 36.
9 Spaak Report, supra note 6, page 5.
10 Ibid. page 8.
71
There was a general agreement that the elimination of barriers would
not be achieved if private agreements or economically powerful firms
were permitted to manipulate, or not prevented from manipulating, the
flow of trade. The Spaak Report highlighted the need for the EC Treaty
to prevent monopolies or monopolistic practices from impeding the
fundamental aims of the common market.11 However, this was never
implemented in the Treaty which prohibits an abuse of dominance.
Some of the key delegates preparing the text of the EC Treaty strongly
believed in ordoliberalism. One of the German delegates, Walter
Hallstein, a law professor from University of Frankfurt who later became
the first President of the Commission,12 espoused the ideas of
ordoliberalism.13 The chairman of the common market Group, Hans von
der Groeben, strongly believed in ordoliberalism, in particular that the
abuse of power must be prohibited.14 This view was echoed by another
delegate, the German Professor in economics, Alfred Müller-Armack, who
represented the German Federal Government as chief negotiator for the
EC Treaty.15
As a concept ordoliberalism appeared suitable to integration. The basic
principles laid down in the EC Treaty, for example, the four freedoms,16
11 Spaak Report, supra note 6, pages 44-45. 12 A critique of Walter Hallstein as the Commission’s first president can be found in John
Gillingham, European Integration, 1950-2003: Superstate or New Market Economy? (New York:
Cambridge University Press, 2003) page 74.
13 Gerber, supra note 2, page 343; Manfred E Streit, ‘Economic Order, Private Law and Public
Policy: the Freiburg School of Law and Economics in Perspective’ 148 Journal of International and
Theoretical Economics (1992) 675.
14 Note of 26 October 1956 by Hans Von der Groeber, Council Archives CM3/NEGO/217, Document
MAE468 f/56.
15 Mémo interne, 7 September 1956, Fascicule 5, Council Archives CM3/NEGO/236, Document
MAE/Sec. 29/56; Christian Joerges and Florian Rödl, ‘“Social Market Economy” as Europe’s Social
Model?’ EUI Working Paper Law No 2004/8 (2004) page 14.
16 Free movement of goods: Article 28; free movement of workers: Article 39; free right of
establishment: Article 43; and free movement of capital: Article 56.
72
the non-discrimination principle17 and the system of undistorted
competition matched ordoliberal conceptions of the economic order they
proposed for the market system as described in chapter two. The
protection of economic liberties in the form of freedom of trade
supported by competition and non-discrimination rules,18 matched the
ordoliberal view of protecting competition in the market and free access
to the market in order to maintain a stable liberal market economy and
to guarantee individual economic freedom.
1.2 Exploitative and exclusionary conduct
It has been argued that the competition provisions of the EC Treaty,
Articles 81 and 82, bear the imprint of ordoliberal political philosophy.19
This section will assess this argument in relation to Article 82 in
particular.20
In terms of Article 82(1), any abuse by one or more undertakings in a
dominant position within the common market or in a substantial part of
it shall be prohibited. Article 82(2) lists some examples of conduct by
dominant undertakings which may be considered abusive. The list
contains different categories of abuses: exploitative, exclusionary and
discriminatory, meaning that the prohibition covers both exploitative and
exclusionary abuses. The distinction between exploitative and
exclusionary conduct is not expressly made in the Treaty, perhaps
17 The general non-discrimination principle is set out in Article 12.
18 Gráinne De Búrca, ‘The Constitutional Challenge of New Governance in the European Union’
28(6) European Law Review (2003) 814, page 817; Philip Manow, Armin Schafer and Hendrik Zorn
‘European Social Policy and Europe’s Party-Political Center of Gravity, 1957-2003’ MPIFG Discussion
Paper No 6 (October 2004) page 20.
19 See Gerber, supra note 2, chapter 9 and Van Miert, supra note 2.
20 A similar assessment in relation to Article 81 has been made by Giorgio Monti, ‘Article 81 EC and
Public Policy’ 39 Common Market Law Review (2002) 1057, page 1061.
73
because most exclusionary practices are indirectly exploitative.21 Unlike
Article 81(1), Article 82 contains no reference to the anti-competitive
effects of the practice referred to as conduct will be regarded as abusive
only if it restricts competition.22 The reason is that if such a requirement
had been inserted, only exclusionary abuses would have been
considered abusive under Article 82, because there is nothing inherent in
exploitative abuses, for example, excessive pricing to a final consumer
to distort the process of competition.23
Exploitative abuse is where the dominant undertaking takes excessive
advantages of its market power and obtains a benefit by placing an
unfair burden upon its customers or consumers. This is only possible
because there are not many alternative undertakings to which the
consumer can turn for supply. Exploitative abuses are prohibited directly
in Article 82(2)(a) and (b), and indirectly in Article 82(2)(c) and (d).
Indent (a) concerns exploitative abuses, where the dominant
undertaking takes excessive advantage of its market power; indent (b)
concerns limitation of production, markets or technical development to
the prejudice of consumers; indent (c) concerns discriminatory abuses,
where the dominant undertaking differentiates seriously and
unjustifiably between companies with which it is contracting; and indent
(d) concerns tying, where the dominant undertaking makes one
obligation subject to a supplementary obligation in circumstances where
the obligations have no connection.
21 This argument was put forward by Eleanor Fox, ‘What is Harm to Competition? Exclusionary
Practices and Anti-Competitive Effect’ 70 Antitrust Law Journal (2002-2003) 371, and reiterated by
Advocate General Kokott in her Opinion in Case C-95/04P British Airways plc v Commission,
delivered on 23 February 2006, paragraph 68.
22 Case T-203/01 Manufacture française des pneumatiques Michelin v Commission [2003] ECR II-
4071, paragraph 237.
23 Duncan Sinclair, ‘Abuse of Dominance at a Crossroads: Potential Effect, Object and Appreciability
under Article 82 EC’ 25(8) European Competition Law Review (2004) 491, page 493.
74
René Joliet (later to become a judge at the ECJ)24 argued a couple of
years before the ECJ reached its judgment in Continental Can25 that
Article 82 should be interpreted to catch exploitative behaviour only,
which directly harms consumers. His reason for wanting to leave out
exclusionary conduct from the scope of Article 82 was that preventing
competitors’ exclusion from the market goes beyond the objective of
protecting the competitive process.26 Joliet’s argument has some merits
if it is accepted that most exclusionary abuses are exploitative. Joliet
argued that exclusionary conduct will eventually be caught by prohibiting
exploitation because the point of driving competitors out of the market is
that the dominant undertaking can acquire the market power necessary
to charge monopoly profits. The very question of whether exclusionary
abuses are captured by Article 82 was considered by Advocate General
Roemer in his Opinion in Continental Can:27
The only question of interest in the present case…is purely
whether Article 86 [now Article 82] also applies if an
undertaking in a dominant position on the market, by means of
the acquisition of another undertaking reinforces its position on
the market, to such an extent that ‘in practice’ nothing remains
in the way of competition of economic significance.
By using the word ‘also’, Advocate General Roemer assessed whether
Article 82, in addition to practices where the undertaking uses its power
(exploitation), applies to practices where the undertaking simply
strengthens its dominant position (for example by exclusion). Advocate
General Roemer argued that Article 82 was not the appropriate tool for
controlling mergers and concluded that there was no legal basis in
Article 82 for such an interpretation. He based his answer on several
24 René Joliet served on the ECJ between 1984 and 1995.
25 Case 6/72 Europemballage Corpn and Continental Can Co Inc v Commission [1973] ECR 215, [1973] CMLR 199. 26 René Joliet, Monopolization and Abuse of Dominant Position (Martinus Nijhoff, 1970) pages 250-
251.
27 Opinion of Advocate General Roemer in Continental Can, supra note 25, delivered on 21
November 1972, page 254.
75
observations including that Article 82 does not distinguish between
different degrees of dominance. Further, that it does not contain a
provision such as the merger provision in Article 66 of the ECSC Treaty,
that ‘effective competition’ must not be hindered. Finally, unlike Article
81(3)(b), Article 82 does not state that there must be no possibility of
eliminating competition in respect of a substantial part of the products in
question.
Advocate General Roemer’s final observation emphasises that the
dominant undertaking cannot abuse its position and then be exempted,
if its behaviour increases efficiency, by arguing that its behaviour does
not eliminate ‘competition in respect of a substantial part of the
products’. This reflects ordoliberal concern about the accumulation of
economic power.
Advocate General Roemer’s interpretation that Article 82 ‘does not
contain a provision that effective competition must not be hindered’
seems to be in tune with the ordoliberal view and the intentions of some
of the drafters of the Treaty. For example, Alfred Müller-Armack and
Hans Von der Groeben held that the hindrance of competition should not
be prohibited,28 only the abuse of a dominant position:29
With regard to monopolies, on the one hand, the more complete
the monopoly, the less probable is it that any competition likely
to be compromised or eliminated will exist. As a result, what
should be prohibited in the case of monopolies is not the
28 ‘Monopolies and oligopolies are not necessarily…incompatible with the competition regime. What
must be abolished …[are] the abuses to which certain monopolistic situations might lead…’. Ian S
Forrester, ‘The Modernisation of EC Antitrust Policy: Compatibility, Efficiency, Legal Security’ in
Claus-Dieter Ehlermann and Isabela Atanasiu (eds), The Modernisation of EC Antitrust Policy (Hart
publishing, 2001).
29 Document MAE468 f/56, supra note 14.
76
hindrance of competition but only abuse of a dominant position in
the market.30
Von der Groeben is saying that hindrance of competition is acceptable,
but abuse must be prohibited. This supports Advocate General Roemer’s
interpretation even though it is not entirely clear whether the term
‘abuse’ only refers to exploitation. Even if he meant exploitation only,
which is unclear, then what about exclusionary conduct which indirectly
leads to exploitation?
An answer to this question was given in Continental Can.31 The ECJ held
that not only exclusionary conduct which directly harms consumers
(exploitation), but also conduct which indirectly harms consumers
(exclusion) is prohibited:32
[T]he condition imposed by Article 86 is to be interpreted
whereby in order to come within the prohibition a dominant
position must have been abused. The provision states a certain
number of abusive practices, which it prohibits. The list merely
gives examples, not an exhaustive enumeration of the sort of
abuses of a dominant position prohibited by the treaty. As may
further be seen from letters (c) and (d) of Article 86(2), the
provision is not only aimed at practices which may cause damage
to consumers directly, but also at those which are detrimental to
them through their impact on an effective competition structure,
such as is mentioned in Article 3(f) of the Treaty. Abuse may
therefore occur if an undertaking in a dominant position
strengthens such position in such a way that the degree of
dominance reached substantially fetters competition, i.e. that
only undertakings remain in the market whose behaviour depends
on the dominant one.
The ECJ decided that the scope of Article 82 would be limited, if it could
be used only to address practices where the concerned undertaking used
its dominant position and not practices where the undertaking
30 ‘En revanche, en ce qui concerne les monopoles, ce n’est pas le fait d’entraver la concurrence,
mais bien seulement l’abus de la position dominante sur le marché qui pourra faire l’objet d’une
interdiction…’. Translation from Ian S Forrester, supra note 28.
31 Continental Can, supra note 25.
32 Ibid. paragraph 26.
77
strengthened its dominance. Thus, not only conduct which harms
consumers directly, but also conduct which harms consumers indirectly,
by altering the structure of the market, is prohibited by Article 82. This
is presumably because the restriction of competition by altering the
structure and dynamics of the market can limit intra-brand or inter-
brand competition.
A possible consequence of prohibiting an alteration of the market
structure or foreclosure only, which may or may not lead to indirect
consumer harm, may be protection of the competitive opportunities of
another firm. If the aim of the Court was not only to protect consumers
indirectly, but also to ensure that the exercise of power does not impair
competitors’ ability to compete, then that goes back to the ordoliberal
concern that competition should be protected by making sure that no
firm becomes powerful enough to impair the competitive process. That
the main goal of Article 82 is to protect the competitive process is an
assumption supported by Professor Thomas Eilmansberger.33
DG Competition’s Director General Philip Lowe is also willing to protect
the competitive process, but only as an outcome and not in itself:34
[C]onsumer welfare and efficiency are the new guiding principles
of EU competition policy. Whilst the competitive process is
important as an instrument, and whilst in many instances the
distortion of this process leads to consumer harm, its protection is
not an aim in itself. The ultimate aim is the protection of
consumer welfare, as an outcome of the competitive process.
33 Thomas Eilmansberger, ‘How to Distinguish Good from Bad Competition under Article 82 EC: in
Search of Clearer and More Coherent Standards for Anti-competitive Abuses’ 42 Common Market
Law Review (2005) 129, page 133; Thomas Eilmansberger, ‘Dominance – the Lost Child? How
Effects-Based Rules Could and Should Change Dominance Analysis’ European Competition Journal (2006) 15, page 18.
34 Lowe, supra note 4, page 9.
78
Lowe has argued elsewhere that Article 82 does not prevent dominant
undertakings from competing on the merits.35 Without having a precise
definition of ‘competition on the merits’, Lowe’s argument is taken to
mean that he is only willing to protect the outcome of the competitive
process rather than the process itself.
This is far removed from the ordoliberals’ reasons for protecting the
process of competition. As established in chapter two, ordoliberals focus
on the need to protect the conditions of competition rather than its
short-term consumer welfare. The competitive process should be
protected whether or not it is inefficient, as efficiencies are rejected in
principle. Put simply, the difference is whether the competitive process is
protected as an end in itself or protected as a means to an end. It is also
a question of whether the conduct in question is considered in a short-
term or long-term perspective. Ordoliberals take a long-term
perspective.36 To ensure competition in the long-run, protecting
competitors is more important than protecting efficiencies in the short-
term.
The question is whether some of the decisions of the Commission and
the ECJ take the long-term perspective with an emphasis on rivalry
without apparently rigorous inquiry into their relative efficiency, which
reflects the ordoliberal approach. This question will be addressed by
analysing fundamental cases decided under Article 82 such as
Continental Can, Commercial Solvents, United Brands, Hoffmann-La
Roche and Michelin I. These cases are chosen because the law on Article
82 is to be found in the early cases.
35 Philip Lowe at the thirteen Annual Conference on International Antitrust Policy, speech given on
23 October 2003 at the Fordham Antitrust Conference in Washington, page 5, speech available at:
http://ec.europa.eu/comm/competition/speeches.
36 Gerber, supra note 1, page 78.
79
2. The Application of Article 82
Over time, the conduct of dominant undertakings has been assessed in
the light of the overall objectives of the EC Treaty,37 in particular, the
creation of a single European market. Apart from this well-known market
integration goal,38 Article 82 has been applied to achieve a variety of
other objectives; most importantly, the objective of protecting
competition from distortion.39 In some of the cases however, it is very
difficult to assess whether the Community Courts think competition is
best protected from distortion by protecting the process of competition
and thereby the economic freedom of the market participants, or by
protecting consumer welfare. This difficulty arises because the ECJ has
decided that Article 82 is not only ‘aimed at practices which may cause
damage to consumers directly, but also at practices that are detrimental
to consumers through their impact on an effective competitive
structure’.40
2.1 Continental Can
2.1.1 Facts of the case
The American metal-packing company Continental Can, the world’s
largest producer of metal containers,41 acquired 91 per cent interest in a
Dutch metal can manufacturer – Carnaud of France and Thomassen &
37 Case 6-7/73 Istituto Chemioterapico Italiano SpA and Commercial Solvents Corporation v
Commission of the European Communities [1974] ECR 223, [1974] 1 CMLR 309, paragraph 32;
Continental Can, supra note 25, paragraphs 24 and 26; Case 27/76 United Brands Company v
Commission [1978] ECR 207, [1978] 1 CMLR 429, paragraph 183; Case 85/76 Hoffmann-La Roche AG v Commission [1979] ECR 461, [1979] 3 CMLR 211, paragraph 90.
38 For example, Case 226/84 British Leyland plc v Commission [1986] ECR 3263, [1987] 1 CMLR
185; Case 26/75 General Motors Continental NV v Commission [1975] ECR 1367, [1976] 1 CMLR
95; United Brands, supra note 37. These are a few of the cases where market integration
considerations had a large impact on the outcome.
39 Continental Can, supra note 25. See also Eilmansberger, supra note 33, page 132ff.
40 Continental Can, supra note 25, paragraph 26.
41 Founded in 1904 and incorporated in New York in 1913.
80
Drijver-verblifa NV (‘TDV’) through its holding company Europemballage
Corporation (‘Europemballage’). Continental Can had transferred its 85
per cent share of a Germany company Schmalbach-Lubeca-Werke AG
(‘SLW’) to Europemballage to buy the shares of TDV.
2.1.2 The Commission’s decision
The Commission opened proceedings against the merger in April 1970
on its own initiative.42 The Commission found that Europemballage held
a dominant position in the markets for light metal open-top containers
for meat and fish and lids for glass jars. In December 1971, it concluded
that the merger with TDV constituted an abuse of a dominant position
and thus violated Article 82.43 The Commission argued that
Europemballage had rendered any future competition between TDV and
SLW impossible and thereby distorted competition in West Germany and
the Benelux countries, which represented a substantial part of the
common market.44 Its decision was based on five points:
1. the very large market share already held by SLW;
2. the weak position of the remaining competitors;
3. the weak position of the buyers compared to the strength of the
merged company;
4. the numerous ties already existing between Continental Can and
potential competitors; and
5. the financial and technical problems of entering this highly
concentrated market.45
42 Paul W Johnson, ‘Use of Article 86 to Invalidate Mergers’ 15 Harvard International Law Journal
(1974) 333, page 336.
43 At the time that this case and the other cases subject to analysis in this section were decided,
Article 82 was numbered Article 86. To avoid confusion Article 82 will be used throughout, except in
quotations.
44 Continental Can OJ [1972] L7/25; 2 CCH Comm. Mkt. Rep. 8171 (1973).
45 Ibid. page 8301.
81
The Commission’s Report on Competition Policy in 1971,46 which was
written in the same year as the Commission reached its decision in
Continental Can, seemed concerned with consumer welfare:
Through the interplay of decentralised decision-making
machinery, competition enables enterprises continuously to
improve their efficiency, which is the sine qua non for a steady
improvement in living standards and employment prospects
within the countries of the Community. From this point of view,
competition policy is an essential means for satisfying to a great
extent the individual and collective needs of our society….
Competition policy…encourages the best possible use of
productive resources for the greatest possible benefit of the
economy as a whole and the benefit, in particular, of the
consumer.
Whilst the Commission’s Report on Competition Policy seemed concerned
with the welfare of consumers, its decision did not reflect that concern.
The Commission based its conclusion on academic literature47 and on a
Commission Memorandum from 1966: A Problem of Concentration in the
Common Market.48 According to the memorandum, a merger of an
enterprise holding a dominant position with another enterprise, so that a
monopoly situation is brought about by the removal of any remaining
competition on the market, may in itself constitute an abuse within the
meaning of Article 82.49 This is based on the assumption that the closer
the merging undertakings are to holding a monopoly, the more likely it
is that the merger will violate Article 82, as suggested by Hans von der
Groeben, one of the drafters of the EC Treaty, in 1965.50 This
46 1st Report on Competition Policy (1971), pages 11-12.
47 Ernst-Joachim Mestmäcker, ‘Die Beurteilung von Unternehmenszusammenschlüssen nach Artikel
86 des EWG-Vertrages’ in Festschrift für Walter Hallstein zu seinem 60: Probleme des Europäischen
Rechts (1966); Verloren Van Themaat, ‘Zusammenschlüsse Über die Grenze im Rahmen des EWG-
Bereichs’ Conference Paper of the 4th International Conference on European Law (Rome, 1968).
48 Commission of the EEC, Le Problemé De La Concentration Dans Le Marché Commun 21 (1966).
49 Ibid. page 26.
50 Hans von der Groeben, ‘Competition Policy within the Framework of the Common Market’ (16
June 1965) European Parliament docs. No 79, page 107.
82
assumption operates more against monopolies than mergers and seems
to be a concern about size and large concentrations of economic
power.51 If the Commission’s prime concern was the size of Continental
Can, then that explains why the Commission did not consider the effects
of the merger on competition. On 9 February 1972, Continental Can
appealed the decision to the ECJ seeking annulment.
2.1.3. The ECJ’s judgment
On 21 February 1973, the ECJ handed down its judgment.52 On appeal,
Continental Can put forward the following arguments in relation to the
substantive points:
1. the very wording of the statute, especially when compared to the
ECSC Treaty, reveals a legislative intention that Article 82 does not
bar mergers;
2. because Article 82 does not prohibit the existence of a dominant
position, but only the abusive exploitation thereof, even a monopoly
is permitted;
3. a mere increase in market share is permissible;
4. reference to general provisions of the EC Treaty is not permissible;
5. a broad interpretation would leave Article 82 meaningless, since any
type of conduct could be abusive;
6. a causal relationship must exist between the market dominance and
the abusive exploitation thereof; and
7. the appropriate policy consideration is to enable Community
enterprises to compete with those from third party states.
The Commission put forward the following arguments:
51 Robert S Singley, ‘Abuse of a Dominant Position by Acquisition in the Common Market: the
Continental Can Cases’ 12 The Columbia Journal of Transnational Law (1973) 359, page 386.
52 A comment on the case can be found in WMH Haubert II, ‘Continental Can – New Strength for
Common Market Anti-Trust’ 11 San Diego Law Review (1973-1974) 227.
83
1. the basic aim of the Treaty is to ensure competition;
2. Article 82(2)(b) together with Article 3(1)(g) constitutes a broad
mandate to prohibit the effect of prejudice to consumers;
3. a change in the structure of competition which reduces the
consumer’s market alternatives is an effect which is prohibited as
prejudicial; and
4. because it is the effect of reducing competition that is abusive,
neither the type of conduct nor the existence of a causal relationship
between the dominance and that conduct is relevant to proving an
abuse.
Broadly speaking, the ECJ had to assess whether a dominant position
realised through a merger falls within the scope of Article 82. This would
require the Court to examine whether the word ‘abuse’ could refer also
to changes in the structure of an undertaking, which led to the
disturbance of competition in the common market.53 A merger is a
structural change that often strengthens the position of an undertaking,
but it is not necessarily intended directly to eliminate competition.
The first argument put forward by Continental Can was that, since the
EC Treaty does not contain a merger provision like that of the ECSC
Treaty, the drafters of the EC Treaty deliberately chose not to prohibit
mergers. This is in essence an attempt to discern the legislative intent of
the drafters of the Treaty. The ECJ avoided basing its reasoning on
legislative intent, and held that the question could not be solved by
comparing Article 82 to the provisions of the ECSC Treaty.54
The second point put forward by Continental Can was that dominance is
not in itself prohibited by Article 82 therefore it must be permitted
indirectly. Moreover, the provision does not distinguish between different
53 Continental Can, supra note 25, paragraph 20.
54 Ibid. paragraph 22.
84
degrees of dominance, a point also put forward by Advocate General
Roemer,55 thus even a monopoly is permitted. The consequence of the
second point is, that the effect of a merger is an increase in the
undertaking’s dominance (its market share) and that such an increase is
not an abuse (Continental Can’s third point). The Court responded by
relying on a teleological interpretation. It interpreted Article 82 in the
light of Article 3(1)(g),56 according to which it must be ensured that
competition is not distorted.57 Interpreting Article 82 in the light of the
general principle of undistorted competition meant that examining
whether there is an abuse of a dominant position cannot be done in
isolation. Such an interpretation implies that a merger can, by its
effects, become an abuse prohibited by Article 82.
In relation to Continental Can’s fourth point, the Court dismissed the
argument that it is not permissible to refer to the general provisions of
the Treaty. It rightly held that the requirement of ensuring that
competition in the common market is not distorted is essential, as
without it numerous provisions in the Treaty would be pointless.58
With its fifth argument, Continental Can tried to encourage the Court to
take a narrow interpretation of Article 82, a view that was supported by
Advocate General Roemer.59 The Court rejected a narrow interpretation
of Article 82. It emphasised that ‘abuse’ was not limited to conduct
which is likely to cause harm to consumers directly, but also to conduct
which is detrimental to consumers indirectly, because its effect on the
55 Opinion of Advocate General Roemer, supra note 27.
56 Continental Can, supra note 25, paragraph 23. 57 The Community Courts continue to apply a teleological interpretation of the competition rules,
see for example Case C-95/04P British Airways plc v Commission, paragraph 143 and Joined Case
C-147/97 and C-148/98 Deutsche Post AG and Gesellschaft für Zahlungssysteme mbH (GZS),
Citicorp Kartenservice GmbH [2000] ECR I-825, paragraph 60.
58 Continental Can, supra note 25, paragraph 24.
59 Opinion of Advocate General Roemer, supra note 27. See also section 1.2 above page 77 setting
out Advocate General Roemer’s grounds for adopting a narrower interpretation of Article 82.
85
competitive structure of actual competition may be harmful.60 The Court
held that:61
If it can, irrespective of any fault, be regarded as an abuse if an
undertaking holds a position so dominant that the objectives of
the treaty are circumvented by an alteration to the supply
structure which seriously endangers the consumer's freedom of
action in the market, such a case necessarily exists, if practically
all competition is eliminated. Such a narrow precondition as the
elimination of all competition need not exist in all cases. But the
Commission, basing its decision on such elimination of
competition, had to state legally sufficient reasons or, at least,
had to prove that competition was so essentially affected that the
remaining competitors could no longer provide a sufficient
counterweight.
By referring to the counterweight of competitors, the Court confirmed
that Article 82 does not require absolute dominance by an undertaking,
but rather a strong economic position relative to its competitors such
that a competitive counterweight is no longer present.
In relation to Continental Can’s sixth argument about causality, the ECJ
held that when it comes to strengthening the position of an undertaking,
there may be an abuse if the effect is to prevent effective competition.62
The Court did not comment upon the seventh argument put forward by
Continental Can.
In conclusion, the ECJ supported the Commission’s legal interpretation of
Article 82 that both exploitative and exclusionary conduct can constitute
an abuse of dominance. However, the Court criticised the Commission’s
market definition in that the Commission had not fully shown how the
three markets (light metal open-top containers for meat and fish and lids
for glass jars) were distinguished from the market for light metal
containers generally. Consequently, the Court found that the
60 Continental Can, supra note 25, paragraph 26.
61 Ibid. paragraph 29.
62 Continental Can, supra note 25, paragraph 27.
86
Commission’s market definition was faulty and found in favour of
Continental Can.63
2.1.4 Analysis of the ECJ’s judgment
The Court seemed concerned with prejudice to consumers. Interpreting
Article 82 in the light of Article 3(1)(g) meant that conduct of a
dominant undertaking is abusive if it runs counter to the purpose of
protecting competition in the common market from distortions.
Accordingly, Article 82 is also designed to protect the structure of the
market and competition as such, which is an important step towards
protecting competition. The Court held that by protecting the structure
of competition, consumers would be protected indirectly, presumably
because where competition is impaired, disadvantages for consumers
are also to be feared. At first sight, it may appear that the ECJ is
concerned about consumer welfare, but the Court does not enter into an
analysis of efficiencies. Instead, it talks of ‘an alteration to the supply
structure which seriously endangers the consumer's freedom of action in
the market’.64 This highlights the Court’s concern for the consumer’s
competitive freedom. This does not necessarily mean the final consumer
as defined in chapter four, but may concern both the purchaser on the
wholesale level (a customer) and the consumer of a product on the retail
level (final consumer) in downstream markets. Regardless of whether
the Court was concerned about the final consumer or the customer, it is
clearly concerned about the consumer’s freedom of action and, arguably,
Article 82 could be used to keep the power of Continental Can in check
and thereby protect the freedom of other market participants from the
misuse of such power. Thus, it is not entirely clear whether the Court
was addressing consumer welfare or individual economic freedom.
63 The Court’s judgment was at the time described as ‘arguably the most important test case in
EEC legal history’ by The Times under the headline: Continental Can wins European Court Appeal
against the Commission, 22 February 1973.
64 Continental Can, supra note 25, paragraph 29.
87
2.2 Commercial Solvents
2.2.1 Facts of the case
Commercial Solvents Corporation (‘CSC’), an American corporation,
produced 1-nitropropane (‘nitropropane’) and a derivative thereof, 2
amino-1-butanol (‘aminobutanol’), an intermediate product for the
production of ethambutol. The latter was a compound used in the
treatment of pulmonary tuberculosis. CSC supplied aminobutanol to
customers in the common market through its Italian subsidiary, Instituto
Chemioterapico Italiano SpA Istituto (‘ICI’) of which it owned 51 per cent
of the shares.65
At the time, the three main producers of ethambutol in the common
market were the American company Cyanamid Company (acting through
its Italian subsidiary Cyanamid Italia), CSC/ICI (ICI acted as a re-seller
for CSC in the common market) and an Italian company Laboratorio
Chimico Farmaceutico Giorgio Zoja (‘Zoja’). To successfully produce
ethambutol, aminobutanol is an essential material. CSC used to have a
patent in the method of production of nitropropane for the use of
producing aminobutanol. The patent had expired, but CSC held a de
facto monopoly due to its know-how and high barriers to entry to the
market in the form of high costs and the complexity of the necessary
equipment.
From 1966 to November 1969, Zoja got its aminobutanol, for its
ethambutol production, from CSC/ICI. Due to a price increase for
aminobutanol charged by CSC/ICI, Zoja found alternative suppliers for
aminobutanol. These suppliers used aminobutanol for paint, not for
pharmaceuticals. In 1970, these alternative suppliers would no longer
65 CSC acquired 51 per cent of the voting shares in ICI in 1962.
88
supply Zoja as CSC had commanded them not to.66 When Zoja tried to
get supply from other suppliers, Zoja was told that CSC had ceased to
deliver or forbidden them to sell the raw material for pharmaceutical
use.67 Zoja, which used to be the main customer of ICI, returned to ICI
for supply, but ICI then refused to supply it.
Zoja complained to the Commission that CSC and ICI had infringed
Articles 81 and 82. On 25 April 1972, the Commission opened an
investigation against CSC/ICI alleging an infringement of Article 82.
2.2.2 The Commission’s decision
Broadly, the Commission had to decide whether CSC/ICI had abused its
dominant position contrary to Article 82 by refusing to supply an existing
customer Zoja, one of the principal producers of ethambutol in the
common market, with aminobutanol.68
The Commission found that the CSC group, which included ICI (a
question on appeal was whether CSC/ICI belonged to the same
economic entity, a question which will not be dealt with here) had a
dominant position in the market for the raw materials (nitropropane and
aminobutanol) in the common market. The basis of this finding was that
CSC enjoyed a world monopoly in the production and supply of
nitropropane and aminobutanol.
CSC was found to have abused its dominant position in ceasing to supply
Zoja with aminobutanol for the production of ethambutol in the common
market, as the conduct led to the elimination of Zoja and so to a
66 Eleanor Fox, ‘Monopolization and Dominance in the United States and the European Community:
Efficiency, Opportunity, and Fairness’ 61 Notre Dame Lawyer (1986) 981, page 994.
67 Valentine Korah, ‘Instituto Chemioterapico Italiano SpA and Commercial Solvents Corporation v
Commission of the European Communities’ 11 Common Market Law Review (1974) 248, page 249.
68 Instituto Chemioterapico Italiano SpA and Commercial Solvents Corporation OJ [1972] L299/51.
89
reduction in competition. As a remedy, the Commission ordered CSC/ICI
to supply Zoja with a specific quantity of aminobutanol at a price which
was no higher than the maximum price charged to other customers. The
Commission also imposed a fine on CSC/ICI.
On 17 February 1973, both CSC and ICI appealed the decision to the
ECJ seeking annulment of the Commission’s decision. The ECJ assessed
both cases together and issued a single judgment.
2.2.3 The ECJ’s judgment
On 6 March 1974, the ECJ handed down its judgment.
On appeal, the appellants CSC and ICI had put forward the following
arguments in relation to the substantive issues:69
1. the relevant market for ethambutol did not exist, since
ethambutol was only a part of a larger market in anti-tuberculosis
drugs;70
2. the CSC group did not hold a dominant position in the common
market for the raw materials necessary for the manufacture of
ethambutol;71
3. refusal to supply Zoja with aminobutanol was not an abuse, but a
change in commercial policy;72
4. trade between Member States was not affected as Zoja sold 90
per cent of its products outside the common market;73 and
69 Case 6-7/73 Istituto Chemioterapico Italiano SpA and Commercial Solvents Corporation v
Commission of the European Communities [1974] ECR 223, [1974] 1 CMLR 309.
70 Ibid. paragraph 19.
71 Commercial Solvents, supra note 69, paragraphs 9-10.
72 Ibid. paragraph 23.
73 Commercial Solvents, supra note 69, paragraph 30.
90
5. CSC was not responsible for ICI’s conduct and vice versa, as CSC
and ICI did not form an economic unit because they acted
independently of each other.74
The ECJ rejected all the arguments put forward by CSC/ICI and upheld
the Commission’s decision almost in its entirety, but reduced the fine
imposed by the Commission by 50 per cent.
In considering the question of abuse, the ECJ found that the evidence
showed that in 1970, ICI started manufacturing its own product based
on aminobutanol. To facilitate its own access to the market for that
product, CSC decided not to supply Zoja when it reapplied for supply.75
CSC was able to leverage its market power on the upstream market to
eliminate one of ICI’s competitors (Zoja) on the downstream market.76
By cutting off the supply to Zoja, CSC improved ICI’s position and
indirectly its own position in Europe on the downstream market. The
latter was a market with extremely low supply-side substitutability.
Thus, the ECJ specifically rejected claims that other nascent technologies
in the trial stage were substitutes for CSC’s raw materials.77 Instead, the
Court held the refusal to supply risked eliminating all competition on the
part of Zoja:78
[A]n undertaking being in a dominant position as regards the
production of raw material and therefore able to control the
supply to manufacturers of derivatives cannot, just because it
decides to start manufacturing these derivatives (in competition
with its former customers), act in such a way as to eliminate their
competition which, in the case in question, would have amounted
74 Ibid. paragraph 36.
75 Commercial Solvents, supra note 69, paragraph 24.
76 One must be careful not to use Commercial Solvents as authority for the proposition that Article
82 may be applied to an act committed by a dominant company on a market separate from the
market of dominance, because the abuse – the refusal to supply raw materials – took place in the
market where CSC was dominant.
77 Commercial Solvents, supra note 69, paragraph 15.
78 Ibid. paragraph 25.
91
to eliminating one of the principal manufacturers of ethambutol in
the common market . . . [A]n undertaking which has a dominant
position in the market in raw materials and which, with the object
of reserving such raw material for manufacturing its own
derivatives, refuses to supply a customer, which is itself a
manufacturer of these derivatives, and therefore risks eliminating
all competition on the part of this customer, is abusing its
dominant position within the meaning of Article 86.
2.2.4 Analysis of the ECJ’s judgment
The ECJ found there had been an abuse, based on the observations
made in paragraph 25 as quoted above, and held that:
1. CSC was a vertically integrated firm;
2. CSC controlled an essential raw material (an indispensable
derivative);
3. CSC eliminated all competition on the market on the part of Zoja;
4. there was no objective justification for its behaviour; and
5. it reserved the downstream market in its entirety.
In essence the Court was saying that refusal to supply Zoja was harmful,
as it eliminated all competition on the part of Zoja. The question is
whether the refusal to supply was considered harmful because it could
damage the consumer welfare of tubercular patients directly or
indirectly, as held by the ECJ in Continental Can?
If the Court was concerned about consumer welfare, then it should have
examined whether the elimination of competition on the part of Zoja
harmed consumers either by an increase in price, lowering product
quality or lack of choice. Did the Court do that?
Arguably, the Court did not consider whether consumer welfare was
harmed. It did not engage in an explicit analysis of the economic
efficiencies that might have arisen from vertical integration in great
detail. Basically, it did nothing more than point out that CSC’s conduct
92
had been adopted to reserve the raw material to itself. Was that harmful
for consumer welfare? It would only be bad for consumer welfare if
tubercular patients could not get their drugs equally efficiently and
readily at a similar price and quality from CSC/ICI.
First, would CSC’s conduct be likely to limit consumer choice? The
refusal to supply meant that ICI replaced Zoja in the downstream
market. From that point of view, CSC’s conduct would not have given
consumers more or less choice. If the Court assumed that CSC/ICI
would have entered the downstream market anyway, even if there had
been no refusal to supply, then arguably consumers would have had
more choice. However, the Court did not examine the likelihood of CSC’s
successful entrance on the downstream market while supplying Zoja. In
fairness to the Court, CSC did not argue that a continued supply to Zoja
would have imposed inefficiency upon CSC, for example, in the form of
lost economies of scale in distribution.79 Moreover, CSC did not challenge
the Commission’s finding that the refusal to supply could not be justified
due to insufficient productive capacity to supply Zoja.80 This might
indicate that CSC would have been able to supply Zoja while entering
the downstream market, but would CSC/ICI’s entry on the downstream
market have been equally successful? If so, then why did CSC/ICI not
enter the market before?
Second, would CSC’s conduct have caused a likely price increase to the
detriment of consumers? Unless CSC/ICI’s vertical integration itself
raised barriers to entry, the price charged to consumers after the
integration was likely to be no higher than the price to consumers before
79 Economies of scale is a phase describing the changes in unit costs that result from operating a
process at differing outputs, see Jack Hirshleifer, ‘The Firm’s Cost Function: A Successful
Reconstruction’ 35 The Journal of Business (1962) 235.
80 Commercial Solvents, supra note 69, paragraph 28.
93
the integration.81 Economists usually argue that vertical integration does
not increase barriers to entry to the market, because it is often a means
of exerting greater quality control over suppliers.82 Moreover, it is
argued that vertical integration gets rid of protracted bargaining costs by
reducing opportunism; it involves economies of information or
observational economies arising out of a need for only a single set of
observations or data for a related series of production stages, which
makes self-evaluation by a company of its performance less costly and
more reliable.83 According to the Commission’s decision, there were high
barriers to entry in the form of high costs and the complexity of the
necessary equipment and industry know-how. These barriers were
however not established because of the integration – they already
existed before the integration. The most likely hindrance caused by
CSC’s conduct would have been that trading parties were unable to get
the essential raw material to produce ethambutol. According to Stigler’s
definition of a barrier to entry this conduct would not have ‘qualified’ as
a barrier to entry.84 In any case, the Court did not decide whether this
acted as a barrier to entry in the first place, perhaps because the
Commission had already presupposed barriers to entry by finding
dominance.85
It would be for CSC/ICI to prove that this was the most efficient supply
structure in the market and that its integration would not increase price
to the detriment of consumers. For example, it could have argued that
81 Fox, supra note 66, page 1002.
82 George Joseph Stigler, The Organization of Industry (RD Irwin, 1968); Basil Selig Yamey,
Economies of Industrial Structure (Harmondsworth: Penguin Education, 1973).
83 Anand S Pathak, ‘Articles 85 and 86 and Anti-Competitive Exclusion in EEC Competition Law:
Part 1’ 10(1) European Competition Law Review (1989) 74, page 81.
84 Stigler, supra note 82, page 67 defines a barrier to entry as ‘a cost of producing (at some or
every rate of output) which must be borne by a firm which seeks to enter an industry but is not
borne by firms already in the industry’.
85 CW Baden Fuller, ‘Article 86 EEC: Economic Analysis of the Existence of a Dominant Position’ 4
European Law Review (1979) 423, page 428.
94
given that ICI was CSC’s subsidiary, CSC would have sold aminobutanol
more cheaply to ICI than it had done to Zoja. A lower cost price could
mean a lower retail price, to the benefit of consumers. Given that CSC
used to have a patent on nitropropane, and still more or less held a de
facto monopoly in the production and sale of nitropropane and
aminobutanol even after its patent expired, this showed that CSC had
market power both before and after ceasing to supply Zoja.86 In 1968,
CSC increased its price, which was the reason for Zoja seeking
alternative suppliers in the first place. This price rise demonstrated that
CSC was willing to use its market power, which creates a presumption
against CSC lowering its prices to the benefit of consumers.
Finally, would CSC’s conduct be likely to have lowered product quality?
The Court did not consider the likelihood of this. In the light of the above
considerations, the Court was probably right in finding an abuse of a
dominant position,87 but what goal did the Court pursue in reaching its
conclusion?
As discussed above, it is difficult to see that the Court pursued an
objective of consumer welfare as it did not consider the economic
efficiencies that might have arisen from vertical integration in great
detail. Instead, the Court, at best, based its judgment on assumptions of
consumer harm. One may question whether it is wrong to base a
judgment on an assumption of consumer harm. Assumptions are
necessary, but they must, at the very least, be based on well-
documented theory indicating likely consumer harm. Unfortunately, this
86 OJ [2004] C101/97 Commission Notice Guidelines on the Application of Article 81(3) of the
Treaty, paragraph 25 defines market power as the ability to maintain prices above competitive
levels for a significant period of time or to maintain output in terms of product quantities, product
quality and variety or innovation below competitive levels for a significant period of time. 87 One might wonder why the Court did not consider Article 81 as CSC had made an agreement
with its customers in the paint market not to resell nitropropane and aminobutanol to Zoja. Such a
clause, prohibiting resale of nitropropane and aminobutanol, could have been considered a
restriction of competition.
95
was not the case in this judgment. By pointing out that CSC’s conduct
would eliminate all competition on the part of Zoja, without considering
the likely effect on consumers, the Court did no more than point out that
there was a restriction of Zoja’s economic freedom. If the Court was
pursuing an objective of economic freedom then this is a perfectly
reasonable conclusion. Judge Pescatore, then President of the ECJ, later
confirmed in a speech that the Court had intended to protect a small
firm, rather than free competition.88 While this is an interesting insight
and it could indicate that the ECJ reached its conclusion by pursuing the
objective of economic freedom, one ought to be careful not to put too
much emphasis on such statements. That said, some commentators
have supported Judge Pescatore’s viewpoint89 and so has the
Commission.
In the Commission’s Report on Competition Policy in 1978, it appeared
to be the Commission’s view that it had to attack dominant companies
which refused to supply long-standing customers.90 This was in order to
guarantee equality of opportunity, freedom of access to business and
freedom of choice within the common market.91
With regard to the ECJ’s upholding the Commission’s decision, it is not
unlikely that this was because Zoja was economically dependent on CSC,
meaning that Zoja did not have other sufficient and reasonable
possibilities to find another supplier. At the time that the ECJ reached its
judgment in Commercial Solvents, Article 82 was a provision rarely used
so case law was sparse. Thus, it is not implausible that the judges of the
ECJ looked to the Member States with more developed national
88 Valentine Korah, ‘The Interface between Intellectual Property Rights and Antitrust: the European
Experience’ 69 Antitrust Law Journal (2002) 801, page 808.
89 Pathak, supra note 83, page 88.
90 8th Report on Competition Policy (1978), page 9.
91 Ibid.
96
competition law.92 At the time, Italy did not have a competition
statute,93 but Germany and France did,94 and the concept of ‘economic
dependency’ was incorporated in both German and French competition
law.95 Germany had section 26 of the ARC, which was applicable to firms
on which other firms were dependent.96 The section applied particularly
to dominant enterprises vis-à-vis small and medium-sized enterprises
lacking reasonable opportunities to change to other suppliers, as was the
case in Commercial Solvents. France had Ordinance n° 45-1483 of 1945,
provision 36-2, according to which refusals to sell between commercial
entities were per se anti-competitive. A supplier who refused to sell to a
distributor or a customer would have to justify its refusal to supply by
identifying an objective motive, such as the unusual character of the
order or the existence of exclusive, quasi-exclusive or selective
distribution networks.97 In 1986, Ordinance n° 45-1483 of 1945,
provision 36-2 was replaced by Ordinance n° 86-1243 of 1986, provision
36-5,98 but the concept of ‘economic dependency’ was kept.99
92 At the time, the Community consisted of the Netherlands, Belgium, Luxemburg, Italy, Germany
and France. These original signatories of the EC Treaty were all part of the civil law tradition.
93 Italy did not enact its first competition statute until 1990: Act of 27 September 1990, Law No
287/1990 Norme par la tutela della concorrenza e del mercato OJ No 240 of 13 October 1990 (in
English: Provisions for the Protection of Competition and the Market).
94 Germany had Gesetz gegen Wettbewerbsbeschränkungen [GWB] and France had Ordinance n°
45-1483 of 1945.
95 Dominique Brault, Politique et pratique du droit de la concurrence en France (LGDJ, 2004); the French Competition Commission’s decision ‘Avis de la Commission de la concurrence du 14 Mars
1985 sur les Super-Centrales d'Achat’ and section 26 of the ARC.
96 Gerber, supra note 2, page 315.
97 Melanie Thill-Tayara, ‘Developments in French Competition Law’ 18(2) European Competition
Law Review (1997) 113.
98 French competition law underwent a major overhaul in 1986 when its main statutory component,
Ordinance n° 45-1483 of 1945, was abrogated by Ordinance n° 86-1243 of 1986, Journal Officiel
de la République Française of 9 December 1986. Decret d’application No 86-1309 of 29 December
1986.
99 The French Competition Council had been reluctant to apply the concept of economic
dependency, which caused the French legislature to transfer and incorporate the competition rule of
abuse of economic dependency to Title IV in Chapter II of the French Code of Commerce, see
Brault, supra note 95, page 104. According to Article L 442-6 I of the French Code of Commerce,
97
2.3 Hoffmann-La Roche
2.3.1 Facts of the case
Hoffmann-La Roche & CO AG (‘HLR’), a multinational group whose
parent company was based in Basel in Switzerland, manufactured and
sold bulk synthetic substances belonging to 13 groups of vitamins: A,
B1, B2, B12, C, D, E, K, PP, pantheotic acid (B3), biotin (H) and folic
acid (M). HLR is the world’s leading vitamin manufacturer and at the
time was the largest pharmaceutical group. HLR’s customers would
process the vitamins for use in feeding-stuffs and food and only a small
percentage of the vitamins would not be processed, but sold as vitamins
for end consumers.
HLR had entered into about 30 contracts (some being renewals) with 22
large purchasers of vitamins under which the purchasers contracted to
buy all or most of their requirements of vitamins or of certain vitamins
from HLR in return for a rebate. The duration of most of these contracts
was for an indefinite period, either according to the terms of the contract
or because of the operation of a clause providing for renewal by tacit
agreement.
The Commission’s investigation was initiated after a former employee of
HLR, Stanley Adams, wrote to the Commission in April 1973 alleging that
HLR was in breach of the competition rules by virtue of their pricing
practices within the Community.100
formerly provision 36-5 of the 1986 Ordinance, an undertaking may be guilty an abuse if it suddenly
decides to discontinue supplies where the distributor is economically dependent on the supply, with
no written advance notice.
100 TJ Bennett, ‘Hoffmann-La Roche: Abuse of Dominance on the Vitamins Market Confirmed’ 4
European Law Review (1979) 210, page 212.
98
2.3.2 The Commission’s decision
On 9 June 1976, the Commission issued its decision.101 It found that
there were separate product markets for a number of different groups of
vitamins and that HLR had a dominant position in seven of the eight
markets of vitamins in which it was active.
In finding dominance, the Commission relied on HLR’s market share in
each individual market, its wide range of vitamins compared to that of
its competitors, that HLR was the world’s largest manufacturer of all
vitamins, that its turnover exceeded all the other producers’ turnover, its
technical and commercial advantages, and the financial and technical
barriers to entry for new competitors.102
The Commission found that the aim of the contracts was to tie the most
important buyers of bulk vitamins to HLR and thus to prevent its main
competitors from supplying them to these customers.
The substantive issue in the decision was whether the granting of fidelity
rebates was incompatible with the common market. The Commission
relied on the ECJ’s judgment in the Sugar cases103 where the Court had
found that fidelity rebates, which may reinforce dominance, are
incompatible with Article 82.
On 27 August 1976, HLR appealed, seeking annulment of the decision.
101 Vitamins OJ [1976] L223/27, [1976] 2 CMLR D25.
102 Ibid. recitals 5-6 and 21.
103 Joined Cases 40-114/73 Cooperative Vereniging ‘Suiker Unie’ U.A. and Others v Commission
[1975] ECR1663, [1976] 1 CMLR 295.
99
2.3.3 The ECJ’s judgment
On 13 February 1979, the ECJ confirmed the Commission’s decision in all
its essential points, but reduced the fine by one third.104
On appeal, the appellant HLR put forward the following arguments:
1. by imposing a penalty the Commission had infringed the fundamental
principle that rules relating to penalties must be certain and
foreseeable;
2. the decision had several formal defects as a result of irregularities in
the administrative procedure upon which the conclusion relied;
3. the Commission had inaccurately applied the concepts of a dominant
position and of the abuse of a dominant position which may affect
trade between Member States; and
4. the Commission had infringed Article 15(2) of Regulation no 17/62 by
imposing a fine, as the alleged infringements, insofar as they might
be found to exist, were not committed either intentionally or
negligently.
Only the substantive point (point three) will be dealt with here. The
Court upheld the Commission’s market definition.105 It also upheld the
Commission’s finding of dominance in all but one of the relevant
markets.106 The Court considered whether the Commission was correct
in finding that HLR had abused its dominant position.
The Court noted in its preliminary observations that the Commission had
found about 30 contracts with 22 large purchasers of vitamins under
which either the purchasers contracted to buy all or most of their
requirements of vitamins or of certain vitamins from HLR or under which
104 Hoffmann-La Roche, supra note 37. 105 Ibid. paragraph 30.
106 Hoffmann-La Roche, supra note 37, paragraph 79.
100
the purchasers had an incentive to do so due to ‘the promise of a
discount which the Commission classifies as a fidelity rebate’.107 The
Court divided these contracts into three categories.108
First, those contracts which contained a specific undertaking by the
purchaser to obtain exclusively from HLR either:
1. all or almost all of its requirements of bulk vitamins manufactured by
HLR; or
2. all its requirements of certain vitamins (expressly mentioned in the
contract); or
3. a percentage stipulated in the contract of its total requirements
(either 75 or 80 per cent); or
4. the ‘major part’ of its requirements of vitamins or certain vitamins.
Second, those contracts leave as is the purchaser undertook to give
preference to HLR or expressed its intention to obtain its supplies
exclusively from HLR or agreed to recommend to its subsidiaries to do
the same, either in respect of all their vitamin requirements or of certain
vitamins therein specified, or in relation to a fixed percentage of their
total requirements (for example 80 per cent).
Third, the contracts between HLR and Merck, and HLR and Unilever,
respectively, had special features and the Court therefore examined
them separately.
The ECJ held that the duration of most of these contracts in all three
categories was for an indefinite period, either according to the terms of
the contract or because of the operation of a clause providing for
renewal by tacit agreement, and they were clearly designed to establish
107 Ibid. paragraph 80.
108 Hoffmann-La Roche, supra note 37, paragraph 82.
101
trading relations for several years.109 All the contracts in question,
except for those with Unilever, contained provisions granting to the
purchaser ‘discounts or rebates calculated on the total purchases …
during a given period usually of a year or six months’.110 In relation to
six of the customers, the percentage of the rebates was not fixed but
increased, generally from one to three per cent, according to the
amounts purchased every year.
The Court considered whether, by entering into these contracts, HLR had
abused its dominant position on the relevant markets. It held that HLR
had abused its dominant position both by entering into exclusive
purchasing agreements with some of its customers and also by offering
them loyalty rebates. The Court stated that if a dominant undertaking
‘ties purchasers … to obtain all or most of their requirements exclusively
from [the dominant undertaking]’ then that is an abuse under Article 82,
‘whether the obligation in question is stipulated without further
qualification or whether it is undertaken in consideration of the grant of
a rebate’.111
2.3.4 Analysis of the ECJ’s judgment
The Court held that the distortion of competition was due to the fact that
the fidelity rebates given were conditional upon exclusivity or near
exclusivity to HLR:112
Obligations of this kind to obtain supplies exclusively from a
particular undertaking… are incompatible with the objective of
undistorted competition within the common market, because…
they are not based on an economic transaction which justifies
this burden or benefit but are designed to deprive the purchaser
109 Ibid. paragraph 86. 110 Hoffmann-La Roche, supra note 37, paragraph 87. 111 Ibid. paragraph 89. 112 Hoffmann-La Roche, supra note 37, paragraph 90.
102
of or restrict his possible choices of sources of supply and to
deny other producers access to the market.
The reasoning that the rebates were not based on an economic
transaction is based on the fact that HLR’s rebate was fixed not merely
with regard to the quantity purchased from HLR, but also the quantity
not purchased from it. But the reasoning that the rebates were designed
to deprive the purchaser of or restrict his possible choice of source of
supply is more difficult to comprehend. It could be argued that since
purchasers were not forced to get their supply from HLR, their choice
was not restricted, but this was not the approach taken by the Court.
Those customers who entered into HLR’s rebate agreements were paid
for their loyalty, but were not harmed by the agreements. Even if they
would be better off buying their vitamins from other suppliers, they were
free to do so and forego the rebates. Even those customers who had
entered into contracts obliging them to purchase a specified percentage
of their requirements from HLR could purchase elsewhere. Their only risk
was losing the rebate. Since HLR did not pay the rebates in advance, the
customers never had to refund HLR. However, the Court found that a
dominant position can also be abused even where the customers are not
obliged to obtain all their supplies from the dominant undertaking, but
are induced to take supply by means of fidelity rebates.113
The Court further held:114
[T]he effect of fidelity rebates is to apply dissimilar conditions to
equivalent transactions with other trading parties in that two
purchasers pay a different price for the same quantity of the
same product depending on whether they obtain their supplies
exclusively from the undertaking in a dominant position or have
several sources of supply.
113 Eric L White, ‘Some Important Aspects of the Hoffmann-La Roche Judgment’ 77 The Law
Society’s Gazette (1980) 246.
114 Hoffmann-La Roche, supra note 37, paragraph 90.
103
For Article 82(2)(c) to be violated the supplier must apply dissimilar
conditions to equivalent transactions with other trading parties to place
them at a competitive disadvantage. It is difficult to see how other
trading parties are placed at a competitive disadvantage if HLR did not
apply dissimilar conditions to equivalent transactions. The Court argued
that HLR applied different conditions to equivalent transactions as two
purchasers would pay a different price for the same quantity. However,
the Court did not consider the point that the price is only different
because one of the purchasers gets a rebate and the other one does not,
but again this is because the purchaser that gets the rebates gets
vitamins in return for exclusivity whereas the other purchaser just gets
vitamins. It would only place HLR’s trading parties at a competitive
disadvantage if both purchasers got the same quantity of vitamins in
return for exclusivity, but only one of them got the rebate. The Court did
not engage in an analysis of the competitive situation downstream, as
required under Article 82(2)(c), in order to examine whether the
appellant’s trading parties (its 22 customers) had been placed at a
competitive disadvantage. Instead the Court held:115
[S]ince the course of conduct under consideration is that of an
undertaking occupying a dominant position on a market where for
this reason the structure of competition has already been
weakened, within the field of application of article 86 any further
weakening of the structure of competition may constitute an
abuse of a dominant position.
The ECJ's reference to the weakening of the structure of competition on
the market confirms that the Court was concerned with primary-line
discrimination. This means discrimination used to expand or maintain a
dominant position to the disadvantage of its competitors. This indicates
that the Court was concerned about the fate of smaller competitors
faced with a powerful dominant undertaking, reflecting the objective of
fairness in the market place. Pursuing the objective of fairness was
115 Ibid. paragraph 123.
104
clearly important at the time as highlighted in the Commission’s Report
on Competition Policy in 1979:116
[T]he competition system instituted by the Treaty requires that
the conditions under which competition takes place remain
subject to the principle of fairness in the market place. In the
Commission’s view, this principle is of prime importance.
The Court further held:117
The concept of abuse is an objective concept relating to the
behaviour of an undertaking in a dominant position which is
such as to influence the structure of the market where, as a
result of the very presence of the undertaking in question, the
degree of competition is weakened and which, through recourse
to methods different from those which condition normal
competition in products or services on the basis of commercial
operators has the effect of hindering the maintenance of the
degree of competition still existing on the market or the growth
of that competition.
This reasoning is opaque as it is not clear what is meant by ‘normal
competition’. It has been suggested that it is fair to assume that ‘normal
competition’ is the same thing as ‘competition on the merits’.118
However, the latter terminology is not really helpful as no one really
knows what ‘competition on the merits’ means either. The terminology is
not used descriptively to indicate common or usual practices, but
normatively. But what are the norms of the Court and Commission?
Perhaps normal competition is competition without fidelity rebates and
exclusive contracts. The latter form of contract contains ‘a sufficient
incentive to reserve to Roche the sole right to supply the purchaser for
them to be, for this reason alone, an abuse…’.119 Maybe normal
competition is competition without any exclusive contact, as ‘where
exclusivity has been formally accepted the granting or not of a rebate is
116 9th Report on Competition Policy (1979), page 10.
117 Hoffmann-La Roche, supra note 37, paragraph 91.
118 OECD paper, supra note 1, page 22.
119 Hoffmann-La Roche, supra note 37, paragraph 111.
105
in the final analysis irrelevant…’.120 Perhaps, normal competition cannot
exist between two parties where one of them is dominant. In that case,
‘competition on the merits’ is close to the ordoliberal concept of
‘complete competition’, described in chapter two. The Court also
condemned reciprocal dealing between HLR and Merck,121 which implies
that any contract or sales method which provides an incentive for
purchasers to buy exclusively from the dominant firm is abusive.
Finally, the Court challenged conduct hindering the maintenance or
growth of competition. But how did the Court define ‘competition’? In
discussing the so-called ‘English clause’122 contained in most of HLR’s
rebate agreements, the Court said that HLR had the power to decide
whether it would permit competition.123 This indicates that for the Court,
competition meant the instances of commercial rivalry in which the non-
dominant competitor gets the business. If the dominant undertaking
wins, for example, by offering a better price than its competitors, what
has taken place is not competition, but anti-competitive conduct.
This is not to say that the outcome of the judgment is not correct, as the
across-the-board fidelity rebates offered by HLR may have had
significant anti-competitive effects by foreclosing sales by other vitamin
manufacturers, but if that is the case it is hard to follow the Court’s
reasoning. Even if the Court was pursuing the objective of consumer
welfare, it would have been insufficient to examine how much of the
market is foreclosed. It is not enough to point to market foreclosure; the
Court would require to assess whether the foreclosure harms consumer
120 Ibid. paragraph 95.
121 Hoffmann-La Roche, supra note 37, paragraphs 114-115.
122 An English clause is a contractual agreement in the context of single branding arrangements
between a supplier and its customer (for example a retailer), allowing the latter to purchase a good
from other suppliers on more favourable terms, unless the ‘exclusive’ supplier accepts to supply the
good on the same advantageous conditions.
123 Hoffmann-La Roche, supra note 37, paragraphs 107-108.
106
welfare if it were serious about consumer welfare. This is because
foreclosure does not necessarily cause competitive harm. The Court did
not examine whether the loyalty-enhancing effect led to competitive
harm for consumers. Instead, the Court’s reasoning was based on the
conduct’s effect on the structure of the market and HLR’s ability to
hinder the maintenance of the degree of competition still existing on the
market.124 This focus on HLR’s ability to coerce the behaviour of other
firms in the market shows the Court’s concern with preserving
competitors’ economic freedom in order to protect the remaining
competition in the market. The Court’s test for abuse that the dominant
undertaking’s conduct must be ‘different from those which condition
normal competition in products or services on the basis of the
transactions of commercial operators’ and must have ‘the effect of
hindering the maintenance of the degree of competition still existing on
the market or the growth of that competition’. This is a replica of
Professor Ulmer’s ordoliberal-inspired test,125 which focus on foreclosure
only and not anti-competitive foreclosure, adopted by the German
Supreme Court in the Combination Price Schedule case.126
Perhaps, the Court was influenced by German ordoliberal decision-
making practice on fidelity rebates. Why would the ECJ concern itself
with German competition law?
Most of HLR’s subsidiaries were in Germany and HLR itself referred to
section 22 of the ARC to argue that the abusive conduct of an
undertaking in a dominant position is not per se punishable by a fine.127
124 Hoffmann-La Roche, supra note 37, paragraph 91.
125 Professor Ulmer’s test is described in detail in chapter two, section 2.3.
126 BGH Kombinationstarif, WuW/E OLG 1767 (1977).
127 Section 22 of the ARC, at the time, provided:
1. Insofar as an enterprise has no competitor or is not exposed to any substantial
competition in a certain type of goods or commercial service, it is market-dominating
within the meaning of this Law.
107
Advocate General Reischl also referred to German competition law to
argue that fidelity rebates are regarded very critically in national
competition law.128 It is not unlikely that the Court was aware that
fidelity rebates were prohibited under German competition law, as it
argued that HLR ought to have considered the probability or at least the
possibility that Article 82 could apply to fidelity rebates, since these were
prohibited under the law of some Member States, including Germany.129
Furthermore, the ECJ’s judgment came just after the German Supreme
Court had decided the Combination Price Schedule case,130 which was
arguably based on Professor Ulmer’s ordoliberal-inspired test. The ECJ’s
reasoning, that fidelity rebates which are not based on an economic
transaction are abusive, seems to be an adoption of the first part of
Ulmer’s test that the conduct must constitute ‘non-performance
competition’ to be abusive. The fact that the rebates were linked to
exclusivity or near exclusivity meant that the ECJ considered the rebates
to be based on non-performance, which can drive even efficient
competitors out of the market. The Court’s reasoning in paragraph 91,
quoted above, that behaviour which influences the structure of the
market has the effect of hindering the maintenance of the degree of
competition still existing on the market or the growth of that
competition, seems to be an adoption of the second part of Professor
Ulmer’s test. Such conduct results in the remaining competition being
restricted in the dominated market where the structure of the market
affects conduct, which in turns affects performance. The ECJ reiterated
that once a dominant position has arisen, the market structures will
2. Two or more enterprises are deemed market-dominating insofar as, in regard to
certain types of goods or commercial service, no substantial competition exists in fact
between them in general or in specific markets, and they jointly meet the
requirements of subsection (1).
128 Opinion of Advocate General Reischl in Hoffmann-La Roche, supra note 37, delivered on 19
September 1978, page 587.
129 Hoffmann-La Roche, supra note 37, paragraph 132.
130 A summary of the case is set out in chapter two.
108
change and the effectiveness of competition as a market regulator will
be lost.131 Thus, the dominant undertaking should compete on
performance, not on measures to hinder its rivals. Whether the Court did
rely on Professor Ulmer’s test or whether it was nothing but a
remarkable coincidence remains unknown, but what is clear is that the
Court was concerned with protecting the remaining competition in the
market and the restraint of undue economic power.
2.4 United Brands
2.4.1 Facts of the case
A merger between United Fruit Company (the developer of the
Cavendish/Valery variety of bananas) and AMK Corporation (American
Seal-Kap), a major meat producer, resulted in United Brands Company
(‘UBC’). At the time of the proceedings, UBC was the largest seller of
bananas in the world. It was a conglomerate, which derived 20 per cent
of its total turnover from the sale of bananas.
UBC was unique in that it packed its bananas in boxes at the plantation
to enable wholesalers to employ more scientific ripening procedures and
produce more uniformly ripened bananas. UBC sold its bananas under
the brand name Chiquita. It was the first producer to brand its bananas,
but other banana companies followed suit.
UBC’s main ports for delivery of Chiquita bananas within the Community
were Bremerhaven, Rotterdam, Antwerp and Hamburg. From these ports
distributors would transport the bananas to their ripening facilities
throughout the common market. The prices charged by each distributor
depended upon the country in which the distributor operated, for
131 Samkalden and Druker, ‘Legal Problems Relating to Article 86 of the Rome Treaty’ Common
Market Law Review (1966) 158, page 167.
109
example, the price charged in Ireland was the lowest and the prices
charged in Belgium and Denmark were the highest.
Following two complaints against UBC in spring 1974, one from Olesen in
Denmark and one from Tropical Fruits in Ireland, on 19 March 1975 the
Commission initiated proceedings against UBC.
2.4.2 The Commission’s decision
On 17 December 1975, the Commission issued its decision.132 It found
that the relevant product market consisted of bananas of all varieties,
whether branded or unbranded, and the geographic market was the
Benelux countries, Denmark, Germany, and Ireland. It held that UBC
was dominant on that market.
The Commission gathered data which showed that there were
substantial differences of 30-50 per cent between the highest and lowest
prices charged to customers in the various Member States during some
weeks. The largest difference of 138 per cent was between the price
paid by customers in Ireland and that paid by customers in Denmark.
The Commission argued that all the bananas marketed by the brand
name Chiquita on the relevant market had the same geographical origin,
belonged to the same variety and were of almost the same quality. They
were unloaded in two main ports, Rotterdam and Bremerhaven, where
unloading costs differed only by a few cents on the dollar per box of 20
kilograms, and were resold, except to Ireland, subject to the same
conditions of sale and terms of payment. The costs of carriage from the
unloading ports to the ripening installations and the amount of any duty
payable under the Common Customs Tariff were borne by the
purchasers except in Ireland. The price charged varied in accordance
with the destination of the product. The way in which UBC controlled the
132 Chiquita OJ [1976] L95/1.
110
arbitrage between the high-priced and low-priced Member States was by
having a clause in its contracts with distributors prohibiting the resale of
green bananas.133
The Commission found that prices charged for the substantial quantities
sold to customers in Germany, Denmark, and the Benelux countries
were considerably higher, sometimes by as much as 100 per cent, than
the prices charged to customers in Ireland, and accordingly produced a
very substantial profit. It held that UBC's prices were excessive in
relation to the economic value of the product supplied.134 The
Commission’s conclusion was based on a price comparison between
Chiquita bananas and UBC's unbranded bananas and between Chiquita
and other companies' brands of bananas. According to the Commission,
the difference in quality between Chiquita bananas and UBC's unbranded
bananas was insignificant. Considering both the quality difference and
UBC's extra cost of advertising the Chiquita brand, the Commission
found that only half of the price difference was objectively justified.135
The Commission did not consider the extra costs of selecting, branding,
and ripening, which UBC alleged were incurred to produce consistently
higher quality Chiquita bananas.
In October 1973 UBC informed the Danish ripener/distributor Olesen
that its supplies of Chiquita bananas were to be discontinued, because it
had taken part in a campaign mounted by Castle and Cooke to promote
Dole bananas. Olesen tried to obtain Chiquita bananas from some of
UBC's other ripener/distributors in Denmark and from a company in
Germany called Scipio, but without success. The Commission held that
UBC's refusal to supply Olesen would discourage other
133 This is in effect an export ban, because once bananas are yellow they are perishable and soft,
which means that it is impossible to transport them without damaging them. It is slightly surprising
that the Commission did not consider the export ban under Article 81.
134 Chiquita, supra note 132, recital 3 (c).
135 Ibid. recital 3 (c).
111
ripener/distributors from actively promoting competing brands. UBC
argued that Olesen, which had been a major customer of UBC since
1967, had become the exclusive distributor of Dole bananas in 1969,
and thereafter sold fewer Chiquita bananas and had taken less trouble in
ripening them than it took with bananas of other brands.
The Commission found UBC guilty of violating Article 82 in four ways:136
1. UBC had required its ripeners/distributors in the relevant Member
States to refrain from reselling green bananas (export ban) which it
had supplied to them;
2. with regard to its Chiquita brand of bananas UBC had charged other
trading parties dissimilar prices in respect of equivalent transactions;
3. UBC had charged unfair prices for Chiquita bananas; and
4. from 10 October 1973 to 11 February 1975, UBC had wrongfully
refused to supply bananas to its former longstanding customer, the
Danish ripener/distributor Olesen.
On 15 March 1975, UBC and its Belgian subsidiary United Brands
Continentaal BV appealed the decision to the ECJ.
2.4.3 The ECJ’s judgment
On 14 February 1978, the ECJ handed down its judgment.137 On appeal
UBC and its subsidiary put forward the following arguments in relation to
the substantive part of the decision:
1. the Commission’s analysis of the relevant product market and the
geographic market was wrong;
2. UBC did not hold a dominant position on the relevant product and
geographic market;
136 Chiquita, supra note 132, article 1 of the decision.
137 United Brands, supra note 37.
112
3. the clause relating to the conditions of sale of green bananas was
justified by the need to safeguard the quality of the product sold to
the consumer;
4. UBC’s refusal to supply Olesen was justified;
5. it did not charge unfair prices; and
6. it did not charge discriminatory prices.
The Court upheld the Commission’s market definition. Like the
Commission it found that UBC was dominant, but developed the
Commission definition on dominance.138
UBC stated that the purpose of the clause prohibiting distributors from
reselling green bananas was to protect its brand name. The latter would
be protected by ensuring that the quality of the products was exemplary
by allowing only experienced ripeners who had ripening installations to
carry the brand name.139 Distributors without these installations would
be unable to guarantee the quality of UBS’s bananas to the consumer
and that would ‘lead to the collapse of its entire commercial policy’.140
The ECJ did not deny the possibility of pursuing a policy of quality, but
held that such a practice could only be justified where it did not raise
obstacles which went beyond the objective to be attained. The Court
found that that was not the case.141
UBC’s justification for refusing to supply Olesen in Denmark was that the
refusal did not affect the actual competition on the Danish market.142
This was rejected by the Court, which held that although UBC was
allowed to protect its own commercial interests by taking reasonable
steps to protect its interests, such steps could not interfere with the
138 Ibid. paragraph 65.
139 United Brands, supra note 37, paragraph 142.
140 Ibid. paragraph 150.
141 United Brands, supra note 37, paragraphs 158-159.
142 Ibid. paragraph 178.
113
independence of ‘small and medium-sized firms in their commercial
relations with the undertaking in a dominant position…’.143 The part of
the judgment concerning refusal to supply is slightly different from the
way in which refusal to supply was dealt with in Commercial Solvents. In
the latter, the Court found an abuse where there was elimination of a
competitor from the market and therefore a threat to the structure of
competition, whereas in United Brands the Court found the refusal to
supply Olesen abusive, because it had the potential, if repeated, to drive
other firms from the market. Regardless of this difference, arguably the
key issue in United Brands was UBC’s power and the protection of
smaller customers’ economic freedom.
The ECJ reversed the Commission's finding that UBC’s prices were unfair
under Article 82(2)(a). The Court did not criticise the Commission's
understanding of the law, but its methodology.144 The Court found that
the main deficiency in the Commission's decision was its reliance upon
the comparison between Continental European prices and Irish prices to
support its finding that Continental prices were unfair.
In reversing the Commission’s finding of excessive pricing, the Court
based its conclusion partly on the test for unfair pricing it had laid down
in General Motors.145 It held that ‘charging a price which is excessive
because it has no reasonable relation to the economic value of the
product’ is a violation of Article 82.146 The first step in considering
whether a price is unfair is to compare ‘the selling price of the product in
question and its cost of production’ to determine the dominant firm's
profit margin. This margin ‘objectively’ determines whether the price
143 United Brands, supra note 37, paragraph 193.
144 Ibid. paragraph 251.
145 Case 26/75 General Motors Continental NV v Commission [1975] ECR 1367, [1976] 1 CMLR 95.
146 United Brands, supra note 37, paragraph 250.
114
charged by the dominant firm is excessive.147 If the margin is excessive
then it must be determined whether the excessive price was unfair
either ‘in itself or when compared to competing products’.148 The Court
did not explain when an excessive price would be ‘unfair in itself’. In the
light of the ECJ’s test for excessive pricing, it was clear that the
Commission had not carefully considered UBC’s profit margin, which
meant that the factual basis for considering whether UBC’s prices were
unfair was insufficient.
The Court upheld the Commission’s finding that UBC had violated Article
82(2)(c) by pricing differently in different Member States and required
UBC to discontinue that practice.149 UBC argued that it was justified due
to anticipated changes in the market price.150 The ECJ rejected this
justification and held in paragraph 228:
Once it can be grasped that differences in transport costs,
taxation, customs duties, the wages of the labour force, the
conditions of marketing, the differences in the parity of
currencies, the density of competition may eventually culminate
in different retail selling price levels according to the member
states, then it follows those differences are factors which UBC
only has to take into account to a limited extent since it sells a
product which is always the same and at the same place to
ripener/distributors who - alone - bear the risks of the
consumers' market.151
This indicates that UBC can only to a limited extent rely on these factors,
since UBC did not bear the risk of these factors.
147 Ibid. paragraph 251.
148 United Brands, supra note 37, paragraph 252.
149 ‘Price discrimination is a term that economists use to describe the practice of selling the same
product to different customers at different prices even though the cost of sale is the same to each of
them. More precisely, it is selling at a price or prices such that the ratio of price to marginal costs is
different in different sales…’. Richard Posner, Antitrust Law (University of Chicago Press, 2nd ed, 2001) pages 79-80.
150 United Brands, supra note 37, paragraphs 218-220.
151 Italics added by the author.
115
2.4.4 Analysis of the ECJ’s judgment
In upholding the Commission’s finding that UBC’s prices were
discriminatory, the ECJ held:152
Although the responsibility for establishing the single banana
market does not lie with the applicant, it can only endeavour to
take ‘what the market can bear’ provided that it complies with the
rules for the regulation and coordination of the market laid down
by the Treaty.
These discriminatory prices, which varied according to the
circumstances of the member states, were just so many obstacles
to the free movement of goods and their effect was intensified by
the clause forbidding the resale of bananas while still green and
by reducing the deliveries of the quantities ordered.
A rigid partitioning of national markets was thus created at price
levels, which were artificially different, placing certain
distributor/ripeners at a competitive disadvantage, since
compared with what it should have been competition had thereby
been distorted.
For ripener/distributors to be placed at a competitive disadvantage there
must be dissimilar conditions, which are applied to equivalent
transactions. Even though the Court recognised that UBC did not bear
the responsibility for establishing a single banana market, it held that
UBC’s conduct of discriminatory pricing would partition national markets.
Arguably, the transactions are not equivalent from the
ripener/distributors’ viewpoint as they evaluate the transactions in terms
of resale opportunity in the different markets. The Court did not consider
this, which made one commentator, Lucio Zanon, argue that the Court
appears more inclined to protect existing competitors rather than
competition and that the Court did not make consumers better off, nor
did it pursue efficiency.153
152 United Brands, supra note 37, paragraphs 227 and 232-233.
153 Lucio Zanon, ‘Price Discrimination under Article 86 of the EEC Treaty: the United Brands Case’
31 International and Comparative Law Quarterly (1982) 36, pages 50-51.
116
The consequence of this judgment is that a dominant undertaking has to
adopt the same prices in different Member States with due allowance for
differences in cost. The question is whether this benefits consumers. The
answer is that it benefits the wealthier consumers but not the poorer
consumers. Before, UBC could charge high prices in high-income
countries, for example Denmark and Germany, and lower prices in low-
income countries for example Ireland. Because UBC could no longer do
this, but would have to charge a similar non-discriminatory price, the
price would probably be an average price between the lowest and the
highest price of the discriminatory price it could charge. In that case, the
price in the higher-income countries would be lower than when UBC
could discriminate, and some consumers, who did not buy bananas
before, might start buying bananas at the lower price. Thus, consumers
in high-income countries such as Germany and Denmark would be better
off than before. However, the price in the lower-income countries such
as Ireland, would be higher than when UBC could discriminate if the
assumption of the average price holds. Some Irish consumers might no
longer want to buy bananas because of the price increase, and the ones
still buying bananas would have to pay a higher price for the same
quality as before. These consumers would be worse off than before the
judgment. The distributional effect is that income is distributed away
from a poorer part of Europe to a wealthier part of Europe. This has led
one commentator, William Bishop, to argue that a ban on geographic
price discrimination can lead to undesirable distributive consequences.154
154 William Bishop, ‘Price Discrimination under Article 86: Political Economy in the European Court’
44 The Modern Law Review (1981) 282, pages 287-288.
117
2.5 Michelin I
2.5.1 Facts of the case
Nederlansche Banden-Industrie-Michelin NV (‘Michelin’), a Dutch
subsidiary of the French Michelin group, manufactured and supplied
tyres for trucks, cars and buses.
Michelin supplied heavy vehicle new replacement tyres to tyre dealers
who sold both Michelin tyres and competing brands. It ran a fixed
invoice discount and a cash discount for early payment, which were the
same for all dealers. Michelin also offered a discount linked to an annual
sales target, but did not require its dealers to purchase all or most of
their requirements from it. Each dealer’s target was personal to that
dealer. A proportion of this discount was paid in advance, initially every
month and then every four months, as an advance on the annual sum.
The full sum became payable only if the dealer attained a pre-
determined sales target. A Michelin sales representative fixed the target
for each dealer at the beginning of each year. The discount was basically
geared to turnover and to the proportion of Michelin tyres sold and the
aim was to ensure that the dealer sold more Michelin tyres than in the
previous year although sometimes it was equal to the prior year’s sales.
Towards the end of each sales year Michelin’s sales representatives
would urge the dealer to place an order large enough to obtain the full
discount.
In 1977, the Commission received a complaint regarding Michelin from a
Dutch tyre dealer.155 The complaint concerned firstly, Michelin’s takeover
of a tyre retailing company and secondly, its policies towards tyre
dealers, especially its system of discounts and bonuses. The Commission
155 WL Snijders, ‘Nederlansche Banden-Industrie Michelin v Commission’ 23 Common Market Law
Review (1986) 193.
118
opened an investigation into the second part of the complaint regarding
Michelin’s discounts and bonuses.
2.5.2 The Commission’s decision
On 7 October 1981, the Commission issued its decision.156 It found that
Michelin’s bonus scheme infringed Article 82 and imposed a fine of
680,000 ECU.157
The Commission found that the relevant product market was that of new
replacement tyres for trucks, buses and similar vehicles and the
geographic market was the Netherlands.158 It found that Michelin held a
dominant position on this market.159 In finding dominance, the
Commission relied on Michelin’s market share and that of its
competitors, plus the technical advances made by Michelin.160
The Commission found Michelin’s annual bonus plan was abusive on two
grounds. First, it tended to tie the dealers to Michelin, thereby
foreclosing Michelin's competitors. Second, it constituted discrimination
having adverse secondary-line effects. In addition, the Commission
condemned a special 5 per cent bonus on the combined purchases of
truck and automobile tyres in 1977. Because the 1977 bonus could only
be earned by meeting a target for the purchase of car tyres, the
Commission characterised it as using Michelin's stronger position in the
156 Bandengroothandel Frieschebrug BV/NV Nederlansche Banden-Industrie-Michelin OJ [1981]
L353/33.
157 Ibid. recital 63.
158 Michelin, supra note 156, recitals 31 and 34.
159 The Commission did not discuss barriers to entry and it is interesting to see that the
Commission’s appreciation of dominance is not that of an economist. For further discussion see
Josephine Shaw ‘Competition and Industrial Property’ European Law Review (1984) 116, page 120.
160 Michelin, supra note 156, recitals 35-36.
119
bus and truck tyre market to promote sales of its automobile tyre
market.161
The Commission cited the requirements of discrimination in Article
82(2)(c) and held that each of them was satisfied.162 It reiterated that
discrimination between dealers strengthened Michelin’s dominant
position, and because the difference in the bonuses was not negligible, it
found an adverse effect on competition.163 In assessing the effects on
competition, the Commission held that Michelin’s conduct ‘distorts the
competition between tyre producers’ and impedes ‘access to the
Netherlands market for [Michelin’s] competitors’.164 The Commission was
concerned with primary-line discrimination by finding that discrimination
between dealers strengthened Michelin’s dominant position.
Finally, the Commission argued that it was clear that ‘a discount system
under which, through financial benefits, an undertaking in a dominant
position attempts to prevent supplies being obtained from competitors is
in conflict with Article 86 [Article 82]’.165 This is a very broad test and it
basically means that most discount systems would violate Article 82,
since no rational firm would adopt a discount system that it did not
expect would increase its sales, necessarily preventing those supplies
being obtained from its competitors.
On 28 December 1981, Michelin appealed the decision to the ECJ
seeking annulment or at least reduction of the fine imposed.
161 Ibid. recital 50.
162 Michelin, supra note 156, recital 41.
163 Ibid. recital 43.
164 Michelin, supra note 156, recital 49.
165 Ibid. recital 56.
120
2.5.3 The ECJ’s judgment
On 9 November 1983, the ECJ handed down its judgment.166 The Court
upheld the Commission’s finding that Michelin had infringed Article 82 by
tying Dutch tyre dealers to it through a bonus scheme, as this foreclosed
the market for competitors and helped Michelin maintain its dominant
position. The Court, however, followed Advocate General VerLoren van
Themaat’s Opinion and determined that the Commission had not
established discrimination under Article 82(2)(c). It rejected the
Commission’s attack on the 1977 bonus,167 and reduced the fine by
more than 50 per cent.
In examining whether Michelin had abused its position, the ECJ began its
analysis by stating that:168
A finding that an undertaking has a dominant position is not in
itself a recrimination but simply means that, irrespective of the
reasons for which it has such a dominant position, the
undertaking concerned has a special responsibility not to allow its
conduct to impair genuine undistorted competition on the
common market.
The Court continued by holding that it was necessary to investigate
whether:169
[T]he discounts tend to remove or restrict the buyer’s freedom to
choose his sources of supply, to bar competition from access to
the market, to apply dissimilar conditions to equivalent
transactions with other trading partners or to strengthen the
dominant position [of Michelin] by distorting competition.
166 Case 322/81 Nederlansche Banden-Industrie Michelin NV v Commission [1983] ECR 3461,
[1985] 1 CMLR 282.
167 Ibid. paragraphs 91 and 98.
168 Michelin, supra note 166, paragraph 57.
169 Ibid. paragraph 73.
121
The Court noted that Michelin’s discount system was based on an annual
reference period and stated that: 170
[A]ny system under which discounts are granted according to the
quantities sold during a relatively long reference period has the
inherent effect, at the end of that period, of increasing pressure
on the buyer to reach the purchase figure needed to obtain the
discount … in this case the variations in the rate of discount over
a year as a result of one last order, even a small one, affected the
dealer’s margin of profit on the whole year’s sales of Michelin
heavy-vehicle tyres.
The ECJ also stated that the ‘wide divergence between Michelin’s market
share and those of its main competitors’ meant that if a competitor
wished to induce a dealer to place an order, especially at the end of the
year-long reference period, the competitor had to give a much higher
percentage discount than Michelin’s discount.171
Another factor was the ‘lack of transparency’ of Michelin’s discount
system. The rules of the system had changed on several occasions and
neither the scale of the discounts nor the sales targets or discounts
relating to them were communicated in writing to the dealers. This
meant that the dealers were ‘left in uncertainty and on the whole could
not predict with any confidence the effect of attaining their targets or
failing to do so’.172
The Court considered that restricting the buyer’s freedom to choose his
sources of supply, a long reference period and the lack of transparency
meant that the discount system would put dealers under considerable
pressure, especially towards the end of the year, to attain Michelin’s
sales’ targets or else lose the discount. It held that competitors would
not be able to make offers that would compensate for this loss of
discount easily.
170 Michelin, supra note 166, paragraph 81.
171 Ibid. paragraph 82.
172 Michelin, supra note 166, paragraph 83.
122
2.5.4 Analysis of the ECJ’s judgment
The Court held that Michelin’s conduct was abusive as it limited the
dealers’ choice of supplier and made access to the market more difficult
for competitors without any countervailing advantages which could be
economically justified.173 The ECJ stated that ‘neither the wish to sell
more nor the wish to spread production more evenly can justify such a
restriction of the customer’s freedom of choice and independence’.174
The Court concluded that the system operated to put pressure on the
dealers, to make them more dependent upon Michelin, and to foreclose
Michelin's competitors.175
The Court did not say that foreclosure should only be condemned where
clear harm to consumers is shown. The Court did not examine what
percentage of the market and of incremental demand was effectively
foreclosed by Michelin’s conduct. Neither did it assess the size necessary
for a producer to achieve an efficient scale of production. For the Court,
anti-competitive foreclosure was certainly not the thing that mattered;
instead foreclosure in itself was seen as interference in the competitive
process with regard to the degree to which competition, access and
opportunities were foreclosed. This could indicate that the Court was
concerned to preserve the competitive process, the economic freedom of
other market participants and freedom of competition for smaller
competitors in the market.
Looking at the Commission’s Report on Competition Policy in 1981,
written as the Court reached its judgment, it is clear that there were
concerns at the time about protecting small and medium-sized
companies:176
173 Ibid. paragraph 85.
174 Michelin, supra note 166.
175 Ibid. paragraph 76.
176 11th Report on Competition Policy (1981), page 33.
123
To the extent that it really makes it possible to maintain or re-
establish a competitive structure, competition policy helps
create a legal and economic environment in which SME [small
and medium-sized enterprises] can compete, if not on equal
terms, at least with the maximum chance of success, with
large firms, both private and public, national and
multinational, operating in the same market.
Moreover:177
[W]here they [small and medium-sized enterprises] depend
for their growth, if not their survival, on the behaviour of
undertakings in a dominant position, SME also benefit from
action by the Commission to put an end to abusive practices
such as discriminatory pricing, refusals to sell, or attempts
to maintain a dominant position by various ploys designed
to retain customers (fidelity rebates, differential discounts,
etc).
The Court held that Michelin (a dominant undertaking) had a special
responsibility to ensure that its conduct did not undermine effective and
undistorted competition in the common market. This is because its
unilateral behaviour carried an inherent risk for the market structure,
competitors, customers and ultimately consumers, since its impact
determined the level of competition in the market. The special
responsibility prohibits dominant undertakings from certain kinds of
conduct that would have been unobjectionable if done by non-dominant
undertakings.178 Besides this distinction between dominant and non-
dominant undertakings, the Community Courts have not specified the
scope or meaning of the special responsibility, but said that the actual
scope of the special responsibility ‘must be considered in the light of the
specific circumstances of each case’.179 This statement is not entirely
satisfactory and several questions arise in relation to the meaning of the
177 Ibid. page 35.
178 Case T-111/96 ITT Promedia v Commission [1998] ECR II-2937, [1998] 5 CMLR 491,
paragraph 139.
179 Joined Cases C-395-396/96P Compagnie Maritime Belge Transport v Commission [2000] ECR
1365, [2000] 4 CMLR 1076, paragraph 114 and Case C-333/94P Tetra Pak International SA v
Commission [1996] ECR I-5951, [1997] 4 CMLR 662, paragraph 24.
124
special responsibility. Firstly, does the special responsibility imposed on
a dominant firm have the effect of protecting competitors? Secondly, to
whom is the dominant undertaking responsible? Thirdly, is the special
responsibility progressive with the growth of an undertaking’s
dominance? And finally, can the behaviour of a dominant firm be
categorised as abusive if it ignores/neglects its special responsibility?
The point is not to answer theses questions, but to highlight that such a
statement is not particularly helpful.180
On the special responsibility, it has been suggested that it builds on the
belief that once an undertaking has a dominant position in the market,
the market structures will change and the effectiveness of competition
as a market regulator will be lost.181 The idea here is that in the absence
of effective competition dominant undertakings have a degree of
mobility and freedom to decide their market policy independently of the
market. By imposing a special responsibility on a dominant undertaking,
the Court imposes an obligation not to negatively affect an already
weakened competitive structure.
The special responsibility can be linked to the ordoliberal ‘as if’ standard,
where dominant undertakings must conduct themselves ‘as if’ they were
faced with complete competition.182 This suggests that dominant
undertakings must refrain from any conduct that impairs undistorted
competition, including conduct that could harm competitors. The idea
behind the ‘as if’ standard was to make dominant companies ‘compete
on performance’ rather than use their power to gain an unfair advantage
180 It is worth noting that the Discussion Paper on the Application of Article 82 of the Treaty to
Exclusionary Abuses (December, 2005) does not mention the special responsibility. According to a
Commission official this is not an omission, but a positive decision not to deal with special
responsibility, because some in the Commission believe that it is nothing but a normal
responsibility for a dominant undertaking.
181 Samkalden and Druker, supra note 131, page 167. 182 Dieter Schmidtchen, ‘German Ordnungspolitik as Institutional Choice’ 140 Zeitschrift für die
gesamte Staatswissenschaft (1984) page 60.
125
over rivals. ‘Non-performance competition’ was seen as inconsistent with
a competitive economy as it allowed dominant undertakings to use their
power to distort the competitive process.183
2.6 Summary
Continental Can concerned a merger. The Court held that eliminating
competition by acquiring a competing firm was an abuse. Rather than
limiting the concept of abuse to exploitative abuses only, the ECJ
adopted the broader concept, which is concerned with conduct leading to
changes in market structure. The Court reached that conclusion by
relying on a teleological interpretation where Article 82 was interpreted
in the light of Article 3(1)(g). According to the latter, it must be ensured
that competition in the common market is not distorted, and the ECJ
interpreted ‘distortion’ as meaning any change in the market structure
that lessened competition.
Commercial Solvents concerned refusal to supply a long-standing
customer with the raw material aminobutanol, for which the Court held
that there was no commercially available substitute. As in Continental
Can, the ECJ adopted a teleological interpretation. It held that Article 82
must be interpreted and applied in the light of Article 3(1)(g). The Court
invoked Articles 82 and 3(1)(g) to protect the economic freedom of Zoja
and did not attempt an examination of the possible economic effects on
the consumer.
United Brands concerned excessive pricing of bananas, discriminatory
prices between Member States and refusal to supply. The latter point
was dealt with in a slightly different way than the refusal to supply in
Commercial Solvents. In Commercial Solvents the Court found an abuse
183 David Gerber, ‘Law and the Abuse of Economic Power in Europe’ 62 Tulane Law Review (1987)
57, page 74.
126
where there was an elimination of a competitor from the market and
thus a threat to the structure of competition. In United Brands the Court
found that the refusal to supply a customer (Olesen) was abusive,
because it had the potential, if repeated, to drive other firms from the
market. This arguably showed a concern with UBC’s power and the
protection of a smaller customer’s economic freedom.
Hoffmann-La Roche concerned rebates the granting of which was, for the
most part, expressly linked to the condition that the customer was to
cover all its requirements for particular vitamins, or at any rate the
predominant part of those requirements, with Hoffmann-La Roche during
a reference period – normally a year or half a year. The Court held that
fidelity rebates, unlike quantity rebates exclusively linked with the
volume of purchases from the producer concerned, are designed,
through the grant of a financial advantage, to prevent customers from
obtaining their supplies from competing producers. The Court regarded
such a rebate system as an abuse of a dominant position because its
purpose was to give the purchaser an incentive to obtain its supplies
exclusively from the undertaking in a dominant position, and that is
incompatible with the objective of undistorted competition within the
common market.
Michelin I also concerned the granting of rebates, but unlike in
Hoffmann-La Roche, the customers of Michelin were not obliged to
obtain all, or a specified part, of their supplies from that undertaking.
Nevertheless, the annual rebates granted by Michelin took the form of
target rebates. To enjoy the latter, Michelin’s customers had to attain
individual sales targets, which were determined according to the
turnover in Michelin tyres which the customer had achieved the previous
year. The Court imposed a special responsibility on dominant
undertakings and regarded the rebate system as an abuse of a dominant
market position by relying on a series of factors such as a relatively long
127
reference period of one year, the non-transparent way in which the
system functioned, and the ratio between Michelin’s market shares and
that of its main competitors taken together.
Conclusion
The analysis of the fundamental cases decided under Article 82 in the
early days found that the ECJ interpreted Article 82 as part of a system
designed to protect competition in the common market from distortion.
The Court made sure that it was understood that Article 82 was not
intended only or primarily to protect the immediate interests of
individual competitors or consumers, but to protect the structure of the
market and thus competition as such, which is weakened by the very
presence of the dominant undertaking on the market. As a result of that
weakness, the dominant company has a special responsibility towards
competition in the market. The cases show that the Court has
interpreted Article 82 to protect economic freedom, freedom of
competition and the process of competition, which are all cornerstones
of ordoliberalism. The essence of the competitive process is to allow
competitors to enter the market to compete within the market. When
competitors exit the market, the competitive pressure on the dominant
undertaking is less, which is harmful for competition in the market.
The Court did not reach its conclusions by considering the wording of
Article 82 alone, but by adopting a teleological interpretation centred on
the needs and objectives of the Community in order to support the
Commission’s enforcement action.
The Commission and the ECJ did not analyse the welfare implications of
the conduct in question on the consumer in form of consumer welfare
loss. They did not engage in any efficiency analyses. It appears,
therefore, that little thought was given to economic reasoning and
128
analysis in the cases in which the law on Article 82 is to be found. These
cases are however still referred to and relied upon by the ECJ.
129
PART II
Part II of this thesis consists of one chapter: chapter four Consumer
Welfare.
The chapter is divided into four sections: section one discusses efficiency
and the classical economic models of monopoly and perfect competition,
section two examines the Chicago School’s definition of consumer
welfare, section three assesses the Community consumer welfare
standard and section four reflects on the efficiency considerations under
Article 82.
Part I of the thesis showed that Article 82, as interpreted by the
Commission and the ECJ, demands that economic freedom should be
considered within the provision although DG Competition’s recent policy
statement implies otherwise.
Whilst DG Competition’s policy statement, that exclusionary abuses
within Article 82 should be interpreted mainly to protect competition on
the market as a means of enhancing consumer welfare and of ensuring
an efficient allocation of resources, may be in line with economic theory,
it marginalises non-efficiency objectives such as economic freedom.
Given that the consideration of economic freedom has been a significant
objective in the jurisprudence of Article 82 in the fundamental cases as
well as its potential in future case law, it may conflict with DG
Competition’s current aspirations for consumer welfare unless economic
freedom is the means to the end of consumer welfare.
Before it can be considered whether economic freedom is an objective
used to enhance consumer welfare, it is necessary to clarify what is
meant by consumer welfare. Neither the EC Treaty nor DG Competition’s
130
Discussion Paper has assigned a specific meaning to the concept of
consumer welfare and its meaning is not entirely clear, which underlines
the need for research in this area.
Part II of the thesis will examine what welfare standard is adopted by
the Commission and whether this is the same welfare standard as the
one advanced by the Chicago School. These sections of chapter four are
relatively descriptive, but they are necessary for the discussion in part
III of the thesis.
The idea that consumer welfare has a place within Article 82 is not
denied, but the way in which it is implemented without a proper debate
as to its consistency with economic freedom is contested.
131
Chapter 4 Consumer Welfare
Introduction
Section one describes three types of efficiency and uses the classical
economic models to show market outcomes where efficiency is achieved
and where it is not. It explains the correlation between the different
types of efficiency and the various welfare standards. Section two
outlines the Chicago School’s definition of consumer welfare, its
theoretical foundation and the main criticism of the Chicago School. The
aim is to show that the Chicago School defines consumer welfare as total
welfare. This is important for section three, which defines the
Community welfare standard and shows the divergence between the
welfare standards espoused by the Chicago School and the Community.
Having distinguished the total welfare standard from the consumer
welfare standard, section four argues that adopting a consumer welfare
standard requires an analysis of effects and efficiencies as both effects
and efficiencies are tied to the analysis of the conduct’s competitive
effects on consumers. It analyses whether there is scope for efficiencies
within Article 82 and if so, questions whether efficiencies should be
advanced as a defence to a challenge under Article 82. It considers how
to balance efficiencies given that Article 82 does not contain an
exemption provision.
For the Commission, consumer welfare has been on the agenda at least
since Sir Leon Brittan became Competition Commissioner in 1989. The
introduction to the Commission’s Report on Competition Policy in 1990
specifically highlights the importance of an efficient allocation of
resources and economic growth, which will maximise consumer welfare.1
Moreover, it states that Member States must develop along the lines
1 20th Report on Competition Policy (1990), page 11.
132
dictated by economic efficiency.2 Despite this, former Competition
Commissioner Mario Monti said in his foreword to the Commission’s
Report on Competition Policy in 2000:3
While it is generally understood that competition policy
improves overall economic efficiency, it is surprising that its
most evident effect, that on consumers, is often neglected.
Consumers should be better informed of, more closely taken
into account and more directly involved in competition matters.
In turn, this helps competition policy to focus more clearly on
actions, which are ultimately beneficial to consumers’ interests.
Specifically in relation to Article 82, the current Competition
Commissioner Neelie Kroes has said:4
My own philosophy on this is fairly simple. First, it is competition,
and not competitors, that is to be protected. Second, ultimately
the aim is to avoid consumers harm…. I like aggressive
competition – including by dominant companies – and I don’t
care if it may hurt competitors – as long as it ultimately benefits
consumers. That is because the main and ultimate objective of
Article 82 is to protect consumers, and this does, of course,
require the protection of an undistorted competitive process on
the market.
There is no precise definition of the term ‘consumer welfare’. The EC
Treaty has not assigned a specific meaning to the concept of consumer
welfare, or other variants of welfare, and its meaning is not entirely
clear. The term consumer welfare has several interpretations and it has
sometimes been misunderstood in competition law analysis.5
Consequently and in order to answer the research question, the term
‘consumer welfare’ requires clarification and more precise definition.
2 Ibid. page 12.
3 30th Report on Competition Policy (2000), page 1.
4 Neelie Kroes, ‘Preliminary Thoughts on Policy Review of Article 82’, speech given on 23 September
2005 at the Fordham Corporate Law Institute New York (speech/05/537), speech available at:
http://ec.europa.eu/comm/competition/speeches.
5 Joseph F Brodley, ‘The Economic Goals of Antitrust: Efficiency, Consumer Welfare and
Technological Progress’ 62 New York University Law Review (1987) 1020, page 1032.
133
Consumer welfare is an economic term, but is increasingly used in the
legal sphere including the sphere of Community competition law, where
the Commission has devoted itself to a more ‘economic approach’ in
respect of competition law.6 The marrying of economics and law is not
new, but can be found in the work of, for example, Posner and Bork.7
These scholars, among others, are concerned with welfare economics8
(or normative economics)9 and aim to identify situations where
efficiencies are not achieved and to prescribe corrective solutions.
According to one commentator ‘[i]n antitrust, the beginning of all
wisdom is understanding the true nature of consumer welfare’10 and by
‘true’ he meant the way in which the Chicago School has articulated
consumer welfare. Before discussing the Chicago School and the
different welfare standards, three types of efficiency will be explained
and illustrated by the classical economic models of monopoly and perfect
competition.
6 Commission’s White Paper on Modernisation of the Rules Implementing Articles 85 and 86 of the
EC Treaty, point 78. Available at:
http://ec.europa.eu/comm/competition/antitrust/wp_modern_en.pdf; the EAGCP Report on An
Economic Approach to Article 82 EC (July 2005) has suggested an economics-based approach to
Article 82; note on the EAGCP Report available at:
http://ec.europa.eu/comm/competition/publications/studies/note_eagcp_july_05.pdf.
7 Richard Posner, Antitrust Law (University of Chicago Press, 2nd ed, 2001); Robert Bork, The
Antitrust Paradox: A Policy at War with Itself (The Free Press, 1993).
8 Welfare economics view the social desirability of alternative arrangements of economic activities
and allocation of resources. It is, in effect, the analysis of the optimal behaviour of individual
consumers rather than of society as a whole. For an in-depth definition see Graham Bannock et al.,
Dictionary of Economics (Bloomberg Press, 4th ed, 2003) page 302.
9 As opposed to positive economics, which views economics exclusively as an empirical science, i.e.
without reference to value judgements.
10 Charles F (Rick) Rule, ‘Consumer Welfare, Efficiencies, and Mergers’, speech given on 17
November 2005 at the hearing of the Antitrust Modernization Commission, page 14.
134
1. Efficiency and the Classical Economic Models of
Monopoly and Perfect Competition
This section describes three different types of efficiency: allocative,
productive and dynamic efficiency. It analytically illustrates, with the
model of perfect competition, how economic resources are most
efficiently allocated in order to maximise the consumer surplus, which is
the aggregate measure of surplus of all consumers,11 and allocate
products to consumers who value them most. It also illustrates, with the
model showing a monopoly situation, how a non-competitive market
achieves neither allocative nor productive efficiency. The models of
monopoly and perfect competition present two extreme market
outcomes, which bear little relation to reality, but they are theoretically
useful to illustrate a situation of economic efficiency and one of economic
inefficiency.
Efficiency and consumer welfare are discussed together in this chapter,
because they are closely related. Depending on which welfare standard
(consumer surplus, producer surplus or total surplus) a system is
seeking to pursue, the different types of efficiency can explain whether
welfare is increased or not. It is believed that an economy is operating
at maximum efficiency when society is squeezing the greatest value –
the highest level of welfare – out of its scarce resources.12
11 ‘Consumers’ surplus on each unit consumed is the difference between the market price and the
maximum price the consumer would pay to obtain the unit. The total consumers’ surplus is
therefore the sum of all individual consumers’ surplus’ see for example Richard Lipsey, An
Introduction to Positive Economics (Weidenfeld and Nicolson, 7th ed, 1989) page 90; Massimo
Motta, Competition Policy: Theory and Practice (Cambridge University Press, 2004) page 18.
12 Philip Lowe, ‘Consumer Welfare and Efficiency – New Guiding Principles of Competition Policy?’,
speech given on 27 March 2007 at the 13th International Conference on Competition and 14th
European Competition Day, page 2, speech available at:
http://ec.europa.eu/comm/competition/speeches/text/sp2007_02_en.pdf.
135
1.1 Dynamic, allocative and productive efficiency
One type of efficiency is allocative efficiency.13 It refers to the way in
which competition serves to allocate resources to their highest and best
use by creating incentives for producers to compete to expand output in
a market until the cost of the last unit of output (marginal cost MC)14
equals the price consumers are willing to pay for the product (marginal
revenue MR).15 At that point, the market is allocating the optimal
amount of society’s total resources to production of that market’s good
or service.16
As shown in figure 1 below, allocative efficiency is harmed when
producers agree directly or indirectly to raise a price from the price
consumers are willing to pay for a given product – the competitive price
(Pc) to a monopoly price (Pm). Allocative efficiency is also harmed when
a producer with market power reduces market output (Q) from the
quantity it would have produced under competition (Qc) to the quantity
produced where output is restricted (Qm) in order to keep the price
above competitive levels. Producers engaging in such conduct expect to
obtain more surplus from consumers than would be possible if
competition prevailed, as they shift surplus from the market’s consumers
to themselves. This will lead to allocative inefficiency, which in economic
terms is called the ‘dead weight loss’ as illustrated by the triangle (A) in
13 In the broad sense allocative efficiency encompasses efficient pricing on both the input and the
output side of the market; in the narrow sense it focuses solely on the seller’s behaviour in output
markets.
14 The increase in the total costs of a firm caused by increasing its output by one extra unit. If all
costs are fixed, the marginal cost of the first unit of output will be very high, but all subsequent
units can be made for nothing.
15 Bork, supra note 7, page 91.
16 According to Bork, supra note 7, allocative efficiency is not well suited as a policy guideline, since
it is difficult to achieve in practice.
136
figure 1 below. The dead weight is the cost to society of a market which
does not operate efficiently.17
Figure 1: An illustration of deadweight loss.18
17 The ‘dead weight loss’ refers to the amount above costs that consumers would be willing to pay
for the lost output. In other words, the marginal cost of producing a good is less than the marginal
willingness of consumers to pay for it, see Dennis W Carlton and Jeffrey M Perloff, Modern Industrial
Organization (Pearson: Addison Wesley, 4th ed, 2005) pages 71-72.
18 I have drawn inspiration for the format of this model from Carlton and Perloff, supra note 17,
page 72.
137
Another type of efficiency is productive efficiency. It refers to the
effective use of resources by a particular firm, meaning that a given set
of products is produced at the lowest possible cost, given the current
technology.19 Productive efficiency is generated when production is
improved to produce the same level of output using fewer resources or
to produce more valuable output of better quality using the same
resources. Unlike allocative efficiency, which is a static concept that is
maximised when the price consumers are willing to pay equals marginal
cost and cannot be improved beyond that point, productive efficiency is
a dynamic concept that can always be improved and never maximised. If
technical progress is improved, productive efficiency will improve by
freeing up resources to expand the economy’s output and providing the
means for deriving more value from the existing use of resources.20
A third type of efficiency is dynamic efficiency. This type of efficiency
refers to the extent to which a company introduces new products or new
processes of production.21 An undertaking has the possibility to adopt a
process of innovation if it can produce at a lower marginal cost
compared to the current cost by paying a fixed cost.22 If the undertaking
does not innovate, because it has no incentive either because it has a
monopoly or because competition is too strong, it will lead to dynamic
inefficiency and result in a welfare loss. If competition is too strong it
can reduce the incentive to innovate in that a system pursuing a
consumer welfare standard is trying to improve allocative efficiency by
forcing prices down to marginal cost.23 This may reduce the possibility
19 Simon Bishop and Mike Walker, The Economics of EC Competition Law (Sweet & Maxwell, 2nd
ed, 2002) page 20.
20 Bork, supra note 7, page 91.
21 Bishop and Walker, supra note 19, pages 36-39; Motta, supra note 11, pages 55-64.
22 Motta, supra note 11, page 56.
23 Once produced, an idea can be used by an infinite number of people indefinitely with little or any
additional cost. As the cost of producing the idea remains fixed, regardless of how many people
consume it, there is a zero marginal cost in allowing additional consumption. Hence, if marginal cost
138
of appropriating the results of the investment. To avoid dynamic
efficiency being undermined over time, it is important that a system
favouring a consumer welfare standard is balanced between the long-
term need for innovation and short-term loss in allocative efficiency. In
the short-term, there may be loss in allocative efficiency if prices rises
above marginal cost in order to pay for the investment, but in the long-
term, allocative benefits may increase due to the innovation.
Allocative and productive efficiency are predicated on the static
economic model of perfect competition,24 which will be explained in the
following sub-section. Allocative efficiency occurs when price (P) is equal
to marginal cost (MC), at which point the good or service is available to
the consumer at the lowest possible price. Productive efficiency occurs
when the firm produces at the lowest point on the average cost curve
(AC),25 implying it cannot produce the goods any more cheaply. This
would be achieved in perfect competition, since if a firm was not
producing at a lower price another firm would be able to undercut it by
selling products at a lower price.
1.2 Perfect competition
The model of perfect competition, as illustrated in figure 2 below, is a
useful theoretical model.26 It is based on the assumption that
competitive markets achieve efficiency and it can be used to measure
whether a market, operating under a given set of assumptions, is
pricing were enforced in relation to ideas, the cost of producing the idea could never be recovered
and there would be no incentive to come up with it.
24 Bishop and Walker, supra note 19, page 20.
25 Total production costs per unit of output (total fixed costs plus total variable costs divided by
number of units produced).
26 In short, in perfect competition demand and supply is satisfied, there is an equilibrium:
everyone is satisfied. An in-depth description of perfect competition can be found in Graham
Bannock et al., Dictionary of Economics (Bloomberg Press, 4th ed, 2003) page 295ff.
139
competitive.27 With the model of perfect competition, it can be shown
analytically how economic resources are most efficiently allocated so as
to maximise the consumer surplus and allocate products to consumers
who value them most. It can also analytically show when a firm
produces at the lowest point on the average cost curve (AC) and
productive efficiency occurs.
In a market characterised by perfect competition,28 there are many
players acting in the market to buy and sell homogeneous products. The
theory is that there are no barriers to entry or exit and, because of the
free entry of other firms, competition amongst firms will push prices (P1)
down to the lowest point in each firm’s average cost (AC) curve. This is
the level of output where average cost (AC) and marginal cost (MC)
meet.
Figure 2: An illustration of perfect competition.29
27 It is important to notice that the theory of perfect competition does not indicate whether specific
markets are efficient, only that a market operating under a set of assumptions is.
28 The model of perfect competition was developed in the nineteenth century by neo-classical
authors like Augustin Cournot and Alfred Marshall, see Lynne Pepall, Daniel Richards and George
Norman, Industrial Organization: Contemporary Theory and Practice (South Western, 1999) page
236ff.
29 I have drawn inspiration for the format of this model from Carlton and Perloff, supra note 17,
page 59.
Marginal
costs (MC)
Average
costs (AC)
Quantity
Price
Q1
P1 P=MR
140
In a market characterised by perfect competition, production methods
and prices are transparent. Because of transparency, any firm that is
able to lower its average cost of production will, in the short term, earn
a ‘supernormal profit’.30 Any firm that is able to lower its average cost of
production in the longer term will earn ‘normal profit’,31 as it is assumed
that other firms will copy its new production method and bid the price
down to the new lowest point on the average cost curve. In a market
which is assumed to be perfectly competitive there will be no divergence
between average cost and marginal revenue, because no firm can
restrict output and set output short of the lowest point.
1.3 Monopoly situation
The opposite to the model of perfect competition is the model of a
monopoly situation.32 This model is a useful tool to show a non-
competitive market where neither allocative nor productive efficiency is
achieved. The model, as shown in figure 3 below, shows a downward
sloping demand curve, which indicates that the incumbent is able to
influence price via output restrictions. The rationale behind limiting
output is that the incumbent wants to maximise profit. To maximise
profit in the short term, the incumbent will set output at the profit
maximising point where marginal cost (MC) meets marginal revenue
(MR). The consequence of restricting output is that price will be above
marginal cost, and therefore higher, and output lower, than would be
the case under perfect competition.33 In this situation, there will
necessarily be a divergence between average cost (AC) and marginal
30 Any profit over and above normal profit.
31 Opportunity cost for the entrepreneur, i.e. the minimum amount necessary to attract the
entrepreneur to an activity or to provide the incumbent with an inducement to remain in it.
32 An in-depth description of perfect competition can be found in Graham Bannock et al., Dictionary
of Economics (Bloomberg Press, 4th ed, 2003) page 262ff.
33 Edward H Chamberlin, The Theory of Monopolistic Competition (Harvard University Press, 7th ed,
1956); Joan Robinson, The Economics of Imperfect Competition (Cambridge University Press,
1933).
141
revenue (MR).34 An incumbent that is able to limit output will earn
monopoly profit in the long run, provided that there are barriers to
entry. This profit is a pure surplus, serving no efficiency purpose.
Figure 3: Illustration of a monopoly situation.35
The examination of the different types of efficiency, and the economic
models upon which they rely, is useful information for considering the
relationship between these efficiencies and the different welfare
standards. Knowing the different benefits of the various types of
efficiency, the question is which welfare standard to pursue. The answer
depends on an assessment of whether it is more important to protect
the interests of consumers or producers or both. This will be explored in
the following sub-section.
34 The increase in the total revenue received by a firm from the sale of one extra unit of its output.
35 I have drawn inspiration for the format of this model from Carlton and Perloff, supra note 17,
page 91.
Marginal
cost (MC)
Average
cost (AC)
Marginal
revenue (MR)
Profit Max
Output MR-MC
Monopoly
Profit
Price
Quantity
142
1.4 The correlation between efficiency and welfare standards
Competition law systems favouring the total welfare standard, which is
defined by most economists as the sum of producer surplus and
consumer surplus,36 will choose to protect productive and dynamic
efficiency more than allocative efficiency.37 This is because these
systems believe that improvements in productive and dynamic
efficiency, either by an increase in output in the market where the asset
is deployed, or by freeing up resources in order to increase output in
other markets, will lead to an increase in total welfare. Even if an
improvement in efficiency leaves price unchanged and end consumers
(i.e. consumers in that particular market) do not benefit directly, end
consumers will benefit indirectly. This is because those consumers are
able to consume incremental goods and services produced in other
markets from the freed-up resources. A system believing in total welfare
opposes exclusionary conduct,38 because it reduces production and
innovative efficiency by raising the costs or lowering the return of rival
firms with no offsetting benefits to society.
In a competition law system favouring the consumer welfare standard in
the form of consumer surplus, productive efficiencies are irrelevant
unless they translate into lower prices and are converted into consumer
surplus. Gain in producer welfare would only be acceptable under the
36 W Kip Viscusi, Joseph M Vernon and Joseph Emmett Harrington, Economics of Regulation and
Antitrust (The MIT Press England, 2nd ed, 1995) page 63; Bishop and Walker, supra note 19, pages
23-27; Posner, supra note 7, page 23; and Motta, supra note 11, page 20.
37 One commentator has argued that productive and innovative efficiency, not allocative efficiency,
should be the first priority, as the aim is to force prices closer to marginal cost and thereby increase
allocative efficiency through increased output, see Brodley, supra note 5, page 1025.
38 Exclusionary conduct is defined in DG Competition’s Discussion Paper on the Application of
Article 82 of the Treaty to Exclusionary Abuses (December, 2005), paragraph 1, as action to deny
rivals access to the market or expansion in the market without offsetting benefits to consumers:
‘[b]y exclusionary abuses are meant behaviours by dominant firms which are likely to have a
foreclosure effect on the market, i.e. which are likely to completely or partially deny profitable
expansion in or access to a market to actual or potential competitors and which ultimately harm
consumers’.
143
consumer welfare standard, if there were sufficient competition to force
the producers to pass such benefits on to consumers. For systems
pursuing a consumer welfare standard, reductions in allocative efficiency
are unacceptable, because consumers suffer. Thus, unless producer
welfare is translated into lower prices or gains which are passed on to
consumers, the beneficial effect on producer welfare is irrelevant.
However, as argued above, focusing on allocative efficiency gains in the
short-term can risk reducing the scope for investment in research and
development long-term as prices fall to marginal cost. Thus, it is
important to balance long-term gain in dynamic and productive
efficiency with short-term loss in allocative efficiency, as consumers may
favour a reduction in allocative efficiency in the short-term in order to
achieve dynamic efficiencies in the long-term. In a competitive market,
producers will in the long-term be forced to pass on any cost savings to
consumers.
The consequence of consumer welfare is that the gain in consumer
surplus is not a gain to society as a whole, because it comes at the
expense of a corresponding loss in producers’ profits. Proponents of the
producer welfare standard and the total welfare standard argue that
there is no economic reason for favouring a dollar in the hands of
consumers of the products over a dollar in the hands of the producers or
their shareholders, who are, after all, also consumers.39 Moreover, they
argue that the consumer welfare standard does not discriminate among
consumers, i.e. between relatively poor and relatively well-off
consumers, therefore profit may end up in the pockets of consumers
that are already wealthy.40
Having introduced the different welfare standards and their correlation
with the different forms of efficiency, the following section will describe
39 Charles F (Rick) Rule, supra note 10, page 6.
40 Critics of the total welfare standard argue that it treats consumers and shareholders alike even
when they are different.
144
the Chicago School’s definition of consumer welfare as it was the
Chicago School which originally promoted the economic welfare
approach in antitrust law.41
2. The Chicago School’s Definition of Consumer Welfare
The Chicago School’s antitrust ‘mantra’ is that the ultimate goal of US
antitrust law is the maximisation of consumer welfare.42 The Chicago
School’s definition of consumer welfare cannot be ignored as it made its
way into US antitrust,43 a system to which the Commission pays
attention. The US Supreme Court implemented the Chicago School
philosophy generously during the 1970s, 1980s and 1990s.44 It even
cited Robert Bork, a leading articulator of the Chicago School’s view of
antitrust, in Reiter v Sono-tone.45
Bork said in his famous book The Antitrust Paradox:46
[T]he whole task of antitrust can be summed up as the effort to
improve allocative efficiency without impairing productive
41 ‘Competition law’ is the usual term for this form of law in many legal systems. In the US, it is
known as ‘antitrust law’.
42 Fox and Sullivan have pointed out that consumer welfare in the Chicagoan sense is not consumer
welfare at all, see Eleanor Fox and Lawrence Sullivan, ‘Antitrust – Retrospective and Prospective:
Where are we coming from? Where are we going?’ 62 New York University Law Review (1987) 936,
page 946.
43 United States’ submission to OECD The Objectives of Competition Law and Policy,
CCNM/GF/COMP (2003); Hovenkamp in Claus-Dieter Ehlermann & Laraine L Laudati (eds),
European Competition Law Annual – The Objectives of Competition Policy (Hart, 1998) page 328.
The Chicago School started in the 1960s and culminated in the 1970s and 1980s. Besides Bork,
some of its originators are Stigler, Demsetz and Brozen.
44 For example, Continental TV Inc v GTE Sylvania Inc 433 US 36 (1977) pages 50-59 and
footnote 21; Illinois Brick Co v Illinois 431 US 720 (1977) pages 731-744; Brooke Group Ltd v
Brown & Williamson Tobacco Corporation 509 US 209 (1993).
45 Reiter v Sono-tone Corporation 442 US 330 (1979) page 343 ‘Congress designed the Sherman
Act as a “consumer welfare prescription”’ followed by citing Bork’s The Antitrust Paradox.
46 Bork, supra note 7, page 91 and page 427.
145
efficiency so greatly as to produce either no gain or a net loss in
consumer welfare.47
The argument of this book [The Antitrust Paradox], of course, is
that competition must be understood as the maximization of
consumer welfare, or, if you prefer, economic efficiency.
Bork discussed maximisation of consumer welfare or economic efficiency
which he equated with consumer welfare. He identified consumer welfare
as improving allocative efficiency without impairing productive efficiency.
Consumer welfare is explicitly concerned with consumer gain.48 Thus, to
avoid any conceptual confusion, it must be stressed that when Bork
speaks about improving allocative efficiency without impairing
productive efficiency, he is concerned about total welfare and not
consumer welfare.49 This is because, if the goal is to maximise consumer
welfare, then this standard seeks to maximise consumer surplus only.
Systems which favour consumer surplus are not concerned with
productive efficiencies as they are irrelevant, unless they translate into
lower prices and are converted into consumer surplus. Thus, identifying
consumer welfare as improving allocative efficiency without impairing
productive efficiency (or economic efficiency) is strictly speaking a
contradiction.50
The difference between consumer welfare and total welfare must be
made clear in order to understand that Bork was talking about total
welfare. A competition law system favouring the consumer welfare
47 Bork reiterated this in Robert Bork, ‘Legislative Intent and The Policy of The Sherman Act’ 9
Journal of Law & Economics (1966) 7.
48 Richard Whish, Competition Law (LexisNexis Butterworth, 5th ed, 2003) page 3; Brodley, supra
note 5, pages 1020-1021.
49 See discussion and critique of Bork’s definition of consumer welfare in Robert H Lande, ‘The Rise
and (Coming) Fall of Efficiency as the Rule of Antitrust’ 33 Antitrust Bulletin (1988) 429, pages 433-
435.
50 It is one thing to believe that it is best for consumers if both allocative and productive welfare
(i.e. total welfare) is protected and quite another to equate consumer welfare with allocative and
productive efficiency.
146
standard takes the view that competition is protected for the benefit of
consumers and that consumer's benefit from low prices. According to
this standard, which focuses on allocative efficiency, the law should
prohibit conduct that results in increased prices.
On the contrary, a system which favours productive efficiency cares
about producer welfare (producer surplus), which is the aggregated
measure of the surplus made by all producers. Bork cares about total
welfare which implicitly takes the view that the identity of the winners
and losers is unimportant as long as it is ensured that there are more
gains than losses.51 Thus, Bork does not favour productive efficiency
over allocative efficiency, but is concerned about improving allocative
efficiency without impairing productive efficiency. This is about favouring
both consumer and producer surplus or, in other terms, total welfare. A
total welfare standard is concerned with increasing the gains for society
as a whole. It does not consider the issue of income distribution between
consumers and producers, nor anything giving preference to consumers
over producers or vice versa.52 Thus, believing in improving allocative
efficiency without impairing productive efficiency can be equated with
economic efficiency, which is based on the total welfare standard that
seeks to maximise total surplus.
It is important to distinguish between total welfare and consumer
welfare, because the implication of the choice of welfare standard is
significant. For example, an exclusive buying arrangement that lowers
the price of a good or service to the end consumer by £10, but raises a
51 One critique is that the total welfare standard ignores marginal utility. Marginal utility describes
the additional benefit derived from an additional unit of wealth, and after a point diminishes with
each additional unit.
52 Motta, supra note 11, page 18; Bork, supra note 7, page 111; Frederic M Scherer, ‘Antitrust,
Efficiency, and Progress’ 63 New York University Law Review (1987) 998, pages 998-999; Oliver E
Williamson, ‘Economies as an Antitrust Defense Revisited’ 125 University of Pennsylvania Law
Review (1977) 699, page 710.
147
rival’s cost by £30 would be lawful under a consumer surplus standard
but not necessarily under a total welfare standard.
After this initial clarification of the difference between total welfare and
consumer welfare and their connection with the different types of
efficiency, the following sub-section will succinctly highlight some points
of the theoretical foundation of the Chicago School in order to explain
how the School linked behaviour in the market place with efficiency.
2.1 The theoretical foundation of the Chicago School
The Chicago School rejected the structuralist approach, which was the
prevailing approach in US antitrust during the 1950s and 1960s,
advocated by the so-called Harvard School.53 The Harvard School
believed that high concentration enables the exercise of market power
and high profits. In rejecting this line of thinking, the Chicago School
argued that existing market structure reflects efficiency. Higher profits
are due to the lower costs of larger firms, because they have economies
of scale. Even if dominant undertakings had the ability to leverage their
market power, they would have no interest in doing so as there is only a
single monopoly profit. Persistent market concentration is the result of
53 The Harvard School developed a mono-causal and mono-dimensional relationship between
structure, conduct and performance. The structure-conduct-performance paradigm states that
market structure determines companies’ market behaviour, which in turn determines market
performance while conduct is not really taken into account. The competitive ideal was the concept of
‘workable competition’. The Harvard School relied on empirical studies and rejected the model of
perfect competition. It believed in multiple goals for antitrust because there is scope for other
values than efficiency as favourable economic results could be obtained in terms of efficiency, equity
and progress. Antitrust must preserve the competitive process as such; prescribe norms of fair
conduct; and restrict the growth of large firms. Antitrust authorities should have large discretionary
powers because markets are fragile and prone to failure; firms can be expected to collude in
concentrated markets; and there are many and high barriers to entry. This led to a very
interventionist competition law embracing per se rules and divestitures in highly concentrated
markets, see Leonard W Weiss, ‘The Structure-Conduct-Performance Paradigm and Antitrust’ 127
University of Pennsylvania Law Review (1979) 1104, page 1105; Joe S Bain, Industrial Organization
(Wiley, 2nd ed, 1968) pages 462-463.
148
minimum efficient firm size. Moreover, there are no or few artificial
barriers to entry, thus private monopoly can only be temporary.54
The Chicago School believed that the basic tenets of firms were
rationality and profit maximisation.55 For example, firms would engage in
vertical price fixing to avoid free-riding. Vertical price fixing should not
be prohibited, as it guarantees better services to consumers. In relation
to predation, the Chicago School believed that aggressive prices are
generally pro-competitive and enhance consumer welfare, except in rare
situations where the predator has sufficient market power to recoup its
losses through long-term, supra-competitive prices achieved after its
rivals have been eliminated.56 Thus, rational firms will not engage in
predatory pricing since they cannot be successful and hence, it should be
of no concern for competition policy. Finally, the Chicago School believed
that collusion is difficult to enforce for market players and thus unlikely,
except in regulated industries.
The Chicago School reviewed business practices in terms of their effects
on efficiency and prices. It relied on the neo-classical price theory, which
developed models of perfect competition and monopoly, to explain firms’
behaviour and practices in real-life markets.57 Bork argued that it was
only workable to view markets from an economic efficiency point of
view, since the social-political framework was so amorphous.58 Indeed,
54 Michael S Jacobs, ‘An Essay on the Normative Foundations of Antitrust Economics’ 74 North
Carolina Law Review (1995) 219, pages 228-232.
55 The Chicago School relied on neo-classical economics which relies on three assumptions: people
have rational preferences among outcomes that can be identified and associated with a value;
individuals maximise utility and firms maximise profits; and people act independently on the basis
of full and relevant information.
56 The Chicago School’s economic analysis of predation was accepted by the US Supreme Court in
1992 in Brook Group, supra note 44.
57 Jacobs, supra note 54, pages 228-229.
58 The proponents of one single objective (that of economic efficiency) do not all necessarily mean
to imply any disparagement of other objectives, such as more equitable distribution of income and
149
Bork even pronounced all contrary views as being so incapable of use as
to be ‘unconstitutional’.59 The Chicago School’s focus on making the law
effective made Judge Easterbrook rename it ‘The Workable Antitrust
Policy School’.60 Like the Chicago School, Easterbrook also favoured the
single goal of economic efficiency.61
The assumptions upon which the Chicago School built its theory have led
to some criticism.62 The main points of this criticism will be elaborated in
the following section in order to highlight some of the drawbacks of the
theory.
2.2 Main critique of the Chicago School
The Chicago School relied on neo-classical economics in order to make
the enforcement of competition law objective and to exclude political
values from competition law. Neo-classical economics have been
criticised for relying on unrealistic assumptions,63 which fail to explain
strategic behaviours taking advantage of market imperfections, where
firms can make profits without being efficient.64 This and the Chicago
the diffusion of economic power. They simply believe that a competition policy concentrated on the
efficiency objective is likely to be applied more consistently and effectively.
59 Robert Bork, ‘The Role of the Courts in Applying Economics’ 54 Antitrust Law Journal (1985) 21,
page 24.
60 Frank H Easterbrook, ‘Workable Antitrust Policy’ 84 Michigan Law Review (1986) 1696, page
1700.
61 This is supported by William Baxter (former Assistant Attorney General in Antitrust Division,
DOJ) who said that ‘the sole goal of antitrust is economic efficiency’ in the Wall Street Journal on 4
March 1982, page 28, but opposed by Hans B Thorelli who concluded that, in the absence of a
single-minded legislative intent to pursue efficiency goals, antitrust should manifest concern for
other social values, see Hans Birger Thorelli, The Federal Antitrust Policy (Johns Hopkins Press,
1955).
62 The so-called Chicago School critique, see for example the Report by the EACGP, supra note 6.
63 See supra note 55.
64 Herbert Hovenkamp, ‘Antitrust Policy after Chicago’ 84 Michigan Law Review (1985) 213, page
261.
150
School’s philosophy that antitrust should only protect economic
efficiency have led to some criticism.65
First, applying economic theory only and excluding political values when
assessing possible competition law problems is hardly desirable or
possible,66 because economics itself is arguably not value-neutral, as it
reflects political preference. Second, it is illogical to have economic
efficiency as the only goal as economic efficiency is not verifiable.67
Third, the Chicago School adopted the concept of economic efficiency
without defining it in such a way that it could be quantified. Bork
acknowledged that economic performance is difficult if not impossible to
measure scientifically:68
[T]he real objection to performance tests and efficiency defenses
in antitrust law is that they are spurious. They cannot measure
the factors relevant to consumer welfare, so that after the
economic extravaganza was completed we should know no more
than before we began.
Thus, Bork applied Stigler’s definition of ‘competitive effectiveness’ to
assess whether total welfare was increased. By applying competitive
effectiveness, it would be possible to find the most efficient firm in the
market by examining which firm had the most success in the market
place without collusion or predation.69 Finally, the confusion between
consumer and total welfare, as highlighted above, is exaggerated.70
65 For example, Robert H Lande, ‘Wealth Transfers as the Original and Primary Concern of
Antitrust: the Efficiency Interpretation Challenged’ 34 Hastings Law Journal (1982) 65; James May,
‘Antitrust in the Formative Era: Political and Economic Theory in Constitutional and Antitrust
Analysis, 1880-1918’ 50 Ohio State Law Journal (1989) 257, page 260; Rudolph J Peritz, ‘A
Counter-History of Antitrust Law’ 1990 Duke Law Journal 263, pages 272-274.
66 Robert Pitofsky, ‘The Political Content of Antitrust’ 127 University of Pennsylvania Law Review
(1979) 1051.
67 Hovenkamp, supra note 64, page 234.
68 Bork, supra note 7, page 124.
69 Ibid. page 192.
70 Brodley, supra note 5, page 1033.
151
The Chicago School applied the neo-classical model of perfect
competition and relied on price theory.71 The Chicagoan line of thinking
relied on price only, which excludes the phases of production of goods
and services by considering exclusively the exchange between suppliers
and consumers.72 This reduces the importance of enforcement to
measure welfare in terms of economics only, and excludes the specific
interests of the firm, which would normally be considered a part of the
legal analysis. This was no coincidence, as the Chicago School wanted to
make competition law enforcement objective by excluding political
values. But, as said above, it is questionable whether such a model of
welfare is value neutral. Hovenkamp, for example, has argued that
‘wealth maximization must include everything to which people assign a
value’.73
Section two has outlined the Chicago School’s definition of consumer
welfare, its theoretical foundation and the main criticism of the School. It
is clear that the Chicago School relied on a total welfare standard. The
question of which welfare standard is the best one for a given system
depends on an assessment of whether it is more important to protect
the interests of consumers, or producers, or both. This in turn depends
on which efficiencies are considered most beneficial.
Having described the Chicago School’s definition of consumer welfare
(which is important as the School promoted the economic welfare
approach) it is essential to acknowledge that the Chicago School’s model
of competition law does not need to concern itself with creating a single
market. Rather, it presupposes the existence of an integrated market.74
71 Richard Posner, ‘The Chicago School of Antitrust Analysis’ 127 University of Pennsylvania Law
Review (1979) 925.
72 Paul McNulty, ‘Economic Theory and the Meaning of Competition’ 82(4) The Quarterly Journal of
Economics (1968) 639, page 646.
73 Hovenkamp, supra note 64, page 242.
74 Lowe, supra note 12, page 3.
152
The following section will examine how the concept of consumer welfare
is defined and applied at Community level, as it is different from the way
in which the Chicago School defined the concept.
3. The Community Welfare Standard
3.1 Consumer welfare
Most jurisdictions embracing competition law clearly state that the
objective is to improve consumer welfare.75 This is also an objective in
Community competition law,76 where there is a general agreement that
competition policy should strive to maintain a competitive market.77
There is a great deal of debate about which welfare standard is the
best.78 The Community Courts have determined that the best welfare
standard under Community law is consumer welfare in form of consumer
gain.
In GlaxoSmithKline, the CFI confirmed that consumer welfare is the
objective of Article 81(1):79
In effect, the objective assigned to Article 81(1) EC, which
constitutes a fundamental provision indispensable for the
achievement of the missions entrusted to the Community…
is to prevent undertakings, by restricting competition
75 UNCTAD, ‘Objectives of Competition Law and Policy: towards a Coherent Strategy for Promoting
Competition and Development’ page 4 submitted for the OECD in 2003. Doc. CCNM/GF/COMP/WD (2003)31.
76 Merit E Janow, ‘International Perspectives on Abuse of Dominance’ in OECD paper GD(96)131 on
Abuse of Dominance and Monopolisation (1996) page 34; OJ [2004] C101/97 Commission Notice
Guidelines on the Application of Article 81(3) of the EC Treaty, paragraph 33; OJ [2000] C291/1
Commission Notice Guidelines on Vertical Restraints, paragraph 7; Mario Monti, ‘Comments to the
speech given by Hew Pate, Assistant Attorney General, US Department of Justice, at the Conference
“Antitrust in a Transatlantic Context”’, speech given on 7 June 2004 in Brussels, page 7, speech
available at: http://ec.europa.eu/comm/competition/speeches/text/sp2004_005_en.pdf.
77 29th Report on Competition Policy (1999), page 6.
78 For example, Bishop and Walker, supra note 19, pages 25-27; Motta, supra note 11, pages 18-
22; Whish, supra note 48, pages 18-20.
79 Case T-168/01 GlaxoSmithKline Services Unlimited v Commission, paragraph 118.
153
between themselves or with third parties, from reducing the
welfare of the final consumer of the products in question….
The Commission emphasised on a number of occasions that
it was from that perspective that it had carried out its
examination in the present case, initially concluding that the
General Sales Conditions clearly restricted the welfare of
consumers, then considering whether that restriction would
be offset by increased efficiency which would itself benefit
consumers.
The CFI specified that it is the welfare of the final consumer which must
be considered. Before continuing discussing the Community welfare
standard it is questioned who the final consumer is?
The term ‘consumer’ is not defined in the EC Treaty. The Commission
has attempted to clarify the position in its Guidelines on the Application
of Article 81(3) of the Treaty where it states in paragraph 84:80
The concept of ‘consumers’ encompasses all direct or indirect
users of the products covered by the agreement, including
producers that use the products as an input, wholesalers,
retailers and final consumers, i.e. natural persons who are acting
for purposes which can be regarded as outside their trade or
profession. In other words, consumers within the meaning of
Article 81(3) are the customers of the parties to the agreement
and subsequent purchasers.
According to this statement, consumers are all direct and indirect users
of the product covered by the agreement and the final consumer is a
natural person who is acting for purposes which can be regarded as
outside his/her trade or profession.81 Thus, in downstream markets the
final consumer can be both the purchaser on the wholesale level82 and
80 Guidelines on the Application of Article 81(3) of the EC Treaty, supra note 76.
81 This is also supported in OJ [1975] L222/34 Kabel unde Metallwerke Neumeyer AG and
Etablissements Luchaire SA Agreement.
82 Most cases on the Community level concern the wholesale level.
154
the consumer of a product on the retail level,83 but not the output
producer. This is a clear commitment to the consumer welfare standard.
Specifically in relation to Article 82, the ECJ held in British Airways that
in order to determine whether a system must be regarded as an abuse,
the benefit to consumers must be considered:84
It has to be determined whether the exclusionary effect arising
from such a system, which is disadvantageous for competition,
may be counterbalanced, or outweighed, by advantages in terms
of efficiency which also benefit the consumer. If the exclusionary
effect of that system bears no relation to advantages for the
market and consumers, or if it goes beyond what is necessary in
order to attain those advantages, that system must be regarded
as an abuse.
The ECJ makes clear that when considering efficiencies consumers must
benefit, but without specifying who the consumer is. Given that
consumers include purchasers on both the wholesale and retail level, but
not the output producer, in stating that consumers must benefit, the ECJ
dedicates itself (theoretically) to the consumer welfare standard and not
total welfare. This is in line with the policy statement coming from DG
Competition in its Discussion Paper on the Application of Article 82 of the
Treaty to Exclusionary Abuses:85
With regard to exclusionary abuses the objective of Article 82 is
the protection of competition on the market as a means of
enhancing consumer welfare and of ensuring an efficient
allocation of resources. Effective competition brings benefits to
consumers, such as low prices, high quality products, a wide
83 According to the Commission’s Report on Competition Policy (2005) consumers can be both
individuals and businesses, point 727 page 191: ‘the Competition DG’s guiding principles as regards
enforcement will continue to be prioritisation of enforcement actions according to the degree of
harmfulness of anti-competitive practices vis-à-vis consumers, both business and individuals.
Priority will be given to those actions that address competition problems with the highest negative
impact on consumer welfare, account being taken of the volume of spending affected by the anti-
competitive practice and the nature of the conduct. The existence of a significant impact on the
competitive process (market foreclosure) can be used as a proxy for consumer harm’.
84 Case C-95/04P British Airways plc v Commission, paragraph 86.
85 Discussion Paper, supra note 38, paragraph 4.
155
selection of goods and services, and innovation. Competition and
market integration serve these ends since the creation and
preservation of an open single market promotes an efficient
allocation of resources throughout the Community for the benefit
of consumers. In applying Article 82, the Commission will adopt
an approach which is based on the likely effects on the market.
The statement makes clear that between total welfare and consumer
welfare, in the form of consumer surplus, consumer welfare will prevail.
Although the Discussion Paper does not offer an explicit definition of
consumer welfare, DG Competition makes it clear that it considers
allocative efficiency to be more important than productive or dynamic
efficiency.
Despite this, one commentator has said ‘it is difficult to say whether
competition authorities and courts favour in practice a consumer welfare
or total welfare objective’.86 According to the Chicago School, this is
because a policy of maximising total welfare will most effectively
accomplish the goal of protecting consumers’ interests. Whilst this may
be true where monopolies are easily broken up or unstable, this is not
the case for markets characterised by stable monopolies. In a society
with stable monopolies, a competition policy pursuing a total welfare
standard87 would mean that it would be legitimate for a monopoly to
keep the gain of any cost savings even though consumers would have to
pay higher prices while the producer would gain. By choosing to pursue
a consumer standard as opposed to a total welfare standard, DG
Competition has made it clear that the aim of its competition policy is
the interests of consumers, and thus it favours consumers over
producers.88
86 Motta, supra note 11, page 19.
87 Recalling that, when pursuing an objective of total welfare, it does not make a difference
whether producers or consumers gain from wealth maximisation as long as society as a whole is
better off.
88 This is also a politically wise choice in order to get popular support for competition policy, which
could dissolve if consumers did not think that the law protected their interests. The consumer
156
The chosen welfare standard in Community competition policy is
consumer welfare in the form of consumer gain, which is not
synonymous with economic efficiency in the Chicagoan sense. The
question is whether consumer harms are measured in terms of output
only, meaning that consumers are harmed where price increase and
output are restricted, or whether non-price considerations, such as
choice, quality and innovation, are also taken into account. This will be
analysed in the following section.
3.2 The measurement of consumer harm
Consumer welfare measured solely in terms of output, measures
whether consumers benefit by protecting market mechanisms that
ultimately generate lower prices. Consumer harm is measured in terms
of increased price and restricted output. Measuring consumer harm in
the form of price only may end up allowing exclusionary conduct that
drives rivals, selling similar products at higher prices but better quality,
out of the market without violating competition law if consumers enjoy
lower prices. Consumer welfare judged by measures other than price
includes non-price considerations such as quality, choice and innovation.
Measuring consumer harm in this way goes beyond output and is
extended to harm to the competitive process.
DG Competition explains that consumers must benefit in the form of
lower prices, high quality products, a wide selection of goods and
welfare standard seems to be a better standard in a society where consumers are less wealthy than
producers, because if consumers are wealthier than producers then society would be better off with
a total welfare standard. The latter standard allows wealth transfers from consumers to producers
and does not cause problem for society, because neither consumers nor producers are the better off
group to begin with. In countries with a deprived economy it matters less where the wealth is
transferred to as long as it benefits society as a whole. In a situation where a company has market
power, in theory, the firm is better off than the consumers, thus in the Article 82 regime a
consumer welfare standard is preferable to a total welfare standard.
157
services, and innovation.89 Former Competition Commissioner Monti
recognised:90
[T]he goal of competition policy, in all its aspects, is to protect
consumer welfare by maintaining a high degree of competition in
the common market. Competition should lead to lower prices, a
wider choice of goods, and technological innovation, all in the
interest of the consumers.91
The practice of the Commission also supports this position.92 Price
competition is not the only form of competition worthy of protection,
competition which relates to other factors is also worthy of protection.93
According to the Commission’s Guidelines on the Application of Article
81(3) of the Treaty, consumer benefits must include other efficiencies
than lower price.94 The guidelines provides that ‘consumer pass-on can
also take the form of qualitative efficiencies such as new and improved
89 Discussion Paper, supra note 38, paragraph 4.
90 Mario Monti, ‘The Future for Competition Policy in the European Union’, speech given on 9 July
2001 at Merchant Taylor's Hall London (speech/01/340), speech available at:
http://europa.eu.int/rapid/pressReleasesAction.do?reference=SPEECH/01/340&format=HTML&aged
=0&language=EN&guiLanguage=en.
91 Mario Monti continued his consumer crusade in a speech given less than a year later where he
gave various examples of how the Commission defends the consumer interest; see Mario Monti,
‘Competition and the Consumer: What are the Aims of European Competition Policy?’, speech given
on 26 February 2002, European Competition Day in Madrid, speech available at:
http://ec.europa.eu/comm/competition/speeches. In another speech Monti said: ‘The Commission is
committed to a proactive, modern and effective competition policy. Not only will this ensure that the
market functions in such a way as to maximise benefits for consumers, but it also gives consumers
an unparalleled opportunity to participate in the fight against violations of the competition rules’ see
Mario Monti, ‘Proactive Competition Policy and the Role of the Consumer’, speech given on 29 April
2004, Competition Day in Dublin, speech available at:
http://ec.europa.eu/comm/competition/speeches.
92 For example, in the Microsoft decision, the Commission engaged in a balancing process between
Microsoft’s interests in protecting its investment in IPRs and the benefits (in terms of innovation)
that would be derived from mandating Microsoft to give access to the information requested, see
Commission decision of 24 March 2004 in Microsoft, COMP/C-3/37.792, paragraph 783.
93 Case 26/76 Metro SB-Großmärkte GmbH & Co KG v Commission [1977] ECR 1875, [1978] 2
CMLR 1, paragraph 21.
94 Guidelines on the Application of article 81(3) of the EC Treaty, supra note 76, paragraph 96 and
point 3.4.3. of paragraph 102.
158
products, creating sufficient value for consumers to compensate for the
anti-competitive effects of the agreement, including a price increase’.95
Even though the Commission recognises that qualitative efficiencies can
be difficult to measure, it clearly states that ‘[t]he availability of new and
improved products constitutes an important source of consumer
welfare’.96
The Guidelines on the Assessment of Horizontal Mergers under the
Council Regulation on the Control of Concentrations between
Undertakings97 provide that ‘the relevant benchmark in assessing
efficiency claims is that consumers will not be worse off as a result of the
merger’98 and a part of that assessment is whether research and
development, and innovation, are among the resulting efficiency gains.99
Measuring consumer harm beyond price considerations can complicate
things. For example, a potential conflict can arise between price on the
one hand and choice on the other. According to Lande, such a conflict
can be resolved by giving priority to choice.100 The argument is that
where consumers have choice they have the power to define their own
wants and the ability to satisfy these wants at competitive prices, and
where there is no choice there are probably neither competitive prices
nor quality.101 Simply put, Lande is arguing that lower prices and better
quality follow from the existence of consumer choice. This argument will
be challenged in chapter six.
95 Ibid. paragraph 102.
96 Guidelines on the Application of article 81(3) of the EC Treaty, supra note 76, paragraph 104.
97 OJ [2004] C31/5 Guidelines on the Assessment of Horizontal Mergers under the Council
Regulation on the Control of Concentrations between Undertakings.
98 Ibid. paragraph 79.
99 Guidelines on the Assessment of Horizontal Mergers, supra note 97, paragraph 80.
100 Robert H Lande, ‘Consumer Choice as the Ultimate Goal of Antitrust’ 62 University of Pittsburgh
Law Review (2001) 503.
101 Ibid.
159
There is no doubt that the Commission is keen to adopt an objective of
consumer welfare. The consequence of this welfare standard is that the
Commission must examine the effects of a specific conduct on
consumers. However, it is one thing to commit to a consumer welfare
objective in theory and another to adopt such a welfare standard in
practice, since it requires a close examination of the effects of the
conduct. In order to examine how the Commission is engaging in an
analysis of effects, the following section provides a short analysis of the
Commission’s decision in Microsoft102 followed by an analysis of the
Wanadoo case.103 These two cases are chosen because they started
when Competition Commissioner Mario Monti was responsible for
competition enforcement at the Commission. As described in the
beginning of this chapter, Mario Monti argued in favour of a consumer
welfare approach. An analysis of the cases will reveal whether the
Commission actually pursued an objective of consumer welfare.
3.3 Microsoft
3.3.1 Facts of the case
The Microsoft Corporation (‘Microsoft’) was founded in 1975. It is based
in Redmond, in the state of Washington, USA. It is the worldwide leader
in software, services and solutions.
In August 2000, the Commission formally started an investigation
against Microsoft.104 The Commission’s action followed a complaint
received in December 1998 by another American software company Sun
102 Microsoft, supra note 92.
103 Case T-340/03 Wanadoo Interactive SA v Commission.
104 Commission Opens Proceedings against Microsoft's Alleged Discriminatory Licensing and Refusal
to Supply Software Information, press release of 3 August 2000 IP/00/906. Available at:
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/00/906&format=HTML&aged=0&langu
age=EN&guiLanguage=en.
160
Microsystems.105 The latter alleged that Microsoft breached Article 82 by
engaging in discriminatory licensing and by refusing to supply essential
information on its Windows operating systems. Following the launch of
the investigation, announced in August 2000, the Commission sent its
first statement of objections alleging that Microsoft was abusing its
dominant position in the market for personal computer operating
systems (‘PC OS’) software by leveraging its power into the market for
server software. In August 2001, a subsequent statement of objections
was sent to Microsoft expanding the formal proceedings to include
concerns about the effects of the tying of Microsoft's Windows Media
Player (‘WMP’) with Windows 2000. In August 2003, the Commission
issued an additional statement of objections, giving Microsoft a final
chance to comment on the results of its investigation and to consider a
package of proposed remedies.106 Microsoft and the Commission were
unable to settle without a formal decision,107 so the Commission issued a
formal decision on 24 March 2004.108
3.3.2 The Commission’s decision
The decision found that Microsoft had infringed Article 82 by leveraging
its dominant position in the PC OS market into the market for work
group server operating systems and into the market for WMP. The
105 The investigation launched in August 2000 was merged with an investigation initiated by the
Commission ex officio in February 2000 alleging abuse of dominance linked to Microsoft’s Windows
2000 software. Commission Examines the Impact of Windows 2000 on Competition, press release of
10 February 2000 IP/00/141. Available at:
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/00/141&format=HTML&aged=0&langu
age=EN&guiLanguage=en.
106 Commission Gives Microsoft Last Opportunity to Comment Before Concluding its Antitrust
Probe, press release of 6 August 2003 IP/03/1150. Available at:
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/03/1150&format=HTML&aged=0&lang
uage=EN&guiLanguage=en.
107 There have been settlements without formal decisions, see for example, Olifiat, 17th Report on
Competition Policy (1987), page 77 and Digital Equipment Corporation, 27th Report on Competition
Policy (1997), page 34.
108 Microsoft, supra note 92.
161
Commission imposed a financial penalty of Euro 497 million and some
behavioural remedies.109 It ordered Microsoft to disclose interface
information to rivals110 and to offer a version of its Windows operating
system without its WMP. Broadly speaking, the decision was based on
five points:
1. Microsoft’s very large market share, which was persistently above 90
per cent in the client PC OS;
2. Microsoft’s refusal to supply interface information between Windows
PCs and non-Microsoft work group server operating systems;
3. the link between Microsoft's interoperability advantage and the
increase in its market share;
4. Microsoft’s ability to eliminate competition in the market for work
group server operating systems;
5. Microsoft’s foreclosure of the market for media player software to
competitors by the tying of its WMP to its Windows 2000 PC OS.
In order to bring the abuses to an end and to establish clear principles
for the future conduct of the company, the Commission imposed two
behavioural remedies on Microsoft. First, Microsoft had to disclose
complete and accurate interface information necessary to allow non-
Microsoft work group servers to achieve full interoperability with
Windows PCs and servers, excluding the Windows source code.111 The
Commission emphasised that the disclosed information must be updated
each time Microsoft introduces new versions of its products. Interface
109 This is the highest fine ever imposed by the Commission on an individual company for breach of
the Community competition rules and is over six times larger than the largest previously imposed
for breach of Article 82, which was a fine of 75 million Euro on Tetra Pak in 1996 for abusive tying
and predatory pricing.
110 Interface information is information about how software and hardware elements interact and
such information is needed to implement compatible interfaces between software and hardware.
111 Source code refers to the "before" version of a computer programme that is compiled before it
is ready to run in a computer. The source code consists of the programming statements that are
created by a programmer with a text editor or a visual programming tool and then saved in a file.
162
information protected by intellectual property rights in the EEA also had
to be disclosed in return for reasonable remuneration.112 Second,
Microsoft was required to offer a version of its Windows client PC OS
without WMP to manufacturers of its PCs, although Microsoft retained its
right to offer a version including WMP.113 The Commission prohibited
Microsoft from offering any terms that made the unbundled version less
attractive or offering discounts conditional on purchasing the combined
package.
In relation to the first remedy, the Commission believed that it would
enable competitors to develop rival work group server operating systems
on a level playing field. In relation to the second remedy, the
Commission believed that PC manufacturers would be able to put
together a package of operating systems and media player software that
best meets their customers’ needs and demands.
3.3.3 Analysis of Commission’s decision
The Microsoft decision falls into two parts. The first part of the decision
concerns refusal to supply interface information, recitals 547 to 791, and
the second part of the decision concerns tying of WMP, recitals 793 to
993. In relation to the first part of the decision concerning the refusal to
supply, the Commission decided that Microsoft was abusing its dominant
position ‘by refusing to supply Sun and other undertakings with the
specifications for the protocols used by Windows work group servers in
order to provide file, print and group and user administration services to
Windows work group networks, and allow these undertakings to
implement such specifications for the purpose of developing and
distributing interoperable work group server operating system
112 Microsoft, supra note 92, article 5 of the decision.
113 Ibid. article 6 of the decision.
163
products’.114 In relation to the second part of the decision concerning
tying of WMP with Windows, the Commission found that ‘Microsoft
infringes Article 82 of the Treaty, in particular paragraph (d) thereof, by
tying Windows Media Player (‘WMP’) with the Windows PC operating
system’.115
Only the second part of the decision will be subject to analysis in this
section, as it illustrates the point being made, which is whether the
Commission does engage in a more detailed examination of the likely
effects of the tying practice. The second part of the decision is also
interesting as it was argued in terms of consumer choice. Before
examining the Commission’s analysis of effects, the main arguments
advanced by the Commission and by Microsoft will be highlighted.
The Commission’s analysis of tying started by outlining four
requirements necessary for tying to violate Article 82:116
Tying prohibited under Article 82 of the Treaty requires the
presence of the following elements: (i) the tying and tied goods
are two separate products; (ii) the undertaking concerned is
dominant in the tying product market; (iii) the undertaking
concerned does not give customers a choice to obtain the tying
product without the tied product; and (iv) tying forecloses
competition.
The Commission found that Microsoft’s conduct fulfilled all the conditions
for tying in Article 82(2)(d).117 In relation to the first condition, Microsoft
argued that WMP is an integral part of Windows and not a product
distinct from Windows products. Products that are not distinct cannot be
tied in a way that is contrary to Article 82.118 To support its argument,
Microsoft claimed that it had tied WMP to Windows since 1992, but the
114 Microsoft, supra note 92, recital 546.
115 Ibid. recital 792.
116 Microsoft, supra note 92, recital 794.
117 Ibid. recital 795.
118 Microsoft, supra note 92, recital 800.
164
fact that the Commission had not pursued the conduct before 1999
showed that the Commission accepted that WMP was an integrated part
of Windows. If that argument was not accepted, then the tying of a
streaming media player with the operating system was normal
commercial practice.119
The Commission rejected this argument and concluded that ‘client PC
operating systems and media players are distinct products for the
purposes of Community competition law’.120 To support this conclusion,
the Commission referred to evidence of other suppliers providing media
players separately and evidence which showed a separate consumer
demand for media players, distinguishable from the demand for client PC
operating systems.121 The Commission argued this point by referring to
the ECJ’s judgments in Tetra Pak II and Hilti.122 The Commission further
rejected the argument that the two products were an integrated product,
because it had not pursued the infringement before 1999. If such an
argument was accepted, any dominant company could distort
competition in adjacent markets simply by not becoming the target of
enforcement action for long enough to establish a track record.123
Finally, the Commission rejected the argument that tying was normal
commercial practice as other suppliers independently supplied their
media players or made them removable.124
In relation to the second condition, the Commission argued that
Microsoft used its dominance in the client PC OS market by tying WMP
119 Ibid. section 5.3.2.1.2.2, page 217.
120 Microsoft, supra note 92, recital 825. 121 Ibid. recitals 801-804.
122 Case C-333/94 Tetra Pak International SA v Commission [1996] ECR I-5951, [1997] 4 CMLR
662; Case C-53/92 Hilti AG v Commission [1994] ECR I-667, [1994] 4 CMLR 614.
123 Microsoft, supra note 92, recital 815.
124 Ibid. recitals 822-823.
165
with Windows and by distributing Windows only together with WMP.125
The dominance part of the case will not be subject to analysis here, as it
is less relevant to the point being made on effects.
As to the third condition, consumer choice, the Commission argued that
Microsoft did not give customers the choice of obtaining Windows
without WMP. According to Microsoft, consumers did not have to pay
extra for having the WMP as they got it for free.126 The Commission
rejected this argument by referring to the fact that the wording of Article
82(2)(d) does not include a reference to ‘paying’. Moreover, connecting
tying to a payment would limit the application of Article 82 to tying cases
where customers had to buy something extra. According to the
Commission, such an interpretation suggests the absence of competitive
harm if customers do not have to spend money for the tied product, and
that would conflate the coercion and foreclosure of competition elements
of tying.127 In relation to the latter point, the Commission said:128
[T]hat the harmful effects on consumers from tying WMP (also)
derive from undermining the structure of competition in media
players which is liable to result in deterrence of innovation and
eventual reduction in choice of competing media players.
In particular, it will be shown that inasmuch as tying risks
foreclosing competitors, it is immaterial that consumers are not
forced to ‘purchase’ or ‘use’ WMP. As long as consumers
‘automatically’ obtain WMP - even if for free - alternative
suppliers are at a competitive disadvantage.
Harmful effect on competition relates to the fourth condition for tying.
The Commission argued that Microsoft’s tying of WMP foreclosed
competition in the market for media players.129 In dealing with
foreclosure, the Commission referred to the ECJ’s judgment in
125 Microsoft, supra note 92, recital 799.
126 Ibid. recital 830.
127 Microsoft, supra note 92, recital 831.
128 Ibid. recitals 832-833.
129 Microsoft, supra note 92, section 5.3.2.1.4, page 220.
166
Hoffmann-La Roche,130 to show that the ECJ found that the rebate
scheme offered by Hoffmann-La Roche constituted an abuse even where
Hoffmann-La Roche did not contractually force its customers to purchase
anything extra. The Commission also referred to the CFI’s judgment in
Van den Bergh Foods,131 to establish that foreclosure does not have to
reach the level of complete foreclosure as long as the foreclosure is not
insignificant, and to CFI’s judgments in Michelin II132 and British
Airways133 to stress that foreclosure effects do not have to be concrete
foreclosure effects.134 Microsoft contended that its conduct had negative
effect on competition.135
In the Questions and Answers on the Commission Decision, the
Commission alleged that it had applied a ‘rule of reason’ approach to its
assessment of whether WMP should be unbundled by considering
whether the anti-competitive effects of the tie outweighed any possible
pro-competitive benefits.136 The Commission did not employ the term
‘rule of reason’ in its decision, but said in paragraph 841:
There are indeed circumstances relating to the tying of WMP
which warrant a closer examination of the effects that tying has
on competition in this case. While in classical tying cases, the
Commission and the Courts considered the foreclosure effect for
competing vendors to be demonstrated by the bundling of a
separate product with the dominant product, in the case at issue,
users can and do to a certain extent obtain third party media
players through the Internet, sometimes for free. There are
therefore indeed good reasons not to assume without further
130 Case 85/76 Hoffmann-La Roche AG v Commission [1979] ECR 461, [1979] 3 CMLR 211.
131 Case T-65/98 Van den Bergh Foods v Commission [2003] ECR II-4653.
132 Case T-203/01 Manufacture française des pneumatiques Michelin v Commission [2003] ECR II-
4071.
133 Case T-219/99 British Airways plc v Commission [2003] ECR II-5917.
134 Microsoft, supra note 92, recital 838.
135 Ibid. recital 840.
136 Microsoft – Questions and Answers on Commission Decision, MEMO of 24 March 2004
MEMO/04/70. Available at:
http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/04/70&format=HTML&aged=0&la
nguage=EN&guiLanguage=en.
167
analysis that tying WMP constitutes conduct which by its very
nature is liable to foreclose competition.
The Commission acknowledged that tying WMP to Windows could not
automatically be assumed to foreclose competition, so a closer
examination of effects was necessary. It recognised that a detailed
analysis of effects required examination of whether the efficiencies
arising from tying WMP to Windows outweighed any possible anti-
competitive effects from tying WMP.137 This is a development compared
to the approach in Tetra Pak II and Hilti, referred to above, where the
Commission found an abuse where consumers were deprived of the
choice of buying the tied product from other suppliers.
One of the efficiencies advanced by Microsoft was the lowering of
transaction costs for consumers, to reduce time and confusion by having
a set of default options in a personal computer.138 The reduction of
transaction costs consisted in the economies made by a tied sale of two
products, which saves resources otherwise spent on maintaining a
separate distribution system for the second product. The Commission
rejected the possibility of distributive efficiency by stating that such
costs are insignificant in software licensing.139 Another efficiency
advanced by Microsoft was that WMP was an indispensable condition for
simplifying the work of applications developers.140 This argument was
also rejected, because the Commission claimed that Microsoft was
unable to substantiate it with evidence. Ultimately, the Commission
concluded that the efficiencies advanced by Microsoft could not outweigh
the distortion of competition. This does not necessarily mean that the
Commission does not accept any efficiencies, but it could mean that the
Commission is unlikely to accept efficiency gains, where a company has
137 Microsoft, supra note 92, recital 955.
138 Ibid. recital 956.
139 Microsoft, supra note 92, recital 958.
140 Ibid. recital 962.
168
a market share persistently over 90 per cent. In cases where a company
approaches a near-monopoly, it is likely that the Commission is giving
the process of rivalry priority over possible pro-competitive efficiency
gains.141
The remedy requiring Microsoft to offer to manufacturers of PCs a
version of its Windows client PC operating system without WMP raises
the question of the implications of this remedy for consumers. It is
unclear whether consumers would actually benefit from this remedy. It
does not appear from article 6 of the decision whether consumers would
have to pay more for the bundled version than for the version without
WMP. If it is assumed that they have to pay a higher price for the
bundled version, then consumers are potentially disadvantaged. Before
the decision, consumers could get at least one media player for free –
the WMP. At that time, the consumers had the choice of other media
players as well, but these were not free. Following the decision,
consumers would have to pay to get a media player whether it was WMP
or any other media player. Had consumer welfare been measured solely
on the basis of price, then this remedy would harm consumers.
However, as noted above, the measure of consumer harm is extended
beyond price considerations. In that case, did the remedy benefit
consumers if consumer welfare includes non-price considerations such as
choice?
Before the decision, consumers could choose to buy other media players,
so they did have the choice to switch to another supplier. Perhaps they
were reluctant to use their choice, as they would have to pay if they
chose to install another media player than WMP, but they had the
choice. If the purpose of the remedy was to avert a lack of consumer
choice in the future (because all other manufacturers of media players
would have left the market eventually) insofar as Microsoft continued to
141 This is also DG Competition’s stance in its Discussion Paper, supra note 85, paragraph 91.
169
tie its WMP to its Windows software, then that potential future lack of
choice would have been the situation consumers preferred. The
Commission seems to see Microsoft's conduct as effectively foreclosing
consumers’ opportunity to make a reasoned choice in the marketplace,
but it was a choice they had already made.
The consumer choice in this case was a choice between purchasing
Windows with WMP and Windows without WMP. If the above
presumption is correct and consumers would have to pay more for the
bundled version than for the version without WMP then the situation
created by the Commission is more expensive for consumers. Before the
Commission’s decision consumers could get WMP for free. After the
Commission’s decision consumers would have to purchase a media
player whether that being WMP or any other media player. While this
may result in consumers actually considering which media player to buy
instead of ‘just’ using WMP out of convenience, because it is pre-
installed in Windows, it is doubtful whether this is consumer welfare.
If the above presumption is incorrect and consumers do not have to pay
a higher price for the bundled version, then what difference does the
remedy make? The only difference would be that consumers have the
choice of getting Windows software without a WMP, but does that choice
really matter if the price is the same? Following the decision, Microsoft
said in its press release: ‘we [Microsoft] believe that the Commission's
decision would actually reduce consumer choice and hurt European
software developers’.142
The WMP part of the decision was argued in terms of consumer choice,
which illustrates that choice is emerging as an explicit paradigm for
142 Microsoft Says Proposed Settlement Would Have Been Better For European Consumers,
Microsoft press release of 24 March 2004. Available at:
http://www.microsoft.com/presspass/press/2004/mar04/03-24ECRemedyPR.mspx.
170
Community competition law. This raises the question whether the
Commission was protecting choice to protect the welfare of consumers,
or to protect the process of competition and thereby competitors?143
According to the Commission:144
Under Community competition law an undistorted competition
process constitutes a value in itself as it generates efficiencies
and creates a climate conducive to innovation.
If the Commission believes that protecting the process of competition is
a value in itself, because it generates efficiencies, then it needs to create
a framework on how to protect the process of competition to the point
where it generates efficiencies without protecting competitors. As will be
explained in chapter six, protecting the process of competition does not
necessarily guarantee efficiencies to the benefit of consumers.
Guaranteeing efficiencies requires that the process of competition is
protected only to the point where it is productively and allocatively
beneficial to do.
On efficiencies, the Commission said that Microsoft had not submitted
adequate evidence that tying WMP was objectively justified by pro-
competitive effects that would outweigh the distortion of competition,
caused by it.145 Thus, it concluded that Microsoft’s tying of its WMP to its
Windows 2000 PC OS was not indispensable for the developer and
consumer benefits, that it artificially reduced competitors’ incentives to
develop competing software,146 and therefore that competition in the
media player market was considerably weakened.147
143 When asked whether the Commission was seeking to protect competitors, the Commission’s
answer was: ‘the Commission does not look at the specific interests of individual companies, but is
charged with ensuring that competition on the merits is safeguarded. This creates an environment
where consumers can benefit and where innovation can flourish’. MEMO/04/70, supra note 136.
144 Microsoft, supra note 92, recital 969.
145 Ibid. recital 970.
146 Microsoft, supra note 92, recital 983.
147 Ibid. recital 984.
171
This is not to say that the Commission does not appreciate efficiencies
that can lead to lower prices and better quality for consumers, but that
the Commission found that Microsoft’s competitors would not be able to
compete with an efficient Microsoft. As data showed the increasing
importance of media player software and technology in consumer
choices, the Commission was concerned that the linkage between WMP
and Windows would result in the market being tipped definitively in
Microsoft's favour.148 The Commission said that this would enable
Microsoft to obtain control of related markets in the digital media sector.
Although the Commission talked about effects and efficiencies in its
decision, it is still unclear whether the legal test is harmful effects on
consumers or on competitors. This may be clarified on appeal.149
148 Microsoft, supra note 92, recital 975.
149 Case T-201/04 Microsoft Corporation v Commission (judgment pending). On appeal in relation
to the interoperability part of the decision, Microsoft claims that the Commission erred in finding
that it infringed Article 82 by refusing to supply communications protocols to competitors and to
allow the use of that proprietary technology in competing work group server operating systems. It
argues that the technology which it is ordered to license is not indispensable to achieve
interoperability with Microsoft PC operating systems. Moreover, that the refusal to supply the
technology did not prevent the emergence of new products on a secondary market, and did not
have the effect of excluding competition on a secondary market. The conditions for imposing
compulsory licensing on a dominant company are not therefore met. Microsoft claims that the
Commission wrongly denied that Microsoft could rely on its IPR as an objective justification for its
alleged refusal to supply the technology and instead advanced a new and legally defective balancing
test invoking public interest in disclosure. In relation to the media player part of the case, Microsoft
argues that the Commission erred in determining that Microsoft infringed Article 82 by making the
availability of its PC operating systems conditional on the simultaneous acquisition of media
functionality. It claims that the Commission's decision is based on a speculative foreclosure theory,
which is inconsistent with the Commission's own decision in OJ [2001] L268/28 AOL/Time Warner.
Microsoft argues that Windows and its media functionality are not two separate products, see OJ
[2004] C179/18.
172
3.4 Wanadoo
3.4.1 Facts of the case
In September 2001, the Commission launched an investigation under
Article 82 into Wanadoo Interactive SA’s (‘Wanadoo’) pricing practices.
On 19 December 2001, it sent a statement of objection to Wanadoo.150
On 9 August 2002, a subsequent statement of objection was sent.151 At
the time, Wanadoo was a 72 per cent owned subsidiary of France
Télécom, the incumbent operator, which operated nearly all ADSL lines
in France.152 No other cable operator was in a position to compress a
national network comparable to France Télécom’s ADSL facilities.
The Commission reached its decision on 16 July 2003.153 It adopted a
decision against Wanadoo finding that it had violated Article 82 by
marketing its ADSL services, known as Wanadoo ADSL and eXtense, at
prices below average variable costs (‘AVC’) from the end of 1999 to
October 2002. Moreover, that Wanadoo was unable to cover its average
total costs (‘ATC’) from August 2003 onwards, as part of a plan to pre-
empt the market in high-speed internet access during a key phase in its
development. The Commission imposed a financial penalty of Euro 10.35
million.
150 High-speed Internet Access: Commission Suspects Wanadoo (France) of Abusing its Dominant
Position, press release of 21 December 2001 IP/01/1899. Available at:
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/01/1899&format=HTML&aged=1&lang
uage=EN&guiLanguage=en.
151 Wanadoo Interactive COMP/38.233, recital 156.
152 ADSL is an abbreviation of ‘asymmetric digital subscriber line’ and is the main available
technology in France for the provision of high-speed internet access to residential and small
office/home office customers. It allows the provision of broadband services over the traditional
telephone copper pair linking local exchanges to the customers’ premises.
153 Wanadoo, supra note 151; High-speed Internet: the Commission Imposes a Fine on Wanadoo
for Abuse of a Dominant Position, press Release of 16 July 2003 IP/03/1025. Available at:
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/03/1025&format=HTML&aged=1&lang
uage=EN&guiLanguage=en.
173
3.4.2 The Commission’s decision
The decision reiterated two possible tests for finding an abuse in the
form of predatory pricing.154 The first is where AVC is not covered and
the second is where AVC is covered, but the pricing forms part of a plan
to eliminate competitors.155 If prices are below AVC they are assumed to
be abusive whereas intention must be shown if prices are above AVC.
The Commission carried out adjustments to costs and revenue so as to
take account of the characteristics of a strongly growing market.156 It
found that the prices charged by Wanadoo were well below AVC until
August 2001.157 Hereafter the prices were approximately equivalent to
AVC, but significantly still below ATC. It found that Wanadoo suffered
substantial losses as a result of this practice and meanwhile France
Télécom, which at that time held a virtual monopoly in the market for
wholesale ADSL services for internet service providers, was anticipating
considerable profits on its own wholesale ADSL products. In addition, the
Commission found intention.158
Wanadoo claimed that by selling its services below full cost, it had acted
in a rational manner, with the objective of developing a new market and
to reach profitability in the medium term.159 Wanadoo submitted
calculations designed to prove that for each new subscriber the
discounted cash flows of the services sold at a loss would be positive
over a period of less than five years. However, the Commission found
that even if the discounted cash-flows generated by a single subscriber
were to be admitted as positive in the medium term, the ongoing
154 Wanadoo, supra note 151, recitals 81 and 256.
155 Case 62/86 AKZO Chemie BV v Commission [1994] ECR I-3439, paragraphs 71-72.
156 Wanadoo, supra note 151, recital 73ff. The AVC costs were also adjusted by spreading
customer acquisition costs, see recital 81.
157 Ibid. recital 83.
158 Wanadoo, supra note 151, recital 278ff.
159 Ibid. recital 260.
174
volume of acquisition costs on an expanding market were such that the
whole activity might well continue for a long time to be unprofitable. The
Commission did not accept that the calculations submitted by Wanadoo
were a relevant tool in assessing whether the behaviour of a dominant
company did or did not amount to predatory pricing.
The Commission argued that the recoupment of initial losses over a
certain period of time is, in the most common settings, the very
objective of predatory pricing behaviour. The firm expects, after evicting
or disciplining its rivals, to be in a position to increase its profit margin in
order to make up for the losses incurred during the predatory pricing
period.160 Demonstrating that acquiring an ADSL customer is rational,
since it provides a positive deflated income over five years, simply shows
that the predatory pricing strategy will pay off. Admitting Wanadoo’s
reasoning in this respect would have led to the conclusion that in
essence predatory pricing simply cannot exist. Another reason for the
Commission to reject Wanadoo’s contention was linked to the specific
facts of the case. What matters for the firm and its shareholders are not
necessarily the individual net revenues produced by a single subscriber,
but perhaps the overall assessment of the financial situation of the
activity at stake.161
Juergen Mensching from the Commission said in a speech following the
decision:162
Wanadoo’s predatory pricing strategy was designed to take the
lion’s share of the market for ADSL services in France, at the
expense of other competitors. The Commission intervened against
160 Wanadoo, supra note 151, recital 293.
161 Ibid. recital 334.
162 Juergen Mensching, ‘Competition Policy: Commercial and Consumer Paybacks. The European
Dimension’, speech given on 30 September – 1 October 2003 at the International Institute of
Communications 34th annual conference, page 7, speech available at:
http://ec.europa.eu/comm/competition/speeches/text/sp2003_026_en.pdf.
175
these foreclosure practices even if there was a risk that final
customers might suffer in the short term. However in the case, a
remedy was found – reduction of France Telecom’s wholesale
rates – that benefited both Wanadoo’s competitors and the final
customer.
On 2 October 2003, Wanadoo appealed the Commission’s decision
to the CFI.163 Whilst the Commission’s decision did not endorse an
objective of consumer welfare, it is worth examining whether the
CFI supported a consumer welfare approach.
3.4.3 The CFI’s judgment
On 30 January 2007, the CFI dismissed the appeal and upheld the
Commission’s decision.164 In upholding the decision and the fine imposed
by the Commission, the CFI reaffirmed previous ECJ case law on
predatory pricing.
On appeal, the appellant Wanadoo advanced the following substantive
arguments:165
1. the Commission used the wrong market definition and was incorrect
in finding Wanadoo to be dominant;
2. in finding an abuse, the Commission applied the wrong cost recovery
test and incorrectly calculated costs;
3. in concluding that Wanadoo's prices were predatory, the Commission
denied Wanadoo the right to align its prices with those of its
competitors; and finally
4. the Commission wrongly found a plan of predation and wrongly
maintained that it was not necessary to prove recoupment of losses.
163 OJ [2003] C289/34.
164 Wanadoo, supra note 103.
165 Ibid. paragraph 72.
176
In relation to the first point, the Commission's finding of dominance, the
CFI observed that Wanadoo's very high market share proved, save in
exceptional circumstances, that it had a dominant position, consistent
with previous case law.166 From January 2001 to September 2002,
Wanadoo’s market share rose by nearly 30 per cent to between 65-75
per cent of the market and resulted in Wanadoo having a dominant
position.
As regards the second point on cost recovery, Wanadoo argued that a
discounted cash-flow method should be used in calculating rates of cost
recovery.167 The CFI noted that the assessment represented a complex
economic assessment in which the Commission must be allowed a broad
discretion and the Court should limit its review to traditional judicial
review grounds.168 The CFI accepted the principle in Wanadoo's
argument that a discounted cash-flow method should be used in
calculating rates of cost recovery, but held that this did not show a
manifest error in the Commission's chosen method.
On the substantive test of predation, the appeal raised three significant
issues: the right to align prices with competitors (the ‘meeting
competition’ defence), the need to show a predatory strategy, and the
relevance of recoupment of losses.
In relation to the meeting competition defence, the Commission had
decided that a dominant operator was not entitled to align its prices with
those of a competitor, if this would result in costs not being recovered.
Wanadoo argued that the Commission denied it a fundamental right to
align its conduct with that of its competitors.169 The CFI did not use the
terminology of a fundamental right, but used the term ‘absolute right’. It
166 Wanadoo, supra note 103, paragraph 100.
167 Ibid. paragraph 125.
168 Wanadoo, supra note 103, paragraph 129.
169 Ibid. paragraph 72.
177
held that there was no absolute right to align prices,170 this conduct
being impermissible where it was aimed not only at protecting the
undertaking’s commercial interests, but also at strengthening and
abusing its dominant position:171
[Wanadoo] cannot therefore rely on an absolute right to align its
prices on those of its competitors in order to justify its conduct.
Even if alignment of prices by a dominant undertaking on those of
its competitors is not in itself abusive or objectionable, it might
become so where it is aimed not only at protecting its interests
but also at strengthening and abusing its dominant position.
On the need to show predatory strategy, the CFI reiterated the principles
set out in Akzo, Compagnie Maritime Belge and Tetra Pak II.172 These
principles are that prices below AVC are abusive in themselves, because
the only interest in applying such prices can be the elimination of a
competitor; that prices above AVC but below ATC are abusive if they are
determined as part of a plan for eliminating a competitor; and that
failure to achieve the predatory object is not sufficient to prevent the
conduct from being an abuse.173
On the point of recoupment, the Commission found that Wanadoo had
not covered AVC until April 2001 or ATC until October 2002. Therefore,
Wanadoo was obliged, in respect of the latter period, to provide sound
evidence that its conduct was not part of a strategy of pre-empting the
market. Wanadoo claimed that the Commission had erred in law by
maintaining that it was not necessary to prove recoupment.174 The
170 This conclusion on price alignment is not wholly out of line with the Discussion Paper, supra
note 38, which suggests that a ‘meeting competition’ defence would not normally be available for
pricing below average avoidable cost.
171 Wanadoo, supra note 103, paragraph 187.
172 AKZO, supra note 155, paragraphs 71-72; Tetra Pak II, supra note 122; Joined Cases C-395
and 396/96P Compagnie Maritime Belge Transport v Commission [2000] ECR 1365, [2000] 4 CMLR
1076.
173 Wanadoo, supra note 103, paragraph 130.
174 Ibid. paragraph 221.
178
Commission rejected the argument that it had to prove recoupment.175
This was upheld by the CFI, which recognised that the Commission was
‘right to take the view that proof of recoupment of losses was not a
precondition to making a finding of predatory pricing’.176 Contrary to the
legal position in the US,177 there is no recoupment requirement in
relation to predatory pricing under Article 82.178
In order to justify its pricing below cost, Wandoo claimed that by
charging prices below cost it would enjoy economies of scale and
learning effects on account of increased production. The CFI held that
the economies of scale and learning effects could not exempt Wanadoo
from liability under Article 82. This is because an undertaking which
charges predatory prices may enjoy economies of scale and learning
effects on account of increased production precisely because of pricing
below costs.179
3.4.4 Analysis of CFI’s judgment
On appeal, the Commission claimed that demonstrating the specific
effects of Wanadoo’s predatory pricing is not decisive for the purposes of
finding the infringement in question. Moreover, that Article 82 ‘must be
applied where there is a risk of eliminating competition, without having
to wait for the object of driving out competition to be achieved’.180 This
contrasts with the signal sent out by DG Competition in its Discussion
Paper, according to which the Commission will adopt an approach based
on the likely effects on the market when applying Article 82.181 This
favours an approach to the enforcement of Article 82 based on sound
175 Wanadoo, supra note 103, paragraph 223.
176 Ibid. paragraph 228.
177 Brooke Group, supra note 44.
178 Tetra Pak, supra note 122.
179 Ibid. paragraph 217.
180 Wanadoo, supra note 103, paragraph 193.
181 Discussion Paper, supra note 38, paragraph 4.
179
economic analysis of the effects of the conduct in question, including the
effects on consumers.
While the Discussion Paper tries to encourage a move away from the
rigid rules based on the form of the conduct and the protection of
competitors, this judgment represents no change in the established
analysis of predatory pricing under Article 82. The CFI endorsed every
aspect of the Commission’s decision, especially on recoupment and
meeting competition. The CFI continues to focus to a considerable extent
upon the intentions of the dominant undertaking, rather than the effects
of its conduct. Although the Discussion Paper does not abandon the
concept of presumptions based upon the relationship between a
dominant undertaking’s prices and costs, it does recognise the possibility
that such pricing may not always have exclusionary effects. Where
prices are above AVC but below ATC, emphasis is placed upon the need
for objective evidence that the strategy will have foreclosure effects and
the possibility of a defence based upon objective justification is
accepted.182 If DG Competition's objective is to adopt an economic
approach rooted in consumer welfare, then this case merely serves to
demonstrate the extent to which the CFI's approach must also alter, if
such a transformation in the application of Article 82 is to be successful.
A mechanical application of price and cost comparisons, may lead to the
paradoxical result that a company breaches Article 82, just because it
did not properly anticipate the level of demand for a new product and
therefore gained a dominant position in the market.
Whether Article 82 ought to have a recoupment requirement is an issue
which has been debated often. This thesis will not revisit this debate, but
will briefly highlight some of the arguments for and against taking
recoupment into consideration. As seen above, Bork argued that there
was no reason to condemn predatory pricing, because offering prices
182 Ibid. paragraph 112ff.
180
below cost will create losses for the predator while practising predation,
but benefit the consumers.183 The predator has to raise prices again later
– recoup – and at that point there will be room for competition.184 Article
82 condemns predatory pricing, because prices below cost can eliminate
a significant number of competitors in the market, with the result that
there will be no room for competition when raising price, because there
are no competitors left. Arguably, in trying to recoup, a firm raises
prices, which might encourage potential competitors to enter the
market. However, there may be high barriers to entry or even no
potential competitors. Even if there are potential competitors, they may
be unwilling to enter the market if the incumbent has established a
reputation for predation. In any case, according to the Discussion Paper
the possibility of recoupment is assumed where dominance is proven:185
It will in general be sufficient to show the likelihood of
recoupment by investigating the entry barriers to the market, the
(strengthened) position of the company and foreseeable changes
to the future structure of the market. As dominance is already
established this normally means that entry barriers are
sufficiently high to presume the possibility to recoup. The
Commission does therefore not consider it is necessary to provide
further separate proof of recoupment in order to find an abuse.
Neither the Commission’s decision nor the CFI’s judgment was about
consumer welfare. While the Competition Commissioner at the time of
the decision, Mario Monti, was arguing in favour of consumer welfare,
the actual decision, which was upheld by the CFI, was not about the
consumer welfare at all. This may not be the final outcome as France
Télécom has appealed the judgment on 16 April 2007.186
183 See section 2.1 above.
184 Giuliano Amato, Antitrust and the Bounds of Power (Hart publishing, 1997) page 21.
185 Discussion Paper, supra note 38, paragraph 122.
186 Case C-202/07P France Télécom SA v Commission. On appeal France Télécom claims that CFI
failed to comply with its duty to provide reasons both as regards the possibility for recoupment and
as regards the right to align prices with those of competitors. It infringed Article 82 by refusing
Wanadoo the right, enshrined in both EC and French law, to align its prices, in good faith, with those
181
4. Efficiency Considerations under Article 82
The wording of Article 82 is silent on efficiencies and there is no
secondary legislation or other legislative document embracing
efficiencies under Article 82. This is not to say that efficiencies have
been ignored in the analysis of Article 82, but rather that efficiency
concerns have been considered less important and have not been
considered an aim in themselves.187 This is probably because of the
historical concern with preventing increases in industrial concentration
and the possible political ramifications of conjoining economic and
political power.188 However, in a system which favours consumer
welfare, the question whether the effects of the particular conduct harm
consumers must be assessed. Examining the impact of the effects on
consumers naturally requires a consideration of efficiencies. If
recognisable efficiency gains are so large that the conduct can no longer
be said to harm consumers, then the Commission must be prepared to
accept the conduct. In this way, the analysis of efficiencies is directly
tied to the analysis of the conduct’s competitive effects on consumers.
of its competitors. The CFI infringed Article 82 by failing to find fault with the Commission's method
for calculating cost recovery, which involved a distortion of the test of predation required by the
ECJ. The method which the Commission used made it impossible to know whether the Wanadoo
subscribers generated a profit or loss for that business during their subscription period. The CFI
misconstrued both Article 82 and its duty to provide reasons when deciding that the costs and
revenues subsequent to the period of the alleged infringement should not be taken into account.
The CFI infringed Article 82 and its duty to give reasons by holding that a price may be predatory
even when it is accompanied by a considerable reduction in the market share of the relevant
undertaking. The CFI distorted the facts and the evidence submitted for its consideration in relation
to the alleged plan of predation. The CFI infringed Article 82 in holding that proving the possibility
for recoupment of losses was not a pre-requisite for finding predatory pricing and also in confusing
the Commission's evidence on the possibility of recoupment of those losses with the relevant
undertaking's evidence on the impossibility of recoupment of those losses.
187 Eleanor Fox, ‘Monopolization and Dominance in the United States and the European
Community: Efficiency, Opportunity, and Fairness’ 61 Notre Dame Law (1986) 981, page 985;
Thomas Eilmansberger, ‘How to Distinguish Good from Bad Competition under Article 82 EC: in
Search of Clearer and More Coherent Standards for Anti-Competitive Abuses’ 42 Common Market
Law Review (2005) 129, page 136.
188 As described in chapter two.
182
Section four considers briefly how, and the extent to which, efficiencies
should be taken into account in competition analysis under Article 82. It
also questions whether efficiencies should be advanced as a defence to
an abuse. It considers how to balance efficiencies against abuse given
that Article 82 does not contain an exemption provision.
4.1 The structure of Article 82
Whereas Article 81 contains a framework for the assessment of possible
efficiency benefits,189 Article 82 does not do so explicitly. Article 82 is not
bifurcated like Article 81,190 as explained by the ECJ in Continental
Can:191
Article 86 [Article 82] does not contain the same explicit provisions,
but this can be explained by the fact that the system fixed there for
dominant positions, unlike Article 81(3), does not recognise any
exemption from the prohibition.
189 Article 81(3):
The provisions of paragraph 1 may, however, be declared inapplicable in the case of:
— any agreement or category of agreements between undertakings,
— any decision or category of decisions by associations of undertakings,
— any concerted practice or category of concerted practices,
which contributes to improving the production or distribution of goods or to promoting technical or
economic progress, while allowing consumers a fair share of the resulting benefit, and which does
not:
(a) impose on the undertakings concerned restrictions which are not indispensable to the
attainment of these objectives;
(b) afford such undertakings the possibility of eliminating competition in respect of a substantial
part of the products in question.
190 If an agreement restricts competition and therefore violates Article 81(1), the undertaking
must, in order to assess whether the agreement creates any efficiencies examine whether the
agreement has economic benefits. The party must prove that the agreement restricting competition
improves production, distribution or technical and economic progress and does not impose
unnecessary conditions, and that consumers get a fair share of the benefits, and that the agreement
does not eliminate competition. The notification for agreements for individual exemption was
abandoned after 1 May 2004 so there is no longer any such thing as an individual exemption. The
undertakings must now conduct their own ‘self-assessment’ of the application of Article 81(3), see
Whish, supra note 48, page 168.
191 Case 6/72 Europemballage Corpn and Continental Can Co Inc v Commission [1973] ECR 215,
[1973] CMLR 199, paragraph 25.
183
This was further elaborated by the CFI in Atlantic Container Line AB and
others (TACA):192
[I]t must be noted at the outset that there is no exception to the
principle in Community competition law prohibiting abuse of a
dominant position. Unlike Article 85 of the Treaty [now Article 81],
Article 86 of the Treaty [now Article 82] does not allow
undertakings in a dominant position to seek to obtain exemption
for their abusive practices…. Furthermore, according to the case-
law, dominant undertakings have a special responsibility not to
allow their conduct to impair genuine undistorted competition on
the common market…. Consequently, there can be no exceptions to
the prohibition of abuse by dominant undertakings.
It is clear that Article 82 does not contain a statutory or a case law-
developed exemption provision like that of Article 81. The question is
whether efficiency considerations are excluded from Article 82, simply
because the provision does not contain a specific exemption provision. In
other words, can there only be an efficiency defence if there is a specific
exemption provision?
According to Competition commissioner Neelie Kroes the answer is
probably no:193
Article 82 does not expressly foresee the possibility of ‘exempting’
abusive behaviour under Article 82 because of efficiencies.
However, we must find a way to include efficiencies in our
analysis. We must take into account that the same type of
conduct can have efficiency-enhancing as well as foreclosure
effects. This should be reflected in our analytical framework.
According to this policy statement, efficiencies do have a place in Article
82 even though Article 82 does not contain an exemption provision. This
is not an unreasonable position to take as the notion of objective
justification has made its way into the Article 82 analysis through the
192 Joined Cases T-191/98 and T-212-214/98 Atlantic Container Line AB and others v Commission
(TACA), paragraph 1109.
193 Neelie Kroes, supra note 4, page 5.
184
notion of abuse.194 Moreover, it would be peculiar if efficiencies were not
recognised to some extent under Article 82, as efficiencies are
recognised under both Article 81 and in the European Merger Control
Regulation.195 While this may be a reasonable position to take, it is
ultimately for the Community Courts to decide whether or not there is
scope for efficiencies within Article 82.
While the case law referred to above makes clear that Article 82 does
not contain a case law developed exemption provision, it does not
appear, in theory, to exclude the possibility of assessing efficiencies as
one of the factors to be considered in the main assessment of abuse. In
Irish Sugar,196 the CFI held that a dominant undertaking is allowed to
protect its commercial position197 where it is based on economic
efficiency and in the interest of consumers:198
[E]ven if the existence of a dominant position does not deprive an
undertaking placed in that position of the right to protect its own
commercial interests when they are threatened…, the protection
of the commercial position of an undertaking in a dominant
position with the characteristics of that of the applicant at the
time in question must, at the very least, in order to be lawful, be
based on criteria of economic efficiency and consistent with the
interests of consumers.
In British Airways,199 the CFI reiterated that economic efficiency can be
taken into consideration.200 That said, the Community Courts have never
194 Case 27/76 United Brands Company v Commission [1978] ECR 207, [1978] 1 CMLR 429; Case
311/84 Centre Belger d’Etudes de Marche Telemarketing v CLT and IPB [1985] ECR 3261, [1986] 2
CMLR 558, paragraphs 25-27; Case T-30/89 Hilti AG v Commission [1991] ECR I-1439, [1992] 4
CMLR 16, paragraphs 105-107; Case C-333/94 Tetra Pak International SA v Commission [1996]
ECR I-5951, [1997] 4 CMLR 662, paragraph 79.
195 OJ [2004] L24/1 Council Regulation No 139/2004 on the Control of Concentrations Between
Undertakings.
196 Case T-228/97 Irish Sugar plc v Commission [1999] ECR II-2969, [1999] 5 CMLR 1300.
197 If it does not interfere with the independence of a small customer, see United Brands, supra
note 194, paragraphs 189-194.
198 Irish Sugar, supra note 196, paragraph 189.
199 Case T-219/99 British Airways plc v Commission [2003] ECR II-5917.
185
justified an exclusionary conduct on the grounds of efficiency gains and
the concept has been interpreted by the Community Courts very
narrowly.201 In some cases, quantity rebates have been considered
lawful where based on a genuine cost saving for the supplier.202
However, the cost saving itself reflects the efficiency gains and
economies of scale made by the dominant undertaking and thus this is
not considered a justification.203
Having established that there is scope for considering economic
efficiencies within Article 82, the following section will consider whether
it is correct to regard efficiencies as a ‘defence’ before considering a
possible way to balance efficiencies.
4.2 Efficiencies as a defence
DG Competition’s Discussion Paper suggests including efficiencies in
Article 82 as a defence.204 Although it has no legal status and is
therefore not binding, it reveals DG Competition’s thinking on the
200 Ibid. paragraph 280.
201 Telemarketing, supra note 194, paragraphs 25-27; Case C-418/01 IMS Health GmbH & Co OHG
v NDC Health GmbH & Co KG [2002] ECR I-3401, [2002] 5 CMLR 44, paragraph 38; Hilti, supra
note 194, paragraphs 105-107; Tetra Pak, supra note 194, paragraph 79; However, the
Commission has justified exclusionary behaviour based on economic grounds in its decision of 26
April 1989 in Filtrona/Tabacalera, where it rejected a complaint under Article 82 based on economic
grounds from a Spanish cigarette filter producer against the Spanish tobacco monopoly holder. The
latter had increased its own production of cigarette filters from 44 to 100 per cent, but justified its
behaviour in vertical integration on the economic grounds that producing all its filter requirements
would allow it to achieve economies of scale and generally reduce its production costs.
202 Luc Gyselen, ‘Rebates: Competition on the Merits or Exclusionary Practices?’ in Claus-Dieter
Ehlermann and Isabela Atansiu (eds), The European Competition Law Annual 2003: What Is an
Abuse of a Dominant Position? (Hart Publishing, 2006).
203 Case T-203/01 Nederlansche Banden-Industrie Michelin v Commission, paragraph 58; Case C-
163/99 Portuguese Republic v Commission [2001] ECR I-2613, [2002] 2 CMLR 1319, paragraphs
50-52.
204 Discussion Paper, supra note 38, section 5.5.
186
issue.205 The evidential burden of proving a possible defence lies on the
dominant undertaking, as stated in the Discussion Paper: ‘[i]n relation to
the efficiency defence the dominant company must be able to show that
the efficiencies brought about by the conduct concerned outweigh the
likely negative effects on competition resulting from the conduct and
therewith the likely harm to consumers that the conduct might otherwise
have’.206
The use of the term ‘defence’ gives rise to a procedural issue regarding
the burden of proof.207 DG Competition says that it is for the dominant
undertaking to prove that there will be efficiencies as a defence to its
behaviour, which seems to reverse the burden of proof. Regulation
1/2003 Article 2 establishes that it should be for the authority or the
party alleging an infringement of Articles 81(1) and 82 to prove the
infringement and there is no legal basis for reversing the legal burden of
proof. It is important to distinguish between the legal and the evidential
burden of proof, as only the latter can switch between the parties
whereas the legal burden of proof will always be on the party alleging an
infringement. This raises the question whether ‘defence’ refers to a
rebuttal presumption of a first order inference from a portion of the
evidence (meaning that the presumption is based on reality) that the
conduct is anti-competitive, or whether it is a defence to a final
conclusion. In the light of Regulation 1/2003, it is not enough that the
Commission establishes a series of presumptions, and thereafter
requires the dominant undertaking to disprove these presumptions, but
rather the Commission must prove the alleged infringement. In order to
205 The conditions proposed in the Discussion Paper paragraph 84 are clearly modelled upon Article
81(3) – although not in the same order.
206 Discussion Paper, supra note 38, paragraph 79.
207 For a general discussion of the burden of proof within the scope of Article 82 see Renato
Nazzini, ‘The Wood began to Move: An Essay on Consumer Welfare, Evidence and Burden of Proof in
Article 82’ 31(4) European Law Review (2006) 518, page 523ff.
187
clarify the issue, acting deputy director for DG Competition Emil Paulis
has said:208
A defence to a violation of a statute is not only an express
defence stated in the law or in the text book. Any countervailing
factor such as objective justifications or efficiencies which render
Article 82 inapplicable can qualify as a defence, for which the
burden of proof normally has to be on the person invoking such
defence. The fact that the countervailing factor has to be brought
forward by the defending party does not preclude a global
integrated assessment and balancing of all effects under Article
82. It does not either change the fact that the authority has the
burden of proving the ultimate violation of Article 82. This means
that if the defendant comes forward with sufficient evidence of
facts which contradict the facts alleged by the authority or which
outweigh or neutralise the negative effects identified by the
authority, the authority/plaintiff either accepts this outcome or
has to prove with further evidence that the evidence put up by
the dominant firm is not sufficient to outweigh the negative
effects shown by the authority.
Paulis acknowledges that the authority has the burden of proof, but also
that it is for the party advancing efficiencies to neutralise the negative
effects identified by the authority. It is assumed that the word ‘identified’
means ‘proved’ otherwise it is nothing more than a presumption that
reverses the burden of proof. Paulis does not talk about creating a
framework where efficiencies are considered a defence and thereby
creating a two-stage analysis, but does refer to a global integrated
assessment. This is similar to the framework for analysing objective
justifications suggested by Advocate General Jacobs in his Opinion in
Syfait:209
I would add that the two-stage analysis suggested by the
distinction between an abuse and its objective justification is to
my mind somewhat artificial. Article 82, by contrast with Article
81 EC, does not contain any explicit provision for the exemption
of conduct otherwise falling within it. Indeed, the very fact that
208 Emil Paulis, ‘The Burden of Proof in Article 82 Cases’, speech give on 13 September 2006 at the
Fordham Corporate Law Institute New York, page 5, speech available at:
http://ec.europa.eu/comm/competition/speeches.
209 Advocate General Jacobs’ Opinion in Case C-53/03 Synetairismos Farmakopoion Aitolias &
Akarnanias (Syfait) and others v GlaxoSmithKline AEVE, delivered on 28 October 2004, paragraph
72.
188
conduct is characterised as an ‘abuse’ suggests that a negative
conclusion has already been reached, by contrast with the more
neutral terminology of ‘prevention, restriction, or distortion of
competition’ under Article 81 EC. In my view, it is therefore more
accurate to say that certain types of conduct on the part of a
dominant undertaking do not fall within the category of abuse at
all.210
Case law has dealt with objective justifications by making them a part of
the overall assessment of conduct.211 There is no reason why efficiencies
should be treated any differently. Thus, where the efficiencies outweigh
the conduct in question, an abuse ought not be found in the first
place.212
Although DG Competition speaks of a ‘defence’, it is not as a defence to
a final conclusion that conduct is anti-competitive. Rather, the ‘defence’
terminology refers to the rebuttal of a first-order inference from a
portion of the evidence that proves the conduct is anti-competitive and
violates Article 82. It is a defence to a prima facie case, not a defence to
a final conclusion. This requires that the abuse analysis, for which the
legal burden of proof is on the competition authority, should be a
balancing act of efficiencies.
4.3 Balancing efficiencies
If efficiencies should be considered as a part of the overall assessment
of abuse, how should this be done?
210 This was also the view of Advocate General Kokott in her Opinion in British Airways, supra note
84, delivered on 23 February 2006, paragraphs 42-43, which consider an objective justification as a
part of showing unlawful conduct not as a defence.
211 For example, Case T-83/91 Tetra Pak International SA v Commission [1994] ECR II-755,
[1997] 4 CMLR 726; Case C-333/94 Tetra Pak International SA v Commission [1996] ECR I-5951,
[1997] 4 CMLR 662; Irish Sugar, supra note 198; Portuguese Republic, supra note 203; Michelin,
supra note 203; Case T-65/98 Van den Bergh Foods v Commission [1998] ECR II-2641, [1998] 5
CMLR 475; Microsoft, supra note 92; Hilti, supra note 194. Objective justifications not discussed on
appeal to the ECJ Case C-53/92P Hilti AG v Commission [1994] ECR I-667, [1994] 4 CMLR 614.
212 See for example Commission decision of 26 April 1989 in Filtrona/Tabacalera, supra note 201.
189
In British Airways, the ECJ tied the analysis of efficiencies directly to the
analysis of the conduct’s competitive effects on consumers:213
It has to be determined whether the exclusionary effect arising
from such a system [discount system], which is disadvantageous
for competition, may be counterbalanced, or outweighed, by
advantages in terms of efficiency which also benefit the
consumer. If the exclusionary effect of that system bears no
relation to advantages for the market and consumers, or if it goes
beyond what is necessary in order to attain those advantages,
that system must be regarded as an abuse.
The ECJ acknowledged that the discount that may foreclose may bring
efficiencies, which is a step towards a more economics-based approach.
Even though an economics-based approach naturally lends itself to a
rule of reason approach to competition policy,214 the Court does not
employ the language of a rule of reason and it appears that the Court is
trying to adopt a similar analysis to the one adopted in Article 81. The
Court requires a balance between anti-competitive effects and
efficiencies, where the Commission must consider efficiencies as part of
their assessment of the competitive effects of the conduct.
Accordingly, if the recognisable efficiency gains are so large that the
conduct can no longer be said to harm consumers, then the Commission
must be prepared to accept this conduct. In this sense, efficiency gains
must ‘cleanse’ the conduct in order for the conduct not to be deemed
anti-competitive in the first place. In this fashion, the analysis of
efficiencies is directly tied to the analysis of the conduct’s competitive
effects on consumers. Only when the Commission is convinced that the
negative effects have been eliminated will it decline to prohibit the
conduct. Having said that, measuring efficiency gains can be a difficult
task, as Posner acknowledges:215
213 British Airways, supra note 84, paragraph 86.
214 EAGCP Report, supra note 6, page 3.
215 Posner, supra note 7, page 29.
190
[I]t is very difficult to measure the efficiency consequences of a
challenged practice. And so throughout this book [Antitrust Law
2001] we shall be continually be searching for ways of avoiding
prohibiting efficient, albeit noncompetitive, practices without
having to compare directly the gains and losses from a challenged
practice.
The difficulty arises because balancing anti-competitive effects and
efficiencies clearly involves a trade-off between gains in efficiency and
the effects of the anti-competitive conduct. It raises the matter of
incommensurability. The Commission will have to make a judgment
between the effects of anti-competitive conduct, on the one hand, and
gains in efficiency, which are real savings to consumers, on the other
hand. These are not comparable, because one involves a redistribution
of income whereas the other involves real gains in terms of the savings
of resources. What is to be done about this trade-off?
The Economic Advisory Group for Competition Policy, the EAGCP, admits
that trade-offs involve an element of redistribution between groups of
consumers. It suggests that when faced with such trade-offs, which
require making a choice, the competition authority must exercise its
judgment, which necessarily involves a certain element of subjectivity.
The latter should however ‘not absolve the competition authority from
the requirement to be clear about the trade-offs themselves and to
indicate precisely what consumer welfare effects are relevant to its
decision’. 216
The consequence of deciding that the main objective of Article 82 is
consumer welfare is that DG Competition has decided that consumers
are more deserving than producers.217 The dominant undertaking must
show that the conduct in question creates efficiencies, which outweigh
the negative effects on competition and that these efficiency benefits are
216 Ibid. page 10.
217 Fox, supra note 187, footnote 138.
191
passed on to consumers. Passing on is needed in order to ensure that
consumers are not harmed by the effects of the anti-competitive conduct
and is thereby directly tied to the analysis of the conduct’s competitive
effects on consumers. Passing on is one of the four cumulative criteria218
that DG Competition has suggested for efficiency gains to be realised:219
The Community competition rules protect competition on the
market as a means of enhancing consumer welfare and of
ensuring an efficient allocation of resources. This requires that the
pass-on of benefits must at least compensate consumers for any
actual or likely negative impact caused to them by the conduct
concerned. If consumers in an affected relevant market are worse
off following the exclusionary conduct, that conduct can not be
justified on efficiency grounds.
Unlike Article 81(3), there is no requirement that consumers must get a
‘fair share’, but just that the efficiencies must benefit consumers. This
makes it hard to know how much it takes to benefit consumers, in
particular, because the Community Courts have never justified
exclusionary conduct on the grounds of efficiency gains within Article 82.
Getting a fair share implies that the passing on benefits must at least
compensate consumers for any actual or likely negative impact caused
to them by the restriction of competition found under Article 81(1).220
Although, there is no ‘fair share’ requirement, it must be assumed that
consumers’ benefits cannot be negative, meaning that they must gain
more than they lose by the anti-competitive conduct.221 This is of course
not much comfort given the Commission has a lot of discretion. Only
time will show how the Commission will exercise its discretion in
218 The other three are that efficiencies are realised or are likely to be realised as a result of the
conduct concerned; that the conduct concerned is indispensable to realise these efficiencies; and
that competition in respect of a substantial part of the products concerned is not eliminated, see
Discussion Paper, supra note 38, paragraph 84.
219 Discussion Paper, supra note 38, paragraph 88.
220 Guidelines on the Application of Article 81(3) of the EC Treaty, supra note 76, paragraph 85.
221 See an analogy to mergers in the Guidelines on the Assessment of Horizontal Mergers, supra
note 97, paragraph 79.
192
assessing the passing on criterion as well as the other criteria for
assessing efficiencies under Article 82.
Conclusion
Chapter four addressed three questions. Is consumer welfare an
objective in Article 82? If so, how is that welfare standard defined by the
Commission? And what are the consequences of adopting a consumer
welfare standard?
The answer to the first question was that Community competition policy
invariably has a welfare objective and it is that of consumer welfare in
the form of consumer surplus. No judgment under Article 82 has clearly
articulated the objective or used the terminology of consumer welfare.
Before the second question, how does the Commission define consumer
welfare, was answered a theoretical analysis explaining the difference
between the total welfare standard and consumer welfare standard was
conducted. The Chicago School’s theory of consumer welfare was used
as a starting point. The chapter established that consumer welfare in the
Chicagoan sense means total welfare. A theoretical examination was
then conducted of the correlation between the different welfare
standards and the various efficiencies. The chapter found that
proponents of consumer welfare consider allocative inefficiency
unacceptable, because consumers suffer. In general, proponents of
consumer welfare want more competition, which forces producers to sell
close to marginal costs. It also found that proponents of the producer
welfare standard are concerned with productive and dynamic efficiency,
which relate to gains to producers. It concluded that the Community
welfare standard is defined as consumer welfare in the form of consumer
surplus, which must ensure efficient allocation of resources. This
definition extends beyond price and takes non-price considerations into
193
account. It found that the Community welfare standard is not measured
solely in the form of price, but also in the form of higher quality, choice
and innovation.
The third question considered the consequences of adopting a consumer
welfare standard. It concluded that one of the consequences of a system
favouring consumer welfare is that the question whether the effects of
the particular conduct harm consumers must be assessed. It conducted
an analysis of the Commission’s decision in Microsoft and the CFI’s
judgment in Wanadoo to examine whether the Commission and/or the
CFI did examine effects. It found that the WMP part of the Microsoft case
was argued in terms of consumer choice, which illustrates that choice is
emerging as an explicit paradigm for Community competition law.
Moreover, the Commission believes that protecting the process of
competition is a value in itself, because it generates efficiencies.
However, the Commission did not create a framework for how to protect
the process of competition to the point where it generates efficiencies
without protecting inefficient competitors. In Wanadoo, it found that the
CFI continues to focus to a considerable extent upon the form of the
dominant’s undertaking conduct, rather than the effects of its conduct.
An examination of the effects on consumers naturally requires a
consideration of efficiencies. The chapter found that the structure of
Article 82 does not contain an exemption provision, but that that does
not prevent efficiencies being considered under Article 82. The chapter
questioned whether efficiency gains should be advanced as a defence to
a conclusion of abuse. The chapter argued against such a methodology,
as it would be an implementation of an exemption provision, and not
supported by case law. Instead it concluded that efficiencies must be
considered as a part of the overall assessment of abuse.
194
PART III
Part III of this thesis consists of two chapters: chapter five Economic
Freedom in the Community Legal Order and chapter six The Relationship
between Economic Freedom & Consumer Welfare.
Part III of the thesis considers the status of economic freedom in the
Community legal order and the purpose of economic freedom as
interpreted by the Community Courts respectively.
Economic freedom is considered a fundamental right by ordoliberals. By
understanding ordoliberalism and its ideology of economic freedom, one
will come a great deal closer to understanding that Article 82 (at least in
the past) was not about economic efficiency. This is vital for the
assessment of the legitimacy of DG Competition’s giving priority to the
objective of consumer welfare. If economic freedom is considered a
fundamental right in the ordoliberal sense in the Community legal order,
then a change from economic freedom to consumer welfare would
undermine a fundamental right. Besides violating a fundamental right, it
would be a departure from the case law which protects economic
freedom. This would require support from the Community Courts.
Chapter five considers whether economic freedom is considered a
fundamental right in the ordoliberal sense in the Community legal order
and therefore is to be protected as a right of a higher rank.1 In contrast
to chapter two which examined ordoliberalism and the ordoliberal
competition law model in general, this chapter specifically analyses the
status of economic freedom in Community law. It examines whether the
EC Treaty is based on the ordoliberal economic constitution as described
in chapter two. If the EC Treaty is based on the ordoliberal economic
1 Jason Coppel and Aidan O’Neill, ‘The European Court of Justice: taking Rights Seriously?’ 29
Common Market Law Review (1992) 669, page 682.
195
constitution where economic freedom has status as a fundamental right,
it becomes difficult to argue that economic freedom should not have a
similar status at Community level. Chapter five shows that fundamental
rights form part of the general principles of the EU and examines
whether economic freedom is considered a part of those general
principles. This is done by considering the European Convention on
Human Rights (the ‘ECHR’)2 and the Charter of Fundamental Rights of
the European Union (the ‘Charter’)3 and the German constitution. Case
law is considered where relevant.
Chapter six considers whether economic freedom is used to enhance
consumer welfare by explaining how economic freedom is perceived by
ordoliberal theorists. Their understanding of the objective of economic
freedom is then compared with the objective of consumer welfare.
Chapter six examines whether the two objectives overlap and finds that
there is a certain overlap when it comes to choice. Choice can improve
the competitive process, but the question is whether the competitive
process is to be protected intrinsically or instrumentally.
2 The European Convention for the Protection of Human Rights and Fundamental Freedoms, signed
in Rome on 4 November 1950 and enforced in 1953. It is legally binding for the European Court of
Human Rights. Available at: http://conventions.coe.int/treaty/en/Treaties/Html/005.htm. 3 The Charter of Fundamental Rights of the European Union, 2000/C 364/01. Available at:
http://www.europarl.europa.eu/charter/pdf/text_en.pdf.
196
Chapter 5 Economic Freedom in the Community Legal Order
Introduction
The argument advanced in chapter five is that if economic freedom is
considered a fundamental right in the Community legal order, then a
change from economic freedom to consumer welfare would
undermine a fundamental right and be a violation of the Community
legal order. Consumer welfare is a utilitarian rule so the scenario is
not that DG Competition is giving priority to one fundamental right
over another fundamental right in the normative hierarchy of laws. If
economic freedom has status as a fundamental right in the
Community legal order, then DG Competition’s suggestion of adopting
consumer welfare as the main objective when assessing exclusionary
abuses under Article 82 is a change from a fundamental rights-based
approach to a utilitarian approach. This would have to be properly
debated and require support from the Community Courts, as it would
be a constitutional change. Even if a constitutional change would be
acceptable, meaning that such a change would be possible from a
Community perspective, it would have to be recognised as such.
The case law analysis carried out in chapter three showed that original
case law doctrines about abuse of dominance rested on the concept of
‘distortion’ of competition, from Article 3(1)(g) EC. Thus, the acquisition
of a competitor could be a prohibited abuse because the dominant
position distorted the market structure.1 A refusal to supply a competitor
might be treated as adversely affecting the structure of the market by
1 Case 6/72 Europemballage Corpn and Continental Can Co Inc v Commission [1973] ECR 215,
[1973] CMLR 199.
197
destroying the competitor’s capacity to compete effectively.2 The United
Brands case focuses on how the dominant firm’s strategies limited the
independence of a smaller business, implying that coercion could
demonstrate abuse regardless of the actual effect on the competitive
process.3 It condemned restraints that ‘limit markets to the prejudice of
consumers’. The Hoffmann-La Roche4 and Michelin I5 cases banned
fidelity rebates that pressurised firms into dealing with a dominant firm
unless there was ‘economic equivalency’ in the transactions and there
was no significant effect on the structure of competition. The approach
implied by the ECJ concerned preserving the positions and economic
freedom of customers and competitors. Despite this, DG Competition
states in its Discussion Paper:6
With regard to exclusionary abuses the objective of Article 82
is the protection of competition on the market as a means of
enhancing consumer welfare and of ensuring an efficient
allocation of resources.
This policy statement indicates that DG Competition believes that
competition is best protected by protecting consumer welfare and by
ensuring an efficient allocation of resources in terms of Article 82. As
noted, this runs counter to some of the case law analysed, which saw
competition best protected by protecting the process of competition in
order to protect the economic freedom of the market participants.
This one-dimensional view focusing on maximising economic efficiency
arguably excludes a focus on, for example, the non-efficiency objective
2 Case 6-7/73 Istituto Chemioterapico Italiano SpA and Commercial Solvents Corporation v
Commission of the European Communities [1974] ECR 223, [1974] 1 CMLR 309. 3 Case 27/76 United Brands Company v Commission [1978] ECR 207, [1978] 1 CMLR 429. 4 Case 85/76 Hoffmann-La Roche AG v Commission [1979] ECR 461, [1979] 3 CMLR 211. 5 Case 322/81 Nederlansche Banden-Industrie Michelin NV v Commission [1983] ECR 3461, [1985]
1 CMLR 282. 6 Discussion Paper on the Application of Article 82 of the Treaty to Exclusionary Abuses (December
2005), paragraph 4.
198
of economic freedom, unless the latter has an impact on consumer
welfare. Consumer welfare takes a neo-classical position which values
welfare without any consideration of the position of individuals in its
utilitarian calculus.7 According to this utilitarian majoritarian value,
safeguarding economic freedom is not a relevant consideration.8
Instead, the test of legality is whether the effects of the undertaking’s
behaviour contribute to improving consumer welfare. This is contrary to
the ordoliberals’ understanding of competition law. Ordoliberals believed
that competition was best protected by protecting economic freedom in
the market as a fundamental individual right. Ordoliberalism cannot be
disregarded, as it has had an impact on the Community institutions’
interpretation and application of Article 82 as argued in chapter three.9
It can be seen from chapter two and chapter four that economic freedom
and consumer welfare pursue fundamentally different values. A potential
and serious conflict can arise between the two objectives where the
protection of effective competition amongst competitors does not benefit
allocative efficiency (the type of efficiency that DG Competition is
suggesting should be pursued), or where conduct benefiting consumer
7 Wernhard Möschel, ‘Competition Policy from an Ordo Point of View’ in Hans Willgerodt & Alan
Peacock (eds), German Neo-liberals and the Social Market Economy (Macmillan, 1989) pages 148-
149.
8 The rule of utility is that good is whatever brings the greatest happiness to the greatest number of
people. Since utilitarians judge all actions by their ability to maximise good consequences, any harm
to one individual can always be justified by a greater gain to other individuals. This is true even if
the loss for the one individual is large and the gain for the others is marginal, as long as enough
individuals receive the small benefit. Some critics reject utilitarianism on the basis that it seems to
be incompatible with human rights. For example, if slavery or torture is beneficial for the population
as a whole, it could theoretically be justified by utilitarianism. Utilitarian theory thus seems to
overlook the rights of the individual, see Jeremy Waldron, ‘Rights’ in Robert E Goodin and Philip
Pettit (eds), A Companion to Contemporary Political Philosophy (Blackwell Publishing, 1995) page
581.
9 This has also been argued elsewhere. See for example Liza Lovdahl Gormsen, ‘Article 82 EC:
where are We Coming From and Where are We Going To?’ 2(2) Competition Law Review (2005);
Christian Ahlborn and Carsten Grave, ‘Walter Eucken and Ordoliberalism: an Introduction from a
Consumer Welfare Perspective’ 2(2) Competition Policy International (2006).
199
welfare does not protect the economic freedom of the market
participants. For example, the exclusion of some small and medium-
sized companies, which lack economies of scale and thus will be unlikely
to guarantee consumer welfare, would not harm consumer welfare.
However, it could harm the economic freedom of small and medium-
sized companies, which must be protected if the aim is to protect the
process of competition in the long-run. The conflict becomes even more
serious if economic freedom is a fundamental right, as argued by
ordoliberals, and not merely a legal concept used to assess whether the
conduct in question reduces allocative efficiency. It is therefore
important to understand why economic freedom is pursued. Is it for
example to protect a fundamental right in the ordoliberal sense or is it to
enhance consumer welfare in form of allocative efficiency?
1. The Constitutionality of the EC Treaty
Section one examines whether the EC Treaty has constitutional status
and that naturally leads to considering what kind of constitution it is.10
The section does not seek to engage in a significant constitutional
debate, however interesting. Instead, it hopes to provide some basic
answers useful for the wider debate about the status of economic
freedom in the Community legal order. Before assessing the status of
economic freedom, it is necessary to narrow down the focus from ‘the
Community legal order’ generally to some key elements characterising a
constitution. This is needed as it cannot automatically be assumed that
the EC Treaty has constitutional status, because the Community is
10 The term ‘constitution’ has always been politically sensitive due to its connotations of potential
federal statehood. Inherent in the German Maastricht decision was the premise that the basic
documents of the Community remain international treaties of which the Member States are the
‘masters’. This reflects the deeply entrenched understanding within the mindset of national
constitutional law that the notion of a constitution is inherently bound to the nation-state, which
renders inappropriate its use in the context of the Community. See Anneli Albi and Peter Van
Elsuwege, ‘The EU Constitution, National Constitutions and Sovereignty: an Assessment of a
“European Constitutional Order”’ 29 European Law Review (2004) 741.
200
neither a federal state nor similar to one.11 It has no independent
sovereignty and is not self-sufficient but complements the Member
States.12 The Community is a supranational13 organisation authorised by
the Member States and it gains its legitimacy by validation – ratification
by its Member States – rather than by its people.14 However, there is
some debate as to whether the Community is an international
agreement or a federal type of organisation.15 The Community has a
supreme legal order, which binds the Member States in relation to EC
law, and subjects them to the jurisdiction of a supranational authority
(the ECJ) should the Member States not fulfil their obligations under the
Treaty. This is different from the traditional format of international
agreements based on the consent of sovereign actors, characterised as
intergovernmental co-operation.16 Some policy sectors however remain
intergovernmental in nature; they are non-binding areas of political co-
operation.17 There has not been a simple progression from an
international collaboration of Member States to a supranational entity
and the so-called variable geometry has to some extent always been
present.18 The state of integration of different actors, institutions and
11 Hjalte Rasmussen, EU-Ret i Kontekst (GadJura, 3rd ed, 1998) page 365ff.
12 Edward T Swaine, ‘Subsidiarity and Self-Interest: Federalism at the European Court of Justice’ 41
Harvard International Law Journal (2000) 1, page 10.
13 Supranational means government above, or beyond, the state level of government where states
do not wield individual vetoes.
14 Joseph Weiler, ‘The Transformation of Europe’ 100 Yale Law Journal (1991) 2403, pages 2423
and 2433.
15 There have been numerous attempts to understand and explain the constitutional reflection of
the Community stretching from a functionalist perspective, to neo-functionalism and the
intergovernmental/supranational dichotomy, to contemporary debates about the multi-level
governance, see Paul Craig and Gráinne De Búrca, EU Law Text, Cases and Materials (Oxford
University Press, 3rd ed, 2003) pages 5-12. See generally Weiler, supra note 14.
16 Intergovernmental means international co-operation based solely on the consent of each state
involved.
17 Mainly found in the second pillar comprising the common foreign and security policy (CFSP) and
the European security and defence policy (ESDP).
18 The phrase variable geometry relates to the opt-in or opt-out policy sectors contained in the
Treaties allowing some Member States to co-operate without all Member States agreeing to new
201
policy sectors has been, and continues to be, variable.19 This debate will
not be elaborated further here, instead this chapter takes the view that
the Community is a unique system – sui generis – and has no model as
such to be compared with.
EC law does have important elements which are to be found in a
constitution defined in the broader sense as, ‘the basic principles and
laws of a nation, state, or social group that determine the powers and
duties of the government and guarantee certain rights to the people’.20
For example, the Community has exclusive competence in a wide range
of matters and the EU institutions do have functions comparable to those
of a government.21 The EU institutions are limited by the rule of law,
which is a basic idea of constitutionalism. Moreover, the ECJ has helped
to constitutionalise the Community by establishing the supremacy of EC
law in fundamental cases such as Costa v ENEL,22 Simmenthal23 and
Factortame.24 The ECJ has also established the direct effect of
Community law in Van Gend en Loos.25 Both the doctrine of supremacy
and that of direct effect are keystones of European constitutionality.26
policy initiatives. See John A Usher, ‘Variable Geometry or Concentric Circles: patterns for the EU’
46 International and Comparative Law Quarterly (1997) 243.
19 Joseph Weiler, ‘The Community System: the Dual Character of Supranationalism’ in Yearbook of
European Law (Oxford University Press, 1981). 20 David M Walker, The Oxford Companion to Law (Clarendon Press, 1980).
21 Sionaidh Douglas-Scott, Constitutional Law of the European Union (Longman, 2002) page 516.
22 Case 6/64 Costa Flaminio v ENEL [1964] ECR 585, [1964] CMLR 425.
23 Case 106/77 Amministrazione delle Finanze dello Stato v Simmenthal SpA [1978] ECR 629,
[1978] 3 CMLR 263.
24 Case C-213/89 R v Secretary of State for Transport, ex Parte Factortame Ltd [1990] ECR I-2433,
[1990] 3 CMLR 1.
25 Case 26/62 Van Gend en Loos v Administratie der Belastingen [1963] ECR 1.
26 Douglas-Scott, supra note 21, page 517; Joerges disagrees, he thinks it is insufficient to point to
direct effect and supremacy as core elements of EC law to characterise the system as constitutional,
see Christian Joerges, ‘What is Left of the European Economic Constitution?’ EUI Working Paper Law
No 2004/13 (2004) page 9. This paper is also published in a shorter version in 30(4) European Law
Review (2005) 461.
202
Another step in its constitutionality has been the adoption of the
Charter, albeit legally non-binding.27 However, Eeckhout argues:28
[T]here can be little doubt that counsel for parties involved in
litigation with a human rights dimension before the European
Courts will try to find support for their case in the text of the
Charter. They will not argue that the Charter applies as such, but
they will refer to it in support of their arguments. Although the
Charter is not legally binding the courts can use it as confirmation
of rather than the legal basis of their rulings on fundamental
rights issues. And it is well-known that courts are very able at
playing with those notions; in other words it is relatively easy for
courts to characterise an element of law as mere confirmation of
the court’s reasoning whereas that element was effectively the
basis for the Court’s decision.
The CFI frequently refers to the Charter, but until now the ECJ has only
done so once in the family reunification case.29
27 The Charter of Fundamental Rights of the European Union, 2000/C 364/01 will have the same
legal value as the Treaties, see the Presidency Conclusions of the Brussels European Council, Annex
I page 25. European Council Document No 11177/07 of 21-22 June 2007. Available at:
http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/ec/94932.pdf.
28 Piet Eeckhout, ‘The Proposed EU Charter: some Reflections on its Effects in the Legal Systems of
the EU and of its Member States’ in Kim Feus (ed), The EU Charter of Fundamental Rights (London:
Federal Trust for Education and Research, 2000) pages 104-105.
29 Case C-540/03 European Parliament v Council of the European Union [2006] ECR I-5769.
According to the European Parliament, the Council adopted Council Directive 2003/86/EC of 22
September 2003 on the Right to Family Reunification without consulting the Parliament, thereby
infringing this essentially procedural requirement. The European Parliament was not given the
opportunity to examine the new version of the Directive or to present its comments and
observations. This was the first instance in which the judicial procedure specified in Article 230 was
going to be used to deal with human rights issues. Of relevance to the question discussed in this
chapter, the ECJ held in paragraph 38: ‘the Charter was solemnly proclaimed by the Parliament, the
Council and the Commission in Nice on 7 December 2000. While the Charter is not a legally binding
instrument, the Community legislature did, however, acknowledge its importance by stating, in the
second recital in the preamble to the Directive, that the Directive observes the principles recognised
not only by Article 8 of the ECHR but also in the Charter. Furthermore, the principal aim of the
Charter, as is apparent from its preamble, is to reaffirm “rights as they result, in particular, from the
constitutional traditions and international obligations common to the Member States, the Treaty on
European Union, the Community Treaties, the [ECHR], the Social Charters adopted by the
Community and by the Council of Europe and the case-law of the Court … and of the European
Court of Human Rights”’.
203
Returning to the discussion of the constitutionality of the EC Treaty, Cruz
argues that the EC Treaty is not a constitution in the normal sense,30
even though he adds that the rules on free movement and the rules on
competition have constitutional status.31 The EC Treaty is not a
constitution in the normal sense because the constitutionalisation of the
EC Treaty derived from the ECJ’s development of the doctrines of
supremacy and direct effect.32 Moreover, the Court has adopted a wide
interpretation of the four freedoms, including the exemption provision
Article 30 (formerly Article 36).33 Cruz defends his position by arguing
that the rules on free movement and the rules on competition are
ensured through directly applicable treaty provisions, while the other
objectives outlined in Article 3 are announced in the EC Treaty by
provisions conferring competence on EU institutions through secondary
legislation.34 Even if the EC Treaty is not a constitution in the traditional
sense, it is generally accepted that the EC Treaty, as interpreted by the
Community Courts, forms the constitution of the EU.35 This is also
supported by the ECJ in the Les Verts case, where the ECJ called the EC
30 The ECJ has called the EC Treaty ‘the constitutional charter of a community based on the rule of
law’, see Ernst-Joachim Mestmäcker, ‘Can there be a European law?’ 2 European Review (1994) 1,
page 6.
31 Julio Baquero Cruz, Between Competition and Free Movement, the Economic Constitutional Law
of the European Community (Hart, 2002) page 79.
32 Mestmäcker argues that the four freedoms and the rules of competition would not have been
incorporated in the EC Treaty by Member States had they foreseen the pervasive effects these
rules, as interpreted by the ECJ, were going to have on the political and economic order of Member
States, see Ernst-Joachim Mestmäcker, ‘The EC Commission’s Modernization of Competition Policy:
a Challenge to the Community’s Constitutional Order’ 1 European Business Organization Law
Review (2000) 401, pages 413-414.
33 Cruz, supra note 31, page 40.
34 Ibid. page 78.
35 Joseph Weiler, ‘The Reformation of European Constitutionalism’ 35(1) Journal of Common Market
Studies (1997) 97; Christian Joerges, ‘The Law in the Process of Constitutionalising Europe’ EUI
Working Paper Law No 2002/4 (2002) page 9; Theodor Schilling, ‘The Autonomy of the Community
Legal Order: an Analysis of Possible Foundations’ 37 Harvard International Law Journal [1996] 389,
page 392.
204
Treaty ‘the basic constitutional charter’ of the Community.36 If it is
accepted that the EC Treaty is a constitution, then what kind of
constitution is it? Is it a constitution based on the ordoliberal economic
constitution where competition law is the key part of that order?
1.1 The ordoliberal economic constitution
The answer to this question is necessary for the overall discussion of the
status of economic freedom in the Community legal order. If the
Community legal order is based upon an ordoliberal economic
constitution, competition is considered a value in its own right. This goes
beyond considerations of efficiency, as the economic constitution serves
to guarantee equality of individuals as economic subjects, private law is
backed up by public authority, and civil liberties must be protected.37 A
core element of the ordoliberal constitutional message was that the
economic constitution should respect the interdependence of a system of
undistorted competition, individual economic freedoms and the rule of
law. It should protect these principles and rights against discretionary
politics.38 Another implication of the EC Treaty being an ordoliberal
economic constitution is that elaborating any policy outside the
parameters of the economic constitution, for example consumer welfare,
is considered illegitimate.39
Before continuing, it is important to distinguish between, on the one
hand a Treaty being considered an economic constitution in general,40
36 Case 294/83 Parti écologiste ‘Les Verts’ v European Parliament [1986] ECR 1339, paragraph 23.
37 Wolf Sauter, Competition Law and Industrial Policy in the EU (Clarendon Press Oxford, 2003)
page 28.
38 According to Joerges, supra note 26, page 13.
39 Ulrich Immenga, ‘Wettbewerbspolitik contra Industriepolitik nach Maastricht’ 14 Europaische
Zeitschrift fur Wirtschaftsrecht (1994).
40 For a definition of the term ‘economic constitution’ see Manfred E Streit, ‘The Economic
Constitution of the European Community: from “Rome” to “Maastricht”’ 1(1) European Law Journal
(1995) 5, pages 5-7.
205
because it consists of rules dealing with economic matters,41 and, on the
other hand a Treaty being considered an economic constitution founded
on the ordoliberal tradition.
According to Gerber, the interpretation of the EC Treaty as a constitution
has channelled the evolution of the Community and this interpretation
undoubtedly owes much to ordoliberal thought.42 Sauter agrees that
ordoliberals have made a major contribution to the constitutional theory
of the EU.43 Mestmäcker goes further and argues that the Community
legal order is founded on the ordoliberal economic constitution, because
competition is the guiding principle of the economic constitution of the
Community.44 Despite this, only a few lawyers outside Germany have
systematically used the concept of economic constitution.45 Also a
majority of scholars of constitutional law and administrative law in
Germany have not taken the ordoliberal constitutionalisation of the
economy seriously.46
Important in the debate about the economic constitution is the fact that
the German Federal Constitutional Court (Bundesverfassungsgericht)
has denied economic liberalism constitutional status in Germany.47 The
German Federal Constitutional Court is not the only body to reject the
concept of the economic constitution, others have rejected it too.48
41 Cruz, supra note 31, page 29.
42 David Gerber, Law and Competition in Twentieth Century Europe: Protecting Prometheus
(Clarendon Press Oxford, 1998) page 264, footnote 106.
43 Sauter, supra note 37, page 49.
44 Ernst-Joachim Mestmäcker, ‘Sur Anwendung der Wettbewerbsregeln auf die Mitgliedstaaten und
auf die Europaischen Gemeinschaft’ in Jurgen F Baur, Peter-Christian Muller-Graff and Manfred
Zuleeg (eds), Europarecht, Energierecht, Wirtschaftsrecht: Festschrift fur Bodo Borner sum 70.
Geburstag (Koln: Carl Heymanns Verlag, 1992).
45 Sauter, supra note 37, page 30; Joerges, supra note 35, page 6.
46 Joerges, supra note 35, page 13.
47 Wolf Sauter, ‘The Economic Constitution of the European Union’ 4 Columbia Journal of European
Law (1998) 27, pages 48-49.
48 Cruz, supra note 31, page 28.
206
Some even argue there is not much left of the economic constitution
anyway whether it was ordoliberal or not.49 This, in conjunction with the
ECJ’s dictum in Van Gend en Loos that ‘the Community constitutes a
new legal order’,50 makes it unlikely that the EC Treaty is based on the
ordoliberal economic constitution. This conclusion however does not
deny the considerable influence of ordoliberalism.
If the finding had been that the Community legal order was based on the
ordoliberal economic constitution, it would have been safe to argue that
economic freedom in the Community is a fundamental right in the
ordoliberal sense. The fact that the Community legal order is not based
on the ordoliberal economic constitution necessarily prompts the
question whether that excludes economic freedom from having status as
a fundamental right in the Community legal order.
The answer is in the negative. Regardless of its constitutional deficit, if
economic freedom is being considered a fundamental right in Germany
and respected by the German Federal Constitutional Court as a
fundamental right, then it could possibly be a fundamental right in the
Community legal order too. Such an argument was advanced by
Advocate General Warner in his Opinion in Société IRCA v
Amministrazione delle Finanze dello Stato:51
[A] fundamental right recognised and protected by the Constitution
of any Member State must be recognised and protected also in the
Community. The reason lies in the fact that, as has often been held
by the Court… Community law owes its very existence to a partial
transfer of sovereignty by each of the Member States to the
Community. No Member State can …be held to have included in
that transfer of power for the Community to legislate in
infringement of rights protected by its own Constitution. To hold
otherwise would involve attributing to a Member State the capacity,
49 Joerges, supra note 26, page 8.
50 Van Gend en Loos, supra note 25, II B.
51 Opinion of Advocate General Warner in Case 7/76 Société IRCA (Industria romana carni e affini
SpA) v Amministrazione delle Finanze dello Stato, delivered on 22 June 1976, page 1237.
207
when ratifying the Treaty, the power to flout its own Constitution,
which seems to me impossible.
If Advocate General Warner’s thesis is accepted,52 then that allows
economic freedom to be protected in the Community legal order if the
German constitution (Grundgesezt) protects it. Before analysing the
German constitution, it will be considered whether economic freedom is
protected in the ECHR or the Charter, as a discussion of the German
constitution only becomes necessary insofar as economic freedom is not
already protected by either the ECHR or the Charter. This will be
discussed in the following section.
2. The General Principles of the EU
The original EC Treaty did not contain any explicit reference to basic
fundamental rights and values,53 but around 1969, the ECJ recognised
that it too might have to protect fundamental rights.54 In the absence of
any treaty provisions, it was prepared to resort to general principles of
52 Hartley argues that the Community Courts have never accepted this thesis, see Trevor C Hartley,
European Union Law in a Global Context: Text, Cases and Materials (Cambridge University Press,
2004) page 299.
53 The Treaty of Amsterdam has strengthened the constitutional basis for the protection of
fundamental rights by the Union itself. Article 46 (formerly Article L) TEU has extended the exercise
of the Court's powers to Article 6 (formerly Article F) (2) of that Treaty ‘with regard to action of the
institutions, in so far as the Court has jurisdiction under the Treaties establishing the European
Communities and under this Treaty’. Article 6(2) provides that ‘the Union shall respect fundamental
rights, as guaranteed by the European Convention for the Protection of Human Rights and
Fundamental Freedoms signed in Rome on 4 November 1950 and as they result from the
constitutional traditions common to the Member States, as general principles of Community law’.
54 One commentator has said: ‘the European Court of Justice deserves immense credit for
pioneering the protection of fundamental human rights within the legal order of the Community
when the Treaties themselves were silent on this matter. It has been the Court that has put in place
the fundamental principles of respect for human rights which underlie all subsequent developments’,
see The European Union and Human Rights: Final Project Report on an Agenda for the Year 2000,
cited by Anthony Arnull, The European Union and its Court of Justice (Oxford University Press,
1999) page 223.
208
law.55 The general principles include, but are not limited to, human
rights principles.56
The Stauder case57 affirmed that fundamental rights form an integrated
part of the general principles of Community law.58 The case was an
Article 234 reference from Germany. It concerned a claim that the
implementation of a provision of Community legislation constituted an
infringement of the applicant’s right to dignity. The ECJ was able to
provide an interpretation which resolved the difficulty, and for the first
time recognised the issue of fundamental rights if only in a significant
obiter dictum:59
Interpreted in this way the provision at issue contains nothing
capable of prejudicing the fundamental human rights enshrined in
the general principles of Community law and protected by the
Court.
Having established that fundamental rights were a part of the general
principles of Community law, the ECJ decided that for this purpose it
would draw inspiration from the Member States’ constitutional traditions.
55 Advocate General Jacobs has said: ‘confusion can be caused here by the concept of "general
principles of law". Different general principles may have different functions, they may have different
effects, and they may differ in their scope. While the ECJ made a great advance years ago by
including the protection of fundamental rights within the scope of general principles of law, and thus
ensuring such protection in the absence of any Treaty provisions, the time may now have come to
recognise the very diverse character and scope of the different general principles’, see Francis G
Jacobs, ‘Human Rights in the European Union: the Role of the Court of Justice’ 26(4) European
Competition Law Review (2001) 331, page 337.
56 The most established general principles are those that protect fundamental (human) rights, legal
certainty, including the concept of legitimate expectations, proportionality, and equality in the form
of non-discrimination, but also administrative principles such as the right to a fair hearing and
transparency are part of the general principles.
57 Case 29/69 Stauder v City of Ulm [1969] ECR 419, paragraph 7.
58 For a discussion of the evolution of the general principles of EU law, see Trevor C Hartley, The
Foundations of European Community Law (Oxford University Press, 5th ed, 2003) and Craig and De
Búrca, supra note 15.
59 Stauder, supra note 57, paragraph 7.
209
That said, the ECJ made clear that those traditions would be considered
within the framework of the Community structure and objectives:60
Recourse to the legal rules or concepts of national law in order to
judge the validity of measures adopted by the institutions of the
community would have an adverse effect on the uniformity and
efficacy of community law. The validity of such measures can
only be judged in the light of Community law. In fact, the law
stemming from the Treaty, an independent source of law, cannot
because of its very nature be overridden by rules of national law,
however framed, without being deprived of its character as
community law and without the legal basis of the community
itself being called in question. Therefore the validity of a
community measure or its effect within a member state cannot
be affected by allegations that it runs counter to either
fundamental rights as formulated by the constitution of that state
or the principles of a national constitutional structure.
[R]espect for fundamental rights forms an integral part of the
general principles of law protected by the Court of Justice. The
protection of such rights, whilst inspired by the constitutional
traditions common to the Member States, must be ensured within
the framework of the structure and objectives of the Community.
It must therefore be ascertained, in the light of the doubts
expressed by the Verwaltungsgericht, whether the system of
deposits has infringed rights of a fundamental nature, respect for
which must be ensured in the Community legal system.
This was too much for the German Federal Constitutional Court, which in
1974 introduced a restriction on the effectiveness of Community law on
German soil in the so-called Solange I case.61 The Court held that as
long as integration within the Community had not resulted in a catalogue
of fundamental rights approved by a parliament, set in force and
adequate to the catalogue of fundamental rights of the German
constitution, a German court had to refuse the application of a relevant
Community provision in case of a collision with the fundamental rights
60 Case 11/70 Internationale Handelsgesellschaft mbH v Einfuhr- und Vorratsstelle für Getreide und
Futtermittel [1970] ECR 1125, paragraphs 3-4.
61 Judgment of 29 May 1974, 37 BVerfGE 271 Solange I (1974). An English comment on the case
can be found at: http://www.ucl.ac.uk/laws/global_law/german-cases/cases_bverg.shtml/-
29may1974.
210
protected by the German constitution.62 The decision was severely
criticised.63 The main argument against the decision was that a national
court might needlessly jeopardise the uniform application of Community
law in the Member States.64 Some years later, the German Federal
Constitutional Court revised its position in the Solange II case.65
Ordoliberals would have supported the position taken in Solange I, as
they believed that fundamental rights and competition impose strict
constitutional constraints on Community policy,66 meaning that
Community policy cannot infringe fundamental rights and competition,
which enjoy national constitutional protection.
One may wonder why the German Federal Constitutional Court in
Solange I felt the need to object. The ECJ had already developed
guarantees at EU level equivalent to those of German constitutional law,
and had especially safeguarded fundamental rights so that protection at
state level was no longer necessary.67 Moreover, the ECJ acknowledged
in Nold Kohlen68 that fundamental rights, which are protected in the
different Member States’ constitutions, must be safeguarded by ending
measures incompatible with those fundamental rights:69
62 For a detailed discussion of the case see Manfred Zuleeg, ‘The European Constitution under Constitutional Constraints: the German Scenario’ 22(1) European Law Review (1997) 19, pages 24-
25.
63 Jochen Frowein, ‘Europaisches Gemeinschaftsrecht und Grundgesetz’ in Christian Starck (ed),
Bundesverfassungsgericht und Grundgesetz (Paul Siebeck, 1976) pages 188, 205 and 213.
64 Craig and De Búrca, supra note 15, page 291.
65 Judgment of 22 October 1986, 73 BVerfGE 339 Solange II (1986). That case stated that as long
as the EU, and especially ECJ case law, guarantee an effective protection of fundamental rights
against the power of the EU in general, and this protection is in its essential parts equivalent to the
fundamental rights of the German Constitution, the Federal Constitutional Court would no longer
review the acts of the EU institutions using the fundamental rights of the Constitution as a measure.
66 Sauter, supra note 37, pages 43-44.
67 Internationale Handelsgesellschaft, supra note 60, page 1135.
68 Case 4/73 Nold Kohlen v Commission [1974] ECR 491, [1974] 2 CMLR 338.
69 Ibid. paragraph 13.
211
As the Court has already stated, fundamental rights form an
integrated part of the general principles of law, the observance of
which it ensures.
In safeguarding these rights, the Court is bound to draw
inspiration from constitutional traditions common to the Member
States, and it cannot therefore uphold measures which are
incompatible with fundamental rights recognised and protected
by the constitutions of those states.
Having concluded that Community legislation must respect fundamental
rights, the Court went on to limit the scope of fundamental rights to
property rights. It held that fundamental rights must be subject to
limitations laid down in accordance with the public interest.70
Unlike the general principles of EU law, which are regarded as a primary
source of law, the common constitutional traditions of the Member
States and the international treaties for the protection of human rights,
to which the ECJ resorts as sources of inspiration, do not constitute a
primary source of law in the Community legal order. They are mere
sources of recognition of law,71 which offer inspiration and guidance and
can help to ascertain the fundamental rights of the Community legal
order. The Community’s protection of fundamental rights is,
nevertheless, autonomous in the sense that its interpretation has to be
consistent with the framework of the structure and objectives of the
Community.72
2.1 Economic freedom as part of the general principles of the
EU
The above section outlined how fundamental rights became a part of the
general principles of the Community legal order. It is now appropriate to
70 Nold Kohlen, supra note 68, paragraph 14.
71 Manfred Dauses, ‘The protection of Fundamental Rights in the Community Legal Order’ 10
European Law Review (1985) 398, page 411.
72 Takis Tridimas, The General Principles of EC Law (New York: Oxford University Press, 1999) page
4.
212
consider in more detail whether economic freedom forms part of the
general principles of the Community legal order. This is to provide an
illustration of the type of right present in order to compare it with
consumer welfare in chapter six.
The fundamental rights of EC law are not restricted to those contained in
the ECHR,73 but the ECHR is a significant source:
[F]undamental rights form an integral part of the general
principles of Community law whose observance it ensures. For
that purpose, the Court draws inspiration from the constitutional
traditions common to the Member States and from the guidelines
supplied by international treaties for the protection of human
rights on which the Member States have collaborated or of which
they are signatories. The ECHR has special significance in that
respect.74
In addition to the ECHR, the Charter provides a convenient point of
reference to identify what rights are fundamental, although they are not
legally binding.75 As noted above, the ECHR acts as a source of
inspiration for the ECJ,76 when deciding what fundamental rights are
protected as part of the general principles of Community law. An
example is the Hauer case,77 where the ECJ specifically referred to the
EHCR.78 The case regarded a Council regulation, which prohibited the
new planting of vines for a period of three years, the aim of which was
to control wine surpluses. Mrs Hauer appealed to the German
Administration Court (Verwaltungsgericht) arguing that the Council
73 Case 36/75 Rutili v Minister for the Interior [1975] ECR 1219.
74 Case C-299/95 Friedrich Kremzow v Republik Österreich [1997] ECR I-2629, paragraph 14.
75 Essentially the Charter, supra note 27, includes a full catalogue of the classical civil and political
rights; social and economic rights; and under the heading "Citizens' rights" the specific fundamental
rights granted by EC law to citizens of the Community.
76 Craig and De Búrca, supra note 15, page 327.
77 Case 44/79 Liselotte Hauer v Land Rheinland-Pfalz [1979] ECR 3727.
78 Ibid. paragraphs 15 and 17.
213
regulation was incompatible with the German constitution,79 as the
regulation infringed fundamental rights, specifically the right to property
and the right to trade.80 The German Administrative Court made an
Article 234 reference to the ECJ, which accepted that there was an
interference with property rights, but found that the interference was
justified.81
The fact that economic freedom is not listed as a fundamental right in
the ECHR does not mean that the ECJ automatically refuses legal status
to that right.82 Moreover, the Charter does not directly protect economic
freedom either, but it does protect the right to choose an occupation, to
conduct a business and the right to property, which are all economic
freedom rights.83
While economic freedom is not mentioned in the EC Treaty, the ECHR or
the Charter, freedom of competition (or free competition) is a principle
of the EC Treaty. The question is whether freedom of competition is
considered a fundamental principle in the Community legal order. If the
answer is affirmative, then a subsequent question is whether freedom of
competition can be equated with economic freedom so that economic
freedom can be considered a fundamental principle in the Community
legal order.
2.1.1 Freedom of competition
The ECJ has said that freedom of competition is a general principle of
Community law and, as shown above, fundamental rights form an
79 The Grundgesetz, promulgated by the Parliamentary Council on 23 May 1949. English version
available at: http://www.bundestag.de/htdocs_e/parliament/function/legal/germanbasiclaw.pdf.
80 The Grundgesetz, Article 14(2).
81 Hauer, supra note 77, paragraph 19.
82 Case 155/79 AM & S Europe Ltd v Commission [1982] ECR 1575, [1982] 2 CMLR 264.
83 The Charter, supra note 27, Articles 15-17.
214
integrated part of the general principles. The ECJ held in Procureur de la
République v Association de Défense des Brûleurs d'Huiles Usagées:84
The national court asks whether the system of permits is
compatible with the principles of free trade, free movement of
goods and freedom of competition, but does not elaborate
further. In that connection it should be borne in mind that the
principles of free movement of goods and freedom of
competition, together with freedom of trade as a fundamental
right, are general principles of community law of which the Court
ensures observance.
Freedom of competition has also been considered a fundamental
principle specifically in relation to Article 82. For example, in Michelin I,
the ECJ held:85
[A]part from the extra bonus granted in 1977, the discount
system had an adverse effect on free competition within the
common market, which is a fundamental principle of the Treaty,
even though the variation in the discount was relatively slight
and it has not been proved that the system was applied in a
discriminatory manner.
It is however controversial to consider freedom of competition a
fundamental principle and Coppel and O’Neill have pointed out:86
The invocation of the idea of fundamental rights by the European
Court does not set essential limits to lawful executive action,
because executive action which has as its object the promotion of
the four market freedoms is itself, in the vocabulary of the
European Court, instantiating a fundamental right. A claim to
violation of certain fundamental human rights, hence, ceases to
be a trump-card against executive action. It is no longer possible
to speak of a validation of a lower norm by a higher norm.
Instead two norms of equal qualitative significance are balanced
against the other.
84 Case 240/83 Procureur de la République v Association de Défense des Brûleurs d'Huiles Usagées
(ADBHU) [1985] ECR 531, paragraph 9.
85 Michelin I, supra note 5, paragraph 113.
86 Jason Coppel and Aidan O’Neill, ‘The European Court of Justice: Taking Rights Seriously?’ 29
Common Market Law Review (1992) 669, page 690.
215
Let alone being controversial, the ECJ seems to accept that freedom of
competition can be restricted by other Community objectives. For
example, in ITP v Commission the CFI held:87
[I]n order to resolve the conflict … between copyright on the one
hand and the rules on, inter alia, freedom of competition on the
other, the proper approach is … to identify in each particular case
the ‘specific subject-matter’ of the intellectual property right,
which alone merits special protection within the Community legal
order and thereby justifies certain encroachments on the
Community rules.
The CFI engaged in a balancing act between the protection of the right,
an intellectual property right, on the one hand, and the protection of free
competition, on the other hand. The CFI held that the intellectual
property right, in this case a copyright, enjoyed special protection, and
that the right must be balanced against freedom of competition. It
concluded:88
[A]lthough the programme listings were at the material time
protected by copyright as laid down by national law, which still
determined the rules governing that protection, the conduct at
issue [denial of access to the basic information which is the raw
material indispensable for the compilation of a TV guide] could
not qualify for such protection within the framework of the
necessary reconciliation between intellectual property rights and
the fundamental principles of the Treaty concerning the free
movement of goods and freedom of competition. The aim of that
conduct was clearly incompatible with the objectives of Article 86
[Article 82].89
Even though the CFI held that the free movement of goods and freedom
of competition are fundamental principles of the Treaty, the ECJ
specified in the IMS Health case,90 that as between the protection of the
87 Case T-76/89 Independent Television Publications Ltd v Commission [1991] ECR II-575,
paragraph 28.
88 Ibid. paragraph 60.
89 This conclusion was reiterated in Case C-241/91P RTE and ITP v Commission [1995] ECR I-743,
[1995] 4 CMLR 718, paragraph 31.
90 Case C-418/01 IMS Health GmbH & Co OHG v NDC Health GmbH & Co KG [2002] ECR I-3401,
[2002] 5 CMLR 44.
216
intellectual property right and free competition, it was only willing to
give priority to free competition, if consumers would otherwise be
harmed. In reaching this conclusion, the Court referred to Advocate
General Tizzano’s Opinion91 and held:92
[T]hat condition [emergence of a new product] relates to the
consideration that, in the balancing of the interest in protection of
the intellectual property right and the economic freedom of its
owner against the interest in protection of free competition, the
latter can prevail only where refusal to grant a licence prevents
the development of the secondary market to the detriment of
consumers.
In a question between the interest of the owner of an intellectual
property right and the protection of free competition, the Court appears
to be willing to give priority to free competition only if there would
otherwise be harm to consumers. If this means that free competition
requires the likelihood of consumer detriment in order to ‘trump’ an
intellectual property right, then freedom of competition does not seem to
have reached the status of being a fundamental right. Instead, it
appears to be no more than a right to be balanced against other rights.
Sauter even calls free competition a political right as oppose to a legal
right.93
Free competition appears in several provisions of the EC Treaty,94 so it is
difficult to disregard the concept. However, these provisions are
explicitly linked to provisions on economic and monetary union and form
91 Advocate General Tizzano’s Opinion in IMS Health, supra note 90, delivered on 2 October 2003,
paragraph 62: ‘[e]ven where those circumstances obtain, in weighing the balance between the
interest in protection of the intellectual property right and the economic freedom of its owner, on
the one hand, and the interest in protection of free competition, on the other, the balance may in
my view come down in favour of the latter interest only if the refusal to grant the licence prevents
the development of the secondary market to the detriment of consumers’.
92 Ibid. paragraph 48.
93 Sauter, supra note 47, page 41.
94 Articles 4, 98 and 105.
217
political principles which cannot be invoked directly by individuals
against the Member States.
Besides being controversial, it is not entirely clear that freedom of
competition is actually considered a fundamental right. Given this
finding, it is not necessary to examine whether freedom of competition
equates to economic freedom. Given that it cannot safely be concluded
that freedom of competition or economic freedom enjoys constitutional
status in the Community legal order, it is necessary to examine whether
economic freedom is protected in the German constitution. The ECJ is
prepared to protect fundamental rights in the Community legal order,
which are recognised and protected by the constitutions of the Member
States.95 This leaves economic freedom to be protected in the
Community legal order if it is protected by the German constitution,
unless Germany is the only Member State which protects economic
freedom, as it is unlikely that a right which is protected by just one
Member State would be recognised as a fundamental right in Community
law.96 The next section will examine whether economic freedom is
considered a fundamental right in the German constitution.
3. The German Constitution
Neither economic freedom nor freedom of competition is directly
protected in the German constitution, but a general right to liberty is
guaranteed.97
95 It must be emphasised that the general principles of the Community neither retain the same
function and definition that they once did in the original Member States, nor are they applied in the
same manner.
96 Joseph Weiler, The Constitution of Europe (Cambridge University Press, 1999) chapter 3.
97 Robert Alexy, A Theory of Constitutional Rights (Oxford University Press, 2002) page 223.
218
The German Federal Constitutional Court has interpreted the right to
free development of personality protected in the German Grundgesezt
Article 2,98 commonly known as the Basic Law, as a right to general
freedom of action.99 The question addressed in this section is whether
economic freedom is an implied liberty included in the general right to
liberty. If the general right to liberty in the German constitution only
includes freedom of competition then such a finding would not be
conclusive for the overall analysis of the status of economic freedom as
a fundamental right, unless freedom of competition equates to economic
freedom. This section assumes that freedom of competition equates to
economic freedom as ordoliberals equated freedom of competition to
economic freedom. This assumption is far from certain, but if it is right
then that would be a strong argument for giving economic freedom
constitutional status if freedom of competition has constitutional status
in the German constitution.
As shown in chapter two, freedom of competition is deeply rooted in
ordoliberalism and ordoliberal theories were applied in the German
constitution.100 If that is accepted, then perhaps the general right to
liberty guaranteed in the German constitution includes the ordoliberal
‘programme of freedom’. This programme meant that intervention in the
market should be allowed to protect the autonomy of the individual, to
protect individual economic freedom, to guarantee private contractual
autonomy, to guarantee freedom of occupation and trade, individual
property rights and free movement of persons.
98 German Basic Law Article 2:
‘(1) Every person shall have the right to free development of his personality insofar as he does not
violate the rights of others or offend against the constitutional order or the moral law.
(2) Every person shall have the right to life and physical integrity. Freedom of the person shall be
inviolable. These rights may be interfered with only pursuant to a law’.
99 6 BVerfGE 32 Elfes (1957), which regarded the refusal of a passport as an interference with the
right to free movement. A translation of the case from German to English can be found on:
http://www.iuscomp.org/gla/judgments/tgcm/velfes.htm.
100 Sauter, supra note 37, page 29.
219
From a constitutional point of view, it was important for ordoliberals that
competition was not confined to its functional relevance as a discovery
procedure. Competition also had to be a controlling device for economic
power, which they saw as inseparable from the evolutionary market
process. As a consequence, competition contributes to the general
acceptance of private autonomy as a constitutional principle.101
According to ordoliberal theory, competition law should have
constitutional status and play a leading role in promoting individual
fundamental rights, such as economic freedom. German competition law
was the main pillar of the social market economy and was represented
as constitutional in scope.102 If this view is accepted, then freedom of
competition, which ordoliberals equate to economic freedom, is an
integrated part of the general right to liberty and a constitutional
principle in its own right. However, the problem with that is that any
limitations on general freedom of action may end up being prohibited.
This is far-reaching and can have undesirable consequences for
competition in the market because almost any action in the market, in
particular in a very competitive market, may have a limiting effect on
someone’s freedom in the market. Instead of freedom of action, which is
a constitutional right in Germany, one should really only speak of
freedom from the interference of abusive conduct, which does not have
constitutional status. That point aside, the German Federal
Constitutional Court has adopted an extremely wide and subjective
interpretation of the general right to liberty.103 It is therefore likely that
it also protects freedom of competition.
101 Streit, supra note 40, page 9.
102 Gerber, supra note 42, page 277.
103 Alexy, supra note 97, page 224.
220
4. Summary
Chapter five discussed whether economic freedom is considered a
fundamental right in the Community legal order with a view to assessing
whether a change from economic freedom to consumer welfare would
undermine a fundamental right and thereby violate the Community legal
order, which will be discussed in chapter six.
Section one examined whether economic freedom is protected in the EC
Treaty, but found that economic freedom is not even mentioned in the
EC Treaty. It analysed whether the EC Treaty was based on the
ordoliberal economic constitution where economic freedom is protected
as a fundamental individual right. It found that whilst Community
competition law is influenced by ordoliberalism, it is not an
implementation of ordoliberalism and the EC Treaty is not a Treaty
based on the ordoliberal economic constitution. Following from this
finding, economic freedom could be considered a fundamental right in
the Community legal order only if it formed part of the general principles
of the EU either directly or indirectly via the German constitution.
In order to examine whether a given principle forms part of the general
principles of the EU, the ECJ draws inspiration from the ECHR, the
Charter and the common constitutional traditions of the Member States.
While these are not a primary source of law, they are sources of
inspiration for the Community Courts. Section two examined whether
economic freedom was protected by the ECHR and/or the Charter and
therefore a part of the general principles of the Community legal order.
A negative answer required an analysis of the German constitution, as
economic freedom may be considered a fundamental right in the
Community legal order if it is protected as such in the German
constitution. This was examined in section three which found that the
German constitution protects a general right to liberty and it is likely
that economic freedom falls within this general right to liberty.
221
Conclusion
The EC Treaty is not based on the ordoliberal economic constitution
although it does not deny the considerable influence of ordoliberalism.
Economic freedom is not protected in the EC Treaty, the ECHR or the
Charter. While the German constitution protects a general right of
liberty, which most likely includes individual economic freedom, this is
not enough in itself to include economic freedom in the general
principles of the EU.
Based on this conclusion, a change from economic freedom to consumer
welfare may be contrary to case law, but would not undermine a
fundamental right and thereby violate the Community legal order.
Whether such a change is in tune with case law depends on whether
economic freedom is a means to the end of consumer welfare. This will
be examined in chapter six.
222
Chapter 6 The Relationship between Economic Freedom &
Consumer Welfare
Introduction
The core argument advanced in this chapter is to what extent DG
Competition can give priority to a utilitarian goal of consumer welfare
given that economic freedom, regardless of its constitutional deficit,
is considered an important objective in Article 82 jurisprudence. The
finding in chapter five that economic freedom is unlikely to be a
fundamental right in the Community legal order does not answer the
question whether economic freedom is a means to the end of
consumer welfare. It is therefore necessary to consider the
underlying purpose of economic freedom as the primary purpose may
be to improve, for example, allocative efficiency. This is not to argue
that only if economic freedom is a means to the end of consumer
welfare is it legitimate to give priority to consumer welfare. However,
if it is, the change to the interpretation of Article 82 proposed by DG
Competition is not a departure from case law and is thus more
acceptable. If however the underlying purpose of economic freedom
is far removed from economic efficiency then a change to the goal of
consumer welfare requires support from the ECJ, as only the ECJ can
decide whether its jurisprudence should change. Only if the ECJ
decides to support DG Competition’s move away from economic
freedom and overrule earlier case law will this happen.
1. Economic Freedom as Understood by Ordoliberals
The assessment of the underlying purpose of economic freedom starts
by analysing whether economic freedom, as derived from ordoliberalism,
is a legal concept used to assess whether the conduct in question
reduces economic efficiency.
223
The ordoliberal competitive order, described in chapter two, connected
competition law to fundamental rights by making individual freedom and
competition the backbone of the economic constitution of society.
Ordoliberals viewed competition law as a matter of rights and individual
freedoms and believed that competition within the economy provides the
basis for the economic order they envision: a free market economy.1
Ordoliberalism remains the dominant school on the economic order in
Germany. It describes the relations between the public and private
spheres of the economy in terms of an economic constitution.2 To the
extent that ordoliberalism seeks to combine open markets and individual
freedom with social justice, it is distinct from neo-liberalism, totalitarian
corporatism and classic liberalism articulated, for example, by David
Hume,3 Adam Smith4 and John Stuart Mill.5
The origin of ordoliberalism was in humanist values rather than
economic efficiency.6 The aim of competition law was the limitation and
control of private power, or at least its harmful effects,7 to protect
individual freedom in the interest of a free and fair political and social
1 Ordoliberals defined the free market economy as an economic system that dispenses with any
official control and instead entrusts control of the interplay of economic forces to a mechanism [the
market price system] which discharges its control functions automatically, see Franz Böhm,
‘Democracy and Economic Power’ in Cartel and Monopoly in Modern Law (CF Muller Karlsruhe, 1961)
page 25.
2 Mel Kenny, ‘Constructing a European Civil Code: quis Custodiet Ipsos Custodes?’ 12 Columbia
Journal of European Law (2006) 775, page 783.
3 David Hume, A Treatise on Human Nature (1739, republished by Oxford University Press in 1978).
4 Adam Smith, The Wealth of Nations (1776).
5 John Stuart Mill, On Liberty (1859). 6 David Gerber, ‘Constitutionalizing the Economy: German Neo-liberalism, Competition Law and the
“New” Europe’ 42 American Journal of Comparative Law (1994) 25, page 36.
7 David Gerber, Law and Competition in Twentieth Century Europe: Protecting Prometheus
(Clarendon Press Oxford, 1998) page 251.
224
order.8 According to one of the founding fathers of ordoliberalism Franz
Böhm:9
The real motives behind the enactment of antitrust law were …
not economic efficiency and the effectiveness of economic
control, but social justice and civil liberties which were held to be
threatened by monopolies.
Ordoliberals were not against the free market economy, but held that
the free market must be liberated from economic power. If that is not
possible, then the holders of economic power must be placed under the
control of the state and thereby prevented from abusing their dominant
positions, otherwise only a system of anarchic welfare will prevail:10
[I]f the law and the government are unable or unwilling to
prevent the development of such dominant positions, and if such
positions are used by their holders without due regard to the will
of the people for any kind of purpose, most of all, however, for
their own exclusive material benefit, and nobody exists who can
compel them or is competent to compel them to exercise their
powers with due regard to the will of the people, then we shall be
faced with a situation, which every sensible citizen may consider
and must consider a threat to social justice and civil liberties.
Such a situation has all the characteristics of an arbitrary system,
a system of anarchic welfare.
Böhm believed that the scope of private law made it possible to consider
economic power from two different angles, which he called microcosm
and macrocosm.11 The former he called a primitive and direct one and
the latter he called a complicated and indirect one. The question asked
differs depending upon from which angle economic power is
considered.12
8 Wernhard Möschel, ‘Competition Policy from an Ordo Point of View’ in Hans Willgerodt & Alan
Peacock (eds), German Neo-liberals and the Social Market Economy (Macmillan, 1989) page 146.
9 Böhm, supra note 1, page 28.
10 Ibid. page 30.
11 Böhm, supra note 1, pages 30-31.
12 Ibid. pages 32-33.
225
The microcosm perspective sees the rise of power within the framework
of the free market economy and asks the question: does the economic
process caused by the emergence of economic power result in plus and
minus or just an aliud of economic efficiency?
The answer to the question will depend on whether the economic power
will result in economic advantages or disadvantages, and if both are the
case, then whether the advantages outweigh the disadvantages.
The macrocosm perspective sees the rise of power within a socio-
political framework and asks the question: shall we, as citizens of a
democratic state and members of a free system of society, embedded in
the rights of the individual, hand over the power to serve to our fellow
citizens?
Even though Böhm acknowledged that private law made it possible to
assess economic power from both a macrocosm and a microcosm
perspective, he argued that economic power should be assessed from
the macrocosm point of view.13 This was because economic theory was
only a means to develop a free order.14 The free order should liberate
humanitarian values from their threatened encirclement by chaotic,
anarchic and collectivistic forces.15 The battle for a free order for the
economy and for society did not emerge from economic theory, but was
a battle for the eternal truths of humanity.
It is essential to comprehend that ordoliberalism relied on humanist
values rather than efficiency or other purely economic concerns.16 They
13 Böhm, supra note 1, pages 32-33.
14 An ‘ordnung’ provides a framework for a functional free-market mechanism, which not only
accommodates development and change, but also ensures human dignity and freedom.
15 Leonard Miksch, ‘Walter Eucken’ 4 Kyklos (1950) 279.
16 As mentioned in chapter two, economic freedom has been interpreted differently in US antitrust law in US v Topco Assocs [405 US 596 1972] page 610: ‘Antitrust laws in general… are the
226
believed that Adam Smith's laissez faire economy does not ensure a
competitive economy, and will evolve into monopolistic practices,
interventionism, and distortions of price relationships. Instead, structural
and regulating principles would facilitate a functionally competitive
economy with a compatible social policy, characterised by a flexible price
mechanism and stable policies.17
The economic constitution, which decides the legal structure of the
economic system, should guarantee individual freedom and competition
as fundamental rights. The economic constitution should establish a
related system of principles that binds economic policy. The state has to
protect this economic order by enforcing the economic constitution.
Individual rights set out in the economic constitution were directly
enforceable.18
In summary, economic freedom, as derived from ordoliberalism, is a
fundamental individual right protected by the economic constitution:19
Competition policy [ordoliberal competition policy] serves to
protect the evolutionary process of competition as such, and to
prevent the concentration of private power to the detriment of
the competitive and the political processes. Consequently,
competition constitutes a value in its own right, which goes well
beyond efficiency considerations. In this view, the economic
constitution serves, first, to guarantee the basic equality of
individuals as economic subjects; second, to back up the private
law society by public authority; and third, to protect civil liberties.
Magna Carta of free enterprise. They are as important to the preservation of economic freedom and
our free-enterprise system as the Bill of Rights is to the protection of our fundamental personal
freedoms. And the freedom guaranteed each and every business, no matter how small, is the
freedom to compete…’.
17 Siegfried G Karsten, ‘Eucken's 'Social Market Economy' and its Test in Post-War West Germany.
The Economist as Social Philosopher Developed Ideas that Paralleled Progressive Thought in
America’ 44(2) American Journal of Economics and Sociology (1985) 169.
18 Wolf Sauter, Competition Law and Industrial Policy in the EU (Clarendon Press Oxford, 2003)
page 47.
19 Ibid. page 47.
227
Ordoliberals’ emphasis on the interdependence between economic
structures and human values meant that they sought a path to
dependable economic strength that was compatible with maximum
personal freedom and improved social conditions. Some argue that this
objective remains central to social and political thought in Europe.20 If
this is accepted, then it becomes even more important to see whether
economic freedom and consumer welfare can be reconciled.
2. Economic Freedom Does Not Equal Consumer Welfare
The question addressed in this section is whether the goal of economic
freedom is a means to the end of consumer welfare.
As shown in the previous section, economic efficiency was not the goal
of ordoliberal competition policy. Ordoliberals placed competition law in a
wider, socio-political perspective because limitation and control of
private power was in the interest of a free and fair political and social
order.21 It was essential to protect the conditions of competition, rather
than explicitly focusing on the direct results of competition because their
main goal was the limitation of private power to guarantee individual
economic freedom. Ordoliberals saw economic efficiency as a generic
term for growth and for the encouragement and development of
technical progress and for allocative efficiency, but only as an indirect
and derived result of individual freedom.22 This opinion is not only
shared by ordoliberals, it is also echoed by Adams and Brock, who
believe that economic freedom is the main objective of competition
policy in US anti-trust:23
20 Gerber, supra note 6, page 76.
21 Gerber, supra note 7, pages 244-251.
22 Möschel, supra note 8, page 146.
23 Walter Adams and James W Brock, ‘Antitrust and Efficiency: a Comment’ 62 New York University
Law Review (1987) 1116.
228
The primary purpose of antitrust is to perpetuate and preserve a
system of governance for a competitive, free enterprise economy.
Efficiency and consumer welfare constitute ancillary benefits that
are expected to flow from a system of economic freedom.
Brodley has argued that there is a unity between economic efficiency
and the goal of economic freedom.24 This is supported by Elzinga who
argued that economic efficiency and equity goals are not always
mutually exclusive.25 However, for Brodley and Elzinga the ultimate
objective was not consumer welfare in the form of consumer surplus and
allocative efficiency, but total welfare.
The answer to the question addressed in this section, which is whether
the goal of economic freedom is the same as that of advancing
consumer welfare, is probably no, as economic freedom is not the same
as advancing consumer welfare in economic terms. Standard economics
states that by protecting a competitor through the act of curtailing the
power of the near monopolist, the consumer may benefit through
increased choice and a reallocation of profits from the monopolist to
alternative competitors. As these competitors will not have the ability to
reap monopoly profits, these profits would be expected to be passed
back to the consumer through reduced prices. If these effects outweigh
the value of any above-cost discount offered by the near monopolist,
consumers would gain from overall price reductions. While the move to
protect suppliers may increase choice and potentially improve allocative
efficiency through lower prices,26 this is not guaranteed. Nor is it
24 Joseph F Brodley, ‘The Economic Goals of Antitrust: Efficiency, Consumer Welfare, and
Technological Progress’ 62 New York University Law Review (1987) 1020, page 1021.
25 Kenneth G Elzinga, ‘The Goals of Antitrust: other than Competition and Efficiency, What Else Counts?’ 125 University of Pennsylvania Law Review (1977) 1191, page 1193.
26 Allocative efficiency, as used here, refers to the way in which resources are allocated to the
production of the goods and services that society (consumers) most values as defined in chapter
four.
229
guaranteed that dynamic movements towards productive efficiency27 will
be facilitated best in this way.28 In some circumstances, it is plausible
that the protected market players will become efficient over time.
However, it is also possible that the most productive way of supplying
customers will be through one single supplier, particularly when
economies of scale are great. Depending on which of these effects is the
greatest the consumer could then actually gain or lose from such
measures.29
DG Competition’s Director General Philip Lowe has argued that the aim
of Article 82 is to ensure that the remaining competitors in the market
are not prevented from competing on the merits.30 This is taken to mean
that the economic freedom of efficient competitors must be protected in
order to protect their ability to compete on the merits, but not the
economic freedom of inefficient competitors. If this understanding is
correct, then it could be argued that economic freedom is a means to
the end of consumer welfare. According to Lowe’s argument, economic
freedom is protected only where it benefits consumer welfare, as it is
assumed that only efficient competitors can provide efficiencies to the
benefit of consumers whereas inefficient competitors cannot. This is, in
some aspects, inconsistent with the position taken by DG Competition in
its Discussion Paper where it remarks that ‘it may sometimes be
necessary in the consumers’ interest to also protect competitors that are
not (yet) as efficient as the dominant firm’.31 DG Competition seems to
be of the opinion that protecting ‘not yet as efficient competitors’ means
27 Productive efficiency refers to the effective use (produced at the lowest cost) of resources as
defined in chapter four.
28 Dennis W Carlton and Jeffrey M Perloff, Modern Industrial Organization (Pearson, 4th ed, 2005).
29 Sir John Vickers, ‘Abuse of Market Power’ 115 The Economic Journal (2005) F244, page F256.
30 Philip Lowe at the Thirteenth Annual Conference on International Antitrust and Policy, speech
given on 23 October 2003 at the Fordham Antitrust Conference in Washington, page 5, speech
available at: http://ec.europa.eu/comm/competition/speeches.
31 Discussion Paper on the Application of Article 82 of the Treaty to Exclusionary Abuses (December
2005), paragraph 67.
230
there will be more firms in the market. This could potentially mean more
competition in the long run, driving prices down and increasing allocative
efficiency to the benefit of consumers.32 This argument may however
involve a loss of economies of scale which is productively inefficient.33
Thus, this section argues that pursuing an objective of economic
freedom cannot be tweaked to include efficiencies to the benefit of
consumer welfare. When pursuing an objective of economic freedom, the
process is of intrinsic value and it excludes a change of the overarching
principle to protect competitors only to the point where it is productively
and allocative efficient to do so.
It is not denied that if consumer welfare matters then process matters to
a certain degree.34 However, it is important to distinguish between
protecting the process of competition in itself and protecting the
competitive process only to the extent that it will benefit consumer
welfare. As explained above, when pursuing an objective of economic
freedom, it is not possible to protect the process of competition only to
the point where it is productively and allocative efficient to do so,
because the underlying purpose of economic freedom is protection of the
process of competition in itself, regardless of that process being
inefficient.
When trying to use economic freedom as a means to the end of
consumer welfare there is a real risk that the result is the protection of
32 This is however not only a complicated analysis, but the concept ‘not yet as efficient competitor’
also gives the competition authority huge discretion in assessing whether and when a company will
be ‘as efficient’ as the dominant company.
33 Frederic M Scherer, ‘Antitrust, Efficiency, and Progress’ 63 New York University Law Review
(1987) 998, pages 1002-1003.
34 The argument being that consumer welfare should be read in conjunction with harm to the
process of competition. This argument does find some support, see Victoria Mertikopoulou, ‘DG
Competition’s Discussion Paper on the Application of Article 82 of the EC Treaty to Exclusionary
Abuses: the Proposed Economic Reform from a Legal Point of View’ 28(4) European Competition
Law review (2007) 241, page 242.
231
competitors. It becomes incredibly difficult to know when the protection
of economic freedom benefits consumer welfare and when it protects
competitors. Competitors should be protected only to the point where it
is productively and allocative efficient to do so, but this principle is
excluded when pursuing economic freedom where the process of
competition is of intrinsic value. In welfare terms, if less efficient firms
are protected or subsidised, it can prevent market competition from
selecting the best firms, which will actually result in higher prices and
lower welfare.35
This is not to say that economic efficiency is not relevant in legal
systems pursuing the objective of economic freedom, but that such an
objective focuses on the need to protect the process of competition in
the long term rather than competition’s short-term results. Many of the
EC judgments and decisions under Article 82 take a long-term
perspective and protect the present competitors instead of short-term
efficiencies in order to ensure that there will be competitors in the long
run.36
Long-term protection of competition also seems to be at the root of DG
Competition’s approach in protecting a ‘not yet as efficient competitor’.
It appears that DG Competition believes that competition in the long run
can be protected by protecting ‘not yet as efficient competitors’. This is
not necessarily a bad idea when pursuing an objective of economic
freedom, and it may even be a good idea when liberalising a market
dominated by a former state monopoly. In such a market, the former
state monopoly will undoubtedly have a huge market share and it can
take a couple of years for other competitors to gain a foothold in the
market. For example, state monopolies in the telecommunication sector
35 Massimo Motta, Competition Policy: Theory and Practice (Cambridge University Press, 2004)
page 51.
36 Barry E Hawk, ‘Article 82 and Section 2’ in OECD paper DAF/COMP(2005)27 on Competition on
the Merits, page 253.
232
have established themselves in the market through the benefit of
taxpayers’ money and gained ‘first mover advantages’ from benefits that
no other company has. Thus, when liberalising a market it may seem
sensible to keep a ‘not yet as efficient competitor’ alive in the market if
the aim is economic freedom.
A practical problem with this approach is that it would require
competition authorities to produce a timeframe for the period they are
willing to protect the ‘not yet as efficient competitor’, as well as a
strategy for the various ways of protecting it. The ‘not yet as efficient
competitor’ test signals that DG Competition is keen to increase the
opportunities for other competitors in the market. It is however
questionable whether these ‘not yet as efficient competitors’ will actually
generate any efficiency to the benefit of consumer welfare, for example,
in the form of innovation. If they do not innovate it may not only be
detrimental for consumers, but also for the incumbent’s incentive to
innovate. This issue was pointed out by Advocate General Jacobs in his
Opinion in the Bronner case,37 where he explained in paragraph 57:38
In the long term it is generally pro-competitive and in the interest
of consumers to allow a company to retain for its own use
facilities which it has developed for the purpose of its business.
For example, if access to a production, purchasing or distribution
facility were allowed too easily there would be no incentive for a
competitor to develop competing facilities. Thus while
competition was increased in the short term it would be reduced
in the long term. Moreover, the incentive for a dominant
undertaking to invest in efficient facilities would be reduced if its
competitors were, upon request, able to share the benefits. Thus
the mere fact that by retaining a facility for its own use a
dominant undertaking retains an advantage over a competitor
cannot justify requiring access to it.
37 Case C-7/97 Oscar Bronner GmbH & Co KG v Mediaprint Zeitungs- und Zeitschriftenverlag GmbH
& Co KG [1998] ECR I-7791, [1999] 4 CMLR 112.
38 Opinion of Advocate General Jacobs in Oscar Bronner, supra note 37, delivered on 28 May 1998.
233
This section showed that economic freedom is conceptually and
theoretically distinct from consumer welfare. It found that from a
theoretical point of view economic freedom is not a means to the end of
consumer welfare. This finding is however not conclusive, as the
practical application of economic freedom may be different. It is
necessary to assess whether economic freedom has been interpreted
under Article 82 as an end in itself or in the fashion suggested by Lowe.
This will be examined in the subsequent section.
3. Protecting Economic Freedom Intrinsically or
Instrumentally
Chapter three argued that the Commission and the ECJ pursued the
objective of economic freedom in Commercial Solvents, Hoffmann-La
Roche, United Brands and Michelin I and possibly also in Continental
Can. However, it did not establish whether economic freedom was
considered an intermediate aim of consumer welfare, as defined in
chapter four, or an aim in itself. This will be considered in this section.
Chapter three established that the fundamental cases analysed required
prohibition whenever the market freedom of market participants was
endangered by an alteration of the competitive market structure.
Damage to the competitive market structure is imbued in the very
definition of abuse, articulated by the ECJ in Hoffmann-La Roche. In
general, by protecting the structure of competition, priority is given to
the process of competition not to the outcome. If, by protecting the
process of competition, consumers are indirectly protected, then that is
a bonus, but not the main aim.39 This is an exact replica of ordoliberal
thinking, where the benefit of competition is a market characterised by a
desirable process, and the end result does not matter. Ordoliberals
39 Highlighted by Advocate General Kokott in her Opinion in Case C-95/04P British Airways plc v
Commission, delivered on 23 February 2006, paragraph 68.
234
would prefer a state of inefficiency coupled with freedom to an efficient
but totalitarian state.40 Under the ordoliberal model, the aim of
competition policy is ‘the protection of individual economic freedom of
action as a value in itself, or vice versa, the restraint of undue economic
power’.41 Thus, ‘the protection of competition against restrictions is
intended to safeguard competition as an institution or to guarantee the
freedom of the individual’.42 This philosophy also underpins Advocate
General Kokott’s Opinion in British Airways, in particular her reference to
competition as an ‘institution’.43 In her view, the primary beneficiaries of
Article 82 are other firms. Priority is given to the process of competition,
and if this ‘indirectly’ protects consumers, then this is a bonus, but not
an aim.
If the Court was pursuing economic freedom only to promote consumer
welfare in the form of economic efficiency in Hoffmann-La Roche or
Michelin I, then it ought to have assessed whether the discounts would
likely have led to a decrease or an increase in consumer welfare. For
example, would the alteration of the market structure likely have
resulted in an increase in price and/or lowering of quality? It is hard to
say a priori whether a given form of discount or price discrimination
increases or decreases welfare. The response to this question may
indeed depend on which type of welfare standard (producer, consumer
or total welfare) is actually pursued. An increase in price may well result
in an increase in total welfare, but a decrease in consumer welfare.
Consumer welfare would likely fall in absolute terms if consumers’ share
of it fell relative to the producers’ increase in welfare. However, the
40 Christian Watrin, ‘Germany’s Social Market Economy’ in Alastair Kilmarnock (ed), The Social
Market and the State (Social Market Foundation, 1999) pages 91-95.
41 Wernhard Möschel, ‘The Proper Scope of Government Viewed from an Ordoliberal Perspective:
the Example of Competition Policy’ 157 Journal of Institutional and Theoretical Economics (2001) 3.
42 Arved Deringer, The Competition Law of the European Economic Community: a Commentary on
the EEC Rules of Competition (Articles 85 to 90) Including the Implementing Regulations and
Directives (New York: Commerce Clearing House, 1968) page 14.
43 Opinion of Advocate General Kokott in British Airways, supra note 39, paragraph 69.
235
conduct could potentially benefit consumer welfare, if there were
economies of scale to gain. It is not automatic that such benefits will
accrue to customers, as they could equally accrue to shareholders. As
shown in chapter three, neither the Commission nor the Court
considered any of these consequences in detail in the early cases under
Article 82.
In addition, prohibiting conduct where firms are seeking to use their
economic power to undermine the market’s competitive structures,
without considering whether such behaviour is likely to harm consumer
welfare, may be viewed as nothing more than protecting smaller
competitors from aggregation of economic power.44 As explained, the
focus on the competitive structure concentrates on the process as
accentuated by ordoliberals, who emphasised the need to protect the
conditions of competition, rather than the direct results of competition.
The question is whether the Commission and the Community Courts
have interpreted the process of competition intrinsically like ordoliberals
or instrumentally.
In the light of DG Competition’s policy review and its questionable
commitment to consumer welfare, it is not unthinkable that some are
tempted to argue that the Commission and the ECJ were pursuing an
objective of consumer welfare in Commercial Solvents, Hoffmann-La
Roche, United Brands and Michelin I. Given past disappointments this is
a tempting argument even though it is difficult to follow, in particular,
given the lack of efficiency analysis in these cases. The argument that
the Court prohibits conduct which restricts economic freedom only to
protect consumer welfare (an argument advanced by Philip Lowe), by
assuming consumer harm whenever the economic freedom of market
44 Giuliano Amato, Antitrust and the Bounds of Power (Hart Publishing, 1997) page 69; Eleanor
Fox, ‘Monopolization and Dominance in the United States and the European Community: Efficiency, Opportunity, and Fairness’ 61 Notre Dame Lawyer (1986) 981.
236
participants is restricted, is not convincing. This is not to say that the
Commission cannot base its decisions on assumptions of consumer harm
or should show consumer harm explicitly when pursuing an objective of
consumer welfare, but if it does, then these assumptions must be based
on either evidence or well-documented theory indicating that such
consumer harm is likely to follow. Otherwise, it appears to be nothing
more than a protection of economic freedom. If the Commission and the
ECJ never intended to protect the economic freedom of the market
participants as an aim in itself, but only to the extent it was benefiting
consumer welfare, then it is paramount that the Commission changes its
methodology by incorporating an analysis of efficiencies. Otherwise, the
legitimacy of the judgments is undermined.
In Continental Can, Hoffmann-La Roche and Michelin I the Commission
and the ECJ equated an abuse with a restriction on the rights and
opportunities of market operators.45 For example, in Michelin I the ECJ
held ‘the discount tends to remove or restrict the buyer's freedom to
choose his sources of supply’.46 There was no serious analysis of anti-
competitive effects, because as stated by the ECJ in Hoffmann-La Roche
‘…the course of conduct [rebates] under consideration is that of an
undertaking occupying a dominant position on a market where for this
reason the structure of competition has already been weakened, within
the field of application of Article 86 [Article 82] any further weakening of
45 These cases are not the only cases under Article 82 where the Community Courts have been
concerned about the dominant undertaking preventing firms from sourcing the relevant products
from other suppliers. Other cases with a similar concern are Joined Cases 40-114/73 Cooperatieve
Vereniging ‘Suiker Unie’ U.A. and Others v Commission [1975] ECR 1663, [1976] 1 CMLR 295,
paragraph 518; Case T-65/89 BPB Industries and British Gypsum Ltd v Commission [1993] ECR II-
389, [1993] 5 CMLR 32, paragraph 120; Case T-219/99 British Airways plc v Commission [2003]
ECR II-5917, paragraphs 244-245 and Eurofix-Bauco/Hilti OJ 1985 L65/19, paragraph 79.
46 Case 322/81 Nederlansche Banden-Industrie Michelin NV v Commission [1983] ECR 3461,
[1985] 1 CMLR 282, paragraph 73; similar language was used in Case 85/76 Hoffmann-La Roche AG v Commission [1979] ECR 461, [1979] 3 CMLR 211, paragraph 106 and in Case 6/72
Europemballage Corpn and Continental Can Co Inc v Commission [1973] ECR 215, [1973] CMLR
199, paragraph 29.
237
the structure of competition may constitute an abuse of a dominant
position’.47 At most, the ECJ held that the conduct in question would
endanger the customers’ choice.48 This naturally leads one to ask
whether the Court was trying to protect consumer welfare by protecting
choice.49
3.1 Choice
Perhaps the Court was trying to protect consumer welfare by protecting
choice, but by protecting choice it is even more likely that the ECJ was
trying to protect economic freedom, as choice is an overriding goal if one
is pursuing an objective of economic freedom.50 Choice means more
participants in the market, which therefore improves the process
regardless of that process being inefficient, for example because small
and medium-sized companies are likely to lack economies of scale.
These companies may lack economies of scale and thus will be unlikely
to guarantee consumer welfare in the form of lower prices.
When it comes to protecting choice, it is admittedly difficult to assess
whether the aim is to protect economic freedom or consumer welfare as
the two objectives do overlap to a certain degree. This is not to argue
that choice is the overriding goal of consumer welfare, but it is a part of
the definition as shown in chapter four. In order for there to be
economic freedom or a process of competition there must be choice and
47 Hoffmann-La Roche, supra note 46, paragraph 123.
48 A similar argument was adopted by the Commission in its decision in Eurofix-Bauco/Hilti, supra
note 45. The Commission concluded that Hilti had abused its dominant position by adopting
commercial behaviour designed to prevent or limit the entry of new competitors into the nail
market.
49 Choice is not only a concern of the Court, but also a concern of the Commission as an attempt
to squeeze competitors out of the market will deprive consumers of choice, see 17th Report on
Competition Policy (1988), page 77.
50 Wolfgang G Friedman, Anti-trust Laws: a Comparative Symposium (London: Stevens, 1956)
page 233.
238
in order to have choice there must be competitors. This comes down to
whether choice is considered valid intrinsically or instrumentally.51
Ordoliberals would argue that choice should be protected for its own
sake as it is intrinsically valuable and constitutes economic freedom for
the customer and consumer. By contrast, the Chicago School considers
choice from an instrumental point of view, meaning that it is to be
protected as a part of preserving the fruits of a competitive process.
Choice must be effective so that customers can move from one supplier
to another, even though they would not necessarily use that choice, but
at least it would be available to them. From a welfare point of view,
choice is only valued if it leads to a better and more efficient outcome
for consumers in the form of lower prices and better quality. If choice
does not have these benefits, then consumer welfare is not concerned
with choice. For example, in a market which is characterised by a natural
monopoly there would be no choice. If the natural monopoly is the most
efficient supply structure and thus leads to the best outcome for
consumers, then it would be totally acceptable from a consumer welfare
perspective. From an economic freedom perspective a natural monopoly
would not be favoured at all, regardless of the outcome, as there would
be no process of competition.
Because choice is important when pursuing both an objective of
economic freedom and an objective of consumer welfare, it can be
difficult to distinguish between which of the two objectives the
Commission is pursuing when arguing a case in terms of choice. Due to
the difficulties involving choice, the Commission must rely on more than
choice when pursuing an objective of consumer welfare. There must be a
plausible theory of consumer harm. If the Commission convincingly
wants to pursue an objective of consumer welfare, choice cannot be the
51 This is not a distinction the Commission or the Community Courts have adopted within the scope
of Article 82, the only point here is to bear this distinction in mind.
239
only reference point, as choice is also an overriding goal when pursuing
an objective of economic freedom. In the absence of any theory on how
consumers will be harmed directly or indirectly through an alteration of
an effective competitive structure, will look like nothing more than a
protection of economic freedom.
This section rejects the idea that the Court was aiming to protect
consumer welfare when it stated that ‘the discount tends to remove or
restrict the buyer's freedom to choose his sources of supply’.52 The
Commission and the ECJ did not analyse the welfare implications of the
conduct in question or engage in any efficiency analyses. It is therefore
difficult to argue that these institutions were concerned with the
instrumental value of the process, as they did not treat the restriction of
choice synonymously with the restriction on the competitive outcome.
Given this argument, the aim of assigning priority to consumer welfare
appears to be in conflict with the case law where economic freedom is
pursued as an aim in itself. The commitment to consumer welfare in the
Discussion Paper could be dismissed by referring to the fact that it is not
a legislative document which is legally binding, but at most contains
some legally binding principles. If this point is disregarded for the
moment, as it is likely that the ECJ will decide to commit to consumer
welfare in due course, the implication of giving priority to consumer
welfare could be contrary to the wording of Article 82(2)(c). This
provision seems to protect the economic freedom of other trading
parties. Although DG Competition has the freedom to decide its
enforcement policy, it cannot ignore the wording of the Treaty. The
wording of Article 82(2)(c) will be analysed in the following section.
52 Supra note 46.
240
4. Economic Freedom in the EC Treaty
Economic freedom is not explicitly incorporated in Article 82, but indent
(c) of Article 82 reads: ‘applying dissimilar conditions to equivalent
transactions with other trading parties, thereby placing them at a
competitive disadvantage’. The question is whether the expression in
Article 82(2)(c) ‘thereby placing them at a competitive disadvantage’
has an independent content, or whether it is merely in the nature of an
explanatory addition with declaratory effect. This question will be
examined in this section. Strictly speaking, DG Competition’s
commitment to the objective of consumer welfare only applies to
exclusionary abuses, which could exclude Article 82(2)(c).53 However, in
practice, it can be difficult to make a clear divide between exploitative
and exclusionary abuses, as discriminatory practices may have an
exclusionary effect.54 Therefore, it is still relevant to examine Article
82(2)(c).
Three conditions have to be fulfilled before Article 82(2)(c) is violated:
1. there must be dissimilar conditions, which
2. are applied to equivalent transactions, and
3. other trading parties must be placed at a competitive disadvantage.
The Commission and the Community Courts generally assume dissimilar
conditions are applied to equivalent transactions without much
analysis,55 but what about the third condition?
53 Discussion Paper, supra note 31, paragraph 1. DG Competition is also reviewing its policy
towards exploitative and discriminatory abuses. The latter process is not yet at the stage of public
consultation.
54 Discussion Paper, supra note 31, paragraph 53.
55 Damien Geradin and Nicolas Petit, ‘Price Discrimination under EC Competition Law: the Need for
a Case-by-Case Approach’ GCLC working paper 07/05, page 8; Ivo Van Bael & Jean-Francois Bellis,
Competition Law of the European Community (Kluwer Law International, 2005) pages 915 and 917.
241
The third condition was one of the issues in Deutsche Post AG.56 The
Commission held that the term ‘trading partner’ must be given a slightly
different interpretation because Deutsche Post held a monopoly in
Germany. It argued that Deutsche Post was to be considered a trading
partner of both the UK senders, contracting with the British Post Office
(‘BPO’), and with BPO directly. The Commission argued that both
customers and a competitor of Deutsche Post were put at a competitive
disadvantage.57 This shows that the Commission was considering both
primary-line and secondary-line discrimination. The former means
discrimination used to expand or maintain a dominant position to the
disadvantage of competitors of the discriminator by applying different
prices to its own customers.58 The latter means discrimination imposed
on one of several customers of the dominant firm as against one or
several other customers.59
After finding that Deutsche Post was behaving in a discriminatory
manner by charging different prices to equivalent transactions to the
disadvantage of trading parties,60 the Commission said that even in the
absence of negative effects on trading parties indent (c) of Article 82
was violated where consumers are harmed.61 In reaching that
conclusion, the Commission referred to the ECJ’s judgment in Deutsche
Post AG v Citicorp.62 Here, the Court concluded that discriminatory
treatment of different mail categories may constitute an abuse under
Article 82 without addressing the question whether the sender was a
56 Deutsche Post AG OJ [2001] L331/40, [2002] 4 CMLR 598.
57 Ibid. recital 130.
58 Fox, supra note 44, page 1008.
59 Alison Jones and Brenda Sufrin, EC Competition Law (Oxford University Press, 2nd ed, 2004)
page 411.
60 Deutsche Post, supra note 56, recital 127.
61 Ibid. recital 134.
62 Joined Cases C-147-148/97 Deutsche Post AG v Gesellschaft für Zahlungssysteme mbH and
Citicorp Kartenservice GmbH [2000] ECR I-825.
242
trading partner of Deutsche Post AG or not.63 By referring to Deutsche
Post AG v Citicorp, which did not address the third condition of Article
82(2)(c), it is not entirely clear whether the Commission considered it
unnecessary to examine whether trading parties are placed at a
competitive disadvantage. If so, then the Commission is basically saying
that it is not necessary to apply strictly the conditions imposed by Article
82(2)(c).64 This interpretation has been supported by Advocate General
Van Gerven in his Opinion in Corsica Ferries Italia Srl v Corpo dei Piloti
del Porto di Genova:65
It appears implicitly from the Community case-law, ...that the
Court does not interpret that phrase [other trading parties,
thereby placing them at a competitive disadvantage] restrictively,
with the result that it is not necessary, in order to apply it, that
the trading partners of the undertaking responsible for the abuse
should suffer a competitive disadvantage against each other or
against the undertaking in the dominant position.
If it is not strictly necessary to apply the conditions imposed by Article
82(2)(c) it means that indent (c) can be applied to dominant firms’
pricing practices, which have little to do with putting their trading parties
at a competitive disadvantage. In that case, one may wonder what
competitive disadvantage means. If it means that discrimination, in
itself, necessarily implies some kind of competitive disadvantage for the
trading parties which are discriminated against, then the question
remains why the drafters of the EC Treaty included a requirement of
competitive injury if it adds nothing to the essence of discrimination?
In Deutsche Post AG the third condition of indent (c) was fulfilled as
there was evidence of direct harm to both trading parties and
63 The Court did not address the two other conditions in Article 82(2)(c). Ibid. paragraphs 59-60.
64 Santiago Martinez Lage and Rafael Allendesalazar, ‘Community Policy on Discriminatory Pricing:
a Practitioner's Perspective’, paper presented at the 2003 Annual EU Competition Law and Policy
Workshops - What is an Abuse of a Dominant Position? (Florence) page 15.
65 Opinion of Advocate General Van Gerven in Case C-18/93 Corsica Ferries Italia Srl v Corpo dei
Piloti del Porto di Genova, delivered on 9 February 1994, paragraph 34.
243
consumers. The Commission made clear that it would have found a
violation of Article 82(2)(c) even in the absence of harm to trading
parties, if there was harm to consumers. The Commission thereby
ensured that in future cases where it is not possible to prove direct harm
to trading parties, Article 82(2)(c) is violated if consumer harm can be
proven. This is a deviation from the wording of indent (c).66
Unlike indent (b) of Article 82,67 indent (c) does not mention consumers,
but trading parties. If it is not necessary to show that trading parties are
placed at a competitive disadvantage to breach indent (c), even where
trading parties are directly mentioned in the wording, then perhaps it is
not necessary to show prejudice to consumers under indent (b) either.
The Community Courts have, since Continental Can, held that not only
conduct which harms consumers directly, but also conduct which harms
consumers indirectly, by altering the structure of the market, is
prohibited by Article 82.68 Neither the Community Courts nor the
Commission have held that Article 82(2)(b) is violated in the absence of
effects (direct or indirect) on the consumer, but only that it is not
necessary to show effects on the competitive structure where there is
direct prejudice to consumers:69
While the application of Article 82 often requires an assessment of
the effect of an undertaking's behaviour on the structure of
competition in a given market, its application in the absence of
such an effect cannot be excluded. Consumers' interests are
protected by Article 82, such protection being achieved either by
prohibiting conduct by dominant undertakings which impairs free
and undistorted competition or which is directly prejudicial to
consumers. Accordingly, and as has been expressly recognised by
the Court of Justice, Article 82 can properly be applied, where
66 There is an argument that if consumer harm can be proven then it should be possible to prove
harm to trading parties, as it is assumed that it is more difficult to prove consumer harm than harm
to trading parties. This argument will be considered later in this section.
67 Article 82(2)(b) ‘limiting production, markets or technical development to the prejudice of
consumers’.
68 This was recently reiterated in Case C-95/04P British Airways plc v Commission, paragraph 104.
69 1998 Football World Cup OJ [2000] L5/55, recital 100.
244
appropriate, to situations in which a dominant undertaking's
behaviour direct prejudices the interests of consumers,
notwithstanding the absence of any effect on the structure of
competition.
The question is whether the Commission intended to get a similar
message across in Deutsche Post AG, meaning that it is not necessary in
indent (c) to prove that trading parties are placed directly at a
competitive disadvantage, but it is enough to show that trading parties
are placed at a competitive disadvantage indirectly. In that case, why
did the Commission not distinguish between direct and indirect harm to
trading parties, let alone prove that in most situations trading parties
may be placed at a competitive disadvantage indirectly where
consumers are harmed. Instead, the Commission said that in the
absence of negative effects on trading parties, indent (c) is violated
where consumers are harmed.
The Commission’s finding in Deutsche Post AG that it would have found
a violation of Article 82(2)(c) even in the absence of harm to trading
parties was refined by the ECJ in British Airways.70 British Airways’ fifth
ground of appeal was that the Commission had not done enough to show
that the third condition of Article 82 ‘competitive disadvantage’ between
travel agents resulting from the reward schemes, was violated.71 The
ECJ held:72
[I]n order for the conditions for applying subparagraph (c) of the
second paragraph of Article 82 EC to be met, there must be a
finding not only that the behaviour of an undertaking in a
dominant market position is discriminatory, but also that it tends
to distort that competitive relationship, in other words to hinder
the competitive position of some of the business partners of that
undertaking in relation to the others.
70 British Airways, supra note 68, paragraph 142.
71 Ibid. paragraph 142.
72 British Airways, supra note 68, paragraphs 144-145.
245
In that respect, there is nothing to prevent discrimination
between business partners who are in a relationship of
competition from being regarded as being abusive as soon as the
behaviour of the undertaking in a dominant position tends, having
regard to the whole of the circumstances of the case, to lead to a
distortion of competition between those business partners. In
such a situation, it cannot be required in addition that proof be
adduced of an actual quantifiable deterioration in the competitive
position of the business partners taken individually.
The Court said that discrimination alone is not enough, it must also be
shown that the competitive position of the business partners is distorted.
This does not have to be an actual quantifiable deterioration of the
business partners. It is enough to demonstrate that the reward schemes
tend to lead to a distortion of competition between travel agents, and
additional proof of an actual quantifiable deterioration is not required. It
is sufficient to prove that other trading parties are placed at a
competitive disadvantage indirectly. The Court did not link competitive
disadvantage to consumer harm, but said that Article 82(2)(c) does not
require actual quantifiable competitive disadvantage. This is nothing
more than indicating that Article 82(2)(c) is violated where there is an
indirect competitive disadvantage on trading parties. This is also the
position taken under Article 82(2)(b) where it is enough to show indirect
prejudice to consumers.
This section has examined whether the expression ‘thereby placing them
at a competitive disadvantage’ has an independent content or just a
declaratory effect. The ECJ made clear in British Airways that Article
82(2)(c) is violated where the competitive position of the business
partners of the dominant undertaking have been hindered by the
discrimination. Despite there being no requirement of actual harm, the
third condition of Article 82(2)(c) does have an independent content.
The EC Treaty gives competition authorities and courts a direct route to
condemn discrimination where it hinders the competitive position of
business partners. This has led some to argue that ‘the self-made
246
Commission/Court abridged version of Article 82(2)(c) might best be
seen in terms of an underlying tendency to seek to preserve an existing
market structure, a kind of policy of protecting towards the distributor….
If so, this is not a policy that is connected with competition or consumer
welfare’.73
The Court has determined that Article 82(2)(c) is already infringed when
the discriminatory behaviour tends to distort competition between
trading parties. If competition authorities ignore this and delay
intervention in the market until they have evidence of likely consumer
harm, they run the risk of complaints about failure to act from third
parties. The failure to act being the lack of enforcement of Article
82(2)(c) where there is evidence of competitive distortion to trading
parties.
Conclusion
This chapter found that economic freedom is not used to enhance
consumer welfare, because individual economic freedom is an end in
itself. The finding is based on five observations. First, economic freedom
is conceptually and theoretically distinct from consumer welfare. Second,
the ECJ has not interpreted the protection of the competitive process
instrumentally by treating the restriction of choice synonymously with
the restriction on the competitive outcome. Third, the Court has not
protected the economic freedom of the market participants only to the
point that it is productively and allocative efficient to do so in order to
benefit consumer welfare. Fourth, the Court has interpreted the process
of competition intrinsically to protect competition in the long term. Fifth,
the wording of Article 82(2)(c) requires trading parties to be protected
against discrimination from dominant undertakings.
73 Brian Sher, ‘Price Discounts and Michelin 2: what Goes Around, Comes Around’ 23(10) European
Competition Law Review (2002) 482, pages 487-488.
247
These main findings lead to an overall conclusion that only if the ECJ
decides to support DG Competition’s move away from economic freedom
and overrule earlier case law will DG Competition’s move to consumer
welfare be a reality. The Commission certainly has the freedom to decide
its enforcement policy, but if its administrative practice were to change,
the Commission would still have to act within the framework prescribed
for it by Article 82 as interpreted by the ECJ,74 unless the Community
Courts support the Commission’s move towards consumer welfare.
74 This was highlighted by Advocate General Kokott in her Opinion in British Airways, supra note
39, paragraph 28.
248
Chapter 7 Thesis Conclusion
1. Summary of Findings
This thesis discussed whether there is a tension between protecting
economic freedom and the promotion of consumer welfare in the
application of Article 82. The aim of the research question was a
consideration of the legitimacy of DG Competition’s embracing consumer
welfare when considering exclusionary abuses within the terms of Article
82.
In order to answer the research question, the thesis considered the
theory behind the objective of economic freedom and the theory behind
the objective of consumer welfare. It assessed which objective shaped
the development of the early jurisprudence where the law of Article 82 is
to be found. It finally examined how this fits with current aspirations for
consumer welfare. Based on these considerations, the thesis found:
1. the origin of economic freedom, as a concept in the sphere of
competition law, is mostly attributable to the theory of ordoliberalism
which valued individual economic freedom as a fundamental right;
2. ordoliberalism influenced German competition law which in turn
inspired Community competition law;
3. despite influence of ordoliberal theory, Article 82 is not an
implementation of ordoliberalism as the EC Treaty is not based on the
ordoliberal economic constitution;
4. the case law analysis in this thesis found that Article 82 has been
interpreted by the Commission, and upheld by the Community
Courts, in such a way as to protect the economic freedom of both
customers and competitors;
249
5. economic freedom is not considered a fundamental right in the
Community legal order as economic freedom is protected by neither
the EC Treaty nor the general principles of the EU;
6. economic freedom and consumer welfare pursue fundamentally
different values. While economic freedom aims at protecting the
individual undertaking’s economic freedom, consumer welfare takes a
neo-classical position which values welfare without giving any
consideration to the position of individuals;
7. pursuing an objective of economic freedom focuses on the process of
competition, whereas pursuing an objective of consumer welfare
focuses on the outcome of competition;
8. pursuing an objective of consumer welfare requires the competition
authority to focus on the effects of the conduct on consumers;
9. the Discussion Paper talks about consumer welfare in the form of
consumer surplus and allocative efficiency, which is distinct from total
welfare where producer and consumer surplus are of equal
importance;
10. the practices of the Commission show that it still focuses to a
considerable extent upon the form of the dominant undertaking’s
conduct, rather than the effects of its conduct;
11. economic freedom has not been interpreted as a means to the end
of consumer welfare; and
12. the Commission and the Community Courts have not protected the
economic freedom of the market participants only to the point where
it is dynamically, productively and allocative efficient to do so in order
to benefit consumer welfare.
These findings were fundamental to assessing whether there is a tension
between protecting economic freedom and the promotion of consumer
welfare in the application of Article 82 and in assessing the legitimacy of
the Commission’s current aspirations of consumer welfare.
250
Based on the findings, the thesis demonstrated that there is such a
tension. Given this, it is concluded that if the Commission decides to
follow DG Competition’s policy statement of consumer welfare when
enforcing Article 82, then it is departing from jurisprudence such as
Commercial Solvents, Hoffmann-La Roche, United Brands and Michelin I,
case law on which the Community Courts still rely heavily. Economic
freedom is considered to be an objective under Article 82, because it has
not been interpreted as a means to the end of consumer welfare.
Departing from the jurisprudence requires support from the ECJ. The
Commission certainly has the freedom to decide its enforcement policy,
but if its administrative practice were to change, the Commission would
still have to act within the framework prescribed for it by Article 82 as
interpreted by the ECJ.
2. Elaboration of Findings
In order to come to the first finding, chapter two looked at
ordoliberalism and its competition law model and argued:1
Ordoliberals encouraged open access to the market, as they
believed that this would be the best control of private and political
power. In their view the aim of competition policy was not
economic efficiency, but rather the limitation and control of
private power, or at least of its harmful effects, in order to protect
individual economic freedom in the interest of a free and fair
political and social order.
The origin of ordoliberalism was in humanist values rather than
economic efficiency. For ordoliberals the economic constitution
had constitutional status and should protect the individual's
freedom to compete.
It also found that the main objective of the ARC was the protection of
economic freedom. German competition law, which influenced
Community competition law, was influenced by ordoliberalism.
1 See chapter two, pages 50-51.
251
While many Community competition scholars and practitioners would
agree that ordoliberalism has influenced EC competition law, they argue
that, in order to make Article 82 more economics-based, the time has
come to depart from the protection of individual economic freedom of
action as a value in itself as articulated by ordoliberals. This view has
been embraced by DG Competition in its Discussion Paper which states: 2
With regard to exclusionary abuses the objective of Article 82 is
the protection of competition on the market as a means of
enhancing consumer welfare and of ensuring an efficient
allocation of resources.
Consumer welfare has received some support from the Community
Courts when interpreting Article 81,3 but less so under Article 82 where
the Commission and the CFI still focus to a considerable extent upon
foreclosure only and not anti-competitive foreclosure and the intentions
of the dominant undertaking, rather than the effects of its conduct.
The Discussion Paper is predicated on the idea that the law is clear and
there is no ambiguity as to the goals of Article 82, but, as shown in
chapter three, the objective of consumer welfare is not entirely in tune
with the case law of Article 82:4
The cases show that the Court has interpreted Article 82 to
protect economic freedom, freedom of competition and the
process of competition, which are all cornerstones of
ordoliberalism. The essence of the competitive process is to allow
competitors to enter the market to compete within the market.
Embracing the objective of consumer welfare as the main goal when
assessing exclusionary conduct within Article 82 would be a departure
from the jurisprudence and according to ordoliberal scholars would
2 Discussion Paper on the Application of Article 82 of the Treaty to Exclusionary Abuses (December,
2005) paragraphs 4 and 54.
3 Case T-168/01 GlaxoSmithKline Services Unlimited v Commission, paragraph 118.
4 See chapter three, page 127.
252
violate a fundamental right. It would require support from the ECJ as
only the Court can decide whether its case law is in need for change and
the Commission must act within the framework of the case law.
To find support for the Commission’s change, many Community lawyers
and, in particular, economists argue that economic freedom and
consumer welfare do not always contradict each other. The view that
economic freedom could be an intermediate objective of economic
efficiency in the form of consumer welfare is opposed by a leading
ordoliberal scholar who argues:5
The real motives behind the enactment of antitrust law were …
not economic efficiency and the effectiveness of economic
control, but social justice and civil liberties which were held to be
threatened by monopolies.
Those who argue that economic freedom and economic efficiency do not
necessarily conflict usually assess economic efficiency in the form of
total welfare as articulated by the Chicago School. Chapter four showed
that the welfare standard suggested by the Commission is not the total
welfare standard because the welfare of the output producer is not taken
into account:6
Given that consumers include purchasers on both the wholesale
and retail level, but not the output producer, in stating that
consumers must benefit, the ECJ dedicates itself to the consumer
welfare standard.
Having considered the theory behind the objective of consumer welfare
as well as that of economic freedom, it became clear that the two
objectives pursued fundamentally different values. While economic
freedom aims to protect the individual undertaking, consumer welfare
takes a neo-classical position which values welfare without taking into
5 Franz Böhm, ‘Democracy and Economic Power’ in Cartel and Monopoly in Modern Law (CF Muller
Karlsruhe, 1961) page 28.
6 See chapter four, page 154.
253
consideration the position of individuals. Whilst consumer welfare may
ignore the position of the individual undertaking in the market, chapter
six considered whether economic freedom could be tweaked to include
efficiencies in such a way that economic freedom could be said to
enhance consumer welfare. It found:7
Standard economics states that by protecting a competitor
through the act of curtailing the power of the near monopolist,
the consumer may benefit through increased choice and a
reallocation of profits from the monopolist to alternative
competitors. As these competitors will not have the ability to reap
monopoly profits, these profits would be expected to be passed
back to the consumer through reduced prices. If these effects
outweigh the value of any above-cost discount offered by the
near monopolist, consumers could gain from overall price
reductions. While the move to protect suppliers may increase
choice and potentially improve allocative efficiency through lower
prices, this is not guaranteed. Nor is it guaranteed that dynamic
movements towards productive efficiency will be facilitated best
in this way. In some circumstances, it is plausible that the
protected competitors will become efficient over time. However, it
is also possible that the most productive way of supplying
customers will be through one single supplier, particularly when
economies of scale are great. Depending on which of these effects
is the greatest the consumer could then actually gain or lose from
such measures.
This led to the finding that there exists a tension between protecting
economic freedom and promoting consumer welfare because:8
[P]ursuing an objective of economic freedom cannot be tweaked
to include efficiencies to the benefit of consumer welfare. When
pursuing an objective of economic freedom, the process is of
intrinsic value and it excludes a change of the overarching
principle to protect competitors only to the point where it is
productively and allocative efficient to do so.
Although this finding established the tension between the two objectives,
it was not conclusive as to the status of economic freedom in the
Community legal order. Given that chapter two showed that ordoliberal
scholars considered economic freedom to be a fundamental right,
7 See chapter six, page 228.
8 Ibid. page 230.
254
chapter five had to examine whether the objective of economic freedom
had a similar status in the Community legal order. If economic freedom
could be considered a fundamental right in the Community legal order,
the promotion of consumer welfare would not only be a departure from
the jurisprudence, given that economic freedom is not used to enhance
consumer welfare, but would also be a violation of a fundamental right in
the ordoliberal sense.
The analysis of the status of economic freedom in the Community legal
order started by examining the EC Treaty and led to the finding:9
[W]hilst Community competition law is influenced by
ordoliberalism, it is not an implementation of ordoliberalism and
the EC Treaty is not a Treaty based on the ordoliberal economic
constitution.
This finding made clear that Article 82 is not a direct replica of
ordoliberal ideology, but it did not exclude the possibility of economic
freedom being a fundamental right in the Community legal order, where
it formed part of the general principles of the EU. Thus, chapter five had
to examine the different sources where the ECJ finds inspiration for the
general principles of the EU: the ECHR, the Charter and the constitutions
of the Member States. The examination found that neither the ECHR nor
the Charter protects economic freedom.
The ECJ does not automatically refuse legal status to rights which are
not expressly protected in the ECHR or the Charter. Thus, it was
necessary to examine whether economic freedom was protected in the
German constitution, as the ECJ is prepared to protect fundamental
rights in the Community legal order if these are recognised and
protected by the constitutions of the Member States.
9 See chapter five, page 220.
255
Analysing the German constitution, the so-called Basic Law, revealed
that economic freedom is not directly protected. Instead the Basic Law
protects a general right of liberty. It established that it is most likely that
economic freedom is covered by the general right of liberty, as this right
has been interpreted broadly. Despite this finding, chapter five
concluded that economic freedom is unlikely to have status as a
fundamental right in the Community legal order. This conclusion was
based on the knowledge that the ECJ is unlikely to elevate a right to
have status as a fundamental right, if it is protected only in one Member
State’s constitution.10
3. Consequences of Adopting a Consumer Welfare Standard
The need to protect individual economic freedom grew after World War
II. Historically this is not surprising as such a right could not be taken for
granted during World War II. Today some argue in favour of a divorce of
economic issues such as efficiency and wealth creation from non-
economic issues within the area of competition law.11 In the light of this,
the ordoliberal ideology, which emphasises the interdependence between
economic structures and human values, may seem less than ideal now
compared to how it appeared in a devastated Germany after World War
II.
Whilst DG Competition’s policy must be credible, effective and legitimate
and therefore be dynamically shaped to reflect the prevailing market
characteristics of the EU at any one point in time, since it is apparent
that the successful adoption and application of a particular competition
10 This thesis did not consider other Member States’ constitutions, not because it would be
irrelevant, but because the argument that economic freedom is considered a part of the general
principles of the EU would be even harder to make given the finding that the German constitution
only protects economic freedom indirectly via the general right of liberty.
11 See for example Simon Bishop and Mike Walker, The Economics of EC Competition Law (Sweet &
Maxwell, 2nd ed, 2002); Okeoghene Odudu, The Boundaries of EC Competition Law (OUP, 2006).
256
policy is a question of context-specific economic conditions, the
ordoliberal influence on Community competition law cannot be denied.
Ordoliberalism continues to be a well-respected legal tradition. It holds
both that government needs to be restrained from abuse of power, and
that the free market has its limits. Economic rights deserve protection,
and vigilance is needed to ensure economic power is not misused or
abused.
Besides ignoring the objective of economic freedom and departing from
Article 82 jurisprudence, to focus mainly on consumer welfare would
require the application of economic theory to factual situations
measuring adverse effects on the market. This would necessitate a case-
by-case analysis and it would mean that every case would turn on its
own merits. A departure from economic freedom is significant and not
merely cosmetic: it can reduce considerably the scope of the abuse
concept which may lead to more of the type I errors defined in chapter
one.12
A legal system's approach to resolving conflicts between objectives is
usually determined by a combination of political preferences and
intuitions about the ability of government and markets to correct
competitive failures. Successive schools of thought have exercised
considerable influence over these questions. In the US, the legal
approach has been influenced by the Chicago School, described in
chapter four. The Chicago School has substantial confidence in the
robustness of markets to withstand and correct monopolistic distortion
and little faith in the ability of governments to intervene in a way that
improves upon market outcomes. In that framework, the risk of type I
errors is preferable to the risk of type II errors. As noted, by adopting an
objective of consumer welfare the Commission enforcement of Article 82
12 See chapter one, page 14.
257
is likely to move slightly towards a system where the risk of type I errors
is preferable to the risk of type II errors.
Once it is accepted that economic freedom is not a means to the end of
consumer welfare within Article 82, a substantive test for exclusionary
conduct cannot be based on the likely adverse effect of the conduct on
consumers. Such a test would be incompatible with the protection of the
economic freedom of undertakings, as conduct by dominant
undertakings is not regarded as unlawful unless it can be shown to have
likely adverse effects on consumers. A test based on likely adverse
effects on consumers would ignore the aim of economic freedom, as
economic freedom can be restricted without it necessarily having
adverse effects on the consumer.
DG Competition has already announced in its Discussion Paper that
consumer welfare will be the overarching objective when pursuing
exclusionary abuse under Article 82. This is nothing more than a policy
statement in a discussion paper, which is legally non-binding and has no
legal status capable of creating legitimate expectations.13 DG
Competition has not committed itself or given any assurance as to the
application of the analytical approach described in the Discussion
Paper.14 Even so, it is an indication of the Commission’s current thinking.
If consumer welfare is to be accepted as the main objective when
examining exclusionary abuses, it is imperative for its success that the
Community Courts support the Commission in its application of this
objective.
Until – and if – the Commission gets support from the Community
Courts, it is suggested that the Commission should arrive at a clear and
13 According to Article 249 EC only regulations, directives and decisions are legally binding
measures in the EU.
14 Discussion Paper, supra note 2, paragraph 2; Case T-209/01 Honeywell International INC v
Commission, paragraph 100.
258
consistent internal position on how to enforce Article 82 and should issue
guidelines. While it may be difficult to produce guidelines on the law
compared to guidelines on prosecutorial policy, this is necessary if the
Commission wants to change its enforcement on Article 82 to promote
consumer welfare. While the adoption of guidelines will not alter the fact
that the Commission needs support from the Community Courts, it will
show that the Commission is determined to adopt a more economics-
based approach to Article 82. If the Commission does not issue
guidelines, it might send the signal that the Commission is not itself
ready to commit to a policy of pursuing a consumer welfare objective.
A Commission official has stated that if the Commission is going to issue
guidelines on Article 82 it will not be guidelines on its prosecutorial
discretion, but guidelines on the substance of the law.15
4. Guidelines
Some argue that it is unacceptable for the Commission to derogate from
older case law by means of soft law such as guidelines.16 However, as
argued in chapter one, the Community Courts rarely articulate their
stand as to the objectives, so ambiguities remain. Given these
ambiguities, it is perfectly reasonable for the Commission to take a view
by issuing guidelines. If the Community Courts disagree with the
Commission’s view, they can overturn it in future judgments.
Having suggested that guidelines would be a possible way forward, the
Commission would be under no obligation to issue guidance and it is still
15 Joint CLF-ECA meeting on 19 April 2005, London. The identity of the official cannot be revealed
as the meeting was held under the Chatham House rule.
16 Francis Snyder, ‘Soft Law and Institutional Practice in the European Community’ in Martin (ed),
The Construction of Europe, Essays in Honour of Emil Noel (1994) pages 199–201.
259
unknown whether guidelines will be issued at a later stage.17 However, if
guidelines are issued they would bind the Commission.18
Guidelines will be difficult to produce, but this is exactly what drives the
imperative for them. Guidelines would be desirable given that the
Commission does not regard itself as being bound by its previous
decisions.19 Moreover, chapter one found that the tools available for
reforming Article 82 are limited and there is no secondary legislation
under Article 82, and suggested the possibility of guidelines. Guidelines
should seek to ensure that businesses have sufficient information to
arrange their affairs in such a way that the risks of unintentional
infringement are minimised as are the costs of unnecessary enforcement
action or misconceived complaints.
Guidelines would acknowledge the general principle of legal certainty
under Community law, which requires that firms should, to the greatest
possible extent, be able to judge whether their conduct is legal or not
when they decided to engage in it.20 Guidelines would provide greater
transparency and predictability in the form of legal certainty to European
companies and their advisers.21 Legal certainty is important as it is vital
for the undertakings in the market – dominant or not – to know the legal
17 Commission Discussion Paper on Abuse of Dominance - Frequently Asked Questions, MEMO of
19 December 2005 MEMO/05/486. Available at:
http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/05/486&format=HTML&aged=1&l
anguage=EN&guiLanguage=en.
18 Case C-189/02 Dansk Roerindustri A/S and Others v Commission [2005] ECR I-5425, paragraph
211.
19 Case T-210/01 General Electric v Commission [2005] ECR II-5575, paragraph 118. 20 Takis Tridimas, The General Principles of EC Law (New York: Oxford University Press, 1999)
pages 165-166.
21 John Temple Lang, ‘Legal Certainty and Legitimate Expectations as General Principles of Law’ in
Ulf Bernitz and Joakim Nergelius (eds), General Principles of European Community Law (Kluwer Law
International, 2000) pages 163-184.
260
framework within which they can operate.22 Decisions on innovation and
investment involve business risks and undertakings are less likely to be
willing to take these risks if they cannot calculate the risk of future legal
sanctions. Enhancing legal certainty reduces the legal risks, facilitating
innovation and investment.23 For competition policy to be effective it will
need support from the business community, which will only happen
when businesses understand the Commission’s policy.
While guidelines would not minimise the tension between the protection
of economic freedom and the promotion of consumer welfare, they
would make it more likely for the underlying objectives (whether that is
consumer welfare or something else) to be realised, as noted in chapter
one. Guidance is particularly important in this regard as the national
courts and competition authorities of the Member States cannot take
decisions running counter to Commission decisions.24
Regardless of the difficulties, it would be advisable for the Commission
to issue guidelines if national authorities and courts are to achieve a
similar outcome with Community practice in future cases as they will
need to know what the Commission is trying to achieve. Moreover, when
national courts are called upon to apply Community competition law,
they can seek guidance in the case law of the Community Courts or in
Commission regulations, decisions, notices and guidelines applying the
competition rules.25 Where these tools do not offer sufficient guidance,
22 Case T-51/89 Tetra Pak Rausing SA v Commission [1990] ECR II-309, [1991] 4 CMLR 334,
paragraph 36; Joined Cases 212/80 to 217/80 Amministrazione delle Finanze dello Stato v Srl
Meridionale Industria Salumi and others; Ditta Italo Orlandi & Figlio and Ditta Vincenzo Divella v
Amministrazione delle finanze dello Stato [1981] ECR 2417, paragraph 10; Cases 209/84 to 213/84
Ministère Public v Asjes and Others (Nouvelles Frontières), paragraph 64.
23 OJ [2003] L1/1 Council Regulation on the Implementation of the Rules on Competition Laid
Down in Article 81 and 82 of the Treaty, recital 38.
24 Ibid. recital 22 and Article 16.
25 OJ [2004] C101/54 Commission Notice on the Co-operation between the Commission and the
Courts of the EU Member States in the Application of Articles 81 and 82 EC, recital 27.
261
the national court may ask the Commission for its opinion on questions
concerning the application of Community competition law. The national
court may ask the Commission for its opinion on economic, factual and
legal matters.26 The courts of the Member States may also ask the
Commission to ‘transmit to them information in its possession or its
opinion on questions concerning the application of the Community
competition rules’.27 Given that the Commission has not sought to
publish general secondary legislation or practical guidance under Article
82, apart from in some specific sectors,28 the number of requests from
national courts is likely to increase if the national courts are given
insufficient information about how to assess exclusionary conduct by
dominant undertakings. Besides asking the Commission for its opinion
on economic, factual and legal matters, national courts may refer
questions to the ECJ under Article 234 procedure.
5. Contribution to the Article 82 Discussion
Competition law is supposed to protect competition and not competitors,
but the Commission has been criticised for protecting the latter more
than the former when enforcing Article 82. It has been suggested that
the adoption of a more economics-based approach to Article 82 would
ensure that the provision was enforced to protect competition instead of
26 Case C-234/89 Stergios Delimitis v Henninger Bräu AG [1991] ECR I-935, paragraph 53; Joined
Cases C-319/93, C-40/94 and C-224/94 Hendrik Evert Dijkstra v Friesland (Frico Domo) Coöperatie
BA and Cornelis van Roessel and others v De coöperatieve vereniging Zuivelcoöperatie Campina
Melkunie VA and Willem de Bie and others v De Coöperatieve Zuivelcoöperatie Campina Melkunie BA
[1995] ECR I-4471, paragraph 34. 27 Council Regulation 1/2003, supra note 23, Article 15.
28 Such as postal services and telecommunications, OJ [2002] C165/03 Commission Guidelines on
Market Analysis and Assessment of Significant Market Power under the Community Regulatory
Framework for Electronic Communications Networks and Services, paragraph 70, and EC Directive
2002/21 on a Common Regulatory Framework for Electronic Communication Service (the
Framework Directive).
262
competitors.29 To move towards a more economics-based approach, the
DG Competition has suggested that the main objective of Article 82
when assessing exclusionary abuses should be consumer welfare. That
suggestion appears to ignore the fact that economic freedom has also
been an objective pursued in Article 82 jurisprudence.
By revealing that a tension between the protection of economic freedom
and the promotion of consumer welfare exists, because the two
objectives pursue fundamentally different values, it was possible to
clarify that those who think that Article 82 has always been about
economic efficiency are mistaken. This does not take away the possibility
that the Commission may change its enforcement policy towards Article
82, if it believes that Article 82 should be about economic efficiency in
the form of consumer welfare. However, the Commission needs to
acknowledge that economic freedom rooted in the ordoliberal tradition
has a place in Article 82 and that it must reconcile the tension between
the two objectives in order for the policy review of Article 82 to be
successful.
It would be a mistake to think that the finding that there is a tension
between the two objectives also clarifies the conflict between them
within the scope of Article 82, but it is hoped that the discussion has
moved a great deal closer to understanding that such a tension exists.
There is still much work to do. As noted, the Commission must issue
guidelines in order to provide a minimum level of clarity in this area of
law.
29 This was suggested in the OECD Report on Competition Law and Policy in the European Union
(October, 2005) page 30. Available at: http://www.oecd.org/dataoecd/7/41/35908641.pdf.
263
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Conference Reports
IBC conference Report on Advanced EC Competition Law (4-5 May, 2006)
Speeches
K Kroes, Neelie ‘Preliminary Thoughts on Policy Review of Article 82’, 23
September 2005, Fordham Corporate Law Institute New York (speech/05/537)
Kroes, Neelie ‘European Competition Policy in a Changing World and
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Lowe, Philip ‘New Challenges in Europe’, 24 June 2005, King’s College London
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11 May 2006, ST Gallen Competition Law Forum
Lowe, Philip ‘Consumer Welfare and Efficiency – New Guiding Principles of
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Competition and 14th European Competition Day
M
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Paybacks. The European Dimension’, 30 September – 1 October 2003, the
International Institute of Communications 34th annual conference
Monti, Mario ‘The Future for Competition Policy in the European Union’, 9 July
2001, Merchant Taylor's Hall (speech/01/340)
Monti, Mario ‘Competition and the Consumer: What are the Aims of European
Competition Policy?’, 26 February 2002, Madrid Casino de Madrid
(speech/02/79)
Monti, Mario ‘Proactive Competition Policy and the Role of the Consumer’, 29
April 2004, Dublin Castle (speech/04/212)
Monti, Mario ‘Comments to the Speech given by Hew Pate, Assistant Attorney
General, US Department of Justice, at the Conference “Antitrust in a
Transatlantic context”’, 7 June 2004, Brussels
P
Paulis, Emil ‘The Burden of Proof in Article 82 Cases’, 13 September 2006,
Fordham Corporate Law Institute New York
R
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April 2004, Dublin Castle
Rule, Charles F ‘Consumer Welfare, Efficiencies, and Mergers’, 17 November
2005, the hearing of the Antitrust Modernization Commission
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Van Miert, Karel ‘The Future of European Competition Policy’, 17 September
1998 (speech/98/1351)
279
W
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Non-Community Legislation, Guidelines, Court Judgments
and Reports
United States
Continental TV Inc v GTE Sylvania Inc 433 US 36 (1977)
Illinois Brick Co v Illinois 431 US 720 (1977)
United States v Topco Associates Inc 405 US 596 (1972)
Reiter v Sono-tone Corporation 442 US 330 (1979)
Brooke Group Ltd v Brown & Williamson Tobacco Corporation 509 US 209
(1993)
France
Ordinance n° 45-1483 of 1945
Ordinance n° 86-1243 of 1986
Loi n° 2001-420 du 15 mai 2001 relative aux Nouvelles Régulations
Economiques, JO n° 113 du 16 mai 2001 page 7776
French Competition Commission’s decision ‘Avis de la Commission de la
concurrence du 14 mars 1985 sur les super-centrales d'achat’
Germany
The Grundgesetz, promulgated by the Parliamentary Council on 23 May 1949
The Draft of an Act to Protect Competition Based on Performance and an Act
Concerning the Monopoly Office (Bundeswirtschaftsminister publication, Bonn
1949)
Verordnung gegen Missbrauch wirtschaftlicher Machtstellungen,
Reichsgesetzblatt [RGB1.] I, 1067 (2 November 1923)
Gesetz gegen Wettbewerbsbeschränkungen [GWB], 1957 Bundesgesetsblatt
[BGB1.] I 1081 (West Getmany)
6 BVerfGE 32 Elfes (1957)
37 BVerfGE 271 Solange I (1974)
WuW/E BGH 1276 Ölfeldrohre (1973)
WUW/E BGH 1435 Vitamin B12 (1976)
280
WUW/E OLG 1767 Kombinationstarif (1977)
WUW/E OLG 1983 Rama-Mädchen (1978)
73 BVerfGE 339 Solange II (1986)
OECD Reports
OECD Report on Market Power and the Law (1970)
OECD Report on Abuse of Dominance and Monopolisation (1996)
OECD Report on The Objectives of Competition Law and Policy (2003)
OECD Report on The Role of Competition Policy in Regulatory Reform (2004)
OECD Report on Competition on the Merits (2005)
OECD Report on Competition Law and Policy in the European Union (2005)
UNICTAD
UNICTAD, Objectives of Competition Law and Policy: Towards a Coherent
Strategy for Promoting Competition and Development (OECD, 2003)
UNICTAD, Model Law on Competition (United Nations, 2004)
Community Legislation
EC Treaties
Treaty establishing the European Coal and Steal Community (ECSC Treaty)
Treaty establishing the European Community (EC Treaty) consolidated version
[2002] OJ C325/33
The Treaty of Amsterdam OJ [1997] C340/1
Treaty on European Union, consolidated version OJ [2002] C325/5
Treaty establishing a Constitution for Europe OJ [2004] C310/1
EC Directives
EC Directive 2002/21 on a Common Regulatory Framework for Electronic
Communication Service (the Framework Directive)
Council Regulations (chronological)
OJ Special Edition [1962] No 204/62 Council Regulation No 17/62 First
Regulation Implementing Articles 81 and 82 of the Treaty
281
OJ [1999] L336/21 Commission Regulation No 2790/1999 on the Application
of Article 81(3) to Categories of Vertical Agreements and Concerted
Practices
OJ [2003] L1/1 Council Regulation No 1/2003 of 16 December 2002 on the
Implementation of the Rules on Competition Laid Down in Articles 81 and 82
of the Treaty
OJ [2004] L123/11 Commission Regulation No 772/2004 of 27 April 2004 on
the Application of Article 81(3) of the Treaty to Categories of Technology
Transfer Agreements
OJ [2004] L24/1 Council Regulation No 139/2004 on the Control of
Concentrations between Undertakings
Conventions and Agreements
OJ [2000] C364/1 Charter of Fundamental Rights of the European Union
Commission Notices & Guidelines (chronological)
OJ [1997] C372/5 Commission Notice on the Definition of the Relevant
Market for the Purpose of Community Competition Law
OJ [2000] C291/1 Commission Notice Guidelines on Vertical Restraints
OJ [2001] C3/2 Commission Notice Guidelines on the Applicability of Article
81 of the EC Treaty to Horizontal Co-Operation Agreements
OJ [2002] C165/6 Commission Notice Guidelines on Market Analysis and
Assessment of Significant Market Power under the Community Regulatory
Framework for Electronic Communications Networks and Services
OJ [2004] C31/5 Commission Notice Guidelines on the Assessment of
Horizontal Mergers under the Council Regulation on the Control of
Concentrations between Undertakings
OJ [2004] C101/2 Commission Notice Guidelines on the Application of Article
81 of the EC Treaty to Technology Transfer Agreements
OJ [2004] C101/43 Commission Notice on Co-Operation within the Network
of Competition Authorities
OJ [2004] C101/54 Commission Notice on the Co-operation between the
Commission and the Courts of the EU Member States in the Application of
Articles 81 and 82 EC
OJ [2004] C101/65 Commission Notice on the Handling of Complaints by the
Commission under Articles 81 and 82 of the EC Treaty
OJ [2004] C101/78 Commission Notice on Informal Guidance Relating to
Novel Questions Concerning Articles 81 and 82 of the EC Treaty that Arise in
Individual Cases
282
OJ [2004] C101/97 Commission Notice Guidelines on the Application of
Article 81(3) of the EC Treaty
Commission Press Releases & Memos (chronological)
MEMO of 22 July 1999 MEMO/99/42, Fidelity bonuses by dominant
companies are simply not on
Press release of 10 February 2000 IP/00/141, Commission examines the
impact of Windows 2000 on competition
Press release of 3 August 2000 IP/00/906, Commission opens proceedings
against Microsoft's alleged discriminatory licensing and refusal to supply
software information
Press release of 21 December 2001 IP/01/1899, High-speed Internet
Access: Commission Suspects Wanadoo (France) of Abusing its Dominant
Position
Press release of 9 July 2002 IP/02/1016, Commission issues Market Power
Assessment Guidelines for Electronic Communications
Press Release of 16 July 2003 IP/03/1025, High-speed Internet: the
Commission Imposes a Fine on Wanadoo for Abuse of a Dominant Position
Press release of 6 August 2003 IP/03/1150, Commission gives Microsoft Last
Opportunity to Comment before Concluding its Antitrust Probe
Press Release of 24 Marts 2004 IP/04/382, Microsoft
Press Release of 19 December 2005 IP/05/1626, Competition: Commission
Publishes Discussion Paper on Abuse of Dominance
MEMO of 19 December 2005 MEMO/05/486, Commission Discussion Paper
on Abuse of Dominance – Frequently asked Questions
Press Release of 29 March 2006 IP/06/398, Prokent/Tomra
MEMO of 24 March 2004 MEMO/04/70, Microsoft – Questions and Answers
on Commission Decision
Community Reports
Commission General Report on Activities of the European Communities
(1966)
1st Report on Competition Policy (1971)
8ht Report on Competition Policy (1978)
9th Report on Competition Policy (1979)
11th Report on Competition Policy (1981)
17th Report on Competition Policy (1987)
20th Report on Competition Policy (1990)
283
27th Report on Competition Policy (1997)
29th Report on Competition Policy (1999)
30th Report on Competition Policy (2000)
33rd Report on Competition Policy (2003)
Spaak Report – The Brussels Report on the General Common Market (June
1952)
EAGCP Report An economic Approach to Article 82 EC (July, 2005)
Commission Report on the Action Plan for Consumer Policy 1999-2001 and
on the General Framework for Community Activities in Favour of Consumers
1999-2003 COM(2001) 486
European Parliament and Community Documents
Competition Policy within the Framework of the Common Market, European
Parliament Document No 79/107 of 16 June 1965
Commission Memorandum to the Governments of the Member States:
Concentration of Enterprises in the Common Market (December 1965),
[1966] CMLR 26, page 8
Survey, Competition series, No 3, Brussels 1966
Competition Policy Newsletter, No 2 (summer 2006)
Commission of the EEC, Le Probleme De La Concentration Dans Le Marche
Commun No 21 (1966)
Note of 26 October 1956 by Hans Von der Groeber, Council Archives,
CM3/NEGO/217, Document MAE468 f/56
Mémo interne of 7 September 1956 by Alfred Müller-Armack, Council
Archives, CM3/NEGO/236, Document MAE/Sec. 29/56
DG Competition Discussion Paper on the Application of Article 82 of the
Treaty to Exclusionary Abuses (December 2005)
Commission White Paper on Modernisation of the Rules Implementing
Articles 85 and 86 of the EC Treaty OJ [1999] C132/1
The Presidency Conclusions of the Brussels European Council, European
Council Document No 11177/07 of 21-22 June 2007
Cases from European Court of Justice (chronological)
Case 26/62 Van Gend en Loos v Administratie der Belastingen [1963] ECR 1
Case 6/64 Costa Flaminio v ENEL [1964] ECR 585
Case 29/69 Stauder v City of Ulm [1969] ECR 419
Case 11/70 Internationale Handelsgesellschaft mbH v Einfuhr- und
Vorratsstelle für Getreide und Futtermittel [1970] ECR 1125
Case 6/72 Europemballage Corpn and Continental Can Co Inc Continental
Can v Commission [1973] ECR 215
284
Case 4/73 Nold Kohlen v Commission [1974] ECR 491
Case 6/73 Istituto Chemioterapico Italiano SpA and Commercial Solvents
Corp v Commission [1974] ECR 223
Case 40-114/73 Cooperatieve Vereniging ‘Suiker Unie’ UA and Others v
Commission [1975] ECR 1663
Case 26/75 General Motors Continental NV v Commission [1975] ECR 1367
Case 36/75 Rutili v Minister for the Interior [1975] ECR 1219
Case 26/76 Metro SB-Großmärkte GmbH & Co KG v Commission [1977] ECR
1875
Case 27/76 United Brands Co v Commission [1978] ECR 207
Case 85/76 Hoffmann-La Roche & Co AG v Commission [1979] ECR 461
Case 77/77 Benzine en Petroleum Handelsmaatschappij BV v Commission
[1978] ECR 1513
Case 106/77 Amministrazione delle finanze dello Stato v Simmenthal SpA
[1978] ECR 629
Case 22/78 Hugin Kassaregister AB and Hugin Cash Registers Ltd v
Commission [1979] ECR 1869
Case 44/79 Liselotte Hauer v Land Rheinland-Pfalz [1979] ECR 3727
Case 155/79 AM & S Europe Ltd v Commission [1982] ECR 1575
Joined Cases 212/80 to 217/80 Amministrazione delle finanze dello Stato v
Srl Meridionale Industria Salumi and others; Ditta Italo Orlandi & Figlio and
Ditta Vincenzo Divella v Amministrazione delle finanze dello Stato [1981]
ECR 2417
Case 322/81 Nederlandsche Banden-Industrie Michelin NV v Commission
[1983] ECR 3461
Case 7/82 GVL v Commission [1983] ECR 483
Case 240/83 Procureur de la République v Association de défense des
brûleurs d'huiles usagées (ADBHU) [1985] ECR 531
Case 294/83 Parti écologiste ‘Les Verts’ v European Parliament [1986] ECR
1339
Cases 209/84 to 213/84 Ministère public v Asjes and Others (Nouvelles
Frontières)
Case 311/84 Centre Belger d’Etudes de Marche Telemarketing v CLT and IPB
[1985] ECR 3261
Case 62/86 AKZO Chemie BV v Commission [1991] ECR-I 3359
Case 66/86 Ahmed Saeed Flugreisen and Silver Line Reisebüro [1989] ECR
803
Case 53/87 Consorzio italiano della componentistica di ricambio per
autoveicoli and Maxicar v Régie nationale des usines Renault [1988] ECR
6039
Case 238/87 AB Volvo v Erik Veng (UK) Ltd [1988] ECR 6211
Case C-213/89 The Queen v Secretary of State for Transport, ex parte:
Factortame Ltd and others [1990] ECR I-2433
285
Case C-234/89 Stergios Delimitis v Henninger Bräu AG [1991] ECR I-935
Case C-241-242/91P Radio Telefis Eireann (RTE) and Independent Television
Publications Ltd v Commission [1995] ECR I-743
Case C-53/92 Hilti AG v Commission [1994] ECR I-667
Joined Cases C-319/93, C-40/94 and C-224/94 Hendrik Evert Dijkstra v
Friesland (Frico Domo) Coöperatie BA and Cornelis van Roessel and others v
De coöperatieve vereniging Zuivelcoöperatie Campina Melkunie VA and
Willem de Bie and others v De Coöperatieve Zuivelcoöperatie Campina
Melkunie BA [1995] ECR I-4471
Case C-333/94P Tetra Pak v Commission [1996] ECR I-5951
Case C-299/95 Friedrich Kremzow v Republik Österreich [1997] ECR I-2629
Case C-395-396/96P Compagnie Maritime Belge Transport v Commission
[2000] ECR 1365
Case C-7/97 Oscar Bronner GmbH & Co KG v Mediaprint Zeitungs- und
Zeitschriftenverlag GmbH & Co KG [1998] ECR I-7791
Joined Cases C-147-148/97 Deutsche Post AG v Gesellschaft für
Zahlungssysteme mbH and Citicorp Kartenservice GmbH [2000] ECR I-825
Case C-163/99 Portuguese Republic v Commission [2001] ECR I-2613
Case C-418/01 NDC Health Corp and NDC Health GmbH & Co KG v IMS
Health Inc[2002] ECR I-3401
Case C-189/02 Dansk Roerindustri A/S and Others v Commission [2005]
ECR I-5425
Case C-540/03 European Parliament v Council of the European Union [2006]
ECR I-5769
Case C-501/06 GlaxoSmithKline v Commission
Case C-513/06 Commission v GlaxoSmithKline
Case C-515/06 European Association of Euro Pharmaceutical Companies
Case C-519/06 Asociación de exportadores españoles de productos
farmacéuticos
Case C-202/07P France Télécom SA v Commission
Advocate Generals Opinions (chronological)
Opinion of Advocate General Roemer in Case 6/72 Continental Can delivered
on 21 November 1972
Opinion of Advocate General Warner in Case 7/76 Amministrazione delle
finanze dello Stato delivered on 22 June 1976
Opinion of Advocate General Reischl in Case 85/76 Hoffmann-La Roche
delivered on 19 September 1978
Opinion of Advocate General Van Gerven in Case C-18/93 Corsica Ferries
delivered on 9 February 1994
286
Opinion of Advocate General Jacobs in Case C-97/7 Oscar Bronner delivered
on 28 May 1998
Opinion of Advocate General Fennelly in Joined Cases C-395-396/96
Compagnie Maritime Belge Transport delivered on 29 October 1998
Opinion of Advocate General Tizzano in Case C-418/01 IMS Health delivered
on 2 October 2003
Opinion of Advocate General Jacobs in Case C-53/03 Synetairismos
Farmakopoion Aitolias & Akarnanias (Syfait) and others v GlaxoSmithKline
AEVE delivered on 28 October 2004
Opinion of Advocate General Kokott in Case T-95/04P British Airways plc
delivered on 23 February 2006
Cases from the European Court of First Instance
(chronological)
Case T-30/89 Hilti AG v Commission [1991] ECR I-1439
Case T-65/89 BPB Industries and British Gypsum Ltd v Commission [1993]
ECR II-389
Case T-76/89 Independent Television Publications Ltd v Commission [1991]
ECR II-575
Case T-83/91 Tetra Pak International Sa v Commission [1994] ECR II-755
Joined Cases T-24-26 and 28/93 Compagnie Maritime Belge Transports NV v
Commission [1996] ECR II-1201
Case T-111/96 ITT Promedia NV v Commission [1998] ECR II-2937
Case T-228/97 Irish Sugar plc v Commission [1999] ECR II-2969
Case T-65/98 Van den Bergh Foods Ltd v Commission [1998] ECR II-2641
Joined Cases T-191/98 and T-212/98 to 214/98 Atlantic Container Line AB
and others v Commission (TACA) [2003] ECR II-3275
Case T-219/99 British Airways plc v commission [2003] ECR II-5917
Case T-168/01 GlaxoSmithKline Service Unlimited v Commission
Case T-203/01 Manufacture française des pneumatiques Michelin v
Commission ECR II-4071
Case T-209/01 Honeywell International INC v Commission
Case T-210/01 General Electric v Commission [2005] ECR II-5575
Case T-340/03 France Télécom SA v Commission
Case T-328/03 O2 (Germany) GmbH & Co OHG v Commission [2006] ECR
II-1231
Case T-201/04 Microsoft Corporation v Commission
Case T-155/06 Tomra Systems ASA and others v Commission
287
Community Commission Decisions (chronological)
GEMA, OJ [1971] L134/15
Continental Can, OJ [1972] L7/25
General Motors Continental NV, OJ [1975] L29/14
Kabel unde Metallwerke Neumeyer AG and Establissements Luchaire SA
Agreement, OJ [1975] L222/34
Vitamins, OJ [1976] L223/25
Bandengroothandel Frieschebrug BV/NV Nederlansche Banden-Industrie-
Michelin, OJ [1981] L353/33
ECS/AKZO, OJ [1985] L374/1
Eurofix-Bauco/Hilti, OJ [1988] L65/19
Decca Navigator system, OJ [1989] L43/27
Magill TV Guide/ITP, BBC and RTE, OJ [1989] L78/43
Soda-Ash-Solvay, OJ [1991] L152/21
British Midland v Aer Lingus, OJ [1992] L96/34
Irish Sugar PLC, OJ [1997] L258/1
Alpha Flight Service/Aeroports de Paris, OJ [1998] L230/10
Virgin/British Airways, OJ [2000] L30/1
1998 Football World Cup, OJ [2000] L5/55
AOL/Time Warner, OJ [2001] L268/28
Deutsche Post AG, OJ [2001] L331/40
Manufacture française des pneumatiques Michelin, OJ [2002] L143/1
Prokent/Tomra, COMP/38.113
Microsoft, COMP/C-3/37.792
Newspaper Articles and other Materials (chronological)
The Times, Continental Can wins European Court Appeal against the
Commission, 22 February 1973
Wall Street Journal, Attorney General William Baxter, Antitrust Division at
the US DOJ, 4 March 1982
Martinsen, Dorte Sindbjerg European Institutionalisation of Social Security
Rights: A Two-layered Process of Integration (European University Institute,
Florence, PhD Thesis, 2004)
Microsoft Says Proposed Settlement Would Have Been Better for European
Consumers, Microsoft press release of 24 March 2004