Motta, M., “E. C. Merger Policy and the Airtours Case”

8/10/2019 Motta, M., E. C. Merger Policy and the Airtours Case

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COMPETITION LAW

TO WHAT EXTENT IS THE CONCEPT OF COLLECTIVE

DOMINANCE APPLICABLE UNDER THE ECMR?

ARUA KALU ONUMA

[email protected]

Abstract: The ECMR upon its enactment in 1990 filled a lacuna in European Merger

Regulation. Prior to the Regulation, Articles 81 and 82 had been employed as instrumentsof merger control with varying success. One of the key objectives behind the ECMR is

the prevention of a concentration leading to the creation or strengthening of a dominant

position which may lead to the prohibition in Article 2 (3). The reference by Article 2 (3)

to a single undertaking has raised some debate as to the applicability of the concept of

collective dominance under the Regulation. Even where it is conceded that the concept isapplicable, uncertainties remain as to the extent of applicability. Therein lies the concern

of this paper. The paper attempts a discharge of this burden by adopting an analytical

approach. The concept and pre ECMR regulation of mergers are reviewed to provide a

workable background. The scheme of the Regulation is considered next with particular

emphasis on the appraisal of concentrations. The paper then analyses the concept of

collective law under European competition law and the ECMR. It concludes with anoutline of its findings and appropriate recommendations.

List of Abbreviations

CFI Court of First Instance

CMLR Common Market Law ReportsEC The European Community

EEC The European Economic CommunityECJ European Court of Justice

ECLR European Competition Law ReviewECMR European Commission Merger Regulation

ECR EC Competition Report

EU The European UnionGWB Gesetzgegen Wettbewerbsbeschrankungen (German Act against Restraints

of Competition)

SSNIP Small but Significant Non-transitory Increase in Price


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1. INTRODUCTION

The enactment in EC Merger Control Regulation-Council Regulation (EEC)4064/891

marked a threshold in the history of merger regulation in the European Community.

Merger control before the enactment was hampered by statutory deficiencies owing to the

non-provision for mergers in the EEC Treaty2. Existing competition rules failed to fully

realise community policy on merger control.

One of the key features of EC merger control policy is the prohibition of mergers

resulting in the creation or strengthening of a dominant position. Prior to the enactment of

the Regulation, Articles 81 and 82 were utilised with varying degrees of success. Article81 proved highly unsatisfactory for the realisation of this policy objective as it only

contained a prohibition of anti-competitive agreements between independent

undertakings excluding its application to the activities of merged undertakings.

Notwithstanding its prohibition of the abuse of a dominant position Article 82 did not

prohibit the creation of a dominant position.

The Regulation addressed these problems by prohibiting the creation or strengthening of

a dominant position as a result of a merger, acquisition or a takeover. The wording of

Article 2 (3), which appears, prohibit only a single dominant position has led to

uncertainty as to the applicability of the Regulation to a collectively dominant position.

Where it is assumed that the Regulation is applicable, the question that arises is- to what

extent? These issues constitute the focus of this paper.

To address the question of the extent and applicability of the Regulation to collective

dominance, the paper adopts an analytical approach. It commences with the examination

of the concept of a merger, policy considerations in EC merger regulation and pre-ECMR

regulation of mergers. The scheme of the Regulation is also considered with specific

attention directed towards the appraisal of concentrations under the regulation. The paper

then proceeds to analyse the concept of collective dominance and its application to EC

1Adopted 21 December 1989. Came into force 21 September 1990 Hereinafter referred to as ECMR and

the Regulation2EEC Treaty of Rome 1957


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competition and merger regulation. Finally, the paper concludes with an outline of the

position of the law on the issues presented.

2. MERGERS- CONCEPT, EFFECTS AND PRE-ECMR REGULATION

2.1. CONCEPT

A merger described in basic terms, refers to the unison of two or more previously

independent entities. Quite a number of transactions give rise to mergers and these may

vary from one jurisdiction to another. For this reason, legislation often includes a

definition of merger.3 Under current EC regulation the term concentration has been

preferred to merger. A concentration represents an extension of the merger concept in

that it may include full function joint ventures4and even share acquisitions provided that

there has been a change in control of the concerned undertaking. 5

2.2. POLICY CONSIDERATIONS

The economic and socio-political importance of mergers has given rise to a number of

policy considerations within the European Union (EU). The post World War 2 period saw

the emergence of mergers as the tool for the revitalisation of battered European

economies. The large economies of scale brought about by mergers saw an increase in

productive efficiency with the resultant boom to European post war economies6. The

emergence of national champions resulted in huge gains in employment and national

pride. Upon the inception of the EU, mergers were encouraged as a vehicle for European

integration and the single market.

The obvious benefits of mergers notwithstanding, a number of concerns arose as to the

often-detrimental effects of mergers such as the distortion of societal socio-economic

3Jones, A., and Suffrin, B., EC Competition Law: Text, Cases and Materials 699 (Oxford, Oxford

University Press, 2001)4Commission Notice on the concept of concentration under Council Regulation (EEC) No 4064/89 on the

control of concentration between undertakings[1998] OJ C66/5 [1998} 4 CMLR 586, para. 21-34.5See Art 3(1) ECMR.6Lane, R, EC Competition Law 256-7 (Harlow, Pearson Educational Limited, 2000).


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balance owing to the concentration of economic power in large undertakings7,

unemployment owing to structural changes,8and the looming spectre of foreign control

of key sectors of the economy. The key worry however resided in the damaging effect of

mergers on competition. Mergers between previously non-dominant undertakings may

have the effect of creating a dominant position, which may be subject to anti- competitive

abuse. Again, a merger involving a dominant party results in a strengthening of a

dominant position.

The need to promote a competition-friendly market structure directed merger policy

within the EU towards the prevention of concentration. The absence of merger specificprovisions in the EC treaty resulted in a resort to the provisions of Articles 85 and 86

(now Articles 81 and 82) of the treaty as instruments of merger regulation. This practice

subsisted until the enactment of the European Commission Merger Regulation (ECMR)

in 1990. The scheme of pre-ECMR merger regulation is considered below.

2.3 PRE ECMR MERGER REGULATIONS

Ar ticle 81

Article 81(1) and (2) provides as follows:

1. The following shall be prohibited as incompatible with the common market: all

agreements between undertakings, decisions by associations of undertakings and

concerted practices which may affect trade between Member States and which

have as their object or effect the prevention, restriction or distortion of

competition within the common market, and in particular those which:

a.

directly or indirectly fix purchase or selling prices or any other trading

conditions;

b. limit or control production, markets, technical development, or

investment;

c. share markets or sources of supply;

7Jacquemin A. P., and H. W. de Jong, European Industrial Organisation 198-9 (London: Macmillan Press,

1977).8Jones, A., and Suffrin, B.,supra note 3, p. 706.


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d. apply dissimilar conditions to equivalent transactions with other trading

parties, thereby placing them at a competitive disadvantage

e.

make 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.

2. Any agreements or decisions prohibited pursuant to this Article shall be

automatically void.

The provisions of paragraph I may, however, be declared inapplicable in the caseof:

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.

The prohibition contained in Article 81 generally applies to anti-competitive agreements

between undertakings. Despite the initial acceptance of the Commission on its

inapplicability9

, the provision was relied upon in BAT and Reynolds v Commission and

Phillip Morris10with regard to mergers. In that case the ECJ held Article 81 applicable to

acquisitions involving the takeover of a minority shareholding in an undertaking by

another. In the words of the Court provision will apply, where, by the acquisition of a

shareholding or through subsidiary clauses in the agreement, the investing company

9See theMemorandum on the Concentration of Enterprises in the Common Market, EEC Competition

Series Study No 3 (published in 1966), para. 58.10

Cases 142 and 156/84 [1987] ECR 4487: [1988] 4 CMLR 24.


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obtains legal or de facto control of the commercial conduct of the other company or

where the agreement provides for commercial co-operation between the companies or

creates a structure likely to be used for such co-operation11 Article 81 is also

applicable where the agreement gives the company an option to take acquire majority

shares at a latter stage.12

The decision in the BAT case notwithstanding, a number of problems arise as to the

applicability of Article 81 to mergers. Firstly, the exclusive applicability Article 81 to

agreements between independent undertakings leaves a gap with regard to the actions of

the undertaking upon the conclusion of the merger due to the application of the singleentity concept. Again, the provision fails to address the question of the creation,

strengthening or abuse of dominance. Finally the application of Article 82 (2) on the

issue of enforcement is unclear.13

2.1.1. Article 82

Article 82 provides 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. limiting production, markets or technical development to the prejudice of

consumers;

11ibid, paras. 38-9.

12 ibid.13

Goyder, D. G., EC Competition Law 384 (Oxford: Oxford University,1998)


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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.

One of the questions raised as to the application of Article 81 with regard to mergers was

the fact that it failed to provide for abuse of a dominant position. This led the

Commiss ion to consider a resort to Article 82, a provision concerned with the prohibition

of the abuse of a dominant position. This was attempted in the Continental Can14 case

where the ECJ held that the provision is applicable to prevent an undertaking in a

dominant position from strengthening its position in such a way as to fetter competition.15

Again the provision is applicable to prevent a merged entity from abusing its dominant

position. Article 82, however was in its application to certain merger issues. This is due

to preoccupation of the provision with the abuse and not the creation of a dominant

position. Thus, the provision is behaviourist in nature. This position represented a

contrast to EU merger policy, which sought to preserve market structure by prohibiting

the creation of a dominant position.

The obvious inapplicability of both Articles 81 and 82 to merger regulation created a

lacuna leading to the enactment in 1990 of the ECMR. The scheme of this regulation is

discussed below.

3. THE SCHEME OF THE ECMR

3.1 PRELIMINARY ISSUES

Concept of a Concentr ation

The provisions of the ECMR are applicable to concentrations. According to the

provision, a concentration is deemed to arise where upon the merger of two or more

14 Europemballage and Continental Can v. CommissionCase 6/72 [1973] ECR 215: CMLR 199.15

para. 26.


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independent undertakings.16This in effect incorporates mergers into its definition of a

concentration. A concentration is, however, not limited to mergers between independent

undertakings. It extends to the acquisitions falling short of mergers, which have the effect

of transferring direct or indirect control of an undertaking to a person or persons who

already have control of another undertaking. Acquisition may take the form of, but is not

limited to, the purchase of securities or shares, and contracts.17 In line with this broad

definition, full function joint ventures18are also classified as concentrations.

Control

Evidently, the definition of a concentration hinges largely on the issue of control. Article

3 (1) (b) provides as follows:

For the purposes of this Regulation, control shall be constituted by rights, contracts or

any other means which, either separately or in combination and having regard to the

considerations of fact or law involved, confer the possibility of exercising decisive

influence on an undertaking, in particular by:

(a)

ownership or the right to use all or part of the assets of an undertaking;

(b)rights or contracts which confer decisive influence on the composition, voting or

decisions of the organs of an undertaking.

Control therefore arises where an undertaking attains decisive influence over another.

Decisive influence may be manifested in factors such as the acquisition of property

rights, shareholders agreements and economic dependence.19Control may be solely or

jointly held. Sole control is usually achieved on attainment of more than 50% of the

shareholding of the acquired undertaking. Control may however result even where

16Art 3(1) (a).

17para. (b).

18 See on this, Commission Notice on the concept of concentration under Council Regulation (EEC) No

4064/89 on the control of concentrations between undertakings[1998] OJ C66/5, [1998] 4 CMLR 586,para. 919

ibid,para 13


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shareholding falls below this threshold. An example is where all other shares are widely

dispersed between other shareholders.20

Joint control may arise where 2 or more parties, between themselves hold sufficient

power to exercise decisive influence on an undertaking. This form of control is usually

expressed in the form of veto power and is may exist even where the parties are

minorities. The test for control lies in the existence of the power to control and not

necessarily in its exercise.21

Jur isdiction -Community Dimension and the One Stop Shop

Given the limited staffing of the office of the DG IV, the administrators of the ECMR,

the Regulation is limited in application to mergers with a community dimension. A

concentration is said to have a community dimension where:

a) the combined aggregate worldwide turnover of the undertakings concerned is

more than ECU 5,000 million; and

b) the aggregate Community-wide turnover of at least two of the undertakings

concerned is more than ECU 250 million, unless each of the undertakings

concerned achieves more than two thirds of its aggregate Community-wide

turnover within one and the same Member State.22

In addition to the above thresholds concentrations have a community dimension where

the combined aggregate turnover is more than ECU 2500 million worldwide and 100

million in each of at least three member states. The aggregate turnover of at least two of

the undertakings in each of the three states must be more than ECU 25 million. Finally,

the aggregate Community-wide turnover of each of at least two of the undertakings

concerned must be more than 100 million. These thresholds are however irrelevant where

20 Jones, A., and Suffrin, B.,supra note 3, p. 719.21

Commission Notice on the concept of concentration under Council Regulation (EEC) No 4064/89 on thecontrol of concentrations between undertakings, supra note 18,paras. 21-2422

Art. 1 (2).


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each of the concerned undertakings achieves more than two-thirds of its aggregate

turnover within one and the same member state.23

Mergers that fail to meet the above thresholds fall under the jurisdiction of the national

authorities. There is no concurrent jurisdiction between the Commission and national

authorities. This is in line with the one stop shop principle. This is to the effect that all

mergers fall under the jurisdiction of the Commission or both. There are two exceptions

to the one stop shop principle. The first is the Dutch clause24, which is to the effect that

a national competition authority may refer a merger within its jurisdiction to the

Commission. The second exception is found in the German Clause which is to the

effect that the Commission may, on the request of a national competition authority, refer

a merger with a community wise dimension to that authority where the merger is likely to

impede competition in a distinct geographical market. 25

Enforcement

The Regulation provides that concentrations sha ll be notified to the Commission not

more than one week after the conclusion of the agreement. The responsibility for

notification lies in the parties to the agreement in the case of a merger, or the parties

acquiring joint control in the case of an acquisition. Where the concentration involves an

acquisition of sole control the acquirer is responsible for notification. 26 A concentration

does not come into effect until the Commission in response to a notification declares it

compatible with the common market.27

Where the Commission receives a notification, its initial action is to examine the

concentration with regard to the applicability of the Regulation28. A decision on this

assessment is to be delivered within one month of the notification29. Where the

23Art. 1 (3).

24Art. 22 (3).

25Art. 9 (2)

26 Art. 4.27

Art. 7.28 Art 6 (1) (a).29

Art 10 (1).


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Regulation is found to be inapplicable no further action is required on the part of the

Commission.

Upon a finding of applicability, the Commission has recourse to three options. Firstly it

may declare the concentration to be compatible with the aims of the co mmon market.

Secondly it may declare the concentration compatible subject to some conditions 30with

the result that the period for assessment is extended for a further six months. Thirdly, the

Commission may express serious doubts as to the compatibility of the concentration with

the result that a phase two investigation is launched. 31

Upon the initiation of a phase two investigation and after representation from all

concerned parties, the Commission may declare the concentration compatible either

absolutely or conditionally. It may also declare the concentration incompatible. 32

3.2 APPRAISAL OF CONCENTRATIONS

The Regulation provides for the appraisal of concentrations in Article 2 as follows:

1. Concentrations within the scope of this Regulation shall be appraised in accordance

with the following provisions with a view to establishing whether or not they are

compatible with the common market. In making this appraisal, the Commission shall take

into account:

(a) the need to maintain and develop effective competition within the common market

in view of, among other things, the structure of all the markets concerned and the

actual or potential competition from undertakings located either within or

outwith the Community;

(b) the market position of the undertakings concerned and their economic and

financial power, the alternatives available to suppliers and users, their access to

supplies or markets, any legal or other barriers to entry, supply and demand

trends for the relevant goods and services, the interests of the intermediate and

30Art. 6 (1) (b).

31 Art. 6 (1) (c).32

Art. 8.


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ultimate consumers, and the development of technical and economic progress

provided that it is to consumers' advantage and does not form an obstacle to

competition.

2. A concentration which does not create or strengthen a dominant position as a result of

which effective competition would be significantly impeded in the common market or in a

substantial part of it shall be declared compatible with the common market.

3. A concentration which creates or strengthens a dominant position as a result of which

effective competition would besignificantly impeded in the common market or in a

substantial part of it shall be declared incompatible with the common market.

The above provisions reaffirm the policy thrust of the Merger Regulation, which is to

promote competition and consumer welfare within the common market. It therefore

prescribes conditions precedent for a declaration of compatibility with the common

market. For a concentration to be so declared, it must be not create or strengthen a

dominant position with the effect that competition within the common market is impeded

significantly. There are therefore two limbs of compatibility-

the creation or strengthening of a dominant position; and

the significant impediment to competition within the common market as a result

of the dominant position.

The European Court of Justice has defined a dominant position as,

The position of economic strength enjoyed by an undertaking enabling it . . . to behave

to an appreciable extent independently of its competitors and customers and ultimately of

its consumers. 33

In determining the existence or otherwise of a dominant position, the first step is market

delimitation. This involves the process of defining the relevant market. This is a

fundamental process as dominance hinges largely on this definition. A relevant market

33 United Brands Co and United Brands Continental BV v Commission Case 27/76 [1978] ECR 207: 1

CMLR 429; see also,Hoffman-La RocheCase 85/76 [1979] ECR 461; 3 CMLR 211.


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admits of the following dimensions- the product market, the geographical market and the

temporal market.

The relevant product market comprises all the products and/or services which are

regarded as interchangeable or substitutable by the consumer, by reason of the products

characteristics, their prices and their intended use .34A number of factors are used to

determine the relevant product market. These include an examination of the physical

characteristics of the products, evidence of past practices and substitutability on the

demand35and supply36side. The Small but Significant Non-Transitory Increase in Price

(SSNIP) test has also been developed to determine the product market by measuring the

reaction of consumers to a slight increase in price.

A number of factors are considered in the determination of the relevant geographical

market. A preliminary considerations include the the distribution of market shares as well

as pricing and pricing differences at national and Community or EEC level. 37The reasons

behind the pricing structure are explored at the next stage of determination38. Finally, an

examination of supply factors such as conditions of access to distribution channels and

regulatory barriers is carried out.39

The temporal market is applicable to those goods and services where demand and supply

are experience seasonal fluctuation. Examples of this market include gas and electricity

where demand and supply fluctuates through the seasons.

Upon the delimitation of the market, a number of criteria are employed to determine

whether a dominant position has been created or strengthened. Market share is the major

determinant of the existence of a dominant position. 40 A very high market share will

34Commission Notice on the definition of the relevant market for the purposes of Community competition

law [1997] OJ l7/13.35

ibid,paras. 15-19.36

See Continental Can, supra note.14.37

Commission Notice on the definition of the relevant market for the purposes of Community competition

law, supra note 34,para. 28.38

Para. 2939 Para 30.40

SeeHoffman/La Roche, supra note 33.


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almost certainly lead to a presumption of dominance. In AKZO41an undertaking holding

a market share of 50% was held by the ECJ to be in a dominant position.

Market power is, however, not the sole determinant of a dominant position. The situation

of other competitors is also crucial. The Commission in Tetra Pak/Alfa Lavalcaptured

this principle aptly as follows:

A market share as high as 90 per cent is in itself a very strong indicator of the existence

of a dominant position. However, in certain rare circumstances even such a market share

may not result in dominance. In particular, if sufficient active competitors are present on

the market, the company may be prevented from acting to an appreciable extent

independently of the pressure typical of a competitive market.42

Potential competition constitutes yet another factor to the determination of dominance.

Thus where the barriers to entry are so minimal that players outside the market can enter

with sufficient ease, a finding of dominance becomes less likely. Barriers to entry take a

number of forms. These include legal or statutory barriers,43 superior technology and

efficiency,44vertical integration,45economies of scale,46access to financial resources and

advertising costs47to mention a few.

From the above therefore, it is obvious that the provisions of the ECMR are clear with

regard to the prohibition of the creation and strengthening of a dominant position. This

analysis has so far only been limited to instances where the concentration results in single

dominance. The next chapter examines the application of the Regulation to the concept of

collective dominance.

41.AKZO v Commission [1991] ECR 1-3359

42OJ L 290.

43British Midland-Aer Lingus [1992] OJ L/96/34, [1993] 4 CMLR 596.

44 United Brands, supra note.33.45

ibid.46 ibid47

Nestle/Perrier [1992] OJ L356/1, [1993] 4 CMLR M 17.


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4. COLLECTIVE DOMINANCE AND THE ECMR

4.1 OLIGOPOLISTIC MARKETS, COLLECTIVE DOMINANCE AND ECCOMPETITION LAW- AN OVERVIEW

Competition law has always sought to prevent dominance or its effects. Along this line

much emphasis has been placed on the existence or effects of a dominant position held by

asingle undertaking. The purposes of competition policy may, however, also be defeated

by collective dominance. This arises where two or more undertakings are linked in such a

manner as to hold a dominant position in the market. This is usually the case in

oligopolistic markets. These markets are characterised by a small number of players, low

barriers to entry and fairly homogenous products. These qualities give rise to high market

transparency.48

Needless to say, oligopolistic markets present a considerable challenge for competition

regulation. The nature of the market gives rise to a high level of predictability of the

actions of the various players. This may in turn allow each market player to adapt his

strategy to that of the other players. Such parallel conduct unwittingly reduces the

incentive to compete on price. This has the effect of constraining competition in the same

manner as a monopoly or near monopoly situation.

In its bid to tackle the problem posed by oligopolistic markets, the Commission has had a

resort to the provision of Articles 81 and 82. Article 81 prohibits agreements or concerted

practices between or among undertakings, which prevent, restrict or distort competition.

On paper this would appear to be a potent weapon against anti-competitive oligopolistic

practices. In practice it has proved rather difficult to apply Article 81 to oligopolistic

markets. Undertakings are not exactly in the habit of entering into ascertainable

agreements to thwart competition. Again, difficulties arise in the application of the

concerted practices principle to oligopolistic practices. This is because the test of parallel

48See generally, Lane, R., supra note 6,p. 244.


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there must be close links between the entities and secondly, those links must be such as to

lead the parties to adopt the same conduct and policy in the market.55

5. THE POSITION UNDER THE ECMR

Under the Regulation the first issue that arises with respect to the concept of collective

dominance borders on applicability. Article 2 (3) which prohibits the creation or

strengthening of a dominant position, appears prima facie, from its use of the words, a

concentration to suggest that the Regulation applies to single and not collective

dominance.56Based on this it has been suggested that if the Regulation had been intended

to apply to collective dominance it would have had similar wording to the corresponding

position in Article 82.57 It is, however the submission of this paper that policy

considerations behind the enactment of the Regulation showed a clear intent to prevent

the creation and strengthening of all forms of dominance. The exclusion of collective

dominance would therefore serve to defeat the purpose of promoting competition, as it is

potentially as detrimental as single dominance. Moreover, German merger law, which has

exerted a strong influence on the development of the Regulation, has in place clear

provisions for collective dominance.58

The argument for the application of the Regulation to collective dominance has found

support in the decisions of the Commission. The Commission first raised the issue of

collective dominance with respect to a merger in Alcatel/AEG-KABEL.59 It was not,

however, until Nestle/Perrier,60a decision on the French mineral bottled water market,

that the doctrine was utilised successfully to block a merger. The facts are that Nestle

sought to acquire Perrier, an acquisition that would have increased their market share to

60%. The market also consisted of BSN with 22% of the market and a host of other

55at 2993.

56See Motta, M.,EC Merger Policy and the Airtours Case [2000] E.C.L.R. 199-207 at 203;Recent

Airtours / First Choice Eu Merger Decision, available athttp://www.mwe.com/index.cfm/fuseaction/publications.nldetail/object_id/2C230D4E-E013-4A37-9797-

4A6E83568DD7.cfm(last visited 20 May 2004)57 ibid58

S 19 II (2) and 35 GWB; see also Lane R.,supra note 6, p. 268.59 Case IV/M165 [1992] OJ C6/23:4 CMLR 73.60

supra note 47.


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smaller companies with less access to the source of the product. In order not to create a

dominant position Nestle sought to give up its Volvic brand to BSN. The Commission in

its decision found the arrangement to be in breach of the Regulation on the basis that the

transparency of the market and interdependency of the players would result in a

collectively dominant position. 61 The solution adopted was a divestiture of the Volvic

brand, but not to BSN.62 The application of the concept of collective dominance to the

Regulation was acknowledged by the ECJ in France v Commission63 despite the

annulment of the Commissions decision on the facts. The Court in its judgement stated

thus:

the applicants submission, to the effect that the choice of legal bases in itself

militates in favour of the argument that the Regulation does not apply to collective

dominant positions cannot be acceptedArticles [84] and [308] can be used as the legal

bases of a regulation permitting preventive action with respect to concentrations which

create or strengthen a dominant position liable to have a significant effect on

competition.64

The next relevant issue with regard to the application of the collective dominance is

expressed in the question- what is the test for ascertaining collective dominance? The

ECJ inFrance v Commission65 provided a high standard of proof for the ascertainment of

collective dominance by insisting on the existence of definite links between the parties.

According to the Court,

Effective competition in the relevant market is significantly impeded by the undertakings

involved in the concentration and one or more other undertakings which together, in

particular because of correlative factors which exist between them, are able to adopt a

61para 120-123.

62 See also Decision 91/619 (Aerospatiale-Alenia/De Havilland) OJ 1991 L334/42.63

Cases C68/94 and 30/95 [1998] 4 CMLR 829.64para 165.65

ibid.


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common policy on the market and act to a considerable extent independently of their

competitors, their customers, and also of consumers.66(Emphasis mine)

The above is a restatement of the position in Irish Sugar67with respect to the existence of

some form of economic links. The CFI however took a radically different stand in the

case of Gencor Limited v Commission.68In that case involving the platinum group metal

market, Gencor, a South African company, entered into a merger agreement with Lornho,

a UK company. The Commission prohibited the merger on the grounds that the merger

would result in the creation of a collective dominant position with the other major player

in the market, Amplats, a subsidiary of Anglo-American South Limited. On appeal it was

submitted, relying on Flat Glass and France v Commission, that collective dominance

was not proved, as the companies had no economic links with Anglo- American.

Rejecting this contention, the Court stated as follows,

there is no reason whatsoever in legal or economic terms to exclude from the notion

of economic links the relationship of interdependence existing between the parties to a

tight oligopoly within which, in a market with the appropriate characteristics, in

particular in terms of market concentration, transparency and product homogeneity,

those parties are in a position to anticipate one anothers behaviour and are therefore

strongly encouraged to align their conduct in the market, in particular in such a way as

to maximise their joint profits by restricting production with a view to increasing prices.

In such a context, each trader is aware that highly competitive action on its part designed

to increase its market share (for example) a price cut would provoke identical action by

the others so that it would derive no benefit from its initiative. All the traders would thus

be affected by the reduction in price levels.69

The Court went on to add that there was a likelihood that the transaction would in future

lead to the creation of a collective dominant position. 70

66ibid

67 supra note 54.68

Case T-102/96, [1999] ECR II-753, [1999] 4 CMLR 97169 para 276.70

para 279.


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It has been contended71that the decision in Gencor represents a correct interpretation of

the Regulation with regard to the test of collective dominance. This paper disagrees with

this contention on the ground that the structural test proposed by the Court is

misconceived as it places the burden of proof on the undertakings to prove the absence of

collective dominance. This is against the rules of natural law to the effect that a party

alleging a wrong is entitled to furnish proof Moreover, the prohibition of a merger on the

ground that it may lead to a position of collective dominance with a previously

unconnected party in the future is plagued with uncertainty as to what constitutes the

future.

The most recent decision on the issue of the criteria for proving collective dominance

under the Regulation is Airtours v Commission. 72The facts are that Airtours, the second

largest tours and travelling company sought to acquire First Choice, the fourth largest, an

acquisition which would have given the top three companies (Airtours, Thompson and

Thomas Cook) 79% of the market. The Commission in prohibiting the merger, held,

relying on Gencor,that the merger would have created a position of collective dominance

amongst the three operators. In annulling the decision of the Commission, the CFI laid

down a new evidentiary standard for the appraisal of collective dominance with respect to

mergers. According to the Court, the transaction must have a direct and immediate

impact on with the result that the merging parties and their competitors adopt a common

policy, which is detrimental to competition. In this vein therefore, three factors must be

satisfied for a merger to be prohibited on the ground of collective dominance:

sufficient market transparency to enable the each player interpret the business

strategies of the other players and to be able to adapt their its own strategies

accordingly;

clear retaliatory measures to be directed against a player that deviates from the

common policy; and that

foreseeable reaction from present and potential competitors as well as consumers

would not endanger expected results from the common policy.

71 Jones, A., and Suffrin, B.,supra note 3.72

Case T-342/99


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dominance. Finally it represents an alignment with current international trends

particularly in the United States.


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BIBLIOGRAPHY

PRIMARY SOURCES

Treaties

European Community Treaty, 1957 (as amended by the Treaty of Amsterdam, 1 May

1999).

Statutes

European Community Merger Control Regulation-Council Regulation (EEC) 4064/89

Gesetz gegen Wettbewerbsbeschrankungen (German Act Against Restraints ofCompetition) of 1973 (as amended by the Sixth Amendment Act of 1999)

Subsidiary Legislation and Notices

Commission Notice on the concept of concentration under Council Regulation (EEC)

No 4064/89 on the control of concentration between undertakings [1998] OJ C66/5.

Commission Notice on the Definition of the Relevant Market for the Purposes ofCommunity Competition Law [1997] OJ l7/13

Notice on Market Definition [1997] OJ C372/5.

Cases

Airtours v Commission Case T-342/99.

Aerospatiale-Alenia/De Havilland (Decision 91/619) OJ 1991 L334/42.

AKZO v Commission [1991] ECR 1-3359

Alcatel/AEG-KABELCase IV/M165 [1992] OJ C6/23:4 CMLR 73

BAT and Reynolds v Commission and Phillip MorrisCases 142 and 156/84 [1987]

ECR 4487: [1988] 4 CMLR 24.

British Midland-Aer Lingus [1992] OJ L/96/34, [1993] 4 CMLR 596.

CEWAL [1993] OJ L34/20; [1995] 5 CMLR 198

Europemballage and Continental Can v. Commission Case 6/72 [1973] ECR 215:

CMLR 199.


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Flat Glass Decision 89/23 OJ [1989] L33/44.

France v Commission Cases C68/94 and 30/95 [1998] 4 CMLR 829.

French-West African Shipowners Committees [1992] OJ L134/1, [1993] 5 CMLR

446.

Gencor Limited v Commission Case T-102/96, [1999] ECR II-753, [1999] 4 CMLR

971.

Hoffman-La RocheCase 85/76 [1979] ECR 461; 3 CMLR 211.

Hoffmann-La Roche v Commission [1979] ECR 461.

ICI v Commission (Dyestuffs)Case 48/69 [1972] ECR 619.

Irish Sugar v CommissionCase T-228/97 [1999] ECR II-2969.Nestle/Perrier [1992] OJ L356/1, [1993] 4 CMLR M 17.

Societa Italiano Vetro v Commission Cases T-68, 77 & 78/79 [1992] ECR II-1403 at

1548.

Tetra Pak/Alfa LavalOJ L 290.

Trans-Atlantic Conference Agreement [1999] OJ 95/6.

United Brands Co and United Brands Continental BV v CommissionCase 27/76

[1978] ECR 207;1 CMLR 429.

SECONDARY SOURCES

Books

Faull, J., and Nikpay, A., EC Law of Competition, (Oxford: Oxford University

Press,1999).

Goyder, D. G., EC Competition Law 384 (Oxford: Oxford University,1998)

Jacquemin A. P. and de Jong, H. W. European Industrial Organisation (London:Macmillan Press, 1977)

Jones, A., and Sufrin, B: EC Competition Law Text, Cases and Materials (Oxford:

Oxford University Press, 2001).

Korah, V., An Introductory Guide to EC Competition Law and Practice (Oxford &

Portland: Hart Publishing, 1997).

Lane, E., EC Competition Law (Harlow: Pearson Educational Limited, 2000)

Whish, R., Competition Law (London: Butterworths, 2001).


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Articles

Motta, M.,EC Merger Policy and the Airtours Case[2000] E.C.L.R. 199-207.

Ridyard, D.,Economic analysis of single firm and oligopolistic dominance under theEuropean Merger Regulation. (1994) E. C. L. R., 255-262.

Internet

Airtours /First Choice Eu Merger Decision, available athttp://www.mwe.com/index.cfm/fuseaction/publications.nldetail/object_id/2C230D4

E-E013-4A37-9797-4A6E83568DD7.cfm(last visited 2 May 2004)

Documents

Motta, M., “E. C. Merger Policy and the Airtours Case”