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The Concept of Dominance in Article 82

Giorgio Monti*

ABSTRACT: The concept of dominance in EC competition law is a mixture of criteria relevant to

determining the presence of market power and criteria relevant to finding commercial power. The current

concept of dominance is consistent with an ordoliberal interpretation of Article 82 whereby dominant firms

have special responsibilities because their presence in the market damages competition as an institution. The

Commission appears intent upon narrowing the concept of dominance to instances where an undertaking has

substantial market power. The effect of this is that the scope of application of Article 82 is narrowed down

considerably. However the Commission’s position is enigmatic because the Discussion Paper is an ambiguous

mixture of passages that restate the current law and passages that seem to develop new approaches, with no

explanation of where the policy changes occur or an explanation of why they take place. In fact, on another

reading, the Discussion Paper seems to widen the concept of dominance. The failure to communicate the

nature and scope of the reform process in a clear manner is to be regretted because the central theme (that

dominance means substantial market power) is a promising premise to accompany the reform of the abuse

doctrine.

A. INTRODUCTION

It is trite law that an undertaking must hold a dominant position for the prohibition in Article 82 to apply.1

Concomitantly, to hold a dominant position is not in itself an infringement of EC competition law.2 However,

the meaning of dominance in the Commission’s decisions and the Court’s case law on Article 82 is far from

clear.

In this article, four concepts of dominance are canvassed. The first, based on economics, equates dominance

with substantial market power (that is, the power to increase prices and reduce output).3 The second suggests

that dominance is defined by reference to commercial power. It is submitted that the current approach in EC

competition law is to define dominance by a mixture of both of these methods, with an emphasis on

commercial power in some of the major cases. This is problematic in view of the Commission’s aim to

* Law Department, London School of Economics. 1 But there does not need to be a correlation between dominance and abuse. In Case 85/76 Hoffmann-La Roche & Co. AG v Commission [1979] ECR 461 (paragraph 91) the Court held that abuse does not imply that the dominance is the means by which the abuse is brought about. 2 Case 322/81 NV Nederlandsche Baden-Industrie Michelin v Commission [1983] ECR 3461 paragraph 10 3 See the seminal work: W.M. Landes and R.A. Posner “Market Power in Antitrust Cases” (1980-1981) 94 Harvard Law Review 937

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redirect the application of Article 82 so that it is in line with economic thinking. Therefore, the definition of

dominance in the Discussion Paper on the application of Article 82 of the Treaty to exclusionary abuses

(hereinafter, the Discussion Paper) attempts to shift the concept of dominance away from the established case

law and to ground a finding of dominance exclusively upon a determination of substantial market power.4

However, the manner by which this is carried out is unconvincing. The Discussion Paper in part codifies the

current case law, while in part tries to reformulate the current approach. This seems to be done in an attempt to

show that the reforms suggested in the Discussion Paper are a marginal alteration to the current practice.

However, if the Commission is seriously committed to moving away from seeing dominance as commercial

power and towards seeing dominance as the presence of substantial market power, this is a significant change,

which can lead to a reduction in the scope of Article 82.

There are two other ways of conceptualising dominance. One is to define dominance as the power to exclude

rivals so as to gain the power to increase prices and reduce output, while the another is to suggests that

dominance is purely a jurisdictional matter to determine whether Article 82 applies. These two approaches to

dominance offer interesting opportunities for a radical reconsideration of the role of the concept of dominance,

which the Commission seems to have dismissed.

Each of these four concepts of dominance are examined in turn in light of the ideas inherent in the Discussion

Paper. This allows for an identification of the following weaknesses with the Discussion Paper: a lack of

clarity as to the precise nature of the policy change and a failure to offer a useful set of guidelines. The cause

for these weaknesses is that the Discussion Paper is torn between providing a restatement of the current law on

the one hand and offering innovative solutions on the other. This suggests that drafting a Discussion Paper in

the style of guidelines was inappropriate, because what seems to be the central message of the Discussion

Paper, that dominance means substantial market power, is hidden among a raft of paragraphs that make the

document unworkable as a set of guidelines.

B. DOMINANCE AS THE POWER TO REDUCE OUTPUT/RAISE PRICE

1. The Transformation of the Concept of Dominance

Most economists would support the gist of the Commission’s approach in the “dominance” part of the

Discussion Paper, which equates dominance with substantial market power. It is interesting to observe how the

Commission gradually transforms the concept of dominance set out in the case law: in the prefatory

4 DG Competition discussion paper on the application of Article 82 of the Treaty to exclusionary abuses (December 2005)

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paragraphs mention is made of the classical definition of dominance (discussed further in section C below);5

then the Commission adopts new terminology, by saying that an undertaking is dominant when it holds a

“leading position”;6 “substantial market power”;7 the power to “increase prices”.8 At first sight it is not clear

what this trio of concepts is designed to do. It is submitted that the Commission is tacitly departing from the

uneconomic language of the Court’s definition of dominance and introducing the economic concept of

substantial market power (SMP). This concept has already become part of Community Law in the field of

electronic communications.9 Having equated SMP with dominance in that sector, the Commission’s approach

in the Discussion Paper is to restate the converse of that proposition: dominance means SMP for all economic

sectors.10

In the Discussion Paper, dominance/SMP means that the undertaking faces no effective competitive constraint

and is able to keep prices above the competitive level for a significant period of time.11 This definition of

dominance can potentially restrict the number of undertakings that are found dominant. It is submitted that the

undertakings in two the decisions studied in detail below (United Brands and GE/Honeywell) would probably

not be found dominant if this definition was applied, or at least the Commission would need more evidence to

justify its findings.

SMP means that a dominant firm is already able to exploit its market power, even before it sets out to exclude

rivals. This insight is particularly important for the Commission’s reinterpretation of predatory pricing and

rebates. In the context of predatory pricing, the Commission refuses to make a finding dependent upon proof

that the predator can recoup its losses. The justification for this is that dominance allows the Commission to

presume that recoupment is possible.12 That is, after the prices cease to be predatory, the dominant firm is back

to where it was before: with customers who are willing to pay the non competitive price. This makes it

unnecessary to establish the probability of recoupment as a separate element. In the context of rebates, the 5 ibid paragraphs 20-21 6 ibid paragraph 22 7 ibid paragraphs 23 and 28 8 ibid paragraph 24 9 Article 14(2) Directive 2002/21 on a common regulatory framework for electronic communications networks and services [2002] OJ L108/33; Commission guidelines on market analysis and the assessment of significant market power under the Community regulatory framework for electronic communications networks and services [2002] OJ C165/6 paragraph 5, equating dominance with SMP, but noting in paragraph 30 that a finding of SMP does not mean there is dominance. It has been suggested that paragraph 30 was inserted because there is a risk that national regulatory authorities may define markets too narrowly and find dominance in scenarios where one would not wish to apply Article 82. See L. Garzaniti Telecommunications, Broadcasting and the Internet 2nd ed (London: Sweet & Maxwell, 2003) p.541 10 This broadly follows the suggestion made in S. Bishop and M. Walker The Economics of EC Competition Law 2nd ed (London: Sweet & Maxwell, 2002) pp.183-185 11 Supra n.4 paragraph 25 12 Supra n.4 paragraph 122

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undertaking is dominant because some customers consider it necessary to buy the undertaking’s products.

Thus in a scenario like Michelin, the retailers feel compelled to stock a large amount of Michelin tyres.13 For

this quantity of goods that retailers feel they must stock, Michelin is able to set anticompetitive prices and so

enjoys SMP. The fact that customers feel compelled to buy a certain amount of the dominant undertaking’s

goods even before the rebate makes it easier to show that the rebate can have a loyalty-inducing effect that

rivals find hard to counter, leading to their foreclosure. The role of rebates then is to extend a pre-existing

dominant position or to prevent that dominance from being eroded.

However welcome the shift to SMP might be, the Commission missed the opportunity to reflect upon the

relevance of degrees of market power necessary to trigger the application of the law. It seems clear that while

a position akin to monopoly is unnecessary for an undertaking to use predatory pricing or rebates as an

exclusionary strategy, the degree of market power necessary in the context of refusals to supply needs to be

much more significant, in particular when it comes to de novo refusals to supply, where the dominant

undertaking should have a position akin to monopoly. This omission is particularly troublesome because it

makes the section on dominance inconsistent with other sections of the Discussion Paper. For example in a

later part of the Discussion Paper, the Commission states that the degree of dominance is relevant to determine

foreclosure effects.14

2. Measuring Significant Market Power

Those who support defining dominance as SMP advocate two alternative approaches to determining

dominance: a direct measurement of dominance based on whether the undertaking’s prices are above cost (e.g.

a Lerner index type approach),15 or an indirect method of measuring dominance which considers (i) market

shares of dominant firm; (ii) market shares of competitors; (iii) entry barriers; (iv) the power of buyers. There

is consensus that it is not practical to measure market power directly, so that indirect means are deployed. The

EC’s approach is rooted in the indirect method, starting as it does with an analysis of the market shares of the

undertaking in question, the market shares of competitors and then considering barriers to entry. The

Discussion Paper applies this analytical structure. The section on market shares broadly follows the case law,

suggesting that high market shares relative to those of competitors which are held for some time can provide a

first indication of dominance. We consider market shares more closely in part E below, for the moment we

focus on the Discussion Paper’s analysis of entry barriers and buyer power.

13 Supra n.2, paragraph 56; Michelin 2 [2002] OJ L143/1 paragraphs 200-208 14 Supra n.4 paragraph 59 15 See W. K. Viscusi, J.E. Harrington, Jr and J.M. Vernon Economics of Regulation and Antitrust 4th ed (Cambridge, MA: The MIT Press, 2005) pp.294-298

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(a) Entry Barriers

The Discussion Paper opens with the helpful recognition that entry can undermine a dominant position if it is

timely, likely and sufficient.16 These are the same criteria that are used in the context of merger analysis.17 It

then affirms a preference for defining entry barriers in a manner closer to that suggested by Bain than that

suggested by Stigler. In brief, a ‘Bainian’ definition sees as entry barriers factors that make entry costly, while

a ‘Stiglerian’ definition sees entry barriers more narrowly, as only those extra costs that the new entrant faces

which the incumbent has not had to confront.18 For example, if newly devised planning laws prevent the

construction of a factory necessary for the competitor’s entry this is an entry barrier under both definitions. On

the other hand, the fact that the incumbent has an efficient distribution network is not an entry barrier under

Stigler’s definition because if such a network is key to market success, it is an investment which both

incumbent and new entrant have to make to participate in the market. It can however constitute an entry

barrier under Bain’s definition because it is an extra cost which makes entry more risky.

Of the eight types of entry barriers identified in the Discussion Paper, the following four correspond to a

Bainian approach: capacity constraints, economies of scale and scope, absolute cost advantages, and a highly

developed distribution and sales network.19 These four features make entry more risky because the new

entrant has to make substantial investments to enter the market. The criticism that is usually made of seeing

these factors as entry barriers is that increasing the risk of entry says nothing about whether the costs of entry

are greater for the newcomer: surely the incumbent firm had to take a risk to enter the market too, unless its

entry was subsidised by the State. However, it is submitted that the Commission is right in preferring the

wider definition of entry barriers. This is so for two reasons: first, the question that is being considered in a

dominance enquiry is how the industry has behaved during the period of the abuse and how it is likely to

behave in the next few years. The task therefore is to identify whether entry was or is likely, timely and

sufficient to constrain the dominant firm. The risks of entry are a relevant consideration in asking this

question.20 Second, empirically there is evidence that entry barriers in Europe are appreciable and that small

scale entry has tended to be by firms that occupy niche markets without challenging the larger firms.21

16 Supra n.4 paragraphs 35-37 17 Guidelines on the assessment of horizontal mergers under the Council regulation on the control of concentrations between undertakings [2004] OJ C31/5 part VI 18 For helpful explanations, see Viscusi et al (supra n.15) pp.168-172; R. Schmalensee “Ease of Entry: Has the Concept Been Applied Too Readily?” (1987) 56 Antitrust Law Journal 41, 43-44 19 Supra n.4 paragraph 40. The other four types of entry barriers correspond to both Stigler’s and Bain’s definitions: legal barriers, privileged access to supply, the established position of the incumbent, switching costs. 20 For a critique of the debate on entry barriers which supports the Commission’s position see D.W. Carlton “Why Barriers to Entry Are Barriers to Understanding” (2004) 94 American Economic Review 466 21 P. Geroski and A. Jacquemin “Industrial Change, Barriers to Mobility and European Industrial Policy” (1985) 1 Economic Policy 170, 182-3

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In addition to cataloguing entry barriers, the Commission introduces a novel criteria that may affect the

prospects of entry: the likely strategic response of the incumbent. If an incumbent has built a “reputation of

responding aggressively to expansion or entry” this is a factor which may make entry less likely. 22 This is a

consideration that is not found in the case law, but it is submitted that in this passage the Commission is

transforming some of the criteria developed in the early case law. In Michelin for example the Commission

used the findings of abusive exclusionary conduct as evidence of dominance.23 This has regularly been

criticised as being circular: abusive conduct proves dominance and that conduct is then found to be an abuse

because the undertaking is dominant.24 However in the Discussion Paper this approach is absent and replaced

by considering the “likely strategic responses” of incumbents. Thus the abuse-like conduct of a suspected

dominant undertaking is seen as evidence of its attempt to erect entry barriers.25 This is a more defensible way

of thinking about the relevance of the dominant firm’s conduct, in particular because its exclusionary reactions

can serve to deter the entry of other competitors.26

(b) Buyer Power

The Discussion Paper provides that strong buyers can rebut a finding of dominance only when the buyer is

able to facilitate the entry of new sellers or to allow existing suppliers to increase their output. Moreover, in

the Commission’s words, “strong buyers should not only protect themselves, but effectively protect the

market.”27 The relevance of these criteria can be illustrated by reference to a stylised version of the facts in

Enso/Stora: a merger on the would have led to one firm holding a dominant position (with a market share

above 60%) and two smaller suppliers, but the buying side was also composed of a large and two small

buyers, all of which would have sufficient power to prevent an exercise of dominance.28 The Commission

identified two tactics that the buyers could deploy to counteract anticompetitive behaviour: first all three were

able to switch some orders to other suppliers. This would be particularly painful for the merged entity

(Enso/Stora) because the industry in question relies on high capacity utilisation to make satisfactory profits.

Second, the largest buyer (Tetra Pak) was said to have the ability to develop new capacity with existing or new

suppliers, and Enso/Stora would not wish to lose Tetra Pak’s large orders. Moreover, Tetra Pak’s power would

also strengthen the position of the two smaller buyers, because Enso/Stora will be keen to keep their custom so

as not to become totally dependent on Tetra Pak’s orders. In the Commission’s view the buyers “have

22 Supra n.4 paragraph 39 23 Michelin [1981] OJ L353/33 paragraph 35; restated in Michelin 2 [2002] OJ L143/1 paragraphs 198-199 24 See R. Whish Competition Law 5th ed (London: Lexis/Nexis, 2003) p.187, Van Bael and Bellis Competition Law of the European Community 4th ed (The Hague: Kluwer International, 2005) p.132 25 This is the approach taken by the OFT’s guidelines: Assessment of Market Power OFT415 (December 2004) paragraphs 5.23-5.25 26 This was the reasoning accepted in Aberdeen Journals v OFT [2003] CAT 11 paragraph 310 27 Supra n.4 paragraph 41 28 Case M.1225 Enso/Stora [1999] OJ L254/9 paragraphs 84-97

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sufficient countervailing buyer power to remove the possibility of the parties’ exercising market power.’29

Nevertheless, the Commission retained some concern that the two smaller buyers might be exploited by the

merged entity and so the merger was allowed only under the condition that the merged entity would not raise

prices to the smaller customers by more than it would raise prices to Tetra Pak. This suggests that powerful

buyers can eliminate the risk of dominance if two conditions are met: (1) the buyers can obtain the goods

elsewhere; (2) all buyers are able to exercise power so that the dominant firm is unable to price discriminate

offering low prices to the powerful buyers and high prices to the weak.30

There has been some discussion of buyer power in the case law on Article 82, but without substantial

assessment,31 so one might welcome the Commission’s decision to be explicit about the relevance of this

criterion. However, buyer power is a conceptually suspect concept, for two main reasons.32 First, a dominant

firm can damage competition by slowing down innovation or preventing new entry or exercising commercial

pressure to eliminate other competitors (for example through predatory pricing), three effects which powerful

buyers are unlikely to be able to remedy. Second, the ability of buyers to thwart attempts by the dominant

firm to raise prices depend upon the existence of actual or potential competitors, which means that if entry

barriers are high and existing competitors weak, it becomes hard to see how buyers can exercise any power.

Therefore, buyer power seems to be a redundant consideration unless buyers know that the seller is raising

prices without good reason (e.g. not because the costs of raw materials have increased) and are able to find

alternative sellers.33 Enso/Stora might best be read more restrictively as a case where the buyers had the

incentive and the ability to obtain alternative sources of supply.34 In this view, buyer power serves to

strengthen existing competitors and to lower entry barriers for potential competitors.35 Therefore buyer power

is better seen as an additional consideration to determine the strength of existing competitors and the viability

of potential competition (which eliminates all risks posed by a dominant firm) and not as a distinct device.

29 Ibid paragraph 97 30 Case M.2097 SCA/Metsa Tissue [2002] OJ L57/1 paragraphs 86-88 31 E.g. Case T-228/97 Irish Sugar plc v Commission [1999] ECR II-2969 paragraph 101 (defendant failed to prove buyer power); Joined Cases T-68/89, T-77/89 and T-78/89 Società Italiana Vetro and others v Commission [1992] ECR II-1403 paragraph 366 (Commission failed to consider buyer power) 32 see also J.B. Nordemann “Buying Power and Sophisticated Buyers in merger Control Law: The Need for a More Sophisticated Approach” [1995] European Competition Law Review 270 who considers that merger law should not place customers in a position where they are forced to exercise buyer power 33 See M.L. Steptoe “The Power-Buyer Defense in merger Cases” [1993] 61 Antitrust Law Journal 493 34 This is how buyer power was analysed in Case M.042 Alcatel/Telettra paragraphs 38-40 35 In fact in the United States the possibility that a buyer sponsors new entry is assessed under ease of entry (DOJ/FTC Horizontal Merger Guidelines (1992) s.3.0)

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C. DOMINANCE AS COMMERCIAL POWER

The case law’s definition of dominance is roughly structured along the lines suggested above to determine

whether an undertaking holds substantial market power. However, the case law departs somewhat from the

above approach so that consideration is given to commercial power and the ability to use this power when

“confronted by competition.”36 As John Temple Lang once suggested, dominance is the “ability to contain

competition.”37 The difference between dominance as substantial market power and dominance as commercial

power can be seen by considering the classical definition of dominance, one of the seminal cases where the

Court of Justice canvassed its concept of dominance (United Brands), and the more recent GE/Honeywell

decision.

1. The Seminal Cases

When the Court delivered the classical definition of dominance in Hoffman La Roche and spoke of the power

to “behave to an appreciable extent independently of competitors, customers and … consumers” this meant

that a dominant firm is not ‘absolutely’ free from other market participants. But it is more free from them than

they are from it. ‘Appreciable’ power means that the freedom is significant, not absolute. When competitors

challenge the dominant firm, it is able to contain them, they are not able to deploy the same tactics as it. It has

certain commercial advantages that competitors lack. The dominant firm is also independent of customers, it

can bind them by rebates when it is their “unavoidable trading partner.”38 But these tactics do not depend upon

any subsequent exploitation. Dominance disrupts the competitive process, abuse disrupts it further. The power

that the dominant firm has over rivals and customers is not relevant when one defines dominance as the

presence of substantial market power. An economic concept of dominance is mostly concerned about the

undertaking’s ability to harm consumer welfare, however when the Court in Hoffmann La Roche speaks of

“economic strength” it is with reference to the power to prevent effective competition by harming the

competitive process, thus having an influence on the conditions under which competition develops.39 A

helpful explanation of the role of dominance in the classical case law was recently offered by AG Kokott in

her Opinion in BA v Commission:

“The starting-point here must be the protective purpose of Article 82 EC. The provision

forms part of a system designed to protect competition within the internal market from

distortions (Article 3(1)(g) EC). Accordingly, Article 82 EC, like the other competition rules

36 Hoffmann La Roche supra n.1 paragraph 51 37 John Temple Lang “Some Aspects of Abuse of a Dominant Position in EC Antitrust Law” (1979) 3 Fordham International Law Forum 1,12 38 Hoffmann La Roche supra n.1 paragraph 41 39 Hoffmann La Roche supra n.1 paragraph 39

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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. In this way, consumers are also indirectly protected.

Because where competition as such is damaged, disadvantages for consumers are also to be

feared.”40

Thus, a firm is dominant when its presence distorts the competitive process, which is characterised by the

presence of several undertakings able to contest the market. The presence of a larger, commercially powerful,

entity, harms the prospects of its competitors.

The same concern about commercial power can be found in United Brands.41 In the Court’s view United

Brands’ vertical integration was evidence of dominance because it had certain advantages which none of its

competitors enjoyed: it owned several plantations and a fleet of ships to transport the bananas so it was always

able to make shipments to Europe, which “guarantees it commercial stability and well being.”42 Its research

and development efforts to prevent the spread of illness in banana plantations and work on increasing

productivity were also deemed to point to dominance, as well as its procedures for quality control and

advertising.43 However, this seems evidence of efficiency, not of economic power to harm consumers.

Moreover, the Court acknowledged that there was “fierce” competition on the banana market but noted that

United Brands was able to hold competitors off: “UBC’s economic strength has thus enabled it to adopt a

flexible overall strategy directed against new competitors establishing themselves on the whole of the relevant

market.”44 This conclusion does not tally with a definition of dominance based on the power to reduce output

and increase prices. Rather, it shows that UBC held a degree of market power that enabled it to respond to the

challenges of its competitors and to survive competitive pressures. However, when United Brands made this

argument and pointed to the fact that it was making losses and argued that loss making is incompatible with a

finding that it has power to fix prices, the Court was quick to dismiss this by saying that UBC still sold more

bananas than anyone else.45 Overall, the Court focuses on the undertaking’s commercial power, shown by its

40 Case C-95/04P British Airways v Commission (Opinion of 23 February 2006) paragraph 69 (emphasis in the original) 41 Case 27/76 United Brands v Commission [1978] ECR 207 42 ibid paragraph 81 43 Similar considerations were deemed relevant in Hoffmann La Roche supra n.1 paragraph 48 44 Supra n.41 paragraph 121 45 Supra n.41 paragraphs 126-128

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greater efficiency and by its ability to withstand the challenges of competition, and not on whether the

undertaking is free to set prices and reduce output.

2. GE/Honeywell

It is beyond the scope of this article to consider all the aspects of the Commission’s controversial

GE/Honeywell decision and the CFI’s recent decision affirming that the merger was rightly blocked, albeit

only because of its horizontal dimension.46 What is relevant for present purposes is the Commission’s finding

that GE held a dominant position in the market for large jet engines and the different view taken by the

Department of Justice. This helps to show how the Commission’s focus on commercial power in the early

cases is still present today.

As in all dominance cases, the Commission’s analysis begins with market shares and moves on to consider the

strength of competitors and other factors that contribute to dominance. It found that in the market for engines

for narrow-body large commercial aircraft, GE had a market share of 51%, Pratt & Whitney of 22% and Rolls

Royce of 25% while in the market for engines for wide-body aircraft GE held 54%, Pratt & Whitney 31% and

Rolls Royce 15%.47 It also found that the two competitors were incapable of mounting a credible challenge

against GE.

In addition to examining market shares and the countervailing power of competitors, the Commission also

found evidence of dominance in the fact that GE used its financing arm, GE Capital, as a means of foreclosing

rivals by using this financial might to offer discounts as a means of foreclosing rivals, and sometimes by

agreeing to finance a company in exchange for it buying GE engines exclusively.48 GE Capital also gave GE

the ability to finance risky investments in new products which competitors lacked.49 The Commission then

considered GECAS, an aircraft leasing company owned by GE which purchased 10% of the world’s supply of

aircraft. GECAS pursued a GE-only purchasing policy and in spite of the fact that this only guaranteed a small

amount of sales for GE engines the Commission said that GECAS could influence others to purchase GE

engines. So an airline leasing some GECAS aircraft could be persuaded to use GE engines on all its fleet.50

Thus both of these subsidiaries helped entrench GE’s dominance in the market for large jet engines.

46 Case M.2220 General Electric/Honeywell [2004] OJ L48/1 47 Ibid paragraphs 71-72 48 Ibid paragraphs 112-117 49 Ibid paragraph 110 50 Ibid paragraphs 121-139

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In contrast to these findings the Department of Justice (DOJ) considered that GE’s large market share was

mostly the result of its contract to supply engines to the Boeing 737, a most successful commercial aircraft. If

this unusual contract was excluded, then the market shares of the major players for all large jet engines (wide

and narrow bodied) would be: GE 44%, P&W23%, Rolls Royce 27%.51 These market shares would suggest a

more competitive market. In fact the DOJ found evidence that both of GE’s competitors had increasing

revenues and were investing in new products, and Rolls Royce had made a public statement where it said it

expected its installed base to double over the next five years. The fact that GE seemed to be losing ground and

its competitors seemed healthy was seen as evidence of a lack of market power.52

It follows that, if the competitors are healthy, then the other aspects of dominance (GE Capital and GECAS)

which the Commission described as GE’s “toolkit for dominance”,53 are not material factors that help in the

consideration of whether GE is dominant. Whatever advantage they gave was insufficient to give GE that

added strength to price independently of its competitors. Moreover, access to capital was seen as evidence of

efficiency by the DOJ,54 and GECAS’s small purchases were insufficient to suggest foreclosure, which is only

likely when a firm forecloses 30-40% of a market, not just 10% of it.55

Again here, as with United Brands, the Commission confuses commercial strength (which GE undoubtedly

had) with market power (which, based on the analysis carried out by the DOJ, GE lacked). In the

Commission’s eyes efficiencies are evidence of dominance even when it seems that consumers are benefiting.

It is interesting to note that in some instances the Commission’s evidence of dominance comes from Forbes

and Fortune magazines. All that these quotes show, with very colourful language, is that GE is successful, and

the Commission equates commercial success with dominance.56

The reason this aspect of the Commission survived judicial review is because the Court agreed that

commercial power is relevant to establish dominance. The Court was persuaded that the “strategic”57 use that

GE made of GE Captial and GECAS gave it greater sales and was evidence that GE can respond to

competitive pressures. This conclusion was reached in spite of the fact that the Commission failed to prove

51 W.J. Kolasky Conglomerate Mergers and Range Effects: It's a Long Way from Chicago to Brussels Speech 9 November 2001 (available at: http://www.usdoj.gov/atr/public/speeches/9536.pdf) 52 ibid 53 G. Drauz ‘Unbundling GE/Honeywell: The Assessment of Conglomerate Mergers under EC Competition Law’ (2002) 25 Fordham International Law Journal 885, 898 54 D.P. Marjoras ‘GE – Honeywell: the US Decision’ (available at: http://www.usdoj.gov/atr/public/speeches/9893.htm#N_10_) 55 United States v. Microsoft, 87 F. Supp. 2d 30, 53 (D.D.C. 2000). 56 Supra n.46 paragraph 167, quoting from Forbes (‘Instead of selling engines, [Jack Welch] is selling power, since some clever financing helped GE win the business.’); paragraph 117 (Fortune) 57 Case T-210/01 General Electric v Commission Judgment of 14 December 2005 paragraph 188

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with statistical evidence that GECAS had affected sales of GE engines. Instead the Court concluded that this

evidence was unnecessary because “the Commission showed by reference to specific incidents that the

applicant deliberately exploited the commercial opportunities arising from GECAS’s activity and from the

financial strength of GE Capital in order to promote its engines and that that policy met with success, it has

sufficiently established its case that the use of those commercial levers contributes to its dominance.”58 This

reasoning is in conflict with the CFI’s earlier statements that the Commission had an obligation to provide all

the information which is necessary to substantiate its conclusions.59 The CFI also adopts a contradictory

approach in that in this passage it accepts the Commission’s anecdotal evidence that GE benefited from the

presence of its subsidiaries, but at the same time it rejects the applicant’s anecdotal evidence that there was

lively competition in the market for engines. In that context, the CFI said that the fact that some contracts

were won by competitors was insufficient to prove that GE wan not dominant.60

3. Motivations for Focusing on Commercial Power

In sum, as one leading practitioner text concludes: “the elusive concept of ‘dominance’ sometimes boils down

to that of ‘pre-eminence’: a large company whose share of a particular market exceeds those of its competitors

will often be found dominant seemingly with little consideration of its market performance or the overall

degree of competition in the market.”61 Significant market power, however, is inconsistent with unsuccessful

market performance, or with competitive markets. It would be hard to see whether the facts in United Brands

would be sufficient to find substantial market power under the Commission’s new methodology in the

Discussion Paper, and as we have suggested, there seemed to be lively competition that constrained GE’s

ability to increase prices and reduce output. On the contrary, the evidence suggested that GE was offering

good prices in response to competitive pressures. However both undertakings had a range of commercial

advantages that allowed them to resist the challenges of their nearest rivals. This is not however proof of

substantial market power.

The reason why the Community favours a concept of dominance that focuses on commercial power is its

concern for economic freedom (drawing upon ordoliberal notions of competition). 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.”62 This philosophy underpins AG Kokott’s

58 ibid paragraph 242 59 Ibid paragraph 63 60 ibid paragraph 249 61 Van Bael and Bellis supra n.24 p.130 62 W. Möschel “Competition Policy from an Ordo Point of View” in A. Peackock and H. Willgerodt German Neo-Liberals and the Social Market Economy (1989); W. Möschel “The proper Scope of Government Viewed from an

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Opinion in BA v Commission, in particular her reference to competition as an ‘institution.’63 Note how in her

view the primary beneficiaries of Article 82 are other firms: priority is given to the process of competition, and

if this ‘indirectly’ (her word) protects consumers, then this is a bonus. This is an exact replica of ordoliberal

thinking, where the benefit of competition is a market characterised by a desirable process, and the end results

do not matter: ordoliberals would prefer a state of inefficiency coupled with freedom to a totalitarian, but

efficient, state of affairs.64

There are clear reasons why the Commission is keen to depart from this approach. The aim of the review of

Article 82 is to bring the law in line with ‘mainstream economics.’65 It is imperative for the success of this

objective that the Commission departs from the current concept of dominance. However, it is submitted, this

departure is significant and not merely cosmetic: it can reduce considerably the Commission’s ability to find

dominance, and as a result, narrow down the scope of the abuse concept.

D. DOMINANCE AS THE POWER TO EXCLUDE COMPETITORS SO AS TO GAIN POWER TO

RAISE PRICE

1. A Wider Concept of Dominance?

Defining dominance as the power to harm rivals so as to gain substantial market power draws on what is

sometimes referred to as a ‘post-Chicago’ way of thinking about market power.66 It considers whether the

dominant firm is able to act strategically on the market to gain substantial market power. It might be said that

this approach is more relevant to US antitrust law than to EC competition law. This is because Section 2 of the

Sherman Act (the rough equivalent of Article 82) penalises not only firms that currently hold a ‘monopoly’ but

also firms that ‘monopolise’ the market. That is, firms without market power who move on to gain this power.

However, the Discussion Paper makes a passing reference to the power to exclude rivals. In discussing the

meaning of substantial market power as the power to set prices above the competitive level, the Commission

states that this can be achieved by the undertaking reducing its output “or by causing rivals to reduce their

Ordoliberal Perspective: The Example of Competition Policy” (2001) Journal of Institutional and Theoretical Economics 3 63 Above n.40, paragraph 69 64 C. Watrin “Germany’s Social market Economy” in A. Kilmarnock (ed) The Social Market and the State (The Social market Foundation 1999) pp.91-95 65 P. Lowe “DG Competition’s Review of the Policy on Abuse of Dominance” (2003) Fordham Corporate Law Institute (Hawk, ed. 2004) 163, 165 66 See generally H. Hovenkamp “Post-Chicago Antitrust: A Review and Critique” (2001) Columbia Business Law Review 257; D. Chalmers, C. Hadjemmanuil, G. Monti and A. Tomkins European Union Law (Cambridge: Cambridge University Press, 2006) pp.932-933

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output. The foreclosure of competitors may therefore allow the dominant company to further raise price or

keep prices high.”67 As we have seen in parts B and C above, the case law has never shown this much

foresight. The power to harm others has been noted when looking for dominance but the evil is the power to

harm others, not the consequences that this has for consumer welfare. Neither United Brands or General

Electric go beyond identifying strategies which the dominant undertaking uses to compete against rivals.

Thus, this paragraph is also part of the Commission’s transformation of the older case law, and it raises the

standard of proof for the Commission: proof of strategic behaviour is no longer sufficient without an

assessment of whether the exclusion allows the undertaking to raise prices. In this light the Discussion Paper

qualifies one of the key passages in GE v Commission. In its preliminary remarks on dominance the CFI said:

“in order to establish that a dominant position exists, the Commission does not need to demonstrate that an

undertaking’s competitors will be foreclosed from the market, even in the longer term.”68 However, this

statement should now be read subject to the proviso that if dominance is established by the power to exclude

rivals, then evidence of foreclosure that allows the undertaking to raise prices is necessary.

2. Anticompetitive Effects as Evidence of Dominance

On the above reading, the brief allusion to the power to exclude in the Discussion Paper merely supports the

Commission’s overall determination to recast the concept of dominance as being consistent with significant

market power. However, if the gist of an abuse under Article 82 is an anticompetitive effect, can we do away

with the concept of dominance?

An affirmative answer to this question was provided by the Economic Advisory Group for Competition Policy

(EAGCP). In their view an economic approach to abuse necessitates the finding of competitive harm, so that

there is no need to have a preliminary determination of dominance. ‘Rather, the emphasis is on the

establishment of a verifiable and consistent account of significant competitive harm, since such an anti-

competitive effect is what really matters and is already proof of dominance.’ 69 This is a challenging

proposition but the Commission was right not to use this as the basis for its reform for two related reasons.

First, the argument is not convincing. The EAGCP argue that the finding of competitive harm means that there

is dominance. This is a little strange if taken at face value because in competition law we find anticompetitive

harm even when there is no dominance, one needs only to refer to the case law on Article 81. Moreover the

nature of the anticompetitive harm can be similar. One of the key anticompetitive harms identified in the

67 Supra n.4 paragraph 24 68 Supra n.57 paragraph 114 69 Report by the EAGCP An economic approach to Article 82 (July 2005) p.4

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Discussion Paper is foreclosure, yet this is also a kind of competitive harm which is regulated under Article

81. Thus, unless we are able to identify a list of anticompetitive effects that can only obtain if the offender has

substantial market power, then the suggestion that dominance is implicit in a finding of anticompetitive effects

does not make any sense. The EAGCP’s argument is understandable because the authors wished to argue that

their proposal fits within the legal norm of Article 82. In their view the Treaty does not require a separate

finding of dominance.70 While this is plausible, it does not follow that every anticompetitive effect

presupposes the existence of dominance.

Second, the EAGCP suggestion would actually widen the scope of EC competition law beyond what Article

82 provides. As remarked above, Article 82 does not punish the creation of a dominant position, only the

abuse of a pre-existing dominant position. This might be under-inclusive: a non-dominant firm might seek to

eliminate a rival so as to obtain a dominant position, for example using predatory pricing. This kind of strategy

is premised on an aggressive first phase where the competitor is excluded, followed by a second phase where

the newly dominant firm is able to increase prices to recoup the losses made during the aggressive phase.71

According to the economic literature, dominance during the first phase is not necessary, provided that the non-

dominant entity is able to gain dominance in the second phase. After reviewing the current theories of

predation, Professor Motta argues that when a competition authority is devising its predatory pricing rules it

should require dominance at the first stage, but this is not because dominance is necessary from an economic

perspective. Rather, Motta acknowledges that a non-dominant firm could engage in a successful predatory

strategy, but that challenging non-dominant firms would create a risk of several Type 1 errors, and this would

chill price rivalry. It is preferable, in his view, to make some Type 2 errors (which he says will be small

because few non-dominant firms will be able to mount a successful predatory pricing campaign).72 Therefore,

economic theory does not say that predatory pricing is only possible if the predator is dominant. Thus if one

were to agree with the EAGCP’s views that the focus should be on anticompetitive effects, one could be

punishing predatory pricing by non-dominant firms. This policy might make economic sense, and may in fact

point to a ‘gap’ in EC competition law, however this cannot be filled by ignoring the legislative text.

In fact, the logical conclusion of the EAGCP’s proposals is something more radical, which they however do

not suggest: the abolition of Article 82. A similar suggestion was made eloquently by Judge Richard Posner.73

First he suggested that all antitrust statutes should be repealed and replaced by a single stature prohibiting

70 Ibid pp.14-15 71 The seminal work to conceive of predation as a two-part practice is P.L. Josokw and A.K. Klevoric ‘A Framework for Analyzing Predatory Pricing Policy’ (1979) 89 Yale Law Journal 213 72 M. Motta Competition Policy (Cambridge: Cambridge University Press, 2004) pp.442-444 73 R.A. Posner Antitrust Law 2nd ed (Chicago: University of Chicago Press, 2000) ch.9

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“unreasonably competitive practices.”74 His argument is that from a truly economics-based perspective, there

is no need to construct legal formulae to determine the scope of application of antitrust law, the question is

merely whether the undertaking’s act reduces economic welfare. He then went on to suggest, as a less radical

option., the abolition of all statutes except Section 1 of the Sherman Act and argued that there is no need for a

monopolization offence under Section 2 because Section 1 can catch all unreasonable anticompetitive

practices, and even predatory pricing can be caught under Section 1 because there is an agreement between the

predator and his customers.75 The upshot of Posner’s provocative suggestions is that if one takes economics

seriously, then what should be punished is conduct, whatever its form, that harms economic welfare and has

no efficiency justification. On this view, the form of current antitrust statutes is defective. The EAGCP’s

proposals therefore were rightly rejected in the Discussion Paper because they would entail a rewriting of the

competition laws, a reform that is politically unlikely, even if it is, arguably, economically rational.

E. DOMINANCE AS A THRESHOLD FOR THE APPLICATION OF ARTICLE 82

1. Dominance as a Jurisdictional Criterion

An alternative approach might be to transform the dominance concept as a ‘threshold’ measure, comparable to

the role market shares play under Block Exemptions. On this view, dominance would become a purely

jurisdictional issue: we would assume that below a given threshold Article 82 does not apply. Market shares

could be used to provide this threshold, and it is an approach that we encounter in one of the classical

American antitrust cases, Alcoa.76 There, Judge Learned Hand opined that:

“The percentage we have already mentioned – over ninety – … is enough to constitute a

monopoly; it is doubtful whether sixty or sixty-four percent would be enough; and certainly

thirty-three per cent is not.”77

There are two possible advantages to reducing dominance to a threshold issue. First, if this solution is

combined with an effects-based examination of abuse doctrines as proposed in the Discussion Paper, this can

focus the abuse analysis squarely upon whether the undertaking’s actions cause harm. Today undertakings

litigate over market definition and dominance because once these two elements are established there is a list of

practices that are per se unlawful. They might be less inclined to dispute these elements if they were confident

that their behaviour would not be punished unless the Commission proves an anticompetitive effect. This quid

74 Ibid 260 75 Ibid pp.263-264 and p. 260 76 US v Aluminium Company of America 148 F.2d 416 (1945) 77 Ibid p.424

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pro quo also characterises the Commission’s use of market share thresholds in the application of Block

Exemptions. While many have criticised the use of market share thresholds because they are arbitrarily fixed

(and in fact it seems that the 30% threshold in vertical restraints was simply reached after disagreement as to

whether the threshold should be 20% or 40%),78 this is accompanied by a reassurance that vertical restraints

used by firms who do not benefit from the Block Exemption find their agreements scrutinised using an

economics-based approach.

The second advantage of designing a threshold concept of dominance relying solely on market shares is that it

can place better order to the abuse inquiry. If abuse requires a showing of either (a) direct harm to consumers

or (b) indirect harm to consumers through the foreclosure of markets, then the evidence about entry barriers,

the strength of competitors and the creation of entry barriers by the dominant firm are all matters that can be

examined together at the ‘abuse’ stage to determine if in fact the dominant firm’s actions are likely to cause

anticompetitive harm, rather than at the ‘dominance’ stage. In other words, all the ‘other’ elements that are

necessary to determine dominance under the current approach are of more use when considering how far the

alleged abuse is likely to have anticompetitive effects.

If we agree to use dominance as a threshold measure, this requires us to identify a safe harbour below which

dominance cannot exist. This is what Judge Learned Hand offered in Alcoa. On that approach undertakings

whose market share fell below 33% were sure not be found to have monopoly power. A safe harbour of course

creates the risk of Type 2 errors. That is, it can lead to under enforcement in that a firm may well be dominant

in the economic sense even if it does not reach the thresholds. This should not be taken to mean that a safe

harbour approach is impractical however, provided the safe harbour is not set at too low a level. Moreover, the

risk of Type 2 errors can be avoided because Article 81 can continue to apply to many kinds of exclusionary

abuses. Of the abuses in the discussion paper, only two are not actionable under Article 81: predatory pricing

and refusals to supply. Tie-ins, single branding and rebates can all be analysed as agreements restrictive of

competition using Article 81.79 This allows one to set the safe harbour at a higher level than that suggested by

Judge Learned Hand.

Taking the above factors into consideration, what safe harbour market share might be suggested? A refusal to

supply can only be an abuse if the victim of the refusal has no other source for the goods or services provided ,

and a predatory pricing campaign is only plausible if there are very few competitors which can be eliminated

78 Green Paper on Vertical restraints in EC Competition Policy COM (96) 721 final 79 And query whether one should merely apply Article 81 to these practices. See E. Rousseva “Modernising by Eradicating: How the Commission’s New Approach to Article 81 EC Dispenses with the Need to Apply Article 82 to Vertical Restraints” (2005) 42 Common Market Law Review 587

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easily. This suggests that a high dominance threshold of 70% might be appropriate. This figure seems to

represent the levels at which antitrust agencies in the US and Canada identify dominance.80

2. Market Shares as a Filter

However, the Discussion Paper refuses to accept the use of market shares as safe harbours. The Commission

prefers to use the market share as a preliminary indication of dominance.81 This is the approach that the

Discussion Paper seeks to codify, albeit with an imprecise interpretation of the case law. The Discussion Paper

provides:

It is very likely that very high markets shares, which have been held for some time, indicate a dominant

position. This would be the case where an undertaking holds 50 % or more of the market, provided that

rivals hold a much smaller share of the market. In the case of lower market shares, dominance is more

likely to be found in the market share range of 40 % to 50 % than below 40 %, although also undertakings

with market shares below 40 % could be considered to be in a dominant position. However, undertakings

with market shares of no more than 25 % are not likely to enjoy a (single) dominant position on the

market concerned.82

This statement is broadly in line with the view of a leading practitioner text,83 however it reinterprets the case

law to which it refers. Let us look at this passage sentence by sentence. The first sentence is unproblematic as

it reflects the view taken in Hoffmann La Roche and regularly confirmed in later cases: dominance cannot be

transitory.84

The second sentence is very confusing. It is drawn from AKZO, but it does not reproduce the AKZO dicta

correctly. In that case the Court held that a market share of 50% would be, absent “exceptional

80 J. Bruce McDonald “Section 2 and Article 82: Cowboys and Gentlemen,” Speech before the College of Europe, Brussels, June 16-17, 2005, available at: http://www.usdoj.gov/atr/public/speeches/210873.htm. (suggesting market shares below 70% would rarely indicate the presence of dominance. However, the picture is somewhat different in the lower courts, which infer dominance at 70%, have never found dominance below 50% and there are divisions about the presence of market power in the 50-70% range. ABA Section of Antitrust Law Antitrust Law Developments (4th ed 1997) pp.355-6. In the cases taken up by the Canadian Competition Tribunal, dominant firms had market shares of 80% or above. C.S. Goldman “Abuse of Dominant Position: The Canadian Approach” Eighth Annual EU Competition Law and Policy Workshop 2003What is an Abuse of a Dominant Position? Available at: http://www.iue.it/RSCAS/Research/Competition/Menu.shtml 81 Supra n.4 paragraph 29 82 Supra n.4 paragraph 31 (footnotes omitted) 83 Van Bael and Bellis supra n.24 pp.123-126 84 Hoffmann La Roche above n.1 paragraph 41; Case T-139/98 AAMS v Commission [2001] ECR II-3413, paragraph 51

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circumstances”, evidence of dominance.85 The Discussion Paper narrows this to one circumstance: the market

shares of rivals. The effect of this could be to widen the possibility of an automatic finding of dominance

under Article 82. For example: say an undertaking has a market share of 55% and entry barriers are low.

Applying AKZO there is no dominance because one can invoke the “exceptional circumstances” requirement.

In contrast, applying the Discussion Paper, one merely looks at the market share of rivals and so there can be

dominance at 55%. However, this is not how the Commission wished to see this sentence interpreted. In a

recent public statement the Commission stated that the Discussion Paper sought to “remove the dominance

presumption that the courts have created for a firm with a 50% market share.”86 This statement is helpful

insofar as it is more consistent with the identification of dominance as SMP, however it is indicative of the

poverty of the Discussion Paper: the Commission’s public statement clearly provides that the Commission

intended to depart from the case law of the ECJ, however at the same time the second sentence in the passage

above in the Discussion Paper has a footnote reference to the AKZO case as authority for that statement. So the

Commission cites a case for a proposition of law which it actually wishes to depart from! This suggests a

systemic failure in the way this Discussion Paper is drafted.

The third sentence is remarkable for its lack of substance, read closely it says nothing more than that below

50% a finding of dominance is possible. The third sentence is probably a correct reflection of the

Commission’s practice, however. In most cases the Commission has found dominance with market shares

over the 50% mark although there have been significant decisions where dominance was found below the 50%

threshold.87 So far only in BA/Virgin has the Commission found dominance below 40% (and even there, the

market share was 39.7%).88 An additional criticism of the third sentence is that the case law cited in the

footnotes does not provide real support for the statement made. The statement in the third sentence is that

dominance is more likely in the 40-50% band than below 40%. The case law cited (United Brands and Gøttrup

Klim) however does not provide support for this statement, in fact in both judgments we find an identical

statement about how to determine dominance. Nowhere in the passages that the Commission refers to is there

a legal basis for finding that dominance is less likely below 40%. In fact, in both cases the Court states that

other factors need to be looked at when the market shares are below 50%. And there is nothing in these

passages to lead us to believe that the kinds of factors we need to look for are any different depending on

whether the market share is above or below 40%.89

85 Case C-62/86 AKZO Chemie BV v Commission [1991] ECR I-3359 paragraph 60 86 M. Albers, quoted in “Article 82 Exclusionary Conduct Discussion Paper: An Interview with Michael Albers and Luc Peeperkorn” available at: http://ec.europa.eu/comm/competition/index_en.html 87 E.g. United Brands supra n.41 (40-45%) 88 BA/Virgin [2000] OJ L30/1 89 United Brands supra n.41 paragraphs 108-112; Case C-250/92 Gøttrup-Klim e.a. Grovvareforeninger v Dansk Landbrugs Grovvareselskab AmbA [1994] ECR 5641 paragraph 48

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The final sentence (which is taken, verbatim, from the Guidelines on significant market power under the

Community regulatory framework for electronic communications although this source is not acknowledged)90

represents a worrying conclusion because it suggests that even firms with very low market shares might be

found to be dominant. As with the second sentence, this could widen the scope of dominance. It is not clear

why the Commission believes that it is necessary to have the option of invoking Article 82 where the market

share is as low as 25%. There is no precedent for the use of Article 82 in this context, so when might this

apply? The Commission’s footnote in this context is unhelpful because it cites the EC Merger Regulation,

which merely provides that where the merged entity’s market share is below 25% is unlikely to substantially

impede effective competition, and says nothing about dominance. This has no value in understanding why the

Commission wishes to be able to find dominance when market shares are relatively low, in fact it suggests the

opposite: that there are unlikely to be problems where one firm has such low market shares. One clue to the

Commission’s wish to retain the ability to apply Article 82 to undertakings with low market shares might be

found when the Discussion Paper suggests that the relevance of market shares should be qualified by an

analysis of product differentiation.91 This recalls the discussion about unilateral effects in markets

characterised by product differentiation. It will be recalled that economic theory suggests that a firm may hold

market power even if it seems like market shares are low when products are differentiated. Thus a merger

between the number two and three baby food producers was said to lessen competition because the merged

entity would be able to exploit its position even if the number one producer held a significantly higher market

share. Customers always wished to stock two brands of baby food, and while the number one was a ‘must

stock’ item, there was intense competition between the numbers two and three which the merger would

eliminate.92 The upshot is that the Commission reserves the right to investigate sellers of branded goods even

when their market shares are very low when the degree of inter-brand competition is weak because of product

differentiation. However, if this is the Commission’s intention, a lot more detail is necessary. For example,

brand recognition is already something which is used to determine dominance:93 when does a brand become so

distinctive that we think of the brand owner as “dominating” a market because of that as opposed to treating

brand recognition as a factor to show dominance?

90 Commission Guidelines on market analysis and the assessment of significant market power under the Community regulatory framework for electronic communications networks and services [2002] OJ C165/6 paragraph 75 91 Supra n.4 paragraph 33 92 The example is drawn from FTC v H.J. Heinz Co. 246 F.3d 708 (2001) the so-called Baby Foods case. On unilateral effects generally, see S.B. Volcker “Mind the Gap: Unilateral Effects Analysis Arrives in EC Merger Control” [2004] European Competition Law Review 395 93 Supra n.4 paragraph 40, indent 7

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F. CONCLUSION

It is unfortunate that the Commission’s decision to consult about the reform of Article 82 was drafted in the

style of guidelines because this makes it difficult for the Commission to explain what the proposed change of

policy is and why the change is occurring, and difficult for the reader to see what the reform is. It takes

knowledge of what the case law was and an eagle eye for detail to spot the changes proposed in the Discussion

Paper. The fact that as was noted above, some of the footnote references to the case law are misleading,

compounds the lack of transparency that characterises the Discussion Paper. A narrative style (like that

adopted in the Green Paper on Vertical Restraints) would have allowed the Commission to discuss its change

of policy in a more transparent manner. These criticisms all apply to the dominance section: the Commission

seems to want to modify its policy, but it does so adopting a framework that seems to maintain the current

position, so that the Discussion Paper is torn between wishing to carry out some reform and keeping the

application of Article 82 in line with the case law.94 Moreover as has been suggested above, there are instances

where the Discussion Paper transforms the case law by departing from uncomfortable precedents which had

been criticised.95

Assume that we read the Discussion Paper as a set of guidelines. Then the discussion of dominance could

appear threatening: first the paper suggests that dominance may be found with market share thresholds that are

much lower than those in the current case law, second the Commission seems to suggest that exclusionary

abuses of collective dominance are possible even though we have no real precedents for this application of

Article 82, third the Commission reserves the right to intervene in markets where market power arises by the

presence of product differentiation. All these possibilities widen the concept of dominance and concomitantly

the scope for the application of Article 82. This is surprising given that the major criticism of the Commission

is the aggressive application of this provision. Moreover, the presumptive dominance market share thresholds

sit uneasily with the suggestion that dominance means substantial market power and the Commission’s

welcome classification of entry barriers.

94 This is also evident inMEMO/05/486 Commission discussion paper on abuse of dominance - frequently asked questions, where the Commission states ‘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.’ 95 I identified the following transformations: a shift away from dominance towards SMP (Part B.1); developing the role of buyer power (Part B.2.b); the development of ‘reputation effects’ (part B.2.a); the power to exclude (part D.1); AKZO’s presumption of dominance at 50% market share removed (Part E.2)

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The criticisms made so far are based on an attempt to read the Discussion Paper as if it were a comprehensive

set of guidelines. Assume instead that the key to this part of the Discussion Paper is a shift from finding

dominance whenever a large firm has commercial power towards defining dominance as the presence of

substantial market power. That is, the Discussion Paper masks a radical change in convoluted language. Then,

the Discussion Paper should be welcomed because it transforms the notion of dominance so that the relevance

of commercial strength vanishes. The benefit of this is that the chances of being found dominant are reduced,

the formalism of market shares is abandoned, and so the scope of application of Article 82 diminishes

considerably. At which point, we might conclude by asking whether if, by narrowing down the concept of

dominance only to firms that have true economic power, the rest of the reforms mooted in the discussion paper

become irrelevant. That is, might not a strict, per se, abuse doctrine be acceptable if the concept of dominance

is reduced in scope?