Dominance – the lost child? Do effects-based rules mean the end of dominance analysis?

1. Dominance – the lost child?Do effects-based rules mean the end of dominance analysis? BICCL Reform of Article 82 24 February 2006 Thomas Eilmansberger, University of Salzburg

2. Dominance according to the Courts • United Brands: "the dominant position ... relates to a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by giving it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of its consumers“ • Definition already refers to two basic types of abuse (and thereby suggests nexus between abuse and dominance) • Causal connection betweenpotential to exclude and capability to exploit • Thus also in exclusion cases dominance is regularly assessed with regard to potential to behave independently (e.g. raise prices) • However, capabilities to exclude and to exploit are not two sides of the same coin: power to raise prices does not necessarily afford power to exclude or hinder competitors • Dominance analysis in exclusion cases needs to be more attuned to investigated abuse • often (though not generally) higher degree of dominance is required

3. Overview • Dominance analysis in connection with effects-based abuses • Why do we need a more effects-based analysis under Art 82 and what kind of effects are relevant? • Purpose of abuse control under Art 82 and nexus between dominance and abuse • Concrete implications of a more effects-based approach for dominance analysis • Dominance analysis in other cases

4. Basic goal of control of anti-competitive abuses under Art. 82 and the nexus between dominance and abuse • Central objective of control of anti-competitive abuses under Art. 82 is prevention of distortions of competition connected with market power • “Art 86 is an application of the general objective of the activities of the Community laid down by Art 3 f of the Treaty namely the institution of a system ensuring that competition in the Common Market is not distorted” (Hoffman-La Roche, Continental Can) • Aim of Art. 82 not only to force dominant firm to compete on the merits, but to safeguard competitors’ opportunities to succeed on the merits • This objective suggest nexus between dominance and abuse • See also wording: prohibited is not abusive behavior by dominant firm, but “abuse of dominant position” • Tetra Pak II (ECJ), Irish Sugar (CFI), notice access agreements (Commission)

5. Role of efficiencies and consumer harm • Consumer welfare and efficiency considerations do not justify raising dominance threshold • System of undistorted competition no end in itself but safeguarded for benefit of consumer (in real, not Chicago sense of the term) • But : Art. 82 protects the competitive process regardless of threat of immediate consumer harm (Continental Can) • Prevention of consumer harm may be central rationale of but it is not a necessary condition of abuse control • Therefore: efficiency of practice as such should not determine its abusiveness under Art. 82 either • Abusiveness is not to be equated with inefficiency • But: Thorough determination of effects and economic analysis/evaluation of efficiencies is crucial for assessment under relevant abuse standards • Only very few practices are per-se abusive

6. Categories of abuses linked to market power • No nexus and thus no abuse: normal unfair practices • i.e. distorting competition regardless of dominant position of perpetrator • e.g. misleading advertising, industrial espionage • Astra Zeneca? • Direct link between dominant position and practice (“instrumental causality”) • practice (or commercially successful implementation) requires dominance • Leveraging (tying, refusal to share necessary input) • Link between objectionable effect (distortion of competition) caused by practice and dominant position • Effect is alteration of structure of the market (and thus of dynamics of competition) • Continental Can: impact on “effective competition structure” • Hoffmann-La Roche: “behavior […] which is such as to influence the structure of a market” • not: increase of market share at expense of competitor

7. What are the relevant effects? • Relevant effect is not the hindering of competitors but the manipulation (“influence”) of the market structure • Supply-side: friendly or unfriendly elimination, intimidation of competitors) • e.g. acquisitions, collusion, predation • mere meeting of competition will normally not produce such effects • Demand-side: foreclosure; lasting change of pattern of demand • e.g. exclusive purchasing obligations, rebate schemes • But only if the firm’s practices themselves (and not in combination with competitors practices) bring about effect • Potential or likelihoodto bring about relevant effects sufficient? • Yes, but development of market shares indicative • [important footnote: Intent is also necessary and is regularly relied upon in case law and decisional practice]

8. Implications of effects-based approach for dominance analysis • Dominance may become irrelevant for practical purposes • Foreclosure can also be achieved by non dominant firms • no need to establish dominance to condemn foreclosure by possibly dominant firm brought about by agreement • Establishment of dominance remains necessary only with regard to unilateral (intra-enterprise) practices falling under Art 82 • is rebate scheme unilateral or bilateral practice? • Dominance threshold: degree of market power (market share) necessary to (single-handedly) achieve foreclosure effect • In (certain) predation cases degree of dominance becomes relevant • Superdominance may be required to produce certain effects • e.g. elimination of competitors by selective price cuts • In all cases preliminary assessment of dominance seems superfluous: analysis should focus on anti-competitive effects (structural effects) first • Even where dominance needs to established it does not need to be assessed separately as it usually (though not always) is a function of the anti-competitive effects

9. Link between dominance and abuse: implications for dominance analysis in general • Link between abuse and dominance suggests that dominance analysis be generally (i.e. not only for effects related abuses) more focused on investigated abuse • Dominance should be understood as potential to (single-handedly) distort competition • Foreclosure and predation practices (see above): “conventional” dominance indicative but not necessarily sufficient • above-cost (selective) prices: usually superdominance required • Tying: “conventional” dominance sufficient as capability to exploit also confers capability to distort competition • Refusal to deal: finding of “conventional” dominance gratuitous • Essential facilities: dominance not sufficient; complete absence of even imperfect substitutes required (otherwise no leveraging possible) • Supply of resellers: market shares and dominance on end-user market at best have some indicative value for abuse potential