Competition Law is predicated on, and is therefore intimately related with, Competition Economics. In successful competition proceedings, therefore, law, economics and strategy must be made to work hand in hand throughout the entire competition policy process.
As a matter of fact, Competition Policy’s modern underpinning may be preponderantly found in the teleological utilitarian welfare economics doctrine that seeks to increase social welfare, with the rest coming from the deontological doctrine setting out a rights-based applicability framework.
Competition law and its enforcement, which encompasses notifications, National Competition Authority (NCA) scrutiny, scrutiny by the European Commission (EC) and competition-related litigation, are highly-dependent on economic analysis since their very inception, when the relevant market over which the abuse is being alleged is defined, up till the very end of the process when a verdict is delivered, and fines and damages, if any, are determined.
The process is usually kick-started when an allegation of abuse is levelled by:
- an undertaking at another economic operator or at the State (in the case of State Aid);
- an aggrieved customer or group thereof;
- the NCA; or
- the European Commission
The analytical process that starts with, or immediately follows, the allegation of abuse endeavours to study the market over which the abuse has been alleged, and to that effect needs to define a relevant market. In practice, this would entail the definition, from a competition economics point of view, of the relevant product and geographical market. This is no easy or uncontentious task due to the number of possible ways of defining a market, and would normally entail tests that are carried out on an initial definition of the market to ensure that the claim being made on the basis of a particular market definition is resilient and will be able to hold.
In this respect, markets can be defined, among others, in terms of the following common dimensions:
- Narrowness / Broadness of scope;
- Supply-Side perspective;
- Demand-Side perspective;
- In terms of their Substitutability;
- In terms of their Geographical Location(s) and Boundaries;
- In terms of their essentiality (elasticity of demand);
- With respect to some reference time frame;
To this, one would normally need to add other dimensions according to the case and the specific market being dealt with.
Anti-trust law in general and former Article 82 of the EC Treaty (now Article 102 TFEU) in particular only apply to the conduct of firms that are dominant at the time the alleged abuse is committed, meaning that firms can act with a degree of independence from their competitors and consumers.
Assessing dominance requires an assessment of whether a firm under investigation faces significant competitive constraints over the relevant market. This comprises all those products (and their geographic locations) that impose an effective competitive constraint on the product(s) of the firm whose unilateral practices are under scrutiny to be run first. The second step usually involves an assessment of the competitive position of the allegedly dominant firm on the relevant market.
The market definition obviously constitutes a critical step in the assessment of dominance thus described and European Community Courts consistently held that the definition of the relevant market is an essential prerequisite for any assessment of dominance, given that whether a firm is actually found to be enjoying a dominant position can be materially influenced by scope of the relevant market as defined. Indeed, an overly-narrow definition will be under-inclusive and lead to the imposition of unjustified obligations on a firm, whereas an excessively broad one will be over-inclusive and allow unilateral conduct that threatens effective competition to escape scrutiny.
Finding the right scope is usually a matter of qualitative economic analysis, quantitative econometric analysis and also of capitalisation on the numerous official guidelines, notices, papers and instances of case law.
The EC’s Notice on the definition of relevant market for the purposes of Community competition law (97/C 372/03) defines the relevant product market as comprising “all those 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”.
It is also worth noting that the approach to market definition under Article 102 TFEU is broadly consistent with principles applied in merger cases and Article 101 TFEU. In each case, the purpose of delineation of the relevant market is to identify competitive constraints faced by firm(s) under investigation. A number of differences also exist in relation to the definition of competitive constraints and the use of the market definition.
Following the definition of the market, the abuse must then be clearly detailed by the plaintiff. A defendant, on the other hand, would at this stage prepare a line of defence intended to rebut the allegations.
The plaintiff (if it is a private sector entity) must then decide on whether to initiate litigious action or whether to allow the NCA or the EC to close their case first if an investigation is ongoing, possibly requesting to be allowed to intervene in the proceedings if a basis for locus standi exists, and subsequently initiate such action or desist from initiating action on the basis of the outcome of the proceedings by the NCA or the EC. The plaintiff can also decide to desist from initiating action itself, by limiting its actions to complaints with the authorities. Class actions are also possible. If the NCA or the EC investigate an instance of abuse of their own volition, the findings of abuse will be presented to the relevant court(s) and/or tribunals and if an entity is found guilty of anticompetitive abuse, it will be fined in accordance with a computation of the cost of the abuse in question to society. This computation will also be an economics-based computation.
A private sector plaintiff wanting to complain to the authorities of an abuse has the option of appealing either to the NCA or to the EC if specific circumstances are met. Moreover, exculpation by a national tribunal or authority at the Member State level can, at any time, be reversed by the European Commission, which is the sole entity that can claim to have a final say as to whether an undertaking has breached EU rules following a recent ruling by the ECJ (C-375/09).
It is important to note that competition policy (which applies ex post) is different from sector-specific regulation taken care of by sector-specific regulatory authorities (which applies ex ante). There is, in fact, sufficient competition-related case law to show that sectors regulated ex ante are not immune from ex post intervention, even if an operator had to be fully compliant with ex ante regulation. The landmark cases of Telefónica (Case T-398/07), TeliaSonera Sverige (Case C-52/09) and Deutsche Telekom (Case C-280/08 P) in the electronic communications sector, where ex ante regulation may be said to be very avant-garde, confirm that the existence of ex ante regulation does not by any means exclude ex post competition law enforcement.
The Directorate General (DG) that handles such complaints at the EU level (i.e. DG Comp) is also different from the DGs catering for ex ante regulation.
Competition economics analysis also comes in when dealing with concentration control in Mergers and Acquisitions (M&A) cases. M&A notifications are usually undertaken over two stages. Stage 1 M&A notifications entail notification at the Member State level of the intended merger or acquisition. This notification usually follows a preset format where details in relation to the intended merger or acquisition are submitted to the NCA. Normally, a Stage 1 M&A notification would require data about the entities involved, sectoral market data and data in relation to intra-community trade, as well as an impact assessment on the market(s) likely to be affected. A Stage 2 notification, which needs to be opted for when certain conditions are met or when the NCA has doubts in relation to a prior Stage 1 notification, follows the same format as a Stage 1 notification but requires considerably more detail in the information provided. Under specific circumstances where intra-community trade could be affected, the EC (more specifically DG Comp) would also need to be notified of an intended merger or acquisition. Before DG Comp gives its clearance, the merger or acquisition cannot take place.
Equinox Advisory’s competition economics and case strategy advisory services cover anything that you can require in the arena of competition policy support services. Together with our competition law services, our competition policy support services make for an all-encompassing competition policy service covering anything you might possibly require to be able to fight instances of anticompetitive abuse of which you are the victim to ensuring you are on the right side of the law yourself and to limiting your liability and defending yourself against unjustified allegations of anticompetitive abuse levelled against you.
Among other things, in this area we can provide you with:
- A wide array of competition economics and competition law services including legal drafting, drafting of complaints, litigation services and notifications;
- Anticompetitive abuse investigation advice;
- Case (lawsuit) strategy including which institutions to approach, how to approach them and the timing of the case;
- Clearance of agreements for State Aid and Competition Law purposes;
- Competition audits and the provision of advice in preparation for dawn raids;
- Competition law and intellectual property;
- Continuous monitoring of trading and distribution agreements and modus operandi to ensure compliance and mitigate risk;
- Data collection, collation and analysis;
- Definitions of the relevant market(s);
- Detailing of anticompetitive abuse for submission to Courts and Authorities;
- Detailing of State Aid abuse and advice on block exemptions;
- Liability limitation through the provision of advice on whether business agreements and market actions comply with Competition Law;
- M&A market impact assessments;
- Provision of Advice in relation to the EU vertical guidance on restrictions in on-line selling;
- Provision of advice on inter-jurisdictional intra-EU or EU/outside EU agreements;
- Provision of expert witness services;
- Quantifications of damages sustained as a result of anti-competitive abuse either through abuse of dominance or concerted practices.