Price discrimination under EC Compitation Law: Another antitrust doctrine in search of limiting principles?

Journal of Competition Law and Economics

Volumn 2, Issue 3, 2006, Pages 479-531

  Geradin, Damien ^a,b   Petit, Nicolas ^a  

^a UNIVERSITY OF LIÈGE   (Belgium)

^b EU International Relations and Diplomacy Studies Department   (Belgium)

Author keywords

[No Author keywords available]

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EID: 33846781113     PISSN: 17446414     EISSN: 17446422     Source Type: Journal    
DOI: 10.1093/joclec/nhl013     Document Type: Article

References (216)

1. There is, however, a relatively abundant legal and economic literature on the subject. On the enonomics of price discrimination, see Derek Ridyard, "Exclusionary pricing and price discrimination. abuses under Article 82 - an economic analysis," 6 European Competition Law Review 286 (2002)
2. Dennis W. Carlton & Jeffrey M. Perloff, Modern Industrial Organization, 3rd edn (Addison-Wesley, 1999), Chapter 9;
3. Jean Tirole, The Theory of Industrial Organization (The MIT Press, 2003), Chapter 3;
4. Hal R. Varian, "Price discrimination and social welfare," 75 American Economic Review 870 (1985);
5. Richard Schmalensee, "Output and welfare implications of third degree price discrimination," 71 American Economic Review 242 (1981)
6. for a legal analysis of price discrimination under Article 82 of the EC Treaty, see Michel Waelbroeck, "Price discrimination and rebate policies under EU competition law," Fordham Corporate Law Institute 148 (1995).
7. See DG Competition Discussion Paper on the Application of Article 82 of the Treaty to Exclusionary Abuses, December 2005, at 3§.
8. Id. at §§53, 140-141
9. See ECJ, 17 July 1963, Italian Republic v. Commission, 13-63, ECR-165 in the context of the ECSC Treaty.
10. Richard Posner, Antitrust Law, 2nd edn (University of Chicago Press, 2001) at 79-80.
11. See D. Carlton & J. Perloff, supra n 1 at 277-80.
12. Id. at 280.
13. See Massimo Motta, Competition Policy - Theory and Practice (Cambridge University Press, 2004), at 493-4.
14. See Simon Bishop & Mike Walker, The Economics of EC Competition Law, 2nd edn (Sweet & Maxwell, 2002), at 196.
15. Id. at 198.
16. See Jonathan Faull & Ali Nikpay, The EC Law of Competition (Oxford University Press, 1999) at 3§.235.
17. For a good discussion of this, see D. Ridyard, supra n 1 at 286.
18. Id.
19. Id. at 287: "Marginal cost pricing ... retains some desirable efficiency properties in [industries facing problems of cost recovery], but simple short-run marginal cost pricing fails to remunerate the firm's fixed costs. In a dynamic context, it will also fail to provide incentives for firms to make such investments in the future. As a consequence, firms in fixed cost recovery industries charge prices in excess, often well in excess, of short-run marginal costs. The likelihood that such pricing will entail some loss of static efficiency (i.e.: Certain consumers will be dissuaded from consuming the product even though they value it higher than the marginal cost of supply) must be traded-off against the risk that the product would not exist at all if investors were not offered the prospect of fixed cost recovery - and even some profit on top - at the time when the necessary investments were made." "Marginal cost pricing ... retains some desirable efficiency properties in [industries facing problems of cost recovery], but simple short-run marginal cost pricing fails to remunerate the firm's fixed costs. In a dynamic context, it will also fail to provide incentives for firms to make such investments in the future. As a consequence, firms in fixed cost recovery industries charge prices in excess, often well in excess, of short-run marginal costs. The likelihood that such pricing will entail some loss of static efficiency (i.e.: Certain consumers will be dissuaded from consuming the product
20. See M. Motta, supra n 6 at 495-6.
21. See ECJ, United Brands Company v. Commission, 27/76, 14 February 1978, ECR [1978]-207.
22. See generally on this Valentine Korah & Denis O'Sullivan, Distribution Agreements under the EC Competition Rules (Hart Publishing, 2002), at 27-36.
23. See J. Faull & A. Nikpay, supra n 9 at §237.
24. See, however, in United Brands, supra n 14 where the ECJ indicated at 2§28 that: "Differences in transport costs, taxation, customs duties, the wages of the labour force, the conditions of marketing, the differences in the parity of currencies, the density of competition may eventually culminate in different retail selling price."
25. See Van Bael & Bellis, Competition Law of the European Community (Kluwer Law International, 2005) at 915.
26. See René Joliet, Monopolization and Abuse of a Dominant Position (Collection scientifique de la Faculté de droit de l'Université de Liège, 1970) at 247
27. See, e.g., Alison Jones & Brenda Sufrin, EC Competition Law, 2nd edn (Oxford University Press, 2004) at 411;
28. J. Faull & A. Nikpay, supra n 9 at 3§.235.
29. See Santiago Martinez Lage & Rafael Allendesalazar, "Community policy on discriminatory pricing: A practitioner's perspective," Paper presented at the 2003 Annual EU Competition Law and Policy Workshops - What is an Abuse of a Dominant Position?, Florence, at 14;
30. Van Bael & Bellis, supra n 18 at 915;
31. Richard Whish, Competition Law, 5th edn (LexisNexis Butterworths, 2003) at 716 and 710.
32. See John Temple Lang and Robert O'Donoghue, "Defining legitimate competition: How to clarify pricing abuses under Article 82 EC," 26 Fordham International Law Journal 83 (2002) at 115.
33. See Paul A. London, The Competition Solution (American Enterprise Institute, Washington, DC, 2005) at p. 136;
34. See also Federal Trade Commission v. Morton Salt, 334 U.S. 37 ("The legislative history of the Robinson-Patman Act makes it abundantly clear that Congress considered it to be an evil that a large buyer could secure a competitive advantage over a small buyer solely because of the larger buyer's quantity purchasing ability").
35. See also Dominick T. Armentano, Antitrust and Monopoly - Anatomy of a Policy Failure, 2nd edn (The Independent Institute, 1999) at 167 (" [I]t is readily admitted that Section 2 of the Clayton Act and its important Robinson-Patman amendments, were passed in order to protect small, independent business firms from the buying and selling practices of larger corporations, particularly large chain stores.")
36. See, for a recent illustration, Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc., 126 S. Ct. 860 (2006).
37. See S. Martinez Lage and R. Allendesalazar, supra n 21 at 15.
38. See infra at Section V.A.
39. See infra at Section V.C.
40. ECJ, 6-72, Europemballage Corporation and Continental Can Company Inc. v. Commission, 21 February 1973, ECR [1973]-215, at 2§6.
41. See John Temple Lang & Robert O'Donoghue, "The concept of an exclusionary abuse," GCLC Research Papers on Article 82, June 2005, at 52-3 The ECJ's statement in Continental Can regarding "the nonexhaustive nature of the abuses listed in Article 82 EC were made in the context of a teleological interpretation of the EC Treaty intended to fill an important lacuna in the law - the absence at the time of rules governing mergers and acquisitions."
42. See J. Temple Lang & R. O'Donoghue, supra n 22, who consider it is a strict test which is, however, not applied in practice.
43. See J. Faull & A. Nikpay at 176.
44. This definition is taken from Lennart Ritter and David Braun, European Competition Law: A Practictioner's Guide, Kluwer Law International, 2004, at 465.
45. See ECJ, Suiker Unie and others v. Commission, 16 December 1975, 40/73, ECR [1975]-1663 at 1§22: "As the commission has emphasized the effect of the system complained of was that different net prices were charged to two economic operators who bought the same amount of sugar from SZV if one of them purchased from another producer as well. By acting in this way SZV applied dissimilar conditions to equivalent transactions with other trading parties' within the meaning of article 86 (c) of the Treaty."
46. To the contrary, uniform pricing of different volumes can be seen as discriminatory. This is why the Commission considers that quantity rebates are normally unobjectionable. See Commission Decision 97/624 of 14 May 1997, Irish Sugar plc., OJ L 258 of 22 September 1997, pp. 1-34 at 1§53.
47. See CFI, Manufacture française des pneumatiques Michelin v. Commission (Michelin II), 30 September 2003, T-203/01 at §§98 and 100.
48. See also, Denis Waelbroeck, "Michelin II: A per se rule against rebates by dominant companies?" 1(1) Journal of Competition Law and Economics 149 (2005) at 151.
49. See ECJ, Hoffmann-La Roche v. Commission, 13 February 1979, 85/76, ECR[1979]-461.
50. Id. at 3§5. The trading parties were 22 large firms of different industries.
51. Id. at 1§22 and following.
52. similar approach can be observed in Suiker Unie, ECJ, supra n 29. In that case, the Commission had considered that the fidelity rebates granted by SZV, a dominant sugar producer in Southern Germany, to its customers, amounted to an "unjustifiable discrimination against buyers who also buy sugar from other sources than SZV." The Commission, in particular, seemed concerned by the fact that the rebate policy had been adopted so as to "limit possibilities for imports" and "to strengthen the dominant position of the producer." The Commission thus examined the horizontal effects of the rebates scheme. The Court followed the Commission's reasoning as it essentially disregarded the "competitive disadvantage" requirement contained in Article 82(c) and preferred linking the discrimination to foreclosure effects generated by the rebates.
53. See Commission Decision 89/22 of 5 December 1988, IV/31.900, BPB Industries plc., OJ L 10 of 13 January 1989, pp. 50-72.
54. Id. at 1§48.
55. See CFI, BPB Industries plc and British Gypsum Ltd. v. Commission, T-65/ 89, ECR 1993 II-389 at 1§19.
56. See Commission decision at 4§9.
57. See Commission Decision 2000/74 of 14 July 1999, Virgin/British Airways, JOCE L 30 of 4 February 2000, pp. 1-24.
58. Id. at §§108 111. The travel agents were thus given incentives to remain loyal to British Airways through increasing their sales of BA's tickets.
59. Id. at 1§11.
60. See Commission Decision, supra n 40 at 1§11
61. and CFI, British Airways plc v. Commission, 17 December 2003, Case T-219/ 99, not yet published, at 2§38.
62. See Commission Decision 81/969 of 7 October 1981, Bandengroothandel Frieschebrug BV/NV Nederlandsche Banden-Industrie Michelin, OJ L 353 of 9 December 1981, pp. 33-47 at 3§8.
63. Id. at 4§9.
64. See ECJ, NV Nederlandsche Banden Industrie Michelin v. Commission, 9 November 1983, 322/81, ECR [1983]-3461 at 9§0.
65. See Commission Decision, supra n 30 at 1§54.
66. Id. at 1§52 and 1§54.
67. See DG Competition Discussion Paper on the Application of Article 82, supra n 2 at 1§04.
68. See, on this, Einer Elhauge, "Why above-cost price cuts to drive out entrants are not predatory - and the implications for defining costs and market power," 112 Yale Law Journal 681 (2003);
69. Aaron S. Edlin, "Stopping above-cost predatory pricing," 111 Yale Law Journal 941 (2002);
70. R. Whish, supra n 21 at 653.
71. See Commission Decision 85/609 of 14 December 1985, ECS/AKZO, OJ L 374 of 31 December 1985, pp. 1-27.
72. Id. at 8§3.
73. Id. at Article 3(3). Article 3(5) was however annulled by the Court of Justice.
74. See ECJ, AKZO Chemie BV v. Commission, 3 July 1991, C-62/86, ECR[1991], I-3359.
75. See Commission Decision 88/138 of 22 December 1987, Eurofix-Bauco v. Hilti OJ L 65 of 11 March 1988, pp. 19-44.
76. At §§80-81 of the Decision the Commission considered that the practice was deemed to be "designed to damage the business of, or deter market entry by, its competitors." Some have seen in the Commission's qualification of the practice a reference to both primary and secondary line injuries, see Van Bael & Bellis, supra n 18 at 915.
77. See Commission Decision, supra n 30 at 1§54.
78. This was upheld by the CFI, Irish Sugar plc v. Commission, 7 October 1999, T-228/97, ECR [1999] II-2969 at §§215-225.
79. See Commission Decision 93/82 of 23 December 1992, Cewal, OJ L 34 of 10 February 1993 pp. 20-43 at 8§3.
80. See CFI, Compagnie Maritime Belge Transports SA and Others v. Commission, 8 October 1996, Official Journal C 336, 9 November 1996, T-24/93, T-25/93, T-26/93 and T-28/93, ECR[1996] II-1211 at 1§24.
81. It is of note, however, that AG Fennelly stated: "normally, non-discriminatory price cuts by a dominant undertaking which do not entail below-cost sales should not be regarded as being anticompetitive." A contrario, this seems to imply that discrimatory selective price cuts above costs could be held abusive under Article 82 EC. See Opinion of AG Fennelly of 29 October 1998, ECR [2000] I-1365, at 1§32.
82. See Commission Decision, supra n 53 at §§34(5) and 75.
83. See XXVIIth Report on Competition Policy - 1997, at 6§9.
84. See also, L. Ritter and D. Braun, supra n 28 at p. 452.
85. See Commission Decision 98/531 of 11 March 1998, Van den Bergh Foods Limited, OJ L 246 of 4 September 1998, p. 1.
86. Id. at 7§6.
87. Id. at 7§7.
88. In most of these cases, complainants were not the trading parties, but the competitors, suffering the exclusionary effect of the practice. This probably reveals that the trading parties did not consider themselves as having been put at a competitive disadvantage.
89. It merely prohibited "discriminatory practices involving, within the common market, the application by a seller of dissimilar conditions to comparable transactions..." See Article 60(1) of the ECSC Treaty.
90. See EEC Commission, Memorandum sur le Probleme de la Concentration dans le Marché Commun, 1 December 1965 at p. 25 reprinted in Revue Trimestrielle de Droit Européen (1966) 651-677.
91. In the early 1960s, the Commission sought to establish a theoretical framework for interpreting the abuse concept enclosed in Article 82 EC through the appointment of a group of professors changed with the duty to work out the basic enforcement principles of this provision. The group of Professors released a Memorandum on Concentration on the Common Market in 1966 which seemed to suggest that the concept of price discrimination enclosed in Article 86 (c) could encompass the eviction of competing companies. See, contra, René Joliet, supra n 21 at 247. Professor Joliet argued that Article 82 (c) merely applied to secondary line discriminations and did not apply to "discriminatory price cutting having adverse effects upon primary-line competition."
92. ECJ, Europemballage Corporation and Continental Can Company Inc. v. Commission, 21 February 1973, 6-72, ECR [1973]-215.
93. In its ruling on the case, the Court of justice did not even mention the condition of competitive disadvantage in its judgment. See Van Bael & Bellis, supra n 18 at 917.
94. As it seems it has been read out from Article 81 (1) (d) EC. The extensive reliance on Article 82(c) for sanctioning primary line injuries price discrimination merely mirrors the evolution of case-law and decisional practice of the Commission under Article 81 (d), which forbids collusive discriminatory action in the same terms as Article 82 EC. In its decision Industrieverband, the Commission implicitly envisaged the application of the concept of discrimination in a primary line injury setting by holding that a collective aggregated sales bonus (i.e. a concerted bonus granted to all customers purchasing from the members of the association of undertakings) was placing "other suppliers at a competitive disadvantage, since they [had] to surmount an artificial, collectively erected barrier when supplying members' customers and this generates business for the members." On appeal before the Court, the Commission confirmed that it interpreted the discount at stake as a discriminatory practice. See Commission Decision 80/1074 of 16 October 1980, Industrieverband Solnhofener Natursteinplatten eV, OJ L 318 of 26 November 1980, pp. 32-9.
95. In a number of other decisions, the Commission applied similar principles. In Roofing Felt, for instance, the Commission sanctioned a concerted campaign against another manufacturer, IKO, to induce it to abandon a price-cutting policy, through application of discriminatory rebates. See Commission Decision 86/399 of 10 July 1986, Roofing felt, OJ L 232 of 19 August 1986, pp. 15-33.
96. In Meldoc, the Commission sanctioned the concerted implementation of dumping prices to prevent imports from Belgium suppliers on the Dutch market for fresh milk. See Commission Decision 86/596 of 26 November 1986, Meldoc OJ L 348 of 10 December 1986, pp.50-65.
97. For instance, in the recent Deutsche Post AG case, the Commission justified its superficial assessment of the discriminatory conduct at stake by recalling the Tetra Pak II ruling pursuant to which "Article 82 may be applied even in the absence of a direct effect on competition." See Commission Decision, infra n 112 at 1§33.
98. See CFI, Tetra Pak International SA v. Commission (Tetra Pak II), 6 October 1994, T-83/91, ECR [1994] II-755.
99. See ECJ, Compagnie Maritime Belge Transports SA (C-395/96 P), Compagnie Maritime Belge SA (C-395/96 P) and Dafra-Lines A/S (C-396/96 P) v. Commission, 16 March 2000, ECR [2000] I-1365 at 1§19.
100. See Commission Decision, supra n 30 at §§145 and following.
101. See infra at Section V.B.2.
102. Interestingly, the U.S. Robinson-Patman Act, which was historically adopted with the main aim of preventing price discrimination from damaging competition between downstream customers (secondary line effects), has also been applied from the start to primary line effects. The main difference between EC law and U.S. law, however, is that price discrimination in the U.S. has hardly been subject to enforcement since the 1980s.
103. See D. Ridyard, supra n 1 at 289
104. and D. Waelbroeck, 31 at 152.
105. See D. Waelbroeck, supra n 31 at 158 who specifies as: "(i) defining a proper methodology for measuring costs in each industry ...; (ii) deciding how the costs savings can be attributed to each customer ...; and (iii) laying down what the appropriate time period for recovery of fixed costs shall be."
106. See D. Ridyard, supra n 1.
107. By contrast, if a firm with market power is forced to charge uniform prices, any price reduction it makes to get a marginal customer will make it lose some profits from the inframarginal customers who are prepared to pay a higher price. Thus, a firm with market power which can only impose a uniform price will select a price that many marginal customers will not be willing to pay even though they value the product more that the marginal cost of producing it. This clearly leads to allocative inefficiency.
108. See R. Posner, supra n 3 at 81. A Most Favored Nation clause is a clause pursuant to which a contracting party commits itself to treating all its customers the same way, that is, to extend the benefit of any advantage offered to a customer to its other customers.
109. See Alan J. Cox, "The frequently forgotten benefits of price discrimination" in The Economics of Antitrust - New Issues, Questions and Insights, Lawrence Wu, ed. (NERA Economic Consulting, 2004) at 106.
110. The CFI has held that a detection mechanism is a necessary condition for coordinated effects to occur in an oligopolistic market. See CFI, Airtours plc v. Commission, 6 June 2002, T-342/99, [2002] E.C.R. II-2585 at 6§2
111. and CFI, Laurent Piau v. Commission, 18 March 2005, T-193/02, not yet published at 1§11.
112. See A. Cox, supra n 79 at 103-104.
113. See CFI, supra n 31 at 1§40: "The granting of a discount by an undertaking in a dominant position to a dealer must be based on an objective economic justification... It cannot depend on a subjective assessment by the undertaking in a dominant position of the extent to which the dealer has met his commitments and is thus entitled to a discount."
114. See Commission Decision in Michelin I, 81/969 of 7 October 1981 supra n 44.
115. The strictness of this position can be clearly observed from the following passage of the Commission Decision in Michelin I at 5§4: "with the exception of short-term measures, no discount should be granted unless directly linked to a genuine reduction in the manufacturer's costs."
116. See OECD report on loyalty and fidelity discounts and rebates, DAFFE/ COMP(2002)21 at p. 7 ("Standard volume rebates tend to be a comparatively blunt instrument for encouraging customers to increase their purchases. Their existence is as much a reflection of large buyer power rather than any seller objective or initiative. Large buyers expect to obtain better terms than smaller buyers and they can often recognise that the seller's fixed cost recovery problem translates to a negotiating weakness when it comes to large buyers. For suppliers, even those who enjoy significant market power, who have low marginal costs of supply and high fixed costs, any threat of withdrawal of purchases or goodwill by a large buyer carries a significant business risk. Volume discounts are often a reaction to this risk.")
117. Id.
118. See John Vickers, "Competition policy and innovation," Speech to the International Competition Policy Conference, Oxford, 27 June 2001.
119. See OFT Guideline 402, The Chapter II Prohibition at 4§.15.
120. Unlike ex ante control such in merger cases, ex post control under Article 82 EC involves matters where the effects of the allegedly anticompetitive conduct can generally be observed.
121. See CFI, British Airways plc v Commission, supra n 43.
122. See also CFI, Michelin II, supra n 31.
123. See CFI, Michelin II, supra n 31 at 2§36
124. and D. Waelbroeck, supra n 31 at 159.
125. See DG Competition Discussion Paper on the Application of Article 82, supra n 2 at §55.
126. For a detailed account of this new framework, see Christian Ahlborn, Vincenzo Denicolò, Damien Geradin, & A. Jorge Padilla, "DG Comp's discussion paper on Article 82: Implications of the proposed framework and antitrust rules for dynamically competitive industries," at p. 35 et seq., available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=894466
127. Id. at p. 37.
128. See ECJ, 17 May 1994, Corsica Ferries Italia Srl v. Corpo dei Piloti del Porto di Genova, C-18/93, ECR [1994] I-1783.
129. Id. at §45.
130. This ruling was subsequently confirmed by the Commission in a decision which condemned the Italian Republic for not complying with the ruling. See Commission Decision 97/745 of 21 October 1997, OJ L 301 of 5 November 1997, pp. 27-35.
131. See Opinion of Advocate General Van Gerven delivered on 9 February 1994 under C-18/93, ECR [1994] I-1783 at 1§9.
132. See Commission Decision 95/364 of 28 June 1995 OJ, L 216 of 12 September 1995, pp. 8-14.
133. Id. at 1§7.
134. See Commission Decision 1999/199 of 10 February 1999, Portuguese Airports, OJ L 69 of 16 March 1999, pp. 31-39 at 2§6.
135. similar line of reasoning was followed in a decision concerning the landing charges applied by the Spanish Airport Authorities, see Commission Decision 2000/521 of 26 July 2000, OJ L 208 of 18 August 2000, pp. 36-46 at §§48-53.
136. See Commission Decision 1999/98 of 10 February 1999, Ilmailulaitos/ Luftfarsverket, OJ L 69 of 16 March 1999, pp. 24-30
137. and Commission Decision 1999/199, Portuguese Airports, supra n 98.
138. See Commission Decision, 98/153 of 11 June 1998, Alpha Flight Services/ Aéroports de Paris, OJ L 230 of 18 August 1998, pp. 10-27.
139. OAT global fee's structure was, however, slightly different.
140. Id at §§119 and 121.
141. Id. at 1§26 of Commission Decision.
142. Confirmed by CFI, Aéroports de Paris v. Commission, 12 December 2000, T-128/98 [2000] ECR II-3929
143. and ECJ, Aéroports de Paris v. Commission, 24 October 2002, C-82/01, ECR [2002] I-9297.
144. See Commission Decision, 23 July 2004, Case COMP/A.36.568/D3 - Scandlines Sverige AB v. Port of Helsingborg.
145. Id. at 1§1. The port of Helsinborg was operated by Helsinborg Hamn AB, a subdidiary of the City of Helsinborg.
146. Id. at 1§9.
147. Id. at §§252 and 278. Note that the prices of the sea services (similar for both kinds of operators) were equivalent.
148. Id. at 2§79. Without any equivalence in the services provided, the assessment of the pricing policies was therefore pointless.
149. §§257 and 284.
150. See 2§86.
151. See CFI, Deutsche Bahn AG v. Commission, T-229/94, ECR [1997] II-1689 at 9§3.
152. See Commission Decision 94/210 of 29 March 1994, HOV-SVZ/MCN, OJ L 104 of 23 April 1994, pp. 34-57 at 2§54.
153. See CFI, supra n 104 at 9§0.
154. Id. at 9§1.
155. See XXVIIth report on Competition Policy, 1997 at 6§7 and Commission press release, IP/97/292 of 11 April 1997, "Settlement reached with Belgacom on the publication of telephone directories - ITT withdraws complaint."
156. See Commission Decision 2001/892 of 25 July 2001, Deutsche Post AG - Interception of cross-border mail, OJ L 331 of 15 December 2001, pp. 40-78.
157. See Commission Decision of 2 June 2004, Clearstream, COMP/38.096, not yet published.
158. ICSDs are organizations whose core business are clearing and settling securities (traditionally Eurobonds) in an international (nondomestic) environment.
159. As well as Article 86(1). See Commission Decision of 20 October 2004, COMP/38.745, BdKEP/Deutsche Post AG and Bundesrepublik Deutschland, not yet published.
160. Id. at 6§0.
161. Id. at 9§4.
162. In fact, in many of the cases, the reference to the national discrimination was not mentioned in the review of Article 82(c). This is particularly manifest in the appeal of the Commission's decision in Portuguese Airports before the ECJ. The appellant observed that the various measures at stake did not discriminate on the grounds of nationality because they were not dependent on the nationality of the airlines. The Court conceded that Article 82(c) applied to the application of dissimilar conditions to equivalent transactions irrespective of the existence of discrimination on the ground of nationality. See ECJ, Portuguese Republic v. Commission, C-163/99, 29 March 2001, ECR [2001] I-2613 at 4§6.
163. The Court preferred to rely on an objective economic assessment of the forbidden measures. The Court only mentioned in passing that the discount system favored the national airlines (see 5§6). As far as the discounts were concerned, it referred to Michelin and observed that the mere fact that the system was correlated to the volume of purchases could not lead to the conclusion that there was discrimination. The Court, however, observed that the nonlinear progression of the discount only allowed two large companies to obtain it and that there was no objective justification for it (the Court did not make any explicit pronouncement as to the value of economics of scale in terms of justification). As far as the differentiation between domestic and international fees were concerned, the Court held that it led to applying dissimilar conditions to equivalent transactions because different tariffs were charged for the same number of landings of similar aircraft (see 6§6). A similar approach had been followed by the Court in Corsica Ferries II, where the question of the discrimination on the ground of nationality had not been evoked under Article 82c, but with respect to the issue of the freedom to provide services, where the Court had held that: "The system gives preferential treatment to vessels permitted to engage in maritime cabotage, in other words, those flying the Italian flag... Such a system indirectly discriminates between economic operators according to their nationality, since vessels flying the national flag are generally operated by national economic operators, whereas transport undertakings from other Member States as a rule do not operate ships registered in the State applying that system." ECJ, Corsica Ferries Italia Srl v. Corpo dei Piloti del Porto di Genova, 17 May 1994, C-18/93ECR [1994] I-1783 at §§32-33.
164. Article 12 EC condemns discrimination on grounds of nationality: "Within the scope of application of this Treaty, and without prejudice to any special provisions contained therein, any discrimination on grounds of nationality shall be prohibited."
165. See A. Cox, supra n 79 at p. 105.
166. condition for this would be that the buyer enjoys market power downstream. A buyer with market power that wants to gain a competitive advantage downstream may be able to insist on a large discount compared with what the sellers charge other buyers who compete with the powerful buyer downstream.
167. In a case of this kind, it can be safely assumed that the seller has no market power and takes the price of the big purchaser.
168. It is assumed here that the downstream rivals of the vertically integrated firm are active in the same product market. As M. Motta observes, in the case of a vertically integrated operator, if the downstream rivals are active in slightly different product markets from the downstream integrated business, supplying them at higher prices would entail foregoing profits because (i) the downstream firm's share remains unchanged and (ii) demand for the output diminishes with a consequent loss of profits. Thus, there would be no incentive to price discriminate in such a setting. See M. Motta, supra n 6 at 373.
169. See Nicholas Economides, "The incentive for non-price discrimination by an input monopolist," 16 International Journal of Industrial Organization 271 (1998) at 283. A similar view has been expressed by Thomas Krattenmaker ans Steven Salop, who explained that a downstream firm may often try to raise its rivals' costs in order to foreclose rivals in asking a bottleneck monopolist to only deal with rivals on discriminatory terms (i.e. a practice referred to as the bottleneck method). This was the situation at stake in the famous Terminal Railroad case in the United States.
170. See Thomas G. Krattenmaker & Steven C. Salop, "Anticompetitive exclusion: Raising rivals' costs to achieve power over price," 2 Yale Law Journal 209 (1986) at 235.
171. See, on this, M. Motta, supra n 6 at 341.
172. See T. Krattenmaker & S. Salop, supra n 120 at 259.
173. See Commission Decision, supra n 100 at 1§09.
174. See Commission Guidelines on the Assessment of Horizontal Mergers under the Council Regulation on the Control of Concentrations between Undertakings, OJ C 31 of 5 February 2004, pp. 5-18 at 4§8.
175. This is likely to be a minimal concern where access costs are a limited share of the average total costs.
176. In stark contrast with the U.S. Supreme Court, this again recently mentioned these collusive risks in Trinko. See Verizon Communications, Inc. v. Law Offices of Curtis Trinko, LLP, 13 January 2004, 540 U.S.
177. See ECJ, United Brands Company v. Commission, supra n 14.
178. Id. at 1§59.
179. See CFI, Tetra Pak International SA v. Commission, 6 October 1994, T-83/ 91 ECR [1994] II-755
180. and Commission Decision 92/163 of 24 July 1991 Tetra Pak II, OJ L 72 of 18 March 1992, pp. 1-68. There were also a number of discrimination elements in the case which were not concerned with geographic price discrimination, but which related to price discrimination, within the Italian market, between users. See 1§58, 160, 161, 62-8 of the Decision.
181. See Commission Decision supra n 129 at 5§2. Tetra Pak was indeed facing fierce competition from Elopak in Italy.
182. See CFI, supra n 129 at 1§70
183. and Commission Decision, supra n 129 at 1§60.
184. See CFI supra n 129 at 1§71
185. and Commission supra n 129 at 1§60.
186. See CFI supra n 129 at 1§73.
187. Two clauses in the contract limited the purchaser's right to resell or transfer the equipment to third parties: A first claus (referred to as clause xv) provided "the purchaser is required to obtain Tetra Park's agreement before selling or transferring the use of the equipment (Italy), resale is subject to conditions (Spain), and Tetra Park reserves the right to repurchase the equipment at a pre-arranged fixed price (all countries); failure to comply with this clause may give rise to a specific penelty (Greece, Ireland, United Kingdom)." A second clause (referred to as clause xvi) provided: "the purchaser must ensure that any third party to whom he resells the aquipment assumes all his obligations (Italy, Spain)." In its decision the Commission held that "The requirement that the purchaser obtain Tetra Pak's agreement before he can exercise his right to dispose of an asset in his property or even to transfer its use (Italy) not only has no connection with the purpose of the previously signed sales contract but also, in view of the effect it has on the very essence of the right of ownership, constitutes an unfair condition of the transaction... The conditions prohibit export of the machine and forbid third parties which are potential purchasers from being offered conditions of resale which more favorable than those which apply to Tetra Pak. Such conditions directly affect trade between the Member States and again limit the purchaser's outlets... Tetra Pak's automatic right of pre-emption must in itself be considered to constitute an abuse in so far as it again unduly limits the ability of the user, who does after all own the machine, to dispose of his asset as he wishes, and constitutes one of the instruments by which Tetra Pak is able to compartmentalize national markets... Requirement to ensure that any third party purchasing equipment assume the obligations of the third party accepts a series of obligations which themselves constitute abuse." See Commission Decision, supra n 129 at §§123-8.
188. See Commission Decision 84/379 of 2 July 1984, BL, OJ L 207 of 2 August 1984, pp. 11-16.
189. Confirmed implicitly by the ECJ on appeal, 226/84, British Leyland plc v. Commission, 11 November 1986, ECR [1986]-3263.
190. See Commission Decision, supra n 135 at 2§6.
191. See Commission Decision, supra n 135 at 2§9.
192. See Commission Decision, supra n 30 at 1§29.
193. See CFI, supra n 54 at 1§83. In addition, the export rebates (granted to Irish Sugar's customers exporting sugar in processed form to other Member states) seemed designed to make sure that its customers contemplating sourcing to foreign suppliers would not switch to the latter in order to obtain supplies.
194. See CFI at 1§39.
195. See Commission Notice - Guidelines on Vertical Restraints, OJ C 291 of 13 October 2000, pp. 1-44 at 1§14 that concerns market partitioning groups, that is, agreements whose main element is that the buyer is restricted in where he either sources or resells a particular product.
196. Id. at 1§61: "In an exclusive distribution agreement the supplier agrees to sell his products only to one distributor for resale in a particular territory. At the same time the distributor is usually limited in his active selling into other exclusively allocated territories. The possible competition risks are mainly reduced intra-brand competition and market partitioning, which may in particular facilitate price discrimination."
197. Id. at 1§72: "The combination of exclusive distribution with exclusive purchasing increases the possible competition risks of reduced intra-brand competition and market partitioning which may in particular facilitate price discrimination."
198. See 1§78: "In an exclusive customer allocation agreement, the supplier agrees to sell his products only to one distributor for resale to a particular class of customers. At the same time, the distributor is usually limited in his active selling to other exclusively allocated classes of customers. The possible competition risks are mainly reduced intra-brand competition and market partitioning, which may in particular facilitate price discrimination."
199. See Commission Notice - Guidelines on the application of Article 81 of the EC Treaty to technology transfer agreements, OJ C 101 of 27 April 2004, pp. 2-42at 1§88: "there are two main competitive risks stemming from captive use restrictions: (a) a restriction of intra-technology competition on the market for the supply of inputs and (b) an exclusion of arbitrage between licensees enhancing the possibility for the licensor to impose discriminatory royalties on licensees. "See also 1§86 which explains what a captive use restriction is: "In other words, this type of use restriction takes the form of an obligation on the licensee to use the products incorporating the licensed technology only as an input for incorporation into his own production; it does not cover the sale of the licensed product for incorporation into the products of other producers."
200. Id. at 9§8: "quantity limitations are used to implement an underlying market partitioning agreement. Indications thereof include the adjustment of quantities over time to cover only local demand, the combination of quantity limitations and an obligation to sell minimum quantities in the territory."
201. See, e.g., Commission Decision of 20 September 2000, Opel Nederland BV/ General Motors Nederland BV, OJ L 59, 28 February 2001, pp. 1-42
202. and CFI, T-368/00, 21 October 2003, General Motors Nederland and Opel Nederland v. Commission, ECR [2003] II-4491 (partial annulment);
203. CFI, T-62/98, 6 July 2000, Volkswagen v. Commission, ECR [2000] II-2707.
204. See CFI, Bayer AG v. Commission, 26 October 2000, T-41/96ECR 2000 II-3383 at 7§1;
205. ECJ, Bundesverband der Arzneimittel-Importeure eV and Commission v. Bayer AG, 6 January 2004, C-2/01 P and C-3/01 P, ECR [2004] I-23 at §§101 and 141.
206. The ruling of the CFI in Micro Leader Business seems also to support this view. See CFI, Micro Leader Business v. Commission, 16 December 1999, T-198/98, ECR [1999] II-3989 at 5§6.
207. See CFI, Bayer AG v. Commission, supra n 146 at 1§76.
208. ECJ, Syfait and Others v. GlaxoSmithKline plc, 31 May 2005, C-53/03, not yet published. Note in addition that a gap in the EC competition system exists where, as the CFI held in Bayer, a supplier restricts parallel trade "without abusing a dominant position, and there is no concurrence of wills between him." This can, for instance, arise if the supplier is vertically integrated and does not enjoy a dominant position on the market. The Court seems to recognize that, in such situation, "a manufacturer may adopt the supply policy which he considers necessary, even if, by the very nature of its aim, for example, to hinder parallel imports, the implementation of that policy may entail restrictions on competition and affect trade between Member States."
209. See CFI, Bayer AG v. Commission, supra n 146 at 1§76. However, this question falls outside the scope of this article, which is only concerned with the scope of the liability imposed by Article 82 EC on dominant firms.
210. As implicitly confirmed in the Commission Notice on the definition of the relevant market for the purposes of Community competition law, OJ C 372 of 9 December 1997, and more explicitly by the Commission in its market definition practice. See, e.g., Commission Decision 92/ 553 of 22 July 1992, Nestlé/Perrier, OJ L 356 of 5 December 1992, pp. 1-31.
211. In that respect, the Court held in Bodson that price differences in different locations may provide a basis for assessing whether or not the prices charged are excessive pursuant to Article 82(a). See ECJ, Corinne Bodson v. SA Pompes funèbres des régions libérées, 4 May 1988, 30/87, ECR [1988]-2479.
212. As well as the clauses preventing resale of Tetra Pak's machines in Tetra Pak II.
213. Another passage of the ECJ's judgment was quite problematic. Indeed, while the ECJ acknowledged that "differences in transport costs, taxation, customs duties, the wages of the labor force, the conditions of marketing, the differences in the parity of currencies, the density of competition may eventually culminate in different retail selling price levels according to the Member States," it also stated that those differences were factors which UBC could only take into account to a limited extent since it was selling an identical product at an identical place to ripeners/distributors who alone "bear the risks of the consumers' market" (see ECJ, United Brands Company v. Commission, supra n 14 at 2§28). This part of the decision was not only criticized for the fact that it was not true that only ripeners/distributors bore the risks of the market, but also because it created incentives to operators, such as UBC, to vertically integrate production and retailing functions. Indeed, the Court judgment led to the odd situation that, while operators which combined production and retailing functions could take demand considerations to differentiate prices, a nonvertically integrated operator, such as UBC, could not do so.
214. See William Bishop, "Price discrimination under Article 86: Political economy in the European Court," 44 Modern Law Review 282 (1981) at 288-9.
215. See M. Motta, supra n 6 at 492.
216. EC Competition law forbids, in that respect, restriction to passive sales. It does not, however, prohibit restrictions to active sales inserted within exclusive distribution agreements. See §§49 and 50 of the Guidelines on Vertical Restraints, supra n 140.