Formative Assessment in Competition Law
Cardiff University, LL.M. European Legal Studies, January 2003

“Critically analyse the decision of the European Court of First Instance in
Airtours plc v EC Commission [2002] All ER (EC) 783
Do you feel the criticisms made in the case of the European 
Competition Commission

Directorate are justified? If the criticisms are justified how might the 
Competition Directorate prevent a repetition of them in the future?”

Karsten Keilhack

Content

Introduction 1

I. Airtours plc v EC Commission -the Relevant Facts  1

II. Key Issues in the Airtours Case  2
A. Definition of the Relevant Market  2
B. Establishing Post-Merger Collective Dominance  4
1. Preconditions of Collective Dominance within the ECMR  4
2. Application of the Collective Dominance Doctrine in the Airtours Case  5
i. Tacit Co-ordination and Market Transparency  5
ii. Adequate Punishment Mechanism  6
iii. Marginalisation of Smaller Competitors and Consumer Reactions  6

III. Implications of the Airtours Judgement  7

IV. Prospect Revision of the ECMR  8

V. Assessment of the Reform Proposals  9

Conclusion 10

Bibliography

Introduction

The aim of this paper is to present and to clarify the current approach of EC Competition Law to merger cases, in particular with regard to the problem of collective dominance. I will outline the problems arising from collective dominance in the context with the significant case Airtours plc v. EC Commission, recently dealt with by the European Court of First Instance. Firstly, I will give briefly the relevant facts of the Airtours case (I.). Secondly I will analyse the case with regard to the criticism made by legal experts (II.) and then give an ove rview on which measures are proposed in the future to eliminate the errors made (III., IV.). Lastly, I will interpret these measures and give an answer to the question whether or not these measures are sufficient to solve the present problems in context with the current EC Merger Regulation (V.).

I. Airtours plc v EC Commission1 -the Relevant Facts

On June 6, 2002, the European Court of First Instance (hereinafter CFI) released its judgement in Airtours v. European Commission. The CFI overruled the European Commission’s decision of September 22, 19992 which declared the take-over of First Choice by its competitor Airtours plc to be incompatible with the common market according to Article 8 (3) of Regulation 4064/89 (hereinafter ECMR). Airtours plc (now called My Travel) and First Choice are both U.K.-based operators for packaged tours. In the U.K., the both companies sell foreign package holidays to so-called short-haul and long-haul destinations. The acquisition envisaged by Airtours plc would have combined the second and fourth largest firms in the market for short-haul packaged tours creating the largest firm with a market share of 32%. 

Main competitors at the time of the proposed merger in the short-haul holidays market were Thomson and Thomas Cook with respective market shares of 27% and 20%. The Commission found that the three tour operators Airtours/First Choice, Thomson and Thomas Cook would post-merger create a collective dominant position in the market for short-haul pac kaged holidays in the U.K., as they would increase their market share in this particular market from 68% before to 79% after. The Commission outright blocked the merger by applying the collective dominance doctrine, stating that the acquisition would give incentive for the three remaining operators to avoid or reduce competition between them.

II. Key Issues in the Airtours Case

On the basis of its findings, the Commission concluded that the merger would have created a collective dominant position as the three3 remaining oligopolists would have been able to coordinate the setting of capacity tacitly. In particular, the Commission took the view that the proposed transaction would:

• remove any incentive for the three remaining major operators to compete;4
• increase transparency and interdependence5 that already existed in the market of foreign short-haul holidays and thus allowing the major operators to adopt anticompetitive parallel behaviour to the setting of package holiday capacity and respective prices;6
• facilitate deterrence or retaliation against attempts to deviate from the parallel behaviour since, if one of the three remaining large operators decided not to restrict c apacity, the other two would flood the market with capacity for the following season, thus causing prices to fall;7
• and finally, lead to further marginalisation of the smaller operators on the market.8 

Airtours’ appeal before the CFI, where it challenged the Commission’s decision, was in particular based on two columns, which both asserted a defect in law. The tour operator claimed that manifest errors were made by the Commission in assessing the definition of the relevant product market in the U.K. foreign package holiday industry. Furthermore it alleged an infringement of Article 2 ECMR in so far as a new and incorrect definition of collective dominance had been applied by the Commission which lead to the wrong decision that the transaction created a collective dominant position.9 A. Definition of the Relevant Market

[....]

1 Case T-342/99, [2002] All ER (EC) 783.

2 Case No. IV/M.1524 -Airtours/First Choice, [2000] 5 C.M.L.R. 494.

3 With its decision, the Commission prohibited for the first time a merger, creating or strengthening a dominant position consisting of more than two entities, sometimes also named “tripoly”, cf. Stroux, S., “Collective Dominance Under the Merger Regulation: A Serious Evidentiary Reprimand for the Commission” (2002) European Law Review 27 (6), 736 at p. 736.

4 Commission Decision, supra note 2 para. 55.
5 Ibid. paras. 111, 113, 127, 144 and 147.
6 Ibid. paras. 56, 170.
7 Ibid. paras. 147 and 153.
8 Ibid. paras. 73 et seq., in particular paras. 74 and 84.
9 Airtours v. EC Commission [2002] All ER (EC) 783 at para. 16.