Pricing in Accordance with
EC Competition Rules

Table of Contents

I. Introduction

II. Pricing Prohibited under Article 81

1. Horizontal Price Fixing
a. Definition
b. The Commission′s Attitude towards Horizontal Price Fixing

2. Vertical Price Fixing
a. Definition
b. The Commission′s Attitude towards Vertical Price Fixing

3. Market Sharing
a. Definition
b. The Commission′s Attitude towards Market Sharing

4. Price Discrimination
a. Definition
b. The Commission′s Attitude towards Price Discrimination

III. Pricing Prohibited under Article 82

1. Excessive Pricing
a. Definition
b. The Commission′s Attitude towards Excessive Pricing

2. Predatory Pricing
a. Definition
b. The Commission′s Attitude towards Predatory Pricing

3. Price Discrimination
a. Definition
b. The Commission′s Attitude towards Price Discrimination

IV. Legal Pricing Strategies under EC Competition Rules

1. The Commission′s guidelines on the applicability of Article 81 to horizontal cooperation

2. Defences for Parallel Pricing

3. Price Control in Vertical Agreements

4. Predatory Pricing and Price Discrimination- The Defence of Meeting Competition

Bibliography

I. Introduction

Price competition constitutes the most essential form of competition, as different prices for similar products promote the interchangeability of goods. In a competitive market, the price depends on the demand for the product. If there is little demand, the company will have to lower the price it can charge in order to compete with its rivals. Consumers who have choice are more likely to buy the product, which they think, is of good value. Therefore, to stay in the market, companies must seek to produce at minimum costs and to sell the product at a price, which includes a reasonable profit. The function of price competition is to keep prices down to the lowest and to encourage the movement of goods between the Member States .
If a good product is sold at an inflated price, consumers might purchase a less appropriate product, which may not satisfy them. Thus price fixing, both horizontal and vertical, is the most obvious infringement of competition law .
While horizontal agreements can eliminate inter-brand competition, price fixing between rivals, which also bind distributors (horizontal/vertical agreement) can restrict inter-brand as well as intra-brand competition. Mere vertical agreements, applied by suppliers individually, can cause horizontal effect as well, because it removes competition between distributors.
Competition can easily be restricted from a position of dominance. In order to drive smaller companies out of the market or to prevent others from entering, a dominant undertaking can abuse its economic power and charge prices which other firms cannot compete with.
The first Common Law country which had to deal with the issue of pricing, were the United States after the introduction of the Sherman Act 1890. In US v. Addyston Pipe and Steel Co. , the Supreme Court held pricing to be illegal per se under sec. 1 of the Sherman Act 1895 . An explanation for this holding can be found in Trenton Potteries : ′The power to fix prices […] involves power to control the market and to fix arbitrary and unreasonable prices.′
While pricing on a horizontal level, as it appeared in the early cases remains illegal, legislation on vertical restraints has developed differently during the last century . Now certain agreements can fall outside the US anti-trust act, if they stand a rule of reason approach, i.e. the plaintiff must prove that the restraint has negative effects on consumer welfare .
The central rules of competition on the European level are Article 81 [ex Article 85] and 82 [ex Article 86] of the Treaty of Rome. Following a continental European tradition , the lawmakers limited the extensive prohibitions of Article 81 (1) by exceptions in Article 81 (3). Thus restrictive practices go through a two-stage test.
Agreements are prohibited under Article 81 (1), if they affect trade between Member States and have as their object or effect the prevention, restriction or distortion of competition within the Common Market. Influenced by the early US experience in anti-trust legislation, fixing of prices is expressly prohibited by Article 81 (1).
If the restrictive practice meets the conditions of Article 81 (3) or a block exemption regulation (BER) which can be issued by the Commission, it will be granted an exemption and is permitted per se.
An undertaking which abuses its dominant position within the common market to the detriment of trade between Member States, contravenes Article 82. There is no possibility for those practices to be exempted, because they always constitute a great danger to trade between Member States.
The first part of this essay deals with the forms of pricing which are prohibited by European competition law, whereas in the second part I will analyse the pricing strategies which remain open for companies acting within the common market, thereby focusing on the new guidelines on the applicability of Article 81 to horizontal cooperation, the possibilities for companies to legally control prices in vertical distribution systems and the defence of meeting competition.

II. Pricing Prohibited under Article 81

1. Horizontal Price Fixing

a. Definition

[...]