Excerpt
Introduction
To explore the nature of the relationship between the economist and the competition lawyer it requires the exploration of several different areas of thought, as it is a difficult relationship to define. The two institutions are interchangeable at times, and even more considerably when examining the role of economic terms in the legal argument when it comes to the interpretation of competition law, namely Articles 101 and 102 of the Treaty of the Functioning of the European Union (formally numbered as 81 and 82 of the Treaty of Amsterdam, for the duration of this essay will simply be referred to as Articles 101 and 102); together combined formulate the provisions which regulate the single market. The history of competition law reveals the importance of regulation within the market to support economists’ visions which are naturally reflected in the evolution of judgments concerning the economic terms used in Articles 101 and 102’s judgments.
History
The roots of EU competition law grew in the Anti-Trust law in the United States and has followed a similar trajectory since. Prior to this time, there was little recognition for the importance of the role of economics. However, the shift towards the notion that competition law enforcement is only justified when activities could lead to significant harmful effects to the economy brings huge benefits to the consumer; known as the ‘effects based approach’. This is in place to ensure the protection of healthy competition throughout the EU and the benefits it provides the consumers in the member states. The importance of the consumers in competitive markets was critiqued by the University of Chicago which has a strong theme of maintaining consumer benefit throughout most business practices such as discounting the importance of regulating predatory pricing as observed by Richard A. Posner, Jurist and Economist who said:
“If a predator is always as efficient in the long run as his competitors, there is little reason to forbid predatory pricing. A more efficient competitor can exclude a less efficient one without pricing below cost and thereby losing money in the short run”.[1]
In essence, the ‘predator’ can withstand the losses in the reduction of price, and the rivals in the market including new entrants can also sustain the loss.
Economist v Competition Lawyer
It is widely understood that there is a place for both the competition lawyer and the economist make their contributions to the legal argument as has been reflected throughout this essay. This contrasts with the idea that the two could be conflicting in respect to Whish and Bailey “a competition lawyer once remarked…In his view, in any competition law case the lawyer should be in the driving seat; and that the competition economist readily agreed, since he always preferred to have a chauffeur”.[2] As discussed, the competition economists input to cases involving Articles 101 and 102 is incredibly valuable and isn’t just limited to the decisions made by the Court of Justice but in the Commissions drafting’s of the provisions initially.
Economic terms inevitably have an important role to play in the legal argument. The position of the economist is at a slight advantage in that they are able to advise the commission through the draft stages of legislative procedure. It is important for the commission to seek advice from a third party as they are better educated in predicting how the provisions will affect all aspects of the market and the economy as a whole in the long run. Economist David Friedman provides a niche reasoning as to the importance of the economist:
Economics, whose subject, at the most fundamental level…is an essential tool for figuring out the effects of legal rules. Knowing what effects rules will have is central both to understanding the rules we have and to deciding what rules we should have.[3]
In summary, he is essentially saying that although the competition lawyer is the operator of the machine, the economists are the metrics that allow it to run smoothly.
Prohibited by 101
Like most jurisdictions worldwide, the Court of Justice must interpret the provisions they have been given by the legislator, the European Commission. The economic terms adopted by the Commission, used in Articles 101 and 102 have been interpreted by the Court of Justice and defined throughout the common law in this area.
The term ‘undertakings’ is a basic term which is referenced in both provisions and in every case presented. It simply means an entity that is involved in economic activity in the marketplace when referred to in discussions regarding competition law. The legal definition was outlined in the case of Heffner and Elser v Macroton GmbH [1991][4] in which the Court of Justice delivered the statement:
[i]n the context of competition law the concept of an undertaking encompasses every entity engaged in an economic activity, regardless of the legal status of the entity and the way in which it is financed.[5]
Despite the blanket use of ‘every entity’, there are exceptions for undertakings who’s pursued their business activity based on solidarity and lacks the intentions to make profit for capital gain, such as charitable organisations. There are also other examples of whether a body could or could not be considered an ‘undertaking’. A body established in national law such as the police or national healthcare was not an undertaking; in the case of Diego Cali v SEPG[6] it was a body formulated to collect harbour duties. Unsurprisingly, a body set up by a Treaty was not considered to be an undertaking as per SAT v Eurocontrol[7], with the principle that it was not operating in “an economic nature justifying control by competition law”[8] . In this instance, it was air traffic control for the European Union. A sporting body such as Olympic committees could be an undertaking as defined in Meca-Medina and Majcen v Commission.[9]
The Court have provided a much narrower definition as to the economic term ‘undertaking’ which is something that the statutory provision lacks. Their interpretation is in keeping with the theme of the effects based approach.
The principle of effects based approach is held in high regard to the Court of Justice, which can be seen in the ratio decedendi of the Suiker Unie v Commission [1975[10] ]:
[C]oordination between undertakings, which, without having been taken to the stage where an agreement properly so-called has been concluded, knowingly substitutes for the risks of competition, practical cooperation between them which leads to conditions of competition which do not correspond to normal conditions of the market.[11]
To summarise, the idea is that there are no specific criteria for the commission to have to prove that a formal meeting ever took place placing the majority of the focus on the outcome the actions had on the market and not the actions themselves.
Similar in nature to consorted practice is agreements which can take place between undertakings that results in anti-competitive practice. There are two types of agreement recognised by the commission which are vertical and horizontal. These types of agreements are prohibited under Article 101:
Any agreement or category of agreements between undertakings. Which contributes to improving the production or distribution of goods or to promoting technical or economic process, while allowing consumers a fair share of the resulting benefit.[12]
This recognises that there are some instances in which agreements of some kind can in fact result to the benefit of the consumer and it is only in this instance where Article 101(1) would be rendered void.
Prohibited by 102
The Court of Justice faces situations where they must make assumptions using terms derived from economics. This was seen during the case of United Brands v Commission [1978] by establishing a dominant position . United Brands was suspected to be in breach of Article 102 as they were imposing various terms to the companies they supplied to, applying dissimilar conditions to the same transactions to different member states and initiating a refusal to sell altogether.
The issue arose in the defence used by United Brands, in that they claimed not to have a dominant position at all as they were an undertaking in the wider market of fruit. To deal with this the Court of Justice they needed to determine the relevant product market (RPM) and the Geographical Market. They decided that a banana was so different from other fruits on the market that they were not considered to be cross-substitutable. To achieve an accurate assessment on matters that come before them which are not in their area of expertise they will use the assistance of a knowledgeable third party, much the same as a criminal lawyer would seek advice from a forensic scientist.
The position as Chief Economist of the Economic Advisory Group on Competition Policy (EAGCP) is held by Tommaso Valletti. The purpose of the group is to present research in different economical areas which would directly affect the efficiency of competition in the EU. The role is of particular importance to the Commission in:
“evaluating the economic impact of its actions. The Chief Economist provides independent guidance on `methodological issues of economics and econometrics in the application of EU competition rules. He contributes to individual competition cases (in particular ones involving complex economic issues and quantitative analysis), to the development of general policy instruments, as well as assisting with cases pending before the Community Courts.”[13]
The term ‘dominance’ is a key component of Article 102. This section of the TFEU is quite simple in that it only requires an undertaking whom enjoys a dominant position, is in abuse of such position and as a result affects member states. If all elements are proven, a breach of 102 will prevail. Dominance saw it’s legal definition in the case of Hoffman La Roche [1979] when the Court of Justice made the statement that:
“The dominant position thus referred to by Article 102 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 affording it the power behave to an appreciable extent independently of its competitors, its customers and ultimately of its consumers”[14]
Despite the benefits to the customer in having competition law in place, it is not universal belief that the existence of competition policy is healthy for economics, there are economists who share the divergent view that there should not be competition law at all, or at least a more relaxed approach. This stance is commonly voiced during periods of economic downturn. The early 2000’s saw a global economic crisis and as a result, was recognised by economist David Spector of the Paris School of Economics, “A downturn requires firms to adopt and change and competition will provide adequate incentives for this to take place.”[15]
In other words, if there is a more relaxed approach, it will give companies a better chance of recuperating, however in my view this is likely to instigate a ‘survival of the fittest’ situation and large corporations with larger monetary reserves will inevitably be the ones who result in monopolising industries.
[...]
[1] RichardA Posner, The Making of Competition Policy: Legal and Economic Sources (Oxford University Press 2013)
[2] [2] R Whish and D Bailey, Competition Law (7th edn, Oxford University Press 2012)
[3] D Freidman, 'What does Economics have to do with Competition Law' (Economics and Competition Law, 01/01/2017) <http://www.davidfreidman.com> accessed 06 March 2017
[4] Case C-41/90 Hofner and Elser v Macroton GmbH [1991] ECRI-1979
[5] Case C-41/90 Hofner and Elser v Macroton GmbH [1991] ECRI-1979
[6] [6] Case C-343/95 Diego Cali v SEPG [1997] ECR I-1547
[7] Case C-364/92 SAT v Eurocontrol
[8] Case C-364/92 SAT v Eurocontrol
[9] Case C-519/04P Meca-Medina ad Macjen V Comission
[10] Case C 114/73 Suiker Unie v Commission [1975] ECR 1663
[11] Case C 114/73 Suiker Unie v Commission [1975] ECR 1663
[12] Treaty of the Functioning of the European Union
[13] Europaeu, 'The Chief Competition Economist' (Europaeu, 01 September 2016) <http://ec.europa.eu/dgs/competition/economist/role_en.html> accessed 02 March 2017
[14] Case 85/76 Hoffman La Roche (n 3)
[15] David Spector, 'Competition Policy in Times of Crisis' [2009] 2(1) Concurrences