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.′
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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
Research Objectives and Themes
This work examines the legal boundaries of pricing strategies under European competition law, focusing on how Articles 81 and 82 of the Treaty of Rome regulate market behavior to prevent anti-competitive practices. It aims to clarify the distinction between prohibited pricing abuses—such as cartels, predatory pricing, and market sharing—and legally permissible strategies that firms may employ within the Common Market.
- Prohibitions on horizontal price fixing and concerted practices between rivals.
- Regulation of vertical agreements and resale price maintenance (RPM).
- Abuses of dominant positions, specifically concerning excessive and predatory pricing.
- Evaluation of the "meeting competition" defense in cases of price discrimination.
- Analysis of recent European Commission guidelines regarding horizontal cooperation and vertical restraints.
Excerpt from the Book
1. Horizontal Price Fixing
The most blatant restriction on price competition is the fixing of prices between rivals (cartels), i.e. undertakings that act on the same market level (horizontal agreements or concerted practices). Horizontal agreements fall within the scope of Article 81, if the participants do not present themselves as a single entity which has a dominant position (then it might also be an infringement of Article 82).
Although the fixing of prices can have a lot of advantages for the participating companies from an economic point of view, such as stability, protection against cyclical recession and overseas competition, it is usually more profitable to some firms than others. Costs, which incur in negotiating a price, will increase as more firms join the agreement and the range of products to be comprehended by it is extended. As the more efficient firms will want to fix a lower price, because their output will then be greater, which will lead to an increased total revenue, agreeing to a price can be very difficult. Furthermore, cartels have to be monitored and operated, which will incur even more costs. Meetings have to be organized and more companies will join the cartel producing further expenses. These difficulties and the tendency of such price fixing to break down in the long term, often because of cheating within the cartel, leads undertakings to avoid the risks of competition in other ways. Despite the threat of heavy fines by the Commission, many firms still take the risk of being caught.
Summary of Chapters
I. Introduction: Outlines the fundamental importance of price competition in the Common Market and introduces the regulatory framework provided by Articles 81 and 82.
II. Pricing Prohibited under Article 81: Analyzes the prohibitions against collusive horizontal agreements, vertical price fixing, market sharing, and discriminatory pricing practices.
III. Pricing Prohibited under Article 82: Investigates how dominant firms may abuse their power through excessive pricing, predatory strategies, and discriminatory rebate or discount schemes.
IV. Legal Pricing Strategies under EC Competition Rules: Explores legitimate strategic approaches for companies, including defensive pricing measures and compliance with Commission guidelines on horizontal and vertical cooperation.
Keywords
European competition law, Article 81, Article 82, horizontal price fixing, vertical restraints, predatory pricing, market sharing, price discrimination, dominant position, European Commission, resale price maintenance, Common Market, competition defense, cartel, EU antitrust
Frequently Asked Questions
What is the fundamental focus of this publication?
The publication provides a detailed legal analysis of pricing behaviors under European Union competition law, specifically evaluating which strategies are restricted and which remain legal for businesses operating within the Common Market.
What are the central thematic fields covered in the text?
The key themes include the prohibition of horizontal and vertical price fixing, the abuse of dominant market positions, market sharing, and the legal constraints surrounding price discrimination.
What is the primary objective of this study?
The primary objective is to clarify the criteria under which the European Commission and courts evaluate pricing strategies, ensuring firms understand the risks of infringement under Articles 81 and 82.
Which scientific methodology is utilized in this work?
The work employs a legal-analytical method, examining case law, European Commission decisions, and regulatory guidelines to evaluate the development and application of competition rules regarding pricing.
What content is addressed in the main body of the work?
The main body systematically covers prohibited horizontal agreements, vertical restraints, abusive dominant behavior such as predatory pricing, and concludes with permissible strategies and potential defenses available to companies.
Which keywords best characterize this work?
The work is defined by terms such as EU antitrust law, Article 81/82, price fixing, dominant position, predatory pricing, and the European Commission's regulatory approach.
How does the book treat the "meeting competition" defense?
The book explains that while the "meeting competition" defense is recognized in principle by the European Court of Justice, it is highly conditional; specifically, selective price cuts to meet competition are only permissible if they do not constitute an abuse of a dominant position or an attempt to eliminate rivals.
How does the text define the distinction between vertical and horizontal price fixing?
The text distinguishes them by the market relationship of the parties: horizontal price fixing occurs between rivals at the same stage of the supply chain, while vertical price fixing involves companies at different stages, such as manufacturers and distributors, and is specifically discussed in the context of resale price maintenance.
- Citar trabajo
- Daniel Müller (Autor), 2001, Pricing in Accordance with EC Competition Rules, Múnich, GRIN Verlag, https://www.grin.com/document/5900
