The Antitrust Hotch Post

The Counterfactual Method in EU Competition Law: The Cornerstone of the Effects-based Approach

Here is the abstract and link of the paper I co-authored with Ianis Girgenson on the counterfactual method.

In Book IX of his History of Rome (written around 25 BC) Titus Livy speculates about a hypothetical confrontation between Rome and Alexander the Great.  What if Alexander had not died at the end of the Asian campaign but had returned to Europe to attack Rome?  Livy argues that Rome and Carthage would have joined forces to crush the Macedonian army.

Livy’s musings represent an early example of the counterfactual method.  This method can be used to assess the effects of an actual or a hypothetical event.  The counterfactual describes the world in the absence of that event.  If the event has already occurred, one needs to build an alternative past (this is what Livy does when he imagines Alexander’s return to Europe).  If the event has not yet taken place, it is necessary to contemplate an alternative future.

The use of the counterfactual under EU competition law goes back to the seminal judgment of the Court of Justice in the Société Technique Minière case.  However, until recently, this method was confined to the area of merger control.  Under Articles 101 and 102 TFEU, the European Commission and the EU Courts initially adopted a “form-based” approach.  This approach paid limited (if any) attention to the effects of the relevant agreement or conduct on competition and consumers.  Because the aim of the counterfactual technique is to analyse the effects of a given event it had little relevance under the form-based approach.

In recent years the Commission has transitioned towards the effects-based approach.  The modernisation of EU antitrust enforcement caused a renewed interest in the counterfactual technique.  Counterfactuals are discussed in various Article 101 guidelines and in the Article 102 Guidance Paper.  In June 2011 the Commission published a draft Guidance Paper on quantification of antitrust damages, which contains a detailed analysis of various counterfactuals.

In this paper, we examine the use of the counterfactual method in EU competition law.  In our analysis, we distinguish between ex ante control (merger control and Article 101 self-assessment) and ex post scenarios (investigations under Articles 101 and 102, damages litigation).

 

This blog readopts its original title

The Antitrust Hotch Potch was created several years ago by Nicolas Petit and myself. Three years ago, Nicolas created an excellent new blog "Chillin Competition" and this blog became became largely inactive under the name "Professor Damien Geradin". As I am now planning to feed this blog again, I decided to give it back its orginal name.

Damien

Industrial Policy and European Merger Control - A Reassessment

This paper, which was initially published in the annual proceedings of the Fordham antitrust conference, was selected as the best academic paper in the Mergers Article category in the inaugural Antitrust Writing Awards presented by the Institute of Competition Law and the George Washington University Law School.

Abstract:    

The relationship between industrial policy and merger control is one of the most controversial topics in European competition law. The debate has become particularly intense in recent years given the perceived failure of free markets and the return of government intervention into the economy.

In Europe, the concepts of industrial policy and competition policy conjure up “a great ideological divide.” Modern competition policy is inspired by the neoliberal ideas of the Chicago school that place great confidence in free markets. Industrial policy reflects a more interventionist approach, based on the assumption that markets are fallible and that governments should correct their imperfections.

Industrial policy dominated the early years of European merger control. However, following the adoption of the Merger Regulation in 1989, the European Commission largely ignored industrial policy considerations, focusing instead on the strict implementation of the competition-based test. This approach was unsurprising given the triumph of the neoliberal agenda and the corresponding lack of interest in or support for industrial policy.

However, the challenges of globalisation and the 2008 economic crisis inspired a growing number of observers to argue for an increased intervention of public authorities into the economy. The role of competition policy has also been called into question. In particular, some observers argued that EU merger control prevented industrial consolidation. In several recent cases, national governments set aside merger control rules to facilitate the creation of “national champions” or used them as a protectionist tool to disrupt undesirable transactions.

Against this background, we seek to address the issue of whether merger control rules should be relaxed in order to accommodate industrial policy objectives. Answering this question is complicated by the lack of clarity of the concept of “industrial policy.” In Section II of this paper we define industrial policy and summarise the debate relating to this concept. In Section III, we demonstrate that industrial policy has always been present in European merger control even though its influence has decreased considerably following the adoption of the Merger Regulation. In Section IV, we describe how globalisation and the 2008 economic crisis led to the revival of industrial policy in Member States and at the EU level. In Section V, we attempt to determine whether industrial policy should take priority over competition policy in the area of merger control in light of these developments.

Our conclusions are twofold. First, carefully selected industrial policies can successfully address market failures, e.g., by supporting national or European champions. Second, we do not think that merger control rules should be relaxed or set aside in order to facilitate the creation of industrial champions. On the contrary, correct application of merger control rules enhances the efficiency of industrial policies.

This blog is back

After three years of silence ... I have decided to start feeding this blog again, first by adding my most recent papers (and there have been quite a few lately), then by posting stories on antitrust developments.

Damien

The Decision of the Commission of 13 May 2009 in the Intel Case: Where is the Foreclosure and Consumer Harm

This new paper challenges the Decision of the European Commission against Intel, which I believe suffers from a number of serious flaws.

Abstract:

Abstract:      
On 21 September 2009, the European Commission published a provisional non-confidential version of its 13 May 2009 Decision in which it condemned Intel to a record fine of € 1.06 billion on the ground that it had granted conditional rebates and payments to a number of OEMs and a large retailer of consumer electronics purchasing its x86 CPUs, and that it had paid OEMs to delay, cancel or in some other way restrict the commercialization of specific AMD-based products. 
This paper shows that the Commission Decision contains a number of flaws. They include the facts that the Decision: (i) relies in substance on a per se prohibition of conditional rebates recognized by the formalistic case-law of the Community courts, notwithstanding that the Commission had clearly indicated in various important policy documents, including its Guidance Paper on Article 82 EC, its intention to move away from this approach for an effects-based analysis; (ii) states, contrary to sound policy, that it need not conduct an “as efficient competitor” test, but conducts a misguided one anyway; (iii) insufficiently supports its speculative theory that the OEMs’ purchasing policy was influenced by their understanding of Intel’s alleged intention to reduce or eliminate their rebates should they buy x86 CPUs from AMD; (iv) fails to demonstrate its contention that Intel’s rebates harm competition and consumers; and (v) conducts an excessively restrictive analysis of the efficiencies created by Intel’s rebates. 
The Intel decision thus stands for the dangerous proposition that any dominant firm is at risk under Article 82 EC if there exists evidence that employees of a customer believe that reducing present purchases from it could have repercussions with regard to the availability and terms of future purchases, even if the belief is ambiguous, equivocal or contrary to written assurances of the firm or its executives, and without any showing of foreclosure. While the foregoing may be considered as an overstatement and that an “agreement” on conditions (not a mere unilateral belief on the part of the customer) is necessary to find a violation, the Commission accords itself so much latitude on how it collects, interprets and weighs evidence that the distinction is illusory. 
The compatibility of the Commission Decision with EC competition law will now be examined by the Court of First Instance of the European Communities to which Intel lodged an appeal. Because of the wide-ranging implications of this Decision, not only for Intel but for all large corporations having to negotiate price incentives with their customers, it is to be hoped that the Court of First Instance of the EC will review this decision carefully and hold the Commission to the same rigorous standards it has applied in the merger control area. 
An important question (that will not be addressed by the Court of First Instance, but which is nevertheless relevant from a policy standpoint) is whether antitrust intervention was at all needed in a market characterized by increasing output, decreasing prices and sustained innovation. These characteristics alone should raise serious doubt about claims of anti-competitive foreclosure and consumer harm, especially when they are made by competitors. These characteristics also question the Commission’s wisdom of investing large enforcement resources in what turned to be a long and protracted investigation. As this paper will demonstrate, the market for x86 CPUs was competitive and there is no convincing evidence that Intel’s conduct was anti-competitive and foreclosed AMD and harmed consumers.

Abuse of Dominance in the Postal Sector – The Contribution of the Guidance Paper on Article 82 Ec

Please find hereafter the link to the paper I have co-author on the potential implications of the Commission's Guidance Paper for the postal sector:

 

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1435362

 

Abstract:

 

On 3 December 2008, the Commission published its 'Guidance on the Commission’s Enforcement Priorities in Applying Article 82 EC Treaty to Abusive Exclusionary Conduct by Dominant Undertakings' (“Guidance Paper”), which essentially sets out the Commission’s enforcement priorities with respect to exclusionary abuses. In line with the approach already taken in the fields of Article 81 EC and merger control, the Commission, through its Guidance Paper, has vowed to take a more effects-based approach to exclusionary abuses by dominant undertakings. The Guidance Paper is not intended to be a statement or interpretation of the law, but instead lays out the Commission’s 'enforcement priorities' with respect to Article 82 EC. This raises the issue whether the Commission is bound to apply the principles developed in the Guidance Paper or whether it can apply the more restrictive and formalistic principles contained in the Community courts’ case-law. In the context of the postal sector the advent of the Guidance Paper is particularly propitious in light of the crucial changes that are taking place. The recently promulgated Third Postal Directive ('Postal Directive') provides the legal basis for the full market opening of the postal sector, which is to be accomplished by 31 December 2010. A corollary of the abolition of any remaining, exclusive or special rights is that new possibilities for increased competition in the postal sector will be created. At the same time, however, the removal of the reserved sector is likely to increase the frequency of claims by entrants that incumbent postal operators are engaging in abusive behavior to maintain their market power in liberalized markets. With this in mind, the Guidance Paper provides dominant (postal) undertakings with a set of parameters within which they can assess conduct addressed in it i.e. exclusive dealing, tying and bundling, predatory practices, and refusal to supply.

 

 

Damien

 

New Paper on International Antitrust

Here's a link to a new paper, and its abstract, to be published in th Chicago International Law Journal.

As Einer Elhauge and I noted in the preface to our recently published casebook, modern antitrust law is global antitrust law. This is not so much the case because large corporations are subject to global antitrust rules, but because their behavior is being reviewed under the antitrust rules of an ever growing number of jurisdictions. While the last six decades have seen repeated unsuccessful attempts to develop global antitrust rules, the 1980s and 1990s have witnessed significant growth in the number of countries adopting antitrust law statutes and setting up specialized antitrust agencies and/or courts. Thus, some 100 countries currently have antitrust rules in place, and the process has not ended yet. On August 1, 2008, China's Anti-Monopoly Law (hereafter, the "AML") entered into force and various factors indicate that China will become a significant actor on the global antitrust scene.

As a result, a typical merger between large U.S. corporations now ordinarily requires approval not just in the United States ("U.S."), but also in the European Union ("EU"), Canada, Brazil, South Africa, Russia, Korea, and the numerous other jurisdictions which have merger control rules and in which the activities of such corporations may produce market effects. Similarly, international cartels may trigger administrative, civil or even criminal investigations not only in the United States, but also in a range of other jurisdictions. The Microsoft case also bears testimony to the fact that firms engaging in certain practices, such as refusal to license or tying, may end up being condemned for abuse of dominance under the antitrust laws of different nations and, as a result, face a variety of remedies that are not necessarily consistent. Thus, businessmen, lawyers and policy-makers can no longer content themselves with understanding only the antitrust law of their nation. They must also be conversant with the other regimes that form part of the overall legal framework that regulates competitive behavior.

While I, like many other scholars, have supported and even to some extent contributed to the development and adoption of antitrust law regimes in a growing number of jurisdictions, my increased level of involvement in recent years in cases dealing with the application of antitrust laws and the participation of authorities of several jurisdictions has permitted me to gain first hand experience of some of the pitfalls of the process of "decentralized globalization" of antitrust, which has taken place in the last few decades as a result of the concomitant failure of nations or international organizations to develop a global antitrust law regime and the decision of many nations to adopt their own antitrust laws. While the notion of "decentralized globalization" may sound like an oxymoron, it represents an attempt to describe the fact that antitrust is today a global phenomenon, not through the adoption of supranational rules such as in areas pertaining to environmental protection, labor rights, or human rights, but through the adoption of national rules often varying in scope, objectives, methods, and the manner in which they are enforced.

There is no doubt that the adoption of antitrust rules in a larger number of nations generates benefits as it allows, for instance, these nations to protect their citizens against international cartels or excessive market concentration This process has, however, also given rise to challenges for global corporations, some of which are well known. The "decentralized globalization" of antitrust increases: (i) the cost of doing business and the complexity of large-scale antitrust investigations, which now often have a multi-jurisdictional component; (ii) the risk of contradictory decisions where a firm's behavior is reviewed by different antitrust authorities under different sets of rules; and (iii) the likelihood that some decisions be guided by protectionist motives.

The objective of this paper is to raise awareness of a particular problem, which relates to the fact that in a world where a conduct of a given is subject to different antitrust regimes, the most restrictive antitrust regime always wins, i.e. the firm in question will be required to ensure that its conduct conforms to whichever regime is most restrictive, hence leading to global antitrust over-enforcement. As will be seen, this issue, which I referred to as the "Strictest Regime Wins" problem, may lead to situations where the decision of an antitrust authority in one jurisdiction (for instance, taking a negative decision on a conduct that is otherwise considered to be pro-competitive) may deprive consumers in other jurisdictions of various efficiencies that are well-recognized by their own antitrust authorities. This paper also draws attention to a number of procedural issues, which may negatively impact the ability of corporations investigated in foreign jurisdictions to defend their case.

Against this background, this paper is divided into five parts. Part II describes the process of "decentralized globalization" alluded to above. Part III discusses the various benefits brought about by the adoption of antitrust regimes in an increasingly large number of nations, but also the challenges that this has created for multinational corporations. Part IV focuses on the problem of global antitrust over-enforcement described above. Finally, Part V provides for a short conclusion.

Damien

New paper on SSRN - A Proposed Test for Separating Pro-Competitive Conditional Rebates from Anti-Competitive Ones

I have just posted a new paper on ssrn. Here's the abstract:

While the granting of rebates is a common commercial practice largely used by dominant and non-dominant firms, the assessment of rebates is one of the most complex and unsettled areas of competition law. In the EU, the decisional practice of the European Commission and the case-law of the Community courts have been harshly criticized as unnecessarily strict, following a form-based approach that sits uneasily with modern economic theory. In response, DG COMP published in December 2005 a Discussion Paper that promotes an effects-based approach to the assessment of rebates. This approach was recently confirmed in the Guidance Paper of the Commission on Article 82 EC published by in December 2008. US courts have generally shown greater deference to conditional rebates adopted by dominant firms, but the case-law remains unsettled, notably in the area of bundled rebates. Against this background, this paper proposes an analytical framework, based on a three-step test, designed to separate pro-competitive rebates from anti-competitive ones. A particular emphasis will be placed on the treatment of single product retroactive rebates, which create complex issues.

Damien

CRESSE Material

The CRESSE 2008 CONFERENCE MATERIAL (to which Damien participated) has been posted here.

LL.M. in Competition and IP Law - New Programme/Brochure

As some of you may already know, I am the director of the LL.M in competition and IP law at the University of Liege (Belgium). We have just received the new brochure (see link at the end of this post) and I take the opportunity to make a little advertisement for the programme.

Our LL.M. is certainly unique here on the continent. Not that it is priced at a level that is almost predatory. Rather, it exhibits a number of other features which make it - in my opinion - a 5* education programme:

• Focus and exhaustiveness of the courses:  ranging from general IP and competition law to economics of competition law, market regulation in the pharmaceutical/food sector, competition and IP, patent law, etc.;
• Teaching team boasting academics and high-profile practitioners - J.Y Art, J.F. Bellis, J. Derenne, JJ. Evrard, D. Hull, A. Strowel, G. Van Overwalle, P. Wautelet, etc.;
• Numerous extracurricular activities - the many conferences and seminars we had this year were made possible thanks to the support of the students. Our students also write case summaries in the E-competitions online bulletin;
• Proximity from Brussels;
• The vast majority of our students finds a job prior to the end of the LL.M.

Please do not hesitate to contact me, should you have any queries on the programme. Our admission requirements have so far proven quite flexible and we aim at attracting students from everywhere inside and outside Europe.

Download brochure_llm_final_version.pdf

Nicolas