Law and Economics EU/EC Competition Law Professional Career Programme (PCP) Yoshiharu, ICHIKAWA 2011/12/10

Review of Midterm Examination 1.Explain the competing core values of EU competition law - rivalry, economic welfare, economic freedom, market integration … core values and their differences should be referred to 2.Explain three major economic theories and their application for the US or the EU competition law - SCP…economic freedom? - Chicago…economic efficiency? - Post-Chicago…mixed? … its application on competition law should be referred to In general, good. Ono, Mercken, Sakamoto are splendid.

What we learned at the last session Market Power (its application in detail) Aftermarket - Hugin decision (market definition) Product differentiation - Heinz case (three to two merger) Market power in Article 81/101 (enforcement in reality) From commercial power to market power Conflict in Article 82/102? (mixed interpretation)

Introduction to today’s session We will move into the detailed studies on Article 82/102 Understanding this Article is essential for learning EU competition law Student’s presentation

Chapter 6: Abuse of a dominant position Introduction – Article 82/102 Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States. Such abuse may, in particular, consist in: (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

Chapter 6: Abuse of a dominant position Introduction – Article 81/ The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which: (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development, or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. 2…. 3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of:…

Chapter 6: Abuse of a dominant position Introduction – Article 82/102 - Abuse doctrine - to protect the market from dominant firms when these reduce output and raise prices - to protect the market from dominant firms when these harm competition so as to obtain the power to reduce output and raise prices - to protect other market participants from the acts of dominant firms - to protect the internal market

Chapter 6: Abuse of a dominant position Why penalise the abuse of a dominant position? (BA/Virgin) - Case in detail rebate scheme - Neoclassical analysis loyalty inducing, reducing the opportunities of travel agents to sell their services to other airlines and preventing other airlines’ access to the market - A post-Chicago paradigm: anticompetitive exclusion strategies designed to injure rivals can reduce consumer welfare raising rivals’ costs

Chapter 6: Abuse of a dominant position Why penalise the abuse of a dominant position? (BA/Virgin) - Economic freedom paradigm safeguarding pluralism ability to participate in the market…is a ‘right’ - Which standard was applied in BA/Virgin? - ambiguity - Commission - Courts

Chapter 6: Abuse of a dominant position Why penalise the abuse of a dominant position? (BA/Virgin) - The protective scope of Article 82 - ‘economic freedom’ paradigm has a strong influence - some attempt to justify the adverse finding using economic analysis - relationship between Article 82 enforcement and the Community’s policy - relates to liberalised industry - market access…gradually perceived by consumer welfare

Chapter 6: Abuse of a dominant position Excluding rivals - Raising rivals’ costs various strategies understandable under economics-oriented framework but EU practice…economic freedom? - Below-cost pricing ‘ predatory pricing’ skepticism against predatory pricing in US…Chicago school but…economic freedom?

Chapter 6: Abuse of a dominant position Excluding rivals - Above-cost discounts same as below-cost pricing - Distribution agreements foreclosing entry based on degree of foreclosure, against loyalty rebate - Leverage injure competing manufacturers, but no adverse welfare consequences…Chicago school Problem…Dominance, Abuse, Effects

Chapter 6: Abuse of a dominant position Harm to other market participants restrict the freedom of non-competitors Article 82 / 102 (c) regulate contractual practices Similar experience in US

Question: What is your opinion on the final decision of the BA/Virgin case? Chapter 6: Abuse of a dominant position

Course web site: My webpage: You can download the presentation I used in the session. Contact address: or from my Facebook page

Course Schedule [updated] 11/10/01 Chapter 2-1, 2 [student A( TAKABAYASHI )] 11/10/08 Chapter 2-3, 4, 5, 6 [student B( Lecturer )] 11/10/15 Chapter 3-1, 2, 3, 4, 5 [student C( MERCKEN, CASTELLANE)] 11/10/22 Chapter 3-6, 7, 8 [student D( decided )] 11/10/29 class cancellation 11/11/05 Chapter 5-1, 2, 3 [student E( OSAWA, KIKUCHI )]

11/11/12 class cancellation (Sorry! I attend the international conference.) 11/11/19 class cancellation (Mita Festival) 11/11/26 - Chapter 5-4, 5, 6, 7 [student F( SAKAMOTO, TAKEDA )] - Mid-term examination (open-book) * pre-condition for qualification of this class --- if you are absent, please contact me. 11/12/03 class cancellation 11/12/10 Chapter 6-1, 2, 3, 4 [student G( Taiki, Takaaki)] 11/12/17 Chapter 6-5, 6, 7 [student H( Junichiro, Kenmei)] Course Schedule [updated] NEXT Session

11/12/24 Enforcement – Watch the movie ‘Informant!’ 12/01/14 Chapter 11-1, 2, 3 [student I( not yet decided )] At the same day, Submission of take-home exam and final discussion Course Schedule [updated]