On the Concept of ’Relative’ Market Power

1. On the Concept of ’Relative’ Market Power CLEEN Workshop 11-13 June 2008 Lúcio Tomé Féteira, PhD Candidate, EUI (Florence, Italy) – lucio.feteira@eui.eu

2. Structure of the Presentation • Introduction: the topic of the presentation in context • Market Power (“MP”) as the common denominator • The Economic Perspective on MP • The Legal Perspective on MP : (i) European Competition Law (“ECL”) • Interplay between the economic and the legal (ECL) • The Legal Perspective on MP: (ii) National Competition Law (“NCL”) • Conclusions

3. Introduction: the topic of the presentation in context (i) • The interplay between ECL and NCL: a) Before Regulation 1/2003: the “double barrier theory”, the Walt Wilhelm decision (case 14/68) and the aftermath b) After Regulation 1/2003: Art 3 as a compromise between the Commission and the Member States

4. Introduction: the topic of the presentation in context (ii) • The relationship between ECL and NCL under Art 3 Regulation 1/2003: a) The rule: Art 3(1) and (2) 1st sentence b) The exception: Art 3(2) 2nd sentence c) Lex specialis: Art 3(3)

5. Introduction: the topic of the presentation in context (iii) • The exception under Art 3(2) 2nd sentence: “stricter national laws which prohibit or sanction unilateral conduct engaged in by undertakings” • Example thereof (Recital 8): abuse of economic dependency [e.g. §20(2) GWB and Art L420(2), 2nd para. of the Code de Commerce]

6. MP as the common denominator • Economic perspective: prices • Legal perspective (ECL - Art. 82 EC): dominance • Legal perspective (NCL): ‘relative’ market power (?)

7. Economic perspective (i) • Market power as price discretion (ability to raise prices) • Which benchmark? * Marginal cost (assumption/measurement) * Competitive level (which?)

8. Economic perspective (ii) • MP as pricing power: “the ability of a firm or group of firms to raise price, through the restriction of output, above the level that would prevail under competitive conditions and thereby to enjoy increased profits from the action” (BISHOP/WALKER[2002]) • MP as exclusionary power: raising the rival’s costs so as to exclude them from the market

9. Economic perspective (iii) • Welfare-reducing effects of MP: allocative and productive efficiency • Emphasis on static efficiency (prices), rather than dynamic efficiency (innovation)

10. Legal perspective: ECL (i) • MP as dominance (Art. 82 EC) • United Brands decision (case 27/76): position of economic strength + ability to prevent effective competition + power to behave independently to an appreciable extent

11. Legal perspective: ECL (ii) • Hoffmann-La Roche (case 85/76): does not preclude the existence of some competition + appreciable influence on the conditions under which competition develops • Concerns over the well-functioning of the competitive process

12. Intersections, complementarities and interdependencies • Defining trait of MP: pricing discretion/ability to behave independently • Positive approach/normative approach • Direct/indirect measurement of MP • Economic order (prices)/legal order (norms)

13. Legal perspective: NCL (i) • §20(2) GWB: unjustified unequal treatment/unfair impairment of economically dependent SME’s in the context of vertical relations • Some problems with the concept of ‘relative’ market power: a) Ability to behave independently/pricing?

14. Legal perspective: NCL (ii) b) The approach to dependency and the (narrow) definition of the relevant market. c) No clear separation between ‘relative’ MP and the abuse thereof. d) Ambiguity of the anticompetitive effects. e) The presumption of dependency

15. Conclusions • ‘Relative’ MP should not be considered MP • §20(2) GWB is useful, but not primarily from a competition law perspective • The inclusion of the abuse of economic dependency in Art 3(2) is questionable • Possible role of Art 3(3)