Competition Law in the Digital Market
Complete Study Document
Week 1
Error-cost framework video
notes:
False positive and false negative
OVER and UNDER enforcement.
Covid 19 example.
à Costs of administering this test:
If tested positive (over
enforcement), you cycled for
nothing and waste your time. Maybe
you will miss the rest of the classes
for this course. So competition law
won’t be your strong side.
If under-enforcement, the cost is to
make everybody sick.
The test is also low cost if it’s just
taking the temperature with a
simple machine. Self-test kits are
more expensive and they take at
least some minutes to do.
“Legal rule must minimize costs” –
we try to care more for FALSE
POSITIVES. Criminal law also
works similarly.
- Burden of proof and proof
beyond reasonable doubt (standard
of proof). This is how the law tries
to avoid false positives.
,Cartes Bancaires case
Cartes Bancaires is a platform market.
Consumers – get cards, Retailers – use pin machines. Both parties need to consent to this. Contract
between consumer and retailer to get a debit card: Debit cards are worthless when retailers don’t
accept them. ISSUING(consumer side) and ACQUIRING(banks acquire retailers) markets.
Commission said that CB inflated the prices: Digital paying systems are expensive and consumers
pay for these without realizing it. French consumers were paying slightly more…
CB sits between the banks, consumers, and retailers. It is made up of ALL THE BANKS. Banks
want to be more active on the issuing markets. Banks thus have the incentive to contact as many
retailers as possible. Positive indirect network externality since consumers’ cards worth more in
this scenario. Indirect because has gains for the consumers and also the banks. Consumer AND
retail sides of the bank should be willing: Issuing bank should pay to the acquiring bank to make
it happen. Price increase on retailers thus has a result of higher prices on consumers: Unfair
price increase on consumers.
Consumers being forced to pay more was the Commission’s focus. Also, new banks that wish to
join the system: Newcomer bank would first want to attract to issuing and then acquiring bank. By
object restriction and barrier to entry. CJEU: This is focusing on two different sides of the
market. This is wrong. Both sides of the market (retail and consumer) should be considered and
compensating for each other. Platform markets (like the case of CB) should have one side of the
market pay for the other side of the market.
Pricing and Consumer Harm: The Court emphasized that pricing structures that lead to higher
prices for consumers without a pro-competitive justification could violate competition law.
This highlights the consumer welfare standard in EU competition law—if the behavior leads to
higher prices or restricts consumer choice, it may be deemed anti-competitive.
- Smaller competitors might not have the ability to increase their prices without losing
customers. As a result, the smaller companies could lose out.
- The Court held that the system's pricing structure limited competition because it
imposed a collective decision among competitors (the banks) to charge fees that affected
the whole market.
If this was Google…
Two sides: Consumers and advertisements. Google connects these markets. Google makes their
service very attractive since consumers use it for free. Money charged on advertising companies.
Business pays to Google whereas the consumers don’t pay Google with money yet we pay with
our information. Another positive indirect network externality. More income on businesses and
further increase in algorithms’ quality in responding to consumers’ needs. Market power of
Google, then, becomes an issue.
Cartes Bancaires outome: As long as there are enough markets, this is okay in terms of
competition. Supreme Court: If a platform has market power, this is where we might need to step
,in. CB’s conduct involved imposing a collective decision among competitors to charge high fees
that affected the whole market.
“Litmus test”
- There is only restriction by object if a measure in itself reveals a sufficient degree of harm
to competition. Chilling effect.
“Error costs of getting it wrong”
- Application of art. 101 too broadly might lessen innovation, deterring companies.
Metro I case
SABA manufactures electronics. SABA does not want to appoint Metro as a selling point because
they don’t meet their criteria – selective distribution system issue, leading to the deterioration
of the market structure. Barrier to entry.
Commission: SABA does not infringe Art. 101 TFEU. Metro appealed to the CJEU – similarly,
Metro’s appeal was dismissed.
“Litmus test”
CJEU: The Metro criteria were not fulfilled according to the CJEU yet they found that SABA’s
cumulative objectives were sufficient to establish an exemption under art. 101(3) TFEU. Result:
no infringement. Such agreements should be assessed based on their effects – anti-competitive
effects being introduced.
Selective distribution systems – higher and more uniform prices. However, the objective was to
enhance performance of the market (better consumer welfare since better service)
Metro criteria:
• Resellers are chosen on the basis of objective criteria of a qualitative nature, laid down
uniformly for all potential resellers and not applied in a discriminatory fashion;
• The characteristics of the product in question necessitate such a network in order to
preserve its quality and ensure its proper use; and
• The criteria laid down do not go beyond what is necessary.
For specialist wholesalers and retailers, maintaining price levels may be a valid goal, aiming to
preserve their distribution channels and support new distribution methods. This approach may not
necessarily violate Article 101(1) TFEU, and if it does, it may be justified under Article 101(3)
TFEU if it improves competition in areas other than price.
GlaxoSmithKline case
Facts: EU Member States with higher GDP would pay more for GSK medication. Prices were set
differently for different MS. This way, GSK divided the internal market via pricing, disrupting
the market structure.
, Prohibition or limitation of parallel trade has the objective of preventing competition.
Litmus test:
“In order to be exempted under Article 81(3) EC (101 TFEU), an agreement must contribute to
improving the production or distribution of goods or to promoting technical or economic
progress”. (relating to Metro I criteria)
Does this enable or restrict the application of competition law?
- This situation ultimately leads to “price arbitration”, where the product will be acquired
where it is cheaper, and will be sold where the price of it is set higher. Parallel trade is a
result, but only trade in a single way, not both ways.
- The court is trying to protect more than just consumer welfare, because they are also
trying to protect the competitive process and the market structure.
“The General Court held that the prevention of parallel trade was not enough to amount to a
restriction of competition. It said that the objective of article 101 is to stop ‘reducing the
welfare of the final consumer of the products in question. The Commission must not only find
a reduction of parallel trade, but also say why this damages competition.”
à CJEU: Prevention of parallel imports are anti-competitive, but market structure is also very
important to preserve.
- “Structure of the market is also important to preserve. We don’t only care about the effects
on consumers when assessing risks to competition”.
As a result, GSK was fined since their attempt in trying to restrict parallel trade amounted to a
restriction by object.
GSK claimed that they did this to enhance market performance.
à Forced to trade off “current and future consumer welfare”. Lower medication prices now so
that lower quality medicine in the future? No, competition law isn’t only about consumer
welfare for this reason.
Commission Guidance (enforcement priorities for exclusionary abusive conducts)
The document specifies that a party must fulfil the following conditions to submit a complaint to
the European Commission under Article 82:
- Dominant Position Concern: The complaint must involve an undertaking that holds a
dominant position in one or more relevant markets.
- Exclusionary Conduct: The conduct in question must involve exclusionary practices,
such as predatory pricing, refusal to supply, or exclusive dealing.
- Harm to Consumer Welfare: The complainant must demonstrate that the conduct leads
to anti-competitive foreclosure and harms consumer welfare through higher prices,
reduced quality, or limited choices.
Complete Study Document
Week 1
Error-cost framework video
notes:
False positive and false negative
OVER and UNDER enforcement.
Covid 19 example.
à Costs of administering this test:
If tested positive (over
enforcement), you cycled for
nothing and waste your time. Maybe
you will miss the rest of the classes
for this course. So competition law
won’t be your strong side.
If under-enforcement, the cost is to
make everybody sick.
The test is also low cost if it’s just
taking the temperature with a
simple machine. Self-test kits are
more expensive and they take at
least some minutes to do.
“Legal rule must minimize costs” –
we try to care more for FALSE
POSITIVES. Criminal law also
works similarly.
- Burden of proof and proof
beyond reasonable doubt (standard
of proof). This is how the law tries
to avoid false positives.
,Cartes Bancaires case
Cartes Bancaires is a platform market.
Consumers – get cards, Retailers – use pin machines. Both parties need to consent to this. Contract
between consumer and retailer to get a debit card: Debit cards are worthless when retailers don’t
accept them. ISSUING(consumer side) and ACQUIRING(banks acquire retailers) markets.
Commission said that CB inflated the prices: Digital paying systems are expensive and consumers
pay for these without realizing it. French consumers were paying slightly more…
CB sits between the banks, consumers, and retailers. It is made up of ALL THE BANKS. Banks
want to be more active on the issuing markets. Banks thus have the incentive to contact as many
retailers as possible. Positive indirect network externality since consumers’ cards worth more in
this scenario. Indirect because has gains for the consumers and also the banks. Consumer AND
retail sides of the bank should be willing: Issuing bank should pay to the acquiring bank to make
it happen. Price increase on retailers thus has a result of higher prices on consumers: Unfair
price increase on consumers.
Consumers being forced to pay more was the Commission’s focus. Also, new banks that wish to
join the system: Newcomer bank would first want to attract to issuing and then acquiring bank. By
object restriction and barrier to entry. CJEU: This is focusing on two different sides of the
market. This is wrong. Both sides of the market (retail and consumer) should be considered and
compensating for each other. Platform markets (like the case of CB) should have one side of the
market pay for the other side of the market.
Pricing and Consumer Harm: The Court emphasized that pricing structures that lead to higher
prices for consumers without a pro-competitive justification could violate competition law.
This highlights the consumer welfare standard in EU competition law—if the behavior leads to
higher prices or restricts consumer choice, it may be deemed anti-competitive.
- Smaller competitors might not have the ability to increase their prices without losing
customers. As a result, the smaller companies could lose out.
- The Court held that the system's pricing structure limited competition because it
imposed a collective decision among competitors (the banks) to charge fees that affected
the whole market.
If this was Google…
Two sides: Consumers and advertisements. Google connects these markets. Google makes their
service very attractive since consumers use it for free. Money charged on advertising companies.
Business pays to Google whereas the consumers don’t pay Google with money yet we pay with
our information. Another positive indirect network externality. More income on businesses and
further increase in algorithms’ quality in responding to consumers’ needs. Market power of
Google, then, becomes an issue.
Cartes Bancaires outome: As long as there are enough markets, this is okay in terms of
competition. Supreme Court: If a platform has market power, this is where we might need to step
,in. CB’s conduct involved imposing a collective decision among competitors to charge high fees
that affected the whole market.
“Litmus test”
- There is only restriction by object if a measure in itself reveals a sufficient degree of harm
to competition. Chilling effect.
“Error costs of getting it wrong”
- Application of art. 101 too broadly might lessen innovation, deterring companies.
Metro I case
SABA manufactures electronics. SABA does not want to appoint Metro as a selling point because
they don’t meet their criteria – selective distribution system issue, leading to the deterioration
of the market structure. Barrier to entry.
Commission: SABA does not infringe Art. 101 TFEU. Metro appealed to the CJEU – similarly,
Metro’s appeal was dismissed.
“Litmus test”
CJEU: The Metro criteria were not fulfilled according to the CJEU yet they found that SABA’s
cumulative objectives were sufficient to establish an exemption under art. 101(3) TFEU. Result:
no infringement. Such agreements should be assessed based on their effects – anti-competitive
effects being introduced.
Selective distribution systems – higher and more uniform prices. However, the objective was to
enhance performance of the market (better consumer welfare since better service)
Metro criteria:
• Resellers are chosen on the basis of objective criteria of a qualitative nature, laid down
uniformly for all potential resellers and not applied in a discriminatory fashion;
• The characteristics of the product in question necessitate such a network in order to
preserve its quality and ensure its proper use; and
• The criteria laid down do not go beyond what is necessary.
For specialist wholesalers and retailers, maintaining price levels may be a valid goal, aiming to
preserve their distribution channels and support new distribution methods. This approach may not
necessarily violate Article 101(1) TFEU, and if it does, it may be justified under Article 101(3)
TFEU if it improves competition in areas other than price.
GlaxoSmithKline case
Facts: EU Member States with higher GDP would pay more for GSK medication. Prices were set
differently for different MS. This way, GSK divided the internal market via pricing, disrupting
the market structure.
, Prohibition or limitation of parallel trade has the objective of preventing competition.
Litmus test:
“In order to be exempted under Article 81(3) EC (101 TFEU), an agreement must contribute to
improving the production or distribution of goods or to promoting technical or economic
progress”. (relating to Metro I criteria)
Does this enable or restrict the application of competition law?
- This situation ultimately leads to “price arbitration”, where the product will be acquired
where it is cheaper, and will be sold where the price of it is set higher. Parallel trade is a
result, but only trade in a single way, not both ways.
- The court is trying to protect more than just consumer welfare, because they are also
trying to protect the competitive process and the market structure.
“The General Court held that the prevention of parallel trade was not enough to amount to a
restriction of competition. It said that the objective of article 101 is to stop ‘reducing the
welfare of the final consumer of the products in question. The Commission must not only find
a reduction of parallel trade, but also say why this damages competition.”
à CJEU: Prevention of parallel imports are anti-competitive, but market structure is also very
important to preserve.
- “Structure of the market is also important to preserve. We don’t only care about the effects
on consumers when assessing risks to competition”.
As a result, GSK was fined since their attempt in trying to restrict parallel trade amounted to a
restriction by object.
GSK claimed that they did this to enhance market performance.
à Forced to trade off “current and future consumer welfare”. Lower medication prices now so
that lower quality medicine in the future? No, competition law isn’t only about consumer
welfare for this reason.
Commission Guidance (enforcement priorities for exclusionary abusive conducts)
The document specifies that a party must fulfil the following conditions to submit a complaint to
the European Commission under Article 82:
- Dominant Position Concern: The complaint must involve an undertaking that holds a
dominant position in one or more relevant markets.
- Exclusionary Conduct: The conduct in question must involve exclusionary practices,
such as predatory pricing, refusal to supply, or exclusive dealing.
- Harm to Consumer Welfare: The complainant must demonstrate that the conduct leads
to anti-competitive foreclosure and harms consumer welfare through higher prices,
reduced quality, or limited choices.
