Competition Law in the Digital Market –
Exam Notes
Week 1 - Introduction
Overview of Competition Law
Article 101 TFEU
1. 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. Any agreements or decisions prohibited pursuant to this Article shall be
automatically void.
3. The provisions of paragraph 1 may, however, be declared inapplicable in the
case of:
- any agreement or category of agreements between undertakings,
- any decision or category of decisions by associations of undertakings,
- any concerted practice or category of concerted practices,
which contributes to improving the production or distribution of goods or to
promoting technical or economic progress, while allowing consumers a fair
share of the resulting benefit, and which does not:
(a) impose on the undertakings concerned restrictions which are not
indispensable to the attainment of these objectives;
(b) afford such undertakings the possibility of eliminating competition in
respect of a substantial part of the products in question.
1
,Competition in the Internal market
The Internal Market is about free movement – Article 26(2) TFEU
o Free movement presupposes undistorted competition free from
restriction
‘The Treaty, whose preamble and content aim at abolishing the barriers between
states, and which in several provisions gives evidence of a stern attitude with
regard to their reappearance, could not allow undertakings to reconstruct such
barriers’ – Consten and Grundig para 340.
This explains part of competition rules – Are they required to block
everything that remotely creates a barrier to trade between Member
States?
Restrictions By Object and By Effect Under Article 101 TFEU
By Object: agreements that by their very nature are anti-competitive
where there is no reason to examine the effects of the agreement on the
market
By Effect: If an agreement or concerted practice does not have the object
of harming competition, it can still violate Article 101 if it has the effect of
harming competition in the common market
Case: Consten and Grundig – By Object Restrictions in
Vertical Agreements
Facts
Consten (a wholesaler) was appointed by Grundig (electronics
manufacturer) as their exclusive distributor in France
o This meant that no other wholesaler would be allowed to distribute
in France or use the Grundig name or emblems
o By these actions Consten and Grundig were partitioning off the
market and restricting parallel imports
o ‘Parallel Imports’: Branded goods that are imported into a market
and sold there without the trademark owner's consent in that
market
Consten did this because consumers were no longer buying their products
in Germany as they could benefit from lower prices in France due to
parallel imports
Consten argued that this was necessary to preserve the value of their
products
Issue
Commission argued the necessity of parallel imports under article 101
TFEU to keep trade unhindered between MS’s
Conclusion
o Absolute territorial protection violates article 101 TFEU
2
, Rejected the argument that exclusivity agreement would
protect Grundig’s legitimate interests by preventing free
riding from parallel imports
o Why did the Court do this?
Court shaped competition law which was good for the internal
market in the short run but in the long run made it less
attractive for importers
Competition Law Beyond the Internal Market
Competition Law is also about actions in the market not only the
functioning of the internal market
Consumer Welfare → Competition attempts to ensure optimal consumer
welfare
The Objectives of Competition Law
No statutory objectives for competition law, so we must determine what
matters – How do we do this?
Two Methods
o Reverse Engineering
o Error Cost Framework
Error Cost Framework – The Economic Outlook
Determining what matters in the market through an analysis of the market
factors
Look at the indicators then determine what the possible costs are of
getting it wrong based on one of these indicators:
1. Market Structure
o May include the number of companies in the market
o Existence of barriers to entry/exit within the market
When barriers are low = more likely to have free flowing
competition
The higher the barriers to entry the higher chance it is a
small market with a dominant undertaking
2. Market Conduct
o Conduct (by undertakings) on the market can be negative when it
impacts market structure e.g. through creating higher barriers to
entry
o Are companies innovating / trying to be more efficient
3. Market Performance
o What does the market deliver? Higher prices, reduced innovation
etc..
o Is the market efficient – allocatively or dynamically?
o Are there enough products at the right price?
Comments on these indicators:
3
, o Competition law applies usually to conduct: How has the conduct
(by undertakings) affected:
The market structure – erecting barriers to entry?
The market performance - raised prices? Reduced efficiency?
Implementing SCP into Assessments of Economic Structures
Monopoly vs perfect competition – simple but unrealistic
o Dislike monopoly because invariably raise cost or reduce quality -
no incentive to be efficient - bad for performance
o What do we need to have competition = perfect competition ==
infinite number of companies all producing the exact same product,
in a homogenous market, market that is transparent (everyone
know who is selling and at what price) and infinite speed of
adjustment and low costs of entry and exit
Oligopoly – complex but more realistic
o 'Cosy' market – gezellig - do not annoy each other - do not compete
too much on price
o Cheat or treat scenario - treat everyone raises prices, cheat does
not follow price increase and undercut = price war
Reverse Engineering Method
Another way to determine what matters in Competition law in a non-
economic way: Through an analysis of case law from the bottom up
o Ultimately, the court decides what matters and cares about
efficiency performance + Consumer welfare
'A-G Wahl in Intel: From the outset, EU competition rules have aimed to
put in place a system of undistorted competition, as part of the internal
market established by the EU. In that regard, it cannot be overemphasised
that protection under EU competition rules is afforded to the competitive
process as such, and not, for example, to competitors. In the same vein,
competitors that are forced to exit the market due to fierce competition,
rather than anticompetitive behaviour, are not protected. Therefore, not
every exit from the market is necessarily a sign of abusive
conduct, but rather a sign of aggressive, yet healthy and
permissible, competition. This is because, given its economic
character, competition law aims, in the final analysis, to enhance
efficiency. The importance placed on efficiency is also in my view
clearly reflected in the case-law of the EU Courts – para 41
Case: Metro I
Facts
Metro I challenged approval of a selective distribution system (SDS) used
by electronics manufacturer SABA
o Through this SDS, SABA had strict requirements for undertakings to
meet to be classified as a wholesaler of their products e.g:
Highly trained staff
Inhouse service team
4
Exam Notes
Week 1 - Introduction
Overview of Competition Law
Article 101 TFEU
1. 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. Any agreements or decisions prohibited pursuant to this Article shall be
automatically void.
3. The provisions of paragraph 1 may, however, be declared inapplicable in the
case of:
- any agreement or category of agreements between undertakings,
- any decision or category of decisions by associations of undertakings,
- any concerted practice or category of concerted practices,
which contributes to improving the production or distribution of goods or to
promoting technical or economic progress, while allowing consumers a fair
share of the resulting benefit, and which does not:
(a) impose on the undertakings concerned restrictions which are not
indispensable to the attainment of these objectives;
(b) afford such undertakings the possibility of eliminating competition in
respect of a substantial part of the products in question.
1
,Competition in the Internal market
The Internal Market is about free movement – Article 26(2) TFEU
o Free movement presupposes undistorted competition free from
restriction
‘The Treaty, whose preamble and content aim at abolishing the barriers between
states, and which in several provisions gives evidence of a stern attitude with
regard to their reappearance, could not allow undertakings to reconstruct such
barriers’ – Consten and Grundig para 340.
This explains part of competition rules – Are they required to block
everything that remotely creates a barrier to trade between Member
States?
Restrictions By Object and By Effect Under Article 101 TFEU
By Object: agreements that by their very nature are anti-competitive
where there is no reason to examine the effects of the agreement on the
market
By Effect: If an agreement or concerted practice does not have the object
of harming competition, it can still violate Article 101 if it has the effect of
harming competition in the common market
Case: Consten and Grundig – By Object Restrictions in
Vertical Agreements
Facts
Consten (a wholesaler) was appointed by Grundig (electronics
manufacturer) as their exclusive distributor in France
o This meant that no other wholesaler would be allowed to distribute
in France or use the Grundig name or emblems
o By these actions Consten and Grundig were partitioning off the
market and restricting parallel imports
o ‘Parallel Imports’: Branded goods that are imported into a market
and sold there without the trademark owner's consent in that
market
Consten did this because consumers were no longer buying their products
in Germany as they could benefit from lower prices in France due to
parallel imports
Consten argued that this was necessary to preserve the value of their
products
Issue
Commission argued the necessity of parallel imports under article 101
TFEU to keep trade unhindered between MS’s
Conclusion
o Absolute territorial protection violates article 101 TFEU
2
, Rejected the argument that exclusivity agreement would
protect Grundig’s legitimate interests by preventing free
riding from parallel imports
o Why did the Court do this?
Court shaped competition law which was good for the internal
market in the short run but in the long run made it less
attractive for importers
Competition Law Beyond the Internal Market
Competition Law is also about actions in the market not only the
functioning of the internal market
Consumer Welfare → Competition attempts to ensure optimal consumer
welfare
The Objectives of Competition Law
No statutory objectives for competition law, so we must determine what
matters – How do we do this?
Two Methods
o Reverse Engineering
o Error Cost Framework
Error Cost Framework – The Economic Outlook
Determining what matters in the market through an analysis of the market
factors
Look at the indicators then determine what the possible costs are of
getting it wrong based on one of these indicators:
1. Market Structure
o May include the number of companies in the market
o Existence of barriers to entry/exit within the market
When barriers are low = more likely to have free flowing
competition
The higher the barriers to entry the higher chance it is a
small market with a dominant undertaking
2. Market Conduct
o Conduct (by undertakings) on the market can be negative when it
impacts market structure e.g. through creating higher barriers to
entry
o Are companies innovating / trying to be more efficient
3. Market Performance
o What does the market deliver? Higher prices, reduced innovation
etc..
o Is the market efficient – allocatively or dynamically?
o Are there enough products at the right price?
Comments on these indicators:
3
, o Competition law applies usually to conduct: How has the conduct
(by undertakings) affected:
The market structure – erecting barriers to entry?
The market performance - raised prices? Reduced efficiency?
Implementing SCP into Assessments of Economic Structures
Monopoly vs perfect competition – simple but unrealistic
o Dislike monopoly because invariably raise cost or reduce quality -
no incentive to be efficient - bad for performance
o What do we need to have competition = perfect competition ==
infinite number of companies all producing the exact same product,
in a homogenous market, market that is transparent (everyone
know who is selling and at what price) and infinite speed of
adjustment and low costs of entry and exit
Oligopoly – complex but more realistic
o 'Cosy' market – gezellig - do not annoy each other - do not compete
too much on price
o Cheat or treat scenario - treat everyone raises prices, cheat does
not follow price increase and undercut = price war
Reverse Engineering Method
Another way to determine what matters in Competition law in a non-
economic way: Through an analysis of case law from the bottom up
o Ultimately, the court decides what matters and cares about
efficiency performance + Consumer welfare
'A-G Wahl in Intel: From the outset, EU competition rules have aimed to
put in place a system of undistorted competition, as part of the internal
market established by the EU. In that regard, it cannot be overemphasised
that protection under EU competition rules is afforded to the competitive
process as such, and not, for example, to competitors. In the same vein,
competitors that are forced to exit the market due to fierce competition,
rather than anticompetitive behaviour, are not protected. Therefore, not
every exit from the market is necessarily a sign of abusive
conduct, but rather a sign of aggressive, yet healthy and
permissible, competition. This is because, given its economic
character, competition law aims, in the final analysis, to enhance
efficiency. The importance placed on efficiency is also in my view
clearly reflected in the case-law of the EU Courts – para 41
Case: Metro I
Facts
Metro I challenged approval of a selective distribution system (SDS) used
by electronics manufacturer SABA
o Through this SDS, SABA had strict requirements for undertakings to
meet to be classified as a wholesaler of their products e.g:
Highly trained staff
Inhouse service team
4
