Adina Claici: Anti-competitve exclusionary conduct in EU antitrust practice.

Yesterday at BECCLE we had a very interesting talk by Ms. Adina Claici (PhD , Economist, member of the DG Competition on the EU Commission) and concerning exclusionary practices, particularly on the topic of rebates and loyalty.

Main comments:

On 2009 a Guidance Note on exclusionary practices was enacted by the Commission incorporating an “effect based approach”. The focus was shifted from the form of the practice towards the effect of the same in the market. Anti-competitive effects have to be proven in accordance to the harm theory.

The EU Commission has settled on the application of the “efficient competitor test” to determine what practices are allowed or not. The reason behind this choice is that EU does not protect inefficient competitors. The EU Commission protects competition but not competitors.

Consistency needs to be ensured in the application of articles 101 and 102 of the TFEU. Therefore, there is a need of applying same standards to different practices to avoid firms choosing which practices to enter into.

Efficiency has surged as a defence of dominant firms (art. 101 TFEU).

Case of Post Danmark 2012: application of the effect based approach on exclusionary conduct. In this case it was proved that the price offered to the costumers of the competitors was not below costs; hence, this is part of an efficient competitor strategy. AIC<Price<ATC.

Specific forms of abuse:

Exclusive dealing, tying and bundling, predation and refusal to supply and margin squeeze. Exclusive dealing: AT&T case (USA). Exclusive dealings can lead to the fact that a dominant firm may harm its competitors. In here there are several opposing views: the Chicago school and the post Chicago models. The Guidance document from the Commission states that the dominant undertaking may hinder competition by settling exclusive purchasing obligations and/or rebates.

Unavoidable trading partner “the must have brand”.

Margin squeeze is a common practice in the telecom industry and requires an upstream and downstream market. It is very difficult to compare price differences in practice.

Velux case (39.451): this is a case that was closed without further actions by the Commission as it was not found evidence of competition infringements.

This case deals with rebates and commercial practices by a dominant undertaking in the market of roof windows. In principle, rebates are not anti-competitive unless they foreclose an efficient competitor. The efficient competitor test.

No formal complaint was filed against Velux but rather an ex-officio investigation was opened.

In this market the elasticity of the demand is low because the price of the roof window is already included in the total price of the house. Hence, consumers are not price aware, but rather are willing to pay more for a good quality roof window.

Velux operated in different markets by offering to their distributors discounts and rebates in a complex scheme. There are several thresholds and small increments in the discount percentages.

The analysis of the rebates scheme is based on the Guidance Note. It distinguished between two different types of rebate schemes: retroactive and incremental rebates. 

Retroactive rebates are those in which with the additional purchasing of a new item over a certain threshold would trigger the application of a percentage of discount over the total amount of purchases. The loyalty effect of retroactive rebates is high and, therefore, may lead to anti-competitive effects.

Incremental rebates would be those reductions in price that are given in an “escalated” manner and affecting exclusively to the successive purchases. Therefore, the loyalty effect they produce is much lower.

Rebates can be anti-competitive if: the discount percentages are high and/or close to the profit margins of the sector. Retroactive effects are likely to produce higher loyalty effect and oblige the purchaser to acquire an additional unit from the dominant undertaking and not from the competitor.