Department of Law On the Concept of Relative Market Power CLEEN Workshop June 2008 Lúcio Tomé Féteira, PhD Candidate, EUI (Florence, Italy) –

Department of Law 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

Department of Law 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

Department of Law 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)

Department of Law 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]

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

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

Department of Law 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 rivals costs so as to exclude them from the market

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

Department of Law 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

Department of Law 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

Department of Law 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)

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

Department of Law 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

Department of Law 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)