Kim Them Do
The consumer welfare standard is a well-etablished concept in competition law discourse, this concept has been entirely accepted by the scholarship or the court. EU has the same experiences that are discussed below.
EU consumer welfare [1]
The adoption of the consumer welfare approach is one of the most fundamental changes to current EU competition law discourse. EU policymakers contend that consumer welfare is now established as the standard that the EU Commission applies when assessing mergers and infringements of the Treaty’s rules on cartels and monopolies.[2]
The Commission seeks to ensure that dominant undertakings do not impair effective competition, thus having an adverse impact on consumer welfare. Is the rhetoric of the Commission on consumer welfare orientation fully consistent with its decisional practice? Does the court apply consumer welfare effects as a test for legality?
Of course the EU debate on welfare maximization is different from the US law discourse and there are too many explanatory aspects to mention, but its historical and sociopolitical contexts are worth discussing. Two typical particularities for this development are presented here.
First, the main duty of the Commission is to provide a legal framework to protect the good functioning of European market development and to ensure that competition is not distorted. The Competion rules should be interpreted and implemented in this way, as Art. 3 (1) (g) EC points out. The main concern of the Commission is how best to implement competition law to serve its objectives.
Second, perhaps most fundamentally, after the court has annulled three prohibition decisions in merger control,[3] the Commission has to review its practice radically in adopting the more economic approach. The main argument for this reform is that the form-based approach has been not fully proven to serve the objective effectively.
Based on modern industrial economy theory, the effects-based approach is supposed to be a better tool for consumer welfare purposes. Technically speaking, the price theoretical model would be best for identifying consumer harm in a particular market and using a case-by-case basis analysis. Consequently the Commission has adopted this more economic US approach in applying competition law.
Behind the methodological shift in the interpretation and application of law there are many incentives to change in EU law thinking. In theory, the Chicago School arguments appear more convincing, not only to the scholarship but also to the leadership. Due to the joint action in the merger control review, US and EU officials have come to share the same methods, to work together, to speak the same language and to have the same reasoning in the decision making process. In addition, US economists, consultants and lawyers are in a powerful position to contribute to shaping this process over time. The pressure of the US industry lobby on the Commission is rising, too.
All of these factors together support EU competition policymakers ‘adoption of US principles of economic efficiency and consumer welfare, although there is much controversy over policy consideration in the transatlantic context. Inevitably this orientation is linked with public criticism of the Americianisation of EU law.
Declaring consumer welfare as the goal to pursue is one thing, but the wording of the relevant provisions is another: for instance, Art. 81 (3) provides that the provision of the Art. 81 (1) may be applicable in respect of agreements if consumers get a fair share of the benefits associated with the agreement in restraint of competition. However, the Commission does not clearly define the ‘fair share to the consumer’ in examining the intensity of competition in the relevant market in review practice. Broadly speaking, the main concern of the Commission is that competition is not substantially eliminated in assessing violation of Art. 81 (3).
According to Art. 82 (2) (b), any abuse of a dominant undertaking should be prohibited if this abuse may limit production, market or technical development and is to the prejudice of consumers. Art. 2 of European Merger Control Review is an important companion to Art. 82. The interests of the intermediate and ultimate consumer and the development of technical and economic progress, provided that it is to consumers’ advantage and do not form an obstable to competition are the aspects need to be considered in the context of merger control.
The teleological interpretation of Art. 82 in the light of Art. 81 suggests that the good functioning of the competitive process in the social market economy is seen as the ultimate goal of EU competition law. The consumer’s interests in this context are just one example of the paramount consideration of potential abuse . As a result, these regulations offer unsufficiently the test of direct harm to consumers and the global picture of consumers after the Treaty of Lisbon remains unchanged.
The Treaty of Lisbon eliminated Art. 3 (1) (g) EC: ‘competition is not distorted’ has been removed to Protocol 27 of the Treaty on European Union (TEU). This is just a contextual change rather than a semantic one because in general the EU continues to pursue the principle of an open market economy with free competition, as Art. 3 (1) (b) TEU postulates. Arts 81 to 86 EC became Arts 101 to 106 of the Treaty on the Functioning of the European Union (TFEU). The EU’s market integration imperative is no longer a goal in itself and the notion of the Common Market has been replaced by the term ’Internal Market’. However, this change has had no substantive effects of the debate of the consumer welfare objective.[4]
Do the Commission’s interpretative documents shed light on this puzzle? Its guidance documents, which aim to help practitioners to solve enforcement difficulties, do not offer room for critical assessment of the policy objective as discussion papers do in general. How does the Commission apply its rhetoric in these guidance documents?
The Commission’ s Guideline on Vertical Restraints[5] states that the Commission will adopt an economic approach based on the effects of the market. The Commission’s Guideline on Art. 82[6] states that the Commission will prevent anticompetitive foreclosure that would have an adverse impact on consumer welfare. This guideline suggests that anticompetitive foreclosure is the most relevant factor to be tested and direct analysis of consumer harm is not used in a more economic effects-based approach.[7] The Discussion Paper on Art. 82 points out: ‘Competition and market integration serve these ends since the creation and preservation of an open single market promotes an efficient allocation of resources throughout the Community for the benefit of consumers’.[8]
All of this wording together reveals that promoting consumer welfare is the ultimate goal of the law but does not offer a test for legality. While the Commission provides a vague concept of harm to consumer welfare, how does the court consider consumer interests in a judicial review?
The courts have determined the concept of market structure and its distortion in many leading decisions, as shown below.
In Continental Can Co. [9] the court identifed the main objectives of Arts 81 and 82 as ’the maintenance of the effective competition within the Common Market’ and Art. 82 ’is not only aimed at practices which may cause prejudices to consumers directly, but also at those which are detrimental to them through their impact on an effective competition structure, such as is mentioned in Art. 3 (1) (g) EC.’
In British Airways, [10] the court found that ‘Art. 82 does not require it to be demonstrated that the conduct in question had any actual or direct effect on consumers. Competition law concentrates upon protecting the market structure from artificial distortion because by doing so the interests of the consumer in the medium to long term are best protected.’
Recently, in reconsidering the application of the more economic approach by the Commission in Sot Lelos kai Sia. v. GlaxoSmithKline,[11] the court found that benefits to consumers need to be understood as a systemic consequence of competition. The more alternative sources of supply consumers have in a particular market, the more benefits they may enjoy. However, the court failed to quantify these benefits, to balance them with the other welfare effects or to refer to the price theoretical model as a test for legality.
Certainly this test would help practitioners to appraise the short-run effects only. The effect on consumer welfare would not be seen as a direct benchmark for testing the violation of competition law. This is still an open question whether the EU focuses on welfare maximization or still insists on the ordoliberal goals.
The EU ordoliberal objective [12]
Protection of economic freedom and SMEs, market integration, regional economic development and the promotion of social justice have been the most important goals of past EU competition law and policy. These normative values are primarily based on the ordoliberal school of thought and German law discourse. Although case law is not explored further here to illustrate this evidence, two factors explain this influence: on the one hand, German competition law officials working in the EU institution were responsible for shaping EU competition law[13]; on the other hand, the German competition law system itself is a success story.[14] Its practice has been influential in the development of EU competition law.
One of the leading thinkers in this ordoliberal school is Friedrick August Hayek.[15] His way of thinking is about a competition paradigm that is bound to a larger social order. He argues that economic freedom, political freedom, social security and social justice are interrelated concepts that are necessary for developing the community. In order to achieve these multilayered objectives we need an economic and legal order within the dynamic competition system. But exactly: what is the purpose of competition law?
The general purpose of law is to provide order for society and preditability in its development. It offers guidance to individual behaviors and prediction of behaviors of other individuals. It preserves legitimate expectations and enables interpersonal coordination. This coordination is the overching goal of law, and the law cannot determine some end-state goal.[16]
In justifying in regard to what we do we refer to two kinds of knowledge: scientific knowledge and knowledge of particular circumstances of time and place.[17] The former refers to generalized knowledge that may be justified or falsifized in the academic discourse. The latter relates to economic matters. Due to their particularities we cannot standardize these knowledges for general purposes, but they are valuable for considering the outcome. As evidence for his thesis, Hayek draws an analogy between competition law and market price development.
Hayek points out that not the division of labor but rather the division of knowledge is a decisive factor for improving the market structure.[18] farmer selling his grain at the price he wishes to sell, it is not setting or making the price in the technical sense of price theory, but rather recognizing the price in the rule of the market through an impersonal process. Informational transmission about the price system within the market mechanism is a means of coordination among market actors. For this reason, instead of using static analysis Hayek suggests focusing on the coordination of the market actors because the effects of price development are unpredictable and our knowledge is not perfect to grasp the reality.
Although this information is valuable, it is just part of the problem because we cannot identify all the market actors or predefine all the aggregations of consumers’ preferences. While these rules are the emergent results of an spontaneous order process, our main duty is to discover it over time. Competition lawmaking is therefore a discovery process.[19]
Such a process will work only in a liberal democracy, and economic freedom is a political imperative to protect the competition process. The objective of competition law is therefore to offer a background so that all market actors can enjoy freedom in their economic activity: freedom to compete, freedom to contract, the guarantee of property rights and so on. Of course, the positive development of rule of law in the liberal state contributes to the effective protection of the competition process.
Not only protection of the competition process but also that of market structure in past EU and German law discourse matter. The controversy over the objective of German competition law between two economists Erich Hoppmann and Erhard Kantzenback is evidence of this.
[1] For a good overview see Gerber, Law and Competition Law in Twentieth Century Europe 1998; Gerber (footnote 3) at 159; Drexl, ’Competition Law as Part of the European Constitution’ in: von Bogdandy; Bast (eds.): Principles of European Constitutional Law 2010, 659 – 698.
[2] Commission Press Release: ‘Antitrust: Consumer welfare at the heart of Commission fight against abuses by dominant undertakings’ Brussels IP/08/1877 3 December 2008.
[3] Airtour Plc v European Commission (T-342/99) 2002 E.C. R II 2585; Schneider Electric SA v European Commission (T-301/01) 2002 E.C.R. II 4071 ; Tetra Laval v European Commission (T-5/02) 2002 E.C. R. II 4381.
[4] Weiß, European Competition Law Review 2011 (4) 186.
[5] Guidelines on Vertical Restraints (2000) OJ C 291 and (2010) C 130.
[6] Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, [2009] OJ C 45/02.
[7] Guidelines on Vertical Restraints OJ 2000 291 note 4 para 7.
[8] EC Commission DG Competition Discussion Paper on the Application of Art 82, Brussels December 2005. This paper shows that Commission has not so far established a test of harm to consumers as declared.
[9] Case 6/72, 1973 ECR 215.
[10] T-219/99, 2003 ECR II 5917.
[11] (2008) ECR 1-000.
[12] Gerber (foonote 51) 1998 p. 334.
[13] Walter Hallstein
[14] Gerber (footnote 51) 1998 at 331.
[15] Von Hayek, ‘Competition as a discovery procedure’ in Nishiyama; Leube (eds.)’The Essen of Hayek’, 1984, 24; Von Hayek Law, Legislation and Liberty Vol. 3:The Political of Free People 1979, 65.
[16]The system of rules into which the rules guiding the action of any one person must be fitted does not merely comprise all the rules governing his actions but also the rules which govern the actions of the other members of the society.” F. A. Hayek note 63 (1979)
[17] Von Hayek, 1945, 35 Am. Econ. Rev. 519, in Nishiyama, Leube (eds.) (footnote 65) pp. 211-213.
[18] “If we possess all the relevant information, if we can start out from a given system of preferences, and if we command complete knowledge of available means, the problem which remains is purely one of logic.” See Von Hayek, Economics and Knowledge, L.S.E. Essays on Cost 45 in James M. Buchanan & George F. Thirlby eds. 1981.
[19] “Competition . . . means decentralized planning by many separate persons” Von F. A Hayek (1984:258)
