Following regulator approvals in the UK on Monday the 21st of August 2023 and effective approval in the US, Broadcom confirmed that it plans to officially acquire VMware for $61bn on October 30th, 2023.
It is probably the case in every area of law that all principles are subject to exceptions. Therefore, it is also not surprising that it is well established, within the competition law jurisprudence of the European Court of Justice, that not all competition by means of price may be regarded as legitimate. However, it is questionable to what extent the Court has developed a coherent approach to price-based abuses under Article 102 TFEU. In order to examine this, in the following paragraph there will be a brief introduction to Article 102 TFEU followed by examining the case law on predatory pricing and the case law on excessive pricing.
II. Article 102 TFEU
Article 102 of the Treaty on the Functioning of the European Union (TFEU) prohibits, under certain conditions, the unilateral abuse of a dominant market position.
Thus, the first step is to determine an undertaking with a dominant position. Some guidance is provided in this respect by generally recognised thresholds of market shares. For example, a market share of 50% implies a reputable presumption of a dominant position (cf. ECJ, para. 60).
However, the most important condition for an infringement of Article 102 TFEU is the abuse. It is generally defined as a method different from normal competition that prevents the maintenance of existing competition or growth of competition (cf. ECJ, para. 91). This definition shows that there is a special responsibility of undertakings with a dominant position (cf. ECJ, para. 10).
Finally, the case law recognises the possibility of a justification of this abuse. According to one alternative, if the relevant behaviour achieves efficiencies, if the abuse is indispensable for these efficiencies and if there is no elimination of competition in a substantial part of the concerned product (cf. Whish/Bailey, p. 217 et seq.).
III. Case law on predatory pricing
Predatory pricing concerns the imposing of very low prices. As with so many other groups of cases, the current focus of the competition authorities is on the digital economy (cf. e.g. Commission, para 1 et seq.).
According to the criteria developed in the case law, an abuse in the sense of Article 102 TFEU, i.e. a method different from normal competition that prevents the maintenance of existing competition or growth of competition (cf. ECJ, para. 91), may be the case under consideration of the following aspects: For one thing, it should be tested whether the prices fulfil the so-called Areeda-Turner test. This is the case if the prices are below the costs that vary on the quantity of the production, for example materials but not rent, divided by the units of production (cf. Hovenkamp, p. 4 et seq.). In addition, it should be determined if the prices prevent competitors from accessing a large portion of potential customers. Thereby, the so-called AEC test should be taken into account, which considers the capability of the prices to prevent an efficient competitor access to customers (cf. Commission, para. 63 et seq.).
Finally, it should be noted that it is irrelevant whether there was a possibility to recover the losses (cf. ECJ, para. 100 et seq.). The previous case practice also shows that a justification is unlikely (cf. Jones/Sufrin/Dunne, p. 411).
IV. Coherence of the case law on predatory pricing
The case law is certainly helpful for legal certainty insofar as it at least provides some orientation aspects for discussing whether a low price constitutes an abuse in the sense of Article 102 TFEU. Another argument in favour of this case law is that the prohibition of predatory pricing prevents that there will be no free competition in the long term through the exclusion of competitors due to insolvencies or market exits (cf. USSC, p. 219 et seq).
However, the legal certainty remains slightly weakened by the fact that the aforementioned conditions are somewhat vague. Nevertheless, it remains difficult to identify too low prices. In addition, various other aspects of legal policy speak against the prohibition of predatory pricing. For instance, the aforementioned argument of protecting free competition in the long term is questionable. This is because companies have no incentive for low prices because they are initially unprofitable in the short term and they are speculatively profitable in the long term. After all, there can be, for example, new market entries. Moreover, predatory pricing is efficient insofar as it enables fair consumer welfare in the short-term (cf. USSC, p. 219 et seq).
The aforementioned aspects show that although case law provides at least some aspects of orientation for predatory pricing, there are many reasons to reject this approach in terms of legal policy.
V. Case law on excessive pricing
In contrast to predatory pricing, excessive pricing concerns the imposing of very high prices (cf. Whish/Bailey, p. 735 et seq.).
According to the criteria developed in the case law, an abuse in the sense of Article 102 TFEU, i.e. a method different from normal competition that prevents the maintenance of existing competition or growth of competition (cf. ECJ, para. 91), may be the case under consideration of the following alternative aspects: On the one hand, it can be examined whether the prices fulfil a two-part cumulative test. This is the case if the prices are excessively above the production costs and the prices are unfair in themselves or compared to competing products (cf. ECJ, para. 25). On the other hand, it can be tested whether the prices are significantly and persistently above the hypothetical competitive price (cf. ECJ, para. 52 et seq). This is the price that would exist under optimal competitive conditions.
Finally, it should be noted that a justification can be considered for customer-specific investments. This concerns, for example, staff training and the providing of equipment.
VI. Coherence of the case law on excessive pricing
The case law is once again certainly helpful for legal certainty insofar as it at least provides some orientation aspects for discussing whether a high price constitutes an abuse in the sense of Article 102 TFEU. Another argument in favour of this case law, in terms of legal policy, is that the prohibition of predatory pricing is implied in the rule example of Article 102(a) TFEU. This rule example covers “imposing unfair … prices”. Furthermore, the prohibition prevents a situation without freedom of economic activity of the other side of the market. In addition, the prohibition of predatory pricing prevents an inefficient situation without fair consumer welfare (cf. Motta/De Streel, p. 20 et seq.).
However, the legal certainty once again remains weakened by the fact that the aforementioned conditions are vague in this case too. This is because also in this case it is difficult to identify too high prices. This is also reflected in the current authorities practice. The Court of Justice has never condemned a pricing practice solely on excessiveness. In addition, there are only rare cases of the Commission and all are just price-reducing commitment decisions without a finding of an infringement (cf. Commission, para. 235 et seq.).
In addition, various other aspects of legal policy speak against the prohibition of predatory pricing. For instance, in the cases that exist, the Commission focuses on pharmaceutical companies. On the one hand, this gives the impression that the Commission protects the pharma paying member states more than the other products buying private undertakings. And on the other hand, many member states have authorities with more experience to intervene on these pharma cases. Moreover, the possibility of high prices is an incentive for companies to innovate, invest and enter markets, etc. (cf. Motta/De Streel, p. 17 et seq.)
Both what has been said before about predatory pricing and what has just been said about excessive pricing have thus shown that the Court has developed only to a limited extent a coherent approach to price-based abuses under Article 102 TFEU because, although the case law provides at least some aspects of orientation for these case groups, there are many reasons to reject these approaches in terms of legal policy.
DISCLAIMER: Dr. Raphael Reims is an attorney at Noerr, Munich. The views expressed in this article are those of its author and should not be attributed to his law firm or clients.
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