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Conflict in the Modernisation of Article 82 EC
THE CONFLICT BETWEEN ECONOMIC FREEDOM AND
CONSUMER WELFARE IN THE MODERNISATION OF
ARTICLE 82 EC
LIZA LOVDAHL GORMSEN*
A. I NTRODUCTION
The Bundeskartellamt has argued that “the economic freedom model is based on
the belief that in the long run both goals [economic freedom and consumer
welfare] are not in conflict as safeguarding of a vivid competition process will
enhance consumer welfare.”1 According to the Bundeskartellamt, there is no
conflict as both aim at safeguarding a vivid competition process that will enhance
consumer welfare. This article does not disagree that both objectives are aiming
at protecting a vivid competition process to some extent, or that consumer
welfare may be enhanced if the competitive process is protected; but it does
argue that the reasons for protecting the competitive process are very different.
Economic freedom is understood to be the protection of rivals’ opportunities
to access the market and to compete within the market, without being restricted
by any other company in order to achieve individual economic freedom.2
Consumer welfare is explicitly concerned with consumer gain3 in form of lower
prices, high-quality products, a wide selection of goods and services, and
innovation.4 Economic freedom and consumer welfare may not be seen as polar
opposites, but the aims of the two objectives are fundamentally different.5 They
are based on different normative values and are pursuing different outcomes.
While the two objectives may sometimes coincide, this is not always the case.
Economic freedom is a rights-based approach and consumer welfare is a form of
* Post-Doctoral Research Fellow, ESRC Centre for Competition Policy (CCP) at University of East
Anglia. The support of the Economic and Social Research Council (UK) and the Arts and
Humanities Research Council (UK) are gratefully acknowledged. Earlier drafts of this article
benefited from the invaluable input of Dr Chris Townley and Pinar Akman.
1 “A Bundeskartellamt/Competition Law Forum Debate on Reform of Article 82: a ‘Dialectic’ on
Competing Approaches” (2006) 2 European Competition Journal (special issue) 211, 218.
2 The meaning of economic freedom will be elaborated in section C.
3 R Whish, Competition Law (London, LexisNexis, 5th edn, 2003), 3.
4 DG Competition, Discussion Paper on the Application of Article 82 of the Treaty to Exclusionary
Abuses (December, 2005), para 4.
5 Even though they do not necessarily have to be polar opposites to be in conflict.
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utilitarianism. Rights have been introduced to protect individuals from the
“tyranny of the majority”.
This article finds that there exists a conflict between the two objectives. This
finding does not exclude that the conflict may eventually be resolved in favour
of consumer welfare, but the objectives are nevertheless conflicting from the
outset.
DG Competition has stated in its Discussion Paper that the main objective of
Article 82 is consumer welfare.6 This statement has made it even more important
to acknowledge and solve the conflict, as otherwise Article 82 may not be applied
effectively and uniformly by the Member States in the Community. While the
Discussion Paper is not an authoritative source, it indicates DG Competition’s
current thinking on Article 82.
This article does not examine which of the two objectives the European
Commission or Community Courts (the European Court of Justice (ECJ) and
the Court of First Instance (CFI)) should pursue, or whether consumer welfare is
the right objective to pursue. It is limited to examining whether the Bundeskartellamt is right in arguing that consumer welfare and economic freedom are
not in conflict.
B. T HE P OTENTIAL C ONFLICT
A potential and serious conflict can arise between economic freedom and
consumer welfare in at least two situations. First, conflict can arise in protecting
effective competition amongst rivals where it does not benefit consumer welfare,
for example, by protecting “competitors that are not [yet] as efficient as the
dominant company”.7 This may mean that there are more firms in the market
and potentially more competition. However, one needs to be careful not to
conclude that the larger the number of firms the greater the welfare.8 If less
efficient firms are protected or subsidised, it may prevent market competition
from selecting the best firms. By protecting a competitor through the act of
curtailing the power of a dominant supplier, the consumer may benefit through
increased choice and a reallocation of profits from the dominant supplier to
competing suppliers. As these competitors will probably not have the ability to
reap monopoly profits, these profits would be expected to be passed back to the
consumer through reduced prices. If these effects outweigh the value of any
above-cost discount offered by the dominant supplier, consumers would gain
from overall price reductions. While the move to protect competitors to the
6
7
8
Supra n 4, para 4.
Supra n 4, para 67.
M Motta, Competition Policy: Theory and Practice (Cambridge University Press, 2004), 51.
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dominant supplier may increase choice and potentially improve allocative
efficiency through lower prices, this is not guaranteed; nor is it guaranteed that
dynamic movements towards productive and dynamic efficiency will be
facilitated best in this way.9 In some circumstances, it is plausible that the
protected market players will become efficient over time.10 However, it is also
possible that the most productive way of supplying customers will be through
fewer suppliers, particularly when economies of scale are great. Depending on
which of these effects is the greatest, the consumer could then either gain or lose
from such measures.11
Secondly, an exclusion of some small and medium-sized companies, which
lack economies of scale, would not harm consumer welfare if these companies
were unable to guarantee consumer welfare in the form of lower prices, better
quality and an effective choice. However, it would harm the individual economic
freedom of the excluded companies, as they would no longer have access to the
market.
By understanding the concept of economic freedom it will become clear, as
argued in this article, that economic freedom and consumer welfare are based on
different normative values, which conflict. Understanding economic freedom
begins by comprehending why economic freedom needs to be protected and how
the concept is perceived by ordoliberals. Economic freedom cannot be ignored
as it is the primary goal of ordoliberal competition policy, which has had a
profound influence on Community competition law.12 The influence came
indirectly via German competition law. The latter was one of the very few
conceptually and ideologically developed regimes amongst the founding
Member States in the early days of Community competition law.
9
10
11
12
See generally D Carlton and J Perloff, Modern Industrial Organization (Harlow, Pearson, 4th edn,
2005).
One example is Korea; see J Seon Hur, “The Evolution of Competition Policy and its Impact on
Economic Development in Korea” in UNCTAD Report on Competition, Competitiveness and
Development: Lessons from Developing Countries (2004), 227.
See J Vickers, “Abuse of Market Power” (2005) 115 The Economic Journal F244, F250.
D Evans, “Roundtable Discussion about US Supreme Court’s Decision in Verizon v Trinko”
[2004] Global Competition Review 26; B Hawk, “Article 82 and Section 2” in OECD Paper on
Competition on the Merits, DAF/COMP(2005)27, 253; D Gerber, “Constitutionalizing the
Economy: German Neo-liberalism, Competition Law and the ‘New’ Europe” (1994) 42 American
Journal of Comparative Law 25, 73. Akman argues that the drafters of Art 82 does not seem to have
been influenced by ordoliberalism. She supports her argument by an interpretation of the travaux
préparatoires to the EC Treaty; see P Akman, “Searching for the Long-lost Soul of Article 82 EC”
(March 2007) CCP Working Paper 07-5.
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C. E CONOMIC F REEDOM AS U NDERSTOOD BY O RDOLIBERALS
1. Why Economic Freedom?
The ideas of ordoliberalism,13 developed by the Freiburg School,14 took shape
in response to the economic, political and social crises starting with the fall of
the Weimar Republic in 1933 and the rise of Nazi Germany. One of the
consequences of the totalitarian Nazi regime was its ability to turn private
economic power into political power by misusing the iron and steel industry (the
German Schwerindustrie).15 Well-run cartels16 and monopolies resulted in powerful
economic concentration in conjunction with great accumulation of political
power. This led to the abandonment of democratic principles.17 Ordoliberalism
believed that the accumulation of economic power18 resulted from the inability
of the legal system to prevent the creation and misuse of private economic
power.19 The lack of adequate safeguards against the rise of private economic
power and the weakness of the state ultimately replaced economic and political
freedom with an unrestrained dictatorship, which became unstoppable and led to
World War II.20 To avoid a repetition of history and to prevent private economic
power turning into political power, it was imperative for ordoliberalism to
establish an appropriate economic order to protect individual economic freedom.
In the ordoliberal view of society, individual economic freedom and competition
are the source of prosperity and political freedom. The economic order had to
be protected by an appropriate legal framework, “the economic constitution”.
2. How Economic Freedom is Perceived by Ordoliberals
Ordoliberalism was dedicated to achieving an economic order—a competitive
order—able to control private economic power and political power. This is
because individual economic freedom is an essential accompaniment to political
freedom and competition is necessary for the economic liberty of the
13
14
15
16
17
18
19
20
Ordoliberalism is an ideology developed in the 1930s and 1940s by a group of neo-liberals at
Freiburg University in Germany. Their ideologies were grouped together under the term
ordoliberalism, which became shorthand for the underlying set of ideas behind the social market
economy. See H Giersch, K-H Paque and H Schmieding, The Fading Miracle: Four Decades of Market
Economy in Germany (Cambridge University Press, 1992), 31.
The founders of the Freiburg School are considered to be economist Walter Eucken, lawyer Franz
Böhm and lawyer Hans Grossmann-Doerth. Some protagonists of ordoliberalism were Wilhelm
Röpke, Alexander Rüstow, Alfred Müller-Armack and Leonhard Miksch.
W Röpke, German Commercial Policy (London, Longmans, 1934), 24–27.
Especially the chemical cartel I.G. Farben (Interssen Gemeinschaft Farben); see J Borkin, The
Crime and Punishment of I.G. Farben (London, Deutsch, 1979).
Supra n 15, 24–27.
The concept of economic power is one of the features of German and European competition law
thinking that most clearly distinguishes it from US thinking Gerber, supra n 12, 51.
Supra n 12, 29.
Supra n 13, 27–28.
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individual.21 A competitive order would ensure a prosperous and humane society
which guarantees individual economic freedom and price stability.22 Economic
freedom was necessary both to prevent the accumulation of private economic
power and to sustain economic development.23 Price stability was seen as
essential for a society where long-term contracts would act as the cement for civil
society.
The economic constitution should include basic principles to counteract any
tendencies that could neutralise competition.24 It should regulate and limit, for
example, the emergence of private economic power by prohibiting cartels, the
growth of single firm market power and contracts that create unjustified limits
on the competitive autonomy of firms. The economic constitution should decide
the legal structure of the economic system guaranteeing individual freedom and
competition as fundamental rights. The economic constitution should, amongst
other things, protect the process of competition. However, it is important to
recognise that ordoliberalism wanted to protect the competitive process to
guarantee equality of individuals and protect civil liberties:25
“Competition policy [ordoliberal competition policy] serves to protect the
evolutionary process of competition as such, and to prevent the concentration of
private power to the detriment of the competitive and the political processes.
Consequently, competition constitutes a value in its own right, which goes well
beyond efficiency considerations. In this view, the [ordoliberal] economic constitution
serves, first, to guarantee the basic equality of individuals as economic subjects;
second, to back up the private law society by public authority; and third, to protect
civil liberties.”
According to one of the founding fathers of ordoliberalism, Franz Böhm,26
“[t]he real motives behind the enactment of antitrust law were . . . not economic
efficiency and the effectiveness of economic control, but social justice and civil
liberties which were held to be threatened by monopolies”. This does not mean
that economic theory does play a role in ordoliberal competition policy.
Ordoliberalism uses economics, but only a means to develop a free order
(ordnung).27 The free order should liberate humanitarian values from their
21
22
23
24
25
26
27
28
F Hayek, New Studies in Philosophy, Politics, Economics and the History of Ideas (University of Chicago
Press, 1978), 179–90.
See W Eucken, Grundsätze der Wirtschaftspolitik (Tübingen, Mohr/Siebeck, 1952), 290.
R Barrell and K Dury, “Choosing the Regime: Macroeconomic Effects of UK Entry into EMU”,
NIESR Discussion Paper No 168 (2000), 5.
Individual rights set out in the economic constitution were directly enforceable. See W Sauter,
Competition Law and Industrial Policy in the EU (Oxford, Clarendon Press, 2003), 47.
Ibid, 47.
F Böhm, “Democracy and Economic Power”, in Cartel and Monopoly in Modern Law (Karlsruhe, CF
Muller, 1961), 28.
An ordnung provides a framework for a functional free-market mechanism that not only
accommodates development and change, but also ensures human dignity and freedom.
See L Miksch, “Walter Eucken” (1950) 4 Kyklos 279.
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threatened encirclement by chaotic, anarchic and collectivistic forces.28 It is
imperative to recognise that ordoliberalism is based on humanist values rather
than efficiency or other purely economic concerns. Ordoliberalism seeks to
combine open markets and individual freedom with social justice. Böhm
acknowledged that private law made it possible to assess private economic power
from both a macrocosmic perspective29 and a microcosmic one.30 He argued that
economic power should be assessed from the macrocosmic point of view.31
The ordoliberal theory is distinct from traditional liberalism in two respects.
First, ordoliberalism believes that an unregulated free market is not the most
efficient means of allocating resources. From an ordoliberal perspective, Adam
Smith’s laissez-faire economy does not ensure a competitive economy. It will
evolve into monopolistic practices, interventionism and distortions of price
relationships. Instead, structural and regulating principles should facilitate a
functionally competitive economy with a compatible social policy, characterised
by a flexible price mechanism and stable policies.32
Secondly, individual economic freedom needs to be protected from both
political power and the misuse of private economic power. Traditional liberalism
maintains that the rule of law is mainly to protect the individual against
government coercion (political power).33 However, ordoliberalism attaches equal
importance to safeguarding individual economic freedom from intrusion by
private undertakings’ economic power.
In summary, the primary goal of ordoliberal competition policy is individual
economic freedom in the interest of a free and fair political and social order.34
Individual economic freedom could be achieved by limiting and/or controlling
economic power, or at least its harmful effects.35 Competition policy is embedded
in the economic order of a free and open society.36 It is shaped by the rule of law
rather than by ad hoc political decision-making. The state retains a strong role in
protecting the basic parameters of the system of competition. Competition
within the economy provides the basis for the economic order they envision: a
29
30
31
32
33
34
35
36
The macrocosm perspective sees the rise of power within a sociopolitical framework and asks the
question: shall we, as citizens of a democratic state and members of a free system of society,
embedded in the rights of the individual, hand over the power to serve to our fellow citizens?
The microcosm perspective sees the rise of power within the framework of the free market
economy and asks the question: does the economic process caused by the emergence of economic
power result in plus and minus or just an aliud of economic efficiency?
Supra n 26, 32–33.
S Karsten, “Eucken’s ‘Social Market Economy’ and its Test in Post-war West Germany. The
Economist as Social Philosopher Developed Ideas that Paralleled Progressive Thought in
America” (1985) 44 American Journal of Economics and Sociology 169.
See B Leoni, Freedom and the Law (Indianapolis, IN, Liberty Press, 3rd edn, 1991).
W Möschel, “Competition Policy from an Ordo Point of View”, in H Willgerodt and A Peacock
(eds), German Neo-liberals and the Social Market Economy (Basingstoke, Macmillan, 1989), 146.
D Gerber, Law and Competition in Twentieth Century Europe: Protecting Prometheus (Oxford, Clarendon
Press, 1998), 251.
Supra n 34, 142.
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free market economy. The free market must be liberated from economic power.
Otherwise only a system of anarchic welfare will prevail.37
D. P ROTECTING THE C OMPETITIVE P ROCESS
The Bundeskartellamt correctly argues that protecting the competitive process
can enhance consumer welfare in the long run.38 However, this is only if the
competitive process is protected instrumentally (ie for what it brings) to achieve
consumer welfare. As established in the previous section, ordoliberalism
protects the competitive process to achieve individual economic freedom. This
is linked to social justice and civil liberties, not to consumer welfare. The
Bundeskartellamt argues that it is inspired by the economic freedom
approach.39 This is understandable as the German competition law, Gesetz
gegen Wettbewerbsbeschränkungen (GWB), is modelled upon the ordoliberal
competition model.40 Given this, it is reasonable to assume that the
Bundeskartellamt wants to safeguard the competitive process not to enhance
consumer welfare, but to protect economic freedom. This assumption is
supported by the examples given by the Bundeskatellamt in the article “A
Bundeskartellamt/Competition Law Forum Debate on Reform of Article 82: a
‘Dialectic’ on Competing Approaches”:41
“1. Price squeeze: oil companies (B8-77/00). In 2000 the Bundeskartellamt prohibited
with immediate effect the major six oil companies in Germany from demanding
higher prices (plus a freight surcharge) for supplying independent petrol station
operators than they charge final consumers at their own petrol stations. By opening
up a price gap and charging small petrol station operators at their refineries higher
prices than those charged to consumers at their own petrol stations the large oil
companies were unfairly hindering the independent petrol station operators. This
pricing policy prevented these operators right from the start from making a profit on
fuel sales. Unlike the large vertically integrated six oil companies, small and
medium-sized firms did not have the same access to the crude oil market and the
financial resources to cushion any losses on the fuel market.”
“2. Predatory pricing: Deutsche Lufthansa/Germania (B9-232/02). In 2002 the Bundeskartellamt prohibited Deutsche Lufthansa AG (DLH) from demanding a price for a
37
38
39
40
41
Supra n 26, 30.
This is supported by L Gyselen, “Rebates—Competition on the Merits or Exclusionary Practice?”
in C-D Ehlermann and I Atansiu (eds), The European Competition Law Annual 2003: What is an Abuse of
a Dominant Position? (Oxford, Hart Publishing, 2006), 287, 290.
Supra n 1, 212.
Gerber, supra n 12, 66, argues that the enactment of the GWB probably ranks as the most
important political victory for ordoliberalism.
Supra n 1, 220–21.
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one-way ticket per passenger on the Frankfurt–Berlin route which is not at least €35
above Germania’s price, as long as DLH does not have to charge more than €134 as a
result. The Bundeskartellamt saw the pricing strategy of DLH as an attempt to
squeeze its new competitor Germania out of the market and feared that emerging
competition would be substantially impaired as a result. Germania started operating
scheduled flight services between Berlin and Frankfurt/Main in November 2001. The
company offered tickets at €99 for a one-way, fully flexible and rebookable flight. The
conditions essentially corresponded to DLH’s economy tariffs suitable for business
travellers. DLH reacted by also introducing a fully-flexible economy tariff which
offered an immense price reduction (up to €485). In January 2002 DLH raised the
price to €105, clearly undercutting Germania’s price of €99 as it included services
which were not offered by Germania. The price DLH set was clearly below its
average operating costs per passenger. The only rational explanation for this pricing
strategy was that DLH was attempting to force Germania from this route and to
recoup resulting losses at a later stage by discontinuing this price tariff and resorting
to previous ones. The Bundeskartellamt therefore protected the newcomer Germania
from being hindered by the dominant DLH. The BKartA consider that proof of the
actual harm on consumers resulting from Lufthansa’s practices would not have given
any actual evidence for an intervention of the authority.”
These examples show that the Bundeskartellamt is protecting economic freedom.
Pursuing a consumer welfare objective would not have allowed intervention
without having undertaken an economic analysis of the likely effects on
consumers.42
E. O RDOLIBERAL I NDICATIONS IN C OMMUNITY C OMPETITION P OLICY
DG Competition’s Director General, Philip Lowe, has acknowledged that
decisional and judicial practice has been influenced by ordoliberalism:43
“The case-law of the European courts and also the decisional practice of the
Commission were initially influenced by ordoliberal thought which has its origin in
the so-called Freiburg School. Their members advocated a strict legal framework and
a strong role for the state in protecting the basic parameters of competition.
Competition was understood as a process of economic coordination on the basis of
freedom of action. The protection of individual economic freedom—as a value in
itself—was regarded as the primary objective of competition policy.”
As correctly highlighted by Lowe, under the ordoliberal model, the aim of
competition policy is the protection of individual economic freedom of action as
42
43
This is supported by the Competition Law Forum, supra n 1, 221 footnote 13.
P Lowe, “Consumer Welfare and Efficiency—New Guiding Principles of Competition Policy?”,
speech given on 27 March 2007 at the 13th International Conference on Competition and 14th
European Competition Day, 2.
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a value in itself.44 The rationale is that the economic system should allow all
individuals to participate unhampered by the economic power of others,45
because economic freedom is a fundamental right. As shown in the previous
section, ordoliberalism places competition law in a wider, sociopolitical
perspective because limitation and control of private power is in the interest of a
free and fair political and social order.46 It is essential to protect the conditions of
competition, rather than explicitly focusing on the direct results produced by that
process. The main goal is the limitation of private power to guarantee individual
economic freedom. While ordoliberalism sees economic efficiency as a generic
term for growth and for the encouragement and development of technical
progress and for allocative efficiency, it is only an indirect and derived result of
individual economic freedom.47
This philosophy also underpins Advocate General Kokott’s Opinion in British
Airways.48 This is in particular her reference to the structure of the market and
competition as an “institution”.49 In her view, the primary beneficiaries of
Article 82 are other firms. While consumer welfare may be expected to flow from
economic freedom, this is not, as highlighted by Advocate General Kokott, the
aim. Nor is it always the result. Priority is given to the process of competition. If
this indirectly protects consumers, then it is a bonus, but not an aim. This was
reiterated by the ECJ in its judgment in British Airways.50 By pursuing an objective
of economic freedom, it is believed that the benefit of competition is a market
characterised by a desirable process, and competition is an end in itself.51 This is
because ordoliberalism sees competition as a necessity for the economic liberty
of the individual.52
According to Lowe, the aim of Article 82 is to ensure that the remaining
competitors in the market are not prevented from competing on the merits.53
This is taken to mean that the economic freedom of rivals must be protected
against abuse from dominant undertakings. This is to protect rivals’ ability to
compete on the merits. In this sense, economic freedom is protected only where
it benefits consumer welfare. While Lowe acknowledges that decisional and
44
45
46
47
48
49
50
51
52
53
This is supported by W Möschel, “The Proper Scope of Government Viewed from an Ordoliberal
Perspective: the Example of Competition Policy” (2001) 157 Journal of Institutional and Theoretical
Economics 3.
G Monti, EC Competition Law (Cambridge University Press, 2007), 23.
Supra n 35, 244–51.
Supra n 34, 146.
Opinion of Advocate General Kokott in Case C–95/04P British Airways plc v Commission, delivered
on 23 February 2006.
Ibid, para 68.
Case C–95/04P British Airways plc v Commission, para 66.
Supra n 45, 49.
Supra n 21.
P Lowe, speech, “Thirteenth Annual Conference on International Antitrust and Policy”, given at
the Fordham Antitrust Conference in Washington, 23 October 2003, 5.
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judicial practice has been influenced by ordoliberalism and economic freedom,
he argues that the new guiding principles are consumer welfare and efficiency:54
“[C]onsumer welfare and efficiency are the new guiding principles of EU
competition policy. Whilst the competitive process is important as an instrument, and
whilst in many instances the distortion of this process leads to consumer harm, its
protection is not an aim in itself. The ultimate aim is the protection of consumer
welfare, as an outcome of the competitive process.”55
If these are new guiding principles, they must replace some older principles. Lowe
has argued that economic freedom has influenced decisional and judicial practice
previously. In that case, consumer welfare and efficiency are presumably
replacing economic freedom. This would not be necessary if economic freedom
and consumer welfare are not in conflict.
Whether DG Competition agrees with Lowe is questionable. In its
Discussion Paper, DG Competition remarks that “it may sometimes be
necessary in the consumers’ interest to also protect competitors that are not
(yet) as efficient as the dominant firm”.56 Potentially, this could mean more
competition in the long run, driving prices down and increasing allocative
efficiency to the benefit of consumers.57 However, it may involve a loss of
economies of scale, which is inefficient from an economic efficiency point of
view.58 Protecting competitors not yet as efficient as the dominant company
signals that DG Competition is keen to increase the opportunities for other
competitors in the market. It is questionable whether these not yet efficient
competitors will actually generate any efficiency to the benefit of consumer
welfare. A practical problem is that it would require competition authorities to
produce a timeframe for the period that they are willing to protect these not yet
as efficient competitors. It would also have to establish a strategy for the
various ways of protecting competitors.
As well as Lowe, Hawk has argued that some decisional and judicial practice
of the Community relating to Article 82 reflects the ordoliberal approach,
which takes a long-term perspective with an emphasis on rivalry without any
inquiry at all into their relative efficiency.59 The following section will discuss
this point.
54
55
56
57
58
59
Supra n 43, 2.
Unlike Lowe, Eilmansberger argues that the protection of the competitive process is a goal in
itself: T Eilmansberger, “Dominance—the Lost Child? How Effects-based Rules Could and
Should Change Dominance Analysis” (2006) 2 European Competition Journal (special issue) 15, 18.
Supra n 4, para 67.
Not only is this is a complicated analysis, however, but the concept “not yet as efficient
competitor” also gives the competition authority huge discretion in assessing whether and when a
company will be “as efficient” as the dominant company.
F Scherer, “Antitrust, Efficiency, and Progress” (1987) 63 New York University Law Review 998,
1002–3.
Hawk, supra n 12, 253.
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F. O RDOLIBERAL I NDICATIONS IN SOME D ECISIONAL AND J UDICIAL
P RACTICE UNDER A RTICLE 82
Certain cases decided under Article 82 have been interpreted in the ordoliberal
framework. This can be seen from a line of cases where conduct that hinders the
production of competitors constitutes an abuse.60 In addition, firms seeking to
use their economic power to undermine the market’s competitive structures
would also fall foul of this head. This understanding of protecting competition
may be viewed as protecting rivals from the aggregation of economic power.61
In Continental Can,62 Hoffmann-La Roche,63 United Brands64 and Michelin I,65 the
Commission and the ECJ have equated an abuse with a restriction on the rights
and opportunities of market operators.66 For example, in United Brands, the ECJ
held that United Brands Company was allowed to protect its own commercial
interests by taking reasonable steps. However, such steps could not interfere with
the independence of “small and medium-sized firms in their commercial
relations with the undertaking in a dominant position”.67 In Michelin I, the ECJ
held “the discount tends to remove or restrict the buyer’s freedom to choose his
sources of supply”.68 Moreover, in Hoffmann-La Roche, the ECJ said that a
weakening of the structure of competition can constitute an abuse:69
60
61
62
63
64
65
66
67
68
69
Case 6–7/73 Commercial Solvents v Commission [1974] ECR 223, [1974] 1 CMLR 309, para 25; Case
53/87 Consorzio italiano della componentistica di ricambio per autoveicoli and Maxicar v Régie nationale des
usines Renault [1988] ECR 6039, para 16; Case 238/87 AB Volvo v Erik Veng (UK) Ltd [1988] ECR
6211, para 9; Joined Cases C–241–242/91P Radio Telefis Eireann (RTE) and Independent Television
Publications Ltd v Commission [1995] ECR I–743, [1995] 4 CMLR 718, para 54; Commission
Decision Irish Sugar PLC [1997] OJ L258/1, para 134; Commission Decision British Midland v Aer
Lingus [1992] OJ L96/34, para 25; and Commission Decision Decca Navigator System [1989] OJ
L43/27, para 97.
See L Lovdahl Gormsen, “Article 82 EC: Where are We Coming From and Where are We Going
To?” (2005) 2 Competition Law Review 5, 8.
Case 6/72 Europemballage Corpn and Continental Can Co Inc v Commission [1973] ECR 215, [1973]
CMLR 199.
Case 85/76 Hoffmann-La Roche AG v Commission [1979] ECR 461, [1979] 3 CMLR 211.
Case 27/76 United Brands Company v Commission [1978] ECR 207, [1978] 1 CMLR 429.
Case 322/81 Nederlansche Banden-Industrie Michelin NV v Commission (Michelin I) [1983] ECR 3461,
[1985] 1 CMLR 282.
These cases are not the only cases under Art 82 where the Community Courts have been
concerned about the dominant undertaking preventing firms from sourcing the relevant products
from other suppliers. Other cases with a similar concern are joined cases 40–114/73 Cooperatieve
Vereniging ‘Suiker Unie’ U.A. and Others v Commission [1975] ECR 1663, [1976] 1 CMLR 295, para
518; Case T–65/89 BPB Industries and British Gypsum Ltd v Commission [1993] ECR II–389, [1993] 5
CMLR 32, para 120; Case T–219/99 British Airways plc v Commission [2003] ECR II–5917, paras
244–45; and Commission Decision Eurofix-Bauco/Hilti [1985] OJ L65/19, para 79.
Supra n 64, para 193.
Supra n 65, para 73; similar language was used in Hoffmann-La Roche, supra n 63, para 106 and in
Continental Can, supra n 62, para 29.
Supra n 63, para 123.
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“[T]he course of conduct [rebates] under consideration is that of an undertaking
occupying a dominant position on a market where for this reason the structure of
competition has already been weakened, within the field of application of Article 86
[Article 82] any further weakening of the structure of competition may constitute an
abuse of a dominant position.”
Perhaps the Court was pursuing economic freedom only to promote consumer
welfare. However, there was no serious analysis of consumer welfare loss in any
of these cases. If the Court pursued economic freedom as a means to an end of
consumer welfare, then it ought to have assessed whether the conduct in question
would likely have led to a decrease or an increase in consumer welfare. For
example, would the alteration of the market structure likely have resulted in
consumer welfare loss in the form of less choice, an increase in price and/or
lowering of quality?
In addition, prohibiting conduct where firms are seeking to use their
economic power to undermine the market’s competitive structures, without
considering whether such behaviour is likely to harm consumer welfare, may be
viewed as nothing more than protecting smaller competitors from aggregation of
economic power.70 For example, in France v Commission, the ECJ held:71
“It should be observed that a system of undistorted competition, as laid down in the
Treaty, can be guaranteed only if equality of opportunity is secured as between the
various economic operators. To entrust an undertaking which markets terminal
equipment with the task of drawing up the specifications for such equipment,
monitoring their application and granting type-approval in respect thereof is
tantamount to conferring upon it the power to determine at will which terminal
equipment may be connected to the public network, and thereby placing that
undertaking at an obvious advantage over its competitors.”
Part of this message was reiterated by the Commission in DSD:72
“An undertaking in a dominant position can obstruct its competitors by binding its
customers de jure or de facto to its services and thereby prevent them from using
competing suppliers. The Court has stated on this matter that ‘system of undistorted
competition, as laid down in the Treaty, can be guaranteed only if equality of
opportunity is secured as between the various economic operators’. Such equality of
opportunity is particularly important for new market entrants on a market on which
competition is already weakened by the presence of a dominant undertaking and
other circumstances. In particular, small competitors should not be the victims of
behaviour by a dominant firm, facilitated by that firm’s market power, which is
designed to exclude those competitors from the market or which has such an
exclusionary effect.”
70
71
72
E Fox, “Monopolization and Dominance in the United States and the European Community:
Efficiency, Opportunity, and Fairness” (1986) 61 Notre Dame Lawyer 981.
Case C-202/88 France v Commission [1991] ECR I–1223 para 51.
DSD [2001] OJ L166/1, para 114.
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It is not only the ECJ, but also the CFI that focuses on the market’s competitive
structures. For example, in Michelin II the CFI held:73
“For the purposes of establishing an infringement of Article 82 EC, it is sufficient to
show that the abusive conduct of the undertaking in a dominant position tends to
restrict competition or, in other words, that the conduct is capable of having that
effect.
. . . it is necessary to consider all the circumstances, particularly the criteria and
rules for the grant of the discount, and to investigate whether, in providing an
advantage not based on any economic service justifying it, the discount tends to
remove or restrict the buyer’s freedom to choose his sources of supply, to bar
competitors from access to the market, to apply dissimilar conditions to equivalent
transactions with other trading parties or to strengthen the dominant position by
distorting competition . . . It concluded that Michelin had infringed Article 82 EC,
since its discount system [was] calculated to prevent dealers from being able to select
freely at any time in the light of the market situation the most favourable of the offers
made by the various competitors and to change supplier without suffering any
appreciable economic disadvantage . . .”74
A similar approach was taken a few months later in British Airways,75 where the
CFI held:
“[F]or the purposes of establishing an infringement of Article 82 EC, it is not
necessary to demonstrate that the abuse in question had a concrete effect on the
markets concerned. It is sufficient . . . to demonstrate that the abusive conduct of the
undertaking in a dominant position tends to restrict competition, or, in other words,
that the conduct is capable of having, or likely to have, such an effect.”76
The CFI upheld the Commission’s finding of dominance and its finding that
competitors were unable to compete with British Airways. Thus, there was no
need to show actual effects. The CFI further held:
“[W]here an undertaking in a dominant position actually puts into operation a
practice generating the effect of ousting its competitors, the fact that the hoped-for
result is not achieved is not sufficient to prevent a finding of abuse of a dominant
position within the meaning of Article 82 EC.
Moreover, the growth in the market shares of some of BA’s airline competitors,
which was modest in absolute value having regard to the small size of their original
market shares, does not mean that BA’s practices had no effect. In the absence of
those practices, it may legitimately be considered that the market shares of those
competitors would have been able to grow more significantly . . .”77
73
74
75
76
77
Case T–203/01 Manufacture Française des Pneumatiques Michelin v Commission (Michelin II) [2003]
ECR II–4071.
Supra n 73, paras 239–40.
Case T–219/99 British Airways plc v Commission.
Ibid, para 293.
Supra n 75, para 297–98.
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The CFI retained its focus on the structure of competition in its recent Microsoft
judgment.78 It referred to earlier case law, such as Hoffmann-La Roche79 and Irish
Sugar,80 and held:81
“[I]t is settled case-law that Article 82 EC covers not only practices which may
prejudice consumers directly but also those which indirectly prejudice them by
impairing an effective competitive structure . . . In this case, Microsoft impaired the
effective competitive structure on the work group server operating systems market by
acquiring a significant market share on that market.”
These few examples highlight the concerns for the economic freedom of rivals
and the structure of competition more than consumer welfare. Some may argue
that an ordoliberal approach can only be read into decisional and judicial
practice if cases are read out of context. A contextual reading of the judgments
would make clear that the Community Courts were not trying to protect
economic freedom, but consumer welfare. However, in the absence of any theory
on how consumers will be harmed, directly or indirectly through an alteration of
an effective competitive structure, will look like nothing more than a protection
of economic freedom. It is hard to find a coherent theory on consumer harm in
any of the decisions and judgments mentioned.82
G. I MPLICATIONS
One can only wonder why the Bundeskartellamt is arguing that there is no
conflict between economic freedom and consumer welfare. Without knowing the
answer, one can assume that the Bundeskartellamt is trying to support DG
Competition’s move to consumer welfare.83 Moreover, the Bundeskartellamt
would have to change its economic freedom approach if it conflicts with
consumer welfare. A move to consumer welfare is a departure from the
jurisprudence, which fully or partly embraces economic freedom.84 Therefore, it
would be more convenient if there were no conflict between the two objectives. A
departure from jurisprudence requires support from the ECJ. Only the ECJ can
decide whether its jurisprudence is in need of a change. Only if the ECJ decides
to support DG Competition’s move away from economic freedom and overrule
earlier case law will this happen.
78
79
80
81
82
83
84
Case T–201/04 Microsoft Corp v Commission, judgment of 17 September 2007.
Hoffmann-La Roche, supra n 63, para 125.
Case T–228/97 Irish Sugar v Commission [1999] ECR II–2969, para 232.
Supra n 78, para 664.
Although the CFI talked about effects and efficiencies in the Microsoft judgment, supra n 78, it is
still unclear whether the legal test is harmful effects on consumers or on competitors.
Supra n 4, para 4.
Eg Continental Can, supra n 62; Commercial Solvents, supra n 60; United Brands, supra n 64; Hoffmann-La
Roche, supra n 63; Michelin I, supra n 65.
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It is unlikely that earlier case law will be overruled, to the effect that those
who would like to see a reorientation of the law were disappointed, as the
Community Courts did not take the opportunity in British Airways85 and Michelin
II.86 The ECJ’s judgment in British Airways and the CFI’s judgment in Microsoft do
contain some promising indications. For example, the Community Courts
indicated that there is a need to establish some form of competitive impact and
an appreciation of economic benefits. However, these judgments confirm that
reform of Article 82 is not going to happen immediately.
H. C ONCLUSION
A one-dimensional view focusing on maximising consumer welfare and efficiency
excludes a focus on, for example, the non-efficiency objective of economic
freedom. Consumer welfare takes a neoclassical position which values welfare
without any consideration of the position of individuals in its utilitarian
calculus.87 According to this utilitarian majoritarian value,88 safeguarding
economic freedom is not a relevant consideration.89 Instead, the test of legality is
whether the effects of the undertaking’s behaviour contribute to improving
consumer welfare. This is contrary to the ordoliberals’ understanding of
competition law. Ordoliberals believe that competition is best protected by
protecting individual economic freedom in the market as a fundamental right.
It is paramount to understand that consumer welfare is not a motivation for
economic freedom in the slightest degree. Likewise, consumer welfare does not
care about economic freedom unless it has an impact on consumer welfare. The
outcome of a case pursuing economic freedom may not always conflict with the
outcome of a case pursuing consumer welfare. However, this is different from
arguing, as done by the Bundeskartellamt, that economic freedom and consumer
welfare are not conflicting because both objectives protect the competitive
process to enhance consumer welfare.
85
86
87
88
89
Supra n 50.
Supra n 73.
Supra n 34, 148–49.
The rule of utility is that good is whatever brings the greatest happiness to the greatest number of
people. Since utilitarians judge all actions by their ability to maximise good consequences, any
harm to one individual can always be justified by a greater gain to others. This is true even if the
loss for the one individual is large and the gain for the others is marginal, as long as enough
individuals receive the small benefit. Some critics reject utilitarianism on the basis that it seems to
be incompatible with human rights. For example, if slavery or torture is beneficial for the
population as a whole, it could theoretically be justified by utilitarianism. Utilitarian theory thus
seems to overlook the rights of the individual. See J Waldron, “Rights”, in R Goodin and P Pettit
(eds), A Companion to Contemporary Political Philosophy (Oxford, Blackwell Publishing, 1995), 581.
This excludes consumers gaining separate utility from, for example, preferring small corner shops
to bigger supermarkets.
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To defend DG Competition’s commitment to consumer welfare, it is not
unthinkable that some are tempted to argue that the Commission and the
Community Courts have been protecting the competitive process to protect
consumer welfare.90 This argument is difficult to follow, given the lack of
efficiency analysis in cases pursued under Article 82. It is, however, tempting,
given what is now considered (by some) as disappointments in past jurisprudence.
If the Commission and the Community Courts never intended to protect the
competitive process to protect economic freedom, but only to protect consumer
welfare, then it is paramount that the underlying methodology is changed. It
must be changed to incorporate an analysis of efficiencies as suggested by DG
Competition.91 Otherwise, the legitimacy of decisions and judgments is
undermined. In the Article 82 debate, some argue from a policy point of view, ie
from what they would like the law to be. This is sometimes far removed from
what the law actually is. This article suggests avoiding employing policy considerations in a way that manipulates the evolution of the legal principles.
90
91
See, eg N Kroes, “European Competition Policy in a Changing World and Globalised Economy:
Fundamentals, New Objectives and Challenges Ahead”, speech given at the GCLC/College of
Europe Conference on “50 years of EC Competition Law”, Brussels, 5 June 2007. This is,
however, contradicted by Lowe, who argues that case law and decisional practice have been
influenced by ordoliberalism, supra n 43, 2.
Supra n 4.