Professional Documents
Culture Documents
The issue is, however, not new. Already in its 1998 Notice on the application of the competition rules to the postal sector, the Commission insisted on the importance of competitive pricing for postal services (See recitals in preamble).
I.
Price Regulation
In the absence of a sufficient degree of competition, postal regulators may decide to impose price controls at the:
Upstream level (access pricing) Downstream level (retail pricing)
A variety of methodologies can be relied upon to control prices (price-cap, rate of return, etc.). Price control generates significant debate which kinds of costs should be taken into account.
Important Concepts
Article 82 EC prohibits both exploitative and exclusionary pricing conducts:
Exploitative conduct: pricing practices that result in a direct loss of consumer welfare. The dominant firm takes advantage of its market power to extract rents from customers that could not have been obtained by a non dominant firm Exclusionary conduct: pricing practices directed against rivals that indirectly cause a loss to consumer welfare by limiting the rivals ability to compete (e.g. predatory pricing)
Business practice
High prices
Legal qualification
Excessive pricing Art. 82(a)
Low prices
Competitors exclusion Predatory pricing and abusive rebates Art. 82(b) Downstream competitors exclusion Abusive margin squeeze Art. 82 (b)
Customers exclusion
The Commission assesses the costs on the basis of a proxy: DP had argued in the past that the average cost for the delivery of international mail could be approximated to 80% of the domestic tariff (see REIMS II notification). Other operators say it is up to 70% of the domestic tariff; By charging the full domestic tariff (0,56) for delivery of international mail, DP has exceeded by +/ 25% the economic value of the service (0,45); Importantly, the Commission indicates that an excess of only 25% may be deemed abusive by virtue of the facts that (i) DP is a monopolist and; (ii) of the special features of the postal sector (e.g. liberalization policy initiatives).
The fidelity rebate scheme has precluded competitors from reaching the critical mass to successfully enter the German mail-order delivery market. Between 1990 through 1999 DP had a stable volume-based share of the mail-order parcel market exceeding 85%. The Commission imposed a 24 million fine.
Article 82(c) is mainly concerned with secondary line price discrimination. See Geradin & Petit, 2006.
Price discrimination
It is only in limited circumstances that a non-vertically integrated firm has the incentives to engage in secondary line injury price discrimination More frequent circumstances where a vertically integrated firm will engage into secondary line injury price discrimination. Price discriminating in favour of ones downstream subsidiaries inflicts a competitive disadvantage to the subsidiaries rivals. A monopolist in an input market has a strong incentive to increase the costs of the rivals to its downstream subsidiary as this softens downstream competition and increases its profits; Price discrimination is thus relevant in network industries, where incumbent operators are active on both upstream and downstream levels.
Second condition: the dominant firms trading parties must be placed at a competitive disadvantage against others
Need to identify a downstream relevant market; Need to show a distorsion of competition on that market European Commission generally ignores these conditions
The German Postal Law contained provisions which had the effect of allowing large senders to feed self-prepared mail directly into sorting centres and enjoy discounts for doing so, while commercial mail preparation firms were denied the right to enjoy similar discounts.
As a result of these provisions, DP was applying dissimilar conditions to equivalent transactions because large senders and commercial firms handling over similar volumes of prepared mail at sorting centres paid different tariffs. The Commission considered that the German Postal Law provisions induced Deutsche Post AG to engage in price discrimination contrary to Article 82(c). Secondary line competitive injury resulting from this practice not manifest:
Commercial mail preparation firms and large senders are not competing on a relevant market; Commission nonetheless managed to identify a secondary line injury element in DPs conduct. As DP had launched two mail preparation services to large senders, it was thus active at the same level as commercial preparation firms. By virtue of the discriminatory discounts conditions, the failure of mail preparation firms to qualify for quantity-based discounts put those firms at a competitive disadvantage vis--vis DP.
III. The Dangerous Liaisons of Sector Specific Regulation and Competition Law
On some occasions, the intervention of a regulatory authority fails to eradicate concerns of anticompetitive pricing; As seen previously, Article 82 EC covers a wide range of pricing policies. Competition authorities may thus be tempted to step in so as to eliminate the anticompetitive pricing situation. Article 82 EC is a Treaty provision which prevails over sector specific regulation.
Prices charged by DT to its competitors for access to LL Approval of Tariffs by German Telecoms regulator (RegTP) from 1998-2002 Complaint by competitors (margin squeeze) before the Commission in 1999 Commission open 82 EC procedure in 2002
DTs behaviour was the main source of the restriction of competition and that Article 82 EC was the appropriate course of action. DT was condemned to a 12.6 million fine. The previous application of a regulatory remedy was merely taken into account as a mitigating factor for the calculation of the fine.
CONS
Increase in transaction costs for operators; Increase in legal uncertainty for operators; Risk of disproportionate remedies through the sequential intervention of different institutions; Competition authorities lack sufficient expertise and information to engage into pricing analysis; Duplication of resources and additional burden on competition authorities; Risks of multiple proceedings before courts and NCAs, as EC competition provisions can be applied by a plethora of enforcers; Risk of procedural abuses by competitors
Contacts
Professor Damien Geradin Howrey LLP 9-31 Avenue des Nerviens 1040 Brussels, Belgium Tel: + 32 2 741 10 11 E-mail: geradind@howrey.com