Wednesday, September 7, 2011
Posted by D. Daniel Sokol
Christopher Townley, King's College London asks The Relevant Market: An Acceptable Limit to Competition Analysis?
ABSTRACT: Imagine that an agreement affects two separate markets. In market A, the agreement causes small (but appreciable) consumer welfare losses. In market B, the agreement generates massive consumer welfare benefits, dwarfing the losses in market A. Should one aggregate these costs and benefits across markets (‘Aggregate Across Markets’) when assessing the agreement under Article 101, or should one demand that the benefits outweigh the costs in each relevant market?
This was one of three themes discussed at a breakfast roundtable that the OFT organised in May 2010. The focus of the debate was a recent OFT paper: OFT, Article 101(3) - A Discussion of Narrow versus Broad Definition of Benefits (OFT Discussion Paper). 23 experts attended, some from other UK competition authorities (the Competition Commission and Ofcom), DG COMP, some UK government departments (Department for Environment Food and Rural Affairs and the Department for Business Innovation and Skills), academia, businesses and law firms. The OFT compiled a synopsis of the roundtable’s discussion (Synopsis).
The OFT Discussion Paper asks whether we should Aggregate Across Markets. The relevant Commission notice says: “The assessment under Article 81(3) [now Article 101(3)] of benefits flowing from restrictive agreements is in principle made within the confines of each relevant market to which the agreement relates.” The OFT Discussion Paper agrees that this is how the law currently stands. It claims that this issue is increasingly important, as two-sided markets become more prevalent.
This paper starts with some preliminary observations on the OFT Discussion Paper, Section 2; then it shows that the EU Courts Aggregate Across Markets, so has the Commission, Section 3. Given how much it undermines legal certainty, the Commission needs strong justifications for deviating from the EU Courts’ case law in its guidance. The paper then discusses the advantages of Aggregating Across Markets, Section 4; and the disadvantages, Section 5. Section 6 concludes that, in addition to following the EU Courts’ case law; the arguments in favour of Aggregating Across Markets outweigh those against. I recommend that EU competition authorities that are not already Aggregating Across Markets, should start soon. As the techniques involved are no different from those used when one does not Aggregate Across Markets, decision-makers will easily be able to modify their behavior.