Chapter IV Antonio F. Bavasso
could be determined objectively “z/ it were possible fo r it to he calculated by making a comparison between the selling price o f the product in question and its cost o f p r o d u c t i o n Again this test might prove unsatisfactory in practice particularly when this exercise involves sophisticated and controversial processes o f cost allocation. In particular many telecoms operators have made a number o f investments under a regime o f legal monopolies and public budged rules, and in highly vertically integrated structures. All these factors render the exercise difficult. Clearly the Commission could find guidance in the principles developed in the regulatory context which suggest that the use o f long run average incremental cost is currently the appropriate cost base for network a c c e s s .^^7 The ECJ has confirmed the validity o f such an a p p r o a c h .*^8 Prices
can also be regarded as excessive if they allow an undertaking to sustain profits higher than it would expect to earn in a competitive market. Proving this situation can be very onerous. An indication o f the abusive character o f this scenario can be derived from the absence o f innovation and or successful entry, or loss o f market s h a r e . ^^9
In practice the prices charged for the same services in different geographic markets could act as a another point o f reference for the comparative analysis. In fact a dominant undertaking may seek to maximise its profits by charging what each market can bear and possibly insulating the high price areas. When evaluating the Commission policy in this area it must be analysed borne in mind that market integration in the Community is one o f the most important principles derived from the EC Treaty and this principle informs both the Commission enforcement policy and the EC courts' case law. Market partitioning will be therefore regarded as a particularly serious breach o f competition law even if it is the indirect effect o f a geographically discriminatory pricing policy. In United Brands, the ECJ upheld the Commission's finding that United Brands had applied a policy o f differing prices and by applying dissimilar conditions to equivalent transactions with other trading parties, had placed
Case 26/75, General Motors Continental, [1975] ECR 1367, 12. United Brands, supra note 11-87 above, para. 251.
^ See Access Notice para 110-116.
Ahmed Saeed, supra note 11-34 above, para 43; In Case 322/88, Grimaldi, [1989] ECR 4407 the Court has also stated that in interpreting Community law a national court should also have regard to recommendations issued by the Commission.
geographic markets at artificially different price levels which was reinforced by various restrictions on the resale o f products and reduction in the deliveries o f the quantities
o r d e r e d . ^ 3 0 The Court held that when an undertaking holding a dominant position
imposes prices for its services which are appreciably higher than those charged in other Member States and where a comparison o f the fees levels has been made on a consistent basis, that difference is to be considered as indicative o f an abuse o f a dominant position. In such a case, it is for the undertaking in question to justify the difference by reference to objective dissimilarities between the situation in the Member States concerned and the situation prevailing in all other M ember States.
The Commission has expressly stated in the Access Notice that comparison with other geographic areas can be used as an indicator o f an excessive p r i c e . * 3 2 This might have
the advantage o f creating a virtuous circle between on the one hand areas where liberalisation is at a more advanced stage and on the other areas where monopoly prices are still charged. Furthermore price discrimination would be difficult to justify in the field o f communications where the geographic partition has little bearing on costs.
However, in general terms an approach which transforms the aim o f European integration into an undue uniformisation o f economic conditions may be criticised on economic grounds as "where there are significant sunk costs, discrimination in accordance with what each market can hear leads to more o f a product being supplied, and pays not only a monopolist but also consumers in both the cheaper and the expensive m a r k e t .The conclusion o f such a compelling argument would be that if the conditions in two markets are different, the price differential is not discriminatory or excessive. In reality in the communications sector the comparative analysis might be
See Oftel, ”The Application o f the Competition Act in the Telecommunications Sector”, (January 2000), para 7.35. *30 United Brands, supra note 11-87 above, paras 226-229 and 233.
*3* See Case 395/87, Tournier, [1988] ECR 2521, para 38 and Joint Cases 110/88, 241/88 and 242/88, Lucazeau, [1988] 2811, para 25.
*32 Access Notice para 109, referring to Bodson case. Case 30/87, Bodson, [1988] ECR 2479, para 31. *33 V. Korah, supra note UI-24 above, at 172.
Chapter IV Antonio F. Bavasso
even more difficult, if not i m p o s s i b l e , ^ ^ 4 the cost allocation o f former legal
monopolists have until recently operated under different public budget rules.
The existence under US law (section 2(b) o f the Robinson-Patman Act) o f a statutory basis for the “meeting the competition” justification as a legal defence to an alleged price discrimination has sparkled the legal debate over this economic i s s u e . U n d e r EC law the allegation o f price discrimination is regarded as justifiable by a “meeting but not beating competition” a r g u m e n t . ^^6 However, the scope o f this justification must be
restricted to a defensive use and every attempt to use discriminatory strategies to expand an existing dominant position would be considered abusive. Indeed such a justification shifts the focus o f the analysis from the relationship between costs and prices o f the alleged abuser to the relationship between two undertakings or the prices that they charge. Whilst this justification might promote anticompetitive duopoly pricing, the defensive value o f the doctrine might justify its existence.
The Commission has assessed a number o f cases o f excessive prices in the telecommunications s e c t o r . I n practice in order to carry out the necessary cost allocation analysis it will seek the support o f expert studies. The price differentials resulting from such studies can be used as an indication o f abuses. If the difference is substantial there will be a prim a fa cie case for abuse o f a dominant position. The developing process o f liberalisation and the compliance 'with regulatory provisions on cost allocation will also aid investigation o f cost allocation by competition authorities. Whilst the Commission has expressly declared that it has no intention to establish itself as a price setting authority,!^* its role in this area may be all but marginal particularly
M. Haag and R. Klotz, “Commission practice concerning excessive pricing in telecommunications” Competition Policy