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COMPETITION LAW

TO WHAT EXTENT IS THE CONCEPT OF COLLECTIVE


DOMINANCE APPLICABLE UNDER THE ECMR?
ARUA KALU ONUMA
aruako1@yahoo.com

Abstract: The ECMR upon its enactment in 1990 filled a lacuna in European Merger
Regulation. Prior to the Regulation, Articles 81 and 82 had been employed as instruments
of merger control with varying success. One of the key objectives behind the ECMR is
the prevention of a concentration leading to the creation or strengthening of a dominant
posit ion which may lead to the prohibition in Article 2 (3). The reference by Article 2 (3)
to a single undertaking has raised some debate as to the applicability of the concept of
collective dominance under the Regulation. Even where it is conceded that the concept is
applicable, uncertainties remain as to the extent of applicability. Therein lies the concern
of this paper. The paper attempts a discharge of this burden by adopting an analytical
approach. The concept and pre ECMR regulation of mergers are reviewed to provide a
workable background. The scheme of the Regulation is considered next with particular
emphasis on the appraisal of concentrations. The paper then analyses the concept of
collective law under European competition law and the ECMR. It concludes with an
outline of its findings and appropriate recommendations.

List of Abbreviations
CFI
CMLR
EC
EEC
ECJ
ECLR
ECMR
ECR
EU
GWB
SSNIP

Court of First Instance


Common Market Law Reports
The European Community
The European Economic Community
European Court of Justice
European Competition Law Review
European Commission Merger Regulation
EC Competition Report
The European Union
Gesetzgegen Wettbewerbsbeschrankungen (German Act against Restraints
of Competition)
Small but Significant Non-transitory Increase in Price

1.

INTRODUCTION

The enactment in EC Merger Control Regulation-Council Regulation (EEC) 4064/89 1


marked a threshold in the history of merger regulation in the European Community.
Merger control before the enactment was hampered by statutory deficiencies owing to the
non-provision for mergers in the EEC Treaty2 . Existing competition rules failed to fully
realise community policy on merger control.
One of the key features of EC merger control policy is the prohibition of mergers
resulting in the creation or strengthening of a dominant position. Prior to the enactment of
the Regulation, Articles 81 and 82 were utilised with varying degrees of success. Article
81 proved highly unsatisfactory for the realisation of this policy objective as it only
contained

prohibition

of

anti-competitive

agreements

between

independent

undertakings excluding its application to the activities of merged undertakings.


Notwithstanding its prohibition of the abuse of a dominant position Article 82 did not
prohibit the creation of a dominant position.
The Regulation addressed these problems by prohibiting the creation or strengthening of
a dominant position as a result of a merger, acquisition or a takeover. The wording of
Article 2 (3), which appears, prohibit only a single dominant position has led to
uncertainty as to the applicability of the Regulation to a collectively dominant position.
Where it is assumed that the Regulation is applicable, the question that arises is- to what
extent? These issues constitute the focus of this paper.
To address the question of the extent and applicability of the Regulation to collective
dominance, the paper adopts an analytical approach. It commences with the examination
of the concept of a merger, policy considerations in EC merger regulation and pre-ECMR
regulation of mergers. The scheme of the Regulation is also considered with specific
attention directed towards the appraisal of concentrations under the regulation. The paper
then proceeds to analyse the concept of collective dominance and its application to EC

Adopted 21 December 1989. Came into force 21 September 1990 Hereinafter referred to as ECMR and
the Regulation
2
EEC Treaty of Rome 1957

competition and merger regulation. Finally, the paper concludes with an outline of the
position of the law on the issues presented.

2.

MERGERS- CONCEPT, EFFECTS AND PRE-ECMR REGULATION

2.1.

CONCEPT

A merger described in basic terms, refers to the unison of two or more previously
independent entities. Quite a number of transactions give rise to mergers and these may
vary from one jurisdiction to another. For this reason, legislation often includes a
definition of merger. 3 Under current EC regulation the term concentration has been
preferred to merger. A concentration represents an extension of the merger concept in
that it may include full function joint ventures 4 and even share acquisitions provided that
there has been a change in control of the concerned undertaking. 5

2.2.

POLICY CONSIDERATIONS

The economic and socio-political importance of mergers has given rise to a number of
policy considerations within the European Union (EU). The post World War 2 period saw
the emergence of mergers as the tool for the revitalisation of battered European
economies. The large economies of scale brought about by mergers saw an increase in
productive efficiency with the resultant boom to European post war economies6 . The
emergence of national champions resulted in huge gains in employment and national
pride. Upon the inception of the EU, mergers were encouraged as a vehicle for European
integration and the single market.

The obvious benefits of mergers notwithstanding, a number of concerns arose as to the


often-detrimental effects of mergers such as the distortion of societal socio -economic

Jones, A., and Suffrin, B., EC Competition Law: Text, Cases and Materials 699 (Oxford, Oxford
University Press, 2001)
4
Commission Notice on the concept of concentration under Council Regulation (EEC) No 4064/89 on the
control of concentration between undertakings [1998] OJ C66/5 [1998} 4 CMLR 586, para. 21-34.
5
See Art 3(1) ECMR.
6
Lane, R, EC Competition Law 256-7 (Harlow, Pearson Educational Limited, 2000).

balance owing to the concentration of economic power in large undertakings7 ,


unemployment owing to structural changes, 8 and the looming spectre of foreign control
of key sectors of the economy. The key worry however resided in the damaging effect of
mergers on competition. Mergers between previously non-dominant undertakings may
have the effect of creating a dominant position, which may be subject to anti- competitive
abuse. Again, a merger involving a dominant party results in a strengthening of a
dominant position.

The need to promote a competition-friendly market structure directed merger policy


within the EU towards the prevention of concentration. The absence of merger specific
provisions in the EC treaty resulted in a resort to the provisions of Articles 85 and 86
(now Articles 81 and 82) of the treaty as instruments of merger regulation. This practice
subsisted until the enactment of the European Commission Merger Regulation (ECMR)
in 1990. The scheme of pre-ECMR merger regulation is considered below.

2.3

PRE ECMR MERGER REGULATIONS

Article 81

Article 81(1) and (2) provides as follows:


1. The following shall be prohibited as incompatible with the common market: all
agreements between undertakings, decisions by associations of undertakings and
concerted practices which may affect trade between Member States and which
have as their object or effect the prevention, restriction or distortion of
competition within the common market, and in particular those which:
a. directly or indirectly fix purchase or selling prices or any other trading
conditions;
b. limit or control production, markets, technical development, or
investment;
c. share markets or sources of supply;
7

Jacquemin A. P., and H. W. de Jong, European Industrial Organisation 198-9 (London: Macmillan Press,
1977).
8
Jones, A., and Suffrin, B., supra note 3, p. 706.

d. apply dissimilar conditions to equivalent transactions with other trading


parties, thereby placing them at a competitive disadvantage
e. make the conclusion of contracts subject to acceptance by the other
parties of supplementary obligations which, by their nature or according
to commercial usage, have no connection with the subject of such
contracts.

2. Any agreements or decisions prohibited pursuant to this Article shall be


automatically void.
The provisions of paragraph I may, however, be declared inapplicable in the case
of:
any agreement or category of agreements between undertakings;
any decision or category of decisions by associations of undertakings;
any concerted practice or category of concerted practices;
which contributes to improving the production or distribution of goods or to
promoting technical or economic progress, while allowing consumers a fair share
of the resulting benefit, and which does not:
a. impose on the undertakings concerned restrictions which are not
indispensable to the attainment of these objectives;
b. Afford such undertakings the possibility of eliminating competition in respect
of a substantial part of the products in question.

The prohibition contained in Article 81 generally applies to anti-competitive agreements


between undertakings. Despite the initial acceptance of the Commission on its
inapplicability 9 , the provision was relied upon in BAT and Reynolds v Commission and
Phillip Morris 10 with regard to mergers. In that case the ECJ held Article 81 applicable to
acquisitions involving the takeover of a minority shareholding in an undertaking by
another. In the words of the Court provision will apply, where, by the acquisition of a
shareholding or through subsidiary clauses in the agreement, the investing company
9

See the Memorandum on the Concentration of Enterprises in the Common Market, EEC Competition
Series Study No 3 (published in 1966), para. 58.
10
Cases 142 and 156/84 [1987] ECR 4487: [1988] 4 CMLR 24.

obtains legal or de facto control of the commercial conduct of the other company or
where the agreement provides for commercial co-operation between the companies or
creates a structure likely to be used for such co-operation11 Article 81 is also
applicable where the agreement gives the company an option to take acquire majority
shares at a latter stage. 12

The decision in the BAT case notwithstanding, a number of problems arise as to the
applicability of Article 81 to mergers. Firstly, the exclusive applicability Article 81 to
agreements between independent undertakings leaves a gap with regard to the actions of
the undertaking upon the conclusion of the merger due to the application of the single
entity concept. Again, the provision fails to address the question of the creation,
strengthening or abuse of dominance. Finally the application of Article 82 (2) on the
issue of enforcement is unclear. 13

2.1.1. Article 82
Article 82 provides as follows:
Any abuse by one or more undertakings of a dominant position within the common
market or in a substantial part of it shall be prohibited as incompatible with the common
market in so far as it may affect trade between Member States.
Such abuse may, In particular, consist in:
a. directly or indirectly imposing unfair purchase or selling prices or other unfair
trading conditions;
b. limiting production, markets or technical development to the prejudice of
consumers;
c. limiting production, markets or technical development to the prejudice of
consumers;

11

ibid, paras. 38-9.


ibid.
13
Goyder, D. G., EC Competition Law 384 (Oxford: Oxford University,1998)
12

d. making the conclusion of contracts subject to acceptance by the other parties of


supplementary obligations which, by their nature or according to commercial
usage have no connection with the subject of such contracts.
One of the questions raised as to the application of Article 81 with regard to mergers was
the fact that it failed to provide for abuse of a dominant position. This led the
Commiss ion to consider a resort to Article 82, a provision concerned with the prohibition
of the abuse of a dominant position. This was attempted in the Continental Can14 case
where the ECJ held that the provision is applicable to prevent an undertaking in a
dominant position from strengthening its position in such a way as to fetter competition. 15
Again the provision is applicable to prevent a merged entity from abusing its dominant
position. Article 82, however was in its application to certain merger issues. This is due
to preoccupation of the provision with the abuse and not the creation of a dominant
position. Thus, the provision is behaviourist in nature. This position represented a
contrast to EU merger policy, which sought to preserve market structure by prohibiting
the creation of a dominant position.
The obvious inapplicability of both Articles 81 and 82 to merger regulation created a
lacuna leading to the enactment in 1990 of the ECMR. The scheme of this regulation is
discussed below.

3.

THE SCHEME OF THE ECMR

3.1

PRELIMINARY ISSUES

Concept of a Concentration

The provisions of the ECMR are applicable to concentrations. According to the


provision, a concentration is deemed to arise where upon the merger of two or more

14
15

Europemballage and Continental Can v. Commission Case 6/72 [1973] ECR 215: CMLR 199.
para. 26.

independent undertakings. 16 This in effect incorporates mergers into its definition of a


concentration. A concentration is, however, not limited to mergers between independent
undertakings. It extends to the acquisitions falling short of mergers, which have the effect
of transferring direct or indirect control of an undertaking to a person or persons who
already have control of another undertaking. Acquisition may take the form of, but is not
limited to, the purchase of securities or shares, and contracts.17 In line with this broad
definition, full function joint ventures 18 are also classified as concentrations.

Control

Evidently, the definition of a concentration hinges largely on the issue of control. Article
3 (1) (b) provides as follows:
For the purposes of this Regulation, control shall be constituted by rights, contracts or
any other means which, either separately or in combination and having regard to the
considerations of fact or law involved, confer the possibility of exercising decisive
influence on an undertaking, in particular by:
(a) ownership or the right to use all or part of the assets of an undertaking;
(b) rights or contracts which confer decisive influence on the composition, voting or
decisions of the organs of an undertaking.
Control therefore arises where an undertaking attains decisive influence over another.
Decisive influence may be manifested in factors such as the acquisition of property
rights, shareholders agreements and economic dependence. 19 Control may be solely or
jointly held. Sole control is usually achieved on attainment of more than 50% of the
shareholding of the acquired undertaking. Control may however result even where

16

Art 3(1) (a).


para. (b).
18
See on this, Commission Notice on the concept of concentration under Council Regulation (EEC) No
4064/89 on the control of concentrations between undertakings [1998] OJ C66/5, [1998] 4 CMLR 586,
para. 9
19
ibid, para 13
17

shareholding falls below this threshold. An example is where all other shares are widely
dispersed between other shareholders.20
Joint control may arise where 2 or more parties, between themselves hold sufficient
power to exercise decisive influence on an undertaking. This form of control is usually
expressed in the form of veto power and is may exist even where the parties are
minorities. The test for control lies in the existence of the power to control and not
necessarily in its exercise. 21

Jurisdiction-Community Dimension and the One Stop Shop


Given the limited staffing of the office of the DG IV, the administrators of the ECMR,
the Regulation is limited in application to mergers with a community dimension. A
concentration is said to have a community dimension where:
a) the combined aggregate worldwide turnover of the undertakings concerned is
more than ECU 5,000 million; and
b) the aggregate Community-wide turnover of at least two of the undertakings
concerned is more than ECU 250 million, unless each of the undertakings
concerned achieves more than two thirds of its aggregate Community-wide
turnover within one and the same Member State.22
In addition to the above thresholds concentrations have a community dimension where
the combined aggregate turnover is more than ECU 2500 million worldwide and 100
million in each of at least three member states. The aggregate turnover of at least two of
the undertakings in each of the three states must be more than ECU 25 million. Finally,
the aggregate Community-wide turnover of each of at least two of the undertakings
concerned must be more than 100 million. These thresholds are however irrelevant where

20

Jones, A., and Suffrin, B., supra note 3, p. 719.


Commission Notice on the concept of concentration under Council Regulation (EEC) No 4064/89 on the
control of concentrations between undertakings, supra note 18, paras. 21-24
22
Art. 1 (2).
21

each of the concerned undertakings achieves more than two-thirds of its aggregate
turnover within one and the same member state.23
Mergers that fail to meet the above thresholds fall under the jurisdiction of the national
authorities. There is no concurrent jurisdiction between the Commission and national
authorities. This is in line with the one stop shop principle. This is to the effect that all
mergers fall under the jurisdiction of the Commission or both. There are two exceptions
to the one stop shop principle. The first is the Dutch clause24, which is to the effect that
a national competition authority may refer a merger within its jurisdiction to the
Commission. The second exception is found in the German Clause which is to the
effect that the Commission may, on the request of a national competition authority, refer
a merger with a community wise dimension to that authority where the merger is likely to
impede competition in a distinct geographical market. 25

Enforcement

The Regulation provides that concentrations sha ll be notified to the Commission not
more than one week after the conclusion of the agreement. The responsibility for
notification lies in the parties to the agreement in the case of a merger, or the parties
acquiring joint control in the case of an acquisition. Where the concentration involves an
acquisition of sole control the acquirer is responsible for notification. 26 A concentration
does not come into effect until the Commission in response to a notification declares it
compatible with the common market. 27
Where the Commission receives a notification, its initial action is to examine the
concentration with regard to the applicability of the Regulation28 . A decision on this
assessment is to be delivered within one month of the notification29 . Where the

23

Art. 1 (3).
Art. 22 (3).
25
Art. 9 (2)
26
Art. 4.
27
Art. 7.
28
Art 6 (1) (a).
29
Art 10 (1).
24

Regulation is found to be inapplicable no further action is required on the part of the


Commission.
Upon a finding of applicability, the Commission has recourse to three options. Firstly it
may declare the concentration to be compatible with the aims of the co mmon market.
Secondly it may declare the concentration compatible subject to some conditions 30 with
the result that the period for assessment is extended for a further six months. Thirdly, the
Commission may express serious doubts as to the compatibility of the concentration with
the result that a phase two investigation is launched. 31
Upon the initiation of a phase two investigation and after representation from all
concerned parties, the Commission may declare the concentration compatible either
absolutely or conditionally. It may also declare the concentration incompatible. 32
3.2

APPRAISAL OF CONCENTRATIONS

The Regulation provides for the appraisal of concentrations in Article 2 as follows:


1. Concentrations within the scope of this Regulation shall be appraised in accordance
with the following provisions with a view to establishing whether or not they are
compatible with the common market. In making this appraisal, the Commission shall take
into account:
(a) the need to maintain and develop effective competition within the common market
in view of, among other things, the structure of all the markets concerned and the
actual or potential competition from undertakings located either within or
outwith the Community;
(b) the market position of the undertakings concerned and their economic and
financial power, the alternatives available to suppliers and users, their access to
supplies or markets, any legal or other barriers to entry, supply and demand
trends for the relevant goods and services, the interests of the intermediate and
30

Art. 6 (1) (b).


Art. 6 (1) (c).
32
Art. 8.
31

ultimate consumers, and the development of technical and economic progress


provided that it is to consumers' advantage and does not form an obstacle to
competition.
2. A concentration which does not create or strengthen a dominant position as a result of
which effective competition would be significantly impeded in the common market or in a
substantial part of it shall be declared compatible with the common market.
3. A concentration which creates or strengthens a dominant position as a result of which
effective competition would be significantly impeded in the common market or in a
substantial part of it shall be declared incompatible with the common market.
The above provisions reaffirm the policy thrust of the Merger Regulation, which is to
promote competition and consumer welfare within the common market. It therefore
prescribes conditions precedent for a declaration of compatibility with the common
market. For a concentration to be so declared, it must be not create or strengthen a
dominant position with the effect that competition within the common market is impeded
significantly. There are therefore two limbs of compatibility

the creation or strengthening of a dominant position; and

the significant impediment to competition within the common market as a result


of the dominant position.

The European Court of Justice has defined a dominant position as,


The position of economic strength enjoyed by an undertaking enabling it . . . to behave
to an appreciable extent independently of its competitors and customers and ultimately of
its consumers. 33
In determining the existence or otherwise of a dominant position, the first step is market
delimitation. This involves the process of defining the relevant market. This is a
fundamental process as dominance hinges largely on this definition. A relevant market
33

United Brands Co and United Brands Continental BV v Commission Case 27/76 [1978] ECR 207: 1
CMLR 429; see also, Hoffman-La Roche Case 85/76 [1979] ECR 461; 3 CMLR 211.

admits of the following dimensions- the product market, the geographical market and the
temporal market.
The relevant product market comprises all the products and/or services which are
regarded as interchangeable or substitutable by the consumer, by reason of the products
characteristics, their prices and their intended use. 34 A number of factors are used to
determine the relevant product market. These include an examination of the physical
characteristics of the products, evidence of past practices and substitutability on the
demand 35 and supply 36 side. The Small but Significant Non-Transitory Increase in Price
(SSNIP) test has also been developed to determine the product market by measuring the
reaction of consumers to a slight increase in price.
A number of factors are considered in the determination of the relevant geographical
market. A preliminary considerations include the the distribution of market shares as well
as pricing and pricing differences at national and Community or EEC level. 37 The reasons
behind the pricing structure are explored at the next stage of determination38 . Finally, an
examination of supply factors such as conditions of access to distribution channels and
regulatory bar riers is carried out.39
The temporal market is applicable to those goods and services where demand and supply
are experience seasonal fluctuation. Examples of this market include gas and electricity
where demand and supply fluctuates through the seasons.
Upon the delimitation of the market, a number of criteria are employed to determine
whether a dominant position has been created or strengthened. Market share is the major
determinant of the existence of a dominant position. 40 A very high market share will

34

Commission Notice on the definition of the relevant market for the purposes of Community competition
law [1997] OJ l7/13.
35
ibid, paras. 15-19.
36
See Continental Can, supra note.14.
37
Commission Notice on the definition of the relevant market for the purposes of Community competition
law, supra note 34, para. 28.
38
Para. 29
39
Para 30.
40
See Hoffman/La Roche, supra note 33.

almost certainly lead to a presumption of dominance. In AKZO41 an undertaking holding


a market share of 50% was held by the ECJ to be in a dominant position.
Market power is, however, not the sole determinant of a dominant position. The situation
of other competitors is also crucial. The Commission in Tetra Pak/Alfa Laval captured
this principle aptly as follows:
A market share as high as 90 per cent is in itself a very strong indicator of the existence
of a dominant position. However, in certain rare circumstances even such a market share
may not result in dominance. In particular, if sufficient active competitors are present on
the market, the company may be prevented from acting to an appreciable extent
independently of the pressure typical of a competitive market.42
Potential competition constitutes yet another factor to the determination of dominance.
Thus where the barriers to entry are so minimal that players outside the market can enter
with sufficient ease, a finding of dominance becomes less likely. Barriers to entry take a
number of forms. These include legal or statutory barriers, 43 superior technology and
efficiency, 44 vertical integration, 45 economies of scale, 46 access to financial resources and
advertising costs 47to mention a few.
From the above therefore, it is obvious that the provisions of the ECMR are clear with
regard to the prohibition of the creation and strengthening of a dominant position. This
analysis has so far only been limited to instances where the concentration results in single
dominanc e. The next chapter examines the application of the Regulation to the concept of
collective dominance.

41

.AKZO v Commission [1991] ECR 1-3359


OJ L 290.
43
British Midland-Aer Lingus [1992] OJ L/96/34, [1993] 4 CMLR 596.
44
United Brands, supra note.33.
45
ibid.
46
ibid
47
Nestle/Perrier [1992] OJ L356/1, [1993] 4 CMLR M 17.
42

4.

COLLECTIVE DOMINANCE AND THE ECMR

4.1

OLIGOPOLISTIC MARKETS, COLLECTIVE DOMINANCE AND EC


COMPETITION LAW- AN OVERVIEW

Competition law has always sought to prevent dominance or its effects. Along this line
much emphasis has been placed on the existence or effects of a dominant position held by
a single undertaking. The purposes of competition policy may, however, also be defeated
by collective dominance. This arises where two or more undertakings are linked in such a
manner as to hold a dominant position in the market. This is usually the case in
oligopolistic markets. These markets are characterised by a small number of players, low
barriers to entry and fairly homogenous products. These qualities give rise to high market
transparency. 48
Needless to say, oligopolistic markets present a considerable challenge for competition
regulation. The nature of the market gives rise to a high level of predictability of the
actions of the various players. This may in turn allow each market player to adapt his
strategy to that of the other players. Such parallel conduct unwittingly reduces the
incentive to compete on price. This has the effect of constraining competition in the same
manner as a monopoly or near monopoly situation.
In its bid to tackle the problem posed by oligopolistic markets, the Commission has had a
resort to the provision of Articles 81 and 82. Article 81 prohibits agreements or concerted
practices between or among undertakings, which prevent, restrict or distort competition.
On paper this would appear to be a potent weapon against anti-competitive oligopolistic
practices. In practice it has proved rather difficult to apply Article 81 to oligopolistic
markets. Undertakings are not exactly in the habit of entering into ascertainable
agreements to thwart competition. Again, difficulties arise in the application of the
concerted practices principle to oligopolistic practices. This is because the test of parallel

48

See generally, Lane, R., supra note 6, p. 244.

conduct required to prove a concerted practice is hardly applicable to oligopolies as such


conduct must be the exclusive result of collusion. 49
Article 82 appears better suited to deal with the issue of oligopolistic practices. Its
provisions prohibiting the abuse of a dominant position apply to one or more
undertakings hence, the concept of collective dominance. 50 The locus classicus for the
application of Article 82 to collective dominance is the Commission decision in Flat
Glass.51 In that case the Commission found, three producers of flat glass guilty of cartel
behaviour under Article 81. it also held that the concerned undertakings were liable under
Article 82 by virtue of their holding a collective dominance. Upon review of the decision,
the CFI in annulling that part of the decision nevertheless stated thus:
There is nothing, in principle, to prevent two or more independent economic operators
from being, on a specific market, united by such economic links that, by virtue of that
fact, together they hold a dominant position vis--vis the other operators on the same
market.52
Thus the test of collective dominance laid down in the decision is that of economic links
between the undertakings. The obvious question arising is- what constitutes economic
links for the purpose of ascertaining the existence of collective dominance. The
Commission in a number of decisions has held membership of ship owners committees
regulating certain aspects of cargo trade as an example of such links. 53 Evidence of
economic links was also discerned from the existence of vertical ties in the case of Irish
Sugar54 where the CFI laid down what, perhaps constitutes the established law on the
issue. According to the Court the test for economic links is actually two folds. Firstly,

49

ICI v Commission (Dyestuffs) Case 48/69 [1972] ECR 619.


See however, Hoffmann-La Roche v Commission [1979] ECR 461 at 520 where the ECJ appeared to
suggest that Article 82 was inapplicable to oligopolistic practices by virtue its definition of dominance as a
function independence from the influence of market forces; see also, Lane, R supra note 6, p. 249.
51
Decision 89/23 OJ [1989] L33/44
52
Societa Italiano Vetro v Commission Cases T-68, 77 & 78/79 [1992] ECR II-1403 at 1548
53
CEWAL [1993] OJ L34/20, [1995] 5 CMLR 198; French-West African Shipowners Committees [1992]
OJ L134/1, [1993] 5 CMLR 446; Trans-Atlantic Conference Agreement [1999] OJ 95/6.
54
Irish Sugar v Commission Case T-228/97 [1999] ECR II-2969.
50

there must be close links between the entities and secondly, those links must be such as to
lead the parties to adopt the same conduct and policy in the market. 55
5.

THE POSITION UNDER THE ECMR

Under the Regulation the first issue that arises with respect to the concept of collective
dominance borders on applicability. Article 2 (3) which prohibits the creation or
strengthening of a dominant position, appears prima facie, from its use of the words, a
concentration to suggest that the Regulation app lies to single and not collective
dominance. 56 Based on this it has been suggested that if the Regulation had been intended
to apply to collective dominance it would have had similar wording to the corresponding
position in Article 82. 57 It is, however the submission of this paper that policy
considerations behind the enactment of the Regulation showed a clear intent to prevent
the creation and strengthening of all forms of dominance. The exclusion of collective
dominance would therefore serve to defeat the purpose of promoting competition, as it is
potentially as detrimental as single dominance. Moreover, German merger law, which has
exerted a strong influence on the development of the Regulation, has in place clear
provisions for collective dominance. 58
The argument for the application of the Regulation to collective dominance has found
support in the decisions of the Commission. The Commission first raised the issue of
collective dominance with respect to a merger in Alcatel/AEG-KABEL. 59 It was not,
however, until Nestle/Perrier, 60 a decision on the French mineral bottled water market,
that the doctrine was utilised successfully to block a merger. The facts are that Nestle
sought to acquire Perrier, an acquisition that would have increased their market share to
60%. The market also consisted of BSN with 22% of the market and a host of other

55

at 2993.
See Motta, M., EC Merger Policy and the Airtours Case [2000] E.C.L.R. 199-207 at 203; Recent
Airtours / First Choice Eu Merger Decision, available at
http://www.mwe.com/index.cfm/fuseaction/publications.nldetail/object_id/2C230D4E-E013-4A37-97974A6E83568DD7.cfm (last visited 20 May 2004)
57
ibid
58
S 19 II (2) and 35 GWB; see also Lane R., supra note 6, p. 268.
59
Case IV/M165 [1992] OJ C6/23:4 CMLR 73.
60
supra note 47.
56

smaller companies with less access to the source of the product. In order not to create a
dominant position Nestle sought to give up its Volvic brand to BSN. The Commission in
its decision found the arrangement to be in breach of the Regulation on the basis that the
transparency of the market and interdependency of the players would result in a
collectively dominant position. 61 The solution adopted was a divestiture of the Volvic
brand, but not to BSN.62 The application of the concept of collective dominance to the
Regulation was acknowledged by the ECJ in France v Commission 63 despite the
annulment of the Commissions decision on the facts. The Court in its judgement stated
thus:
the applicants submission, to the effect that the choice of legal bases in itself
militates in favour of the argument that the Regulation does not apply to collective
dominant positions cannot be acceptedArticles [84] and [308] can be used as the legal
bases of a regulation permitting preventive action with respect to concentrations which
create or strengthen a dominant position liable to have a significant effect on
competition.64
The next relevant issue with regard to the application of the collective dominance is
expressed in the question- what is the test for ascertaining collective dominance? The
ECJ in France v Commission 65 provided a high standard of proof for the ascertainment of
collective dominance by insisting on the existence of definite links between the parties.
According to the Court,
Effective competition in the relevant market is significantly impeded by the undertakings
involved in the concentration and one or more other undertakings which together, in
particular because of correlative factors which exist between them, are able to adopt a

61

para 120-123.
See also Decision 91/619 (Aerospatiale-Alenia/De Havilland) OJ 1991 L334/42.
63
Cases C68/94 and 30/95 [1998] 4 CMLR 829.
64
para 165.
65
ibid.
62

common policy on the market and act to a considerable extent independently of their
competitors, their customers, and also of consumers. 66 (Emphasis mine)
The above is a restatement of the position in Irish Sugar 67 with respect to the existence of
some form of economic links. The CFI however took a radically different stand in the
case of Gencor Limited v Commission. 68 In that case involving the platinum group metal
market, Gencor, a South African company, entered into a merger agreement with Lornho,
a UK company. The Commission prohibited the merger on the grounds that the merger
would result in the creation of a collective dominant position with the other major player
in the market, Amplats, a subsidiary of Anglo -American South Limited. On appeal it was
submitted, relying on Flat Glass and France v Commission, that collective dominance
was not proved, as the companies had no economic links with Anglo- American.
Rejecting this contention, the Court stated as follows,
there is no reason whatsoever in legal or economic terms to exclude from the notion
of economic links the relationship of interdependence existing between the parties to a
tight oligopoly within which, in a market with the appropriate characteristics, in
particular in terms of market concentration, transparency and product homogeneity,
those parties are in a position to anticipate one anothers behaviour and are therefore
strongly encouraged to align their conduct in the market, in particular in such a way as
to maximise their joint profits by restricting production with a view to increasing prices.
In such a context, each trader is aware that highly competitive action on its part designed
to increase its market share (for example) a price cut would provoke identical action by
the others so that it would derive no benefit from its initiative. All the traders would thus
be affected by the reduction in price levels. 69
The Court went on to add that there was a likelihood that the transaction would in future
lead to the creation of a collective dominant position. 70

66

ibid
supra note 54.
68
Case T-102/96, [1999] ECR II-753, [1999] 4 CMLR 971
69
para 276.
70
para 279.
67

It has been contended 71 that the decision in Gencor represents a correct interpretation of
the Regulation with regard to the test of collective dominance. This paper disagrees with
this contention on the ground that the structural test proposed by the Court is
misconceived as it places the burden of proof on the undertakings to prove the absence of
collective dominance. This is against the rules of natural law to the effect that a party
alleging a wrong is entitled to furnish proof Moreover, the prohibition of a merger on the
ground that it may lead to a position of collective dominance with a previously
unconnected party in the future is plagued with uncertainty as to what constitutes the
future.
The most recent decision on the issue of the criteria for proving collective dominance
under the Regulation is Airtours v Commission. 72 The facts are that Airtours, the second
largest tours and travelling company sought to acquire First Choice, the fo urth largest, an
acquisition which would have given the top three companies (Airtours, Thompson and
Thomas Cook) 79% of the market. The Commission in prohibiting the merger, held,
relying on Gencor, that the merger would have created a position of collective dominance
amongst the three operators. In annulling the decision of the Commission, the CFI laid
down a new evidentiary standard for the appraisal of collective dominance with respect to
mergers. According to the Court, the transaction must have a direct and immediate
impact on with the result that the merging parties and their competitors adopt a common
policy, which is detrimental to competition. In this vein therefore, three factors must be
satisfied for a merger to be prohibited on the ground of collective dominance:

sufficient market transparency to enable the each player interpret the business
strategies of the other players and to be able to adapt their its own strategies
accordingly;

clear retaliatory measures to be directed against a player that deviates from the
common policy; and that

foreseeable reaction from present and potential competitors as well as consumers


would not endanger expected results from the common policy.

71
72

Jones, A., and Suffrin, B., supra note 3.


Case T-342/99

It is submitted that the above decision, which is on all fours with US Antitrust law73 ,
represents the correct position of the law as it rightly places the burden of proof of
collective squarely on the shoulders of the Commission. Again it eliminates uncertainty
raised by Gencor as to future oligopolistic conduct by its provisio n for an immediate and
direct effect. Finally it establishes a clear evidentiary trail for the determination of
collective dominance.

6.

CONCLUSION

From the above analysis the paper reaches the following conclusions with regard to the
applicability of the concept of collective dominance within ECMR

The reference to a single undertaking in Article 2 (3) notwithstanding, the concept


of collective dominance is applicable to merger regulation in the European
Community. This can be discerned from the policy objectives behind the
enactment of the regulation and the decisions of the Commission, the CFI and the
ECJ on the issue.

The position in Gencor, with its reference to structural links between parties to a
merger and their as the sole determinant of a collect ive dominant position is
flawed as it gives places the evidentiary burden of proof on the undertaking rather
tan the Commission. This is against the principles of fair hearing to the effect that
he who alleges must prove. The principle laid down in the decision is also
ambiguous with regard to its definition of future links.

Airtours v Commission reflects the correct application of the concept of collective


dominance to EC merger regulation. This is due to its provision for a direct and
immediate effect as it removes the ambiguity reflected in the Gencor test of future
effect. Again the approach in Airtours rightly pushes the burden of proof back to
the Commission in line with principles of fair hearing. By laying down a clear
evidentiary roadmap it makes for more certainty in the application collective

73

Motta, M., supra note 56.

dominance. Finally it represents an alignment with current international trends


particularly in the United States.

BIBLIOGRAPHY

PRIMARY SOURCES
Treaties
European Community Treaty, 1957 (as amended by the Treaty of Amsterdam, 1 May
1999).
Statutes
European Community Merger Control Regulation-Council Regulation (EEC) 4064/89
Gesetz gegen Wettbewerbsbeschrankungen (German Act Against Restraints of
Competition) of 1973 (as amended by the Sixth Amendment Act of 1999)
Subsidiary Legislation and Notices
Commission Notice on the concept of concentration under Council Regulation (EEC)
No 4064/89 on the control of concentration between undertakings [1998] OJ C66/5.
Commission Notice on the Definition of the Relevant Market for the Purposes of
Community Competition Law [1997] OJ l7/13
Notice on Market Definition [1997] OJ C372/5.
Cases
Airtours v Commission Case T-342/99.
Aerospatiale-Alenia/De Havilland (Decision 91/619) OJ 1991 L334/42.
AKZO v Commission [1991] ECR 1-3359
Alcatel/AEG-KABEL Case IV/M165 [1992] OJ C6/23:4 CMLR 73
BAT and Reynolds v Commission and Phillip Morris Cases 142 and 156/84 [1987]
ECR 4487: [1988] 4 CMLR 24.
British Midland-Aer Lingus [1992] OJ L/96/34, [1993] 4 CMLR 596.
CEWAL [1993] OJ L34/20; [1995] 5 CMLR 198
Europemballage and Continental Can v. Commission Case 6/72 [1973] ECR 215:
CMLR 199.

Flat Glass Decision 89/23 OJ [1989] L33/44.


France v Commission Cases C68/94 and 30/95 [1998] 4 CMLR 829.
French-West African Shipowners Committees [1992] OJ L134/1, [1993] 5 CMLR
446.
Gencor Limited v Commission Case T-102/96, [1999] ECR II-753, [1999] 4 CMLR
971.
Hoffman-La Roche Case 85/76 [1979] ECR 461; 3 CMLR 211.
Hoffmann-La Roche v Commission [1979] ECR 461.
ICI v Commission (Dyestuffs) Case 48/69 [1972] ECR 619.
Irish Sugar v Commission Case T-228/97 [1999] ECR II-2969.
Nestle/Perrier [1992] OJ L356/1, [1993] 4 CMLR M 17.
Societa Italiano Vetro v Commission Cases T-68, 77 & 78/79 [1992] ECR II-1403 at
1548.
Tetra Pak/Alfa Laval OJ L 290.
Trans-Atlantic Conference Agreement [1999] OJ 95/6.
United Brands Co and United Brands Continental BV v Commission Case 27/76
[1978] ECR 207;1 CMLR 429.

SECONDARY SOURCES
Books
Faull, J., and Nikpay, A., EC Law of Competition, (Oxford: Oxford University
Press,1999).
Goyder, D. G., EC Competition Law 384 (Oxford: Oxford University,1998)
Jacquemin A. P. and de Jong, H. W. European Industrial Organisation (London:
Macmillan Press, 1977)
Jones, A., and Sufrin, B: EC Competition Law Text, Cases and Materials (Oxford:
Oxford University Press, 2001).
Korah, V., An Introductory Guide to EC Competition Law and Practice (Oxford &
Portland: Hart Publishing, 1997).
Lane, E., EC Competition Law (Harlow: Pearson Educational Limited, 2000)
Whish, R., Competition Law (London: Butterworths, 2001).

Articles
Motta, M., EC Merger Policy and the Airtours Case [2000] E.C.L.R. 199-207.
Ridyard, D., Economic analysis of single firm and oligopolistic dominance under the
European Merger Regulation. (1994) E. C. L. R., 255-262.
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/First
Choice
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Merger
Decision,
available
at
http://www.mwe.com/index.cfm/fuseaction/publications.nldetail/object_id/2C230D4
E-E013-4A37-9797-4A6E83568DD7.cfm (last visited 2 May 2004)