Oxera welcomes the European Commission’s initiative to provide formal guidelines in the area of exclusionary abuse under Article 102. We agree with the stated objectives to enhance legal predictability and to provide a workable effects-based approach to enforcement. In our response, we highlight a number of areas where the guidelines could be improved by using well-established economic principles to provide clearer guidance for dominant firms, national authorities, and courts, and to improve the quality and effectiveness of enforcement.

Our response highlights four main areas where the Draft Guidelines should be improved.

1. The Draft Guidelines do not focus on the likely effects of exclusionary conduct on consumer welfare. Neither the proposed legal framework nor the specific legal tests set out in the Draft Guidelines require the articulation of a clear theory of (consumer) harm. This is not in line with a sound effects-based approach to enforcement. More generally, the Draft Guidelines place only limited reliance on economic principles for the identification of conduct potentially leading to the anticompetitive exclusion of rivals.
2. The proposed legal framework is unduly open-ended. It relies on a relatively loose definition of what constitutes departures from ‘competition on the merits’ coupled with a low bar for establishing exclusionary effects. The Draft Guidelines also do not provide sufficient safe harbours for dominant firms (e.g. for above-cost pricing). As a result, the framework put forward in the Draft Guidelines implies an unduly high degree of discretion for a finding of infringement. This runs contrary to the stated aim to provide legal certainty and risks chilling incentives to engage in procompetitive conduct.
3. The Draft Guidelines do not engage sufficiently with the As-Efficient Competitor (AEC) principle. The AEC principle, and related AEC test, have been prominent in the recent case law on Article 102, and in the Commission’s 2009 Guidance Paper on enforcement priorities. The Draft Guidelines do not set out sufficiently clearly the circumstances where the principle applies, and the possible exceptions to the principle (for both price- and non-price conduct). This risks adding to legal uncertainty, in light of the important role played by this principle in the jurisprudence. In the area of pricing conduct, a departure from the AEC principle and test would be inconsistent with well-established economic principles and would not support sound enforcement.
4. The presumptions introduced in the Draft Guidelines are unduly restrictive. The proposed presumptions of exclusionary effects do not require an assessment of the appreciability of coverage and duration of the practice, and as such may capture conduct unlikely to result in competitive harm. The Draft Guidelines also put forward a presumption of exclusionary effects for certain forms of tying which is not sufficiently well defined, and risks reducing incentives for product innovation.

Our recommendations

We make a number of specific recommendations in our response. The spirit of these recommendations is to improve the Draft Guidelines to support the articulation of a genuine—and yet workable—effects-based approach, building on the lessons learnt since the publication of the 2009 Guidance Paper on enforcement priorities and the principles identified in recent jurisprudence.
There are three core elements of our recommendations.

1. We recommend that the Draft Guidelines fully embed the concept of consumer harm as a guiding standard. A departure from competition on the merits should be defined as conduct that is likely to ultimately harm consumers through the exclusion of rivals. The articulation of an explicit theory of harm should be a requirement of the legal framework set out in the Draft Guidelines, enabling a focus on anticompetitive exclusionary effects in line with the Guidance Paper and with recent case law. This approach should apply also to conduct subject to a presumption of anticompetitive exclusionary effects.
2. We recommend giving more prominence to the AEC principle and test, in line with recent jurisprudence and sound economics. The AEC test should be clarified as generally necessary and sufficient for showing a departure from competition on the merits in the case of pricing conduct (defined to include predatory pricing, margin squeeze, and rebates not based on exclusivity). This would establish a safe harbour for pricing above cost, and avoid the risk of deterring procompetitive pricing conduct. For non-price conduct (defined to include exclusivity rebates), the Draft Guidelines should clarify the relevance of the AEC principle, carefully explain the circumstances where the principle may not apply, and set out how the Commission will handle evidence of replicability by an as-efficient competitor if submitted by a dominant firm in the process of rebuttal. This would ensure consistency with economic principles and recent case law, and enhance predictability.
3. The assessment of capability of producing exclusionary effects should be subject to an appreciability standard for coverage and duration. In order to properly detect anticompetitive exclusionary conduct, the capability analysis should focus on conduct with appreciable market coverage and duration. These requirements should also apply to conducts subject to a presumption of exclusionary effects.
   

We believe that taking on board these recommendations would enable the Draft Guidelines both to achieve greater legal predictability and to adopt an effective framework for enforcement, in line with the Commission’s stated objectives. The integration of sound economic principles can help make the evaluation of abusive conduct more coherent, targeted, and effective. There does not need to be a trade-off between workability and the adoption of a genuine effects-based approach to Article 102 enforcement.