Competition law rests on three pillars:
- Prohibition of cartels;
- Abuse of a dominant position;
- Merger control.
Each of these three pillars will be addressed below.
1. Prohibition of cartels
Article 101 of the Treaty on the functioning of the European Union ("TFEU") and, in the Netherlands, Article 6 of the Dutch Competition Act [Mededingingswet, or "DCA" for short] prohibit 'cartels'. In summary, the prohibition concerns agreements or concerted practices between companies or associations of companies ('cartels') which - noticeably - restrict, prevent or distort competition. For the prohibition to be applicable, the agreements or practices must be between 'companies'. Case law has provided a broad interpretation of 'company', which term encompasses any entity that is engaged in an economic activity.
What constitutes - noticeable - restriction, prevention or distortion of competition? Companies agreeing to fix prices, sharing markets or customers or limiting or controlling production may be considered to form a cartel. The idea underlying competition law is that companies determine their market strategies independently, without relying or being dependent on other companies.
The prohibition against cartels primarily concerns anti-competitive agreements between competing companies. Vertical agreements may also fall within the scope of the prohibition, provided they restrict or distort competition. Vertical agreements are agreements between parties at different levels of a supply chain. Examples include resale price maintenance (dictating that distributors sell the manufacturer's product at a certain price) and market division or market allocation (forbidding distributors from competing in a certain geographic area or from selling to a group of specified customers).
Anyone found violating the prohibition against cartels will find their agreements declared null and void by operation of law from the moment they were in breach of competition law. These agreements will then be deemed never to have existed.
Exceptions and exemptions
There are cases where cartel agreements fall outside the scope of the prohibition. For example, the prohibition does not apply (subject to conditions) to agreements between a limited number of small companies or the parties' combined market share does not exceed a certain threshold. In addition, anti-competitive agreements may, under circumstances, be exempt from the prohibition if they create sufficient benefits (known as efficiency gains) to outweigh their restrictive effects.
Lastly, the European Commission has granted block exemptions specifying the conditions under which certain types of agreements are exemption from the prohibition against restrictive agreements. There are block exemptions for horizontal and vertical agreements. Horizontal block exemptions include certain R&D agreements and specialisation agreements between competitors. Vertical block exemptions include selective and exclusive distribution agreements and price parity clauses agreed between suppliers and distributors.
2. Abuse of a dominant position
Companies are prohibited from abusing a dominant market position. This has been laid down in Article 102 TFEU and, in the Netherlands, in Article 24 DCA. As with the prohibition against cartels, the prohibition against the abuse of a dominant position is aimed at preserving market competition.
An company in a dominant position has the ability to engage in market activity largely independently from its competitors, suppliers or distributors. Holding a dominant position is not in itself at odds with competition law. However, when an company abuses its dominant position is when it becomes illegal.
There are several types of abuse, which can be roughly classified into two main categories: exclusionary abuse and exploitative abuse. Examples are given below.
Exclusionary abuse
Predation or predatory pricing: Competition law allows companies to sell at a loss. However, companies in dominant positions are not allowed to use predatory pricing - selling goods or services below cost price and absorbing the loss - for the deliberate purpose of keeping or forcing potential, actual or new competitors out of the market.
Loyalty rebates: Another form of abuse of a dominant position is when an company offers customers price reductions and volume discounts to avoid those customers leaving you for equally efficient competitors entering or expanding into the market.
Refusal to supply: If an company holding a dominant position refuses to supply certain products or services to a potential downstream competitor and this refusal has anti-competitive effects, because it makes it impossible for the competitor to bring its end product to market, this practice would be considered abusive. This applies likewise to the refusal to issue licensing rights.
Tying: Tying, or tying and bundling, may be considered abusive if the sale of one product is tied to the sale of another product in defiance of the fact that there is no objective justification for this practice.
Exclusive dealing: Where an company requires distributors to purchase exclusively goods supplied by the company, the latter may abuse its dominant market position by excluding alternative suppliers.
Exploitative abuse
Excessive pricing: Charging excessive prices, for certain medicinal products, for example, may be considered abuse if the price has no reasonable relation to economic value of the product.
Unfair or discriminatory contract terms: Applying unfair or discriminatory contract terms, such as terms relating to the access to a platform for app manufacturers, may be deemed exploitative abuse.
Discriminatory pricing: Subject to circumstances, applying different prices to equal market parties may also constitute abuse.
3. Merger control
Companies entering into a merger may gain a market position of such dominance as to significantly impede effective competition. A merger, or - as it is also known - concentration, must be notified to the Authority for Consumers and Markets if the combined turnover of the companies concerned exceeds a certain threshold. The Authority for Consumers and Markets then examines whether the proposed concentration poses a risk to competition in the market.
The scope of application of merger supervision has been laid down in Article 29 et seq. DCA. In summary, there are three types of concentrations:
- The merger of two or more previously independent companies
- The acquisition of direct or indirect control by one or more companies of the whole or parts of one or more other companies
- The establishment of a joint venture that performs, on a lasting basis, all the functions of an autonomous economic entity
A concentration must be notified only if the combined turnover of the companies concerned in the calendar year prior to the concentration exceeded EUR 150 million and of this turnover, at least two companies concerned each earned at least EUR 30 million in the Netherlands.
What if the companies concerned are very large? In that case, the concentration may have a Community dimension and it must be notified to the European Commission.
It is important to note that a notifiable concentration may not be implemented before a supervisory authority has given its consent or a certain period of time has expired. This is also known as the standstill period. If companies implement prior to a competition authority decision, this is called ‘gun-jumping’.