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Freedom in the Bullfight: European and American Perspectives on Competition Law

Christian Delev


“In bull-fighting they speak of the terrain of the bull and the terrain of the bull-fighter. As long as a bull-fighter stays in his own terrain he is comparatively safe. Each time he enters into the terrain of the bull he is in great danger.”


E. Hemingway, The Sun Also Rises


Introduction

The purpose and property of competition law, while questioned by some, remains twofold: to augment welfare and to maintain economic freedom.[1] While all competition law systems thus seek to achieve certain chief goals, they vastly differ in their respective tactics and approaches.[2] This rift in perspectives may indeed be seen most clearly when one compares the theoretical and practical differences that exist between the characteristically republican view of freedom expounded by European Union competition law[3] and the Hayekian view expressed in American antitrust law, particularly with reference to the 1890 Sherman Act.[4]


While the continental tradition is shaped by the axiom that a ‘prosperous, free, and equitable society’ requires ‘a competitive economic system’ that is ‘imbedded in a “constitutional” framework’,[5] the antithetical notion pervades in America: that competition law must not be chiefly grounded in ‘economic efficiency’, but rather, primarily on the political notion of a non-intrusive State and enhanced relations between consumers and producers.[6] These core differences of ideal thus give rise to the bifurcation of approaches to substantive competition law, its interpretation, application and enforcement.


This comparative analysis seeks to engage in the discussion over European and American competition law policies, focusing on how divergent interpretations of freedom impact on the law, its interpretation and application. While restricting its scope to the approaches taken to confront abuses of dominant position, this will contribute to the larger comparativist discussion on freedom and competition law, thus providing insights into future policy developments and market perspectives.


Two Conceptions of Freedom

It is a common and classic notion that the fabrics of society are twined to provide for a ‘perfect freedom’.[7] All measures of difficulty arise when we try to define it. The first great plunge in our understanding of freedom was advanced by Isaiah Berlin through the establishment of the ‘positive’ and ‘negative’ concepts of liberty, where the former involves the presence of guarantees for freedom, while the latter maintains the omission of barriers to freedom.[8] This simplistic theoretical division has thus been developed upon by two modern successors to the classic liberal concept of negative freedom, namely republicanism and the Hayekian reading.


Drawing and yet distinguishing itself from Berlin’s negative liberty, the republican notion of freedom is founded upon the assumption that freedom maintains the need for being in possession of one’s own ‘liberty’ as opposed to ‘slavery’ and arbitrary interference.[9] This approach is thus similar to negative freedom in its shared belief that individuals must be free from any barriers to their individual choices. However, the approach also extends further by requiring certain constitutional guarantees and commitments; thus, whether directly or indirectly, such a form of freedom leads to the redistribution wealth and equality within society.[10] In light of economic relations, this may be understood as meaning that the removal of interference, both horizontally and vertically, would serve as a guarantor for maximal welfare and growth under the assumption that this is institutionally and constitutionally maintained.


By contrast to the divergences found between the traditional negative concept of freedom and its republican offshoot, the Hayekian reading poses even greater concerns. While, as Berlin had per se noted, there exists an assumption that ‘liberty’ is antithetical to ‘regulation’,[11] the Hayekian meaning of freedom may be precised as freedom arising from the law.[12] By stipulating that freedom entails independence from another’s ‘arbitrary will’ and that ‘coercion’ must be restricted, he proposes that government intervention, within bounds, must serve as the guarantor of freedom.[13] By contrast to positive definitions of freedom, however, Hayek maintains that government itself must be restricted in its powers by abstract, pliable rules that prescribe limited duties and do not warrant interference with individuals’ freedom.[14]


The Hayekian and republican senses of freedom have warranted deep disagreement among scholars. Given their similar understanding of freedom as independence from arbitrary powers, Dyzenhaus has suggested that the theories both share the ideal that individuals have ‘discretionary liberty’ that must be institutionally or otherwise guaranteed and protected.[15] However, a number of points have been launched that seem to show the wealth of contrast between the two understandings. The Hayekian reading of freedom entails the achievement of economic freedom regardless of the form of governance put in state, which contradicts the sentiments expressed by Pettit, especially given the former’s limited reading of democracy and market intervention.[16] In addition, one may note that the Hayekian view of government may be read as the search for a reduced government, by contrast to the active role sought especially by Pettit’s republicanism. Lastly, the close ties between Hayekian thought and minimal government intervention also leads to a very restrictive form of government intervention in extreme cases of private abuse of dominant position, even in extreme situations contradicts the broader reading of government proposed by republicans.[17]


The republican and Hayekian notions of liberty are critical to shaping an understanding of the groundwork of EU competition law and American antitrust law. Concerning the former, there are many similarities that may be drawn with the republican perspective. As maintained in article 3 TEU, a prime EU competition law objective is the creation of a ‘highly competitive social market economy’ that establishes ‘full employment’ and ‘social progress’.[18] This sentiment ties with the republican vision’s need for the freedom and development of all to be guaranteed. In addition, such a policy objective would remove restraints to both individual and communal freedom, a central norm in republican thinking.[19] Lastly, the notion of freedom as non-domination may be witnessed with respect to the explicit prohibitions found within the EU Treaties, including market distortions such as price fixing,[20] agreements to distort the market,[21] and, as will further be discussed, abuses of dominant position.[22]


American anti-trust law has generally been viewed as consisting of a complex amalgam of economic and political objectives. As Giocoli has claimed, the application of anti-trust law may be traced either according to ‘changes in the economists’ notion of competition’ or following the ‘perennial antagonism’ between ‘preserving competition and warranting the maximum freedom in the exploitation of individual property rights.’[23] Indeed, these two dimensions, the increase of welfare and the exercise of individual freedom arising from the non-domination, seem to tie in with the Hayekian reading. For example, Section 1, Sherman Act stipulates: ‘Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.’ While the phrase ‘in restraint of trade or commerce’ may be read in a literalist manner; however, in Chicago Board of Trade, the Court established the ‘rule of reason’ test, according to which, based on the facts of a case, a court must determine whether ‘the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition.’[24] This interpretation of the law correlates with the Hayekian reading given the ‘oasis case’ and his scepticism towards government intervention when going beyond the rule of law.[25] A similar case will be made with reference to abuses of dominant position in Section 4.


Abuse of Dominant Position in Europe

The prohibition of abuse of dominant position within the common market has been an earmark of EU competition law presently contained in article 102 TFEU.[26] For an ‘abuse of dominant position to be established, four conditions must be met: a dominant position on the market is held by one or more enterprises, this position must be held within the internal market or ‘a substantial part of it, there has been abuse of a dominant position, and this has ‘actual or potential’ effects on inter-Member State trade.[27] While the relevant treaty text has not faced significant alteration from the Rome but has been clarified by the case law of the Court.


In United Brands, the term ‘dominant position’ was defined as: ‘a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by giving it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers.’[28] This definition has in further case law been clarified as extending, inter alia, to monopoly, quasi-monopoly and oligopoly,[29] with a dominant market share not being required so long as the enterprise does not adjust its prices following ‘the pressure of its competitors’ price reductions’.[30] Similar to the standard reading of the Sherman Act, there is no explicit prohibition on enterprises being in possession of dominant position; rather, they are merely what the CJEU has termed ‘special responsibilities’ that dominant enterprises must keep, subject to their relative size of dominance and the ‘special characteristics’ of the market.[31] It becomes clear, thus, that the European approach is well lodged in the liberal ethos of perfect competition being the panacea for restoring and maintaining welfare, choice and, consequently, non-domination.


A salient feature of EU competition law relates in particular to its generally broad application given the non-exhaustive list of practices that fall within its scope.[32] In the Hoffmann case, the CJEU read into the term as broadly meaning ‘behaviour’ which influences the ‘structure of a market’ to decrease existing levels and growth of competition.[33] Among the developments of this concept, a critical consideration are the criteria used to determine whether there is ‘abuse’: as Lorenz has pointed out, while the original Hoffmann formulation focused on ‘market structure’, the definition has now shifted to also incorporate ‘actual harm... for consumer welfare’.[34] This revision is worth highlighting since it encompasses the Chicago School ratio that in competition law, ‘[t]he concern should not be for the well-being of rival producers but for the impact on the price and availability of goods to the ultimate consumer.’[35] In applying both criterions, one may indeed conclude that the assessment of abuse, taking the good of both consumers and producers partly into consideration, is indicative of the implied economic constitution typical of the European approach.[36]


As has been demonstrated, the concept of freedom pervades through the kernel of the prohibition on abuse of dominant position. In attempting to attain perfect competition, consumer choice is perpetuated and free and fair competition maintained. This standard conforms with the republican idea of freedom as non-domination understood broadly. In addition, the ‘special responsibilities’ of dominant position-holders mean that they are prohibited to act in ways that would cause damage to competition or affect consumer welfare too adversely. This ties in with the notion that a republican system must pay particular attention to the guarantee of no direct or indirect, vertical or horizontal domination. Lastly, it is important to highlight that, given the high attention to regulation and penalisation placed by the treaties and subsequent secondary legislative acts,[37] the role of the Commission becomes that of a custodian of the established economic constitution with generally significant sanctioning powers.[38] By involving the institution to serve as an active administrator, this serves to enhance the freedom that exists both within the market and the implications this may have on consumers.


Abuse of Dominant Position in America

The approach taken by the Sherman Act to regulating dominant positions is chiefly through the distinct ban on conduct of an enterprise to ‘monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize’.[39] To understand the explicit significance of this, however, it is important first to understand its initial intention. Indeed, the Sherman Act’s drafting ‘displays the clear and exclusive policy intention of promoting consumer welfare’.[40] This original spirit and intention of the drafters, however, has been intermingled with many different understandings of what would constitute a violation by a ‘monopoly’.


In the first place, it is important to understand the personal scope of Section 2. For Section 2 to be applicable, one of the key conditions is for monopoly power, which was defined as ‘the power to control market prices or exclude competition’, to be met.[41] Unlike article 102 TFEU, there is general reticence to apply the provision to companies with ‘shares below 50 percent’ since they do not wield ‘substantial market power’.[42] This understanding appears to be in line with the conditions advanced by Hayek for a monopoly to indeed exert ‘coercion’, especially since given the relatively high standard for applicability.


The increased development of economic theory and its application by the courts has led to a bifurcation of understandings into the structural and conduct approaches to establishing a violation.[43] The former must be understood as meaning that when an enterprise is a monopoly, it would be considered as contravening Section 2, while the latter is centred on monopolies’ use of ‘exclusionary tactics’.[44] While there had been early proponents of the structural approach and there had been indication of its worth as a guarantor of perfect competition conditions in the Alcoa case,[45] the US Supreme Court has ruled in United States v Grinnell Corp that a purely structural approach is unfeasible.[46]


While, as Cavanaugh has argued, this field remains ‘a fertile area for judicial analysis’,[47] it is important to distinguish the fact that Section 2’s scope of application has been altered owing partly to Chicago School arguments.[48] Such a sentiment has been expressed in the Supreme Court’s Trinko judgment, holding that ‘[t]he mere possession of monopoly power [...] is not only not unlawful; it is an important element of the free-market system.’[49] Concerning application, the standard for establishing violations is much higher than that found in Europe. For example, the recoupment test for illegal exclusionary pricing is established in such a way as to only target abuses chiefly affecting consumer welfare.[50] In doing so, federal intervention and prosecution may only be triggered where the higher burden of proof is ascertained objectively.


The American system certainly favour a strict Hayekian reading of freedom. Firstly, applying an originalist interpretation, one may conclude that the Sherman Act serves to fend consumers from the ‘bigness’ of monopolies.[51] Secondly, the restrictive reading of what is a ‘monopoly’ and the highly-set bar for violations complies with the Hayekian notion that government ‘intervention’ is not ‘coercion’ since it only applies in fringe cases. Lastly, the minimal, if not rare, involvement of government in regulating markets and economic relations may well reveal that greater non-domination is central to the American approach.


Conclusions

In marking out the two approaches to competition law, it is critical to highlight that while both are variant, they centre upon the same essence of freedom: defined as ‘non-domination’. As such, both approaches do not prohibit monopolies per se and, thus, wish neither to restrain the freedom of businesses or consumers, whereby the latter is oftentimes elevated as an objective. However, the republican European approach has a lower bar for violations, extends its scope of application broadly, and involves institutions as caretakers of the established economic constitution. By contrast, the Hayekian American system employs the law as regulator but in restricted cases, maintains a narrower reading of violations, and restricts intervention to cases of Hayekian ‘coercion’.


Christian Delev is an LLM candidate at Hughes Hall, University of Cambridge. He previously graduated summa cum laude from the LLB International and European Law programme at the University of Groningen, the Netherlands. He is currently Executive Blog Editor of the Groningen Journal of International Law. Previously, he assisted in researching and editing F Amtenbrink et al (eds), The Internal Market and the Future of European Integration: Essays in Honour of Laurence W Gormley (CUP 2019) and A Colombi Ciacchi, Z Mansoor and C Mak (eds), Immoral Contracts in Europe (CUP, forthcoming 2019).


References

[1] P Akman, ‘The Role of “Freedom” in EU Competition Law’ (2014) 34(2) Legal Studies 183, 184; R Whish and D Bailey, Competition Law (8th edn, OUP 2015), 4; F Maier-Rigaud, ‘On the Normative Foundations of Competition Law - Efficiency, Political Freedom and the Freedom to Compete’ in D Zimmer (ed), The Goals of Competition Law (Edward Elgar 2012), 135.


[2] R van den Bergh, Comparative Competition Law and Economics (Edward Elgar 2017), ch 3.


[3] The terms ‘EU’ and ‘European’ are henceforth used interchangeably when referring to the competition law of the European Union.


[4] ED Cavanaugh, ‘Antitrust Law and Economic Theory: Finding a Balance’ (2013) 45 Loyola University of Chicago Law Journal 123, 129 citing R Pitofsky, ‘The Political Content of Antitrust’ (1979) 127(4) University of Pennsylvania Law Review 1051, 1058.


[5] DJ Gerber, Law and Competition in Twentieth Century Europe: Protecting Prometheus (Clarendon Press 1998), 232.


[6] Cavanaugh (n 3) 129­–130.


[7] J Locke, Two Treatises of Government (Whitmore and Fenn 1821), 189.


[8] I Berlin, Liberty: Incorporating Four Essays on Liberty (Henry Hardy ed, OUP 2002), 166–217. For the purposes of this paper, the terms ‘freedom’ and ‘liberty’ shall henceforth be used interchangeably.


[9] P Pettit, ‘Republican Political Theory’ in M Fleurbaey et al (eds), Justice, Political Liberalism and Utilitarianism: Themes from Harsanyi and Rawls (CUP 2010) 390 et seq; M van Gelderen and Q Skinner (eds), Republicanism: A Shared European Heritage (CUP 2002), 4.


[10] Pettit (n 8) 401–408.


[11] PoeticRecreation, ‘Isaiah Berlin - Freedom & Its Betrayal (1952 Audio)’ (5 March 2017) <www.youtube.com/watch?v=Ck0pt48EqMo&t=1512s> accessed 21 June 2018.


[12] FA Hayek, The Constitution of Liberty (University of Chicago Press 1960), 153.


[13] The Hayekian definition of ‘coercion’ is qualified by the coercer’s threat or use of harm to invoke a particular outcome and can best be illustrated with his ‘oasis case’ as an example of the conditions being fulfilled in an extreme monopolistic scenario. Source: Hayek (n 11) 133–136.


[14] Hayek (n 11) 21.


[15] D Dyzenhaus, ‘Freedom under an Order of Public Law: From Hobbes through Hayek to Republicanism’ in A Sajó (ed), Freedom and its Enemies: The Tragedy of Liberty (Eleven 2015).


[16] S Irving, ‘Hayek’s neo-Roman Liberalism’ (2017) European Journal of Political Theory 1, 7.


[17] This point is acknowledged even by supporters of a ‘neo-Roman’ reading of Hayek, especially in Irving (n 15) 12.


[18] Article 3, Consolidated version of the Treaty on European Union [2016] OJ C 202/13 (‘TEU’).


[19] Taylor has maintained that maintaining competition, market freedom and economic constitutionalism may be key to establishing ‘freedom as non-domination’. While this sentiment is not shared by all strains of republican thought, it may well be understood as a conventional economic reading of Pettit. See RS Taylor, Exit Left: Markets and Mobility in Republican Thought (OUP 2017), 54–63. The same conditions have been noted by some EU competition law scholars endorsing an ordoliberalist reading of competition law, e.g. Akman (n 1) 184.


[20] Article 101(1) Consolidated version of the Treaty on the Functioning of the European Union [2016] OJ C 202/47 (‘TFEU’).


[21] Article 101(2) TFEU.


[22] Article 102 TFEU.


[23] N Giocoli, ‘Competition versus Property Rights: American Antitrust Law, the Freiburg School, and the Early Years of European Competition Policy’ (2009) 5(4) Journal of Competition Law and Economics 747, 748.


[24] Chicago Board of Trade v United States, 246 US 231, 238 (1918).


[25] FA Hayek, The Road to Serfdom (Routledge 2001), 61–62.


[26] Article 102 TFEU.


[27] Article 102 TFEU; M Lorenz, An Introduction to EU Competition Law (CUP 2013), 189 et seq.


[28] Case 27/76 United Brands Company and United Brands Continentaal BV v Commission [1978] ECR 207, para 65 (‘United Brands’). The Court’s approach may be seen as relying in its assessment on the relevant geographic and product markets as well as the ‘position of economic power’ entertained by the company in question. This assessment thus fuses the Commission’s previously held ‘independent behaviour’ approach with relevant economic theories of competition. Source: JJ Norton, ‘The European Court of Justice Judgment in United Brands: Extraterritorial Jurisdiction and Abuse of Dominant Position’ (1979) 8(2) Denver Journal of International Law and Policy 379, 397.


[29] For quasi-monopoly, see C-333/94 P-Tetra Pak v Commission [1996] ECR I-5951; for cases of oligopoly, see C-393/92 Municipality of Almelo and others v NV Energiebedrijf Ijsselmij [1994] ECR I–1477. The General Court has also interpreted markets in a very broad sense to even include relatively small undertakings, e.g. in C-179/90 Merci Convenzionali Porto di Genova v Siderurgica Gabrielli [1991] ECR I–5889.


[30] Case C-85/76 Hoffmann-La Roche & Co. AG v Commission [1979] ECR 461, paras 39–41, 70–71 (‘Hoffmann’).


[31] Case 322/81 Michelin v Commission [1983] ECR 3461, para 57; Deutsche Post AG – Interception of Cross- Borders Mail (COMP/C-1/36.915) Commission Decision 2001/892/EC [2001] OJ L331/40.


[32] See article 102 TFEU. The necessary condition of concerning an enterprise has also been broadly defined, as may be seen in the Höfner case: ‘every entity engaged in an economic activity, regardless of the legal status of the entity or the way in which it is financed.’ See case C-41/90 Höfner and Elser v Macroton GmbH [1991] ECR I–1979, para 21.


[33] Hoffmann (n 29) para 91.


[34] Lorenz (n 27) 214.


[35] C Arup, Innovation, Policy and Law (CUP 1993), 162.


[36] With due consideration to the assessment, it is worth noticing that while both criterions are assessed, they are not always assessed ‘equally’. As Lovdahl Gormsen has demonstrated, ‘efficiency goals’ like consumer welfare may take precedence over ‘market integration’ in cases where the benefits of the former exceed the limitations of the latter. However, the alternative scenario is chiefly the case, as may be demonstrated with reference to United Brands. Source: L Lovdahl Gormsen, A Principled Approach to Abuse of Dominance in European Competition Law (CUP 2010), 67–68.


[37] For greater discussion on the regulating powers of the Commission and comparison to other institutions, see N Dunne, Competition Law and Economic Regulation (CUP 2015), ch 2.


[38] For greater analysis of the powers and perils of competition law enforcement, see D Chalmers, G Davies and G Monti, European Union Law (3rd edn, CUP 2014), 942 et seq.


[39] Section 2, Sherman Antitrust Act 1890 (‘Sherman Act’).


[40] RH Bork, The Antitrust Paradox: A Policy at War with Itself (The Free Press 1978), 61.


[41] United States v Grinnell Corp, 384 US 563, 570–71 (1966).


[42] WE Kovacic, ‘Competition Policy in the European Union and the United States: Convergence or Divergence in the Future Treatment of Dominant Firms’ (2008) 4 Competition Law International 8, 12.


[43] OE Williamson, ‘Dominant Firms and the Monopoly Problem: Market Failure Considerations’ (1972) 85 Harvard Law Review 1512, 1512.


[44] Ibid, 1513.


[45] United States v Aluminum Company of America, 148 F.2d 416, 430 (2nd Circuit 1945)


[46] United States v Grinnell Corp (n 41) 570–71.


[47] Cavanaugh (n 3) 135.


[48] Ibid, 143–144.


[49] Verizon Communications Inc v Law Offices of Curtis v Trinko, LLP, 540 US 398, 407 (2004).


[50] The test for determining whether predatory pricing violates Section 2 Sherman Act relies on a two-pronged approach whereby predatory pricing is illegal when it 1) a firm sets prices ‘below an appropriate measure of... costs’ and 2) where there is ‘a dangerous probability [for the firm] of recouping its investment in below-cost prices’ through supracompetitive pricing strategies. (Source: Brooke Group Ltd v Brown & Williamson Tobacco Corp, 509 US 209, 222–224 (1993)) The main reasoning behind this higher standard is the favouring of consumer welfare gain over perfect competition. See for commentary FX Schoen, ‘Exclusionary Conduct After Trinko’ (2005) 80 New York University Law Review 1625, 1929.


[51] Cavanaugh (n 3) 129.

 

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