← The hardest concepts in European Union law
In one breath
Union competition law prohibits agreements between undertakings that restrict competition and affect trade between Member States, and it prohibits the abuse of a dominant position. Being dominant is not unlawful in itself, and “undertaking” means any entity engaged in economic activity, whatever its legal form.
The picture
The only well in the village
A village has one well, and a few farmers sell water from it. If the farmers meet and agree to charge the same price, or to divide the households between them, they have swapped competition for an arrangement, and the households pay for it. That is the first rule: agreements that prevent, restrict or distort competition are void, unless they bring benefits that meet strict conditions.
Now imagine one farmer who owns the only well and so controls the water everyone needs. She is allowed to be the sole supplier, and it is not a wrong to have won the position by being better. But she may not abuse it, for example by charging unfairly high prices, refusing water to a rival in order to push him out, or tying the sale of water to the sale of something else. Dominance is a condition, and abuse is the wrong.
Where the picture stops working
A village is a closed market, but a legal market has to be defined, and the arguments over what counts as the relevant market are often the heart of a case. The rules apply only where trade between Member States may be affected, so a purely local arrangement may fall to national law. And the picture misses the notion of an “undertaking”: it covers any entity engaged in economic activity, not only businesses in the ordinary sense, but it does not catch the exercise of public powers.
How it really works
- 1Know where the rule comes from. The prohibitions are in Articles 101 and 102 of the Treaty on the Functioning of the European Union. The concepts of undertaking, restriction by object and dominance come largely from the Court’s case law.
- 2Identify the undertaking. It is any entity engaged in an economic activity, regardless of its legal status and the way it is financed (Höfner). A body exercising public authority is not acting as an undertaking in that capacity.
- 3Article 101: look for an agreement, a decision of an association or a concerted practice that has as its object or effect the prevention, restriction or distortion of competition within the internal market and may affect trade between Member States. Restrictions by object, such as price-fixing and market-sharing, are treated as infringements without proof of effects.
- 4Consider exemption. Under Article 101(3), an agreement may be exempt if it improves production or distribution or promotes technical or economic progress, gives consumers a fair share of the benefit, imposes only indispensable restrictions and does not eliminate competition in respect of a substantial part of the products.
- 5Article 102: define the relevant market, ask whether the undertaking holds a dominant position, meaning a position of economic strength allowing it to behave to an appreciable extent independently of competitors, customers and consumers (United Brands), and ask whether it abused it, with any objective justification.
Why people get it wrong
- Thinking that being dominant is prohibited. Only the abuse is.
- Thinking only companies can be undertakings. Individuals, associations and State bodies can be, when they act economically.
- Assuming that an agreement needs a written contract. A concerted practice, with no formal agreement, can be enough.
- Treating all restrictions as unlawful. Some are justified under Article 101(3), and some fall outside Article 101(1) altogether.
- Forgetting the trade-between-Member-States requirement, which marks the boundary with national competition law.
A worked example
The facts are invented
Three bakeries in different Member States supply the same brand of frozen dough. Their managers meet and agree on a minimum price and on not selling into each other’s countries. This is an agreement between undertakings with the object of restricting competition, likely to affect trade between Member States. A fine is likely, and the agreement is void.
Separately, a dough producer holds a very large share of the market in one country and refuses to supply a smaller bakery which has started to compete with the producer’s own shops. The producer is not unlawful just for being large. The question is whether it holds a dominant position and whether refusing to supply, without objective justification, is an abuse that eliminates a competitor. The first scenario is about what undertakings do together, and the second is about what one dominant undertaking does alone.
Try it
A company holds a dominant position in a market through the quality of its product. Is that position, taken alone, a breach of Article 102?
Landmark authorities
Read the sources themselves; this list is a starting point.
- Consten and Grundig v Commission, Joined Cases 56/64 and 58/64, 1966
- United Brands v Commission, Case 27/76, 1978
- Höfner and Elser v Macrotron, Case C-41/90, 1991
Where to go next
More hard concepts in European Union law
- Freedom of establishment and freedom to provide services (Internal market)
This page is an educational overview. It is not legal advice and not a substitute for the sources: the statute, the rule, the case itself. EU law is made by the Union’s institutions under powers that the Member States have conferred on it in the Treaties, and it is applied by national courts and the Court of Justice together. The national law of each Member State still governs most of private and criminal law. Each page says whether the idea comes from the Treaties, from regulations and directives, or from the Court of Justice’s case law. Each page states the usual formulation of the rule and names landmark decisions; check the primary sources, and the law of your own Member State, before relying on any rule.