Studienvereinigung Kartellrecht International EU Competition Law Forum, Brussels, 12 March 2018
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Ladies and gentlemen
It's a very great pleasure to be here with you today. I especially want to thank Frank Montag, and the Studienvereinigung Kartellrecht, for inviting me to take part in this conference.
It's very inspiring to spend time with competition experts who are engaging so closely with the issues that affect people's lives. Looking at how to keep competition working in a digital world. How to defend the innovation that keeps our economies growing. How to make sure powerful companies, which dominate an industry, don't misuse that power to undermine competition.
Concentration and common ownership
That's an especially important issue right now. Because we’re living in a time when many people have the sense that something has gone out of balance. That companies have become more powerful than people.
And it seems as though that may be more than just a feeling. Because in the last two decades – in America, at least – many industries have become more concentrated, with more of the market in the hands of just a few companies. We’re still investigating whether the picture is the same here in Europe. But we already know company profits have taken a larger and larger share of Europe's GDP over the last thirty years – which raises the question whether companies have become more powerful, and competition less effective.
And that’s not the only reason to wonder if competition is working the way it should.
In the US, they collect much more complete information than in Europe about exactly who owns which shares. So we can see examples of industries – like the airline business – where some investment funds own shares in all the big companies in the industry.
And when investors have an interest in several companies in the same market, they might be better off if those companies don't compete too hard. If they ease off on trying to outdo each other, so no one wins big – but no one loses big either. And of course, that can mean that consumers lose out.
To know if this is something that competition policy needs to respond to, we first have to understand if the same thing is happening in Europe. We also need to understand what effect it really has – because even if some investors would benefit from less fierce competition, you can't just assume they have the power to make that happen.
That's why we’ve started looking into whether this sort of common ownership is an issue here in Europe. And it's also why I’m delighted to see that you'll be talking about this very issue at this conference tomorrow.
The special responsibility of dominant companies
There's a long way to go, before we can say whether and how things are changing, and if competition policy needs to respond.
But one thing we do know. We need competition, to keep our markets working fairly for everyone. And companies that dominate their markets have a special responsibility to make sure that their actions don't harm competition.
When we talk about that special responsibility, it can sound like we’re expecting a lot. As though we’re asking dominant companies to be the good older siblings, who always let the little ones win. It can look as though we expect them to compete less fiercely, or to share the rewards of their innovation with others.
But that's not the point at all. We don't want dominant companies to stop trying to compete. But that dominance gives them power to influence the market, in ways that can harm competition and consumers. Just by doing things that would be normal for less powerful companies, they can end up driving their rivals from the market – even when those rivals are offering products and prices that are just as good.
And of course, when that happens, it’s consumers who suffer. They lose out on the good things that competition brings. The lower prices, the wider choice, the more innovative products.
So there are things that concern us when dominant companies do them, even though they'd be normal practice for other businesses. Things like giving rebates to customers, in return for staying loyal, and buying exclusively from the dominant company.
It can seem strange to see competition enforcers objecting to companies cutting prices. But of course, those rebates are really just the price of an exclusive relationship. When a dominant company gives you a loyalty rebate, that can mean it’s not worth shopping around. Because trying out a new supplier comes at too high a cost – the cost of losing the rebate on everything else you buy.
That can make it hard to break into the market. Because it locks customers into an exclusive relationship, even when rivals could offer better products for less. It leaves the market frozen, with no reason for anyone to innovate and come up with better, cheaper products. And so in the end, consumers can pay a very high price.
The Intel judgment
In its judgment last year, in the case of Intel, the European Court of Justice clarified how we should deal with these arrangements.
The Court recognised once again just how damaging this sort of rebate can be. It confirmed that dominant companies have a special responsibility. And that our work should start from a presumption that these loyalty rebates are against the competition rules.
But it's important that we put our efforts into dealing with rebates that really do harm consumers. That's why, for many years, the Commission has always looked at the potential effects that rebates have on the market. And we’ve only taken action when it's been clear that a particular rebate deserves our attention, because it can harm competition.
The Court’s judgment makes it clear that when a company gives us concrete, solid evidence during the investigation, aiming to show that a loyalty rebate couldn’t shut out competition, we need to look at those claims. And we need to check if this particular rebate, in this particular situation, could actually shut out rivals that are just as efficient as the dominant company.
That judgment has helped make the law clearer. But it doesn't change much in practical terms. We already looked at the potential effects of rebates before we took action in the past – and we’ll keep on doing that, after this judgment.
One way we did that in our decision against Intel was by using a so-called “as efficient competitor test”. We looked at figures for costs, prices and quantities, to see if other companies could afford to match Intel’s rebates.
But it wouldn't be right to see that test as some sort of gold standard. I'm an economist myself, and I know how useful these quantitative tests can be. But I also know there are other ways to look at things. In fact, in the case of Intel, the as efficient competitor test was just part of the evidence which showed that the rebates harmed competition.
So I think it's good that it's been left to the Commission to decide, , in each case, how to show if a loyalty rebate affects competition.
And in the decision we took recently – to fine Qualcomm just under a billion euros for paying Apple for exclusivity – we looked at a whole series of factors, to understand how those payments affected competition.
Qualcomm is by far the world's biggest maker of 4G baseband chipsets, the chips that allow smartphones and some tablets to connect to the network. And for many years, Apple used only Qualcomm’s chips in its iPhones and iPads. And it's clear from Apple’s own internal documents that the exclusivity payments from Qualcomm affected that decision.
Those documents showed that Apple had seriously thought about starting to try out baseband chipsets from Intel. That would have been a huge breakthrough for Intel – especially because of Apple’s position as a trendsetter. But in the end, Apple decided not to make the switch. Because it didn't want to lose the payments from Qualcomm.
Qualcomm also did its own as efficient competitor test, which it said showed that competitors could match Qualcomm's rebates. But there were serious problems with the way that test was done. So it didn't actually prove that the payments were harmless.
And in the end, on the basis of a whole range of evidence, we were convinced that Qualcomm’s payments to Apple stopped competition working the way it should. They denied consumers choice and innovation.
Today, the market has changed. As the arrangement between Apple and Qualcomm came to an end – and while our investigation was going on – Apple did begin to use Intel chips. Reports say that last year, after the end of the arrangement, Apple got about half its chips from Intel. So without the exclusive deal, the market has opened up. But for several years, consumers lost out on the benefits of competition – and the fine that we imposed reflects that.
Our competition rules don't discriminate between companies, based on who they are or where they come from. They're the same for everyone – and as Intel knows well, a company that’s on the wrong side of the competition rules today might very well find that it appreciates them tomorrow.
But the fact is, the same actions can have very different effects, depending on who does them, and how much power they have. So to defend competition, we have to make sure that dominant companies live up to their special responsibility.
That doesn't mean we should punish companies just for being big. It doesn't mean dominant companies should stop innovating, stop competing, stop trying to be the best.
As competition enforcers, we do need to keep the right balance in the market. But we should do that, not by pulling companies down, but by raising consumers up.
We should do it by making sure consumers have choices. By defending their power to demand a fairer deal – lower prices, better quality, more innovative products. So that in this modern world, where so much is changing, people know that the markets will keep working fairly for them.