ViewpointsFCA Yearbook 2011

Viewpoints FCA Yearbook 2011

Viewpoints FCA Yearbook 2011

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Editors PäiviKariandEineKuneinenLayout HarriHeikkiläPhotos AnttiHovilaandJaanisKerkisTranslator JaanaAhoISSN / ISSN-L 1458-1701

In addition to the printed version, the FCA’s Yearbook is available as a PDF, which is opti-mised for tablet computers. You can transmit the PDF to the tablet for example by e-mail-ing it to yourself and opening it with a PDF reader. The words in blue are links in the elec-tronic version.

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Contents

To the reader ......................................................................................................... 6Calendar 2010 ....................................................................................................... 8Director Martti Virtanen:Growth Initiative working group and competition: major statement ................ 11Senior Research Officer Tom Björkroth:On the economic analysis of competition restraints .......................................... 17Head of Research Sanna Syrjälä and Assistant Director Mika Hermas:Mission of cartel control: increasing the risk of getting caught ......................... 21Head of Research Jarno Sukanen:Permitted cooperation between competitors ...................................................... 26Head of Research Valtteri Virtanen:Prioritisation of competition restraints cases and first stage investigations .... 31Head of Research Maarit Taurula: New Competition Act and merger control .......................................................... 35Senior Research Officer Juha Karjanlahti:Excessive pricing from the point of view of competition rules .......................... 40Head of Research Ari Ahonen:Competition Survey 2: Smart regulation – effective markets ............................. 44Assistant Director Rainer Lindberg:Recent case law of EC courts in competition issues .......................................... 48Research Officer Riikka Pulli:Reforms of EC competition rules in 2010 ........................................................... 55Erikoistutkija Jussi Pääkkönen:Cooperation with Regional State Administrative Agencies ............................... 58

FCA contact information 1.6.2011 ........................................................................ 61

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To the readerInMarch2011,theParliamentpassedthegovernmentproposalforanewCompetitionAct,andthe1992Actwillslowlybecomehistory.

ThenewActcontainsmuchthatisold.TheprohibitionsofrestrictivepracticeswillremainastheyareandcorrespondtotheprohibitionsofrestrictivepracticesintheEClaw.Thecompetitionrulesaffectingbusi-nessoperationsarethesameirrespectiveofwhethertherestraintaffectstradebetweentheMemberStatesornot,andwhethertheprohibitionsoftheCompetitionActorTFEUareapplicable.

The main amendments concern merger control, immunity fromfinesandsomeproceduralrules.TheFCA’srighttoprioritiseitscasesmayalsoproveanimportantamendment–particularlywhenthepri-oritisationrulesarereadinconjunctionwiththesectionsdefiningthemeaningoftheCompetitionAct.Notevensmallissuesareleftaside,however,ifthesehaverelevanceforsafeguardingthefreedomofbusi-nessinamannerbenefittingcustomersorconsumers.

Inmergercontrol,theActmeanssomechangesforthepositioningoftheprohibitionthreshold,althoughontheaverage,theamendmentisnotexpectedtoleadtoaloweringoftheprohibitionthreshold.Previ-ously,itwasexaminedwhetheradominantpositionwillariseasare-sultofamergerandwhetheritwillleadtoasignificantimpedimentofcompetition.Thenewmergertestwillonlyexaminethelatterquestion.ThenewtestappliedbytheCommissionfrom2004seemstogodirectlytothepointandislikelytoprovemorefunctionalthanthecurrenttest.

ImmunityfromfineshasbeenreformedsoastoallowimmunityoncertainconditionsevenaftertheFCAhasbeganinspections.There-formislikelytoincreasetheattractivenessofimmunity.Also,thenewActspecifiestheprovisionsconcerningthepossibilitytoreducethein-fringementfineofacompanyifitcooperateswiththeFCAintheinves-tigationofthecompetitionrestraint.

Proceduralamendmentsincludeprovisionsontherightsofdefenceofabusinessundertaking,whichclarifytheFCA’sinvestigativeproce-dureandmakeitmoretransparent.Eveniftheamendmentdoesnotcontainanythingnew,itimprovestheparties’preconditionstohandlethecasewiththeFCA.

–ThenewCompetitionActisnotgroundbreakingorrevolutionary;itratherreflectsthecommonlyacceptedviewsonthesociety’sneedtomonitortherestrictiveconductandconcentrationtrendofcompanies.

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Assuch,theActisunlikelytofunctioninseveraldecades’time.Thele-galdevelopmentsintheEUmaybringaboutneedstoreformit,butna-tionalwelfareobjectivesmayalsobesupportedinthefuturebyanevensharperCompetitionAct.ThereisnationalleewayevenifweadheretotheharmonisationofthemajorprohibitionswiththeUnionlaw.

ThisYearbook,publishedforthefirsttimebothasaso-calledtabletpublicationandaprintedbook,seekstoprovideusefulinformationontheFCA’sactivities,thenewCompetitionActandthemeaningofeco-nomiccompetitionforwelfare.Happyreadings!

JUHANI JOKINEN DIRECTOR GENERAL

Facts from 2010

The number of open competition restraints cases de-creased somewhat last year compared to 2009. The total number of cases remained large, however, which prolongs their handling. In 2010, 364 domestic com-petition restraints cases, 36 merger cases and 626 in-ternational cases became pending.

The handling times of requests for action were still longer than the set goals. The FCA succeeded in han-dling so called letter decisions and other decisions requiring only a small amount of work in less than a month on the average but the final decision may have taken an average of 2-3 years.

Compared to the previous years, there is a signifi-cant reduction in the number of long pending cases, however. In the end of 2010, there were 168 cases pend-ing at the office, of which only a few had been pending for more than three years.

In advocacy, altogether 133 requests for statements and invitations were received. The FCA also participat-ed in the work of 27 working groups preparing legisla-tion and in 58 EU-meetings in all. At the same time, the investigation “Smart regulation – well-functioning mar-kets” published in February 2011 was prepared.

The total costs of the FCA amounted to €5.4m. Two-thirds of them were directed to competition control, and the share of advocacy and international issues was one-third.

The number of person-years, trainees included, was 70.1 and trainees excluded, 67.9. In the Regional State Administrative Agencies, 5.8 person-years were spent handling competition issues.

The working environment of the FCA received an excellent grade of 4.03 on a scale of 1-5 in the VMBaro Survey. In 2009, the figure was 3.94.

The FCA’s financial statement including the annual re-port from 2010 can be seen on the FCA’s web pages. In-formation on the FCA’s activities and efficiency can be found from the Netra reporting service (www.netra.fi) pro-vided by the State Treasury.

http://www.kilpailuvirasto.fi/tiedostot/Kilpailukatsaus-2-summary.pdfhttp://www.kilpailuvirasto.fi/tiedostot/Kilpailukatsaus-2-summary.pdfhttp://www.netra.fi

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Calendar 201028.1.2010TheEuropeanCompetitionNetwork,ECN,publishedthe

firstissueoftheECNBriefnewsletterdirectedtothetargetgroups.29.1.2010TheMarketCourtimposedontheA-TecServiceOy(prev.

TecalemitOy)importingmachineryandequipmentafineof€80000forabreachofRPMsetoutintheCompetitionAct.

15.2.2010TheFCAissuedacommitmentdecision,inwhichOyFor-citAbmanufacturingexplosivesundertooktodispensewithadiscountsystemwhichtiedcustomerstoacontinuedbusinessrelationwithForcit.

12.4.2010TheFCAandtheAssociationofVoluntaryHealth,SocialandWelfareOrganisations(YTY)arrangedaseminarinHelsinkionthetopicof”Thirdsectorastheproducerofwelfareservices:challeng-esandnewopportunities”.

15.4.20102010TheHeadofFAS(FederalAntimonopolyService)MrIgorArtemyevgavealectureinaseminararrangedbytheFCAinHelsinki.

20.4.2010TheEuropeanCommissionissuedanewblockexemptionforverticalagreements,whichsoughttosimplifytheregulationonver-ticalcompetitionrestraintsasregardscompanieswhichhavealimitedamountofmarketpower.

29.4.2010 TheFCAmadeaproposaltotheMarketCourt,accordingtowhichitshouldimposeonIittalaGroupOyAbaninfringementfineof€4mforRPMviolatingtheCompetitionAct.

28.5.2010TheFCAissuedacommitmentdecisioninwhichtheVehoGroupOyAbundertooktoimprovetheaccessofindependentrepair-erstothetechnicaltrainingarrangedbyitfortheMercedes-Benzmo-torvehicles.

10.6.2010TheGovernmentbroughtaproposalbefore theParlia-mentonthepassingofanewCompetitionAct(Governmentpropos-al88/2010).

22.6.2010TheFCAclosedacaseonGasumOyconcerningtheal-legedunlawfulnessofthepricingsystemofthecompany.Therewasnocausetointerveneintheallegedlytoolowapricelevelofsomelong-termdeliverycontractsasanabuseofdominance.

22.6.2010FCAclosedacaseconcerningthetransmissionserviceanddrivingshiftsystemof theHelsinki taxis.ThearrangementwasnotintervenedinbecausethecompetitionproblemsunderreviewwereaboveallconnectedtotheTaxiTrafficActprovidingontheactivitiesinthefiel.

http://ec.europa.eu/competition/ecn/brief/index.htmlhttp://www.kilpailuvirasto.fi/cgi-bin/english.cgi?luku=news-archive&sivu=news/n-2010-04-29http://www.kilpailuvirasto.fi/cgi-bin/english.cgi?luku=news-archive&sivu=news/n-2010-05-28

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6.7.2010OntheproposaloftheFCA,theMarketCourtimposedonOulunPuhelinHoldingOyj(i.e.formerOulunPuhelinOyj),AinaGroupOyj(i.e.formerHämeenPuhelinOy),KymenPuhelinOyandTeliaSon-eraFinlandOyjatotalof€220000infinesontheabuseofdominantpositioninthepricingofsubscriberlines.

14.7.2010FollowingstageIIinvestigations,theFCAapprovedadealinwhichAlmaMediaOyjandsomeprovincialnewspapersacquiredacontrollinginterestinAlmaMarkkinapaikatOy,towhichtheelectron-ichousing,carandconsumermarketplacescurrentlyheldbytheAlmaGroupwerefirsttransferred.

20.8.2010TheFCApublishedonitswebpagesanarticlebyDirec-torGeneralJuhaniJokinenandSeniorResearchOfficerTomBjörkrothon”Informationontheimpactofincreasedcostsonprices–commu-nicationsorrestrictingcompetition?”

27.8.2010TheSupremeAdministrativeCourtrejectedtheFCA’sap-pealontheFortumdecisionissuedbytheMarketCourtin2008.TheMarketCourthadheldinitsdecisionthattheE.ONFinlanddealcon-ductedbyFortumin2006hadnotledtothecreationofadominantpo-sitionorthestrengtheningthereofinamannersuggestedbytheFCAinitsmergerdecision.

21.9.2010TheFCAclosedacaseconcerningtheallegedrestrictionofsupplyinthetimbermarket.TheinvestigationstargetedtheCentralUnionofAgriculturalProducersandForestOwners(MTK)andsomeassociationsofforestownersbutnoevidencewarrantingfurtherinves-tigationswasfound.

6.10.2010 Following stage II investigations, the FCA approved amergerinwherebyHKScanFinlandOypurchasedfromJärvi-SuomenPorttiOskitsmeatprocessingbusinessandtheproduction,salesandmarketingbusinessofmeatinMikkeli.

8.10.2010TheFCAclosedacaseconcerningtheconditionslimit-ingtheuseofoutsidelabourincludedinacollectiveagreementbetweenFinnishForestIndustriesandFinnishPaperworkers’Union.Initsde-cision, theFCAfoundthat theconditionof thecollectiveagreementwassuchthattheFCAdidnothavejurisdictionoverthesubjectmatter.

11.10.2010TheFCApublishedonitswebpagesanarticlebySeniorResearchOfficersSannaSyrjäläandTomBjörkrothon”Theprovisionsofthecollectiveagreementontheuseofoutsidelabour”.

http://www.kilpailuvirasto.fi/cgi-bin/english.cgi?luku=news-archive&sivu=news/n-2010-07-14

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21.10.2010TheFCAorderedthatElisaOyjfollowthecommitmentprovidedbythecompany,underwhichitundertooktochangeitspricingpracticeontheswitchingcostscollectedfromsinglefamilydwellings.

28.10.2010TheFCAaddedonitswebpagesaso-called“tipusoff”link,i.e.anelectronicformforsendingtip-offsaboutacompetitionre-straint.Theintentionoftheserviceistolowerthethresholdforcontact-ingtheFCAandtofacilitatethesendingoftip-of.

1.11.2010TheNordiccompetitionauthoritiespublishedacommonworkinggroupreportemphasisingtheimportanceofeffectivecompe-titionandcompetitionpolicyingeneratingeconomicgrowthbasedonsustainabledevelopment(CompetitionPolicyandGreenGrowth.Inter-actionsandchallenges).

14.12.2010 TheEuropeanCommissionapprovedtherevisedhori-zontalguidelinesandtwoblockexemptionregulations,whichexplainhowcompetitorsmaycooperatewithoutviolatingtheEUcompetitionrules.(Cf.alsothearticlebyHeadofResearchJarnoSukanenonpage26.)

16.12.2010 TheFCAclosedacaseconcerningthepressreleaseonthepricingofforestenergyissuedbytheCentralUnionofAgriculturalProducersandForestOwners(MTK)in2005.

http://www.kilpailuvirasto.fi/cgi-bin/english.cgi?luku=news-archive&sivu=news/n-2010-10-25http://www.kilpailuvirasto.fi/cgi-bin/english.cgi?luku=news-archive&sivu=news/n-2010-11-18http://www.kilpailuvirasto.fi/cgi-bin/english.cgi?luku=news-archive&sivu=news/n-2010-11-18

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In his work with the FCA, the author Ph.D. (Econ.&Bus.Adm.) Martti Virtanen is particularly involved with strategic planning and de-velopment of research ac-tivities. In recent years, Dr Virtanen has among other things orientated himself to issues concerning competi-tion neutrality in the state and municipal business.

DIRECTOR MARTTI VIRTANEN

Growth Initiative working group and competition: major statementTheGrowthInitiativeworkinggroupledbyMinisterAntti Tanskanen submitteditsfinalreportinAugust2010.Theobjectiveoftheinitiativewastomakepolicyrecommendationstopromoteeconomicgrowthinthecontextofcurrentglobaleconomicdevelopments,environmentalfactorsandtheneedforsocialsustainability.Thepointsofdepartureoftheinitiativewereclear:generalwelfareandtheentirewelfaresoci-etymodelmayberetainedinFinlandinthelongtermonlyifeconom-icgrowthremainsstrong.Andthenationaleconomymayonlygrowiflabouroritsproductivityisincreased.

ThefinalreportoftheGrowthInitiativeworkinggroup“Finland2020–fromthoughttoaction”waspublishedintheseriesofreports(11/2010)bythePrimeMinister’sOffice.Therecommendationsrelat-ingtocompetitionpolicyandlawincludedinthefinalreportwereveryextensive.Inaddition,underotherheadings,theworkinggroupalsoproposedrecommendationsaimingatthecreationofmarketsandcom-petition,andstrengtheningtheworkabilitythereof.

http://www.vnk.fi/julkaisut/julkaisusarja/julkaisu/fi.jsp?oid=304447http://www.vnk.fi/julkaisut/julkaisusarja/julkaisu/fi.jsp?oid=304447

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Thepossibilitiestosignificantlyincreasetheworkinput(employ-ment)arelimitedastheamountofworkforcedecreases.Strengthen-ingproductivitygrowthhenceholdsakeypositionforeconomicgrowthinthefuture.Onlyproductivitygrowthcanmeetthedecreaseintheamountofworkforceandthegrowthtendenciesofpublicspendingre-sultingfromthedemographicdevelopment.

TheGrowthInitiativeworkinggroup’sfinalreportbeginsbypro-vidingabriefintroductiontoissuesvitaltoproductivitygrowth.Itthenpresentstheworkinggroup’spolicyrecommendations,dividedunderthefollowingtenheadings:1)Scienceandinnovationpolicy,2)Educa-tionpolicy,3)Lifephasepolicy,4)Competitionpolicy,5)Enterprisepoli-cy,6)Publicsectoroperatingpolicy,7)Publicsectorinformationsystempolicy,8)Publicsectorprocurementpolicyandthegeneralavailabilityofpubliclycollectedinformation,9)Broadbandnetworkandintelligenttransportpolicyand10)Transportinfrastructurepolicy.

Recommendations related to competition policy

TheGrowthInitiativeworkinggroupproposedagrowingconsiderationof thecompetitionpolicyviewpoint inpoliticaldecision-making; thesharpeningofcompetitionlawremediesandsanctions;andreinforcingoftheoperationalpreconditionsofcompetitionauthorities.

Sincetheinstitutionaloperatingenvironmentisofkeyimportancetoworkablemarketsandeffectivecompetition,theworkinggroupfounditimportanttostrengthentheroleofcompetitionpolicyinlegislativedraft-ingandsocietaldecision-making.Theworkinggroupproposedthatleg-islativedraftingaffectingthefunctioningofthemarketsalwaysbesup-plementedwithacompetitiveimpactassessment.Althoughprogresshasbeenmadeonthisscoreinrecentyears,majorshortcomingsstillremain.(Cf.thearticlebyHeadofResearchAriAhonenonpage44.)

Theworkinggroupalsobroughtuptheneedtoabolishregulationresultinginexclusiverightsandprivileges,limitingtheapplicationofcompetitionparametersbybusinessenterprisesandraisingbarrierstomarketentry–withspecialreferencetolegalmonopoliesandmeans-testing.Theworkinggrouphencefoundagrowthandproductivity-ori-entedsocialpolicytobesystematicallyanti-monopoly,whetheratotalorpartialrightofmonopolybetheissue.

Theworkinggroupalsopaidattentiontolanduseplanning,andpro-posedthatamechanismbecreatedtotakecompetitionsystematicallyintoaccountinzoningandlanduseplans.Landuseplanningmayre-

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sultintheimpediment,restrictionordistortionofcompetition,whichcontradictsthegrowthandproductivity-orientedpublicpolicy.Forex-ample,inthereformofregulationonlargeretailoutlets(TheActontheReformoftheLandUseandConstructionAct,issued8.4.2011),novisiblerolewasgiventocompetitiveimpacts.

Thevisibilityandsignificanceofcompetitionpolicywouldbefur-therenhancedbytheestablishmentofaspecificCompetitionCouncilasproposedbytheworkinggroup.AnindependentCompetitionCoun-cilconsistingofFinnishandforeignexpertswouldmonitordevelop-mentsinthecompetitiveconditions,introduceinitiativesaimedatbet-terlegislation,evaluatetheeffectivenessofthecompetitionwatchdog,supportresearchactivitiesinitsfieldandpromotebetterunderstand-ingoftheimportanceofcompetitioninsociety.

Remedies and sanctions provided by competition legislation

The working group found that EU competition legislation shouldbeamendedtoallowenterprisestobedissolvedoncompetitionlawgroundsifthestructureoftherelevantmarketdoesnotalloweffec-tivecompetitionandtherearenoothermeansavailabletospurcom-petition.Theuseofthedissolutionpowersreferredtobytheworkinggroupcouldbecomerelevantalsowhenacontinuouslyunsatisfactorycompetitivesituationwouldnotpossessthecharacteristicsofaprohib-itedcompetitionrestraintspecifiedinthelaw.

Theworkinggroupapparentlyfoundthattheuseofsuchdisso-lutionpowerswouldbemuchmoredifficultifbasedonnationallawratherthantheEUcompetitionrules,duetothepresenceofthecom-monmarket.EventhepresentEUrulesenabledissolutionbytheCom-missionasaremedyofthelastresorttoprohibitedcompetitionre-straints.

Sectorsofpassiveorotherwiseunsatisfactorycompetitioninwhichtheuseofdissolutionpowerscouldberelevantareespeciallylikelytoexistinsmalleconomiesandinmarketsprotectedfromforeigncom-petition.Inthesesituations,thedissolutionofenterprisescouldsub-stantiallyactivatecompetitionforalongwaytogo.

Asforcompetition law-basedsanctions, theworkinggrouppro-posedthatitbeassessedwhetherpersonalcriminalsanctionscouldbeintroducedinseverecasesofbiddingcartels.Therearetwotopicalavenuesforstrengtheningcartelpolicy:increasingtheriskofexposureandsharpeningtheremediesandsanctionsresultingfromexposure.

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Finnish Competition Authority’s resources

TheworkinggroupproposedthattheFCA’sresourcesbesubstantiallyincreased.Inthelightoftheworkinggroup’spositions,agrowthandproductivity-orientedpublicpolicyimpliesanincreaseduseofthemar-ketmechanismandsystematicreinforcementoftheworkabilityofcom-petition,whichpresupposesastrongoperatingcapacityofcompetitionauthorities–bothforreactiveandproactiveaction.

Other recommendations related to markets and competition

Accordingtotheworkinggroup,publicproductionandpublicwelfareservices,publicprocurementandpublicdatabasesarefocalissuesforagrowthandproductivity-orientedpublicpolicy.Increasingtheproduc-tivityandloweringthecoststhereofdoesnotnecessarilypresupposelegislativechanges;throughre-arrangementsoftheproductioninitspossession,governmentmaycarryoutreformswhichpromotecompe-titionveryquickly.

Theworkinggroup’srecommendationsconcernboththecreationofnewmarketsandthestrengtheningofcompetitioninthesteeringoftheservicestructuresofthewelfaresociety.Uponrealisation,suchreformprocessesalsocreatemoreroomfortheexpansionofoperatingmod-elsdifferingfromeachotherastotheirownershipandgovernanceinamannerpromotingemploymentandproductivity.Theworkinggroupfindsthattheprivatesector,non-profitenterprisesandorganisationsandcivicorganisationscouldbeutilisedmoreasproducersofpublicservicesandcooperationpartners.

Withreferencetotheabove, theGrowthInitiativeworkinggroupsupportedtheenactmentofthealreadyextensivelypreparedlegislationongovernment-ownedproductionactivitiessafeguardingcompetitiveneutralitybetweenpublicandprivatebusiness,andbroughtuptheneedtoassesscompetitionneutralityalsobetweenthirdsectororganisationsandotheroperationalunits.Emphasisingthesignificanceofcompeti-tionneutralityisnecessarybecauseotherwisetheeffortstoachieveeffi-ciencyandproductivitygainsthroughthemarketmechanismandcom-petitionmaybeseriouslyjeopardised.

Toaremarkabledegree,effortstoboostproductivityconcernenhanc-ingandexpandingtheuseofpubliclyownedcapital(suchasrealestatepropertyanddatabases).Itistypicaloftodaytounderutilisesuchcapi-tal,becauseprivateactorscannotalwaysusethiscapitalatall,oriftheycan,anexcessivelyhighpriceischargedforit.Thecompetitivepositions

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The ”Competition Policy and Green Growth. Inter-actions and challenges” re-port published by the Nor-dic competition authorities in autumn 2010 stresses the significance of workable competition and competi-tion policy in the generation of economic growth based on sustainable development.

basedontheuseofsuchpubliccapitalbetweenpublicentitiescontrol-lingthesaidcapitalandprivateactorsthreatenthereforetobesignifi-cantlydistortedforthebenefitofthepublicentities.

Theworkinggrouphenceproposed for example that theprivatesectorandcivicorganisationsshouldbeallowedtousethepublicsec-tor(e.g.healthcareandschoolsystem)infrastructuretoalargerextentthanispresentlythecasewhenthepublicsectorisnotusingititself.Inaddition,theinformationintheauthorities’possession,gatheredonstatutorygrounds,shouldbesubmittedtotheuseofcitizens,scholars,enterprisesandotherorganisationsforfreeoratapricewhichonlycov-erstheextraormarginalcostsresultingfromthesubmission.Thede-velopmentoftheknowledgeandinformation-intensiveservicesectorsandthemarketofinformationproductscouldhencebesupportedandnewkindofproductivity-enhancingmodelsforactivityandcommod-itiesimprovingwelfarebedeveloped.Atthesametime,competitionneutralityshouldbesecured;anissuetheworkinggrouppaidsystem-aticattentiontoinotherrespectsaswell.

Environmentally sustainable growth

Uponexaminingthepossibilitiesofpublicpolicytoboostproductivitydevelopment,itisnecessarytoassessthesustainabilityofenvironmen-talimpactsaswell.Suchimpactsmaysometimesserveasconstraintstothegrowthandproductivity-orientedpublicpolicy,but”greengrowth”mayalsooffernewandquicklyexpandingoperatingpossibilities–bothnewmarketsandproducts –theuseofwhichmayboosteconomicgrowth.Newproductsmaybegearedtoenvironmentalprotectiondi-rectly,ortheymayhavebeenmanufacturedortheymaybeusedinamannerstrainingtheenvironmentsubstantiallyless.

AccordingtotheGrowthInitiativeworkinggroup,thenew“green”technologyhasagrowingmarketinthefuture.Inthiscontext,thework-inggroupstressedtheuseofpricesignalsandstrongeconomicsteer-ingmethodstodirectandenhanceeconomicgrowthinanenvironmen-tallysustainabledirection.Becausethepricesignalsdonotnecessarilyperfectlyreflectthedefactosocietalreturnoninnovationsrelatingtoenvironmentalprotection,theworkinggroupalsopaidattentiontothepossibleneedtospurwithvariousformsofsubsidiestheinnovationactivitiestargetinggreentechnology.

ThejointreportbytheNordiccompetitionauthoritiespublishedlastyearalsostatesthatgreengrowthisstillpossible,providedthatright

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kindofincentivesarecreatedforit.Accordingtothereport,theincen-tivesofenterprisesandothereconomicoperatorstodecreasetheharmtotheenvironmentandtodevelopnewmoreenvironmentallyfriendlyproductsandproductionprocessesholdakeyposition.

Pricesignalsreflectingenvironmentalgoalsmediatedthroughthemarketmechanismspur,incompetition,actorstoengagethemselveswith conduct supporting sustainable growth. When competition isworkable,thepricesignalsareeffectivelytransmittedtothemarketactors.Themoreeffectivetheeconomicincentivesofsustainablede-velopment,thefasternewinnovativeenterpriseswillenterthemar-ket,andthequickerentirelynewmarketsandmarketsegmentswillemergeintheeconomy.

Summary

All in all, it may be concluded from the work of the Growth Initiative working group that the core issues of a public policy strategy re-inforcing economic growth include the crea-tion and development of the market mecha-nism and competition – and correspondingly, the combating of legal monopolies and regu-lation significantly harming competition, con-centrations severely restricting competition, and the shortcomings of competition neu-

trality. This position is in line with growing amount of economic literature emphasizing the role of competition as the reinforcer of the productivity development.

Cf. the joint publication of the Nordic com-petition authorities: ”Competition Policy and Financial Crises. Lessons Learned and the Way Forward” (2009), Table 1, s. 43.

http://www.kilpailuvirasto.fi/tiedostot/Competition-Policy-and-Financial-Crises.pdf#page=44http://www.kilpailuvirasto.fi/tiedostot/Competition-Policy-and-Financial-Crises.pdf#page=44http://www.kilpailuvirasto.fi/tiedostot/Competition-Policy-and-Financial-Crises.pdf#page=44

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The task of the author Dr Pol. Sc. (Econ) Tom Björkroth at the FCA is to support case-handling with the aid of economic analy-sis. His job description also includes participation in the international cooperation of competition authorities from the economic perspec-tive. Björkroth represents Finland e.g. in the Chief Economists working group at the ECN network.

SENIOR RESEARCH OFFICER TOM BJÖRKROTH

On the economic analysis of competition restraintsWhenconsideringthegroundsastowhycompetitionisconsideredso-ciallydesirable,wemustreturntothe1700satleastwhenthefatherofliberalismAdam Smith (1723–1790)recordedhisthoughtsastowhythebakerproducesandsellsushisbread.Latergenerationshavebeenable todemonstratebymeansofsciencewhytheselfishnessofeco-nomicactorsinrelationtoconsumersandotherentrepreneursleads–fromboththeperspectiveofdivisionofbenefitandtheuseofresourc-es–tothebestpossibleresultinaneconomicsense.Smith’sthoughtshavebeenfurthercultivatedasaresultoftheworkdonebye.g.Leon Walras(1834–1910),Vilfred Pareto(1848–1923),Kenneth Arrow(1921–)andGerard Debreu(1921–2004)tosupportthedefenceofthesystemsbasedonfreeexchange.

Theabove-mentionedishopedtoexemplifythattheanalysisoftheimpactsofcompetitionandanyrestrictionstheretohavebeenatthecoreofeconomicanalysisfromthestart.Itmustbestatedatthesametimethatthedivisionintolegalandeconomicassessmentofcompetitionre-straintsisnaturallysomewhatartificial,sincecompetitionlawanalysis

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restsfirmlyonthecentraldoctrinesofeconomictheorywhichhavesurvivedwelltheravagesoftime.

IntheassessmentoftheapplicationofECcompetitionlaw,adi-visionhasbeendrawnbetweenformalisticlegalassessmentandtheassessmentofeconomicimpacts.Inherrecentarticle,ProfessorAli-son Jones1 admirablydescribesthepolicydefinitionsoftheEuropeanCommissionandthechangeofthecompletionrulesinthelightofthedifferentmodernizationphases.Lookingback,thereislittledoubtastotheformalisticcaselawbeingdominantsofarbuttheemphasisisnotnecessarilypermanent.

Looking forward, it seemsobvious that the ’moreeconomicap-proach’launchedattheendofthe1990salsomeansthateconomicswillstepintothelimelightoftheoverallassessmentofcompetitionlaw.Inadditiontocaselaw,andsofarparticularlydecisionsonmerg-ersandacquisitions,thefoundingofthepositionofaChiefEconomistattheDGIVin2003alsoreflectsthis.

Invasion of empirical methods

Atthetimewhenthisisbeingwritten,itisclearthatthenewapproachdoesnotonlyinvolvearenewedappreciationforthetheoriesofeco-nomics;italsomeansastronginvasionofempiricalmethodstypicalofeconomics.E.g.theCommissionpublication“BestPracticesonsub-missionofeconomicevidence”from2010andthemorefrequentuseofquitesophisticatedmethodsinthecompetitionlawassessmentofmergersandacquisitionsspeakofthelatter.Manyofthemostdistin-guishedeconomistsofourcontinent(Finlandincluded)havealreadyaccumulatedsubstantialknowledgeinthisarea,andtheyarewellpre-paredtodraftandpresentevidencesupportingtheparties’claims.

Itisprobablytypicalofalldisciplinesthatwhenthesizeoftheprofes-sionincreases,sodoesthespectrumofthequalityofwork.Addthein-creasedimportanceofeconomicanalysis,andthismayhaveactedasanimpulsetothedraftingofinstructionsonthesubmissionofeconomicevi-dence.Theinstructionsarenotnewinthemselves,andaclearconnectioncanbeseentotheso-calledDaubertcriteriacontainedintheSupremeCourtdecisionissuedintheUnitedStatesbackin1993.

ThejudgementinDaubert vs Merrell Dow Pharmaceuticals (509U.S.579)promptedthecourts toassessscientificevidenceat leastfromtheviewpointofthefollowingfourfactors:i)hasthetheoryor

1Cf.Jones,Alison(2010),LeftBehindintheModernisation?–RestrictionbyObjectunderArticle101(1),EuropeanCompetitionJournal6(3),649–676.

http://caselaw.lp.findlaw.com/cgi-bin/getcase.pl?court=US&vol=509&invol=579http://caselaw.lp.findlaw.com/cgi-bin/getcase.pl?court=US&vol=509&invol=579http://www.ingentaconnect.com/content/hart/ecj/2010/00000006/00000003/art00004

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methodbeentestedbefore,ii)haspeerevaluationbeenappliedtotheproposedorusedwork,iii)aretheerrormarginsacceptableandiv)isthemethodathandcommonlyacceptable?

In 2010, the European Commission published guid-ance on the best practices on submission of econom-ic evidence. The guidance emphasises three main fea-tures which are suitable guidelines for all who seek to apply the economics of the field for analytic purposes:

• Firstly, it should be ascertained that the analysis used fulfils certain minimum criteria. These are most-ly related to the chosen methodology but also to the approach itself. Those conducting economic analysis have an obligation to lean on fairly established or other-wise theoretically well grounded practices in the choice of approaches and methods. The idea shall not arise, however, that a skilful and logically built argumenta-tion based on the information at hand could not be sufficient. In the end, the premises of tenable argu-mentation relate to causalities which have been veri-fied by science. The logical use of theory and empiri-cism is heightened here. It mostly imposes challenges but may also open up some possibilities for so-called eclectic approach and rhetoric drawing from different disciplines.

• Secondly, the approaches and methods used should enable possible replication of the informa-tion exchange and results. This concerns methodolo-gies exploiting quantitative data, in particular, and this possibility has long been demanded in econometrics. In other words, in order for an analysis to be consid-ered reliable, a critical observer must be able to follow the chain of thought and it shall be further illustrated,

where necessary. This ensures that the methodology and thinking used do not deviate too far or unjustifia-bly from the main doctrines of economics.

• Thirdly, the Commission recommends the efficient use of reliable and relevant evidence. This part of the recommendation should naturally also concern the au-thorities to avoid the gathering of unnecessary infor-mation, which burdens all parties. The data used shall be appropriate for the assessment of the antitrust vio-lation, which is not always so easy to achieve. In this sense, too, economic theory and studies and method-ologies which have undergone peer review provide val-uable guidance on the choice of material. The tempta-tion and motivation to use data which confirms one’s own views is sometimes great – particularly if substan-tial financial interests are involved. For this reason, it is unlikely that the differences in opinion will ever be totally done away with.

Cf. ”Best Practices for the Submission of Economic Evidence and Data Collection in Cases concerning the Application of articles 101 and 102 TFEU and Merger Cases”.

Best Practices on submission of economic evidence by the Commission

http://ec.europa.eu/competition/consultations/2010_best_practices/best_practice_submissions.pdfhttp://ec.europa.eu/competition/consultations/2010_best_practices/best_practice_submissions.pdfhttp://ec.europa.eu/competition/consultations/2010_best_practices/best_practice_submissions.pdfhttp://ec.europa.eu/competition/consultations/2010_best_practices/best_practice_submissions.pdf

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Challenges and opportunities

TheprocessofeconomicanalysisismademorechallengingbythefactthatinsituationsofconflicttheMarketCourtortheSupremeAdmin-istrativeCourtarethebodieswhoultimatelyassessthecredibilityandexcellenceoftheargumentspresentedandofthesupportingevidence.Complicatedeconomicassessmentandevidenceshouldbeopeneduptotheclientandcourtintelligiblyinorderfortheanalysisconductedtohaveameaning.

Additionally, the theoreticmodelsand thoughtprocessesused incompetitiveimpactanalysisarecomplexandtheyconstantlyevolve.Ad-ditionaldemandsarehenceimposedonthepartyassessingtheargu-mentationifandwhentheywishtobasetheirdecisionsontheexplan-atorymodelsandmethods.

Theclaimforcomprehensionandpopularisationimposeschal-lengesbothforscholarsandthoseapplyingscience,andpresuppos-esactivedialoguebetweentheparties.Theconnectionbetweenthejudiciaryandeconomicexpertsoffersagoodopportunity,however,tointegrateacademicresearchasanintegralpartoftheneedsoftheappliedbranchoflaw.

Embracinganevolvingsciencerequiresconstantlearningandbrush-ingup.Togetherwiththestrongerroleofeconomicsitposesdemandsonboththeresourcesoftheauthoritiesandoftheotherparties.

Oneincentivefortheapplicationofcompetitioneconomicsanditsmethodologyisthepotentialforearningswhichrelatetothejustifica-tionandquantitativeassessmentofdamagesclaimsresultingfromaviolationoftheCompetitionAct.Thetaskisnotalwayseasybutitmay–dependingontheangle–emphasisethepositivequalitiesofthisdis-malscienceofeconomics,asitissometimescalled.

Summingup,theeconomicanalysisofcompetitionrestraintsisagrowingfunction,althoughdomesticacademicinteresttowardithassofarbeenrathermodest.Orientatingoneselftoitrequiresgoingthroughthebasicliteratureofthefieldandevensomemoreadvancedliteratureinasomewhatnewlight.Inthefuture,analyticalresultswillnotonlybederivedtopassastudymoduleorforfunbutratherinordertoveri-fyone’sownortheclient’sviewsandtoanalysecasesindepth.Thisre-quiresskillsandknowledgemanagementbothfromtheexpertshold-ingthecriticalswordofscience,theirbackgroundorganisationsandthepartiesassessingtheresultsofthedebate.

On the presentation of economic analysis to the Court, see OECD (2008), ”Presenting Complex Eco-nomic Theories to Judges. OECD Policy Round-tables”.

http://www.oecd.org/dataoecd/39/59/41776770.pdfhttp://www.oecd.org/dataoecd/39/59/41776770.pdfhttp://www.oecd.org/dataoecd/39/59/41776770.pdfhttp://www.oecd.org/dataoecd/39/59/41776770.pdf

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The authors M.Sc.(Econ.) Mika Hermas and LL.M. Sanna Syrjälä are em-ployed at the FCA’s Indus-tries1 Unit; Hermas as an acting Head of Unit and Syrjälä as one of the Heads of Research. Cartel control forms a major part of the duties of both.

HEAD OF RESEARCH SANNA SYRJÄLÄ AND ASSISTANT DIRECTOR MIKA HERMAS

Mission of cartel control: heightening the risk of exposureA major concern of competition legislation and the FCA is the fight against cartels. It requires efficient intervention in cartels that are de-tected and increasing the risk of exposure.

The recent case law of the Market Court and the Supreme Adminis-trative Court has raised the level of fines up to where it may be assumed to heighten the risk of being caught. The new Competition Act and the possibilities awarded thereby; the FCA’s cooperation with public pro-curement agencies; and boosting the detection of cartels at the agency all aim toward the same goal.

Investigating cartel suspicions is a priority among the FCA’s activi-ties, and the agency conducts at least a preliminary investigation of all cartel suspicions brought to it. If there is enough evidence, the FCA shall use its full powers of investigation. As a rule, all cartel offences are brought before the Market Court irrespective of their economic signifi-cance, for the imposition of an infringement fine.

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New Act boosts control

The new Competition Act approved by the Parliament in the spring contains reforms which boost the FCA’s investigatory powers and which hence have a direct impact on increasing the risk of getting caught. The FCA has high hopes of the reform of the leniency system, in particular. Investigatory powers have also been increased, and a new provision has been added on the summons to be heard.

Leniency system

The leniency i.e. reduction and immunity from fines system has ma-jor significance for the investigation of the most serious competition restraints, particularly naked cartels. Underlying the amendments to the Competition Act was the FCA’s experience that the existing legisla-tion was not sufficiently clear, logical, and predictable for the efficient exposure of cartels.

Based on the experiences from the leniency system, the main needs for reform focus on the provisions on the reduction of the infringe-ment fine. Under the existing and the forthcoming Competition Act, a total immunity from fines is only possible for one business undertak-ing, which is the first one to deliver information on the offence to the FCA. The other business undertakings who deliver information still have the opportunity to a obtain reduction from the fines.

Based on the current Act, it has been difficult for the business un-dertaking who has considered seeking a reduction of the fine to pre-dict the discount granted from the infringement fine. This uncertainty has substantially weakened the incentive of the business undertakings to cooperate with the FCA when they have missed the opportunity for total immunity.

Under the new Act, the amount of the reduction shall depend on at what stage the information is given, i.e. the undertaking’s place in line (after the immunity applicant) to submit information containing added value to the agency. The first undertaking to deliver such infor-mation receives a reduction of 30-50 per cent, the second undertaking a reduction of 20–30 per cent, and the rest at most 20 per cent.

The new system brings a so-called racing element to the seeking of leniency and hence spurs business undertakings to contribute to the detection of a cartel at as early a stage as possible. In the current Act, in which the time of cooperation has not been relevant for the amount of the discount, it has been expedient for business undertakings to wait

– As a rule, all cartel of-fences are brought be-fore the Market Court for the imposition of an in-fringement fine, irrespec-tive of their economic sig-nificance, stresses Assistant Director Mika Hermas.

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for the completion of the FCA’s investigations prior to commencing real cooperation.

Another major amendment is related to the expansion of the pre-conditions of immunity from fines. The existing law has not provid-ed immunity if the FCA has already performed an inspection in the case. The opportunity for immunity even after an inspection awarded by the new Act spurs the undertaking to assist the investigations even in cases in which the FCA has already been in possession of informa-tion on the basis of which an inspection has been conducted. The pre-condition is hence that the undertaking seeking immunity delivers in-formation to the FCA on the basis of which the offence may be shown.

The Act also contains a new provision on the documents that are provided to the FCA for the leniency procedure. According to the pro-vision, the documents may not be used for any other purpose than the handling of a case concerning a competition restraint by the FCA, the Market Court or the Supreme Administrative Court, even if the FCA had submitted the documents to another party of the procedure on the basis of the Act on the Openness of Government Activities. The FCA shall also keep confidential the documents of an applicant of immu-nity as long as the said Act so allows.

This new provision on the documents is important from the point of view of the effectiveness of the leniency system. If the documents delivered by the applicant could be used for some other purpose than the handling of a competition restraint in the case in question, there would be a danger that the business undertakings seeking immunity or reduction from the competition infringement fine would be placed in an inferior position than the other members of a cartel as regards remedies in civil procedures. The incentive for seeking immunity and a reduction of the infringement fine would then be reduced, and the efficiency of the system would be seriously damaged.

Inspections of private premises

The new Act provides on the right of the officials of the FCA and the Re-gional State Administrative Agencies to perform inspections in other than the business undertaking’s own premises; for example in the private prop-erties and vehicles of company executives, board members and other per-sonnel. The current Competition Act has contained the same provisions when it comes to the European Commission, but the FCA itself has not previously had the powers for inspection of private premises.

The FCA shall publish new guidelines on the non-im-position and reduction of the competition infringe-ment fine in cartel cas-es (leniency) and entire-ly new guidelines on the assessment of amount of the competition infringe-ment fine.

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The right to inspect private premises is important for the efficiency, credibility and deterrent effect of competition control. Without it, the ef-ficiency of inspections could be jeopardized too easily by moving the ma-terial on a competition restraint away from the undertaking’s premises.

Summons to be heard

The powers of investigation are further supplemented by a provision of the new Act, according to which the FCA may summon a person who may for a justified reason be suspected to have been involved in the im-plementation of a competition restraint. The purpose of the provision is to ensure that the FCA has the opportunity to receive oral accounts in an investigation of a competition restraints case also at other times than during the inspection of a business undertaking’s premises.

Electronic inspections

Inter-company and internal communications in companies takes place more and more often in electronic form, and the role of electronic re-cordings in the investigation of competition restraints has therefore been heightened in recent years. The commonly applied inspection methods have up till now been primarily based on the scanning of indi-vidual documents and hence taken up much time.

Also, it is in the interest of those participating in the offence to hide the existence of material demonstrating a competition restraint, which complicates an inspection and the finding of documents. Methods of investigation have hence been introduced by which electronic materi-als may be efficiently perused in great numbers and by which hidden or destroyed electronic materials may be retrieved and made visible again.

The wordings of the current provisions on inspections have as such already enabled an extensive inspection of electronic materials even with more advanced methods. However, the provisions were still amended as to the wordings to better suit the terminology in the current electronic environment and to befit other legislation.

Significance of tip-offs

Tip-offs are important for efficient cartel control, and the FCA receives them over the phone and by e-mail. An electronic form was added on the FCA’s Internet page in autumn 2010 (so-called tip-off link),which enables anybody to easily send the FCA a tip-off about a forbidden com-petition restraint. The tip-off may also be given anonymously, although

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– A tip-off of a cartel or other competition restraint may also be sent anony-mously.

it is desirable to leave one’s contact information for further clarification of the information provided in the tip-offs.

The tip-offs are carefully screened at the FCA and recorded in a so-called tip-off base which facilitates the observation of cumulating tip-offs. Particularly interesting tip-offs are naturally reacted to immediate-ly. The FCA is currently investigating around a dozen tip-offs, and it will focus on the investigation thereof this year.

Methods for the follow-up of economic indicators have also been developed at the FCA which enable the detection of market phenome-na which may underlie cartel activities or otherwise collusive features. These methods have so far been applied to only a few fields of industry, but the development work continues.

Role of public procurement units in cartel control

Even though public procurement units have an inter-est to fight cartels, the legislation on public contracts sets such pressures in many respects that it is challeng-ing to pay enough attention to the cartel angle. In the procurement procedures observed, features may still sometimes be detected which may create favourable grounds for cartel conduct; the object of tender may for example recurrently be a similar product or serv-ice entity, or tenders may recurrently be invited from the same geographical area or from the same business undertakings.

The detection and combating of cartels is also made more complex by the fact that, as a rule, procurement units – for reasons of resources or otherwise – do not systematically follow the bidding conduct of compa-nies. Often there is also not much time for active co-operation with other public procurement organisations which would promote the detection of cartels.

For several years now, the FCA has sought to raise the awareness of public procurement units on the modes of operation of cartels and of means of combat-ing them. The FCA’s representatives have e.g. lectured on the topic in various parts of Finland in events ar-

ranged by procurement units, and organisations other-wise related to procurements, such as internal auditors.

Concrete examples have been presented during these events on what kind of observations may cause reason to suspect forbidden cooperation and what kind of evidence has been presented to the court. It has been stressed during these meetings that it is important for the detection of cartels and obtaining of evidence to keep the cartel suspicion confidential, although the Act on Public Contracts and the Act on the Openness of Government Activities impose challenges upon it.

The intention of the meetings has also been to give a ”face to a name” i.e. to introduce the FCA officials who conduct cartel investigations and thereby to low-er the threshold of public procurement units to contact the agency when necessary. As a result of these meet-ings, the FCA has received several contacts of suspi-cious findings, and some of the contacts have also led to further investigations. The detection of evidence has then remained the FCA’s task.

The FCA will publish a so-called buyer’s checklist, with the intention to increase the possibilities of the public procurement units for the detection of cartels.

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HEAD OF RESEARCH JARNO SUKANEN

Permitted forms of cooperation between competitorsCompetingundertakingscanengageinseveralformsofcooperation,whichmayleadtothecreationofmajoreconomicbenefits:thecoope-rationmayhelptomakecost-savings,increaseinvestments,improvethequalityofproductsandbringnewproductsandinnovationsfasterintothemarkets.

Butcooperationbetweencompetitorsmayalsoleadtotheimpedi-mentofcompetitionbetweenundertakings,whichmayuseittoelimi-natecompetitivepressureandincreaseormaintaintheirmarketpower.Thismaycausenegativeimpactsinthemarketse.g.intheformofahigherpriceleveloramorenarrowproductvariety.

Thisarticleexamineshowthepermittedcooperationbetweencom-petitorsisdefinedinEUcompetitionlaw.Astheformsofcooperationvaryandthereisagreatnumberofthem,itisdifficulttoprovideex-actanswersforeverysituation.Flexibleassessmentishencenecessary.

The author LL.M. Jarno Sukanen has been em-ployed at the FCA since 2006. His field of speciality at the Industries2 unit are competition issues relating to electronic communica-tions. In January 2011, he became a temporary Head of Research at the Indus-tries1 unit, where his re-sponsibilities include IPR matters.

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–It is important that com-petition authorities, and above all undertakings themselves, can distinguish restrictive cooperation ar-rangements from those which cause positive (effi-ciency) gains in the mar-kets.

Legislation

Article 101 of the Treaty on the functioning of the European Union(TFEU)prohibitsallagreementsbetweenundertakings,decisionsbyassociationsofundertakingsandconcertedpracticeswhichhaveastheirobjectoreffecttheprevention,restrictionordistortionofcompetition.However,accordingto101(3),theprohibitionmaybedeclaredinapplica-bleinthecaseofanyagreementorconcertedpracticewhichcontributestoimprovingtheproductionordistributionofgoodsortopromotingtechnicaloreconomicprogress,whileallowingconsumersafairshareof theresultingbenefit.Articles4and5of theCompetitionAct (theforthcomingArticles5and6)correspondbycontenttoArticle101TFEU.

InDecember2010,theCommissionissuedrevisedguidelinesonhorizontalagreements,andithasalso issuedseparateguidelinesontheapplicationof101(3)TFEUwhileassessingtheefficiencygainsfromthecooperation.Additionally,theCommissionhaspublishedseparateblockexemptionsonR&Dagreementsandespecializationagreements.

Whenthecriteriaforablockexemptionregulationarefulfilled,Ar-ticle101(1)TFEUshallnotbeappliedtotheagreement.Furthermore,accordingtotheDe MinimisNotice,Article101(1)TFEUshallnotbeap-pliedtoagreementsbetweencompetitorswhichhaveonlyanegligibleeffectoncompetition.

TheFCAalsousestheabove-mentionedCommissionguidelinesasaguidetointerpretationwhenassessingthepermissibilityofcooperationbetweencompetitorsaswellasappliestheblockexemptions.

Compatibility of cooperation agreements with competition rules

Atthefirststageofassessingtheapplicabilityofspecificcooperationagreementswithcompetitionrules,itisnecessarytoinvestigatewheth-ertheagreementshaveastheirobjectarestrictionofcompetition.Ifthisisthecase,theconductisforbiddenperseandasaruledoesnotmeettheconditionsforexemptionunder101(3)TFEU.

TheCommissionguidelinescontainseveralexamplesofconductbe-tweencompetitorsinwhichtheobjecthasbeenfoundtoberestrictionofcompetition.Typicallyitisconductresultinginagreementsonpric-es,marketpartitioning,orforeclosureofothercompetitors.Ifthecon-ductcomposesacartel,whichisconsideredaseriouscompetitionre-striction,itisalwaysforbidden.

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2011:011:0001:0072:EN:PDFhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2004:101:0097:0118:EN:PDFhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:335:0036:0042:EN:PDFhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:335:0043:0047:EN:PDFhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2001:368:0013:0015:EN:PDF

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Incasesinwhichtheobjectoftheagreementis notfoundtobetherestrictionofcompetition,thegenuineorpotentialrestrictiveeffectsoftheconductshallfirstbeestimated.

Inthenextstage–onlynecessaryifactualorpotentialrestrictiveef-fectsarefound–thesearecomparedtotheefficiencygainsobtainedthroughthecooperation.

Iftheefficiencygainsorotherpro-competitiveeffectsarebiggerthanthepotentialrestrictiveeffectsandtheyarealsopassedontothecon-sumers–andtheefficiencygainscannotbeobtainedbymeansrestrict-ingcompetitionless–thecooperationispermittedfromacompetitionlawviewpoint.

The assessment of restrictive effects is always case-specific, andhencedetailedguidancecannotbeprovidedonit:eachcasemustbeseparatelyassessedonitsmeritsandtheassessmentcriteriashallalwaysbeflexiblyapplied.Thepointofdepartureisthatacooperationarrange-mentbetweenundertakingscannothaverestrictiveeffectsifthepartiesdonothavemarketpower,eitherjointlyorseparately.

For some formsof cooperation, theCommissionguidelines con-tainso-calledsafeharbour thresholds,whicharerelated to thecom-binedmarketsharesoftheparties.Ifmarketsharesremainbelowthesethresholds,theCommissionfindstheexistenceofmarketpowerandhencetherestrictiveeffectsofthecooperationunlikely,andamorespe-cificanalysisisusuallynotneeded.

Inadetailedanalysisoftheeffectsofcooperation,attentionispaidtoseveralthingsincludingthetypeofcooperation,themannerofexe-cutionofthearrangement,andthespecificfeaturesofthemarketun-derreview.Thelikelihoodofrestrictiveeffectsshallbeassessedinrela-tiontoasituationthatprevailedpriortothearrangement.

Inanarrangementwhichneitherof theparties couldobjectivelythinkingperformalone,thearrangementcannothaverestrictiveeffectsasaruleanditisthuspermitted.Thismaybethecasee.g.injointR&Dorproductioncooperation,whichmayhelplaunchabrandnewprod-uctwhichnoneofthepartiesofthearrangementcouldhavemanagedaloneduetolackofresources.

Sometimesthecooperationmayalsobeusedtoavoidmultiplein-vestmentswhichareunnecessaryfromthepointofviewofeconomicefficiency.Ifcompetitionintheendproductmarketremainsagenuinepossibilityafterthearrangement,itusuallypromotesefficiencyandben-efitsconsumers,i.e.ispermitted.

As regards efficiency gains, it is important to examine what kind of supplemen-tary assets, know-how or other corresponding bene-fits the parties bring to the sphere of cooperation. The more the parties’ inputs supplement each other and form cost-savings or boost production e.g. by creat-ing economies-of-scale, the more likely the creation of efficiency gains which make the cooperation per-missible.

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Asregardsthecost-savingsachieved,attentionispaidtothetypeofcostthesavingsaremadein:savingsinvariablecostsaremoreimpor-tantthansavingsinfixedcosts,becauseinvariablecosts,thesavingsachievedaremorelikelytobepassedontothepricesoftheendproduct.

Thecooperationshouldnotunnecessarilyharmonisethecoststruc-tureofthepartiestoavoidthepossibilityofcoordinationofthepricelevelofthemarkets;suchanti-competitiveendresultwouldbelikelytorenderthecooperationprohibited.

Theamountofmarketpowerofthepartiesisalsoanimportantfac-torwhenthecompatibilityofthearrangementwithcompetitionrulesisassessed:thelessmarketpowerthepartieshave,themoreincentivestheyhavetopassontheefficiencygainstotheendusersandthemorelikelyitisthatthecooperationiscompatiblewiththecompetitionrules.

Guidance on information exchange

Itisoftennecessarytoassessthecompatibilityofthecooperationwiththecompetitionrulesalsofromanotherpointofviewthanthemainpur-poseofthecooperation.Itoftencontainsatleastinformationexchangebetweentheparties,andthesignificancethereofasregardsthecoope-rationarrangementshouldalsoalwaysbeassessed:

Iftheinformationexchangeislimitedtoonlythenecessaryinfor-mationasregardstheconductingofthecooperationarrangementandthecooperationassuchmaybejustified,itisunlikelythattheinforma-tionexchangewouldrenderthecooperationprohibited.Thewidertheexchangeofcommerciallystrategicandsensitiveinformation,themoreunlikelyitscompatibilitywiththecompetitionrules.

ThenewCommissionguidelinescontainanentirelynewsectiononinformationexchange;previouslytherehasnotexistedsimilarguidanceoninformationexchange.Inthisregard,theguidancewillbeusedintheassessmentofallformsofcooperationwhenthesecontaininfor-mationexchange.

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Cooperation between competitors may create many efficiency gains which possibly pass on to the con-sumers as lower prices or a more versatile product se-lection. The cooperation may help to introduce whole new products or create totally new markets.

The cooperation may also have anti-competitive ef-fects if the parties thus find it possible to maintain a higher price level, limit production or even foreclose competing actors.

For the above-mentioned reasons, competing un-dertakings should pay careful attention to the condi-tions imposed by the competition law when planning

cooperation. But undertakings should also be able to go through with projects which cause beneficial effi-ciency gains on the market.

The above-mentioned Commission guidelines may be used as aid to interpretation. The responsibility for the assessment of compatibility now lies with the un-dertakings themselves.

Dialogue with competition authorities is also pos-sible, although in the present system, the authorities no longer grant exemptions or negative clearances for the arrangements.

Summary

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HEAD OF RESEARCH VALTTERI VIRTANEN

Prioritisation of competition restraints cases and initial stage investigations Thenumberof contacts andopened cases arrivingat theFCAeachyearissolargethattheagency’sresourcesarenotsufficientforadetai-ledinvestigationofthemall.Theappropriateallocationofthesescarceresourcestotheinvestigationofcaseswhicharerelevantforeffectivecompetition,theeconomy,andpublicinterestisthereforeofprimaryimportance.

Itshouldalsobenotedthattheprohibitionsofrestrictivepracticesrequireacertaindegreeofsignificanceasregardsthefunctioningofthemarketsbeforetherestrictionmaybeconsideredprohibitedinthefirstplace.Hence,severalofthecasesclassifiedascompetitionrestraintsarenotnecessarilycoveredbytheprohibitionsoftheCompetitionAct.Interventioninrestrictionswhichareconsideredminorcouldalsobeconsideredunnecessaryadministrativesteeringwhich,insteadofsafe-guardingcompetition,couldevenhaverestrictiveeffects.

The author M.Sc. (Tech.) Valtteri Virtanen is em-ployed at the FCA’s In-dustries2 Unit, where his responsibilities include com-petition control in the fields of energy and telecoms. In addition to his own duties, Virtanen has actively partic-ipated in the development of the agency’s work proc-esses in recent years.

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Focus on major cases

TheaimoftheCompetitionActistheprotectionofsoundandeffectiveeconomiccompetitionfromharmfulrestrictivepractices.Uponappli-cationoftheAct,specialattentionshallbepaidtotheprotectionofthepreconditionsofthemarketsandthefreedomofbusinessundertakingstoenablecustomersandconsumerstobenefitfromcompetition.

Intheinvestigationofcompetitionrestraints,theFCAfocusesontherestraintswhichhavesignificancefortheeconomy.Inpractice,thismeansthattheagencyshallnotconductadetailedinvestigationofre-straintswhichareofminorimportanceandthattheagencyalsopriori-tisesthecasesthatareinvestigated.

Theprioritisationofcasesisbasedonanassessmentofthegainsthatthesociety,customersandconsumerswillgainfrominterventioninacompetitionrestraint,i.e.asaresultoftheefficiencyofthemarketandincreasedcompetition.Theissuealwaysinvolvesanoverallassess-mentwhichincludesanappraisaloftheharmcausedtoefficientcom-petition,andthecustomersandconsumers;theconsiderationoftheFCA’sperformancetargetsandstrategickeyareas;andthecomparisonoftheenvisagedendresultandtherisksrelatedtothegainingthereof.

Assessment criteria

Theprioritisationofcasesisoverallassessment,inwhichtheimpactoftherestraintonthefunctioningofthemarketmechanismisexamined.TheFCAalsoconsidersthegravityandimportanceofthecompetitionrestraintinprinciple–particularlywhetheranakedcompetitionisin-volved,forexampleahard corecartel.TheFCAalsopaysattentiontohowextensivelytheconductisappliedintheeconomyandwhatkindofgenerallyrestrictiveeffectsinterventioninthecompetitionrestraintwouldhaveonotherbusinessundertakingsandsectors.TheFCAalsoestimatesthegainstobeachievedviaaninterventionandthelikelihoodofthegainscomparedtotheinvestigatorycosts.

Ifthebusinessundertakinghasarighttosafeguarditsrightssome-whereelse,thismayalsohaveabearing–forexampleifthecompetitionrestraintmaybeeliminatedmoreefficientlythroughmeasuresofanoth-erauthorityhavingparalleljurisdictionorifthemattercanbemoreef-fectivelysettledincivilcourt.Whentheneedforfurthermeasuresisas-sessed,itisalsoconsideredwhethertherestrictiveconductstillcontinuesorwhetherithasbeenrenouncedduringtheproceedingsonthecaseorpriortothem.

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Prioritisedmattersincludenakedcompetitionrestraintsinwhichthearrangementhasnootherpurposethanrestrictingcompetition,andcompetitionrestraintsrelatedtoalargevolumeofoperationsoronesthataresignificantinprinciple.Casesinwhichtheconductispotentiallyrestrictiveandwhicharealsorelatedtoeconomicallyimportantactivitiesorotherwisewidelyappliedintheeconomyareprioritised.

GRAPH1Prioritisationprinciplesofcase-handling(firstpublishedinYearbook2010)

OnemajorgoalisthattheFCAisable,intheinitialstageofcasehandling,toeliminatecaseswhichhaveminorimportanceinthelightoftheabovecriteria.TheFCAmayalsoclosealong-pendingcaseifitfindsoutthatmajorchangeshavetakenplacee.g.inthecompetitiveconditionsandtheinvestigationofthecaseisnolongernecessaryafterthesechanges,orifnoevidenceofforbiddenrestrictionscanbefoundduringtheinvestigations.

Naked competition restraint

Related to large volume of operations and/ or is significant in principle

CLASS I

Grey area

CLASS 2

No naked or otherwise significant competition restraint

Small volume of operations

Not significant in principle

CLASS 3

ENABLES: Exclusion of operating models which are otherwise economically realistic

Anti-competitive coordination

Unreasonable or arbitrary conduct

WITHOUT MEANING A DIRECT NAKED

COMPETITION RESTRAINT

POTENTIALLY RESTRICTIVE OF COMPETITION

LARGE VOLUME

SIGNIFICANT EFFECT ON TRADE PARTNERS’ ECONOMY

FINAL PRODUCT

IMPACT ON : Costs

QualityInnovation

PRICE, QUANTITY AND QUALITY IMPACTS ON THE MARKET

INTERMEDIARY INPUT

RELATED TO ECONOMICALLY IMPORTANT ACTIVITY

Has the procedure been widely introduced based on

available information?

Is the procedure being widely introduced?

WIDELY APPLIED PROCEDURE

IN THE ECONOMY

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Schedule of first stage investigations

TheFCAseekstorespondtovariousinquiries,notificationsandso-cal-ledcitizens’initiativesandtoclosecaseswhichwillnotbeinvestiga-tedwithin one month.Ifthematterdoesnotfallwithinthiscategory,theFCAseekstomakeapreliminaryinvestigationin four months,du-ringwhichageneralpictureofthenatureandgravityofthecompetiti-onproblemwillemerge.

Ifthecaseisfoundtobeofminorimportanceinthepreliminaryin-vestigation,theFCAwillclosethecasein six months from the institu-tion of proceedings.CaseswhichhavemoreimportancearehandledintheFCA’ssteeringgroupwhichwilldecideaboutfurthermeasures.Aplanofinvestigationisdrawnup,andthepartieswillbenotifiedoftheopeningupofamoredetailedinvestigationifthiscanbedonewithoutjeopardisingtheinvestigations.

Withtheaidofprioritisationandtheschedulingofcases,theeffec-tivenessofcompetitioncontrolwillbedirectedtowhereitismostrel-evant.Prioritisationwillpromoteamore topicalandfasterhandlingofcasesofmajorimportance,andishenceanintegralpartofeffectivecompetitioncontrol.

The new Competition Act will provide the FCA with better opportunities for an appropriate prioritisation of cases and an efficient use or resources. When the law becomes effective, the FCA will publish guidelines on prioritisation in the han-dling of competition re-straints cases.

Economic competition involves a constantly opera-ting market mechanism which rewards the companies which are able to produce goods or services which customers and consumers value as regards their pri-ce, quality, availability or other characteristics. The products produced in de facto or potential competi-tion meet the needs of customers and consumers in the best possible way. At the same time, a minimum amount of costs are incurred to society from directing the economic resources to efficient use.

Supervision of compliance with competition rules involves the protection of the market process against competition restraints concluded by undertakings be-tween themselves and the abuse of dominant posi-tion. An essential part of the market process is also the principle of freedom of business but it is protected by means of competition law only when the conduct by a competitor or trading partner clearly has negative effects on the market. The saying goes, ”Competition rules protect competition, not the competitors”.

Safeguarding the market process as a main goal

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HEAD OF RESEARCH MAARIT TAURULA

New Competition Act and merger control ThenewCompetitionActwillintroduceseveralchangesintoFinnishmergercontrol,themostimportantofwhichisthechangeinthesub-stantivetestformergers.Thereformwillalsobringaboutsomeproce-duralchangeswhichhavesignificanceforthepracticalfunctioningofmergercontrol.

From dominance test to SIEC test

Onthebasisoftheso-calleddominancetestappliedinFinlandsofar,ithasbeenpossibletointervenewithamergerif,asaresultofit,adominantposi-tionhasarisenorbeenstrengthenedwhichhassignificantlyimpededcom-petitionintheFinnishmarketsorasubstantialpartthereof.Interventioninamergerhashencerequiredthecreationofasoleorjointdominantposi-tionorthestrengtheningthereofforoneorseveralparties.

Withthelawreform,FinlandwillbeapplyingaSIECtestconform-ingtotheECMergerRegulation,onthebasisofwhichamergermaybeprohibitedorconditionsmaybeattacheduponit,ifasaresultofit,therewillbeasignificantimpedimentofeffectivecompetitionintheFinn-

The author LL.M. Maarit Taurula has been employed as Head of Research in the FCA’s Merger Control Unit from May 2010. She has been with the FCA since 2000. She also participat-ed in the preparation of the 2004 law reform.

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ishmarketorasubstantialpartthereof.Themaindifferencebetweenthenewandtheoldtestisthat,withtheSIECtest,itisalsopossibletointervenewithmergerscausingharmfuleffectswhenadominantposi-tionisnotnecessarilycreatedtoanyone.Thecreationorstrengtheningofadominantpositionisstillmentionedasanexampleinthesectionoflaw,however,andasaspecialinstanceofasignificantimpedimentofeffectivecompetition.

TheassessmentofmergersisbasedontheSIECtestorsimilarintheEU,themajorityoftheMemberStatesandmanycountriesoutsidetheUnion,suchastheUnitedStates.TheintroductionoftheSIECtestwillhenceleadtotheharmonisationofmergerassessmentbetweenFin-landandtherestoftheEU.Forthecooperationofthecompetitionau-thorities,theharmonisationispositivebecauseite.g.easesthereferralofmergercasesbetweentheCommissionandtheMemberStates.ItwillalsobemorenaturaltoseekguidancetointerpretationinthedomesticcasesfromthemergerdecisionsoftheCommissionandtheEUcourtswhentheassessmentisbasedonthesametestinFinlandandtheEU.

Change of test in practice

ThekeycriterionaccordingtotheSIECtestistheimpedimentofef-fective competition, and the creation of a dominant position or thestrengtheningthereofisonlyoneofitsmanifestations.However,eveninthefuture,adominantpositionwillremainthemain,butnotthesole,criterionwherebythemergermaypreventeffectivecompetition.

Thedominancetesthasenabledonlylimitedinterventionwithmerg-ersinwhichthemarketleaderisnotinvolvedinthearrangement.TheSIECtestwillclosethispotentialgapinthefieldofapplicationofthedominancetest,asamergermaycauseharmfulcompetitiveeffectsinanoligopolisticmarket inparticular,even ifsoleor jointdominancecouldnotbedetected.

Inhorizontalmergers,thecompetitivesituationwhichprevailedbe-tweenthepartiespriortothearrangementwillbeeliminated.Ifapartyhadraisedpricespriortothedeal,itwouldhavelostatleastsomeofitssalestotheotherparty.Themergerwillremovethiscompetitivepres-sure.Additionally,thedynamicsofcompetitionmaychangeasaresultofthedealinrelationtootherthantheinterestedpartiessoasthatthecompetitivepressuremetbytheremainingcompetitorswilldecrease:asaresultofthepriceincreaseimplementedbytheconcentration,someofthedemandmayshifttocompetingundertakingswhichmayalsofinditprofitabletoincreaseprices.Thelesseningofcompetitiveintensitymay

The main difference be-tween the new and the old test is that, with the SIEC test, it is possible to also in-tervene with mergers caus-ing harmful effects when a dominant position does not necessarily arise to a sin-gle party.

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henceleadtosignificantpriceincreases,althoughthecoordinationofthebehaviourbetweenthemembersoftheoligopolyandhenceajointdominantpositionwouldnotbelikely.

Thenewtestwilldirectattentionmoreclearlythanbeforetothecom-petitiveeffectsofthemerger,andeconomicanalysisisemphasisedintheapplicationthereof.Amergercanonlybeintervenedwithifasare-sultofitanundertakingmayuseitsmarketpowereitherindividuallyorjointlywithotherstothedetrimentofconsumers.Theeffects-basedassessmenthasalsobeenpartoftheapplicationofthedominancetestbutthetrendislikelytogrowstrongerwiththenewtest.

Withastrongerfocusonthecompetitiveeffectsofthemergerandlesssoonmarketsharesandotherstructuralconsiderations,itisalsopossibletobetterallowforfactorsbalancingthemarketpoweroftheconcentrationintheassessment.Theseincludethebargainingpowerofthebuyersandpotentialcompetition,i.e.thepossibilityofentrybyotherundertakingsorthepossibilityofincumbentstoexpandopera-tions.Theefficiencygainsofthemergerwillalsoreceiveattentioninaneffects-basedanalysis,albeititisstilltheresponsibilityofthepartiestodemonstratetherealisationoftheefficiencygainsandthebenefitac-cruingtotheconsumers.

However,thenewsubstantivetestcannotbeexpectedtobringradi-calchangestotheFCA’smergercontrol.Thethresholdforinterventionwillnotchangedecisively,anditislikelythateveninthefuturethecre-ationandstrengtheningofadominantpositionwillbethemosttypicalsituationsinwhichthemergerisseentosubstantiallyimpedeefficientcompetition.Marketdefinitionandmarketshareswillremainimpor-tantbutnotnecessarilypivotalpartsoftheassessment.Theinvestiga-tionswillfocusontheeconomicbasisofmergersandthelikelyconductofthemarketactorsfollowingthemerger.

Amendments in merger control procedure

TheCompetitionActwillremovethedeadlineimposedonthenotifi-cationobligation.Upuntilnow,thepartieshavebeenobligedtonotifytheFCAwithinaweekfromthesigningofthesalescontractorothersuchmeasurestriggeringthenotificationobligation.Inthefuture,thelawdoesnotimposeadeadlineformakingthenotificationbutthemer-gerstillcannotbeimplementedbeforeafinaldecisionhasbeenissuedinthecase.Inpractice,theFCAhasflexiblyappliedthedeadlineevennowandgrantedcontinuanceuponrequest.

A merger can only be inter-vened with if as a result of it an undertaking may use its market power either in-dividually or jointly with others to the detriment of consumers.

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Inthefuture,theFCAmayalsoinvestigateamergerforwhichafi-nalcontracthasnotbeenmade.ThemergermaybenotifiedtotheFCAimmediatelywhenthepartiescandemonstratetheirintenttoconcludethemergerwithsufficientcertainty.Aletterofintentsignedbyalltheparties,amemorandumofunderstanding,ortheannouncementofapublicbidallqualifyasademonstrationofthis.

TheplanofmergershallbesufficientlyconcretefortheFCAtostartitsinvestigations.TheFCAcannotinvestigatemergersthatarenotpub-lic.Insuchcases,thedeadlinesforactionwillnotstarttorun,evenifthenotificationisotherwiseappropriatelymade.

OnthebasisofthenewAct,theFCAmayextendthedeadlinesifthepartiesorentitiespartoftheirGroupdonotproviderelevantinforma-tionfortheinvestigationofthemergerwithinthedeadlineimposedbytheFCA.Thesameappliesiftheinformationissignificantlyincompleteorinaccurate.Theprovisionisprimarilyintendedtobeappliedtocasesinwhichacompanydeliberatelyfailstodeliverinformationordeliversthemincompleteorinaccurate.

Deadlinesmayusuallyonlybeextendedwhenthe informationissuchthatthoseobligedtonotifyareabletodeliverthem.Forexample,incaseofahostilebidthisisnotalwaysthecase.Failuresbythirdpar-tiestodeliverinformationdonotresultintheextensionofthedeadlineseither.TheFCA’sdecisiontoextenddeadlinescannotbeseparatelyap-pealed;thismustbedonewhenappealingtheprincipalclaim.

Inthefuture,thenotifyingpartiescannotappealamergerdecisionbywhichtheremediesproposedbythenotifyingpartieshavebeenor-deredtobefollowed.Bylimitingtherightofappeal,suchinstancesareavoidedinwhichthenotifyingpartiesnegotiatetheconditionswiththeFCAandthenappealtheconditionstotheMarketCourtdemandingatthesametimeanimmediateimplementationofthedealandpostpone-mentfortheconditionsuntilthefinaldecisionbytheCourt.

Inconditionalmergerdecisions,afavourabledecisionandthecondi-tionsimposeduponitformoneentity.Aconcentrationwhichhasbeencarriedoutwithoutconditionsbeingimplementedwillcreatethecom-petitionproblemsduetowhichtheconditionswereimposedinthefirstplace.AttentionshouldbepaidtothefactthattheFCAcannotimposeconditionswhichthenotifyingpartieshavenotaccepted.Ifaconclusionisnotreachedonsuitableconditions,theFCAwillmakeaproposaltotheMarketCourttobanthedeal.

WhenamergercaseisbroughtbeforetheMarketCourtthroughaproposalforaprohibition,thecaseshallbehandledbytheCourtinthree

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month’stime.Itishencepossibleforthenotifyingpartiestoobtainaquicksolutionfromthecourtinasituationwheretheycannotapprovethenegotiationresultonthecontentoftheconditions. The FCA shall pub-

lish revised guidelines on merger control when the Competi-tion Act enters into force.

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SENIOR RESEARCH OFFICER JUHA KARJANLAHTI

Excessive pricing from the point of view of competition rulesEffectiveeconomiccompetitionmeansthatconsumershaveachoice,i.e.thattherearegenuineoptionswhenmakingdecisionsaboutcon-sumption.Consumersmayhenceselectaproductfromamongtheop-tionsinwhichthepriceandthepropertiesbestmeetwiththeirpre-ferences.Whencompetition issound,aproductwhichisoverpricedinrelationtoitspropertieswillnotsell,andthepricelevelwillstayincheck.Undertakingsalsohaveanincentiveforefficientactivities,becau-seineffectiveundertakingswillhavetoexitthemarketsoonerorlaterwhencompetitionissound.

Itistheprimarytaskofthecompetitionauthoritiestomakesurethat,by theirconduct,undertakings–either individuallyor togetherwithcompetitors–donotlimittheconsumers’choiceorartificiallyraisethepricelevel.Acartelisanexampleofaprocedureinwhichundertak-ingsjointlyagreeaboutrestrictiveconduct.Insomecases,anundertak-ingmayhavesuchastrongmarketpositionalonethatbyitsownmeas-uresitwillbeabletopreventorcomplicatetheactionsofitscompetitorsortheirentryintothemarket.

The tasks of the au-thor M.Sc.(Econ.), M.Sc. (Tech.) Juha Karjanlah-ti have recently included investigations of the dis-trict heating sector and the commitment decisions is-sued by the FCA on the connection fees of some tel-ecom operators.

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Oneoftheformsofconductenabledbyastrongmarketpositionisex-cessivepricingwhichmayoccureitherwithouttherestrictiveeffectsorasmeansoflimitingcompetition.Inthepreviouscase,theundertakingseekstodirectlymaximiseitsprofitsthroughexcessivepricingattheexpenseofconsumers.Inthisarticle,excessivepricingreferstothisformofconduct.Inthelattercase,thebenefitoftheconsumersisindirectlyinfluencedbycomplicatingtheactivitiesofthecompetitorsthroughpricing.

Monopoly position and pricing power

Insomecircumstances,therearenoproperconditionsforthecre-ationofcompetition.Anindividualactormayhavebeengrantedthesolerighttoaspecificactivitybasedonlegislation,orasectormaybeinvolvedinwhichtheeconomies-of-scalearesolargethatthereisonlyroomforoneundertakingtooperateprofitablyinthatsector.Thefirstoneconcernsalegalandthesecondoneanaturalmonopoly.

Insuchasituation, theundertakingmayuseso-calledmonopolypricing,i.e.itcansetthepriceatalevelwhereitsprofitismaximisedattheexpenseofconsumers.Monopolypricingdoesnotmeanthatcon-sumerswouldbereadytopayanexcessivepriceforaproductbecauseofitsbrandorsomeothercharacteristic;itmeansthatconsumers lack genuine alternatives.Harmmayalsoaccruetoconsumerswhenamo-nopolydoesnothavesufficientincentivesforefficientactivities.

Anundertakingmayhavesufficientmarketpowerforpricingwhichisdetrimentaltoconsumersevenifitdoesnotoccupyafullmonopolyposition.Anaturalmonopolyisjustthemostextremeexampleofsuchasituation.Thepossibilityofanundertakingtosetitspricesisatitsbiggestinamonopolyposition,anditusuallygraduallydecreaseswhenmarketpowerdiminishes–atthesametimethatthenumberofalter-nativeproductsincreases.

Thecapacitytosetprices,i.e.pricingpower,isdeterminedindiffer-entmarketsonthebasisofvariousfactors,butanaccompanyingfac-torisusuallyalwaysarelativelyhighmarketshare.Theexistenceofop-tionshelpsatleasttoacertainextentinholdingthepricessteady,evenifthemarketpositionofanundertakingwouldbenearingamonopoly.

Excess forbidden

ThepurposeoftheCompetitionActisnotpriceregulation,i.e.imposingacertainpriceoralevelofprofitabilityonundertakings.Inthecaselawonexcessivepricing,thethresholdforinterventionhastypicallybeen

It is typical of exces-sive pricing that the prices have no con-nection to the costs related to the prod-uct, and the differ-entiation of the pric-es and the costs does not result from any characteristic of the product particular-ly valued by the con-sumer.

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setrelativelyhigh:thelevelofpricingwillmostlybeintervenedwithbymeansofcompetitionlawonlywhenitcomestoexcesses.Thecapacityforthiskindofpricingrequiresinpracticethatthepricingpoweroftheundertakingnearsthepricingpowerofamonopoly.

Excessivepricingmaybebestdemonstratedifapointofcomparisoncanbefoundforanallegedlyexcessiveprice;ifaclearstructuralprob-lemmaybefoundinthepricingoftheundertaking;orifapriceincreaseisinvolved.Itmaybedifficulttofindapointofcomparisonbecausethepossibilitiesforexcessareattheirbiggestwhentherearenocompetingproducts.Inpractice,excessivepricingwillusuallyhavetobeassessedwithoutthepossibilityforcomparisontothepricesofotherproducts.

Problem of the entire sector

TheFCA’sexperienceontheapplicationoftheprovisiononexcessivepricingoftheCompetitionActpromptsthequestionwhetherthepro-visionis,inallsituations,anappropriatevehicletothesolvingofpric-ingproblemsinamarketinwhichthecompetitionmechanismdoesnotwork.Thequestionisrelevantparticularlyinsectorswhichhavealargenumberofregionaloperatorsandinsectorsinwhichoperatorshavealegalmonopolyortheirpositionhasbeenreinforcedbylaw.Insuchinstances,thecreationofspeciallegislationtosafeguardtheinter-estoftheconsumersmayhavetobeconsidered.

Theprimarymeansofavoidingandsolvingpricingproblemsshouldalwaysbesafeguardingthefreedomofchoiceforconsumersbyensur-ingeffectivecompetitionandavoidingunnecessaryregulationinthemarket.Insomecases,regulationmaybeanappropriatechoice,how-ever,ifthebenefitoftheconsumerscannotbesafeguardedotherwise.Wellplannedandefficientregulationmaybeusedtoinfluenceaspe-cificsectormoredeeplythanthemethodsprovidedbytheCompetitionAct.Inadditiontopricing,regulationmaybetterallowforotherpossi-bleobjectivessuchasefficiencyorinvestmentincentives.

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The ”toolbox” used by the FCA contains the pos-sibility to directly intervene with excessive pricing particularly when the primary methods of the Com-petition Act which aim at increasing customer cho-ice do not work.

The effect of the primary means of influence has typically decreased in situations in which there is a near monopoly operating in the market and there

are major obstacles to entry – i.e. in situations in which competition functions particularly poorly.

The possibility to directly intervene with the price level is an important part of the FCA’s choice of methods on these occasions. It increases signifi-cantly the agency’s opportunities to solve the com-petition problems detected in the market.

Attheoutset,theapplicationoftheCompetitionActlimitsthepos-sibilityoftheauthoritiestohaveaninfluencebecausetheundertakingsthemselvesareresponsibleforfollowingthelaw,andanyinterventionsinabusesalwaystakeplaceafterthefact.Regulationcanbeusedbe-forehandtoestablishgroundrules,andsupervisionmaybeofacon-tinuousnature.

Role of interventions in excessive pricing in the FCA’s toolbox

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The author Ph.D. (Econ.&Bus.Adm.) Ari Ahonen has been em-ployed in various tasks at the FCA since 1999. He currently works at the Advocacy Unit. Ahonen bore the main responsibility for the editing and writing of the Competition sur-vey 2 published in the spring of 2011.

HEAD OF RESEARCH ARI AHONEN

Competition survey 2: Smart regulation – well-functioning marketsTheefficientandsensibleuseofthescarceresourcesoftheeconomyisoneofthebiggestchallengesofsocietaldecision-making.Finlandisalsofacedwiththeneedtodiversifytherangeofmeasuresofsocietalsteering.

Ashiftmaybedetectedfromsteeringbymeansofnormsandre-sourcestowardmorecustomerandmarket-orientedsteering.However,thetraditionalsteeringbymeansoflaw-basednormshasretaineditscentralpositionintheregulationofeconomicactivity.

Particularlyinthecontextofregulatingeconomicactivities,detailedsteeringbymeansofnormsmayunnecessarily increasethecostsofundertakingsandpublicadministration,reducetheincentivesforeco-nomicactivityandaltogetherdeterioratethefunctioningofthemarketsandhencetheentirenationaleconomy.Attemptshavehencebeenmadetopaymoreattentiontothequalityofregulationbasedonlegislation.

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Accordingtothe2010OECDreportBetterregulationinEurope:Fin-land,thepublicguidanceontheprinciplesofbetterregulationisquiteextensiveinFinlandandalsoofahighquality.ButtheOECDstillstatesthatthereisadistinctgapbetweentheprinciplesofpublicguidanceandpracticalmeasures.Inaddition,OECDpointsoutthattheconnectionbetweenbetterregulation,effectivemarketsandtheeconomicperform-ancehasnotbeensufficientlyunderstoodinFinland.

Inthecircumstancesfollowingtheinternationalfinancialcrisis,theunderstandingabouttheconnectionbetweenregulationandeconom-icactivityandthefunctioningofthemarketshasquicklydeepened.Atthesametime,theopportunitiesforpromotingtheinevitableculturalchangeintheadministrationhaveincreased.Thedangerineconom-icallydifficulttimesisthatstraightforwardsolutionstoproblemsaresoughtbymeasureswhichpossiblyproducequickerresultsthanthemarketprocessintheshorttermbutwhichproduceworseresultsinthelongterm.

Benefits shall exceed drawbacks

InthesurveypublishedbytheFCAinFebruary,thesubjectofbetterregulationisapproachedparticularlyfromthepointofviewofthead-vocacytasksetupontheFCA.Underlyingthistaskisthefindingthattherestrictiveeffectsofweakregulationmaybemoresignificantforthefunctioningofthemarketsthancompetitionrestraintsproducedbyun-dertakings.ThereforethetasksoftheFCAalsoincludethegeneralpro-motionofcompetitionandcompetitiveimpactanalysis.Thepublishedsurveyformspartofthiswork.

Duringthepasttenyears,advocacyandthepromotionoftheeffi-ciencyofthemarketshavegainedmomentum.Thepointofdepartureinadvocacyworkisnotthedismantlingofregulationassuchbutsmartregulationwhichreferstoregulationwhichiscorrectlydimensionedquantitatively;qualitativelyaccurateandofahighlevel;andmeasura-bleandhasadefactoimpact.Smartregulationisregulationwhichisgenuinelynecessaryandwhichhasbenefitswhichclearlyexceedthedrawbacks.

Some sectoral examples

Itisessentialforalltheabove-mentionedbasicquestionsordimensionsofbetterregulationthattherearenoready-madeanswersandsolutionswhichwouldworkinallsituations.Theappropriatenessoreffectiveness

–The restrictive effects of weak regulation may be more significant for the functioning of the markets than competition restraints produced by undertakings.

http://www.kilpailuvirasto.fi/cgi-bin/english.cgi?luku=news-archive&sivu=news/n-2011-04-29

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ofregulationisultimatelyalwaysanempiricalquestion,whichisdeter-minedbythedetailsofexecutionofthesaidregulationandtheprevai-lingcircumstancesofeachcase.

Inotherwords,thedetailsofregulationandtheprevailingcircum-stancesfrequentlyultimatelydeterminethesuccessfulnessofspecificregulationandthedevelopmentchallengesthereof.Becauseofthis,inadditiontogeneralprinciples,thesurveyalsoexaminesinmoredetailindividualsectoralexamplesastheyhaveappearedtotheFCAinthepastfewyears.

Thesectoralscrutinyhasbeenlimitedtofieldsinwhichregulationis,inonewayoranother,amajorelementoftheeconomicenvironmentandhasrelevancefortopicalsocietaldecision-making.The11industrieshavebeengroupedintofour:thenetworkindustries,theenvironment,publicundertakingsandothers.

Inorderofpresentation, thesectorsare the following: 1)post,2)broadbandmarket,3)banks,4)employeepensionscheme,5)construc-tion,6)trade,7)wastemanagement,8)municipalenterprises,9)publicbroadcastingbusiness,10)taxitrafficand11)districtheating.

Basic questions

The survey does not attempt to summarize the related discussion in its entirety but rather to raise the main issues from the point of view of better regulation and effective markets. These include at least the following:

1) Which are the arguments used to defend legisla-tive proposals and how well do these arguments cor-respond to the grounds proposed in economics for ju-dicial regulation?

2) What kind of regulatory standards is the analysis of the effectiveness and appropriateness of the legisla-tive proposals built on?

3) To what extent the regulatory options available to solve each problem have been charted and how well has the superiority of these options been compared?

4) Have the impacts of the chosen option been an-alysed and has the regulatory analysis been conducted in the proper way?

To summarize, smart regulation presupposes that at least the grounds and goals; scale; methods; and im-pacts of regulation have been carefully examined and analysed.

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Shortcomings in impact analysis in particular

TheFCA’ssurveyreinforcestoalargeextentthefindingoftheOECDre-portinthatthereisadistinctgapbetweenthepublicguidanceonbetterregulationanditspracticalimplementationwhenitcomestoalltheabo-ve-mentionedbasicquestions.However,thesurveypaysparticularat-tentiontotheimpactanalysisanditsapparentshortcomingsinFinland.

Thecornerstoneoftheimpactanalysisisthecost-benefitanalysis,thepurposeofwhichistoshowthattheaimsofregulationclearlyex-ceeditsdrawbacksandcosts.Theimpactanalysisisnotanisolated,expostperformance;instead,itisawayofthinkingcuttingacrosstheen-tirelegislativeandregulatoryprocess,whichlargelyintegratesandop-erationalisesthethreeotherabove-mentionedelementsordimensionsofbetterregulation.

TheEuropeanCommissionhasalsostatedthataspartofaninev-itableculturalchangeintheadministration,impactassessmentshavebeensetasanintegralpartoftheCommission’sowndecision-making.Accordingtointernationalexperience,thiskindofchangeisnotpos-sibleunlessaso-calledwatchdogunit,sufficientlycompetent,isestab-lishedatahighlevelinthecentraladministration.Thedutyoftheunitistobetomakesurethatthegeneralprinciplesofbetterregulationwillbeadheredtoandthatimpactanalysesfulfilatleastcertainminimumqualitativecriteria,particularlyinmajorissues.Thisismoreandmorenecessarybothtoensureeffectivemarketsandtosafeguardanefficientandsensibleuseoftheresourcesofthenationaleconomy.

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ASSISTANT DIRECTOR RAINER LINDBERG

Recent case law of EU courts in competition issues2

Regulatory defence

Theregulatorydefencebyanundertakinginadominantpositionwasoneof themain issues inDeutscheTelekomAGvCommission (C-280/08P).TheCommissionhadoriginally found that thepricingofDeutscheTelekom(DT)formedamarginsqueezerestrictingcompeti-tionandimposeda€12.6mfineforaviolationof102TFEU.DTjustifieditspricingpracticee.g.byarguingthatthenationalregulatoryauthorityhadparticipatedinthesettingoftheretailprices.

TheCourtofJusticedismissedDT’sregulatorydefence.ThemainargumentwasthatDThadineffectsufficientdiscretioninitspriceset-ting,andtheactionsofthenationalregulatoryauthorityhadnobearinginthisrespect.AccordingtotheCourt,Articles101and102TFEUdonotapplyifthenationallegislationeliminatesanypossibilityofcompetitiveactivityandtherestrictionofcompetitionisnolongerattributabletothe

2ThisarticlesummarizesthemaincaselawoftheEUcourtsincompetitionissuesduringtheperiodApril2010–April2011.Thepurposeofthearticleistogiveageneraloverviewofthecaselaw.Thecon-tentofthearticlecannotthereforebeusedinanylegalappraisalassuch,anditisrecommendedthattheoriginaljudgementsofthecourtsbeexaminedineachcase.InsofarasthejudgementsoftheEUGeneralCourthavebeenappealedtotheCourtofJustice,seethepresentstatus.IthankJaanaBoëliusandMinnaHeikinsalmifortheirvaluableremarks.

The author M.Soc.Sc., MA Rainer Lindberg has been employed by the FCA in various du-ties since 1995