COMPETITION • EUROPEAN LAW • SCOPE OF APPLICATION
The phenomenon of buyer power does not easily fit within competition law. Buyer power is generally but not exclusively applicable to distributors and concerns mainly the upstream market, i.e. relations between distributors and suppliers, whereas price theory is mainly of interest to the suppliers of products or services and is primarily of concern to the downstream market where distributors and consumers come together. The rules of competition law were originally developed to address the market power of producers alone, even though concentration in the mass retail distribution sector and the strengthening of the economic power of buyers have, since the 1970s, become an ever more marked economic reality.
The existence of market power is, in practice, deduced principally from the market share held by the dominant undertaking. However, buyers (e.g. in the mass retail sector), generally only have a relatively low share of any product market and therefore rarely fall foul of traditional competition law offenses, unless a specific distribution service market can be characterized. In addition, purchasing concentration tends to be in line with competition policy, since it leads to lower prices to the benefit of consumers, even if it is also likely to result in negative effects for both consumers (standardization of products, disappearance of specific offerings, no product development etc.) and producers, who are the weaker contracting parties and often victims of abuse of buyer power.
1) Inefficiency of the law on restrictive practices and dominance
According to the Commission, it is unlikely that market power exists if the parties to the joint purchasing arrangement have a combined market share not exceeding 15% on both the purchasing and the selling markets. A market share above the 15% threshold does not automatically indicate that the joint purchasing arrangement is likely to give rise to restrictive effects on competition. An effect on competition depends on factors such as the degree of market concentration and the countervailing power of suppliers.
The rules relating to abuse of dominant position do not generally address buyer power: on the downstream services market distributors’ market power is exercised in respect of consumers not producers; on the upstream product market, even very large distributors are rarely in a position to dominate a specific market insofar as they sell a wide variety of substitutable and complementary products. Where there is no domination, the rules relating to abuse of a dominant position are applicable only in very limited circumstances.
2) Limits of merger control
In the Kesko/Tuko decision , the Commission refused to clear the notified concentration on the grounds that it would increase Kesko’s buying power and thereby strengthen its dominant position on downstream markets. Likewise in Rewe/Meinl, it identified the risk of a “spiral effect” by which the strengthening of the buyer power of the retail chain leads to the strengthening or the creation of a dominant position on the downstream market, and created a risk of foreclosure of some small distributors. In some decisions, the control authorities have directly tackled the market power of distributors on the upstream market and not merely by analyzing its effects on the downstream market. The Commission has thus referred to a “rate of threat” to characterize a distributor’s buyer power in relation to a supplier. It asked suppliers to indicate from what percentage of their turnover they considered that the loss of a customer would represent a threat to the very existence of their businesses: the average of the responses obtained revealed a threshold of 22%. Using that mechanism, the Commission has been able to directly assess the buyer power on the upstream market: the success of this method has, however, remained moderate.
