COMPETITION • EUROPEAN AND FRENCH LAW • EFFICIENCIES
The efficiency (or efficiency gains) theory is based on the idea that the positive effects in terms of economic efficiency of a merger or behavior likely to fall within the scope of cartel or abuse of dominance law are, under certain assumptions, sufficient to offset their anticompetitive effects.
In its Communication on abusive exclusionary conduct, the Commission opens up the possibility for undertakings in a dominant position to justify their conduct by proving that it brings about efficiencies capable of offsetting its restrictive effects.
To demonstrate efficiencies, the dominant undertaking will have to establish with a reasonable degree of probability and on the basis of verifiable evidence that four cumulative conditions are met:
– the efficiencies result from the conduct in question ;
– there is no less anticompetitive alternative means of achieving them;
– the efficiencies outweigh the harm to competition and consumer well-being in the markets concerned;
– the conduct does not eliminate effective competition by driving out all or most of the existing sources of actual or potential competition.
The Court of Justice has held that a dominant undertaking which provides justification for its abusive conduct must show that the efficiency gains likely to result from it counteract any likely negative effects on competition and consumer welfare in the affected markets, that those gains have been, or are likely to be, brought about as a result of that conduct, that such conduct is necessary for the achievement of those gains in efficiency and that it does not eliminate effective competition, by removing all or most existing sources of actual or potential competition.
According to the French Competition Authority, a tied sale cannot be a source of efficiencies when consumers are systematically forced to pay for a service which is concealed in a vague offer and which they cannot refuse even if they do not want it.
In cartel law, efficiencies can create additional value by lowering the cost of producing an output, improving the quality of the product or creating a new product. They are a compensatory factor for the restrictive effect that may result from a horizontal or vertical restraint. Thus, according to paragraph 3 of Article 101(1) TFEU, does not apply when the agreement contributes “to improving the production or distribution of goods or to promoting technical or economic progress”.
The Commission identifies the contribution to economic progress of “efficiency gains” that can be located in the production or distribution sector and benefit, beyond that, the general economy.These efficiency gains may be quantitative (e.g. cost reduction) or qualitative (e.g. expansion of the range). According to the Court of Justice, the improvement cannot be identified with all the advantages which the parties obtain from the agreement in their production or distribution activities. It must display “appreciable objective advantages of such a character as to compensate for the disadvantages which they cause in the field of competition”. The improvement must be objective and clear-cut.