Experimentalist Competition Law and the Regulation of Markets

Yane Svetiev

• Publisher: Hart Publishing
• Year: 2020
• ISBN:
  9781509910663
• Edition: 1
• Topic: Jura
• Subtopic: Wettbewerbsrecht

This book charts the emergence of experimentalist governance in the implementation of EU competition law as a response to uncertainty and the limits of hierarchical enforcement in an increasingly dynamic and heterogeneous economic environment. It contributes to ongoing debates about the current state of EU competition law and provides an innovative account of emergent enforcement trends and its future direction. It also argues that an experimentalist evolution of competition law and market regulation attenuates concerns about the competitive strictures of EU law on national economic and regulatory institutions. Through its focus on experimentalist governance, the book provides guidance on completing experimentalist infrastructures for market regulation, as well as on the role of courts in triggering and sustaining experimentalist solutions. As such, it offers a novel perspective on implementing competition law in the EU and beyond.

1

Networks and Hierarchy
Completing an Experimentalist Architecture?

I.The ECN as a Convergence Network?

As discussed in the Introduction, being the EU’s ‘first supranational policy’,¹ competition law was a powerful centralised mechanism of market regulation in the hands of the EU Commission. Given its sole responsibility for the enforcement of the Treaty competition articles, subsequently enhanced by the power to vet mergers, the Commission could use competition law – though traditionally a tool of market regulation – for the task of market integration. In pursuit of market integration, centralisation and uniformity are often seen as important to prevent undermining the EU law compact by either denying market access or just making it more burdensome. More broadly, the pressure towards the harmonisation of common rules for regulating national markets is typically motivated by a transaction costs rationale: common rules eliminate barriers to trade by reducing the compliance costs for business to operate across the internal market. Such a rationale reflects the fact that – at least in the early period – business was regarded as a principal motor of market integration through seeking opportunities to serve cross-border customers or establish cross-border operations. In fact, what we identified as the shallow idea of the ‘internal market’ as the interpenetration of market activity – placing importance on the ‘nationalities’ of supplier and customer – continues to this day to be used as a metric of success in achieving market integration.²

However, the harmonisation of rules and uniformity through their centralised application is in tension with the experimentalist notions of tailoring regulatory instruments to the local context, as well as learning from diversity in implementation, albeit in pursuit of common policy goals. Moreover, if harmonisation is seen to unambiguously reduce transaction costs for cross-border activity, the EU law principle of subsidiarity may be largely neutered in the regulation of the internal market.³ The harmonisation impulse can thereby make less visible the diversity of goals, as well as instruments, in national public regulation or private business practices. This appears to be at the heart of growing complaints about the competitive strictures of EU internal market law.⁴ Such concerns apply perhaps even more strongly to EU competition law as a transversal tool, which can be technocratically enforced in a way that may not easily accommodate a variety of public interest justifications, particularly of a non-economic nature.⁵ Moreover, the net of EU competition law has been cast widely to ensnare all kinds of market-related conduct by loosening the ‘boundary conditions’ of its application, including the definition of an undertaking engaged in any economic activity and the threshold of cross-border effects,⁶ particularly in the light of the liberalisation or privatisation of public functions (whereby public interest objectives are delivered through the market) and technological change in transport and communications (easing potential cross-border entry).

Given its history as a centripetal force, one key question we have already identified is whether the modernisation reforms instigated by the Commission in the run-up to the eastern enlargement of the EU created the scope for a devolved and experimentalist elaboration of EU competition law as a market regulatory tool. The devolution of responsibilities for implementing EU law (in addition to national law) to Member State authorities – instead of simply enhancing the enforcement capabilities of the Commission – was a unique approach in which EU competition enforcement somewhat diverged from the US.⁷ Such an arrangement provided potential for adjusting EU competition law and policy to local conditions and priorities, within an EU that was ever more heterogeneous by comparison to the original six-member Community. Greater national responsibility for case handling combined with reporting and review obligations create opportunities for disciplined divergence, comparison and learning both by the Commission from NCAs, and by the NCAs from each other.

A number of authors have at least implicitly recognised the desirability of devolved implementation as a source of variability and tailoring in EU competition policy. However, these authors have also suggested that such an outcome was always unlikely⁸ and that it has not been observed in practice (in light of the unwillingness of the Commission to relinquish its policy-shaping monopoly).⁹ Moreover, both practitioners and authors also worried that devolution and divergence carried risks of incoherence and fragmentation through non-uniform application, thereby undermining both rights of defence and the rule of law.¹⁰

Examining key features of the legal architecture introduced by the Modernisation Regulation could lend support to the view that the ECN was institutionalised as a mechanism of hierarchical control by the Commission. In particular, the Regulation contains a number of both formal and informal mechanisms of control for the Commission vis-a-vis NCAs and even national courts. Based on the discussion of the scope conditions for experimentalist governance in the Introduction, arguably the legal design of the Regulation discloses sensitivity to the problem of the limits of hierarchy – and thereby the need to enhance the reach of EU enforcement through the NCAs – without much sensitivity to the problem of uncertainty about how to use competition law instruments to deliver desired policy outcomes.

The formal mechanisms of uniformity and control include the harmonising effect of having EU law applied by national actors,¹¹ as well as the prohibition of national (court or authority) decisions that are inconsistent with those of the Commission. The Commission’s ability to impose its own preferred view, including in specific cases, was apparently enhanced by the power to take over and itself decide a case handled by a responsible NCA, as well as its monopoly on declaring EU competition law inapplicable to defined conduct.¹² In addition to the informal bonds of professionalism, reputation and trust that may result from agency networking,¹³ the Commission was granted other soft mechanisms through which to influence decision-making by NCAs and national courts, including the obligation of reporting draft decisions to the Commission, as well as the ability for the Commission to provide comments to both NCAs and national courts before they formulate final decisions. Finally, the peer review mechanism¹⁴ through the Advisory Committee on Restrictive Practices and Dominant Positions (ACRPDP) provided only a soft consultative framework of oversight over the Commission’s decision-making under EU law, particularly given the non-binding nature of the Committee’s opinions.

Statements by the Commission and even by some NCAs in the run-up to and even after the modernisation reforms, emphasised the role of the ECN as a vehicle for coordination that would ensure consistency, coherence or uniformity within the context of the decentralised enforcement of EU competition law. In the White Paper setting out the modernisation agenda, the Commission identified the risk that the ‘decentralised application of the competition rules’ could undermine the consistent and uniform application of the rules and ‘stand in the way of the maintenance of conditions of competition that are consistent throughout’ the EU. Both the conflicts rules in Regulation 1/2003, as well as the information, reporting and cooperation obligations, were identified as tools that could ensure the consistent and uniform application and the ‘preservation of the unity of competition policy’ by the Commission, including through its use of the infringement procedure.¹⁵

Along similar lines, the 2004 Cooperation Notice characterised the ECN as a ‘forum for discussion and cooperation’ in the enforcement of EU competition law and the ‘basis for the creation and maintenance of a common competition culture in Europe’.¹⁶ The Notice dedicated an entire chapter to the topic of the ‘consistent application of EC competition rules’, again with specific reference to the rules of convergence, reporting and pre-emption in Regulation 1/2003. However, at the same time, the (political) Joint Statement of the Council and the Commission on the Functioning of the ECN contains the following (somewhat Delphic) point about the Commission’s exercise of its new powers:

The Commission, as the guardian of the Treaty, has the ultimate but not the sole responsibility for developing policy and safeguarding efficiency and consistency. Therefore, the instruments of the Commission on the one hand and of the NCAs on the other hand are not identical. The additional powers the Commission has been granted to fulfil its responsibilities will be exercised with the utmost regard for the cooperative nature of the Network. (Emphasis added)¹⁷

The theme of consistent application also emerges in the subsequent reports on the operation of the Modernisation Regulation and the ECN. Both the five-year and ten-year report affirmed in identical terms that the ‘EU competition rules have to a large extent become “the law of the land” for the entire EU’,¹⁸ not least because the NCAs have become a key pillar of their application.¹⁹ While the five-year report identified the ECN as ‘an innovative model of governance for the implementation of Community rules’,²⁰ the ten-year report characterises it as ‘increasingly important to ensure coherent enforcement and to allow stakeholders to benefit from a more level playing field’.²¹

These reports also addressed the question of further convergence in rules and enforcement procedures. Consistent with the harmonisation and transaction cost savings perspective, the five-year report points out that ‘the divergence of standards regarding unilateral conduct was commented on critically by the business and legal communities which consider that diverging standards fragment business strategies that are typically formulated on a pan-European or global basis’.²² The ten-year report lauds a substantial convergence in rules and their application, while noting subsisting divergences as areas for ‘further progress’, including the differing institutional positions of the NCAs, as well as divergent national procedures and sanctions.²³ The latter were not harmonised by the Modernisation Regulation and were left subject to the general EU law principles of equivalence and effectiveness, as well as soft law guidance through a number of ECN Recommendations on enforcement.²⁴

In light of the legal architecture and its subsequent operation, Sauter synthesises the academic and policy consensus about networked competition governance by characterising the ECN as a ‘policy network with elements of cooperation and hierarchy’.²⁵ He suggests that the ECN is not just a forum for information exchange, but a ‘policy network’ which is more than a coordination mechanism for enforcement activity as it ensures consistency and systemic cohesion in relation to common goals.²⁶ As such, the ECN is seen to favour convergence and systemic coherence,²⁷ and the goals of effectiveness and consistency over ‘promoting policy experiments at [the] national level in a pattern of decentralization’, consistent with the still ‘dominant objective of promoting the internal market’.²⁸

According to this view, the elements of pre-emption and oversight in the Modernisation Regulation ensure that the Commission is primus inter partes. Thus, while recognising that the Commission does not invoke the powers of pre-emption and override, NCA and national court decisions are said to be taken in the ‘shadow of pre-emption’ by ...