E.U. Competition Law: Analysis of Chocoholics' Actions

This report provides a comprehensive analysis of E.U. competition law, focusing on the actions of a fictional company, Chocoholics. The report examines whether Chocoholics' pricing strategies, specifically raising prices in the UK and reducing them below market value in Spain, violate E.U. competition regulations. It delves into Article 101 and 102 of the Treaty on the Functioning of the European Union (TFEU), discussing prohibited collusions, market dominance, and predatory pricing. The analysis incorporates relevant case law, such as Commission v Anic Partecipazioni SpA and Hoffman-La Roche v Commission, to support legal arguments. The report also explores potential defenses for Chocoholics, such as the Wanadoo and Konkurrensverket v TeliaSonera Sverige cases, and discusses the implications of Brexit on E.U. competition law. It concludes with guidelines for businesses to ensure compliance and avoid violations, including a focus on cartels, non-competitive agreements, and abuse of dominant positions. The report also touches upon state aid provisions under Article 107 and the importance of healthy competition for businesses.

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A DETAILED REVIEW OF RELEVANT E.U COMPETITION LAW
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A detailed review of European Competition is paramount and necessary for the
business to ascertain whether any violations were made and if so ,how they can be curbed.
The genesis that has led to this review is Chocoholics decision to increase the price of their
products by 25% in the United Kingdom and reduce the price under market value in the
competitor’s country Spain. This paper will determine whether Chocoholics action amount to
a breach of the set-out E.U competition laws. The defences and penalties that will be imposed
in case there is a breach. To come up with a conclusive answer, case law and relevant
legislation will be used.
EU competition law was brought about from a desire to have a common law that
would aid participants in the European markets. The laws and regulations that were made
unilaterally proved to be a stumbling block to the smooth functioning of the European
market(Montagnon,1990). To have a uniform law the European Union came up with the
Treaty on the Functioning of the European Union(TFEU). One of the treaties resolutions
was to ensure that there is balanced trade and fair competition(European Union,2010). The
treaty incorporated provisions of competition law from Article 100 to 109.
Under the treaty competition is defined as putting into consideration different aspects,
it incorporates both individual and social values. It protects entrepreneurs who have put effort
and relativity in their products; it provides a structure for them to be rewarded for their
efforts. An aspect of freedom to compete is also introduced. The freedom to compete is in
relation to the ability of a consumer to choose without coercion goods that they
want(Papadopoulos,2010. p.145). The consumer is sovereign and is the one that governs the
economic system.
The purpose of the treaty is to control the market power; this is the ability of a
company or an enterprise to manipulate the price of either a product or service they provide

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by either controlling the supply or demand. The treaty also protects the competitive structure
and dynamics of the market. Businesses are also protected from firms that have market
power, and the power is not based on competitive merit. The reason to protect the integrity of
the market is to ensure that no businesses dominate the market unfairly.
Article 101 provides for prohibited collusions or agreements, any agreements or
decisions which may prove detrimental to other members. The requirements for determining
whether there has been prohibited collusion are set out in the landmark case of Commission v
Anic Partecipazioni SpA . The elements for collusion are; by indirectly or directly fixing
prices , the fixation may be through either purchasing or selling ,purposefully withholding
production or investments, sharing of markets, application of conditions which are not similar
with different parties. When parties involved complete contracts that are subject to approval
by other parties and were not considered.
Article 101 also applies to trade associations and professional bodies(Whish & Bailey,
2015,p.94). Subsection one does not apply to a merger of persons that comes together to form
one economic entity; they are taken as a single unit. Some of the agreements that fall outside
the article are those that are not between undertakings, agreements that are between workers
and employers, agreements that are between a contractor and sub-contractor, agreements that
have been brought about by following the law. The commission also has discretionary powers
to grant individual exemptions ,this provision is found under Article 101(3).
For collusion to be established there needs to be an effect within internal markets as
seen in the case of Ahlström Osakeyhtio and Others v Commission, in this case, the
principle of territory applied since the producers implemented the agreement on pricing
within the common market.

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From the observation above Chocoholic did not violate the provisions set out in
Article 101 ,there was no collusion, or any anti-competitive agreement entered. If Chocoholic
was in violation, they would have attracted a fine as seen in the GosmeMartell case where the
commission found that there was an infringement of Article 101 and they were fined 300,000
Euros and the contracting party was fines 50,000 Euros.
Article 102 of the treaty gives provisions for activities that are prohibited in a
unilateral market. The treaty states that any abuse of an undertaking by a dominant player
within an internal market that may hinder effective trade of other member states is
prohibited(Craig,2011,pp.1019-1029). It is important to note that Chocaholic dominates the
market with a market share of 60% . The treaty provides examples of ways in which an
enterprise may be found to be in contravention of the Act. By imposing prices that are not fair
or conditions that are not conducive for trading(Geradin,2012,p.4.542). By limiting
production and applying conditions that are not similar to other trading parties as a result of
putting the other parties at a disadvantage among the reasons.
From the conditions stated above by the Act ,Chocaholic may be found to be in
contravention and her actions termed illegal. For a violation under Article 102 to be
established ,dominance ought to be proved, and Chocaholic is dominant in the market. The
court in their judgement established that an undertaking of more than 50% is presumed
dominant. In the case of Hoffman, the court in its judgement found that the behaviour of the
dominant should be such that it creates an unequal playing field for other competitors to
compete. Chocoholics decision to reduce the price of its products in Spain below market
value is therefore unfair competition as it makes the competitor unable to compete.

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The actions of Chocoholic are defined as predatory pricing. The genesis of this
problem is in relation to the pricing . The company reduced the selling price of its products in
Spain. The predatory aspect takes effect when the pricing is done below a certain measure of
cost. Chocoholic gave discounts to customers who reduced the price of the chocolates to
below the cost that was used to produce them with the aim of improving her market share.
The defences available for lowering the prices is if the lowered price is not predatory and is
necessary. The other defence that Chocoholic may use is the same that was used in the case
of Wanadoo which was for purposes of equalizing the competition.
Another defence that can be put forth is as seen in the case of Konkurrensverket v
TeliaSonera Sverige where they argued the reason for the price cuts was to enable the
market to function properly( Van Cleynenbreugel 2017,pp 454-460). However, the defence
for equalizing competition needs to be above the average cost that can be avoided. So, to curb
the issue, it would be prudent for Chocoholic to consider the pricing of products in Spain to
avoid legal action. Failure to do so will lead to being fined or required to pay penalties
periodically. In the case of ECS/AKZO (Ezrachi,2018) Akzo was fined ten million Euros due
to price cutting. ECS was a small firm in comparison with Azko involved in selling flour
bleaching products. Azko threatened Ems with a price reduction to gain a competitive
advantage. The court held that such actions were disruptive(Blanco,2013). The aggrieved
party can also claim damages as seen in the case of Francovich v Italy for the amount lost
due to the price reduction. In future, the following practices should be considered keenly to
avoid violations. Loyalty,exclusionary abuses and exclusive agreements.
Rebates are also brought out under Article 102; they are classified into three broad
categories. The first is permissible rebates; this is acceptable business practices that are
generally acceptable and should only be condemned if they affect competition. In the case of
the Hoffman La Roche v Commission, it was decided that not all discounts should be placed

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in the same category as being harmful. The second type is exclusive rebates; the court's
position is that it is unlawful for a firm that has the majority of the market share to tie a
consumer down through an exclusive purchase commitment. The final type of rebates are
third category rebates; this is done by setting targets and offering clients rebates once they
reach the targets. The question that should be asked is whether the rebate is “loyalty-
inducing” or it has a fidelity building effect. In the Michelin case (Rousseva,2010,pp.117-
217) the court held that rebates that target individual might amount to a violation of Article
102.
Article 107 provides for aid granted by the state; the aid may be from a member state
or through resources of the state. The aid given should pose a threat of destabilizing
competition by favouring specific undertakings. For instance, a state may choose to waive tax
associated with production leading to unfair profits. The advantages may bein the form of an
undertaking not paying interest on loans acquired. Tax deductions or direct subsidies. In
Portugal v Commission it was held that the aid ought to be selective. This means that only
one-party benefits from the aid to the exclusion of others. The treaty under Article 107(2,3)
provides for exemptions for example where aid is provided in cases on natural disasters and
block exemptions. Chocoholic did not violate this provision.
Healthy competition makes sure that businesses thrive and challenge each other to
come up with quality products and services( Lianos,2013,pp.4-15). The following are
behaviours that Chocoholic should steer clear of . Fixing prices, different competitors should
come up with acceptable prices for their products to avoid having issues(Hou,2011).
Businesses should also agree on how much they are willing to bid for tenders and agreeing
not to go after the competitor’s clientele.

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The treaty provides for obligations for parties to the treaty Article 4 (3) provides for
the duty sincerely competing with other member states. Article 106 deals with parties
complying with the provisions of the treaty. Article 107 all through to 109 provides detailed
descriptions of how state aid should be dealt with(Colino,2011,pp.412-427). Other
obligations are found in Article 37 which provide for state monopolies and commercial
characters (Whish&Bailey,2015).
Chocoholic should follow the following guidelines to ensure that it is compliance with
competition laws. The business should look out for three major factors,cartels,agreements and
contracts that are not competitive in nature and abuse when in a position of dominance. To
avoid this problem Chocoholic should be intentional in creating a framework that ensures
they comply with the regulation. There should be a commitment to complying with the treaty
provisions. The first step is through the identification of risks ,in this instance, the major risk
is the dominance enjoyed by chocoholic.
After the risk has been identified the second stage is assessing the risk. This stage
deals with classifying the risks into degrees of seriousness, from low risks to high-level risks.
After assessment, a mitigation plan ought to be put in force such as training and
workshops(Gov.UK,2015). The final stage in the process is reviewing ,this enables the
business to be up to date with the laws and develops a culture of compliance in the
organization. It is important to also consider the effect of Brexit on the business. To consider
any changes that ought to be made to ensure there is a smooth and seamless transition.

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