Collective dominance - Karolina Rydman

JURIDISKA INSTITUTIONEN
Stockholms universitet

COLLECTIVE DOMINANCE
- how is it interpreted and how does it
correlate with tacit coordination

Karolina Rydman

Examensarbete i Europarätt, 30 hp
Examinator: Hedvig Lokrantz-Bernitz
Stockholm, Vårterminen 2012

1 SUMMARY ............................................................................................. 3
2 INTRODUCTION .................................................................................. 4
2.1 Background ............................................................................................................................. 4
2.2 Purpose .................................................................................................................................... 6
2.3 Issue ......................................................................................................................................... 6
2.4 Outline ..................................................................................................................................... 7
2.5 Limitations of the Scope.......................................................................................................... 8
2.6 Material and method ................................................................................................................ 8
3 ECONOMIC THEORY ......................................................................... 9
3.1 Competition law and economic theory .................................................................................... 9
3.2 Perfect market........................................................................................................................ 10
3.3 Monopoly .............................................................................................................................. 12
3.4 Oligopoly ............................................................................................................................... 12
3.4.1 Theory of oligopolists’ interdependence ............................................................................................. 13

4 DOMINANCE ....................................................................................... 15
4.1 Single dominance .................................................................................................................. 15
4.2 Collective dominance ............................................................................................................ 16
4.2.1 Introduction ......................................................................................................................................... 16
4.2.2 The change of the dominance test - a more effects based approach .................................................... 17
4.3 Collective dominance and tacit coordination ........................................................................ 18
4.3.1 The scope of collective dominance ...................................................................................................... 19
4.3.2 Collective dominance on an oligopolistic market ................................................................................ 21
4.3.3 The Court’s conditions for collective dominance to occur .................................................................. 26

5 TACIT COORDINATION .................................................................. 30
5.1 Introduction ........................................................................................................................... 30
5.1.1 Prisoners’ dilemma .............................................................................................................................. 30
5.1.2 Tacit coordination and the Prisoners’ dilemma ................................................................................... 31
5.1.3 Tacit coordination ................................................................................................................................ 32
5.2 Comparison of tacit coordination, agreements and concerted practice ................................. 33
5.2.1 Concerted practice ............................................................................................................................... 33
5.2.2 Agreement ........................................................................................................................................... 35

6 CASES.................................................................................................... 37
6.1 Areva/Urenco/ETC ................................................................................................................ 38
6.1.1 Details of the case ................................................................................................................................ 38
6.1.2 An overview of the competitive assessment ........................................................................................ 38
6.1.3 Conclusion ........................................................................................................................................... 40
6.2 Sony/BMG............................................................................................................................. 40
6.2.3 Conclusion ........................................................................................................................................... 43
6.3 Linde/BOC ............................................................................................................................ 44
1

6.3.3 Conclusion ........................................................................................................................................... 47
6.4 Impala v. Commission ........................................................................................................... 48
6.4.3 Conclusion ........................................................................................................................................... 50
6.5 Travelport/Worldspan ........................................................................................................... 50
6.5.3 Conclusion ........................................................................................................................................... 52
6.6 ABF/GBI Business ................................................................................................................ 53
6.6.3 Conclusion ........................................................................................................................................... 56

7 ANALYSIS ............................................................................................ 58
8 REFERENCES ..................................................................................... 62
8.1 Union legislation ................................................................................................................... 62
8.2 European cases ...................................................................................................................... 62
8.2.1 The General Court ............................................................................................................................... 62
8.2.2 Decisions of the Commission .............................................................................................................. 63
8.3 Literature ............................................................................................................................... 63
8.4 Legal articles and reports....................................................................................................... 64

2

1 SUMMARY
The two questions this essay aims to answer are: (1) How is collective dominance supposed to
be interpreted? (2) How does the concept of collective dominance correlate to tacit
coordination? Collective dominance can be described as a position of two or more
independent entities that together holds a position of joint dominance where they act or
present themselves as one unit. The market on which it is most likely for firms to achieve
such position is on oligopolistic markets. Tacit coordination is a way for the entities, holding
a collective dominant position, to coordinate their behaviour. They can also coordinate their
behaviour explicitly but they tend to avoid this since it is easier to detect and will, when
detected, be punished through Article 101 TFEU. There is no provision in the EU legislation
that prohibits tacit coordination. It is however possible to prohibit mergers that likely will lead
to collective dominance and tacit coordination. Therefore, it is of significant importance to
investigate whether the merger will lead to such position and behaviour. However, how this
investigation should be made has been heavily discussed in judicial literature and the
interpretation of collective dominance has been developed and changed in nature through the
case law. This essay claims that current assessments in merger cases show that the two
concepts collective dominance and tacit coordination are not any longer distinguishable.

Economic theories have had a great impact on the development of collective dominance.
Economic theories provide tools to use when assessing whether firms on a market are likely
to coordinate their behaviour and give rise to collective dominance. A comparison of the
economic characteristics of an oligopolistic market respective a perfect market and a
monopoly provide insight into the conditions for collective dominance to occur. The
economic arguments for collective dominance to be assessed from a more economic, i.e.
effects based, point of view were adhered to in the case Airtours v. Commission in the year
2002. Thus, the assessment of collective dominance has hereinafter focused in finding tacit
coordination rather than finding market characteristics that facilitate collective dominance.
However, the further development in cases after Airtours has shown that the frame, of the
assessment of collective dominance in merger cases, is not fixed. Six cases, assessed by the
Commission after Airtours, have been analyzed for the purpose of this essay. In summary, the
analyses of the cases show that the assessments of collective dominance before and after the
year 2002 are diverse.

3

2 INTRODUCTION

2.1 Background
The European Union Merger Control1 (EUMR) exists to prevent changes in the market
structure that significantly impedes competition in the internal market. Such changes, which
may arise through merging firms, could cause an increase in the market price of the products
or services on the relevant market.2 The task for the European Commission (hereinafter “the
Commission”) is to, through its analysis, predict the changes in the market structure that will
come through the merger. Even though it seems to be an immense task for the Commission to
predict the result in dominance and market structure when firms are merging, the task is
probably even more overwhelming when it comes to assess the future likelihood of
coordination through collective dominance. As a matter of fact, it is not only a creation or
strengthening of dominance of the merging firms that might significantly impede effective
competition but a merger can also create or strengthen a collective dominant position in the
relevant market since it can increase the likelihood of coordination of behaviour of the firms
on the relevant market.

When the market structure enables firms to coordinate they might do this through an
agreement, concerted practice or tacit coordination. The similarities and differences among
these behaviours are not crystal clear. They seem to overlap. As for the Commission to
predict tacit coordination as an outcome of a collectively held dominant position it is of
course important to be able to distinguish this behaviour from others.

Agreements and concerted practices can either by object or effect: prevent, restrict or distort
competition and can in such case be prohibited through Article 101 of the Treaty on the
functioning of the European Union (TFEU). Such behaviour can therefore be dealt with post-
merger. Tacit coordination is however not prohibited in that provision even though the effect
of such behaviour is most likely to be the same as for concerted practice and agreement. It
seems that tacit coordination therefore needs to be managed proactively.

1
Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC
Merger Regulation).
2
Jones, A. Sufrin, B. EU Competition Law, 4 th edition, 2011, p. 855.
4

Some market structures are making it easier for collective dominance to occur than others.
Therefore it is important to identify these kinds of markets that will arise through mergers and
hinder them to develop by assessing them as not compatible with the internal market.

The EUMR does not serve an end in itself but is established for the achievement of the aims
of the TFEU. The EUMR entered into force the 20th of January 2004. This Regulation is an
amendment of the original European Merger Control Regulation which was structured in the
spirit of the EC Treaty (TEC). Article 4(1) TEC states that activities in the Community “are
to be conducted in accordance with the principle of an open market economy with free
competition”. The EC Treaty was changed into the TFEU which does not include this overall
principle for activities in the EU. However, Article 119 (1) TFEU has the same wording as
Article 4(1) TEC but applies only to Economic and monetary policy. Since 2004, the
Commission has almost solely used the EUMR when assessing situations of collective
dominance. It has been discussed whether the EUMR should be used alone in the assessment
of tacit coordination as a result of collective dominance.3 However, this essay will take its
starting point in the EUMR and thus follow the conventional view, not at least because of
practical reasons, since all the relevant cases are substantially measured by this regulation.

The EUMR does not explicitly mention that dominance held collectively by one or more
firms fit the concept of dominance as it is interpreted in the application of Article 102 TFEU.
One cannot rely on the wording of any provision in the European Union (EU) regulation to
prevent a merger for the reason that collective dominance might occur as a result of the
merger and that tacit coordination might be encouraged by such dominance. However, in
1992 the Commission introduced that this would be the case.4 The view that EUMR applies to
mergers which results in collective dominance is affirmed by several judgments by the EU
courts5. The first time that a merger was prohibited, given that it would create a collective
dominance in the market, was in 1996.6 Collective dominance is also specifically addressed in
the Guidelines on the assessment of horizontal mergers under the Council Regulation on the

3
This view has been criticized by Nicolas Petit and David Henry in the article “Why the EU Merger Regulation should not
enjoy a monopoly over tacit collusion” by presenting five misconceptions on which such view seems to be based.
4
The Commission gave its opinion on the matter in CaseNestlé/Perrier (1992).
5
Cases C-68/94 and C-30/95, France v. Commission, Société Commerciale des Potasses et de l’Azote (SCPA) v.
Commission (1998) ECR I-1375, Gencor v Commission, Case T-102/96 (1999) ECR II-753, (1999) 4 CMLR 971.
6
Gencor/Lonrho, Case IV/M.619 (1996).
5

control of concentrations between undertakings7 (hereinafter the Horizontal Merger
Guidelines). Article 2(3) of the EUMR is the current provision to use as assessing collective
dominance and tacit coordination. The Article states: ”A concentration which would
significantly impede effective competition in the common market or in a substantial part of it,
in particular as a result of the creation or strengthening of a dominant position, shall be
declared incompatible with the common market.“

However, the concept of collective dominance does not have any fixed framework, nor can its
possible effects be said to be predictable. The desire to confine the concept and find the outer
limits of how far EUMR can be applied to this process is the background to the chosen topic
for this essay.

2.2 Purpose
Since the risk of a merger to lead to collective dominance, i.e. where two or more independent
firms holds a dominant position, significantly depends on the structure of the specific market
it seems as a joint assessment cannot be made for all cases. However, it would be rational to
find the common denominator for the assessment of a collective dominant position to be
created or strengthened through a merger. Finding the common denominator will hopefully
lead to achieving the purpose with this essay. The purpose is to explore what is included in
the assessment of collective dominance in merger cases and to what extent the Commission
and the General Court8 (hereinafter the Court) interprets the concept. In practice this might be
visualized by noting how collective dominance is considered to occur, and how coordination
thereby significantly can impede effective competition in the internal market together with an
analysis of relevant case law. This purpose is relevant and related to reality as a clarification
in this area would reduce market uncertainty.

2.3 Issue
There are two main issues that will be handled in this essay. (1) How is collective dominance
supposed to be interpreted? To answer this first question, an investigation of the different
parts that constitute collective dominance needs to be done. (2) How does the concept of
collective dominance correlate to tacit coordination? This second question is a

7
Guidelines on the assessment of horizontal mergers under the Council Regulation, 2004/C 31/03.
8
In the following, I will only refer to the General Court when the term “the Court” is used.
6

supplementary to the first one. An examination of the two concepts separately will be done
which might give an answer to this question. It is also of importance to study the case law to
find out whether these concepts are assessed side by side or if they appear to be parts of the
same concept.

2.4 Outline
The essay starts with an orientation in the economic theory behind the concept of collective
dominance. At first, a general description of the relation between economics and competition
will be done. Then, a description of the characteristics of a perfect market, a monopolistic
market and an oligopolistic market will be provided.

Chapter two deals with collective dominance and starts with an overview of the connections
between oligopolistic markets and collective dominance. Furthermore the scope of collective
dominance will be discussed and an examination of the characteristics of a market which is
prone to facilitate collective dominance will be outlaid. Next, a thorough examination of the
Court’s conditions for collective dominance to arise will follow. These conditions were set up
by the Court in the case Airtours plc v. Commission9, hereinafter referred to as “Airtours”.

In the beginning of chapter five, the definition of tacit coordination will be discussed. Next,
there will be an attempt to discover what distinguishes tacit coordination from other forms of
cooperation. This will be done by looking at similarities and differences between them.

In the next chapter, six cases will be analysed. The focal point for these analyses is to get a
picture of the scope and in what way the assessment of collective dominance is done either by
the Commission or by the Court.

The content of chapter three to six will serve as a base for the analysis in chapter seven. The
limitations for collective dominance attempts to be found in the light of the theoretical
background and through the presented cases. How far can the concept be stretched?

Chapter eight concludes this essay by summarizing the findings and some conclusions are
provided.

9
Case T-342/99, Airtours plc v. Commission (2002) ECR II-2585, para 62.
7

2.5 Limitations of the Scope
This essay only covers collective dominance in the context of EU-law. National, Swedish law
will not be handled. Anyhow, this essay will be useful even for this matter since the Swedish
competition law highly reflects EU-law. Nevertheless, the EUMR is directly applicable in
Sweden and has priority over Swedish law, which follows from the general EU law
principles.10

Collective dominance can be handled through Article 102 TFEU and the EUMR. When
interpreting related concepts as tacit coordination and dominance, Articles 101 and 102 TFEU
has been taken into account by the European Courts. However, Article 102 will only be
applicable if there has been an abuse of a dominant position, i.e. it will only be useful after the
merger has taken place. This essay will not examine what constitutes an abuse of a collective
held dominant position since it is not relevant when assessing collective dominant position
according to the merger regulation which deals with the situation of collective dominance, ex
ante.

2.6 Material and method
This essay follows the legal dogmatic approach by systematizing and interpreting legal rules,
judicial decisions and doctrine in the relevant area. The starting point for my work has been
the EUMR supplemented with the Horizontal Merger Guidelines. Since the concept of
collective dominance largely is developed through the European case law, this has been the
focal point of finding the limits of my work. The judicial doctrine and articles in the area of
EU has been of great importance for finding the relevant cases but also by providing a basic
framework for the essay. Economic literature has also been essential in finding the basic
economic theories which has been of great importance to this essay.

10
See further Bernitz Ulf, Europarättens grunder, 2010, p. 31. See also Bernitz, Ulf, Svensk och europeisk marknadsrätt 1, 2
ed, 2009, p. 184, about the relationship between the EUMR and the swedish merger control where the one-stop-shop control
principle is described.
8

3 ECONOMIC THEORY

3.1 Competition law and economic theory
Competition law concerns the protection of competition in a free market economy.11
However, the EU Treaty does not any longer explicitly refer to an open market economy with
free competition regarding the economic policy of the European Union as it did in the EC
Treaty.12 How can competition be explained in economic terms? The World Bank stated in
1999 that competition is: “A situation in markets where firms or sellers independently strive
for the buyer’s patronage in order to achieve a particular business objective, for example,
profits, sales or market share.”13 Economic theory has a lot to say about firms’ diverse
behaviour in different markets. Through the lens of economic theory one can observe these
behaviours and understand why firms are acting in a certain way. The prevailing common
approach among economists, competition lawyers, and policy makers is that competition law
should be created and used in the spirit of efficiency and economic welfare.14 However, the
goal for the EU competition authorities is to support the kind of market that maximizes
consumer welfare. This was stated by the European Commissioner for Competition Policy,
Neelie Kroes, in 2008 as follows: “Competition works and competition policy makes it work
better. That is what it is all about - making markets work better for consumers.”15

In the case of predicting behaviour on the market it can also be of great importance to use
economic theory. Economic theory can aid to answer the questions where, why, how and
when a creation or strengthening of a collective dominance, followed by a merger, is about to
occur and when it can be assumed to be followed by tacit coordination. Economic theory
shows that, by facilitating coordinated behaviour in markets with an oligopolistic structure,

11
Jones, A. Sufrin, B. EU Competition Law, n. 2 above, p 1. Adam Smith (1723-1790), can be considered to be the symbol
of the free market. In his book The Wealth of Nations (1776) he argues that an open, competitive marketplace with free
exchange and without coercion is the best foundation for social order to prosper to its utmost.
12
Ibid., p. 39. Art 4(1), inserted into the Treaty by the TEU in 1993 which stated that the economic policy of the European
Union should be “conducted in accordance with the principle of an open market economy with free competition”.
13
This definition of competition is also used in the Glossary Guide at The World Banks website.
http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTINFORMATIONANDCOMMUNICATIONANDTECHNOLOGI
ES/0,,contentMDK:21035032~menuPK:2888320~pagePK:210058~piPK:210062~theSitePK:282823,00.html, available in 15
of April 2012. This
14
Jones, A. Sufrin, B. EU Competition Law, n. 2 above, p. 18.
15
Speech/08/625, Neelie Kroes, EU competition rules-part of the solution for Europe’s economy.
9

mergers may also lower welfare. It is worth noting that it is not given that firms work in a
cooperative manner just because the market structure allows it. The competition may well be
aggressive even in such a market.16

It is the aim for the Commission to decide whether a merger should be assessed as compatible
with the internal market or not. How a company behaves in a market depends on the current
market structure that prevails. The shape of the market also determines the ability of an
individual firm to influence the rest of the market. The Commission must therefore analyze
the current market structure.17 Moreover it needs to predict the market structure that may arise
after the merger since it might result in the finding of firms holding a collective dominant
position with a tendency to coordinate their behaviour tacitly. With that being said, that
economic theory is a tool for achieving this aforementioned aim, we will distinguish what
kind of market structure that may enable firms to hold a collective dominant position. For this
purpose, an overview of three different market structures is given below. The oligopolistic
market structure is of most interest to this essay. However, oligopoly shows traits from both
the perfect market structure and a monopolistic market why these two markets will be
described at first.

3.2 Perfect market
The kind of market, known as the perfect market (also known as perfect competition or pure
competition) is a theoretical free-market situation which hardly can be said to exist in reality.
For the perfect market several conditions are required to be met. First, firms in a perfect
market are price takers i.e. the market price is considered as given by each actor on the
market. 18Buyers and sellers are too numerous and too small to have any degree of individual
control over prices.19 Factors that determine price are instead the market forces of supply and
demand. Second, all buyers and sellers seek to maximize their welfare. The more efficient a

16
Pindyck, R. S. Rubinfeld, D. L. Microeconomics, 6 th edition. 2005, p. 435.
17
The concept of market structure is explained by Richard Jermsten and Therese Jonsson in "Collective dominance" of all
elements in a market that may affect company behavior and performance in this market. Examples of factors that can
influence the market is how many businesses operate and how the products these companies produce or sell is wired. See also
Rikard Jermsten, Therese Jonsson, Kollektiv dominans, p. 14.
18
Pindyck, R. S. Rubinfeld, D. L. Microeconomics, n. 16 above, p. 262.
19
Alison, J. Sufrin, B. EU Competition law, 4th ed. 2011, p. 8.
10

market is the greater welfare.20 Third, buyers and sellers can freely enter or leave the
market.21 This implies that there are no costs, other than the normal costs, connected to the
entrance on a market for a new firm to produce or to leave the market if the earnings do not
meet expectations. Fourth, all buyers and sellers have access to information regarding
availability, prices and quality of goods being traded. Fifth, all goods of a particular nature are
homogeneous, hence when the products of all the firms in a market are perfectly substitutable
with one another.

When all these conditions are met the efficiency on the market will be maximized. The eternal
competition on the perfect market demand firms to innovate new products to remain on the
market. In this kind of market, the firms have very small incentives to coordinate their
behavior. This is because a firm in a perfect competitive market can produce to a level that
they chose without affecting the market price. Therefore, firms operating the same market
have no reason to consider other firms’ perspectives or behaviors but are able to focus on the
direction of their own work.22

A perfect market offers a variety of companies and products which provide multiple choices
for the consumers. In other words, it can be described as the exploitation of resources in the
most effective way of giving consumers the greatest benefit. A perfect market is the most
extreme type of competitive market and it might, as mentioned above, probably only be
available in theory. Anyway, in the Commission's work of controlling mergers, it seems like
it is a perfect market that they are aspiring to create. In the Guidelines on the assessment of
horizontal mergers it is stated that “effective competition brings benefits to consumers such as
low prices, high quality products, a wide selection of goods and services, and innovation.
Through its control of mergers, the Commission prevents mergers that would be likely to
deprive customers of these benefits by significantly increasing the market power of firms. “ 23

20
Bishop, S. Walker, M, The Economies of EC Competition Law, 3 rd edition, 2010, p. 33.
21
Pindyck, R. S. Rubinfeld, D. L. Microeconomics, n. 19 above, p. 263.
22
S Bishop, M Walker, The Economies of EC Competition Law, n. 20 above, p. 2.
23
Horizontal Merger Guidelines, n. 7 above, para. 8.
11

3.3 Monopoly
A monopoly is the total opposite of a perfect market. Markets with monopoly can show
24
different grades of monopoly. For the purpose of this essay, it is enough to sketch the
picture of the kind of monopoly called, the pure monopolistic market.25 In such a market there
is just one sole producer of the product i.e. the monopolist is the market and can therefore
totally control the output which is provided the consumers. This situation gives the firm
control over price and can set a price which does not equal marginal cost but exceeds it. Thus
a monopolist can increase price by reducing the volume of his own production. Through this
behaviour the consumers will be suspended from the possibility to buy the goods and services
that they would have liked to buy. The result of this is that consumers will spend their money
on things that does not really match their needs.26 Since the resources in this situation are not
allocated in the most efficient way, the economy can be described as subject to a loss, also
known as deadweight loss. Another problem with monopoly is that the productive efficiency
probably is lower than on other markets. This is because a monopolist is not forced by
competition to push the costs of production to the lowest level. In other words, they do
produce the right products, but they could have produced it more efficiently.27 Furthermore, a
monopolist is transferring wealth from the consumer to himself by charging higher prices than
he would do if the market was competitive. A merger which leads to a pure monopolistic
market will destroy all competition on the market and will obviously be assessed as not
compatible with the internal market and will therefore not be cleared by the Commission.

3.4 Oligopoly
Reality is that neither perfect competition nor monopoly describes competition in most
markets. In an oligopolistic market, there are only a few firms competing with each other. The
meaning of the expression oligopoly means “sale by few sellers”.28 However it is not as
simple to direct the problem of oligopoly to the number of firms operating on the market. It is

24
For example there is monopolistic competition on markets when there are more firms than one which are producing its own
brand or version of a differentied product. See further in Pindyck, R. S. Rubinfeld, D. L. Microeconomics, n. 16 above. See
also about legal monopoly in Bernitz, U. Svensk och europeisk marknadsrätt 1, 2 nd ed. 2009, p. 52.
25
By comparing the model of the free market and a pure monopolistic market, the oligopolistic market, which is the most
interesting for the purpose of this essay, will then become easier to grasp.
26
Whish, R, Baily, D, Competition Law, 7 th edition, 2012, p. 6.
27
Ibid., 7th ed, 2012, p. 6-7.
28
Whish, R. Competition Law, n. 26 above, p. 460.
12

rather about identifying dominance or to be said in economic terms; market power.29 It is the
market power of the firms that will give them the possibility to cause effects that will impede
the competition, for example by raising prices.30 However, the firms operating on an
oligopolistic market are often not more than 3-5.31

Perfect competition and monopoly are both situated as outliers on a scale of market structures.
The oligopolistic market lies in between those. There are barriers to entry to an oligopolistic
market but not as high as in monopolistic markets. Sometimes firms are active in competing
with each other in oligopolistic markets and the prices will be close to the level as in a perfect
market. In other cases, the firms in this kind of market will choose to coordinate and the
prices will be set above the competitive level to a price close to the level at a monopolistic
market.

3.4.1 Theory of oligopolists’ interdependence
Since the leading firms in an oligopolistic market are few they know about each other and are
well aware of the impact that price setting and output have on the individual firms.32 In other
words, the firms are interdependent as their decisions depend upon how the other firms act.
According to this theory, the firms are often acting consciously through parallel behavior.
This is often seen in practice as similar prices of their products and that individual price
adjustments are followed by other players. The firms are acting in the same direction but
without any explicit coordination. The interest of each firm is to maximize their profit.
Through independent decisions, they are following the other's behavior to achieve this goal.

This so called parallel behavior is more easy to arise when the quantity of the leading firms on
the market are less and when the products are homogeneous33, the demand on the market is
falling, the market holds one dominant firm, competition which is not related to price are
unlikely and when the barriers to entry are high.

29
Lars-Hendrik Röller and Miguel de la Mano state in the article “The Impact of the New Substantive Test in European
Merger Control ” that the legal definition of dominance is very close to the economic notion of market power(2006) p. 4.
30
Whish, R, Competition Law, n. 26 above, p. 460-461.
31
Bernitz, U. Svensk och europeisk marknadsrätt 1, 2 ed. 2009, p. 52. If there are two independent firms competing on a
market it is called a duopol.
32
Jones, A. Sufrin, B.EU Competition Law, n. 2 above, p.11.
33
However, products on an oligopolistic market does usually show at least some degree of differentiation. The more
homogeneous the products are the easier it is for the firms to coordinate their behaviour. See further: Pindyck, S. R.
Rubinfeld, L. D. Microeconomics, n. 16 above, p. 450.
13

The situation of reciprocity between firms seems to be reserved to the oligopolistic market.
As explained above, it is not a situation of interdependence between the actors on the perfect
market since their output on the market does not affect the price i.e. they are price takers. In a
monopolistic market there is also no interdependence simply because of the lack of
competitors.34

However, the theory of the oligopolistic interdependence has faced much criticism.35 It has
been accused of ignoring the complexity of the industrial market. The theory indicates that
interdependence between firms is strong when they are producing homogeneous products and
charging the same price. This situation is, according to the critics, not true since the
conditions on the markets are more complex which makes the conclusion of interdependence
far from reality. Proponents of this theory seem to be unable to explain why interdependence
is not a fact at every oligopolistic market. Another aspect of this theory that is criticized is that
it does not really explain how the decisions of the firms operating on the market, for example
setting constant parallel prices, can be made without cooperation.

34
Bishop, S. Walker, M. The Economies of EC Competition law, n. 20 above, p. 33.
35
Whish, R. Competition Law, 4th edition, 2001, p. 463.
14

4 DOMINANCE
The interesting issue in this essay is collective dominance. However, a review of the overall
concept of dominance is of fundamental importance for the further analysis. A firm which is
considered to entitle dominance has a high degree of market power.36 In case of a merger, the
Commission is required to assess whether the concentration will be compatible with the
internal market or not. In order to do this they need to determine if the merger significantly
impede effective competition (SIEC). The main factor when a merger significantly impedes
effective competition is when it creates or strengthens a dominant position. There are two
forms of dominance: single dominance and collective dominance. Thus, the concept of
dominance embrace both the situation when a firm, as a single unit, is considered to be
dominant and when the dominance is held by several firms together, as a collective.

4.1 Single dominance
The traditional way to characterize dominance was established in the case of United Brands v.
Commission. The Court stated that it relates to a “position of economic strength enjoyed by
an undertaking which enables it to prevent effective competition being maintained on the
relevant market by giving it the power to behave to an appreciable extent independently of its
competitors, customers and ultimately of its consumers”37.

The first issue when assessing dominance is to study the concentration in the market, i.e. the
market shares of the firms. Generally, a high market share of individual players indicates
dominance. High market shares are considered to be 40 percent or more38 while the other
players in the market have significantly lower proportions. Another factor indicating the
existence of dominance is that the substantial market share is expected to be retained by the
company during a period of time as other companies are not considered to have the
opportunity to compete with lower prices or better quality goods. Several factors are taken
into account in the assessment of dominance, however, they generally relate to the possibility

36
Faull, J. Nikpay, A. The EC Law of Competition, 2 nd edition, 2007, p. 59.
37 Case 27/76, Unites Brands v. Commission (1978) ECR 207, para 65.
38
15

and motivation of the actors on the market with smaller market shares to higher their
production or otherwise provides a moderating resistor.39

4.2 Collective dominance

4.2.1 Introduction
As mentioned in chapter 3.4, there is no certainty that firms will create a collective dominance
on an oligopolistic market. Thus, mergers cannot be prohibited only for the reason that the
post-merger situation will be constituted by approximately five firms. A thorough and
detailed analysis of the current market situation and the situation after the merger is therefore
essential for a proper assessment. It is not undisputed in the judicial literature how this
analysis is to be done. One can say that there on hand is an economic point of view and on the
other hand a legal (i.e. the view of the Commission and the Court). The economic view is
often criticizing the legal analysis to give legal uncertainty for the firms in their plans of
business. The criticism has often pointed on the Commissions’ narrow focus on the market
structure and that this focus ignores other means to predict the effects of mergers.
Furthermore, the Commission has faced criticism for not being successful in the consideration
of the overall welfare effects of mergers.40 However, the Commission's work has become
more economic in its nature since year 2002 which can be seen as a watershed in competition
law. This year was when the Court annulled the Commission’s prohibition decision in the
Airtours41 case. The Court reprimanded the Commission for the lack of sufficient economic
analysis in this case, and that they had made the assessment in a wrong manner. The starting
point of a more economic approach is expressed in the annual Report on competition policy42
from the Commission: “…the Commission decided to rapidly upgrade its capability to
undertake more sophisticated economic analysis, notably through the creation of a team of
specialized economists under the responsibility of a Chief Economist as soon as 2003”43.

39
Faull, J. Nikpay, A. The EC Law of Competition, n. 36 above, p. 60.
40
Monti, Giorgio, The New Substantive Test in the EC Merger Regulation – Bridging the Gap Between Economics and Law?,
LSE Law, Society and Economy Working Papers 10/2008, London School of Economics and Political Science Law
Department, p. 8.
41
Case T-342/99, Airtours. n. 9 above.
42
Report from the Commission, Report on Competition Policy 2010, {SEC(2011) 690 final}.
43
Ibid., para. 15.
16

It seems, probably because of the diverse interpretations of collective dominance and tacit
coordination, that these concepts have been more or less associated with each other
throughout the judicial literature. This may be due to the possibility that the concepts are
indistinguishable, largely integrated with each other and interdependent.

4.2.2 The change of the dominance test - a more effects based approach
Another reason for the interlocking of the concepts might be the structural change in Article
2(3) from the old EUMR to the current one. Article 2(3) in the old EU Merger Regulation,
adopted in 1990, prohibits mergers that: “create or strengthen a dominant position as a result
of which effective competition would be significantly impeded”. According to this old
dominance test, it was necessary and in most cases also enough for the Commission to prove
that collective dominance existed.44 In 2004, a change in the test in Article 2(3) EUMR for
analysing mergers was implemented. Before the change there were a discussion whether the
dominance test should be replaced by a test to measure whether a merger “substantially lessen
competition”. This test is practiced in the Anglo-Saxon countries. However, the new test in
the Article 2(3) in the EUMR was formulated as something in between. The Article is now
worded as follows: "A concentration which would significantly impede effective competition,
in particular by the creation or strengthening of a dominant position, in the common market
or in a substantial part of it shall be declared incompatible with the common market."
Through this change, it became possible to not only prohibiting mergers which are leading to
strengthening or creation of collective dominance but also prohibiting mergers that are likely
to lead to coordination between firms.45

The question is if the analysis in a merger case, whether it might result in a collective
dominance or not, is necessary according to Article 2(3) in the current EUMR. The answer
appears to be that the new test does not make dominance the exclusive test. 46 The word
“particular” leaves room for interpretation that there are other causes than dominance that
might result in significant impediment of effective competition. Through this change of the
test in EU merger control one could probably assume that the Commission´s analysis would

44
Monti, G, The New Substantive Test in the EC Merger Regulation – Bridging the Gap Between Economics and Law?, LSE
Law, Society and Economy Working Papers 10/2008, London School of Economics and Political Science Law Department,
p. 3.
45
Alison, J. Sufrin, B. EU Competition Law, 4th ed. 2011, p. 924.
46
Whish, R, Baily, D, Competition Law, n. 26 above, p. 867.
17

focus on finding the effects of a collective dominance, i.e. the effects that substantially
impede the competition on the internal market, rather than trying to prove the creation or the
strengthen of collective dominance. In 2001, before the change in the dominance test in
EUMR, Richard Whish expressed that “It is interesting to speculate whether the European
Commission might prefer the US standard to the test of dominance in the ECMR […]”.47
Whatever position the Commission has in the matter in their current practical work, it seems
that it has been made possible through the new test to adopt this approach.

4.3 Collective dominance and tacit coordination
The effect of collective dominance might be tacit coordination. It seems, as will follow from
the examination of the Airtours criteria in section 4.3.3.2, that tacit coordination also is a
precondition for the emergence of collective dominance. One might therefore ask the question
whether these concepts prove each other’s existence and whether they define one another.48
Moreover, this circular reasoning raises the question whether the concept of collective
dominance is limited to its effects or if it is possible to distinguish them from one another.
However it might not be of practical importance to keep these concepts apart from each other
since it seems to be enough to prove the effects of a merger that significantly impedes
competition in the internal market and therefore not necessary to establish the existence of
collective dominance any longer. This issue, and how the assessment is made by the
Commission and the Court, will be addressed in chapter 6 in the review of case law.

However, to facilitate the examination of collective dominance in this essay, the assumption
will be that it is possible to separate collective dominance from tacit coordination. The
following analysis of collective dominance will contain an examination of the features on a
market that makes it possible for a merger to create or strengthen a collective dominance in
that market will be done. Furthermore, the expressed conditions for collective dominance to
occur, which originates from the judgment in the Airtours case49, will be analyzed.

47
Whish, R., n. 35 above, p. 483.
48
The Economist Massimo Motti compares the concepts joint dominance and coordinated effects in the Article “EC Merger
Policy, and the Airtours case” (p. 11) and states that they “matches closely”.
49
Case T 342/99, Airtours, no 9 above, para 62.
18

The analysis of tacit coordination, what it is and in what way it distinguish from other forms
of coordination, will be done in the following chapter. However, before tackling the first step
in the examination of collective dominance, a definition of the concept is required.

4.3.1 The scope of collective dominance
The concept of collective dominance has been developed through case law. 50 In determination
of the definition of collective dominance, the case law related to Article 102 TFEU is also of
relevance since the expression appears to have the same meaning under Article 102 as under
the EUMR.51 However it is still not very well defined. In simplified terms, one can say that
collective dominance is a position held by the concentrated parties and of one or more
companies active in the market.52

The initial view was that collective dominance could only be upheld by firms constituting the
same economic entity.53 However, since firms in the same economic entity are considered as
only one entity, collective dominance could not be included in this perspective of dominance.
In Italian Flat Glass54 the Court developed the concept of dominance to include firms holding
a dominant position without being part of the same economic entity. The Court stated that:
There is nothing, in principle, to prevent two or more independent economic entities from
being, on a specific market, united by such economic links that, by virtue of the fact, together
they hold a dominant position vis-à-vis the other operators on the same market. This could be
the case, for example, where two or more independent undertakings jointly have, through
agreements or licenses, a technological lead affording them the power to behave to an
appreciable extent independently of their competitors, their customers and ultimately of their
consumers[…]”

In other words it cannot be excluded that two or more independent firms in a specific market
have economic links that give them a collective dominant position relative to other firms in
the same market. The Court’s clarification that two or more firms which are interconnected to

50
It is developed mainly by defining collective dominance under Article 102 TFEU. However, collective dominance is
interpreted the same way in merger cases.
51
Whish, R., Baily, D., Competition Law, n. 26 above, p. 572.
52
53
This perspective was stated in Hoffman La Roche where the Court seemed to reject that firms on an oligopolistic market
were able to collectively hold a dominant position. For holding a dominant position it appeared that the firms needed to be
included by the same economic entity. Case 85/76, Hoffman-La Roche & Co AG v. Commission (1979) ECR 461, para. 39.
54
Joined Cases T-68, 77-78/89, Società Italiano Vetro SpA v. Commission (1992) ECR II-1403. (Flat Glass), para. 358.
19

each other through economic links commonly can uphold a collective position raises the
question of how these economic links are supposed to be interpreted. The Court gave
examples of what these economic links could be; they can occur through agreements or
licenses which give the firms a technological lead and constitute an independent behaviour
towards their competitors. In this case, if the collective dominance must be based on
agreements and licenses it seems that it would not cover the situation of collective dominance
where the firms usually do not coordinate through these kinds of links but rather coordinates
tacitly.55

In the more recent case CEWAL56 the Court defined collective dominance more broadly:
“Two or more economic entities legally independent of each other, provided that from an
economic point of view they present themselves or act together on a particular market as a
collective entity”. From this definition the conclusion can be made that economic links also
can comprise interdependence between firms at an oligopolistic market and also be a product
of the current market structure.57 This implies that for determining the definition of collective
dominance it is enough that there is an oligopolistic market where the firms appear as a
collective entity.

Thus, the current view is that the term collective dominance includes not only those firms in
the same economic entity but also economically independent firms. In CEWAL, the Court
stressed that a finding of collective dominance “may be based on other connecting factors and
would depend on an economic assessment and, in particular, on an assessment of the
structure of the market in question”.58 Thus, existence of an agreement or other legal bindings
between the firms is not necessary for upholding a collective dominance. This was also stated
in Gencor59 when the Court concluded that the economic linkages necessary for collective
dominance does not need to be in form of an agreement. This case concerned a concentration
between two producers of platinum. The merger would have reduced the numbers of players
on the relevant market from three to two. The Commission found that the merger between
Gencor, a US firm, and Lonrho, a South African firm would have created a collective

55
Monti, G “The scope of Collective Dominance under Article 82” (2001) p. 132.
56
Case C-395/96 P, Campagnie Maritime Belge Transports SA and others v. Commission (CEWAL), 2000.
57
58
Case C-395/96 P, CEWAL, n. 54 above, para 45.
59
Case T-102/96, Gencor Ltd v. Commission (1999) ECR II-753.
20

dominant position even though no contractual or structural links existed between them. In this
case, the interdependence that existed between the firms in a tight oligopoly was enough to
determine the economic links necessary for collective dominance to be created or
strengthened. Thus, the prevailing market structure was the cause for collective dominance in
this case.

The term collective dominance cannot be found, or at least it’s rare, in economic literature.
Other alternative terms of more economic approach that can be used are joint or oligopolistic
dominance. However, it cannot be assured that the definitions of these concepts are
interpreted in the same way as collective dominance. An interpretation of collective
dominance from an economic perspective has however been outlaid by Europe Economics in
their report to the European Commission Enterprise Directorate General where it is stated:
“We use the term collective dominance to refer to a position of economic strength held by a
group of firms that enjoy to a significant degree a lack of competitive constraint.” 60

4.3.2 Collective dominance on an oligopolistic market
This section will focus on structural factors in the evaluation of collective dominance rather
than the behavioural factors which might be considered to belong to the next section (section
4.3.3 which is about the Court’s conditions set up in the case law, for collective dominance to
occur). However, these factors appear to be, in certain aspects, integrated with each other.
There are two publications, beside the EUMR, for the Commission to lean on in its
assessment of whether a merger significantly impedes competition in the internal market, in
the context of collective dominance. These are: (1) the Commission Notice on the definition of
the relevant market for the purposes of Community competition law61 (the Notice on market
definition) and (2) the Horizontal Merger Guidelines62. The assessment of a merger should
not follow an exact list of conditions, but should be an overall assessment. Moreover, the
evaluation criteria differ from case to case and have different impact depending on the actual
market.63 Historically, the analysis consisting of several criteria has been used in the same

60
Europe Economics, “Study on Assessment criteria for Distinguishing between Competition and Dominant Oligopolies in
Merger Control”, 2001, p. 2.
61
Commission Notice on the Definition of the Relevant Market for the Purposes of Community Competition Law (1997) OJ
C 372/5, (1998) 4 CMLR 177.
62
Horizontal Merger Guidelines, no. 7 above.
63
Ibid. para.13 which states that: “[…] the competitive analysis in a particular case will be based on an overall assessment
of the foreseeable impact of the merger in the light of the relevant factors and conditions. Not all the elements will always be
21

way in the oligopolistic analysis and in the assessment of a single dominance. However, the
analysis of collective dominance cannot be entirely based on the same criteria as in the cases
of single dominance. For the purpose of this essay all the factors, set out in the publications
mentioned above to assess dominance in a market will not be analyzed. Here, the choice of
criteria has been made on the basis of the attempt to illuminate the ones that helps to evaluate
the economic structure in the oligopolistic market which can give rise to collective
dominance. The analysis should be done with a holistic approach and the individual case
predicts what factors should be particularly focused on. The presentation below only
highlights some of factors that are important in the assessment of collective dominance in an
oligopolistic market.

Market definition
Defining the relevant geographic- and product market is essential and serves as a pre-
condition in all merger cases, thus even in case of collective dominance.64 It is essential from
at least two perspectives. One essential perspective is that by defining the relevant market,
one can identify the factors that set the limits for a firm. This is outlined in the Commission’s
Notice on Market Definition where it says: “The main purpose is to identify in a systematic
way the competitive constraints that the undertakings involved face”65. Another perspective is
that it is also essential from a practical perspective since all the facts about the relevant market
is required to be provided to the Commission as the firms are notifying them, which is
compulsory, about the merger. It is a great task to define the relevant market and the judicial
doctrine provides different theories together with the SSNIP-test to use as tools for this
purpose.66 However, a description of how the relevant market is defined would not add any
value to the purpose of this essay. It is sufficient to note that defining the relevant market
should be done even in cases of collective dominance and that such a definition is essential
for future analysis of an oligopolistic market. Thus, defining the relevant market makes it
possible to estimate market shares and hence draw conclusions about market concentration.67

relevant to each and every horizontal merger, and it may not be necessary to analyse all the elements of a case in the same
detail.".
64
Joined Cases C-68/94 and C-30/95 France and Others v Commission (Kali & Salz) [1998] ECR I-1375, paragraph 143).
65
The Commission Notice on Market Definition, n.59 above, para. 2
66
The SSNIP test is also known as the hypothetical monopolist test or 5 % test, see further about market definition in Jones,
A. Sufrin, B. EU Competition law, n. 2 above, p. 63.
67
Bishop, S. Walker, M. The Economics of EC Competition law, n. 20 above, p. 109.
22

Market shares and concentration level
The main point in the Commissions analysis of oligopolistic dominance is to look at the
market shares of the firms. However, it is not a decisive factor but by finding out the market
shares one will receive a hint of the market structure.68 Since the market share is not given a
decisive role in the search for collective dominance, there is thus no fixed percentage of the
market shares that determines the emergence of collective dominance. However, the Court
has given a percentage to relate to with regard to collective dominance. In the case Atlantic
Container Line69, which even though it was a case related to Article 102, the General Court
confirmed that the general assumption that when firms have 50 % shares of the market it
might hold a single dominant position also applies to firms holding a collectively dominant
position.

The concentration together with the fact that there are only a handful players on the market
makes it possible for the firms to reach a collective dominant position. The more firms on the
market, the more complex structure, which will make it difficult for firms to behave as a unit.
The more companies, the less control they can exert over each other. In economic terms,
collective dominance is often referred to as oligopolistic dominance. This indicates that
collective dominance has a very strong connection with the oligopolistic market. The
importance of the high concentration in the market for collective dominance to occur was
stressed by the Commission in the case Price Waterhouse/Coopers Lybrand as follows: “[…]
collective dominance involving more than three or four suppliers is unlikely simply because of
the complexity of the interrelationships involved, and the consequent temptation to deviate;
such a situation is unstable and untenable in the long term”.70

Barriers to entry
A very essential factor in the assessment of whether firms will enjoy collective dominance in
a post-merger case is if there is a high probability of new competitors entering the market.
The potential increase in prices, which might emerge after the merger, can constitute a barrier
to entry for new firms trying to compete on the market. However, it is not easy to show that

68
This is expressed in paragraph 14 in Horizontal Merger Guidelines as follows: “market shares and concentration levels
provide useful first indications of the market structure and of the competitive importance of both the merging parties and
their competitors”.
69
Cases T-191/98, 212/98 and 214/98, Atlantic Container Line v. Commission (2003) ECR II-3275, paras. 931-5.
70
Case IV/M1016, Price Waterhouse/Coopers & Lybrand, 20th May, 1999.
23

such barriers exist. To determine whether the market have such barriers, a historical analysis
may be necessary to conduct. Such analysis can answer whether there are opportunities for
new companies entering the market. If the conclusion is that collective dominance might be
strengthened, the absence of potential growth and development of the market can be a barrier
for firms to enter the market. A market that does not possess such potential will not be an
interesting market to invest in. It is assumable that where the Commission fails to make a
correct analysis, by identifying barriers in cases where they do not exist, the result will be
restricted competition since a market which does not hold barriers to entry is normally a
competitive market. As we will see in the next chapter in the examination of the three
conditions for collective dominance, set up by the Court, it is a part of the first condition that
not too many entrants can be expected on a market with collective dominance.71

Transparency
An oligopolistic market with few players is normally a market with high transparency.
Transparency is therefore dependent on the existence of barriers to entry. If too many firms
enter the market, the transparency will consequently be lost. A market without transparency
will make it impossible for the firms to exert internal market power since they will not know
in what area to put their joint force. Firms with collective dominance in an oligopolistic
market need to have information about each other’s strategies, incentives and motives to
appear as one unit.

Stability
A market with a tendency to change in its structure from time to time makes it difficult for
firms to coordinate their behavior. However, if the entrants' market share has been stable over
time, this could be an indication of lack of competition. It is therefore essential for the
Commission to make a historical review over the firm’s market shares as well as a current
review to make this comparison.

71
This reasoning also seems to be compatible with the case law before the new Merger Regulation which came into effect in
2004.
24

Symmetry
An oligopolistic market often exhibit certain traits, such as cost- and supply structure but also
in that the actors’ motives and incentives are not too different. A symmetric market structure
might thus give them an advantage in the pursuit of collective dominance.72 It is obvious that
it is less possible to find collective dominance in a market with asymmetric structure. To
explain this, the behavioral aspect though, needs to be considered. If the firms show
heterogeneous structures in costs, the incentive for them to coordinate will probably be low. A
firm with low marginal cost compared to the other firms would probably prefer to keep the
price down. However, in the case when firms coordinate to keep prices at a high level, the
firm with low marginal cost would probably be tempted to lower its price to make profit.

Product Homogeneity
Collective dominance seems to be achieved more easily when the firms are producing
homogeneous products. This is at least true in the case of when firms are able to keep the
prices high according to their dominance. The importance of a stable market structure to find
collective dominance, as discussed above, is also connected with the production of
homogeneous products. In a market where the production consists of differentiated products it
is more difficult for firms to create a single market force. However, when the analysis shows
that the products on the market are not homogeneous, it cannot be equal to the lack of
collective dominance. In the absence of product homogeneity, there might be other ways for
the firms to exert their dominance.73

Buyer power
Buyer power can act as a countervailing force to the market power collectively held by firms
on a market. Since buyer power can exist in different forms it does not seem like an exact
definition can be provided. OECD (Organisation for Economic Co-operation and
Development) has however given a broad explanation by stating that buyer power is “the
ability of a buyer to influence the terms and conditions on which it purchases goods”.74 If
consumers are able to compare information and prices and choose the best alternatives they

72
73
Europe Economics, “Study on Assessment criteria for Distinguishing between Competition and Dominant Oligopolies in
Merger Control”, 2001, p. 43, where examples as allocating markets or customers are given.
74
OECD, Roundtable on buying Power of Multiproduct Retailers, Volume 2 No.1, OECD Journal of Competition Law
Policy, 2000, p. 98.
25

might then represent a strong resistance to allow firms to pursue collective market power.
However, for a significant buyer power to exist, consumers should not only be able to
compare prices, but also have the power to react in case of an increase in price. An expected
reaction from consumers with buyer power is that they are able to substitute the product i.e.
they can chose another product in the case of an increase in price.

4.3.3 The Court’s conditions for collective dominance to occur
In the previous section, the characteristics of the market when assessing collective dominance
were examined. However, an assessment based on the structural characteristics of the market
alone, for collective dominance to arise, is not sufficient.

4.3.3.1 Airtours
Airtours is a British travel company which sells holiday trips to destinations like Spain,
Turkey and Greece to people travelling from the United Kingdom. Airtours had three main
competitors on the relevant market: Thomson, Thomas Cook and First Choice. In 1999
Airtours and First Choice notified the Commission about the plans of a merger between the
two firms. Airtours had at the time put a takeover bid for First Choice.

About five months later, the Commission found the coming concentration incompatible with
the internal market. The Commission noted that the relevant market was the short–haul
foreign package holiday market. The Commission held that after the merger the remaining
companies on the market would create collective dominance. The view of the Commission
was that the companies would have incentives to restrict the capacity of the market. This
would lead to cons for the consumers in terms of higher prices, but advantages for the
companies in form of increased profits.

The market shares of the four players were estimated before the merger to; Airtours 19,4%,
First Choice 15%, Thomson, 30,7 % and Thomas Cook 20,4 %. The Commission held that it
would be a significant difference in the percentage of market shares held by Airtours before
the merger and after the merger, increasing from 19,4 % to 34,4 %. The Commission
reasoned that the change in the market structure would marginalize the small independent tour
operators. The new market structure would facilitate the three larger operators to tacitly
coordinate their behaviour.

26

The Commission thus prohibited the merger. However, Airtours was not satisfied and did
therefore appeal to the Court for annulment of the decision. In the judgment, the Commission
was harshly criticized by the Court for not handling the analysis of the dominance test in a
correct manner, and stated that it was “vitiated by a series of errors of assessment”.75 The
Court declared that it is insufficient to consider market characteristics alone in the assessment
of collective dominance. The Commission had failed to prove that the merger would lead to
collective dominance. The Court further enumerated the three renowned conditions for
collective dominance to occur. These conditions are as follows: “- first, each member of the
dominant oligopoly must have the ability to know how the other members are behaving in
order to monitor whether or not they are adopting the common policy […]- second, the
situation of tacit coordination must be sustainable over time […] - third, to prove the
existence of a collective dominant position to the requisite legal standard, the Commission
must also establish that the foreseeable reaction of current and future competitors, as well as
of consumers, would not jeopardise the results expected from the common policy.”76

4.3.3.2 The importance of the Airtours criteria for future development
The Airtours case was of crucial importance for the future development of the concept of
collective dominance. Except for that the case gave collective dominance a leap forward, the
“Airtours conditions” had great impact on the change of the dominance test in Article 2 (3)
EUMR, aforementioned in section 4.2.2, the approach became hereinafter more economic and
the case was also a force behind the publishing of Horizontal Merger Guidelines in 2004.The
Horizontal Merger Guidelines have embraced these three conditions which are now forming
the basis for the Commission’s assessment of the creation or strengthening of collective
dominance.77 As will be visible, some of the factors examined (in section 4.2.4 above) in
order to find collective dominance in an oligopolistic market are embedded in these following
conditions.

75
Case T-342/99, Airtours, n. 9 above, para. 294, The criticism in its entirety read as follows: “In the light of all of the
foregoing, the Court concludes that the Decision, far from basing its prospective analysis on cogent evidence, is vitiated by a
series of errors of assessment as to factors fundamental to any assessment of whether a collective dominant position might be
created.”
76
Case T-342/99, Airtours, no 9 above, para. 62.
77
27

First condition: Ability to monitor to a sufficient degree whether the terms of coordination are
being adhered to
For collective dominance to be created or strengthened in a market there has to be a
possibility for the firms to reach a common understanding in the absence of any explicit
agreement.78 For achieving this, all members of the dominant oligopoly should have
knowledge of each other’s behaviour. This knowledge can only be achieved if the market is
transparent. Through this knowledge they can monitor the market to see if they adopt the
common policy. However when the market conditions are relatively stable i.e. for example
not too many structural changes as in terms of new entrants or innovations and when the
products does not show a high degree of differentiation but are more homogeneous, it is
generally easier for the firms to coordinate their behaviour. The market must not only be
transparent enough for the firms to coordinate their behaviour but also transparent enough for
the firms to detect whether a firm is deviating.79

Second condition: Requires some form of credible deterrent mechanism, that can be
activated, if deviation is detected
An existing deterrent mechanism on a market might enable tacit coordination sustainable over
time and therefore strengthening the collective dominance or make it likely that a creation of
collective dominance arise. When a firm decides to deviate from the tacit coordination by, for
instance, lowering its prices this will probably give rise to a price war. Thus, tacit collusion
shall be sustainable over time in order for a collective dominant position to be created or
strengthened. There must be an incentive for the members of the oligopoly to not deviate from
the common policies.

Multi-market contacts might facilitate tacit coordination to sustain. This can be explained in
the way that if a firm competes with the same actors at several markets, it is assumed to have
a greater incentive to stick to the tacit coordination among the firms. If it would do the
opposite and deviate, it will probably face punishment in all the markets. In other words, a
firm with multi market contacts has more to lose than a firm which is playing a role in only

78
Faull, J. Nikpay, A. The EC law of Competition, n. 36 above, p. 486.
79
Ibid., p. 487.
28

one market. Multi-market contacts have been considered in several decisions by the
Commission.80

Third condition: The reactions from outsiders such as current and future competitors not
participating in the coordination, as well as customers, should not be able to jeopardise the
results expected from coordination
The third condition is that the foreseeable reaction of current and future competitors as well as
of consumers will not jeopardize the results expected from the common policy. This means
that if consumers or competitors are able to react in a way that makes the coordination
between the parties unstable, it is not likely that the tacit coordination will last over a long
period of time.81 Consumers might constitute a risk of jeopardising the outcome of the
coordination through their countervailing buyer power. Concerning the question whether
future competitors might put coordination at risk, an assessment of barriers to entry is
required and an examination of the costs that new entrants might face relevant.82

In conclusion it seems likely that the definition of collective dominance, according to the
Courts’ conditions, is based on effect, in the way that the firms have the ability to adopt
common strategies on the market and to act independently of others. Thus, the examination of
these three conditions seems to favour the view that the links between the firms or in the way
that the firms appear as one entity, which creates a collective dominance, may be formed by
tacit coordination.

In chapter 6, there will be a review of several cases in the aspect of the assessment of
collective dominance. The Airtours case will then be a starting point, in the journey of this
essay, to discover the current view of what is included in the concept of collective dominance.
Before approaching various cases, we need to explore the detailed meaning of tacit
coordination.

80
Cases IV/M 1630, Air Liquide/BOC (1999), para. 102 and COMP/M.2690, Solvay/Montedison-Ausimont (2002), para 52.
For further reading about multi-market contacts in these cases see Bishop, S. Walker, M. The Economics of EC Competition,
n. 20 above, p. 401.
81
Faull, J. Nikpay, A. The EC Law of Competition, n. 36 above, p. 489.
82
Ibid., p. 490.
29

5 TACIT COORDINATION

5.1 Introduction
The prisoners’ dilemma is a theoretical game, presented by modern oligopoly theory83 that
provides insight to the difficulties and possibilities of collusion on an oligopolistic market. It
is common in the judicial doctrine to use this game theory for the understanding of why firms
have an inclination to tacitly cooperate and do not compete to the fullest, at oligopolistic
markets. After a short general description of the game there will be an explanation to how
this game can be interpreted in the context of tacit coordination at oligopolistic market.

In Airtours, the General Court stated that collective dominance would exist where each
member of a dominant oligopoly would “consider it possible, economically rational, and
hence preferable, to adopt on a lasting basis a common policy on the market with the aim of
selling at above competitive prices, without having to enter into an agreement or resort to a
concerted practice within the meaning of Article 101” 84. This declaration of the Court renders
the question whether collective dominance occurs when tacit coordination seems rational to
the actors on the market. And vice versa, does tacit coordination always occurs when firms
are holding a collective dominant position?

When the oligopolistic market does not deliver the low prices that could be expected of a fully
competitive market and when there are no agreements between those firms, it can be assumed
that the companies cooperate through tacit collusion.

5.1.1 Prisoners’ dilemma
The scope of this dilemma is as follows: Two prisoners are put in separate cells. The prisoners
are both accused of having committed a crime jointly. Since they are separated they cannot
communicate with each other. Each prisoner has been given the chance to confess. If each of
the prisoners chooses to confess, the judgment will be 5 years in prison for each of them. In
the case of one prisoner confessing and the other not doing so, the prisoner who confess will
be given only 1 year in prison. The prisoner who is silent will be sent to prison for 10 years.
The outcome in the case of when each of them decides to not confess is that they will each

83
See for example the article “Edgeworth and modern oligopoly theory” by Xavier Vives, CSIC, Institut, 1993, section 3.4
about repeated interaction among firms on an oligopolistic market.
84
Case T-193/02, Airtours plc v. Commission (2002) ECR II-2585, para. 61.
30

receive two years behind bars. Hence, the option of strategy that is least painful for both of
them is to confess. This option is called a dominant strategy which means that no matter what
another actor does, this is the optimal choice.85 Thus, it is always a better choice for either one
of the parts to confess no matter what the other part chooses to do and vice versa. The reason
for this is that if they chose to confess they will have the minimum number of years in prison.
In the next subsection, the theory will be used and extended to the examination of
oligopolistic behaviour of firms.

The prisoners’ dilemma describes a theoretical situation where the players involved take into
account the other participant’s actions and responses before making their own strategic
decisions. The theory of the prisoners’ dilemma explains that the outcome of actors’
behaviour at an oligopolistic market might be cooperative or not.86

5.1.2 Tacit coordination and the Prisoners’ dilemma
What insight does the theory of the prisoners’ dilemma have on the situation of tacit
coordination in an oligopolistic market? By interpreting the theory in a case when there are
two firms at a market, following conclusions can be drawn: The two leading firms on the
market can either chose to coordinate their behaviour or they can chose not to do so. Further,
they can decide whether they are to set a high or a low price on their products. The four
different possible outcomes of this situation are that both can set low prices and earn 10 each,
both can set high prices and earn 20 each, or one of them can set a high price and earn 30,
whilst the other can set a low price and earn 0, and vice versa. However, they all want to
choose the strategy that gives them the highest profit. The theory shows that when firms do
not cooperate, they will all end up choosing a low price since that choice will in all cases be
more profitable whatever choice the other firm makes. In simplified terms this can be
explained through the reason that if a firm chooses a high price, the other firm wants to earn
profit and therefore chooses a low price. This will in turn lead to that the other firm also will
lower its price. At this point, no one can earn more profit without anyone else making less or
more profit than the other. This is called the Nash equilibrium.87 However, this is not the
result in case of tacit coordination between the firms. In an oligopolistic market, the firms

85
Pindyck, R. S. Rubinfeld, D. L. Microeconomics, n.16 above, p. 476.
86
87
Jones, A. Sufrin. B. EU Competition Law, n. 2 above, p. 786.
31

have insight in and follow each other’s strategies regarding price setting. The game will be
repeated time after time and the firms will thus recognize that they will earn more profit if
they all choose a high price.88 To keep the price up and avoid that firms are tempted to again
lower its price to make more profit than the others, there has to be mechanisms that makes the
tacit coordination sustainable.89 These mechanisms will be explained in the following section.

5.1.3 Tacit coordination
Tacit coordination, also known as tacit collusion which is commonly used in economic
literature, means that firms behave in a parallel way without corresponding with each other.
As a consequence of the market structure, where interdependence between firms exists, tacit
coordination can occur. The effects of tacit coordination are similar (higher and fixed prices)
to explicit collusion, such as agreements and concerted practice.90

As explained earlier (chapter three) there are economic theories indicating that parties on an
oligopolistic market have strong incentives to concert their behaviour. They could either do
this through agreements, or concerted practice, or by tacit coordination. Coordination through
agreements and concerted practice creates cartels and are forbidden by Article 101 and
therefore less attractive for the firms. Actors on an oligopolistic market might therefore prefer
to concert their actions without communicating with each other.

In chapter 4, different features in market structure together with the Court’s explicit
conditions for enabling collective dominance to be created or strengthened was discussed. In
the examination of how tacit coordination occurs, modern oligopoly theory serves as a tool.
There are conditions for tacit coordination to arise and be sustainable which can be explained
through these two following statements.

The firms must have an incentive to avoid competing with each other
A basic incentive for the firms to coordinate their behaviour is that the firms will be better off
in the case of not competing with each other than in a normal competitive situation. The

88
Pindyck, R. S. Rubinfeld, D. L, Microeconomics, n. 16 above, p. 484.
89
90
Ibid., p. 796.
32

likelihood for tacit coordination increases when the firms have common interests and when
their strategic goals are unified enough.91

Tacit coordination must be possible to achieve
The possibility of tacit coordination consists of several factors. One factor is that the cost
must be relatively low which means that the market should be fairly stable. The likelihood of
tacit coordination also decreases when consumers are price sensitive, and when there are low
barriers to market entry.92 For tacit coordination to sustain it is also of great importance that
deviations are easy for other participating parties to detect and punish.93 If not so, tacit
coordination will be impossible to uphold. If a firm, participating in a tacit coordination will
lower its prices, the other firm will when detecting this, also lower their price and a price war
will emerge. Therefore, there will be no profits for the deviating firm. The only outcome of
this deviation is that the margins of the firms fall and that their market shares are the same as
before the deviation. This reasoning follows from the theory of prisoners’ dilemma discussed
above in section 5.1.2 and 5.1.3. The result in practice is that the firms can sell their products
at higher prices than at competitive prices. Thus, they maximize their joint profit at the cost of
the consumers.

5.2 Comparison of tacit coordination, agreements and concerted practice
In order to examine the concept of tacit coordination a comparison of other ways for firms to
coordinate their market behaviour has to be done. Such comparison provides a more clear
distinction of what tacit coordination means together with the insight that the various forms of
cooperation cannot always be distinguished from each other.

5.2.1 Concerted practice
Agreements, decisions and concerted practices which may affect trade between Member
States are dealt with in Article 101 TFEU. This Article prohibits these forms of cooperation if
they prevent, restrict or distort competition, by object or effects. As the Article comprises
concerted practice, the scope of the provision is considerably widened. Since firms seem to
avoid written agreements when creating a cartel, it is necessary for the usefulness of the

91
Jones, A. Sufrin, B. EU Competition Law, n. 2 above., p. 797
92
Ibid., p. 797.
93
Ibid., p. 797.
33

provision to include concerted practice. Through concerted practice other looser forms of
cooperation than agreements can be captured by Article 101.94

Concerted practice can be explained in the way that two or more firms apply a certain
procedure in consensus without any agreement. In Dyestuffs95 the Court defined concerted
practice as: “co-ordination between undertakings which, without having reached the stage
where an agreement, properly so called, had been concluded, knowingly substitutes practical
co-operation between them for the risks of competition.”96

Concerted practice requires implication on the market, in terms of effect or practice.97 In
Polypropylene98 this was explained in the following way: “It follows, first, that the concept of
a concerted practice, as it results from the actual terms of Article (101(1) TFEU), implies,
besides undertakings’ concerting with each other, subsequent conduct on the market, and a
relationship of cause and effect between the two.”

Concerted practice does not occur without contact between firms. In Suiker Unie99 the Court
stated that there has to be indirect or direct contact between the firms for concerted practice to
take place. Such contact can in the case of concerted practice cause effects on an actual
competitor's behaviour at the market. The contact can be established in many different ways,
for example by participating in meetings and through other means of communication for the
exchange of information. The key in this matter is the need of a conscious contact with the
parties’ intention to make the information available to each other.100

In summary one can state that it is clear from the case law that there must be some kind of
consensus through which competition consciously is replaced by concerted practice. This is in
opposition to tacit collusion, which does not require any contact at all. Compared to an

94
Jones, A. Sufrin, B. EU Competition Law, n. 2 above., p. 161.
95
Case ICI v. Commission (1972). (Dyestuffs)
96
Ibid., paras. 64 and 65.
97
Jones, A. Sufrin, B. EU Competition Law, n.2 above, p. 161.
98
Case C-199/92 P, Hüls AG v. Commission (1999) ECR I-4287, para. 161.
99
Cases 40-8, 50, 54-6, 111, and 113-4/73, European Sugar Cartel, Re the; Cooperatiëve Vereniging Suiker Unie v. EC
Commission (1975) ECR 1663.
100
Jones, A. Sufrin, B. EU Competition law, n. 2 above, p. 165.
34

agreement, concerted practice is not as rigid, which needs to be based on some sort of
formality.

So what can this necessary contact between the firms look like? In Dyestuffs101, the Court
upheld the Commission’s conclusion that the firms had announced their increase in price in
advance through concerted practice. These announcements made the market transparent and
therefore parallel behaviour among the competitors was facilitated. However, the Commission
had also discovered significant evidence of indirect and direct contact between the 10
producers of dyestuffs. The Court concluded that parallel behaviour (tacit coordination)
cannot be identified with concerted practice but can provide a strong evidence of concerted
practice. In addition the Court stated that tacit coordination cannot constitute the only
evidence of concerted practice. When the Commission relies upon such evidence, they should
not view the evidence in isolation but consider the case as a whole, taking into account the
characteristics of the market for producers. The conclusion is that if a firm reveals its prices in
advance which it is considering applying on the market; it might result in concerted practice.
In this perspective, concerted practice and tacit coordination seems to be related to each other.

5.2.2 Agreement
The EU rules have widely construed the concept “agreement”. It does not matter if it is a
horizontal or a vertical agreement; they both fit in the definition of an agreement.102
Furthermore, the agreement does not have to be connected to a special occasion but might be
scattered over a period of time and still be regarded as an agreement.103 Agreements are often
associated with a contract signed by the parties. However, such action is not a precondition
for an agreement to exist. If the firms express their common intention in which way they are
planning to act on the market, this might compose an agreement. In other words, the form of
the agreement is not relevant. It may be oral, written, signed or not signed. Thus, a legally
binding agreement is not required in this matter. It also comprehends the act of a gentlemens’
agreement which can be explained in short as parties, without an expressed agreement, pays
tribute to an informal arrangement. They might do this because of moral aspects or for the
reason that they are keen to preserve future relationships.

101
Cases 48, 49, and 51-7/69, ICI v. Commission (Dyestuffs) (1972) ECR 619, paras. 100-103.
102
Case Consten & Grundig v Commission, (1966) ECR I-8055.
103
Case Polypropylene, OJ (1986) L 230/1.
35

In the year 2000 in Bayer AG v. Commission104, the Court updated the definition of an
agreement by reviewing the earlier case-law. The Court stressed that an agreement: “centres
around the existence of a concurrence of wills between at least two parties, the form in which
it is manifested being unimportant so long as it constitutes the faithful expression of the
parties’ intention.105

One difference between an agreement and concerted practice, except that the latter simply
does not have to include a written or oral part, is that the formation of an agreement is not
depending on whether or not it has been implemented and followed. As explained above,
concerted practice requires market implications rather than the actual agreement in itself.

As we will see in the attempt to define tacit coordination, this wide construction of the term
“Agreement” does not result in a clear distinction from tacit coordination.

104
Bayer AG v Commission, Case T-41/96 (2000) ECR II-3383.
105
Ibid, para. 69.
36

6 CASES
In this chapter an analysis of the assessment of collective dominance in the case law will be
provided. The starting point in this range of cases that will be analysed is the case Airtours,
which is described in detail in section 4.4.3.1- 4.4.3.2. By this it is not said that earlier cases
are not of relevance for the analysis in chapter seven, but it is since Airtours the interchange
ability between collective dominance and tacit coordination seems to officially have been
recognized by the Court. The focal point in this chapter is to understand how the Commission
and the Court have been assessing collective dominance, if they have at all, if they recognized
it as necessary, and if they have been focusing on the finding of tacit coordination.

The analysis of the various cases will have the same shape. First, the details and the
background of the case will be provided. Next, there will be an introduction to the
competitive assessment made by the Commission or the Court. The introduction will pay
attention to the market definitions, market shares and also if there are structural or material
factors in the competitive assessment that should be emphasized and clarified to better
understand the upcoming analysis. Next, I will analyse to what extent the Commission or the
Court have relied on the factors derived from the Airtours criteria in the assessment. Each
case analysis will end with a conclusion done from an overall perspective. This will be an
attempt to summarize the Commissions or the Courts examination of collective dominance. I
will in this section also discuss whether the assessment has been done from an effects based
perspective and whether the terms collective dominance and tacit coordination has been used
interchangeable or separate. An indication that might show that there has been a separate
assessment of collective dominance is if additional considerations have been taken into
account. Such factors might for instance be; stability, symmetry, buyer power, product
homogeneity, the interdependence between the players on the market. The aim is to find
characteristics that are highly market oriented and not typically embedded in the Airtours
conditions.

This chapter will handle six cases, whereas five of them are decisions made by the
Commission and one is a judgment by the Court.106 The purpose of this examination is to

106
The reason for the choices of cases made in this essay is partly the “list” of cases provided by Richard Whish in
Competition Law, 7th ed, 2012, p.873.
37

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