On 31 October, a couple of months before Christmas, I had already sent my Santa letter to the European Commission in response to the public consultation on the Draft Communication from the Commission—Guidelines on the application of Article 102 of the Treaty on the Functioning of the European Union to abusive exclusionary conduct by dominant undertakings (Draft Guidelines)—see full version below. The background is the ongoing debate on whether competition law should incorporate non-market values, such as fairness, sustainability or even plurality and democracy, which has prompted an existential crisis that appears to have become chronic. In particular, there seems to be a disconnect between recent case law of the Court of Justice of the European Union (CJEU) and the Commission’s enforcement approach. Regarding Article 102 TFEU, while the former clearly leans towards making the relative efficiency of competitors of the dominant undertaking the criterion for abusive conduct (e.g., C-377/20 Servizio Elettrico Nazionale, para 101; C-48/22 P Google Shopping, para 164; C-240/22 P Intel RENV, para 181), the Commission insists on building cases grounded in fairness concerns (e.g., AT.40437 Apple—App Store Practices (music streaming)).
A coherent explanation of the jurisprudence on Article 102 TFEU has therefore become essential, as has its distillation into a redefinition of this provision. This should be based on economic and comparative reflection on its objectives, in order to create a legally and economically sound analytical framework for future application. The Commission has taken a decisive step in this direction. In particular, I argue that the analytical framework for the application of Article 102 TFEU to both exclusionary and exploitative abuses should be unified and aligned with that of the prohibition of agreements and concerted practices under Article 101 TFEU, as well as with the logic of merger control. This also requires distinguishing it from adjacent regulatory rules, notably Regulation (EU) 2022/1925 on fair and contestable markets in the digital sector (the Digital Markets Act).
The redefinition of Article 102 TFEU forms part of the wider debate on the objectives of competition law, which has remained unresolved for decades and has recently been reinvigorated by proposals to extend it to non-market values such as fairness. The starting point is the prevailing legal and economic doctrine in Europe and the United States, which posits that competition authority intervention must be justified by a market failure—specifically, a sub-optimal outcome in terms of total welfare due to a lack of (allocative) efficiency. From this perspective, the specific market failure arising from excessive market power justifies applying Article 102 TFEU after it has been consummated—by sanctioning an exclusionary or exploitative abuse—or by applying merger control rules to prevent it before it is consummated. However, such intervention by competition authorities is only justified to the extent necessary to correct the market failure. Based on this logic, the relative efficiency of the dominant undertaking compared to its competitors can be proposed as a practical criterion for determining the appropriate level of intervention by competition authorities under Article 102 TFEU.
In fact, the relative efficiency criterion strikes the right balance between the economic freedom and incentives of the dominant undertaking and the general interest in a market-based metric (welfare, competitive process, or competitive market structure). It does so by requiring competition authorities to determine whether the objective logic of the dominant undertaking’s conduct is to foreclose equally efficient competitors (or to prevent competitors from becoming equally efficient, which is conceptually the same—C-48/22 P Google Shopping, para 165) capable of imposing a sufficient competitive constraint on the dominant undertaking that forces it to behave efficiently if they are protected from artificial foreclosure. In such cases, competition authorities should limit their intervention to preventing the artificial foreclosure of equally efficient competitors, thereby building an exclusionary abuse case. This is the least interventionist and therefore the most proportionate method of ensuring an overall market metric (through market mechanisms)—Gual et al., 2006, pp. 10–11.
If there are no equally efficient competitors capable of forcing the dominant undertaking to behave efficiently, competition authorities would be justified in building an exploitative abuse case. This would enable enforcement to replace absent equally efficient competitors by directly acting on the dominant undertaking’s market decisions to impose a market outcome equivalent to the one such competitors would have imposed (e.g., by prohibiting certain price levels of the dominant undertaking or forcing it to offer certain conditions or to innovate). This logic is compatible at the ex-ante level with that of merger control, where the single legal test (‘significant impediment to effective competition’) is fulfilled based either on an exclusionary theory of harm, if the resulting entity is expected to engage in artificial foreclosure of equally efficient competitors, or on an exploitative theory if no such competitors will prevent the entity from offering inferior prices, quality, innovation, or variety post-merger.
Although the relative efficiency criterion arises from the dominant doctrinal paradigm that competition law aims to safeguard (total) welfare, it is compatible with the main alternative theory which sees the competitive process as a good in itself, leading to the natural selection of operators offering better prices, quality, innovation, or choice (Andriychuk, 2010, pp. 579–580, 589–590) This is because the relative efficiency criterion protects only competitors at least as efficient as the dominant firm who can discipline its conduct, not the less efficient ones, whose exit benefits both welfare and the competitive process (C-48/22 P Google Shopping, para 164). Indeed, under the presumption of innocence, the foreclosure of less efficient competitors cannot be causally linked to the dominant undertaking’s conduct but rather to their own inefficiency (Ibáñez Colomo, 2024, pp. 399–402). Naturally, competitive pressure from less efficient competitors can still be factored into ‘all the relevant factual circumstances’, for example, to rule out capability of foreclosure by allowing the dominant undertaking to rebut the possibility of actual exclusionary effects, as in Intel (C-413/14 Intel, paras 138–141; C-240/22 P Intel RENV, paras 179–180).
Moreover, the relative efficiency criterion aligns with the traditional view of competition law as a guarantee of a competitive market structure. While this structuralist approach has lost prominence over recent decades, it retains constitutional value in the EU through the concept of restriction, which is the common legal content of Articles 101 and 102 TFEU. The compatibility between relative efficiency and the structuralist vision of competition law is ensured by equating the legal concept of restriction to the economic concept of market failure through the notion of special responsibility (Solano Díaz, 2024a). Indeed, the notion of restriction is legally articulated in Article 102 TFEU by attributing to the dominant undertaking a qualified status, consisting of a special responsibility not to weaken the competitive market structure more than it already is due to its dominant position. Artificial foreclosure of equally efficient competitors would thus result in both a restriction and a consummated market failure, as well as a disruption of the proper functioning of the competitive process and further weakening of the competitive market structure. Additionally, the compatibility of the relative efficiency criterion with the inclusion of less efficient competitors among all the relevant factual circumstances reconciles the competitive process standard with the structuralist view, where even less efficient competitors contribute to a competitive structure that constrains the dominant undertaking’s market power.
Finally, accommodating the relative efficiency criterion within the structuralist concept of restriction enables alignment between the analytical frameworks of Articles 102 and 101 TFEU. In the context of agreements and concerted practices, to establish a restriction, competition authorities must verify, based on the nature (i.e., objective aims in light of content and context, equivalent to the notion of object—C-176/19 P Servier, paras 107–108; C-151/19 P KRKA, paras 74–75; C-298/22 Banco BPN/BIC Português SA, paras 52–56) and effects of the practice, that its plausible objective logic is to impact competition parameters negatively (to the detriment of welfare, the competitive process, or the competitive structure, depending on the paradigm considered). Similarly, proving an abuse under Article 102 TFEU requires discerning the plausible objective logic of the dominant undertaking’s conduct through both its nature (i.e., competition off the merits) and effects (i.e., capability of foreclosure). However, unlike Article 101 TFEU, Article 102 TFEU does not make nature (or object) and effect mutually exclusive methods of objectively linking the practice to a restriction (Gippini Fournier, 2024, para 1.055). Therefore, both nature and effects (or competition off the merits and capability of foreclosure) must be shown to some extent. Relative efficiency serves as the criterion to determine the extent to which one or the other (or neither or both) is to be demonstrated. This is not a matter of presumption or burden of proof reversal, as clarified in Intel RENV (C-240/22 P Intel RENV, paras 328–332), but of ‘quality of evidence’ required to meet the single plausibility standard subject to rebuttal, as seen in merger control (C-376/20 P CK Telecoms, paras 63–89).
In this light, I suggest in the document below specific changes to the Draft Guidelines implementing the single analytical framework (standard and test) that I contend applies to all exclusionary abuses and would streamline the Commission’s proposal with limited modifications. This analytical framework posits that competition authorities are required to prove the plausibility [standard of proof] that the objective logic (objective aims given the content and context, or all the relevant factual circumstances in abuse terminology C‑240/22 P Intel RENV, para 179) of the dominant undertaking’s conduct is to derive an advantage that equally efficient competitors, merely because they are not dominant, (i) cannot match by engaging in the same conduct [competition on the merits part of the test]; and (ii) cannot offset by other means to avoid their potential foreclosure [potential foreclosure effect part of the test] (Solano Díaz, 2024b, 560–563). This addresses concerns that a standard of proof based on plausibility may constitute an unjustified reversal of the burden of proof. Indeed, far from entailing a presumption in favour of competition authorities, it is solely a matter of the intensity of the proof required to establish abuse in cases where the Article 101-like cursory analysis of the context and content (or all the relevant factual circumstances) renders the competition on the merits or the capability of foreclosure so clear that a complex effects analysis (e.g., based on the as-efficient competitor test or the counterfactual) is unnecessary. In such cases, leaving it to the defendant dominant undertaking to offer an alternative explanation, such as disproving the capability of foreclosure or presenting an objective justification (C-413/14 P Intel, paras 138–141), strikes a fairer enforcement balance as it would only need to build one alternative assessment which competition authorities are compelled to analyse in detail, while competition authorities would otherwise need to consider a virtually unlimited number of scenarios (C‑48/22 P, Google Shopping, paras 226–232).
