German competition policy enforcement is under ongoing reform: economic analysis is becoming increasingly relevant in case work; enforcement activity in digital markets is high; there are new rights regarding consumer protection for the German competition authority; and the EU private enforcement directive, which will bring broader disclosure rights to German court proceedings, has been implemented.
Economic analysis professionalises and becomes a more common element of case work
The relevance of economic analysis has increased in recent years. At least three critical cases in recent years were based not on market dominance criterion but on significant impediment of competition criterion (SIEC) logic: EDEKA/Kaiser’s Tengelmann was prohibited (a decision that was recently upheld by the appeals court); REWE/Coop was cleared with remedies; and Ahlstrom Glassfibre Oy/Owens Corning was withdrawn after the statement of objections was submitted.
Within a SIEC environment, product overlap analysis and measures like upward pricing pressure become more relevant than traditional market share analysis. Accordingly, the Federal Cartel Office (FCO) stepped up its effort in this field. For instance, the FCO invested in methods to match data sets on the product and customer level. This data allows overlap and switching analysis or – more generally – econometric analysis. Equally, consumer-centred regional analysis is becoming a more prominent feature of regional market definition (recent examples include the patient stream analysis in hospital mergers, the Schwenk/OPTERRA merger in the cement industry and the EnBW/MVV Energie share purchase affecting, inter alia, the markets for refuse incineration). While work on large data sets and the application of econometric analysis were already a normal part of sector inquiries (currently, sector inquiries are open in the hospital sector and waste collection as well as on smart TVs and online portals. The latter two inquiries are run by the newly formed consumer protection unit), they have now become more prominent in individual competition cases, too. In addition, end customer surveys, carried out by external marketing agencies on behalf of the FCO, are increasingly used to fill data gaps.
The FCO’s chief economist team is typically involved in all Phase II merger cases and all other important competition cases except cartels. With a newly formed working group on competition economics, the FCO strengthened its ties to academia.
Enforcement activity in digital markets remains high
The online sector remains a priority in German competition policy, with several high-profile interventions by the FCO. The Ninth Amendment to the German Competition Act, which came into force in summer 2017, introduced specific criteria for the assessment of platform markets. In particular, the amendment clarified that markets with no monetary payments are relevant antitrust markets open for investigations and introduced a new threshold for merger notification based on transaction value (an initiative triggered by the WhatsApp/Facebook merger, a significant transaction that was almost overlooked by the authorities). The 2016 staff paper, by the newly formed internet working group of the FCO, has initiated a discussion for an analytically sound competition assessment on platform markets. In parallel, in a joint paper by the German and French competition authorities, the agencies contributed to the debate on big data issues in competition policy. Additionally, the coalition contract of the newly formed German government foresees further reforms of the competition law regarding digital markets in the future.
These policy initiatives are accompanied and based on several high-profile cases pursued by the FCO related to digital markets.
First, best-price clauses implemented by online platforms are considered anticompetitive, both in their broad and narrow variations. Free-rider effects, which could potentially justify those clauses despite potential competition hampering effects, were not considered significant by the agency for the cases under review. Having concluded the HRS Hotel Booking case, parallel investigations have been brought against Booking.com (currently under appeal; additional analysis has been requested from the appeals court from the FCO, including customer surveys). Expedia, however, won a court ruling allowing it to maintain broad and narrow best-price clauses given its low market share and, hence, being block exempted.
Second, in the case against Asics involving sales and advertising restrictions with regard to third-party platforms (such as eBay or Amazon) and restrictions to support online search platforms (such as Google), the FCO maintained a strict position, finding that such restrictions are anticompetitive. This decision was upheld by the German courts in a recent ruling. Equally, the FCO intervened internet standards imposed by Ford, Opel and PSA Peugeot Citroen regarding internet car sales. How the recent, more liberal judgment of the Court of Justice in the Coty case affects the FCO’s position remains to be seen.
Third, the FCO applied some insights from its recent working paper on digital platforms in a ticketing industry case (CTS Eventim/FKP Scorpio merger). A ticketing platform serves on the one hand event organisers and, on the other, ticket agencies. Despite high market shares, the merger was cleared. More recently, the subsequent takeover of Four Artists events agency by CTS Eventim was prohibited. And, in parallel, an abuse of dominance case was concluded, prohibiting the exclusivity provisions of CTS Eventim, the leading ticketing system in Germany, with various parties. Both cases are under appeal.
Finally, in December 2017 the FCO informed Facebook of its preliminary legal assessment, considering Facebook to be dominant on the German market for social networks. The authority holds the view that Facebook is abusing this dominant position by making the use of its social network conditional on it being allowed to limitlessly amass every kind of data generated by using third-party websites and merge it with the user’s Facebook account. These third-party sites include, firstly, services owned by Facebook such as WhatsApp or Instagram and, secondly, websites and apps of other operators with embedded Facebook application programming interfaces.
New rights regarding consumer protection for the FCO
The FCO received new responsibilities in the field of consumer protection. A new unit was created that holds the right to run sector inquiries with a focus on consumer protection and to support parties in case proceedings on consumer protection law via an amicus curiae provision. Although equipped with less powerful legal instruments than other agencies holding dual responsibility (like Dutch, UK or US competition authorities), it marks the start of Germany introducing an administrative consumer protection enforcement policy (rather than relying on private enforcement alone).
Cartel enforcement and the implementation of the EU private enforcement directive
Administrative procedures have led to fines totalling over €208 million in 2015, €125 million in 2016 and €66 million in 2017. This is a significant reduction compared to the record fine level in 2014 of over €1 billion, bringing it back to the levels of earlier years. This declining trend in administrative fines may come to a halt in 2018: most recently, the FCO imposed fines totalling approximately €205 million on six special steel companies, a trade association and 10 individuals for concluding price-fixing agreements and exchanging competitively sensitive information.
Regarding private enforcement, Germany continues to be one of the preferred jurisdictions for private litigation cases within Europe, leading to complex empirical work by economists in the quantification of damages. With 120 companies applying for access to the decision division’s files, the Sugar cartel case has become one of the most intensively litigated private damages cases in Germany. Equally, the Truck cartels case has come under broad litigation. A wave of cases has also been triggered by the liquidators of the victims, which went bankrupt in the meantime: the liquidator of Schlecker, a drugstore that went bankrupt in 2012, is claiming total damages of more than €300 million from its suppliers. However, a recent judgment, dismissing the claim owing to insufficiently specified foreign turnover and elapsed limitation periods, brought this action to a temporary hold. With a multibillion-euro claim pending at German courts in the Air Cargo cartel case and upcoming litigation relating to the above-mentioned hotel booking cases, Germany has cemented its position in Europe as a central litigation hub. Within the Ninth Amendment to the German Competition Act implementing the EU’s Damages Directive, the position of victims to sue for compensation in Germany will be further strengthened. Specifically, the extended disclosure right will mark a substantial change to current practice in Germany.
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Hans W Friederiszick
E.CA Economics is working on central topics in the field of competition policy and regulation. These include case-related work on European competition matters, such as merger, antitrust or state aid cases, economic analysis within regulatory procedures and studies for international organisations on competition policy issues. E.CA Economics applies rigorous economic thinking with a unique combination of creativity and robustness in order to meet the highest quality standards of international clients. E.CA has offices in Berlin and Brussels.
E.CA Economics is a partner of ESMT Berlin. As a partner of this international business school, E.CA Economics benefits from in-depth business experience of ESMT’s faculty as well as from the exceptional research capabilities of ESMT professors specialised in industrial economics, finance and quantitative methods.