Question 1. Temporary oilsurcharge
The Ukraine crisis escalated, relations between the United States and Europe on the one hand, and Russia on the other, are at their lowest. All exports between them stopped. This causes in particular a very significant increase in the price of oil, as Russia is one of the world's largest producers and exporters. An extraordinary meeting is held on this subject within the International Airline Association (IAA), which regroups 80% of the world's airline companies.
The meeting takes place in Mexico City and all members are present, including United Airlines, Qantas, Air France, British Airways Emirates, Lufthansa etc. Participants in the meeting immediately start addressing the price of oil, its negative impact on commercial aviation industry, the fact that the market was already performing poorly because of the economic crisis, the fact that airline bankruptcies multiply etc. Quickly, the discussion turns toward practical solutions to address these problems. The representative of United says his company will have no choice but to pass on this extra cost to customers, which will result in the introduction of a new additional price component called "Temporary oil surcharge" (or TOS) on flights from New York to London from the following month onwards. The TOS, the amount of which he does not reveal, constitutes a small proportion (less than 10%) of the total ticket price, which he also refrains from revealing.
He asks his colleagues what they intend to do. Several discussions ensue: - The representative of Lufthansa says that his company had already decided a month before that it would introduce of a mechanism similar to the TOS, which will be implemented in the coming days.
He sits down and listens to the debates without intervening any further. - The representative of Emirates starts bilateral discussions directly with the United representative, in particular as regards the amount of the TOS. Following this discussion, he and the United representative find a consensus on the amount of the TOS both United Airlines and Emirates will apply.
The total ticket price has not been discussed at any time. - The representative of Air France simply states that oil prices will have no impact on ticket prices to the extent that his company considers it its duty to support the economy by absorbing the entire oil shock. He sits down and listens to the debates without intervening any further. - The representative of British Airways refrains from participating in the discussion and remains discreet until the end of the meeting.
Which of these representatives violated Article 101 TFEU/Section 1 Sherman act? Explain why.
Question 2. Tropicana vs. Nestlé
With a market share of about 42%, Tropicana (PepsiCo Group) is the leading orange juice producer in Europe, ahead of Minute Maid (Coca Cola group), which has a market share of 29%. The rest of the market is very fragmented; the few recent entry attempts have been unsuccessful. This is due in particular to the fact that, to successfully enter the market, major promotional campaigns must be organized in each target country (and even in each target city), which is extremely expensive.
In practice, only companies backed by large groups manage to reach a critical size allowing them to maintain themselves on the market. Indeed, market shares are relatively stable in this market, and have been for some time. Recently, the large food group Nestlé (which owns the Nestea brand) declared its intention to enter the orange juice market. Indeed, Tropicana (followed in this by Minute Maid) focused its efforts on the premium segment of the market with high prices by emphasizing the quality of its products; Nestlé identifies an opportunity for a cheaper, entry-level product.
Nestlé is one of the few companies powerful enough to finance the required advertising campaigns. Nestlé began its campaign by stating that it will sell its orange juice just 1.3 euros per liter (against no less than 3 euros per liter for Tropicana). Feeling threatened by this entry, Tropicana organizes its defense. It wishes in particular to commercialize some of its product under a new brand, at entry-level prices. You are the general counsel of Tropicana and commercial teams submit their plans you: - The new plant where the pulp is mixed with water and packaged in cardboard will cost € 2 million; it will produce 10 million liters; - Orange juice itself will cost Tropicana 1 euro per liter; - In terms of price, sales teams are studying several possibilities: o Make par with Nestlé at 1.3 euros / liter o Beat Nestlé with 1.1 euros / liter - During your discussion with the commercial teams, it appears that their objective is to position Tropicana on the entry-level segment that has been for too long neglected by Tropicana (as this was revealed, quite painfully, by the arrival of Nestlé).
What is your analysis of the plans of Tropicana? Does your analysis change if a member of the commercial team tells you that the management really has no desire to maintain such entry-level prices so that the new line will disappear as soon as Nestlé is driven out of the market?
Question 3. GB & GL
Gaz de Belgique (GB) and Gazolux (GL) both are incumbent players in the market for the distribution of natural gas, respectively in Belgium and Luxembourg. They sell gas to both industries and individuals, each on its respective territory, that is to say Belgium and Luxembourg respectively. In Belgium, the gas market has recently been opened to competition: subject to obtaining prior approval from Belgian authorities, any private player, Belgian or foreigner (especially from neighboring countries) can enter the market and try to sell gas to Belgian customers. Accordingly, GB's market share has eroded slightly in recent years and currently stands at around 75%.
Note that GL is not active in Belgium, the main competitors of GB in Belgium being France Gas (FG) and Gas of UK (GUK). In Luxembourg, the gas market is still subject to a statutory monopoly benefiting GL: there is a legislative provision prohibiting any company other than GL from marketing gas in Luxembourg. GL therefore has a market share of 100%. Market opening (and thus the end of the legal monopoly) will intervene in 2020 in accordance with an EU directive. There is no natural gas field in Belgium or Luxembourg, so that both GB and GL must import the gas they sell. GB buys mainly Algerian gas whereas GL mainly buys Russian gas.
To fill a small proportion of their needs (5% and 15% respectively), GL and GB both started negotiations with a Norwegian producer (Gas Norway or NG) and each have entered into a supply agreement with NG. Routing gas from Norway down to Belgium or Luxembourg requires the construction of a huge gas pipeline, the cost of which is prohibitive. Taking advantage of the proximity of their respective markets, GB and GL decide to build the pipeline together and share the costs. The pipeline will pass from Norway to Belgium, then cross Belgium to arrive in Luxembourg. The draft contract between GL and GB for the pipeline includes the following clauses: - "GB-will route to Belgium the gas it purchases from GN and will resell it in Belgium" - "GL will route to Luxembourg the gas it purchases from GN and will resell it in Luxembourg."
Both GL and GB hire you to ensure that the project complies with EU competition law. Analyze the agreement under the law of the European competition. What is your recommendation?
Question 4. AB&C
AB&C is the leading producer of landline phones in Europe; it's market these days is essentially composed of office businesses which purchase those phones (along with other communications devices) for their employees. AB&C's market share has eroded over time, from a virtual monopoly to about 40% now. Several operators have recently entered the market, attracted by the profits generated by AB&C. Although none of them managed to reach the size of AB&C, many have reached a critical size enabling them to remain profitably in the market. Thus, the second operator on the market today has a market share of 25%, which is constantly growing. AB&C diversified and also produces scanning and copying machines. Its customers are essentially the same as for telephones. In fact, customers often source both telephones and scanning and copying machines from AB&C through a single contract. Regarding scanning and copying machines, AB&C has a stable market share of approximately 50%. The rest of the market is relatively dispersed. The few recent entry attempts have failed largely because AB&C has a strong reputation that can only be challenged through very costly advertising campaigns. Thus, the second player in the market has a stable market share of around 20%.
AB&C is planning to implement each of the following sales policies and asks for your opinion as to their compliance with the competition law:
(i) AB&C is planning to implement with every customers the following discount policy:
- 10% discount on each telephone for any customer that sources its telephone needs exclusively from AB&C;
- 10% discount on each scanning and copying machine to any customer that sources its scanning and copying machine needs exclusively from AB&C.
(ii) AB&C suspects DE&F, one of its competitors for scanning and copying machines, of selling below DE&F's costs. AB&C considers that its own position is endangered and intends to align its prices on those of DE&F. Such prices would mean that AB&C would, at least temporarily, sell each scanning and copying machine below its production cost. AB&C merely intends to avoid losing customers to the benefit of DE&F; it considers that it will be impossible to exclude DE&F from the market.
(iii) Several competitors approached AB&C to request a license on a patent AB&C holds in respect of its scanning and copying machines (the patent covers a technology that allows scanning and copying machines to operate in perfect symbiosis with any computer, thus giving AB&C a competitive edge with respect to its scanning and copying machines). These competitors argue that the technology in question is so effective that they simply cannot maintain themselves on the market without having access to it via a license. AB&C does not intend to categorically refuse to grant a license, but intends to propose for it a royalty rate so high that it expects all its competitors will refuse to enter into a license agreement under such terms.