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: The optimal level of antitrust sanctions: a quest for the soul of competition policy

As in many other domains, the EU competition law enforcement system has three main purposes. Firstly, it sets substantive rules to enshrine given shared values. Secondly, it secures compliance with such rules by deterring potential violations. Thirdly, being impossible to prevent all violations, it handles the consequences of unavoidable infringements: adequate mechanisms shall be established to punish wrongdoers and compensate the aggrieved parties.[1] Sanctions are paramount for the last two purposes, playing a decisive role to deter and punish violations.

The primary goal of the enforcement system is to ensure that Articles 101 and 102 TFEU are not violated, so that the anticompetitive effects that they aim to prevent are actually avoided. Unless an ex ante authorization system applies (as it was under Regulation (EEC) 17/62 for Article 101(3) TFUE, and as it is for concentrations), compliance may occur only if sufficient incentives to avoid violations are provided to the rules’ addressees. Economists suggest that the most effective incentive to comply is that the expected costs exceed the expected benefits of the violation. Public fines (and civil damages, which however are better suited to compensate the aggrieved parties) attach a potential cost to anticompetitive behaviours, making them less attractive.

Public fines, therefore, not only aim at punishing wrongdoers but also - and mainly - at deterring other undertakings from engaging in anticompetitive behaviours. In essence, deterrence is a function of two variables: the level of the expected costs and the probability of detection of the infringement. If either the amount of the sanction or the rate of detection of the violations increase, the deterrent effect of - any provision, including - competition rules increases too.

Setting the optimal level of deterrence of Articles 101 and 102 TFEU is an operation that cannot be performed without addressing the much-debated issue of the goals of competition law: setting fines is actually a quest for the soul of competition law. Due to their social and political implications and their connection to economic concepts, competition rules contain only generally worded standards, leaving considerable room for their interpretation.[2] The lack of clear legal definitions of the concepts mentioned by competition law provisions has allowed their content to evolve over time, following the development of economic, political and legal opinions.

Space limitations prevent a comprehensive presentation of theories on the aims of competition law. Suffice it to recall that even today the two oldest and leadings antitrust jurisdictions - the US and the EU - are inspired by diverging principles and pursue different goals: while EU competition law is based on the so-called formalistic approach to antitrust rules inspired by the Freiburg School, the welfarist approach has been the standard applied in the US ever since the Chicago School became prominent in the 1980s.

The main difference is that US antitrust rules are intended solely to enhance allocative efficiency (i.e., to promote consumer welfare), while EU competition policy aims mainly at protecting the market structure and the competitive process. EU competition law serves broader - and also non-economic - purposes connected to the protection of individual - economic and political - freedoms and to the creation and the preservation of the internal market.

Far from being a mere academic question, the antitrust divide across the Atlantic often resulted in similar conducts being differently assessed by US and EU authorities. The fact that some behaviours are allowed in one jurisdiction and prohibited in the other cannot but be reflected in a different approach to the instrument used to ensure compliance with substantive rules, i.e. deterrence through sanctions.

One of the corollaries of the welfarist thinking is indeed the “internalisation approach”, according to which expected costs of antitrust infringements shall be higher than the harm caused to third parties multiplied by the inverse of the probability of detection. Only behaviours that reduce efficiency are deterred. Anticompetitive conducts creating efficiency gains (i.e. creating larger surplus than the damages caused to third parties) are permitted.

By contrast, according to the “deterrence approach”, expected costs of antitrust violations shall be higher than the expected profits, again multiplied by the inverse of the probability of detection. Since in this perspective competition rules pursue wider purposes than merely achieving efficiency, all potential anticompetitive conducts are deterred, regardless of their economic effects.[3]

  • [1] F. Denozza and L. Toffoletti, ‘Le funzioni delle azioni private nel libro bianco sul risarcimen-to del danno antitrust: compensazione, deterrenza e coordinamento con 1’azione pubblica’, in F. Rossi Dal Pozzo and B. Nascimbene (eds), Il private enforcement delle norme sulla concorrenza (Giuffre, 2009) 101. 2 ’Council Regulation (EEC) No 17 of 6 February 1962 First Regulation implementing Articles 85 and 86 of the Treaty, OJ 1962, 13/204; Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings, OJ 2004, L 24/1. 3 Infra Section 3. 4 ' Infra Section 7. 5 &E.g., because the powers of the competition authorities are strengthened or because individuals bring more damages actions before civil courts. 6 A. Heimler and K. Mehta ‘Violations of Antitrust Provisions: The Optimal Level of Fines for Achieving Deterrence’ (2012) 35 World Competition 103. 7 A. Pera, ‘Changing Views of Competition, Economic Analysis and EC Antitrust Law’ (2008) 4 EC] 127, 129-131.
  • [2] "C.D. Ehlermann, ‘The modernization of EC Antitrust Policy: a Legal and Cultural Revolution’ (2000) 37 Common Market Law Review 537, 537-538. 2 W.P.J. Wils, ‘The Relationship between Public Antitrust Enforcement and Private Actions for Damages’ (2007) Concurrences 1, 3. 3 '’T-325/16, Ceske drahy, ECLI:EU:T:2018:368, para 173; C-52/09, TeliaSonera, ECLI:EU:C:20U:83, paras 22-24; see also C-413/14 P, Intel, ECLI:EU:C:2017:632. 4 The welfarist approach became prominent at the expenses of the Harvard School. According to the Structure-Conduct-Performance paradigm proposed by the latter, the market structure determines the undertakings’ behaviours on the market which, in turn, determines how markets perfonn. 5 D.D Sokol, ‘Troubled Waters Between U.S. and European Antitrust’ (2017) 115 Michigan Law Review 955. 6 G.S. Becker, ‘Crime and Punishment: An Economic Approach’ (1968) 76 JPE 169; GJ. Stigler, ‘The Optimum Enforcement of Laws’ (1970) 78 JPE 526. 7 *' W.P.J. Wils, Efficiency and Justice in European Antitrust Enforcement (Hart, 2008) 57.
  • [3] Ibidem. 2 Commission decision of 16 July 1969, IV/26.623 - Quinine cartel. C. Harding, ‘The use of fines as a sanction in E.E.C. competition law’ (1979) 16 Common Market Law Review 591. 3 The Commission clarified that fines aim, inter alia, to “prevent a repetition of the offence, and to make the prohibition in the Treaty more effective” (XIII’1’ Report on Competition Policy (Commission, 1983), para. 62). 4 Indeed, “deterrence is an objective of the fine and a reference point for the Commission throughout the calculation of the fine” (T-56/09 and T-73/09, Saint-Gobain, ECLI:EU:T:2014:160, para. 380) 5 Commission Decision of 18 July 2018, AT.40099 - Google Android. 6 Commission Notice on cooperation within the Network of Competition Authorities, OJ 7 2004,C 101/43.
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