The role of the As-Efficient Competitor Principle and Test in the assessment of Art. 102 cases

The As-Efficient Competitor (‘AEC’) principle is the concept that can be applied to assess whether a certain behaviour from a dominant firm departs from ‘competition on the merits’ by leading to the exclusion of a hypothetical competitor as efficient as the dominant firm itself.[1] The principle builds on the general notion, expressed in Post Danmark I and other cases, that competition on the merits may lead to the exclusion of less efficient competitors:[2]
 
“[…] Competition on the merits may, by definition, lead to the departure from the market or the marginalisation of competitors that are less efficient and so less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation.”
 
As a natural corollary of this general notion, conduct that is not capable of excluding ‘as efficient’ competitors should not be sanctioned under competition law, at least not per se.[3] This is captured by the AEC principle. The AEC test, in its general form, is nothing more than a quantitative expression of this principle using for example relevant price and cost data.[4]
 
Since its introduction in 2009, the role of the AEC principle and test has been subject of debate, partly because of the evolving stance over time of the European Commission (‘the Commission’) and the European Courts on the necessity to engage on an effects-based analysis,[5] and partly as a result of the complexities related to the operationalisation of the AEC test.[6]
 
The role of the AEC principle and test according to case law
 
Following years of debate on the role of the AEC principle, in September and October of 2024, the Court of Justice published two decisions on two landmark cases (Google Shopping and Intel II), both of which confirmed the centrality of the AEC principle in the assessment of whether the behaviour of dominant firms departs from ‘competition on the merits’ in the context of both price-based and non-price based abuses.[7] For example, in Intel II, the Court of Justice notes that:[8]
 
“Consequently, in order to find, in a given case, that conduct must be categorised as ‘abuse of a dominant position’, it is necessary, as a rule, to demonstrate, through the use of methods other than those which are part of competition on the merits between undertakings, that that conduct has the actual or potential effect of restricting that competition by excluding equally efficient competing undertakings from the market or markets concerned or by hindering their growth on those markets.” [emphasis added]
 
These judgements reaffirmed the position expressed by the Court of Justice in Superleague, Unilever Italia and Qualcomm in recent years.[9]
 
Although the Court of Justice concludes repeatedly that the AEC principle is necessary, “as a rule”, it has been somewhat more reserved on the quantitative application of the principle in the form of the AEC test. For example, in Intel II (in the context of rebates), the Court refers to the AEC test as merely one option;[10] and in Unilever Italia (in the context of exclusive dealing) as potentially “inappropriate”.[11]
 
Additionally, despite confirming the importance of the AEC principle and test, the case law clarified that there are exceptions to the application of this framework in cases where it might result in underenforcement, such as for example in presence of competitors that are ‘not yet’ as efficient, but that may become so in the near future.[12]
 
The 2024 draft Guidelines
 
In the summer of 2024, the Commission published the long-awaited Draft Guidelines on the application of Article 102 of the Treaty on the Functioning of the European Union to abusive exclusionary conduct by dominant undertakings (‘the draft Guidelines’).[13]
 
The Guidelines define a two-limb framework according to which a behaviour is found to be anticompetitive if it is not consistent with competition ‘on the merits’ (limb 1) and if it can have adverse effects on competitors (limb 2).[14] Against this general framework, the AEC principle and test appears explicitly in two contexts:
 

• Under limb 1, the AEC principle is mentioned as one of several possible elements, none of which on itself necessary, that can be used to show that conduct departs from competition on the merits;[15] and
• Under limb 2, the ‘price-cost test’ (as a specific type of AEC test that simply compares the price of the dominant firm to its relevant costs) is mentioned as a legal test for the assessment of the effects of the allegedly anticompetitive behaviour on competitors, specifically in relation to predatory pricing, margin squeeze and in relation to rebates if these are not tied to exclusivity.[16] However, the draft Guidelines also appear to indicate that the exclusion of any competitor could be considered evidence of adverse effects on competition.[17]

 
Additionally, the draft Guidelines only reference the AEC principle and price-cost tests in the context of showing that conduct is in fact liable to be abusive. They do not discuss the AEC principle or test in the context of a possible ‘safe harbour’ – i.e. showing that conduct can be exempt from liability. For example, it does not reference any ‘safe harbours’ for the implementation of the price-cost test, even for predatory pricing conduct.
 
The draft Guidelines therefore appear to define the AEC principle as a tool in the Commission’s toolkit to assess the conduct of dominant firms, with no obligation to use it. Furthermore, where the draft Guidelines suggest that the AEC test is applicable under limb 2, the absence of ‘safe harbours’ limits the guidance that the test can provide.
 
Considerations on the role of the AEC principle and test in the draft Guidelines
 
A concern arising from a reduced role of the AEC principle is associated to the removal of an objective[18] limiting principle to the Commission’s assessment in both limbs. While this allows greater enforcement flexibility there is an apparent tension with the stated objective of the draft Guidelines i.e., increasing legal certainty and enabling a workable framework for the effects-based enforcement of Art. 102.[19]
 
Another concern is that the softened role of the AEC principle also reduces dominant firms’ ability to self-assess their business practices against Art. 102 and, if required, to rebut the presumptions of anticompetitive behaviour. In turn this could have diminish the incentives to innovate of firms with a large footprint in the markets. This point is easily seen in the context of price-based behaviours, where a dominant firm may be less willing to engage in a potentially efficiency-enhancing investment that could lead to lower prices, if the lower price could be associated with exclusionary intent in a theory of harm (when a “traditional” AEC test would have screened out the price as non-exclusionary).[20]
 
The lack of explicit guidance on how a price-cost test would be implemented under limb 2 preserves a significant uncertainty, since a dominant firm facing an inquiry would not have be ablet to rely on the guidelines to predict how the Commission would operationalise the analysis, given that the past cases are not formally codified in the draft Guidelines, and the Guidance paper will be superseded once the final Guidelines enter into force.
 
Concluding remarks
 
The positioning of the AEC principle in the draft Guidelines, with the lessening of its relevance, for many in the community of competition lawyers and economists in Europe came a surprising departure from recent developments in the case law. Two landmark judgements published after the publication of the draft (Intel II and Google Shopping) marked further distancing between the latest jurisprudence and the draft Guidelines. The Commission has benefitted from ample feedback on the draft guidelines and, after prolonged engagement, there is trepidation to see how the final Guidelines may revise the treatment of the AEC test.
 
Giuseppe Buglione, Principal
 
Giuseppe Buglione is an economist specialising on mergers and antitrust investigations. He has advised clients in behavioural investigations by National Competition Authorities (including in Italy, France and the UK). He has considerable experience in merger control proceedings across jurisdictions, including the European Union, the UK, and several other jurisdictions globally. He supported clients in the context of litigation matters ranging from damages claims (acting both for defendants and claimants) and commercial litigation matters more generally. Giuseppe holds an MSc in Economics from the University College London and an MSc in Economics and Social Sciences from Bocconi University.
 
Barbara Veronese, Partner
 
Barbara Veronese advises on antitrust matters, mergers and disputes across a wide range of industries. Repeatedly featuring in prestigious rankings as recommended competition expert, she has provided evidence before the Court of Appeal and the High Court of Italy, as well as before civil courts in Italy and in Europe. She has advised clients before national competition and regulatory agencies and before the Commission on high-stake matters. She has also advised extensively on auction strategy and spectrum policy. Barbara holds a PhD in Economics from the London School of Economics and Political Science.
 
Timo Klein, Senior Consultant
 
Timo Klein is a Senior Consultant at Oxera, where he works on mergers and antitrust cases. Next to his work at Oxera, Timo is an Assistant Professor in competition economics at Utrecht University. From 2016 to 2020 Timo worked on his PhD dissertation at the University of Amsterdam. During his PhD, Timo has also worked at the Chief Economist Team at DG Competition, European Commission. Timo holds a BSc in Economics and Business (2013, University of Amsterdam), an MSc in Political Economy of Europe (2014, London School of Economics and Political Science) and an MPhil in Economics (2016, Tinbergen Institute).