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Competition Law Reading Session 2 Horizontal and Vertical Agreements Article 81:
1. The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market, and in particular those which: (a)directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development, or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
2. Any agreements or decisions prohibited pursuant to this Article shall be automatically void.
3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of:
-any agreement or category of agreements between undertakings;
-any decision or category of decisions by associations of undertakings;
-any concerted practice or category of concerted practices, which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not: (a)impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; (b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.
(see Lecture Notes and Jacob's notes) Notes from Ezrachi Casebook, Chapters 3 & 4 Chapter 3
Article 81 can be split up into 4 questions o Is there an agreement between undertakings/associations/concerted practice (CP)?
o Is the object or effect the prevention, restriction or distortion of competition within the common market?
o Does it affect trade between member states?
o Could it benefit from an exemption under article 81(3)?
For an agreement its usually sufficient that two undertakings express an intention to conduct themselves in a specific way on the market. CP = undertakings cooperate without reaching an agreement to do so, e.g. by dropping hints about what one will do. Evidence is parallel conduct between undertakings which cannot be explained as simply the workings of perfect competition. When dealing with complex cartels the Commission merely needs to prove a 'single overall agreement' regardless of relative levels of involvement of different players. The 'rule of reason' is a balancing of the benefits and drawbacks of the anticompetitive agreement/CP etc and is confined to article 81(3) investigation (of justifications). By contrast an examination of art 81(1) is merely looking at whether the object or effect is anticompetitive, without considering whether or not this is a good thing. NB also the identification of ancillary restraints does not involve a rule of reason weighing: this is where a restriction of competition is needed (or 'ancillary to') the main non-restrictive transaction and proportionate to it. There must be an appreciable effect on competition- agreements with a de minimis effect are irrelevant.
Only agreements that have an effect on trade between member states can be anticompetitive within article 81.
Only parts of the agreement that are anticompetitive are voided by 81(2)
Exemptions under 81(3) can take two forms: o Block exemptions apply to categories of agreement which are presumed to fulfil the conditions laid down in art 81(3). For full list see www.europa.eu.int/comm/dgs/competition. Block exempted categories of agreements are valid and enforceable and can only be rendered anticompetitive in the future if the Commission formally withdraws it from the block exemption. o Individual exemptions are sometimes granted by the commission if an agreement contributes to improving the production or distribution of goods or to promote technical or economic progress; allows consumers a fair share of the resulting benefit; does not impose restrictions which are not indispensible to these objectives; and does not eliminate competition in respect of a substantial part of the products in question. o Exemptions are granted under various regulations. Reg 1/2003 says that they can only be withdrawn formally.
Horizontal agreements are those between operators at the same level of production or distribution. Sometimes they can harm the market (e.g. price fixing,
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