The Law and Economics of Buyer Power in EU Competition Policy

Abstract

The trend of retail concentration across the European Union has raised concerns on the buyer power that retailers may have in the relation with their suppliers. Specifically, due to the alleged increasing pressure on producer and supplier margins in various distribution chains, but the increased focus on consumer welfare in EU competition policy, various stakeholders call for demands for a change in the current substantive legal framework of EU competition law. In this discussion, reference is often made to initiatives at the national level that are specifically designed to deal with disparities in market power in business-to-business relations, such as prohibitions on so-called ‘abuse of economic dependency’ or ‘abuse of superior bargaining position’. This Law and Economics research addresses the underlying premise for these requests and therefore analyses whether there is a ‘gap’ in the current substantive legal framework of EU competition law, which may cause the underenforcement of the potential harmful effects of buyer power. That is, by applying the conceptual apparatus of economics to the field of EU competition law, it has been assessed from an economic efficiency perspective whether the competition rules provide for a legal basis to address the potential competition concerns of buyer power. The results show that the EU competition rules are readily applicable to buyer conduct and moreover provide for a legal basis to address the potential competition concerns of buyer power. The analysis therefore does not indicate that that the current substantive legal framework of EU competition law is unfit to address the potential harmful effects of buyer power. However, a critical comment is in place with regard to the application of the consumer welfare standard that appears to be used in EU competition policy. While the consumer welfare standard will generally not lead to very different decisions than its alternative, the total welfare standard, and may moreover be preferable due to mitigate regulation costs and undesirable lobbying, it has a specific disadvantage in the context of buyer power. Since buyer power may under specific circumstances harm economic efficiency but does not necessarily directly affect consumer welfare, application of the consumer welfare standard might lead to underenforcement of anti-competitive buyer conduct. There are, however, various indications that the European Commission is aware of this risk and may moreover refrain from the application of the consumer welfare standard in specific buyer power cases. Because this suggests that there is a discrepancy between the actual treatment of buyer conduct and the approach outlined in the European Commission’s guidelines, it seems advisable that these guidelines are clarified.