Transcript
Hypotheticals on Analyzing Restrictive Agreements
Here are two hypotheticals on how to analyze agreements between competitors under Article 101 which
we can discuss during the Tuesday morning session. For each fact pattern, think about how the analysis
under Article 101 should be structured: what are the relevant questions to be asked, what evidence would
be necessary to answer these questions. Can one quickly conclude that either one of these agreements
presumably would be unlawful, or would it be necessary to examine the facts and effects of the
agreements more carefully (i.e., do they have the object of restricting competition, or would a fuller effects
analysis be required)? What about the justifications the parties can put forward?
Restrictive Agreements - Megalopolis hypothetical
There's a new service in Megalopolis (a very big city). A driver who has had too much to drink can call this
service and for a fee a chauffeur dashes off to meet him or her on a motor scooter. The chauffeur puts the
(collapsible) scooter in the trunk, drives the customer home (in the customer's own car), and is on his or
her way on the scooter. There are two competing scooter firms, "Call Jeeves," which specializes in Britishsounding, elegantly-attired chauffeurs, and "Call an Actor," which employs only struggling young actors
and actresses.
Unfortunately, Megalopolis is huge and travel times can be a very long. Several scooter drivers have
gotten into accidents, resulting in sharply rising insurance costs. The owners of the two firms agreed to try
to improve safety, reduce costs and improve service by agreeing to instruct their drivers not to speed and
by specializing as to where they will advertise - Call Jeeves will promote its services and put up ads only
on the West side of town, Call an Actor only on the East side. (Advertising is typically either in bars and
restaurants or in newspapers or newspaper inserts targeted to particular parts of the huge Megalopolis
area.) If the bulk of calls come from only one side of town, the firms reasoned, response times should be
improved.
The competition authority finds out about the agreement (rumor has it that a senior manager used to be an
occasional customer of both firms). Does the agreement raise issues under Article 101? How would you
structure the analysis to determine whether the agreement is unlawful, and what evidence would be
relevant for each step?
Restrictive Agreements - 3Tenor hypothetical
The Three Tenors, Jose Carreras, Placido Domingo, and Luciano Pavarotti, performed in series of
concerts coinciding with the World Cup Football finals in 1990, 1994, and 1998. PolyGram produced and
marketed the recording of the 1990 concert (“3T1”) which became the most successful classical recording
ever sold. Warner produced and marketed the recording of the 1994 concert (“3T2”). It was successful, but
less so than the 3T1 recording. Overlapping repertoire may have been one reason for the lesser success;
another factor was PolyGram’s aggressive marketing of the 3T1 album when Warner’s 3T2 album
reached the market, as a result of which sales of the 3T1 album substantially increased during that time.
As the 1998 concert approached, PolyGram and Warner agreed to jointly produce a new album (“3T3”).
Because of various exclusive rights, neither company was in a position to produce 3T3 alone. The two
parties agreed to jointly acquire the rights from the organizer, and to split costs and profits of producing
and marketing the recordings of the 3T3 concert. The 3T1 and 3T2 albums were specifically excluded
from the scope of the joint venture agreement and each party retained the right to market its previous 3T
album. Shortly before the concert, the two parties learned that the repertoire of the 3T3 concert would
largely overlap with the songs performed during the previous concerts. In a side agreement the parties
agreed that for a 10 week period preceding and following the introduction of 3T3 album each would refrain
from all marketing activities, promotions such as special price discounting, and advertising related to the
3T1 and 3T2 albums.
Assume for now that this agreement is investigated under the current framework in Article 101. Would the
restriction on all promotional activities related to the 3T1 and 3T2 albums be unlawful under Article 101
TFEU? Does the agreement have the object or effect of restricting competition? If an effects test is
required, which anticompetitive effects would the plaintiff have to produce? Which issues require further
evidence and what type of evidence would you expect the parties to produce?
The companies have argued that there agreement did not restrict competition in the market for music
CDs; the restriction should be considered ancillary to the 3T3 joint venture and/or was justified to prevent
free riding by either company on the joint marketing efforts for the 3T3 recording. Consumers would also
be better off because they were more likely to buy the 3T3 concert recording in greater numbers.