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Tetra Pak II

Tetra Pak International SA v Commission of the European Communities, Case C-333/94
ECJ judgment (1996)

Article 82: predatory abuse
Article numbers refer to the 1997 consolidated version of the EC Treaty.

Tetra Pak II restates the Akzo characterisation of predatory abuse as follows:

41. In AKZO this Court did indeed sanction the existence of two different methods of analysis for determining whether an undertaking has practised predatory pricing. First, prices below average variable costs must always be considered abusive. In such a case, there is no conceivable economic purpose other than the elimination of a competitor, since each item produced and sold entails a loss for the undertaking. Secondly, prices below average total costs but above average variable costs are only to be considered abusive if an intention to eliminate can be shown.

This extract, because it simplifies the wording used in Akzo, can be misleading if quoted out of context. There are of course businesses in which below-cost pricing is not indicative of a sacrifice of profit. For example, there is no doubt that temporary below-cost promotional pricing by a new entrant may be legitimate investment in marketing; or that a newspaper that receives income from both readers and advertisers may legitimately charge one or the other of these groups less than cost without sacrificing profit.

The logic used by the Tetra Pak II Court to reach the conclusions stated above makes it clear that the principle that "prices below average variable costs must always be considered abusive" is limited to cases where "there is no conceivable economic purpose [for such pricing] other than the elimination of a competitor" and where there is a risk that it might eliminate some competitors.

Tetra Pak II also clarified that the Article 82 prohibition on predatory pricing was wider than a prohibition on unfair elimination of competitors, and (therefore) that it was not limited to predatory conduct that has a realistic chance of recoupment through higher prices after competitors have been eliminated:

44. Furthermore, it would not be appropriate, in the circumstances of the present case, to require in addition proof that Tetra Pak had a realistic chance of recouping its losses. It must be possible to penalize predatory pricing whenever there is a risk that competitors will be eliminated. The Court of First Instance found, at paragraphs 151 and 191 of its judgment, that there was such a risk in this case. The aim pursued, which is to maintain undistorted competition, rules out waiting until such a strategy leads to the actual elimination of competitors.

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Last changed by Anonymous at 4:36 AM on Friday 16 February 2007.

Reference for this page:
Reckon Open "Tetra Pak II" 2007-02-16T04:36:59
Link within Reckon Open: [[Tetra Pak II]]