Response to the European Commission’s draft Horizontal Guidelines

Frontier Economics has submitted its response to the European Commission’s public consultation inviting feedback on its draft revised Horizontal Guidelines*.

The European Commission has proposed revisions to its Guidelines in order to adapt competition rules to reflect recent developments such as the digital and green transitions. The proposed new Guidelines include a chapter dedicated to clarifying how agreements between undertakings which seek to attain sustainability objectives are to be assessed under competition rules and more specifically, how to interpret the requirements for exemption from competition rules under Article 101(3) TFEU.

Frontier’s response takes issue with the requirement for compensatory benefits accruing to consumers when assessing the “fair share” criterion under Article 101(3), which is likely to make it difficult for companies to show that an agreement qualifies for exemption and thus may ultimately hinder genuine attempts to improve sustainability. We argue that sustainability challenges arise because of the ability of consumers to engage in environmentally harmful consumption without facing the full costs of their consumption, a market outcome which is economically inefficient and which should not be protected as a feature of competition.

We propose that the Guidelines should instead be amended to clarify that there is no harm, and therefore no requirement to demonstrate compensatory consumer benefits, insofar as agreements result in consumers paying the true cost of their consumption. This proposal could provide a vital means of unlocking progress in addressing the most important sustainability challenges facing the European economy.

The European Commission’s public consultation ended on 26th April 2022. We look forward to reading the final version of the revised Guidelines early next year.

Read our full response here.

*Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements