The development of an effects-based approach in the antitrust assessment of EU card payment markets

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The development of an effects-based approach

in the antitrust assessment of EU card payment markets

Thesis submitted by: Elisa Faustinelli

LLM Track: EU Competition law and Regulation

Student number: 11124814

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Abstract

This paper analyses the development of an effects-based approach in the antitrust assessment of EU card payment system.

The issue is tackled by considering the relevant case law emerged after the beginning of the process of substantive modernization of EU competition law so as to outline the divergent approach adopted by the Commission and the European Courts.

The economic analysis of market behaviours can be a very contentious element in the judicial analysis of a case, especially where complex markets like two-sided platforms are at stake. Nevertheless, these complexities and the willingness to keep things simple cannot exempt competition enforcers from undertaking a coherent and solid economic assessment.

In this perspective, the European payment industry provides an example of how neglecting the principles of specific economic theories could affect the functioning of the market and diminish consumer welfare.

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INTRODUCTION

Since the late 1990s, the EU competition enforcement has been experiencing a significant evolution, shifting from a form-based and static protection of the market toward a dynamic and effects-based approach1. This new stance, which some authors call "substantive modernization" of EU competition law2, is built upon the central role of the economic analysis in the appraisal of anti-competitive phenomena. Its main rationale is to have a better understanding of the reality, leaving more room for efficiency gains and consumer welfare considerations3_.

The assessment of the economic reality underlying market practices and behaviours can nonetheless result a very contentious elements in the judicial analysis, in particular where it concerns complex markets like two-sided platforms, that is to say economic platforms that serve two distinct but interrelated groups of consumers. The EU card payment system provides an example of this structure of the market (double-sided for the presence of the cardholders and the merchants' sides), at the same time evidencing the challenges faced by competition enforcers in its treatment.

Thus, in the past years, several antitrust cases in this sector have dealt with MIFs (Multilateral Interchange Fees) and their compatibility with EU competition rules.

Albeit the Commission and the Court formally recognize the double-sided nature of card payment schemes, the case law in the field shows an obscure and often inconsistent use of the main economic theory applicable to them, namely the double-sided market theory, as well as the raise of several legal issues.

Against this background, the present paper reviews the relevant case law so as to point out whether competition enforcers are developing an effects-based approach in the EU card payment markets. The question is addressed by developing a case law analysis on two different layers.

First of all, the analysis considers, mainly from economic perspective, whether, and to what extent, competition enforcers are taking the economics of double-sided markets into account in their proceedings.

Secondly, it adopts a legal perspective and it discusses whether there are legal issues stemming from the case law which are capable to hinder the way towards the objectives of the substantive

1_{Gerard, D. (2012), The effects-based approach under Art. 101 TFEU and its paradoxes: modernization at war with} itself? Ten Years of Effects-Based Approach in EU Competition Law Enforcement, Bruylant, pag.2

2_{Gerber, D.J. (2008), Two forms of modernization in European Competition Law, Fordham International Law Journal,}

vol.31 n. 5, pag.1245 3_{Gerard, D., cit. n.1, pag.2}

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modernization of EU competition law, namely the development of a "more economic approach" and the enhancement of consumer welfare.

In order to solve these questions, I mainly based the research on primary sources, particularly the case law of the Commission and the European Courts, which has been organized in order to compare the different legal outcomes. Besides that, I conduced a book-based research. Thus, I made use of the relevant legal and economic literature in order to critically assess the results of the case law analysis.

The remainder of this paper is organised as follows.

Chapter I briefly sets out the theoretical framework of the discussion. First of all, it describes the main features of the modernization process and its goals. Secondly, it provides a description of so-called double-sided markets, at the same time illustrating the most important economic theory applicable to them. Finally, it looks into the card payment market at greater length, delineating its characteristics and peculiarities.

Chapter II presents the relevant case law of the Commission and the ECJ. Particularly, it depicts the different solutions adopted by antitrust enforcers in the assessment of Multilateral Interchange Fees (MIFs) under Art.101 TFEU so as to determine whether, and to what extent, the doublesideness of card payment markets is taken into account in antitrust proceedings.

Finally, Chapter III poses the judicial findings within the context of the substantive modernization reform of EU competition law. For this purpose, it discusses whether the authorities' approach is in line with the "more economic approach" and consumer welfare goals, thus delineating the different role carved out by competition enforcers in the attainment of such objectives. The Chapter concludes with some reflections on the interrelation between the development of an effects-based approach and the standard of judicial review exercised by the ECJ.

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CHAPTER I

THEORETICAL FRAMEWORK

1. The substantive modernization of EU competition law

During the past 20 years, the European Commission has undertaken a review of EU competition enforcement rules, promoting a project known as "modernization" of EU competition law4_.

The process has been developed both in a procedural and a substantial direction. Thus, besides launching a program of reforms concerning institutional and procedural rules for the application of competition law within the European Union5, the Commission deemed to reorient the way in which substantive competition law had been conceived until then6.

Traditionally, the antitrust and merger analysis was carried out through a "forms-based approach", where the economics underlying market behaviours had a marginal role7 and the decisions were taken on the basis of abstract categories and uniform rules8. Nonetheless, this formal approach started to be criticized since it appeared inadequate to catch the economic reality of factual situations, leading to a too rigid application of Art.101 and 102 TFEU9. In addition, it was said to create uncertainty about the methods employed in the assessment of anti-competitive phenomena, weakening the predictability of the decision-making process10.

Therefore, profoundly influenced by the U.S. law and economics movement11, the Commission started to relinquish its traditional "forms-based approach" in favour of an "effects-based approach",

4_{European Commission, White paper on modernisation of the rules implementing articles 81 and 82 of the EU Treaty}

in 1999, COM(99) 101 Final(May 1999).For an overview, Wesseling, R.,(2000) The modernization of EC antitrust

law, Bloomsbury Publishing

5_{This process is called "procedural" or "institutional" modernization. It was crystallized in the so-called "Modernization} Package". The most important novelty was represented by the Reg. 1/2003(Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, OJ L1) whose main implications were the abolition of the system of notification, the direct applicability of Art.101(3) TFEU and the compel, for national competition authorities, to enforce EU competition law. Chalmers, D., Davies, G., Monti, G., European Union Law, Cambridge University Press, pag. 979-980

6_{Gerber, D.J.,cit. n.2, pag.1235}

7_{Roller, L-H.(2005), Economics analysis and competition policy enforcement in Europe, in Modelling European}

mergers: theory, competition policy and case studies, Edward Elgar, pag.11

8_{Gerard, D.,cit. n.1, pag. 6}

9_{Hawk, B.H.,(1995), System failure: vertical restraints and EC competition law, CMLR 32, p.973} 10_{Idem, pag.983 and Gerber, D.J.,cit. n.2, pag.1246}

11_{In particular, the so-called Chicago school arguments, which has deeply reshaped the U.S. antitrust law in the 80ies.} Gerber, D.J.,cit. n.2, pag.1248

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rethinking the role that neo-classical economic theories should have played in enforcement proceedings. This shift, inherently linked to the procedural modernization leg, is usually known as substantive modernization of EU competition law12.

The substantive modernization project is build upon two main assumptions13.

First of all, neo-classical economics has to furnish the methods and standards for the application of competition rules14. This stance, which is traditionally said the "more economic approach"15, reflects the main rationale behind this process, namely "to bring the legislation into line with current economic thinking"16. The substantive modernization has thus reshaped the way in which economic principles and evidence are employed in competition law proceedings so that market behaviours have now to be analysed in light of a sound economic reasoning17.

Secondly, the economics has also to provide a new content to substantial norms and goals of EU competition law18. Over years, the "more economic approach" has thus determined a shift from a static protection towards a dynamic promotion of competition19. Within this context, efficiency gains and consumer welfare started to be perceived as the ultimate objectives of EU competition law20_.

Against this background, the role played by the European Court of Justice has been indeed relevant21. Thus, in the aftermath of the modernization project, the Court appeared prone to utilize a more economic approach till the point to resort to its own economic expertise in order to assess the

12_{This expression has been coined by Gerber, D.J., cit. n.2,pag.1245} 13_{Idem, pag.1247}

14_{Idem, pag.1247 and Gerard,D., cit. n.1,pag.2-3} 15_{Gerber, D.J.,cit. n.2,pag.1247}

16_{Monti, M., "A European Competition Policy for today and tomorrow", Speech/00/240, Washington, June 26th 2000,} available at < http://europa.eu/rapid/press-release_SPEECH-00-240_en.htm?locale=it>

17_{Thus, "the question for efficient enforcement is not one of more or less economics, but [..] how the economic analysis} is used". Roller, L-H,cit. n.7,pag.11

18_{According to Gerber "the substantive modernization project can be identified with the project in which the} Commission has changed the basic means through which competition law's conduct norms are given content and thus changed the substantive law itself". Gerber, D.J., cit. n.2,pag.1246

19_{Gerard, D.,cit. n.1,pag.2}

20_{Gerber, D.J.,cit. n.2,pag. 1247 and Gerard, D., cit. n.1,pag.2. Nonetheless, it is worth to note that there is no} unanimity concerning the final goals of competition law, as well as concerning the actual meaning of consumer welfare. For an overview, Zimmer, D.,(2012), The goals of competition law, Edward Elgar and Daskalova, V.,(2015), Consumer

welfare in EU Competition Law: what is it (not) about?, Competition law review 11(1)

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Commission's findings22. Furthermore, in several occasions the Court showed a strong independence in reviewing the economic evidence adduced by the Commission, thus carving out its place in the substantive reform of competition enforcement23.

Whether the Court and the Commission are displaying the same proclivity for the economic analysis in the field of EU card payment system is the main interrogative of this paper.

Nevertheless, before dealing with this point, it is necessary to illustrate one of the most relevant economic theories applicable to the market concerned, namely the so-called double-sided market theory.

2. The double-sided market theory

Scholars all over the world have recently started to devote great attention to the benefits that a particular economic theory - the double-sided market theory24 - can generate in the toolkit of EU competition authorities, especially after that one of its main developers, Professor Jean Tirole, has been awarded with the Nobel Prize in Economics in 201425_.

Albeit the basic concepts of this theory are relatively few and accessible, a substantial example can simplify further its understanding26.

Thus, consider the case of the MasterCard payment card system.

MarsterCard is a platform operator who sells its services to two different sides of consumers. On the one hand, there are merchants, who need point-of-sale (POS) terminals in order to accept payments

22_{See generally Gerber, D.J.(2004) Courts as Economic experts in European Merger Law, Fordham Corporate Law} Institute

23_{See Case T-342/99, Airtours Plc. v. Commission [2002] ECR II-2585, Case T-310/01, Schneider Electric SA v.}

Commission [2002] ECR II-470, and finally Case T-5/02, Tetra Laval BV v. Commission [2002] ECR II-4381, where

the Court quashed a Commission's decision since in its view the Commission failed to adduce enough evidence of the anticompetitive effects of a merger. These cases are quoted by Gerber, D.J., it n.2,pag. 1254 and Roller, L-H., cit. n.7, pag.13. It is worth to note that, where complex economic matters are at stake, the intrusiveness of the Court's intervention with regards to Commission's decision necessarily depends on the standard of judicial review exercised. For this purpose, Chapter III casts light on the standard of judicial control exercised by the Court in the card payment field, as well as its relationship with the development of an effects-based approach.

24_{The literature considers the terms double-sided, two-sided and multi-sided market theory as interchangeable.}

25_{Aurer, D., Petit. N.(2015), Two-sided markets and the challenge of turning economic theory into antitrust policy, The} Antitrust Bulletin vol. 60 n. 4, pag. 426

26_{The first part of the example is based on the definition of double-sided market provided by Evans, according to which} "A multi-sided platform has (a) two or more groups of consumers; (b) who need each other in some way; (c) but who cannot capture the value from their mutual attraction on their own; and (d) rely on the catalyst to facilitate value creating interactions between them". Evans D.S., Schmalensee, R.(2012), The antitrust analysis of multi-sided platform

businesses, NBER working paper n. 18783, pag.7. In addition, Budzinski, O., Larsen, J.F.H.(2012), The Morgan Stanley/Visa Saga: How does economics helps address double-sided markets?, JECLAP, vol.3, n.2, pag. 213

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in their shops. On the other sides, there are cardholders, who need a card in order to pay at the merchant's shop.

Each side of the platform needs the other. Thus, cardholders will buy goods at the merchant's shop only if the merchant accepts their MasterCard card. Conversely, merchant will accept a specific type of card only if a sufficient number of consumers owns that card: the more cardholders pay by MasterCard, the more the merchant has to accept MasterCard as a mean of payment. In fact, non-acceptance would mean a loss in sales in favour of competitor merchants willing to accept MasterCard card.

From this picture it appears that each side of the market benefits from having its demand coordinated with the demand of the other side, since cardholders' demand is related and depends on merchants' demand, and vice versa. The interrelation described is one of the key features of two-sided markets. In economic terms, it is called "network effect" or "network externality"27. Against this background, MasterCard, the platform operator, has the capacity to meet the demands, solving coordination problems and creating value for both groups of consumers28.

Moreover, double-sided markets differ from one-sided markets for another aspect, namely the pricing29_{. Thus, if MasterCard wants to remain attractive for both sides of consumers, it has to}

choose its services prices so as to ensure that both groups are "on board"30_.

This result can be achieved in the following way. MasterCard will fix a "price level", namely a price for the goods and services offered to cardholders and merchants, respectively. Nonetheless, since one of the key economic concepts of the double-sided market theory is that the overall volume of transactions of the platform can be increased by adjusting the price structure (i.e. the ratio of the two prices between the two different groups), one side can be asked to pay more than the other. Therefore, the fact that one side of the platform, in particular the merchant side, pays more than the

27_{According to the theory of network externalities, the individual utility that one user derives from a product raises} when the number of users that utilize the same product increases. Auer, D., Petit, N.,cit. n.25,pag.431

28_{Notably, one of the fundamental assumptions of the theory is that the indirect network effects cannot be internalized} (i.e. obtained) by a direct interaction between cardholders and merchants: this is due to the prohibitive transaction costs that they should face. Thus, in order to increase the utility of a product, they have to rely upon a network operator. Evans, D.S., Schmalensee, R.,cit. n.26,pag.7

29_{The second part of the example is based upon the Rochet and Tirole's definition of double-sided markets. In} particular, they state "a market is two-sided if the platform can affect the volume of transactions by charging more to one side of the market and reducing the price paid by the other in an equal manner; in other words, the price structure matters, and platforms must design it so as to bring both sides on board". Rochet, J.C., Tirole, J., (2006) Two-sided

markets: a progress report, RAND Journal of Economics, vol.37(3), pag.664. In addition, Budzinski, O., Larsen,

J.F.H., cit. n.27,pag.213

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cardholder side is an inherent feature of this model and is necessary in order to increase the overall efficiency of the network, for the benefit of all the parties involved31.

Against this background, and before offering a more in depth characterization of the EU card payment system, it is necessary to pointed out some considerations which underline the general consensus surrounding the theory at stake.

First of all, it has started to be discussed about 10 years ago, and since then more than 150 academic papers have been written32. Secondly, most of the authors agree both on the basic essential features of this theory33 as well on the insights that this theory can provide into several aspects of competition enforcement, such as market definition, market power, and network effects34. Most importantly, scholars concur in concluding that several errors may result if competition authorities omit to consider the characteristics listed above, thus relying upon a one-sided model35. For instance, the relevant market can be defined larger or smaller than it actually is. As a consequence, when assessing market behaviours, antitrust authorities can incur in types I (false positive) and types II (false negative) errors, as well as fail to consider efficiency gains capable to justify an otherwise anticompetitive practice36_.

In recent times, these considerations have acquired an even greater value due to the increasing number of competition law proceedings dealing with two-sided platforms37_{. Inter alia, antitrust}

concerns in relation to the EU card payment system have been started 20 years ago and are still on going.

31_{Broadly speaking, Armstrong stated that the price structure could be influenced by different factors. Inter alia, it is} said that the group of consumers that bring the biggest size of indirect network effects is usually asked to pay less. Armstrong, M.(2006), Competition in two-sided markets, RAND Journal of Economics, vol.37 n.3, pag.668-9. For discussion see also Rochet, J.C., Tirole, J.(2003), Platform Competition in two-sided markets, Journal of the European Economic Association 1(4)

32_{Evans, D.S., Schmalensee, R., cit. n.26,pag.3}

33_{According to Aurer and Petit, there is a solid consensus concerning the fundamentals of the theory. Nonetheless,} some minor conceptual divergences are still present in the literature. The authors provide an overview of these divergences. Aurer, D., Petit, N., cit. n.25,pag.434

34_{Idem, pag.434. In addition, Rebecchini, S.(2014), The double duality of two sided markets. Speech of the} Commissioner of Italian Competition Authority at the Swedish Competition Authority's seminar ("Pros and Cons of Antitrust in two-sided markets) held on 28th November 2014 in Stockholm

35_{Evans, D.S., Schmalensee, R., cit. n.26, pag.4}

36_{Filistrucchi, L., Geradin, D., Damme, E., Affeldt, P.,(2013) Market definition in two-sided markets: theory and}

practice, TILEC Discussion Paper 9,pag.1

37_{Besides traditional double-sided markets like payment systems, video games, operating systems, and printer media} industries, antitrust issues are now raising also in the field of the sharing economy, where platforms like Uber or Airbnb are considered two-sided businesses. See generally Lougher, G., Kalmanowicz, S.,(2016), EU Competition law in the

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3. Card payment scheme and Multilateral Interchange Fees (MIFs)

Modern economists unanimously consider payment card markets as typical examples of double-sided markets38, whose main characteristics have already been discussed. Nonetheless, for a better comprehension of the proceedings analysed later, a closer consideration of these markets is required.

All over the world, most debit and credit card are issued by global card schemes39, like MasterCard and Visa, or independent domestic schemes like Groupement des Cartes Bancaires in France, which are part of a so-called four-party payment scheme. Thus, the four parties comprised in the system are: cardholders, issuing bank (i.e. the cardholders' bank), merchants, and acquirer bank (i.e. the merchants' bank) (see Annex I, figure 1)40.

The issuing and the acquirer banks are two system member banks whose presence is necessary in order to finalize the transaction between the cardholder and the merchant. MasterCard (as well as Visa or Cartes Bancaires) is the manager of the network. The relationships between the parties are characterised by the presence of different types of fees, which reflect the services offered41_.

Thus, the issuing bank (cardholders' bank) basic service is the issuing of debit or credit cards. In addition, it has to handle payment authorizations, to clear and settle each transaction, and to maintain the cardholder account. Finally, it bears the risk of credit losses, thus providing an indirect service to the merchant42. As a consequence, merchant is ensured in any case the payment, regardless of the cardholder credit card balance.

38_{Aurer, D., Petit, N., cit. n.27,pag.437}

39_{A card scheme is generally defined as "a technical and commercial arrangement set up to serve one or more card} brands, which provides the organizational, legal and operational framework necessary for the functioning of the services marketed by those brands". EPRS,(2015) Interchange fees for card-based payment transactions, Briefing, pag.2

40_{Four-party card schemes represent the 80% of EU debit and credit card markets. Evans, D.S.(2014), How the}

proposed payment legislation will restrain competition among payment card schemes and harm consumers in the European Union, Available at SSRN 2503696,pag.5. Indeed, there is a second type of card payment scheme, namely

the three-party scheme. It only comprises the card company, cardholders and merchants. American Express and Diners Club are typical examples. Here, the card payment scheme issues cards to cardholders and provides merchant with POS terminal, at the same time fixing cardholder and merchant's prices (see Annex I, figure 2). Klein, B., Lerner, A., Murphy, K.,Plache, L.,(2005), Competition in two-sided markets: the antitrust economics of payment card interchange

fees, Antitrust L.J. vol. 73, pag.572. The present paper only deals with four-party card payment schemes, which concern

antitrust enforcers to a greater extent.

41_{Garello, P.,(2013) Understanding Multilateral Interchange Fees (MIF), and why it would be a mistake to regulate}

them, Available at SSRN 2349675, pag.4-6

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In return of these services, each cardholder is called to pay an annual fee, whose amount differs according to the type of card owned and its related benefits (e.g. protection against fraud)43.

On the other side, the merchants' bank, namely the acquirer bank, has the basic function to supply and maintain a terminal at the merchant's shop44. In return, it asks the merchant to pay a fee, called Merchant Discount Rate (MDR), which is negotiated between the merchant and its bank. Interestingly, this fee is considered a production cost, and it is included in the price of the product bought by the cardholder45.

Finally, there is another type of fee, which in the past almost 40 years has been at the centre of several antitrust proceedings on both sides of the Atlantic. It is called Multilateral Interchange Fee (MIF)46.

The MIF is a fee, whose value is determined by the operator of the network, paid for each transaction from the acquirer bank to the issuing bank.

Factors such as the merchant's size and category, as well as the type of card issued (premium or basic), affect the MIF level, which can thus vary also within the same Country47_.

Interestingly, the payment of the MIF creates a series of reactions in the parties of the system. Thus, on the one side, the acquirer bank passes on the cost of MIF to merchants by means of the MDR, which, in turn, determines an increase in the retail product price. Therefore, the price charged to consumers indirectly incorporates the MIF48.

On the other side, the issuing bank passes on the MIF revenue to cardholders, reducing their annual card fee, or increasing the benefits offered.

Therefore, as a rule, the increase of the MIF raises merchants' cost for accepting the card, but decreases the price paid by cardholders for using it.

43_Idem,pag.6 44_Idem,pag.5 45_Idem,pag.5

46_{The first case in U.S. was NaBanco, a case against Visa. By contrast, the first Commission's Decision concerning the} legality of MIFs was Uniform eurocheques Package Deal (IV/30.717 - Uniform Eurocheques) [1985] OJ L35/43). For an overview Semeraro, S.,(2007), Credit card interchage fees: three decades of antitrust uncertainty, George Mason Law Review 14, and Lista, A.,(2008), Card payment system and competition concerns: multilateral interchange fees

and no-discrimination rules, a necessary evil?, Journal of Business Law 7

47_{For instance, quick service restaurants do not pay the same MIF paid by a merchant who sells luxurious items. The} former has very low bills, thus traditionally relying on cash payment. Therefore, in order to increase the network, for the benefits of both the sides, MasterCard and Visa reduced significantly the MIF charged to this category of merchant. Tirole, J.(2011), Payment card regulation and the use of economic analysis in antitrust, CPI vo. 7, n.1, pag.138

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Being in the context of a double-sided market, the MIF is therefore the mechanism through which balancing the costs between the two sides, and adapt the price structure49.

After all, as noted, merchants receive indirect services from the issuing bank. Moreover, they are benefitted by the indirect network effects that characterized double-sided markets. Consequently, the MIF is not only considered the only way through which compensating the costs between two different sides of the markets50, but it also conceived as a revenue to the issuing bank for all the (indirect) services provided51. Within this context, it is worth to underline that the credit card network (e.g. MasterCard) does not receive any profit from the abovementioned fee.

Notably, in March 2015 the Commission adopted a new regulation, which imposes a cap on MIFs52. It entered into force on 8 June 2015 and has to be read within the framework of the new Payment Service Directive53 adopted in November 2015.

As a consequence, the fee set out by the payment card networks can now not exceed a certain percentage - 0.20% for debit card and 0.30% for credit card - of the value of each transaction. The current MIF level has been determined on the basis of an indeed discussed economic model, namely the Tourist Test or Merchant Indifferent Test (MIT), that is the same test used by the Commission for determining commitments in Visa and MasterCard proceedings prior to the Regulation.

Whether the new MIFs Regulation will be beneficial for the competitiveness of the industry as well as for the consumer welfare is under debate54.

49_{Filistrucchi,L., et all., cit. n.36,pag.12 and Tirole, J., cit. n.47,pag.142} 50_{Evans, D.S., Schmalensee, R., cit. n.26,pag.12}

51_{Furthermore, MIFs are also used to compete with other payment card scheme. In particular, a higher MIF is attractive} both for issuing banks and cardholders. Idem, pag.10

52_{European parliament and Council Regulation (EU) 2015/751 of 29 April 2015 on interchange fees for card-based}

payment transactions [2015] OJ L 123/1. For an overview, European Commission, cit. n.48

53_{European Parliament and Council Directive (EU) of 25 November 2015 on payment services in the internal market,} [2015] OJ L 337/35

54_{Inter alia, Evans, D., cit. n.40, and De Matteis, A., Giordano, S.(2015), Payment cards and permitted multilateral}

interchange fees (MIFs): will the European Commission harm consumers and the European payment industry?, JCLAP

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CHAPTER II

DOUBLESIDENESS OF EU CARD PAYMENT MARKETS UNDER EU

COMPETITION SCRUTINY

Traditionally, payment card schemes operate on the market in the form of membership organizations, that is to say associations of banks55. Consequently, from a competition law perspective, the Commission has consistently considered the fixing of MIFs and other inter-bank fees as decisions of associations of undertakings under the meaning of Art.101 TFEU56.

Art.101 TFEU is a provision with a bifurcated structure, which requires competition enforcers to carry out a two-pronged analysis (see Annex II).

First of all, the market behaviour has to be assessed under Art.101(1) TFEU. Particularly, competition authorities have to determine whether an agreement between undertakings, a decision of association of undertakings, or a concerted practice has as its object or effect the prevention, restriction or distortion of competition and whether it may affect trade between Member States. If it is the case, the agreement at stake is prohibited under Art.101(1) TFEU and will be considered automatically void under Art. 101(2) TFEU unless the four conditions laid down in Art.101(3) TFEU are met.

Art.101(3) TFEU represents the second step of the analysis, where competition authorities have to offset the anticompetitive effects stemming from the agreement with the efficiency gains that it generates. Hence, Art.101(3) TFEU provides a legal exception to the prohibition set down in Art.101(1) TFEU.

Over time, the Commission and the Court case law concerning the appraisal of inter-bank fees under Art.101 TFEU had been characterized by a relatively consistent end result: these fees have the effect to restrict competition57. Nonetheless, the way in which this conclusion had been reached,

55_{European Commission,(2015) Survey on merchants' costs of processing cash and card payments, pag.16} 56_{Idem, pag.16}

57_{Indeed, it is worth to note that in its initial decisions, the Commission considered MIFs as inherent and ancillary to} payment card schemes. This was the case in Uniform Eurocheques Package Deal (Decision 85/77 relating to a proceeding under art. 85 of the EEC Treaty (IV/30.717- Uniform Eurocheques) [1985] OJ L35/43), Association Belge

des Banques (ABB) (Decision 83/17 relating to a proceeding under art.85 of EEC Treaty (IV/261- A-Belgische

Vereninging der Banken/Association Belge des Bancques) [1987] OJ L7/27, and ABI (Decision 87/103 relating to a proceeding under art.85 EEC Treaty (IV/31.356-ABI) [1987] OJ L43/51). The cases are quoted by Lista, A., cit. n.46, pag.4-5

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as well as the way in which the doublesideness of payment markets had been taken into account in the antitrust analysis, had varied significantly.

Thus, after the launch of the substantive modernization process, competition enforcers have faced two fundamental streams of cases involving Visa and MasterCard card payment schemes. In addition, a significant judgment concerning Groupement des Cartes Bancaires was issued in 2014. Since one of the main assumptions of the effects-based approach is that market behaviours have to be analysed in light of a sound economic reasoning, the following analysis is aimed at illustrating the current level of incorporation of the double-sided market theory in the antitrust assessment of card payment schemes.

1. Visa, MasterCard and Cartes Bancaires: factual background

Visa International started its dispute with the European Commission in 2000, following the receiving of a formal Statement of Objection. Afterwards, the Commission issued a decision against Visa58_{in which it maintained that Visa MIFs restricted competition. Nonetheless, the Commission}

provided the card scheme with an individual exemption of five years under Art.101(3) TFEU. Following the expiration of the exemption decision in December 2007 and, notably, after the issuing of the MasterCard(2007) decision59_{, the Commission opened an antitrust investigation}

against Visa60. In the Commission's preliminary view, Visa MIFs harmed competition between merchants' banks, inflated merchants' costs for accepting payment cards and ultimately increased consumers' price. In response to these objections, Visa committed to reduce the debit cards MIFs level to 0.20%. Pursuant to Art. 9 Reg.1/200361, in December 2010 the Commission made this commitment binding with a decision62. Finally, in 2014 the Commission adopted a third Decision63 against Visa through which making binding further additional commitments - in particular the reduction of credit card MIFs to 0.3%.

58_{Commission Decision C(2002) 2698 of 24/07/2002 relating to a proceeding under Article 81 EC Treaty and Article}

53 EEA Agreement (Case No COMP/29.373 - Visa International - Multilateral Interchange Fee) [2002] OJ L 318/17

(hereinafter "Visa (2002)")

59_{Commission Decision C(2007) 6476 of 19/12/2007 relating to a proceeding under Art.81 EC Treaty and Art.53 EEA}

Agreement (Case COMP/34.579 - MasterCard) [2007] OJ C 264/8 (hereinafter "MasterCard (2007)")

60_{For an overview, see http://ec.europa.eu/competition/sectors/financial_services/enforcement_en.html} 61_{Reg. 1/2003, cit. n.5}

62_{Commission Decision C(2010) 876 final of 8/12/2010, relating to a proceeding under Art.101 TFEU and Art.53 EEA} Agreement, (Case COMP/39.398 - VISA MIF) OJ C 79. For an overview, European Commission(2010), Antitrust:

Commission makes Visa Europe's commitments to cut interbank fees for debit cards legally binding, Press Released

IP/10/1684

63_{Commission Decision C(2014) 1199 final of 26/02/2014 relating to a proceeding under Art.101 TFEU and Art.53}

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On the other side, MasterCard has a slightly different factual pattern. Thus, in 2007 the Commission issued a Decision64 against MasterCard MIFs for debit and credit card, finding that MasterCard MIFs violated Art.101 TFEU by restricting competition between acquiring banks and thus inflating cardholders' acceptance costs. In addition, the Commission did not find efficiency gains for justifying the agreement under Art.101(3) TFEU. MasterCard then appealed the Decision before the General Court65, which fully upheld the Commission's decision. Pending the judgment, which was issued on 24 May 2012, MasterCard undertook to reduce its MIFs to 0.30% for credit and to 0.20% for debit cards.

Finally, on 11 September 201466, the European Court of Justice confirmed that MasterCard MIFs restrict competition in the internal market, thus violating EU competition rules67.

On the same day, the European Court of Justice issued another leading judgment, namely

Groupement des Cartes Bancaires68. Cartes Bancaires (CB Group) is a card payment system active in France, where it competes with MasterCard and Visa. The dispute concerned a series of - never implemented - inter-bank fees necessary, according to the Group, for preventing "free-riding" and ensuring a balance between the issuing and the acquirer sides69_{. After an infringement decision in}

200770_{, the General Court upheld the Commission's decision fining that the inter-bank fees at stake}

restricted competition by object. Cartes Bancaires appealed to the ECJ maintaining that both the Commission and the GC misinterpreted the case law and did not take into consideration the double-sided nature of the market, thus failing to assess the legal and economic context of the inter-bank fees71. The Court adhered to such view. Thus, in its judgment of 11 September 201472, it set the GC's judgment aside, referring the case back in order to conduct an analysis on the effects of the measure.

64_{Commission Decision C(2007) 6476, cit. n.59}

65_{Case T-111/08, MasterCard v. European Commission, [2012] OJ C 200/11. For a comment see Gee, A.,(2012),}

MasterCard illegality confirmed for Multilateral Interchange Fees for payment card transactions, JECLP 3(6)

66_{Case C-382/12, MasterCard v. Commission, [2014] nyp (hereinafter "MasterCard")}

67_{Indeed, the Visa and MasterCard saga is still on-going Thus, Visa Inc. and Visa International Service Association are} under investigation for specific inter-regional MIFs, while on 9 July 2015, a Statement of Objection was issued against MasterCard. Particularly, it concerns some inter-bank fees applicable for payments made by cardholders from non EEA Countries. See <http://ec.europa.eu/competition/sectors/financial_services/enforcement_en.html>

68_{Case C- 67/13 P, CB v. Commission [2014] nyp (hereinafter "Cartes Bancaires")}

69_{For a comment, Pradelles, F., Scordamaglia-Tousis, A.,(2014), Two sides of the Cartes Bancaires Ruling: assessment}

of the two-sided nature of Card payment system under Art. 101(1) TFEU and Full Judicial scrutiny of underlying economic analysis, Competition Policy International, vol.10,n.2, pag.140

70_{Commission Decision COMP/AT.38606 - Groupement des Cartes Bancaires [2007] OJ C 183} 71_{Case T-491/07,CB v, Commission, EU:T:2012:633}

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2. Visa(2002) and MasterCard(2007) decisions

Visa(2002)73 and MasterCard(2007)74 represent the first remarkable decisions in the field of card payments after the beginning of the substantial modernization process of EU competition law75. Read in conjunction, they well display the evolution of the Commission's approach towards the use of the two-sided market theory, in particular with regards to market definition, theory of harm, and efficiency defence under Art.101(3) TFEU. The analysis will focus on the above-mentioned points. Starting with the definition of the relevant product market, in Visa(2002)76 the Commission established the presence of two distinct relevant markets: the network or upstream market (i.e. the market of the platform) and the intra-system or downstream market (i.e. the market where the issuing bank and the acquiring bank operate)77. Given the presence of network effects between the issuing and the acquiring sides, the Commission went on stating that the "demand from both merchants and cardholders must be analysed in order to determine the correct definition of the system market"78_{and that "both merchants (in their capacity as clients of the acquiring services)}

and cardholders (in their capacity as clients of the issuing services) are to be considered as consumers"79_{. Therefore, the relevant product market encompassed both sides of the card payment}

industry.

By contrast, in MasterCard(2007), the Commission held a much more restrictive approach, marking a significant changing in the relevant market definition. Thus, citing Visa(2002) as authority, the Commission openly qualified the card payment system as a market with two-sided demand characterized by indirect network effects80, which the Commission defined as "a positive interrelation between network size and consumer valuation across the two consumers' groups"81. Nonetheless, in the Commission's view, the definition of one single market would not have provided an appropriate analytical framework for assessing the dynamic interdependence of the two

73_{Visa(2002), cit. n.58} 74_{MasterCard(2007), cit n.59}

75_{For a comment on these decisions Lista. A., cit n.46, pag.8-10 and Malaguti, M.C.,Guerrieri, A.(2014) Multilateral}

Interchange Fees. Competition and regulation in light of recent legislative developments, ECRI 15

76_{Visa(2002), cit. n.58} 77_{Idem, para.24} 78_{Idem, para.46} 79_{Idem, footnote 28}

80_{MasterCard(2007) cit. n.59, para.258 et. seq.} 81_{Idem, para.258}

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different consumers' demands82. In particular, given the different prices and features of the services provided on the two facets of the market, the Commission deemed impossible "amalgamating all these distinct services into one single "MasterCard payment service" for the purpose of defining the relevant product market"83.

In light of this reasoning, the Commission maintained that the relevant product market for assessing the MIF was only the market of the acquiring bank84. Consequently, and relevant for the subsequent analysis under Art.101(3) TFEU, merchants represented the only consumers' group to be taken into account.

Both in Visa(2002) and in MasterCard(2007) the Commission judged the setting of the MIFs as a decision of association of undertakings85. By contrast, the theory of harm elaborated in the two cases is slightly different. Thus, in Visa(2002), after explicitly excluding the possibility to consider MIFs as an exchange of costs between partners in a production joint venture - as claimed by Visa86- the Commission's argument was that MIFs affected the freedom of issuing and acquiring banks, in particular restricting their capacity to individually decide their own pricing87_{. On the other side, in} MasterCard(2007) the Commission went further, underlining the detrimental effects that the

restriction of competition on the issuing side could exercise on merchants. In this way, MasterCard MIFs created an artificial floor for the fee paid by the merchant to the acquirer bank -namely, the Merchant Discount Rate, MDR-, at the same time increasing the costs for cardholders88.

Albeit, to a first approximation, the abovementioned discrepancies in the definition of the relevant product market and the theory of harm as elaborated by the Commission put already in evidence an obscure and inconsistent use of the two-sided market theory - and thus a limited development of an effects-based approach in the field -, the most striking difference between these decisions is their assessment of MIFs under Art.101(3) TFEU and, consequently, their end results.

82_{Notably, the Commission based its definition on the Notice on the definition of the relevant market (Commission} Notice on the definition of the relevant market for the purpose of Community competition law [1997] OJ C 97 372/03, pag.5).

83_{MasterCard(2007), cit. n. 59,para.284} 84_{Idem, paras.306 and 317}

85_{Visa(2002), cit. n.58, paras.55 and MasterCard(2007) cit. n.59,para.398} 86_{Visa(2002), cit. n.58,para.65}

87_Idem,para.64

88_{MasterCard(2007) cit. n.59,paras.410-411. In this way, the Commission considered the fixing of MIFs as a form of} price fixing. Nonetheless, it deemed that this practice restricted competition by effect, and not by object. This point is remarked by Whish, R., Bailey, D.,(2015), Competition Law, Oxford University Press, pag.132-133

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Thus, in Visa(2002) the Commission considered MIFs eligible for an exemption under Art.101(3) TFEU. Particularly, the Commission recognised the presence of efficiency gains due to lower negotiation and transaction costs. Furthermore, in light of the network effects that characterised this market, it underlined that MIF were capable to provide a fair share of benefits to each category of users of the Visa System, namely cardholders and merchants89. Furthermore, the MIF was found indispensable for absorbing costs that, otherwise, would have been borne by cardholders. Finally, it was considered not capable to eliminate competition90.

For all these reasons, the Commission conceded an exemption of five years to Visa MIFs under Art.101(3) TFEU91, as long as the fees were set in a reasonable and equitable manner92.

Conversely, in MasterCard(2007) the Commission concluded that there was no presumption that MIFs could enhance efficiency in the system93.

In its assessment under Art.101(3) TFEU the Commission generally pointed out that efficiency gains have to stem directly from the MIFs - and not from the system as a whole -, and have to benefit both sides of the market94. In order to prove these efficiencies, it required a detailed, robust and compelling analysis based on empirical data95_{. Since, in its view, the claimants had failed to}

furnish the necessary evidence, the Commission did not consider MIFs fixed by MasterCard as capable to be exempted under Art.101(3) TFEU96_{. Therefore, it issued an infringement decisions}

under Art.101(1) TFEU.

89_{Visa(2002), cit. n.58, para.79-95} 90_{Idem, paras.98-104}

91_{Idem, para.107}

92_{The concepts of reasonability and equitability were not further specified by the Commission so as to allow the} Commission to keep a great degree of discretion in its future appraisal of MIFs. Lista, A., cit. n.46,pag.9

93_{MasterCard(2007) cit. n.59,para.730. Indeed, the Commission did not openly justify the different approach} undertaken after Visa.

94_{Therefore, it was not sufficient that the efficiencies offsetting anticompetitive effects were present only in the} cardholders' side.

95_{MasterCard(2007) cit. n.59,para.680}

96_{Thus, the Commission did not dispute the finding that, in principle, MIFs can contribute to economic and technical} progress. Nevertheless, it established that the network effects stemming from the fee could not derive from general theoretical models or assumptions. By contrast, such finding should be based on concrete evidence brought forward by the parties (para.732). It is in this occasion that the Commission set out a - questionable - standard of proof that private parties had to borne. This point, which is discussed in Chapter III, represents one of the legal issues which could affect the development of an effects-based approach in the field.

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3. MasterCard and Cartes Bancaires judgments

Following the decisions discussed, two seminal judgments have been issued on 11 September 2014, namely MasterCard97 and Cartes Bancaires98. In both these cases, the European Court of Justice furnished significant clarifications on how to deal with the doublesideness of card payment schemes in the antitrust assessment under Art. 101 TFEU99.

In Cartes Bancaires the Court had to review the 2007 General Court's ruling that found Groupement des Cartes Bancaires MIFs to restrict competition by object. Aware of the Commission's increasing tendency to treat cases as "objective" restrictions100, in this occasion the Court decided to provide a strict interpretation of the "by object" box, at the same time enriching the spectrum of elements to be taken into account in this assessment101. Indeed, it is this second part of the Court's ruling to be of particular significance for the discussion of this Chapter.

Thus, the Court started shedding light on the essential legal criterion to consider in order to deem an agreement restrictive of competition by object, namely the finding that "such coordination reveals in itself a sufficient degree of harm to competition"102_{. In addition, reiterating settled case law, the}

Court maintained that such "by object" appraisal had to encompass not only the content and the objectives of the agreement, but also the economic and legal context in which the coordination took place, thus having regards of the real conditions of the functioning and the structure of the market in question103.

Yet, the Court went further in the specification of the elements to consider, sweeping away typical uncertainties linked to the assessment of double-sided markets. Particularly, the Court implicitly marked the divide between the concept of relevant market and the economic and legal context. Hence, the Court did not challenge the GC's definition of relevant market as comprising only the issuing side. Conversely, since the case arose in the specific context of a two-sided market, the Court held that the assessment of the economic and legal context had to be conducted considering

97_{MasterCard, cit. n.66} 98_{Cartes Bancaires, cit. n.68.}

99_{For a comment, Pradelles, F., Scordamaglia-Tousis, A., cit. n.69,pag.139-156. For the sake of clarity, it is worth to} underline that MasterCard is factually related to the MasterCard Commission's decision of 2007 already analysed. By contrast, Cartes Bacaires is not connected to the decisions previously discussed, just representing a leading case in the field.

100_{Gerard, D., cit n.1, pag.16}

101_{Cartes Bancaires, cit. n.68,para.141. For a comment, Whisk, R., Bailey, D., cit. n. 89,pag.126-127}

102_{Idem, para.57. This finding is consistent with the case law of the Court, in particular Allianz Hungària Biztositò and}

Others, (C-32/11, EU:C:2013:160) and LTM (C-56/65, EU:C:1966:38).

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the interactions between both the facets of the system, being "immaterial whether or not they relate to the relevant market"104.

As stated by the Court105, through an assessment of inter-bank fees only from the issuing perspective the GC misinterpreted the concepts at stake and ignored the other essential element of the double-sided market, that is to say the acquiring side.

Finally, the Court made another implicit but central statement with regards to double-sided markets. Focusing on the analysis conducted by the GC, the Court found that in the assessment of elements such as the restriction of competition for new entrants on the market, the GC formally labelled the fees as a form of restriction by object. Nevertheless, the General Court de facto carried out a "by effect" analysis106, in particular relying upon market data, statements made by central banks and documents sized during the inspections. From the foregoing, it seems possible to argue that a "by object" analysis is not suitable for assessing a complex inter-bank fees arrangement, and rather a "by effects" assessment is always required107.

Accordingly, since the GC wrongly qualified the fee as a by object restriction while further examination of its effects was still required, the Court quashed the decision of the General Court and referred the case back to it in order to accomplish a "by effect" analysis108_.

On the other side, MasterCard109_{can then be seen as a logical consequence of Cartes Bancaires,}

where the Court explained how to conduct a "by effects" analysis in the context of two-sided markets.

In MasterCard the ECJ confirmed the General Court's judgment pursuant to which MasterCard MIFs had to be considered as a decision of association of undertakings having the effect of restricting competition, thus violating Art.101(1) TFEU. Nevertheless, also in this ruling the ECJ took some positive steps in the direction of the two-sided market theory.

First of all, the Court restated the same findings emerged in Cartes Bancaires. Thus, in the assessment of the effects of coordination between undertakings, the Court underlined the need to take into consideration the actual context in which the relevant arrangement is situated, in particular the economic and legal context, as well as the real conditions of the functioning and the structure of

104_{Idem, paras.53 and 78-79} 105_{Idem, paras.77-79} 106_{Idem, paras.80-82}

107_{On this point also Pradelles, F., Scordamaglia-Tousis, A., cit. n.69,pag.143} 108_{Cartes Bancaires, cit. n.68, para.95}

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the market110. Moreover, the Court made a strong statement by affirming that in the assessment under Art.101(1) TFEU "the economic and legal context of the coordination concerned includes [..] the two-sided nature of MasterCard's open payment system, particularly since it is undisputed that there is interaction between the two sides of the system"111. In doing so, the Court clearly differentiated its position from that of the GC, which omitted to consider both sides of the market in the antitrust assessment of MIFs112.

Finally, with regards to the efficiency defence under Art.101(3) TFEU, the Court underlined the necessity to take into account all objective advantages flowing from the MIFs, thus not only those on the relevant market - the acquiring market -, but also those on the separate but connected issuing market113. Nevertheless, shortly after the Court reconciled this broad position with the assessment made by the General Court stating that both the sides of the market have to receive "an appreciable advantage" arising from the MIFs. Accordingly, "where the restrictive effects have been found only on one market of a two-sided system, the advantages flowing from the restrictive measure on a separate but connected market also associated with that system cannot, in themselves, be of such a character as to compensate for the disadvantages resulting from that measure in the absence of any proof of the existence of appreciable objective advantages attributable to that measure in the relevant market, in particular where the consumers on those markets are not substantially the same"114_.

Given the lack of proof of appreciable objective advantages enjoyed by merchants, the benefits on the cardholders' side could not offset the restriction caused by MasterCard MIFs. For this reason, the Court upheld the judgment of the General Court.

To conclude, it is worth to briefly anticipate a further common element shared by the two rulings discussed, namely the standard of judicial review adopted by the Court. Thus, both in Cartes

Bancaires and in MasterCard the ECJ had exercised a high standard of judicial review even when

complex economic matters were at stake. As explained in Chapter III, this element appears to be

110_{Idem, para.165. In order to justify its position, the Court cited as authority Delimitis (C-234/89, EU:C:1991:91),}

Oude Luttikhuis and Others (C-399/93, EU:C:1995:434), Asnef-Equifax and Administración del Estado (C-238/05,

EU:C:2006:734), and Erste Group Bank and Others v Commission (C-125/07 P, C-133/07 P, C-135/07 P and C-137/07 P, EU:C:2009:576)

111_{MasterCard, cit. n.66, para.179. See, by analogy, judgments in Delimitis (cit n.110), and Allianz Hungária Biztosító}

and Others (cit. n.102). However, as later explained by the Court (para.180), this argument had not been contested by

the claimant before the General Court, where the criticism concerned the Commission's failure to take into account the two-sided nature of the system under Art.101(3) TFEU. Therefore, the ECJ had to reject the plea.

112_{Case T-111/08, MasterCard v. European Commission, cit n.65, para.179} 113_{MasterCard, cit. n.66,para.240}

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crucial for the development of an effects-based approach.

4. Interim conclusions

The case law analysis highlights the way in which competition enforcers have addressed the doublesideness of EU card payment markets since the beginning of the substantive modernization process. In turn, the incorporation of a mainstream economic theory - as the double-sided market theory is - in the antitrust assessment represents a fundamental element for determining whether competition enforcers are developing an effects-based approach in the field.

Broadly speaking, both the Commission and the European Courts agree in the qualification of card payment schemes as two-sided markets, at the same time recognising the network effects present. Yet, the Commission shows incongruity in the conclusions achieved as well as certain reluctance towards the double-sided market theory. As a consequence, the doublesideness of the market seems to be taken in very little account in the appraisal of the economic and legal context. This result, which underlines uncertainties and complexities surrounding the antitrust assessment of two-sided markets and precludes the Commission from having a real understanding of the economic reality underlying the market concerned, could amount to a big hurdle along the way towards the substantive modernization of EU competition law.

By contrast, the ECJ has developed a more consistent attitude towards card payment schemes. Beyond doubt, the Court is showing a greater proclivity for the incorporation of two-sided market economic principles in the antitrust assessment of MIFs, enlarging the boundaries of the economic and legal context within which to develop such appraisal. Accordingly, it has opened the way for a more extensive consideration of the relevant economic theory, fiercely calling for the necessity to bring the double-sided nature of the market under competition enforcers' scrutiny.

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CHAPTER III

THE ROLE OF COMPETITION ENFORCERS IN THE DEVELOPMENT OF

AN EFFECTS-BASED APPROACH

As already noted, the substantive modernization of EU competition law relies on a two-fold basis115. First of all, it aims at developing a "more economic approach" within competition law proceedings. This stance does not solely require a broader recourse to economics in antitrust proceedings, which has been the research objective of Chapter II, but also a thorough use of economics evidence and a balance in the burden of proof borne by the parties116.

Secondly, the substantive modernization process aspires to enhance consumer welfare, which is now considered one of the main goals of EU competition law117.

Relying on the case law analysis developed in Chapter II, the following and last chapter is thus devoted to the abovementioned aspects, highlighting the role played by competition enforcers in the development of the two main goals of the substantive modernization process, and thus, ultimately, in the development of an effects-based approach in this field.

First of all, it discusses some specific legal and policy issues stemming from the Commission's decision, especially MasterCard(2007)118, which are capable to affect the development of a "more economic approach" and the enhancement of consumer welfare. Secondly, it considers the position assumed by the Court with regards to the same aspects both in Cartes Bancaires119_and

MasterCard120_{. Finally, the Chapter concludes with some reflections on the interrelation between}

the development of an effects-based approach and the standard of judicial review exercised by the Court. It will emerge that these two elements are bound by a reciprocal relationship, and that the standard of judicial review is bidirectional since it derives from, and at the same time fosters, the development of an effects-based approach.

115_{Gerber, D.J., cit. n.2,pag.1247} 116_{Roller, L-H,cit. n.7,pag.11} 117_{Gerard,D., cit. n.1,pag.1} 118_{MasterCard(2007),cit. n. 59} 119_{Cartes Bancaires,cit. n.68} 120_{MasterCard,cit. n.66}

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1. The role of the European Commission 1.1. The "more economic approach"

Besides an economically improper use of the double-sided market theory, the Commission's decisions analysed, especially MasterCard(2007)121, evidence at least two legal issues which could affect the way in which economics enter in competition proceedings, thus hindering the process towards substantive modernization. These issues, highly interrelated, concern the use of the economic evidence made by the Commission and the standard of proof borne by the parties.

Generally speaking, pursuant to Art.2 Reg.(EU) 1/2003122, the Commission bears the burden to prove an infringement of competition rules under Art. 101(1) TFEU, thus adducing evidence by means of which to substantiate the existence of an anticompetitive practice.

Conversely, efficiency gains under Art.101(3) TFEU have to be demonstrated by the defendant undertaking123_{, being this the only opportunity that it has for seeking a justification for an otherwise}

unlawful practice124_.

The EU legislator is silent with regards to the evidential threshold needed in antitrust proceedings. Thus, the notion of “standard of proof” has started to be built by the European Courts only in recent times125.For instance, in GlaxoSmithKline126 the ECJ ruled that the Commission has to ascertain whether "it seems more likely either that the agreement in question must make it possible to obtain appreciable advantages or that it will not". Hence, the standard of proof to satisfy generally consists in presenting convincing arguments and evidence127.

Within this context, in 2010 the Commission issued a Code of Best Practice for the submission of economic evidence in antitrust proceedings128. Inter alia, pursuant to this new soft-law instrument,

121_{MasterCard(2007),cit. n.59}

122_{Reg.1/2003,cit. n.5. For an overview on the burden of proof under Art.101 TFEU see Kalintiri, A.,(2015), Allocation}

of the legal burden of proof in Art.101 TFEU cases: a clear rule with not-so-clear implications, Yearbook of European

Law, vol.34(1)

123_{Joined Cases C-204/00 P, C-205/00 P, C-211/00 P, C-213/00 P, C-217/00 P, and C-219/00 P Aalborg Portland A/S v}

Commission [2004] ECR I-123. The case is quoted in Kalintiri, A., cit n.121, pag.237

124_{Case T-168/01, GlaxoSmithKline Services v Commission [2006] ECR II-2969. The case is quoted in Kalintiri, A.,} cit. n.121, pag.247-248

125_{Lianos, I., Geradin, D.,(2013), Handbook on European Competition Law: Enforcement and Procedure, Edward} Elgar Publishing, pag.81-83

126_{GlaxoSmithKline, cit n.123,paras.78 et seq.} 127_{Lianos, I., Gradin, D.,cit n.124, pag.81-83}

128_{DG Competition, Best Practice for the submission of economic evidence and data collection in cases concerning the}

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the economic evidence on which the parties rely in order to prove their arguments have to be consistent with the institutional features of the industry as well as in line with the relevant economic literature. Furthermore, the economic evidence has to be interpreted in a propter and robust manner, and counterarguments have to be given adequate consideration129.

In light of the aforementioned, MasterCard raises serious doubts not only about the soundness of the economic evidence provided by the Commission, but also about the standard of proof required to the card payment operator, which appears unduly burdensome.

Thus, without entering in too many details, in MasterCard130 the Commission mainly relied upon qualitative evidence deriving from the observation of the characteristics of the service concerned, as well as upon merchant market surveys131. In addition, it compared MasterCard scheme with schemes developed, inter alia, in Australia, Denmark and Finland, which rest upon a card payment system without MIFs132.

Indeed, it seems possible to perceive methodological flaws in the Commission's analysis133.

On the one side, the studies brought about by the Commission are limited in their scope, thus considering only credit cards, and not also debit cards. Furthermore, the surveys did not take into consideration the cardholders' side, and the effects that the absence of MIFs could have on them as well as on the quality of the services provided. Therefore, the Commission had never taken into account the potential effects on consumer welfare that a reduction or abolition of MIFs could determine.

On the other side, the Commission seems not to demonstrate in a complete and structured manner that the model developed in other Countries de facto had led to a better system than that created by MasterCard and Visa. Such a conclusion derives from an attentive reading of the Commission's decision, which reveals how the experience of these selected Countries had been far from absolutely positive134. Finally, in contrast with what set out in the Code of Best Practice135, the Commission

determined by the introduction of this best practice see MacGregor, A., Gecic, B. (2012), Due process in EU

competition cases following the introduction of the new best practices guidelines on antitrust proceedings, JECLP 3(5)

129_{Idem, para.3}

130_{MasterCard(2007),cit. n.59} 131_{Idem, paras.289-290} 132_{Idem,paras.555 et seq.}

133_{On this point Garello,cit n.41, pag.20-23}

134_{For instance, in reply to the Commission's questions, the Danish Bank affirmed "the prohibition of merchant fees in} Denmark led to an untenable situations, since it would not allow the scheme to operate on commercial basis" (footnote 676). Furthermore, it appears that in Finland, in the absence of the MIFs, annual cardholder fees were "unusually high, particularly the highest in Europe" (para. 573). Finally, MasterCard produced evidence that in Australia, after the introduction of a regulation capping MIFs, there was a sharp increase in cardholders' costs, accompanied by the reduction of certain benefits.

The development of an effects-based approach in the antitrust assessment of EU card payment markets