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COMMON MARKET LAW REVIEW
CONTENTS Vol. 56 No. 1 February 2019
Editors and publishers: Ernst Steindorff 1-2
Editorial comments: 2019 Shaping up as a Challenging year for the
Union, not least as a Community of Values 3-22
Articles
J. Hojnik, Tell me where you come from and I will tell you the price:
Ambiguous expansion of prohibited geographical price
discrimination in the EU 23-60
L. Mancano, Storming the Bastille: Detention conditions, the right to
liberty and the case for approximation in EU law 61-90
S. Bartolini, In the name of the best interests of the child: The
principle of mutual trust in child abduction cases 91-120
O. Brook, Struggling with Article 101(3) TFEU: Diverging
approaches of the Commission, EU Courts, and five
Competition Authorities 121-156
Case law
A. Court of Justice
EU autonomy and investor-State dispute settlement under inter se
agreements between EU Member States: Achmea,
C. Contartese and M. Andenas 157-192
Religion, discrimination and the EU general principles’gospel:
Egenberger, L. Lourenço 193-208
The ECJ and the art of treaty interpretation: Western Sahara
Campaign UK, E. Kassoti 209-236
Trilogues and access to documents: De Capitani v. Parliament,
G. Rugge 237-258
Price discrimination as an abuse of a dominant position under Article
102 TFEU: MEO, C. Ritter 259-274
Book reviews 275-298
Survey of Literature 299-328
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Advisory Board:
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TELL ME WHERE YOU COME FROM AND I WILL TELLYOU THE
PRICE: AMBIGUOUS EXPANSION OF PROHIBITED
GEOGRAPHICAL PRICE DISCRIMINATION IN THE EU
JANJA HOJNIK
*
Abstract
This article outlines some of the ambiguities arising from the endeavours
of EU legislators to tackle the problem of direct and indirect price
discrimination based on nationality or residence of the customer – in this
article referred to as geographical price discrimination (GPD) under EU
free movement law. It is submitted that prohibiting direct and indirect
GPD on the sale of goods and services with an unclear system of
derogations potentially covers a variety of established pricing practices
(including uniform prices and de minimis price differences). While it is
submitted that Article 20(2) of the Services Directive should be repealed,
a cautious approach towards interpreting and applying Article 4 of the
new Geo-Blocking Regulation is suggested in order to avoid
disproportional restrictions of parties’contractual freedom, especially in
respect of traders with insignificant market power.
1. Introduction: Is your money as good as anyone else’s in the EU?
As long as trading has existed, traders have made use of price discrimination
in order to maximize their profits. A simplified definition of price
discrimination covers situations when the same product or service is sold at
different prices to different customers despite identical costs.
1
While the
Internet makes access to goods and services easier, digital technology has
added an additional element to price discrimination, as traders often have
access to detailed data on individual customers’residence and behaviour,
* PhD, EU Law Professor, Jean Monnet Chair, University of Maribor, Faculty of Law,
Slovenia; contact: janja.hojnik@um.si. Grateful thanks to Petra Weingerl for her comments on
the draft version of this article. Warm thanks also to CML Rev. editors and anonymous referees
for their helpful remarks. Any errors remain mine. Unless otherwise stated all websites were
last accessed on 31 Oct. 2018.
1. Phlips, The Economics of Price Discrimination (Cambridge University Press, 1983),
p. 5; Jones and Sufrin, EU Competition Law: Text, Cases, and Materials (OUP, 2014), p. 368.
Common Market Law Review 56: 23–60, 2019.
© 2019 Kluwer Law International. Printed in the United Kingdom.
making price discrimination a whole lot easier.
2
As Oren Etzioni put it: “in the
age of the Internet, fixed prices are a thing of the past”.
3
It thus seems that the
common expression “my money is as good as anyone else’s”may no longer
be true.
4
On the other hand, the Internet makes it easier for customers to obtain
information on prices of goods and services offered on other geographical
markets thereby making it easier to discern practices of price discrimination.
5
Although economists claim that price discrimination is one of the most
prevalent forms of marketing practice,
6
customers are only comfortable with
some of its forms – mostly in situations when they are on the lower price end.
More often than not, however, discriminatory prices for distinct groups of
customers lead to customer outrage and media scandals.
7
Due to this highly
negative stigma, price discrimination has been raising suspicions for years.
8
Under political pressure from buyers facing the higher end of discriminatory
prices, regulators have tried to respond by categorizing price discrimination as
a potentially harmful market activity.
9
The overriding objective of creating the EU’s internal market has resulted
in a greater focus on price discrimination; it was seen as inconsistent with the
goal of establishing a perfectly operating market economy, where all
purchasers pay the same price for any given product.
10
Historically, drawing
upon models provided by US competition law,
11
the drafters of the Treaty of
Rome prohibited price discrimination that conflicted with the Treaty’s goals
in the field of competition law. Price discrimination in international trade was
also targeted through anti-dumping provisions. Nevertheless, since the EU
internal market lacks full integration, price dispersion and differences in
2. Begg, Fischer and Dornbusch, Economics (McGraw-Hill, 2005), p. 138.
3. Angwin and Mattioli, “Coming soon: Toilet paper priced like airline tickets”, Wall Street
Journal (5 Sept. 2012).
4. Miller, “What do we worry about when we worry about price discrimination: The law
and ethics of using personal information for pricing”, 19 Journal of Technology Law & Policy
(2014), 41, 93.
5. Peppet, “Freedom of contract in an augmented reality:The case of consumer contracts”,
59 UCLA Law Review (2011), 676.
6. Varian, “Price discrimination”, 1 Handbook of Industrial Organization (1989), 597.
7. E.g. Martinez, “Amazon error may end ‘dynamic pricing’”, ABC News (29 Sept. 2000).
8. Papandropoulos, “How should price discrimination be dealt with by competition
authorities”, 3 Revue des droits de la concurrence (2007), 34, 37.
9. Levine, “Price discrimination without market power”, 19 Yale Journal on Regulation
(2002).
10. Furse, “Monopoly price discrimination, Article 82 and the CompetitionAct”, 22 ECLR
(2001), 149, 153.
11. ClaytonAct (ch. 323, para. 2, 38 Stat. 730 (1914)). In 1936 this Act was amended by the
Robinson-Patman Act (also known as Anti-Price Discrimination Act, 15 U.S.C. § 13), which
has been heavily criticized and rarely applied. In 2007, the Antitrust Modernization
Commission called for its repeal. Report and Recommendations, Apr. 2007, p. iii.
CML Rev. 201924 Hojnik
purchasing power between Member States remain high,
12
leaving room for
price discrimination between regional markets.
13
The occurrence of price
discrimination in the EU extends to both goods’and services’and is
occasionally resorted to by both public and private providers in virtually all
EU Member States.
From the ECJ’s case law it is well known that in the 1970s the Danes paid
much higher prices for bananas than the Dutch, while in the 1990s the
Germans paid considerably more for VWs and Audis than the Italians.
14
More
recently, two British tourists posted a photograph of a bill on Facebook to the
amount of almost 10 euros which had been charged to them by a bar at the
Croatian seaside for two cups of coffee, whereas the same bar granted locals a
price discount.
15
Similarly, Belgian tourists complained about being charged
six times more than locals in Venice for the use of public toilets;
16
rafting
companies from Hungary and Slovakia complained that Slovenian companies
enjoyed cheaper access rights to rivers in Slovenia;
17
a Slovenian newspaper
reported an Austrian-based retail chain charging Slovenian customers more
than Austrian ones;
18
a Church in Romania charged foreigners twice as much
as the locals for monastery entrance fees
19
and German and British customers
were charged more than the French when purchasing online tickets to
Disneyland in Paris.
20
Additionally,Austrian ski lift operators grant discounts
solely to Austrians, bus fares in Malta and Estonia are different for locals and
tourists
21
and car rental and airline companies regularly “adjust” their prices to
the country of origin of a customer.
22
12. Eurostat, Comparative price levels of consumer goods and services, Dec. 2017.
13. Hassink and Schettkat, “Price discrimination between EU regions”, 94 Tijdschrift voor
Economische en Sociale Geografie (2003), 258, 259.
14. Case 27/76, United Brands, EU:C:1978:22 and Case T-83/91, Tetra Pak,
EU:T:1994:246.
15. Sajovic, “Rovinj: 5 evrov za kapucˇino in locˇene cene za tujce”, RTV SLO MMC (7 Apr.
2016).
16. Kitching, “Belgian tourist files complaint over ‘exorbitant’ prices in Venice”, Daily
Mail (12 May 2015).
17. Solvit: Fair treatment for rafting companies in Slovenia, Problems solved, Goods and
Services, available at <ec.europa.eu/solvit/problems-solved/goods-services/index_en.htm>.
18. Zemljaricˇ, “Zakaj so cene v avstrijskem Hoferju nižje kot v slovenskem”, Štajerski
tednik (5 Mar. 2018).
19. Solvit: Non-discriminatory entry fees to Romanian monasteries, Discrimination,
available at <ec.europa.eu/solvit/problems-solved/discrimination/index_en.htm>.
20. Barker, “High ho! Disneyland Paris faces Brussels pricing probe”, Financial Times (28
July 2015).
21. Debono, “Discriminatory bus fares for residents: Only in Malta?”, MaltaToday.com (25
Nov. 2010).
22. European Commission, “Commission presses car rental companies to stop
discriminatory practices against consumers”, Press Release 14/917 (11 Aug. 2014);
Geographical price discrimination 25
To combat these practices, the EU legislators recently focused on price
discrimination by private traders under free movement law, prohibiting price
discrimination of customers, where segmentation is based upon the
customers’nationality or their place of residence. Such pricing practices are
referred to as geographical price discrimination (hereafter GPD). In
economic theory this term denotes a specific form of price discrimination
that involves charging a separate price to the members of each group of
customers based on their geographical compartmentalization.
23
Since
nationality and residence in most instances coincide, GPD is used in this
article to cover distinct price treatment based on nationality and place of
residence of customers – although at some points of the article, price
discrimination in respect of the factual market is distinguished from price
discrimination in respect of personal circumstances of the customer.
This article outlines some of the ambiguities in respect of broader
prohibition of GPD under EU free movement law. The first part of the article
illustrates the expansion of EU legal sources prohibiting GPD, most recently
under the Geo-Blocking Regulation,
24
which clarifies the highly controversial
Article 20 of the Services Directive (herafter also “SD”).
25
The article then
examines ambiguities related to the scope of the prohibition of direct and
indirect GPD under EU free movement law, including the problems of the
discriminatory nature of single prices and the relevance of the de minimis
price difference. The final part of the article focuses on potential objective
justifications available to traders accused of GPD.
Although EU free movement law primarily addresses GPD by public
authorities, this article focuses on implications of these prohibitions for
private traders. In this respect it is submitted thatArticle 20(2) SD needs to be
repealed and a cautious approach to interpreting Article 4 of the new
Geo-Blocking Regulation (hereafter “GBR”)is needed. In particular, a broad
understanding of GPD in economic theory is not applicable to GPD
interpretations under EU free movement law, due to the enforcement
difficulties and proportionality concerns. Moreover, since GPD seems to be
largely economically unfounded as a barrier to trade on the internal market, it
Commission SWD(2013)208 final, Report on the suitability of economic regulation of the
European air transport market and of selected ancillary services, p. 81.
23. Pigou, The Economics of Welfare, 1920 (1932, McMillan & Co.) p. 279; Malueg and
Schwartz, “Parallel imports, demand dispersion, and international price discrimination”, 37
Journal of International Economics (1994), 167.
24. Regulation (EU) 2018/302 on addressing unjustified geo-blocking and other forms of
discrimination based on customers’nationality, place of residence or place of establishment
within the internal market, O.J. 2018, L 60I/1-15.
25. Directive 2006/123/EC on services in the internal market, O.J. 2006, L 376/36-68.
CML Rev. 201926 Hojnik
is submitted that the prohibition of GPD turns out to be a technocratic excuse
for the EU’s regulatory actions in this field due to its limited competences in
the field of contract law. As such, it is a reflection of the EU legislators’efforts
to increase distributive justice in the transnational framework, thereby
inevitably colliding with differences in purchasing power of EU consumers
and deliberations on fairness of prices.
2. Expansion of EU law sources addressing GPD
2.1 Freedom of pricing as a fundamental element of the EU’s market
economy
The starting point for observing regulatory restrictions of GPD is the freedom
of pricing.
26
It means that sellers ought to be free to choose their own pricing
methods, including the right to offer different prices to different customers. As
such, freedom of pricing explicitly rejects “just price”theories, according to
which goods have an independent and objective fair price.
27
When MEP
Guoga asked what the Commission was doing to ensure that passengers at
Europe’s airports were charged fair prices for water, Commissioner Bulc
responded that the freedom of pricing was a fundamental element of the EU’s
market economy.
28
Her position is supported by Directive 93/13/EEC on
unfair terms in consumer contracts,
29
which provides that assessment of the
unfair nature of the contractual terms should not relate to the adequacy of the
price. Freedom of pricing is further warranted byArticle 16 of the EU Charter
of Fundamental Rights (hereafter: CFR), guaranteeing the freedom to conduct
business and recognizing private autonomy at the EU level.
30
The
Explanations to the Charter outline that the freedom to conduct business
entails the freedom to exercise an economic activity, freedom of contract, and
26. As the Commission noted in respect of Art. 20 SD, companies often refer to contractual
freedom: Inception Impact Assessment, cited infra note 197. See also proposal of the GBR,
COM(2016)289 final, p. 5.
27. Miller, op. cit. supra note 4, 68. Cf. Hockett and Kreitner, “Just Prices”, 27 Cornell J. of
Law & Public Policy (2018), p. 17.
28. Question to the Commission, Rule 130, Antanas Guoga, Cheaper water at airports in the
EU, E-003366-17, 16 May 2017.
29. O.J. 1993, L 95/ 29–34, Art. 4.
30. This was explicitly recognized by the ECJ in Case C-283/11, Sky Österreich,
EU:C:2013:28 and Case C-426/11, Alemo-Herron, EU:C:2013:521, para 32. See Babayev,
“Private autonomy at Union level: On Article 16 CFREU and free movement rights”, 53 CML
Rev. (2016), 979, 982.
Geographical price discrimination 27
the principle of free competition,
31
while the ECJ has ruled that the freedom of
contract as protected by Article 16 CFR includes “the freedom to determine
the price of a service”.
32
As pointed out by Advocate General Kokott in Alrosa, “(i)n a Community
which must observe the principle of an open market economy with free
competition, contractual freedom must be guaranteed”.
33
This reflects the
liberal theory that traders should be allowed to carry on their business freely,
unless there are convincing reasons to regulate it – or as the French
philosopher Alfred Fouillée put it, “qui dit contractuel, dit juste”.
34
However,
despite the fact that the EU does not (yet) set a “fair price”for water, a series
of EU legal instruments seeking to protect other “fundamental elements of the
EU’s market economy”restrict traders’contractual freedom, including their
freedom of pricing. As the ECJ held in Sky Österreich, freedom to conduct
business “may be subject to a broad range of interventions on the part of
public authorities which may limit the exercise of economic activity in the
public interest”.
35
Consequently, this freedom “is not absolute, but must be
viewed in relation to its social function”.
36
Free competition, the (digital)
single market, and endeavours to eliminate all forms of discrimination and
ensure a high level of consumer and data protection are put forward by the EU
legislators as the welfare goals that justify restraints of the freedom of pricing,
including the prohibition of private traders from applying GPD practices. The
following subsections refer to various EU legal instruments prohibiting GPD
by private traders with a view to protecting these welfare aims in the public
interest under EU competition law, free movement law, general EU
anti-discrimination law, as well as more indirectly under EU consumer and
data protection law.
31. Before the Charter entered into force, the ECJ recognized the freedom of contract as a
general principle of civil law, e.g. Case C-277/05, Société thermale d’Eugénie-les-Bains,
EU:C:2007:440, para 28.
32. Case C-283/11, Sky Österreich, para 43, Case C-70/10, Scarlet Extended, EU:C:
2011:771, para 49, and Case C-426/11, Alemo-Herron, para 35. For a comment see Weatherill,
“Use and abuse of the EU’s Charter of Fundamental Rights: On the improper veneration of
‘Freedom of Contract’”, 10 European Review of Contract Law (2014), 167.
33. Case C-441/07 P, Commission v. Alrosa, EU:C:2010:555, para 225.
34. Fouillée, La Science Sociale Contemporaine (1880); Abegg andThatcher, “Freedom of
contract in the 19th century: Mythology and the silence of the sources – Sibylle Hofer’s Freiheit
ohne Grenzen – Privatrechtstheoretische Diskussionen im 19 Jahrhundert”, 5 GLJ (2004), 101.
35. Case C-283/01, Sky Österreich, para 46.
36. Ibid., para 45.
CML Rev. 201928 Hojnik
2.2 Competition law instruments against GPD
Various pricing practices by private traders are primarily addressed by
competition law, in particular by rules prohibiting the abuse of a dominant
position. in principle, to be able to price discriminate, one must have the power
to be a price maker and not merely a price taker. In a highly competitive
market, a seller could thus not sell identical products at different prices,
because other sellers would concentrate on the high-price sector until the price
in that sector had been driven down to the price in other sectors.
37
The theory
of perfect competition therefore implies that all goods would be sold at one
price (the law of one price).
38
Consequently, economists have traditionally
noted that price discrimination arises naturally in the theory of monopoly and
oligopoly.
39
While it is nowadays admitted that price discrimination occurs in
competitive markets too,
40
it tends to be sporadic, so that customers may be in
a favoured group today and in a disfavoured one tomorrow.
41
Under EU competition law, Articles 101 and 102 TFEU prohibit
undertakings from restricting parallel imports, i.e. a conditio sine qua non for
the preservation of GPD. Article 101 TFEU applies to vertical agreements
between suppliers and customers in which suppliers agree to offer their
customers more favourable prices than those offered to others.
42
Additionally,
price discrimination by dominant undertakings among competing customers
is potentially vulnerable to attack underArticle 102(c) TFEU.The case law of
the ECJ indicates that “dissimilar conditions”also include dissimilar prices,
thereby bringing price discrimination within the scope of Article 102(c)
TFEU.
43
It is disputable in legal scholarship, however, whether this is the
appropriate legal basis for sanctioning dominant firms practising GPD.
44
In
37. Dam, “The economics and law of price discrimination: Herein of three regulatory
schemes”, 31 Univ. Chicago Law Review (1963), 5; Jones and Sufrin, op. cit. supra note 1, 387.
38. McAfee, “Price discrimination”, (2008) Issues in Competition Law and Policy,
465–466.
39. Varian, op. cit. supra note 6, 598.
40. Gifford and Kudrle, “The law and economics of price discrimination in modern
economies: Time for reconciliation”, 43 UC Davis Law Review (2009), 1235, 1247.
41. Jones and Sufrin, op. cit. supra note 1, 387.
42. “Commission fines Volkswagen ECU 102 million following consumer complaints”,
IP/98/94, 28 Jan. 1998. See also M. Waelbroeck, “Price discrimination and rebate policies
under EU competition law” in Hawk (Ed.), International Antitrus Law and Policy (Fordham,
Transnational Juris, 1996), p. 149.
43. Case 27/76, United Brands, EU:C:1978:22 and Case T-83/91, Tetra Pak,
EU:T:1994:246. More recently, Case C-23/14, Post Danmark II, EU:C:2015:651; Case
C-413/14 P, Intel, EU:C:2017:632; and Case C-525/16, MEO, EU:C:2018:270.
44. Geradin and Petit, “Price discrimination under EC competition law: Another antitrust
doctrine in search of limiting principles?”, 2 Journal of Competition Law and Economics
(2006), 479, 486.
Geographical price discrimination 29
this respect, Geradin and Petit maintain that the ECJ’s statement in United
Brands that discriminatory prices across the Member States are per se
obstacles to free movement of goods lacked economic logic: if prices of
bananas happened to be similar in all Member States, there would not be any
cross-border trade in bananas. This means that since the Commission and the
EU Courts in United Brands (and in Tetra Pak II) already banned clauses
forbidding resale, prohibiting GPD as a separate infringement was neither
desirable, nor necessary.
45
Ending the practice of partitioning the EU market
should therefore have sufficed to bring GPD to an end. Moreover, United
Brands and Tetra Pak II have been criticized because competitive
disadvantage for the dominant firms’trading parties had not been analysed
when finding that the practice of GPD amounted to abuse of a dominant
position. The need for a competitive disadvantage to occur suggests that
Article 102(c) TFEU demands that the dominant firm’s customers are in
competition with each other.
46
With GPD this is often not the case, since
customers operate on distinct geographical markets. In such instances, price
discrimination should not be challenged under Article 102(c) TFEU; this
should only apply to differential pricing practices within one and the same
market.
47
Notwithstanding these concerns, the limited case law of the EU
Courts on Article 102(c) TFEU has proved to eliminate only a very small
number of GPD practices by dominant undertakings. The EU legislature has
as a result adopted a broader prohibition of GPD under free movement law.
2.3 Prohibition of GPD under EU free movement law
In light of the above, GPD is increasingly considered not only as a form of
anti-competitive behaviour, but also as a restriction on EU fundamental
freedoms, in particular the free provision of services. Challenging GPD under
EU free movement law is considerably easier than under Article 102(c)TFEU
for two reasons in particular. First, under free movement law a competitive
disadvantage does not have to be proved, as is the case with Article 102(c)
TFEU. Secondly, while Article 102(c) TFEU addresses private traders in a
dominant position, EU free movement law addresses GPD by public bodies,
which is its traditional scope, and also GDP by private traders regardless of
their market power.
Depending on whether the trader is price discriminating in respect of the
factual market or in respect of personal circumstances of the customer, this
45. Ibid., 529.
46. Temple Lang and O’Donoghue, “Defining legitimate competition: How to clarify
pricing abuses under Article 82 EC”, 26 Fordham Int. Law Journal (2002), 83, 115.
47. Geradin and Petit, op. cit. supra note 44, 486.
CML Rev. 201930 Hojnik
article suggests a distinction between static and dynamic GPD.
48
When
traders, such as Hofer or Volkswagen, enter the buyers’regional market and
bring the products to them, but charge different prices for distinct regional
markets, the prices for customers in each Member State are still the same for
all segments of buyers on the market of that Member State.This form of GPD
is thus market dependent and is referred hereafter as static GPD. In contrast,
when traders, such as a bar in Croatia or Disneyland in Paris, operate on their
home Member State markets and customers come to their premises (or contact
them online), the traders sometimes set differential prices for distinct
segments of customers on the same regional market due to their residence.
This form of GPD is thus customer dependent and is referred hereafter as
dynamic GPD. While both forms of GPD lead to the same final result, i.e.
residents of distinct regional markets of the EU are charged distinct prices, the
prohibition of dynamic GPD establishes circumstances of trade that exist in
the trader’s Member State for all European customers (the “shop like a local”
principle). In contrast, the prohibition of static GPD attempts to establish
uniform prices across the entire EU internal market.
In its free movement case law the ECJ has held that GPD “may have an
effect on the conditions under which services are provided …, and may
therefore influence the decision of some persons to visit a country”.
49
The
ECJ has so far, however, only been asked to examine practices of GPD by
public bodies,
50
especially discriminatory admission fees to the detriment of
foreign tourists,
51
leaving it unclear whether GPD by private traders is
prohibited under TFEU provisions on free movement. In Sapod Audic the ECJ
held that an obligation arising out of a private contract “cannot be considered
a barrier to trade for the purpose of Article [34 TFEU] since it was not
imposed by a Member State but agreed between individuals”.
52
This suggests
that voluntarily made contractual terms will not amount to restrictions on
trade with goods,
53
and that GPD practices by private traders do not conflict
48. This distinction does not correspond to the distinction between static and dynamic price
discrimination in economic theory that depends on whether firms adapt their pricing over time
or not. Armstrong, “Price Discrimination”, MPRA Paper (2006), University College London.
49. Case C-45/93, Commission v. Spain, EU:C:1994:101, para 7.
50. Case 263/86, Belgian State v. René Humbel and Marie-Thérèse Edel, EU:C:1988:451.
51. Case C-45/93, Commission v. Spain; Case C-388/01, Commission v. Italy,
EU:C:2003:30. This case law has been transferred to Art. 20(1) SD. Based on this provision the
Commission has sent a reasoned opinion to Croatia, requesting it to remove measures according
to which annual fishing licences were limited to Croatian residents. Commission, “September
infringements’package”, MEMO 16/3125, 29 Sept. 2016.
52. Case C-159/00, Sapod Audic, EU:C:2002:343, para 74. This statement has not been
undermined by the ECJ’s ruling in Case C-171/11, Fra.bo, EU:C:2012:453.
53. Verbruggen, “The impact of primary EU law on private law relationships: Horizontal
direct effect under the free movement of goods and services”, 22 E.R.P.L. (2014), 201, 210.
Geographical price discrimination 31
with Article 34 TFEU. Conversely, the ECJ has recognized the horizontal
direct effect of Article 56 TFEU on the free movement of services. This is,
however, predominantly confined to private actors possessing some form of
dominance over others, thereby awarding them a capacity to impose
conditions on others who have no alternative but to accept them.
54
Both the
principled denial of the horizontal direct effect of Article 34 TFEU and the
limited horizontal direct effect of Article 56 TFEU therefore prevent
customers from relying on the TFEU provisions on fundamental freedoms to
challenge GPD practices by private traders on the internal market.
However, this is contrary to the Commission’s position that practices by
service providers that serve to create artificial borders within the internal
market need to be abolished in order to create benefits for service recipients.
55
The Commission’s stance is codified in Article 20(2) SD, which supports
services recipients’access to offers available on other Member States’
markets by explicitly prohibiting discrimination based on their nationality and
place of residence. This inter alia encompasses a prohibition of GPD by
private traders with dominant and minor market power.
56
It requires Member
States to ensure that “general conditions of access to a service, which are
made available to the public at large by the provider do not contain
discriminatory provisions relating to the nationality or place of residence of
the recipient”.
57
According to the Commission, setting a different price for the
service is – in addition to refusing to supply a customer resident in another
Member State – one of two main categories of differential treatment, which is
prohibited unless “directly justified by objective criteria”.
58
Article 20(2) SD
is highly controversial and supports wide-ranging interpretations of service
recipients’rights, considering that the term “recipients” refers to natural and
legal persons, who use services for professional or non-professional purposes,
especially when its scope is understood as covering not only trade in services
54. Babayev, op. cit. supra note 30, 1004. Referring to Case C-411/98, Ferlini,
EU:C:2000:530, para 50. See also De Sousa, The European Fundamental Freedoms: A
Contextual Approach (OUP, 2015), pp. 200–214.
55. Commission Staff Working Document, With a view to establishing guidance on the
application of Article 20(2) of Directive 2006/123/EC on services in the internal market,
SWD(2012)146 final, p. 6.
56. Art. 4 SD and Guidance on the Implementation of Directive 2005/29/EC on Unfair
Commercial Practices, Commission SWD(2016)163 final, p. 147.
57. Helberger, “Refusal to serve consumers because of their nationality or residence –
Distortions in the internal market for E-commerce transactions?”, European Parliament (2006)
Briefing Note 2006–207 iii.
58. Commission SWD, cited supra note 55, pp. 4 and 10.
CML Rev. 201932 Hojnik
but also trade in goods.
59
However, despite some initial high hopes in respect
of the ability of Article 20 SD to combat discriminatory practices by service
providers,
60
the first decade after its adoption the provision proved to be quite
ineffective. It has not reduced legal uncertainty, particularly because of the
possibility to justify the differences in treatment and the corresponding
difficulties in enforcing it in practice.
61
Consequently, Article 20(2) SD is
clarified by the new Geo-Blocking Regulation, which aims to widen customer
choice and access to goods and services
62
by defining certain situations where
different treatment based on nationality, place of residence or establishment
cannot be justified.
63
Adoption of the GBR is closely connected with the recent digital revolution
that has introduced new dimensions and challenges to price discrimination.
The Internet enables traders to offer each website customer a different price
(so-called personalized pricing).
64
Geographical differentiation of customers
is therefore only one of numerous possibilities offered by new technologies
for the segmentation of customers. In this respect, the Commission maintains
that a dynamic pricing practice, where a trader raises the price of a product
after a customer has placed it in his digital shopping bag, could be considered
a misleading action under Article 6(1)(d) of the 2005 Unfair Commercial
Practices Directive.
65
Notwithstanding this, however, the European Council
considered it necessary to call for further action to “remove the remaining
barriers to the free circulation of goods and services sold online and tackle
unjustified discrimination on the grounds of geographic location”.
66
Consequently, on 22 March 2018 the new Regulation 2018/302 prohibiting
geo-blocking entered into force.
In contrast to Article 102(c) TFEU, which addresses GPD by dominant
undertakings, the GBR addresses discriminatory practices by all market
actors. The Regulation has thus transformed EU competition law in the sense
59. Joined Cases C-360/15 & C-31/16, College van Burgemeester en Wethouders van de
gemeente Amersfoort v. XBVand Visser Vastgoed Beleggingen BV v. Raad van de gemeente
Appingedam, EU:C:2018:44.
60. Helberger, op. cit. supra note 57, iii.
61. Proposal, COM(2016)289 final, recital 3.
62. Ibid., recital 5.
63. Ibid., recital 4 and 6. However, insofar as the GBR conflicts with the provisions of the
SD, the GBR prevails.
64. See e.g. Gurley, “A deeper look at Uber’s dynamic pricing model”, Above the Crowd,
(11 Mar. 2014) and Bell, “Airbnb introduces ‘smart Pricing’to automate setting rates for hosts”,
Mashable, (12 Nov. 2015).
65. Directive 2005/29/EC of 11 May 2005 concerning unfair business-to-consumer
commercial practices in the internal market, “Unfair Commercial Practices Directive”, O.J.
2005, L 149/22–39. See Guidance, cited supra note 55, pp. 146–147.
66. European Council meeting (25 and 26 June 2015), Conclusions, p. 7.
Geographical price discrimination 33
that it prosecutes practices that are consistent with the latter: while Article 102
TFEU focuses on undertakings with a dominant position, the Regulation
addresses traders regardless of their market power. It is provided in the
preamble to the Regulation that when traders segment the internal market
along internal frontiers, the rights of customers are restricted. In this respect,
the term “customers” refers to both EU consumers and undertakings
established in the EU that receive services or purchase goods for the purpose
of end use. Even though the Regulation restricted its scope in comparison to
the Services Directive, it still circumvents the EU’s lack of competence in
contract law outside the consumer domain. The Regulation seeks to address
direct as well as indirect discrimination, thus also covering unjustified
differences of treatment on the basis of other distinguishing criteria which lead
to the same result, e.g. on the basis of the IP address used when accessing an
online interface, the address submitted for the delivery of goods, the language
choice made or the Member State where the customer’s payment instrument
has been issued. It is expressly stated that prohibited discriminatory general
conditions of access to goods and services inter alia include prices.
67
In
contrast to the Services Directive, which addresses dynamic and static GPD,
the Regulation seems to only address dynamic GPD.
68
This form of GPD is of
a more personal nature as it primarily concerns the issue of who has purchased
a commodity, rather than where it has been purchased, and as such it more
directly affects the customers’perception of its unfairness.
Although it is foreseen that the Commission will regularly analyse whether
the scope of the GBR should be extended to services falling outside the scope
of the Services Directive,
69
the Regulation currently only refers to three
trading situations. Firstly, to the supply of goods in circumstances when the
trader in its general terms and conditions offers delivery to the Member State
of the buyer or when the latter agrees to pick up the goods at a location to
which the trader supplies. In this situation the customer should be able to
purchase goods under the same conditions as the trader’s home Member State,
including price. Secondly, the Regulation applies to electronically supplied
services that do not include providing access to copyright protected works
(e.g. cloud services), where no physical delivery is needed; and thirdly, to
services which are received in the Member State of the trader, usually on the
providers’premises.
70
Discriminatory prices by the Croatian bar, Disneyland
in Paris, Austrian ski lifts and car rentals fall in the last category. The
67. Proposal, COM(2016)289 final, recital 15. On the other hand, terms and conditions that
are individually negotiated between the trader and the customers are not considered to be
general conditions of access.
68. Ibid., Art. 4(2).
69. Ibid., recital 37.
70. Ibid., recital 23–25; Art. 4.
CML Rev. 201934 Hojnik
Regulation adopted an “encouraging” approach to situations, where a trader
offers a bundle that combines several services or a bundle of goods combined
with services, where some of them fall within the scope of the Regulation
while others do not. In such situations, traders are obliged to respect the
prohibition of discrimination under the Regulation for the part of the bundle
that falls within its scope only, but are encouraged to respect it for the whole
bundle.
71
Since international transportation services like transportation of persons
and goods by bus, rail, ship or plane, including local transport, taxis and
ambulance services are excluded from the Services Directive, it is notable that
direct or indirect GPD is explicitly prohibited by several sector-specific pieces
of EU legislation in the field of transport services that apply to air transport,
72
maritime transport
73
and bus and coach transport.
74
Discriminatory bus fares
in Malta and Estonia to the detriment of tourists, mentioned in the
introduction, are thus contrary to this directly applicable EU legislation.
Nevertheless, cable cars, chair lifts and tow lifts with the purpose of
transporting persons in tourist areas are not considered exclusively as
transportation services and therefore fall under the Services Directive and in
certain situations under the GBR.
75
It follows that although freedom to conduct business is inherently linked
with fundamental freedoms,
76
and that free movement law serves to extend
party autonomy across borders and prohibits restrictions on contracts with an
interstate element,
77
free movement law does not always guarantee freedom of
contract, and may even restrict it as it embodies both the power to interfere
with contractual freedom and contractual freedom itself.
78
This situation is
71. Ibid., recital 10.
72. Art. 23(2) of Regulation (EC) 1008/2008 on common rules for the operation of air
services in the Community, O.J. 2008, L 293/3–20.
73. Art. 4(2) of Regulation (EU) 1177/2010 concerning the rights of passengers when
travelling by sea and inland waterway, O.J. 2010, L 334/1–16.
74. Art. 4(2) of Regulation (EU) 181/2011 concerning the rights of passengers in bus and
coach transport, O.J. 2011, L 55/1–12. It is intended that Regulation (EC) 1371/2007 on rail
passengers’rights and obligations (O.J. 2007, L 315/14) will be amended to contain prohibition
of discrimination in the near future. See recital 9 GBR.
75. Thereby inter alia covering advantageous rates for local residents for taking a cable car
in the Tyrolean ski area <europakonsument.at/en/page/advantageous-rates-local-residents>.
76. E.g. in Sokoll the ECJ held that Art. 16 refers inter alia to Art. 49 TFEU. Case
C-367/12, Sokoll-Seebacher, EU:C:2014:69, para 22. See also Verbruggen op. cit. supra note
53, 202.
77. Grundmann, “Information, party autonomy and economic agents in European contract
law”, 39 CML Rev. (2002), 269, 270; Davies, “Freedom of movement, horizontal effect, and
freedom of contract”, 20 E.R.P.L. (2012), 805, 808.
78. Schepel, “Freedom of contract in free movement law: Balancing rights and principles in
European public and private law”, 21 E.R.P.L. (2013), 1211, 1213.
Geographical price discrimination 35
reflected in the prohibition of GPD, premised upon recipients of services and
purchasers of goods, who rely on free movement law when traders use
differential prices across the internal market.
2.4 Prohibition of GPD under EU anti-discrimination law
The prohibition of GPD under EU free movement law is moreover a category
within a more general GPD prohibition under EU anti-discrimination law.
Based on the general prohibition of discrimination based on nationality as
enshrined in Article 18 TFEU, the ECJ has struck down GPD practices by
public bodies directed towards non-residents. The ECJ held that any citizen of
the Union, exercising the right to move and reside within the territory of the
Member States, may rely on Article 18 TFEU when confronted with
discriminatory pricing practices by the host Member States, which runs
contrary to dynamic GPD.
79
Even so, the ECJ’s approach towards granting
Article 18 TFEU horizontal direct effect has been cautious
80
and has so far not
reached GPD practices by private traders.
Conversely, the freedom of pricing has often been circumvented by private
traders, namely by means of other forms of discrimination. The EU Race
Equality Directive
81
prohibiting discrimination on the grounds of racial or
ethnic origin and aiming to ensure “the development of democratic and
tolerant societies”
82
applies to both public and private persons, inter alia in
respect of access to and supply of goods and services.
83
Charging higher
prices for goods or services to customers of a certain race is thus contrary to
this directive.
84
Moreover, Article 21 CFR has been successfully, though
controversially, enforced by customers to combat price discrimination. In its
judgment in Test-Achats,
85
the ECJ struck down Article 5(2) of Directive
2004/113
86
which allowed Member States to maintain an exception from the
79. Case C-103/08, Arthur Gottwald, EU:C:2009:597; Case C-75/11, Commission v.
Austria, EU:C:2012:605. See also Case 293/83, Françoise Gravier v. City of Liège,
EU:C:1985:69.
80. Case 36/74, Walrave and Koch, EU:C:1974:140 and Case C-411/98, Ferlini,
EU:C:2000:530. For a comment see De Mol, “The novel approach of the CJEU on the
horizontal direct effect of the EU principle of non-discrimination: (Unbridled) expansionism of
EU law?”, 18 MJ (2011), 109, 115–117.
81. Directive 2000/43/EC on the principle of equal treatment between persons irrespective
of racial or ethnic origin, O.J. 2000, L 180/22-26.
82. Ibid., recital 12.
83. Ibid., Art. 3.
84. See e.g. Ayres, “Fair driving: Gender and race discrimination in retail car negotiations”,
(1991) Harvard Law Review, 817.
85. E.g. Tobler, annotation of Case C-236/09, Test-Achats, 48 CML Rev. (2011), 2041.
86. O.J. 2004, L 373/37–43.
CML Rev. 201936 Hojnik
principled unisex insurance premiums, as this worked against the
achievement of the objective of equal treatment between men and women and
was as such incompatible with Article 21 CFR. The same Directive may thus
be interpreted as prohibiting a number of other price discrimination practices
based on sex that may be considered as shielded by private autonomy (e.g.
“ladies night out” practice;
87
more expensive pink razors than blue ones; or
gender-based prices in hairdressing salons
88
). What is more, Article 21 CFR
could potentially also be relied upon against very common practices of price
discrimination based on age. Following the ECJ’s decisions in Mangold
89
and
Kücükdeveci
90
it is open to clarification whether Article 21 CFR could be
interpreted as prohibiting price discrimination based on age, such as various
discounts for students and pensioners. Admittedly, two ECJ cases on
discriminatory admission fees to Spanish and Italian monuments guaranteed
price discounts only to persons below the age of 21 and over the age of 65
respectively;
91
yet, the ECJ was concerned only with the distinction based on
nationality and residence. As both these cases appeared before the ECJ several
years before Mangold, the effect of the non-discrimination principle based on
age on the pricing practices is still uncertain.
This leads to the conclusion that price discrimination is increasingly treated
as a conventional form of discrimination, despite Steppe’s point that
“whereas the word ‘discrimination’traditionally bears a negative connotation,
the term ‘price discrimination’ should be read neutrally”.
92
A business ethics
scholar Elegido furthermore claims that price discrimination in itself is a
morally neutral practice that traders are entitled to use if it advances their
morally legitimate interests.
93
It is thus impossible to formulate a blanket
assessment determining whether price discrimination is desirable or not
without looking at the pricing rationale behind it. While prohibition of
discrimination based on race promotes tolerance, GPD is usually not a sign of
intolerance, but rather a response to the differing competitive conditions on
Member States’markets which traders try to exploit in order to increase their
profit. Economically-driven GPD should thus not be considered in the same
87. I.e. a promotional event in a bar or nightclub where female customers pay less than male
ones for admission or a drink. In the US, this practice has been troubling federal and State courts
for years.
88. On discriminatory prices in German hair salons, see Hofmann, “Neue Studie: Sie zahlt
mehr als er – manchmal”, ZDF.de (20 Dec. 2017).
89. Case C-144/04, Werner Mangold v. Rüdiger Helm, EU:C:2005:709.
90. Case C-555/07, Seda Kücükdeveci v. Swedex, EU:C:2010:21.
91. Case C-45/93, Commission v. Spain and Case C-388/01, Commission v. Italy.
92. Steppe, “Online price discrimination and personal data: A general data protection
regulation perspective”, 33 Computer Law & Security Review (2017), 768–769.
93. Elegido, “The ethics of price discrimination”, 21 Business Ethics Quarterly (2011),
633, 639–641.
Geographical price discrimination 37
way as non-economically driven GPD, even though the latter is easily depicted
as the former and vice versa, which makes the distinction difficult to evaluate
in practice. Nevertheless, as with other aspects of constitutionalization of EU
private law, the ECJ’s exercise of self-restraint is favoured also with respect to
the prohibition of GPD.
94
2.5 Consumer law instruments deterring GPD practices
Moreover, consumer protection as enshrined in Article 38 CFR and in
Articles 12 and 169 TFEU sometimes speaks against sellers’freedom of
pricing. In McDonagh v. Ryanair
95
the ECJ ruled that Article 38 CFR, which
seeks to ensure a high level of protection for consumers, must be taken into
account, leading to the conclusion that the restriction of the freedom to
conduct business was not unjustifiably restricted.
96
In this respect EU
consumer law inter alia also affects GPD practices by private traders.Albeit it
does not prohibit GPD directly, a price transparency obligation is an important
instrument for indirectly diminishing GPD practices, as it allows consumers to
detect such practices more easily and avoid transactions with traders applying
GPD.
97
In many cases advantageous rates for local residents are not officially
advertised at ticket offices
98
and tourists feeling cheated is not due to GPD but
due to non-transparent price lists – coupled with the fact that they are not
translated into languages tourists are familiar with.
99
EU consumer law accepts price comparison as a basic element of
competition. Although there is no obligation for producers to be transparent
regarding the price of the same product in another EU Member State, a series
of EU legislative instruments demands that prices are communicated
transparently.
100
What is more, transparency in the pre-contractual phase (in
addition to a “cooling-off”period within which the consumer is entitled to
withdraw from an agreed deal) presents the basis upon which EU consumer
94. Cherednychenko and Reich, “The constitutionalization of European private law:
Gateways, constraints, and challenges”, 23 E.R.P.L. (2015), 809.
95. Case C-12/11, Denise McDonagh v. Ryanair Ltd,EU:C:2013:43.
96. Ibid., paras. 59–65. More on this in Benohr, EU Consumer Law and Human Rights
(OUP, 2013).
97. In this respect, the 2013 European Retail Action Plan (COM(2013)36) only stresses the
need for consumers to be able to compare prices and not the need to prohibit price
discrimination.
98. Advantageous rates for local residents, European Consumer Centre Austria,
<europakonsument.at/en/page/advantageous-rates-local-residents>.
99. McGuire, “Tourists call police after Venice restaurant charges them £970 for basic
meal”, The Sun (22 Jan. 2018); Kington, “Rome ice cream price row reignited as US tourists
call police over £33 bill”, Telegraph (31 July 2014).
100. E.g. Art. 22 SD; Directive 98/6/EC on consumer protection in the indication of the
prices of products offered to consumers, O.J. 1998, L 80/ 27–31.
CML Rev. 201938 Hojnik
law is premised.
101
This contributes to the economics of information, finding
that as information is distributed more efficiently, the opportunities for easy
profits on the side of the sellers shrink and so does price discrimination.
102
For
price discrimination to work, customers have to be unaware of (or indifferent
to) this kind of discrimination if sellers want to avoid their outrage and
consequential media scandals. Economic studies confirm that the public’s
dislike of unfairness is a powerful factor in restricting the spread of price
discrimination strategies.
103
Consequently, should EU rules on transparent
pricing be consistently enforced, the probability of traders’price
discriminating would be reduced – as well as the need for prohibiting GPD.
2.6 Data protection law discouraging GPD practices
Finally, price discrimination based on buyers’demographics, including GPD,
may in the future be combated by means of increasing transparency focus
upon the issues of privacy and data protection. This is more and more
important considering that Big Data analysis technologies give new
possibilities for personalized pricing.
104
In this respect, the e-Privacy
Directive
105
permits the use of “cookies” only with the users’informed
consent. Moreover, traders that track and collect customer preferences (and
potentially use them for price discrimination practices) must comply with EU
rules on data protection aiming to ensure that processing of personal data takes
place fairly, lawfully, and transparently.
106
In line with the ECJ’s broad
interpretation of the concept of personal data,
107
commentators agree that the
requirement to be transparent about the purpose of personal data processing
implies that companies inform customers about price adjustment based on
101. Weatherill, EU Consumer Law and Policy (Edward Elgar Publishing, 2013), p. 84.
102. Bakos, “Reducing buyer search costs: Implications for electronic marketplaces”, 43
Management Science (1997), 1676; Lewis and Sappington, “Supplying information to facilitate
price discrimination”, 35 International Economic Review (1994), 309.
103. Odlyzko, “Privacy, economics, and price discrimination on the Internet”, Proceedings
of the 5th international conference on Electronic commerce (ACM 2003); Edwards, “Price and
prejudice: The case against consumer equality in the information age”, 10 Lewis and Clark Law
Review (2006), 559.
104. A White House report notes that many companies already use Big Data for targeted
marketing, including personalized pricing: Council of Economic Advisors, “Big Data and
Differential Pricing”, (2015) Exec. Office of the US President, 2–4.
105. Directive 2002/58/EC concerning the processing of personal data and the protection of
privacy in the electronic communications sector, O.J. 2002, L 201/37-47.
106. Art. 5(1)(a) of Regulation (EU) 2016/679 on the protection of natural persons with
regard to the processing of personal data and on the free movement of such data, O.J. 2016, L
119/1–88; Art. 8 CFR.
107. See e.g. Case C-582/14, Breyer, EU:C:2016:779, where the ECJ held that a dynamic
IP address of a website visitor can be a piece of personal data for a website publisher.
Geographical price discrimination 39
their personal data, although making online price discrimination transparent
through the application of data protection law will require a number of legal
issues to be cleared in the future.
108
2.7 Distributive justice in the cross-border context
This multi-tier prohibition of GPD may be seen as the EU legislators’attempt
to respond to customer resentment towards GPD and increasing distributive
justice in the cross-border context, thereby restricting certain groups of
citizens being disadvantaged.
109
Prohibition of GPD thus establishes equality
among customers, so that individuals who receive the same (or similar)
commodity should invest the same (or similar) amount of money regardless of
their nationality or residence.
110
As the Study Group on Social Justice in
European Private Law pointed out “(a) modern concern to strike a balance
between private autonomy and fairness characterizes the heart of discussions
about the appropriate principles of contract law”, highlighting that the
“project of harmonization of European private law clearly goes far beyond the
needs of business to help to facilitate a competitive Internal Market in
Europe”.
111
In this respect the Commission focused on assuring “a fairer
Single Market”in the Single Market Strategy.
112
Despite such a politically
attractive goal, demands for social solidarity must be balanced with individual
private autonomy as expressed in contractual freedom.
113
As noted by
Leczykiewicz, while the EU creates opportunities to incorporate
considerations of justice into the regulation of contractual transactions, it also
poses threats of over-regulation and over-enforcement, disregarding
traditional concerns of contract law, such as legal certainty, parties’
expectations and private autonomy.
114
A wide-ranging prohibition of GPD
under EU free movement law, irrespective of the market power of the trader,
opens a number of ambiguities for traders, customers and the judicial system.
Due to the principle of proportionality, restrictions on freedom to pursue an
economic activity may be imposed “provided that those restrictions
correspond to an objective of general interest pursued by the Union and do not
108. Steppe, op. cit. supra note 92, 768; Zuiderveen Borgesius and Poort, “Online price
discrimination and EU data privacy law”, 40 Journal of Consumer Policy (2017), 347.
109. Hesselink et al., “Social justice in European contract law: A manifesto”, 10 ELJ
(2004), 653.
110. More on this in Forsyth, Group Dynamics (Cengage Learning, 2018), p. 388.
111. Hesselink et al., op. cit. supra note 109, 654–656.
112. Commission Communication, Upgrading the Single Market: more opportunities for
people and business, COM(2015)550.
113. See also Hesselink et al., op. cit. supra note 109, 656.
114. Leczykiewicz in Brownsword, Van Gestel and Micklitz, Contract and Regulation: A
Handbook on New Methods of Law Making in Private Law (Edward Elgar, 2017), p. 368.
CML Rev. 201940 Hojnik
constitute...a disproportionate and intolerable interference affecting the
very substance of the rights thus guaranteed”.
115
Although it may be
established from the Treaty and the Charter that free competition, single
market, consumer and data protection are such objectives of general interest,
prohibition of GPD under the Services Directive and Geo-Blocking
Regulation does not always proportionally restrict the freedom of pricing.
Moreover, the prohibition of GPD by private traders faces enforcement
difficulties due to the unclear scope of this prohibition.
The next section addresses several problems in this respect, such as the
complexity of comparing the cost of two products, the unclear scope of direct
and (in particular) indirect GPD under free movement law, the question of
whether GPD, with respect to trade with goods and services, should be
regulated convergently, how to approach the discriminatory nature of single
(uniform) prices; and finally, whether even insignificant price differences
amount to prohibited GPD.
3. Ambiguous scope of the prohibition of direct and indirect GPD
3.1 Different price for the same product or service despite identical
costs
Traders accused of prohibited GPD under Article 20(2) SD and Article 4
GBR, carry a heavy burden of explaining the logic behind two prices, while
courts are faced with the burdensome balancing of conflicting interests
between traders and customers. Cross-border price comparisons in respect of
static GPD are particularly complex and call for detailed considerations by the
courts in order to establish the occurrence of GPD. If EU regulators and courts
accept a simpler definition of price discrimination limited to the comparison
of prices of the same products and services, the prohibition of GPD will be
difficult to investigate in a cross-border perspective since products and
services are seldom absolutely homogenous.
116
Even in respect of the “Big
Mac”, the most (in-)famous result of the economists’search for truly
homogenous products,
117
it has eventually been found that the latter’s
packaging differs and that in some regions ketchup is included in the price,
115. Case C-283/01, Sky Österreich, para 50. See also Case C-5/88, Wachauf,
EU:C:1989:321, para 18 and Case C-292/97, Karlsson, EU:C:2000:202.
116. Hassink and Schettkat, op. cit. supra note 13, 258.
117. This led the Economist to invent the so-called Big Mac index in 1986 as an interactive
currency-comparison tool.
Geographical price discrimination 41
while in others it is an extra.
118
The prohibition of static GPD in respect of the
same products encourages sellers to use different labels, packaging, different
trademarks in different EU Member State markets and similar factors that
differentiate products in the public mind for the purpose of creating a belief
that different products are involved, thereby justifying differential pricing.
119
The situation becomes even more ambiguous if a broader definition of price
discrimination is adopted, taking similar products into account. It is broadly
acknowledged that differentiated products can also be sold at discriminatory
prices. Consequently, Stigler claims that prices are discriminatory when two
or more similar goods are sold at prices that are in different ratios to marginal
costs.
120
Implementing such a definition of price discrimination into EU law
would however lead to wide-ranging price comparisons not only of the same
commodities, but also of those that are (more or less) similar, including
different versions of products (such as hardcover and paperback books),
placing traders in severe uncertainty when setting prices.
The prohibition of GPD under Article 20(2) SD and Article 4 GBR
furthermore places a burdensome obligation upon the courts enforcing this
prohibition to ascertain the cost of the product or service for which different
prices are charged. In this respect, it is noteworthy that diverse research has
shown that customers perceive price discrimination as unfair, because they
assume the cost of the two products is the same. However, as they only have
limited knowledge and judge the fairness of prices and cost issues
spontaneously, they are biased and tend to underestimate the full costs of the
seller.
121
The ECJ indicated in United Brands that inter alia “differences in
transport costs, taxation, customs duties, the wages of the labour
force...mayeventually culminate in [a] different retail selling price”.
122
This reasoning is reflected in the Services Directive under the scope of
objective reasons available to a defendant accused of breaching Article 20.
Difference in price may accordingly be justified by “additional costs incurred
because of the distance involved or the technical characteristics of the
provision of the service”.
123
While the Services Directive considers cost
difference as a justification for discriminatory prices, this is contrary to the
118. Rogoff, “The purchasing power parity puzzle”, 34 Journal of Economic Literature
(1996), 647.
119. Levine, op. cit. supra note 9, 16.
120. Stigler, The Theory of Price (Macmillan, 1987), p. 210.
121. Garbarino and Lee, “Dynamic pricing in internet retail: Effects on consumer trust”, 20
Psychology & Marketing (2003), 495; Fassnacht and Unterhuber, “Consumer response to
online/offline price differentiation”, 28 Journal of Retailing and Consumer Services (2016),
137–139.
122. Case 27/76, United Brands, para 228.
123. Recital 95 of the preamble to the SD.
CML Rev. 201942 Hojnik
established position that when cost differences justify price differences
between apparently similar products, one should not speak of price
discrimination.
124
Price discrimination should thus only be spoken of when it
is undesirable or illegal.
125
This position is in line with the principled
exclusion of economic arguments as objective justifications for
discriminatory trading practices by the ECJ, as well as with the exclusion of
objective justifications for price discrimination under the Geo-Blocking
Regulation, while it nevertheless recognizes that charging additional delivery
costs does not amount to discrimination.
Legal review of the cost component is complex due to the need for an
economic analysis that has traditionally been avoided under EU free
movement law. The courts need to consider a myriad of different cost
components to ascertain whether the cost difference justifies the ultimate
price difference. Prima facie discriminatory prices need to be corrected for the
transportation and storage costs. Incremental costs of sales to different
purchasers tend to increase with the distance of the purchaser from the point of
production because goods must be transported to purchasers. Classic
economic studies have shown that products which only vary in location are
perceived as differentiated,
126
and the consequent difference in price may
therefore not be considered as discriminatory. As Debreu emphasizes, “(a)
good at a certain location and the same good at a different location are
different economic objects”.
127
Consequently, as a product in the main
shopping street does not come at the same price as in an adjacent street,
128
buying petrol on a motorway and water at an airport is often more expensive
than in shops on high streets.
129
Moreover, in light of storage costs the delivery
dates of two products need to be taken into account when assessing price
discrimination.
130
Service differentiation is also an important source of price
difference for products:
131
a product sold in a stylish shop with exquisite
furnishing and professional advisory staff is usually sold at a higher price than
the same product in a smaller self-service shop. It could also be argued that
differences regarding the moment in which sales are made renders two
124. Elegido, op. cit. supra note 93, 635.
125. Phlips, op. cit. supra note 1, p. 17.
126. See e.g. Hotelling, “Stability in competition”, 39 The Economic Journal (1929), 41.
127. Debreu, Theory of Value: An Axiomatic Analysis of Economic Equilibrium (Yale
University Press, 1959), pp. 29–30.
128. Segre, “The Champs-Élysées is no longer the most expensive shopping street in
Europe: Here’s the spot that’s taken over”, Business Insider (17 Nov. 2017).
129. Steer, “How motorway service stations push up prices”, (4 July 2013); “Are airport
newsstands gouging travelers with overpriced water bottles?”, Fox N e w s (9 Mar. 2015).
130. Phlips, op. cit. supra note 1, pp. 5–6.
131. Cao and Gruca, “The influence of pre-and post-purchase service on prices in the online
book market”, 18 Journal of Interactive Marketing (2004), 51.
Geographical price discrimination 43
transactions non-equivalent thereby majorly impacting prices imposed by
sellers (e.g. airline tickets, seasonal commodities and perishable
foodstuffs).
132
Furthermore, legal review of cost rationale for GPD must
consider local costs that can be attributed to various kinds of distribution costs
(e.g. advertising, marketing, servicing, selling costs incurred by importers and
dealers, including salaries of sales people, real estate costs etc.).
133
In this
respect, a study of EU car prices has shown that local costs are estimated to
account for between 35 and 40 percent of the price of a car and are presumably
comparable to the local distribution costs in other industries.
134
Moreover,
local costs vary significantly across the EU Member States due to distinct
organizational structures, management styles, distinct efficiency and quality
of production, as well as labour productivity and strength of distribution
channels.
135
The differences due to taxes also play a significant role. Another
important aspect concerns common costs, such as rent, costs of general
management, brand advertising and R&D, costs of operating a network etc.,
which very often represent a significant proportion of total costs. No unit can
be produced without joint input; however, incremental common costs cannot
be assigned to any particular product or class of users. Prohibition of price
discrimination presupposes perfect separability of costs, something that is
often not possible in the real world.
136
It is clear that these costs must be
recovered for the firm to stay in business; it is less clear, however, to which
unit of product or service they should be assigned to, and more importantly,
how courts can rule on the appropriate part of the common costs to be
attributed to a unit of a product under suspicion of being sold at discriminatory
prices.
It may thus be concluded that there is sometimes complex economic logic
behind prima facie discriminatory prices, in particular in respect of static
GPD. Challenging such practices in courts puts the latter in a difficult
position, especially considering, as claimed by Nagle, that “pricing is an art,
which is beyond neither critical judgement nor scientific analysis, and
requires talent, but also knowledge of the principles of economics”.
137
While
GBR is clear about not extending its scope to static GPD,
138
Article 20(2) SD
132. Geradin and Petit, op. cit. supra note 44, 486.
133. Goldberg and Knetter, Goods Prices and Exchange Rates: What have we Learned?,
(NBER, 1996).
134. Goldberg and Verboven, “Cross-country price dispersion in the euro era: A case study
of the European car market”, 19 Economic Policy (2004), 484.
135. Taušer et al., “Comparative price levels of new EU Member Countries”, 39
International Journal of Management & Economics (2014), 9–16.
136. Levine, op. cit. supra note 9, 8–17.
137. Nagle, “Economic foundations for pricing”, 57 Journal of Business (1984), S3.
138. Regulation 2018/302, cited supra note 24,Art. 4(2).
CML Rev. 201944 Hojnik
is not so clear, which is one of the main aspects that call for the repeal of this
provision.
3.2 Direct and indirect GPD under EU free movement law
It is further unclear what “direct and indirect GPD”under EU free movement
law entails, which may cause legal uncertainties and a need for interpretation
by the EU Courts. In economic theory direct price discrimination applies to
situations where customers are divided by geography, nationality, age, and
purchasing history; in contrast, indirect price discrimination refers to a setting
where a list of options is offered to all, and customers choose the option that is
best for them, taking into consideration quantity discounts, coupons and
versioning. On the other hand, direct discrimination under EU free movement
law refers to measures that formally, that is explicitly, distinguish by the factor
in question (e.g. the buyer’s nationality).
139
Indirect discrimination, on the
contrary, involves requirements which, while apparently nationality-neutral,
have a greater impact on nationals of other Member States.
140
Both direct and
indirect GPD under EU free movement law thus constitute direct GPD as
defined under economic theory (i.e. third-degree price discrimination).
Although economic literature on price discrimination is very extensive,
141
proposing different nomenclatures, price discrimination in law is therefore
not always the same as in economics. In this sense, Dam argued that the two
are nothing more than an “unfortunate coincidence of labels”.
142
While later
scholars endeavoured to reconciliate the two,
143
such attempts are puzzling,
especially when prohibiting GPD outside the realm of competition law.
Though delineation between direct and indirect price discrimination in
economic theory is often applied in competition law, Article 20(2) SD and
Article 4 GBR operate with similar terms but with dissimilar significance.
Moreover, EU free movement rules cannot prohibit every aspect of GPD as
understood in economic theory, for it would face vast enforcement difficulties
and claims of disproportional restrictions on the freedom of pricing.
139. Davies, Nationality Discrimination in the European Internal Market (Kluwer, 2003),
pp. 10–11.
140. Barnard, The Substantive Law of the EU:The Four Freedoms (OUP, 2016), p. 219. The
ECJ held that “non-residents are in the majority of cases foreigners”. Case C-224/97, Ciola,
EU:C:1999:212, para 14.
141. Pigou, op. cit. supra note 23, Hassink and Schettkat, op. cit. supra note 13, 259,
McAfee, op. cit. supra note 38.
142. Dam, “The economics and law of price discrimination: Herein of three regulatory
schemes”, 31 The University of Chicago Law Review (1963), 1.
143. Gifford and Kudrle, op. cit. supra note 40, 1235.
Geographical price discrimination 45
Although press releases of the EU institutions justify prohibition of GPD at
the EU level by pointing out occurrences of direct GPD, the EU Services
Directive and the GBR also prohibit indirect GPD, which is considerably more
restrictive for freedom of pricing than direct GPD. The application of the
ECJ’s understanding of indirect discrimination under EU free movement law
to the prohibition of indirect GPD underArticle 20(2) SD and Article 4 GBR
could potentially encompass a broad range of pricing practices that are not
primarily about nationality or residence; but even so, one segment of
purchasers remains under a heavier burden than others.
144
The discriminatory
effect of such practices is not saved in situations where only some residents
are privileged, while the majority are in the same position as non-residents.
145
Perhaps the most illustrative example of the above concerns higher petrol
prices on motorways compared to prices charged at service stations elsewhere
in several EU Member States.
146
While locals are familiar with service
stations offering the cheapest fuel along their regular work or leisure travel
route, non-residents, unfamiliar with the service station network and prices in
a host Member State, will usually pay the motorway price albeit petrol could
be purchased at a lower price near the motorway exit. If indirect GPD is
interpreted consistently with the established free movement case law on
indirect discrimination,
147
such pricing practices are prohibited under Article
20 SD. The same applies to higher prices of goods and services during the
tourist peak season and at tourist attractions in European cities, targeting
non-locals to a greater extent than the locals. Situations when price discounts
are only afforded to members of a certain association could also amount to
indirect GPD.To save such practices from falling under the GPD prohibition,
the GBR provides that traders are free to make specific offers only to a
specific territory within a Member State or only for members of a certain
association provided that the reasons are unrelated to nationality, place of
residence or place of establishment.
148
These derogations, however, only apply
to the three trading situations addressed by the GBR and not to all the others
that are caught by the Services Directive.
Moreover, loyalty rebates for regular customers and those collecting
coupons could potentially also be considered a form of indirect GPD under
144. Cf. Case 261/81, Walter Rau Lebensmittelwerke, EU:C:1982:382.
145. Cf. Case 127/75, Bobie Getränkevertrieb GmbH v. Hauptzollamt Aachen-Nord,
EU:C:1976:95.
146. Website Jerrican.eu offers information on cheapest service stations located on main
roads for travellers across Europe.
147. See e.g. Case 152/73, Sotgiu v. Bundespost, EU:C:1974:13 and Case C-237/94,
O’Flynn, EU:C:1996:206, para 20.
148. Recital 27 of Regulation 2018/302.
CML Rev. 201946 Hojnik
Article 20(2) SD and Article 4 GBR, considering that these in most instances
will be granted to local customers who regularly attend traders’premises.
Rather than guaranteeing price discounts to local customers, the bar owner at
the Croatian seaside could resort to a system of coupons that would award
price privileges to local customers, thereby avoiding accusations of direct
GPD.The same result of price favouring would thus be achieved indirectly. In
the same way, prices of short-term (daily or weekly) tickets, admission fees
and licences that are disproportionate to the price of the annual ones also
burden non-local purchasers to a far greater extent than the locals who tend to
obtain annual tickets and permits. Assumptions that such practices could
amount to prohibited GPD under Article 20(2) SD and Article 4 GBR are
substantiated by the fact that the Commission has recently proposed a new
approach to national road toll laws, where time-based user charges would
gradually be replaced by distance-based charges.
149
Additionally, as online and offline traders are no longer separated and
multi-channel retailing is becoming a popular business model with numerous
retailers using both conventional retail stores and the Internet to sell their
products and services, sellers are deciding whether to price at parity across
channels or to sell the same product at different prices in different channels.
150
However, in line with the ECJ’s reasoning in DocMorris,
151
channel-based
price differentiation could be considered as a form of indirect GPD under
Article 20(2) SD and Article 4 GBR in cases where online prices are higher
than offline ones. In DocMorris the ECJ held that for pharmacies not
established in Germany, the Internet provides a more significant way to gain
direct access to the German market than for German pharmacies for whom the
online method only represents an extra method of accessing the end consumer
in addition to their dispensaries.
152
Mutatis mutandis, online selling is also a
more important method of gaining access to the products sold by traders for
buyers from other EU Member States, who thereby escape the need to travel to
the Member State where the particular product is sold offline. Applying the
DocMorris interpretation of indirect discrimination to such pricing practices
could thus mean that (higher) online prices affect foreign buyers more than
domestic ones, even in situations where they do not discriminate on the basis
149. Stupp, “15 EU countries will be forced to change road toll laws under draft rules”,
EURACTIV, 30 May 2017.
150. Fassnacht and Unterhuber, “Consumer response to online/offline price
differentiation”, 28 Journal of Retailing and Consumer Services (2016), 137.
151. Case C-322/01, DocMorris, EU:C:2003:664.
152. Ibid., para 74. The same reasoning was confirmed in Case C-148/15, Deutsche
Parkinson, EU:C:2016:776.
Geographical price discrimination 47
of the buyers’residence.
153
While such practices in principle fall within the
scope of the Services Directive, the Geo-Blocking Regulation expressly
excludes such situations from its scope, setting forth that it does not preclude
freedom of traders to offer different prices in different points of sale, such as
shops and websites.
154
Finally, it is unlikely that private GPD practices could escape EU free
movement law on the basis of the concept of reverse discrimination, i.e.
discrimination where an unexpected group is favoured,
155
such as the practice
of Volkswagen that was selling cars in Italy for a lower price than in Germany
or where offline prices are higher than online. This pricing practice is often
employed when traders enter new geographical markets and supports the
claim that the main motivation for GPD is not intolerance to foreign
customers, but economic purposes stemming from different competitive
conditions on distinct regional markets in the EU.
Traditionally, in situations that are purely internal, i.e. local persons and
goods are in a worse position than their competitors from across the border,
the persons or products involved do not benefit from EU law.
156
This concept
is, however, hardly applicable to private traders that discriminate with a view
to maximizing profit and not to enhance free movement of goods and services
across the borders of the EU Member States. This implies that the logic behind
the very concept of reverse discrimination is at odds with private traders. As
noted by Tryfonidou, reverse discrimination is “termed ‘reverse’ since it is
exercised by Member States against some of their own nationals”,
157
which
suggests that reverse discrimination cannot be exercised by private entities.
This is further supported by the fact that prohibition of discriminatory
practices under the Services Directive, as well as under the GBR suggest that
any discrimination based on the nationality or residence of the buyers is
targeted. As the Commission announced in its Single Market Strategy, it
“aims to fight comprehensively all forms of unjustified discriminatory
treatment for purchasers based in different Member States,...regardless of
153. Fedoseeva, Herrmann and Nickolaus, “Was the economics of information approach
wrong all the way? Evidence from German grocery r(E)tailing”, 80 Journal of Business
Research (2017), 63.
154. Recital 27 of Regulation (EU) 2018/302.
155. Davies, Nationality Discrimination in the European Internal Market (Kluwer, 2003),
p. 19.
156. Case 355/85, Cognet, EU:C:1986:410, para 11. For criticism see Shuibhne, “Free
movement of persons and the wholly internal rule: Time to move on?”, 39 CML Rev. (2002),
731; Maduro, “The scope of European remedies: The case of purely internal situations and
reverse discrimination”, in Kilpatrick, Novitz and Skidmore (Eds.) The Future of Remedies in
Europe (Hart Publishing, 2000), p. 117.
157. Tryfonidou, “Reverse discrimination in purely internal situations:An incongruity in a
citizens’Europe”, 35 LIEI (2008), 43, 46.
CML Rev. 201948 Hojnik
the way they take place or the technology used”.
158
The sellers’nationality
and residence seem irrelevant in this respect – they may even be established in
third countries.
159
This supports the claim that a classic understanding of (direct and indirect)
discrimination under EU free movement law should not fully apply to
practices of GPD by private traders, where on the one hand pricing practices
that are not primarily about nationality or residence are prohibited, while on
the other hand private traders are prevented from relying on the safe haven of
reverse discrimination.
3.3 Convergent prohibition of GPD on trade with goods and services
Another relevant issue in respect of prohibited GPD under EU free movement
law concerns the question to what extent rules that primarily address trade
with services also apply to trade with goods. In this respect it is submitted that
while differential treatment of GPD with regard to trade with goods and
services may make sense from the proportionality point of view, such a
divergent approach would bring severe enforcement difficulties due to the
increasing servitization of manufacturing.
160
It could be argued that a distinction between GPD prohibition with respect
to trade with goods and services is relevant when observed through the lens of
the principle of proportionality. Economists point out that sufficiently high
costs of cross-border trade with goods that prevent resale (or arbitrage) are the
prerequisite for the examination of price discrimination.
161
Arbitrage occurs
when customers in the low-priced market resell in the high-priced market,
eventually bringing the price levels of different markets to the same level,
thereby eroding the profitability of discriminatory selling. This means that if
customers can arbitrage price differences, any attempt to charge higher prices
to one group would be defeated by resale.
162
Hence, arbitrage turns price
discrimination into offering a single price and as such gives impetus for the
economic law of one price.
163
The EU free movement and competition law,
prohibiting restrictions on cross-border trade, improve conditions for resale
158. Commission Communication, Upgrading the Single Market: more opportunities for
people and business, COM(2015)550 final, p. 11.
159. Recital 4 of Regulation 2018/302.
160. More on this in Hojnik, “The servitization of industry: EU law implications and
challenges”, 53 CML Rev. (2016), 1575.
161. Verboven, “International price discrimination in the European car market”, (1996)The
RAND Journal of Economics, 240.
162. McAfee, op. cit. supra note 38, 465–466.
163. Miljkovic, “The law of one price in international trade: A critical review”, 21 Review
of Agricultural Economics (1999), 126.
Geographical price discrimination 49
and therefore approximate price differences and reduce the possibilities for
price discrimination – and thereby also the need for the prohibition of GPD. It
follows that a well-integrated EU internal market is a natural enemy of GPD,
not vice versa. As pointed out by Geradin and Petit, the outright condemnation
of GPD runs contrary to the central goal of attaining a single market, thereby
claiming that the existence of price differentials among Member States is the
main driver for the emergence of patterns of parallel trade within the EU,
which in turn ensures that prices across Member States converge towards the
lower prices.
164
GPD is therefore not a barrier to trade in intself, but an
indicator of other trade restrictions that support it. Traders may be interested in
preventing resale in order to maintain different prices, thereby partitioning the
market. Only these practices should legally be challenged and not GPD as
such.
If arbitrage functions as a natural enemy of GPD, however, this only seems
to be true in the field of trade in goods, while in the field of service provision
GPD functions in a somewhat different way. Although Article 56 TFEU
prohibits any restriction on free movement of services, parallel importation of
services from markets with lower prices to markets with higher prices is more
difficult to imagine compared with goods. As Rathmell points out, goods can
be owned and the ownership can be transferred – services, on the other hand,
refer to an act, which is paid for by the buyer and cannot be traded.
165
If a
Slovenian painter paints facades in Austria for a higher fee than in Slovenia,
his Slovenian customers cannot resell this cheaper service to Austrians.
Moreover, even when resale of services would in principle be possible, traders
often have means to prevent it, such as by making bus and ski tickets, booking
a flight, a hotel room or car rental non-transferable. In these cases, parallel
trade will not abolish GPD, therefore making legal intervention more justified
than with regard to goods, especially in respect of GPD practised by public
entities and by those private services’providers that have certain market
dominance, such as city bus services.
Conversely, it is evident from the ECJ’s case law that delimitation between
goods and services is uneasy.This also applies to the prohibition of GPD. Does
a Croatian bar sell goods or services or a combination of both? When
charging foreigners more than locals, was it the goods or the services part of
the price that was discriminatory? The price of a product inevitably reflects
not only the cost of the physical commodity but also the cost of the related
services. As Stigler notes, “stores sell more than canned beans or mink coats:
it supplies also pleasant quarters, attentive salespeople, possibly generous
164. Geradin and Petit, op. cit. supra note 44, 524–525.
165. Rathmell, “What is meant by services?”, 30 Journal of Marketing (1966), 32.
CML Rev. 201950 Hojnik
return privileges etc., and these carry their own implicit prices”.
166
Consequently, applicability of the Services Directive in respect of prohibiting
GPD can hardly be limited to “pure services”. Contrary to the position of
scholarship that selling goods should in general be excluded from the Services
Directive because “the corollary of the fact that the Directive applies to
services is that it does not apply to goods”,
167
the Commission advocates that
the Directive also applies to the retail and wholesale of goods.
168
This is
practically very important since consumers complain more frequently when
faced with GPD in respect of goods than services.
169
In this respect, a request
for a preliminary ruling by the Dutch Council of State was lodged in early
2016,
170
questioning whether retail falls within the scope of the Services
Directive. Advocate General Szpunar concluded in the affirmative,
171
pointing out that with the arrival of the Internet retail not only consists of
merely selling a product, but also of advising, counselling and offering
follow-up services and that as such, it is not an activity which is merely
ancillary to a product.
172
According to him, Bristol BV, a firm wishing to
establish a retail outlet for its shoe and clothing discount chain, is therefore a
service provider which can rely on the provisions of the Services Directive.
The Grand Chamber of the ECJ has confirmed that the Directive applies to the
retail sector. This indicates that Article 20(2) SD prohibits not only GPD in
respect of selling services but also goods, when services attached to the goods
are not purely ancillary. Moreover, the GBR addresses both restrictions on
free movement of goods and services. As the latter clarifies Article 20 SD, it
adds support to the argument that the EU legislators intended Article 20 SD to
apply to both goods and services.
Moreover, even though GPD in respect of services has traditionally been
more personal than in respect of goods, considering that static GPD has been
linked to trade with goods and the problems of dynamic GPD were limited to
166. Stigler, The Theory of Price (Macmillan, 1987), p. 17.
167. Barnard, “Unravelling the Services Directive”, 45 CML Rev. (2008), 323, 335.
168. Commission’s Handbook on the implementation of the Services Directive refers to
“distributive trades (including retail and wholesale of goods and services)”. Office for Official
Publications of the EC, 2007, point 2.1.1.
169. ECC-Net, “Enhanced Consumer Protection – the Services Directive 2006/123/EC”
(2013), 6.
170. Joined Cases C-360/15 & C-31/16, X and Visser Vastgoed.
171. Opinion of A.G. Szpunar in Joined Cases C-360/15 & C-31/16, X and Visser
Vastgoed, EU:C:2017:397, paras. 80 and 105, referring to the drafting history of the Directive,
which reveals that the European Parliament initially attempted to remove the reference to
“distributive trades” during the first reading, while the Council reinstated such a reference in the
draft, which stayed until the adoption of the Directive, see para 72.
172. Ibid., para 102. More on this in Luzak, “Time to let go of the services/goods
distinction? – CJEU in X(C-360/15 & C-31/16)”, Blog Recent developments in European
Consumer Law (1 Feb. 2018).
Geographical price discrimination 51
situations where recipients of services came to the premises of the service
providers (e.g. to bars in Croatia, buses in Malta, Disneyland in France, or to
monuments in Italy), this no longer holds true. The distinction between static
and dynamic GPD is reflected in the GBR, which does not address prices that
differ between Member States or various locations within a Member State as
long as they are offered to customers on a non-discriminatory basis.
173
While
dynamic GPD is thus prohibited, static GPD is not. This means that a retail
chain is free to set different prices for products sold in Slovenia and Austria; it
may not, however, restrict Slovenians from buying cheaper products in its
Austrian store. Moreover, the Regulation permits traders to operate different
versions of websites targeting customers from different Member States (e.g.
online-shop.it and online-shop.de), as long as customers may access them
all.
174
Regardless of this, shops do not have an obligation to deliver their
products outside the Member State of establishment.Although the Regulation
under the “shop like a local”principle only prohibits dynamic GPD, it is thus
evident that this form of GPD can arise both in respect of trade with goods and
services and that with the rise of online selling of goods the distinction
between static and dynamic GPD is increasingly unconnected to the goods’
and services’distinction. Static GPD is no longer limited to trade with
(physical) goods, much the same as dynamic GPD is not restricted to trade
with services.
It may be concluded that even though the principle of proportionality
advocates distinct approaches towards prohibiting GPD in respect of goods
and services, due to the increased servitization of manufacturing – with
combinations of goods and services that are offered in bundles – this no longer
seems practical. Additionally, due to the rapid development of technology,
services can now be provided in a way similar to goods, including being
produced in one State and exported to another.
175
As shown in UsedSoft,
176
digital goods can also be subject to resale and are thus sometimes considered
to be closer to physical goods than services. Besides, as resale in practice does
not always respond to discriminatory prices of goods, it seems unreasonable to
173. GBR, Art. 4(2). The Council pointed out in this respect that unlike price
discrimination, price differentiation is not prohibited, so traders are free to offer different
general conditions, including prices, and to target certain groups of customers in specific
territories. See Consilium, “Geo-Blocking: Council agrees to remove barriers to e-commerce”,
Press Release 692/16 (28 Nov. 2016). See also recital 26 of Regulation 2018/302, which
distinguishes situations when traders pursue activities in the consumer’s Member State and
when they do not.
174. Regulation 2018/302, recital 20.
175. More on this in Hojnik, “Technology neutral EU law: Digital goods within the
traditional goods/services distinction”, 25 International Journal of Law & IT (2017), 63.
176. Case C-128/11, UsedSoft GmbH v. Oracle, EU:C:2012:407.
CML Rev. 201952 Hojnik
restrict the freedom of pricing for service providers more rigorously than for
traders of goods.
3.4 Single prices as a form of discriminatory pricing
What is even more striking is that if EU authorities are serious about removing
direct and indirect GPD across the EU, advocating prices that reflect the actual
cost of the product, they cannot disregard the fact that also single (or uniform)
prices are often just a form of discriminatory pricing.
Economic studies show that despite claims of overwhelming problems with
GPD in the EU, traders in most cases offer products for single prices across
Europe, regardless of geographical distance and the corresponding
transportation costs, different labour costs, cost of space rental etc.
177
Dam
explains that traders select single prices even though they might not yield the
theoretically maximum total profit in order to avoid inconvenience in quoting
prices, protests of unfairness by customers as well as liability under certain
price discrimination statutes.
178
This means that traders absorb various price
differentials with the aim of offering customers a single price for a given
product.
179
For instance, freight absorption, in which the trader does not
charge for transportation, is often pointed out as a specific example of GPD, as
all customers pay the same price regardless of their location, which favours
customers located further from the trader’s workshop.
180
Since the GBR
entitles traders to charge consumers additional costs for postage, transport and
assembly,
181
if the former decide not to charge these additional costs, does this
amount to the prohibited GPD?
In economic theory, it is unequivocal that where incremental costs differ,
single prices signal the existence of price discrimination.
182
Consistently,
early on in the context of the ECSC Treaty the ECJ extended the notion of
abuse from “applying dissimilar conditions to equivalent transactions”to the
converse situation of applying similar conditions to unequal transactions.
183
This is reflected in its later case law, where the ECJ consistently held that
“comparable situations must not be treated differently and different situations
177. Cavallo et al. found that single prices are set for tens of thousands of goods sold by
Apple, Ikea and H&M across the Eurozone. Cavallo, Neiman and Rigobon, “Currency unions,
product introductions, and the real exchange rate”, 129 The Quarterly Journal of Economics
(2014), 529, 13.
178. Dam, op. cit. supra note 37, 6.
179. Rotemberg, “Customer anger at price increases, changes in the frequency of price
adjustment and monetary policy”, 52 Journal of Monetary Economics (2005), 829.
180. Phlips, op. cit. supra note 1, pp. 5–6.
181. Regulation 2018/302, recital 28.
182. Dam, op. cit. supra note 37, 6.
183. Case 13/63, Italy v. Commission, EU:C:1963:20.
Geographical price discrimination 53
must not be treated in the same way unless such treatment is objectively
justified”.
184
In Post Danmark, the ECJ adopted the same approach in respect
of price discrimination under Article 102 TFEU, defining it as “charging
different customers or different classes of customers different prices for goods
or services whose costs are the same or, conversely, charging a single price to
customers for whom supply costs differ”.
185
Nevertheless, considering the
wide-ranging occurrence of single price practices by large European retailers,
it is ambiguous whether EU law outside the realms ofArticle 102 TFEU also
aims to tackle single prices for customers for whom supply costs differ. Under
the US RPA, a seller cannot be held to have discriminated in price where he
charges the same price to different customers even though the costs involved
in the two sales are different.
186
Similarly, the European Commission’s
documents touching on the problem of GPD under the SD and the GBR do not
mention the single prices issue, even though supporting single prices with
differential costs, while prohibiting differential prices with uniform costs, is
entirely at odds with the economic notion of price discrimination.
187
Prohibiting GPD could thus have very broad implications for pricing
autonomy in the EU that have possibly not been anticipated by the EU
legislators, unless single prices (at least some of its segments) are saved from
the ambit of the EU free movement law under the concept of reverse
discrimination, which is rather unlikely in private contracts.
3.5 De minimis GPD: substantially v. slightly different price
Another important challenge facing the prohibition of GPD under EU free
movement law is the determination of how significant the cost differences
should be in order for two transactions to be considered non-equivalent and
consequently how significant price differences should be to amount to
prohibited GPD. Indeed, if all price differences, however small, were to be
taken into consideration, very few transactions would be considered legal. In
respect of the US RPA, Edwards claimed that “it seems inappropriate to
require that every cost difference is reflected in a price difference”.
188
In FTC
v. Morton Salt Co., the US Supreme Court held that under the RPA it needs to
184. Case 106/83, Sermide SpA v. Cassa Conguaglio Zucchero, EU:C:1984:394, para 28;
Case C-311/97, Royal Bank of Scotland, EU:C:1999:216. For a comment see De Witte, Hanf
and Vos (Eds.), The Many Faces of Differentiation in EU Law (Intersentia, 2001), pp. 313–314.
185. Case C-209/10, Post Danmark A/S v. Konkurrencerådet, EU:C:2012:172, para 30.
186. See e.g. Sano Petroleum Corp.v.American Oil Co., 187 F. Supp. 345 (at 353–354)
(E.D.N.Y., 1960).
187. Dam, op. cit. supra note 37, 11.
188. Edwards, The Price Discrimination Law: A Review of Experience (Brookings
Institution, 1959), p. 615.
CML Rev. 201954 Hojnik
be proven that “the competitive opportunities of certain merchants were
injured when they had to pay...substantially more for their goods than their
competitors had to pay”.
189
Similarly underArticle 102 TFEU, United Brands
and Tetra Pak II dealt with substantially different prices across the EU
Member States. This does not mean, however, that the magnitude of the price
difference will also matter under the EU free movement rules.
While in the field of EU competition law the intensity of the restrictive
effect on competition is of vital importance, the ECJ has ever since Va n d e
Haar
190
refused to apply the de minimis rule in the field of the EU internal
market.
191
In Corsica Ferries, the ECJ even made a general statement
claiming that “the articles of the...Treaty concerning the free movement of
goods, persons, services and capital are fundamental Community provisions
and any restriction, even minor, of that freedom is prohibited”.
192
Commentators have thus concluded that when establishing restrictions in EU
free movement law, the ECJ will not give any relevance to the magnitude of the
restrictive effect.
193
The de minimis defence is in principle therefore not
acceptable for GPD in the field of free movement law and even the slightest
price difference is prohibited. This further accentuates the broad implications
of GPD prohibition on the freedom of pricing under the EU’s free movement
law.
Nevertheless, an important reason for refusing the de minimis rule entry
into the field of free movement law was that the internal market freedoms
predominantly concern the measures of Member States and not those of
private entities, as is the case with competition law. It is the public bodies who
must carry a greater responsibility for the functioning of the internal market
than private entities. In this respect, Barents observed years ago that “State
interventions on the market may be said to have an appreciable effect by their
very nature”.
194
Krenn recently proposed a more convergent approach
towards public and private intervention on the market, arguing in favour of
introducing the horizontal direct effect ofArticle 34 TFEU, accompanied by a
recognition of the de minimis rule in order to prohibit only those barriers of
189. 334 US 37 (1948) at 49.
190. Joined cases 177 & 178/82, Jan van de Haar, EU:C:1984:144.
191. See e.g. Case 269/83, Commission v. France, EU:C:1985:115.
192. Case C-49/89, Corsica Ferries France, EU:C:1989:649, para 8. See also Case
C-67/97, Ditlev Bluhme, EU:C:1998:584, para 22 and Case 126/91, Yves Rocher,
EU:C:1993:191, para 21.
193. Jansson and Kalimo, “De minimis meets ‘market access’: Transformations in the
substance – and the syntax – of EU free movement law?”, 51 CML Rev. (2014), 523, 530.
194. Barents, “Measures of equivalent effect. Some recent developments”, 18 CML Rev.
(1981), 271, 287.
Geographical price discrimination 55
private entities that significantly hinder access to the market.
195
This
argument, if adopted by the ECJ, could dissuade countless potential claims by
customers paying only a few euro cents more for a product of a non-dominant
seller than customers from other EU Member States, thereby avoiding an
extensive burden for courts and traders. It should thus be reconsidered
whether prohibition of GPD in private contracts under EU free movement law
should be supplemented by the de minimis rule in order to prevent slightly
different prices by non-dominant traders from being challenged in courts,
especially when price differences stem from established trading practices that
are local friendly, such as loyalty rebates and various coupon schemes. In case
this is not approved by the ECJ, it is to be hoped that consumer associations
and national agencies challenging GPD practices will pick only the most
significant cases, while avoiding trivial ones, and that individual consumers
will not get into the habit of challenging practices of de minimis GPD before
courts across Europe.
4. Ambiguous objective justification for GPD
A cautious approach to prohibiting GPD by private traders is further
supported by the fact that justifiability of such practices either under the
express public interest derogations laid down in the TFEU or under the
so-called “mandatory requirements”or “overriding reasons of public
interest”introduced by the ECJ is unclear. The complexity of the justification
process has been admitted by the Commission in its proposal for the GBR,
where it noted that the provision of Article 20(2) SD had not been fully
effective, “particularly because of the possibility to justify the differences in
treatment for which it allows and the corresponding difficulties in enforcing it
in practice”.
196
Moreover, the Commission noted thatArticle 20 SD prohibits
all types of unjustified territorial restrictions, but sets only general principles
which have not always prevented discriminatory practices on the ground.
According to the Commission this gives rise to arbitrary (and changing)
justifications, in particular because there is neither a shared understanding
what “objective criteria”means, nor is it clear how to assess and enforce it.
197
195. Krenn, “A missing piece in the horizontal effect ‘jigsaw’: Horizontal direct effect and
the free movement of goods”, 49 CML Rev. (2012), 177.
196. Explanatory memorandum and recital 3 of the Proposal, COM(2016)289 final. See
also recital 4 of Regulation 2018/302.
197. European Commission, Proposals to address unjustified geo-blocking and other
discrimination based on consumers’place of residence or nationality, Inception Impact
Assessment, p. 4.
CML Rev. 201956 Hojnik
In line with Adam Smith’s observation that “(e)very man is, no doubt, by
nature, first and principally recommended to his own care”,
198
it is thus
neither reasonable nor realistic to expect that private traders will attempt to
invoke public interest grounds to justify decisions in pursuit of their own
private interests of an economic nature. In addition to limited public interest
defences, economic defences for discriminatory prices are just as uncertain. In
a series of cases concerning the fundamental freedoms, the ECJ reiterated that
economic aims “cannot constitute a reason relating to the general interest that
justifies a restriction of a fundamental freedom guaranteed by the Treaty”.
199
This was confirmed by the ECJ in respect of GPD practices.
200
The ECJ’s
reluctance to accept reasons of economic nature to justify restrictions on free
movement is particularly worrying with respect to the intrusion of EU public
law into private legal relations.
201
Economic objectives present the core
rationale for prohibited discriminatory pricing practices. Considering that the
fundamental purpose of GPD is the pursuit of profit and not intolerance
towards certain segments of customers who end up paying more,
202
the
prohibition of GPD inevitably brings the need for the courts to examine the
economic rationale behind the prices concerned. For example, in a Member
State with higher local costs, firms may have an incentive to partly absorb the
higher cost by adjusting their mark-ups downwards. This behaviour is known
as mark-up adjustment or pricing to market
203
and explains the low pre-tax
prices in the high tax Member States.
204
While it is common in price
economics that manufacturers set a very low pre-tax price in the high tax
Member States, it remains unclear if mark-up adjustments to tax and other
local costs will be accepted by EU courts as justified grounds for GPD.
Furthermore, sellers accused of GPD might also resort to the relevance of
differing competitive conditions to price discrimination. In some cases, price
discrimination may permit the production of goods which would otherwise
198. Smith, The Theory of Moral Sentiments (Penguin, 2010), p. 82.
199. E.g. in Case 7/61, Commission v. Italy (Pork), EU:C:1961:31 and in Case C-398/95,
SETTG v. Ypourgos Ergasias, EU:C:1997:282. Although interests of an economic nature are in
fact often recognized in the ECJ’s case law – see Arrowsmith, “Rethinking the approach to
economic justification under the EU’s free movement rules”, 68 Current Legal Problems
(2015), 307; Oliver, “When, if ever, can restrictions on free movement be justified on economic
grounds?”, 41 EL Rev. (2016), 147.
200. Case C-388/01, Commission v. Italy, para 18.
201. Schepel, “Freedom of contract in free movement law: Balancing rights and principles
in European public and private law”, 21 E.R.P.L. (2013), 1211, 1216. See also Hartkamp, “The
effect of the EC Treaty in private law: On direct and indirect horizontal effects of primary
Community law”, 3 E.R.P.L. (2010), 527.
202. As Phlips highlights, “(i)f you can (price) discriminate, it is profitable to do so”.
Phlips, op. cit. supra note 1, p. 18.
203. Krugman, Pricing to Market When the Exchange Rate Changes (NBER, 1986).
204. Goldberg and Verboven, op. cit. supra note 134, 492.
Geographical price discrimination 57
not be produced at all and it may even encourage a greater degree of price
rivalry between firms on a market with few sellers than would otherwise be
likely.
205
As Corts emphasized, competitive price discrimination may
intensify competition by giving firms more weapons with which to wage their
war. Allowing firms to set market-specific prices breaks the profit
implications of aggressive price moves that may restrain price competition
when firms are limited to uniform pricing.
206
The competition defence
reflects the fact that not all traders function on the entire EU internal market,
as some may only operate on certain regional markets. Multinational sellers
thus compete with regional and local sellers, resulting in a situation whereby
any regional or local price reduction by multinational sellers may give rise to
a charge of price discrimination.
207
The ECJ in United Brands held that “the
density of competition may eventually culminate in [a] different retail selling
price”,
208
while the preamble to the Services Directive listed different market
conditions, including pricing by different competitors, among the objective
justifications for discriminatory practices by service providers. Due to a lack
of relevant case law, it is as yet unclear to what extent GPD is objectively
justified under the Services Directive in cases where sellers quote lower prices
in one market merely to meet competition from another seller.
209
In contrast,
the GBR disregards the competition defence altogether, as it is responding to
the problem of justifiability of GPD under the Services Directive by providing
for three trading situations when justifications of discriminatory business
practices are altogether excluded.
210
Without this defence, however, the
prohibition of GPD would mean that traders are obliged to offer products and
services across Europe at the lowest price offered anywhere on the EU internal
market, thereby spreading potential price war conditions from smaller
regional markets to the whole internal market.
5. Final remarks
The application of the principle of equality in the realm of commercial
transactions is highly controversial and often seen as a “significant intrusion
in the activities of business people and their ability to pursue otherwise
205. Dam, op. cit. supra note 37, 8–9.
206. Corts, “Third-degree price discrimination in oligopoly: All-out competition and
strategic commitment”, (1998) The RAND Journal of Economics, 306, 321.
207. Dam, op. cit. supra note 37, 40.
208. Case 27/76, United Brands, para 228.
209. The competition defence is well established in US law. Klock, “Unconscionability and
price discrimination”, 69 Tennessee Law Review (2001), 317, 364.
210. Art. 1(1) of Regulation 2018/302.
CML Rev. 201958 Hojnik
perfectly legitimate interests”.
211
The GPD topic is controversial from the
perspective of both contractual parties: while customers are shocked to
discern such practices, traders are equally unhappy with regulatory
prohibitions of GPD that restrict their freedom of pricing. With the increasing
standards of protection of the former under EU secondary legislation – not
only when it comes to consumers, but also undertakings – the freedom of
pricing of the traders is increasingly constrained. EU consumer law and policy
are among the most developed in the world, which in itself means that the
weaker party protection restricts contractual freedom. Nevertheless, the
consumer acquis as enshrined in directives regulating contractual transactions
does not interfere with the freedom of pricing to the same extent as the
Services Directive and the Geo-Blocking Regulation. Although it is true that
under discriminatory prices some citizens are disadvantaged, efforts to
achieve social justice through regulatory price intervention inevitably collide
with considerable differences in wage levels and purchasing power of EU
consumers, thereby risking egalitarianism. Moreover, deliberations on
fairness of GPD will often lead to considerations of fair prices that are hard to
subject to judicial review. Buyers and sellers have conflicting economic
interests and consequently also contradictory views on what amounts to a fair
price,
212
which is the reason for Elegido to state that “there is no such thing as
a fair price”.
213
In contrast to price discrimination based on race, GPD is
usually a reflection of distinct competitive conditions on EU geographical
markets and traders’efforts to make money on this account. Prohibition of
GPD thus does not contribute to development and tolerance in the EU, but
rather to unrestrained consumer freedom to shop.
Although price discrimination is primarily a competition law concept, a
further shift from challenging such practices under Article 102(c) TFEU to
challenges under EU free movement law may thus be expected, due to less
stringent conditions for application of the latter. Several ambiguities pointed
out in this article could lead to undesirable legal and market uncertainties,
which speaks in favour of self-restraint by the European courts when
interpreting and applying Article 20(2) SD and Article 4 GBR. It is
maintained throughout the article that Article 20(2) SD should be repealed, as
it is still part of binding EU law and enables far-reaching restrictions on the
211. Elegido, op. cit. supra note 93, 647. Cf. Marcoux, “Much ado about price
discrimination”, 9 Journal of Markets & Morality (2006), 58–61.
212. The so-called dual entitlement suggests that in an economic transaction the buyer is
entitled to a fair price and the seller to a fair profit. Kahneman, Knetsch and Thaler, “Fairness
as a constraint on profit seeking: Entitlements in the market”, (1986) American Economic
Review, 728, 729–730.
213. Elegido, op. cit. supra note 93, 654.
Geographical price discrimination 59
freedom of pricing, despite being declared a “mainly symbolic provision”.
214
A number of enforcement difficulties also speak against future recognition of
the horizontal direct effect ofArticle 34 TFEU so as to prohibit GPD in private
contracts, as well as against broader interpretation of Article 56 TFEU to the
same end – unless this were to be outweighed by the recognition of the de
minimis rule and by reverse discrimination derogation for private traders.
Prohibition of static GPD, which aims to establish mandatory uniform prices
across the internal market, should in particular be beyond the scope of any EU
free movement provision, as it leads to price comparisons among EU regions
and requires complex evaluations of the costs behind them. It should thus
remain in the domain of EU competition law. Article 4 GBR, as a directly
applicable prohibition of GPD not foreseeing any objective justifications for
such practices, is expected to be more effective than Article 20(2) SD.
Nevertheless, a cautious approach to its interpretation is suggested when
prohibiting GPD. This is not to say, however, that all private GPD practices
should escape such a prohibition. Instead, a more differential approach
towards these practices than currently foreseen by the SD and the GBR should
be adopted, taking traders’market power into consideration. EU free
movement rules, consumer law on transparent prices, and data protection
legislation protect the interests of the buyers, albeit not necessarily removing
all occurrences of GPD. Provided that free competition is assured and that EU
rules on transparent prices are observed, discriminatory prices by a supplier
that is one among many should not be seen as a considerable barrier for the
establishment of a single EU internal market. In practice, a lot will thus
depend on common sense on the side of the (public and private) entities
challenging GPD practices in courts across Europe and whether or not they
pick only those cases that are inconsistent with EU orientation towards
tolerance and respect, while disregarding the trivial ones.
214. European Parliament, DG for Internal Policies, Discrimination of Consumers in the
Digital Single Market (2013), p. 48.
CML Rev. 201960 Hojnik
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