Rebates are common in many industries and generally highly appreciated by customers. However, it gets tricky if strong market players leverage their position to the detriment of customers or competitors, antitrust cases involving rebates are therefore a frequent phenomenon. Only last week, the German Federal Cartel Office (FCO) announced that it has initiated proceedings against Coca-Cola. This post takes a closer look at the case and puts them in relation to cases from the past.
The German FCO is targeting Coca-Cola Europacific Partners (Coca-Cola), which handles the bottling and distribution of all beverage brands of The Coca-Cola Company in Germany. According to the press release, there are “indications of Coca-Cola possibly restricting the opportunities of other companies to compete based on how it structures its terms offered to German food retailers, in particular its rebate structure”.
As this is a dominance case, the FCO will have to examine whether Coca-Cola has a dominant position or relative market power in a possible market for cola beverages or carbonated soft drinks. If that is the case, the FCO will analyze further if Coca-Cola imposes terms on food retailers that are not in line with competition law. In particular, the FCO will investigate whether “Coca-Cola’s rebate structure legitimately or illegitimately creates incentives for food retailers to buy, display and advertise the full range of beverages offered by Coca-Cola (e.g. Fanta, Sprite, Mezzo Mix, ViO, fuzetea, Powerade) and not just cola beverages”.
Drink Coca-Cola?
A recent case dealing with the definition of beverage markets was the European Commission’s decision in Coca-Cola Hellenic Bottling Company / Heineken / Stockday. In this decision, the European Commission distinguished, in the field of non-alcoholic beverages, between carbonated soft drinks and non-carbonated soft drinks. Within carbonated soft drinks, a further distinction was made between cola-flavoured carbonated soft drinks and other flavour groups.
There does not seem to be too much room to manoeuvre regarding the market definition and one can speculate that Coca-Cola’s market shares in Germany are not too low (especially considering the consumption of those around me and myself, even though some prefer Red Bull).
As German antitrust law applies to the current investigation, it could be sufficient for the FCO to conclude that Coca-Cola has relative or superior market power which can be the case if, e.g., a retailer really requires Coca-Cola products to compete on the retailer market.
Restriction of competition?
Against this background, the decisive question will most likely be whether there is a restriction of competition. In the recent past (see here), the European Court of Justice (ECJ) set new thresholds for when rebates could be an abuse of a dominant position.
In its notorious famous Intel case, the court found that if an undertaking submitted evidence during proceedings of the European Commission, this evidence must be considered by a regulator. After assessing the extent of the undertaking´s dominant position on the relevant market, one must analyze “the share of the market covered by the challenged practice, as well as the conditions and arrangements for granting the rebates in question, their duration and their amount; it is also required to assess the possible existence of a strategy aiming to exclude competitors that are at least as efficient as the dominant undertaking from the market” (para. 139 of the decision).
Thus, at least if EU law might also be applicable, the FCO will have to investigate the rebate scheme and its effects on the market in detail, taking into account all the factors mentioned above, potentially including an assessment whether a “hypothetical competitor” with the same production costs would have been able to offer such rebates while maintaining profitability. Coca-Cola announced that it will fully cooperate with the German FCO.
Can conclusions be drawn from other Coca-Cola cases?
In 2004/2005, the European Commission already had to deal with rebates by The Coca-Cola Company and three bottlers. Back at the time, the companies inter alia agreed with the European Commission that they would no longer offer any target or growth rebates, rewarding their customers purely for purchasing the same amount or more of the companies’ products as in the past and also to no longer offer a rebate to its customers if customers committed to buy other products together with best-selling products.
Also, earlier this year, the European Commission closed an initial antitrust investigation into The Coca-Cola Company and two bottlers (including Coca-Cola Europacific Partners, so the company now subject to the German investigation). The European Commission was concerned that “Coca-Cola and its bottlers could have abused their dominant position by granting a series of conditional rebates to retailers in a number of Member States with the objective of foreclosing the entry or hindering the expansion of new drinks into the market”. However, the European Commission concluded that there was no sufficient ground to further pursue the investigation.
Outlook
Given the recent case law and the investigations of the European Commission into Coca-Cola practices, it will be exciting to see how the case evolves. The investigation also illustrates that rebate cases are far from over, and that companies still need to be cautious in the era after the Intel judgement. The same applies to antitrust in retail more broadly, where one could observe a lot of dispute between manufacturers and retailers recently (here is an example).
Picture from Frugal Flyer on Unsplash
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