Abuse of Economic Dependence - The Centre for European Policy ...

The Gap in the Application of Article 82 53
which exists in a number of forms or variants. The differentiation of products
can be vertical or horizontal, ie each product may exist in a number of
qualities or in a number of variants of equal quality. 33
In the United Brands case, the ECJ argued that one significant factor
indicating dominance was United Brands’ brand image. United Brand had
spent significant resources establishing the brand. Furthermore, the ECJ
considered that United Brands had made their product distinctive by using
large-scale advertising and promotion which had induced the consumer to
show a preference for it in spite of the difference between the price of
labelled and unlabelled bananas and thus had made its brand name the
premier banana brand name. 34 Thus, the ECJ placed emphasis on the
differentiated nature of the product emanating from the brand image of the
product.
In the theory of industrial organization, two models that describe the
nature of competition in a market are the Cournot and the Bertrand
models. 35 A distinction can be made between markets where firms compete
primarily in output/capacity and markets where firms compete primarily in
prices. The first type of market structure resembles Cournot oligopoly; the
second resembles Bertrand oligopoly. The Cournot model of oligopoly
assumes that firms produce homogeneous products and compete by setting
output to maximize profits and takes the output of other firms as fixed. The
Bertrand model of oligopoly assumes that firms set price in order to
maximise profits and takes as given the prices of other firms in the market.
In the Cournot model of competition, firms compete by setting quantities
and thus firms’ quantities are substitutes. A reduction in the output of
the firm producing homogeneous products typically leads competing firms
33 Articles on product differentiation include, inter alia: J Baker and T Bresnahan, ‘The
Gains from Merger or Collusion in Product Differentiated Industries’ [1985] Journal of
Industrial Economics 33, 427–444. A Dixit, ‘A Model of Duopoly Suggesting a Theory of
Entry Barriers’ [1979] Bell Journal of Economics 10, 20–32; J Hausman, ‘A Proposed Method
for Analysing Competition among Differentiated Products’, [1992] Antitrust Law Journal 60,
889–900; C Shapiro, ‘Mergers with Differentiated Products’ [1996] Antitrust 10, 23–30; N
Singh and X Vives, ‘Price and Quantity Competition in a Differentiated Duopoly’ [1984] Rand
Journal of Economics 15, 546–554; G Werden, ‘A Robust Test for Consumer Welfare
Enhancing Mergers among Sellers of Differentiated Products’ [1982] Journal of Industrial
Economics 44, 409–414; H Hotelling, ‘Stability in Competition’ [1929] Economic Journal 39,
41–57; A Irmen, J F Thisse, ‘Competition in Multi-Characteristics Spaces: Hotelling Was
Almost Right’ [1998] Journal of Economic Theory 76–102, 78; M Mussa, S Rosen,
‘Monopoly and Product Quality’ [1978] 18 Journal of Economic Theory 301–317; A Shaked,
J Sutton (1982), ‘Relaxing Price Competition through Product Differentiation’ [1982] Review
of Economic Studies 49, 3–14.
34 Case 27/76 United Brands Company and United Brands Continental BV v Commission
of the European Communities [1978] ECR 207 § 91, 93 and 122–124.
35 In 1838 Antoine Augustin Cournot published the first systematic analysis of oligopoly,
arguing that firms compete by setting quantities. In 1883, Joseph Louis Francois Bertrand in
reviewing Cournot’s book argued that competitors compete by setting their prices.