Is Standard International Antitrust Enforcement Possible? The Virgin v. British Airways Case

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By Kemal Su

One of the most important functions of antitrust law is fighting against abuse of dominance or monopolization. Companies with high market shares and strong market power can exclude incumbents or potential entrants. Although national legislation and decisions of national authorities may differ, abusive behavior of a dominant firm in a given country should be deemed a violation of antitrust laws in all territories where the relevant company is dominant.

The near-similarity of antitrust laws throughout the world allows multinational companies to easily comply with the antitrust laws of countries in which they operate. However, this also generates a significant risk because such companies can face antitrust investigations in more than one country, due to a single decision or behavior.

Nonetheless, not only do market conditions or local strategies of the multinationals differ from one territory to another, so does antitrust enforcement. Those differences may stem from the willingness and determination of the antitrust authority to stop such abuses, market conditions due to the local competitors, the lack of relevant laws, or even implications on relations between countries.

Virgin Atlantic Airlines (Virgin) vs. British Airways (BA) is an interesting example of this issue. Formed in 1984, Virgin challenged the dominance of British Airways in transatlantic flights, which triggered a series of dispute between the two companies in the 1990s. BA launched a loyalty plan targeting travel agents, rewarding them based on agents’ volume of BA sales and the percentage of BA sales as part of their overall sales. The loyalty discounts applied retroactively, meaning that when an agent achieves his or her target threshold, the loyalty discount is applied to all the sales in the relevant term.

Virgin filed a complaint against BA in the European Commission in 1993 and in the United States in 1994, claiming that BA’s loyalty discounts were exclusionary. Virgin alleged that the retroactivity of the discount system makes travel agents loyal to BA. BA was penalized by the EU Commission in 1999, on the grounds that the loyalty discounts were both discriminatory in travel agents’ market and exclusionary in the airlines market. The General Court concluded that applying the loyalty discounts retroactively can have no other rationale than excluding rivals. The Decision was approved by the European Council of Justice, despite the increase in the market shares of the incumbent rivals and the new entries to the market.

Two years later, the allegations were rejected by the U.S. Court of Appeals for the Second Circuit based on the same facts, on the grounds that Virgin kept its operations running properly in during the five years during which BA applied the discounts to the travel agents. By referring to Areeda & Hovenkamp,[1] the Court stated, “business practices presumptively should not be viewed as an attempt to monopolize when the practices have been ongoing for several years and rivals have managed to profit, new entry has occurred, and their aggregate market shares are stable.”

In spite of the fact that no other behavior of BA was investigated by the EC and the US Authorities, the company being penalized by one Authority and not by the other is an important indicator of the global risk that multinationals face. Ganslandt[2] argues that the reason for two opposite decisions against the same behavior is not due to the difference in legislation, but the lack of consistent and implementable standards in evaluating the exclusionary behavior.

Virgin/British Airways case shows the non-standard enforcement of antitrust laws in two prominent territories, the US and the EU. Today, more than 120 countries have an antitrust enforcement authority. Based on this number, it is easy to conclude that a global standard for antitrust enforcement is far from reality. This poses a great risk for companies with cross-border operations.

Dr. Kemal Su is an industrial organization economist with expertise in antitrust, regulations, and compliance issues. He is a graduate of Middle East Technical University (Business Administration B.S. 1997), the University of Illinois at Urbana-Champaign (M.S. in Policy Economics 2002), and Hacettepe University (Ph.D. in Economics, 2008).

Dr. Su began his career at Turkish Competition Authority in 1997, where he served for 8 years. He consulted international companies in antitrust/competition law and economics, regulations and compliance for more than 10 years until late 2016. Within those years, he led many projects and compliance programs, submitted tens of written testimonies, represented tens of clients in antitrust investigations, filed hundreds of M&As and exemption/negative clearance cases, taught hundreds of seminars. He taught competition law and practices at Middle East Technical University, to undergraduate and graduate students in between 2009 – 2016.

Dr. Su is currently a visiting scholar at Duke University, School of Law.

[1] Areeda, P.E. and H. Hovenkamp, Antitrust Law, 1996. p. 807.

[2] GANSLANDT, M. (2006), “New Rules for Dominant Firms in Europe”, The Research Institute of Industrial Economics, Policy Paper, No:2, p. 5.