Aviation and competition: conditions for the approval of the Alitalia/Volare concentration changed

The Italian Competition Authority has revised the commitments imposed on Alitalia to clear its 2006 acquisition of Volare (Autorità Garante della Concorrenza e del Mercato, 25 giugno 2008, caso C7668B, Alitalia/Volare). The revision is necessary in order to assess whether the original commitments are still needed, taking also into consideration a number of events that took place after the ICA conditionally approved the transaction.

First, the administrative judges quashed for procedural reasons the tender procedure by which the Italian authorities sold Volare to Alitalia. A new tender procedure is now needed in order to select the purchaser of Volare. The acquisition of Volare by Alitalia can be still considered as a concentration, regardless of the outcome of the bidding procedure. As required by the definition of the notion of concentration set out by the Italian and EC merger control laws, a lasting change in the control of the corporate assets of Volare occurred, Alitalia having effectively making use of Volare assets, namely slots. It must stressed that, in light of the annulment of the bidding procedure, the control of Alitalia of Volare is now unstable, at least until completion of the new procedure.

Second, since 2006 the competitive structure of the markets affected by the concentration may have changed, the commitments imposed on Alitalia may be therefore ineffective or disproportionate.

The ICA has conditionally cleared the concentration by imposing on Alitalia the obligation to release:

a) Two pair of slots at the airport of Milan Linate regarding the Milan-Paris route;

b) A pair of slots regarding the Linate-Bari route ;

c) A pair of slots regarding the Linate- Lamezia Terme route.

In short, the clearance of the concentration was conditioned to a set of structural remedies, which does not appear to be any longer necessary due to new market conditions.

As for the Milan-Paris route, the Alitalia decision to allocate the slots previously operated by Volare to other routes neutralised the competitive effects of the concentration. Moreover, Alitalia committed to reallocate the slots operated by Volare on the Linate- Lamezia Terme route to the effect to reduce the Alitalia market share below the 60% threshold. As is known, the European Commission and the ICA consistently opt for a divestiture commitment to solve the competition problems a concentration in aviation industry gives rise to when the merging parties market shares exceed the 60% threshold.

Finally, the Alitalia market share with regard to the Linate-Bari route is now lower than the 60% threshold since competitors operate more flights.

Consequently, the previous obligations to release slot should be replaced by a set of behavioural commitments to re-allocate the slots concerned to other routes for a period of 4 IATA seasons starting from the Winter season 2008-09. Such measures apply as long as Alitalia has the control of Volare.

Micro restrictive practices: a local association of chemists condemned for price-fixing

The Italian Competition Authority (ICA) fined Federfarma Teramo, a local professional association, for price-fixing practices in the market for the so-called SOP pharmaceuticals (Auorità Garante della Concorrenza e del Mercato, caso I684, Federfarma Teramo).

Federfarma Teramo is an association, its members being the great majority of pharmacies of the province of Teramo, Central Italy.

Trade in SOP pharmaceuticals is subjected to a special regime since the enactment of the Bersani and has been fully liberalized with the 2008 Budget Act. The main elements of this regime include:

• No medical prescription is required;
• SOP pharmaceuticals are supplied through other distributive channels than pharmacies;
• Retailers are free to set selling prices.

The ICA opened investigation upon receipt of an anonymous letter which contained a circular written on a Federfarma Teramo headed paper. The circular contained a table of the maximum rebates members are invited to apply to 119 SOP pharmaceuticals. During the following investigation copies of the circular have been found in many member pharmacies. It has been also found a prospectus detailing the maximum rebates applicable to 250 SOP pharmaceuticals .

The circular amounts to a decision of an association taken by Federfarma Teramo, the object of which is to implement a price-fixing mechanism prohibited by article 2 of the Act n. 287/1990. To suggest the highest applicable rebate to a given product is consistently perceived as price-fixing practice.

Moreover, the ICA also found out that members of Federfarma Teramo have effectively applied the circular, the rebates granted to the enlisted products have been reduced during the considered period.

Thus, the ICA imposed on Federfarma Teramo a Euro 11,200 penalty, which roughly corresponds to 8% of the overall amount of the membership fees payed each year to the infringer.

Interestingly, the ICA task to detect and sanction the restrictive practice was much facilitated by a smoking gun in the shape of the circular written on the Federfarma Teramo headed paper, which detailed the maximum applicable rebates. Federfarma Teramo released the circular after the liberalization of the trade regime for SOP pharmaceuticals, with the understandable aim to maintain their market power they enjoyed during the previous regime.