Murphy – Price Discrimination in the Internal Market

The Opinion in Murphy brings to the fore a long-running problem in European law: how far can businesses seek to charge different prices to different customers for the ‘same’ thing? Many economic models now assume that such price discrimination is often essential to profit-maximisation. This is not however always a sign that a firm is abusing market power but may sometimes simply reflect the nature of the industry (e.g. theatre or plane tickets). In European law however differential pricing that is maintained by reference to geographical borders of Member States has long been considered anathema. The ‘single market’ has come to entail the steady equalisation of prices (or certainly the removal of legal barriers – including intellectual property rights – that underpin price discrimination). Whilst this is philosphically clear, it can lead to some surprising results as Murphy demonstrates.

The Advocate General concluded that the Premier League had been paid for the broadcast in Greece and could not seek to block British consumers receiving it (at lower Greek rates) in order to maintain higher UK prices. To do so would constitute a clear interference with free movement of services between Greece and the UK which was not defensible by reference to copyright protection. She justified this on the standard basis that by authorising the broadcast in Greece, the intellectual property rights had been ‘exhausted.’ The goal of the Premier League was to maintain higher prices in the UK by restricting supply from other Member States. This is true. However she accepted that the business response might be to stop transmissions to Greece (or all other Member States) in order to safeguard lucrative UK tariffs. Would this be a ‘good’ result for European consumers? Unlike physical objects, such digital services can be restricted altogether from reaching other Member States. Price discrimination would end only by the termination of trade altogether. That seems an odd potential result for the ‘single’ market, a case of the ‘non-discrimination’ tail wagging the dog of trade integration.

The deeper question in such cases is whether regulators (and courts) can seek to second-guess the pricing models of the private sector to see if they are ‘abusive.’ This has fallen out of fashion in modern competition policy with its Chicago belief in efficient markets. In the old Coditel II case (and cases like United Brands) the Court and Commission did talk about pricing policy (under Article 101) and asked whether it ‘exceeded fair returns on investment’ and whether trade barriers were ‘unjustifed in terms of the needs of the [cinematographic] industry.’ These phrases speak of a time when the state thought more broadly about pricing. The Commission forcing the Premier league to sell ‘packages’ of football matches (ironically for more than the previous Sky monopoly had paid) is another more recent example. It is not clear however what the underlying rationale is to these policies; businesses will argue that their economic models depend upon such practices. Without them, they cannot produce such a good product (worse players, worse presenters(!)). The fact that some consumers may pay less for this inferior product is beside the point.

In Coditel I, the Court accepted that the business model of film-makers depended upon selling cinema rights on an exclusive basis in different Member States and preventing televised performances during the ‘cinema window.’ This was a revenue-maximising strategy that film-making had evolved. In a later case, Cinetheque, a state-mandated (as opposed to contractual and copyright) cinema exclusivity window was upheld as protecting film culture (from the then emerging threat of video cassettes). It is not clear however that the specific ‘cultural’ aspects of film played a part in Coditel I. Rather the Court seemed to accept that the business model appropriate to works that may be ‘infinitely repeated’ was different and that this difference should be protected by intellectual property law. Sale of one copy could lead to distribution to the whole world in such cases, unlike in the case of physical objects. In that case however the Court was not faced with overt price discrimination between Member States.
Does the price discrimination in Murphy make such a difference? The answer really depends upon how we think the single market in the field of services might actually work. If businesses cannot invest as much in cross-border digital services without such marketing techniques (and the legal protection associated with them), the European economy may be worse off as a result.
Businesses will always be better placed to know what prices to charge than regulators. The reaction of the Premier league to Murphy on pricing and distribution will be interesting.

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