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Fairness and Ambiguity in EU Competition Policy

ICLE White Paper Abstract The concept of fairness is not foreign to competition law, nor are considerations of fairness new to it. Persistent uncertainty regarding what constitutes fairness . . .


The concept of fairness is not foreign to competition law, nor are considerations of fairness new to it. Persistent uncertainty regarding what constitutes fairness has, however, traditionally counseled against its application as a standalone legal standard. Indeed, antitrust enforcers often have been reluctant to define even what constitutes unfair terms and conditions. Nonetheless, amid a swell of accusations of undue corporate power and market concentration in the digital economy, debates about fairness have recently taken center stage in the policy debate—particularly in Europe, where several recent regulatory interventions have been touted as promoting fairness in digital markets. This paper argues that policymakers are attracted to “fairness” remedies precisely because the term’s meaning is so ambiguous, thus granting them more discretion and room for intervention.


In public debates over the emerging ubiquity of digital markets and platform-business models, the concept of “fairness” has been elevated into a guiding principle of competition-law enforcement. Dissatisfied with the ways that profits are allocated in digital-services markets and decrying what they see as undue corporate power and market concentration, interlocutors in such debates have invoked fairness as the cure for bigness.

This is particularly apparent in the European Union (EU), where several recent legislative initiatives have been adopted with the stated goal of promoting fairness in the digital economy. A central focus of such initiatives is the “gatekeeping” position enjoyed by a few large online platforms, which purportedly allows them to exert intermediation power over whether and under what terms the platform’s business users can reach their end users. As such, critics of so-called “Big Tech” assert, these platforms represent unavoidable trading partners who can exploit their superior bargaining power by imposing unfair contract terms and conditions. Moreover, since they often occupy a dual role—acting simultaneously as intermediaries and as competitors on their own platforms—they may have incentive to discriminate in favor of their own services or subsidiaries (so-called self-preferencing).[1]

In response to the perceived risks generated by these conflicts of interest and imbalances of bargaining power, policymakers in various jurisdictions around the world have proposed or enacted provisions intended to ensure a level playing field and to neutralize the competitive advantages of large intermediator platforms. According to this line of reasoning, Big Tech firms must be compelled to treat both their rivals and their guests on the platform fairly.

Fairness has therefore become part of the larger debate on the role of competition law in the digital economy, with some militating for more aggressive intervention to ensure fairness and questioning whether the consumer welfare standard should remain the lodestar of antitrust law. Because it eschews many other potential goals of competition law, the argument goes, the consumer welfare standard systematically biases antitrust toward underenforcement,[2] with some even labeling it a “distraction” or a “catch phrase.”[3] Rather than the efficiency-oriented approach favored by the Chicago School, the ostensibly holistic approach that has earned support among progressives would combine competition law with other fields of law in order to take into account such broad social interests and ethical goals as labor protection, wealth inequality, and environmental sustainability.[4]

Considerations of fairness are not, however, new to competition law.[5] The history of antitrust law in the United States, for example, demonstrates that U.S. lawmakers and jurists have long had a profound concern for economic liberty as a notion embedded in the nation’s conception of freedom.[6] After all, “[i]f efficiency is so important in antitrust, then why doesn’t that word, ‘efficiency,’ appear anywhere in the antitrust statutes?”[7] Indeed, antitrust has been described as a body of law designed to promote economic justice, fairness, and opportunity.[8] Therefore, the purpose of antitrust law is to protect the competitive process in service of both prosperity and freedom. Rather than a myopic focus on promoting efficiency, antitrust economics should be concerned with ensuring that competition may flourish among a significant number of rivals in free and open markets.[9] And at the heart of the competitive process is the guarantee that “everyone participating in the open market—consumers, farmers, workers, or anyone else” has the opportunity to choose freely among alternative offers.[10]

This is also evident in the EU, where competition law has always reflected various social, political, and ethical objectives, even as the so-called “more economic approach” was adopted in the late 1990s.[11] Moreover, the goal of ensuring equal opportunity in the marketplace by guaranteeing a level playing field among firms has been incorporated in EU antitrust law, reflecting the influence of the philosophy of Ordoliberalism and the Freiburg School of economic thought.[12] From this perspective, fairness would include the protection of economic freedom, rivalry, the competitive process, and small- and medium-size firms.[13]

Nonetheless, it should not be overlooked that the rise of the Chicago School approach, which affirms the need to anchor antitrust enforcement in objective criteria, was itself a response to the limitations and drawbacks of prioritizing various noneconomic goals in competition law. Precisely because “fairness” is so difficult to both define and delineate, it has traditionally proven unsuitable as a standalone legal standard.[14] The same doubts are raised today by some U.S. scholars regarding the possibility of replacing the consumer welfare standard with what has been called the “competitive process test.”[15]

Like considerations of distribution or justice, debates about fairness are inevitably bedeviled by the existence of many differing and sometimes contradictory definitions, rendering the term’s content undefined and incomplete.[16] Despite its many appealing features in the abstract, fairness is a subjective and vague moral concept and, hence, essentially useless as a decision-making tool. Behavioral economics has provided evidence that fairness motives do affect many people’s behavior and can restrict the actions of profit-seeking firms, while simultaneously confirming that notions of fairness can vary widely among individuals.[17] As a result, it is inherently unclear what benchmark should be applied to measure fairness. This poses a serious challenge for legal certainty, as actors cannot predict ex ante whether a practice will be sanctioned for having trespassed the unfairness threshold. Accordingly, policymakers have been invited to give no weight to fairness in choosing legal rules, but rather to assess policies entirely on the basis of their effects on individuals’ well-being.[18]

As notions of fairness have taken a central place in recent EU regulatory interventions, it is worth investigating whether a clear and enforceable definition has been provided (and, in this case, whether the content of fairness has been specified as a rule or as a standard) or whether the vagueness and ambiguity associated with the term’s meaning can be exploited to grant policymakers convenient procedural shortcuts. Indeed, an unmeasurable goal will tend to be irresistibly attractive to enforcement agencies, as it can mean anything they want it to. This paper aims to demonstrate that the revival of fairness considerations in competition law functions primarily to offer policymakers greater latitude to intervene, relieving them of the burden of economic analysis and allowing them to pursue political ends. Chief among the latter is restoring what the U.S. neo-Brandeisian movement considers the original mission of antitrust law: namely, to ensure a more democratic distribution of power and to protect “small dealers and worthy men.”[19] Rather than being used to assess whether practices are anti-competitive, fairness is used to correct market outcomes.

Similar concerns have been raised about a new policy statement issued recently by the U.S. Federal Trade Commission (FTC) regarding the scope of the agency’s authority to prohibit unfair methods of competition (UMC) under the Section 5 of the FTC Act.[20] The FTC points to the legislative record to argue that Section 5 was enacted to protect “smaller, weaker business organizations from the oppressive and unfair competition of their more powerful rivals.”[21] Against the declared aim of “reactivating Section 5,”[22] Commissioner Christine S. Wilson noted in her dissent that, by preferring a “near-per se approach” that discounts or ignores both the business rationales that may underly challenged conduct and the potential efficiencies that such conduct may generate, the policy statement reflects a “repudiation of the consumer welfare standard and the rule of reason” and resembles the work of an academic or a think tank fellow who “dreams of banning unpopular conduct and remaking the economy.”[23]

This paper is structured as follows. Section I describes how fairness considerations lie at the core of European Commissioner for Competition Margrethe Vestager’s political mandate. Section II examines how the notion of unfairness has been applied in EU antitrust case law. Section III analyzes the use of fairness as a rationale for recent EU legislative initiatives in the digital economy. Section IV illustrates that these initiatives do not provide a meaningful contribution to the application of fairness, either as a standard or as a rule. Section V concludes.

I.        The Vestager Mandate: Fairness as Political Signaling

As has been widely noted, fairness has emerged as a guiding principle of EU competition policy during Commissioner Vestager’s previous and current terms.[24] She has referred to fairness in numerous speeches, characterizing her political mandate as one of advocating vigorously for antitrust rules to uphold notions of fairness. But rather than articulate a substantive standard of fairness that could be applied consistently in antitrust enforcement, Vestager has weaponized the notion of fairness as political signaling.

Among Vestager’s pronouncements on the subject are that “competition policy also reflects an idea of what society should be like” and that this is “the idea of a Europe that works fairly for everyone.”[25] She has contended that “when competition works, we end up with a market that treats people more fairly.”[26] Moreover, Vestager concludes that “fair markets are just what competition is about”[27] and “we all have a responsibility to help build a fairer society.”[28]  As the power of digital platforms has grown, Vestager says, “it’s become increasingly clear that we need something more, to keep that power in check, and to keep our digital world open and fair.”[29]

The Europe envisaged by the founders of the Treaty of Rome is, she argues, “one that would bring prosperity and fairness, not just to a few, but to all Europeans.”[30] While some of the commissioner’s speeches invoke fairness primarily in the context of competition giving consumers the power to demand a “fair deal”[31] by ensuring that “their choices and preferences count,”[32] others imply that firms have a responsibility to run their businesses “in a way that is fair to your competitors, fair to your business partners.”[33]

Taken as a whole, her various invocations of fairness frame antitrust law not as economic policy, but as a kind of morality play.[34] Addressing her speeches to the “people,” Vestager emphasizes competition law’s fundamental role in building a fair society. [35]

People don’t just want to be told that open markets make us better off. They want to know that they benefit everyone, not just the powerful few. And that is exactly what competition enforcement is about … public authorities are here to defend the interests of individuals, not just to take care of big corporations. And that everyone, however rich or powerful, has to play by the rules.[36]

II.      EU Antitrust Enforcement: Fairness as a Standard

The notion of fairness is not foreign to EU competition law. The Preamble to the Treaty on the Functioning of the European Union (TFEU) includes a reference to “fair competition.” Its antitrust provisions, while prohibiting restrictive agreements and practices, creates an exception for those that grant consumers a “fair share” of procompetitive benefits (Article 101). The provisions also prohibit abuses of dominant position that impose “unfair purchase or selling prices” or other “unfair trading conditions” (Article 102). Moreover, Vestager has argued that state-aid rules, which prevent member states from granting companies a selective advantage, likewise reflect the notion of fairness within “the ordinary meaning of the word.”[37]

In general, these provisions endorse a standard-based approach to fairness that specifies the content of the law ex post, rather than a rule-based approach that introduces more specific legal commands ex ante.[38] Because fairness remains undefined and its meaning is disputed, the standard is hard to operationalize.

A.      Unfair Terms and Excessive Pricing

While only a handful of judgments and decisions by the European Court of Justice (CJEU) and the European Commission analyze the notion of unfairness, what these typically share is a focus on clauses that either were not functional to achieve the purpose of the agreement or that unjustifiably restricted the freedom of the parties.[39] The relationship between unfairness and the absence of a functional relationship between the contract’s purpose and challenged contractual clauses was highlighted in Tetra Pak II[40] and Duales System Deutschland (DSD).[41] It can be inferred from some of the Commission’s other decisions that unfairness may been associated with opaque contractual conditions that render a dominant firm’s counterparties weaker, particularly when those counterparties are unable to understand the terms of the commercial offer in question.[42]

Recent years have seen a revival of cases concerning “unfair prices,” particularly in cases concerned with drug pricing or the collection of  royalties.[43] But rather than establish the meaning of fairness, courts and competition authorities have tended toward a rule-based approach to identify unfair prices, developing alternative measures rooted in economic reasoning.[44] Indeed, since United Brands, the CJEU has evaluated whether a price is unfair by  determining whether it has a reasonable relation to the economic value of the product.[45] For example, in SABAM, the CJEU confirmed that the royalty rate requested by a collective society should bear relation to the economic value of the copyright work.[46] But courts and antitrust authorities have also struggled to apply the test set out by the CJEU in United Brands to assess whether prices are unfair.[47] As acknowledged in AKKA-LAA, “there is no single adequate method” to evaluate unfair-pricing cases.[48] Given this, Advocate General Nils Wahl has argued that a price charged by a dominant undertaking should be deemed abusive only when no rational economic explanation (other than a firm possessing the capacity and willingness to use its market power) can be found for why it is so high.[49]

B.      Margin Squeeze

Unfair-pricing practices have also been investigated in the context of the margin-squeeze strategy, which is a standalone abuse under EU competition law on grounds that it undermines equality of opportunity between economic operators.[50] Rather than refusing to supply, a vertically integrated dominant firm may instead charge a price for a product on the upstream market that would not allow an equally efficient competitor to compete profitably on a lasting basis with the price the dominant firm charges on the downstream market. A margin squeeze exists if the difference between the retail prices charged by a dominant undertaking and the wholesale prices it charges its competitors for comparable services is negative, or insufficient to cover the product-specific costs to the dominant operator of providing its own retail services to end-users.[51] Accordingly, the unfair spread between the upstream price and the retail price is deemed exclusionary when it squeezes rivals’ margins on the retail market, thereby undermining their ability to compete on equal terms. The dominant player is therefore required to leave its rivals a fair margin between the wholesale and retail prices.[52]

C.      FRAND-Encumbered SEPs

The notion of fairness has also been raised in the context of standard-essential patents (SEPs), whose holders are subject to fair, reasonable, and non-discriminatory (FRAND) licensing obligations.[53] The process of developing standards can create opportunities for companies to engage in anticompetitive behavior where such standards give rise to holdup problems involving the strategic use of patents. The claim is that SEPs confer market power because the standardization process leads to the exclusion of alternative technologies. As a consequence, SEP owners enjoy ex post monopoly power that could enable them to charge excessively high royalty rates in their licensing agreements or to constructively refuse to license their patents.

To address these concerns, standard-setting organizations (SSOs) typically require SEPs holders to submit FRAND commitments. The goal is to make SEPs available at a price equivalent to what patents would have been worth in the market prior to the time they were declared essential.

It is a matter of debate, however, whether FRAND commitments can effectively prevent SEP owners from imposing excessive royalty obligations on licensees. In fact, there are no generally agreed-upon tests to determine whether a particular license does or does not satisfy a FRAND commitment. There is also little consensus regarding the legal effects of FRAND commitments, such as whether they imply a waiver of the general law of remedies (more precisely, injunctive relief and other extraordinary remedies). Such broad uncertainty has prompted a wave of litigation around the globe in recent decades.

While some SSOs and courts have moved toward a rule-based approach to define fair/reasonable rates and to develop methods for the valuation of FRAND royalties, the CJEU in Huawei[54] endorsed a hybrid approach.[55] Indeed, rather than define the meaning of FRAND (which remains left to a standard-based approach), the CJEU imposed a procedural framework for good-faith SEP-licensing negotiations. The framework identifies the steps that patent holders and implementers must follow in negotiating FRAND royalties, with the threats of antitrust liability and patent enforcement as levers to steer the parties toward a mutually agreeable level. Nonetheless, none of these approaches has thus far proven effective in reducing either uncertainty or litigation.

D.     Abuse of Economic Dependence

Over the years, several EU member states have adopted provisions related to the abuse of economic dependence (also known as relative market power or superior bargaining power), creating yet another context in which the unfairness of terms and conditions may be implicated.[56] Rules forbidding the abuse of economic dependence reflect concerns about the asymmetry of economic power in business-to-business relationships, which is considered a potential source of unfair-trading practices.

Although abuse of economic dependence is not regulated at the EU level, national-level legislation is authorized by Article 3(2) of the Regulation 1/2003 on the implementation of competition rules, which allows member states to adopt and apply stricter laws prohibiting or sanctioning unilateral conduct.[57] Recital 8 of the regulation refers specifically to national provisions that prohibit or impose sanctions on abusive behavior toward economically dependent undertakings.

Economic dependence is typically the result of significant switching costs that may lock a party into a business relationship and prevent it from finding equivalent alternative solutions. Therefore, evaluations of economic dependence include examining the amount of relationship-specific investment the dependent firm has undertaken (i.e., investments required to support its trading relationship), which may expose weak parties to holdup, as well as whether the counterparty should be considered an unavoidable trading partner because of its exclusive control over an essential input.

It is worth noting that recent legislative initiatives signal a willingness by EU member states to rely on abuse-of-economic-dependence claims to tackle digital platforms’ purportedly unfair conduct and trading relationship with business users. In 2020, Belgium approved an amendment to its Code of Economic Law to insert a provision on abuse of economic dependence,[58] with lawmakers making specific reference to the perceived legislative gap concerning digital platforms. In 2021, alongside its new antitrust tool focused on firms of “paramount significance for competition across markets,” the German Bundestag extended its economic-dependence provision to target firms acting as “intermediaries on multi-sided markets,” insofar as business users are significantly dependent on their intermediary services to access supply and sales markets such that sufficient and reasonable alternatives do not exist.[59] Finally, in 2022, the Italian Annual Competition Law included a specific provision introducing a rebuttable presumption of economic dependence when a firm uses intermediation services provided by a digital platform that play a “key role” in reaching end users or suppliers due to network effects or the availability of data.[60]

E.      Summary of Findings

There are two primary takeaways from this brief overview of fairness in EU antitrust law. First, despite some references in the TFEU, antitrust enforcers have traditionally been reluctant to engage with the unfairness of terms and conditions. Uncertainty regarding the definition and legal boundaries of fairness make it challenging to use as an actionable standard for the evaluation of anticompetitive behavior. Second, if recent case law is suggestive of how attitudes about the use of fairness in antitrust are evolving, courts and competition authorities likely will continue to prefer that fairness be anchored in specific economic values or a detailed code of conduct (i.e., switching to a rule-based approach), rather than relying on political or moral considerations. The ongoing disputes over how to assess whether prices are excessive, as well as determining “fair” royalties for SEPs, suggest that questions about the scope and nature of unfair conduct cannot be usefully resolved by references to “the ordinary meaning of the word.”

Moreover, while fairness is explicitly mentioned in exploitative-abuse cases, Article 102 TFEU makes no reference to fairness as a benchmark for such cases. In this regard, the CJEU’s Servizio Elettrico Nazionale ruling affirmed the effects-based approach the court would take to assessing the abusive nature of unfair practices.[61] Notably, the CJEU definitively stated that competition law is not intended to protect the existing structure of the market, but rather that the ultimate goal of antitrust intervention is the protection of consumer welfare.[62] Accordingly, as the court previously found in Intel, not every exclusionary effect is necessarily detrimental to competition.[63] Competition on the merits may, by definition, mean that less-efficient competitors who are less attractive to consumers in terms of price, choice, quality, or innovation may be marginalized or forced to exit the market.[64]

III.    EU Competition Policy in Digital Markets: Fairness as a Rule?

The preceding overview of EU antitrust enforcement demonstrates that, despite recent political interest in the subject of fairness, authorities and courts continue to struggle to apply it as a substantive standard. Commissioner Vestager’s fairness agenda nonetheless permeates several recent legislative initiatives to regulate the digital economy through specific rules, rather than a general standard.

A common feature of these interventions is their preoccupation with the intermediation (or bottleneck) power that some large online platforms may wield vis-à-vis business users, to the extent that they may be unavoidable trading partners in a wide range of contexts. As a result, proponents argue, the interventions are needed to ensure a level playing field and to prevent unfair behavior to the detriment of business users.

A.      Platform-to-Business Regulation

In 2019, the EU adopted the regulation on promoting fairness and transparency for business users of online intermediation services (P2B Regulation).[65] Its aim was to lay down rules to ensure that digital intermediation platforms and search engines grant appropriate transparency, fairness, and effective redress to business users and corporate websites, respectively.[66] According to the P2B Regulation, online intermediation services can be “crucial” for the commercial success of firms who use such services to reach consumers. Given that dependence, such platforms often have superior bargaining power that enables them to behave unilaterally in ways that can be unfair, harmful to the legitimate interests of their business users, and also, indirectly, to consumers.[67]

While fairness is referenced in the P2B Regulation’s formal title, its provisions are more concerned with enhanced transparency, rather than forbidding or prescribing specific conduct. Nonetheless,  the regulation left open the potential for further measures if its provisions proved insufficient to adequately address imbalances and unfair commercial practices in the sector.[68] A few months after the P2B Regulation was promulgated, the European Commission unveiled in a communication to the European Parliament its view for the circumstances under which further legislative intervention would be needed.[69] Since platforms that act as “private gatekeepers to markets, customers and information” may jeopardize the fairness and openness of markets, and “competition policy alone cannot address all the systemic problems that may arise in the platform economy,” the Commission noted that additional rules may still be needed to ensure contestability, fairness, and innovation in digital markets, as well as the possibility of market entry.[70] Notably, the Commission’s declared policy goal was to ensure “a level playing field for businesses,” which it argued “is more important than ever” in the digital era.[71]

B.      Digital Markets Act

It was against this backdrop that the European Commission proposed the Digital Markets Act (DMA),[72] with the goal of ensuring “contestability and fairness” for digital markets.[73] In the Commission’s view, the distinctive characteristics of digital services (i.e., the presence of strong economies of scale, indirect network effects, economies of scope due to the role of data as a critical input, and conglomerate effects, along with consumers’ behavioral biases and single-homing tendency) generate significant barriers to entry that confer gatekeeping power on certain large platforms.[74]

The Commission warned that this situation would lead to “serious imbalances in bargaining power and, consequently, to unfair practices and conditions” both for business users and for platforms’ end users, to the detriment of prices, quality, “fair competition,” choice, and innovation in the market.[75] Moreover, gatekeepers frequently play a dual role, being simultaneously operators of a marketplace and sellers of their own products and services in competition with rival sellers.[76] Therefore, the Commission contended, rules are needed to prevent gatekeepers from unfairly benefitting and to impose on them a special responsibility to ensure a level playing field, which de facto amounts to the introduction of a platform-neutrality regime.[77]

Implicit in the DMA is the presumption that market processes are often incapable of ensuring “fair economic outcomes” with regard to core platform services,[78] apparently requiring a rethinking of competition policy. Under this view, competition law is deemed unfit to effectively address challenges posed by gatekeepers that are not necessarily dominant in competition-law terms.[79] Indeed, antitrust is limited to certain examples of market power (e.g., dominance on specific markets) and of anti-competitive behavior.[80] Further, its enforcement occurs ex post and requires an extensive investigation on a case-by-case basis of what are often very complex facts.[81]

The DMA therefore aims to protect a different legal interest from antitrust rules. Rather than protect undistorted competition on any given market, as defined in competition law terms, the DMA seeks to ensure that markets where gatekeepers are present are and remain “contestable and fair,” independent of the actual, likely, or presumed effects of gatekeeper conduct.[82] As a result, it introduces a set of ex ante obligations for online platforms designated as gatekeepers, thereby effectively relieving enforcers of the responsibility to define relevant markets, prove dominance, and measure market effects.

Despite that proclaimed protection of a different legal interest, however, there is no indication that the DMA’s promotion of fairness and contestability differs from the substance and scope of competition law.[83] The draft DMA didn’t define either fairness or contestability, nor did it indicate how the obligations it would impose on digital gatekeepers was intended to deliver each objective. The final version fills part of this gap, including a definition of these goals. With regard to contestability, the DMA targets practices that increase barriers to entry or expansion in digital markets and imposes obligations that tend to lower these barriers.[84] Therefore, contestability relates to firms’ ability to “effectively overcome barriers to entry and expansion and challenge the gatekeeper on the merits of their products and services.”[85] With respect to fairness, the obligations seek to address the “imbalance between the rights and obligations of business users” that allows gatekeepers to obtain a “disproportionate advantage” by appropriating the benefits of market participants’ contributions.[86] Indeed, “[d]ue to their gateway position and superior bargaining power, it is possible that gatekeepers engage in behaviour that does not allow others to capture fully the benefits of their own contributions, and unilaterally set unbalanced conditions for the use of their core platform services or services provided together with, or in support of, their core platform services.”[87]

Nonetheless, the DMA also considers fairness to be “intertwined” with contestability.[88] “The lack of, or weak, contestability for a certain service can enable a gatekeeper to engage in unfair practices. Similarly, unfair practices by a gatekeeper can reduce the possibility for business users or others to contest the gatekeeper’s position.”[89] Therefore, an obligation may address both. Unfortunately, because the DMA does not index the obligations based on the specific goal they purportedly advance, it also does not clarify which obligations are intended to safeguard contestability and/or promote fairness. This is despite the fact that the title of the DMA’s Chapter III refers to practices of gatekeepers that limit contestability “or” are unfair.[90]

The confusion between the two policy goals is confirmed in several passages of the text, which refer indiscriminately to contestability “and” fairness.[91] In line with the definition of contestability and fairness provided in the DMA, the table below summarizes the obligations according to protected interests and principal beneficiaries.

The vast majority of the DMA’s provisions seek to promote contestability. Most are clearly described in this way, including explicit references to terms such as contestability, switching, multi-homing, and barriers to entry and expansion.[92] Two of the provisions instead introduce pure transparency obligations. Although they are described as functional to promote contestability and fairness,[93] they do not appear to either affect the imbalance of bargaining power or lower barriers to entry and expansion.

An interesting case is provided by the ban on “sherlocking” (i.e., the use of business users’ data to compete against them), which apparently does not belong to any of the proclaimed goals. Indeed, even if the prohibition is justified to prevent gatekeepers from unfairly benefitting from their dual role,[94] the characterization of the conduct in question does not match the definition of fairness provided in Recital 33.

The goal of fairness is almost always confused (rectius, “intertwined”) with contestability. Indeed, some provisions are justified on grounds that the imposition of contractual terms and conditions by gatekeepers may limit inter-platform contestability.[95] Other provisions are deemed necessary to promote multi-homing and to prevent reinforcing business users’ dependence on gatekeepers’ core platform services.[96] Further, to ensure a “fair commercial environment” and to protect the contestability of the digital sector, the DMA considers it important to safeguard the right to raise concerns about unfair practices by gatekeepers.[97] Moreover, the DMA contends that, since certain services are “crucial” for business users, gatekeepers should not be allowed to leverage their position against their dependent business users and therefore “the freedom of the business user to choose alternative services” should be protected.[98] Finally, the law suggests that some practices should be prohibited because they give gatekeepers a means to capture and lock in new business users and end users, thus raising barriers to entry.[99]

Thus, there is significant definitional overlap between contestability and fairness under the DMA. Further, while Recital 33 links the notion of fairness to the imbalance between business users’ rights and obligations, some provisions also protect end users against unfair practices.[100] The law also embraces fairness as a notion applicable to both contractual terms and market outcomes. Indeed, in order to justify intervention that exceeds traditional antitrust rules, the DMA states that market processes are often incapable of ensuring “fair economic outcomes” with regard to core platform services.[101] In other words, rather than concern itself with specific practices, the DMA’s approach to fairness starts with a presumption that the outcome is unfair and regulates some practices to redress this.

Article 6(12) represents the only provision clearly addressed at ensuring just fairness as defined in Recital 33. Indeed, describing the FRAND access obligation, Recital 62 includes several keywords from that definition, stating that pricing or other general-access conditions should be considered unfair if they lead to an “imbalance of rights and obligations” imposed on business users or confer a “disproportionate advantage” on the gatekeeper. But “fairness” in such circumstances acts as a standard rather than a rule. To avoid the scenario already illustrated with regard to SEPs, Recital 62 provides some benchmarks to determine the fairness of general-access conditions.

Article 5(3) forbids parity clauses, also known as most-favored nation (MFN) agreements or across-platform parity agreements (APPAs). The provision bans both the broad and narrow versions of such clauses, thereby prohibiting gatekeepers from restricting business users’ ability to offer products or services under more favorable conditions through other online intermediation services or through direct online sales channels. The DMA maintains that, while the broad version of the parity clause may limit inter-platform contestability, its narrow version would unfairly restrain business users’ freedom to use direct online sales channels.[102]

To the extent that the rationale for the ban is to protect weak business parties against the superior bargaining power exerted by digital intermediaries, the potential effects of broad and narrow MFNs differ significantly. While broad parity clauses are more likely to produce net anti-competitive effects, efficiency justifications related to the protection of platforms’ investments against the risk of free riding usually prevail in case of narrow parity clauses. Indeed, the original DMA proposal only forbade broad MFNs, as the European Commission has traditionally endorsed a case-by-case analysis of their effects under competition law.[103] The more lenient approach toward narrow MFNs is seen in the new guidelines on vertical restraints, where it is stated that narrow retail-parity obligations are more likely to fulfil the conditions of Article 101(3) TFEU than across-platform retail parity obligations “primarily because their restrictive effects are generally less severe and therefore more likely to be outweighed by efficiencies” and “[m]oreover, the risk of free riding by sellers of goods or services via their direct sales channels may be higher, in particular because the seller incurs no platform commission costs on its direct sales.”[104]

By banning narrow MFNs, the final version of the DMA disregards these efficiency justifications. A more fulsome notion of fairness would be concerned not only with gatekeepers’ disproportionate advantage, but also with the risk of free riding by business users, which may reduce the incentive to invest in platform development.[105] Indeed, relying on the definition provided in Recital 33, this could be a case where fairness may even be invoked by a gatekeeper against business users, because the former may be unable to fully capture the benefits of its own investment.

C.      Data Act

Ambiguity about the notion of fairness also characterizes the proposed Data Act.[106] On the one hand, the proposal pursues the goal of “fairness in the allocation of value from data” among actors in the data economy.[107] This concern stems from the observation that the value of data is concentrated in the hands of relatively few large companies, while the data produced by connected products or related services are an important input for aftermarket, ancillary, and other services.[108] Given this, the Data Act attempts to facilitate access to and use of data by consumers and businesses, while preserving incentives to invest in ways of generating value from data. On the other hand, to ensure fairness in the underpinning data-processing services and infrastructure, the proposal seeks “fairer and more competitive markets” for data-processing services, such as cloud-computing services.[109]

Moreover, such objectives include operationalizing rules to ensure “fairness in data sharing contracts.”[110] Notably, to prevent the exploitation of contractual imbalances that hinder fair data-access and use for small or medium-sized enterprises (SMEs),[111] Chapter IV of the Data Act addresses unfair contractual terms in data-sharing contracts in situations where a contractual term is imposed unilaterally by one party on a SME. The proposal justifies this requirement by assuming that SMEs will typically be in a weaker bargaining position, without meaningful ability to negotiate the conditions for access to data. They are thus often left with no other choice but to accept take-it-or-leave-it contractual terms.[112]

Terms imposed unilaterally on SMEs are subject to an unfairness test,[113] where a contractual term is considered unfair if it is of such a nature that its use grossly deviates from good commercial practice, contrary to good faith and fair dealing.[114] But given how vague and broad concepts such as “gross deviation from good commercial practices” or “contrary to good faith and fair dealing” are, the unfairness test may simply serve to generate further uncertainty, which could be heightened by potential differing interpretations at the national level.

Therefore, rather than outline specific rules, the proposed Data Act opts for a standard-based approach and provides a yardstick to interpret the unfairness test.[115] Article 13 includes a list of terms that are always considered unfair and another list of terms that are presumed to be unfair. If a contractual term is not included in these lists, the general unfairness provision applies. Moreover, model contractual terms recommended by the Commission may assist commercial parties in concluding contracts based on fair terms.

Some terms considered unfair by the Data Act are clearly inspired by the abuse-of-economic-dependence standard.[116] Given the implicit parallel between data dependence and economic dependence, the exclusion of SMEs from the scope of application of Article 13 is not justified.[117] Indeed, abuse-of-economic-dependence cases involve scrutinizing the unfairness of terms and conditions due to the imbalance of bargaining power between business parties, regardless of the size of the players involved. Moreover, in the case of data-sharing contracts, such imbalance would be generated by data dependence, which may also emerge when SMEs exert control over certain data.

In summary, to achieve a greater balance in the distribution of the economic value from data among actors, the fairness of both contractual terms and market outcomes are addressed in the Data Act. The creation of a cross-sectoral governance framework for data access and use aims to ensure contractual fairness by rebalancing the bargaining power of SMEs vis-à-vis large players in data sharing contracts.[118] As a result, fairer and more competitive market outcomes shall be promoted in aftermarkets and in data processing services.[119]

D.     Summary of Findings

Recent EU legislative efforts motivated by the objective of promoting fairness in digital markets have thus far appeared to confirm traditional doubts about the possibility of relying on it as a suitable tool to assess anti-competitiveness.

If fairness has proven to be unsuitable to serve as a substantive standard in EU competition-law enforcement, the shift towards a rule-based approach does not seem to provide a significant improvement. Fairness represents a vague overarching goal. The envisaged black and white rules do not plainly address fairness, which instead is still essentially treated according to a standard-based approach. Moreover, the lack of clarity about the meaning of the term and the boundaries of its scope remains a relevant and thorny issue.

Indeed, the recent initiatives apply fundamentally different concepts of fairness. While the P2B Regulation treats fairness as de facto equivalent to transparency rules, the DMA defines it as referring to an imbalance in bargaining power that prevents a fair share of value among all players that contribute to a platform ecosystem. That definition notwithstanding, almost all of the DMA’s obligations putatively intended to promote fairness are, in effect, addressed at promoting contestability. Furthermore, the only provision clearly aimed at ensuring fairness as defined in the DMA relies on a standard-based approach. In a similar vein, the proposed Data Act treats fairness as a standard, introducing contractual protections based solely on the size of the players (i.e., SMEs) and providing a yardstick to apply the unfairness test.

IV.    Fairness as a Blanket License for Regulatory Intervention

Alongside the apparent difficulties in operationalizing fairness as either a standard or a rule, in practice, the lines separating fairness in the process from the outcomes of competition are inevitably blurred.[120] After all, Commissioner Vestager has not hidden her dissatisfaction with current market outcomes, showing an inclination to evaluate market structure as a proxy for fairness. Despite the efforts to describe efficiency and fairness as converging objectives for competition-policy enforcers, she implicitly acknowledged the trade-off between these goals.[121] Notably, Vestager argued that “[i]t’s true that competition, by its very nature, involves winners and losers. But as long as the social market economy is working properly, the efficiency gains that accrue from this process can be fairly and justly shared across all stakeholders.”

It is hard to deny the fundamental contradiction between defending efficient markets and promoting distributive justice. It is also difficult to reconcile Vestager’s message with the CJEU’s well-established principle that exclusionary effects do not necessarily undermine competition.[122] Indeed, rather than interpret fairness as equality of initial opportunities, Vestager explicitly refers to the fairness of market outcomes.

From this perspective, it would be more coherent to state that the reason why there is no clash between efficiency and fairness is because they perform different functions. While the former acts as a substantive standard for antitrust enforcement, the latter is a mere aspiration that has proven useful for political signaling.

It is not surprising that the recent push to revive fairness considerations in digital markets has originated outside the competition-law framework. Such policy choices implicitly acknowledge the impossibility of using fairness as an alternative standard to competition on the merits in antitrust law. As recently recalled by the CJEU, the ultimate goal of antitrust intervention is the protection of consumer welfare, rather than any particular market structure. The exclusion of as-efficient competitors is key to triggering antitrust liability for competition foreclosure. Therefore, for those who pursue the political agenda of building a fairer society,[123] it is necessary to bypass competition law, arguing—as the DMA does—that it is unfit to address the new challenges posed by digital gatekeepers. Indeed, in the setting of per se regulation, fairness can be invoked to justify more discretion, disregarding economic analysis and demonstration of the anticompetitive effects of conduct.

Against this background, the definition of fairness envisaged by the DMA (as protection against the asymmetric negotiating power of digital gatekeepers vis-à-vis business users to ensure an adequate sharing of the surplus) appears insufficient to provide the much-needed limits to its scope of application. This particular flavor of distributive justice may, indeed, favor regulatory capture, justifying interventions that actually reflect rent-seeking strategies aimed at shielding some legacy players from competition at the expense of consumers.

This is apparently the case with some EU policy initiatives such as the directive on copyright in the Digital Single Market.[124] In line with the proclaimed purpose of achieving “a well-functioning and fair marketplace for copyright,”[125] the directive grants to publishers a right to control the reproduction of digital summaries of press publications, which currently are often offered by information-service providers.[126] The new right aims to address the value gap dispute between digital platforms and news publishers, as the former are accused of capturing a huge share of the advertising revenue that might otherwise go to the latter by free riding on the investments made in producing news content. The argument is that these platforms take advantage of the value created by publishers when they distribute content that they do not produce and for which they do not bear the costs.[127]

Notably, because of publishers’ reliance on some Big Tech platforms for traffic (i.e., Google and Facebook), the latter are deemed to exert substantial bargaining power, which makes it difficult for publishers to negotiate on an equal footing.[128] Accordingly, it has been argued that a harmonized legal protection is needed to put publishers in better negotiating position in their contractual relations with large online platforms.

The European reform has not, however, been guided by an evidence-led approach. Indeed, there is no empirical evidence to support the free-riding narrative.[129] It relies merely on evidence of the crisis in the newspaper industry, without proof of the claim that digital infomediaries negatively impact legacy publishers by displacing online traffic. Looking at the previous ancillary-rights solutions at the national level (i.e., in Germany and Spain), empirical results show no evidence of a substitution effect, but rather demonstrate the existence of a market-expansion effect. This therefore proves that online news aggregators complement newspaper websites and may benefit them in terms of increased traffic and more advertising revenue. Such aggregators allow consumers to discover news outlets’ content that they would not otherwise be aware of, while reducing search times and enabling readers to consume more news.[130]

In a similar vein, as part of the 2030 digital-policy program,[131] the Commission and other European institutions appear set to deliver another legislative initiative that would force some large online platforms to contribute to the cost of telecommunications infrastructure.[132] Indeed, telecom operators claim that internet-traffic markets are unbalanced, arguing that just a few large online companies generate a significant portion of all network traffic, but they do not adequately contribute to the development of such networks[133]. As the argument goes, while network operators bear massive investments to ensure connectivity, digital platforms free ride on the infrastructure that carries their services.

Moreover, strong competition in the retail telecommunications market and regulatory interventions on the wholesale level have contributed to declining profit margins for telecom firms’ traditional retail revenue streams. Therefore, telecom operators argue that their costs of capital are higher than their returns on capital. Finally, network operators complain that they are not in a position to negotiate fair terms with these platforms due to their strong market positions, asymmetric bargaining power, and the lack of a level regulatory playing field. Hence, they argue, a legislative intervention is needed to address such imbalances and ensure a fair share of network usage costs are financed by large online content providers.[134]

Following this path, the EU Council has recently supported the view expressed in the European Declaration on Digital Rights and Principles for the Digital Decade that it is necessary to develop adequate frameworks so that “all market actors benefiting from the digital transformation assume their social responsibilities and make a fair and proportionate contribution to the costs of public goods, services and infrastructures, for the benefit of all Europeans.”[135]

The arguments advanced by telecom operators to support introducing a network-fee payment scheme would amount to a sending-party-network-pays system. Such proposals are not new, and they have already been rejected. As the Body of European Regulators for Electronic Communications (BEREC) noted 10 years ago, such proposals overlook that it is the success of content providers that lies at the heart of increases in demand for broadband access.[136] Indeed, requests for data flows stem not from content providers. but from internet consumers, from whom internet service providers already derive revenues.[137] From this perspective, both sides of the market (content providers and end users) already contribute to paying for Internet connectivity.[138] Further, “[t]his model has enabled a high level of innovation, growth in Internet connectivity, and the development of a vast array of content and applications, to the ultimate benefit of the end user.”[139]

Moreover, by charging Big Tech firms, the proposal may clash with the legal obligation of equal treatment that ensues from the Net Neutrality Regulation,[140] which has been justified under the opposite view that is it broadband providers who enjoy endemic market power as terminating-access monopolies, and hence should be precluded from discriminating against some traffic.[141] From this perspective, it would be difficult to justify an intervention intended to restore fairness in the relationship between network operators and content providers on the premise that the former suffers from an asymmetry of bargaining power without repealing the Net Neutrality Regulation.

BEREC recently affirmed its view in a preliminary assessment of the mechanism of direct compensation to telecom operators.[142] Changes in the traffic patterns do not modify the underlying assumptions regarding the sending-party-network-pays charging regime, therefore “the 2012 conclusions are still valid.”[143] The sending-party-network-pays model, BEREC argues, would provide ISPs “the ability to exploit the termination monopoly” and such a significant change could be of “significant harm to the internet ecosystem.”[144] Further, BEREC questioned the assumption that an increase in traffic directly translates into higher costs, noting that the costs of internet-network upgrades necessary to handle an increased traffic volume are very low relative to total network costs, while upgrades come with a significant increase in capacity.[145] Moreover, BEREC once again found no evidence of free riding along the value chain[146]: the IP-interconnection ecosystem is still largely competitive and the costs of internet connectivity are typically covered and paid for by ISP customers.

V.      Conclusion

Like the sirens’ music in the Odyssey, fairness exerts an irresistible allure. By evoking principles of equity and justice, fairness makes it hard for anyone to disagree with the pursuit of a goal that would make not just markets, but the whole society better off. As Homer warned, however, the rhetoric may be deceptive and designed to distract from the proper path. We see such risk in the call for fairness to serve as the guiding principle of EU competition policy in digital markets.

The experience of EU competition-law enforcement is illustrative of the difficulties inherent in relying on fairness as an applicable standard. It also underscores why enforcers have traditionally been reluctant to do so. Indeed, attempts to evaluate the unfairness of prices have required courts and competition authorities to identify economic values, while the struggle in finding agreement on the economic definition of what is fair has generated a wave of litigation in the SEP-licensing scenario. Therefore, while seeking refuge in the “ordinary meaning of the word” is apparently useless, envisaging an economic proxy for fairness is particularly challenging.

Despite this background, the EU institutions have embarked on a mission to appoint fairness as the lodestar of policy in digital markets. The DMA offers one definition of fairness, while all the other initiatives (P2B Regulation, the proposed Data Act, the Copyright Directive, and the ongoing discussion on the cost of telecom infrastructure) are likewise moved to address imbalances in bargaining power that do not guarantee that surplus will be adequately shared among market participants. On closer inspection, however, the initiatives are not fully consistent with any particular definition. The notion of fairness is often merged with contestability and is invoked to protect a wide range of stakeholders (business users, end users, rivals, or just small players), even when there is no evidence of disproportionate advantage for large online companies. Moreover, rather than being translated into specific rules, fairness is still primarily promoted according to a standard-based approach.

The revival of fairness considerations appears motivated primarily by policymakers’ desire to be free of any significant procedural constraints. An analogous policy trend can be seen among U.S. authorities, who likewise question the role of efficiency in antitrust enforcement and call for a “return to fairness.”[147] In the name of fairness, various business practice, strategies, and contractual terms can be evaluated without incurring the burden of economic analysis. And even the market structure can be questioned.

Fairness has the power to transform policymakers into judges, deciding what is right and who is worthy, which is a temptation that would require the sagacious foresight of Ulysses.

[1] Giuseppe Colangelo, Antitrust Unchained: The EU’s Case Against Self-Preferencing, International Center for Law & Economics (Oct. 7, 2022) ICLE White Paper,

[2] Jonathan Kanter, Remarks at New York City Bar Association’s Milton Handler Lecture, U.S. Justice Department (May 18, 2022)

[3] Ibid.

[4] See, e.g., Amelia Miazad, Prosocial Antitrust, 73 Hastings Law J. 1637 (2022); Dina I. Waked, Antitrust as Public Interest Law: Redistribution, Equity and Social Justice, 65 Antitrust Bull. 87 (Feb. 28, 2020); Ioannis Lianos, Polycentric Competition Law, 71 Curr Leg Probl 161 (Dec. 1, 2018); Lina M. Khan & Sandeep Vaheesan, Market Power and Inequality: The Antitrust Counterrevolution and its Discontents, 11 Harv. L. & Pol’y Rev. 235 (2017). See also Margrethe Vestager, Fairness and Competition Policy, European Commission (Oct. 10, 2022),, arguing that properly functioning markets become an instrument of social change and progress as, e.g., “keeping markets open to smaller players and new entrants benefits female entrepreneurs and entrepreneurs with a migrant background.”

[5] Eleanor M. Fox, The Battle for the Soul of Antitrust, 75 Cal. L. Rev. 917 (May 1987).

[6] Kanter, supra note 2; See also Alvaro M. Bedoya, Returning to Fairness, Federal Trade Commission, 2 (Sep. 22, 2022), available at, noting that “when Congress convened in 1890 to debate the Sherman Act, they did not talk about efficiency.”; See also Waked, supra note 4, framing antitrust as public-interest law and arguing that a sole focus on efficiency goals is inconsistent with the history of antitrust; For analysis of the conceptual links among competition, competition law, and democracy in the EU and the United States, see Elias Deutscher, The Competition-Democracy Nexus Unpacked—Competition Law, Republican Liberty, and Democracy, Yearbook of European Law (forthcoming), arguing that the idea of a competition-democracy nexus can only be explained through the republican conception of liberty as nondomination; In a similar vein, see Oisin Suttle, The Puzzle of Competitive Fairness, 21 PPE 190 (Mar. 7, 2022), distinguishing competitive fairness from equality of opportunity, sporting fairness (e.g., a level playing field), and economic efficiency, and arguing that competitive fairness is justified under the republican ideal of nondomination, namely the status of being a free agent protected from subjection to arbitrary interference.

[7] Bedoya, supra note 6, 8.

[8] See, e.g., Louis B. Schwartz, “Justice” and Other Non-Economic Goals of Antitrust, 127 Univ PA Law Rev 1076 (1979); John J. Flynn, Antitrust Jurisprudence: A Symposium on the Economic, Political and Social Goals of Antitrust Policy, 125 Univ PA Law Rev 1182 (1977).

[9] Eleanor M. Fox, Modernization of Antitrust: A New Equilibrium, 66 Cornell L. Rev. 1140 (August 1981).

[10] Kanter, supra note 2; See also Bedoya, supra note 6, 5, stating that “[w]hen antitrust was guided by fairness, these farmers’ families were part of a thriving middle class across rural America. After the shift to efficiency, their livelihoods began to disappear.”

[11] See Anu Bradford, Adam S. Chilton, & Filippo Maria Lancieri, The Chicago School’s Limited Influence on International Antitrust, 87 U Chi L Rev 297 (2020), arguing that the influence of the Chicago School has been more limited outside the United States.

[12] Niamh Dunne, Fairness and the Challenge of Making Markets Work Better, 84 Mod Law Rev 230, 236 (March 2021).

[13] Christian Ahlborn & Jorge Padilla, From Fairness to Welfare: Implications for the Assessment of Unilateral Conduct Under EC Competition Law, in Claus-Dieter Ehlermann & Mel Marquis (eds.), European Competition Law Annual 2007: A Reformed Approach to Article 82 EC (Hart Publishing, 2008), 55, 61-62; See also Vestager, supra note 4, stating that “[f]airness is what motivated us to take a look at the working conditions of the solo self-employed. … And fairness is what we considered first in our design of the Temporary Crisis Framework – avoiding subsidy races while ensuring those most affected by the crisis can receive the support they need.”

[14] See, e.g., Dunne, supra note 12, 237; Maurits Dolmans & Wanjie Lin, How to Avoid a Fairness Paradox in EU Competition Law, in Damien Gerard, Assimakis Komninos, & Denis Waelbroeck (eds.), Fairness in EU Competition Policy: Significance and Implications, GCLC Annual Conference Series, Bruylant (2020), 27-76; Francesco Ducci & Michael Trebilcock, The Revival of Fairness Discourse in Competition Policy, 64 Antitrust Bull. 79 (Feb. 12, 2019); Harri Kalimo & Klaudia Majcher, The Concept of Fairness: Linking EU Competition and Data Protection Law in the Digital Marketplace, 42 Eur. Law Rev. 210 (2017).

[15] See Einer Elhauge, Should The Competitive Process Test Replace The Consumer Welfare Standard?, ProMarket (May 24, 2022),; Herbert Hovenkamp, The Slogans and Goals of Antitrust Law, Faculty Scholarship at Penn Carey Law. 2853, (Jun. 2, 2022)

[16] See Bart J. Wilson, Contra Private Fairness, 71 Am J Econ Sociol 407 (April 2012), arguing that the understanding and use of the term “fair” in economics can be described as muddled, at best.

[17] Daniel Kahneman, Jack L. Knetsch, & Richard Thaler, Fairness as a Constraint on Profit Seeking: Entitlements in the Market, 76 Am Econ Rev 728 (September 1986); See also Ernst Fehr & Klaus M. Schmidt, A Theory of Fairness, Competition, and Cooperation, 114 Q J Econ 817 (August 1999).

[18] Louis Kaplow & Steven Shavell, Fairness Versus Welfare, Harvard University Press (2002).

[19] United States v. Trans-Mo. Freight Ass’n, 166 U.S. 290, 323 (1897); See Bedoya, supra note 6, 2, arguing that “today, it is axiomatic that antitrust does not protect small business. And that the lodestar of antitrust is not fairness, but efficiency” (emphasis in original); See also Margrethe Vestager, The Road to a Better Digital Future, European Commission (Sep. 22, 2022),, welcoming the Digital Markets Act because it will empower the EU “to make sure large digital platforms do not squeeze out small businesses.”

[20] Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act, U.S. Federal Trade Commission (Nov. 10, 2022),

[21] Ibid., footnotes 15, 18, and 21.

[22] Lina M. Khan, Rebecca Kelly Slaughter, Alvaro M. Bedoya, On the Adoption of the Statement of Enforcement Policy Regarding Unfair Methods of Competition Under Section 5 of the FTC Act, U.S. Federal Trade Commission (Nov. 10, 2022), 1,

[23] Christine S. Wilson, Dissenting Statement Regarding the Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act, U.S. Federal Trade Commission (Nov. 10, 2022), 1-3,, also arguing that “[t]he only crystal-clear aspect of the Policy Statement pertains to the process following invocation of an adjective: after labeling conduct ‘facially unfair,’ the Commission plans to skip an in-depth examination of the conduct, its justifications, and its potential consequences.”

[24] See, e.g., Konstantinos Stylianou & Marios Iacovides, The Goals of EU Competition Law: A Comprehensive Empirical Investigation, Leg Stud (forthcoming), reporting the various goals mentioned in speeches by EU commissioners during their terms in office; Dunne, supra note 12, 238, noting that Vestager invoked fairness in 85% of speeches in her first term in office.

[25] Margrethe Vestager, Fair Markets in a Digital World, European Commission (Mar. 9, 2018),

[26] Ibid.

[27] Ibid.

[28] Margrethe Vestager, Competition and Fairness in a Digital Society, European Commission (Nov. 22, 2018)

[29] Margrethe Vestager, Competition in a Digital Age, European Commission (Mar. 17, 2021),

[30] Margrethe Vestager, What Is Competition For?, European Commission (Nov. 4, 2021),

[31] See, e.g., Margrethe Vestager, Fairness and Competition, European Commission (Jan. 25, 2018),; Margrethe Vestager, Making the Decisions that Count for Consumers, European Commission (May 31, 2018)

[32] Vestager, supra note 25.

[33] Margrethe Vestager, A Responsibility to Be Fair, European Commission (Sep. 3, 2018),

[34] Thibault Schrepel, Antitrust Without Romance, 13 N. Y. Univ. J. Law Lib. 326 (May 4, 2020); As noted by Dolmans & Lin, supra note 14, 38, fairness, “with its moral overtones, confers a rhetorical flourish and sense of intrinsic righteousness when used to describe an act or situation.”; However, see Sandra Marco Colino, The Antitrust F Word: Fairness Considerations in Competition Law, 5 J. Bus. Law 329, 343 (2019), arguing that “[i]t makes little sense to defend a competition policy that develops with its back purposefully turned to the attainment of moral and social justice.”; For a more balanced reading, see Johannes Laitenberger, Fairness in EU Competition Law Enforcement, European Commission (Jun. 20, 2018), arguing that “while ‘fairness’ is a guiding principle, it is not an instrument that competition enforcers can use off the shelf to go about their work in detail. In each and every case the Commission looks into, it must dig for evidence; conduct rigorous economic analysis; and check findings against the law and the guidance provided by the European Courts.”

[35] Margrethe Vestager, Competition for a Fairer Society, European American Chamber of Commerce (Sep. 29, 2016); see also Margrethe Vestager, Antitrust for the Digital Age, European Commission (Sep. 16, 2022), arguing that the power that large platforms wield “is not just an issue for fair competition; it is an issue for our very democracies” and that the most important goal of competition policy is to make markets work for people; Margrethe Vestager, Keynote at the Making Markets Work for People Conference, European Commission (Oct. 27, 2022), stating that “[t]he only policy goal for markets is to serve the people.”; on the social rationale of competition law, see Damien Gerard, Fairness in EU Competition Policy: Significance and Implications, 9 J. Eur. Compet 211 (2018).

[36] Vestager, supra note 4, stating that “[w]e are on the side of the people, sometimes when no one else is.”; in a similar vein, on the U.S. side, see Bedoya, supra note 6, 9, describing antitrust as a way to protect “people living paycheck to paycheck” (“For me, that’s what antitrust is about: your groceries, your prescriptions, your paycheck. I want to make sure the Commission is helping the people who need it the most.”); see also Ariel Ezrachi & Maurice E. Stucke, The Fight over Antitrust’s Soul, 9 J. Eur. Compet 1 (2018), arguing that “[u]ltimately the divide is over the soul of antitrust: Is antitrust solely about promoting some form of economic efficiency (or as cynics argue, the interests of the powerful who hide behind a narrow utilitarian approach) or the welfare of the powerless (the majority of citizens who feel increasingly disenfranchised by big government and big business)?”; see also Adi Ayal, Fairness in Antitrust: Protecting the Strong from the Weak, Hart (2016).

[37] Vestager, supra note 28; see also @vestager, Twitter (Nov 8, 2022, 4:39 AM), featuring Vestager’s reaction to the European Court of Justice’s (CJEU) judgment annulling the Commission’s decision that found Luxembourg had granted selective tax advantages to Fiat in Fiat Chrysler Finance Europe v. Commission.

[38] There is an extensive literature devoted to investigating the tradeoffs between rules and standards: see, e.g., Daniel A. Crane, Rules Versus Standards in Antitrust Adjudication, 64 Wash. Lee Law Rev. 49 (2007); Louis Kaplow, Rules Versus Standards: An Economic Analysis, 42 Duke L.J. 557 (1992); Isaac Ehrlich & Richard A. Posner, An Economic Analysis Of Legal Rulemaking, 3 J. Leg. Stud. 257 (January 1974).

[39] See, e.g., CJEU, Case C-127/73, Belgische Radio en Televisie and Société Belge des Auteurs, Compositeurs et Editeurs v. SV SABAM and NV Fonior (Mar. 27, 1974), EU:C:1974:25, para. 15, holding that an exploitative abuse may occur when “the fact that an undertaking entrusted with the exploitation of copyrights and occupying a dominant position … imposes on its members obligations which are not absolutely necessary for the attainment of its object and which thus encroach unfairly upon a member’s freedom to exercise his copyright.”

[40] European Commission, Case IV/31.043, Tetra Pak II (Jul. 24, 1991), paras. 105-108, (1992) OJ L 72/1.

[41] European Commission, Case COMP D3/34493, DSD (Apr. 20, 2001), para. 112, (2001) OJ L 166/1; affirmed in GC, Case T-151/01, DerGrünePunkt – Duales System DeutschlandGmbH v. European Commission (May 24, 2007), EU:T:2007:154 and CJEU, Case C-385/07 P (Jul. 16, 2009), EU:C:2009:456.

[42] See European Commission, Case COMP/E-2/36.041/PO, Michelin (Michelin II) (Jun. 20, 2001), paras. 220-221 and 223-224, (2002) OJ L143/1, arguing that a discount program was unfair because it “placed [Michelin’s dealers] in a situation of uncertainty and insecurity,” because “it is difficult to see how [Michelin’s dealers] would of their own accord have opted to place themselves in such an unfavourable position in business terms,” and because Michelin’s retailers were not in a position to carry out “a reliable evaluation of their cost prices and therefore [could not] freely determine their commercial strategy.”

[43] Opinion of Advocate General Pitruzzella, Case C-372/19, Belgische Vereniging van Auteurs, Componisten en Uitgevers CVBA (SABAM) v. Weareone.World BVBA, Wecandance NV (Jul. 16, 2020), EU:C:2020:598, para. 21; see also Marco Botta, Sanctioning Unfair Pricing Under Art. 102(a) TFEU: Yes, We Can!, 17 Eur. Compet. J. 156 (2021); for an overview of recent case law, see Giovanni Pitruzzella, Recent CJEU Case Law on Excessive Pricing Cases, in The Interaction of Competition Law and Sector Regulation: Emerging Trends at the National and EU Level (Marco Botta, Giorgio Monti, and Pier Luigi Parcu, eds.), Elgar 2022, 169; Margherita Colangelo, Excessive Pricing In Pharmaceutical Markets: Recent Cases in Italy and in the EU, ibid., 210.

[44] Dolmans & Lin, supra note 14, 59-60; see also Botta, supra note 43, arguing that, since the imposition of excessive prices by a dominant firm directly harms consumer welfare, the resurgence of excessive-pricing cases is linked to the role of consumer’s welfare standard in EU competition policy.

[45] CJEU, Case C-27/76, United Brands Company and United Brands Continental BV v. Commission of the European Communities (Feb. 14, 1978) EU:C:1978:22.

[46] CJEU, Case C-372/19, Belgische Vereniging van Auteurs, Componisten en Uitgevers CVBA (SABAM) v. Weareone.World BVBA, Wecandance NV (Nov. 25, 2020), EU:C:2020:959.

[47] United Brands, supra note 45, para. 252, holding that the questions to be determined are “whether the differences between the costs actually incurred and the price actually charged is excessive, and, if the answer to this question is in the affirmative, whether a price has been imposed which is either unfair in itself or when compared to competing products.”

[48] CJEU, Case C-177/16, Autortiesi?bu un Komunice?s?ana?s Konsulta?ciju Ag?entu?ra v. Latvijas Autoru Apvieni?ba v Konkurences Padome (Sep. 14, 2017), EU:C:2017:689, para. 49.

[49] Opinion of Advocate General Wahl, Case C-177/16 (Apr. 6, 2017), EU:C:2017:286, para. 131.

[50] See European Commission, Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, (2009) OJ C 45/7, para. 80; CJEU, 14 October 2010, Case C-280/08 P, Deutsche Telekom AG v. European Commission, EU:C:2010:603; CJEU, 17 February 2011, Case C-52/09, Konkurrensverket v. TeliaSonera Sverige AB, EU:C:2011:83; CJEU, 10 July 2014, Case C?295/12 P, Telefónica SA and Telefónica de España SAU v. European Commission, EU:C:2014:2062; CJEU, 25 March 2021, Case C-165/19 P, Slovak Telekom a.s. v. Commission, EU:C:2021:239.

[51] However, in Teliasonera (supra note 50), the CJEU found that there can be an exclusionary abuse even where the margin level of input purchasers is positive (so-called positive margin squeeze theory), being enough that rivals’ margins are insufficient, for instance because they must operate at artificially reduced levels of profitability.

[52] On the US side, rejecting margin squeeze as a stand-alone offense, the Supreme Court in Pacific Bell Tel. Co. v. linkLine, 555 U.S. 438 (2009) argued that it is nearly impossible for courts to determine the fairness of rivals’ margins and quoted Town of Concord v. Boston Edison Co., 915 F. 2d 17, 25 (1st Cir. 1990) asking “how is a judge or jury to determine a ‘fair price?’ Is it the price charged by other suppliers of the primary product? None exist. Is it the price that competition ‘would have set’ were the primary level not monopo­lized? How can the court determine this price without examining costs and demands, indeed without acting like a rate-setting regulatory agency, the rate-setting proceedings of which often last for several years? Further, how is the court to decide the proper size of the price ‘gap?’ Must it be large enough for all inde­pendent competing firms to make a ‘living profit,’ no matter how inefficient they may be? . . . And how should the court respond when costs or demands change over time, as they inevitably will?”

[53] For an overview, see Oscar Borgogno & Giuseppe Colangelo, Disentangling the FRAND Conundrum, DEEP-IN Research Paper (2019),

[54] CJEU, Case C-170/13, Huawei Technologies Ltd. v. ZTE Corp. (Jul. 16, 2015), EU:C:2015:477.

[55] Nicolas Petit & Amandine Le?onard, FRAND Royalties: Relus v Standards? Chi.-Kent J. Intell. Prop. (forthcoming).

[56] For an overview, see Giuseppe Colangelo, The European Digital Markets Act and Antitrust Enforcement: A Liaison Dangereuse, 47Eur. Law Rev. 597 (July 2022); see also Inge Graef, Differentiated Treatment in Platform-to-Business Relations: EU Competition Law and Economic Dependence, 38 Yearbook of European Law 448 (2019), suggesting giving a stronger role to economic dependence both within and outside EU competition law.

[57] Council Regulation (EC) No. 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, [2003] OJ L 1/1.

[58] Belgian Royal Decree of 31 July 2020 amending books I and IV of the Code of economic law as concerns the abuse of economic dependence, Article 4.

[59] GWB Digitalization Act, 18 January 2021, Section 20.

[60] Italian Annual Competition Law, 5 August 2022, No. 118, Article 33.

[61] CJEU, Case C-377/20, Servizio Elettrico Nazionale SpA v. Autorità Garante della Concorrenza e del Mercato (May 12, 2022), EU:C:2022:379.

[62] Ibid., para. 46.

[63] CJEU, Case C-413/14 P, Intel v. Commission (Sep. 6, 2017), EU:C:2017:632, paras. 133-134. The same principle has been affirmed in discrimination and margin-squeeze cases, such as CJEU, C?525/16, MEO v. Autoridade da Concorrência (Apr. 19, 2018), EU:C:2018:270 and CJEU, Case C-209/10, Post Danmark A/S v. Konkurrencerådet (Mar. 27, 2012), EU:C:2012:172, respectively.

[64] CJEU, Intel, supra note 63, para. 73; see Alfonso Lamadrid de Pablo, Competition Law as Fairness, 8 J. Eur. Compet 147 (Feb. 15, 2017), arguing that the notion of merit-based competition implicitly carries in it a sense of fairness, understood as equality of opportunity; see also Alberto Pera, Fairness, Competition on the Merits and Article 102, 18 Eur. Compet. J. 229 (April 2022).

[65] Regulation (EU) 2019/1150 of the European Parliament and of the Council of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services, [2019] OJ L 186/57.

[66] Ibid., Article 1(1).

[67] Ibid., Recital 2.

[68] Ibid., Recital 49.

[69] European Commission, Shaping Europe’s Digital Future, COM(2020) 67 final.

[70] Ibid., 8-9.

[71] Ibid., 8.

[72] Regulation (EU) 2022/1925 on contestable and fair markets in the digital sector and amending Directives (EU) 2019/1937 and (EU) 2020/1828 (Digital Markets Act), (2022) OJ L 265/1.

[73] Ibid., Recital 7.

[74] Ibid., Recital 2.

[75] Ibid., Recitals 2 and 4.

[76] Ibid., Recitals 46, 47, 51, 56, and 57.

[77] Colangelo, supra note 60; see also Oscar Borgogno & Giuseppe Colangelo, Platform and Device Neutrality Regime: The New Competition Rulebook for App Stores?, 67 Antitrust Bull. 451 (2022).

[78] DMA, supra note 72, Recital 5.

[79] Ibid.

[80] Ibid.

[81] Ibid.

[82] Ibid., Recital 11.

[83] Pinar Akman, Regulating Competition in Digital Platform Markets: A Critical Assessment of the Framework and Approach of the EU Digital Markets Act, 47 Eur. Law Rev. 85 (Mar. 30, 2022); Colangelo, supra note 60; Heike Schweitzer, The Art to Make Gatekeeper Positions Contestable and the Challenge to Know What Is Fair: A Discussion of the Digital Markets Act Proposal, 3 ZEuP 503 (May 7, 2021).

[84] DMA, supra note 72, Recital 32. See also Article 12(5).

[85] Ibid..

[86] Ibid., Recital 33 and Article 12(5); see also Recital 62 providing some benchmarks that can serve as a yardstick to determine the fairness of general access conditions (i.e., prices charged or conditions imposed for the same or similar services by other providers of software application stores; prices charged or conditions imposed by the provider of the software application store for different related or similar services or to different types of end users; prices charged or conditions imposed by the provider of the software application store for the same service in different geographic regions; prices charged or conditions imposed by the provider of the software application store for the same service the gatekeeper provides to itself).

[87] Ibid.; see also Monopolkomission, Recommendations for an Effective and Efficient Digital Markets Act, (2021) 15,, recommending that the DMA objective of fairness should address the economic dependence of business users vis-a?-vis a gatekeeper, and hence the asymmetric negotiating power favoring the gatekeeper; see also Gregory S. Crawford, Jacques Cre?mer, David Dinielli, Amelia Fletcher, Paul Heidhues, Monika Schnitzer, Fiona M. Scott Morton, & Katja Seim, Fairness and Contestability in the Digital Markets Act, Yale Digital Regulation Project, Policy Discussion Paper No. 3 (2021), 4-10,, supporting the interpretation of fairness with respect to surplus sharing. According to the authors, since a platform ecosystem is a co-creation of the platform itself and its users, regulation should correct the distortion related to unfair outcomes when users are not rewarded for their contribution to the success of the platform.

[88] DMA, supra note 72, Recital 34.

[89] Ibid.; see also Recital 16 referring to “unfair practices weaking contestability.”; see, instead, Monopolkomission, supra note 87, 16, suggesting to clearly distinguish the objectives pursued by the DMA, which should be understood such that only ecosystem-related questions of contestability are addressed by the DMA when it comes to the intersection of exclusion and fairness with exploitation of business users.

[90] See also DMA, supra note 72, Articles 12(1, 3, 4, and 5), 19(1), 41(3 and 4), and Recitals 15, 69, 77, 79, 93.

[91] Ibid., Articles 1(1 and 5), 18(2), 40(7), 53 (2 and 3), and Recitals 8, 11, 28, 31, 42, 45, 50, 58, 67, 73, 75, 97, 104, 106.

[92] Ibid., Recital 36 regarding Article 5(2), Recital 50 regarding Article 6(4), Recital 51 regarding Article 6(5), Recital 53 regarding Article 6(6), Recital 59 regarding Article 6(9), Recital 61 regarding Article 6(11), Recital 64 regarding Article 7.

[93] Ibid., Recital 45 regarding Article 5(9-10) and Recital 58 regarding Article 6(8).

[94] Ibid., Recital 46; see also European Commission, Commission Sends Statement of Objections to Amazon for the Use of Non-Public Independent Seller Data and Opens Second Investigation into Its E-Commerce Business Practices (Nov. 10, 2020),

[95] DMA, supra note 72, Recital 39 regarding Article 5(3).

[96] Ibid., Recital 40 regarding Article 5(4).

[97] Ibid., Recital 42 regarding Article 5(6).

[98] Ibid., Recital 43 regarding Article 5(7).

[99] Ibid., Recital 44 regarding Article 5(8).

[100] Ibid., Articles 5(6), 5(8), and 6(13); see also Recital 2 referring to the impact on “the fairness of the commercial relationship between [gatekeepers] and their business users and end users.”

[101] Ibid., Recital 5; see also Recital 42 referring to “fair commercial environment.”

[102] Ibid., Recital 39.

[103] Commission Staff Working Document accompanying the Report from the Commission to the Council and the European Parliament Final Report on the E-commerce Sector Inquiry, SWD(2017) 154 final. Conversely, in Germany, the Federal Supreme Court has supported the Bundeskartellamt’s strict approach against narrow price parity clauses used. See Bundesgerichtshof, Case KVR 54/20, (May 18, 2021).

[104] European Commission, Guidelines on Vertical Restraints (2022) OJ C 248/1, para. 374.

[105] Ibid., para. 372.

[106] European Commission, Proposal for a Regulation of the European Parliament and of the Council on Harmonised Rules on Fair Access and Use of Data (Data Act), COM(2022) 68 final; see also Giuseppe Colangelo, European Proposal for a Data Act – A First Assessment, CERRE Assessment Paper (Aug. 30, 2022)

[107] Data Act, supra note 106, Explanatory Memorandum, 2.

[108] Ibid., Recital 6 and Explanatory Memorandum, 1.

[109] European Commission, Inception Impact Assessment – Data Act, Ares (2021) 3527151, 1,,1-2.

[110] Data Act, supra note 106, Explanatory Memorandum, 3.

[111] Ibid., Recital 5.

[112] Ibid., Recital 51 and Explanatory Memorandum, 13

[113] Ibid., Recital 52

[114] Ibid., Article 13(2).

[115] Ibid., Recital 55.

[116] See, e.g., ibid., Article 13(4)(e), according to which a contractual term is presumed unfair if its object or effect is to enable the party that unilaterally imposed the term to terminate the contract with unreasonably short notice, taking into consideration the reasonable possibilities of the other contracting party to switch to an alternative and comparable service and the financial detriment caused by such termination.

[117] Colangelo, supra note 106.

[118] European Commission, supra note 109, 2.

[119] Ibid..

[120] Dunne, supra note 12, 239; see also Massimo Motta, Competition Policy: Theory and Practice, Cambridge University Press, 2004, 26, distinguishing between ex ante equity, which is consistent with competition policy and implies equal initial opportunities of firms in the marketplace, and ex post equity representing equal outcomes of market competition.

[121] Vestager, supra note 4.

[122] CJEU, supra notes 61 and 63; see also Opinion of Advocate General Rantos, Case C?377/20, Servizio Elettrico Nazionale SpA v. Autorità Garante della Concorrenza e del Mercato (Dec. 9, 2021), EU:C:2021:998, para. 45, arguing that if any conduct having an exclusionary effect were automatically classed as anticompetitive, antitrust would become a means for protecting less-capable, less-efficient undertakings and would in no way protect more meritorious undertakings that can serve as a stimulus to a market’s competitiveness.

[123] Vestager, supra note 28.

[124] Directive (EU) 2019/790 of 17 April 2019 on copyright and related rights in the Digital Single Market and amending Directives 96/9/EC and 2001/29/EC, [2019] OJ L 130/92.

[125] Ibid., Recital 3.

[126] Ibid., Article 15.

[127] See Giuseppe Colangelo, Enforcing Copyright Through Antitrust? The Strange Case of News Publishers Against Digital Platforms, 10 J. Antitrust Enforc 133 (Jun. 22, 2022).

[128] Directive 2019/790, supra note 124, Recitals 54 and 55; see also European Commission, Impact Assessment on the Modernisation of EU Copyright Rules, SWD(2016) 301 final, §5.3.1, arguing that the gap in the current EU rules “further weakens the bargaining power of publishers in relation to large online service providers.”

[129] Ibid.; see also Lionel Bently, Martin Kretschmer, Tobias Dudenbostel, Maria Del Carmen Calatrava Moreno, & Alfred Radauer, Strengthening the Position of Press Publishers and Authors and Performers in the Copyright Directive, European Parliament (September 2017)

[130] See, e.g., Susan Athey, Markus Mobius, & Jeno Pal, The Impact of Aggregators on Internet News Consumption, NBER Working Paper No. 28746 (2021),; Joan Calzada & Ricard Gil, What Do News Aggregators Do?, 39 Mark. Sci. 134 (2020); Joint Research Centre for the European Commission, Online News Aggregation and Neighbouring Rights for News Publishers, (2017)

[131] See European Commission, 2030 Digital Compass: the European Way for the Digital Decade, COM/2021/118 final; and European Commission, Proposal for a Decision of the European Parliament  and of the Council Establishing the 2030 Policy Programme “Path to the Digital Decade,” (2021)

[132] See the public statements released in May 2022 by Commissioners Margrethe Vestager ( and Thierry Breton (

[133] Axon Partners Group Consulting, Europe’s Internet Ecosystem: Socio-Economic Benefits of a Fairer Balance Between Tech Giants and Telecom Operators, (2022) Report prepared for the European Telecommunications Network Operators’ Association (ETNO),; see also Frontier Economics, Estimating OTT Traffic-Related Costs on European Telecommunications Networks, (2022) A report for Deutsche Telekom, Orange, Telefonica, & Vodafone, g4-ott-report-stc-data.pdf.

[134] See also the appeal published by the CEOs of Telefo?nica, Deutsche Telekom, Vodafone and Orange, United Appeal of the Four Major European Telecommunications Companies (2022),; and, more recently, the statement released by several CEOs, CEO Statement on the Role of Connectivity in Addressing Current EU Challenges (2022),

[135] European Commission, European Declaration on Digital Rights and Principles for the Digital Decade, COM(2022) 28 final, 3; see also European Council, 2030 Policy Programme ‘Path to the Digital Decade’: The Council Adopts Its Position (2022),

[136] Body of European Regulators for Electronic Communications, BEREC’s Comments on the ETNO Proposal for ITU/WCIT or Similar Initiatives Along These Lines, BoR(12) 120 (2012), 3,; see also Body of European Regulators for Electronic Communications, Report on IP-Interconnection practices in the Context of Net Neutrality, BoR (17) 184 (2017),, finding the internet-protocol-interconnection market to be competitive.

[137] See former Commissioner Neelie Kroes, Adapt or Die: What I Would Do if I Ran a Telecom Company (2014),, arguing that the current situation of European telcos is not the fault of OTTs, given that the latter are the ones driving digital demand: “[EU homes] are demanding greater and greater bandwidth, faster and faster speeds, and are prepared to pay for it. But how many of them would do that, if there were no over the top services? If there were no Facebook, no YouTube, no Netflix, no Spotify?”

[138] Body of European Regulators for Electronic Communications, supra note 136, 4. Concerns about side effects on consumers of the possible introduction of a network infrastructure fee have been raised  by the European consumer organisation BEUC, Connectivity Infrastructure and the Open Internet, (2022); see also the open letter signed by 34 civil-society organisations from 17 countries ( arguing that nothing has changed that would merit a different response to the proposals that have been already discussed over the past 10 years and that charging content and application providers for the use of internet infrastructure would undermine and conflict with core net-neutrality protections; see also David Abecassis, Michael Kende, & Guniz Kama, IP Interconnection on the Internet: A European Perspective for 2022, (2022), finding no evidence for significant changes to the way interconnection works on the internet and arguing that the approach advocated by proponents of network-usage fees would involve complexity and regulatory costs, and risks being detrimental to consumers and businesses in Europe; futhermore, see David Abecassis, Michael Kende, Shahan Osman, Ryan Spence, & Natalie Choi, The Impact of Tech Companies’ Network Investment on the Economics of Broadband ISPs (2022),, reporting significant investments undertaken by content and application providers in Internet infrastructure.

[139] Body of European Regulators for Electronic Communications, supra note 136, 4. In the next months, the BEREC is expected to assess again the impact of the potential sending party network pays principle the on Internet ecosystem: see Body of European Regulators for Electronic Communications, Work Programme 2023, BoR (22) 143 (2022), 26-27,

[140] Regulation (EU) 2015/2120 laying down measures concerning open internet access and amending Directive 2002/22/EC on universal service and users’ rights relating to electronic communications networks and services and Regulation (EU) No 531/2012 on roaming on public mobile communications networks within the Union, (2015) OJ L 310/1.

[141] For a summary of the net-neutrality debate, see Giuseppe Colangelo & Valerio Torti, Offering Zero-Rated Content in the Shadow of Net Neutrality, 5 M&CLR 41 (2021); see also Tobias Kretschmer, In Pursuit of Fairness? Infrastructure Investment in Digital Markets, (2022), arguing that the policy solution at issue would fall short of the principles of efficient risk allocation, time consistency, and net neutrality, and might seem like arbitrarily targeting a group of (largely U.S.-based) firms while letting (at least partly European) newcomers and/or smaller firms enjoy the same externalities at no cost. Indeed, the author notes that a transfer from Big Tech to telecom-infrastructure providers would be equivalent to a tax on success, since it would be based on ex post estimates of benefits from prior investments. Further, a direct and unrestricted transfer may not ensure sufficient infrastructure investment in the future, as it is not conditional on future behavior, but rather it would serve as a windfall profit for past (imprudent) behavior that can finance any kind of activity by telecom-infrastructure providers. Finally, a fair distribution of investment financing would require all complementors to the basic service to pay a share of future investments proportional to the expected benefit from the investments to be undertaken.

[142] Body of European Regulators for Electronic Communications, BEREC preliminary assessment of the underlying assumptions of payments from large CAPs to ISPs, BoR (22) 137 (2022).

[143] Ibid., 4-5.

[144] Ibid., 5.

[145] Ibid., 7-8.

[146] Ibid., 11-14.

[147] Bedoya, supra note 6, 8.

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Antitrust & Consumer Protection

FTC UMC Authority: Uncertain Scope

TL;DR Background: U.S. law grants both the Federal Trade Commission (FTC) and the U.S. Justice Department (DOJ) authority to enforce both the Sherman Antitrust Act and . . .

Background: U.S. law grants both the Federal Trade Commission (FTC) and the U.S. Justice Department (DOJ) authority to enforce both the Sherman Antitrust Act and the Clayton Antitrust Act. The FTC also enforces the Federal Trade Commission Act. Indeed, the agency’s antitrust authority is grounded in Section 5 of that act, which prohibits “unfair methods of competition” (UMC).

But… There’s been ongoing controversy about the meaning of these laws and particularly about Section 5. Both the Sherman Act and the FTC Act are written in very broad terms. Section 1 of the Sherman Act prohibits “Every contract, combination… or conspiracy, in restraint of trade.” But which contracts or combinations are illegal restraints of trade? Similarly, which methods of competition are “unfair,” as prohibited under Section 5? Most importantly, what, if anything, does UMC cover that isn’t covered by the Sherman Act?


In writing these antitrust statutes, Congress set down general goals, an institutional structure, and enforcement powers, but left it to the agencies and the courts to develop the details. That provided for flexibility as the economy and our understanding of market competition evolved.

For more than 100 years, that’s roughly how things proceeded. Both agencies brought cases; the FTC also generated research and reports; and the courts weighed in, too. Congress exercised its voice through both amendments and appropriations. The FTC monitored and contributed to economic learning in ways ultimately reflected in legal standards.

An understanding emerged that the FTC’s UMC authority reached somewhat beyond the Sherman Act, but was still tethered to the central antitrust concepts of the consumer welfare standard and the “rule of reason,” both of which offer courts a means to evaluate the legality of market behavior in terms of its likely harms and benefits.


While the various antitrust laws use somewhat different language, there is considerable overlap among them. In 1941, the Supreme Court ruled (and has affirmed many times since) that UMC includes conduct prohibited under the Sherman and Clayton Acts. But UMC also includes some amount of “extra” coverage beyond the other antitrust laws—known as “standalone Section 5 authority.” While there’s been considerable agreement that Section 5 goes beyond the letter of the Sherman Act, there’s much less agreement about what lies beyond.

For one thing, the FTC Act doesn’t say. Also, relatively few decisions are based on standalone Section 5. The FTC has tended to bring cases alleging simultaneous violations of both Section 5 and the Sherman Act, and the DOJ doesn’t enforce the FTC Act. The relevant court decisions are old and likely out of date. Complicating the issue is that many of the cases recognizing standalone authority are ones the government lost, so the decisions suggest that Section 5 reaches something beyond the Sherman Act, but fail to indicate what that might be.


In 1972’s FTC v. Sperry & Hutchinson, the U.S. Supreme Court famously found that there may be Section 5 violations that have “anticompetitive impact” but do not violate the other antitrust laws. But the FTC lost that case because the agency did not appeal the lower court’s decision that there was no Sherman Act violation and because it failed to establish a Section 5 violation on any other grounds. The Court’s ruling didn’t tell us what would constitute a standalone violation of Section 5, except that consideration of “public values beyond… those enshrined… in the… antitrust laws” was permitted.

Yet in the wake of Sperry & Hutchinson, as well as a dust-up between the FTC and Congress over Section 5’s prohibition of “unfair or deceptive acts or practices” (UDAP), Congress amended Section 5 to make clear that “public policy considerations may not serve as a primary basis” for liability (at least for UDAP).

More recent decisions have reinforced the importance of an integrated approach to the antitrust laws, as well as of both the rule of reason and the consumer welfare standard. This prompted former FTC Chairman Bill Kovacic to write that the FTC “should not… rely on the assertion… that the Commission could use its UMC authority to reach practices outside both the letter and spirit of the antitrust laws. We think the early history is now problematic, and we view the relevant language… with skepticism.”


Most experts recognize that Section 5 operates as a measured extension of the Sherman Act, with the two laws serving a common goal. Thus there is agreement that Section 5 applies to “invitations to collude.” If two or more competing firms agree to fix prices, that’s an illegal agreement that violates the Sherman Act. But if one firm attempts unsuccessfully to collude—inviting a competitor to join in a price fixing scheme only to be rebuffed—there’s no agreement at all, much less an actual restraint. But because it’s an attempt to violate the Sherman Act that presents a risk of harm to competition and consumers but serves no legitimate business purpose, most everyone agrees it would properly be within the scope of Section 5.

For more on ongoing controversies regarding Section 5 UMC, see the ICLE explainer FTC UMC Authority: Enforcement Issues.

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Antitrust & Consumer Protection

Streaming, Competition and Contract Terms In Screen Production in Australia

Scholarship Abstract This paper assesses a common view that has surfaced recently in a growing number of Government, industry and academic studies, that first claims streaming . . .


This paper assesses a common view that has surfaced recently in a growing number of Government, industry and academic studies, that first claims streaming media services are likely to have adversely affected competition in media markets (both screen and music), and second recommends additional regulation of competition, or market power in streaming media markets. This paper exposes a number of common fundamental mistakes in the economic analysis underlying this view, in order to minimise the risk these mistakes are perpetuated, and adversely affect law and policy.

For this purpose the focus of analysis in this paper is on an assessment of a 2021 report commissioned by Screen Producers Australia (SPA), and prepared by Lateral Economics (LE) that focuses on screen production in Australia. The LE report is fairly representative of analysis that promotes competition law interventions into streaming media markets globally for two reasons. First the LE report is fundamentally based on the hypothesis that there is significant oligopsony market power, indeed LE claims a “profound imbalance in market power”, in this case between buyers and production companies in the screen production market in Australia. Second LE recommends additional regulation. Specifically LE recommends adoption of a UK-style terms of trade regulatory regime for the screen production market in Australia. The regime would regulate screen production contracts, and essentially require collective bargaining between a coalition of screen producers represented by an industry peak body (i.e. SPA) on the one hand, and streaming companies, as well as commercial and public service broadcasters on the other. LE recommends that the Australian Competition and Consumer Commission oversee this.

I explore four common general mistakes made by those advocating more regulation of competition in streaming markets, that are clearly manifest in the LE Report. The first common general mistake is lack of clarity about the objective of the additional recommended regulation. As I show the LE report poses multiple narrow goals or objectives for its proposal. This multiplicity of goals begs questions about which goal takes primacy, and how to make trade-offs between them, while the narrow goals chosen neglect significant relevant wider concerns. I instead focus on the Government’s more fundamental, overarching, or higher-level objective, namely, the promotion of overall wellbeing, or social welfare as a whole. This is consistent with the Australian Competition and Consumer Act 2010 (CCA) that declares the general object of the law is “to enhance the welfare of Australians”. In this regard, LE explicitly acknowledges that it fails to address the impact of its proposed UK-style regulation on consumer welfare in Australia, claiming its discussion is only concerned with the relationship between buyers and sellers of screen productions. This is a serious mistake, as consumers will be considerably worse off under LE’s proposal, implying significant harm to the welfare of Australians, and therefore weighing heavily against LE’s recommended policy change.

The second common general mistake made by LE (and others) is that they do not clearly establish the problem their policy recommendation is supposed to solve. The common basis, or reason LE (and others) claim there is a need for additional regulation is the alleged existence of oligopsony market power – in LE’s case an alleged “profound imbalance in market power between buyers and production companies”. On the contrary however as I show there is no imbalance in market power. LE (like others) simply makes mistakes on three issues underlying market power, as follows.

• Market definition. The usual mistake made by those advocating more regulation of competition in streaming media is to adopt a market definition that is too narrow, which increases the likelihood of market power. LE made this mistake by focusing solely on incumbent streaming companies. As a result LE result calculated that the four firm market share of this narrowly defined market in Australia was 70-80% suggesting a high market concentration result. Given free-to-air (FTA), Internet-based protocol television (IPTV), and pay-tv services are however part of the same market, market shares should be calculated for the combined market, not separately as LE does. When one analyses streaming, FTA, IPTV and pay-tv services in one combined market, the level of the four firm market share (or concentration) is clearly very low, between 35% and 40% – much lower than the 70-80% cited by LE. This does not reveal a “profound imbalance” or very high concentration as claimed by LE.

• Barriers to entry. Another common mistake made by LE and others, is the failure to recognize that even if there is high market shares, or high concentration, low barriers to entry would limit any attempt to abuse market power, as such attempted abuse would encourage new entrants into the market, and therefore be disciplined by loss of market share to new entrants. LE does not carefully identify or assess barriers to entry. Relevant media markets however are contestable, with low barriers to entry, as shown by the recent entry of streaming companies into the Australian market.

• Cartel or collusive behaviors. A further common mistake is the failure to recognize that the abuse of oligopsony power requires explicit or tacit cartel or collusive behaviors. However, such behaviours would be hard to sustain in the current market, given the incentives for cartel participants to compete and cheat on any tacit or explicit cartel agreement to capture market share off other cartel participants, and the low barriers to entry. LE provides no evidence of the existence of cartel or collusive behaviors to refute this.

A third general common general mistake made by LE (and others) is to rely on little or nor evidence, and ignore alternative legitimate or efficient business or market explanations for the contractual or commercial behaviours they allege to be problematic. Despite the absence of any reason to be concerned with a profound imbalance of market power I nevertheless review the changes in contract terms that LE describes as evidence of abuse of market power between screen producers as sellers, and the buyers of their productions, including;

1) Price falls, or claims that Australian screen producers’ incomes have fallen; and
2) Scope widening: or claims the rights transferred to buyers by contract has widened to cover worldwide distribution and sequels; and
3) Duration Increases: or claims the rights transferred to buyers by contract has increased, from 2 to 4 year contracts, to 7 and 10 years, and even in perpetuity.

LE however fails to clearly establish factually that these contractual outcomes have actually occurred, and more importantly fails to refute reasonable alternative explanations for them: namely, that the new terms result from legitimate or efficient competitive market arrangements. On price falls for example, I conclude that even if they were to exist, they are most likely due to the more competitive market putting pressures on costs, or prices paid to producers, and that this is good for consumer’s welfare. On the other two alleged problems, contract scope widening and duration increases, again no evidence is presented that even support the claims made, but even if there were, these are likely to be efficient outcomes as the large streaming companies are likely to need broad scope and long duration contracts to justify the higher investment in the projects they fund, as well as in technology and in worldwide marketing and distribution. More efficient terms on scope and duration would also benefit consumers, and any regulation that threatens to alter such terms would be damaging to consumer interests.

A fourth general common mistake made by LE (and others) is their failure to consider whether current law adequately deals with any of the alleged problems or risks with contract terms. I show however that current Australian law in fact already clearly addresses the problems raised by LE. I also show that LE makes the further common related mistake of failing to look at the marginal effect of the proposed UK style law, compared to the current competitive market outcome and regulatory regime. I identify substantial marginal costs and little to no benefits to the regime as proposed by LE. In essence I show the proposed collective bargaining under the law involves the unnecessary legalisation and facilitation of cartel co-ordination on both sides of the market. It will enable buyers and sellers on the two sides of the market to share information and co-ordinate (in effect form an “unholy alliance”) and put up both of their prices, passing the price rises through to the end consumer, while reducing output and quality, further harming consumers. The regime will also add significantly to market transaction costs and regulatory costs, creating inefficiencies. As I show this will have significant adverse consequences for the welfare of Australians.

In short, my high-level cost-benefit, or regulatory impact analysis highlights that the additional regulation of competition in streaming media markets of the kind proposed by LE is very likely to be highly costly to the welfare of Australians. The exact opposite to that predicted by LE will occur. My analysis reveals LE’s proposals are likely to harm competition and create significant harm to the welfare of Australians. LE’s recommendations should not be followed. Instead, reliance should be placed on the highly competitive market that currently exists, with continued reliance on current law to deliver better outcomes for Australians.

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Antitrust & Consumer Protection

Patent Pools, Innovation, and Antitrust Policy

TOTM Late last month, 25 former judges and government officials, legal academics and economists who are experts in antitrust and intellectual property law submitted a letter to Assistant . . .

Late last month, 25 former judges and government officials, legal academics and economists who are experts in antitrust and intellectual property law submitted a letter to Assistant Attorney General Jonathan Kanter in support of the U.S. Justice Department’s (DOJ) July 2020 Avanci business-review letter (ABRL) dealing with patent pools. The pro-Avanci letter was offered in response to an October 2022 letter to Kanter from ABRL critics that called for reconsideration of the ABRL. A good summary account of the “battle of the scholarly letters” may be found here.

Read the full piece here.

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Antitrust & Consumer Protection

Imposed Final Offer Arbitration: Price Regulation by Any Other Name

TOTM “Just when I thought I was out, they pull me back in!” says Al Pacino’s character, Michael Corleone, in Godfather III. That’s how Facebook and . . .

“Just when I thought I was out, they pull me back in!” says Al Pacino’s character, Michael Corleone, in Godfather III. That’s how Facebook and Google must feel about S. 673, the Journalism Competition and Preservation Act (JCPA).

Read the full piece here.

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Antitrust & Consumer Protection

Journalism Competition and Preservation Act: Not What It Says on the Box

TL;DR Background… As leaders of the U.S. Senate work to pass the National Defense Authorization Act (NDAA) in the ongoing lame-duck session, some reports suggest that . . .


As leaders of the U.S. Senate work to pass the National Defense Authorization Act (NDAA) in the ongoing lame-duck session, some reports suggest that S. 673, the Journalism Competition and Preservation Act (JCPA), could be added to the legislative package. Approved in September 2022 by the Senate Judiciary Committee, the JCPA aims to boost the fortunes of traditional media companies by forcing “covered” online platforms to pay for digital journalism accessed via their services. The bill would require that platforms continue to display digital journalism, while setting out an intricate process whereby digital-journalism providers would collectively negotiate the price of content with platforms.


This quixotic attempt to prop up flailing media firms will create legally sanctioned cartels that harm consumers, while forcing online platforms to carry and pay for content in ways that violate long-established principles of intellectual property, economic efficiency, and the U.S. Constitution.

Read the full explainer here.

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Antitrust & Consumer Protection

Lessons for the US from Germany’s Sectoral-Bargaining Experience

ICLE Issue Brief Introduction Over the past few years, several pundits and politicians have proposed introduction of German-style “sectoral bargaining” in the United States. In such a system, . . .


Over the past few years, several pundits and politicians have proposed introduction of German-style “sectoral bargaining” in the United States. In such a system, unions representing all employees in a sector bargain over the terms and conditions of employment for employees at all firms in that sector.

Several candidates in the 2020 U.S. Democratic Party presidential primaries included proposals for labor-market reforms that were based explicitly on such ideas.[1] Meanwhile, in California, Gov. Gavin Newsom recently signed the Fast Food Accountability and Standards Recovery Act (FAST Act), which creates a “fast food council” comprising a mix of government officials, fast-food franchisors and franchisees, and representatives of fast-food workers.[2] Among other duties, this council would be responsible for determining wages and working conditions in the fast-food industry.[3] If implemented, such government-mandated industry-level bargaining would be unique in the United States and, as we discuss in this issue brief, borrows important features from European sectoral-bargaining models, even as such models have been falling out of favor in Europe.

The premise of such proposals is that “sectoral bargaining” is better for workers and could even protect the economy from adversarial labor-market disputes. But would Americans really be better off under sectoral bargaining?

This brief, released in conjunction with a companion piece on the German experience with sectoral bargaining,[4] considers the evidence for and against the introduction of German-style sectoral bargaining in the United States. It begins with a brief explanation of the differences between U.S. and German collective-bargaining systems. Sections 2 and 3 outline the advantages and disadvantages of German-style sectoral bargaining. It should be stressed at the outset that Germany’s experience is very much a function of that nation’s history and constitution. But even in Germany, sectoral bargaining has been forced to adapt to the changing nature of employment over the past half-century.

Germany’s unique experience is explored further in Section 5, which contrasts it with other jurisdictions that have implemented sectoral bargaining. This is followed, in Section 6, with a discussion of the prospects for implementing sectoral bargaining in the United States. The discussion focuses on both legal and practical issues that would affect the potential for successful implementation. Finally, Section 7 discusses the likely outcome of implementing U.S. sectoral bargaining.

I. Employee Representation in the US and Germany

In the United States, the vast majority of employees in most areas of economic activity are employed under at-will contracts negotiated directly between the employer and the employee.[5] Only about 16 million Americans, 11.6% of employees, currently have their employment contracts negotiated by a labor union.[6] Union membership as a proportion of U.S. employees peaked in 1954 at about 35%.[7]

By contrast, in Germany, the employment contracts of about 52% of the nation’s employees are governed through agreements negotiated by labor unions.[8] Meanwhile, about 40% of German employees have representation in works councils.[9] (These groups likely overlap considerably.)

In the United States, negotiations between labor unions and employers typically occur either at the single-unit level (e.g., a manufacturing plant, warehouse, or other location-specific entity) or sometimes at the firm level. In practice, this means that workers at a particular jobsite or firm delegate responsibility to negotiate the terms and conditions of their employment to a representative or group of representatives, who then undertake such negotiations with the management of that jobsite or firm.

While there are state and national-level organizations representing unionized workers in various U.S. economic sectors (e.g., utilities, transportation, warehousing, movie production), unlike their German counterparts, such groups do not participate in negotiations with state or national employer groups over the terms and conditions of employment. In this context, their role is primarily political. For example, unions persuaded Congress to pass the National Labor Relations Act in 1935, which established certain statutory protections for employees, including the “right to strike,” which amounts to a prohibition on employers from firing employees who refuse to work under certain circumstances.[10] For many years, state legislatures also empowered unions to require employers to garnish the wages of both unionized and non-unionized employees to cover union dues. In 2018, this was ruled unconstitutional by the U.S. Supreme Court.[11]

By contrast, negotiations between German labor unions and employers often occur at the sectoral level.[12] As a result, in many cases, both labor unions and firms have organized themselves into sector-based coalitions, at least for the purposes of negotiating the terms and conditions of employment. In other words, workers effectively delegate responsibility to negotiate the terms and conditions of employment to an organization that represents workers in various fields from various companies. Firms likewise delegate negotiating responsibility to industry groups that may include firms offering a range of products and services that use various technologies.

In addition to sectoral bargaining via unions, German employees have established local (plant) and/or firm-level representation through “works councils.” These councils are independent of the unions and negotiate with individual firms to establish variations from national sectoral arrangements.[13] Furthermore, German companies with more than 500 employees, are in, general required to have employee representation on their supervisory boards (equivalent to boards of directors) as part of a process known as “co-determination.”[14]

II. Advantages and Benefits of Sectoral Bargaining in the German Context

Advocates of sectoral bargaining argue that it has numerous advantages over plant or firm-level bargaining. As noted in the companion piece to this brief by Matthias Jacobs and Matthias Münder, the primary reasons for this are:

  1. When a firm-specific agreement with a union comes to an end, the union can threaten strike actions against that firm in an attempt to force a new agreement. By contrast, where a sectoral-bargaining agreement has been in place, unions typically only strike against a few firms that are party to the agreement. [15] In other words, from the individual firm’s perspective, the expected costs of industrial action are lower; there is safety in numbers.

Figure 1: Comparing German, US, and OECD Labor Markets

Source: Simon Jäger, Shakked Noy & Benjamin Schoefer, The German Model of Industrial Relations: Balancing Flexibility and Collective Action, NBER Working Paper 30377 (August 2022), at 3.


  1. Individual firms are not responsible for the outcome of sectoral-bargaining agreements, which generally means that dissatisfied workers will not lay the blame for that dissatisfaction directly on the firm. This can create a less hostile work environment.[16]
  2. Sectoral-bargaining agreements set wages across firms in a given industry, thereby reducing wage-based competition among other firms in the same industry. This has been termed “the trust effect.”[17]
  3. German firms that are party to collective-bargaining agreements typically apply the agreement to all employees in the firm, regardless of whether those employees are union members. Thus, although only about 15% of German employees are members of a union, about 52% of employees are covered by collective-bargaining agreements (of which, 43% of the 52% are covered by sectoral-bargaining agreements).[18] Moreover, a further 20% of employees work for firms that report an “orientation” toward a bargaining agreement; i.e., they implement the terms of an agreement informally without being legally bound by them.[19]
  4. Paradoxically, sectoral bargaining may put downward pressure on wage demands in highly productive firms within a sector, as wage levels are traditionally based on the least productive one-third of participating companies.[20]
  5. There may be transaction-cost advantages that result when negotiations over wages and conditions are outsourced to the industry body, with costs split among member firms.[21]
  6. Member firms may also benefit from other side benefits, such as access to strike insurance, legal advice, and professional networking.[22]

Advocates argue that these advantages of sectoral bargaining have generated substantial economic benefits. In particular, they point to the following facts about the German economy:

  1. Manufacturing still represents nearly a quarter of GDP in Germany, whereas in the United States, it is now only 12%.[23]
  2. Between 1995 and 2014, Germany lost, on average, about one-sixth as many workdays to industrial action as the United States.[24]
  3. Germany’s unemployment rate is slightly below that of the United States .[25]
  4. Germany’s low-wage sector is 25% smaller than that of the United States.[26]
  5. Germany has avoided a net reduction in employment from the introduction of robots, despite of having a manufacturing-robot penetration rate that is nearly 50% higher than in the United States (especially in areas with high levels of unionization),[27] whereas the evidence suggests that, in the United States, robots have led to a net reduction in employment.[28]
  6. Germany has a higher labor-force participation rate than the United States.[29]
  7. Labor in Germany receives a (slightly) higher share of GDP in the form of wages than labor in the United States.[30]
  8. Germans work fewer hours than Americans.[31]

III. Disadvantages and Costs of Sectoral Bargaining in the German Context

While sectoral bargaining and other features of Germany’s system of employee representation may have certain advantages and related economic benefits, it also has disadvantages and associated economic costs. The main disadvantages, as noted in the companion piece, are:

  1. One-size-fits-all sectoral-bargaining agreements effectively force many firms in a sector to pay above-market rates, making them uncompetitive. This is particularly problematic for firms that compete internationally. But it also harms firms located in parts of Germany that might otherwise enjoy lower wage costs due to their location. For example, firms in relatively rural areas—where the cost of housing is lower and there is less competition for skilled workers—might otherwise enjoy a competitive advantage from their ability to pay lower wages, but suffer a competitive disadvantage if they enter a sectoral-bargaining agreement. Correspondingly, if other firms pay less for labor than they would in the absence of a sectoral-bargaining agreement, the advantage (effectively, a subsidy) the agreement confers to those firms is likely to promote allocative inefficiencies and, indeed, costs to labor.
  2. The German labor ministry can extend a collective-bargaining agreement to cover all firms in a relevant industry-region if such an extension is agreed to by a committee comprising representatives of employer groups and labor unions. Unsurprisingly, this provision has been used by high-wage employers to raise the costs of lower-wage rivals.[32]
  3. Employers are bound by sectoral-bargaining agreements until the agreement comes to an end—even if they leave the industry group that negotiated the agreement. Some sectoral-bargaining agreements are open-ended, meaning that firms cannot leave once they join. Even when an agreement ends, its terms remain in force until a new agreement is reached. This creates a kind of purgatory for employers, who have no real power to determine the terms and conditions of employment and are thus subject to considerable uncertainty regarding whether it is feasible to make new hires until a new agreement is reached.
  4. The rules of sectoral-bargaining agreements tend to be very complex and must be accepted as a bundle. As a result, they are relatively more costly to implement for smaller companies with fewer employees and smaller human-resources departments.
  5. As with most collective-bargaining agreements, employees’ wages are indexed to job descriptions and qualifications, rather than to productivity. This is more problematic with sectoral agreements because there is typically a wider dispersion of productivity, due to wider differences in firm characteristics and jobs, than is the case for individual firm- or plant-level agreements.

These disadvantages of sectoral bargaining have contributed to Germany experiencing several economic costs relative to the United States. Most notably:

  1. German workers are less productive per hour worked than American workers.[33]
  2. Since German workers also work fewer hours, this translates into lower overall output per worker.
  3. As a result, German workers earn less in total than American workers.
  4. It also means that Germany’s economy grows more slowly than does the U.S. economy. In the long term, this means Germans are becoming increasingly materially less well off than Americans. As can be seen from Figure 2, the gap in output per capita has increased from under $2,000 in 1991 to more than $10,000 in 2021 on a purchasing power parity (PPP) basis.

IV. How German Sectoral Bargaining Has Changed Over Time

Not all the benefits and costs described in Sections II and III can necessarily be ascribed to Germany’s system of sectoral bargaining. Co-determination through works councils and employee membership of company boards likely also played significant roles, as have features of German culture. Unfortunately, it is difficult to parse the roles each of these mechanisms play at a macro level without looking at the micro-level detail, either through cross-sectional comparisons (see Section 5) or by looking at the effects of changes over time.

Figure II: Comparing German, US, and OECD Output per Capita

SOURCE: World Bank. Figures are GDP per capita based on purchasing power parity (PPP) in constant 2017 international dollars.

A.   The Introduction of Flexibilities and Other Changes

Germany’s system of sectoral bargaining has undergone some substantial changes over the course of the past quarter-century. Since 1996, the proportion of German employees working under a sectoral-bargaining agreement has fallen by more than 35%.[34] The main drivers of this reduction have been the changing nature of work and increasing exposure of German markets to international competition. Employers have responded in four primary ways:

First, there has been a shift away from formal participation in collective-bargaining agreements and toward more informal “orientation” to such agreements. As noted above, about 20% of establishments report adopting this approach, which provides employers with considerably more flexibility, because the formal rules do not apply.

Second, employers are increasingly choosing to include specific flexibilities in their sectoral-bargaining agreements that allow them to reduce the wages they offer below the formally agreed-upon levels. There are two main types of such flexibility:

  • “Hardship” clauses, which apply to firms that are in financial distress, enable firms to delay implementation of agreed-upon wage increases until their financial situation improves.
  • “Opening” clauses, which are employer-specific, are intended to enable firms to offer wages permanently below those specified in the sectoral agreement in order improve the firm’s competitiveness—e.g., by enabling increased investment in innovation or to increase the number of employees.

Third, many larger firms now outsource work that previously was done by low-paid in-house workers. For example, a 2017 study found that the proportion of retailers employing in-house janitorial staff fell from 82% in 1975 to 20% in 2009.[35]

Fourth, there is a strong correlation between firm size and adoption of collective-bargaining agreements. Fewer than 20% of firms with less than 100 employees are covered by such agreements, while more than 50% of firms with more than 500 employees are covered.[36] This suggests that smaller, more dynamic firms in Germany’s innovative Mittelstand (SME) sector, which accounts for more than 99% of companies in the country, are increasingly avoiding collective-bargaining agreements.[37]

B.   Effects of Changes in the German Employment Landscape

With the decline in sectoral bargaining, the inclusion of hardship and opening clauses in new agreements, and the outsourcing of low-wage jobs, many of the putative advantages of the German system have been eroded. For example:

  • From 1990 to 2015, real wages in the lowest-income decile declined and, while they have subsequently risen, they remain below their 2000 levels.[38]
  • Labor’s share of German GDP has been falling since the early 1970s.[39]

At the same time, the decline in rigidly enforced sectoral bargaining likely has helped Germany to avoid the problems experienced in jurisdictions with more rigid approaches, such as France and Italy, as Germany has experienced more robust economic growth over the past two decades (see Figure 3). It is also notable, however, that France (since 2008) and Italy (since 2011) likewise have begun to shift away from sectoral bargaining and toward firm-level bargaining.[40]

Figure III: Output per Capita in Germany, France, and Italy

Source: World Bank. Figures are GDP per capita based on purchasing power parity (PPP) in constant 2017 international dollars.

Nonetheless, some attempts to make the German system more flexible have been thwarted.  For example, a recent proposal by the Confederation of German Employers Associations to break down complex agreements into modular elements—which would have enabled employers to adopt only those elements that are most relevant to their firms, plants, and employees—was rejected by IG Metall, Germany’s largest labor union.[41]

V. Could the United States Introduce Sectoral Bargaining?

As noted in the introduction, there has been a recent push to introduce sectoral bargaining in the United States. This section examines whether German-style sectoral bargaining could be introduced here, with particular attention to the legal constraints.

German sectoral bargaining relies, in part, on the existence of national-level bodies to represent employees, on one side, and employers, on the other. Without such national-level representation, there would be incentives for regional organizations to agree to terms and conditions of employment that favored firms and employees in that region. Competition among regional groups would be expected to drive down wage levels and other employment benefits, as each regional group would seek terms and conditions that are likely to attract business locally. With national representation, labor unions and employer groups can negotiate region-specific terms and conditions that limit such competition.

The functioning of such national-level bodies and associated agreements are facilitated by German federal law; specifically the Collective Agreements Act, which is explained in the companion piece to this brief.[42] In the United States, some federal protections—including the First Amendment—guarantee the rights of individuals to associate, and hence to join unions. The National Labor Relations Act (NLRA) established a federal right to strike and reasserts the right of individuals “to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”[43] As such, employees could delegate their rights to bargain over terms and conditions of employment to sectoral unions at state, regional, or national levels.

Notwithstanding these rights to associate, however, there is a strong possibility that agreements made by sectoral unions with groups of firms that otherwise compete on the market would run afoul of U.S. antitrust law.

A.   Applicable US Antitrust Statutes

U.S. antitrust law, broadly speaking, prohibits competitors from coordinating their behaviors in ways that set prices or that otherwise manipulate the competitive landscape in ways that cause anticompetitive harm to consumers.[44] The early history of the U.S. labor movement illustrates the basic problem. For decades, U.S. labor activists ran up against “antitrust law and its common law precursors, which established a baseline presumption in favor of competition within labor markets.”[45]

The result was a consistent onslaught of criminal and civil charges, usually resulting in injunctions that prevented workers from organizing in order to “restrain trade or competition within the labor market” through collective bargaining.[46] The U.S. Supreme Court even held that the terms of the Sherman Antitrust Act—nominally focused on business trusts—covered any combination in restraint of trade, including labor-union activities.[47] With passage of the Clayton Act, Congress created an explicit exception to the antitrust laws for the organizing activities of labor unions.[48] This protection was expanded with passage of the Norris-LaGuardia Act and the National Labor Relations Act, both of which clarified and expanded the statutory antitrust exemptions that applied to labor unions.[49]

B.   Current FTC and DOJ Positions

Agreements between competitors—that is, the employer side of the sectoral-bargaining analysis—do not have any such explicit exemptions in U.S. law. Indeed, the current position of both the Federal Trade Commission (FTC) and the U.S. Justice Department (DOJ) is that such agreements likely violate the law.[50] Indeed, both federal antitrust agencies have brought cases on the basis of impermissible collusion among employers to set wages and other employment conditions.[51]

C. Court Rulings

The U.S. Supreme Court has recognized some non-statutory antitrust exceptions that could be extended to employers. Two examples of non-statutory exemptions are particularly relevant here. In Brown v. Pro Football Inc, the Supreme Court recognized an exception for employers that collectively bargain with a labor union.[52] Brown arose when the owners of National Football League teams were unable to reach an agreement with the football players’ union over the creation of “development squads” that could provide substitute players to the teams.[53] The union wanted players on those squads to be able to negotiate their salaries, but the club owners wanted to set the weekly rate at $1,000.[54] When talks stalled, the club owners went ahead with the proposed plan.[55] The players’ union sued, alleging that the agreement among employers to set the wage rate was a restraint of trade that violated the Sherman Act.[56] The Supreme Court disagreed with the union because the agreement:

…took place during and immediately after a collective-bargaining negotiation. It grew out of, and was directly related to, the lawful operation of the bargaining process. It involved a matter that the parties were required to negotiate collectively. And it concerned only the parties to that collective-bargaining relationship.[57]

The facts of Brown counsel caution when trying to construe this precedent more broadly beyond professional sports, let alone at the level of an entire sector of the economy. First, as noted above, the Supreme Court construed the labor non-statutory exemption as extending to the group of employers that were already involved in the collective bargaining in question. That is, the nature of professional football is that there are member teams that are bound by the collective bargaining of the football players. Thus, the employers are already compelled to partake in the collective activity. Further, although not explicitly an aspect of that case, it is nonetheless true that the small collection of employers involved were all identical and similarly situated, and all generate the same output of “professional football.”

Although it’s possible to imagine stretching this exemption to cover an entire sector—where all unions in that sector simultaneously engage in a collective-bargaining negotiation and all firms in that sector have sufficiently similar interests that they also can collectively bargain—it appears very hard to square with U.S. antitrust law. Decades of antitrust precedent push against the notion that firms that are otherwise competitors can jointly negotiate on wage and related restrictions, rejecting even “special case” exemptions such as those for the “learned professions.”[58] Particularly since a “sector” can encompass a wide variety of firms with differing working conditions, safety concerns, cost drivers, and customers. To easily fit into a similar exemption, a legally relevant “sector” would have to be highly constrained. There would also be a host of fraught questions that attend determining how to decide what a relevant “sector” is, what entity gets to make that decision, and what to do about firms that uncomfortably straddle different sectoral classifications.

The “state action” doctrine in U.S. antitrust law also provides a potential means to develop a sectoral-bargain scheme—though here, too, the path is not easy (to put it mildly). In Parker v. Brown, the Supreme Court held that a California state agriculture program that set certain agricultural prices:

…was never intended to operate by force of individual agreement or combination. It derived its authority and its efficacy from the legislative command of the state and was not intended to operate or become effective without that command. We find nothing in the language of the Sherman Act or in its history which suggests that its purpose was to restrain a state or its officers or agents from activities directed by its legislature.[59]

The state action doctrine has been extended in some ways over the years since Parker v. Brown. Relevant here, under certain circumstances, is that it may permit not only anticompetitive conduct by the sovereign state itself—paradigmatically, acts of the legislature—but by lesser state authorities and  state-authorized commissions and boards dominated by market participants, but acting under the color of delegated state authority.[60] Otherwise anticompetitive conduct of state-authorized boards can qualify for the state action exemption only if both prongs of the test articulated in California Retail Liquor Dealers Ass’n v. Midcal Aluminum Inc are satisfied.[61] They are, respectively, that the challenged anticompetitive conduct must be “one clearly articulated and affirmatively expressed as state policy” and that the policy is “actively supervised” by the state itself.[62] The Court’s unanimous opinion in Phoebe Putney further strengthened Midcal’s clear articulation prong, which applies to both lesser state agencies and independent boards dominated by active market participants.[63]

More recently, however, the Supreme Court has suggested that the active supervision prong must be more than merely pro forma. In N. Carolina State Bd. of Dental Examiners v. F.T.C., the Court held that “[i]mmunity for state agencies… requires more than a mere facade of state involvement, for it is necessary in light of Parker’s rationale to ensure the States accept political accountability for anticompetitive conduct they permit and control.”[64] Notably, the Court in N.C. Dental focused on the fact that a controlling number of decisionmakers on the board in question were active market participants.[65] It also described the problem before the Court as considering when “a State empowers a group of active market participants to decide who can participate in its market, and on what terms.” This suggests that the active oversight requirement may apply more broadly.[66]

Thus, any attempt to bring sectoral bargaining to the United States would need either 1) an explicit statutory exemption from Congress or 2) to qualify for one of the existing non-statutory exemptions.  Assuming that Congress is not going to enact such an exemption any time soon, the latter option would be required. California’s recently enacted FAST Recovery Act, mentioned above, is one such attempt to thread this needle by qualifying for the state action exemption, and hence to immunize a council against federal antitrust scrutiny.

Section 1471(a)(1) of the California law establishes a “Fast Food Council” consisting of four individuals that own restaurants or franchises, four individuals that represent employees, one representative of the Governor’s Office of Business and Economic Development, and one representative from the state Department of Industrial Relations.[67] The council would have the power to “promulgate minimum fast food restaurant employment standards, including, as appropriate, standards on wages, working conditions” as well as other worker-welfare goals.[68] The FAST Recovery Act requires the council to submit reports to relevant committees of the California Legislature regarding any standards or rules it proposes, in order to give lawmakers the opportunity to enact legislation that would put the proposed change into effect.[69]

But, as noted above, merely putting formal requirements into law will likely be insufficient to satisfy the “active supervision” requirement.  For example, it will matter whether the council is regarded as closely affiliated with the state government or if it is more like an independent organization populated largely by industry participants and only superficially overseen by the state.[70] Almost certainly, this law will draw legal attention, very possibly from the FTC or DOJ, and resolution of litigation will turn on very specific factual inquiries into the program’s implementation and operation.

VI. Likely Effects of Introducing Sectoral Bargaining to the US

In the decades after World War II, the combination of sectoral bargaining and co-determination appear to have created a more commodious relationship between German employers and employees than was the case in the United States, resulting in fewer industrial disputes and fewer days lost to strikes. As international competition intensified, however, the German system was forced to adapt, with the addition of clauses permitting both temporary and permanent exceptions. Nonetheless, sectoral bargaining has been on the decline in Germany and is now limited primarily to a relatively small number of large firms. While 50-60% of firms with more than 500 employees participate in sectoral-bargaining agreements, less than 20% of firms with fewer than 100 employees do.

Given the waning fortunes of sectoral-bargaining agreements in Germany—and, indeed, throughout Europe—it is ironic that U.S. politicians would now contemplate such a model for American workers. Yet, with California’s passage of the FAST Act, the issue is very much on the table.

A.   Potential Consequences of the FAST Act

The FAST Act applies to establishments that are members of a “fast food chain,” which is defined in the statute as “a set of restaurants consisting of 100 or more establishments nationally that share a common brand, or that are characterized by standardized options for decor, marketing, packaging, products, and services.”[71] By setting minimum wages and working conditions at such establishments, the act is intended to improve the prospects for workers. Unfortunately, it is likely—in many, if not all, cases—to have the opposite effect.

If the council setting wages and working conditions for fast-food chains follows the typical German sectoral-bargaining arrangement, wages and conditions will be set according to the standards of the least productive third of establishments. This would limit the negative impact of the act on franchisees and might even lead to an overall reduction in wages in the sector, especially if such a statutory arrangement is deemed to be a permissible exception to minimum-wage laws.[72]

On the other hand, if the council setting wages and conditions decides to set wages significantly above current market rates, the consequences for franchisees and their employees could be disastrous. Faced with unsustainable wage outlays, franchisees would face a difficult choice: sell off, switch to become a franchise of a smaller chain, or automate.

It is notable that the first attempt to implement sectoral bargaining in the United States is proposed in a sector that is not subject directly to international—or even interstate—competition. But it is subject to technological competition. Already, some fast-food restaurants have begun to automate.[73] In part, this is happening to increase the speed, quality, and consistency of service. But it is also being driven by costs: as labor costs rise, the incentive to switch to more capital-intensive modes of production will increase.

It is, of course, possible that the council will prohibit such automation in an effort to maintain jobs. But doing so would merely make it more difficult for covered fast-food restaurants to compete with smaller chains that are not covered by the FAST Act. Beyond that competitive distortion, such action by the council would entail a covert tradeoff that further diminishes consumer welfare. Faced with other inflationary pressures, competitive threats from smaller chains not subject to the FAST Act, and ordinary cost increases, larger chains will be forced to raise prices. In the short term, this might shift surplus toward workers. Over the medium to long term, however, it would suppress demand, harming consumers by providing them with fewer goods and services than they would otherwise demand, and harming workers by shrinking the industry overall.

VII. Conclusion

If the FAST Act is, indeed, a harbinger of the future of employer-employee bargaining in the United States, then the prospects for the U.S. economy look even bleaker than many portend. To see why, one need only refer back to Figure 3. Does the United States really want to shift toward a low-growth trajectory like those of France or Italy? Moreover, it bears repeating that, in an environment of international competition, Germany’s model required all manner of tweaks in order to make it “work.” Even then, Germany’s rate of economic growth has been considerably lower than that of the United States, as can be seen in Figure 2.

To address the other main argument made for a switch to sectoral bargaining: reduced numbers of days lost to industrial action. As demonstrated in Figure 4, the United States has already achieved that.

Figure IV: Annual U.S. Worker-Days Lost to Strikes, 1947-2021

Source: Work Stoppages, U.S Bureau of Labor Statistics, (last visited Aug. 23, 2022)

In short, if the United States were to import the German model of sectoral bargaining at this stage, it is unlikely to benefit from any of the advantages that the model offered to Germany early in its adoption. It would instead suffer the disadvantages and associated costs that Germany now seeks to avoid by unwinding this model at the margins. As the United States heads further into unstable economic times, it would be unwise to adopt a bargaining model that would make its labor market less flexible and more subject to the disruptive effects of competition from overseas and from new technology.

No system is perfect, but U.S. labor markets have consistently outperformed those in Germany in terms of output per worker. The wider consequence of shifting to a German sectoral-bargaining model would be to push the United States behind much nimbler competitors, ultimately hurting both consumers and the workers that such otherwise well-intentioned reforms are intended to help.

[1] Alexia Fernández Campbell, The Boldest and Weakest Labor Platforms of the 2020 Democratic Primary, Vox (Oct. 29, 2019),

[2] Assem. Bill 257, Food facilities and employment, ch. 246 (2021-2022),

[3] Id. at 1471(d)(1)(A). Notably, this is not a pure sectoral-bargaining scheme, where there would be true negotiations between industry representatives on one side and labor representatives on another. Instead, it represents a hybrid approach that, at least theoretically, allows the bargaining to happen within the auspices of this council.

[4] Matthias Jacobs and Matthias Münder, A Worthy Import? Examining the Advantages and Disadvantages of Sectoral Collective Bargaining in Germany, International Center for Law & Economics (Sep. 25, 2022),

[5] At-Will Employment, Betterteam,,are%20considered%20at%2Dwill%20employees (last visited Sep. 23, 2022).

[6]  Union Members Summary, USDL-22-0079, US Dep’t of Labor (Jan. 20, 2022),

[7] Drew Desilver, American Unions Membership Declines as Public Support Fluctuates, Pew Rsch. Ctr. (Feb. 20, 2014),

[8] Simon Jäger, Shakked Noy & Benjamin Schoefer, The German Model of Industrial Relations: Balancing Flexibility and Collective Action 10, NBER Working Paper No. 30377 (2022).

[9] Id. at 23.

[10] 29 U.S.C. § 151–169; see also: The Right to Strike, National Labor Relations Board, (last visited Sep. 23, 2022).

[11] Janus v. American Federation of State, County, and Municipal Employees, Council 31, 138 US 2448, (2018).

[12] See, generally, Jacobs & Münder, supra note 4 and Jäger, et al., supra note 8.

[13] Jäger et al. supra note 8, at 22.

[14] Id. at 20.

[15] Jacobs & Münder, supra note 12 .

[16] Id. at 7.

[17] Id.

[18] Jäger et al. supra note 8 at 11 and 12.

[19] Id. at 12

[20] Jacobs and Münder, supra note 4 at 8.

[21] Id. at 9.

[22] Jäger et al. supra note 8 at 11.

[23] Id. at 1.

[24] See, Hagen Lesch, Changes in Industrial Action: A Comparison Between Germany and Other OECD Countries, CESifo Forum 4, 68 (Dec. 2015) (From 1995-2014, an average of four days per 1,000 were lost to strikes in Germany; in the United States, the figure was 24 per 1,000 days).

[25] See Figure 1 above.

[26] Id.

[27] Robot Density Nearly Doubled Globally, International Federation of Robotics (Dec. 14, 2021),;  Wolfgang Dauth, Sebastian Findeisen, Jens Suedekum & Nicole Woessner, The Adjustment of Labor Markets to Robots, 19 J. Eur. Econ. Ass’n 3104 (2021).

[28] Daron Acemoglu & Pascual Restrepo, Robots and Jobs: Evidence from US Labor Markets, 128 J. Pol. Econ. 2188 (2020).

[29] Figure 1, above.

[30] Id.

[31] Jäger et al. supra note 8, at 1.

[32] Jäger et al. supra note 8, at 11.

[33] See Figure 2 below.

[34] Jacobs & Münder, supra note 4, at 1.

[35] Deborah Goldscmidt & Johannes F. Schmieder, The Rise of Domestic Outsourcing and the Evolution of the German Wage Structure, NBER Working Paper No. 21366 (2015),

[36] Jäger et al. supra note 8 at 12.

[37] Morad Elhafed, Stuck in the Middle No More: How German Mittelstand Companies Can Break Out and Go Global, Forbes (Feb. 24, 2022),

[38] Markus Grabka, Income Inequality in Germany Stagnating Over the Long Term, but Decreasing Slightly During the Coronavirus Pandemic, DIW (2021),; Karl Brenke, Real Wages in Germany: Numerous Years of Decline, 5 German Inst. Econ. Rsch. 1 (2009).

[39] Id.

[40] Collective Bargaining,, (last visited Aug. 23, 2022); Collective Bargaining,, (last visited Aug. 23, 2022).

[41] Jacobs & Münder supra note 4, at 15.

[42] Id.

[43] 29 U.S.C. §§ 151-169, Section 7.

[44] See, e.g., 15 USC § 1 (“prohibiting any combination… in restraint of trade or commerce”). This language notwithstanding, the Sherman Act doesn’t prohibit “any… restraint.” Simple coordination may or may not be unlawful, for example, while horizontal agreements among competitors to fix prices or allocate markets is per se unlawful. See, e.g., United States v. Socony-Vacuum Oil Co. Inc., 310 U.S. 150, (1940). See also, Arizona v. Maricopa County Medical Society, 457 U.S. 332, (1982); Kiefer-Stewart Co. v. Joseph E. Seagram & Sons Inc., 340 U. S. 211, (1951).

[45] Cynthia L. Estlund & Wilma Liebman, Collective Bargaining Beyond Employment in the United States, 42 Comp. Lab. L. & Pol’y J. 371, 373 (2021).

[46] Id. at 373–74.

[47] In re Debs, 158 U.S. 564 (1895); Loewe v. Lawlor, 208 U.S. 274 (1908)

[48] 15 U.S.C. § 17.

[49] 29 U.S.C. § 151–169; 29 U.S.C. § 104; see also, United States v. Hutcheson, 312 U.S. 219 (1941) (Reaffirming that legislation had created a strong antitrust exception for labor unions).

[50] Antitrust Guidance for Human Resource Professionals, DOJ Antitrust Division (October 2016), (“An agreement among competing employers to limit or fix the terms of employment for potential hires may violate the antitrust laws if the agreement constrains individual firm decision- making with regard to wages, salaries, or benefits; terms of employment; or even job opportunities.”)

[51] See, e.g., United States and Arizona v. Arizona Hospital and Healthcare Association and AxHHA Service Corp., Case No. CV07-1030-PHX, (2007) (DOJ sued the Arizona hospital association for attempting to bargain collectively for most hospitals in the state in order to set rate schedules for per-diem nurses.); In the Matter of the Good Guys Inc., 115 F.T.C. 670 (1992) (FTC sued a group of nursing homes that had collectively agreed to not use the services of a particular nursing registry that had raised the prices it was charging for its per-diem nurse placement); Council of Fashion Designers of America, Federal Trade Commission (Jun. 9, 1995), (FTC sued the council of fashion designers for colluding to reduce the prices of fashion models).

[52] Brown v. Pro Football, 518 U.S. 231, (1996).

[53] Id.

[54] Id.

[55] Id. at 234.

[56] Id. at 235.

[57] 518 U.S. at 250.

[58] See, e.g., Maricopa, Goldfarb, Professional Engineers, FTC v. AMA.

[59] Parker v. Brown, 317 U.S. 341, 350–51, (1943).

[60] N. Carolina State Bd. Of Dental Examiners v. FTC, 574 U.S. 494, (2015); California Retail Liquor Dealers Ass’n v. Midcal Aluminum Inc., 445 U.S. 97, (1980).

[61] California Retail Liquor Dealers Ass’n, 445 U.S. at 105, (1980).

[62] Id.

[63] FTC v. Phoebe Putney Health System Inc., 568 U.S. 216, (2013).

[64] N. Carolina State Bd. of Dental Examiners, 574 U.S. at 505.

[65] Id. at 511—12.

[66] Id.

[67] Assem. Bill 257, Food facilities and employment, ch. 246 § 1471(a)(1)(A)-(F)  (2021-2022),

 [68] Id. at (d)(1)(A)

[69] Id. at (d)(1)(B).

[70] This is particularly relevant considering NC Dental’s holding that focused on “the constant requirements of active supervision.” (574 U.S. at 515). See also, Brief for the United States as Amici Curiae, No. 19-12227 (2019), (FTC citing NC Dental as requiring a state to undertake the “constant requirement[] of active supervision”).

[71] California AB 257, at 5.

[72] See Id. at 10, s. (k)(1): “The minimum wages, maximum hours of work, and other working conditions fixed by the council in standards promulgated pursuant to subdivision (d) shall be the minimum wage, maximum hours of work, and the standard conditions of labor for fast food restaurant employees or a relevant subgroup of fast food restaurant employees for purposes of state law.”

[73] Felix Behr, The Big Ways Robots Are Quietly Taking Over Fast Food, mashed (Feb. 14, 2022),

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Innovation & the New Economy

A Worthy Import?: Examining the Advantages and Disadvantages of Sectoral Collective Bargaining in Germany

ICLE Issue Brief There is currently no formal legal mechanism by which to form sectoral collective-bargaining agreements in the United States. However, a political debate is now underway about whether this should change, with a specific focus on the hospitality industry and the so-called “gig” economy.

Executive Summary

There is currently no formal legal mechanism by which to form sectoral collective-bargaining agreements in the United States. However, a political debate is now underway about whether this should change, with a specific focus on the hospitality industry and the so-called “gig” economy. By contrast, Germany has a long tradition of sectoral collective bargaining. For a better idea of the consequences a legislative initiative to enact such a mechanism might have in the United States, this report looks with due brevity at the legal and practical situation in Germany. From the employer’s point of view, what are the advantages and disadvantages of sectoral collective bargaining in Germany? What are the incentives and disincentives for an employer to opt into collective bargaining? Quantitative data shows that sectoral collective bargaining is steadily becoming less prevalent in Germany. One reason for this decline could be that, for some employers, the disadvantages outweigh the advantages.


There is a long tradition of sectoral collective bargaining in Germany. The total number of German employees working under a sectoral collective-bargaining regime, however, has been in continuous decline. As of 1996, 70% of employees in western Germany and 56% of employees in eastern Germany were employed under a sectoral collective-bargaining agreement. By 2020, those numbers had fallen to 45% and 32%, respectively.[1] Still, there is new interest in the United States in German-style sectoral-bargaining arrangements. In legislative debates in the U.S. Congress, as well as in New York State, sectoral collective bargaining has been referenced as a model to emulate.

This issue brief discusses the advantages and disadvantages of sectoral collective-bargaining agreements in Germany. While we found no studies that offered a comprehensive assessment of the impact of each factor, it is plausible that the advantages and disadvantages described here are part of the calculus for a German business considering whether to opt into sectoral collective bargaining. One reason why fewer employers are opting into this mechanism could be that they collectively see the disadvantages of sectoral collective-bargaining agreements as preponderate over the advantages. There are other factors not addressed in this brief that have contributed to such agreements becoming less prevalent overall. These include changing industrial structures, less organization on the part of labor, and a trend toward more individualistic behavior in society at large. Weighing the advantages against the disadvantages, this brief concludes that the complexities and complications arising under a sectoral-bargaining system may, for some employers, outweigh the benefits that such schemes provide.

First, we present the various sources of German labor law (Part I), which should help readers to understand the advantages and disadvantages of sectoral collective bargaining as they are laid out here. Namely, when an employer opts out of sectoral collective bargaining, the decision is tantamount to choosing a different approach to setting the terms and conditions of employment. Basic knowledge of the various ways to set terms of employment in Germany is a prerequisite to understanding the advantages and disadvantages of sectoral collective bargaining from the employer’s point of view (Part II).

I. Sources of German employment and labor law

Labor and employment relations in Germany are marked by a multilayered regulatory system.

A.   Employment contracts

The basis of every employment relationship is a contract of employment agreed upon by an employer and an employee. As a matter of constitutionally guaranteed private autonomy, it is true that the parties to an employment contract are fundamentally at liberty to include whatever terms they like in their agreement. But there are some limits, drawn mainly by law. The courts, as well as lawmakers, operate under the assumption that employees are the weaker of the two parties, structurally speaking.[2] In order to prevent employers from exploiting their economic strength against employees who come before them as individuals, employment contracts must not disadvantage employees in inappropriate ways (e.g., under section 307, para. 1 and section 310, para. 3, no. 1 of the German Civil Code). This principle is known as “review of standard terms and conditions” or “review of form contracts” (ABG-Kontrolle).

In addition to employment contracts negotiated individually between an employer and an employee, an employer can bind itself contractually to provide an agreement to some or all its employees through a mechanism called a “grant to the entirety” (Gesamtzusage). A grant to the entirety is an offer directed at all employees to modify the employment contract; and as a rule, employees tacitly accept it.[3] However, an employer proceeding with this course of action can only bind itself unilaterally and cannot extract any performance from the opposite side; a grant to the entirety is therefore a one-way street.

B.   Works agreements

In the labor-and-employment-law hierarchy of authority, “works agreements” sit above employment contracts. They can be entered into at various levels: at the plant or facility level, at the company or enterprise level, and at the concern or conglomerate level.

Under the Works Constitution Act (Betriebsverfassungsgesetz, the “BetrVG”), employees can elect a body called the “works council” (Betriebsrat) to represent them at their facility. The works council represents all employees at the facility regardless of whether they participated in its election. Roughly speaking, the Bundesarbeitsgericht [Federal Labor Court] takes a “plant” or “facility” (Betrieb)—as the term is used in section 1, para. 1, sentence 1 of the BetrVG—to be an organizational unit that operates under unitary leadership and within which an employer, having employees and facilities, seeks to carry out a purpose.[4] A plant or facility is thus a local unit, and there can be several of them within a single company. If a company comprises several plants or facilities, a “general works council” is formed at the company or enterprise level (see section 47, para. 1 BetrVG). If the company is part of a concern or conglomerate, the workforce may constitute a “concern works council” (see section 54, para. 1 BetrVG).

Pursuant to section 77, para. 4, sentence 1 of the BetrVG, works agreements apply directly to and are compulsory for all employees. “Directly” here refers to the fact that the parties to the employment contract need not stipulate to the validity of the works agreement: independently of the will of the parties, the employment relationship is subject to the works agreement as if it were law.[5] “Compulsory” means that the employment contract’s provisions generally may not deviate from works agreements unless the difference redounds to the employee’s advantage.[6]

At the same time, the parties are not free to negotiate on the full range of issues. Pursuant to section 77, para. 3, sentence 1 of the BetrVG, a works agreement cannot cover compensation and other terms and conditions of employment that are (or typically would be) covered under a collective-bargaining agreement.[7] The employer need not be subject to a collective-bargaining agreement, nor does a corresponding valid collective-bargaining agreement even need to exist; rather, so long as the contemplated provision is “typical” of collective bargaining, it cannot be covered by a works agreement.[8] The purpose of this rule is to ensure robust autonomy of the parties to collective bargaining.[9] Works councils, which are unlike labor unions in that employees are not obligated to pay dues, are not to come into competition with them.[10]

C.   Collective-bargaining agreements

Collective-bargaining agreements are contracts collectively negotiated between an employer and its employees (by and through the representative body, if any, that each side opts to have represent it). Collective-bargaining agreements provide for the content, formation, and termination of employment relationships; see section 1, para. 1 of the Collective Agreements Act (Tarifvertragsgesetz, the “TVG”).[11] Only a union can enter into a collective-bargaining agreement on the employees’ side. The employer’s side might be an individual company or enterprise, or an association of employers. A collective-bargaining agreement entered into by a company or enterprise is known as a “firm-specific collective-bargaining agreement” (Firmentarifvertrag).

While collective-bargaining agreements, generally, are an important and relevant topic of discussion, this brief deals specifically with sectoral collective-bargaining agreements, a special kind in which the contracting party on the employer’s side is an association or federation of employers. If a collective-bargaining agreement applies to a maximum number of employers in a particular sector of the economy, it is referred to as a “sectoral collective-bargaining agreement” (Flächentarifvertrag).[12]

Whereas individual employees are presumed, as a structural matter, to be the weaker party relative to employers, employees in a union have collectivized their power and thus are supposed to have achieved parity with the employer’s side.[13] For this reason, a presumption of reasonableness is ascribed to collective-bargaining agreements. This is because the parties to collective-bargaining agreements treat one another as near-equals and, as a result, such agreements presumably provide reasonable terms and conditions of employment.[14] The legal requirements for collectively bargained rules and norms are therefore also not as strict; for example, they are not subject to the same kind of oversight as employment contracts, which must pass muster under “review of form contracts” principles (see section 310, para. 4, sentence 1 of the German Civil Code).

Similar to works agreements, collectively bargained rules apply directly and are compulsory pursuant to section 4, para. 1, sentence 1 of the TVG. In fact, they are said to possess “normative force” (normative Wirkung). Collectively bargained rules apply when both sides of the employment relationship are bound to the collective-bargaining agreement; the parties to an employment contract need not stipulate to it.[15] Unless the collective-bargaining parties have expressly agreed to sanction deviations from an agreement’s terms, the parties to an employment contract are only permitted to deviate from collectively bargained rules and norms if the deviation benefits employees; see section 4, para. 3, alternative 2 TVG.[16] Accordingly, collective-bargaining agreements set the floor for terms and conditions of employment.[17]

For collective-bargaining agreements to possess “normative force,” both parties to an employment contract must have opted into collective bargaining. Collective bargaining becomes binding for employees when they join a union; see section 3, para. 1, alternative 1 TVG. If an employer enters into a firm-specific collective-bargaining agreement, that employer is bound to abide by it under section 3, para. 1, alternative 2 TVG. The terms of an association’s collective-bargaining agreement become binding upon an employer when that employer joins the association that is party to it; see section 3, para. 1, alternative 1 TVG. Employer associations or federations are societies of employers organized by economic sector (and often by region). The validity of a sectoral collective-bargaining agreement thus requires that the employer in question be a member of an organization of this kind.

The Collective Agreements Act (the “TVG”) does not call for any particular arbitration or dispute-resolution mechanism to resolve conflicts between the parties to collective-bargaining agreements. Because the employers’ side regularly resists the demands of a union (for example, for higher salaries), there needs to be a mechanism to force both collective-bargaining parties to the table, as well as a source of pressure for them to reach an agreement. This mechanism is the “job action” (Arbeitskampf), which on the employees’ side consists mainly in going on strike. The right to strike is constitutionally guaranteed under Article 9, para. 3 of the Basic Law (Grundgesetz, the “GG”),[18] and if a union goes on strike, any employee is entitled to participate.[19]

D.   Other sources of law

German law, as well as European Union labor law, contains numerous additional rules and provisions that are relevant for employment relationships. The Basic Law (as Germany’s constitution), on the other hand, provides hardly any rules that come to bear on employer–employee relationships.


II. Advantages and disadvantages for employers of sectoral collective bargaining

Based on the sources of German labor law laid out in Part I, the advantages and disadvantages of sectoral collective-bargaining agreements from the employer’s perspective will be easier to see. What incentives lead an employer to opt into sectoral collective bargaining (Section A)? Why do employers go down this path in arranging their employee relationships, rather than managing those relationships by means of a firm-specific collective-bargaining agreement, a works agreement, or employment contracts? What has led more employers to opt out of sectoral collective-bargaining agreements or to never opt in to begin with (Section B)?

A.   The advantages of sectoral collective-bargaining agreements

Employers benefit from sectoral collective-bargaining agreements in multiple ways. The advantages are sufficiently alluring to motivate an employer to opt in if, in its estimation, they outweigh the accompanying disadvantages of such agreements (on the disadvantages, see Section B).

1.     Reduced risk of job action

Collective-bargaining agreements are generally viewed as being attended by what is known as a “relative duty to keep the peace” (relative Friedenspflicht).[20] This duty to keep the peace is the reason a union is prohibited from striking to achieve terms already settled under a collective-bargaining agreement to which it is a party. The duty applies for the entire term of the agreement, during which the union must conduct itself “peacefully.”

Once the validity of that agreement has expired, however, a union is allowed to strike to try to force its way into a renewed collective-bargaining agreement on more favorable terms. If the expired collective-bargaining agreement was firm-specific, then the target of this kind of strike will necessarily be the employer party to that agreement. Thus, being bound to the terms of a firm-specific collective-bargaining agreement comes with a risk of periodic job action.

An employer can reduce this risk by opting into sectoral collective bargaining by joining an association or federation of employers that enters into such agreements on its behalf. Namely, in the event of a strike over a sectoral collective-bargaining agreement, a union in most cases will strike not against all but only select firms within the association or federation. This lowers the risk that any one employer will have to suffer production or revenue losses because of a strike it cannot do anything about.

2.     Labor disputes play out outside the company or enterprise

Sectoral collective bargaining enables plants and facilities, as well as companies or enterprises, to insulate themselves from disputes over terms and conditions of employment. Such disputes are shifted up to the association level, lowering the risk that such a dispute will affect the atmosphere at the plant.[21]

Alternatively, an employer might provide for terms and conditions of employment collectively, seeking a firm-specific collective-bargaining agreement or a works agreement. But firm-specific collective-bargaining places the locus of discussions about the terms and conditions of employment inside the company or enterprise. Dissatisfaction with the outcome of negotiations is, therefore, felt directly within the company. Relatedly, there is more of a tendency for it to be directed at the employer itself than would be the case if negotiations were conducted at further remove—i.e., at the level of the association or federation as the negotiating partner. If an employer decides, on the other hand, to set terms and conditions of employment collectively through works agreements (to the extent that this option is legally viable in the first place[22]), it can have a negative impact on its working relationship with the works council. Namely, negotiations about terms and conditions of employment are much more contentious than the day-to-day matters, such as hiring decisions, which require the works council’s involvement.

3.     The trust effect: No race to the bottom with competitors

Sectoral collective-bargaining agreements are legally sanctioned contracts that create a trust or syndicate.[23] While valid, these agreements foreclose the possibility of (among other things) competition among the participating companies with respect to terms and conditions of employment. As coordinated via the collective-bargaining agreement, all the association or federation’s members will pay at least the same salaries for comparable job specifications and qualifications.[24] An employer can thus be confident that a German competitor who is bound to the same collective-bargaining agreement will not be able to outbid it by betting on worse terms and conditions of employment. Because they do not apply across companies and enterprises, firm-specific collective bargaining and works agreements cannot accomplish what sectoral collective bargaining can in terms of shutting down competition within an industrial sector.

This means that two conditions are needed to achieve the “trust effect”: (i) the competition must be in Germany and (ii) it must be bound under the same sectoral collective-bargaining agreement. That, in turn explains why, over the course of decades, the trust effect has steadily waned as an advantage of sectoral collective bargaining. Where there is markedly less attachment to sectoral collective bargaining and vigorous competition from companies outside Germany in a given economic sector, the trust effect of sectoral collective bargaining is diluted.

Namely, most foreign competitors of German companies overwhelmingly are not tied to German sectoral collective-bargaining agreements. In fact, they are only obligated to follow German collective-bargaining agreements if they both generate labor output in Germany and the Bundesministerium für Arbeit und Soziales [Federal Ministry of Labor and Social Affairs] extends their scope to cover foreign employers who carry on activities in Germany, either by declaring the agreements generally compulsory under section 5 TVG or by issuing a regulation pursuant to sections 7 and 7a of the Act on Mandatory Working Conditions for Workers Posted Across Borders and for Workers Regularly Employed in Germany (Arbeitnehmer-Entsendegesetz – AEntG) (see sections 3 and 8 AEntG). The minute a foreign company or enterprise produces goods or delivers services abroad, German sectoral collective bargaining will cease to affect competition from it. To this extent, the sectoral collective-bargaining agreement serves no purpose in terms of eliminating it.[25]

Since more employers are not tied to sectoral collective bargaining and German companies compete with foreign companies all the time in this age of globalization, the trust effect is regularly not decisive in the calculus of whether to opt into sectoral collective bargaining.

4.     Decrease in payroll costs for financially robust companies

An association or federation of employers normally will be an organization comprising multiple companies. A broader membership structure makes it more probable that the members, in terms of their finances and profitability, will differ. If salary and wages under a sectoral collective-bargaining agreement were oriented toward the most profitable company, it would not be feasible for all members. Thus, payroll levels are traditionally geared instead toward the productivity of the weakest one-third of member companies.[26] This is why it can make sense for a business that is thriving relative to its economics sector to join an association or federation of employers[27]: it is a way to prevent one’s own financial strength from becoming the yardstick in salary negotiations, the way it would be in a firm-specific collective-bargaining environment.

5.     No need for in-house collective bargaining

It is costly and difficult to prepare for and conduct collective-bargaining negotiations. The union’s demands must be reviewed by counsel, and their feasibility and ramifications must be analyzed from a practical standpoint. The employer’s side must develop its own position on what it would like to have in the collective-bargaining agreement. It must seek advice on whether (and how) those goals can be achieved with legal certainty and how the agreement would affect the company. It also needs to develop a strategy and narrative for both the interval leading up to the negotiations and the negotiations themselves.

As these activities crop up, a company or enterprise that manages its labor relations by means of firm-specific collective bargaining is required to employ specialists or resort to a significant volume of external support.[28] Companies pursuing firm-specific collective-bargaining agreements, therefore, incur expenses and could require additional hiring.

Consequently, one advantage of sectoral collective bargaining, from the employer’s perspective, is that such negotiations need not be conducted in-house. Instead, these tasks are unloaded onto an association or federation of employers that bundles collective bargaining on behalf of all members so that the association or federation’s central collective-bargaining division will adequately represent the employers’ interests, while simultaneously managing the administrative tasks associated with bargaining. Even if the employers pay dues to the organization, this approach creates cost savings, because the costs are distributed across the entire membership. The more centralized the conduct of negotiations and the broader the scope of a collective-bargaining agreement, the lower the transaction costs for the employers.[29]

B.   Disadvantages of sectoral collective bargaining

In addition to the suggested advantages of sectoral collective-bargaining agreements highlighted in Section A, there are also serious structural disadvantages.

1.     Agreements are neither tailored nor flexible

As a rule, sectoral collective-bargaining agreements apply to all member companies and enterprises in each region—e.g., to the metals and electronics-industry firms in the state of Bavaria. This means they apply both to companies and enterprises in densely populated areas with a lot of industry and high costs of living, as well as to those in rural areas. Additionally, sectoral collective-bargaining agreements apply to large organizations with several thousand employees, as well as to a smaller mid-sized company with only 50 employees.[30]

It is, therefore, practically impossible for a one-size-fits-all sectoral collective-bargaining agreement to promulgate employment terms that would be appropriate for all kinds of businesses. Differently sized employers that make different products in different locations do not necessarily expect the same outcomes when they commit their terms and conditions of employment to collective bargaining. In addition, the businesses within a broadly defined sector will vary in terms of profitability, depending on which subsector of the economy they are deemed a part of. This can make it challenging for a less-profitable business to fund payroll increases geared toward companies in the same sector that enjoy greater financial success.[31] Belonging to an association or federation of employers can, therefore, exacerbate a less-profitable company’s financial situation.

The sectoral collective-bargaining parties have been criticized for putting overly rigid agreements in place and have reacted at times by writing savings clauses into their agreements.[32] The clauses “save” certain subject matter of the agreements for eventual plant- or facility-level regulation. To the extent provided under a savings clause, employers and works councils can enter into works agreements that deviate from the collectively bargained rules—even to the disadvantage of employees. Section 77, para. 3, sentence 2 of the BetrVG removes the legal impediment to works agreements addressing issues otherwise reserved for collective bargaining. Depending on how they are executed, such savings clauses serve as a basis for the works parties to stipulate to, e.g., temporary reductions in hours (and, correspondingly, pay) or to temporary suspensions of rights under a collective-bargaining agreement.[33]

2.     In the near term, adjusting terms and conditions of employment at a given company or enterprise is exceedingly difficult

Opting into sectoral collective bargaining has far-reaching consequences. Once an employer has opted into sectoral collective bargaining, it will have a tough time later if it seeks to extricate itself from the terms and conditions of employment under the agreement.[34] This can become especially problematic if the company’s finances take a turn for the worse. A company or enterprise also may find itself in an internationally competitive environment that makes it imperative to react with maximum flexibility, and in a decentralized way, to challenges created by innovative products and technologies.[35]

In principle, an employer is constrained by a sectoral collective-bargaining agreement if it is a member of the employers’ association, and the agreement is effective. If an employer decides to leave the association or federation of employers before the agreed-upon expiry of the collective-bargaining agreement, section 3, para. 3 of the TVG binds the employer to the terms of the agreement through the end of the agreement’s term. This principle is known as the “continuing commitment” (Nachbindung). Thus, until the collective-bargaining agreement has expired, an employer cannot deviate from the agreement to the employees’ disadvantage, despite no longer belonging to the association or federation and even if its own workforce agrees to the change. In the short term, it can be unpleasant to be tied to collectively bargained salary and wage schedules, which usually run for a few years at a time.

From an employer’s perspective, however, it can be significantly more uncomfortable to be bound to collective-bargaining agreements with open-ended or unlimited timeframes.[36] For example, employers will often enter into open-ended collective-bargaining agreements that lock in basic elements of the employment framework, such as paid vacation or long notice periods for terminations or layoffs, for decades at a time. Such agreements are risky for employers because they never “end,” and the “continuing commitment” only ends upon the agreement’s expiration date. There is a debate in the labor and employment-law literature over when this potentially “perpetual constraint” ought to terminate.[37] As a matter of current law, however, the Bundesarbeitsgericht [Federal Labor Court] has rejected these considerations.[38]

The termination of the “continuing commitment” is at once also the beginning of what is known as the “continuing effect” or “aftereffect” (Nachwirkung); see section 4, para. 5 of the TVG. Once a collective-bargaining agreement has expired, its provisions remain in force until another agreement replaces it. Going forward, an employer who has left the association or federation can thus adjust terms and conditions of employment so that the workforce bears the burden, as well. But for this to happen, the employees must give their consent, which they have little incentive to do. Another option at this stage would be to modify the terms and conditions of employment by way of a works agreement. But terms and conditions that were included in collective-bargaining agreements will, in many cases, be barred as subject matter for works agreements under section 77, para. 3, sentence 1 of the BetrVG, a provision which has already come up in this brief.[39]

For an employer constrained by a sectoral collective-bargaining agreement that does not contain savings clauses, the only realistic way to modify terms and conditions of employment to cut costs is to enter into a firm-specific collective-bargaining agreement with the union. If an employer-employee relationship is governed by a sectoral as well as a firm-specific collective-bargaining agreement with the same union, the dominant view is that the firm-specific agreement, being more specific, controls—even if its terms are less favorable.[40] As long as a sectoral collective-bargaining agreement remains in force, however, the employer will have no means to exert pressure on the union to enter into a firm-specific agreement if worse terms and conditions are at stake for labor. It will instead have to consign itself to the good will of the union. The company will have to convince the union, based on its financial situation, that it and the jobs it provides can only be saved if the parties agree to less favorable terms and conditions of employment in a firm-specific collective-bargaining agreement.

Even this procedure can often be made more difficult by an employer’s past lack of rigor in setting up its employment contracts. The employment contracts of employers who are under collective-bargaining agreements regularly contain clauses that incorporate by reference terms from the collective-bargaining agreement. The result is that the employer-employee relationship becomes subject to those terms even if the employee is not a member of the union, which results in the collective-bargaining agreement not having normative force. Depending on how the incorporation by reference clause is drafted, there is a risk from the employer’s perspective that the “better” terms and conditions in the sectoral collective-bargaining agreement will continue to apply, alongside the worse ones in the firm-specific agreement. In such a situation, the terms more favorable to the employee would prevail under section 4, para. 3, alternative 2 of the TVG, leaving the employer constrained by sectoral collective bargaining—simply by force of its incorporation by reference in an employment contract.

Thus, from the perspective of an employer, it is difficult, in practical terms, to opt out again once one has opted into sectoral collective bargaining. This can provide an especially serious disadvantage in times of rapid economic transformation, or for a business in crisis.

3.     Overwhelming complexity of the rules

Sectoral collective bargaining, or rather its sum total—the aggregation of various sectoral collective-bargaining agreements—keeps growing in complexity. One can only speculate as to why. One factor will be the desire, on the part of both employer and employee, for more flexibility in the employment relationship. The complexity of the arrangements is a major challenge for small and mid-sized companies and enterprises. Locally and in a decentralized manner, with small human-resources departments, they must implement sectoral collective-bargaining agreements that were negotiated by large, dedicated commissions.

And often for a business, it may not elect to abide only by select parts of the aggregation of agreements. Employers instead face an all-or-nothing situation: either they implement the entire, complex body of agreements as an association or federation member, or they do not participate as members constrained by collective bargaining. The leading federation for labor and social policy for the entire German economy—the Bundesvereinigung der Deutschen Arbeitgeberverbände [Confederation of German Employers’ Associations]—has acknowledged the problem of the complexity of these bodies of agreements.[41] One solution it has proposed is to permit companies and enterprises to select individual modules from the group of agreements, like building blocks. For that to happen, an employer’s association must strike a corresponding arrangement in a collective-bargaining agreement with the union. Jörg Hofmann—head of the large and powerful union IG Metall—however, recently rejected such a proposal.[42]

4.     Annual pay raises are virtually automatic

Another reason an employer may not opt into sectoral collective bargaining is that collective-bargaining agreements almost always provide for annual pay increases. In sectoral collective-bargaining agreements, the annual increases are not geared toward individual business performance. To that extent, employers who are not so constrained can proceed with greater self-determination and avoid this almost automatic annual rise in labor costs.

5.     Uniform minimum compensation regardless of work quality

Even if collective-bargaining agreements help companies and enterprises save on transaction costs, this advantage comes with a loss of payroll flexibility. Uniform terms and conditions of employment means employees are on compensation schedules geared toward their job descriptions and qualifications, rather than their productivity; after all, a collective-bargaining agreement needs to contain some kind of abstract or generalized compensation scheme. While it is true that employers can still reward good job performance by paying bonuses beyond what the pay scale requires, for many employers, it is also a major challenge to set up a legally sound bonus system.

III. Conclusion: Relevance for the United States

Sectoral collective bargaining has played, and will continue to play, a significant role in the employment world, even if the prevalence of sectoral collective-bargaining agreements is steadily waning. Whether an employer opts into sectoral collective bargaining is a matter of weighing the pros and cons of such a scheme, as discussed here. Every employer must decide for itself whether the advantages of these agreements outweigh the disadvantages. From the perspective of a forward-looking company that values flexibility and wants to offer employment terms that are specific and tailored to its business, there is much to recommend not subjecting one’s terms and conditions of employment to sectoral collective bargaining, unless the agreements in question provide enough in the way of savings clauses that permit more flexible (temporary or long-term) management of certain parts of the agreement that govern terms and conditions of employment

In sum, the challenges associated with sectoral bargaining in Germany are noteworthy. Policymakers in the United States who seek to import such a model would do well to understand these challenges arising in Germany.



Herausgegeben von Prof. Dr. Winfried Boecken, LL.M. (EHI Florenz) ET AL., Gesamtes Arbeitsrecht (2016)  (referred to as: “NK-GA-Author”).

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BDA, Die Tarifpolitik ist ein Kernelement der Sozialen Marktwirtschaft, (last visited Dec. 20, 2021).

Reinhard Bispinck, Streit um den Flächentarifvertrag Mitbestimmung 16-20 (2003).

Urlich Babeler et al., Arbeitslosigkeit.: Ringvorlesung der Fachbereiche Rechts- und Wirtschaftswissenschaft der Freien Universität Berlin im Sommersemester (2004) (referred to as: W. Boecken, in: Arbeitslosigkeit).

Thomas Dietrich, Zukunft einer funktionsfähigen Tarifautonomie (mit Berücksichtigung der Besonderheiten in der Bauwirtschaft) 84-88 (2011).  

Martin Franzen, Tarifrechtssystem und Gewerkschaftswettbewerb – Überlegungen zur Flexibilisierung des Flächentarifvertrags 1-10 (2001).

Tino Frieling, Matthias Jacobs et al., Arbeitskampfrecht, Handbuch für Wissenschaft und Praxis (2021) (referred to as: FJK ArbeitskampfR-Hdb-Author).

Monika Schlachter et al., Tarifautonomie für ein neues Jahrhundert (1st ed. 1998) (referred to as: M. Gentz, in: FS Schaub).

  1. Söllner et al., Goos, Wolfgang, Gedächtnisschrift für Meinhard Heinze (2005) (referred to as: W. Goos, in: GS Heinze).

Peter Hanau, Der Tarifvertrag in der Krise 65-71 (1998).

Martin Henssler, Flexibilisierung der Arbeitsmarktordnun 487-515 (1994).

Klaus Hering, Der Flächentarifvertrag aus Sicht der Bauwirtschaft 61-64 (2011).

Clemens Höpfner, Die Tarifgeltung im Arbeitsverhältnis, Historische, ökonomische und legitimatorische Grundlagen des deutschen Koalitions- und Tarifvertragsrechts (2015).

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Abbo Junker, Der Flächentarifvertrag im Spannungsverhältnis von Tarifautonomie und betrieblicher Regelung 383–417 (1996).

Horst Konzen, Die Tarifautonomie zwischen Akzeptanz und Kritik 913–920 (1995).

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Manfred Löwisch et al., Tarifvertragsgesetz, Kommentar (4th ed. 2017).

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Günter Schaub, Wege und Irrwege aus dem Flächentarifvertrag 617–623 (1998).

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Abbreviation Full German Name Full English Name
BAG Bundesarbeitsgericht Federal Labor Court
BAG (GS) Großer Senat des Bundesarbeitsgerichts Grand Senate of the Federal Labor Court
BDA Bundesvereinigung der Deutschen Arbeitgeberverbände Confederation of German Employers’ Associations
BetrVG Betriebsverfassungsgesetz Works Constitution Act
BT-Drs. Bundestags-Drucksache Bundestag Publication
BVerfG Bundesverfassungsgericht Federal Constitutional Court
IAB Institut für Arbeitsmarkt- und Berufsforschung Institute for Employment Research
IG Metall Industriegewerkschaft Metall Trade Union of the Metal Industry
NZA Neue Zeitschrift für Arbeitsrecht – Law Journal –
RdA Recht der Arbeit – Law Journal –
TVG Tarifvertragsgesetz Collective Agreement Act
ZfA Zeitschrift für Arbeit – Law Journal –


[1] IAB, Tarifbindung und betriebliche Interessenvertretung 2020 – Ergebnisse aus dem IAB-Betriebspanel, table 5.

[2] Cf. BVerfG, Case No. 1 BvR 1571/15 and passim, NZA 2017, 915, para. 146 (Jul 11, 2017); BAG, Case No. 7 AZR 716/09, NZA 2011, 905, para. 35 (Apr 6, 2011); BAG, Case No. 1 AZR 189/17, NZA 2019, 402, para. 32 (Nov 20, 2018); BT-Drs. 18/4062, p. 8, which cites language employed by the Bundesverfassungsgericht [Federal Constitutional Court] verbatim.

[3] See, e.g., BAG, Case No. 5 AZR 424/16, NZA 2017, 1073, para. 13 (Mar 22, 2017) and ErfK-U. Preis, BGB § 611a, para. 218.

[4] For the more extensive and precise definition, see BAG, Case No. 7 ABR 38/04, juris, para. 18 (May 25, 2005).

[5] Richardi-R. Richardi/C. Picker, BetrVG § 77, para. 148.

[6] NK-GA-R. Schwarze, BetrVG § 77, para. 56.

[7] On the primacy of mandatory codetermination pursuant to § 87, para. 1 BetrVG over § 77, para. 3 BetrVG, see BAG (GS), Case No. GS 2/90, NZA 1992, 749, at 752-755 (Dec 3, 1991) and ErfK-T. Kania, BetrVG § 77, paras. 53-56.

[8] Cf. ErfK-T. Kania, BetrVG § 77, paras. 45-49.

[9] BAG, Case No. 5 AZR 36/19, NZA 2020, 868, para. 20 (Mar 18, 2020).

[10] ErfK-T. Kania, BetrVG § 77, para. 43.

[11] Certain plant- or facility-level policies that apply to all employees regardless of union membership, as well as the fact that the establishment and organization of works councils can be negotiable in collective bargaining, see § 1, para. 1 TVG, have no bearing on this memorandum.

[12] See R. Rebhahn, NZA-Beilage 2011, 64 on the specific features of a sectoral collective-bargaining agreement.

[13] Cf. BVerfG, Case No. 1 BvR 1571/15 and passim, NZA 2017, 915, para. 146 (Jul 11, 2017).

[14] On the presumption of reasonableness, see for example BAG, Case No. 4 AZR 50/13, NZA 2015, 115, para. 29 (May 21, 2014) and Wiedemann-M. Jacobs, Einleitung, paras. 100-118; see BVerfG, Case No. 1 BvR 1571/15 and passim, NZA 2017, 915, para. 146 (Jul 11, 2017): “Richtigkeitsvermutung”; for an overview of the differences in terminology see Wiedemann-M. Jacobs, Einleitung, para. 103 m.w.N.

[15] ErfK-M. Franzen, TVG § 4, para. 1.

[16] ErfK-M. Franzen, TVG § 4, para. 2.

[17] See ErfK-M. Franzen, TVG § 1, para. 2.

[18] E.g., BVerfG, Case No. 1 BvR 1571/15 and passim, NZA 2017, 915, para. 131 (Jul 11, 2017).

[19] On the right to strike for nonunion workers or for workers organized elsewhere, see BAG, Case No. 1 AZR 142/02, NZA 2003, 866, at 867-868 (Feb 18, 2003).

[20] On which see, e.g., BAG, Case No. 1 AZR 160/14, NZA 2016, 1543, para. 27 (Jul 26, 2016) and more thoroughly FJK ArbeitskampfR-Hdb-C. Mehrens, § 4, paras. 122-157.

[21] J. Lessner, RdA 2005, 285, at 286; C. Schnabel, NZA-Beilage 2011, 56, at 58; cf. K. Hering, NZA-Beilage 2011, 61, at 63; cf. W. Boecken, in: Arbeitslosigkeit, 113, at 123.

[22] See above at I.2.

[23] M. Löwisch and V. Rieble, Tarifvertragsgesetz, Grundlagen, paras. 44-45; on authorization under antitrust law Wiedemann-M. Jacobs, Einleitung, paras. 95-99; see also the thorough treatment in Däubler-D. Schiek/D. Ulber, Einleitung, paras. 556-589.

[24] Cf. A. Junker, ZfA 1996, 383, at 390 and C. Höpfner, Die Tarifgeltung im Arbeitsverhältnis, at 232.

[25] R. Rebhahn, NZA-Beilage 2011, 64, at 66; M. Gentz, in: FS Schaub, 205, at 208-209.

[26] M. Löwisch and V. Rieble, Tarifvertragsgesetz, TVG § 4, para. 473.

[27] J. Lessner, RdA 2005, 285, at 286.

[28] On this as a reason for opting into collective bargaining, see G. Schaub, NZA 1998, 617, at 618.

[29] See C. Schnabel, NZA-Beilage 2011, 56, at 58.

[30] This is also noted by C. Schnabel, NZA-Beilage 2011, 56, at 58, who thus concludes that the more centralized the sectoral-level negotiation process, the more leeway ought to be provided for plant-level solutions.

[31] Cf. H. Konzen, NZA 1995, 913, at 917.

[32] For an overview, see R. Bispinck, Mitbestimmung 2003, 16, at 17; on the instruments that create flexibility in sectoral collective-bargaining agreements in the chemicals industry, see W. Goos, in: GS Heinze, 259, at 265-268; Däubler-W. Däubler, Einleitung, para. 59; M. Löwisch and V. Rieble, Tarifvertragsgesetz, TVG § 4, para. 466; C. Schnabel, NZA-Beilage 2011, 56, at 61; T. Dieterich, NZA-Beilage 2011, 84, at 85-86; for in-depth discussion of savings clauses in collective-bargaining agreements, see Wiedemann-G. Thüsing, TVG § 1, paras. 252-302.

[33] Däubler-W. Däubler, Einleitung, para. 59; M. Löwisch and V. Rieble, Tarifvertragsgesetz, TVG § 4, para. 470.

[34] Cf. M. Franzen, RdA 2001, 1, at 4-5; M. Henssler, ZfA 1994, 487, at 507-508; P. Hanau, RdA 1998, 65, at 68-69.

[35] C. Schnabel, NZA-Beilage 2011, 56, at 59.

[36] Cf. G. Schaub, NZA 1998, 617, at 619.

[37] C. Höpfner, Die Tarifgeltung im Arbeitsverhältnis, at 399-406; Wiedemann-H. Oetker, TVG § 3, paras. 100-102; M. Löwisch and V. Rieble, Tarifvertragsgesetz, TVG § 3, paras. 272-279; BeckOK ArbR-R. Giesen, TVG § 3, para. 24.

[38] BAG, Case No. 4 AZR 261/08, NZA 2010, 53, paras. 34-49 (Jul 1, 2009), according to which a continuing commitment that extended for more than a year beyond the earliest possible opportunity to terminate the collective-bargaining agreement was constitutional; C. Höpfner, Die Tarifgeltung im Arbeitsverhältnis, at 391-394 views a commitment continuing in perpetuity as unconstitutional.

[39] See above at I.2.

[40] BAG, Case No. 4 AZR 655/99, NZA 2001, 788, at 789-790 (Jan 24, 2001); BeckOK ArbR-R. Giesen, TVG § 4, para. 15; for a critical take on the principle that more specific provisions prevail, see Wiedemann-M. Jacobs, TVG § 4a, paras. 481-491.

[41] BDA, Arbeitsrecht und Tarifpolitik – Tarifvertrag.

[42] ZEIT Online, Arbeitgeber wollen Tarifverträge öffnen.

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