Efficient Competitor Test Application in Germany

1. Introduction

The As-Efficient-Competitor (AEC) Test, often called the equally efficient competitor test, is an economic framework used in abuse-of-dominance cases to determine whether a dominant undertaking's conduct is capable of excluding a hypothetical competitor that is as efficient as the dominant undertaking itself.

The central question is:

Would the conduct exclude a competitor that is equally efficient as the dominant undertaking, or does it merely disadvantage less-efficient competitors?

In Germany, the AEC test is particularly relevant to cases involving:

loyalty rebates;

conditional discounts;

fidelity schemes;

margin squeezes;

predatory pricing;

bundled discounts;

access pricing;

platform commissions;

vertically integrated digital businesses; and

exclusionary pricing strategies.

German law must be considered together with Article 102 TFEU, particularly where the conduct affects trade between EU Member States, and Sections 19 and 20 of the German Act Against Restraints of Competition (GWB).

2. Legal Basis in Germany

Section 19 GWB

Section 19 GWB prohibits the abusive exploitation of a dominant position.

Relevant forms of abuse can include conduct that:

unfairly restricts competitors;

imposes discriminatory conditions;

obstructs access to markets;

exploits customers; or

otherwise restricts effective competition.

Section 20 GWB

Section 20 extends protection against certain forms of exclusionary conduct beyond traditional dominance situations, particularly where enterprises possess relative market power or where smaller businesses depend upon another undertaking.

This is particularly important for digital markets because a platform may have substantial bargaining or ecosystem power even where conventional market-share analysis does not establish classic dominance.

3. What Is the AEC Test?

The AEC test constructs a hypothetical competitor having approximately the same cost efficiency as the dominant firm.

The basic logic is:

Dominant firm's price/discount conditions

↓

Dominant firm's relevant costs

↓

Could an equally efficient competitor profitably compete?

If the answer is no, the conduct may have exclusionary potential.

If the answer is yes, the conduct is less likely to exclude an equally efficient rival solely through the pricing mechanism.

4. Why the Test Matters

Competition law should generally protect competition rather than inefficient competitors.

Suppose a dominant company has genuinely lower costs because it has:

superior technology;

economies of scale;

better logistics;

more efficient production;

superior infrastructure.

A smaller rival may have higher costs.

If the dominant company prices below the rival's costs but above its own costs, the rival may be unable to compete.

That does not automatically mean the conduct is abusive.

The AEC approach asks whether a competitor with the dominant company's level of efficiency would also be excluded.

5. AEC Test and Consumer Welfare

The test attempts to distinguish:

Legitimate aggressive competition

from

Exclusionary pricing

For example:

Dominant firm price = €100
Dominant firm's relevant cost = €70
Equally efficient rival's cost = €70

A €100 price does not normally exclude an equally efficient rival on cost grounds.

But if the effective price available to the rival is only €60 while the dominant firm's relevant cost is €70, an equally efficient rival could not sustainably compete.

That may indicate exclusionary effects.

6. The Major Difficulty: Which Cost Measure?

The AEC test depends heavily on the appropriate cost benchmark.

Different economic measures can be relevant, including:

average avoidable cost;

average variable cost;

average total cost;

long-run average incremental cost;

incremental cost;

downstream costs in margin-squeeze cases.

The appropriate measure depends on the type of conduct.

This is why the AEC test is not a single mathematical formula applicable to every German competition case.

7. AEC Test in Loyalty Rebates

Suppose a dominant supplier offers:

“Customers receive a large rebate if they purchase 90% of their requirements from us.”

The nominal price may appear profitable.

But the rebate could make the effective price of the contestable portion extremely low.

The AEC test therefore asks:

Would an equally efficient rival be able to match the effective price for the portion of demand that remains contestable?

If not, the rebate may have foreclosure potential.

8. Intel and the Modern AEC Approach

Case 1: Intel Corp. v European Commission — C-413/14 P

Intel is the most important modern authority concerning the AEC approach to conditional rebates.

The European Commission had treated Intel's conditional rebates as abusive.

The EU litigation eventually established that where a dominant undertaking provides evidence that its conduct is not capable of restricting competition, the Commission must properly examine the relevant circumstances, including an economic analysis where appropriate.

The AEC test can be particularly relevant to determining whether rebates are capable of excluding an equally efficient competitor.

Importance for Germany

German authorities and courts applying Article 102 principles must take account of the Intel approach.

The significance is enormous for German digital and industrial markets because sophisticated pricing strategies cannot necessarily be condemned without considering their actual or potential competitive effects.

9. Post Danmark II

Case 2: Post Danmark A/S v Konkurrencerådet — C-23/14

The case concerned a dominant postal operator's differentiated pricing and rebates.

The Court examined whether the pricing structure could produce exclusionary effects.

AEC relevance

Post Danmark II demonstrates that pricing conduct must be considered in its economic and market context.

Relevant factors include:

market coverage;

duration;

market position;

conditions of competition;

extent of foreclosure;

scale of rebates; and

ability of competitors to compete.

German significance

A German authority should not mechanically apply an AEC calculation without examining the broader competitive environment.

10. Deutsche Telekom Margin Squeeze

Case 3: Deutsche Telekom AG v Commission — C-280/08 P

Deutsche Telekom concerned a margin squeeze involving wholesale and retail telecommunications prices.

The dominant operator's wholesale pricing and downstream retail prices allegedly left insufficient margin for equally efficient competitors.

The case is particularly important because the Court accepted an assessment based upon the dominant firm's own costs.

AEC relevance

The underlying question is:

Could a competitor operating with the dominant firm's level of efficiency profitably compete between the wholesale input price and the dominant firm's retail price?

This is the classic AEC logic of the margin-squeeze test.

German importance

Deutsche Telekom is especially significant in Germany because telecommunications infrastructure and network access remain highly relevant to competition policy.

11. TeliaSonera

Case 4: TeliaSonera Sverige — C-52/09

The Court examined a possible margin squeeze involving broadband access.

The Court held that an abusive margin squeeze can arise where the spread between upstream and downstream prices is insufficient for an equally efficient competitor to compete effectively.

Importance

TeliaSonera confirms that the AEC concept can be particularly important in vertically integrated industries.

For Germany, this reasoning can extend to:

telecommunications;

cloud infrastructure;

payment networks;

digital advertising;

logistics platforms;

app ecosystems.

12. Post Danmark I

Case 5: Post Danmark A/S v Konkurrencerådet — C-209/10

This case concerned selective pricing by a dominant postal operator.

The Court examined whether prices below average total cost but above average incremental/avoidable costs necessarily constituted abuse.

The judgment emphasised the need to consider the circumstances and effects of the pricing strategy.

AEC significance

The case demonstrates why cost benchmarks must be carefully selected.

A price below one cost measure does not automatically establish exclusionary abuse.

The relevant economic question is whether the pricing is capable of foreclosing effective competition.

13. AKZO

Case 6: AKZO Chemie BV v Commission — C-62/86

AKZO is one of the foundational predatory-pricing decisions in European competition law.

The Court distinguished different pricing levels and developed important principles for determining when below-cost pricing may be abusive.

Relevance to the AEC framework

AKZO established the importance of cost-based analysis in exclusionary pricing cases.

It provides the historical foundation for later economic approaches to predatory pricing and equally efficient competitor analysis.

German significance

German competition authorities and courts dealing with Section 19 GWB must consider this established European framework when Article 102 is applicable.

14. Servizio Elettrico Nazionale

Case 7: Servizio Elettrico Nazionale SpA v Autorità Garante — C-377/20

This case concerned exclusionary conduct by a dominant electricity supplier.

The Court stressed that not every form of conduct that makes market entry more difficult constitutes abusive exclusion.

The conduct must be assessed according to its ability to restrict competition.

AEC relevance

The judgment reinforces an important principle:

Competition law should distinguish legitimate competition from conduct capable of excluding equally efficient rivals.

This is particularly relevant when applying an effects-based AEC analysis in Germany.

15. Slovak Telekom

Case 8: Slovak Telekom a.s. v Commission — C-165/19 P and C-166/19 P

The Slovak Telekom litigation concerned exclusionary practices involving telecommunications infrastructure and access.

It is relevant to margin-squeeze and access-price analysis.

AEC relevance

Where a vertically integrated undertaking controls an upstream input and competes downstream, competition authorities may ask whether an equally efficient downstream competitor could operate profitably under the incumbent's pricing conditions.

This principle is directly transferable to German infrastructure and digital-platform cases.

16. AEC Test Under German Competition Law

The AEC test should not be understood as an independent statutory requirement under Section 19 GWB.

Rather, it is an economic analytical tool.

German authorities may examine:

dominance or relative market power;

nature of the conduct;

actual or potential foreclosure;

effects on equally efficient competitors;

consumer harm;

objective justification;

efficiencies; and

competitive structure.

The test therefore supplements legal analysis rather than replacing it.

17. AEC and Margin Squeeze in Germany

A German margin-squeeze case can be conceptualised as follows:

Upstream price

€60

Downstream retail price

€75

Dominant firm's downstream costs

€20

The downstream business effectively has:

€75 − €60 = €15

available to cover downstream costs.

But the dominant firm's own downstream cost is €20.

Therefore:

€15 < €20

An equally efficient competitor could not cover its costs.

That may indicate a margin squeeze.

18. AEC and Predatory Pricing

Predatory pricing raises a different question.

Suppose:

Price = €50

Average avoidable cost = €60

The dominant company loses money on each incremental unit.

An AEC analysis may therefore identify the pricing as potentially exclusionary.

But pricing above an appropriate cost benchmark is not necessarily lawful automatically.

The authority may still examine:

recoupment;

duration;

strategy;

market structure;

intent;

entry barriers;

network effects;

switching costs.

19. AEC and Loyalty Rebates

Consider a dominant platform charging:

Base price = €100

and offering:

€30 rebate if customer purchases 90% from the platform.

The effective price for the contestable portion may be much lower than €100.

An AEC test could calculate the effective incremental price attributable to the portion of demand that competitors can realistically contest.

If that effective price falls below the relevant cost benchmark, foreclosure becomes more plausible.

20. AEC and Digital Platforms in Germany

The test has increasing relevance to digital markets.

Consider a dominant German-facing digital platform offering:

cloud services;

advertising;

payment processing;

marketplace services;

app distribution;

AI infrastructure.

The platform may provide discounts conditional on customers using several of its services.

For example:

“Use our cloud service and advertising platform together and receive a 40% discount.”

The relevant question may be whether an equally efficient competing provider could match the effective price without operating at a loss.

21. AEC and Platform Bundling

Suppose a dominant platform offers:

Search + advertising + cloud + AI tools

at a bundled price.

A competitor may be unable to replicate the bundle because it operates only in one segment.

The AEC test can help determine whether the bundle excludes a hypothetical competitor that is equally efficient in the relevant contested product.

But the analysis cannot stop there.

Authorities must also consider:

network effects;

multi-homing;

data advantages;

ecosystem integration;

switching costs;

interoperability;

non-price foreclosure.

22. AEC Limitations

The AEC test is not universally appropriate.

22.1 Dominant Firm May Already Have Structural Advantages

An incumbent may have accumulated:

data;

network effects;

infrastructure;

intellectual property;

installed users.

An equally efficient hypothetical competitor may still be unable to replicate these structural advantages.

Therefore, an AEC test may underestimate foreclosure.

22.2 New Entrants May Initially Be Less Efficient

A new entrant often operates at smaller scale.

If competition law protected only equally efficient competitors, potentially important innovation could be eliminated before the entrant reaches efficient scale.

Therefore, the test should not be interpreted as:

“Any competitor less efficient than the incumbent deserves no protection.”

That would be too simplistic.

22.3 Innovation Competition

Some competitors may currently be less efficient but possess disruptive technologies.

A dominant incumbent could eliminate such competitors before they develop into effective rivals.

The AEC test must therefore be complemented by dynamic competition analysis.

23. German Digital-Market Context

Germany has developed particularly strong competition-law tools for digital ecosystems.

The amended Section 19a GWB permits the Federal Cartel Office to intervene against undertakings of paramount significance across markets.

This is highly relevant to AEC analysis.

Section 19a recognizes that conventional dominance analysis may not adequately capture the power of large digital ecosystems.

Relevant factors include:

access to data;

intermediary position;

financial resources;

vertical integration;

network effects;

access to users;

strategic importance across markets.

Thus, German competition law can combine:

traditional dominance analysis + ecosystem power + economic effects analysis.

24. AEC and Section 19a GWB

Section 19a changes the regulatory environment in an important way.

A platform may possess enormous ecosystem power even where a narrowly defined market does not immediately reveal traditional monopoly power.

Once the statutory requirements are satisfied, the Federal Cartel Office can address certain practices involving:

self-preferencing;

leveraging;

data combination;

interoperability;

access restrictions;

preferential treatment.

The AEC test may help analyse pricing-related exclusion, but it is not a substitute for the broader Section 19a framework.

25. Efficiency Defence

The dominant firm may argue that its conduct produces legitimate efficiencies.

Examples include:

economies of scale;

lower transaction costs;

improved logistics;

better quality;

innovation;

reduced search costs;

improved security;

integrated technical services.

The competition authority must distinguish:

efficiency-producing conduct

from

efficiency claims used to conceal exclusionary conduct.

26. AEC Test and Consumer Harm

The AEC test should ultimately connect to competitive harm.

Relevant questions include:

Will prices increase after rivals exit?

Will innovation decline?

Will consumer choice decrease?

Will quality deteriorate?

Will entry become harder?

Will the dominant firm acquire greater bargaining power?

This is particularly important in digital markets where services may have zero monetary prices.

An AEC test based exclusively on price may be insufficient where competition occurs through:

privacy;

quality;

innovation;

functionality;

data protection.

27. Germany-Specific Analytical Framework

A German competition authority could approach an exclusionary-pricing case as follows:

Step 1 — Market definition

Identify the relevant product and geographic market.

Step 2 — Market power

Determine whether Section 19 GWB, Section 19a GWB or Article 102 TFEU applies.

Step 3 — Identify the conduct

Determine whether the conduct involves:

rebates;

discounts;

predatory pricing;

bundling;

margin squeeze;

conditional pricing.

Step 4 — Select cost benchmark

Choose the economically appropriate measure.

Step 5 — Apply AEC analysis

Determine whether an equally efficient competitor could compete.

Step 6 — Assess actual effects

Examine:

foreclosure;

market coverage;

duration;

customer dependence;

entry barriers.

Step 7 — Examine justification

Consider objective necessity and efficiencies.

Step 8 — Consider remedies

Possible remedies include:

termination of exclusionary rebates;

access obligations;

pricing transparency;

non-discrimination;

behavioural commitments;

structural measures in exceptional circumstances.

28. Comparison of Major Cases

29. Central Legal Principle

The most important principle for Germany is:

The AEC test is an economic tool for determining whether a dominant undertaking's pricing conduct is capable of excluding a competitor that is as efficient as the dominant undertaking, but it does not constitute an automatic safe harbour or an independent legal test for every form of abuse.

This distinction is critical.

An undertaking should not be condemned merely because a less-efficient competitor cannot match its prices.

Conversely, a dominant firm should not automatically escape liability merely because an artificial hypothetical equally efficient competitor could theoretically survive.

30. Conclusion

The Efficient Competitor Test in Germany sits at the intersection of German competition law, EU Article 102 jurisprudence and modern economic analysis.

The principal authorities—AKZO, Post Danmark I, Post Danmark II, Deutsche Telekom, TeliaSonera, Intel, Slovak Telekom and Servizio Elettrico Nazionale—demonstrate the evolution from relatively formal price rules toward a more effects-oriented assessment.

For Germany, the test is particularly important because of the interaction between:

Section 19 GWB;

Section 19a GWB;

Article 102 TFEU;

economic foreclosure analysis; and

digital-platform regulation.

The strongest application occurs where the alleged abuse involves pricing, rebates, margin squeezes or conditional discounts. The analysis becomes more complicated where the competitive harm results from data, interoperability, self-preferencing, ecosystem effects or innovation foreclosure, because those harms cannot always be captured through a simple cost-price comparison.

Accordingly, the modern German approach should be understood as:

Dominance → conduct → AEC/economic analysis → foreclosure capability → actual or potential competitive effects → efficiencies/objective justification → proportionate remedy.

The fundamental objective is not to protect every inefficient competitor, but to ensure that a dominant undertaking cannot use its market power to exclude rivals that could otherwise compete effectively on the merits.