The Italian Competition Authority (the “ICA”) fined ferry operator Caronte & Tourist (“C&T”) €3.7 million for charging allegedly excessive prices on a ferry transportation route between Sicily and Calabria between 2017 and 2019 (the “Decision”).
In July 2020, the ICA opened proceedings to establish whether C&T’s prices had infringed Italian competition rules, after its preliminary investigation revealed that C&T had charged the highest fees compared to rivals operating on the same route.
C&T is one of the three ferry companies providing passenger, vehicle and commercial transport services across five routes on the Strait of Messina. C&T is the only company that offers passenger and vehicle transport on the Messina-Rada San Francesco/Villa San Giovanni route, which is used by the majority of motorists wishing to travel from Sicily to Calabria, due to its direct connection to main roads without crossing Calabria’s city center. In the decision to open proceedings, the ICA alleged that, besides holding a monopoly over that route, C&T held, in general, a very strong position in the provision of ferry transportation services
to passengers crossing the Strait of Messina, also due to the fact that C&T’s services ran much more frequently than those of its rivals and carried the largest number of passengers.
The ICA alleged that C&T prices did not appear to be in line with the costs incurred for the provision of the service, and seems to be unreasonably high when compared to those of other operators. In the ICA’s view, such conduct harmed consumers, with prices up to almost three times higher than those of similar services provided by other operators.
In December 2021, the ICA sent its Statement of Objections (“SO”) to C&T.
The ICA’s assessment of the alleged unfair practice was based on the United Brands two-part test used by the European Commission when investigating excessive prices, namely: (i) “whether the difference between the costs actually incurred and the price actually charged is excessive” (excessiveness part); and (ii) if the difference is excessive, “whether a price has been imposed which is either unfair in itself or when compared to competing products” (unfairness part).
The relevant market
In the proceedings, C&T noted that the decision- making practice and case law are relatively limited in terms of findings of excessive prices. Most cases reflect predominant concerns other than excessive pricing, including: (i) legal monopolies; (ii) cumulative abuses, where excessive prices are often only a consequence of exclusionary conduct; or (iii) issues of parallel trade or market integration.
According to C&T, these concerns did not occur in the case at issue. In particular, C&T argued that the relevant market for ferry services across the Strait of Messina is a contestable market with no significant barriers to entry or expansion. More specifically, according to C&T, there were:
- no structural barriers to entry, given that the docks were not used to such an extent as to prevent the entrance of new operators or the increase in services by actual competitors;
- no administrative and legal barriers to entry or expansion, as a number of docks were still available and C&T, as a port operator, had an obligation to ensure the use of the marine terminal by any carriers who requested it;
- no economic barriers, taking into account that, if the prices charged by C&T were above the competitive level, as alleged by the ICA, they would attract entry to the market for ferry services, by allowing potential competitors to recover the up-front capital need and the fixed costs sustained in a satisfactory timeframe.
- Therefore, C&T argued that it did not have a dominant position on the routes crossing the Strait and, in any event, potential competition had a disciplining effect on its pricing policy.
In addition, C&T remarked that most excessive pricing cases involved a sudden and exponential increase in prices, without economic justification. By contrast, in the case at hand, C&T’s prices had remained stable over the years, similar to those of competitors active in the same market.
The ICA rejected C&T’s arguments and contested that C&T operates in a non-competitive market where it enjoys a very strong position (close to a de facto monopoly), due to alleged:
- structural and administrative barriers, including the reduced availability of docks, and the nature of C&T as a vertically integrated operator, in its capacity as a shipping carrier and simultaneously a port terminal operator;
- strategic barriers arising from the frequency of the routes and the size of C&T’s fleet, which enabled it to meet traffic demand in the Strait, thus inhibiting both the entry of new operators and a significant expansion of the carriers currently
Moreover, the ICA asserted that C&T’s main competitor, Bluferries (which was active in the same market, but almost exclusively in the summer months, and was wholly owned by Rete Ferroviaria Italiana (“RFI”), the Italian railway infrastructure management company), was not in a position to exert a significant competitive pressure on C&T. The ICA reasoned that C&T had been able to keep its prices stable over time and that Bluferries had acted as a mere follower, by adopting a commercial strategy reflecting C&T’s pricing policy as the incumbent operator.
Excessive prices: the price-cost comparison, cost-plus approach and alternative benchmarks
The ICA then applied the United Brands test to verify whether the prices charged by C&T were abusive.
The first part of the United Brands test asks whether there is an excessive difference between the costs actually incurred and the price actually charged.
In general terms, the relevant costs should include those directly incurred in supplying the good or service and an appropriate apportionment of the indirect costs that are reasonably attributable to the good or service concerned.
In the case at hand, C&T disputed the “cost-plus approach” adopted by the ICA on different grounds:
- first, C&T argued that the ICA did not take into account the correct costs and revenues, as it focused only on the passenger segment with vehicles on one specific Conversely, C&T operated as a single unitary business on all relevant routes in the Strait and offered services for both passengers (with and without cars) and freight;
- second, C&T argued that the ICA should have adopted different methods to establish whether its prices were excessive, such as:
- comparing the prices charged by C&T with those charged in the same market by non- dominant undertakings (“comparison across competitors”); or
- comparing the prices charged by C&T at different points in time (“comparison across time”).
According to C&T, these methodologies confirmed that there was no excessive pricing, given that (a) C&T’s prices were similar to Bluferries’, the most appropriate benchmark for determining whether C&T’s prices were excessive, and (b) C&T’s prices had remained stable over time;
- lastly, C&T disputed the ICA’s view that an 8% Return on Investment (“ROI”) was an appropriate benchmark to determine a reasonable profitability level. According to
C&T, the ICA did not consider the age of the fleet when calculating the reasonable ROI level. C&T remarked that carriers with older fleets tend to have a higher ROI than carriers with more modern fleets. Thus, the increase in ROI as the assets age is not an indication of any extra profitability of the company, but simply the result of an accounting distortion which prevents the use of ROI as a performance indicator.
The ICA decided not to use the “comparison across time” approach proposed by C&T, on the ground that the stability of its prices was allegedly a direct consequence of the market power enjoyed for decades by the company in the Strait area. The Authority also decided against using a “comparison across competitors” approach, namely a comparison with Bluferries’ prices. According to the ICA, Bluferries’ prices could not be considered a competitive benchmark, given that its pricing policy merely reflected C&T’s. Finally, the ICA maintained that an 8% ROI was a reasonable indicator.
In this respect, the ICA asserted that: (i) the analysis carried out by C&T’s economists, showing an increase in the ROI as the fleet ages, relied on partial data and provided an unreliable forecast value; and (ii) in any case, the relationship between the ROI and fleet age lacked statistical significance.
The ICA then applied the second part of the United Brands test, aimed at verifying whether the prices were unfair. In this respect, the Authority ruled out that C&T’s pricing policy could be considered “unfair in itself ”, but proceeded to assess whether the contested prices could be considered unfair when compared to those of competing products.
C&T argued that, in the SO, the ICA had compared the services of dissimilar companies. As a consequence, the activities considered in the benchmark and those carried out by C&T were not comparable. In particular, C&T argued that:
- Bluferries had been erroneously excluded from the comparison, while it should be taken into account, as it constituted an actual competitor, which exerted considerable competitive pressure on C&T;
- the comparison with comparable routes should be made on a “price per mile” basis, which is the most economically-sound metric and, moreover, the one used by the ICA itself in the decision to open proceedings;
- the ICA should not have relied on customer reviews on the TripAdvisor portal in relation to service quality to demonstrate that C&T’s tariffs were allegedly unfair, as such reviews were in no way representative nor relevant.
- the ICA should have also taken into account that C&T had put in place several initiatives and made investments to improve the quality of its services.
However, the ICA rejected C&T’s arguments and maintained that C&T’s prices were unfair, for the following reasons:
- first, the ICA noted that C&T’s rates were at least 80% higher than those charged by carriers operating on the benchmark routes. In the ICA’s view, the services offered by Bluferries could not be considered “competing products”, as Bluferries operated in a fringe market on a seasonal basis, with a number of ships and a frequency of sailings not comparable with that offered by C&T, and served only the residual demand not met by C&T;
- second, with reference to the use of “price per mile”, the ICA held that prices depend on numerous variables, such as the frequency of daily trips, seasonality, fleet age, vessel characteristics, quality of services on board and at embarkation, etc. In the ICA’s view, an assessment of the mere “price per mile” failed to take into account the large number of qualitative variables involved in setting As a consequence, the ICA argued that the “ticket price” was the best variable for making objective price comparisons between comparable routes in terms of service quality;
- third, the ICA alleged that C&T’s investments had not been sufficient to significantly improve users’ experience and satisfaction.
The ICA imposed a fine of €3.7 million for the alleged abuse committed by C&T. The initial amount of the fine reached the maximum statutory penalty of 10% of the company’s annual turnover, but the ICA reduced it by 50%, taking into account the “special circumstances” created by the Covid-19 pandemic and the government’s restrictions on travel during the health crisis.
Additionally, the ICA ordered C&T to: (i) implement a fair pricing policy and refrain from engaging in the contested conduct; and (ii) communicate annually to the ICA the actions taken to implement fair prices up to 2025, by providing specific written reports.
The Decision in context
The European Union and many other jurisdictions have long considered excessive and unfair pricing an abuse of dominance. However, the number of cases is relatively limited, at least at the EU level. The most prominent cases are United Brands, General Motors, British Leyland, Port of Helsingborg, Aspen, and a series of cases involving copyright collecting societies.
At the Italian level, the ICA has generally been reluctant to take action against allegedly excessive prices. The relatively few cases in which the ICA has adopted decisions concern mainly the transport and pharmaceutical sectors. Interestingly, the decision in the C&T case differs from the ICA’s earlier excessive pricing cases because the affected sector is not highly regulated.
The limited number of precedents may be due to different reasons:
- it is difficult to measure cost levels, and there is no reliable economic criterion to determine when the margin between price and cost becomes excessive;
- in case of intervention to prohibit excessive prices, there is a risk that antitrust authorities and courts may act as regulators;
there is wide consensus that intervening in such matters may distort market signals, especially in a free and competitive market: with no barriers to entry, high prices should normally attract new entrants. The market would accordingly self-correct;
- in cases of excessive prices, as with other forms of abuse, the boundary between lawful rewards of market power, as a result of successful investment, innovation or efficiency, and unlawful use of such power may be hard to identify with any precision;
- the relatively few precedents are extremely context and fact-dependent. As a consequence, the extent to which the treatment of excessive pricing set out therein may be of wider or general application is uncertain.
Despite the difficulties involved in establishing unlawful excessive prices, in recent years there has been a resurgence of interest in these cases at both EU and national levels. In line with increased political calls for fairness for consumers, the rules on abuse of dominance have been invoked to tackle high prices in a range of markets, especially in case of sudden and substantial increase in prices without economic justification. The C&T case is another example of this revival in tackling excessive pricing in competition law enforcement. The case also suggests that the fact that the prices have remained stable over the years and there has been no substantial increase in the price level does not exclude the risk of antitrust intervention.
 ICA, Decision of March 29, 2022 No. 30086, A541 – Servizi traghettamento veicoli Stretto di Messina.
 ICA, Decision of July 28, 2020, No. 29913, A541 – Servizi traghettamento veicoli Stretto di Messina (“Decision to open proceedings”). The investigation was triggered by an anonymous complaint regarding the price of the company’s tickets.
 In Italy, exploitative price abuses fall within the scope of Article 3(1)(a) of Law 287/90 (the Competition Law), on abuses of dominant position, and Article 102(a) of the Treaty on the Functioning of the European Union (“TFEU”) if they may affect trade between Member States of the European Union.
 Court of Justice of the European Union (“CJEU”), Case 27/76, United Brands and United Brands Continentaal v Commission, , ECR 207, para. 252.
 CJEU, Case 395/87, Ministère Public v Tournier  ECR 2521 and Joined Cases 110/88, 241/88 and 242/88 Lucazeau v SACEM  ECR 2811.
 CJEU, Case 27/76, United Brands Company v Commission  ECR 207.
 CJEU, Case 226/84, British Leyland Plc. v Commission  ECR 3263 and Case 26/75, General Motors Continental NV v Commission  ECR 1367.
 CJEU, Case 27/76, United Brands Company v Commission  ECR 207, para. 252.
 Interestingly, the ICA had already fined TripAdvisor for the unreliability of the reviews displayed on its platform (see ICA, Decision of December 19, 2014, No. 25237, Case PS9345 – TripAdvisor-False online reviews).
 CJEU, Case 27/76, United Brands Company v Commission  ECR 207, para. 252.
 CJEU, Case 27/76, United Brands Company v Commission  ECR 207.
 CJEU, Case 26/75, General Motors Continental NV v Commission  ECR 1367.
 CJEU, Case 226/84, British Leyland Plc. v Commission  ECR 3263.
 CJEU, Case COMP/A.36.568/D3, Scandlines Sverige AB v Port of Helsingborg, Commission Decision of July 23, 2004, para. 102. See also Case COMP/A.36.568/D3, Sundbusserne v Port of Helsingborg, Commission Decision of July 23, 2004, para. 85.
 See European Commission, Decision of February 10, 2021, Case AT.40394 – Aspen, C(2021) 724.
 CJEU, Case 395/87, Ministère Public v Tournier  ECR 2521; CJEU, Joined Cases 110/88, 241/88 and 242/88, Lucazeau v SACEM  ECR 2811.
 See ICA, Decision of November 14, 2001, No. 10115, A306 – Veraldi/Alitali; ICA, Decision of October 23, 2008, No. 19020, Case A376 – Aeroporto di Roma-Tariffe aeroportuali; and ICA, Decision of November 26, 2008, No. 19189, Case A377 – SEA/Tariffe aeroportuali.
 In September 2016, the ICA imposed a €5.2 million fine on Aspen for setting excessive prices for life-saving and irreplaceable drugs for the treatment of onco-hematological patients. See ICA, Decision of September 29, 2016, No. 26185, Case A480 – Incremento prezzi farmaci/Aspen. In October 2019, the ICA opened a proceeding against pharmaceutical group Leadiant Biosciences for allegedly charging excessive prices for an “orphan drug” and preventing rivals from accessing the market. The case is ongoing. See ICA, Decision of October 8, 2019, No. 27940, Case – A524, Leadiant Biosciences/Farmaco per la cura della xantomatosi cerebrotendinea.