Commission Decision

of 20 June 2001

relating to a proceeding pursuant to Article 82 of the EC Treaty

(COMP/E-2/36.041/PO - Michelin)

(notified under document number C(2001) 1582)

(Only the French text is authentic)

(Text with EEA relevance)

(2002/405/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation No 17 of 6 February 1962, first Regulation implementing Articles 85 and 86 of the Treaty(1), as last amended by Regulation (EC) No 1216/1999(2), and in particular Articles 3(1) and 15(2) thereof,

Having regard to Commission's Decision of 28 June 1999 to open proceedings in this case,

Having given the undertakings concerned the opportunity of being heard on the matters to which the Commission has taken objection, in accordance with Article 19(1) of Regulation No 17 and Commission Regulation (EC) No 2842/98 of 22 December 1998 on the hearing of parties in certain proceedings under Articles 85 and 86 of the EC Treaty(3),

After having consulted the Advisory Committee on Restrictive Practices and Dominant Positions,

Whereas:

I. FACTS

A. THE UNDERTAKING

(1) The Michelin group, with a net turnover of EUR 13,763 billion (FRF 90,28 billion) in 1999 and a world market share (all tyre types combined) of more than 18 %, is in competition with the Japanese Bridgestone group and the Goodyear/Sumitomo alliance for world leadership in the tyre field. In the Community, Michelin is by far the largest tyremaker, with a market share (approximately 32 %) almost twice as large as that of its closest competitor, Goodyear/Sumitomo. In France, it is in a commanding position, with market shares which can be estimated at [...](4) of the total (all tyres combined).

B. PROCEDURE

(2) In May 1996 the Commission opened an own-initiative proceeding against Michelin. It had evidence suggesting that the firm was abusing its dominant position on the French market for replacement tyres for heavy vehicles by imposing on dealers unfair business conditions based inter alia on a complex system of fidelity rebates aimed at tying those dealers closely to it. A number of detailed requests for information were sent to Michelin, its competitors and tyre dealers and importers. An investigation under Article 14(3) of Regulation No 17 was carried out at Michelin's premises in France in June 1997. On 28 June 1999 the Commission sent a statement of objections to Michelin. A hearing of the parties (Michelin and the interested party Bandag Inc.) took place on 20 December 1999.

C. THE PRODUCT

(3) The tyre industry comprises the manufacture of inner tubes and outer casings (or carcasses), and the renewal of the tread on worn tyre casings. This Decision concerns only the manufacture of outer casings and the renewal of the tread on worn tyre casings.

(4) To understand what a tyre is, three main distinctions must be drawn:

1. THE DIFFERENT TYPES OF TYRE

(5) First of all, a distinction must be made between different sorts of tyre designed for different types of vehicle:

- light tyres for cars,

- tyres for delivery vans and light commercial vehicles,

- heavy tyres for trucks and buses,

- tyres for agricultural tractors, road-building and earth-moving machinery, aircraft, etc.

(6) Each type of tyre covers a wide range of different qualities, treads and sizes. The type of tyre chosen obviously depends first and foremost on the type of vehicle to which it is to be fitted and the purpose for which the vehicle is to be used. Car tyres and truck and bus tyres are not interchangeable. There are, moreover, major differences between the structure of demand on the part of buyers of car tyres and that on the part of buyers of truck tyres. A large and growing part of car tyre distribution is effected through maintenance and service centres, car centres and superstores, which cover only a very small part of the truck tyre market. Truck tyres are for their part distributed mainly by specialised dealers.

(7) These types of tyre also differ in terms of their unit price. For the most common dimensions, truck and bus tyre prices are more than five times higher than those of car tyres. There is no substitutability of supply between truck and bus tyres and the other types. According to Michelin, "the resources employed to design and produce truck and bus tyres are radically different from those required to manufacture the other types of tyre"(5) (types of machine-tool, specific workshops, rubber compounds, requisite properties, standards to be met).

2. THE NEW TYRE

(8) The tyre market can be divided into two sectors depending on the type of consumer that is being targeted. A clear distinction must be drawn between the two. On the one hand there is the original equipment market, and on the other the replacement market.

(9) Original equipment tyres are sold by the tyre manufacturer direct to the vehicle producer, without passing through an intermediary. Replacement tyres, on the other hand, are sold to the final consumer primarily through a large number of specialised commercial outlets. Truck tyres are thus distributed mainly via specialised tyre dealers. The presence of these middlemen, who obtain their supplies either from the manufacturer or from wholesalers or official importers, distinguishes the replacement tyre market clearly from the original equipment tyre market.

3. THE RETREADED TYRE

(10) Truck and bus tyres need not necessarily be new. Provided the casing is in a sound condition, used tyres may be given a new tread. In some cases it is possible to repeat the retreading process. Retreading is carried out not only by the tyre manufacturers themselves (in France, for example, Michelin is the largest retreader of commercial vehicle tyres), but also by many firms specialising in the process.

(11) There are two retreading systems: mould-cure and precure.

(12) Mould-cure retreading consists in applying new tread rubber to the tyre casing, which is then hot-cured in a dedicated facility. This system, by which it is possible to replace the tread, calls for mastery of new-tyre manufacturing techniques and tools and for that reason is used only by industrial enterprises. It also calls for an elaborate system for collecting casings, and involves transport constraints due to their conveyance to a central point and relatively long processing times. In 1995 mould-cure retreading accounted for 47 % of all retreading operations in western Europe(6), but it is gradually losing ground to precure retreading.

(13) Precure retreading consists in applying a precured tread obtained from an outside supplier to the tyre casing using a cold process. This system is used in small workshops run by specialised traders or independent retreaders. In 1995 precure retreading accounted for 53 % of all retreading operations in western Europe.

(14) Owing to the characteristics of the techniques employed the two systems described above are generally aimed at different bodies of customers. Mould-cure retreading is aimed mainly at a body of customers made up of specialised dealers or wholesalers (who act as intermediary vis-à-vis the final consumer), whereas precure retreading is aimed mainly at a body of customers consisting principally and directly of final consumers.

(15) Despite the differences between the two retreading systems, the products obtained are perfectly substitutable from the consumer's point of view. A tyre dealer can therefore have recourse to either system. It should be noted, moreover, that, although it requires more expensive equipment than the precure system, mould-cure retreading is not the prerogative of the tyre manufacturers and is practised by many medium-sized independent businesses. In market studies on retreading the mould-cure/precure distinction is never mentioned as it has no impact on prices and competition. In Europe firms using the different systems compete with one another.

(16) Overall, transport firms in Europe and in France in particular currently fit new tyres and retreaded tyres in roughly equal proportions. The figures vary considerably, however, from one country to another. In Finland, for example, retreaded tyres account for 74,3 % of all tyres sold, while in Spain the corresponding figure is a mere 37,3 %.

(17) From the point of view of the product's characteristics and the use to which it is put, in spite of the progress made by retreaders in the 1980s and 1990s appreciable differences remain between new tyres and retreads. In the minds of most users and distributors, a tyre whose tread has been renewed is associated with reduced reliability, a factor that must be taken into account. Many hauliers refuse to use such tyres on a tractor unit's steering axle and/or avoid using them for long-distance transport or the carriage of highly perishable goods. Some manufacturers, including Michelin, and most dealers still recommend, even nowadays, that some of these precautions be observed. This is one of the reasons why retreaded tyres are markedly cheaper than new tyres.

(18) Despite yielding a comparable mileage if properly used, a retreaded tyre costs as a rule 50 % less than a new one. Only new tyres sold under "third line" brand names stand comparison price-wise, although they are still more expensive. These are tyres of lower quality, imported for the most part from Asia or central and eastern Europe or sold under private brands (being manufactured for so-called distributor brands). Such tyres, which are generally not retreadable, enjoyed a certain amount of growth in the early 1990s when the industry as a whole was in crisis. They account for only a small proportion of all new truck and bus tyres sold on the French market ([...] of total sales, according to documents found on Michelin's premises, [...] according to other manufacturers, [...] between 3 and 6 %).

D. THE TYRE MARKET

(19) The main features of the tyre market will be analysed one by one below, and then the peculiarities of the retread market will be examined in detail. Particular attention will be paid to the market for replacement truck tyres in France because it is on that market that the conduct objected to was identified.

(20) By and large the tyre industry is highly concentrated both globally and at the European level. In 1997 six groups (Michelin, Bridgestone, Goodyear, Continental, Sumitomo and Pirelli) with a presence in numerous countries controlled more than 72 % of world tyre sales and over 86 % of European sales.

(21) At world level, two manufacturers, Michelin (France) and Bridgestone (Japan), which in 1997 each accounted for between 18 and 20 % of all tyres sold, were constantly vying for leadership. Goodyear (United States) followed closely with 15 % of the market. Then, some way behind, came Continental (Germany), Sumitomo/Dunlop (Japan) and Pirelli (Italy) with 8 %, 6 % and 5 % of the market respectively.

(22) The position changed in 1999 when Goodyear and Sumitomo merged, propelling the new entity to the head of the field with a combined market share in excess of 21 %.

(23) The market shares are not spread evenly across the world, each of the three main players, Michelin, Bridgestone and Goodyear, having a preponderant presence in its "domestic" market.

(24) Thus, in western Europe, the six world leaders rank in a slightly different order. Table 1 shows that the level of concentration in the European market is even higher than at world level and that the Michelin group is the clear European leader with a market share much bigger than those of Continental and Goodyear, which were in second and third places until the Goodyear/Sumitomo alliance was announced. The latter operation resulted in the new entity ranking second, still well behind Michelin, though, its combined market share still being 10 percentage points lower than Michelin's.

(25) Apart from a few small western European producers (e.g. Vredestein (Netherlands), Nokian (Finland), Trelleborg (Sweden), Marangoni (Italy)), the other competitors include a number of south-east Asian and central and eastern European producers who sell part of their output in western Europe. The volume of these sales is, however, not significant when compared with those of the six majors. Sales by Yokohama or Toyo thus accounted for at most 1 % of the market respectively.

Table 1: Market shares in Europe, all tyres combined (%)

>TABLE>

Source: The Economist Intelligence Unit(7).

Table 2: Central and eastern European producers

>TABLE>

Source: "L'industrie du caoutchouc dans l'Union européenne", BLIC, October 1995.

(26) The structure of supply in the Community is not homogeneous but varies considerably from one Member State to another. The Michelin group's market shares vary widely in Europe, [...] in Spain, Italy and the Netherlands, [...] in France and Finland, to around [...] in Germany and the United Kingdom, for example. In France, where the manufacturer has always enjoyed a particularly high reputation, Michelin's position in terms of market share ([...] all types combined) is especially strong, much more so in fact than in the rest of the Community.

(27) Across Europe there are some 120 tyre-manufacturing plants. Michelin, which owns 30, has more than twice as many as its nearest competitor. In France, five companies own production plants. Out of a total of 19 plants Michelin controls 11, which in terms of French production capacity represents more than 50 % of the total. Pneumatiques Kléber, which is controlled by Michelin, has another two. The remaining plants are owned as follows: Bridgestone/Firestone and Goodyear each have one plant, while Continental and Dunlop (Sumitomo) each have two. Of these 19 plants, only five produce truck tyres, four of them being Michelin-owned and the fifth being owned by Dunlop.

(28) This horizontal concentration is accompanied by strong vertical integration. The tyre manufacturers are controlling the distribution channels more and more. This trend, which began in the United Kingdom back in the 1970s, spread to France in the early 1990s.

(29) Over the last ten years or so cheap, low-quality new tyres known as "third-line" brands have started to come on to the market. These tyres have nevertheless enjoyed only limited growth and account for fewer than 10 % of new replacement tyres. Originally, third-line tyres were made only by south-east Asian and central and eastern European companies. In recent years, however, the leading tyre manufacturers have also moved into this segment, often by buying up some of companies concerned. This is the case with Michelin (Taurus and Stomil), and also with Continental (Barum) and Goodyear (Debica). The aim is to satisfy demand from customers for whom price is a decisive factor when buying tyres.

(30) From the demand point of view, the importance of the part played by specialised dealers in tyre distribution in Europe should be stressed. In 1995 specialised distributors accounted for 70 % of sales of replacement tyres for motor vehicles. Car dealers and garages came next with 18,9 % of sales, followed by supermarkets with 7,1 % and service stations with 4 %. This domination by specialised distributors is even more marked in the case of truck tyres. Sales to road hauliers are dominated overwhelmingly by the specialist trade, which is able to provide them with personalised service and advice. The choice, fitting and management of truck tyres involve numerous technical considerations.

(31) Increasingly, manufacturers are becoming directly concerned in the distribution of tyres, notably through integrated networks and franchises. These distribution channels have greater brand-promoting potential than independent dealers. The fear that distribution will be controlled more and more by competitors is having a knock-on effect by inducing manufacturers to go further down this road.

(32) While replacement tyre distribution is generally speaking highly fragmented, there are major differences between the markets for car tyres and truck tyres. "Car" distribution is highly diversified and is effected mainly via auto service centres (31 %), car manufacturers' networks (26 %) and tyre specialists.

(33) In the case of truck tyres, on the other hand, specialised dealers, be they independent or part of a network, distribute between 75 % and 85 % of tyres on the new replacement tyre market, auto service centres and supermarkets in particular being almost entirely absent from this market. The remaining 15 to 25 % are delivered either direct under public supply contracts, to the owners of large fleets or through direct purchases by truck garages and dealers. Some supplies take the form of tyre maintenance or total tyre management service ("mileage") contracts between manufacturers and independent hauliers. Michelin, in an internal document dating from 1996, states that tyre specialists account for [...] of replacement sales, the remainder being distributed via direct sales to users [...], truck dealers [...] and maintenance contracts [...].

(34) According to the Commission's best estimates, French specialised dealers control some 2225 sales outlets, approximately 500 of which belong to integrated networks controlled by tyre manufacturers. Michelin owns by far the largest network. The French manufacturer has created a European network called "Euromaster", whose holding company is located in the Netherlands and which has more than 1200 outlets in eight countries. Although the network is controlled by Michelin, it is not exactly an in-house sales medium as Euromaster markets competing brands as well as Michelin products. The network has about 330 sales outlets in France, more than 240 of which distribute truck tyres. For its part, Sumitomo/Dunlop controls 120 sales outlets directly (via "Vulco", formerly "Pneu Holding"), while Bridgestone/Firestone has 26 (under the "Gay", "Métifiot" and "Maxi-pneu" names). In terms of market share, the importance of the manufacturers' networks is even greater in that they control more than 30 % of the market for new replacement truck tyres. The market shares can be broken down as follows: [...] for Euromaster, [...] for Vulco and [...] for Bridgestone/Firestone.

(35) Manufacturers, including Michelin, have tried in recent years to maintain the closest possible contact with those distributors who have remained independent. To this end networks or "clubs" have developed, formed by independent dealers to whom a manufacturer grants certain specific advantages in return for numerous commitments consisting for the most part in promoting the manufacturer's brands. These networks are sometimes called "soft franchises". In France, the most outstanding example is the network formed by the signatories to the "Convention bilatérale de coopération professionnelle et d'assistance technique" (bilateral business cooperation and service assistance agreement), better known as the "Club des amis Michelin" (Michelin Friends Club), which has 163 members and 375 sales outlets and which, according to Michelin, accounts [...] of the market for new replacement truck tyres and [...] of the retreaded tyres market. The other clubs or networks belonging to manufacturers, which are of much lesser importance, are the "Réseau BF Partner", which reportedly has between [...] and [...] members, "Vulcopneu +", with approximately [...] members, "Sempérit" ([...] members) and the recently set -up "Réseau Pneu expert", introduced into France in 1997 by Continental.

(36) To counter this entry en masse by manufacturers into the distribution market, a number of independent dealers have tried to join forces. They have yet to manage, however, to get their act together sufficiently to set up truly standardised chains capable of competing successfully with the manufacturers' networks or their various "clubs". The investigation carried out by the Commission in 1997 revealed that the major groupings of independents are as follows: "Arc en Ciel", which, with [...] sales outlets in France grouped together under a rainbow sign, controls [...] of the truck tyre market; the buying association "Seda-Point S", which, with [...] members reportedly controls [...] of the market; and PAP, whose [...] members are said to control about [...]. The last-mentioned entity is not really a group, but rather a "trade association". None of these groupings has so far been recognised as such by Michelin, with the result that their members cannot benefit, vis-à-vis the market leader, from the more favourable joint purchasing terms that are available. A number of regional groups are also developing such as DK ([...] sales outlets), Ayme ([...]) and Vaysse ([...]).

(37) The breakdown of the various forms of tyre distribution (all types combined) on the French market was as follows in 1996: integrated networks (manufacturers): 25,52 %; independent networks: 17 %; (independent) buying associations: 34 %; other independents: 23,48 %. Approximately 75 % of all tyre distribution in France is therefore still, formally at least, carried on independently of the manufacturers.

(38) The structure of demand varies, however, considerably from one Member State to another. While in some countries (United Kingdom, Germany) tyre distribution is highly concentrated, it is more fragmented elsewhere (Italy, Spain, Portugal). In fact, although independent specialised dealers predominate in those countries where chains (integrated networks, "fast-fit" oil change centres) have hitherto been thin on the ground owing, among other things, to the market being considered too small, quick-service integrated chains are currently experiencing strong growth. In point of fact, although the market shares of specialised dealers and chains look set to grow further after 2000, this growth should benefit mainly the integrated chains, the independent specialised retailer being threatened in the long term with gradual exclusion from the market.

The truck tyre market in figures

(39) Generally speaking, with regard to the Community an analysis of the various statistical sources shows that aggregate sales of truck tyres, all types combined (including retreads) come to around 15,5 million units. The table below, which was found on Michelin's premises and which concerns 1995, is fairly representative and gives a good overview:

Table 3: Truck tyre market in the Community((Source: Michelin, taken from the document "Rapport sur le rechapage transmis à M. Vasdeboncoeur".))

>TABLE>

(40) Of these 15,5 million units, original equipment tyres account for about 14 % of the total, or 2,25 million. The overall volume of the European replacement tyre market is therefore approximately 13,3 million. Of these sales, the retread market accounts for approximately 48 %.

(41) Given the features of the French replacement truck tyre market, some figures may be given to illustrate trends.

Table 4: Number of truck tyres sold in France between 1988 and 1996((Tyres study, "Journal de l'Automobile" No 544 of 20.9.1996.))

>TABLE>

(42) Over the period in question, the total market for truck tyres amounted on average to 2,5 million tyres, 14,2 % of which were original equipment tyres, 45,3 % new replacement tyres and 40,5 % retreaded tyres.

(43) On the replacement market, which totals on average 2,15 million tyres, sales break down into 1,14 million new tyres and just over a million retreaded tyres. The share of retreaded tyres may therefore be put at 47,2 % on average.

Specific characteristics of the retreaded tyre market

(44) According to Michelin's estimates, nearly [...] truck tyre casings were retreaded in western Europe in 1995. The precure retread segment is growing overall while the mould-cure segment is shrinking. Thus in France in 1992 the mould-cure share came to 82 % compared with only 75 % or so today.

(45) At Community level the structure of supply also varies considerably from one Member State to another. The two main players on the market are Bandag and Michelin, which operate in most countries albeit in different ways. Michelin uses mainly the mould-cure system and has several large retreading plants in Europe, including two in France (Clermont-Ferrand and Avalon). Bandag on the other hand has set up a network of franchisees who do precure retreading. With approximately 1500000 casings retreaded each year, it is estimated that Michelin holds nearly [...] of the European market, while Bandag's franchise network controls approximately [...].

(46) However, the market shares of the two competitors vary appreciably from country to country. In France especially, where Michelin and its subsidiary Pneu Laurent, which specialises in retreading, are firmly entrenched, the joint market shares of these two firms regularly exceeds [...]. Bandag's franchise network, which ranks second on the market, holds only [...].

(47) A user can procure retreaded truck tyres in a number of ways. Either he supplies his own casing to a tyre specialist, a franchisee or an industrial retreader and recovers it once it has been retreaded ("custom" retreading), or he provides a casing and at the same time buys a retreaded tyre made from another casing ("standard exchange" retreading), or else he buys a retreaded tyre outright without providing any casing at all. In France, unlike in other Member States, custom retreading is by far the most common practice (according to manufacturers' estimates it accounts for between 75 % and 90 % of all retreading operations).

(48) For this reason the business of retreading is generally considered in France to be not a sales activity but a service, or after-sales service, activity. Most hauliers calculate the cost of a truck tyre on the basis of the purchase price, the mileage obtained and the residual value of the casing should it be resold. In calculating the cost of a truck or bus tyre, several phases in its life are usually taken into account, i.e. an initial phase as a new tyre, followed by a second and sometimes a third phase as a "reconditioned" tyre. Since the price of a reconditioned tyre is much lower than that of a new tyre, retreading reduces the total cost per kilometre of the tyre over its whole life. One practical consequence of this is that each haulier wishes to be sure that the casings used in the retreads he receives back are those of the tyres which he bought new and which, in his opinion, he used competently during the first phase of their life. He regards casings which are in good condition as continuing to belong to him and will generally not entrust them to a retreading firm unless specific note is taken of the matrix number stamped on the sidewall of the tyre. This enables him to check whether it is his own tyres that he receives back in retread form and not other tyres with possible unknown defects.

(49) Accordingly demand for retreaded tyres or for the retreading service emanates in the final analysis from hauliers. Having said that, specialised dealer-distributors of truck tyres are in most cases charged with acting as intermediaries between the retreader and the haulier.

E. MICHELIN'S COMMERCIAL POLICY

(50) It is necessary to highlight the various aspects of the commercial policy pursued by Michelin in France from 1980 until 1998 inclusive since after 31 December 1998 the commitments submitted by Michelin to the Commission put an end to the abusive nature of that policy. The analysis will focus on each of the three aspects of which the policy consisted, namely:

1. the general price conditions for France for professional dealers ("Conditions Générales de Prix France aux Revendeurs Professionnels"), which are the backbone of Michelin's commercial policy. (For convenience, this category will include individual commercial cooperation agreements ("conventions de coopération commerciale"), which are simply an extension of the general conditions);

2. the agreement for optimum use of Michelin truck tyres ("Convention pour le Rendement Optimum des Pneumatiques Poids Lourd Michelin" - "PRO agreement"), which may be subscribed to under certain conditions by truck tyre dealers wishing to obtain rebates or other benefits;

3. the agreement on business cooperation and assistance service ("Convention de Coopération Professionnelle et d'Assistance service" known as the "Club des amis Michelin", or Michelin Friends Club), reserved for a limited number of dealers wishing to cooperate more closely with Michelin.

1. THE GENERAL PRICE CONDITIONS FOR FRANCE FOR PROFESSIONAL DEALERS

(51) The general price conditions for France for professional dealers laid down, for professional dealers, among other things the conditions of sale and the prices for a large part of Michelin tyres intended for the replacement market, and in particular car, van, forklift, truck, earthmover, agricultural and light plant tyres, and retreads.

(52) The conditions provided for a pricing system which comprised, firstly, a "list" price known as the "invoicing scale" (net price invoiced, less any rebates) and, secondly, a highly complex set of rebates which, until 1997, were in most cases not paid until the last day of February of the year following the financial year concerned.

(53) It was not until 1997, after the entry into force of a French law of 1 July 1996 prohibiting selling at a loss, that Michelin decided to overhaul its commercial policy. From that moment on, the bulk of the rebates and/or payments made before the end of February of the year following the reference period were shown on the invoice. The system existing until 1996 inclusive and that established as from 1997 will be examined in turn below.

The system of rebates from 1980 to 1996

General

(54) Before 1997 Michelin's general conditions provided for a complex system of rebates which covered an accounting year beginning on 1 January and ending on 31 December and which for the most part were not paid until the last day of February of the calendar year following the financial year in question.

(55) The dealer paid for new or retreaded tyres bought from Michelin at the price quoted in Michelin's official "invoicing scale". In most cases this amount had to be paid within "30 days of the end of the accounting month". On the other hand, the amount of the rebates obtained was not received until the end of February of the following year, i.e. up to 13 months after the date of the relevant transaction.

The various rebates

(56) The rebates provided for in the general conditions were divided into three categories, namely quantity rebates, rebates for the quality of the dealer's service to users ("service bonus") and rebates dependent on increases in new tyre sales ("progress bonus"). In addition, dealers exceeding for two financial years in a row a given Michelin turnover threshold were allowed to negotiate a "commercial cooperation agreement" (known as an "individual agreement") entitling them to further rebates.

Quantity rebates

(57) The size of the quantity rebates depended on the turnover achieved by the dealer with Michelin products during the accounting year, all tyre types combined apart from heavy plant tyres and retreads. The conditions comprised a "grid" showing the percentages deductible from the list price for the entire turnover achieved. In 1995 for example, these rebate percentages ranged from 7,5 % on a turnover of FRF 9000 to 13 % on a turnover of over FRF 22 million.

(58) The "heavy plant tyre" and "retreads" categories each had their own grid. In 1995 for example, the rebates ranged, in the case of retreads, from 2 % on a turnover of over FRF 7000 to 6 % on purchases exceeding FRF 3,92 million.

(59) It was not until 1995 and 1996 that the general conditions provided, under certain conditions, for three advances on quantity rebates, payable in May, September and December of the current financial year and corresponding, provisionally, to 5 % of the "truck + earthmover + forklift + light plant" turnover achieved in respect of each of the corresponding periods.

Service bonus

(60) The service bonus was an additional incentive proposed by Michelin to the specialised dealer "to improve his equipment and after-sales service". In reality the degree of cooperation and the services offered to Michelin were also taken fully into account when the rates were fixed(8).

(61) To qualify for such a bonus, a minimum annual turnover had to be achieved with Michelin products in the course of the year. The amount ranged from FRF 160000 in 1980 to FRF 205000 in 1985. It then became FRF 50000, falling to FRF 45000 in 1995 and 1996.

(62) The size of the bonus, which was fixed at the beginning of the year by annual agreement with the dealer in a document entitled "Service bonus", depended on compliance with commitments entered into by the dealer in a number of areas. Each commitment corresponded to a number of points, and the exceeding of certain thresholds of points gave entitlement to a bonus corresponding to a percentage of the turnover achieved with Michelin France, all tyre types combined. This percentage ranged from 0 to 1,5 % between 1980 and 1991 and from 0 to 2,25 % between 1992 and 1996.

(63) Between 1980 and 1995 the commitments to be complied with by dealers grew appreciably both in number (to between 10 and 13 items for which points could be awarded) and in terms of their content. Most of the criteria concerned services rendered to customers or knowledge about products. Thus the criteria enabling the size of the bonus to be increased included staff training, possession of certain machinery, vehicles and know-how, quality of facilities, etc. Some of the criteria, however, benefited mainly Michelin. Three of them may be mentioned here.

(64) New products service: between 1980 and 1987 the commitment consisted in "supplying customers with new Michelin products" and "obtaining supplies of new products, giving the following entitlements depending on the type and dimension concerned: less than 30 %: 0 points, between 30 and 50 %: 1 point, more than 50 %: 2 points". Between 1987 and 1990 the commitment changed. It now consisted in obtaining supplies of new products as a proportion of the regional share laid down for those products, giving the following entitlements: less than the regional share (0 points), equal to that share (1 point) or higher than that share (2 points). From 1990 onwards the commitment took the form of "a positive contribution towards new Michelin products: knowledge and promotion of the said products: 2 points. Advertising at the point of sale: 1 point".

(65) Market information: between 1980 and 1987 the commitment consisted in providing Michelin ("the supplier"), to help it plan its production, either annually (1 point) or quarterly (2 points) with the largest possible amount of information on the behaviour of the different types of product, mileage obtained, etc. Between 1987 and 1992 Michelin also demanded under this heading "statistics on sales broken down by product, knowledge of the local market". From 1992 onwards the dealer had to provide relevant information concerning his statistics, his sales forecasts broken down by product (2 points) and technical data on products such as performance data, quoting stock numbers (2 points), or unquantifiable information (1 point). Some of the dealers who were consulted confirmed that they had been asked to provide sales statistics showing how Michelin compared with its competitors.

(66) Retreading: between 1980 and 1987 a dealer earned points if he had a roadside assistance vehicle for trucks (1 point) and knowledge of how to sort casings (2 points). Between 1987 and 1992, if he had the necessary know-how and means of sorting Michelin casings with a view to their being retreaded or regrooved, he earned between 0 and 2 points. From 1992 onwards he earned 1 point if he promoted regrooving and 1 point if he systematically had Michelin casings retreaded by Michelin. In 1996 only the systematic carrying-out of the first retreading of Michelin tyres by Michelin was insisted upon.

Rebates dependent on increases in new tyre sales ("progress bonus")

(67) This category included two bonuses, i.e. the progress bonus and the rate bonus. However, since the latter does not apply to truck tyres, it will not be discussed here.

(68) The progress bonus was intended to reward dealers who agreed at the beginning of the year to undertake in writing to exceed a "minimum base, fixed by common agreement, depending on past performance and future prospects" and who managed to exceed it. The base was proposed each year and was negotiated with the dealer.

(69) To calculate the bonus Michelin used the following formula:

>REFERENCE TO A GRAPHIC>

(70) In this formula "C" is the truck tyre turnover, "R" the actual number of tyres sold in the course of the year and "B" the "base" (commitment to buy in terms of number of tyres). "T" is a rate which increased gradually depending on dealers' buying commitments in terms of number of tyres. The bonuses obtainable and the mechanism for calculating them have changed substantially in recent years.

(71) Between 1980 and 1984 the bonus ranged from 2,5 % for a commitment to buy between 30 and 1499 tyres to 15 % for a commitment to buy more than 8500 tyres, with six separate steps. In 1985 the minimum bonus rate was increased to 5 %, while the number of steps was reduced to five. Between 1986 and 1994 the minimum rate was increased still further to 7,5 %, the number of steps being reduced to four, as follows: between 30 and 999 tyres: 7,5 % of the amount by which the base was exceeded; between 1000 and 2699 tyres: 10 % of the amount by which the base was exceeded; between 2700 and 8499 tyres: 12,5 % of the amount by which the base was exceeded; 8500 or more: 15 % of the amount by which the base was exceeded, such amounts being limited to 25 % of the base.

(72) In 1995 and 1996 the mechanism for calculating the bonus changed substantially. There were now only two steps, but more importantly, where the amount by which the base was exceeded was equal to or greater than 20 % of the base, a single bonus rate applied to the entire turnover achieved. Thus:

- between 30 and 999 tyres: 12 % of the amount by which the base was exceeded if the progress was lower than 20 % of the base and 2 % of aggregate turnover in respect of new truck tyres if the progress was equal to or greater than 20 % of the base,

- over 1000 tyres: 15 % of the amount by which the base was exceeded if the progress was lower than 20 % of the base and 2,5 % of aggregate turnover in respect of new truck tyres if the progress was equal to or greater than 20 % of the base.

(73) If a dealer managed only to achieve sales equal to the "base", he nevertheless received a bonus worth 0,5 % of all tyres bought.

(74) To understand fully how this bonus operated, two of its aspects must be brought to the fore:

(a) the key feature of the bonus and one of the key elements in the discussion about annual commitments was the fixing of the "base", because it was the amount by which this was exceeded that determined the maximum amount of remuneration payable. It was therefore in the dealer's interest that the base should be set at the lowest possible level so that he might achieve it easily. It was in Michelin's interest, on the other hand, that it should be set at the highest possible level so as to maximise its incentive effect;

(b) bonuses were agreed at the beginning of the year in the light of the dealer's situation, with the result that, if the company changed hands during the year (sale, take-over, merger, etc.), the commitments became null and void and the bonuses had to be renegotiated in the light of the new situation. Moreover, towards the end of December, a downward indexation of the base could take place. This was decided unilaterally by Michelin and could vary from one type of product to another. It was also used to calculate the reduction factors to be applied in working out the following year's bases. In exceptional circumstances, a bonus might be paid even where the base was not reached (e.g. where a tyre was in short supply, resulting in supplies drying up, or where the dealer was a member of the Friends Club).

The specific conditions granted to signatories to "Commercial Cooperation Agreements"

(75) Dealers who achieved, with Michelin France's products a turnover exceeding the maximum amount referred to in Table I provided by Michelin concerning quantity rebates (e.g. FRF 24 million between 1991 and 1994 and FRF 22 million between 1995 and 1996) could sign a commercial cooperation agreement (commonly known as an "individual agreement") with Michelin. From 1993 onwards, if they purchased more than 1000 truck, earthmover and/or light plant tyres, they signed two individual agreements, namely a "car and van" agreement and an "industrial products" agreement. These agreements did not replace the general conditions, but merely supplemented them. According to Michelin, 16 to 18 major dealers signed this type of agreement between 1993 and 1996, 11 to 13 of which were industrial products agreements.

(76) The main commitments entered into when signing such agreements were: to provide technical information and after-sales service for Michelin products; to help launch new Michelin products; to submit monthly or quarterly purchasing and sales forecasts to Michelin; and to obtain regular supplies of Michelin products. The benefits received in return were far from negligible:

- an extension of the tables corresponding to the quantity rebates (potentially resulting in a difference of up to 2 % of turnover);

- a specific, favourable system for calculating the progress bonus.

(77) A specific scale applied in which the bonus was sandwiched between a threshold and a ceiling. Dealers could thus generally obtain a progress bonus of 1 % (threshold) of annual turnover (truck/earthmover/light plant) simply by achieving the base, up to a maximum of 3 % if they exceeded the base by 15 % (ceiling).

(78) By way of example, in 1996 a commitment to purchase between 1000 and 8999 tyres granted entitlement to a bonus ranging from 1 % (minimum) if the base was reached to 2,5 % (maximum) if it was exceeded by 15 %. A commitment to purchase more than 9000 tyres made it possible to earn up to 3 % more in return for exceeding the base by 15 %.

(79) From 1993 onwards an additional bonus in support of industrial products of 1 % of turnover achieved with new Michelin truck, forklift, earthmover and light plant tyres could be obtained if the truck base was reached, as could:

- additional credit (a further 10, 20 or 30 days worth),

- payment of part of the end-of-year bonus on the first working day in January of the following year instead of on the last day of February.

The rebate system in 1997 and 1998

(80) As of 1997 Michelin made substantial changes to its business conditions for dealers, eliminating certain abusive practices which had hitherto characterised its behaviour. Further changes were made in 1998. The reasons behind these changes, which were in any case not introduced until after the Commission had opened its investigation, lie partly in the amendment of the French legislation prohibiting selling at a loss, and partly in the extensive restructuring of the Michelin group at the end of 1996.

The new rebate system

(81) Different, separate business conditions were laid down for each of the following five product categories: 1. car/van, 2. truck/earthmover, 3. plant/forklift, 4. agricultural tractor, 5. two-wheeler, with different conditions, within each of these categories, for dealers entitled, by virtue of their volume of purchases (more than 2500 tyres in the truck/earthmover/plant category), to sign an individual commercial agreement.

(a) General conditions

(82) In the truck tyre sector, new and retreaded tyres were treated differently.

(i) As regards new truck tyres

(83) The main changes concerned the disappearance of quantity rebates, the service bonus and the progress bonus, and the appearance of new categories, namely "invoice rebates", the "achieved-target bonus", "end-of-year rebates" and a "multiproduct rebate".

(84) Invoice rebates: invoice rebates were granted on the basis of the number of new truck/earthmover/light plant tyres purchased the previous year, the average for the two previous years or the average for the three previous years, depending on which was most favourable to the dealer, according to the following scale:

Table 5

>TABLE>

(85) Dealers wishing to obtain a larger invoice rebate than that due to them under the above scale had to sign a target contract drawn up in agreement with Michelin which took account of "the dealer's potential together with forecast market trends". The invoice rebate obtainable then corresponded to the tranche within which the commitment entered into by the dealer fell.

(86) Such "targets" had to be realistic and not be over- or underestimates. Michelin would therefore propose to the dealer a choice between his previous year's performance and the average of his previous two or three years' performances, factoring-in "forecast market growth". In 1997 this growth was set at 1 % irrespective of the region.

(87) Exceptionally, a different choice could be made if the dealer's buying capacity had been adversely affected (arrival of a competitor in the same area, loss of a good customer, etc.). Exceptionally also, the current year's target could be equal to the previous year's performance.

(88) Dealers whose purchases during the course of a given year entitled them to a larger rebate than that for which they qualified that year benefited from an end-of-year correction paid at the end of February of the following year covering the difference.

(89) Lastly, it should be pointed out that in the case of new dealers the invoice rebate was set at 15 % of turnover unless they had signed a target contract, in which case the rebate was fixed by reference to the annual target.

(90) Achieved-target bonus: dealers who had signed a target contract obtained in 1997 a bonus of 2 % of their net annual invoiced turnover, paid at the end of February if the target was reached. In 1998 the bonus was set at 1,5 %.

(91) End-of-year rebate: depending on the invoice rebate originally granted and the net invoiced turnover, a rebate was paid at the end of February according to the following scale:

Table 6

>TABLE>

>TABLE>

(92) "Multiproduct rebate": dealers whose turnover achieved through tyres, all types combined, accounted for more than 50 % of their total turnover and who achieved significant sales in at least two of the following categories: car/van, motorcycle/scooter, truck and agricultural tractor, were entitled to an end-of-year rebate on their invoiced turnover achieved through new products (excepting heavy plant) and retreaded products according to a scale ranging from 1 % to 2,20 % in 1997 and from 1,5 % to 2,70 % in 1998.

(ii) As regards retreaded truck tyres

(93) The system was simple and comprised two rebates:

- a 5 % invoice rebate on all retreaded products,

- an end-of-year quantity rebate depending on total net turnover achieved through retreads (van, truck, earthmover, agricultural tractor, light and heavy plant), increasing progressively from 1 % (above FRF 6500) to 4 % (above FRF 2500000) of total net turnover achieved through retreads, according to a 16-step grid ranging from 1 % at the bottom of the scale to 0,1 % at the top. This rebate was abolished in 1998.

(b) Commercial agreements

(94) Dealers who had signed an individual agreement benefited from similar conditions and from an extension of the scales depending on the quantities purchased.

(95) For new truck tyres, invoice rebates and end-of-year rebates were accordingly increased to:

Table 7

>TABLE>

>TABLE>

>TABLE>

(96) As regards retreaded tyres, the invoice rebate was increased to 6 % and the end-of-year rebate was increased, in 1997, to 6 %. In addition, in 1998, dealers who had signed an agreement were entitled to an end-of-year rebate of 1 % (based on the invoicing scale) if they sold between 2500 and 10000 retreaded tyres and of 1,5 % if they sold more than 10000.

2. THE PRO AGREEMENT (AGREEMENT FOR OPTIMUM USE OF MICHELIN TRUCK TYRES)

(97) Intended only for dealers purchasing new truck tyres from Michelin France, the agreement for optimum use of Michelin truck tyres, which was introduced in 1993, enabled dealers to obtain further rebates. To this end a dealer had to enter into a number of obligations:

- sign with Michelin a truck progress bonus commitment for the current year,

- present to Michelin for custom retreading and standard exchange retreading Michelin truck tyres which have reached the legal tread wear limit.

(98) In return, for every truck casing considered retreadable by Michelin, the dealer received FRF 45, 65 or 120 depending on the type of tyre concerned. If the casings had been regrooved and then reused, the dealer received an additional FRF 15, 25 or 40. A dealer could therefore earn a maximum rebate of FRF 160, which in percentage terms was considerable (15 % according to Bandag; Michelin puts it at between [...] and [...], i.e. at a level similar to that of the service bonus and the progress bonus taken together in the light of the price invoiced to the dealer by Michelin for a retreaded tyre). Finally, the importance of this bonus is highlighted by the fact that it accounted, in 1994, [...] of all truck tyre rebates (source: Michelin).

(99) It is the presence of certain supplementary conditions that sets the agreement apart with respect to its scope:

- the maximum bonus that could be earned depended on how well the dealer performed in terms of new Michelin tyres, i.e. the number of truck tyres bought from Michelin in the course of the previous year. Thus, the maximum number of PRO bonuses was limited by the number of new truck tyres bought the previous year. In 1997, however, the amount of the bonuses granted was no longer limited by the number of tyres bought the previous year, but by the number of tyres which the dealer had undertaken to buy in the course of the current year in his 1997 target contract,

- the bonus was calculated by sales outlet (by dealer as from 1997), a correction being made at the end of the year,

- the bonus was paid in the form of a credit towards the dealer's purchases of Michelin truck tyres, being deducted from the following month's bill.

(100) In 1998 the PRO agreement was abolished and replaced by a clause in the general conditions entitled "Retreading quality service". On this basis a dealer could earn bonuses for every casing sent to Michelin for retreading, without any commitments or ceilings.

3. THE BILATERAL BUSINESS COOPERATION AND SERVICE ASSISTANCE AGREEMENT (THE MICHELIN FRIENDS CLUB)

(101) In return for signing a bilateral business cooperation and service assistance agreement and entering into numerous commitments, some dealers can obtain additional financial benefits from Michelin. The body of signatories form what is known in the trade as the Michelin Friends Club.

(102) The club, which was created in 1990, grouped together more than 295 sales outlets as early as the end of 1991. In April 1997 more than 163 tyre specialists representing 375 sales outlets and upwards of 20 % of the new and retreaded truck tyre market were parties to the agreement. The importance of the agreement to Michelin France is due to the fact that the club members distribute in France, by themselves, as many tyres as the integrated networks taken as a whole, all brands combined, and some 30 % of all Michelin truck tyres.

Features of the Club

Rationale

(103) Three factors make up the club's backbone: 1. state of mind/professionalism, 2. mutual trust between Michelin and the club and 3. Michelin volumes and "temperature". Michelin is prepared to lend its support, including its financial support, to club members to help them become better-performing and more professional, but in return members must "play the game" and cooperate with Michelin, which involves among other things guaranteeing the manufacturer a certain level in terms of Michelin volumes and "temperature" (market share).

Michelin's Contribution

(104) Michelin participates in the dealer's financial effort notably by contributing towards investment and training and by making a financial contribution amounting to 0,75 % of annual Michelin Service turnover. This contribution, linked as it is to service turnover, is conditional on attainment of a specific target, which is agreed with the customer at the beginning of the year. One dealer asserts that the target was fixed in terms of purchasing commitments. The sums involved are very substantial. In 1993, for example, they accounted for 0,9 % of the total turnover of dealers belonging to the club, that is to say 2,8 % of their gross profit margin and/or 24,9 % of their current result before tax, i.e. a quarter of the profits of dealers belonging to the club.

(105) Michelin also grants other benefits which are harder to quantify but whose importance is far from negligible:

- transfer of know-how in many areas,

- priority access to training courses (in fact 50 % of courses at Michelin's training centre are provided for club members),

- offering of contracts concerning new business activities as a matter of priority to specialists (subcontracting of fleet tyre business, breakdown chain, for example),

- transmission of data on market trends,

- exclusive distribution of BF Goodrich car tyres.

(106) The package helps to ensure that dealers are more comfortably off (club members had an average profitability in 1995 of 3,9 %, which was higher than the average profitability of specialised dealers).

Members' Commitments

(107) The quid pro quos demanded by Michelin in return for admission to the club are considerable. In particular, Michelin has the right to oversee the specialist's business and to ask him:

1. to communicate to it, each year, balance sheets and profit and loss accounts (with a breakdown of income and expenditure) and statistics on turnover and services provided. Forward estimates and spending and financing plans must also be transmitted if necessary. The dealer must also let Michelin know the identity of all direct or indirect shareholders in the company and keep it informed of any event likely to affect control by the company owning the business premises and/or its strategic plans. On the basis of this information Michelin carries out individual financial analyses of club members and holds meetings with them, proposing solutions to any problems encountered. This enables Michelin to produce statistics and tables incorporating the consolidated balance sheets of club members;

2. to permit Michelin to carry out an analysis of his sales outlet(s) in a number of areas: staff qualifications and competence; quality of service and sales promotion; and sales facilities. This analysis will make it possible to work out an annual progress commitment in one or more of these areas and any steps proposed and agreed jointly. On the carrying-out of this commitment will depend the annual payment of a bonus proportionate to the turnover in respect of services;

3. to promote the Michelin brand and its new products; display in his sales outlet(s) the advertising material provided (including neon signs and/or a pole with a flag) and the standard product information; and take part in advertising campaigns;

4. "not to divert customer demand away from Michelin products; Michelin reserves the right to monitor compliance with this clause". This commitment appeared word for word in the original agreements and was not formally abolished until 1996. In fact, this clause is the very core of the agreement and amounts to an unwritten undertaking to remain faithful to Michelin products in "temperature" terms as far as both the car tyre and the truck tyre range are concerned.

Michelin makes access to the club conditional on compliance by the dealer with a certain Michelin "temperature": in an internal document concerning the club(9) it is stated in connection with the customer's partnership or market share that: [...] Michelin clearly uses this condition as a lever in its business negotiations, as can be seen from numerous documents found in the course of the investigation;

5. to carry a sufficient stock of Michelin products to meet any customer demand immediately;

6. to communicate to Michelin his sales statistics and forecasts, tyre type by tyre type and for all brands, together with trends in Michelin market shares;

7. to have the first retreading of truck, earthmover and van casings carried out by Michelin France. This obligation was contained in an initial version dating from 1991. In a subsequent version dating from 1993 it was removed in respect of vans. According to Michelin, failure to carry out this commitment was never and would never have been penalised. The clause was abolished with effect from October 1995.

Mention should be made, however, of the case of one dealer who wished to deal actively with competing retreaders and who complained of having been threatened with exclusion from the club;

8. to play an active part in programmes aimed at enhancing sales outlets, increasing truck tyre sales and improving knowledge of farming issues and in vocational training schemes and, where appropriate, play a part in the truck breakdown chain and other services rendered to hauliers to the best of his abilities.

(108) In the event of the specialist failing to fulfil his commitments, Michelin may cancel the agreement without compensation. In that event, the specialist must return to Michelin any manuals, documents and copies entrusted to him under the agreement. In an initial version of the agreement dating from early 1990 the dealer was also required to pay back to Michelin, over five years and in equal instalments, all sums received by way of financial assistance. From 1992 onwards this obligation becomes more ambiguous, the dealer losing only "any entitlement to the consideration provided for in Articles 1 to 7".

II. LEGAL ASSESSMENT

A. RELEVANT MARKETS

1. PRODUCT MARKETS

(109) Producers and dealers, when consulted by way of requests for information from the Commission, were unanimous in confirming that the market in tyres for trucks and buses is quite distinct from the market in tyres for other types of vehicle. They also confirmed the differences between the original equipment market and the replacement market. These aspects will thus not be analysed in detail (see above paragraphs 3 to 48).

(110) However, the question arises as to whether the market in new replacement tyres for trucks forms a relevant market in itself (thus excluding retreaded tyres) or whether retreads should be included with new tyres in a single relevant market in replacement tyres. In the latter case, there would be a significant competitive relationship between the two types of tyre.

(111) In its Decision 81/969/EEC (Case IV/29.491 Nederlandsche Banden-Industrie Michelin, hereinafter "NBIM decision")(10), the Commission defined the relevant market as the market in new replacement tyres for trucks and buses. The Court subsequently confirmed the Commission's conclusion that the new tyre market was not subject to competition from retreads to an extent sufficient significantly to alter competitive conditions and Michelin's dominant position on the market. This analysis is still valid, as confirmed by Michelin during the investigation (in reply to requests for information from the Commission).

(112) Since the NBIM decision was confined to the new tyre market, neither the Commission nor the Court of Justice had the opportunity to deliver an opinion on the relevance or otherwise of the retread market, which is necessary in this case. Following identical arguments to those put forward in support of the definition of the relevant market as the market for new tyres, it is clear that the retread market is likewise not subject to competition from new tyres to an extent likely to alter the competitive conditions prevalent on it. The markets in new tyres and retreads thus constitute two distinct relevant markets. The main reasons for this conclusion are:

(113) First, there is a marked difference in the price of new and retreaded tyres, which reflects the significant differences between the two products. The vast majority of new tyres are marketed at a price well above that of retreads, the average unit price of which is equivalent to around 50 % of the price of a new casing. This difference results not only from their different features, but also, since custom retreading is the most widespread practice, from the from the fact that the value of the carcass is not included in the invoice for the service, a fact which highlights the very different ways in which the two markets operate, as will be shown below.

(114) Second, the respective structures of supply and demand for the two products are far from identical. On the supply side, producers of new tyres are generally quite distinct from retreaders, Michelin being the only company to have a strong position on both market segments. On the demand side, the customers of new tyre manufacturers are mainly specialised dealers, while the customers of retreaders are mainly transport firms, which use specialised dealers merely as intermediaries. In the vast majority of cases, retreading prolongs the use of a new tyre by its original owner. The retreader thus acts as a skilled service provider, who does not necessarily have any link with the tyre sales sector. The involvement of a dealer is usual, but not essential.

(115) Third, and most importantly, the retread market constitutes a secondary "after-sales" service market in relation to the market for new tyres. New tyres do not therefore constitute a valid substitute for retreads. Since retreading is performed precisely in order to prolong the life of a tyre so as to postpone the purchase of a new one, there cannot be real competition between retreading and the purchase of a new tyre. The fact that in France more than 80 % of transport firms have recourse only to custom retreading, rather than purchasing a retreaded tyre which they had not previously owned, shows the extent to which the retread market is complementary to and thus distinct from the new tyre market. This is all the more true given that one of the main features of the truck tyre market is that, unlike purchasers in the passenger car category, transport firms systematically take account of the cost price per kilometre. Retreading is part of a strategy for reducing the cost price of the tyre, which in practice rules out the possibility of effective competition between retreading and the purchase of a new tyre at the same stage in the life of the casing.

(116) Lastly, analysis of their specific characteristics and their uses by final consumers shows that new tyres and retreads are not really substitutable. Hauliers systematically avoid fitting retreaded tyres to the front of their tractor units (steer tyres) or to trucks carrying dangerous goods. These practices arise less from strict security considerations (while most specialised dealers recognise that retreads are less reliable, they agree that high-quality retreading reduces the risk virtually to zero) than from the desire, given the spread of just-in-time approaches, to avoid any incident on the journey that might delay delivery. The situation that prevailed in 1981 has thus not changed significantly.

(117) Likewise, retreaders and dealers in retreaded tyres do not consider retreads to form a real alternative to new tyres, but see them as complementary in that, first to carry out their business activity, they depend on a regular supply of new tyres that cannot, or at least can only inadequately, be replaced by a supply of retreads, and that second, retreads are a secondary product compared with original equipment tyres or used replacement tyres, which constitute essential "raw material" for retreading.

(118) This leads to the conclusion that the markets in new replacement truck tyres and truck retreads are quite distinct. In this Decision, it will thus be examined whether Michelin has a dominant position on both these reference markets.

2. GEOGRAPHIC MARKETS

(119) The relevant geographic market comprises the area in which the undertaking concerned is involved in the supply and demand of products or services, in which the conditions of competition are sufficiently homogeneous and which can be distinguished from neighbouring areas because the conditions of competition are appreciably different in those areas.

The market in new replacement tyres

(120) In its NBIM decision, the Commission concluded that the market in replacement tyres for trucks was a national market. Its assessment took account of the limited extent of parallel imports, the organisation of sales subsidiaries along national lines and the fact that Michelin took account only of national purchases in calculating its rebates. This analysis was deemed to be correct by the Court of Justice in its judgment in Case 322/81 Nederlandsche Banden-Industrie Michelin v Commission (hereinafter "NBIM judgment")(11), in paragraph 26: "In practice dealers established in the Netherlands obtain their supplies only from suppliers operating in the Netherlands. The Commission was therefore right to take the view that the competition facing Michelin NV is mainly on the Netherlands market and that it is at that level that the objective conditions of competition are alike for traders".

(121) Michelin now asserts that the market has become international. In support of this argument, it cites the fact that "the structure of competition on the replacement tyre market is worldwide: the main players (...) compete on a world scale". Michelin also stresses that the group was reorganised in 1996 into European product lines (TOUs(12), that standard European legislation now exists and that "the international nature of the tyre market has been confirmed in recent years by the large-scale importation of tyres from Asia and eastern Europe".

(122) The unquestionable intensification of trade over the last decade certainly made a re-examination of the geographic dimension of competition on the relevant product market necessary. Following this re-examination, the Commission considers that, despite the arguments put forward by Michelin, competition conditions are not homogeneous at European level and that conditions on the French market are appreciably different from those that prevail on the other markets of the Community.

(123) The argument that the largest international tyre producers compete in numerous countries and across the European Union in no way means that it can be supposed that the relevant geographic market is the world market. This situation is perfectly compatible with the existence of conditions of competition that are appreciably different in each of the relevant countries. This was already the situation in the tyre industry at the time, when the Court of Justice found that the Dutch new replacement tyre market was a national market.

(124) What matters in this case is to assess the real capacity of dealers to obtain supplies from outside their national territory and the similarities or differences in the supply structure.

Purchases from national subsidiaries and limited extent of parallel imports

(125) During its enquiry, by way of requests for information, the Commission found that in 1997 the large manufacturers all organised the distribution and sales of their tyres along national lines. The situation has thus not changed since the NBIM decision. Michelin itself acknowledges that it "carries on its business on the various national replacement markets via commercially independent companies established in accordance with the applicable national law. (...) [...]". All the manufacturers also confirm that national dealers obtain supplies almost exclusively from the national trading subsidiaries. Michelin itself confirms that although they could obtain supplies from sources other than the national subsidiary, "dealers, at least as regards their regular supplies, generally use the Michelin company established in their country".

(126) It should be noted that, in its NBIM judgment, the Court found that the mere fact that dealers obtained supplies almost systematically from the national subsidiary gave rise to the conclusion that the market was national. On the basis of the observation that "the commercial policy of the various subsidiaries of the groups competing at the European or even the world level is generally adapted to the specific conditions existing on each national market", the Court concluded that "the Commission was therefore right to take the view that the competition facing Michelin NV (was) mainly on the Netherlands market". This situation has not changed and is valid for France today.

(127) The data collected also show that parallel imports are extremely limited despite the major price differential between the various national markets within the Community. One of the largest tyre importers (Vandenban) also states, in a press article supplied by Michelin, "that 98 % of its business is in tyres for passenger cars, truck tyres being covered by the manufacturers, with the remaining 2 % accounted for by a breakdown service for loyal customers".

(128) There are several reasons for this, which are:

1. Economic:

even if dealers can theoretically obtain supplies from a foreign Michelin subsidiary, they have no economic interest in doing so since they would pay the listed price and the purchases would not be taken into account by Michelin for the calculation of the rebates;

2. Historical:

in France, wholesaling (a distribution system which is conducive to parallel imports) is very underdeveloped. It is virtually non-existent on the market for truck tyres. There are marked differences as regards supply to retailers ("sell-in") between the countries where, owing to the absence of wholesaling, the dealers are in direct contact with the manufacturers (e.g. France, Italy) and the countries where wholesale distribution is very strong (the Netherlands, Germany);

3. Technical:

the technical factor is probably the most decisive. Dealers absolutely require regular and secure supply across the range. These conditions cannot be guaranteed by recourse to parallel importers. This situation is all the less surprising in that reselling tyres to hauliers is a very technical business that requires the dealer not only to possess technical knowledge, but also to follow closely a number of guidelines issued by the manufacturer, especially when the tyres, as is generally the case with Michelin tyres, will be regrooved and retreaded. It makes sense for dealers to obtain supplies exclusively from national subsidiaries of the manufacturers, which at the same time provide them with documentation and advice on fitting and monitoring the tyres.

(129) Furthermore, while it is true that dealers do make import purchases, they do so sporadically and in very small quantities: these purchases complement national supply, but are not in any circumstances substitutable for it. This point was a touchstone for the definition of the geographic market in Commission Decision 88/518/EEC (Case IV/30.178 Napier Brown/British Sugar(13).

(130) Thus, the limited extent of parallel imports and the large-scale purchasing from the national subsidiaries are evidence that the geographic market is confined to French territory within the meaning of the NBIM judgment.

(131) Moreover, differences in the structure of supply in the various Member States and major price differences are factors that also point to the existence of separate national markets and in particular of a relevant market confined to France.

Differences in the structure of supply

(132) It should be noted in this connection that the market shares of each of the large manufacturers vary considerably from country to country. Table 8 below gives market shares for Michelin:

Table 8: Michelin's shares of the markets in new replacement truck tyres in western Europe (%)

>TABLE>

Source: Michelin(14).

(133) Such national variations are hardly compatible with the theory of a European market characterised by homogeneous competition. While such differences may depend on how long a firm has been established on the market and/or on national traditions still affecting consumer behaviour, the existence of such phenomena, if confirmed, would support the hypothesis that the market in replacement tyres for trucks and buses in the Community is still divided along national lines.

Appreciable price differences

(134) The major differences in tyre prices throughout the reference period, according to the country where they are sold, supports the hypothesis that the relevant geographic market is a national one. Michelin provided a series of tables that highlight the significant price differences within the Community. Thus, if we compare the price in six Member States of one of the tyres with the highest sales in one of the most popular dimensions (Michelin 315/80 R 22.5 XZA), we obtain the following table:

Table 9

>TABLE>

(FRF, at the exchange rate on the date in question)

Source: Michelin.

(135) The table shows that in 1993, compared with the French market, listed invoice prices were lower [...] and [...], but significantly higher [...] and especially [...]. It is remarkable that, for the same product, the difference can be as high as [...], as in the case of [...] and [...]. Although these differences have since narrowed, they are still significant. Compared with the French market, the listed prices in 1996 were lower [...] and [...]and higher [...] and [...]. There is still a [...] difference between the countries with the highest and lowest prices for the tyre, in this case [...].

(136) If we use as a reference the listed prices after deduction of the invoice rebates, we obtain the following table, which shows that significant differences remain:

Table 10

>TABLE>

(FRF, at the exchange rate on the date in question)

Source: Michelin.

(137) Lastly, a comparison of the net prices charged by Michelin after deduction of the maximum rebates gives the following figures:

Table 11

>TABLE>

(FRF, at the exchange rate on the date in question)

Source: Michelin.

(138) We see that from 1994 in particular the price was regularly and significantly higher [...] than in the other reference countries. For example, in 1994 the price of the tyre was some [...] lower [...].

(139) Significant variations are evident, even if these figures should be treated with caution. It is extremely difficult to draw precise comparisons. Apart from the fact that currency fluctuations can blur interpretation, the price lists almost never correspond to the price actually paid and the rebates vary according to the specific circumstances of each dealer. In this connection, it is essential to note that the "post-invoice" rebates are proportionally much higher in France than in countries such as the Netherlands, Germany or the United Kingdom. The fact that the above figures take account of the maximum post-invoice rebates, which are largely theoretical in the case of France, since few dealers can benefit from them in full, clearly has the effect of underestimating French prices in relation to these countries.

(140) Although these factors are strong indications of the existence of a national market in new replacement tyres in France, a number of objections were raised by Michelin.

(141) First, the extent of intra-Community tyre flows is evidence that the market is Community-wide:

Michelin thus argues in its reply to the statement of objections that "more than [...] of the total number of new replacement truck tyres sold on the French market are not manufactured in France". However, the flows described by Michelin reflect the organisation of production on a European scale, which in no way rules out the existence of national markets. It is the sales conditions which in this case determine the size of the market, and the flows described by Michelin are flows between tyre manufacturing plants, including Michelin's own plants to a large degree, and they are thus outside the market. Parallel imports, on the other hand, are much more limited.

(142) Secondly, hauliers could very easily purchase their tyres abroad:

according to Michelin, despite the fact that the manufacturer-distributor relationship is on a national scale, final customers, i.e. haulage fleets, could easily break free of this compartmentalisation by buying directly from specialised dealers in the countries with the lowest prices. This scenario does not correspond to reality. Given the logistical difficulties of such a strategy and the time pressures on hauliers, it seems unlikely that truck fleets would themselves obtain supplies abroad, especially since managing the tyres of a fleet requires technical knowledge and strict monitoring such as would rule out this kind of practice.

(143) It must be borne in mind that for a transport firm, especially when it has a large fleet, tyre management is a highly technical matter, involving assessment of the extent to which the tyre is worn and of the right time to intervene, the practice of rotating tyres to even out wear and tear and prolong their useful lives, etc. It follows that for haulage professionals, the purchase of tyres is difficult to dissociate from the service provided at the same time by the dealer. Moreover, since action on the tyres must be taken at specific times, it is difficult to see how a haulier could seriously plan to obtain supplies abroad and store the tyres purchased in this way.

(144) A number of factors argue against the hypothesis put forward by Michelin:

(i) technical monitoring: many facts contained in the file reveal that constant technical monitoring of the tyre fleet is vital [...]. While it is true that 20 to 25 % of journeys in Europe are made with empty trailers, it is unrealistic (given the need for regular technical monitoring of the tyres and for storage) for hauliers to obtain supplies abroad item by item;

(ii) language problems: since most haulage firms are micro-enterprises (see below), the linguistic obstacles to intra-Community trade are not inconsiderable, especially since tyre dealing would be secondary to the transport business and thus without a specific budget (e.g. training in foreign languages and in negotiating in them);

(iii) targeted commercial policies: the development of fixed-mileage contracts also undermines this hypothesis;

(iv) the structure of the road transport sector: this tends, in France, to demonstrate that, in any event, only a very small proportion of hauliers could afford to adopt such an approach.

(145) According to the report by the group of wise men on road haulage in the single market (1994), in 1990, of 37037 road haulage firms in France, 81,6 % had 1 to 5 vehicles, 5,6 % had 6 to 10 vehicles and only 12,8 % had 11 vehicles or more. The proportion of small businesses had increased by comparison with 1985.

(146) The same report states that most road haulage business is done on local markets. Even in the countries where distances are the greatest (Italy), 50 % of freight is carried for distances of less than 50 km, according to the report.

(147) An investigation by the Commission confirmed that fleet policies with specific services and prices, targeting firms with a large number of vehicles, are operated by most of the large tyre manufacturers. The latter state that this policy (and thus also the associated services) is restricted to France. It is therefore clear that even if certain haulage firms were tempted to make their purchases abroad, this targeted marketing policy [...] would prevent them from doing so. In fact, the possibility of this sub-market forming a relevant market cannot be ruled out, given the price and distribution characteristics specific to it. However, for the purposes of this Decision, the matter has no favourable or unfavourable consequences for Michelin and will thus not be considered further.

(148) Thirdly, Michelin states that the international nature of the tyre market has established itself in recent years with large-scale imports of tyres from Asia and eastern Europe.

(149) There are two main reasons for refuting this argument.

(150) First, the imports mentioned by Michelin almost exclusively involve "third line" tyres(15), which compete only to a very limited extent with the products that make up the core of Michelin's business. Second, these products account for significantly less than 20 % of replacement casings sold in Europe. Figures obtained from Eurostat indicate that imports from outside the EU in 1996 represented only 6,2 % of sales of new truck tyres on the French market (broken down as follows: central and eastern Europe: 2 %; South East Asia including Japan: 3,3 %).

Table 12: Commercial flows of new truck tyres in 1996

>TABLE>

Source: Eurostat.

(151) Secondly, it can be noted that the French market is by far the least exposed to penetration by third line tyres (taking as a reference a Community average of 16,5 % and a Member State like the Netherlands with a penetration rate of 91,4 %), a factor which further strengthens the particularly closed nature of the French market.

(152) In conclusion, it is clear that none of the arguments put forward by Michelin to support its theory are convincing. In the specific context of this case, it is still justified to define the relevant geographic market for new replacement truck tyres as the French domestic market.

The market in retreaded tyres

(153) The retread market is manifestly a national market, especially in the case of France.

(154) In the first place, most manufacturers consulted by the Commission by way of requests for information stated that the retreaded tyre market was national. Michelin itself confirmed in its reply to the Commission that the retread market was national, since it was a market for the provision of services, and thus a local market. Since the retread market is a market for the provision of services, and services by definition cannot be stocked, it is a local market and therefore at most of national dimension. Even in the case of mould-cure retreading, where retreaders have mould-cure plants in only a few countries, worn casings are managed on a national scale, as indicated by Michelin.

(155) Other factors also support this observation.

(a) The structure of supply is heterogeneous within the Community

(156) Marked differences, reflecting the very different market shares of the manufacturers, are a feature of the Community landscape. The French market is distinguished in particular by the clearly dominant presence of Michelin, which in 1995 had a market share of almost [...], while Bandag, its nearest competitor, had a share of less than [...] of the same market. In the other countries of western Europe, on the other hand, competitive relationships with other market players are different, sometimes to the detriment of Michelin, as illustrated by the following table:

Table 13: Market shares of the two main players on the market for retreading tyres in western Europe in 1995 (%)

>TABLE>

Source: Michelin.

(b) The differences affecting the structure of demand within the Community help to set the French market apart

(157) The differences in the structure of demand on the retreading markets within the Community are marked. The predominance of mould-cure retreading and custom retreading in France help to set the French market apart. The mould-cure method implies the use of industrial retreading plants, constraints connected to the transport of the carcasses, long processing times and especially an elaborate system for collecting the carcasses. In these circumstances, the presence of an intermediary (usually the specialised dealer) between the retreader and the transport firm is virtually indispensable. In countries where precure retreading is widespread, on the other hand, the specialised dealer or the retreader do the retreading themselves, so that retreaders and transport firms are in direct contact with one another.

(c) There are major price differences between the Member States

(158) There are major differences in the prices charged in the various countries, whether the Commission takes into account the price lists provided by Michelin or the post-rebate prices, a situation which reflects the lack of homogeneity in competitive conditions in Europe. This is illustrated by a comparison of the price of a very popular retread (Michelin 385/65 R 22.5 XZA) sold to dealers in six countries.

Table 14

>TABLE>

(FRF, at the exchange rate on the date given in the table)

Source: Michelin.

(159) Price differences by comparison with the French market are considerable, both in 1993 and in 1996. In 1993 prices were lower [...], but much higher [...] and especially [...]. There was a difference of almost [...] in the price for the same tyre [...]. In 1996, the difference in the price of a retread [...] was [...].

(160) If the Commission considers the price of the same tyre after deduction of the invoice rebates, the table comes out as follows:

Table 15

>TABLE>

(FRF, at the exchange rate on the date given in the table)

Source: Michelin.

(161) Lastly, if account is taken of the final net price after the full rebate:

Table 16

>TABLE>

(FRF, at the exchange rate on the date given in the table)

Source: Michelin.

(162) Here too, the final cost price paid by dealers is certainly lower depending on the rebates and/or benefits to which they are entitled, which vary considerably from one Member State to another, and on the commitments which dealers decide they are prepared to make. For example the "PRO" premium ("Agreement for optimum use of Michelin truck tyres") exists in France and Spain, but not in Germany or the United Kingdom.

(163) Michelin itself is aware of the price differences at European level since it considers that [...] (statement by a Michelin working group on retreading made in a document obtained during the inspection visits).

(164) A comparative analysis of repurchase prices for Michelin carcasses per country also shows considerable price variations. The following data were taken from tables found on Michelin's premises; they are for a type of tyre that is commonly used for retreading:

Table 17: Variations in the repurchase price for carcasses in Europe

>TABLE>

Source: Michelin.

Limited purchases made outside France by specialised dealers

(165) Despite these price differences, it is extremely rare for specialised dealers to make purchases outside France for two technical and two commercial reasons:

(166) Two technical reasons:

- since retreading in France is mostly custom retreading, time constraints mean that retreading units close to the customers are used, so that dealers will rarely send the carcasses abroad,

- since the price of a retread is lower than the price of a new tyre, the cost of transporting carcasses represents a higher proportion of the final cost of a retread than of a new replacement tyre. This cost could prove to be a major obstacle to intra-Community trade.

(167) Two commercial reasons:

- carcass collection by mould-cure retreaders, including Michelin, is essentially organised on a national scale,

- commercial terms and the rebate system set in place by Michelin are strong incentives to specialised dealers to send carcasses for retreading to the national Michelin subsidiary. If dealers want to maximise their rebates, it is in their interest not to diversify their purchases and to have their carcasses retreaded by the same retreader.

(168) The relevant geographic market for truck retreads will therefore be considered to be the French market.

(169) Given the size of the French market in the products at issue, it is a substantial part of the common market within the meaning of Article 82 of the EC Treaty.

Conclusion on the relevant markets

(170) The replacement tyre for trucks and buses comprises two relevant product markets, one being the market in new replacement tyres and the other, the market in retreads.

(171) For each of the two relevant product markets, the relevant geographic market was found to be the French market, in view of the absence of homogeneous competitive and commercial conditions on the national markets and the limited tyre purchases made outside France by dealers.

B. MICHELIN'S DOMINANT POSITION

(172) In its judgment in Case 85/76 Hoffmann-La Roche v Commission(16) the Court of Justice defined a dominant position as a "position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of the consumers". According to the Court, "the existence of a dominant position may derive from several factors which, taken separately, are not necessarily determinative but among these factors a highly important one is the existence of very large market shares"(17).

(173) The successive analysis of three types of criterion leads to the conclusion that Michelin has a dominant position on the relevant markets. First, a number of structural indications, the most important of which is Michelin's market share, point to this conclusion. Second, an analysis of Michelin's behaviour on the relevant markets brings to light certain attitudes and practices which are typical of a company in a dominant position. The assessment is confirmed, lastly, by the position of economic dependence in which specialised dealers find themselves vis-à-vis Michelin, a necessary trading partner.

1. STRUCTURAL INDICATIONS OF THE DOMINANT POSITION

(174) Since the Hoffmann-La Roche judgment, the Court has considered that very large market shares are in themselves evidence of a dominant position(18). In the same judgment it found that if, for example, a firm had a market share of 86 % (vitamin B 2) or even 75 % (vitamin B 6 "95 % even when reduced by 20 %"), it ranked as being in a dominant position. In 1991, in its judgment in Case C-62/86 AKZO Chemie BV v Commission(19), the Court ruled that a market share of 50 % was in itself, save in exceptional circumstances, evidence of the existence of a dominant position. The Court stated: "With regard to market shares the Court has held that very large shares are in themselves, and save in exceptional circumstances, evidence of the existence of a dominant position. That is the situation where there is a market share of 50 % such as that found to exist in this case"(20).

(175) All the analyses combine to show that Michelin's share of the two relevant markets has exceeded this threshold consistently for more than twenty years.

The market in new replacement tyres

(176) The SNCP (Syndicat National du Caoutchouc et des Plastiques - National Rubber and Plastics Union) calculated that Michelin had a 58,9 % share of the market in new replacement tyres in 1995. Marketline Ltd, a specialist in the sector, gave 55 % as Michelin's market share in one of its publications. Michelin argued that its market share was no more than [...]. Its competitors estimate its market share at somewhere between 51 % and 65 %. Internal graphs and tables from Michelin's commercial policy division found during the 1997 inspection visits show a stable market share of between [...]. Whatever the accuracy of each of these analyses, they all show that Michelin had a market share of more than [...](21) throughout the reference period, and knowing that Michelin itself acknowledges a market share of [...] for the beginning of the 1980s, it can be supposed that Michelin has held a dominant position on the French market in new replacement tyres for the last twenty years and that its market share has remained at a high level since the beginning of the decade.

Table 18: Estimated market shares of the manufacturers on the French market in new replacement tyres for trucks (%)

>TABLE>

(177) The following table contains data found in the manufacturer's commercial policy division during the inspection visit:

Table 19: Estimated market share held by Michelin on the market in new replacement tyres for trucks in six European countries (%)

>TABLE>

Source: Michelin.

(178) In any event, all the manufacturers and studies consulted unanimously affirm that Michelin has a market share five to six times greater than its closest competitor, Dunlop, which controls barely [...] of the market.

The market in retreads

(179) According to Michelin itself, Michelin and its subsidiary Pneu Laurent held market shares above or equal [...] without interruption from 1985 to 1996 [...]. Their most serious competitors were the Bandag dealers (present only on the precure retreading market) with at most [...] of the market during the period (and considerably less at the beginning of the period), followed by the Dunlop-SEIA-Pneu Holding, with a combined share of [...], then Goodyear at [...] and Continental at [...]. At the beginning of the reference period, Michelin claims to have even reached a market share of [...].

Table 20: Estimated market shares of the French market in truck retreads (%)

>TABLE>

Source: Michelin.

(180) There can therefore be scarcely any doubt that Michelin is in a dominant position on the retread market, given that very high market shares are in themselves, save in exceptional circumstances, evidence of the existence of a dominant position. Furthermore, this position of dominance is long-standing and is therefore incontestable.

2. OTHER EVIDENCE OF MICHELIN'S DOMINANT POSITION

(181) A number of features of Michelin's business actively explain why it is so powerful on the relevant markets.

(182) Michelin's technical lead is undeniable. It launched the radial tyre in 1948 and is still the world's leading manufacturer of radial tyres today. Although the original patents for the radial tyre expired some years ago and licences have been granted to other manufacturers since 1956, Michelin still has particular expertise in the field. In addition, it has been carrying out extensive research for a number of years on the "green tyre", which is being marketed under the name "Energy".

(183) This indisputable technological lead is the result primarily of the major investments Michelin has been able to make out of its extensive financial resources. It has consistently pursued an active policy of research and innovation. Its research and technological development (RTD) budget runs to [...] of its turnover, which is well above those of its largest competitors. The RTD budgets of Goodyear, Bridgestone/Firestone, Continental, Pirelli and Dunlop are [...],[...],[...],[...] and [...] respectively(22).

(184) The Michelin brand is in a position to offer a wide range of different tyre products such that an ever increasing number of customer groups is reached. In France, the range is wider than that offered by other manufacturers and its quality and reputation are indisputable.

(185) Lastly, the spontaneous demand shown by large transport firms is evidence that French transport firms still have a preference for Michelin products. There are several reasons for this: the considerable lead Michelin had in the past, the brand's position on the original equipment market, the effectiveness of the sales force on the ground and the retreadability rate of the carcasses, which is often higher for Michelin tyres than for other brands. Distributors consider the rate of spontaneous demand to be high in France. Michelin estimates that it represents [...].

Michelin's strong presence on adjacent markets

(186) Michelin's strong presence on adjacent markets acts to its advantage on the replacement and retread markets. The barrier to competitors' entering the relevant markets is far from being negligible.

(187) On the market in new replacement tyres, Michelin has a dual advantage over its competitors. First, its very strong position on the market in original equipment truck tyres cannot but be beneficial. It is the preferred supplier of the French heavy vehicle manufacturer and market leader, Renault.

Table 21: Shares of the European market in original equipment truck tyres (%)

>TABLE>

Source: Michelin.

(188) Michelin has a [...] share of the European market, which is four times that of its nearest competitor and nearly six times that of the next in line. This undeniably puts Michelin in a very advantageous position, since there is no doubt that users tend, even if only to a limited extent, to remain loyal to the brand of tyre originally fitted on their vehicles.

(189) Second, Michelin has a strong presence on all the new replacement tyre markets, which is not true of the other manufacturers, as illustrated in the table below:

Table 22: Market shares held by Michelin and its main competitors on various tyre markets in France in 1995

>TABLE>

Source: Michelin.

(190) On the retread market, Michelin has the major advantage of being the only manufacturer to have a strong position on this market and on the new tyre market. In France, Michelin has a share of some [...] of the retread market, well ahead of its nearest competitor, the network of Bandag franchisees, which is itself independent of the other manufacturers. Michelin is therefore the only manufacturer able to offer large-scale "in-house" retreading of its own casings. This situation is of considerable relevance when it comes to analysing the manufacturer's market power. Michelin bases its entire communication on the fact that its tyres are designed from the outset to have four lives. This means that, although they cost more than competitors' tyres at the time of purchase, the cost price per kilometre of Michelin tyres is very competitive. This sales argument, based essentially on the promotion of retreading by the manufacturer downstream, helps to increase Michelin's market power.

Michelin's omnipresent commercial and technical service on the ground

(191) Michelin has close on fifty logistics platforms and local centres in France, to which are attached several hundred technico-commercial representatives that ensure who Michelin is well represented among dealers.

(192) Although Michelin's competitors also have sales forces, they are far less numerous and significantly less structured. Michelin's sales force in the heavy-vehicle sector comprises more than [...] agents(23), whereas none of its competing manufacturers has sales teams of more than forty people. Michelin can therefore defend its market position extremely well, knowing that its competitors are not in a position to campaign so intensively among final consumers. Furthermore, [...].

Michelin's leading position in French distribution channels

(193) In the highly fragmented truck tyre distribution sector, Michelin has a very strong position, as was made evident in the previous section. Via its integrated distribution network Euromaster, Michelin directly controls some [...] sales outlets of the 2225 on French territory. This figure represents [...] of sales outlets, but [...] of all sales outlets that belong to manufacturers' integrated networks. While Dunlop controls [...] sales outlets, three times less than Michelin, Bridgestone/Firestone controls only [...], and the other manufactu