European Manapmrt

/ouma/ Vol. 11, No. 2, pp. 190-200,

Printed in Great Britain.

0263.2373193 $6.00 + 0.00.

Pergamon
Press Ltd.

1993.

CompetitiveSuccessand

the Law:

The Case of TetraPak

RALF BOSCHECK,

Professorof Economics

and Strategy, IMD International,

In July 1991, the European Commission imposed its

highest-ever fine for abuse of market power and
restraint of competition against Tetra Pak, the
Swedish/Swiss packaging company. Ralf Boscheck
presents a case study of this decision arguing that
the EC investigators may not have defined the
market correctly and, in fact, may have misinterpreted the true basis of Tetra Paks competitive
advantage. It is suggested that policy makers and
companies must engage in dialogue over societys
welfare costs and benefits and corporate competitive
advantage if competition law is to be efficient.

Lausanne

Tetra Pak: Swiss precision in seeing off its competitors

read the headline of the Financial Times business law
section on 25 July 1991. What followed was a brief
summary of the charges which the EC Commission had
brought against the Swedish/Swiss packaging company,
which ultimately resulted in the highest fine ever
imposed by Brussels competition policy authority: 75m
ECU. Despite the record penalty, everything surrounding the case was rather ordinary and reflected the
international trend towards increased investigations of
charges of abuse of market power and restraints to
competition. Initiated by a competitor, Brussels market
analysis attested Tetra Pak to have a dominant position,
against which a whole range of pricing, distribution and
service decisions suddenly appeared to abuse the companys competitive strength. Yet, also similar to other
cases, it was by no means obvious whether EC investigators had defined the market correctly and to what
extent the commercial and contractual relations, to
which they objected, were in fact not necessary to
maintain the economic viability of Tetra Paks operations.
The following presents a brief company history based
on publicly available information, including the documentation in support of the position taken by the EC
Commission. The key evidence, as cited by the Commission, is represented, although an attempt is made
to counter the ECs strikingly negative attitude by
presenting the data within, rather than outside of, its
appropriate commercial context. This is to provide the
basis upon which the reader may assess the validity of
the ECs verdict and Tetra Paks response, as presented
in sections 2 and 3. Section 4 presents some basic
comments on the case and the need for companies and
policy makers to engage in a dialogue on what it takes
to attain, sustain and exploit a competitive advantage,
and at what costs and benefits to society at large.
1

Tetra Pak

Founded by Ruben Rausing and Erik Wallenberg in

1951, Tetra Pak had taken its name from its, at that time
revolutionary, packaging system for the production of
tetrahedron-shaped cartons. Since then, the company
has come a long way in developing and marketing
190

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COMPETITIVE SUCCESS AND THE LAW: TETRA PAK

integrated packaging systems, ~cor~ra~ng

packaging
material, packaging machines, distribution equipment,
as well as services and training, to uniquely meet the
requirements of the liquid food market. For Tetra Pak,
offering solutions to a customers entire packaging
requirements translated into maintaining its technological edge, accepting a single-source res~nsib~i~ and
cultivating a close customer liaison based on a mutual
goal: an efficient, well-functioning
packaging line,
providing maximum machine utilization (Company
Report).

By the early 1990s Tetra Paks typical buyer was a

European dairy. Seventy per cent of its packages were
used for milk and milk products, the rest was accounted
for by products as diverse as juice, fruit drinks, mineral
water, table wine, soya products, coffee and coffee
drinks, edible oils, sauces and soups. The 1991 acquisition of Alfa Lava1 - a global manufacturer of dairy and
food processing equipment - both underlined Tetra
Paks commitment to the dairy sector and strengthened
its endeavour to further penetrate the broader market
of liquid and semi-liquid food packaging. By January
1?92, the company generated 54% of its sales in Europe,
26% in Asia, 12% in North America, 5% in Africa and
3% in Oceania, and major initiatives were underway in
Eastern Europe.

Box 1

Products and Markets

Tetra Pak offered packaging material, machines (for sale
or lease) and services for five types of aseptic and nonaseptic cartons. In general, cartons were suited for
packaging a variety of liquid and semi-liquid foods,
although market research indicated that in Europe some
70 to 90% of the cartons sold were in fact used for the
packaging of milk and other liquid milk products.
Although there were fairly major differences in consumer
preferences between countries, 60% of all milk sold in
the EC was supplied in cartons. Most milk entered the
stores in a pasteurised form as fresh milk or, after ultrahigh temperature treatment under aseptic conditions,
as UHT milk. As both types of milk product required
different packaging machines and materials, and any
eventual price change in packaging costs of either one
of them was hardly sufficient to induce consumer
switching (packaging material costs were only 10% of
the final consumer price of the product), a recent
industry study clearly segmented the carton machinery
and material market on the basis of the type of milk they
were supposed to wrap.
In the mid-1980s - the only time for which data were
available - Tetra Paks European market share in the
thus defined aseptic and non-aseptic packaging segment
had been estimated to be around 90% and 50% respectively. Others, including Switzerlands PKL, held the

The Context of the European Food Packaging Sector in 1991

Raw Materials
Highly Concentrated
Capital Intensive
Low to Medium Growth

Food Sector

Food Retail

Raw material
Packaging
Manufacturing
Distribution
Total Cost

12%
10%
47%
31%

Retail Alliances
Scanner Technology
Direct Product Profitability

Consumer

(DPP)

Ecology
Convenience
Price

100%

Sluggish consumer demand, estimated to grow by a mere l-2%

pressures confronting Europes food packaging suppliers.

over the coming years, had heightened

a range of competitive

Suppliers: Glass, plastics, paper and metal producers had consolidated

capacities and seriously considered any oppo~unity that

would dampen cost pressures and help to escape their inherent market cyclicality. Alcoa and Reynolds had been among the first
to integrate into can production; BASF and Courtaulds were turning their resins into films: Feldmtihle and Bowater were examples
of paper producers offering corrugated carton boards.

Buyers: The food retailing sector had been transformed

by pan-European acquisitions and the emergence of strong buying groups.

In addition, the widespread use of information technology helped stores to evaluate the direct profitability of products on their shelves
and thus added further to their bargaining power vis-&vis food manufacturers. Nevertheless, basic retail economics had not changed:
cost savings could best be achieved in logistics, handling and inventory; store productivity was still determined by product-turn
and hence appeal. Appealing to consumers, however, increasingly required a growing ecological awareness to be addressed. On
the next level, food producers were counteracting retail consolidation by merging themselves. Industry analysts believed that the
acquisitions of the late 1980s such as NestleIRowntree, BSNlHP Foods, NestkYBuitoni, BSNiGalbani or Kraft/General Foods, were
merely foreshadowing a broader drive towards increased concentration, Whereas in the past the segment of highly-processed foods
had already been fairly concentrated, the new merger wave affected less-processed-food producers as well. With retail buyers better
positioned to squeeze their margins, but also with a Single Market expected to bring more distant consumers into reach, food producers
were shopping around for ways to reduce input and operating costs, enhance product durability and quality, and add to their flexibility
in meeting channel demands. A whole range of packaging materials and formats were likely to be displaced by others. In a relativety
short period of time, the final consumer was expected to find a number of his customary products in new types of wrappings.
Competition:
Thus, sandwiched between strengthening buyers and suppliers, the European food packaging sector was bound
to change. Some companies were accepting the challenges by merging for synergies, scale and market power; others sought
to diversify into related as well as unrelated sectors; others would try to sustain a niche position against the encroachments of other
packaging suppliers and materials. Which type of strategy ultimately would be successful and profitable was hard to foresee; only
one thing was certain: preconceived notions of markets and businesses had to be re-evaluated under the overall impact of changing
market forces.

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COMPETITIVE SUCCESS AND THE LAW: TETRA PAK

Box 2

The Tetra Pak Packaging Range

Tetra Classic

Tetra Brik

Tetra Rex

Tetra King

Tetra Top

l
Tetra Classic, the original tetrahedron-shaped
carton, minimized packaging material and had been extremely
1950s; it was followed in 1961 by its aseptic version which permitted the storage and transport of perishable
unrefrigerated
conditions.

successful in the
food products in

l
Tetra Btik cartons, introduced in 1963, offered a modular shape that precisely met the stacking requirements of international
loading pallets and, through this, effectively reduced the packaging portion of a trucks total cargo weight to a mere 740; its aseptic
version, introduced in 1969, improved distribution economies even further and since then has become the most widely used package
for long-life products.
l
Tetra Rex, a more traditional package, was supplied, starting in 1966, as prefabricated flat blanks or formed, after the Tetra
Pak principle, from a roll of packaging material in the Tetra Rex machine. Tetra Rex cartons were used worldwide for pasteurised
products and gradually supplanted the non-aseptic brick as the main carton for fresh products.
l
Tetra King, introduced in 1978, combined light weight sturdiness and good insulation properties through the use of expanded
polystyrene and its distinctive shape. The package was primarily used for milk, yoghurt and other dairy products, juices and wine.
l
Tetra Top, the most recent addition to the Tetra Pak product line, was recloseable
of opening, pouring and reclosing.

and addressed

consumer

demands

for ease

remaining 10% of aseptic packages and machines. In the

non-aseptic markets, Norways Elopak and PKL held
27% and 11% of shares, respectively; they were followed
by a group of three smaller regionally concentrated
carton suppliers as well as some ten machine producers,
some of which had on occasion used Tetra Pak, Elopak
or PKL as their European distributors.

base charge payable at the time of delivery, an annual

rental payable quarterly in advance, and a monthly production rental calculated involving a utilization discount.
Minimum leases ranged between three years (Denmark)
and nine years (Italy). The company reserved the right
to repurchase the equipment at a pre-arranged fixed
price.

The Total Liquid Packaging System

At the same time, Tetra Pak provided high quality

packaging material, accounting for 60-70% of the cost
of the carton. The material included various types of
laminates typically consisting of paper, polyethylene
and aluminium foil, which made the package stiff,
water-tight and insulated against light and oxygen.
Three types of printing technologies were available to
apply texts and graphic designs before outside coating.
In 1992, twenty-nine packaging material factories were
located across the globe, distributing directly to fillers.
In only a few non-Community countries, licensees had
been selected to supply material exclusively to Tetra Pak
customers. Packaging material - supplied in rolls - was
sold and invoiced on the basis of amount of cartons
filled.

Tetra Paks packaging systems relied on a combination of a unique filling process, constantly improved
machinery and a proprietary carton design. In a typical
filling operation, machines drew packaging material
from a roll, formed a tube, then sealed it in a standing
column of liquid. Although the different packaging
types required different machines, the basic concept of
a continuous, closed and therefore extremely hygienic
operation had been adapted to all of them. By comparison, PKL, the only other major competitor in the
aseptic segment, delivered its brick-type Combibloc
carton pre-shaped to the fillers; the same was true for
Elopaks Pure Pak carton, as well as PKLs non-aseptic
Combibloc, Quadrobloc and Pergabloc which competed
with Tetra Pak in the non-aseptic segment.
Six European assembly factories supplied Tetra Paks
packaging machines and parts directly to customers in
112 geographic markets and were known for their high
levels of quality control at each stage of production. The
company guaranteed that every single component was
tested and all machines were test run and subject to
rigorous final inspection before delivery. Not one of the
6,520 Tetra Pak machines in operation in 1992 had been
produced under licence, Tetra Paks machinery was
either sold or leased. The leasing contract comprised a
192

Building on their packaging competence, Tetra Pak had

extended its offer to include distribution systems which,
while simplifying the customers product chain, gave
the company some means of ensuring quality as perceived by the final consumer. To that end, a wide variety
of conveyors, tray-packers, drinking straw applicators,
wrappers and roll-containers was offered. In addition,
Tetra Pak offered its software, encompassing plant
layouts, computerized logistics studies and marketing
assistance, to name only a few.

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COMPETITIVE SUCCESS AND THE LAW: TETRA PAK

Commitment to Ongoing Research and

Development

Competitive and Flexible in Accommodating

Customers Total Needs

Tetra Paks system solution concept committed to

investments in R&D across the entire packaging and
distribution process. Fourteen R&D centres in eight
countries employed nearly 1,000 personnel to improve
packaging material, processes and distribution systems.
Five laboratories were dedicated to enhance and promote the environmental image of Tetra Paks packaging
concept. So far the company could claim to fulfil three
of the four options of waste management - source
reduction, incineration with energy recovery and landfill; the fourth - recycling - was being investigated.
AI I basic developments related to machines, cartons and
processes, as well as modifications and secondary
techniques, had been traced and were constantly
upgraded. In addition, Tetra Pak scanned the market
for technological improvements. In 1970, for example,
the acquisition and integration of Selfpack, a mediumshed Austrian equipment manufacturer, had brought
additional expertise in brick-type cartons and aseptic
packaging systems which fuelled improvements in Tetra
Paks existing sterilization technology. Similarly, the
acquisition of Liquipak in 1986 gave access to a patent
and an exclusive know-how licence for a new aseptic
packaging technique which the company had codeveloped with Elopak for use in its Pure-Pak gable-top
cartons. In 1991, Tetra Pak claimed over one hundred
patents for cartons and at least an equal amount of
patents for machines; some of these resulted from
improvements developed by customers.

In 1991, Tetra Pak operated a network of three regional

headquarters which coordinated the activities of 52
marketing companies with exclusive operating responsibility in at times quite distinct markets and competitive
conditions. Countries differed with regard to established
business practices but, more importantly, on account of
the rate of consolidation that was taking place in their
food manufacturing and retailing sectors, and the
presence and strength of competitors and substitutes
catering to these (see Exhibits l-3 for an indication).
Across all of these differences, however, there was a
shared conviction in Tetra Pak that superior client
service was the only way that orders could be won and
maintained. Aiming to further penetrate the broader
market for non-carbonated liquids and semi-liquid
foods, fillers had to be convinced to switch from
packaging types as diverse as metal cans, glass and
plastic bottles, plastic bags, metal pouches, as well as
other types of aseptic or non-aseptic cartons. Hence,
marketing started with providing visibility through
advertising and winning key contracts with prominent
dairies for reference. It demanded further skills and
flexibility in structuring contracts that, for example,
could provide finance through trade-ins of old machines
- be it Tetra Paks or those of competing brands - or
offered partial payment of machines through adjusted
carton prices. In comparison to simpler industrial
marketing operations, promoting an entire system
solution to a wider audience required cooperation within
the Tetra Pak group as well as commitment to long-term
goals even at the expense of occasional losses. In the
late 1970s and early 198Os, for example, penetrating the
Italian market with the Tetra Rex carton to ultimately
justify production there had required sales at below
transfer costs. In 1985, the Italian carton producer, Tetra
Pak Carta, could return the favour by accepting losses
of Lir 728 suffered by its sister company Tetra Pak
Italiana in the marketing of machines. Said the company
report, Such an acceptance reflects the benefits we draw
from the installation of Tetra Pak machines.

Insistence on Service Quality and Quality

Control
For Tetra Pak, its trademark provided identity and a
commitment to superior performance. Hence the company conducted an ongoing campaign to protect its
trademarks, Tetra Pak, Tetra Classic Aseptic, Tetra Brik,
Tetra Brik Aseptic, Tetra Rex, Tetra King and Tetra Top.
Nevertheless, equally important, the company enforced
quality control and maintenance related to all those
operations that had an impact on its market appearance.
B? 1991, a network of 50 technical service centres and
22 technical training centres around the world enabled
the, company to be on hand at any customer-location
within a matter of hours. The company exclusively
undertook any equipment configuration and repair of
all sold, leased and subleased machines, and sometimes
insisted on providing, free of charge, assistance, trainin:;, maintenance and updating services, if they were
not requested by the client. Service work, as part of
the, regular maintenance contract accompanying each
mjchine, was offered at an up to 40% discount of the
basic monthly charge subject to the number of cartons
used on all of its machines. As a matter of policy, the
guarantee given on the equipment applied only when
the appropriate Tetra Pak packaging material and parts
wtre used. The company maintained a list of exclusive
distributors by country who assured a steady stream of
supply through contracts covering the entire period of
machine use.

The Broader Picture

By early 1991, Tetra Pak had become a major force in
the food packaging industry. Observers wondered how
the acquisition of Alfa Lava1 would help the company
to leverage its key skills and assets. A few months later,
these speculations were pushed aside by the need to
address the results of an EC Commissions investigation
of Tetra Paks market behaviour.

EC Press Release, Brussels,

24 July 1991
2

The Commission Fines Tetra Pak for Abusing

its Dominant Position in the Sector for
Liquid and Semi-Liquid Packaging

The Commission has taken a decision condemning the

Tetra Pak group for abusing its dominant position, in

EUROPEAN MANAGEMENT JOURNAL Vol 11 No 2 June 1993

193

COMPETITIVE

SUCCESS

AND THE LAW: TETRA PAK

xhibit 1
Average

Carton Price relative to Italy

index = 100

Rex
200

Italy
Germany

100

0,

1981

1982

UK

Non-asentic

1983

1984

Brik

200

Italy

100

Germany
UK

0
1981

1983

1982

Aseptic

1984

Brik

200

Italy
Germany
100

j,j

UK

0
1981

Source:

Adapted

1982

1983

1984

from OJEC, No L72158

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COMPETITIVE

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Exhlblt 2

Selling and Leasing Prices in Italy (at constant prices)

(Horizontal Axes show Date of Contract)

Rex Machine

RC 6

180

60

07.80

07.80

07.80

07.80

02.81

03.81

11.81

05.81

06.81

07.81

10.81

Non-Aseptic

83.82

83.82

10.81

05.82

10.82

il.82

12.82

02.83

0.283

02.83

06.83

09.84

12.84

Brik fvfachine B8/WOO

03.82

Aseptic

01.82

06.82

86.82

09.83

Brik Machine AB 3/1000

80

12.75

07.78

01.82

07.82

02.83

01.84

11.84

03.85

* = Leasing (base rental), others are sales

Source: Adapted

EUROPEAN

from OJEC No L72/62-66

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COMPETITIVE

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Exhibit 3

Base Rental relative to Index-Country

in which lowest prices were charged

Rex Machine

Comparison of Machine Selling Prices

relative to Index-Country
in which
lowest prices were charged

RC 6

Rex Machine

300

RC 6

200

200

Belgium

(2)

Germany

Italy (1)

(1)

Ireland (2)

100
UK (1)

Spain (2)

100
France (1)

0
1986

1985
Non-Aseptic

Brik Machine

1985
88

1986

Non-Aseptic

Brik Machine

B8

150

Ireland (2)

Italy (1)

Germany

Ireland (2)

100
(1)

Spain (2)

UK (1)
50

0
1986

1985
Aseptic

Brik Machine

1985
Aseptic

AB 3

300

1986
Brik Machine

AB 3

126
100
Denmark

(2)

Germany

(1)

80

Italy (1)
Ireland (2)

60

UK (1)
France (1)

1985

40

1986

196

Adapted

1986

1985

(1) Prices taken from price lists

(2) Average prices

(1) Prices taken from price lists

(2) Average prices

Source:

Spain (2)

from OJEC No L72159

Source:

EUROPEAN

Adapted

from OJEC No L72158

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COMPETITIVE SUCCESS AND THE LAW: TETRA PAK

breach of Article 86 of the EEC Treaty, in the market

for liquid and semi-liquid packaging machinery and
cartons.
Tetra Pak, a Swiss-based company of Swedish origin,
is the worlds largest supplier of liquid packaging
michinery and cartons, with a near-monopoly of the
community market for aseptic liquid packaging (longlife liquid products mainly preserved through UHT
processing) and a considerable share of the Community
market for non-aseptic packaging (used to store fresh
liquids, often involving pasteurisation). In 1990, Tetra
Pak had a consolidated turnover of some 3.6 bn ECU,
roughly half of which was in the Community. About
90% of its turnover is generated in the carton market
and about 10% in the market for packaging machines
and related activities.
Fc4owing a complaint from Elopak, one of Tetra Paks
main competitors, the Commission has concluded that
Tctra Pak has carried out a deliberate policy aiming to
eliminate actual or potential competitors in the aseptic
and non-aseptic markets in machinery and cartons, in
persistent breach of the Treaty of Rome. The infringements have involved almost all products manufactured
b!, Tetra Pak, and have had a damaging impact on competition in all EC Member States. In several cases,
restrictive policies have been in place for over fifteen
years, The infringements are summarized as follows.

Restrictive Contracts
T&a Pak obliged customers, mainly dairies, to stay loyal
to its products, at the expense of actual or potential
competitors, through the use of restrictive clauses in its
contracts. These included an obligation on users of Tetra
Pak packaging machines to use only cartons made by
Tetra Pak and supplied under its direct control. This
enabled Tetra Pak to assure customer loyalty artificially,
thereby excluding carton competitors and securing
revenue on the sale of cartons for as long as each
mtchine is in operation. In all cases, Tetra Pak made
its product guarantees dependent on this commitment.
This, together with other aspects of its policy (for
instance, the fact that distribution of its products to
dairies and other customers in the Community is performed exclusively by companies within the Tetra Pak
gn)up), had the effect of prohibiting customers from
using either competing brands or Tetra Paks own
br,lnds acquired on potentially more competitive terms.
Tetra Paks contracts also prohibited customers from
modifying or moving its machines or attaching any
apparatus to them. It reserved the exclusive right to
maintain and supply spare parts for its machines, both
those it sold and those it rented out. In many of its
contracts, Tetra Pak also imposed a monthly charge to
coler maintenance, which it reduced according to the
loyalty of its customers rather than charging them as and
when maintenance was carried out. In all its contracts,
Tetra Pak reserved the right to inspect labelling printed

on its cartons. In certain cases, it also demanded

monthly reports from users on the consumption of its
products and reserved the right to carry out surprise
inspections. Tetra Pak customers were also obliged to
obtain similar commitments from new purchasers before
reselling Tetra Paks products.
Tetra Pak allowed its packaging machines to be rented
for a minimum of at least three years, and in the case
of Italy nine years (initial rent), a condition which the
Commission considers unacceptable given the speed of
technological change affecting such machines. In order
to enforce its contracts, it also reserved the right in Italy
to impose discretionary penalties on companies of up
to 10% of the initial rental fee or the equivalent of about
one years rent.

Discriminatory and Predatory Pricing

Tetra Paks restrictive use of contracts enabled it to
segment the European market and thereby charge prices
which differed between Member States by up to about
300% for machines and up to about 50% for cartons. In
some cases, the initial rental fee of a packaging machine
in one Member State would be higher than the purchase
price in another. Evidence gathered during the Commissions Inquiry also shows that, at least in Italy and
the United Kingdom, Tetra Pak sold its Rex non-aseptic
products at a loss for a long time in order to eliminate
competitors, and used the proceeds from its sales of
Brik aseptic cartons to subsidize the losses. In Italy,
Tetra Pak sold Rex cartons for several years at up to 34%
below cost price and sometimes at less than the cost of
the raw materials used for its manufacture. This predatory pricing policy had serious consequences on Tetra
Paks competitors, notably Elopak, which was obliged
to close a new production facility in Italy.

Other Practices Towards Competitors

In certain cases, Tetra Pak bought competing machines
with the express intention of removing them from the
market, and on other occasions obtained commitments
from users not to use such machines or to restrict their
use to within their premises. In Italy, it also sought to
prevent competitors from advertising by obtaining an
exclusive commitment from one Journal not to carry
competing publicity for at least a year.
In view of the number, gravity and, in several cases,
the long duration of the infringements committed on
the Community market and their serious impact on
competition in the entire sector, the Commission
decided to impose on Tetra Pak a fine of 75m ECU.

3 Tetra Pak Responds to European

Commission Charges
Lausanne, Switzerland, 24 July 1991- Tetra
ously denied the charges announced by the
Commission today regarding the competitive
the companys marketing practices. Tetra

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Pak vigorEuropean
aspects of
Pak will
197

COMPETITIVE SUCCESS AND THE LAW: TETRA PAK

appeal against the decision to the European Court of

Justice. Tetra Pak regards the fine imposed by the
Commission as totally unacceptable. The charges are
based on an investigation which dates back to 1983 as
a result of a complaint lodged by a competitor in Italy.
According to Bertil Hagman, President and CEO of the
Tetra Pak Group, the Commissions analysis was based
on theory rather than reality because it failed to take into
account the real dynamics of the marketplace in which
Tetra Pak competes.
We operate daily in a highly competitive market where
customers demand packaging systems that are efficient,
safe and reliable, said Mr Hagman. The Commission
refers to the theoretical consequences of such practices
as selling complete systems and vertical integration
without reference to the unique combination of factors
which food manufacturers require in order to achieve
the high levels of safety and reliability necessary for
products like milk and other liquid foods.
Mr Hagman also indicated that the theoretical analysis
made by the Commission has not correctly assessed the
competitive forces which Tetra Pak has to face, and it
has given a much too narrow definition of the relevant
market. Tetra Paks market share in the EC liquid food
packaging sector is 14% and this cannot by any means
constitute a dominant position. We know that our
customers have access to alternative packages and
packaging systems. There is a high degree of competition for our customers business both from other paperbased packaging systems and from alternatives such as
glass bottles and plastic containers. Despite what the
Commission believes, there is intense competition in
this business.
Meanwhile, Tetra Pak is in the process of implementing
certain changes in its contractual arrangements with its
European customers which meet some of the Commissions concerns. These codify, for instance, the customers abilities to choose between the purchase or lease
of packaging systems within a framework of assuring
the safety and reliability of the companys packaging
systems.
According to Mr Hagman, In pioneering the development of a cost-efficient packaging and distribution
system, which greatly facilitates the transport and
storage of liquid food products, Tetra Pak has definitely
contributed to the free movement of goods within the
EC. We will continue with this important mission and
supply products and services of the highest quality and
standards to our customers.

Endnote

Enforcement records of international competition policy

authorities show a marked increase in investigations of
charges of restrictive business practice and abuse of
dominance. Next to Tetra Pak, a long list of household
names as well as industrial companies has been affected.
198

A review of policy discussions surrounding this development indicates that, what initially appeared to be merely
a periodic surge in regulatory interest, indeed reflects
a lasting trend towards more comprehensive
and
stringent competition controls. Companies trying to
avoid prosecution need to understand how their relevant
authorities define a potentially detrimental level of
market power and which type of business practices are
considered to primarily support abusive intentions.
Unfortunately, despite the enforcement zeal, there are
so far no generally applicable rules that companies could
easily translate into compliance procedures to guide
their daily operations.
First, to the extent the national authorities stipulate
market share benchmarks as proxies for market power,
these standards not only differ country by country but
are mostly applied with varying degrees of restrictiveness depending on the industry or the case at hand. Yet,
even if one general threshold was absolutely binding
internationally and across industries, there still remains
room for judgement on how to define the relevant
geographic and product market in which to measure a
companys position. At a time when the apparent
management folklore of blurring industry boundaries,
internationalizing
markets and competence-based
competition increasingly turns into industrial reality,
any review of recent EC case decisions illustrates the
regulators difficulties in ident~ying the scope of the
relevant markets.
Second, as regards the evaluation of grey-area business
practices, such as exclusive dealings, differential or
below-cost pricing, or tied selling, harmonization efforts
are underway to create legal certainty en bloc, that is
through one, generally negative, judicial perspective.
Yet, as all of these practices can potentially improve the
economic efficiency of company operations and its
commercial relations while presenting a lever for abuse,
declaring them illegal per se would mean asking companies to choose between legally acceptable and
economically efficient, and for that reason frequently
established, business practices. Hence, most judicial
systems provide for some sort of efficiency defence given economic arguments can be used to justify a
digression from the competition standard.
In this context, the Tetra Pak case makes for good if
sobering management reading. Without defending the
companys at times questionable market behaviour or
criticizing the regulators thinking in legal straightjackets,
it remains worrisome to observe that identical data can
easily lead to diametrically opposed interpretations.
Was Tetra Paks strategy not intended to leverage the
companys skills and assets in supplying packaging
material to milk producers so as to create a formidable
and competent partnership for total packaging and
distribution solutions? And did the required technology,
marketing and especially pricing decisions not reflect
the logic of portfolio management and the differences
in profit potential across a country-product matrix over

EUROPEAN MANAGEMENT JOURNAL Vol 11 No 2 June 1993

COMPETITIVE SUCCESS AND THE LAW: TETKA PAK

Tetra Paks ~mpetitive

Build-up,

Protection and Leverage

Core Competence?

Advantage

is due to

Complete Prevention of Inter-brand

Intra-brand Competition?

of

and
*

4
Product

lntr~u~tion

and Market

in

Penetration,

Price-Discrimination,

Cross-Subsidization,

Predation

keeping with Product Portfolio and Market

Differences
Extensive Patenting
Improvements

and Ownership

Controlling

Manufacturing

Machine

. Monopolization

of all

and Pre-emption

of Technology

Market

Acquisition and Integration

- Selfpack and Liquipack

of Technology

Hopefuls

Dependence

Targeting Key Account and Providing

through (a.o.) Trade-ins

* Systematic

Finance

Meeting Diverse Customer

Products and Services

Interest through

Exclusive

and Distribution

Sales Territories

. Exclusion of Potential Competition

. Elimination of Actual competition and Creation of

In-house

of ~mpetition
Destruction

(Elopak)

of Reference

for Buitoni

and Elopak
Product

New

Prevention

Both interpretations come to grips with the causes of

Tttra Paks essential insubstitutability, i.e. its competititheadvantage. Yet it seems that, for reasons of economic
viability, the positive rationalization, i.e. the sustained
provision of a superior offer, can only insufficiently be
divorced from the negative cause due to limiting access
to alternative and economically viable sources of supply.
The latter condition is inconceivable if the former is
not fulfilled, and vice versa. The EC Commission not
only neglects this point altogether, but constructs the
narrowest market definition possible, in which the
inirentor-innovator cannot help but dominate.

to Pre-empt

of Intra-brand

Unreasonable

Maintaining Brand/G~dwill
and reducing Transaction
Costs through One-time Shopping of Machines,
Parts, Materials, Service and Guarantee

time? Did this strategy not require complete control over

decisions along the business system to assure, maintain
and improve product quality, which is vital for the
protection of the companys key asset - its brand - as
well as consumer welfare? Would it therefore not be
more appropriate to consider the complete system,
rather than one specific application, the reference point
in determining the relevant market against which Tetra
Paks position ought to be assessed? This broader and
more dynamic market definition would obviously reduce
Ttrtra Paks position to a mere 14% share of the market
- hardly characterizing dominance. Or - and this may
be argued on the basis of the same data as well - has
T&a Pak effectively leveraged its market dominance in
aseptic milk cartons across its entire span of operations
and, by using price discrimination, predation and exclusicnary contracts, eliminated existing and potential
competitors?

Proliferation

Entry

Com~tit~on

Tying of Customers

to Prevent

Entry

On a wider scale, the case therefore highlights the need

for companies and policy makers to engage in a dialogue
on what it takes to attain, sustain and exploit a competitive advantage and at what costs and benefits to society
at large. At a time when complexities and competitive
pressures force companies to seek defendable positions
within broadening networks of inter-company contractual relations, how will regulatory bodies assess the
relationship between individual competitiveness and
cooperative success? How will the relevant markets be
defined? What will be considered a permissible means
and legitimate span of control that any unit in the industrial value-adding chain may wield over the decisions
taken by vertically related parties involved in production, distribution and consumption? Cases like the Tetra
Pak decision seem to suggest that neither a static and
narrow market view nor a restrictive interpretation of
contractual arrangements suffice to assess the true
welfare effects of market behaviour over time. Strange
as it may seem, this means that regulatory reform has
to finally return legitimacy to commercial viability, lest
business be forced to choose between economic efficient and legally correct forms of organizing their
production and exchange.

References
1. See Commission Decision,

24 July 1991, IV/31043: Tetra

Pak II, Official Journal of the European Communities,
No. 18.3.1992; No. L72/1-68, later abbreviated as OJEC.

2. See Boscheck (1993) Competitive Advantage - Superior

Offer or Unfair Dominance? IMD Working Paper Service

EUROPEAN MANAGEMENT JOURNAL Vol 11 No 2 June 1993

1993.

199

COMPETITIVE

SUCCESS

AND THE LAW: TETRA PAK

RALF BOSCHECK,
IMD,
Chemin de Bellerive 23,
PO Box 915, CH-2001
lausanne,
Switzerland
Ralf Boscheck is Professor of
Business Policy and
Economics at the International Institute for
Management
Development,
IMD, Lausanne. Next to
his teaching and consulting
.
work in industry analysts and company strategy, he
is involved in setting up 1MDs Industry Resource
Center which works with one key company in a
selected range of sectors to provide for on-going
industry and market monitoring, and competitor
assessments.
The focus of this work is on developing
an integrated framework for industry and competition analysis, which helps to address a whole range
of competitive interactions, from the dynamics of the
global industrial base to the protection of the
internal skill-sets of the successful firms. In the
process, an attempt is made to bridge the apparently
widening gap between company and public policy
perspectives on what it takes to attain, sustain and
exploit a competitive advantage and at what costs
and benefits to society at large.

200

EUROPEAN

MANAGEMENT

JOURNAL Vol 11 No 2 June 1993