Implications for Predatory Pricing Analysis
7 Concluding Remarks
The past 25 years have featured extraordinary ferment in judicial and scholarly analysis of predatory pricing analysis of predatory pricing allegations. To an extent unequalled in other areas of competition laws and regulation, the research of industrial organisation by economists and antitrust attorneys has led courts to re-shape legal rule governing claims concerning predatory pricing155.
However, as the discussion shows, there is little agreement on the details on how to deal with the matter at hand. What becomes nevertheless clear is that a purely cost-based approach will not suffice and does not recognise the complexity of predatory pricing business strategies. Another screen is needed in order to correctly identify illegal pricing practices. On the other hand, there is the general agreement amongst scholars and the jurisdiction that a cost- based test is still needed. About the other elements of a test is however no consensus.
In order to find an economically and legally workable rule, two factors are crucial.
Firstly can the court not be “overloaded” with facts, which would make it impossible to come to a decision in an acceptable time frame156. Secondly mistakes have to be avoided by making false positive and negative errors, which would undeniably rather harm competition than enhance the welfare of the public.
Indeed, the most workable test appears to be a two-tier test, which would include a screening of the market first, and if predation seems highly unlikely, the case could be dismissed. Such an approach would involve in the first screen test, an investigation of the market structure which would have to show that predatory pricing is likely to occur, including such aspects as the dominance of the alleged predator, the existence of high entry barriers and market dynamics. Only cases in which an affirmative finding is made should pass on to the second stage test. If the claim survives the first screen, then the courts have the ungrateful task to decide on a cost based test, whether a companies comply with the laws and competition policy. The courts on both sides of the Atlantic now apply such a two-tier test, however with different elements, as has been illustrated by the case law of the last 20 years.
In the US it appears that predatory pricing claims are fairly unlikely to succeed, in view of the fact that the introduction the recoupment standard limits the plaintiff`s ability to prove predatory pricing to a great extent. In the EC, the Commission and the ECJ seem more perceptive towards predatory pricing behaviour, which can be attributed towards the wider objectives of EC competition policy, namely
155 See Kovacic at 69.
156 After all judges are trained in the legal profession and not economists.
the concern about single market integration, protection of competitors and the viability of smaller businesses.
Supplement A
Article 3 EC Treaty
1. For the purposes set out in Article 2, the activities of the Community shall include, as provided in the Treaty and in accordance with the timetable set out therein:
…
(g) a system ensuring that competition in the internal market is not distorted;
…
Article 81 EC Treaty
1. The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction of distortion of competition within the common market, and in particular those which:
(a) directly or indirectly fix purchase or selling prices or any other trading conditions
…
(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them under competitive disadvantage;
…
Article 82 EC Treaty
Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market insofar as it may affect trade between Member States.
Such abuse may, in particular, consist in:
(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
…
(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
…
Supplement B
Sherman Act
1. Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, of within foreign nations, is declared to be illegal.
…
2. Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony…
…
Clayton Act
2 (a) It shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality, where either or any of the purchases involved in such discrimination are in commerce, where such commodities are sold for use, consumption, or resale within the United States…and where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers with either of them…
…
Federal Trade Commission Act
5 (a) (1) Unfair methods of competition in or affecting commerce, and unfair or deceptive acts of practices in or affecting commerce, are declared unlawful.
…
5 (a) (2) The Commission is empowered and directed to prevent persons, partnerships, or corporations…from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce
…
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