Monday, December 3, 2007
The Necessary Limits to the Control of 'Excessive' Prices by Competition Authorities - A View from Europe
Posted by D. Daniel Sokol
Damien Geradin of Tilberg's Law and Economics Center and the law firm Howrey addresses the case law of the highly political excessive pricing regime in his paper The Necessary Limits to the Control of 'Excessive' Prices by Competition Authorities - A View from Europe. I share his very strong skepticism of price controls because of their distortionary effect on thre market.
ABSTRACT: Excessive pricing is an area of competition law which differs significantly from most others. First, the notion of excessive pricing has failed to stimulate much economic analysis in Europe. This is in great part due to the fact that most studies on the economics of abusive pricing have focused on exclusionary pricing behavior, as such abuses are more frequent than exploitative ones. Moreover, excessive pricing is an antitrust offence only in a limited number of jurisdictions. There is also a widely accepted view that competition authorities are ill-suited to carry out price controls, a task which should be better left to sector-specific regulators. Because they intervene on an ad hoc basis, i.e. to sanction specific anti-competitive behavior, competition authorities cannot easily transform themselves into price regulators. Price regulation is a long-term effort which requires quasi-permanent supervision.
Against this background, the purpose of this paper is to review the case-law of the EU and of some of its Member States dealing with the control of excessive prices. This paper will also discuss current enforcement trends by the European Commission and National Competition Authorities, including recent cases and policy pronouncements by senior competition law officials. As will be seen, there is a growing consensus among competition agencies that controlling prices should be limited to exceptional circumstances. Moreover, where such circumstances justify them, given the inherent risks of costly mistakes and unintended adverse effects, price controls should be based on a sound economic analysis of market circumstances and carried out with the utmost caution.