Tuesday, February 10, 2009
Posted by D. Daniel Sokol
Gianluca Faella of Cleary Gottlieb Steen & Hamilton discusses Foreclosure, Predation and Competition on the Merits: A Comparative Analysis of Bundled Discounts.
ABSTRACT: The controversial debate on the appropriate standard for the assessment of bundled discounts echoes the difficulties encountered by courts, antitrust authorities and scholars in their ongoing attempt to develop a coherent theoretical framework to distinguish exclusionary conduct from legitimate competition. Currently, there is no general consensus on the treatment of the practice. Even the recent DOJ report on single-firm conduct and Commission guidance on Article 82 EC have not definitely clarified the proper approach to bundled discounting. The application of general principles on foreclosure could prevent the use of an effective competitive tool and may result in reduced price competition and protection of inefficient competitors. On the other hand, a total bundle predation-style safe harbor would not detect above-cost bundled discounts that are capable of excluding or limiting the competitive capacity of equally efficient rivals. The US discount allocation test aims at tempering the excesses of the two above-mentioned approaches, but it is too simplistic, does not fit most actual cases and may be both over-deterrent and under-deterrent. The test proposed by the Commission guidance may give rise to similar inconveniences, although it is more likely to be over-deterrent. This paper proposes a refined cost-based standard, aimed at establishing whether equally efficient competitors could reasonably compete for the contestable portions of customers' demand for different products included in a bundle. This standard is based on the idea that a practice should be considered a legitimate form of competition on the merits if, notwithstanding the possible existence of one or more competitive advantages that cannot be reasonably replicated or overcome by rivals in an acceptable time frame, a hypothetical competitor that is equally efficient under all remaining aspects could react to the dominant firm's behavior through a conduct that would benefit consumers. When a lack of sufficient data and information makes it impossible to apply a suitable cost-based test, a proper allocation of the burden of proof could reduce the risk of type I and type II errors.