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Wednesday, February 18, 2009

The Commission Guidance on Predation: A Cautious Step In the Right Direction?

Posted by D. Daniel Sokol

Thomas Janssens (Freshfields) provides his thoughts on The Commission Guidance on Predation: A Cautious Step In the Right Direction?

ABSTRACT: In the EU, predatory pricing analysis traditionally has stood somewhat apart from the assessment of other types of unilateral conduct under Article 82 EC Treaty. In its AKZO judgment of 1991, the European Court of Justice ("ECJ") relied on cost and sales price data, by adopting the ‘Areeda-Turner’ test for predation, long before an economic approach to abuse of dominance analysis became pervasive. But, the AKZO test also to some degree disregarded economic effects, in so far as it established a ‘per se’ rule (for pricing below average variable costs, ("AVC")) and emphasised the importance of exclusionary intent (for pricing below average total costs, ("ATC")).

In its Wanadoo decision of 2003, the European Commission ("Commission") applied the AKZO test and explicitly rejected the notion that recoupment of losses should be part of the test for predation. The Commission’s approach was upheld by the Court of First Instance ("CFI"). Although many commentators considered this was inconsistent with contemporary economic theory and unnecessarily diverged from the analysis under US antitrust law, the Commission’s Staff Discussion Paper of 2005 maintained that separate proof of (the possibility of) recoupment was not required to find an abuse.

Against this background, the Commission’s Guidance appears to propose a blend of old and new theories. The Commission indicates it will generally intervene where a dominant firm engages in predatory conduct "by deliberately incurring losses or foregoing profits in the short term … so as to foreclose, or be likely to foreclose, one or more of its actual or potential competitors with a view to strengthening or maintaining its market power, thereby causing consumer harm."

http://lawprofessors.typepad.com/antitrustprof_blog/2009/02/the-commission.html

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