Wednesday, June 30, 2010
Posted by D. Daniel Sokol
Claudio Calcagno (European University Institute) and Mike Walker (CRA) have a new article on EXCESSIVE PRICING: TOWARDS CLARITY AND ECONOMIC COHERENCE.
ABSTRACT: One of the thorniest areas of antitrust enforcement is whether, and how, to deal with excessive pricing allegations. Even in jurisdictions that have laws against excessive pricing, there has been little case law on the issue. A recent dispute over the pricing of flat steel in South Africa provides helpful guidance on the correct approach to excessive pricing cases. The Competition Tribunal took a structural approach and deduced the existence of excessive pricing on the basis of super-dominance and market segmentation. The Competition Appeal Court overturned this decision and clearly stated that (1) an empirical exercise comparing prices with cost benchmarks is required in assessing these cases, and (2) excessive prices need to be judged against the long-run average costs of an efficient firm. A purely structural approach was not deemed adequate. In this article, we describe the case and explain why the judgment by the Competition Appeal Court is sound from an economic perspective and why it sets an important precedent in this area of competition law.