Saturday, July 23, 2011
The Unilateral Conduct Working Group: You be the Judge - Scrutinizing a Loyalty Discount & Rebate Case
Posted by D. Daniel Sokol
Cynthia Lagdameo (FTC) & Charles Webb (Baker Botts) discuss The Unilateral Conduct Working Group: You be the Judge - Scrutinizing a Loyalty Discount & Rebate Case.
ABSTRACT: Pricing has never been more complex for companies operating across national borders. In addition to considerations arising from local supply and demand conditions and factors such as national tax laws and exchange rates, companies operating internationally must also take into account the potential effects that different countries' competition laws may have on their pricing practices. And over the past two decades, competition laws have proliferated to more than one hundred countries around the world, from micro-states such as Jersey and the Faroe Islands to rising economic superpowers such as Brazil, India and China.
The competition laws in virtually all of these countries potentially apply to the unilateral pricing conduct of firms found to have a dominant position. The standards for judging pricing conduct-such as loyalty or bundled discounts, predatory pricing, excessive pricing, margin or price squeezes, and discriminatory pricing-differ across jurisdictions, sometimes substantially. Even standards within individual jurisdictions can be unsettled or in a state of transition. Likely in no other area of competition law are standards so unsettled.
One of the reasons for the widely differing views on a dominant firm's pricing conduct is that pro-competitive and anticompetitive behavior often look the same-conduct that may be efficiency enhancing may look the same as conduct that excludes potential entry and forecloses rivals. Virtually all antitrust practitioners would agree that conduct such as competitors agreeing to set prices or divide markets is harmful to consumer welfare and thus must be prohibited. But what about a dominant firm providing discounts or rebates on the sale of its products or services? Consumers and customers, of course, benefit from reduced prices, which are exactly the type of behavior one would expect to see in a competitive market. However, can a dominant firm's prices be too low-even if not necessarily below its own costs-in a way that results in harm to competition? In such circumstances, how is competitive harm measured?
These types of difficult questions involving a dominant firm's discounting practices were recently analyzed by members of the Unilateral Conduct Working Group ("UCWG") at the 10th Annual Conference of the International Competition Network ("ICN") in The Hague, Netherlands in May 2011. They were analyzed through the use of a hypothetical abuse of dominance case concerning a company called "Cerveja."