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Friday, September 21, 2012

Freeman on The Concept of Abuse in EU Competition Law

Posted by Peter Freeman

It is good to see a serious attempt to pull together the
efforts made by competition authorities in the EU to define and apply the law
on abuse of dominant position.  Not only
is this one of the most important issues in competition law, it is also one of
the hardest.

The first Secretary of the UK Monopolies and Restrictive
Practices Commission in 1948 was Dame Alix Meynell.  Before the Commission was set up she had
visited Washington to learn about the US system.  When she came back she advised against
adopting the US approach to “Antitrust”: “They make everyone run a race then
cut off the head of the winner.”

Ms Akman’s book tackles the fundamental questions – how
much market power are you allowed to have? 
And what can you not do with it when you have it?  There is more on the second question than the
first, but the two go hand in hand as there can be no abuse unless there is market
power.

The book describes the long journey to the current “effects-based”
approach.  In many ways the old law (as
in United Brands, Continental Can and Commercial Solvents)
was familiar and easy.  Dominance was
assessed essentially by share of the market, abuse was a matter of items on a
list.  Defining “the market” could
usually be solved by a common sense approach to reasonable substitution.

Familiar and easy it may have been, but it could also risk
being incoherent, with the more substantive definition of dominance developed
by the courts – ability to behave independently of competitors, customers and
suppliers – being particularly curious when examined more closely. After all,
competitors are surely meant to behave independently of each other?  A shift to a more economically literate
approach surely had to come. 

On the face of it, the modern “effects-based” approach
offers an attractive solution.  Indeed
the basic lesson, of examining what happens on the market and whether consumers
are actually harmed, rather than whether a particular form of behavior is
taking place, is sound.  But the book
explores the difficulties in a helpful and illuminating way.  For example, an effects- based test of
dominance requires an element of circularity – its existence is proved only by showing
whether it is possible to abuse it.  Then
there is the problem of assessing the effects of an abusive practice.  Then author rightly points out the issues of administrability
and legitimacy raised by the need to assess the specific facts of each case
before coming to a finding.  Can it be right,
the book asks, to operate a law against the abuse of dominant position when
(apart from vague intuitions about scale and market share) illegality cannot
definitely be pronounced without a detailed analysis of costs and prices and relative
levels of efficiency, not only of the supposed abuser but, in case of
exclusionary conduct, of the excluded would-be competitor?  Viewed in this way, this “as-efficient
competitor” test is merely an artefact, dependent on the data used for its
calculation. 

The author criticizes the over-emphasis of enforcers on
exclusion and their neglect of exploitation – which is in many ways much nearer
to the adverse effect on consumers that the policy claims to want to
lessen.  But even as applied to exclusionary
conduct, the problem remains that the complexities do not lend themselves
easily to simple prohibitions, yet the consequences of breach of the law are
very severe.  Equally intractable are the
problems of information asymmetry (itself an impenetrable term) and how the
authorities are to obtain the cost information needed to make their
judgments.  Finally there is the paradox of
predatory pricing – the remedy actually denies the consumers the benefit of cheap
prices in the short term, something which needs to be explained carefully to
them at the very least.

The author offers a brave formulation of a new approach
that addresses these problems.  But
concentrating more on exploitative abuse and harm to consumers comes up against
some, at least, of the same difficulties, and setting out clear, administrable per se rules for abuse of dominance
remains a difficult task. 

Although this is not what the book suggests, this examination
of the difficulties inherent in applying current abuse of dominance laws makes
this reviewer, at least, look with relief to the market investigation regime in
the UK.  Here, with the same basic intention
of controlling the misuse of market power, a much more flexible legal test is
applied, without the sharp delineation required for the concepts of “dominance”
and “abuse” and without the drastic legal consequences of an adverse finding in
terms of fines and damages.  In this
regime a case by case approach is possible with the Competition Commission or
its successor body doing what competition authorities are (or should be) best
at, finding out how a market works and what is not working well and taking
steps to make it work better.

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