Monday, May 27, 2024

The as Efficient Competitor Test and Principle. What Role in the Proposed Guidelines?

The as Efficient Competitor Test and Principle. What Role in the Proposed Guidelines?

Damien J Neven

Graduate Institute of International and Development Studies (IHEID)

Abstract

This paper discusses the as efficient competitor principle and associated test from enforcement and economic perspective in the context of the proposed guidelines on Art 102. The main findings include:

- According to a review of Court judgments, the as efficient competitor principle establishes a red line such that the foreclosure of an as efficient competitor is a sufficient condition for finding an abuse. The amendment of the guidance paper which removes the soft safe harbor for a conduct that does not foreclose as efficient competitors has led to greater consistency of the Guidance paper with Court judgments.

- The assessment of the implementation of the test by the General Court is a source as of concern as it seems to rest on a misunderstanding about the nature of the empirical exercise that the implementation of the as efficient competitor test involves. The Court fails to recognize the margin of errors that is inherent in the implementation of the test so that what should be considered is a confidence interval around the point estimate of the key parameters rather than the point estimate itself.

- The as efficient competitor principle, and associated test, are not derived from any particular theory of harm. We find that the application of the as efficient competitor principle and associated test as a red line involves type I errors with respect to some theories of harm (in particular involving rebates contingent on market shares and margin squeeze). Relying solely on the as efficient competitor principle and associated test would lead to type II errors in relation to a number of theories of harm, in particular those leading to competition softening. More generally, the implementation of the as efficient competitor principle and the inference that can be drawn from the test should be contingent on theory of harm being investigated.

- Specifically, it does not seem appropriate not to use the as efficient competitor test with respect to conducts like exclusive dealing or rebates contingent on exclusivity (or more generally contracts that reference rivals), as recommended by the Commission in the context of the amendments to the Guidance paper. This is not to say however that the presumption of harm for contracts that reference rivals should not be different from those that don’t.

- The concept of normal competition (or equivalently competition on the merits) is not operational. The Commission may want to follow AG Rantos in defining the conduct that falls outside the scope of normal competition as equivalent to a conduct that leads to restrictive (anti-competitive) effect. The Commission may also want to avoid reference to the effect of the conduct on the competitive structure as a criteria for its abusive character as it is ill-defined. Some amendments on the guidance paper by the Commission also raise concern as they might reduce the discipline that the Commission imposes on itself in the assessment of effects.

https://lawprofessors.typepad.com/antitrustprof_blog/2024/05/the-as-efficient-competitor-test-and-principle-what-role-in-the-proposed-guidelines.html

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