Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

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Antitrust Writing Awards- The campaign begins

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(Since this post is about awards, we thought a pic form last night’s grammys ceremony would be appropriate. I randomly came accross this one, but it risked being inappropriate, so we’ve decided to go for a more politically correct one).

You may remember that last year we ran a campaign (see here) for Nicolas to win one of Concurrence’s Antitrust Writing Awards, which he did for his paper on Credit Rating Agencies.

This year the Editorial Committee at Concurrences has shortlisted 3 pieces written by people who have contributed to this blog, so we thought we’d ask you to please take a minute to give them your 5-star vote ;)

The nominees are:

- On the category for Academic paper on Anticompetitive Practices: Pablo Ibañez Colomo (LSE), for Market Failures, Transaction Costs and Article 101(1) TFEU Case Law,  You can read it and vote for it at:  http://awards.concurrences.com/academic-articles-awards/article/market-failures-transaction-costs  By the way, Pablo gave a lecture on this topic at the IEB in Madrid a few days ago; the slides are available here: Making sense of Article 101 TFEU

- On the category for Academic papers on Economics: Hans Zenger (CRA) for Loyalty Rebates and the Competitive Process : You can read it and vote for it athttp://awards.concurrences.com/academic-articles-awards/article/loyalty-rebates-and-the

- On the category for Business papers on Economics, myself, for Economics in competition lawYou can read it and vote for it at (no need to read this one,  you can skip it provided that you vote for it): http://awards.concurrences.com/business-articles-awards/article/economics-in-competition-law  (actually, the nominated post does not rank among the ones I’m proudest of, but I’m nevertheless grateful for the nomination).

- We are told that Chillin’Competition has also been shortlisted as one of the top 30 professional publications that will be reviewed by Concurrence’s editorial board, which will then come up with a ranking (for more info, click here). You cannot vote for us here, but we’d be thankful if you could please exert any sort of coercion on the jury

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Written by Alfonso Lamadrid

11 February 2013 at 5:57 pm

Reform of Private Enforcement of Competition Law in the UK: the Government’s Proposals

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[Our friends Christopher Brown (Matrix Chambers and Eutopialaw) and Scott Campbell (Stewarts Law LLP) have kindly offered us a very interesting post on the reform of private enforcement of competition law in the UK. To the best of my knowledge, this is the first written piece commenting on the substance of the proposed reform. With those proposed changes, the UK may be trying to position itself as the leading forum for private actions in Europe. An absolute must read].

A while back, one of us blogged on the UK Government’s consultation, launched in April 2012, on possible reform of the private actions regime in the UK.  The consultation was wide-ranging and included several radical proposals designed to facilitate redress for victims of anti-competitive conduct – most notably, the introduction of an ‘opt-out’ collective actions mechanism.  Reaction to the consultation from lawyers and business was extensive: the Government received 129 formal responses, and opinion was sharply divided on some issues.

It has inevitably taken some time for the Government to take on board the responses and consider the way ahead, but, since the publication last week of its response to the consultation, we now know what it intends to do.  In summary, the Government proposes to

  • Strengthen the private law jurisdiction of the specialist judicial body, the Competition Appeal Tribunal (CAT);
  • Introduce a “limited” opt-out collective actions regime, with “safeguards” designed to prevent frivolous or unmeritorious claims being brought;
  • Promote alternative dispute resolution (ADR); and
  • Take some limited action designed to ensure that private enforcement complements public enforcement.

In this post, we take a look at the main proposals, considering some of the likely practical implications of the reforms in the event that they are passed into law.

1. Putting the CAT front and centre of private enforcement in the UK

The first broad proposal is one on which most respondents agreed, at least in broad outline: to make the CAT the ‘go-to’ venue for private competition litigation in the UK.  Since acquiring its private law ‘follow-on’ jurisdiction upon the entry into force of the Enterprise Act in 2003, the Tribunal has seen relatively little action, and much of the action it has seen has been in the form of procedural skirmishes relating to the ambit of that jurisdiction (several of which have gone on appeal to the higher courts).  In many cases, claimants have preferred to commence follow-on proceedings in the High Court instead.

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Written by Nicolas Petit

6 February 2013 at 11:35 am

Posted in Guest bloggers

Where’s the Law? (or Google and the European Commission)

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I said to myself I would keep up the promise I made to Alfonso and continue writing in the blog until Nicolas is back or he recovers (which we hope will be very soon) and starts posting notes again (I failed to anticipate that he wouldn´t stop…)

More to the point: as a complete outsider, I find the lack of publicly available information on the European Google case frustrating, as it is fascinating on more than one level. I just thought that the best way I could rebel against this situation is by making my views on the ongoing proceedings publicly available.

The behaviour of the European Commission in the past few months is interesting (if not puzzling) in at least three important respects:

  • The Commission has repeatedly asked Google to submit commitments. One could very well argue that nothing prevents the Commission from doing this. At the same time,this conduct is at odds with the logic of Article 9 of Regulation 1/2003. At least it shows (as if we did not know it already) that the ECJ judgment in Alrosa (as well as AG Kokott’s opinion) ignores how negotiations between firms and competition authorities are conducted in reality.
  • A commitment decision is the only acceptable outcome for the Commission. In his public statements Commissioner Almunia suggests that the case will only be closed once the authority accepts the commitments submitted by Google. Put differently, we have reached a point where the case is not so much about an authority establishing an infringement by a firm but about a firm proposing a settlement that is acceptable for the authority.
  • The Commission assumes that the alleged discriminatory conduct is an abuse of dominance: The whole case seems to be based on the premise that the fact for Google to favour its own services is an abuse of dominance within the meaning of Article 102 TFEU. Commissioner Almunia has even been explicit about this matter. This conclusion is very far from straightforward to reach. It is a factual scenario that can be approached in many different ways. It raises novel and complex questions to which different (and contradictory) lines of case law seem to apply .Unfortunately, the Commission has never even attempted to articulate the legal framework potentially applicable to this case. This would be most desirable, if only because it would make it possible to ascertain whether the Guidance Paper was just the expression of a moment of temporary folly, and not (as I assumed it would) a pre-commitment device designed to preserve long-run legal certainty.

I do not think an expert poker player would advise the Commission to take these moves. Even outsiders like me cannot avoid inferring from them that the (legal) case is probably weaker than the Commission appears to suggest. As an academic, it is the fact that the law has disappeared from the case that I find most worrying, in any event. The question of whether, and why, Google’s conduct would be abusive seems to be no longer of relevance for its outcome. In this sense, this case shows the dramatic impact that the abusive recourse to commitment decisions (in particular where, as is the case here, genuinely novel legal questions are at stake) can have on the evolution of our discipline.

Pablo

Written by Alfonso Lamadrid

19 January 2013 at 7:56 pm

Ménage à trois (part III; Makis Komninos): Case T-169/08 PPC v Commission

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This third part of our inaugural ménage à trois discussion on the Greek lignite Judgment features  (see part I and part II ) another good friend of this blog: Assimakis Komninos. Makis is a great guy, a partner at White & Case, and was a successful co-counsel in the case we’re they are discussing, so he was an obvious candidate for our triad of guests. As you will see, Makis sides with Marixenia Davilla in praising the Judgment. In doing so, he replies to José Luis Buendía’s more critical views.

To illustrate Makis’ post we have chosen the image of another famous lignite-related (look at gift in the middle) ménage à trois.  :)

First of all, it is such a great pleasure to be invited to comment on the Greek lignites case. I should disclose at the outset that I represented, as co-counsel, the Hellenic Republic in its intervention in support of PPC during the written proceedings stage.

My personal view is that the General Court did the right thing and annulled a decision that was going a step too far. There is no doubt also, in my view, that the Commission was using this as a kind of “test case” against a carefully selected target.

The intellectual starting point is, I think, the very nature of Article 106 TFEU. This is a rather curious provision and I certainly agree with José Luis that it is essentially about State measures, but the sure thing is that the Treaty fathers wanted to give it a carefully circumscribed scope. A systematic interpretation of the Treaty does not support that there is general prohibition of all State measures that may – even indirectly – impact on competition and business activities. Article 106 TFEU restricts the behaviour of Member States only by reference to the scope of some other Treaty provisions, such as Article 102 TFEU. This is the provision that the Commission chose to rely on by reference.

Then, if one reads the Commission’s decision, one fails to see how Article 102 TFEU would come into play here, albeit by reference. Would the theory of harm refer to a leveraging abuse, to a refusal to supply, to a failure to satisfy demand (exploitation), to discriminatory treatment on the part of PPC? Not clear at all. The Commission thought that it did not have to specify this. By the way, I am not suggesting that in Article 106 TFEU cases, the Commission need to show anti-competitive effects etc. This is not what I argue. Instead, I submit that the Commission should be able to demonstrate with a sufficient degree of intellectual clarity that the State measures are connected with a specific kind of actual or potential abusive behaviour by the undertaking in question. This is all the Court says and I fully agree with Marixenia.

With respect, I do not agree that the previous case law gave the Commission leeway in not being obliged to identify a specific kind of actual or potential abusive behaviour. On the contrary, if we look at RTT and even Connect Austria, while we see references to “equality of opportunity” and to RTT’s “obvious advantage over its competitors”, that by no means leads to the conclusion that the mere existence of inequality of opportunity is sufficient for an Article 106 TFEU violation. In both cases, the Court spoke about specific anti-competitive phenomena. In Connect Austria, the problem was that the undertaking in question was allowed (through the inequality of opportunity) to expand its dominant position onto a related market and, in RTT, the Court is very clear and explicit as to the kind of abuse of dominance that was at stake: “an abuse within the meaning of Article [102] is committed where, without any objective necessity, an undertaking holding a dominant position on a particular market reserves to itself an ancillary activity which might be carried out by another undertaking as part of its activities on a neighbouring but separate market, with the possibility of eliminating all competition from such undertaking”.

In the PPC case, the Commission seemed to build its case on the grounds that PPC’s lignite rights are not sufficiently counter-balanced by significant deposits of its competitors, even though lignite is not an essential input to compete downstream. I am actually being kind to the Commission, when I say this, because this theory is not clearly articulated within the txt of the decision. The Commission then identified a remedy: PPC’s competitors needed to gain access to 40% of the total exploitable lignite reserves. In a nutshell, the Commission was seeking to use competition law to unbundle the Greek electricity generation market. However, this instrumentalisation of the law, in order to redesign a market structure, lacked both a legal and a sound economic basis. Moreover, it would lead to a dangerous precedent by permitting the Commission to attack market structures it dislikes by invoking the vague concept of “inequality of opportunity”.

The Commission misinterpreted the case law and its decision deserved to be annulled. I do not think this is the end of Commission enforcement under Article 106 TFEU, as some commentators have argued. It will only have to do a better job next time and articulate also a clear theory of harm that refers to an actual or potential abuse of dominance by a public undertaking or an undertaking with special or exclusive rights, as a result of certain State measures.

Written by Alfonso Lamadrid

26 November 2012 at 11:00 pm

Ménage à trois (part II; José Luis Buendía): Case T-169/08 PPC v Commission (… and Jules v Jim)

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For this second part of our first ménage à trois discussion we are proud to present you with José Luis Buendía’s view of the Greek Lignite  Judgment in response to Marixenia Davilla’s earlier post. Aside from being the head of Garrigues’ Brussels office -where I happen to work-, José Luis is widely regarded as “Mr Article 106″.  He also masters the art of illustrating all hiw views with metaphores and parables. Continue reading and you’ll see what we mean…. 

[For a contrarian view of José Luis' arguments check our Makis Komninos post (which we will publish here tomorrow)].

It is a real pleasure to be invited to contribute to this blog. This is even more the case given the topic, the format, and the identity of my nice and learned counterparts – Marixenia and Assimakis. Even if I don’t share their enthusiasm about this judgment, it is clear that they have done an excellent job as lawyers. So, congratulations to them and to their colleagues who worked om the case.

Contrary to them, despite having been in the past an EC official, I have not had any involvement in this particular case. I am nevertheless very interested in it, since I am working on a new edition of my book on Article 106. Moreover as I have explained in a recent article, unfortunately there are not so many Article 106 cases to comment.  So I am glad to have this opportunity.

This case made me think of François Truffaut’s film Jules et Jim about a genuine ménage à trois. The Catherine of the movie (Jeanne Moureau) had – simultaneously – a husband and a lover. As Marixenia rightly implies in her interesting comment, Article 106 also has simultaneous links with State aid on the one hand and with antitrust on the other hand. In my view the problem with the judgment is to assume that Article 106 is only married with antitrust and faithful to it. It is not. Article 106 is about State measures and is therefore essentially different from antitrust.

It is for this reason that, in my opinion, this judgment is not really consistent with the previous case law that it claims to be following. Indeed, previous judgments, like RTT, considered that the mere granting of an exclusive right to a public undertaking previously enjoying a dominant position was in itself contrary to Article 106 combined with Article 102 TFEU. This conclusion was based on the effects of the State measure creating the extension of a dominant position from one market to another one (effects that were similar to those of an abuse). The said conclusion did not require any actual abusive behavior.

In today’s judgment the General Court reads the previous case law in a different manner and finds that it does require the existence of an abusive behavior, at least a potential one. Since the EC decision did allegedly not established the abuse but relied only on the effects, it was according to the Court in breach of the Treaty. This reasoning seems to me clearly contradictory with the case law.

This reasoning seems also a little bit abstract. Indeed, the judgment itself concedes that the mere possibility of a future potential abuse would have been enough to satisfy the legal test. However, since according with the judgment, the decision did not explore this issue in an explicit manner, it had to annul it. It seems however obvious to me that a State measure extending the dominant position from one market to a neighbor one has, at the very least, the potential to lead to abusive behaviors. So, the Court seems to say that it is only the lack of an explicit reference to this obvious consequence that leads to the annulment.

I assume that the Commission may appeal the judgment before the Court of Justice in order to clarify the application of Article 106 with regard to special or exclusive rights. I also think that in the future the Commission should be more active and more coherent in the application of this provision.

In any event, I also know that my Greek friends would have a view different from mine, so I really look forward to the continuation of the debate.

Written by Alfonso Lamadrid

26 November 2012 at 6:28 pm

Reform of UK competition law- Part 2: facilitating private redress

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[Note by Nicolas and Alfonso: In the second of his guest posts on reform of UK competition law and enforcement, Christopher Brown looks at potential reform of private redress mechanisms]-

On 24 April 2012, just weeks after announcing the Government’s intentions in respect of reforms to the public enforcement regime, BIS launched a Consultation on reform to the private enforcement of competition law in the UK.  Such reform might be said to be long overdue: it has been some five years since the OFT made recommendations to Government stressing the desirability of changes to facilitate private redress.

The Government’s stated objective is to encourage private-sector challenges to anti-competitive conduct to complement public enforcement.  Elsewhere in the document, it is said that the aims of the reform proposals are (i) to increase growth, by empowering small firms to tackle anti-competitive behaviour which is stifling their business, and (ii) to promote fairness, by enabling those who have suffered loss as a result of such anti-competitive conduct to obtain redress.  The principal proposed reforms are:

  • to increase the role of the Competition Appeal Tribunal (CAT) as a forum for private actions, by allowing it to hear ‘standalone’ claims as well as ‘follow-on’ claims;
  • controversially, to introduce an opt-out collective actions regime;
  • to protect the leniency regime by preventing at least certain leniency documents from being disclosed to claimants bringing private law claims and protecting at least immunity applicants from joint and several liability.

These 3 proposed innovations are touched upon below.

(a) The role of the CAT

The proposals to make the CAT a major venue for private litigation based on competition law have been broadly welcomed. In its twelve years of existence, it has built up a strong reputation in its handling of appeals under the Competition Act 1998 (and other legislation) and follow-on private actions under section 47A of that Act. It is widely regarded as efficient, fair and competent.  It makes eminent sense, in principle, for the CAT’s jurisdiction to be extended so as to make most efficient use of the resources at its disposal.

Some of the detailed proposals in relation to the CAT are, however, more controversial.  In particular, the Government proposes the introduction of a “fast-track” system for claims brought by SMEs (which, as part of its growth agenda, the Government is very keen to support).  The Government is particularly concerned that SMEs are in practice prevented, or substantially deterred, from seeking redress for loss caused to them as a result of competition law infringements.  It points, with some justification, to the considerable cost of litigating in the UK and the length of time cases take to reach resolution.  What they need, the Government seems to think, is a quick and easy way of getting their complaints in front of a court.  The fast-track proposal is the Government’s suggested way of improving matters.  So what is it?

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Written by Alfonso Lamadrid

27 July 2012 at 9:00 am

Posted in Guest bloggers

Reform of UK competition law- Part 1: public enforcement

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[Over the course of two posts, Christopher Brown (Matrix Chambers) blogs on the substantial reform agenda in the UK. The first post looks at the reform of the public enforcement regime; the second will consider the recent proposals to reform private enforcement].

As readers will probably know, back in March 2011 the UK Government, through the Department for Business, Innovation and Skills (“BIS”), launched a consultation on potential reform to the UK competition law landscape (see my earlier post here).  It contained a number of bold suggestions for redesigning the domestic regime.  After a 3-month consultation period and, seemingly, much head-scratching, BIS announced its concrete proposals for reform on 15 March 2012.  Those proposals are now contained in the Enterprise and Regulatory Reform Bill, which is currently making its way through Parliament.  Then, as if the Department didn’t have enough on its plate already, it launched a consultation on reform to private actions in the UK. In these posts, I touch on the main aspects of both proposals and offer some limited comments.

Reform of the public enforcement regime

Given space constraints, this section touches on just three of the reform proposals, relating to institutional architecture, enforcement model and the cartel offence.

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Written by Alfonso Lamadrid

26 July 2012 at 2:25 pm

Posted in Guest bloggers

Case C-128/11 UsedSoft v Oracle

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Note by Alfonso: The Court of Justice has published yesterday its long-awaited decision in UsedSoft v. Oracle. Even though the matters are issue are mainly IP-related (they concern the application of the so-called  “exhaustion doctrine” to computer programs), they have important competition law implications. Marcos Araujo  (a friend of ours and a partner at Garrigues) has followed closely this case as well all others concerning the intersection of IP and competition law. We’ve asked him to provide us with his first views on this very fresh Judgment. Here they are:

In a Grand Chamber judgment, the ECJ has taken a determined stance in favour of THE free movement of goods and the exhaustion doctrine. Today’s Judgment has dismissed not only Oracle’s arguments, but also those raised by the Commission and by the various intervening Member States, and has affirmed vigorously the right of licence holders to “resell” their rights of use of computer programs, supporting intermediaries and end customers in the way.

The case had attracted much attention given the contradictions in this area of European Law, which on the one hand declares that the sale of computer programs exhausts the rights of the owner (art. 4.2 of Directive 2009/24) and therefore that the program can freely be re-sold, and, on the other hand, states that the provision of services over the Internet does not cause exhaustion of rights (Recital 29, Directive 2001/29). In this situation, software companies which license (and arguably do not “sell”) software over the internet may claim that their IP rights should not be deemed to become “exhausted”, as they would be providing a service rather than selling a product.

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Written by Alfonso Lamadrid

4 July 2012 at 5:28 pm

The Economist Corner (4) – Are Cartel Fines too Low?

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Given today’s announcement, I suspect Alfonso has better to do than posting on this blog. Run, Alfonso (on the banks), run!

With this, it is thus my duty, and honour, to introduce the 4th edition of the Economist Corner. For this edition, Benoît Durand (RBB Economics) has sent us a good piece on a money-related issue, i.e. fines for cartel infringements. Enjoy!

In the last decade the European Commission has imposed higher fines on cartels, in particular under the helm of Neelie Kroes.  The stated purpose for this increase was that fine levels were not sufficiently high to deter the formation of cartels.

In general, the deterrence property of sanctions is a key aspect of law enforcement.  Becker (1968), who was the first to apply economic principles to crime and punishment, explains that the level of sanctions should be set so as to deter crime.  A high level of sanction in turn contributes to minimise the costs of enforcing the law.[1]

Firms consider the expected benefits and costs of participating in a cartel.  Under this logic, if the expected sanctions are higher than the collusive gains, then firms will not take the chance.  Because there is always a significant probability that cartels slip through the net, the penalties should be several times larger than the gains such that no firm would dare try fixing prices.  By way of example, consider that a cartel member expects to pocket 50 million euros extra every year for about 6 years, whilst the probability of being caught is 1 out of 5.  In this setting, it would take a massive fine of slightly more than 1.5 billion euros to convince a firm not to collude.[2]

As cartels continue to exist, it must be the case that the current level of sanctions is ineffective.  This is the conclusion that Combe and Monnier (2011) draw after reviewing the fines for 64 EC cartel decisions between 1979 and 2009.  They show that in virtually all cases fines were set below the optimal deterrence level; i.e. in spite of the sanctions, the cartels were profitable.[3]

Is it therefore necessary to raise corporate fines above the current levels to deter the formation of cartels?  It is hard to say, but to achieve full deterrence, competition authorities need not increase fines at stratospheric levels as suggested by the logic described above.  First, they could adjust sanctions to give cartel members the incentive to undercut each other, which would trigger the collapse of cartels.  Second, in complement to corporate fines, competition authorities could consider applying measures targeted at company officers who have brokered the cartel agreement.

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Written by Nicolas Petit

6 June 2012 at 9:58 am

The Economist Corner (III): “Intent” in Article 102 cases

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For this third edition of The Economist Corner we have invited Hans Zenger. Hans used to be a member of the Chief Economist Team at DG Comp and is currently Senior Consultant at CRA. He’s is not only one of the most brilliant economists in town, but he’s also a great gruy.

 As noted here some months ago, and even though there remains much to be done, Hans will also be one of the co-authors (the others will be Miguel de la Mano, Renato Nazzini and myself) of the Article 102 chapter of the next edition of Faull & Nikpay’s The EU Law of Competition. 

We leave you with his ruminations on the role of intent in Article 102 cases. This topic, and many others, are dealt with in his article “Loyalty Rebates and the Competitive Process”, which is forthcoming in the Journal of Competition Law & Economics.)

***

In criminal law, proof of intent plays an important role in establishing the scope of liability. If A intends to benefit at the expense of B, then A is probably up to no good. In antitrust, this principle has all too easily been extended to unilateral conduct law. The problem is that the intent of benefitting at the expense of others is essentially what generates the beneficial outcome of a market economy:

• The prospect of “exploiting” consumers is what provides firms with an incentive to produce valuable products that improve over existing varieties.

 • And the prospect of “excluding” rivals from making sales is what provides firms with an incentive to cut price to expand output.

In other words, the self-serving intent to “exploit” and “foreclose” is a cornerstone of the competitive process.

Adam Smith succinctly explained this in 1776: “It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard of their own interest … By directing that industry in such a manner as its produce may be of greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”

If one too readily transposes the zero-sum logic of criminal law to unilateral conduct investigations, then Smith’s conclusion constitutes a paradox: If A intends to benefit at the expense of B, how could that possibly be good for B? But as Schumpeter has explained, “There is no more of a paradox in this than there is in saying that motorcars are traveling faster than they otherwise would because they are provided with brakes.”

The evidentiary value of intent evidence in Article 102 cases therefore has its limits. Perhaps not surprisingly, regulators on occasion have shown a tendency to read too much into such documents. As Judge Easterbrook has noted, “firms ‘intend’ to do all the business they can, to crush their rivals if they can … Rivalry is harsh, and consumers gain the most when firms slash costs to the bone and pare price down to cost, all in pursuit of more business. Few firms price unaware of what they are doing; price reductions are carried out in pursuit of sales, at others’ expense. Entrepreneurs who work hardest to cut their prices will do the most damage to their rivals, and they will see good in it. You cannot be a sensible business executive without understanding the link among prices, your firm’s success and other firm’s distress. If courts use the vigorous, nasty pursuit of sales as evidence of forbidden ‘intent,’ they run the risk of penalizing the motive forces of competition.”

Written by Alfonso Lamadrid

11 April 2012 at 11:31 am

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