Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

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

One Response

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  1. There are intentions and intentions. Intent means motivation of a person to have a certain behavior. If the intention of a business person is to gain more profit for himself, this is absolutely legitimate, even if there are collateral damages in terms of competitors being pushed out of business. If the intention is to exploit or to exclude other companies in order to benefit of the fruits of a position in the market, the intention is no longer acceptable from the perspective of the public interest, although may still be considered acceptable from the perspective of the infringer.
    The legal theory in some jurisdictions operates with another concept, which might be useful is assesing what is right or wrong in an antritrust case: exceeded intent, a concurrence between pure intention and negligence. The concept belongs to certain systems of continental law in Europe and means that a person, while pursuing its main – and legitimate – purpose, may, recklessly, damage the right of another person. The classical exemple is that of the person which destroys a good belonging to someone else in order to save its own asset.
    The concept of exceeded intent may be useful in antitrust as long it allows to establish the existence of the liability even if the infringer pursued a legitimate business interest, which is the case in almost any situation.
    The absence of a direct intention to affect another company may be taken into account only as a mitigating factor. I say “may be taken into account” because companies in dominant position should always pay attention to their behavior and do their best to avoid affecting other companies.

    Valentin Mircea

    14 April 2012 at 1:38 pm


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