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Archive for May 28th, 2018

Discretionalists vs Legalists: the true divide in the competition law community?

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rival groups

The big debates about the soul of competition law/antitrust are back. And with these debates, commentators seek to identify what distinguishes the various stances regarding the purpose and intensity of intervention.

Most of these discussions relate to the goals of competition law, that is, about whether the discipline should be about the protection of consumer welfare, the competitive process or any other benchmark. Occasionally, debates revolve around whether or not the convenience of intervention should be measured against a particular goal.

I have written here before that these debates are, in my view, empty calories. Discussing the goals of competition law in the abstract rarely ever yields meaningful conclusions. More importantly, it does not say anything about the operation, in practice, of the legal system. I have always been of the opinion that we would be better off – and much wiser – if we avoided these debates altogether and thought hard about other stuff.

What is more, my impression is that these debates obscure the real divide in our community. Debates about the objectives of competition law reveal that there are two fundamentally different views about the discipline.

I see a clear difference between two broad tribes: the discretionalists and the legalists.

Who are the discretionalists? The discretionalists are those who believe that competition authorities (and courts) should be as unconstrained as possible to attain the result that is considered to be correct in any given case. Getting it right, in other words, matters more than other factors (such as the consistency or predictability of enforcement). For instance, following a precedent is less relevant than reaching the outcome that is deemed appropriate.

Who are the legalists? Legalists downplay the importance of ‘getting it right’ in every given case. What is more, legalists concede that enforcement errors (both type I and type II) cannot be avoided if our discipline is to be considered a legal one. For legalists, it is also important to place constraints on competition authorities and courts. These constraints would come, for instance, from the need to ensure that intervention is consistent and predictable. Thus, precedents should be followed unless there are truly compelling reasons to depart from them.

Is the ‘more economics-based’ approach discretionalist or legalist?

In and of itself, an effects-based approach to enforcement is compatible with both a discretionalist and a legalist view of enforcement.

Some proponents of the effects-based approach are clear discretionalists. For some economists, the only thing that matters at the end of the day is whether intervention will be welfare-increasing or welfare-decreasing. The analysis of this question is to be performed on a case-by-case basis. I would call this sub-group the ‘welfare discretionalists’.

This said, many commentators who have favoured a ‘more economics-based’ approach would also advocate a legalist approach to enforcement. For these, what matters is to design rules and standards so as to get it broadly right in the majority of cases, not increasing welfare in every given instance. Many economists understand the importance of consistency and predictability (in the same way many lawyers value economic analysis). I would call these lawyers and economists the ‘substance legalists’.

How about those who are sceptical about (if not opposed to) economic analysis?

Economic analysis may have become increasingly important in competition law, but there is no shortage of sceptics about its role. Again, these sceptics of economic analysis come in two flavours. Some of them are clear discretionalists, others are legalists.

The ‘public interest discretionalists’ would favour giving public authorities as much discretion as possible, even if it is at the expense of the process and outcomes that mainstream economics would favour. One expects ‘public interest discretionalists’ to criticise the consumer welfare benchmark for being overly narrow, and as such a source of under-enforcement. By the same token, they can be expected to argue for the incorporation of a broader range of economic and non-economic considerations in the analysis.

On the other hand, one can think of the ‘formal legalists’, who are sceptical of the role of economic analysis but place at least as much value on consistency and predictability as the ‘substance legalists’. A ‘formal legalist’ would typically emphasise the importance the administrability of competition law, and would favour ‘bright line’ rules defining clearly what is allowed and what is not.

Teribes

The graph above is my interpretation of the different approaches to the understanding of the role and purpose of competition law.

Where does the EU competition law system stand? As I see it, the EU courts have always placed substance above form (in general, and in the context of EU competition law in particular). In addition, they have always valued consistency, predictability and stability. This would mean that the EU courts embrace a ‘substance legalist’ approach – for good and persuasive reasons.

Traditionally, the Commission favoured a ‘public interest discretionalist’ view of competition law instead. It is not a secret, for instance, that it consistently interpreted Article 101(1) TFEU very broadly. As a result, the Commission conducted the thrust of the analysis under Article 101(3), in the context of which it used to enjoy discretion. This discretion was occasionally exercised to advance non-economic public interest goals.

And it is not a secret that the ‘public interest discretionalist’ approach to EU competition law regularly clashed with the key ‘substance legalist’ principles of the case law. Inevitably, many Commission decisions were annulled as a result.

Following the adoption of Regulation 1/2003 and the ‘modernisation’ process, the Commission’s approach is closer to the logic underpinning the case law – although some may argue that the rise of commitment decisions can lead to ‘welfare discretionalism’.

How about the rest of the world? Well, I would say that much of the excitement around the ‘New Brandeis’ school relates to the fact that its advocates seem to endorse a ‘public interest discretionalist’ approach, which is at odds with how the antitrust system has evolved in the US since the 1970s.

I would welcome your comments on the above. And happy bank holiday to those living in the UK!

 

Written by Pablo Ibanez Colomo

28 May 2018 at 9:09 am

Posted in Uncategorized