Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

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

with 4 comments

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

4 Responses

Subscribe to comments with RSS.

  1. Couldn’t agree with this more. An excellent and simple analysis.

    The debate between these camps is older than competition law, as it effectively has its roots in the clash between deontological and teleological ethics. Legal tradition owes most to the former, with its focus on rights and duties. Economics owes more to the latter, with its focus on outcomes and welfare. Competition law is a particularly violent collision point for these two opposing philosophies. So are you Immanuel Kant or are you John Stuart Mill?

    David Foster

    28 May 2018 at 3:11 pm

    • Thanks, David!

      As I try to explain in the post, the issue is more nuanced. Lawyers (or law-minded people) can also take a deontological approach, and build the system around outcomes (discretionalists can be law-minded and economics-minded people). And vice versa.

      As to your question: I go for both!

      Pablo Ibanez Colomo

      29 May 2018 at 7:56 am

  2. Thanks for the nice and succinct post. You mentioned the New Brandeis school – this is an interesting development that the readership would surely like you to elaborate on, in a future post!

    Michael Ristaniemi

    4 June 2018 at 12:52 pm

  3. Hi Pablo,

    Thanks for the great post.

    I wanted to comment mainly on your point about public interest discretionalists. I think that consumer welfare can indeed be too narrow a focus compared to allocative efficiency. For example, we could analyze within a merger case the good or bad externalities produced in the market in question in addition to the effects on consumers of the specific market. Good externalities could help to reinforce the parties’ arguments on efficiencies. I think this kind of considerations could still be manageable within court proceedings. What is your opinion on this?

    The second point, related to the first, is that public interest discretionalists may advance economic policy goals other than allocative efficiency and it could therefore be misleading to state that they are low on the economic analysis spectrum. That said, I do think that it is next to impossible to create consistent case law if you include other economic objectives analyzed through other frameworks of reference. On the other hand, predictability should only prevail if more discretion brings less benefits than the costs imposed by greater uncertainty and litigation costs. But I guess this is an empirical question.

    Paco Beneke

    15 June 2018 at 3:55 pm


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s

%d bloggers like this: