Relaxing whilst doing Competition Law is not an Oxymoron

Forget about consumer welfare: it’s the law vs discretion divide that will mark the future of competition law (my presentation at the IEE in Brussels)

with 2 comments

The quadrants

Considerable energy has been devoted to attack (and defend) the consumer welfare standard on both sides of the Atlantic.

There is a real (perhaps growing) divide in the competition law community. Now that we are at a crossroads, this divide matters. It will mark the field for the years to come.

The above said, I think defending the consumer welfare standard is a waste of energy. For those who challenge it, consumer welfare is just a proxy war. Their end destination is not to embrace an alternative standard, but to change the shape and understanding of competition law.

(EU) competition law has progressively become a legalist discipline. Competition authorities are subject to constraints coming from the law and coming from mainstream economics. In the same vein, effective judicial review is known to be an indispensable ingredient in the system.

Under a legalist approach, consistency and predictability are paramount (for could we say that competition policy is implemented through law if enforcement were not consistent and predictable?). It is accepted that these values may occasionally lead to under-enforcement.

Those who attack consumer welfare, as much as those who say to endorse fairness or a wider range of values are, in essence, pleading to move away from legalism to embrace a discretionalist approach to competition law.

A discretionalist approach does not feel bound by consensus positions in economics, and is characteristically sceptical of them. Disregarding mainstream economics is not seen as a big deal. In fact, it may even be desirable – the consensus may be flawed for a variety of reasons.

What matters, under a discretionalist approach, is to reach the outcome that is deemed optimal in any given case. This is something that I explained already in the blog a while ago. Avoiding under-enforcement, accordingly, matters more than the consistency and/or predictability of the system. And avoiding under-enforcement may occasionally involve introducing a plurality of values or considerations.

These are the ideas I presented on Friday of last week in Brussels. My slides can be found here. I try to explain why people tend to develop a fascination with the goals of competition law, and why this debate is, by and large, irrelevant (or overly superficial).

I then move on to explain why law vs discretion is the real divide in the competition law community. As I already explained here, economic analysis can be legalism’s best friend, in the same way that formalism is often its worst foe.

I look forward to your comments!

Written by Pablo Ibanez Colomo

13 September 2018 at 10:49 am

Posted in Uncategorized

2 Responses

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  1. This is a very important post. Thanks Pablo for sharing your insightful thoughts

    Mario Solimani

    14 September 2018 at 6:51 am

  2. Interesting post, Pablo. I am quite critical of the consumer welfare standard interpreted as (allocative) efficiency, but I’m not sure that discretionism is the inevitable alternative: other standards may leave just as little (or as much) discretion as the consumer welfare standard, depending on how they are interpreted.

    Indeed, as you point out, the consumer welfare standard is itself ambiguous: it can be interpreted in a discretionary or a legalistic way. Originally, the consumer welfare standard was meant to be all about effects analysis (as opposed to the formalism of earlier years) but, since this was too difficult, “proxies” were invented (Easterbrook already talked about this in 1984, even before the consumer welfare standard was firmly established). And so we now have a new formalism which is basically concerned with pricing being below or above (average variable) cost. This formalism suffers from the same ills as the old formalism namely that, as you say, reality is messier than formalism allows.

    There will always be a tension between legalism and discretionism in regulatory fields, but when standards are not or no longer useful or succesful in achieving the objectives of a law (as they are understood today, and in the case of the allocative efficiency standard, I would argue, also as they were understood when antitrust legislation was first enacted), new standards will be invented.

    Jan Blockx

    14 September 2018 at 9:25 am

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