Excessive Pricing and Competition Law Enforcement

This book contains contributions based mainly on presentations made in a Special Policy Session on Excessive Prices organized during the 12th CRESSE Conference on Competition and Regulation that took place in July 2017.

This chapter surveys a controversial but topical aspect of competition law: i.e. the prohibition of excessive or unfair prices. In the first part, we examine the diversity of competition laws across the world when it comes to exploitative abuses of dominance and look at the case law on this issue in a number of jurisdictions. We review and discuss the validity of the main reasons which have been put forward in the academic literature in favour of or against the use of competition law to fight abusively high prices. We then analyse in detail the EU Commission and court jurisprudence as well as national jurisprudences in some member states to get a view of how the EU courts and competition authorities define the terms “excessive” and “unfair”, what tests are used or recommended by courts to make such an assessment and how these tests have been implemented. In the third part, we present a methodological criticism of the legal tests which have been proposed for establishing the “excessiveness” or the “unfairness” of prices arguing that they are neither justified economically nor likely to provide dominant firms with the requisite level of legal predictability. We then turn to the economic literature to examine the main circumstances in which competition authorities should, according to the economists, refrain from using competition law to fight high prices. Finally, we examine a number of recent cases in the EU to assess whether the cases which have been dealt with by competition authorities conform to the economist’s recommendations. We conclude that, except in exceptional circumstances, competition authorities should use their enforcement or advocacy powers to eliminate the obstacles to competition which lead to supra-competitive prices rather than using competition law to make high prices illegal.

Davies and Padilla examine the UK Competition and Markets Authority’s 2016 decision to penalise Pfizer and Flynn Pharma for excessive pricing of phenytoin, an off-patent anti-epilepsy drug. The authors describe the CMA’s assessment of the gap between prices and cost and note that this same evidence is used in assessment of each of market definition, dominance and abuse. The CMA properly considered other evidence too, but this could serve as a precedent for a fragile and unreliable approach to assessing excessive pricing. The CMA found the price excessive ‘in itself’, rather than placing weight on comparator prices: a more appropriate measure of value. The authority imposed a fine uplifted by 400% for ‘deterrence’, and the authors question how realistic such deterrence objectives are, for excessive pricing provisions.

The aim of this chapter is to provide a coherent approach to the prohibition of excessive pricing by dominant firms as an antitrust violation. It first highlights the rationale for the prohibition and shows that the prohibition exists and is also enforced in many countries. It then shows why investment considerations should be assessed on a case-by-case basis, rather than as an overreaching reason for a lenient approach toward all cases. Next the contribution provides a three-step framework that should be used to assess an excessive pricing case: The first step is to establish a “more competitive price” to which the price charged should be compared (this involves economic analysis); the second step is to assess whether the challenged price is allegedly excessive compared to this more competitive price (this does not involve economic analysis but rather a legal policy decision); the third and final step is to assess the dominant firm’s efficiency claims, according to which the allegedly excessive price was necessary in order to establish a pro-consumer benefit that outweighs the harm to consumers (this step involves economic analysis). This study then makes three particular policy claims: First, liability for excessive pricing should not be limited to cases that mix exploitative and exclusionary behavior; second, antitrust liability should be for past behavior, regardless of the prospects of future competition. Finally, excessive prices are not self-correcting.

Until recently, there was no antitrust enforcement of a prohibition of excessive pricing in Israel. However, in recent years, a large and growing number of motions to certify class actions alleging excessive prices have been filed, although so far, only one class action has been certified by the court and it may take years before a final verdict is issued. Given this trend and given that courts are yet to clarify what excessive prices are and when high prices are deemed excessive and violate the Israeli Antitrust Law, monopolies in Israel face a high degree of legal uncertainty. In this chapter, I review these developments in detail and discuss the lessons that can be drawn from the Israeli experience.

Excessive pricing is one of the contentious areas of competition law and the standards are developing. South Africa has had at least two important excessive pricing cases. We review the approaches of the Competition Tribunal and the Competition Appeal Court in the Mittal Steel and Sasol decisions in order to demonstrate the complexity of the challenge of giving practical effect to the excessive pricing provisions of the Competition Act. Both the Mittal Steel and the Sasol decisions were concerned with excessive pricing by former state-owned firms. For example, Mittal Steel sold steel in the domestic market at more than import parity to its many South African customers that needed steel as an input while selling the steel for export at the much lower world price. We argue that the ultimate solution may be found in the purposive reading of the law which at the same time does not ignore the required elements to be proved.

This chapter describes the Brazilian experience with excessive prices as an antitrust offense since 1994. Over a period of nearly 20 years, more than 60 cases were brought without a single conviction. Discussions about the non-autonomous nature of the offense or its legal inefficacy led to removal of the practice as an abuse of dominance infringement from the new antitrust law enacted in 2012.

Enforcement outcomes against excessive pricing in Russia are controversial. Since many infringement decisions do not sustain judicial review, there is a recent shift from ex post intervention to ex ante price remedies by competition authorities. The objective of this chapter is to show that modest enforcement records are explained by the absence of convincing standards for price excessiveness but not by the weakness of theories of harm. The analysis of the Russian competition authority’s decisions involves three aspects, including enforcement targets, standards for establishing excessive margin, and reasons for court decisions. The competition authority develops guidelines to prove excessive pricing which do not convince the courts. Thus, the development of a reliable test is of high importance.

Competition Act, 2002, successor to MRTP Act, 1969, addresses unfair/excessive pricing in three ways: price overcharge through horizontal agreements, RPM coupled with self-administered MRP and, finally, AoD, which is the focus of the chapter. While being careful not to chill the dynamic effects in the market, case-specific factors are scrutinized by the Commission before arriving at excessiveness of price. Cost, profitability, industry average price, prices in similar markets, etc. though important, have not been found to be conclusive of excessive pricing. Unscientific market definition, presence of IPR and high-tech industries may render identification of excessive prices difficult. In regulated sectors, the Commission is cautious in intervening though it possesses the mandate. Peter and Singh also touch upon remedies for addressing the issue in the Indian context. Division of enterprise and compulsory licensing are remedies in extreme cases.