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LEAR Conference 2009

HOW MUCH CERTAINTY? 25 June 2009

Margaret BloomKing’s College London

Freshfields Bruckhaus Deringer

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How much certainty?

• How much certainty is desirable in competition rules?

• Can there be certainty with effects based approach?

• International consistency or inconsistency?

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“To be uncertain is to be uncomfortable, but to be

certain is to be ridiculous”

Chinese proverb

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How much certainty is desirable?

• Type I errors (over-enforcement) versus type II

• Implications for consumer welfare and enforcement costs

• Form based rules

– More precision/certainty

– Risk type I errors

– Or type II if “liberal”

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Effects-based approach (1)• Should avoid type I errors

• EU: since late 1990s effects-based for– Agreements– Mergers

• EU: unilateral conduct– New Guidance largely effects based

• US: effects based for– Agreements– Mergers– Conduct

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Effects-based approach (2)• May reduce legal certainty

• May increase costs of enforcement and private actions

• May increase type II errors if standard of proof too high

• But– Safe harbours and block exemptions– Presumptions– Rule of reason versus per se– Guidance and case precedents

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Safe harbours and block exemptions• How generous?

• EU block exemptions

– Revised over time

– Increase in use of economics

• EU cautious safe harbour for dominance

– 40% cf US 50%

• ICN 2007 report: 10% – 50%

• “Soft” safe harbours can be larger

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Presumptions of market power

• How well based economically?

– EU 50% presumption of dominance

• ICN 2007 report: presumptions of dominance

– 20% - 80%

– Should not be just “assessment of market shares”

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Rule of reason versus per se

• US per se → rule of reason

• June 2007 Leegin– RPM rule of reason

• EU: strictly no per se

• A81(1), then A81(3)– Even for ‘object’ cases

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International variety• Inconsistency reduces certainty

• Unilateral conduct starkest differences

• Safe harbours/presumptions dominance/SMP

• Is plausible theory of consumer harm required for intervention?– EU: likely consumer harm presumed from likely

anticompetitive foreclosure– US: does foreclosure of rivals demonstrate consumer

harm?

• How high is burden of proof?

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How to distinguish anticompetitive conduct from normal competition?

• Is the test?

– No economic sense?

– Profit sacrifice?

– As efficient competitor?

– Consumer harm?

– Disproportionality?

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What cost test? (1)• Single product rebates

• P < AAC (AVC or MC)

• How much above AAC for benchmark?

• EC A82 Guidance

– P < AAC = foreclosure

– AAC < P < LRAIC = investigate

– P > LRAIC = OK

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What cost test? (2) • Predation

• P < AAC (AVC or MC)

• How much above AAC for benchmark?

• Recoupment?

• ICN 2008 report: predatory pricing– 27/34 used P < AVC

– Many used P < AAC and P < ATC

– Recoupment: 15 required; 16 not required

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Some other questions

• Is there scope for agency to ‘abuse shop’?– Eg margin squeeze or predation or refusal to supply

– Contrast EU and US

• In what circumstances can dominant/SMP firm be required to supply?

• Bundled rebates?

• Is there a right for dominant/SMP firm to meet competitor’s prices?

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Conclusion • Major jurisdictions now mainly effects-based

• Most likely to – Protect competition effectively– Maximise consumer welfare

• But less predictable than form-based

• Need some more certainty through– Safe harbours and block exemptions– Presumptions– Guidance and case precedents

• Need greater consistency between jurisdictions