Comments on General Framework
Professor Elhauge
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Most intellectually ambitious effort by a government
agency to advance analysis in competition law and
economics since the 1982 U.S. merger guidelines.
Revealed preference – We are extensively excerpting
it in our forthcoming book on Global Antitrust Law
& Economics.
Here, though, I will focus on critique: areas where I
think the Discussion Paper should be further clarified.
But I am decidedly not here to say you should be
more like the United States.
Elhauge on US Monopolization Standards
U.S. "doctrine has been governed by standards that
are not just vague but vacuous.”
“Vague standards [are] uncertain around
the edges … but at least offer genuinely
guiding normative principles.” E.g., how
many hairs must one lose to be “bald”?
“Vacuous standards … fail to identify a
coherent norm that provides any real help
in distinguishing bad behavior from
good.” E.g, suppose we didn’t even
know what constitutes “hair”?
Issues with DP Framework of Sliding Scales
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Test of likely anticompetitive effects -- sliding scale
of 3 factors: the nature of the conduct, its incidence,
and the defendant’s degree of dominance. ¶59.
Whether to condemn – sliding scale of actual and
likely anticompetitive effects. “The longer the
conduct has already been going on, the more weight
will in general be given to actual effects.” ¶55.
Sliding scales leave standards unnecessarily vague
(though not vacuous). Also fail to fully track
necessary conditions for likely and actual
anticompetitive effects, which would make standards
both less vague and more desirable.
Substantial Foreclosure Is Necessary
Condition, Not Just a Relevant Factor
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Consider conduct that forecloses 1% of the market.
No anticompetitive effects are likely even if the
nature of the conduct is highly foreclosing and the
defendant is a 100% monopolist.
But sliding scale leaves open the risk that an
adjudicator might condemn.
Substantial market foreclosure should be a necessary
condition rather than one factor to be weighed in a
sliding scale.
Vagueness of “Incidence” Factor
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“incidence” is “the extent to which the
dominant company is applying it in the market,
including the market coverage of the conduct
or the selective foreclosure of customers to
newcomers or residual competitors.” ¶59.
1. What is “market coverage”?
2. What
W is substantive metric for judging what
degree of market coverage suffices?
3. Why should selectivity matter, let alone
suffice?
What is “market coverage”?
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Suppose a firm uses volume-based discounts with
50% of the market, half of which have a foreclosing
“suction” effect under the DP.
Is the incidence 50% and then weighed in the sliding
scale against the half-foreclosing nature of the
conduct? If so, too vague.
Or is the incidence 25%? If so, clearer to speak of
the “foreclosure share,” defined as the share of the
market covered by agreements that meet the DP tests
for having a foreclosing nature.
What is Substantive Metric for Knowing What
Foreclosure Share Is Enough?
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Should turn not on abstract numerology but on whether the
foreclosure share indicates likely anticompetitive effects given
relevant market economics. Three necessary conditions:
1. Entry/Expansion Barriers in foreclosed market high enough
that rivals could not easily overcome foreclosure – e.g., if can
easily create own distributors that can instantly expand to supply
whole market effectively, then foreclosing distributors irrelevant.
2. Economies of Size high enough that foreclosure share likely to
impair the competitiveness of rivals. ¶59 acknowledges that
economies of scale, scope, or networks are “relevant.” But really
are a necessary condition: if nonexistent in market or not affected
for actual rivals, then seemingly big foreclosure number won’t
impair rival competitiveness.
3. Impairing rival competitiveness matters – must be likely to
adversely affect market prices, output or quality.
Why Should Foreclosure Selectivity Matter,
Let Alone Suffice?
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Market definition should include all the customers
that can reasonably switch between the dominant firm
and rivals.
If only some of those customers are selectively
foreclosed, that should not matter because rivals can
turn to other customers (and later back to the first
customers when their selective agreements end).
If some set of customers cannot switch, that should be
reflected in a proper market definition rather than in
the imprecise and backhand way of giving unclear
weight to the selectivity of foreclosure.
Evidence on Actual Anticompetitive Effects
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DP provides for sliding scale of likely and actual
anticompetitive effects, with latter getting greater weight
the longer the conduct has been going on. ¶55.
But if the conduct has had ample time to have any
anticompetitive effects it might theoretically be thought
likely to cause, then persuasive proof on actual
anticompetitive effects should get 100% weight.
Such proof on anticompetitive effects is empirical
evidence that disproves the theoretical hypothesis of
likely anticompetitive effects.
Otherwise we have a vague sliding scale – unclear how
adjudicators might trade off varying proof of actual and
likely anticompetitive effects after any given length of
time.
Meeting Competition Defence
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Proportionality test vague.
Defence seems to describe the sort of selective
price-cutting the DP elsewhere finds grounds
for condemnation.
Unresolved tension makes resulting test quite
uncertain.
Issues with Efficiency Defence
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1. Why must conduct be “significantly” more
efficient than less restrictive alternatives? ¶86.
„ A small efficiency gain could offset any smaller
anticompetitive effect.
2. Why are efficiencies deemed “highly unlikely” to
outweigh harm to consumers or rivals if a firm has
market position approaching monopoly? ¶¶90-91.
„ If a firm has 90% market share, but forecloses a
small enough market share that any
anticompetitive effects are small, then small
efficiencies may suffice to outweigh any harm.
„ What affects the above likelihood is the size of the
anticompetitive effects, not the degree of
defendant market power.
Issues with Efficiency Defence (continued)
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3. The fourth condition for an efficiency defence is that
competition in a substantial part of the products won’t be
eliminated. ¶91.
„ What does this mean? Meant to cover cases where
“competition is eliminated [and] the competitive
process is brought to an end," but wouldn’t that require
eliminating rivals from the market entirely rather than
from "a substantial part" of the products concerned?
„ Why require 4th condition at all given that meeting first
three conditions means the conduct makes consumers
better off? ¶¶84-90. DP presumes that the requisite
elimination of competition will cause a long run harm
to consumer welfare that exceeds any short term
benefit. ¶91. But this empirical premise lacks any
apparent basis in antitrust economics.
Elhauge Recommendations
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Likely Anticompetitive Effects Should Require
Proving Four Elements:
1. Substantial market foreclosure = share of market
covered by agreements that meet DP tests for having
a foreclosing nature.
2. Entry/Expansion Barriers in foreclosed market
sufficiently high
3. Economies of Size high enough that a competitive
number of rivals could not have achieved the relevant
efficiencies using the unforeclosed market.
4. Any impairment of rival competitiveness was
likely to adversely affect market prices, output or
quality.
Elhauge Recommendations (continued)
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Persuasive proof on actual anticompetitive effects
should govern instead of likely anticompetitive
effects if the conduct has had enough time to have
any anticompetitive effects that were thought likely.
Selectivity of foreclosure should be irrelevant.
Efficiency defence should satisfied whenever
defendant can show conduct had efficiencies that
offset any actual or likely anticompetitive effect.
(Note: Evidence of actual effects, like a decline from
but-for price levels, can show the efficiencies did
offset the posited anticompetitive effects).
Need for Caution on Global Markets
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Suppose EC and US each choose competition laws
that optimize the domestic tradeoff between
overdeterring desirable conduct and underdeterring
undesirable conduct.
Then each antitrust regime is likely to err equally
toward over- and underregulation.
But given concurrent jurisdiction on global markets,
the net effect is to encourage global overregulation
because it suffices that one of the regimes
overregulates that conduct.
Reason to generally err on side of caution when
addressing conduct on global markets.