Consumer welfare, standard of proof and the objectives of competition policy

European Competition Journal

Volumn 1, Issue 1, 2005, Pages 153-177

  Pera, Alberto ^a   Auricchio, Vito ^a  

^a NONE   (Italy)

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EID: 85011552310     PISSN: 17441056     EISSN: 17578396     Source Type: Journal    
DOI: 10.5235/ecj.v1n1.153     Document Type: Article

References (147)

1. A sample includes PF Kunzlik, “Globalization and Hybridization in Antitrust Enforcement: European ‘Borrowings’ From the U.S. Approach” [2003] The Antitrust Bulletin 319
2. EM Fox, “Can We Solve the Antitrust Problems of Globalization by Extra Territoriality and Cooperation? Sufficiency and Legitimacy” [2003] The Antitrust Bulletin 355
3. ET Sullivan, “Antitrust Remedies in the U.S. and EU: Advancing a Standard of Proportionality” [2003] The Antitrust Bulletin 377
4. LJ Raskind, “Comment: Convergence and Harmonization of Antitrust Principles from the Bottom—Moving from Patchwork toward Network” [2003] The Antitrust Bulletin 439
5. CA James, “International Antitrust in the 21st Century Cooperation and Convergence”, address before the OECD Global Forum on Competition, Paris, France 17 October 2001.
6. For a survey of the debate, see Ehlermann and Laudati (ed) Objectives of Competition Law (Florence, The Robert Schumann Centre at the European University Institute, 1997).
7. See also K van Miert, European Competition Policy: a Retrospective and Prospects for the Future, 1999 (New York, Fordham University School of Law, 1999), 1
8. M Monti, Convergence in EU–US Antitrust Policy Regarding Mergers and Acquisitions: an EU Perspective (2004).
9. For instance, in the Guidelines on Vertical Restraints ([2000] OJ C291, 1) the Commission states that: “The protection of competition is the primary objective of EC competition policy, as this enhances consumer welfare and creates an efficient allocation of resources. In applying the EC competition rules, the Commission will adopt an economic approach which is based on the effects on the market; vertical agreements have to be analysed in their legal and economic context.” For a commentary on the new approach followed by the Commission in the Guidelines
10. see R Whish, “Regulation 2790/99: The Commission’s ‘New Style’ Block Exemption for Vertical Agreements” (2000) 37 Common Market Law Review 887.
11. Commission decision of 30 July 1997, Boeing/McDonnell Douglas IV/m877 (1997) 16. For a discussion,
12. WE Kovacic, “Transatlantic Turbulence: The Boeing–McDonnell Douglas Merger and International Competition Policy” (2001) 69 Antitrust Law Journal 805
13. EM Fox, “Lessons from Boeing: A Modest Proposal to Keep Politics Out of Antitrust”, Antitrust Report, November 1997
14. SK Mehra, “Extraterritorial Antitrust Enforcement and the Myth of International Consensus” (1999) 10 Duke Journal of Comparative & International Law, 191.
15. Commission decision of 3 July 2001, General Electric/Honeywell COMP/M.2220 (2004).
16. See LD Scheffmann, Dialogue and Consultation Facilitates Convergence in the Analysis of Mergers in the US and EU, available at http://www.ftc.gov
17. DP Majoras, GE-Honeywell: the U.S. Decision, available at http://www.ftc.gov
18. RJ Reynolds and JA Ordover, “Archimedean Leveraging and the GE/Honeywell Transaction” (2002) 70 Antitrust Law Journal 171.
19. US: United States v Microsoft Corp 253 F 3d 34, 59 (DC Cir 2001); Europe: Commission decision of 24 March 2004, Case C–3/37/792 Microsoft.
20. Verizon Communications Inc v Law Offices of Curtis v Trinko LLP, 540 US (2004). For a commentary of the case see EM Fox, The Trouble with Trinko (Chicago, IL, American Bar Association, 2004).
21. D Mile Medical Co v John D Park & Sons Co, 220 US 373 (1911).
22. United States v Arnold, Schwinn & Co, 388 US 365 (1967).
23. International Salt Co v United States, 322 US 392 (1947).
24. The crucial example is provided by the formalistic approach developed by the European Commission in the analysis of agreements falling under Art 85 (now 81). For a review and critical comments see A Pera and M Todino, ‘Enforcement of EC Competition Rules: Need for a Reform?’ in B Hawk (ed), International Antitrust Law and Policy (Fordham Corporate Law, 1996)
25. M Siragusa, Rethinking Art 85: Problems and Challenges in the Design and Enforcement of the EC Competition Rules, in International Antitrust Law and Policy (Fordham Corporate Law, 1997).
26. Among the most influential works, see R Bork, The Antitrust Paradox (Basic Books, 1978)
27. GJ Stigler, The Organization of Industry (Chicago, IL, University of Chicago Press, 1968).
28. See R Posner, “The Social Cost of Monopoly” (1975) 83 Journal of Political Economy 807, 27
29. WM Landes and R Posner, “Market Power in Antitrust Cases” [1981] Harvard Law Review 937
30. R Posner, Antitrust Law (Chicago, IL, University of Chicago Press, 1976). For a sceptical view about the effects on antitrust policy on consumer welfare
31. RW Crandall and C Winston, “Does Antitrust Policy Improve Consumer Welfare? Assessing the Evidence” (2003) 17 Journal of Economic Perspectives 3.
32. Board of Trade of the City of Chicago v United States, 246 US 231, 38 S Ct 242 (1918).
33. D Wood, The Incredible Shrinking Per Se Rule: Is An End In Sight? (Chicago, IL, American Bar Association, 2004).
34. PE Areeda and H Hovenkamp, Antitrust Law (New York, Aspen Law & Business, 2002).
35. H. Hovenkamp, Federal Antitrust Policy (West Group, 1999).
36. Continental TV Inc v GTE Sylvania Inc 433 US 36 (1977). For discussion
37. RH Lande, “GTE Sylvania and the Empirical Foundations of Antitrust” (2001) 69 Antitrust Law Journal, 2001 899
38. SF Ross, “Network Economic Effects and the Limits of GTE Sylvania’s Efficiency Analysis” (2001) 69 Antitrust Law Journal 945.
39. State Oil v Khan, 522 US 3 (1997) at 15.
40. See also, RM Steuer, “Khan and the Issue of Dealer Power” (1998) 66 Antitrust Law Journal 538
41. RD Blair and JE Lopatka, “Albrecht Overruled—At Last” (1998) 66 Antitrust Law Journal 537
42. WS Grimes, “Making Sense of State Oil Co. v Khan: Vertical Maximum Price Fixing Under Rule of Reason” (1998) 66 Antitrust Law Journal 567
43. ME Roszkowski, “State Oil Co. v Kahn and the Rule of Reason: the End of Intrabrand Competition?” (1998) 66 Antitrust Law Journal 613.
44. Jefferson Parish Hospital District No 2 v Hyde 466 US 2 (1984).
45. United States v Microsoft Corp 253 F 3d 34 (DC Cir 2001).
46. For a critical approach of the case, see D Wood, supra n 16. For a perspective of the procedural differences between per se and rule of reason see SD Susman, An Antitrust Trial Lawyer’s Perspective on Per Se and Rule of Reason (Chicago, IL, American Bar Association, 2004).
47. Ryco Mfg Co v Eden Servs 823 F 2d 1215 (8th Cir 1987).
48. Ryco Mfg Co v Eden Servs 823 F 2d 1215 (8th Cir 1987), at 1233.
49. United States v Sewell Plastics, 720 F Supp, 1218–19.
50. Broadcast Music, Inc v Columbia Broadcasting System, Inc 441 US 1 (1979).
51. See also GJ Werden, “Antitrust Analysis of Joint Ventures: An Overview, in Symposium: Antitrust Scrutiny of Joint Ventures” (1998) 66 Antitrust Law Journal 701.
52. D Wood, supra n 16.
53. United States v Aluminium Co of Alcoa, 148 F 2d 416 (2nd Cir 1945).
54. United State v Grinnell Corp 384 US 563, 576 n 7 (1966); United States v Paramount Pictures, 334 US 131, 173 (1948); United States v Griffith, 334 US 100, 106 (1948).
55. For a review of the US case law on monopolisation see OECD, Abuse of Dominance and Monopolization (1996).
56. Aspen Skiing Co v Aspen Highlands Skiing Corp 472 US 585, 605 (1985).
57. Judgment of 8 July 1971, Case 78/70 Metro v Deutsche Grammophon [1971] 470.
58. Judgment of 8 June 1982, Case 258/78 LC Nungesser Kg E Kurt Eisele v Commission of the European Communities [1982] 2015.
59. Judgment of 29 January 1986, Case 161/84 Pronuptia de Paris v Schillgallis [1986], 353.
60. Judgment of 28 February 1991, Case C–234/89 De Limitis v Henninger Bräu [1991] I–935.
61. Case T–374/94, European Night Services v Commission [1998] ECR II–3141, [1998] 5 CMLR 718.
62. Guidelines on the applicability of Art 81 of the EC Treaty to horizontal cooperation agreements, [2001] OJ C3, 2, para 7.
63. Regulation on the application of Art 81(3) to certain categories of vertical agreements and concerted practices, Reg 2790 [1999] and the Guidelines on Vertical Restrictions [2000] OJ C291, 1.
64. In this respect, EC Regulation 772/2004 [2004] OJ L123, 11 has introduced safe harbour market shares thresholds (respectively 20% and 30% depending on whether the parties to the agreement are competitors, Art 2) and has reduced the list of restrictions (Art 3).
65. OJ L1, 1.
66. See D Gerber, Law and Competition in Twentieth Century Europe (Oxford, Clarendon Press, 1998).
67. Judgment of 3 July 1991, Case C–62/86 AKZO v Commission of the European Communities [1991] I–3359. The case is discussed below in section D.2(a).
68. Case T–65/98, Van den Bergh Foods v Commission.
69. Judgment of 26 November 1998, Case C–7/97 Bronner v Mediaprint [1998] I–7791.
70. Judgment of 17 December 2003, Case T–219/99 British Airways v Commission of the European Communities, not yet reported, and judgment of 30 September 2003, CaseT–203/01 Michelin v Commission of the European Communities, not yet reported.
71. See J Kallaugher and B Sher, “Rebates Revisited: Effects and Exclusionary Abuse Under Art 82” (2004) 25 European Competition Law Review 263
72. L Gyselen, “Rebates: Competition on the Merits or Exclusionary Practice?” 8th EU Competition Law Policy Workshop, June 2003.
73. See Chang, Evans and Schmalensee, “Has The Consumer Harm Standard Lost Its Teeth”, MIT Working Paper No 4263-02 (2002)
74. PL Joskow, “Transaction Cost Economics, Antitrust Rules, and Remedies” (2002) 18 Journal of Law, Economics & Organization 95.
75. R Bork, supra n 12. GJ Stigler, supra n 12.
76. S Salop and D Scheffman, “Raising Rivals’ Costs” (1983) 73 American Economic Review 267
77. S Salop and T Krattenmaker, “Competition and Cooperation in the Market for Exclusionary Rights” (1986) 76 American Economic Review 109
78. T Krattenmaker, R Lande and S Salop, “Monopoly Power and Market Power in Antitrust Law” (1987) 76 Georgetown Law Journal[OK?] 241
79. S Salop and T Krattenmaker, “Analyzing Anticompetitive Exclusion” (1987) Antitrust Law Journal.
80. Ball Memorial Hospital, Inc. v Mutual Hospital Insurance, Inc 784 F 2d 1325, 1338 (7th Cir 1986).
81. Chang et al, supra n 45 and GJ Werden, “Exclusionary Pricing Tactics: United States Antitrust Law”, Fourth Annual Conference on International and Comparative Competition Law, 10 May 2004, argue that this is the standard generally followed in the US courts. In Brooke Group Ltd v Brown & Williamson Tobacco Corp 509 US 209, 222 (1993), the Supreme Court introduced a strict standard for a showing of the anti-competitiveness of a practice, in the particular case a predation conduct, requiring first evidence that pricing is below cost. Secondly, it required the plaintiff to show that the firm engaged in predatory pricing had a reasonable expectation, or that there is danger of recouping its investment in below-cost prices. Therefore, finding that prices are low enough to inconvenience a competitor is not enough. The authors suggest that such a high standard was justified by the fact that, given the uncommon nature of predatory practice, the Court was especially concerned with judicial mistakes that would wrongly condemn procompetitive price-cutting. Similarly, in California Dental Association v Federal Trade Commission, the Supreme Court adopted a rather strict test. The Federal Trade Commission (FTC) condemned as anticompetitive some advertising restrictions, including restriction affecting price advertising, adopted by a dentists’ association in California. The Supreme Court reversed the finding of the Ninth Circuit Court endorsing the FTC allegation, on the basis of a lack of empirical evidence of consumer harm. For an analysis of California Dental
82. see TJ Muris, “The Rule of Reason After California Dental” (2000) 68 Antitrust Law Journal 527
83. J Kattan, “From Indiana Dentists to California Dental: Presumptions and Competitive Effects in Antitrust Law” (2001) 69 Antitrust Law Journal 735.
84. PL Joskow, supra n 44. According to Joskow the risk of evaluation mistakes is high also in the choice of antitrust remedies, since “the courts may apply remedies that either do not lead to performance improvements or actually make market performance even worse” (PL Joskow, supra n 44, 99).
85. In particular, Joskow argues that often antitrust analysis gives too little weight to empirical analysis of economic theorising: “the failure to incorporate theoretical and empirical research in transaction cost economics makes it very difficult to evaluate the kinds of trade-offs between market power and efficiencies that are relevant to applying good legal rules...”, PL Joskow, supra n 44, 105. Joskow holds that the risk of committing evaluation errors in the assessment of business practices is a consequence of the specific features of antitrust enforcement policy. In particular: (i) antitrust is not concerned with the elimination of all market imperfections, since this would imply excessive transaction costs; (ii) antitrust rules have a deterrent objective and their success depends on the likelihood that companies take into account antitrust risks in the adoption of their commercial policy; and (iii) in order to encourage companies to correctly assess antitrust risks, the distinction between lawful and restrictive conduct should be made clear.
86. See Chang et al, supra n 45. See also Jacobson, “Exclusive Dealing, ‘Foreclosure’, and Consumer Harm” (2002) 70 Antitrust Law Journal 311.
87. Continental TV Inc v GTE Sylvania Inc, supra n 16.
88. Beltone Electronics Corp. In re-, 100 FTC 68 (1982).
89. Jacobson, supra n 52.
90. GJ Werden, supra n 25.
91. United States v Topco Associates 405 US 596 (1972). See D Wood, supra n 16.
92. Guidelines on the application of Art 81(3) of the Treaty [2004] OJ C101, 97, para 18.
93. Guidelines on the application of Art 81(3) of the Treaty, supra n 57, para 22.
94. Guidelines on the application of Art 81(3) of the Treaty, supra n 57, para 24.
95. As concerns efficiencies, the Guidelines on Horizontal Agreements provide a non-exhaustive list of efficiencies that can be evaluated as outweighing elements of the restrictions of competition deriving from agreements between competitors. In particular, the nature of the efficiency varies according to the scope of the agreement: (i) cost savings, exchange of know-how, product improvement and technologies development should derive from R&D agreements; (ii) economies of scope and improvement of production technologies should originate from production agreements; (iii) economies of scale are expected to stem from purchasing agreements; (iv) commercialisation agreements are expected to bring about efficiencies at the distribution level and, in exceptional circumstances, even price-fixing may be accepted where it is indispensable for the integration of other marketing functions (Guidelines, para 151); (v) standardisation agreements should yield economic interpenetration in the common market, development of new markets and improved supply conditions (Ibid, para 169).
96. Guidelines on Horizontal Agreements, supra n 60, para 133.
97. Guidelines on Horizontal Agreements, supra n 60, para 171.
98. Guidelines on Horizontal Agreements, supra n 60, para 116(4–5).
99. Guidelines on Horizontal Agreements, supra n 60, para 172. In addition, the Commission is of the advise that exclusive dealing may be necessary in order to realise economies of scale in distribution that result in lower retail prices (Ibid, para 116(6)), and that free-riding avoidance is a possible justification for exclusive dealing and similar restrictions (Ibid, paras 2–4 and 137).
100. OECD, supra n 28, 219.
101. Supra n 48. See also Matsuhita Electric Industrial Co Ltd et al v Zenith Radio Corporation et al 475 US 574, 106 S Ct (1986).
102. JB Baker, “Predatory Pricing After Brooke Group: An Economic Perspective” (1994) 62 Antitrust Law Journal 585. For a recent analysis of predatory pricing in US case law, see GJ Werden, supra n 48.
103. Judgment of 3 July 1991, Case C–62/86 AKZO v Commission of the European Communities [1991] I–3359.
104. Judgment of 3 July 1991, para 72.
105. V Korah, EC Competition Law and Practice (Oxford, Hart Publishing, 2000), 126.
106. G Niels and AT Kate, “Predatory Pricing Standards: Is There a Growing International Consensus?” [2000] The Antitrust Bulletin 787.
107. Judgment of 14 November 1996, Case C–333/94 P Tetra Pak v Commission of the European Communities [1996] I–5951.
108. Judgment of 14 November 1996, para 44.
109. Submission by the European Commission to the OECD Competition Committee (Directorate for Financial, Fiscal and Enterprise Affairs), “Predatory Pricing Issues for a Balanced and Practical Enforcement Policy” (2004).
110. See OECD, Loyalty and Fidelity Rebates, 4 February 2003, available at www.oecd.org
111. Judgment of the Supreme Court of the United States on 24 March 2003 in Case 02–1865 3M Company FKA Minnesota Mining and Manufacturing Company v LePage’s Incorporated et al.
112. Available inter alia at www.crowell.com/pdf/amicus.pdf
113. See L. Gyselen, supra n 43.
114. See Judgments of 17 December 2003, British Airways v Commission of the European Communities, and of 30 September 2003, Michelin v Commission of the European Communities, supra n 43.
115. British Airways v Commission of the European Communities, supra n 43, para 285.
116. See Michelin v Commission of the European Communities, supra n 43, 239–41.
117. See British Airways v Commission of the European Communities and Michelin v Commission of the European Communities, supra n 43.
118. JP Griffin and LT Sharp, “Efficiency Issues in Competition Analysis in Australia, the European Union, and the United States” (1996) 64 Antitrust Law Journal 649.
119. For an analysis at EU level, see JS Venit, “The Role of Efficiencies in Merger Control” in G Drauz and M reynolds (eds) EC Merger Control: A Major Reform in Progress (Richmond/International Bar Association)
120. C Luescher, “Efficiency Considerations in European Merger Control—Just Another Battle Ground for the European Commission, Economists and Competition Lawyers?” (2004) 25 European Competition Law Review 72.
121. Commission decision of 30 July 1997, Boeing/McDonnell Douglas, supra n 4.
122. See WE Kovacic, EM Fox, SK Mehra, all supra n 4.
123. See D Scheffmann, DP Majoras, RJ Reynolds and JA Ordover, all supra n 5.
124. Assistant Attorney General Charles A James declared that: “We concluded that the merged firm would have offered improved products at more attractive prices than the merged firm’s competitors would then have a great incentive to improve their own product offerings. This, to us, is the very essence of competition, and no principle is more central to US law than that antitrust protects competition not competitors.”
125. Commissioner’s Monti stated that: “The merger between GE and Honeywell... would have severely reduced competition in the aerospace industry and resulted ultimately in higher prices for customers, particularly airlines” (Decision of 3 July 2001, M 2220).
126. Judgment of 6 June 2002, Case T–242/99 Airtours plc v Commission of the European Communities [2002] II–2585.
127. For a discussion of the case, see P. Christensen and V Rabassa, “The Airtours Decision: Is There a New Commission Approach to Collective Dominance?” (2001) 22 European Competition Law Review 227.
128. M Motta, “EC Merger Policy and the Airtours Case” (2002) 23 European Competition Law Review 199.
129. Airtours plc v Commission of the European Communities, supra n 87, paras 85–88.
130. Airtours plc v Commission of the European Communities, supra n 87, para 173.
131. Judgment of 22 October 2002, Case T–310/01 Schneider Electric SA v Commission of the European Communities.
132. See F Ragolle, “Schneider Electric v Commission: The CFI’s Response to the Green Paper on Merger Review” (2003) 23 European Competition Law Review 176.
133. Judgment of 25 October 2002, Case T–5/02 Tetra Laval BV v Commission of the European Communities [2002] II–4381.
134. In this respect, as outlined above, the new guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings give great weight to the role of efficiencies in the assessment of mergers ([2004] OJ C31, 5).
135. Eastman Kodak Co v Image Technical Services, 504 US 451, 112 S Ct 2072 (1992).
136. See also SC Salop, “The First Principles Approach to Antitrust, Kodak, and Antitrust at the Millennium” (2002) 70 Antitrust Law Journal 187.
137. The Commission decision is reported in the European Commission XXVth Report on Competition Policy (1995), 140.
138. The Commission decision is reported in Competition Policy Newsletter (1999), No 1, 35.
139. RH Lande, “Chicago Takes It On the Chin: Imperfect Information Could Play a Crucial Role In the Post-Kodak World” (1993) 61 Antitrust Law Journal, 193
140. F Denozza, “Consumers’ Transaction Costs at The Intersection of Antitrust and Intellectual Property” Siena Memos and Papers on Law & Economics.
141. Verizon Communications Inc v Law Offices of Curtis v Trinko LLP, supra n 7.
142. Judgment of 26 November 1998, Case C–7/97 Bronner v Mediaprint [1998] I–7791.
143. Judgment of 29 April 2004, Case C–418/01 IMS Health GmbH & Co OHG v NDC Health GmbH & Co KG, not yet reported.
144. See Judgment of 17 December 2003, Case T–219/99 British Airways v Commission of the European Communities, supra n 43.
145. LC Nungesser Kg E Kurt Eisele v Commission of the European Communities, supra n 31.
146. De Limitis v Henninger Bräu, supra n 33.
147. Pronuptia de Paris v Schillgallis, supra n 32.