Grobuoniškos kainodaros teisinai aspektai es anglų k
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Grobuoniškos kainodaros teisinai aspektai es anglų k

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1. Introduction

Predatory pricing one of the oldest conspiracy methods that competing large

businesses may inflict. The law that started regulating this malign form of

competition is dating back to 19th century nevertheless it is still complex

and controversial. After all, competing on price is the core essence of

competition and firms should not be deterred passing the efficiency – that

they have achieved – on to the price of a product. The law on predatory

pricing is enforced on the very thin ice where underneath is sheer

competition and above is abusing practice and it is important not to break

in. A firm has to raise itself an anxious question if it is dominant and

then to face a dilemma where both a price rise and a price cut might be

considered to be abusive. The dominant firm might simply argue that it is

competing – as it should do – whereas the complainant will argue that it

has departed from beneficial competition and is guilty of abusive

behavior[1].1.2 Elimination

In this assignment I have concentrated on EC law dealing with abuse of a

dominant position in relation to predatory pricing. I made some referances

to UK law as it gives some helphul guidelines in the enforcment of EC law.

Even more, some helpful insight on this issue I found in the practise of US

antitrus authorities (e.g. as for today, the rule of ’recoupment’ has not

been aplied yet by ECJ but its incidense is not a distant future).1.3 Method

All kinds of sources used in this assignment, such as official EU official

publications, literature and articles on this topic, will be evaluated in

terms of relevance and validity. The size of this paper does not allow me

to go into deep analysis, but hopefully I will provide myself with helpful

insights into this subject.1.4 Formulation of the problem

In order to show to what extent a dominant undertaking may engage in

predatory pricing practice it is important to define what is considered by

predatory pricing.

To the extent that single market integration has lifted previous legal and

institutional restrictions to entry into a national market, the dominant

firms in that market have no other choice but rely on strategic behaviour;

one of this kind is predatory behaviour towards existing and potential

competitors. It has been aimed at new entrants and firms already operating

in the markets. This usually takes two forms[2].

Firstly, there can be restriction of access to a complimentary asset by a

dominant firm. This asset can be characterised by essential importance in

reaching the end customer, and most importantly – cannot be duplicated –

either because it is in scarce supply or it has a form of statutory or

monopoly. The monopolist controlling an essential complementary asset

naturally will have an incentive to prevent the access of competing firms

by introducing disadvantageous terms. This may be expressed by refusal to

supply an asset, setting supranormal charges, use of vertical restrains

(e.g. exclusive dealing agreements)

Secondly, and of the most importance to this paper, there can be

exclusionary pricing. That is, a dominant firm may preclude the entry of

rivals into the given market directly through its pricing behaviour, by

setting prices for its products in the market below the level of economic

rationality so it is not worth for a rival to compete. This can be done by

introducing non-linear pricing structures such as selective discounts and

fidelity rebates (which reward customers in exchange for not purchasing

from rivals). The other form includes predatory pricing, where the dominant

firm adopts an aggressive prising strategy as a response to entry. Even

more, the dominant firm may implicitly imply of its predatory intents to

potential rival. Due to the constrain of limits to this paper, I

investigate only predatory price-cutting (selling at a loss). Other prising

practices as selective price-cutting to retain customers (but not at loss)

and vertical margin squeezing are excluded.2 Predatory price-cutting

Thus, the idea of predatory prising is simple enough: that a dominant firm

that has been charging for its products supra-competitively reduced prices

to a loss making level when faced with competition from an existing

competitor or a new entrant on the market and then having disciplined the

competitors the dominant firm raises its prices again, accumulating

supranormal profits until the next wave of attacks[3].2.1 Justifications for predatory pricing

In principle, any competing firm may seek to meet possible competition

through conduct which is meant to signal unequivocally that entry would be

met with aggressive retaliation, or that its advantage is such that the

rival would not be able to compete effectively, were it to enter. Mainly

these signals are expressed in pricing behaviour in the market. The

important economic issue is when and under what circumstances these

strategies may be deemed justifiable and pro competitive. Unlike

investment in capacity, R&D or advertising, which may provide the

competitive advantage, pricing is a strategic weapon. This weapon is useful

of its rapid application whereas other means might require considerable

amount of time.
Pricing strategy is one of the most viable instruments that

undertakings have in their disposition and they should not be deprived of

possibility of inflicting it, even if it is predatory.2.3 Proving of predatory pricing

The main problem with predation is that this strategy may be detected by

competition authorities. And sometimes it might be legal and sometimes

illegal. If firms could be sure that predatory pricing was always detected

and proved illegal, then such strategy would never be used. However, the

proving of predatory pricing is quite complicated and there is no single

satisfactory test or technique that a firm is predating.

The best-known test is the Areeda-Turner rule, were by prices which are

below a firm’s average variable cost (‘AVC’) are deemed to be predatory. In

fact, there are situations in which pricing below marginal cost is

legitimate, and therefore this test may not be considered safe. To solve

this problem, from 1993 the US Supreme Court has established the recoupment

test[4] that relegated the Areeda-Turner test to ancillary role. But as we

can see the EU competition authorities have declined to adopt the Areeda-

Turner test, according to which pricing above AVC should be presumed

lawfull. Other two rules have been used. Namely, AKZO rule an Incremental

Cost standard.AKZO test

The crucial problem is the need to identify an appropriate measure of the

firm’s cost – to be compared with the prices. This always contentious issue

in predation cases, where there is a sort ‘indistinguishability problem’

(the dominant firm will always argue that its pricing conduct is in fact

compatible with keen competition), and therefore much hinges on the level

of cost. These types of difficulties are well exemplified by the case of

AKZO[5] (the largest European supplier of bleaching agents), which was

investigated following a complaint that its conduct threatened to force out

business a smaller UK competitor, Engineering and Chemical Supplies Ltd

(ECS). The Commission here decided that pricing above average variable cost

(‘AVC’) but below average total cost (‘ATC’) could be abusive were the was

evidence of an intention on the part of the dominant firm to eliminate a

competitor[6]. The Commission suggested that even a price above ATC might

be predatory when assessed in its particular market context. As the ECJ

ruled on the appeal by AKZO, the prices were predatory because there was no

evidence that they were necessary in order to match competitors’ offers and

that there was evidence of an intention to drive ECS out of the market.

Now, rises the question was is meant by “matching competitors’ offers”.

Clear application of AKZO test is seen in Wanadoo[7] case and can be cited

as a general rule: ‘Community case law applies two tests to establish

whether an abuse in the form of predatory predatory pricing has been

committed: where variable costs are not covered, an abuse is automatically

presumed; where variable costs are covered, but total costs are not, the

pricing is deemed to constitute an abuse if it forms part of a plan to

eliminate competitors.’Legitimisation for predatory pricing

In the EC law, there are no clear guidelines on what would be legitimate

meet competition by predatory pricing. Some helpful and more elaborated

insight can be drawn from UK legislation. UK Competition Act of 1998 is in

great conformity with EC regime this enables UK competition authorities to

apply Community competition law when making decisions under the Act[8]. In

this Act, Section 4 of the Guideline Assessment of Individual Agreements

and Conduct [9] deals with predation. The Guideline is more sophisticated

than the case law of ECJ. Here we can find some possible justifications[10]

even when pricing below AVC:

– Loss leading were cutting the price of one product may increase sales

complimentary products;

– Short run promotions often involve selling below AVC for a limited

period and are widely used in many markets. However, a series of

short term promotions could, taken together, amount to a predatory

strategy;

– Prices that mach inefficient entrant. Some markets are able to support

only one or two undertakings because, for example, there are

significant economies of scale. The dominant firm would then have the

choice of remaining in the market, and incurring losses, or exiting

the market, perhaps leaving the market to be supplied by a less

efficient new entrant.

– Mistakes in determining the correct market price. In some cases an

undertaking may find itself selling at below its variable costs

because of unanticipated increases in input costs, or unanticipated

reductions in demand.;

– Low prices that are attributable to network externalities. There are

some services (such as telecommunications networks) where the addition

of more customers adds to the value of the service sold to other

customers. In these circumstances, it can be profitable for the

undertaking to sell part of the service to customers at below average

variable cost;

– The undertaking is making an incremental profit. If the particular

action
complained about is incrementally profitable, it is

unlikely that it is predatory. The competition authorities still need

to be convinced, however, that the reduction in losses will shortly

result in the undertaking covering its average variable costs.

Indeed, the Commission gives attribute to these justifications. In Tetra

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