A Coherent Approach to the Antitrust Prohibition of Excessive Pricing by Dominant Firms

Abstract

The aim of this paper 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 paper 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). The paper 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.