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Iva Kovandova – A Brief Comparative Analysis of Predatory Pricing Rules in the EU and the US

Predatory pricing is a competition practice where a firm prices its products below their actual costs so that its competitors cannot keep up and are forced to exit the market. Once competitors are eliminated, the predator, now in the absence of competition, can later increase the price of its own products and recover the losses incurred during its previous low pricing strategy. Predatory pricing is a controversial issue for two main reasons: from an economic perspective, there is no universal consensus that such a practice can ever constitute a rational pricing strategy. From a legal perspective, even when predation is a rational pricing strategy, it is not always clear under which circumstances predation has a negative impact on competition. The legal rules against predatory pricing in the EU and the US have been established by the leading precedent cases in AKZO[1] and the US Brooke.[2]

By and large, the treatment of predatory pricing in the above jurisdictions follows common and distinguished patterns. In the US, it has been more difficult to persuade the Courts to intervene against predatory pricing, while being aware of the potential to chill competition in the long run. In contrast, the European Court of Justice has been more pro-active in condemning predatory pricing whilst protecting individual competitors.

The US rulings preceding Brooke could be interpreted as similar to the EU approach. Multiple goals of competition law without a clear hierarchy, a discernible protection of competitors, and heavy reliance on the intention of the alleged predator – all of these are shortcomings of the old US case-law, which are mirrored in the leading AKZO judgment of the ECJ. Nevertheless, the US Courts moved on and, therefore, the ruling in Brooke offered clear guidance on dealing with predatory pricing claims, i.e. proving both pricing below cost and the possibility of a recoupment of losses by the predator. The US Supreme Court embraced consumer welfare as the predominant objective of antitrust law and devised a rule that would efficiently punish as anti-competitive only behaviour that has the potential to be harmful to competition. The subsequent endorsement of the adopted rule, in particular as it regards the excessive exigency of evidence, demonstrated that it has become extremely difficult to succeed with a predatory pricing claim. Nevertheless, the rules on predatory pricing remained largely unchanged, and Brooke is still good law because the US Courts are wary of over-enforcing the law.[3] The influence of the Chicago School, which favours a ‘hands-off’ approach and which rejects predatory pricing as an irrational pricing strategy, remains quite strong in US rulings.

The EU rules devised against predatory pricing mirror a certain degree of uncertainty; it is often unclear what they aim to achieve in practice. In AKZO, the ECJ adopted a cost-based test, but without an additional requirement of recoupment of losses. The ECJ has focused foremost on harm to competitors, rather than on protecting competition as such. This can be deducted from a factual assessment of the AKZO case and from a consideration of the role played by the objective intention of the predator in the overall analysis of the anti-competitive conduct. Arguably the intention to eliminate a competitor does not justify a direct link to consumer harm. Rather, it is a reflection of the ECJ’s effort to preserve unchanged the structure of the internal market. Contrary to the US approach, post-AKZO developments addressed the criticism of general above-cost predatory pricing and the EU reluctance to introduce recoupment as an additional test requirement. Several changes have been put forward in the Guidance Paper of the EU Commission on its enforcement priorities[4] and in the Post Denmark judgment.[5] The latter stressed the importance of consumer harm in the analysis of anti-competitive conduct and focused more on effects, rather than on a static assessment of the conduct.

Back to the specific legal test required to prove predatory pricing, the adopted tests embraced by both jurisdictions remain largely satisfactory. Both jurisdictions adopted a cost-based test as a first step of analysis, which is in line with economics and of pragmatic orientation. With regard to the second part of the test, the US courts recognised recoupment as a key criterion and addressed the potential welfare impact on consumers. In contrast, the EU has started off rather unsatisfactorily with an assessment of dominance, which is rather unhelpful for predatory pricing claims. However, the EU Commission moved on to analyse the effects of predatory pricing conduct in a way that is similar to the US requirement of recoupment. It is hoped that the ECJ will show itself supportive towards this effort.

Nevertheless, both the EU and the US display certain flaws in their analysis of predatory conduct. For example, the US has imposed a heavy burden of proof on the claimant which ignores modern economics that regards predation as a potentially successful behaviour. This means that even aggressive behaviour of dominant firms would not require intervention. In the EU, the objective intention of the predator remains an important part of the legal test, although consumer harm is not properly dealt with. Thus the EU faces the risk of overly-enforcing predatory pricing claims, with a further criticism of unduly protecting inefficient competitors.

Finally, the trend of Americanisation of EU competition law can be discerned in predatory pricing. It can be traced in the adoption of an effects-based analysis, in the adoption of consumer welfare as a goal of competition law, and in the gradual rejection of selective-cost pricing claims. Some of the above trends are to be welcomed as there is a widespread perception that, at least from a consumer welfare perspective, the US approach addressed predatory pricing claims more successfully than the EU approach. Nevertheless, the transplantation of the effects-based analysis does not need to go that far. In other words, the ECJ should not give up condemning meritorious predatory pricing claims. Otherwise, this can mean bringing predatory pricing to a standstill point.

Iva Kovandova

 LLM postgraduate student, LSE

[1] Case C-62/86 AKZO Chemie v Commission [1991] ECR I-3359.

[2] Brooke Group v Brown&Williamson (1993) 509 U.S. 209.

[3] Weyerhauser v Hardwoodlumber (2007) 411 F.3d 1030, 1077.

[4] Case C-209/10 Post Danmark v Konkurrenceradet [2013 ] All.E.R.(EC) 950.

[5] Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, OJ C 45, [20].

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