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Review 7 Years On

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Dominance ?
Equivalence
Defenses
Special Duties
Morton Salt

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Vickers I

VickersII

SADEC Policy

Competition Philosophy

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David vs Goliath

CEO's look here

The Decision

Decision Comment


Special Duties:

 

Luc Geyselen suggests that price discrimination is a subset of the excessive pricing prohibition.  This is a view that I share.  If prices are discriminatory then surely the fair economic value of the good or service is determined by the most beneficial price paid. Any price over and above the best price is excessive and above that commercially required. This is only true in the context of a dominant firm. Market power determines that the seller controls the price.  In our view, a dominant firm should have certain, very special duties regarding competition in the markets within which it operates.  We had suggested this prior to being made aware of the Vickers report by the economists.  Mr. Vickers apparently heads up the U.K. Office of Fair Trading, their equivalent of our Tribunal Chairman.

 

Special Duties relevant to dominant firms.

 

The Vickers Report refers to Richard Whish.  It is useful to consider Mr Vickersí reference to Richard Whish regarding general matters of European case law.

 

Whish suggests in general terms that case law in the European Union has been established, specifically that a dominant firm has a special responsibility not to allow its conduct to impair genuine and undistorted competition(underlining added). There appears to be no limitation as to whether this duty applies to the upstream markets or to downstream markets. Being a general rule I think it intended to apply to both.

 

The second general principle of competition case law suggested by Vickers is that a dominant firm may not eliminate a competitor or strengthen its position by recourse to means other than those based on competition on the merits.

 

The third principle is that abuse involves recourse to methods different from those which condition normal competition.

 

Regretfully, we do not have access to the Mr. Whishís book, so our thoughts may be way off line or misdirected.  But in this regard, it seems to us that the profit imperative demanded by todayís institutional investors places a massive strain on the commercial enterprise to perform well, if not exceptionally.  The investor seeks profit whatever the circumstances and dictates.  Profit and the more of it the better, drives commercial behaviour.  We find it inconceivable that a dominant player will not take advantage of the opportunities made available to bolster its returns.  Very often, remuneration and share options structures presented to management encourage this outcome.  If profits are enhanced by market dominance, then that will be the intended strategic aim of the business.  Indeed the quest market dominance is standard fare in any MBA course. 

 

Excessive profit, otherwise known as supra-economic rent, is implicit in the possession of market power.  That is, unless the business involved voluntarily elects to forego some profit.  Now you decide for yourself whether or not this is likely. The mere presence of anti-abuse legislation suggests that Parliament considered that commerce needed to be coerced into proper and responsible competitive behaviour.  Our founding fathers were not so naÔve that they believed in the altruism of commerce.   And neither should we be conned into this belief.

 

Sure, there may be circumstances in which the dominant corporation may act altruistically and within the bounds of normal competitive constraint.  But the cost of foregoing supra-normal profits makes this possibility unlikely.  Particularly if supra-normal profits have become the norm for corporate earnings and investors become used to superlative returns.  The temptation to abuse markets in the pursuit of profit will prevail.  It matters not whether abuse is malignant or whether it is a relatively benign departure from the proper responsibilities of market domination.  The effect and evil of anti-competitive conduct remain the same. 

 

Personally, we have little faith in the propensity of the large corporation to act altruistically or indeed competitively, without the threat of substantial sanction.   I think that the old sailing adage of crash now and argue later holds in the corporate world.  It seems to pay to act un-competitively and fight any allegations later in court.  The profits earned through anti-competitive behaviour to pay for the court battle many times over. 

 

Competitive abuse becomes the profit maximising model in the absence of a strong and determined competitions authority.  The model holds particularly when the reward for competitive abuse exceeds that of any possible penalty.  First time round penalties only apply to certain contraventions of the Act.  It is the large corporate that has the cash and human resources necessary to wear down opposition during extended court proceedings.  And this is factored into their assessment of the reward/penalty decision.  I suppose it may simply be that there is little likelihood of being caught.   Regrettably, the expectation that dominant firms will limit their own profitability through proper competitive practices cannot be relied upon.  

 

Finally, Whish suggests that the concept of abuse is objective. So it does not require anticompetitive intent although evidence on intent can be relevant in finding abuse. The following may shed some light on the question of objectivity;

 

The concept of objective abuse in the Maritime Belge case before the EU Commission is commented upon in Luc Geyselenís treatise on rebates.  The Court considers that where one or more undertakings in a dominant position actually implement a practice whose aim is to remove a competitor, the fact that the result sought is not achieved is not enough to avoid the practice being characterized as an abuse of a dominant position within the meaning of Article 86 of the Treaty.  Besides, contrary to the applicants assertions, the fact that G&Cís market share increased does not mean that the practice was without any effect, given that, if the practice had not been implemented, G&C Ďs share might have increased more significantly.

 

In essence, it is suggested that the circumstances of any abuse must be considered on their merits, and must be considered objectively.  Elsewhere in the preparation for our case, I recall that the E.U. authorities stated something along the following lines.  That it is necessary to decipher the actions of an alleged anti-competitive practice.  After all, the person acting in an uncompetitive way would have every reason not to admit to anti-competitive practices.  Anti-competitive practices are secretive in nature.  In other words, when deciding matters relating to competitive abuse, it is necessary to read between the lines in order to decipher motive and effect.

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Disclaimer: This site does not profess to offer legal assistance or interpretation.  Itís content reflects the view and experience gained by of the author during a hearing at the Competitions Tribunal of South Africa.  It may help you to figure out what happens & why.