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Excessive Prices: Using Economics to Define Administrable Legal Rules

Author

Listed:
  • David S. Evans
  • A. Jorge Padilla
Abstract
European competition laws condemn as ‘exploitative abuses’ the pricing policies of dominant firms that may result in a direct loss of consumer welfare. Article 82(a) of the EC Treaty, for example, expressly states that imposing ‘unfair’ prices on consumers by dominant suppliers constitutes an abuse. Several firms have been found to abuse their dominant positions by charging excessive prices in cases brought by the European Commission and the competition authorities of several Member States. Those cases show that the assessment of excessive pricing is subject to substantial conceptual and practical difficulties, and that any policy that seeks to detect and prohibit excessive prices is likely to yield incorrect predictions in numerous instances. In this paper, we evaluate the pros and cons of alternative legal standards towards excessive pricing by explicitly considering the likelihood of false convictions/acquittals and the costs associated with those errors. We find that the legal standard that maximizes long-term consumer welfare, given the information typically available to regulators, would involve no ex post intervention on the pricing decisions of dominant firms. A possible exception to this general rule is discussed.

Suggested Citation

  • David S. Evans & A. Jorge Padilla, 2005. "Excessive Prices: Using Economics to Define Administrable Legal Rules," Journal of Competition Law and Economics, Oxford University Press, vol. 1(1), pages 97-122.
    • Handle: RePEc:oup:jcomle:v:1:y:2005:i:1:p:97-122.
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    File URL: http://hdl.handle.net/10.1093/joclec/nhi002
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    Cited by:

    1. Repullo, Rafael & Elizalde, Abel, 2004. "Economic and Regulatory Capital: What is the Difference?," CEPR Discussion Papers 4770, C.E.P.R. Discussion Papers.
    2. Juan-José Ganuza & Gerard Llobet & Beatriz Domínguez, 2009. "R& D in the Pharmaceutical Industry: A World of Small Innovations," Management Science, INFORMS, vol. 55(4), pages 539-551, April.
    3. Eduardo Saavedra & Javier Tapia, 2019. "El control de los precios excesivos en el derecho de la libre competencia: análisis y propuesta," Estudios Públicos, Centro de Estudios Públicos, vol. 0(153), pages 95-140.
    4. Axel Gautier & Nicolas Petit, 2018. "Optimal enforcement of competition policy: the commitments procedure under uncertainty," European Journal of Law and Economics, Springer, vol. 45(2), pages 195-224, April.
    5. Patrice Bougette & Oliver Budzinski & Frédéric Marty, 2019. "Exploitative Abuse and Abuse of Economic Dependence: What Can We Learn From an Industrial Organization Approach?," Revue d'économie politique, Dalloz, vol. 129(2), pages 261-286.
    6. Arndt Christiansen & Wolfgang Kerber, 2006. "Competition Policy With Optimally Differentiated Rules Instead Of “Per Se Rules Vs Rule Of Reason”," Journal of Competition Law and Economics, Oxford University Press, vol. 2(2), pages 215-244.
    7. Javier Díaz-Giménez & Josep Pijoan-Mas, 2006. "Flat Tax Reforms in the U.S.: A Boon for the Income Poor," Working Papers wp2006_0611, CEMFI.
    8. Ernesto Rengifo García & Francisco E. Beneke Ávila, 2021. "Los derechos de propiedad intelectual y la libre competencia," Books, Universidad Externado de Colombia, Facultad de Derecho, number 1301.
    9. Suarez, Javier & Ceron, Jose A., 2006. "Hot and Cold Housing Markets: International Evidence," CEPR Discussion Papers 5411, C.E.P.R. Discussion Papers.
    10. Richard Havell & Chris Jenkins & James Rutt & Elliott Scanlon & Paul Tregear & Mike Walker, 2020. "Recent Developments at the CMA: 2019–2020," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(4), pages 721-749, December.
    11. Svetlana Avdasheva & Polina Kryuchkova, 2013. "Law And Economics Of Antitrust Enforcement In Russia," HSE Working papers WP BRP 05/PA/2013, National Research University Higher School of Economics.
    12. Avdasheva, Svetlana & Kryuchkova, Polina, 2015. "The ‘reactive’ model of antitrust enforcement: When private interests dictate enforcement actions – The Russian case," International Review of Law and Economics, Elsevier, vol. 43(C), pages 200-208.
    13. Svetlana Avdasheva & Dina Korneeva, 2017. "Why Enforcement against Excessive Pricing in the Russian Federation is not Sufficiently Successful?," Public administration issues, Higher School of Economics, issue 5, pages 117-133.
    14. Adrien de Hauteclocque & Vincent Rious, 2008. "Regulatory Uncertainty and Inefficiency for the Development of Merchant Lines in Europe," Post-Print hal-00338296, HAL.
    15. Gilo, David & Spiegel, Yossi, 2018. "The antitrust prohibition of excessive pricing," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 503-541.
    16. Aleix Calveras & Juan-José Ganuza & Gerard Llobet, 2005. "Regulation and Opportunism: How Much Activism Do We Need?," Working Papers wp2005_0508, CEMFI.
    17. Yannis Katsoulacos & David Ulph, 2009. "On Optimal Legal Standards For Competition Policy: A General Welfare‐Based Analysis," Journal of Industrial Economics, Wiley Blackwell, vol. 57(3), pages 410-437, September.
    18. Pinar Akman & Luke Garrod, 2011. "When Are Excessive Prices Unfair?," Journal of Competition Law and Economics, Oxford University Press, vol. 7(2), pages 403-426.
    19. Claudio Calcagno & Mike Walker, 2010. "Excessive Pricing: Towards Clarity And Economic Coherence," Journal of Competition Law and Economics, Oxford University Press, vol. 6(4), pages 891-910.
    20. Schmidt André & Voigt Stefan, 2007. "Bessere europäische Wettbewerbspolitik durch den „more economic approach“ ? Einige Fragezeichen nach den ersten Erfahrungen / Does the more economic approach lead to a better competition policy? Some ," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 58(1), pages 33-50, January.

    More about this item

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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