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Counterfactual Analysis in Predation Cases

Counterfactual Analysis in Predation Cases. 12 June 2013. Overview. Predatory pricing Counterfactual in NZ Criticism and proposal. Predatory Pricing. Predation Phase: lowering prices in order to foreclose competition

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Counterfactual Analysis in Predation Cases

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  1. Counterfactual Analysis in Predation Cases 12 June 2013

  2. Overview • Predatory pricing • Counterfactual in NZ • Criticism and proposal

  3. Predatory Pricing • Predation Phase: lowering prices in order to foreclose competition • Recoupment Phase: Reap monopoly profits and recoup losses of predation phase

  4. Established Rules • Areeda-Turner: Pricing under cost (AVC, AAC) • US: + recoupment test • EU: + dominance, no recoupment test

  5. Comparison Market perspective and level of causality of predation tests High Causality US EU AT Low dynamic static Market Perspective

  6. NZ Supreme Court • Sec. 36: A person with substantial market power must not take advantage of that power for an anti-competitive purpose • Dominant position must have facilitated the behaviour: • The dominant firm “would not have acted as it did … if it had not been dominant.” (Case Telecom0867 [2010] NZSC 111)

  7. Criticism • Counterfactual too difficult • Hypothetical market situation unrealistic • Conduct of dominant firm might have different effects than that of other firms (≈ special responsibility doctrine)

  8. Appraisal • NZ counterfactual involves higher burden of proof for competition authority (CC) • NZ = AT + EU + US: • Dominance • Loss and Recoupment (counterfactual)

  9. Market perspective and level of causality of predation tests Comparison High Counterfactuals Causality NZ US EU AT Low dynamic static Market Perspective

  10. Effects-based Approach • Current debate in EU • Involves counterfactual analysis: • Comparing situation with dominant firm’s conduct in place with “an appropriate counterfactual, such as the simple absence of the conduct” (EU Com Guidance on exclusionary conduct, 2009)

  11. Suggested Refinement • Are foreclosure effects the basis for the conduct, and the conduct would not have been done but for the harm on competition? • EU-Com profitability test insufficient (did conduct lead to lower revenues than alternative conduct?) • Would the conduct be done if the foreclosure effects did not exist?

  12. Market perspective and level of causality of predation tests Comparison High Own Counterfactuals Causality EU Com NZ US EU AT Low dynamic static Market Perspective

  13. Conclusion • Counterfactual analysis might be useful for assessing unilateral conduct • Effects-based approach • Would the conduct be done if the foreclosure effects did not exist?

  14. Thank You Kay E Winkler PhD Candidate, Law & Economics School of Economics and Finance Victoria University of Wellington kay.winkler@vuw.ac.nz LinkedIn: Kay E Winkler

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