Exclusionary Practices

Abstract

Predatory pricing is one of the most interesting and most controversial issues in antitrust. The term refers to a practice whereby an incumbent firm (the predator) sets prices very aggressively with the aim of excluding a rival from the market (that is, forcing the rival to leave the market or discouraging it from entering) or marginalising the rival and relegating it to a niche role. Predation -if successful -will therefore be associated with the existence of two periods: one, the predatory period, in which consumers will enjoy low prices and the incumbent will sacrifice profits; the other, the recoupment period, in which the incumbent will be able to increase its prices, and obtain higher profits, because the prey is no longer in the market (or has been marginalised). From the incumbent's point of view, this strategy is profitable if the earlier profit sacrifice is outweighed by the subsequent higher gains. From the point of view of consumers, and of social welfare, exactly the opposite happens. If the predatory strategy is successful, higher surplus during the predatory period will be outweighed by lower surplus in the recoupment phase.Given that predatory episodes are associated with low prices, it should not come as a surprise that it is extremely difficult to distinguish low prices that are an expression of tough but fair competition from low prices that are an expression of an exclusionary strategy by the dominant firm. Suppose we observe that after the entry of a competitor, an incumbent firm reacts by starting to cut prices aggressively. Is this the sort of genuine competitive response that we should expect (after all, any theory in which firms do not collude would foresee that entry would lower equilibrium prices), or is it instead predation? In other words, are low prices good news for consumer welfare, or are they instead just a temporary consumer 14

Competition and power in global value chains

“…The analysis of market power in competition economics considers how the features of an industry, including economies of scale and scope, network effects and information asymmetries, provide the scope for strategic behaviour on the part of dominant firms (Fumagalli et al., 2018; Rey and Tirole, 2007; Vickers, 2005). For the purposes of a brief overview, we compare models where the dominant firm is, or is not, vertically integrated.…”

“…Developments from the mid-2000s, and especially in Europe and Asia, have recognized that in the real world there is much greater scope for strategic behaviour through exclusionary conduct. Given the existence of economies of scale and scope, imperfect information and network effects, a burgeoning set of microeconomic models also identifies situations where dominant firms can have both the incentive and ability to exclude actual or potentially efficient competitors (Fumagalli et al., 2018; Katsoulacos et al., 2019; Roberts, 2012; Vickers, 2005, 2007).…”

Advancing Quality Competition in Big Data Markets

“…search results, as well as a variable fee payable on every occasion a user clicks through to the dealer's website, 95 most scholars of competition law have emphasized the ways in which search algorithms are biased in favour of the dominant company's own and against competitors' downstream services. 96 Preferential treatment of a search engine's own related business, according to this view, is to be understood as an instance of discrimination to be found in 'applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage' (Article 102 lit. c TFEU) rather than as an application of different price conditions to the dominant company's downstream customers.…”

Tying in evolving industries, when future entry cannot be deterred

“…While it is uncontroversial that Genzyme's behaviour left no potential scope for competition in the market for delivery and homecare services, 10 the OFT and the Competition Appeal Tribunal (CAT) differ in the assessment of the extent to which it might have prevented further entry in the market for the supply of drugs for the Gaucher disease. (The OFT argued that monopolisation of the home delivery service would have raised barriers to entry into the drug market.…”