Discount Policies in US and EU Antitrust Enforcement Models: Protecting Competition, Competitors or Consumer Welfare?

Abstract

The modernization of EU and US antitrust regimes that has occurred in the last decade has renewed interest in the antitrust community to find an appropriate enforcement model. Indeed, the longtime struggle between harm to competitors and harm to consumer welfare has fuelled the debate on the proper legal standard to be endorsed in the enforcement of exclusionary acts. Each conduct that may lead to an anticompetitive outcome, for example, unilateral practices, collusion or mergers, has undergone a process of re-thinking of the substantive, as well as the procedural tests to be applied. This process, as regards the EU, has in particular led towards the adoption of a criterion based on efficiency considerations, and hence more focused on an economic analysis of the context in which the companies’ conducts occur. In this respect, we have experienced a ubstantial convergence between the European and the US jurisdictions, the latter being historically characterised by a more widespread use of the “rule of reason” analysis. However, despite this phenomenon of convergence, also backed by the improvement in the transatlantic cooperation between antitrust agencies, differences in the application of fundamentally similar laws have emerged. The discrepancies between the two models are still relevant in the field of exclusionary conducts. This is striking for two reasons. First, because companies are faced with the odd outcome that the same practice is allowed in one jurisdiction and prohibited in another, so they are forced to radically change their commercial policy. Second, because rebates are one of the most controversial topics in competition law: although exclusionary discounts may at times disadvantage rival firms and unduly raise their costs, any pricing behaviour by a firm that has a significant market position will inevitably disappoint competitors, but could very well benefit consumers. The differences between the EU and the US approach towards rebates were more significant before the 2003 decision in the much debated Le Page case, as we argue in this paper. While in a first phase exclusionary conducts in general and rebates in particular were in the US assessed under a consumer welfare standard, which was based on the effects of the practice on both competitors and consumers, Le Page is regarded as a step backward to a new test more focused on assumptions. The few recent cases that have followed Le Page have not yet marked a clear position, as some have distanced themselves from the standard embraced by the Le Page court. Others, in contrast, have fully applied the Le Page test. The case-law and the decisional practice at EU level has endorsed a more formalistic standard that overlooks the economic analysis of the context in which the conduct takes place, namely, the effects of the practice. As a result, exclusionary conduct decisions by the Commission and EU courts have been sometimes heavily criticized for sheltering inefficient competitors and for chilling the very essence of the competitive process. Nevertheless, the recent Discussion Paper on the application of Article 82 to exclusionary abuses has marked a move towards an effect-based approach. This effort is to be welcomed as it attempts to provide clearer rules on the distinction between lawful and exclusionary conducts. However, the way in which the effect-based test is construed, in particular the way in which the Commission reckons the share of contestable sales that should be left open to competition, casts some doubts on the appropriateness of the model suggested. These doubts are reinforced by the outcome of the first decision adopted after the issuance of the Discussion Paper (Tomra), in which the Commission applied the new test. The long-awaited judgement in the Microsoft is also analysed. In this paper, we first summarise the main business justifications which have been highlighted by the economic and business literature underlying the adoption of quantitative, or so-called “linear pricing”, and non-quantitative rebates, the so-called “non-linear pricing” or “all-units/rollback rebates”. We come to the conclusion that even non-linear pricing has specific and well-rooted economic and business motives. We then review the US and EU case-law on discounts and we discuss the enforcement standards that have been endorsed on both sides of the Atlantic in the different phases that have characterised the relevant case-law. We place greater emphasis on the most recent developments, such as Le Page and its subsequent case-law, the Discussion Paper, as well as the recent Tomra decision (and the Microsoft judgment). We outline the differences in the approach before and after Le Page and before and after the Discussion Paper. Finally, we focus on the competitors’ harm test comparing the advantages and the disadvantages of the models that have been endorsed in the EU and the US. * * * * * Selected Bibliography D.A. Crane, Multiproduct Discounting: a myth of non-price predation, Benjamin N. Cardozo School of Law, Working Paper No. 113, 2005, p. 34. F. H. Easterbrook, Predatory Strategies and Counterstrategies, University of Chicago Law Review, 1981, p. 263. E. 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