Excessive Pricing by Dominant Firms, Private Litigation, and the Existence of Alternative Products

Abstract

The aim of this paper is to discuss two issues concerning the antitrust prohibition of excessive pricing by dominant firms. The first is private enforcement of the prohibition and the second is the case where consumers can purchase alternative products inferior to the dominant firm’s product. With regard to private suits, the paper discusses several issues that may arise in private litigation, including the tools that civil courts have to cope with such litigation and the case where the excessive price was charged for a product that was not sold directly to the end consumer. The paper elaborates further regarding determination of a “competitive price” or “more competitive price” that can be compared with the price charged by the dominant firm and discusses the virtues of comparative (rather than cost-based) benchmarks, and in particular a retrospective competitive benchmark, which compares the price the dominant firm has charged before and after entry. It then proposes to cope with concerns about accounting manipulations when a reliable comparative benchmark does not exist and the court has to revert to a cost-based benchmark, and proposes limitations on the way dominant firms should be allowed to allocate costs that are common to producing the product in question and other products. In relation to the case where consumers can purchase alternative products instead of the dominant firm’s product that has been priced excessively, the paper shows why this scenario should not serve as a defense for the dominant firm, neither when the alternative products are sold for similar (excessive) prices nor when they are sold for lower prices. The paper also shows why it would be bad policy to restrict liability for excessive pricing to the case of essential products.