Exploitative Prices in European Competition Law

Abstract

Undertakings may restrict competition cooperating with their competitors (collusion) or interfering with their ability to compete (exclusion). The main concern about collusive and exclusionary practices is that they enable firms to profitably raise prices over their marginal costs; i.e. they create market power. In European competition law it has been considered that, under certain circumstances, practices which, without reinforcing it, represent a mere exercise of the (substantial) market power already enjoyed by the dominant firm, should be prohibited as well. Among these so-called “exploitative practices”, the most obvious example would be the direct imposition of excessively high prices. This chapter discusses whether purely exploitative prices (i.e., prices aimed at the mere exploitation of the buyers without exclusionary object or effects) should be included in the prohibition of unfair prices as an abuse of dominant position or, on the contrary, an exclusionary effect is also required. The vagueness of the case law of the European Court of Justice has enabled the coexistence of divergent interpretations and, accordingly, very different standards. The assumption of a price control function by a competition authority, and the subsequent prohibition of purely exploitative prices, are not supported by the main legal theories on competition law, and, according to mainstream economics, may impair the efficiency of markets. In addition, neither the definition of unfair prices nor the test employed to determine their existence necessarily include exploitative prices. On the contrary, both of them suggest that an unfair price has to be a supra-monopoly price, whose object and effects would be exclusionary rather than purely exploitative. Purely exploitative prices are just maximizing-profit prices (i.e. monopoly prices), and, as long as they are inherent to the possession of a dominant position should not be regulated, apart from the case when dominance has been achieved through the market being a true natural monopoly or through state-granted monopoly rights; even then, the task of regulating the prices of monopolists – or removing such a legislative privileges – should be done ex ante and left to government or sector-specific regulators.