Excessive Prices: Using Economics To Define Administrable Legal Rules
AbstractEuropean competition laws condemn as “exploitative abuses” the pricing policies of dominant firms that may result in a direct loss of consumer welfare. Article 82(a) of the EC Treaty, for example, expressly states that imposing “unfair” prices on consumers by dominant suppliers constitutes an abuse. Several firms have been found to abuse their dominant positions by charging excessive prices in cases brought by the European Commission and the competition authorities of several Member States. Those cases show that the assessment of excessive pricing is subject to substantial conceptual and practical difficulties, and that any policy that seeks to detect and prohibit excessive prices is likely to yield incorrect predictions in numerous instances. In this paper we evaluate the pros and cons of alternative legal standards towards excessive pricing by explicitly considering the likelihood of false convictions/acquittals and the costs associated with those errors. We find that the legal standard that maximizes long-term consumer welfare given the information typically available to regulators would involve no ex post intervention on the pricing decisions of dominant firms. A possible exception to this general rule is discussed.
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Bibliographic InfoPaper provided by CEMFI in its series Working Papers with number wp2004_0416.
Date of creation: Sep 2004
Date of revision:
Excessive pricing; dominant firms; EU Competition policy.;
Other versions of this item:
- Evans, David S & Padilla, Atilano Jorge, 2004. "Excessive Prices: Using Economics to Define Administrable Legal Rules," CEPR Discussion Papers 4626, C.E.P.R. Discussion Papers.
- D4 - Microeconomics - - Market Structure and Pricing
- K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
- L4 - Industrial Organization - - Antitrust Issues and Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-10-18 (All new papers)
- NEP-COM-2005-01-05 (Industrial Competition)
- NEP-LAW-2004-10-18 (Law & Economics)
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