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Critically Assess The Ec Competition Law’s Approach To Predatory Pricing

4693 words - 19 pages

Introduction

Predatory discrimination has a special place both in law and economics because it can be seen as an instrument of abuse. From a point of view, price cutting is a useful way for competition and has benefits to customers. However, from the legal and economic aspects, there is not an agreed definition of predatory pricing. In spite of this, it is very important.
To understand predatory behaviors, dominant position and abuses should be understood. This paper will start with the definitions and arguments on dominance and abuse. Besides entry barriers will be defined in this part. Later, it will highlight predatory pricing with views and comments. There are a few important cases in EC law about predatory pricing. The mains are; AKZO case , Tetra Pak case and France Telecom case . Only AKZO case and Tetra Pak case will be mentioned in this paper. Also, tests of AKZO case and Areeda-Turner will be compared. At the end, it will focus on the European Commission’s approach to predatory pricing.
2. Dominant Position

A dominant position occurs when an undertaking has strong economic position. This enables the undertaking to prohibit effective competition on the market by allowing it to behave more independently then its competitors, its customers and its consumers. When market shares of an undertaking get higher, the possibility of dominance gets higher also, if there are no exceptional circumstances. These kinds of actions are under the control of Article 82 of the EC Treaty. To understand the position of an undertaking, EC case law looks at the competitors’ market share. According to Article 82 the lowest dominant position proportion is 39.7 per cent.
There are also other factors to consider. The most important one is entry barriers to market. To be able to compete in a market, first of all an undertaking should enter it. In economic literature there are two important debates on entry barriers. The definition of European Commission for entry barriers is as follows;
“Barriers to expansion and entry are factors that make entry impossible or unprofitable while permitting established undertakings to charge prices above the competitive level”.
Entry barriers show how easy is it to enter to the market. There are many barriers to enter the market, some of them are :

 Control of resource
 Customer loyalty
 Economy of scale
 Government regulations
 Inelastic demand
 Investment
 Sunk cost
 Patents

Although some commentators argue that entry barriers are not related to competition , from my point of view entry barriers are extremely related to competition since without these barriers competition would not exist.

3. Abuse

The competition act forbids the firms to abuse their dominant market position. If an undertaking is acting anti-competitive, effects of the conduct is important. Section 7 of the competition act says that an undertaking with 45% or more market share is directly dominant. The firms...

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