The Eighth Annual Trans-Atlantic Antitrust Dialogue

1. The Eighth Annual Trans-Atlantic Antitrust Dialogue Exclusionary Pricing in Article 82 Cases – A U.S. FTC Perspective Alden F. Abbott Associate Director, Bureau of Competition, FTC May 15, 2008

2. Introduction • I am pleased to comment briefly on exclusionary pricing in Article 82 cases, applying the perspective of a U.S. lawyer. • Specifically, I will draw on insights from the FTC-DOJ Single Firm Conduct Hearings in assessing such pricing conduct. • The views expressed are my own and do not necessarily represent the views of the U.S. FTC or any FTC Commissioner.

3. Single Firm Conduct Hearings • As you are undoubtedly aware, the U.S. competition agencies held Hearings on Single Firm Conduct in 2006 and 2007. • We hope to issue a report but I cannot comment further on this possibility today. • Presentations made in the Hearings shed light on exclusionary pricing and other issues. • Below are some thoughts on sound policy re exclusionary pricing suggested by the Hearings. • My interpretation only – others may disagree.

4. Bundled Discounts • Bundled discounts ubiquitous. • Efficiencies: lower prices, encourage larger orders/production, economies in packaging/shipping, encourage new product trials, facilitate efficient price discrimination, etc. • Anticompetitive theories based on foreclosure of other sellers, Nalebuff et al. • Don’t know how likely competitive harm is.

5. Bundled Discounts, continued • Where competition among competing full bundle suppliers likely some would apply Brooke Group rule to total price of bundle. • Where supplier sole source of one or more products in bundle, need different rule. • Foreclosure concern here. • Try AMC discount allocation safe harbor, price-cost comparison after allocating all discounts to competitive product(s) in bundle?

6. Bundled Discounts, continued • When no competition over some bundle element(s) and pricing puts you outside safe harbor, what to do? • Answer: assess actual competitive effects. • Rivals’ ability to remain in market should be a significant factor in assessing harm. • Where explanation for harm does not depend on exclusion of rivals, condemn bundle only where harms significantly disproportionate to benefits. (See AREEDA & HOVENKAMP ¶ 651a.)

7. Loyalty Discounts • Unlike bundling, involves single product. • Generally benefits consumers – lower prices, inducement to increased selling efforts, reduce production costs (low sales fluctuations), competition for customers. • Predation story – discount structured to induce buyers to buy all needs beyond “incontestable” share from monopolist. • As in bundling, harm’s likelihood unknown.

8. Loyalty Discounts, continued • Predatory pricing approach? • But case law limited, commentators disagree, need further assessment. • Plaintiff should have to show discount forecloses a significant share of market and harms competition. • Rivals’ ability to remain in market significant factor. • When probable competitive harm, may apply significant disproportionality harm/benefits test.

9. Bundling and Loyalty Discounts: Overall Assessment • Lack of empirical evidence key. • Consult Single Firm Hearings record. • Consider approaches that weigh both administrability and the need to assess fairly both procompetitive stories and anticompetitive possibilities. • Stay tuned for further scholarship and case law.

10. Price Squeezes • The Linkline case on cert. before the U.S. Supreme Court raises “price squeezes.” • I cannot comment on what USG may say. • But let me present a few of my thoughts. • May be efficient, consumer welfare-enhancing vertical integration in the presence of preexisting market power.

11. Price Squeezes, continued • Behavior that looks like price squeezes also may yield significant efficiencies. • Also possible, of course, that particular price squeezes may involve downstream predation and harm competition. • EU courts have spoken. Stay tuned for further developments in U.S. case law.

12. DG Comp and Pricing Abuses • DG Comp approach to single firm pricing abuses shows promise. • Reliance on economic reasoning helpful. • Take predatory pricing, for example – DG Comp emphasis on a foreclosure effect. • Desirable to read “foreclosure effect” as importing a consumer welfare standard? • EU courts – no requirement that actual effects be demonstrated, will this change over time?

13. DG Comp – Rebates/Bonuses • DG Comp stress on actual and likely foreclosure effects, effects on equally efficient competitors, seems sound. • Also recognition of objective justifications/ efficiencies may help avoid chilling effects. • What is future influence of holding in British Airways v. Commission?

14. DG Comp – Margin Squeezes • Deutsche Telekom v. Commission upholds “as efficient competitor” approach. • It is helpful that DG Comp is applying economic thinking here. • Take into account consumer welfare, productive efficiencies in examining effects on excluded firms?

15. Conclusion • Both U.S. agencies and DG Comp are dedicated to applying economics in single firm conduct cases – a good thing. • Over time, I hope that convergence will grow, aided by empirical work and theory. • I also hope that EU courts will increasingly employ economic reasoning. • Thank you for your attention.