2018 ICN UCWG Workshop BOS 2 – Predatory Pricing Group D

Issues for discussion Issue 1: Is the theory of competitive harm sound? Issue 2: Is there a link between a specific price-cost test and the chosen theory of harm? What about presumptions of illegality and safe harbours? Issue 3: What costs should an agency rely upon to prove predatory pricing? Are accountant costs always sufficient? Issue 4: (if time permits) New questions related to predatory pricing in the digital world

ISSUE 1: Is the theory of competitive harm sound? Predatory pricing should be a rational strategy for the alleged predator Recoupment - despite not necessarily being a legal requirement for proving predation - may nevertheless constitute a relevant consideration in the competitive assessment to what extent should agencies take into consideration possible price increases - by the alleged predator - above the competitive level after the exit of the rival(s)? what is the role of barriers to entry? do the possibility of entry/reentry into the market really make predation a potentially rational strategy to be implemented? To harm competition, low prices must deprive rivals of significant or potential sales in at least one market can low prices be selective - being applied only to the customers of the rival(s) of the alleged predator - or should they extend to all the output of the alleged predator?

ISSUE 2: Is there a link between a specific price-cost test and the chosen theory of harm? What about presumptions of illegality and safe harbours? For prices below AVC/AAC/SRAIC there could be a presumption of illegality, as it should not constitute a rational strategy for the alleged predator is this presumption rebuttable? should agencies use different cost benchmarks depending on the nature of the exclusion (competitor already active in the market vs new market)? should agencies take into consideration the meeting competition argument used by the alleged predator to introduce low prices? It may be rational for the alleged predator to price between AVC/AAC/SRAIC and ATC/LRAIC, as it recoups at least partially its fixed costs to find an infringement, what is the role played by the intent of the alleged predator to exclude competitors and what is the standard of proof to be met by agencies? Does pricing above ATC/LRAIC always constitutes a safe harbour for the alleged predator?

ISSUE 3: What costs should an agency rely upon to prove predatory pricing? Are accountant costs always sufficient? Use of accounting information is usually considered appropriate, however agencies need to be cautious, among others, in relation to: common costs (need to find appropriate causal methodologies of allocation) fixed costs in industries characterized by innovation (accountant costs may not reflect economic value) how should agencies assess these categories of costs? Sometimes the alleged predator has already fully amortized some fixed costs that are relevant for the competitive assessment and insists not to consider them in the cost benchmark to evaluate its pricing strategy as competitors have to incur these fixed costs to be active in the industry, should agencies consider them as well even if they are already fully amortized by the alleged predator? Are there relevant recurring issues concerning the assessment of other categories of costs in considering predatory pricing cases?

ISSUE 4: New questions related to predatory pricing in the digital world Some argue that the rise of new digital business models characterized by two/multi-sided markets may amount to predatory pricing as, on one side of the market, products/services may be provided to users free of charge, below costs are there new issues related to predatory pricing in the digital world? is the two-sided nature of these markets sufficient to dismiss these complaints?