1 LEAR Conference 2009 HOW MUCH CERTAINTY? 25 June 2009 Margaret Bloom King’s College London Freshfields Bruckhaus Deringer

2 How much certainty? How much certainty is desirable in competition rules? Can there be certainty with effects based approach? International consistency or inconsistency?

3 “To be uncertain is to be uncomfortable, but to be certain is to be ridiculous” Chinese proverb

4 How much certainty is desirable? Type I errors (over-enforcement) versus type II Implications for consumer welfare and enforcement costs Form based rules –More precision/certainty –Risk type I errors –Or type II if “liberal”

5 Effects-based approach (1) Should avoid type I errors EU: since late 1990s effects-based for –Agreements –Mergers EU: unilateral conduct –New Guidance largely effects based US: effects based for –Agreements –Mergers –Conduct

6 Effects-based approach (2) May reduce legal certainty May increase costs of enforcement and private actions May increase type II errors if standard of proof too high But –Safe harbours and block exemptions –Presumptions –Rule of reason versus per se –Guidance and case precedents

7 Safe harbours and block exemptions How generous? EU block exemptions –Revised over time –Increase in use of economics EU cautious safe harbour for dominance –40% cf US 50% ICN 2007 report: 10% – 50% “Soft” safe harbours can be larger

8 Presumptions of market power How well based economically? –EU 50% presumption of dominance ICN 2007 report: presumptions of dominance –20% - 80% –Should not be just “assessment of market shares”

9 Rule of reason versus per se US per se → rule of reason June 2007 Leegin –RPM rule of reason EU: strictly no per se A81(1), then A81(3) –Even for ‘object’ cases

10 International variety Inconsistency reduces certainty Unilateral conduct starkest differences Safe harbours/presumptions dominance/SMP Is plausible theory of consumer harm required for intervention? –EU: likely consumer harm presumed from likely anticompetitive foreclosure –US: does foreclosure of rivals demonstrate consumer harm? How high is burden of proof?

11 How to distinguish anticompetitive conduct from normal competition? Is the test? –No economic sense? –Profit sacrifice? –As efficient competitor? –Consumer harm? –Disproportionality?

12 What cost test? (1) Single product rebates P < AAC (AVC or MC) How much above AAC for benchmark? EC A82 Guidance –P < AAC = foreclosure –AAC < P < LRAIC = investigate –P > LRAIC = OK

13 What cost test? (2) Predation P < AAC (AVC or MC) How much above AAC for benchmark? Recoupment? ICN 2008 report: predatory pricing –27/34 used P < AVC –Many used P < AAC and P < ATC –Recoupment: 15 required; 16 not required

14 Some other questions Is there scope for agency to ‘abuse shop’? –Eg margin squeeze or predation or refusal to supply –Contrast EU and US In what circumstances can dominant/SMP firm be required to supply? Bundled rebates? Is there a right for dominant/SMP firm to meet competitor’s prices?

15 Conclusion Major jurisdictions now mainly effects-based Most likely to –Protect competition effectively –Maximise consumer welfare But less predictable than form-based Need some more certainty through –Safe harbours and block exemptions –Presumptions –Guidance and case precedents Need greater consistency between jurisdictions