Exclusionary strategies of dominant firms: do small and developing economies need a view of their own? Eleanor M. Fox Professor, New York University School of Law Fifth Annual Lecture, Fair Trading Commission of Barbados Feb. 13, 2009

Outline 1 Introduction 1 Introduction 2 Barbados and the world 2 Barbados and the world 3 Globalization and its ideologies 3 Globalization and its ideologies 4 Economic law –US, EU competition 4 Economic law –US, EU competition –Why an abuse of dominance law? What should it do? 5 Full and fair competition for Barbados 5 Full and fair competition for Barbados 6 Conclusion 6 Conclusion

I. Introduction What is a dominant firm? What is a dominant firm? What are exclusionary strategies? What are exclusionary strategies? Why should we worry? Or not worry? Why should we worry? Or not worry? Should the whole world do the same thing? Should the whole world do the same thing? –Efficiency and justice: for whom –IS IT TRUE - What is good for the MNEs is good for Barbados

II. Barbados, the world, and competition A. Barbados A. Barbados –Your beautiful island –Building competitive markets in Barbados keeping markets safe from abuse keeping markets safe from abuse B. Competition and the world B. Competition and the world –1989 fall of Berlin Wall –1994 Conclusion of the Uruguay Round, WTO –Forces of competitive freedom But also unleashing world cartels and global dominance But also unleashing world cartels and global dominance

C. Competition LAW and the world US – from 1890 US – from 1890 –A law against power EU – from 1957 EU – from 1957 –A law to establish a common market Integration, level playing field Integration, level playing field South Africa – from 1998 South Africa – from 1998 Efficiency and justice Efficiency and justice Barbados – from 2003 Barbados – from 2003 Fair competition for consumers and enterprises Fair competition for consumers and enterprises

III. How globalization changed the stakes and unleashed ideologies 1980s-90s 1980s-90s –Heyday of the “Washington Consensus” The market is good, the government is bad The market is good, the government is bad There is one right path for the world-the market There is one right path for the world-the market –Market power is fleeting –Government intervention is protectionist “Globalization + liberalization lifts all boats” “Globalization + liberalization lifts all boats” From roots up to top down (but with no top) From roots up to top down (but with no top) Truths and errors Truths and errors

US economic law adopts the Washington consensus US economic law adopts the Washington consensus This is a cautionary tale This is a cautionary tale –To explain how market ideologies can shrink the competition law so that it provides very little protection against abuse of dominance And to show the room for another path And to show the room for another path Stories from the US Stories from the US –The law of abuse of dominance US law shrinks, and shrinks, and shrinks US law shrinks, and shrinks, and shrinks

US point of view: Presidents Reagan through Bush II “Competition law protects competition and consumers, “Competition law protects competition and consumers, not competitors” not competitors” Should it also empower David against Goliath? (No; Goliath is efficient) Should it also empower David against Goliath? (No; Goliath is efficient)

Should the law protect business from aggressive dominant firms? (No) Do you see a shark? This is not a shark. Only inefficient competitors see a shark.

OR should the law just focus on consumers? (and efficiency) - YES

Consumers yes, BUT But But The law should not protect against prices that are too high The law should not protect against prices that are too high The market will drive prices down The market will drive prices down Price capping by an agency is too regulatory, and regulators will get it wrong Price capping by an agency is too regulatory, and regulators will get it wrong

We have seen the goal; what are the presumptions? We have seen the goal; what are the presumptions? Consumer welfare and efficiency: this means aggregate wealth Consumer welfare and efficiency: this means aggregate wealth Markets are robust and work Markets are robust and work Antitrust cases against dominant firms usually make things worse Antitrust cases against dominant firms usually make things worse –US law is tolerant of exclusionary practices Enforcement might handicap efficient firms, chill innovation Enforcement might handicap efficient firms, chill innovation

US Supreme Court: The last 2 cases on dominance Verizon v. Trinko 2004 Verizon v. Trinko 2004 –Dominant telecom with sole access to local loop degrades service when supplying rivals No violation; even dominant firms should not have duties to share facilities except in most extreme cases lest their incentives to invent be chilled No violation; even dominant firms should not have duties to share facilities except in most extreme cases lest their incentives to invent be chilled – “Monopoly power.. is an important element of the free- market system …[It] is what attracts business acumen.” “False condemnations are especially costly …”

Supreme Court case - 2 Weyerhaeuser 2007 Weyerhaeuser 2007 –Dominant buyer of logs overbuys and drives up price to deprive rival saw mills of enough logs, squeezing them out No violation because a predatory buying scheme is likely to fail and a failed predatory buying scheme, like predatory pricing, may benefit consumers No violation because a predatory buying scheme is likely to fail and a failed predatory buying scheme, like predatory pricing, may benefit consumers

More US cases Rambus Rambus –Rambus makes computer technology chips –The industry is setting a standard for interoperability –Rambus deceives: –Supports a standard that will incorporate its new patents and hides the fact that it will require licensing of its patents – no violation; the effect may have been to exclude other technologies or just to raise prices –And just raising prices is not a violation

Other jurisdictions European Union European Union –Has a adopted a more economic approach –Prohibits exploitative pricing –Prohibits exclusionary practices More willing than US to weigh the costs of excluding rivals More willing than US to weigh the costs of excluding rivals –Entry and access matter South Africa South Africa –Aggressive against dominant firm Including monopoly firms using strategies to keep up prices Including monopoly firms using strategies to keep up prices Mittal/Harmony Steel case Mittal/Harmony Steel case

C. Back to America -Economic fundamentalism explodes: the financial crisis – “We are all socialists now” Economic fundamentalism and Alan Greenspan’s shock Economic fundamentalism and Alan Greenspan’s shock –“There must have been a flaw in my model” The financial crisis has shattered the ideological free market beliefs The financial crisis has shattered the ideological free market beliefs –These are the beliefs on which US monopoly law is poised; what future for the shrunken US antitrust? A need to rethink assumptions A need to rethink assumptions –Back to roots

V. Barbados and its law The fair competition act is an act The fair competition act is an act –To promote, maintain, encourage competition –To prohibit prevention, restriction, distortion of competition and the abuse of dominant positions –To “ensure that all enterprises, irrespective of size, have the opportunity to participate equitably in the market place” …

Barbados Act, Sec. 16 A firm abuses a dominant position if it A firm abuses a dominant position if it –Restricts entry –Deters an enterprise from competing –Eliminates any enterprise –Imposes unfair prices –Limits production –Engages in tying or exclusive dealing –Uses any other measure unfairly allowing it to maintain dominance

Would/should Barbados condemn.. Verizon? Verizon? Weyerhaeuser? Weyerhaeuser? linkLine? linkLine? Rambus? Rambus? By what principle? By what principle? What if efficient dominant firm threatens to eliminate domestic business by sustainable low prices – and in times of financial crisis? What if efficient dominant firm threatens to eliminate domestic business by sustainable low prices – and in times of financial crisis?

Barbados protects consumers

Should it also empower David against Goliath? Should it also empower David against Goliath?

Should it also protect business from aggressive dominant firms?

CONCLUSION: A VIEW OF ONE’S OWN A COMPETITION LAW A COMPETITION LAW For empowering David For empowering David Against predatory sharks Against predatory sharks FOR THE CONSUMER AGAINST EXPLOITATIVE FIRMS FOR THE CONSUMER AGAINST EXPLOITATIVE FIRMS Rethinking globalization and liberalization Rethinking globalization and liberalization –Time for roots-up competition law – with proper regard for the world