Exclusionary Conduct. Joseph Kattan Gibson, Dunn & Crutcher LLP Washington, DC

Transcription

1 Exclusionary Conduct Joseph Kattan Gibson, Dunn & Crutcher LLP Washington, DC 1050 Connecticut Avenue, N.W. Washington, DC

2 What Is Exclusionary Conduct? Exclusionary conduct is conduct that (i) excludes rivals other than through competition on the merits and (ii) enables a firm to achieve or maintain a monopoly The antitrust laws do not impose a code of fair conduct Competition law intervenes only where an exclusion leads to the attainment or maintenance of monopoly power, or a very high likelihood that it will be attained absent intervention 2 2

3 Protecting Consumers Competition law seeks to protect consumers from the harm of higher prices or reduced innovation resulting from monopoly achieved through exclusionary conduct Competition law protects competition and not competitors Harm to a competitor violates competition laws only if it leads to the creation or maintenance of a monopoly U.S. Supreme Court: Even an act of pure malice by one business competitor against another does not, without more, state a claim under the federal antitrust laws 3 3

4 Competition on the Merits (1) Exclusionary conduct must cause consumer harm through conduct that does not represent competition on the merits Competitors may be excluded lawfully through legitimate conduct that does represent competition on the merits Superior products Lower prices Superior service Better marketing Greater manufacturing capacity 4 4

5 Competition on the Merits (2) Proposed overarching standards Conduct that excludes equally efficient competitors Profit sacrifice Conduct that makes no economic sense other than as a tool for exclusion International consensus beginning to emerge around equally efficient competitor standard 5

6 The Role of Economics Antitrust assessment requires expert economic analysis of both the conduct and its impact on the exercise of monopoly power Evaluation of the market and the ability of a firm to exercise monopoly power Evaluation of the conduct and whether it excludes competitors other than on the merits Economic analysis is a standard tool in all antitrust cases 6

7 Equally Efficient Competitor Standard Standard seeks to determine whether the conduct results in the exclusion of a rival that is as efficient as the defendant An equally efficient competitor can match product quality, low prices, superior service, superior marketing, and the requisite manufacturing capacity Exclusionary conduct excludes equally efficient firms through conduct that the as efficient rival cannot match 7

8 Exclusive Dealing Exclusive dealing can exclude an equally efficient competitor in limited circumstances Many legitimate reasons for exclusive dealing Where distributors must carry a firm s products, requiring them not to stock rivals products can exclude an equally efficient competitor if other distribution outlets are not available Distribution outlets are widely available in most cases Example: Most car dealers are signed to exclusive dealing agreements, but equally efficient competitors are not excluded because dealers are widely available 8

9 Predatory Pricing Pricing below the costs that would have been avoided by not making the sale, sustained long enough to drive rivals out of the market and establish a durable monopoly Can exclude an equally efficient competitor Predatory pricing is very costly because a firm must incur losses while engaging in the conduct Firm must obtain a monopoly for long enough to recoup those losses Exclusion is impossible where rivals remain or entry into the market can occur 9

10 Tying Tying is the conditioning of the sale of one product on the customer s agreement to buy a second product Tying by firms that have no market power is very common because there are often powerful efficiencies in joint distribution Exclusion of an equally efficient competitor is possible where customers require both products and a single-product rival that would otherwise challenge the tying firm s monopoly is excluded 10

11 Bundling and Loyalty Discounts Bundling discounts reward customers with lower prices when they buy multiple products Used to incentivize customers to buy two or more products Loyalty discounts reward customers with lower prices for attaining higher purchase levels Used to incentivize customers to award a high share or all of their purchases to a seller Exclusion of equally efficient competitors possible where discounts result in below-cost pricing and substantial foreclosure results 11

12 Refusals to Deal U.S. antitrust law recognizes that firms generally have no duty to deal with competitors Imposing a duty to deal diminishes incentives to invest in the creation of the assets that must be shared with competitors Some courts recognize a limited exception where parties had a course of dealing and the rival is dependent on access to its competitor s assets and cannot reasonably duplicate those assets Must result in higher prices or reduced innovation 12