The effects of inter-state trade as a requirement of an Article 86 abuse in the predatory pricing cases
In all those decisions, both the Commission and the Court of Justice found that AKZO, Tetra Pak, British Sugar and Hilti had abused their dominant positions, in violation of Article 86 of the Treaty of Rome, as long as their behaviour had an actual or *216 potential effect on the trade between Member States, resulting in the segregation of the relevant national markets. The application of this Article was thus contingent on the assessment of the adverse impact of the involved firms on the fulfilment of the goal of European market integration. [FN22] Had it examined each scheme in its appropriate market context, however, the Commission would have concluded on their true impact on competition, and hence European integration.
The Elements of Predatory Pricing: A Brief Economic Appraisal and a Proposed Standard of Analysis
Although American scholarly literature on predatory pricing has been multi- faceted, and at times self-contradictory, it has provided useful insights for an analysis of such devices on the basis of solid economic experience. American academics seem to focus on three required elements before inferring predation: first, the market power of the predator (the deep-pocket requirement), the setting of prices below a certain measure of costs (the price-below-cost requirement) and the probability of recoupment of the predator's losses after the exclusion of its competitors (the recoupment requirement).
The deep-pocket requirement
As a matter of principle, only firms possessing sufficient financial reserves may be successful in adopting predatory pricing practices against their competitors. Financial reserves may, in turn, be possessed by firms with large market shares facing a small number of competitors, with relative efficiencies and competitive cost or other advantages over their rivals, or with operations in many independent relative markets. Thus, a firm with a very large market share and few rivals may have accumulated over time enough profits to finance a predatory war and to successfully absorb its rivals' shares, once they have been excluded from the market. Similarly, a firm having developed significant economies of scale may at the same time have substantial reserves and be able to undercut its rival sustaining fewer losses. Finally, an enterprise with multi-market operations, in its effort to monopolise a market, might have easier access to funds derived from profits of other markets in which it successfully operates. [FN23] A firm's dominance must be necessarily assessed within a properly defined relevant product and geographic market; unduly limiting the outer boundaries of those markets may lead to unjustified inferences of power and predation. [FN24]
Although it is sometimes stated that this deep-pocket firm must also have an established reputation as a predator in the market, this reputation might not be considered as an absolute requirement for inferring predation. Certainly, a predatory reputation widespread in many markets may enhance the exclusionary results, increasing the effectiveness of a predatory campaign. [FN25] Practically, however, regardless of its knowledge of the predator's costs or other properties, a rival may be excluded from the market or may be deterred from entering it.
The price-below-cost requirement
Although a variety of non-cost standards has been proposed in the American legal literature for the definition of predatory pricing, [FN26] the majority of *217 scholars seem to focus on the relation between an alleged predator's prices and costs to allege predation, as also did the Areeda and Turner article [FN27] which inaugurated a series of responses and dialogue on the subject. [FN28]
There are some viable reasons, however, for admitting that only below-cost pricing may, under certain circumstances, truly harm the competitive process, while above-cost pricing may not. For one thing, only below-cost pricing might lead to the exclusion of equally or more efficient firms, which have limited access to financial resources to survive a predatory attack. Secondly, lowering the prices of a dominant firm below its profit-maximizing price towards the costs of production is to the benefit of consumers, [FN29] as such prices might be increasingly close to those the latter would be willing to pay under competitive market conditions [FN30]; such lower prices, even if intermittently charged, may be an indication that a firm has engaged in innovation, or has developed significant economies of scale permitting it to offer these lower prices, and is thus more efficient. [FN31] Thus, only rivals less efficient than the dominant firm may be excluded from the market as a result. Thirdly, compelling an incumbent firm to maintain its prices at a high, above-cost, level might create a "price umbrella" inviting inefficient firms to enter the relevant markets, or permitting already operating inefficient firms to survive, [FN32] even more so if the incumbent were supposed to hold its prices for a significant time period after it has made its initial pricing decision or after entry has occurred. [FN33] Fourthly, creating a standard binding a dominant firm to maintain its prices at higher-than-cost levels, say at the level the dominant firm maximises its profits, would necessitate its constant adjustment, in view of the continuously changing demand conditions, and might often result in substantial miscalculations. [FN34] Finally, a detailed assessment of the welfare losses of an above-cost price would place a considerable burden on parties involved in predatory pricing controversies and would render relevant court evaluations even more complex.
*218 Although there has been some disagreement on the measure of cost below which predation would be inferred, the average total cost standard seems to be the most conclusive: prices considerably below average total cost should be presumed predatory, unless there is sufficiently reasonable justification to explain them. By contrast, a marginal-cost standard, i.e. a standard based on the cost of producing an additional increment of output, along with being difficult to administer, might also lead to erroneous conclusions, especially in the range of output exceeding the dominant firm's optimal size of plant, where marginal cost exceeds average total cost. In this case, even a price lying in the area below the dominant firm's marginal cost may not exclude from the market firms equally efficient as the predator. [FN35] Neither would a test based on average variable cost, i.e. the cost varying with changes in output, and not including fixed costs, i.e. those not changing at different levels of output (e.g. management expenses, depreciation, property taxes), be suitable to protect new entrants having to incur considerable start-up expenses, or to engage in capital-intensive investments of high fixed costs; practically any incumbent would then be able to price below its total costs, thereby eliminating the new entrant. [FN36] Finally, below-cost pricing must be of a certain duration to have exclusionary effects on the equally or more efficient rivals of the predator.
The recoupment requirement
Assuming that firms, including dominant ones, are rational profit-maximisers, they plan their strategies with a view to the increase of their revenues. In this respect, practices designed to restrict or exclude competition may be dangerous from an antitrust point of view only if profit-maximising. By contrast, practices that may result in no profit, or decreased profits, because market forces may penalise the firms adopting them, are self-deterring [FN37]; no rational entrepreneur would normally consider embracing them. In the predatory pricing context, an incumbent is assumed to drop its price below its (average total) costs, only if it expects that it will later earn supra- competitive profits by excluding its smaller rivals from its market, or by successfully deterring new entry, and subsequently recouping, in the long-run, the losses of predation. As many academics have eloquently showed, predatory pricing should not be viewed as a static phenomenon merely entailing a short- term (below-cost) pricing, but as a long-run strategy followed by the market monopolisation of the incumbent for a period sufficient to permit it to recoup and increase its revenues; alleged predatory schemes not displaying such long- run properties should hence be of no antitrust concern.
Williamson and Baumol first put emphasis on the inter-temporal aspect of predation: the former, rather focusing on market positions in the wake of new entry, concluded that each incumbent firm, before such entry, selects a plant size permitting it later to expand and prevent entrants from operating at an efficient scale, and thus suggested a rule prohibiting output expansion for an 18-month period following the entry; Baumol, on the other hand, sought to prevent the predator's recoupment by prohibiting it from raising its prices for a finite period of five years after the exclusion of its rivals. [FN38] Williamson's and Baumol's rules, however, may lead to inefficient results, as they might stabilise output and discourage price-cutting for significant time periods, thus preventing the development of competition on its merits. [FN39] On the other hand, a few commentators, like Easterbrook, have supported the view that recoupment of predatory losses is improbable. They first argued that consumers may enter into long-term contracts with small firms at competitive prices, shielding them from exclusion, or with the predator at its current (below-cost) prices, to prevent the latter's recoupment. But consumers *219 may lack the necessary insight to predict that the incumbent's pricing is predatory and to seek such contracts, small rivals may be unable to furnish long-term supplies, while the incumbent will normally be unwilling to offer its products below cost to consumers for a long time. Alternatively, they argued that the recoupment may be improbable, as the assets of the excluded rival may be bought up by a third party willing to enter the market and compete with the incumbent by undercutting its supra-competitive prices; the purchase of those assets is, nevertheless, costly, and only parties with adequate access to large funds would be able to proceed with it. [FN40]
It thus seems that it is more appropriate to assess the feasibility of recoupment by putting a predatory pricing scheme in its appropriate market context. An incumbent holding an overwhelming market share, for example, may be able to prevent new firms from expanding in the market at an efficient scale and thus undercutting its supra-competitive profits. By the same token, where the structural characteristics of a market imply that the minimum efficient scale of entry is considerable, or is made at more than one level (e.g. wholesale and retail, manufacturing and distribution), or entails considerable expenses, or involves assets that are not transferable from other markets, recoupment might be expected with relative certainty. Finally, where demand is thriving, prospects for recoupment are good, whereas under conditions of declining demand and excess capacity, such prospects are poor. [FN41] Below- cost pricing schemes should thus be condemned if and only if conditions prevailing in the market where they are adopted are "tight" enough to allow the predator's recoupment. In all other cases, it would be safe to assume that below-cost pricing is not a rational strategy on the part of the incumbent, and that it actually benefits consumers by offering them, in the short-run, its products on favourable terms. [FN42]
The structural approach as the standard for analysing predatory pricing claims
The above examination of the predation prerequisites implies that the structure of a relevant market alone may decide whether a predatory pricing scheme may be potentially impairing competition and harming consumer welfare. In markets with high entry barriers, steady demand levels and large required scales of entry it is reasonable to assume that the probability of false negatives, i.e. errors of failing to characterise predatory behaviour as such, are increased, in contrast with situations involving open markets with low entry barriers, where false positives, i.e. errors in characterising innocent and competitive behaviour as predatory when it is not, are considerable. [FN43] An antitrust assessment should thus first entail a structural analysis, with its burden resting on the plaintiff. Once it has been established that market conditions favour recoupment, it is then wise to proceed to the determination of the defendant's costs in relation to its prices, to conclude whether the latter lie in the area below the defendant's average total costs, and, if so, whether such below-cost pricing has lasted for a substantial time period. The burden of such determination would shift to the defendant, which is best equipped with relevant knowledge and data.
The test described, first introduced by Joskow and Klevorick, [FN44] bears both considerable welfare and implementation advantages. If followed, efficiency will be furthered and consumer welfare impairments prevented, as only truly potentially anti-competitive schemes will be prosecuted, while others, for which recoupment is improbable, will be disposed of, even if involving prices below cost. Enforcement costs will also be minimised, and the optimal allocation of proof between plaintiffs and defendants will enable predation victims successfully to prosecute their dominant rivals, without placing excessive proof burdens on them; at the same time, incumbents will be able to rebut the charges by alleging that their prices have been at a level above their average total costs, and by displaying data to which they have ample access.
U.S. Case Law on Predatory Pricing: An Adoption of the Rudimentary Economic Analysis
To a large extent, holdings of American courts, especially the most recent ones, have applied the *220 structural standard described above and have grounded the assessment of the defendants' rationality of behaviour and harmful character of practices on basic economic analysis. This trend has been preceded by a large number of appellate court decisions applying the cost-based rule that either did not or did refer to some of them, without, however, explicitly using them to assess the feasibility of future recoupment by the defendants. [FN45]
The initial standard: a pure cost-based rule
Some American decisions on predatory pricing, under the impact of the prevailing scholarly theses, turned their main attention to the comparison between the defendant's prices or average total and average variable costs to infer predation, which violated section 2 of the Sherman Act or section 4 of the Clayton Act; the former prohibits dominant firms from wilfully acquiring or maintaining their monopoly power by anti-competitive conduct (monopolisation) [FN46] or from showing specific intent to achieve a monopoly, where there is a dangerous probability of their success (attempted monopolisation), while the latter prohibits price discrimination practices that are reasonably likely to harm competition. [FN47]
In this line of decisions, the element of "intent" or "will" was thus satisfied by proof of pricing below some appropriate measure of cost. Pricing below average variable cost was considered as sufficient evidence of malicious intent and a predicate of injury to competition, unless such pricing could be explained by some objective justification (decline of demand, alignment with the prices of a competitor, etc). Prices lying in the area above average variable and below average total cost were characterised as predatory, and in some circumstances, those slightly below average total costs, especially if additional behavioural evidence demonstrating a detailed plan to exclude competition in the relevant market was adduced. Finally, pricing above average total cost was found to be presumptively non-predatory, to promote efficiency, and to exclude only rivals less efficient than the defendant. [FN48]
Despite being mainly cost-oriented, some of those decisions also referred to structural factors without using them to assess the prospects of the defendant's recoupment. In this connection, the size of the relevant market and maximum number of rivals that the relevant market could bear, [FN49] brand diversification as a barrier to entry, [FN50] the existence of government price controls preventing actual recoupment, [FN51] and of trade secrets, patents and licences, excess capacity and price inelasticity as well as difficulties of buyers in changing to alternative products, were also considered as factors efficiently delineating the market where predation was taking place. [FN52] It is finally remarkable that some courts acknowledged the difficulties of calculation inherent in the pure cost-based rule. [FN53]
The prevalent two-step judicial standard
By contrast, more recent decisions seem to display a shift towards the structural approach initially advanced by Joskow and Klevorick. Significantly, the United States Supreme Court, in its Brooke Group ruling, [FN54] a few years ago, made it clear that, in predatory pricing cases, probabilities of future supra-competitive pricing and recovery of losses by the predator should first be considered before proceeding *221 to cost calculations, associating prices to cost and outlawing such schemes as harmful and anti-competitive.
In Brooke Group, Liggett, a cigarette manufacturer representing a mere 2 per cent of the highly concentrated and declining U.S. cigarette industry, in which two leader firms possessed a combined market share of almost 70 per cent, started competing vigorously by introducing a line of generic cigarettes and selling them at prices considerably lower than the traditional cigarettes. As Liggett's product was gaining ground, Brown & Williamson sought to retaliate against it, by initiating against Liggett a price war that lasted for a period of 18 months, and by allegedly dropping its prices in the generic segment below its average variable costs, in order to exclude, or at least discipline its competitor for its market behaviour. [FN55] Liggett alleged that Brown & Williamson had violated section 2 of the Sherman Act (monopolisation) and section 7 of the Clayton Act (primary-line price discrimination).
In its reasoning, the Supreme Court stated that, where the consideration of circumstances prevailing in the relevant market would preclude speculation concerning the prospective supra-competitive pricing by the alleged predator, in which case a reasonable jury would have decided that the latter's recoupment is improbable, a summary disposition of the case at bench is appropriate. [FN56] More specifically, the court focused on three factors that would most certainly have jeopardised Brown & Williamson's recoupment of predatory losses for the required time period:
a) the high levels of concentration and the oligopolistic structure of the market, in which a small number of firms adopted parallel behavioural patterns; those realities, however, would imply that Brown & Williamson would not achieve monopolistic status and would enjoy only limited supra-competitive profits, sharing them with the other oligopolists, while being subject to the constant threat of a competition outbreak, any time that a move of any of those oligopolists were misinterpreted by the others as an indication of competitive intent [FN57];
b) the existence of a wide variety of cigarette types, that would have rendered the post-predation co-ordination of the oligopolists' behaviour troublesome;
c) the presence of excess capacity in the cigarette industry, and the fact that demand in it was generally declining. [FN58]
The court thus concluded that, in this case, the scrutinised practices of Brown & Williamson neither had an actual adverse impact on competition, nor could potentially injure the competitive process in violation of section 2 of the Sherman Act or section 7 of the Clayton Act. [FN59] Without entering into complex cost analyses and determinations, the Court therefore held that the condemnation of Brown and Williamson's prices as predatory would probably block them at a high level, especially in this oligopolistic setting, and would thereby probably lead to the restriction of competition on its merits, and to the reduction of efficiency and consumer welfare.
In line with this approach, appellate court decisions advanced the various factors that make up the structure of the market in which allegedly predatory pricing schemes take place; only after a structure conducive to recoupment had been established did they proceed to a price-cost comparison allowing an inference of predation. In all other cases summary disposition was found suitable. Among those factors, the most frequently considered by courts, also reflecting the absence of the deep-pocket and recoupment requirements, extensively referred to in American legal scholarship, are the following:
a) the small size of the defendant, as specified by its market share, indicating that exclusion of rivals by the former might be easier and the recoupment period shorter [FN60];
*222 b) the fungibility of products in the relevant market, implying the abundance of competitive forces in it [FN61];
c) the absence of technical or other entry barriers [FN62];
d) declining demand in the relevant market, that might effectively bar a prospective predator's fulfilment of recoupment plans, as well as demand elasticity, indicating ample product substitutability [FN63];
e) a small minimum efficient size of entry, and a large maximum number of firms supported by the relevant market [FN64];
f) the insignificance of post-predation effects on industry output, prices and defendant's market share. [FN65]
Although in almost the totality of the discussed cases the examined market structure was not conducive to recoupment, the courts held that, had market conditions been favourable, predatory intent of the defendants would have been displayed by prices lying below cost lasting for a significant time period, [FN66] unless other objective justifications had been successfully proffered. [FN67]
Finally, given the obvious incentives of rivals to advance futile predatory pricing claims, which, if accepted, may easily lead to price maintenance at high levels and to the preservation of inefficient rivals, most United States courts, regardless of their standard of analysis, noted that both consideration of subjective intent evidence and the protection of individual competitors, instead of the competitive process at large, should be avoided. More specifically, the courts observed that, although anti-competitive intent may generally be inferred from below-cost pricing, over-reliance on other intent data may discourage legitimate competition on its merits. Business executives tend to exaggerate their statements, and misinterpretation of a company's internal documentation may blur the boundaries between aggressive competition and unfair competition, [FN68] leading to inefficient results. Announcements that a firm will underbid its rivals and drive them out of the market may mean, with equal plausibility, either that this firm will vigorously compete on the basis of superior efficiency, excluding its less efficient rivals, or that it will use its abundant financial resources, power and competitive advantages, to exclude from the market its equally or more efficient competitors, thus damaging competition. Solely relying on intent normally does not give any hint whether the prices imposed by an alleged predator are above or below its average total costs, nor that there is a likelihood of the latter recouping its losses. On the other hand, the basic principle that preservation of competition, and not of individual competitors, is of antitrust concern, is likewise often repeated; a practice therefore merely excluding a single competitor, perhaps because it is less efficient, would not give any hint as to whether a predatory claim may be valid or not, unless there is a general adverse impact on competition. [FN69]
*223 A Proposed Rule for European Predatory Pricing Controversies: The Two- tier American Approach
The new approach
In Part II of this article it was noted that E.U. officials and judges alike examine predatory pricing controversies under Article 86 and admit that only dominant, usually multi-market, firms may indulge in this kind of behaviour. They base their decisions, however, on a pure cost-based rule, thus disregarding the inter-temporal character of such behaviour, or focus on subjective intent evidence, without examining whether the allegedly predatory schemes at stake involve below-cost pricing, or have the potential of restricting competition. They even regard above-cost pricing by dominant firms as exclusionary, although the latter may drive only less efficient firms from the market. As was seen, however, such approaches may discourage legitimate competitive behaviour on the basis of efficiency, or, at least, deprive consumers of short-term low pricing, even should this be below a firm's cost, thus impairing consumer welfare. It is thus reasonable to conclude that the European holdings are at odds with the announcements of competition law objectives, as described in the annual Competition Reports of the Commission. If, as the most recent among those Reports state, [FN70] the optimal allocation of available resources in the European market is to be furthered towards uses that consumers value the most, even if at the price of the exclusion of small, inefficient firms, on the contrary those decisions seem indirectly to favour high prices and preservation of such inefficient firms. By contrast, adoption of the American tests for predation, as proposed by American scholars, and incorporated in recent U.S. jurisprudence, could serve the objective of efficiency, in line with the objectives of the Reports. Finally, this test would substantially lighten the workload of the European Commission and the courts, since it would lead to an easy and speedy disposition of cases not having the potential of impairing competition and efficiency, without proceeding to elaborate cost analyses. [FN71] At the same time, testing predation on the basis of efficiency would not create artificial barriers for intra-Community trade, in contradiction to European Competition Law objectives: while inefficient firms, following such a test, would be driven from the European market, the efficient ones would survive and continue playing their significant role in the development of cross-border transactions and the completion of European integration. [FN72]
A fresh look at the European cases: British Sugar, Tetra Pak, AKZO, Hilti under the new standards
An application of the new proposed American-type standard to the situations already encountered by the European Commission and the courts may practically demonstrate its advantages.
British Sugar, [FN73] had it been decided according to the two-tier test proposed in this article, would probably have come out differently. As a first step, the Commission would have looked at the structure of the relevant English market, and seen the probability for development of potential competition from other neighbouring countries. Indeed, it might have defined the relevant geographic market of sugar retail sales in a somewhat broader way, had it taken into account the fact that British Sugar's efforts for recoupment after a long period of predatory losses, despite the general existence of entry barriers in the market, would probably have been undermined because of imports originating from already operating sugar firms in, say, France. Although it is true that British Sugar was striving to combat those imports by artificially low pricing at the retail level, prevention of such imports would have been untenable as soon as recoupment through supra-competitive pricing began. [FN74] The court would thus have seen the whole case in perspective, and would have viewed the effects of British Sugar's practices in the long-run, probably disposing of it without engaging in the determination of British Sugar's costs at the retail level, comparing those costs with its actual prices, or defining its pricing behaviour as a price squeeze. *224 Such considerations would not obstruct efficiency, as viable alternatives were available for British consumers. [FN75] Neither would the exclusion of Napier Brown, a single competitor, have presaged an adverse effect on overall competition. [FN76] The development of importations into the United Kingdom from other Member States would also have contributed to the development of inter-state trade. [FN77]
Similarly, if the Commission and the Tetra Pak court had followed the same time-saving standard, instead of becoming involved in the complex assessments of costs of non-aseptic machines and cartons to establish the losses the defendant suffered on those items for a period of seven years, [FN78] it would have focused on Tetra Pak's and the market structure, as well as product characteristics and other aspects of Tetra Pak's behaviour, to conclude that the recovery of its losses could indeed be possible. First of all, Tetra Pak was able to subsidise its losses in the market for non-aseptic machines and cartons, which it sought to monopolise through alleged predatory pricing, from the monopoly gains it earned in the markets of aseptic machines and cartons, characterised by considerable technological barriers. [FN79] Secondly, entry by third parties in the non-aseptic markets for machines and cartons would be very difficult and costly, and would necessitate the offer by the entrant of a variety of products, as well as its vertical integration. Entrants would also have to overcome consumers' preference for Tetra Pak, the inevitable supplier in the non-aseptic sector of many customers that it also served in the aseptic sector. Finally, by virtue of Tetra Pak's practice of tying non-aseptic machines and cartons, recoupment of its significant losses in the non-aseptic machine sector would be subsidised by its gains in the non-aseptic carton sector. [FN80] Given the defendant's extended below-average-variable-cost pricing, the court would have found it violating Article 86. It may be observed that, in this case, both efficiency and the integration of the European market along national lines are impaired as a result of the defendant's predatory and other practices. [FN81]
Finally, instead of engaging in speculations on AKZO's intent, both the Commission and the ECJ would have assessed the feasibility of its recoupment in the organic peroxides market, i.e. the market it sought to monopolise. Indeed, entry into this market would be difficult, as any entrant would have to offer a broad range of products as well as significant know-how before entering the market, [FN82] so that AKZO could finance its losses in the narrower flour additive market from the gains in the overall organic peroxides market, an option not available to ECS. Although AKZO's average variable and total costs were calculated, and the circumstances in which prices fell below those levels were specified, the extensive reliance of the Commission on AKZO's intent and plan to destroy ECS could not have provided hints as to the rationality of AKZO's behaviour, or the adverse impact it had on competition, on efficiency, or on market integration. [FN83] The same applies to the assessment of behaviour entailing pricing at a level between average total and average variable costs, that, according to the opinion of the ECJ, should also rely on evidence of malicious intent and exclusionary plans of the alleged predator. In Hilti, the Commission would have likewise omitted stating that predatory abuse may occur even at prices above cost: it would instead have acknowledged that such pricing may only be competitive, exclude only rivals less efficient than the dominant firm, as well as promoting efficiency, without obstructing European integration. Preservation of inefficient rivals would have been acknowledged as contrary to the objectives of European antitrust. [FN84]
Conclusion
Although it might initially be thought that an American-type two-tier structural test for predatory pricing, inspired by American legal scholarship and jurisprudence, may run contrary to the primary goals of European antitrust, i.e. efficiency and market integration, its adoption in the European setting might provide a speedy and administrable alternative for European officials and judges, following which only practices of rational firms that have a chance of recouping are outlawed, in line with the above-mentioned objectives.
FN Emmanuel P. Mastromanolis, University of the Aegean, Greece. The author is grateful to Manos Pisanis, who provided him with valuable resources for this article from the Commission's Library in Brussels.
FN1. With the exception, perhaps, of such pioneering articles as the one by Merkin, "Predatory Pricing or Competitive Pricing: Establishing the Truth in English and E.E.C. Law", 7 Oxford J. Legal Stud. 182 (1987), criticising the European Commission's approach in its AKZO decision as leading to inefficient results; and Adams, "European and American Antitrust Regulation of Pricing By Monopolists", 18 Vand. J. Transnat'l L. 1, 24-26 (1985), noting that the initial treatment of predatory pricing by the European Community officials sharply differed from the respective American standards of analysis, as it did not rely on a cost-based test, and revealed the Commission's willingness to engage in detailed price regulation. Adam's comments have become obsolete, because cost-based tests are now widely used in predatory pricing controversies by both the Commission and the E.C. judiciary. See also Vogel, Note, 1992 J.C.P. II No. 12, 69, Vogel, Note, 1992 J.C.P. II No. 21, 172, on the lack of an explicit alignment of E.U. jurisprudence with the dicta of the First Circuit of the United States that characterise prices above average total costs as non- predatory; Subiotto, "The Special Responsibility of Dominant Undertakings Not to Impair Genuine Undistorted Competition", 18 World Competition 5, 17 (1995), making it clear that, unlike U.S. courts, E.C. judges are generally unwilling to examine an alleged predator's recoupment prospects before inferring the eliminatory character of its scrutinised pricing scheme; Smith, "The Wolf in Wolf's Clothing: The Problem with Predatory Pricing", 14 Eur. L. Rev. 209, 215 (1989); and Commission of the European Communities, Predatory Pricing (1987), a Report prepared by L. Phlips of the Centre for Operations Research and Econometrics in Belgium, under the auspices of the Commission.
FN2. Areeda and Turner, "Predatory Pricing and Related Practices Under Section 2 of the Sherman Act", 88 Harv. L. Rev. 697 (1975), an article that triggered a flood of academic responses, and was extensively cited in many subsequent court decisions.
FN3. See, e.g. Commission of the European Communities, Fourteenth Report on Competition Policy 11 (1984), where the "resource allocation function", the "incentive function" and the "innovation function", all aiming at the efficiency goal, are thought to be primarily satisfying the basic objectives of the Treaty of Rome of 1957 establishing the then European Community. See also Commission of the European Communities, Twenty-First Report on Competition Policy 11 (1991).
FN4. The Introduction of the Fifteenth Report on Competition Policy 11 (1985) eloquently proves that innovation might lead to increased performance of European industry and assist the development of a "technology Community".
FN5. Thus, the unfettered application of competition laws in formerly protected and regulated industries (e.g. energy, telecommunications, etc.), which are now scheduled to be liberalised, provides a guarantee that the monopolistic status enjoyed by some firms in them will shortly cease to exist, and the latter will have engaged in extensive innovation and favourable pricing strategies to remain in business. See Twenty-First Report, n. 3 above, at 15, Commission of the European Communities, Twenty-Third Report on Competition Policy 45 (1993), Commission of the European Communities, Twenty-Fourth Report on Competition Policy 2 (1994).
FN6. But see Commission of the European Communities, Ninth Report on Competition Policy 10 (1979), enunciating the principle of fairness as a major tool of European competition policy, aiming, among others, at the protection of small and medium-sized firms, no matter if they are efficient or not. Such principles now seem to have been abandoned, as is evident from the wording of subsequent and more recent Competition Reports. See also Commission of the European Communities, Fifth Report on Competition Policy 13 (1975).
FN7. See, e.g. Fifth Report, n. 6 above, at 58, Commission of the European Communities, Sixth Report on Competition Policy 35-37 (1976), and Commission of the European Communities, Seventh Report on Competition Policy 17 (1977), providing for the establishment of a system for monitoring and minimising the price disparities existing from national market to national market; Commission of the European Communities, Eighth Report on Competition Policy 24 (1978), referring to the Chiquita decision of the Commission as an example of a case involving practices that create bans for intra-Community trade, and contributing to the fragmentation of national markets. See also Commission of the European Communities, Sixteenth Report on Competition Policy (1986) at 14, on the role of state aids in reducing the disparities now existing between different regions of the Union, Twenty-Third Report, n. 5 above, at 44, on the goal of integration in view of the Maastricht Treaty, and Adams, n. 1 above, at 27.
FN8. See Ritter, Brown and Rawlinson, E.E.C. Competition Law: A Practitioner's Guide 313 (1991).
FN9. This might be especially true in a saturated market, where consumers make their purchasing decisions on the basis of price factors, and where the prospects of new entry, following the exclusion of a rival, are dim. On the importance of price competition in saturated European markets, see Commission of the European Communities, Thirteenth Report on Competition Policy 231-233 (1983).
FN10. For a discussion on whether limit pricing, i.e. above-cost pricing mostly directed against less efficient firms, may be considered as predatory, see text below under "The price-below-cost requirement".
FN11. But see Commission's decision, National Carbonizing Co. Ltd [1976] O.J. L35/6, 7, implying that the exclusion of even reasonably efficient firms, regardless of their level of efficiency, is equally dangerous. See also Seventh Report on Competition, n. 7 above, at 114.
FN12. See Twenty-First Report, n. 3 above, at 80, on the combined Tetra Pak's predatory and other practices (refusal to sell, tying, etc.) on the segregation of national markets.
FN13. ECS/AKZO [1985] O.J. L374/1, 4, 18, [1986] 3 C.M.L.R. 273, on appeal Case C-62/86, AKZO Chemie BV v. Commission [1991] E.C.R. I-3359, 3451.
FN14. ibid., at 3449, where the market of organic peroxides was defined as the relevant market, although the abuse took place in the flour additives sub- market. On the question of AKZO's dominant position see ibid. at 3381 (Report for the Hearing), 3405 (Opinion of Advocate General Lenz). See also Smith, "Abuse of a Dominant Position: Predatory Pricing: AKZO Chemie BV v. Commission", [1991] E.C.L.R. 205, 209.
FN15. Commission's decision Tetra Pak II, [1992] O.J. L72/1, 20, [1992] 4 C.M.L.R. 551. See Levy, "Tetra Pak II: Stretching the Limits of Article 86?", [1995] E.C.L.R. 104, 109, arguing that the close associative links between the markets of aseptic machines and cartons, on the one hand, and the markets of non-aseptic machines and cartons, on the other, made it possible for Tetra-Pak to monopolise the latter by abusing its power derived from the former.
But see Subiotto, n. 1 above at 13, questioning the feasibility of the monopolisation of the non-aseptic market by Tetra-Pak, as its sole dominant position in the aseptic market would not suffice, and Korah, An Introductory Guide to E.C. Competition Law and Practice 92 (4th ed., 1994), noting that, in cases of multi-market firms with many subsidiaries, predatory pricing should be established only if prices have fallen below the cost of the whole group, a conclusion that actually seems to negate the harm that cross-subsidisation of national subsidiaries may inflict on European competition.
FN16. Commission's decision, Napier Brown/British Sugar [1988] O.J. L284/41, [1990] 4 C.M.L.R. 196.
FN17. By contrast, in both AKZO, n. 13 above, at 3, AKZO v. Commission, n. 13 above, at 3450 and Tetra Pak II, n. 15 above, at 5, market conditions were conducive to recoupment. In both cases, entry in the market required substantial investments and technical knowledge, so that barriers were high. In neither of the cases, however, was the possibility of recoupment assessed. See, e.g. ibid. at 33, 34, where the Commission only commented on the below-cost level of Tetra Pak's prices. This position was recently reiterated in the newest examination, by the ECJ, of the case on appeal, as realistic chance of recoupment was rejected in it as a requirement for the admission of a predatory pricing claim. See Case C-333/94P Tetra Pak Int'l S.A. v. Commission [1997] 4 C.M.L.R. 662, 724. See also a comment on the recently enacted French Law on Competition, defining as predatory only prices lower than average variable costs, regardless of the possibility of the predator's recoupment: Baker and McKenzie, Eur. Bull. 10 (1997). But see Ritter and Brown, n. 8 above, at 274, 275 commenting that narrow relevant market definitions in European Union antitrust predominate. See also Holden and Lavagnini, "Two Newspapers for the Price of One: Unfair Competition? Recent Decisions of the Italian Courts", [1995] E.C.L.R. 181, 184, noting that recent decisions of Italian courts show that the latter place special significance on the "inevitability of monopolistic effect" before judging whether given pricing behaviour is unfair.
FN18. AKZO, n. 13 above, at 20, AKZO v. Commission, n. 13 above, at 3372, 3373 (Report for the Hearing). See also Smith, n. 14 above, at 210, Laurent, "La Pratique de Prix Predateurs: Un Abus de Position Dominante", 300 Revue Marché Commun 468, 471 (1986).
FN19. Indeed, the court, annulling in part the Commission's decision, held that a company's pricing is predatory, in violation of Article 86, only when below average variable cost, and, in some circumstances, below average total cost, when the defendant's intent and plans would so indicate, ibid., at 3455. See also Bellamy and Child, Common Market Law of Competition 662 (4th ed. 1993), Subiotto, n. 1 above, at 15, on the use of the subjective evidence in connection with the objective price-cost relation in the decisions of both the Commission and the CFI in the Tetra Pak II case, and Everton, "Discrimination and Predation in the United Kingdom: Small Grocers and Small Bus Companies: A Decade of Domestic Competition Policy", [1993] E.C.L.R. 6, 9, observing that evidence of predatory intent is required also by the U.K. Office of Fair Trading, especially in circumstances where the scrutinised prices lie in the area between average total and average variable costs. But see Soames and Ryan, "Predatory Pricing in Air Transport", [1993] E.C.L.R. 151, 159-161, alleging that the application of the AKZO test in sectors, like the air transportation, that involve considerable fixed costs might necessitate the examination of subjective and dubious "intent" data whenever prices fall below average total cost; Levy, "Case C-82/86: AKZO Chemie BV v. Commission", 29 Common Mkt. L. Rev. 415, 425, 426 (1991), on the difficulties of applying a subjective standard as the one enunciated by the Court of Justice in AKZO; Guy, "Case Comment: The AKZO Case: Predatory Pricing as an Abuse of a Dominant Position", [1987] 3 E.I.P.R. 86, 89; Sharpe, "Predation", [1987] E.C.L.R. 53, 75; and Hinojosa Martinez, "Predatory Pricing Literature Under European Competition Law: The AKZO Case", [1993] L.I.E.I. 95, 121, 127, noting the relative lack of concretion of "intent" may leave some ground for speculation.
FN20. Eurofix-Bauco v. Hilti, [1988] O.J. L65/19, 37, [1989] 4 C.M.L.R. 1677, on appeal Case T-30/89, Hilti AG v. Commission of the European Communities [1991] E.C.R. II-1439.
FN21. AKZO, n. 13 above, at 20.
FN22. See, e.g. AKZO, n. 13 above, at 23 (holding that the prevention of ECS's expansion to Germany, because of AKZO's practices, altered the flow of intra- Community trade), Hilti, n. 20 above, at 38 (where penetration of independent nail makers to the European market was obstructed), Napier Brown, n. 16 above, at 56 (involving an alteration of intra-Community trade) and Tetra Pak, n. 15 above, at 38 (where Tetra Pak's actions contributed to the compartmentalisation of the European market).
FN23. See Dirlam, "Marginal Cost Pricing Tests for Predation: Naive Welfare Economics and Public Policy", 26 Antitrust Bull. 769, 774 (1981), mentioning "staying power" and relative efficiency of a firm as prerequisites of predation; but see Isaac and Smith, "In Search of Predatory Pricing", 93 J. Pol. Econ. 320, 324-326 (1985), alleging that the phenomenon of predatory pricing as produced in a laboratory environment is untenable, even under the assumption of a large pocket firm, the existence of a small number of rivals and the relative efficiency of the alleged predator.
FN24. For a proper definition of markets, see the criteria of functional and reactive interchangeability, determining which products are substitutes and which not, in Commission of the European Communities, Definition of the Relevant Market in the Community Competition Policy 50 (1986).
FN25. See, e.g. the Commission's Report on Predatory Pricing, n. 1 above, at 37, alleging that only incomplete knowledge of potential victims may ensure that predation will be successful.
FN26. See, e.g. Scherer, "Predatory Pricing and the Sherman Act: A Comment", 89 Harv. L. Rev. 868, 890 (1976), proposing an open-ended rule of reason analysis, on the basis of a complex set of key variables that should be examined before a dominant firm's pricing is considered as predatory. Among those variables, the main ones are the relative cost positions of the dominant firm and its rivals, the scale of minimum efficient entry for the particular market, the effects of the dominant firm's pricing conduct on the rivals, and the post-predation development of scale economies and of other productive efficiencies by the dominant firm. Specification of the first two factors will decide on whether the "predator's" observed below-cost pricing is due to the large output introduced in the market by the entrant, which drove market prices to low levels, and not to the "predator's" sole decision; ibid., at 874. Post- predation effects may also indicate whether even below-cost pricing brings beneficial welfare results. Besides, in this article, limit-pricing, i.e. above-cost pricing, too low to allow small rivals to expand in the market and thereby to achieve principal economies of scale, is also considered as potentially exclusionary; ibid., at 880, 881. Thus, in contrast with the Areeda and Turner standard, which it heavily criticises, Scherer would argue that under certain circumstances, above-cost may be predatory, while below-cost pricing may be not, if followed by some kind of efficiency. Scherer's test, however, requires too many data to be monitored, some of them difficult to obtain or calculate, namely: at least two cost levels (the dominant firm's and those of the entrants or small firms); post-entry output expansions or limitations by the dominant firm; and post-exclusion efficiencies. On the other hand, despite the proposal included in this article, limit pricing may also be reflecting competition on the merits and superior efficiency of the dominant firm, and not its exclusionary intent.
See also Professor Williamson's landmark article, "Predatory Pricing: A Strategic and Welfare Analysis", 87 Yale L. J. 284 (1977), putting emphasis on the expansion of output by incumbents, preventing new entrants from achieving minimum efficient size and from surviving in the relevant market. According to Williamson, if cost-based rules, such as the one used in the Areeda-Turner test, are applied, such expansion might be preceded by an inefficient output prepositioning by the incumbent, that might allow post-entry expansions depending on which particular cost (marginal, average total or average variable cost) standard is used; ibid., at 306-331. To deter such prepositioning, according to Williamson's proposal, an incumbent should be prohibited from expanding its output for a period of 18 months after the entry has occurred. Despite its relative administrability, however, this standard, as will be soon seen, may lead to considerable inefficiencies, as it may lead to a preservation of the incumbent's prices at high levels, and to the protection of inefficient new entrants, whenever a new entry occurs. See below, under "The recoupment requirement".
Similar weaknesses may also be attributed to Baumol's proposed test, mandating a stabilisation of prices of the incumbent at the level set when entry initially occurred, which would prevent a potential predator from recouping its losses, and would remove it from any predation incentives. See Baumol, "Quasi- Permanence of Price Reductions: A Policy for Prevention of Predatory Pricing", 89 Yale L. J. 1, 4 (1979).
FN27. See n. 2 above, at 732, 733.
FN28. See, e.g. Areeda and Turner, "Scherer on Predatory Pricing: A Reply", 89 Harv. L. Rev. 891, 892 (1976), Scherer, "Some Last Words on Predatory Pricing", 89 Harv. L. Rev. 901 (1976). See also Williamson, n. 26 above, at 331, Areeda and Turner, "Williamson on Predatory Pricing", 87 Yale L. J. 1337, 1346 (1978), "Williamson on Predatory Pricing II", 88 Yale L. J. 1183, 1188, 1189 (1978), Dirlam, n. 23 above, at 788. For a concise summary of the main pieces of legal literature on the subject, see Miller and Pautler, "Predation: The Changing View in Economics and the Law", 28 J. Law & Econ. 495 (1985), Calvani, Lynch, "Predatory Pricing Under the Robinson-Patman and Sherman Acts: An Introduction", 51 Antitrust L. J. 375 (1982), and Hinojosa Martinez, n. 19 above, at 97-115, classifying proposed tests for predatory pricing as "price- cost" tests, that only examine the level of prices and thus lack a long-run dimension, "structural" tests, that require a detailed structural analysis of the relevant market, "intentional" tests, that are based on controversial evidence of the predator's intent, "performance" tests, that clearly monitor pricing and output decisions of the dominant firms, but may lead to considerable resource misallocations, and, finally, "all-inclusive" tests, that take into account too many complex factors and are hence difficult to apply.
FN29. The profit-maximising price of a dominant firm or a monopolist might usually be at levels exceeding its costs, as indicated in Areeda and Turner, n. 2 above, at 702.
FN30. Areeda and Turner, n. 2 above, at 702.
FN31. See Part I of this article.
FN32. See "Williamson on Predatory Pricing", n. 28 above, at 1342.
FN33. See Williamson, n. 26 above, at 332, Baumol, n. 26 above, at 4.
FN34. See Areeda and Turner, n. 2 above, at 707: "Determination of a reasonable price would require constant supervision, as cost, demand, and technological functions change" (emphasis added).
FN35. ibid., at 719, 720.
FN36. See Easterbrook, "Predatory Strategies and Counterstrategies", 48 U. Chi. L. Rev. 263, 294, on the "first mover advantages", Joskow, Klevorick, "A Framework for Analyzing Predatory Pricing Policy", 89 Yale L. J. 213, 249-257 (1979), "Williamson on Predatory Pricing II", n. 28 above, at 1188, 1189.
FN37. See Easterbrook, n. 36 above, at 267-268. See also Liebeler, "Whither Predatory Pricing? From Areeda and Turner to Matsushita", 61 Notre Dame L. Rev. 1052, 1055, 1058, 1059, 1065 (1986), discussing, among others, Inglis v. ITT Continental Baking Co., 104 F.T.C. 280 (1984) and California Computer Prods, Inc. v. IBM Corp., 613 F.2d 727 (9th Cir. 1979); in both cases, considerable excess capacity and resulting low prices would probably prevent the recoupment of the predatory losses of the defendants. In Matsushita Elec. Indus. v. Zenith Radio Corp., 106 S.Ct. 1348 (1986), on the other hand, recoupment could not be realistically expected, as the predation had continued for over 20 years, and the losses were substantial.
FN38. Williamson, n. 26 above, at 284, 332, Baumol, n. 26 above, at 2, 4. Both scholars acknowledged that outputs and prices should be in each case adjusted, in view of the ever-changing demand situations. See Williamson at 333, Baumol at 7. On the difficulties of this adjustment, see "Williamson on Predatory Pricing", n. 28 above, at 1346.
FN39. ibid., at 342. Although Williamson explains that his approach does not lead to competition restrictions or to undue protectionist results, it is true that holding output unchanged is in many ways similar to price maintenance: preservation of output leads, to a major extent, to the creation of price floors. For an attempt to differentiate between output preservation and price maintenance, see Williamson, n. 26 above, at 338-340.
FN40. See Easterbrook, n. 36 above, at 267-276. On the non-feasibility of predatory pricing, see also an early article by Koller entitled "The Myth of Predatory Pricing", 4 Antitrust J. L. & Econ. 105, 108 (1971), arguing that collusion and mergers are less expensive alternatives than predation for an incumbent. Collusion at its best, is, however, less profitable than successful predation, as it involves profit sharing between the members of the cartel, and is subject to cheating, while merger is easily detectable and subject to immediate antitrust scrutiny.
FN41. Joskow and Klevorick, n. 36 above, at 225-234.
FN42. On the long-run effects on consumer welfare, graphically depicted, especially where the excluded rivals are less efficient than the predator, see Easterbrook, n. 36 above, at 297-304. Optimal damages awarded to the victims of predation should, according to Easterbrook, reflect all such welfare losses, in view of the demand/cost changes in the relevant market. ibid., at 319-325.
FN43. See Joskow and Klevorick, n. 36 above, at 234, 235.
FN44. ibid.
FN45. For a broad overview of predatory pricing decisions of American courts, covering the period from 1975 until 1986, see Liebeler, n. 37 above, at 1077- 1094.
FN46. 15 U.S.C.A. para. 2.
FN47. 15 U.S.C.A. para. 15.
FN48. See, e.g. D&S Redi-Mix v. Sierra Redi-Mix & Contracting Co., 692 F.2d 1245 (9th Cir. 1982), where ninth-month pricing below average variable cost was found to be predatory, Murphy Tugboat Co. v. Crowley, 658 F.2d 1256 (9th Cir. 1981), cert. denied, 50 U.S.L.W. 3765 (U.S. March 23, 1982) (No. 81-1223), Memorex Corp. v. IBM Corp., 636 F.2d 1188 (9th Cir. 1980), cert. denied, 52 U.S. 972 (1981), Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 233 (1st Cir. 1983), commenting that prices above total cost could exclude only less efficient rivals, and would not go beyond the ambit of normal business dealings, Arthur Langenderfer, Inc. v. S.E. Johnson Co., 729 F.2d 1050 (6th Cir. 1984), cert. denied, 469 U.S. 1036 (1985), noting that prices above average total cost are not predatory, and that no firm is required to price at levels above its rivals' costs, Bayou Bottling, Inc. v. Dr Pepper Co., 725 F.2d 300 (5th Cir. 1984), cert. denied, 400 U.S. 833 (1984), C.E. Servs. v. Control Data Corp., 759 F.2d 1241, 1247 (5th Cir. 1985), Morgan v. Ponder, 892 F.2d. 1355, 162 (8th Cir. 1989), noting that the defendant's pricing had not been below its average total costs, and had no exclusionary impact on firms equally or more efficient than it was, ibid., at 1363. See also Super Turf, Inc. v. Monsanto Co., 660 F.2d 1275 (8th Cir. 1981), using a variable cost test to infer predation, and McGahee v. N. Propane Gas Co., 858 F.2d 1487, 1502 (11th Cir. 1988). Meeting a competitive offer has in many cases been an affirmative justification for defendants' pricing at an unfair level. See, e.g. Xeta, Inc. v. Atex, Inc., 852 F.2d 1280, 1284 (Fed. Cir. 1988).
FN49. See, e.g. Morgan, n. 48 above, at 1359, n. 10.
FN50. U.S. Philips Corp. v. Windmere Corp., 861 F.2d 695, 703 (Fed. Cir. 1988).
FN51. Oahu Gas Serv., Inc. v. Pac. Resources, Inc., 838 F.2d 360, 367 (9th Cir. 1988).
FN52. See McGahee, n. 48 above, at 1495.
FN53. See, e.g. Morgan, n. 48 above, at 1360, 1361, n. 17, commenting on the problem of cost allocation between different products of the same firm, U.S. Philips, n. 50 above, at 701-703.
FN54. Brooke Group Ltd v. Brown & Williamson Tobacco Corp., 1993-1 Trade Cas. 70,277.
FN55. ibid., at 70,379, 70,381.
FN56. ibid., at 70,384, where it is generally stated that low entry barriers, inadequate capacity of the alleged predator to absorb the shares of its excluded rivals or its inability to promptly develop its capacity for this purpose would be indicia of the non-feasibility of the recoupment of its losses.
FN57. ibid., at 70,388.
FN58. ibid., at 70,377, 70,388.
FN59. On the contrary, the Court found the actual effects of Brown & Williamson's pricing war were insignificant, as the output of the generic cigarettes segment had increased, albeìt at a somewhat slower rate than expected in market projections. ibid., at 70,387. The dissenting opinion of the Court, on the other hand, put special emphasis on the fact that Brown & Williamson's prices had been below the firm's average variable costs, that effective co-ordination between the oligopolists would be possible and, finally, that prices had increased after the price war, although it noted that assessment of the anti-competitive consequences of the scrutinised practices, and hence of the recoupment probability, is not required in similar section 2 jurisprudence. ibid., 70,393, 70,396.
FN60. See, e.g. A.A. Poultry Farms, Inc. v. Rose Acre Farms, 881 F.2d 1396, 1401, 1403 (7th Cir. 1989) where an egg-processing firm possessed 1 per cent of the market, an obviously non-dominant position, whose predatory tactics would certainly be unsuccessful, Am. Academic Suppliers, Inc. v Beckley-Cardy, Inc., 922 F.2d 1317, 1320 (7th Cir. 1991) (alleged predator had market share of 3 per cent and duration of its recoupment would have precluded recoupment), Stitt Spark Plug Co. v. Champion Spark Plug Co., 840 F.2d 1253, 1256 (5th Cir. 1988). An extended duration of predatory losses may similarly make prospective recoupment troublesome. See, e.g. Matsushita Elec. Indus. v. Zenith Radio Corp., 106 S. Ct (1986), a Supreme Court decision involving a predatory conspiracy that lasted 20 years, inflicting an enormous loss on conspirators that made the recoupment improbable. See also Indian Coffee Corp. v. Procter & Gamble Co., 752 F.2d 891 (3rd Cir. 1985), Conoco, Inc. v. Inman Oil Co., 774 F.2d 895, 898 (8th Cir. 1986), in which summary disposition was not ordered, although recoupment factors were of central importance.
FN61. See A.A. Poultry Farms, n. 60 above, at 1401.
FN62. See, e.g. Barr Laboratories, Inc. v. Abbott Laboratories, 978 F.2d 98, 103 (3rd Cir. 1992), where technical barriers in the generic drug manufacturing business were found to be non-existent, Richter Concrete Corp. v. Hilltop Concrete Corp., 691 F.2d 818 (6th Cir. 1982) and Chillicothe Sand & Gravel Co. v. Martin Marietta Corp., 615 F.2d 427 (7th Cir. 1980), where directed verdict was granted. See also Adjusters Relace-A Car, Inc. v. Agency Rent-A-Car, Inc., 735 F.2d 884, 893 (5th Cir. 1984), cert. denied, 469 U.S. 1160 (1985), where, although not decided on summary judgment, it was noted that entry barriers were "slight--not negligible, perhaps, but assuredly not so great to permit a monopoly born of predatory pricing to be exploited before new competitors would scotch the potential for extranormal profits".
FN63. See, e.g. A.A. Poultry Farms, n. 60 above, at 1397, in which an unconcentrated industry with surplus capacity was involved. But see Kelco Disposal, Inc. v. Browning-Ferris Indus., 845 F.2d 404, 408 (2nd Cir. 1988), involving an industry characterised by inelastic demand. See also the comments of Liebeler, n. 37 above, at 1058-1060 on the Inglis v. ITT Continental Banking Co., 668 F.2d 1014, 1025 (9th Cir. 1981), noting that the involved industry was characterised by virulent overcapacity, and should have thus been decided on summary judgment.
FN64. See Kelco Disposal, n. 63 above, at 409 (where entry costs were significant and the market supported only two firms.
FN65. See Barr Laboratories, n. 62 above, at 113 (industry in which significant entry occurred in the post-predation period, and prices remained stable).
FN66. See, e.g. Kelco Disposal, n. 63 above, at 407, advancing, however, a "reasonably anticipated average variable cost" standard. For the proper measure of cost, see n. 48 above, and accompanying text, as well as nn. 35 and 36 and accompanying text.
FN67. See, e.g. Xeta, Inc. v. Atex, Inc., 852 F.2d 1280, 1284 (Fed. Cir. 1988), where meeting competition in good faith was found to constitute such an affirmative defence.
FN68. See, e.g. Morgan, n. 48 above, at 1359, noting the "futility in attempting to discern predatory conduct solely through evidence of a defendant's predatory intent", A.A. Poultry Farms, n. 60 above, at 1402, focusing on the increase of the litigation costs as result of a use of an intent criterion, that may also undermine the accuracy of the decisions.
FN69. "Competition is a ruthless process. A firm that reduces cost and expands sales injures rivals--sometimes fatally ... These injuries are byproducts of vigorous competition, and the antitrust laws are not balm for rivals' wounds. The antitrust laws are for the benefit of competition, not competitors." Morgan, n. 48 above, at 1359. See also Everton, n. 19 above, at 12-14, on the effects of price competition on small market operators.
FN70. See nn. 3 to 6 above and accompanying text.
FN71. See above, second and fourth sub-sections of Part III. By subsequently shifting the proof of analysis to defendants, this test would also give the latter the opportunity to establish the level of their economic costs, as opposed to accounting costs, which are usually set upwards in an effort to minimise taxes. See Adams, n. 1 above, at 26.
FN72. See n. 6 above and accompanying text. See also Phillips, "Who Gains From Predatory Pricing", 158 OECD Observer 20, 22 (1989), noting that aggressive price cuts may foster European integration, and hence a relaxed view towards predatory pricing should be welcome.
FN73. See n. 16 above.
FN74. Of course, the Commission noted that those imports were of a complementary nature, and not a fully competitive alternative; however, they were sufficient to undermine the recoupment efforts of British Sugar: ibid., at 52.
FN75. See nn. 61 to 65 above and accompanying text.
FN76. See n. 69 above and accompanying text.
FN77. See British Sugar, n. 16 above, at 57.
FN78. See Tetra Pak, n. 15 above, at 9, 13, 15, 32, 33.
FN79. ibid., at 19, 20.
FN80. ibid., at 22-30, 32.
FN81. ibid., at 38.
FN82. See AKZO, Commission's decision, n. 13 above, at 18, court's decision at 3449, 3452.
FN83. Commission's decision at 23.
FN84. See Hilti, n. 13 above, at 37.
