Let's talk antitrust - What you need to know about excessive pricing

Caroline Thomas: Richard, I wondered if I could begin by asking you about the starting point for considering excessive pricing to be an abuse of dominance. It’s a well-established type of abuse of dominance dating back quite some years, but perhaps you could elaborate on the basis for it and also the test for finding when a price goes beyond being high and becomes excessive.

Richard Whish: Well, the legal basis for excessive pricing as an abuse of dominance is of course Article 102 of the Treaty because it prohibits the abuse of a dominant position and then proceeds to give examples of abuse and the first example given is the imposition of unfair prices. And that, clearly, is a reference to, as it were, the textbook model and monopolist charging the monopoly price.  The most famous case that is always quoted on it is United Brands which said that a price can be abusive when the price is excessive and if that price is unfair in itself or when compared with other products. That actually is a very difficult test to implement in practice. I think the important thing to say about all of this is that excessive pricing can be an abuse. A quite different question is should competition authorities go in pursuit of excessive prices? As a general proposition, I think the answer to that is clearly no, as indeed Advocate General Wahl said in his opinion in the Latvian Copyright Collecting Society case AKKA. Normally speaking, if Domco is charging an excessive price, then the sensible thing to do is ask how is it getting away with that? Is that because it is guilty of exclusionary behaviour? Is there something in the regulatory or legal environment that enables it to charge monopoly rent? But broadly speaking, if I’m charging a very high price one would hope that over a period of time the market will autocorrect and there will be new entrants absent barriers to entry.  But of course, never say never.

Caroline Thomas: That’s very interesting and perhaps it explains why to some extent over the years we haven’t seen that many cases featuring excessive pricing or at least excessive pricing as a standalone infringement of competition law. It’s been more used maybe in combination with another type of an abuse.

Richard Whish: And that’s often because really the case is not about the exploitative price but the price is a constructive refusal to deal, the price is the alter ego of a margin squeeze. But you are right, you don’t often get investigations simply of the price itself. But we have had quite a number of cases recently.

Caroline Thomas: Absolutely, and I was just going to come on to ask you just about those very cases.We seem to have seen a trend starting over in the last year or two of cases focussing on excessive pricing and I wondered whether you felt that these cases represented a change in the law at all or more of a change of practice and focus in terms of the enforcement policies of the competition authorities.

Richard Whish: I do think there is a change in the law. I think that the law remains Article 102 of the Treaty, but I do think that there are circumstances in which it is legitimate to investigate prices, take the Latvian Copyright Collecting Society case.  If one has a theory that the market can autocorrect itself over time, you can’t autocorrect a market where the Copyright Collecting Society has a legal monopoly over licensing music for performance. There is no possibility of entrants, so in those circumstances I don’t see how a competition authority can say we refuse to look at this problem in circumstances where the problem clearly can amount to an abuse of dominance.  Separately from that, we had a series of pharmaceutical cases, the Italian Competition Authority did one recently against Aspen and held that it was guilty of excessive pricing.  The Commission has now launched an investigation into Aspen in relation to the same drug as I understand it in the rest of the EU. And of course the CMA in the United Kingdom has found Pfizer and Flynn to be guilty of abuse of dominance. There has just been an appeal hearing that lasted for four weeks in the Competition Appeal Tribunal, so we await judgment there and the CMA has got two other cases going on, one against Activas and one against Concordia. I think the point must be with these pharmaceutical cases that you can get possibly gaps in the regulatory regime or reasons why the regulatory regime may not apply effectively and the CMA sees huge increases in price. Well I can understand as a guardian of the public interest why it would at least want to investigate in those circumstances to see if the prices are indeed excessive.

Caroline Thomas: We have seen that these cases in the UK in particular have focussed around the pharma industry as you have explained but that’s not been the only industry in the spotlight. The Latvian Collecting Society case shows that it’s possible for investigations into excessive pricing to take place in other industries. But it does seem to suggest that these are fairly unusual circumstances which would fit the profile of an excessive pricing case.

Richard Whish: I think one is likely to see intervention in cases where there is some failure of regulation or where there are reasons why effective competition is just never going to actually happen.