On 12 June 2024, the IEA had invited me to deliver a talk on my paper ‘Predatory Pricing in platform markets: A modified test for firms within the scope of Article 3 of the DMA and super-dominant platform firms under Article 102 TFEU’.

I discuss a unique issue that has historically pertained to competition law, but here, I focus on two different but related regimes – Article 102 of the Treaty on the Functioning of the European Union (TFEU), and the Digital Markets Act Regulation (DMA) 2022.

Introduction to predatory pricing

My discussion of the paper began with a brief introduction to the economics and rationality of predatory pricing by analysing past works from the mid-1950s onward (the works of Milgrom and Roberts, 1982; Fudenberg and Tirole, 1986; Baker, 1994; Bolton, Brodley and Riordan, 2000; Edlin, 2002; Elhauge, 2003; Motta, 2004; Crane, 2005; Kaplow, 2018; and Hemphill and Weiser, 2018 were some of the prominent works referred to in the presentation).

Subsequently, I discussed the law on predatory pricing in the EU and the US, and explained that the former were more stringent. In the EU, prices < average variable cost (AVC) is presumed to be predatory following France Telecom, Case C-202/07 P [110-112]), while in the US, prices < AVC is only predatory if there is proof of probable recoupment (following Brooke Group v Brown & Williamson Tobacco Co., 509 US 209 [214-225]). I clarified that the need to understand the transatlantic legal differences in the assessment of predatory pricing is to make to make sure that the test to assess predatory pricing in digital platforms is fit for purpose (and avoids being under or over inclusive).

Digital platforms

Coming to digital platforms, I began discussing the unique nature of social media digital platforms and search engine platforms that do not charge users a monetary amount to use their services but instead collect data. They are able to conduct their business through cross-subsidising any losses made on their free side (at least monetarily) through profits in their monetised side (advertisers).

There is a similarity here between digital platforms and free newspapers (using cases such as Aberdeen Journals v OFT, 2003), or, for that matter, “Ladies’ Night”-type offers in nightclubs.

Further on, I noted one unique feature of digital platforms is that their running cost (or marginal cost (MC)) is negligible as they are industries that are characterised by high fixed costs (FC) which are costs related to building the actual platform. This has also been referenced in the Preamble of the DMA [2-4]. This leaves the use of the current tests related to assessing predatory pricing in platform markets unsuitable as the consideration of AVC (used as the proxy for MC which was questioned by an economist in the audience) to presume a price to be predatory following the EU approach may seem to be underinclusive.

The main argument

I suggested that all prices below average total cost (AVF + AFC) be considered predatory with an opportunity to provide an objective justification being available to the gatekeeper (under the DMA which does not exist currently) or super-dominant platform (under Article 102 TFEU). Such a modified test would allow the finding of an abuse but also allow the potentially infringing firm to disprove any allegations.

Using cases such as Bottin Cartographes, 2014 and Qualcomm (Predatory Pricing), 2019, I made the argument that traditional price-cost tests may not be suitable when two-sided platforms are concerned. An average of the prices and costs of both sides of a platform ought to be considered (such as test was posited by Evans and Noel in 2005 and Fillistrucchi and Behringer in 2013) before considering whether the overall prices exceed the cost when gatekeepers or super-dominant platforms are concerned (following Joskow and Klevorick’s theory of determining market characteristics before designating a pricing conduct as predatory).

Audience engagement post first 30 minutes

The presentation raised several questions and discussions which were led by Dr Cento Veljanovski who critiqued the approach regarding the use of competition law to punish big-tech. Some references to the telecom sector were questioned by Prof. Syed Kamal who suggested deeper study into the sector as the link to digital platforms can then be further nuanced.

Another participant who works as a civil servant in the Government Accounts department posed a very interesting discussion point regarding the assessment of costs of digital platforms when their fixed costs may exist beyond the jurisdiction where their business lies. This was an interesting point that admittedly may require further consideration by scholars in the field and an aspect that I can also consider in future works.

A member of the IEA made an interesting reference to the use of the law on predatory pricing to control transatlantic dumping of goods into the UK and the EU. This led to a discussion relating to anti-dumping and international trade-related rules on which Syed provided his input due to his expertise in the field.

Cento and Syed provided some interesting inputs to this paper by suggesting to engage with the Austrian School of Economics in addition to the Chicago School which is discussed in the paper.

 

Dr Anush Ganesh is a lecturer in law at St Mary’s University. He is the current programme director/course lead for the LLM in International Business Law.