Exclusionary strategies of Exclusionary strategies of dominant firms: do small and dominant firms: do small and developing economies need developing economies need

a view of their own?a view of their own?

Eleanor M. FoxEleanor M. FoxProfessor, New York University School of Professor, New York University School of

LawLawFifth Annual Lecture, Fair Trading Fifth Annual Lecture, Fair Trading

Commission of Barbados Feb. 13, 2009Commission of Barbados Feb. 13, 2009

OutlineOutline

• 1 Introduction1 Introduction

• 2 Barbados and the world2 Barbados and the world

• 3 Globalization and its ideologies3 Globalization and its ideologies

• 4 Economic law –US, EU competition4 Economic law –US, EU competition– Why an abuse of dominance law? What should it do?Why an abuse of dominance law? What should it do?

• 5 Full and fair competition for Barbados5 Full and fair competition for Barbados

• 6 Conclusion6 Conclusion

I. IntroductionI. 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 Should the whole world do the same

thing?thing?– Efficiency and justice: for whomEfficiency and justice: for whom– IS IT TRUE - What is good for the MNEs IS IT TRUE - What is good for the MNEs

is good for Barbados is good for Barbados

II. Barbados, the world, and II. Barbados, the world, and competitioncompetition

• A. BarbadosA. Barbados– Your beautiful islandYour beautiful island– Building competitive markets in BarbadosBuilding competitive markets in Barbados

• keeping markets safe from abusekeeping markets safe from abuse

• B. Competition and the worldB. Competition and the world– 1989 fall of Berlin Wall1989 fall of Berlin Wall– 1994 Conclusion of the Uruguay Round, WTO1994 Conclusion of the Uruguay Round, WTO– Forces of competitive freedomForces of competitive freedom

• But also unleashing world cartels and global But also unleashing world cartels and global dominancedominance

C. Competition LAW and the C. Competition LAW and the worldworld

• US – from 1890US – from 1890– A law against powerA law against power

• EU – from 1957EU – from 1957– A law to establish a common marketA law to establish a common market

• Integration, level playing fieldIntegration, level playing field

• South Africa – from 1998South Africa – from 1998• Efficiency and justiceEfficiency and justice

• Barbados – from 2003Barbados – from 2003• Fair competition for consumers and enterprisesFair competition for consumers and enterprises

III. How globalization changed III. How globalization changed the stakes and unleashed the stakes and unleashed ideologiesideologies• 1980s-90s 1980s-90s

– Heyday of the “Washington Consensus”Heyday of the “Washington Consensus”•The market is good, the government is badThe market is good, the government is bad•There is one right path for the world-the There is one right path for the world-the

marketmarket– Market power is fleeting Market power is fleeting – Government intervention is protectionistGovernment 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 errorsTruths and errors

US economic law adopts the US economic law adopts the Washington consensusWashington consensus

• This is a cautionary taleThis is a cautionary tale– To explain how market ideologies can To explain how market ideologies can

shrink the competition law so that it shrink the competition law so that it provides very little protection against provides very little protection against abuse of dominanceabuse of dominance•And to show the room for another path And to show the room for another path

• Stories from the USStories from the US– The law of abuse of dominanceThe law of abuse of dominance

•US law shrinks, and shrinks, and shrinksUS law shrinks, and shrinks, and shrinks

US point of view: Presidents US point of view: Presidents Reagan through Bush IIReagan through Bush II

• ““Competition law Competition law protects competition protects competition and consumers, and consumers,

not competitors”not competitors”

• Should it also Should it also empower David empower David against Goliath? (No; against Goliath? (No; Goliath is efficient)Goliath is efficient)

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

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

Consumers yes, BUTConsumers yes, BUT

• ButBut

• The law should not protect against The law should not protect against prices that are too highprices that are too high

• The market will drive prices downThe market will drive prices down

• Price capping by an agency is too Price capping by an agency is too regulatory, and regulators will get it regulatory, and regulators will get it wrongwrong

We have seen the goal; what We have seen the goal; what are the presumptions?are the presumptions?

• Consumer welfare and efficiency: this Consumer welfare and efficiency: this means aggregate wealthmeans aggregate wealth

• Markets are robust and workMarkets are robust and work

• Antitrust cases against dominant firms Antitrust cases against dominant firms usually make things worseusually make things worse– US law is tolerant of exclusionary practicesUS law is tolerant of exclusionary practices

•Enforcement might handicap efficient firms, Enforcement might handicap efficient firms, chill innovationchill innovation

US Supreme Court:US Supreme Court:The last 2 cases on dominanceThe last 2 cases on dominance

• Verizon v. Trinko 2004 Verizon v. Trinko 2004 – Dominant telecom with sole access to local Dominant telecom with sole access to local

loop degrades service when supplying rivalsloop degrades service when supplying rivals•No violation; even dominant firms should not No violation; even dominant firms should not

have duties to share facilities except in most have duties to share facilities except in most extreme cases lest their incentives to invent be extreme cases lest their incentives to invent be chilledchilled

– “ “Monopoly power .. is an important element of the Monopoly power .. is an important element of the free-market system …[It] is what attracts business free-market system …[It] is what attracts business acumen.” “False condemnations are especially costly acumen.” “False condemnations are especially costly …”…”

Supreme Court case - 2Supreme Court case - 2

• Weyerhaeuser 2007Weyerhaeuser 2007– Dominant buyer of logs overbuys and Dominant buyer of logs overbuys and

drives up price to deprive rival saw mills drives up price to deprive rival saw mills of enough logs, squeezing them outof enough logs, squeezing them out•No violation because a predatory buying No violation because a predatory buying

scheme is likely to fail and a failed predatory scheme is likely to fail and a failed predatory buying scheme, like predatory pricing, may buying scheme, like predatory pricing, may benefit consumersbenefit consumers

More US cases More US cases

• RambusRambus– Rambus makes computer technology chipsRambus makes computer technology chips– The industry is setting a standard for The industry is setting a standard for

interoperabilityinteroperability– Rambus deceives:Rambus deceives:

– Supports a standard that will incorporate its new Supports a standard that will incorporate its new patents and hides the fact that it will require patents and hides the fact that it will require licensing of its patentslicensing of its patents

– no violation; the effect may have been to exclude no violation; the effect may have been to exclude other technologies or just to raise pricesother technologies or just to raise prices

– And just raising prices is not a violation And just raising prices is not a violation

Other jurisdictionsOther jurisdictions

• European UnionEuropean Union– Has a adopted a more economic approachHas a adopted a more economic approach– Prohibits exploitative pricingProhibits exploitative pricing– Prohibits exclusionary practices Prohibits exclusionary practices

• More willing than US to weigh the costs of excluding More willing than US to weigh the costs of excluding rivalsrivals

– Entry and access matterEntry and access matter

• South AfricaSouth Africa– Aggressive against dominant firmAggressive against dominant firm

• Including monopoly firms using strategies to keep up Including monopoly firms using strategies to keep up pricesprices

• Mittal/Harmony Steel caseMittal/Harmony Steel case

C. Back to America -Economic C. Back to America -Economic fundamentalism explodes: fundamentalism explodes: the financial crisis –the financial crisis –“We are all socialists now”“We are all socialists now”

• Economic fundamentalism and Alan Economic fundamentalism and Alan Greenspan’s shockGreenspan’s shock– ““There must have been a flaw in my model”There must have been a flaw in my model”

• The financial crisis has shattered the The financial crisis has shattered the ideological free market beliefsideological free market beliefs– These are the beliefs on which US monopoly law These are the beliefs on which US monopoly law

is poised; what future for the shrunken US is poised; what future for the shrunken US antitrust?antitrust?

• A need to rethink assumptionsA need to rethink assumptions– Back to rootsBack to roots

V. Barbados and its lawV. Barbados and its law

• The fair competition act is an actThe fair competition act is an act– To promote, maintain, encourage To promote, maintain, encourage

competitioncompetition– To prohibit prevention, restriction, To prohibit prevention, restriction,

distortion of competition and the abuse of distortion of competition and the abuse of dominant positionsdominant positions

– To “ensure that all enterprises, irrespective To “ensure that all enterprises, irrespective of size, have the opportunity to participate of size, have the opportunity to participate equitably in the market place” …equitably in the market place” …

Barbados Act, Sec. 16Barbados Act, Sec. 16

• A firm abuses a dominant position if itA firm abuses a dominant position if it– Restricts entryRestricts entry– Deters an enterprise from competingDeters an enterprise from competing– Eliminates any enterpriseEliminates any enterprise– Imposes unfair pricesImposes unfair prices– Limits productionLimits production– Engages in tying or exclusive dealingEngages in tying or exclusive dealing– Uses any other measure unfairly allowing it to Uses any other measure unfairly allowing it to

maintain dominancemaintain dominance

Would/should Barbados Would/should Barbados condemn ..condemn ..

• Verizon?Verizon?

• Weyerhaeuser?Weyerhaeuser?

• linkLine?linkLine?

• Rambus?Rambus?

• By what principle?By what principle?

• What if efficient dominant firm threatens to What if efficient dominant firm threatens to eliminate domestic business by sustainable eliminate domestic business by sustainable low prices – and in times of financial crisis?low prices – and in times of financial crisis?

Barbados protects Barbados protects consumersconsumers

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

Should it also protect business Should it also protect business from aggressive dominant from aggressive dominant firms?firms?

CONCLUSION:CONCLUSION:A VIEW OF ONE’S OWNA VIEW OF ONE’S OWN

• A COMPETITION LAW A COMPETITION LAW • For empowering DavidFor empowering David• Against predatory sharksAgainst predatory sharks• FOR THE CONSUMER AGAINST FOR THE CONSUMER AGAINST

EXPLOITATIVE FIRMSEXPLOITATIVE FIRMS• Rethinking globalization and Rethinking globalization and

liberalizationliberalization– Time for roots-up competition lawTime for roots-up competition law

– with proper regard for the worldwith proper regard for the world