LAW & ECONOMICS: PRICE DISCRIMINATION - ABUSE OF DOMINANT POSITION - DEBATES - ECONOMICS OF PRICE DISCRIMINATION - POLICY RECOMMENDATIONS - EXCLUSIONARY PRICING - EXCLUSIONARY EFFECTS OF PRICING POLICIES - “SECONDARY LINE” PRICE DISCRIMINATION - GEOGRAPHIC DISCRIMINATION - EXPLOITATIVE PRICE DISCRIMINATION - CONSUMER WELFARE - CAUTIOUS APPLICATION OF ARTICLE 82 EC

How should price discrimination be dealt with by competition authorities?

In the last two years, the treatment of price discrimination under Article 82 has been the subject of intense debate, both by economists and legal commentators. This article discusses the economics of price discrimination and offers some tentative policy recommendations. In particular, we argue that price discrimination should only in exceptional circumstances constitute an abuse of Article 82 in itself. In exclusionary cases, price discrimination will be the manifestation of exclusionary pricing but does not constitute an abuse in itself. Hence the analysis of exclusionary effects of pricing policies should be sufficient without the need to investigate price discrimination as such. In other cases (“secondary line” price discrimination, geographic discrimination or exploitative price discrimination), the effects of price discrimination on competition and consumer welfare are extremely ambiguous. Overall, these insights call for a cautious application of Article 82 in price discrimination cases that are not covered by exclusionary abuses.

I. What is price discrimination? 1. The legal definition of price discrimination in Article 82, article c) refers to the application of “dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage”. On the one hand, this definition is relatively broad (e.g. how do we define “equivalence of transactions”?) but on the other hand, it seems to specifically address (at least in theory) price discrimination which affect the competitiveness of downstream customers (“trading partners”) rather then exclusionary effects on competitors1. For economists, price discrimination occurs when a firm charges a different price to different customers for the sale of similar products with similar marginal costs. A wider definition has been

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Penelope Papandropoulos, How should price discrimination be dealt with by competition authorities?, September 2007, Concurrences Review N° 3-2007, Art. N° 13957, pp. 34-38

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