This is a paper by Fred Jenny  for the Israeli competition authority on excessive pricing – the competition law infraction that refuses to die, and is arguably making a comeback.

The paper can be found at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2880382. It reviews the debate that has taken place among economists on what the definition of excessive prices could be and whether the control of excessive prices by competition authorities would in fact promote or discourage competition.

The paper is structured as follows: Section I takes stock of the enforcement activities of competition authorities against high prices (or the lack of enforcement) in a number of countries; Section II analyses the general arguments in favour or against the enforcement of provisions sanctioning excessive pricing abuses by dominant companies or monopolies; Section III examines the risks associated with wrongful decisions by competition authorities in this area and the cost of such errors; Section IV analyses the economic screens which have been proposed by various economists to minimize the cost of enforcement of provisions prohibiting pricing abuses by dominant firms; and section V comments on the alternative solutions at the disposal of competition authorities and is followed by a brief conclusion.

Fred seems to be delicately trying to say that, while competition agencies very occasionally pursue excessive price cases, these enforcement actions have no economic basis – instead, they are based on legal concepts which seem to ignore the costs of trying to enforce excessive pricing tests and the potentially enormous losses arising from mistaken enforcement. Actually, he is not that delicate: he says that “not only do the concepts of “excessive” or “unfair” price lack a sound economic basis, but their use to sanction pricing practices of dominant firms may cause serious economic harm”; that if competition agencies are faced with complaints regarding excessive pricing, they should engage in market studies and advocacy efforts instead of enforcement; and that: “In the rare cases where no structural or behavioural remedy is available and price control is the only possible remedy, competition authorities should advocate the creation of a sectoral regulator or the extension of the powers of an existing regulator”.

Perhaps more importantly, the paper includes a very memorable sentence which we all should take home with us: “[identifying] the production costs of the banana do not seem to present any insuperable problems”. I’m printing this one and putting it on top of my computer screen so I remember what I’m actually working on every time I come to work.

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