Excessive Pricing, Entry, Assessment, and Investment: Lessons from the Mittal Litigation

Abstract

The role of antitrust in curtailing excessive prices has long been a contentious area. Consequently, the charging of excessive prices has been subjected to diverse levels of enforcement across the world. U.S. antitrust law, for example, does not encompass the charging of high prices as such, and was held not to “condemn the resultant of those very forces which it is its prime object to foster: finis opus coronat.” By contrast, competition laws in other jurisdictions provide for the condemnation of excessive or unfair pricing. Such is the case under EU competition law, the competition provisions in the European Member States, and in other jurisdictions across the world. But even among those competition regimes which do intervene against the charging of excessive prices as such, one may identify different levels of enthusiasm for doing so. In Europe, for example, recent years have witnessed a restrained approach by the European Commission but a more proactive approach by some of the competition authorities of the Member States. Varying levels of intervention reflect a controversy as to the merit of prohibiting excessive pricing. Three main grounds are often used to justify non- or limited intervention: (1) intervention is not necessary, as high prices would be competed away by new entry, attracted by the excessive price; (2) there are practical difficulties in speculating what a price would have been had there been competition and in determining the excessiveness of the prices actually charged; and (3) enforcement which targets excessive prices may chill innovation and investment. To illustrate the difficulties of assessment and to question some of the justifications that are used to rationalize non-intervention, this article reviews the recent litigation in South Africa related to alleged excessive pricing by Mittal Steel. We use the decisions of the South African Competition Tribunal and the South African Competition Appeal Court as a case study to highlight both the complexity of, and possible merit in, antitrust intervention against excessive pricing.

Our analysis focuses on the three grounds for non-intervention. First, with respect to the self-correcting nature of excessive prices, we illustrate how excessive prices, in and of themselves, do not attract new entry when potential entrants are either informed or uninformed about their post-entry profits. Referring to our previous work on this subject, we question the South African Competition Tribunal’s holding in the Mittal case with respect to the prerequisite conditions for intervention against excessive pricing. Second, we consider how the difficulties of assessing what is an excessive price affected the outcome in the Mittal litigation. Without underestimating these difficulties, we consider how they may be alleviated in certain cases through reasonable methods for inferring what may constitute an excessive price. Third, while acknowledging the possible validity of concerns about chilling ex ante investment, we outline instances in which these concerns should not serve to support nonintervention. It should be stressed that this article does not advocate across-the-board intervention. It does, however, question the validity of a categorical “hands-off” approach, which deems excessive prices to be outside the realm of competition law. We consider separately the weight that should be assigned to each ground for non-intervention. Subsequently, we argue in favor of a case-by-case approach which explores the factual matrix of each case and considers the benefits, costs, and net effects of intervention.

Keywords: Antitrust, Economics, Industrial Organization, Monopoly, Regulation