On May 18th, 1998, the US Justice Department of Justice alleged Microsoft Corporation had abused monopoly power by bundling together its web browser (Internet explorer) with the Windows operating system. According to the Department of Justice, Microsoft used its market power in the operating system to hinder competition for the web browsers. Many economic experts intervened and the case was settled in favour of the prosecutors: Microsoft was forced to share its application programming interfaces (Wikipedia). This case asks the question of the role of economics in legal practices. Why does competition law require economic expertise and analysis and to what extent is this reasoning useful to both the lawmaker and the judge? What are the concepts used and why? What are the limitations of economic analysis when it comes to assessing the competition issues? We will first analyze the goals of section 46 of the Australian Trade Practices act and study the parallelism and differences between the regulations on abuse of market power in Australia and in the European Union. We will see that economics is a useful instrument for the legislator, and that economic concepts are used to serve social and political purposes (I). We will then observe the way economic reasoning is used by the judge to determine whether a firm detains market power (II) and whether it abuses its market power (III). In both parts, we will try to identify the limits of economics and to rethink the role of the judge and that of the legal reasoning as a necessary complement of the economic approach.
[...] 2005) Although economic concepts are at the center of the legislation on competition issues, the legislator's goal can be different (protecting a small market like Australia, integrating a large but segmented market like the European Union) and this affects not only the philosophy of the law but also the practice of the judge, as we will see in parts II and III. Nevertheless, whether in the European Union or in Australia, the judge follows the same economic reasoning to demonstrate the existence and misuse of market power. II/ Economics as a tool to identify market power: interests and limits a. Using economics to demonstrate the existence of market power A. Identifying barriers to entry: sources of market power Barriers to entry are the best economic signals of market power. [...]
[...] Limits to economic approaches: assessing the relevant market A. Substitutes or the consequences of a large definition of the market. We have seen earlier why the Lerner index and other neoclassical tools were insufficient and abstract. Although the HHI offers a more realistic approach to determine market power, it is highly dependent on the definition of the proper market. Economics does not tell us what the relevant market is. Once the judge has chosen which market to analyze, economic indicators can help determine whether a company has substantial market shares and market power in an industry. [...]
[...] This case asks the question of the role of economics in legal practices. Why does competition law require economic expertise and analysis and to what extent is this reasoning useful to both the lawmaker and the judge? Which concepts are used and why? What are the limits of economic analysis when it comes to assessing competition issues? We will first analyse the goals of section 46 of the Australian Trade Practices act and study the parallelism and differences between the regulations on abuse of market power in Australia and in the European Union. [...]
[...] The economic signals of misuse of market power A. Predatory Pricing. The most obvious element that shows a firm is taking advantage of its market power is predatory pricing. Prices are defined as predatory when they are set at such a low level that it not only prevents competitors from entering the market but also damages competitors in the market. Although underselling competitors is not prohibited (it is the essence of competition), selling under below the costs with the purpose of destroying competitors is anticompetitive. [...]
[...] Revue Internationale de Droit Economique 2005- 1 pp. 27-50 ACCC Website - Predatory pricing (s46(1) and s46(1AAA)) http://www.accc.gov.au/content/index.phtml/itemId/816375 - Penalties and costs totalling million in predatory pricing case (ACCC vs.Eurong Beach Resort Ltd, Mr Sidney Albert Melksham, Jaigear Pty Ltd, Oser Pty Ltd and Ms Angela Kay Burger) : http://www.accc.gov.au/content/index.phtml/itemId/719527/fromItemId/2332 - $ 8.9 million penalty on Safeway for price fixing and misuse of market power in bread market: http://www.accc.gov.au/content/index.phtml/itemId/723192 Findlaw Website - Corones, Stephen, September 2003, How to Identify a Misuse of Market Power: ACCC v Australian Safeway Stores: http://www.findlaw.com.au/article/9810.htm - Rigby, Sophie, July 2003, Predatory pricing: lessons from Boral: http://www.findlaw.com.au/article/9338.htm - Toy Peter, Daniels, Matt Australian Competition and Consumer Commission v. [...]
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