Abstract
Our purpose in this paper is to identify some of the implications that derive from the incompleteness of antitrust laws. Since with regard to certain anticompetitive conduct, the law remains substantially incomplete up to the first relevant court judgment, in terms of policy it is worth concentrating on stand-alone claimants who, not relying on earlier judgments, face very high evidentiary requirements, while generating large positive (information) externalities for potential follow-on claimants. The paper is structured as follows. In Sect. 2, we introduce the notion of incompleteness of the laws and address the process of production of evidence in antitrust lawsuits. Sect. 3 provides a survey of EU national case law and our summary of the results puts emphasis on incomplete laws, evidentiary requirements and stand-alone lawsuits. Sect. 4 presents a framework model to distinguish the decision-making processes for stand-alone and follow-on claimants in the presence of incomplete antitrust laws. In Sect. 5 we introduce a vector autoregressive model that we test with reference to the US antitrust law enforcement regime. Sect. 6 discusses some policy options and concludes the paper.
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Notes
As correctly observed by an anonymous referee, “technical” evidence basically consists of facts and proofs that need to be elaborated and interpreted by means of economic analyses (definition of the relevant market, determination of a dominant position, etc.), as illustrated in Sect. 2.
See, on predatory pricing, the Audiencia Provincial Girona, Judgment of 16 April 2002, case no. 495/2001, Hidroeléctrica de l'Empordá; Court of Appeal of Paris, Judgment of 28 June 2005, Société Vedettes inter-îles Vendéennes v Régie départementale des passages d'eau de la Vendée, case no. 2008/20337. More generally, on conducts pertaining to art. 82 of the EU Treaty, see Court d’Appel de Versailles, Judgment of 25 October 2004, SA Verimedia v SA Mediametrie, SA Secodip, GIE Audipub, case no. 02/07434.
In this respect, on art. 82 of the Treaty, parallel imports and the internal market goal, see Court of First instance of Athens (Polimeles Protodikio Athinon), GlaxoSmithKline, decision no. 609/2003.
Nanterre Commercial Court (Tribunal de commerce de Nanterre), Judgment of 11 May 2006, Vitamins Cartel (Arkopharma v Roche and Hoffmann La Roche), no. RG2004F02643. It is indicative what Van Den Bergh and Camesasca (2001, p. 71) write about productive capacity expansion: “[this] might be considered an exclusionary practice, if the aim of antitrust is to protect small business, but may conversely be judged legal, if the goal is the maximisation of consumer welfare, since increased output results in lower prices”.
It is worth recalling the exemplification mentioned at para. 124 of the Guidelines: the stronger the competitors and the greater their number, the less the risk that the supplier or buyer will be able to foreclose the market and the less the risk of a reduction in interbrand competition. However, if the number of competitors becomes too small and their market position (size, costs, R&D potential, etc.) is similar, such a market structure might increase the risk of collusion. Fluctuating or rapidly changing market shares, in general, are an indication of intense competition.
On intra-Community trade and hardcore restrictions of competition prohibited by exemption Regulations 4082/88 and 2790/1999, see Cour d'Appel de Paris, Judgment of 21 September 2005, SARL SOCOVI Société de coiffure Vichyssoise v SA Jean-Louis David France.
On exemption under art. 81 (3) of the Treaty, see the Higher Regional Court of Thuringia, Judgment of 8 August 2007, Schott.
Here, the focus is on quantitative tests such as statistical estimates of elasticity and cross-price elasticity in product demand, tests based on similarity in price movements over time, analysis of causality between price series and convergence of price levels.
As acknowledged by the EC Competition Commissioner, Neelie Kroes, “conclusions are rarely supported by full empirical evidence as requested in the [Commission Notice on the definition of the relevant market for the purpose of Community competition law (OJ C 372), 9/12/1997]”.
See, e.g., the High Court of Justice (Chancery Division), Judgment of 15 June 2007, Chester City Council and Chester City Transport Limited v Arriva Plc, Arriva Cymru Limited and Arriva North West Limited, case no. HC06C03700, and the Oberste Gerichtshof, Judgment of 12 October 2004, Photocopying Machines, case no. 1 Ob 240/03 f.
See High Court—Irish Supreme Court, Judgment of 10 May 2001, Meridian Communications v Eircell.
See German Federal Court of Justice (Bundesgerichtshof), Judgment of 7 February 2006, Strom II plus; the Court of Appeal of Hertogenbosch, Judgment of 20 December 2005, Multicopy; Juzgado de lo Mercantil, Judgment of 3 September 2007, Galp.
See, on excessive prices, Court of Justice of the European Communities, Judgment of 14 February 1978, case 27/76 [1978], United Brands v EC, ECR 207.
This is our response to any potential criticism of the thesis we develop in this paper: it could be argued that, since incompleteness of law and rule of reason are intrinsic in antitrust litigation, facts and proofs strictly relate to the specific instance at stake and cannot be used in other lawsuits.
Oberlandesgericht Wien als Kartellgericht, Judgment of 21 December 2005, Constantin; Tribunal de Commerce of Dijon, Judgment of 25 September 2003, Garage Gremeau v Daimler Chrysler; Tribunal Supremo, Judgment of 4 may 2007, CEEES v CEPSA a.o.; High Court (Chancery Division), Judgment of 15 July 2005, Attheraces Ltd v British Horseracing Board Ltd; Regional Civil Court of Graz, Driving schools cartel; Cour d'appel de Paris, Judgment of 24 November 2004, Association ACIP Consistoriale Israélite de Paris v Moshe Alloun; Corte d'Appello di Milano, Judgment of 10 December 2004, INAZ Paghe srl v Associazione Nazionale dei Consulenti del Lavoro; English High Court, Judgment of 19 October 2007, Devenish and others v Sanofi-Aventis and others.
Becker (1968) demonstrates that, when enforcement costs are positive, it is generally not optimal to deter all anticompetitive conduct. More surprisingly, he shows that even if enforcement costs are neutral, it might still not be desirable to deter all violations because some offences might be efficient, as long as the gain to the offender exceeds the harm to the victim (see also Landes 1983).
The implications of the incompleteness of laws for judicial activity have been investigated in part by Pistor and Xu (2003, p. 935), who focus on the existing divergences between courts and regulators: “courts are designed to be reactive law enforcers. They become active only when another party- be it state or private- initiates legal proceedings (…) By contrast, regulators enforce law- not exclusively, but primarily- proactively. They monitor behavior, launch investigations, and enjoin or punish actions on their own initiative (…)”. To the authors, regulators would emerge “in response to the problem of incomplete law in areas where substantial negative externalities rendered reactive law enforcement inefficient”.
As Landes and Posner (1975b) note: “the limits of human foresight, the ambiguities of language, and the high cost of legislative deliberation combine to assure that most legislation will be enacted in a seriously incomplete form, with many areas of uncertainty left to be resolved by the courts”.
The latter has strong deterrent effects.
Sometimes, even independently of the judicial outcome of previous actions, as emerges from the survey on EU national case law presented above. stand-alone complaints could give rise to more appeals, brought by those parties able to lever the information gathered at the first instance trial (whatever the judicial outcome).
With relatively high expected c sa , the stand-alone claimants and defendants would have a higher minimum probability (π′ sa ) , which would give rise to more competition law infringements. It is beyond the scope of this paper to predict how PVs would react to policy measures designed to support stand-alone actions. With s = s(H, R, m, c sa ) increasing in the first three independent variables and decreasing in the last one, two countervailing effects arise by lowering c sa : in general, if c sa itself decreases on the one side (raising π′ d , in equation 4.6, also through c d , since the defendant covers also c sa in case of loss), s will increase on the other (reducing π′ d ). However, if the former effect is negligible in comparison to the increase in s, we can envisage a higher perceived probability of plaintiffs’ success in lawsuits and, in turn, less anticompetitive conduct (see Fig. 1, for a graphical representation).
An intuitive approximation would be provided by a regressive model in which Priv at t is determined by both Priv and Gov at previous stages (t-i), plus a constant (k). Formally,
\( Priv_{t} \left( {*100} \right) = k + \sum \left( {*Priv_{t - i} + Gov_{t - i} } \right)\quad (5.3) \)
With regard to typical follow-on, it is useful to recall the statutory provision facilitating follow-on law complaints. Sect. 5(a) of the Clayton Act, 15 USC §16(a) (2000) provides that a judgment against a defendant in an action brought by the US Government is admissible as prima facie evidence of the matters actually and necessarily decided by it against the defendant in subsequent private antitrust suits. Therefore, if a defendant loses an antitrust case in which the government is the plaintiff, an undertaking cannot defend the follow-on civil actions by requiring the private plaintiffs to prove the case in the merits.
On the existence of structural breaks at the beginning of the 1970s in total antitrust cases, see Ghosal (2007).
We also analyse the LG time series up to the end of the 1960s, before per se rules introduced distorting effects. This exercise is motivated by the consideration that the FTC’s goal might have changed over more than 60 years of activity (see above comment on Fig. 2a, b): by applying the IRF to a VAR (1) model specification between 1942 and 1966, we can see that a shock in LG would exert a positive impulse on LP, coherent with the presumed function that government actions should fulfil in the first period of application of a private antitrust regime.
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Acknowledgments
This work was supported by Ministero dell'Istruzione, dell'Università e della Ricerca - research programme, year 2005, prot. 2005122179. We are grateful to Fabio Gobbo for the initial insight and to Eric Brousseau for helpful discussions on a preliminary research proposal. We thank all members at GRIF, participants at the European Association of Law and Economics (EALE) 2009 Conference and at the "DMQTE Research Question Time" for useful comments. Suggestions by two anonymous referees led to significant improvements. The usual disclaimer applies.
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Marra, A., Sarra, A. Incomplete antitrust laws and private actions for damages. Eur J Law Econ 30, 111–135 (2010). https://doi.org/10.1007/s10657-009-9130-x
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DOI: https://doi.org/10.1007/s10657-009-9130-x