Code: 23-02

Authors: Anush Ganesh

Date: 27 Feb 2023


Predatory pricing (pricing below a certain measure of cost, usually Average Variable Cost) by a dominant firm is prohibited under most competition law jurisdictions including the EU and the US (although they have different standards to prove what price can be termed predatory).In addition to that, there are several explanations on why a firm may choose to sacrifice current profits for a future gain which help in understanding the test for predatory pricing assessment in the US and the EU which are different. When the tactic is used by a firm that has more than one side such as an online shopping website or newspaper, it may be used to price discriminate between the different sides in such a manner that one side’s lower prices get cross-subsidized by the other side paying more. The paper explores past cases where cross-subsidization had a predatory element involved in them and in some cases resulted in finding of an abuse of dominant position.

The paper evaluates the different theories on predatory pricing and carries out case law analysis to determine that two-sided online platforms may require a modified test to assess predatory pricing as the current one may seem underinclusive. This relates to the nature of platform markets where there are strong network effects and low marginal cost (MC) for acquiring new consumers. Therefore, the paper proposes a new test for assessment of predatory pricing in the EU under Article 102 TFEU. This involves extending the rule established in the case of AKZO v. Commission relating to a price charged by a dominant undertaking being presumed to be abusive if it is found to be below Average Variable Cost (AVC) to a modified rule for platforms within the scope of Article 3 of the Digital Markets Act. The proposed rule would presume prices charged below Average Total Cost (ATC) to be abusive as that includes the long run costs of the firm taking into consideration that the current test AKZO test may not be suitable for firms with low MC (AVC is a proxy for MC). Long-run average incremental cost is suggested as a suitable proxy for ATC in the paper. This new test is proposed as predatory pricing has not been considered in the DMA obligations or within the scope of discussion of digital market abuses. The test also includes the possibility for an objective justification to be claimed.

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