Academic problem. Article 3 (g) of the Treaty Establishing the European Community provides that the activities of the Community shall include „a system ensuring that competition in the internal market is not distorted“. It is recognized that competition law is necessary in order to guarantee low prices, qualitative goods/services, effective distribution of resources and open market. One of the fundamental reasons for the appearance of the competition law provisions in the EC Treaty is aim to ensure creation of the common market. The purpose of the competition law provisions is to preclude appearance of the obstacles for the free trade between the member states. This allows to unders-tand why such big attention in competition law is given to the vertical agree-ments, which are considered as an obstacle for the trade between the member states. It should be noted that obligation of the member states to delete obstac-les for the mutual trade is embedded in the Articles 28 – 30 of the EC Treaty.
Para 4 of the Article 46 of the Constitution of the Republic of Lithuania provides that „the law shall prohibit monopolisation of the production and the market and shall protect freedom of fair competition“ . In Lithuanian legal system competition law provisions appeared only in 1992 after adoption of Lithuanian law on competition. After Lithuania acceded to the European Union in 2004 many changes have been made in Lithuanian law on competi-tion in order that Lithuanian competition law would correspond to the requirements established in the EC competition law.
Competition law provisions are entrenched in the Articles 81-89 of the EC Treaty. One of the most important principles of the EC is prohibition of the abuse of dominant position established in the Article 82 of the EC treaty. European Commission, which is responsible for the implementation of the competition law in European Union, dedicates a lot of attention to analysis of the abuse of dominant position. Commission intends to change competition law policy in the European Union in order to ensure better implementaton of the competition law and guarantee comprehensive assessment of the abuse of dominant position. In December of 2005 Comission published “DG Competi-tion discussion paper on the application of Article 82 of the Treaty to exclusionary abuses“ (hereinafter – „Discussion paper“). By publishing of this „Discussion paper“ Comission intended to induce all the interested subjects to provide their remarks concerning the new proposed strategy of the Comission aimed to fight exclusionary abuses. Aim of the Comission to provide afore-mentioned concept of the competition law served as an impuls for the author to care for predatory pricing, which is one of the forms of the abuse of dominant position. Examination of the prohibition of the predatory pricing is relevant topic since the content of this prohibition is defined only in a few decisions of the ECJ and of the CFI. Moreover, there are still no clear competition law rules that unanimously would allow to decide whether certain dominant undertaking practices predatory pricing. Therefore, legal and private subjects lack legal certainty, while estimating the consequences of their actions. It should be no-ted that on the basis of the „Discussion paper“ Comission prepared and pub-lished on 24th of December, 2009 Communication from the Commission – „Guidance on the Commission‘s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings“ (hereinafter – „Communication from the Commission“). The Communication from the Commission is not legally binding, however it should become one of the most important sources for analysis of the prohibition to use predatory pricing.
It seems likely that financial crisis in the world will lead to more intense competition between the undertakings and part of the dominant undertakings aiming to sustain or increase market share might decide to use predatory pri-cing. Bearing in mind aforementioned circumstances that support relevance of the scholar research in the area of the predatory pricing and the fact that in legal sience of Lithuania and European Union there is no comprehensive work on predatory pricing, we might conclude that the present research on predatory pricing is timely.
Object of the research. Object of the research of the dissertation – regu-lation of the prohibition to use predatory pricing in the competition law of the EC and legal system of the Lithuanian Republic. Analysis is concentrated on the legal decisions formulated in the practice of the ECJ, CFI and Lithuanian competition council and also on the EU and Lithuanian legal acts related to the predatory pricing. Moreover, the object of the research encompasses decisions of the courts and competition authorities of the United States and separate foreign states, as well as corresponding doctrine of the legal science. Moreo-ver, the object of the research embrace not all the provisions concerning pro-hibtion to use predatory pricing, but only provisions of the fundamental impor-tance. In the dissertation basic principles of the prohibition to abuse dominant position are reviewed shortly. Bearing in mind limited scope of the disserta-tion, the concept of the abuse of the dominant position will not be analyzed comprehensively. In dissertation only basic criteria (share of the market and barriers to expansion and entry) for the determination of the abuse of the do-minant position are reviewed as this work is devoted to the predatory pricing as one of the forms of the abuse of the dominant position.
It should be noted that the present dissertation is not intended to provide comprehensive legal analysis of the dumping, since dumping substantially differs from the predatory pricing. Article 2 of the Council Regulation (EC) 384/96 of 22 December 1995 „On protection against dumped imports from countries not members of the European Community“ provides that „a product is to be considered as being dumped if its export price to the Community is less than a comparable price for the like product, in the ordinary course of trade, as established for the exporting country“. Moreover, prohibition to use dumping is not provided in the EC Treaty or competition law provisions.
The concept of predatory pricing. Many lawyers and economists at-tempted to describe the concept of predatory pricing, however common ag-reement on the content of this provision was not achieved. CIF provided in France Télécom case that, „it is clear from the case-law on predatory pricing that, first, prices below average variable costs give grounds for assuming that a pricing practice is eliminatory and that, if the prices are below average total costs but above average variable costs, those prices must be regarded as abusi-ve if they are determined as part of a plan for eliminating a competitor“ . Commission describes predatory pricing as the practice where a dominant company lowers its price and thereby deliberately incurs losses or foregoes profits in the short run so as to enable it to eliminate or discipline one or more rivals or to prevent entry by one or more potential rivals thereby hindering the maintenance or the degree of competition still existing in the market or the growth of that competition. G. A. Hay describes predatory pricing as pricing actions by the dominant undertaking that negatively affect competition, har-ming existing competitors or detering new competitors from entering into market . R. A. Posner provides that predatory pricing is establishment of pri-ces on a certain level aiming to expel efficient competitor from the market .
In summary it has to be said that definitions of predatory pricing provided in judicial practice and scientific literature are quite similar. Author describes predatory pricing as actions, when dominant undertaking establishing the pri-ces of the product that are lower than their production costs, forecloses its competitors or creates additional barries for the appearance of the new compe-titors in the market, and later on fixes such high level of the prices, that domi-nant undertaking would not be able to fix in case the competitors have not been foreclosed and such actions of the dominant undertaking cause damage to the consumers.
Prohibition to use predatory pricing in Lithuania was established in the Resolution of the 7th April, 1994 No. 21 of the Competition council „On the explanations of the and supervision of the establishment of a dominant posi-tion provided in the competition act of the Lithuanian Republic“, which provi-ded in Article 4.1.1 that one of the obstacles for the development of the practi-ce is selling of the goods by the prices that are lower than the costs of the pro-duction if it restricts or might restrict competition. Although in this resolution the term of predatory pricing was not used, it is possible to conclude that Ar-ticle 4.1.1. refers to the prohibition of predatory pricing. The aforementioned resolution of 1994 year was changed by the Resolution of 17th May, 2000 No. 52 „On the explanations of the Competition council concerning the establish-ment of a dominant position“ . In the resolution of 2000 Competition council provides that „„predatory“ means actions, when undertaking deliberately see-king to eliminate a rival from the market, incurs losses setting very low prices, for instance lower than average variable costs“ . It is also provided that „an undertaking may attempt to maintain its position by employing “predatory” actions. Where previously cases have been recorded when the existing market participant attempted to foreclose the competitor from the market by decrea-sing its production prices below the level of the average variable costs with a view to forcing the competitor to suffer losses such existing market participant is already known as aggressive participant. In this case the reputation of the existing market participant may constitute a barrier for new producers to enter the market.“ The concept of predatory pricing provided by the Lithuanian competition council is criticized by the author. Firstly, Lithuanian competition council should admit that predatory pricing should be described as actions when dominant undertaking not only attempts to eliminate competitor from the market, but also when dominant undertaking does not allow for the new com-petitor to appear on the market. Secondly, Lithuanian competition council provides that „the reputation of the existing market participant may constitute a barrier for new producers to enter the market“, however the author believes that the barrier to entry to the market might be not only reputation of the existing participant, but also predatory pricing actions. Lithuanian competition council should provide this clearly. Thirdly, it should be provided that domi-nant undertaking later on has to recoup losses causing in this way damage to the consumers. Fourthly, in the resolution under consideration the content of the prohibition to use predatory pricing is not revealed comprehensively. Au-thor claims that competition coucil should change the current notion of preda-tory pricing and to explain in more detail the content of this notion. Author suggests to Lithuanian competition council to use Authors‘ notion of predatory pricing.
Methods of the research. In dissertation many different research me-thods were used: logical, systematic analysis, comparative, linguistic, histori-cal and interdisciplinary analysis.
Logical method allowed to ascertain the content of the competition law provisions of the EC, US and Lithuanian legal systems. This method was espe-cially important in order to clear the nature of the prohibition to use predatory pricing, established in the Article 82 of the EC treaty.
Comparative method is often used for the analysis of the Article 82 EC Treaty provisions, comparing competition law provisions of the EC, US and Lithuanian legal systems. Judicial decisions and scientific doctrine of the US was compehensively discussed in the dissertation, because prohibition to use predatory pricing has been formulated in the US judicial practice. Moreover, principles of the US judicial practice were used for the analysis of the deci-sions of the EC judicial institutions. Use of the comparative method is inevi-table in this work, because the doctrine of predatory pricing is not developed enough in the European Union.
Method of interdisciplinary analysis. In dissertation various legal systems are analysed (EC and US) and reference is made to the economic science, be-cause competition law is very closely related to the economy. Economy is especially important for the analysis of the costs measures in predatory pricing and for the estimation of the negative effects in the market that are caused by the predatory pricing. On the basis of the economic science, actions of the undertakings are assessed not only on the basis of the formal aspect, but also on the basis of their effect to the market and consumers.
Method of systematic analysis served as a background to analyze predato-ry pricing as a form of the abuse of the dominant position, and at the same time to use common competition law concepts and refer to the sources of the EC and Lithuanian legal systems.
Historical method was used in order to clarify historical circumstances, that determined appearance of the prohibition to use predatory pricing and to ascertain reasons that conditioned position of the EC and US courts towards predatory pricing, as well as changes in assessment of predatory pricing in scientific doctrine and judicial practice.
Linguistic method was used in order to determine the content of the com-petition law provisions on the basis of the formulations provided in the legal acts. This method also was used in the analysis of the decisions of the Euro-pean judicial institutions and published documents of the European Commis-sion.
The aim of the study and the tasks. The aim of the dissertation – using scientific methods to analyze comprehensively peculiarities of the prohibition to use predatory pricing in EC competition law, to indentify basic problems that arise in the practice while applying competition law provisions that embed this prohibition and to overlook small practice of the Lithuanian competition council related to predatory pricing.
In pursuance of the indicated aim the following tasks have been raised:
1) to analyse shortly basic principles of the abuse of the dominant position in the EC competition law, describe main features of the predatory pricing and overview main scientific theories that are applied for the estimation whether certain actions are to be viewed as predatory pricing;
2) to analyze decisions of the EC judicial institutions, resolutions of the Lithuanian competition council as well as legal acts of the European Union and Lithuania;
3) to analyze costs that are used in order to decide whether certain actions are to be seen as predatory pricing;
4) to estimate the importance of the recoupment in the cases related to predatory pricing;
5) to decide the importance of the intention in the cases related to predato-ry pricing;
6) to estimate the importance of the objective justifications of the under-taking that used predatory pricing.
The statements that are defended in dissertation.
1. Definition of predatory pricing proposed by the Lithuanian competition council should be changed and predatory pricing should be described as ac-tions, when dominant undertaking establishing the prices of the product that are lower than their production costs forecloses its competitors or creates addi-tional barries for the appearance of the new competitors in the market, and later on fixes such high level of the prices, that dominant undertaking would not be able to fix in case the competitors have not been foreclosed, and such actions of the dominant undertaking cause damage to the consumers;
2. European Union judicial institutions and Commission should not re-cognize that the relationship between the costs and the price is the basic feature for the determinance whether predatory pricing have been used;
3. European Union judicial institutions and Commission should recognize that dominant undertaking used predatory pricing only in case if there is evi-dence that dominant undertaking might recoupe the losses;
4. European judicial institutions and Commission should recognize that intention to use predatory pricing is only additonal evidence for the determina-tion that undertaking abused dominant position;
5. European judicial institutions and Commission should recognize the right of the dominant undertaking to submit objective justifications of its ac-tions, that might prove that dominant undertaking have not used predatory pricing.
The scientific novelty and practical importance. While assesing the novelty of the dissertation in the respect of the Lithuanian legal science, it should be noted that dissertation is first dissertation in Lithuania designed to the analysis of the abuse of the dominant position in the competition law of the European Union. It should be noted that scientists of Europe and the United States have analyzed predatory pricing comprehesively in their legal works. Law scientists often criticize decisions of the European Union judicial institu-tions and European Comission, since European Union judicial institutions and European Comission concentrate their attention on the formal conditions of the predatory pricing and do not pay enough attention to the effect of the dominant undertaking actions. Although predatory pricing is analyzed comprehensively in the EC law, however the author could not find dissertation or book that would analyze predatory pricing comprehensively, while conducting research in several libraries of Germany, Denmark and Switzerland. The aforementio-ned circumstances allow to conclude that the concept of predatory pricing should be more developed and researches in this sphere are important.
Dissertation analyses comprehensively judicial decisions and scientific li-terature related to predatory pricing of European judicial institutions, European Commission, United States and other countries. This dissertation gives provi-des help for the courts and competition institutions, while analyzing predatory pricing, tu use collected information and assess variuos aspects of the cases under consideration, bearing in mind case law of the European Union and other states. Comprehensive analysis of the Communication of the Commis-sion „Guidance on the Commission‘s enforcement priorities in applying Artic-le 82 of the EC Treaty to abusive exclusionary conduct by dominant underta-kings“ in dissertaton is important for the analysis of the documents of the Commission, that embed prohibition to abuse dominant position .
The sources of the dissertation. EC Treaty and other EC acts. Article 82 of the EC Treaty and other provisions of this Treaty have been the main source of the dissertation. Moreover, the reference have been made to the other EC legal acts, for example, Council Regulation No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty.
Decisions of the European Union judicials institutions, European Com-mission, United States as well as decisions of the judicial intstitutions and competitions councils of the various countries. A lot of attention was devoted to the decisions of the aforementioned institutions.
Documents of the European Commission. The reference in dissertation have been made to the „DG Competition discussion paper on the application of Article 82 of the Treaty to exclusionary abuses“ , Communication from the Commission – „Guidance on the Commission‘s enforcement priorities in ap-plying Article 82 of the EC Treaty to abusive exclusionary conduct by domi-nant undertakings“ , Commission notice on the definition of the relevant mar-ket for the purposes of Community competition law and other documents of the Commission.
Works of the scholars. The author familiarized with important works of Lithuanian legal scholars related to competition law – disserations of I. Nor-kus, L. Darulienė and D. Švirinas. However, these works of Lithuanian scho-lars are not related to the problems analyzed by the author in this dissertation. Dissertation of I. Norkus is related with analysis of illegal agreements in com-petition law , L. Darulienė analyzed application of competition law in the analysis of banks work and D. Švirinas examined regulation of vertical ag-reements in competition law. Works of European and American scholars on predatory pricing are comprehensively anlyzed in dissertation. Important re-searches in EC competition law on predatory pricing have been conducted by the B. Allan, L. Phlips, C. Ritter, R. O‘Donoghue, J. Padilla, P. Andrews, S. M. Gal, D. Waelbroeck and the others. Prohibition to use predatory pricing in the United States have been analyzed by P. Areeda, H. Hovenkamp, F. D. Tur-ner, R. Posner, C. Austin, W. Baumol, P. Bolton, J. F. Brodley, H. M. Riordan, F. Easterbrook, A. Eckert, S. D. West, A. Edlin, J. McGee, F. M. Sherer, O. Williamson and the others.
Legal acts of the Republic of Lithuania and other countries. In disserta-tion Lithuanian law on competition is analyzed, few decrees adopted by the Lithuanian competition council are overviewed, also acts of the United States and of the several other countries are discussed.
Structure of the dissertation. Dissertation is composed from the intro-duction, six sections, sub-sections, conclusions, proposals, list of used literatu-re and list of publications of the author. In sections of the dissertation the following issues are analyzed: 1) in first section – basic concepts of abuse of dominant position in EU and Lithuanian law; 2) at second section – the con-cept of predatory pricing and main scientific theories that are used in order to decide whether certain actions might be considered predatory pricing; 3) at third section – costs, which are used for determination whether dominant un-dertakings‘ actions might be recognized to constitute predatory pricing. EU judicial institutions in order to decide whether actions constitute predatory pricing always intend to assess whether undertaking is setting prices lower than production costs. Depending on the circumstances of the specific case different cost measures are used: average variable costs, average avoidable costs, long run average incremental costs and average total costs; 4) at fourth section- intent of the dominant undertaking is analyzed. Importance of intent is subject to relation between price and costs of the dominant undertaking. In case undertaking sets prices lower than average variable or avoidable costs, presumption is made that the undertaking is using predatory pricing and that the undertaking has illegal intent. In case prices are higher than average variab-le/avoidable, long run incremental and average total costs, illegal intent has to be proved in order to recognize that dominant undertaking used predatory pri-cing; 5) at fifth section – chances of the dominant undertaking to recoup losses are estimated. It has to be emphasized that judicial institutions of the European Union do not pay a lot of attention to recoupment and it might be recognized that dominant undertaking used predatory pricing even without evidence that it is possible to recoup losses; 6) at sixth – objective justifications of the domi-nant undertaking, which allegedly used predatory pricing are analyzed. Even if at first sight dominant undertakings‘ actions are similar to abuse of dominant position, such actions might not be recognized as an abuse if dominant under-taking provides objective justification of its actions, or proves that such actions generate positive effect to competitive structure, which outweighs negative effect. At the end of the dissertation conclusions and proposals are submitted.
Approval of the research results. Dissertation was discussed in the de-partment of the European Union law of Mykolas Romeris University.
Some parts of the research have been published in the scientific journal of Mykolas Romeris University „Jurisprudencija“: 1. Moisejevas R. Abuse of the dominant position: predatory pricing – main features. Jurisprudencija. 2007. T. 9 (99): 62–70; 2. Moisejevas R. Analysis of the competition law reform implemented by the European Council regulation Number 1/2003. Jurispru-dencija. 2006. T. 3 (81): 64–72.
Author used the results of its scientific results while reading competition law lectures in Mykolas Romeris University. Author exchanged its knowledge in competition law and deepened them in June, 2007, New York, USA, com-petition law courses for the national judges in Fordham Law School, in No-vember, 2006, Hungary, Budapest, competition law courses for the national judges, in June, 2006, Germany, Trier, competition law courses and in May, 2006 in seminar held n Vilnius „Introduction to the role of the national courts in accordance with Regulation 1/2003 (EC).
1. Definition of the predatory pricing proposed by the Lithuanian compe-tition council should be changed and predatory pricing should be described as actions, when dominant undertaking establishing the prices of the product that are lower than their production costs forecloses its competitors or creates addi-tional barries for the appearance of the new competitors in the market, and later on fixes such high level of the prices, that dominant undertaking would not be able to fix in case the competitors have not been foreclosed, and such actions of the dominant undertaking cause damage to the consumers.
2. European Union judicial institutions and Commission should not re-cognize that the relationship between the costs and the price is the basic feature for the determinance whether predatory pricing have been used. Moreover, Commissions‘ proposal to use average avoidable costs is not in line with pra-ctice of ECJ and CIF. Commission should describe more clearly how average avoidable costs and long run incremental costs are to be calclulated in order to ensure legal certainty of concerned undertakings. Long run average incremen-tal costs test is not universal and might be applied only in limited business spheres.
3. Only in exceptional circumstances it is possible to prohibit prices that are higher than average variable/avoidable costs and smaller that average total costs, because in this case all the variable costs and part of the fixed costs are covered. Pricing of undertaking in this case is not so evidently losing as in the case when undertaking sets prices lower than average variable/avoidable costs. Prices of the dominant undertakings that are higher than average total costs (limit pricing) should not be recognized predatory pricing.
4. European judicial institutions and Commission while assesing predato-ry pricing give to much importance to the intent of the dominant undertaking. It should be recognized that intention to use predatory pricing is only additonal evidence for the determination that undertaking abused dominant position. In strategic plans of undertaking it might be provided that undertaking aims to eliminate competitors, however, managers of companies do not always make correct decisions and quite often they do not achieve their bussiness goals. Moreover, intent to eliminate competitors and to take a big part of the market is the aim of all dominant undertakings, driving force of the competition. Competition law officers should inquire whether pricing will cause elimination of the competitors. Author criticises the policy of Commission competition law officers to prove illegality of the dominant undertakings actions with refe-rence to indirect evidence, because such evidence is not fully reliable.
5. European Union judicial institutions and Commission should recognize that dominant undertaking used predatory pricing only in case if there is evi-dence that dominant undertaking might recoupe the losses. In case recoupment will be recognized as a necessary element, competition institutions should inquire whether dominant undertakings‘ actions caused damage to consumers. If recoupment is not cosidered, competition law rules will be applied too strict and dominant undertakings will not charge low prices, that are good for con-sumers.
6. European judicial institutions and Commission should recognize the right of the dominant undertaking to submit objective justifications of its ac-tions, that might prove that dominant undertaking have not used predatory pricing. This right of dominant undertaking should not depend on the relation between prices and costs of the dominant undertaking. Right of the dominant undertaking to set lower prices than average variable/avoidable costs should be recognized in case competitors set especially low prices.
1. To delete third footnote provided in 20.2 Article of the resolution of 17th May, 2000 No. 52 „On the explanations of the Competition council con-cerning the establishment of a dominant position“, which provides definition of the predatory pricing.
2. Supplement 20.2 Article of the resolution of 17th May, 2000 No. 52 „On the explanations of the Competition council concerning the establishment of a dominant position“ with the following sentence – predatory pricing should be described as actions, when dominant undertaking establishing the prices of the product that are lower than their production costs forecloses its competitors or creates additional barries for the appearance of the new competitors in the market, and later on fixes such high level of the prices, that dominant underta-king would not be able to fix in case the competitors have not been foreclosed, and such actions of the dominant undertaking cause damage to the consumers.
3. Author recommends in 20.2 Article of the resolution of 17th May, 2000 Number 52 „On the explanations of the Competition council concerning the establishment of a dominant position“ to explain comprehesively criteria, which are used by the competition coulcil while estimating whether underta-king used predatory pricing.
Raktažodžiai: predatory pricing, abuse of the dominant position, competition law, costs