Should Competition Authorities Take on Excessive Pricing Cases in Markets With No Barriers to Entry?

The European Union and many other jurisdictions have long considered excessive and unfair pricing a breach of abuse of dominance provisions of competition law. However, there have not been many cases, at least at the EU level. Recently, however, excessive pricing cases seem to be coming back into fashion, partly in reaction to public concern but also reflecting economic thinking that has questioned the consensus.

In particular, Professors Ezrachi and Gilo have argued that entry is unlikely to correct high prices. They recommend that competition authorities should make greater use of their powers to penalize excessive pricing – and Professor Gilo has suggested that courts should compensate consumers who paid too much.

In this briefing, John Davies and Jorge Padilla argue that the economic foundations for this belief are not strong enough to support such a radical extension of state control of prices. The empirical evidence supports the intuition that high prices do indeed encourage entry in markets without entry barriers. Furthermore, experience tells us that markets are generally better than governments at finding the ‘right’ price.

Read the briefing