Rhetoric and Reality: You Protect Competitors, We Protect Competition – Except When We Protect Competitors

Posted by Social Science Research Network

Rhetoric and Reality: You Protect Competitors, We Protect Competition – Except When We Protect Competitors Florian Wagner-von Papp (University College London Faculty of Law)

ABSTRACT: The aim of this paper is threefold. First, it seeks to contribute to a more fine-grained comparison between US antitrust and EU competition law by (selectively) including state antitrust laws as well as laws that pursue objectives different from the antitrust laws but interfere with the aims of the antitrust laws (“non-antitrust laws”). Secondly, the paper highlights the degree to which such state antitrust laws and non-antitrust laws may interfere with the error-cost framework employed in antitrust law which finely balances Type I and Type II errors. Thirdly, as a consequence of the first two points, the paper seeks to raise awareness of the importance of clearly defining the relationship between antitrust law on the federal (or EU) level and antitrust laws as well as non-antitrust laws on the (Member) state level.

Federal antitrust law in the United States has come a long way since the 1970s. Interventionism has since been replaced by the use of an error-cost framework. This error-cost framework takes into account that Type I errors (false positives, overenforcement) may actually stifle competition and be counterproductive, for example, where antitrust protection of intrabrand competition has negative effects on interbrand competition, or where the antitrust laws are used to restrict vigorous competition by a firm with monopoly power in order to protect less efficient competitors to the detriment of consumers. When comparing US antitrust law to EU competition law, EU law is usually portrayed as not having made this transition, or at least not being consist in the implementation of the error-cost framework. EU competition law is seen as interventionist and disproportionately concerned with Type II errors (false negatives, underenforcement).

This contribution acknowledges that the enforcement of EU competition law is more interventionist than the enforcement of US federal antitrust law. However, the comparison of US antitrust law on the *federal* level with competition rules on the *EU* level is an incomplete one. In comparative law, the focus must be on the “law in action” as it applies to a given factual scenario and must take “functional equivalents” into account.

Using these insights from comparative law has the consequence that in the US one has to take into account not only federal antitrust law, but also state antitrust laws and non-antitrust laws. Some state antitrust laws are more interventionist than the federal antitrust laws, for example in the treatment of resale price maintenance, and they may apply concurrently to federal law, undermining the federal law’s non-interventionist stance. Alternatively or cumulatively, non-antitrust laws (on the federal or state level) may disturb the fine balance struck by the error-cost framework employed in federal antitrust law. This is, for example, the case where contract law makes resale price maintenance contracts unenforceable even though they would be considered reasonable under federal antitrust law, where franchise or car dealership laws make it difficult for the franchisor or manufacturer to structure or restructure their distribution schemes, undermining the federal law’s reluctance to interfere with unilateral decision-making even by the monopolist, or where sales-below-cost statutes in the states undermine the error-cost framework employed in predatory-pricing analysis under the federal antitrust laws. Taking these functional equivalents into account narrows the seemingly wide gap between interventionist EU competition law and the non-interventionist US antitrust law to some degree.

In the EU, conversely, one also has to consider the competition laws of the Member States, and the effect of functional equivalents of laws outside competition law. A similar picture emerges: the Member States’ competition laws are generally more interventionist than EU competition law (especially where competition laws apply to “economic dependency” scenarios), and non-antitrust laws, such as unfair trade law, prohibit conduct that would pass muster under EU competition law.

As most of the laws interfering with the error-cost framework analysis are enacted on the state level (or Member State level), the question of the relationship between federal and state law arises. In the US, the courts have been extremely reluctant to consider federal preemption of state antitrust laws, and state non-antitrust laws generally benefit from the non-interventionist state action doctrine. In the EU, the relationship between the national competition laws and EU competition law has changed in 2004, in a political compromise that I consider unsatisfactory: while restrictions of competition by agreement are, roughly speaking, fully harmonized across the EU, Member States are completely free to be as interventionist as they like as far as unilateral conduct is concerned.

While it is arguably unrealistic to draft an error-cost framework that comprises all antitrust and non-antitrust objectives, and at the same time takes account of federalism issues, this paper seeks to raise the awareness of the interactions between the various antitrust/non-antitrust and federal/state laws.