Brief 56: Pfizer/Flynn vs the CMA: Misdiagnosis of excessive pricing 23.07.18
On 07 June 2018, the UK Competition Appeals Tribunal (‘CAT’) set aside the Competition and Markets Authority (‘CMA’) Decision regarding the alleged excessive pricing of phenytoin sodium (an anti-epileptic drug) by two pharmaceutical companies – Pfizer and Flynn.
While the CAT supported the CMA’s findings in relation to market definition and dominance, it was critical of the CMA’s assessment of the alleged abusive conduct. Specifically, the CAT found that the CMA “did not correctly apply the legal test for finding that prices were unfair; it did not appropriately consider what was the right economic value for the product at issue; and it did not take sufficient account of the situation of other, comparable, products, in particular of the phenytoin sodium tablet”.
In short, the CAT found that the CMA had failed to conduct a thorough economic assessment of the circumstances in which prices can be held to be excessive and identified a range of factors that need to be considered in order to robustly establish a finding of excessive pricing. The CAT Judgment therefore serves as a welcome reminder of the inherent difficulties that arise in determining whether or not a given price level can be meaningfully determined to be excessive and, perhaps more importantly, that competition authorities should not ignore crucial economic evidence in that assessment.
Brief 55: Automatic Harm to Competition? Pricing algorithms and coordination 12.02.18
In a recent speech, EU Commissioner Vestager expressed the following concerns regarding the use of pricing algorithms.
“ I think we need to make it very clear that companies can’t escape responsibility for collusion by hiding behind a computer program.”
Other competition agencies have echoed similar concerns for the risks that pricing algorithms pose for collusion. The topic has also featured in a recent OECD roundtable and in a number of academic papers. This Brief assesses the impact of different categories of pricing algorithms, identifies their links with coordination concerns, and evaluates some possible competition law enforcement responses. Pricing algorithms do raise some interesting issues, but the worst case scenarios for collusion have been overplayed, and some of the calls for increased intervention reveal a worrying gap in the understanding of the economics of oligopolistic markets.
Brief 54: An innovative leap into the theoretical abyss: Dow/DuPont and the Commission’s novel theory of harm 05.07.17
In March 2017, the European Commission approved the proposed merger between chemical companies Dow and DuPont, subject to undertakings. The Commission applied an innovation theory of harm that is based on a much broader and more speculative concern than in other recent mergers (e.g. Pfizer/Hospira); namely, that the parties would find it profitable to reduce overall R&D investments post-merger causing a reduction in the number of innovative pesticide products in the future. This Brief explains why this theory of harm marks a departure from previous “innovation” cases. It also responds to the recently published paper by Chief Economist Tommaso Valletti and his colleagues, which claims, on the basis of a theoretical model, that horizontal mergers can be expected to reduce innovation incentives as a result of a standard unilateral effect.
Value of YouTube to the music industry 26.06.17
RBB Economics, Value of YouTube to the music industry – Paper I – Cannibalization, May 2017
RBB Economics, Value of YouTube to the music industry – Paper II – Growth of all platforms, June 2017
RBB Economics, Value of YouTube to the music industry – Paper III – Promotion, June 2017
RBB Economics, Value of YouTube to the music industry – Paper IV – Value for consumers, June 2017
RBB Economics,Value of YouTube to the music industry – Paper V – Direct value to the industry, June 2017
RBB Economics, Value of YouTube to the music industry – Annex, June 2017
Brief 53: Passing judgment on passing-on 29.03.17
The harm suffered by a firm as a result of a competition law infringement that increases its purchase costs may be reduced if it can pass on some or all of this overcharge to its own customers. At the same time, such passing-on will lead to harm, and provide the basis for claims, further down the supply chain. In this Brief we offer an economic perspective on passing-on, highlighting in particular some of the issues raised by the UK Competition Appeal Tribunal’s Judgment on the damages claim brought by supermarket retailer Sainsbury’s against payment card scheme operator MasterCard. In doing so, we have drawn on insight and analysis from the Study on the Passing-On of Overcharges recently co-authored by RBB for the European Commission.