European Union Case Law on Excessive Pricing: An Economic Assessment

Abstract

This paper examines the European Union’s case law on the prohibition of charging excessive pricing. Its cornerstone is the Court of Justice’s statement that a price is excessive if it bears no reasonable relation to its economic value under competitive conditions. This paper argues that economic value should correspond to the firm’s long-run average total costs, including incurred and opportunity costs, at the level of actual output. Accordingly, the paper concludes that the jurisprudence is based on sound economic principles, as it aims to protect consumers from the abuse of a dominant position, without significantly influencing investment decisions by allowing investors to earn a return on their investments commensurate with the risks they take. The main problem in sanctioning excessive pricing is practical: the difficulty of measuring economic costs. The case law considers a less cumbersome alternative: comparing the defendant’s price with the price of the same or comparable products in more competitive markets, but with obvious homologation complexities. Safeguards have therefore been put in place to minimize the risk of false convictions, including considering a price to be excessive only if it significantly exceeds costs and allowing defendants to rebut the competition authority’s findings with objective data.