Competitive Advantage: Superior Offer or Unfair Dominance?

For an overview of various antitrust and competition policy issues, see Adams W. Brock J.W. , Antitrust Economics on Trial (Princeton, N.J.: Princeton University Press, 1991); Scherer F.M. Ross D. , Industrial Market Structure and Economic Performance, 3rd edition (Boston, MA: Houghton Mifflin Company, 1990); Ritter L. , EEC Competition Law (Norwell, MA: Kluwer Law Tax Publishers, 1991); Hawk B. , Fordham Corporate Law Institute Proceedings on International Antitrust Law and Policy (New York, NY: Transnational Juris Publications, 1991, 1992, 1993).

For a respective assessment, see American Bar Association Section of Antitrust Law, “Report of the Special Task Force on Competition Policy,” Antitrust Law Journal, 61/3 (1993): 977–992.

Porter M. , Competitive Strategy (New York, NY: Free Press, 1980).

Teece D. , “Profiting from Technological Innovation,” Richerche Economiche (1986), pp. 607–644; Hamel G. Prahalad C.K. , “The Core Competence of the Corporation,” Harvard Business Review (May/June 1990); Jarillo J.C. , “On Strategic-Networks,” Strategic Management Journal, 9 (1988): 31–41; Amit R. Schoemaker P.J.H. , “Strategic Assets and Organizational Rent,” Strategic Management Journal, 14 (1993): 33–46.

Bain J.S. , Barriers to New Competition (Boston, MA: Harvard University Press, 1956).

Cournot A. , Rechèrches sur les Principes Mathématiques de la Théorie des Rishesses (1838), ReprintMacmillian (1927); Bertrand J. , “Review of Cournot,” Journal des Savants (1883), pp. 499–508; Sraffa P. , “The Laws of Return under Competitive Conditions,” Economic Journal (1926); Robinson J. , The Economics of Imperfect Competition (New York, NY: Macmillan, 1933); Chamberlin E. , Theory of Monopolistic Competition (Boston, MA: Harvard University Press, 1933); Andrews P. , Competition in Economic Theory (New York, NY: Macmillan, 1964).

See Scherer M. , “The Posnerian Harvest,” Yale Law Journal, 86 (1976): 974–990; Schmalensee R. , “Entry Deterrence in the Ready to Eat Breakfast Cereal Industry,” Bell Journal of Economics (1978), pp. 305–327; and Salop S. , “Strategic Entry Deterrence,” American Economic Review, Proceedings (1979), pp. 335–338.

See Salop S. Scheffman D.P. , “Raising Rival's Costs,” American Economic Review (May 1983), pp. 267–271; Kamien M. Schwartz N. Market Structure and Innovation (Cambridge: Cambridge University Press, 1982).

See Commons J.R. , Institutional Economics (Madison, WI: University of Wisconsin Press, 1932); Coase R. , “The Nature of the Firm,” Economica (November 1937), pp. 386–405; for comprehensive presentation of contractual options see Williamson O. , Economic Organizations—Firms. Markets and Policy Control (Brighton: Wheatsheaf Books, 1986); for a discussion of the abstract logic of contractual coordination and its welfare impact see Boscheck R. , “Immobilization as Institutional Choice,” IMD Working Paper Series (1992).

See Baumol W.J. , Contestable Markets: An Uprising in the Theory of Industry Structure, American Economic Review (1982), pp. 1–15, for a brief overview.

Product substitutability is normally assessed on the basis of measurable demand changes due to relative price changes of alternative offers; the geographic scope of the relevant market is determined by the limits of economically viable trade, which are set by the relationship between unit delivered cost to price.

This decision is even more confusing as it was followed by the Commission's verdict in favor of the Nestle-Perrier lake-over in July 1992, where the resulting duopoly of Nestlé and BSN garnered 80% of the French mineral water market. Instead, by demanding that the brands Vichy, Saint Yorre, Thonon, and Pierval be transferred into a strong third power in that market, it sought to limit the potential for abuse and anti-competitive coordination by creating a precedent of market regulation whose economic logic appears at least questionable. For a more in-depth discussion see Boscheck R. , “Uniernehmensstrategie und Wettbewerbsbeurteilung?” Top Business (forthcoming, 1994).

As stipulated in Section 1 and 2 of the Sherman Act or Article 85(1), subsequently adjusted by case law (USA) or statute (article 85(3)) to provide a rule of reason or a set of exemptions for types of cases that offer some redeeming value. Section 1 of the Sherman Act condemns “every contract, combination … or conspiracy in restraint to trade.” Yet the Supreme Court decision in Standard Oil Co. v. United States, 221, US 1 (1911) quickly adopted a rule of reason by declaring that agreements that unreasonably restrain trade are unlawful. Since then agreements with some redeeming value may benefit from a rule of reason test guided by some industry structure and conduct analysis as well as assessment of rationale. Next to per se illegal price fixing, market sharing, and retail price maintenance, most other horizontal and vertical restraints have moved towards rule of reason evaluations.

The types of arrangements currently benefiting from bloc exemptions are specialization agreements (OJ L 53, 22.2.1985), exclusive distribution agreements (OJ L 173, 30.6.1983, p. 1), exclusive purchasing agreements (OJ L 173, 30.6.1983, p. 5), patent licensing agreements (OJ L 219, 16.8.1984, p. 15), research and development agreements (OJ L 219, 16.8.1984/ OJ L 280, 22.10.1985), know-how licensing agreements (OJ L 61, 4.3, 1989), as well as forms of risk sharing in the insurance sector (OJ L 143, 7.6, 1991).

For a critical review of current EC competition law and enforcement practice, see Horspool M. Korah V. , “Competition: 1992 and the Creation of a Single European Market,” Antitrust Bulletin, 37/2 (1992): 337–385.

Reviewing recent U.S. case law on predatory pricing and vertical restraints Klevorick as well as Salop find only highly random reference to anything resembling a consistent use of economic logic in deciding cases, in which “assertion is sometimes substituted for economic evidence, and legal conclusions are frequently overly broad.” See Klevorick A.K. , “The Current State of the Law and Economics of Predatory Pricing,” American Economic Review, 83/2 (1993): 162–167; Salop S.C. , “Exclusionary Vertical Restraints Law: Has Economics Mattered?” American Economic Review, 83/2 (1993): 168–172.

Ibid.

See Canada (Director of Investigation and Research) v. NutraSweet Co., (1990), 32 C.P.R. (3d) 1 Competition Tribunal.

With a minimum efficient scale production requiring a third of the world market and costing in excess of $ 100 million.

See Canada (Director of Investigation and Research) vs. NutraSweet Co., (1990), 32 C.P.R. (3d) 1 Competition Tribunal, p. 42, (italic added].

For a discussion, see Thompson D. N. , “NutraSweet—The Evolution of Law on Abuse of Dominant Position,” Canadian Business Law Journal, 18/1 (May 1991): 17–42.

See Commission Decision July 24, 1991, IV/31043: TetraPak II, Official Journal of the European Communities, No. 18/3.(1992): No L 72/1–68.

See Boscheck R. , “Competitive Success and the Law: The Case of TetraPak,” European Management Journal (June 1993), pp. 190–199. With 75.000.000 ECU line, TetraPak has been charged the highest fine ever in the history of Community competition law enforcement. The case can be safely said to touch the majority (if not all) accounts of abuse of dominant positions in vertical and horizontal market relations as previously discussed in EEC landmark cases such as Grundig-Consten (O.J. L 2545/64 (1964)) involving a.o. territorial protection and intrabrand competition; United Brands (O.J. L 95/1 (1976), which had established the role of Article 86 in fighting abuse of dominance; Hugin/Liptons (O.J. L 22/23 (1978)) relating to dominance with regard to own line products/captive distribution and customers, and Pioneer (O.J. 60/21 (1980)) w.r.t. intra-Community trade.

See Commission of the European Communities, Nineteenth Report on Competition Policy (1990), p. 77.

See, for example, Parasuram A. Berry L. Zeithaml V. , “Understanding Customer Expectations of Service,” Sloan Management Review (Spring 1991), pp. 39–47; Vandermerwe S. , From Tin Soldiers to Russian Dolls: Creating Added Value Through Services (Stoneham, MA: Butterworth-Heinemann, 1993).

See Greco A.J. , “The Resale Price Maintenance Struggle: Its Legislative Updating.” American Journal of Economics & Sociology, 51:2 (1992): 173–186; Mueller C. E. , “Predatory Pricing to Stop Discounting: The Kroger/Wal-Mart Battle of Batesville,” Antitrust Law and Economics Review, 23 (1991): 1–16; Perry M. K. Besanko D. , “Resale Price Maintenance and Manufacturer Competition for Exclusive Dealerships,” Journal of Industrial Economics, 39/5 (1991): 517–544, for a review of the various positions taken in the current debate.

For an in-depth discussion of the forces and trends in evolving patterns of industrial organizations as well as their strategic and welfare economic implications, see Boscheck R. , “Market Volume, Asset Base and Span of Control,” 1MD Working Paper Series (1993).