The Economics of Monopolization and Abuse of Dominance.

Exclusionary practices are contracts, pricing strategies, and more generally actions taken by dominant firms to deter new competitors from entering an industry, to oblige rivals to exit, to confine them to market niches, or to prevent them from expanding, and which ultimately cause consumers harm. Recent prominent cases involving exclusionary practices includ Google and Qualcomm: in June 2017 the European Commission has fined Google 2.42 billion euros for abusing its dominant position as a search engine giving illegal advantage to own comparison shopping service; in January 2018 the European Commission has fined Qualcomm 997 million euros for exclusive dealing contracts with Apple that excluded rivals.

Abuse of dominance is a challenging area of competition policy because it is certainly the most controversial. Indeed a very important principles that inspire antitrust laws around the world is that obtaining or possessing a dominant position is not by itself a problem: it reflects the idea that it is the prospect of earning profits and market power which represents the engine of innovation and growth. Firms will innovate, invest, introduce new and higher quality products to be better than rivals, be preferred by customers and hence earn higher profits. If in this process there is a firm which is doing so much better than the rivals that it will dominate the market, that should be accepted – so long as there has been competition on the merits and the firm has not resorted to unlawful means. In practice, however, the distinction between fierce - but fair or lawful - competition and unfair or unlawful competition can be difficult to make.

Another source of controversy is that the enforcement of antitrust laws concerning exclusionary practices is extremely different across the two sides of the Atlantic. In the US it is rare for courts to find that a firm has infringed antitrust laws on the basis of monopolisation or attempted monopolisation. At the other extreme, dominant firms in the European Union are under close scrutiny, and it is less likely than in the US that cases involving practices such as exclusive dealing, fidelity rebates and price discrimination are decided in favour of a dominant firm. Most economists have denounced this state of affairs as unsatisfactory for quite some time and have emphasised that these practices may be anti-competitive or efficiency-enhancing depending on the circumstances. As a consequence, they should be neither under a de facto per se illegality nor under a laissez-faire regime, but should be assessed on the basis of the effects exerted on the market. Admittedly though, the guidance that the economic theory has so far been able to provide to competition law enforcement in this area is not fully adequate. Some so-called post-Chicago models have offered what economists call possibility results (namely, the development of models showing that a given practice may have an anti-competitive effect under certain conditions), but few general identification results, which could assist the analyst in uncovering all the potential effects (positive and negative) of an exclusionary practice, as well as their significance in practice.

To conclude, such issues are extremely important for a modern economy, because wrong policies in this area can have severe welfare-detrimental effects either by eliminating competition (a hands-off approach would allow incumbent firms to exclude efficient rivals, thereby leading to persistent dominant positions and impeding the Darwinian process of competition that is a major source of productivity gains), or at the other extreme by impeding practices which lead to lower prices or higher investments thereby ultimately hindering innovation (think of interventionist policies which prevent dominant firms from offering good deals, or from introducing new products, or from using contracts which may promote investments).