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EUROPEAN COMMISSION DG Competition - page 46 / 113





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Period over which to measure the costs 104. To use a cost benchmark one needs to decide on the relevant time period over which to measure the costs. This is important because what is a fixed cost in the short run may become a variable cost in the longer run. In the long run all factors of production become variable as the production process, the plant and machines will be replaced. What are fixed and variable costs can only be determined in the actual situation of the case.

Period over which to measure costs 105. The relevant period over which to measure the costs will in principle be the time period in which the alleged predatory pricing has taken place or, if still continuing, is expected

to take place. However, in certain cases a different period of time may be appropriate. For instance, in particular liberalised sectors the Commission has used LAIC, which by definition

looks at costs in the long run.


If price below appropriate bench mark, presumption that predatory

106. In general the appropriate cost benchmark is the one that most accurately justifies the presumption that pricing below that benchmark can be expected to be predatory. The relevant question in that context is whether the dominant company, by charging a lower price for all or a

particular part of its output over the relevant time period, incurred or incurs losses that could

have been avoided by not producing that (particular part of its) output. If such avoidable losses a r e i n c u r r e d , t h e p r i c i n g c a n b e p r e s u m e d t o b e p r e d a t o r y . A t t h e s a m e t i m e t h e b e n c h m a r k m u s t be practical enough to be implemented .

Below Marginal Cost 107. In theory, the MC benchmark does answer the question for each individual unit of

output separately; a price below MC means that the production and sale of that unit led to an immediate loss that could have been avoided by not producing that unit. However, not only is the per unit approach cumbersome, in most cases there will be no data available to calculate MC.

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