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EUROPEAN COMMISSION DG Competition - page 52 / 113

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(see also below on recoupment). This argumentation requires evidence not only that multiple markets or periods exist, but also that the dominant company pursues such a reputation effect strategy and that the (successive) potential entrants can observe the adverse conditions imposed on or the exit of the current prey.

Necessary to investigate 120. To show a plausible scheme of predation it may be necessary to investigate whether the prey is dependent on external financing and whether the lowering of prices by the dominant company has such an adverse effect on the prey’s initial performance that it seriously undermines its supply of further financing. This argumentation requires showing not only of the negative effects on the prey’s financial situation, but also that the dominant company is less dependent on external financing than the prey and that the dominant company has or can reasonably be expected to have knowledge of this difference in dependency.

Ability to finance losses incurred while predating not proof of predation, but

121. The fact that the dominant company can off-set its losses with profits earned on other sales can generally not be proof on its own of predatory pricing. It can show that the dominant company is actually capable of financing the losses with the profits made on other sales in the same period and may therefore be less dependent on external financing. In specific circumstances such as a multi-market situation or selective price cutting it may also be an indication that recoupment already takes place while the predatory pricing occurs. Similarly, if the dominant company can not off-set its losses with profits earned in the same period on other sales, this is not sufficient to disprove predation. While ability to directly finance the losses incurred may be relevant, it is more important to investigate the incentive to predate and

investigate whether the losses can be recouped.

Reasonable to presume recoupment 122. The issue of recoupment concerns the question whether the negative effect on (the growth of) competition in the market makes the sacrifice of the temporarily incurred losses a good ‘investment’ from the dominant company’s perspective. Is it reasonable to assume that the predation and its exclusionary effect will allow the dominant company to have higher prices in

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