Excessive Pricing: A View from Chile

Posted by Social Science Research Network

Excessive Pricing: A View from Chile Omar Patricio Vásquez Duque (University of Chile)

Abstract: Excessive pricing is one of the most controversial topics in competition law. Notwithstanding excessive pricing being one of the most blatant forms of abuse, a non-intervention policy tends to be the prevalent choice worldwide. Such a “hands-off” approach is based on the grounds that excessive prices self-correct, as well as practical difficulties in measuring a competitive benchmark and identifying excessiveness, and the fear of distorting ex ante incentives to innovate and invest. This article aims at providing a more balanced approach, which might be particularly useful for small economies, since market failures tend to linger for a longer time in small markets. Accordingly, it reviews the literature concerning the merit of antitrust intervention and the tests proposed to determine when intervention should take place. Then it illustrates the Chilean experience, which shows challenges concerning the scope of competition law; its goals; and principally the identity of a jurisdiction influenced by both the American and the European systems. This work concludes, on a policy level, that antitrust law might have a role to play in excessive pricing cases; and points out that even if hard enforcement is not considered appropriate, soft-enforcement strategies might also be advisable to address excessive prices. On a practical level, this article concludes that jurisdictions where excessive pricing provisions already exist should prefer tests aimed at defining a workable application of such provisions. This paper provides guidelines to determine their enforcement.