The “Enhanced No Economic Sense Test”: Experimenting with Predatory Innovation

Posted by Social Science Research Network

By Thibault Schrepel (University Paris)

The “Enhanced No Economic Sense Test”: Experimenting with Predatory Innovation

This paper originates from a long-standing anachronism of antitrust law in regard to high-tech markets. Conventional wisdom assumes that antitrust law mechanisms are well suited to the study of practices in technology markets and that only adjustments are to be made here and there. This is untrue. Several practices fall outside the scope of antitrust law because the mechanisms for assessing the legality of practices are not adequate. In fact, no one can accurately identify a typical legal approach for non-price strategies. A chaotic jurisprudence emerges from it, which we will show.

This article further aims to contribute to the literature by advancing a new test, the “enhanced no economic sense” (“ENES”) test, to be applied to non-price strategies. We show why applying it with consistency will help to simplify the law while avoiding legal errors – two goals that all of the tests aiming to assess the legality of practices under antitrust law should reach. Some of these tests, which are too permissive, generate many type-II errors but are easily understandable, and thus, increase legal certainty. Others, which are better suited and, in theory, allow avoidance of legal errors, are in fact too complex to be applied by the courts and, above all, to be understood by companies.6 But one must not give up. Antitrust law is not condemned to remain blind to certain technical problems or, on the contrary, to be incomprehensible by the ordinary man. The “ENES” test brings a solution of reason to
this long-standing issue.

Adopting a new test should not be done without first ensuring that it would allow courts and antitrust authorities to take a position in each individual case and that rulings would benefit the consumers. Here again, the “enhanced no economic test sense” meets this double objective. It also helps to understand why several decisions taken in the past are, we will argue, legal errors. The Microsoft case is one of them.

In turn, this paper makes a proposal to rethink of the way most of the new practices implemented in technology markets are actually evaluated. This study is particularly timely because the development of the issues related to these markets and the growing interest shown by competition authorities in this regard calls for an identified position, which will not hinder their extraordinary growth.

This paper proceeds in three parts. The first part presents the enhanced no economic sense test, ranging from the foundations up to the very detail of its implementation. The second part tests its empirical efficiency. In part two, the most important predatory innovation cases, on non-price strategy, are detailed and reassessed through the prism of the enhanced no economic sense test, which helps to establish its effectiveness. The last part expands these empirical findings and presents our conclusions.

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