European anti-trust price restrictions on « dominant » companies prevent consumers from enjoying lower prices, according to a new study

Paris, Thursday, June 7, 2007 – European anti-trust authorities, acting under the pretext of preserving competition, have been moving against certain “dominant” companies’ trade practices and price concessions – judging them “discriminatory.” These practices include reduced prices, rebates, discounts, reduction coupons and bonuses of various sorts.

For example, Michelin was punished for offering its dealers a bonus system based on total turnover and on the quality of their equipment and after-sales service.

“Brussels has prohibited numerous companies – operating in very different fields ranging from drugs, tyres and aseptic food containers to nails, bananas, ice cream or sugar – from using presumably a ‘price discrimination’ scheme,” states Valentin Petkantchin, the author of the study.

Economic advantages of price discrimination

The existence of multiple prices may be perfectly justified from an economic standpoint, however, even if public authorities seek punishment by calling them “discriminatory.” For example, companies can make price concessions based on volumes purchased by some customers or based on consumers’ preferences in different niches on the market.

Rebates and discounts benefit not only consumers – who pay less – but companies as well. Price concessions reflect the fact that firms can save on resources and cut on costs thanks to their use.

But “price discrimination” also benefits consumers indirectly by increasing competitive pressure in the market. If a firm offers discounts or rebates, its competitors have indeed a strong incentive to react by lowering their own prices or by improving the quality of their products.

This can explain why some competitors have preferred to turn to anti-trust regulators in order to neutralize their rivals’ discounts and price cuts rather than adapting themselves to a changing market and trying to serve consumers better.

“EU’s legislation against price discrimination is actually preventing consumers from enjoying lower prices and better service, and it protects inefficient firms,” concludes Mr. Petkantchin.

Entitled, European anti-trust restrictions on rebates and discounts by “dominant” companies, the study is available at : https://www.institutmolinari.org/spip.php?article481

Information and interview requests:

Valentin Petkantchin, PhD

Director of Research

Institut économique Molinari

Rue du Luxembourg 23, Boîte 1

1000 Bruxelles, Belgique

Tél: +33 4 42 53 46 19 GSM: +33 6 82 69 17 39