Excessive Prices: Using Economics to Define Administrable Legal Rules

European competition laws condemn as ‘exploitative abuses’the pricing policies of dominant firms that may result in adirect loss of consumer welfare. Article 82(a) of the EC Treaty,for example, expressly states that imposing ‘unfair’prices on consumers by dominant suppliers constitutes an abuse.Several firms have been found to abuse their dominant positionsby charging excessive prices in cases brought by the EuropeanCommission and the competition authorities of several MemberStates. Those cases show that the assessment of excessive pricingis subject to substantial conceptual and practical difficulties,and that any policy that seeks to detect and prohibit excessiveprices is likely to yield incorrect predictions in numerousinstances. In this paper, we evaluate the pros and cons of alternativelegal standards towards excessive pricing by explicitly consideringthe likelihood of false convictions/acquittals and the costsassociated with those errors. We find that the legal standardthat maximizes long-term consumer welfare, given the informationtypically available to regulators, would involve no ex postintervention on the pricing decisions of dominant firms. A possibleexception to this general rule is discussed.