Comments on Prof. Giorgio Monti’s EC Competition Law - Colin Halard

Colin Halard - August 4, 2014

By Colin HALARD1

1. EC Competition Law,2 by Professor Giorgio Monti, from the European University Institute, is a relatively short

(567 pages) but highly valuable book on European antitrust law. Although the publisher affirms that this

book is mostly targeted at law students, I guess that the author also had a more ambitious aim, namely to

check the consistency of fundamental principles of competition law. As such, the book seems to be more

widely addressed to the whole antitrust community.

2. To be sure, examining the consistency of antitrust principles is by no means a new enterprise. Many books

deal with this topic. But I do think that Prof. Montis is one of the sharpest I have had the opportunity to

read. Indeed, whilst most books identify as their core task the ascertainment of antitrust goals (which is

indeed a controversial and crucial issue), EC Competition Law digs more deeply into the antitrust

foundations, and puts under scrutiny the meaning of the most basic notions of competition law.

3. On the downside, I find that this book is better at bringing to light inconsistencies than at fixing them. In

other words, if its pars destruens is very solid, its pars construens (so far as it exists) is, at least in my eyes, far

less convincing. Prof. Monti himself does not seem always persuaded by the alternatives he suggests

adopting. But is it possible, in this field of law, to devise an ironclad pars construens? The weaknesses I

discern in this book seem to be imputable to the whole antitrust enterprise.

4. The following comments are not intended to be a complete review of EC Competition Law. They focus on

some important issues and do not deal with uncontroversial points of law or economics. Likewise, I have

mainly discussed the things I was uneasy with, and so I have not often stopped to highlight the niceties of

the book. However, I would like to stress that my overall appreciation is very positive. This book is

engaging and it was very instructive for me to read it.

5. My comments are divided into four parts, the first three being devoted to Prof. Montis appreciation of

the meaning of three concepts of antitrust law: competition (1.), market power (2.), and barriers to entry

(3.). In the final part (4.), I have put together several less important points I wanted to discuss.

6. A last word of warning before proceeding: as the introduction has probably made it clear, my comments,

particularly in the first three parts, bring up definition issues. As such, they could be criticized for being

excessively academic in the pejorative meaning of the term. Yet, I believe it would be inappropriate to

dismiss them for this reason. As Hayek wrote in a similar connection, from time to time it is probably necessary

to detach ones self from the technicalities of the argument and to ask quite navely what it is all about.3

1 For questions or comments, I can be contacted at col.halard[at]gmail.com. 2 Giorgio MONTI, EC Competition Law, Law in Context Series, Cambridge University Press, 2007 (hereinafter, EC Competition

Law). 3 Friedrich HAYEK, Individualism and Economic Order, The University of Chicago Press, 1980, p. 56.

Comments on Prof. Giorgio Montis EC Competition Law


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1. The Notion of Competition

7. The author distinguishes three possible conceptions of competition: competition as rivalry (1.1.), as

economic efficiency (1.2.), and as economic freedom (1.3.). Additionally, other values are sometimes used

as guiding principles (1.4.).

1.1. Competition as Rivalry

8. Professor Monti holds that the understanding of competition as being the rivalry between economic

actors is based on the natural meaning of the word.4 To illustrate this conception, he quotes Professor

Whish, according to whom [c]ompetition means a struggle or contention for superiority, and in the commercial world

this means a striving for the custom and business of people in the market place.5

9. Professor Monti believes that this conception, which analyses competition as a means through which a

number of socially desirable ends e.g. economic efficiency, economic freedom or consumer welfare are pursued, is

helpful.6 Nevertheless, he criticizes it on three grounds.

10. Firstly, he thinks it is more appropriate to look directly if the desired end is attained, because it provides a

more precise method to determine whether there is a market failure.7 Secondly, he maintains that firms invent new

ways of competing every day, and it would be wrong to presume that we can identify ideal states of rivalry in the market.8

Thirdly, he considers that rivalry as the benchmark of competition is incomplete, because competition law does not

prevent some forms of cooperation among firms (e.g. mergers).9

11. I believe the second objection to be extremely persuasive. Competition is an evasive and constantly

changing phenomenon that bureaucrats could hardly presume to have identified once and for all. To

punish firms because they have recourse to methods different from those governing normal competition10 is absurd,

since it precludes innovation.

12. Regarding the first reason, I do not think it is more precise to look directly if the desired end is achieved.

Indeed, as Prof. Monti makes it clear elsewhere,11 to measure the final effects is seldom practicable, so it is

necessary instead to use a proxy or an abridged standard; why would rivalry not be this standard?

13. I consider the third reasonthe incompleteness of rivalry as a benchmarkto be both a very good

argument and an understatement. Indeed, rivalry cannot be the key element, because to strike down

every restriction of rivalry would be a disastrous economic policy. In this connection, I find it worth

quoting at some length the late Robert Bork:

Our society is founded upon the elimination of rivalry, since that is necessary to every integration or coordination of

productive economic efforts and to the specialization of effort. No firm, no partnership, no corporation, no economic

unit containing more than a single person could exist without the elimination of some kinds or rivalry between

persons. Taken seriously, Justice Clarks policy would be what Justice Holmes believed to be the policy of Justice

Harlan in Northern Securities, a prescription for the complete atomization of society. That policy is unthinkable, of

course, since it would call not only for general abject poverty but for the death by starvation of millions of people. We

may assume the antitrust laws were not designed to place the United States in worse economic condition than

4 EC Competition Law, p. 22. 5 Id., p. 22. 6 Id., p. 22. 7 Id., p. 22. 8 Id., p. 22. 9 Id., p. 22. 10 Court of Justice, 27 March 2012, case C-209/10, Post Danmark, para. 24. Paradoxically, two paragraphs above, the Court

referred to innovation as a benefit from competition. 11 EC Competition Law, p. 17.


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Bangladesh. So long, therefore, as we continue to speak of antitrusts mission as the preservation of competition, we

must be on guard against the easy and analytically disastrous identification of competition with rivalry.12

14. Rivalry, the right to challenge existing operators, is an essential component of a market economy, but it

must remain a freedom, and not be a duty. Indeed, cooperation is as important as rivalry, and, at least in a

free economy, it is up to the firms, and not to some central planners, to choose the desired balance

between these two opposite ways to further ones goals.

1.2. Competition as Efficiency

Professor Montis criticism (1.2.1.), though mostly valuable, must be commented (1.2.2.) and

supplemented (1.2.3.). The claim that interpreting competition as efficiency could lead to totalitarianism

deserves a specific section (1.2.4). As a provisional conclusion, I report Judge Posners opinion about the

philosophical foundations of the efficiency scheme (1.2.5.).

1.2.1. Prof. Montis Criticism

15. The second possible conception of competition deals with the effects of the behaviour of firms on economic

welfare.13 More precisely, a market is said to be competitive if the firms set the price of their products at their

marginal cost, i.e., at the additional cost required to make one more product.

16. According to Prof. Monti, this neoclassical conception is preferable for two reasons: first, it provides a realistic

benchmark by which to measure the presence of competition; second, it is more precise, because there can be rivalry but no

competition.14

17. However, the author thinks that this conception is not compatible with the structure of article 81 (now

article 101) of the Treaty15.

18. Indeed, he holds that, if an anticompetitive practice is defined as an agreement which reduces efficiency,

then Article 81(3) is redundant either an agreement restricts economic welfare, or it improves it, or has no effect on it.

The neoclassical economist only needs paragraphs (1) and (2) for the application of competition law according to the standards

of economic welfare.16

1.2.2. Comments on Prof. Montis Criticism

19. I share Prof. Montis conclusion, but I am not sure I totally accept his main argument.

20. I admit that paragraph (3) would be redundant if competition were bluntly defined as a state of economic

efficiency. If a practice is held to be anticompetitive under paragraph (1) because it reduces economic

efficiency as a whole, it cannot be considered as promoting efficiency under paragraph (3) (and vice versa).

21. But, within the neoclassical framework, it would also be possible to define competition, more narrowly, as

allocative efficiency, and to dedicate paragraph (3) to the integration of productive and dynamic efficiencies.17

12 Robert BORK, The Antitrust Paradox A Policy at War with Itself, The Free Press, 1993, p. 58. 13 EC Competition Law, p. 22. 14 Id., p. 22. 15 For the record, paragraph (1) prohibits anticompetitive agreements, paragraph (2) provides that the prohibited agreements

shall be void, and paragraph (3) sets up an exemption mechanism for the agreements which contribute to promoting economic progress (or efficiency).

16 Id., p. 26. Moreover, Prof. Monti considers that the other conditions set up by paragraph (3) are hardly compatible with the neoclassical definition.

17 Prof. Monti defines each kind of efficiency as follows: Allocative efficiency: existing goods and services are allocated to those who value them most, in terms of their willingness to pay []. Productive efficiency: this concept focuses on a particular firm or industry and considers whether a firm organises its resources in such a way that it exploits all economies of scale, exploits existing technology effectively, and cuts all superfluous costs, so that production is at minimum cost. Dynamic efficiency: this is a measure of whether firms have the ability and the incentives to increase productivity and innovate, developing new products or reducing production costs which can yield greater benefits to consumers. (EC Competition Law, p. 45.)


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This scheme would be compatible with the structure of article 81, because a practice contrary to paragraph

(1) could be exempted under paragraph (3). The latter would not be redundant.18

22. For instance, a behavior which restricts competition (and so infringes paragraph (1)) by harming allocative

efficiency can nevertheless produce a gain in productive and dynamic efficiencies big enough to make

possible an economic progress and qualify for an exemption.19

1.2.3. Other Criticisms

23. Yet, for the reasons which follow (which are based more on economic than on legal considerations), I still

agree that the neoclassical conception is inadequate.

24. First, consumers surplus (as opposed to consumers surplus the place of the s makes the difference),

which is at the basis of the neoclassical conception, is a meaningless concept.

25. Indeed, value (or utility) is a subjective entity which cannot be added, subtracted, compared, or contrasted.20

Because value is an ordinal and not a cardinal entity (there are no utils or any other unit of

measurement), interpersonal aggregations of value are impossible.

26. Most economists agree with this statement,21 but think it is still possible to have a proxy of aggregate

utility. Now, to aggregate value is a matter of conceptual, and not practical, impossibility. Consequently, to

obtain a proxy thereof is impossible as well (as impossible as to devise a proxy for squaring the circle).

It is what logicians call a category mistake.22

27. As Gary Lawson puts it, in a slightly different connection, it is physically possible to add up the dollar amount of

every recorded monetary transaction in an economy, but it is not at all obvious what is thereby measured.23 More exactly,

18 Actually, Prof. Monti does discuss this hypothesis immediately after, when dealing with another side of the issue, namely the

contradiction between the neoclassical approach and the specific requirement that consumers benefit from a fair share of the profit (condition 3). He writes Second, the requirement that consumers must gain sits oddly with neoclassical thought: if an agreement improves productive efficiency (by reducing production costs, for example) but has a modest adverse impact on allocative efficiency (e.g. a slight price rise) then economic welfare (measured with the KaldorHicks standard) is increased [] (see p. 26).

19 Admittedly, some authors of the neoclassical (and even Chicagoan) school seem to have adopted the approach that Professor Monti is discussing, and not the one that I am mentioning. For instance, Prof. Monti quotes Robert Bork saying that Competition, for the purposes of antitrust analysis, must be understood as a term of art signifying any state of affairs in which consumer welfare cannot be increased by judicial decree (p. 55). Similarly, the author gives a quote by Richard Posner stating that competition is a state of affairs in which consumer interests are well served rather than as a process of rivalry (Id..). In both cases, competition is clearly taken as a whole and understood as the sum of allocative, productive, and dynamic efficiencies. However, as Prof. Monti aptly notes in another place of his book (EC Competition Law, p. 22), the same Judge Posner (also) uses a means/ends analysis (in Antitrust Law, pp. 28-29). Indeed, Richard Posner writes, on the pages referred to by Prof. Monti, since, in an economic analysis, we value competition because it promotes efficiencythat is, as a means rather than as an endit would seem that whenever monopoly would increase efficiency it should be tolerated, indeed encouraged. On this view of antitrust, competition is viewed as a state in which consumer interests are well served rather than as a process of rivalry that is diminished by the elimination of even a tiny rival. Well, Posners two sentences contradict each other. Surely competition cannot be at once a means serving an end and the end itself. Yet, Posner does write that competition is both a state in which consumer interests are well served and a means promot[ing] efficiency. The only way to reestablish the logic is to consider that Judge Posner employs the term competition in two different senses. In the first sentence, he thinks of competition as allocative efficiency. In the second sentence (which was absent from the first edition of the book), he refers to competition as the sum of allocative, productive, and dynamic efficiencies. Now, if one employs the first conception of competition,competition as allocative efficiencyarticle 81(3) is not redundant.

20 Gary LAWSON, Efficiency and Individualism, Duke Law Journal, Vol. 42, n. 1, Oct., 1992, p. 62. 21 See, for instance, Hal R. VARIAN, Intermediate Microeconomics, W. W. Norton & Company, 2010, chap. 4, pp. 54-55. See also,

Richard POSNER, The Economics of Justice, Harvard University Press, 1983, p. 79 (The 'interpersonal comparison of utilities' is anathema to the modern economist, and rightly so, because there is no metric for making such a comparison).

22 See Gary LAWSON, Efficiency and Individualism, aforementioned (it is not false or unknowable to say that A's utility is greater than, less than, or equal to B's utility; rather, it is a category mistake: the application of a predicate to a subject in a manner that is meaningless or absurd. This view maintains that talking about inter-personal comparisons of utility simply does not make sense, just as it does not make sense to talk about a happy rock or a greenish shade of cold. Thus, it is not a question of waiting for someone to invent the right tools and units of measurement and comparison; but rather, the measuring and comparing enterprise is ill-conceived from the outset, p. 63; most of the efforts of law and economics scholars to devise a useful conception of "economic efficiency" are attempts to accommodate or circumvent, rather than deny, the subjectivity of economic value, p. 70).

23 Gary LAWSON, Efficiency and Individualism, p. 81.


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it is obvious that what is measured has nothing to do with value but is rather function of the total

quantity of money in the economy.

28. Besides, and more practically, even if it were possible to measure efficiency by aggregating consumers

surplus, it would not be a workable benchmark. Indeed, calculating consumers surplus requires data that

competition agencies cannot obtain.

29. Moreover, in the reality, every firm has some control over its prices and so could be called a monopolist

and prosecuted accordingly. Surely such an all-embracing definition would be absurd.

30. In addition, most enterprises could not survive if they were forced to practice competitive prices,

because they could not recover their fixed costs. That is problematic enough, if neoclassical efficiency is

to be the norm guiding the enforcement of competition law.

31. Another objection pertains to the fact that a normative system which aims at forcibly allocating goods

to the acquirer whose willingness-to-pay is the greater (as neoclassical antitrust does) is necessarily self-

contradictory as soon as it is used to justify violations of property rights. Indeed, the willingness-to-pay

of each consumer varies according to his ability-to-pay, and the latter in turn hinges on the amount of

money on which the consumer has property rights. Antitrust results in violating the values it rests on.24

1.2.4. Efficiency and Totalitarianism

32. A further critique is hinted at by Professor Monti, who writes that ordoliberals, i.e. the advocates of

economic freedom, would prefer a state of inefficiency coupled with freedom to a totalitarian, but efficient, state of

affairs25; by contrast, it is implied that neoclassical economists would not. In the same vein, he declares

that, taken to its extreme, the Kaldor-Hicks criterion, which is at the basis of the neoclassical reasoning,

means that if slavery is a more efficient way of producing goods, employment contracts should be abandoned.26

33. Such a comment could be discarded as a mere Godwin point. However, it appears to correctly draw the

implications of the neoclassical creed. Indeed, some neoclassical economists do not hesitate to confirm

this analysis. As a notable example, Richard Posner, who is usually viewed as the leading proponent of the

efficiency conceptionor, as he calls it, the wealth maximization principlewrote, about his own theory (it would be valueless if it was about someone elses), that

like utilitarianism, which it closely resembles, or nationalism, or Social Darwinism, or racialism, or organic theories

of the state, it treats people as if they were the cells of a single organism; the welfare of the cell is important only

insofar as it promotes the welfare of the organism. Wealth maximization implies that if the prosperity of the society

can be promoted by enslaving its least productive citizens, the sacrifice of their freedom is worthwhile.27

34. Although he adds that this implication is contrary to the unshakable moral intuitions of Americans, and as I stressed in

the last chapter, conformity to intuition is the ultimate test of a moral (indeed of any) theory,28 he does not try to claim

that, after further inquiry, the wealth maximization principle may be reinterpreted and made compatible

24 The argument laid down here is very close to the one advanced by several law philosophers during the 1980s. See, for

instance, Ronald DWORKIN, Is wealth a value?, The Journal of Legal Studies, 1980, pp. 207-210, or Anthony KRONMAN, Wealth Maximization as a Normative Principle, The Journal of Legal Studies, 1980. The only difference is that these authors focus on the fact the wealth maximization principle is circular because it requires that rights were previously distributed. Here, I highlight that this principle is self-contradictory, for it relies on property rights, and yet aims at challenging them. Richard Posner, a leading proponent of the wealth maximization principle, tried to answer these criticisms in The Economics of Justice, aforementioned, pp. 108-115.

25 EC Competition Law, p. 23. 26 Id., p.24. 27 Richard POSNER, The Problems of Jurisprudence, Harvard University Press, 1990, p. 376-377 (Quoted by Gary Lawson in the

aforementioned paper). 28 Id.


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with commonly received moral values. Instead, he appeals to another principle of justiceintuition.

Should I discuss the latter as a fourth conception of competition?

1.2.5. The Philosophical Foundations of the Efficiency Conception

35. More generally, I think it useful to mention that Judge Posner seems to have given up any pretense to

build the efficiency conception on solid philosophical foundations. Indeed, he made it clear that,

It may be impossible to lay solid philosophical foundations under wealth maximization, just as it may be impossible

to say solid philosophical foundations under the natural sciences, but this would be a poor reason for abandoning

wealth maximization, just as the existence of intractable problems in the philosophy of science would be a poor

reason for abandoning science. We have reason to believe that markets work [] and it would be a mistake to

allow philosophy to deflect us from the implications, just as it would be a mistake to allow philosophy to alter our

views of infanticide.29

36. Likewise, he declared that

I do not want to stake my all on a defense of the Kaldor-Hicks concept of efficiency. For me the ultimate test of cost-

benefit analysis employing that concept is a pragmatic one: whether its use improves the performance of government

in any sense of improvement that the observer thinks appropriate. [i]n my view the ultimate criterion should be

pragmatic; we should not worry whether cost-benefit analysis is well grounded in any theory of value. We should ask

how well it serves whatever goals we have. So if we are particularly interested in the welfare of minority groups, we

should ask whether cost-benefit analysis serves or disserves their interests [].30

37. I doubt whether many people would dare to endorse Judge Posners indifference regarding the

philosophical foundations of efficiency or his proposal to rely on intuition to correct the possible mischiefs

of an organic theory of the state which could otherwise justify slavery.

1.3. Competition as Economic Freedom

38. Prof. Montis presentation of the conception of competition as economic freedom (1.3.1.) has deep

implications which have to be commented (1.3.2.).

1.3.1. Prof. Montis Presentation

39. What about the last meaning, the economic freedom conception? Prof. Monti writes that

In this view, a restriction of competition is a restraint between the parties to the agreement, and it is irrelevant

whether the market is competitive, or whether the agreements beneficial effects outweigh the harmful ones; such

economic costbenefit analysis is reserved for Article 81(3).31

40. Thus, a contractual restraint of a firms freedom of action constitutes a restriction of competition.

41. Economic freedom has a second dimension. Following this conception, not being able to enter into a

contractual tie or to find a suitable contractual partner can also be analyzed as a restriction of competition.

Indeed, Prof. Monti reports that:

[T]he Commission has gone further, considering also the restriction of the economic freedom of other market

participants. Here the Commission is concerned about the risk that other market participants might be foreclosed

from a market [].32

29 Id., p. 384 (quoted by David CAMPBELL in Welfare Economics for Capitalists: The Economic Consequences of Judge

Posner, Cardozo Law Review, p. 2234). 30 Richard POSNER, CostBenefit Analysis: Definition, Justification, and Comment on Conference Papers, The Journal of

Legal Studies, 2000, pp. 1155-1156 (quoted by Martin FRONEK in Contra Law and Economics, Ludwig von Mises Institute, Mises Daily, 17th October 2009).

31 EC Competition Law, p. 27.


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42. Now, according to Prof. Monti, the economic freedom conception comes a little closer to explaining Article

8133 and sheds some light on the significance of Article 81(3).34 He claims that:

Article 81(3) is also incompatible with the economic freedom model, but for different reasons than under a

neoclassical light: if an agreement has an undesirable effect on economic freedom under Article 81(1), no exemption

should be granted, as economic freedom is the sine qua non of competition policy. The exemption provision in Article

81(3) is a way of reconciling an ordoliberal conception of competition with other values.35

1.3.2. Comments on Prof. Montis Presentation

43. Whilst there is no imperious textual reason why this paradigm would not fit with article 81 framework

(except, maybe, the requirement of non-elimination of competition), this conception is still seriously

flawed.

(i) Is there any Difference Between Rivalry and Economic Freedom?

44. Earlier, Professor Monti has declared it possible to distinguish three possible conceptions of competition,36 namely

rivalry, efficiency, and economic freedom. Furthermore, he has held that the efficiency approach is

preferable to the rivalry one, and it is likely that he considers the economic freedom paradigm to be even

better. It implies that rivalry and economic freedom are different concepts.

45. Yet, I struggle to see what the difference might be. At best, rivalry can be defined as economic

freedom considered from the utilitarian standpoint (that is, from the point of view of its effects on

consumer welfare).

46. Actually, in a further chapter, Professor Monti seems inclined to merge these two concepts. Indeed, he

writes the Commission considers that, in the long term, rivalry (and thereby economic freedom) yields greater economic

benefits than efficiencies generated by the elimination of rivalry.37

47. Generally speaking, under both conceptions, all contractual restraints, i.e., all contracts, are void and

punishable by fines. So Borks criticisms directed against rivalry also hold here. Like the rivalry

conception, the economic freedom criterion appears to be immoderately wide, indeed all-embracing.

(ii) Implications of the Economic Freedom Approach

48. The consequences of this theory must be fully understood. I am afraid Prof. Monti understates them

when he writes that The result of the Commissions interpretation of Article 81(1) using the economic freedom approach

meant that several commercial contracts were potentially void unless exempted by the Commission38

49. Actually, the economic freedom approach hangs a Damocles sword above every contract, and not just

above several. The requirement that the harm be significant is a weak bulwark. Moreover, as Bork

wrote in a similar context, That the principle has not been taken to [its] logical conclusion does not make it

intellectually more respectable, nor has it prevented the principle from wreaking havoc where it is applied.39

32 Id., p. 28. 33 Id., p. 26. 34 Id., p. 28. 35 Id., p. 28. 36 Id., p. 22. 37 EC Competition Law, p. 50. Similarly, Prof. Monti writes The value of economic freedom is not altogether eclipsed. Under Article 81(3) the

agreement will not be tolerated if it eliminates competition, even if there are efficiency gains: Ultimately the protection of rivalry and the competitive process is given priority over potentially pro-competitive efficiency gains which could result from restrictive agreements. (id.).

38 Id., p. 29. 39 Robert BORK, The Antitrust Paradox, aforementioned, p. 165.


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50. Thus Prof. Monti is indirectly led to admit, some lines further, that with such an interpretation of article

81(1), every contract could in effect be struck down. Indeed, he maintains, about section 1 of the Sherman

Act (the American rough equivalent of Article 81), that

Read literally it suggests that every contract is prohibited, because every contract restrains trade in some way (if I

promise to sell you my apple, I cannot then sell it to someone else, so trade is restricted for that good once the contract

is made). The adoption of the rule of reason was necessary to create a mechanism to differentiate between desirable

and undesirable agreements a literal construction of the statute would lead to absurd results.40

51. Nevertheless, he concludes that the same legal method [i.e., the rule of reason] is unnecessary in the EC, because

Article 81(3) provides the functional equivalent of the rule of reason.41 From there we can say that, taken alone,

article 81(1) would lead to absurd results.

(iii) Does Economic Freedom Have Anything to Do with Freedom?

52. What is really economic freedom? In what way is it connected with the classical concept of freedom?

The adjunction of the epithet economic to the noun freedom seems to indicate that economic

freedom is in some way different from, and in some way similar to, the classical meaning of freedom.

53. Yet the latter, when applied to the economic field, consists in the right to use ones property (including the

product of ones labor) as one desires, for instance by concluding contracts (or by refusing to do so),

provided neither the bodily integrity nor the properties of anyone else are injured.42

54. To the contrary, as stated above, the economic freedom is restricted as soon as a contractual tie is

formed (a restriction of competition is a restraint between the parties to the agreement43) or when someone does not

manage to enter into such a tie with a suitable partner (i.e., when a firm is foreclosed from a market).44

55. So, the economic and classical conceptions of freedom offer not only different, but even perfectly

opposite, understandings of what freedom is. To speak of economic freedom is an Orwellian reversal

of the natural meaning of words (War is peace, freedom is slavery, ignorance is strength, etc.).45

56. One serious difficulty, even from a purely logical point of view, is that anyones freedom must stop where

the freedom of someone else begins. Thus, if ones gives some economic freedom to A, one must

reduce Bs. To be sure, it is the same with classical freedom. To grant some classical freedom to A

requires to limit Bs.

57. But there is an important difference. Within the classical freedom paradigm, the boundaries of anyones

freedom can be objectively ascertained by looking at the preexisting property rights, as they are evidenced

40 EC Competition Law, p. 31. 41 Id., p. 31. 42 In accordance with tort law, whose traditional role [] has been to protect people against damage to their person and property (see John

COOKE, Law of Tort, Pearson Education Limited, 9th ed., 2009, p. 19.) 43 Id., p. 27. 44 Thus, to conclude a contract and to refuse to conclude a contract can both be viewed as restrictions of competition. 45 As Abraham Lincoln once famously declared, The world has never had a good definition of liberty, and the American people, just now, are

much in need of one. We all declare for liberty; but in using the same word we do not all mean the same thing. With some the word liberty may mean for each man to do as he pleases with himself, and the product of his labor; while with others the same word may mean for some men to do as they please with other men, and the product of other mens labor. Here are two, not only different, but incompatible things, called by the same nameliberty. (Abraham LINCOLN, Address at Sanitary Fair, Baltimore, April 18, 1864). Lincoln continued by saying The shepherd drives the wolf from the sheeps throat, for which the sheep thanks the shepherd as a liberator, while the wolf denounces him for the same act as the destroyer of liberty, especially as the sheep was a black one. Plainly the sheep and the wolf are not agreed upon a definition of the word liberty; and precisely the same difference prevails today among us human creatures, even in the North, and all professing to love liberty. Hence we behold the processes by which thousands are daily passing from under the yoke of bondage, hailed by some as the advance of liberty, and bewailed by others as the destruction of all liberty.


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by contracts, documents, possession, homesteading, etc. The role of justice is to restore anyone in its

rights, as they existed before the wrongdoing.

58. To the contrary, within the economic freedom paradigm, no such objective limit exists. The courts or

agencies create the subjective rights they grant; these rights did not exist before the courts or agencies

intervene. The boundaries of anyones rights are drawn by judicial central planners, who are free to

reshape them at will, if it can help to maximize freedom (or efficiency, for that matter).

59. As a consequence, whilst in a classical freedom order individuals can interact and cooperate

autonomously with each other, without the need to appeal systematically to the state, in a pure economic

freedom scheme, they cannot even be thought of as self-governing entities. They are merely pawns which

are endowed by the state and moved by bureaucrats.

60. Here is a second departure from the classical freedom paradigm. The latter is a repressive and not a

preventive system. It means that the individuals or the firms are free to act so long as they do not infringe

on someone elses rights. They do not have to ask permissions to carry out their activities. They do not

need to obtain exemptions from a general prohibition. State intervention is the exception, not the rule.46

61. Conversely, as mentioned above, in an economic freedom scheme, all contracts are prima facie void. If

firms want to conclude agreements, as soon as they infringe some significant economic threshold, they

have to ask for a special authorization. It is a Kafkaesque system, where bureaucrats are everywhere.47

62. As a consequence, I beg to doubt whether, as Prof. Monti claims, ordoliberals would prefer a state of inefficiency

coupled with freedom to a totalitarian, but efficient, state of affairs.48

1.4. Some Other Possible Conceptions

63. Although he formally presents only three different conceptions of competition, Prof. Monti also makes

use of some other concepts which are either kindred with the three main definitions or constitute

overarching values guiding the whole antitrust enterprise. The integration of the market (1.4.1.) and the

preservation of choice and pluralism (1.4.2.) are the main examples.

1.4.1. Market Integration

64. Professor Monti often refers to the integration of the common market as another possible value

governing competition law. He is rather critical of its actual enforcement and speaks of the Communitys

irrational understanding of market integration.49

65. Indeed, he shows that decisions aiming at promoting or preserving the common market are often counter-

productive (it is arguable that in some cases the concern over practices that may disintegrate the market has been at the

expense of economic efficiency and of market integration itself50).

46 Prof. Monti seems to plainly confirm that state intervention is the exception only in the classical freedom order. Indeed, he

writes that Ordoliberal discourse is based on the values of personal liberty and equality; in contrast the neoclassical definition of competition is embedded in a utilitarian and laissez-faire economic philosophy, where intervention is called for as a second best, when the market fails to deliver economic efficiency, with no regard for the distributive consequences of the market order (EC Competition Law, pp. 23-24).

47 That is, it is an Orwellian-Kafkaesque scheme. Actually, I am perhaps a bit unfair to Kafka, who seemed not to have imagined

that the State could ever try to struggle against foreclosure. Indeed, in The Castle, the shoemaker, after being spontaneously

deserted by all his clientele because his younger maiden had irritated a bureaucrat, tried to obtain an official forgiveness in

order to have his clientele back. Yet, he was answeredthe story is narrated by the maidenWhat did he want forgiveness for?

When had anyone in the castle raised so much as a finger against him, and if someone had, who was it? He was certainly impoverished, he had lost

his customers, and so on, but those were the accidents of everyday life, the vicissitudes of his trade and the market, was the castle to take care of

everything? It did in fact take care of everything, but it couldnt simply interfere in developments just like that, merely to serve the interests of a single

man. Was it supposed to send its officials running after our fathers customers and bringing them back to him by force? (See The Castle, Oxford

University Press, chapter 19, p. 186, trans. Anthea BELL). 48 EC Competition Law, p. 23. 49 Id., p. 41.


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66. He illustrates this ill-conceived policy with the Grundig case, because the reaction of Grundig, when

prevented from concluding exclusive dealerships with Consten, was said to have absorbed the latter.51

67. I think that, as far as they go, Prof. Montis criticisms are correct. However, I believe they are too lenient,

and I would like to expand them by showing that the integration principle is altogether nonsensical, at

least when applied to the behavior of private enterprises.

68. But first, lets notice that nowhere in the book does Prof. Monti try to define what the common market is.

69. I am afraid the Court of justice did not manage to bring forth a definition either. In effect, the European

institutions constantly refer to the achievement of the common market as the Soviet leaders referred to

the achievement of socialism, i.e. as an undescribed and mythic promised land, to the pursuit of which

they are constantly working, and which is always about to be reached, but is never effectively so52.

70. Admittedly, somewhere in the book the reader is told that a harm to the common market can lead to

perpetuate different prices in different Member States and instil a degree of price rigidity which the single market was

designed to remove.53

71. Likewise, the author reports in another place that The Commission claims that even after five decades of the ECs

existence the single market is still not a reality. One oft-cited piece of evidence for this proposition is that price differences

among Member States remain high.54

72. So the common market seems to have something to do with price rigidity and uniformity.

73. However, first, there is nothing necessarily wrong with the dissimilarity of prices among member states.

Indeed, it is easily understandable that prices might differ, because demand and supply conditions vary

according to the countries (and in particular according to national cultures and wealth levels).

74. Second, it is hard to know what exactly Prof. Monti means by price rigidity; unless this rigidity is imposed

on the price-makers by state rules, price rigidity seems to be nothing more than a pejorative expression to

designate what is generally favorably described as price stability.

75. Actually article 3 of TEU even provides that The Union shall establish an internal market. It shall work for the

sustainable development of Europe based on balanced economic growth and price stability []. So it is odd enough to

complain about the rigidity of prices.

76. The canonic concern expressed by the Court in Grundig and continually repeated since then, with only

minor alterations, is that private firms may re-create market divisions that were previously put in place by protectionist

measures []devised by the Member States.55 It is argued that The integration of the market by dismantling state

protectionism under EC law would be frustrated if private practices that have similar effects were not stymied.56

50 Id., p. 40. 51 Id., p. 41. 52 Article 26(2) of the Treaty on the Functioning of the European Union sets forth a definition. It holds that The internal market shall

comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties. However, this definition is totally useless for our purpose.

53 EC Competition Law, p. 39. 54 Id., p. 363. 55 Id., p. 39. 56 Id., p. 39.


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77. Now, these claims ignore the fact that there exists a difference of a paramount importance between the

states and the private firms: the former (which, according to Max Webers definition, have the monopoly of

the legitimate use of physical force), contrary to the latter, resort to violence to achieve their ends.

78. The problem with the statist restrictions of trade is that, in violation of private property and freedom of

contract, they prevent individuals and firms from moving their goods and capitals to the most profitable

places. Private entities can hardly be accused of the same wrongdoing.

79. The misunderstanding is encapsulated in the slogan free movement of goods. With some exceptions,

goods cannot move by themselves; instead, they need to be displaced by someonetheir owner.

80. Surely, if a cheese is stopped when rolling down from a French Mountain to an Italian valley, it would be

inappropriate to call this action a restriction of the free movement of goods within the common market.

81. Similarly, if a thief driving toward an internal border with a stolen good in his car is arrested, it would be

incorrect to release him under the pretext of avoiding segmenting the common market.

82. So, it appears that the only way to give a reasonable meaning to the free movement of goods or

integration of the common market catchwords is to understand them as the freedom of rightful owners

to move their goods and to conclude agreements as they see fit, without being blocked or hindered by

state barriers, provided they do not damage anyones bodily integrity or property.

83. In conclusion, private firms, by their very nature, lack the ability to re-create market divisions that were

previously put in place by protectionist measures [] devised by the Member States. Only a superficial look could fail

to distinguish private and public market segmentations. Consequently, the common market rationale

cannot be reasonably used as a guide to enforce competition law against private firms.

1.4.2. Choice Preservation and Pluralism

(i) Choice Preservation

84. An oft-cited guiding principle for competition law is choice preservation. For instance, in the Post

Danmark case, the Court held that In order to determine whether a dominant undertaking has abused its dominant

position by its pricing practices, it is necessary to consider all the circumstances and to examine whether those practices tend to

remove or restrict the buyers freedom as regards choice of sources of supply [other factors follow].57

85. Some authors, notably Profs. Lande and Averitt, whose paper58 prof. Monti quotes, go so far as to analyze

choice preservation (also referred to as consumer sovereignty) as the unifying rule governing antitrust law.

86. Likewise Prof. Monti writes that In an early treatise on EC competition law, Arved Deringer took the view that

competition is distinguished by two characteristics, namely, freedom of action of the individual enterprises and the possibility

that market participants may make a choice.59

87. Yet to speak of the possibility for a market participant to make a choice is a pleonasm. Market

participants, by the very nature of the market, always have a choice between buying and not buying a

given good. It is not often true with the services rendered by the state or state-sponsored entities.

57 Court of Justice, 27 March 2012, case C-209/10, Post Danmark, para. 26. 58 N. W. AVERITT and R. H. LANDE, Consumer Sovereignty: A Unified Theory of Antitrust and Consumer Protection Law,

1997, 65 Antitrust Law Journal 713 (Antitrust and consumer protection law share a common purpose in that both are intended to facilitate the exercise of consumer sovereignty or effective consumer choice).

59 EC Competition Law, p. 26.


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88. The attitude of Prof. Monti regarding the choice preservation principle is somehow ambiguous. In the

context of a discussion about the German Football League case, he writes that Choice has an economic rationale

in that greater choice improves consumer welfare [].60

89. But, in his comment on the Microsoft case, after repeating this analysis (although it is not clear whether he

adopts it), he inserts a kind of caveat:

However, it must be borne in mind that from an EC perspective, the anticompetitive nature of tying is not based

only upon concerns over efficiency. In Tetra Pak 2 for example, tying is characterised as an abuse because it

deprives the customer of the ability to choose its sources of supply and denies other producers access to the market.

It is important to note that this passage embodies two distinct concerns. First, the harm to consumers is associated

with the exploitation of a dominant position. However, the Commission, until Microsoft, never investigated in detail

what the nature of this harm entailed, so that it seems as if consumer choice is beneficial in itself; thus even if it

were shown that prices would be higher with more competitors in the market, the Commission would still find an

abuse.61

90. Moreover, he critically adds that:

the Commissions consideration of consumer welfare can give it the discretion to attack conduct which is not

harmful to consumers economic interests but which the Commission thinks is harmful (rebates that lower prices but

reduce choice are harmful to consumer welfare because there is less choice).62

The risk of course is that factors like product choice, product quality and store choice are difficult to measure

objectively, thereby giving the competition authority considerable flexibility.63

91. This criticism (particularly the first part) is very sensible. Indeed, there is an unavoidable trade-off between

higher diversity and lower prices, in particular because the capacity of large-scale production to deliver low

prices rests on the standardization of the products.

92. Consequently, it is absurd to focus on a single given parameter (choice, in the case in hand) at the expense

of the others (price, quality). Choice must be optimized, not maximized, and central planners have no

means to know how to strike the correct balance.

93. Another objection, which is both simpler and sharper, against the so-called choice preservation

rationale, consists in highlighting that the suppression of a bad option (greater price, lower quality) also

results in the reduction of the range of choices, and should consequently be punished if the choice

preservation rationale were to be taken seriously. It shows that choice cannot be a value per se.

94. Thus, in the paper quoted by Giorgio Monti, Professors Lande and Averitt write that, when a predator

raises its prices after having raised his rivals costs, the consumers lose the option of purchasing better or more

competitively priced product. In short, antitrust law can best be understood as a way of protecting the variety of consumer

options in the marketplace.64 But what about the availability of worse products? Does it not increase variety?

95. Moreover, Professors Lande and Averitt advance the bold thesis that choice preservation is the governing

principle of antitrust, but they qualify this claim to such an extent that it becomes unsubstantial. Indeed,

60 Id., p. 109. 61 Id., p. 191. 62 Id., p. 212. 63 Id., p. 377. 64 N. W. AVERITT and R. H. LANDE, Consumer Sovereignty, aforementioned, p. 720.


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they admit that it is not possible to oppose any elimination of option,65 and they maintain instead that the

range of choice must be meaningful,66 sufficient,67 effective,68 natural69(as opposed to artificial), etc.

96. So, they fail to set up any objective criterion which could help spotting the correct range of choice. Their

approach boils down to asking the judge to choose the level of choice he sees fit, or to determinate the

options he wants to be offered, as if he were an administrator managing a state-owned firm.

97. If the previous objections were not sufficient, one could also recall, first, that firms are often accused of

over-diversifying their production in order to acquire market power (i.e., to offer too many options), and,

second, that most European laws aim at establishing rules specifying the features that products must

satisfy, and so reduce the natural range of choice.70

(ii) Pluralism

98. A closely related value is pluralism. It mainly deals with the field of media. As the author puts it, Choice

has an economic rationale in that greater choice improves consumer welfare, but in the broadcasting sector, choice also implies

a wish to ensure the plurality of broadcasting outlets as a means of safeguarding diversity of expression as a value in itself.71

99. My point here is to show that pluralism is at best a sham-value designed to be smuggled for the real value

it tries to mimicfreedom.

100. Pluralism is supposed to require that several media exist, and that the existing sources of information not

be legally controlled by the same entities.

101. Now, because people hold various opinions in the cultural and political fields, it is true that most often

liberty will result in pluralism. But it is not necessarily so. For instance, if a particularly good newspaper

appears on the market, and makes the readers give up their previous journals, pluralism could be

threatened, but such a situation would be perfectly compatible with liberty.

102. More insidiously, not every pluralist state results from liberty.

103. For instance, Tocqueville wrote that In America, the majority draws a formidable circle around thought. Within

these limits, the writer is free; but woe to him if he dares to go beyond them.72

104. Well, for the sake of the argument, imagine that the circle is drawn by the mandatory rules of the state. No

matter how narrow this circle be, it will still be possible to make a pluralityindeed, an infinityof dots

enter into it. Pluralism will be safeguarded. Yet, if going beyond the circle is forbidden, liberty is restricted.

65 Antitrust law does not prevent all conduct or transactions that have the effect of reducing the number of options available to consumers. Nor does

the law affirmatively require the creation of options. Id., p. 716. 66 Id., p. 713. 67 Id., p. 716. 68 Id., p. 716. 69 Id., p. 716. 70 Yet, the Commission paradoxically maintains that standardization may (?) increase consumer choice. Indeed, it writes in the

Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements (para. 308) that Standardisation agreements frequently give rise to significant efficiency gains. For example, Union wide standards may facilitate market integration and allow companies to market their goods and services in all Member States, leading to increased consumer choice and decreasing prices. However, in the very same paragraph, it holds that Standards on, for instance, quality, safety and environmental aspects of a product may also facilitate consumer choice and can lead to increased product quality. The last view seems more correct. By limiting the range of options, standardization facilitates consumer choice.

71 EC Competition Law, p. 109. 72 Alexis de TOCQUEVILLE, Democracy in America, Chapter 7, Liberty Fund, Edited by Eduardo NOLLA, Transl. James T.

SCHLEIFER, p. 418.


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105. As a further consideration, I would like to add that it is paradoxical for competition agencies to worry

about freedom of press while tracking and punishing mere information exchanges.

1.5. So, What Is the Conception Adopted by Prof. Monti?

106. Now that I have reviewed the conceptions of competition discussed by Professor Monti, along with the

other guiding principles he mentions, it might be in order to ask whether he thinks some of them are

fitted to their purpose.

107. Given that Prof. Monti has written a whole book on competition law, one might guess that, at the end of

the chapters devoted to this question, he has figured out a clear and suitable interpretation of how

competition must be interpreted, a meaning which he then uses in the remainder of the book.73

108. For the record, Prof. Monti expressly rejected the rivalry conception. He also excluded the economic

efficiency meaning.

109. Regarding economic freedom, he declared that it comes a little closer to explaining Article 8174and sheds some

light on the significance of Article 81(3),75 with which it is yet also incompatible,76 although he argued that this

article is a way of reconciling an ordoliberal conception of competition with other values.77

110. So, Prof. Monti seems to have adopted the economic freedom approach, because it is the one he criticizes

the least, and, throughout the book, it looks like as if he deplores that the European case and soft laws

tend to shift from this paradigm towards the economic efficiency one.

111. However, this endorsement is neither clear not enthusiastic.

112. Moreover, around the end of the book, Prof. Monti seems to reject the economic freedom conception

and, in some places, appears to be at least partly converted to the economic efficiency paradigm. For

instance, he writes that:

It seems that the Commission and the Court are too ready to condemn distribution agreements purely upon proof of

foreclosure. This problem is one we have already encountered in the context of the analysis of abuse of dominance.

There too, exclusion of a competitor was the basis of a finding of abuse, based upon the ECs economic freedom

rationale.78

The relative success of Article 81(3) in considering efficiencies since the 1960s is explained by the fact that the

concept of a restriction of competition in Article 81(1) was read too widely, so that innocuous agreements were

caught. The proxy that the Commission has used to find a restriction of competition (economic freedom) did not

allow it to filter out efficient agreements: there were too many Type 1 errors in the application of Article 81(1)79

113. More importantly, he declares that:

73 In the introduction, Prof. Monti wrote that it is hard to provide a definition of competition everyone will agree with, or to obtain consensus

about the reasons for having competition law (EC Competition Law, p. 2). This lack of consensus is highly problematic, but my point here is different and even more basic: has the author identified one definition of competition which, in his personal opinion, would be suited? In the next paragraph, he declared In entering this battlefield for normative supremacy, this book takes the following position: it is impossible to identify the soul of competition law; the most that can be done is to show that there are dif ferent, equally legitimate opinions as to what competition law should achieve. Let us notice that, whilst in the previous statement, he referred to the reasons for having competition law and to the definition of competition, in the last sentence, he spoke of what competition law should achieve (a rough equivalent of the reasons for having competition law), but not of the definition. So, if this paragraph is to be read textually, it appears that there are no equally legitimate opinions as to what competition is.

74 EC Competition Law, p. 26. 75 Id., p. 28. 76 Id., p. 28. 77 Id., p. 28. 78 Id., p. 368. 79 Id., p. 502.


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To safeguard economic freedom to such levels is counterproductive because it allows inefficient firms to remain in the

market, excluding more efficient market participants. By attempting to promote economic freedom one might stifle it.

On the contrary, economic freedom would be maximized by penalising dominant firms only when the evidence shows

that the exclusionary tactics may facilitate monopoly pricing.80

114. The last sentence construes the economic freedom concept in such way that it amounts to an

endorsement of the efficiency approach.

115. Generally speaking, it is puzzling enough for the reader that, although Professor Monti seems to be a very

fervent supporter of competition law, he severely criticizes all of the possible meanings of competition.

116. In this perspective, it is also problematic that the author frankly admits not being able to ascertain what a

restriction of competition is held to be in positive law. For instance, he states that:

While it is easy to say what the Courts have not done, it is less easy to provide an explanation of how they have

interpreted the notion of a restriction on competition, because the case law is very opaque, and recent cases often

restate bland pronouncements from earlier cases without adding any substance to them. The gist of the Courts case

law is to say that not all restrictions of economic freedom are restrictions of competition [].81

It also reveals that the Commission is still aware that firms find it next to impossible to understand what

constitutes an anticompetitive agreement under Article 81(1), []. Moreover, in this case, presumably decided

while the Commission was busy writing its Guidelines on the interpretation of Article 81(3), the CFI disagreed

with the Commissions own assessment of what is meant by a restriction of competition. So even the principal

enforcer is still struggling to work out what triggers Article 81(1).82

117. Thus, the remainder of the book, or at least its pars construens, is built on a somehow unsafe footing.

2. The Notion of Market Power

118. Contrary to the notion of competition, the one of market power gets a very precise definition. Yet,

discussions on competition law are plagued by continuous semantic shifts between the scientific (or

neoclassical) meaning of market power and other less clear (and sometimes totally obscure)

conceptions, in particular the structuralist (2.1.) and post-Chicago (2.3.) ones. It results in the strange

claim by Prof. Monti that the scientific conception of market power is a high hurdle (2.2.).

2.1. Neoclassical Market Power and Structuralist Market Power

119. The scientific or neoclassical conception of market power is the theoretical tool according to which

allocative efficiency is defined. It is the benchmark which makes it possible to pass a normative judgment

on the behavior of firms. In this sense, market power corresponds to the size of the spread between price

and marginal cost. The greater the spread, the more allocative efficiency is harmed.

120. Nevertheless, as noted above, outside the imaginary world of perfect competition, every firm has at least

some market power. Thus surprisingly, from a neoclassical point of view, every firm of the real world

harms allocative efficiency. Yet, it is obviously impossible to prosecute every of them. Thus, competition

agencies should be required to bring proceedings only against the firms having the most of market power.

121. The trouble is that in practice market power can rarely be measured, because the required data cannot be

made available (However, Prof. Monti notes, this approach has little practical value because marginal costs are

difficult to calculate83). One could have been led to conclude that competition law is not workable and has to

be given up. That would have been the end of the antitrust story.

80 Id., p. 177. 81 Id., p. 31. 82 Id., p. 451. 83 Id., p. 131.


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122. But competition agencies, supported by economists and legal scholars, have instead decided to rely on the

assumption that the degree of concentration of the market structure can serve as a reasonable proxy of the

neoclassical market power. This assumption is highly controversial. It was the main bone of contention

between the Chicago school and the today much-denigrated Harvard school.

123. Moreover, many competition agencies and law scholars refer to the concentration degree as if it were a

direct measure of market power, and not a mere proxythey call it directly market power. In other

words, they designate the proxy with the name of the magnitude it is supposed to assess (hereinafter, I will

call the proxy structuralist market power, and the underlying entity, neoclassical market power).

124. This habit is a seed of confusion. It is conducive to the belief that the enforcement of competition law

follows the reasoning described in the economics textbooks, whilst it actually depends on highly uncertain

assumptions. It is likely that most economics students think competition agencies really compare prices

and marginal costs, while actually the latter do not even try to do so.

125. Moreover, discussions on competition law usually involve semantic shifts. Thus, Prof. Monti employs the

expression market power to refer to both the structuralist and the neoclassical market powers.

126. For instance, he writes that The standard by which to judge antitrust violations shifts from an inquiry into market

power (the leading work representing the SCP paradigm argued that the chief purpose of antitrust policy was the limitation of

market power) to an inquiry about whether the practice in question is efficient.84 Now, from a neoclassical

perspective, both inquiries are identical. So, in this sentence the expression market power must be used

in the structuralist meaning.

127. However, two paragraphs below, Professor Monti holds that The 1968 Merger Guidelines were rewritten in the

1980s by a Chicagoan DOJ led by William Baxter. Under his leadership, the Guidelines were designed to reflect a concern

over market power (not market structure, as under the SCP paradigm), which he defined as the ability of a seller or group of

sellers in concert profitably to raise prices above competitive levels, generating allocative inefficiencies.85 Here, as the author

opportunely indicates, market power is employed in the neoclassical meaning.

2.2. Is Neoclassical Market Power a High Hurdle?

128. As mentioned above, almost every firm has some degree of neoclassical market power. Prof. Monti

often emphasizes this fact. For instance, he writes that:

- most firms hold a degree of market power because price is set at marginal cost only where there is perfect

competition,86

- Every firm has enough market power to price above marginal cost,87

- even non-dominant firms are able to price above cost.88

129. Consequently, if competition law were entirely faithful to the neoclassical foundations, any firm would fall

in its ambit. As already noted, the economic approach is as embracing as the economic freedom paradigm.

130. But, very curiously, Prof. Monti repeatedly affirms that neoclassical market power constitutes a high

hurdle. Indeed, he states that:

- the high market shares deployed in the US signal a commitment to a neoclassical definition of market power,89

84 Id., p. 65. 85 Id., p. 65. This sentence is odd because it seems to imply that the true market power is the structuralist one. 86 Id., p. 69. 87 Id., p. 218. 88 Id., p. 219. 89 Id., p. 144.


17

- If the market power of the parties defined in neoclassical terms was used as a threshold question in the application of

Article 81, very few agreements [] would be caught,90

- If dominance instead meant the power to reduce output and increase price, then the scope of Article 82 would be

reduced significantly.91

131. Obviously, these two sets of statements are incompatible.

132. Perhaps there is a way to explain (if not to reconcile) these contradictory claims. It is to observe that the

Chicago school theorists, who much vilify the structuralist approach, cannot help relying on it in practice,

because market power is not directly measurable and there is no other proxy available.92 Now, it is likely

that these theorists are prone to apply the structuralist market power proxy less aggressively than old-

structuralist or neo-structuralist writers would do.

2.3. Post-Chicago Market Power

133. A related topic of criticism is Prof. Montis treatment of post-Chicago market power. The latter,

according to the author, provides that a firm has market power when it is able to devise strategies that can harm

rivals and so give it, in the future, the power to raise prices and reduce output93 (i.e., to achieve neoclassical market

power).

134. Professor Monti writes that This approach is wider than the neoclassical definition.94 Yet, this analysis sounds

illogical. First, it is hard to conceive of an approach wider than the neoclassical definition (except the

economic freedom paradigm, which can be considered to be as wide as the neoclassical one).

135. Moreover, the scope of to do Y in order to achieve Z is obviously narrower, and not wider, than the

field of to achieve Z. Or else, if to do Y is the only possible way to achieve Z, both statements are

identical (and, in such a case, one could wonder what the point of the post-Chicago approach is).

136. However, I dare to think that the promoters of the post-Chicago brand of market power have included

the second limb because it was required by the economic reasoning, but secretly hoped that enforcers

would concentrate their attention and action on the first limb. In such a hypothesis, it would not be self-

contradictory to argue that the post-Chicago approach is wider than (or at least as wide as) Chicagos.

137. And, actually, it does appear that, whilst the second limb is far more important than the first one from an

economic perspective (Professor Monti writes that The real harm is the dominant firm exploiting its market

power once the rival is gone95) the post-Chicago definition focuses96 (Prof. Montis word) on the power to harm

competitors, that is, on the first limb.

138. Similarly, in the actual enforcement, agencies do not seem to care a lot about the second part of the test.

As the author puts it,

Following the post-Chicago theories explored in chapter 6, an evaluation of foreclosure requires first a determination

that the rivals costs have been raised by the practice in question and secondly a determination that foreclosure harms

consumers. Consumers can be hurt by foreclosure because it raises the costs of certain market players, and this

90 Id., p. 156. 91 Id., p. 215. 92 As Prof. Monti notes, [E]nforcement still begins by an analysis of the market structure, as the SCP paradigm would recommend. In spite of the

Chicago School revolution, it is still convenient to begin an analysis of mergers by calculating the degree of concentration as a means of filtering

unimportant transactions (EC Competition Law, p. 74); Judging market power by market shares is an approach closely associated with the

SCP paradigm, which was challenged by the Chicago School. Nonetheless, market share analysis remains at the heart of competition law inquiry

because it provides a relatively simple rule of thumb to identify markets where competition is at risk (Id., p. 158). 93 Id., p. 126. 94 Id., p. 126. 95 Id., p. 166. 96 Id., p. 181.


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permits the excluding firms to raise their prices. Accordingly, the foreclosure of some competitors does not necessarily

mean that anticompetitive effects follow automatically there may be sufficient numbers of highly motivated

competitors that consumers will not suffer. It is not clear from the Commissions Guidelines whether this approach is

followed or whether proof of foreclosure is sufficient. The Commission provides much guidance on measuring

foreclosure but nothing on how to measure its effects.97

3. The Notion of Barrier to Entry

Prof. Monti criticizes the Stiglerian conception of barrier to entry (3.1.) and yet considers the debate

over the meaning of this notion to be pointless (3.2.).

3.1. Prof. Montis Criticism of the Stiglerian Conception

139. The author discusses the classical distinction between the Bainian and the Stiglerian understandings of

what barriers to entry are. He criticizes Stigler for trying to embody a value-laden element in the

definition. Indeed, according to Prof. Monti, Stiglers approach is based on the premise that one should worry

only about factors that deter efficient entry, and not about factors that merely deter entry by anyone.98

140. The author comments that such a premise

confuses the question of determining market power with the question of whether the person holding that market

power should be penalised. Whether a monopoly should be condemned is a secondary question, depending for

example upon whether its behaviour lowers economic efficiency, so the criticism that Bain classifies certain efficiencies

as entry barriers misses the mark.99

141. Prof. Montis objection seems valuable. The two questions he distinguishes must not be confused. Indeed,

from a theoretical point of view, the answer to a scientific enquiry (here, how to explain that in the long

run, established firms can elevate their selling prices above the minimal average costs . . . without inducing potential entrants

to enter the industry100) should not be made dependent on legal and ideological considerations.

142. However, Prof. Monti still reports Prof. Hovenkamps observation that if there was a rule of no-fault monopoly

whereby liability would be imposed purely based on dominance, then the Stiglerian approach would make sense, for one would

not want to punish efficient monopolies.101 By contrast, one is led to conclude that, in the present state of the

case law, where it is said that monopolies are not per se punishable, such a logic is misplaced.

143. Nevertheless, one could object to the last criticism that the Commission itself forcibly muddles these

different questions. Indeed, the case law does not set up a rule of no-fault monopoly, but, by imposing an

undefined special responsibility on dominant undertakings, it gets close to that. If to be dominant entails

legal risks, it could be better to avoid characterizing efficient firms as dominant.

144. What is more, even Bain seems to make an ideological component enter the discussion. Indeed, as Prof.

Monti puts it, Bain classifies certain efficiencies as entry barriers.102 But why just certain? Why not every? Prof.

Hovenkamp aptly remarked that Superior efficiency103 is the worlds greatest entry barrier, except perhaps for

government entry restrictions.104

97 Id., p. 368. 98 Id., p. 145. 99 Id., p. 145. 100 Id., p. 64. 101 Id., p. 146. 102 Id., p. 146. 103 Because Bains definition assumes that the incumbent is allocatively inefficient (its prices are above its costs), only productive

and dynamic efficiencies are concerned. (I neglect here the fact that Bain writes about average and not marginal costs). 104 Herbert HOVENKAMP, Federal Antitrust Policy, West Group, 1999, p. 524.


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145. So, if Bain did not dwell upon this worlds greatest entry barrier, one can suppose that it was because he saw

barriers to entry as an intrinsically negative element that could not be directly likened to pure

efficiency.

146. Prof. Monti himself seems to adopt a value-laden approach. Following Professor Carlton,105 he regrets

that neither the Bainian nor the Stiglerian definition (which both adopt the long-run point of view) makes

room for any speed of adjustment requirement.

147. Now, the fact that adjustment takes time is not a scientific paradox; it is easily explained by pointing out

that information is limited, production processes are not instantaneous, etc. So, by trying to incorporate a

temporal dimension in the barrier to entry notion, Prof. Monti departs from the purely scientific

analysis.

148. Moreover, he declares that the approach he discusses (the one adopted by an American Court of appeal in

the Microsoft case) considers matters from the perspective of incentives.106 But the Stiglerian approach did take into

consideration the incentives (the incentives to be efficient) and it was precisely the reason why Prof. Monti

criticized it.

149. Besides, it makes no sense for competition law to adopt a short-term perspective. Indeed, although some

economists are accustomed to think of the economy as if it were in equilibrium, one has to remember

that, in our uncertain and constantly changing world, it never is. It only tends to be. The economy is like a

dog chasing a mechanical rabbit.107 The equilibrium it pursues is continuously moving.

150. Thus at any moment non-monopolistic short-run misallocations are omnipresent. Now, it is likely that the

amount of monopoly-induced misallocation is tiny when compared to these short-run but perpetually

renewed misallocations.

151. Moreover, to try to eliminate short-run monopoly profits would be all the more dangerous since, if

competition agencies incorrectly target monopoly profits and punish entrepreneurial profits instead (that

is, profits which do not result from the spread between price and marginal cost), they will prevent the

adjustments the economy needs and thus will perpetuate misallocations.

3.2. Does the Bain-Stigler Debate Matter?

152. Another problem is that Prof. Monti seems to agree with the opinion of most competition agencies108 that

to bring about a correct definition of barriers to entry is actually superfluous.

153. Thus, he maintains that the economic debate between Stigler and Bain over what is an entry barrier is not particularly

helpful in the application of competition law.109 He also notes that, in both US and EC competition laws, less

105 Dennis CARLTON, Why Barriers to Entry are Barriers to Understanding, 94 American Economic Review 466, 2004, quoted

by Prof. Monti. 106 EC Competition Law, p. 146. 107 I borrow this comparison from Murray ROTHBARD, Man, Economy, and State, Ludwig von Mises Institute, 2009, p. 322. 108 See, in particular, OECD, Policy roundtables, Barriers to Entry, 2005, p. 9: There is no consensus on whether a precise definition of

entry barriers is necessary. While most competition enforcement agencies indicated that they do not need a fixed definition of barriers to entry, several others have one and have found it to be valuable. - In recent years, several competition scholars have concluded that the debate about entry barriers should be considered irrelevant to competition policy. What matters in actual cases, they argue, is not whether an impediment satisfies this or that definition of an entry barrier, but rather the more practical questions of whether, when, and to what extent entry is likely to occur. Most, but not all, competition agencies in OECD countries agree with that view. Some, however, have found that having a precise definition of entry barriers is helpful. In New Zealand, for example, lower court decisions would have posed problems for the competition agency if higher courts had not adopted a clear definition of entry barriers.

109 EC Competition Law, p., 145. Curiously, the author writes (p. 146) In the US Microsoft litigation the Court of Appeals used a definition close to the Bainian model: factors (such as certain regulatory requirements) that prevent new rivals from timely responding to an increase in price above the competitive level. This legal standard takes into account the important issue that the speed and degree of entry is relevant for competition law and the Stigler/Bain debate is unhelpful in the context of this kind of inquiry. This approach avoids defining entry barriers and considers


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effort is spent defining entry barriers and more is devoted to asking whether new entry is timely, likely and sufficient,110

insinuating that the definition issue is a purely academic and an idle one.

154. It is no wonder that such a position is promoted by competition agencies. Indeed, one cannot dream of a

more complete freedom than to be authorized to employ a word without having to account for its

meaning. But it is also a totally irrational stance. Depending on the sense in which this expression is

employed, the logical and the legal consequences differ. Thus, its meaning cannot be left unspecified.

155. Competition agencies can choose one of the suggested meanings (or still another) and stick to it. Or, if

neither of the suggested definitions fits (for instance, because none incorporates a time element), they may

entirely give up the barrier-to-entry concept. But they cannot hold that the meaning of this notion is

immaterial and nevertheless continue to use it. Otherwise, their decisions would be mere babbling.

156. As the author still notes,111 if the meaning of this word is not specified, new senses will emerge. For

instance, the competition law glossary released by DG competition offers a strange variation on the

Bainian definition. It merely holds that Barriers to entry are factors that prevent or hinder companies from entering a

specific market.112 One could not conceive a vaguer and more open-ended definition.

157. Indeed, contrary to the Bainian conception (which refers to the situation where the established firm

elevate[s its] selling prices above the minimal average costs), the DG competition definition does not give any

reason why new firms should in the first place be expected to enter. It does not postulate that the

incumbent has set its prices above its costs. With this definition, the fact that prices are equal to costs

the fact that allocative efficiency is maximizedcould paradoxically be analysed as a barrier to entry.113

158. Prof. Monti opportunely mentions Viscusi, Harrington, and Vernons discussion of this topic.114 But the

latter precisely hold that:

If you were paying attention, you should be quite confused about entry barriers. Join the crowd! The concept of

barriers to entry lacks clarity, and one is never sure what to do with it. It is certainly not clear what are the welfare

implications of any particular thing called a barrier to entry. The most unfortunate part is that some economists and

antitrust lawyers throw the term entry barrier around like there is one accepted and meaningful definition when

there is not.115

159. An illustration of this confusion can be found in Prof. Montis book. Indeed, the author writes that the

proponents of the structuralist paradigm make the prediction that if entry barriers are high the price-cost margin

of the leading firms increases.116 But it is a tautology rather than a prediction. High (Bainian) entry barriers

mean that price-cost margin are high.

matters from the perspective of incentives. As the first sentence indicates and contrary to what the last sentence maintains, in the case in hand the authority did define entry barriers.

110 Id., p. 146. 111 However, the approach taken by competition authorities is risky because it can lead to a slippery slope whereby any factor making entry more risky

or difficult becomes an entry barrier without detailed scrutiny, an approach that exaggerates market power. In the EC for example, factors like a big technological lead over others, an effective sales network, or a successful advertising campaign that brings customer loyalty are entry barriers because they give the firm technical and commercial advantages over rivals. (EC Competition Law, p., 146.) Here, Prof. Monti writes about the elements which enter the definitions and not about the definitions themselves.

112 Glossary of Terms Used in EU Competition Policy Antitrust and Control of Concentrations, Directorate-General for Competition, Brussels, July 2002, see Entry Barriers.

113 By contrast, with the Bainian definition, only productive and dynamic efficiencies can be analyzed as barriers. See, above, footnote 103.

114 EC Competition Law, p. 145. 115 W. Kip. VISCUSI, John M. VERNON, and Joseph E. HARRINGTON, Economics of Regulation and Antitrust, MIT Press, fourth

edition, p. 172. 116 EC Competition Law, p. 58.


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160. Another paradox is that, after writing that the Bainian-Stiglerian debate is useless, Prof. Monti holds that

the Bain approach is preferable.117 It is a contradictory stance. If the debate is useless, none of the proposed

alternatives should be preferable. Conversely, if an alternative is preferable, the debate may be

imperfect, but not useless. So, it appears that, eventually, the definition issue does matter.

161. However, it is not all that matters. Once the definition is settled, one has to determine what real life events

enter into it. Such knowledge is not directly provided by the definition; it requires an economic reasoning.

For instance, according to many authors, Bains definition is correct. The source of disagreement comes

from the fact that it is not obvious why two of the three main factors cited by Bainproduct

diversification and high capital requirementswould achieve the result referred to in the definition.

4. Miscellaneous Observations

162. To close these comments, I would like to make some observations about an odd fallacy (4.1.) in Prof.

Montis book, about the latters treatment of the notions of scarcity (4.2.) and economic welfare (4.3.),

and, eventually, about the measurement problems which affect competition law (4.4.).

4.1. About an Odd Fallacy

163. After describing the various shortcomings and uncertainties affecting the process of decision-making in

competition law, Professor Monti writes:

Taken to its extreme, the analytical structure proposed above can lead to the conclusion that competition law is

indeterminate and that the exercise of discretion by those in power determines the results. This is not the thesis which

is advanced here, because the competition authority enforcing the law is aware that absolute indeterminacy would

make for unworkable policy as firms would not kn

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Comments on Prof. Giorgio Monti’s EC Competition Law - Colin Halard