Mon, Nov 05, 2007 - Page 9 News List

The EU's attack on big US firms is a big mistake

European fines and sanctions against US companies like Microsoft and Intel are good for their competitors, but are not necessarily good for competition

By Wayne Crewsand Alberto Mingardi

The new European Commission's action against the chipmaker Intel is a good example.

Intel is charged with "abusing" its dominant market position by so called "predatory pricing" (selling below cost) and offering substantial rebates to retain market share and undermine its arch-rival Advanced Micro Devices.

"Predatory pricing" is an old scarecrow of antitrust enforcement. The idea that it is rational for a company to incur enormous losses by selling below cost in order to achieve or maintain a monopoly position has been roundly criticized by economists who argue that situations in which such losses can be recouped by subsequent monopoly profits are extremely rare.

Indeed, empirical research has shown that, throughout history, as far back as the Standard Oil case in the early 20th century, most instances of alleged "predatory pricing" have in fact been cases of superior efficiency.

The problem with "predatory pricing" is that the courts are unlikely to be able to distinguish "unfair" prices from effective competition that is a boon to consumers. It is the less efficient competitors, and not consumers, that are the most likely to benefit from punishing Intel for lowering its prices.

Imposing billions of dollars of fines on the most conspicuous wealth creators is not the way to go.

Europe needs to make the likes of Microsoft and Intel feel at home in Brussels, Paris, or Berlin, not to become a political market leader in supplying sympathetic verdicts to market losers.

Wayne Crews is vice president for policy at the Competitive Enterprise Institute in Washington. Alberto Mingardi is general director of the Istituto Bruno Leoni, a research institute in Milan, Italy.

Copyright: Project Syndicate

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