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Counterfactual Tests in Competition Law


This article looks at the growing use of the counterfactual approach in European and UK competition laws. The term counterfactual has not been a feature of European competition law, with the exception of merger control, to date. However, with the move to an effects-based approach, counterfactuals are being used occasionally, hesitantly and with mixed results. The article examines the use of counterfactuals in ‘behavioural’ competition law investigations based on a review of UK and EC competition guidelines, decisions, and several leading UK cases.

The term ‘counterfactual’ is neither a legal or economic one. Yet the word appears to be surfacing with increasing regularity in decisions of the competition authorities and judgments of the courts. The UK competition authorities have popularised the term in merger control with the move from the dominance to the Significantly Lessening Competition (SLC) standard under the Enterprise Act 2002. The other development that has given the term increased exposure is the growth of private damage actions, where a ‘but for’ counterfactual test has often been used. The term has also been applied in ‘behavioural’ competition law investigations and court cases.

Here the use of the counterfactual in competition law is examined. It is based on a review of UK and EC competition authority guidelines, and several leading UK cases.

The main conclusions of the discussion are:
• A counterfactual is an ‘analytical framework’ not a mandatory requirement with the possible exception of an Art 101(1)TFEU ‘infringement by effect’.
• A counterfactual asks a question, it does not give an answer. It requires the parties to set out explicitly their theory of competition and harm, but the decision maker is still required to select the most appropriate counterfactual and assess the evidence supporting it.
• Often a counterfactual simply reframes competing theories/propositions without adding much insight or necessarily being appropriate or contributing to good decision-making. The cases and decisions reviewed below have revealed difficulties with the counterfactual ranging from failure to set a credible theory of the competitive harm (or good), flawed models of the competitive process, inconsistencies with the facts, or reliance on assumed models of atomistic competition when dealing with network industries such as new sports channels and credit card schemes.
• There is a tension between the past decisional practice, case-law and the content of the recent effects or economics based European Commission (the Commission) competition law guidelines. These frequently set out different approaches to determining infringements such as benchmarks, checklists, and direct price and cost tests. The overlay of a counterfactual approach, with the term rarely used, to these is not explained, and these can be used as alternative or complementary approaches.

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