Principles of pricing practices’ economic studies do not always meet requirements of standard economic studies and economic mindset

15 january 2015 | "Competition and Law"

The Head of the Directorate for Competition Policy of the Analytical Center Tatyana Radchenko et al. Svetlana Avdasheva (Professor of School of Applied Economics, Faculty of Economics, Higher School of Economics) and Andrey Shastitko (Head of Department of Competition and Industrial Policy, Faculty of Economics, Lomonosov Moscow State University) analyze monopoly high price determination principles in the journal "Competition and Law".

Tatiana Radchenko
Tatiana Radchenko
Deputy Head

The article discusses economic analysis principles of pricing practices and their compliance with the Law on Protection of Competition enacted in September 2014 by the Presidium of the Federal Antimonopoly Service of the Russian Federation (FAS). This document had been developing for several years. Principles of economic analysis of pricing practices were created mainly as a response to the needs of large Russian companies to establish which price level may be considered as an abuse of a dominant position and which is acceptable according to Art. 10 of the Law on Protection of Competition, considers Ms. Radchenko.

Markets in which three types of price indicators – exchange-traded and OTC-traded indicators as well as the average price of export contracts – can be used, fall under these principals operation. These principles are a guidance document for the Federal Antimonopoly Service of the Russian Federation (FAS) regional offices' internal use.

Experts analyzed the document and found its pros and cons. Thus, Principles do not always meet requirements of standard economic studies and economic mindset, according to experts. They are based on the groundless belief that it is possible to predict equilibrium and acquit prices. This confidence is regularly refuted by actual professional accuracy of forecasts.

"Even with the factors specification principles scope allocation affecting a contract’s price, it is impossible and unnecessary. Economic factors determining a market price and a company’s price policy can vary significantly from time to time. Key ones, as a rule, can only be selected ex post. That is why the document where a description of conditions of different approaches and important factors use is given is overwhelmed with details and examples which are not exhaustive. For a non-economist these examples demonstrate approaches’ use methods, but at the same time, if they become a basis for actions that can lead to excessive generalizations. This in its turn will lead to errors in actions’ qualification of market participants", says the article.

Still, the document may be useful, according to experts. On the one hand, companies dominating in Russian markets will need it, on the other - companies who buy their products will need it too. "Principles claim to create another safe haven for law-abiding businesses, as they determine the Federal Antimonopoly Service of the Russian Federation (FAS) station which market participants prices will not be considered as the Law on Protection of Competition violation", says the experts.

For more information check “Competition and Law” and Laboratory for Competition and Competition Policy