The antitrust law and AMBEV - an analysis under the rule of reason

“Those politicians, professors and union bosses who curse big business
are fighting for a lower standard of living”. [1]

1. Introduction

On July 22, 2009, CADE opted for the imposition of the largest fine ever enforced
in the history of the institution: in current values, R$ 352,693,696.58 (three
hundred fifty-two million, six hundred ninety-three thousand, six hundred
ninety six reais and fifty-eight cents), against American Beverage Company
(AmBev).

The represented party was penalized due to a fidelity and bonus program
named “Tô Contigo” (“I’m with you”) and that, as far as the
institution is concerned, would amount to a non-linear discount plan, which
demanded from retailers, as a compensation, “the exclusivity or the
purchase of a minimum AmBev share of 90% of the total, in a selective,
non-systematic fashion”.

The legal framework was built by the violation of articles 20, I and IV c/c
art. 21, IV, V and VI of Law 8.884/94, and the administrative sanction was
applied with, as basis, article 23, I, with the aggravating circumstances
foreseen by article 27, II (bad faith) and III (advantage intended), besides obliging
the company to publish the abstract of the decision text, at its own cost, in a
high-profile newspaper, in a half-page announcement, for two straight days in
three weeks in a row, and that it gets enrolled in the “National Registry of
Consumer Defense to inform consumers about the practices perpetrated and their
negative effects”.

In English, the word “trust” designates the agreement between
companies so that one of them, usually the one that holds a central position in
the production process, holds the management power over the others, so as to
promote rationalization and lessening of costs, and, thus, become more
competitive. Under the juridical culture aspect, it denominates ways that are
similar to these agreements, and that became prohibited by the American law,
the first of them being the “Sherman Act”, in 1890, the entry of
which was adapted to Portuguese, with the same meaning.

However, “trust” also means, in its more common Anglo-Saxon usage,
“confidence”, and, very appropriately, we shall demonstrate, in the
following lines, why antitrust legislation is, above all,
“anti-confidence” legislation.

The text that follows will surely be long, yet not terminative, and,
although it discusses legal text and its legality at times, it does not entail
a strictly legal examination. A lot remains to be said about law 8.884/94, the
“anti-confidence” legislation, and we shall demonstrate here why this
law is unfair and must not only go through some stopgap measures, but be
eliminated forever from the judicial system in the country, along, as a
consequence, with the organ responsible for its application, which is the
Administrative Council for Economic Defense – CADE (Conselho Administrativo de
Defesa Econômica).

2. How did antitrust legislation emerge in Brazil?

I still remember the TV news broadcasting the statements of Brazilian
congressmen, but, if there is something I do not recall about the time, during the
period in which the debates occurred on the pulpits, is there being any
epistemological explanation about the need to implement an antitrust law in our
homeland.

I am referring to case studies and technical demonstrations that would come
to show that certain commercial practices ended up (factually) or would end up
(theoretically) dominating the market, and, cumulatively, harming the
consumers.

No, not at all. What every congressman was talking about was simply the need
of Brazil having antitrust legislation, just like, for instance, a teenager
seeks to convince his father of the serious need to buy him a new tennis shoe.
The matter of the antitrust, therefore, was but a fad that, even though no one
could objectively inform where or how it came to be as an idea that could form
legislative initiative, suddenly took over the Congress and newspapers like a
fever, and like a trophy for congressmen and senators that, famished for the
limelight, rose to prominence when embracing this idea.

Possibly, someone that can offer us a response to this query is professor
Dominick Armentano, in his book Antitrust – the case
for a repeal [2], which explains how the organized campaign worked, from
the United States, so that similar laws were promulgated in several other countries:

Investigations and efforts in executions were also expanded during the
Clinton administration, under Assistant Attorney General Anne K. Bingaman and
her successor in Justice, Joel Klein. Besides the acute increase in corporative
criminal fines applied for alleged price fixing, Clinton’s trust-hunters
(Including FTC) dramatically expanded the number of investigations about
fusions, filed questionable lawsuits addressed to vertical integration issues,
provided support for the internationalization of the antitrust combat, and
produced voluminous dossiers with incriminations against companies such as
Staples, Intel, and, of course, Microsoft.

Not coincidentally, the Brazilian law is a mere transliteration of legal
concepts imported from American law, with the usage of the same diaphanous
terms such as “relevant market”, “dominant position”,
“discriminatory prices” and others about which we will perform an
effective analysis further on.

3. Considerations about the framework by art. 20

As informed, the company was found to be in violation of articles 20, I and
IV c/c art. 21, IV, V and VI of Law 8.884/94. Here, for convenience, and so
that we can comment on the content of the legal text, we reproduce it in the
following:

Art. 20. The following constitute infraction of the economic order,
regardless of culpability, the acts, manifested in any form, that have as their
object or may produce the following effects, even if they are not reached: I –
limiting, falsifying, or in any way harming free competition or freedom of
initiative; (…) IV – exert a dominant position in an abusive fashion. § 2^nd
A dominant position occurs when a company or group of companies controls a
substantial share of the relevant market, as a provider, middleman, buyer or
financer of a product, service or technology related to it.

§ 3^rd The dominant position to which the previous paragraph
alludes is presumed when the company or group of companies controls 20% (twenty
percent) of the relevant market; this percentage may be altered by Cade in
specific sectors of the economy. (Wording given by Law nº
9.069, of 6.29.95)

3.1. Vagueness and Anti-Legality

The first thing that must be commented about the extreme lack of legality
contained in the head of art. 20, which is, as far as I see it, absolutely
incompatible with the rule of law. Good doctrine teaches us that the law must
establish to the administered party a negative conduct (they must abstain from
the act, such as “killing someone”) or positive (they must produce
the act, such as “voting” in countries in which it is mandatory). The
passage that has the infraction not depending on culpability is also bizarre.
After all, an infraction would have to be committed with either malice or
malpractice. With malice, if it was committed on purpose, or if the agent knew
the potential effects of their act and disregarded them when performing it;
with malpractice if the act was committed due to lack of skill, lack of care,
or neglect.

Therefore, accusing someone regardless of guilt, considering that the agent
was prudent and careful so that, as far as possible, the situation foreseen in
the law did not come to be, means stating, as per the final instance of pure
logic, that the person did not act towards its existence!

But then we have a problem confronting us: if the person (natural person or
legal entity) did not act negligently, which would be malpractice, then it
acted diligently, namely: prevented, foresaw and avoided, within reason, the
situation the legislator denominates “acts manifested in any form”,
which reduces these acts, in fact, to mere factual situations.

Now, let us see the expression “that have as their object or may
produce the following effects”. The sentence “that have as their
object” denounces the will of the accused to produce the effects, which
might bring us back to malice, but the expression that follows “or may
produce the following effects”, already revokes it, making it irrelevant.
That means the citizen may be indicted both without “intending” and
without “foreseeing” that the effects may be produced. It also puts
the “effects” in the realm of mere possibility, when it establishes
that the acts “may” come to be produced, here authorizing CADE to
accuse someone due to a mere economic “thesis”, stressing this
disposition with the last part: “even if they are not reached” (as
they never were indeed, as we shall see later on!).

The article pointed out, literally, authorizes that a company is indicted
for a situation for which it did not contribute; did not intend to contribute;
did not foresee it might happen; its effects did not come about; but could –
theoretically – happen! Again: a given businessman can be indicted due to a
factual situation (the so-called “act manifested in any form”), even
if he did not contribute at all to it, even if he did not hope for the effects,
even if he did not anticipate them at all, and even if he had not been
negligent on foreseeing it, if that were the case, so as to avoid it, and even
if no harm had happened to the legal asset allegedly to be protected, such harm
“might” come to pass, that is, hypothetically and potentially, of
course, on the discretion of CADE!

I believe not even Nazi Germany ever became so creative in its oppression of
the Jewish people! Due to the absurd abstraction and lack of a definition of
art. 20 of the law 8.884/94, I believe it is unconstitutional, due to
conflicting with art. 5^th, clause XXXIX (there is no crime without a
precious law that defines it, nor a penalty without previous legal commination)
and clauses LIV (no one shall be denied their freedom or their assets without
due process of law) and LV (litigators, in a judicial or administrative
lawsuit, and the accused in general, are assured the adversary system and full
defense, with the means and resources inherent to it).

Besides, the article also violates the “spirit of the
Constitution”, so to speak, or its “invisible principles”. What
Constitution is this, after all, that allows the state to indict someone for
harming a judicial asset “theoretically”? Indeed, our Constitution
stipulates that it is not enough for the law to exist: the crime must be
“defined”.

Additionally, the agent’s behavior must be anti-juridical, that is, either
he must act in a conscious way or he does not act regarding precautions he had
the duty to take, which would reveal, at least, his culpability. The
object of the law demands concreteness, so as to provide the citizen with the
ability to know it and follow it; otherwise, there would be no room for the
adversary system and full defense.

3.2. Castration of the Entrepreneurial Nature

Considering, as such, that a company may be accused both for acting and for
not acting, only one behavior is left for it: acting “negatively”, that
is, emasculating its entrepreneurial nature of seeking to produce more and
better so it can establish for itself a market participation limit. That is
precisely what General Motors [3] did from the year of 1937 to 1956, a decision
which made it lose a grievous amount of space to German and Japanese car
manufacturers from the 70s to the 80s.

As we know better today, this company does not exist as a purely private
endeavor anymore, and can barely hold onto 19.1% of the American domestic
market. Without having control over the strategies of its competitors, and even
less about the preferences of consumers, such anti-natural behavior as the one
adopted by GM could only result in “not so attractive” cars or
“not so advantageous” prices, or, in other words, punish its best
professionals and disregard its true judges, the consumers.

3.3. Regarding the typification of the behavior under the norm per
se

Now comes the time for us to reflect upon the last pillar of the legal
command being commented that still stands: does the expression “may
produce the following effects, even if they are not reached” have at least
some actual potentiality?

I call the reader’s attention here to the ideology that emerges to establish
the normative disposition: when it foresees no need for the effects to be
reached, it acknowledges, previously and empirically, that there was never a
case in all history of an actual monopoly that lasted through time – and that,
cumulatively (!) harmed the consumer, whether by establishing majored prices or
by technological stagnation, or even by restricting production.

Therefore, the legislator opted to separate the acts from their effects in
the realm of economic reality to pay heed to the theory of acknowledging the
rule per se, more apt to forensics, relegating to the gutter the spirit of the
rule of reason, which would lead to an economic investigation about the
materiality of the facts and effects.

Translation: confronting the practice of the act with the hypothesis of
consubstantiated incidence in the legal text so as to proceed to the
examination of the merit matters more to the judge, who is frequently ignorant
regarding economy (in which he is tended to by the legislator). Thus the
classification becomes easier, but, especially, the allegation is immunized
from the possibility of the effects against a verity exam regarding the actual
possibility of them occurring.

We had already had a foreword in the previous paragraph about the historical
inexistence of some “actual” monopoly that lasted through time and
that – here is the purpose or at least the excuse of the antitrust ideology –
dominated the market, harming the consumer with an insufficient amount of
products, stagnated technology or “abusively” increased prices.

A famous case was Microsoft, which had, for almost a decade, a world
leadership position in the field of softwares, but never ceased to be
acknowledged by the public as the holder of the best products, which, instead
of getting more expensive, became cheaper, more universalized and more evolved.
As we know today, only due to the development of the market, this computer
giant suffers with the bold competition of Google, which has even, recently,
created its own internet browser, as well as Yahoo and several other
competitors, which always had the right to access the market untouched, with
the competitiveness of the leader as the only barrier.

In Antitrust
and Monopoly – Anatomy of a Policy Failure [4], in which a broad knowledge
can be obtained about the prosecution against Bill Gates’ company, as well as
against other fifty-four cases of companies that were indicted only due to
being more efficient, innovative and competitive, professor Armentano also
elucidates in the realm of theory about the extreme difficulty of a monopoly
actually managing to keep itself hegemonically, such as, for instance, in the
following excerpt [5]:

Establishing a monopoly in a free market would demand a perfect capacity
of business foresight, both in the short term and in the long term, regarding
the consumers’ demand, technology, localization, supplies and prices, and
thousands of other uncertain variables; it would also require an unambiguous
definition of the relevant market. Few companies, if any, in economic history,
before or after antitrust, have at any point reached such an inerrant
perfection, and, alone, did this for long stretches of time. The so-called
“bonanza” monopolists are reputed to enjoy in the free market is, as
we shall find below, part of the folklore of the antitrust history.

Professor John R. Lott [6] also makes a statement in these terms:

Contrary to the popular opinion, monopolies are rare and hard to keep,
and the few real monopoly situations that exist benefit consumers; in some
cases, such as what happens with pharmaceutical companies, they literally save
lives. But, most importantly, the type of scheme of allegedly unrighteous price
fixing that monopolies employ – such as discriminatory prices – frequently
increase the availability of products or services and promote innovation.

Regarding the economic basis of the neoclassical school, however, namely,
the theory of isolated perfect competition models, responsible for the
foundation of antitrust legislation, we find solace in Armentano, again [7], so
we can cast some serious suspicion on the potentiality of effects assumed as
aprioristic by law 8.884/94:

The perfect competition theory is both illogical and irrelevant. Besides,
it simply assumes that there must be conditions that necessarily result in
equilibrium. Commercial competition, on the other hand, is always a process in
which entrepreneurs, with imperfect information, try to make adjustments to the
conditions of the market so that a closer coordination between the fields of
supply and demand is reached.

(…)

Antitrust policy in the United States has been frequently associated with
that vision of competition inherent to a perfect competitive equilibrium.

(…)

If perfect competition is illogical and irrelevant, then the structures
of the market, or the changes in the structure of the markets, do not reveal
anything a priori with relation to competition or well-being.

That there is a representative tendency by illustrious economists to demonstrate
their thesis both in rhetorical and factual bases, to state categorically that such
potential effects will not come to pass, at least not in a lasting fashion that
is capable of imposing conditions to the consumers, and taking as a base the
mere assumption that they “may” be right, then the potentiality
represented by the text of the head of art. 20 shatters completely, due to a
lack of credibility, undeniably obliterating the antitrust ratio legis.

That is, how can we accuse someone for an act they are not guilty of, they
did not foresee, did not want, and the effects of which, that could
materialize, although they did not, may well never happen?

3.4. What is a “relevant market”?

What can be considered a “relevant market”?

This expression, as concrete as the atmosphere in the Andes, deserves some
minimum care, considering its limitations are the borders towards which the
company may think about expanding. The stricter the concept, the more careful
it must be. Maybe this question needs to be taken apart, for a more accurate
analysis.

To which market does the law refer? Is there a geographical limit? Will it
encompass the local market, the regional one, the national one? Do imported
products count? What about the type of commerce? So we can stay in AMBEV’s
case: would only bars be included or would also distributors and supermarkets
count?

One needs to be careful here, as bars frequently have an interest in the
sponsorship of manufacturers, who offer them a deal in furnishing, provide
freezers, tables, chairs, napkin rings, decorated tulips and coasters, which we
can all agree is a lot of help, especially for establishments with little
capital. However, distributors and especially supermarkets don’t need any of
it, and, indeed, in such companies the offer of only one brand of beer or other
product is not seen.

(For the record, only to mention my case, I usually get 90% of my beer in
supermarkets, which puts any dominance position in the amount of a tenth of the
participation they may occupy.)

But, regarding products, would only beers count or also mineral waters and
soft drinks also count? For the record, what would be the amount of consumers
that, due to the high prices of beer that would come when monopoly, at last,
managed to succeed, started choosing, let’s say, liquor, wine or even…
coconut water? Who would be able to foresee with any amount of exactitude this
decision, which belongs to each of the millions of consumers? To what relevance
does the law refer?

If, only so we can define commerce, a concept CADE calls upon itself,
unilaterally, we have already met a complex problem, never mind defining
“relevant”. What is relevant? Would it be a market with large value?
Or maybe a market with wide consumption by all income levels of the population?
Or maybe something considered as being highly essential? The market of yachts,
surely, has a formidable economic expression, but it exists for select few
citizens… The production of needles and other sewing implements is used by
practically the entire population, but is it expressive in value? Beer itself
is consumed by all social classes, but is it an essential good? How can a
businessman know beforehand if his product and his target public constitute a
relevant market, so he has the means to avoid committing an infraction?

3.5. What does exerting a dominant position mean?

Someone can argue that we are, here, willing to make a digression move,
playing with words. Our answer to these people is a resounding “no”.
For there is a difference between occupying a leadership position and exerting
domination. What domination, therefore, can a company exert within a free
market, in which decisions are made, in the end, by consumers? Domination is
imposed. How can a company impose anything to the consumer if he considers that
its competitor offers him a more advantageous product, by any criteria? Let us
see what Mary Bennet Peterson [8] says about this:

Who actually put the village blacksmith out of business, or, more
recently, did it to the ice salesman, or, still more recently, the candy man on
the corner? Many may be inclined to say these entrepreneurs of bygone ages were
economically beaten by the giants in Detroit, great (domestic) utilities
Westinghouse and General Electric, food chains A&P, Safeway, Grand Union
and other large conglomerates. I would, instead, argue that the true
executioner of the ice salesman was the consumer – the person that bought an
electric or gas refrigerator.

Besides, we ask: what is the economic basis that authorizes the
determination that someone has a dominant position when they participate with
20% of a “relevant market”? Why wouldn’t they exert it with
19.9% or 50.1%? Considering, a priori, that a monopoly, by a logical
definition, means to occupy 100% of a market, the smaller percentages obtained
reflect a theory about the elasticity companies have so they can increase their
prices to the breaking point, namely, the moment in which consumers stop buying
them.

This elasticity is sought through economic formulas obtained from static
models with controlled variables, and may even be convenient for the companies
themselves to use them as a compass to define sales strategies. However, the
linear determination from a government institution will always end up
equalizing by force something that is – and should be – different by nature:
the internal structure of each of the companies, which includes their
organization, logistics, localization, innovation ability, etc.

Besides, it will disregard several competitive factors not clearly expressed
in terms of price. For instance, two shampoos may be chemically equal, however,
one of them may carry the picture of a character or pop-star that is, or
suddenly became, famous; this is an extremely subjective piece of data, the
success of which no one can determine for certain, let alone CADE through some
ordinance or resolution.

In this case, what can it do – if it even should – to prevent people from
wanting to buy the more expensive shampoo that has such a distinction, without
disappointing them? Professor Armentano [9] explains thus:

There are serious methodological difficulties regarding the attempt to
measure competition this way, or to infer anything of significance regarding an
efficient allocation of resources. The most serious difficulty is that any cross
elasticity test at the time would inevitably mistake a change in sales due to a
price change for a change in sales due to any other factors. As long as other
things are not constant in an actual situation, there will never be any
assurance that any of them is, in fact, testifying some cross elasticity,
whatever it may be.

3.6. Dominant Position x Relevant Market

Given the conceptual and/or methodological difficulties inherent to each of
the terms we studied, why don’t we complicate it a bit more? Assuming that the
geographical delimitation of the market is an issue for which CADE is
authorized to define on a case-by-case basis, how to deal with the problem
that, in a regional market, not all competitors are regional companies?

Suppose, for instance, that, in the regional market occupied by the states
of Pará and Amapá a given brewery, that we, here, will name Regional Brewery
Ltd, exerts a dominant position, and that, due to it, it is indicted for
abusing this given position. However, the beer market in the capital of Pará,
Belém, is not only made up by local and regional competitors, but also by
national competitors. These, on the other hand, may exert a national dominant
position.

In that case, although they are not expressive within that area, they are
fully able to allocate resources there, and compete even from a stronger
position. In fact, for this end, they don’t even have to occupy any relative
dominance position; it is enough for them to be bigger conglomerates than
Regional Brewery Ltd.

3.7. Would AMBEV be limiting free competition?

Assuming the “Tô Contigo” discounts and bonuses program consists
only of contractual agreements, that is, that it did not encompass effectively
criminal practices, such as physical threats, sabotage or complicity with
public employees, all practices adopted by AMBEV are natural and legal. It
bears noticing that this kind of agreement is similar to a franchising
contract, if more precarious.

After all, how many stores are there, that exclusively sell products of only
one manufacturer? Shopping malls are packed with agreements like this! But
there’s more to it than that. Our Constitution preaches that we are all
equal before the law. Or aren’t we? If that’s so, why do all gas stations sell
products of only one brand? And why do auto dealerships do the same? It is
certain that the agreement between the manufacturer and the bar has as its
object to exclude, at that point of sale, the competitors. However, the ones
that should decide this, in the end, are the consumers. If they don’t want to
reward this initiative – and beer drinkers do tend to do that – such a scheme
goes down the drain.

Regardless, competing makers would not have been cast aside. The agreements
AMBEV kept with the bars were not definite; instead, they had a provisional
relation, since bars could revoke them at any time (if respecting the
contractual conditions), and would certainly do so if they got better offers –
that is a free market!

Besides, such a program did not have the intent to exhaust all bars and
points of sale. AMBEV does not have the power to create an ordinance
prohibiting the founding of new bars. These bars, in their turn, always crop up
here and vanish there, for any reasons that often do not have anything to do
with the dispute between beer makers. Indeed, under that point of view, it is
really interesting to think that the AMBEV program might have the ability to
open more market inasmuch as it helped opening more bars, which could not, in
any way, shape or form, be mistaken by “restricting” competition.

Besides, unlike arrangements made with the state, such as subsidies,
differentiated financing or market reserving, AMBEV paid a cost that would
either translate in the final price of the product, or in a smaller profit
margin per unit sold. That would have generated, for the competitors, a
comparative advantage and an opportunity to offer a marketing differential.

3.8. Do non-linear discounts qualify as a predatory practice?

Let us see how CADE positioned itself, according to a note released in its
site [10]:

Cade considered that the evidence present in the records of the
Administrative Lawsuit prove that the so-called “Tô Contigo” fidelity
and bonus program demanded in exchange for the entry of the points of sale the
exclusivity or the purchase of AmBev shares of at least 90% of the total, in a
selective and non-systematic fashion. As such, Cade concluded that it is a
non-linear discount program, carried out by a company with a dominant position
in the beer market. Therefore, the Chamber determined that the “Tô
Contigo” Program has a potential to weaken the competition, closing down
the market and artificially inflate the costs of other competitors.

In the entire antitrust culture, there isn’t a more nonsensical theory than
the one intended as the basis of prohibiting differentiated prices, or, in a
more Orwellian language, “discriminatory prices”.

Differentiated prices are considered harmful to the population, as it is
claimed that they are practiced due to the quality of the buyers, a distinction
that would not have to take place, since they do not influence in any way the
actual costs of production.

In order for us to have a reference as a basis, the State is the first one
to practice differentiated prices. It does so through the Mail, with the
“social letter”, and also with providers of water and power, with the
“social taxes”. It also sells medication below cost, with the
“popular drugstore” and even ready-to-eat meals with “popular
restaurants”.

In short, it is a long list, and I believe anyone can verify it. Still,
there is yet another even more curious case of differentiated price practice,
done by private entities, that the state applauds: public tender, especially the
bidding systems.

Here, I ask the reader not to get confused: there is no problem if the
winner of a public tender, say, though a bidding system, in which the end price
is obtained through verbal bidding, is on equal footing with other competitors.
That is not our point of concern. The question is: once a provider wins a bidding
process, does he have to lower the price of the product to the population in
general to the same level it did to the government?

If the arguments to show that the criminalization of price differentiation
is absurd have not been convincing enough, we invite the reader to look up in Freedomnomics,
by John R. Lott, several cases of price discrimination that always result in a
rational economic criteria, which, most of the time, benefits the population.
He justifies himself thusly [11]:

So this is necessarily something bad? Price discrimination frequently
allows companies to produce more and increase the general welfare of society.
This holds especially true for monopolies that make great investments on
research and development or on infrastructure; if they did not have the
permission to discriminate prices, they would simply have to charge a high,
uniform price so they could recover their costs with R & D. This would put
their products out of range for the poor that cannot afford the high price.

A noteworthy highlight that Lott points out for the issue of discriminatory
prices is the case of the drug industry, that charges Americans the highest
prices – precisely because only to them are the costs with research and
development computed (the Japanese also do this with electronic products) –
while Africans are charged more accessible prices and some value between these
two extremes is charged from intermediate countries.

In the case of AmBev’s Tô Contigo program, there is a whole rational
economic calculation, based on scale gains, partnerships with bars (providing
equipment and accessories), and sales safety, which translate into better
planning.

3.9. Abuse of the Dominant Position and Reputation

If there is something no governmental institution will ever be able to
measure through economic models, it is called reputation. That is, however, a
valuable good, that cannot be recorded. Reputation is a determining factor for
a bar to decide to sell a product from a single manufacturer. After all, its
clients can always visit his establishment knowing that their favorite product
is there. The owner of the bar, thus, does not fear to disappoint his
customers.

It is known that, in certain establishments, fraud is practiced, such as,
for instance, exchanging labels. That is done by keeping the bottles in ice
water, so that the labels get loose. Thus, the waiter can serve a bottle of a
cheaper beer than the one ordered by the customer, when he is a bit tipsy.

Reputation is what allows a manufacturer to demand a better price for its
product, and that has nothing, absolutely nothing to do with production prices.
The current economic theory, with its objectivistic influence, is terribly
flawed on that matter. A price is established through subjectivity, which is
the acceptance of the consumer and his willingness to pay more for a good. In
one of the most ridiculous clauses of the antitrust law, it forbids companies
from increasing their profits “arbitrarily”, as if, in a free market,
all prices were defined by the government, when they are measured by companies
not in relation to costs, but due to the acceptance they expect to obtain from
their clientele.

4. Considerations about the framework under art. 21.

Art. 21. The following behaviors, besides others, as long as they result
in the hypothesis foreseen in art. 20 and its clauses, are an infraction of the
economic order;

(…)IV – limiting or preventing the access of new companies to the
market;

V – creating difficulties to the constitution, operation or development
of a company that competes with the provider, purchaser or financer of goods or
services;

VI – preventing the access of a competitor to sources of supplies, raw
material, equipment or technology, as well as distribution channels.

The clauses chosen to define the transgression are simply preposterous. The
only material way to the represented party to be able to limit or prevent the
access of new companies into the market would be through some conspiracy with
the government that would prevent such through the concession of a monopoly or
oligopoly.

That is precisely what the state does with electricity, telephone, services
of water and sewage, urban bus lines, licenses for television channels, and
several other activities.

The difficulty of someone entering a market that, in and of itself, is
competitive should not be mistaken for it. Manufacturers of black-and-white
television sets may even try, and there is nothing at all that prevents them
from setting up a company, exposing their products and selling them. Whether or
not someone will buy them is a different matter. The same holds true for makers
of VHS devices or typewriters. Practically the same can be said about clause V.

The only material way through which it would be possible to make it harder
for a company to be built, operate or develop is by having decision power over
it, which could only be obtained with a little help from the state. If this
company has all the freedom it needs to be built, organize and define its
strategies, there is nothing to be said about creating difficulties, which
cannot be mistaken for the pure and competitive market.

Finally, clause VI falls apart due to complete lack of sense. Who said the
representatives had the access “prevented”, in this case, to the
distribution channels? This clause can only be read with a forced
interpretation in the sense of “that have as their object or may produce
the following effects, even if they are not reached”, in the head of art.
20, a broad wording that must be repudiated, since such hermeneutics is totally
opposite to the good practice of law.

5. The Dolly Case

There is a case that has been widely reported, about a complaint made by the
manufacturer of the Dolly soft drinks, against Coca-Cola. Using only
assumptions as a base, without entering the merits, since the investigations
and the lawsuit are ongoing, for the sake of a case study only, we can find
here, if the accusations are true, real acts of restricting the constitution,
operation and development of a competitor, with access limitation to sources of
raw material, suppliers and buyers.

In the case, there were accusations of surveillance statism, accusations
which are being investigated through the Brazilian Federal Revenue Office
Internal Affairs. There was also the charge that Coca Cola had obtained from
the Federal Revenue Office the edition of a regulation that would make
manufacturers of PET bottles to state their list of clients – which would make
it easier for Coca-Cola to exert pressure on them, so as to prevent them from
selling bottles for competitors. There was even a death threat accusation, with
the release of recorded evidence.

All of these actions, if they are true, are actual aggressions to the right
to property and competition, and, it bears noticing, there is always some
fingerprint of this gentleman, the state.

6. Considerations about the penalty applied

Regarding the penalty applied, namely, a fine of about three hundred fifty
million reais, something is worth mentioning, for which we shall make a
comparison with foreign trade: when a country goes to the WTO to make a
complaint against another one, when the plaintiff wins the lawsuit, the
punishment is usually one that allows the other to get compensation for the
imposition of import taxes, or quotas. Without delving too much into the
matter, the important thing is the advantage goes to the offended
competitor.

The same happens in traffic, when two vehicles are involved in an accident.
Investigators go to the location to determine the guilty party, who has to
repay the victim.

But what happens with the antitrust law? All the plaintiff got was the
determination to the represented party that it stopped the practice, but the
cash – and what a load of cash it is! – went entirely to the state! Why?
Even if we assume we acknowledge the validity of this horrid law, it could
determine, for instance, the reduction of the production of the represented
party through a quota, or something else with the same effects.

Foreseeing the collection of millions in fines is opening the doors to the
interested prosecution of companies; is starting the hunting season, be it for
practical reasons (collecting money), be it for ideological reasons (destroying
the normal operation of the market) or both.

7. Conclusion

Once again, we reiterate if the program of the represented party did not
involve common crimes – threats, extortions, sabotage, complicity with
politicians or government agents, and so on – a fidelity program with an
exclusivity clause has nothing anti-commercial about it.

From the point of view of bars, they do the same the government does when it
promotes public tenders: they seek advantages, and do so in a permanent, though
more informal, fashion, as it is natural for private enterprise to have this
liberty to seek what is best for it.

At every moment, these bars were open to receive more advantageous proposals
from the competitors, and the result of such a war would be wonderful for the population.
The market of bars was never a closed market in which their universe was
circumscribed to a certain number; quite the opposite: bars open at every
moment, and it is quite possible that the program the represented party had in
place was responsible for opening the market.

Opening the market isn’t restricting it. On the other hand, the law 8.884/94
was quite… opportunistic, regarding the administering of penalties.

Finally, we extended ourselves more than what we expected to make a reasoned
analysis about the AMBEV case. Commenting the whole text of the law would
demand a more extensive care, which we will yet apply, like this,
homeopathically. However, the important part here was made clear: we don’t need
to talk about punctual, administrative, cosmetic reforms. Both CADE and the
antitrust law must be thoroughly extinct from the judicial and administrative
system.

This law was based on unfounded economic theories that were never revealed
as truthful, and serves as a real disincentive to the honest development of
free enterprise, innovation and efficiency. As Dr. Patterson rightly said, it
was created not to protect competition, but to protect the weaker and more
incompetent competitors, that seek political means as a way to create hurdles
to the competitiveness of entrepreneurs that know more about how to cater to
the wishes of the population.

They act, I would say, like the player that tackles his opponent in
basketball, counting on the friendship of the referee.

_______________________________________________________

Notes:

[1] MISES, Ludwig von. Theory and
History. P.147.

[2] ARMENTANO Dominck. Antitrust – the case for repeal. 2nd ed. Ludwig von
Mises Institute, Auburn, Alabama, USA, 2007 – p.xvi.

[3] DI LORENZO, Thomas J. Anti-trust, Anti-truth (article). http://mises.org/story/436: General
Motors was never prosecuted, but because of the company’s fear of antitrust it
was official company policy from 1937 until 1956 to never let its market share
top 45 percent, for any reason. This fear of antitrust prosecution contributed
to the industry’s dramatic losses in market share to the Japanese and German
automakers during the 1970s and ’80s.

[4] ARMENTANO, Dominick. Antitrust and monopoly. Anatomy of a policy
failure. 2nd ed. The Independent Institute, Oakland, California, 1999.

[5] ARMENTANO, Dominick. Antitrust and monopoly. Anatomy of a policy
failure. 2nd ed. p. 43. The Independent Institute, Oakland, California, 1999.

[6] LOTT, John R.. Freedomnomics. Why the free market works and other half-baked
theories don’t. p.22 Regnery Publishing, Inc. Washington, DC. 2007.

[7] ARMENTANO, Dominick. Antitrust and monopoly. Anatomy of a policy
failure. 2nd ed. p. 32-33. The Independent Institute, Oakland, California,
1999.

[8] PETERSON, Mary Bennett. The regulated
consumer. The Ludwig von Mises Institute, Auburn Alabama, 2007.

[9] ARMENTANO, Dominick. Antitrust and monopoly. Anatomy of a policy
failure. 2nd ed. p. 34-35.

[10] http://www.cade.gov.br/Default.aspx?6cdf2efb150a1ee5301d320f20
(accessed in August 3rd, 2009).

[11] LOTT, John R.. Freedomnomics. Why the free market works and other
half-baked theories don’t. p. 23 Regnery Publishing, Inc. Washington, DC. 2007.

Nota: as visões expressas no artigo não são necessariamente aquelas do Instituto Mises Brasil.