Wednesday, August 15, 2007
Posted by D. Daniel Sokol
Michal Gal of the University of Haifa has posted a new working paper Below-Cost Price Alignment: Meeting or Beating Competition. She suggests that rules should be different regarding online businesses than traditional businesses.
ABSTRACT: May a dominant firm justify below-cost pricing by simply arguing that it aligned its prices with those of its rivals? In this essay I show that generally the answer is negative. I also argue, however, that such a rule should not be categorical and that in some circumstances a below-price meeting competition defense should be allowed, in order to protect competition. Such an exception is necessary in order to take account of the special economic characteristics of dynamic industries which differ from the brick-and-mortar industry model that assumes that scale economies are small and entry barriers are low. The article exemplifies these arguments by using the EU recent France Telecom case.