Predatory Pricing

Posted by D. Daniel Sokol

Aaron Edlin (Berkeley - Law) has a nice overview of Predatory Pricing posted that is his entry in the Research Handbook of Antitrust Economics.

ABSTRACT: Judge Breyer famously worried that aggressive prohibitions of predatory pricing throw away a bird in hand (low prices during the alleged predatory period) for a speculative bird in the bush (preventing higher prices thereafter). Here, I argue that there is no bird in hand because entry cannot be presumed. Moreover, it is plausibly commonplace that post-entry low prices or the threat of low prices has anticompetitive results by reducing entry and keeping prices high pre-entry and post-predation. I analyze three potential standards for identifying predatory pricing. Two are traditional but have been tangled together and must be distinguished. First, a price-cost test based on sacrifice theory requires that either price or cost be measured by what I describe as “inclusive” measures. A price-cost test to prevent the exclusion of equally efficient competitors, by contrast, requires that price and cost be measured by more traditional “exclusive” measures. Finally, I describe a Consumer Betterment Standard for monopolization and consider its application to predatory pricing. I explain finally how these three standards would affect the outcome of and focus of arguments in the American Airlines case, and argue that the Consumer Betterment Standard is a promising alternative to the more traditional tests.