Tuesday, September 20, 2011
Rummaging Through the Bottom of Pandora’s Box: Funding Predatory Pricing Through Contemporaneous Recoupment
Posted by D. Daniel Sokol
Shaun D. Ledgerwood, The Brattle Group, Georgetown University - Public Policy Institute (GPPI) and Wesley J. Heath address Rummaging Through the Bottom of Pandora’s Box: Funding Predatory Pricing Through Contemporaneous Recoupment.
ABSTRACT: Predatory pricing doctrine is currently a dead area of the law. To proceed beyond summary judgment, a plaintiff must prove the predation created a “dangerous probability” of supracompetitive pricing as the mechanism for recouping the losses “invested” in the predation. This requires proof that the predator sold products below its average variable cost and raised an entry barrier that ultimately enabled the recoupment of profits at some later time. We offer an alternative to this two-phased recoupment model. In this paper we show that a multiproduct retailer can target loss leading behavior in a market segment to punish or eliminate specific rivals with less product diversity. In the process the retailer increases the foot traffic into its store and hence increases the sales of other products such that it recoups some or all of the predation losses contemporaneously. We demonstrate the significant, long-term inefficiency of predation funded through contemporaneous recoupment and discuss how existing predation law must adapt to accommodate its possibility. We offer straightforward tests to detect the presence of recoupment through contemporaneous means or through the combination of contemporaneous recoupment and traditional recoupment through supracompetitive pricing. The potential for contemporaneous recoupment, at a minimum, increases the “dangerous probability” that supracompetitive pricing will provide the funds needed to make the predation possible. For multiproduct defendants this possibility raises an issue of fact that must allow the case to proceed beyond summary judgment.