Thursday, July 23, 2009

Above-Cost Predatory Pricing in the Airline Industry

The issue of alleged above-cost predatory pricing has gained considerable attention in the scholarly literature over the least several years, particularly after the publication of Professor Aaron S. Edlin's essay Stopping Above-Cost Predatory Pricing, 111 Yale L.J. 941 (2002).  A recent article by law and economics scholar Gustavo Mathias Alves Pinto, Competition and Predation in the Airline Industry, 74 J. Air L. & Com. 3 (2009), "analyz[es] the merits of the application of above-cost predatory pricing theory to the airline industry," id. at 5, and suggests that both the problem is overstated with respect to aviation and that any rule intended to "cure" the "problem" which would limit the capacity of incumbent airlines to reduce prices or increase services would amount to "nothing but a disguised proposal for complex regulation, going against the rationale of the 1970s reforms, which had the objective of deregulating [the airline industry]," id. at 23.  Readers of the blog interested in antitrust and aviation should make a point to read it.

For more on above-cost predatory pricing theory and its application, see Einer Elhauge, Why Above-Cost Price Cuts to Drive Out Entrants Are Not Predatory--and the Implications for Defining Costs and Market Power, 112 Yale L.J. 681 (2003); Daniel A. Crane, The Paradox of Predatory Pricing, 91 Cornell L. Rev. 1 (2005).

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