Abstract

http://ssrn.com/abstract=1906062
 


 



Rummaging Through the Bottom of Pandora’s Box: Funding Predatory Pricing Through Contemporaneous Recoupment


Shaun D. Ledgerwood


The Brattle Group

Wesley J. Heath



April 9, 2012

University of Virginia Law School, Virginia Law & Business Review

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.

Number of Pages in PDF File: 60

Keywords: Predation, Predatory, Brooke, Matsushita, Recoupment, Pricing, Limit, Excess, Patman, Areeda, Contemporaneous, Supracompetitive, Efficiency, Churn, Market Power, Trigger, Target, Nexus, Summary Judgment, Chicago, Opportunism, Framework, Box, Walmart, Loss, Sherman, Bundling, Intent, Tying, Cascade

JEL Classification: K21, K00, L11, L12, L13, L40, L41, L42, D61, D43, D21, C72, A12, M31

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Date posted: August 9, 2011 ; Last revised: April 22, 2012

Suggested Citation

Ledgerwood, Shaun D. and Heath, Wesley J., Rummaging Through the Bottom of Pandora’s Box: Funding Predatory Pricing Through Contemporaneous Recoupment (April 9, 2012). University of Virginia Law School, Virginia Law & Business Review. Available at SSRN: http://ssrn.com/abstract=1906062 or http://dx.doi.org/10.2139/ssrn.1906062

Contact Information

Shaun D. Ledgerwood (Contact Author)
The Brattle Group ( email )
Suite 1200
1850 M Street NW
Washington, DC 20036-340
United States
(202) 419-3375 (Phone)
HOME PAGE: http://www.brattle.com/
No contact information is available for Wesley J. Heath
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