Definitions and Criteria of Predatory Pricing
David M. Spector
French National Center for Scientific Research (CNRS) - Centre d'Etudes Prospectives d'Economie Mathematique Appliquees a la Planification (CEPREMAP)
MIT Dept. of Economics Working Paper No. 01-10
This paper is an attempt to clarify the definition of predatory pricing, and to compare various legal criteria for the investigation of predation claims. By constructing a simple but full-fledge model, I show that (i) several definitions of what constitutes predatory pricing, often considered as equivalent, are in fact different; and (ii) the existing justifications for the use of price-cost comparisons (the Areeda-Turner test and its variants) are logically flawed. Other proposed rules, such as Williamson's output restriction rule or Baumol's "permanence of price reduction" rule are also problematic if courts hesitate between viewing a particular market as characterized by competition in prices or by competition in quantities. These remarks lend support to the use of two-tier procedures such as the one advocated by Joskow and Klevorick, and, more generally, lead us to view the rule of reason as superior to any per se rule.
Number of Pages in PDF File: 30
Keywords: predatory pricing, competition policy, exclusionary conduct
JEL Classification: K21, L41
Date posted: March 1, 2001
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