Stopping Above-Cost Predatory Pricing
41 Pages Posted: 7 May 2001
Date Written: April 2001
Abstract
Since 1993 when the Supreme Court decided Brooke Group, no predatory pricing plaintiff has prevailed in a final determination in the federal courts. This decision was the ultimate triumph of the Chicago School antitrust scholars and judges like Frank Easterbrook, who have argued that predation is like dragons and that there is no sufficient reason for antitrust law or the courts to take it seriously. This article argues, however, that the Court's reading of the law is unduly narrow and should be revisited. There is no compelling reason to restrict predation cases to below-cost pricing, as above-cost pricing can also hurt consumers by limiting competition. Consider, for example, the current DOJ case against American Airlines. Like other major air carriers, American has tremendous cost and other advantages at flying passengers into and out of its hub. Under existing interpretations of the Sherman Act, American can price very high, so high that entry would be attractive to even higher cost firms, except that once they do enter, American can use its advantages to make sure that entrants lose money without American losing money. Firms that anticipate this behavior will not enter, and so if such behavior is not deemed predatory, consumers may suffer very high prices without entry. This article proposes an interpretation of Sherman Act section 2 that would give monopolies the incentive to price low in the first place, before entry, because under this interpretation they are not allowed to drive firms from the market after entry.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
The American Airlines Case: A Chance to Clarify Predation Policy
By Aaron S. Edlin and Joseph Farrell
-
Incumbent Responses to Lower Cost Entry: Evidence from the U.S. Airline Industry
By Harumi Ito and Darin Lee
-
Competition or Predation? Schumpeterian Rivalry in Network Markets
By Joseph Farrell and Michael L. Katz
-
The Paradox of the Exclusion of Exploitative Abuse
By Bruce Lyons
-
By Damien Geradin and Nicolas Petit
-
A Framework to Enforce Anti-Predation Rules
By Kai Hüschelrath and Jürgen Weigand
-
Price Discrimination Bans on Dominant Firms
By Jan Bouckaert, Hans Degryse, ...