Stopping Above-Cost Predatory Pricing

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.