Beyond Brooke Group: Bringing Reality to the Law of Predatory Pricing

30 Pages Posted: 5 Dec 2017 Last revised: 6 Jun 2018

See all articles by C. Scott Hemphill

C. Scott Hemphill

New York University School of Law

Phil Weiser

University of Colorado Law School

Date Written: March 2, 2018

Abstract

This essay offers a roadmap for bringing and deciding predatory pricing cases under the Supreme Court’s restrictive Brooke Group decision. Brooke Group requires a plaintiff to show that the defendant set a price below cost and had a sufficient likelihood of recouping its investment in predation. This framework, which was adopted without any contested presentation of its merits, has endured despite its flaws. Beyond this framework, the Court opined in dicta that predation is implausible.

We identify points of flexibility within the Court’s framework that permit an empirically grounded evaluation of the predation claim. Under the price-cost test, a plaintiff has leeway to select an appropriate measure of cost, including incremental cost. In considering recoupment, Brooke Group’s skeptical dicta should be confined to the particular market structure and theory of recoupment analyzed in that case. The dicta do not apply, for example, to a monopolist who recoups by earning a reputation for predation. A further reason to confine Brooke Group’s dicta is the Court’s highly unusual reweighing of the evidence presented at trial. As we explain using new historical research, this was not the Court’s initial plan after oral argument, but Justice Kennedy switched his vote. We also make the case against extending the price-cost test to more complex pricing strategies, such as loyalty discounts, in which the motivation for a stringent rule—to avoid costly false positives—has little purchase.

Keywords: average variable cost, incremental cost, monopoly, oligopoly, opportunity cost, predatory pricing, price-cost test, recoupment

JEL Classification: K21, L12, L13, L41, L93

Suggested Citation

Hemphill, C. Scott and Weiser, Phil, Beyond Brooke Group: Bringing Reality to the Law of Predatory Pricing (March 2, 2018). 128 Yale Law Journal 2048 (2018); U of Colorado Law Legal Studies Research Paper No. 17-29. Available at SSRN: https://ssrn.com/abstract=3079039

C. Scott Hemphill (Contact Author)

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

Phil Weiser

University of Colorado Law School ( email )

401 UCB
Boulder, CO 80309
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
158
rank
176,745
Abstract Views
735
PlumX Metrics