Venture Predation

48 Journal of Corporation Law 813 (2023)

Cardozo Legal Studies Research Paper, No. 708

58 Pages Posted: 4 May 2023 Last revised: 30 Sep 2023

See all articles by Matthew Wansley

Matthew Wansley

Yeshiva University - Benjamin N. Cardozo School of Law

Samuel Weinstein

Yeshiva University - Benjamin N. Cardozo School of Law

Date Written: May 3, 2023

Abstract

Predatory pricing is a strategy firms use to suppress competition. The predator prices below its own costs to force its rivals out of the market. After they exit, the predator raises its prices to supracompetitive levels and recoups the cost of predation. The Supreme Court has described predatory pricing as “rarely tried” and “rarely successful” and has established a liability standard that is nearly impossible for plaintiffs to satisfy. We argue that one kind of company thinks predatory pricing is worth trying and at least potentially successful—venture-backed startups.

A venture predator is a startup that uses venture finance to price below its costs, chase its rivals out of the market, and grab market share. Venture capitalists (VCs) are motivated to fund predation—and startup founders are motivated to execute it—because it can fuel rapid, exponential growth. Critically, for VCs and founders, a predator does not need to recoup its losses for the strategy to succeed. The VCs and founders just need to create the impression that recoupment is possible, so they can sell their shares at an attractive price to later investors who anticipate years of monopoly pricing. In this Article, we argue that venture predation can harm consumers, distort market incentives, and misallocate capital away from genuine innovations. We consider reforms to antitrust law and securities regulation to deter it.

Suggested Citation

Wansley, Matthew and Weinstein, Samuel, Venture Predation (May 3, 2023). 48 Journal of Corporation Law 813 (2023), Cardozo Legal Studies Research Paper, No. 708, Available at SSRN: https://ssrn.com/abstract=4437360 or http://dx.doi.org/10.2139/ssrn.4437360

Matthew Wansley (Contact Author)

Yeshiva University - Benjamin N. Cardozo School of Law ( email )

55 Fifth Ave.
New York, NY 10003
United States

Samuel Weinstein

Yeshiva University - Benjamin N. Cardozo School of Law ( email )

55 Fifth Ave.
New York, NY 10003
United States

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