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The American Airlines Case: A Chance to Clarify Predation Policy

UC Berkeley Competition Policy Center Working Paper No. CPC02-33

39 Pages Posted: 22 Mar 2004  

Aaron S. Edlin

University of California at Berkeley; National Bureau of Economic Research (NBER)

Joseph Farrell

University of California, Berkeley - Department of Economics

Date Written: November 2002

Abstract

Predation occurs when a firm offers consumers favorable deals, usually in the short run, that get rid of competition and thereby harm consumers in the long run. Modern economic theory has shown how commitment or collective-action problems among consumers can lead to such paradoxical effects.

But the paradox does signal danger. Too hawkish a policy might ban favorable deals that are not predatory. "It would be ironic indeed if the standards for predatory pricing liability were so low that antitrust suits themselves became a tool for keeping prices high." Predation policy must therefore diagnose the unusual cases where favorable deals harm competition. To this end, courts and commentators have largely defined predation as "sacrifice" followed, at least plausibly, by "recoupment" at consumers' expense. The American Airlines case raises difficult questions about this approach.

Keywords: antitrust, predation, airlines, entry, competition

JEL Classification: K21, L12, L41, L93, D42, D43

Suggested Citation

Edlin, Aaron S. and Farrell, Joseph, The American Airlines Case: A Chance to Clarify Predation Policy (November 2002). UC Berkeley Competition Policy Center Working Paper No. CPC02-33. Available at SSRN: https://ssrn.com/abstract=507102 or http://dx.doi.org/10.2139/ssrn.507102

Aaron S. Edlin (Contact Author)

University of California at Berkeley ( email )

Dept of Economics 549 Evans Hall #3880
Berkeley, CA 94720
United States
510-642-4719 (Phone)
510-643-0413 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Joseph Farrell

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
510-642-9854 (Phone)
510-642-6615 (Fax)

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