Department of Economics

In U.S. antitrust, pricing below some level of cost has become almost necessary to a finding of predatory pricing. The case law is ambiguous on this, and the Circuits have differing standards, but many courts require a showing that price is, or was, below marginal (sometimes called incremental) costs as a threshold issue. This necessitates using reasonable economic and accounting techniques to estimate marginal cost. A similar issue arises in the calculation of lost profits in much commercial litigation. In the case Marsann Co. v. Brammall, Inc, the Ninth Circuit interpreted the estimate of marginal cost in a narrow formalistic way that is inconsistent with ordinary cost accounting and economic analysis. That ruling, which was adopted by Inglis v. Continental Baking, makes a finding of predatory pricing almost impossible and provides incentives for would-be predators to structure their accounting systems to evade liability. The consequences of Marsann and Inglis are illustrated by Thales Avionics, Inc. v. Matsushita Avionics Systems Corporation where the Court’s application of Marsann and Inglis precluded plaintiff from establishing estimates of marginal cost and therefore the existence of predatory pricing.