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Predatory Pricing

  • Author(s): Edlin, Aaron S
  • et al.
Abstract

Judge Breyer famously worried that aggressive prohibitions of predatory pricing throw away a bird in hand (low prices during the alleged predatory period) for a speculative bird in the bush (preventing higher prices thereafter). Here, I argue that there is no bird in hand because entry cannot be presumed. Moreover, it is plausibly commonplace that post‐entry low prices or the threat of low prices has anticompetitive results by reducing entry and keeping prices high pre‐entry and post‐predation. I analyze three potential standards for identifying predatory pricing. Two are traditional but have been tangled together and must be distinguished. First, a price‐cost test based on sacrifice theory requires that either price or cost be measured by what I describe as “inclusive” measures. A price‐cost test to prevent the exclusion of equally efficient competitors, by contrast, requires that price and cost be measured by more traditional “exclusive” measures. Finally, I describe a Consumer Betterment Standard for monopolization and consider its application to predatory pricing. I explain finally how these three standards would affect the outcome of and focus of arguments in the American Airlines case, and argue that the Consumer Betterment Standard is a promising alternative to the more traditional tests.

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