Research Handbook on the Economics of Antitrust Law

Research Handbook on the Economics of Antitrust Law

Research Handbooks in Law and Economics series

Edited by Einer R. Elhauge

One might mistakenly think that the long tradition of economic analysis in antitrust law would mean there is little new to say. Yet the field is surprisingly dynamic and changing. The specially commissioned chapters in this landmark volume offer a rigorous analysis of the field’s most current and contentious issues.

Chapter 6: Predatory Pricing

Aaron Edlin

Subjects: economics and finance, competition policy, law and economics, law - academic, competition and antitrust law, law and economics


Aaron Edlin* I INTRODUCTION Antitrust aims to make markets more competitive, with the ultimate aim of low consumer prices, or more generally of high consumer welfare.1 On these terms, predatory pricing may appear a paradox, because a predatory pricing claim asserts that a low price is anticompetitive.2 Some put a point on the matter, saying that a predatory pricing claim asserts that a price is too low. The so-called paradox is not a deep one, however, and is misleading, because while a rival complains of the low price, antitrust courts would ignore the complaint absent some convincing story that links the low price to a higher price; this higher price is the real policy concern guiding the law. Thus, the traditional story of predatory pricing has an incumbent or would-be monopolist driving an entrant or existing rival out of the market so that the incumbent can later raise prices. The threat is not the low price but the high price. Edlin 3 emphasizes instead the danger of an unnecessarily high pre-predatory, pre-entry price. He points out that banning the price cut can encourage the incumbent to charge low prices in the first place. Again, the threat is not the low price (entailed by the price cut), but the absence of an everyday low price ‘requiring’ the cut. Whatever the timing, the competition problem is a high price during a period without competition or with less intense competition. Predatory pricing claims are less a paradox than they are a challenge. The...

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