- Research Handbooks in Law and Economics series
Edited by Einer R. Elhauge
Chapter 6: Predatory Pricing
6 Predatory pricing 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...
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