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Kobayashi, Bruce H. --- "The Law and Economics of Predatory Pricing" [2010] ELECD 274; in Hylton, N. Keith (ed), "Antitrust Law and Economics" (Edward Elgar Publishing, 2010)

Book Title: Antitrust Law and Economics

Editor(s): Hylton, N. Keith

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781847207319

Section: Chapter 6

Section Title: The Law and Economics of Predatory Pricing

Author(s): Kobayashi, Bruce H.

Number of pages: 41

Extract:

6 The law and economics of predatory
pricing
Bruce H. Kobayashi1


I Introduction
Predatory pricing is a specific form of exclusionary pricing conduct in
which the predatory firm sacrifices short term profits in order to achieve
long term gains. The most general definition of predation would be `any
action taken by a firm with market power which causes a rival to exit
and in doing so reduces social welfare' (Scheffman (1981)). Antitrust
regulation of predatory pricing is limited, however, by the challenges
of differentiating potentially anticompetitive predatory pricing from
procompetitive price competition. As a result, antitrust rules aimed at
regulating predatory pricing have paid special attention to the admin-
istrability of the rule, as well as the potential deterrent effect such rules
may have on procompetitive price competition. Thus, despite recent
articles showing that predation is both theoretically possible and may
occur in the marketplace, the courts have adopted and generally main-
tained permissive rules to regulate predatory pricing under the antitrust
laws.
This chapter focuses on and is organized around two primary issues
relating to the economics of predatory pricing: the economic analysis of
predatory pricing as a form of anticompetitive exclusion and the econom-
ics of optimal antitrust rules. Section II of this chapter reviews both the
theoretical and empirical literature on predatory pricing then examines
the economics of optimal antitrust rules. Section III sets out the optimal
theory of antitrust rules, and examines definitions and tests of predatory
pricing.
Section IV examines the antitrust regulation of predatory ...