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Edlin, Aaron --- "Predatory Pricing" [2012] ELECD 219; in Elhauge, R. Einer (ed), "Research Handbook on the Economics of Antitrust Law" (Edward Elgar Publishing, 2012)

Book Title: Research Handbook on the Economics of Antitrust Law

Editor(s): Elhauge, R. Einer

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781848440807

Section: Chapter 6

Section Title: Predatory Pricing

Author(s): Edlin, Aaron

Number of pages: 30

Extract:

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 preda-
tory 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 unneces-
sarily 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 ...