Controlling Above-Cost Predation: An Alternative to Weyerhaeuser and Brooke Group
42 Pages Posted: 7 Nov 2007
This article proposes a new legal standard for predatory pricing, predatory bidding, and possibly other forms of exclusionary pricing - the welfare/economic sense standard. Under this standard, the plaintiff would have to show that the challenged conduct was not only profitable to the defendant but harmful to the long-run welfare of consumers or suppliers. Moreover, even if the plaintiff made that showing, the defendant would escape liability if it proved that its conduct made economic sense without regard to its anticompetitive effects.
The article argues that the new standard is superior to the below-cost/recoupment standard of Brooke Group and Weyerhaeuser for two principal reasons. First, the new standard would reach above-cost predation, a significant concern given recent cases in the airline and timber industry. Second, the new standard would generally be as workable - for businesses and courts - as the Brooke Group/Weyerhaeuser tests because in a predation case (as opposed to a raising rivals cost case), the defendant could avoid liability simply by showing that the conduct increased profits in the short run. The new standard, in short, is likely to generate fewer false negatives and no more false positives than existing law.
Keywords: predatory pricing, predatory bidding, above-cost predation
JEL Classification: K21
Suggested Citation: Suggested Citation