Buyer Power and Exclusionary Conduct: Should Brooke Group Set the Standards for Buyer-Induced Price Discrimination and Predatory Bidding?
44 Pages Posted: 29 Dec 2004
In this article, I examine two categories of exclusionary conduct - price discrimination and predatory pricing - and ask whether the standards that govern a seller's use of such conduct should also apply to a powerful buyer. In the classic case, a seller uses price discrimination as an exclusionary device when it charges a monopoly price in one geographic market but cuts price in another to attack a new entrant. Brooke Group held that such behavior cannot violate the Robinson-Patman Act unless it satisfies the tests for predatory pricing under the Sherman Act - below-cost pricing and recoupment. I conclude that those tests should not apply to buyer-induced price discrimination, which occurs when a buyer obtains a price concession from a seller that is not made available to competing buyers. Not only are those tests not relevant to buyer-induced discrimination, but the purpose of the Robinson-Patman Act's ban on such discrimination is to protect small business, not promote consumer welfare. In addition, as I show, the market power requirements and consumer welfare effects of the two kinds of discrimination are significantly different. In the second part of the paper, I address whether the tests for predatory pricing should apply to "predatory bidding," in which a buyer bids up the market price of an input to injure competing buyers and acquire monopsony power. Though predatory pricing and predatory bidding are very similar, they are not identical. In particular, predatory bidding complaints, which have seldom been filed and which challenge a buyer's decision to increase prices rather than reduce them, appear less likely to chill price cutting than predatory pricing complaints. Until courts gain more experience with predatory bidding, I conclude that a plaintiff should not have to meet Brooke Group's tests but should have to show, under a full rule of reason analysis, that defendant's conduct was likely to reduce rather than increase consumer welfare.
Keywords: Buyer power, exclusionary conduct, price discrimination, predatory pricing
JEL Classification: K21, L41, L42
Suggested Citation: Suggested Citation