The Paradox of Predatory Pricing

Predatory pricing is an antitrust paradox. In concept, the conduct is plainly anticompetitive, yet no predatory pricing case has resulted in an injunction or treble damages for over a generation. This article addresses two ways of restructuring U.S. law to improve the situation. The first approach would eliminate the first Brooke Group requirement and allow plaintiffs to challenge above-cost pricing. The second approach would drop the other Brooke Group requirement and allow plaintiffs to challenge below-cost pricing without establishing probable recoupment. Plaintiffs would, however, have to show that the defendant had no justification for pricing below cost. The article concludes that the second approach is likely to be superior. It would facilitate challenges to true predatory pricing by eliminating the element of existing law that is most difficult to establish. It is less likely to deter desirable price cutting because it creates less uncertainty. It is easier to tell whether a price is below cost than whether a price cut is likely to lead to long-run monopoly power. While the second approach would not reach above-cost predation, it would reduce predatory pricing overall and enhance consumer welfare.

By John B. Kirkwood¹

I. INTRODUCTION

Predatory pricing is an antitrust paradox. In concept, the conduct is plainly anticompetitive. A dominant firm cuts its price below its incremental costs, losing money on every additional sale, solely to injure a significa