Walmart is a company accused of predatory pricing. For example, in 1993, a judge ordered the retailer to stop selling drugs and health and beauty products at a loss after three stores in Conway, Arkansas, accused the company of offering very low prices to drive them out of business. A strong tension has emerged between the foundations of current legal policy and modern economic theory. The courts adhere to a static, not strategic, view of predatory pricing, believing it to be an economic consensus. But it is a consensus that most economists no longer accept. However, the tension is less reflected in the rule of law, which, at least in theory, would allow arguments based on modern strategic analysis. Rather, the tension is reflected in extreme legal skepticism about predatory pricing cases, which has led to almost every case since Brooke being dismissed by urgent motion. To understand this legal skepticism and the tension it creates with the modern economy, we must examine its source, assess its merits, and recognize the challenge posed by modern analysis.2 This requires that we first state what we mean by alternative pricing. Barriers to entry exist when a new entrant is faced with costs that the incumbent does not have to bear or no longer has to bear. The most common example is sunk costs – fixed-cost investments that cannot be taken off the market except for large sacrifices, such as .dem railway track.
Although the predator has borne these costs in the past, they are now sunk. Thus, if the incumbent is challenged by a new entry, it will rationally disregard these costs in its pricing decisions instead of losing business. The new entrant, on the other hand, must now bear these costs and therefore risks undervaluing an incumbent operator with sunk costs. Thus, sunk costs can act as a barrier to entry and give the licensee the power to raise the price above the competitive level. In agreement with Brooke, sufficiently strong evidence of an increased ability to raise and maintain high prices as a result of successful raids could satisfy the repair requirement even in the absence of a well-articulated strategic theory. In such a case, the evidence will have shown that the alleged foreclosure has excluded a competitor from a below-cost market, has subsequently offset, at least in part, its predatory losses by price increases and is likely to be able to maintain above-cost prices for a long period of time so that its exclusion losses can be fully compensated. Given that this evidence of effective reparation is already underway, it seems reasonable to conclude that there is a coherent predatory strategy without the claimant having to fully explain and prove the logic of the strategy. The risks of excessive deterrence in such a case appear to be minimal, as the Supreme Court has made it clear that the standard of proof in predatory pricing cases is high, and the Brooke cases show that it is extremely difficult to meet that standard in the absence of a convincing theory of predatory. In Brooke, the Supreme Court upheld the lower court`s dismissal because the plaintiff had not shown that the price could be raised above the level of competition. As a result, the court never addressed the issue of sufficient remedy.73 Nevertheless, Brooke`s wording directs the plaintiff to prove that the likely increase in predatory pricing “would be sufficient to offset the amounts spent on the theft, including the temporal value of the money invested in the theft.” 74 An excessively literal interpretation of that wording could make predatory pricing cases considerably more difficult.75 However, in examining the facts, the Court states that the element of redress can be satisfied either by demonstrating that the exclusion system actually led to persistent intercompetitive prices or that it was likely to have brought about that result, even if he didn`t. Thus, indications of a likely continuation of price increases (partial depreciation) or simply of an intensification of the anti-competitive structure of the market or other market conditions (recoverability) would suffice.76 Subsequent decisions of the lower courts seem consistent with this interpretation.
2. The geographic market for predatory pricing shall be the domestic market of the country. This distinguishes it from “dumping”. “Dumping” refers to the sale of goods in foreign markets at a price lower than that charged in the domestic market. It can be seen that these two have similarities in terms of “low-cost sales” and “competitor burnout,” but their differences are obvious. In the United States, predatory pricing proceedings may be initiated under Section 2 of the Sherman Act of 1890 or the Robinson-Patman Act of 1936. While the essence of the predatory pricing claim is the same under both Acts, the standard of proof differs. The Sherman Act requires proof of a “dangerous probability” of monopolization, while the Robinson-Patman Act requires only a “reasonable possibility” of significant harm to competition.
One of the main differences between the EU and US predatory pricing approaches is the clawback requirement. U.S. competition law condemns prices below cost, but only if those costs can be covered in the future. Meanwhile, the EU has a stricter test condemning below-cost prices without any evidence of a possible recovery. With the Brooke decision, the U.S. Supreme Court created a new framework for predatory pricing analysis. First, predatory pricing required proof of a price below cost, and second, predatory pricing required proof of compensation. Proof of redress requires not only that the below-cost price exclude or punish the predatory victim, but also evidence that the predator will be able to raise prices above the level of competition sufficient to compensate the predator for its predatory investment. U.S. antitrust law entered a new era in 1993 when the Supreme Court ruled on the Brooke case, the court`s most important predatory pricing decision in modern times. According to the interpretation of the courts below, the decision has had an impact on the application of the law comparable only to the effects of the 1975 Areeda-Turner section, which introduced the cost-based approach to combating predatory pricing.40 In fact, in the five years since Brooke, the plaintiffs have not been definitively successful in a single reported case. To understand Brooke`s importance, we need to know her historical past, her real Phillip Areeda & Donald F.
Turner, predatory pricing, and related practices under section 2 of the Sherman Act, 88 HARV. 697 (1975). 13 Interpretation and subsequent submissions of the lower court. Predatory pricing can be a good idea for businesses that can afford it. In reality, however, it is rare. As we have seen in the high-profile examples, this usually does not work as the author intends. Instead, predatory pricing hurts everyone involved. Customers have little choice and higher prices, competitors are forced out of business, and the company organizing the flight is exposed to a significant risk of lawsuits or losses that do not reduce the terrain.
There is even a risk in a predatory pricing practice known as dumping, in which a predator tries to conquer a new foreign market by selling, at least temporarily, goods at a price below what it charges at home. The challenge, especially in an increasingly globalized marketplace, is to prevent “dumped” goods from being purchased abroad and resold in the lucrative domestic market. However, there is a difference between competitive prices and predatory pricing. As soon as prices fall below costs and stay there longer in order to explicitly drive competitors out of the market, it is no longer competitive. At this point, it`s just predatory. Even if the Koller study correctly concluded that predatory pricing is rare in litigation cases, this would hardly be surprising given the populist legal norm that prevailed in the period before 1969 after the passage of the Robinson-Patman Act in 1936.