Predatory Pricing

The selling of key products at a loss to win market share, primarily by forcing competitors out of business. Some law and economics and Chicago School economists and legal scholars assert that predatory pricing is economically irrational and thus either does not exist or should not be a concern of competition and antitrust law; others respond that this is a fallacy somewhat like saying that since playing roulette or other games of chance is a broadly a losing proposition, such gambling therefore does not exist and neither do casinos, and anyway, since roulette players ultimately lose, why regulate gambling? Predatory pricing if demonstrated, may violate competition law, but it can be a difficult case to prove. In some sectors though, various governments prohibit below cost selling—e.g., ‘loss leaders.’

Generally predatory pricing is a more difficult claim to make under US antitrust law than under EU Competition law. This is because the European Court of Justice has, most notably in the AkzoFrance Telecom/Wanadoo, and Compagnie maritime belge cases held that predatory pricing had taken place and set two tests for predatory pricing, which are summarised in Tetra Pak II:

“[T]his Court did indeed sanction the existence of two different methods of analysis for determining whether an undertaking has practiced predatory pricing. First, prices below average variable costs must always be considered abusive. In such a case, there is no conceivable economic purpose other than the elimination of a competitor, since each item produced and sold entails a loss for the undertaking. Secondly, prices below average total costs but above average variable costs are only to be considered abusive if an intention to eliminate can be shown”

By contrast the US Supreme Court in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., set a very high bar for proving predatory pricing. Since this 1993 decision, US courts have if anything become more conservative, especially in antitrust law, and consequently a predatory pricing claim would be much harder to win. See Discipline Pricing.