Predatory Pricing in Antitrust Law and Economics: A Historical Perspective PDF
Preview Predatory Pricing in Antitrust Law and Economics: A Historical Perspective
Predatory Pricing in Antitrust Law and Economics Can a price ever be too low? Can competition ever be ruinous? Questions like these have always accompanied American antitrust law. They testify to the diffi- culty of antitrust enforcement, of protecting competition without protecting competitors. As the business practice that most directly raises these kinds of questions, predatory pricing is at the core of antitrust debates. The history of its law and economics offers a privileged standpoint for assessing the broader development of antitrust, its past, present and future. In contrast to existing literature, this book adopts the perspective of the history of economic thought to tell this history, covering a period from the late 1880s to present times. The image of a big firm, such as Rockefeller’s Standard Oil or Duke’s Amer- ican Tobacco, crushing its small rivals by underselling them is iconic in Amer- ican antitrust culture. It is no surprise that the most brilliant legal and economic minds of the last 130 years have been engaged in solving the predatory pricing puzzle. The book shows economic theories that build rigorous stories explaining when predatory pricing may be rational, what welfare harm it may cause and how the law may fight it. Among these narratives, a special place belongs to the Chicago story, according to which predatory pricing is never profitable and every low price is always a good price. Nicola Giocoli is an Associate Professor of Economics at the University of Pisa, Italy. The economics of legal relationships Sponsored by Michigan State University College of Law Series Editors: Nicholas Mercuro Michigan State University College of Law Michael D. Kaplowitz Michigan State University 1 Compensation for Regulatory Takings Thomas J. Miceli and Kathleen Segerson 2 Dispute Resolution Bridging the settlement gap Edited by David A. Anderson 3 The Law and Economics of Development Edited by Edgardo Buscaglia, William Ratliff and Robert Cooter 4 Fundamental Interrelationships Between Government and Property Edited by Nicholas Mercuro and Warren J. Samuels 5 Property Rights, Economics, and the Environment Edited by Michael Kaplowitz 6 Law and Economics in Civil Law Countries Edited by Thierry Kirat and Bruno Deffains 7 The End of Natural Monopoly Deregulation and competition in the electric power industry Edited by Peter Z. Grossman and Daniel H. Cole 8 Just Exchange A theory of contract F. H. Buckley 9 Network Access, Regulation and Antitrust Edited by Diana L. Moss 10 Property Rights Dynamics A law and economics perspective Edited by Donatella Porrini and Giovanni Ramello 11 The Firm as an Entity Implications for economics, accounting and the law Edited by Yuri Biondi, Arnaldo Canziani and Thierry Kirat 12 The Legal- Economic Nexus Warren J. Samuels 13 Economics, Law and Individual Rights Edited by Hugo M. Mialon and Paul H. Rubin 14 Alternative Institutional Structures Evolution and impact Edited by Sandra S. Batie and Nicholas Mercuro 15 Patent Policy Effects in a national and international framework Pia Weiss 16 The Applied Law and Economics of Public Procurement Edited by Gustavo Piga and Steen Treumer 17 Economics and Regulation in China Edited by Michael Faure and Guangdong Xu 18 Law, Bubbles and Financial Regulation Erik F. Gerding 19 Empirical Legal Analysis Assessing the performance of legal institutions Edited by Yun-c hien Chang 20 Predatory Pricing in Antitrust Law and Economics A historical perspective Nicola Giocoli * The first three volumes listed above are published by and available from Elsevier. This page intentionally left blank Predatory Pricing in Antitrust Law and Economics A historical perspective Nicola Giocoli Routledge Taylor & Francis Group LONDON AND NEW YORK First published 2014 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2014 Nicola Giocoli The right of Nicola Giocoli to be identified as author of this work has been asserted by him in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data A catalogue record has been requested for this book. ISBN: 978-0-415-82252-7 (hbk) ISBN: 978-1-315-83269-2 (ebk) Typeset in Times New Roman by Wearset Ltd, Boldon, Tyne and Wear To Ninetta and the four cousins Enzo, Maria, Rita and Vincenzo In our worship of the survival of the fit under free natural selection we are some- times in danger of forgetting that the conditions of the struggle fix the kind of fitness that shall come out of it; that survival in the prize ring means fitness for pugilism; not for bricklaying nor philanthropy; that survival in predatory com- petition is likely to mean something else than fitness for good and efficient pro- duction; and that only from a strife with the right kind of rules can the right kind of fitness emerge. Competition and its purpose are not individual but social. It is a game played under rules fixed by the state to the end that, so far as possible, the prize of victory shall be earned, not by trickery or mere self-s eeking adroitness, but by value rendered. It is not the mere play of unrestrained self- interest; it is a method of harnessing the wild beast of self- interest to serve the common good – a thing of ideals and not of sordidness. It is not a natural state, but like any other form of liberty, it is a social achievement, and eternal vigilance is the price of it. (Clark and Clark [1912] 1914, 200–1) Highly speculative belief about behavior or its consequences does not satisfy [the legal] standard, even when endorsed by expert economic witnesses. (Demsetz 1992, 209–10) It would be indeed an extraordinary thing to strike at competition in the name of competition. (Macrosty 1907, 345) Contents Acknowledgments xii Introduction 1 §1 Three basic dichotomies 1 §2 The trickiest antitrust problem 3 §3 Further reasons to love predation 5 §4 Lessons in persuasion 8 §5 Treasures in the attic 9 §6 Plan of the book 11 1 The economics of predatory pricing 13 §1 Classic and modern definitions of predatory pricing 13 §2 The basic story 19 §3 The Chicago critique of the basic story 22 §4 It’s a brand new game: predation as strategic paradox 25 §5 The Stanford connection 28 §6 Madamina, il catalogo è questo 35 §7 Assessing the Bayesian approach to predation 42 2 The two freedoms and British common law 49 §1 The two freedoms 49 §2 The monopoly problem in British common law 50 §3 The classical view of competition 54 §4 Competition in the late nineteenth-c entury British economy 58 §5 The dawn of predatory pricing: the Mogul case 60 §6 The Mogul decisions: is predation “a matter contrary to law”? 62 §7 The new reasonableness test: the Nordenfelt case 66
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