Corporate & Securities Law

Kobayashi on the Law and Economics of Predatory Pricing

My colleague and co-author Bruce Kobayashi has posted The Law and Economics of Predatory Pricing to SSRN and is forthcoming in Keith Hylton’s Antitrust Law and Economics volume (Edward Elgar Publishing).  It is a comprehensive and insightful review of the expansive legal and economic literatures on this topic.  Here’s the abstract:

This chapter reviews the law and economics of predatory pricing. Areeda and Hovenkamp (2006, 323) noted that other areas of the law of monopolization are “in much the same position as the theory of predatory pricing was in the 1970s: no shortage of theories, but a frightening inability of courts to assess them.” In the past two decades, scholarship on the economics of predatory pricing has evolved from the relatively settled consensus in which predatory pricing was thought to be irrational, rarely tried, and even more rarely successful, to a point where much less is settled. Recent theoretical work emphasizing strategic theory has shown that predation can be rational, and empirical studies have presented evidence consistent with successful predation. In this sense, the economics of predatory pricing has moved closer to other areas of monopolization.

However, the legal response to predatory pricing, a relatively administrable and permissive rule based in part on the assumption that successful predation was rare, has remained relatively intact. While the recent economic literature may have eroded this basis for the adoption of permissive standards for predatory pricing, other reasons for adopting such a rule, based on the benefits of bright line rules that would be administrable by courts, still remain. Thus, even considering the recent advances in economic theory, it is unwise to minimize or ignore this underlying purpose of the Brooke Group rule.

Check out the whole thing.  For interested readers, you can also download my chapter in the same volume (with Alden Abbott of the FTC) on Antitrust Analysis of Tying Arrangements and Exclusive Dealing or Professor Hylton’s entry on The Law and Economics of Monopolization Standards.

Full post as published by Truth on the Market on July 10, 2008 (boomark / email).