Predatory Pricing: Strategic Theory and Legal Policy

Posted: 20 Mar 2000

See all articles by Patrick Bolton

Patrick Bolton

Imperial College London; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Joseph F. Brodley

Boston University School of Law

Michael H. Riordan

Columbia University - Columbia Business School

Date Written: September 29, 1999

Abstract

This paper proposes a new legal rule on predatory pricing based on strategic analysis. The Supreme Court's decision in Brooke with its emphasis on closely analyzing the scheme of predation and recoupment calls for such an analysis. At the same time economic development over the last 20 years of a rigorous analysis of predatory pricing provides the tools required to achieve a more effective legal policy. Economics can now explain when predation can be rational, or in Brooke's terms when it can enable profitable recoupment, casting new light on earlier examples of predatory pricing. The further challenge for legal analysis is to develop workable legal rules to guide enforcement agency policy and judicial decisions. To accomplish this we propose a structured rule of reason, including a fully specified efficiencies defense. Under such an approach enforcement would focus on cases where market structure and conduct makes predation plausible and where anticompetitive effects have occurred, or are dangerously probable. Equally important, the finding of predation would be subject to an efficiencies justification where below-cost pricing is necessary to achieve significant efficiencies, including dynamic efficiencies.

JEL Classification: K00, L00, L12, l13, L40, L41

Suggested Citation

Bolton, Patrick and Brodley, Joseph F. and Riordan, Michael H., Predatory Pricing: Strategic Theory and Legal Policy (September 29, 1999). Available at SSRN: https://ssrn.com/abstract=211689

Patrick Bolton

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Joseph F. Brodley (Contact Author)

Boston University School of Law ( email )

765 Commonwealth Avenue
Boston, MA 02215
United States
617-353-2844 (Phone)
617-353-3077 (Fax)

Michael H. Riordan

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States
212-854-6984 (Phone)

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