The Sacrifice of Profits in Non-Price Predation
9 Pages Posted: 21 Apr 2004
Abstract
The current legal tests for monopolization and abuse of dominance are unsatisfactory. In both the U.S. and the EC, the tests ask whether the dominant firm engaged in exclusionary conduct, a standard that is notoriously vague. But both jurisdictions also offer a more fruitful analytical approach in asking whether the defendant's conduct had legitimate or objective business justifications. In the U.S., this criterion has led defendants and the U.S. antitrust agencies to argue that monopolization requires a sacrifice of short-term profits, at least in certain circumstances. This essay argues that the sacrifice-of-profits test is an appropriate one, but that it should be understood more specifically to ask whether a dominant firm has excluded its competitors from an input and whether the monopolist has sacrificed profits in doing so. Understood in this way, the test is consistent with both U.S. and EC law. Moreover, the essay shows that with this additional specificity, the test is neither as favorable for defendants as its proponents suggest nor as dangerous as its opponents fear.
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