Price competition has famously been described as the “central nervous system of the economy.” The underlying aim of antitrust and competition rules is to incentivize firms to maximize output and set prices as close as possible to their marginal cost of production. This goal applies with equal (if not greater) force to dominant firms.
Nonetheless, one of the canonical abuses of dominance or acts of illegal monopolization under antitrust rules has been so-called “predatory pricing.” Briefly, the theory presupposes that a dominant firm might price below cost in the short term in order to eliminate competitors from the market, before then raising prices to monopoly level once they face no constraint.
This theory has been a constant source of debate, giving rise to countless doctrinal controversies among antitrust scholars, economists, and game theorists. Some scholars deny that predation is ever a rational strategy, even for a dominant firm (the archetypal Chicagoan “Antitrust Paradox” as Bork would have put it). Others (and indeed some competition enforcers) have developed more detailed game theoretic bases for potentially rational predation strategies.
The debate has raged on for decades and shows little sign of moderating itself any time soon. The contributions to this edition of the Chronicle represent the current state of affairs. Antitrust litigators, enforcers, and commentators continue to dispute the merits of given theories of predation, be they based on financial markets, signaling or reputational models of predation.
As always, many thanks to our great panel of authors.