David Evans, Vanessa Yanhua Zhang, Xinzhu Zhang, Sep 11, 2014
China, like a number of other antitrust jurisdictions, has a law concerning unfair pricing. This article develops an economic framework for applying the unfair pricing law in China. The framework draws on the experience of courts and competition authorities in other jurisdictions and the writings of various commentators, particularly economists, on unfair pricing in those jurisdictions. It shows that virtually all jurisdictions have decided to consider unfair pricing claims only in exceptional circumstances, and rarely, if ever, in innovation-intensive industries. For those cases that pass this screen and receive consideration, the courts and competition authorities then, under the leading test, insist on substantial evidence that the price is significantly higher than cost and is unfair given the value provided to the buyer. This article shows that the exceptional circumstances screen and the rigorous unfair pricing test are motivated by a recognition, supported by substantial empirical evidence, that successful firms must have the assurance of receiving significant rewards to induce them to invest time and capital in highly risky innovation that is the source of economic growth and welfare. It concludes by showing that this approach is consistent with modern Chinese economic policy.