Sep 01, 2005
A firm may reduce its prices in an attempt to destroy its rivals or to deter new entry. Although the Sherman Act has long been construed to prohibit this practice, the case law on predatory pricing has been characterized by vagueness and a paucity of economic analysis. In this Article, Professors Areeda and Turner analyze the predatory pricing offense in terms of its economic underpinnings. After briefly reviewing the fundamental economic concepts of cost-measurement and profit-maximization, the authors examine the relationship between a firms prices and its costs in order to define a rational dividing line between legitimately competitive prices and prices that are properly regarded as predatory. They then apply their analytical framework to possible techniques of predation other than general price reductions.
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