Posted by Social Science Research Network
The antitrust duty to charge low prices
By Ramsi Woodcock (Georgia State University)
Abstract: Antitrust’s embrace of the maximization of welfare in the economic sense as its goal over the past forty years has opened up a gap between its end and its means, which is the condemnation of collusion and exclusion. Powerful firms are sometimes able to extract more profit from consumers than they require without needing to engage in illicit collusion or exclusion, putting this welfare-reducing behavior outside the reach of the antitrust laws. By imposing a general duty on business to charge a price no higher than economic cost, antitrust can address these cases. The duty would operate through shame, providing only nominal damages as a legal remedy, thereby saving courts from the task of setting prices themselves. Although the effect of this rule on prices is likely to be modest, the nonlinear relationship between price and welfare suggests that the improvement in welfare could be substantial.