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Predatory pricing

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Definition Edit

Predatory pricing is a three-stage process: low prices, followed by the exit of producers who can no longer make a profit, followed by monopoly prices.

Overview Edit

The law's worry is the final period in which the survivor (or cartel of survivors) recoups losses incurred during the low-price period.

When exit does not occur, or recoupment is improbable even if some producers give up the market, there is no antitrust problem.[1] Either prices will stay low (reflecting efficient production and enduring benefits to consumers) or the practice will be self-deterring (because the predator loses more during the low-price period than it gains later, and consumers are net beneficiaries). When monopoly does not ensue, low prices remain — and the goal of antitrust law is to use rivalry to keep prices low for consumers' benefit.

References Edit

  1. See R.J. Reynolds Tobacco Co. v. Cigarettes Cheaper!, 462 F.3d 690 (7th Cir. 2006)(full-text); Schor v. Abbott Labs., 457 F.3d 608 (7th Cir. 2006)(full-text).

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