The Raising Rivals’ Cost Foreclosure Paradigm, Conditional Pricing Practices and the Flawed Incremental Price-Cost Test
Posted by Social Science Research Network
Steven C. Salop (Georgetown University Law Center)
Abstract: There are two overarching legal paradigms for analyzing exclusionary conduct in antitrust – predatory pricing and the raising rivals’ costs characterization of foreclosure. Sometimes the choice of paradigm is obvious. Other times, it may depend on the structure of the plaintiff’s allegations. Some types of conduct, notably conditional pricing practices (CPPs), might appear by analogy to fit into both paradigms. CPPs involve pricing that is conditioned on exclusivity or some other type of favoritism in a customer’s purchases or input supplier’s sales. The predatory pricing paradigm would attack the low prices of CPPs. By contrast, the RRC foreclosure paradigm would attack the condition. The analysis in this article concludes that CPPs are better characterized as belonging to the RRC foreclosure paradigm and evaluated under a rule of reason standard that focuses directly on harm to competition and consumers. The impact of foreclosure should not be measured mainly by the fraction of customers or suppliers affected. Rules that artificially narrow concerns to whether the competitors are able to reach minimum viable scale or minimum efficient also are flawed. Foreclosure instead should be gauged primarily by the impact on the competitors’ costs, output, capacity, and ability to enter and expand. The analysis also explains that the fundamental focus of analysis is the impact of consumers in the output market, not the impact on competitors. The article also explains in detail why concerns about conditional discounts should not be screened with an incremental price-cost test. That test is not reliably administrable and it leads to substantial false negative and false positive errors that will harm consumers and competition. It also is not required for counseling purposes.
Featured News
Novo Nordisk Foundation’s Acquisition Faces Regulatory Hurdles
May 6, 2024 by
CPI
Microsoft’s MAI-1 to Compete with Google and OpenAI in AI Language Models
May 6, 2024 by
CPI
Qantas Settles ‘Ghost Flights’ Case With Australian Watchdog for $120 Million
May 6, 2024 by
CPI
Compass Lexecon Expands EMEA Presence with Opening of Lisbon Office
May 6, 2024 by
CPI
EU Extends Support for Farms and Fisheries Amid Market Disruptions
May 5, 2024 by
CPI
Antitrust Mix by CPI
Antitrust Chronicle® – Economics of Criminal Antitrust
Apr 19, 2024 by
CPI
Navigating Economic Expert Work in Criminal Antitrust Litigation
Apr 19, 2024 by
CPI
The Increased Importance of Economics in Cartel Cases
Apr 19, 2024 by
CPI
A Law and Economics Analysis of the Antitrust Treatment of Physician Collective Price Agreements
Apr 19, 2024 by
CPI
Information Exchange In Criminal Antitrust Cases: How Economic Testimony Can Tip The Scales
Apr 19, 2024 by
CPI