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Cleaning Hands In Predation Cases: A Modest Proposal To Improve Predatory-Pricing Suits

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Cleaning Hands In Predation Cases: A Modest Proposal To Improve Predatory-Pricing Suits

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Reasonable people may disagree on the threat to competition posed by below-cost, or so-called “predatory,” pricing. However, there is widespread agreement that the U.S. legal regime, which allows firms to sue their competitors for predatory pricing, provides such firms incentives to allege predatory pricing even when their price-cutting rivals are engaged in energetic and healthy competition. When firms win predatory-pricing suits against vigorously competitive rivals, they gain protection from competition. These successful plaintiffs can thus charge higher profits and earn monopoly profits.

One way to eliminate such abuse of the antitrust laws would be to eliminate altogether predatory pricing as a basis for lawsuits. Regardless of the merits or demerits of such a change, another more modest reform is possible that will go a long way toward eradicating the most abusive of such lawsuits. Rivals of price-cutting firms should be denied standing to sue for predation. The only private parties permitted to sue for predation should be firms that supply, and firms that buy from, price cutters.

Every firm wants to be a monopolist in its own market, but also wants to buy from and sell to firms that are not monopolies. Consequently, while firms may have incentives to wrongfully accuse their rivals of predatory price cutting, no firm has an incentive to wrongfully accuse its customers or suppliers of predation. By eliminating rivals’ standing to sue for predatory pricing, much of the potential for private abuse is stripped from antitrust law without, at the same time, shutting the courthouse doors to firms with genuine interests in maintaining competition.

All that Congress needs to do is amend sections 4 and 16 of the Clayton Act to specify that rivals of price cutters have no standing to file suits alleging predatory behavior. Rather than being used as a tool for monopolization, antitrust law will then better serve to foster competition.