Document Type

Article

Publication Date

4-1981

Keywords

Predatory pricing, Areeda-Turner rule, Posner rule, Richard A. Posner, Baumol rule, William J. Baumol, Joskow-Klevorick rule, Scherer rule, Frederic M. Scherer

Disciplines

Antitrust and Trade Regulation | Law and Economics

Abstract

Recent years have witnessed a virtual explosion in the legal and economic literature dealing with predatory pricing. Equally dramatic has been the swift adoption by several courts of policy conclusions derived from this literature—a development that is startling, given the complexity and volume of the literature and the lack of consensus among legal and economic scholars. The result has been to raise an acute problem for lawyers and judges who must assess the validity and applicability of competing economic models, mold stubborn and unruly facts to fit abstract economic theories, translate economic theories into legal doctrines, and resolve puzzling cost accounting issues. The predatory pricing development also raises more fundamental questions. An emerging but unsettled economic theory has rapidly and pervasively transformed an entire body of law, and within the briefest period of time. The predatory pricing experience contains important lessons for the careful observer on the uses of economic theory in the formation of legal policy.

This Article attempts to cut a path through the maze of literature and theories concerning predatory pricing. Both practical and theoretical considerations animate this study. On the practical level, the Article examines the application of the differing economic theories of predatory pricing, enabling the reader to utilize them in legal analysis and argumentation and to critically assess future developments. On the more theoretical level, the discussion of the predatory pricing development provides a vivid case study of the issues that confront courts when they attempt to base legal policy on unsettled economic theory. Part I examines the predatory pricing development in terms of economic theory, viewing that theory as objectively as possible. Part II explores the meaning of the differing theories of predation in pragmatic application to specific facts in judicial proceedings, followed by a more general discussion in Part III of the issues that confront courts when they use emerging economic theories as the foundation for legal policy.

Publication Citation

Published in: Cornell Law Review, vol. 66, no. 4 (April 1981).