Global Competition Law is primarly a practitioner's guide presenting the most salient aspects of the major competition laws country by country, giving an overview of their structure and most charasteristic elements.
Global Competition Law also provides insight into possible future developments in the field.

Global Competition Law

    Predatory pricing is defined as pricing below an appropriate measure of cost for the purpose of eliminating competitors and reducing competition. Section 2 of the Sherman Act prohibits predatory pricing where it is undertaken by a monopolist or attempted monopolist and there is a genuine threat of monopolization. Section 3 of the Robinson-Patman Act prohibits predatory pricing for the purpose  …

Predatory pricing

    All types of exclusionary practices may satisfy the behavioral requirement. Thus, a Section 2 violation is established where a monopolist charges a wholesale price greater than the retail price (price squeeze), opposes an unjustified refusal to deal, uses its monopoly power in one market in order to monopolize a second market (leveraging), introduces new products with a predatory intent or imposes contractual clauses - e.g. long-term leases - to the disadvantage of competing undertakings.

Exclusionary practices

     Pursuant to the essential facilities doctrine, a monopolist must not unreasonably deny competitors access to essential resources or facilities that it controls. The 7th Circuit Court held in MCI Communications Corp. v. AT&T (708 F.2d 1081 (7th Cir.) (1983)), that an essential facilities claim has standing if the plaintiff establishes that: i) the monopolist controls an essential facility or output; ii) the facility cannot reasonably or practicably be duplicated; iii) he/she is unreasonably denied access to the facility; and iv) access to the facility without interfering with the defendant's use is feasible.

  Applying the essential facilities doctrine in the case before it, the Court held that it was an act of monopolization for AT&T to refuse to provide a rival telephone company with access to the local telephone loop. The doctrine has also been applied to railroad lines (United States v. Terminal R.R. Ass'n, 224 U.S. 383 (1912)), electric transmission lines (Otter Tail Power Co. v. United States, 410 U.S. 366 (1973)), natural gas pipelines (Woods Exploration and Producing Co. v. ALCOA, 438 F.2d 1286 (5th Cir. 1971), and a professional football stadium (Hecht v. Pro-Football, Inc., 570 F.2d 982 (D.C. Cir. 1977)).

Essential facilities doctrine

    Predatory pricing is defined as pricing below an appropriate measure of cost for the purpose of eliminating competitors and reducing competition. Section 2 of the Sherman Act prohibits predatory pricing where it is undertaken by a monopolist or attempted monopolist and there is a genuine threat of monopolization. Section 3 of the Robinson-Patman Act prohibits predatory pricing for the purpose of “destroying competition or eliminating a competitor” (15 U.S.C. § 13).

  With regard to predatory pricing, the Supreme Court has held that competitive harm exists where at least two criteria are satisfied. First, the prices complained of must be below-cost. Second, then competitor must have either a “reasonable prospect” or a “dangerous probability” of recouping its investment in below-cost prices (Brooke Group, Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993)). Although the intent of the undertaking concerned is relevant to the inquiry, liability for predatory pricing is not necessarily founded solely on evidence of predatory intent.

  With regard to a claim under Section 2 of the Sherman Act, pricing only meets the “predatory” standard where the market share requirements for monopolization are satisfied. Alternatively, although a claim under Section 3 of the Robinson Patman Act can be brought against a defendant who is not a monopolist, courts will nevertheless measure the market's conduciveness to oligopoly when predatory pricing is considered under this heading.

  The Supreme Court has interpreted the standard for predatory pricing restrictively, emphasizing that predatory price cutting must be distinguished from pro-competitive price cutting (see, e.g., Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986), stating that "[w]e must be careful lest a rule or precedent that authorizes a search for a particular type of undesirable pricing behavior end up by discouraging legitimate price competition").

  In determining whether a price is below-cost, the first issue is identifying the relevant product. Differences have arisen as to whether the price-cost comparison should be made for each product or across an entire product line. Likewise, challenges have sometimes been based on the predatory pricing of a package of products sold together. The analysis appears to depend on the nature of the predatory pricing and its effect. Thus, if predatory pricing of one product is sufficient to remove a competitor from the market, then the analysis will be limited to this single product. Consequently, a supermarket that adopts a predatory policy with respect to only one of the hundreds of products it sells will not normally be considered as acting in a predatory way, since the effect of such a pricing policy is generally considered insufficient to have an anticompetitive effect.

  Once the product or products have been identified, the controlling issue is whether a given price for the relevant product is below-cost. In this regard, courts have adopted the Areeda and Turner test as the legal test of predatory pricing. Costs can be divided into four categories. First, there are fixed costs that do not vary with output. Next there are variable costs, such as materials and labor that depend upon the output produced. Determining which costs are variable is an issue of fact for the jury. Third, total costs equal fixed costs plus variable costs. Fixed, variable and total costs can all be expressed as averages by dividing them by the total output. A firm selling below its average total cost will eventually go out of business since most fixed costs are eventually variable, such as a plant that will need to be replaced. Lastly, the marginal cost is the change in total costs brought about by increasing or decreasing production output by one unit. Because selling below marginal cost is inconsistent with profit maximizing behavior and gives rise to an inference of irrational or strategic behavior, Areeda and Turner initially suggested that courts adopt this as the standard for determining whether a firm was engaged in predatory price cutting. The actual practical difficulties of determining marginal costs in litigation ultimately led courts to use average variable costs as a proxy. In sum, the Areeda and Turner test has been adopted with varying inflections by all of the Circuit Courts, and thus as a general rule pricing below average variable cost will satisfy the below cost element.

  The plaintiff must also establish the likelihood of recoupment of losses initially sustained from below-cost pricing. Recoupment is possible where, first, the below-cost pricing drives the target out of the market and, second, the market is susceptible to monopoly pricing following the victim's exit. In making the latter assessment, relevant considerations include market shares in the relevant product market, ease of entry into the market, and excess capacity. Thus, where new entry into the market is easy, it is unlikely that the monopoly can be sustained for a sufficiently long period for recoupment to occur. Likewise, if the defendant lacks the excess capacity to absorb the market share of rivals and cannot quickly purchase or create such capacity, recoupment is unlikely.

  Given that it is sometimes easier to determine the likelihood of recoupment than to establish whether a price is below cost, some Circuit Courts have made the former the initial hurdle in predatory pricing cases, thus avoiding the need for the price-cost analysis.

      Category management is where a retailer manages its business on a product category basis and appoints one supplier as the category captain, who collects information on all brands in the category and develops a category management plan to be presented to the retailer. In Conwood Co. v. United States Tobacco Co. (2002 FED App. 0171P (6th  Cir.)) the Court of Appeals for the Sixth Circuit held, on 15 May 2002, that a category captain infringed Section 2 of the Sherman Act by abusing its category captain status. In fact, the defendant “used its position as category manager to exclude competition by suggesting that retailers carry fewer products, particularly competitor's products, by attempting to control the number of price value brands introduced in stores and by suggesting that stores carry its slower-moving products instead of better-selling competitor products”.

Global Competition Law

1443. Predatory pricing

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Les notions juridiques connexes

1443. Predatory pricing

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Les notions juridiques connexes

Demandez un accès gratuit
au contenu exclusif Livv – juristes d’entreprise