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Your Practice. Popular Courses. Part Of. Antitrust Laws and Enforcement. Types of Antitrust Violations. Small Business Small Business Regulations. What Is Predatory Pricing? Key Takeaways In a predatory pricing scheme, prices are set low to attempt to drive out competitors and create a monopoly. Consumers may benefit from lower prices in the short term, but they suffer if the scheme succeeds in eliminating competition, as this would trigger a rise in prices and a decline in choice. Prosecutions for predatory pricing have been complicated by the short-term consumer benefits and the difficulty of proving the intent to create a market monopoly.
In markets with a large number of sellers, such as gasoline retailing, it is unlikely that one company could price below cost long enough to drive out a significant number of rivals and attain a dominant position. Main Menu. You are here. Guide to Antitrust Laws. I Would Like To This comes at a cost for the predatory company, who will be financing a period of loss to eliminate their competition, while their competition will be doing the same to try to keep the pace.
This is when the advantages for consumers can quickly reverse, as a monopolistic marketplace is now in place, giving the predatory company the power to sharply raise prices to compensate for the loss. With higher prices and reduced choice, product quality can drop. Therefore, customers not only experience price increases, but a drop in the quality of a product or service.
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Learn more about how you can improve payment processing at your business today. Learn more Sign Up. Getting a tax number for a business is an essential step. Contact sales. Skip to content Open site navigation sidebar. Why GoCardless? Such statutes, therefore, promote inefficiency at the expense of the consumer.
Nonetheless, the U. Foreign commentators sometimes note that the U. This probably overstates the reality. Some state statutes are enforced, others are not. Footnote 55 While one would expect to find higher prices in those jurisdictions with enforcement programs, the implicit threat of prosecution may impact pricing behavior—particularly in those jurisdictions with criminal sanctions.
Footnote 56 Thus the statutes may affect pricing behavior without regard to the enforcement record. Some state laws are general; Footnote 58 others focus on particular industries like petroleum retailing. The efforts to secure state legislation regulating sales within the retail gasoline market, noted above, are a good example of these laws.
Footnote 63 Generally speaking this legislation has been sponsored by independent dealers organizations.
Footnote 64 As discussed above, state courts have construed these statutes in different ways. Nonetheless, courts increasingly focus on injury to competition rather than injury to competitors. Footnote 65 The current supplement discusses the state case law from through While this alone does not suggest much, a reading of those recent decisions reflects that state courts are increasingly concerned about injury to competition rather than injury to competitors. Footnote 68 Accordingly this suggests that the state courts are following—albeit more slowly—the lead of the federal courts in this area.
The effect of state petroleum "below cost sales" statutes has been the object of study. Consistent with economic theory, these laws appear to produce higher retail gasoline margins. Footnote 69 One very recent study of U. Footnote 70 They unambiguously conclude: " SBC laws directed specifically at the retail gasoline market have resulted in higher margins. Footnote 72 Professors Anderson and Johnson conclude " d ata on the minimum observed margin indicate that these laws restrict competition by limiting downward pressure on retail margins.
This latest study by Anderson and Johnson is consistent with the conclusion of prior studies. Footnote 77 Accordingly, the study concludes:. Hence, the policy implication Previous studies appear to confirm these results. Interestingly, higher margins may not mean higher profits for the dealers that the legislation was sought to protect. Anderson and Johnson conclude: higher "margins Footnote 80 Entry conditions and the like may insure that retailers garner no additional profits.
Footnote 81 If true, such laws have a deleterious effect on consumers while failing to provide protection to those for whose benefit the legislation was enacted. Footnote 82 This study focuses specifically on whether these laws protect independent dealers. Consistent with the earlier work, Johnson concludes that they do not. The decline in the number of independent dealers appears to be the same without regard to whether the state has a SBC law.
Footnote 83 Johnson proffers two explanations. First, entry into the retail gasoline business is relatively unencumbered and high profit margins can be expected to attract entry. These conclusions are consistent with that of an earlier study by M. Footnote 84 That study assessed the efficacy of minimum markup legislation in preserving small business. If the laws were effective, states with such legislation should have more robust smaller enterprises.
The study failed to find that states with the legislation had more robust smaller businesses. Houston concluded that the laws were "insignificant in their influence on small retail success. Consumers may appreciate this conclusion. Footnote 85 That statute provides that a retailer may not sell gasoline at less than its delivered cost plus the cost of doing business. The statute generated consumer hostility especially when motorists compared their prices with those in neighboring Wyoming.
When the legisl ature failed to take action, citizens mobilized and secured sufficient signatures to place the issue on the November general election ballot. The referendum measure passed and the Montana statute was repealed.
The finding that state below cost legislation increases gasoline prices is generally consistent with other studies of the U. Illustrative is the very recent conclusion of Professor Philip E. There is no reason for any state legislature in the U. The experience of the U. Real gasoline prices are at their lowest levels since the 's. Products and services continue to improve in quality and timesaving convenience. At the same time, rates of profits earned by refiners are low—the antithesis of what would be expected under conditions of price coordination or market power.
Following the sharp increase in the price of retail gasoline during the early months of , President Clinton ordered the Department of Energy to investigate. Consistent with prior studies of the industry, Footnote 87 the resulting study found that market forces rather than anticompetitive behavior determined pricing conditions. Footnote 89 It is quite similar to the Canadian Competition Bureau. We generally responded and routinely opposed efforts to enact such legislation.
In our review of proposed legislation we were concerned about proposals that went beyond the proscription of predatory "below cost" pricing.
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