Duhaime's Law Dictionary


Predatory Pricing Definition:

The pricing of products in an unfair manner with an object to eliminate or retard competition and thereby gain and exercise control over prices in the relevant market.

Related Terms: Abuse of Dominant Position, Fidelity Rebate, Price Fixing

In the U.S., predatory pricing is defined in the United States Code, Title 15 (Commerce and Trade), §13(a):

"It shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality .... where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them...."

In Canada, the relevant statute is the Competition Act. Consider this section of law, repealed in 2009 (§50(1)(c)):

"Every one engaged in a business who ... engages in a policy of selling products at prices unreasonably low, having the effect or tendency of substantially lessening competition or eliminating a competitor, or designed to have that effect, is guilty of an indictable offence and liable to imprisonment for a term not exceeding two years."

Since the repeal of 50 in 2009, alleged predatory pricing is captured under the abuse of dominance provisions of the Act. The Canadian Competition Bureau, in their July 2008 Predatory Pricing Enforcement Guidelines, describe predatory pricing as follows:

"Predatory pricing (is) a firm deliberately setting prices to incur losses for a sufficiently long period of time to eliminate, discipline, or deter entry by a competitor, in the expectation that the firm will subsequently be able to recoup its losses by charging prices above the level that would have prevailed in the absence of the impugned conduct, with the effect that competition would be substantially lessened or prevented.

"Predatory pricing occurs where the prices charged by the firm are below an appropriate measure of costs and that there is no reasonable business justification for the low pricing policy or practice, such as selling off perishable products or matching the price of a competitor."

"Competition delivers many economic benefits, including competitive prices and product choices. Low prices are usually a good indication of vigorous competition. While competitive prices are beneficial to consumers, certain anti-competitive pricing behaviour, such as predatory pricing, can harm the economy. Predatory pricing may have short-term benefits for consumers, but it can ultimately lead to higher prices or other anti-competitive effects in the long run."

In Brooke Group Ltd. v. Brown & Williamson Tobacco, Justice Kennedy of the United States Supreme Court summarized predatory pricing as follows:

"A business rival has priced its products in an unfair manner with an object to eliminate or retard competition and thereby gain and exercise control over prices in the relevant market....

"Low prices benefit consumers regardless of how those prices are set, and so long as they are above predatory levels, they do not threaten competition.... To hold that the antitrust laws protect competitors from the loss of profits due to such price competition would, in effect, render illegal any decision by a firm to cut prices in order to increase market share. The antitrust laws require no such perverse result."

Indeed, predatory pricing is a claim the Courts look at carefully because, as Scott Hemphill wrote in his 2001 article:

"Predatory price cuts are particularly hard to distinguish from vigorous competition. And a court that bans a given price cut improvidently may chill the very conduct, price competition, which antitrust laws try to promote....

(U.S.) courts apply a stringent two-part test to predatory pricing claims: the allegedly predatory price must fall below some appropriate measure of the predator's cost, and the predator must have a reasonable probability of recoupment of predatory losses through higher prices later on."

In their 2006 book, authors Facey and Assaf wrote:

"(A) firm engages in predatory pricing when it temporarily lowers its prices or expands output or capacity in an attempt to discipline or drive out existing competitors or to deter new competitors from entering the market. The traditional theory of predation anticipates that, to succeed, the alleged predator must incur temporary losses, then raise its prices to recoup those losses once its competitors are driven from the market."

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