Citizendia
Your Ad Here

Competition law
Basic concepts
Anti-competitive practices
Laws and doctrines

United States

Europe

  • European Community
    competition law
  • Irish Competition Law
  • Competition Act 1998 (U. Competition law history refers to attempts by governments to regulate Competitive markets for goods and services leading up to the modern competition or Antitrust The term "monopolization" refers to an offense under Section 2 of the American Sherman Antitrust Act, passed in 1890 In Economics and Business ethics, a coercive monopoly is a business concern that prohibits competitors from entering the field with the natural result being that Natural monopoly is a term used in Economics to refer to two different things In Economics and especially in the theory of Competition, barriers to entry are obstacles in the path of a firm which wants to enter a given Market In Economics, market power is the ability of a firm to alter the Market price of a good or service In Competition law, before deciding whether companies have significant Market power which would justify government intervention the test of Small but Significant and Non-transitory In Competition law the Relevant market defines the market in which one or more goods compete Merger control refers to the procedure of reviewing Mergers and acquisitions under Antitrust / competition law Anti-competitive practices are Business or Government practices that prevent and/or reduce Competition in a Market (see Restraint of trade Collusion is an agreement usually secretive which occurs between two or more persons to deceive mislead or defraud others of their legal rights or to obtain an objective forbidden A cartel is a formal (explicit agreement among firms Cartels usually occur in an oligopolistic industry, where there is a small number of sellers and usually involve Price fixing is an agreement between business competitors to sell the same product or service at the same price Product bundling is a Marketing strategy that involves offering several products for sale as one combined product Tying is the practice of making the sale of one good (the tying good to the De facto or De jure customer conditional on the purchase of a second distinctive Refusal to deal is one of several Anti-competitive practices forbidden in countries which have Free market economies In Competition law, a group boycott is a type of Secondary boycott in which two or more competitors in a Relevant market refuse to conduct business Exclusive dealing refers to when a retailer or wholesaler is ‘tied’ to purchase from a supplier on the understanding that no other distributor will be appointed or receive supplies Bid rigging is an illegal agreement between two or more competitors Dividing territories (also Market division) is an agreement by two companies to stay out of each other's way and reduce competition in the agreed-upon territories Conscious parallelism is a term used in Competition law to describe Price-fixing between competitors in an Oligopoly that occurs without an actual spoken In United States patent law, patent misuse is an Affirmative defense used in patent litigation when a Defendant has been accused to have Copyright misuse is an equitable defense against Copyright infringement in the United States based on the unreasonable conduct of United States antitrust law is the body of Laws that prohibits anti-competitive behavior (monopoly and Unfair business practices. The Sherman Antitrust Act ( Sherman Act, July 2, 1890, ch 647,) was the first United States Federal statute to limit Cartels and The Clayton Antitrust Act of 1914 ( October 15[[ 914]] ch 323, codified at,) was enacted in the United States to add further substance to the U The Robinson-Patman Act of 1936 (or Anti-Justice League Discrimination Act,) is a United States federal law that prohibits what were considered at the time of passage The Federal Trade Commission Act of 1914 (15 USC §§ 41-58 as amended) established the Federal Trade Commission (FTC a Bipartisan body of five members The Merger guidelines are a set of internal rules promulgated by the Antitrust Division of the United States Department of Justice (USDOJ in conjunction with the The essential facilities doctrine (sometimes also referred to as the essential facility doctrine) is a Legal doctrine which describes a particular type of claim of The Noerr-Pennington doctrine is a doctrine of United States Antitrust law set forth by the United States Supreme Court in a pair of cases which The rule of reason is a doctrine developed by the United States Supreme Court in its interpretation of the Sherman Antitrust Act. European Community competition law is one of the areas of authority of the European Union. Irish Competition Law is the Irish body of legal rules designed to ensure fairness and freedom in the Marketplace. The Competition Act 1998 is the current major source of competition policy in the UK along with Enterprise Act 2002. K. )

Australia
Enforcement authorities and organizations
edit box

Predatory pricing (also known as destroyer pricing) is the practice of a firm selling a product at very low price with the intent of driving competitors out of the market, or create a barrier to entry into the market for potential new competitors. The Trade Practices Act 1974 is an act of the Parliament of Australia. The International Competition Network is an informal virtual network that seeks to facilitate cooperation between Competition law authorities globally A competition regulator is a Government agency, typically a statutory authority, sometimes called an economic regulator, which regulates and enforces Sao Paulo Stock Exchangejpg|thumb| Virtual market arena where buyer and seller are not present and trade via intemediates and electronical information In Economics and especially in the theory of Competition, barriers to entry are obstacles in the path of a firm which wants to enter a given Market If the other firms cannot sustain equal or lower prices without losing money, they go out of business. The predatory pricer then has fewer competitors or even a monopoly, allowing it to raise prices above what the market would otherwise bear. In Economics, a monopoly (from Greek monos, alone or single + polein, to sell exists when a specific individual or enterprise has sufficient

In many countries predatory pricing is considered anti-competitive and is illegal under antitrust laws. Anti-competitive practices are Business or Government practices that prevent and/or reduce Competition in a Market (see Restraint of trade However, it is usually difficult to prove that a drop in prices is due to predatory pricing rather than normal competition, and predatory pricing claims are difficult to prove due to high legal hurdles designed to protect legitimate price competition. Non-price competition is a marketing strategy "in which one firm tries to distinguish its product or service from competing products on

Contents

Concept

Predatory pricing through sharp discounting is not beneficial to a business in the short run, as it may result in a price war and will cause loss of revenue and/or profits. Discounts and allowancesIn Finance and Economics, discounting is the process of finding the present value of an amount of cash at some future date and along with Price war is a term used in Business to indicate a state of intense competitive rivalry accompanied by a multi-lateral series of price reductions In business revenue or revenues is Income that a company receives from its normal business activities usually from the sale of goods and services Yet businesses may engage in predatory pricing because it may pay dividends in the long run.

This is because competitors who are not as financially strong as the predator will suffer even more, either due to loss of business or reduced profit margin caused by the aggressive price competition. Profit margin, Net Margin, Net profit margin or Net Profit Ratio all refer to a measure of Profitability. The predation continues until the competitor is driven to failure and forced to leave the market. After the weaker competition has been driven out, the surviving business can raise prices above competitive levels (to "supra competitive pricing"). Supra competitive pricing is pricing above what can be sustained in a competitive market The business hopes to thereby reap revenues and profits that will more than offset the losses during the predatory pricing period.

In essence, the predator undergoes short-term pain for long-term gain. Therefore, for the predator to succeed, either it must have sufficient strength (financial reserves or other sources of offsetting revenue) to endure the initial lean period, or there must be substantial barriers to entry of other competitors. In Economics and especially in the theory of Competition, barriers to entry are obstacles in the path of a firm which wants to enter a given Market

The strategy may fail, however, if targeted competitors are not as weak as expected, or if competitors driven out are replaced by other competitors. In either case, this forces the predatory pricing period to become prolonged until possibly even the predator itself is forced to forfeit the expected gain. The strategy may also fail if the predator is not able to endure the short-term losses for as long as it expected.

Therefore, this strategy could hope to succeed only either when the predator is substantially stronger than the competition, or when barriers to entry of new competitors are high. In Economics and especially in the theory of Competition, barriers to entry are obstacles in the path of a firm which wants to enter a given Market Such barriers will prevent new entrants to the market from replacing others driven out, thereby allowing the supra competitive pricing to prevail for a sufficient period of time to more than make up for the short-term losses incurred by the predator. Supra competitive pricing is pricing above what can be sustained in a competitive market

Legal aspects

In many countries, legal restrictions may preclude this pricing strategy, which may be deemed anti-competitive. In the United States predatory pricing practices may result in antitrust claims of monopolization or attempts to monopolize. The United States of America —commonly referred to as the In Economics, a monopoly (from Greek monos, alone or single + polein, to sell exists when a specific individual or enterprise has sufficient Businesses with dominant or substantial market shares are more vulnerable to antitrust claims. Market share, in Strategic management and Marketing, is the percentage or proportion of the total available Market or Market segment that is However, because the antitrust laws are ultimately intended to benefit consumers, and discounting results in at least short-term net benefit to consumers, the U.S. Supreme Court has set high hurdles to antitrust claims based on a predatory pricing theory. The Supreme Court of the United States is the highest judicial body in the United States and leads the federal judiciary. The Court requires plaintiffs to show a likelihood that the pricing practices will affect not only rivals but also competition in the market as a whole, in order to establish that there is a substantial probability of success of the attempt to monopolize. [1] If there is a likelihood that market entrants will prevent the predator from recouping its investment through supra competitive pricing, then there is no probability of success and the antitrust claim would fail. In addition, the Court established that for prices to be predatory, they must be below the seller's cost.

In Canada, Section 50(1)(c) of the Competition Act prohibits companies from selling products at unreasonably low prices which is either designed to facilitate, or has the effect of, eliminating competition or a competitor. Country to "Dominion of Canada" or "Canadian Federation" or anything else please read the Talk Page Section 50(1)(b) of the Act prohibits selling products in one area of Canada at prices lower than in another area with the intent or the effect of eliminating competition or a competitor. The Bureau of Competition has established Predatory Pricing Guidelines defining what is considered to be unreasonably low pricing.

In Australia, recent amendments to the Trade Practices Act 1974 in 2007 have created a new threshold test to prohibit those engaging in predatory pricing. The new amendments (labelled the 'Birdsville Amendments' after the pub Senator Barnaby Joyce penned the idea: Predatory pricing laws shock big operators) to s46 define the practice more liberally than other behaviour by requiring the business first have a 'substantial share of a market' (rather than substantial market power). This was made in a move to protect smaller businesses from situations where there are larger players, but each has market power. It has been criticised as preventing (through legal bureaucracy) large businesses removing old stock, offering discounts (such as fuel discounts and 'shopper dockets').

Criticism

Some economists claim that true predatory pricing is rare because it is an irrational practice and that laws designed to stem the practice only inhibit competition. This stance was taken by the US Supreme Court in the 1993 case Brooke Group v. The Supreme Court of the United States is the highest judicial body in the United States and leads the federal judiciary. Brown & Williamson Tobacco, and the Federal Trade Commission has not successfully prosecuted any company for predatory pricing since. The Federal Trade Commission ( FTC) is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act

Proponents of the theory that predatory pricing is irrational argue that it must be a larger firm that engages in the practice, in order to be able to withstand the losses longer than its competitors. However, a larger firm will lose more money when it drops its prices below cost, because it has a larger market share with which to begin.

Opponents of the theory argue that this doesn't address the scenario where a large company attempts to break into a new market. Furthermore, it will not be able to recoup these losses because when it raises its prices to high levels, it provides a strong incentive for another firm to re-open the market and undercut it. [2]

In addition, the competitors of a firm that engages in predatory pricing know that the predatory pricer cannot keep down their prices forever, and thus they need only play chicken in order to remain in the market. The game of Chicken, also known as the Hawk-Dove or Snowdrift game is an influential model of conflict for two players in Game theory.

Thomas Sowell explains why predatory pricing is unlikely to work:

Obviously, predatory pricing pays off only if the surviving predator can then raise prices enough to recover the previous losses, making enough extra profit thereafter to justify the risks. Thomas Sowell (born June 30, 1930) is an American Economist, social commentator and author of dozens of books These risks are not small.
However, even the demise of a competitor does not leave the survivor home free. Bankruptcy does not by itself destroy the fallen competitor's physical plant or the people whose skills made it a viable business. Both may be available-perhaps at distress prices-to others who can spring up to take the defunct firm's place.
The Washington Post went bankrupt in 1933, though not because of predatory pricing. But neither its physical plant, its people, or its name disappeared into thin air. Instead, publisher Eugene Meyer acquired all three-at a fraction of what he had bid unsuccessfully for the same newspaper just four years earlier. In the course of time, the Post became the biggest newspaper in Washington. [3]

Critics of the predatory pricing theory support their case empirically by arguing that there has been no instance where such a practice has led to a monopoly. Conversely, they argue that there is much evidence that predatory pricing has failed miserably. For example, Herbert Dow not only found a cheaper way to produce bromine but also defeated a predatory pricing attempt by a government-supported German cartel, Bromkonvention, who objected to his selling in Germany at a lower price. Herbert Henry Dow ( February 26, 1866 Belleville Ontario, Canada – October 15, 1930) was a Canadian born Germany, officially the Federal Republic of Germany ( ˈbʊndəsʁepuˌbliːk ˈdɔʏtʃlant is a Country in Central Europe. A cartel is a formal (explicit agreement among firms Cartels usually occur in an oligopolistic industry, where there is a small number of sellers and usually involve Germany, officially the Federal Republic of Germany ( ˈbʊndəsʁepuˌbliːk ˈdɔʏtʃlant is a Country in Central Europe. Bromkonvention retaliated by flooding the US market with below-cost bromine, at an even lower price than Dow's. But Dow simply instructed his agents to buy up at the very low price, then sell it back in Germany at a profit but still lower than Bromkonvention's price. In the end, the cartel could not keep up selling below cost, and had to give in. This is used as evidence that the free market is a better way to stop predatory pricing than government regulation such as anti-trust laws, though it should be noted that in this example the item—bromine—is a commodity as opposed to a value-added product, and that neither branded items such as athletic shoes or automobiles nor services such as dentistry or health care could be purchased and resold in the same way. A free market is a Market in which property rights are voluntarily exchanged at a price arranged completely by the mutual consent of sellers and buyers This article is for the legal term For regulation of genes see Regulation of gene expression. A commodity is anything for which there is demand but which is supplied without qualitative differentiation across a market Value added refers to the additional value of a commodity over the cost of commodities used to produce it from the previous stage of production An athletic shoe is a Generic name for footwear designed for Sporting and physical activities, and is different in style and build than a Dress shoe A service is the non-material equivalent of a good. A service provision is an economic activity that does not result in Ownership, and this is what differentiates Dentistry' is the "evaluation diagnosis prevention and/or treatment (nonsurgical surgical or related procedures of diseases disorders and/or conditions of the oral cavity Health care is the prevention treatment and management of illness and the preservation of mental health through the services offered by the medical, Nursing

In another example of a successful defense against predatory pricing, a price war emerged between the New York Central Railroad (NYCR) and the Erie Railroad. Price war is a term used in Business to indicate a state of intense competitive rivalry accompanied by a multi-lateral series of price reductions The New York Central Railroad, known simply as the New York Central in its publicity was a Railroad operating in the Northeastern United States. The Erie Railroad was a Railroad that operated in New York State, New Jersey, Pennsylvania, Ohio, Indiana, and At one point, NYCR charged only a dollar per car for the shipment of cattle. While the cattle cars quickly filled up, management was dismayed to find that Erie Railroad had also invested in the cattle-shipping business. [4]

Thomas Sowell argues:

It is a commentary on the development of antitrust law that the accused must defend himself, not against actual evidence of wrongdoing, but against a theory which predicts wrongdoing in the future. It is the civil equivalent of "preventive detention" in criminal cases—punishment without proof. [5]

Support

Since the early 1980s, economic models based on game theory and the theory of imperfect information have suggested that predatory pricing can be rational and profitable under certain circumstances. Game theory is a branch of Applied mathematics that is used in the Social sciences (most notably Economics) Biology, Engineering, Perfect information is a term used in Economics and Game theory to describe a state of complete knowledge about the actions of other players that is instantaneously For instance, by increasing production and lowering price below costs, a firm may convince its competitors that it has achieved a lower cost of production than them—the competitors will see the firm's high volume and low price and may believe that the firm's price is not below its costs but rather the firm's costs are low because of its high volume—causing them to leave the market based on the conclusion that it would not be profitable for them to compete; this is known as low-cost signaling. Also, by pricing aggressively the incumbent firm will acquire a reputation for being "tough", this may deter potential entrants in the future.

Another explanation for predatory pricing may be where long term success will require a large market share from early on (e. g. market for computer operating systems), usually markets with significant switching costs. Switching barriers or switching costs are terms used in microeconomics Strategic management, and Marketing to describe any impediment to a customer's changing By pricing aggressively to start with, even pricing below cost, firms can ensure a base of customers in the future from whom to make a profit. Moreover, the criticism of predatory pricing theory suggests that competition will come flooding back in to profit from the irrational market pricing. This view is based on conventional market economics, but it overlooks that there may barriers to entry or other significant transaction costs that cannot be borne by smaller competitors in the short run or in some cases even in the long run. In Economics and especially in the theory of Competition, barriers to entry are obstacles in the path of a firm which wants to enter a given Market In Economics and related disciplines a transaction cost is a Cost incurred in making an economic exchange

Moreover, most criticism of predatory pricing is based on oversimplified models and demonstrably fallacious assumptions, which disregard the the fact that businesses which engage in predatory pricing (1) are typically able to buy in sufficient volume to negotiate lower costs and/or bypass one or more levels of the distribution chain through which their competitors must operate, (2) are typically diversified retailers, able to subsidize losses in some departments with profits in others, and (3) are typically chain retailers, able to subsidize a temporary overall loss at one location with profits from other locations. Once all competitors for a given product line are driven out of an area, prices on that product line can be raised to a point that is profitable (particularly with reduced costs), yet low enough to serve as a barrier to entry, at least for independent specialty merchants. Also frequently overlooked by critics is the fact that predatory retailers typically locate their stores far enough away from established local merchants to discourage their customers from patronizing the local merchants in the same trip. As local independent merchants are driven out of business, customer traffic in established retail areas (both traditional downtowns and shopping centers of various sizes and types) decreases, leaving the remaining merchants more vulnerable to being driven out.

Alleged Examples

References

  1. ^ Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 113 S. Ct. 2578, 2589 (1993)
  2. ^ Areeda, Phillip and Turner, Donald F. (1975). "Predatory Pricing and Related Practices Under Section 2 of the Sherman Act". Harvard Law Review 88: 697. doi:10.2307/1340237. A digital object identifier ( DOI) is a permanent identifier given to an Electronic document.  
  3. ^ Predatory prosecution - Forbes.com
  4. ^ Maury Klein. The Life and Legend of Jay Gould.
  5. ^ Predatory prosecution - Forbes.com

See also

External links

Dictionary

predatory pricing

-noun

  1. A strategy of selling a good or service at a very low price so as to drive one's competitors out of business (at which point one can raise one's prices more freely).
© 2009 citizendia.org; parts available under the terms of GNU Free Documentation License, from http://en.wikipedia.org
 Dapyx Software network: MP3 Explorer | Ebook Manager | Zenithic