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Predatory Pricing and Related Practices under Section 2 of the Sherman Act

Phillip Areeda and Donald F. Turner
Harvard Law Review
Vol. 88, No. 4 (Feb., 1975), pp. 697-733
DOI: 10.2307/1340237
Stable URL: http://www.jstor.org/stable/1340237
Page Count: 37
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Predatory Pricing and Related Practices under Section 2 of the Sherman Act
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Abstract

A firm may reduce its prices in an attempt to destroy its rivals or to deter new entry. Although the Sherman Act has long been construed to prohibit this practice, the case law on predatory pricing has been characterized by vagueness and a paucity of economic analysis. In this Article, Professors Areeda and Turner analyze the predatory pricing offense in terms of its economic underpinnings. After briefly reviewing the fundamental economic concepts of cost-measurement and profit-maximization, the authors examine the relationship between a firm's prices and its costs in order to define a rational dividing line between legitimately competitive prices and prices that are properly regarded as predatory. They then apply their analytical framework to possible techniques of predation other than general price reductions.

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