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Predatory pricing12/28/2023 There was, indeed, no evidence in the trial record that Standard Oil engaged in predatory pricing. The result was the article quoted above, which has become famous. Back in the 1950s, Aaron Director, a law professor at the University of Chicago and one of the founders of the discipline of law and economics, using basic economic reasoning, predicted that a look at the record would show that Standard Oil did no such thing. The classic alleged case of predatory pricing was that of Standard Oil of New Jersey. Fortunately, as we shall see, the Federal Trade Commission, the agency that enforces restrictions against predatory pricing, seems to understand the reasoning I’m about to explain. This would hurt consumers and some of the most-efficient firms. The more rare predatory pricing is, the more likely it is that successful prosecutions of alleged predatory pricing are unwitting attacks on healthy price competition. But even if predatory pricing occurred, it would be hard in practice to distinguish between predatory pricing and simple healthy competitive price cutting. Why does the issue matter? One main reason is that there are strictures against predatory pricing in U.S. Second, there is little evidence to support it. Then, according to this belief, once the competitors are driven out, the large firms can raise their prices in that market and collect higher-than-competitive prices. A widely held belief is that large firms with some market power can use their profits generated in particular markets to cut prices below costs in another market and drive out their competitors.
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