Predatory pricing is a commercial strategy in which a dominant firm deliberately cuts its prices below the level set by competitors, and often below its own costs, to drive rivals out of the market, before raising prices again once competition has been eliminated to recoup its losses. Most major jurisdictions treat the practice as anticompetitive: the European Union prohibits it as an abuse of a dominant market position under Article 102 of the Treaty on the Functioning of the European Union, and Australia, Canada, India, the United Kingdom, and Germany explicitly ban it under their own competition laws. United States courts have set a high evidentiary bar for predatory pricing claims, requiring proof that the pricing threatens competition in the market overall rather than merely harming an individual rival. The legal rationale in every case is the same: short-term price cuts benefit consumers, but the anticompetitive effect of monopoly pricing once rivals are driven out justifies restricting the practice.
Facts
Classification CodeUS antitrust law tests predatory pricing under the Brooke Group rule, established by the Supreme Court in 1993, rather than treating it as a single statutorily defined offense. 1 Typical PenaltyLegal consequences for predatory pricing are typically compensatory damages or administrative penalties, distinct from the anti-dumping duties levied for the related but separate practice of international dumping. 1 Elements of OffenseUnder the Brooke Group rule a plaintiff must prove the defendant set prices below its own cost of production, had a high probability of recouping the resulting losses through later price increases, and had a clear intent to engage in predatory pricing. 1 Notable ExampleIn Post Danmark I, the Court of Justice refined the AKZO standard, holding that prices above average incremental cost but below average total cost would not likely be ruled abusive under Article 102 of the TFEU absent evidence the dominant firm deliberately intended to eliminate competition. 1 Jurisdiction VariationThe European Union takes a stricter approach than the United States: under the AKZO standard, a dominant firm pricing below average variable cost is presumed to be abusively predatory because of an assumed intent to eliminate competitors rather than to maximize profits. 1 Classification
Offense Grade In the Other Atlases
- Also in Geography Atlas: Europe, found in there.
- Also in Geography Atlas: North America, found in there.
Sources
1. Predatory Pricing (Wikipedia)
WikipediaBrooke Group rule subsection
The Brooke Group rule was established by the US Supreme Court in 1993 for the particular case involving Brooke Group Ltd. v. Brown & Williamson Tobacco Corporation.
EU AKZO case subsection
if a dominant firm sets prices below AVC, the predatory pricing is presumed to be abusively predatory due to the assumed intention to eliminate competitors rather than maximize profits
Post Danmark I subsection
Post Danmark I, the Court of Justice developed upon AKZO by stating that prices above average incremental costs but below ATC would not likely be ruled abusive under Article 102 of the TFEU if there was no evidence the dominant firm deliberately intended to eliminate competition.
Comparison with dumping subsection
Legal sanctions for predatory pricing are compensatory damages or administrative penalties, while dumping involves the levying of anti-dumping duties.
Brooke Group rule subsection, three-part liability test
Defendant set prices to below own cost of production.
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