The "Logic" of "Predatory-Pricing" Prohibitions

"Predatory pricing" is said to occur when a firm seeking to monopolize a market sells its wares at prices below the firm's costs of production. Such below-cost pricing, it is said, unjustifiably inflicts losses on equally efficient rivals ("prey"). These losses force the prey eventually into bankruptcy, leaving the predator as the only seller in the market. The predator becomes a monopolist tomorrow by charging "excessively" low prices today. Thus, the benefits consumers get from today's low prices are more than offset (it is assumed) by the harm they suffer from tomorrow's monopoly prices.

If successful "predatory pricing" as described in the preceding paragraph occurred with some frequency, the case for legal sanctions against it would have a plausible basis. There is no good reason, however, to suppose that "predatory pricing" occurs. A vast amount of theory and evidence suggests that firms attempting to monopolize markets via below-cost pricing are almost sure to fail.1 And profit-seeking firms are not prone to pursue strategies that consistently misfire. It follows that legal prohibitions against "predatory pricing" are, at best, unnecessary.

1. According to the same article, the law prohibiting predatory pricing

a. benefits the society at it promotes competition.

b. hurts society as it reduces competition.

c. does not benefit nor hurt society.

d. was rarely used.