Reexamining antitrust: can "anticompetitive" business practices benefit consumers? - Law & Justice

USA Today (Society for the Advancement of Education), March, 2002 by Wayne Crews

The problem is that predation may hurt a predator more than rivals because the predator must expand output and bear losses in order to capture the rivals' market and service the additional demand that the new low price generates. For every dollar lost, more than a dollar must be recouped in the future to break even. That attracts new entrants. Moreover, customers would likely grow weary of a company whose product took wide price swings.

Courts and bureaucrats should not second-guess whether a price is predatory, rather than simply low. Ordinary marketing practices, such as loss-leader or introductory discount pricing or Microsoft-style software giveaways, can be construed as predatory.

Economists Donald Boudreaux and Andrew Kleit argue that markets can police predatory pricing. Any predator's behavior would not go unnoticed by its upstream suppliers and downstream business customers who stand to lose from the predator's monopolization and reduced wholesale purchases. These suppliers can discipline retailers by taking their business elsewhere. Economist George Reisman has noted that predators invite rivals and speculators to form endless numbers of small competing companies for the sole purpose of slashing the product's price, thus forcing the predator to match, while shorting the predator's stock. Abuses of antitrust to secure protection from competition are far more likely to occur than successful predatory pricing itself.

5. Price discrimination. The Robinson-Patman Act was designed to protect small business by limiting the charging of different prices to similar buyers at the same time. It was enacted during an outcry against the Atlantic and Pacific Tea Co. (perhaps the Wal-Mart of its time), a grocery chain that tended to displace mom-and-pop stores. Nevertheless, artificially protecting small business does not equate with protecting consumers.

Price discrimination is most commonly criticized when small retailers are unable to obtain the same volume discounts from suppliers that larger competitors receive. Small sellers can form associations--or merge--to secure discounts, though. The Independent Grocers' Association is one example.

Attacking price discrimination protects inefficient competitors. For instance, the American Booksellers Association and a number of other independent booksellers filed 1998 antitrust lawsuits against the superstores Borders and Barnes & Noble for receiving volume discounts, favorable terms, and promotion treatment from publishers. Note the anti-consumer sheen to this case: To qualify for volume discounts in the first place, the big chains must sell far more, which requires lower prices, better hours, a better shopping environment, and better service and selection. Forced provision of discounts when it is not economical would lead to a cutback on overall discounts, injuring consumers by keeping prices charged by large retailers higher.

6. Manufacturer price restraints on retailers. Vertical price restraints refer to contractual agreements between manufacturers and retailers not to charge below some minimum or above some maximum. Opponents of vertical price-fixing are concerned that manufacturers may impose price restraints in order to facilitate policing of a retail cartel so that cheaters on the cartel agreement can be easily detected.