Does the Law of Predatory Pricing and Cross-Subsidisation Need a Radical Rethink?

Abstract

Predatory pricing policy in Europe is at a crossroads: while the European Court of First Instance ("CFI") is set to rule on the Wanadoo case, the European Commission is currently reflecting on its enforcement policy in the field of Article 82. This article starts by setting out the characteristics of predatory pricing -- including certain controversial aspects. In Part II, it will be argued that the proper cost standard should take account of the allocation of common costs among several product lines, which would lead to a unified theory of predatory pricing and cross-subsidisation. Part III deals with possible defences to below-cost pricing. Part IV summarises the debate on the role of recoupment in predation analysis and proposes a systematic critique of the dominant consensus in the United States, namely that successful recoupment is a necessary element of any predatory pricing claim. This article questions the major premises on which the current dominant approach is based and challenges its compatibility with sound economic theory. In particular, it will be shown that unprofitable predation (a) may be rational anyway; and (b) is not necessarily "a boon to consumers" (Brooke Group). Therefore the European courts would be well advised not to adopt the American approach as regards recoupment.