Monopsony vs. Monopoly: The Analytical Distinctions between Predatory Bidding and Predatory Pricing

Abstract

The current state of antitrust law erroneously applies the same test to predatory pricing and predatory bidding schemes that allegedly violate Section 2 of the Sherman Antitrust Act. Treating predatory bidding like predatory pricing is both over- and under-inclusive at the same time. It is over-inclusive because a firm engaging in predatory bidding is much less likely than one engaging in predatory pricing to ever recoup their losses due to the fundamental differences between the formation of monopolies and monopsonies in modern markets. It is under-inclusive because while a failed attempt at developing a monopoly through predatory pricing is likely to benefit consumers, it is possible that a failed attempt at predatory bidding will in fact harm consumers; an outcome in direct conflict with the stated goals of antitrust law. These foundational distinctions between predatory bidding and predatory pricing lead to the conclusion that these two antitrust violations are not just different in degree, they are different in kind. As such, a different test must be used to gauge whether or not an antitrust violation has occurred in the predatory bidding context than in the predatory pricing context. Given the specific nature of the concerns of applying predatory pricing rationale to predatory bidding, a strict consumer welfare test firmly rooted in the rule of reason tradition is the best alternative.