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Academic Articles Awards > Economics

The Raising Rivals’ Cost Foreclosure Paradigm, Conditional Pricing Practices and the Flawed Incremental Price-Cost Test

Steven C. Salop, 81 Antitrust L.J. 371 (2017)

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Readers’ vote will close on February 9, 2018. Readers’ vote will allow you to nominate 1 article for each of the Awards, i.e., 10 Academic articles, 10 Business articles, and the best Soft Laws. The readers’ short-list of Academic and Business Articles will be communicated to the Board together with the 20 articles nominated by the Steering Committees. The Board will decide on the award-winning articles. Results will be announced at the Awards ceremony to take place in Washington DC on the eve of the ABA Antitrust Spring Meeting on April 10, 2018.

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There are two overarching legal paradigms for analyzing exclusionary conduct in antitrust – predatory pricing and the raising rivals’ costs characterization of foreclosure. Sometimes the choice of paradigm is obvious. Other times, it may depend on the structure of the plaintiff’s allegations. Some types of conduct, notably conditional pricing practices (CPPs), might appear by analogy to fit into both paradigms. CPPs involve pricing that is conditioned on exclusivity or some other type of favoritism in a customer’s purchases or input supplier’s sales. The predatory pricing paradigm would attack the low prices of CPPs. By contrast, the RRC foreclosure paradigm would attack the condition. The analysis in this article concludes that CPPs are better characterized as belonging to the RRC foreclosure paradigm and evaluated under a rule of reason standard that focuses directly on harm to competition and consumers. The impact of foreclosure should not be measured mainly by the fraction of customers or suppliers affected. Rules that artificially narrow concerns to whether the competitors are able to reach minimum viable scale or minimum efficient also are flawed. Foreclosure instead should be gauged primarily by the impact on the competitors’ costs, output, capacity, and ability to enter and expand. The analysis also explains that the fundamental focus of analysis is the impact of consumers in the output market, not the impact on competitors. The article also explains in detail why concerns about conditional discounts should not be screened with an incremental price-cost test. That test is not reliably administrable and it leads to substantial false negative and false positive errors that will harm consumers and competition. It also is not required for counseling purposes.

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