What is the purpose of anti-trust legislation? Is it to protect consumers from monopoly pricing, or protect competitors that cannot compete? It seems to me that the goals are conflicting. By forcing "monopolies" to charge higher prices, it hurts the consumer, though it helps their competitors.
is a good read.
The theory of predatory pricing has always seemed to have a grain of truth to it--at least to noneconomists--but research over the past 35 years has shown that predatory pricing as a strategy for monopolizing an industry is irra- tional, that there has never been a single clear-cut example of a monopoly created by so-called predatory pricing, and that claims of predatory pricing are typically made by com- petitors who are either unwilling or unable to cut their own prices. Thus, legal restrictions on price cutting, in the name of combatting "predation," are inevitably protectionist and anti-consumer, as Harold Demsetz noted.
Even in the cases where a competitor seemed to have been eliminated by low prices, "in no case were all of the competitors eliminated."(25) Thus,
there was no monopoly, just lower prices. Three cases seem to have facilitated a merger, but mergers are typically an efficient alternative to bankruptcy, not a route to monopoly. In those cases, as in the others, the mergers did not result in anything remotely resembling a monopolistic industry, as defined by Koller (i.e., one with a single producer).
In sum, despite over 100 federal antitrust cases based on predatory pricing, Koller found absolutely no evidence of any monopoly having been established by predatory pricing between 1890 and 1970. Yet at the time Koller's study was published (1971), predatory pricing had long been part of the conventional wisdom. The work of McGee, Elzinga, and other analysts had not yet gained wide recognition.
The search for the elusive predatory pricer has not been any more successful in the two decades since Koller's study appeared. The complete lack of evidence of predatory pricing, moreover, has not gone unnoticed by the U.S. Supreme Court. In Matsushita Electric Industrial Co. v. Zenith Radio (1986), the Court demonstrated knowledge of the above-mentioned research in declaring, effectively, that predatory pricing was about as common as unicorn sightings.
Zenith had accused Matsushita and several other Japanese microelectronics companies of engaging in predatory pricing--of using profits from the Japanese market to subsidize below-cost pricing of color television sets in the United States. The Supreme Court ruled against Zenith, recognizing in its majority opinion that
a predatory pricing conspiracy is by nature speculative. Any agreement to price below the competitive level requires the conspirators to forgo profits that free competition would offer them. The forgone profits may be considered an investment in the future. For the investment to be rational, the conspirators must have a reasonable expectation of recovering, in the form of later monopoly profits, more than the losses suffered.(26)
The Court also noted that "the success of such schemes is inherently uncertain: the short-run loss is definite, but the long-run gain depends on successfully neutralizing the competition."(27) The Court continues, "There is a consensus among commentators that predatory pricing schemes are rarely tried, and even more rarely successful."(28)