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The American Airlines Case: A Chance to Clarify Predation Policy

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  • Aaron S. Edlin

    (University of California, Berkeley & NBER)

  • Joseph Farrell

    (University of California, Berkeley)

Abstract

Predation occurs when a firm offers consumers favorable deals, usually in the short run, that get rid of competition and thereby harm consumers in the long run. Modern economic theory has shown how commitment or collective-action problems among consumers can lead to such paradoxical effects. But the paradox does signal danger. Too hawkish a policy might ban favorable deals that are not predatory. It would be ironic indeed if the standards for predatory pricing liability were so low that antitrust suits themselves became a tool for keeping prices high. Predation policy must therefore diagnose the unusual cases where favorable deals harm competition. To this end, courts and commentators have largely defined predation as sacrifice followed, at least plausibly, by recoupment at consumers' expense. The American Airlines case raises difficult questions about this approach.

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Bibliographic Info

Paper provided by EconWPA in its series Law and Economics with number 0401003.

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Length: 38 pages
Date of creation: 09 Jan 2004
Date of revision:
Handle: RePEc:wpa:wuwple:0401003

Note: 38 pages, Acrobat .pdf
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Web page: http://128.118.178.162

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  1. Bolton, P. & Brodley, J.F. & Riordan, M.H., 1999. "Predatory Pricing: Strategic Theory and Legal Policy," Discussion Paper 1999-82, Tilburg University, Center for Economic Research.
  2. Farrell, Joseph & Katz, Michael, 2001. "Competition or Predation? Schumpeterian Rivalry in Network Markets," Competition Policy Center, Working Paper Series qt6hs0v0pc, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  3. Joseph Farrell and Michael L. Katz., 2000. "Innovation, Rent Extraction, and Integration in Systems Markets," Economics Working Papers E00-286, University of California at Berkeley.
  4. Borenstein, S., 1991. "The Evolution of U.S. Airline Competition," Papers 389, California Davis - Institute of Governmental Affairs.
  5. Klevorick, Alvin K, 1993. "The Current State of the Law and Economics of Predatory Pricing," American Economic Review, American Economic Association, vol. 83(2), pages 162-67, May.
  6. Baumol, William J, 1996. "Predation and the Logic of the Average Variable Cost Test," Journal of Law and Economics, University of Chicago Press, vol. 39(1), pages 49-72, April.
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Cited by:
  1. Hugo Ferreira Braga Tadeu & Jersone Tasso Moreira Silva, 2012. "A Theoretical Framework for the Brazilian Airline Competitive Market Environment," Review of Economics & Finance, Better Advances Press, Canada, vol. 2, pages 97-106, May.
  2. Farrell Joseph & Shapiro Carl, 2010. "Antitrust Evaluation of Horizontal Mergers: An Economic Alternative to Market Definition," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-41, March.
  3. Kim, Sung-Hwan, 2009. "Predatory reputation in US airline markets," International Journal of Industrial Organization, Elsevier, vol. 27(5), pages 592-604, September.
  4. Harumi Ito & Darin Lee, 2003. "Incumbent Responses to Lower Cost Entry: Evidence from the U.S. Airline Industry," Working Papers 2003-22, Brown University, Department of Economics.
  5. Besanko, David & Doraszelski, Ulrich & Kryukov, Yaroslav, 2011. "The economics of predation: What drives pricing when there is learning-by-doing?," CEPR Discussion Papers 8708, C.E.P.R. Discussion Papers.
  6. Sayed Ajaz Hussain & Serkan Bahceci, 2008. "Network Structure and Design in the Deregulated U.S. Airline Industry: an Argument for Re-Regulation?," Working Papers tecipa-325, University of Toronto, Department of Economics.
  7. David Besanko & Ulrich Doraszelski & Yaroslav Kryukov, . "The Economics of Predation: What Drives Pricing When There is Learning-by-Doing?," GSIA Working Papers 2011-E8, Carnegie Mellon University, Tepper School of Business.
  8. Stefano Colombo, 2010. "Discriminatory Prices, Predation and Signal-Jamming in a Horizontal Differentiation Model," Journal of Industry, Competition and Trade, Springer, vol. 10(2), pages 87-104, June.
  9. Yaroslav Kryukov & Ulrich Doraszelski & David Besanko, . "The economics of predation: What drives pricing when there is learning-by-doing?," GSIA Working Papers 2011-E30, Carnegie Mellon University, Tepper School of Business.

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