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The antitrust prohibition of excessive pricing

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  • Gilo, David
  • Spiegel, Yossi

Abstract

Excessive pricing by a dominant firm is unlawful in many countries. To assess whether it is excessive, the dominant firm’s price is often compared with price benchmarks. We examine the competitive implications of two such benchmarks: a retrospective benchmark where the price that prevails after a rival enters the market is used to assess whether the dominant firm’s pre-entry price was excessive, and a contemporaneous benchmark, where the dominant firm’s price is compared with the price that the firm charges contemporaneously in another market. We show that the two benchmarks restrain the dominant firm’s behavior when it acts as a monopoly, but soften competition when the dominant firm competes with a rival. Moreover, a retrospective benchmark promotes entry, but may lead to inefficient entry.

Suggested Citation

  • Gilo, David & Spiegel, Yossi, 2018. "The antitrust prohibition of excessive pricing," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 503-541.
    • Handle: RePEc:eee:indorg:v:61:y:2018:i:c:p:503-541
    DOI: 10.1016/j.ijindorg.2018.05.003
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    References listed on IDEAS

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    1. Monika Schnitzer, 1994. "Dynamic Duopoly with Best-Price Clauses," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 186-196, Spring.
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    4. Thomas E. Cooper, 1986. "Most-Favored-Customer Pricing and Tacit Collusion," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 377-388, Autumn.
    5. Yossi Spiegel, 2018. "Antitrust Enforcement of the Prohibition of Excessive Prices: The Israeli Experience," International Law and Economics, in: Yannis Katsoulacos & Frédéric Jenny (ed.), Excessive Pricing and Competition Law Enforcement, pages 127-158, Springer.
    6. William S. Neilson & Harold Winter, 1993. "Bilateral Most-Favored-Customer Pricing and Collusion," RAND Journal of Economics, The RAND Corporation, vol. 24(1), pages 147-155, Spring.
    7. Besanko, David & Lyon, Thomas P., 1993. "Equilibrium incentives for most-favored customer clauses in an oligopolistic industry," International Journal of Industrial Organization, Elsevier, vol. 11(3), pages 347-367, September.
    8. David Gilo, 2018. "A Coherent Approach to the Antitrust Prohibition of Excessive Pricing by Dominant Firms," International Law and Economics, in: Yannis Katsoulacos & Frédéric Jenny (ed.), Excessive Pricing and Competition Law Enforcement, pages 99-126, Springer.
    9. Ariel Ezrachi & David Gilo, 2009. "Are Excessive Prices Really Self-Correcting?," Journal of Competition Law and Economics, Oxford University Press, vol. 5(2), pages 249-268.
    10. Schmutzler, Armin & Edlin, Aaron & Roux, Catherine & Thoeni, Christian, 2016. "Hunting Unicorns? Experimental Evidence on Predatory Pricing," VfS Annual Conference 2016 (Augsburg): Demographic Change 145814, Verein für Socialpolitik / German Economic Association.
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    Cited by:

    1. Willem H. Boshoff, 2021. "South African competition policy on excessive pricing and its relation to price gouging during the COVID‐19 disaster period," South African Journal of Economics, Economic Society of South Africa, vol. 89(1), pages 112-140, March.

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    More about this item

    Keywords

    Excessive pricing; Antitrust; Retrospective benchmark; Contemporaneous benchmark; Dominant firm; Entry;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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