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The American Airlines Case: A Chance to Clarify Predation Policy

  • Aaron S. Edlin

    (University of California, Berkeley & NBER)

  • Joseph Farrell

    (University of California, Berkeley)

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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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
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Borenstein, S., 1991. "The Evolution of U.S. Airline Competition," Papers 389, California Davis - Institute of Governmental Affairs.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
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