Price discrimination and related conduct
Pages | 265-322 |
CHAPTERVII
PRICE DISCRIMINATION ANDRELATED
CONDUCT
Pricediscriminationisan oddball in the antitrustregime governing
product distribution.Asdiscussedin other chapters,assessing the legality
of verticalrestraints under Section 1 of the ShermanAct or allegedly
monopolistic conduct ina case brought under Section 2 may require
rigorous economic analysesto define therelevantproduct and geographic
markets,assesstheimpact of the challengedconduct on competition
within those markets,andweighthe procompetitive benefits of the
challenged conduct againstitsanticompetitiveeffects.Insuchcases,
economists and antitrustlawyersforthemostpartutilize a common
vocabulary grounded in economic theory, and the conclusion that a
businessarrangement or practiceis procompetitive inan economic sense
generallymeansthatitisalsolawful.In contrast, price discrimination as
itis understood by economists isnotnecessarilypricediscriminationas
antitrustpractitioners understandit,and procompetitiveprice
discriminationis not necessarilylawful.
Simplisticallystated,froman economist’s point of view,price
discriminationoccurswhendifferentcustomerspay pricesthatdifferin
theirratioto the seller’smarginalcostsofsuchsales. Economic models
look at whether and under whatcircumstancesparticularinstances of such
price discrimination are harmful or beneficialtotheseller, the buyer, and
consumer welfaregenerally.Forexample,inthemergercontext,
economic analysismay be deployed toassesswhetherthepost-merger
combined entitycan impose sustainable,supra-competitivepriceincreases
upon—i.e., whether itcanpricediscriminateagainst—a targetedclass of
“core”customers.1 Proof ofthe potentialforsuchpricediscriminationcan
evidence the relevantmarket,themeasurement of marketshares, and the
evaluationof the proposedmerger’slikelycompetitiveeffects.2
1.SeeU.S.DEP’T OFJUSTICE&FEDERALTRADECOMM’N,HORIZONTAL
MERGERGUIDELINES § 3,at 6 (Aug.19,2010)[hereinafter2010 MERGER
GUIDELINES].
(D.C.Cir.2008)(rulingthatevidenceofthepotentialforprice
265
266AntitrustLawandEconomicsofProductDistribution
Within the framework of U.S.antitrustlaw, notably the Robinson-
PatmanAct3(“RPA”),pricediscrimination“isjust a pricedifference,”4
whichoccurswhena sellercharges different pricestodifferentbuyers in
atleasttworeasonablycontemporaneous salesofthesame product or
service.So-called predatory pricing, characterized by “pricing below an
appropriate measureofcost for thepurpose of eliminating competitorsin
the shortrun and reducing competition inthe long run,”5is actionable
under the RPAasprimarylinepricediscrimination (i.e., whereprice
differentials tend tolessencompetitionbetween the sellerand its
competitors).SincetheSupreme Court’s decisioninBrooke Group v.
Brown & Williamson Tobacco Corp.,6 the analysisofsuchclaims has
mergedwiththeanalysispredatory pricing as a monopolistic practice
under Section 2 of theShermanAct.Insuchcases,the economist playsan
important roleinestablishing or defeatingliability by addressing the
extenttowhichthe defendantpriced “below cost”(aconceptstillevolving
in the courts), and, ifso, whether the defendant has a “reasonableprospect”
discriminationbetween“core”and“marginal”customerscouldsupport
FTC’smarketdefinitionof“premium,naturalandorganicsupermarkets”),
citingMarylandPeople’sCounselv.FERC, 761F.2d780,786-87(D.C.Cir.
1985)(vacatinganticompetitiveagencyorderpermittingpipelinesto
transportgasatloweredpricesto“noncaptiveconsumers”—largeindustrial
enduserscapableofswitchingto alternativefuels—withoutanyobligation
toprovidesameserviceto“captiveconsumers,”suchaslocaldistribution
companiesandtheirresidentialcustomers).
3. ActofJune19,1936,15U.S.C.§§13–13b,21a,amendingSection 2 ofthe
ClaytonAct.TheRobinson-PatmanActandtheextensivebodyofcaselaw
interpretingitscomplexprovisionsarediscussedinABASECTIONOF
ANTITRUSTLAW,THEPRICEDISCRIMINATIONHANDBOOK(2012)
[hereinafter PRICEDISCRIMINATIONHANDBOOK] andABASECTIONOF
ANTITRUSTLAW,ANTITRUSTLAWDEVELOPMENTS497-565(7thed.2012)
[hereinafter ANTITRUSTLAWDEVELOPMENTS(SEVENTH)].
ChryslerGroupLLC,No.13-cv- 04236-BLF,2014WL3418545(N.D.Cal.
July11,2014).TheRobinson-PatmanAct,however,doesnot“banallprice
differenceschargedtodifferentpurchasersofcommoditiesoflike gradeand
quality.”VolvoTrucksN.Am.,Inc.v.Reeder-SimcoGMC,Inc.,546 U.S.
164, 176, (2006)(citing, Brooke Group Ltd. v. Brown & Williamson
Tobacco Corp.509 U.S. 209 (1993)).
224(1993).
PriceDiscriminationandRelatedConduct267
or “dangerous probability” of recouping its investmentin below-cost
prices by meansof monopoly pricing after meaningful competition has
beeneliminated.7
Incontrast, the economist’s roleina secondarylineprice
discriminationcase under theRPA (i.e., where a seller’spricedifferentials
affectthe ability of the seller’s customers to compete witheachother)—if
he orsheplays any roleatall—iseffectivelylimitedtoaidinginthe
determination of whetherthe defendant’s pricedifferenceswerejustified
by and no greaterthanactualcostdifferences,8 whether a privateplaintiff
has therequisiteantitrustinjurytoobtainreliefpursuanttoSection4(a)of
the ClaytonAct, and ifso, the nature and amount of theplaintiff’s
recoverabledamages. 9Theeconomist’s rolemaybe evenmore
circumscribedincases involving stateprice discrimination lawstothe
7. Thevariousapproachestakenbycourtstotheanalysisofprice-cost
relationshipsandthepossibilityofrecoupmentinpredatorypricingcases
arediscussedin ANTITRUSTLAWDEVELOPMENTS(SEVENTH),supranote3,
at276–86.
8. Thisisthe“costjustificationdefense,”codifiedinSection2(a)as a proviso
totheoperativeprohibitionagainstpricediscrimination:
[N]othinghereincontainedshallpreventdifferentialswhichmake
onlydueallowancefordifferencesinthecostofmanufacture,sale,
ordeliveryresultingfromthedifferingmethodsorquantitiesin
whichsuchcommoditiesaretosuchpurchaserssoldor
delivered. . ..
For a moredetaileddiscussionofthecost justificationdefense,seeinfra
notes104–09andaccompanyingtext.
9. 15U.S.C. § 15(a),whichprovides,inrelevantpart:
[A]nypersonwhoshallbeinjuredinhisbusinessorpropertyby
reasonofanythingforbiddenintheantitrustlawsmaysuetherefor
inanydistrictcourtoftheUnitedStatesinthedistrictinwhichthe
defendantresidesorisfoundorhasanagent,withoutrespecttothe
amountincontroversy,andshallrecoverthreefoldthedamagesby
himsustained,andthecostofsuit,including a reasonableattorney's
fee.
For a moredetaileddiscussionoftheroleofeconomicanalysisin
establishingantitrustinjuryanddamagesinpricediscriminationcases,see
infranotes199–215andaccompanyingtext;seealsogenerallyABA
SECTIONOFANTITRUSTLAW,PROVINGANTITRUSTDAMAGES:LEGALAND
ECONOMICISSUES275–89(2ded.2010)[hereinafter PROVINGANTITRUST
DAMAGES].
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