32 Antitrust Bull. 1 (1987)

handle is hein.journals/antibull32 and id is 1 raw text is: The Antitrust Bulletin/Spring 1987

Predatory pricing: an economic
and legal analysis
BY CHARLES W. McCALL*
I. Introduction
The issue of predatory pricing has long been a subject of
controversy within the legal and economics professions. Early
debate centered on the question of the rationality of predatory
pricing. This article briefly outlines the arguments in the rational-
ity debate. Recent research has been devoted to the formulation
of legal guidelines to be used in predatory pricing litigation.
These proposals are critically reviewed in this study. The theoreti-
cal underpinnings of price predation are then examined in the
context of a cost-benefit model. This cost-benefit framework is
used to derive a two-part predation standard. This standard is
then applied to two antitrust cases. The article concludes with a
discussion of the merits of utilizing this two-tiered standard in
predatory pricing litigation.
II. Overview of rationality debate
Concern about the practice of predatory pricing can be traced
back to the early 1900s. It was generally agreed that predatory
pricing was a rational form of business conduct. In the pursuit of
the objective of long-run profit maximization, some firms would
allegedly use a policy of price predation to drive rivals out of
business. The predator could then gain a dominant market share
*   Associate Professor of Economics, Rider College, Lawrenceville,
New Jersey.
1987 by Federal Legal Publications, Inc.

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