An Economic Analysis Of Law Of The Predatory Pricing

As one of conducts of abuse of dominant position, predatory pricing is characterized by concealment. Based on market dynamics, the predator squeezes out other competitors by reducing the price of product to obtain a monopoly position, and after that it will raise the price to compensate for previous loss. Overall, predatory pricing behavior excludes normal efficient competitors, affecting the market order. Aware at this, many countries make relevant regulations through the legal form. Though the Price Law, the Anti-unfair Competition Act and the Anti-Monopoly Law of China cover this issue to some extent, but in general, they don’t provide a valid legal basis for judicial practice. Based on information economics, this paper proves the feasibility and harmfulness of predatory pricing behavior, and provides standards and procedures for the judicial determination of predatory pricing behavior. Combined with the legal status of China, certain improvement measures are also proposed.The first part of this paper introduces the basic concepts and theories of predatory pricing, integrated with previous views of scholars. Firstly, this paper analyzes the concept of predatory pricing behavior from five perspectives, which are market structure, predator’s market position, intension of excluding competitors, pricing below cost and whether sustained low-price behavior has expected profit. With regard to the feasibility of predatory pricing behavior and determination standards of the cost, this paper summarizes views of Harvard School. Chicago School and post Chicago School, as well as determination standards of average variable cost, average marginal cost, long-run marginal cost and two-tiered approach.The second part makes economic analysis of predatory pricing behavior primarily from the perspectives of profitability. harmfulness and judgment standard of predatory pricing behavior. Considering whether predatory pricing is profitable, this paper establishes a simple game model to draw the conclusion that predatory pricing can be used by competitive enterprises to earn excess monopoly profits. Combined with the determination of monopoly behavior in microeconomics, a declaration that predatory pricing behavior is harmful to market competition, social welfare and consumer welfare is proved. After that this paper proposes the reference standard in judicial practice, that is, to begin with judging whether the enterprise occupy a dominant market position and entry barrier of the market, and then use average variable cost as the primarily standard and compensation and intension as auxiliary standards to determine the nature of conducts of the enterprise.The third part analyzes laws and regulations of China on predatory pricing. Firstly, this paper reviews the history of legislation on avoiding predatory pricing behavior, and explains existed shortcomings of specific laws and regulations. Based on this, this paper concludes that there are four problems with existing laws, which involves defects of law-making, law enforcement agencies and determination standards of cost, as well as the fact those state-owned monopolies are difficult to be regulated strictly due to historical reasons.The fourth part gives several proposals, combined with the problems of laws and regulations of China. These proposals include:to enhance civil liability commitments and regulate administrative monopoly; to explicit criteria and procedures for determination of predatory pricing behavior; to set independent and unified law enforcement agencies, equipped with personnel with professional knowledge and practical experience; to improve the system of anti-monopoly private action.