Editing Predatory pricing (section)

===Further strategies===

====Industry-specific rules====
Craswell and Fratrik suggest that establishing a legal standard to detect predatory pricing in the retail industry is unnecessary and should not amount to an antitrust violation. The primary reasoning was that predatory pricing typically requires strong barriers to entry to generate profits in the long run, which are absent in the retail grocery industry.<ref>{{Cite journal |last=Craswell |first=Richard |last2=Fratrik |first2=Mark |date=1985-01-01 |title=Predatory Pricing Theory Applied: The Case of Supermarkets vs. Warehouse Stores |url=https://scholarlycommons.law.case.edu/caselrev/vol36/iss1/3/ |journal=Case Western Reserve Law Review |volume=36 |issue=1 |pages=1 |issn=0008-7262}}</ref> When low-cost warehouse stores enter the market, supermarkets often reduce their prices to eliminate this competition or discourage them from expansion. However, Craswell and Fratrik suggest that this may not be predatory pricing, but rather incumbent firms engaging in non-predatory price cuts required for ordinary competition.<ref>{{Cite journal |last=Craswell |first=Richard |last2=Fratrik |first2=Mark |date=1985-01-01 |title=Predatory Pricing Theory Applied: The Case of Supermarkets vs. Warehouse Stores |url=https://scholarlycommons.law.case.edu/caselrev/vol36/iss1/3/ |journal=Case Western Reserve Law Review |volume=36 |issue=1 |pages=1 |issn=0008-7262}}</ref>

====Rule of reason test====
Section 1 of the ''Sherman Act Antitrust Act of 1890'' prohibits '''every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce.''{{'}} However, Courts have adopted the rule of reason test to analyze the effects of a restraint of trade on competition. Recent case law suggests that there is a four-step rule of reason test.<ref>Carrier, MA 2019, 'The Four-Step Rule of Reason,' ''Antitrust'', vol. 33, no. 3, pp. 50-51, viewed 2 May 2022, < https://www.antitrustinstitute.org/wp-content/uploads/2019/04/ANTITRUST-4-step-RoR.pdf {{Webarchive|url=https://web.archive.org/web/20220417034822/https://www.antitrustinstitute.org/wp-content/uploads/2019/04/ANTITRUST-4-step-RoR.pdf |date=2022-04-17 }}></ref> First, the plaintiff must demonstrate an "anti-competitive effect". Second, the defendant must show a "legitimate procompetitive justification". Third, the plaintiff must highlight that the restraint is not "reasonably necessary" to achieve the defendant's objectives or that there are "less restrictive alternatives". Fourth, the Court will balance the restraint of trade's "anti-competitive effects with its pro-competitive justifications."<ref>Carrier, MA 2019, 'The Four-Step Rule of Reason,' ''Antitrust'', vol. 33, no. 3, pp. 50-51, viewed 2 May 2022, < https://www.antitrustinstitute.org/wp-content/uploads/2019/04/ANTITRUST-4-step-RoR.pdf {{Webarchive|url=https://web.archive.org/web/20220417034822/https://www.antitrustinstitute.org/wp-content/uploads/2019/04/ANTITRUST-4-step-RoR.pdf |date=2022-04-17 }}>.</ref> Failure to satisfy any of these elements will defeat the anti-trust violation claim.

====Output restriction rule====
Williamson offers the output restriction rule to restrain dominant firms from engaging in predatory pricing. The rule stipulates that upon the entry of a new firm in a market, a dominant firm cannot abuse their position by increasing their output above the pre-entry level.<ref name="jstor.org">{{Cite journal |last=Williamson |first=Oliver E. |date=1977 |title=Predatory Pricing: A Strategic and Welfare Analysis |url=https://www.jstor.org/stable/795652 |journal=The Yale Law Journal |volume=87 |issue=2 |pages=284–340 |doi=10.2307/795652 |issn=0044-0094}}</ref> A prevention period of 12 to 18 months should be adequate for new entrants to establish a market identity and understand economies of scale while disincentivizing dominant firms from holding excess capacity.<ref name="jstor.org"/> Williamson suggests that the output restriction rule possesses greater welfare properties than the short-run marginal cost rule or short-run average cost rule.<ref>{{Cite journal |last=Williamson |first=Oliver E. |date=1981 |title=Predatory Pricing Rules: A Comment on Williamson's Output Restriction Rule: Reply to Lefever |url=https://www.jstor.org/stable/796084 |journal=The Yale Law Journal |volume=90 |issue=7 |pages=1646–1649 |doi=10.2307/796084 |issn=0044-0094|url-access=subscription }}</ref>

====Two tier approach====
Joskow and Klevorick offer a two-tier approach to identify predatory pricing. The first stage involves an analysis of the structural characteristics of the relevant market and the market power of the firm allegedly engaging in anti-competitive behaviour.<ref name="Joskow, PL 1979, pp. 213-270">{{Cite journal |last=Joskow |first=Paul L. |last2=Klevorick |first2=Alvin K. |date=1979 |title=A Framework for Analyzing Predatory Pricing Policy |url=https://www.jstor.org/stable/795837 |journal=The Yale Law Journal |volume=89 |issue=2 |pages=213–270 |doi=10.2307/795837 |issn=0044-0094|url-access=subscription }}</ref> The plaintiff must demonstrate that the market in which the behaviour occurred would be prone to predatory pricing and cause losses in economic efficiency. The second stage involves behavioural considerations which may demonstrate predation such as the dominant firm pricing below average variable cost.<ref name="Joskow, PL 1979, pp. 213-270"/>

'''The Brooke Group rule'''

The Brooke Group rule was established by the US Supreme Court in 1993 for the particular case involving Brooke Group Ltd. v. Brown & Williamson Tobacco Corporation. Under this rule, to be found guilty of predatory pricing, the plaintiff was to prove the following:

# Defendant set prices to below own cost of production.
# If successful in driving competitors from the market, defendant had high probability of recouping losses through increase in prices in the long-term.
# Defendant had clear intent to engage in predatory pricing

The first element can be proven with sufficient evidence of defendant's costs in the production of their goods and services. The second element can be proven with evidence of the defendant's barriers to entry, market power and other evidence that would likely lead to the increase in prices in the future. The third element would require direct evidence to clearly demonstrate the defendant's plans to manipulate the market through use of predatory pricing strategy. This may be found through capture of firm's internal documents or plans.<ref>{{Cite web |title=Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993) |url=https://supreme.justia.com/cases/federal/us/509/209/ |access-date=2023-04-24 |website=Justia Law |language=en}}</ref>

If all elements can be proven with sufficient evidence for each, following the Brooke Group rule, the plaintiff may claim for predatory pricing under the US antitrust law.<ref>{{Cite journal |last=Areeda, Hovenkamp |first=P., H. |date=2013 |title=Antitrust Law: An Analysis of Antitrust Principles and Their Application |journal=New York: Wolters Kluwer |issue=4}}</ref>