Predatory Pricing and the Flaws in Brandesian Economics Challenging Recoupment Theory

Abstract

The technology industry has seen rapid growth over the last few decades and many populists and reformers seek to reign in this growth with amendments to various antitrust regulatory structures. This paper continues my previous analysis of these general reforms while specifically analyzing predatory price discrimination and recoupment theory. Brandesian economists wish to swing the antitrust sword to protect small businesses against big corporations. Advocates look at the policy of bigness and claim that permitting its existence must be incorrect and that the courts should counteract bigness with antitrust litigation results shaped not based on economics and consumer welfare but on policy concerns.

The critic of the current antitrust system that provides the most relevant and thorough critique of the current system is Yale’s Lina Kahn in her student note Amazon’s Antitrust Paradox. While her note raises several concerns with Amazon’s business strategy, she specifically targets the structural dominance of Amazon through an alleged predatory price discrimination scheme aimed at undercutting competition and establishing its monopoly in the ebook marketplace. Kahn analyzes Amazon’s growing market dominance along with the alleged difficulties in reigning in its market power through modern day antitrust authority. Most striking, is Khan contention that the Apple v. United States case should have examined Amazon’s role in why the book publishers developed a price fixing and exclusionary scheme against Amazon.

These arguments, while in theory may seem particularly compelling for reformists who are troubled by the rise of big tech; are in fact flawed. As I advocate below, claiming predatory price discrimination as a theory of harm is illogical as a practical matter and opening up this theory would be cumbersome on courts, would lead to perverse results, and would not increase consumer welfare.