Free the Price-Cutters!

by Don Boudreaux on January 20, 2006

in Law, Prices

In the current issue of Regulation, law professor Daniel Crane has a well-worth-reading article on the perverse consequences of prohibitions on so-called "predatory pricing."

Here’s an especially interesting part of the article:

A study by Case Western law professor Arthur Austin is telling.  Austin interviewed jurors in four antitrust trials, including Brooke Group v. Brown & Williamson, the latest predatory pricing case decided by the Supreme Court.  Austin’s interviews revealed that "the jurors were overwhelmed, frustrated, and confused by testimony well beyond their comprehension…. [A]t no time did any juror grasp — even at the margins — the law, the economics, or any other testimony related to the allegations or defense."  Austin reports,

At no time have I encountered a juror who had the foggiest notion of what oligopoly, market power, or average variable cost meant, much less how they applied to the case….  Typical is the response I received when I asked a juror whether he remembered average variable cost.  The juror replied, ‘Yes, explain it to me.  I still don’t know what it means.’

Mind you, the jury found that Brown & Williamson engaged in predatory pricing, which required a finding that it had priced below average variable cost.  If the jury did not understand the legal test, on what basis did it award a $148.8 judgment against Brown & Williamson?

Fortunately, in 1993 the U.S. Supreme Court found in favor of Brown & Williamson on appeal.


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