Management Studies, Firm Rationality and the Law of Predatory Pricing

The assumption on which much of antitrust law is based is that firms are rational, profit maximizers. Yet, the large firms of today prefer to grow aggressively by sacrificing profits. This paper argues that it is time for antitrust law to reconsider the assumption of profit maximization, particularly for conduct like predatory pricing where it plays a central role. Such reconsideration requires a careful study of firm behaviour. The object of this paper is to conduct such a study. Inspired by the work of scholars from the ‘Carnegie School' this paper explores how the view of the firm as boundedly rational could help to enrich the understanding of predatory pricing in antitrust law as it readies for the digital age. A key insight of the Carnegie School was that firms should be studied through individual observation. Accordingly this paper conducts case studies of specific contexts of predatory pricing in order to observe and better understand firm behaviour in these contexts. This paper also emphasizes the importance of insights from the discipline of strategic management in business studies to predatory pricing law. This paper finds that predatory pricing is often a boundedly rational response to competition. This begs reconsideration of concepts such as recoupment and cost thresholds in predatory pricing law that assume firm rationality. This paper concludes with suggestions about how predatory pricing law may be shaped by insights from management studies