Illegal Competition

Standard Oil

Perhaps the single most important case concerning predatory pricing was Standard Oil Company of New Jersey v. United States. In the late 19th century, Standard Oil attained 90 percent market share in American oil refining. The Supreme Court found Standard Oil in violation of the Sherman Antitrust Act, specifying predatory practices on the part of Standard Oil. Critics of this and other similar rulings have argued that the evidence actually reveals the rarity and ineffectiveness of predatory pricing.

Often, the refineries that Standard shut down with a price war simply reopened after Standard increased its prices. In the absence of barriers to entry in the market in question, it is not clear that a predatory pricing strategy will work. This strategy requires large financial resources on the part of the predatory firm, along with the willingness to risk them in such predatory ventures. Doubts concerning the profitability of this strategy have left many economists skeptical concerning the need for legal rules against predation.

There were other allegations against Standard. Some claimed that Standard committed industrial espionage and sabotage. While nobody proved the worst accusations against Standard, some businesses do commit serious crimes in attempts to gain market share. Such practices clearly involve illegal acts. Businesses attempt to steal information on their rival's research and development. Increased market share through such practices provide no benefits to consumers.

Dumping and Tying

Corporate dumping is a variation on the predatory theme. Dumping usually refers to foreign competitors who sell their products below production costs in order to subdue domestic producers. Foreign firms may sell at lower prices abroad than at home. Profits in their domestic markets go to subsidize short-run losses abroad. After gaining monopolies abroad, these foreign firms can begin reaping monopoly profits.

...