Contemporary economic and legal analyses of predatory pricing.
Degree GrantorUniversity of Canterbury
Degree NameMaster of Commerce
Over the last decade the market-driven economic philosophies of successive New Zealand governments have transformed the structure of the economy. These changes have established favourable market conditions for the success of a particular type of anticompetitive organisational behaviour, predatory pricing. From the mid1950s to the early 1980s, economic analyses of predatory pricing theories frequently concluded that this behaviour constituted economically irrational behaviour. This conclusion generated a widespread scepticism among antitrust commentators, policymakers and judges towards the prevalence of such behaviour. Recently, however, the basis for this conclusion has been undermined by the application of Game Theory to predatory pricing. Game-theoretic analysis has proven that predatory pricing is rational under a range of market conditions and consequently, issues regarding the need for prohibition and the optimal method of proscription have again become relevant. This research investigates the contemporary developments in economic and judicial analysis of predatory pricing in order to evaluate the efficacy of section 36 of the Commerce Act 1986 in prohibiting this behaviour. A comprehensive survey of the game-theoretic predatory pricing models concludes that these models refute a number of well-known irrationality arguments and that predatory pricing cannot be regarded as irrational organisational behaviour. Prominent standards proposed in the literature for the existence of predatory pricing are then shown to be deficient in light of the insights provided by the application of game theory. A critique of the most recent predatory pricing cases decided by the United States Supreme Court, the Court of Justice of the European Economic Community and the Australian Full Federal Court is then conducted and it is found that the form and content of the standard for any jurisdiction must be dictated by the specific objectives of the competition law legislation. Finally, the research concludes that, in all but one respect, the current drafting and judicial interpretation of section 36 enables the section to be effective in proscribing those types of predatory pricing which are inimical to the attainment of the objectives of the Commerce Act.