Distribution, Competition, and Antitrust / IP Law

You Can’t Be a Price Predator When The Market Has Only One Buyer

This predator is looking for something other than low prices.

Under federal (U.S.) law, predatory pricing can be illegal — but establishing a predatory pricing violation can be quite difficult.  To do so requires proof of below cost pricing and a dangerous probability that the predator will recoup its losses following the predation period.

What happens when there is only one buyer in the marketplace?

That was the unusual fact pattern in GMA Cover Corp. v. Saab Barracuda LLC, No. 4:10-cv-12060-MAG-PJK (E.D. Mich. February 28, 2012).  There, both the plaintiff and the defendant sold stealth technology products to the military.  The plaintiff claimed that the defendant engaged in monopolization and attempted monopolization through predatory pricing.  In rejecting the claim, the court found that the plaintiff could not establish a dangerous probability of success.  The court noted that it could not find any cases addressing predatory pricing claims in which the market for the predatorily priced product contains a single (“monopsony”) buyer.  Nor, the court stated, had commentators addressed the unique situation.  Writing on a somewhat blank slate, the court wrote:

“[B]ecause the market for [stealth products] consists of a single purchaser — the United States Army — there is not a dangerous probability that [defendant] will be able to charge a supracompetitive price.  Even assuming that [defendant] achieved monopoly power, it would result in the market for [products] being a bilateral monopoly – a monopoly supplier dealing with a monopsony purchaser.  In such a situation, neither the monopoly supplier nor the monopsony purchaser can exercise monopoly power to set prices, because the other party can simply walk away from the transaction.”

Other features of the unusual market confirmed, in the court’s mind, the conclusion that there was no dangerous probability of supracompetitive price recoupment.

The case illustrates just how hard it is to prove anticompetitive price predation.  It is possible to do so — it is just very challenging.

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About Howard Ullman

Antitrust, competition, and IP law enthusiast.

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