Re: Bork's Op Ed piece

[rlande@UBmail.ubalt.edu]

Steve is exactly right.  In fact, Steve is usually identified as the
"father of the raising rivals' costs" idea.  But on many occasions he has
modestly said that he got the idea from Bork.

On Mon, 4 May 1998, Steve Salop and Judy Gelman wrote:

> I don't know why everyone is so shocked by Bork's stand on Netscape. 
> The evaluation of non-price predation ("raising rivals' costs) is
> different than predatory pricing.  With non-price predation, the
> predator does not lose more money in the short run than the victim.  Nor
> does the predator have to wait to recoup; if rivals' variable costs are
> higher, they will have the incentive to raise price or reduce output
> immediately.  Nor does such non-price predation rest on imperfect
> capital markets.  As a result, threats to engage in non-price predation
> are more credible.  Thus, it is reasonable that one could be more
> hawkish with respect to raising rivals' costs strategies than to
> predatory pricing.
> 
> That is not to say that predatory pricing never makes economic sense. 
> Game theoretic analysis of pricing strategies has suggested how
> predatory pricing can make rational economic sense, even against equally
> efficient rivals; indeed, it may not require the predator to price below
> its own costs.
> 
> At the same time, recognition that predation can occur does not mean
> that it does occur.  That evaluation must be carried out on the basis of
> careful fact-based economic analysis.  
> 
> 
> Ralph Anspach wrote:
> > 
> >          Today,  May 4,  an important,  perhaps revolutionary,  Op Ed
> > column by Judge Borke appeared in the New York Times.  He explains why he
> > chose to represent Netscape rather than Microsoft.  Most important,  the
> > man who argued Brooke for the Chicago School now asserts that predatory
> > practices can be a violation under Sherman 2 (and Robinson-Patman?) in
> > ways which have nothing to do with the supposed stricture that predation
> > only covers recoupable,  below-cost  price cuts. He also says that he
> > always believed this to be true.
> >           Could this mean that the lower courts' reading of Brooke has
> > been wrong all along? Or am I missing something.
> >         Carl Person has argued all along that if the plaintiff has the
> > burden of proving below-cost non-recoupment pricing as a necessary
> > condition for predation,  antitrust is practically dead because,  apart
> > from having Linda Tripp wire conversations of conspiracies (like the open
> > phone in the airline case),  there is nothing a monopolist can do which,
> > even when proven in court,  will not reward him with a pat on the back by
> > the courts h through  summary judgments.
> >          Ralph Anspach has argued that antitrust is even deader because
> > below-cost pricing (whether below marginal cost or below average variable
> > cost or below average cost --who knows?) can always be refuted by a
> > well-paid expert who plays games with assignment of fixed costs. And
> > guess which side in an an antitrust case can hire the more  high-powered
> > (in terms of dazzling judges) experts?
> >         Not only that but the efficiency criterion opens up the Pandora's
> > box of how one measures efficiency in the absence of the Darwinian
> > competitive process which the classics argued  sets the standard of what
> > is efficient.  When a student asks me whether the local utility or the
> > army is efficient,  I always answer that I haven't got the vaguest idea
> > in the absence of two utitilities or two armies competing with each
> > other. But  Adam Smith taught that monopoly is the enemy of good
> > management -  maybe the old fool knew something even though he wrote
> > before the marginal revolution.
> >         All this also feeds into the Joe Bain discussion.  Bain fits into
> > the tradition of Adam Smith,  Marshall and Keynes in methodology,  which
> > means stay away from simple-minded,  monistic analyses based on strong
> > and often metaphysical assumptions. Therefore, Bain comes up with a
> > variety of standards to be used to evaluate monopolism.  The rest is
> > discretion and judgment.  Compare this to the simple-minded freshman
> > economic standards of marginal cost pricing served up by some Chicago
> > economists.,
> > 
> > Ralph
> > 
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