Brooke

[antimonopoly@juno.com (ralph anspach)]

  Carl Person writes,
   Without recoupment, even if >predatory pricing causes the  target
  painful losses, it produces lower >aggregate prices in the market, and
  consumer welfare is enhanced."  
  >(As Kates  points out in his Washington Quarterly article ("Recouping 
  the >Losses of Brooke Groupe"),  the last statement is of course terrible
  >economics since below-cost pricing reduces consumer welfare by
  >misallocating resources just as much as above competitive profit 
  pricing.>Even if neo-classic economics and current welfare theory is holy
  writ 
  to >you. But that's another story.)
  
  Ralph Anspach writes:
  
  It might be useful to spell out why below cost pricing reduces consumer
  welfare because this is counter-intuitive.  What is involved is a simple
  application of the law of supply and demand.  Below-cost pricing attracts
  more resources away from other uses than would happen when goods are
  priced in accordance with their equilibrium costs determined by a
  well-functioning market.  But this leaves fewer resources to produce
  other goods and hence the restriction of supply in these other markets
  raises their prices over the equilibrium level.  
  The above cost prices in the other markets will more than offset the
  below-cost prices in the predatory market because economic theory teaches
  that deviations from the competitive norm create inefficiencies which
  will be reflected in higher consumer prices.
  Therefore, what Kates is pointing out in a brilliant analysis is that
  Brooke not only condones misallocation of resources but creates
  inefficiencies and HIGHER PRICES ON BALANCE,  thereby damaging the very
  consumers the Brooke approach is supposed to be putting on a pedestal as
  the only objective for AT law.
  
  Carl writes,
  >But Brooke raises the further question whether this bad law and
  economics >also applies to the actions of single firms which are
  recognized by >courts to be monopolists and hence fall under Sherman 2
  ("shall >monopolize") rather than Sherman 2 ("attempt to monopolize"  or 
  "conspire >to monopolize".)
  >All the citations Brooke refers to and Brooke itself clearly are
  >oligopoly cases and not Sherman 2 (shall monopolize)  cases.  So what
  >does the language "the type alleged here, is of the same general
  >character...." mean?  And why did the court "bring in Sherman 2 to 
  begin >with?
  
  Ralph comments,
  
  The answer may be that the Brooke case is not a clear oligopoly case;  it
  is a hybrid of oligopoly and monopoly.  Brooke pioneered in the generic, 
  black and white cigarette market,  a submarket of the branded cigarette
  market.  Brooke was a 97% monopolist in this market,  though a small
  player in the branded cigarette marke.  When Brown etc.  entered the
  generic market,  it used predatory pricing to cut into the monopolist's
  market.  The sub-market monopolist Brooke then claimed predatory pricing,
   a strange thing for a monopolist to be claiming against an entrant,  on
  the theory (probably true) that Brown was trying to discipline Brooke to
  keep the generic market from encroaching on the branded market - by
  forcing Brooke to raise its generic prices to reduce the difference
  between generics and branded cigarettes
   
  So, perhaps,  the Supremes were applying Sherman 2  ("attempt to
  monopolize"  or  "conspire >to monopolize")  to describe that a
  monopolist (Brooke)  charging predatory pricing according to an "attempt
  to monopolize"  or  "conspire >to monopolize" was in the same boat under
  Sherman 2 in this sense as under primary-line discrimiantion in terms of
  establishing below cost pricing and recoupment.
  Therefore,  Brooke could perhaps be differentiated not only for
  monopolists but also for monopolists claiming predatory pricing.  
  
  I would be interested in comments, especially since most lawyers tell me
  that they don't understand Brooke.
  
  Ralph Anspach. 
   
  > 
  >
  >
  Is there anything new in the list? I'm trying to go through my list 
  mail for the past 3 months.
  Carl
  -- 
  ..