3. Predatory Pricing
a. The law
Predatory pricing occurs when companies lower the prices of their products, to below cost, in order to drive their competitors out of the market. Afterwards, when all competitors are effectively gone, the company will then raise prices to make up for its losses. This is an aspect of monopolizing, in which a business wants to win control of the market. To win a predatory pricing case, one must prove: products were selling below cost and the company intended for competitors to go out of business.
b. Why understanding is important
It is important for businesses to learn how to avoid being accused of predatory pricing or recognize when a competitor is doing it. It may be easy to accuse businesses of this malpractice. Like, for example, when a bunch of small businesses close down due to another business discounting its prices. However,…show more content… Miles Medical Company manufactured medicine, of which it sold to wholesalers. The company wrote up agreements that set the prices of their products, and designated retailers that it could be sold to. Next to this, thousands of retail druggists were prohibited from selling below the prices that were printed on the packages of the products. He did this because he was upset when deep discount stores sold his medicine at low prices and made people believe that his products were somehow inferior. He then sued John D. Parks and Co. because they refused to enter a pricing agreement. In the case, the Supreme Court ruled that manufacturers setting minimum prices of which to resell products was illegal. Making it a per se violation of the antitrust laws.
In August 17, 1937, the Miller-Tydings bill was passed. It was specifically designed to overturn the Dr. Miles v. John D. Park & Sons. This made it so that retail price-maintenance agreements were not subject to federal antitrust laws. Then, it was ruled again in 2007 that resale price maintenance was a rule of reason violation, not per se.
