Historically, industries with low average variable costs (AVC) have been as a practical matter largely immune from predatory pricing claims. The reason is simple. Predatory pricing claims require the plaintiff to establish, among other things, that the defendant priced below an appropriate measure of cost. Because marginal costs are notoriously difficult to measure, courts have commonly compared the defendant’s prices to AVC (total costs that vary with output/units of output). Consequently, in industries where average variable costs are very low, plaintiffs are unlikely to be able to prove that defendants have priced below AVC, even when defendants have drastically slashed prices. Airlines are a classic example of such an industry.
Antitrust and Trade Regulation
Date of this Version
Robert Bell, Lee Greenfield, Veronica Kayne, William Kolasky, Jim Lowe, Doug Melamed, Thomas Mueller, and Ali Stoeppelwerth, "United States v. AMR Corp.: Non-Traditional Cost Measures and Expanding Predatory Pricing Exposure" (July 2003). Wilmer Cutler Pickering Hale and Dorr Antitrust Series. Working Paper 27.