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Yesterday we examined what the legal test would be for identifying predatory pricing. That test ultimately requires us to determine what the intent of the price decrease was – was it for competitive survival reasons, or was it for anti-competitive reasons? Here are two examples of “predatory pricing” in music that to best of my knowledge did not raise a regulatory eyebrow (I am not saying here that they should have).

The band Wilco a few years ago offered a free download of a song if people went out and voted. This came on the heels of their giving away of an album after their old record label refused to release one of their albums. More famously, Radiohead decided to release its album, In Rainbows, on its own website on a “pay as much or as little as you like” basis (i.e. free if you want it to be) after their record contract expired. Presumably, these actions hooked customers, and certainly these bands ended up charging customers for the purchase of new albums, and certainly for access to the live performances that they are famous for. Would this action constitute predation?

Indeed, in an e-mail, a reader asked me if there were some known instances of major airline carriers dropping prices on a route when new entrants threaten a low cost route on a profitable line. The answer is yes. A famous case in 2000 brought by the US against American Airlines even documents how American lowered prices when certain discount carriers threatened entry, and then raised prices when the carriers left. What is interesting from the music example above is that from a technical standpoint it is not clear to me that a firm would have to raise the price of the service after it has “won” the price war for the action to be predatory. The bands were able to attract more people to their concerts and presumably charge more for that service without ever having to raise the price of its album music. I don’t know a good airline analogy, but American in my view could still have been predatory if it did not raise its prices after the exit of its competitors, by, for example, raising prices for some other bundled product.

By no means does this intend to be a justification for suits against firms that lower their prices, rather it is meant as an illustration of just how difficult determining what is predatory and what is not, even according to the clear legal requirements discussed yesterday.

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