Page 74 - Azerbaijan State University of Economics

STUDYING OF SPECIAL PRACTICAL ISSUES OF ABUSE OF DOMINANCE

above average total cost should never be considered predatory. Prices

between average total cost and average variable cost can represent an
investment in promotion (they are not sustainable in the long run).

If entry into the market is easy, it is virtually impossible to claim that

predatory pricing is occurring, because the firm would be unable to raise
prices in the future [Joskow and Klevorick 1979: 1-26]. Although some

competitors may suffer losses, these are due to low prices in the market
(which benefit consumers), and any losses the dominant firm suffered in an

attempt to monopolize the market will not be recovered. Many countries find
it useful when assessing predatory pricing allegations to first consider

whether there are sufficient barriers to entry or reentry to make predation a

viable strategy.
Raising rivals’ costs. Raising rivals’ costs may be less costly than

predatory pricing as a means of excluding competitors from the market,

because it may not require a direct reduction in profits for the dominant firm.
The 1961 Pennington case is often referred to as a classic example. This case

involved the strategic use of collective bargaining arrangements by a
dominant firm. It was alleged that higher wages industry wide were actively

encouraged by large producers to increase the costs of smaller, marginal
firms in the U.S. coal-mining industry. Supposedly, a high wage level for the

industry benefited capital-intensive firms, since it had a proportionally

smaller impact on their costs than on smaller, labor-intensive competitors
[Williamson 1968: 85-116]. But it is difficult to actually prove that a

dominant firm accepted high wages for its employees just for the sake of
raising the costs of its competitors.

Other examples of raising the cost of a small rival is by engaging it in
litigation (fixed costs weigh more on a small budget), or strategically

advertising to such a degree that it raises sunk-cost investments for small

73