A classic piece of industrial organization literature is John McGee’s 1958 article in the Journal of Law and Economics Predatory Price Cutting: The Standard Oil (NJ) Case.
In the article, McGee looks at price-cutting allegations leveled against Standard Oil in the early 1900’s. He examines the evidence of the case but also lays out a rather brilliant critique of price cutting as an effort to secure/gain monopoly power in a market. In short, he logically shows that price cutting is, by far, the least effective means of accomplishing this. It tends to be far more devastating to the price-cutting firm and, if the market is competitive, such price cutting could go on for years and years. It is far cheaper to simply buy up competition.
Dr McGee’s analysis should give us pause when considering “dumping” allegations in regard to international trade. Dumping is a form of predatory pricing: manufacturers exporting…
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