FTC Workshop Targets Digital Marketplaces for Potential Predatory Pricing Claims

During a recent virtual workshop hosted by the Federal Trade Commission (FTC), academics, trade association representatives, and two FTC commissioners advocated for change in the application of Section 2 of the Sherman Act to predatory pricing claims, particularly with respect to digital marketplaces.  During closing remarks, FTC Commissioner and Democrat appointee Alvaro Bedoya expressed his view that far from being rare, predatory pricing is a common practice with underappreciated consequences in which “everyone except the predator loses.”  While the recent presidential election and resulting changes at the FTC may delay dramatic alteration in agency policy, tech companies and others should recognize neo-Brandeisians are playing the long game when it comes to U.S. antitrust enforcement policy.

Workshop Participants Call for Change in Law

Participants in the December 2024 virtual workshop, entitled “Competition Snuffed Out:  How Predatory Pricing Harms Competition, Consumers, and Innovation,” argued that a changing competitive landscape requires a corresponding change in the law of predatory pricing.  A majority of the U.S. Supreme Court in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993), declared that a predatory pricing claim requires proof of (1) pricing below an appropriate measure of a rival’s costs, and (2) a dangerous probability of recoupment by later charging supracompetitive prices. Although Brooke Group arose under the Robinson-Patman Act, the Court said these elements would apply equally in a Section 2 case.

According to workshop participants, embedded in the Brooke Group decision in 1993 was a belief on the part of a majority of the Supreme Court that predatory pricing was a rare and irrational business strategy because recoupment is neither guaranteed nor easy.  But workshop participants argued that technological advances over the past 30 years—including the prevalence of digital marketplaces, artificial intelligence, pricing algorithms, and real time price adjustments targeted at specific consumers—have made predatory pricing an easy, rational, and common business strategy.  Workshop participants expressed skepticism that the assumptions underlying Brooke Group remain valid in light of today’s economic reality, and argued the jurisprudence of predatory pricing needs to be adjusted to accommodate a changing competitive landscape.

Workshop participants voiced particular concern about predatory pricing in digital marketplaces that offer a variety of goods from a variety of sellers, arguing that these marketplaces and sellers on them are able to price goods below rival costs while simultaneously recouping losses through third party fees. While recognizing Brooke Group is binding law, participants—including FTC chair Lina Khan, who made opening remarks, and Commissioner Bedoya in his closing remarks—urged advocates to chip away at lower courts by exploiting ambiguities in that decision and recent scholarship apparently supporting the claim that recoupment strategies can be economically efficient.  More fundamentally, the consensus among workshop participants was that Brooke Group as currently constituted makes predatory pricing almost impossible to prove and needs to change.  To address this issue, one participant proposed abandoning the requirement of proof of “a dangerous probability of recoupment via supracompetitive prices,” and instead applying a presumption that below cost pricing functions as “strong evidence” of future recoupment.

Neo-Brandeisians Playing the Long Game

Four years ago, President Biden sought sweeping changes to longstanding antitrust enforcement policy by naming “neo-Brandeisians”—skeptics who doubted the Chicago School’s consumer welfare standard and sought a return to older U.S. competition policy informed by a general concern about the abuse of economic power—to run the antitrust agencies.  Under the leadership of Jonathan Kanter at the U.S. Department of Justice (DOJ) Antitrust Division and Commissioner Khan, a Democrat appointed to the FTC and selected by President Biden to be FTC, the agencies have made significant policy changes over the past four years and pursued aggressive antitrust enforcement actions. 

With a Republican administration entering the White House in January 2025, it is unlikely leadership at the FTC will continue to press for sweeping changes to the jurisprudence of predatory pricing or the outright reversal of the Supreme Court’s decision in Brooke Group. Rather, new leadership at the FTC is likely to restore the consumer welfare standard and a data-driven approach as the foundation of its antitrust enforcement policy.  But given bipartisan skepticism about the market power wielded by Big Tech companies, neo-Brandeisians might find a sympathetic audience at the DOJ and FTC if they can marshal economic evidence to support their claim that technological changes have made recoupment strategies economically rational and efficient.