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Re: Hey Terekhov: Wallace lost. Who'd guess.... ;)

From: Alexander Terekhov
Subject: Re: Hey Terekhov: Wallace lost. Who'd guess.... ;)
Date: Sat, 20 May 2006 15:43:02 +0200

John Hasler wrote:
> Alexander Terekhov writes:
> > As for proof, "A plaintiff must prove (1) that the prices complained
> > of are below an appropriate measure of its rival's costs
> The marginal cost of production of copies of Linux is at most the cost of
> pressing a DVD.  The marginal cost of granting a GPL license is zero.

Wallace's case is not about copies (material objects). His case is about 
predatory fix pricing of Intellectual Property in violation of § 1 of 
the Sherman Act.

> > and (2) that the competitor had a reasonable prospect of recouping
> > its investment in below cost prices."
> David Kastrup wrote:
> > Basically, the standard demands proving that the prices must be both
> > below cost as well as profitable.
> What they mean is that the plaintiff must prove that if the defendant
> succeeded in driving him out of business with predatory pricing he would
> subsequently be able to recoup the money he lost selling below cost by
> selling at the elevated price he would be able to demand as a result of
> having disposed of his competitor.

This is indeed one example of recoupment. But ancillary revenues can 
also be used to recoup losses.

"Proof that a profit-maximizing firm took predatory action should 
suffice to demonstrate the threat of substantial exclusionary effect; 
to hold otherwise would be to ascribe irrational behavior to the 
defendant. Moreover, predatory conduct, by definition as well as by 
nature, lacks procompetitive business motivation. See Aspen Skiing, 
472 U.S. at 610-11 (evidence indicating that defendant's conduct was 
"motivated entirely by a decision to avoid providing any benefits" to 
a rival supported the inference that defendant's conduct "was not 
motivated by efficiency concerns"). In other words, predatory behavior 
is patently anticompetitive. ... Microsoft has no intention of ever 
charging for licenses to use or distribute its browser. Id. ¶¶ 137-38. 
Moreover, neither the desire to bolster demand for Windows nor the 
prospect of ancillary revenues from Internet Explorer can explain the 
lengths to which Microsoft has gone. In fact, Microsoft has expended 
wealth and foresworn opportunities to realize more in a manner and to 
an extent that can only represent a rational investment if its purpose 
was to perpetuate the applications barrier to entry. Id. ¶¶ 136, 
139-42.  Because Microsoft's business practices "would not be 
considered profit maximizing except for the expectation that . . . 
the entry of potential rivals" into the market for Intel-compatible 
PC operating systems will be "blocked or delayed," Neumann v. 
Reinforced Earth Co., 786 F.2d 424, 427 (D.C. Cir. 1986), Microsoft's 
campaign must be termed predatory. Since the Court has already found 
that Microsoft possesses monopoly power, see supra, § I.A.1, the 
predatory nature of the firm's conduct compels the Court to hold 
Microsoft liable under § 2 of the Sherman Act."

Note that Wallace's case is an action under § 1 of the Sherman Act.


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