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Inferring Collusion From Pricing Behavior: The American Tob
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Journal Article
Inferring Collusion From Pricing Behavior: The American Tob
1988
Overview
Posner (1976) criticized the US Supreme Court's 1946 decision in American Tobacco Co. versus US in which the Court inferred collusion from pricing behavior, as \"intellectually disastrous.\" Posner argued that a monopolist would lower prices when faced with decreasing demand and falling marginal costs, circumstances the Court used to find the defendants guilty of restraint of trade. A reexamination of the case, however, indicates that Posner's assumption that demand elasticity remains the same before and after the demand shift is overly restrictive. If this assumption is relaxed, conditions exist under which a monopolist would raise prices in the face of decreasing demand and falling marginal costs. The behavior the Court cited thus represents one of the few instances when monopolistic and competitive pricing can be clearly differentiated by empirical observation. The reasoning used by the Court should be given a more important place in antitrust enforcement.
Publisher
Springer Nature B.V
