Academic Writing for International Students of Business

7 Practice B

You have to write an essay titled: ‘What is the value of anti-monopoly legislation?’

 Read the following text, underline the relevant key points and make notes on them.

1.5:Finding Key Points and Note-making 39

THE DIFFICULTY OF ASSESSING PREDATORY PRICING

Small companies often feel that larger rivals want to put them out of business by

discounting, for example the corner shop which cannot match the supermarket’s

bargain offers. In 1890 the United States passed the Sherman Antitrust Act, which

was an attempt to prevent large companies exploiting their semi-monopoly

position, and many countries have adopted similar legislation. This is a response to

concerns that big businesses will lower prices to drive competitors to bankruptcy,

and then be able to raise prices at will.

But clearly low prices are an advantage to consumers, and proving predation in

court is a difficult process. Firms may have legitimate reasons for selling below

cost, such as promoting a new product or because they expect their costs to fall

when volume increases. In these cases current losses can be offset against future

profits. Bundling goods, i.e. selling two or more products as a package, makes it

even harder to establish malpractice. This is because the profit margin on each item

in the bundle may vary. So a company that makes little profit on printers may sell

them with higher profit margin ink cartridges. By doing this it can claim that other

costs are being saved, for example on distribution.

In May 2009 the European Union found the chip-maker Intel guilty of predatory

pricing against a rival, AMD, and fined the company 1.06 billion euros, claiming

that European consumers of computers had suffered as a result of Intel providing

incentives to manufacturers to favour its chips. But Intel appealed against the

verdict, and the complexity of the case (the court verdict ran to over 500 pages) is

an example of the difficulty of policing companies in this area.

(Caballero J. and Poledna Z. (2010) European Business Prospects, London: University

Press, p. 351)