Supracompetitive pricing

Supracompetitive pricing is pricing above what can be sustained in a competitive market. This may be indicative of a business that has a unique legal or competitive advantage or of anti-competitive behavior that has driven competition from the market.

An example of a unique legal advantage would be a drug company that is the first to discover and successfully manufacture a medication to treat a certain disease. Initially, as the only market player, the drug company may be able to charge supra competitive prices until other companies catch up. In this case, the regulatory hurdle for drug approval may prove a substantial barrier to new competition.

However, other companies may not be able to enter the market due to another barrier to entry, intellectual property (IP) rights. The drug company may have a patent on the new formulation, barring competitors until the patent expires unless they can license rights from the IP owner. An example of a competitive advantage may be a large company with a trusted brand name and a substantial marketing budget that simply overwhelms a local competitor by driving demand for its product over the competitor's product, at least in the short term. Supracompetitive pricing may also result following a period of predatory pricing, which has potential antitrust implications for the predator.

References

Phillip E. Areeda & Donald F. Turner, Predatory Pricing and Related Practices Under Section 2 of the Sherman Act, Harvard Law Review, Vol. 88, p. 697 (1975).
Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law, par. 723-745 (2nd Ed. 2002).

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