Is Zero Pricing in the Red Light District Unfair?

by Kel Kelly, Mises Economics Blog
Feb. 04, 2011

Redtube.com is an internet site offering high quality porn for free. But competitor sex sites which were trying to charge for the same service didn't like the supposedly unfair competition (and California does have an "unfair competition" law). Thus, one competitor sued. Thankfully, however, a California Appeals court dismissed the case, essentially stating that anyone has the freedom to publish whatever one wants on the internet. The court called the plaintiff's bluff by saying that having the freedom to post what one wanted is "the ‘predatory pricing’ that [the plaintiff] complains of."

The plaintiff argued that Redtube.com was selling its product below cost so as to gain market share. While this absurd claim didn't hold up in this case, it often does. For many companies have gone down in flames due to the flimsy "price dumping" argument. The reality of anti-trust laws is that they are about politics, not competition. Legislators who passed anti-trust laws themselves admitted that companies were expanding output and lowering prices. The problem is that they also thought that this was "unfair competition." The legislators had less competitive companies voting for them back home that wanted "a fairer playing ground." Companies often run to the government claiming "unfair competition" when they can't compete in the marketplace. A prime example is the Microsoft case of the late 1990s.

(For a brief background on antitrust laws and the case against them, see pages 167-179 of my book)