The Recapture Principle

29 Pages Posted: 1 May 2009

Date Written: April 15, 2008


Are there circumstances when antitrust courts should condemn above-cost predatory pricing? To what extent would Brooke Group need to be relaxed to condemn such conduct? The premise is that there are circumstances where antitrust courts should conduct a further inquiry and potentially condemn above-cost predatory pricing. The paper includes legal and economic analysis as well as an overview of financial methods that can be used to infer motive to engage in predatory pricing. Financial concepts such as the time value of money and real options methodology will be reviewed.

The focus of the paper is on financial predation and how incumbent firms can recapture lost profits. The paper was inspired by Steven Salop and his work on Raising Rivals Costs. At the core of The Recapture Principle is the use of Game Theory and Real Options Methodology. They are relied on by most CFOs when making corporate decisions. Those corporate decisions at issue are the decisions made which lie outside accepted financial principles. For example, if an investment in another company violates the basic premise of portfolio management, diversification, it would be worthy of further inquiry. Real Options and Game Theory will also be used to demonstrate how recoupment can occur. There are Efficient Capital Markets but antitrust law and potential investors should revise assumptions to add-in the effects of behavioral finance.

Keywords: Real Options, Game Theory, Recapture, DCF, NPV, Antitrust

JEL Classification: K20, K21, L10, L11, L12, L40, C70, M00

Suggested Citation

Sutliff, Jim, The Recapture Principle (April 15, 2008). Available at SSRN: or

Jim Sutliff (Contact Author)

Capital Gains LLC ( email )

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