Competition fundamentally gives rise to the exclusion of competitors. This  excludability  is the nature of market competition. Firms in the market would like to exclude their rivals from selling more of their products and services. In order to do so, firms employ several strategies including price discounts, trade promotions, consumer coupons. All of these strategies include a scheme to differentiate themselves from rivals. The most representative of all these strategies is the price cut by firms. Many economists agree that price competition is important to the economic efficiency of an economy. However, price competition is not always legal. Laws sometimes place sanctions against them. Predatory pricing is an example of illegal price competition. It is a major topic in economics and law because it is still controversial. Economists have continuously debated over whether predatory pricing is the strategy of monopolization. Many of them agree that the predatory pricing is not easily tried and is not successful although it is tried. A few of them have different views about predatory pricing. They argue that predatory pricing can be successful when competitors in the same industry have asymmetric information about the market condition or technology.

This study focuses on the predatory pricing issue under the Korean Fair Trade Act (KFTA). In the KFTA, predatory pricing is illegal. From 1981 to 1997, the Korea Fair Trade Commission (KFTC) has judged 9 cases as the violation of the predatory pricing clause of the Enforcement Decree of the KFTA. According to the KFTC Annual Statistics (1998), firms and others reported 46 rivals pricing cases to the KFTC as predatory one and KFTC found out 5 pricing cases which was guessed as predatory pricing from 1993 to 1997. This means 90.2% of urged predatory pricing cases were taken from the reports of rival firms. However, only 9 out of the 47 cases tried in the same period did the judge rule in favor of the plaintiff. This only accounts for 19.15% of total cases. 38 cases were dismissed from the KFTC. This can be interpreted as the evidence that almost all of the price cuts by firms are not predatory pricing but representative of aggressive price competition. In addition, these statistics show that competitors faced by fierce price competition by rivals may abuse the predatory pricing clause to protect themselves. This possibility of abuse can be prevented when KFTC imposes the plaintiff to prove its argument.

In addition, our case studies on KFTC ruling about urged predatory pricing since 1981 show that the KFTCs judgments against those price cuts are not reasonable in all considered cases. Thus, this study suggests new criteria for judgment about predatory pricing as follows: first, any price cut may be examined as predatory pricing if the price is lower than the average variable cost as the proxy of marginal cost; Second, in order that any pricing is judged as predatory, KFTC ought to consider whether the accused firm can finance its loss from predatory pricing and the ability to finance the loss of the accused is asymmetrically greater than the plaintiffs ability; third, after a price war with rivals, the accused should ensure the possibility of compensation for the loss from the predatory pricing if the pricing is judged predatory; fourth, the accused must have asymmetric opportunities to get the information related to the competition or competitive bidding than the plaintiff if any pricing of the accused is judged predatory. We think that these four criteria should be satisfied if any pricing behavior of firms are accused as predatory. If the KFTC uses these criteria for the judgment about predatory pricing, the procedure will be more transparent and the administrative cost of the enforcement of the clause will be reduced. It raises  the economic efficiency of the market and ratifies the authority of the KFTA.