Do sales below cost laws protect small businesses?

Abstract

This paper examines whether state laws to prevent below cost sales provide protection for small businesses beyond the protection afforded by the federal antitrust laws. The paper first identifies the theoretical implications of state sales below cost laws. I find that there are various circumstances when the state law will provide additional protection to the federal predatory pricing laws. The uniqueness of the empirical section of this paper is based on the functional form of the tests and the distinctive features of the state laws used to discern the laws impact on small businesses. I find that state laws do have a small impact on the viability of small businesses in certain industries. Additionally, the differences among the state laws also have an impact on the percentage of small businesses in a state. However, the effects of these laws are relatively understated and potentially inconsistent with the goals of competition.