The ABC Co., an aggressive and successful manufacturer of home plumbing fixtures, found itself in court, accused of predatory pricing.

The story was as follows: ABC cut prices on its low-price line of plumbing fixtures to a very low level, it didn't cut prices on its middle and upper lines.. Ultimately , Gamma Co., which was having trouble meeting the competition of ABC, declared bankruptcy. The creditors of Gamma decided to sue ABC, saying that it was the (allegedly) predatory practices of ABC which caused the demise of Gamma, and that the creditors of the defunct firm were entitled to recover damages from ABC.

In court, the plaintiffs — creditors of Gamma — argued that the firm cut prices to a level which did not cover costs, and that it was all a conscious attempt to impose ruinous losses on Gamma. Furthermore, they argued that the "death" of Gamma was evidence of ABC's intent.

ABC hired the "dream team" of antitrust lawyers and economists. They presented the following defense. If the firm was truly cutting the price of the fixtures to money-losing levels, then the firm's profits would be hurt. That is, the firm should have had lower profits than what they would have earned if they simply stopped making those items altogether. The records of ABC clearly showed that overall profit would have been worse if they quit producing the specific items in question and therefore had given up the (limited) revenue that the super-low prices brought in.

The plaintiffs retorted that this defense was "smoke and mirrors" and bookkeeping gimmickry.

If you were Judge Zito, the presiding judge, how would you rule? What would you base your decision on? If you feel there is insufficient information to make a proper decision, what additional information would you insist on?