Hunting Unicorns? Experimental Evidence on Predatory Pricing Policies

Armin Schmutzler, Aaron Edlin, Catherine Roux and Christian Thoeni
Authors registered in the RePEc Author Service: Christian Thöni

No 12125, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study the anti-competitive effects of predatory pricing and the efficacy of three policy responses. In a series of experiments where an incumbent and a potential entrant interact, we compare prices, market structures and welfare. Under a laissez-faire regime, the threat of post-entry price cuts discourages entry, and allows incumbents to charge monopoly prices. Current U.S. policy (Brooke Group) does not help. A policy suggested by Baumol (1979) lowers post-exit prices, while Edlin’s (2002) proposal reduces pre-entry prices and encourages entry. While both policies show outcomes after entry that are less competitive than under Laissez-Faire, they nevertheless increase consumer welfare.

Keywords: Predatory pricing; Entry deterrence; Firm strategy; Antitrust law; Experiment (search for similar items in EconPapers)
JEL-codes: C91 D21 K21 L12 L13 (search for similar items in EconPapers)
Date: 2017-07
New Economics Papers: this item is included in nep-com, nep-exp and nep-mkt
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Working Paper: Hunting unicorns? Experimental evidence on predatory pricing policies (2017)
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