Schmutzler, Armin Edlin, Aaron Roux, Catherine Thoeni, Christian
Year of Publication:
Beiträge zur Jahrestagung des Vereins für Socialpolitik 2016: Demographischer Wandel - Session: Experimental IO E05-V1
The paper provides an experimental analysis of above-cost predatory pricing in a multi-period interaction between a monopolistic incumbent and a potential entrant. It shows that, without policy interventions, the threat of post-entry price cuts discourages entry without forcing incumbents to abstain from monopoly pricing. A policy suggested by Edlin that curtails such price cuts encourages entry and reduces the prices set by monopolistic incumbents. An alternative policy suggested by Baumol that prohibits post-exit price increases does less to encourage entry, and it does not prevent high pre-entry prices. However, as expected, it keeps post-exit prices low.