Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/173418
Authors: 
Edlin, Aaron S.
Roux, Catherine
Schmutzler, Armin
Thöni, Christian
Year of Publication: 
2017
Series/Report no.: 
Working Paper 258
Abstract: 
We study the anticompetitive 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.
Subjects: 
Predatory pricing
entry deterrence
firm strategy
antitrust law
experiment
JEL: 
D21
K21
L12
L13
C91
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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