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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title Hunting unicorns? Experimental evidence on predatory pricing policies
Organization Unit
  • Aaron Edlin
  • Catherine Roux
  • Armin Schmutzler
  • Christian Thöni
  • English
Institution University of Zurich
Series Name Working paper series / Department of Economics
Number 258
ISSN 1664-7041
Number of Pages 30
Date 2017
Abstract Text 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.
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Keywords Predatory pricing, entry deterrence, firm strategy, antitrust law, experiment, Verdrängungswettbewerb, Markteintrittsstrategie, Kartellrecht, Wettbewerbspolitik, Laissez-faire, Konsumentenrente, Experiment