Hunting Unicorns? Experimental Evidence on Predatory Pricing Policies

69 Pages Posted: 4 Jul 2017

See all articles by Aaron Edlin

Aaron Edlin

University of California, Berkeley

Catherine Roux

University of Basel

Armin Schmutzler

University of Zurich - Department of Economics; Centre for Economic Policy Research (CEPR)

Christian Thöni

University of Lausanne

Date Written: July 2017

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: Antitrust Law, entry deterrence, Experiment ent, Firm Strategy, Predatory Pricing

JEL Classification: C91, D21, K21, L12, L13

Suggested Citation

Edlin, Aaron and Roux, Catherine and Schmutzler, Armin and Thöni, Christian, Hunting Unicorns? Experimental Evidence on Predatory Pricing Policies (July 2017). CEPR Discussion Paper No. DP12125. Available at SSRN: https://ssrn.com/abstract=2996670

Aaron Edlin (Contact Author)

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

Catherine Roux

University of Basel ( email )

Basel
Switzerland

Armin Schmutzler

University of Zurich - Department of Economics ( email )

Zürich, CH-8006
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Christian Thöni

University of Lausanne ( email )

Quartier Chambronne
Lausanne, Vaud CH-1015
Switzerland

HOME PAGE: http://https://sites.google.com/site/christianthoeni/

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