Discussion Paper Details

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Title: Hunting Unicorns? Experimental Evidence on Predatory Pricing Policies

Author(s): Aaron Edlin, Catherine Roux, Armin Schmutzler and Christian Thoeni

Publication Date: July 2017

Keyword(s): Antitrust Law, entry deterrence, Experiment, Experiment ent, Firm Strategy and Predatory Pricing

Programme Area(s): Industrial Organization

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.

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Bibliographic Reference

Edlin, A, Roux, C, Schmutzler, A and Thoeni, C. 2017. 'Hunting Unicorns? Experimental Evidence on Predatory Pricing Policies'. London, Centre for Economic Policy Research.