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Topic 13: Predatory and other pricing strategy

A ntitrust Economics 2013. David S. Evans University of Chicago, Global Economics Group. Elisa Mariscal CIDE, Global Economics Group. Topic 13: Predatory and other pricing strategy. Topic 13| Part 2 7 November 2013. Date. Overview. Predatory Pricing. Classic Predatory Pricing.

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Topic 13: Predatory and other pricing strategy

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  1. Antitrust Economics 2013 David S. Evans University of Chicago, Global Economics Group Elisa Mariscal CIDE, Global Economics Group Topic 13: Predatory and other pricing strategy Topic 13| Part 2 7 November 2013 Date

  2. Overview

  3. Predatory Pricing

  4. Classic Predatory Pricing

  5. But Does Classic Predation Make Sense? There is a debate about how frequent real predatory pricing is. See McGee on Standard Oil and Yamey on fighting ships.

  6. Modern Predatory Pricing Based on Game Theory

  7. Developing a Reputation for Being Ruthless

  8. Fooling the Entrant into Thinking it is Less Efficient

  9. Using “Deep Pockets” to Predate

  10. Distinguishing “Good” Low Prices From “Bad” Low Prices (Competitive vs. Predatory)

  11. There is NO Good Definition of Predation for Formulating a Rule

  12. Price is Lower Than Average Total Cost(ATC)

  13. Price is Lower Than Marginal Cost (MC)

  14. Legal Analysis: Cost-Based Tests of Predation

  15. Profit-Sacrifice Test

  16. Areeda-Turner Average Variable Cost Test

  17. Brooke Group Recoupment Test

  18. Error Costs and the Role of Prior Beliefs for Predatory Pricing

  19. Error Costs and the Role of Prior Beliefs

  20. Conditional Rebates and Multiproduct Pricing

  21. Anticompetitive Strategies Involving Rebates and Bundled Pricing

  22. Conditional Rebates We will focus on retroactive conditional rebates since they are most likely to have anticompetitive effects.

  23. Retroactive Rebates

  24. Retroactive Rebates can Lead to a Range of Negative Incremental Prices Suppose an entrant wants to sell 100 widgets. The effective price paid to the incumbent for 901-1000 units is $20 x 100 - 0.2 x $20 x 1000= $2000- $4000 =- $2000.

  25. Retroactive Rebates and Cheap Exclusion

  26. Bad Cheap Exclusion or Good Low Prices?

  27. Does the Conditional Rebate Exclude an Equally Efficient Rival?

  28. Multiproduct pricing

  29. End of Part 2, Next Class Topic 14

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