Competition Policy for Exclusionary Pricing: Experimental Evidence(2018)
We study the effects of above-cost exclusionary pricing and the efficacy of three
policy responses. We run a series of experiments involving a monopoly incumbent
and a potential entrant. Our experiments show that 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. In
contrast, a policy suggested by Baumol (1979) lowers post-exit prices, while Edlin’s
(2002) proposal reduces pre-entry prices and encourages entry in the experiments.
While both policies have less competitive outcomes after entry than Laissez-faire
does, they nevertheless increase consumer welfare.
Publication DateSummer May 4, 2018
Citation InformationAaron Edlin. "Competition Policy for Exclusionary Pricing: Experimental Evidence" (2018)
Available at: http://works.bepress.com/aaron_edlin/116/