Hunting Unicorns? Experimental Evidence on Predatory Pricing Policies

Abstract

We study the anticompetitive e ects of predatory pricing and the e cacy 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.