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Hunting Unicorns? Experimental Evidence on Exclusionary Pricing Policies

Edlin, Aaron and Roux, Catherine and Schmutzler, Armin and Thöni, Christian. (2019) Hunting Unicorns? Experimental Evidence on Exclusionary Pricing Policies. Journal of Law and Economics, 62 (3). pp. 457-484.

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Official URL: https://edoc.unibas.ch/73141/

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Abstract

We study the effects of above-cost exclusionary pricing and the efficacy of three policy responses by running experiments involving a monopoly incumbent and a potential entrant. Our experiments show that under a laissez-faire regime, the threat of postentry price cuts discourages entry and allows incumbents to charge monopoly prices. Current US policy does not help because it only bans below-cost pricing. In contrast, we find that a ban on postexit price hikes encourages entry; a ban on deep price cuts reduces preentry prices and encourages entry. While both these alternatives have less competitive outcomes after entry than laissez-faire does, they nevertheless both increase consumer welfare. For the latter proposal, this consumer gain is at the cost of lower overall welfare from attracting inefficient entrants, while for the former, overall welfare is comparable to current US policy.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Industrial Organization and Regulation of Energy Markets (Roux)
UniBasel Contributors:Roux, Catherine
Item Type:Article, refereed
Article Subtype:Research Article
Publisher:University of Chicago Press
ISSN:0022-2186
Note:Publication type according to Uni Basel Research Database: Journal article
Identification Number:
Last Modified:29 Mar 2020 11:06
Deposited On:10 Dec 2019 07:44

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