Pros And Cons Of Predatory Pricing

The industry I’ve selected is the cellular phone service industry. This industry’s market structure is an oligopoly, meaning that a few large firms control the market. Four main firms, T-Mobile, AT&T, Sprint, and Verizon dominate the cell phone service industry. Although the four firms compete against one another, they typically avoid price competition in order to avoid price wars that decrease profits for all. Instead, they use other tactics, such as advertising and improved customer service to gain a higher demand in the market. Price wars occur due to the interdependence of firms involved in an oligopolistic market structure. A decision made by one firm to increase or decrease prices will lead to a fluctuation of the demand curve for the

Amazon can use 3rd degree price discrimination to divide customers into different groups and charge a different price to customers in different customers in different groups, but the same price to all consumers within the group. The firm will charge groups of customers prices relative to their demand elasticities. We can illustrate this on a graph:

Finally is the allowance of these monopolies to rise in the first place. Since there were no regulatory agencies back in the second industrial revolution, big businessmen with the idea of trimming fat in their companies could conquer any competitor by using hardball tactics of purposely

Monopolies and oligopolies often use anti-competitive practices, which can have a negative impact on the economy. This is why company mergers are often examined closely by government regulators to avoid reducing competition in an industry.

There are different types of businesses, for example, some use monopolies, trust and pools, while other eliminate competition for higher prices. As stated in “Progressive reformers regarded regulation as a cure for all sorts of socioeconomic and political problems” , “The Sherman Act of 1890 attempted to outlaw the restriction of competition by large companies that co-operated with rivals to fix outputs, prices, and market shares, initially through pools and later through trusts” , meaning, competition is the

c) when customer orders are small, frequent, and received on a regular basis as compared with large orders that are received infrequently at irregular intervals.

Many utilities are monopolies by having the entire market share in certain areas. With deregulation of these utilities, the market becomes open to competition for market share to begin. In terms of regulation of monopoly, the government attempts to prevent operations that are against the public interest, call anti-competitive practices. Likewise, oligopoly is a market condition where there are minimal distributors that have a major influence on prices and other market factors. This causes market failure, especially if evidence of collusive behavior by dominant businesses is found.

Price fixing and exclusive dealings are harmful for consumers and small businesses trying to compete with large businesses. The issues with price fixing is that the consumers have to buy an item for a certain price. There is no supply and demand, along with the fact that the prices can fluctuate without any certain pattern. As the prices become higher, the company get

When consumers decide to purchase a product or service a car, a new refrigerator, or prescription drugs, the goal of the antitrust laws is to make sure their choices are not restricted unreasonably. Consumer choice is a powerful incentive for the sellers of any products to keep their prices low and their quality high. When the antitrust laws are vigorously enforced, businesses must respond to what consumers want. A business that ignores consumer wishes, by refusing either to keep prices competitive or to offer

In all three degrees of price discrimination firms are able to make more profit and eliminate any excess capacity they may have. Firms are able to do this by charging higher prices to those consumers with a more price inelastic demand for their product. The firm is reducing the welfare of these consumers by changing them at the maximum price they are willing to

Price wars are always inevitable with many competitors in one market. In order to escape price wars, you have to design a vastly superior product or look for markets that haven’t been attacked yet. Both require significant investment, but moving into an entirely new market or technology can be vastly more expensive, and therefore risky. If you’re lucky, competition doesn’t follow you and you can have the majority of the market for

Section 1 of the Sherman Antitrust Act, in part, states that “every contract, combination… or conspiracy, in the restraint of trade or commerce… is declared to be illegal.” (Sherman Act, 2006). This law provides “a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade (Northern Pacific Railway Company vs. United States, 1958; Reiter vs. Sonotone Corporation, 1979). It relies on a fundamental belief in supply and demand (Baum Research & Development Company vs. Hillerich & Bradsby, 1998).

Predatory pricing is a tool that is used to achieve market power. It is the practice of pricing below cost. This can foster market power in three simple ways, by eliminating rivals, by disciplining rivals who refuse to cooperate in keeping prices at monopoly levels, or by depressing the market value of rivals' assets so that a predator can purchase these assets at below market prices. Predatory pricing does not allow the market to work freely. It is a way of controlling the market.

Competitions are ubiquitous. It may be in the form of us seeking a promotion at work, company competing for bigger market share. In fact, humans more often than not ,seek to achieve a superior position relative to others in a variety of contexts (Garcia, Tor and Schiff, 2013). Simply put, an undertaking with an aim of establishing gain by hindering the competitive edge of the rival party involved. In economic sense, in a marketplace, there are buyers and sellers for a product existing at variance, which would allow the price of products to change to counter the change in supply and demand. In todays times almost every product has a substitute alternative, hence, a buyer would have the convenience of switching to the cheaper alternative if price of a product becomes unaffordable for them. Hence, the buyers have relative influence on the price of the products. However in some industries there are only a few supplier of the products and services, due to the absence of substitutes, which reduces the bargaining power of the consumers on the price of goods, due to the producers having absolute power over the pricing of the goods.

This chapter sets out the rationale for price discrimination and discusses the two major forms of price discrimination. It then considers the welfare effects and antitrust implications of price discrimination.