Predatory Pricing, Recoupment, and Consumers' Reaction : Results from a Pilot Experiment

Abstract

This paper tests two basic assumptions underlying court made or statutory provisions prohibiting predatory pricing on the economic grounds that monopolistic pricing likely to occur in the long run will cause harm to competition and consumers.The first assumption under scrutiny is that customers will accept monopolistic prices during the subsequent phase of recoupment, even though they have become accustomed to low prices during the price war. The second assumption is that even in the subsequent phase of recoupment neither any displaced nor any other competitor will (re-)enter the market to undercut the monopolistic prices. We can confirm earlier data according to which predatory pricing occurs rarely in an experimental environment. Moreover, the experiment indicates that both assumptions are not backed up by actual decision making both of consumers and of competitors.