Why Predatory Pricing is Highly Unlikely
By David Henderson
A widely held belief is that large firms with some market power can use their profits generated in particular markets to cut prices below costs in another market and drive out their competitors. Then, according to this belief, once the competitors are driven out, the large firms can raise their prices in that market and collect higher-than-competitive prices.
There are two problems with this view. First, it is logically deficient. Second, there is little evidence to support it.
These are the opening two paragraphs of “Why Predatory Pricing is Highly Unlikely,” Econlib Feature Article, May 1, 2017. This one is by me.
I thank Donald J. Boudreaux for helpful comments.