Can prices be too low? Yes, if the dominant undertaking tries to eliminate its competitors through predatory pricing, in the long run this can lead to reduced competition and higher prices.
In order to learn more about the difficult subject of predatory pricing, the Competition Authority invited leading researchers in the area to submit contributions to the anthology ”The Pros and Cons of Low Prices”. The research anthology is intended to be a contribution to the ongoing discussion regarding these issues.
- In the first chapter William J. Baumol (New York University and Princeton University,USA) reviews the fundamental principles that have to be taken into account when determining whether a price is too low or not.
- Andrew Eckert and Douglas S. West both from the University of Alberta, USA) are focusing on the issue of how to assess undertakings which set low prices on a loss leader in order to get customers to buy other goods at the same time.
- Paul A. Grout (University of Bristol, UK) analyses price squeezing, that is a situation where a vertically integrated undertaking charges a high price for its upstream supply to competitors in downstream markets, at the same time as it charges a low retail price.
- And finally Adriaan ten Kate (Mexican Competition Authority) and Gunnar Niels (OXERA, Oxford, UK) are focusing on the issue of when a low introduction price may be legitimate.
In general, the contributions in ”The Pros and Cons of Low Prices” show that it is very important to be cautious when analysing cases involving predatory pricing. There is a great need for both theoretical and applied economic analysis.