Non-Cooperative Strategic Behavior: Preventing Entry and Limiting Competition

Active reading for chapter 11 “Strategic behavior” (10pts)

Non-cooperative strategic behavior: preventing entry and limiting competition 1. What is predatory pricing? (p.352-353) 2. What is the legal definition of predatory pricing? (p.357-359) 3. Very briefly summarize evidence on predatory pricing. (p.359-360) 4. What is limit pricing? (p.362) 5. How is predatory pricing different from dynamic limit pricing? (p.364-365) 6. Why investing into lowering production cost can act as a barrier to entry? (p.367-368) 7. Name several methods how a firm can raise rival’s relative costs. (p.371-372) 8. Describe the main issue in the Microsoft antitrust case? (example 11.5) 9. When does it make sense for the incumbent to raise ALL firm’s cost? (p.375) 10. When can the entrant have advantage over the incumbent? (p.377)

Cooperative strategic behavior: Practices that facilitate collusion 11. How can uniform prices facilitate collusion? Give an example (it may be a hypothetical situation). (p.379) 12. Orbitz.com reimburses its customers if another customer pays a lower price for the same reservation at a later date. How can this practice facilitate collusion? (p.380, paragraph 3) 13. Why do colluding firms need to announce price increases? (p.380) 14. Why do colluding firms need to announce price decreases? (p.381) 15. What is FOB pricing? (p.382) 16. What alternative to FOB pricing may be used in collusive markets? (p.382-383) 17. What was the main issue in the Boise cascade vs FTC antitrust case? (p.386) 18. In which industries firms use swaps? (p.386)