Predatory Pricing in Airlines

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Predatory Pricing in Airlines
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Announcements

• Assignment 1
• Speaker on Wednesday
• Mid-term Monday March 5
• Speaker Wednesday March 7

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Predatory Pricing

• unreasonably low prices (section 50,
  Competition Act) now essentially disused,
  although still statute
• More careful definition
• Aggressive pricing by a dominant firm designed to
  induce the exit of a rival firm.

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Chicago critique

• Must be recoupment or monopoly period for
  predation to make sense, but entry likely to
  re-occur if predator raises prices
• Victim should stay in since it knows that prices
  must rise eventually
• If predator knows she cannot deter entry in long
  run, will not try to cut prices in the first
  place
• Purchasing victim usually dominates predation

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Rational Theories of Predation

• Long Purse
• Reputation

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Areeda Turner, Cost-based tests
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Market definition

• What is the market in which predation is taking
  place?
• Hypothetical monopolist test

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The Airline Predation Cases

• Air Canada
• American Airlines
• Lufthansa
• Qantas

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Air Canada
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American Airlines
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Lufthansa
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Qantas