fatvegan

I have to read about predatory pricing for my business subject. Apparently most economists don't believe it really exists, because it's not rational. Because the incumbent company makes a loss, and there's no guarantee it will work anyway, they say that no one would try and do it.

But does it count as predatory if they are still making a profit on their reduced price? An incumbents costs will almost invariably be lower. They have previous investment, brand awareness, technical knowledge and economies of scale. You could make a pretty deadly pricing scheme that was above cost in most cases. Which means that the predatory pricing can continue indefinitely, and so no one is likely to enter. Perhaps in the big "natural monopolies" which require large investment any potential entrants know what the behaviour of the incumbent will be and don't bother. Perhaps the reason you rarely see predatory pricing is because business people know how effective it is.

I still feel that Jetstar's pricing is clearly competitive. We had decades of no low-cost airlines, and high profits for Qantas. Within 24 months or something of Virgin Blue arriving, Jetstar shows up and starts selling flights at below cost. I guess we'll find out how predatory it is if Virgin Blue sticks around.