Economics
Predatory Pricing as A Business Strategy Discussion Question

Question Description

I’m trying to learn for my Economics class and I’m stuck. Can you help?

need 2 responses to the discussion question and 1 response.

see the the instructions in the attached word doc

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Discussion Question: 1.Suppose you are considering “predatory pricing” as a business strategy – you’ll cut your prices below your costs for a while to drive your rival(s) into bankruptcy, and then you’ll raise prices high enough to recover the losses you suffered once there are no more pesky competitors around. What conditions have to be satisfied for this to work? What possible problems (apart from antitrust lawsuits) might make this plan fail? Answer: 2.Anheuser-Busch didn’t go public until 1980. Why do you think it took them so long to discover the virtues of equity markets (i.e., what were the benefits the family might have seen in remaining closely held)? Some companies that have been publicly traded for many years eventually are taken private. Why do you think this might happen? Answer: Need a response to this Entrepreneurs continue to invent new products, services, and ideas yet they cannot market or launch their product as mentioned in the book because they lack “discipline and empirical creativity” which brings unpleasant end results. PSA, Braniff, Genentech, and AMD figuratively fire a cannon, and in some other cases fire bullets and never hit anything. AMD has been firing bullets for a very long time and has missed the target. Even though AMD has made faster processors it has not been able to market them. Many years ago I had a big dream to own a restaurant which became true yet I had no idea how to market the business. I fired a cannon with everything I had using my life savings -- I knew just about everything there was to know about running a restaurant because I had worked for multiple restaurant chains as a General Manager for many years. As an owner, I survived over three years as best I could and I was able to break even in eight months granted not taking a salary for myself and doing 6 people's work which is emblematic of using a canon contrary to using bullets. The biggest obstacle facing restaurant owners is not allowing their ego to get in the way to ruin their establishment which is a concept I learned while running my business. Initially, I misjudged and executed bad decisions because I was by myself and had to make all the decisions while working under physical and mental duress. Over time, I began to fire bullets by purchasing silverware, tables, chairs, kitchen equipment, pots, pans, and glassware which had changed the success of my business. I ended up on TV, Radio, and Newspapers as one of the top 100 restaurants in Los Angeles where I had won multiple awards. It was a big risk when I fired my canon to open my restaurant and it was a big risk firing the bullets of investing in overhead. There comes a time when you have to fire a big cannon to hit the target and later you can take out of the market by firing small bullets. Respond: ...
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Discussion Question:
1.Suppose you are considering “predatory pricing” as a business strategy – you’ll cut your prices
below your costs for a while to drive your rival(s) into bankruptcy, and then you’ll raise prices
high enough to recover the losses you suffered once there are no more pesky competitors
around. What conditions have to be satisfied for this to work? What possible problems (apart
from antitrust lawsuits) might make this plan fail?
Answer:
A firm must meet the following conditions to ensure predatory prices are achieved (1) sacrifice
short-term profits and (2) it must have an ability to raise prices. The predatory pricing economic
theory states a firm must choose to sacrifice short-term profits. However, the company doesn’t
have to make a loss. Mostly, during the predatory pricing, the prices are lower than the costs.
The firm must fulfill this condition for a strategy to work. As well, a firm must able to increase
prices after repelling competitors so that it can compensate for the sacrifice made to incur shortterm losses (Kaplow, 2018). This important condition, as it is difficult to sustain a monopoly
price level after raising the prices. Also, the entry of another company in the market can force the
predator not to recover short-term losses. Therefore, a firm must satisfy the conditions outlined
in order for ...

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