In the early 1980s,typical round trip coach fares from the East Coast to London were over $500.Then Freddie Laker introduced a competing service into Newark at $350.Major airlines matched his price-and continued to do so until they drove Laker out of business.Then prices shot back up to over $500.A lawsuit filed under the Sherman Act resulted in the judgment that the major airlines had explicitly tried to destroy a competitor.Laker's experience is an example of:
A)price fixing.
B)price discrimination.
C)predatory pricing.
D)deceptive pricing.

Question

Quizplus · Accepted Answer

Laker's experience is an example of predatory pricing, which is the practice of charging very low prices with the intention of driving competitors out of business. The major airlines matched Laker's price until he couldn't afford to compete, and then they raised prices again. This violated antitrust laws because it was an explicit attempt to destroy a competitor. Price fixing involves collusion between firms to set prices, price discrimination involves charging different prices to different customers, and deceptive pricing involves misleading customers about prices (e.g. advertising a sale price that is not really a discount).

In the Early 1980s,typical Round Trip Coach Fares from the East