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 __________ on the part of the major airlines.
A)price fixing
B)price discrimination
C)predatory pricing
D)deceptive pricing
E)pricing constraints

Question

Quizplus · Accepted Answer

Laker's experience is an example of predatory pricing, which is when a company lowers its prices to drive out competition with the intention of raising prices once the competition is eliminated. The major airlines matched Laker's lower prices until he went out of business, and then raised prices again. This is a clear example of predatory behavior to eliminate competition.

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