A group of firms in Sunnyvale have a complaint about one of their competitors.They charge that Big Box Building Supply charges such low prices that they can't stay in business.Which of the following is the most likely response from an economist?
A) Big Box Building Supply isn't engaged in predatory pricing because new firms can always enter and compete away any monopoly profits.
B) Big Box Building Supply is engaged in price fixing and should be prosecuted for violating antitrust law.
C) The firms have a valid complaint against Big Box Building Supply because it is engaged in resale price maintenance.
D) The firms don't have a valid complaint against Big Box Building Supply because it is operating like a natural monopoly.
E) Big Box Building Supply is engaged in resale price maintenance but most likely is providing efficient service.

Question

Quizplus · Accepted Answer

An economist would most likely argue that Big Box Building Supply is not engaged in predatory pricing since the low prices would attract new competitors, and if they entered the market and drove down prices even further, the original firms would simply have to exit. This is how a competitive market should function, and it benefits consumers by providing lower prices and better products.

A Group of Firms in Sunnyvale Have a Complaint About