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Principles of Economics- Mankiw (5th) 360

Principles of Economics- Mankiw (5th) 360 - 370 PA R T F I...

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370 PART FIVE FIRM BEHAVIOR AND THE ORGANIZATION OF INDUSTRY CASE STUDY THE MICROSOFT CASE The most important and controversial antitrust case in recent years has been the U.S. government’s suit against the Microsoft Corporation, filed in 1998. Cer- tainly, the case did not lack drama. It pitted one of the world’s richest men (Bill Gates) against one of the world’s most powerful regulatory agencies (the U.S. and perhaps never, a profitable business strategy. Why? For a price war to drive out a rival, prices have to be driven below cost. Yet if Coyote starts selling cheap tickets at a loss, it had better be ready to fly more planes, because low fares will at- tract more customers. Roadrunner, meanwhile, can respond to Coyote’s predatory move by cutting back on flights. As a result, Coyote ends up bearing more than 80 percent of the losses, putting Roadrunner in a good position to survive the price war. As in the old Roadrunner–Coyote cartoons, the predator suffers more than the prey. Economists continue to debate whether predatory pricing should be a concern
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