PeakTrader.com

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PeakTrader said...

If there were only two pizza businesses, and one had 11 stores, while the other had one store, the larger business is likely in a stronger position to drive-out the small business, because it can absorb losses at one store through its other 10 stores.

Then the large store could charge a much higher price, i.e. well above marginal cost.

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Ron says: "Wouldn't the higher price attract competitors?...Meanwhile pizza eaters prosper."

A "competitor" could invest a lot of money and then go out of business.

Or the large pizza business may expand into the failed pizza business.

The large pizza business may more than make up for the cheap pizza later. So, it's possible, consumers will be worse off.

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AIG says: "I think there should be a minimum price for pizza. Peak can back me up here."

There should be a minimum price for pizza, i.e. where price equals marginal cost, or the Nash equilibrium.

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http://www.blogger.com/comment.g?blogID=28997633&postID=675159786188708751

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