The Oligopolistic Pricing Problem: A Suggested Price Freeze Remedy

Abstract

The problem of oligopoly pricing has long challenged both economic and antitrust theory. While economic theory attempts to explain how firms set their prices in oligopoly markets, antitrust theory seeks to construct an effective remedy for what is believed to be a predominant problem of monopolistic pricing. So far these attempts have been only partially successful. Although economic scholarship has made significant advances in recent years, especially in development models based on modern game theory learning, we still do not hold conclusive or definite answers on oligopoly pricing. Antitrust theory, for its part, is still struggling in its quest for effective remedies. [This] Article set[s] forth an antitrust remedy for the oligopolistic pricing problem, build[ing] on previous work concerning price and quantity freezes, mainly in the context of monopolization by predation. This work, primarily by Williamson and more recently by Edlin, basically suggests that new entry to a monopolistic market would freeze the pre-entry price output production level or the pre-entry price of the incumbent monopolist. This would, arguably, encourage new entries by firms as well as more pre-entry output or lower pre-entry prices. [This Article] propose[s] the implementation of a price freeze scheme in oligopoly markets by which an oligopolist that significantly lowers its price would freeze its rivals’ prices at their previously higher oligopoly level for a defined period of time. This price scheme would drive prices downward and create an incentive for oligopolists, in most cases, to set ex ante lower prices without an actual activation of the price freeze.