Question

1. A market is dominated by a single payment system that consumers use for their purchases. After a new payment system enters that market, the incumbent payment system lowers the fee that it charges to consumer below the marginal cost of serving consumers. The entrant accuses the incumbent of predatory pricing. What explanation based on two-sided market considerations could be given for lowering the price?

Answer 1

The new entrant can provide that Predatory pricing violates antitrust law, as it makes markets more vulnerable to a monopoly.

Although, Allegations of this practice can be difficult to prosecute because defendants may argue successfully that lowering prices are part of normal competition, rather than a deliberate attempt to undermine the marketplace. And predatory pricing isn't always successful in its goal, because of the difficulties in recouping lost revenue and successfully eliminating competitors.

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