ABSTRACT
Predatory pricing is a notoriously slippery concept due to the apparent existence of a fine line between healthy competition and the possibility of unhealthy competition. This chapter presents a stylized description of predatory pricing investigations and details a fictitious case developed in which strategic interaction between two pretzel producers leads to allegations of predatory pricing. It explores the beer and pretzel case to provide direct analogies to air travel markets. The beer and pretzel case illustrates how the characteristics of product differentiation, demand complementary internally flexible capacity within a network of city pairs combine to create special circumstances for competition and predation in air travel markets. The chapter discusses the merits and issues raised by the competition authority's case and by the accused firm's defence. It relates the issues in the case to competition between full service and value-based airlines in air travel markets.
