ABSTRACT
Oligopolists often have difficulty coordinating their behavior. This chapter reviews one of the earliest major models of dynamic behavior, the limit pricing model, and analyzes the possible use of predatory pricing. Maximization of long-run profits requires maximizing the present value of profits, and maximizing the present value of profits requires recognition that current pricing decisions can impact the future behavior of competitors and potential competitors. Despite United Shoe Machinery Corporation's (USM) good behavior, in an antitrust case the government complained that USM’s power resulted from its marketing conduct, and in a 1954 decision the Supreme Court ruled that USM had monopolized the industry. In 1970, regulations prevented out-of-state banks from entering the Pennsylvania market and permitted entry into new markets only through branching by existing Pennsylvania banks and only in a “county contiguous to the county of its home office.”.
